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26 USC TITLE 26 - INTERNAL REVENUE CODE 01/02/2006
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TITLE 26 - INTERNAL REVENUE CODE
-HEAD-
TITLE 26 - INTERNAL REVENUE CODE
-MISC1-
-HEAD-
ACT AUG. 16, 1954, CH. 736, 68A STAT. 3
The following tables have been prepared as aids in comparing
provisions of the Internal Revenue Code of 1954 (redesignated the
Internal Revenue Code of 1986 by Pub. L. 99-514, Sec. 2, Oct. 22,
1986, 100 Stat. 2095) with provisions of the Internal Revenue Code
of 1939. No inferences, implications, or presumptions of
legislative construction or intent are to be drawn or made by
reason of such tables.
Citations to "R.A." refer to the sections of earlier Revenue
Acts.
TABLE I
--------------------------------------------------------------------
1939 Code 1986 Code
section number section number
--------------------------------------------------------------------
1 Omitted
2 7806(a)
3, 4 Omitted
11 1
12(a), (b)(1), (2) Omitted
12(b)(3), (c) 1
12(d) 2
12(e) Omitted
12(f) 1
12(g), 13(a) Omitted
13(b) 11
13(c)-(f), 14 Omitted
15(a), (b) 11
15(c) 1551
21 63
22(a) 61
22(b)(1) 101
22(b)(2)(A) 72
22(b)(2)(B) 72, 403
22(b)(2)(C) 72
22(b)(3)-(5) 102-104
22(b)(6) 107
22(b)(7) 894
22(b)(8) 115, 526, 892, 893, 911, 912,
933, 943
22(b)(9), (10) 108
22(b)(11)-(14) 109, 111-113
22(b)(15) 621
22(b)(16), (17) 114, 121
22(c) 471
22(d)(1)-(5) 472
22(d)(6) 1321, 6155(a)
22(e) 301(a)
22(f) 1001
22(g) 861, 862, 863, 864
22(h) Chapter 1, Subchapter G, Part III
22(i) Omitted
22(j) 76
22(k) 71
22(l) 691
22(m) 73, 6201(c)
22(n) 62
22(o) 75
23 161, 211
23(a)(1)(A), (B) 162
23(a)(1)(C) 263
23(a)(2) 212
23(b) 163, 265
23(c)(1) 164
23(c)(2) Omitted
23(c)(3), (d) 164
23(e)-(i) 165
23(j) 1091
23(k)(1) 166, 593
23(k)(2) 165(g)(1), 166(e), 582
23(k)(3) 165(g)(2)
23(k)(4), (5) 166
23(k)(6) 166, 271
23(l) 167
23(m) 611
23(n) 167
23(o) 170
23(p) 404
23(q) 170
23(r) 591
23(s) 172
23(t) 168, 169
23(u) 215
23(v) 171
23(w) 691
23(x) 213
23(y) Omitted
23(z) 216
23(aa)(1) 141
23(aa)(2) 36
23(aa)(3) 144
23(aa)(4) 4, 142
23(aa)(5)-(7) 142-144
23(bb) 173
23(cc) 616
23(dd) 592
23(ee) 1202
23(ff) 615
24(a) 261
24(a)(1) 262
24(a)(2), (3) 263
24(a)(4), (5) 264, 265
24(a)(6) 264
24(a)(7) 266
24(b), (c) 267
24(d) 273
24(e) 1451
24(f) 268
25(a) 35
25(b)(1) 151
25(b)(2) 153
25(b)(3) 152
26 241
26(a) 242
26(b)(1)-(3) 243-245
26(b) 246
26(c) 545, 556
26(d) 535, 545, 601
26(e) Omitted
26(f) 561, 562, 564
26(g) 565
26(h) 247
26(i) 922
27(a) 561
27(b) 535, 562
27(c)-(i) 562, 564
28 565
31 33
32 32
33 6401
34 Omitted
35 31
41 441, 446
42(a) 451
42(b)-(d) 454
43 461
44 453, 7101
45 482
46 442
47 443, 6011(a)
48 441, 7701
51 6001, 6011(a)
51(a) 6001, 6012(a), 6065(b)
51(b) 6012(b)(1), 6013(a), 6014(b)
51(c) 6012(b)
51(d) Omitted. See 6064.
51(e) 6065(a)
51(f) 6014(a), (b), 6151(a), (b),
6155(a)
51(g) 6012(b), 6013(b), 6653(a), 6659
52 6012(a), (b), 6062
53 6072, 6081, 6091
54(a)-(b) 6001
54(c)-(e) Omitted
54(f) 6033(a), 6065(b)
55 6103, 7213(a)
56(a) 6151(a)
56(b) 6152, 6601(c)(2)
56(c) 6161(a), 6162(a), 6165, 7101
56(d)-(f) Omitted
56(g) 6313
56(h) Omitted
56(i) 6151(b)
56(j), 57 Omitted
58 6012(b), 6015, 6064, 6065,
6073(a), (c), 6081(a), 6091(b),
6103, 6161(a)
59(a)-(c) 6153
59(d) 6201(b), 6315, 6601(g)
60 6015(g), 6073(b), (d), (e),
6091(b), 6153(b), (d), (e)
61 Omitted
62 7805
63 6108
64 7701
101(1)-(11), (13)-(19) 501
101(12) 521, 522
101 502
102(a) 531, 532
102(b), (c) 533
102(d), (e) 535, 541
102(f) 536
103 891
104(a) 581
104(b) 11
105 632
106 1347
107(a), (b) 1301, 1302
107(c) 1304(a)
107(d) 1303
107(e) 1304(b)
108 21
109 921
110 594
111 1001
112(a) 1002
112(b)(1) 1031
112(b)(2) 1036
112(b)(3) 354, 355
112(b)(4) 361
112(b)(5) 351
112(b)(6) 332
112(b)(6)(D) 7101
112(b)(7) 333
112(b)(8) 1081
112(b)(9) 373
112(b)(10) 371
112(b)(11) 355
112(c) 351, 356, 371, 1031
112(d) 361, 371
112(e) 351, 356, 361, 371, 1031
112(f) 1033
112(g), (h) 368
112(i) 367
112(j) Omitted
112(k) 357, 371
112(l) 371
112(m) 1071
112(n) 1034
113(a) 1012
113(a)(1) 1013
113(a)(2)-(4) 1015
113(a)(5) 1014
113(a)(6) 358, 1031
113(a)(7), (8) 362
113(a)(9) 1033
113(a)(10) 1091
113(a)(11), (12) 1051, 1052
113(a)(13) 723, 732
113(a)(14) 1053
113(a)(15) 334
113(a)(16) 1052
113(a)(17) 1082
113(a)(18) 334
113(a)(19) 307
113(a)(20), (21) 373
113(a)(22) 372
113(a)(23) 358
113(b) 1011
113(b)(1), (2) 1016
113(b)(3), (4) 1017, 1018
113(c), (d) 1019, 1020
113(e) 1022
114(a) 167(f)
114(b)(1) 612
114(b)(2) Omitted
114(b)(3) 613(b)(3)
114(b)(4) 613(b)(4)
115(a) 301, 316
115(b) 301, 316
115(c) 302, 312, 331, 342
115(d), (e) 301
115(f) 305
115(g)(1) 302
115(g)(2) 304
115(g)(3) 303
115(h) 312
115(i) 302, 346
115(j) 301
115(k) Omitted
115(l), (m) 312
116(a) 911
116(b) Omitted
116(c) 892
116(d), (e) 115
116(f) 943
116(g) 526
116(h) 893
116(i) 121(a)(17)
116(j), (k) 912
116(l) 933
117(a) 1221, 1222
117(b) 1202
117(c) 1201
117(d) 1211
117(e)(1) 1212
117(e)(2) Omitted
117(f) 1232
117(g)(1), (2) 1233, 1234
117(g)(3) 1238
117(h) 1223
117(i) 582
117(j) 1231
117(k) 631
117(l) 1233
117(m) 341
117(n) 1236
117(o), (p) 1239, 1240
118 1091
119(a), (b) 861
119(c), (d) 862
119(e) 861, 862, 863
119(f) 864
120 170
121 583
122 172
123 77
124 Omitted
124A, 124B 168, 169
125 171
126 691
127(a), (b) Omitted
127(c)(1)-(5) 1331-1335
127(d) 1336
127(e), (f) 1337
128 1346
129, 130 269, 270
130A 421
131(a) 901
131(b) 904
131(c) 905, 6155(a), 7101
131(d), (e) 905
131(f) 902
131(g) 901(c)
131(h) 903
131(i) 905
141 1501-1505, 6071, 6081(a),
6091(b)(2), 6503(a)(2)
142 6012(a), (b), 6065(a)
143(a) 1451
143(b) 1441
143(c) 1461, 6011(a), 6072(a), 6091(b),
6151(a)
143(d), (e) 1462, 1463
143(f) 1464, 6414
143(g) 1461
143(h) 1443, 6151
144 1442, 6151(a)
145 7201, 7202, 7203, 7343
146 443, 6155(a), 6601(a), 6658,
6851, 7101
147 6041(b), (c), 6071, 6081(a),
6091(a)
148 6042, 6043, 6044, 6065(a), 6071,
6081(a), 6091(a)
149 6045, 6065(a), 6071, 6081(a),
6091(a)
150 6071, 6081(a), 6091(a), 7001(a),
7231
151 Omitted
153(a) 6033(b), 6071, 6081(a), 6091(a)
153(b) 6034, 6071, 6081(b), 6091(a)
153(c) 6104
153(d) 7201, 7203
154 692
161 641
162(a) 642(c)
162(b) 651, 652, 661, 662
162(c) 661
162(d) 643, 663
162(e), (f) 642
162(g) 681
163(a)(1), (2), (b) 642
163(c) 642(a)(1)
164 652, 662
165(a) 401, 501(a)
165(b)-(d) 402
166, 167 676, 677
168 642
169(a)-(c) 584, 6065
169(d)(1)-(4), (e) 584
169(f) 6032, 6065(a)
169(g) 584
170 584, 642
171 682
172 642
181, 182 701, 702
183(a), (b) 702, 703
183(c) 702
183(d) 703(a)
184, 186 702
187 6031, 6063, 6065(a)
188 706
189 702, 703
190 Omitted
191 704
201(a)(1) 802
201(a)(2), (3) 807
201(b) 801
201(c)(1)-(7) 803(a)-(g)
201(d)-(f) 803(h)-(j)
201(g), 202(a) Omitted
202(b) 804(a)
202(c) 806
203 Omitted
203A 805
204(a)(1) 831(a)
204(a)(2) 831(b), 832
204(a)(3) 831(b)
204(b)(1) 832(b)(1)
204(b)(2) 832(a)
204(b)(3)-(7) 832(b)(2)-(6)
204(c)-(e) 832(c)-(e)
204(f) 832(c)(12)
205, 206 841, 842
207(a)(1), (2) 821(a)
207(a)(3), (4) 821(b), (c)
207(a)(5) 822(e)
207(a)(6) 821(d)
207(b)(1) 822(a), (b)
207(b)(2), (3) 823(1), (2)
207(b)(4) 822(a)
207(b)(4)(A)-(F) 822(c)
207(c), (d) 822(d)(1), (2)
207(e) 822(e)
207(f) 822(d)(3)
207(g), 208 Omitted
211, 212 871, 872
213(a)-(c) 873
213(d) 142(b)(1)
214 873
215 874, 6011(a), 6065(b)
216 874
217 6011(a), 6012(a), 6072(c)
218(a) 6151(a)
219 875
220 876
221 877
231(a) 881
231(b), (c) 882(a), (b)
231(d) 883
232(a), (b) 882
233 882, 6065(a)
234 882
235(a) 882, 6011(a), 6072(c)
235(b) 6012(a)
236(a) 6151(a)
236(b) 884(1)
237 884(3)
238 884(4)
251 931, 6011(a)
252 932
261 11
262 941
263 942
265 943
271 6211, 6653(c)(1)
272(a) 6212(a), (b)(2), 6213(a)
272(b) 6155(a), 6215(a)
272(c) 6155(a), 6213(c)
272(d) 6213(d)
272(e) 6214(a)
272(f) 6212(c), 6213(b)(1)
272(g), (h) 6214(b), (c)
272(i) 6152(c), 6601(c)(2)
272(j) 6161(b), 6165, 7101
272(k) 6212(b)
273(a)-(i), (k) 6155, 6861, 6863(a), (b), 7101
273(j) 6404(b)
274 6036, 6155(a), 6161(c), 6503(b),
6871, 6872, 6873
275 6501
276 6501(c), 6502(a)
277 6503(a)
291 6651(a), 6659
292 6155(a), 6601
293 6653(a), (b), 6659
294 6601, 6651(c), 6654(a)
295-298 6601
299 6658
311, 312 6901, 6903
313 Omitted
321 6403
322(a)(1)-(3) 6401, 6402
322(a)(4) 31
322(b)(1)-(3) 6511
322(b)(4) 6151(c), 6513(a), 6611(d)
322(b)(5), (6) 6511(d)
322(c) 6512(a)
322(d) 6512(b)
322(e) 6151(c), 6513(b), 6611(d)
322(f) Omitted
322(g) 6511(d)
331-334 552-555
335, 336(a)-(c) 556
336(d) 557
337 551
338 6035(a)
339 6035(b)
340 7201, 7203
361 851
362 852, 855
371-373 1081-1083
391-393, 394(a)-(c) Omitted
394(d) 312
394(e), (f), 395, 396 Omitted
400 3
401, 402 4
403 36
404 4
421(a), (b) 501, 511
421(c), (d) 512
422(a) 512
422(b), 423, 424 513, 514, 515
480, 481 1401, 1402
482 1403, 6017
500-503 541-544
504(a), (b) 545
504(c) 562, 563
504(d) Omitted
504(e) 545
505(a)-(c) 545
505(d) Omitted
505(e) 546
506(a)-(h) 547
506(i), (j), 507(a) Omitted
507(b) 543
508 Omitted
509 531
510 Chapter 1, Subchapter G, Part III
511 6103, 7213(a)
650, 651 1471
722(g) 6105
800 2001, 2101
801, 802 Omitted
810 2001(a), 2011(a), (b)
811 2031(a)
811(a), (b) 2033, 2034
811(c) 2035, 2036, 2037
811(d)(1) 2038(a)(1)
811(d)(2) 2038(a)(2)
811(d)(3) 2038(b)
811(d)(4) Omitted
811(e)-(g) 2040-2042
811(h) 2044
811(i) 2043(a)
811(j) 2032
811(k), (l) 2031(b), 2035
811(m) Omitted
812 2051
812(a) Omitted
812(b) 2043(b), 2053, 2054
812(c) 2013
812(d), (e) Omitted. See 2055, 2056.
813(a)(1) Omitted
813(a)(2) 2012
813(b) 2011
813(c) 2014
820 6036, 6091(a)
821(a) 6018, 6065(a)
821(b) 6071, 6075(a), 6081(a)
821(c) 6091(b)
821(d) 6001
821(e) Omitted
822(a)(1) 6151(a)
822(a)(2) 6161(a)(2), 6165, 6503(d), 7101
822(b) 2002
823 6314(b)
824 Omitted
825 2204
826(a) 7404
826(b)-(d) 2205-2207
827(a) 6324(a)(1), 6325(a)(1)
827(b), (c) 6324(a)(2), (3)
828, 840, 841 Omitted
850 2202
851 Omitted
860 2101
861 2102, 2103, 2106
862, 863 2104, 2105
864(a) 6018, 6065(a)
864(b) 6071, 6075(a), 6081(a)
864(c) 6091(b)
865 Omitted
870 6211(a), 6653(c)(1)
871(a) 6212(a), 6213(a)
871(b) 6155(a), 6215(a)
871(c) 6155(a), 6213(c)
871(d), (e) 6213(d), 6214(a)
871(f) 6212(c), 6213(b)
871(g) 6214(c)
871(h) 6161(b)(2), 6165, 6503(d), 7101
871(i) 6155(a), 6653(b), 6659(a)
872(a) 6155(a), 6861(a)
872(b)-(e) 6861(b)-(e)
872(f) 6863(a), (b)(2), 7101
872(g) 6155(a), 6863(b)(1)
872(h) 6863(a), (b)(2)
872(i) 6155(a), 6861(f)
872(j) 6861(g)
873 6404(b)
874(a) 6501(a)
874(b)(1) 6501(c)(1), (3)
874(b)(2) 6502(a)
874(b)(3) 2016, 6071, 6081, 6091, 6155
875 6503(a)(1)
876 Omitted
890 6601(a), (b), (f)(1)
891 6155(a), 6601(a), (d), (f)(1)
892 6601(a), (c)(3)
893 6601(a), (c), (f)
894(a) 6651(a), 6653(a)
894(b) 7201, 7202, 7203, 7207, 7269,
7343
900(a) 6901(a), (b)
900(b), (c) 6901(c), (f)
900(d) 6904, 7421(b)
900(e) 6901(h)
901(a), (b) 6903(a)
901(c) 6903(b)
901(d) 6212(b)
910, 911, 912 6511, 6512(a), (b)
913, 920, 921 Omitted
925 6163(a), 6601(a), (b)
926 6163(a), 7101
927 2015
930(a) 2203
930(b)-(d), 931 Omitted
935 2001, 2052, 2101
936(a) Omitted
936(b), (c) 2012, 2014
937 6018(a), 7203
938 6103
939 2201
1000(a) 2501
1000(b) 2511(a)
1000(c) 2514
1000(d), (e) Omitted
1000(f) 2513
1000(g) Omitted
1001(a), (b) 2502(a), (c)
1001(c) Omitted
1002 2512(b)
1003 2503
1004(a)(1)-(3) 2521-2523
1004(b), (c) 2522, 2524
1005 2512(a)
1006(a) 6019(a), 6065(a)
1006(b) 6075(b), 6091(b)(1)
1007 6001
1008(a) 2502(d), 6151(a)
1008(b) 6161(a)(1)
1008(c) Omitted
1008(d) 6313
1008(e) 6314(a)
1009 6324(b), 6325(a)(1)
1010 Omitted
1011 6211(a), 6653(c)(1)
1012(a) 6212(a), 6213(a)
1012(b) 6155(a), 6215(a)
1012(c) 6155(a), 6213(c)
1012(d) 6213(d)
1012(e) 6214(a)
1012(f) 6212(c), 6213(b)
1012(g), (h) 6214(b), (c)
1012(i) 6161(b)(1), 6165, 7101
1012(j) 6212(b)
1013(a) 6155(a), 6861(a)
1013(b)-(e) 6861(b)-(e)
1013(f) 6863(a), (b)(2), 7101
1013(g) 6155(a), 6863(b)(1)
1013(h) 6863(a), (b)(2)
1013(i) 6155(a), 6861(f)
1013(j) 6861(g)
1014 6404(b)
1015(a) 6871
1015(b) 6155(a), 6161(c), 6503(b),
6873(a)
1016 6501, 6502(a)
1017 6503(a)(1)
1018 Omitted
1019 6653, 6659(b)
1020 6601(a), (f)(1)
1021 6155(a), 6601(a), (d), (f)(1)
1022 6601(a), (c)(3)
1023 6601(a), (c)(1), (f)(1)
1024(a) 7201, 7203
1024(b) 7201
1025(a) 6901(a), (b)
1025(b)-(d) 6901(c), (e), (f)
1025(e) 6904, 7421(b)
1025(f) 6901(h)
1025(g) 6901(g)
1026(a) 6903(a)
1026(b) 6903
1026(c) 6903(b)
1027(a) 6402(a)
1027(b) 6511(a), (b)
1027(c), (d) 6512(a), (b)
1028 Omitted
1029 7805(a)
1030(a) 2502(b)
1030(b) 2511(b)
1031 6103
1100, 1101 7441, 7442
1102(a)-(g) 7443(a)-(g)
1103(a)-(d) 7444(a)-(d)
1104-1106 7445-7447
1110, 111 7451, 7453
1112, 1113 7454(a), 7455
1114(a), (b) 7456(a), (c)
1115(a), (b) 7457(a), (b)
1116 7458
1117(a)-(f) 7459(a)-(f)
1117(g) 6155(a), 6659, 6673
1117(h) Omitted
1118 7460
1119, 1120, 1121 6902, 7461, 7462
1130-1133 7471-7474
1140-1143 7481-7484
1144 Omitted
1145 7101, 7485(a)
1146 7486
1250-1252 1491-1493
1253 1494, 6071, 6081(a), 6091(a),
6151(a)
1400 3101
1401(a), (b) 3102(a), (b)
1401(c) 6205(a), 6413(a)(1)
1401(d)(1), (2) Omitted
1401(d)(3), (4) 6413(c)(1), (2)
1402 3502
1403 6051(a)
1410 3111
1411 6205(a), 6413(a)
1412 3112
1420(a) 3501
1420(b) 6601(a), (f)(1)
1420(c) 6011(a), 6071, 6081(a), 6091(a),
6302(b)
1420(d) 6313
1420(e) 3122
1421 6205(b), 6413(b)
1422 3503
1423(a) 6802(1)
1423(b), (c) 6803(a)(1), (2)
1424 7509
1425(a) 7209
1425(b) 7208(1)
1426(a)-(e) 3121(a)-(e)
1426(f) 7701(a)(1)
1426(g)-(l) 3121(f)-(k)
1427, 1428 3123, 3124
1429 7805(a), (c)
1430, 1431 Omitted
1432 3125
1500 3201
1501(a), (b) 3202(a), (b)
1501(c) 6205(a)(1), 6413(a)(1)
1502 6205(b), 6413(b)
1503 3502(a)
1510, 1511, 1512 3211, 3212, 3502
1520 3221
1521 6205(a)(1), 6413(a)(1)
1522 6205(b), 6413(b)
1530(a) 3501
1530(b) 6011(a), 6071, 6081(a), 6091(a),
6151(a)
1530(c) 6601(a), (f)(1)
1530(d) 6313
1531 3503
1532(a)-(e) 3231(a)-(e)
1532(f) 7701(a)(9)
1532(g), (h) 3231(f), (g)
1532(i) 7701(a)(1)
1534 3232
1535 7805(a), (c)
1536, 1537 Omitted
1538 3233
1600 3301
1601(a)-(c) 3302
1601(d) 6413(d)
1602 3303
1603 3304
1604(a) 6011(a), 6065, 6071, 6091(b)(1),
(2)
1604(b) 6081(a)
1604(c) 6106
1605(a) 3501
1605(b) 6601(a), (f)(1)
1605(c) 6152(a)(3), (b), 6155(a),
6601(c)(2)
1605(d) 6161(a)(1)
1605(e) 6313
1606 3305
1607(a)-(j) 3306(a)-(j)
1607(k) 7701(a)(1)
1607(l)-(o) 3306(k)-(n)
1608 3307
1609 7805(a), (c)
1610 Omitted
1611 3308
1621 3401
1622(a), (b) 3402(a), (b)
1622(c)(1)(A) Omitted
1622(c)(1)(B), (2)-(5) 3402(c)
1622(d) 3402(d)
1622(e) 3502(b)
1622(f)(1) 6414
1622(f)(2) 6401, 6402
1622(g)-(k) 3402(e)-(i)
1623 3403
1624 3404, 6011(a)
1625(c) 6081(a)
1626(a) 7204
1626(b) 6674
1626(d) 7205
1627 Omitted
1631 6651(a)
1632 3504
1633(a), (b) 6051(a)-(d)
1633(c) 6081(a)
1634(a) 7204
1634(b) 6659, 6674
1635(a) 6501(a)
1635(b) 6501(c)(1), (3)
1635(c) 6501(c)(2)
1635(d) 6502(a)
1635(e) 6501(b)(2)
1635(f), (g) Omitted
1636(a)(1) 6511(a), (b)(1)
1636(a)(2) 6511(b)(2)
1636(b) Omitted
1636(c) 6513(c)
1636(d), (e) Omitted
1650 4001, 4011, 4021, 4471
1651 4031
1652-1655 Omitted
1656(a), (b), (c) 5063(a), (b), (c)
1657-1659 Omitted
1700 4231, 4232, 6011(a)
1701 4233
1702, 1703 4234
1704 4232
1710 4241
1711 4243
1712 4242
1715(a) 4291
1715(b), (c) 6151(a)
1715(d) 6415(b), (c), (d), 6416(a)
1716(a) 6011(a), 6065(a)
1716(b) 6071, 6081(a)
1716(c) 6091(b)(1), (2)
1717 6601(a), (f)(1)
1718(a) 7201, 7203
1718(b) 7201, 7202
1718(c) 6659, 6671(a), 6672
1718(d) 6671(b), 7343
1719 6302(b)
1720 6001
1721-1723 Omitted
1800 4301, 4311, 4321
1801 4311, 4312, 4314, 4315, 4381
1802 4301, 4302, 4304, 4321, 4322,
4323, 4341, 4342, 4343, 4344,
4351, 4352, 4353, 4381
1804 4371, 4372, 4373
1805 4891, 4892, 4894, 4895, 4896,
7701(a)(1)
1807 4451
1808 4303, 4373, 4382
1809 4383, 4454, 4893, 6201(a)(2),
6801(a), (b)
1815 6804
1816 Omitted
1817(a)-(c) 6802(1)-(3)
1818(a) 6803(b)(1), 7101
1818(b) 6803(b)(2)
1819 Omitted
1820 7271(2), (3)
1821(a)(1) 7201, 7203
1821(a)(2) 7201, 7202
1821(a)(3) 6653(e), 6659, 6671(a), 6672
1821(a)(4) 6671(b), 7343
1821(b)(3) 4374, 7270
1821(b)(4) 7201
1822 7208(3), 7271(1)
1823 7303(1)
1823(a)-(c) 7208(2)-(4)
1830 4453
1831 4452, 4455, 7272
1832 4456
1835 6001
1836-1838 Omitted
1850 4286
1851 4291
1852(a) 6011(a), 6065(a), 6071
1852(b) 6091(b)(1), (2)
1853(a), (b) 6151(a)
1853(c) 6601(a), (f)(1)
1854 6415(a), (b), (d)
1855, 1856 Omitted
1857 4287
1858, 1859 Omitted
1900, 1901, 1902 4881, 4883, 4884
1902(a)(1) 6011(a), 6065(a), 6071
1902(a)(2) 6091(b)(1), (2)
1902(a)(3), (b) 6151(a)
1903 4885
1904 Omitted
1905, 1906 4882, 4883
1907 Omitted
1920(a), (b) 4851(a), (b)
1920(c) 4871, 6804
1921 4861
1922 4863
1923 4864
1924 4865
1925 4853, 7492
1926 4854
1927 4862
1928 4872, 6001
1929(a) 7233(1), (2)
1929(b) 7263(b)
1929(c) 7263(a)
1930 4874, 7493
1931 4852, 7701(a)(1)
1932 4873
1933 4876
1934 Omitted
1935 4875
2000(a), (b) 5701(a)
2000(c)(1), (2) 5701(b), (c)
2000(d) 5701(d), (e)
2000(g)(1)-(3) 5707(a)-(c)
2001(a) 5703(a)
2002(b) 5703(d)
2002(c) 5703(a)
2010 5702(b)
2012 5712
2013 5711(a), (b)
2014 5713(a), (b)
2017 5721
2018 5741
2019 5722
2030 5702(e)
2032 5712
2033 5711(a), (b)
2036 5721
2037 5741
2038 5722
2039(a) 5711(a), (b)
2039(b) 5722, 5741
2040 5704(c)
2050 5702(b)(1)
2052 5712
2053 5711(a), (b)
2054 5713(a), (b)
2055 Omitted
2056 5741
2057 Omitted
2058 5732
2059, 2060 5731
2070-2075 Omitted
2100(a), (b) 5723(a)
2100(c)(1) 5723(d)
2100(c)(2) 5723(a)
2100(d) 5723(b), (c)
2100(e) 5723(a)
2101 5704(c)
2102 5723(a)
2103(a)(1) 5723(a)
2103(e) 5752
2104(a) 5751(a)
2110(a), (b) 5702(c), (d)
2111(a)(1), (2) 5723(a)
2111(a)(3) 5723(d)
2111(b) 5723(a)
2111(c) 5723(b), (c)
2111(d), (e)(1) 5723(a)
2111(e)(2) 5723(d)
2111(f) 5704(a), 5723(d)
2112(a)(1) 5723(a)
2112(e) 5752
2113 5751(a)
2130(a), (b) 5723(a), 5762(a)(4), (6)
2130(c) 5723(a), 5762
2130(d) 5704(d)
2135(a)(1), (2) 5704(b), (c)
2135(a)(3) 5704(b)
2136(a) 5706
2137 5705(a)
2150 Omitted
2151 5762(a)(5)
2152-2154 Omitted
2155(a) 5762(a)(4), (5)
2155(b) 5763(a)
2156(a) 5762(a)(2), (3)
2156(b) 5762(a)(3)
2156(c) 5761(b)
2160(a) 5762(a)(4)
2160(b)-(d) 5762(a)(5)
2160(e) 5762(a)(6)
2160(g)(1), (2) 5762(a)(8), (9)
2160(g)(3) 5762(a)(6)
2160(h) 5763(a)
2160(i) 5762(a)(9), (10)
2161(a) 5762(a)(1)
2161(b) 5763(c)
2161(c) 5762(a)(1)
2161(e)-(g) 5762(a)(2)
2161(h) 5763(b)
2161(i)(1) 5763(b)
2161(j)(1) 5763(b)
2161(l)(1) 5763(b)
2161(m)(1) 5761(a)
2161(m)(2) 5763(b)
2162(a)(2) 5762(a)(1)
2162(a)(3)-(5) 5762(a)(2)
2162(b)(1) 5762(a)(4), (5)
2163 Omitted
2170(a)(2) 5751(a), 5762(a)(5)
2170(a)(4) 5762(a)(6)
2170(b) 5762(a)(5), 5763(a)
2171(a) 5763(a)
2171(b)(1) 5762(a)(4)
2171(b)(2) 5762(a)(4), (5)
2172(a) 5762(a)(8)
2172(b) 5762(a)(6)
2172(c) 5762(a)(9)
2172(d) 5762(a)(6)
2172(e), (f) 5762(a)(9)
2173(a), 2174 5762(a)(5)
2175 5763(a)
2176(a)(2) 5762(a)(10)
2176(a)(3) 5762(a)(8)
2180(a) 5762(a)(1)
2180(b) 5763(c)
2180(d)-(f) 5762(a)(2)
2180(g)(1) 5763(b)
2180(h) 5763(b)
2180(i)(1) 5763(b)
2180(k)(1) 5763(b)
2180(l)(1) 5761(a)
2180(l)(2) 5763(b)
2181 Omitted
2190 5753
2191-2193 Omitted
2194 5703(a), 5722, 5741
2197(b) 5704(b)
2198 5705(a)
2300 4592, 4593
2302 4594, 4596, 6001, 7101, 7641
2303 4595, 4597, 6001
2304 4595
2305 4813
2306 4591, 4812
2307 4593, 4816
2308(a) 7234(a)
2308(b) 7265(a)(1)
2308(c) 7234(b)
2308(d) 7234(d)(4)
2308(e) 7265(b)
2308(f) Omitted
2308(g) 7234(d)(2)
2308(h), (i) 7234(c), (d)
2308(j) 7265(c)
2309 7303(2), (3), (5)
2310 Omitted
2311 4591, 4818
2312-2314 Omitted
2320 4826
2321 4811, 4813
2322 4814, 4826, 6001, 7101, 7641
2323 4815, 4826
2324 4815, 6001
2325 4817
2326(a) 7235(a), 7265(a)
2326(b), (c) 7235(b), (c)
2327 4812, 4813, 4816, 4818, 7235(e),
7265(b), (c)
2350 4846
2351 4831, 4832, 6201(a)(2)(A)
2352 4833, 4846, 6001, 7101, 7641
2353, 2354 4834, 4846
2355 4832
2356 4831, 4832
2357 7236, 7266(b)-(f)
2358 7303(2), (4), (5)
2359 Omitted
2360 4835
2361 4832
2362 Omitted
2400 4001, 4003
2401 4011, 4012
2402 4021, 4022
2403(a) 6011(a), 6065(a), 6071, 6081(a),
6091(b)(1), (2)
2403(b) 6151(a), 6601(a), (f)(1)
2403(c) 4051
2404, 2405 4052, 4053
2406 4055, 4056
2407 6416(a), (b)
2408 Omitted
2409 7261
2410, 2411 Omitted
2412 4002, 4003, 4012, 4013
2413 4054
2450 4041
2451(a) 6011(a), 6071, 6081(a),
6091(b)(1), (2), 6151(a)
2451(b) 6151(a), 6601(a), (f)(1)
2452(a) 6416(b)(2)(D)
2452(b) 6416(a)
2453 4055, 6416(b)(2)(A)
2454, 2455 Omitted
2456 4222
2470 4511, 4513
2471 6011(a), 6065(a), 6071, 6081(a),
6091(b)(1), (2)
2472 6151(a)
2473 6417(a)
2474 4513, 6417(b), 7101
2475 6601(a), (f)(1)
2477 4512
2478, 2479 Omitted
2480 7809(a)
2481, 2482 Omitted
2483 7654
2490 4561, 4571, 4581
2491 4561, 4562, 4571, 4572, 4581,
4582
2492 4582, 4602
2493 4601
2494 Omitted
2550 4701, 4771
2550(c) 6302(b)
2551 4702
2552 4703, 4771
2553 4704, 4723
2554 4705
2555 4732, 6001
2555(a) 6065(a)
2555(b) 6071
2555(c) 6065(a), 6071
2555(c)(1) 6081(a), 6091(a)
2556 4773
2557(a) 7237(b)
2557(b)(1) 7237(a)
2557(b)(2) 7201, 7203
2557(b)(3) 7201, 7202
2557(b)(4) 6671(a), 6672
2557(b)(8) 6671(b), 7343
2558 4706, 4733, 7301(a)
2559, 2560 Omitted
2561 4734
2562 4736
2563 4774
2564 4735
2565 Omitted
2567 4711, 4712
2568, 2569 4712, 4713
2569(b) 7101
2569(d) 6001
2569(d)(4) 7641
2570 7238
2571 4714, 7301(a)
2590 4741, 4771
2591 4742
2592 4743, 4771
2593 4744
2594(a) 6001
2595 4773
2596 7237(a)
2597 7491
2598 4745, 7301(a)
2599, 2600 Omitted
2601 4756
2602 4774
2603 4762
2604, 2606 Omitted
2650 4802
2651 4801, 4803
2651(c)(2) 6201(a)(2)(A)
2652(a) 6801(a)
2653 4804
2653(b) 6001, 7641
2653(d) 7101
2654, 2655 4805
2656 7274
2656(a) 7206(4)
2656(b) 7239(a)
2656(c) 7271(1), 7303(6)(B)
2656(d) 7239(b)
2656(f) 7201
2656(g) 7272
2656(h) 7267(d)
2656(i) 7267(c)
2656(j), (k) 7267(a), (b)
2657(a), (b) 7303(6)(B)
2657(c) 7303(6)(A)
2657(d) 7328
2657(e) 7301(c)
2657(f) 7303(6)(B)
2658 Omitted
2659 4803
2660 Omitted
2700 4181, 4182, 4224, 5831
2701 6011(a), 6065(a), 6071, 6081(a),
6091(b)(1), (2)
2702 6151(a)
2703(a) 6416(f)
2704 4216
2705 4225, 6416(e)
2706 6601(a), (f)(1)
2707(a) 6671(a), 6672
2707(b) 7201, 7203
2707(c) 7201, 7202
2707(d) 6671(b), 7343
2708 6302(b)
2709 6001
2710-2712 Omitted
2720-2723 5811-5814
2724 5842, 6001(a)
2725 5843
2726(a)-(c) 5851-5853
2727, 2728 5844, 5845
2729 5861
2730(a), (b) 5862(a), (b)
2731-2733 5846-5848
2733(a) 7701(a)(1)
2734 5821
2734(e) 6071, 6091(a)
2800(a) 5001(a)(9) (Rev. See 5001(a)(8))
2800(a)(1) 5001(a)(1), 5005(a), 5006(a)
2800(a)(1)(A) 5026(a)(1), 5007(a)
2800(a)(1)(B) 5689
2800(a)(2) 5001(a)(2)
2800(a)(3) 5001(a)(3), 5007(b)(2)
2800(a)(4) 5001(a)(4) (Rev. See
5001(a)(10)), 5007(c) (Rev. See
7652, 7805)
2800(a)(5) 5021(a), 5025(b)
2800(a)(6) 5001(a)(5) (Rev. See 5001(a)(4))
2800(b)(2) 5006(c)
2800(c) 5001(b)
2800(d) 5005(b)
2800(e)(1) 5004(a)(1)
2800(e)(2) 5004(a)(2) (Rev. See 5004(b)(2))
2800(e)(3) 5004(a)(3) (Rev. See 5004(b)(3))
2800(e)(4) 5004(a)(4) (Rev. See 5004(b)(4))
2800(f) 5006(d), 5007(b)(1)
2801(b) 5021(b) (Rev. Omitted)
2801(c)(1) 5391
2801(c)(2) 5025(e) (Rev. See 5025(f))
2801(d) 5281 (Rev. See 5201(a))
2801(e) 5025
2801(e)(1) 5272(a) (Rev. See 5173(a), (d)),
5281(a) (Rev. See 5201(a))
2801(e)(2) 5273(a) (Rev. See 5178(a)), 5627
(Rev. See 5687))
2801(e)(3) 5386(b), 5391
2801(e)(4) 5386(a)
2801(e)(5) 5023 (Rev. See 5687)
2801(f) 5628 (Rev. See 5601(a)(10), 5687)
2802(a) 5009(a) (Rev. See 5205(c)(1),
(f), 5206(c)), 5010(a) (Rev. See
5205(e))
2802(b) 5010(b) (Rev. See 5205(f))
2802(c) 5027(a) (Rev. See 5061, 5205)
2803(a) 5008(b)(1)(E) (Rev. See
5205(c)(2))
2803(b) 5008(b)(3) (Rev. See 5205(g))
2803(c) 5008(b)(4)
2803(d) 5008(b)(2) (Rev. See 5205(g))
2803(e) 5008(b)(5)
2803(f) 5640 (Rev. See 5613(b))
2803(g) 5642 (Rev. See 5604(a)(1),
(4)-(6), (10), (12)-(15), (b))
2804 5211 (Rev. See 5311)
2805(a) 5688(a)
2805(b) 5688(b)
2806(a)(1), (2) 5634 (Rev. See 5601(a)(13),
5615(7))
2806(b)(1) 5645 (Rev. See 7214)
2806(c) 5625 (Rev. See 5612(a))
2806(d) 5639 (Rev. See 5613(a))
2806(e) 5646 (Rev. See Subtitle F)
2806(f) 5626 (Rev. See 5602, 5615(3))
2806(g) 5687 (See 7301, 7302)
2807 5622 (Rev. See 5610)
2808(a) 5212(a) (Rev. See 5204(b))
2809(a) 5002(a) (Rev. See 5002(a)(5))
2809(b)(1) 5002(b)(1) (Rev. See
5002(a)(6)(A))
2809(b)(2) 5002(b)(2) (Rev. See
5002(a)(6)(B))
2809(c) 5002(c) (Rev. See 5002(a)(7))
2809(d) 5002(d) (Rev. See 5002(a)(8))
2810(a) 5174(a) (Rev. See 5179(a),
5505(d)), 5601 (Rev. See
5505(i), 5601(a)(1), 5615(1))
2811 5213(a), 5609
2812(a) 5175(a) (Rev. See 5171(a),
5172), 5271 (Rev. See 5171(a),
(c), 5172, 5178(a)(1)(A),
(4)(B)-(D)), 5603 (Rev. See
5601(a)(2), (3))
2813(a) 5282 (Rev. See 5201(a), 5202(a),
5204(a), (c), 5205(d), 5206(c),
5251)
2814(a)(1) 5176(a), (c) (Rev. See 5173(a),
(b), 5176(a)), 5177(c) (Rev. See
5173(b)(1), 5551(c)), 5604 (Rev.
See 5601(a)(4), (5), 5615(3))
2814(a)(2) 5176(d) (Rev. See 5173(b))
2815(a) 5177(a), 5605 (Rev. See 7214)
2815(b)(1)(A) 5177(b)(1) (Rev. See
5173(b)(1)(A))
2815(b)(1)(B) 5177(b)(2) (Rev. See
5173(b)(1)(B))
2815(b)(1)(C) 5177(b)(3) (Rev. See
5173(b)(1)(C))
2815(b)(1)(D) 5177(b)(4) (Rev. See 5173(b)(3))
2815(c)-(e) 5551(a), (b)(1), (c)
2816(a) 5178 (Rev. See 5171(a), 5172)
2817(a) 5179(a) (Rev. Omitted)
2817(b) 5179(b) (Rev. Omitted)
2818(a) 5105(a)
2818(b) 5602 (Rev. See 5615(2), 5687)
2819 5171 (Rev. See 5178(a)(1)(B),
(b), (c)(2), 5505(b),
5601(a)(6)), 5607 (Rev. See
5505(i), 5601(a)(6))
2820(a) 5173(b) (Rev. See 5178(a)(2)(B),
5202(b)), 5192(b) (Rev. See
5202(b)), 5193(a) (Rev. See
5201(a), 5202(f), 5204(a),
5205(b), 5206(a), (c), 5211)
2821 5682
2822(a) 5173(a) (Rev. See 5178(a)(1)(A),
(2)(C)), 5618 (Rev. See 5687)
2823(a) 5173(c) (Rev. See 5173(a)(2)(C))
2824 Omitted
2825 5215 (Rev. See 5201(c), 5312(a),
(c), 5373(a), 5562)
2826(a) 5196(a) (Rev. See 5203(a)), 5617
(Rev. See 5687)
2827(a) 5196(b) (Rev. See 5203(b)), 5616
(Rev. See 5687)
2828(a) 5196(c) (Rev. See 5203(c)), 5283
(Rev. See 5203(c), (d)), 5615
(Rev. See 5203(c), (e), 5687)
2829(a) 5552 (See 5503, 5505(e))
2830(a) 5196(d) (Rev. See 5203(d)), 5283
(Rev. See 5203(c), (d))
2831 5116(a) (Rev. See 5115),
5180(a), 5274(a) (Rev. See
5180), 5681
2832 5172 (Rev. See 5171(a), 5172,
5173(a), 5178(a)(1)(A),
5601(a)(2), (4))
2833(a) 5606 (Rev. See 5601(a)(4), 5602,
5615(3))
2834 5216(a) (Rev. See 5222(a)(1),
(2)(D), 5501, 5502(a), 5503,
5504(a), (b), 5505(a), (c),
5601(a)(7), (8), (9)(A)),
5608(a), (b) (Rev. See
5601(a)(7), (8), (9)(A), (12),
5615(4))
2835 Omitted
2836 5195(a) (Rev. See 5201(c)), 5613
(Rev. See 5687)
2837 Omitted
2838 5192(c) (Rev. See 5202(a), (b)),
5612 (Rev. See 5687)
2839(a) 5196(e) (Rev. See 5203(b), (c)),
5619 (Rev. See 5687)
2840 Omitted
2841(a) 5197(a)(1)(A) (Rev. See 5207(a),
(d))
2841(b) 5197(a)(1)(B) (Rev. See 5207(a),
(d))
2841(c) 5620 (Rev. See 5603, 5615(5))
2842 5611 (Rev. See 5603)
2843 5610 (Rev. See 5603)
2844(a) 5197(b) (Rev. See 5207(c))
2845 Omitted
2846(a) 5007(e)(1) (Rev. See 5004(b)(1),
5006(a)(3))
2847(a) 5007(e)(2) (Rev. Omitted)
2848 Omitted
2849 5191(a) (Rev. See 5221(a))
2850(a) 5191(a) (Rev. See 5221(a)), 5650
(Rev. See 5601(a)(14), 5615(3))
2851 5682
2852 5624 (Rev. See 5611)
2853(a) 5623 (Rev. See 5609)
2854 5649 (Rev. See 5614)
2855(a) 5285(a) (Rev. See 5207(b))
2856 5629 (Rev. See 5610(a)(10), (11))
2857(a) 5114(a) (Rev. See 5114(a)(1),
5146(a)), 5285(b) (Rev. See
5207(c)), 5621 (Rev. See 5603)
2858 5114(b)
2859 5197(a)(2) (Rev. See 5207(a)),
5621 (Rev. See 5603)
2860 Omitted
2861(a) 5282(b) (Rev. See 5202(a),
5204(a), (c), 5205(d), 5206(c))
2862(a) 5282(c) (Rev. See 5205(d))
2863(a) 5115(a) (Rev. See 5205(d))
2865(a) 5630 (Rev. See 5687)
2866 5010(c) (Rev. See 5205(g)), 5636
(Rev. See 5604(a)(2), (3),
(7)-(9), (17), 7301)
2867 5635 (Rev. See 5604(a)(17))
2868 5637 (Rev. See 5604(a)(18))
2869 5638 (Rev. See 5604(a)(19),
5613, 7301, 7302)
2870 5195(b) (Rev. See 5201(c)), 5614
(Rev. See 5687, 7301)
2871 5214(a) (Rev. See 5301(a)), 5641
(Rev. See 5606, 5613, 7301,
7302, 7321-7323)
2872 5231 (Rev. See 5171(a), 5172,
5173(a), 5178(a)(1)(A), (B),
(3)(A), (B)), 5241(b) (Rev. See
5202(a), (c), (d))
2873 5231 (Rev. See 5171(a), 5172,
5173(a), 5178(a)(1)(A), (B),
(3)(A), (B)), 5241(a) (Rev. See
5201(a), 5202(a), (c))
2874(a) 5252 (Rev. See 5236)
2875 5231 (Rev. See 5171(a), 5172,
5173(a), 5178(a)(1)(A), (B),
(3)(A), (B)), 5246(a) (Rev. See
5212)
2876 5631 (Rev. See 5601(a)(12),
5615(6), 5687)
2877(a) 5192(d) (Rev. See 7803; T. 5
Sec. 301)
2878(a) 5193(a) (Rev. See 5201(a),
5202(f), 5204(a), 5205(b),
5206(a), (c), 5211)
2878(b) 5009(c), 5193(b) (Rev. See
5206(a), 5214(a)(4))
2878(c) 5193(c) (Rev. See 5206(b))
2878(d) 5193(d) (Rev. See 5204(c))
2879(a) 5242(a) (Rev. See 5211, 5231(a))
2879(b) 5006(a) (Rev. See 5006(a)(1),
(2), 5008(c))
2879(c) 5232(a) (Rev. See 5005(c)(1),
5006(a)(2), 5173(a), (c)(1))
2879(d) 5232(a), (c) (Rev. See
5005(c)(1), 5006(a)(2), 5173(a),
(c)(1), 5176(a), (b))
2880(a) 5006(b)
2881(a) 5245 (Rev. See 5204(a))
2882(a) 5244 (Rev. See 5213)
2883(a) 5194(a) (Rev. See 5211(a), 5212,
5213)
2883(b) 5194(d) (Rev. See 5214(a))
2883(c) 5194(c) (Rev. See 5241)
2883(d) 5194(e)(1) (Rev. See 5212, 5213)
2883(e) 5025(d), 5194(f) (Rev. See
5005(c)(1), 5212, 5223(a), (d))
2883(f) 5194(g) (Rev. See 5201(a),
5204(a), 5212)
2883(g) 5194(h) (Rev. Omitted)
2884(a) 5250(a) (Rev. See 5205(b))
2885(a) 5247(a) (Rev. See 5175(a),
5206(a), 5214(a)(4))
2885(b) 5009(b) (Rev. See 5205(i)(4)),
5247(b)
2885(d) 5648 (Rev. See 5608)
2886(a) 5247(c)
2887 5012(a) (Rev. See 5009)
2888(a) 5247(d) (Rev. See 5206(a))
2889, 2890 Omitted
2891(a) 5522(a) (Rev. See 5214(a))
2891(b) 5011(a) (Rev. See 5008(a))
2900 5006(a) (Rev. See 5006(a)(1),
(2), 5008(c))
2901(a)(1) 5011(a)(1)(A) (Rev. See
5008(a)(1)(A))
2901(a)(2) 5011(a)(1)(B) (Rev. See
5008(a)(1)(B)), 5011(b) (Rev.
See 5008(b)(1))
2901(b) 5011(a)(1)(B), (2) (Rev. See
5008(a)(1)(B), (2))
2901(c) 5011(a)(3) (Rev. See 5008(a)(3),
(4))
2901(d) 5011(a)(4) (Rev. See 5008(a)(4))
2903(a) 5243(a) (Rev. See 5171, 5172,
5178(a)(3), (4)(A), 5233(a), (b))
2903(b) 5008(a)(1) (Rev. See 5205(a)(1),
(3))
2903(c) 5008(a)(2) (Rev. See 5205(a)(3))
2903(d) 5008(a)(3)
2903(e) 5008(a)(4)
2903(f) 5243(d) (Rev. See 5206(c))
2903(g) 5243(c) (Rev. See 5233(c))
2904(a) 5243(a), (b) (Rev. See 5171,
5172, 5178(a)(3), (4)(A),
5202(g), 5233(a), (b))
2905 5243(e) (Rev. See 5175, 5206(c),
5214(a)(4))
2908 5643 (Rev. See 5601(a)(12),
5604(a)(11), (12), (16),
5615(6), 5687)
2909 5644 (Rev. See 5604(a)(4), (5),
(10))
2910(a) 5243(b) (Rev. See 5202(g),
5233(b))
2911 5243(f) (Rev. See T. 27 Sec. 121)
2912, 2913 5632 (Rev. See 5601(a)(12),
5615(6))
2914(a) 5633 (Rev. See 7214)
2915(a) 5241(c) (Rev. See 7803; T. 5
Sec. 301)
2916(a) 5194(b)
3030(a) 5001(a)(9) (Rev. See 5001(a)(8))
3030(a)(1) 5001(a)(5), (9) (Rev. See
5001(a)(4), (8)), 5041(a),
5041(b), 5042(a)(2), 5362,
5368(b)
3030(a)(2) 5022, 5041(b)(4)
3030(b) 5043(b)
3031(a) 5354, 5362, 5373(b)(1),
5373(b)(3), 5391
3032(a) 5373(a), 5382(b)(2)
3033(a) 5373(b)(1)
3034(a), 3035 5366
3036 5025(f) (Rev. See 5025(g)),
5373(a), 5381, 5382(a), (b)(1),
(2), 5383(a), (b)(3), (4), 5392
3037(a) 5362, 5373(b)(4)
3038(a) 5362
3039(a) 5370(a)(1)
3040(a) 5351, 5354, 5356, 5368(a), (b),
5369
3041(a) 5043(b), 5368(a)
3042(a) 5192(a) (Rev. See 5202(a)), 5366
3043(a) 5661(a) (See Chapter 68), (b),
5385(b)
3044 5381, 5382, 5383, 5392
3045 5381, 5382, 5384, 5392
3070(a) 5331(a) (Rev. See 5171(a), 5172,
5173(a), (c), 5178(a)(5),
5202(e), 5207(a), (c), (d),
5214(a), 5241, 5242, 5273(b)(1),
(2), (d), 5275)
3070(b) 5331(b), (c) (Rev. See 5214(a),
5273(a), (b)(1), (2), (d))
3072 5647 (Rev. See 5273(b)(1), (2),
(d), 5601(a)(12), 5607, 5615(6))
3073(a) 5332 (Rev. See 5273(c))
3074(a) 5333 (Rev. See 5243)
3100(a) 5301 (See 5171(a), (b)(1), 5172,
5173(a), (b))
3101(a) 5302 (Rev. See 5171(a), (b)(1),
5172, 5173(a), (c),
5178(a)(3)(A), (B), 5201(a),
5206(a))
3102 5303 (Rev. See 5171(a), (b)(1),
5172, 5173(a), (c), 5178(a)(5),
5241, 5242, 5273(b)(1), (2), (d))
3103 5306 (Rev. See 5025(d), (e)(1),
5103, 5113(a), 5173(c), 5201(a),
(c), 5204(c), 5243(a)(1)(A),
5306), 5312(c)
3104(a) 5309 (Rev. See 5222(b)), 5412
(Rev. See 5222(b), 5412)
3105(a) 5305 (Rev. See 5171, 5172,
5173(a), 5178(a)(1)(A), (5),
5201(a), (b), 5207(a), (c), (d),
5211, 5223(a), 5235, 5273(b)(1),
(2), (d), 5275, 5312(b))
3106(a) 5307 (Rev. See 5178(a)(2)(A),
5201(a))
3107 5308 (Rev. See 5212, 5223(a))
3108(a) 5310(a) (Rev. See 5214(a), 5241,
5242, 5273(b)(1), (2), (d))
3108(b) 5310(b) (Rev. See 5214(a), 5313)
3108(c) 5310(c) (Rev. See 5214(a))
3108(d) 5310(d) (Rev. See 5272(b))
3109 5310(a) (Rev. See 5214(a), 5241,
5242, 5273(b)(1), (2), (d))
3110 5502 (Rev. Omitted)
3111 5001(a)(6)
3112(a) 5004(b) (Rev. See 5004(a)(1),
(b)(1)), 5005(c) (Rev. See
5005(a), (b)(1), (c)(1))
3112(b) 5007(d) (Rev. See 5007(a)(1)),
5689
3113(a) 5011(c)
3114(a) 5304(a) (Rev. See 5171(b)(1),
5271(a), (b), (c), (e)(1), (f),
5272(a))
3114(b) 5304(b) (Rev. See 5271(e))
3114(c) 5304(c) (Rev. See 5271(e))
3114(d) 5304(d)
3115(a) 5686(a) (Rev. See 5687)
3116 5686(b) (Rev. See 5505(i),
5686(a)), 7302
3117(a) 5314 (Rev. See 5557)
3118 5688(d)
3119 5315
3120 5316
3121(a), (c) 5313(a), (b) (Rev. See 5275)
3121(d) 5317(b) (Rev. See 5274)
3122 5317(a)
3123 5318 (Rev. See 5314(a)(2))
3124(a) 5119 (Rev. See 5002(a))
3125(a) 5001(a)(8) (Rev. See
5001(a)(9)), 5007(d) (Rev. See
5007(a)(1)), 5311 (Rev. See 5232)
3125(b) 5310(b) (Rev. See 5214(a), 5313)
3126 Omitted
3150(a) 5051(a)
3150(b)(1) 5054 (Rev. See 5054(a)(1))
3150(b)(2) 5055 (Rev. See 5054(a)(1), (2),
(c), (d))
3150(b)(3) 5689
3150(c) 5051(b)
3152 Omitted
3153(b) 5053(a), 5401(b)
3153(c) 5053(b)
3155(a), (b) 5401(a), (b)
3155(c) 5415(a)
3155(f) 5412, 5413, 5675
3156 Omitted
3157(a) 5055 (Rev. See 5054(a)(1), (2),
(c), (d))
3158 5402(a), 5411
3159(a)-(c) 5671, 5672, 5673, 5674
3159(e)-(i) 5676(1)-(5)
3159(j) 5674
3160 5052(b)
3170 Omitted
3171(a) 5367, 5555(a) (Rev. See
5207(b)-(d))
3172(a) 5061(b)
3173(a) 5683
3173(b)(1)-(3) 5684 (Rev. See 5687 and Subtitle
F)
3173(b)(4) 5690
3173(c) 5685
3173(d) 5688(c)
3174 5064 (Rev. See 5065)
3175 5557 (Rev. See 5560)
3176(a) 5556 (Rev. See 5505(h))
3177(a) 5521(a)
3177(b) 5521(c)(1), (2)
3177(c) 5521(b)
3177(d)(1), (2) 5521(d)(1), (2)
3178 5523
3179(a), (b) 5062(a), (b)
3180 Omitted
3182(a) 5511
3182(b) 5001(a)(7)
3183(a) 5217(a) (Rev. See 5005(c)(1),
(2), 5025(d), (e)(2), 5212,
5223(a), 5234(b))
3183(b) 5217(b) (Rev. See 5561)
3183(c) 5217(c) (Rev. Omitted)
3190-3195 Omitted
3206 4821
3207 7235(d), 7264
3208 4822, 4826
3210 4841
3211 7266(a)
3212 4842
3220 4721, 6001, 6151(a)
3221 4722
3222 4772
3223 Omitted
3224 4724
3225 7237(a)
3226 4775
3227 4725
3228 4731, 7343, 7701(a)
3230 4751, 4752, 6151(a)
3231 4753
3232 4772
3233 4754, 6001, 6065(a), 6071,
6081(a), 6091(a)
3234 4755
3235 7237(a)
3236 4775
3237 4756
3238 4761, 7701(a)
3239 Omitted
3250(a)(1) 5111(a)(1) (Rev. See 5111(a))
3250(a)(3) 5111(a)(2) (Rev. See 5112(b))
3250(a)(4) 5113(a)
3250(b)(1) 5121(a)(1) (Rev. See 5121(a))
3250(b)(2) 5122(c) (Rev. See 5121(a)(2))
3250(b)(4) 5121(a)(2) (Rev. See 5122(a),
(b))
3250(c)(1) 5091
3250(d)(1) 5111(b)(1) (Rev. See 5111(b))
3250(d)(2) 5111(b)(2) (Rev. See 5112(c))
3250(d)(3) 5091, 5113(b) (Rev. See 5113(a))
3250(e)(1) 5121(b)(1) (Rev. See 5122(b))
3250(e)(2) 5121(b)(2) (Rev. See 5122(b))
3250(e)(3) 5121(c) (Rev. See 5121(c),
5122(c))
3250(e)(4) 5123(a) (Rev. See 5113(a))
3250(f)(1) 5081
3250(g) 5113(c) (Rev. See 5113(a))
3250(h) 5025(g) (Rev. See 5025(h))
3250(i) 5025(h) (Rev. See 5025(i))
3250(j)(1) 5101
3250(j)(3) 5106 (Rev. See 5106(b))
3250(l)(1), (2) 5131(a), (b)
3250(l)(3)-(5) 5132-5134
3251(a) 5113(d)(1) (Rev. See 5113(c)(1))
3251(b) 5113(d)(2) (Rev. See 5113(c)(2))
3251(c) 5123(c) (Rev. See 5113(e))
3252(a) 5124(a)
3252(b) 5124(b) (Rev. See 5146(a))
3252(c) 5124(c) (Rev. See 5146(a))
3252(d) 5692 (Rev. See 5603)
3253 5691 (Rev. See 5607, 5613, 5615,
5661(a), 5671, 5673, 5676(4),
5683, 7301, 7301(a), 7302)
3254(b) 5112(a) (Rev. See 5111(a),
5112(b))
3254(c)(1) 5122(a) (Rev. See 5121(a)(1),
5122(a))
3254(c)(2) 5111 (Rev. See 5111(a), (b),
5112(b), (c))
3254(d) 5052(a), 5092, 5402(a)
3254(e) 5112(b) (Rev. See 5112(c))
3254(f) 5122(b)
3254(g) 5025(c), 5082, 5387(c)
3254(h) 5102
3255(a) 5123(b)(1)
3255(b) 5123(b)(2) (Rev. See
5123(b)(2)(A))
3255(c) 5123(b)(3) (Rev. See 5113(d)(1),
(2))
3260 5801(a)
3261(a) 5802
3261(b) 5841
3262 5803
3263(a) 5854(a)
3263(b) 5854(a), (b)
3267 4461, 4462, 4463
3268 4471, 4472, 4473
3270(a) 5141, 7011(a)
3271 4901
3271(a) 5142(a)
3271(b) 5142(b), 6151(a)
3271(c)(1) 5104, 5142(c)
3272(a) 5143(a) (Rev. See Subtitle F),
6011(a), 6065(a), 6071, 6081(a),
6091(b), 6151(a)
3273(a) 5145 (Rev. See 5144), 6801(a)
3273(b) 5146 (Rev. See 6806(a),
7273(a)), 6806(a)
3274 5693 (Rev. See 5692), 7273(a)
3275 5147 (Rev. See 6107), 6107
3276 4906, 5148 (Rev. See 5145)
3277 4902, 5144(a) (Rev. See 5143(a))
3278 4903, 5144(c) (Rev. See 5113(a),
5143(c)(1)-(3))
3279 4904, 5144(b) (Rev. See 5143(b))
3280(a) 4905, 5144 (Rev. See 5113(a)
5143), 7011(b)
3281 6302(b)
3282 5149 (Rev. See 5147), 6302(b)
3283 4907, 5144(e) (Rev. See 5143(e))
3285 4401, 4402, 4404, 4421
3286 6419
3287 4403
3290 4411
3291 4412, 6091(b)
3292 4413, 4903, 4907, 6107
3293 6806(c)
3294 7262, 7273(b)
3297 4422
3298 4423
3300(a) 6801(a)
3300(b) 7208
3300(c) 6808
3301(a) 6801(b), 6804
3301(b) 6808
3303 Omitted
3304(a)-(d) 6805(a)-(d)
3304(e), 3305 Omitted
3310 6331(a)
3310(a) 6011(a), 6071, 6601(c)(4), 6659
3310(b) 6011(a), 6601(c)(4), 6659
3310(c) 6601(a), (f)(1), 6659
3310(d) 6155(a), 6601(f)(1), 6659
3310(e) 6659
3310(f)(1) 6011(a), 6071, 6081(a)
3310(f)(2) 5703(c), 6302(c)
3311 6155(a), 6201(a)(2)(A),
6601(c)(4), 6659
3312(a) 6501(a)
3312(b) 6501(c)(1), (3)
3312(c) 6501(c)(2)
3312(d) 6502(a)
3313 5705(a), 6511(a), (b)(1), (2)
3314 Omitted
3320(a) 7268
3320(b) Omitted
3321 7206(4)
3321(b) 7301
3321(c) Omitted
3322 7301(d)
3323(a)(1), (2) 7271(4)
3323(a)(3) 7208(5)
3323(b) 7303(7)
3324(a)-(c) 7341(a)-(c)
3325 7211
3326 7304
3330 6065(a)
3331 5704(b), 7510
3332-3335 Omitted
3350(a), (b) 7652(b)(1), (2)
3351(a) 7653(a)(2)
3351(b), (c) 7653(b), (c)
3360(a) 7652(a)(1)
3360(b) 7101, 7652(a)(2), 7803(c)
3360(c) 7652(a)(3)
3361(a) 7653(a)(1)
3361(b), (c) 7653(b), (c)
3400(a), (c) 4071, 4072, 4073
3400(b), 3401 Omitted
3403 4061, 4062, 4063
3403(e) 6416(c)
3404 4141, 4142, 4143, 4151, 4152
3405 4111, 4112, 4113
3406(a)(1) 4161
3406(a)(2) Omitted
3406(a)(3) 4121
3406(a)(4) 4171, 4172, 4173
3406(a)(5) Omitted
3406(a)(6) 4191, 4192
3406(a)(7)-(9) Omitted
3406(a)(10) 4131
3406(b) 4221
3406(c) Omitted
3407 4181, 4182, 4224, 5831
3408 4201, 4221
3408(b) 6416(d)
3409(a) 4211
3409(b) Omitted
3412(a)-(f) 4081, 4082, 4083, 4101, 4102,
7101, 7232
3412(g) 6412(b)
3413 4091, 4092, 4093, 7101
3414, 3415, 3416 Omitted
3420 4521, 4531, 4541, 4551
3422 4521
3423 4531, 4532
3424 4551, 4552, 4553
3425 4541, 4542
3430 4601
3431 Omitted
3440 4217
3441 4216
3442 4220, 4224
3443 6416, 6611
3444, 3445, 3446 4218, 4219, 4223
3447 Omitted
3448(a) 6011(a), 6065(a), 6071, 6081(a),
6091(b), 6151(a)
3448(b) 6151(a), 6601(a), (f)(1)
3449, 3450 Omitted
3451 4222
3453 Omitted
3460 4281, 4282, 4283
3461 6011(a), 6065(a), 6071, 6081,
6091(b), 6151(a)
3462 Omitted
3465 4251, 4252, 4253, 4254
3466 4253, 4292
3467 4291, 6011(a), 6065(a), 6071,
6081(a), 6091(b), 6151(a),
6161(a)
3468 Omitted
3469(a), (b), (c) 4261, 4262
3469(d) 4291, 6011(a), 6065(a), 6071,
6091(b), 6151(a)
3469(e) 6081(a), 6161(a)
3469(f) 4262, 4292
3470 6151(a), 6601(a), (f)
3471 6415, 6416(f)
3472-3474 Omitted
3475(a) 4271, 4272
3475(b) 4272, 4292
3475(c) 4271, 4291, 6011(a), 6065(a),
6071, 6091(b), 6151(a)
3475(d) 6081(a), 6161(a)
3475(e) 4273, 7272
3480 4331, 4361
3481 4331, 4332, 4341, 4342, 4343,
4344, 4351-4353
3482 4361, 4362
3483 4382
3490 4501, 4503
3491 4501, 6011(a), 6071, 6091(b),
6151(a)
3492 4502
3493(a) 6418(b)
3493(b) 6511(e)(2)
3494(a) 6418(a)
3494(b) 6511(e)(1)
3495 6601(a), (f)
3496-3498 Omitted
3500, 3501 4501, 4504
3506 7240
3507 4502, 7701(a)
3508 4501, 6412(d)
3600 7601(a)
3601(a)(1), (2) 7606(a), (b)
3601(b) 7342
3601(c) 7212(a), (b)
3602 Omitted
3603 6001
3604(a) 6046(a), 6071, 6091(a)
3604(b) 6046(b), (c), 6065(a)
3604(c) 7201, 7203
3611(a)(1) 6011(a), 6065(a), 6081(a),
6091(a), (b)(1), (2)
3611(a)(2) 6020(a), 6065(a)
3611(b) 6071
3611(c) 6065(a), 6071, 6091(a), (b)(1),
(2)
3612(a), (c) 6020(b)
3612(d)(1) 6651(a)
3612(d)(2) 6653(b)
3612(e) Omitted
3612(f) 6201(a)(1)
3613 6021
3614 7602, 7605(a)
3615 7605(a)
3615(a)-(c) 7602
3615(d) 7603
3615(e) 7604(b)
3616(a) 7207
3616(b) 7210
3616(c), 3617 Omitted
3630 6101
3631 7605(b)
3632(a) 7622(a)
3632(a)(1) 7602
3632(b) 7622(b)
3633 7402(b)
3633(a) 7604(a)
3633(b) Omitted
3634 6081(a)
3640 6201(a)
3641 6203
3642 6204
3643 Omitted
3644 6202
3645, 3646 Omitted
3647 6201(a)
3650 7621
3651(a)(1) 6301
3651(a)(2), (b) Omitted
3652 6302(a)
3653(a), (b) 7421(a), (b)
3654 Omitted
3655(a) 6303(a), 6659
3655(b) 6601(a), (f)(1), 6659
3656(a)(1) 6311(a)
3656(a)(2)(A), (B) 6311(b)(1), (2)
3656(b)(1) 6311(a)
3656(b)(2) 6311(b)(1)
3657 6312(a)
3658 6313
3659(a) 6314(a)
3659(b) Omitted
3660 6331(a)
3660(a) 6155(a), 6862
3660(b) 6863(a), 7101
3661 7501
3662, 3663 Omitted
3670 6321
3671 6322
3672 7207
3672(a), (b) 6323(a), (d)
3673(a), (b) 6325(a)(1), (2)
3674(a), (b) 6325(b)(1), (2)
3675 6325(c)
3676 7102
3677 Omitted
3678 7403
3679(a) 7424(a)
3679(b) Omitted
3679(c), (d) 7424(b), (c)
3680 Omitted
3690 6331(a), (b)
3691 6334
3692 6331(a), (b), 6334(c)
3693 6335(e)(2)(E)
3693(a)-(c) 6335(a), (b), (d)
3693(d) 6335(e)(2)(F)
3694 6342(a)
3695(a) 6335(e)(1), (2)(A)
3695(b) 6335(e)(2), 7505(a)
3695(c) 7505(b)
3696 6337(a)
3697(a)-(d) 6339(a)(1)-(4)
3698 Omitted
3700 6331(a), (b)
3701 6335(e)(2)(E)
3701(a)-(c) 6335(a), (b), (d)
3701(d) 6335(e)(1), (2)(A), (B)
3701(e) 6335(e)(1)
3701(f) 6335(e)(2)(D), (F), (3)
3702(a) 6337(a)
3702(b)(1), (2) 6337(b)(1), (2)
3702(c) 6337(c)
3703(a) 6338(c)
3703(b) 6338(a)
3704(a) 6338(c)
3704(b) 6338(b)
3704(c)(1), (2) 6339(b)(1), (2)
3705 Omitted
3706(a), (b) 6340(a)
3706(c)-(e) Omitted
3706(f) 6340(b)
3707 Omitted
3710(a), (b) 6332(a), (b)
3710(c) 6332(c), 7343
3711 6333
3712 6335(c), 6342(b)
3713, 3714(a) Omitted
3714(b) 6502(b)
3715 6331(c)
3716 6341
3717 Omitted
3720(a)(1)-(3) 7301(a)-(c)
3720(b) 7321
3720(c) Omitted
3721, 3722 7322, 7324
3722(a), (b) 7324(1), (2)
3722(c) 7101, 7324(3)
3722(d) 7324(4)
3723(a)-(c) 7323(a)-(c)
3723(d) Omitted
3724 7101, 7325
3725 6807
3726 7327
3727 Omitted
3740 7401
3742, 3743, 3745 Omitted
3746(a) 7405(a)
3746(b) 6532(b), 7405(b)
3746(c) Omitted
3746(d) 6602
3747 7406
3748 6531
3760, 3761 7121, 7122
3762 7206(5)
3770(a)(1) 6402(a), 6404(a)
3770(a)(2) 6401(a)
3770(a)(3) 6407
3770(a)(4) 6402(a)
3770(a)(5) 6402(a), 6404(a)
3770(b) 7423
3770(b)(1), (2) 7423(1), (2)
3770(c) 6401(c)
3771(a) 6611(a)
3771(b)(1) 6611(b)(1)
3771(b)(2) 6611(b)(2), (e)
3771(c) 6611(c)
3771(d) Omitted
3771(e) 6611(f)
3771(f), (g) Omitted
3772(a)(1) 7422(a)
3772(a)(2), (3) 6532(a)(1), (4)
3772(b) 7422(b)
3772(c) Omitted
3772(d), (e) 7422(c), (d)
3773 Omitted
3774 6514(a)
3774(b) 6532(a)(2)
3775 6514(b)
3777(a)-(c) 6405(a)-(c)
3778 Omitted
3779(a) 6091(a), 6164(a)
3779(b) 6065(a), 6071, 6081(a), 6164(b)
3779(c)-(g) 6164(c)-(g)
3779(h) 6155(a), 6164(h)
3779(i) 6601(a), (e), (f)(1)
3780(a) 6065(a), (b), 6071, 6091(a),
6411(a)
3780(b) 6411(b)
3780(c) 6213(b)(2)
3781 6164(i), 6411(c)
3790 6406, 6611(g)
3791(a) 6071, 6081(a), 6091(a), (b)(1),
(2), 7805(a)
3791(b) 7805(b)
3792 7623
3793 7206(3)
3793(a)(2) 7303(8)
3793(b) 7206(2), 7207
3793(b)(2) 7343
3794 6601(a)
3795(a)-(d) 7506(a)-(d)
3797(a)(1)-(11) 7701(a)(1)-(11)
3797(a)(12) 7701(a)(13)
3797(a)(13) Omitted
3797(a)(14)-(20) 1465, 7701(a)(14)-(20)
3797(b), (c) 7701(b), (c)
3798 7507
3799 76
3800 7402(a)
3801 1311-1314
3802 7511
3803 7852(a)
3804(a) 7508(a)
3804(b), (c) Omitted
3804(d) 7508(b)
3804(e) Omitted
3804(f) 7508(a)
3805 6072(e)
3806 1481
3808 Omitted
3809(a) 7206(1)
3809(b) 6061, 6064
3809(c) 6065(a)
3810 Omitted
3811 7651
3812 6521
3813, 3814 503, 504
3900 7802
3901(a) 6801(a), 7805(c)
3901(b) 7803(b)(2)
3905, 3906, 3910, 3911, 3915, Omitted
3916
3920, 3921 7803(a)
3930(a) 7801(b)
3930(b) Omitted
3931, 3932 7801(b), (c)
3940-3942 Omitted
3943 7101, 7803(c)
3944, 3950-3955, 3960-3967 Omitted
3970 7808
3971(a), (b) 7809(a), (b)
3971(b)(1)-(3) 7809(b)(1)-(3)
3975-3978 7803(d)
3990, 3991 Omitted
3992 7101, 7402(d), 7803(c)
3993, 3994 Omitted
3995(c) 7402(d)
3996, 3997 Omitted
4000 7803(a)
4001-4003 Omitted
4010 7101, 7803(c)
4011, 4012 Omitted
4013(a) 5241
4013(b)-(d) Omitted
4014-4022, 4030-4033 Omitted
4040 7803(b)(1)
4041(a) 7803(a)
4041(b) Omitted
4042 7402(c)
4043-4046 Omitted
4047(a)(1) 7213(b)
4047(b) 7214(b)
4047(c), (d) Omitted
4047(e) 7214(a)
4048 7344
5000-5004 8001-8005
5010-5012 8021-8023
--------------------------------------------------------------------
TABLE II
--------------------------------------------------------------------
1986 Code 1939 Code
section number section number
--------------------------------------------------------------------
1 11, 12(b)(3), (c), (f)
2 12(d)
3 400
4 23(aa)(4), 401, 402, 404
5
11 13, 15, 104(b), 261
12
21 108
31 35, 322(a)(4)
32 32
33 31
34
35 25
36 23(aa)(2)
37
38
61 22(a)
62 22(n)
63 21
71 22(k)
72 22(b)(2)
73 22(m)
74
75 22(o)
76 22(j), 3799
77 123
101 22(b)(1)
102 22(b)(3)
103 22(b)(4)
104 22(b)(5)
105
106
107 22(b)(6)
108 22(b)(9), (10)
109 22(b)(11)
110
111 22(b)(12)
112 22(b)(13)
113 22(b)(14)
114 22(b)(16)
115 22(b)(8), 116(d), (e)
116
117
118
119
120
121 22(b)(17), 116(i)
141 23(aa)(1)
142 23(aa)(4), (5), 213(d)
143 23(aa)(6)
144 23(aa)(3), (7)
145
151 25(b)(1)
152 25(b)(3)
153 25(b)(2)
154
161 23
162 23(a)(1)
163 23(b)
164 23(c), (d)
165 23(e), (f), (g)(1), (2), (3),
(4), (h), (i), (k)(2)
166 23(k)
167 23(l), 23(n), 114(a)
168 23(t), 124A
169 23(t), 124B
170 23(o), (q), 120
171 23(v), 125
172 23(s), 122
173 23(bb)
174
175
211 23
212 23(a)(2)
213 23(x)
214
215 23(u)
216 23(z)
217
241 26
242 26(a)
243 26(b)(1)
244 26(b)(2)
245 26(b)(3)
246 26(b)
247 26(h)
248
261 24(a)
262 24(a)(1)
263 23(a)(1)(C), 24(a)(2), (3)
264 24(a)(4), (6)
265 23(b), 24(a)(5)
266 24(a)(7)
267 24(b), (c)
268 24(f)
269 129
270 130
271 23(k)(6)
272
273 24(d)
301 22(e), 115(a), (b), (d), (e), (j)
302 115(c), (g)(1), (i)
303 115(g)(3)
304 115(g)(2)
305 115(f)
306
307 113(a)(19)
311
312 115(c), (h), (l), (m), 394(d)
316 115(a), (b)
317
318
331 115(c)
332 112(b)(6)
333 112(b)(7)
334 113(a)(15), (18)
336
337
338
341 117(m)
342 115(c)
346 115(i)
351 112(b)(5), (c), (e)
354 112(b)(3)
355 112(b)(3), (11)
356 112(c), (e)
357 112(k)
358 113(a)(6), (23)
361 112(b)(4), (d), (e)
362 113(a)(7), (8)
363
367 112(i)
368 112(g)(1), (2), (h)
371 112(b)(10), (c), (d), (e), (k),
(l)
372 113(a)(22)
373 112(b)(9), 113(a)(20), (21)
381
382
391
392
393
394
395
401 165(a)
402 165(b), (c), (d)
403 22(b)(2)(B)
404 23(p)
421 130A
441 41, 48(a), (b)
442 46
443 47(a), (c), (e), (g); 146(a)
446 41
451 42(a)
452
453 44
454 42(b), (c), (d)
461 43
462
471 22(c)
472 22(d)(1)-(5)
481
482 45
501 101 except (12) and last par.;
165(a), 421
502 Last par. 101
503 3813
504 3814
511 421
512 421(c), (d); 422
513 422(b)
514 423
515 424
521 101(12)(A)
522 101(12)(B)
526 116(g)
531 102(a)
532 102(a)
533 102(b), (c)
534
535 26(d), 27(b)(2), 102(d)
536 102(f)
537
541 500
542 501
543 502, 507(b)
544 503
545 26(c), (d); 504, 505
546 505(e)
547 506
551 337
552 331
553 332
554 333
555 334
556 26(c), 335, 336
557 336(d)
561 26(f), 27(a)
562 26(f), 27(b)-(i)
563 504(c)
564 26(f), 27(c)-(i)
565 26(g), 28
581 104(a)
582 23(k)(2), 117(i)
583 121
584 169, second sentence of 170
591 23(r)
592 23(dd)
593 23(k)
594 110
601 26(d)
611 23(m)
612 114(b)(1)
613 114(b)(3), (4)
614
615 23(ff)
616 23(cc)
621 22(b)(15)
631 117(k)
632 105
641 161
642 162(a), (e), (f); 163, 168, 170,
172
643 162(d)
651 162(b)
652 162(b), 164
661 162(b), (c)
662 162(b), (c), 164
663 162(d)
665
666
667
668
671
672
673
674
675
676 166
677 167
678
681 162(g)
682 171
683
691 126
692 154
701 181
702 182, 183, 184, 186, 189
703 183, 189
704 191, 3797(a)(2)
705
706 188
707
708
721
722
723 113(a)(13)
731
732 113(a)(13)
733
734
735
736
741
742
743
751
752
753
754
755
761 3797(a)(2)
771
801 201(b)
802 201(a)(1)
803 201(c)(1)-(7), (d), (e)
804 202(b)
805 203A(b), (c), (d)
806 202(c)
807 201(a)(2), (3)
821 207(a)
822 207(a)(5), (b)(1), (4), (c),
(d), (e), (f)
823 207(b)(2), (3)
831 204(a)
832 204(a)(2), (b)-(f)
841 205
842 206
851 361
852 362(a), (b)(1)-(7)
853
854
855 362(b)(8)
861 119(a), (b), (e)
862 119(c), (d), (e)
863 119(e)
864 119(f)
871 211(a), (b), (c)
872 212
873 213, 214
874 215, 216
875 219
876 220
877 221
881 231(a)
882 231(b), (c); 232(a), (b); 233,
234, 235(a)
883 231(d)
884 236(b), 237, 238
891 103
892 116(c)
893 116(h)
894 22(b)(7)
901 131(a), (g)
902 131(f)(1), (2)
903 131(h)
904 131(b)(1)
905 131(c), (d), (e)
911 116(a)
912 116(j), (k)
921 109
922 26(i)
931 251
932 252
933 116(l)
941 262
942 263
943 116(f), 265
1001 111
1002 112(a)
1011 113(b), except (1)-(4)
1012 113(a)
1013 113(a)(1)
1014 113(a)(5)
1015 113(a)(2), (3), (4)
1016 113(b)(1), (2)
1017 113(b)(3)
1018 113(b)(4)
1019 113(c)
1020 113(d)
1021
1022 113(e)
1031 112(b)(1), (c)(1), (e), 113(a)(6)
1032
1033 112(f), 113(a)(9)
1034 112(n)
1035
1036 112(b)(2)
1051 113(a)(11)
1052 113(a)(12), (16)
1053 113(a)(14)
1054
1071 112(m)
1081 112(b)(8), 371
1082 372, 113(a)(17)
1083 373
1091 118, 113(a)(10)
1201 117(c)
1202 23(ee), 117(b)
1211 117(d)
1212 117(e)
1221 117(a)(1)
1222 117(a)(2)-(10)
1223 117(h)
1231 117(j)
1232 117(f)
1233 117(e), (g)(1)
1234 117(g)(2)
1235
1236 117(n)
1237
1238 117(g)(3)
1239 117(o)
1240 117(p)
1241
1301 107(a)
1302 107(b)
1303 107(d)
1304 107(c), (e)
1311 3801(b)
1312 3801(b)
1313 3801(a)
1314 3801(c), (d), (e), (f), (g)
1315
1321 22(d)(6)
1331 127(c)(1)
1332 127(c)(2)
1333 127(c)(3)
1334 127(c)(4)
1335 127(c)(5)
1336 127(d)
1337 127(e), (f)
1341
1346 128
1347 106
1351
1361
1401 480
1402 481
1403 482
1441 143(b)
1442 144
1443 143(h)
1451 143(a)
1461 143(c)
1462 143(d)
1463 143(e)
1464 143(f)
1465 3797(a)(16)
1471 650, 651
1481 3806
1491 1250
1492 1251
1493 1252
1494 1253
1501 141(a)
1502 141(b)
1503 141(c)
1504 141(d), (e), (f), (g)
1505 141(h), (i)
1551 15(c)
1552
2001 810, 935
2002 822(b)
2011 810, 813(b)
2012 813(a)(2), 936(b)
2013
2014 813(c), 936(c)
2015 927
2016 874(b)(3)
2031 811(k)
2032 811(j)
2033 811(a)
2034 811(b)
2035 811(c)(1)(A), 811(1)
2036 811(c)(1)(B)
2037 811(c)(1)(C), (c)(2), (3)
2038 811(d)
2039
2040 811(e)
2041 811(f); 403(d)(2) R.A. 1942; 2,
P.L. 635 (80th Cong.)
2042 811(g)
2043 811(i), 812(b)
2044 811(h)
2051 812
2052 935(c)
2053 812(b)
2054 812(b)
2055 812(d)
2056 812(e)
2101 860, 935
2102 861(a)(2)
2103 861(a)
2104 862
2105 863
2106 861
2201 939
2202 850
2203 930(a)
2204 825(a)
2205 826(b)
2206 826(c)
2207 826(d)
2501 1000(a)
2502 1001(a), (b); 1008(a), 1030(a)
2503 1003(a), 1003(b)
2504
2511 1000(b), 1030(b)
2512 1002, 1005
2513 1000(f)
2514 1000(c); 452(b)(2) R.A. 1942; 2,
P.L. 635 (80th Cong.)
2515
2516
2521 1004(a)(1)
2522 1004(a)(2), 1004(b)
2523 1004(a)(3)
2524 1004(c)
3101 1400
3102 1401(a), (b)
3111 1410
3112 1412
3121 1426(a)-(e), (g)-(l)
3122 1420(e)
3123 1427
3124 1428
3125 1432
3201 1500
3202 1501(a), (b)
3211 1510
3212 1511
3221 1520
3231 1532(a)-(e), (g), (h)
3232 1534
3233 1538
3301 1600
3302 1601(a), (b), (c)
3303 1602
3304 1603
3305 1606
3306 1607(a)-(j), (l)-(o)
3307 1608
3308 1611
3401 1621
3402 1622(a)-(d), (g)-(k)
3403 1623
3404 1624
3501 1420(a), 1530(a), 1605(a)
3502 1402, 1503, 1512, 1622(e)
3503 1422, 1531
3504 1632
4001 1650, 2400
4002 2412(a)
4003 2400, 2412(b)
4011 1650, 2401
4012 2401, 2412(a)
4013 2412(b)
4021 1650, 2402(a)
4022 2402(a), (b)
4031 1651(a)
4041 2450
4051 2403(c)
4052 2404
4053 2405
4054 2413
4055 2406, 2453
4056 2406
4057
4061 3403(a), (b), (c)
4062
4063 3403(c), (d)
4071 3400(a)
4072 3400(c)
4073 3400(a)
4081 3412(a)
4082 3412(b), 3412(c)
4083 3412(a)
4091 3413
4092 3413
4093 3413
4101 3412(d)
4102 3412(e)
4111 3405
4112 3405
4113 3405(b)
4121 3406(a)(3)
4131 3406(a)
4141 3404(a)
4142 3404(b)
4143 3404(a), 3404(b)
4151 3404(d)
4152 3404(d)
4161 3406(a)(1)
4171 3406(a)
4172 3406(a)(4)
4173 3406(a)(4)
4181 2700(a), 3407
4182 2700(b)(2), 3407; 706, P.L. 911
(81st Cong.)
4191 3406(a)(6)
4192 3406(a)(6)
4201 3408(a)
4211 3409(a)
4216 2704, 3441
4217 3440
4218 3444
4219 3445
4220 3442
4221 3406(b), 3408(b)
4222 2456, 3451
4223 3446
4224 2700(b), 3407, 3442(3)
4225 2705
4226
4231 1700
4232 1700(e), 1704
4233 1701
4234 1702, 1703
4241 1710
4242 1712
4243 1711
4251 3465
4252 3465
4253 3465, 3466(b), (c)
4254 3465
4261 3469
4262 3469(a), (b), (f)
4271 3475(a), (c)
4272 3475(a), (b)
4273 3475(e)
4281 3460(a)
4282 3460(b)
4283 3460(c)
4286 1850
4287 1857
4291 1715(a), 1851, 3467(b), 3469(d),
3475(c)
4292 3466(a), 3469(f), 3475(b)(1)
4293 307 R.A. 1943
4294
4301 1800, 1802(a)
4302 1802(a)
4303 1808(g)
4304 1802(a)
4305
4311 1800, 1801
4312 1801
4313 1801
4314 1801
4315 1801
4316
4321 1800, 1802(b)
4322 1802(b)
4323 1802(b)
4324
4331 3480, 3481(a)
4332 3481(a)
4333
4341 1802(b), 3481(a)
4342 1802(b), 3481(a)
4343 1802(c), 3481(b)
4344 1802(b), 3481
4345
4351 1802(b), 3481(a)
4352 1802(b), 3481(a)
4353 1802(b), 3481(a)
4354
4361 3480, 3482
4362 3482
4363
4371 1804(a)-(c)
4372 1804(a)-(d)
4373 1804, 1808(b)
4374 1821(b)(3)
4375
4381 1801, 1802(a), (b)
4382 1808(a)-(f), except (b), 3483
4383 1809(a)
4401 3285(a), (c), (d)
4402 3285(e)
4403 3287
4404 3285(f)
4405
4411 3290
4412 3291
4413 3292
4414
4421 3285(b)
4422 3297
4423 3298
4451 1807
4452 1831(a)
4453 1830
4454 1809(a)
4455 1831(b)
4456 1832
4457
4461 3267(a)
4462 3267(b)
4463 3267(c)
4471 1650, 3268(a)
4472 3268(a)
4473 3268(a)
4474
4501 3490(a), 3491(a), 3500, 3508
4502 3492, 3507
4503 3490(b)
4504 3501
4511 2470(a)(1), (2)
4512 2477
4513 2470(a)(2), 2470(b), 2474
4514
4521 3420, 3422
4531 3420, 3423
4532 3423
4541 3420, 3425
4542 3425
4551 3420, 3424
4552 3424
4553 3424(a)
4561 2490, 2491(a)
4562 2491(a)
4571 2490, 2491(b), 2491(d)
4572 2491(f)
4581 2490, 2491(c)
4582 2491(c), (g), 2492
4591 2306, 2311(a)
4592 2300
4593 2300, 2307
4594 2302
4595 2303, 2404
4596 2302(e)
4597 2303(c)
4601 2493, 3430
4602 2492
4603
4701 2550(a), (b)
4702 2551(a), (b), (c)
4703 2552(a)
4704 2553
4705 2554
4706 2558(a), (c)
4707
4711 2567(a)
4712 2567(b), 2568
4713 2569
4714 2571
4715
4721 3220
4722 3221
4723 2553(a)
4724 3224
4725 3227(a)
4726
4731 P.L. 240, (83d Cong.); 3228(a)
4732 2555
4733 2558(b)
4734 2561
4735 2564; P.L. 238, (83d Cong.)
4736 2562
4741 2590(a), (b)
4742 2591
4743 2592(a)
4744 2593
4745 2598
4746
4751 3230(a)
4752 3230(b), (c), (d)
4753 3231
4754 3233
4755 3234
4756 2601, 3237
4757
4761 3238
4762 2603
4771 2550(c)(1), (2); 2552(b),
2590(c), 2592(b)
4772 3222, 3232
4773 2556, 2595
4774 2563, 2602
4775 3226, 3236
4776
4801 2651(a), (b)
4802 2650
4803 2651(c), 2659(a)
4804 2653
4805 2654, 2655
4806
4811 2321(a), (b)
4812 2306, 2327(a)
4813 2305, 2321(c), 2327(a), (d)
4814 2322(b)-(e)
4815 2323(c), 2324
4816 2307, 2327(a)
4817 2325
4818 2311, 2327(a)
4819
4821 3206
4822 3208
4826 2320, 2322(a), 2323(a), (b); 3208
4831 2351(a), (b); 2356
4832 2351(c), 2355, 2356, 2361
4833 2352(b)-(e)
4834 2353(b), 2354(b), (c)
4835 2360
4836
4841 3210
4842 3212
4846 2350, 2352(a), 2353(a), 2354(a)
4851 1920(a), (b)
4852 1931
4853 1925
4854 1926
4861 1921
4862 1927
4863 1922
4864 1923
4865 1924
4871 1920(c)
4872 1928
4873 1932
4874 1930
4875 1935
4876 1933
4877
4881 1900
4882 1905
4883 1901, 1906
4884 1902
4885 1903
4886
4891 1805
4892 1805
4893 1809(a)
4894 1805
4895 1805
4896 1805
4897
4901 3271
4902 3277
4903 3278, 3292
4904 3279
4905 3280
4906 3276
4907 3283, 3292
5001 2800(a)(1), (4), (6), (c);
3030(a)(1); 3111; 3125(a);
3182(b)
5002 2809(a), (b)(1), (2), (c), (d)
5003
5004 2800(e)(1), (2), (3), (4); 3112
5005 2800(a)(1), (d); 3112
5006 2800(a)(1), (b)(2), (f);
2879(b); 2880, 2900(a)
5007 2800(f), (a)(3), (4); 2846(a),
2847(a); 3112(b); 3125(a)
5008 2803(a)-(e), 2903(b)-(e)
5009 2802, 2885, 2878
5010 2802(a), (b); 2866
5011 2891(b), 2901(a), (b), (c), (d);
3113
5012 2887
5021 2800(a)(5), 2801(b)
5022 3030(a)(2)
5023 2801(e)(5)
5024
5025 2800(a)(5); 2801(c)(2), (e);
2883(e), 3036(a), 3250(h), (i);
3254(g)
5026 2800(a)(1)(A)
5027 2802(c)
5028
5041 3030(a)(1), (2)
5042 3030(a)(1)
5043 3030(b), 3041
5044
5045
5051 3150(a), (c)
5052 3160, 3254
5053 3153(b)(c)
5054 3150(b)(1)
5055 3150(b)(2), 3157(a)
5056
5057
5061 3172(a)
5062 3179(a), (b)
5063 1656(a), (b), (c)
5064 3174
5065
5081 3250(f)(1)
5082 3254(g)
5083
5084
5091 3250(c)(1), (d)(3)
5092 3254(d)
5093
5101 3250(j)(1)
5102 3254(h)
5103
5104 3271(c)(1)
5105 2818(a)
5106 3250(j)(3)
5111 3250(a)(1), (a)(3), (d)(1),
(d)(2); 3254(c)(2)
5112 3254(b), (e)
5113 3250(a)(4), (d)(3), (g);
3251(a), (b)
5114 2857, 2858
5115 2863
5116 2831
5121 3250(b)(1), (b)(4), (e)(1), (2),
(3)
5122 3250(b)(2), 3254(c)(1), (f)
5123 3250(e)(4); 3251(c); 3255(a),
(b), (c)
5124 3252(a), (b), (c)
5131 3250(l)(1), (2)
5132 3250(l)(3)
5133 3250(l)(4)
5134 3250(l)(5)
5141 3270
5142 3271(a), (b), (c)
5143 3272(a)
5144 3277, 3278, 3279, 3280(a), 3283
5145 3273(a)
5146 3273(b)
5147 3275(a)
5148 3276
5149 3282
5171 2819
5172 2832
5173 2820(a), 2822, 2823
5174 2810
5175 2812
5176 2814(a)(1), (a)(2)
5177 2814(a)(1); 2815(a), (b)(1)(A),
(B), (C), (D)
5178 2816
5179 2817(a), (b)
5180 2831
5191 2849, 2850(a)
5192 2820, 2838, 2877, 3042
5193 2820, 2878(a), (b), (c), (d)
5194 2883(a)-(g), 2916
5195 2836, 2870
5196 2826, 2827, 2828, 2830, 2839
5197 2841, 2844, 2859
5211 2804
5212 2808
5213 2811
5214 2871
5215 2825
5216 2834
5217 3183(a), (b), (c)
5231 2872, 2873, 2875
5232 2879(c), (d)
5233
5241 2872, 2873, 2915, 4013(a)
5242 2879(a)
5243 2903(a), (f), (g); 2904, 2905,
2910, 2911
5244 2882
5245 2881
5246 2875
5247 2885(a), (b), 2886, 2888
5248
5249
5250 2884
5251
5252 2874
5271 2812
5272 2801(e)(1)
5273 2801(e)(2)
5274 2831
5275
5281 2801(e)(1), (d)
5282 2813, 2861, 2862
5283 2828, 2830
5284
5285 2855, 2857
5301 3100
5302 3101
5303 3102
5304 3114
5305 3105
5306 3103
5307 3106
5308 3107
5309 3104
5310 3108(a)-(d); 3109, 3125(b)
5311 3125(a)
5312
5313 3121(a), (c)
5314 3117
5315 3119
5316 3120
5317 3121(d), 3122
5318 3123
5319 3124
5320
5331 3070(a), (b)
5332 3073
5333 3074
5334
5351 3040
5352
5353
5354 3031(a), 3040
5355
5356 3040
5357
5361
5362 3030(a)(1), 3031(a), 3037, 3038;
19 U.S.C. 81(c), 1309, 1311
5363
5364
5365
5366 3034, 3035, 3042
5367 3171
5368 3030(a)(1), 3040, 3041
5369 3040
5370 3039
5371
5372
5373 3031, 3032, 3033, 3036, 3037(a)
5381 3036, 3044(a), 3045
5382 3032, 3036, 3044, 3045
5383 3036, 3044(b), (c)
5384 3045
5385 3043(a)
5386 2801(e)(3), (4)
5387 3254(g)
5388
5391 2801(c), (e)(3); 3031(a)
5392 3036, 3044(b), 3045
5401 3153(b); 3155(a), (b)
5402 3158, 3254(d)
5403
5411 3158
5412 3104, 3155(f)
5413 3155(f)
5414
5415 3155(c)
5416
5501
5502 3110
5511 3182(a)
5512
5521 3177(a), (b), (c), (d)(1)
5522 2891(a)
5523 3178
5551 2815(c), (d), (e)
5552 2829
5553
5554
5555 3171
5556 3176
5557 3175
5601 2810
5602 2818
5603 2812
5604 2814
5605 2815(a)
5606 2833
5607 2819
5608 2834
5609 2811
5610 2843
5611 2842
5612 2838
5613 2836
5614 2870
5615 2828
5616 2827
5617 2826
5618 2822
5619 2839
5620 2841
5621 2857(a), 2859
5622 2807
5623 2853
5624 2852
5625 2806(c)
5626 2806(f)
5627 2801(e)(2)
5628 2801(f)
5629 2856
5630 2865
5631 2876
5632 2912, 2913
5633 2914(a)
5634 2806(a)(1)(2)
5635 2867
5636 2866
5637 2868
5638 2869
5639 2806(d)
5640 2803(f)
5641 2871
5642 2803(g)
5643 2908
5644 2909
5645 2806(b)(1)
5646 2806(e)
5647 3072
5648 2885(d)
5649 2854
5650 2850
5661 3043
5662
5663
5671 3159
5672 3159
5673 3159
5674 3159
5675 3155(f)
5676 3159(e), (f), (g), (h), (i)
5681 2831
5682 2821, 2851
5683 3173(a)
5684 3173(b)
5685 3173(c)
5686 3115, 3116
5687 2806(g)
5688 2805(a)-(b); 3118, 3173(d), 63
Stat. 377 et seq.
5689 2800(a)(1)(B), 3112(b),
3150(b)(3)
5690 3173(b)(4)
5691 3253
5692 3252
5693 3274
5701 2000
5702 2010, 2030, 2050, 2110
5703 2001, 2002(b), (c), 2194,
3310(f)(2)
5704 2040, 2101, 2111(f); 2130(d);
2135(a)(1), (2), (3); 2197(b);
2130(d)
5705 2137, 2198, 3313
5706 2136
5707 2000(g)(1), (2), (3)
5711 2013, 2033, 2039(a), 2053
5712 2012, 2032, 2052
5713 2014, 2054
5721 2017, 2036
5722 2019, 2038, 2039(b), 2194
5723 2100, 2102, 2103(a)(1), 2111,
2112(a)(1), 2130(a), (b), (c)
5731 2059, 2060
5732 2058
5741 2018, 2037, 2039(b)(1), 2056,
2194
5751 2104(a), 2113, 2170(a)(2)
5752 2103(e), 2112(e)
5753 2190
5761 2156(c), 2161(m)(1), 2180(1)
5762 2130(a), (b), (c); 2151(a), (c);
2155(a), 2156, 2160(a)-(e), (g),
(i); 2161(a), (c), (e)-(g);
2162(a)(2), (4), (b);
2170(a)(2), (4), (b); 2171(a),
(b)(2); 2172, 2173(a), 2174,
2176(a)(2), (3); 2180(a), (d)-(f)
5763 2155(b), 2160(h), 2161(b), (h),
(i)(1), (j)(1), (l)(1), (m)(2);
2170(b), 2171(a), 2175, 2180(b),
(g)(1), (h), (i), (k), (l)(1),
(2)
5801 3260
5802 3261(a)
5803 3262
5811 2720
5812 2721
5813 2722
5814 2723
5821 2734
5831 2700, 3407
5841 3261(b)
5842 2724
5843 2725
5844 2727
5845 2728
5846 2731
5847 2732
5848 2733
5851 2726(a)
5852 2726(b)
5853 2726(c)
5854 3263
5861 2729
5862 2730
6001 51, 54(a), (b); 821(d), 1007(a),
(b); 1720, 1835, 1928(b), 2302,
2303, 2322(c), 2324, 2352, 2555,
2569(d), 2594(a), 2653(b), 2709,
2724, 3220(c), 3233(a), 3603
6011(a) 47(a), 51, 143(c), 215(a), 217,
235, 251(g), 1420(c), 1530(b),
1604(a), 1624, 1700 (c)(2),
(d)(2), (e)(2); 1716(a),
1852(a), 1902(a)(1), 2403(a),
2451(a), 2471, 2701, 3272(a),
3310(a), (b), (f)(1), 3448(a),
3461, 3467(b), 3469(d), 3475(c),
3491(a), 3611(a)(1)
6011(b)
6012(a) 51(a), 52(a), 142(a)(2), (3),
(4); 217(b), 235(b)
6012(b)(1) 51(b)(4), (c), (g)(5); 142(a)(1)
6012(b)(2) 51(c), 58(f), 142(a)
6012(b)(3) 52(a)
6012(b)(4) 142(a)
6012(b)(5) 142(b)
6013(a) 51(b)(1), (2), (3), (4), (5)
6013(b) 51(g)(1)-(5)
6014(a) 51(f)(1), (2), (4)
6014(b) 51(b)(1), 51(f)(3)
6015(a) 58(a)
6015(b) 58(c)
6015(c) 58(b)
6015(d) 58(b)
6015(e) 58(d)(2)
6015(f) 58(d)(3)
6015(g) 60(b)
6015(h) 58(a)
6016
6017 482(a)
6018(a) 821(a)(1), 864(a)(1), 937
6018(b) 821(a)(2), 864(a)(2)
6019(a) 1006(a)
6019(b)
6020(a) 3611(a)(2)
6020(b) 3612(a), (c)
6020(c)
6021 3613
6031 187
6032 169(f)
6033(a) 54(f)
6033(b) 153(a)
6033(c)
6034(a) 153(b)
6034(b) 153(b)
6035(a) 338
6035(b) 339
6036 274(a), 820
6037
6041(a) 147(b)(2)
6041(b) 147(b)(1)
6041(c) 147(c)
6041(d)
6042 148(a), (b), (c)
6043 148(d), (e)
6044(a) 148(f)
6044(b) 148(f)
6044(c) 148(f)
6045 149
6046(a) 3604(a)
6046(b) 3604(b)
6046(c) 3604(b)
6046(d)
6051(a) 1403, 1633(a), (b)
6051(b) 1633(a)
6051(c) 1633(b)
6051(d) 1633(b)
6061 3809(b)
6062 52(a)
6063 187
6064 58(g), 3809(b)
6065(a) 142(a), (b), 148(a), (d), (e);
149, 169(f), 187, 233, 821(a),
864(a), 1006(a), 1604(a),
1716(a), 1852(a), 1902(a)(1),
2403(a), 2471, 2555(a), (c);
2701, 3233(a), 3272(a), 3330,
3448(a), 3461, 3467(b), 3469(d),
3475(c), 3604(b), 3611(a), (c),
3779(b), 3780(a), 3809(c)
6065(b) 51(a), 54(f), 58(b), 215(a),
3780(a)
6071 141(b), 147(a), 148(a), (b),
(c), (e); 149, 150, 153(a), (b),
821(b), 864(b), 874(b)(3),
1253(a), 1420(c), 1530(b),
1604(a), 1716(b), 1852(a),
1902(a)(1), 2403(a), 2451(a),
2471, 2555(b), (c), 2701,
2734(e), 3233(a), 3272(a),
3310(a), (f)(1); 3448(a), 3461,
3467(b), 3469(d), 3475(c),
3491(a), 3604(a), 3611(b), (c);
3779(b), 3780(a), 3791(a)
6072(a) 53(a)(1), 143(c)
6072(b) 53(a)
6072(c) 217(a), 235(a)
6072(d)
6072(e) 3805
6073(a) 58(d)(1)
6073(b) 60(a)
6073(c) 58(d)(2)
6073(d) 60(b)
6073(e) 60(c)
6074(a)
6074(b)
6074(c)
6075(a) 821(b), 864(b)
6075(b) 1006(b)
6081(a) 53(a)(2), 58(e), 141(b), 147(a),
148(a), (b), (c), (e); 149, 150,
153(a), (b); 821(b), 864(b),
874(b)(3), 1253(a), 1420(c),
1530(b), 1604(b), 1625(c),
1633(c), 1716(b), 2403(a),
2451(a), 2471, 2555(c)(1), 2701,
3233(a), 3272(a), 3310(f)(1),
3448(a), 3461, 3467(b), 3469(e),
3475(d), 3611(a)(1), 3634,
3779(b), 3791(a)
6081(b)
6081(c)
6091(a) 147(a), 148(b), (c), (d), 149,
150, 153(a), (b), 820,
874(b)(3), 1253(a), 1420(c),
1530(b), 2555(c)(1), 2734(e),
3233(a), 3604(a), 3611(a)(1),
(c); 3779(a), 3780(a), 3791(a)
6091(b)(1) 53(b)(1), 58(d)(2), 60(b),
143(c), 821(c), 864(c), 1006(b),
1604(a), 1716(c), 1852(b),
1902(a)(2), 2403(a), 2451(a),
2471, 2701, 3272(a), 3291(a),
3448(a), 3461, 3467(b), 3469(d),
3475(c), 3491(c), 3611(a)(1),
(c); 3791(a)
6091(b)(2) 53(b)(2), 141(b), 143(c),
1604(a), 1716(c), 1852(b),
1902(a)(2), 2403(a), 2451(a),
2471, 2701, 3272(a), 3291(a),
3448(a), 3461, 3467(b), 3469(d),
3475(c), 3491(c), 3611(a)(1),
(c); 3791(a)
6091(b)(3) 821(c), 864(c)
6091(b)(4)
6101 3630
6102
6103(a) 55(a)
6103(b) 55(b)
6103(c) 55(c)
6103(d) 55(d)
6103(e) 58(h)
6103(f) 55(e)
6104 153(c)
6105 722(g)
6106 1604(c)
6107 3275, 3292
6108 63
6109
6151(a) 56(a), 143(c), (h); 144, 218(a),
236(a), 822(a)(1), 1008(a),
1253(a), 1530(b), 1715(b), (c);
1853(a), (b); 1902(a)(3), (b);
2403(b), 2451(a), (b); 2472,
2702(a), 3220, 3230, 3271(b),
3272(a), 3448(a), (b); 3461,
3467(b), 3469(b), 3470, 3475(c),
3491(a), (c)
6151(b) 51(f)(2), 56(i)
6151(c) 322(b)(4), (e)
6152(a)(1) 56(b)(2)(A)
6152(a)(1)(A) 56(b)(2)(A)
6152(a)(1)(B) 56(b)(2)(B)
6152(a)(2) 56(b)(1)
6152(a)(3) 1605(c)
6152(b)(1) 56(b)(3)(A), 1605(c)
6152(b)(2) 56(b)(3)(B)
6152(c) 272(i)
6152(d) 56(b)(4)
6153(a) 59(a)
6153(b) 60(a)
6153(c) 59(b)
6153(d) 60(b)
6153(e) 60(c)
6153(f) 59(c)
6154
6155(a) 22(d)(6)(F), 51(f)(2), 131(c),
146(a), 272(b), (c); 273(a),
(g), (i); 274(b), 292(a),
871(b), (c), (i); 872(a), (g),
(i); 874(b)(3), 891, 1012(b),
(c); 1013(a), (g), (i); 1015(b),
1021, 1117(g), 1605(c), 3310(d),
3311, 3660(a), 3779(h)
6155(b)
6156
6161(a)(1) 56(c), 58(e), 1008(b), 1605(d),
3467(b), 3469(e), 3475(d)
6161(a)(2) 822(a)(2)
6161(b)(1) 272(j), 1012(i)
6161(b)(2) 871(h)
6161(c) 274(b), 1015(b)
6161(d)
6162(a) 56(c)(2)
6162(b)
6163(a) 925, 926
6163(b)
6164(a) 3779(a)
6164(b) 3779(b)
6164(c) 3779(c)
6164(d) 3779(d)
6164(e) 3779(e)
6164(f) 3779(f)
6164(g) 3779(g)
6164(h) 3779(h)
6164(i) 3781
6165 56(c)(2), 272(j), 822(a)(2),
871(h), 1012(i)
6201(a) 3640, 3647
6201(a)(1) 3612(f)
6201(a)(2)(A) 1809(b)(2), 2351(c)(2),
2651(c)(2), 3311
6201(a)(2)(B)
6201(a)(3)
6201(b) 59(d)
6201(c) 22(m)(4)
6201(d)
6202 3644
6203 3641
6204 3642
6205(a)(1) 1401(c), 1411, 1501(c), 1521
6205(a)(2) 1411
6205(b) 1421, 1502, 1522
6206
6211(a) 271(a), 870, 1011
6211(b)(1) 271(b)(1)
6211(b)(2) 271(b)(2)
6211(b)(3) 271(b)(3)
6212(a) 272(a), 871(a), 1012(a)
6212(b)(1) 272(k), 1012(j)
6212(b)(2) 272(a)
6212(b)(3) 901(d)
6212(c)(1) 272(f), 871(f), 1012(f)
6212(c)(2)
6213(a) 272(a), 871(a), 1012(a)
6213(b)(1) 272(f), 871(f), 1012(f)
6213(b)(2) 3780(c)
6213(b)(3)
6213(c) 272(c), 871(c), 1012(c)
6213(d) 272(d), 871(d), 1012(d)
6213(e)
6214(a) 272(e), 871(e), 1012(e)
6214(b) 272(g), 1012(g)
6214(c) 272(h), 871(g), 1012(h)
6215(a) 272(b), 871(b), 1012(b)
6215(b)
6216
6301 3651(a)(1)
6302(a) 3652
6302(b) 1420(c), 1719, 2550(c), 2708,
3281, 3282
6302(c) 3310(f)(2)
6303(a) 3655(a)
6303(b)
6304
6311(a) 3656(a)(1), (b)(1)
6311(b)(1) 3656(a)(2)(A), (b)(2)
6311(b)(2) 3656(a)(2)(B)
6312(a) 3657
6312(b)
6313 56(g), 1008(d), 1420(d),
1530(d), 1605(e), 3658
6314(a) 1008(e), 3659(a)
6314(b) 823
6314(c)
6315 59(d)
6316
6321 3670
6322 3671
6323(a) 3672(a)
6323(a)(1) 3672(a)(1)
6323(a)(2) 3672(a)(2)
6323(a)(3) 3672(a)(3)
6323(b)
6323(c)
6323(d)(1) 3672(b)(1)
6323(d)(2) 3672(b)(2)
6323(e)
6324(a)(1) 827(a)
6324(a)(2) 827(b)
6324(a)(3) 827(c)
6324(b) 1009
6324(c)
6325(a)(1) 827(a), 1009, 3673(a)
6325(a)(2) 3673(b)
6325(b)(1) 3674(a)
6325(b)(2) 3674(b)
6325(c) 3675
6325(d)
6326
6331(a) 3310, 3660, 3690, 3692, 3700
6331(b) 3690, 3692, 3700
6331(c) 3715
6331(d)
6332(a) 3710(a)
6332(b) 3710(b)
6332(c) 3710(c)
6333 3711
6334(a) 3691(a)
6334(b) 3691(b)
6334(c) 3692
6335(a) 3693(a), 3701(a)
6335(b) 3693(b), 3701(b)
6335(c) 3712
6335(d) 3693(c), 3701(c)
6335(e)(1) 3695(a), 3701(d), (e)
6335(e)(2) 3695(b)
6335(e)(2)(A) 3695(a), 3701(d)
6335(e)(2)(B) 3701(d)
6335(e)(2)(C)
6335(e)(2)(D) 3701(f)
6335(e)(2)(E) 3693, 3701
6335(e)(2)(F) 3693(d), 3701(f)
6335(e)(3) 3701(f)
6336
6337(a) 3696, 3702
6337(b)(1) 3702(b)(1)
6337(b)(2) 3702(b)(2)
6337(c) 3702(c)
6338(a) 3703(b)
6338(b) 3704(b)
6338(c) 3703(a), 3704(a)
6339(a)(1) 3697(a)(1)
6339(a)(2) 3697(b)
6339(a)(3) 3697(c)
6339(a)(4) 3697(d)
6339(a)(5)
6339(b)(1) 3704(c)(1)
6339(b)(2) 3704(c)(2)
6340(a) 3706(a), (b)
6340(b) 3706(f)
6341 3716
6342(a) 3694
6342(b) 3712
6343
6344
6401(a) 3770(a)(2)
6401(b) 322(a)(2)
6401(c) 3770(c)
6402(a) 1027(a), 3770(a)(1), (4), (5)
6402(b) 322(a)(3)
6403 321
6404(a) 3770(a)(1), (5)
6404(b) 273(j), 873, 1014
6404(c)
6405(a) 3777(a)
6405(b) 3777(b)
6405(c) 3777(c)
6406 3790
6407 3770(a)(3)
6411(a) 3780(a)
6411(b) 3780(b)
6411(c) 3781
6412(a)
6412(b)(1) 3412(g)(1)
6412(b)(2) 3412(g)(2)
6412(c)
6412(d) 3508
6412(e)
6413(a)(1) 1401(c), 1411, 1501(c), 1521
6413(a)(2) 1411
6413(b) 1421, 1502, 1522
6413(c)(1) 1401(d)(3)
6413(c)(2) 1401(d)(4)
6413(d) 1601(d)
6414 143(f), 1622(f)(1)
6415(a) 1854(a), 3471(a)
6415(b) 1715(d)(1), (2); 1854(b), (c);
3471(b), (c)
6415(c) 1715(d)(2)
6415(d) 1715(d)(1), 1854(c), 3471(c)
6416(a) 1715(d), 2407(b), 2452(b),
3443(a)(3)(B), (b), (d)
6416(b)(1) 2407(a), 3443(a)(2)
6416(b)(2)(A) 3443(a)(3)(A)(i)
6416(b)(2)(B) 3443(a)(3)(A)(ii)
6416(b)(2)(C) 3443(a)(3)(A)(iii)
6416(b)(2)(D) 2452(a)
6416(b)(2)(E) 3443(a)(3)(A)(iv)
6416(b)(2)(F) 3443(a)(3)(A)(v)
6416(b)(2)(G) 3443(a)(3)(A)(vi)
6416(b)(2)(H) 3443(a)(3)(A)(vii)
6416(b)(3) 3443(a)(1)
6416(c) 3403(e)
6416(d) 3408(b)
6416(e) 2705
6416(f) 2703(a), 3471(b)
6417(a) 2473
6417(b) 2474
6418(a) 3494(a)
6418(b) 3493(a)
6419 3286
6420
6501(a) 275(a), 874(a), 1016(a),
1635(a), 3312(a)
6501(b)(1) 275(f)
6501(b)(2) 1635(e)
6501(b)(3)
6501(c)(1) 276(a), 874(b)(1), 1016(b)(1),
1635(b), 3312(b)
6501(c)(2) 1635(c), 3312(c)
6501(c)(3) 276(a), 874(b)(1), 1016(b)(1),
1635(b), 3312(b)
6501(c)(4) 276(b)
6501(c)(5)
6501(d) 275(b)
6501(e)(1)(A) 275(c)
6501(e)(1)(B) 275(d)(1)
6501(e)(2)
6501(f)
6501(g)
6502(a) 276(c), 874(b)(2), 1016(b)(2),
1635(d), 3312(d)
6502(b) 3714(b)
6503(a)(1) 277, 875, 1017
6503(a)(2) 141(h)
6503(b) 274(b), 1015(b)
6503(c)
6503(d) 822(a)(2), 871(h)
6503(e)
6504
6511(a) 322(b)(1), 910, 1027(b)(1),
1636(a)(1), 3313
6511(b)(1) 322(b)(1), 910, 1027(b)(1),
1636(a)(1), 3313
6511(b)(2) 322(b)(2), 910, 1027(b)(2),
1636(a)(2), 3313
6511(c) 322(b)(3)
6511(d)(1) 322(b)(5)
6511(d)(2)(A) 322(b)(6)
6511(d)(2)(B) 322(g)
6511(d)(3)
6511(e)(1) 3494(b)
6511(e)(2) 3493(b)
6511(f)
6512(a) 322(c), 911, 1027(c)
6512(b) 322(d), 912, 1027(d)
6513(a) 322(b)(4)
6513(b) 322(e)
6513(c) 1636(c)
6513(d)
6514(a) 3774
6514(b) 3775
6515
6521 3812
6531 3748(a)
6532(a)(1) 3772(a)(2)
6532(a)(2) 3774(b)
6532(a)(3)
6532(a)(4) 3772(a)(3)
6532(b) 3746(a), (b), (c)
6533
6601(a) 146(f), 292(a), (c), (d);
294(a)(1), (2), (b), (c); 295,
296, 297, 298, 890(a), (b), 891,
892, 893(a)(1), (2); (b)(1),
(2), (3), (4); 925, 1020(a),
(b), 1021, 1022, 1023(a)(1),
(2); (b)(1), (2), (3), (4), (5),
1420(b), 1530(c), 1605(b), 1717,
1853(c), 2403(b), 2451(b), 2475,
2706, 3310(c), 3448(b), 3470,
3495, 3655(b), 3779(i), 3794
6601(b) 890(a), 925
6601(c)(1) 294(a)(2), 296, 893(a)(2),
(b)(3); 1023(a)(2), (b)(3)
6601(c)(2) 56(b), 272(i), 1605(c)
6601(c)(3) 297, 892, 1022
6601(c)(4) 3310(a), (b), 3311
6601(d) 292(a), 891, 1021
6601(e) 292(c), 3779(i)
6601(f)(1) 292(a), 294(b), 295, 296, 298,
890(a), (b), 891, 893(a), (b),
1020(a), (b), 1021, 1023(a),
(b), 1420(b), 1530(c), 1605(b),
1717, 1853(c), 2403(b), 2451(b),
2475, 2706, 3310(c), (d),
3448(b), 3470, 3495, 3655(b),
3779(i)
6601(f)(2)
6601(f)(3)
6601(g) 59(d)
6601(h)
6602 3746(d)
6611(a) 3443(c), 3771(a)
6611(b)(1) 3771(b)(1)
6611(b)(2) 3771(b)(2)
6611(c) 3771(c)
6611(d) 322(b)(4), (e); 1636
6611(e) 3771(b)(2)
6611(f) 3771(e)
6611(g) 3790
6612
6651(a) 291, 894(a), 1631, 3612(d)(1)
6651(b)
6651(c) 294(d)(1)(A)
6652
6653(a) 51(g)(6)(A), 293(a), 894(a)
1019(a)
6653(b) 51(g)(6)(B), 293(b), 871(i),
1019(b), 3612(d)(2)
6653(c)(1) 271, 870, 1011
6653(c)(2)
6653(d)
6653(e) 1821(a)(3)
6654 294(d)(1)(B)
6655
6656
6657
6658 146(f)
6659 51(g)(6), 291, 293, 871(i),
1019, 1117(g), 1634(b), 1718(c),
1821(a)(3), 3310(a)-(e), 3311,
3655(a)(b)
6671(a) 1718(c), 1821(a)(3), 2557(b)(4),
2707(a)
6671(b) 1718(d), 1821(a)(4), 2557(b)(8),
2707(d)
6672 1718(c), 1821(a)(3), 2557(b)(4),
2707(a)
6673 1117(g)
6674 1634(b)
6801(a) 1809(b)(1), 2652(a), 3273(a),
3300(a), 3901(a)(2)
6801(b) 1809(b)(1), 3301(a)
6802(1) 1423(a), 1817(a)
6802(2) 1817(b)
6802(3) 1817(c)
6803(a)(1) 1423(b)
6803(a)(2) 1423(c)
6803(b)(1) 1818(a)
6803(b)(2) 1818(b)
6804 1815, 1920(c), 3301(a)
6805(a) 3304(a)
6805(b) 3304(b)
6805(c) 3304(c)
6805(d) 3304(d)
6806(a) 3273(b)
6806(b)
6806(c) 3293
6807 3725
6808
6851(a)(1) 146(a)(1)
6851(a)(2) 146(a)(2)
6851(b)
6851(c) 146(d)
6851(d) 146(e)
6851(e) 146(b)
6861(a) 273(a), 872(a), 1013(a)
6861(b) 273(b), 872(b), 1013(b)
6861(c) 273(c), 872(c), 1013(c)
6861(d) 273(d), 872(d), 1013(d)
6861(e) 273(e), 872(e), 1013(e)
6861(f) 273(i), 872(i), 1013(i)
6861(g) 273(k), 872(j), 1013(j)
6861(h)
6862(a) 3660(a)
6862(b)
6863(a) 273(f), (h); 872(f), (h);
1013(f), (h); 3660(b)
6863(b)(1) 273(g), 872(g), 1013(g)
6863(b)(2) 273(f), (h); 872(f), (h);
1013(f), (h)
6864
6871(a) 274(a), 1015(a)
6871(b) 274(a), 1015(a)
6872 274(a)
6873(a) 274(b), 1015(b)
6873(b)
6901(a) 311(a), 900(a), 1025(a)
6901(b) 311(a), 900(a), 1025(a)
6901(c) 311(b), 900(b), 1025(b)
6901(d) 311(b)(4)
6901(e) 311(c), 1025(c)
6901(f) 311(d), 900(c), 1025(d)
6901(g) 311(e), 1025(g)
6901(h) 311(f), 900(e), 1025(f)
6901(i)
6902(a) 1119(a)
6902(b) 1119(b)
6903(a) 312(a), 901(a), 1026(a)
6903(b) 312(c), 901(c), 1026(c)
6904
7001(a) 150
7001(b)
7011(a) 3270(a)
7011(b) 3280(a)
7012
7101 44(d), 56(c)(2), 112(b)(6)(D),
131(c), 146(b), 272(j), 273(f),
822(a)(2), 871(h), 872(f), 926,
1012(i), 1013(f), 1145, 1818(a),
2302(e), 2322(e), 2352(e), 2474,
2569(b), 2653(d), 3360(d)(2)(B),
3412(d), 3413, 3660(b), 3722(c),
3724(c), 3943, 3992, 4010, and 6
U.S.C. 15
7102 3676
7103
7121(a) 3760
7121(b) 3760
7122(a) 3761
7122(b) 3761
7123
7201 145(a), (b), 153(d), 340,
894(b)(2)(B), (C); 937, 1024(a),
(b); 1718(a), (b); 1821(a)(1),
(2), (b)(4); 2557(b)(2), (b)(3);
2656(f), 2707(b), 2707(c),
3604(c)
7202 145(b), 894(b)(2)(C), 1718(b),
1821(a)(2), 2557(b)(3), 2707(c)
7203 145(a), 153(d), 340,
894(b)(2)(B), 937, 1024(a),
1718(a), 1821(a)(1), 2557(b)(2),
2707(b), 3604(c)
7204 1634(a)
7205 1626(d)
7206(1) 3809(a)
7206(2) 3793(b)
7206(3) 3793(a)
7206(4) 2656(a), 3321
7206(5) 3762
7207 894(b)(2), 3616(a), 3672, 3793(b)
7208 3300(b)
7208(1) 1425(b)
7208(2) 1823(a)
7208(3) 1822, 1823(b)
7208(4) 1823(c)
7208(5) 3323(a)(3)
7209 1425(a)
7210 3616(b)
7211 3325
7212(a) 3601(c)
7212(b) 3601(c)(2)
7213(a)(1) 55(f)(1)
7213(a)(2) 55(f)(2)
7213(a)(3) 55(f)(3)
7213(b) 4047(a)(1)
7213(c)
7214(a) 4047(e)
7214(b) 4047
7214(c)
7231 150
7232 3412(d)
7233(1) 1929(a)(1)
7233(2) 1929(a)(2)
7234(a) 2308(a)
7234(b) 2308(c)
7234(c) 2308(h)
7234(d)(1) 2308(i)(1)
7234(d)(2)(A) 2308(g)(1)
7234(d)(2)(B) 2308(g)(2)
7234(d)(3) 2308(i)(2)
7234(d)(4) 2308(d)
7235(a) 2326(a)
7235(b) 2326(b)
7235(c) 2326(c)
7235(d) 3207(b)
7235(e) 2327
7236 2357(b)
7237(a) 2557(b)(1), 2596, 3225, 3235
7237(b) 2557(a)
7238 2570
7239(a) 2656(b)
7239(b) 2656(d)
7240 3506
7261 2409
7262 3294(a)
7263(a) 1929(c)
7263(b) 1929(b)
7264 3207(a)
7265(a)(1) 2308(b)
7265(a)(2) 2326(a)(2)
7265(b) 2308(e), 2327(a)
7265(c) 2308(j), 2327(a)
7266(a)(1) 3211(a)
7266(a)(2) 3211(b)
7266(a)(3) 3211(c)
7266(b) 2357(a)
7266(c) 2357(c)
7266(d) 2357(d)
7266(e) 2357(e)
7266(f) 2357(f)
7267(a) 2656(j)
7267(b) 2656(k)
7267(c) 2656(i)
7267(d) 2656(h)
7268 3320(a)
7269 894(b)(1)
7270 1821(b)(3)
7271(1) 1822, 2656(c)
7271(2) 1820(b)
7271(3) 1820(a)
7271(4) 3323(a)(1), (2)
7272(a) 1831(c), 2656(g), 3475(e)
7272(b)
7273(a) 3274
7273(b) 3294(b)
7274 2656
7275
7301(a) 2558(a), (b); 2571, 2598(a),
(b), (c); 3253, 3321(b)(1),
3720(a)(1)
7301(b) 3321(b)(1), 3720(a)(2)
7301(c) 2657(e), 3321(b)(1), 3720(a)(3)
7301(d) 3321(b)(2), 3322
7301(e) 3321(b)(3)
7302 3116
7303(1) 1823
7303(2) 2309(b), 2358(b)
7303(3) 2309(d)
7303(4) 2358(a)
7303(5) 2309(b), 2358(b)
7303(6)(A) 2657(c)
7303(6)(B) 2656(c), 2657(a)(b), (f)
7303(7) 3323(b)
7303(8) 3793(a)(2)
7304 3326
7321 3720(b)
7322 3721
7323(a) 3723(a)
7323(b) 3723(b)
7323(c) 3723(c)
7324 3722
7325 3724
7326
7327 3726
7328 2657
7329
7341(a) 3324(a)
7341(b) 3324(b)
7341(c) 3324(c)
7342 3601(b)
7343 145(d), 894(b)(2)(D), 1718(d),
1821(a)(4), 2557(b)(8), 2707(d),
3228, 3710(c), 3793(b)(2)
7344 4048
7401 3740
7402(a) 3800
7402(b) 3633
7402(c) 4042
7402(d) 3992, 3995(c)
7402(e)
7403(a) 3678(a)
7403(b) 3678(b)
7403(c) 3678(c)
7403(d) 3678(d)
7404 826(a)
7405(a) 3746(a)
7405(b) 3746(b)
7405(c)
7405(d)
7406 3747
7407
7421(a) 3653(a)
7421(b) 3653(b)
7422(a) 3772(a)(1)
7422(b) 3772(b)
7422(c) 3772(d)
7422(d) 3772(e)
7422(e)
7422(f)
7423(1) 3770(b)(1)
7423(2) 3770(b)(2)
7424(a)(1) 3679(a)(1)
7424(a)(2) 3679(a)(2)
7424(a)(3) 3679(a)(3)
7424(b) 3679(c)
7424(c) 3679(d)
7425
7441 1100
7442 1101
7443(a) 1102(a)
7443(b) 1102(b)
7443(c) 1102(c)
7443(d) 1102(d)
7443(e) 1102(e)
7443(f) 1102(f)
7443(g) 1102(g)
7444(a) 1103(a)
7444(b) 1103(b)
7444(c) 1103(c)
7444(d) 1103(d)
7445 1104
7446 1105
7447(a) 1106(a)
7447(b) 1106(b)
7447(c) 1106(c)
7447(d) 1106(d)
7447(e) 1106(e)
7447(f) 1106(f)
7447(g) 1106(g)
7451 1110
7452 504(b), R.A. 1942
7453 1111
7454(a) 1112
7454(b)
7455 1113
7456(a) 1114
7456(b)
7456(c) 1114(b)
7457(a) 1115(a)
7457(b) 1115(b)
7458 1116
7459(a) 1117(a)
7459(b) 1117(b)
7459(c) 1117(c)
7459(d) 1117(d)
7459(e) 1117(e)
7459(f) 1117(f)
7459(g)
7460(a) 1118(a)
7460(b) 1118(b)
7461 1120
7462 1121
7463
7471(a) 1130(a)
7471(b) 1130(b)
7471(c)
7472 1131
7473 1132
7474 1133
7481 1140
7482(a) 1141(a)
7482(b) 1141(b)
7482(c) 1141(c)
7483 1142
7484 1143
7485(a) 1145
7485(b)
7486 1146
7487
7491 2597
7492 1925(b)
7493 1930
7501(a) 3661
7501(b)
7502
7503
7504
7505(a) 3695(b)
7505(b) 3695(c)
7506(a) 3795(a)
7506(b) 3795(b)
7506(c) 3795(c)
7506(d) 3795(d)
7507(a) 3798(a)
7507(b) 3798(b)
7507(c) 3798(c)
7507(d) 3798(d)
7508(a) 3804(a)
7508(b) 3804(d)
7509 1424
7510 3331
7511 3802
7601(a) 3600
7601(b)
7602 3614, 3615(a), (b), (c);
3632(a)(1)
7603 3615(d)
7604(a) 3633(a)
7604(b) 3615(e)
7604(c)
7605(a) 3614, 3615
7605(b) 3631
7606(a) 3601(a)(1)
7606(b) 3601(a)(2)
7606(c)
7607
7621 3650
7622(a) 3632(a)
7622(b) 3632(b)
7623 3792
7641 2302(c), 2322(c), 2352(c),
2569(d)(4), 2653(b)
7651(2)(A) 3811
7652(a)(1) 3360(a)
7652(a)(2) 3360(b)
7652(a)(3) 3360(c)
7652(b)(1) 3350(a)
7652(b)(2) 3350(b)
7653(a)(1) 3361(a)
7653(a)(2) 3351(a)
7653(b) 3351(b), 3361(b)
7653(c) 3351(c), 3361(c)
7653(d)
7654 2483
7655
7701(a)(1) 1426(f), 1532(i), 1607(k), 1805,
1931(b), 2733(i), 3228(a),
3238(a), 3507(a), 3797(a)(1)
7701(a)(2) 3797(a)(2)
7701(a)(3) 3797(a)(3)
7701(a)(4) 3797(a)(4)
7701(a)(5) 3797(a)(5)
7701(a)(6) 3797(a)(6)
7701(a)(7) 3797(a)(7)
7701(a)(8) 3797(a)(8)
7701(a)(9) 3797(a)(9)
7701(a)(10) 3797(a)(10)
7701(a)(11) 3797(a)(11)
7701(a)(12)
7701(a)(13) 3797(a)(12)
7701(a)(14) 3797(a)(14)
7701(a)(15) 3797(a)(15)
7701(a)(16) 3797(a)(16)
7701(a)(17) 3797(a)(17)
7701(a)(18) 3797(a)(18)
7701(a)(19) 3797(a)(19)
7701(a)(20) 3797(a)(20)
7701(a)(21)
7701(a)(22)
7701(a)(23) 48(a)
7701(a)(24) 48(b)
7701(a)(25) 48(c)
7701(a)(26) 48(d)
7701(a)(27)
7701(a)(28)
7701(b) 3797(b)
7701(c)(1) 3797(c)
7701(c)(2)
7801(a) Reorg. Plan No. 26 of 1950
7801(b) 3930(a), 3931
7801(c) 3932
7802 3900
7803(a) 3920, 3921, 4000, 4041(a)
7803(b)(1) 4040
7803(b)(2) 3901(b)
7803(c) 3360(b)(2)(B), 3943, 3992, 4010
7803(d) 3975, 3976, 3977, 3978
7804(a) 616 R.A. 1951
7804(b) 3, P.L. 567 (82d Cong.)
7805(a) 62, 3791(a)
7805(b) 3791(b)
7805(c) 3901(a)(2)
7806(a) 2
7806(b) Ch. 1, Sec. 6, P.L. 1
7807(a)
7807(b)
7808 3970
7809(a) 2480, 3971(a)
7809(b) 3971(b)
7809(b)(1) 3971(b)(1)
7809(b)(2) 3971(b)(2)
7809(b)(3) 3971(b)(3)
7851(a) See 26 U.S.C. 3, 4
7851(b) See 26 U.S.C. 4(b)
7851(c) See 26 U.S.C. 4(c)
7851(d) See 26 U.S.C. 4(d)
7852(a) 3803
7852(b) See 26 U.S.C. 4(a), 5, 7
7852(c)
7852(d) 108 R.A. 1941; 109 R.A. 1942;
136 R.A. 1943; 214 R.A. 1950;
615 R.A. 1951; See 22(b)(7)
8001 5000
8002 5001
8003 5002
8004 5003
8005 5004
8021 5010
8022 5011
8023 5012
--------------------------------------------------------------------
An Act to revise the internal revenue laws of the United States
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That
(a) Citation
(1) The provisions of this Act set forth under the heading
"Internal Revenue Title" may be cited as the "Internal Revenue Code
of 1986 [formerly I.R.C. 1954]".
(2) The Internal Revenue Code enacted on February 10, 1939, as
amended, may be cited as the "Internal Revenue Code of 1939".
(b) Publication
This Act shall be published as volume 68A of the United States
Statutes at Large, with a comprehensive table of contents and an
appendix; but without an index or marginal references. The date of
enactment, bill number, public law number, and chapter number,
shall be printed as a headnote.
(c) Cross reference
For saving provisions, effective date provisions, and other
related provisions, see chapter 80 (sec. 7801 and following) of the
Internal Revenue Code of 1986.
(d) Enactment of Internal Revenue Title into law
The Internal Revenue Title referred to in subsection (a)(1) is as
follows: * * *.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 3; Pub. L. 99-514, Sec. 2, Oct.
22, 1986, 100 Stat. 2095.)
-MISC2-
AMENDMENTS
1986 - Subsecs. (a)(1), (c). Pub. L. 99-514 substituted "Internal
Revenue Code of 1986" for "Internal Revenue Code of 1954".
REDESIGNATION OF INTERNAL REVENUE CODE OF 1954; REFERENCES
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(a) Redesignation of 1954 Code. - The Internal Revenue Title
enacted August 16, 1954, as heretofore, hereby, or hereafter
amended, may be cited as the 'Internal Revenue Code of 1986'.
"(b) References in Laws, Etc. - Except when inappropriate, any
reference in any law, Executive order, or other document -
"(1) to the Internal Revenue Code of 1954 shall include a
reference to the Internal Revenue Code of 1986, and
"(2) to the Internal Revenue Code of 1986 shall include a
reference to the provisions of law formerly known as the Internal
Revenue Code of 1954."
-HEAD-
INTERNAL REVENUE TITLE
-MISC3-
Subtitle
A. Income taxes.
B. Estate and gift taxes.
C. Employment taxes.
D. Miscellaneous excise taxes.
E. Alcohol, tobacco, and certain other excise taxes.
F. Procedure and administration.
G. The Joint Committee on Taxation.
H. Financing of Presidential election campaigns.
I. Trust Fund Code.
J. Coal industry health benefits.(!1)
K. Group health plan requirements.
AMENDMENTS
1997 - Pub. L. 105-34, title XV, Sec. 1531(b)(3), Aug. 5, 1997,
111 Stat. 1085, added subtitle K heading "Group health plan
requirements" and struck out former subtitle K heading "Group
health plan portability, access, and renewability requirements".
1996 - Pub. L. 104-191, title IV, Sec. 401(b), Aug. 21, 1996, 110
Stat. 2082, added subtitle K heading "Group health plan
portability, access, and renewability requirements".
1982 - Pub. L. 97-248, title III, Secs. 307(b)(2), 308(a), Sept.
3, 1982, 96 Stat. 590, 591, provided that, applicable to payments
of interest, dividends, and patronage dividends paid or credited
after June 30, 1983, subtitle C heading is amended to read
"Employment taxes and collection of income tax at source". Section
102(a), (b) of Pub. L. 98-67, title I, Aug. 5, 1983, 97 Stat. 369,
repealed subtitle A (Secs. 301-308) of title III of Pub. L. 97-248
as of the close of June 30, 1983, and provided that the Internal
Revenue Code of 1954 [now 1986] [this title] shall be applied and
administered (subject to certain exceptions) as if such subtitle A
(and the amendments made by such subtitle A) had not been enacted.
1981 - Pub. L. 97-119, title I, Sec. 103(c)(2), Dec. 29, 1981, 95
Stat. 1638, added subtitle I heading "Trust Fund Code".
1976 - Pub. L. 94-455, title XIX, Sec. 1907(b)(2), Oct. 4, 1976,
90 Stat. 1836, substituted in subtitle G heading "The Joint
Committee on Taxation" for "The Joint Committee on Internal Revenue
Taxation".
1974 - Pub. L. 93-443, title IV, Sec. 408(a), Oct. 15, 1974, 88
Stat. 1297, added subtitle H heading "Financing of Presidential
election campaigns".
-STATAMEND-
TABLE OF CONTENTS
This Table of Contents is inserted for convenience of users and
was not enacted as part of the Internal Revenue Code of 1986.
-HEAD-
Subtitle A - Income Taxes
-MISC1-
Chapter Sec.
1. Normal taxes and surtaxes 1
2. Tax on self-employment income 1401
3. Withholding of tax on nonresident aliens and foreign
corporations 1441
[4, 5. Repealed.]
6. Consolidated returns 1501
Subtitle B - Estate and Gift Taxes
11. Estate tax 2001
12. Gift tax 2501
13. Tax on generation skipping transfers 2601
14. Special valuation rules 2701
Subtitle C - Employment Taxes
21. Federal insurance contributions act 3101
22. Railroad retirement tax act 3201
23. Federal unemployment tax act 3301
23A. Railroad unemployment repayment tax 3321
24. Collection of income tax at source on wages 3401
25. General provisions relating to employment taxes 3501
Subtitle D - Miscellaneous Excise Taxes
31. Retail excise taxes 4001
32. Manufacturers excise taxes 4061
33. Facilities and services 4231
34. Policies issued by foreign insurers 4301
35. Taxes on wagering 4401
36. Certain other excise taxes 4451
[37. Repealed.]
38. Environmental taxes 4611
39. Registration-required obligations 4701
40. General provisions relating to occupational taxes 4901
41. Public charities 4911
42. Private foundations; and certain other tax-exempt
organizations 4940
43. Qualified pension, etc., plans 4971
44. Qualified investment entities 4981
[45. Repealed.]
46. Golden parachute payments 4999
47. Certain group health plans 5000
Subtitle E - Alcohol, Tobacco, and Certain Other Excise Taxes
51. Distilled spirits, wines, and beer 5001
52. Cigars, cigarettes, smokeless tobacco, pipe tobacco,
and cigarette papers and tubes 5701
53. Machine guns, destructive devices, and certain other
firearms 5801
54. Greenmail 5881
55. Structured settlement factoring transactions 5891
Subtitle F - Procedure and Administration
61. Information and returns 6001
62. Time and place for paying tax 6151
63. Assessment 6201
64. Collection 6301
65. Abatements, credits, and refunds 6401
66. Limitations 6501
67. Interest 6601
68. Additions to the tax, additional amounts, and
assessable penalties 6651
69. General provisions relating to stamps 6801
70. Jeopardy, receiverships, etc. 6851
71. Transferees and fiduciaries 6901
72. Licensing and registration 7001
73. Bonds 7101
74. Closing agreements and compromises 7121
75. Crimes, other offenses, and forfeitures 7201
76. Judicial proceedings 7401
77. Miscellaneous provisions 7501
78. Discovery of liability and enforcement of title 7601
79. Definitions 7701
80. General Rules 7801
Subtitle G - The Joint Committee on Taxation
91. Organization and membership of the Joint Committee 8001
92. Powers and duties of the Joint Committee 8021
Subtitle H - Financing of Presidential Election Campaigns
95. Presidential election campaign fund 9001
96. Presidential primary matching payment account 9031
Subtitle I - Trust Fund Code
98. Trust Fund Code 9501
Subtitle J - Coal Industry Health Benefits
99. Coal industry health benefits 9701
Subtitle K - Group Health Plan Requirements
100. Group health plan requirements 9801
-FOOTNOTE-
(!1) Editorially supplied. Subtitle J added by Pub. L. 102-486
without corresponding amendment of title analysis.
-End-
-CITE-
26 USC Subtitle A - Income Taxes 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
-HEAD-
Subtitle A - Income Taxes
-MISC1-
Chapter
1. Normal taxes and surtaxes.
2. Tax on self-employment income.
3. Withholding of tax on nonresident aliens and foreign
corporations.
[4, 5. Repealed.]
6. Consolidated returns.
AMENDMENTS
1997 - Pub. L. 105-34, title XI, Sec. 1131(c)(4), Aug. 5, 1997,
111 Stat. 980, struck out item for chapter 5 "Tax on transfers to
avoid income tax".
1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(11), Nov. 5,
1990, 104 Stat. 1388-522, struck out item for chapter 4 "Rules
applicable to recovery of excessive profits on government
contracts".
1984 - Pub. L. 98-369, div. A, title IV, Sec. 474(r)(29)(D), July
18, 1984, 98 Stat. 844, struck out "and tax-free covenant bonds" at
end of item for chapter 3.
-End-
-CITE-
26 USC CHAPTER 1 - NORMAL TAXES AND SURTAXES 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
-HEAD-
CHAPTER 1 - NORMAL TAXES AND SURTAXES
-MISC1-
Subchapter Sec.(!1)
A. Determination of tax liability 1
B. Computation of taxable income 61
C. Corporate distributions and adjustments 301
D. Deferred compensation, etc. 401
E. Accounting periods and methods of accounting 441
F. Exempt organizations 501
G. Corporations used to avoid income tax on
shareholders 531
H. Banking institutions 581
I. Natural resources 611
J. Estates, trusts, beneficiaries, and decedents 641
K. Partners and partnerships 701
L. Insurance companies 801
M. Regulated investment companies and real estate
investment trusts 851
N. Tax based on income from sources within or without
the United States 861
O. Gain or loss on disposition of property 1001
P. Capital gains and losses 1201
Q. Readjustment of tax between years and special
limitations 1301
S. Tax treatment of S corporations and their
shareholders 1361
R.(!2) Election to determine corporate tax on certain
international shipping activities using per ton
rate 1352
T. Cooperatives and their patrons 1381
U. Designation and treatment of empowerment zones,
enterprise communities, and rural development
investment areas 1391
V. Title 11 cases 1398
W. District of Columbia Enterprise Zone 1400
X. Renewal Communities 1400E
Y. Short-Term Regional Benefits 1400L
AMENDMENTS
2005 - Pub. L. 109-135, title I, Sec. 101(b)(4), Dec. 21, 2005,
119 Stat. 2593, substituted "Short-Term Regional Benefits" for "New
York Liberty Zone Benefits" in subchapter Y.
2004 - Pub. L. 108-357, title II, Sec. 248(b)(2), Oct. 22, 2004,
118 Stat. 1457, added subchapter R.
2002 - Pub. L. 107-147, title III, Sec. 301(c), Mar. 9, 2002, 116
Stat. 40, added subchapter Y.
2000 - Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 101(d)], Dec.
21, 2000, 114 Stat. 2763, 2763A-600, added subchapter X.
1997 - Pub. L. 105-34, title VII, Sec. 701(c), Aug. 5, 1997, 111
Stat. 869, added subchapter W.
1993 - Pub. L. 103-66, title XIII, Sec. 13301(b), Aug. 10, 1993,
107 Stat. 555, added subchapter U.
1986 - Pub. L. 99-514, title XIII, Sec. 1303(c)(1), Oct. 22,
1986, 100 Stat. 2658, struck out subchapter U "General stock
ownership plans".
1982 - Pub. L. 97-354, Sec. 5(b), Oct. 19, 1982, 96 Stat. 1697,
substituted in subchapter S "Tax treatment of S corporations and
their shareholders" for "Election of certain small business
corporations as to taxable status".
1980 - Pub. L. 96-589, Sec. 3(a)(2), Dec. 24, 1980, 94 Stat.
3400, added subchapter V.
1978 - Pub. L. 95-600, title VI, Sec. 601(c)(1), Nov. 6, 1978, 92
Stat. 2897, added subchapter U.
1966 - Pub. L. 89-389, Sec. 4(b)(2), Apr. 14, 1966, 80 Stat. 116,
struck out subchapter R effective January 1, 1969.
1962 - Pub. L. 87-834, Sec. 17(b)(4), Oct. 16, 1962, 76 Stat.
1051, added subchapter T.
1960 - Pub. L. 86-779, Sec. 10(c), Sept. 14, 1960, 74 Stat. 1009,
added to subchapter M heading "and real estate investment trusts".
1958 - Pub. L. 85-866, title I, Sec. 64(d)(1), Sept. 2, 1958, 72
Stat. 1656, added subchapter S.
-FOOTNOTE-
(!1) Section numbers editorially supplied.
(!2) So in original. Probably should follow item for subchapter
Q.
-End-
-CITE-
26 USC Subchapter A - Determination of Tax Liability 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
-HEAD-
SUBCHAPTER A - DETERMINATION OF TAX LIABILITY
-MISC1-
Part
I. Tax on individuals.
II. Tax on corporations.
III. Changes in rates during a taxable year.
IV. Credits against tax.
[V. Repealed.]
VI. Minimum tax for tax preferences.(!1)
VII. Environmental tax.
[VIII. Repealed.]
AMENDMENTS
1989 - Pub. L. 101-234, title I, Sec. 102(a), Dec. 13, 1989, 103
Stat. 1980, repealed Pub. L. 100-360, Sec. 111, and provided that
the provisions of law amended by such section are restored or
revived as if such section had not been enacted, see 1988 Amendment
note below.
1988 - Pub. L. 100-360, title I, Sec. 111(c), July 1, 1988, 102
Stat. 697, added part VIII "Supplemental medicare premium".
1986 - Pub. L. 99-499, title V, Sec. 516(b)(5), Oct. 17, 1986,
100 Stat. 1771, added part VII.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(2), Oct. 4, 1976,
90 Stat. 1792, struck out part V "Tax surcharge".
1969 - Pub. L. 91-172, title III, Sec. 301(b)(1), Dec. 30, 1969,
83 Stat. 585, added part VI.
1968 - Pub. L. 90-364, title I, Sec. 102(d), June 28, 1968, 82
Stat. 259, added part V.
-FOOTNOTE-
(!1) Part heading amended by Pub. L. 99-514 without corresponding
amendment of analysis.
-End-
-CITE-
26 USC PART I - TAX ON INDIVIDUALS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART I - TAX ON INDIVIDUALS
-HEAD-
PART I - TAX ON INDIVIDUALS
-MISC1-
Sec.
1. Tax imposed.
2. Definitions and special rules.
3. Tax tables for individuals having taxable income of
less than $20,000.(!1)
[4. Repealed.]
5. Cross references relating to tax on individuals.
AMENDMENTS
1976 - Pub. L. 94-455, title V, Sec. 501(c)(1), Oct. 4, 1976, 90
Stat. 1559, substituted "Tax tables for individuals having taxable
income of less than $20,000" for "Optional tax tables for
individuals" in item 3 and struck out item 4 relating to rules for
optional tax.
1969 - Pub. L. 91-172, title VIII, Sec. 803(d)(9), Dec. 30, 1969,
83 Stat. 685, substituted "Definitions and special rules" and
"Optional tax tables for individuals" for "Tax in case of joint
return or return of surviving spouse" and "Optional tax if adjusted
gross income is less than $5,000" in items 2 and 3, respectively.
-FOOTNOTE-
(!1) Section catchline amended by Pub. L. 95-30 without
corresponding amendment of analysis.
-End-
-CITE-
26 USC Sec. 1 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART I - TAX ON INDIVIDUALS
-HEAD-
Sec. 1. Tax imposed
-STATUTE-
(a) Married individuals filing joint returns and surviving spouses
There is hereby imposed on the taxable income of -
(1) every married individual (as defined in section 7703) who
makes a single return jointly with his spouse under section 6013,
and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table:
If taxable income is: The tax is:
--------------------------------------------------------------------
Not over $36,900 15% of taxable income.
Over $36,900 but not over $5,535, plus 28% of the excess over
$89,150 $36,900.
Over $89,150 but not over $20,165, plus 31% of the excess
$140,000 over $89,150.
Over $140,000 but not $35,928.50, plus 36% of the excess
over $250,000 over $140,000.
Over $250,000 $75,528.50, plus 39.6% of the
excess over $250,000.
--------------------------------------------------------------------
(b) Heads of households
There is hereby imposed on the taxable income of every head of a
household (as defined in section 2(b)) a tax determined in
accordance with the following table:
If taxable income is: The tax is:
--------------------------------------------------------------------
Not over $29,600 15% of taxable income.
Over $29,600 but not over $4,440, plus 28% of the excess over
$76,400 $29,600.
Over $76,400 but not over $17,544, plus 31% of the excess
$127,500 over $76,400.
Over $127,500 but not $33,385, plus 36% of the excess
over $250,000 over $127,500.
Over $250,000 $77,485, plus 39.6% of the excess
over $250,000.
--------------------------------------------------------------------
(c) Unmarried individuals (other than surviving spouses and heads
of households)
There is hereby imposed on the taxable income of every individual
(other than a surviving spouse as defined in section 2(a) or the
head of a household as defined in section 2(b)) who is not a
married individual (as defined in section 7703) a tax determined in
accordance with the following table:
If taxable income is: The tax is:
--------------------------------------------------------------------
Not over $22,100 15% of taxable income.
Over $22,100 but not over $3,315, plus 28% of the excess over
$53,500 $22,100.
Over $53,500 but not over $12,107, plus 31% of the excess
$115,000 over $53,500.
Over $115,000 but not $31,172, plus 36% of the excess
over $250,000 over $115,000.
Over $250,000 $79,772, plus 39.6% of the excess
over $250,000.
--------------------------------------------------------------------
(d) Married individuals filing separate returns
There is hereby imposed on the taxable income of every married
individual (as defined in section 7703) who does not make a single
return jointly with his spouse under section 6013, a tax determined
in accordance with the following table:
If taxable income is: The tax is:
--------------------------------------------------------------------
Not over $18,450 15% of taxable income.
Over $18,450 but not over $2,767.50, plus 28% of the excess
$44,575 over $18,450.
Over $44,575 but not over $10,082.50, plus 31% of the excess
$70,000 over $44,575.
Over $70,000 but not over $17,964.25, plus 36% of the excess
$125,000 over $70,000.
Over $125,000 $37,764.25, plus 39.6% of the
excess over $125,000.
--------------------------------------------------------------------
(e) Estates and trusts
There is hereby imposed on the taxable income of -
(1) every estate, and
(2) every trust,
taxable under this subsection a tax determined in accordance with
the following table:
If taxable income is: The tax is:
--------------------------------------------------------------------
Not over $1,500 15% of taxable income.
Over $1,500 but not over $225, plus 28% of the excess over
$3,500 $1,500.
Over $3,500 but not over $785, plus 31% of the excess over
$5,500 $3,500.
Over $5,500 but not over $1,405, plus 36% of the excess over
$7,500 $5,500.
Over $7,500 $2,125, plus 39.6% of the excess
over $7,500.
--------------------------------------------------------------------
(f) Phaseout of marriage penalty in 15-percent bracket; adjustments
in tax tables so that inflation will not result in tax increases
(1) In general
Not later than December 15 of 1993, and each subsequent
calendar year, the Secretary shall prescribe tables which shall
apply in lieu of the tables contained in subsections (a), (b),
(c), (d), and (e) with respect to taxable years beginning in the
succeeding calendar year.
(2) Method of prescribing tables
The table which under paragraph (1) is to apply in lieu of the
table contained in subsection (a), (b), (c), (d), or (e), as the
case may be, with respect to taxable years beginning in any
calendar year shall be prescribed -
(A) except as provided in paragraph (8), by increasing the
minimum and maximum dollar amounts for each rate bracket for
which a tax is imposed under such table by the cost-of-living
adjustment for such calendar year,
(B) by not changing the rate applicable to any rate bracket
as adjusted under subparagraph (A), and
(C) by adjusting the amounts setting forth the tax to the
extent necessary to reflect the adjustments in the rate
brackets.
(3) Cost-of-living adjustment
For purposes of paragraph (2), the cost-of-living adjustment
for any calendar year is the percentage (if any) by which -
(A) the CPI for the preceding calendar year, exceeds
(B) the CPI for the calendar year 1992.
(4) CPI for any calendar year
For purposes of paragraph (3), the CPI for any calendar year is
the average of the Consumer Price Index as of the close of the 12-
month period ending on August 31 of such calendar year.
(5) Consumer Price Index
For purposes of paragraph (4), the term "Consumer Price Index"
means the last Consumer Price Index for all-urban consumers
published by the Department of Labor. For purposes of the
preceding sentence, the revision of the Consumer Price Index
which is most consistent with the Consumer Price Index for
calendar year 1986 shall be used.
(6) Rounding
(A) In general
If any increase determined under paragraph (2)(A), section
63(c)(4), section 68(b)(2) or section 151(d)(4) is not a
multiple of $50, such increase shall be rounded to the next
lowest multiple of $50.
(B) Table for married individuals filing separately
In the case of a married individual filing a separate return,
subparagraph (A) (other than with respect to sections 63(c)(4)
and 151(d)(4)(A)) shall be applied by substituting "$25" for
"$50" each place it appears.
(7) Special rule for certain brackets
(A) Calendar year 1994
In prescribing the tables under paragraph (1) which apply
with respect to taxable years beginning in calendar year 1994,
the Secretary shall make no adjustment to the dollar amounts at
which the 36 percent rate bracket begins or at which the 39.6
percent rate begins under any table contained in subsection
(a), (b), (c), (d), or (e).
(B) Later calendar years
In prescribing tables under paragraph (1) which apply with
respect to taxable years beginning in a calendar year after
1994, the cost-of-living adjustment used in making adjustments
to the dollar amounts referred to in subparagraph (A) shall be
determined under paragraph (3) by substituting "1993" for
"1992".
(8) Elimination of marriage penalty in 15-percent bracket
With respect to taxable years beginning after December 31,
2003, in prescribing the tables under paragraph (1) -
(A) the maximum taxable income in the 15-percent rate bracket
in the table contained in subsection (a) (and the minimum
taxable income in the next higher taxable income bracket in
such table) shall be 200 percent of the maximum taxable income
in the 15-percent rate bracket in the table contained in
subsection (c) (after any other adjustment under this
subsection), and
(B) the comparable taxable income amounts in the table
contained in subsection (d) shall be 1/2 of the amounts
determined under subparagraph (A).
(g) Certain unearned income of minor children taxed as if parent's
income
(1) In general
In the case of any child to whom this subsection applies, the
tax imposed by this section shall be equal to the greater of -
(A) the tax imposed by this section without regard to this
subsection, or
(B) the sum of -
(i) the tax which would be imposed by this section if the
taxable income of such child for the taxable year were
reduced by the net unearned income of such child, plus
(ii) such child's share of the allocable parental tax.
(2) Child to whom subsection applies
This subsection shall apply to any child for any taxable year
if -
(A) such child has not attained age 14 before the close of
the taxable year, and
(B) either parent of such child is alive at the close of the
taxable year.
(3) Allocable parental tax
For purposes of this subsection -
(A) In general
The term "allocable parental tax" means the excess of -
(i) the tax which would be imposed by this section on the
parent's taxable income if such income included the net
unearned income of all children of the parent to whom this
subsection applies, over
(ii) the tax imposed by this section on the parent without
regard to this subsection.
For purposes of clause (i), net unearned income of all children
of the parent shall not be taken into account in computing any
exclusion, deduction, or credit of the parent.
(B) Child's share
A child's share of any allocable parental tax of a parent
shall be equal to an amount which bears the same ratio to the
total allocable parental tax as the child's net unearned income
bears to the aggregate net unearned income of all children of
such parent to whom this subsection applies.
(C) Special rule where parent has different taxable year
Except as provided in regulations, if the parent does not
have the same taxable year as the child, the allocable parental
tax shall be determined on the basis of the taxable year of the
parent ending in the child's taxable year.
(4) Net unearned income
For purposes of this subsection -
(A) In general
The term "net unearned income" means the excess of -
(i) the portion of the adjusted gross income for the
taxable year which is not attributable to earned income (as
defined in section 911(d)(2)), over
(ii) the sum of -
(I) the amount in effect for the taxable year under
section 63(c)(5)(A) (relating to limitation on standard
deduction in the case of certain dependents), plus
(II) the greater of the amount described in subclause (I)
or, if the child itemizes his deductions for the taxable
year, the amount of the itemized deductions allowed by this
chapter for the taxable year which are directly connected
with the production of the portion of adjusted gross income
referred to in clause (i).
(B) Limitation based on taxable income
The amount of the net unearned income for any taxable year
shall not exceed the individual's taxable income for such
taxable year.
(5) Special rules for determining parent to whom subsection
applies
For purposes of this subsection, the parent whose taxable
income shall be taken into account shall be -
(A) in the case of parents who are not married (within the
meaning of section 7703), the custodial parent (within the
meaning of section 152(e)) of the child, and
(B) in the case of married individuals filing separately, the
individual with the greater taxable income.
(6) Providing of parent's TIN
The parent of any child to whom this subsection applies for any
taxable year shall provide the TIN of such parent to such child
and such child shall include such TIN on the child's return of
tax imposed by this section for such taxable year.
(7) Election to claim certain unearned income of child on
parent's return
(A) In general
If -
(i) any child to whom this subsection applies has gross
income for the taxable year only from interest and dividends
(including Alaska Permanent Fund dividends),
(ii) such gross income is more than the amount described in
paragraph (4)(A)(ii)(I) and less than 10 times the amount so
described,
(iii) no estimated tax payments for such year are made in
the name and TIN of such child, and no amount has been
deducted and withheld under section 3406, and
(iv) the parent of such child (as determined under
paragraph (5)) elects the application of subparagraph (B),
such child shall be treated (other than for purposes of this
paragraph) as having no gross income for such year and shall
not be required to file a return under section 6012.
(B) Income included on parent's return
In the case of a parent making the election under this
paragraph -
(i) the gross income of each child to whom such election
applies (to the extent the gross income of such child exceeds
twice the amount described in paragraph (4)(A)(ii)(I)) shall
be included in such parent's gross income for the taxable
year,
(ii) the tax imposed by this section for such year with
respect to such parent shall be the amount equal to the sum
of -
(I) the amount determined under this section after the
application of clause (i), plus
(II) for each such child, 10 percent of the lesser of the
amount described in paragraph (4)(A)(ii)(I) or the excess
of the gross income of such child over the amount so
described, and
(iii) any interest which is an item of tax preference under
section 57(a)(5) of the child shall be treated as an item of
tax preference of such parent (and not of such child).
(C) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
paragraph.
(h) Maximum capital gains rate
(1) In general
If a taxpayer has a net capital gain for any taxable year, the
tax imposed by this section for such taxable year shall not
exceed the sum of -
(A) a tax computed at the rates and in the same manner as if
this subsection had not been enacted on the greater of -
(i) taxable income reduced by the net capital gain; or
(ii) the lesser of -
(I) the amount of taxable income taxed at a rate below 25
percent; or
(II) taxable income reduced by the adjusted net capital
gain;
(B) 5 percent (0 percent in the case of taxable years
beginning after 2007) of so much of the adjusted net capital
gain (or, if less, taxable income) as does not exceed the
excess (if any) of -
(i) the amount of taxable income which would (without
regard to this paragraph) be taxed at a rate below 25
percent, over
(ii) the taxable income reduced by the adjusted net capital
gain;
(C) 15 percent of the adjusted net capital gain (or, if less,
taxable income) in excess of the amount on which a tax is
determined under subparagraph (B);
(D) 25 percent of the excess (if any) of -
(i) the unrecaptured section 1250 gain (or, if less, the
net capital gain (determined without regard to paragraph
(11))), over
(ii) the excess (if any) of -
(I) the sum of the amount on which tax is determined
under subparagraph (A) plus the net capital gain, over
(II) taxable income; and
(E) 28 percent of the amount of taxable income in excess of
the sum of the amounts on which tax is determined under the
preceding subparagraphs of this paragraph.
(2) Net capital gain taken into account as investment income
For purposes of this subsection, the net capital gain for any
taxable year shall be reduced (but not below zero) by the amount
which the taxpayer takes into account as investment income under
section 163(d)(4)(B)(iii).
(3) Adjusted net capital gain
For purposes of this subsection, the term "adjusted net capital
gain" means the sum of -
(A) net capital gain (determined without regard to paragraph
(11)) reduced (but not below zero) by the sum of -
(i) unrecaptured section 1250 gain, and
(ii) 28-percent rate gain, plus
(B) qualified dividend income (as defined in paragraph (11)).
(4) 28-percent rate gain
For purposes of this subsection, the term "28-percent rate
gain" means the excess (if any) of -
(A) the sum of -
(i) collectibles gain; and
(ii) section 1202 gain, over
(B) the sum of -
(i) collectibles loss;
(ii) the net short-term capital loss; and
(iii) the amount of long-term capital loss carried under
section 1212(b)(1)(B) to the taxable year.
(5) Collectibles gain and loss
For purposes of this subsection -
(A) In general
The terms "collectibles gain" and "collectibles loss" mean
gain or loss (respectively) from the sale or exchange of a
collectible (as defined in section 408(m) without regard to
paragraph (3) thereof) which is a capital asset held for more
than 1 year but only to the extent such gain is taken into
account in computing gross income and such loss is taken into
account in computing taxable income.
(B) Partnerships, etc.
For purposes of subparagraph (A), any gain from the sale of
an interest in a partnership, S corporation, or trust which is
attributable to unrealized appreciation in the value of
collectibles shall be treated as gain from the sale or exchange
of a collectible. Rules similar to the rules of section 751
shall apply for purposes of the preceding sentence.
(6) Unrecaptured section 1250 gain
For purposes of this subsection -
(A) In general
The term "unrecaptured section 1250 gain" means the excess
(if any) of -
(i) the amount of long-term capital gain (not otherwise
treated as ordinary income) which would be treated as
ordinary income if section 1250(b)(1) included all
depreciation and the applicable percentage under section
1250(a) were 100 percent, over
(ii) the excess (if any) of -
(I) the amount described in paragraph (4)(B); over
(II) the amount described in paragraph (4)(A).
(B) Limitation with respect to section 1231 property
The amount described in subparagraph (A)(i) from sales,
exchanges, and conversions described in section 1231(a)(3)(A)
for any taxable year shall not exceed the net section 1231 gain
(as defined in section 1231(c)(3)) for such year.
(7) Section 1202 gain
For purposes of this subsection, the term "section 1202 gain"
means the excess of -
(A) the gain which would be excluded from gross income under
section 1202 but for the percentage limitation in section
1202(a), over
(B) the gain excluded from gross income under section 1202.
(8) Coordination with recapture of net ordinary losses under
section 1231
If any amount is treated as ordinary income under section
1231(c), such amount shall be allocated among the separate
categories of net section 1231 gain (as defined in section
1231(c)(3)) in such manner as the Secretary may by forms or
regulations prescribe.
(9) Regulations
The Secretary may prescribe such regulations as are appropriate
(including regulations requiring reporting) to apply this
subsection in the case of sales and exchanges by pass-thru
entities and of interests in such entities.
(10) Pass-thru entity defined
For purposes of this subsection, the term "pass-thru entity"
means -
(A) a regulated investment company;
(B) a real estate investment trust;
(C) an S corporation;
(D) a partnership;
(E) an estate or trust;
(F) a common trust fund; and
(G) a qualified electing fund (as defined in section 1295).
(11) Dividends taxed as net capital gain
(A) In general
For purposes of this subsection, the term "net capital gain"
means net capital gain (determined without regard to this
paragraph) increased by qualified dividend income.
(B) Qualified dividend income
For purposes of this paragraph -
(i) In general
The term "qualified dividend income" means dividends
received during the taxable year from -
(I) domestic corporations, and
(II) qualified foreign corporations.
(ii) Certain dividends excluded
Such term shall not include -
(I) any dividend from a corporation which for the taxable
year of the corporation in which the distribution is made,
or the preceding taxable year, is a corporation exempt from
tax under section 501 or 521,
(II) any amount allowed as a deduction under section 591
(relating to deduction for dividends paid by mutual savings
banks, etc.), and
(III) any dividend described in section 404(k).
(iii) Coordination with section 246(c)
Such term shall not include any dividend on any share of
stock -
(I) with respect to which the holding period requirements
of section 246(c) are not met (determined by substituting
in section 246(c) "60 days" for "45 days" each place it
appears and by substituting "121-day period" for "91-day
period"), or
(II) to the extent that the taxpayer is under an
obligation (whether pursuant to a short sale or otherwise)
to make related payments with respect to positions in
substantially similar or related property.
(C) Qualified foreign corporations
(i) In general
Except as otherwise provided in this paragraph, the term
"qualified foreign corporation" means any foreign corporation
if -
(I) such corporation is incorporated in a possession of
the United States, or
(II) such corporation is eligible for benefits of a
comprehensive income tax treaty with the United States
which the Secretary determines is satisfactory for purposes
of this paragraph and which includes an exchange of
information program.
(ii) Dividends on stock readily tradable on United States
securities market
A foreign corporation not otherwise treated as a qualified
foreign corporation under clause (i) shall be so treated with
respect to any dividend paid by such corporation if the stock
with respect to which such dividend is paid is readily
tradable on an established securities market in the United
States.
(iii) Exclusion of dividends of certain foreign corporations
Such term shall not include any foreign corporation which
for the taxable year of the corporation in which the dividend
was paid, or the preceding taxable year, is a passive foreign
investment company (as defined in section 1297).
(iv) Coordination with foreign tax credit limitation
Rules similar to the rules of section 904(b)(2)(B) shall
apply with respect to the dividend rate differential under
this paragraph.
(D) Special rules
(i) Amounts taken into account as investment income
Qualified dividend income shall not include any amount
which the taxpayer takes into account as investment income
under section 163(d)(4)(B).
(ii) Extraordinary dividends
If a taxpayer to whom this section applies receives, with
respect to any share of stock, qualified dividend income from
1 or more dividends which are extraordinary dividends (within
the meaning of section 1059(c)), any loss on the sale or
exchange of such share shall, to the extent of such
dividends, be treated as long-term capital loss.
(iii) Treatment of dividends from regulated investment
companies and real estate investment trusts
A dividend received from a regulated investment company or
a real estate investment trust shall be subject to the
limitations prescribed in sections 854 and 857.
(i) Rate reductions after 2000
(1) 10-percent rate bracket
(A) In general
In the case of taxable years beginning after December 31,
2000 -
(i) the rate of tax under subsections (a), (b), (c), and
(d) on taxable income not over the initial bracket amount
shall be 10 percent, and
(ii) the 15 percent rate of tax shall apply only to taxable
income over the initial bracket amount but not over the
maximum dollar amount for the 15-percent rate bracket.
(B) Initial bracket amount
For purposes of this paragraph, the initial bracket amount is
-
(i) $14,000 in the case of subsection (a),
(ii) $10,000 in the case of subsection (b), and
(iii) 1/2 the amount applicable under clause (i) (after
adjustment, if any, under subparagraph (C)) in the case of
subsections (c) and (d).
(C) Inflation adjustment
In prescribing the tables under subsection (f) which apply
with respect to taxable years beginning in calendar years after
2003 -
(i) the cost-of-living adjustment shall be determined under
subsection (f)(3) by substituting "2002" for "1992" in
subparagraph (B) thereof, and
(ii) the adjustments under clause (i) shall not apply to
the amount referred to in subparagraph (B)(iii).
If any amount after adjustment under the preceding sentence is
not a multiple of $50, such amount shall be rounded to the next
lowest multiple of $50.
(D) Coordination with acceleration of 10 percent rate bracket
benefit for 2001
This paragraph shall not apply to any taxable year to which
section 6428 applies.
(2) Reductions in rates after June 30, 2001
In the case of taxable years beginning in a calendar year after
2000, the corresponding percentage specified for such calendar
year in the following table shall be substituted for the
otherwise applicable tax rate in the tables under subsections
(a), (b), (c), (d), and (e).
The corresponding percentages shall be substituted
for
the following percentages:
28% 31% 36% 39.6%
--------------------------------------------------------------------
2001 27.5% 30.5% 35.5% 39.1%
2002 27.0% 30.0% 35.0% 38.6%
2003 and thereafter 25.0% 28.0% 33.0% 35.0%
--------------------------------------------------------------------
(3) Adjustment of tables
The Secretary shall adjust the tables prescribed under
subsection (f) to carry out this subsection.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 5; Pub. L. 88-272, title I, Sec.
111, Feb. 26, 1964, 78 Stat. 19; Pub. L. 89-809, title I, Sec.
103(a)(2), Nov. 13, 1966, 80 Stat. 1550; Pub. L. 91-172, title
VIII, Sec. 803(a), Dec. 30, 1969, 83 Stat. 678; Pub. L. 95-30,
title I, Sec. 101(a), May 23, 1977, 91 Stat. 127; Pub. L. 95-600,
title I, Sec. 101(a), Nov. 6, 1978, 92 Stat. 2767; Pub. L. 97-34,
title I, Secs. 101(a), 104(a), Aug. 13, 1981, 95 Stat. 176, 188;
Pub. L. 97-448, title I, Sec. 101(a)(3), Jan. 12, 1983, 96 Stat.
2366; Pub. L. 99-514, title I, Sec. 101(a), title III, Sec. 302(a),
title XIV, Sec. 1411(a), Oct. 22, 1986, 100 Stat. 2096, 2218, 2714;
Pub. L. 100-647, title I, Secs. 1001(a)(3), 1014(e)(1)-(3), (6),
(7), title VI, Sec. 6006(a), Nov. 10, 1988, 102 Stat. 3349, 3561,
3562, 3686; Pub. L. 101-239, title VII, Secs. 7811(j)(1), 7816(b),
7831(a), Dec. 19, 1989, 103 Stat. 2411, 2420, 2425; Pub. L. 101-
508, title XI, Secs. 11101(a)-(c), (d)(1)(A), (2), 11103(c),
11104(b), Nov. 5, 1990, 104 Stat. 1388-403 to 1388-406, 1388-408;
Pub. L. 103-66, title XIII, Secs. 13201(a), (b)(3)(A), (B),
13202(a), 13206(d)(2), Aug. 10, 1993, 107 Stat. 457, 459, 461, 467;
Pub. L. 104-188, title I, Sec. 1704(m)(1), (2), Aug. 20, 1996, 110
Stat. 1882, 1883; Pub. L. 105-34, title III, Sec. 311(a), Aug. 5,
1997, 111 Stat. 831; Pub. L. 105-206, title V, Sec. 5001(a)(1)-(4),
title VI, Secs. 6005(d)(1), 6007(f)(1), July 22, 1998, 112 Stat.
787, 788, 800, 810; Pub. L. 105-277, div. J, title IV, Sec.
4002(i)(1), (3), Oct. 21, 1998, 112 Stat. 2681-907, 2681-908; Pub.
L. 106-554, Sec. 1(a)(7) [title I, Sec. 117(b)(1)], Dec. 21, 2000,
114 Stat. 2763, 2763A-604; Pub. L. 107-16, title I, Sec. 101(a),
(c)(1), (2), title III, Secs. 301(c)(1), 302(a), (b), June 7, 2001,
115 Stat. 41, 43, 54; Pub. L. 108-27, title I, Secs. 102(a),
(b)(1), 104(a), (b), 105(a), title III, Secs. 301(a)(1), (2)(A),
(b)(1), 302(a), (e)(1), May 28, 2003, 117 Stat. 754, 755, 758, 760,
763; Pub. L. 108-311, title I, Sec. 101(c), (d), title IV, Secs.
402(a)(1)-(3), 408(a)(1), (2), Oct. 4, 2004, 118 Stat. 1167, 1168,
1184, 1190; Pub. L. 108-357, title IV, Sec. 413(c)(1), Oct. 22,
2004, 118 Stat. 1506.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 105 of Pub. L. 108-311,
see Effective and Termination Dates of 2004 Amendments note below.
For termination of amendment by sections 107 and 303 of Pub. L.
108-27, see Effective and Termination Dates of 2003 Amendment note
below.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
TAX TABLES FOR TAXABLE YEARS BEGINNING IN 2006
Revenue Procedure 2005-70 provided:
Section 1. Purpose
This revenue procedure sets forth inflation adjusted items for
2006.
Section 2. Changes
.01 The amount of tax imposed by Sec. 4161(b)(2)(A) on the first
sale by the manufacturer, producer, or importer of any shaft of a
type used in the manufacture of certain arrows is adjusted for
inflation. (Section 3.29).
Section 3. 2006 Adjusted Items
.01 Tax Rate Tables. For taxable years beginning in 2006, the tax
rate tables under Sec. 1 are as follows:
TABLE 1 - SECTION 1(A). - MARRIED INDIVIDUALS FILING JOINT RETURNS
AND SURVIVING SPOUSES
--------------------------------------------------------------------
If Taxable Income Is: The Tax Is:
--------------------------------------------------------------------
Not Over $15,100 10% of the taxable income
Over $15,100 but not over $1,510 plus 15% of the excess over
$61,300 $15,100
Over $61,300 but not over $8,440 plus 25% of the excess over
$123,700 $61,300
Over $123,700 but not over $24,040 plus 28% of the excess
$188,450 over $123,700
Over $188,450 but not over $42,170 plus 33% of the excess
$336,550 over $188,450
Over $336,550 $91,043 plus 35% of the excess
over $336,550
--------------------------------------------------------------------
TABLE 2 - SECTION 1(B). - HEADS OF HOUSEHOLDS
--------------------------------------------------------------------
If Taxable Income Is: The Tax Is:
--------------------------------------------------------------------
Not Over $10,750 10% of the taxable income
Over $10,750 but not over $1,075 plus 15% of the excess over
$41,050 $10,750
Over $41,050 but not over $5,620 plus 25% of the excess over
$106,000 $41,050
Over $106,000 but not over $21,857.50 plus 28% of the excess
$171,650 over $106,000
Over $171,650 but not over $40,239.50 plus 33% of the excess
$336,550 over $171,650
Over $336,550 $94,656.50 plus 35% of the excess
over $336,550
--------------------------------------------------------------------
TABLE 3 - SECTION 1(C). - UNMARRIED INDIVIDUALS (OTHER THAN
SURVIVING SPOUSE AND HEADS OF HOUSEHOLDS).
--------------------------------------------------------------------
If Taxable Income Is: The Tax Is:
--------------------------------------------------------------------
Not Over $7,550 10% of the taxable income
Over $7,550 but not over $755 plus 15% of the excess over
$30,650 $7,550
Over $30,650 but not over $4,220 plus 25% of the excess over
$74,200 $30,650
Over $74,200 but not over $15,107.50 plus 28% of the excess
$154,800 over $74,200
Over $154,800 but not over $37,675.50 plus 33% of the excess
$336,550 over $154,800
Over $336,550 $97,653 plus 35% of the excess
over $336,550
--------------------------------------------------------------------
TABLE 4 - SECTION 1(D). - MARRIED INDIVIDUALS FILING SEPARATE
RETURNS
--------------------------------------------------------------------
If Taxable Income Is: The Tax Is:
--------------------------------------------------------------------
Not Over $7,550 10% of the taxable income
Over $7,550 but not over $755 plus 15% of the excess over
$30,650 $7,550
Over $30,650 but not over $4,220 plus 25% of the excess over
$61,850 $30,650
Over $61,850 but not over $12,020 plus 28% of the excess
$94,225 over $61,850
Over $94,225 but not over $21,085 plus 33% of the excess
$168,275 over $94,225
Over $168,275 $45,521.50 plus 35% of the excess
over $168,275
--------------------------------------------------------------------
TABLE 5 - SECTION 1(E). - ESTATES AND TRUSTS
--------------------------------------------------------------------
If Taxable Income Is: The Tax Is:
--------------------------------------------------------------------
Not Over $2,050 15% of the taxable income
Over $2,050 but not over $307.50 plus 25% of the excess
$4,850 over $2,050
Over $4,850 but not over $1,007.50 plus 28% of the excess
$7,400 over $4,850
Over $7,400 but not over $1,721.50 plus 33% of the excess
$10,050 over $7,400
Over $10,050 $2,596 plus 35% of the excess over
$10,050
--------------------------------------------------------------------
.02 Unearned Income of Minor Children Taxed as if Parent's Income
(the "Kiddie Tax"). For taxable years beginning in 2006, the amount
in Sec. 1(g)(4)(A)(ii)(I), which is used to reduce the net unearned
income reported on the child's return that is subject to the
"kiddie tax," is $850. (This amount is the same as the $850
standard deduction amount provided in section 3.10(2) of this
revenue procedure.) The same $850 amount is used for purposes of
Sec. 1(g)(7) (that is, in determining whether a parent may elect to
include a child's gross income in the parent's gross income and for
calculating the "kiddie tax"). For example, one of the requirements
for the parental election is that a child's gross income is more
than the amount referenced in Sec. 1(g)(4)(A)(ii)(I) but less than
10 times such amount; thus, a child's gross income for 2006 must be
more than $850 but less than $8,500 to satisfy that requirement.
.03 Adoption Credit. For taxable years beginning in 2006, under
Sec. 23(a)(3) the maximum credit allowed for an adoption of a child
with special needs is $10,960. For taxable years beginning in 2006,
under Sec. 23(b)(1) the maximum credit allowed with regard to other
adoptions is the amount of qualified adoption expenses up to
$10,960. The available adoption credit begins to phase out under
Sec. 23(b)(2)(A) for taxpayers with modified adjusted gross income
in excess of $164,410 and is completely phased out for taxpayers
with modified adjusted gross income of $204,410. (See section 3.14
of this revenue procedure for the adjusted items relating to
adoption assistance programs.)
.04 Child Tax Credit. For taxable years beginning in 2006, the
value used in Sec. 24(d)(1)(B)(i) in determining the amount of
credit under Sec. 24 that may be refundable is $11,300.
.05 Hope and Lifetime Learning Credits.
(1) For taxable years beginning in 2006, 100 percent of qualified
tuition and related expenses not in excess of $1,100 and 50 percent
of such expenses in excess of $1,100 are taken into account in
determining the amount of the Hope Scholarship Credit under Sec.
25A(b)(1).
(2) For taxable years beginning in 2006, a taxpayer's modified
adjusted gross income in excess of $45,000 ($90,000 for a joint
return) is taken into account in determining the reduction under
Sec. 25A(d)(2)(A)(ii) in the amount of the Hope Scholarship and
Lifetime Learning Credits otherwise allowable under Sec. 25A(a).
.06 Earned Income Credit.
(1) In general. For taxable years beginning in 2006, the
following amounts are used to determine the earned income credit
under Sec. 32(b). The "earned income amount" is the amount of
earned income at or above which the maximum amount of the earned
income credit is allowed. The "threshold phaseout amount" is the
amount of adjusted gross income (or, if greater, earned income)
above which the maximum amount of the credit begins to phase out.
The "completed phaseout amount" is the amount of adjusted gross
income (or if greater, earned income) at or above which no credit
is allowed.
Item Number of Qualifying Children
One Two or None
More
--------------------------------------------------------------------
Earned Income Amount $ 8,080 $11,340 $ 5,380
Maximum Amount of Credit $ 2,747 $ 4,536 $ 412
Threshold Phaseout Amount $14,810 $14,810 $ 6,740
(Single, Surviving Spouse, or
Head of Household)
Completed Phaseout Amount $32,001 $36,348 $12,120
(Single, Surviving Spouse, or
Head of Household)
Threshold Phaseout Amount $16,810 $16,810 $ 8,740
(Married Filing Jointly)
Completed Phaseout Amount $34,001 $38,348 $14,120
(Married Filing Jointly)
--------------------------------------------------------------------
The instructions for the Form 1040 series provide tables showing
the amount of the earned income credit for each type of taxpayer.
(2) Excessive investment income. For taxable years beginning in
2006, the earned income tax credit is denied under Sec. 32(i) if
the aggregate amount of certain investment income exceeds $2,800.
.07 Low-Income Housing Credit. For calendar year 2006, the
amounts used under Sec. 42(h)(3)(C)(ii) to calculate the State
housing credit ceiling for the low-income housing credit is the
greater of (i) $1.90 multiplied by the State population, or (ii)
$2,190,000.
.08 Alternative Minimum Tax Exemption for a Child Subject to the
"Kiddie Tax." For taxable years beginning in 2006, for a child to
whom the Sec. 1(g) "kiddie tax" applies, the exemption amount under
Secs. 55 and 59(j) for purposes of the alternative minimum tax
under Sec. 55 may not exceed the sum of (i) such child's earned
income for the taxable year, plus (ii) $6,050.
.09 Transportation Mainline Pipeline Construction Industry
Optional Expense Substantiation Rules for Payments to Employees
under Accountable Plans. For calendar year 2006, an eligible
employer may pay certain welders and heavy equipment mechanics an
amount of up to $14 per hour for rig-related expenses that is
deemed substantiated under an accountable plan when paid in
accordance with Rev. Proc. 2002-41, 2002-1 C.B. 1098. If the
employer provides fuel or otherwise reimburses fuel expenses, up to
$8 per hour is deemed substantiated when paid under Rev. Proc. 2002-
41.
.10 Standard Deduction.
(1) In general. For taxable years beginning in 2006, the standard
deduction amounts under Sec. 63(c)(2) are as follows:
Filing Status Standard
Deduction
--------------------------------------------------------------------
Married Individuals Filing Joint Returns and $10,300
Surviving Spouses (Sec. 1(a))
Heads of Households (Sec. 1(b)) $7,550
Unmarried Individuals (other than Surviving Spouses $5,150
and Heads of Households) (Sec. 1(c))
Married Individuals Filing Separate Returns (Sec. $5,150
1(d))
--------------------------------------------------------------------
(2) Dependent. For taxable years beginning in 2006, the standard
deduction amount under Sec. 63(c)(5) for an individual who may be
claimed as a dependent by another taxpayer may not exceed the
greater of (i) $850, or (ii) the sum of $300 and the individual's
earned income.
(3) Aged and blind. For taxable years beginning in 2006, the
additional standard deduction amounts under Sec. 63(f) for the aged
and for the blind are $1,000 for each. These amounts are increased
to $1,250 if the individual is also unmarried and not a surviving
spouse.
.11 Overall Limitation on Itemized Deductions. For taxable years
beginning in 2006, the "applicable amount" of adjusted gross income
under Sec. 68(b), above which the amount of otherwise allowable
itemized deductions is reduced under Sec. 68, is $150,500 (or
$75,250 for a separate return filed by a married individual).
.12 Qualified Transportation Fringe. For taxable years beginning
in 2006, the monthly limitation under Sec. 132(f)(2)(A) (regarding
the aggregate fringe benefit exclusion amount for transportation in
a commuter highway vehicle and any transit pass) is $105. The
monthly limitation under Sec. 132(f)(2)(B) (regarding the fringe
benefit exclusion amount for qualified parking) is $205.
.13 Income from United States Savings Bonds for Taxpayers Who Pay
Qualified Higher Education Expenses. For taxable years beginning in
2006, the exclusion under Sec. 135 (regarding income from United
States savings bonds for taxpayers who pay qualified higher
education expenses) begins to phase out for modified adjusted gross
income above $94,700 for joint returns and $63,100 for other
returns. This exclusion completely phases out for modified adjusted
gross income of $124,700 or more for joint returns and $78,100 or
more for other returns.
.14 Adoption Assistance Programs. For taxable years beginning in
2006, under Sec. 137(a)(2) the maximum amount that can be excluded
from an employee's gross income in connection with the adoption by
the employee of a child with special needs is $10,960. For taxable
years beginning in 2006, under Sec. 137(b)(1) the maximum amount
that can be excluded from an employee's gross income for the
amounts paid or expenses incurred by the employer for qualified
adoption expenses furnished pursuant to an adoption assistance
program in connection with other adoptions by the employee is
$10,960. The amount excludable from an employee's gross income
begins to phase out under Sec. 137(b)(2)(A) for taxpayers with
modified adjusted gross income in excess of $164,410 and is
completely phased out for taxpayers with modified adjusted gross
income of $204,410. (See section 3.03 of this revenue procedure for
the adjusted items relating to the adoption credit.)
.15 Private Activity Bonds Volume Cap. For calendar year 2006,
the amounts used under Sec. 146(d)(1) to calculate the State
ceiling for the volume cap for private activity bonds is the
greater of (i) $80 multiplied by the State population, or (ii)
$246,610,000.
.16 Safe Harbor Rules for Broker Commissions on Guaranteed
Investment Contracts or Investments Purchased for a Yield
Restricted Defeasance Escrow. For calendar year 2006, under Sec.
1.148-5(e)(2)(iii)(B)(1), a broker's commission or similar fee with
respect to the acquisition of a guaranteed investment contract or
investments purchased for a yield restricted defeasance escrow is
reasonable to the extent that (i) the amount of the fee that the
issuer treats as a qualified administrative cost does not exceed
the lesser of (A) $32,000, or (B) 0.2 percent of the computational
base (as defined in Sec. 1.148-5(e)(2)(iii)(B)(2)) or, if more,
$3,000; and (ii) the issuer does not treat more than $90,000 in
brokers' commissions or similar fees as qualified administrative
costs with respect to all guaranteed investment contracts and
investments for yield restricted defeasance escrows purchased with
gross proceeds of the issue.
.17 Personal Exemption.
(1) Exemption amount. For taxable years beginning in 2006, the
personal exemption amount under Sec. 151(d) is $3,300.
(2) Phase out. For taxable years beginning in 2006, the personal
exemption amount begins to phase out at, and is completely phased
out after, the following adjusted gross income amounts:
Filing Status AGI - AGI -
Beginning Exemption
of Phaseout Fully Phased
Out
--------------------------------------------------------------------
Married Individuals Filing $225,750 $348,250
Joint Returns and
Surviving Spouses (Sec. 1(a
Heads of Households (Sec. $188,150 $310,650
1(b))
Unmarried Individuals $150,500 $273,000
(other than Surviving
Spouses and Heads of
Households) (Sec. 1(c))
Married Individuals Filing $112,875 $174,125
Separate Returns (Sec. 1(d)
--------------------------------------------------------------------
.18 Election to Expense Certain Depreciable Assets. For taxable
years beginning in 2006, under Sec. 179(b)(1) the aggregate cost of
any Sec. 179 property a taxpayer may elect to treat as an expense
shall not exceed $108,000. Under Sec. 179(b)(2) the $108,000
limitation shall be reduced (but not below zero) by the amount by
which the cost of Sec. 179 property placed in service during the
2006 taxable year exceeds $430,000.
.19 Eligible Long-Term Care Premiums. For taxable years beginning
in 2006, the limitations under Sec. 213(d)(10) (regarding eligible
long-term care premiums includible in the term "medical care") are
as follows:
Attained Age Before the Close of the Taxable Year Limi
tation
on
Prem
iums
--------------------------------------------------------------------
40 or less $ 280
More than 40 but not more than 50 $ 530
More than 50 but not more than 60 $1,060
More than 60 but not more than 70 $2,830
More than 70 $3,530
--------------------------------------------------------------------
.20 Medical Savings Accounts.
(1) Self-only coverage. For taxable years beginning in 2006, the
term "high deductible health plan" as defined in Sec. 220(c)(2)(A)
means, for self-only coverage, a health plan that has an annual
deductible that is not less than $1,800 and not more than $2,700,
and under which the annual out-of-pocket expenses required to be
paid (other than for premiums) for covered benefits does not exceed
$3,650.
(2) Family coverage. For taxable years beginning in 2006, the
term "high deductible health plan" means, for family coverage, a
health plan that has an annual deductible that is not less than
$3,650 and not more than $5,450, and under which the annual out-of-
pocket expenses required to be paid (other than for premiums) for
covered benefits does not exceed $6,650.
.21 Interest on Education Loans. For taxable years beginning in
2006, the $2,500 maximum deduction for interest paid on qualified
education loans under Sec. 221 is reduced under Sec. 221(b)(2)(B)
when modified adjusted gross income exceeds $50,000 ($105,000 for
joint returns), and is completely eliminated when modified adjusted
gross income is $65,000 ($135,000 for joint returns).
.22 Health Savings Accounts.
(1) Monthly contribution limitation. For calendar year 2006, the
monthly limitation on deductions under Sec. 223(b)(2)(A) for an
individual with self-only coverage under a high deductible plan as
of the first day of such month is (!1/12) of the lesser of (i) the
annual deductible, or (ii) $2,700. For calendar year 2006, the
monthly limitation on deductions under Sec. 223(b)(2)(B) for an
individual with family coverage under a high deductible plan as of
the first day of such month is 1/12 of the lesser of (i) the
annual deductible, or (ii) $5,450.
(2) High deductible health plan. For calendar year 2006, a high
deductible health plan is defined under Sec. 223(c)(2)(A) as a
health plan with an annual deductible that is not less than $1,050
for self-only coverage or $2,100 for family coverage, and the
annual out-of pocket expenses (deductibles, co-payments, and other
amounts, but not premiums) do not exceed, $5,250 for self-only
coverage or $10,500 for family coverage.
.23 Treatment of Dues Paid to Agricultural or Horticultural
Organizations. For taxable years beginning in 2006, the limitation
under Sec. 512(d)(1) (regarding the exemption of annual dues
required to be paid by a member to an agricultural or horticultural
organization) is $131.
.24 Insubstantial Benefit Limitations for Contributions
Associated with Charitable Fund-Raising Campaigns.
(1) Low cost article. For taxable years beginning in 2006, the
unrelated business income of certain exempt organizations under
Sec. 513(h)(2) does not include a "low cost article" of $8.60 or
less.
(2) Other insubstantial benefits. For taxable years beginning in
2006, the $5, $25, and $50 guidelines in section 3 of Rev. Proc. 90-
12, 1990-1 C.B. 471 (as amplified and modified), for disregarding
the value of insubstantial benefits received by a donor in return
for a fully deductible charitable contribution under Sec. 170, are
$8.60, $43, and $86, respectively.
.25 Funeral Trusts. For a contract entered into during calendar
year 2006 for a "qualified funeral trust," as defined in Sec. 685,
the trust may not accept aggregate contributions by or for the
benefit of an individual in excess of $8,500.
.26 Expatriation to Avoid Tax. For calendar year 2006, an
individual with "average annual net income tax" of more than
$131,000 for the 5 taxable years ending before the date of the loss
of United States citizenship under Sec. 877(a)(2)(A) is subject to
tax under Sec. 877(b).
.27 Valuation of Qualified Real Property in Decedent's Gross
Estate. For an estate of a decedent dying in calendar year 2006, if
the executor elects to use the special use valuation method under
Sec. 2032A for qualified real property, the aggregate decrease in
the value of qualified real property resulting from electing to use
Sec. 2032A that is taken into account for purposes of the estate
tax may not exceed $900,000.
.28 Annual Exclusion for Gifts.
(1) For calendar year 2006, the first $12,000 of gifts to any
person (other than gifts of future interests in property) are not
included in the total amount of taxable gifts under Sec. 2503 made
during that year.
(2) For calendar year 2006, the first $120,000 of gifts to a
spouse who is not a citizen of the United States (other than gifts
of future interests in property) are not included in the total
amount of taxable gifts under Secs. 2503 and 2523(i)(2) made during
that year.
.29 Tax on Arrow Shafts. For calendar year 2006, the tax imposed
under Sec. 4161(b)(2)(A) on the first sale by the manufacturer,
producer, or importer of any shaft of a type used in the
manufacture of certain arrows is $0.40 per shaft.
.30 Passenger Air Transportation Excise Tax. For calendar year
2006, the tax under Sec. 4261(b) on the amount paid for each
domestic segment of taxable transportation by air is $3.30. For
calendar year 2006, the tax under Sec. 4261(c) on any amount paid
(whether within or without the United States) for any
transportation of any person by air, if such transportation begins
or ends in the United States, generally is $14.50. However, for a
domestic segment beginning or ending in Alaska or Hawaii as
described in Sec. 4261(c)(3), the tax only applies to departures
and is at the rate of $7.30.
.31 Reporting Exception for Certain Exempt Organizations with
Nondeductible Lobbying Expenditures. For taxable years beginning in
2006, the annual per person, family, or entity dues limitation to
qualify for the reporting exception under Sec. 6033(e)(3) (and
section 5.05 of Rev. Proc. 98-19, 1998-1 C.B. 547), regarding
certain exempt organizations with nondeductible lobbying
expenditures, is $91 or less.
.32 Notice of Large Gifts Received from Foreign Persons. For
taxable years beginning in 2006, recipients of gifts from certain
foreign persons may be required to report these gifts under Sec.
6039F if the aggregate value of gifts received in a taxable year
exceeds $12,760.
.33 Persons Against Which a Federal Tax Lien Is Not Valid. For
calendar year 2006, a federal tax lien is not valid against (i)
certain purchasers under Sec. 6323(b)(4) who purchased personal
property in a casual sale for less than $1,240, or (ii) a
mechanic's lienor under Sec. 6323(b)(7) that repaired or improved
certain residential property if the contract price with the owner
is not more than $6,210.
.34 Property Exempt from Levy. For calendar year 2006, the value
of property exempt from levy under Sec. 6334(a)(2) (fuel,
provisions, furniture, and other household personal effects, as
well as arms for personal use, livestock, and poultry) may not
exceed $7,430. The value of property exempt from levy under Sec.
6334(a)(3) (books and tools necessary for the trade, business, or
profession of the taxpayer) may not exceed $3,710.
.35 Interest on a Certain Portion of the Estate Tax Payable in
Installments. For an estate of a decedent dying in calendar year
2006, the dollar amount used to determine the "2-percent portion"
(for purposes of calculating interest under Sec. 6601(j)) of the
estate tax extended as provided in Sec. 6166 is $1,200,000.
.36 Attorney Fee Awards. For fees incurred in calendar year 2006,
the attorney fee award limitation under Sec. 7430(c)(1)(B)(iii) is
$160 per hour.
.37 Periodic Payments Received under Qualified Long-Term Care
Insurance Contracts or under Certain Life Insurance Contracts. For
calendar year 2006, the stated dollar amount of the per diem
limitation under Sec. 7702B(d)(4) (regarding periodic payments
received under a qualified long-term care insurance contract or
periodic payments received under a life insurance contract that are
treated as paid by reason of the death of a chronically ill
individual) is $250.
Section 4. Effective Date
.01 General Rule. Except as provided in section 4.02, this
revenue procedure applies to taxable years beginning in 2006.
.02 Calendar Year Rule. This revenue procedure applies to
transactions or events occurring in calendar year 2006 for purposes
of sections 3.07 (low-income housing credit), 3.09 (pipeline
construction industry optional expense substantiation rules), 3.15
(private activity bond volume cap), 3.16 (safe harbor rules for
broker commissions on guaranteed investment contracts or
investments purchased for a yield restricted defeasance escrow),
3.22 (health savings accounts), 3.25 (funeral trusts), 3.26
(expatriation to avoid tax), 3.27 (valuation of qualified real
property in decedent's gross estate), 3.28 (annual exclusion for
gifts), 3.29 (tax on arrow shafts), 3.30 (passenger air
transportation excise tax), 3.33 (persons against which a federal
tax lien is not valid), 3.34 (property exempt from levy), 3.35
(interest on a certain portion of the estate tax payable in
installments), 3.36 (attorney fee awards), and 3.37 (periodic
payments received under qualified long-term care insurance
contracts or under certain life insurance contracts).
Section 5. Drafting Information
[Omitted-related to author of this revenue procedure.]
TAX TABLES FOR PRIOR TAX YEARS
Inflation adjusted items for certain prior tax years were
contained in the following:
Revenue Procedure 2004-71 provided for inflation adjusted items
for tax years beginning in 2005.
Revenue Procedure 2003-85 provided inflation adjusted items for
tax years beginning in 2004.
Revenue Procedure 2002-70 provided inflation adjusted items for
tax years beginning in 2003.
Revenue Procedure 2001-59 provided inflation adjusted items for
tax years beginning in 2002.
Revenue Procedure 2001-13 provided inflation adjusted items for
tax years beginning in 2001.
Revenue Procedure 99-42 provided inflation adjusted items for tax
years beginning in 2000.
Revenue Procedure 98-61 provided inflation adjusted items for tax
years beginning in 1999.
Revenue Procedure 97-57 provided inflation adjusted items for tax
years beginning in 1998.
Revenue Procedure 96-59 provided inflation adjusted items for tax
years beginning in 1997.
Revenue Procedure 95-53 provided inflation adjusted items for tax
years beginning in 1996.
Revenue Procedure 94-72 provided inflation adjusted items for tax
years beginning in 1995.
Revenue Procedure 93-49 provided inflation adjusted items for tax
years beginning in 1994.
Revenue Procedure 92-102 provided inflation adjusted items for
tax years beginning in 1993.
Revenue Procedure 91-65 provided inflation adjusted items for tax
years beginning in 1992.
Revenue Procedure 90-64 provided inflation adjusted items for tax
years beginning in 1991.
Revenue Procedure 90-7 provided inflation adjusted items for tax
years beginning in 1990.
Revenue Procedure 88-56 provided inflation adjusted items for tax
years beginning in 1989.
Revenue Procedure 85-55 provided income tax cost-of-living
adjustment (indexing) factor with respect to taxable years
beginning in 1986.
Revenue Procedure 84-79 provided income tax cost-of-living
adjustment (indexing) factor with respect to taxable years
beginning in 1985.
-REFTEXT-
REFERENCES IN TEXT
The enactment of this clause, referred to in subsec.
(h)(13)(A)(iii), means the date of enactment of Pub. L. 105-206,
which was approved July 22, 1998.
-MISC1-
AMENDMENTS
2004 - Subsec. (f)(8). Pub. L. 108-311, Secs. 101(c), 105,
temporarily amended par. (8) generally, substituting provisions
relating to elimination of marriage penalty in 15-percent bracket
for provisions relating to phaseout of marriage penalty in 15-
percent bracket. See Effective and Termination Dates of 2004
Amendments note below.
Subsec. (g)(7)(B)(ii)(II). Pub. L. 108-311, Sec. 408(a)(1),
substituted "10 percent" for "10 percent."
Subsec. (h)(1)(D)(i). Pub. L. 108-311, Sec. 402(a)(1), inserted
"(determined without regard to paragraph (11))" after "net capital
gain".
Subsec. (h)(6)(A)(ii)(I). Pub. L. 108-311, Sec. 408(a)(2)(A),
substituted "(4)(B)" for "(5)(B)".
Subsec. (h)(6)(A)(ii)(II). Pub. L. 108-311, Sec. 408(a)(2)(B),
substituted "(4)(A)" for "(5)(A)".
Subsec. (h)(10)(F) to (H). Pub. L. 108-357, Sec. 413(c)(1)(A),
inserted "and" at end of subpar. (F), redesignated subpar. (H) as
(G), and struck out former subpar. (G) which read as follows: "a
foreign investment company which is described in section 1246(b)(1)
and for which an election is in effect under section 1247; and".
Subsec. (h)(11)(B)(iii)(I). Pub. L. 108-311, Sec. 402(a)(2),
substituted "substituting in section 246(c)" for "substituting in
section 246(c)(1)", "121-day period" for "120-day period", and "91-
day period" for "90-day period".
Subsec. (h)(11)(C)(iii). Pub. L. 108-357, Sec. 413(c)(1)(B),
struck out "a foreign personal holding company (as defined in
section 552), a foreign investment company (as defined in section
1246(b)), or" before "a passive foreign investment".
Subsec. (h)(11)(D)(ii). Pub. L. 108-311, Sec. 402(a)(3),
substituted "a taxpayer to whom this section applies" for "an
individual".
Subsec. (i)(1)(B)(i). Pub. L. 108-311, Secs. 101(d)(1), 105,
temporarily struck out "($12,000 in the case of taxable years
beginning after December 31, 2004, and before January 1, 2008)"
after "$14,000". See Effective and Termination Dates of 2004
Amendments note below.
Subsec. (i)(1)(C). Pub. L. 108-311, Secs. 101(d)(2), 105,
temporarily reenacted heading without change and amended text
generally, substituting provisions relating to inflation adjustment
in calendar years after 2003 for such provisions in calendar years
after 2000. See Effective and Termination Dates of 2004 Amendments
note below.
2003 - Subsec. (f)(8)(A). Pub. L. 108-27, Secs. 102(b)(1), 107,
temporarily substituted "2002" for "2004". See Effective and
Termination Dates of 2003 Amendment note below.
Subsec. (f)(8)(B). Pub. L. 108-27, Secs. 102(a), 107, temporarily
inserted table item relating to years 2003 and 2004. See Effective
and Termination Dates of 2003 Amendment note below.
Subsec. (h)(1)(B). Pub. L. 108-27, Secs. 301(a)(1), 303,
temporarily substituted "5 percent (0 percent in the case of
taxable years beginning after 2007)" for "10 percent". See
Effective and Termination Dates of 2003 Amendment note below.
Subsec. (h)(1)(C). Pub. L. 108-27, Secs. 301(a)(2)(A), 303,
temporarily substituted "15 percent" for "20 percent". See
Effective and Termination Dates of 2003 Amendment note below.
Subsec. (h)(2). Pub. L. 108-27, Secs. 301(b)(1)(A), (B), 303,
temporarily redesignated par. (3) as (2) and struck out heading and
text of former par. (2). Text read as follows:
"(A) Reduction in 10-percent rate. - In the case of any taxable
year beginning after December 31, 2000, the rate under paragraph
(1)(B) shall be 8 percent with respect to so much of the amount to
which the 10-percent rate would otherwise apply as does not exceed
qualified 5-year gain, and 10 percent with respect to the remainder
of such amount.
"(B) Reduction in 20-percent rate. - The rate under paragraph
(1)(C) shall be 18 percent with respect to so much of the amount to
which the 20-percent rate would otherwise apply as does not exceed
the lesser of -
"(i) the excess of qualified 5-year gain over the amount of
such gain taken into account under subparagraph (A) of this
paragraph; or
"(ii) the amount of qualified 5-year gain (determined by taking
into account only property the holding period for which begins
after December 31, 2000),
and 20 percent with respect to the remainder of such amount. For
purposes of determining under the preceding sentence whether the
holding period of property begins after December 31, 2000, the
holding period of property acquired pursuant to the exercise of an
option (or other right or obligation to acquire property) shall
include the period such option (or other right or obligation) was
held." See Effective and Termination Dates of 2003 Amendment note
below.
Subsec. (h)(3). Pub. L. 108-27, Secs. 302(e)(1), 303, temporarily
amended heading and text of par. (3) generally. Prior to amendment,
text read as follows: "For purposes of this subsection, the term
'adjusted net capital gain' means net capital gain reduced (but not
below zero) by the sum of -
"(A) unrecaptured section 1250 gain; and
"(B) 28-percent rate gain." See Effective and Termination Dates
of 2003 Amendment note below.
Pub. L. 108-27, Secs. 301(b)(1)(B), 303, temporarily redesignated
par. (4) as (3). Former par. (3) temporarily redesignated (2). See
Effective and Termination Dates of 2003 Amendment note below.
Subsec. (h)(4) to (7). Pub. L. 108-27, Secs. 301(b)(1)(B), 303,
temporarily redesignated pars. (5) to (8) as (4) to (7),
respectively. Former par. (4) temporarily redesignated (3). See
Effective and Termination Dates of 2003 Amendment note below.
Subsec. (h)(8). Pub. L. 108-27, Secs. 301(b)(1)(C), 303,
temporarily redesignated par. (10) as (8). Former par. (8)
temporarily redesignated (7). See Effective and Termination Dates
of 2003 Amendment note below.
Subsec. (h)(9). Pub. L. 108-27, Secs. 301(b)(1)(A), (C), 303,
temporarily redesignated par. (11) as (9) and struck out heading
and text of former par. (9). Text read as follows: "For purposes of
this subsection, the term 'qualified 5-year gain' means the
aggregate long-term capital gain from property held for more than 5
years. The determination under the preceding sentence shall be made
without regard to collectibles gain, gain described in paragraph
(7)(A)(i), and section 1202 gain." See Effective and Termination
Dates of 2003 Amendment note below.
Subsec. (h)(10). Pub. L. 108-27, Secs. 301(b)(1)(C), 303,
temporarily redesignated par. (12) as (10). Former par. (10)
temporarily redesignated (8). See Effective and Termination Dates
of 2003 Amendment note below.
Subsec. (h)(11). Pub. L. 108-27, Secs. 302(a), 303, temporarily
added par. (11). See Effective and Termination Dates of 2003
Amendment note below.
Pub. L. 108-27, Secs. 301(b)(1)(C), 303, temporarily redesignated
par. (11) as (9). See Effective and Termination Dates of 2003
Amendment note below.
Subsec. (h)(12). Pub. L. 108-27, Secs. 301(b)(1)(C), 303,
temporarily redesignated par. (12) as (10). See Effective and
Termination Dates of 2003 Amendment note below.
Subsec. (i)(1)(B)(i). Pub. L. 108-27, Secs. 104(a), 107,
temporarily substituted "($12,000 in the case of taxable years
beginning after December 31, 2004, and before January 1, 2008)" for
"($12,000 in the case of taxable years beginning before January 1,
2008)". See Effective and Termination Dates of 2003 Amendment note
below.
Subsec. (i)(1)(C). Pub. L. 108-27, Secs. 104(b), 107, temporarily
amended heading and text of subpar. (C) generally. Text read as
follows: "In prescribing the tables under subsection (f) which
apply with respect to taxable years beginning in calendar years
after 2000 -
"(i) the Secretary shall make no adjustment to the initial
bracket amount for any taxable year beginning before January 1,
2009,
"(ii) the cost-of-living adjustment used in making adjustments
to the initial bracket amount for any taxable year beginning
after December 31, 2008, shall be determined under subsection
(f)(3) by substituting '2007' for '1992' in subparagraph (B)
thereof, and
"(iii) such adjustment shall not apply to the amount referred
to in subparagraph (B)(iii).
If any amount after adjustment under the preceding sentence is not
a multiple of $50, such amount shall be rounded to the next lowest
multiple of $50." See Effective and Termination Dates of 2003
Amendment note below.
Subsec. (i)(2). Pub. L. 108-27, Secs. 105(a), 107, temporarily
amended table generally. Prior to amendment, table read as follows:
The corresponding percentages shall be
substituted for
the following percentages:
28% 31% 36% 39.6%
--------------------------------------------------------------------
2001 27.5% 30.5% 35.5% 39.1%
2002 and 2003 27.0% 30.0% 35.0% 38.6%
2004 and 2005 26.0% 29.0% 34.0% 37.6%
2006 and thereafter 25.0% 28.0% 33.0% 35.0%"
--------------------------------------------------------------------
See Effective and Termination Dates of 2003 Amendment note below.
2001 - Subsec. (f). Pub. L. 107-16, Secs. 302(b)(2), 901,
temporarily substituted "Phaseout of marriage penalty in 15-percent
bracket; adjustments" for "Adjustments" in heading. See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (f)(2)(A). Pub. L. 107-16, Secs. 302(b)(1), 901,
temporarily inserted "except as provided in paragraph (8)," before
"by increasing". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (f)(6)(B). Pub. L. 107-16, Secs. 301(c)(1), 901,
temporarily substituted "(other than with respect to sections
63(c)(4) and 151(d)(4)(A)) shall be applied" for "(other than with
respect to subsection (c)(4) of section 63 (as it applies to
subsections (c)(5)(A) and (f) of such section) and section
151(d)(4)(A)) shall be applied". See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (f)(8). Pub. L. 107-16, Secs. 302(a), 901, temporarily
added par. (8). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (g)(7)(B)(ii)(II). Pub. L. 107-16, Secs. 101(c)(1), 901,
temporarily substituted "10 percent." for "15 percent". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (h)(1)(A)(ii)(I), (B)(i). Pub. L. 107-16, Secs.
101(c)(2)(A), 901, temporarily substituted "25 percent" for "28
percent". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (h)(13). Pub. L. 107-16, Secs. 101(c)(2)(B), 901,
temporarily struck out par. (13), which set out special rules for
determination of 28-percent rate gain, unrecaptured section 1250
gain, pass-thru entities, and charitable remainder trusts. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (i). Pub. L. 107-16, Secs. 101(a), 901, temporarily added
subsec. (i). See Effective and Termination Dates of 2001 Amendment
note below.
2000 - Subsec.(h)(8). Pub. L. 106-554 substituted "means the
excess of - " and subpars. (A) and (B) for "means an amount equal
to the gain excluded from gross income under section 1202(a)."
1998 - Subsec. (g)(3)(C), (D). Pub. L. 105-206, Sec. 6007(f)(1),
redesignated subpar. (D) as (C) and struck out heading and text of
former subpar. (C). Text read as follows: "If tax is imposed under
section 644(a)(1) with respect to the sale or exchange of any
property of which the parent was the transferor, for purposes of
applying subparagraph (A) to the taxable year of the parent in
which such sale or exchange occurs -
"(i) taxable income of the parent shall be increased by the
amount treated as included in gross income under section
644(a)(2)(A)(i), and
"(ii) the amount described in subparagraph (A)(ii) shall be
increased by the amount of the excess referred to in section
644(a)(2)(A)."
Subsec. (h). Pub. L. 105-206, Sec. 6005(d)(1), reenacted subsec.
heading without change and amended text of subsec. (h) generally,
substituting present provisions comprising pars. (1) to (13) for
former similar provisions comprising pars. (1) to (11).
Subsec. (h)(5). Pub. L. 105-206, Sec. 5001(a)(1), amended par.
(5) generally. Prior to amendment, par. (5) read as follows:
"(5) 28-percent rate gain. - For purposes of this subsection -
"(A) In general. - The term '28-percent rate gain' means the
excess (if any) of -
"(i) the sum of -
"(I) the aggregate long-term capital gain from property
held for more than 1 year but not more than 18 months;
"(II) collectibles gain; and
"(III) section 1202 gain, over
"(ii) the sum of -
"(I) the aggregate long-term capital loss (not described in
subclause (IV)) from property referred to in clause (i)(I);
"(II) collectibles loss;
"(III) the net short-term capital loss; and
"(IV) the amount of long-term capital loss carried under
section 1212(b)(1)(B) to the taxable year.
"(B) Special rules. -
"(i) Short sale gains and holding periods. - Rules similar to
the rules of section 1233(b) shall apply where the
substantially identical property has been held more than 1 year
but not more than 18 months; except that, for purposes of such
rules -
"(I) section 1233(b)(1) shall be applied by substituting
'18 months' for '1 year' each place it appears; and
"(II) the holding period of such property shall be treated
as being 1 year on the day before the earlier of the date of
the closing of the short sale or the date such property is
disposed of.
"(ii) Long-term losses. - Section 1233(d) shall be applied
separately by substituting '18 months' for '1 year' each place
it appears.
"(iii) Options. - A rule similar to the rule of section
1092(f) shall apply where the stock was held for more than 18
months.
"(iv) Section 1256 contracts. - Amounts treated as long-term
capital gain or loss under section 1256(a)(3) shall be treated
as attributable to property held for more than 18 months."
Subsec. (h)(6)(A). Pub. L. 105-206, Sec. 5001(a)(2), substituted
"1 year" for "18 months".
Subsec. (h)(7)(A)(i), (ii). Pub. L. 105-206, Sec. 5001(a)(3),
amended cls. (i) and (ii) generally. Prior to amendment, cls. (i)
and (ii) read as follows:
"(i) the amount of long-term capital gain (not otherwise treated
as ordinary income) which would be treated as ordinary income if -
"(I) section 1250(b)(1) included all depreciation and the
applicable percentage under section 1250(a) were 100 percent, and
"(II) only gain from property held for more than 18 months were
taken into account, over
"(ii) the excess (if any) of -
"(I) the amount described in paragraph (5)(A)(ii), over
"(II) the amount described in paragraph (5)(A)(i)."
Subsec. (h)(13). Pub. L. 105-206, Sec. 5001(a)(4), struck out
"for periods during 1997" after "Special rules" in par. heading and
amended headings and text of subpars. (A) and (B) generally. Prior
to amendment, subpars. (A) and (B) read as follows:
"(A) Determination of 28-percent rate gain. - In applying
paragraph (5) -
"(i) the amount determined under subclause (I) of paragraph
(5)(A)(i) shall include long-term capital gain (not otherwise
described in paragraph (5)(A)(i)) which is properly taken into
account for the portion of the taxable year before May 7, 1997;
"(ii) the amounts determined under subclause (I) of paragraph
(5)(A)(ii) shall include long-term capital loss (not otherwise
described in paragraph (5)(A)(ii)) which is properly taken into
account for the portion of the taxable year before May 7, 1997;
and
"(iii) clauses (i)(I) and (ii)(I) of paragraph (5)(A) shall be
applied by not taking into account any gain and loss on property
held for more than 1 year but not more than 18 months which is
properly taken into account for the portion of the taxable year
after May 6, 1997, and before July 29, 1997.
"(B) Other special rules. -
"(i) Determination of unrecaptured section 1250 gain not to
include pre-may 7, 1997 gain. - The amount determined under
paragraph (7)(A)(i) shall not include gain properly taken into
account for the portion of the taxable year before May 7, 1997.
"(ii) Other transitional rules for 18-month holding period. -
Paragraphs (6)(A) and (7)(A)(i)(II) shall be applied by
substituting '1 year' for '18 months' with respect to gain
properly taken into account for the portion of the taxable year
after May 6, 1997, and before July 29, 1997."
Subsec. (h)(13)(B). Pub. L. 105-277, Sec. 4002(i)(1), substituted
"paragraph (7)(A)(i)" for "paragraph (7)(A)" in introductory
provisions.
Subsec. (h)(13)(D). Pub. L. 105-277, Sec. 4002(i)(3), added
subpar. (D).
1997 - Subsec. (h). Pub. L. 105-34 amended heading and text of
subsec. (h) generally. Prior to amendment, text read as follows:
"If a taxpayer has a net capital gain for any taxable year, then
the tax imposed by this section shall not exceed the sum of -
"(1) a tax computed at the rates and in the same manner as if
this subsection had not been enacted on the greater of -
"(A) taxable income reduced by the amount of the net capital
gain, or
"(B) the amount of taxable income taxed at a rate below 28
percent, plus
"(2) a tax of 28 percent of the amount of taxable income in
excess of the amount determined under paragraph (1).
For purposes of the preceding sentence, the net capital gain for
any taxable year shall be reduced (but not below zero) by the
amount which the taxpayer elects to take into account as investment
income for the taxable year under section 163(d)(4)(B)(iii)."
1996 - Subsec. (g)(7)(A)(ii). Pub. L. 104-188, Sec. 1704(m)(1),
amended cl. (ii) generally. Prior to amendment, cl. (ii) read as
follows: "such gross income is more than $500 and less than
$5,000,".
Subsec. (g)(7)(B)(i). Pub. L. 104-188, Sec. 1704(m)(2)(A),
substituted "twice the amount described in paragraph (4)(A)(ii)(I)"
for "$1,000".
Subsec. (g)(7)(B)(ii)(II). Pub. L. 104-188, Sec. 1704(m)(2)(B),
amended subcl. (II) generally. Prior to amendment, subcl. (II) read
as follows: "for each such child, the lesser of $75 or 15 percent
of the excess of the gross income of such child over $500, and".
1993 - Subsecs. (a) to (e). Pub. L. 103-66, Secs. 13201(a),
13202(a), amended subsecs. (a) to (e) generally, substituting five-
tiered tax tables for all categories applicable to tax years after
December 31, 1992, for prior three-tiered tax tables.
Subsec. (f)(1). Pub. L. 103-66, Sec. 13201(b)(3)(A)(i),
substituted "1993" for "1990".
Subsec. (f)(3)(B). Pub. L. 103-66, Sec. 13201(b)(3)(A)(ii),
substituted "1992" for "1989".
Subsec. (f)(7). Pub. L. 103-66, Sec. 13201(b)(3)(B), added par.
(7).
Subsec. (h). Pub. L. 103-66, Sec. 13206(d)(2), inserted as
concluding provision at end "For purposes of the preceding
sentence, the net capital gain for any taxable year shall be
reduced (but not below zero) by the amount which the taxpayer
elects to take into account as investment income for the taxable
year under section 163(d)(4)(B)(iii)."
1990 - Subsecs. (a) to (e). Pub. L. 101-508, Sec. 11101(a),
amended subsecs. (a) to (e) generally, substituting three-tiered
tax tables for all categories applicable to tax years after Dec.
31, 1990, for prior two-tiered tax tables.
Subsec. (f)(1). Pub. L. 101-508, Sec. 11101(d)(1)(A)(i),
substituted "1990" for "1988".
Subsec. (f)(3)(B). Pub. L. 101-508, Sec. 11101(d)(1)(A)(ii),
substituted "1989" for "1987".
Subsec. (f)(6)(A). Pub. L. 101-508, Sec. 11104(b)(1), substituted
"section 151(d)(4)" for "section 151(d)(3)".
Pub. L. 101-508, Sec. 11103(c), inserted reference to section
68(b)(2).
Pub. L. 101-508, Sec. 11101(b)(2), struck out "subsection
(g)(4)," after "paragraph (2)(A),".
Subsec. (f)(6)(B). Pub. L. 101-508, Sec. 11104(b)(2), substituted
"section 151(d)(4)(A)" for "section 151(d)(3)".
Subsec. (g). Pub. L. 101-508, Sec. 11101(d)(2), redesignated
subsec. (i) as (g).
Pub. L. 101-508, Sec. 11101(b)(1), struck out subsec. (g) which
provided for phaseout of 15-percent rate and personal exemptions.
Subsec. (h). Pub. L. 101-508, Sec. 11101(d)(2), redesignated
subsec. (j) as (h) and struck out former subsec. (h) which provided
tax schedules for taxable years beginning in 1987.
Subsec. (i). Pub. L. 101-508, Sec. 11101(d)(2), redesignated
subsec. (i) as (g).
Subsec. (j). Pub. L. 101-508, Sec. 11101(d)(2), redesignated
subsec. (j) as (h).
Pub. L. 101-508, Sec. 11101(c), amended subsec. (j) generally.
Prior to amendment, subsec. (j) read as follows:
"(1) In general. - If a taxpayer has a net capital gain for any
taxable year to which this subsection applies, then the tax imposed
by this section shall not exceed the sum of -
"(A) a tax computed at the rates and in the same manner as if
this subsection had not been enacted on the greater of -
"(i) the taxable income reduced by the amount of net capital
gain, or
"(ii) the amount of taxable income taxed at a rate below 28
percent, plus
"(B) a tax of 28 percent of the amount of taxable income in
excess of the amount determined under subparagraph (A), plus
"(C) the amount of increase determined under subsection (g).
"(2) Years to which subsection applies. - This subsection shall
apply to -
"(A) any taxable year beginning in 1987, and
"(B) any taxable year beginning after 1987 if the highest rate
of tax set forth in subsection (a), (b), (c), (d), or (e)
(whichever applies) for such taxable year exceeds 28 percent."
1989 - Subsec. (f)(6)(B). Pub. L. 101-239, Sec. 7831(a),
substituted "subsection (c)(4) of section 63 (as it applies to
subsections (c)(5)(A) and (f) of such section) and section
151(d)(3)" for "section 63(c)(4)".
Subsec. (i)(3)(C), (D). Pub. L. 101-239, Sec. 7811(j)(1),
redesignated subpar. (C), relating to special rule where parent has
different taxable year, as (D).
Subsec. (i)(7)(A). Pub. L. 101-239, Sec. 7816(b), inserted
"(other than for purposes of this paragraph)" after "shall be
treated" in concluding provisions.
1988 - Subsec. (g)(2). Pub. L. 100-647, Sec. 1001(a)(3), inserted
provision relating to application of subpar. (B) at end of last
sentence.
Subsec. (i)(3)(A). Pub. L. 100-647, Sec. 1014(e)(2), substituted
"any exclusion, deduction, or credit" for "any deduction or
credit".
Subsec. (i)(3)(C). Pub. L. 100-647, Sec. 1014(e)(7), added
subpar. (C) relating to special rule where parent has different
taxable year.
Pub. L. 100-647, Sec. 1014(e)(1), added subpar. (C) relating to
coordination with section 644.
Subsec. (i)(4)(A)(i). Pub. L. 100-647, Sec. 1014(e)(3)(A),
substituted "adjusted gross income" for "gross income" and inserted
"attributable to" after "which is not".
Subsec. (i)(4)(A)(ii)(II). Pub. L. 100-647, Sec. 1014(e)(3)(B)-
(D), substituted "his deductions" for "his deduction", "the
itemized deductions allowed" for "the deductions allowed", and
"adjusted gross income" for "gross income".
Subsec. (i)(5)(A). Pub. L. 100-647, Sec. 1014(e)(6), substituted
"custodial parent (within the meaning of section 152(e))" for
"custodial parent".
Subsec. (i)(7). Pub. L. 100-647, Sec. 6006(a), added par. (7).
1986 - Subsecs. (a) to (e). Pub. L. 99-514, Sec. 101(a), in
amending subsecs. (a) to (e) generally, substituted a general tax
table for tax tables (1), (2), and (3) in each subsec. applicable
to taxable years beginning in 1982, 1983, and after 1983,
respectively.
Subsec. (f). Pub. L. 99-514, Sec. 101(a), in amending subsec. (f)
generally, in par. (1) substituted "1988," for "1984" and struck
out "paragraph (3) of" before "subsections", in par. (2) struck out
"paragraph (3) of" before "subsection" in introductory provisions,
substituted subpars. (A) to (C) for former subpars. (A) to (C)
which read as follows:
"(A) by increasing -
"(i) the maximum dollar amount on which no tax is imposed
under such table, and
"(ii) the minimum and maximum dollar amounts for each rate
bracket for which a tax is imposed under such table,
by the cost-of-living adjustment for such calendar year,
"(B) by not changing the rate applicable to any rate bracket as
adjusted under subparagraph (A)(ii), and
"(C) by adjusting the amounts setting forth the tax to the
extent necessary to reflect the adjustments in the rate
brackets.",
and struck out concluding provisions which read as follows: "If any
increase determined under subparagraph (A) is not a multiple of
$10, such increase shall be rounded to the nearest multiple of $10
(or if such increase is a multiple of $5, such increase shall be
increased to the next highest multiple of $10).", in par. (3)(B)
substituted "1987" for "1983", in par. (4) substituted "August 31"
for "September 30", in par. (5) inserted requirement that the
Consumer Price Index most consistent with such Index for calendar
year 1986 be used, and added par. (6).
Subsecs. (g), (h). Pub. L. 99-514, Sec. 101(a), in amending
section generally, added subsecs. (g) and (h).
Subsec. (i). Pub. L. 99-514, Sec. 1411(a), added subsec. (i).
Subsec. (j). Pub. L. 99-514, Sec. 302(a), added subsec. (j).
1982 - Subsecs. (d), (e). Pub. L. 97-448, Sec. 101(a)(3), set out
as a note below, provided for amendment of the tables applying to
married individuals filing separately or to estates and trusts so
as to correct any figure differing by not more than 50 cents from
the correct amount under the formula used in constructing such
table. Corrections to the tables in subsecs. (d) and (e) appeared
in Announcement 83-50 contained in Internal Revenue Bulletin No.
1983-12 of Mar. 21, 1983.
1981 - Subsecs. (a) to (e). Pub. L. 97-34, Sec. 101(a), generally
revised tax tables downward providing for cumulative across-the-
board reductions of 23 percent on a three phase schedule under
which different new rates were set for taxable years beginning in
1982, for taxable years beginning in 1983, and for taxable years
beginning after 1983.
Subsec. (f). Pub. L. 97-34, Sec. 104(a), added subsec. (f).
1978 - Subsec. (a). Pub. L. 95-600 generally made a downward
revision of tax table for married individuals filing joint returns
and surviving spouses resulting in a table under which, among other
changes, a bottom bracket imposing no tax on taxable income of
$3,400 or less was substituted for a bottom bracket imposing no tax
on taxable income of $3,200 or less.
Subsec. (b). Pub. L. 95-600 generally made a downward revision of
tax table for heads of household resulting in a table under which,
among other changes, a bottom bracket imposing no tax on taxable
income of $2,300 or less was substituted for a bottom bracket
imposing no tax on taxable income of $2,200 or less.
Subsec. (c). Pub. L. 95-600 generally made a downward revision of
tax table for unmarried individuals other than surviving spouses
and heads of households resulting in a table under which, among
other changes, a bottom bracket imposing no tax on taxable income
of $2,300 or less was substituted for a bottom bracket imposing no
tax on taxable income of $2,200 or less.
Subsec. (d). Pub. L. 95-600 generally made a downward revision of
tax tables for married individuals filing separate returns
resulting in a table under which, among other changes, a bottom
bracket imposing no tax on taxable income of $1,700 or less was
substituted for a bottom bracket imposing no tax on taxable income
of $1,600 or less.
Subsec. (e). Pub. L. 95-600 generally made a downward revision of
tax tables for estates and trusts resulting in a table under which,
among other changes, a bottom bracket under which a tax of 14% is
imposed on taxable income of $1,050 for a bottom bracket under
which a tax of 14% was imposed on taxable income of $500 or less.
1977 - Subsec. (a). Pub. L. 95-30 generally made a downward
revision of tax table for married individuals filing joint returns
and surviving spouses resulting in a table under which, among other
changes, a bottom bracket imposing no tax on taxable income of
$3,200 or less was substituted for a bottom bracket under which a
tax of 14% had been imposed on a taxable income of $1,000 or less.
Subsec. (b). Pub. L. 95-30 generally made a downward revision of
tax table for heads of households resulting in a table under which,
among other changes, a bottom bracket imposing no tax on taxable
income of $2,200 or less was substituted for a bottom bracket under
which a tax of 14% had been imposed on a taxable income of $1,000
or less.
Subsec. (c). Pub. L. 95-30 generally made a downward revision of
tax table for unmarried individuals other than surviving spouses
and heads of households resulting in a table under which, among
other changes, a bottom bracket imposing no tax on taxable income
of $2,200 or less was substituted for a bottom bracket under which
a tax of 14% had been imposed on a taxable income of $500 or less.
Subsec. (d). Pub. L. 95-30 generally made a downward revision of
tax table for married individuals filing separate returns resulting
in a table under which, among other changes, a bottom bracket
imposing no tax on taxable income of $1,600 or less was substituted
for a bottom bracket under which a tax of 14% had been imposed on a
taxable income of $500 or less. Provisions making table applicable
to estates and trusts were struck out. See subsec. (e).
Subsec. (e). Pub. L. 95-30 added subsec. (e) consisting of table
formerly contained in subsec. (d) but without any downward revision
and limited so as to apply only to estates and trusts.
1969 - Subsec. (a). Pub. L. 91-172 substituted a table of rates
of tax for married individuals filing joint returns and surviving
spouses for the tables of rates of tax on individuals. For rates of
taxes on unmarried individuals and married persons filing separate
returns, see subsecs. (c) and (d) of this section.
Subsec. (b). Pub. L. 91-172 generally revised rates of tax of
heads of household downwards and struck out provisions defining
head of household, determination of status, and limitations. For
definition of head of household, determination of status, and
limitations, see section 2(b) of this title.
Subsec. (c). Pub. L. 91-172 substituted rates of tax on unmarried
individuals (other than surviving spouses and heads of household)
for special rules explaining the rates of tax imposed under former
subsecs. (a) and (b)(1) and prescribing a maximum limit of 87
percent of the taxable year.
Subsec. (d). Pub. L. 91-172 substituted a table of rates of tax
for married individuals filing separate returns for provision
prescribing the applicability of the rates to non-resident aliens.
For applicability of rates of tax to non-resident aliens, see
section 2(d) of this title.
Subsec. (e). Pub. L. 91-172 struck out cross reference to section
63. See section 2(e) of this title.
1966 - Subsecs. (d), (e). Pub. L. 89-809 added subsec. (d) and
redesignated former subsec. (d) as (e).
1964 - Pub. L. 88-272 amended section generally by splitting the
former first bracket which started at $2,000 into four new
brackets, the 14 percent bracket representing a 30 percent
reduction, the 15 percent bracket a 25 percent cut, and the 16
percent bracket a 20 percent cut, and reducing all other brackets
by cuts averaging about 20 percent and effectuated these cuts in
two steps, one in 1964, and one in 1965.
EFFECTIVE AND TERMINATION DATES OF 2004 AMENDMENTS
Pub. L. 108-357, title IV, Sec. 413(d), Oct. 22, 2004, 118 Stat.
1510, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
170, 171, 245, 312, 443, 465, 508, 542, 543, 562, 563, 751, 864,
898, 904, 951, 954, 989, 1014, 1016, 1212, 1223, 1248, 1260, 1291,
1294, 4947, 4948, 6103, 6501, and 6679 of this title and repealing
sections 551 to 558, 1246, 1247, and 6035 of this title] shall
apply to taxable years of foreign corporations beginning after
December 31, 2004, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.
"(2) Subsection (c)(27). - The amendments made by subsection
(c)(27) [amending section 6103 of this title] shall apply to
disclosures of return or return information with respect to taxable
years beginning after December 31, 2004."
Pub. L. 108-311, title I, Sec. 101(e), Oct. 4, 2004, 118 Stat.
1168, provided that: "The amendments made by this section [amending
this section and sections 24 and 63 of this title] shall apply to
taxable years beginning after December 31, 2003."
Pub. L. 108-311, title I, Sec. 105, Oct. 4, 2004, 118 Stat. 1169,
provided that: "Each amendment made by this title [amending this
section and sections 24, 32, 55, and 63 of this title] shall be
subject to title IX of the Economic Growth and Tax Relief
Reconciliation Act of 2001 [Pub. L. 107-16, Sec. 901, set out as an
Effective and Termination Dates of 2001 Amendment note below] to
the same extent and in the same manner as the provision of such Act
to which such amendment relates."
Pub. L. 108-311, title IV, Sec. 402(b), Oct. 4, 2004, 118 Stat.
1186, provided that: "The amendments made by subsection (a)
[amending this section and sections 691, 854, and 857 of this title
and provisions set out as a note under this section] shall take
effect as if included in section 302 of the Jobs and Growth Tax
Relief Reconciliation Act of 2003 [Pub. L. 108-27]."
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Pub. L. 108-27, title I, Sec. 102(c), May 28, 2003, 117 Stat.
754, provided that: "The amendments made by this section [amending
this section and provisions set out as a note under this section]
shall apply to taxable years beginning after December 31, 2002."
Pub. L. 108-27, title I, Sec. 104(c), May 28, 2003, 117 Stat.
755, provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2002.
"(2) Tables for 2003. - The Secretary of the Treasury shall
modify each table which has been prescribed under section 1(f) of
the Internal Revenue Code of 1986 for taxable years beginning in
2003 and which relates to the amendment made by subsection (a) to
reflect such amendment."
Pub. L. 108-27, title I, Sec. 105(b), May 28, 2003, 117 Stat.
755, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2002."
Pub. L. 108-27, title I, Sec. 107, May 28, 2003, 117 Stat. 755,
provided that: "Each amendment made by this title [enacting section
6429 of this title, amending this section and sections 24, 55, and
63 of this title, and amending provisions set out as notes under
this section] shall be subject to title IX of the Economic Growth
and Tax Relief Reconciliation Act of 2001 [Pub. L. 107-16, Sec.
901, set out as an Effective and Termination Dates of 2001
Amendment note below] to the same extent and in the same manner as
the provision of such Act to which such amendment relates."
Pub. L. 108-27, title III, Sec. 301(d), May 28, 2003, 117 Stat.
760, provided that:
"(1) In general. - Except as otherwise provided by this
subsection, the amendments made by this section [amending this
section, sections 55, 57, 1445, and 7518 of this title, and section
1177 of Title 46, Appendix, Shipping] shall apply to taxable years
ending on or after May 6, 2003.
"(2) Withholding. - The amendment made by subsection (a)(2)(C)
[amending section 1445 of this title] shall apply to amounts paid
after the date of the enactment of this Act [May 28, 2003].
"(3) Small business stock. - The amendments made by subsection
(b)(3) [amending section 57 of this title] shall apply to
dispositions on or after May 6, 2003."
Pub. L. 108-27, title III, Sec. 302(f), May 28, 2003, 117 Stat.
764, as amended by Pub. L. 108-311, title IV, Sec. 402(a)(6), Oct.
4, 2004, 118 Stat. 1185, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
163, 301, 306, 338, 467, 531, 541, 584, 702, 854, 857, 1255, and
1257 of this title and repealing section 341 of this title] shall
apply to taxable years beginning after December 31, 2002.
"(2) Pass-thru entities. - In the case of a pass-thru entity
described in subparagraph (A), (B), (C), (D), (E), or (F) of
section 1(h)(10) of the Internal Revenue Code of 1986, as amended
by this Act, the amendments made by this section shall apply to
taxable years ending after December 31, 2002; except that dividends
received by such an entity on or before such date shall not be
treated as qualified dividend income (as defined in section
1(h)(11)(B) of such Code, as added by this Act)."
Pub. L. 108-27, title III, Sec. 303, May 28, 2003, 117 Stat. 764,
provided that: "All provisions of, and amendments made by, this
title [amending this section, sections 55, 57, 163, 301, 306, 338,
467, 531, 541, 584, 702, 854, 857, 1255, 1257, 1445, and 7518 of
this title, and section 1177 of Title 46, Appendix, Shipping,
repealing section 341 of this title, and enacting provisions set
out as notes under this section] shall not apply to taxable years
beginning after December 31, 2008, and the Internal Revenue Code of
1986 shall be applied and administered to such years as if such
provisions and amendments had never been enacted."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title I, Sec. 101(d), June 7, 2001, 115 Stat. 44,
provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting section 6428 of this
title and amending this section and sections 15, 531, 541, 3402,
and 3406 of this title] shall apply to taxable years beginning
after December 31, 2000.
"(2) Amendments to withholding provisions. - The amendments made
by paragraphs (6), (7), (8), (9), (10), and (11) of subsection (c)
[amending sections 3402 and 3406 of this title] shall apply to
amounts paid after the 60th day after the date of the enactment of
this Act [June 7, 2001]. References to income brackets and rates of
tax in such paragraphs shall be applied without regard to section
1(i)(1)(D) of the Internal Revenue Code of 1986."
Pub. L. 107-16, title III, Sec. 301(d), June 7, 2001, 115 Stat.
54, as amended by Pub. L. 108-27, title I, Sec. 103(b), May 28,
2003, 117 Stat. 754, provided that: "The amendments made by this
section [amending this section and section 63 of this title] shall
apply to taxable years beginning after December 31, 2002."
Pub. L. 107-16, title III, Sec. 302(c), June 7, 2001, 115 Stat.
54, as amended by Pub. L. 108-27, title I, Sec. 102(b)(2), May 28,
2003, 117 Stat. 754, provided that: "The amendments made by this
section [amending this section] shall apply to taxable years
beginning after December 31, 2002."
Pub. L. 107-16, title IX, Sec. 901, June 7, 2001, 115 Stat. 150,
as amended by Pub. L. 107-358, Sec. 2, Dec. 17, 2002, 116 Stat.
3015, provided that:
"(a) In General. - All provisions of, and amendments made by,
this Act [see Tables for classification] shall not apply -
"(1) to taxable, plan, or limitation years beginning after
December 31, 2010, or
"(2) in the case of title V [see Tables for classification], to
estates of decedents dying, gifts made, or generation skipping
transfers, after December 31, 2010.
"(b) Application of Certain Laws. - The Internal Revenue Code of
1986 and the Employee Retirement Income Security Act of 1974 [29
U.S.C. 1001 et seq.] shall be applied and administered to years,
estates, gifts, and transfers described in subsection (a) as if the
provisions and amendments described in subsection (a) had never
been enacted."
"(c) Exception. - Subsection (a) shall not apply to section 803
[set out as a note preceding section 101 of this title] (relating
to no federal income tax on restitution received by victims of the
Nazi regime or their heirs or estates)."
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 117(c)], Dec. 21,
2000, 114 Stat. 2763, 2763A-605, provided that: "The amendments
made by this section [amending this section and section 1202 of
this title] shall apply to stock acquired after the date of the
enactment of this Act [Dec. 21, 2000]."
EFFECTIVE DATE OF 1998 AMENDMENTS
Pub. L. 105-277, div. J, title IV, Sec. 4002(k), Oct. 21, 1998,
112 Stat. 2681-908, provided that: "The amendments made by this
section [amending this section and sections 408A, 6015, 6103, 6159,
7421, 7443A, and 7491 of this title and amending provisions set out
as a note under section 6601 of this title] shall take effect as if
included in the provisions of the 1998 Act [Pub. L. 105-206] to
which they relate."
Pub. L. 105-206, title V, Sec. 5001(b), July 22, 1998, 112 Stat.
788, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
1223 and 1235 of this title] shall apply to taxable years ending
after December 31, 1997.
"(2) Subsection (a)(5). - The amendments made by subsection
(a)(5) [amending sections 1223 and 1235 of this title] shall take
effect on January 1, 1998."
Pub. L. 105-206, title VI, Sec. 6024, July 22, 1998, 112 Stat.
826, provided that: "Except as otherwise provided in this title
[see Tables for classification], the amendments made by this title
shall take effect as if included in the provisions of the Taxpayer
Relief Act of 1997 [Pub. L. 105-34] to which they relate."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 311(d) of Pub. L. 105-34 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section, sections
55, 57, 904, 1445, and 7518 of this title, and section 1177 of
Title 46, Appendix, Shipping] shall apply to taxable years ending
after May 6, 1997.
"(2) Withholding. - The amendment made by subsection (c)(1)
[amending section 1445 of this title] shall apply only to amounts
paid after the date of the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1704(m)(4) of Pub. L. 104-188 provided that: "The
amendments made by this subsection [amending this section and
section 59 of this title] shall apply to taxable years beginning
after December 31, 1995."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13201(c) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 41, 63,
68, 132, 151, 453A, 513, 531, and 541 of this title] shall apply to
taxable years beginning after December 31, 1992."
Section 13202(c) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 531 and
541 of this title] shall apply to taxable years beginning after
December 31, 1992."
Section 13206(d)(3) of Pub. L. 103-66 provided that: "The
amendments made by this subsection [amending this section and
section 163 of this title] shall apply to taxable years beginning
after December 31, 1992."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11101(e) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section, sections
32, 41, 59, 63, 135, 151, 513, 691, 904, 6103, and 7518 of this
title, and section 1177 of Title 46, Appendix, Shipping] shall
apply to taxable years beginning after December 31, 1990."
Section 11103(e) of Pub. L. 101-508 provided that: "The
amendments made by this section [enacting section 68 of this title
and amending this section and section 56 of this title] shall apply
to taxable years beginning after December 31, 1990."
Section 11104(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section and section
151 of this title] shall apply to taxable years beginning after
December 31, 1990."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7817 of Pub. L. 101-239 provided that: "Except as
otherwise provided in this part [part I (Secs. 7811-7817) of
subtitle H of title VII of Pub. L. 101-239, see Tables for
classification], any amendment made by this part shall take effect
as if included in the provision of the 1988 Act [Pub. L. 100-647]
to which such amendment relates."
Section 7831(g) of Pub. L. 101-239 provided that: "Any amendment
made by this section [amending this section and sections 42, 406,
407, and 1250 of this title and provisions set out as notes under
sections 141 and 263A of this title] shall take effect as if
included in the provision of the Tax Reform Act of 1986 [Pub. L. 99-
514] to which such amendment relates."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1019 of title I of Pub. L. 100-647 provided that:
"(a) General Rule. - Except as otherwise provided in this title,
any amendment made by this title [see Tables for classification],
shall take effect as if included in the provision of the Reform Act
[Pub. L. 99-514] to which such amendment relates.
"(b) Waiver of Estimated Tax Penalties. - No addition to tax
shall be made under section 6654 or 6655 of the 1986 Code for any
period before April 16, 1989 (March 16, 1989 in the case of a
taxpayer subject to section 6655 of the 1986 Code) with respect to
any underpayment to the extent such underpayment was created or
increased by any provision of this title or title II [see Tables
for classification]."
Section 6006(b) of Pub. L. 100-647 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1988."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 151 of title I of Pub. L. 99-514 provided that:
"(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this title [enacting section 67 of
this title, amending this section, sections 3, 5, 15, 21, 32, 62,
63, 74, 85, 86, 102, 108, 117, 129, 151, 152, 164, 170, 172, 183,
213, 265, 274, 280A, 402, 441, 443, 527, 541, 613A, 642, 667, 861,
862, 901, 904, 1398, 1441, 2032A, 3121, 3231, 3306, 3401, 3402,
3507, 4941, 4945, 6012 to 6014, 6212, 6504, 6511, and 7871 of this
title, and section 409 of Title 42, The Public Health and Welfare,
renumbering section 223 of this title as section 220 of this title,
repealing sections 24, 221, 222, and 1301 to 1305 of this title,
and enacting provisions set out as a note under section 32 of this
title] shall apply to taxable years beginning after December 31,
1986.
"(b) Unemployment Compensation. - The amendment made by section
121 [amending section 85 of this title] shall apply to amounts
received after December 31, 1986, in taxable years ending after
such date.
"(c) Prizes and Awards. - The amendments made by section 122
[amending sections 74, 102, 274, 3121, 3231, 3306, 3401, 4941, and
4945 of this title and section 409 of Title 42, The Public Health
and Welfare] shall apply to prizes and awards granted after
December 31, 1986.
"(d) Scholarships. - The amendments made by section 123 [amending
sections 74, 117, 1441, and 7871 of this title] shall apply to
taxable years beginning after December 31, 1986, but only in the
case of scholarships and fellowships granted after August 16, 1986.
"(e) Parsonage and Military Housing Allowances. - The amendment
made by section 144 [amending section 265 of this title] shall
apply to taxable years beginning before, on, or after, December 31,
1986."
Section 302(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1986."
Section 1411(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and section 6103 of
this title] shall apply to taxable years beginning after December
31, 1986."
EFFECTIVE DATE OF 1983 AMENDMENT
Section 109 of title I of Pub. L. 97-448 provided that: "Except
as otherwise provided in this title, any amendment made by this
title [see Tables for classification] shall take effect as if it
had been included in the provision of the Economic Recovery Tax Act
of 1981 [Pub. L. 97-34, Aug. 13, 1981, 95 Stat. 172] to which such
amendment relates."
EFFECTIVE DATE OF 1981 AMENDMENT
Section 101(f)(1) of Pub. L. 97-34, as amended by Pub. L. 97-448,
title I, Sec. 101(a)(1), Jan. 12, 1983, 96 Stat. 2365, provided
that: "The amendments made by subsections (a), (c), and (d)
[amending this section and sections 3, 21, 55, 541, and 1304 of
this title and repealing section 1348 of this title] shall apply to
taxable years beginning after December 31, 1981; except that the
amendment made by paragraph (3) of subsection (d) [amending section
21 of this title] shall apply to taxable years ending after
December 31, 1981."
Section 104(e) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section and sections 63, 151,
6012, and 6013 of this title] shall apply to taxable years
beginning after December 31, 1984."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 101(f)(1) of Pub. L. 95-600 provided that: "The
amendments made by subsections (a), (b), (c), and (d) [amending
sections 63, 402, 1302, and 6012 of this title] shall apply to
taxable years beginning after December 31, 1978."
EFFECTIVE DATE OF 1977 AMENDMENT
Section 106(a) of Pub. L. 95-30 provided that: "The amendments
made by sections 101, 102, and 104 [amending this section and
sections 3, 21, 42, 57, 63, 143, 161, 172, 211, 402, 441, 443, 511,
584, 613A, 641, 642, 667, 703, 861, 862, 873, 904, 911, 931, 1034,
1211, 1302, 6012, 6014, 6212, 6504, and 6654 of this title and
repealing sections 36, 141, 142, 144, and 145 of this title] shall
apply to taxable years beginning after December 31, 1976."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 803(f) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by subsections (a) [amending this section], (b)
[amending section 2 of this title], and (d) (other than paragraphs
(1) and (8)) [amending sections 5, 511, 632, 641, 1347, and 6015 of
this title] shall apply to taxable years beginning after December
31, 1970, except that section 2(c) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] [section 2(c) of this title], as
amended by subsection (b), shall also apply to taxable years
beginning after December 31, 1969. The amendments made by
subsections (c) [amending section 3 of this title], (d)(1)
[amending section 6014 of this title], and (d)(8) [amending section
1304 of this title] shall apply to taxable years beginning after
December 31, 1969".
EFFECTIVE DATE OF 1966 AMENDMENT
Section 103(n) of Pub. L. 89-809 provided that:
"(1) The amendments made by this section (other than the
amendments made by subsections (h), (i), and (k)) [enacting
section 877 of this title, amending this section and sections
116, 154, 871, 872, 873, 874, 875, 932, 6015, and 7701 of this
title, renumbering section 877 as 878, and repealing section 1493
of this title] shall apply with respect to taxable years
beginning after December 31, 1966.
"(2) The amendments made by subsection (h) [amending section
1441 of this title] shall apply with respect to payments made in
taxable years of recipients beginning after December 31, 1966.
"(3) The amendments made by subsection (i) [amending section
1461 of this title] shall apply with respect to payments
occurring after December 31, 1966.
"(4) The amendments made by subsection (k) [amending section
3401 of this title] shall apply with respect to remuneration paid
after December 31, 1966."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 131 of Pub. L. 88-272, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Except for
purposes of section 21 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (relating to effect of changes in rates
during a taxable year), the amendments made by parts I and II of
this title [amending this section and sections 2, 11, 37, 141, 144,
242, 821, 871, 963, 6016, 6074, 6154, 6212, 6504, and 6655 of this
title] shall apply with respect to taxable years beginning after
December 31, 1963."
SHORT TITLE OF 2005 AMENDMENTS
Pub. L. 109-135, Sec. 1(a), Dec. 21, 2005, 119 Stat. 2577,
provided that: "This Act [see Tables for classification] may be
cited as the 'Gulf Opportunity Zone Act of 2005'."
Pub. L. 109-135, title IV, Sec. 401, Dec. 21, 2005, 119 Stat.
2610, provided that: "This subtitle [subtitle A (Secs. 401-413) of
title IV of Pub. L. 109-135, see Tables for classification] may be
cited as the 'Tax Technical Corrections Act of 2005'."
Pub. L. 109-73, Sec. 1(a), Sept. 23, 2005, 119 Stat. 2016,
provided that: "This Act [amending sections 170 and 7508 of this
title and enacting provisions set out as notes under sections 170
and 7508 of this title] may be cited as the 'Katrina Emergency Tax
Relief Act of 2005'."
Pub. L. 109-58, title XIII, Sec. 1300(a), Aug. 8, 2005, 119 Stat.
986, provided that: "This title [see Tables for classification] may
be cited as the 'Energy Tax Incentives Act of 2005'."
SHORT TITLE OF 2004 AMENDMENTS
Pub. L. 108-357, Sec. 1(a), Oct. 22, 2004, 118 Stat. 1418,
provided that: "This Act [see Tables for classification] may be
cited as the 'American Jobs Creation Act of 2004'."
Pub. L. 108-311, Sec. 1(a), Oct. 4, 2004, 118 Stat. 1166,
provided that: "This Act [see Tables for classification] may be
cited as the 'Working Families Tax Relief Act of 2004'."
SHORT TITLE OF 2003 AMENDMENTS
Pub. L. 108-121, Sec. 1(a), Nov. 11, 2003, 117 Stat. 1335,
provided that: "This Act [amending sections 5, 62, 101, 121, 132,
134, 162, 501, 530, 692, 2201, 3121, 3306, 3401, 6013, and 7508 of
this title, section 1478 of Title 10, Armed Forces, and section 58c
of Title 19, Customs Duties, and enacting provisions set out as
notes under sections 5, 62, 101, 121, 132, 134, 501, 530, 2201, and
7508 of this title and section 1478 of Title 10] may be cited as
the 'Military Family Tax Relief Act of 2003'."
Pub. L. 108-27, Sec. 1(a), May 28, 2003, 117 Stat. 752, provided
that: "This Act [enacting section 6429 of this title and section
801 of Title 42, The Public Health and Welfare, amending this
section, sections 24, 55, 57, 63, 163, 168, 179, 301, 306, 338,
467, 531, 541, 584, 702, 854, 857, 1255, 1257, 1400L, 1445, and
7518 of this title, and section 1177 of Title 46, Appendix,
Shipping, repealing section 341 of this title, enacting provisions
set out as notes under this section, sections 24, 55, 63, 168, and
179 of this title, and section 1396d of Title 42, and amending
provisions set out as notes under this section] may be cited as the
'Jobs and Growth Tax Relief Reconciliation Act of 2003'."
Pub. L. 108-26, Sec. 1, May 28, 2003, 117 Stat. 751, provided
that: "This Act [enacting and amending provisions set out as notes
under section 3304 of this title] may be cited as the 'Unemployment
Compensation Amendments of 2003'."
SHORT TITLE OF 2002 AMENDMENTS
Pub. L. 107-358, Sec. 1, Dec. 17, 2002, 116 Stat. 3015, provided
that: "This Act [amending provisions set out as a note under this
section] may be cited as the 'Holocaust Restitution Tax Fairness
Act of 2002'."
Pub. L. 107-181, Sec. 1, May 20, 2002, 116 Stat. 583, provided
that: "This Act [amending section 107 of this title and enacting
provisions set out as a note under section 107 of this title] may
be cited as the 'Clergy Housing Allowance Clarification Act of
2002'."
Pub. L. 107-147, Sec. 1(a), Mar. 9, 2002, 116 Stat. 21, provided
that: "This Act [see Tables for classification] may be cited as the
'Job Creation and Worker Assistance Act of 2002'."
Pub. L. 107-134, Sec. 1(a), Jan. 23, 2002, 115 Stat. 2427,
provided that: This Act [enacting sections 139 and 5891 of this
title and section 1148 of Title 29, Labor, amending sections 5,
101, 104, 140, 642, 692, 2011, 2053, 2201, 6013, 6081, 6103, 6105,
6161, 6404, 7213, 7508, and 7508A of this title and section 1302 of
Title 29, enacting provisions set out as notes under sections 101,
108, 139, 501, 642, 692, 2011, 5891, 6081, and 6103 of this title,
section 401 of Title 42, The Public Health and Welfare, and section
40101 of Title 49, Transportation, and amending provisions set out
as a note under section 40101 of Title 49] may be cited as the
'Victims of Terrorism Tax Relief Act of 2001'."
SHORT TITLE OF 2001 AMENDMENTS
Pub. L. 107-16, Sec. 1(a), June 7, 2001, 115 Stat. 38, provided
that: "This Act [see Tables for classification] may be cited as the
'Economic Growth and Tax Relief Reconciliation Act of 2001'."
Pub. L. 107-15, Sec. 1, June 5, 2001, 115 Stat. 37, provided
that: "This Act [amending provisions set out as a note under
section 101 of this title] may be cited as the 'Fallen Hero
Survivor Benefit Fairness Act of 2001'."
SHORT TITLE OF 2000 AMENDMENTS
Pub. L. 106-573, Sec. 1, Dec. 28, 2000, 114 Stat. 3061, provided
that: "This Act [amending section 453 of this title and enacting
provisions set out as a note under section 453 of this title] may
be cited as the 'Installment Tax Correction Act of 2000'."
Pub. L. 106-554, Sec. 1(a)(7) [Sec. 1(a)], Dec. 21, 2000, 114
Stat. 2763, 2763A-587, provided that: "This Act [H.R. 5662, as
enacted by section 1(a)(7) of Pub. L. 106-554, see Tables for
classification] may be cited as the 'Community Renewal Tax Relief
Act of 2000'."
Pub. L. 106-519, Sec. 1(a), Nov. 15, 2000, 114 Stat. 2423,
provided that: "This Act [enacting sections 114 and 941 to 943 of
this title, amending sections 56, 275, 864, 903 and 999 of this
title, and repealing sections 921 to 927 of this title] may be
cited as the 'FSC Repeal and Extraterritorial Income Exclusion Act
of 2000'."
Pub. L. 106-476, title IV, Sec. 4001, Nov. 9, 2000, 114 Stat.
2176, provided that: "This title [enacting sections 1681 to 1681b
of Title 19, Customs Duties, amending sections 5704, 5754, and 5761
of this title, and enacting provisions set out as notes under
sections 5704 and 5761 of this title and section 1681 of Title 19]
may be cited as the 'Imported Cigarette Compliance Act of 2000'."
SHORT TITLE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 500, Dec. 17, 1999, 113 Stat.
1918, provided that: "This title [see Tables for classification]
may be cited as the 'Tax Relief Extension Act of 1999'."
SHORT TITLE OF 1998 AMENDMENTS
Pub. L. 105-277, div. J, Sec. 1000(a), Oct. 21, 1998, 112 Stat.
2681-886, provided that: "This division [Secs. 1000-5301, see
Tables for classification] may be cited as the 'Tax and Trade
Relief Extension Act of 1998'."
Pub. L. 105-277, div. C, title XV, Sec. 1501, Oct. 21, 1998, 112
Stat. 2681-741, provided that: "This title [amending sections 4132
and 9510 of this title and section 300aa-11 of Title 42, The Public
Health and Welfare, and enacting provisions set out as notes under
sections 4132 and 9510 of this title] may be cited as the 'Vaccine
Injury Compensation Program Modification Act'."
Pub. L. 105-206, Sec. 1(a), July 22, 1998, 112 Stat. 685,
provided that: "This Act [see Tables for classification] may be
cited as the 'Internal Revenue Service Restructuring and Reform Act
of 1998'."
Pub. L. 105-206, title III, Sec. 3000, July 22, 1998, 112 Stat.
726, provided that: "This title [see Tables for classification] may
be cited as the 'Taxpayer Bill of Rights 3'."
Pub. L. 105-206, title VI, Sec. 6001(a), July 22, 1998, 112 Stat.
790, provided that: "This title [see Tables for classification] may
be cited as the 'Tax Technical Corrections Act of 1998'."
Pub. L. 105-178, title IX, Sec. 9001(a), June 9, 1998, 112 Stat.
499, provided that: "This title [amending sections 40, 132, 4041,
4051, 4071, 4081, 4091, 4221, 4481 to 4483, 6156, 6412, 6421, 6427,
9503, and 9504 of this title and section 460l-11 of Title 16,
Conservation, repealing section 9511 of this title, enacting
provisions set out as notes under sections 40, 132, 172, 4041,
6421, and 9503 of this title, and amending provisions set out as a
note under section 172 of this title] may be cited as the 'Surface
Transportation Revenue Act of 1998'."
SHORT TITLE OF 1997 AMENDMENTS
Pub. L. 105-35, Sec. 1, Aug. 5, 1997, 111 Stat. 1104, provided
that: "This Act [enacting section 7213A of this title, amending
sections 7213 and 7431 of this title, and enacting provisions set
out as notes under sections 7213 and 7431 of this title] may be
cited as the 'Taxpayer Browsing Protection Act'."
Section 1(a) of Pub. L. 105-34 provided that: "This Act [see
Tables for classification] may be cited as the 'Taxpayer Relief Act
of 1997'."
Pub. L. 105-2, Sec. 1(a), Feb. 28, 1997, 111 Stat. 4, provided
that: "This Act [amending sections 4041, 4081, 4091, 4261, 4271,
and 9502 of this title and enacting provisions set out as notes
under sections 4041, 4081, and 4261 of this title] may be cited as
the 'Airport and Airway Trust Fund Tax Reinstatement Act of 1997'."
SHORT TITLE OF 1996 AMENDMENTS
Section 1(a) of Pub. L. 104-188 provided that: "This Act [see
Tables for classification] may be cited as the 'Small Business Job
Protection Act of 1996'."
Pub. L. 104-168, Sec. 1(a), July 30, 1996, 110 Stat. 1452,
provided that: "This Act [enacting sections 4958, 7434, 7435, and
7524 of this title, amending sections 501, 4955, 4963, 6013, 6033,
6041 to 6042, 6044, 6045, 6049, 6050B, 6050H to 6050K, 6050N, 6103,
6104, 6159, 6201, 6213, 6323, 6334, 6343, 6404, 6503, 6601, 6651,
6652, 6656, 6672, 6685, 7122, 7213, 7422, 7430, 7433, 7454, 7502,
7608, 7609, 7623, 7802, 7805, and 7811 of this title, renumbering
sections 7434 and 7435 as sections 7435 and 7436 of this title,
enacting provisions set out as notes under sections 501, 4955,
6013, 6033, 6041, 6103, 6104, 6159, 6201, 6311, 6323, 6334, 6404,
6503, 6601, 6651, 6652, 6656, 6672, 7122, 7430, 7433 to 7435, 7524,
7608, 7609, 7623, 7802, 7803, 7805, and 7811 of this title, and
amending provisions set out as a note under section 7608 of this
title] may be cited as the 'Taxpayer Bill of Rights 2'."
SHORT TITLE OF 1994 AMENDMENTS
Pub. L. 103-465, title VII, Sec. 750, Dec. 8, 1994, 108 Stat.
5012, provided that: "This subtitle [subtitle F (Secs. 750-781) of
title VII of Pub. L. 103-465, enacting sections 1310, 1311, and
1350 of Title 29, Labor, amending sections 401, 404, 411, 412, 415,
417, 4971, and 4972 of this title and sections 1053 to 1056, 1082,
1132, 1301, 1303, 1305, 1306, 1322, 1341, 1342, and 1343 of Title
29, and enacting provisions set out as notes under sections 401,
411, 412, and 4972 of this title and sections 1056, 1082, 1303,
1306, 1310, 1311, 1322, 1341, and 1342 of Title 29] may be cited as
the 'Retirement Protection Act of 1994'."
Pub. L. 103-387, Sec. 1, Oct. 22, 1994, 108 Stat. 4071, provided
that: "This Act [enacting section 3510 of this title, amending
sections 3102 and 3121 of this title, section 3701 of Title 31,
Money and Finance, and sections 401, 402, 404, 409, 410, and 1383
of Title 42, The Public Health and Welfare, and enacting provisions
set out as notes under sections 3102 and 3510 of this title,
section 3701 of Title 31, and sections 401, 402, and 1383 of Title
42] may be cited as the 'Social Security Domestic Employment Reform
Act of 1994'."
SHORT TITLE OF 1993 AMENDMENTS
Pub. L. 103-152, Sec. 1, Nov. 24, 1993, 107 Stat. 1516, provided
that: "This Act [amending sections 503, 504, 1105, 1108, and 1382j
of Title 42, The Public Health and Welfare, enacting provisions set
out as notes under section 3304 of this title and sections 503 and
1382j of Title 42, amending provisions set out as notes under
section 3304 of this title and section 352 of Title 45, Railroads,
and repealing provisions set out as a note under section 3304 of
this title] may be cited as the 'Unemployment Compensation
Amendments of 1993'."
Section 13001(a) of title XIII of Pub. L. 103-66 provided that:
"This chapter [chapter 1 (Secs. 13001-13444) of title XIII of Pub.
L. 103-66, see Tables for classification] may be cited as the
'Revenue Reconciliation Act of 1993'."
Pub. L. 103-6, Sec. 1, Mar. 4, 1993, 107 Stat. 33, provided that:
"This Act [enacting provisions set out as notes under section 3304
of this title, section 31 of Title 2, The Congress, and section 352
of Title 45, Railroads, and amending provisions set out as notes
under section 3304 of this title and section 352 of Title 45] may
be cited as the 'Emergency Unemployment Compensation Amendments of
1993'."
SHORT TITLE OF 1992 AMENDMENTS
Pub. L. 102-486, title XIX, Sec. 19141, Oct. 24, 1992, 106 Stat.
3036, provided that: "This subtitle [subtitle C (Secs. 19141-19143)
of title XIX of Pub. L. 102-486, enacting sections 9701 to 9722 of
this title, amending sections 1231 and 1232 of Title 30, Mineral
Lands and Mining, and enacting provisions set out as a note under
section 9701 of this title] may be cited as the 'Coal Industry
Retiree Health Benefit Act of 1992'."
Pub. L. 102-318, Sec. 1, July 3, 1992, 106 Stat. 290, provided
that: "This Act [enacting section 1110 of Title 42, The Public
Health and Welfare, amending sections 55, 62, 72, 151, 219, 401 to
404, 406 to 408, 411, 414, 415, 457, 691, 871, 877, 1441, 3121,
3304, 3306, 3402, 3405, 4973, 4980A, 6047, 6652, 6655, and 7701 of
this title, section 8509 of Title 5, Government Organization and
Employees, section 2291 of Title 19, Customs Duties, and sections
502, 503, 1101, 1102, 1104, and 1105 of Title 42, enacting
provisions set out as notes under sections 401, 402, 3302, 3304,
and 6655 of this title, section 8509 of Title 5, section 2291 of
Title 19, and sections 502, 666, 1102, and 1108 of Title 42, and
amending provisions set out as notes under section 3304 of this
title, sections 502 and 666 of Title 42, and section 352 of Title
45, Railroads] may be cited as the 'Unemployment Compensation
Amendments of 1992'."
SHORT TITLE OF 1991 AMENDMENTS
Pub. L. 102-240, title VIII, Sec. 8001(a), Dec. 18, 1991, 105
Stat. 2203, provided that: "This title [enacting section 9511 of
this title, amending sections 4041, 4051, 4071, 4081, 4091, 4221,
4481, 4482, 4483, 6156, 6412, 6420, 6421, 6427, 9503, and 9504 of
this title and section 460l-11 of Title 16, Conservation, and
enacting provisions set out as notes under section 9503 of this
title, section 101 of Title 23, Highways, and section 1601 of
former Title 49, Transportation] may be cited as the 'Surface
Transportation Revenue Act of 1991'."
Pub. L. 102-227, Sec. 1(a), Dec. 11, 1991, 105 Stat. 1686,
provided that: "This Act [amending sections 25, 28, 41, 42, 48, 51,
57, 120, 127, 143, 144, 162, 864, and 6655 of this title and
enacting provisions set out as notes under sections 25, 28, 42, 51,
120, 127, 143, 144, 162, 864, and 6655 of this title] may be cited
as the 'Tax Extension Act of 1991'."
SHORT TITLE OF 1990 AMENDMENT
Section 11001(a) of title XI of Pub. L. 101-508 provided that:
"This title [see Tables for classification] may be cited as the
'Revenue Reconciliation Act of 1990'."
SHORT TITLE OF 1989 AMENDMENT
Section 7001(a) of title VII of Pub. L. 101-239 provided that:
"This title [see Tables for classification] may be cited as the
'Revenue Reconciliation Act of 1989'."
Section 7701 of title VII of Pub. L. 101-239 provided that: "This
subtitle [subtitle G (Secs. 7701-7743) of title VII of Pub. L. 101-
239, see Tables for classification] may be cited as the 'Improved
Penalty Administration and Compliance Tax Act'."
SHORT TITLE OF 1988 AMENDMENT
Section 1(a) of Pub. L. 100-647 provided that: "This Act [see
Tables for classification] may be cited as the 'Technical and
Miscellaneous Revenue Act of 1988'."
Section 6226 of Pub. L. 100-647 provided that: "This subtitle
[subtitle J (Secs. 6226-6247) of title VI of Pub. L. 100-647,
enacting sections 6159, 6326, 6712, 7430, 7432, 7433, 7520, 7521,
and 7811 of this title, amending sections 6213, 6214, 6331, 6332,
6334, 6335, 6343, 6404, 6512, 6601, 6673, 6863, 7216, 7429, 7481,
7482, 7802, and 7805 of this title and section 504 of Title 5,
Government Organization and Employees, renumbering section 6326 as
6327, 7432 as 7433, and 7433 as 7434 of this title, and enacting
provisions set out as notes under this section and sections 6159,
6213, 6214, 6326, 6331, 6404, 6512, 6673, 6712, 6863, 7429, 7430,
7432, 7520, 7521, 7605, 7801 to 7803, 7805, and 7811 of this title]
may be cited as the 'Omnibus Taxpayer Bill of Rights'."
SHORT TITLE OF 1987 AMENDMENTS
Pub. L. 100-223, title IV, Sec. 401, Dec. 30, 1987, 101 Stat.
1532, provided that: "This title [enacting section 4283 of this
title, amending sections 4041, 4261, 4271, 6427, and 9502 of this
title, and enacting provisions set out as notes under sections 4041
and 4261 of this title] may be cited as the 'Airport and Airway
Revenue Act of 1987'."
Pub. L. 100-203, title IX, Sec. 9302(a), Dec. 22, 1987, 101 Stat.
1330-333, provided that: "This part [part II (Secs. 9302-9346) of
subtitle D of part II of Pub. L. 100-203, enacting sections 1085b
and 1371 of Title 29, Labor, amending sections 401, 404, 411, 412,
414, and 4971 of this title and sections 1021, 1023, 1024, 1054,
1082 to 1084, 1085a, 1086, 1103, 1107, 1113, 1132, 1201, 1301, 1305
to 1307, 1322, 1341, 1342, 1344, 1349, 1362, 1364, 1367, and 1368
of Title 29, repealing section 1349 of Title 29, and enacting
provisions set out as notes under sections 401, 404, 412, and 4971
of this title and sections 1054, 1107, 1132, 1301, 1305, 1322, and
1344 of Title 29] may be cited as the 'Pension Protection Act'."
Pub. L. 100-203, title X, Sec. 10000(a), Dec. 22, 1987, 101 Stat.
1330-382, provided that: "This title [see Tables for
classification] may be cited as the 'Revenue Act of 1987'."
Pub. L. 100-17, title V, Sec. 501, Apr. 2, 1987, 101 Stat. 256,
provided that: "This title [amending sections 4041, 4051, 4052,
4071, 4081, 4221, 4481, 4482, 4483, 6156, 6412, 6420, 6421, 6427,
and 9503 of this title and section 460l-11 of Title 16,
Conservation, and enacting provisions set out as notes under
sections 4052 and 4481 of this title] may be cited as the 'Highway
Revenue Act of 1987'."
SHORT TITLE OF 1986 AMENDMENTS
Pub. L. 99-662, title XIV, Sec. 1401, Nov. 17, 1986, 100 Stat.
4266, provided that: "This title [enacting sections 4461, 4462,
9505, and 9506 of this title and section 988a of Title 33,
Navigation and Navigable Waters, amending section 4042 of this
title and sections 984 and 1804 of Title 33, repealing sections
1801 and 1802 of Title 33, and enacting provisions set out as notes
under sections 4042, 4461, 9505, and 9506 of this title and
sections 984 and 988 of Title 33] may be cited as the 'Harbor
Maintenance Revenue Act of 1986'."
Section 1(a) of Pub. L. 99-514 provided that: "This Act [see
Tables for classification] may be cited as the 'Tax Reform Act of
1986'."
Pub. L. 99-499, title V, Sec. 501, Oct. 17, 1986, 100 Stat. 1760,
provided that: "This title [enacting sections 59A, 4671, 4672,
9507, and 9508 of this title, amending sections 26, 164, 275, 936,
1561, 4041, 4042, 4081, 4221, 4611, 4612, 4661, 4662, 6154, 6416,
6420, 6421, 6425, 6427, 6655, 9502, 9503, and 9506 of this title
and section 9601 of Title 42, The Public Health and Welfare,
repealing sections 4681 and 4682 of this title and sections 9631 to
9633, 9641, and 9653 of Title 42, and enacting provisions set out
as notes under this section and sections 26, 4041, 4611, 4661,
4671, 4681, 9507, and 9508 of this title] may be cited as the
'Superfund Revenue Act of 1986'."
SHORT TITLE OF 1984 AMENDMENT
Pub. L. 98-369, Sec. 1(a), July 18, 1984, 98 Stat. 494, provided
that: "This Act [see Tables for classification] may be cited as the
'Deficit Reduction Act of 1984'."
Pub. L. 98-369, div. A (Secs. 5-1082), Sec. 5(a), July 18, 1984,
98 Stat. 494, provided that: "This division [see Tables for
classification] may be cited as the 'Tax Reform Act of 1984'."
SHORT TITLE OF 1983 AMENDMENTS
Pub. L. 98-135, Sec. 1, Oct. 24, 1983, 97 Stat. 857, provided
that: "This Act [amending section 3306 of this title and sections
1323 and 1397b of Title 42, The Public Health and Welfare, enacting
provisions set out as notes under sections 3304 and 3306 of this
title and section 1323 of Title 42, and amending provisions set out
as notes under section 3304 of this title] may be cited as the
'Federal Supplemental Compensation Amendments of 1983'."
Pub. L. 98-76, title II, Sec. 201, Aug. 12, 1983, 97 Stat. 419,
provided that: "This title [enacting sections 3321 to 3323 and
6050G of this title, amending sections 72, 86, 105, 3201, 3202,
3211, 3221, 3231, 6157, 6201, 6317, 6513, and 6601 of this title
and section 430 of Title 42, The Public Health and Welfare, and
enacting provisions set out as notes under sections 72, 105, 3201,
3321, and 6302 of this title and section 231n of Title 45,
Railroads] may be cited as the 'Railroad Retirement Revenue Act of
1983'."
Pub. L. 98-67, title I, Sec. 101(a), Aug. 5, 1983, 97 Stat. 369,
provided that: "This title [enacting sections 3406 and 6705 of this
title, amending sections 31, 274, 275, 643, 661, 3402, 3403, 3502,
3507, 6011, 6013, 6015, 6042, 6044, 6049, 6051, 6365, 6401, 6413,
6652, 6653, 6654, 6676, 6678, 6682, 7205, 7215, 7431, 7654, and
7701 of this title, repealing sections 3451 to 3456 of this title,
enacting provisions set out as notes under sections 31, 3451, and
6011 of this title, and repealing provisions set out as a note
under section 3451 of this title] may be cited as the 'Interest and
Dividend Tax Compliance Act of 1983'."
Pub. L. 97-473, title II, Sec. 201, Jan. 14, 1983, 96 Stat. 2607,
provided that: "This title [enacting section 7871 of this title,
amending sections 41, 103, 164, 170, 2055, 2106, 2522, 4227, 4484,
6420, 6421, 6424, 6427, and 7701 of this title, and enacting
provisions set out as a note under section 7871 of this title] may
be cited as the 'Indian Tribal Governmental Tax Status Act of
1982'."
Section 1(a) of Pub. L. 97-448 provided that: "This Act [see
Tables for classification] may be cited as the 'Technical
Corrections Act of 1982'."
Pub. L. 97-424, title V, Sec. 501(a), Jan. 6, 1983, 96 Stat.
2168, provided that: "This title [see Tables for classification]
may be cited as the 'Highway Revenue Act of 1982'."
SHORT TITLE OF 1982 AMENDMENTS
Pub. L. 97-362, Sec. 1(a), Oct. 25, 1982, 96 Stat. 1726, provided
that: "This Act [amending sections 8509 and 8521 of Title 5,
Government Organization and Employees, sections 48, 172, 4401,
4411, 6051, 7447, 7448, 7456, 7459, and 7463 of this title, and
section 601 of former Title 46, Shipping, enacting provisions set
out as notes under sections 8509 and 8521 of Title 5 and sections
48, 172, 336, 4401, 4411, 6051, 7448, and 7463 of this title, and
amending provisions set out as notes under section 2291 of Title
19, Customs Duties, and section 3306 of this title] may be cited as
the 'Miscellaneous Revenue Act of 1982'."
Pub. L. 97-354, Sec. 1(a), Oct. 19, 1982, 96 Stat. 1669, provided
that: "This Act [enacting sections 1361 to 1363, 1366 to 1368, 1371
to 1375, 1377 to 1379, and 6241 to 6245 of this title, amending
sections 29, 31, 40, 41, 46, 48, 50A, 50B, 52, 53, 55, 57, 58, 62,
108, 163, 168, 170, 172, 179, 183, 189, 194, 267, 280, 280A, 291,
447, 464, 465, 613A, 992, 1016, 1101, 1212, 1251, 1254, 1256, 3453,
3454, 4992, 4996, 6037, 6042, 6362, and 6661 of this title and
section 1108 of Title 29, Labor, omitting section 1376 of this
title, and enacting provisions set out as a note under section 1361
of this title] may be cited as the 'Subchapter S Revision Act of
1982'."
Pub. L. 97-248, Sec. 1(a), Sept. 3, 1982, 96 Stat. 324, provided
that: "This Act [see Tables for classification] may be cited as the
'Tax Equity and Fiscal Responsibility Act of 1982'."
Section 401 of title IV of Pub. L. 97-248 provided that: "This
title [enacting sections 6046A and 6221 to 6232 of this title and
section 1508 of Title 28, Judiciary and Judicial Procedure,
amending sections 702, 6031, 6213, 6216, 6422, 6501, 6504, 6511,
6512, 6515, 6679, 7422, 7451, 7456, 7459, 7482, and 7485 of this
title and section 1346 of Title 28, and enacting provisions set out
as notes under sections 6031, 6046A, 6221, and 6231 of this title]
may be cited as the 'Tax Treatment of Partnership Items Act of
1982'."
SHORT TITLE OF 1981 AMENDMENTS
Pub. L. 97-119, title I, Sec. 101(a), Dec. 29, 1981, 95 Stat.
1635, provided that: "This subtitle [subtitle A (Secs. 101-104) of
title I of Pub. L. 97-119, enacting sections 9500, 9501, 9601, and
9602 of this title, amending sections 501 and 4121 of this title
and sections 902, 925, 932, and 934 of Title 30, Mineral Lands and
Mining, repealing section 934a of Title 30, and enacting provisions
set out as notes under sections 4121 and 9501 of this title and
section 934 of Title 30] may be cited as the 'Black Lung Benefits
Revenue Act of 1981'."
Section 1(a) of Pub. L. 97-34 provided that: "This Act [see
Tables for classification] may be cited as the 'Economic Recovery
Tax Act of 1981'."
SHORT TITLE OF 1980 AMENDMENTS
Pub. L. 96-605, Sec. 1(a), Dec. 28, 1980, 94 Stat. 3521, provided
that: "This Act [enacting sections 66 and 195 of this title,
amending sections 48, 105, 125, 274, 401, 408, 409A, 410, 414, 415,
501, 513, 514, 528, 861, 871, and 2055 of this title, and enacting
provisions set out as notes under sections 48, 66, 119, 125, 195,
274, 401, 409A, 414, 415, 501, 513, 514, 528, 861, 871, 2055, 3121,
and 7701 of this title] may be cited as the 'Miscellaneous Revenue
Act of 1980'."
Pub. L. 96-589, Sec. 1(a), Dec. 24, 1980, 94 Stat. 3389, provided
that: "This Act [enacting sections 370, 1398, 1399, 6658, and 7464
of this title, redesignating former section 7464 of this title as
7465, amending sections 108, 111, 118, 128, 302, 312, 337, 351,
354, 355, 357, 368, 381, 382, 422, 443, 542, 703, 1017, 1023, 1371,
3302, 6012, 6036, 6103, 6155, 6161, 6212, 6213, 6216, 6326, 6404,
6503, 6512, 6532, 6871, 6872, 6873, 7430, and 7508 of this title,
repealing section 1018 of this title, and enacting provisions set
out as a note under section 108 of this title] may be cited as the
'Bankruptcy Tax Act of 1980'."
Pub. L. 96-510, title II, Sec. 201(a), Dec. 11, 1980, 94 Stat.
2796, provided that: "This title [enacting chapter 38 of this
title, sections 9631 to 9641 of Title 42, The Public Health and
Welfare, and provisions set out as a note under section 4611 of
this title] may be cited as the 'Hazardous Substance Response
Revenue Act of 1980'."
Pub. L. 96-499, title XI, Sec. 1100, Dec. 5, 1980, 94 Stat. 2660,
provided: "This title [enacting sections 103A, 280D, 897, 6039C,
and 6429 of this title, amending sections 103, 861, 871, 882, 3121,
3306, 4251, 6652, and 6655 of this title and section 409 of Title
42, The Public Health and Welfare, and enacting provisions set out
as notes under sections 1, 103A, 280D, 897, 3121, and 6655 of this
title] may be cited as the 'Revenue Adjustments Act of 1980'."
Pub. L. 96-499, title XI, subtitle A (Secs. 1101-1104), Sec.
1101, Dec. 5, 1980, 94 Stat. 2660, provided: "This subtitle
[enacting section 103A of this title, amending section 103 of this
title, and enacting provisions set out as a note under section 103A
of this title] may be cited as the 'Mortgage Subsidy Bond Tax Act
of 1980'."
Pub. L. 96-499, title XI, Sec. 1121, Dec. 5, 1980, 94 Stat. 2682,
provided: "This subtitle [subtitle C (Secs. 1121-1125) of title XI
of Pub. L. 96-499, enacting sections 897 and 6039C of this title,
amending sections 861, 871, 882, and 6652 of this title, and
enacting provisions set out as notes under section 897 of this
title] may be cited as the 'Foreign Investment in Real Property Tax
Act of 1980'."
Pub. L. 96-471, Sec. 1(a), Oct. 19, 1980, 94 Stat. 2247,
provided: "This Act [enacting sections 453 to 453B of this title,
amending sections 311, 336, 337, 381, former section 453, sections
453B, 481, 644, 691, 1038, 1239, and 1255 of this title, and
enacting provisions set out as notes under sections 453, 691, and
1038 of this title] may be cited as the 'Installment Sales Revision
Act of 1980'."
Pub. L. 96-283, title IV, Sec. 401, June 28, 1980, 94 Stat. 582,
provided that: "This title [enacting sections 4495 to 4498 of this
title and sections 1472, 1473 of Title 30, Mineral Lands and
Mining, and enacting provision set out as a note under section 4495
of this title] may be cited as the 'Deep Seabed Hard Mineral
Removal Tax Act of 1979'."
Pub. L. 96-223, Sec. 1(a) Apr. 2, 1980, 94 Stat. 229, provided
that: "This Act [see Tables for classification] may be cited as the
'Crude Oil Windfall Profit Tax Act of 1980'."
Pub. L. 96-222, Sec. 1(a), Apr. 1, 1980, 94 Stat. 194, provided
that: "This Act [see Tables for classification] may be cited as the
'Technical Corrections Act of 1979'."
SHORT TITLE OF 1979 AMENDMENT
Pub. L. 96-39, title VIII, Sec. 801(a), July 26, 1979, 93 Stat.
273, provided that: "This subtitle [subtitle A (Secs. 801-810) of
title VIII of Pub. L. 96-39, amending sections 5001, 5002 to 5008,
5043, 5061, 5064, 5066, 5116, 5171 to 5173, 5175 to 5178, 5180,
5181, 5201 to 5205, 5207, 5211 to 5215, 5221 to 5223, 5231, 5232,
5235, 5241, 5273, 5291, 5301, 5352, 5361 to 5363, 5365, 5381, 5391,
5551, 5601, 5604, 5610, 5612, 5615, 5663, 5681, 5682, and 5691 of
this title, repealing sections 5009, 5021 to 5026, 5081 to 5084,
5174, 5233, 5234, 5251, 5252, 5364, and 5521 to 5523 of this title,
and enacting provisions set out as notes under sections 5001, 5061,
5171, and 5173 of this title] may be cited as the 'Distilled
Spirits Tax Revision Act of 1979'."
SHORT TITLE OF 1978 AMENDMENTS
Section 1(a) of Pub. L. 95-618, Nov. 9, 1978, 92 Stat. 3174,
provided that: "This Act [enacting sections 44C, 124, and 4064 of
this title, amending sections 39, 46 to 48, 56, 57, 167, 263, 465,
613, 613A, 614, 751, 1016, 1254, 4041, 4063, 4081, 4092, 4093,
4217, 4221, 4222, 4293, 4483, 6096, 6401, 6412, 6416, 6421, 6424,
6427, 6504, and 6675 of this title, redesignating section 124 of
this title as section 125, enacting provisions set out as notes
under sections 39, 44C, 48, 124, 167, 263, 613, 613A, 4041, 4063,
4064, 4081, 4093, and 4221 of this title, and amending provisions
set out as notes under section 57 of this title and section 120 of
Title 23, Highways] may be cited as the 'Energy Tax Act of 1978'."
Pub. L. 95-615, Sec. 1, Nov. 8, 1978, 92 Stat. 3097, provided
that: "This Act [probably meaning sections 1 to 8 of Pub. L. 95-
615, amending section 167 of this title, enacting provisions set
out as notes under sections 61, 62, and 911 of this title, and
amending provisions set out as notes under sections 117, 167, 382,
401, and 911 of this title] may be cited as the 'Tax Treatment
Extension Act of 1977'."
Pub. L. 95-615, Sec. 201(a), Nov. 8, 1978, 92 Stat. 3098,
provided that: "This Act [probably meaning sections 201 to 210 of
Pub. L. 95-615, enacting section 913 of this title, amending
sections 43, 62, 119, 217, 911, 1034, 1302, 1304, 1402, 3401, 6011,
6012, and 6091 of this title, and enacting provisions set out as
notes under sections 61, 401, and 911 of this title] may be cited
as the 'Foreign Earned Income Act of 1978'."
Section 1(a) of Pub. L. 95-600 provided that: "This Act [see
Tables for classification] may be cited as the 'Revenue Act of
1978'."
Pub. L. 95-502, title II, Sec. 201, Oct. 21, 1978, 92 Stat. 1696,
provided that: "This title [enacting section 4042 of this title and
sections 1801 to 1804 of Title 33, Navigation and Navigable Waters,
amending section 4293 of this title, and enacting provisions set
out as notes under section 4042 of this title] may be cited as the
'Inland Waterways Revenue Act of 1978'."
Pub. L. 95-227, Sec. 1, Feb. 10, 1978, 92 Stat. 11, provided
that: "This Act [enacting sections 192, 4121, and 4951 to 4953 of
this title and section 934a of Title 30, Mineral Lands and Mining,
amended sections 501, 4218, 4221, 4293, 4946, 6104, 6213, 6405,
6416, 6501, 6503, and 7454 of this title and section 934 of Title
30 and enacted provisions set out as notes under sections 192 and
4121 of this title and section 934 of Title 30] may be cited as the
'Black Lung Benefits Revenue Act of 1977'."
SHORT TITLE OF 1977 AMENDMENTS
Section 1(a) of Pub. L. 95-30 provided that: "This Act [see
Tables for classification] may be cited as the 'Tax Reduction and
Simplification Act of 1977'."
Pub. L. 95-19, Sec. 1, Apr. 12, 1977, 91 Stat. 39, provided that:
"This Act [amending section 3304 of this title, enacting provisions
set out as notes under sections 3302, 3304, and 3309 of this title,
and amending provisions set out as notes under sections 3302, 3304,
and 3309 of this title and sections 359 and 360 of Title 2, The
Congress] may be cited as the 'Emergency Unemployment Compensation
Extension Act of 1977'."
SHORT TITLE OF 1976 AMENDMENTS
Pub. L. 94-455, title I, Sec. 101, Oct. 4, 1976, 90 Stat. 1525,
provided that: "This Act [see Tables for classification] may be
cited as the 'Tax Reform Act of 1976'."
Section 1 of Pub. L. 94-452 provided that: "This Act [enacting
section 6158 of this title, amending sections 311, 1101, 1102,
1103, 6151, 6503, and 6601 of this title, and enacting provisions
set out as notes under sections 311, 1101, and 6158 of this title]
may be cited as the 'Bank Holding Company Tax Act of 1976'."
SHORT TITLE OF 1975 AMENDMENTS
Pub. L. 94-164, Sec. 1, Dec. 23, 1975, 89 Stat. 970, provided
that: "This Act [amending sections 11, 21, 42, 43, 103, 141, 883,
962, 1561, 3402, 6012, 6153, and 6154 of this title and provisions
set out as notes under sections 42, 43, and 3402 of this title, and
enacting provisions set out as notes under this section and
sections 3, 11, 43, 103, and 883 of this title] may be cited as the
'Revenue Adjustment Act of 1975'."
Pub. L. 94-12, Sec. 1(a), Mar. 29, 1975, 89 Stat. 26, provided
that: "This Act [enacting sections, 42, 43, 44, 613A, 907, 955, and
6428 of this title, amending sections 3, 11, 12, 21, 46, 47, 48,
50A, 50B, 56, 141, 214, 535, 613, 703, 851, 901, 902, 951, 954,
962, 993, 1034, 1561, 3304 note, 3402, 6012, 6096, 6201, and 6401
of this title, repealing sections 955 and 963 of this title, and
enacting provisions set out as notes under sections 3, 11, 43, 44,
46, 48, 50A, 214, 410, 535, 613A, 907, 955, 993, 3304, 3402, 6428,
and 6611 of this title and section 402 of Title 42, The Public
Health and Welfare] may be cited as the 'Tax Reduction Act of
1975'."
SHORT TITLE OF 1973 AMENDMENTS
Pub. L. 93-69, title I, Sec. 110, July 10, 1973, 87 Stat. 166,
provided that: "This title [amending sections 3201, 3202, 3211, and
3221 of this title and sections 228b, 228c, and 228e of Title 45,
Railroads, enacting provisions set out as notes under section 3201
of this title and sections 228b, 228c, 228f, and 228o of Title 45,
and amending provisions set out as notes under section 228c of
Title 45] may be cited as the 'Railroad Retirement Amendments of
1973'."
For short title of Pub. L. 93-17 as the "Interest Equalization
Tax Extension Act of 1973", see section 1(a) of Pub. L. 93-17, set
out as a note under section 2104 of this title.
SHORT TITLE OF 1972 AMENDMENT
Pub. L. 92-512, title II, Sec. 201, Oct. 20, 1972, 86 Stat. 936,
provided that: "This title [enacting sections 6361 to 6363 of this
title, amending sections 6405 and 7463 of this title, and enacting
provisions set out as a note under section 7463 of this title] may
be cited as the 'Federal-State Tax Collection Act of 1972'."
SHORT TITLE OF 1971 AMENDMENTS
Pub. L. 92-178, Sec. 1(a), Dec. 10, 1971, 85 Stat. 497, provided
that: "This Act [see Tables for classification] may be cited as the
'Revenue Act of 1971'."
For short title of Pub. L. 92-9 as the "Interest Equalization Tax
Extension Act of 1971", see section 1(a) of Pub. L. 92-9, set out
as a note under section 861 of this title.
SHORT TITLE OF 1970 AMENDMENT
For short title of Pub. L. 91-614 as the "Excise, Estate, and
Gift Tax Adjustment Act of 1970", see section 1 of Pub. L. 91-614,
set out as a Short Title note under section 2001 of this title.
SHORT TITLE OF 1969 AMENDMENTS
Pub. L. 91-172, Sec. 1(a), Dec. 30, 1969, 83 Stat. 487, provided
that: "This Act [see Tables for classification] may be cited as the
'Tax Reform Act of 1969'."
For short title of Pub. L. 91-128 as the "Interest Equalization
Tax Extension Act of 1969", see section 1(a) of Pub. L. 91-128, set
out as a note under section 4182 of this title.
SHORT TITLE OF 1968 AMENDMENT
Pub. L. 90-364, Sec. 1(a), June 28, 1968, 82 Stat. 251, provided
that: "This Act [enacting sections 51 and 6425 of this title,
amending sections 103, 243, 276, 501, 963, 3402, 4061, 4251, 6020,
6154, 6412, 6651, 6655, 7203, 7502, and 7701 of this title and
sections 603, 607, and 1396b of Title 42, The Public Health and
Welfare, repealing sections 6016, 6074, and 4251 to 4254 of this
title, enacting provisions set out as notes under sections 51, 103,
276, 501, 4061, 6154, and 7502 of this title, section 3101 of Title
5, Government Organization and Employees, sections 11 and 757b of
former Title 31, Money and Finance, and section 1396b of Title 42,
and amending notes under section 1396b of Title 42,] may be cited
as the 'Revenue and Expenditure Control Act of 1968'."
SHORT TITLE OF 1967 AMENDMENT
For short title of Pub. L. 90-59 as the "Interest Equalization
Tax Extension Act of 1967", see section 1(a) of Pub. L. 90-59, set
out as a note under section 6011 of this title.
SHORT TITLE OF 1966 AMENDMENTS
For short title of title I of Pub. L. 89-809 as the "Foreign
Investors Tax Act of 1966", see section 101 of Pub. L. 89-809, set
out as a note under section 861 of this title.
For short title of title III of Pub. L. 89-809 as the
"Presidential Election Campaign Fund Act of 1966", see section 301
of Pub. L. 89-809, set out as a Short Title note under section 6096
of this title.
For short title of Pub. L. 89-719 as the "Federal Tax Lien Act of
1966", see section 1(a) of Pub. L. 89-719, set out as a Short Title
note under section 6321 of this title.
SHORT TITLE OF 1965 AMENDMENT
Pub. L. 89-44, Sec. 1(a), June 21, 1965, 79 Stat. 136, provided
that: "This Act [see Tables for classification] may be cited as the
'Excise Tax Reduction Act of 1965'."
SHORT TITLE OF 1964 AMENDMENTS
Section 1 of Pub. L. 88-348 provided: "That this Act [amending
sections 165, 4061, 4251, 4261, 5001, 5022, 5041, 5051, 5063, 5701,
5707, and 6412 of this title, and provisions set out as notes under
sections 165, 4261, and 5701 of this title] may be cited as the
'Excise-Tax Rate Extension Act of 1964'."
Pub. L. 88-272, Sec. 2(a), Feb. 26, 1964, 78 Stat 19, provided
that: "This Act [see Tables for classification] may be cited as the
'Revenue Act of 1964'."
SHORT TITLE OF 1963 AMENDMENT
Pub. L. 88-52, Sec. 1, June 29, 1963, 77 Stat. 72, provided:
"That this Act [amending sections 11, 821, 4061, 4251, 4261, 5001,
5022, 5041, 5051, 5063, 5701, 5707, 6412 of this title and
provisions set out as notes under sections 4261 and 5701 of this
title] may be cited as the 'Tax Rate Extension Act of 1963'."
SHORT TITLE OF 1962 AMENDMENTS
Pub. L. 87-834, Sec. 1(a), Oct. 16, 1962, 76 Stat. 960, provided
that: "This Act [see Tables for classification] may be cited as the
'Revenue Act of 1962'."
For short title of Pub. L. 87-792 as the "Self-Employed
Individuals Tax Retirement Act of 1962", see section 1 of Pub. L.
87-792, set out as a note under section 401 of this title.
Pub. L. 87-508, Sec. 1, June 28, 1962, 76 Stat. 114, provided:
"That this Act [amending sections 11, 821, 4061, 4251 to 4253, 4261
to 4264, 5001, 5002, 5041, 5051, 5063, 5701, 6707, 6412, 6416, and
6421 of this title, enacting provisions set out as notes under
section 4261, 6416, and 6421 of this title, and amending provisions
set out as a note under section 5701 of this title] may be cited as
the 'Tax Rate Extension Act of 1962'."
SHORT TITLE OF 1961 AMENDMENT
Pub. L. 87-72, Sec. 1, June 30, 1961, 75 Stat. 193, provided:
"That this Act [amending sections 11, 821, 4061, 4251, 4261, 5001,
5022, 5041, 5051, 5063, 5701, 5707, and 6412 of this title and
provisions set out as a note under section 5701 of this title] may
be cited as the 'Tax Rate Extension Act of 1961'."
SHORT TITLE OF 1959 AMENDMENTS
Pub. L. 86-75, Sec. 1, June 30, 1959, 73 Stat. 157, provided:
"That this Act [amending sections 11, 821, 4061, 4251, 4261, 5001,
5022, 5041, 5051, 5063, 5701, 5707 and 6412 of this title and
provisions set out as a note under section 5701 of this title] may
be cited as the 'Tax Rate Extension Act of 1959'."
Section 1 of Pub. L. 86-69 provided that: "This Act [amending
former part I of subchapter L of this chapter and sections 116,
381, 841, 842, 891, 1016, 1201, 1232, 1504, 4371, and 6501 of this
title and enacting provisions set out as notes under sections 801,
6072, and 6655 of this title] may be cited as the 'Life Insurance
Company Income Tax Act of 1959'."
SHORT TITLE OF 1958 AMENDMENTS
Pub. L. 85-866, title I, Sec. 1(a), Sept. 2, 1958, 72 Stat. 1606,
provided that: "This title [see Tables for classification] may be
cited as the 'Technical Amendments Act of 1958'."
Pub. L. 85-866, title II, Sec. 201, Sept. 2, 1958, 72 Stat. 1676,
provided that: "This title [amending sections 165, 172, 179, 535,
1244, 1551, 6161, 6166, 6503, and 6601 of this title and enacting
provisions set out as notes under sections 172, 179, 535, 6161 of
this title] may be cited as the 'Small Business Tax Revision Act of
1958'."
For short title of Pub. L. 85-859 as the "Excise Tax Technical
Changes Act of 1958", see section 1(a) of Pub. L. 85-859, set out
as a Short Title note under section 5001 of this title.
Pub. L. 85-475, Sec. 1, June 30, 1958, 72 Stat. 259, provided:
"That this Act [amending sections 11, 821, 4061, 4292, 5001, 5022,
5041, 5051, 5063, 5134, 5701, 5707, 6412, 6415, 6416, 7012, and
7272 of this title and repealing sections 4271 to 4273 and 4281 to
4283 of this title] may be cited as the 'Tax Rate Extension Act of
1958'."
SHORT TITLE OF 1957 AMENDMENT
Section 1 of Pub. L. 85-12 provided: "That this Act [amending
sections 11, 821, 4061, 5001, 5022, 5041, 5051, 5063, 5134, 5701,
5707, and 6412 of this title] may be cited as the 'Tax Rate
Extension Act of 1957'."
SHORT TITLE OF 1956 AMENDMENTS
For short title of title II of act June 29, 1956 as the "Highway
Revenue Act of 1956", see section 201(a) of act June 29, 1956, set
out as a note under section 4041 of this title.
For short title of act Mar. 29, 1956 as the "Tax Rate Extension
Act of 1956", see section 1 of act Mar. 29, 1956, set out as a note
under section 4041 of this title.
Section 1 of act Mar. 13, 1956, provided: "That this Act
[enacting section 843 of this title and amending sections 316, 501,
594, 801 to 805, 811 to 813, 816 to 818, 821, 822, 832, 841, 842,
891, 1201, 1504, and 4371 of this title] be cited as the 'Life
Insurance Company Tax Act for 1955'."
SHORT TITLE OF 1955 AMENDMENT
For short title of act Mar. 30, 1955 as the "Tax Rate Extension
Act of 1955", see section 1 of act Mar. 30, 1955, set out as a note
under section 4041 of this title.
TRANSITIONAL RULES FOR TAXABLE YEARS WHICH INCLUDE MAY 6, 2003
Pub. L. 108-27, title III, Sec. 301(c), May 28, 2003, 117 Stat.
759, provided that: "For purposes of applying section 1(h) of the
Internal Revenue Code of 1986 in the case of a taxable year which
includes May 6, 2003 -
"(1) The amount of tax determined under subparagraph (B) of
section 1(h)(1) of such Code shall be the sum of -
"(A) 5 percent of the lesser of -
"(i) the net capital gain determined by taking into account
only gain or loss properly taken into account for the portion
of the taxable year on or after May 6, 2003 (determined
without regard to collectibles gain or loss, gain described
in section 1(h)(6)(A)(i) of such Code, and section 1202
gain), or
"(ii) the amount on which a tax is determined under such
subparagraph (without regard to this subsection),
"(B) 8 percent of the lesser of -
"(i) the qualified 5-year gain (as defined in section
1(h)(9) of the Internal Revenue Code of 1986, as in effect on
the day before the date of the enactment of this Act [May 28,
2003]) properly taken into account for the portion of the
taxable year before May 6, 2003, or
"(ii) the excess (if any) of -
"(I) the amount on which a tax is determined under such
subparagraph (without regard to this subsection), over
"(II) the amount on which a tax is determined under
subparagraph (A), plus
"(C) 10 percent of the excess (if any) of -
"(i) the amount on which a tax is determined under such
subparagraph (without regard to this subsection), over
"(ii) the sum of the amounts on which a tax is determined
under subparagraphs (A) and (B).
"(2) The amount of tax determined under subparagraph (C) of
section (1)(h)(1) of such Code shall be the sum of -
"(A) 15 percent of the lesser of -
"(i) the excess (if any) of the amount of net capital gain
determined under subparagraph (A)(i) of paragraph (1) of this
subsection over the amount on which a tax is determined under
subparagraph (A) of paragraph (1) of this subsection, or
"(ii) the amount on which a tax is determined under such
subparagraph (C) (without regard to this subsection), plus
"(B) 20 percent of the excess (if any) of -
"(i) the amount on which a tax is determined under such
subparagraph (C) (without regard to this subsection), over
"(ii) the amount on which a tax is determined under
subparagraph (A) of this paragraph.
"(3) For purposes of applying section 55(b)(3) of such Code,
rules similar to the rules of paragraphs (1) and (2) of this
subsection shall apply.
"(4) In applying this subsection with respect to any pass-thru
entity, the determination of when gains and losses are properly
taken into account shall be made at the entity level.
"(5) For purposes of applying section 1(h)(11) of such Code, as
added by section 302 of this Act, to this subsection, dividends
which are qualified dividend income shall be treated as gain
properly taken into account for the portion of the taxable year
on or after May 6, 2003.
"(6) Terms used in this subsection which are also used in
section 1(h) of such Code shall have the respective meanings that
such terms have in such section."
COORDINATION OF PROVISIONS IN AMENDATORY ACTS
Pub. L. 105-277, div. J, title IV, Sec. 4001(b), Oct. 21, 1998,
112 Stat. 2681-906, provided that: "For purposes of applying the
amendments made by any title of this division [Secs. 1000-5301, see
Tables for classification] other than this title [see Definitions
note set out below for classification], the provisions of this
title shall be treated as having been enacted immediately before
the provisions of such other titles."
Pub. L. 105-206, title VI, Sec. 6001(b), July 22, 1998, 112 Stat.
790, provided that: "For purposes of applying the amendments made
by any title of this Act other than this title, the provisions of
this title [see Tables for classification] shall be treated as
having been enacted immediately before the provisions of such other
titles."
Section 1600 of title XVI of Pub. L. 105-34 provided that: "For
purposes of applying the amendments made by any title of this Act
other than this title, the provisions of this title [see Tables for
classification] shall be treated as having been enacted immediately
before the provisions of such other titles."
Section 1701 of Pub. L. 104-188 provided that: "For purposes of
applying the amendments made by any subtitle [subtitle A to F
(Secs. 1111-1621) and H to J (Secs. 1801-1954) of title I of Pub.
L. 104-188, see Tables for classification] of this title other than
this subtitle [subtitle G (Secs. 1701-1704) of title I of Pub. L.
104-188, see Tables for classification], the provisions of this
subtitle shall be treated as having been enacted immediately before
the provisions of such other subtitles."
Section 11700 of Pub. L. 101-508 provided that: "For purposes of
applying the amendments made by any subtitle [subtitles A to F
(Secs. 11101-11622) and H and I (Secs. 11801-11901) of title XI of
Pub. L. 101-508, see Tables for classification] of this title other
than this subtitle [subtitle G (Secs. 11700-11704) of title XI of
Pub. L. 101-508, see Tables for classification], the provisions of
this subtitle shall be treated as having been enacted immediately
before the provisions of such other subtitles."
Section 7801(b) of Pub. L. 101-239 provided that: "For purposes
of applying the amendments made by any subtitle [subtitles A to G
(Secs. 7101-7743) of title VII of Pub. L. 101-239, see Tables for
classification] of this title other than this subtitle [subtitle H
(Secs. 7801-7894) of title VII of Pub. L. 101-239, see Tables for
classification], the provisions of this subtitle shall be treated
as having been enacted immediately before the provisions of such
other subtitles."
Section 1800 of title XVIII of Pub. L. 99-514 provided that: "For
purposes of applying the amendments made by any title of this Act
other than this title, the provisions of this title [see Tables for
classification] shall be treated as having been enacted immediately
before the provisions of such other titles."
ADJUSTMENTS FOR CONSUMER PRICE INDEX ERROR
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 308], Dec. 21,
2000, 114 Stat. 2763, 2763A-636, provided that:
"(a) Determinations by OMB. - As soon as practicable after the
date of the enactment of this Act [Dec. 21, 2000], the Director of
the Office of Management and Budget shall determine with respect to
each applicable Federal benefit program whether the CPI computation
error for 1999 has or will result in a shortfall in payments to
beneficiaries under such program (as compared to payments that
would have been made if the error had not occurred). As soon as
practicable after the date of the enactment of this Act, but not
later than 60 days after such date, the Director shall direct the
head of the Federal agency which administers such program to make a
payment or payments that, insofar as the Director finds practicable
and feasible -
"(1) are targeted to the amount of the shortfall experienced by
individual beneficiaries, and
"(2) compensate for the shortfall.
"(b) Coordination with Federal Agencies. - As soon as practicable
after the date of the enactment of this Act [Dec. 21, 2000], each
Federal agency that administers an applicable Federal benefit
program shall, in accordance with such guidelines as are issued by
the Director pursuant to this section, make an initial
determination of whether, and the extent to which, the CPI
computation error for 1999 has or will result in a shortfall in
payments to beneficiaries of an applicable Federal benefit program
administered by such agency. Not later than 30 days after such
date, the head of such agency shall submit a report to the Director
and to each House of the Congress of such determination, together
with a complete description of the nature of the shortfall.
"(c) Implementation Pursuant to Agency Reports. - Upon receipt of
the report submitted by a Federal agency pursuant to subsection
(b), the Director shall review the initial determination of the
agency, the agency's description of the nature of the shortfall,
and the compensation payments proposed by the agency. Prior to
directing payment of such payments pursuant to subsection (a), the
Director shall make appropriate adjustments (if any) in the
compensation payments proposed by the agency that the Director
determines are necessary to comply with the requirements of
subsection (a) and transmit to the agency a summary report of the
review, indicating any adjustments made by the Director. The agency
shall make the compensation payments as directed by the Director
pursuant to subsection (a) in accordance with the Director's
summary report.
"(d) Income Disregard Under Federal Means-Tested Benefit
Programs. - A payment made under this section to compensate for a
shortfall in benefits shall, in accordance with guidelines issued
by the Director pursuant to this section, be disregarded in
determining income under title VIII of the Social Security Act [42
U.S.C. 1001 et seq.] or any applicable Federal benefit program that
is means-tested.
"(e) Funding. - Funds otherwise available under each applicable
Federal benefit program for making benefit payments under such
program are hereby made available for making compensation payments
under this section in connection with such program.
"(f) No Judicial Review. - No action taken pursuant to this
section shall be subject to judicial review.
"(g) Director's Report. - Not later than April 1, 2001, the
Director shall submit to each House of the Congress a report on the
activities performed by the Director pursuant to this section.
"(h) Definitions. - For purposes of this section:
"(1) Applicable federal benefit program. - The term 'applicable
Federal benefit program' means any program of the Government of
the United States providing for regular or periodic payments or
cash assistance paid directly to individual beneficiaries, as
determined by the Director of the Office of Management and
Budget.
"(2) Federal agency. - The term 'Federal agency' means a
department, agency, or instrumentality of the Government of the
United States.
"(3) CPI computation error for 1999. - The term 'CPI
computation error for 1999' means the error in the computation of
the Consumer Price Index announced by the Bureau of Labor
Statistics on September 28, 2000.
"(i) Tax Provisions. - In the case of taxable years (and other
periods) beginning after December 31, 2000, if any Consumer Price
Index (as defined in section 1(f)(5) of the Internal Revenue Code
of 1986) reflects the CPI computation error for 1999 -
"(1) the correct amount of such Index shall (in such manner and
to such extent as the Secretary of the Treasury determines to be
appropriate) be taken into account for purposes of such Code, and
"(2) tables prescribed under section 1(f) of such Code to
reflect such correct amount shall apply in lieu of any tables
that were prescribed based on the erroneous amount."
APPLICATION OF SPECIAL RULES FOR MAXIMUM CAPITAL GAINS RATE
Pub. L. 105-277, div. J, title IV, Sec. 4002(i)(2), Oct. 21,
1998, 112 Stat. 2681-907, provided that:
"(2)(A) Subparagraphs (A)(i)(II), (A)(ii)(II), and (B)(ii) of
section 1(h)(13) of the 1986 Code shall not apply to any
distribution after December 31, 1997, by a regulated investment
company or a real estate investment trust with respect to -
"(i) gains and losses recognized directly by such company or
trust, and
"(ii) amounts properly taken into account by such company or
trust by reason of holding (directly or indirectly) an interest
in another such company or trust to the extent that such
subparagraphs did not apply to such other company or trust with
respect to such amounts.
"(B) Subparagraph (A) shall not apply to any distribution which
is treated under section 852(b)(7) or 857(b)(8) of the 1986 Code as
received on December 31, 1997.
"(C) For purposes of subparagraph (A), any amount which is
includible in gross income of its shareholders under section
852(b)(3)(D) or 857(b)(3)(D) of the 1986 Code after December 31,
1997, shall be treated as distributed after such date.
"(D)(i) For purposes of subparagraph (A), in the case of a
qualified partnership with respect to which a regulated investment
company meets the holding requirement of clause (iii) -
"(I) the subparagraphs referred to in subparagraph (A) shall
not apply to gains and losses recognized directly by such
partnership for purposes of determining such company's
distributive share of such gains and losses, and
"(II) such company's distributive share of such gains and
losses (as so determined) shall be treated as recognized directly
by such company.
The preceding sentence shall apply only if the qualified
partnership provides the company with written documentation of such
distributive share as so determined.
"(ii) For purposes of clause (i), the term 'qualified
partnership' means, with respect to a regulated investment company,
any partnership if -
"(I) the partnership is an investment company registered under
the Investment Company Act of 1940 [15 U.S.C. 80a-1 et seq.],
"(II) the regulated investment company is permitted to invest
in such partnership by reason of section 12(d)(1)(E) of such Act
[15 U.S.C. 80a-12(d)(1)(E)] or an exemptive order of the
Securities and Exchange Commission under such section, and
"(III) the regulated investment company and the partnership
have the same taxable year.
"(iii) A regulated investment company meets the holding
requirement of this clause with respect to a qualified partnership
if (as of January 1, 1998) -
"(I) the value of the interests of the regulated investment
company in such partnership is 35 percent or more of the value of
such company's total assets, or
"(II) the value of the interests of the regulated investment
company in such partnership and all other qualified partnerships
is 90 percent or more of the value of such company's total
assets."
CAPITAL GAIN DISTRIBUTION BY TRUST
Pub. L. 105-277, div. J, title IV, Sec. 4003(b), Oct. 21, 1998,
112 Stat. 2681-909, as amended by Pub. L. 106-554, Sec. 1(a)(7)
[title III, Sec. 312(b)], Dec. 21, 2000, 114 Stat. 2763, 2763A-640,
provided that: "In the case of any capital gain distribution made
after 1997 by a trust to which section 664 of the 1986 Code applies
with respect to amounts properly taken into account by such trust
during 1997, paragraphs (5)(A)(i)(I), (5)(A)(ii)(I), (7)(A)(i)(II),
and (13)(A) of section 1(h) of the 1986 Code (as in effect for
taxable years ending on December 31, 1997) shall not apply."
ELECTION TO RECOGNIZE GAIN ON ASSETS HELD ON JANUARY 1, 2001
Pub. L. 105-34, title III, Sec. 311(e), Aug. 5, 1997, 111 Stat.
835, as amended by Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec.
314(c)], Dec. 21, 2000, 114 Stat. 2763, 2763A-643; Pub. L. 107-147,
title IV, Sec. 414(a), Mar. 9, 2002, 116 Stat. 54, provided that:
"For purposes of the Internal Revenue Code of 1986 -
"(1) In general. - A taxpayer other than a corporation may
elect to treat -
"(A) any readily tradable stock (which is a capital asset)
held by such taxpayer on January 1, 2001, and not sold before
the next business day after such date, as having been sold on
such next business day for an amount equal to its closing
market price on such next business day (and as having been
reacquired on such next business day for an amount equal to
such closing market price), and
"(B) any other capital asset or property used in the trade or
business (as defined in section 1231(b) of the Internal Revenue
Code of 1986) held by the taxpayer on January 1, 2001, as
having been sold on such date for an amount equal to its fair
market value on such date (and as having been reacquired on
such date for an amount equal to such fair market value).
"(2) Treatment of gain or loss. -
"(A) Any gain resulting from an election under paragraph (1)
shall be treated as received or accrued on the date the asset
is treated as sold under paragraph (1) and shall be included in
gross income notwithstanding any provision of the Internal
Revenue Code of 1986.
"(B) Any loss resulting from an election under paragraph (1)
shall not be allowed for any taxable year.
"(3) Election. - An election under paragraph (1) shall be made
in such manner as the Secretary of the Treasury or his delegate
may prescribe and shall specify the assets for which such
election is made. Such an election, once made with respect to any
asset, shall be irrevocable. Such an election shall not apply to
any asset which is disposed of (in a transaction in which gain or
loss is recognized in whole or in part) before the close of the 1-
year period beginning on the date that the asset would have been
treated as sold under such election.
"(4) Readily tradable stock. - For purposes of this subsection,
the term 'readily tradable stock' means any stock which, as of
January 1, 2001, is readily tradable on an established securities
market or otherwise.
"(5) Disposition of interest in passive activity. - Section
469(g)(1)(A) of the Internal Revenue Code of 1986 shall not apply
by reason of an election made under paragraph (1)."
[Pub. L. 107-147, title IV, Sec. 414(b), Mar. 9, 2002, 116 Stat.
54, provided that: "The amendments made by this section [amending
section 311(e) of Pub. L. 105-34, set out above] shall take effect
as if included in section 311 of the Taxpayer Relief Act of 1997
[Pub. L. 105-34]."]
ELECTION TO PAY ADDITIONAL 1993 TAXES IN INSTALLMENTS
Section 13201(d) of Pub. L. 103-66 provided that:
"(1) In general. - At the election of the taxpayer, the
additional 1993 taxes may be paid in 3 equal installments.
"(2) Dates for paying installments. - In the case of any tax
payable in installments by reason of paragraph (1) -
"(A) the first installment shall be paid on or before the due
date for the taxpayer's taxable year beginning in calendar year
1993,
"(B) the second installment shall be paid on or before the date
1 year after the date determined under subparagraph (A), and
"(C) the third installment shall be paid on or before the date
2 years after the date determined under subparagraph (A).
For purposes of the preceding sentence, the term 'due date' means
the date prescribed for filing the taxpayer's return determined
without regard to extensions.
"(3) Extension without interest. - For purposes of section 6601
of the Internal Revenue Code of 1986, the date prescribed for the
payment of any tax payable in installments under paragraph (1)
shall be determined with regard to the extension under paragraph
(1).
"(4) Additional 1993 taxes. -
"(A) In general. - For purposes of this subsection, the term
'additional 1993 taxes' means the excess of -
"(i) the taxpayer's net chapter 1 liability as shown on the
taxpayer's return for the taxpayer's taxable year beginning in
calendar year 1993, over
"(ii) the amount which would have been the taxpayer's net
chapter 1 liability for such taxable year if such liability had
been determined using the rates which would have been in effect
under section 1 of the Internal Revenue Code of 1986 for
taxable years beginning in calendar year 1993 but for the
amendments made by this section [amending this section and
sections 41, 63, 68, 132, 151, 453A, 513, 531, and 541 of this
title] and section 13202 [amending this section and sections
531 and 541 of this title] and such liability had otherwise
been determined on the basis of the amounts shown on the
taxpayer's return.
"(B) Net chapter 1 liability. - For purposes of subparagraph
(A), the term 'net chapter 1 liability' means the liability for
tax under chapter 1 of the Internal Revenue Code of 1986
determined -
"(i) after the application of any credit against such tax
other than the credits under sections 31 and 34, and
"(ii) before crediting any payment of estimated tax for the
taxable year.
"(5) Acceleration of payments. - If the taxpayer does not pay any
installment under this section on or before the date prescribed for
its payment or if the Secretary of the Treasury or his delegate
believes that the collection of any amount payable in installments
under this section is in jeopardy, the Secretary shall immediately
terminate the extension under paragraph (1) and the whole of the
unpaid tax shall be paid on notice and demand from the Secretary.
"(6) Election on return. - An election under paragraph (1) shall
be made on the taxpayer's return for the taxpayer's taxable year
beginning in calendar year 1993.
"(7) Exception for estates and trusts. - This subsection shall
not apply in the case of an estate or trust."
TRANSITIONAL RULE FOR MAXIMUM CAPITAL GAINS RATE
Section 302(c) of Pub. L. 99-514, which related to long-term
capital gain on rights to royalties paid under particular leases
and assignments, was repealed by Pub. L. 100-647, title I, Sec.
1003(b)(1), Nov. 10, 1988, 102 Stat. 3382.
COORDINATION WITH OTHER PROVISIONS
Pub. L. 99-509, title VIII, Sec. 8081, Oct. 21, 1986, 100 Stat.
1965, provided that: "Nothing in any provision of this Act [see
Tables for classifications] (other than this title) shall be
construed as -
"(1) imposing any tax (or exempting any person or property from
any tax),
"(2) establishing any trust fund, or
"(3) authorizing amounts to be expended from any trust fund."
[S.Con.Res. 174, agreed to Oct. 18, 1986, provided: "That, in the
enrollment of the bill (H.R. 5300) to provide for reconciliation
pursuant to section 2 of the concurrent resolution on the budget
for fiscal year 1987, the Clerk of the House of Representatives
shall insert at the end of section 8081 of the bill the following:
Paragraph (3) shall not apply to any authorization made by title IX
of this Act." As a result of clerical error, the sentence was
inserted at the end of section 8101 of the bill, and appears at the
end of section 8101 of Pub. L. 99-509, 100 Stat. 1967.]
Pub. L. 99-499, title V, Sec. 531, Oct. 17, 1986, 100 Stat. 1782,
provided that: "Notwithstanding any provision of this Act [see
Tables for classifications] not contained in this title [see Short
Title of 1986 Amendment note above], any provision of this Act (not
contained in this title) which -
"(1) imposes any tax, premium, or fee,
"(2) establishes any trust fund, or
"(3) authorizes amounts to be expended from any trust fund,
shall have no force or effect."
ELIMINATION OF 50-CENT ROUNDING ERRORS
Section 101(a)(3) of Pub. L. 97-448, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If any
figure in any table -
"(A) which is set forth in section 1 of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] (as amended by section 101 of
the Economic Recovery Tax Act of 1981 [Pub. L. 97-34, title I,
Sec. 101, Aug. 13, 1981, 95 Stat. 176], and
"(B) which applies to married individuals filing separately or
to estates and trusts,
differs by not more than 50 cents from the correct amount under the
formula used in constructing such table, such figure is hereby
corrected to the correct amount." [See 1982 Amendment note above.]
POLICY WITH RESPECT TO ADDITIONAL TAX REDUCTIONS
Section 3 of Pub. L. 95-600 provided that: "As a matter of
national policy the rate of growth in Federal outlays, adjusted for
inflation, should not exceed 1 percent per year between fiscal year
1979 and fiscal year 1983; Federal outlays as a percentage of gross
national product should decline to below 21 percent in fiscal year
1980, 20.5 percent in fiscal year 1981, 20 percent in fiscal year
1982 and 19.5 percent in fiscal year 1983; and the Federal budget
should be balanced in fiscal years 1982 and 1983. If these
conditions are met, it is the intention that the tax-writing
committees of Congress will report legislation providing
significant tax reductions for individuals to the extent that these
tax reductions are justified in the light of prevailing and
expected economic conditions."
EFFECTIVE DATE OF CERTAIN DEFINITIONS AND DESIGNATIONS
Pub. L. 94-455, title XIX, Sec. 1908, Oct. 4, 1976, 90 Stat.
1836, provided that: "For purposes of any amendment made by any
provision of this Act [see Tables for classification] (other than
this title) -
"(1) which contains a term the meaning of which is defined in
or modified by any provision of this title, and
"(2) which has an effective date earlier than the effective
date of the provision of this title defining or modifying such
term,
that definition or modification shall be considered to take effect
as of such earlier effective date."
CONGRESSIONAL DECLARATION RELATING TO 1975 AMENDMENT
Pub. L. 94-164, Sec. 1A, Dec. 23, 1975, 89 Stat. 970, provided
that:
"(a) Congress is determined to continue the tax reduction for the
first 6 months of 1976 in order to assure continued economic
recovery.
"(b) Congress is also determined to continue to control spending
levels in order to reduce the national deficit.
"(c) Congress reaffirms its commitments to the procedures
established by the Congressional Budget and Impoundment Control Act
of 1974 [see Tables for classification of Pub. L. 93-344, July 12,
1974, 88 Stat. 297] under which it has already established a
binding spending ceiling for the fiscal year 1976.
"(d) If the Congress adopts a continuation of the tax reduction
provided by this Act [see Short Title of 1975 Amendment note above]
beyond June 30, 1976, and if economic conditions warrant doing so,
Congress shall provide, through the procedures in the Budget Act
[Pub. L. 93-344], for reductions in the level of spending in the
fiscal year 1977 below what would otherwise occur, equal to any
additional reduction in taxes (from the 1974 tax rate levels)
provided for the fiscal year 1977: Provided, however, That nothing
shall preclude the right of the Congress to pass a budget
resolution containing a higher or lower expenditure figure if the
Congress concludes that this is warranted by economic conditions or
unforeseen circumstances."
CONGRESSIONAL DECLARATION RELATING TO 1964 AMENDMENT
Pub. L. 88-272, Sec. 1, Feb. 26, 1964, 78 Stat. 19, provided
that: "It is the sense of Congress that the tax reduction provided
by this Act [see Short Title of 1964 Amendment note above] through
stimulation of the economy, will, after a brief transitional
period, raise (rather than lower) revenues and that such revenue
increases should first be used to eliminate the deficits in the
administrative budgets and then to reduce the public debt. To
further the objective of obtaining balanced budgets in the near
future, Congress by this action, recognizes the importance of
taking all reasonable means to restrain Government spending and
urges the President to declare his accord with this objective."
-CROSS-
DEFINITIONS
Pub. L. 105-277, div. J, title IV, Sec. 4001(a), Oct. 21, 1998,
112 Stat. 2681-906, provided that: "For purposes of this title
[amending this section, sections 51, 56, 67, 68, 86, 135, 137, 163,
172, 219, 221, 264, 351, 368, 408A, 469, 873, 954, 2001, 2031,
6015, 6103, 6159, 6311, 6404, 6693, 7421, 7443A, 7491, 9503, and
9510 of this title, and sections 401 and 407 of Title 42, The
Public Health and Welfare, enacting provisions set out as notes
under this section, sections 51, 67, 68, 86, 172, 833, 6103, and
9503 of this title, and section 401 of Title 42, and amending
provisions set out as notes under sections 6601 and 7508A of this
title] -
"(1) 1986 code. - The term '1986 Code' means the Internal
Revenue Code of 1986.
"(2) 1998 act. - The term '1998 Act' means the Internal Revenue
Service Restructuring and Reform Act of 1998 (Public Law 105-206)
[see Tables for classification].
"(3) 1997 act. - The term '1997 Act' means the Taxpayer Relief
Act of 1997 (Public Law 105-34) [see Tables for classification]."
-End-
-CITE-
26 USC Sec. 2 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART I - TAX ON INDIVIDUALS
-HEAD-
Sec. 2. Definitions and special rules
-STATUTE-
(a) Definition of surviving spouse
(1) In general
For purposes of section 1, the term "surviving spouse" means a
taxpayer -
(A) whose spouse died during either of his two taxable years
immediately preceding the taxable year, and
(B) who maintains as his home a household which constitutes
for the taxable year the principal place of abode (as a member
of such household) of a dependent (i) who (within the meaning
of section 152, determined without regard to subsections
(b)(1), (b)(2), and (d)(1)(B) thereof) is a son, stepson,
daughter, or stepdaughter of the taxpayer, and (ii) with
respect to whom the taxpayer is entitled to a deduction for the
taxable year under section 151.
For purposes of this paragraph, an individual shall be considered
as maintaining a household only if over half of the cost of
maintaining the household during the taxable year is furnished by
such individual.
(2) Limitations
Notwithstanding paragraph (1), for purposes of section 1 a
taxpayer shall not be considered to be a surviving spouse -
(A) if the taxpayer has remarried at any time before the
close of the taxable year, or
(B) unless, for the taxpayer's taxable year during which his
spouse died, a joint return could have been made under the
provisions of section 6013 (without regard to subsection (a)(3)
thereof).
(3) Special rule where deceased spouse was in missing status
If an individual was in a missing status (within the meaning of
section 6013(f)(3)) as a result of service in a combat zone (as
determined for purposes of section 112) and if such individual
remains in such status until the date referred to in subparagraph
(A) or (B), then, for purposes of paragraph (1)(A), the date on
which such individual died shall be treated as the earlier of the
date determined under subparagraph (A) or the date determined
under subparagraph (B):
(A) the date on which the determination is made under section
556 of title 37 of the United States Code or under section 5566
of title 5 of such Code (whichever is applicable) that such
individual died while in such missing status, or
(B) except in the case of the combat zone designated for
purposes of the Vietnam conflict, the date which is 2 years
after the date designated under section 112 as the date of
termination of combatant activities in that zone.
(b) Definition of head of household
(1) In general
For purposes of this subtitle, an individual shall be
considered a head of a household if, and only if, such individual
is not married at the close of his taxable year, is not a
surviving spouse (as defined in subsection (a)), and either -
(A) maintains as his home a household which constitutes for
more than one-half of such taxable year the principal place of
abode, as a member of such household, of -
(i) a qualifying child of the individual (as defined in
section 152(c), determined without regard to section 152(e)),
but not if such child -
(I) is married at the close of the taxpayer's taxable
year, and
(II) is not a dependent of such individual by reason of
section 152(b)(2) or 152(b)(3), or both, or
(ii) any other person who is a dependent of the taxpayer,
if the taxpayer is entitled to a deduction for the taxable
year for such person under section 151, or
(B) maintains a household which constitutes for such taxable
year the principal place of abode of the father or mother of
the taxpayer, if the taxpayer is entitled to a deduction for
the taxable year for such father or mother under section 151.
For purposes of this paragraph, an individual shall be considered
as maintaining a household only if over half of the cost of
maintaining the household during the taxable year is furnished by
such individual.
(2) Determination of status
For purposes of this subsection -
(A) an individual who is legally separated from his spouse
under a decree of divorce or of separate maintenance shall not
be considered as married;
(B) a taxpayer shall be considered as not married at the
close of his taxable year if at any time during the taxable
year his spouse is a nonresident alien; and
(C) a taxpayer shall be considered as married at the close of
his taxable year if his spouse (other than a spouse described
in subparagraph (B)) died during the taxable year.
(3) Limitations
Notwithstanding paragraph (1), for purposes of this subtitle a
taxpayer shall not be considered to be a head of a household -
(A) if at any time during the taxable year he is a
nonresident alien; or
(B) by reason of an individual who would not be a dependent
for the taxable year but for -
(i) subparagraph (H) of section 152(d)(2), or
(ii) paragraph (3) of section 152(d).
(c) Certain married individuals living apart
For purposes of this part, an individual shall be treated as not
married at the close of the taxable year if such individual is so
treated under the provisions of section 7703(b).
(d) Nonresident aliens
In the case of a nonresident alien individual, the taxes imposed
by sections 1 and 55 shall apply only as provided by section 871 or
877.
(e) Cross reference
For definition of taxable income, see section 63.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 8; Pub. L. 88-272, title I, Sec.
112(b), Feb. 26, 1964, 78 Stat. 24; Pub. L. 91-172, title VIII,
Sec. 803(b), Dec. 30, 1969, 83 Stat. 682; Pub. L. 93-597, Sec.
3(b), Jan. 2, 1975, 88 Stat. 1951; Pub. L. 94-455, title XIX, Sec.
1901(a)(1), (b)(9), Oct. 4, 1976, 90 Stat. 1764, 1795; Pub. L. 94-
569, Sec. 3(a), Oct. 20, 1976, 90 Stat. 2699; Pub. L. 97-448,
title III, Sec. 307(a), Jan. 12, 1983, 96 Stat. 2407; Pub. L. 98-
369, div. A, title IV, Sec. 423(c)(2), July 18, 1984, 98 Stat.
801; Pub. L. 99-514, title XIII, Sec. 1301(j)(10), title XVII, Sec.
1708(a)(1), Oct. 22, 1986, 100 Stat. 2658, 2782; Pub. L. 100-647,
title I, Sec. 1007(g)(13)(A), Nov. 10, 1988, 102 Stat. 3436; Pub.
L. 108-311, title II, Secs. 202, 207(1), Oct. 4, 2004, 118 Stat.
1175, 1177; Pub. L. 109-135, title IV, Sec. 412(a), Dec. 21, 2005,
119 Stat. 2636.)
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(2)(C). Pub. L. 109-135 substituted
"subparagraph (B)" for "subparagraph (C)".
2004 - Subsec. (a)(1)(B)(i). Pub. L. 108-311, Sec. 207(1),
inserted ", determined without regard to subsections (b)(1),
(b)(2), and (d)(1)(B) thereof" after "section 152".
Subsec. (b)(1)(A)(i). Pub. L. 108-311, Sec. 202(a), amended cl.
(i) generally. Prior to amendment, cl. (i) read as follows: "a son,
stepson, daughter, or stepdaughter of the taxpayer, or a descendant
of a son or daughter of the taxpayer, but if such son, stepson,
daughter, stepdaughter, or descendant is married at the close of
the taxpayer's taxable year, only if the taxpayer is entitled to a
deduction for the taxable year for such person under section 151
(or would be so entitled but for paragraph (2) or (4) of section
152(e)), or".
Subsec. (b)(2). Pub. L. 108-311, Sec. 202(b)(1), redesignated
subpars. (B) to (D) as (A) to (C), respectively, and struck out
former subpar. (A) which read as follows: "a legally adopted child
of a person shall be considered a child of such person by blood;".
Subsec. (b)(3)(B)(i), (ii). Pub. L. 108-311, Sec. 202(b)(2),
amended cls. (i) and (ii) generally. Prior to amendment, cls. (i)
and (ii) read as follows:
"(i) paragraph (9) of section 152(a), or
"(ii) subsection (c) of section 152."
1988 - Subsec. (d). Pub. L. 100-647 substituted "the taxes
imposed by sections 1 and 55" for "the tax imposed by section 1".
1986 - Subsec. (a)(3)(B). Pub. L. 99-514, Sec. 1708(a)(1),
amended subpar. (B) generally. Prior to amendment, subpar. (B) read
as follows: "the date which is -
"(i) December 31, 1982, in the case of service in the combat
zone designated for purposes of the Vietnam conflict, or
"(ii) 2 years after the date designated under section 112 as
the date of termination of combatant activities in that zone, in
the case of any combat zone other than that referred to in clause
(i)."
Subsec. (c). Pub. L. 99-514, Sec. 1301(j)(10), substituted
"section 7703(b)" for "section 143(b)".
1984 - Subsec. (b)(1)(A). Pub. L. 98-369, Sec. 423(c)(2)(A),
substituted "which constitutes for more than one-half of such
taxable year" for "which constitutes for such taxable year".
Subsec. (b)(1)(A)(i). Pub. L. 98-369, Sec. 423(c)(2)(B), inserted
"(or would be so entitled but for paragraph (2) or (4) of section
152(e))".
1983 - Subsec. (a)(3)(B)(i). Pub. L. 97-448 substituted "December
31, 1982" for "January 2, 1978".
1976 - Subsec. (a)(3)(B). Pub. L. 94-569 substituted "the date
which is" for "the date which is 2 years after" in provisions
preceding cl. (i), substituted "January 2, 1978" for "the date of
the enactment of this paragraph" in cl. (i), and substituted "2
years after the date" for "the date" in cl. (ii).
Subsec. (b)(3)(B)(ii). Pub. L. 94-455, Sec. 1901(b)(9),
redesignated cl. (iii) as (ii) and struck out former cl. (ii) which
provided that an individual who was a dependent solely by reason of
par. (10) of section 152(a) would not be considered as a head of a
household.
Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(1), substituted "shall
be treated as not married at the close of the taxable year" for
"shall not be considered as married".
1975 - Subsec. (a)(3). Pub. L. 93-597 added par. (3).
1969 - Subsec. (a). Pub. L. 91-172 redesignated subsec. (b) as
(a). See sec. 1(a) of this title.
Subsec. (b). Pub. L. 91-172 redesignated provisions of former
section 1(b)(2) to (4) of this title as subsec. (b). Former subsec.
(b) redesignated (a), with minor changes.
Subsec. (c). Pub. L. 91-172 added subsec. (c).
Subsec. (d). Pub. L. 91-172 redesignated as subsec. (d)
provisions of former section 1(d) with minor changes.
Subsec. (e). Pub. L. 91-172 redesignated as subsec. (e)
provisions of former section 1(e).
1964 - Subsec. (a). Pub. L. 88-272 inserted reference to section
141.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-311, title II, Sec. 208, Oct. 4, 2004, 118 Stat.
1178, provided that: "The amendments made by this title [amending
this section and sections 21, 24, 25B, 32, 42, 51, 72, 105, 120,
125, 129, 132, 151 to 153, 170, 213, 220, 221, 529, 2032A, 2057,
7701, 7702B, and 7703 of this title] shall apply to taxable years
beginning after December 31, 2004."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1301(j)(10) of Pub. L. 99-514 applicable to
bonds issued after Aug. 15, 1986, except as otherwise provided, see
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective
Date; Transitional Rules note under section 141 of this title.
Section 1708(b) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 692, 6013,
and 7508 of this title] shall apply to taxable years beginning
after December 31, 1982."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 423(d) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and sections 43, 44A,
105, 143, 152, and 213 of this title] shall apply to taxable years
beginning after December 31, 1984."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1901(d) of Pub. L. 94-455 provided that: "Except as
otherwise expressly provided in this section, the amendments made
by this section [see Tables for classification] shall apply with
respect to taxable years beginning after December 31, 1976. The
amendments made by subsections (a)(29) and (b)(10) shall apply with
respect to taxable years ending after the date of the enactment of
this Act [Oct. 4, 1976]."
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 93-597 applicable to taxable years ending on
or after Feb. 28, 1961, see section 3(c) of Pub. L. 93-597, set out
as a note under section 6013 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1970, except that subsec. (c) is applicable to
taxable years beginning after Dec. 31, 1969, see section 803(f) of
Pub. L. 91-172, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272, except for purposes of section 21 of
this title, effective with respect to taxable years beginning after
Dec. 31, 1963, see section 131 of Pub. L. 88-272, set out as a note
under section 1 of this title.
-End-
-CITE-
26 USC Sec. 3 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART I - TAX ON INDIVIDUALS
-HEAD-
Sec. 3. Tax tables for individuals
-STATUTE-
(a) Imposition of tax table tax
(1) In general
In lieu of the tax imposed by section 1, there is hereby
imposed for each taxable year on the taxable income of every
individual -
(A) who does not itemize his deductions for the taxable year,
and
(B) whose taxable income for such taxable year does not
exceed the ceiling amount,
a tax determined under tables, applicable to such taxable year,
which shall be prescribed by the Secretary and which shall be in
such form as he determines appropriate. In the table so
prescribed, the amounts of the tax shall be computed on the basis
of the rates prescribed by section 1.
(2) Ceiling amount defined
For purposes of paragraph (1), the term "ceiling amount" means,
with respect to any taxpayer, the amount (not less than $20,000)
determined by the Secretary for the tax rate category in which
such taxpayer falls.
(3) Authority to prescribe tables for taxpayers who itemize
deductions
The Secretary may provide that this section shall apply also
for any taxable year to individuals who itemize their deductions.
Any tables prescribed under the preceding sentence shall be on
the basis of taxable income.
(b) Section inapplicable to certain individuals
This section shall not apply to -
(1) an individual making a return under section 443(a)(1) for a
period of less than 12 months on account of a change in annual
accounting period, and
(2) an estate or trust.
(c) Tax treated as imposed by section 1
For purposes of this title, the tax imposed by this section shall
be treated as tax imposed by section 1.
(d) Taxable income
Whenever it is necessary to determine the taxable income of an
individual to whom this section applies, the taxable income shall
be determined under section 63.
(e) Cross reference
For computation of tax by Secretary, see section 6014.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 8; Pub. L. 88-272, title III,
Sec. 301(a), Feb. 26, 1964, 78 Stat. 129; Pub. L. 91-172, title
VIII, Sec. 803(c), Dec. 30, 1969, 83 Stat. 684; Pub. L. 94-12,
title II, Sec. 201(c), Mar. 29, 1975, 89 Stat. 29; Pub. L. 94-455,
title V, Sec. 501(a), Oct. 4, 1976, 90 Stat. 1558; Pub. L. 95-30,
title I, Sec. 101(b), May 23, 1977, 91 Stat. 131; Pub. L. 95-600,
title IV, Sec. 401(b)(1), Nov. 6, 1978, 92 Stat. 2867; Pub. L. 95-
600, title II, Sec. 202(g), as added Pub. L. 96-222, title I, Sec.
108(a)(1)(A), Apr. 1, 1980, 94 Stat. 223; Pub. L. 96-222, title I,
Sec. 108(a)(1)(E), Apr. 1, 1980, 94 Stat. 225; Pub. L. 97-34, title
I, Secs. 101(b)(2)(B), (C), (c)(2)(A), 121(c)(3), Aug. 13, 1981, 95
Stat. 183, 197; Pub. L. 99-514, title I, Secs. 102(b), 141(b)(1),
Oct. 22, 1986, 100 Stat. 2102, 2117.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-514, Sec. 102(b), substituted
subsec. (a) for former subsec. (a) which read as follows:
"(1) In general. - In lieu of the tax imposed by section 1,
there is hereby imposed for each taxable year on the tax table
income of every individual whose tax table income for such year
does not exceed the ceiling amount, a tax determined under
tables, applicable to such taxable year, which shall be
prescribed by the Secretary and which shall be in such form as he
determines appropriate. In the tables so prescribed, the amounts
of tax shall be computed on the basis of the rates prescribed by
section 1.
"(2) Ceiling amount defined. - For purposes of paragraph (1),
the term "ceiling amount" means, with respect to any taxpayer,
the amount (not less than $20,000) determined by the Secretary
for the tax rate category in which such taxpayer falls.
"(3) Certain taxpayers with large number of exemptions. - The
Secretary may exclude from the application of this section
taxpayers in any tax rate category having more than the number of
exemptions for that category determined by the Secretary.
"(4) Tax table income defined. - For purposes of this section,
the term 'tax table income' means adjusted gross income -
"(A) reduced by the sum of -
"(i) the excess itemized deductions, and
"(ii) the direct charitable deduction, and
"(B) increased (in the case of an individual to whom section
63(e) applies) by the unused zero bracket amount.
"(5) Section may be applied on the basis of taxable income. -
The Secretary may provide that this section shall be applied for
any taxable year on the basis of taxable income in lieu of tax
table income."
Subsec. (b). Pub. L. 99-514, Sec. 141(b)(1), struck out par. (1)
which read: "an individual to whom section 1301 (relating to income
averaging) applies for the taxable year," and redesignated pars.
(2) and (3) as (1) and (2), respectively.
1981 - Subsec. (a)(1). Pub. L. 97-34, Sec. 101(b)(2)(B), inserted
"and which shall be in such form as he determines appropriate"
after "Secretary".
Subsec. (a)(4)(A). Pub. L. 97-34, Sec. 121(c)(3), substituted
"reduced by the sum of (i) the excess itemized deductions, and (ii)
the direct charitable deduction" for "reduced by the excess
itemized deductions".
Subsec. (a)(5). Pub. L. 97-34, Sec. 101(b)(2)(C), added par. (5).
Subsec. (b)(1). Pub. L. 97-34, Sec. 101(c)(2)(A), substituted "an
individual to whom section 1301 (relating to income averaging)
applies for the taxable year" for "an individual to whom (A)
section 1301 (relating to income averaging), or (B) section 1348
(relating to maximum rate on personal service income), applies for
the taxable year".
1980 - Subsec. (b)(1). Pub. L. 96-222 redesignated subpars. (B)
and (C) as (A) and (B), respectively, and struck out former subpar.
(A) which made reference to section 911 (relating to earned income
from sources without the United States).
1978 - Subsec. (b)(1). Pub. L. 95-600 struck out subpar. (B)
which related to the alternative capital gains tax under section
1201 of this title, and redesignated subpars. (C) and (D) as (B)
and (C), respectively.
1977 - Pub. L. 95-30 struck out "having taxable income of less
than $20,000" after "individuals" in section catchline.
Subsec. (a). Pub. L. 95-30 designated existing provisions as par.
(1), substituted "tax table income" for "taxable income" and "does
not exceed the ceiling amount" for "does not exceed $20,000", and
added pars. (2) to (4).
Subsecs. (b) to (e). Pub. L. 95-30 added subsec. (b),
redesignated former subsec. (b) as (c), and added subsecs. (d) and
(e).
1976 - Pub. L. 94-455 designated existing provisions as subsec.
(a), substituted provision relating to taxable income for such year
does not exceed $20,000 for provision relating to adjusted gross
income for such year is less than $15,000 and who has elected for
such year to pay the tax imposed by this section, struck out "or
his delegate" after "Secretary", "beginning after Dec. 31, 1969"
after "each taxable year", struck out provision requiring
computation of taxable income by using standard deduction, and
added subsec. (b).
1975 - Pub. L. 94-12 substituted "$15,000" for "$10,000".
1969 - Pub. L. 91-172 raised the individual gross income limit of
$5,000 to $10,000 for exercising the option and substituted
provision that the tax has to be determined under tables to be
prescribed by the Secretary or his delegate for tables of tax rates
for single persons, heads of household, married persons filing
joint returns, married persons filing separate returns with 10 per
cent standard deduction and married persons filing separate returns
with minimum standard deduction.
1964 - Pub. L. 88-272 substituted optional tax tables covering
five categories for taxable years beginning on or after Jan. 1,
1964, and before Jan. 1, 1965, and for years beginning after Dec.
31, 1964, for a single general table.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 101(c)(2)(A) of Pub. L. 97-34 applicable to
taxable years beginning after Dec. 31, 1981, see section 101(f)(1)
of Pub. L. 97-34, set out as a note under section 1 of this title.
Amendment by section 121(c)(3) of Pub. L. 97-34 applicable to
contributions made after Dec. 31, 1981, in taxable years beginning
after such date, see section 121(d) of Pub. L. 97-34, set out as a
note under section 170 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Section 108(a)(2) of Pub. L. 96-222 provided that:
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by paragraph (1) [amending this section and
sections 119, 911, and 913 of this title] shall take effect as if
included in the Foreign Earned Income Act of 1978 [Pub. L. 95-615].
"(B) Paragraph (1)(E). - The amendment made by paragraph (1)(E)
[amending this section] shall apply to taxable years beginning
after December 31, 1978."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 401(b)(1) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 401(c) of
Pub. L. 95-600, set out as a note under section 1201 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 508 of Pub. L. 94-455 provided that: "Except as otherwise
provided, the amendments made by this title [enacting section 44A,
amending this section and sections 36, 37, 41, 42, 46, 50A, 104,
144, 213, 217, 904, 1211, 1304, 3402, 6014, and 6096, enacting
provisions set out as notes under sections 105, 8022, and repealing
sections 4 and 214 of this title] shall apply to taxable years
beginning after December 31, 1975."
EFFECTIVE AND TERMINATION DATES OF 1975 AMENDMENT
Section 209(a) of Pub. L. 94-12, as amended by Pub. L. 94-164,
Sec. 2(e), Dec. 23, 1975, 89 Stat. 972, provided that: "The
amendments made by sections 201, 202(a), and 203 [enacting section
42 of this title and amending this section and sections 56, 141,
6012, and 6096 of this title] shall apply to taxable years ending
after December 31, 1974. The amendments made by sections 201(a) and
202(a) [amending section 141 of this title] shall cease to apply to
taxable years ending after December 31, 1975; those made by
sections 201(b), 201(c), and 203 [enacting section 42 of this title
and amending this section and sections 56, 6012, and 6096 of this
title] shall cease to apply to taxable years ending after December
31, 1976."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 803(f) of Pub. L. 91-172, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 301(c) of Pub. L. 88-272, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Except for
purposes of section 21 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (relating to effect of changes in rates
during a taxable year), the amendments made by this section
[amending this section and sections 4 and 6014 of this title] shall
apply to taxable years beginning after December 31, 1963."
-End-
-CITE-
26 USC Sec. 4 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART I - TAX ON INDIVIDUALS
-HEAD-
[Sec. 4. Repealed. Pub. L. 94-455, title V, Sec. 501(b)(1), Oct. 4,
1976, 90 Stat. 1558]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 10; Feb. 26,
1964, Pub. L. 88-272, title II, Sec. 232(f)(1), title III, Sec.
301(b)(1), (3), 78 Stat. 111, 140; Dec. 30, 1969, Pub. L. 91-172,
title VIII, Sec. 802(c)(1)-(3), 83 Stat. 677, 678; Dec. 10, 1971,
Pub. L. 92-178, title III, Sec. 301(b), 85 Stat. 520, related to
rules for optional tax.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1975,
see section 508 of Pub. L. 94-455, set out as an Effective Date of
1976 Amendment note under section 3 of this title.
-End-
-CITE-
26 USC Sec. 5 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART I - TAX ON INDIVIDUALS
-HEAD-
Sec. 5. Cross references relating to tax on individuals
-STATUTE-
(a) Other rates of tax on individuals, etc.
(1) For rates of tax on nonresident aliens, see section 871.
(2) For doubling of tax on citizens of certain foreign
countries, see section 891.
(3) For rate of withholding in the case of nonresident
aliens, see section 1441.
(4) For alternative minimum tax, see section 55.
(b) Special limitations on tax
(1) For limitation on tax in case of income of members of
Armed Forces, astronauts, and victims of certain terrorist
attacks on death, see section 692.
(2) For computation of tax where taxpayer restores
substantial amount held under claim of right, see section 1341.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 10; Pub. L. 88-272, title II,
Sec. 232(f)(2), Feb. 26, 1964, 78 Stat. 111; Pub. L. 91-172, title
III, Sec. 301(b)(2), title VIII, Sec. 803(d)(6), Dec. 30, 1969, 83
Stat. 585, 684; Pub. L. 94-455, title XIX, Secs. 1901(b)(22)(B),
1951(c)(3)(A), Oct. 4, 1976, 90 Stat. 1798, 1841; Pub. L. 95-600,
title IV, Secs. 401(b)(2), 421(e)(1), Nov. 6, 1978, 92 Stat. 2867,
2875; Pub. L. 96-222, title I, Sec. 104(a)(4)(H)(vii), Apr. 1,
1980, 94 Stat. 218; Pub. L. 97-248, title II, Sec. 201(d)(4),
formerly Sec. 201(c)(4), Sept. 3, 1982, 96 Stat. 419, renumbered
Sec. 201(d)(4), Pub. L. 97-448, title III, Sec. 306(a)(1)(A)(i),
Jan. 12, 1983, 96 Stat. 2400; Pub. L. 99-514, title I, Sec.
141(b)(2), title VII, Sec. 701(e)(4)(A), Oct. 22, 1986, 100 Stat.
2117, 2343; Pub. L. 107-134, title I, Sec. 101(b)(1), Jan. 23,
2002, 115 Stat. 2428; Pub. L. 108-121, title I, Sec. 110(a)(2)(A),
Nov. 11, 2003, 117 Stat. 1342.)
-MISC1-
AMENDMENTS
2003 - Subsec. (b)(1). Pub. L. 108-121 inserted ", astronauts,"
after "Forces".
2002 - Subsec. (b)(1). Pub. L. 107-134 inserted "and victims of
certain terrorist attacks" before "on death".
1986 - Subsec. (a)(4). Pub. L. 99-514, Sec. 701(e)(4)(A), amended
par. (4) generally, substituting "alternative minimum tax" for
"minimum tax for taxpayers other than corporations".
Subsec. (b)(2), (3). Pub. L. 99-514, Sec. 141(b)(2), struck out
par. (2) which read: "For limitation on tax where an individual
chooses the benefits of income averaging, see section 1301." and
redesignated former par. (3) as (2).
1982 - Subsec. (a)(4). Pub. L. 97-248, Sec. 201(d)(4), formerly
Sec. 201(c)(4), substituted "section 55" for "sections 55 and 56".
1980 - Subsec. (a)(4). Pub. L. 96-222 substituted "sections 55
and 56" for "section 55".
1978 - Subsec. (a)(3). Pub. L. 95-600, Sec. 401(b)(2),
redesignated par. (4) as (3). Former par. (3), relating to the
alternative tax in the case of capital gains, was struck out.
Subsec. (a)(4), (5). Pub. L. 95-600, Secs. 401(b)(2), 421(e)(1),
redesignated par. (5) as (4) and substituted "taxpayers other than
corporations, see section 55" for "preferences, see section 56".
Former par. (4) redesignated (3).
1976 - Subsec. (b). Pub. L. 94-455 redesignated pars. (2), (3),
and (4), as (1), (2), (3), respectively, and struck out former par.
(1) which referred to section 632 for limitation on tax
attributable to sales of oil or gas properties and par. (5) which
referred to section 1347 for limitation on tax attributable to
claims against the U.S. involving acquisition of property.
1969 - Subsec. (a)(5). Pub. L. 91-172, Sec. 301(b)(2), added par.
(5).
Subsec. (b). Pub. L. 91-172, Sec. 803(d)(6), substituted "tax"
for "surtax" in pars. (1) and (5).
1964 - Subsec. (b). Pub. L. 88-272 redesignated pars. (2), (3),
(4), (7) and (8) as pars. (1) to (5), respectively, substituted
"where an individual chooses the benefits of income averaging" for
"with respect to compensation for longterm services" in par. (3),
and struck out former pars. (1), (5) and (6) which referred to tax
attributable to receipt of lump sum under annuity, endowment, or
life insurance contract, to income from artistic work or
inventions, and to back pay, respectively.
EFFECTIVE DATE OF 2003 AMENDMENT
Pub. L. 108-121, title I, Sec. 110(a)(4), Nov. 11, 2003, 117
Stat. 1342, provided that: "The amendments made by this subsection
[amending this section and sections 692 and 6013 of this title]
shall apply with respect to any astronaut whose death occurs after
December 31, 2002."
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-134 applicable to taxable years ending
before, on, or after Sept. 11, 2001, with provisions relating to
waiver of limitations, see section 101(d) of Pub. L. 107-134, set
out as a note under section 692 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 141(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 701(e)(4)(A) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L. 99-
514, set out as an Effective Date note under section 55 of this
title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 201(e)(1) of Pub. L. 97-248 provided that: "The
amendments made by this section [amending this section and sections
46, 53, 55, 56, 57, 58, 173, 174, 511, 616, 617, 897, 901, 936,
1016, 6015, 6362, 6654, and 7701 of this title] shall apply to
taxable years beginning after December 31, 1982."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 401(b)(2) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 401(c) of
Pub. L. 95-600, set out as a note under section 1201 of this title.
Section 421(g) of Pub. L. 95-600 provided that: "The amendments
made by this section [enacting section 55 of this title and
amending this section and sections 57, 58, 443, 511, 666, 871, 877,
904, 6015, 6362, and 6654 of this title] shall apply to taxable
years beginning after December 31, 1978, except that the amendment
made by paragraph (1) of subsection (b) [amending section 57 of
this title] shall apply to sales and exchanges made after July 26,
1978, in taxable years ending after such date."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 301(c) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [enacting sections 56 to 58 of this
title and amending this section and sections 12, 46, 51, 443, 453,
511, 901, 1373, 1375, 6015, and 6654 of this title] shall apply to
taxable years ending after December 31, 1969. In the case of a
taxable year beginning in 1969 and ending in 1970, the tax imposed
by section 56 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] (as added by subsection (a)) shall be an amount equal to the
tax imposed by such section (determined without regard to this
sentence) multiplied by a fraction -
"(1) the numerator of which is the number of days in the
taxable year occurring after December 31, 1969, and
"(2) the denominator of which is the number of days in the
entire taxable year."
Amendment by section 803(d)(6) of Pub. L. 91-172 applicable to
taxable years beginning after Dec. 31, 1970, see section 803(f) of
Pub. L. 91-172, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 232(g) of Pub. L. 88-272, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) General rule. - Except as provided in paragraph (2), the
amendments made by this section [enacting sections 1301 to 1305,
amending this section and sections 4, 72, 144, 402, 403, 6511, and
omitting former sections 1301 to 1307 of this title] shall apply
with respect to taxable years beginning after December 31, 1963.
"(2) Income from an employment. - If, in a taxable year beginning
after December 31, 1963, an individual or partnership receives or
accrues compensation from an employment (as defined by section
1301(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
as in effect immediately before the enactment of this Act [Feb. 26,
1964] and the employment began before February 6, 1963, the tax
attributable to such compensation may, at the election of the
taxpayer, be computed under the provisions of sections 1301 and
1307 of such Code as in effect immediately before the enactment of
this Act. If a taxpayer so elects (at such time and in such manner
as the Secretary of the Treasury or his delegate by regulations
prescribes), he may not choose for such taxable year the benefits
provided by part I of subchapter Q of chapter 1 of such Code
(relating to income averaging) as amended by this Act and (if he
elects to have subsection (e) of such section 1307 apply) section
170(b)(5) of such Code as amended by this Act shall not apply to
charitable contributions paid in such taxable year."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(4)(A) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, see section 1012(aa)(2) of Pub. L. 100-
647, set out as a note under section 861 of this title.
-End-
-CITE-
26 USC PART II - TAX ON CORPORATIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART II - TAX ON CORPORATIONS
-HEAD-
PART II - TAX ON CORPORATIONS
-MISC1-
Sec.
11. Tax imposed.
12. Cross references relating to tax on corporations.
-End-
-CITE-
26 USC Sec. 11 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART II - TAX ON CORPORATIONS
-HEAD-
Sec. 11. Tax imposed
-STATUTE-
(a) Corporations in general
A tax is hereby imposed for each taxable year on the taxable
income of every corporation.
(b) Amount of tax
(1) In general
The amount of the tax imposed by subsection (a) shall be the
sum of -
(A) 15 percent of so much of the taxable income as does not
exceed $50,000,
(B) 25 percent of so much of the taxable income as exceeds
$50,000 but does not exceed $75,000,
(C) 34 percent of so much of the taxable income as exceeds
$75,000 but does not exceed $10,000,000, and
(D) 35 percent of so much of the taxable income as exceeds
$10,000,000.
In the case of a corporation which has taxable income in excess
of $100,000 for any taxable year, the amount of tax determined
under the preceding sentence for such taxable year shall be
increased by the lesser of (i) 5 percent of such excess, or (ii)
$11,750. In the case of a corporation which has taxable income in
excess of $15,000,000, the amount of the tax determined under the
foregoing provisions of this paragraph shall be increased by an
additional amount equal to the lesser of (i) 3 percent of such
excess, or (ii) $100,000.
(2) Certain personal service corporations not eligible for
graduated rates
Notwithstanding paragraph (1), the amount of the tax imposed by
subsection (a) on the taxable income of a qualified personal
service corporation (as defined in section 448(d)(2)) shall be
equal to 35 percent of the taxable income.
(c) Exceptions
Subsection (a) shall not apply to a corporation subject to a tax
imposed by -
(1) section 594 (relating to mutual savings banks conducting
life insurance business),
(2) subchapter L (sec. 801 and following, relating to insurance
companies), or
(3) subchapter M (sec. 851 and following, relating to regulated
investment companies and real estate investment trusts).
(d) Foreign corporations
In the case of a foreign corporation, the taxes imposed by
subsection (a) and section 55 shall apply only as provided by
section 882.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 11; Mar. 30, 1955, ch. 18, Sec.
2, 69 Stat. 14; Mar. 29, 1956, ch. 115, Sec. 2, 70 Stat. 66; Pub.
L. 85-12, Sec. 2, Mar. 29, 1957, 71 Stat. 9; Pub. L. 85-475, Sec.
2, June 30, 1958, 72 Stat. 259; Pub. L. 86-75, Sec. 2, June 30,
1959, 73 Stat. 157; Pub. L. 86-564, title II, Sec. 201, June 30,
1960, 74 Stat. 290; Pub. L. 86-779, Sec. 10(d), Sept. 14, 1960, 74
Stat. 1009; Pub. L. 87-72, Sec. 2, June 30, 1961, 75 Stat. 193;
Pub. L. 87-508, Sec. 2, June 28, 1962, 76 Stat. 114; Pub. L. 88-52,
Sec. 2, June 29, 1963, 77 Stat. 72; Pub. L. 88-272, title I, Sec.
121, Feb. 26, 1964, 78 Stat. 25; Pub. L. 89-809, title I, Sec.
104(b)(2), Nov. 13, 1966, 80 Stat. 1557; Pub. L. 91-172, title IV,
Sec. 401(b)(2)(B), Dec. 30, 1969, 83 Stat. 602; Pub. L. 94-12,
title III, Sec. 303(a), (b), Mar. 29, 1975, 89 Stat. 44; Pub. L. 94-
164, Sec. 4(a)-(c), Dec. 23, 1975, 89 Stat. 973, 974; Pub. L. 94-
455, title IX, Sec. 901(a), Oct. 4, 1976, 90 Stat. 1606; Pub. L.
95-30, title II, Sec. 201(1), (2), May 23, 1977, 91 Stat. 141; Pub.
L. 95-600, title III, Sec. 301(a), Nov. 6, 1978, 92 Stat. 2820;
Pub. L. 97-34, title II, Sec. 231(a), Aug. 13, 1981, 95 Stat. 249;
Pub. L. 98-369, div. A, title I, Sec. 66(a), July 18, 1984, 98
Stat. 585; Pub. L. 99-514, title VI, Sec. 601(a), Oct. 22, 1986,
100 Stat. 2249; Pub. L. 100-203, title X, Sec. 10224(a), Dec. 22,
1987, 101 Stat. 1330-412; Pub. L. 100-647, title I, Sec.
1007(g)(13)(B), Nov. 10, 1988, 102 Stat. 3436; Pub. L. 103-66,
title XIII, Sec. 13221(a), (b), Aug. 10, 1993, 107 Stat. 477.)
-MISC1-
AMENDMENTS
1993 - Subsec. (b)(1). Pub. L. 103-66, Sec. 13221(a)(3), inserted
at end of closing provisions "In the case of a corporation which
has taxable income in excess of $15,000,000, the amount of the tax
determined under the foregoing provisions of this paragraph shall
be increased by an additional amount equal to the lesser of (i) 3
percent of such excess, or (ii) $100,000."
Subsec. (b)(1)(C), (D). Pub. L. 103-66, Sec. 13221(a)(1), (2),
added subpars. (C) and (D) and struck out former subpar. (C) which
read as follows: "34 percent of so much of the taxable income as
exceeds $75,000."
Subsec. (b)(2). Pub. L. 103-66, Sec. 13221(b), substituted "35
percent" for "34 percent".
1988 - Subsec. (d). Pub. L. 100-647 substituted "the taxes
imposed by subsection (a) and section 55" for "the tax imposed by
subsection (a)".
1987 - Subsec. (b). Pub. L. 100-203 amended subsec. (b)
generally. Prior to amendment, subsec. (b) read as follows: "The
amount of the tax imposed by subsection (a) shall be the sum of -
"(1) 15 percent of so much of the taxable income as does not
exceed $50,000,
"(2) 25 percent of so much of the taxable income as exceeds
$50,000 but does not exceed $75,000, and
"(3) 34 percent of so much of the taxable income as exceeds
$75,000.
In the case of a corporation which has taxable income in excess of
$100,000 for any taxable year, the amount of tax determined under
the preceding sentence for such taxable year shall be increased by
the lesser of (A) 5 percent of such excess, or (B) $11,750."
1986 - Subsec. (b). Pub. L. 99-514 amended subsec. (b) generally.
Prior to amendment, subsec. (b) read as follows: "The amount of the
tax imposed by subsection (a) shall be the sum of -
"(1) 15 percent (16 percent for taxable years beginning in
1982) of so much of the taxable income as does not exceed
$25,000;
"(2) 18 percent (19 percent for taxable years beginning in
1982) of so much of the taxable income as exceeds $25,000 but
does not exceed $50,000;
"(3) 30 percent of so much of the taxable income as exceeds
$50,000 but does not exceed $75,000;
"(4) 40 percent of so much of the taxable income as exceeds
$75,000 but does not exceed $100,000; plus
"(5) 46 percent of so much of the taxable income as exceeds
$100,000.
In the case of a corporation with taxable income in excess of
$1,000,000 for any taxable year, the amount of tax determined under
the preceding sentence for such taxable year shall be increased by
the lesser of (A) 5 percent of such excess, or (B) $20,250."
1984 - Subsec. (b). Pub. L. 98-369 inserted "In the case of a
corporation with taxable income in excess of $1,000,000 for any
taxable year, the amount of tax determined under the preceding
sentence for such taxable year shall be increased by the lesser of
(A) 5 percent of such excess, or (B) $20,250."
1981 - Subsec. (b)(1). Pub. L. 97-34, Sec. 231(a)(1), substituted
"15 percent (16 percent for taxable years beginning in 1982)" for
"17 percent".
Subsec. (b)(2). Pub. L. 97-34, Sec. 231(a)(2), substituted "18
percent (19 percent for taxable years beginning in 1982)" for "20
percent".
1978 - Pub. L. 95-600 reduced corporate tax rates by substituting
provisions imposing a five-step tax rate structure on corporate
taxable income for provisions using a normal tax and surtax
approach to the taxation of corporate taxable income.
1977 - Subsec. (b)(1). Pub. L. 95-30, Sec. 201(1), substituted
"December 31, 1978" for "December 31, 1977".
Subsec. (b)(2). Pub. L. 95-30, Sec. 201(1), substituted "January
1, 1979" for "January 1, 1978" in provisions preceding subpar. (A).
Subsec. (d)(1). Pub. L. 95-30, Sec. 201(2), substituted "December
31, 1978" for "December 31, 1977".
Subsec. (d)(2). Pub. L. 95-30, Sec. 201(2), substituted "January
1, 1979" for "January 1, 1978".
1976 - Subsec. (a). Pub. L. 94-455 reenacted subsec. (a) without
change.
Subsec. (b). Pub. L. 94-455, among other changes, substituted
"December 31, 1977, 22 percent" for "December 31, 1976, 22 percent"
and "after December 31, 1974 and before January 1, 1978" for "after
December 31, 1974 and before January 1, 1977" and struck out
provisions relating to the six-month application of the general
rule.
Subsec. (c). Pub. L. 94-455 struck out provisions relating to the
special rule for 1976 for calendar year taxpayers.
Subsec. (d). Pub. L. 94-455, among other changes, substituted
provisions relating to surtax exemption of $25,000 for a taxable
year ending Dec. 31, 1977, or $50,000 for a taxable year ending
after Dec. 31, 1974, and before Jan. 1, 1978, for provisions
relating to surtax exemption of $50,000 for any taxable year and
struck out provisions relating to six-month application of the
general rule.
1975 - Subsec. (b). Pub. L. 94-164 redesignated existing pars.
(1) and (2) as pars. (1)(A) and (1)(B), and in par. (1)(A) as so
redesignated substituted "after December 31, 1976" for "before
January 1, 1975 or after December 31, 1975", and in par. (1)(B) as
so redesignated substituted "January 1, 1977" for "January 1,
1976", and added par. (2).
Pub. L. 94-12, Sec. 303(a), reduced the normal tax for a taxable
year ending after Dec. 31, 1974, and before Jan. 1, 1976, to 20
percent of so much of the taxable income as does not exceed $25,000
plus 22 percent of so much of the taxable income as exceeds
$25,000.
Subsec. (c). Pub. L. 94-164 designated existing provisions as
par. (1), struck out special percentages for taxable years
beginning before Jan. 1, 1964, and after Dec. 31, 1963 and before
Jan. 1, 1965, and added par. (2).
Subsec. (d). Pub. L. 94-164 designated existing provisions as
par. (1), substituted "$50,000" for "$25,000", inserted reference
to section 1564 of this title, and added par. (2).
Pub. L. 94-12, Sec. 303(b), substituted "$50,000" for "$25,000".
1969 - Subsec. (d). Pub. L. 91-172 substituted "section 1561 or
1564" for "section 1561".
1966 - Subsec. (e)(4). Pub. L. 89-809, Sec. 104(b)(2)(A), struck
out par. (4) which made reference to section 881(a) (relating to
foreign corporations not engaged in business in United States).
Subsec. (f). Pub. L. 89-809, Sec. 104(b)(2)(B), added subsec.
(f).
1964 - Subsec. (b). Pub. L. 88-272 applied the 30 percent tax to
years beginning before Jan. 1, 1964 instead of July 1, 1964 in par.
(1), and in par. (2), reduced the rate from 25 percent to 22
percent, and applied it to years beginning after Dec. 31, 1963,
instead of June 30, 1964.
Subsec. (c). Pub. L. 88-272 increased the percentage from 22 to
28 for taxable years beginning after Dec. 31, 1963, and before Jan.
1, 1965, and to 26 percent for taxable years beginning after Dec.
31, 1964. The surtax exemption previously carried in subsec. (c),
is now stated in subsec. (d).
Subsecs. (d), (e). Pub. L. 88-272 added subsec. (d) and
redesignated former subsec. (d) as (e).
1963 - Subsec. (b). Pub. L. 88-52 substituted "July 1, 1964" for
"July 1, 1963" and "June 30, 1964" for "June 30, 1963" wherever
appearing.
1962 - Subsec. (b). Pub. L. 87-508 substituted "July 1, 1963" for
"July 1, 1962" and "June 30, 1963" for "June 30, 1962" wherever
appearing.
1961 - Subsec. (b). Pub. L. 87-72 substituted "July 1, 1962" for
"July 1, 1961" and "June 30, 1962" for "June 30, 1961" wherever
appearing.
1960 - Subsec. (b). Pub. L. 86-564 substituted "July 1, 1961" for
"July 1, 1960" and "June 30, 1961" for "June 30, 1960" wherever
appearing.
Subsec. (d)(3). Pub. L. 86-779 inserted "and real estate
investment trusts" after "regulated investment companies".
1959 - Subsec. (b). Pub. L. 86-75 substituted "July 1, 1960" for
"July 1, 1959" and "June 30, 1960" for "June 30, 1959" wherever
appearing.
1958 - Subsec. (b). Pub. L. 85-475 substituted "July 1, 1959" for
"July 1, 1958" and "June 30, 1959" for "June 30, 1958" wherever
appearing.
1957 - Subsec. (b). Pub. L. 85-12 substituted "July 1, 1958" for
"April 1, 1957" and "June 30, 1958" for "March 31, 1957" wherever
appearing.
1956 - Subsec. (b). Act Mar. 29, 1956, substituted "April 1,
1957" for "April 1, 1956" and "March 31, 1957" for "March 31, 1956"
wherever appearing.
1955 - Subsec. (b). Act Mar. 30, 1955, substituted "April 1,
1956" for "April 1, 1955" and "March 31, 1956" for "March 31, 1955"
wherever appearing.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13221(d) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 852, 1201,
and 1445 of this title] shall apply to taxable years beginning on
or after January 1, 1993; except that the amendment made by
subsection (c)(3) [amending section 1445 of this title] shall take
effect on the date of the enactment of this Act [Aug. 10, 1993]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10224(b) of Pub. L. 100-203 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 601(b) of Pub. L. 99-514 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to taxable years beginning on or after
July 1, 1987.
"(2) Cross reference. -
"For treatment of taxable years which include July 1, 1987,
see section 15 of the Internal Revenue Code of 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 66(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 1561 of this title] shall apply to taxable
years beginning after December 31, 1983.
"(2) Amendments not treated as changed in rate of tax. - The
amendments made by this subsection [probably should be "section"]
shall not be treated as a change in a rate of tax for purposes of
section 21 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954]."
EFFECTIVE DATE OF 1981 AMENDMENT
Section 231(c) of Pub. L. 97-34 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1981."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 301(c) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section and sections 12, 57,
244, 247, 511, 527, 528, 802, 821, 826, 852, 857, 882, 907, 922,
962, 1351, 1551, 1561, 6154, and 6655 of this title] shall apply to
taxable years beginning after December 31, 1978."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 901(d) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a) [amending this section] shall take effect on
December 23, 1975. The amendments made by subsection (b) [amending
section 821 of this title] shall apply to taxable years ending
after December 31, 1974. The amendments made by subsection (c)
[amending sections 21, 1561, and 6154 of this title] shall apply to
taxable years ending after December 31, 1975."
EFFECTIVE AND TERMINATION DATES OF 1975 AMENDMENTS
Section 4(e) of Pub. L. 94-164 provided that: "The amendments
made by subsections (b), (c), and (d) [amending this section and
sections 21, 962, and 1561 of this title] apply to taxable years
beginning after December 31, 1975. The amendment made by subsection
(c) [amending this section] ceases to apply for taxable years
beginning after December 31, 1976."
Section 305(b)(1) of Pub. L. 94-12 provided that: "The amendments
made by section 303 [amending this section and sections 12, 962,
and 1561 of this title and enacting provisions set out as a note
under this section] shall apply to taxable years ending after
December 31, 1974. The amendments made by subsections (b) and (c)
of such section [amending this section and sections 12, 962, and
1561 of this title and enacting provisions set out as a note under
this section] shall cease to apply for taxable years ending after
December 31, 1975."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to taxable
years beginning after Dec. 31, 1969, see section 401(h)(2) of Pub.
L. 91-172, set out as a note under section 1561 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 104(n) of Pub. L. 89-809 provided that: "The amendments
made by this section (other than subsection (k)) [enacting section
6683 to this title and amending this section and sections 245, 301,
512, 542, 543, 545, 819, 821, 822, 831, 832, 841, 842, 881, 882,
884, 952, 953, 1249, 1442, and 6016 of this title] shall apply with
respect to taxable years beginning after December 31, 1966. The
amendment made by subsection (k) [amending section 1248(d)(4) of
this title] shall apply with respect to sales or exchanges
occurring after December 31, 1966."
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272, except for purposes of section 21 of
this title, effective with respect to taxable years beginning after
Dec. 31, 1963, see section 131 of Pub. L. 88-272, set out as a note
under section 1 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable with respect to taxable
years of real estate investment trusts beginning after Dec. 31,
1960, see section 10(k) of Pub. L. 86-779, set out as an Effective
Date note under section 856 of this title.
ALLOCATION OF 1975 TAXABLE INCOME AMONG COMPONENT MEMBERS OF
CONTROLLED GROUP OF CORPORATIONS
Section 303(c)(1) of Pub. L. 94-12 provided in part that: "In
applying subsection (b)(2) of section 11 [subsec. (b)(2) of this
section], the first $25,000 of taxable income and the second
$25,000 of taxable income shall each be allocated among the
component members of a controlled group of corporations in the same
manner as the surtax exemption is allocated."
-End-
-CITE-
26 USC Sec. 12 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART II - TAX ON CORPORATIONS
-HEAD-
Sec. 12. Cross references relating to tax on corporations
-STATUTE-
(1) For tax on the unrelated business income of certain
charitable and other corporations exempt from tax under this
chapter, see section 511.
(2) For accumulated earnings tax and personal holding company
tax, see parts I and II of subchapter G (sec. 531 and
following).
(3) For doubling of tax on corporations of certain foreign
countries, see section 891.
(4) For alternative tax in case of capital gains, see section
1201(a).
(5) For rate of withholding in case of foreign corporations,
see section 1442.
(6) For limitation on benefits of graduated rate schedule
provided in section 11(b), see section 1551.
(7) For alternative minimum tax, see section 55.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 11; Pub. L. 88-272, title II,
Sec. 234(b)(4), Feb. 26, 1964, 78 Stat. 115; Pub. L. 91-172, title
III, Sec. 301(b)(3), Dec. 30, 1969, 83 Stat. 585; Pub. L. 94-12,
title III, Sec. 303(c)(2), Mar. 29, 1975, 89 Stat. 44; Pub. L. 95-
600, title III, Sec. 301(b)(1), Nov. 6, 1978, 92 Stat. 2820; Pub.
L. 98-369, div. A, title I, Sec. 474(r)(29)(E), July 18, 1984, 98
Stat. 844; Pub. L. 99-514, title VII, Sec. 701(e)(4)(B), Oct. 22,
1986, 100 Stat. 2343.)
-MISC1-
AMENDMENTS
1986 - Par. (7). Pub. L. 99-514 amended par. (7) generally,
substituting "alternative minimum tax" and "55" for "minimum tax
for tax preferences" and "56", respectively.
1984 - Pars. (6) to (8). Pub. L. 98-369 redesignated pars. (7)
and (8) as (6) and (7), respectively. Former par. (6), which
referred to section 1451 for withholding of tax on tax-free
covenant bonds, was struck out.
1978 - Par. (7). Pub. L. 95-600 substituted "benefits of
graduated rate schedule provided in section 11(b)" for "the $25,000
exemption from surtax provided in section 11(c)".
1975 - Par. (7). Pub. L. 94-12 substituted "$50,000" for
"$25,000" for a limited period. See Effective and Termination Dates
of 1975 Amendment note set out below.
1969 - Par. (8). Pub. L. 91-172 added par. (8).
1964 - Par. (8). Pub. L. 88-272 struck out par. (8) which
referred to section 1503 for additional tax for corporations filing
consolidated returns.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, with certain exceptions and qualifications,
see section 701(f) of Pub. L. 99-514, set out as an Effective Date
note under section 55 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 not applicable with respect to
obligations issued before Jan. 1, 1984, see section 475(b) of Pub.
L. 98-369, set out as a note under section 33 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out
as a note under section 11 of this title.
EFFECTIVE AND TERMINATION DATES OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 applicable to taxable years ending
after Dec. 31, 1974, but to cease to apply for taxable years ending
after Dec. 31, 1975, see section 305(b)(1) of Pub. L. 94-12, set
out as a note under section 11 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years ending
after Dec. 31, 1969, see section 301(c) of Pub. L. 91-172, set out
as a note under section 5 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 234(c) of Pub. L. 88-272, set out
as a note under section 1503 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUBLIC LAW 99-514 IN
RELATION TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by Pub. L. 99-514 notwithstanding
any treaty obligation of the United States in effect on Oct. 22,
1986, see section 1012(aa)(2) of Pub. L. 100-647, set out as a note
under section 861 of this title.
-End-
-CITE-
26 USC PART III - CHANGES IN RATES DURING A TAXABLE YEAR 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART III - CHANGES IN RATES DURING A TAXABLE YEAR
-HEAD-
PART III - CHANGES IN RATES DURING A TAXABLE YEAR
-MISC1-
Sec.
15. Effect of changes.
AMENDMENTS
1984 - Pub. L. 98-369, div. A, title IV, Sec. 474(b)(3), July 18,
1984, 98 Stat. 830, substituted "15. Effect of changes" for "21.
Effect of changes".
-End-
-CITE-
26 USC Sec. 15 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART III - CHANGES IN RATES DURING A TAXABLE YEAR
-HEAD-
Sec. 15. Effect of changes
-STATUTE-
(a) General rule
If any rate of tax imposed by this chapter changes, and if the
taxable year includes the effective date of the change (unless that
date is the first day of the taxable year), then -
(1) tentative taxes shall be computed by applying the rate for
the period before the effective date of the change, and the rate
for the period on and after such date, to the taxable income for
the entire taxable year; and
(2) the tax for such taxable year shall be the sum of that
proportion of each tentative tax which the number of days in each
period bears to the number of days in the entire taxable year.
(b) Repeal of tax
For purposes of subsection (a) -
(1) if a tax is repealed, the repeal shall be considered a
change of rate; and
(2) the rate for the period after the repeal shall be zero.
(c) Effective date of change
For purposes of subsections (a) and (b) -
(1) if the rate changes for taxable years "beginning after" or
"ending after" a certain date, the following day shall be
considered the effective date of the change; and
(2) if a rate changes for taxable years "beginning on or after"
a certain date, that date shall be considered the effective date
of the change.
(d) Section not to apply to inflation adjustments
This section shall not apply to any change in rates under
subsection (f) of section 1 (relating to adjustments in tax tables
so that inflation will not result in tax increases).
(e) References to highest rate
If the change referred to in subsection (a) involves a change in
the highest rate of tax imposed by section 1 or 11(b), any
reference in this chapter to such highest rate (other than in a
provision imposing a tax by reference to such rate) shall be
treated as a reference to the weighted average of the highest rates
before and after the change determined on the basis of the
respective portions of the taxable year before the date of the
change and on or after the date of the change.
(f) Rate reductions enacted by Economic Growth and Tax Relief
Reconciliation Act of 2001
This section shall not apply to any change in rates under
subsection (i) of section 1 (relating to rate reductions after
2000).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 12, Sec. 21; Pub. L. 88-272,
title I, Sec. 132, Feb. 26, 1964, 78 Stat. 30; Pub. L. 91-172,
title VIII, Sec. 803(e), Dec. 30, 1969, 83 Stat. 685; Pub. L. 92-
178, title II, Sec. 205, Dec. 10, 1971, 85 Stat. 511; Pub. L. 94-
12, title III, Sec. 305(b)(2), Mar. 29, 1975, 89 Stat. 45; Pub. L.
94-164, Sec. 4(d)(2), Dec. 23, 1975, 89 Stat. 975; Pub. L. 94-455,
title IX, Sec. 901(c)(2), Oct. 4, 1976, 90 Stat. 1607; Pub. L. 95-
30, title I, Sec. 101(d)(2), May 23, 1977, 91 Stat. 133; Pub. L.
95-600, title I, Sec. 106, Nov. 6, 1978, 92 Stat. 2776; Pub. L. 97-
34, title I, Sec. 101(d)(3), Aug. 13, 1981, 95 Stat. 184;
renumbered Sec. 15, Pub. L. 98-369, div. A, title IV, Sec.
474(b)(1), July 18, 1984, 98 Stat. 830; Pub. L. 99-514, title I,
Sec. 101(b), Oct. 22, 1986, 100 Stat. 2099; Pub. L. 100-647, title
I, Sec. 1006(a), Nov. 10, 1988, 102 Stat. 3393; Pub. L. 107-16,
title I, Sec. 101(c)(3), June 7, 2001, 115 Stat. 43.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2001 - Subsec. (f). Pub. L. 107-16, Secs. 101(c)(3), 901,
temporarily added subsec. (f). See Effective and Termination Dates
of 2001 Amendment note below.
1988 - Subsec. (e). Pub. L. 100-647 added subsec. (e).
1986 - Subsec. (d). Pub. L. 99-514 amended subsec. (d) generally,
substituting "apply to inflation adjustments" for "apply to section
1 rate changes made by Economic Recovery Tax Act of 1981" in
heading and struck out "section 1 attributable to the amendments
made by section 101 of the Economic Tax Act of 1981 or" before
"subsection (f)" in text.
1984 - Pub. L. 98-369 renumbered section 21 of this title as this
section.
1981 - Subsec. (d). Pub. L. 97-34 substituted provisions that
this section shall not apply to any change in rates under section 1
attributable to the amendments made by section 101 of the Economic
Recovery Tax Act of 1981 or subsec. (f) of section 1 for provisions
that had related to the changes made by section 303(b) of the Tax
Reduction Act of 1975 in the surtax exemption.
Subsecs. (e), (f). Pub. L. 97-34 struck out subsecs. (e) and (f)
which had related, respectively, to changes made by the Tax
Reduction and Simplification Act of 1977 and to changes made by
Revenue Act of 1978.
1978 - Subsec. (f). Pub. L. 95-600 added subsec. (f).
1977 - Subsec. (d). Pub. L. 95-30, Sec. 101(d)(2)(A), (B),
redesignated subsec. (f) as (d). Former subsec. (d), which directed
that, in applying subsec. (a) to a taxable year of an individual
which was not a calendar year, each change made by the Tax Reform
Act of 1969 in part I or in the application of part IV or V of
subchapter B for purposes of the determination of taxable income
should be treated as a change in a rate of tax, was struck out.
Subsec. (e). Pub. L. 95-30, Sec. 101(d)(2)(A), (C), added subsec.
(e). Former subsec. (e), which directed that, in applying subsec.
(a) to a taxable year of an individual which was not a calendar
year, each change made by the Revenue Act of 1971 in section 141
(relating to the standard deduction) and section 151 (relating to
personal exemptions) should be treated as a change in a rate of
tax, was struck out.
Subsec. (f). Pub. L. 95-30, Sec. 101(d)(2)(B), redesignated
subsec. (f) as (d).
1976 - Subsec. (f). Pub. L. 94-455 substituted "in the surtax
exemption and any change under section 11(d) in the surtax
exemption" for "and the change made by section 3(c) of the Revenue
Adjustment Act of 1975 in section 11(d) (relating to corporate
surtax exemption)".
1975 - Subsec. (f). Pub. L. 94-164 inserted reference to change
made by section 3(c) of the Revenue Adjustment Act of 1975.
Pub. L. 94-12 added subsec. (f).
1971 - Subsec. (e). Pub. L. 92-178 added subsec. (e).
1969 - Subsec. (d). Pub. L. 91-172 substituted provisions
covering changes made by the Tax Reform Act of 1969 in case of
individuals for provisions covering changes made by Revenue Act of
1964.
1964 - Subsec. (d). Pub. L. 88-272 amended subsection generally
by substituting provisions relating to changes made by the Revenue
Act of 1964, for provisions relating to taxable years beginning
before Jan. 1, 1954, and ending after Dec. 31, 1953.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to taxable years beginning
after Dec. 31, 2000, see section 101(d)(1) of Pub. L. 107-16, set
out as a note under section 1 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1981, see section 101(f)(1) of Pub. L. 97-34, set
out as a note under section 1 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years ending after Dec. 31, 1975, see section 901(d) of Pub. L. 94-
455, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-164 applicable to taxable years beginning
after Dec. 31, 1975, see section 4(e) of Pub. L. 94-164, set out as
an Effective and Termination Dates of 1975 Amendments note under
section 11 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 132 of Pub. L. 88-272 provided that the amendment made by
that section is effective with respect to taxable years ending
after Dec. 31, 1963.
COORDINATION OF 1997 AMENDMENT WITH SECTION 15
Pub. L. 105-34, title I, Sec. 1(c), Aug. 5, 1997, 111 Stat. 788,
provided that: "No amendment made by this Act [see Tables for
classification] shall be treated as a change in a rate of tax for
purposes of section 15 of the Internal Revenue Code of 1986."
COORDINATION OF 1993 AMENDMENT WITH SECTION 15
Pub. L. 103-66, title XIII, Sec. 13001(c), Aug. 10, 1993, 107
Stat. 416, provided that: "Except in the case of the amendments
made by section 13221 [amending sections 11, 852, 1201, and 1445 of
this title] (relating to corporate rate increase), no amendment
made by this chapter [chapter 1 (Secs. 13001-13444) of title XIII
of Pub. L. 103-66, see Tables for classification] shall be treated
as a change in a rate of tax for purposes of section 15 of the
Internal Revenue Code of 1986."
COORDINATION OF 1990 AMENDMENT WITH SECTION 15
Pub. L. 101-508, title XI, Sec. 11001(c), Nov. 5, 1990, 104 Stat.
1388-400, provided that: "Except as otherwise expressly provided in
this title, no amendment made by this title [see Tables for
classification] shall be treated as a change in a rate of tax for
purposes of section 15 of the Internal Revenue Code of 1986."
COORDINATION OF 1987 AMENDMENT WITH SECTION 15
Pub. L. 100-203, title X, Sec. 10000(c), Dec. 22, 1987, 101 Stat.
1330-382, provided that: "No amendment made by this title [see
Tables for classification] shall be treated as a change in a rate
of tax for purposes [of] section 15 of the Internal Revenue Code of
1986."
COORDINATION OF 1986 AMENDMENT WITH SECTION 15
Section 3(b) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), for
purposes of section 15 of the Internal Revenue Code of 1986, no
amendment or repeal made by this Act [see Tables for
classification] shall be treated as a change in the rate of a tax
imposed by chapter 1 of such Code.
"(2) Exception. - Paragraph (1) shall not apply to the amendment
made by section 601 [amending section 11 of this title] (relating
to corporate rate reductions)."
-End-
-CITE-
26 USC PART IV - CREDITS AGAINST TAX 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
-HEAD-
PART IV - CREDITS AGAINST TAX
-MISC1-
Subpart
A. Nonrefundable personal credits.
B. Other credits.
C. Refundable credits.
D. Business-related credits.
E. Rules for computing investment credit.
F. Rules for computing work opportunity credit.
G. Credit against regular tax for prior year minimum tax
liability.(!1)
H. Nonrefundable credit to holders of certain bonds.
AMENDMENTS
2005 - Pub. L. 109-58, title XIII, Sec. 1303(c)(1), Aug. 8, 2005,
119 Stat. 996, added item for subpart H.
1996 - Pub. L. 104-188, title I, Secs. 1201(e)(3),
1601(b)(2)(F)(ii), Aug. 20, 1996, 110 Stat. 1772, 1833, substituted
"Other credits" for "Foreign tax credit, etc." in item for subpart
B and "work opportunity credit" for "targeted jobs credit" in item
for subpart F.
1990 - Pub. L. 101-508, title XI, Sec. 11813(b)(26), Nov. 5,
1990, 104 Stat. 1388-555, substituted "Rules for computing
investment credit" for "Rules for computing credit for investment
in certain depreciable property" in item for subpart E.
1984 - Pub. L. 98-369, div. A, title IV, Secs. 471(a), 474(n)(3),
July 18, 1984, 98 Stat. 825, 834, substituted "Nonrefundable
personal credits" for "Credits allowable" in item for subpart A,
"Foreign tax credit, etc" for "Rules for computing credit for
investment in certain depreciable property" in item for subpart B,
"Refundable credits" for "Rules for computing credit for expense of
work incentive programs" in item for subpart C, and "Business-
related credits" for "Rules for computing credit for employment of
certain new employees" in item for subpart D, and added items for
subparts E and F.
1977 - Pub. L. 95-30, title II, Sec. 202(d)(1)(B), May 23, 1977,
91 Stat. 147, added subpart D.
1971 - Pub. L. 92-178, title VI, Sec. 601(c)(1), Dec. 10, 1971,
85 Stat. 557, added subpart C.
-FOOTNOTE-
(!1) Editorially supplied. Subpart G of part IV added by Pub. L.
99-514 without corresponding amendment of part analysis.
-End-
-CITE-
26 USC Subpart A - Nonrefundable Personal Credits 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart A - Nonrefundable Personal Credits
-HEAD-
SUBPART A - NONREFUNDABLE PERSONAL CREDITS
-MISC1-
Sec.
21. Expenses for household and dependent care services
necessary for gainful employment.
22. Credit for the elderly and the permanently and totally
disabled.
23. Adoption expenses.
24. Child tax credit.
25. Interest on certain home mortgages.
25A. Hope and Lifetime Learning credits.
25B. Elective deferrals and IRA contributions by certain
individuals.
25C. Nonbusiness energy property.
25D. Residential energy efficient property.
26. Limitation based on tax liability; definition of tax
liability.
AMENDMENTS
2005 - Pub. L. 109-58, title XIII, Secs. 1333(b)(2), 1335(b)(5),
Aug. 8, 2005, 119 Stat. 1030, 1036, added items 25C and 25D.
2001 - Pub. L. 107-16, title VI, Sec. 618(c), June 7, 2001, 115
Stat. 108, added item 25B.
1998 - Pub. L. 105-206, title VI, Sec. 6004(a)(1), July 22, 1998,
112 Stat. 792, substituted "Hope and Lifetime Learning credits" for
"Higher education tuition and related expenses" in item 25A.
1997 - Pub. L. 105-34, title I, Sec. 101(d)(3), title II, Sec.
201(e), Aug. 5, 1997, 111 Stat. 799, 806, added items 24 and 25A.
1996 - Pub. L. 104-188, title I, Sec. 1807(c)(6), Aug. 20, 1996,
110 Stat. 1902, added item 23.
1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(1), Nov. 5, 1990,
104 Stat. 1388-522, struck out item 23 "Residential energy credit".
1986 - Pub. L. 99-514, title I, Sec. 112(b)(5), Oct. 22, 1986,
100 Stat. 2109, struck out item 24 "Contributions to candidates for
public office".
1984 - Pub. L. 98-369, div. A, title IV, Secs. 471(b), 612(f),
July 18, 1984, 98 Stat. 826, 913, substituted "Nonrefundable
Personal Credits" for "Credits Allowable" as subpart A heading,
struck out analysis of sections 31 through 45 formerly comprising
subpart A, and inserted a new analysis of sections consisting of
items 21 (formerly 44A), 22 (formerly 37), 23 (formerly 44C), 24
(formerly 41), and 25 and 26 (newly enacted).
1983 - Pub. L. 98-67 repealed amendments made by Pub. L. 97-248.
See 1982 Amendment note below.
Pub. L. 98-21, title I, Sec. 122(c)(7), Apr. 20, 1983, 97 Stat.
87, inserted "and the permanently and totally disabled" to item 37.
Pub. L. 97-424, title V, Sec. 515(b)(6)(D), Jan. 6, 1983, 96
Stat. 2181, substituted "and special fuels" for ", special fuels,
and lubricating oil" after "gasoline" in item 39.
Pub. L. 97-414, Sec. 4(c)(1), Jan. 4, 1983, 96 Stat. 2056, added
item 44H.
1982 - Pub. L. 97-248, title III, Secs. 307(b)(3), 308(a), Sept.
3, 1982, 96 Stat. 590, 591, provided that, applicable to payments
of interest, dividends, and patronage dividends paid or credited
after June 30, 1983, item 31 is amended to read "Tax withheld on
wages, interest, dividends, and patronage dividends". Section
102(a), (b) of Pub. L. 98-67, title I, Aug. 5, 1983, 97 Stat. 369,
repealed subtitle A (Secs. 301-308) of title III of Pub. L. 97-248
as of the close of June 30, 1983, and provided that the Internal
Revenue Code of 1954 [now 1986] [this title] shall be applied and
administered (subject to certain exceptions) as if such subtitle A
(and the amendments made by such subtitle A) had not been enacted.
1981 - Pub. L. 97-34, title II, Sec. 221(c)(2), title III, Sec.
331(e)(2), Aug. 13, 1981, 95 Stat. 247, 295, added items 44F and
44G.
1980 - Pub. L. 96-223, title II, Secs. 231(b)(1), 232(b)(3)(B),
Apr. 2, 1980, 94 Stat. 272, 276, added items 44D and 44E.
1978 - Pub. L. 95-618, title I, Sec. 101(b)(1), Nov. 9, 1978, 92
Stat. 3179, added item 44C.
1977 - Pub. L. 95-30, title I, Sec. 101(e)(1), title II, Sec.
202(d)(1)(A), May 23, 1977, 91 Stat. 134, 147, added item 44B and
struck out item 36 "Credit not allowed to individuals taking
standard deduction".
1976 - Pub. L. 94-455, title IV, Sec. 401(a)(2)(D), title V,
Secs. 501(c)(2), 503(b)(5), 504(a)(2), title XIX, Sec.
1901(b)(1)(Z), Oct. 4, 1976, 90 Stat. 1555, 1559, 1562, 1565, 1792,
substituted in item 42 "General tax credit" for "Taxable income
credit", struck out in item 36 "pay optional tax or", inserted in
item 33 "possession tax credit", substituted in item 37 "Credit of
the elderly" for "Retirement income", added item 44A, and struck
out item 35 "Partially tax-exempt interest received by
individuals".
1975 - Pub. L. 94-164, Sec. 3(a)(2), Dec. 23, 1975, 89 Stat. 973,
substituted "Taxable income credit" for "Credit for personal
exemptions" in item 42.
Pub. L. 94-12, title II, Secs. 203(b)(1), 204(c), 208(d)(1), Mar.
29, 1975, 89 Stat. 30, 32, 35, renumbered item 42 as 45 and added
item 42 applicable to taxable years ending after Dec. 31, 1974, but
to cease to apply to taxable years ending after Dec. 31, 1975, item
43 applicable to taxable years beginning after Dec. 31, 1974, but
before Jan. 1, 1976, and item 44.
1971 - Pub. L. 92-178, title VI, Sec. 601(c)(2), Dec. 10, 1971,
85 Stat. 557, added items 40 and 41, and redesignated former item
40 as 42.
1970 - Pub. L. 91-258, title II, Sec. 207(d)(10), May 21, 1970,
84 Stat. 249, inserted ", special fuels," after "gasoline" in item
39.
1965 - Pub. L. 89-44, title VIII, Sec. 809(d)(1), June 21, 1965,
79 Stat. 167, added item 39 and redesignated former item 39 as 40.
1964 - Pub. L. 88-272, title II, Sec. 201(d)(1), Feb. 26, 1964,
78 Stat. 32, struck out item 34.
1962 - Pub. L. 87-834, Sec. 2(g)(1), (2), Oct. 16, 1962, 76 Stat.
972, 973, added headings of subparts A and B and item 38, and
redesignated former item 38 as 39.
-End-
-CITE-
26 USC Sec. 21 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart A - Nonrefundable Personal Credits
-HEAD-
Sec. 21. Expenses for household and dependent care services
necessary for gainful employment
-STATUTE-
(a) Allowance of credit
(1) In general
In the case of an individual for which there are 1 or more
qualifying individuals (as defined in subsection (b)(1)) with
respect to such individual, there shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an
amount equal to the applicable percentage of the employment-
related expenses (as defined in subsection (b)(2)) paid by such
individual during the taxable year.
(2) Applicable percentage defined
For purposes of paragraph (1), the term "applicable percentage"
means 35 percent reduced (but not below 20 percent) by 1
percentage point for each $2,000 (or fraction thereof) by which
the taxpayer's adjusted gross income for the taxable year exceeds
$15,000.
(b) Definitions of qualifying individual and employment-related
expenses
For purposes of this section -
(1) Qualifying individual
The term "qualifying individual" means -
(A) a dependent of the taxpayer (as defined in section
152(a)(1)) who has not attained age 13,
(B) a dependent of the taxpayer (as defined in section 152,
determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B)) who is physically or mentally incapable of caring
for himself or herself and who has the same principal place of
abode as the taxpayer for more than one-half of such taxable
year, or
(C) the spouse of the taxpayer, if the spouse is physically
or mentally incapable of caring for himself or herself and who
has the same principal place of abode as the taxpayer for more
than one-half of such taxable year.
(2) Employment-related expenses
(A) In general
The term "employment-related expenses" means amounts paid for
the following expenses, but only if such expenses are incurred
to enable the taxpayer to be gainfully employed for any period
for which there are 1 or more qualifying individuals with
respect to the taxpayer:
(i) expenses for household services, and
(ii) expenses for the care of a qualifying individual.
Such term shall not include any amount paid for services
outside the taxpayer's household at a camp where the qualifying
individual stays overnight.
(B) Exception
Employment-related expenses described in subparagraph (A)
which are incurred for services outside the taxpayer's
household shall be taken into account only if incurred for the
care of -
(i) a qualifying individual described in paragraph (1)(A),
or
(ii) a qualifying individual (not described in paragraph
(1)(A)) who regularly spends at least 8 hours each day in the
taxpayer's household.
(C) Dependent care centers
Employment-related expenses described in subparagraph (A)
which are incurred for services provided outside the taxpayer's
household by a dependent care center (as defined in
subparagraph (D)) shall be taken into account only if -
(i) such center complies with all applicable laws and
regulations of a State or unit of local government, and
(ii) the requirements of subparagraph (B) are met.
(D) Dependent care center defined
For purposes of this paragraph, the term "dependent care
center" means any facility which -
(i) provides care for more than six individuals (other than
individuals who reside at the facility), and
(ii) receives a fee, payment, or grant for providing
services for any of the individuals (regardless of whether
such facility is operated for profit).
(c) Dollar limit on amount creditable
The amount of the employment-related expenses incurred during any
taxable year which may be taken into account under subsection (a)
shall not exceed -
(1) $3,000 if there is 1 qualifying individual with respect to
the taxpayer for such taxable year, or
(2) $6,000 if there are 2 or more qualifying individuals with
respect to the taxpayer for such taxable year.
The amount determined under paragraph (1) or (2) (whichever is
applicable) shall be reduced by the aggregate amount excludable
from gross income under section 129 for the taxable year.
(d) Earned income limitation
(1) In general
Except as otherwise provided in this subsection, the amount of
the employment-related expenses incurred during any taxable year
which may be taken into account under subsection (a) shall not
exceed -
(A) in the case of an individual who is not married at the
close of such year, such individual's earned income for such
year, or
(B) in the case of an individual who is married at the close
of such year, the lesser of such individual's earned income or
the earned income of his spouse for such year.
(2) Special rule for spouse who is a student or incapable of
caring for himself
In the case of a spouse who is a student or a qualifying
individual described in subsection (b)(1)(C), for purposes of
paragraph (1), such spouse shall be deemed for each month during
which such spouse is a full-time student at an educational
institution, or is such a qualifying individual, to be gainfully
employed and to have earned income of not less than -
(A) $250 if subsection (c)(1) applies for the taxable year,
or
(B) $500 if subsection (c)(2) applies for the taxable year.
In the case of any husband and wife, this paragraph shall apply
with respect to only one spouse for any one month.
(e) Special rules
For purposes of this section -
(1) Place of abode
An individual shall not be treated as having the same principal
place of abode of the taxpayer if at any time during the taxable
year of the taxpayer the relationship between the individual and
the taxpayer is in violation of local law.
(2) Married couples must file joint return
If the taxpayer is married at the close of the taxable year,
the credit shall be allowed under subsection (a) only if the
taxpayer and his spouse file a joint return for the taxable year.
(3) Marital status
An individual legally separated from his spouse under a decree
of divorce or of separate maintenance shall not be considered as
married.
(4) Certain married individuals living apart
If -
(A) an individual who is married and who files a separate
return -
(i) maintains as his home a household which constitutes for
more than one-half of the taxable year the principal place of
abode of a qualifying individual, and
(ii) furnishes over half of the cost of maintaining such
household during the taxable year, and
(B) during the last 6 months of such taxable year such
individual's spouse is not a member of such household,
such individual shall not be considered as married.
(5) Special dependency test in case of divorced parents, etc.
If -
(A) section 152(e) applies to any child with respect to any
calendar year, and
(B) such child is under the age of 13 or is physically or
mentally incapable of caring for himself,
in the case of any taxable year beginning in such calendar year,
such child shall be treated as a qualifying individual described
in subparagraph (A) or (B) of subsection (b)(1) (whichever is
appropriate) with respect to the custodial parent (as defined in
section 152(e)(3)(A)), and shall not be treated as a qualifying
individual with respect to the noncustodial parent.
(6) Payments to related individuals
No credit shall be allowed under subsection (a) for any amount
paid by the taxpayer to an individual -
(A) with respect to whom, for the taxable year, a deduction
under section 151(c) (relating to deduction for personal
exemptions for dependents) is allowable either to the taxpayer
or his spouse, or
(B) who is a child of the taxpayer (within the meaning of
section 152(f)(1)) who has not attained the age of 19 at the
close of the taxable year.
For purposes of this paragraph, the term "taxable year" means the
taxable year of the taxpayer in which the service is performed.
(7) Student
The term "student" means an individual who during each of 5
calendar months during the taxable year is a full-time student at
an educational organization.
(8) Educational organization
The term "educational organization" means an educational
organization described in section 170(b)(1)(A)(ii).
(9) Identifying information required with respect to service
provider
No credit shall be allowed under subsection (a) for any amount
paid to any person unless -
(A) the name, address, and taxpayer identification number of
such person are included on the return claiming the credit, or
(B) if such person is an organization described in section
501(c)(3) and exempt from tax under section 501(a), the name
and address of such person are included on the return claiming
the credit.
In the case of a failure to provide the information required
under the preceding sentence, the preceding sentence shall not
apply if it is shown that the taxpayer exercised due diligence in
attempting to provide the information so required.
(10) Identifying information required with respect to qualifying
individuals
No credit shall be allowed under this section with respect to
any qualifying individual unless the TIN of such individual is
included on the return claiming the credit.
(f) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 94-455, title V, Sec. 504(a)(1), Oct. 4, 1976, 90
Stat. 1563, Sec. 44A; amended Pub. L. 95-600, title I, Sec. 121(a),
Nov. 6, 1978, 92 Stat. 2779; Pub. L. 97-34, title I Sec. 124 (a)-
(d), Aug. 13, 1981, 95 Stat. 197, 198; Pub. L. 98-21, title I,
Sec. 122(c)(1), Apr. 20, 1983, 97 Stat. 87; renumbered Sec. 21 and
amended Pub. L. 98-369, div. A, title IV, Secs. 423(c)(4), 471(c),
474(c), July 18, 1984, 98 Stat. 801, 826, 830; Pub. L. 99-514,
title I, Sec. 104(b)(1), Oct. 22, 1986, 100 Stat. 2104; Pub. L. 100-
203, title X, Sec. 10101(a), Dec. 22, 1987, 101 Stat. 1330-384;
Pub. L. 100-485, title VII, Sec. 703(a)-(c)(1), Oct. 13, 1988, 102
Stat. 2426, 2427; Pub. L. 104-188, title I, Sec. 1615(b), Aug. 20,
1996, 110 Stat. 1853; Pub. L. 107-16, title II, Sec. 204(a), (b),
June 7, 2001, 115 Stat. 49; Pub. L. 107-147, title IV, Sec. 418(b),
Mar. 9, 2002, 116 Stat. 57; Pub. L. 108-311, title II, Secs. 203,
207(2), (3), Oct. 4, 2004, 118 Stat. 1175, 1177; Pub. L. 109-135,
title IV, Sec. 404(b), Dec. 21, 2005, 119 Stat. 2634.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
PRIOR PROVISIONS
A prior section 21 was renumbered section 15 of this title.
AMENDMENTS
2005 - Subsec. (b)(1)(B). Pub. L. 109-135 inserted "(as defined
in section 152, determined without regard to subsections (b)(1),
(b)(2), and (d)(1)(B))" after "dependent of the taxpayer".
2004 - Subsec. (a)(1). Pub. L. 108-311, Sec. 203(a), substituted
"In the case of an individual for which there are 1 or more
qualifying individuals (as defined in subsection (b)(1)) with
respect to such individual" for "In the case of an individual who
maintains a household which includes as a member one or more
qualifying individuals (as defined in subsection (b)(1))".
Subsec. (b)(1). Pub. L. 108-311, Sec. 203(b), reenacted heading
without change and amended text generally. Prior to amendment, text
read as follows: "The term 'qualifying individual' means -
"(A) a dependent of the taxpayer who is under the age of 13 and
with respect to whom the taxpayer is entitled to a deduction
under section 151(c),
"(B) a dependent of the taxpayer who is physically or mentally
incapable of caring for himself, or
"(C) the spouse of the taxpayer, if he is physically or
mentally incapable of caring for himself."
Subsec. (e)(1). Pub. L. 108-311, Sec. 203(c), amended heading and
text of par. (1) generally. Prior to amendment, text read as
follows: "An individual shall be treated as maintaining a household
for any period only if over half the cost of maintaining the
household for such period is furnished by such individual (or, if
such individual is married during such period, is furnished by such
individual and his spouse)."
Subsec. (e)(5). Pub. L. 108-311, Sec. 207(2), struck out
"paragraph (2) or (4) of" before "section 152(e)" in subpar. (A)
and substituted "as defined in section 152(e)(3)(A)" for "within
the meaning of section 152(e)(1)" in concluding provisions.
Subsec. (e)(6)(B). Pub. L. 108-311, Sec. 207(3), substituted
"section 152(f)(1)" for "section 151(c)(3)".
2002 - Subsec. (d)(2)(A). Pub. L. 107-147, Sec. 418(b)(1),
substituted "$250" for "$200".
Subsec. (d)(2)(B). Pub. L. 107-147, Sec. 418(b)(2), substituted
"$500" for "$400".
2001 - Subsec. (a)(2). Pub. L. 107-16, Secs. 204(b), 901,
temporarily substituted "35 percent" for "30 percent" and "$15,000"
for "$10,000". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(1). Pub. L. 107-16, Secs. 204(a)(1), 901, temporarily
substituted "$3,000" for "$2,400". See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (c)(2). Pub. L. 107-16, Secs. 204(a)(2), 901, temporarily
substituted "$6,000" for "$4,800". See Effective and Termination
Dates of 2001 Amendment note below.
1996 - Subsec. (e)(10). Pub. L. 104-188 added par. (10).
1988 - Subsec. (b)(1)(A). Pub. L. 100-485, Sec. 703(a),
substituted "age of 13" for "age of 15".
Subsec. (c). Pub. L. 100-485, Sec. 703(b), inserted at end: "The
amount determined under paragraph (1) or (2) (whichever is
applicable) shall be reduced by the aggregate amount excludable
from gross income under section 129 for the taxable year."
Subsec. (e)(5)(B). Pub. L. 100-485, Sec. 703(a), substituted "age
of 13" for "age of 15".
Subsec. (e)(9). Pub. L. 100-485, Sec. 703(c)(1), added par. (9).
1987 - Subsec. (b)(2)(A). Pub. L. 100-203 inserted at end "Such
term shall not include any amount paid for services outside the
taxpayer's household at a camp where the qualifying individual
stays overnight."
1986 - Subsecs. (b)(1)(A), (e)(6)(A). Pub. L. 99-514, Sec.
104(b)(1)(A), substituted "section 151(c)" for "section 151(e)".
Subsec. (e)(6)(B). Pub. L. 99-514, Sec. 104(b)(1)(B), substituted
"section 151(c)(3)" for "section 151(e)(3)".
1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 44A of
this title as this section.
Subsec. (a)(1). Pub. L. 98-369, Sec. 474(c)(2), (3), substituted
"subsection (b)(1)" for "subsection (c)(1)" and "subsection (b)(2)"
for "subsection (c)(2)".
Subsec. (b). Pub. L. 98-369, Sec. 474(c)(1), redesignated subsec.
(c) as (b). Former subsec. (b), which provided that the credit
allowed by subsec. (a) could not exceed the amount of the tax
imposed by this chapter for the taxable year reduced by the sum of
the credits allowable under sections 33, 37, 38, 40, 41, 42, and
44, was struck out.
Subsec. (c). Pub. L. 98-369, Sec. 474(c)(1), redesignated subsec.
(d) as (c). Former subsec. (c) redesignated (b).
Subsec. (d). Pub. L. 98-369, Sec. 474(c)(1), redesignated subsec.
(e) as (d). Former subsec. (d) redesignated (c).
Subsec. (d)(2). Pub. L. 98-369, Sec. 474(c)(4), substituted
"subsection (b)(1)(C)" for "subsection (c)(1)(C)" in introductory
provisions.
Subsec. (d)(2)(A). Pub. L. 98-369, Sec. 474(c)(5), substituted
"subsection (c)(1)" for "subsection (d)(1)".
Subsec. (d)(2)(B). Pub. L. 98-369, Sec. 474(c)(6), substituted
"subsection (c)(2)" for "subsection (d)(2).
Subsec. (e). Pub. L. 98-369, Sec. 474(c)(1), redesignated subsec.
(f) as (e). Former subsec. (e) redesignated (d).
Subsec. (e)(5). Pub. L. 98-369, Sec. 474(c)(7), substituted
"subsection (b)(1)" for "subsection (c)(1)" in provisions following
subpar. (B).
Pub. L. 98-369, Sec. 423(c)(4), amended par. (5) generally,
substituting subpars. (A) and (B) reading:
"(A) paragraph (2) or (4) of section 152(e) applies to any
child with respect to any calendar year, and
"(B) such child is under the age of 15 or is physically or
mentally incapable of caring for himself,"
for former provisions:
"(A) a child (as defined in section 151(e)(3)) who is under the
age of 15 or who is physically or mentally incapable of caring
for himself receives over half of his support during the calendar
year from his parents who are divorced or legally separated under
a decree of divorce or separate maintenance or who are separated
under a written separation agreement, and
"(B) such child is in the custody of one or both of his parents
for more than one-half of the calendar year."
and substituted in concluding text "(whichever is appropriate) with
respect to the custodial parent (within the meaning of section
152(e)(1)), and shall not be treated as a qualifying individual
with respect to the noncustodial parent" for ", as the case may be,
with respect to that parent who has custody for a longer period
during such calendar year than the other parent, and shall not be
treated as being a qualifying individual with respect to such other
parent."
Subsecs. (f), (g). Pub. L. 98-369, Sec. 474(c)(1), redesignated
subsecs. (f) and (g) as (e) and (f), respectively.
1983 - Subsec. (b)(2). Pub. L. 98-21 substituted "relating to
credit for the elderly and the permanently and totally disabled"
for "relating to credit for the elderly".
1981 - Subsec. (a). Pub. L. 97-34, Sec. 124(a), designated
existing provisions as par. (1), substituted "the applicable
percentage" for "20 percent" in par. (1) as so designated, and
added par. (2).
Subsec. (c)(2)(B). Pub. L. 97-34, Sec. 124(c), designated
existing provisions as cl. (i) and added cl. (ii).
Subsec. (c)(2)(C), (D). Pub. L. 97-34, Sec. 124(d), added
subpars. (C) and (D).
Subsec. (d)(1). Pub. L. 97-34, Sec. 124(b)(1)(A), substituted
"$2,400" for "$2,000".
Subsec. (d)(2). Pub. L. 97-34, Sec. 124(b)(1)(B), substituted
"$4,800" for "$4,000".
Subsec. (e)(2)(A). Pub. L. 97-34, Sec. 124(b)(2)(A), substituted
"$200" for "$166".
Subsec. (e)(2)(B). Pub. L. 97-34, Sec. 124(b)(2)(B), substituted
"$400" for "$333".
1978 - Subsec. (f)(6). Pub. L. 95-600 substituted provision
disallowing a credit for any amount paid by a taxpayer to an
individual with respect to whom, for the taxable year, a deduction
under section 151(e) is allowable either to the taxpayer or his
spouse or who is a child of the taxpayer who has not attained the
age of 19 at the close of the taxpayer year and defining "taxpayer
year" for provision disallowing a credit for any amount paid by the
taxpayer to an individual bearing a relationship described in
section 152(a)(1) through (8), or a dependent described in section
152(a)(9), except that a credit was allowed for an amount paid by a
taxpayer to an individual with respect to whom, for the taxable
year of the taxpayer in which the service was performed, neither
the taxpayer nor his spouse was entitled to a deduction under
section 151(e), provided the service constituted employment within
the meaning of section 3121(b).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-135, title IV, Sec. 404(d), Dec. 21, 2005, 119 Stat.
2634, provided that: "The amendments made by this section [amending
this section and sections 152 and 223 of this title] shall take
effect as if included in the provisions of the Working Families Tax
Relief Act of 2004 [Pub. L. 108-311] to which they relate."
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to taxable years
beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-311,
set out as a note under section 2 of this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 418(c), Mar. 9, 2002, 116 Stat.
58, provided that: "The amendments made by this section [amending
this section and sections 23 and 137 of this title] shall take
effect as if included in the provisions of the Economic Growth and
Tax Relief Reconciliation Act of 2001 [Pub. L. 107-16] to which
they relate."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title II, Sec. 204(c), June 7, 2001, 115 Stat.
50, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2002."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1615(d) of Pub. L. 104-188 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 151, 6109, 6213, and 6724 of this title]
shall apply with respect to returns the due date for which (without
regard to extensions) is on or after the 30th day after the date of
the enactment of this Act [Aug. 20, 1996].
"(2) Special rule for 1995 and 1996. - In the case of returns for
taxable years beginning in 1995 or 1996, a taxpayer shall not be
required by the amendments made by this section to provide a
taxpayer identification number for a child who is born after
October 31, 1995, in the case of a taxable year beginning in 1995
or November 30, 1996, in the case of a taxable year beginning in
1996."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 703(d) of Pub. L. 100-485 provided that: "The amendments
made by this section [amending this section and sections 129 and
6109 of this title] shall apply to taxable years beginning after
December 31, 1988."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10101(b) of Pub. L. 100-203, as amended by Pub. L. 100-
647, title II, Sec. 2004(a), Nov. 10, 1988, 102 Stat. 3598,
provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to expenses paid in taxable years
beginning after December 31, 1987.
"(2) Special rule for cafeteria plans. - For purposes of section
125 of the Internal Revenue Code of 1986, a plan shall not be
treated as failing to be a cafeteria plan solely because under the
plan a participant elected before January 1, 1988, to receive
reimbursement under the plan for dependent care assistance for
periods after December 31, 1987, and such assistance included
reimbursement for expenses at a camp where the dependent stays
overnight."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 423(c)(4) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1984, see section 423(d) of
Pub. L. 98-369, set out as a note under section 2 of this title.
Section 475(a) of Pub. L. 98-369 provided that: "The amendments
made by this title [probably means subtitle F (Secs. 471-475) of
title IV of Pub. L. 98-369, which enacted sections 25, 38, and 39
of this title, amended this section and sections 12, 15, 22 to 24,
27 to 35, 37, 39 to 41, 44A, 44C to 44H, 45 to 48, 51, 52, 55, 56,
86, 87, 103, 108, 129, 168, 196, 213, 280C, 381, 383, 401, 404,
409, 441, 527, 642, 691, 874, 882, 901, 904, 936, 1016, 1033, 1351,
1366, 1374, 1375, 1441, 1442, 1451, 3507, 6013, 6096, 6201, 6211,
6213, 6362, 6401, 6411, 6420, 6421, 6427, 6501, 6511, 7701, 7871,
9502, and 9503 of this title, repealed sections 38, 40, 44, 44B,
50A, 50B, and 53 of this title, and enacted provisions set out as
notes under sections 30, 33, 46, and 48 of this title] shall apply
to taxable years beginning after December 31, 1983, and to
carrybacks from such years."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 98-21 applicable to taxable years beginning
after Dec. 31, 1983, except that if an individual's annuity
starting date was deferred under section 105(d)(6) of this title as
in effect on the day before Apr. 20, 1983, such deferral shall end
on the first day of such individual's first taxable year beginning
after Dec. 31, 1983, see section 122(d) of Pub. L. 98-21, set out
as a note under section 22 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 124(f) of Pub. L. 97-34 provided that:
"(1) Except as provided in paragraph (2), the amendments made by
this section [amending this section and enacting section 129 of
this title] shall apply to taxable years beginning after December
31, 1981.
"(2) The amendments made by subsection (e)(2) [amending sections
3121, 3306, and 3401 of this title and section 409 of Title 42, The
Public Health and Welfare] shall apply to remuneration paid after
December 31, 1981."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 121(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1978."
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1975, see section 508 of Pub. L. 94-455, set out as an Effective
Date of 1976 Amendment note under section 3 of this title.
PROGRAM TO INCREASE PUBLIC AWARENESS
Pub. L. 101-508, title XI, Sec. 11114, Nov. 5, 1990, 104 Stat.
1388-414, provided that: "Not later than the first calendar year
following the date of the enactment of this subtitle [Nov. 5,
1990], the Secretary of the Treasury, or the Secretary's delegate,
shall establish a taxpayer awareness program to inform the
taxpaying public of the availability of the credit for dependent
care allowed under section 21 of the Internal Revenue Code of 1986
and the earned income credit and child health insurance under
section 32 of such Code. Such public awareness program shall be
designed to assure that individuals who may be eligible are
informed of the availability of such credit and filing procedures.
The Secretary shall use appropriate means of communication to carry
out the provisions of this section."
-End-
-CITE-
26 USC Sec. 22 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart A - Nonrefundable Personal Credits
-HEAD-
Sec. 22. Credit for the elderly and the permanently and totally
disabled
-STATUTE-
(a) General rule
In the case of a qualified individual, there shall be allowed as
a credit against the tax imposed by this chapter for the taxable
year an amount equal to 15 percent of such individual's section 22
amount for such taxable year.
(b) Qualified individual
For purposes of this section, the term "qualified individual"
means any individual -
(1) who has attained age 65 before the close of the taxable
year, or
(2) who retired on disability before the close of the taxable
year and who, when he retired, was permanently and totally
disabled.
(c) Section 22 amount
For purposes of subsection (a) -
(1) In general
An individual's section 22 amount for the taxable year shall be
the applicable initial amount determined under paragraph (2),
reduced as provided in paragraph (3) and in subsection (d).
(2) Initial amount
(A) In general
Except as provided in subparagraph (B), the initial amount
shall be -
(i) $5,000 in the case of a single individual, or a joint
return where only one spouse is a qualified individual,
(ii) $7,500 in the case of a joint return where both
spouses are qualified individuals, or
(iii) $3,750 in the case of a married individual filing a
separate return.
(B) Limitation in case of individuals who have not attained age
65
(i) In general
In the case of a qualified individual who has not attained
age 65 before the close of the taxable year, except as
provided in clause (ii), the initial amount shall not exceed
the disability income for the taxable year.
(ii) Special rules in case of joint return
In the case of a joint return where both spouses are
qualified individuals and at least one spouse has not
attained age 65 before the close of the taxable year -
(I) if both spouses have not attained age 65 before the
close of the taxable year, the initial amount shall not
exceed the sum of such spouses' disability income, or
(II) if one spouse has attained age 65 before the close
of the taxable year, the initial amount shall not exceed
the sum of $5,000 plus the disability income for the
taxable year of the spouse who has not attained age 65
before the close of the taxable year.
(iii) Disability income
For purposes of this subparagraph, the term "disability
income" means the aggregate amount includable in the gross
income of the individual for the taxable year under section
72 or 105(a) to the extent such amount constitutes wages (or
payments in lieu of wages) for the period during which the
individual is absent from work on account of permanent and
total disability.
(3) Reduction
(A) In general
The reduction under this paragraph is an amount equal to the
sum of the amounts received by the individual (or, in the case
of a joint return, by either spouse) as a pension or annuity or
as a disability benefit -
(i) which is excluded from gross income and payable under -
(I) title II of the Social Security Act,
(II) the Railroad Retirement Act of 1974, or
(III) a law administered by the Veterans' Administration,
or
(ii) which is excluded from gross income under any
provision of law not contained in this title.
No reduction shall be made under clause (i)(III) for any amount
described in section 104(a)(4).
(B) Treatment of certain workmen's compensation benefits
For purposes of subparagraph (A), any amount treated as a
social security benefit under section 86(d)(3) shall be treated
as a disability benefit received under title II of the Social
Security Act.
(d) Adjusted gross income limitation
If the adjusted gross income of the taxpayer exceeds -
(1) $7,500 in the case of a single individual,
(2) $10,000 in the case of a joint return, or
(3) $5,000 in the case of a married individual filing a
separate return,
the section 22 amount shall be reduced by one-half of the excess of
the adjusted gross income over $7,500, $10,000, or $5,000, as the
case may be.
(e) Definitions and special rules
For purposes of this section -
(1) Married couple must file joint return
Except in the case of a husband and wife who live apart at all
times during the taxable year, if the taxpayer is married at the
close of the taxable year, the credit provided by this section
shall be allowed only if the taxpayer and his spouse file a joint
return for the taxable year.
(2) Marital status
Marital status shall be determined under section 7703.
(3) Permanent and total disability defined
An individual is permanently and totally disabled if he is
unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which
can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12
months. An individual shall not be considered to be permanently
and totally disabled unless he furnishes proof of the existence
thereof in such form and manner, and at such times, as the
Secretary may require.
(f) Nonresident alien ineligible for credit
No credit shall be allowed under this section to any nonresident
alien.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 15, Sec. 37; Aug. 9, 1955, ch.
659, Sec. 1, 69 Stat. 591; Jan. 28, 1956, ch. 17, Sec. 1, 70 Stat.
8; Pub. L. 87-792, Sec. 7(a), Oct. 10, 1962, 76 Stat. 828; Pub. L.
87-876, Sec. 1, Oct. 24, 1962, 76 Stat. 1199; Pub. L. 88-272, title
I, Sec. 113(a), title II, Secs. 201(d)(3), 202(a), Feb. 26, 1964,
78 Stat. 24, 32, 33; Pub. L. 93-406, title II, Sec. 2002(g)(1),
Sept. 2, 1974, 88 Stat. 968; Pub. L. 94-455, title V, Sec. 503(a),
title XIX, Sec. 1901(c)(1), Oct. 4, 1976, 90 Stat. 1559, 1803; Pub.
L. 95-600, title VII, Secs. 701(a)(1)-(3), 703(j)(11), Nov. 6,
1978, 92 Stat. 2897, 2942; Pub. L. 96-222, title I, Sec.
107(a)(1)(E)(i), Apr. 1, 1980, 94 Stat. 222; Pub. L. 97-34, title
I, Sec. 111(b)(4), Aug. 13, 1981, 95 Stat. 194; Pub. L. 98-21,
title I, Sec. 122(a), Apr. 20, 1983, 97 Stat. 85; renumbered Sec.
22 and amended Pub. L. 98-369, div. A, title IV, Secs. 471(c),
474(d), July 18, 1984, 98 Stat. 826, 830; Pub. L. 99-514, title
XIII, Sec. 1301(j)(8), Oct. 22, 1986, 100 Stat. 2658.)
-REFTEXT-
REFERENCES IN TEXT
The Social Security Act, referred to in subsec. (c)(3)(A)(i)(I),
(B), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Title
II of the Social Security Act is classified generally to subchapter
II (Sec. 401 et seq.) of chapter 7 of Title 42, The Public Health
and Welfare. For complete classification of this Act to the Code,
see section 1305 of Title 42 and Tables.
The Railroad Retirement Act of 1974, referred to in subsec.
(c)(3)(A)(i)(II), is act Aug. 29, 1935, ch. 812, as amended
generally by Pub. L. 93-445, title I, Sec. 101, Oct. 16, 1974, 88
Stat. 1305, which is classified generally to subchapter IV (Sec.
231 et seq.) of chapter 9 of Title 45, Railroads. For further
details and complete classification of this Act to the Code, see
Codification note set out preceding section 231 of Title 45,
section 231t of Title 45, and Tables.
-MISC1-
AMENDMENTS
1986 - Subsec. (e)(2). Pub. L. 99-514 substituted "section 7703"
for "section 143".
1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 37 of this
title as this section.
Subsec. (a). Pub. L. 98-369, Sec. 474(d)(1), substituted "section
22 amount" for "section 37 amount".
Subsec. (c). Pub. L. 98-369, Sec. 474(d)(2), substituted "Section
22 amount" for "Section 37 amount" in heading.
Subsec. (c)(1). Pub. L. 98-369, Sec. 474(d)(1), substituted
"section 22 amount" for "section 37 amount".
Subsec. (d). Pub. L. 98-369, Sec. 474(d)(3), amended subsec. (d)
generally, striking out heading "Limitations" and designation "(1)"
before "Adjusted gross income limitation" thereby making existing
par. (1) the entire subsec. (d), redesignating existing subpars.
(A), (B), and (C) as pars. (1), (2), and (3), respectively, and
striking out provisions, formerly comprising par. (2), which had
limited the amount of the credit allowed by this section for the
taxable year to the amount of the tax imposed by this chapter for
such taxable year.
1983 - Pub. L. 98-21 inserted reference to permanently and
totally disabled in section catchline.
Subsec. (a). Pub. L. 98-21 amended subsec. (a) generally,
substituting reference to a qualified individual for reference to
an individual who has attained the age of 65 before the close of
the taxable year.
Subsec. (b). Pub. L. 98-21 in amending section generally added
subsec. (b). Former subsec. (b) redesignated (c).
Subsec. (c). Pub. L. 98-21 in amending section generally,
redesignated former subsec. (b) as (c) and, in (c) as so
redesignated, added par. (2) and struck out former (2), which had
provided that the initial amount was $2,500 in the case of a single
individual, $2,500 in the case of a joint return where only one
spouse was eligible for the credit under subsection (a), $3,750 in
the case of a joint return where both spouses were eligible for the
credit under subsection (a), or $1,875 in the case of a married
individual filing a separate return, redesignated existing
provisions as par. (3)(A), inserted "benefit" after "disability"
therein, struck out former subpars. (A) to (C), which had specified
sources of amounts received under title II of the Social Security
Act, under the Railroad Retirement Act of 1935 or 1937, or
otherwise excluded from gross income, added cls. (i) and (ii),
substituted provision that no reduction would be made under cl.
(i)(III) for any amount described in section 104(a)(4) for
provision that no reduction would be made under former par. (3) for
any amount excluded from gross income under section 72 (relating to
annuities), 101 (relating to life insurance proceeds), 104
(relating to compensation for injuries or sickness), 105 (relating
to amounts received under accident and health plans), 120 (relating
to amounts received under qualified group legal services plans),
402 (relating to taxability of beneficiary of employees' trust),
403 (relating to taxation of employee annuities), or 405 (relating
to qualified bond purchase plans), and added subpar. (B). Former
subsec. (c) redesignated (d).
Subsec. (d). Pub. L. 98-21 in amending section generally
redesignated former subsec. (c) as (d). Former subsec. (d)
redesignated (e).
Subsec. (e). Pub. L. 98-21 in amending section generally,
redesignated former subsec. (d) as (e) and struck out provision
that "joint return" meant the joint return of a husband and wife
made under section 6013 and inserted provisions defining permanent
and total disability. Former subsec. (e), which provided for an
election of prior law with respect to public retirement system
income, was struck out.
Subsec. (f). Pub. L. 98-21 reenacted subsec. (f) without change.
1981 - Subsec. (e)(9)(B). Pub. L. 97-34 substituted "section
911(d)(2)" for "section 911(b)".
1978 - Subsec. (e)(2). Pub. L. 95-600, Sec. 701(a)(1), inserted
"(and whose gross income includes income described in paragraph
(4)(B))" after "who has not attained age 65 before the close of the
taxable year".
Subsec. (e)(4)(B). Pub. L. 95-600, Sec. 701(a)(2), (3)(B), as
amended by Pub. L. 96-222, Sec. 107(a)(1)(E)(i), inserted "and who
performed the services giving rise to the pension or annuity (or is
the spouse of the individual who performed the services)" after
"before the close of the taxable year" and substituted reference to
paragraph (9)(A) for reference to paragraph (8)(A).
Subsec. (e)(5)(B). Pub. L. 95-600, Sec. 701(a)(3)(C), as amended
by Pub. L. 96-222, Sec. 107(a)(1)(E)(i), substituted reference to
paragraph (9)(A) for reference to paragraph (8)(A).
Subsec. (e)(8), (9). Pub. L. 95-600, Sec. 701(a)(3)(A), as
amended by Pub. L. 96-222, Sec. 107(a)(1)(E)(i), added par. (8) and
redesignated former par. (8) as (9).
1976 - Pub. L. 94-455, Sec. 503(a), among other changes,
substituted "Credits for the elderly" for "Retirement income" in
section catchline and in text substituted provisions permitting
taxpayers who have all types of income to be eligible for the tax
credit for provisions permitting taxpayers who have only retirement
income to be eligible for the tax credit, eliminated provisions
requiring taxpayers to earn $600 for the previous ten years for tax
credit eligibility and provisions relating variations in treatment
of married couples, and inserted provisions broadening coverage of
the tax credit relief to low and middle income taxpayers.
Pub. L. 94-455, Sec. 1901(c)(1), purported to amend subsec. (f)
of this section by striking out "a Territory". The amendment could
not be executed in view of the prior general amendment of this
section by section 503(a) of Pub. L. 94-455. Section 1901(c)(1) was
repealed by section 703(j)(11) of Pub. L. 95-600.
1974 - Subsec. (c)(1)(E), (F). Pub. L. 93-406 inserted reference
in subpar. (E) to retirement bonds described in section 409 and
added subpar. (F).
1964 - Subsec. (a). Pub. L. 88-272, Secs. 113(a), 201(d)(3),
substituted "an amount equal to 17 percent, in the case of a
taxable year beginning in 1964, or 15 percent, in the case of a
taxable year beginning after December 31, 1964, of the amount
received by such individual as retirement income (as defined in
subsection (c) and as limited by subsection (d));" for "an amount
equal to the amount received by such individual as retirement
income (as defined in subsection (c) and as limited by subsection
(d)), multiplied by the rate provided in section 1 for the first
$2,000 of taxable income;", and struck out "section 34 (relating to
credit for dividends received by individuals)", before "and section
35".
Subsecs. (i), (j). Pub. L. 88-272, Sec. 202(a), added subsec. (i)
and redesignated former subsec. (i) as (j).
1962 - Subsec. (c)(1). Pub. L. 87-792 inserted provisions in
subpar. (A) requiring inclusion, in the case of an individual who
is, or has been, an employee within the meaning of section
401(c)(1), distributions by a trust described in section 401(a)
which is exempt from tax under section 501(a), and added subpar.
(E).
Subsec. (d). Pub. L. 87-876 increased the limit on retirement
income from $1,200 to $1,524, lowered the age requirement in par.
(2)(A) from 65 to 62, and substituted provisions in par. (2)(B)
which reduce the amount of retirement income for individuals who
reach age 62, by one-half the amount of earned income in excess of
$1,200 but not in excess of $1,700, and by the amount received over
$1,700, for provisions which reduced such income by the amount
earned over $1,200 by persons having reached age 65, and which
defined income as in subsec. (g) of this section.
1956 - Subsec. (d)(2). Act Jan. 28, 1956, reduced from 75 to 72
the age at which there will be no limitation on earned income and
increased from $900 to $1,200 the amount that an individual over 65
can earn without reducing the $1,200 on which the retirement credit
is computed.
1955 - Subsec. (f). Act Aug. 9, 1955, extended the retirement
income tax credit to members of the Armed Forces.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to bonds issued after Aug.
15, 1986, except as otherwise provided, see sections 1311 to 1318
of Pub. L. 99-514, set out as an Effective Date; Transitional Rules
note under section 141 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(d) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 122(d) of Pub. L. 98-21, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [amending
sections 37 [now 22], 41 [now 24], 44A [now 21], 46, 53, 85, 105,
128, 403, 415, 904, and 7871 of this title] shall apply to taxable
years beginning after December 31, 1983.
"(2) Transitional rule. - If an individual's annuity starting
date was deferred under section 105(d)(6) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] (as in effect on the day before
the date of the enactment of this section [Apr. 20, 1983]), such
deferral shall end on the first day of such individual's first
taxable year beginning after December 31, 1983."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable with respect to taxable
years beginning after Dec. 31, 1981, see section 115 of Pub. L. 97-
34, set out as a note under section 911 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 701(a)(4) of Pub. L. 95-600 provided that:
"(A) The amendments made by paragraphs (1) and (2) [amending this
section] shall apply to taxable years beginning after December 31,
1975.
"(B) The amendments made by paragraph (3) [amending this section]
shall apply to taxable years beginning after December 31, 1977."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1975, see section 508 of Pub. L. 94-
455, set out as a note under section 3 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by Pub. L. 93-406 effective Jan. 1, 1974, see section
2002(i)(2) of Pub. L. 93-406, set out as an Effective Date note
under section 4973 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 113(a) of Pub. L. 88-272, except for
purposes of section 21 [now 15] of this title, effective with
respect to taxable years beginning after Dec. 31, 1963, see section
131 of Pub. L. 88-272, set out as a note under section 1 of this
title.
Section 201(e) of Pub. L. 88-272 provided that: "The amendments
made by subsection (a) [amending section 34 of this title] shall
apply with respect to taxable years ending after December 31, 1963.
The amendment made by subsection (b) [repealing section 34 of this
title] shall apply with respect to taxable years ending after
December 31, 1964. The amendment made by subsection (c) [amending
section 116 of this title] shall apply with respect to taxable
years beginning after December 31, 1963. The amendments made by
subsection (d) [amending sections 35, 37 [now 22], 46, 116, 584,
642, 702, 854, 857, 871, 1375, and 6014 of this title] shall apply
with respect to dividends received after December 31, 1964, in
taxable years ending after such date".
Section 202(b) of Pub. L. 88-272 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1963."
EFFECTIVE DATE OF 1962 AMENDMENTS
Section 2 of Pub. L. 87-876 provided that: "The amendment made by
the first section of this Act [amending this section] shall apply
only to taxable years ending after the date of the enactment of
this Act [Oct. 24, 1962]."
Section 8 of Pub. L. 87-792 provided that: "The amendments made
by this Act [enacting sections 405 and 6047 of this title and
amending sections 37 [now 22], 62, 72, 101, 104, 105, 172, 401 to
404, 503, 805, 1361, 2039, 2517, 3306, 3401 and 7207 of this title]
shall apply to taxable years beginning after December 31, 1962."
EFFECTIVE DATE OF 1956 AMENDMENT
Section 2 of act Jan. 28, 1956, provided that: "The amendment
made by the first section of this Act [amending this section] shall
apply only with respect to taxable years beginning after December
31, 1955."
EFFECTIVE DATE OF 1955 AMENDMENT
Section 2 of act Aug. 9, 1955, provided that: "The amendment made
by this Act [amending this section] shall be applicable to taxable
years beginning after December 31, 1954."
DETERMINATION OF RETIREMENT INCOME CREDIT UNDER PROVISIONS AS THEY
EXISTED PRIOR TO AMENDMENT BY PUB. L. 94-455 ELECTION
Pub. L. 95-30, title IV, Sec. 403, May 23, 1977, 91 Stat. 155, as
amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that: "A taxpayer may elect (at such time and in such
manner as the Secretary of the Treasury or his delegate shall
prescribe) to determine the amount of his credit under section 37
[now 22] of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] for his first taxable year beginning in 1976 under the
provisions of such section as they existed before the amendment
made by section 503 of the Tax Reform Act of 1976 [Pub. L. 94-
455]."
-End-
-CITE-
26 USC Sec. 23 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart A - Nonrefundable Personal Credits
-HEAD-
Sec. 23. Adoption expenses
-STATUTE-
(a) Allowance of credit
(1) In general
In the case of an individual, there shall be allowed as a
credit against the tax imposed by this chapter the amount of the
qualified adoption expenses paid or incurred by the taxpayer.
(2) Year credit allowed
The credit under paragraph (1) with respect to any expense
shall be allowed -
(A) in the case of any expense paid or incurred before the
taxable year in which such adoption becomes final, for the
taxable year following the taxable year during which such
expense is paid or incurred, and
(B) in the case of an expense paid or incurred during or
after the taxable year in which such adoption becomes final,
for the taxable year in which such expense is paid or incurred.
(3) $10,000 credit for adoption of child with special needs
regardless of expenses
In the case of an adoption of a child with special needs which
becomes final during a taxable year, the taxpayer shall be
treated as having paid during such year qualified adoption
expenses with respect to such adoption in an amount equal to the
excess (if any) of $10,000 over the aggregate qualified adoption
expenses actually paid or incurred by the taxpayer with respect
to such adoption during such taxable year and all prior taxable
years.
(b) Limitations
(1) Dollar limitation
The aggregate amount of qualified adoption expenses which may
be taken into account under subsection (a) for all taxable years
with respect to the adoption of a child by the taxpayer shall not
exceed $10,000.
(2) Income limitation
(A) In general
The amount allowable as a credit under subsection (a) for any
taxable year (determined without regard to subsection (c))
shall be reduced (but not below zero) by an amount which bears
the same ratio to the amount so allowable (determined without
regard to this paragraph but with regard to paragraph (1)) as -
(i) the amount (if any) by which the taxpayer's adjusted
gross income exceeds $150,000, bears to
(ii) $40,000.
(B) Determination of adjusted gross income
For purposes of subparagraph (A), adjusted gross income shall
be determined without regard to sections 911, 931, and 933.
(3) Denial of double benefit
(A) In general
No credit shall be allowed under subsection (a) for any
expense for which a deduction or credit is allowed under any
other provision of this chapter.
(B) Grants
No credit shall be allowed under subsection (a) for any
expense to the extent that funds for such expense are received
under any Federal, State, or local program.
(4) Limitation based on amount of tax
In the case of a taxable year to which section 26(a)(2) does
not apply, the credit allowed under subsection (a) for any
taxable year shall not exceed the excess of -
(A) the sum of the regular tax liability (as defined in
section 26(b)) plus the tax imposed by section 55, over
(B) the sum of the credits allowable under this subpart
(other than this section) and section 27 for the taxable year.
(c) Carryforwards of unused credit
(1) Rule for years in which all personal credits allowed against
regular and alternative minimum tax
In the case of a taxable year to which section 26(a)(2)
applies, if the credit allowable under subsection (a) for any
taxable year exceeds the limitation imposed by section 26(a)(2)
for such taxable year reduced by the sum of the credits allowable
under this subpart (other than this section and sections 25D and
1400C), such excess shall be carried to the succeeding taxable
year and added to the credit allowable under subsection (a) for
such taxable year.
(2) Rule for other years
In the case of a taxable year to which section 26(a)(2) does
not apply, if the credit allowable under subsection (a) for any
taxable year exceeds the limitation imposed by subsection (b)(4)
for such taxable year, such excess shall be carried to the
succeeding taxable year and added to the credit allowable under
subsection (a) for such taxable year.
(3) Limitation
No credit may be carried forward under this subsection to any
taxable year following the fifth taxable year after the taxable
year in which the credit arose. For purposes of the preceding
sentence, credits shall be treated as used on a first-in first-
out basis.
(d) Definitions
For purposes of this section -
(1) Qualified adoption expenses
The term "qualified adoption expenses" means reasonable and
necessary adoption fees, court costs, attorney fees, and other
expenses -
(A) which are directly related to, and the principal purpose
of which is for, the legal adoption of an eligible child by the
taxpayer,
(B) which are not incurred in violation of State or Federal
law or in carrying out any surrogate parenting arrangement,
(C) which are not expenses in connection with the adoption by
an individual of a child who is the child of such individual's
spouse, and
(D) which are not reimbursed under an employer program or
otherwise.
(2) Eligible child
The term "eligible child" means any individual who -
(A) has not attained age 18, or
(B) is physically or mentally incapable of caring for
himself.
(3) Child with special needs
The term "child with special needs" means any child if -
(A) a State has determined that the child cannot or should
not be returned to the home of his parents,
(B) such State has determined that there exists with respect
to the child a specific factor or condition (such as his ethnic
background, age, or membership in a minority or sibling group,
or the presence of factors such as medical conditions or
physical, mental, or emotional handicaps) because of which it
is reasonable to conclude that such child cannot be placed with
adoptive parents without providing adoption assistance, and
(C) such child is a citizen or resident of the United States
(as defined in section 217(h)(3)).
(e) Special rules for foreign adoptions
In the case of an adoption of a child who is not a citizen or
resident of the United States (as defined in section 217(h)(3)) -
(1) subsection (a) shall not apply to any qualified adoption
expense with respect to such adoption unless such adoption
becomes final, and
(2) any such expense which is paid or incurred before the
taxable year in which such adoption becomes final shall be taken
into account under this section as if such expense were paid or
incurred during such year.
(f) Filing requirements
(1) Married couples must file joint returns
Rules similar to the rules of paragraphs (2), (3), and (4) of
section 21(e) shall apply for purposes of this section.
(2) Taxpayer must include TIN
(A) In general
No credit shall be allowed under this section with respect to
any eligible child unless the taxpayer includes (if known) the
name, age, and TIN of such child on the return of tax for the
taxable year.
(B) Other methods
The Secretary may, in lieu of the information referred to in
subparagraph (A), require other information meeting the
purposes of subparagraph (A), including identification of an
agent assisting with the adoption.
(g) Basis adjustments
For purposes of this subtitle, if a credit is allowed under this
section for any expenditure with respect to any property, the
increase in the basis of such property which would (but for this
subsection) result from such expenditure shall be reduced by the
amount of the credit so allowed.
(h) Adjustments for inflation
In the case of a taxable year beginning after December 31, 2002,
each of the dollar amounts in subsection (a)(3) and paragraphs (1)
and (2)(A)(i) of subsection (b) shall be increased by an amount
equal to -
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
determined by substituting "calendar year 2001" for "calendar
year 1992" in subparagraph (B) thereof.
If any amount as increased under the preceding sentence is not a
multiple of $10, such amount shall be rounded to the nearest
multiple of $10.
(i) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out this section and section 137, including
regulations which treat unmarried individuals who pay or incur
qualified adoption expenses with respect to the same child as 1
taxpayer for purposes of applying the dollar amounts in subsections
(a)(3) and (b)(1) of this section and in section 137(b)(1).
-SOURCE-
(Added Pub. L. 104-188, title I, Sec. 1807(a), Aug. 20, 1996, 110
Stat. 1899; amended Pub. L. 105-34, title XVI, Sec. 1601(h)(2)(A),
(B), Aug. 5, 1997, 111 Stat. 1092; Pub. L. 105-206, title VI, Secs.
6008(d)(6), 6018(f)(1), July 22, 1998, 112 Stat. 812, 823; Pub. L.
107-16, title II, Secs. 201(b)(2)(E), 202(a)(1), (b)(1)(A), (2)(A),
(c), (d)(1), (e)(1), (f)(1), (2)(A), June 7, 2001, 115 Stat. 46-49;
Pub. L. 107-147, title IV, Secs. 411(c)(1)(A)-(E), 418(a)(1), Mar.
9, 2002, 116 Stat. 45, 57; Pub. L. 109-58, title XIII, Sec.
1335(b)(1), Aug. 8, 2005, 119 Stat. 1036; Pub. L. 109-135, title
IV, Sec. 402(i)(3)(A), (4), Dec. 21, 2005, 119 Stat. 2612, 2615.)
-STATAMEND-
ADOPTION EXPENSES CREDIT ADJUSTMENT FOR TAX YEARS BEGINNING IN 2006
For inflation adjustment of maximum credit allowed in subsection
(a)(3) of this section for an adoption of a child with special
needs, maximum credit allowed in subsection (b)(1) of this section
for other adoptions, and the income limits for phaseout of adoption
credit in subsection (b)(2)(A) of this section, see section 3.03 of
Revenue Procedure 2005-70, set out as a note under section 1 of
this title.
AMENDMENT OF SECTION
For termination of amendment by section 402(i)(3)(H) of Pub. L.
109-135, see Effective and Termination Dates of 2005 Amendments
note below.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
PRIOR PROVISIONS
A prior section 23, added Pub. L. 95-618, title I, Sec. 101(a),
Nov. 9, 1978, 92 Stat. 3175, Sec. 44C; amended Pub. L. 96-223,
title II, Secs. 201, 202(a)-(d), 203(a), Apr. 2, 1980, 94 Stat.
256, 258; renumbered Sec. 23 and amended Pub. L. 98-369, div. A,
title IV, Secs. 471(c), 474(e), title VI, Sec. 612(e)(2), July 18,
1984, 98 Stat. 826, 831, 912, related to residential energy credit,
prior to repeal by Pub. L. 101-508, title XI, Sec. 11801(a)(1),
Nov. 5, 1990, 104 Stat. 1388-520.
AMENDMENTS
2005 - Subsec. (b)(4). Pub. L. 109-135, Sec. 402(i)(3)(A)(i),
(H), temporarily substituted "In the case of a taxable year to
which section 26(a)(2) does not apply, the credit" for "The credit"
in introductory provisions. See Effective and Termination Dates of
2005 Amendments note below.
Subsec. (c). Pub. L. 109-135, Sec. 402(i)(3)(A)(ii), (H),
temporarily reenacted heading without change and amended text
generally. Prior to amendment, text read as follows: "If the credit
allowable under subsection (a) for any taxable year exceeds the
limitation imposed by subsection (b)(4) for such taxable year, such
excess shall be carried to the succeeding taxable year and added to
the credit allowable under subsection (a) for such taxable year. No
credit may be carried forward under this subsection to any taxable
year following the fifth taxable year after the taxable year in
which the credit arose. For purposes of the preceding sentence,
credits shall be treated as used on a first-in first-out basis."
See Effective and Termination Dates of 2005 Amendments note below.
Pub. L. 109-58, Sec. 1335(b)(1), which directed amendment of
subsec. (c) by substituting "this section, section 25D, and section
1400C" for "this section and section 1400C", was repealed by Pub.
L. 109-135, Sec. 402(i)(4). See Effective and Termination Dates of
2005 Amendments notes below.
2002 - Subsec. (a)(1). Pub. L. 107-147, Sec. 411(c)(1)(A),
reenacted heading without change and amended text of par. (1)
generally. Prior to amendment, text read as follows: "In the case
of an individual, there shall be allowed as a credit against the
tax imposed by this chapter -
"(A) in the case of an adoption of a child other than a child
with special needs, the amount of the qualified adoption expenses
paid or incurred by the taxpayer, and
"(B) in the case of an adoption of a child with special needs,
$10,000."
Subsec. (a)(2). Pub. L. 107-147, Sec. 411(c)(1)(C), struck out
concluding provisions which read as follows: "In the case of the
adoption of a child with special needs, the credit allowed under
paragraph (1) shall be allowed for the taxable year in which the
adoption becomes final."
Subsec. (a)(3). Pub. L. 107-147, Sec. 411(c)(1)(B), added par.
(3).
Subsec. (b)(1). Pub. L. 107-147, Sec. 411(c)(1)(D), substituted
"subsection (a)" for "subsection (a)(1)(A)".
Subsec. (h). Pub. L. 107-147, Sec. 418(a)(1), substituted
"subsection (a)(3)" for "subsection (a)(1)(B)" in introductory
provisions and inserted concluding provisions.
Subsec. (i). Pub. L. 107-147, Sec. 411(c)(1)(E), substituted "the
dollar amounts in subsections (a)(3) and (b)(1)" for "the dollar
limitation in subsection (b)(1)".
2001 - Subsec. (a)(1). Pub. L. 107-16, Secs. 202(a)(1), 901,
temporarily amended heading and text of par. (1) generally. Prior
to amendment, text read as follows: "In the case of an individual,
there shall be allowed as a credit against the tax imposed by this
chapter the amount of the qualified adoption expenses paid or
incurred by the taxpayer." See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (a)(2). Pub. L. 107-16, Secs. 202(c), 901, temporarily
inserted concluding provisions. See Effective and Termination Dates
of 2001 Amendment note below.
Subsec. (b)(1). Pub. L. 107-16, Secs. 202(b)(1)(A), 901,
temporarily substituted "subsection (a)(1)(A)" for "subsection (a)"
and "$10,000" for "$5,000" and struck out "($6,000, in the case of
a child with special needs)" before period at end. See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (b)(2)(A)(i). Pub. L. 107-16, Secs. 202(b)(2)(A), 901,
temporarily substituted "$150,000" for "$75,000". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (b)(4). Pub. L. 107-16, Secs. 202(f)(1), 901, temporarily
added par. (4). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c). Pub. L. 107-16, Secs. 202(f)(2)(A), 901, temporarily
substituted "subsection (b)(4)" for "section 26(a)" and struck out
"reduced by the sum of the credits allowable under this subpart
(other than this section and sections 24 and 1400C)" before ", such
excess". See Effective and Termination Dates of 2001 Amendment note
below.
Pub. L. 107-16, Secs. 201(b)(2)(E), 901, temporarily substituted
"and sections 24 and 1400C" for "and section 1400C". See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (d)(2). Pub. L. 107-16, Secs. 202(d)(1), 901, temporarily
amended heading and text of par. (2) generally. Prior to amendment,
text read as follows: "The term 'eligible child' means any
individual -
"(A) who -
"(i) has not attained age 18, or
"(ii) is physically or mentally incapable of caring for
himself, and
"(B) in the case of qualified adoption expenses paid or
incurred after December 31, 2001, who is a child with special
needs."
See Effective and Termination Dates of 2001 Amendment note below.
Subsecs. (h), (i). Pub. L. 107-16, Secs. 202(e)(1), 901,
temporarily added subsec. (h) and redesignated former subsec. (h)
as (i). See Effective and Termination Dates of 2001 Amendment note
below.
1998 - Subsec. (b)(2)(A). Pub. L. 105-206, Sec. 6018(f)(1),
inserted "(determined without regard to subsection (c))" after "for
any taxable year" in introductory provisions.
Subsec. (c). Pub. L. 105-206, Sec. 6008(d)(6), inserted "and
section 1400C" after "other than this section".
1997 - Subsec. (a)(2). Pub. L. 105-34, Sec. 1601(h)(2)(A),
amended heading and text of par. (2) generally. Prior to amendment,
text read as follows: "The credit under paragraph (1) with respect
to any expense shall be allowed -
"(A) for the taxable year following the taxable year during
which such expense is paid or incurred, or
"(B) in the case of an expense which is paid or incurred during
the taxable year in which the adoption becomes final, for such
taxable year."
Subsec. (b)(2)(B). Pub. L. 105-34, Sec. 1601(h)(2)(B),
substituted "determined without regard to sections 911, 931, and
933." for "determined -
"(i) without regard to sections 911, 931, and 933, and
"(ii) after the application of sections 86, 135, 137, 219, and
469."
EFFECTIVE AND TERMINATION DATES OF 2005 AMENDMENTS
Pub. L. 109-135, title IV, Sec. 402(i)(3)(H), Dec. 21, 2005, 119
Stat. 2615, provided that: "The amendments made by this paragraph
[amending this section and sections 24, 25, 25B, 25D, 904, and
1400C of this title] (and each part thereof) shall be subject to
title IX of the Economic Growth and Tax Relief Reconciliation Act
of 2001 [Pub. L. 107-16, Sec. 901, set out as an Effective and
Termination Dates of 2001 Amendment note under section 1 of this
title] in the same manner as the provisions of such Act to which
such amendment (or part thereof) relates."
Pub. L. 109-135, title IV, Sec. 402(i)(4), Dec. 21, 2005, 119
Stat. 2615, struck out Pub. L. 109-58, Sec. 1335(b)(1)-(3), and
provided in part that: "The Internal Revenue Code of 1986 shall be
applied and administered as if the amendments made [by] such
paragraphs [amending this section and sections 25 and 1400C of this
title] had never been enacted."
Pub. L. 109-135, title IV, Sec. 402(m), Dec. 21, 2005, 119 Stat.
2615, provided that:
"(1) In general. - Except as provided in paragraphs (2) and (3),
the amendments made by this section [see Tables for classification]
shall take effect as if included in the provisions of the Energy
Policy Act of 2005 [Pub. L. 109-58] to which they relate.
"(2) Repeal of public utility holding company act of 1935. - The
amendments made by subsection (a) [amending sections 121, 246, 247,
1223, 1245, and 1250 of this title and repealing sections 1081 to
1083 of this title] shall not apply with respect to any transaction
ordered in compliance with the Public Utility Holding Company Act
of 1935 [15 U.S.C. 79 et seq.] before its repeal.
"(3) Coordination of personal credits. - The amendments made by
subsection (i)(3) [amending this section and sections 24, 25, 25B,
25D, 904, and 1400C of this title] shall apply to taxable years
beginning after December 31, 2005."
Pub. L. 109-58, title XIII, Sec. 1335(c), Aug. 8, 2005, 119 Stat.
1036, provided that: "The amendments made by this section [enacting
section 25D of this title and amending this section and sections
25, 1016, and 1400C of this title] shall apply to property placed
in service after December 31, 2005, in taxable years ending after
such date."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 411(c)(3), Mar. 9, 2002, 116
Stat. 46, provided that: "The amendments made by this subsection
[amending this section and section 137 of this title] shall apply
to taxable years beginning after December 31, 2002; except that the
amendments made by paragraphs (1)(C), (1)(D) [amending this
section], and (2)(B) [amending section 137 of this title] shall
apply to taxable years beginning after December 31, 2001."
Amendment by section 418(a)(1) of Pub. L. 107-147 effective as if
included in the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment
relates, see section 418(c) of Pub. L. 107-147, set out as a note
under section 21 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 108-311, title III, Sec. 312(b)(2), Oct. 4, 2004, 118
Stat. 1181, provided that: "The amendments made by sections 201(b),
202(f), and 618(b) of the Economic Growth and Tax Relief
Reconciliation Act of 2001 [Pub. L. 107-16, amending this section
and sections 24, 25, 25B, 26, 904, and 1400C of this title] shall
not apply to taxable years beginning during 2004 or 2005."
Pub. L. 107-147, title VI, Sec. 601(b)(2), Mar. 9, 2002, 116
Stat. 59, provided that: "The amendments made by sections 201(b),
202(f), and 618(b) of the Economic Growth and Tax Relief
Reconciliation Act of 2001 [Pub. L. 107-16, amending this section
and sections 24, 25, 25B, 26, 904, and 1400C of this title] shall
not apply to taxable years beginning during 2002 and 2003."
Amendment by section 201(b)(2)(E) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 201(e)(2)
of Pub. L. 107-16, set out as a note under section 24 of this
title.
Pub. L. 107-16, title II, Sec. 202(g), June 7, 2001, 115 Stat.
49, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
24, 26, 137, 904, and 1400C of this title] shall apply to taxable
years beginning after December 31, 2001.
"(2) Subsection (a). - The amendments made by subsection (a)
[amending this section and section 137 of this title] shall apply
to taxable years beginning after December 31, 2002."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-206, title VI, Sec. 6018(h), July 22, 1998, 112 Stat.
823, provided that: "The amendments made by this section [amending
this section and sections 219, 408, 414, and 679 of this title and
amending provisions set out as notes under sections 167 and 4091 of
this title] shall take effect as if included in the provisions of
the Small Business Job Protection Act of 1996 [Pub. L. 104-188] to
which they relate."
Amendment by section 6008(d)(6) of Pub. L. 105-206 effective,
except as otherwise provided, as if included in the provisions of
the Taxpayer Relief Act of 1997, Pub. L. 105-34, to which such
amendment relates, see section 6024 of Pub. L. 105-206, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1601(j) of Pub. L. 105-34 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section, sections
30A, 52, 55, 137, 401, 403, 404, 408, 414, 512, 529, 593, 641, 679,
860L, 956, 1361, 1374, 4001, 4041, 4092, 4261, 6039D, 6048, 6050R,
6501, 6693, 7701, and 9503 of this title, section 1055 of Title 29,
Labor, and provisions set out as notes under sections 529 and 4091
of this title] shall take effect as if included in the provisions
of the Small Business Job Protection Act of 1996 [Pub. L. 104-188]
to which they relate.
"(2) Certain administrative requirements with respect to certain
pension plans. - The amendment made by subsection (d)(2)(D)
[amending section 401 of this title] shall apply to calendar years
beginning after the date of the enactment of this Act [Aug. 5,
1997]."
EFFECTIVE DATE
Section 1807(e) of Pub. L. 104-188 provided that: "The amendments
made by this section [enacting this section and section 137 of this
title, renumbering former section 137 of this title as section 138,
and amending sections 25, 86, 135, 219, 469, and 1016 of this
title] shall apply to taxable years beginning after December 31,
1996."
EXPENSES PAID OR INCURRED BEFORE 2002
Pub. L. 107-147, title IV, Sec. 411(c)(1)(F), Mar. 9, 2002, 116
Stat. 45, provided that: "Expenses paid or incurred during any
taxable year beginning before January 1, 2002, may be taken into
account in determining the credit under section 23 of the Internal
Revenue Code of 1986 only to the extent the aggregate of such
expenses does not exceed the applicable limitation under section
23(b)(1) of such Code as in effect on the day before the date of
the enactment of the Economic Growth and Tax Relief Reconciliation
Act of 2001 [June 7, 2001]."
TAX CREDIT AND GROSS INCOME EXCLUSION STUDY AND REPORT
Section 1807(d) of Pub. L. 104-188 provided that: "The Secretary
of the Treasury shall study the effect on adoptions of the tax
credit and gross income exclusion established by the amendments
made by this section [enacting this section and section 137 of this
title, renumbering former section 137 of this title as section 138,
and amending sections 25, 86, 135, 219, 469, and 1016 of this
title] and shall submit a report regarding the study to the
Committee on Finance of the Senate and the Committee on Ways and
Means of the House of Representatives not later than January 1,
2000."
-End-
-CITE-
26 USC Sec. 24 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart A - Nonrefundable Personal Credits
-HEAD-
Sec. 24. Child tax credit
-STATUTE-
(a) Allowance of credit
There shall be allowed as a credit against the tax imposed by
this chapter for the taxable year with respect to each qualifying
child of the taxpayer an amount equal to $1,000.
(b) Limitations
(1) Limitation based on adjusted gross income
The amount of the credit allowable under subsection (a) shall
be reduced (but not below zero) by $50 for each $1,000 (or
fraction thereof) by which the taxpayer's modified adjusted gross
income exceeds the threshold amount. For purposes of the
preceding sentence, the term "modified adjusted gross income"
means adjusted gross income increased by any amount excluded from
gross income under section 911, 931, or 933.
(2) Threshold amount
For purposes of paragraph (1), the term "threshold amount"
means -
(A) $110,000 in the case of a joint return,
(B) $75,000 in the case of an individual who is not married,
and
(C) $55,000 in the case of a married individual filing a
separate return.
For purposes of this paragraph, marital status shall be
determined under section 7703.
(3) Limitation based on amount of tax
In the case of a taxable year to which section 26(a)(2) does
not apply, the credit allowed under subsection (a) for any
taxable year shall not exceed the excess of -
(A) the sum of the regular tax liability (as defined in
section 26(b)) plus the tax imposed by section 55, over
(B) the sum of the credits allowable under this subpart
(other than this section and sections 23 and 25B) and section
27 for the taxable year.
(c) Qualifying child
For purposes of this section -
(1) In general
The term "qualifying child" means a qualifying child of the
taxpayer (as defined in section 152(c)) who has not attained age
17.
(2) Exception for certain noncitizens
The term "qualifying child" shall not include any individual
who would not be a dependent if subparagraph (A) of section
152(b)(3) were applied without regard to all that follows
"resident of the United States".
(d) Portion of credit refundable
(1) In general
The aggregate credits allowed to a taxpayer under subpart C
shall be increased by the lesser of -
(A) the credit which would be allowed under this section
without regard to this subsection and the limitation under
section 26(a)(2) or subsection (b)(3), as the case may be, or
(B) the amount by which the aggregate amount of credits
allowed by this subpart (determined without regard to this
subsection) would increase if the limitation imposed by section
26(a)(2) or subsection (b)(3), as the case may be, were
increased by the excess (if any) of -
(i) 15 percent of so much of the taxpayer's earned income
(within the meaning of section 32) which is taken into
account in computing taxable income for the taxable year as
exceeds $10,000, or
(ii) in the case of a taxpayer with 3 or more qualifying
children, the excess (if any) of -
(I) the taxpayer's social security taxes for the taxable
year, over
(II) the credit allowed under section (!1) for the
taxable year.
The amount of the credit allowed under this subsection shall not
be treated as a credit allowed under this subpart and shall
reduce the amount of credit otherwise allowable under subsection
(a) without regard to section 26(a)(2) or subsection (b)(3), as
the case may be. For purposes of subparagraph (B), any amount
excluded from gross income by reason of section 112 shall be
treated as earned income which is taken into account in computing
taxable income for the taxable year.
(2) Social security taxes
For purposes of paragraph (1) -
(A) In general
The term "social security taxes" means, with respect to any
taxpayer for any taxable year -
(i) the amount of the taxes imposed by sections 3101 and
3201(a) on amounts received by the taxpayer during the
calendar year in which the taxable year begins,
(ii) 50 percent of the taxes imposed by section 1401 on the
self-employment income of the taxpayer for the taxable year,
and
(iii) 50 percent of the taxes imposed by section 3211(a) on
amounts received by the taxpayer during the calendar year in
which the taxable year begins.
(B) Coordination with special refund of social security taxes
The term "social security taxes" shall not include any taxes
to the extent the taxpayer is entitled to a special refund of
such taxes under section 6413(c).
(C) Special rule
Any amounts paid pursuant to an agreement under section
3121(l) (relating to agreements entered into by American
employers with respect to foreign affiliates) which are
equivalent to the taxes referred to in subparagraph (A)(i)
shall be treated as taxes referred to in such subparagraph.
(3) Inflation adjustment
In the case of any taxable year beginning in a calendar year
after 2001, the $10,000 amount contained in paragraph (1)(B)
shall be increased by an amount equal to -
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
determined by substituting "calendar year 2000" for "calendar
year 1992" in subparagraph (B) thereof.
Any increase determined under the preceding sentence shall be
rounded to the nearest multiple of $50.
(e) Identification requirement
No credit shall be allowed under this section to a taxpayer with
respect to any qualifying child unless the taxpayer includes the
name and taxpayer identification number of such qualifying child on
the return of tax for the taxable year.
(f) Taxable year must be full taxable year
Except in the case of a taxable year closed by reason of the
death of the taxpayer, no credit shall be allowable under this
section in the case of a taxable year covering a period of less
than 12 months.
-SOURCE-
(Added Pub. L. 105-34, title I, Sec. 101(a), Aug. 5, 1997, 111
Stat. 796; amended Pub. L. 105-206, title VI, Sec. 6003(a), July
22, 1998, 112 Stat. 790; Pub. L. 105-277, div. J, title II, Sec.
2001(b), Oct. 21, 1998, 112 Stat. 2681-901; Pub. L. 106-170, title
V, Sec. 501(b)(1), Dec. 17, 1999, 113 Stat. 1919; Pub. L. 107-16,
title II, Secs. 201(a)-(b)(2)(C), (c)(1), (2), (d), 202(f)(2)(B),
title VI, Sec. 618(b)(2)(A), June 7, 2001, 115 Stat. 45-47, 49,
108; Pub. L. 107-90, title II, Sec. 204(e)(1), Dec. 21, 2001, 115
Stat. 893; Pub. L. 107-147, title IV, Secs. 411(b), 417(23)(A),
Mar. 9, 2002, 116 Stat. 45, 57; Pub. L. 108-27, title I, Sec.
101(a), May 28, 2003, 117 Stat. 753; Pub. L. 108-311, title I,
Secs. 101(a), 102(a), 104(a), title II, Sec. 204, title IV, Sec.
408(b)(4), Oct. 4, 2004, 118 Stat. 1167, 1168, 1176, 1192; Pub. L.
109-135, title IV, Sec. 402(i)(3)(B), Dec. 21, 2005, 119 Stat.
2613.)
-STATAMEND-
CHILD TAX CREDIT ADJUSTMENT FOR TAXABLE YEARS BEGINNING IN 2006
For inflation adjustment of value in subsection (d)(1)(B)(i) of
this section used in determining refundable amount for taxable
years beginning in 2006, see section 3.04 of Revenue Procedure 2005-
70, set out as a note under section 1 of this title.
AMENDMENT OF SECTION
For termination of amendment by section 402(i)(3)(H) of Pub. L.
109-135, see Effective and Termination Dates of 2005 Amendment note
below.
For termination of amendment by section 105 of Pub. L. 108-311,
see Effective and Termination Dates of 2004 Amendment note below.
For termination of amendment by section 107 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendments note below.
-MISC1-
PRIOR PROVISIONS
A prior section 24, added Pub. L. 92-178, title VII, Sec. 701(a),
Dec. 10, 1971, 85 Stat. 560, Sec. 41; amended Pub. L. 93-625, Secs.
11(a)-(c), (e), 12(a), Jan. 3, 1975, 88 Stat. 2119, 2120; Pub. L.
94-455, title V, Sec. 503(b)(4), title XIX, Secs. 1901(b)(1)(B),
(H)(ii), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1562, 1790, 1791,
1834; Pub. L. 95-600, title I, Sec. 113(c), Nov. 6, 1978, 92 Stat.
2778; Pub. L. 97-473, title II, Sec. 202(b)(1), Jan. 14, 1983, 96
Stat. 2609; Pub. L. 98-21, title I, Sec. 122(c)(1), Apr. 20, 1983,
97 Stat. 87; renumbered Sec. 24 and amended Pub. L. 98-369, div. A,
title IV, Secs. 471(c), 474(f), July 18, 1984, 98 Stat. 826, 831,
related to contributions to candidates for public office, prior to
repeal by Pub. L. 99-514, title I, Secs. 112(a), 151(a), Oct. 22,
1986, 100 Stat. 2108, 2121, applicable to taxable years beginning
after Dec. 31, 1986.
AMENDMENTS
2005 - Subsec. (b)(3). Pub. L. 109-135, Sec. 402(i)(3)(B)(i),
(H), temporarily substituted "In the case of a taxable year to
which section 26(a)(2) does not apply, the credit" for "The credit"
in introductory provisions. See Effective and Termination Dates of
2005 Amendment note below.
Subsec. (d)(1). Pub. L. 109-135, Sec. 402(i)(3)(B)(ii), (H),
temporarily reenacted heading without change and amended text
generally. Prior to amendment, text read as follows: "The aggregate
credits allowed to a taxpayer under subpart C shall be increased by
the lesser of -
"(A) the credit which would be allowed under this section
without regard to this subsection and the limitation under
subsection (b)(3), or
"(B) the amount by which the amount of credit allowed by this
section (determined without regard to this subsection) would
increase if the limitation imposed by subsection (b)(3) were
increased by the greater of -
"(i) 15 percent of so much of the taxpayer's earned income
(within the meaning of section 32) which is taken into account
in computing taxable income for the taxable year as exceeds
$10,000, or
"(ii) in the case of a taxpayer with 3 or more qualifying
children, the excess (if any) of -
"(I) the taxpayer's social security taxes for the taxable
year, over
"(II) the credit allowed under section 32 for the taxable
year.
The amount of the credit allowed under this subsection shall not be
treated as a credit allowed under this subpart and shall reduce the
amount of credit otherwise allowable under subsection (a) without
regard to subsection (b)(3). For purposes of subparagraph (B), any
amount excluded from gross income by reason of section 112 shall be
treated as earned income which is taken into account in computing
taxable income for the taxable year." See Effective and Termination
Dates of 2005 Amendment note below.
2004 - Subsec. (a). Pub. L. 108-311, Secs. 101(a), 105,
temporarily reenacted heading without change and amended text
generally, substituting provisions relating to $1,000 per year
credit per qualifying child for provisions relating to different
credit amounts for calendar years 2003 through 2010 or thereafter.
See Effective and Termination Dates of 2004 Amendment note below.
Subsec. (c)(1). Pub. L. 108-311, Sec. 204(a), reenacted heading
without change and amended text generally. Prior to amendment, text
read as follows: "The term 'qualifying child' means any individual
if -
"(A) the taxpayer is allowed a deduction under section 151 with
respect to such individual for the taxable year,
"(B) such individual has not attained the age of 17 as of the
close of the calendar year in which the taxable year of the
taxpayer begins, and
"(C) such individual bears a relationship to the taxpayer
described in section 32(c)(3)(B)."
Subsec. (c)(2). Pub. L. 108-311, Sec. 204(b), substituted
"subparagraph (A) of section 152(b)(3)" for "the first sentence of
section 152(b)(3)".
Subsec. (d)(1). Pub. L. 108-311, Secs. 104(a), 105, temporarily
inserted at end of concluding provisions "For purposes of
subparagraph (B), any amount excluded from gross income by reason
of section 112 shall be treated as earned income which is taken
into account in computing taxable income for the taxable year." See
Effective and Termination Dates of 2004 Amendment note below.
Subsec. (d)(1)(B)(i). Pub. L. 108-311, Secs. 102(a), 105,
temporarily struck out "(10 percent in the case of taxable years
beginning before January 1, 2005)" after "15 percent". See
Effective and Termination Dates of 2004 Amendment note below.
Subsec. (d)(2)(A)(iii). Pub. L. 108-311, Sec. 408(b)(4), amended
directory language of Pub. L. 107-90. See 2001 Amendment note
below.
2003 - Subsec. (a)(2). Pub. L. 108-27, Secs. 101(a), 107,
temporarily amended table by deleting items relating to calendar
years 2001 and 2002 and increasing per child amount from $600 to
$1,000 for calendar years 2003 or 2004. See Effective and
Termination Dates of 2003 Amendment note below.
2002 - Subsec. (b)(3)(B). Pub. L. 107-147, Sec. 417(23)(A),
amended directory language of Pub. L. 107-16, Sec. 618(b)(2)(A).
See 2001 Amendment note below.
Subsec. (d)(1)(B). Pub. L. 107-147, Sec. 411(b), substituted
"aggregate amount of credits allowed by this subpart" for "amount
of credit allowed by this section" in introductory provisions.
2001 - Subsec. (a). Pub. L. 107-16, Secs. 201(a), 901,
temporarily amended heading and text of subsec. (a) generally.
Prior to amendment, text read as follows: "There shall be allowed
as a credit against the tax imposed by this chapter for the taxable
year with respect to each qualifying child of the taxpayer an
amount equal to $500 ($400 in the case of taxable years beginning
in 1998)." See Effective and Termination Dates of 2001 Amendments
note below.
Subsec. (b). Pub. L. 107-16, Secs. 201(b)(2)(A), 901, temporarily
amended heading generally, substituting "Limitations" for
"Limitation based on adjusted gross income". See Effective and
Termination Dates of 2001 Amendments note below.
Subsec. (b)(1). Pub. L. 107-16, Secs. 201(b)(2)(B), 901,
temporarily amended heading generally, substituting "Limitation
based on adjusted gross income" for "In general". See Effective and
Termination Dates of 2001 Amendments note below.
Subsec. (b)(3). Pub. L. 107-16, Secs. 201(b)(1), 901, temporarily
added par. (3). See Effective and Termination Dates of 2001
Amendments note below.
Subsec. (b)(3)(B). Pub. L. 107-16, Secs. 618(b)(2)(A), 901, as
amended by Pub. L. 107-147, Sec. 417(23)(A), temporarily
substituted "sections 23 and 25B" for "section 23". See Effective
and Termination Dates of 2001 Amendments note below.
Pub. L. 107-16, Secs. 202(f)(2)(B), 901, temporarily substituted
"this section and section 23" for "this section". See Effective and
Termination Dates of 2001 Amendments note below.
Subsec. (d). Pub. L. 107-16, Secs. 201(c)(1), 901, temporarily
amended subsec. heading and heading and text of par. (1) generally.
Prior to amendment, text read as follows: "In the case of a
taxpayer with three or more qualifying children for any taxable
year, the aggregate credits allowed under subpart C shall be
increased by the lesser of -
"(A) the credit which would be allowed under this section
without regard to this subsection and the limitation under
section 26(a); or
"(B) the amount by which the aggregate amount of credits
allowed by this subpart (without regard to this subsection) would
increase if the limitation imposed by section 26(a) were
increased by the excess (if any) of -
"(i) the taxpayer's Social Security taxes for the taxable
year, over
"(ii) the credit allowed under section 32 (determined without
regard to subsection (n)) for the taxable year.
The amount of the credit allowed under this subsection shall not be
treated as a credit allowed under this subpart and shall reduce the
amount of credit otherwise allowable under subsection (a) without
regard to section 26(a)." See Effective and Termination Dates of
2001 Amendments note below.
Subsec. (d)(1). Pub. L. 107-16, Secs. 201(b)(2)(C)(i), 901,
temporarily substituted "subsection (b)(3)" for "section 26(a)"
wherever appearing in subsec. (d), as amended by Pub. L. 107-16,
Sec. 201(c). See Effective and Termination Dates of 2001 Amendments
note below.
Subsec. (d)(1)(B). Pub. L. 107-16, Secs. 201(b)(2)(C)(ii), 901,
temporarily substituted "amount of credit allowed by this section"
for "aggregate amount of credits allowed by this subpart" in
subpar. (B) as amended by Pub. L. 107-16, Sec. 201(c). See
Effective and Termination Dates of 2001 Amendments note below.
Subsec. (d)(2). Pub. L. 107-16, Secs. 201(d), 901, temporarily
redesignated par. (3) as (2) and struck out heading and text of
former par. (2). Text read as follows: "For taxable years beginning
after December 31, 2001, the credit determined under this
subsection for the taxable year shall be reduced by the excess (if
any) of -
"(A) the amount of tax imposed by section 55 (relating to
alternative minimum tax) with respect to such taxpayer for such
taxable year, over
"(B) the amount of the reduction under section 32(h) with
respect to such taxpayer for such taxable year." See Effective
and Termination Dates of 2001 Amendments note below.
Subsec. (d)(2)(A)(iii). Pub. L. 107-90, as amended by Pub. L. 108-
311, Sec. 408(b)(4), substituted "section 3211(a)" for "section
3211(a)(1)".
Subsec. (d)(3). Pub. L. 107-16, Secs. 201(d)(2), 901, temporarily
redesignated par. (4) as (3). Former par. (3) temporarily
redesignated (2). See Effective and Termination Dates of 2001
Amendments note below.
Subsec. (d)(4). Pub. L. 107-16, Secs. 201(c)(2), 901, temporarily
added par. (4). Former par. (4) temporarily redesignated (3). See
Effective and Termination Dates of 2001 Amendments note below.
1999 - Subsec. (d)(2). Pub. L. 106-170 substituted "2001" for
"1998" in introductory provisions.
1998 - Subsec. (d)(1). Pub. L. 105-206, Sec. 6003(a)(1)(C), added
par. (1) and struck out heading and text of former par. (1). Text
read as follows: "In the case of a taxpayer with 3 or more
qualifying children for any taxable year, the amount of the credit
allowed under this section shall be equal to the greater of -
"(A) the amount of the credit allowed under this section
(without regard to this subsection and after application of the
limitation under section 26), or
"(B) the alternative credit amount determined under paragraph
(2)."
Subsec. (d)(2). Pub. L. 105-277 substituted "For taxable years
beginning after December 31, 1998, the credit" for "The credit".
Pub. L. 105-206, Sec. 6003(a)(1)(C), added par. (2) and struck
out heading and text of former par. (2). Text read as follows: "For
purposes of this subsection, the alternative credit amount is the
amount of the credit which would be allowed under this section if
the limitation under paragraph (3) were applied in lieu of the
limitation under section 26."
Subsec. (d)(3). Pub. L. 105-206, Sec. 6003(a)(1)(A), (B), (2),
redesignated par. (5) as (3), substituted "paragraph (1)" for
"paragraph (3)" in introductory provisions, and struck out heading
and text of former par. (3). Text read as follows: "The limitation
under this paragraph for any taxable year is the limitation under
section 26 (without regard to this subsection) -
"(A) increased by the taxpayer's social security taxes for such
taxable year, and
"(B) reduced by the sum of -
"(i) the credits allowed under this part other than under
subpart C or this section, and
"(ii) the credit allowed under section 32 without regard to
subsection (m) thereof."
Subsec. (d)(4). Pub. L. 105-206, Sec. 6003(a)(1)(A), struck out
heading and text of par. (4). Text read as follows: "If the amount
of the credit under paragraph (1)(B) exceeds the amount of the
credit under paragraph (1)(A), such excess shall be treated as a
credit to which subpart C applies. The rule of section 32(h) shall
apply to such excess."
Subsec. (d)(5). Pub. L. 105-206, Sec. 6003(a)(1)(B), redesignated
par. (5) as (3).
EFFECTIVE AND TERMINATION DATES OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 subject to title IX of the Economic
Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16,
Sec. 901, in the same manner as the provisions of such Act to which
such amendment relates, see section 402(i)(3)(H) of Pub. L. 109-
135, set out as a note under section 23 of this title.
Amendment by Pub. L. 109-135 effective as if included in the
provisions of the Energy Policy Act of 2005, Pub. L. 109-58, to
which it relates and applicable to taxable years beginning after
Dec. 31, 2005, see section 402(m) of Pub. L. 109-135, set out as a
note under section 23 of this title.
EFFECTIVE AND TERMINATION DATES OF 2004 AMENDMENT
Amendment by section 101(a) of Pub. L. 108-311 applicable to
taxable years beginning after Dec. 31, 2003, see section 101(e) of
Pub. L. 108-311, set out as a note under section 1 of this title.
Pub. L. 108-311, title I, Sec. 102(b), Oct. 4, 2004, 118 Stat.
1168, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2003."
Pub. L. 108-311, title I, Sec. 104(c)(1), Oct. 4, 2004, 118 Stat.
1169, provided that: "The amendment made by subsection (a)
[amending this section] shall apply to taxable years beginning
after December 31, 2003."
Amendment by title I of Pub. L. 108-311 subject to title IX of
the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub.
L. 107-16, Sec. 901, to the same extent and in the same manner as
the provisions of such Act to which such amendments relate, see
section 105 of Pub. L. 108-311, set out as a note under section 1
of this title.
Amendment by section 204 of Pub. L. 108-311 applicable to taxable
years beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-
311, set out as a note under section 2 of this title.
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Pub. L. 108-27, title I, Sec. 101(c), May 28, 2003, 117 Stat.
754, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting section 6429 of this
title and amending this section] shall apply to taxable years
beginning after December 31, 2002.
"(2) Subsection (b). - The amendments made by subsection (b)
[enacting section 6429 of this title] shall take effect on the date
of the enactment of this Act [May 28, 2003]."
Amendments by title I of Pub. L. 108-27 subject to title IX of
the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub.
L. 107-16, Sec. 901, to the same extent and in the same manner as
the provisions of such Act to which such amendments relate, see
section 107 of Pub. L. 108-27, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by section 411(b) of Pub. L. 107-147 effective as if
included in the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment
relates, see section 411(x) of Pub. L. 107-147, set out as a note
under section 25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENTS
Amendment by sections 201(b), 202(f), and 618(b) of Pub. L. 107-
16 inapplicable to taxable years beginning during 2004 or 2005,
see section 312(b)(2) of Pub. L. 108-311, set out as a note under
section 23 of this title.
Amendment by sections 201(b), 202(f), and 618(b) of Pub. L. 107-
16 inapplicable to taxable years beginning during 2002 and 2003,
see section 601(b)(2) of Pub. L. 107-147, set out as a note under
section 23 of this title.
Pub. L. 107-90, title II, Sec. 204(f), Dec. 21, 2001, 115 Stat.
893, provided that: "The amendments made by this section [enacting
subchapter E of chapter 22 of this title and amending this section
and sections 72, 3201, 3211, 3221, and 3231 of this title] shall
apply to calendar years beginning after December 31, 2001."
Pub. L. 107-16, title II, Sec. 201(e), June 7, 2001, 115 Stat.
47, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
23, 25, 26, 32, 904, and 1400C of this title] shall apply to
taxable years beginning after December 31, 2000.
"(2) Subsection (b). - The amendments made by subsection (b)
[amending this section and sections 23, 25, 26, 904, and 1400C of
this title] shall apply to taxable years beginning after December
31, 2001."
Amendment by section 202(f)(2)(B) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 202(g)(1)
of Pub. L. 107-16, set out as a note under section 23 of this
title.
Pub. L. 107-16, title VI, Sec. 618(d), June 7, 2001, 115 Stat.
108, provided that: "The amendments made by this section [enacting
section 25B of this title and amending this section and sections
25, 25B, 26, 904, and 1400C of this title] shall apply to taxable
years beginning after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 501(c), Dec. 17, 1999, 113 Stat.
1919, provided that: "The amendments made by this section [amending
this section and sections 26 and 904 of this title] shall apply to
taxable years beginning after December 31, 1998."
EFFECTIVE DATE OF 1998 AMENDMENTS
Pub. L. 105-277, div. J, title II, Sec. 2001(c), Oct. 21, 1998,
112 Stat. 2681-901, provided that: "The amendments made by this
section [amending this section and section 26 of this title] shall
apply to taxable years beginning after December 31, 1997."
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE
Section 101(e) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting this section and amending sections
32, 501, and 6213 of this title and section 1324 of Title 31, Money
and Finance] shall apply to taxable years beginning after December
31, 1997."
REFUNDS DISREGARDED IN ADMINISTRATION OF FEDERAL AND FEDERALLY
ASSISTED PROGRAMS
Pub. L. 107-16, title II, Sec. 203, June 7, 2001, 115 Stat. 49,
provided that: "Any payment considered to have been made to any
individual by reason of section 24 of the Internal Revenue Code of
1986, as amended by section 201, shall not be taken into account as
income and shall not be taken into account as resources for the
month of receipt and the following month, for purposes of
determining the eligibility of such individual or any other
individual for benefits or assistance, or the amount or extent of
benefits or assistance, under any Federal program or under any
State or local program financed in whole or in part with Federal
funds."
-FOOTNOTE-
(!1) So in original.
-End-
-CITE-
26 USC Sec. 25 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart A - Nonrefundable Personal Credits
-HEAD-
Sec. 25. Interest on certain home mortgages
-STATUTE-
(a) Allowance of credit
(1) In general
There shall be allowed as a credit against the tax imposed by
this chapter for the taxable year an amount equal to the product
of -
(A) the certificate credit rate, and
(B) the interest paid or accrued by the taxpayer during the
taxable year on the remaining principal of the certified
indebtedness amount.
(2) Limitation where credit rate exceeds 20 percent
(A) In general
If the certificate credit rate exceeds 20 percent, the amount
of the credit allowed to the taxpayer under paragraph (1) for
any taxable year shall not exceed $2,000.
(B) Special rule where 2 or more persons hold interests in
residence
If 2 or more persons hold interests in any residence, the
limitation of subparagraph (A) shall be allocated among such
persons in proportion to their respective interests in the
residence.
(b) Certificate credit rate; certified indebtedness amount
For purposes of this section -
(1) Certificate credit rate
The term "certificate credit rate" means the rate of the credit
allowable by this section which is specified in the mortgage
credit certificate.
(2) Certified indebtedness amount
The term "certified indebtedness amount" means the amount of
indebtedness which is -
(A) incurred by the taxpayer -
(i) to acquire the principal residence of the taxpayer,
(ii) as a qualified home improvement loan (as defined in
section 143(k)(4)) with respect to such residence, or
(iii) as a qualified rehabilitation loan (as defined in
section 143(k)(5)) with respect to such residence, and
(B) specified in the mortgage credit certificate.
(c) Mortgage credit certificate; qualified mortgage credit
certificate program
For purposes of this section -
(1) Mortgage credit certificate
The term "mortgage credit certificate" means any certificate
which -
(A) is issued under a qualified mortgage credit certificate
program by the State or political subdivision having the
authority to issue a qualified mortgage bond to provide
financing on the principal residence of the taxpayer,
(B) is issued to the taxpayer in connection with the
acquisition, qualified rehabilitation, or qualified home
improvement of the taxpayer's principal residence,
(C) specifies -
(i) the certificate credit rate, and
(ii) the certified indebtedness amount, and
(D) is in such form as the Secretary may prescribe.
(2) Qualified mortgage credit certificate program
(A) In general
The term "qualified mortgage credit certificate program"
means any program -
(i) which is established by a State or political
subdivision thereof for any calendar year for which it is
authorized to issue qualified mortgage bonds,
(ii) under which the issuing authority elects (in such
manner and form as the Secretary may prescribe) not to issue
an amount of private activity bonds which it may otherwise
issue during such calendar year under section 146,
(iii) under which the indebtedness certified by mortgage
credit certificates meets the requirements of the following
subsections of section 143 (as modified by subparagraph (B)
of this paragraph):
(I) subsection (c) (relating to residence requirements),
(II) subsection (d) (relating to 3-year requirement),
(III) subsection (e) (relating to purchase price
requirement),
(IV) subsection (f) (relating to income requirements),
(V) subsection (h) (relating to portion of loans required
to be placed in targeted areas), and
(VI) paragraph (1) of subsection (i) (relating to other
requirements),
(iv) under which no mortgage credit certificate may be
issued with respect to any residence any of the financing of
which is provided from the proceeds of a qualified mortgage
bond or a qualified veterans' mortgage bond,
(v) except to the extent provided in regulations, which is
not limited to indebtedness incurred from particular lenders,
(vi) except to the extent provided in regulations, which
provides that a mortgage credit certificate is not
transferrable, and
(vii) if the issuing authority allocates a block of
mortgage credit certificates for use in connection with a
particular development, which requires the developer to
furnish to the issuing authority and the homebuyer a
certificate that the price for the residence is no higher
than it would be without the use of a mortgage credit
certificate.
Under regulations, rules similar to the rules of subparagraphs
(B) and (C) of section 143(a)(2) shall apply to the
requirements of this subparagraph.
(B) Modifications of section 143
Under regulations prescribed by the Secretary, in applying
section 143 for purposes of subclauses (II), (IV), and (V) of
subparagraph (A)(iii) -
(i) each qualified mortgage certificate credit program
shall be treated as a separate issue,
(ii) the product determined by multiplying -
(I) the certified indebtedness amount of each mortgage
credit certificate issued under such program, by
(II) the certificate credit rate specified in such
certificate,
shall be treated as proceeds of such issue and the sum of
such products shall be treated as the total proceeds of such
issue, and
(iii) paragraph (1) of section 143(d) shall be applied by
substituting "100 percent" for "95 percent or more".
Clause (iii) shall not apply if the issuing authority submits a
plan to the Secretary for administering the 95-percent
requirement of section 143(d)(1) and the Secretary is satisfied
that such requirement will be met under such plan.
(d) Determination of certificate credit rate
For purposes of this section -
(1) In general
The certificate credit rate specified in any mortgage credit
certificate shall not be less than 10 percent or more than 50
percent.
(2) Aggregate limit on certificate credit rates
(A) In general
In the case of each qualified mortgage credit certificate
program, the sum of the products determined by multiplying -
(i) the certified indebtedness amount of each mortgage
credit certificate issued under such program, by
(ii) the certificate credit rate with respect to such
certificate,
shall not exceed 25 percent of the nonissued bond amount.
(B) Nonissued bond amount
For purposes of subparagraph (A), the term "nonissued bond
amount" means, with respect to any qualified mortgage credit
certificate program, the amount of qualified mortgage bonds
which the issuing authority is otherwise authorized to issue
and elects not to issue under subsection (c)(2)(A)(ii).
(e) Special rules and definitions
For purposes of this section -
(1) Carryforward of unused credit
(A) In general
If the credit allowable under subsection (a) for any taxable
year exceeds the applicable tax limit for such taxable year,
such excess shall be a carryover to each of the 3 succeeding
taxable years and, subject to the limitations of subparagraph
(B), shall be added to the credit allowable by subsection (a)
for such succeeding taxable year.
(B) Limitation
The amount of the unused credit which may be taken into
account under subparagraph (A) for any taxable year shall not
exceed the amount (if any) by which the applicable tax limit
for such taxable year exceeds the sum of -
(i) the credit allowable under subsection (a) for such
taxable year determined without regard to this paragraph, and
(ii) the amounts which, by reason of this paragraph, are
carried to such taxable year and are attributable to taxable
years before the unused credit year.
(C) Applicable tax limit
For purposes of this paragraph, the term "applicable tax
limit" means -
(i) in the case of a taxable year to which section 26(a)(2)
applies, the limitation imposed by section 26(a)(2) for the
taxable year reduced by the sum of the credits allowable
under this subpart (other than this section and sections 23,
25D, and 1400C), and
(ii) in the case of a taxable year to which section
26(a)(2) does not apply, the limitation imposed by section
26(a)(1) for the taxable year reduced by the sum of the
credits allowable under this subpart (other than this section
and sections 23, 24, 25B, 25D, and 1400C).
(2) Indebtedness not treated as certified where certain
requirements not in fact met
Subsection (a) shall not apply to any indebtedness if all the
requirements of subsection (c)(1), (d), (e), (f), and (i) of
section 143 and clauses (iv), (v), and (vii) of subsection
(c)(2)(A), were not in fact met with respect to such
indebtedness. Except to the extent provided in regulations, the
requirements described in the preceding sentence shall be treated
as met if there is a certification, under penalty of perjury,
that such requirements are met.
(3) Period for which certificate in effect
(A) In general
Except as provided in subparagraph (B), a mortgage credit
certificate shall be treated as in effect with respect to
interest attributable to the period -
(i) beginning on the date such certificate is issued, and
(ii) ending on the earlier of the date on which -
(I) the certificate is revoked by the issuing authority,
or
(II) the residence to which such certificate relates
ceases to be the principal residence of the individual to
whom the certificate relates.
(B) Certificate invalid unless indebtedness incurred within
certain period
A certificate shall not apply to any indebtedness which is
incurred after the close of the second calendar year following
the calendar year for which the issuing authority made the
applicable election under subsection (c)(2)(A)(ii).
(C) Notice to Secretary when certificate revoked
Any issuing authority which revokes any mortgage credit
certificate shall notify the Secretary of such revocation at
such time and in such manner as the Secretary shall prescribe
by regulations.
(4) Reissuance of mortgage credit certificates
The Secretary may prescribe regulations which allow the
administrator of a mortgage credit certificate program to reissue
a mortgage credit certificate specifying a certified mortgage
indebtedness that replaces the outstanding balance of the
certified mortgage indebtedness specified on the original
certificate to any taxpayer to whom the original certificate was
issued, under such terms and conditions as the Secretary
determines are necessary to ensure that the amount of the credit
allowable under subsection (a) with respect to such reissued
certificate is equal to or less than the amount of credit which
would be allowable under subsection (a) with respect to the
original certificate for any taxable year ending after such
reissuance.
(5) Public notice that certificates will be issued
At least 90 days before any mortgage credit certificate is to
be issued after a qualified mortgage credit certificate program,
the issuing authority shall provide reasonable public notice of -
(A) the eligibility requirements for such certificate,
(B) the methods by which such certificates are to be issued,
and
(C) such other information as the Secretary may require.
(6) Interest paid or accrued to related persons
No credit shall be allowed under subsection (a) for any
interest paid or accrued to a person who is a related person to
the taxpayer (within the meaning of section 144(a)(3)(A)).
(7) Principal residence
The term "principal residence" has the same meaning as when
used in section 121.
(8) Qualified rehabilitation and home improvement
(A) Qualified rehabilitation
The term "qualified rehabilitation" has the meaning given
such term by section 143(k)(5)(B).
(B) Qualified home improvement
The term "qualified home improvement" means an alteration,
repair, or improvement described in section 143(k)(4).
(9) Qualified mortgage bond
The term "qualified mortgage bond" has the meaning given such
term by section 143(a)(1).
(10) Manufactured housing
For purposes of this section, the term "single family
residence" includes any manufactured home which has a minimum of
400 square feet of living space and a minimum width in excess of
102 inches and which is of a kind customarily used at a fixed
location. Nothing in the preceding sentence shall be construed as
providing that such a home will be taken into account in making
determinations under section 143.
(f) Reduction in aggregate amount of qualified mortgage bonds which
may be issued where certain requirements not met
(1) In general
If for any calendar year any mortgage credit certificate
program which satisfies procedural requirements with respect to
volume limitations prescribed by the Secretary fails to meet the
requirements of paragraph (2) of subsection (d), such
requirements shall be treated as satisfied with respect to any
certified indebtedness of such program, but the applicable State
ceiling under subsection (d) of section 146 for the State in
which such program operates shall be reduced by 1.25 times the
correction amount with respect to such failure. Such reduction
shall be applied to such State ceiling for the calendar year
following the calendar year in which the Secretary determines the
correction amount with respect to such failure.
(2) Correction amount
(A) In general
For purposes of paragraph (1), the term "correction amount"
means an amount equal to the excess credit amount divided by
0.25.
(B) Excess credit amount
(i) In general
For purposes of subparagraph (A)(ii), the term "excess
credit amount" means the excess of -
(I) the credit amount for any mortgage credit certificate
program, over
(II) the amount which would have been the credit amount
for such program had such program met the requirements of
paragraph (2) of subsection (d).
(ii) Credit amount
For purposes of clause (i), the term "credit amount" means
the sum of the products determined under clauses (i) and (ii)
of subsection (d)(2)(A).
(3) Special rule for States having constitutional home rule
cities
In the case of a State having one or more constitutional home
rule cities (within the meaning of section 146(d)(3)(C)), the
reduction in the State ceiling by reason of paragraph (1) shall
be allocated to the constitutional home rule city, or to the
portion of the State not within such city, whichever caused the
reduction.
(4) Exception where certification program
The provisions of this subsection shall not apply in any case
in which there is a certification program which is designed to
ensure that the requirements of this section are met and which
meets such requirements as the Secretary may by regulations
prescribe.
(5) Waiver
The Secretary may waive the application of paragraph (1) in any
case in which he determines that the failure is due to reasonable
cause.
(g) Reporting requirements
Each person who makes a loan which is a certified indebtedness
amount under any mortgage credit certificate shall file a report
with the Secretary containing -
(1) the name, address, and social security account number of
the individual to which the certificate was issued,
(2) the certificate's issuer, date of issue, certified
indebtedness amount, and certificate credit rate, and
(3) such other information as the Secretary may require by
regulations.
Each person who issues a mortgage credit certificate shall file a
report showing such information as the Secretary shall by
regulations prescribe. Any such report shall be filed at such time
and in such manner as the Secretary may require by regulations.
(h) Regulations; contracts
(1) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section, including
regulations which may require recipients of mortgage credit
certificates to pay a reasonable processing fee to defray the
expenses incurred in administering the program.
(2) Contracts
The Secretary is authorized to enter into contracts with any
person to provide services in connection with the administration
of this section.
(i) Recapture of portion of Federal subsidy from use of mortgage
credit certificates
For provisions increasing the tax imposed by this chapter to
recapture a portion of the Federal subsidy from the use of
mortgage credit certificates, see section 143(m).
-SOURCE-
(Added Pub. L. 98-369, div. A, title VI, Sec. 612(a), July 18,
1984, 98 Stat. 905; amended Pub. L. 99-514, title XIII, Sec.
1301(f), title XVIII, Secs. 1862(a)-(d)(1), 1899A(1), Oct. 22,
1986, 100 Stat. 2655, 2883, 2884, 2958; Pub. L. 100-647, title I,
Sec. 1013(a)(25), (26), title IV, Sec. 4005(a)(2), (g)(7), Nov. 10,
1988, 102 Stat. 3543, 3645, 3651; Pub. L. 101-239, title VII, Sec.
7104(b), Dec. 19, 1989, 103 Stat. 2305; Pub. L. 101-508, title XI,
Sec. 11408(b), Nov. 5, 1990, 104 Stat. 1388-477; Pub. L. 102-227,
title I, Sec. 108(b), Dec. 11, 1991, 105 Stat. 1688; Pub. L. 103-
66, title XIII, Sec. 13141(b), Aug. 10, 1993, 107 Stat. 436; Pub.
L. 104-188, title I, Sec. 1807(c)(1), Aug. 20, 1996, 110 Stat.
1902; Pub. L. 105-34, title III, Sec. 312(d)(1), Aug. 5, 1997, 111
Stat. 839; Pub. L. 105-206, title VI, Sec. 6008(d)(7), July 22,
1998, 112 Stat. 812; Pub. L. 107-16, title II, Sec. 201(b)(2)(F),
title VI, Sec. 618(b)(2)(B), June 7, 2001, 115 Stat. 46, 108; Pub.
L. 109-58, title XIII, Sec. 1335(b)(2), Aug. 8, 2005, 119 Stat.
1036; Pub. L. 109-135, title IV, Sec. 402(i)(3)(C), (4), Dec. 21,
2005, 119 Stat. 2613, 2615.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 402(i)(3)(H) of Pub. L.
109-135, see Effective and Termination Dates of 2005 Amendments
note below.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
PRIOR PROVISIONS
A prior section 25 was renumbered section 26 of this title.
AMENDMENTS
2005 - Subsec. (e)(1)(C). Pub. L. 109-135, Sec. 402(i)(3)(C),
(H), temporarily reenacted heading without change and amended text
generally. Prior to amendment, text read as follows: "For purposes
of this paragraph, the term 'applicable tax limit' means the
limitation imposed by section 26(a) for the taxable year reduced by
the sum of the credits allowable under this subpart (other than
this section and sections 23, 24, 25B, and 1400C)." See Effective
and Termination Dates of 2005 Amendments notes below.
Pub. L. 109-58, Sec. 1335(b)(2), which directed amendment of
subpar. (C) by substituting "other than this section, section 23,
section 25D, and section 1400C" for "this section and sections 23
and 1400C", was repealed by Pub. L. 109-135, Sec. 402(i)(4). See
Effective and Termination Dates of 2005 Amendments notes below.
2001 - Subsec. (e)(1)(C). Pub. L. 107-16, Secs. 618(b)(2)(B),
901, temporarily inserted "25B," after "24,". See Effective and
Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 201(b)(2)(F), 901, temporarily inserted ",
24," after "sections 23". See Effective and Termination Dates of
2001 Amendment note below.
1998 - Subsec. (e)(1)(C). Pub. L. 105-206 substituted "sections
23 and 1400C" for "section 23".
1997 - Subsec. (e)(7). Pub. L. 105-34 substituted "section 121"
for "section 1034".
1996 - Subsec. (e)(1)(C). Pub. L. 104-188 inserted "and section
23" after "other than this section".
1993 - Subsecs. (h) to (j). Pub. L. 103-66 redesignated subsecs.
(i) and (j) as (h) and (i), respectively, and struck out heading
and text of former subsec. (h). Text read as follows: "No election
may be made under subsection (c)(2)(A)(ii) for any period after
June 30, 1992."
1991 - Subsec. (h). Pub. L. 102-227 substituted "June 30, 1992"
for "December 31, 1991".
1990 - Subsec. (h). Pub. L. 101-508 substituted "December 31,
1991" for "September 30, 1990".
1989 - Subsec. (h). Pub. L. 101-239 substituted "for any period
after September 30, 1990" for "for any calendar year after 1989".
1988 - Subsec. (c)(2)(A)(ii). Pub. L. 100-647, Sec. 1013(a)(25),
amended Pub. L. 99-514, Sec. 1301(f)(2)(C)(ii), see 1986 Amendment
note below.
Subsec. (h). Pub. L. 100-647, Sec. 4005(a)(2), substituted "1989"
for "1988".
Pub. L. 100-647, Sec. 1013(a)(26), substituted "1988" for "1987".
Subsec. (j). Pub. L. 100-647, Sec. 4005(g)(7), added subsec. (j).
1986 - Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 1862(d)(1),
substituted "paid or accrued" for "paid or incurred".
Subsec. (b)(2)(A)(ii). Pub. L. 99-514, Sec. 1301(f)(2)(A),
substituted "section 143(k)(4)" for "section 103A(l)(6)".
Subsec. (b)(2)(A)(iii). Pub. L. 99-514, Sec. 1301(f)(2)(B),
substituted "section 143(k)(5)" for "section 103A(l)(7)".
Subsec. (c)(2)(A). Pub. L. 99-514, Sec. 1301(f)(2)(E),
substituted "section 143(a)(2)" for "section 103A(c)(2)" in
provision following cl. (vii).
Pub. L. 99-514, Sec. 1862(b), inserted "Under regulations, rules
similar to the rules of subparagraphs (B) and (C) of section
103A(c)(2) shall apply to the requirements of this subparagraph."
Subsec. (c)(2)(A)(ii). Pub. L. 99-514, Sec. 1301(f)(2)(C)(ii), as
amended by Pub. L. 100-647, Sec. 1013(a)(25), substituted "private
activity bonds which it may otherwise issue during such calendar
year under section 146" for "qualified mortgage bonds which it may
otherwise issue during such calendar year under section 103A".
Subsec. (c)(2)(A)(iii). Pub. L. 99-514, Sec. 1301(f)(2)(C)(i),
substituted "section 143" for "section 103A" in introductory
provisions, added subcls. (I) to (VI), and struck out former
subcls. (I) to (V) which read as follows:
"(I) subsection (d) (relating to residence requirements),
"(II) subsection (e) (relating to 3-year requirement),
"(III) subsection (f) (relating to purchase price requirement),
"(IV) subsection (h) (relating to portion of loans required to be
placed in targeted areas), and
"(V) subsection (j), other than paragraph (2) thereof (relating
to other requirements),".
Subsec. (c)(2)(A)(iii)(V). Pub. L. 99-514, Sec. 1862(a),
substituted "subsection (j), other than paragraph (2) thereof" for
"paragraph (1) of subsection (j)".
Subsec. (c)(2)(B). Pub. L. 99-514, Sec. 1301(f)(2)(C)(i),
substituted in heading and introductory provisions "section 143"
for "section 103A".
Pub. L. 99-514, Sec. 1301(f)(2)(F), inserted in introductory
provisions reference to subcl. (V), added cl. (iii) and closing
provisions, and struck out former cl. (iii) and closing provisions
which read as follows:
"(iii) paragraph (1) of section 103A(e) shall be applied by
substituting '100 percent' for '90 percent or more'.
Clause (iii) shall not apply if the issuing authority submits a
plan to the Secretary for administering the 90-percent requirement
of section 103A(e)(1) and the Secretary is satisfied that such
requirement will be met under such plan."
Subsec. (d)(2)(A). Pub. L. 99-514, Sec. 1301(f)(1)(A),
substituted "25 percent" for "20 percent" in concluding provisions.
Subsec. (d)(3). Pub. L. 99-514, Sec. 1301(f)(2)(G), struck out
par. (3) "Additional limit in certain cases" which read as follows:
"In the case of a qualified mortgage credit certificate program in
a State which -
"(A) has a State ceiling (as defined in section 103A(g)(4)) for
the year an election is made that exceeds 20 percent of the
average annual aggregate principal amount of mortgages executed
during the immediately preceding 3 calendar years for single
family owner-occupied residences located within the jurisdiction
of such State, or
"(B) issued qualified mortgage bonds in an aggregate amount
less than $150,000,000 for calendar year 1983,
the certificate credit rate for any mortgage credit certificate
shall not exceed 20 percent unless the issuing authority submits a
plan to the Secretary to ensure that the weighted average of the
certificate credit rates in such mortgage credit certificate
program does not exceed 20 percent and the Secretary approves such
plan."
Subsec. (e)(1)(B). Pub. L. 99-514, Sec. 1862(c), amended subpar.
(B) generally. Prior to amendment, subpar. (B) "Limitations" read
as follows: "The amount of the unused credit which may be taken
into account under subparagraph (A) for any taxable year shall not
exceed the amount by which the applicable tax limit for such
taxable year exceeds the sum of the amounts which, by reason of
this paragraph, are carried to such taxable year and are
attributable to taxable years before the unused credit year."
Subsec. (e)(2). Pub. L. 99-514, Sec. 1301(f)(2)(H), substituted
"subsections (c)(1), (d), (e), (f), and (i) of section 143" for
"subsection (d)(1), (e), (f), and (j) of section 103A".
Subsec. (e)(6). Pub. L. 99-514, Sec. 1301(f)(2)(I), substituted
"section 144(a)(3)(A)" for "section 103(b)(6)(C)(i)".
Subsec. (e)(8)(A). Pub. L. 99-514, Sec. 1301(f)(2)(J),
substituted "section 143(k)(5)(B)" for "section 103A(l)(7)(B)".
Subsec. (e)(8)(B). Pub. L. 99-514, Sec. 1301(f)(2)(K),
substituted "section 143(k)(4)" for "section 103A(l)(6)".
Subsec. (e)(9). Pub. L. 99-514, Sec. 1301(f)(2)(L), substituted
"section 143(a)(1)" for "section 103A(c)(1)".
Subsec. (e)(10). Pub. L. 99-514, Sec. 1301(f)(2)(M), substituted
"section 143" for "section 103A".
Subsec. (f)(1). Pub. L. 99-514, Sec. 1301(f)(2)(N), substituted
"subsection (d) of section 146" for "paragraph (4) of section
103A(g)".
Subsec. (f)(2)(A). Pub. L. 99-514, Sec. 1301(f)(1)(B),
substituted "0.25" for "0.20".
Subsec. (f)(3). Pub. L. 99-514, Sec. 1301(f)(2)(O), substituted
"section 146(d)(3)(C)" for "section 103A(g)(5)(C)".
Subsec. (f)(4). Pub. L. 99-514, Sec. 1899A(1), substituted
"ensure" for "insure".
EFFECTIVE AND TERMINATION DATES OF 2005 AMENDMENTS
Amendment by section 402(i)(3)(C) of Pub. L. 109-135 subject to
title IX of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, Sec. 901, in the same manner as the
provisions of such Act to which such amendment relates, see section
402(i)(3)(H) of Pub. L. 109-135, set out as a note under section 23
of this title.
The Internal Revenue Code of 1986 to be applied and administered
as if the amendments made by section 1335(b)(1)-(3) of Pub. L. 109-
58 had never been enacted, see section 402(i)(4) of Pub. L. 109-
135, set out as a note under section 23 of this title.
Amendments by Pub. L. 109-135 effective as if included in the
provisions of the Energy Policy Act of 2005, Pub. L. 109-58, to
which they relate, except that amendment by section 402(i)(3)(C) of
Pub. L. 109-135 is applicable to taxable years beginning after Dec.
31, 2005, see section 402(m) of Pub. L. 109-135, set out as a note
under section 23 of this title.
Amendment by Pub. L. 109-58 applicable to property placed in
service after Dec. 31, 2005, in taxable years ending after such
date, see section 1335(c) of Pub. L. 109-58, set out as a note
under section 23 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 inapplicable to taxable years
beginning during 2004 or 2005, see section 312(b)(2) of Pub. L. 108-
311, set out as a note under section 23 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable years
beginning during 2002 and 2003, see section 601(b)(2) of Pub. L.
107-147, set out as a note under section 23 of this title.
Amendment by section 201(b)(2)(F) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 201(e)(2)
of Pub. L. 107-16, set out as a note under section 24 of this
title.
Amendment by section 618(b)(2)(B) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 618(d) of
Pub. L. 107-16, set out as a note under section 24 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to sales and exchanges
after May 6, 1997, with certain exceptions, see section 312(d) of
Pub. L. 105-34, set out as a note under section 121 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1996, see section 1807(e) of Pub. L. 104-
188, set out as an Effective Date note under section 23 of this
title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13141(f)(2) of Pub. L. 103-66 provided that: "The
amendment made by subsection (b) [amending this section] shall
apply to elections for periods after June 30, 1992."
EFFECTIVE DATE OF 1991 AMENDMENT
Section 108(c)(2) of Pub. L. 102-227 provided that: "The
amendment made by subsection (b) [amending this section] shall
apply to elections for periods after December 31, 1991."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to elections for periods
after Sept. 30, 1990, see section 11408(d)(2) of Pub. L. 101-508,
set out as a note under section 143 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1013(a)(25), (26) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 4005(a)(2) of Pub. L. 100-647 applicable to
bonds issued, and nonissued bond amounts elected, after Dec. 31,
1988, see section 4005(h)(1) of Pub. L. 100-647, set out as a note
under section 143 of this title.
Amendment by section 4005(g)(7) of Pub. L. 100-647 applicable to
financing provided, and mortgage credit certificates issued, after
Dec. 31, 1990, with certain exceptions, see section 4005(h)(3) of
Pub. L. 100-647, set out as a note under section 143 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1301(f)(1) of Pub. L. 99-514 applicable to
nonissued bond amounts elected after Aug. 15, 1986, and amendment
by section 1301(f)(2) of Pub. L. 99-514 applicable to certificates
issued with respect to nonissued bond amounts elected after Aug.
15, 1986, see section 1311(b) of Pub. L. 99-514, as amended, set
out as an Effective Date; Transitional Rules note under section 141
of this title.
Amendment by section 1862(a)-(d)(1) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE
Section 612(g) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting this
section and section 6708 of this title, redesignating former
section 25 as 26, and amending sections 23, 28 to 30, 38, 55, 103A,
163, 168, and 901 of this title] shall apply to interest paid or
accrued after December 31, 1984, on indebtedness incurred after
December 31, 1984.
"(2) Elections. - The amendments made by this section shall apply
to elections under section 25(c)(2)(A)(ii) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] (as added by this section) for
calendar years after 1983."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 25A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart A - Nonrefundable Personal Credits
-HEAD-
Sec. 25A. Hope and Lifetime Learning credits
-STATUTE-
(a) Allowance of credit
In the case of an individual, there shall be allowed as a credit
against the tax imposed by this chapter for the taxable year the
amount equal to the sum of -
(1) the Hope Scholarship Credit, plus
(2) the Lifetime Learning Credit.
(b) Hope Scholarship Credit
(1) Per student credit
In the case of any eligible student for whom an election is in
effect under this section for any taxable year, the Hope
Scholarship Credit is an amount equal to the sum of -
(A) 100 percent of so much of the qualified tuition and
related expenses paid by the taxpayer during the taxable year
(for education furnished to the eligible student during any
academic period beginning in such taxable year) as does not
exceed $1,000, plus
(B) 50 percent of such expenses so paid as exceeds $1,000 but
does not exceed the applicable limit.
(2) Limitations applicable to Hope Scholarship Credit
(A) Credit allowed only for 2 taxable years
An election to have this section apply with respect to any
eligible student for purposes of the Hope Scholarship Credit
under subsection (a)(1) may not be made for any taxable year if
such an election (by the taxpayer or any other individual) is
in effect with respect to such student for any 2 prior taxable
years.
(B) Credit allowed for year only if individual is at least 1/2
time student for portion of year
The Hope Scholarship Credit under subsection (a)(1) shall not
be allowed for a taxable year with respect to the qualified
tuition and related expenses of an individual unless such
individual is an eligible student for at least one academic
period which begins during such year.
(C) Credit allowed only for first 2 years of postsecondary
education
The Hope Scholarship Credit under subsection (a)(1) shall not
be allowed for a taxable year with respect to the qualified
tuition and related expenses of an eligible student if the
student has completed (before the beginning of such taxable
year) the first 2 years of postsecondary education at an
eligible educational institution.
(D) Denial of credit if student convicted of a felony drug
offense
The Hope Scholarship Credit under subsection (a)(1) shall not
be allowed for qualified tuition and related expenses for the
enrollment or attendance of a student for any academic period
if such student has been convicted of a Federal or State felony
offense consisting of the possession or distribution of a
controlled substance before the end of the taxable year with or
within which such period ends.
(3) Eligible student
For purposes of this subsection, the term "eligible student"
means, with respect to any academic period, a student who -
(A) meets the requirements of section 484(a)(1) of the Higher
Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on
the date of the enactment of this section, and
(B) is carrying at least 1/2 the normal full-time work load
for the course of study the student is pursuing.
(4) Applicable limit
For purposes of paragraph (1)(B), the applicable limit for any
taxable year is an amount equal to 2 times the dollar amount in
effect under paragraph (1)(A) for such taxable year.
(c) Lifetime Learning Credit
(1) Per taxpayer credit
The Lifetime Learning Credit for any taxpayer for any taxable
year is an amount equal to 20 percent of so much of the qualified
tuition and related expenses paid by the taxpayer during the
taxable year (for education furnished during any academic period
beginning in such taxable year) as does not exceed $10,000
($5,000 in the case of taxable years beginning before January 1,
2003).
(2) Special rules for determining expenses
(A) Coordination with Hope Scholarship
The qualified tuition and related expenses with respect to an
individual who is an eligible student for whom a Hope
Scholarship Credit under subsection (a)(1) is allowed for the
taxable year shall not be taken into account under this
subsection.
(B) Expenses eligible for Lifetime Learning Credit
For purposes of paragraph (1), qualified tuition and related
expenses shall include expenses described in subsection (f)(1)
with respect to any course of instruction at an eligible
educational institution to acquire or improve job skills of the
individual.
(d) Limitation based on modified adjusted gross income
(1) In general
The amount which would (but for this subsection) be taken into
account under subsection (a) for the taxable year shall be
reduced (but not below zero) by the amount determined under
paragraph (2).
(2) Amount of reduction
The amount determined under this paragraph is the amount which
bears the same ratio to the amount which would be so taken into
account as -
(A) the excess of -
(i) the taxpayer's modified adjusted gross income for such
taxable year, over
(ii) $40,000 ($80,000 in the case of a joint return), bears
to
(B) $10,000 ($20,000 in the case of a joint return).
(3) Modified adjusted gross income
The term "modified adjusted gross income" means the adjusted
gross income of the taxpayer for the taxable year increased by
any amount excluded from gross income under section 911, 931, or
933.
(e) Election not to have section apply
A taxpayer may elect not to have this section apply with respect
to the qualified tuition and related expenses of an individual for
any taxable year.
(f) Definitions
For purposes of this section -
(1) Qualified tuition and related expenses
(A) In general
The term "qualified tuition and related expenses" means
tuition and fees required for the enrollment or attendance of -
(i) the taxpayer,
(ii) the taxpayer's spouse, or
(iii) any dependent of the taxpayer with respect to whom
the taxpayer is allowed a deduction under section 151,
at an eligible educational institution for courses of
instruction of such individual at such institution.
(B) Exception for education involving sports, etc.
Such term does not include expenses with respect to any
course or other education involving sports, games, or hobbies,
unless such course or other education is part of the
individual's degree program.
(C) Exception for nonacademic fees
Such term does not include student activity fees, athletic
fees, insurance expenses, or other expenses unrelated to an
individual's academic course of instruction.
(2) Eligible educational institution
The term "eligible educational institution" means an
institution -
(A) which is described in section 481 of the Higher Education
Act of 1965 (20 U.S.C. 1088), as in effect on the date of the
enactment of this section, and
(B) which is eligible to participate in a program under title
IV of such Act.
(g) Special rules
(1) Identification requirement
No credit shall be allowed under subsection (a) to a taxpayer
with respect to the qualified tuition and related expenses of an
individual unless the taxpayer includes the name and taxpayer
identification number of such individual on the return of tax for
the taxable year.
(2) Adjustment for certain scholarships, etc.
The amount of qualified tuition and related expenses otherwise
taken into account under subsection (a) with respect to an
individual for an academic period shall be reduced (before the
application of subsections (b), (c), and (d)) by the sum of any
amounts paid for the benefit of such individual which are
allocable to such period as -
(A) a qualified scholarship which is excludable from gross
income under section 117,
(B) an educational assistance allowance under chapter 30, 31,
32, 34, or 35 of title 38, United States Code, or under chapter
1606 of title 10, United States Code, and
(C) a payment (other than a gift, bequest, devise, or
inheritance within the meaning of section 102(a)) for such
individual's educational expenses, or attributable to such
individual's enrollment at an eligible educational institution,
which is excludable from gross income under any law of the
United States.
(3) Treatment of expenses paid by dependent
If a deduction under section 151 with respect to an individual
is allowed to another taxpayer for a taxable year beginning in
the calendar year in which such individual's taxable year begins -
(A) no credit shall be allowed under subsection (a) to such
individual for such individual's taxable year, and
(B) qualified tuition and related expenses paid by such
individual during such individual's taxable year shall be
treated for purposes of this section as paid by such other
taxpayer.
(4) Treatment of certain prepayments
If qualified tuition and related expenses are paid by the
taxpayer during a taxable year for an academic period which
begins during the first 3 months following such taxable year,
such academic period shall be treated for purposes of this
section as beginning during such taxable year.
(5) Denial of double benefit
No credit shall be allowed under this section for any expense
for which a deduction is allowed under any other provision of
this chapter.
(6) No credit for married individuals filing separate returns
If the taxpayer is a married individual (within the meaning of
section 7703), this section shall apply only if the taxpayer and
the taxpayer's spouse file a joint return for the taxable year.
(7) Nonresident aliens
If the taxpayer is a nonresident alien individual for any
portion of the taxable year, this section shall apply only if
such individual is treated as a resident alien of the United
States for purposes of this chapter by reason of an election
under subsection (g) or (h) of section 6013.
(h) Inflation adjustments
(1) Dollar limitation on amount of credit
(A) In general
In the case of a taxable year beginning after 2001, each of
the $1,000 amounts under subsection (b)(1) shall be increased
by an amount equal to -
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year
begins, determined by substituting "calendar year 2000" for
"calendar year 1992" in subparagraph (B) thereof.
(B) Rounding
If any amount as adjusted under subparagraph (A) is not a
multiple of $100, such amount shall be rounded to the next
lowest multiple of $100.
(2) Income limits
(A) In general
In the case of a taxable year beginning after 2001, the
$40,000 and $80,000 amounts in subsection (d)(2) shall each be
increased by an amount equal to -
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year
begins, determined by substituting "calendar year 2000" for
"calendar year 1992" in subparagraph (B) thereof.
(B) Rounding
If any amount as adjusted under subparagraph (A) is not a
multiple of $1,000, such amount shall be rounded to the next
lowest multiple of $1,000.
(i) Regulations
The Secretary may prescribe such regulations as may be necessary
or appropriate to carry out this section, including regulations
providing for a recapture of the credit allowed under this section
in cases where there is a refund in a subsequent taxable year of
any amount which was taken into account in determining the amount
of such credit.
-SOURCE-
(Added Pub. L. 105-34, title II, Sec. 201(a), Aug. 5, 1997, 111
Stat. 799; amended Pub. L. 107-16, title IV, Sec. 401(g)(2)(A),
June 7, 2001, 115 Stat. 59.)
-STATAMEND-
INFLATION ADJUSTED ITEMS FOR TAXABLE YEARS BEGINNING IN 2006
For inflation adjustment of amounts in subsection (b)(1) of this
section used in determining Hope Scholarship Credit and amounts in
subsection (d)(2)(A)(ii) of this section used in determining
reduction in amount of credits otherwise allowable for taxable
years beginning in 2006, see section 3.05 of Revenue Procedure 2005-
70, set out as a note under section 1 of this title.
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section, referred to in
subsecs. (b)(3)(A) and (f)(2)(A), is the date of enactment of Pub.
L. 105-34 which was approved Aug. 5, 1997.
The Higher Education Act of 1965, referred to in subsec.
(f)(2)(B), is Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, as
amended. Title IV of the Act is classified generally to subchapter
IV (Sec. 1070 et seq.) of chapter 28 of Title 20, Education, and
part C (Sec. 2751 et seq.) of subchapter I of chapter 34 of Title
42, The Public Health and Welfare. For complete classification of
this Act to the Code, see Short Title note set out under section
1001 of Title 20 and Tables.
-MISC1-
AMENDMENTS
2001 - Subsec. (e). Pub. L. 107-16, Secs. 401(g)(2)(A), 901,
temporarily amended heading and text of subsec. (e) generally.
Prior to amendment, text read as follows:
"(1) In general. - No credit shall be allowed under subsection
(a) for a taxable year with respect to the qualified tuition and
related expenses of an individual unless the taxpayer elects to
have this section apply with respect to such individual for such
year.
"(2) Coordination with exclusions. - An election under this
subsection shall not take effect with respect to an individual for
any taxable year if any portion of any distribution during such
taxable year from an education individual retirement account is
excluded from gross income under section 530(d)(2)."
See Effective and Termination Dates of 2001 Amendment note below.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title IV, Sec. 401(h), June 7, 2001, 115 Stat.
60, provided that: "The amendments made by this section [amending
this section and sections 135, 530, and 4973 of this title] shall
apply to taxable years beginning after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE
Section 201(f) of Pub. L. 105-34 provided that:
"(1) In general. - The amendments made by this section [enacting
this section and section 6050S of this title and amending sections
135, 6213, and 6724 of this title] shall apply to expenses paid
after December 31, 1997 (in taxable years ending after such date),
for education furnished in academic periods beginning after such
date.
"(2) Lifetime learning credit. - Section 25A(a)(2) of the
Internal Revenue Code of 1986 shall apply to expenses paid after
June 30, 1998 (in taxable years ending after such date), for
education furnished in academic periods beginning after such
dates."
-End-
-CITE-
26 USC Sec. 25B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart A - Nonrefundable Personal Credits
-HEAD-
Sec. 25B. Elective deferrals and IRA contributions by certain
individuals
-STATUTE-
(a) Allowance of credit
In the case of an eligible individual, there shall be allowed as
a credit against the tax imposed by this subtitle for the taxable
year an amount equal to the applicable percentage of so much of the
qualified retirement savings contributions of the eligible
individual for the taxable year as do not exceed $2,000.
(b) Applicable percentage
For purposes of this section, the applicable percentage is the
percentage determined in accordance with the following table:
Adjusted Gross Income Applicable
Joint return Head of a household All other cases Percentage icable
Over Not over Over Not over Over Not over
--------------------------------------------------------------------
$30,000 $22,500 $15,000 50
30,000 32,500 22,500 24,375 15,000 16,250 20
32,500 50,000 24,375 37,500 16,250 25,000 10
50,000 37,500 25,000 0
--------------------------------------------------------------------
(c) Eligible individual
For purposes of this section -
(1) In general
The term "eligible individual" means any individual if such
individual has attained the age of 18 as of the close of the
taxable year.
(2) Dependents and full-time students not eligible
The term "eligible individual" shall not include -
(A) any individual with respect to whom a deduction under
section 151 is allowed to another taxpayer for a taxable year
beginning in the calendar year in which such individual's
taxable year begins, and
(B) any individual who is a student (as defined in section
152(f)(2)).
(d) Qualified retirement savings contributions
For purposes of this section -
(1) In general
The term "qualified retirement savings contributions" means,
with respect to any taxable year, the sum of -
(A) the amount of the qualified retirement contributions (as
defined in section 219(e)) made by the eligible individual,
(B) the amount of -
(i) any elective deferrals (as defined in section
402(g)(3)) of such individual, and
(ii) any elective deferral of compensation by such
individual under an eligible deferred compensation plan (as
defined in section 457(b)) of an eligible employer described
in section 457(e)(1)(A), and
(C) the amount of voluntary employee contributions by such
individual to any qualified retirement plan (as defined in
section 4974(c)).
(2) Reduction for certain distributions
(A) In general
The qualified retirement savings contributions determined
under paragraph (1) shall be reduced (but not below zero) by
the aggregate distributions received by the individual during
the testing period from any entity of a type to which
contributions under paragraph (1) may be made. The preceding
sentence shall not apply to the portion of any distribution
which is not includible in gross income by reason of a trustee-
to-trustee transfer or a rollover distribution.
(B) Testing period
For purposes of subparagraph (A), the testing period, with
respect to a taxable year, is the period which includes -
(i) such taxable year,
(ii) the 2 preceding taxable years, and
(iii) the period after such taxable year and before the due
date (including extensions) for filing the return of tax for
such taxable year.
(C) Excepted distributions
There shall not be taken into account under subparagraph (A) -
(i) any distribution referred to in section 72(p),
401(k)(8), 401(m)(6), 402(g)(2), 404(k), or 408(d)(4), and
(ii) any distribution to which section 408A(d)(3) applies.
(D) Treatment of distributions received by spouse of individual
For purposes of determining distributions received by an
individual under subparagraph (A) for any taxable year, any
distribution received by the spouse of such individual shall be
treated as received by such individual if such individual and
spouse file a joint return for such taxable year and for the
taxable year during which the spouse receives the distribution.
(e) Adjusted gross income
For purposes of this section, adjusted gross income shall be
determined without regard to sections 911, 931, and 933.
(f) Investment in the contract
Notwithstanding any other provision of law, a qualified
retirement savings contribution shall not fail to be included in
determining the investment in the contract for purposes of section
72 by reason of the credit under this section.
(g) Limitation based on amount of tax
In the case of a taxable year to which section 26(a)(2) does not
apply, the credit allowed under subsection (a) for the taxable year
shall not exceed the excess of -
(1) the sum of the regular tax liability (as defined in section
26(b)) plus the tax imposed by section 55, over
(2) the sum of the credits allowable under this subpart (other
than this section and section 23) and section 27 for the taxable
year.
(h) Termination
This section shall not apply to taxable years beginning after
December 31, 2006.
-SOURCE-
(Added and amended Pub. L. 107-16, title VI, Sec. 618(a), (b)(1),
June 7, 2001, 115 Stat. 106, 108; Pub. L. 107-147, title IV, Secs.
411(m), 417(1), Mar. 9, 2002, 116 Stat. 48, 56; Pub. L. 108-311,
title II, Sec. 207(4), Oct. 4, 2004, 118 Stat. 1177; Pub. L. 109-
135, title IV, Sec. 402(i)(3)(D), Dec. 21, 2005, 119 Stat. 2614.)
-STATAMEND-
TERMINATION OF SECTION
For termination of amendment by section 402(i)(3)(H) of Pub. L.
109-135, see Effective and Termination Dates of 2005 Amendment note
below.
For termination of section by section 901 of Pub. L. 107-16, see
Effective and Termination Dates note below.
-MISC1-
AMENDMENTS
2005 - Subsec. (g). Pub. L. 109-135, Sec. 402(i)(3)(D), (H),
temporarily substituted "In the case of a taxable year to which
section 26(a)(2) does not apply, the credit" for "The credit" in
introductory provisions. See Effective and Termination Dates of
2005 Amendment note below.
2004 - Subsec. (c)(2)(B). Pub. L. 108-311 substituted "152(f)(2)"
for "151(c)(4)".
2002 - Subsec. (d)(2)(A). Pub. L. 107-147, Sec. 411(m), reenacted
heading without change and amended text of subpar. (A) generally.
Prior to amendment, text read as follows: "The qualified retirement
savings contributions determined under paragraph (1) shall be
reduced (but not below zero) by the sum of -
"(i) any distribution from a qualified retirement plan (as
defined in section 4974(c)), or from an eligible deferred
compensation plan (as defined in section 457(b)), received by the
individual during the testing period which is includible in gross
income, and
"(ii) any distribution from a Roth IRA or a Roth account
received by the individual during the testing period which is not
a qualified rollover contribution (as defined in section 408A(e))
to a Roth IRA or a rollover under section 402(c)(8)(B) to a Roth
account."
Subsecs. (g), (h). Pub. L. 107-147, Sec. 417(1), redesignated
subsec. (g), relating to termination, as (h).
2001 - Subsec. (g). Pub. L. 107-16, Secs. 618(b)(1), 901,
temporarily added subsec. (g) relating to limitation based on
amount of tax. See Effective and Termination Dates note below.
EFFECTIVE AND TERMINATION DATES OF 2005 AMENDMENT
Amendment by section 402(i)(3)(D) of Pub. L. 109-135 subject to
title IX of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, Sec. 901, in the same manner as the
provisions of such Act to which such amendment relates, see section
402(i)(3)(H) of Pub. L. 109-135, set out as a note under section 23
of this title.
Amendment by Pub. L. 109-135 effective as if included in the
provisions of the Energy Policy Act of 2005, Pub. L. 109-58, to
which it relates and applicable to taxable years beginning after
Dec. 31, 2005, see section 402(m) of Pub. L. 109-135, set out as a
note under section 23 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to taxable years
beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-311,
set out as a note under section 2 of this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 411(x), Mar. 9, 2002, 116 Stat.
53, provided that: "Except as provided in subsection (c) [amending
sections 23 and 137 of this title and enacting provisions set out
as a note under section 23 of this title], the amendments made by
this section [amending this section, sections 23, 24, 38, 45E, 45F,
63, 137, 401 to 404, 408, 409, 412, 414 to 417, 457, 530, 2016,
2101, 2511, 4980F, and 6428 of this title, sections 1003, 1054,
1055, 1082, and 1104 of Title 29, Labor, and provisions set out as
notes under sections 38, 415, and 4980F of this title] shall take
effect as if included in the provisions of the Economic Growth and
Tax Relief Reconciliation Act of 2001 [Pub. L. 107-16] to which
they relate."
EFFECTIVE AND TERMINATION DATES
Amendment by section 618(b)(1) of Pub. L. 107-16 inapplicable to
taxable years beginning during 2004 or 2005, see section 312(b)(2)
of Pub. L. 108-311, set out as a note under section 23 of this
title.
Amendment by section 618(b)(1) of Pub. L. 107-16 inapplicable to
taxable years beginning during 2002 and 2003, see section 601(b)(2)
of Pub. L. 107-147, set out as an Effective and Termination Dates
of 2001 Amendment note under section 23 of this title.
Amendment by section 618(b)(1) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 618(d) of
Pub. L. 107-16, set out as an Effective and Termination Dates of
2001 Amendment note under section 24 of this title.
Section inapplicable to taxable, plan, or limitation years
beginning after Dec. 31, 2010, and the Internal Revenue Code of
1986 to be applied and administered to such years as if it had
never been enacted, see section 901 of Pub. L. 107-16, set out as
an Effective and Termination Dates of 2001 Amendment note under
section 1 of this title.
-End-
-CITE-
26 USC Sec. 25C 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart A - Nonrefundable Personal Credits
-HEAD-
Sec. 25C. Nonbusiness energy property
-STATUTE-
(a) Allowance of credit
In the case of an individual, there shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an
amount equal to the sum of -
(1) 10 percent of the amount paid or incurred by the taxpayer
for qualified energy efficiency improvements installed during
such taxable year, and
(2) the amount of the residential energy property expenditures
paid or incurred by the taxpayer during such taxable year.
(b) Limitations
(1) Lifetime limitation
The credit allowed under this section with respect to any
taxpayer for any taxable year shall not exceed the excess (if
any) of $500 over the aggregate credits allowed under this
section with respect to such taxpayer for all prior taxable
years.
(2) Windows
In the case of amounts paid or incurred for components
described in subsection (c)(2)(B) by any taxpayer for any taxable
year, the credit allowed under this section with respect to such
amounts for such year shall not exceed the excess (if any) of
$200 over the aggregate credits allowed under this section with
respect to such amounts for all prior taxable years.
(3) Limitation on residential energy property expenditures
The amount of the credit allowed under this section by reason
of subsection (a)(2) shall not exceed -
(A) $50 for any advanced main air circulating fan,
(B) $150 for any qualified natural gas, propane, or oil
furnace or hot water boiler, and
(C) $300 for any item of energy-efficient building property.
(c) Qualified energy efficiency improvements
For purposes of this section -
(1) In general
The term "qualified energy efficiency improvements" means any
energy efficient building envelope component which meets the
prescriptive criteria for such component established by the 2000
International Energy Conservation Code, as such Code (including
supplements) is in effect on the date of the enactment of this
section (or, in the case of a metal roof with appropriate
pigmented coatings which meet the Energy Star program
requirements), if -
(A) such component is installed in or on a dwelling unit
located in the United States and owned and used by the taxpayer
as the taxpayer's principal residence (within the meaning of
section 121),
(B) the original use of such component commences with the
taxpayer, and
(C) such component reasonably can be expected to remain in
use for at least 5 years.
(2) Building envelope component
The term "building envelope component" means -
(A) any insulation material or system which is specifically
and primarily designed to reduce the heat loss or gain of a
dwelling unit when installed in or on such dwelling unit,
(B) exterior windows (including skylights),
(C) exterior doors, and
(D) any metal roof installed on a dwelling unit, but only if
such roof has appropriate pigmented coatings which are
specifically and primarily designed to reduce the heat gain of
such dwelling unit.
(3) Manufactured homes included
The term "dwelling unit" includes a manufactured home which
conforms to Federal Manufactured Home Construction and Safety
Standards (section 3280 of title 24, Code of Federal
Regulations).
(d) Residential energy property expenditures
For purposes of this section -
(1) In general
The term "residential energy property expenditures" means
expenditures made by the taxpayer for qualified energy property
which is -
(A) installed on or in connection with a dwelling unit
located in the United States and owned and used by the taxpayer
as the taxpayer's principal residence (within the meaning of
section 121), and
(B) originally placed in service by the taxpayer.
Such term includes expenditures for labor costs properly
allocable to the onsite preparation, assembly, or original
installation of the property.
(2) Qualified energy property
(A) In general
The term "qualified energy property" means -
(i) energy-efficient building property,
(ii) a qualified natural gas, propane, or oil furnace or
hot water boiler, or
(iii) an advanced main air circulating fan.
(B) Performance and quality standards
Property described under subparagraph (A) shall meet the
performance and quality standards, and the certification
requirements (if any), which -
(i) have been prescribed by the Secretary by regulations
(after consultation with the Secretary of Energy or the
Administrator of the Environmental Protection Agency, as
appropriate), and
(ii) are in effect at the time of the acquisition of the
property, or at the time of the completion of the
construction, reconstruction, or erection of the property, as
the case may be.
(C) Requirements for standards
The standards and requirements prescribed by the Secretary
under subparagraph (B) -
(i) in the case of the energy efficiency ratio (EER) for
central air conditioners and electric heat pumps -
(I) shall require measurements to be based on published
data which is tested by manufacturers at 95 degrees
Fahrenheit, and
(II) may be based on the certified data of the Air
Conditioning and Refrigeration Institute that are prepared
in partnership with the Consortium for Energy Efficiency,
and
(ii) in the case of geothermal heat pumps -
(I) shall be based on testing under the conditions of
ARI/ISO Standard 13256-1 for Water Source Heat Pumps or ARI
870 for Direct Expansion GeoExchange Heat Pumps (DX), as
appropriate, and
(II) shall include evidence that water heating services
have been provided through a desuperheater or integrated
water heating system connected to the storage water heater
tank.
(3) Energy-efficient building property
The term "energy-efficient building property" means -
(A) an electric heat pump water heater which yields an energy
factor of at least 2.0 in the standard Department of Energy
test procedure,
(B) an electric heat pump which has a heating seasonal
performance factor (HSPF) of at least 9, a seasonal energy
efficiency ratio (SEER) of at least 15, and an energy
efficiency ratio (EER) of at least 13,
(C) a geothermal heat pump which -
(i) in the case of a closed loop product, has an energy
efficiency ratio (EER) of at least 14.1 and a heating
coefficient of performance (COP) of at least 3.3,
(ii) in the case of an open loop product, has an energy
efficiency ratio (EER) of at least 16.2 and a heating
coefficient of performance (COP) of at least 3.6, and
(iii) in the case of a direct expansion (DX) product, has
an energy efficiency ratio (EER) of at least 15 and a heating
coefficient of performance (COP) of at least 3.5,
(D) a central air conditioner which achieves the highest
efficiency tier established by the Consortium for Energy
Efficiency, as in effect on January 1, 2006, and
(E) a natural gas, propane, or oil water heater which has an
energy factor of at least 0.80.
(4) Qualified natural gas, propane, or oil furnace or hot water
boiler
The term "qualified natural gas, propane, or oil furnace or hot
water boiler" means a natural gas, propane, or oil furnace or hot
water boiler which achieves an annual fuel utilization efficiency
rate of not less than 95.
(5) Advanced main air circulating fan
The term "advanced main air circulating fan" means a fan used
in a natural gas, propane, or oil furnace and which has an annual
electricity use of no more than 2 percent of the total annual
energy use of the furnace (as determined in the standard
Department of Energy test procedures).
(e) Special rules
For purposes of this section -
(1) Application of rules
Rules similar to the rules under paragraphs (4), (5), (6), (7),
(8), and (9) of section 25D(e) shall apply.
(2) Joint ownership of energy items
(A) In general
Any expenditure otherwise qualifying as an expenditure under
this section shall not be treated as failing to so qualify
merely because such expenditure was made with respect to two or
more dwelling units.
(B) Limits applied separately
In the case of any expenditure described in subparagraph (A),
the amount of the credit allowable under subsection (a) shall
(subject to paragraph (1)) be computed separately with respect
to the amount of the expenditure made for each dwelling unit.
(f) Basis adjustments
For purposes of this subtitle, if a credit is allowed under this
section for any expenditure with respect to any property, the
increase in the basis of such property which would (but for this
subsection) result from such expenditure shall be reduced by the
amount of the credit so allowed.
(g) Termination
This section shall not apply with respect to any property placed
in service after December 31, 2007.
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1333(a), Aug. 8, 2005, 119
Stat. 1026; amended Pub. L. 109-135, title IV, Sec. 412(b), Dec.
21, 2005, 119 Stat. 2636.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section, referred to in subsec.
(c)(1), is the date of enactment of Pub. L. 109-58, which was
approved Aug. 8, 2005.
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(2). Pub. L. 109-135 substituted "subsection
(c)(2)(B)" for "subsection (c)(3)(B)".
EFFECTIVE DATE
Pub. L. 109-58, title XIII, Sec. 1333(c), Aug. 8, 2005, 119 Stat.
1030, provided that: "The amendments made by this section [enacting
this section and amending section 1016 of this title] shall apply
to property placed in service after December 31, 2005."
-End-
-CITE-
26 USC Sec. 25D 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart A - Nonrefundable Personal Credits
-HEAD-
Sec. 25D. Residential energy efficient property
-STATUTE-
(a) Allowance of credit
In the case of an individual, there shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an
amount equal to the sum of -
(1) 30 percent of the qualified photovoltaic property
expenditures made by the taxpayer during such year,
(2) 30 percent of the qualified solar water heating property
expenditures made by the taxpayer during such year, and
(3) 30 percent of the qualified fuel cell property expenditures
made by the taxpayer during such year.
(b) Limitations
(1) Maximum credit
The credit allowed under subsection (a) (determined without
regard to subsection (c)) for any taxable year shall not exceed -
(A) $2,000 with respect to any qualified photovoltaic
property expenditures,
(B) $2,000 with respect to any qualified solar water heating
property expenditures, and
(C) $500 with respect to each half kilowatt of capacity of
qualified fuel cell property (as defined in section 48(c)(1))
for which qualified fuel cell property expenditures are made.
(2) Certification of solar water heating property
No credit shall be allowed under this section for an item of
property described in subsection (d)(1) unless such property is
certified for performance by the non-profit Solar Rating
Certification Corporation or a comparable entity endorsed by the
government of the State in which such property is installed.
(c) Carryforward of unused credit
(1) Rule for years in which all personal credits allowed against
regular and alternative minimum tax
In the case of a taxable year to which section 26(a)(2)
applies, if the credit allowable under subsection (a) exceeds the
limitation imposed by section 26(a)(2) for such taxable year
reduced by the sum of the credits allowable under this subpart
(other than this section), such excess shall be carried to the
succeeding taxable year and added to the credit allowable under
subsection (a) for such succeeding taxable year.
(2) Rule for other years
In the case of a taxable year to which section 26(a)(2) does
not apply, if the credit allowable under subsection (a) exceeds
the limitation imposed by section 26(a)(1) for such taxable year
reduced by the sum of the credits allowable under this subpart
(other than this section and sections 23, 24, and 25B), such
excess shall be carried to the succeeding taxable year and added
to the credit allowable under subsection (a) for such succeeding
taxable year.
(d) Definitions
For purposes of this section -
(1) Qualified solar water heating property expenditure
The term "qualified solar water heating property expenditure"
means an expenditure for property to heat water for use in a
dwelling unit located in the United States and used as a
residence by the taxpayer if at least half of the energy used by
such property for such purpose is derived from the sun.
(2) Qualified photovoltaic property expenditure
The term "qualified photovoltaic property expenditure" means an
expenditure for property which uses solar energy to generate
electricity for use in a dwelling unit located in the United
States and used as a residence by the taxpayer.
(3) Qualified fuel cell property expenditure
The term "qualified fuel cell property expenditure" means an
expenditure for qualified fuel cell property (as defined in
section 48(c)(1)) installed on or in connection with a dwelling
unit located in the United States and used as a principal
residence (within the meaning of section 121) by the taxpayer.
(e) Special rules
For purposes of this section -
(1) Labor costs
Expenditures for labor costs properly allocable to the onsite
preparation, assembly, or original installation of the property
described in subsection (d) and for piping or wiring to
interconnect such property to the dwelling unit shall be taken
into account for purposes of this section.
(2) Solar panels
No expenditure relating to a solar panel or other property
installed as a roof (or portion thereof) shall fail to be treated
as property described in paragraph (1) or (2) of subsection (d)
solely because it constitutes a structural component of the
structure on which it is installed.
(3) Swimming pools, etc., used as storage medium
Expenditures which are properly allocable to a swimming pool,
hot tub, or any other energy storage medium which has a function
other than the function of such storage shall not be taken into
account for purposes of this section.
(4) Dollar amounts in case of joint occupancy
In the case of any dwelling unit which is jointly occupied and
used during any calendar year as a residence by two or more
individuals the following rules shall apply:
(A) Maximum expenditures. - The maximum amount of
expenditures which may be taken into account under subsection
(a) by all such individuals with respect to such dwelling unit
during such calendar year shall be -
(i) $6,667 in the case of any qualified photovoltaic
property expenditures,
(ii) $6,667 in the case of any qualified solar water
heating property expenditures, and
(iii) $1,667 in the case of each half kilowatt of capacity
of qualified fuel cell property (as defined in section
48(c)(1)) for which qualified fuel cell property expenditures
are made.
(B) Allocation of expenditures. - The expenditures allocated
to any individual for the taxable year in which such calendar
year ends shall be an amount equal to the lesser of -
(i) the amount of expenditures made by such individual with
respect to such dwelling during such calendar year, or
(ii) the maximum amount of such expenditures set forth in
subparagraph (A) multiplied by a fraction -
(I) the numerator of which is the amount of such
expenditures with respect to such dwelling made by such
individual during such calendar year, and
(II) the denominator of which is the total expenditures
made by all such individuals with respect to such dwelling
during such calendar year.
(C) Subparagraphs (A) and (B) shall be applied separately
with respect to expenditures described in paragraphs (1), (2),
and (3) of subsection (d).
(5) Tenant-stockholder in cooperative housing corporation
In the case of an individual who is a tenant-stockholder (as
defined in section 216) in a cooperative housing corporation (as
defined in such section), such individual shall be treated as
having made his tenant-stockholder's proportionate share (as
defined in section 216(b)(3)) of any expenditures of such
corporation.
(6) Condominiums
(A) In general
In the case of an individual who is a member of a condominium
management association with respect to a condominium which the
individual owns, such individual shall be treated as having
made the individual's proportionate share of any expenditures
of such association.
(B) Condominium management association
For purposes of this paragraph, the term "condominium
management association" means an organization which meets the
requirements of paragraph (1) of section 528(c) (other than
subparagraph (E) thereof) with respect to a condominium project
substantially all of the units of which are used as residences.
(7) Allocation in certain cases
If less than 80 percent of the use of an item is for
nonbusiness purposes, only that portion of the expenditures for
such item which is properly allocable to use for nonbusiness
purposes shall be taken into account.
(8) When expenditure made; amount of expenditure
(A) In general
Except as provided in subparagraph (B), an expenditure with
respect to an item shall be treated as made when the original
installation of the item is completed.
(B) Expenditures part of building construction
In the case of an expenditure in connection with the
construction or reconstruction of a structure, such expenditure
shall be treated as made when the original use of the
constructed or reconstructed structure by the taxpayer begins.
(9) Property financed by subsidized energy financing
For purposes of determining the amount of expenditures made by
any individual with respect to any dwelling unit, there shall not
be taken into account expenditures which are made from subsidized
energy financing (as defined in section 48(a)(4)(C)).
(f) Basis adjustments
For purposes of this subtitle, if a credit is allowed under this
section for any expenditure with respect to any property, the
increase in the basis of such property which would (but for this
subsection) result from such expenditure shall be reduced by the
amount of the credit so allowed.
(g) Termination
The credit allowed under this section shall not apply to property
placed in service after December 31, 2007.
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1335(a), Aug. 8, 2005, 119
Stat. 1033; amended Pub. L. 109-135, title IV, Sec. 402(i)(1), (2),
(3)(E), Dec. 21, 2005, 119 Stat. 2612, 2614.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 402(i)(3)(H) of Pub. L.
109-135, see Effective and Termination Dates of 2005 Amendment note
below.
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(1). Pub. L. 109-135, Sec. 402(i)(1), inserted
"(determined without regard to subsection (c))" after "subsection
(a)" in introductory provisions.
Subsec. (c). Pub. L. 109-135, Sec. 402(i)(3)(E), (H), temporarily
reenacted heading without change and amended text generally. Prior
to amendment, text read as follows: "If the credit allowable under
subsection (a) exceeds the limitation imposed by section 26(a) for
such taxable year reduced by the sum of the credits allowable under
this subpart (other than this section), such excess shall be
carried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such succeeding taxable year."
See Effective and Termination Dates of 2005 Amendment note below.
Subsec. (e)(4)(A), (B). Pub. L. 109-135, Sec. 402(i)(2), amended
subpars. (A) and (B) generally. Prior to amendment, subpars. (A)
and (B) read as follows:
"(A) The amount of the credit allowable, under subsection (a) by
reason of expenditures (as the case may be) made during such
calendar year by any of such individuals with respect to such
dwelling unit shall be determined by treating all of such
individuals as 1 taxpayer whose taxable year is such calendar year.
"(B) There shall be allowable, with respect to such expenditures
to each of such individuals, a credit under subsection (a) for the
taxable year in which such calendar year ends in an amount which
bears the same ratio to the amount determined under subparagraph
(A) as the amount of such expenditures made by such individual
during such calendar year bears to the aggregate of such
expenditures made by all of such individuals during such calendar
year."
EFFECTIVE AND TERMINATION DATES OF 2005 AMENDMENT
Amendment by section 402(i)(3)(E) of Pub. L. 109-135 subject to
title IX of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, Sec. 901, in the same manner as the
provisions of such Act to which such amendment relates, see section
402(i)(3)(H) of Pub. L. 109-135, set out as a note under section 23
of this title.
Amendments by Pub. L. 109-135 effective as if included in the
provisions of the Energy Policy Act of 2005, Pub. L. 109-58, to
which they relate, except that amendment by section 402(i)(3)(E) of
Pub. L. 109-135 is applicable to taxable years beginning after Dec.
31, 2005, see section 402(m) of Pub. L. 109-135, set out as a note
under section 23 of this title.
EFFECTIVE DATE
Section applicable to property placed in service after Dec. 31,
2005, in taxable years ending after such date, see section 1335(c)
of Pub. L. 109-58, set out as an Effective and Termination Dates of
2005 Amendments note under section 23 of this title.
-End-
-CITE-
26 USC Sec. 26 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart A - Nonrefundable Personal Credits
-HEAD-
Sec. 26. Limitation based on tax liability; definition of tax
liability
-STATUTE-
(a) Limitation based on amount of tax
(1) In general
The aggregate amount of credits allowed by this subpart (other
than sections 23, 24, and 25B) for the taxable year shall not
exceed the excess (if any) of -
(A) the taxpayer's regular tax liability for the taxable
year, over
(B) the tentative minimum tax for the taxable year
(determined without regard to the alternative minimum tax
foreign tax credit).
For purposes of subparagraph (B), the taxpayer's tentative
minimum tax for any taxable year beginning during 1999 shall be
treated as being zero.
(2) Special rule for taxable years 2000 through 2005
For purposes of any taxable year beginning during 2000, 2001,
2002, 2003, 2004, or 2005, the aggregate amount of credits
allowed by this subpart for the taxable year shall not exceed the
sum of -
(A) the taxpayer's regular tax liability for the taxable year
reduced by the foreign tax credit allowable under section
27(a), and
(B) the tax imposed by section 55(a) for the taxable year.
(b) Regular tax liability
For purposes of this part -
(1) In general
The term "regular tax liability" means the tax imposed by this
chapter for the taxable year.
(2) Exception for certain taxes
For purposes of paragraph (1), any tax imposed by any of the
following provisions shall not be treated as tax imposed by this
chapter:
(A) section 55 (relating to minimum tax),
(B) section 59A (relating to environmental tax),
(C) subsection (m)(5)(B), (q), (t), or (v) of section 72
(relating to additional taxes on certain distributions),
(D) section 143(m) (relating to recapture of proration of
Federal subsidy from use of mortgage bonds and mortgage credit
certificates),
(E) section 530(d)(4) (relating to additional tax on certain
distributions from Coverdell education savings accounts),
(F) section 531 (relating to accumulated earnings tax),
(G) section 541 (relating to personal holding company tax),
(H) section 1351(d)(1) (relating to recoveries of foreign
expropriation losses),
(I) section 1374 (relating to tax on certain built-in gains
of S corporations),
(J) section 1375 (relating to tax imposed when passive
investment income of corporation having subchapter C earnings
and profits exceeds 25 percent of gross receipts),
(K) subparagraph (A) of section 7518(g)(6) (relating to
nonqualified withdrawals from capital construction funds taxed
at highest marginal rate),
(L) sections 871(a) and 881 (relating to certain income of
nonresident aliens and foreign corporations),
(M) section 860E(e) (relating to taxes with respect to
certain residual interests),
(N) section 884 (relating to branch profits tax),
(O) sections 453(l)(3) and 453A(c) (relating to interest on
certain deferred tax liabilities),
(P) section 860K (!1) (relating to treatment of transfers of
high-yield interests to disqualified holders),
(Q) section 220(f)(4) (relating to additional tax on Archer
MSA distributions not used for qualified medical expenses),
(R) section 138(c)(2) (relating to penalty for distributions
from Medicare Advantage MSA not used for qualified medical
expenses if minimum balance not maintained),
(S) section 223(f)(4) (relating to additional tax on health
savings account distributions not used for qualified medical
expenses), and
(T) subsections (a)(1)(B)(i) and (b)(4)(A) of section 409A
(relating to interest and additional tax with respect to
certain deferred compensation).
(c) Tentative minimum tax
For purposes of this part, the term "tentative minimum tax" means
the amount determined under section 55(b)(1).
-SOURCE-
(Added Sec. 25, renumbered Sec. 26, Pub. L. 98-369, div. A, title
IV, Sec. 472, title VI, Sec. 612(a), July 18, 1984, 98 Stat. 827,
905; amended Pub. L. 99-499, title V, Sec. 516(b)(1)(A), Oct. 17,
1986, 100 Stat. 1770; Pub. L. 99-514, title II, Sec. 261(c), title
VI, Sec. 632(c)(1), title VII, Sec. 701(c)(1), Oct. 22, 1986, 100
Stat. 2214, 2277, 2340; Pub. L. 100-647, title I, Secs.
1006(t)(16)(C), 1007(g)(1), 1011A(c)(10), 1012(q)(8), title IV,
Sec. 4005(g)(4), title V, Sec. 5012(b)(2), Nov. 10, 1988, 102 Stat.
3425, 3434, 3476, 3524, 3650, 3662; Pub. L. 101-239, title VII,
Secs. 7811(c)(1), (2), 7821(a)(4)(A), Dec. 19, 1989, 103 Stat.
2406, 2407, 2424; Pub. L. 104-188, title I, Sec. 1621(b)(1), Aug.
20, 1996, 110 Stat. 1866; Pub. L. 105-34, title II, Sec. 213(e)(1),
title XVI, Sec. 1602(a)(1), Aug. 5, 1997, 111 Stat. 817, 1093; Pub.
L. 105-277, div. J, title II, Sec. 2001(a), Oct. 21, 1998, 112
Stat. 2681-901; Pub. L. 106-170, title V, Sec. 501(a), Dec. 17,
1999, 113 Stat. 1918; Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(a)(1)], Dec. 21, 2000, 114 Stat. 2763, 2763A-628; Pub. L. 107-
16, title II, Secs. 201(b)(2)(D), 202(f)(2)(C), title VI, Sec.
618(b)(2)(C), June 7, 2001, 115 Stat. 46, 49, 108; Pub. L. 107-22,
Sec. 1(b)(2)(A), July 26, 2001, 115 Stat. 197; Pub. L. 107-147,
title IV, Secs. 415(a), 417(23)(B), title VI, Sec. 601(a), Mar. 9,
2002, 116 Stat. 54, 57, 59; Pub. L. 108-311, title III, Sec.
312(a), title IV, Secs. 401(a)(1), 408(a)(5)(A), Oct. 4, 2004, 118
Stat. 1181, 1183, 1191; Pub. L. 109-135, title IV, Secs.
403(hh)(1), 412(c), Dec. 21, 2005, 119 Stat. 2631, 2636.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendments note below.
-REFTEXT-
REFERENCES IN TEXT
Section 860K, referred to in subsec. (b)(2)(P), was repealed by
Pub. L. 108-357, title VIII, Sec. 835(a), Oct. 22, 2004, 118 Stat.
1593.
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(2)(E). Pub. L. 109-135, Sec. 412(c),
substituted "section 530(d)(4)" for "section 530(d)(3)".
Subsec. (b)(2)(T). Pub. L. 109-135, Sec. 403(hh)(1), added
subpar. (T).
2004 - Subsec. (a)(2). Pub. L. 108-311, Sec. 312(a), substituted
"rule for taxable years 2000 through 2005" for "rule for 2000,
2001, 2002, and 2003" in heading and "2003, 2004, or 2005" for "or
2003" in text.
Subsec. (b)(2)(R). Pub. L. 108-311, Sec. 408(a)(5)(A),
substituted "Medicare Advantage MSA" for "Medicare+Choice MSA".
Subsec. (b)(2)(S). Pub. L. 108-311, Sec. 401(a)(1), added subpar.
(S).
2002 - Subsec. (a)(1). Pub. L. 107-147, Sec. 417(23)(B), amended
directory language of Pub. L. 107-16, Sec. 618(b)(2)(C). See 2001
Amendment note below.
Subsec. (a)(2). Pub. L. 107-147, Sec. 601(a), substituted "rule
for 2000, 2001, 2002, and 2003" for "rule for 2000 and 2001" in
heading and "during 2000, 2001, 2002, or 2003," for "during 2000 or
2001," in introductory provisions.
Subsec. (b)(2)(P), (Q). Pub. L. 107-147, Sec. 415(a), which
directed striking "and" at end of subpar. (P) and substituting ",
and" for the period at the end of subpar. (Q), was executed to
subpars. (P) and (Q) as redesignated by Pub. L. 105-34, Sec.
213(e)(1), to reflect the probable intent of Congress. See 1997
Amendment notes below.
Subsec. (b)(2)(R). Pub. L. 107-147, Sec. 415(a), added subpar.
(R).
2001 - Subsec. (a)(1). Pub. L. 107-16, Secs. 618(b)(2)(C), 901,
as amended by Pub. L. 107-147, Sec. 417(23)(B), temporarily
substituted ", 24, and 25B" for "and 24" in introductory
provisions. See Effective and Termination Dates of 2001 Amendments
note below.
Pub. L. 107-16, Secs. 202(f)(2)(C), 901, temporarily substituted
"sections 23 and 24" for "section 24" in introductory provisions.
See Effective and Termination Dates of 2001 Amendments note below.
Pub. L. 107-16, Secs. 201(b)(2)(D), 901, temporarily inserted
"(other than section 24)" after "this subpart" in introductory
provisions. See Effective and Termination Dates of 2001 Amendments
note below.
Subsec. (b)(2)(E). Pub. L. 107-22 substituted "Coverdell
education savings" for "education individual retirement".
2000 - Subsec. (b)(2)(Q). Pub. L. 106-554 substituted "Archer
MSA" for "medical savings account".
1999 - Subsec. (a). Pub. L. 106-170 reenacted subsec. heading
without change and amended text generally. Prior to amendment, text
read as follows: "The aggregate amount of credits allowed by this
subpart for the taxable year shall not exceed the excess (if any)
of -
"(1) the taxpayer's regular tax liability for the taxable year,
over
"(2) the tentative minimum tax for the taxable year (determined
without regard to the alternative minimum tax foreign tax
credit).
For purposes of paragraph (2), the taxpayer's tentative minimum tax
for any taxable year beginning during 1998 shall be treated as
being zero."
1998 - Subsec. (a). Pub. L. 105-277 inserted concluding
provisions.
1997 - Subsec. (b)(2)(E) to (O). Pub. L. 105-34, Sec. 213(e)(1),
added subpar. (E) and redesignated former subpars. (E) to (N) as
(F) to (O), respectively. Former subpar. (O) redesignated (P).
Subsec. (b)(2)(P). Pub. L. 105-34, Sec. 213(e)(1), redesignated
subpar. (P) as (Q).
Pub. L. 105-34, Sec. 1602(a)(1), added subpar. (P).
Subsec. (b)(2)(Q). Pub. L. 105-34, Sec. 213(e)(1), redesignated
subpar. (P) as (Q).
1996 - Subsec. (b)(2)(O). Pub. L. 104-188 added subpar. (O).
1989 - Subsec. (b)(2)(C), (D). Pub. L. 101-239, Sec. 7811(c)(1),
amended subpars. (C) and (D) generally. Prior to amendment,
subpars. (C) and (D) read as follows:
"(C) subsection (m)(5)(B) (q), or (v) of section 72 (relating to
additional tax on certain distributions),
"(D) section 72(t) (relating to 10-percent additional tax on
early distributions from qualified retirement plans),".
Subsec. (b)(2)(K). Pub. L. 101-239, Sec. 7811(c)(2), added
subpar. (K) and struck out former subpar. (K) which was identical.
Subsec. (b)(2)(L), (M). Pub. L. 101-239, Sec. 7811(c)(2), added
subpars. (L) and (M) and struck out former subpars. (L) and (M)
which read as follows:
"(L) section 860E(e) (relating to taxes with respect to certain
residual interests), and
"(L) section 884 (relating to branch profits tax), and
"(M) section 143(m) (relating to recapture of portion of federal
subsidy from use of mortgage bonds and mortgage credit
certificates)."
Subsec. (b)(2)(N). Pub. L. 101-239, Sec. 7821(a)(4)(A), which
directed amendment of subsec. (b)(2) of this section "as amended by
section 11811" by adding subpar. (N), was executed as if it
directed amendment of subsec. (b)(2) of this section "as amended by
section 7811", to reflect the probable intent of Congress and the
renumbering of section 11811 of H.R. 3299 as section 7811 prior to
the enactment of H.R. 3299 into law as Pub. L. 101-239.
1988 - Subsec. (b)(2)(C). Pub. L. 100-647, Sec. 1011A(c)(10)(A),
struck out ", (o)(2)," after "subsection (m)(5)(B)".
Pub. L. 100-647, Sec. 5012(b)(2), substituted "(q), or (v)" for
"or (q)".
Subsec. (b)(2)(D). Pub. L. 100-647, Sec. 1011A(c)(10)(B),
substituted "72(t) (relating to 10-percent additional tax on early
distributions from qualified retirement plans)" for "408(f)
(relating to additional tax on income from certain retirement
accounts)".
Subsec. (b)(2)(K). Pub. L. 100-647, Sec. 1007(g)(1), substituted
"corporations)." for "corporations,".
Subsec. (b)(2)(L). Pub. L. 100-647, Sec. 1012(q)(8), added
subpar. (L) relating to branch profits tax.
Pub. L. 100-647, Sec. 1006(t)(16)(C), added subpar. (L) relating
to taxes with respect to certain residual interests.
Subsec. (b)(2)(M). Pub. L. 100-647, Sec. 4005(g)(4), added
subpar. (M).
1986 - Subsec. (a). Pub. L. 99-514, Sec. 701(c)(1)(A), amended
subsec. (a) generally. Prior to amendment, subsec. (a) read as
follows: "The aggregate amount of credits allowed by this subpart
for the taxable year shall not exceed the taxpayer's tax liability
for such taxable year."
Subsec. (b). Pub. L. 99-514, Sec. 701(c)(1)(B)(i), (v),
substituted "Regular tax liability" for "Tax liability" in heading
and "this part" for "this section" in introductory provisions.
Subsec. (b)(1). Pub. L. 99-514, Sec. 701(c)(1)(B)(ii),
substituted "regular tax liability" for "tax liability".
Subsec. (b)(2). Pub. L. 99-499 added subpar. (B) and redesignated
former subpars. (B) to (J) as (C) to (K), respectively.
Pub. L. 99-514, Sec. 701(c)(1)(B)(iii), substituted "section 55
(relating to minimum tax)" for "section 56 (relating to corporate
minimum tax)" in subpar. (A).
Pub. L. 99-514, Sec. 632(c)(1), substituted "certain built-in
gains" for "certain capital gains" in subpar. (G).
Pub. L. 99-514, Sec. 261(c), added subpar. (I).
Pub. L. 99-514, Sec. 701(c)(1)(B)(iv), added subpar. (J).
Subsec. (c). Pub. L. 99-514, Sec. 701(c)(1)(C), amended subsec.
(c) generally, substituting provisions relating to tentative
minimum tax for provisions referring to section 55(c) of this title
for similar rule for alternative minimum tax for taxpayers other
than corporations.
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-135, title IV, Sec. 403(nn), Dec. 21, 2005, 119 Stat.
2632, provided that: "The amendments made by this section [see
Tables for classification] shall take effect as if included in the
provisions of the American Jobs Creation Act of 2004 [Pub. L. 108-
357] to which they relate."
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-311, title III, Sec. 312(c), Oct. 4, 2004, 118 Stat.
1181, provided that: "The amendments made by this section [amending
this section and section 904 of this title] shall apply to taxable
years beginning after December 31, 2003."
Pub. L. 108-311, title IV, Sec. 401(b), Oct. 4, 2004, 118 Stat.
1183, provided that: "The amendments made by subsection (a)
[amending this section and section 35 of this title] shall take
effect as if included in section 1201 of the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 [Pub. L. 108-
173]."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 415(b), Mar. 9, 2002, 116 Stat.
54, provided that: "The amendment made by this section [amending
this section] shall take effect as if included in section 4006 of
the Balanced Budget Act of 1997 [Pub. L. 105-33]."
Pub. L. 107-147, title VI, Sec. 601(c), Mar. 9, 2002, 116 Stat.
59, provided that: "The amendments made by this section [amending
this section and section 904 of this title] shall apply to taxable
years beginning after December 31, 2001."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENTS
Amendment by Pub. L. 107-16 inapplicable to taxable years
beginning during 2004 or 2005, see section 312(b)(2) of Pub. L. 108-
311, set out as a note under section 23 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable years
beginning during 2002 and 2003, see section 601(b)(2) of Pub. L.
107-147, set out as a note under section 23 of this title.
Pub. L. 107-22, Sec. 1(c), July 26, 2001, 115 Stat. 197, provided
that: "The amendments made by this section [amending this section
and sections 72, 135, 529, 530, 4973, 4975, and 6693 of this title]
shall take effect on the date of the enactment of this Act [July
26, 2001]."
Amendment by section 201(b)(2)(D) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 201(e)(2)
of Pub. L. 107-16, set out as a note under section 24 of this
title.
Amendment by section 202(f)(2)(C) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 202(g)(1)
of Pub. L. 107-16, set out as a note under section 23 of this
title.
Amendment by section 618(b)(2)(C) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 618(d) of
Pub. L. 107-16, set out as a note under section 24 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to taxable years
beginning after Dec. 31, 1998, see section 501(c) of Pub. L. 106-
170, set out as a note under section 24 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-277 applicable to taxable years
beginning after Dec. 31, 1997, see section 2001(c) of Pub. L. 105-
277, set out as a note under section 24 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 213(f) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting section 530 of this title and
amending this section and sections 135, 4973, 4975, and 6693 of
this title] shall apply to taxable years beginning after December
31, 1997."
Section 1602(i) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and sections 162, 220,
264, 877, 2107, 2501, 4975, 6050Q, 6652, 6693, 6724, and 7702B of
this title, renumbering section 6039F of this title as section
6039G of this title, and amending provisions set out as a note
under section 264 of this title] shall take effect as if included
in the provisions of the Health Insurance Portability and
Accountability Act of 1996 [Pub. L. 104-191] to which such
amendments relate."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1621(d) of Pub. L. 104-188 provided that: "The amendments
made by this section [enacting sections 860H to 860L of this title
and amending this section and sections 56, 382, 582, 856, 860G,
1202, and 7701 of this title] shall take effect on September 1,
1997."
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7811(c)(1), (2) of Pub. L. 101-239
effective, except as otherwise provided, as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section 7817
of Pub. L. 101-239, set out as a note under section 1 of this
title.
Section 7823 of Pub. L. 101-239 provided that: "Except as
otherwise provided in this part [part II (Secs. 7821-7823) of
subtitle H of title VII of Pub. L. 101-239, amending this section
and sections 453A, 842, 1503, 6427, 6655, 6863, 7519, 7611, 9502,
9503, and 9508 of this title and enacting provisions set out as
notes under sections 56 and 7519 of this title], any amendment made
by this part shall take effect as if included in the provision of
the 1987 Act [Pub. L. 100-203, title X] to which such amendment
relates."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1006(t)(16)(C) of Pub. L. 100-647
applicable, with certain exceptions, to transfers after Mar. 31,
1988, and to excess inclusions for periods after Mar. 31, 1988, see
section 1006(t)(16)(D)(ii)-(iv) of Pub. L. 100-647, set out as a
note under section 860E of this title.
Amendment by sections 1007(g)(1), 1011A(c)(10), and 1012(q)(8) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L. 99-
514, to which such amendment relates, see section 1019(a) of Pub.
L. 100-647, set out as a note under section 1 of this title.
Amendment by section 4005(g)(4) of Pub. L. 100-647 applicable,
with certain exceptions, to financing provided, and mortgage credit
certificates issued, after Dec. 31, 1990, see section 4005(h)(3) of
Pub. L. 100-647, set out as a note under section 143 of this title.
Amendment by section 5012(b)(2) of Pub. L. 100-647 applicable to
contracts entered into on or after June 21, 1988, with special rule
where death benefit increases by more than $150,000, certain other
material changes taken into account, and certain exchanges
permitted, see section 5012(e) of Pub. L. 100-647, set out as an
Effective Date note under section 7702A of this title.
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 261(c) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 261(g) of
Pub. L. 99-514, set out as an Effective Date note under section
7518 of this title.
Amendment by section 632(c)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, but only in cases
where the return for the taxable year is filed pursuant to an S
election made after Dec. 31, 1986, see section 633(b) of Pub. L. 99-
514, as amended, set out as an Effective Date note under section
336 of this title.
Amendment by section 632(c)(1) of Pub. L. 99-514 not applicable
in the case of certain transactions, see section 54(d)(3)(D) of
Pub. L. 98-369, as amended, set out as an Effective Date of 1984
Amendment note under section 311 of this title.
Amendment by section 701(c)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L. 99-
514, set out as an Effective Date note under section 55 of this
title.
Section 516(c) of Pub. L. 99-499 provided that: "The amendments
made by this section [enacting section 59A of this title and
amending this section and sections 164, 275, 936, 1561, 6154, 6425,
and 6655 of this title] shall apply to taxable years beginning
after December 31, 1986."
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, and to carrybacks from such years, see section 475(a) of Pub.
L. 98-369, set out as an Effective Date of 1984 Amendment note
under section 21 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUBLIC LAW 99-514 IN
RELATION TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(c)(1) of Pub. L. 99-
514 notwithstanding any treaty obligation of the United States in
effect on Oct. 22, 1986, with provision that for such purposes any
amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
TREATMENT OF TAX IMPOSED UNDER FORMER SECTION 409(C)
Section 491(f)(5) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "For
purposes of section 26(b) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as amended by this Act), any tax imposed by
section 409(c) of such Code (as in effect before its repeal by this
section) shall be treated as a tax imposed by section 408(f) of
such Code."
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Subpart B - Other Credits 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart B - Other Credits
-HEAD-
SUBPART B - OTHER CREDITS
-MISC1-
Sec.
27. Taxes of foreign countries and possessions of the
United States; possession tax credit.
[28, 29. Renumbered.]
30. Credit for qualified electric vehicles.
30A. Puerto Rico economic activity credit.
30B. Alternative motor vehicle credit.
30C. Alternative fuel vehicle refueling property credit.
AMENDMENTS
2005 - Pub. L. 109-135, title IV, Sec. 412(e), Dec. 21, 2005, 119
Stat. 2637, substituted "Alternative fuel vehicle refueling
property credit" for "Clean-fuel vehicle refueling property credit"
in item 30C.
Pub. L. 109-58, title XIII, Secs. 1322(a)(3)(K), 1341(b)(5),
1342(b)(5), Aug. 8, 2005, 119 Stat. 1012, 1049, 1051, struck out
item 29 "Credit for producing fuel from a nonconventional source"
and added items 30B and 30C.
1997 - Pub. L. 105-34, title XVI, Sec. 1601(f)(1)(B), Aug. 5,
1997, 111 Stat. 1090, substituted "Puerto Rico" for "Puerto Rican"
in item 30A.
1996 - Pub. L. 104-188, title I, Secs. 1205(a)(3)(A),
1601(b)(2)(E), (F)(i), Aug. 20, 1996, 110 Stat. 1775, 1833,
substituted "Other Credits" for "Foreign Tax Credits, Etc." in
subpart heading, struck out item 28 "Clinical testing expenses for
certain drugs for rare diseases or conditions", and added item 30A.
1992 - Pub. L. 102-486, title XIX, Sec. 1913(b)(2)(A), Oct. 24,
1992, 106 Stat. 3020, added item 30.
1986 - Pub. L. 99-514, title II, Sec. 231(d)(3)(J), Oct. 22,
1986, 100 Stat. 2180, struck out item 30 "Credit for increasing
research activities".
1984 - Pub. L. 98-369, div. A, title IV, Sec. 471(b), July 18,
1984, 98 Stat. 826, added subpart B heading and analysis of
sections for subpart B consisting of items 27 (formerly 33), 28
(formerly 44H), 29 (formerly 44D), and 30 (formerly 44F). Former
subpart B was redesignated E.
-End-
-CITE-
26 USC Sec. 27 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart B - Other Credits
-HEAD-
Sec. 27. Taxes of foreign countries and possessions of the United
States; possession tax credit
-STATUTE-
(a) Foreign tax credit
The amount of taxes imposed by foreign countries and possessions
of the United States shall be allowed as a credit against the tax
imposed by this chapter to the extent provided in section 901.
(b) Section 936 credit
In the case of a domestic corporation, the amount provided by
section 936 (relating to Puerto Rico and possession tax credit)
shall be allowed as a credit against the tax imposed by this
chapter.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 13, Sec. 33; Pub. L. 94-455,
title X, Sec. 1051(a), Oct. 4, 1976, 90 Stat. 1643; renumbered Sec.
27, Pub. L. 98-369, div. A, title IV, Sec. 471(c), July 18, 1984,
98 Stat. 826.)
-MISC1-
AMENDMENTS
1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 33 of this
title as this section.
1976 - Pub. L. 94-455 designated existing provisions as subsec.
(a) and added subsec. (b).
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1051(i) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Except as provided by paragraph (2), the amendments made by
this section [enacting section 936 of this title and amending
sections 33 [now 27], 48, 116, 243, 246, 861, 901, 904, 931, 1504,
and 6091 of this title] shall apply to taxable years beginning
after December 31, 1975, except that 'qualified possession source
investment income' as defined in section 936(d)(2) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] shall include income
from any source outside the United States if the taxpayer
establishes to the satisfaction of the Secretary of the Treasury or
his delegate that the income from such sources was earned before
October 1, 1976.
"(2) The amendment made by subsection (d)(2) [amending section
901 of this title] shall not apply to any tax imposed by a
possession of the United States with respect to the complete
liquidation occurring before January 1, 1979, of a corporation to
the extent that such tax is attributable to earnings and profits
accumulated by such corporation during periods ending before
January 1, 1976."
-End-
-CITE-
26 USC Sec. 28 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart B - Other Credits
-HEAD-
[Sec. 28. Renumbered Sec. 45C]
-STATUTE-
-End-
-CITE-
26 USC Sec. 29 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart B - Other Credits
-HEAD-
[Sec. 29. Renumbered Sec. 45K]
-STATUTE-
-End-
-CITE-
26 USC Sec. 30 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart B - Other Credits
-HEAD-
Sec. 30. Credit for qualified electric vehicles
-STATUTE-
(a) Allowance of credit
There shall be allowed as a credit against the tax imposed by
this chapter for the taxable year an amount equal to 10 percent of
the cost of any qualified electric vehicle placed in service by the
taxpayer during the taxable year.
(b) Limitations
(1) Limitation per vehicle
The amount of the credit allowed under subsection (a) for any
vehicle shall not exceed $4,000.
(2) Phaseout
In the case of any qualified electric vehicle placed in service
after December 31, 2005, the credit otherwise allowable under
subsection (a) (determined after the application of paragraph
(1)) shall be reduced by 75 percent.
(3) Application with other credits
The credit allowed by subsection (a) for any taxable year shall
not exceed the excess (if any) of -
(A) the regular tax for the taxable year reduced by the sum
of the credits allowable under subpart A and section 27, over -
(B) the tentative minimum tax for the taxable year.
(c) Qualified electric vehicle
For purposes of this section -
(1) In general
The term "qualified electric vehicle" means any motor vehicle -
(A) which is powered primarily by an electric motor drawing
current from rechargeable batteries, fuel cells, or other
portable sources of electrical current,
(B) the original use of which commences with the taxpayer,
and
(C) which is acquired for use by the taxpayer and not for
resale.
(2) Motor vehicle
For purposes of paragraph (1), the term "motor vehicle" means
any vehicle which is manufactured primarily for use on public
streets, roads, and highways (not including a vehicle operated
exclusively on a rail or rails) and which has at least 4 wheels.
(d) Special rules
(1) Basis reduction
The basis of any property for which a credit is allowable under
subsection (a) shall be reduced by the amount of such credit
(determined without regard to subsection (b)(3)).
(2) Recapture
The Secretary shall, by regulations, provide for recapturing
the benefit of any credit allowable under subsection (a) with
respect to any property which ceases to be property eligible for
such credit.
(3) Property used outside United States, etc., not qualified
No credit shall be allowed under subsection (a) with respect to
any property referred to in section 50(b) or with respect to the
portion of the cost of any property taken into account under
section 179.
(4) Election to not take credit
No credit shall be allowed under subsection (a) for any vehicle
if the taxpayer elects to not have this section apply to such
vehicle.
(e) Termination
This section shall not apply to any property placed in service
after December 31, 2006.
-SOURCE-
(Added Pub. L. 102-486, title XIX, Sec. 1913(b)(1), Oct. 24, 1992,
106 Stat. 3019; amended Pub. L. 104-188, title I, Secs. 1205(d)(4),
1704(j)(4)(A), Aug. 20, 1996, 110 Stat. 1776, 1881; Pub. L. 107-
147, title VI, Sec. 602(a), Mar. 9, 2002, 116 Stat. 59; Pub. L.
108-311, title III, Sec. 318(a), Oct. 4, 2004, 118 Stat. 1182; Pub.
L. 109-58, title XIII, Sec. 1322(a)(3)(A), Aug. 8, 2005, 119 Stat.
1011.)
-MISC1-
PRIOR PROVISIONS
A prior section 30 was renumbered section 41 of this title.
AMENDMENTS
2005 - Subsec. (b)(3)(A). Pub. L. 109-58 substituted "section 27"
for "sections 27 and 29" in introductory provisions.
2004 - Subsec. (b)(2). Pub. L. 108-311 reenacted heading without
change and amended text generally. Prior to amendment, text read as
follows: "In the case of any qualified electric vehicle placed in
service after December 31, 2003, the credit otherwise allowable
under subsection (a) (determined after the application of paragraph
(1)) shall be reduced by -
"(A) 25 percent in the case of property placed in service in
calendar year 2004,
"(B) 50 percent in the case of property placed in service in
calendar year 2005, and
"(C) 75 percent in the case of property placed in service in
calendar year 2006."
2002 - Subsec. (b)(2). Pub. L. 107-147, Sec. 602(a)(1)(A),
substituted "December 31, 2003," for "December 31, 2001," in
introductory provisions.
Subsec. (b)(2)(A). Pub. L. 107-147, Sec. 602(a)(1)(B),
substituted "2004" for "2002".
Subsec. (b)(2)(B). Pub. L. 107-147, Sec. 602(a)(1)(B),
substituted "2005" for "2003".
Subsec. (b)(2)(C). Pub. L. 107-147, Sec. 602(a)(1)(B),
substituted "2006" for "2004".
Subsec. (e). Pub. L. 107-147, Sec. 602(a)(2), substituted
"December 31, 2006" for "December 31, 2004".
1996 - Subsec. (b)(3)(A). Pub. L. 104-188, Sec. 1205(d)(4),
substituted "sections 27 and 29" for "sections 27, 28, and 29".
Subsec. (d)(1). Pub. L. 104-188, Sec. 1704(j)(4)(A)(i), inserted
"(determined without regard to subsection (b)(3))" before period at
end.
Subsec. (d)(4). Pub. L. 104-188, Sec. 1704(j)(4)(A)(ii), added
par. (4).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-58 applicable to credits determined
under the Internal Revenue Code of 1986 for taxable years ending
after Dec. 31, 2005, see section 1322(c)(1) of Pub. L. 109-58, set
out as a note under section 45K of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-311, title III, Sec. 318(b), Oct. 4, 2004, 118 Stat.
1182, provided that: "The amendments made by this section [amending
this section] shall apply to property placed in service after
December 31, 2003."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title VI, Sec. 602(c), Mar. 9, 2002, 116 Stat.
59, provided that: "The amendments made by this section [amending
this section, section 280F of this title, and provisions set out as
a note under section 280F of this title] shall apply to property
placed in service after December 31, 2001."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1205(d)(4) of Pub. L. 104-188 applicable to
amounts paid or incurred in taxable years ending after June 30,
1996, see section 1205(e) of Pub. L. 104-188, set out as a note
under section 45K of this title.
EFFECTIVE DATE
Section 1913(c) of Pub. L. 102-486 provided that: "The amendments
made by this section [enacting this section and 179A of this title
and amending sections 53, 55, 62, and 1016 of this title] shall
apply to property placed in service after June 30, 1993."
-End-
-CITE-
26 USC Sec. 30A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart B - Other Credits
-HEAD-
Sec. 30A. Puerto Rico economic activity credit
-STATUTE-
(a) Allowance of credit
(1) In general
Except as otherwise provided in this section, if the conditions
of both paragraph (1) and paragraph (2) of subsection (b) are
satisfied with respect to a qualified domestic corporation, there
shall be allowed as a credit against the tax imposed by this
chapter an amount equal to the portion of the tax which is
attributable to the taxable income, from sources without the
United States, from -
(A) the active conduct of a trade or business within Puerto
Rico, or
(B) the sale or exchange of substantially all of the assets
used by the taxpayer in the active conduct of such trade or
business.
In the case of any taxable year beginning after December 31,
2001, the aggregate amount of taxable income taken into account
under the preceding sentence (and in applying subsection (d))
shall not exceed the adjusted base period income of such
corporation, as determined in the same manner as under section
936(j).
(2) Qualified domestic corporation
For purposes of paragraph (1), the term "qualified domestic
corporation" means a domestic corporation -
(A) which is an existing credit claimant with respect to
Puerto Rico, and
(B) with respect to which section 936(a)(4)(B) does not apply
for the taxable year.
(3) Separate application
For purposes of determining -
(A) whether a taxpayer is an existing credit claimant with
respect to Puerto Rico, and
(B) the amount of the credit allowed under this section,
this section (and so much of section 936 as relates to this
section) shall be applied separately with respect to Puerto Rico.
(b) Conditions which must be satisfied
The conditions referred to in subsection (a) are -
(1) 3-year period
If 80 percent or more of the gross income of the qualified
domestic corporation for the 3-year period immediately preceding
the close of the taxable year (or for such part of such period
immediately preceding the close of such taxable year as may be
applicable) was derived from sources within a possession
(determined without regard to section 904(f)).
(2) Trade or business
If 75 percent or more of the gross income of the qualified
domestic corporation for such period or such part thereof was
derived from the active conduct of a trade or business within a
possession.
(c) Credit not allowed against certain taxes
The credit provided by subsection (a) shall not be allowed
against the tax imposed by -
(1) section 59A (relating to environmental tax),
(2) section 531 (relating to the tax on accumulated earnings),
(3) section 541 (relating to personal holding company tax), or
(4) section 1351 (relating to recoveries of foreign
expropriation losses).
(d) Limitations on credit for active business income
The amount of the credit determined under subsection (a) for any
taxable year shall not exceed the sum of the following amounts:
(1) 60 percent of the sum of -
(A) the aggregate amount of the qualified domestic
corporation's qualified possession wages for such taxable year,
plus
(B) the allocable employee fringe benefit expenses of the
qualified domestic corporation for such taxable year.
(2) The sum of -
(A) 15 percent of the depreciation allowances for the taxable
year with respect to short-life qualified tangible property,
(B) 40 percent of the depreciation allowances for the taxable
year with respect to medium-life qualified tangible property,
and
(C) 65 percent of the depreciation allowances for the taxable
year with respect to long-life qualified tangible property.
(3) If the qualified domestic corporation does not have an
election to use the method described in section 936(h)(5)(C)(ii)
(relating to profit split) in effect for the taxable year, the
amount of the qualified possession income taxes for the taxable
year allocable to nonsheltered income.
(e) Administrative provisions
For purposes of this title -
(1) the provisions of section 936 (including any applicable
election thereunder) shall apply in the same manner as if the
credit under this section were a credit under section
936(a)(1)(A) for a domestic corporation to which section
936(a)(4)(A) applies,
(2) the credit under this section shall be treated in the same
manner as the credit under section 936, and
(3) a corporation to which this section applies shall be
treated in the same manner as if it were a corporation electing
the application of section 936.
(f) Denial of double benefit
Any wages or other expenses taken into account in determining the
credit under this section may not be taken into account in
determining the credit under section 41.
(g) Definitions
For purposes of this section, any term used in this section which
is also used in section 936 shall have the same meaning given such
term by section 936.
(h) Application of section
This section shall apply to taxable years beginning after
December 31, 1995, and before January 1, 2006.
-SOURCE-
(Added Pub. L. 104-188, title I, Sec. 1601(b)(1), Aug. 20, 1996,
110 Stat. 1830; amended Pub. L. 105-34, title XVI, Sec.
1601(f)(1)(A), Aug. 5, 1997, 111 Stat. 1090; Pub. L. 106-554, Sec.
1(a)(7) [title III, Sec. 311(a)(2)], Dec. 21, 2000, 114 Stat. 2763,
2763A-640.)
-MISC1-
AMENDMENTS
2000 - Subsecs. (f) to (h). Pub. L. 106-554 added subsec. (f) and
redesignated former subsecs. (f) and (g) as (g) and (h),
respectively.
1997 - Pub. L. 105-34 substituted "Puerto Rico" for "Puerto
Rican" in section catchline.
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 311(d)], Dec. 21,
2000, 114 Stat. 2763, 2763A-640, provided that: "Subsection (c)
[not classified to the Code] and the amendments made by this
section [amending this section and sections 280C and 857 of this
title] shall take effect as if included in the provisions of the
Ticket to Work and Work Incentives Improvement Act of 1999 [Pub. L.
106-170, see Tables for classification] to which they relate."
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
provisions of the Small Business Job Protection Act of 1996, Pub.
L. 104-188, to which it relates, see section 1601(j) of Pub. L. 105-
34, set out as a note under section 23 of this title.
EFFECTIVE DATE
Section 1601(c) of Pub. L. 104-188 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting this section and amending
sections 55, 56, 59, and 936 of this title] shall apply to taxable
years beginning after December 31, 1995.
"(2) Special rule for qualified possession source investment
income. - The amendments made by this section shall not apply to
qualified possession source investment income received or accrued
before July 1, 1996, without regard to the taxable year in which
received or accrued.
"(3) Special transition rule for payment of estimated tax
installment. - In determining the amount of any installment due
under section 6655 of the Internal Revenue Code of 1986 after the
date of the enactment of this Act [Aug. 20, 1996] and before
October 1, 1996, only 1/2 of any increase in tax (for the taxable
year for which such installment is made) by reason of the
amendments made by subsections (a) and (b) [enacting this section
and amending sections 55, 56, 59, and 936 of this title] shall be
taken into account. Any reduction in such installment by reason of
the preceding sentence shall be recaptured by increasing the next
required installment for such year by the amount of such
reduction."
-End-
-CITE-
26 USC Sec. 30B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart B - Other Credits
-HEAD-
Sec. 30B. Alternative motor vehicle credit
-STATUTE-
(a) Allowance of credit
There shall be allowed as a credit against the tax imposed by
this chapter for the taxable year an amount equal to the sum of -
(1) the new qualified fuel cell motor vehicle credit determined
under subsection (b),
(2) the new advanced lean burn technology motor vehicle credit
determined under subsection (c),
(3) the new qualified hybrid motor vehicle credit determined
under subsection (d), and
(4) the new qualified alternative fuel motor vehicle credit
determined under subsection (e).
(b) New qualified fuel cell motor vehicle credit
(1) In general
For purposes of subsection (a), the new qualified fuel cell
motor vehicle credit determined under this subsection with
respect to a new qualified fuel cell motor vehicle placed in
service by the taxpayer during the taxable year is -
(A) $8,000 ($4,000 in the case of a vehicle placed in service
after December 31, 2009), if such vehicle has a gross vehicle
weight rating of not more than 8,500 pounds,
(B) $10,000, if such vehicle has a gross vehicle weight
rating of more than 8,500 pounds but not more than 14,000
pounds,
(C) $20,000, if such vehicle has a gross vehicle weight
rating of more than 14,000 pounds but not more than 26,000
pounds, and
(D) $40,000, if such vehicle has a gross vehicle weight
rating of more than 26,000 pounds.
(2) Increase for fuel efficiency
(A) In general
The amount determined under paragraph (1)(A) with respect to
a new qualified fuel cell motor vehicle which is a passenger
automobile or light truck shall be increased by -
(i) $1,000, if such vehicle achieves at least 150 percent
but less than 175 percent of the 2002 model year city fuel
economy,
(ii) $1,500, if such vehicle achieves at least 175 percent
but less than 200 percent of the 2002 model year city fuel
economy,
(iii) $2,000, if such vehicle achieves at least 200 percent
but less than 225 percent of the 2002 model year city fuel
economy,
(iv) $2,500, if such vehicle achieves at least 225 percent
but less than 250 percent of the 2002 model year city fuel
economy,
(v) $3,000, if such vehicle achieves at least 250 percent
but less than 275 percent of the 2002 model year city fuel
economy,
(vi) $3,500, if such vehicle achieves at least 275 percent
but less than 300 percent of the 2002 model year city fuel
economy, and
(vii) $4,000, if such vehicle achieves at least 300 percent
of the 2002 model year city fuel economy.
(B) 2002 model year city fuel economy
For purposes of subparagraph (A), the 2002 model year city
fuel economy with respect to a vehicle shall be determined in
accordance with the following tables:
(i) In the case of a passenger automobile:
The 2002
model year
city
If vehicle inertia weight class is: fuel economy
is:
1,500 or 1,750 lbs 45.2 mpg
2,000 lbs 39.6 mpg
2,250 lbs 35.2 mpg
2,500 lbs 31.7 mpg
2,750 lbs 28.8 mpg
3,000 lbs 26.4 mpg
3,500 lbs 22.6 mpg
4,000 lbs 19.8 mpg
4,500 lbs 17.6 mpg
5,000 lbs 15.9 mpg
5,500 lbs 14.4 mpg
6,000 lbs 13.2 mpg
6,500 lbs 12.2 mpg
7,000 to 8,500 lbs 11.3 mpg.
(ii) In the case of a light truck:
The 2002
model year
city
If vehicle inertia weight class is: fuel economy
is:
1,500 or 1,750 lbs 39.4 mpg
2,000 lbs 35.2 mpg
2,250 lbs 31.8 mpg
2,500 lbs 29.0 mpg
2,750 lbs 26.8 mpg
3,000 lbs 24.9 mpg
3,500 lbs 21.8 mpg
4,000 lbs 19.4 mpg
4,500 lbs 17.6 mpg
5,000 lbs 16.1 mpg
5,500 lbs 14.8 mpg
6,000 lbs 13.7 mpg
6,500 lbs 12.8 mpg
7,000 to 8,500 lbs 12.1 mpg.
(C) Vehicle inertia weight class
For purposes of subparagraph (B), the term "vehicle inertia
weight class" has the same meaning as when defined in
regulations prescribed by the Administrator of the
Environmental Protection Agency for purposes of the
administration of title II of the Clean Air Act (42 U.S.C. 7521
et seq.).
(3) New qualified fuel cell motor vehicle
For purposes of this subsection, the term "new qualified fuel
cell motor vehicle" means a motor vehicle -
(A) which is propelled by power derived from 1 or more cells
which convert chemical energy directly into electricity by
combining oxygen with hydrogen fuel which is stored on board
the vehicle in any form and may or may not require reformation
prior to use,
(B) which, in the case of a passenger automobile or light
truck, has received on or after the date of the enactment of
this section a certificate that such vehicle meets or exceeds
the Bin 5 Tier II emission level established in regulations
prescribed by the Administrator of the Environmental Protection
Agency under section 202(i) of the Clean Air Act for that make
and model year vehicle,
(C) the original use of which commences with the taxpayer,
(D) which is acquired for use or lease by the taxpayer and
not for resale, and
(E) which is made by a manufacturer.
(c) New advanced lean burn technology motor vehicle credit
(1) In general
For purposes of subsection (a), the new advanced lean burn
technology motor vehicle credit determined under this subsection
for the taxable year is the credit amount determined under
paragraph (2) with respect to a new advanced lean burn technology
motor vehicle placed in service by the taxpayer during the
taxable year.
(2) Credit amount
(A) Fuel economy
(i) In general
The credit amount determined under this paragraph shall be
determined in accordance with the following table:
In the case of a vehicle which achieves 2The credit
a fuel economy (expressed as a amount is -
percentage of the 2002 model year
city fuel economy) of -
--------------------------------------------------------------------
At least 125 percent but less than 150 percent $400
At least 150 percent but less than 175 percent $800
At least 175 percent but less than 200 percent $1,200
At least 200 percent but less than 225 percent $1,600
At least 225 percent but less than 250 percent $2,000
At least 250 percent $2,400.
--------------------------------------------------------------------
(ii) 2002 model year city fuel economy
For purposes of clause (i), the 2002 model year city fuel
economy with respect to a vehicle shall be determined on a
gasoline gallon equivalent basis as determined by the
Administrator of the Environmental Protection Agency using
the tables provided in subsection (b)(2)(B) with respect to
such vehicle.
(B) Conservation credit
The amount determined under subparagraph (A) with respect to
a new advanced lean burn technology motor vehicle shall be
increased by the conservation credit amount determined in
accordance with the following table:
In the case of a vehicle which achieves 2The
a lifetime fuel savings (expressed in conservation
gallons of gasoline) of - credit amount is
-
--------------------------------------------------------------------
At least 1,200 but less than 1,800 $250
At least 1,800 but less than 2,400 $500
At least 2,400 but less than 3,000 $750
At least 3,000 $1,000.
--------------------------------------------------------------------
(3) New advanced lean burn technology motor vehicle
For purposes of this subsection, the term "new advanced lean
burn technology motor vehicle" means a passenger automobile or a
light truck -
(A) with an internal combustion engine which -
(i) is designed to operate primarily using more air than is
necessary for complete combustion of the fuel,
(ii) incorporates direct injection,
(iii) achieves at least 125 percent of the 2002 model year
city fuel economy,
(iv) for 2004 and later model vehicles, has received a
certificate that such vehicle meets or exceeds -
(I) in the case of a vehicle having a gross vehicle
weight rating of 6,000 pounds or less, the Bin 5 Tier II
emission standard established in regulations prescribed by
the Administrator of the Environmental Protection Agency
under section 202(i) of the Clean Air Act for that make and
model year vehicle, and
(II) in the case of a vehicle having a gross vehicle
weight rating of more than 6,000 pounds but not more than
8,500 pounds, the Bin 8 Tier II emission standard which is
so established,
(B) the original use of which commences with the taxpayer,
(C) which is acquired for use or lease by the taxpayer and
not for resale, and
(D) which is made by a manufacturer.
(4) Lifetime fuel savings
For purposes of this subsection, the term "lifetime fuel
savings" means, in the case of any new advanced lean burn
technology motor vehicle, an amount equal to the excess (if any)
of -
(A) 120,000 divided by the 2002 model year city fuel economy
for the vehicle inertia weight class, over
(B) 120,000 divided by the city fuel economy for such
vehicle.
(d) New qualified hybrid motor vehicle credit
(1) In general
For purposes of subsection (a), the new qualified hybrid motor
vehicle credit determined under this subsection for the taxable
year is the credit amount determined under paragraph (2) with
respect to a new qualified hybrid motor vehicle placed in service
by the taxpayer during the taxable year.
(2) Credit amount
(A) Credit amount for passenger automobiles and light trucks
In the case of a new qualified hybrid motor vehicle which is
a passenger automobile or light truck and which has a gross
vehicle weight rating of not more than 8,500 pounds, the amount
determined under this paragraph is the sum of the amounts
determined under clauses (i) and (ii).
(i) Fuel economy
The amount determined under this clause is the amount which
would be determined under subsection (c)(2)(A) if such
vehicle were a vehicle referred to in such subsection.
(ii) Conservation credit
The amount determined under this clause is the amount which
would be determined under subsection (c)(2)(B) if such
vehicle were a vehicle referred to in such subsection.
(B) Credit amount for other motor vehicles
(i) In general
In the case of any new qualified hybrid motor vehicle to
which subparagraph (A) does not apply, the amount determined
under this paragraph is the amount equal to the applicable
percentage of the qualified incremental hybrid cost of the
vehicle as certified under clause (v).
(ii) Applicable percentage
For purposes of clause (i), the applicable percentage is -
(I) 20 percent if the vehicle achieves an increase in
city fuel economy relative to a comparable vehicle of at
least 30 percent but less than 40 percent,
(II) 30 percent if the vehicle achieves such an increase
of at least 40 percent but less than 50 percent, and
(III) 40 percent if the vehicle achieves such an increase
of at least 50 percent.
(iii) Qualified incremental hybrid cost
For purposes of this subparagraph, the qualified
incremental hybrid cost of any vehicle is equal to the amount
of the excess of the manufacturer's suggested retail price
for such vehicle over such price for a comparable vehicle, to
the extent such amount does not exceed -
(I) $7,500, if such vehicle has a gross vehicle weight
rating of not more than 14,000 pounds,
(II) $15,000, if such vehicle has a gross vehicle weight
rating of more than 14,000 pounds but not more than 26,000
pounds, and
(III) $30,000, if such vehicle has a gross vehicle weight
rating of more than 26,000 pounds.
(iv) Comparable vehicle
For purposes of this subparagraph, the term "comparable
vehicle" means, with respect to any new qualified hybrid
motor vehicle, any vehicle which is powered solely by a
gasoline or diesel internal combustion engine and which is
comparable in weight, size, and use to such vehicle.
(v) Certification
A certification described in clause (i) shall be made by
the manufacturer and shall be determined in accordance with
guidance prescribed by the Secretary. Such guidance shall
specify procedures and methods for calculating fuel economy
savings and incremental hybrid costs.
(3) New qualified hybrid motor vehicle
For purposes of this subsection -
(A) In general
The term "new qualified hybrid motor vehicle" means a motor
vehicle -
(i) which draws propulsion energy from onboard sources of
stored energy which are both -
(I) an internal combustion or heat engine using
consumable fuel, and
(II) a rechargeable energy storage system,
(ii) which, in the case of a vehicle to which paragraph
(2)(A) applies, has received a certificate of conformity
under the Clean Air Act and meets or exceeds the equivalent
qualifying California low emission vehicle standard under
section 243(e)(2) of the Clean Air Act for that make and
model year, and
(I) in the case of a vehicle having a gross vehicle
weight rating of 6,000 pounds or less, the Bin 5 Tier II
emission standard established in regulations prescribed by
the Administrator of the Environmental Protection Agency
under section 202(i) of the Clean Air Act for that make and
model year vehicle, and
(II) in the case of a vehicle having a gross vehicle
weight rating of more than 6,000 pounds but not more than
8,500 pounds, the Bin 8 Tier II emission standard which is
so established,
(iii) which has a maximum available power of at least -
(I) 4 percent in the case of a vehicle to which paragraph
(2)(A) applies,
(II) 10 percent in the case of a vehicle which has a
gross vehicle weight rating of more than 8,500 pounds and
not more than 14,000 pounds, and
(III) 15 percent in the case of a vehicle in excess of
14,000 pounds,
(iv) which, in the case of a vehicle to which paragraph
(2)(B) applies, has an internal combustion or heat engine
which has received a certificate of conformity under the
Clean Air Act as meeting the emission standards set in the
regulations prescribed by the Administrator of the
Environmental Protection Agency for 2004 through 2007 model
year diesel heavy duty engines or ottocycle heavy duty
engines, as applicable,
(v) the original use of which commences with the taxpayer,
(vi) which is acquired for use or lease by the taxpayer and
not for resale, and
(vii) which is made by a manufacturer.
Such term shall not include any vehicle which is not a
passenger automobile or light truck if such vehicle has a gross
vehicle weight rating of less than 8,500 pounds.
(B) Consumable fuel
For purposes of subparagraph (A)(i)(I), the term "consumable
fuel" means any solid, liquid, or gaseous matter which releases
energy when consumed by an auxiliary power unit.
(C) Maximum available power
(i) Certain passenger automobiles and light trucks
In the case of a vehicle to which paragraph (2)(A) applies,
the term "maximum available power" means the maximum power
available from the rechargeable energy storage system, during
a standard 10 second pulse power or equivalent test, divided
by such maximum power and the SAE net power of the heat
engine.
(ii) Other motor vehicles
In the case of a vehicle to which paragraph (2)(B) applies,
the term "maximum available power" means the maximum power
available from the rechargeable energy storage system, during
a standard 10 second pulse power or equivalent test, divided
by the vehicle's total traction power. For purposes of the
preceding sentence, the term "total traction power" means the
sum of the peak power from the rechargeable energy storage
system and the heat engine peak power of the vehicle, except
that if such storage system is the sole means by which the
vehicle can be driven, the total traction power is the peak
power of such storage system.
(e) New qualified alternative fuel motor vehicle credit
(1) Allowance of credit
Except as provided in paragraph (5), the new qualified
alternative fuel motor vehicle credit determined under this
subsection is an amount equal to the applicable percentage of the
incremental cost of any new qualified alternative fuel motor
vehicle placed in service by the taxpayer during the taxable
year.
(2) Applicable percentage
For purposes of paragraph (1), the applicable percentage with
respect to any new qualified alternative fuel motor vehicle is -
(A) 50 percent, plus
(B) 30 percent, if such vehicle -
(i) has received a certificate of conformity under the
Clean Air Act and meets or exceeds the most stringent
standard available for certification under the Clean Air Act
for that make and model year vehicle (other than a zero
emission standard), or
(ii) has received an order certifying the vehicle as
meeting the same requirements as vehicles which may be sold
or leased in California and meets or exceeds the most
stringent standard available for certification under the
State laws of California (enacted in accordance with a waiver
granted under section 209(b) of the Clean Air Act) for that
make and model year vehicle (other than a zero emission
standard).
For purposes of the preceding sentence, in the case of any new
qualified alternative fuel motor vehicle which weighs more than
14,000 pounds gross vehicle weight rating, the most stringent
standard available shall be such standard available for
certification on the date of the enactment of the Energy Tax
Incentives Act of 2005.
(3) Incremental cost
For purposes of this subsection, the incremental cost of any
new qualified alternative fuel motor vehicle is equal to the
amount of the excess of the manufacturer's suggested retail price
for such vehicle over such price for a gasoline or diesel fuel
motor vehicle of the same model, to the extent such amount does
not exceed -
(A) $5,000, if such vehicle has a gross vehicle weight rating
of not more than 8,500 pounds,
(B) $10,000, if such vehicle has a gross vehicle weight
rating of more than 8,500 pounds but not more than 14,000
pounds,
(C) $25,000, if such vehicle has a gross vehicle weight
rating of more than 14,000 pounds but not more than 26,000
pounds, and
(D) $40,000, if such vehicle has a gross vehicle weight
rating of more than 26,000 pounds.
(4) New qualified alternative fuel motor vehicle
For purposes of this subsection -
(A) In general
The term "new qualified alternative fuel motor vehicle" means
any motor vehicle -
(i) which is only capable of operating on an alternative
fuel,
(ii) the original use of which commences with the taxpayer,
(iii) which is acquired by the taxpayer for use or lease,
but not for resale, and
(iv) which is made by a manufacturer.
(B) Alternative fuel
The term "alternative fuel" means compressed natural gas,
liquefied natural gas, liquefied petroleum gas, hydrogen, and
any liquid at least 85 percent of the volume of which consists
of methanol.
(5) Credit for mixed-fuel vehicles
(A) In general
In the case of a mixed-fuel vehicle placed in service by the
taxpayer during the taxable year, the credit determined under
this subsection is an amount equal to -
(i) in the case of a 75/25 mixed-fuel vehicle, 70 percent
of the credit which would have been allowed under this
subsection if such vehicle was a qualified alternative fuel
motor vehicle, and
(ii) in the case of a 90/10 mixed-fuel vehicle, 90 percent
of the credit which would have been allowed under this
subsection if such vehicle was a qualified alternative fuel
motor vehicle.
(B) Mixed-fuel vehicle
For purposes of this subsection, the term "mixed-fuel
vehicle" means any motor vehicle described in subparagraph (C)
or (D) of paragraph (3), which -
(i) is certified by the manufacturer as being able to
perform efficiently in normal operation on a combination of
an alternative fuel and a petroleum-based fuel,
(ii) either -
(I) has received a certificate of conformity under the
Clean Air Act, or
(II) has received an order certifying the vehicle as
meeting the same requirements as vehicles which may be sold
or leased in California and meets or exceeds the low
emission vehicle standard under section 88.105-94 of title
40, Code of Federal Regulations, for that make and model
year vehicle,
(iii) the original use of which commences with the
taxpayer,
(iv) which is acquired by the taxpayer for use or lease,
but not for resale, and
(v) which is made by a manufacturer.
(C) 75/25 mixed-fuel vehicle
For purposes of this subsection, the term "75/25 mixed-fuel
vehicle" means a mixed-fuel vehicle which operates using at
least 75 percent alternative fuel and not more than 25 percent
petroleum-based fuel.
(D) 90/10 mixed-fuel vehicle
For purposes of this subsection, the term "90/10 mixed-fuel
vehicle" means a mixed-fuel vehicle which operates using at
least 90 percent alternative fuel and not more than 10 percent
petroleum-based fuel.
(f) Limitation on number of new qualified hybrid and advanced lean-
burn technology vehicles eligible for credit
(1) In general
In the case of a qualified vehicle sold during the phaseout
period, only the applicable percentage of the credit otherwise
allowable under subsection (c) or (d) shall be allowed.
(2) Phaseout period
For purposes of this subsection, the phaseout period is the
period beginning with the second calendar quarter following the
calendar quarter which includes the first date on which the
number of qualified vehicles manufactured by the manufacturer of
the vehicle referred to in paragraph (1) sold for use in the
United States after December 31, 2005, is at least 60,000.
(3) Applicable percentage
For purposes of paragraph (1), the applicable percentage is -
(A) 50 percent for the first 2 calendar quarters of the
phaseout period,
(B) 25 percent for the 3d and 4th calendar quarters of the
phaseout period, and
(C) 0 percent for each calendar quarter thereafter.
(4) Controlled groups
(A) In general
For purposes of this subsection, all persons treated as a
single employer under subsection (a) or (b) of section 52 or
subsection (m) or (o) of section 414 shall be treated as a
single manufacturer.
(B) Inclusion of foreign corporations
For purposes of subparagraph (A), in applying subsections (a)
and (b) of section 52 to this section, section 1563 shall be
applied without regard to subsection (b)(2)(C) thereof.
(5) Qualified vehicle
For purposes of this subsection, the term "qualified vehicle"
means any new qualified hybrid motor vehicle (described in
subsection (d)(2)(A)) and any new advanced lean burn technology
motor vehicle.
(g) Application with other credits
(1) Business credit treated as part of general business credit
So much of the credit which would be allowed under subsection
(a) for any taxable year (determined without regard to this
subsection) that is attributable to property of a character
subject to an allowance for depreciation shall be treated as a
credit listed in section 38(b) for such taxable year (and not
allowed under subsection (a)).
(2) Personal credit
The credit allowed under subsection (a) (after the application
of paragraph (1)) for any taxable year shall not exceed the
excess (if any) of -
(A) the regular tax liability (as defined in section 26(b))
reduced by the sum of the credits allowable under subpart A and
sections 27 and 30, over
(B) the tentative minimum tax for the taxable year.
(h) Other definitions and special rules
For purposes of this section -
(1) Motor vehicle
The term "motor vehicle" has the meaning given such term by
section 30(c)(2).
(2) City fuel economy
The city fuel economy with respect to any vehicle shall be
measured in a manner which is substantially similar to the manner
city fuel economy is measured in accordance with procedures under
part 600 of subchapter Q of chapter I of title 40, Code of
Federal Regulations, as in effect on the date of the enactment of
this section.
(3) Other terms
The terms "automobile", "passenger automobile", "medium duty
passenger vehicle", "light truck", and "manufacturer" have the
meanings given such terms in regulations prescribed by the
Administrator of the Environmental Protection Agency for purposes
of the administration of title II of the Clean Air Act (42 U.S.C.
7521 et seq.).
(4) Reduction in basis
For purposes of this subtitle, the basis of any property for
which a credit is allowable under subsection (a) shall be reduced
by the amount of such credit so allowed (determined without
regard to subsection (g)).
(5) No double benefit
The amount of any deduction or other credit allowable under
this chapter -
(A) for any incremental cost taken into account in computing
the amount of the credit determined under subsection (e) shall
be reduced by the amount of such credit attributable to such
cost, and
(B) with respect to a vehicle described under subsection (b)
or (c), shall be reduced by the amount of credit allowed under
subsection (a) for such vehicle for the taxable year.
(6) Property used by tax-exempt entity
In the case of a vehicle whose use is described in paragraph
(3) or (4) of section 50(b) and which is not subject to a lease,
the person who sold such vehicle to the person or entity using
such vehicle shall be treated as the taxpayer that placed such
vehicle in service, but only if such person clearly discloses to
such person or entity in a document the amount of any credit
allowable under subsection (a) with respect to such vehicle
(determined without regard to subsection (g)). For purposes of
subsection (g), property to which this paragraph applies shall be
treated as of a character subject to an allowance for
depreciation.
(7) Property used outside United States, etc., not qualified
No credit shall be allowable under subsection (a) with respect
to any property referred to in section 50(b)(1) or with respect
to the portion of the cost of any property taken into account
under section 179.
(8) Recapture
The Secretary shall, by regulations, provide for recapturing
the benefit of any credit allowable under subsection (a) with
respect to any property which ceases to be property eligible for
such credit (including recapture in the case of a lease period of
less than the economic life of a vehicle).
(9) Election to not take credit
No credit shall be allowed under subsection (a) for any vehicle
if the taxpayer elects to not have this section apply to such
vehicle.
(10) Interaction with air quality and motor vehicle safety
standards
Unless otherwise provided in this section, a motor vehicle
shall not be considered eligible for a credit under this section
unless such vehicle is in compliance with -
(A) the applicable provisions of the Clean Air Act for the
applicable make and model year of the vehicle (or applicable
air quality provisions of State law in the case of a State
which has adopted such provision under a waiver under section
209(b) of the Clean Air Act), and
(B) the motor vehicle safety provisions of sections 30101
through 30169 of title 49, United States Code.
(i) Regulations
(1) In general
Except as provided in paragraph (2), the Secretary shall
promulgate such regulations as necessary to carry out the
provisions of this section.
(2) Coordination in prescription of certain regulations
The Secretary of the Treasury, in coordination with the
Secretary of Transportation and the Administrator of the
Environmental Protection Agency, shall prescribe such regulations
as necessary to determine whether a motor vehicle meets the
requirements to be eligible for a credit under this section.
(j) Termination
This section shall not apply to any property purchased after -
(1) in the case of a new qualified fuel cell motor vehicle (as
described in subsection (b)), December 31, 2014,
(2) in the case of a new advanced lean burn technology motor
vehicle (as described in subsection (c)) or a new qualified
hybrid motor vehicle (as described in subsection (d)(2)(A)),
December 31, 2010,
(3) in the case of a new qualified hybrid motor vehicle (as
described in subsection (d)(2)(B)), December 31, 2009, and
(4) in the case of a new qualified alternative fuel vehicle (as
described in subsection (e)), December 31, 2010.
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1341(a), Aug. 8, 2005, 119
Stat. 1038; amended Pub. L. 109-135, title IV, Secs. 402(j),
412(d), Dec. 21, 2005, 119 Stat. 2615, 2636.)
-REFTEXT-
REFERENCES IN TEXT
The Clean Air Act, referred to in text, is act July 14, 1955, ch.
360, 69 Stat. 322, as amended, which is classified generally to
chapter 85 (Sec. 7401 et seq.) of Title 42, The Public Health and
Welfare. Title II of the Act, known as the National Emissions
Standards Act, is classified generally to subchapter II (Sec. 7521
et seq.) of chapter 85 of Title 42. Sections 202(i), 209(b), and
243(e)(2) of the Act are classified to sections 7521(i), 7543(b),
and 7583(e)(2), respectively, of Title 42. For complete
classification of this Act to the Code, see Short Title note set
out under section 7401 of Title 42 and Tables.
The date of the enactment of this section, referred to in
subsecs. (b)(3)(B) and (h)(2), is the date of enactment of Pub. L.
109-58, which was approved Aug. 8, 2005.
The date of the enactment of the Energy Tax Incentives Act of
2005, referred to in subsec. (e)(2), is the date of enactment of
title XIII of Pub. L. 109-58, which was approved Aug. 8, 2005.
-MISC1-
AMENDMENTS
2005 - Subsec. (g)(2)(A). Pub. L. 109-135, Sec. 412(d),
substituted "regular tax liability (as defined in section 26(b))"
for "regular tax".
Subsec. (h)(6). Pub. L. 109-135, Sec. 402(j), inserted at end
"For purposes of subsection (g), property to which this paragraph
applies shall be treated as of a character subject to an allowance
for depreciation."
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by section 402(j) of Pub. L. 109-135 effective as if
included in the provision of the Energy Policy Act of 2005, Pub. L.
109-58, to which such amendment relates, see section 402(m)(1) of
Pub. L. 109-135, set out as an Effective and Termination Dates of
2005 Amendments note under section 23 of this title.
EFFECTIVE DATE
Pub. L. 109-58, title XIII, Sec. 1341(c), Aug. 8, 2005, 119 Stat.
1049, provided that: "The amendments made by this section [enacting
this section and amending sections 38, 55, 1016, and 6501 of this
title] shall apply to property placed in service after December 31,
2005, in taxable years ending after such date."
-End-
-CITE-
26 USC Sec. 30C 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart B - Other Credits
-HEAD-
Sec. 30C. Alternative fuel vehicle refueling property credit
-STATUTE-
(a) Credit allowed
There shall be allowed as a credit against the tax imposed by
this chapter for the taxable year an amount equal to 30 percent of
the cost of any qualified alternative fuel vehicle refueling
property placed in service by the taxpayer during the taxable year.
(b) Limitation
The credit allowed under subsection (a) with respect to any
alternative fuel vehicle refueling property shall not exceed -
(1) $30,000 in the case of a property of a character subject to
an allowance for depreciation, and
(2) $1,000 in any other case.
(c) Qualified alternative fuel vehicle refueling property
(1) In general
Except as provided in paragraph (2), the term "qualified
alternative fuel vehicle refueling property" has the meaning
given to such term by section 179A(d),(!1) but only with respect
to any fuel -
(A) at least 85 percent of the volume of which consists of
one or more of the following: ethanol, natural gas, compressed
natural gas, liquefied natural gas, liquefied petroleum gas, or
hydrogen, or
(B) any mixture of biodiesel (as defined in section
40A(d)(1)) and diesel fuel (as defined in section 4083(a)(3)),
determined without regard to any use of kerosene and containing
at least 20 percent biodiesel.
(2) Residential property
In the case of any property installed on property which is used
as the principal residence (within the meaning of section 121) of
the taxpayer, paragraph (1) of section 179A(d) shall not apply.
(d) Application with other credits
(1) Business credit treated as part of general business credit
So much of the credit which would be allowed under subsection
(a) for any taxable year (determined without regard to this
subsection) that is attributable to property of a character
subject to an allowance for depreciation shall be treated as a
credit listed in section 38(b) for such taxable year (and not
allowed under subsection (a)).
(2) Personal credit
The credit allowed under subsection (a) (after the application
of paragraph (1)) for any taxable year shall not exceed the
excess (if any) of -
(A) the regular tax liability (as defined in section 26(b))
reduced by the sum of the credits allowable under subpart A and
sections 27, 30, and 30B, over
(B) the tentative minimum tax for the taxable year.
(e) Special rules
For purposes of this section -
(1) Basis reduction
The basis of any property shall be reduced by the portion of
the cost of such property taken into account under subsection
(a).
(2) Property used by tax-exempt entity
In the case of any qualified alternative fuel vehicle refueling
property the use of which is described in paragraph (3) or (4) of
section 50(b) and which is not subject to a lease, the person who
sold such property to the person or entity using such property
shall be treated as the taxpayer that placed such property in
service, but only if such person clearly discloses to such person
or entity in a document the amount of any credit allowable under
subsection (a) with respect to such property (determined without
regard to subsection (d)). For purposes of subsection (d),
property to which this paragraph applies shall be treated as of a
character subject to an allowance for depreciation.
(3) Property used outside United States not qualified
No credit shall be allowable under subsection (a) with respect
to any property referred to in section 50(b)(1) or with respect
to the portion of the cost of any property taken into account
under section 179.
(4) Election not to take credit
No credit shall be allowed under subsection (a) for any
property if the taxpayer elects not to have this section apply to
such property.
(5) Recapture rules
Rules similar to the rules of section 179A(e)(4) shall apply.
(f) Regulations
The Secretary shall prescribe such regulations as necessary to
carry out the provisions of this section.
(g) Termination
This section shall not apply to any property placed in service -
(1) in the case of property relating to hydrogen, after
December 31, 2014, and
(2) in the case of any other property, after December 31, 2009.
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1342(a), Aug. 8, 2005, 119
Stat. 1049; amended Pub. L. 109-135, title IV, Secs. 402(k),
412(d), Dec. 21, 2005, 119 Stat. 2615, 2636.)
-REFTEXT-
REFERENCES IN TEXT
Section 179A(d), referred to in subsec. (c)(1), defines
"qualified clean-fuel vehicle refueling property", not "qualified
alternative fuel vehicle refueling property".
-MISC1-
AMENDMENTS
2005 - Subsec. (d)(2)(A). Pub. L. 109-135, Sec. 412(d),
substituted "regular tax liability (as defined in section 26(b))"
for "regular tax".
Subsec. (e)(2). Pub. L. 109-135, Sec. 402(k), inserted at end
"For purposes of subsection (d), property to which this paragraph
applies shall be treated as of a character subject to an allowance
for depreciation."
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by section 402(k) of Pub. L. 109-135 effective as if
included in the provision of the Energy Policy Act of 2005, Pub. L.
109-58, to which such amendment relates, see section 402(m)(1) of
Pub. L. 109-135, set out as an Effective and Termination Dates of
2005 Amendments note under section 23 of this title.
EFFECTIVE DATE
Pub. L. 109-58, title XIII, Sec. 1342(c), Aug. 8, 2005, 119 Stat.
1051, provided that: "The amendments made by this section [enacting
this section and amending sections 38, 55, 1016, and 6501 of this
title] shall apply to property placed in service after December 31,
2005, in taxable years ending after such date."
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Subpart C - Refundable Credits 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart C - Refundable Credits
-HEAD-
SUBPART C - REFUNDABLE CREDITS
-MISC1-
Sec.
31. Tax withheld on wages.
32. Earned income.
33. Tax withheld at source on nonresident aliens and
foreign corporations.
34. Certain uses of gasoline and special fuels.
35. Health insurance costs of eligible individuals.
36. Overpayments of tax.
AMENDMENTS
2002 - Pub. L. 107-210, div. A, title II, Sec. 201(c)(2), Aug. 6,
2002, 116 Stat. 960, which directed amendment of the table of
sections for subpart C of part IV of this chapter by adding items
35 and 36 and striking out the last item, was executed to the table
of sections for this subpart which is in part IV of subchapter A of
this chapter by adding those items and striking out former item 35
"Overpayments of tax" to reflect the probable intent of Congress.
1984 - Pub. L. 98-369, div. A, title IV, Sec. 471(b), July 18,
1984, 98 Stat. 826, added subpart C heading and analysis of
sections for subpart C consisting of items 31, 32 (formerly 43), 33
(formerly 32), 34 (formerly 39), and 35 (formerly 45). Former
subpart C, setting out the rules for computing credit for expenses
of work incentive programs, was repealed.
-End-
-CITE-
26 USC Sec. 31 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart C - Refundable Credits
-HEAD-
Sec. 31. Tax withheld on wages
-STATUTE-
(a) Wage withholding for income tax purposes
(1) In general
The amount withheld as tax under chapter 24 shall be allowed to
the recipient of the income as a credit against the tax imposed
by this subtitle.
(2) Year of credit
The amount so withheld during any calendar year shall be
allowed as a credit for the taxable year beginning in such
calendar year. If more than one taxable year begins in a calendar
year, such amount shall be allowed as a credit for the last
taxable year so beginning.
(b) Credit for special refunds of social security tax
(1) In general
The Secretary may prescribe regulations providing for the
crediting against the tax imposed by this subtitle of the amount
determined by the taxpayer or the Secretary to be allowable under
section 6413(c) as a special refund of tax imposed on wages. The
amount allowed as a credit under such regulations shall, for
purposes of this subtitle, be considered an amount withheld at
source as tax under section 3402.
(2) Year of credit
Any amount to which paragraph (1) applies shall be allowed as a
credit for the taxable year beginning in the calendar year during
which the wages were received. If more than one taxable year
begins in the calendar year, such amount shall be allowed as a
credit for the last taxable year so beginning.
(c) Special rule for backup withholding
Any credit allowed by subsection (a) for any amount withheld
under section 3406 shall be allowed for the taxable year of the
recipient of the income in which the income is received.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 12; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(D), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97-248,
title III, Secs. 302(a), 308(a), Sept. 3, 1982, 96 Stat. 585, 591;
Pub. L. 97-354, Sec. 3(i)(4), Oct. 19, 1982, 96 Stat. 1691; Pub. L.
97-448, title III, Sec. 306(b)(1), Jan. 12, 1983, 96 Stat. 2405;
Pub. L. 98-67, title I, Secs. 102(a), 104(d)(2), Aug. 5, 1983, 97
Stat. 369, 379; Pub. L. 98-369, div. A, title IV, Sec. 471(c),
title VII, Sec. 714(j)(2), July 18, 1984, 98 Stat. 826, 962.)
-MISC1-
AMENDMENTS
1984 - Subsec. (a)(1). Pub. L. 98-369, Sec. 714(j)(2),
substituted "as tax under chapter 24" for "under section 3402 as
tax on the wages of any individual".
1983 - Pub. L. 98-67 added subsec. (c) and repealed amendments
made by Pub. L. 97-248. See 1982 Amendment note below.
Pub. L. 97-448 amended subsec. (d) generally. See 1982 Amendment
note below.
1982 - Pub. L. 97-248, as amended by Pub. L. 97-354 and Pub. L.
97-448, amended section generally, applicable to payments of
interest, dividends, and patronage dividends paid or credited after
June 30, 1983. Section 102(a), (b) of Pub. L. 98-67, title I, Aug.
5, 1983, 97 Stat. 369, repealed subtitle A (Secs. 301-308) of title
III of Pub. L. 97-248 as of the close of June 30, 1983, and
provided that the Internal Revenue Code of 1954 [now 1986] [this
title] shall be applied and administered (subject to certain
exceptions) as if such subtitle A (and the amendments made by such
subtitle A) had not been enacted.
1976 - Subsec. (b)(1). Pub. L. 94-455 struck out "or his
delegate" after "The Secretary" and "(or his delegate)" after
"taxpayer or the Secretary".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 715 of Pub. L. 98-369 provided that: "Any amendment made
by this subtitle [subtitle A (Secs. 711-715) of title VII of Pub.
L. 98-369, see Tables for classification] shall take effect as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982 [Pub. L. 97-248] to which such amendment
relates."
EFFECTIVE DATE OF 1983 AMENDMENTS
Section 110 of title I of Pub. L. 98-67 provided that:
"(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this title [enacting sections 3406
and 6705 of this title, amending this section and sections 274,
275, 643, 661, 3402, 3403, 3502, 3507, 6011, 6013, 6015, 6042,
6044, 6049, 6051, 6365, 6401, 6413, 6652, 6653, 6654, 6676, 6678,
6682, 7205, 7215, 7431, 7654, and 7701 of this title, repealing
sections 3451 to 3456 of this title, enacting provisions set out as
notes under sections 1, 3451, and 6011 of this title, and repealing
provisions set out as a note under section 3451 of this title]
shall apply with respect to payments made after December 31, 1983.
"(b) Section 102. - The amendments made by section 102 [amending
this section and sections 274, 275, 643, 661, 3403, 3502, 3507,
6013, 6015, 6042, 6044, 6049, 6051, 6365, 6401, 6413, 6654, 6682,
7205, 7215, 7654, and 7701 of this title, repealing sections 3451
to 3456 of this title, enacting provisions set out as a note under
section 3451 of this title, and repealing provisions set out as a
note under section 3451 of this title] shall take effect as of the
close of June 30, 1983.
"(c) Sections 104(b) and 107. - The amendments made by sections
104(b) and 107 [amending sections 6682, 7205, and 7431 of this
title] shall take effect on the date of the enactment of this Act
[Aug. 5, 1983]."
Section 311(d) of Pub. L. 97-448 provided that: "The amendments
made by section 306 [amending this section and sections 48, 55,
263, 291, 312, 338, 401, 501, 1232, 6038A, 6226, 6228, 6679, and
7701 of this title, enacting provisions set out as notes under
sections 338 and 1232 of this title, and amending provisions set
out as notes under sections 56, 72, 101, 103, 168, 302, 311, 338,
415, 907, and 5701 of this title] shall take effect as if included
in the provisions of the Tax Equity and Fiscal Responsibility Act
of 1982 [Pub. L. 97-248] to which such amendments relate."
CONSTRUCTION OF AMENDMENT BY TITLE VII OF DIVISION A OF PUB. L.
98-369
Section 701 of title VII of div. A of Pub. L. 98-369 provided
that: "For purposes of applying the amendments made by any title of
this Act [see Tables for classification] other than this title, the
provisions of this title shall be treated as having been enacted
immediately before the provisions of such other titles."
-End-
-CITE-
26 USC Sec. 32 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart C - Refundable Credits
-HEAD-
Sec. 32. Earned income
-STATUTE-
(a) Allowance of credit
(1) In general
In the case of an eligible individual, there shall be allowed
as a credit against the tax imposed by this subtitle for the
taxable year an amount equal to the credit percentage of so much
of the taxpayer's earned income for the taxable year as does not
exceed the earned income amount.
(2) Limitation
The amount of the credit allowable to a taxpayer under
paragraph (1) for any taxable year shall not exceed the excess
(if any) of -
(A) the credit percentage of the earned income amount, over
(B) the phaseout percentage of so much of the adjusted gross
income (or, if greater, the earned income) of the taxpayer for
the taxable year as exceeds the phaseout amount.
(b) Percentages and amounts
For purposes of subsection (a) -
(1) Percentages
The credit percentage and the phaseout percentage shall be
determined as follows:
(A) In general
In the case of taxable years beginning after 1995:
In the case of an eligible The credit The
individual with: percentage phaseout
is: percentage
is:
--------------------------------------------------------------------
1 qualifying child 34 15.98
2 or more qualifying children 40 21.06
No qualifying children 7.65 7.65
--------------------------------------------------------------------
(B) Transitional percentages for 1995
In the case of taxable years beginning in 1995:
In the case of an eligible The credit The
individual with: percentage phaseout
is: percentage
is:
--------------------------------------------------------------------
1 qualifying child 34 15.98
2 or more qualifying children 36 20.22
No qualifying children 7.65 7.65
--------------------------------------------------------------------
(C) Transitional percentages for 1994
In the case of a taxable year beginning in 1994:
In the case of an eligible The credit The
individual with: percentage phaseout
is: percentage
is:
--------------------------------------------------------------------
1 qualifying child 26.3 15.98
2 or more qualifying children 30 17.68
No qualifying children 7.65 7.65
--------------------------------------------------------------------
(2) Amounts
(A) In general
Subject to subparagraph (B), the earned income amount and the
phaseout amount shall be determined as follows:
In the case of an eligible The earned The
individual with: income amount phaseout
is: amount is:
--------------------------------------------------------------------
1 qualifying child $6,330 $11,610
2 or more qualifying children $8,890 $11,610
No qualifying children $4,220 $5,280
--------------------------------------------------------------------
(B) Joint returns
In the case of a joint return filed by an eligible individual
and such individual's spouse, the phaseout amount determined
under subparagraph (A) shall be increased by -
(i) $1,000 in the case of taxable years beginning in 2002,
2003, and 2004,
(ii) $2,000 in the case of taxable years beginning in 2005,
2006, and 2007, and
(iii) $3,000 in the case of taxable years beginning after
2007.
(c) Definitions and special rules
For purposes of this section -
(1) Eligible individual
(A) In general
The term "eligible individual" means -
(i) any individual who has a qualifying child for the
taxable year, or
(ii) any other individual who does not have a qualifying
child for the taxable year, if -
(I) such individual's principal place of abode is in the
United States for more than one-half of such taxable year,
(II) such individual (or, if the individual is married,
either the individual or the individual's spouse) has
attained age 25 but not attained age 65 before the close of
the taxable year, and
(III) such individual is not a dependent for whom a
deduction is allowable under section 151 to another
taxpayer for any taxable year beginning in the same
calendar year as such taxable year.
For purposes of the preceding sentence, marital status shall
be determined under section 7703.
(B) Qualifying child ineligible
If an individual is the qualifying child of a taxpayer for
any taxable year of such taxpayer beginning in a calendar year,
such individual shall not be treated as an eligible individual
for any taxable year of such individual beginning in such
calendar year.
(C) Exception for individual claiming benefits under section
911
The term "eligible individual" does not include any
individual who claims the benefits of section 911 (relating to
citizens or residents living abroad) for the taxable year.
(D) Limitation on eligibility of nonresident aliens
The term "eligible individual" shall not include any
individual who is a nonresident alien individual for any
portion of the taxable year unless such individual is treated
for such taxable year as a resident of the United States for
purposes of this chapter by reason of an election under
subsection (g) or (h) of section 6013.
(E) Identification number requirement
No credit shall be allowed under this section to an eligible
individual who does not include on the return of tax for the
taxable year -
(i) such individual's taxpayer identification number, and
(ii) if the individual is married (within the meaning of
section 7703), the taxpayer identification number of such
individual's spouse.
(F) Individuals who do not include TIN, etc., of any qualifying
child
No credit shall be allowed under this section to any eligible
individual who has one or more qualifying children if no
qualifying child of such individual is taken into account under
subsection (b) by reason of paragraph (3)(D).
(2) Earned income
(A) The term "earned income" means -
(i) wages, salaries, tips, and other employee compensation,
but only if such amounts are includible in gross income for the
taxable year, plus
(ii) the amount of the taxpayer's net earnings from self-
employment for the taxable year (within the meaning of section
1402(a)), but such net earnings shall be determined with regard
to the deduction allowed to the taxpayer by section 164(f).
(B) For purposes of subparagraph (A) -
(i) the earned income of an individual shall be computed
without regard to any community property laws,
(ii) no amount received as a pension or annuity shall be
taken into account,
(iii) no amount to which section 871(a) applies (relating to
income of nonresident alien individuals not connected with
United States business) shall be taken into account,
(iv) no amount received for services provided by an
individual while the individual is an inmate at a penal
institution shall be taken into account,
(v) no amount described in subparagraph (A) received for
service performed in work activities as defined in paragraph
(4) or (7) of section 407(d) of the Social Security Act to
which the taxpayer is assigned under any State program under
part A of title IV of such Act shall be taken into account, but
only to the extent such amount is subsidized under such State
program, and
(vi) in the case of any taxable year ending -
(I) after the date of the enactment of this clause, and
(II) before January 1, 2007,
a taxpayer may elect to treat amounts excluded from gross
income by reason of section 112 as earned income.
(3) Qualifying child
(A) In general
The term "qualifying child" means a qualifying child of the
taxpayer (as defined in section 152(c), determined without
regard to paragraph (1)(D) thereof and section 152(e)).
(B) Married individual
The term "qualifying child" shall not include an individual
who is married as of the close of the taxpayer's taxable year
unless the taxpayer is entitled to a deduction under section
151 for such taxable year with respect to such individual (or
would be so entitled but for section 152(e)).
(C) Place of abode
For purposes of subparagraph (A), the requirements of section
152(c)(1)(B) shall be met only if the principal place of abode
is in the United States.
(D) Identification requirements
(i) In general
A qualifying child shall not be taken into account under
subsection (b) unless the taxpayer includes the name, age,
and TIN of the qualifying child on the return of tax for the
taxable year.
(ii) Other methods
The Secretary may prescribe other methods for providing the
information described in clause (i).
(4) Treatment of military personnel stationed outside the United
States
For purposes of paragraphs (1)(A)(ii)(I) and (3)(C), the
principal place of abode of a member of the Armed Forces of the
United States shall be treated as in the United States during any
period during which such member is stationed outside the United
States while serving on extended active duty with the Armed
Forces of the United States. For purposes of the preceding
sentence, the term "extended active duty" means any period of
active duty pursuant to a call or order to such duty for a period
in excess of 90 days or for an indefinite period.
(d) Married individuals
In the case of an individual who is married (within the meaning
of section 7703), this section shall apply only if a joint return
is filed for the taxable year under section 6013.
(e) Taxable year must be full taxable year
Except in the case of a taxable year closed by reason of the
death of the taxpayer, no credit shall be allowable under this
section in the case of a taxable year covering a period of less
than 12 months.
(f) Amount of credit to be determined under tables
(1) In general
The amount of the credit allowed by this section shall be
determined under tables prescribed by the Secretary.
(2) Requirements for tables
The tables prescribed under paragraph (1) shall reflect the
provisions of subsections (a) and (b) and shall have income
brackets of not greater than $50 each -
(A) for earned income between $0 and the amount of earned
income at which the credit is phased out under subsection (b),
and
(B) for adjusted gross income between the dollar amount at
which the phaseout begins under subsection (b) and the amount
of adjusted gross income at which the credit is phased out
under subsection (b).
(g) Coordination with advance payments of earned income credit
(1) Recapture of excess advance payments
If any payment is made to the individual by an employer under
section 3507 during any calendar year, then the tax imposed by
this chapter for the individual's last taxable year beginning in
such calendar year shall be increased by the aggregate amount of
such payments.
(2) Reconciliation of payments advanced and credit allowed
Any increase in tax under paragraph (1) shall not be treated as
tax imposed by this chapter for purposes of determining the
amount of any credit (other than the credit allowed by subsection
(a)) allowable under this part.
[(h) Repealed. Pub. L. 107-16, title III, Sec. 303(c), June 7,
2001, 115 Stat. 55]
(i) Denial of credit for individuals having excessive investment
income
(1) In general
No credit shall be allowed under subsection (a) for the taxable
year if the aggregate amount of disqualified income of the
taxpayer for the taxable year exceeds $2,200.
(2) Disqualified income
For purposes of paragraph (1), the term "disqualified income"
means -
(A) interest or dividends to the extent includible in gross
income for the taxable year,
(B) interest received or accrued during the taxable year
which is exempt from tax imposed by this chapter,
(C) the excess (if any) of -
(i) gross income from rents or royalties not derived in the
ordinary course of a trade or business, over
(ii) the sum of -
(I) the deductions (other than interest) which are
clearly and directly allocable to such gross income, plus
(II) interest deductions properly allocable to such gross
income,
(D) the capital gain net income (as defined in section 1222)
of the taxpayer for such taxable year, and
(E) the excess (if any) of -
(i) the aggregate income from all passive activities for
the taxable year (determined without regard to any amount
included in earned income under subsection (c)(2) or
described in a preceding subparagraph), over
(ii) the aggregate losses from all passive activities for
the taxable year (as so determined).
For purposes of subparagraph (E), the term "passive activity" has
the meaning given such term by section 469.
(j) Inflation adjustments
(1) In general
In the case of any taxable year beginning after 1996, each of
the dollar amounts in subsections (b)(2) and (i)(1) shall be
increased by an amount equal to -
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
determined -
(i) in the case of amounts in subsections (b)(2)(A) and
(i)(1), by substituting "calendar year 1995" for "calendar
year 1992" in subparagraph (B) thereof, and
(ii) in the case of the $3,000 amount in subsection
(b)(2)(B)(iii), by substituting "calendar year 2007" for
"calendar year 1992" in subparagraph (B) of such section 1.
(2) Rounding
(A) In general
If any dollar amount in subsection (b)(2)(A) (after being
increased under subparagraph (B) thereof), after being
increased under paragraph (1), is not a multiple of $10, such
dollar amount shall be rounded to the nearest multiple of $10.
(B) Disqualified income threshold amount
If the dollar amount in subsection (i)(1), after being
increased under paragraph (1), is not a multiple of $50, such
amount shall be rounded to the next lowest multiple of $50.
(k) Restrictions on taxpayers who improperly claimed credit in
prior year
(1) Taxpayers making prior fraudulent or reckless claims
(A) In general
No credit shall be allowed under this section for any taxable
year in the disallowance period.
(B) Disallowance period
For purposes of paragraph (1), the disallowance period is -
(i) the period of 10 taxable years after the most recent
taxable year for which there was a final determination that
the taxpayer's claim of credit under this section was due to
fraud, and
(ii) the period of 2 taxable years after the most recent
taxable year for which there was a final determination that
the taxpayer's claim of credit under this section was due to
reckless or intentional disregard of rules and regulations
(but not due to fraud).
(2) Taxpayers making improper prior claims
In the case of a taxpayer who is denied credit under this
section for any taxable year as a result of the deficiency
procedures under subchapter B of chapter 63, no credit shall be
allowed under this section for any subsequent taxable year unless
the taxpayer provides such information as the Secretary may
require to demonstrate eligibility for such credit.
(l) Coordination with certain means-tested programs
For purposes of -
(1) the United States Housing Act of 1937,
(2) title V of the Housing Act of 1949,
(3) section 101 of the Housing and Urban Development Act of
1965,
(4) sections 221(d)(3), 235, and 236 of the National Housing
Act, and
(5) the Food Stamp Act of 1977,
any refund made to an individual (or the spouse of an individual)
by reason of this section, and any payment made to such individual
(or such spouse) by an employer under section 3507, shall not be
treated as income (and shall not be taken into account in
determining resources for the month of its receipt and the
following month).
(m) Identification numbers
Solely for purposes of subsections (c)(1)(E) and (c)(3)(D), a
taxpayer identification number means a social security number
issued to an individual by the Social Security Administration
(other than a social security number issued pursuant to clause (II)
(or that portion of clause (III) that relates to clause (II)) of
section 205(c)(2)(B)(i) of the Social Security Act).
-SOURCE-
(Added Pub. L. 94-12, title II, Sec. 204(a), Mar. 29, 1975, 89
Stat. 30, Sec. 43; amended Pub. L. 94-164, Sec. 2(c), Dec. 23,
1975, 89 Stat. 971; Pub. L. 94-455, title IV, Sec. 401(c)(1)(B),
(2), Oct. 4, 1976, 90 Stat. 1557; Pub. L. 95-600, title I, Secs.
104(a)-(e), 105(a), Nov. 6, 1978, 92 Stat. 2772, 2773; Pub. L. 95-
615, Sec. 202(g)(5), formerly Sec. 202(f)(5), Nov. 8, 1978, 92
Stat. 3100, renumbered Sec. 202(g)(5) and amended Pub. L. 96-222,
title I, Secs. 101(a)(1), (2)(E), 108(a)(1)(A), Apr. 1, 1980, 94
Stat. 194, 195, 223; Pub. L. 97-34, title I, Secs. 111(b)(2),
112(b)(3), Aug. 13, 1981, 95 Stat. 194, 195; Pub. L. 98-21, title
I, Sec. 124(c)(4)(B), Apr. 20, 1983, 97 Stat. 91; renumbered Sec.
32 and amended Pub. L. 98-369, div. A, title IV, Secs. 423(c)(3),
471(c), title X, Sec. 1042(a)-(d)(2), July 18, 1984, 98 Stat. 801,
826, 1043; Pub. L. 99-514, title I, Secs. 104(b)(1)(B), 111(a)-
(d)(1), title XII, Sec. 1272(d)(4), title XIII, Sec. 1301(j)(8),
Oct. 22, 1986, 100 Stat. 2104, 2107, 2594, 2658; Pub. L. 100-647,
title I, Secs. 1001(c), 1007(g)(12), Nov. 10, 1988, 102 Stat. 3350,
3436; Pub. L. 101-508, title XI, Secs. 11101(d)(1)(B), 11111(a),
(b), (e), Nov. 5, 1990, 104 Stat. 1388-405, 1388-408, 1388-412,
1388-413; Pub. L. 103-66, title XIII, Sec. 13131(a)-(d)(1), Aug.
10, 1993, 107 Stat. 433-435; Pub. L. 103-465, title VII, Secs.
721(a), 722(a), 723(a), 742(a), Dec. 8, 1994, 108 Stat. 5002, 5003,
5010; Pub. L. 104-7, Sec. 4(a), Apr. 11, 1995, 109 Stat. 95; Pub.
L. 104-193, title IV, Sec. 451(a), (b), title IX, Secs. 909(a),
(b), 910(a), (b), Aug. 22, 1996, 110 Stat. 2276, 2277, 2351, 2352;
Pub. L. 105-34, title I, Sec. 101(b), title III, Sec. 312(d)(2),
title X, Sec. 1085(a)(1), (b)-(d), Aug. 5, 1997, 111 Stat. 798,
840, 955, 956; Pub. L. 105-206, title VI, Secs. 6003(b),
6010(p)(1), (2), 6021(a), (b), July 22, 1998, 112 Stat. 791, 816,
817, 823, 824; Pub. L. 106-170, title IV, Sec. 412(a), Dec. 17,
1999, 113 Stat. 1917; Pub. L. 107-16, title II, Sec. 201(c)(3),
title III, Sec. 303(a)-(f), (h), June 7, 2001, 115 Stat. 47, 55-57;
Pub. L. 107-147, title IV, Sec. 416(a)(1), Mar. 9, 2002, 116 Stat.
55; Pub. L. 108-311, title I, Sec. 104(b), title II, Sec. 205, Oct.
4, 2004, 118 Stat. 1169, 1176; Pub. L. 109-135, title III, Sec.
302(a), Dec. 21, 2005, 119 Stat. 2608.)
-STATAMEND-
EARNED INCOME TAXABLE CREDIT ADJUSTMENT FOR TAXABLE YEARS BEGINNING
IN 2006
For adjustment of earned income tax credit under this section for
taxable years beginning in 2006, see section 3.06 of Revenue
Procedure 2005-70, set out as a note under section 1 of this title.
AMENDMENT OF SECTION
For termination of amendment by section 105 of Pub. L. 108-311,
see Effective and Termination Dates of 2004 Amendment note below.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The Social Security Act, referred to in subsecs. (c)(2)(B)(v) and
(m), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Part
A of title IV of the Act is classified generally to part A (Sec.
601 et seq.) of subchapter IV of chapter 7 of Title 42, The Public
Health and Welfare. Sections 205(c)(2)(B)(i) and 407(d)(4), (7) of
the Act are classified to sections 405(c)(2)(B)(i) and 607(d)(4),
(7), respectively, of Title 42. For complete classification of this
Act to the Code, see section 1305 of Title 42 and Tables.
The date of the enactment of this clause, referred to in subsec.
(c)(2)(B)(vi)(I), is the date of enactment of Pub. L. 108-311,
which was approved Oct. 4, 2004.
The United States Housing Act of 1937, referred to in subsec.
(l)(1), is act Sept. 1, 1937, ch. 896, as revised generally by Pub.
L. 93-383, title II, Sec. 201(a), Aug. 22, 1974, 88 Stat. 653,
which is classified generally to chapter 8 (Sec. 1437 et seq.) of
Title 42, The Public Health and Welfare. For complete
classification of this Act to the Code, see Short Title note under
section 1437 of Title 42 and Tables.
The Housing Act of 1949, referred to in subsec. (l)(2), is act
July 15, 1949, ch. 338, 63 Stat. 413, as amended. Title V of the
Act is classified generally to subchapter III (Sec. 1471 et seq.)
of chapter 8A of Title 42. For complete classification of this Act
to the Code, see Short Title note set out under section 1441 of
Title 42 and Tables.
Section 101 of the Housing and Urban Development Act of 1965,
referred to in subsec. (l)(3), is section 101 of Pub. L. 89-117,
title I, Aug. 10, 1965, 79 Stat. 451, which enacted section 1701s
of Title 12, Banks and Banking, and amended sections 1451 and 1465
of Title 42.
Sections 221(d)(3), 235, and 236 of the National Housing Act,
referred to in subsec. (l)(4), are classified to sections
1715l(d)(3), 1715z, and 1715z-1, respectively, of Title 12.
The Food Stamp Act of 1977, referred to in subsec. (l)(5), is
Pub. L. 88-525, Aug. 31, 1964, 78 Stat. 703, as amended, which is
classified generally to chapter 51 (Sec. 2011 et seq.) of Title 7,
Agriculture. For complete classification of this Act to the Code,
see Short Title note set out under section 2011 of Title 7 and
Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 32 was renumbered section 33 of this title.
AMENDMENTS
2005 - Subsec. (c)(2)(B)(vi)(II). Pub. L. 109-135 substituted
"January 1, 2007" for "January 1, 2006".
2004 - Subsec. (c)(1)(C) to (G). Pub. L. 108-311, Sec. 205(b)(1),
redesignated subpars. (D) to (G) as (C) to (F), respectively, and
struck out former subpar. (C) which related to 2 or more claiming
qualifying child.
Subsec. (c)(2)(B)(vi). Pub. L. 108-311, Secs. 104(b), 105,
temporarily added cl. (vi). See Effective and Termination Dates of
2004 Amendment note below.
Subsec. (c)(3). Pub. L. 108-311, Sec. 205(a), amended par. (3)
generally, substituting subpars. (A) to (D) for former subpars. (A)
to (E), relating to qualifying child in general, relationship test,
age requirements, identification requirements, and place of abode
requirements.
Subsec. (c)(4). Pub. L. 108-311, Sec. 205(b)(2), substituted
"(3)(C)" for "(3)(E)".
Subsec. (m). Pub. L. 108-311, Sec. 205(b)(3), substituted
"(c)(1)(E)" for "(c)(1)(F)".
2002 - Subsec. (g)(2). Pub. L. 107-147 substituted "part" for
"subpart".
2001 - Subsec. (a)(2)(B). Pub. L. 107-16, Secs. 303(d)(1), 901,
temporarily struck out "modified" before "adjusted gross income".
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (b)(2). Pub. L. 107-16, Secs. 303(a)(1), 901, temporarily
reenacted par. heading without change, designated existing
provisions as subpar. (A), inserted subpar. heading, substituted
"Subject to subparagraph (B), the earned" for "The earned", and
added subpar. (B). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(1)(C). Pub. L. 107-16, Secs. 303(f), 901, temporarily
amended heading and text of subpar. (C) generally. Prior to
amendment, text read as follows: "If 2 or more individuals would
(but for this subparagraph and after application of subparagraph
(B)) be treated as eligible individuals with respect to the same
qualifying child for taxable years beginning in the same calendar
year, only the individual with the highest modified adjusted gross
income for such taxable years shall be treated as an eligible
individual with respect to such qualifying child." See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (c)(2)(A)(i). Pub. L. 107-16, Secs. 303(b), 901,
temporarily inserted ", but only if such amounts are includible in
gross income for the taxable year" after "other employee
compensation". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(3)(A)(ii). Pub. L. 107-16, Secs. 303(e)(2)(B), 901,
temporarily struck out "except as provided in subparagraph
(B)(iii)," before "who has". See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (c)(3)(B)(i). Pub. L. 107-16, Secs. 303(e)(1), 901,
temporarily reenacted heading, introductory provisions, and subcl.
(III) of cl. (i) without change and amended subcls. (I) and (II)
generally. Prior to amendment, subcls. (I) and (II) read as
follows:
"(I) a son or daughter of the taxpayer, or a descendant of
either,
"(II) a stepson or stepdaughter of the taxpayer, or."
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (c)(3)(B)(iii). Pub. L. 107-16, Secs. 303(e)(2)(A), 901,
temporarily reenacted heading without change and amended text
generally. Prior to amendment, text read as follows: "For purposes
of clause (i)(III), the term 'eligible foster child' means an
individual not described in clause (i)(I) or (II) who -
"(I) is a brother, sister, stepbrother, or stepsister of the
taxpayer (or a descendant of any such relative) or is placed with
the taxpayer by an authorized placement agency,
"(II) the taxpayer cares for as the taxpayer's own child, and
"(III) has the same principal place of abode as the taxpayer
for the taxpayer's entire taxable year."
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (c)(3)(E). Pub. L. 107-16, Secs. 303(h), 901, temporarily
substituted "subparagraph (A)(ii)" for "subparagraphs (A)(ii) and
(B)(iii)(II)". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(5). Pub. L. 107-16, Secs. 303(d)(2)(A), 901,
temporarily struck out heading and text of par. (5), which defined
"modified adjusted gross income" as meaning adjusted gross income
without regard to certain described amounts and increased by
certain described amounts. See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (f)(2)(B). Pub. L. 107-16, Secs. 303(d)(2)(B), 901,
temporarily struck out "modified" before "adjusted gross income" in
two places. See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (h). Pub. L. 107-16, Secs. 303(c), 901, temporarily
struck out heading and text of subsec. (h). Text read as follows:
"The credit allowed under this section for the taxable year shall
be reduced by the amount of tax imposed by section 55 (relating to
alternative minimum tax) with respect to such taxpayer for such
taxable year." See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (j)(1)(B). Pub. L. 107-16, Secs. 303(a)(2), 901,
temporarily amended subpar. (B) generally. Prior to amendment,
subpar. (B) read as follows: "the cost-of-living adjustment
determined under section 1(f)(3) for the calendar year in which the
taxable year begins, determined by substituting 'calendar year
1995' for 'calendar year 1992' in subparagraph (B) thereof." See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (j)(2)(A). Pub. L. 107-16, Secs. 303(a)(3), 901,
temporarily substituted "subsection (b)(2)(A) (after being
increased under subparagraph (B) thereof)" for "subsection (b)(2)".
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (n). Pub. L. 107-16, Secs. 201(c)(3), 901, temporarily
struck out heading and text of subsec. (n), which had increased
credit allowable under this section in the case of a taxpayer with
respect to whom a child tax credit is allowed under section 24(a),
described amount of increase, and set forth provisions relating to
coordination with other credits allowable under this part. See
Effective and Termination Dates of 2001 Amendment note below.
1999 - Subsec. (c)(3)(B)(iii). Pub. L. 106-170 added subcl. (I)
and redesignated former subcls. (I) and (II) as (II) and (III),
respectively.
1998 - Subsec. (c)(1)(F). Pub. L. 105-206, Sec. 6021(a), added
introductory provisions and struck out former introductory
provisions which read as follows: "The term 'eligible individual'
does not include any individual who does not include on the return
of tax for the taxable year - ".
Subsec. (c)(1)(G). Pub. L. 105-206, Sec. 6021(b)(2), added
subpar. (G).
Subsec. (c)(2)(B)(v). Pub. L. 105-206, Sec. 6010(p)(2), inserted
"shall be taken into account" before ", but only".
Subsec. (c)(3)(A)(ii) to (iv). Pub. L. 105-206, Sec. 6021(b)(3),
inserted "and" at end of cl. (ii), substituted a period for ", and"
at end of cl. (iii), and struck out cl. (iv) which read as follows:
"with respect to whom the taxpayer meets the identification
requirements of subparagraph (D)".
Subsec. (c)(3)(D)(i). Pub. L. 105-206, Sec. 6021(b)(1), reenacted
heading without change and amended text of cl. (i) generally. Prior
to amendment, text read as follows: "The requirements of this
subparagraph are met if the taxpayer includes the name, age, and
TIN of each qualifying child (without regard to this subparagraph)
on the return of tax for the taxable year."
Subsec. (c)(5)(A). Pub. L. 105-206, Sec. 6010(p)(1)(A), inserted
"and increased by the amounts described in subparagraph (C)" before
period at end.
Subsec. (c)(5)(B). Pub. L. 105-206, Sec. 6010(p)(1)(B), (C),
inserted "or" at end of cl. (iii) and substituted cl. (iv)(III) and
concluding provisions for former cls. (iv)(III), (v), (vi), and
concluding provisions which read as follows:
"(III) other trades or businesses
"(v) interest received or accrued during the taxable year which
is exempt from tax imposed by this chapter, and
"(vi) amounts received as a pension or annuity, and any
distributions or payments received from an individual retirement
plan, by the taxpayer during the taxable year to the extent not
included in gross income.
For purposes of clause (iv), there shall not be taken into account
items which are attributable to a trade or business which consists
of the performance of services by the taxpayer as an employee.
Clause (vi) shall not include any amount which is not includible in
gross income by reason of section 402(c), 403(a)(4), 403(b),
408(d)(3), (4), or (5), or 457(e)(10)."
Subsec. (c)(5)(C). Pub. L. 105-206, Sec. 6010(p)(1)(C), added
subpar. (C).
Subsecs. (m), (n). Pub. L. 105-206, Sec. 6003(b), redesignated
subsec. (m), relating to supplemental child credit, as (n) and
amended text generally. Prior to amendment, text read as follows:
"(1) In general. - In the case of a taxpayer with respect to whom
a credit is allowed under section 24 for the taxable year, there
shall be allowed as a credit under this section an amount equal to
the supplemental child credit (if any) determined for such taxpayer
for such taxable year under paragraph (2). Such credit shall be in
addition to the credit allowed under subsection (a).
"(2) Supplemental child credit. - For purposes of this
subsection, the supplemental child credit is an amount equal to the
excess (if any) of -
"(A) the amount determined under section 24(d)(1)(A), over
"(B) the amount determined under section 24(d)(1)(B).
The amounts referred to in subparagraphs (A) and (B) shall be
determined as if section 24(d) applied to all taxpayers.
"(3) Coordination with section 24. - The amount of the credit
under section 24 shall be reduced by the amount of the credit
allowed under this subsection."
1997 - Subsec. (c)(2)(B)(v). Pub. L. 105-34, Sec. 1085(c), added
cl. (v).
Subsec. (c)(4). Pub. L. 105-34, Sec. 312(d)(2), struck out "(as
defined in section 1034(h)(3)" after "serving on extended active
duty" and inserted at end "For purposes of the preceding sentence,
the term 'extended active duty' means any period of active duty
pursuant to a call or order to such duty for a period in excess of
90 days or for an indefinite period."
Subsec. (c)(5)(B). Pub. L. 105-34, Sec. 1085(d)(4), inserted at
end of concluding provisions "Clause (vi) shall not include any
amount which is not includible in gross income by reason of section
402(c), 403(a)(4), 403(b), 408(d)(3), (4), or (5), or 457(e)(10)."
Subsec. (c)(5)(B)(iv). Pub. L. 105-34, Sec. 1085(b), substituted
"75 percent" for "50 percent" in introductory provisions.
Subsec. (c)(5)(B)(v), (vi). Pub. L. 105-34, Sec. 1085(d)(1)-(3),
added cls. (v) and (vi).
Subsec. (k). Pub. L. 105-34, Sec. 1085(a)(1), added subsec. (k).
Former subsec. (k) redesignated (l).
Subsec. (l). Pub. L. 105-34, Sec. 1085(a)(1), redesignated
subsec. (k) as (l). Former subsec. (l) redesignated (m).
Subsec. (m). Pub. L. 105-34, Sec. 1085(a)(1), redesignated
subsec. (l) as (m) relating to identification numbers.
Pub. L. 105-34, Sec. 101(b), added subsec. (m) relating to
supplemental child credit.
1996 - Subsec. (a)(2)(B). Pub. L. 104-193, Sec. 910(a), inserted
"modified" before "adjusted gross income".
Subsec. (b)(2). Pub. L. 104-193, Sec. 909(a)(3), reenacted
heading without change and amended text generally. Prior to
amendment, text consisted of subpars. (A) and (B) setting out
tables for determining the earned income amount for taxable years
beginning after 1994 and for taxable years beginning in 1994.
Subsec. (c)(1)(C). Pub. L. 104-193, Sec. 910(a), inserted
"modified" before "adjusted gross income".
Subsec. (c)(1)(F). Pub. L. 104-193, Sec. 451(a), added subpar.
(F).
Subsec. (c)(5). Pub. L. 104-193, Sec. 910(b), added par. (5).
Subsec. (f)(2)(B). Pub. L. 104-193, Sec. 910(a), inserted
"modified" before "adjusted gross income" in two places.
Subsec. (i)(1). Pub. L. 104-193, Sec. 909(a)(1), substituted
"$2,200" for "$2,350".
Subsec. (i)(2). Pub. L. 104-193, Sec. 909(b), added subpars. (D)
and (E) and concluding provisions.
Subsec. (j). Pub. L. 104-193, Sec. 909(a)(2), reenacted heading
without change and amended text generally. Prior to amendment, text
read as follows:
"(1) In general. - In the case of any taxable year beginning
after 1994, each dollar amount contained in subsection (b)(2)(A)
shall be increased by an amount equal to -
"(A) such dollar amount, multiplied by
"(B) the cost-of-living adjustment determined under section
1(f)(3), for the calendar year in which the taxable year begins,
by substituting 'calendar year 1993' for 'calendar year 1992'.
"(2) Rounding. - If any dollar amount after being increased under
paragraph (1) is not a multiple of $10, such dollar amount shall be
rounded to the nearest multiple of $10 (or, if such dollar amount
is a multiple of $5, such dollar amount shall be increased to the
next higher multiple of $10)."
Subsec. (l). Pub. L. 104-193, Sec. 451(b), added subsec. (l).
1995 - Subsecs. (i) to (k). Pub. L. 104-7 added subsec. (i) and
redesignated former subsecs. (i) and (j) as (j) and (k),
respectively.
1994 - Subsec. (c)(1)(E). Pub. L. 103-465, Sec. 722(a), added
subpar. (E).
Subsec. (c)(2)(B)(iv). Pub. L. 103-465, Sec. 723(a), added cl.
(iv).
Subsec. (c)(3)(D)(i). Pub. L. 103-465, Sec. 742(a), amended
heading and text of cl. (i) generally. Prior to amendment, text
read as follows: "The requirements of this subparagraph are met if -
"(I) the taxpayer includes the name and age of each qualifying
child (without regard to this subparagraph) on the return of tax
for the taxable year, and
"(II) in the case of an individual who has attained the age of
1 year before the close of the taxpayer's taxable year, the
taxpayer includes the taxpayer identification number of such
individual on such return of tax for such taxable year."
Subsec. (c)(4). Pub. L. 103-465, Sec. 721(a), added par. (4).
1993 - Subsec. (a). Pub. L. 103-66, Sec. 13131(a), amended
heading and text of subsec. (a) generally. Prior to amendment, text
read as follows: "In the case of an eligible individual, there
shall be allowed as a credit against the tax imposed by this
subtitle for the taxable year an amount equal to the sum of -
"(1) the basic earned income credit, and
"(2) the health insurance credit."
Subsec. (b). Pub. L. 103-66, Sec. 13131(a), substituted
"Percentages and amounts" for "Computation of credit" in heading
and amended text generally. Prior to amendment, text related to
method of computation of both earned income credit and health
insurance credit.
Subsec. (c)(1)(A). Pub. L. 103-66, Sec. 13131(b), amended heading
and text of subpar. (A) generally. Prior to amendment, text read as
follows: "The term 'eligible individual' means any individual who
has a qualifying child for the taxable year."
Subsec. (c)(3)(D)(ii). Pub. L. 103-66, Sec. 13131(d)(1),
redesignated cl. (iii) as (ii), substituted "clause (i)" for
"clause (i) or (ii)", and struck out heading and text of former cl.
(ii). Text read as follows: "In the case of any taxpayer with
respect to which the health insurance credit is allowed under
subsection (a)(2), the Secretary may require a taxpayer to include
an insurance policy number or other adequate evidence of insurance
in addition to any information required to be included in clause
(i)."
Subsec. (i)(1). Pub. L. 103-66, Sec. 13131(c)(1), added par. (1)
and struck out text and heading of former par. (1). Text read as
follows: "In the case of any taxable year beginning after the
applicable calendar year, each dollar amount referred to in
paragraph (2)(B) shall be increased by an amount equal to -
"(A) such dollar amount, multiplied by
"(B) the cost-of-living adjustment determined under section
1(f)(3), for the calendar year in which the taxable year begins,
by substituting 'calendar year 1984' for 'calendar year 1989' in
subparagraph (B) thereof."
Subsec. (i)(2), (3). Pub. L. 103-66, Sec. 13131(c), redesignated
par. (3) as (2) and struck out former par. (2) which defined terms
for purposes of the inflation adjustment in par. (1).
1990 - Subsec. (a). Pub. L. 101-508, Sec. 11111(a), amended
subsec. (a) generally. Prior to amendment, subsec. (a) read as
follows: "In the case of an eligible individual, there is allowed
as a credit against the tax imposed by this subtitle for the
taxable year an amount equal to 14 percent of so much of the earned
income for the taxable year as does not exceed $5,714."
Subsec. (b). Pub. L. 101-508, Sec. 11111(a), substituted heading
for one which read "Limitation" and amended subsec. (b) generally.
Prior to amendment, subsec. (b) read as follows: "The amount of the
credit allowable to a taxpayer under subsection (a) for any taxable
year shall not exceed the excess (if any) of -
"(1) the maximum credit allowable under subsection (a) to any
taxpayer, over
"(2) 10 percent of so much of the adjusted gross income (or, if
greater, the earned income) of the taxpayer for the taxable year
as exceeds $9,000.
In the case of any taxable year beginning in 1987, paragraph (2)
shall be applied by substituting '$6,500' for '$9,000'."
Subsec. (c). Pub. L. 101-508, Sec. 11111(a), amended subsec. (c)
generally, inserting "and special rules" in heading and
substituting present provisions for provisions defining "eligible
individual" and "earned income".
Subsec. (i)(1)(B). Pub. L. 101-508, Sec. 11101(d)(1)(B),
substituted "1989" for "1987".
Subsec. (i)(2)(A). Pub. L. 101-508, Sec. 11111(e)(1), (2),
substituted "clause (i) of subparagraph (B)" for "clause (i) or
(ii) of subparagraph (B)" in cl. (i) and "clause (ii)" for "clause
(iii)" in cl. (ii).
Subsec. (i)(2)(B). Pub. L. 101-508, Sec. 11111(e)(3), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "The dollar amounts referred to in this subparagraph are -
"(i) the $5,714 amount contained in subsection (a),
"(ii) the $6,500 amount contained in the last sentence of
subsection (b), and
"(iii) the $9,000 amount contained in subsection (b)(2)."
Subsec. (j). Pub. L. 101-508, Sec. 11111(b), added subsec. (j).
1988 - Subsec. (h). Pub. L. 100-647, Sec. 1007(g)(12), struck out
"for taxpayers other than corporations" after "alternative minimum
tax".
Subsec. (i)(3). Pub. L. 100-647, Sec. 1001(c), amended par. (3)
generally. Prior to amendment, par. (3) read as follows: "If any
increase determined under paragraph (1) is not a multiple of $10,
such increase shall be rounded to the nearest multiple of $10 (or,
if such increase is a multiple of $5, such increase shall be
increased to the next higher multiple of $10)."
1986 - Subsec. (a). Pub. L. 99-514, Sec. 111(a), substituted "14
percent" for "11 percent" and "$5,714" for "$5,000".
Subsec. (b). Pub. L. 99-514, Sec. 111(b), amended subsec. (b)
generally. Prior to amendment, subsec. (b) read as follows: "The
amount of the credit allowable to a taxpayer under subsection (a)
for any taxable year shall not exceed the excess (if any) of -
"(1) $550, over
"(2) 12 2/9 percent of so much of the adjusted gross income
(or, if greater, the earned income) of the taxpayer for the
taxable year as exceeds $6,500."
Subsec. (c)(1)(A)(i). Pub. L. 99-514, Sec. 1301(j)(8),
substituted "section 7703" for "section 143".
Pub. L. 99-514, Sec. 104(b)(1)(B), substituted "section
151(c)(3)" for "section 151(e)(3)".
Subsec. (c)(1)(C). Pub. L. 99-514, Sec. 1272(d)(4), struck out
"or 931" after "911" in heading, and amended text generally. Prior
to amendment, text read as follows: "The term 'eligible individual'
does not include an individual who, for the taxable year, claims
the benefits of -
"(i) section 911 (relating to citizens or residents of the
United States living abroad),
"(ii) section 931 (relating to income from sources within
possessions of the United States)."
Subsec. (d). Pub. L. 99-514, Sec. 1301(j)(8), substituted
"section 7703" for "section 143".
Subsec. (f)(2)(A), (B). Pub. L. 99-514, Sec. 111(d)(1), added
subpars. (A) and (B) and struck out former subpars. (A) and (B)
which read as follows:
"(A) for earned income between $0 and $11,000, and
"(B) for adjusted gross income between $6,500 and $11,000."
Subsec. (i). Pub. L. 99-514, Sec. 111(c), added subsec. (i).
1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 43 of this
title as this section.
Subsec. (a). Pub. L. 98-369, Sec. 1042(a), substituted "11
percent" for "10 percent".
Subsec. (b)(1). Pub. L. 98-369, Sec. 1042(d)(1), substituted
"$550" for "$500".
Subsec. (b)(2). Pub. L. 98-369, Sec. 1042(b), substituted "12 2/9
percent" for "12.5 percent" and "$6,500" for "$6,000".
Subsec. (c)(1)(A)(i). Pub. L. 98-369, Sec. 423(c)(3)(A), inserted
"or would be so entitled but for paragraph (2) or (4) of section
152(e)".
Subsec. (c)(1)(B). Pub. L. 98-369, Sec. 423(c)(3)(B), substituted
"as the individual for more than one-half of the taxable year" for
"as the individual".
Subsec. (f)(2)(A). Pub. L. 98-369, Sec. 1042(d)(2), substituted
"between $0 and $11,000" for "between $0 and $10,000".
Subsec. (f)(2)(B). Pub. L. 98-369, Sec. 1042(d)(2), substituted
"between $6,500 and $11,000" for "between $6,000 and $10,000".
Subsec. (h). Pub. L. 98-369, Sec. 1042(c), added subsec. (h).
1983 - Subsec. (c)(2)(A)(ii). Pub. L. 98-21 inserted before
period at end ", but such net earnings shall be determined with
regard to the deduction allowed to the taxpayer by section 164(f)".
1981 - Subsec. (c)(1)(C). Pub. L. 97-34 struck out reference to
section 913 in heading, substituted "relating to citizens or
residents of the United States living abroad" for "relating to
income earned by individuals in certain camps outside the United
States" in cl. (i), struck out cl. (ii) which made reference to
section 913, and redesignated cl. (iii) as (ii).
1980 - Subsec. (c)(1)(C). Pub. L. 96-222, Sec. 101(a)(1), in
heading substituted "who claims benefit of section 911, 913, or
931" for "entitled to exclude income under section 911" and in text
substituted "claims the benefits of" for "is entitled to exclude
any amounts from gross income under" and inserted reference to
section 913 (relating to deduction for certain expenses of living
abroad).
Subsecs. (g), (h). Pub. L. 96-222, Sec. 101(a)(2)(E),
redesignated subsec. (h) as (g).
1978 - Subsec. (a). Pub. L. 95-600, Sec. 104(a), substituted
"subtitle" for "chapter" and "$5,000" for "$4,000".
Subsec. (b). Pub. L. 95-600, Sec. 104(b), substituted provision
limiting the allowable credit to an amount not to exceed the excess
of $500 over 12.5 percent of so much of the adjusted gross income
for the taxable year as exceeds $6,000 for provision limiting the
allowable credit to an amount reduced by 10 percent of so much of
the adjusted gross income for the taxable year as exceeds $4,000.
Subsec. (c)(1). Pub. L. 95-600, Sec. 104(e), amended par. (1)
generally, substituting in definition of eligible individual one
who is married and is entitled to a deduction under section 151 for
a child, provided the child has the same principal abode as the
individual and the abode is in the United States, is a surviving
spouse, or is a head of household, provided the household is in the
United States for one who maintains a household in the United
States which is the principal abode of that individual and a child
of that individual who meets the requirements of section
151(e)(1)(B) or a child of that individual who is disabled within
the meaning of section 72(m)(7) and to whom the individual is
entitled to claim a deduction under section 151.
Subsec. (c)(1)(C). Pub. L. 95-615, Sec. 202(f)(5), which directed
the amendment of subsec. (c)(1)(B) by substituting "(relating to
income earned by employees in certain camps)" for "(relating to
earned income from sources without the United States)", was
executed to subsec. (c)(1)(C) to reflect the probable intent of
Congress and the general amendment of subsec. (c)(1) by Pub. L. 95-
600 which enacted provisions formerly contained in subsec.
(c)(1)(B) in subsec. (c)(1)(C).
Subsec. (c)(2)(B). Pub. L. 95-600, Sec. 104(d), redesignated cls.
(ii) to (iv) as (i) to (iii), respectively. Former cl. (i), which
provided that amounts be taken into account only if includible in
the gross income of the taxpayer for the taxable year, was struck
out.
Subsec. (f). Pub. L. 95-600, Sec. 104(c), added subsec. (f).
Subsec. (h). Pub. L. 95-600, Sec. 105(a), added subsec. (h).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 401(c)(1)(B),
substituted "is allowed" for "shall be allowed" and struck out
provisions relating to the application of the six-month rule.
Subsec. (b). Pub. L. 94-455, Sec. 401(c)(1)(B), struck out
provisions relating to the application of the six-month rule.
Subsec. (c)(1)(A). Pub. L. 94-455, Sec. 401(c)(2), among other
changes, substituted "section 44A(f)(1)" for "section 214(b)(3)"
and "if such child meets the requirements of section 151(e)(1)(B)"
for "with respect to whom he is entitled to claim a deduction under
section 151(e)(1)(B)" and inserted reference to a child of that
individual who is disabled (within the meaning of section 72(m)(7))
and with respect to whom that individual is entitled to claim a
deduction under section 151.
1975 - Subsec. (a). Pub. L. 94-164 designated existing provisions
as par. (1) and added par. (2).
Subsec. (b). Pub. L. 94-164 designated existing provisions as
par. (1) and added par. (2).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-135, title III, Sec. 302(b), Dec. 21, 2005, 119 Stat.
2608, provided that: "The amendment made by subsection (a)
[amending this section] shall apply to taxable years beginning
after December 31, 2005."
EFFECTIVE AND TERMINATION DATES OF 2004 AMENDMENT
Pub. L. 108-311, title I, Sec. 104(c)(2), Oct. 4, 2004, 118 Stat.
1169, provided that: "The amendments made by subsection (b)
[amending this section] shall apply to taxable years ending after
the date of the enactment of this Act [Oct. 4, 2004]."
Amendment by section 104(b) of Pub. L. 108-311 subject to title
IX of the Economic Growth and Tax Relief Reconciliation Act of
2001, Pub. L. 107-16, Sec. 901, to the same extent and in the same
manner as the provisions of such Act to which such amendments
relate, see section 105 of Pub. L. 108-311, set out as a note under
section 1 of this title.
Amendment by section 205 of Pub. L. 108-311 applicable to taxable
years beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-
311, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 416(a)(2), Mar. 9, 2002, 116
Stat. 55, provided that: "The amendment made by this subsection
[amending this section] shall take effect as if included in section
474 of the Tax Reform Act of 1984 [Pub. L. 98-369]."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 201(c)(3) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2000, see section 201(e)(1)
of Pub. L. 107-16, set out as a note under section 24 of this
title.
Pub. L. 107-16, title III, Sec. 303(i), June 7, 2001, 115 Stat.
57, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
6213 of this title] shall apply to taxable years beginning after
December 31, 2001.
"(2) Subsection (g). - The amendment made by subsection (g)
[amending section 6213 of this title] shall take effect on January
1, 2004."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title IV, Sec. 412(b), Dec. 17, 1999, 113 Stat.
1917, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1999."
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-206, title VI, Sec. 6021(c), July 22, 1998, 112 Stat.
824, provided that:
"(1) Eligible individuals. - The amendment made by subsection (a)
[amending this section] shall take effect as if included in the
amendments made by section 451 of the Personal Responsibility and
Work Opportunity Reconciliation Act of 1996 [Pub. L. 104-193].
"(2) Qualifying children. - The amendments made by subsection (b)
[amending this section] shall take effect as if included in the
amendments made by section 11111 of Revenue Reconciliation Act of
1990 [Pub. L. 101-508]."
Amendment by sections 6003(b) and 6010(p)(1), (2) of Pub. L. 105-
206 effective, except as otherwise provided, as if included in the
provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 6024 of Pub. L. 105-206,
set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 101(b) of Pub. L. 105-34 applicable to
taxable years beginning after Dec. 31, 1997, see section 101(e) of
Pub. L. 105-34, set out as an Effective Date note under section 24
of this title.
Amendment by section 312(d)(2) of Pub. L. 105-34 applicable to
sales and exchanges after May 6, 1997, with certain exceptions, see
section 312(d) of Pub. L. 105-34, set out as a note under section
121 of this title.
Section 1085(e) of Pub. L. 105-34 provided that:
"(1) The amendments made by subsection (a) [amending this section
and sections 6213 and 6695 of this title] shall apply to taxable
years beginning after December 31, 1996.
"(2) The amendments made by subsections (b), (c), and (d)
[amending this section] shall apply to taxable years beginning
after December 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 451(d) of Pub. L. 104-193 provided that: "The amendments
made by this section [amending this section and section 6213 of
this title] shall apply with respect to returns the due date for
which (without regard to extensions) is more than 30 days after the
date of the enactment of this Act [Aug. 22, 1996]."
Section 909(c) of Pub. L. 104-193 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1995.
"(2) Advance payment individuals. - In the case of any individual
who on or before June 26, 1996, has in effect an earned income
eligibility certificate for the individual's taxable year beginning
in 1996, the amendments made by this section shall apply to taxable
years beginning after December 31, 1996."
Section 910(c) of Pub. L. 104-193 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1995.
"(2) Advance payment individuals. - In the case of any individual
who on or before June 26, 1996, has in effect an earned income
eligibility certificate for the individual's taxable year beginning
in 1996, the amendments made by this section shall apply to taxable
years beginning after December 31, 1996."
EFFECTIVE DATE OF 1995 AMENDMENT
Section 4(b) of Pub. L. 104-7 provided that: "The amendments made
by this section [amending this section] shall apply to taxable
years beginning after December 31, 1995."
EFFECTIVE DATE OF 1994 AMENDMENT
Section 721(d)(1) of Pub. L. 103-465 provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to taxable years beginning after December 31, 1994."
Section 722(b) of Pub. L. 103-465 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1994."
Section 723(b) of Pub. L. 103-465 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1993."
Section 742(c) of Pub. L. 103-465 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
6109 of this title] shall apply to returns for taxable years
beginning after December 31, 1994.
"(2) Exception. - The amendments made by this section shall not
apply to -
"(A) returns for taxable years beginning in 1995 with respect
to individuals who are born after October 31, 1995, and
"(B) returns for taxable years beginning in 1996 with respect
to individuals who are born after November 30, 1996."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13131(e) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 162, 213,
and 3507 of this title] shall apply to taxable years beginning
after December 31, 1993."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11101(d)(1)(B) of Pub. L. 101-508 applicable
to taxable years beginning after Dec. 31, 1990, see section
11101(e) of Pub. L. 101-508, set out as a note under section 1 of
this title.
Section 11111(f) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section and sections
162, 213, and 3507 of this title] shall apply to taxable years
beginning after December 31, 1990."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by sections 104(b)(1)(B) and 111(a)-(d)(1) of Pub. L.
99-514 applicable to taxable years beginning after Dec. 31, 1986,
see section 151(a) of Pub. L. 99-514, set out as a note under
section 1 of this title.
Amendment by section 1272(d)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
Amendment by section 1301(j)(8) of Pub. L. 99-514 applicable to
bonds issued after Aug. 15, 1986, except as otherwise provided, see
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective
Date; Transitional Rules note under section 141 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 423(c)(3) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1984, see section 423(d) of
Pub. L. 98-369, set out as a note under section 2 of this title.
Section 1042(e) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending sections 32 and 3507 of this title]
shall apply to taxable years beginning after December 31, 1984."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 98-21 applicable to taxable years beginning
after Dec. 31, 1989, see section 124(d)(2) of Pub. L. 98-21, set
out as a note under section 1401 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable with respect to taxable
years beginning after Dec. 31, 1981, see section 115 of Pub. L. 97-
34, set out as a note under section 911 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Section 101(b)(1)(A) of Pub. L. 96-222 provided that: "The
amendment made by subsection (a)(1) [amending this section] shall
apply to taxable years beginning after December 31, 1977."
Section 201 of Pub. L. 96-222 provided that: "Except as otherwise
provided in title I, any amendment made by title I [see Tables for
classification] shall take effect as if it had been included in the
provision of the Revenue Act of 1978 [Pub. L. 95-600, see Tables
for classification] to which such amendment relates."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 104(f) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1978."
Section 105(g)(1) of Pub. L. 95-600 provided that: "The
amendments made by subsections (a) and (d) [amending this section
and section 6012 of this title] shall apply to taxable years
beginning after December 31, 1978."
EFFECTIVE DATE OF 1978 AMENDMENT; ELECTION OF PRIOR LAW
Amendment by Pub. L. 95-615 applicable to taxable years beginning
after Dec. 31, 1977, with provision for election of prior law, see
section 209 of Pub. L. 95-615, set out as a note under section 911
of this title.
EFFECTIVE AND TERMINATION DATES OF 1976 AMENDMENT
Section 401(e) of Pub. L. 94-455, as amended by Pub. L. 95-30,
title I, Sec. 103(c), May 23, 1977, 91 Stat. 139; Pub. L. 95-600,
title I, Sec. 103(b), Nov. 6, 1978, 92 Stat. 2771, provided that:
"The amendments made by subsection (a) [amending sections 43 [now
32] and 6096 of this title] shall apply to taxable years ending
after December 31, 1975, and shall cease to apply to taxable years
ending after December 31, 1978. The amendments made by subsection
(c) [amending this section] shall apply to taxable years ending
after December 31, 1975. The amendments made by subsection (b)
[amending sections 141 and 6012 of this title] shall apply to
taxable years ending after December 31, 1975. The amendments made
by subsection (d) [amending section 3402 of this title] shall apply
to wages paid after September 14, 1976."
EFFECTIVE AND TERMINATION DATES OF 1975 AMENDMENTS
Section 2(g) of Pub. L. 94-164, as amended by Pub. L. 94-455,
Sec. 402(b), provided that: "The amendments made by this section
[amending sections 43 [now 32], 141, 3402, and 6012 of this title
and provisions set out as notes under sections 42 and 43 [now 32]
of this title] (other than by subsection (d) [enacting provisions
set out as a note under this section]) apply to taxable years
ending after December 31, 1975, and before January 1, 1978.
Subsection (d) applies to taxable years ending after December 31,
1975."
Section 209(b) of Pub. L. 94-12, as amended by Pub. L. 94-164,
Sec. 2(f), Dec. 23, 1975, 89 Stat. 972; Pub. L. 94-455, title IV,
Sec. 401(c)(1)(A), Oct. 4, 1976, 90 Stat. 1557; Pub. L. 95-30,
title I, Sec. 103(b), May 23, 1977, 91 Stat. 139; Pub. L. 95-600,
title I, Sec. 103(a), Nov. 6, 1978, 92 Stat. 2771, provided that:
"The amendments made by section 204 [enacting this section and
amending sections 6201 and 6401 of this title] shall apply to
taxable years beginning after December 31, 1974."
STUDY ON EARNED INCOME TAX CREDIT CERTIFICATION PROGRAM
Pub. L. 108-199, div. F, title II, Sec. 206, Jan. 23, 2004, 118
Stat. 319, provided that:
"(a) Study. - The Internal Revenue Service shall conduct a study,
as a part of any program that requires certification (including pre-
certification) in order to claim the earned income tax credit
under section 32 of the Internal Revenue Code of 1986, on the
following matters:
"(1) The costs (in time and money) incurred by the participants
in the program.
"(2) The administrative costs incurred by the Internal Revenue
Service in operating the program.
"(3) The percentage of individuals included in the program who
were not certified for the credit, including the percentage of
individuals who were not certified due to -
"(A) ineligibility for the credit; and
"(B) failure to complete the requirements for certification.
"(4) The percentage of individuals to whom paragraph (3)(B)
applies who were -
"(A) otherwise eligible for the credit; and
"(B) otherwise ineligible for the credit.
"(5) The percentage of individuals to whom paragraph (3)(B)
applies who -
"(A) did not respond to the request for certification; and
"(B) responded to such request but otherwise failed to
complete the requirements for certification.
"(6) The reasons -
"(A) for which individuals described in paragraph (5)(A) did
not respond to requests for certification; and
"(B) for which individuals described in paragraph (5)(B) had
difficulty in completing the requirements for certification.
"(7) The characteristics of those individuals who were denied
the credit due to -
"(A) failure to complete the requirements for certification;
and
"(B) ineligibility for the credit.
"(8) The impact of the program on non-English speaking
participants.
"(9) The impact of the program on homeless and other highly
transient individuals.
"(b) Report. -
"(1) Preliminary report. - Not later than July 30, 2004, the
Commissioner of the Internal Revenue Service shall submit to
Congress a preliminary report on the study conducted under
subsection (a).
"(2) Final report. - Not later than June 30, 2005, the
Commissioner of the Internal Revenue Service shall submit to
Congress a final report detailing the findings of the study
conducted under subsection (a)."
PROGRAM TO INCREASE PUBLIC AWARENESS
Secretary of the Treasury, or Secretary's delegate, to establish
taxpayer awareness program to inform taxpaying public of
availability of earned income credit and child health insurance
under this section, see section 11114 of Pub. L. 101-508, set out
as a note under section 21 of this title.
EMPLOYEE NOTIFICATION
Section 111(e) of Pub. L. 99-514 provided that: "The Secretary of
the Treasury is directed to require, under regulations, employers
to notify any employee who has not had any tax withheld from wages
(other than an employee whose wages are exempt from withholding
pursuant to section 3402(n) of the Internal Revenue Code of 1986)
that such employee may be eligible for a refund because of the
earned income credit."
DISREGARD OF REFUND FOR DETERMINATION OF ELIGIBILITY FOR FEDERAL
BENEFITS OR ASSISTANCE
Section 2(d) of Pub. L. 94-164, as amended by Pub. L. 94-455,
title IV, Sec. 402(a), Oct. 4, 1976, 90 Stat. 1558; Pub. L. 95-600,
title I, Sec. 105(f), Nov. 6, 1978, 92 Stat. 2776; Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Any refund
of Federal income taxes made to any individual by reason of section
43 [now 32] of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] (relating to earned income credit), and any payment made by
an employer under section 3507 of such Code (relating to advance
payment of earned income credit) shall not be taken into account in
any year ending before 1980 as income or receipts for purposes of
determining the eligibility, for the month in which such refund is
made or any month thereafter of such individual or any other
individual for benefits or assistance, or the amount or extent of
benefits or assistance, under any Federal program or under any
State or local program financed in whole or in part with Federal
funds, but only if such individual (or the family unit of which he
is a member) is a recipient of benefits or assistance under such a
program for the month before the month in which such refund is
made."
[Section 105(g)(3) of Pub. L. 95-600 provided that: "Subsection
(f) [amending section 2(d) of Pub. L. 94-164, set out above] shall
take effect on the date of enactment of this Act [Nov. 6, 1978]."]
-End-
-CITE-
26 USC Sec. 33 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart C - Refundable Credits
-HEAD-
Sec. 33. Tax withheld at source on nonresident aliens and foreign
corporations
-STATUTE-
There shall be allowed as a credit against the tax imposed by
this subtitle the amount of tax withheld at source under subchapter
A of chapter 3 (relating to withholding of tax on nonresident
aliens and on foreign corporations).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 13, Sec. 32; renumbered Sec. 33
and amended Pub. L. 98-369, div. A, title IV, Secs. 471(c), 474(j),
July 18, 1984, 98 Stat. 826, 832.)
-MISC1-
PRIOR PROVISIONS
A prior section 33 was renumbered section 27 of this title.
AMENDMENTS
1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 32 of this
title as this section.
Pub. L. 98-369, Sec. 474(j), amended section generally, striking
out "and on tax-free covenant bonds" after "foreign corporations"
in section catchline, and, in text, substituting "as a credit
against the tax imposed by this subtitle" for "as credits against
the tax imposed by this chapter", and striking out designation
"(1)" before "the amount of tax withheld", and ", and (2) the
amount of tax withheld at source under subchapter B of chapter 3
(relating to interest on tax-free covenant bonds)" after "on
foreign corporations)".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 475(b) of Pub. L. 98-369 provided that: "The amendments
made by subsections (j) and (r)(29) [amending this section and
sections 12, 164, 1441, 1442, 6049, and 7701 of this title and
repealing section 1451 of this title] shall not apply with respect
to obligations issued before January 1, 1984."
-End-
-CITE-
26 USC Sec. 34 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart C - Refundable Credits
-HEAD-
Sec. 34. Certain uses of gasoline and special fuels
-STATUTE-
(a) General rule
There shall be allowed as a credit against the tax imposed by
this subtitle for the taxable year an amount equal to the sum of
the amounts payable to the taxpayer -
(1) under section 6420 with respect to gasoline used during the
taxable year on a farm for farming purposes (determined without
regard to section 6420(g)),
(2) under section 6421 with respect to gasoline used during the
taxable year (A) otherwise than as a fuel in a highway vehicle or
(B) in vehicles while engaged in furnishing certain public
passenger land transportation service (determined without regard
to section 6421(i)),(!1) and
(3) under section 6427 with respect to fuels used for
nontaxable purposes or resold during the taxable year (determined
without regard to section 6427(k)).
(b) Exception
Credit shall not be allowed under subsection (a) for any amount
payable under section 6421 or 6427, if a claim for such amount is
timely filed and, under section 6421(i) or 6427(k), is payable
under such section.
-SOURCE-
(Added Pub. L. 89-44, title VIII, 809(c), June 21, 1965, 79 Stat.
167, Sec. 39; amended Pub. L. 91-258, title II, Sec. 207(c), May
21, 1970, 84 Stat. 248; Pub. L. 94-455, title XIX, Secs.
1901(a)(3), 1906(b)(8), (9), Oct. 4, 1976, 90 Stat. 1764, 1834;
Pub. L. 94-530, Sec. 1(c)(1), Oct. 17, 1976, 90 Stat. 2487; Pub. L.
95-599, title V, Sec. 505(c)(1), Nov. 6, 1978, 92 Stat. 2760; Pub.
L. 95-618, title II, Sec. 233(b)(2)(C), Nov. 9, 1978, 92 Stat.
3191; Pub. L. 96-223, title II, Sec. 232(d)(4)(A), Apr. 2, 1980, 94
Stat. 278; Pub. L. 97-424, title V, Sec. 515(b)(6)(A)-(C), Jan. 6,
1983, 96 Stat. 2181; renumbered Sec. 34 and amended Pub. L. 98-369,
div. A, title IV, Sec. 471(c), title IX, Sec. 911(d)(2)(A), July
18, 1984, 98 Stat. 826, 1006; Pub. L. 99-514, title XVII, Sec.
1703(e)(2)(F), title XVIII, Sec. 1877(a), Oct. 22, 1986, 100 Stat.
2778, 2902; Pub. L. 100-647, title I, Sec. 1017(c)(2), Nov. 10,
1988, 102 Stat. 3576; Pub. L. 104-188, title I, Sec. 1606(b)(1),
Aug. 20, 1996, 110 Stat. 1839; Pub. L. 105-206, title VI, Sec.
6023(24)(B), July 22, 1998, 112 Stat. 826.)
-REFTEXT-
REFERENCES IN TEXT
Section 6421(i), referred to in subsec. (a)(2), was repealed by
Pub. L. 103-66, title XIII, Sec. 13241(f)(7), Aug. 10, 1993, 107
Stat. 512.
-MISC1-
PRIOR PROVISIONS
A prior section 34, acts Aug. 16, 1954, ch. 736, 68A Stat. 13;
June 25, 1959, Pub. L. 86-69, Sec. 3(a)(1), 73 Stat. 139; Sept. 14,
1960, Pub. L. 86-779, Sec. 10(e), 74 Stat. 1009; Feb. 26, 1964,
Pub. L. 88-272, title II, Sec. 201(a), 78 Stat. 31, related to
dividends received by individuals, prior to repeal by Pub. L. 88-
272, title II, Sec. 201(b), Feb. 26, 1964, 78 Stat. 31, effective
with respect to dividends received after Dec. 31, 1964.
AMENDMENTS
1998 - Subsec. (b). Pub. L. 105-206 substituted "section 6421(i)"
for "section 6421(j)".
1996 - Subsec. (a)(3). Pub. L. 104-188 amended par. (3)
generally. Prior to amendment, par. (3) read as follows: "under
section 6427 -
"(A) with respect to fuels used for nontaxable purposes or
resold, or
"(B) with respect to any qualified diesel-powered highway
vehicle purchased (or deemed purchased under section 6427(g)(6)),
during the taxable year (determined without regard to section
6427(k))."
1988 - Subsec. (b). Pub. L. 100-647 substituted "section 6421(j)
or 6427(k)" for "section 6421(i) or 6427(j)".
1986 - Subsec. (a)(3). Pub. L. 99-514, Sec. 1877(a), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "under
section 6427 with respect to fuels used for nontaxable purposes or
resold during the taxable year (determined without regard to
section 6427(j))."
Pub. L. 99-514, Sec. 1703(e)(2)(F), substituted "6427(k)" for
"6427(j)".
1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 39 of this
title as this section.
Subsec. (a)(3). Pub. L. 98-369, Sec. 911(d)(2)(A), which directed
the amendment of par. (4) by substituting "6427(j)" for "6427(i)"
was executed to par. (3) to reflect the probable intent of Congress
and the redesignation of par. (4) as (3) by Pub. L. 97-424.
Subsec. (b). Pub. L. 98-369, Sec. 911(d)(2)(A), substituted
"6427(j)" for "6427(i)".
1983 - Pub. L. 97-424, Sec. 515(b)(6)(C), substituted "and
special fuels" for ", special fuels, and lubricating oil" after
"gasoline" in section catchline.
Subsec. (a)(2) to (4). Pub. L. 97-424, Sec. 515(b)(6)(A),
inserted "and" at end of par. (2), redesignated par. (4) as (3),
and struck out former (3) which referred to amounts payable to the
taxpayer under section 6424 with respect to lubricating oil used
during the taxable year for certain nontaxable purposes (determined
without regard to section 6424(f)).
Subsec. (b). Pub. L. 97-424, Sec. 515(b)(6)(B)(i), substituted
"6421 or 6427" for "6421, 6424, or 6427" after "amount payable
under".
Pub. L. 97-424, Sec. 515(b)(6)(B)(ii), substituted "6421(i) or
6427(i)" for "6421(i), 6424(f), or 6427(i)" after "and, under".
1980 - Subsec. (a)(4). Pub. L. 96-223 substituted "6427(i)" for
"6427(h)".
Subsec. (b). Pub. L. 96-223 substituted "6427(i)" for "6427(h)".
1978 - Subsec. (a)(3). Pub. L. 95-618 substituted "for certain
nontaxable purposes" for "otherwise than in a highway motor
vehicle".
Subsec. (a)(4). Pub. L. 95-599 substituted "6427(h)" for
"6427(g)".
Subsec. (b). Pub. L. 95-599 substituted "6427(h)" for "6427(g)".
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1906(b)(8),
substituted "6420(g)" for "6420(h)".
Subsec. (a)(3). Pub. L. 94-455, Sec. 1906(b)(9), substituted
"6424(f)" for "6424(g)".
Subsec. (a)(4). Pub. L. 94-530 substituted "6427(g)" for
"6427(f)".
Subsec. (b). Pub. L. 94-530, which directed the amendment of
subsec. (c) by substituting "6427(g)" for "6427(f)", was executed
to subsec. (b) to reflect the probable intent of Congress and the
redesignation of subsec. (c) as (b) by Pub. L. 94-455.
Pub. L. 94-455, Sec. 1901(a)(3), redesignated subsec. (c) as (b)
and substituted "section 6421(i), 6424(f), or 6427(f), is payable"
for "section 6421(i), 6424(g) or 6427(f) is payable". Former
subsec. (b), relating to determination of taxpayers first taxable
year with respect to tax credit for certain uses of gasoline and
lubricating oil, was struck out.
Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(3), redesignated
subsec. (c) as (b).
1970 - Pub. L. 91-258, Sec. 207(c)(1), inserted reference to
special fuels in section catchline.
Subsec. (a)(4). Pub. L. 91-258, Sec. 207(c)(2), added par. (4).
Subsec. (c). Pub. L. 91-258, Sec. 207(c)(3), (4), inserted
references to sections 6427 and 6427(f), respectively.
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-206, title VI, Sec. 6023(32), July 22, 1998, 112
Stat. 826, provided that: "The amendments made by this section
[amending this section and sections 45A, 59, 72, 142, 501, 512,
543, 871, 1017, 1250, 3121, 3401, 4092, 4221, 4222, 4973, 4975,
6039, 6050R, 6103, 6416, 6421, 6427, 6501, 7434, 7702B, 7872, and
9502 of this title] shall take effect on the date of the enactment
of this Act [July 22, 1998]."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1606(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and section 6427 of
this title] shall apply to vehicles purchased after the date of the
enactment of this Act [Aug. 20, 1996]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1703(e)(2)(F) of Pub. L. 99-514 applicable
to gasoline removed (as defined in section 4082 of this title as
amended by section 1703 of Pub. L. 99-514) after Dec. 31, 1987, see
section 1703(h) of Pub. L. 99-514 set out as a note under section
4081 of this title.
Amendment by section 1877(a) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 911(d)(2)(A) of Pub. L. 98-369 effective
Aug. 1, 1984, see section 911(e) of Pub. L. 98-369, set out as a
note under section 6427 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 515(c) of Pub. L. 97-424 provided that: "The amendments
made by this section [amending sections 39 [now 34], 874, 882,
4101, 4102, 4221, 4222, 6201, 6206, 6416, 6421, 6504, 6675, 7210,
7603 to 7605, 7609, and 7610 of this title and repealing sections
4091 to 4094 and 6424 of this title] shall apply with respect to
articles sold after the date of the enactment of this Act [Jan. 6,
1983]."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 effective on Jan. 1, 1979, see
section 232(h)(2) of Pub. L. 96-223, set out as a note under
section 6427 of this title.
EFFECTIVE DATE OF 1978 AMENDMENTS
Section 233(d) of Pub. L. 95-618 provided that: "The amendments
made by this section [amending sections 39 [now 34], 4041, 4221,
4483, 6416, 6421, 6424, 6427, 6504, and 6675 of this title and
amending a provision set out as a note under section 120 of Title
23, Highways] shall take effect on the first day of the first
calendar month which begins more than 10 days after the date of the
enactment of this Act [Nov. 9, 1978]."
Amendment by Pub. L. 95-599 effective Jan. 1, 1979, see section
505(d) of Pub. L. 95-599, set out as a note under section 6427 of
this title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Amendment by Pub. L. 94-530 effective on Oct. 1, 1976, see
section 1(d) of Pub. L. 94-530, set out as a note under section
4041 of this title.
Amendment by section 1901(a)(3) of Pub. L. 94-455 applicable with
respect to taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
Amendment by section 1906(b)(8), (9) of Pub. L. 94-455, to take
effect on Feb. 1, 1977, see section 1906(d) of Pub. L. 94-455, set
out as a note under section 6013 of this title.
EFFECTIVE DATE OF 1970 AMENDMENT
Amendment by Pub. L. 91-258 applicable with respect to taxable
years ending after June 30, 1970, see section 211(b) of Pub. L. 91-
258, set out as a note under section 4041 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning on or after July 1,
1965, see section 809(f) of Pub. L. 89-44, set out as an Effective
Date of 1965 Amendment note under section 6420 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 35 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart C - Refundable Credits
-HEAD-
Sec. 35. Health insurance costs of eligible individuals
-STATUTE-
(a) In general
In the case of an individual, there shall be allowed as a credit
against the tax imposed by subtitle A an amount equal to 65 percent
of the amount paid by the taxpayer for coverage of the taxpayer and
qualifying family members under qualified health insurance for
eligible coverage months beginning in the taxable year.
(b) Eligible coverage month
For purposes of this section -
(1) In general
The term "eligible coverage month" means any month if -
(A) as of the first day of such month, the taxpayer -
(i) is an eligible individual,
(ii) is covered by qualified health insurance, the premium
for which is paid by the taxpayer,
(iii) does not have other specified coverage, and
(iv) is not imprisoned under Federal, State, or local
authority, and
(B) such month begins more than 90 days after the date of the
enactment of the Trade Act of 2002.
(2) Joint returns
In the case of a joint return, the requirements of paragraph
(1)(A) shall be treated as met with respect to any month if at
least 1 spouse satisfies such requirements.
(c) Eligible individual
For purposes of this section -
(1) In general
The term "eligible individual" means -
(A) an eligible TAA recipient,
(B) an eligible alternative TAA recipient, and
(C) an eligible PBGC pension recipient.
(2) Eligible TAA recipient
The term "eligible TAA recipient" means, with respect to any
month, any individual who is receiving for any day of such month
a trade readjustment allowance under chapter 2 of title II of the
Trade Act of 1974 or who would be eligible to receive such
allowance if section 231 of such Act were applied without regard
to subsection (a)(3)(B) of such section. An individual shall
continue to be treated as an eligible TAA recipient during the
first month that such individual would otherwise cease to be an
eligible TAA recipient by reason of the preceding sentence.
(3) Eligible alternative TAA recipient
The term "eligible alternative TAA recipient" means, with
respect to any month, any individual who -
(A) is a worker described in section 246(a)(3)(B) of the
Trade Act of 1974 who is participating in the program
established under section 246(a)(1) of such Act, and
(B) is receiving a benefit for such month under section
246(a)(2) of such Act.
An individual shall continue to be treated as an eligible
alternative TAA recipient during the first month that such
individual would otherwise cease to be an eligible alternative
TAA recipient by reason of the preceding sentence.
(4) Eligible PBGC pension recipient
The term "eligible PBGC pension recipient" means, with respect
to any month, any individual who -
(A) has attained age 55 as of the first day of such month,
and
(B) is receiving a benefit for such month any portion of
which is paid by the Pension Benefit Guaranty Corporation under
title IV of the Employee Retirement Income Security Act of
1974.
(d) Qualifying family member
For purposes of this section -
(1) In general
The term "qualifying family member" means -
(A) the taxpayer's spouse, and
(B) any dependent of the taxpayer with respect to whom the
taxpayer is entitled to a deduction under section 151(c).
Such term does not include any individual who has other specified
coverage.
(2) Special dependency test in case of divorced parents, etc.
If paragraph (2) or (4) of section 152(e) applies to any child
with respect to any calendar year, in the case of any taxable
year beginning in such calendar year, such child shall be treated
as described in paragraph (1)(B) with respect to the custodial
parent (within the meaning of section 152(e)(1)) and not with
respect to the noncustodial parent.
(e) Qualified health insurance
For purposes of this section -
(1) In general
The term "qualified health insurance" means any of the
following:
(A) Coverage under a COBRA continuation provision (as defined
in section 9832(d)(1)).
(B) State-based continuation coverage provided by the State
under a State law that requires such coverage.
(C) Coverage offered through a qualified State high risk pool
(as defined in section 2744(c)(2) of the Public Health Service
Act).
(D) Coverage under a health insurance program offered for
State employees.
(E) Coverage under a State-based health insurance program
that is comparable to the health insurance program offered for
State employees.
(F) Coverage through an arrangement entered into by a State
and -
(i) a group health plan (including such a plan which is a
multiemployer plan as defined in section 3(37) of the
Employee Retirement Income Security Act of 1974),
(ii) an issuer of health insurance coverage,
(iii) an administrator, or
(iv) an employer.
(G) Coverage offered through a State arrangement with a
private sector health care coverage purchasing pool.
(H) Coverage under a State-operated health plan that does not
receive any Federal financial participation.
(I) Coverage under a group health plan that is available
through the employment of the eligible individual's spouse.
(J) In the case of any eligible individual and such
individual's qualifying family members, coverage under
individual health insurance if the eligible individual was
covered under individual health insurance during the entire 30-
day period that ends on the date that such individual became
separated from the employment which qualified such individual
for -
(i) in the case of an eligible TAA recipient, the allowance
described in subsection (c)(2),
(ii) in the case of an eligible alternative TAA recipient,
the benefit described in subsection (c)(3)(B), or
(iii) in the case of any eligible PBGC pension recipient,
the benefit described in subsection (c)(4)(B).
For purposes of this subparagraph, the term "individual health
insurance" means any insurance which constitutes medical care
offered to individuals other than in connection with a group
health plan and does not include Federal- or State-based health
insurance coverage.
(2) Requirements for state-based coverage
(A) In general
The term "qualified health insurance" does not include any
coverage described in subparagraphs (B) through (H) of
paragraph (1) unless the State involved has elected to have
such coverage treated as qualified health insurance under this
section and such coverage meets the following requirements:
(i) Guaranteed issue
Each qualifying individual is guaranteed enrollment if the
individual pays the premium for enrollment or provides a
qualified health insurance costs credit eligibility
certificate described in section 7527 and pays the remainder
of such premium.
(ii) No imposition of preexisting condition exclusion
No pre-existing condition limitations are imposed with
respect to any qualifying individual.
(iii) Nondiscriminatory premium
The total premium (as determined without regard to any
subsidies) with respect to a qualifying individual may not be
greater than the total premium (as so determined) for a
similarly situated individual who is not a qualifying
individual.
(iv) Same benefits
Benefits under the coverage are the same as (or
substantially similar to) the benefits provided to similarly
situated individuals who are not qualifying individuals.
(B) Qualifying individual
For purposes of this paragraph, the term "qualifying
individual" means -
(i) an eligible individual for whom, as of the date on
which the individual seeks to enroll in the coverage
described in subparagraphs (B) through (H) of paragraph (1),
the aggregate of the periods of creditable coverage (as
defined in section 9801(c)) is 3 months or longer and who,
with respect to any month, meets the requirements of clauses
(iii) and (iv) of subsection (b)(1)(A); and
(ii) the qualifying family members of such eligible
individual.
(3) Exception
The term "qualified health insurance" shall not include -
(A) a flexible spending or similar arrangement, and
(B) any insurance if substantially all of its coverage is of
excepted benefits described in section 9832(c).
(f) Other specified coverage
For purposes of this section, an individual has other specified
coverage for any month if, as of the first day of such month -
(1) Subsidized coverage
(A) In general
Such individual is covered under any insurance which
constitutes medical care (except insurance substantially all of
the coverage of which is of excepted benefits described in
section 9832(c)) under any health plan maintained by any
employer (or former employer) of the taxpayer or the taxpayer's
spouse and at least 50 percent of the cost of such coverage
(determined under section 4980B) is paid or incurred by the
employer.
(B) Eligible alternative TAA recipients
In the case of an eligible alternative TAA recipient, such
individual is either -
(i) eligible for coverage under any qualified health
insurance (other than insurance described in subparagraph
(A), (B), or (F) of subsection (e)(1)) under which at least
50 percent of the cost of coverage (determined under section
4980B(f)(4)) is paid or incurred by an employer (or former
employer) of the taxpayer or the taxpayer's spouse, or
(ii) covered under any such qualified health insurance
under which any portion of the cost of coverage (as so
determined) is paid or incurred by an employer (or former
employer) of the taxpayer or the taxpayer's spouse.
(C) Treatment of cafeteria plans
For purposes of subparagraphs (A) and (B), the cost of
coverage shall be treated as paid or incurred by an employer to
the extent the coverage is in lieu of a right to receive cash
or other qualified benefits under a cafeteria plan (as defined
in section 125(d)).
(2) Coverage under Medicare, Medicaid, or SCHIP
Such individual -
(A) is entitled to benefits under part A of title XVIII of
the Social Security Act or is enrolled under part B of such
title, or
(B) is enrolled in the program under title XIX or XXI of such
Act (other than under section 1928 of such Act).
(3) Certain other coverage
Such individual -
(A) is enrolled in a health benefits plan under chapter 89 of
title 5, United States Code, or
(B) is entitled to receive benefits under chapter 55 of title
10, United States Code.
(g) Special rules
(1) Coordination with advance payments of credit
With respect to any taxable year, the amount which would (but
for this subsection) be allowed as a credit to the taxpayer under
subsection (a) shall be reduced (but not below zero) by the
aggregate amount paid on behalf of such taxpayer under section
7527 for months beginning in such taxable year.
(2) Coordination with other deductions
Amounts taken into account under subsection (a) shall not be
taken into account in determining any deduction allowed under
section 162(l) or 213.
(3) Medical and health savings accounts
Amounts distributed from an Archer MSA (as defined in section
220(d)) or from a health savings account (as defined in section
223(d)) shall not be taken into account under subsection (a).
(4) Denial of credit to dependents
No credit shall be allowed under this section to any individual
with respect to whom a deduction under section 151 is allowable
to another taxpayer for a taxable year beginning in the calendar
year in which such individual's taxable year begins.
(5) Both spouses eligible individuals
The spouse of the taxpayer shall not be treated as a qualifying
family member for purposes of subsection (a), if -
(A) the taxpayer is married at the close of the taxable year,
(B) the taxpayer and the taxpayer's spouse are both eligible
individuals during the taxable year, and
(C) the taxpayer files a separate return for the taxable
year.
(6) Marital status; certain married individuals living apart
Rules similar to the rules of paragraphs (3) and (4) of section
21(e) shall apply for purposes of this section.
(7) Insurance which covers other individuals
For purposes of this section, rules similar to the rules of
section 213(d)(6) shall apply with respect to any contract for
qualified health insurance under which amounts are payable for
coverage of an individual other than the taxpayer and qualifying
family members.
(8) Treatment of payments
For purposes of this section -
(A) Payments by Secretary
Payments made by the Secretary on behalf of any individual
under section 7527 (relating to advance payment of credit for
health insurance costs of eligible individuals) shall be
treated as having been made by the taxpayer on the first day of
the month for which such payment was made.
(B) Payments by taxpayer
Payments made by the taxpayer for eligible coverage months
shall be treated as having been made by the taxpayer on the
first day of the month for which such payment was made.
(9) Regulations
The Secretary may prescribe such regulations and other guidance
as may be necessary or appropriate to carry out this section,
section 6050T, and section 7527.
-SOURCE-
(Added Pub. L. 107-210, div. A, title II, Sec. 201(a), Aug. 6,
2002, 116 Stat. 954; amended Pub. L. 108-311, title IV, Sec.
401(a)(2), Oct. 4, 2004, 118 Stat. 1183.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Trade Act of 2002, referred to
in subsec. (b)(1)(B), is the date of enactment of Pub. L. 107-210,
which was approved Aug. 6, 2002.
The Trade Act of 1974, referred to in subsec. (c)(2), (3), is
Pub. L. 93-618, Jan. 3, 1975, 88 Stat. 1978, as amended. Chapter 2
of title II of the Act is classified generally to part 2 (Sec. 2271
et seq.) of subchapter II of chapter 12 of Title 19, Customs
Duties. Sections 231 and 246 of the Act are classified to sections
2291 and 2318 of Title 19, respectively. For complete
classification of this Act to the Code, see section 2101 of Title
19 and Tables.
The Employee Retirement Income Security Act of 1974, referred to
in subsecs. (c)(4)(B) and (e)(1)(F)(i), is Pub. L. 93-406, Sept. 2,
1974, 88 Stat. 829, as amended. Title IV of the Act is classified
principally to subchapter III (Sec. 1301 et seq.) of chapter 18 of
Title 29, Labor. Section 3(37) of the Act is classified to section
1002(37) of Title 29. For complete classification of this Act to
the Code, see Short Title note set out under section 1001 of Title
29 and Tables.
Section 2744(c)(2) of the Public Health Service Act, referred to
in subsec. (e)(1)(C), is classified to section 300gg-44(c)(2) of
Title 42, The Public Health and Welfare.
The Social Security Act, referred to in subsec. (f)(2), is act
Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Parts A and B of
title XVIII of the Act are classified generally to parts A (Sec.
1395c et seq.) and B (Sec. 1395j et seq.), respectively, of
subchapter XVIII of chapter 7 of Title 42, The Public Health and
Welfare. Titles XIX and XXI of the Act are classified generally to
subchapters XIX (Sec. 1396 et seq.) and XXI (Sec. 1397aa et seq.),
respectively, of chapter 7 of Title 42. Section 1928 of the Act is
classified to section 1396s of Title 42. For complete
classification of this Act to the Code, see section 1305 of Title
42 and Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 35 was renumbered section 36 of this title.
Another prior section 35, acts Aug. 16, 1954, ch. 736, 68A Stat.
14; Sept. 2, 1958, Pub. L. 85-866, title I, Sec. 41(b), 72 Stat.
1639; Feb. 26, 1964, Pub. L. 88-272, title II, Sec. 201(d)(2), 78
Stat. 32, related to partially tax-exempt interest received by
individuals, prior to repeal by Pub. L. 94-455, title XIX, Sec.
1901(a)(2), Oct. 4, 1976, 90 Stat. 1764, effective with respect to
taxable years beginning after Dec. 31, 1976.
AMENDMENTS
2004 - Subsec. (g)(3). Pub. L. 108-311 amended heading and text
of par. (3) generally. Prior to amendment, text read as follows:
"Amounts distributed from an Archer MSA (as defined in section
220(d)) shall not be taken into account under subsection (a)."
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 effective as if included in section
1201 of Pub. L. 108-173, see section 401(b) of Pub. L. 108-311, set
out as a note under section 26 of this title.
EFFECTIVE DATE
Pub. L. 107-210, div. A, title II, Sec. 201(d), Aug. 6, 2002, 116
Stat. 960, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting this section and section
300gg-45 of Title 42, The Public Health and Welfare, amending
section 1324 of Title 31, Money and Finance, and renumbering former
section 35 of this title as section 36 of this title] shall apply
to taxable years beginning after December 31, 2001.
"(2) State high risk pools. - The amendment made by subsection
(b) [enacting section 300gg-45 of Title 42] shall take effect on
the date of the enactment of this Act [Aug. 6, 2002]."
CONSTRUCTION
Nothing in title II of Pub. L. 107-210 or the amendments by that
title, other than provisions relating to COBRA continuation
coverage and reporting requirements, to be construed as creating a
new mandate on any party regarding health insurance coverage, see
section 203(f) of Pub. L. 107-210, set out as a Construction of
2002 Amendment note under section 2918 of Title 29, Labor.
-End-
-CITE-
26 USC Sec. 36 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart C - Refundable Credits
-HEAD-
Sec. 36. Overpayments of tax
-STATUTE-
For credit against the tax imposed by this subtitle for
overpayments of tax, see section 6401.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 16, Sec. 38; renumbered Sec. 39,
Pub. L. 87-834, Sec. 2(a), Oct. 16, 1962, 76 Stat. 962; renumbered
Sec. 40, Pub. L. 89-44, title VIII, Sec. 809(c), June 21, 1965, 79
Stat. 167; renumbered Sec. 42, Pub. L. 92-178, title VI, Sec.
601(a), Dec. 10, 1971, 85 Stat. 553; renumbered Sec. 43, Pub. L. 94-
12, title II, Sec. 203(a), Mar. 29, 1975, 89 Stat. 29; renumbered
Sec. 44, Pub. L. 94-12, title II, Sec. 204(a), Mar. 29, 1975, 89
Stat. 30; renumbered Sec. 45, Pub. L. 94-12, title II, Sec. 208(a),
Mar. 29, 1975, 89 Stat. 32; renumbered Sec. 35, Pub. L. 98-369,
div. A, title IV, Sec. 471(c), July 18, 1984, 98 Stat. 826;
renumbered Sec. 36, Pub. L. 107-210, div. A, title II, Sec. 201(a),
Aug. 6, 2002, 116 Stat. 954.)
-MISC1-
PRIOR PROVISIONS
A prior section 36, acts Aug. 16, 1954, ch. 736, 68A Stat. 15;
Oct. 4, 1976, Pub. L. 94-455, title V, Sec. 501(b)(2), title X,
Sec. 1011(c), title XIX, Sec. 1901(b)(1)(A), 90 Stat. 1558, 1611,
1790, directed that credits provided by section 32 not be allowed
if an individual elects under section 144 to take standard
deduction, prior to repeal by Pub. L. 95-30, title I, Secs.
101(d)(3), 106(a), May 23, 1977, 91 Stat. 133, 141, applicable to
taxable years beginning after Dec. 31, 1976.
-End-
-CITE-
26 USC Subpart D - Business Related Credits 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
SUBPART D - BUSINESS RELATED CREDITS
-MISC1-
Sec.
38. General business credit.
39. Carryback and carryforward of unused credits.
40. Alcohol used as fuel.
40A. Biodiesel and renewable diesel used as fuel.
41. Credit for increasing research activities.
41.(!1) Employee stock ownership credit.
42. Low-income housing credit.
43. Enhanced oil recovery credit.
44. Expenditures to provide access to disabled
individuals.
[44A-H. Renumbered, Repealed.]
45. Electricity produced from certain renewable resources,
etc.
45A. Indian employment credit.
45B. Credit for portion of employer social security taxes
paid with respect to employee cash tips.
45C. Clinical testing expenses for certain drugs for rare
diseases or conditions.
45D. New markets tax credit.
45E. Small employer pension plan startup costs.
45F. Employer-provided child care credit.
45G. Railroad track maintenance credit.
45H. Credit for production of low sulfur diesel fuel.
45I. Credit for producing oil and gas from marginal wells.
45K.(!2) Credit for producing fuel from a nonconventional
source.
45J. Credit for production from advanced nuclear power
facilities.
45L. New energy efficient home credit.
45M. Energy efficient appliance credit.
AMENDMENTS
2005 - Pub. L. 109-58, title XIII, Secs. 1306(c), 1322(a)(3)(L),
1332(e), 1334(c), 1346(b)(2), Aug. 8, 2005, 119 Stat. 999, 1012,
1026, 1033, 1055, inserted "and renewable diesel" after "Biodiesel"
in item 40A and added items 45J to 45M.
2004 - Pub. L. 108-357, title II, Sec. 245(d), title III, Secs.
302(c)(3), 339(e), 341(d), title VII, Sec. 710(b)(3)(B), Oct. 22,
2004, 118 Stat. 1448, 1466, 1484, 1487, 1556, added items 40A and
45G to 45I and inserted ", etc" after "resources" in item 45.
Pub. L. 108-311, title IV, Sec. 408(b)(7), Oct. 4, 2004, 118
Stat. 1193, amended directory language of Pub. L. 107-16, Sec.
619(c)(3). See 2001 Amendment note below.
2001 - Pub. L. 107-16, title VI, Sec. 619(c)(3), June 7, 2001,
115 Stat. 110, as amended by Pub. L. 108-311, title IV, Sec.
408(b)(7), Oct. 4, 2004, 118 Stat. 1193, added item 45E.
Pub. L. 107-16, title II, Sec. 205(b)(2), June 7, 2001, 115 Stat.
53, added item 45F.
2000 - Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(d)], Dec.
21, 2000, 114 Stat. 2763, 2763A-610, added item 45D.
1996 - Pub. L. 104-188, title I, Sec. 1205(a)(3)(B), Aug. 20,
1996, 110 Stat. 1775, added item 45C.
1993 - Pub. L. 103-66, title XIII, Secs. 13322(e), 13443(c), Aug.
10, 1993, 107 Stat. 563, 569, added items 45A and 45B.
1992 - Pub. L. 102-486, title XIX, Sec. 1914(d), Oct. 24, 1992,
106 Stat. 3023, added item 45.
1990 - Pub. L. 101-508, title XI, Secs. 11511(c)(1), 11611(d),
Nov. 5, 1990, 104 Stat. 1388-485, 1388-503, added items 43 and 44.
1986 - Pub. L. 99-514, title II, Secs. 231(d)(3)(K), 252(d), Oct.
22, 1986, 100 Stat. 2180, 2205, added item 41 relating to credit
for increasing research activities and item 42.
1984 - Pub. L. 98-369, div. A, title IV, Sec. 471(b), July 18,
1984, 98 Stat. 826, added subpart D heading and analysis of
sections for subpart D, consisting of items 38 (new), 39 (new), 40
(formerly 44E), and 41 (formerly 44G). Former subpart D was
redesignated F.
-FOOTNOTE-
(!1) Section 41 repealed by Pub. L. 99-514 without corresponding
amendment of subpart analysis.
(!2) So in original. Probably should follow item 45J.
-End-
-CITE-
26 USC Sec. 38 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 38. General business credit
-STATUTE-
(a) Allowance of credit
There shall be allowed as a credit against the tax imposed by
this chapter for the taxable year an amount equal to the sum of -
(1) the business credit carryforwards carried to such taxable
year,
(2) the amount of the current year business credit, plus
(3) the business credit carrybacks carried to such taxable
year.
(b) Current year business credit
For purposes of this subpart, the amount of the current year
business credit is the sum of the following credits determined for
the taxable year:
(1) the investment credit determined under section 46,
(2) the work opportunity credit determined under section 51(a),
(3) the alcohol fuels credit determined under section 40(a),
(4) the research credit determined under section 41(a),
(5) the low-income housing credit determined under section
42(a),
(6) the enhanced oil recovery credit under section 43(a),
(7) in the case of an eligible small business (as defined in
section 44(b)), the disabled access credit determined under
section 44(a),
(8) the renewable electricity production credit under section
45(a),
(9) the empowerment zone employment credit determined under
section 1396(a),
(10) the Indian employment credit as determined under section
45A(a),
(11) the employer social security credit determined under
section 45B(a),
(12) the orphan drug credit determined under section 45C(a),
(13) the new markets tax credit determined under section
45D(a),
(14) in the case of an eligible employer (as defined in section
45E(c)), the small employer pension plan startup cost credit
determined under section 45E(a),
(15) the employer-provided child care credit determined under
section 45F(a),
(16) the railroad track maintenance credit determined under
section 45G(a),
(17) the biodiesel fuels credit determined under section
40A(a),
(18) the low sulfur diesel fuel production credit determined
under section 45H(a),
(19) the marginal oil and gas well production credit determined
under section 45I(a),
(20) the distilled spirits credit determined under section
5011(a),
(21) the advanced nuclear power facility production credit
determined under section 45J(a),
(22) the nonconventional source production credit determined
under section 45K(a),
(23) the new energy efficient home credit determined under
section 45L(a),
(24) the energy efficient appliance credit determined under
section 45M(a),
(25) the portion of the alternative motor vehicle credit to
which section 30B(g)(1) applies,
(26) the portion of the alternative fuel vehicle refueling
property credit to which section 30C(d)(1) applies,
(27) the Hurricane Katrina housing credit determined under
section 1400P(b),
(28) the Hurricane Katrina employee retention credit determined
under section 1400R(a),
(29) the Hurricane Rita employee retention credit determined
under section 1400R(b), and
(30) the Hurricane Wilma employee retention credit determined
under section 1400R(c).
(c) Limitation based on amount of tax
(1) In general
The credit allowed under subsection (a) for any taxable year
shall not exceed the excess (if any) of the taxpayer's net income
tax over the greater of -
(A) the tentative minimum tax for the taxable year, or
(B) 25 percent of so much of the taxpayer's net regular tax
liability as exceeds $25,000.
For purposes of the preceding sentence, the term "net income tax"
means the sum of the regular tax liability and the tax imposed by
section 55, reduced by the credits allowable under subparts A and
B of this part, and the term "net regular tax liability" means
the regular tax liability reduced by the sum of the credits
allowable under subparts A and B of this part.
(2) Empowerment zone employment credit may offset 25 percent of
minimum tax
(A) In general
In the case of the empowerment zone employment credit credit -
(i) this section and section 39 shall be applied separately
with respect to such credit, and
(ii) for purposes of applying paragraph (1) to such credit -
(I) 75 percent of the tentative minimum tax shall be
substituted for the tentative minimum tax under
subparagraph (A) thereof, and
(II) the limitation under paragraph (1) (as modified by
subclause (I)) shall be reduced by the credit allowed under
subsection (a) for the taxable year (other than the
empowerment zone employment credit, the New York Liberty
Zone business employee credit, and the specified credits).
(B) Empowerment zone employment credit
For purposes of this paragraph, the term "empowerment zone
employment credit" means the portion of the credit under
subsection (a) which is attributable to the credit determined
under section 1396 (relating to empowerment zone employment
credit).
(3) Special rules for New York Liberty Zone business employee
credit
(A) In general
In the case of the New York Liberty Zone business employee
credit -
(i) this section and section 39 shall be applied separately
with respect to such credit, and
(ii) in applying paragraph (1) to such credit -
(I) the tentative minimum tax shall be treated as being
zero, and
(II) the limitation under paragraph (1) (as modified by
subclause (I)) shall be reduced by the credit allowed under
subsection (a) for the taxable year (other than the New
York Liberty Zone business employee credit and the
specified credits).
(B) New York Liberty Zone business employee credit
For purposes of this subsection, the term "New York Liberty
Zone business employee credit" means the portion of work
opportunity credit under section 51 determined under section
1400L(a).
(4) Special rules for specified credits
(A) In general
In the case of specified credits -
(i) this section and section 39 shall be applied separately
with respect to such credits, and
(ii) in applying paragraph (1) to such credits -
(I) the tentative minimum tax shall be treated as being
zero, and
(II) the limitation under paragraph (1) (as modified by
subclause (I)) shall be reduced by the credit allowed under
subsection (a) for the taxable year (other than the
specified credits).
(B) Specified credits
For purposes of this subsection, the term "specified credits"
means -
(i) for taxable years beginning after December 31, 2004,
the credit determined under section 40, and
(ii) the credit determined under section 45 to the extent
that such credit is attributable to electricity or refined
coal produced -
(I) at a facility which is originally placed in service
after the date of the enactment of this paragraph, and
(II) during the 4-year period beginning on the date that
such facility was originally placed in service (!1)
(5) Special rules
(A) Married individuals
In the case of a husband or wife who files a separate return,
the amount specified under subparagraph (B) of paragraph (1)
shall be $12,500 in lieu of $25,000. This subparagraph shall
not apply if the spouse of the taxpayer has no business credit
carryforward or carryback to, and has no current year business
credit for, the taxable year of such spouse which ends within
or with the taxpayer's taxable year.
(B) Controlled groups
In the case of a controlled group, the $25,000 amount
specified under subparagraph (B) of paragraph (1) shall be
reduced for each component member of such group by apportioning
$25,000 among the component members of such group in such
manner as the Secretary shall by regulations prescribe. For
purposes of the preceding sentence, the term "controlled group"
has the meaning given to such term by section 1563(a).
(C) Limitations with respect to certain persons
In the case of a person described in subparagraph (A) or (B)
of section 46(e)(1) (as in effect on the day before the date of
the enactment of the Revenue Reconciliation Act of 1990), the
$25,000 amount specified under subparagraph (B) of paragraph
(1) shall equal such person's ratable share (as determined
under section 46(e)(2) (as so in effect) of such amount.
(D) Estates and trusts
In the case of an estate or trust, the $25,000 amount
specified under subparagraph (B) of paragraph (1) shall be
reduced to an amount which bears the same ratio to $25,000 as
the portion of the income of the estate or trust which is not
allocated to beneficiaries bears to the total income of the
estate or trust.
(d) Ordering rules
For purposes of any provision of this title where it is necessary
to ascertain the extent to which the credits determined under any
section referred to in subsection (b) are used in a taxable year or
as a carryback or carryforward -
(1) In general
The order in which such credits are used shall be determined on
the basis of the order in which they are listed in subsection (b)
as of the close of the taxable year in which the credit is used.
(2) Components of investment credit
The order in which the credits listed in section 46 are used
shall be determined on the basis of the order in which such
credits are listed in section 46 as of the close of the taxable
year in which the credit is used.
(3) Credits no longer listed
For purposes of this subsection -
(A) the credit allowable by section 40, as in effect on the
day before the date of the enactment of the Tax Reform Act of
1984, (relating to expenses of work incentive programs) and the
credit allowable by section 41(a), as in effect on the day
before the date of the enactment of the Tax Reform Act of 1986,
(relating to employee stock ownership credit) shall be treated
as referred to in that order after the last paragraph of
subsection (b), and
(B) the credit determined under section 46 -
(i) to the extent attributable to the employee plan
percentage (as defined in section 46(a)(2)(E) as in effect on
the day before the date of the enactment of the Tax Reform
Act of 1984) shall be treated as a credit listed after
paragraph (1) of section 46, and
(ii) to the extent attributable to the regular percentage
(as defined in section 46(b)(1) as in effect on the day
before the date of the enactment of the Revenue
Reconciliation Act of 1990) shall be treated as the first
credit listed in section 46.
-SOURCE-
(Added and amended Pub. L. 98-369, div. A, title IV, Sec. 473,
title VI, Sec. 612(e)(1), July 18, 1984, 98 Stat. 827, 912; Pub. L.
99-514, title II, Secs. 221(a), 231(d)(1), (3)(B), 252(b), title
VII, Sec. 701(c)(4), title XI, Sec. 1171(b)(1), (2), Oct. 22, 1986,
100 Stat. 2173, 2178, 2179, 2205, 2341, 2513; Pub. L. 100-647,
title I, Secs. 1002(e)(8)(A), 1007(g)(2), (8), Nov. 10, 1988, 102
Stat. 3368, 3434, 3435; Pub. L. 101-508, title XI, Secs.
11511(b)(1), 11611(b)(1), 11813(b)(2), Nov. 5, 1990, 104 Stat. 1388-
485, 1388-503, 1388-551; Pub. L. 102-486, title XIX, Sec. 1914(b),
Oct. 24, 1992, 106 Stat. 3023; Pub. L. 103-66, title XIII, Secs.
13302(a)(1), (c)(1), 13322(a), 13443(b)(1), Aug. 10, 1993, 107
Stat. 555, 559, 569; Pub. L. 104-188, title I, Secs. 1201(e)(1),
1205(a)(2), 1702(e)(4), Aug. 20, 1996, 110 Stat. 1772, 1775, 1870;
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(b)(1)], Dec. 21,
2000, 114 Stat. 2763, 2763A-609; Pub. L. 107-16, title II, Sec.
205(b)(1), title VI, Sec. 619(b), June 7, 2001, 115 Stat. 53, 110;
Pub. L. 107-147, title III, Sec. 301(b)(1), (2), title IV, Sec.
411(d)(2), Mar. 9, 2002, 116 Stat. 39, 46; Pub. L. 108-357, title
II, Sec. 245(c)(1), title III, Secs. 302(b), 339(b), 341(b), title
VII, Sec. 711(a), (b), Oct. 22, 2004, 118 Stat. 1448, 1465, 1484,
1487, 1557, 1558; Pub. L. 109-58, title XIII, Secs. 1306(b),
1322(a)(2), 1332(b), 1334(b), 1341(b)(1), 1342(b)(1), Aug. 8, 2005,
119 Stat. 999, 1011, 1026, 1033, 1049, 1051; Pub. L. 109-59, title
XI, Secs. 11126(b), 11151(d)(1), Aug. 10, 2005, 119 Stat. 1958,
1968; Pub. L. 109-135, title I, Sec. 103(b)(1), title II, Sec.
201(b)(1), title IV, Sec. 412(f), Dec. 21, 2005, 119 Stat. 2595,
2607, 2637.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
For reference to section 51 of this title, referred to in subsec.
(b), treated as including reference to section 51A of this title,
see section 51A(d)(2) of this title.
The date of the enactment of this paragraph, referred to in
subsec. (c)(4)(B)(ii)(I), is the date of enactment of Pub. L. 108-
357, which was approved Oct. 22, 2004.
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsecs. (c)(5)(C) and (d)(3)(B)(ii), is the
date of enactment of Pub. L. 101-508, which was approved Nov. 5,
1990.
The date of the enactment of the Tax Reform Act of 1984, referred
to in subsec. (d)(3)(A), (B)(i), is the date of enactment of Pub.
L. 98-369, which was approved July 18, 1984.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (d)(3)(A), is the date of enactment of Pub. L. 99-
514, which was approved Oct. 22, 1986.
-MISC1-
PRIOR PROVISIONS
A prior section 38, added Pub. L. 87-834, Sec. 2(a), Oct. 16,
1962, 76 Stat. 962; amended Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to investment
in certain depreciable property, prior to repeal by Pub. L. 98-369,
div. A, title IV, Sec. 474(m)(1), July 18, 1984, 98 Stat. 833.
Another prior section 38 was renumbered section 36 of this title.
AMENDMENTS
2005 - Subsec. (b)(20). Pub. L. 109-59, Sec. 11126(b), added par.
(20).
Subsec. (b)(21). Pub. L. 109-58, Sec. 1306(b), as amended by Pub.
L. 109-59, Sec. 11151(d)(1), added par. (21).
Subsec. (b)(22). Pub. L. 109-58, Sec. 1322(a)(2), added par.
(22).
Subsec. (b)(23). Pub. L. 109-58, Sec. 1332(b), added par. (23).
Subsec. (b)(24). Pub. L. 109-58, Sec. 1342(b)(1), which directed
the striking out of "plus" at end, was executed by striking out
"and" at end, to reflect the probable intent of Congress.
Pub. L. 109-58, Sec. 1334(b), added par. (24).
Subsec. (b)(25). Pub. L. 109-58, Sec. 1341(b)(1), added par.
(25).
Subsec. (b)(26). Pub. L. 109-58, Sec. 1342(b)(1), added par.
(26).
Subsec. (b)(27). Pub. L. 109-135, Sec. 103(b)(1), added par.
(27).
Subsec. (b)(28) to (30). Pub. L. 109-135, Sec. 201(b)(1), added
pars. (28) to (30).
Subsec. (c)(2)(A)(ii)(II). Pub. L. 109-135, Sec. 412(f)(1),
substituted ", the New York Liberty Zone business employee credit,
and the specified credits" for "or the New York Liberty Zone
business employee credit or the specified credits".
Subsec. (c)(3)(A)(ii)(II). Pub. L. 109-135, Sec. 412(f)(2),
substituted "and the specified credits" for "or the specified
credits".
Subsec. (c)(4)(B). Pub. L. 109-135, Sec. 412(f)(3), substituted
"means" for "includes" in introductory provisions and inserted
"and" at end of cl. (i).
2004 - Subsec. (b)(16). Pub. L. 108-357, Sec. 245(c)(1), added
par. (16).
Subsec. (b)(17). Pub. L. 108-357, Sec. 302(b), added par. (17).
Subsec. (b)(18). Pub. L. 108-357, Sec. 339(b), added par. (18).
Subsec. (b)(19). Pub. L. 108-357, Sec. 341(b), added par. (19).
Subsec. (c)(2)(A)(ii)(II), (3)(A)(ii)(II). Pub. L. 108-357, Sec.
711(b), inserted "or the specified credits" after "employee
credit".
Subsec. (c)(4), (5). Pub. L. 108-357, Sec. 711(a), added par. (4)
and redesignated former par. (4) as (5).
2002 - Subsec. (b)(15). Pub. L. 107-147, Sec. 411(d)(2),
substituted "45F(a)" for "45F".
Subsec. (c)(2)(A)(ii)(II). Pub. L. 107-147, Sec. 301(b)(2),
inserted "or the New York Liberty Zone business employee credit"
after "employment credit".
Subsec. (c)(3), (4). Pub. L. 107-147, Sec. 301(b)(1), added par.
(3) and redesignated former par. (3) as (4).
2001 - Subsec. (b)(12). Pub. L. 107-16, Secs. 619(b), 901,
temporarily struck out "plus" at end. See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (b)(13). Pub. L. 107-16, Secs. 619(b), 901, temporarily
substituted ", plus" for period at end. See Effective and
Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 205(b)(1), 901, temporarily struck out
"plus" at end. See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (b)(14). Pub. L. 107-16, Secs. 619(b), 901, temporarily
added par. (14). See Effective and Termination Dates of 2001
Amendment note below.
Pub. L. 107-16, Secs. 205(b)(1), 901, temporarily substituted ",
plus" for period at end. See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (b)(15). Pub. L. 107-16, Secs. 205(b)(1), 901,
temporarily added par. (15). See Effective and Termination Dates of
2001 Amendment note below.
2000 - Subsec. (b)(13). Pub. L. 106-554 added par. (13).
1996 - Subsec. (b)(2). Pub. L. 104-188, Sec. 1201(e)(1),
substituted "work opportunity credit" for "targeted jobs credit".
Subsec. (b)(12). Pub. L. 104-188, Sec. 1205(a)(2), added par.
(12).
Subsec. (c)(2)(C). Pub. L. 104-188, Sec. 1702(e)(4), amended
subpar. (C), as in effect on day before date of enactment of the
Revenue Reconciliation Act of 1990 (title XI of Pub. L. 101-508,
approved Nov. 5, 1990), by inserting before period at end of first
sentence "and without regard to the deduction under section 56(h)".
1993 - Subsec. (b)(7). Pub. L. 103-66, Sec. 13302(a)(1), struck
out "plus" at end.
Subsec. (b)(8). Pub. L. 103-66, Sec. 13322(a), which directed
amendment of par. (8) by striking "plus" at end, was executed by
striking "and" at end to reflect the probable intent of Congress.
Pub. L. 103-66, Sec. 13302(a)(1), substituted ", and" for period
at end.
Subsec. (b)(9). Pub. L. 103-66, Sec. 13443(b)(1), struck out
"plus" at end.
Pub. L. 103-66, Sec. 13322(a), substituted ", plus" for period at
end.
Pub. L. 103-66, Sec. 13302(a)(1), added par. (9).
Subsec. (b)(10). Pub. L. 103-66, Sec. 13443(b)(1), substituted ",
plus" for period at end.
Pub. L. 103-66, Sec. 13322(a), added par. (10).
Subsec. (b)(11). Pub. L. 103-66, Sec. 13443(b)(1), added par.
(11).
Subsec. (c)(2), (3). Pub. L. 103-66, Sec. 13302(c)(1), added par.
(2) and redesignated former par. (2) as (3).
1992 - Subsec. (b)(6) to (8). Pub. L. 102-486 struck out "plus"
at end of par. (6), substituted "; plus" for period at end of par.
(7), and added par. (8).
1990 - Subsec. (b)(1). Pub. L. 101-508, Sec. 11813(b)(2)(A),
substituted "section 46" for "section 46(a)".
Subsec. (b)(4). Pub. L. 101-508, Sec. 11511(b)(1), struck out
"plus" at end.
Subsec. (b)(5). Pub. L. 101-508, Sec. 11611(b)(1), struck out
"plus" at end.
Pub. L. 101-508, Sec. 11511(b)(1), substituted ", plus" for
period at end.
Subsec. (b)(6). Pub. L. 101-508, Sec. 11611(b)(1), substituted ",
plus" for period at end.
Pub. L. 101-508, Sec. 11511(b)(1), added par. (6).
Subsec. (b)(7). Pub. L. 101-508, Sec. 11611(b)(1), added par.
(7).
Subsec. (c)(2). Pub. L. 101-508, Sec. 11813(b)(2)(B),
redesignated par. (3) as (2) and struck out former par. (2) which
permitted an offset of regular investment tax credit against 25
percent of minimum tax.
Subsec. (c)(2)(C). Pub. L. 101-508, Sec. 11813(b)(2)(C), inserted
"(as in effect on the day before the date of the enactment of the
Revenue Reconciliation Act of 1990)" after "46(e)(1)" and "(as so
in effect)" after "46(e)(2)".
Subsec. (c)(3). Pub. L. 101-508, Sec. 11813(b)(2)(B),
redesignated par. (3) as (2).
Subsec. (d). Pub. L. 101-508, Sec. 11813(b)(2)(D)(i), substituted
"any provision" for "sections 46(f), 47(a), 196(a), and any other
provision" in introductory provisions.
Subsec. (d)(2). Pub. L. 101-508, Sec. 11813(b)(2)(D)(ii), amended
par. (2) generally. Prior to amendment, par. (2) read as follows:
"The order in which credits attributable to a percentage referred
to in section 46(a) are used shall be determined on the basis of
the order in which such percentages are listed in section 46(a) as
of the close of the taxable year in which the credit is used."
Subsec. (d)(3)(B). Pub. L. 101-508, Sec. 11813(b)(2)(D)(iii),
amended subpar. (B) generally. Prior to amendment, subpar. (B) read
as follows: "the employee plan percentage (as defined in section
46(a)(2)(E), as in effect on the day before the date of the
enactment of the Tax Reform Act of 1984) shall be treated as
referred to after section 46(a)(2)."
1988 - Subsec. (c). Pub. L. 100-647, Sec. 1007(g)(2), amended
pars. (1) to (3) generally, substituting pars. (1) and (2) for
former pars. (1) to (3), redesignating former par. (4) as (3), and
substituting "subparagraph (B) of paragraph (1)" for "subparagraphs
(A) and (B) of paragraph (1)" in subpars. (A), (B), (C), and (D).
Pub. L. 100-647, Sec. 1007(g)(8), made technical correction to
directory language of Pub. L. 99-514, Sec. 701(c)(4), see 1986
Amendment note below.
Subsec. (d). Pub. L. 100-647, Sec. 1002(e)(8)(A), substituted
"Ordering rules" for "Special rules for certain regulated
companies" in heading and amended text generally. Prior to
amendment, text read as follows: "In the case of any taxpayer to
which section 46(f) applies, for purposes of sections 46(f), 47(a),
and 196(a) and any other provision of this title where it is
necessary to ascertain the extent to which the credits determined
under section 40(a), 41(a), 42(a), 46(a), or 51(a) are used in a
taxable year or as a carryback or carryforward, the order in which
such credits are used shall be determined on the basis of the order
in which they are listed in subsection (b)."
1986 - Subsec. (b)(4). Pub. L. 99-514, Sec. 231(d)(1), added par.
(4).
Pub. L. 99-514, Sec. 1171(b)(1), struck out former par. (4) which
read as follows: "the employee stock ownership credit determined
under section 41(a)".
Subsec. (b)(5). Pub. L. 99-514, Sec. 252(b)(1), added par. (5).
Subsec. (c). Pub. L. 99-514, Sec. 701(c)(4), as amended by Pub.
L. 100-647, Sec. 1007(g)(8), added pars. (1) to (3), redesignated
former par. (3) as (4), and struck out former par. (1) "In general"
which provided: "The credit allowed under subsection (a) for any
taxable year shall not exceed the sum of -
"(A) so much of the taxpayer's net tax liability for the
taxable year as does not exceed $25,000, plus
"(B) 75 percent of so much of the taxpayer's net tax liability
for the taxable year as exceeds $25,000."
and former par. (2) "Net tax liability", which provided: "For
purposes of paragraph (1), the term 'net tax liability' means the
tax liability (as defined in section 26(b)), reduced by the sum of
the credits allowable under subparts A and B of this part."
Subsec. (c)(1)(B). Pub. L. 99-514, Sec. 221(a), substituted "75
percent" for "85 percent".
Subsec. (d). Pub. L. 99-514, Sec. 252(b)(2), inserted "42(a),".
Pub. L. 99-514, Sec. 1171(b)(2), substituted "and 196(a)" for
"196(a), and 404(i)" and struck out "41(a)," after "40(a)".
Pub. L. 99-514, Sec. 231(d)(3)(B), inserted "41(a)," after
"40(a),".
1984 - Subsec. (c)(2). Pub. L. 98-369, Sec. 612(e)(1),
substituted "section 26(b)" for "section 25(b)".
EFFECTIVE DATE OF 2005 AMENDMENTS
Pub. L. 109-59, title XI, Sec. 11126(d), Aug. 10, 2005, 119 Stat.
1958, provided that: "The amendments made by this section [enacting
section 5011 of this title and amending this section] shall apply
to taxable years beginning after September 30, 2005."
Pub. L. 109-59, title XI, Sec. 11151(d)(2), Aug. 10, 2005, 119
Stat. 1968, provided that: "If the Energy Policy Act of 2005 [Pub.
L. 109-58, see Tables for classification] is enacted before the
date of the enactment of this Act [Aug. 10, 2005], for purposes of
executing any amendments made by the Energy Policy Act of 2005 to
section 38(b) of the Internal Revenue Code of 1986, the amendments
made by section 11126(b) of this Act [amending this section] shall
be treated as having been executed before such amendments made by
the Energy Policy Act of 2005."
Pub. L. 109-59, title XI, Sec. 11151(f)(3), Aug. 10, 2005, 119
Stat. 1969, provided that: "The amendments made by subsections
(d)(1) and (e)(2) [amending this section and sections 4041 and 6426
of this title] shall take effect as if included in the provision of
the Energy Tax Incentives Act of 2005 [Pub. L. 109-58, title XIII]
to which they relate."
Pub. L. 109-58, title XIII, Sec. 1306(d), Aug. 8, 2005, 119 Stat.
999, provided that: "The amendments made by this section [enacting
section 45J of this title and amending this section] shall apply to
production in taxable years beginning after the date of the
enactment of this Act [Aug. 8, 2005]."
Amendment by section 1322(a)(2) of Pub. L. 109-58 applicable to
credits determined under the Internal Revenue Code of 1986 for
taxable years ending after Dec. 31, 2005, see section 1322(c)(1) of
Pub. L. 109-58, set out as a note under section 45K of this title.
Pub. L. 109-58, title XIII, Sec. 1332(f), Aug. 8, 2005, 119 Stat.
1026, provided that: "The amendments made by this section [enacting
section 45L of this title and amending this section and sections
196 and 1016 of this title] shall apply to qualified new energy
efficient homes acquired after December 31, 2005, in taxable years
ending after such date."
Pub. L. 109-58, title XIII, Sec. 1334(d), Aug. 8, 2005, 119 Stat.
1033, provided that: "The amendments made by this section [enacting
section 45M of this title and amending this section] shall apply to
appliances produced after December 31, 2005."
Amendment by section 1341(b)(1) of Pub. L. 109-58 applicable to
property placed in service after Dec. 31, 2005, in taxable years
ending after such date, see section 1341(c) of Pub. L. 109-58, set
out as an Effective Date note under section 30B of this title.
Amendment by section 1342(b)(1) of Pub. L. 109-58 applicable to
property placed in service after Dec. 31, 2005, in taxable years
ending after such date, see section 1342(c) of Pub. L. 109-58, set
out as an Effective Date note under section 30C of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title II, Sec. 245(e), Oct. 22, 2004, 118 Stat.
1448, provided that: "The amendments made by this section [enacting
section 45G of this title and amending this section and sections 39
and 1016 of this title] shall apply to taxable years beginning
after December 31, 2004."
Pub. L. 108-357, title III, Sec. 302(d), Oct. 22, 2004, 118 Stat.
1466, provided that: "The amendments made by this section [enacting
section 40A of this title and amending this section and sections 87
and 196 of this title] shall apply to fuel produced, and sold or
used, after December 31, 2004, in taxable years ending after such
date."
Pub. L. 108-357, title III, Sec. 339(f), Oct. 22, 2004, 118 Stat.
1485, provided that: "The amendments made by this section [enacting
section 45H of this title and amending this section and sections
196, 280C, and 1016 of this title] shall apply to expenses paid or
incurred after December 31, 2002, in taxable years ending after
such date."
Pub. L. 108-357, title III, Sec. 341(e), Oct. 22, 2004, 118 Stat.
1487, provided that: "The amendments made by this section [enacting
section 45I of this title and amending this section and section 39
of this title] shall apply to production in taxable years beginning
after December 31, 2004."
Pub. L. 108-357, title VII, Sec. 711(c), Oct. 22, 2004, 118 Stat.
1558, provided that: "Except as otherwise provided, the amendments
made by this section [amending this section] shall apply to taxable
years ending after the date of the enactment of this Act [Oct. 22,
2004]."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title III, Sec. 301(b)(3), Mar. 9, 2002, 116
Stat. 40, provided that: "The amendments made by this subsection
[amending this section] shall apply to taxable years ending after
December 31, 2001."
Amendment by section 411(d)(2) of Pub. L. 107-147 effective as if
included in the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment
relates, see section 411(x) of Pub. L. 107-147, set out as a note
under section 25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title II, Sec. 205(c), June 7, 2001, 115 Stat.
53, provided that: "The amendments made by this section [enacting
section 45F of this title and amending this section and section
1016 of this title] shall apply to taxable years beginning after
December 31, 2001."
Pub. L. 107-16, title VI, Sec. 619(d), June 7, 2001, 115 Stat.
110, as amended by Pub. L. 107-147, title IV, Sec. 411(n)(2), Mar.
9, 2002, 116 Stat. 48, provided that: "The amendments made by this
section [enacting section 45E of this title and amending this
section and sections 39 and 196 of this title] shall apply to costs
paid or incurred in taxable years beginning after December 31,
2001, with respect to qualified employer plans first effective
after such date."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(e)], Dec. 21,
2000, 114 Stat. 2763, 2763A-610, provided that: "The amendments
made by this section [enacting section 45D of this title, amending
this section and sections 39 and 196 of this title, and enacting
provisions set out as notes under section 45D of this title] shall
apply to investments made after December 31, 2000."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1201(g) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and sections 41, 45A,
51, 196, and 1396 of this title] shall apply to individuals who
begin work for the employer after September 30, 1996."
Amendment by section 1205(a)(2) of Pub. L. 104-188 applicable to
amounts paid or incurred in taxable years ending after June 30,
1996, see section 1205(e) of Pub. L. 104-188, set out as a note
under section 45K of this title.
Section 1702(i) of Pub. L. 104-188 provided that: "Except as
otherwise expressly provided, any amendment made by this section
[amending this section, sections 50, 56, 59, 143, 151, 168, 172,
179, 243, 280F, 341, 424, 460, 613A, 805, 832, 861, 897, 1248,
1250, 1367, 1504, 2701, 2702, 2704, 4093, 4975, 5041, 5061, 5354,
6038A, 6302, 6416, 6427, 6501, 6503, 6621, 6724, and 7012 of this
title, and provisions set out as a note under section 42 of this
title] shall take effect as if included in the provision of the
Revenue Reconciliation Act of 1990 [Pub. L. 101-508, title XI] to
which such amendment relates."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13303 of Pub. L. 103-66 provided that: "The amendments
made by this part [part I (Secs. 13301-13303) of subchapter C of
chapter 1 of title XIII of Pub. L. 103-66, enacting sections 1391
to 1394 and 1396 to 1397D of this title and amending this section
and sections 39, 51, 196, 280C, and 381 of this title] shall take
effect on the date of the enactment of this Act [Aug. 10, 1993]."
Section 13322(f) of Pub. L. 103-66 provided that: "The amendments
made by this section [enacting section 45A of this title and
amending this section and sections 39, 196, and 280C of this title]
shall apply to wages paid or incurred after December 31, 1993."
Section 13443(d) of Pub. L. 103-66, as amended by Pub. L. 104-
188, title I, Sec. 1112(a)(2), Aug. 20, 1996, 110 Stat. 1759,
provided that: "The amendments made by this section [enacting
section 45B of this title and amending this section and section 39
of this title] shall apply with respect to taxes paid after
December 31, 1993, with respect to services performed before, on,
or after such date."
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1914(e) of Pub. L. 102-486 provided that: "The amendments
made by this section [enacting section 45 of this title and
amending this section and section 39 of this title] shall apply to
taxable years ending after December 31, 1992."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11511(b)(1) of Pub. L. 101-508 applicable to
costs paid or incurred in taxable years beginning after Dec. 31,
1990, see section 11511(d)(1) of Pub. L. 101-508, set out as an
Effective Date note under section 43 of this title.
Section 11611(e) of Pub. L. 101-508 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting section 44 of this title
and amending this section and sections 39 and 190 of this title]
shall apply to expenditures paid or incurred after the date of the
enactment of this Act [Nov. 5, 1990].
"(2) Subsection (c). - The amendment made by subsection (c)
[amending section 190 of this title] shall apply to taxable years
beginning after the date of the enactment of this Act."
Amendment by section 11813(b)(2) of Pub. L. 101-508 applicable to
property placed in service after Dec. 31, 1990, but not applicable
to any transition property (as defined in section 49(e) of this
title), any property with respect to which qualified progress
expenditures were previously taken into account under section 46(d)
of this title, and any property described in section 46(b)(2)(C) of
this title, as such sections were in effect on Nov. 4, 1990, see
section 11813(c) of Pub. L. 101-508, set out as a note under
section 45K of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1002(e)(8)(C) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section and
section 49 of this title] shall apply to taxable years beginning
after December 31, 1983, and to carrybacks from such years."
Amendment by section 1007(g)(2), (8) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 221(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1985."
Amendment by section 231(d)(1), (3)(B) of Pub. L. 99-514
applicable to taxable years beginning after Dec. 31, 1985, see
section 231(g) of Pub. L. 99-514, set out as a note under section
41 of this title.
Amendment by section 252(b) of Pub. L. 99-514 applicable to
buildings placed in service after Dec. 31, 1986, in taxable years
ending after such date, see section 252(e) of Pub. L. 99-514, set
out as an Effective Date note under section 42 of this title.
Amendment by section 701(c)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L. 99-
514, set out as an Effective Date note under section 55 of this
title.
Section 1171(c) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
56, 108, 401, and 404 of this title and repealing sections 41 and
6699 of this title] shall apply to compensation paid or accrued
after December 31, 1986, in taxable years ending after such date.
"(2) Sections 404(i) and 6699 to continue to apply to pre-1987
credits. - The provisions of sections 404(i) and 6699 of the
Internal Revenue Code of 1986 shall continue to apply with respect
to credits under section 41 of such Code attributable to
compensation paid or accrued before January 1, 1987 (or under
section 38 of such Code with respect to qualified investment before
January 1, 1983)."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to interest paid or
accrued after December 31, 1984, on indebtedness incurred after
December 31, 1984, see section 612(g) of Pub. L. 98-369, set out as
an Effective Date note under section 25 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, and to carrybacks from such years, see section 475(a) of Pub.
L. 98-369, set out as an Effective Date of 1984 Amendment note
under section 21 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by section 11813(b)(2)
of Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
CREDIT FOR CONTRIBUTIONS TO CERTAIN COMMUNITY DEVELOPMENT
CORPORATIONS
Section 13311 of Pub. L. 103-66, as amended by Pub. L. 104-188,
title I, Sec. 1703(n)(13), Aug. 20, 1996, 110 Stat. 1877, provided
that:
"(a) In General. - For purposes of section 38 of the Internal
Revenue Code of 1986, the current year business credit shall
include the credit determined under this section.
"(b) Determination of Credit. - The credit determined under this
section for each taxable year in the credit period with respect to
any qualified CDC contribution made by the taxpayer is an amount
equal to 5 percent of such contribution.
"(c) Credit Period. - For purposes of this section, the credit
period with respect to any qualified CDC contribution is the period
of 10 taxable years beginning with the taxable year during which
such contribution was made.
"(d) Qualified CDC Contribution. - For purposes of this section -
"(1) In general. - The term 'qualified CDC contribution' means
any transfer of cash -
"(A) which is made to a selected community development
corporation during the 5-year period beginning on the date such
corporation was selected for purposes of this section,
"(B) the amount of which is available for use by such
corporation for at least 10 years,
"(C) which is to be used by such corporation for qualified
low-income assistance within its operational area, and
"(D) which is designated by such corporation for purposes of
this section.
"(2) Limitations on amount designated. - The aggregate amount
of contributions to a selected community development corporation
which may be designated by such corporation shall not exceed
$2,000,000.
"(e) Selected Community Development Corporations. -
"(1) In general. - For purposes of this section, the term
'selected community development corporation' means any
corporation -
"(A) which is described in section 501(c)(3) of such Code and
exempt from tax under section 501(a) of such Code,
"(B) the principal purposes of which include promoting
employment of, and business opportunities for, low-income
individuals who are residents of the operational area, and
"(C) which is selected by the Secretary of Housing and Urban
Development for purposes of this section.
"(2) Only 20 corporations may be selected. - The Secretary of
Housing and Urban Development may select 20 corporations for
purposes of this section, subject to the availability of eligible
corporations. Such selections may be made only before July 1,
1994. At least 8 of the operational areas of the corporations
selected must be rural areas (as defined by section 1393(a)(2) of
such Code).
"(3) Operational areas must have certain characteristics. - A
corporation may be selected for purposes of this section only if
its operational area meets the following criteria:
"(A) The area meets the size requirements under section
1392(a)(3).
"(B) The unemployment rate (as determined by the appropriate
available data) is not less than the national unemployment
rate.
"(C) The median family income of residents of such area does
not exceed 80 percent of the median gross income of residents
of the jurisdiction of the local government which includes such
area.
"(f) Qualified Low-Income Assistance. - For purposes of this
section, the term 'qualified low-income assistance' means
assistance -
"(1) which is designed to provide employment of, and business
opportunities for, low-income individuals who are residents of
the operational area of the community development corporation,
and
"(2) which is approved by the Secretary of Housing and Urban
Development."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUBLIC LAW 99-514 IN
RELATION TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(c)(4) of Pub. L. 99-
514 notwithstanding any treaty obligation of the United States in
effect on Oct. 22, 1986, with provision that for such purposes any
amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
EFFECTIVE 15-YEAR CARRYBACK OF EXISTING CARRYFORWARDS OF STEEL
COMPANIES
Section 212 of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1002(f), Nov. 10, 1988, 102 Stat. 3369, provided
that:
"(a) General Rule. - If a qualified corporation makes an election
under this section for its 1st taxable year beginning after
December 31, 1986, with respect to any portion of its existing
carryforwards, the amount determined under subsection (b) shall be
treated as a payment against the tax imposed by chapter 1 of the
Internal Revenue Code of 1986 made by such corporation on the last
day prescribed by law (without regard to extensions) for filing its
return of tax under chapter 1 of such Code for such 1st taxable
year.
"(b) Amount. - For purposes of subsection (a), the amount
determined under this subsection shall be the lesser of -
"(1) 50 percent of the portion of the corporation's existing
carryforwards to which the election under subsection (a) applies,
or
"(2) the corporation's net tax liability for the carryback
period.
"(c) Corporation Making Election May Not Use Same Amounts Under
Section 38. - In the case of a qualified corporation which makes an
election under subsection (a), the portion of such corporation's
existing carryforwards to which such an election applies shall not
be taken into account under section 38 of the Internal Revenue Code
of 1986 for any taxable year beginning after December 31, 1986.
"(d) Net Tax Liability for Carryback Period. - For purposes of
this section -
"(1) In general. - A corporation's net tax liability for the
carryback period is the aggregate of such corporation's net tax
liability for taxable years in the carryback period.
"(2) Net tax liability. - The term 'net tax liability' means,
with respect to any taxable year, the amount of the tax imposed
by chapter 1 of the Internal Revenue Code of 1954 [now 1986] for
such taxable year, reduced by the sum of the credits allowable
under part IV of subchapter A of such chapter 1 (other than
section 34 thereof). For purposes of the preceding sentence, any
tax treated as not imposed by chapter 1 of such Code under
section 26(b)(2) of such Code shall not be treated as tax imposed
by such chapter 1.
"(3) Carryback period. - The term 'carryback period' means the
period -
"(A) which begins with the corporation's 15th taxable year
preceding the 1st taxable year from which there is an unused
credit included in such corporation's existing carryforwards
(but in no event shall such period begin before the
corporation's 1st taxable year ending after December 31, 1961),
and
"(B) which ends with the corporation's last taxable year
beginning before January 1, 1986.
"(e) No Recomputation of Minimum Tax, Etc. - Nothing in this
section shall be construed to affect -
"(1) the amount of the tax imposed by section 56 of the
Internal Revenue Code of 1986, or
"(2) the amount of any credit allowable under such Code,
for any taxable year in the carryback period.
"(f) Reinvestment Requirement. -
"(1) In general. - Any amount determined under this section
must be committed to reinvestment in, and modernization of the
steel industry through investment in modern plant and equipment,
research and development, and other appropriate projects, such as
working capital for steel operations and programs for the
retraining of steel workers.
"(2) Special rule. - In the case of the LTV Corporation, in
lieu of the requirements of paragraph (1) -
"(A) such corporation shall place such refund in a separate
account; and
"(B) amounts in such separate account -
"(i) shall only be used by the corporation -
"(I) to purchase an insurance policy which provides that, in
the event the corporation becomes involved in a title 11 or
similar case (as defined in section 368(a)(3)(A) of the
Internal Revenue Code of 1954 [now 1986]), the insurer will
provide life and health insurance coverage during the 1-year
period beginning on the date when the corporation receives
the refund to any individual with respect to whom the
corporation would (but for such involvement) have been
obligated to provide such coverage the coverage provided by
the insurer will be identical to the coverage which the
corporation would (but for such involvement) have been
obligated to provide, and provides that the payment of
insurance premiums will not be required during such 1-year
period to keep such policy in force, or
"(II) directly in connection with the trade or business of the
corporation in the manufacturer or production of steel; and
"(ii) shall be used (or obligated) for purposes described
in clause (i) not later than 3 months after the corporation
receives the refund.
"(3) In the case of a qualified corporation, no offset to any
refund under this section may be made by reason of any tax
imposed by section 4971 of the Internal Revenue Code of 1986 (or
any interest or penalty attributable to any such tax), and the
date on which any such refund is to be paid shall be determined
without regard to such corporation's status under title 11,
United States Code.
"(g) Definitions. - For purposes of this section -
"(1) Qualified corporation. -
"(A) In general. - The term 'qualified corporation' means any
corporation which is described in section 806(b) of the Steel
Import Stabilization Act [19 U.S.C. 2253 note] and a company
which was incorporated on February 11, 1983, in Michigan.
"(B) Certain predecessors included. - In the case of any
qualified corporation which has carryforward attributable to a
predecessor corporation described in such section 806(b), the
qualified corporation and the predecessor corporation shall be
treated as 1 corporation for purposes of subsections (d) and
(e).
"(2) Existing carryforwards. - The term 'existing carryforward'
means the aggregate of the amounts which -
"(A) are unused business credit carryforwards to the
taxpayer's 1st taxable year beginning after December 31, 1986
(determined without regard to the limitations of section 38(c)
and any reduction under section 49 of the Internal Revenue Code
of 1986), and
"(B) are attributable to the amount of the regular investment
credit determined for periods before January 1, 1986, under
section 46(a)(1) of such Code (relating to regular percentage),
or any corresponding provision of prior law, determined on the
basis that the regular investment credit was used first.
"(3) Special rule for restructuring. - In the case of any
corporation, any restructuring shall not limit, increase, or
otherwise affect the benefits which would have been available
under this section but for such restructuring.
"(h) Tentative Refunds. - Rules similar to the rules of section
6425 of the Internal Revenue Code of 1986 shall apply to any
overpayment resulting from the application of this section."
EFFECTIVE 15-YEAR CARRYBACK OF EXISTING CARRYFORWARDS OF QUALIFIED
FARMERS
Section 213 of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1002(g), Nov. 10, 1988, 102 Stat. 3369, provided
that:
"(a) General Rule. - If a taxpayer who is a qualified farmer
makes an election under this section for its 1st taxable year
beginning after December 31, 1986, with respect to any portion of
its existing carryforwards, the amount determined under subsection
(b) shall be treated as a payment against the tax imposed by
chapter 1 of the Internal Revenue Code of 1986 made by such
taxpayer on the last day prescribed by law (without regard to
extensions) for filing its return of tax under chapter 1 of such
Code for such 1st taxable year.
"(b) Amount. - For purposes of subsection (a), the amount
determined under this subsection shall be equal to the smallest of -
"(1) 50 percent of the portion of the taxpayer's existing
carryforwards to which the election under subsection (a) applies,
"(2) the taxpayer's net tax liability for the carryback period
(within the meaning of section 212(d) of this Act [set out as a
note above]), or
"(3) $750.
"(c) Taxpayer Making Election May Not Use Same Amounts Under
Section 38. - In the case of a qualified farmer who makes an
election under subsection (a), the portion of such farmer's
existing carryforwards to which such an election applies shall not
be taken into account under section 38 of the Internal Revenue Code
of 1986 for any taxable year beginning after December 31, 1986.
"(d) No Recomputation of Minimum Tax, Etc. - Nothing in this
section shall be construed to affect -
"(1) the amount of the tax imposed by section 56 of the
Internal Revenue Code of 1954 [now 1986], or
"(2) the amount of any credit allowable under such Code,
for any taxable year in the carryback period (within the meaning of
section 212(d)(3) of this Act [set out as a note above]).
"(e) Definitions and Special Rules. - For purposes of this
section -
"(1) Qualified farmer. - The term 'qualified farmer' means any
taxpayer who, during the 3-taxable year period preceding the
taxable year for which an election is made under subsection (a),
derived 50 percent or more of the taxpayer's gross income from
the trade or business of farming.
"(2) Existing carryforward. - The term 'existing carryforward'
means the aggregate of the amounts which -
"(A) are unused business credit carryforwards to the
taxpayer's 1st taxable year beginning after December 31, 1986
(determined without regard to the limitations of section 38(c)
of the Internal Revenue Code of 1986), and
"(B) are attributable to the amount of the investment credit
determined for periods before January 1, 1986, under section
46(a) of such Code (or any corresponding provision of prior
law) with respect to section 38 property which was used by the
taxpayer in the trade or business of farming, determined on the
basis that such credit was used first.
"(3) Farming. - The term 'farming' has the meaning given such
term by section 2032A(e)(4) and (5) of such Code."
TREATMENT OF INVESTMENT TAX CREDITS WITH RESPECT TO CERTAIN PUBLIC
UTILITIES
For provisions requiring different applications of subsec. (c) of
this section to certain public utilities by making substitutions in
the percentages of the tentative minimum tax referred to in subsec.
(c)(3)(A)(ii), (B), under certain circumstances, see section
701(f)(6) of Pub. L. 99-514, set out as an Effective Date note
under section 55 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TRANSITION RULES
Section 1177 of subtitle C (Secs. 1171-1177) of title XI of Pub.
L. 99-514, as amended by Pub. L. 100-647, title I, Sec.
1011B(l)(1), (2), Nov. 10, 1988, 102 Stat. 3493, provided that:
"(a) Section 1171. - The amendments made by section 1171
[amending this section and sections 56, 108, 401, and 404 of this
title and repealing sections 41 and 6699 of this title] shall not
apply in the case of a tax credit employee stock ownership plan if -
"(1) such plan was favorably approved on September 23, 1983, by
employees, and
"(2) not later than January 11, 1984, the employer of such
employees was 100 percent owned by such plan.
"(b) Subtitle Not To Apply to Certain Newspaper. - The amendments
made by section 1175 [amending section 401 of this title] shall not
apply to any daily newspaper -
"(1) which was first published on December 17, 1855, and which
began publication under its current name in 1954, and
"(2) which is published in a constitutional home rule city
(within the meaning of section 146(d)(3)(C) of the Internal
Revenue Code of 1986) which has a population of less than
2,500,000."
Section 1011B(l)(3) of Pub. L. 100-647 provided that: "If any
newspaper corporation described in section 1177(b) of the Reform
Act [section 1177(b) of Pub. L. 99-514, set out above], as amended
by this subsection, pays in cash a dividend within 60 days after
the date of the enactment of this Act [Nov. 10, 1988] to the
corporation's employee stock ownership plans and if a corporate
resolution declaring such dividend was adopted before November 30,
1987, and such resolution specifies that such dividend shall be
contingent upon passage by the Congress of technical corrections,
then such dividend (to the extent the aggregate amount so paid does
not exceed $3,500,000) shall be treated as if it had been declared
and paid in 1987 for all purposes of the Internal Revenue Code of
1986."
ACCOUNTING FOR INVESTMENT CREDIT IN CERTAIN FINANCIAL REPORTS AND
REPORTS TO FEDERAL AGENCIES
Pub. L. 92-178, title I, Sec. 101(c), Dec. 10, 1971, 85 Stat.
499, as amended by Pub. L. 98-369, div. A, title IV, Sec. 450(a),
July 18, 1984, 98 Stat. 818; Pub. L. 99-514, Sec. 2, Oct. 22, 1986,
100 Stat. 2095, provided that:
"(1) In general. - It was the intent of Congress in enacting,
in the Revenue Act of 1962 [see Short Title of 1962 Amendment
note set out under section 1 of this title], the investment
credit allowed by section 38 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], and it is the intent of the Congress in
restoring that credit in this Act [section 50 of this title], to
provide an incentive for modernization and growth of private
industry. Accordingly, notwithstanding any other provision of
law, on and after the date of the enactment of this Act [Dec. 10,
1971] -
"(A) no taxpayer shall be required to use, for purposes of
financial reports subject to the jurisdiction of any Federal
agency or reports made to any Federal agency, any particular
method of accounting for the credit allowed by such section 38
[this section], and
"(B) a taxpayer shall disclose, in any such report, the
method of accounting for such credit used by him for purposes
of such report.
"(2) Exceptions. - Paragraph (1) shall not apply to taxpayers
who are subject to the provisions of section 46(e) of the
Internal Revenue Code of 1986 (as added by section 105(c) of this
Act) or to section 203(e) of the Revenue Act of 1964 (as modified
by section 105(e) of this Act) [set out as note below]."
[Section 450(b) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this note] shall take effect as if
included in the Revenue Act of 1971."]
TREATMENT OF INVESTMENT CREDIT BY FEDERAL REGULATORY AGENCIES
Pub. L. 88-272, title II, Sec. 203(e), Feb. 26, 1964, 78 Stat.
35, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat.
2095, provided that: "It was the intent of the Congress in
providing an investment credit under section 38 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] and it is the intent of
the Congress in repealing the reduction in basis required by
section 48(g) of such Code to provide an incentive for
modernization and growth of private industry (including that
portion thereof which is regulated). Accordingly, Congress does not
intend that any agency or instrumentality of the United States
having jurisdiction with respect to a taxpayer shall, without the
consent of the taxpayer, use -
"(1) in the case of public utility property (as defined in
section 46(c)(3)(B) of the Internal Revenue Code of 1986, more
than a proportionate part (determined with reference to the
average useful life of the property with respect to which the
credit was allowed) of the credit against tax allowed for any
taxable year by section 38 of such Code, or
"(2) in the case of any other property, any credit against tax
allowed by section 38 of such Code,
to reduce such taxpayer's Federal income taxes for the purpose of
establishing the cost of service of the taxpayer or to accomplish a
similar result by any other method."
Section 203(e) of Pub. L. 88-272, not applicable to public
utility property to which section 46(e) of this title applies, see
section 105(e) of Pub. L. 92-178, set out as a note under section
46 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be followed by a period.
-End-
-CITE-
26 USC Sec. 39 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 39. Carryback and carryforward of unused credits
-STATUTE-
(a) In general
(1) 1-year carryback and 20-year carryforward
If the sum of the business credit carryforwards to the taxable
year plus the amount of the current year business credit for the
taxable year exceeds the amount of the limitation imposed by
subsection (c) of section 38 for such taxable year (hereinafter
in this section referred to as the "unused credit year"), such
excess (to the extent attributable to the amount of the current
year business credit) shall be -
(A) a business credit carryback to the taxable year preceding
the unused credit year, and
(B) a business credit carryforward to each of the 20 taxable
years following the unused credit year,
and, subject to the limitations imposed by subsections (b) and
(c), shall be taken into account under the provisions of section
38(a) in the manner provided in section 38(a).
(2) Amount carried to each year
(A) Entire amount carried to first year
The entire amount of the unused credit for an unused credit
year shall be carried to the earliest of the 21 taxable years
to which (by reason of paragraph (1)) such credit may be
carried.
(B) Amount carried to other 20 years
The amount of the unused credit for the unused credit year
shall be carried to each of the other 20 taxable years to the
extent that such unused credit may not be taken into account
under section 38(a) for a prior taxable year because of the
limitations of subsections (b) and (c).
(3) 5-year carryback for marginal oil and gas well production
credit
Notwithstanding subsection (d), in the case of the marginal oil
and gas well production credit -
(A) this section shall be applied separately from the
business credit (other than the marginal oil and gas well
production credit),
(B) paragraph (1) shall be applied by substituting "each of
the 5 taxable years" for "the taxable year" in subparagraph (A)
thereof, and
(C) paragraph (2) shall be applied -
(i) by substituting "25 taxable years" for "21 taxable
years" in subparagraph (A) thereof, and
(ii) by substituting "24 taxable years" for "20 taxable
years" in subparagraph (B) thereof.
(b) Limitation on carrybacks
The amount of the unused credit which may be taken into account
under section 38(a)(3) for any preceding taxable year shall not
exceed the amount by which the limitation imposed by section 38(c)
for such taxable year exceeds the sum of -
(1) the amounts determined under paragraphs (1) and (2) of
section 38(a) for such taxable year, plus
(2) the amounts which (by reason of this section) are carried
back to such taxable year and are attributable to taxable years
preceding the unused credit year.
(c) Limitation on carryforwards
The amount of the unused credit which may be taken into account
under section 38(a)(1) for any succeeding taxable year shall not
exceed the amount by which the limitation imposed by section 38(c)
for such taxable year exceeds the sum of the amounts which, by
reason of this section, are carried to such taxable year and are
attributable to taxable years preceding the unused credit year.
(d) Transitional rule
No portion of the unused business credit for any taxable year
which is attributable to a credit specified in section 38(b) or any
portion thereof may be carried back to any taxable year before the
first taxable year for which such specified credit or such portion
is allowable (without regard to subsection (a)).
-SOURCE-
(Added Pub. L. 98-369, div. A, title IV, Sec. 473, July 18, 1984,
98 Stat. 828; amended Pub. L. 99-514, title II, Sec.
231(d)(3)(C)(i), title XVIII, Sec. 1846, Oct. 22, 1986, 100 Stat.
2179, 2856; Pub. L. 100-647, title I, Sec. 1002(l)(26), Nov. 10,
1988, 102 Stat. 3381; Pub. L. 101-508, title XI, Secs. 11511(b)(2),
11611(b)(2), 11801(a)(2), Nov. 5, 1990, 104 Stat. 1388-485, 1388-
503, 1388-520; Pub. L. 102-486, title XIX, Sec. 1914(c), Oct. 24,
1992, 106 Stat. 3023; Pub. L. 103-66, title XIII, Secs.
13302(a)(2), 13322(d), 13443(b)(2), Aug. 10, 1993, 107 Stat. 555,
563, 569; Pub. L. 104-188, title I, Secs. 1205(c), 1703(n)(1), Aug.
20, 1996, 110 Stat. 1775, 1877; Pub. L. 105-34, title VII, Sec.
701(b)(1), title X, Sec. 1083(a), Aug. 5, 1997, 111 Stat. 869, 951;
Pub. L. 105-206, title VI, Sec. 6010(n), July 22, 1998, 112 Stat.
816; Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(b)(2)], Dec.
21, 2000, 114 Stat. 2763, 2763A-610; Pub. L. 107-16, title VI, Sec.
619(c)(1), June 7, 2001, 115 Stat. 110; Pub. L. 108-357, title II,
Sec. 245(b)(1), title III, Sec. 341(c), Oct. 22, 2004, 118 Stat.
1447, 1487; Pub. L. 109-135, title IV, Sec. 412(g), Dec. 21, 2005,
119 Stat. 2637.)
-MISC1-
PRIOR PROVISIONS
A prior section 39 was renumbered section 34 of this title.
Another prior section 39 was renumbered section 36 of this title.
AMENDMENTS
2005 - Subsec. (a)(1)(A). Pub. L. 109-135, Sec. 412(g)(1),
substituted "the taxable year" for "each of the 1 taxable years".
Subsec. (a)(3)(B). Pub. L. 109-135, Sec. 412(g)(2), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "paragraph (1) shall be applied by substituting '5 taxable
years' for '1 taxable years' in subparagraph (A) thereof, and".
2004 - Subsec. (a)(3). Pub. L. 108-357, Sec. 341(c), added par.
(3).
Subsec. (d). Pub. L. 108-357, Sec. 245(b)(1), amended heading and
text of subsec. (d) generally, substituting provisions prohibiting
carryback of the unused business credit attributable to a credit
specified in section 38(b) for provisions prohibiting carryback of
the enhanced oil recovery credit before 1991, sections 44, 45A, and
45B credits before their enactments, the renewable electricity
production credit before its effective date, the empowerment zone
employment credit, section 45C credit before July 1, 1996, DC Zone
credits before their effective date, the new markets tax credit
before Jan. 1, 2001, and the small employer pension plan startup
cost credit before Jan. 1, 2002.
2001 - Subsec. (d)(10). Pub. L. 107-16, Secs. 619(c)(1), 901,
temporarily added par. (10). See Effective and Termination Dates of
2001 Amendment note below.
2000 - Subsec. (d)(9). Pub. L. 106-554 added par. (9).
1998 - Subsec. (a)(2). Pub. L. 105-206 amended Pub. L. 105-34,
Sec. 1083(a)(2). See 1997 Amendment note below.
1997 - Subsec. (a)(1). Pub. L. 105-34, Sec. 1083(a)(1),
substituted "1-year" for "3-year" and "20-year" for "15-year" in
heading, "1 taxable" for "3 taxable" in subpar. (A), and "20
taxable" for "15 taxable" in subpar. (B).
Subsec. (a)(2). Pub. L. 105-34, Sec. 1083(a)(2), as amended by
Pub. L. 105-206, Sec. 6010(n), in subpar. (A), substituted "21
taxable" for "18 taxable", and in subpar. (B), substituted "20
years" for "17 years" in heading and "20 taxable" for "17 taxable"
in text.
Subsec. (d)(8). Pub. L. 105-34, Sec. 701(b)(1), added par. (8).
1996 - Subsec. (d)(5). Pub. L. 104-188, Sec. 1703(n)(1)(A),
substituted "45A" for "45" in heading.
Subsec. (d)(6). Pub. L. 104-188, Sec. 1703(n)(1)(B), substituted
"45B" for "45" in heading.
Subsec. (d)(7). Pub. L. 104-188, Sec. 1205(c), added par. (7).
1993 - Subsec. (d)(4). Pub. L. 103-66, Sec. 13302(a)(2), added
par. (4).
Subsec. (d)(5). Pub. L. 103-66, Sec. 13322(d), added par. (5).
Subsec. (d)(6). Pub. L. 103-66, Sec. 13443(b)(2), added par. (6).
1992 - Subsec. (d). Pub. L. 102-486 redesignated par. (5),
relating to carryback of enhanced oil recovery credit, as (1),
redesignated par. (5), relating to carryback of section 44 credit,
as (2), and added par. (3).
1990 - Subsec. (d)(1) to (4). Pub. L. 101-508, Sec. 11801(a)(2),
struck out par. (1) which related to carryforwards from an unused
credit year which did not expire before first taxable year
beginning after Dec. 31, 1983, par. (2) which related to carrybacks
in determining amount allowable as credit including net tax
liability, par. (3) which related to similar rules for research
credit under section 30, and par. (4) which provided for no
carryback of low-income housing credit before 1987.
Subsec. (d)(5). Pub. L. 101-508, Sec. 11611(b)(2), added par. (5)
relating to carryback of section 44 credit.
Pub. L. 101-508, Sec. 11511(b)(2), added par. (5) relating to
carryback of enhanced oil recovery credit.
1988 - Subsec. (d)(4). Pub. L. 100-647 added par. (4).
1986 - Subsec. (d)(1)(A). Pub. L. 99-514, Sec. 1846(1), inserted
"(as in effect before the enactment of the Tax Reform Act of
1984)".
Subsec. (d)(2)(B). Pub. L. 99-514, Sec. 1846(2), substituted "as
defined in section 26(b)" for "as so defined in section 25(b)".
Subsec. (d)(3). Pub. L. 99-514, Sec. 231(d)(3)(C)(i), added par.
(3).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title II, Sec. 245(b)(2), Oct. 22, 2004, 118
Stat. 1448, provided that: "The amendment made by paragraph (1)
[amending this section] shall apply with respect to taxable years
ending after December 31, 2003."
Amendment by section 245(b) of Pub. L. 108-357 applicable to
taxable years beginning after Dec. 31, 2004, see section 245(e) of
Pub. L. 108-357, set out as a note under section 38 of this title.
Amendment by section 341(c) of Pub. L. 108-357 applicable to
production in taxable years beginning after Dec. 31, 2004, see
section 341(e) of Pub. L. 108-357, set out as a note under section
38 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to costs paid or incurred
in taxable years beginning after Dec. 31, 2001, with respect to
qualified employer plans first effective after such date, see
section 619(d) of Pub. L. 107-16, as amended, set out as a note
under section 38 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 applicable to investments made after
Dec. 31, 2000, see Sec. 1(a)(7) [title I, Sec. 121(e)] of Pub. L.
106-554, set out as a note under section 38 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 701(d) of Pub. L. 105-34 provided that: "Except as
provided in subsection (c) [amending table of subchapters for this
chapter], the amendments made by this section [enacting subchapter
W of this chapter and amending this section and section 1016 of
this title] shall take effect on the date of the enactment of this
Act [Aug. 5, 1997]."
Section 1083(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to credits
arising in taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1205(c) of Pub. L. 104-188 applicable to
amounts paid or incurred in taxable years ending after June 30,
1996, see section 1205(e) of Pub. L. 104-188, set out as a note
under section 45K of this title.
Section 1703(o) of Pub. L. 104-188 provided that: "Any amendment
made by this section [amending this section and sections 40, 59,
108, 117, 135, 143, 163, 904, 956A, 958, 1017, 1044, 1201, 1245,
1297, 1394, 1397B, 1561, 4001, 6033, 6427, 6501, 6655, and 9502 of
this title, renumbering section 6714 of this title as section 6715,
and amending provisions set out as notes under sections 38, 42,
197, and 1258 of this title and section 401 of Title 42, The Public
Health and Welfare] shall take effect as if included in the
provision of the Revenue Reconciliation Act of 1993 [Pub. L. 103-
66, title XIII, ch. I, Secs. 13001-13444] to which such amendment
relates."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13322(d) of Pub. L. 103-66 applicable to
wages paid or incurred after Dec. 31, 1993, see section 13322(f) of
Pub. L. 103-66, set out as a note under section 38 of this title.
Amendment by section 13443(b)(2) of Pub. L. 103-66 applicable
with respect to taxes paid after Dec. 31, 1993, with respect to
services performed before, on, or after such date, see section
13443(d) of Pub. L. 103-66, as amended, set out as a note under
section 38 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-486 applicable to taxable years ending
after Dec. 31, 1992, see section 1914(e) of Pub. L. 102-486, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11511(b)(2) of Pub. L. 101-508 applicable to
costs paid or incurred in taxable years beginning after Dec. 31,
1990, see section 11511(d)(1) of Pub. L. 101-508, set out as an
Effective Date note under section 43 of this title.
Amendment by section 11611(b)(2) of Pub. L. 101-508 applicable to
expenditures paid or incurred after Nov. 5, 1990, see section
11611(e)(1) of Pub. L. 101-508, set out as a note under section 38
of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 231(d)(3)(C)(i) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1985, see section 231(g)
of Pub. L. 99-514, set out as a note under section 41 of this
title.
Amendment by section 1846 of Pub. L. 99-514 effective, except as
otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, and to carrybacks from such years, see section 475(a) of Pub.
L. 98-369, set out as an Effective Date of 1984 Amendment note
under section 21 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by section 11801(a)(2)
of Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 40 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 40. Alcohol used as fuel
-STATUTE-
(a) General rule
For purposes of section 38, the alcohol fuels credit determined
under this section for the taxable year is an amount equal to the
sum of -
(1) the alcohol mixture credit, plus
(2) the alcohol credit, plus
(3) in the case of an eligible small ethanol producer, the
small ethanol producer credit.
(b) Definition of alcohol mixture credit, alcohol credit, and small
ethanol producer credit
For purposes of this section, and except as provided in
subsection (h) -
(1) Alcohol mixture credit
(A) In general
The alcohol mixture credit of any taxpayer for any taxable
year is 60 cents for each gallon of alcohol used by the
taxpayer in the production of a qualified mixture.
(B) Qualified mixture
The term "qualified mixture" means a mixture of alcohol and
gasoline or of alcohol and a special fuel which -
(i) is sold by the taxpayer producing such mixture to any
person for use as a fuel, or
(ii) is used as a fuel by the taxpayer producing such
mixture.
(C) Sale or use must be in trade or business, etc.
Alcohol used in the production of a qualified mixture shall
be taken into account -
(i) only if the sale or use described in subparagraph (B)
is in a trade or business of the taxpayer, and
(ii) for the taxable year in which such sale or use occurs.
(D) Casual off-farm production not eligible
No credit shall be allowed under this section with respect to
any casual off-farm production of a qualified mixture.
(2) Alcohol credit
(A) In general
The alcohol credit of any taxpayer for any taxable year is 60
cents for each gallon of alcohol which is not in a mixture with
gasoline or a special fuel (other than any denaturant) and
which during the taxable year -
(i) is used by the taxpayer as a fuel in a trade or
business, or
(ii) is sold by the taxpayer at retail to a person and
placed in the fuel tank of such person's vehicle.
(B) User credit not to apply to alcohol sold at retail
No credit shall be allowed under subparagraph (A)(i) with
respect to any alcohol which was sold in a retail sale
described in subparagraph (A)(ii).
(3) Smaller credit for lower proof alcohol
In the case of any alcohol with a proof which is at least 150
but less than 190, paragraphs (1)(A) and (2)(A) shall be applied
by substituting "45 cents" for "60 cents".
(4) Small ethanol producer credit
(A) In general
The small ethanol producer credit of any eligible small
ethanol producer for any taxable year is 10 cents for each
gallon of qualified ethanol fuel production of such producer.
(B) Qualified ethanol fuel production
For purposes of this paragraph, the term "qualified ethanol
fuel production" means any alcohol which is ethanol which is
produced by an eligible small ethanol producer, and which
during the taxable year -
(i) is sold by such producer to another person -
(I) for use by such other person in the production of a
qualified mixture in such other person's trade or business
(other than casual off-farm production),
(II) for use by such other person as a fuel in a trade or
business, or
(III) who sells such ethanol at retail to another person
and places such ethanol in the fuel tank of such other
person, or
(ii) is used or sold by such producer for any purpose
described in clause (i).
(C) Limitation
The qualified ethanol fuel production of any producer for any
taxable year shall not exceed 15,000,000 gallons.
(D) Additional distillation excluded
The qualified ethanol fuel production of any producer for any
taxable year shall not include any alcohol which is purchased
by the producer and with respect to which such producer
increases the proof of the alcohol by additional distillation.
(5) Adding of denaturants not treated as mixture
The adding of any denaturant to alcohol shall not be treated as
the production of a mixture.
(c) Coordination with exemption from excise tax
The amount of the credit determined under this section with
respect to any alcohol shall, under regulations prescribed by the
Secretary, be properly reduced to take into account any benefit
provided with respect to such alcohol solely by reason of the
application of section 4041(b)(2), section 6426, or section
6427(e).
(d) Definitions and special rules
For purposes of this section -
(1) Alcohol defined
(A) In general
The term "alcohol" includes methanol and ethanol but does not
include -
(i) alcohol produced from petroleum, natural gas, or coal
(including peat), or
(ii) alcohol with a proof of less than 150.
(B) Determination of proof
The determination of the proof of any alcohol shall be made
without regard to any added denaturants.
(2) Special fuel defined
The term "special fuel" includes any liquid fuel (other than
gasoline) which is suitable for use in an internal combustion
engine.
(3) Mixture or alcohol not used as a fuel, etc.
(A) Mixtures
If -
(i) any credit was determined under this section with
respect to alcohol used in the production of any qualified
mixture, and
(ii) any person -
(I) separates the alcohol from the mixture, or
(II) without separation, uses the mixture other than as a
fuel,
then there is hereby imposed on such person a tax equal to 60
cents a gallon (45 cents in the case of alcohol with a proof
less than 190) for each gallon of alcohol in such mixture.
(B) Alcohol
If -
(i) any credit was determined under this section with
respect to the retail sale of any alcohol, and
(ii) any person mixes such alcohol or uses such alcohol
other than as a fuel,
then there is hereby imposed on such person a tax equal to 60
cents a gallon (45 cents in the case of alcohol with a proof
less than 190) for each gallon of such alcohol.
(C) Producer credit
If -
(i) any credit was determined under subsection (a)(3), and
(ii) any person does not use such fuel for a purpose
described in subsection (b)(4)(B),
then there is hereby imposed on such person a tax equal to 10
cents a gallon for each gallon of such alcohol.
(D) Applicable laws
All provisions of law, including penalties, shall, insofar as
applicable and not inconsistent with this section, apply in
respect of any tax imposed under subparagraph (A), (B), or (C)
as if such tax were imposed by section 4081 and not by this
chapter.
(4) Volume of alcohol
For purposes of determining under subsection (a) the number of
gallons of alcohol with respect to which a credit is allowable
under subsection (a), the volume of alcohol shall include the
volume of any denaturant (including gasoline) which is added
under any formulas approved by the Secretary to the extent that
such denaturants do not exceed 5 percent of the volume of such
alcohol (including denaturants).
(5) Pass-thru in the case of estates and trusts
Under regulations prescribed by the Secretary, rules similar to
the rules of subsection (d) of section 52 shall apply.
(e) Termination
(1) In general
This section shall not apply to any sale or use -
(A) for any period after December 31, 2010, or
(B) for any period before January 1, 2011, during which the
rates of tax under section 4081(a)(2)(A) are 4.3 cents per
gallon.
(2) No carryovers to certain years after expiration
If this section ceases to apply for any period by reason of
paragraph (1), no amount attributable to any sale or use before
the first day of such period may be carried under section 39 by
reason of this section (treating the amount allowed by reason of
this section as the first amount allowed by this subpart) to any
taxable year beginning after the 3-taxable-year period beginning
with the taxable year in which such first day occurs.
(f) Election to have alcohol fuels credit not apply
(1) In general
A taxpayer may elect to have this section not apply for any
taxable year.
(2) Time for making election
An election under paragraph (1) for any taxable year may be
made (or revoked) at any time before the expiration of the 3-year
period beginning on the last date prescribed by law for filing
the return for such taxable year (determined without regard to
extensions).
(3) Manner of making election
An election under paragraph (1) (or revocation thereof) shall
be made in such manner as the Secretary may by regulations
prescribe.
(g) Definitions and special rules for eligible small ethanol
producer credit
For purposes of this section -
(1) Eligible small ethanol producer
The term "eligible small ethanol producer" means a person who,
at all times during the taxable year, has a productive capacity
for alcohol (as defined in subsection (d)(1)(A) without regard to
clauses (i) and (ii)) not in excess of 60,000,000 gallons.
(2) Aggregration (!1) rule
For purposes of the 15,000,000 gallon limitation under
subsection (b)(4)(C) and the 60,000,000 gallon limitation under
paragraph (1), all members of the same controlled group of
corporations (within the meaning of section 267(f)) and all
persons under common control (within the meaning of section 52(b)
but determined by treating an interest of more than 50 percent as
a controlling interest) shall be treated as 1 person.
(3) Partnership, S corporations, and other pass-thru entities
In the case of a partnership, trust, S corporation, or other
pass-thru entity, the limitations contained in subsection
(b)(4)(C) and paragraph (1) shall be applied at the entity level
and at the partner or similar level.
(4) Allocation
For purposes of this subsection, in the case of a facility in
which more than 1 person has an interest, productive capacity
shall be allocated among such persons in such manner as the
Secretary may prescribe.
(5) Regulations
The Secretary may prescribe such regulations as may be
necessary -
(A) to prevent the credit provided for in subsection (a)(3)
from directly or indirectly benefiting any person with a direct
or indirect productive capacity of more than 60,000,000 gallons
of alcohol during the taxable year, or
(B) to prevent any person from directly or indirectly
benefiting with respect to more than 15,000,000 gallons during
the taxable year.
(6) Allocation of small ethanol producer credit to patrons of
cooperative
(A) Election to allocate
(i) In general
In the case of a cooperative organization described in
section 1381(a), any portion of the credit determined under
subsection (a)(3) for the taxable year may, at the election
of the organization, be apportioned pro rata among patrons of
the organization on the basis of the quantity or value of
business done with or for such patrons for the taxable year.
(ii) Form and effect of election
An election under clause (i) for any taxable year shall be
made on a timely filed return for such year. Such election,
once made, shall be irrevocable for such taxable year. Such
election shall not take effect unless the organization
designates the apportionment as such in a written notice
mailed to its patrons during the payment period described in
section 1382(d).
(B) Treatment of organizations and patrons
(i) Organizations
The amount of the credit not apportioned to patrons
pursuant to subparagraph (A) shall be included in the amount
determined under subsection (a)(3) for the taxable year of
the organization.
(ii) Patrons
The amount of the credit apportioned to patrons pursuant to
subparagraph (A) shall be included in the amount determined
under such subsection for the first taxable year of each
patron ending on or after the last day of the payment period
(as defined in section 1382(d)) for the taxable year of the
organization or, if earlier, for the taxable year of each
patron ending on or after the date on which the patron
receives notice from the cooperative of the apportionment.
(iii) Special rules for decrease in credits for taxable year
If the amount of the credit of the organization determined
under such subsection for a taxable year is less than the
amount of such credit shown on the return of the organization
for such year, an amount equal to the excess of -
(I) such reduction, over
(II) the amount not apportioned to such patrons under
subparagraph (A) for the taxable year,
shall be treated as an increase in tax imposed by this
chapter on the organization. Such increase shall not be
treated as tax imposed by this chapter for purposes of
determining the amount of any credit under this chapter or
for purposes of section 55.
(h) Reduced credit for ethanol blenders
(1) In general
In the case of any alcohol mixture credit or alcohol credit
with respect to any sale or use of alcohol which is ethanol
during calendar years 2001 through 2010 -
(A) subsections (b)(1)(A) and (b)(2)(A) shall be applied by
substituting "the blender amount" for "60 cents",
(B) subsection (b)(3) shall be applied by substituting "the
low-proof blender amount" for "45 cents" and "the blender
amount" for "60 cents", and
(C) subparagraphs (A) and (B) of subsection (d)(3) shall be
applied by substituting "the blender amount" for "60 cents" and
"the low-proof blender amount" for "45 cents".
(2) Amounts
For purposes of paragraph (1), the blender amount and the low-
proof blender amount shall be determined in accordance with the
following table:
In the case of any sale The blender The low-proof
or use during calendar amount is: blender amount
year: is:
--------------------------------------------------------------------
2001 or 2002 53 cents 39.26 cents
2003 or 2004 52 cents 38.52 cents
2005 through 2010 51 cents 37.78 cents.
--------------------------------------------------------------------
-SOURCE-
(Added Pub. L. 96-223, title II, Sec. 232(b)(1), Apr. 2, 1980, 94
Stat. 273, Sec. 44E; amended Pub. L. 97-34, title II Sec.
207(c)(3), Aug. 13, 1981, 95 Stat. 225; Pub. L. 97-354, Sec.
5(a)(2), Oct. 19, 1982, 96 Stat. 1692; Pub. L. 97-424, title V,
Sec. 511(b)(2), (d)(3), Jan. 6, 1983, 96 Stat. 2170, 2171;
renumbered Sec. 40 and amended Pub. L. 98-369, div. A, title IV,
Secs. 471(c), 474(k), title IX, Secs. 912(c), (f), 913(b), July 18,
1984, 98 Stat. 826, 832, 1007, 1008; Pub. L. 100-203, title X, Sec.
10502(d)(1), Dec. 22, 1987, 101 Stat. 1330-444; Pub. L. 101-508,
title XI, Sec. 11502(a)-(f), Nov. 5, 1990, 104 Stat. 1388-480 to
1388-482; Pub. L. 104-188, title I, Sec. 1703(j), Aug. 20, 1996,
110 Stat. 1876; Pub. L. 105-178, title IX, Sec. 9003(a)(3), (b)(1),
June 9, 1998, 112 Stat. 502; Pub. L. 108-357, title III, Secs.
301(c)(1)-(4), 313(a), Oct. 22, 2004, 118 Stat. 1461, 1467; Pub. L.
109-58, title XIII, Sec. 1347(a), (b), Aug. 8, 2005, 119 Stat.
1056.)
-MISC1-
PRIOR PROVISIONS
A prior section 40, added Pub. L. 92-178, title VI, Sec. 601(a),
Dec. 10, 1971, 85 Stat. 553; amended Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to
allowance as a credit of expenses of work incentive programs, prior
to repeal by Pub. L. 98-369, div. A, title IV, Sec. 474(m)(1), July
18, 1984, 98 Stat. 833.
Another prior section 40 was renumbered section 36 of this title.
AMENDMENTS
2005 - Subsec. (g)(1), (2), (5)(A). Pub. L. 109-58, Sec. 1347(a),
substituted "60,000,000" for "30,000,000".
Subsec. (g)(6)(A)(ii). Pub. L. 109-58, Sec. 1347(b), inserted at
end "Such election shall not take effect unless the organization
designates the apportionment as such in a written notice mailed to
its patrons during the payment period described in section
1382(d)."
2004 - Subsec. (c). Pub. L. 108-357, Sec. 301(c)(1), substituted
"section 4041(b)(2), section 6426, or section 6427(e)" for
"subsection (b)(2), (k), or (m) of section 4041, section 4081(c),
or section 4091(c)".
Subsec. (d)(4). Pub. L. 108-357, Sec. 301(c)(2), reenacted
heading without change and amended text of par. (4) generally,
substituting provisions relating to determination of the number of
gallons of alcohol with respect to which a credit is allowable
under subsec. (a) for provisions relating to determination of the
number of gallons of alcohol with respect to which a credit is
allowable under subsec. (a) or the percentage of any mixture which
consists of alcohol under section 4041(k) or 4081(c).
Subsec. (e)(1)(A). Pub. L. 108-357, Sec. 301(c)(3)(A),
substituted "2010" for "2007".
Subsec. (e)(1)(B). Pub. L. 108-357, Sec. 301(c)(3)(B),
substituted "2011" for "2008".
Subsec. (g)(6). Pub. L. 108-357, Sec. 313(a), added par. (6).
Subsec. (h)(1). Pub. L. 108-357, Sec. 301(c)(4)(A), substituted
"2010" for "2007" in introductory provisions.
Subsec. (h)(2). Pub. L. 108-357, Sec. 301(c)(4)(B), substituted
"through 2010" for ", 2006, or 2007" in table.
1998 - Subsec. (e)(1). Pub. L. 105-178, Sec. 9003(a)(3),
substituted "December 31, 2007" for "December 31, 2000" in subpar.
(A) and "January 1, 2008" for "January 1, 2001" in subpar. (B).
Subsec. (h). Pub. L. 105-178, Sec. 9003(b)(1), reenacted heading
without change and amended text of subsec. (h) generally. Prior to
amendment, text read as follows: "In the case of any alcohol
mixture credit or alcohol credit with respect to any alcohol which
is ethanol -
"(1) subsections (b)(1)(A) and (b)(2)(A) shall be applied by
substituting '54 cents' for '60 cents';
"(2) subsection (b)(3) shall be applied by substituting '40
cents' for '45 cents' and '54 cents' for '60 cents'; and
"(3) subparagraphs (A) and (B) of subsection (d)(3) shall be
applied by substituting '54 cents' for '60 cents' and '40 cents'
for '45 cents'."
1996 - Subsec. (e)(1)(B). Pub. L. 104-188 amended subpar. (B)
generally. Prior to amendment, subpar. (B) read as follows: "for
any period before January 1, 2001, during which the Highway Trust
Fund financing rate under section 4081(a)(2) is not in effect."
1990 - Subsec. (a)(2). Pub. L. 101-508, Sec. 11502(a)(1),
substituted ", plus" for period at end.
Subsec. (a)(3). Pub. L. 101-508, Sec. 11502(a)(2), added par.
(3).
Subsec. (b). Pub. L. 101-508, Sec. 11502(e)(2), which directed
the insertion of ", and except as provided in subsection (h)" in
introductory provisions without specifying the location of such
insertion, was executed after "section" to reflect the probable
intent of Congress.
Pub. L. 101-508, Sec. 11502(b)(3), substituted ", alcohol credit,
and small ethanol producer credit" for "and alcohol credit" in
heading.
Subsec. (b)(4), (5). Pub. L. 101-508, Sec. 11502(b)(1), (2),
added par. (4) and redesignated former par. (4) as (5).
Subsec. (d)(3)(C), (D). Pub. L. 101-508, Sec. 11502(d)(1), (2),
added subpar. (C), redesignated former subpar. (C) as (D), and
substituted "subparagraph (A), (B), or (C)" for "subparagraph (A)
or (B)".
Subsec. (e). Pub. L. 101-508, Sec. 11502(f), amended subsec. (e)
generally, substituting present provisions for provisions
prohibiting the applicability of this section to any sale or use
after Dec. 31, 1992, and prohibiting carryovers to any taxable year
beginning after Dec. 31, 1994.
Subsec. (g). Pub. L. 101-508, Sec. 11502(c), added subsec. (g).
Subsec. (h). Pub. L. 101-508, Sec. 11502(e)(1), added subsec.
(h).
1987 - Subsec. (c). Pub. L. 100-203 substituted ", section
4081(c), or section 4091(c)" for "or section 4081(c)".
1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 44E of
this title as this section.
Subsec. (a). Pub. L. 98-369, Sec. 474(k)(1), substituted "For
purposes of section 38, the alcohol fuels credit determined under
this section for the taxable year is an amount equal to the sum of"
for "There shall be allowed as a credit against the tax imposed by
this chapter for the taxable year an amount equal to the sum of" in
introductory provisions.
Subsec. (b)(1)(A), (2)(A). Pub. L. 98-369, Sec. 912(c)(1),
substituted "60 cents" for "50 cents".
Subsec. (b)(3). Pub. L. 98-369, Sec. 912(c), substituted "45
cents" for "37.5 cents" and "60 cents" for "50 cents".
Subsec. (c). Pub. L. 98-369, Sec. 913(b), substituted "(b)(2),
(k), or (m)" for "(b)(2) or (k)".
Pub. L. 98-369, Sec. 474(k)(2), substituted "the credit
determined under this section" for "the credit allowable under this
section".
Subsec. (d)(1)(A)(i). Pub. L. 98-369, Sec. 912(f), substituted
"coal (including peat)" for "coal".
Subsec. (d)(3)(A). Pub. L. 98-369, Sec. 912(c), substituted "60
cents" for "50 cents" and "45 cents" for "37.5 cents".
Subsec. (d)(3)(A)(i). Pub. L. 98-369, Sec. 474(k)(3), substituted
"credit was determined" for "credit was allowable".
Subsec. (d)(3)(B). Pub. L. 98-369, Sec. 912(c), substituted "60
cents" for "50 cents" and "45 cents" for "37.5 cents".
Subsec. (d)(3)(B)(i). Pub. L. 98-369, Sec. 474(k)(3), substituted
"credit was determined" for "credit was allowable".
Subsec. (e). Pub. L. 98-369, Sec. 474(k)(4), redesignated subsec.
(f) as (e). Former subsec. (e), which had placed a limitation based
on the amount of tax, was struck out.
Subsec. (e)(2). Pub. L. 98-369, Sec. 474(k)(5), substituted
"section 39 by reason of this section (treating the amount allowed
by reason of this section as the first amount allowed by this
subpart)" for "subsection (e)(2)".
Subsec. (f). Pub. L. 98-369, Sec. 474(k)(6), added subsec. (f).
Former subsec. (f) redesignated (e).
1983 - Subsec. (b)(1)(A), (2)(A). Pub. L. 97-424, Sec.
511(d)(3)(A), substituted "50 cents" for "40 cents".
Subsec. (b)(3). Pub. L. 97-424, Sec. 511(d)(3), substituted "50
cents" for "40 cents" and "37.5 cents" for "30 cents".
Subsec. (c). Pub. L. 97-424, Sec. 511(b)(2), substituted
"subsection (b)(2) or (k) of section 4041 or section 4081(c)" for
"section 4041(k) or 4081(c)" after "reason of the application of".
Subsec. (d)(3)(A), (B). Pub. L. 97-424, Sec. 511(d)(3),
substituted "50 cents" for "40 cents" and "37.5 cents" for "30
cents".
1982 - Subsec. (d)(5). Pub. L. 97-354 substituted "Pass-thru in
the case of estates and trusts" for "Pass-through in the case of
subchapter S corporations, etc." in par. heading, and substituted
provisions relating to the applicability of rules similar to rules
of subsec. (d) of section 52 for provisions relating to the
applicability of rules similar to rules of subsecs. (d) and (e) of
section 52.
1981 - Subsec. (e)(2)(A). Pub. L. 97-34 substituted "15" for "7"
in two places, and "14" for "6" in one place.
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-58, title XIII, Sec. 1347(c), Aug. 8, 2005, 119 Stat.
1056, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years ending after the date of
the enactment of this Act [Aug. 8, 2005]."
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title III, Sec. 301(d), Oct. 22, 2004, 118 Stat.
1463, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting section
6426 of this title and amending this section and sections 4041,
4081, 4083, 4101, 6427, and 9503 of this title] shall apply to fuel
sold or used after December 31, 2004.
"(2) Registration requirement. - The amendment made by subsection
(b) [amending section 4101 of this title] shall take effect on
April 1, 2005.
"(3) Extension of alcohol fuels credit. - The amendments made by
paragraphs (3), (4), and (14) of subsection (c) [amending this
section] shall take effect on the date of the enactment of this Act
[Oct. 22, 2004].
"(4) Repeal of general fund retention of certain alcohol fuels
taxes. - The amendments made by subsection (c)(12) [amending
section 9503 of this title] shall apply to fuel sold or used after
September 30, 2004."
Pub. L. 108-357, title III, Sec. 313(b), Oct. 22, 2004, 118 Stat.
1468, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years ending after the date of
the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-178, title IX, Sec. 9003(b)(3), June 9, 1998, 112
Stat. 503, provided that: "The amendments made by this subsection
[amending this section and sections 4041, 4081, and 4091 of this
title] shall take effect on January 1, 2001."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective as if included in the
provision of the Revenue Reconciliation Act of 1993, Pub. L. 103-
66, Secs. 13001-13444, to which such amendment relates, see
section 1703(o) of Pub. L. 104-188, set out as a note under section
39 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11502(h) of Pub. L. 101-508 provided that:
"(1) Except as provided in paragraph (2), the amendments made by
this section [amending this section] shall apply to alcohol
produced, and sold or used, in taxable years beginning after
December 31, 1990.
"(2) The amendments made by subsection (g) [amending provisions
not classified to the Code] shall apply to articles entered or
withdrawn from warehouse on or after January 1, 1991."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10502(e) of Pub. L. 100-203 provided that: "The
amendments made by this section [enacting sections 4091 to 4093 of
this title, amending this section and sections 4041, 4081, 4101,
4221, 6206, 6416, 6421, 6427, 6652, 9502, 9503, and 9508 of this
title, and enacting provisions set out as notes under sections 4091
and 9502 of this title] shall apply to sales after March 31, 1988."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(k) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Section 912(g) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and sections 4041,
4081, and 6427 of this title] shall take effect on January 1,
1985."
Amendment by section 913(b) of Pub. L. 98-369 effective Aug. 1,
1984, see section 913(c) of Pub. L. 98-369, set out as a note under
section 4041 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendments by section 511(b)(2), (d)(3) of Pub. L. 97-424
effective Apr. 1, 1983, see section 511(h) of Pub. L. 97-424, set
out as a note under section 4041 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to unused credit years
ending after Sept. 30, 1980, see section 209(c)(2)(C) of Pub. L. 97-
34, set out as an Effective Date note under section 168 of this
title.
EFFECTIVE DATE
Section 232(h)(1), (4) of Pub. L. 96-223, as amended by Pub. L.
97-448, title II, Sec. 202(e), Jan. 12, 1983, 96 Stat. 2396,
provided that:
"(1) The amendments made by subsections (b) and (c) [enacting
sections 44E [now 40] and 86 of this title and amending sections
55, 381, 383, 4081, and 6096 of this title] shall apply to sales or
uses after September 30, 1980, in taxable years ending after such
date.
"(4) Notwithstanding paragraph (1), the provisions of section
44E(d)(4)(B) [now 40(d)(4)(B)] of such Code, as added by this
section, shall take effect on April 2, 1980."
-FOOTNOTE-
(!1) So in original. Probably should be "Aggregation".
-End-
-CITE-
26 USC Sec. 40A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 40A. Biodiesel and renewable diesel used as fuel
-STATUTE-
(a) General rule
For purposes of section 38, the biodiesel fuels credit determined
under this section for the taxable year is an amount equal to the
sum of -
(1) the biodiesel mixture credit, plus
(2) the biodiesel credit, plus
(3) in the case of an eligible small agri-biodiesel producer,
the small agri-biodiesel producer credit.
(b) Definition of biodiesel mixture credit, biodiesel credit, and
small agri-biodiesel producer credit
For purposes of this section -
(1) Biodiesel mixture credit
(A) In general
The biodiesel mixture credit of any taxpayer for any taxable
year is 50 cents for each gallon of biodiesel used by the
taxpayer in the production of a qualified biodiesel mixture.
(B) Qualified biodiesel mixture
The term "qualified biodiesel mixture" means a mixture of
biodiesel and diesel fuel (as defined in section 4083(a)(3)),
determined without regard to any use of kerosene, which -
(i) is sold by the taxpayer producing such mixture to any
person for use as a fuel, or
(ii) is used as a fuel by the taxpayer producing such
mixture.
(C) Sale or use must be in trade or business, etc.
Biodiesel used in the production of a qualified biodiesel
mixture shall be taken into account -
(i) only if the sale or use described in subparagraph (B)
is in a trade or business of the taxpayer, and
(ii) for the taxable year in which such sale or use occurs.
(D) Casual off-farm production not eligible
No credit shall be allowed under this section with respect to
any casual off-farm production of a qualified biodiesel
mixture.
(2) Biodiesel credit
(A) In general
The biodiesel credit of any taxpayer for any taxable year is
50 cents for each gallon of biodiesel which is not in a mixture
with diesel fuel and which during the taxable year -
(i) is used by the taxpayer as a fuel in a trade or
business, or
(ii) is sold by the taxpayer at retail to a person and
placed in the fuel tank of such person's vehicle.
(B) User credit not to apply to biodiesel sold at retail
No credit shall be allowed under subparagraph (A)(i) with
respect to any biodiesel which was sold in a retail sale
described in subparagraph (A)(ii).
(3) Credit for agri-biodiesel
In the case of any biodiesel which is agri-biodiesel,
paragraphs (1)(A) and (2)(A) shall be applied by substituting
"$1.00" for "50 cents".
(4) Certification for biodiesel
No credit shall be allowed under paragraph (1) or (2) of
subsection (a) unless the taxpayer obtains a certification (in
such form and manner as prescribed by the Secretary) from the
producer or importer of the biodiesel which identifies the
product produced and the percentage of biodiesel and agri-
biodiesel in the product.
(5) Small agri-biodiesel producer credit
(A) In general
The small agri-biodiesel producer credit of any eligible
small agri-biodiesel producer for any taxable year is 10 cents
for each gallon of qualified agri-biodiesel production of such
producer.
(B) Qualified agri-biodiesel production
For purposes of this paragraph, the term "qualified agri-
biodiesel production" means any agri-biodiesel which is
produced by an eligible small agri-biodiesel producer, and
which during the taxable year -
(i) is sold by such producer to another person -
(I) for use by such other person in the production of a
qualified biodiesel mixture in such other person's trade or
business (other than casual off-farm production),
(II) for use by such other person as a fuel in a trade or
business, or
(III) who sells such agri-biodiesel at retail to another
person and places such agri-biodiesel in the fuel tank of
such other person, or
(ii) is used or sold by such producer for any purpose
described in clause (i).
(C) Limitation
The qualified agri-biodiesel production of any producer for
any taxable year shall not exceed 15,000,000 gallons.
(c) Coordination with credit against excise tax
The amount of the credit determined under this section with
respect to any biodiesel shall be properly reduced to take into
account any benefit provided with respect to such biodiesel solely
by reason of the application of section 6426 or 6427(e).
(d) Definitions and special rules
For purposes of this section -
(1) Biodiesel
The term "biodiesel" means the monoalkyl esters of long chain
fatty acids derived from plant or animal matter which meet -
(A) the registration requirements for fuels and fuel
additives established by the Environmental Protection Agency
under section 211 of the Clean Air Act (42 U.S.C. 7545), and
(B) the requirements of the American Society of Testing and
Materials D6751.
(2) Agri-biodiesel
The term "agri-biodiesel" means biodiesel derived solely from
virgin oils, including esters derived from virgin vegetable oils
from corn, soybeans, sunflower seeds, cottonseeds, canola,
crambe, rapeseeds, safflowers, flaxseeds, rice bran, and mustard
seeds, and from animal fats.
(3) Mixture or biodiesel not used as a fuel, etc.
(A) Mixtures
If -
(i) any credit was determined under this section with
respect to biodiesel used in the production of any qualified
biodiesel mixture, and
(ii) any person -
(I) separates the biodiesel from the mixture, or
(II) without separation, uses the mixture other than as a
fuel,
then there is hereby imposed on such person a tax equal to the
product of the rate applicable under subsection (b)(1)(A) and
the number of gallons of such biodiesel in such mixture.
(B) Biodiesel
If -
(i) any credit was determined under this section with
respect to the retail sale of any biodiesel, and
(ii) any person mixes such biodiesel or uses such biodiesel
other than as a fuel,
then there is hereby imposed on such person a tax equal to the
product of the rate applicable under subsection (b)(2)(A) and
the number of gallons of such biodiesel.
(C) Producer credit
If -
(i) any credit was determined under subsection (a)(3), and
(ii) any person does not use such fuel for a purpose
described in subsection (b)(5)(B), then there is hereby
imposed on such person a tax equal to 10 cents a gallon for
each gallon of such agri-biodiesel.
(D) Applicable laws
All provisions of law, including penalties, shall, insofar as
applicable and not inconsistent with this section, apply in
respect of any tax imposed under subparagraph (A) or (B) as if
such tax were imposed by section 4081 and not by this chapter.
(4) Pass-thru in the case of estates and trusts
Under regulations prescribed by the Secretary, rules similar to
the rules of subsection (d) of section 52 shall apply.
(e) Definitions and special rules for small agri-biodiesel producer
credit
For purposes of this section -
(1) Eligible small agri-biodiesel producer
The term "eligible small agri-biodiesel producer" means a
person who, at all times during the taxable year, has a
productive capacity for agri-biodiesel not in excess of
60,000,000 gallons.
(2) Aggregation rule
For purposes of the 15,000,000 gallon limitation under
subsection (b)(5)(C) and the 60,000,000 gallon limitation under
paragraph (1), all members of the same controlled group of
corporations (within the meaning of section 267(f)) and all
persons under common control (within the meaning of section 52(b)
but determined by treating an interest of more than 50 percent as
a controlling interest) shall be treated as 1 person.
(3) Partnership, S corporation, and other pass-thru entities
In the case of a partnership, trust, S corporation, or other
pass-thru entity, the limitations contained in subsection
(b)(5)(C) and paragraph (1) shall be applied at the entity level
and at the partner or similar level.
(4) Allocation
For purposes of this subsection, in the case of a facility in
which more than 1 person has an interest, productive capacity
shall be allocated among such persons in such manner as the
Secretary may prescribe.
(5) Regulations
The Secretary may prescribe such regulations as may be
necessary -
(A) to prevent the credit provided for in subsection (a)(3)
from directly or indirectly benefiting any person with a direct
or indirect productive capacity of more than 60,000,000 gallons
of agri-biodiesel during the taxable year, or
(B) to prevent any person from directly or indirectly
benefiting with respect to more than 15,000,000 gallons during
the taxable year.
(6) Allocation of small agri-biodiesel credit to patrons of
cooperative
(A) Election to allocate
(i) In general
In the case of a cooperative organization described in
section 1381(a), any portion of the credit determined under
subsection (a)(3) for the taxable year may, at the election
of the organization, be apportioned pro rata among patrons of
the organization on the basis of the quantity or value of
business done with or for such patrons for the taxable year.
(ii) Form and effect of election
An election under clause (i) for any taxable year shall be
made on a timely filed return for such year. Such election,
once made, shall be irrevocable for such taxable year. Such
election shall not take effect unless the organization
designates the apportionment as such in a written notice
mailed to its patrons during the payment period described in
section 1382(d).
(B) Treatment of organizations and patrons
(i) Organizations
The amount of the credit not apportioned to patrons
pursuant to subparagraph (A) shall be included in the amount
determined under subsection (a)(3) for the taxable year of
the organization.
(ii) Patrons
The amount of the credit apportioned to patrons pursuant to
subparagraph (A) shall be included in the amount determined
under such subsection for the first taxable year of each
patron ending on or after the last day of the payment period
(as defined in section 1382(d)) for the taxable year of the
organization or, if earlier, for the taxable year of each
patron ending on or after the date on which the patron
receives notice from the cooperative of the apportionment.
(iii) Special rules for decrease in credits for taxable year
If the amount of the credit of the organization determined
under such subsection for a taxable year is less than the
amount of such credit shown on the return of the organization
for such year, an amount equal to the excess of -
(I) such reduction, over
(II) the amount not apportioned to such patrons under
subparagraph (A) for the taxable year, shall be treated as
an increase in tax imposed by this chapter on the
organization. Such increase shall not be treated as tax
imposed by this chapter for purposes of determining the
amount of any credit under this chapter or for purposes of
section 55.
(f) Renewable diesel
For purposes of this title -
(1) Treatment in the same manner as biodiesel
Except as provided in paragraph (2), renewable diesel shall be
treated in the same manner as biodiesel.
(2) Exceptions
(A) Rate of credit
Subsections (b)(1)(A) and (b)(2)(A) shall be applied with
respect to renewable diesel by substituting "$1.00" for "50
cents".
(B) Nonapplication of certain credits
Subsections (b)(3) and (b)(5) shall not apply with respect to
renewable diesel.
(3) Renewable diesel defined
The term "renewable diesel" means diesel fuel derived from
biomass (as defined in section 45K(c)(3)) using a thermal
depolymerization process which meets -
(A) the registration requirements for fuels and fuel
additives established by the Environmental Protection Agency
under section 211 of the Clean Air Act (42 U.S.C. 7545), and
(B) the requirements of the American Society of Testing and
Materials D975 or D396.
(g) Termination
This section shall not apply to any sale or use after December
31, 2008.
-SOURCE-
(Added Pub. L. 108-357, title III, Sec. 302(a), Oct. 22, 2004, 118
Stat. 1463; amended Pub. L. 109-58, title XIII, Secs. 1344(a),
1345(a)-(d), 1346(a), (b)(1), Aug. 8, 2005, 119 Stat. 1052-1055;
Pub. L. 109-135, title IV, Sec. 412(h), Dec. 21, 2005, 119 Stat.
2637.)
-MISC1-
AMENDMENTS
2005 - Pub. L. 109-58, Sec. 1346(b)(1), inserted "and renewable
diesel" after "Biodiesel" in section catchline.
Subsec. (a). Pub. L. 109-58, Sec. 1345(a), reenacted heading
without change and amended text of subsec. (a) generally. Prior to
amendment, text read as follows: "For purposes of section 38, the
biodiesel fuels credit determined under this section for the
taxable year is an amount equal to the sum of -
"(1) the biodiesel mixture credit, plus
"(2) the biodiesel credit."
Subsec. (b). Pub. L. 109-58, Sec. 1345(d)(2), substituted ",
biodiesel credit, and small agri-biodiesel producer credit" for
"and biodiesel credit" in heading.
Subsec. (b)(4). Pub. L. 109-58, Sec. 1345(d)(1), substituted
"paragraph (1) or (2) of subsection (a)" for "this section".
Subsec. (b)(5). Pub. L. 109-58, Sec. 1345(b), added par. (5).
Subsec. (b)(5)(B). Pub. L. 109-135 struck out "(determined
without regard to the last sentence of subsection (d)(2))" after
"any agri-biodiesel" in introductory provisions.
Subsec. (d)(3)(C),(D). Pub. L. 109-58, Sec. 1345(d)(3), added
subpar. (C) and redesignated former subpar. (C) as (D).
Subsec. (e). Pub. L. 109-58, Sec. 1345(c), added subsec. (e).
Former subsec. (e) redesignated (f).
Pub. L. 109-58, Sec. 1344(a), substituted "2008" for "2006".
Subsec. (f). Pub. L. 109-58, Sec. 1346(a), added subsec. (f).
Former subsec. (f) redesignated (g).
Pub. L. 109-58, Sec. 1345(c), redesignated subsec. (e) as (f).
Subsec. (g). Pub. L. 109-58, Sec. 1346(a), redesignated subsec.
(f) as (g).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-58, title XIII, Sec. 1344(b), Aug. 8, 2005, 119 Stat.
1052, provided that: "The amendments made by this section [amending
this section and sections 6426 and 6427 of this title] shall take
effect on the date of the enactment of this Act [Aug. 8, 2005]."
Pub. L. 109-58, title XIII, Sec. 1345(e), Aug. 8, 2005, 119 Stat.
1055, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years ending after the date of
the enactment of this Act [Aug. 8, 2005]."
Pub. L. 109-58, title XIII, Sec. 1346(c), Aug. 8, 2005, 119 Stat.
1056, provided that: "The amendment made by subsection (a)
[amending this section] shall apply with respect to fuel sold or
used after December 31, 2005."
EFFECTIVE DATE
Section applicable to fuel produced, and sold or used, after Dec.
31, 2004, in taxable years ending after such date, see section
302(d) of Pub. L. 108-357, set out as an Effective Date of 2004
Amendment note under section 38 of this title.
-End-
-CITE-
26 USC Sec. 41 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 41. Credit for increasing research activities
-STATUTE-
(a) General rule
For purposes of section 38, the research credit determined under
this section for the taxable year shall be an amount equal to the
sum of -
(1) 20 percent of the excess (if any) of -
(A) the qualified research expenses for the taxable year,
over
(B) the base amount,
(2) 20 percent of the basic research payments determined under
subsection (e)(1)(A), and
(3) 20 percent of the amounts paid or incurred by the taxpayer
in carrying on any trade or business of the taxpayer during the
taxable year (including as contributions) to an energy research
consortium.
(b) Qualified research expenses
For purposes of this section -
(1) Qualified research expenses
The term "qualified research expenses" means the sum of the
following amounts which are paid or incurred by the taxpayer
during the taxable year in carrying on any trade or business of
the taxpayer -
(A) in-house research expenses, and
(B) contract research expenses.
(2) In-house research expenses
(A) In general
The term "in-house research expenses" means -
(i) any wages paid or incurred to an employee for qualified
services performed by such employee,
(ii) any amount paid or incurred for supplies used in the
conduct of qualified research, and
(iii) under regulations prescribed by the Secretary, any
amount paid or incurred to another person for the right to
use computers in the conduct of qualified research.
Clause (iii) shall not apply to any amount to the extent that
the taxpayer (or any person with whom the taxpayer must
aggregate expenditures under subsection (f)(1)) receives or
accrues any amount from any other person for the right to use
substantially identical personal property.
(B) Qualified services
The term "qualified services" means services consisting of -
(i) engaging in qualified research, or
(ii) engaging in the direct supervision or direct support
of research activities which constitute qualified research.
If substantially all of the services performed by an individual
for the taxpayer during the taxable year consists of services
meeting the requirements of clause (i) or (ii), the term
"qualified services" means all of the services performed by
such individual for the taxpayer during the taxable year.
(C) Supplies
The term "supplies" means any tangible property other than -
(i) land or improvements to land, and
(ii) property of a character subject to the allowance for
depreciation.
(D) Wages
(i) In general
The term "wages" has the meaning given such term by section
3401(a).
(ii) Self-employed individuals and owner-employees
In the case of an employee (within the meaning of section
401(c)(1)), the term "wages" includes the earned income (as
defined in section 401(c)(2)) of such employee.
(iii) Exclusion for wages to which work opportunity credit
applies
The term "wages" shall not include any amount taken into
account in determining the work opportunity credit under
section 51(a).
(3) Contract research expenses
(A) In general
The term "contract research expenses" means 65 percent of any
amount paid or incurred by the taxpayer to any person (other
than an employee of the taxpayer) for qualified research.
(B) Prepaid amounts
If any contract research expenses paid or incurred during any
taxable year are attributable to qualified research to be
conducted after the close of such taxable year, such amount
shall be treated as paid or incurred during the period during
which the qualified research is conducted.
(C) Amounts paid to certain research consortia
(i) In general
Subparagraph (A) shall be applied by substituting "75
percent" for "65 percent" with respect to amounts paid or
incurred by the taxpayer to a qualified research consortium
for qualified research on behalf of the taxpayer and 1 or
more unrelated taxpayers. For purposes of the preceding
sentence, all persons treated as a single employer under
subsection (a) or (b) of section 52 shall be treated as
related taxpayers.
(ii) Qualified research consortium
The term "qualified research consortium" means any
organization which -
(I) is described in section 501(c)(3) or 501(c)(6) and is
exempt from tax under section 501(a),
(II) is organized and operated primarily to conduct
scientific research, and
(III) is not a private foundation.
(D) Amounts paid to eligible small businesses, universities,
and Federal laboratories
(i) In general
In the case of amounts paid by the taxpayer to -
(I) an eligible small business,
(II) an institution of higher education (as defined in
section 3304(f)), or
(III) an organization which is a Federal laboratory,
for qualified research which is energy research, subparagraph
(A) shall be applied by substituting "100 percent" for "65
percent".
(ii) Eligible small business
For purposes of this subparagraph, the term "eligible small
business" means a small business with respect to which the
taxpayer does not own (within the meaning of section 318) 50
percent or more of -
(I) in the case of a corporation, the outstanding stock
of the corporation (either by vote or value), and
(II) in the case of a small business which is not a
corporation, the capital and profits interests of the small
business.
(iii) Small business
For purposes of this subparagraph -
(I) In general
The term "small business" means, with respect to any
calendar year, any person if the annual average number of
employees employed by such person during either of the 2
preceding calendar years was 500 or fewer. For purposes of
the preceding sentence, a preceding calendar year may be
taken into account only if the person was in existence
throughout the year.
(II) Startups, controlled groups, and predecessors
Rules similar to the rules of subparagraphs (B) and (D)
of section 220(c)(4) shall apply for purposes of this
clause.
(iv) Federal laboratory
For purposes of this subparagraph, the term "Federal
laboratory" has the meaning given such term by section 4(6)
of the Stevenson-Wydler Technology Innovation Act of 1980 (15
U.S.C. 3703(6)), as in effect on the date of the enactment of
the Energy Tax Incentives Act of 2005.
(4) Trade or business requirement disregarded for in-house
research expenses of certain startup ventures
In the case of in-house research expenses, a taxpayer shall be
treated as meeting the trade or business requirement of paragraph
(1) if, at the time such in-house research expenses are paid or
incurred, the principal purpose of the taxpayer in making such
expenditures is to use the results of the research in the active
conduct of a future trade or business -
(A) of the taxpayer, or
(B) of 1 or more other persons who with the taxpayer are
treated as a single taxpayer under subsection (f)(1).
(c) Base amount
(1) In general
The term "base amount" means the product of -
(A) the fixed-base percentage, and
(B) the average annual gross receipts of the taxpayer for the
4 taxable years preceding the taxable year for which the credit
is being determined (hereinafter in this subsection referred to
as the "credit year").
(2) Minimum base amount
In no event shall the base amount be less than 50 percent of
the qualified research expenses for the credit year.
(3) Fixed-base percentage
(A) In general
Except as otherwise provided in this paragraph, the fixed-
base percentage is the percentage which the aggregate
qualified research expenses of the taxpayer for taxable years
beginning after December 31, 1983, and before January 1, 1989,
is of the aggregate gross receipts of the taxpayer for such
taxable years.
(B) Start-up companies
(i) Taxpayers to which subparagraph applies
The fixed-base percentage shall be determined under this
subparagraph if -
(I) the first taxable year in which a taxpayer had both
gross receipts and qualified research expenses begins after
December 31, 1983, or
(II) there are fewer than 3 taxable years beginning after
December 31, 1983, and before January 1, 1989, in which the
taxpayer had both gross receipts and qualified research
expenses.
(ii) Fixed-base percentage
In a case to which this subparagraph applies, the fixed-
base percentage is -
(I) 3 percent for each of the taxpayer's 1st 5 taxable
years beginning after December 31, 1993, for which the
taxpayer has qualified research expenses,
(II) in the case of the taxpayer's 6th such taxable year,
1/6 of the percentage which the aggregate qualified
research expenses of the taxpayer for the 4th and 5th such
taxable years is of the aggregate gross receipts of the
taxpayer for such years,
(III) in the case of the taxpayer's 7th such taxable
year, 1/3 of the percentage which the aggregate qualified
research expenses of the taxpayer for the 5th and 6th such
taxable years is of the aggregate gross receipts of the
taxpayer for such years,
(IV) in the case of the taxpayer's 8th such taxable year,
1/2 of the percentage which the aggregate qualified
research expenses of the taxpayer for the 5th, 6th, and 7th
such taxable years is of the aggregate gross receipts of
the taxpayer for such years,
(V) in the case of the taxpayer's 9th such taxable year,
2/3 of the percentage which the aggregate qualified
research expenses of the taxpayer for the 5th, 6th, 7th,
and 8th such taxable years is of the aggregate gross
receipts of the taxpayer for such years,
(VI) in the case of the taxpayer's 10th such taxable
year, 5/6 of the percentage which the aggregate qualified
research expenses of the taxpayer for the 5th, 6th, 7th,
8th, and 9th such taxable years is of the aggregate gross
receipts of the taxpayer for such years, and
(VII) for taxable years thereafter, the percentage which
the aggregate qualified research expenses for any 5 taxable
years selected by the taxpayer from among the 5th through
the 10th such taxable years is of the aggregate gross
receipts of the taxpayer for such selected years.
(iii) Treatment of de minimis amounts of gross receipts and
qualified research expenses
The Secretary may prescribe regulations providing that de
minimis amounts of gross receipts and qualified research
expenses shall be disregarded under clauses (i) and (ii).
(C) Maximum fixed-base percentage
In no event shall the fixed-base percentage exceed 16
percent.
(D) Rounding
The percentages determined under subparagraphs (A) and
(B)(ii) shall be rounded to the nearest 1/100th of 1 percent.
(4) Election of alternative incremental credit
(A) In general
At the election of the taxpayer, the credit determined under
subsection (a)(1) shall be equal to the sum of -
(i) 2.65 percent of so much of the qualified research
expenses for the taxable year as exceeds 1 percent of the
average described in subsection (c)(1)(B) but does not exceed
1.5 percent of such average,
(ii) 3.2 percent of so much of such expenses as exceeds 1.5
percent of such average but does not exceed 2 percent of such
average, and
(iii) 3.75 percent of so much of such expenses as exceeds 2
percent of such average.
(B) Election
An election under this paragraph shall apply to the taxable
year for which made and all succeeding taxable years unless
revoked with the consent of the Secretary.
(5) Consistent treatment of expenses required
(A) In general
Notwithstanding whether the period for filing a claim for
credit or refund has expired for any taxable year taken into
account in determining the fixed-base percentage, the qualified
research expenses taken into account in computing such
percentage shall be determined on a basis consistent with the
determination of qualified research expenses for the credit
year.
(B) Prevention of distortions
The Secretary may prescribe regulations to prevent
distortions in calculating a taxpayer's qualified research
expenses or gross receipts caused by a change in accounting
methods used by such taxpayer between the current year and a
year taken into account in computing such taxpayer's fixed-base
percentage.
(6) Gross receipts
For purposes of this subsection, gross receipts for any taxable
year shall be reduced by returns and allowances made during the
taxable year. In the case of a foreign corporation, there shall
be taken into account only gross receipts which are effectively
connected with the conduct of a trade or business within the
United States, the Commonwealth of Puerto Rico, or any possession
of the United States.
(d) Qualified research defined
For purposes of this section -
(1) In general
The term "qualified research" means research -
(A) with respect to which expenditures may be treated as
expenses under section 174,
(B) which is undertaken for the purpose of discovering
information -
(i) which is technological in nature, and
(ii) the application of which is intended to be useful in
the development of a new or improved business component of
the taxpayer, and
(C) substantially all of the activities of which constitute
elements of a process of experimentation for a purpose
described in paragraph (3).
Such term does not include any activity described in paragraph
(4).
(2) Tests to be applied separately to each business component
For purposes of this subsection -
(A) In general
Paragraph (1) shall be applied separately with respect to
each business component of the taxpayer.
(B) Business component defined
The term "business component" means any product, process,
computer software, technique, formula, or invention which is to
be -
(i) held for sale, lease, or license, or
(ii) used by the taxpayer in a trade or business of the
taxpayer.
(C) Special rule for production processes
Any plant process, machinery, or technique for commercial
production of a business component shall be treated as a
separate business component (and not as part of the business
component being produced).
(3) Purposes for which research may qualify for credit
For purposes of paragraph (1)(C) -
(A) In general
Research shall be treated as conducted for a purpose
described in this paragraph if it relates to -
(i) a new or improved function,
(ii) performance, or
(iii) reliability or quality.
(B) Certain purposes not qualified
Research shall in no event be treated as conducted for a
purpose described in this paragraph if it relates to style,
taste, cosmetic, or seasonal design factors.
(4) Activities for which credit not allowed
The term "qualified research" shall not include any of the
following:
(A) Research after commercial production
Any research conducted after the beginning of commercial
production of the business component.
(B) Adaptation of existing business components
Any research related to the adaptation of an existing
business component to a particular customer's requirement or
need.
(C) Duplication of existing business component
Any research related to the reproduction of an existing
business component (in whole or in part) from a physical
examination of the business component itself or from plans,
blueprints, detailed specifications, or publicly available
information with respect to such business component.
(D) Surveys, studies, etc.
Any -
(i) efficiency survey,
(ii) activity relating to management function or technique,
(iii) market research, testing, or development (including
advertising or promotions),
(iv) routine data collection, or
(v) routine or ordinary testing or inspection for quality
control.
(E) Computer software
Except to the extent provided in regulations, any research
with respect to computer software which is developed by (or for
the benefit of) the taxpayer primarily for internal use by the
taxpayer, other than for use in -
(i) an activity which constitutes qualified research
(determined with regard to this subparagraph), or
(ii) a production process with respect to which the
requirements of paragraph (1) are met.
(F) Foreign research
Any research conducted outside the United States, the
Commonwealth of Puerto Rico, or any possession of the United
States.
(G) Social sciences, etc.
Any research in the social sciences, arts, or humanities.
(H) Funded research
Any research to the extent funded by any grant, contract, or
otherwise by another person (or governmental entity).
(e) Credit allowable with respect to certain payments to qualified
organizations for basic research
For purposes of this section -
(1) In general
In the case of any taxpayer who makes basic research payments
for any taxable year -
(A) the amount of basic research payments taken into account
under subsection (a)(2) shall be equal to the excess of -
(i) such basic research payments, over
(ii) the qualified organization base period amount, and
(B) that portion of such basic research payments which does
not exceed the qualified organization base period amount shall
be treated as contract research expenses for purposes of
subsection (a)(1).
(2) Basic research payments defined
For purposes of this subsection -
(A) In general
The term "basic research payment" means, with respect to any
taxable year, any amount paid in cash during such taxable year
by a corporation to any qualified organization for basic
research but only if -
(i) such payment is pursuant to a written agreement between
such corporation and such qualified organization, and
(ii) such basic research is to be performed by such
qualified organization.
(B) Exception to requirement that research be performed by the
organization
In the case of a qualified organization described in
subparagraph (C) or (D) of paragraph (6), clause (ii) of
subparagraph (A) shall not apply.
(3) Qualified organization base period amount
For purposes of this subsection, the term "qualified
organization base period amount" means an amount equal to the sum
of -
(A) the minimum basic research amount, plus
(B) the maintenance-of-effort amount.
(4) Minimum basic research amount
For purposes of this subsection -
(A) In general
The term "minimum basic research amount" means an amount
equal to the greater of -
(i) 1 percent of the average of the sum of amounts paid or
incurred during the base period for -
(I) any in-house research expenses, and
(II) any contract research expenses, or
(ii) the amounts treated as contract research expenses
during the base period by reason of this subsection (as in
effect during the base period).
(B) Floor amount
Except in the case of a taxpayer which was in existence
during a taxable year (other than a short taxable year) in the
base period, the minimum basic research amount for any base
period shall not be less than 50 percent of the basic research
payments for the taxable year for which a determination is
being made under this subsection.
(5) Maintenance-of-effort amount
For purposes of this subsection -
(A) In general
The term "maintenance-of-effort amount" means, with respect
to any taxable year, an amount equal to the excess (if any) of -
(i) an amount equal to -
(I) the average of the nondesignated university
contributions paid by the taxpayer during the base period,
multiplied by
(II) the cost-of-living adjustment for the calendar year
in which such taxable year begins, over
(ii) the amount of nondesignated university contributions
paid by the taxpayer during such taxable year.
(B) Nondesignated university contributions
For purposes of this paragraph, the term "nondesignated
university contribution" means any amount paid by a taxpayer to
any qualified organization described in paragraph (6)(A) -
(i) for which a deduction was allowable under section 170,
and
(ii) which was not taken into account -
(I) in computing the amount of the credit under this
section (as in effect during the base period) during any
taxable year in the base period, or
(II) as a basic research payment for purposes of this
section.
(C) Cost-of-living adjustment defined
(i) In general
The cost-of-living adjustment for any calendar year is the
cost-of-living adjustment for such calendar year determined
under section 1(f)(3), by substituting "calendar year 1987"
for "calendar year 1992" in subparagraph (B) thereof.
(ii) Special rule where base period ends in a calendar year
other than 1983 or 1984
If the base period of any taxpayer does not end in 1983 or
1984, section 1(f)(3)(B) shall, for purposes of this
paragraph, be applied by substituting the calendar year in
which such base period ends for 1992. Such substitution shall
be in lieu of the substitution under clause (i).
(6) Qualified organization
For purposes of this subsection, the term "qualified
organization" means any of the following organizations:
(A) Educational institutions
Any educational organization which -
(i) is an institution of higher education (within the
meaning of section 3304(f)), and
(ii) is described in section 170(b)(1)(A)(ii).
(B) Certain scientific research organizations
Any organization not described in subparagraph (A) which -
(i) is described in section 501(c)(3) and is exempt from
tax under section 501(a),
(ii) is organized and operated primarily to conduct
scientific research, and
(iii) is not a private foundation.
(C) Scientific tax-exempt organizations
Any organization which -
(i) is described in -
(I) section 501(c)(3) (other than a private foundation),
or
(II) section 501(c)(6),
(ii) is exempt from tax under section 501(a),
(iii) is organized and operated primarily to promote
scientific research by qualified organizations described in
subparagraph (A) pursuant to written research agreements, and
(iv) currently expends -
(I) substantially all of its funds, or
(II) substantially all of the basic research payments
received by it,
for grants to, or contracts for basic research with, an
organization described in subparagraph (A).
(D) Certain grant organizations
Any organization not described in subparagraph (B) or (C)
which -
(i) is described in section 501(c)(3) and is exempt from
tax under section 501(a) (other than a private foundation),
(ii) is established and maintained by an organization
established before July 10, 1981, which meets the
requirements of clause (i),
(iii) is organized and operated exclusively for the purpose
of making grants to organizations described in subparagraph
(A) pursuant to written research agreements for purposes of
basic research, and
(iv) makes an election, revocable only with the consent of
the Secretary, to be treated as a private foundation for
purposes of this title (other than section 4940, relating to
excise tax based on investment income).
(7) Definitions and special rules
For purposes of this subsection -
(A) Basic research
The term "basic research" means any original investigation
for the advancement of scientific knowledge not having a
specific commercial objective, except that such term shall not
include -
(i) basic research conducted outside of the United States,
and
(ii) basic research in the social sciences, arts, or
humanities.
(B) Base period
The term "base period" means the 3-taxable-year period ending
with the taxable year immediately preceding the 1st taxable
year of the taxpayer beginning after December 31, 1983.
(C) Exclusion from incremental credit calculation
For purposes of determining the amount of credit allowable
under subsection (a)(1) for any taxable year, the amount of the
basic research payments taken into account under subsection
(a)(2) -
(i) shall not be treated as qualified research expenses
under subsection (a)(1)(A), and
(ii) shall not be included in the computation of base
amount under subsection (a)(1)(B).
(D) Trade or business qualification
For purposes of applying subsection (b)(1) to this
subsection, any basic research payments shall be treated as an
amount paid in carrying on a trade or business of the taxpayer
in the taxable year in which it is paid (without regard to the
provisions of subsection (b)(3)(B)).
(E) Certain corporations not eligible
The term "corporation" shall not include -
(i) an S corporation,
(ii) a personal holding company (as defined in section
542), or
(iii) a service organization (as defined in section
414(m)(3)).
(f) Special rules
For purposes of this section -
(1) Aggregation of expenditures
(A) Controlled group of corporations
In determining the amount of the credit under this section -
(i) all members of the same controlled group of
corporations shall be treated as a single taxpayer, and
(ii) the credit (if any) allowable by this section to each
such member shall be its proportionate shares of the
qualified research expenses and basic research payments
giving rise to the credit.
(B) Common control
Under regulations prescribed by the Secretary, in determining
the amount of the credit under this section -
(i) all trades or businesses (whether or not incorporated)
which are under common control shall be treated as a single
taxpayer, and
(ii) the credit (if any) allowable by this section to each
such person shall be its proportionate shares of the
qualified research expenses and basic research payments
giving rise to the credit.
The regulations prescribed under this subparagraph shall be
based on principles similar to the principles which apply in
the case of subparagraph (A).
(2) Allocations
(A) Pass-thru in the case of estates and trusts
Under regulations prescribed by the Secretary, rules similar
to the rules of subsection (d) of section 52 shall apply.
(B) Allocation in the case of partnerships
In the case of partnerships, the credit shall be allocated
among partners under regulations prescribed by the Secretary.
(3) Adjustments for certain acquisitions, etc.
Under regulations prescribed by the Secretary -
(A) Acquisitions
If, after December 31, 1983, a taxpayer acquires the major
portion of a trade or business of another person (hereinafter
in this paragraph referred to as the "predecessor") or the
major portion of a separate unit of a trade or business of a
predecessor, then, for purposes of applying this section for
any taxable year ending after such acquisition, the amount of
qualified research expenses paid or incurred by the taxpayer
during periods before such acquisition shall be increased by so
much of such expenses paid or incurred by the predecessor with
respect to the acquired trade or business as is attributable to
the portion of such trade or business or separate unit acquired
by the taxpayer, and the gross receipts of the taxpayer for
such periods shall be increased by so much of the gross
receipts of such predecessor with respect to the acquired trade
or business as is attributable to such portion.
(B) Dispositions
If, after December 31, 1983 -
(i) a taxpayer disposes of the major portion of any trade
or business or the major portion of a separate unit of a
trade or business in a transaction to which subparagraph (A)
applies, and
(ii) the taxpayer furnished the acquiring person such
information as is necessary for the application of
subparagraph (A),
then, for purposes of applying this section for any taxable
year ending after such disposition, the amount of qualified
research expenses paid or incurred by the taxpayer during
periods before such disposition shall be decreased by so much
of such expenses as is attributable to the portion of such
trade or business or separate unit disposed of by the taxpayer,
and the gross receipts of the taxpayer for such periods shall
be decreased by so much of the gross receipts as is
attributable to such portion.
(C) Certain reimbursements taken into account in determining
fixed-base percentage
If during any of the 3 taxable years following the taxable
year in which a disposition to which subparagraph (B) applies
occurs, the disposing taxpayer (or a person with whom the
taxpayer is required to aggregate expenditures under paragraph
(1)) reimburses the acquiring person (or a person required to
so aggregate expenditures with such person) for research on
behalf of the taxpayer, then the amount of qualified research
expenses of the taxpayer for the taxable years taken into
account in computing the fixed-base percentage shall be
increased by the lesser of -
(i) the amount of the decrease under subparagraph (B) which
is allocable to taxable years so taken into account, or
(ii) the product of the number of taxable years so taken
into account, multiplied by the amount of the reimbursement
described in this subparagraph.
(4) Short taxable years
In the case of any short taxable year, qualified research
expenses and gross receipts shall be annualized in such
circumstances and under such methods as the Secretary may
prescribe by regulation.
(5) Controlled group of corporations
The term "controlled group of corporations" has the same
meaning given to such term by section 1563(a), except that -
(A) "more than 50 percent" shall be substituted for "at least
80 percent" each place it appears in section 1563(a)(1), and
(B) the determination shall be made without regard to
subsections (a)(4) and (e)(3)(C) of section 1563.
(6) Energy research consortium
(A) In general
The term "energy research consortium" means any organization -
(i) which is -
(I) described in section 501(c)(3) and is exempt from tax
under section 501(a) and is organized and operated
primarily to conduct energy research, or
(II) organized and operated primarily to conduct energy
research in the public interest (within the meaning of
section 501(c)(3)),
(ii) which is not a private foundation,
(iii) to which at least 5 unrelated persons paid or
incurred during the calendar year in which the taxable year
of the organization begins amounts (including as
contributions) to such organization for energy research, and
(iv) to which no single person paid or incurred (including
as contributions) during such calendar year an amount equal
to more than 50 percent of the total amounts received by such
organization during such calendar year for energy research.
(B) Treatment of persons
All persons treated as a single employer under subsection (a)
or (b) of section 52 shall be treated as related persons for
purposes of subparagraph (A)(iii) and as a single person for
purposes of subparagraph (A)(iv).
(C) Foreign research
For purposes of subsection (a)(3), amounts paid or incurred
for any energy research conducted outside the United States,
the Commonwealth of Puerto Rico, or any possession of the
United States shall not be taken into account.
(D) Denial of double benefit
Any amount taken into account under subsection (a)(3) shall
not be taken into account under paragraph (1) or (2) of
subsection (a).
(g) Special rule for pass-thru of credit
In the case of an individual who -
(1) owns an interest in an unincorporated trade or business,
(2) is a partner in a partnership,
(3) is a beneficiary of an estate or trust, or
(4) is a shareholder in an S corporation,
the amount determined under subsection (a) for any taxable year
shall not exceed an amount (separately computed with respect to
such person's interest in such trade or business or entity) equal
to the amount of tax attributable to that portion of a person's
taxable income which is allocable or apportionable to the person's
interest in such trade or business or entity. If the amount
determined under subsection (a) for any taxable year exceeds the
limitation of the preceding sentence, such amount may be carried to
other taxable years under the rules of section 39; except that the
limitation of the preceding sentence shall be taken into account in
lieu of the limitation of section 38(c) in applying section 39.
(h) Termination
(1) In general
This section shall not apply to any amount paid or incurred -
(A) after June 30, 1995, and before July 1, 1996, or
(B) after December 31, 2005.
(2) Computation of base amount
In the case of any taxable year with respect to which this
section applies to a number of days which is less than the total
number of days in such taxable year, the base amount with respect
to such taxable year shall be the amount which bears the same
ratio to the base amount for such year (determined without regard
to this paragraph) as the number of days in such taxable year to
which this section applies bears to the total number of days in
such taxable year.
-SOURCE-
(Added Pub. L. 97-34, title II, Sec. 221(a), Aug. 13, 1981, 95
Stat. 241, Sec. 44F; amended Pub. L. 97-354, Sec. 5(a)(3), Oct. 19,
1982, 96 Stat. 1692; Pub. L. 97-448, title I, Sec. 102(b)(2), Jan.
12, 1983, 96 Stat. 2372; renumbered Sec. 30 and amended Pub. L. 98-
369, div. A, title IV, Secs. 471(c), 474(i)(1), title VI, Sec.
612(e)(1), July 18, 1984, 98 Stat. 826, 831, 912; renumbered Sec.
41 and amended Pub. L. 99-514, title II, Sec. 231(a)(1), (b), (c),
(d)(2), (3)(C)(ii), (e), title XVIII, Sec. 1847(b)(1), Oct. 22,
1986, 100 Stat. 2173, 2175, 2178-2180, 2856; Pub. L. 100-647, title
I, Sec. 1002(h)(1), title IV, Secs. 4007(a), 4008(b)(1), Nov. 10,
1988, 102 Stat. 3370, 3652; Pub. L. 101-239, title VII, Secs.
7110(a)(1), (b), (b)[(c)], 7814(e)(2)(C), Dec. 19, 1989, 103 Stat.
2322, 2323, 2325, 2414; Pub. L. 101-508, title XI, Secs.
11101(d)(1)(C), 11402(a), Nov. 5, 1990, 104 Stat. 1388-405, 1388-
473; Pub. L. 102-227, title I, Sec. 102(a), Dec. 11, 1991, 105
Stat. 1686; Pub. L. 103-66, title XIII, Secs. 13111(a)(1),
13112(a), (b), 13201(b)(3)(C), Aug. 10, 1993, 107 Stat. 420, 421,
459; Pub. L. 104-188, title I, Secs. 1201(e)(1), (4), 1204(a)-(d),
Aug. 20, 1996, 110 Stat. 1772-1774; Pub. L. 105-34, title VI, Sec.
601(a), (b)(1), Aug. 5, 1997, 111 Stat. 861; Pub. L. 105-277, div.
J, title I, Sec. 1001(a), Oct. 21, 1998, 112 Stat. 2681-888; Pub.
L. 106-170, title V, Sec. 502(a)(1), (b)(1), (c)(1), Dec. 17, 1999,
113 Stat. 1919; Pub. L. 108-311, title III, Sec. 301(a)(1), Oct. 4,
2004, 118 Stat. 1178; Pub. L. 109-58, title XIII, Sec. 1351(a),
(b), Aug. 8, 2005, 119 Stat. 1056, 1057; Pub. L. 109-135, title IV,
Sec. 402(l), Dec. 21, 2005, 119 Stat. 2615.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Energy Tax Incentives Act of
2005, referred to in subsec. (b)(3)(D)(iv), is the date of
enactment of title XIII of Pub. L. 109-58, which was approved Aug.
8, 2005.
-MISC1-
PRIOR PROVISIONS
A prior section 41, added Pub. L. 97-34, title III, Sec. 331(a),
Aug. 13, 1981, 95 Stat. 289, Sec. 44G; amended Pub. L. 97-448,
title I, Sec. 103(g)(1), Jan. 12, 1983, 96 Stat. 2379; renumbered
Sec. 41 and amended Pub. L. 98-369, div. A, title I, Sec. 14, title
IV, Secs. 471(c), 474(l), 491(e)(2), (3), July 18, 1984, 98 Stat.
505, 826, 833, 852, 853, related to employee stock ownership
credit, prior to repeal by Pub. L. 99-514, title XI, Sec. 1171(a),
Oct. 22, 1986, 100 Stat. 2513, applicable to compensation paid or
accrued after Dec. 31, 1986, in taxable years ending after such
date, except as otherwise provided, see section 1171(c) of Pub. L.
99-514, set out as an Effective Date of 1986 Amendment note under
section 38 of this title. For transition rules relating to such
repeal, see section 1177 of Pub. L. 99-514, set out as a Transition
Rules note under section 38 of this title.
Another prior section 41 was renumbered section 24 of this title.
AMENDMENTS
2005 - Subsec. (a)(3). Pub. L. 109-58, Sec. 1351(a)(1), added
par. (3).
Subsec. (b)(3)(C)(ii). Pub. L. 109-135, Sec. 402(l)(2), struck
out "(other than an energy research consortium)" after
"organization" in introductory provisions.
Pub. L. 109-58, Sec. 1351(a)(3), inserted "(other than an energy
research consortium)" after "organization" in introductory
provisions.
Subsec. (b)(3)(D). Pub. L. 109-58, Sec. 1351(b), added subpar.
(D).
Subsec. (f)(6). Pub. L. 109-58, Sec. 1351(a)(2), added par. (6).
Subsec. (f)(6)(C), (D). Pub. L. 109-135, Sec. 402(l)(1), added
subpars. (C) and (D).
2004 - Subsec. (h)(1)(B). Pub. L. 108-311 substituted "December
31, 2005" for "June 30, 2004".
1999 - Subsec. (c)(4)(A)(i). Pub. L. 106-170, Sec. 502(b)(1)(A),
substituted "2.65 percent" for "1.65 percent".
Subsec. (c)(4)(A)(ii). Pub. L. 106-170, Sec. 502(b)(1)(B),
substituted "3.2 percent" for "2.2 percent".
Subsec. (c)(4)(A)(iii). Pub. L. 106-170, Sec. 502(b)(1)(C),
substituted "3.75 percent" for "2.75 percent".
Subsecs. (c)(6), (d)(4)(F). Pub. L. 106-170, Sec. 502(c)(1),
inserted ", the Commonwealth of Puerto Rico, or any possession of
the United States" before period at end.
Subsec. (h)(1). Pub. L. 106-170, Sec. 502(a)(1)(B), struck out
concluding provisions which read as follows: "Notwithstanding the
preceding sentence, in the case of a taxpayer making an election
under subsection (c)(4) for its first taxable year beginning after
June 30, 1996, and before July 1, 1997, this section shall apply to
amounts paid or incurred during the 36-month period beginning with
the first month of such year. The 36 months referred to in the
preceding sentence shall be reduced by the number of full months
after June 1996 (and before the first month of such first taxable
year) during which the taxpayer paid or incurred any amount which
is taken into account in determining the credit under this
section."
Subsec. (h)(1)(B). Pub. L. 106-170, Sec. 502(a)(1)(A),
substituted "June 30, 2004" for "June 30, 1999".
1998 - Subsec. (h)(1). Pub. L. 105-277 substituted "June 30,
1999" for "June 30, 1998" in subpar. (B) and substituted "36-month"
for "24-month" and "36 months" for "24 months" in concluding
provisions.
1997 - Subsec. (c)(4)(B). Pub. L. 105-34, Sec. 601(b)(1), amended
heading and text of subpar. (B) generally. Prior to amendment, text
read as follows: "An election under this paragraph may be made only
for the first taxable year of the taxpayer beginning after June 30,
1996. Such an election shall apply to the taxable year for which
made and all succeeding taxable years unless revoked with the
consent of the Secretary."
Subsec. (h)(1). Pub. L. 105-34, Sec. 601(a), substituted "June
30, 1998" for "May 31, 1997" in subpar. (B) and "during the 24-
month period beginning with the first month of such year. The 24
months referred to in the preceding sentence shall be reduced by
the number of full months after June 1996 (and before the first
month of such first taxable year) during which the taxpayer paid or
incurred any amount which is taken into account in determining the
credit under this section." for "during the first 11 months of such
taxable year." in concluding provisions.
1996 - Subsec. (b)(2)(D)(iii). Pub. L. 104-188, Sec. 1201(e)(1),
(4), substituted "work opportunity credit" for "targeted jobs
credit" in heading and text.
Subsec. (b)(3)(C). Pub. L. 104-188, Sec. 1204(d), added subpar.
(C).
Subsec. (c)(3)(B)(i). Pub. L. 104-188, Sec. 1204(b), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The fixed-base percentage shall
be determined under this subparagraph if there are fewer than 3
taxable years beginning after December 31, 1983, and before January
1, 1989, in which the taxpayer had both gross receipts and
qualified research expenses."
Subsec. (c)(4) to (6). Pub. L. 104-188, Sec. 1204(c), added par.
(4) and redesignated former pars. (4) and (5) as (5) and (6),
respectively.
Subsec. (h). Pub. L. 104-188, Sec. 1204(a), reenacted heading
without change and amended text generally. Prior to amendment, text
read as follows:
"(1) In general. - This section shall not apply to any amount
paid or incurred after June 30, 1995.
"(2) Computation of base amount. - In the case of any taxable
year which begins before July 1, 1995, and ends after June 30,
1995, the base amount with respect to such taxable year shall be
the amount which bears the same ratio to the base amount for such
year (determined without regard to this paragraph) as the number of
days in such taxable year before July 1, 1995, bears to the total
number of days in such taxable year."
1993 - Subsec. (c)(3)(B)(ii). Pub. L. 103-66, Sec. 13112(a),
amended heading and text of cl. (ii) generally. Prior to amendment,
text read as follows: "In a case to which this subparagraph
applies, the fixed-base percentage is 3 percent."
Subsec. (c)(3)(B)(iii). Pub. L. 103-66, Sec. 13112(b)(1),
substituted "clauses (i) and (ii)" for "clause (i)".
Subsec. (c)(3)(D). Pub. L. 103-66, Sec. 13112(b)(2), substituted
"subparagraphs (A) and (B)(ii)" for "subparagraph (A)".
Subsec. (e)(5)(C). Pub. L. 103-66, Sec. 13201(b)(3)(C),
substituted "1992" for "1989" in cls. (i) and (ii).
Subsec. (h). Pub. L. 103-66, Sec. 13111(a)(1), substituted "June
30, 1995" for "June 30, 1992" in pars. (1) and (2) and "July 1,
1995" for "July 1, 1992" in two places in par. (2).
1991 - Subsec. (h). Pub. L. 102-227 substituted "June 30, 1992"
for "December 31, 1991" in pars. (1) and (2), and "July 1, 1992"
for "January 1, 1992" in two places in par. (2).
1990 - Subsec. (e)(5)(C)(i). Pub. L. 101-508, Sec.
11101(d)(1)(C)(i), inserted before period at end ", by substituting
'calendar year 1987' for 'calendar year 1989' in subparagraph (B)
thereof".
Subsec. (e)(5)(C)(ii). Pub. L. 101-508, Sec. 11101(d)(1)(C)(ii),
(iii), substituted "1989" for "1987" and inserted at end "Such
substitution shall be in lieu of the substitution under clause
(i)."
Subsec. (h). Pub. L. 101-508, Sec. 11402(a), substituted
"December 31, 1991" for "December 31, 1990" wherever appearing and
"January 1, 1992" for "January 1, 1991" wherever appearing.
1989 - Subsec. (a)(1)(B). Pub. L. 101-239, Sec. 7110(b)(2)(A),
amended subpar. (B) generally. Prior to amendment, subpar. (B) read
as follows: "the base period research expenses, and".
Subsec. (b)(4). Pub. L. 101-239, Sec. 7110(b)[(c)], added par.
(4).
Subsec. (c). Pub. L. 101-239, Sec. 7110(b)(1), substituted "Base
amount" for "Base period research expenses" in heading and amended
text generally, substituting pars. (1) to (5) for former pars. (1)
to (3) which defined "base period research expenses" and "base
period" and prescribed minimum base period research expenses.
Subsec. (e)(7)(C)(ii). Pub. L. 101-239, Sec. 7110(b)(2)(B),
substituted "base amount" for "base period research expenses".
Subsec. (f)(1). Pub. L. 101-239, Sec. 7110(b)(2)(C), substituted
"proportionate shares of the qualified research expenses and basic
research payments" for "proportionate share of the increase in
qualified research expenses" in subpars. (A)(ii) and (B)(ii).
Subsec. (f)(3)(A). Pub. L. 101-239, Sec. 7110(b)(2)(D),
substituted "December 31, 1983" for "June 30, 1980" and inserted
before period at end ", and the gross receipts of the taxpayer for
such periods shall be increased by so much of the gross receipts of
such predecessor with respect to the acquired trade or business as
is attributable to such portion".
Subsec. (f)(3)(B). Pub. L. 101-239, Sec. 7110(b)(2)(E),
substituted "December 31, 1983" for "June 30, 1980" in introductory
provisions and inserted before period at end ", and the gross
receipts of the taxpayer for such periods shall be decreased by so
much of the gross receipts as is attributable to such portion".
Subsec. (f)(3)(C). Pub. L. 101-239, Sec. 7110(b)(2)(F),
substituted "Certain reimbursements taken into account in
determining fixed-base percentage" for "Increase in base period" in
heading, "for the taxable years taken into account in computing the
fixed-base percentage shall be increased by the lesser of" for "for
the base period for such taxable year shall be increased by the
lesser of" in introductory provisions, and new cls. (i) and (ii)
for former cls. (i) and (ii) which read as follows:
"(i) the amount of the decrease under subparagraph (B) which is
allocable to such base period, or
"(ii) the product of the number of years in the base period,
multiplied by the amount of the reimbursement described in this
subparagraph."
Subsec. (f)(4). Pub. L. 101-239, Sec. 7110(b)(2)(G), inserted
"and gross receipts" after "qualified research expenses".
Subsec. (h). Pub. L. 101-239, Sec. 7814(e)(2)(C), redesignated
subsec. (i) as (h) and struck out former subsec. (h) which related
to election, time for election, and manner of election by taxpayer
to have research credit not apply for a taxable year.
Subsec. (h)(1). Pub. L. 101-239, Sec. 7110(a)(1)(A), substituted
"December 31, 1990" for "December 31, 1989".
Subsec. (h)(2). Pub. L. 101-239, Sec. 7110(a)(1), substituted
"January 1, 1991" for "January 1, 1990" in two places and
substituted "December 31, 1990" for "December 31, 1989".
Pub. L. 101-239, Sec. 7110(b)(2)(H), substituted "base amount"
for "base period expenses" in heading and "the base amount with
respect to such taxable year shall be the amount which bears the
same ratio to the base amount for such year (determined without
regard to this paragraph)" for "any amount for any base period with
respect to such taxable year shall be the amount which bears the
same ratio to such amount for such base period" in text.
Subsec. (i). Pub. L. 101-239, Sec. 7814(e)(2)(C), redesignated
subsec. (i) as (h).
1988 - Subsec. (g). Pub. L. 100-647, Sec. 1002(h)(1), inserted at
end "If the amount determined under subsection (a) for any taxable
year exceeds the limitation of the preceding sentence, such amount
may be carried to other taxable years under the rules of section
39; except that the limitation of the preceding sentence shall be
taken into account in lieu of the limitation of section 38(c) in
applying section 39."
Subsec. (h). Pub. L. 100-647, Sec. 4008(b)(1), added subsec. (h).
Former subsec. (h) redesignated (i).
Subsec. (i). Pub. L. 100-647, Sec. 4008(b)(1), redesignated
former subsec. (h) as (i).
Pub. L. 100-647, Sec. 4007(a), substituted "1989" and "1990" for
"1988" and "1989", respectively, wherever appearing in subsec. (h),
prior to redesignation as subsec. (i) by Pub. L. 100-647, Sec.
4008(b)(1).
1986 - Pub. L. 99-514, Sec. 231(d)(2), renumbered section 30 of
this title as this section.
Subsec. (a). Pub. L. 99-514, Sec. 231(c)(1), amended subsec. (a)
generally. Prior to amendment, subsec. (a) read as follows: "There
shall be allowed as a credit against the tax imposed by this
chapter for the taxable year an amount equal to 25 percent of the
excess (if any) of -
"(1) the qualified research expenses for the taxable year, over
"(2) the base period research expenses."
Subsec. (b)(2)(A)(iii). Pub. L. 99-514, Sec. 231(e), amended cl.
(iii) generally. Prior to amendment, cl. (iii) read as follows:
"any amount paid or incurred to another person for the right to use
personal property in the conduct of qualified research."
Subsec. (b)(2)(D)(iii). Pub. L. 99-514, Sec. 1847(b)(1),
substituted "targeted jobs credit" for "new jobs or WIN credit" in
heading.
Subsec. (d). Pub. L. 99-514, Sec. 231(b), inserted "defined" in
heading and amended text generally. Prior to amendment, text read
as follows: "For purposes of this section the term 'qualified
research' has the same meaning as the term research or experimental
has under section 174, except that such term shall not include -
"(1) qualified research conducted outside the United States,
"(2) qualified research in the social sciences or humanities,
and
"(3) qualified research to the extent funded by any grant,
contract, or otherwise by another person (or any governmental
entity)."
Subsec. (e). Pub. L. 99-514, Sec. 231(c)(2), amended subsec. (e)
generally, substituting "Credit allowable with respect to certain
payments to qualified organizations for basic research" for "Credit
available with respect to certain basic research by colleges,
universities, and certain research organizations" in heading, and
restating and expanding provisions of former pars. (1) to (4) into
new pars. (1) to (7).
Subsec. (g). Pub. L. 99-514, Sec. 231(d)(3)(C)(ii), amended
subsec. (g) generally, substituting provisions relating to special
rule for pass-thru of credit for provisions relating to limitation
on amount of credit for research based on amount of tax liability.
Subsec. (h). Pub. L. 99-514, Sec. 231(a)(1), added subsec. (h).
1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 44F of
this title as this section.
Subsec. (b)(2)(D)(iii). Pub. L. 98-369, Sec. 474(i)(1)(A),
substituted "in determining the targeted jobs credit under section
51(a)" for "in computing the credit under section 40 or 44B".
Subsec. (g)(1)(A). Pub. L. 98-369, Sec. 612(e)(1), substituted
"section 26(b)" for "section 25(b)".
Pub. L. 98-369, Sec. 474(i)(1)(B), amended subpar. (A) generally,
substituting "shall not exceed the taxpayer's tax liability for the
taxable year (as defined in section 25(b)), reduced by the sum of
the credits allowable under subpart A and sections 27, 28, and 29"
for "shall not exceed the amount of the tax imposed by this chapter
reduced by the sum of the credits allowable under a section of this
part having a lower number or letter designation than this section,
other than the credits allowable by sections 31, 39, and 43. For
purposes of the preceding sentence, the term 'tax imposed by this
chapter' shall not include any tax treated as not imposed by this
chapter under the last sentence of section 53(a)".
1983 - Subsec. (b)(2)(A). Pub. L. 97-448 inserted provision that
cl. (iii) would not apply to any amount to the extent that the
taxpayer (or any person with whom the taxpayer must aggregate
expenditures under subsection (f)(1)) received or accrued any
amount from any other person for the right to use substantially
identical personal property.
1982 - Subsec. (f)(2)(A). Pub. L. 97-354, Sec. 5(a)(3)(A),
substituted "Pass-thru in the case of estates and trusts" for "Pass-
through in the case of subchapter S corporations, etc." in subpar.
heading, and substituted provisions relating to the applicability
of rules similar to rules of subsec. (d) of section 52 for
provisions relating to the applicability of rules similar to rules
of subsecs. (d) and (e) of section 52.
Subsec. (g)(1)(B)(iv). Pub. L. 97-354, Sec. 5(a)(3)(B),
substituted "an S corporation" for "an electing small business
corporation (within the meaning of section 1371(b))".
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendment by Pub. L. 109-135 effective as if included in the
provision of the Energy Policy Act of 2005, Pub. L. 109-58, to
which such amendment relates, see section 402(m)(1) of Pub. L. 109-
135, set out as an Effective and Termination Dates of 2005
Amendments note under section 23 of this title.
Pub. L. 109-58, title XIII, Sec. 1351(c), Aug. 8, 2005, 119 Stat.
1058, provided that: "The amendments made by this section [amending
this section] shall apply to amounts paid or incurred after the
date of the enactment of this Act [Aug. 8, 2005], in taxable years
ending after such date."
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-311, title III, Sec. 301(b), Oct. 4, 2004, 118 Stat.
1178, provided that: "The amendments made by this section [amending
this section and section 45C of this title] shall apply to amounts
paid or incurred after June 30, 2004."
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 502(a)(3), Dec. 17, 1999, 113
Stat. 1919, provided that: "The amendments made by this subsection
[amending this section and section 45C of this title] shall apply
to amounts paid or incurred after June 30, 1999."
Pub. L. 106-170, title V, Sec. 502(b)(2), Dec. 17, 1999, 113
Stat. 1919, provided that: "The amendments made by this subsection
[amending this section] shall apply to taxable years beginning
after June 30, 1999."
Pub. L. 106-170, title V, Sec. 502(c)(3), Dec. 17, 1999, 113
Stat. 1920, provided that: "The amendments made by this subsection
[amending this section and section 280C of this title] shall apply
to amounts paid or incurred after June 30, 1999."
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title I, Sec. 1001(c), Oct. 21, 1998,
112 Stat. 2681-888, provided that: "The amendments made by this
section [amending this section and section 45C of this title] shall
apply to amounts paid or incurred after June 30, 1998."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 601(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and section 45C of this
title] shall apply to amounts paid or incurred after May 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1201(e)(1), (4) of Pub. L. 104-188
applicable to individuals who begin work for the employer after
Sept. 30, 1996, see section 1201(g) of Pub. L. 104-188, set out as
a note under section 38 of this title.
Section 1204(f) of Pub. L. 104-188 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
28 [now 45C] of this title] shall apply to taxable years ending
after June 30, 1996.
"(2) Subsections (c) and (d). - The amendments made by
subsections (c) and (d) [amending this section] shall apply to
taxable years beginning after June 30, 1996.
"(3) Estimated tax. - The amendments made by this section shall
not be taken into account under section 6654 or 6655 of the
Internal Revenue Code of 1986 (relating to failure to pay estimated
tax) in determining the amount of any installment required to be
paid for a taxable year beginning in 1997."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13111(a)(1) of Pub. L. 103-66 applicable to
taxable years ending after June 30, 1992, see section 13111(c) of
Pub. L. 103-66, set out as a note under section 45C of this title.
Section 13112(c) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1993."
Amendment by section 13201(b)(3)(C) of Pub. L. 103-66 applicable
to taxable years beginning after Dec. 31, 1992, see section
13201(c) of Pub. L. 103-66, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1991 AMENDMENT
Amendment by Pub. L. 102-227 applicable to taxable years ending
after Dec. 31, 1991, see section 102(c) of Pub. L. 102-227, set out
as a note under section 45C of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11101(d)(1)(C) of Pub. L. 101-508 applicable
to taxable years beginning after Dec. 31, 1990, see section
11101(e) of Pub. L. 101-508, set out as a note under section 1 of
this title.
Amendment by section 11402(a) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1989, see section 11402(c)
of Pub. L. 101-508, set out as a note under section 45C of this
title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7110(e) of Pub. L. 101-239 provided that: "The amendments
made by this section [amending this section and sections 28, 174,
196, and 280C of this title] (other than subsection (a) [amending
this section and section 28 of this title]) shall apply to taxable
years beginning after December 31, 1989."
Amendment by section 7814(e)(2)(C) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, to which such amendment relates, see section 7817 of Pub. L.
101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1002(h)(1) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 4008(d) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending this section and sections 28, 196,
280C, and 6501 of this title] shall apply to taxable years
beginning after December 31, 1988."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 231(g) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in this subsection (2), the
amendments made by this section [amending this section and sections
28, 38, 39, 108, 170, 280C, 381, 936, 6411, and 6511 of this title,
renumbering former section 30 of this title as this section, and
enacting and amending provisions set out as notes under this
section] shall apply to taxable years beginning after December 31,
1985.
"(2) Subsection (a). - The amendments made by subsection (a)
[amending this section and provisions set out as a note under this
section] shall apply to taxable years ending after December 31,
1985.
"(3) Basic research. - Section 41(a)(2) of the Internal Revenue
Code of 1986 (as added by this section), and the amendments made by
subsection (c)(2) [amending this section], shall apply to taxable
years beginning after December 31, 1986."
Amendment by section 1847(b)(1) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(i)(1) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 612(e)(1) of Pub. L. 98-369 applicable to
interest paid or accrued after Dec. 31, 1984, on indebtedness
incurred after Dec. 31, 1984, see section 612(g) of Pub. L. 98-369,
set out as an Effective Date note under section 25 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 102(h)(2) of Pub. L. 97-448 provided that the amendment
made by that section is effective only with respect to amounts paid
or incurred after March 31, 1982.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE
Section 221(d) of Pub. L. 97-34, as amended by Pub. L. 99-514,
Sec. 2, title II, Sec. 231(a)(2), Oct. 22, 1986, 100 Stat. 2095,
2173, provided that:
"(1) In general. - The amendments made by this section [enacting
this section of amending sections 55, 381, 383, 6096, 6411, and
6511 of this title] shall apply to amounts paid or incurred after
June 30, 1981.
"(2) Transitional rule. -
"(A) In general. - If, with respect to the first taxable year
to which the amendments made by this section apply and which ends
in 1981 or 1982, the taxpayer may only take into account
qualified research expenses paid or incurred during a portion of
such taxable year, the amount of the qualified research expenses
taken into account for the base period of such taxable year shall
be the amount which bears the same ratio to the total qualified
research expenses for such base period as the number of months in
such portion of such taxable year bears to the total number of
months in such taxable year.
"(B) Definitions. - For purposes of the preceding sentence, the
terms 'qualified research expenses' and 'base period' have the
meanings given to such terms by section 44F [now 41] of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by
this section)."
SPECIAL RULE FOR CREDIT ATTRIBUTABLE TO SUSPENSION PERIODS
Pub. L. 106-170, title V, Sec. 502(d), Dec. 17, 1999, 113 Stat.
1920, provided that:
"(1) In general. - For purposes of the Internal Revenue Code of
1986, the credit determined under section 41 of such Code which is
otherwise allowable under such Code -
"(A) shall not be taken into account prior to October 1, 2000,
to the extent such credit is attributable to the first suspension
period; and
"(B) shall not be taken into account prior to October 1, 2001,
to the extent such credit is attributable to the second
suspension period.
On or after the earliest date that an amount of credit may be taken
into account, such amount may be taken into account through the
filing of an amended return, an application for expedited refund,
an adjustment of estimated taxes, or other means allowed by such
Code.
"(2) Suspension periods. - For purposes of this subsection -
"(A) the first suspension period is the period beginning on
July 1, 1999, and ending on September 30, 2000; and
"(B) the second suspension period is the period beginning on
October 1, 2000, and ending on September 30, 2001.
"(3) Expedited refunds. -
"(A) In general. - If there is an overpayment of tax with
respect to a taxable year by reason of paragraph (1), the
taxpayer may file an application for a tentative refund of such
overpayment. Such application shall be in such manner and form,
and contain such information, as the Secretary may prescribe.
"(B) Deadline for applications. - Subparagraph (A) shall apply
only to an application filed before the date which is 1 year
after the close of the suspension period to which the application
relates.
"(C) Allowance of adjustments. - Not later than 90 days after
the date on which an application is filed under this paragraph,
the Secretary shall -
"(i) review the application;
"(ii) determine the amount of the overpayment; and
"(iii) apply, credit, or refund such overpayment,
in a manner similar to the manner provided in section 6411(b) of
such Code.
"(D) Consolidated returns. - The provisions of section 6411(c)
of such Code shall apply to an adjustment under this paragraph in
such manner as the Secretary may provide.
"(4) Credit attributable to suspension period. -
"(A) In general. - For purposes of this subsection, in the case
of a taxable year which includes a portion of the suspension
period, the amount of credit determined under section 41 of such
Code for such taxable year which is attributable to such period
is the amount which bears the same ratio to the amount of credit
determined under such section 41 for such taxable year as the
number of months in the suspension period which are during such
taxable year bears to the number of months in such taxable year.
"(B) Waiver of estimated tax penalties. - No addition to tax
shall be made under section 6654 or 6655 of such Code for any
period before July 1, 1999, with respect to any underpayment of
tax imposed by such Code to the extent such underpayment was
created or increased by reason of subparagraph (A).
"(5) Secretary. - For purposes of this subsection, the term
'Secretary' means the Secretary of the Treasury (or such
Secretary's delegate)."
SPECIAL RULES FOR TAXABLE YEARS BEGINNING BEFORE OCT. 1, 1990, AND
ENDING AFTER SEPT. 30, 1990
Section 7110(a)(2) of Pub. L. 101-239, which set forth the method
of determining the amount treated as qualified research expenses
for taxable years beginning before Oct. 1, 1990, and ending after
Sept. 30, 1990, was repealed by Pub. L. 101-508, title XI, Sec.
11402(b)(1), Nov. 5, 1990, 104 Stat. 1388-473.
[Section 1702(d)(1) of Pub. L. 104-188 provided that:
"Notwithstanding section 11402(c) of the Revenue Reconciliation Act
of 1990 [Pub. L. 101-508, set out as a note under section 45C of
this title], the amendment made by section 11402(b)(1) of such Act
[repealing section 7110(a)(2) of Pub. L. 101-239, formerly set out
as a note above] shall apply to taxable years ending after December
31, 1989."]
STUDY AND REPORT ON CREDIT PROVIDED BY THIS SECTION
Section 4007(b) of Pub. L. 100-647 directed Comptroller General
of United States to conduct a study of credit provided by 26 U.S.C.
41 and submit a report of the study not later than Dec. 31, 1989,
to Committee on Ways and Means of House of Representatives and
Committee on Finance of Senate.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
NEW SECTION 41 TREATED AS CONTINUATION OF OLD SECTION 44F
Section 474(i)(2) of Pub. L. 98-369 provided that: "For purposes
of determining -
"(A) whether any excess credit under old section 44F [now 41]
for a taxable year beginning before January 1, 1984, is allowable
as a carryover under new section 30 [now 41], and
"(B) the period during which new section 30 [now 41] is in
effect,
new section 30 [now 41] shall be treated as a continuation of old
section 44F (and shall apply only to the extent old section 44F
would have applied)."
-End-
-CITE-
26 USC Sec. 42 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 42. Low-income housing credit
-STATUTE-
(a) In general
For purposes of section 38, the amount of the low-income housing
credit determined under this section for any taxable year in the
credit period shall be an amount equal to -
(1) the applicable percentage of
(2) the qualified basis of each qualified low-income building.
(b) Applicable percentage: 70 percent present value credit for
certain new buildings; 30 percent present value credit for
certain other buildings
For purposes of this section -
(1) Building placed in service during 1987
In the case of any qualified low-income building placed in
service by the taxpayer during 1987, the term "applicable
percentage" means -
(A) 9 percent for new buildings which are not federally
subsidized for the taxable year, or
(B) 4 percent for -
(i) new buildings which are federally subsidized for the
taxable year, and
(ii) existing buildings.
(2) Buildings placed in service after 1987
(A) In general
In the case of any qualified low-income building placed in
service by the taxpayer after 1987, the term "applicable
percentage" means the appropriate percentage prescribed by the
Secretary for the earlier of -
(i) the month in which such building is placed in service,
or
(ii) at the election of the taxpayer -
(I) the month in which the taxpayer and the housing
credit agency enter into an agreement with respect to such
building (which is binding on such agency, the taxpayer,
and all successors in interest) as to the housing credit
dollar amount to be allocated to such building, or
(II) in the case of any building to which subsection
(h)(4)(B) applies, the month in which the tax-exempt
obligations are issued.
A month may be elected under clause (ii) only if the election
is made not later than the 5th day after the close of such
month. Such an election, once made, shall be irrevocable.
(B) Method of prescribing percentages
The percentages prescribed by the Secretary for any month
shall be percentages which will yield over a 10-year period
amounts of credit under subsection (a) which have a present
value equal to -
(i) 70 percent of the qualified basis of a building
described in paragraph (1)(A), and
(ii) 30 percent of the qualified basis of a building
described in paragraph (1)(B).
(C) Method of discounting
The present value under subparagraph (B) shall be determined -
(i) as of the last day of the 1st year of the 10-year
period referred to in subparagraph (B),
(ii) by using a discount rate equal to 72 percent of the
average of the annual Federal mid-term rate and the annual
Federal long-term rate applicable under section 1274(d)(1) to
the month applicable under clause (i) or (ii) of subparagraph
(A) and compounded annually, and
(iii) by assuming that the credit allowable under this
section for any year is received on the last day of such
year.
(3) Cross references
(A) For treatment of certain rehabilitation expenditures as
separate new buildings, see subsection (e).
(B) For determination of applicable percentage for increases
in qualified basis after the 1st year of the credit period, see
subsection (f)(3).
(C) For authority of housing credit agency to limit
applicable percentage and qualified basis which may be taken
into account under this section with respect to any building,
see subsection (h)(7).
(c) Qualified basis; qualified low-income building
For purposes of this section -
(1) Qualified basis
(A) Determination
The qualified basis of any qualified low-income building for
any taxable year is an amount equal to -
(i) the applicable fraction (determined as of the close of
such taxable year) of
(ii) the eligible basis of such building (determined under
subsection (d)(5)).
(B) Applicable fraction
For purposes of subparagraph (A), the term "applicable
fraction" means the smaller of the unit fraction or the floor
space fraction.
(C) Unit fraction
For purposes of subparagraph (B), the term "unit fraction"
means the fraction -
(i) the numerator of which is the number of low-income
units in the building, and
(ii) the denominator of which is the number of residential
rental units (whether or not occupied) in such building.
(D) Floor space fraction
For purposes of subparagraph (B), the term "floor space
fraction" means the fraction -
(i) the numerator of which is the total floor space of the
low-income units in such building, and
(ii) the denominator of which is the total floor space of
the residential rental units (whether or not occupied) in
such building.
(E) Qualified basis to include portion of building used to
provide supportive services for homeless
In the case of a qualified low-income building described in
subsection (i)(3)(B)(iii), the qualified basis of such building
for any taxable year shall be increased by the lesser of -
(i) so much of the eligible basis of such building as is
used throughout the year to provide supportive services
designed to assist tenants in locating and retaining
permanent housing, or
(ii) 20 percent of the qualified basis of such building
(determined without regard to this subparagraph).
(2) Qualified low-income building
The term "qualified low-income building" means any building -
(A) which is part of a qualified low-income housing project
at all times during the period -
(i) beginning on the 1st day in the compliance period on
which such building is part of such a project, and
(ii) ending on the last day of the compliance period with
respect to such building, and
(B) to which the amendments made by section 201(a) of the Tax
Reform Act of 1986 apply.
Such term does not include any building with respect to which
moderate rehabilitation assistance is provided, at any time
during the compliance period, under section 8(e)(2) (!1) of the
United States Housing Act of 1937 (other than assistance under
the McKinney-Vento Homeless Assistance Act (as in effect on the
date of the enactment of this sentence)).
(d) Eligible basis
For purposes of this section -
(1) New buildings
The eligible basis of a new building is its adjusted basis as
of the close of the 1st taxable year of the credit period.
(2) Existing buildings
(A) In general
The eligible basis of an existing building is -
(i) in the case of a building which meets the requirements
of subparagraph (B), its adjusted basis as of the close of
the 1st taxable year of the credit period, and
(ii) zero in any other case.
(B) Requirements
A building meets the requirements of this subparagraph if -
(i) the building is acquired by purchase (as defined in
section 179(d)(2)),
(ii) there is a period of at least 10 years between the
date of its acquisition by the taxpayer and the later of -
(I) the date the building was last placed in service, or
(II) the date of the most recent nonqualified substantial
improvement of the building,
(iii) the building was not previously placed in service by
the taxpayer or by any person who was a related person with
respect to the taxpayer as of the time previously placed in
service, and
(iv) except as provided in subsection (f)(5), a credit is
allowable under subsection (a) by reason of subsection (e)
with respect to the building.
(C) Adjusted basis
For purposes of subparagraph (A), the adjusted basis of any
building shall not include so much of the basis of such
building as is determined by reference to the basis of other
property held at any time by the person acquiring the building.
(D) Special rules for subparagraph (B)
(i) Nonqualified substantial improvement
For purposes of subparagraph (B)(ii) -
(I) In general
The term "nonqualified substantial improvement" means any
substantial improvement if section 167(k) (as in effect on
the day before the date of the enactment of the Revenue
Reconciliation Act of 1990) was elected with respect to
such improvement or section 168 (as in effect on the day
before the date of the enactment of the Tax Reform Act of
1986) applied to such improvement.
(II) Date of substantial improvement
The date of a substantial improvement is the last day of
the 24-month period referred to in subclause (III).
(III) Substantial improvement
The term "substantial improvement" means the improvements
added to capital account with respect to the building
during any 24-month period, but only if the sum of the
amounts added to such account during such period equals or
exceeds 25 percent of the adjusted basis of the building
(determined without regard to paragraphs (2) and (3) of
section 1016(a)) as of the 1st day of such period.
(ii) Special rules for certain transfers
For purposes of determining under subparagraph (B)(ii) when
a building was last placed in service, there shall not be
taken into account any placement in service -
(I) in connection with the acquisition of the building in
a transaction in which the basis of the building in the
hands of the person acquiring it is determined in whole or
in part by reference to the adjusted basis of such building
in the hands of the person from whom acquired,
(II) by a person whose basis in such building is
determined under section 1014(a) (relating to property
acquired from a decedent),
(III) by any governmental unit or qualified nonprofit
organization (as defined in subsection (h)(5)) if the
requirements of subparagraph (B)(ii) are met with respect
to the placement in service by such unit or organization
and all the income from such property is exempt from
Federal income taxation,
(IV) by any person who acquired such building by
foreclosure (or by instrument in lieu of foreclosure) of
any purchase-money security interest held by such person if
the requirements of subparagraph (B)(ii) are met with
respect to the placement in service by such person and such
building is resold within 12 months after the date such
building is placed in service by such person after such
foreclosure, or
(V) of a single-family residence by any individual who
owned and used such residence for no other purpose than as
his principal residence.
(iii) Related person, etc.
(I) Application of section 179
For purposes of subparagraph (B)(i), section 179(d) shall
be applied by substituting "10 percent" for "50 percent" in
section (!2) 267(b) and 707(b) and in section 179(d)(7).
(II) Related person
For purposes of subparagraph (B)(iii), a person
(hereinafter in this subclause referred to as the "related
person") is related to any person if the related person
bears a relationship to such person specified in section
267(b) or 707(b)(1), or the related person and such person
are engaged in trades or businesses under common control
(within the meaning of subsections (a) and (b) of section
52). For purposes of the preceding sentence, in applying
section 267(b) or 707(b)(1), "10 percent" shall be
substituted for "50 percent".
(3) Eligible basis reduced where disproportionate standards for
units
(A) In general
Except as provided in subparagraph (B), the eligible basis of
any building shall be reduced by an amount equal to the portion
of the adjusted basis of the building which is attributable to
residential rental units in the building which are not low-
income units and which are above the average quality standard
of the low-income units in the building.
(B) Exception where taxpayer elects to exclude excess costs
(i) In general
Subparagraph (A) shall not apply with respect to a
residential rental unit in a building which is not a low-
income unit if -
(I) the excess described in clause (ii) with respect to
such unit is not greater than 15 percent of the cost
described in clause (ii)(II), and
(II) the taxpayer elects to exclude from the eligible
basis of such building the excess described in clause (ii)
with respect to such unit.
(ii) Excess
The excess described in this clause with respect to any
unit is the excess of -
(I) the cost of such unit, over
(II) the amount which would be the cost of such unit if
the average cost per square foot of low-income units in the
building were substituted for the cost per square foot of
such unit.
The Secretary may by regulation provide for the determination
of the excess under this clause on a basis other than square
foot costs.
(4) Special rules relating to determination of adjusted basis
For purposes of this subsection -
(A) In general
Except as provided in subparagraphs (B) and (C), the adjusted
basis of any building shall be determined without regard to the
adjusted basis of any property which is not residential rental
property.
(B) Basis of property in common areas, etc., included
The adjusted basis of any building shall be determined by
taking into account the adjusted basis of property (of a
character subject to the allowance for depreciation) used in
common areas or provided as comparable amenities to all
residential rental units in such building.
(C) Inclusion of basis of property used to provide services for
certain nontenants
(i) In general
The adjusted basis of any building located in a qualified
census tract (as defined in paragraph (5)(C)) shall be
determined by taking into account the adjusted basis of
property (of a character subject to the allowance for
depreciation and not otherwise taken into account) used
throughout the taxable year in providing any community
service facility.
(ii) Limitation
The increase in the adjusted basis of any building which is
taken into account by reason of clause (i) shall not exceed
10 percent of the eligible basis of the qualified low-income
housing project of which it is a part. For purposes of the
preceding sentence, all community service facilities which
are part of the same qualified low-income housing project
shall be treated as one facility.
(iii) Community service facility
For purposes of this subparagraph, the term "community
service facility" means any facility designed to serve
primarily individuals whose income is 60 percent or less of
area median income (within the meaning of subsection
(g)(1)(B)).
(D) No reduction for depreciation
The adjusted basis of any building shall be determined
without regard to paragraphs (2) and (3) of section 1016(a).
(5) Special rules for determining eligible basis
(A) Eligible basis reduced by Federal grants
If, during any taxable year of the compliance period, a grant
is made with respect to any building or the operation thereof
and any portion of such grant is funded with Federal funds
(whether or not includible in gross income), the eligible basis
of such building for such taxable year and all succeeding
taxable years shall be reduced by the portion of such grant
which is so funded.
(B) Eligible basis not to include expenditures where section
167(k) elected
The eligible basis of any building shall not include any
portion of its adjusted basis which is attributable to amounts
with respect to which an election is made under section 167(k)
(as in effect on the day before the date of the enactment of
the Revenue Reconciliation Act of 1990).
(C) Increase in credit for buildings in high cost areas
(i) In general
In the case of any building located in a qualified census
tract or difficult development area which is designated for
purposes of this subparagraph -
(I) in the case of a new building, the eligible basis of
such building shall be 130 percent of such basis determined
without regard to this subparagraph, and
(II) in the case of an existing building, the
rehabilitation expenditures taken into account under
subsection (e) shall be 130 percent of such expenditures
determined without regard to this subparagraph.
(ii) Qualified census tract
(I) In general
The term "qualified census tract" means any census tract
which is designated by the Secretary of Housing and Urban
Development and, for the most recent year for which census
data are available on household income in such tract,
either in which 50 percent or more of the households have
an income which is less than 60 percent of the area median
gross income for such year or which has a poverty rate of
at least 25 percent. If the Secretary of Housing and Urban
Development determines that sufficient data for any period
are not available to apply this clause on the basis of
census tracts, such Secretary shall apply this clause for
such period on the basis of enumeration districts.
(II) Limit on MSA's designated
The portion of a metropolitan statistical area which may
be designated for purposes of this subparagraph shall not
exceed an area having 20 percent of the population of such
metropolitan statistical area.
(III) Determination of areas
For purposes of this clause, each metropolitan
statistical area shall be treated as a separate area and
all nonmetropolitan areas in a State shall be treated as 1
area.
(iii) Difficult development areas
(I) In general
The term "difficult development areas" means any area
designated by the Secretary of Housing and Urban
Development as an area which has high construction, land,
and utility costs relative to area median gross income.
(II) Limit on areas designated
The portions of metropolitan statistical areas which may
be designated for purposes of this subparagraph shall not
exceed an aggregate area having 20 percent of the
population of such metropolitan statistical areas. A
comparable rule shall apply to nonmetropolitan areas.
(iv) Special rules and definitions
For purposes of this subparagraph -
(I) population shall be determined on the basis of the
most recent decennial census for which data are available,
(II) area median gross income shall be determined in
accordance with subsection (g)(4),
(III) the term "metropolitan statistical area" has the
same meaning as when used in section 143(k)(2)(B), and
(IV) the term "nonmetropolitan area" means any county (or
portion thereof) which is not within a metropolitan
statistical area.
(6) Credit allowable for certain federally-assisted buildings
acquired during 10-year period described in paragraph
(2)(B)(ii)
(A) In general
On application by the taxpayer, the Secretary (after
consultation with the appropriate Federal official) may waive
paragraph (2)(B)(ii) with respect to any federally-assisted
building if the Secretary determines that such waiver is
necessary -
(i) to avert an assignment of the mortgage secured by
property in the project (of which such building is a part) to
the Department of Housing and Urban Development or the
Farmers Home Administration, or
(ii) to avert a claim against a Federal mortgage insurance
fund (or such Department or Administration) with respect to a
mortgage which is so secured.
The preceding sentence shall not apply to any building
described in paragraph (7)(B).
(B) Federally-assisted building
For purposes of subparagraph (A), the term "federally-
assisted building" means any building which is substantially
assisted, financed, or operated under -
(i) section 8 of the United States Housing Act of 1937,
(ii) section 221(d)(3) or 236 of the National Housing Act,
or
(iii) section 515 of the Housing Act of 1949,
as such Acts are in effect on the date of the enactment of the
Tax Reform Act of 1986.
(C) Low-income buildings where mortgage may be prepaid
A waiver may be granted under subparagraph (A) (without
regard to any clause thereof) with respect to a federally-
assisted building described in clause (ii) or (iii) of
subparagraph (B) if -
(i) the mortgage on such building is eligible for
prepayment under subtitle B of the Emergency Low Income
Housing Preservation Act of 1987 or under section 502(c) of
the Housing Act of 1949 at any time within 1 year after the
date of the application for such a waiver,
(ii) the appropriate Federal official certifies to the
Secretary that it is reasonable to expect that, if the waiver
is not granted, such building will cease complying with its
low-income occupancy requirements, and
(iii) the eligibility to prepay such mortgage without the
approval of the appropriate Federal official is waived by all
persons who are so eligible and such waiver is binding on all
successors of such persons.
(D) Buildings acquired from insured depository institutions in
default
A waiver may be granted under subparagraph (A) (without
regard to any clause thereof) with respect to any building
acquired from an insured depository institution in default (as
defined in section 3 of the Federal Deposit Insurance Act) or
from a receiver or conservator of such an institution.
(E) Appropriate Federal official
For purposes of subparagraph (A), the term "appropriate
Federal official" means -
(i) the Secretary of Housing and Urban Development in the
case of any building described in subparagraph (B) by reason
of clause (i) or (ii) thereof, and
(ii) the Secretary of Agriculture in the case of any
building described in subparagraph (B) by reason of clause
(iii) thereof.
(7) Acquisition of building before end of prior compliance period
(A) In general
Under regulations prescribed by the Secretary, in the case of
a building described in subparagraph (B) (or interest therein)
which is acquired by the taxpayer -
(i) paragraph (2)(B) shall not apply, but
(ii) the credit allowable by reason of subsection (a) to
the taxpayer for any period after such acquisition shall be
equal to the amount of credit which would have been allowable
under subsection (a) for such period to the prior owner
referred to in subparagraph (B) had such owner not disposed
of the building.
(B) Description of building
A building is described in this subparagraph if -
(i) a credit was allowed by reason of subsection (a) to any
prior owner of such building, and
(ii) the taxpayer acquired such building before the end of
the compliance period for such building with respect to such
prior owner (determined without regard to any disposition by
such prior owner).
(e) Rehabilitation expenditures treated as separate new building
(1) In general
Rehabilitation expenditures paid or incurred by the taxpayer
with respect to any building shall be treated for purposes of
this section as a separate new building.
(2) Rehabilitation expenditures
For purposes of paragraph (1) -
(A) In general
The term "rehabilitation expenditures" means amounts
chargeable to capital account and incurred for property (or
additions or improvements to property) of a character subject
to the allowance for depreciation in connection with the
rehabilitation of a building.
(B) Cost of acquisition, etc,(!3) not included
Such term does not include the cost of acquiring any building
(or interest therein) or any amount not permitted to be taken
into account under paragraph (3) or (4) of subsection (d).
(3) Minimum expenditures to qualify
(A) In general
Paragraph (1) shall apply to rehabilitation expenditures with
respect to any building only if -
(i) the expenditures are allocable to 1 or more low-income
units or substantially benefit such units, and
(ii) the amount of such expenditures during any 24-month
period meets the requirements of whichever of the following
subclauses requires the greater amount of such expenditures:
(I) The requirement of this subclause is met if such
amount is not less than 10 percent of the adjusted basis of
the building (determined as of the 1st day of such period
and without regard to paragraphs (2) and (3) of section
1016(a)).
(II) The requirement of this subclause is met if the
qualified basis attributable to such amount, when divided
by the number of low-income units in the building, is
$3,000 or more.
(B) Exception from 10 percent rehabilitation
In the case of a building acquired by the taxpayer from a
governmental unit, at the election of the taxpayer,
subparagraph (A)(ii)(I) shall not apply and the credit under
this section for such rehabilitation expenditures shall be
determined using the percentage applicable under subsection
(b)(2)(B)(ii).
(C) Date of determination
The determination under subparagraph (A) shall be made as of
the close of the 1st taxable year in the credit period with
respect to such expenditures.
(4) Special rules
For purposes of applying this section with respect to
expenditures which are treated as a separate building by reason
of this subsection -
(A) such expenditures shall be treated as placed in service
at the close of the 24-month period referred to in paragraph
(3)(A), and
(B) the applicable fraction under subsection (c)(1) shall be
the applicable fraction for the building (without regard to
paragraph (1)) with respect to which the expenditures were
incurred.
Nothing in subsection (d)(2) shall prevent a credit from being
allowed by reason of this subsection.
(5) No double counting
Rehabilitation expenditures may, at the election of the
taxpayer, be taken into account under this subsection or
subsection (d)(2)(A)(i) but not under both such subsections.
(6) Regulations to apply subsection with respect to group of
units in building
The Secretary may prescribe regulations, consistent with the
purposes of this subsection, treating a group of units with
respect to which rehabilitation expenditures are incurred as a
separate new building.
(f) Definition and special rules relating to credit period
(1) Credit period defined
For purposes of this section, the term "credit period" means,
with respect to any building, the period of 10 taxable years
beginning with -
(A) the taxable year in which the building is placed in
service, or
(B) at the election of the taxpayer, the succeeding taxable
year,
but only if the building is a qualified low-income building as of
the close of the 1st year of such period. The election under
subparagraph (B), once made, shall be irrevocable.
(2) Special rule for 1st year of credit period
(A) In general
The credit allowable under subsection (a) with respect to any
building for the 1st taxable year of the credit period shall be
determined by substituting for the applicable fraction under
subsection (c)(1) the fraction -
(i) the numerator of which is the sum of the applicable
fractions determined under subsection (c)(1) as of the close
of each full month of such year during which such building
was in service, and
(ii) the denominator of which is 12.
(B) Disallowed 1st year credit allowed in 11th year
Any reduction by reason of subparagraph (A) in the credit
allowable (without regard to subparagraph (A)) for the 1st
taxable year of the credit period shall be allowable under
subsection (a) for the 1st taxable year following the credit
period.
(3) Determination of applicable percentage with respect to
increases in qualified basis after 1st year of credit period
(A) In general
In the case of any building which was a qualified low-income
building as of the close of the 1st year of the credit period,
if -
(i) as of the close of any taxable year in the compliance
period (after the 1st year of the credit period) the
qualified basis of such building exceeds
(ii) the qualified basis of such building as of the close
of the 1st year of the credit period,
the applicable percentage which shall apply under subsection
(a) for the taxable year to such excess shall be the percentage
equal to 2/3 of the applicable percentage which (after the
application of subsection (h)) would but for this paragraph
apply to such basis.
(B) 1st year computation applies
A rule similar to the rule of paragraph (2)(A) shall apply to
any increase in qualified basis to which subparagraph (A)
applies for the 1st year of such increase.
(4) Dispositions of property
If a building (or an interest therein) is disposed of during
any year for which credit is allowable under subsection (a), such
credit shall be allocated between the parties on the basis of the
number of days during such year the building (or interest) was
held by each. In any such case, proper adjustments shall be made
in the application of subsection (j).
(5) Credit period for existing buildings not to begin before
rehabilitation credit allowed
(A) In general
The credit period for an existing building shall not begin
before the 1st taxable year of the credit period for
rehabilitation expenditures with respect to the building.
(B) Acquisition credit allowed for certain buildings not
allowed a rehabilitation credit
(i) In general
In the case of a building described in clause (ii) -
(I) subsection (d)(2)(B)(iv) shall not apply, and
(II) the credit period for such building shall not begin
before the taxable year which would be the 1st taxable year
of the credit period for rehabilitation expenditures with
respect to the building under the modifications described
in clause (ii)(II).
(ii) Building described
A building is described in this clause if -
(I) a waiver is granted under subsection (d)(6)(C) with
respect to the acquisition of the building, and
(II) a credit would be allowed for rehabilitation
expenditures with respect to such building if subsection
(e)(3)(A)(ii)(I) did not apply and if subsection
(e)(3)(A)(ii)(II) were applied by substituting "$2,000" for
"$3,000".
(g) Qualified low-income housing project
For purposes of this section -
(1) In general
The term "qualified low-income housing project" means any
project for residential rental property if the project meets the
requirements of subparagraph (A) or (B) whichever is elected by
the taxpayer:
(A) 20-50 test
The project meets the requirements of this subparagraph if 20
percent or more of the residential units in such project are
both rent-restricted and occupied by individuals whose income
is 50 percent or less of area median gross income.
(B) 40-60 test
The project meets the requirements of this subparagraph if 40
percent or more of the residential units in such project are
both rent-restricted and occupied by individuals whose income
is 60 percent or less of area median gross income.
Any election under this paragraph, once made, shall be
irrevocable. For purposes of this paragraph, any property shall
not be treated as failing to be residential rental property
merely because part of the building in which such property is
located is used for purposes other than residential rental
purposes.
(2) Rent-restricted units
(A) In general
For purposes of paragraph (1), a residential unit is rent-
restricted if the gross rent with respect to such unit does
not exceed 30 percent of the imputed income limitation
applicable to such unit. For purposes of the preceding
sentence, the amount of the income limitation under paragraph
(1) applicable for any period shall not be less than such
limitation applicable for the earliest period the building
(which contains the unit) was included in the determination of
whether the project is a qualified low-income housing project.
(B) Gross rent
For purposes of subparagraph (A), gross rent -
(i) does not include any payment under section 8 of the
United States Housing Act of 1937 or any comparable rental
assistance program (with respect to such unit or occupants
thereof),
(ii) includes any utility allowance determined by the
Secretary after taking into account such determinations under
section 8 of the United States Housing Act of 1937,
(iii) does not include any fee for a supportive service
which is paid to the owner of the unit (on the basis of the
low-income status of the tenant of the unit) by any
governmental program of assistance (or by an organization
described in section 501(c)(3) and exempt from tax under
section 501(a)) if such program (or organization) provides
assistance for rent and the amount of assistance provided for
rent is not separable from the amount of assistance provided
for supportive services, and
(iv) does not include any rental payment to the owner of
the unit to the extent such owner pays an equivalent amount
to the Farmers' Home Administration under section 515 of the
Housing Act of 1949.
For purposes of clause (iii), the term "supportive service"
means any service provided under a planned program of services
designed to enable residents of a residential rental property
to remain independent and avoid placement in a hospital,
nursing home, or intermediate care facility for the mentally or
physically handicapped. In the case of a single-room occupancy
unit or a building described in subsection (i)(3)(B)(iii), such
term includes any service provided to assist tenants in
locating and retaining permanent housing.
(C) Imputed income limitation applicable to unit
For purposes of this paragraph, the imputed income limitation
applicable to a unit is the income limitation which would apply
under paragraph (1) to individuals occupying the unit if the
number of individuals occupying the unit were as follows:
(i) In the case of a unit which does not have a separate
bedroom, 1 individual.
(ii) In the case of a unit which has 1 or more separate
bedrooms, 1.5 individuals for each separate bedroom.
In the case of a project with respect to which a credit is
allowable by reason of this section and for which financing is
provided by a bond described in section 142(a)(7), the imputed
income limitation shall apply in lieu of the otherwise
applicable income limitation for purposes of applying section
142(d)(4)(B)(ii).
(D) Treatment of units occupied by individuals whose incomes
rise above limit
(i) In general
Except as provided in clause (ii), notwithstanding an
increase in the income of the occupants of a low-income unit
above the income limitation applicable under paragraph (1),
such unit shall continue to be treated as a low-income unit
if the income of such occupants initially met such income
limitation and such unit continues to be rent-restricted.
(ii) Next available unit must be rented to low-income tenant
if income rises above 140 percent of income limit
If the income of the occupants of the unit increases above
140 percent of the income limitation applicable under
paragraph (1), clause (i) shall cease to apply to such unit
if any residential rental unit in the building (of a size
comparable to, or smaller than, such unit) is occupied by a
new resident whose income exceeds such income limitation. In
the case of a project described in section 142(d)(4)(B), the
preceding sentence shall be applied by substituting "170
percent" for "140 percent" and by substituting "any low-
income unit in the building is occupied by a new resident
whose income exceeds 40 percent of area median gross income"
for "any residential unit in the building (of a size
comparable to, or smaller than, such unit) is occupied by a
new resident whose income exceeds such income limitation".
(E) Units where Federal rental assistance is reduced as
tenant's income increases
If the gross rent with respect to a residential unit exceeds
the limitation under subparagraph (A) by reason of the fact
that the income of the occupants thereof exceeds the income
limitation applicable under paragraph (1), such unit shall,
nevertheless, be treated as a rent-restricted unit for purposes
of paragraph (1) if -
(i) a Federal rental assistance payment described in
subparagraph (B)(i) is made with respect to such unit or its
occupants, and
(ii) the sum of such payment and the gross rent with
respect to such unit does not exceed the sum of the amount of
such payment which would be made and the gross rent which
would be payable with respect to such unit if -
(I) the income of the occupants thereof did not exceed
the income limitation applicable under paragraph (1), and
(II) such units were rent-restricted within the meaning
of subparagraph (A).
The preceding sentence shall apply to any unit only if the
result described in clause (ii) is required by Federal statute
as of the date of the enactment of this subparagraph and as of
the date the Federal rental assistance payment is made.
(3) Date for meeting requirements
(A) In general
Except as otherwise provided in this paragraph, a building
shall be treated as a qualified low-income building only if the
project (of which such building is a part) meets the
requirements of paragraph (1) not later than the close of the
1st year of the credit period for such building.
(B) Buildings which rely on later buildings for qualification
(i) In general
In determining whether a building (hereinafter in this
subparagraph referred to as the "prior building") is a
qualified low-income building, the taxpayer may take into
account 1 or more additional buildings placed in service
during the 12-month period described in subparagraph (A) with
respect to the prior building only if the taxpayer elects to
apply clause (ii) with respect to each additional building
taken into account.
(ii) Treatment of elected buildings
In the case of a building which the taxpayer elects to take
into account under clause (i), the period under subparagraph
(A) for such building shall end at the close of the 12-month
period applicable to the prior building.
(iii) Date prior building is treated as placed in service
For purposes of determining the credit period and the
compliance period for the prior building, the prior building
shall be treated for purposes of this section as placed in
service on the most recent date any additional building
elected by the taxpayer (with respect to such prior building)
was placed in service.
(C) Special rule
A building -
(i) other than the 1st building placed in service as part
of a project, and
(ii) other than a building which is placed in service
during the 12-month period described in subparagraph (A) with
respect to a prior building which becomes a qualified low-
income building,
shall in no event be treated as a qualified low-income building
unless the project is a qualified low-income housing project
(without regard to such building) on the date such building is
placed in service.
(D) Projects with more than 1 building must be identified
For purposes of this section, a project shall be treated as
consisting of only 1 building unless, before the close of the
1st calendar year in the project period (as defined in
subsection (h)(1)(F)(ii)), each building which is (or will be)
part of such project is identified in such form and manner as
the Secretary may provide.
(4) Certain rules made applicable
Paragraphs (2) (other than subparagraph (A) thereof), (3), (4),
(5), (6), and (7) of section 142(d), and section 6652(j), shall
apply for purposes of determining whether any project is a
qualified low-income housing project and whether any unit is a
low-income unit; except that, in applying such provisions for
such purposes, the term "gross rent" shall have the meaning given
such term by paragraph (2)(B) of this subsection.
(5) Election to treat building after compliance period as not
part of a project
For purposes of this section, the taxpayer may elect to treat
any building as not part of a qualified low-income housing
project for any period beginning after the compliance period for
such building.
(6) Special rule where de minimis equity contribution
Property shall not be treated as failing to be residential
rental property for purposes of this section merely because the
occupant of a residential unit in the project pays (on a
voluntary basis) to the lessor a de minimis amount to be held
toward the purchase by such occupant of a residential unit in
such project if -
(A) all amounts so paid are refunded to the occupant on the
cessation of his occupancy of a unit in the project, and
(B) the purchase of the unit is not permitted until after the
close of the compliance period with respect to the building in
which the unit is located.
Any amount paid to the lessor as described in the preceding
sentence shall be included in gross rent under paragraph (2) for
purposes of determining whether the unit is rent-restricted.
(7) Scattered site projects
Buildings which would (but for their lack of proximity) be
treated as a project for purposes of this section shall be so
treated if all of the dwelling units in each of the buildings are
rent-restricted (within the meaning of paragraph (2)) residential
rental units.
(8) Waiver of certain de minimis errors and recertifications
On application by the taxpayer, the Secretary may waive -
(A) any recapture under subsection (j) in the case of any de
minimis error in complying with paragraph (1), or
(B) any annual recertification of tenant income for purposes
of this subsection, if the entire building is occupied by low-
income tenants.
(h) Limitation on aggregate credit allowable with respect to
projects located in a State
(1) Credit may not exceed credit amount allocated to building
(A) In general
The amount of the credit determined under this section for
any taxable year with respect to any building shall not exceed
the housing credit dollar amount allocated to such building
under this subsection.
(B) Time for making allocation
Except in the case of an allocation which meets the
requirements of subparagraph (C), (D), (E), or (F), an
allocation shall be taken into account under subparagraph (A)
only if it is made not later than the close of the calendar
year in which the building is placed in service.
(C) Exception where binding commitment
An allocation meets the requirements of this subparagraph if
there is a binding commitment (not later than the close of the
calendar year in which the building is placed in service) by
the housing credit agency to allocate a specified housing
credit dollar amount to such building beginning in a specified
later taxable year.
(D) Exception where increase in qualified basis
(i) In general
An allocation meets the requirements of this subparagraph
if such allocation is made not later than the close of the
calendar year in which ends the taxable year to which it will
1st apply but only to the extent the amount of such
allocation does not exceed the limitation under clause (ii).
(ii) Limitation
The limitation under this clause is the amount of credit
allowable under this section (without regard to this
subsection) for a taxable year with respect to an increase in
the qualified basis of the building equal to the excess of -
(I) the qualified basis of such building as of the close
of the 1st taxable year to which such allocation will
apply, over
(II) the qualified basis of such building as of the close
of the 1st taxable year to which the most recent prior
housing credit allocation with respect to such building
applied.
(iii) Housing credit dollar amount reduced by full allocation
Notwithstanding clause (i), the full amount of the
allocation shall be taken into account under paragraph (2).
(E) Exception where 10 percent of cost incurred
(i) In general
An allocation meets the requirements of this subparagraph
if such allocation is made with respect to a qualified
building which is placed in service not later than the close
of the second calendar year following the calendar year in
which the allocation is made.
(ii) Qualified building
For purposes of clause (i), the term "qualified building"
means any building which is part of a project if the
taxpayer's basis in such project (as of the later of the date
which is 6 months after the date that the allocation was made
or the close of the calendar year in which the allocation is
made) is more than 10 percent of the taxpayer's reasonably
expected basis in such project (as of the close of the second
calendar year referred to in clause (i)). Such term does not
include any existing building unless a credit is allowable
under subsection (e) for rehabilitation expenditures paid or
incurred by the taxpayer with respect to such building for a
taxable year ending during the second calendar year referred
to in clause (i) or the prior taxable year.
(F) Allocation of credit on a project basis
(i) In general
In the case of a project which includes (or will include)
more than 1 building, an allocation meets the requirements of
this subparagraph if -
(I) the allocation is made to the project for a calendar
year during the project period,
(II) the allocation only applies to buildings placed in
service during or after the calendar year for which the
allocation is made, and
(III) the portion of such allocation which is allocated
to any building in such project is specified not later than
the close of the calendar year in which the building is
placed in service.
(ii) Project period
For purposes of clause (i), the term "project period" means
the period -
(I) beginning with the 1st calendar year for which an
allocation may be made for the 1st building placed in
service as part of such project, and
(II) ending with the calendar year the last building is
placed in service as part of such project.
(2) Allocated credit amount to apply to all taxable years ending
during or after credit allocation year
Any housing credit dollar amount allocated to any building for
any calendar year -
(A) shall apply to such building for all taxable years in the
compliance period ending during or after such calendar year,
and
(B) shall reduce the aggregate housing credit dollar amount
of the allocating agency only for such calendar year.
(3) Housing credit dollar amount for agencies
(A) In general
The aggregate housing credit dollar amount which a housing
credit agency may allocate for any calendar year is the portion
of the State housing credit ceiling allocated under this
paragraph for such calendar year to such agency.
(B) State ceiling initially allocated to State housing credit
agencies
Except as provided in subparagraphs (D) and (E), the State
housing credit ceiling for each calendar year shall be
allocated to the housing credit agency of such State. If there
is more than 1 housing credit agency of a State, all such
agencies shall be treated as a single agency.
(C) State housing credit ceiling
The State housing credit ceiling applicable to any State for
any calendar year shall be an amount equal to the sum of -
(i) the unused State housing credit ceiling (if any) of
such State for the preceding calendar year,
(ii) the greater of -
(I) $1.75 ($1.50 for 2001) multiplied by the State
population, or
(II) $2,000,000,
(iii) the amount of State housing credit ceiling returned
in the calendar year, plus
(iv) the amount (if any) allocated under subparagraph (D)
to such State by the Secretary.
For purposes of clause (i), the unused State housing credit
ceiling for any calendar year is the excess (if any) of the sum
of the amounts described in clauses (ii) through (iv) over the
aggregate housing credit dollar amount allocated for such year.
For purposes of clause (iii), the amount of State housing
credit ceiling returned in the calendar year equals the housing
credit dollar amount previously allocated within the State to
any project which fails to meet the 10 percent test under
paragraph (1)(E)(ii) on a date after the close of the calendar
year in which the allocation was made or which does not become
a qualified low-income housing project within the period
required by this section or the terms of the allocation or to
any project with respect to which an allocation is cancelled by
mutual consent of the housing credit agency and the allocation
recipient.
(D) Unused housing credit carryovers allocated among certain
States
(i) In general
The unused housing credit carryover of a State for any
calendar year shall be assigned to the Secretary for
allocation among qualified States for the succeeding calendar
year.
(ii) Unused housing credit carryover
For purposes of this subparagraph, the unused housing
credit carryover of a State for any calendar year is the
excess (if any) of -
(I) the unused State housing credit ceiling for the year
preceding such year, over
(II) the aggregate housing credit dollar amount allocated
for such year.
(iii) Formula for allocation of unused housing credit
carryovers among qualified States
The amount allocated under this subparagraph to a qualified
State for any calendar year shall be the amount determined by
the Secretary to bear the same ratio to the aggregate unused
housing credit carryovers of all States for the preceding
calendar year as such State's population for the calendar
year bears to the population of all qualified States for the
calendar year. For purposes of the preceding sentence,
population shall be determined in accordance with section
146(j).
(iv) Qualified State
For purposes of this subparagraph, the term "qualified
State" means, with respect to a calendar year, any State -
(I) which allocated its entire State housing credit
ceiling for the preceding calendar year, and
(II) for which a request is made (not later than May 1 of
the calendar year) to receive an allocation under clause
(iii).
(E) Special rule for States with constitutional home rule
cities
For purposes of this subsection -
(i) In general
The aggregate housing credit dollar amount for any
constitutional home rule city for any calendar year shall be
an amount which bears the same ratio to the State housing
credit ceiling for such calendar year as -
(I) the population of such city, bears to
(II) the population of the entire State.
(ii) Coordination with other allocations
In the case of any State which contains 1 or more
constitutional home rule cities, for purposes of applying
this paragraph with respect to housing credit agencies in
such State other than constitutional home rule cities, the
State housing credit ceiling for any calendar year shall be
reduced by the aggregate housing credit dollar amounts
determined for such year for all constitutional home rule
cities in such State.
(iii) Constitutional home rule city
For purposes of this paragraph, the term "constitutional
home rule city" has the meaning given such term by section
146(d)(3)(C).
(F) State may provide for different allocation
Rules similar to the rules of section 146(e) (other than
paragraph (2)(B) thereof) shall apply for purposes of this
paragraph.
(G) Population
For purposes of this paragraph, population shall be
determined in accordance with section 146(j).
(H) Cost-of-living adjustment
(i) In general
In the case of a calendar year after 2002, the $2,000,000
and $1.75 amounts in subparagraph (C) shall each be increased
by an amount equal to -
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting
"calendar year 2001" for "calendar year 1992" in
subparagraph (B) thereof.
(ii) Rounding
(I) In the case of the $2,000,000 amount, any increase
under clause (i) which is not a multiple of $5,000 shall be
rounded to the next lowest multiple of $5,000.
(II) In the case of the $1.75 amount, any increase under
clause (i) which is not a multiple of 5 cents shall be
rounded to the next lowest multiple of 5 cents.
(4) Credit for buildings financed by tax-exempt bonds subject to
volume cap not taken into account
(A) In general
Paragraph (1) shall not apply to the portion of any credit
allowable under subsection (a) which is attributable to
eligible basis financed by any obligation the interest on which
is exempt from tax under section 103 if -
(i) such obligation is taken into account under section
146, and
(ii) principal payments on such financing are applied
within a reasonable period to redeem obligations the proceeds
of which were used to provide such financing.
(B) Special rule where 50 percent or more of building is
financed with tax-exempt bonds subject to volume cap
For purposes of subparagraph (A), if 50 percent or more of
the aggregate basis of any building and the land on which the
building is located is financed by any obligation described in
subparagraph (A), paragraph (1) shall not apply to any portion
of the credit allowable under subsection (a) with respect to
such building.
(5) Portion of State ceiling set-aside for certain projects
involving qualified nonprofit organizations
(A) In general
Not more than 90 percent of the State housing credit ceiling
for any State for any calendar year shall be allocated to
projects other than qualified low-income housing projects
described in subparagraph (B).
(B) Projects involving qualified nonprofit organizations
For purposes of subparagraph (A), a qualified low-income
housing project is described in this subparagraph if a
qualified nonprofit organization is to own an interest in the
project (directly or through a partnership) and materially
participate (within the meaning of section 469(h)) in the
development and operation of the project throughout the
compliance period.
(C) Qualified nonprofit organization
For purposes of this paragraph, the term "qualified nonprofit
organization" means any organization if -
(i) such organization is described in paragraph (3) or (4)
of section 501(c) and is exempt from tax under section
501(a),
(ii) such organization is determined by the State housing
credit agency not to be affiliated with or controlled by a
for-profit organization; (!4) and
(iii) 1 of the exempt purposes of such organization
includes the fostering of low-income housing.
(D) Treatment of certain subsidiaries
(i) In general
For purposes of this paragraph, a qualified nonprofit
organization shall be treated as satisfying the ownership and
material participation test of subparagraph (B) if any
qualified corporation in which such organization holds stock
satisfies such test.
(ii) Qualified corporation
For purposes of clause (i), the term "qualified
corporation" means any corporation if 100 percent of the
stock of such corporation is held by 1 or more qualified
nonprofit organizations at all times during the period such
corporation is in existence.
(E) State may not override set-aside
Nothing in subparagraph (F) of paragraph (3) shall be
construed to permit a State not to comply with subparagraph (A)
of this paragraph.
(6) Buildings eligible for credit only if minimum long-term
commitment to low-income housing
(A) In general
No credit shall be allowed by reason of this section with
respect to any building for the taxable year unless an extended
low-income housing commitment is in effect as of the end of
such taxable year.
(B) Extended low-income housing commitment
For purposes of this paragraph, the term "extended low-income
housing commitment" means any agreement between the taxpayer
and the housing credit agency -
(i) which requires that the applicable fraction (as defined
in subsection (c)(1)) for the building for each taxable year
in the extended use period will not be less than the
applicable fraction specified in such agreement and which
prohibits the actions described in subclauses (I) and (II) of
subparagraph (E)(ii),
(ii) which allows individuals who meet the income
limitation applicable to the building under subsection (g)
(whether prospective, present, or former occupants of the
building) the right to enforce in any State court the
requirement and prohibitions of clause (i),
(iii) which prohibits the disposition to any person of any
portion of the building to which such agreement applies
unless all of the building to which such agreement applies is
disposed of to such person,
(iv) which prohibits the refusal to lease to a holder of a
voucher or certificate of eligibility under section 8 of the
United States Housing Act of 1937 because of the status of
the prospective tenant as such a holder,
(v) which is binding on all successors of the taxpayer, and
(vi) which, with respect to the property, is recorded
pursuant to State law as a restrictive covenant.
(C) Allocation of credit may not exceed amount necessary to
support commitment
(i) In general
The housing credit dollar amount allocated to any building
may not exceed the amount necessary to support the applicable
fraction specified in the extended low-income housing
commitment for such building, including any increase in such
fraction pursuant to the application of subsection (f)(3) if
such increase is reflected in an amended low-income housing
commitment.
(ii) Buildings financed by tax-exempt bonds
If paragraph (4) applies to any building the amount of
credit allowed in any taxable year may not exceed the amount
necessary to support the applicable fraction specified in the
extended low-income housing commitment for such building.
Such commitment may be amended to increase such fraction.
(D) Extended use period
For purposes of this paragraph, the term "extended use
period" means the period -
(i) beginning on the 1st day in the compliance period on
which such building is part of a qualified low-income housing
project, and
(ii) ending on the later of -
(I) the date specified by such agency in such agreement,
or
(II) the date which is 15 years after the close of the
compliance period.
(E) Exceptions if foreclosure or if no buyer willing to
maintain low-income status
(i) In general
The extended use period for any building shall terminate -
(I) on the date the building is acquired by foreclosure
(or instrument in lieu of foreclosure) unless the Secretary
determines that such acquisition is part of an arrangement
with the taxpayer a purpose of which is to terminate such
period, or
(II) on the last day of the period specified in
subparagraph (I) if the housing credit agency is unable to
present during such period a qualified contract for the
acquisition of the low-income portion of the building by
any person who will continue to operate such portion as a
qualified low-income building.
Subclause (II) shall not apply to the extent more stringent
requirements are provided in the agreement or in State law.
(ii) Eviction, etc. of existing low-income tenants not
permitted
The termination of an extended use period under clause (i)
shall not be construed to permit before the close of the 3-
year period following such termination -
(I) the eviction or the termination of tenancy (other
than for good cause) of an existing tenant of any low-
income unit, or
(II) any increase in the gross rent with respect to such
unit not otherwise permitted under this section.
(F) Qualified contract
For purposes of subparagraph (E), the term "qualified
contract" means a bona fide contract to acquire (within a
reasonable period after the contract is entered into) the
nonlow-income portion of the building for fair market value and
the low-income portion of the building for an amount not less
than the applicable fraction (specified in the extended low-
income housing commitment) of -
(i) the sum of -
(I) the outstanding indebtedness secured by, or with
respect to, the building,
(II) the adjusted investor equity in the building, plus
(III) other capital contributions not reflected in the
amounts described in subclause (I) or (II), reduced by
(ii) cash distributions from (or available for distribution
from) the project.
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out this paragraph, including
regulations to prevent the manipulation of the amount
determined under the preceding sentence.
(G) Adjusted investor equity
(i) In general
For purposes of subparagraph (E), the term "adjusted
investor equity" means, with respect to any calendar year,
the aggregate amount of cash taxpayers invested with respect
to the project increased by the amount equal to -
(I) such amount, multiplied by
(II) the cost-of-living adjustment for such calendar
year, determined under section 1(f)(3) by substituting the
base calendar year for "calendar year 1987".
An amount shall be taken into account as an investment in the
project only to the extent there was an obligation to invest
such amount as of the beginning of the credit period and to
the extent such amount is reflected in the adjusted basis of
the project.
(ii) Cost-of-living increases in excess of 5 percent not
taken into account
Under regulations prescribed by the Secretary, if the CPI
for any calendar year (as defined in section 1(f)(4)) exceeds
the CPI for the preceding calendar year by more than 5
percent, the CPI for the base calendar year shall be
increased such that such excess shall never be taken into
account under clause (i).
(iii) Base calendar year
For purposes of this subparagraph, the term "base calendar
year" means the calendar year with or within which the 1st
taxable year of the credit period ends.
(H) Low-income portion
For purposes of this paragraph, the low-income portion of a
building is the portion of such building equal to the
applicable fraction specified in the extended low-income
housing commitment for the building.
(I) Period for finding buyer
The period referred to in this subparagraph is the 1-year
period beginning on the date (after the 14th year of the
compliance period) the taxpayer submits a written request to
the housing credit agency to find a person to acquire the
taxpayer's interest in the low-income portion of the building.
(J) Effect of noncompliance
If, during a taxable year, there is a determination that an
extended low-income housing agreement was not in effect as of
the beginning of such year, such determination shall not apply
to any period before such year and subparagraph (A) shall be
applied without regard to such determination if the failure is
corrected within 1 year from the date of the determination.
(K) Projects which consist of more than 1 building
The application of this paragraph to projects which consist
of more than 1 building shall be made under regulations
prescribed by the Secretary.
(7) Special rules
(A) Building must be located within jurisdiction of credit
agency
A housing credit agency may allocate its aggregate housing
credit dollar amount only to buildings located in the
jurisdiction of the governmental unit of which such agency is a
part.
(B) Agency allocations in excess of limit
If the aggregate housing credit dollar amounts allocated by a
housing credit agency for any calendar year exceed the portion
of the State housing credit ceiling allocated to such agency
for such calendar year, the housing credit dollar amounts so
allocated shall be reduced (to the extent of such excess) for
buildings in the reverse of the order in which the allocations
of such amounts were made.
(C) Credit reduced if allocated credit dollar amount is less
than credit which would be allowable without regard to placed
in service convention, etc.
(i) In general
The amount of the credit determined under this section with
respect to any building shall not exceed the clause (ii)
percentage of the amount of the credit which would (but for
this subparagraph) be determined under this section with
respect to such building.
(ii) Determination of percentage
For purposes of clause (i), the clause (ii) percentage with
respect to any building is the percentage which -
(I) the housing credit dollar amount allocated to such
building bears to
(II) the credit amount determined in accordance with
clause (iii).
(iii) Determination of credit amount
The credit amount determined in accordance with this clause
is the amount of the credit which would (but for this
subparagraph) be determined under this section with respect
to the building if -
(I) this section were applied without regard to
paragraphs (2)(A) and (3)(B) of subsection (f), and
(II) subsection (f)(3)(A) were applied without regard to
"the percentage equal to 2/3 of".
(D) Housing credit agency to specify applicable percentage and
maximum qualified basis
In allocating a housing credit dollar amount to any building,
the housing credit agency shall specify the applicable
percentage and the maximum qualified basis which may be taken
into account under this section with respect to such building.
The applicable percentage and maximum qualified basis so
specified shall not exceed the applicable percentage and
qualified basis determined under this section without regard to
this subsection.
(8) Other definitions
For purposes of this subsection -
(A) Housing credit agency
The term "housing credit agency" means any agency authorized
to carry out this subsection.
(B) Possessions treated as States
The term "State" includes a possession of the United States.
(i) Definitions and special rules
For purposes of this section -
(1) Compliance period
The term "compliance period" means, with respect to any
building, the period of 15 taxable years beginning with the 1st
taxable year of the credit period with respect thereto.
(2) Determination of whether building is federally subsidized
(A) In general
Except as otherwise provided in this paragraph, for purposes
of subsection (b)(1), a new building shall be treated as
federally subsidized for any taxable year if, at any time
during such taxable year or any prior taxable year, there is or
was outstanding any obligation the interest on which is exempt
from tax under section 103, or any below market Federal loan,
the proceeds of which are or were used (directly or indirectly)
with respect to such building or the operation thereof.
(B) Election to reduce eligible basis by balance of loan or
proceeds of obligations
A loan or tax-exempt obligation shall not be taken into
account under subparagraph (A) if the taxpayer elects to
exclude from the eligible basis of the building for purposes of
subsection (d) -
(i) in the case of a loan, the principal amount of such
loan, and
(ii) in the case of a tax-exempt obligation, the proceeds
of such obligation.
(C) Special rule for subsidized construction financing
Subparagraph (A) shall not apply to any tax-exempt obligation
or below market Federal loan used to provide construction
financing for any building if -
(i) such obligation or loan (when issued or made)
identified the building for which the proceeds of such
obligation or loan would be used, and
(ii) such obligation is redeemed, and such loan is repaid,
before such building is placed in service.
(D) Below market Federal loan
For purposes of this paragraph, the term "below market
Federal loan" means any loan funded in whole or in part with
Federal funds if the interest rate payable on such loan is less
than the applicable Federal rate in effect under section
1274(d)(1) (as of the date on which the loan was made). Such
term shall not include any loan which would be a below market
Federal loan solely by reason of assistance provided under
section 106, 107, or 108 of the Housing and Community
Development Act of 1974 (as in effect on the date of the
enactment of this sentence).
(E) Buildings receiving HOME assistance or Native American
housing assistance
(i) In general
Assistance provided under the HOME Investment Partnerships
Act (as in effect on the date of the enactment of this
subparagraph) or the Native American Housing Assistance and
Self-Determination Act of 1996 (25 U.S.C. 4101 et seq.) (as
in effect on October 1, 1997) with respect to any building
shall not be taken into account under subparagraph (D) if 40
percent or more of the residential units in the building are
occupied by individuals whose income is 50 percent or less of
area median gross income. Subsection (d)(5)(C) shall not
apply to any building to which the preceding sentence
applies.
(ii) Special rule for certain high-cost housing areas
In the case of a building located in a city described in
section 142(d)(6), clause (i) shall be applied by
substituting "25 percent" for "40 percent".
(3) Low-income unit
(A) In general
The term "low-income unit" means any unit in a building if -
(i) such unit is rent-restricted (as defined in subsection
(g)(2)), and
(ii) the individuals occupying such unit meet the income
limitation applicable under subsection (g)(1) to the project
of which such building is a part.
(B) Exceptions
(i) In general
A unit shall not be treated as a low-income unit unless the
unit is suitable for occupancy and used other than on a
transient basis.
(ii) Suitability for occupancy
For purposes of clause (i), the suitability of a unit for
occupancy shall be determined under regulations prescribed by
the Secretary taking into account local health, safety, and
building codes.
(iii) Transitional housing for homeless
For purposes of clause (i), a unit shall be considered to
be used other than on a transient basis if the unit contains
sleeping accommodations and kitchen and bathroom facilities
and is located in a building -
(I) which is used exclusively to facilitate the
transition of homeless individuals (within the meaning of
section 103 of the McKinney-Vento Homeless Assistance Act
(42 U.S.C. 11302), as in effect on the date of the
enactment of this clause) to independent living within 24
months, and
(II) in which a governmental entity or qualified
nonprofit organization (as defined in subsection (h)(5))
provides such individuals with temporary housing and
supportive services designed to assist such individuals in
locating and retaining permanent housing.
(iv) Single-room occupancy units
For purposes of clause (i), a single-room occupancy unit
shall not be treated as used on a transient basis merely
because it is rented on a month-by-month basis.
(C) Special rule for buildings having 4 or fewer units
In the case of any building which has 4 or fewer residential
rental units, no unit in such building shall be treated as a
low-income unit if the units in such building are owned by -
(i) any individual who occupies a residential unit in such
building, or
(ii) any person who is related (as defined in subsection
(d)(2)(D)(iii)) to such individual.
(D) Certain students not to disqualify unit
A unit shall not fail to be treated as a low-income unit
merely because it is occupied -
(i) by an individual who is -
(I) a student and receiving assistance under title IV of
the Social Security Act, or
(II) enrolled in a job training program receiving
assistance under the Job Training Partnership Act or under
other similar Federal, State, or local laws, or
(ii) entirely by full-time students if such students are -
(I) single parents and their children and such parents
and children are not dependents (as defined in section 152,
determined without regard to subsections (b)(1), (b)(2),
and (d)(1)(B) thereof) of another individual, or
(II) married and file a joint return.
(E) Owner-occupied buildings having 4 or fewer units eligible
for credit where development plan
(i) In general
Subparagraph (C) shall not apply to the acquisition or
rehabilitation of a building pursuant to a development plan
of action sponsored by a State or local government or a
qualified nonprofit organization (as defined in subsection
(h)(5)(C)).
(ii) Limitation on credit
In the case of a building to which clause (i) applies, the
applicable fraction shall not exceed 80 percent of the unit
fraction.
(iii) Certain unrented units treated as owner-occupied
In the case of a building to which clause (i) applies, any
unit which is not rented for 90 days or more shall be treated
as occupied by the owner of the building as of the 1st day it
is not rented.
(4) New building
The term "new building" means a building the original use of
which begins with the taxpayer.
(5) Existing building
The term "existing building" means any building which is not a
new building.
(6) Application to estates and trusts
In the case of an estate or trust, the amount of the credit
determined under subsection (a) and any increase in tax under
subsection (j) shall be apportioned between the estate or trust
and the beneficiaries on the basis of the income of the estate or
trust allocable to each.
(7) Impact of tenant's right of 1st refusal to acquire property
(A) In general
No Federal income tax benefit shall fail to be allowable to
the taxpayer with respect to any qualified low-income building
merely by reason of a right of 1st refusal held by the tenants
(in cooperative form or otherwise) or resident management
corporation of such building or by a qualified nonprofit
organization (as defined in subsection (h)(5)(C)) or government
agency to purchase the property after the close of the
compliance period for a price which is not less than the
minimum purchase price determined under subparagraph (B).
(B) Minimum purchase price
For purposes of subparagraph (A), the minimum purchase price
under this subparagraph is an amount equal to the sum of -
(i) the principal amount of outstanding indebtedness
secured by the building (other than indebtedness incurred
within the 5-year period ending on the date of the sale to
the tenants), and
(ii) all Federal, State, and local taxes attributable to
such sale.
Except in the case of Federal income taxes, there shall not be
taken into account under clause (ii) any additional tax
attributable to the application of clause (ii).
(j) Recapture of credit
(1) In general
If -
(A) as of the close of any taxable year in the compliance
period, the amount of the qualified basis of any building with
respect to the taxpayer is less than
(B) the amount of such basis as of the close of the preceding
taxable year,
then the taxpayer's tax under this chapter for the taxable year
shall be increased by the credit recapture amount.
(2) Credit recapture amount
For purposes of paragraph (1), the credit recapture amount is
an amount equal to the sum of -
(A) the aggregate decrease in the credits allowed to the
taxpayer under section 38 for all prior taxable years which
would have resulted if the accelerated portion of the credit
allowable by reason of this section were not allowed for all
prior taxable years with respect to the excess of the amount
described in paragraph (1)(B) over the amount described in
paragraph (1)(A), plus
(B) interest at the overpayment rate established under
section 6621 on the amount determined under subparagraph (A)
for each prior taxable year for the period beginning on the due
date for filing the return for the prior taxable year involved.
No deduction shall be allowed under this chapter for interest
described in subparagraph (B).
(3) Accelerated portion of credit
For purposes of paragraph (2), the accelerated portion of the
credit for the prior taxable years with respect to any amount of
basis is the excess of -
(A) the aggregate credit allowed by reason of this section
(without regard to this subsection) for such years with respect
to such basis, over
(B) the aggregate credit which would be allowable by reason
of this section for such years with respect to such basis if
the aggregate credit which would (but for this subsection) have
been allowable for the entire compliance period were allowable
ratably over 15 years.
(4) Special rules
(A) Tax benefit rule
The tax for the taxable year shall be increased under
paragraph (1) only with respect to credits allowed by reason of
this section which were used to reduce tax liability. In the
case of credits not so used to reduce tax liability, the
carryforwards and carrybacks under section 39 shall be
appropriately adjusted.
(B) Only basis for which credit allowed taken into account
Qualified basis shall be taken into account under paragraph
(1)(B) only to the extent such basis was taken into account in
determining the credit under subsection (a) for the preceding
taxable year referred to in such paragraph.
(C) No recapture of additional credit allowable by reason of
subsection (f)(3)
Paragraph (1) shall apply to a decrease in qualified basis
only to the extent such decrease exceeds the amount of
qualified basis with respect to which a credit was allowable
for the taxable year referred to in paragraph (1)(B) by reason
of subsection (f)(3).
(D) No credits against tax
Any increase in tax under this subsection shall not be
treated as a tax imposed by this chapter for purposes of
determining the amount of any credit under this chapter.
(E) No recapture by reason of casualty loss
The increase in tax under this subsection shall not apply to
a reduction in qualified basis by reason of a casualty loss to
the extent such loss is restored by reconstruction or
replacement within a reasonable period established by the
Secretary.
(F) No recapture where de minimis changes in floor space
The Secretary may provide that the increase in tax under this
subsection shall not apply with respect to any building if -
(i) such increase results from a de minimis change in the
floor space fraction under subsection (c)(1), and
(ii) the building is a qualified low-income building after
such change.
(5) Certain partnerships treated as the taxpayer
(A) In general
For purposes of applying this subsection to a partnership to
which this paragraph applies -
(i) such partnership shall be treated as the taxpayer to
which the credit allowable under subsection (a) was allowed,
(ii) the amount of such credit allowed shall be treated as
the amount which would have been allowed to the partnership
were such credit allowable to such partnership,
(iii) paragraph (4)(A) shall not apply, and
(iv) the amount of the increase in tax under this
subsection for any taxable year shall be allocated among the
partners of such partnership in the same manner as such
partnership's taxable income for such year is allocated among
such partners.
(B) Partnerships to which paragraph applies
This paragraph shall apply to any partnership which has 35 or
more partners unless the partnership elects not to have this
paragraph apply.
(C) Special rules
(i) Husband and wife treated as 1 partner
For purposes of subparagraph (B)(i), a husband and wife
(and their estates) shall be treated as 1 partner.
(ii) Election irrevocable
Any election under subparagraph (B), once made, shall be
irrevocable.
(6) No recapture on disposition of building (or interest therein)
where bond posted
In the case of a disposition of a building or an interest
therein, the taxpayer shall be discharged from liability for any
additional tax under this subsection by reason of such
disposition if -
(A) the taxpayer furnishes to the Secretary a bond in an
amount satifactory (!5) to the Secretary and for the period
required by the Secretary, and
(B) it is reasonably expected that such building will
continue to be operated as a qualified low-income building for
the remaining compliance period with respect to such building.
(k) Application of at-risk rules
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, rules similar
to the rules of section 49(a)(1) (other than subparagraphs
(D)(ii)(II) and (D)(iv)(I) thereof), section 49(a)(2), and
section 49(b)(1) shall apply in determining the qualified basis
of any building in the same manner as such sections apply in
determining the credit base of property.
(2) Special rules for determining qualified person
For purposes of paragraph (1) -
(A) In general
If the requirements of subparagraphs (B), (C), and (D) are
met with respect to any financing borrowed from a qualified
nonprofit organization (as defined in subsection (h)(5)), the
determination of whether such financing is qualified commercial
financing with respect to any qualified low-income building
shall be made without regard to whether such organization -
(i) is actively and regularly engaged in the business of
lending money, or
(ii) is a person described in section 49(a)(1)(D)(iv)(II).
(B) Financing secured by property
The requirements of this subparagraph are met with respect to
any financing if such financing is secured by the qualified low-
income building, except that this subparagraph shall not apply
in the case of a federally assisted building described in
subsection (d)(6)(B) if -
(i) a security interest in such building is not permitted
by a Federal agency holding or insuring the mortgage secured
by such building, and
(ii) the proceeds from the financing (if any) are applied
to acquire or improve such building..(!6)
(C) Portion of building attributable to financing
The requirements of this subparagraph are met with respect to
any financing for any taxable year in the compliance period if,
as of the close of such taxable year, not more than 60 percent
of the eligible basis of the qualified low-income building is
attributable to such financing (reduced by the principal and
interest of any governmental financing which is part of a wrap-
around mortgage involving such financing).
(D) Repayment of principal and interest
The requirements of this subparagraph are met with respect to
any financing if such financing is fully repaid on or before
the earliest of -
(i) the date on which such financing matures,
(ii) the 90th day after the close of the compliance period
with respect to the qualified low-income building, or
(iii) the date of its refinancing or the sale of the
building to which such financing relates.
In the case of a qualified nonprofit organization which is not
described in section 49(a)(1)(D)(iv)(II) with respect to a
building, clause (ii) of this subparagraph shall be applied as
if the date described therein were the 90th day after the
earlier of the date the building ceases to be a qualified low-
income building or the date which is 15 years after the close
of a compliance period with respect thereto.
(3) Present value of financing
If the rate of interest on any financing described in paragraph
(2)(A) is less than the rate which is 1 percentage point below
the applicable Federal rate as of the time such financing is
incurred, then the qualified basis (to which such financing
relates) of the qualified low-income building shall be the
present value of the amount of such financing, using as the
discount rate such applicable Federal rate. For purposes of the
preceding sentence, the rate of interest on any financing shall
be determined by treating interest to the extent of government
subsidies as not payable.
(4) Failure to fully repay
(A) In general
To the extent that the requirements of paragraph (2)(D) are
not met, then the taxpayer's tax under this chapter for the
taxable year in which such failure occurs shall be increased by
an amount equal to the applicable portion of the credit under
this section with respect to such building, increased by an
amount of interest for the period -
(i) beginning with the due date for the filing of the
return of tax imposed by chapter 1 for the 1st taxable year
for which such credit was allowable, and
(ii) ending with the due date for the taxable year in which
such failure occurs,
determined by using the underpayment rate and method under
section 6621.
(B) Applicable portion
For purposes of subparagraph (A), the term "applicable
portion" means the aggregate decrease in the credits allowed to
a taxpayer under section 38 for all prior taxable years which
would have resulted if the eligible basis of the building were
reduced by the amount of financing which does not meet
requirements of paragraph (2)(D).
(C) Certain rules to apply
Rules similar to the rules of subparagraphs (A) and (D) of
subsection (j)(4) shall apply for purposes of this subsection.
(l) Certifications and other reports to Secretary
(1) Certification with respect to 1st year of credit period
Following the close of the 1st taxable year in the credit
period with respect to any qualified low-income building, the
taxpayer shall certify to the Secretary (at such time and in such
form and in such manner as the Secretary prescribes) -
(A) the taxable year, and calendar year, in which such
building was placed in service,
(B) the adjusted basis and eligible basis of such building as
of the close of the 1st year of the credit period,
(C) the maximum applicable percentage and qualified basis
permitted to be taken into account by the appropriate housing
credit agency under subsection (h),
(D) the election made under subsection (g) with respect to
the qualified low-income housing project of which such building
is a part, and
(E) such other information as the Secretary may require.
In the case of a failure to make the certification required by
the preceding sentence on the date prescribed therefor, unless it
is shown that such failure is due to reasonable cause and not to
willful neglect, no credit shall be allowable by reason of
subsection (a) with respect to such building for any taxable year
ending before such certification is made.
(2) Annual reports to the Secretary
The Secretary may require taxpayers to submit an information
return (at such time and in such form and manner as the Secretary
prescribes) for each taxable year setting forth -
(A) the qualified basis for the taxable year of each
qualified low-income building of the taxpayer,
(B) the information described in paragraph (1)(C) for the
taxable year, and
(C) such other information as the Secretary may require.
The penalty under section 6652(j) shall apply to any failure to
submit the return required by the Secretary under the preceding
sentence on the date prescribed therefor.
(3) Annual reports from housing credit agencies
Each agency which allocates any housing credit amount to any
building for any calendar year shall submit to the Secretary (at
such time and in such manner as the Secretary shall prescribe) an
annual report specifying -
(A) the amount of housing credit amount allocated to each
building for such year,
(B) sufficient information to identify each such building and
the taxpayer with respect thereto, and
(C) such other information as the Secretary may require.
The penalty under section 6652(j) shall apply to any failure to
submit the report required by the preceding sentence on the date
prescribed therefor.
(m) Responsibilities of housing credit agencies
(1) Plans for allocation of credit among projects
(A) In general
Notwithstanding any other provision of this section, the
housing credit dollar amount with respect to any building shall
be zero unless -
(i) such amount was allocated pursuant to a qualified
allocation plan of the housing credit agency which is
approved by the governmental unit (in accordance with rules
similar to the rules of section 147(f)(2) (other than
subparagraph (B)(ii) thereof)) of which such agency is a
part,
(ii) such agency notifies the chief executive officer (or
the equivalent) of the local jurisdiction within which the
building is located of such project and provides such
individual a reasonable opportunity to comment on the
project,
(iii) a comprehensive market study of the housing needs of
low-income individuals in the area to be served by the
project is conducted before the credit allocation is made and
at the developer's expense by a disinterested party who is
approved by such agency, and
(iv) a written explanation is available to the general
public for any allocation of a housing credit dollar amount
which is not made in accordance with established priorities
and selection criteria of the housing credit agency.
(B) Qualified allocation plan
For purposes of this paragraph, the term "qualified
allocation plan" means any plan -
(i) which sets forth selection criteria to be used to
determine housing priorities of the housing credit agency
which are appropriate to local conditions,
(ii) which also gives preference in allocating housing
credit dollar amounts among selected projects to -
(I) projects serving the lowest income tenants,
(II) projects obligated to serve qualified tenants for
the longest periods, and
(III) projects which are located in qualified census
tracts (as defined in subsection (d)(5)(C)) and the
development of which contributes to a concerted community
revitalization plan, and
(iii) which provides a procedure that the agency (or an
agent or other private contractor of such agency) will follow
in monitoring for noncompliance with the provisions of this
section and in notifying the Internal Revenue Service of such
noncompliance which such agency becomes aware of and in
monitoring for noncompliance with habitability standards
through regular site visits.
(C) Certain selection criteria must be used
The selection criteria set forth in a qualified allocation
plan must include
(i) project location,
(ii) housing needs characteristics,
(iii) project characteristics, including whether the
project includes the use of existing housing as part of a
community revitalization plan,
(iv) sponsor characteristics,
(v) tenant populations with special housing needs,
(vi) public housing waiting lists,
(vii) tenant populations of individuals with children, and
(viii) projects intended for eventual tenant ownership.
(D) Application to bond financed projects
Subsection (h)(4) shall not apply to any project unless the
project satisfies the requirements for allocation of a housing
credit dollar amount under the qualified allocation plan
applicable to the area in which the project is located.
(2) Credit allocated to building not to exceed amount necessary
to assure project feasibility
(A) In general
The housing credit dollar amount allocated to a project shall
not exceed the amount the housing credit agency determines is
necessary for the financial feasibility of the project and its
viability as a qualified low-income housing project throughout
the credit period.
(B) Agency evaluation
In making the determination under subparagraph (A), the
housing credit agency shall consider -
(i) the sources and uses of funds and the total financing
planned for the project,
(ii) any proceeds or receipts expected to be generated by
reason of tax benefits,
(iii) the percentage of the housing credit dollar amount
used for project costs other than the cost of intermediaries,
and
(iv) the reasonableness of the developmental and
operational costs of the project.
Clause (iii) shall not be applied so as to impede the
development of projects in hard-to-develop areas. Such a
determination shall not be construed to be a representation or
warranty as to the feasibility or viability of the project.
(C) Determination made when credit amount applied for and when
building placed in service
(i) In general
A determination under subparagraph (A) shall be made as of
each of the following times:
(I) The application for the housing credit dollar amount.
(II) The allocation of the housing credit dollar amount.
(III) The date the building is placed in service.
(ii) Certification as to amount of other subsidies
Prior to each determination under clause (i), the taxpayer
shall certify to the housing credit agency the full extent of
all Federal, State, and local subsidies which apply (or which
the taxpayer expects to apply) with respect to the building.
(D) Application to bond financed projects
Subsection (h)(4) shall not apply to any project unless the
governmental unit which issued the bonds (or on behalf of which
the bonds were issued) makes a determination under rules
similar to the rules of subparagraphs (A) and (B).
(n) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations -
(1) dealing with -
(A) projects which include more than 1 building or only a
portion of a building,
(B) buildings which are placed in service in portions,
(2) providing for the application of this section to short
taxable years,
(3) preventing the avoidance of the rules of this section, and
(4) providing the opportunity for housing credit agencies to
correct administrative errors and omissions with respect to
allocations and record keeping within a reasonable period after
their discovery, taking into account the availability of
regulations and other administrative guidance from the Secretary.
-SOURCE-
(Added Pub. L. 99-514, title II, Sec. 252(a), Oct. 22, 1986, 100
Stat. 2189; amended Pub. L. 99-509, title VIII, Sec. 8072(a), Oct.
21, 1986, 100 Stat. 1964; Pub. L. 100-647, title I, Secs.
1002(l)(1)-(25), (32), 1007(g)(3)(B), title IV, Secs. 4003(a),
(b)(1), (3), 4004(a), Nov. 10, 1988, 102 Stat. 3373-3381, 3435,
3643, 3644; Pub. L. 101-239, title VII, Secs. 7108(a)(1), (b)-
(e)(2), (f)-(m), (n)(2)-(q), 7811(a), 7831(c), 7841(d)(13)-(15),
Dec. 19, 1989, 103 Stat. 2306-2321, 2406, 2426, 2429; Pub. L. 101-
508, title XI, Secs. 11407(a)(1), (b)(1)-(9), 11701(a)(1)-(3)(A),
(4), (5)(A), (6)-(10), 11812(b)(3), 11813(b)(3), Nov. 5, 1990, 104
Stat. 1388-474, 1388-475, 1388-505 to 1388-507, 1388-535, 1388-551;
Pub. L. 102-227, title I, Sec. 107(a), Dec. 11, 1991, 105 Stat.
1687; Pub. L. 103-66, title XIII, Sec. 13142(a)(1), (b)(1)-(5),
Aug. 10, 1993, 107 Stat. 437-439; Pub. L. 104-188, title I, Sec.
1704(t)(53), (64), Aug. 20, 1996, 110 Stat. 1890; Pub. L. 105-206,
title VI, Sec. 6004(g)(5), July 22, 1998, 112 Stat. 796; Pub. L.
106-400, Sec. 2, Oct. 30, 2000, 114 Stat. 1675; Pub. L. 106-554,
Sec. 1(a)(7) [title I, Secs. 131(a)-(c), 132-136], Dec. 21, 2000,
114 Stat. 2763, 2763A-610 to 2763A-613; Pub. L. 107-147, title IV,
Sec. 417(2), (3), Mar. 9, 2002, 116 Stat. 56; Pub. L. 108-311,
title II, Sec. 207(8), title IV, Sec. 408(a)(3), Oct. 4, 2004, 118
Stat. 1177, 1191.)
-STATAMEND-
LOW-INCOME HOUSING CREDIT ADJUSTMENT FOR CALENDAR YEAR 2006
For inflation adjustment of amounts in subsection (h)(3)(C)(ii)
of this section used to calculate the State housing credit ceiling
for low-income housing credit for calendar year 2006, see section
3.07 of Revenue Procedure 2005-70, set out as a note under section
1 of this title.
-REFTEXT-
REFERENCES IN TEXT
Section 8 of the United States Housing Act of 1937, referred to
in subsecs. (c)(2), (d)(6)(B)(i), (g)(2)(B), and (h)(6)(B)(iv), is
classified to section 1437f of Title 42, The Public Health and
Welfare. Section 8(e)(2) of the Act was repealed by Pub. L. 101-
625, title II, Sec. 289(b)(1), Nov. 28, 1990, 104 Stat. 4128,
effective Oct. 1, 1991, but to remain in effect with respect to
single room occupancy dwellings as authorized by subchapter IV
(Sec. 11361 et seq.) of chapter 119 of Title 42. See section
12839(b) of Title 42.
The McKinney-Vento Homeless Assistance Act, referred to in
subsec. (c)(2), is Pub. L. 100-77, July 22, 1987, 101 Stat. 482, as
amended, which is classified principally to chapter 119 (Sec. 11301
et seq.) of Title 42, The Public Health and Welfare. For complete
classification of this Act to the Code, see Short Title note set
out under section 11301 of Title 42 and Tables.
The date of the enactment of this sentence, referred to in
subsec. (c)(2), is the date of the enactment of Pub. L. 101-508,
which was approved Nov. 5, 1990.
Section 201(a) of the Tax Reform Act of 1986, referred to in
subsec. (c)(2)(B), is section 201(a) of Pub. L. 99-514, which
amended section 168 of this title generally.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (d)(2)(D)(i)(I), (6)(B), is the date of enactment of
Pub. L. 99-514, which was approved Oct. 22, 1986.
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsec. (d)(2)(D)(i)(I), (5)(B), is the date
of the enactment of Pub. L. 101-508, which was approved Nov. 5,
1990.
Sections 221(d)(3) and 236 of the National Housing Act, referred
to in subsec. (d)(6)(B)(ii), are classified to sections 1715l(d)(3)
and 1715z-1, respectively, of Title 12, Banks and Banking.
Sections 515 and 502(c) of the Housing Act of 1949, referred to
in subsecs. (d)(6)(B)(iii), (C)(i) and (g)(2)(B)(iv), are
classified to sections 1485 and 1472(c), respectively, of Title 42,
The Public Health and Welfare.
The Emergency Low Income Housing Preservation Act of 1987,
referred to in subsec. (d)(6)(C)(i), now the Low-Income Housing
Preservation and Resident Homeownership Act of 1990, is title II of
Pub. L. 100-242, Feb. 5, 1988, 101 Stat. 1877, as amended. Subtitle
B of title II, which was formerly set out as a note under section
1715l of Title 12, Banks and Banking, and which amended section
1715z-6 of Title 12, was amended generally by Pub. L. 101-625 and
is classified to chapter 42 (Sec. 4101 et seq.) of Title 12. For
complete classification of this Act to the Code, see Short Title
note set out under section 4101 of Title 12 and Tables.
Section 3 of the Federal Deposit Insurance Act, referred to in
subsec. (d)(6)(D), is classified to section 1813 of Title 12.
The date of the enactment of this subparagraph, referred to in
subsec. (g)(2)(E), is the date of enactment of Pub. L. 100-647,
which was approved Nov. 10, 1988.
Sections 106, 107, and 108 of the Housing and Community
Development Act of 1974 (as in effect on the date of the enactment
of this sentence), referred to in subsec. (i)(2)(D), are classified
to sections 5306, 5307, and 5308 of Title 42, The Public Health and
Welfare, as in effect on the date of enactment of Pub. L. 101-239,
which was approved Dec. 19, 1989.
The HOME Investment Partnerships Act (as in effect on the date of
the enactment of this subparagraph), referred to in subsec.
(i)(2)(E)(i), is title II of Pub. L. 101-625, Nov. 28, 1990, 104
Stat. 4094, as in effect on the date of enactment of Pub. L. 103-
66, which was approved Aug. 10, 1993. Title II of Pub. L. 101-625
is classified principally to subchapter II (Sec. 12721 et seq.) of
chapter 130 of Title 42. For complete classification of this Act to
the Code, see Short Title note set out under section 12701 of Title
42 and Tables.
The Native American Housing Assistance and Self-Determination Act
of 1996, referred to in subsec. (i)(2)(E)(i), is Pub. L. 104-330,
Oct. 26, 1996, 110 Stat. 4016, as amended, which is classified
principally to chapter 43 (Sec. 4101 et seq.) of Title 25, Indians.
For complete classification of this Act to the Code, see Short
Title note set out under section 4101 of Title 25 and Tables.
The date of the enactment of this clause, referred to in subsec.
(i)(3)(B)(iii)(I), is date of enactment of Pub. L. 101-239, which
was approved Dec. 19, 1989.
The Social Security Act, referred to in subsec. (i)(3)(D)(i)(I),
is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Title IV
of the Act is classified generally to subchapter IV (Sec. 601 et
seq.) of chapter 7 of Title 42, The Public Health and Welfare. For
complete classification of this Act to the Code, see section 1305
of Title 42 and Tables.
The Job Training Partnership Act, referred to in subsec.
(i)(3)(D)(i)(II), is Pub. L. 97-300, Oct. 13, 1982, 96 Stat. 1322,
which was classified generally to chapter 19 (Sec. 1501 et seq.) of
Title 29, Labor, and was repealed by Pub. L. 105-220, title I, Sec.
199(b)(2), (c)(2)(B), Aug. 7, 1998, 112 Stat. 1059, effective July
1, 2000. Pursuant to section 2940(b) of Title 29, references to a
provision of the Job Training Partnership Act, effective Aug. 7,
1998, are deemed to refer to that provision or the corresponding
provision of the Workforce Investment Act of 1998, Pub. L. 105-220,
Aug. 7, 1998, 112 Stat. 936, and effective July 1, 2000, are deemed
to refer to the corresponding provision of the Workforce Investment
Act of 1998. For complete classification of the Job Training
Partnership Act to the Code, see Tables. For complete
classification of the Workforce Investment Act of 1998 to the Code,
see Short Title note set out under section 9201 of Title 20,
Education, and Tables.
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PRIOR PROVISIONS
A prior section 42, added Pub. L. 94-12, title II, Sec. 203(a),
Mar. 29, 1975, 89 Stat. 29; amended Pub. L. 94-164, Sec. 3(a)(1),
Dec. 23, 1975, 89 Stat. 972; Pub. L. 94-455, title IV, Sec.
401(a)(2)(A), (B), title V, Sec. 503(b)(4), title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1555, 1562, 1834; Pub. L. 95-
30, title I, Sec. 101(c), May 23, 1977, 91 Stat. 132, which
related to general tax credit allowed to individuals in an amount
equal to the greater of (1) 2% of taxable income not exceeding
$9,000 or (2) $35 multiplied by each exemption the taxpayer was
entitled to, expired Dec. 31, 1978, pursuant to the terms of: (1)
Pub. L. 94-12, Sec. 209(a) as amended by Pub. L. 94-164, Sec. 2(e),
set out as an Effective and Termination Dates of 1975 Amendment
note under section 56 of this title; (2) Pub. L. 94-164, Sec. 3(b),
as amended by Pub. L. 94-455, Sec. 401(a)(1) and Pub. L. 95-30,
Sec. 103(a); and (3) Pub. L. 94-455, Sec. 401(e), as amended by
Pub. L. 95-30, Sec. 103(c) and Pub. L. 95-600, title I, Sec.
103(b), Nov. 6, 1978, 92 Stat. 2771, set out as an Effective and
Termination Dates of 1976 Amendment note under section 32 of this
title.
Another prior section 42 was renumbered section 36 of this title.
AMENDMENTS
2004 - Subsec. (d)(2)(D)(iii)(I). Pub. L. 108-311, Sec.
408(a)(3), substituted "section 179(d)(7)" for "section 179(b)(7)".
Subsec. (i)(3)(D)(ii)(I). Pub. L. 108-311, Sec. 207(8), inserted
", determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof" after "section 152".
2002 - Subsec. (h)(3)(C). Pub. L. 107-147, Sec. 417(2),
substituted "the amounts described in clauses (ii) through (iv)
over the aggregate housing credit dollar amount allocated for such
year" for "the amounts described in clauses (ii) and (iii) over the
aggregate housing credit dollar amount allocated for such year" in
concluding provisions.
Subsec. (m)(1)(B)(ii)(II), (III). Pub. L. 107-147, Sec. 417(3),
struck out second "and" at end of subcl. (II) and inserted "and" at
end of subcl. (III).
2000 - Subsec. (c)(2). Pub. L. 106-400 substituted "McKinney-
Vento Homeless Assistance Act" for "Stewart B. McKinney Homeless
Assistance Act" in concluding provisions.
Subsec. (d)(4)(A). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
134(a)(1)], substituted "subparagraphs (B) and (C)" for
"subparagraph (B)".
Subsec. (d)(4)(C), (D). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 134(a)(2), (3)], added subpar. (C) and redesignated former
subpar. (C) as (D).
Subsec. (d)(5)(C)(ii)(I). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 135(b)], in first sentence, inserted "either" before "in which
50 percent" and "or which has a poverty rate of at least 25
percent" before period at end.
Subsec. (h)(1)(E)(ii). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 135(a)(1)], in first sentence, substituted "(as of the later
of the date which is 6 months after the date that the allocation
was made or the close of the calendar year in which the allocation"
for "(as of the close of the calendar year in which the
allocation".
Subsec. (h)(3)(C). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
136(b)], which directed the substitution of "clauses (i) through
(iv)" for "clauses (i) and (iii)" in the first sentence of
concluding provisions, could not be executed because the words
"clauses (i) and (iii)" did not appear subsequent to the amendment
by Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 131(c)(1)(B)]. See
below.
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 135(a)(2)], in last
sentence of concluding provisions, substituted "project which fails
to meet the 10 percent test under paragraph (1)(E)(ii) on a date
after the close of the calendar year in which the allocation was
made or which" for "project which".
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 131(c)(1)], in first
sentence of concluding provisions, substituted "clause (i)" for
"clause (ii)" and "clauses (ii)" for "clauses (i)".
Subsec. (h)(3)(C)(i), (ii). Pub. L. 106-554, Sec. 1(a)(7) [title
I, Sec. 131(a)], amended cls. (i) and (ii) generally. Prior to
amendment, cls. (i) and (ii) read as follows:
"(i) $1.25 multiplied by the State population,
"(ii) the unused State housing credit ceiling (if any) of such
State for the preceding calendar year,".
Subsec. (h)(3)(D)(ii). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 136(a)], substituted "the excess (if any) of - " for "the
excess (if any) of the unused State housing credit ceiling for such
year (as defined in subparagraph (C)(i)) over the excess (if any)
of - " in introductory provisions, added subcls. (I) and (II), and
struck out former subcls. (I) and (II) which read as follows:
"(I) the aggregate housing credit dollar amount allocated for
such year, over
"(II) the sum of the amounts described in clauses (ii) and (iii)
of subparagraph (C)."
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 131(c)(2)],
substituted "subparagraph (C)(i)" for "subparagraph (C)(ii)" in
introductory provisions and "clauses (ii)" for "clauses (i)" in
subcl. (II).
Subsec. (h)(3)(H). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
131(b)], added subpar. (H).
Subsec. (i)(2)(E). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
134(b)(2)], inserted "or Native American housing assistance" after
"HOME assistance" in heading.
Subsec. (i)(2)(E)(i). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 134(b)(1)], inserted "or the Native American Housing
Assistance and Self-Determination Act of 1996 (25 U.S.C. 4101 et
seq.) (as in effect on October 1, 1997)" after "this
subparagraph)".
Subsec. (i)(3)(B)(iii)(I). Pub. L. 106-400 substituted "McKinney-
Vento Homeless Assistance Act" for "Stewart B. McKinney Homeless
Assistance Act".
Subsec. (m)(1)(A)(iii), (iv). Pub. L. 106-554, Sec. 1(a)(7)
[title I, Sec. 133(a)], added cls. (iii) and (iv).
Subsec. (m)(1)(B)(ii)(III). Pub. L. 106-554, Sec. 1(a)(7) [title
I, Sec. 132(b)], added subcl. (III).
Subsec. (m)(1)(B)(iii). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 133(b)], inserted "and in monitoring for noncompliance with
habitability standards through regular site visits" before period
at end.
Subsec. (m)(1)(C)(iii). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 132(a)(1)], inserted ", including whether the project includes
the use of existing housing as part of a community revitalization
plan" before comma at end.
Subsec. (m)(1)(C)(v) to (viii). Pub. L. 106-554, Sec. 1(a)(7)
[title I, Sec. 132(a)(2)], added cls. (v) to (viii) and struck out
former cls. (v) to (vii) which read as follows:
"(v) participation of local tax-exempt organizations,
"(vi) tenant populations with special housing needs, and
"(vii) public housing waiting lists."
1998 - Subsec. (j)(4)(D). Pub. L. 105-206 substituted "this
chapter" for "subpart A, B, D, or G of this part".
1996 - Subsec. (c)(2). Pub. L. 104-188, Sec. 1704(t)(64), struck
out "of 1988" after "Homeless Assistance Act".
Subsec. (d)(5)(B). Pub. L. 104-188, Sec. 1704(t)(53), provided
that section 11812(b)(3) of Pub. L. 101-508 shall be applied by not
executing the amendment therein to the heading of subsec. (d)(5)(B)
of this section. See 1990 Amendment note below.
1993 - Subsec. (g)(8). Pub. L. 103-66, Sec. 13142(b)(3), added
par. (8).
Subsec. (h)(6)(B)(iv) to (vi). Pub. L. 103-66, Sec. 13142(b)(4),
added cl. (iv) and redesignated former cls. (iv) and (v) as (v) and
(vi), respectively.
Subsec. (i)(2)(E). Pub. L. 103-66, Sec. 13142(b)(5), added
subpar. (E).
Subsec. (i)(3)(D). Pub. L. 103-66, Sec. 13142(b)(2), amended
heading and text of subpar. (D) generally. Prior to amendment, text
read as follows: "A unit shall not fail to be treated as a low-
income unit merely because it is occupied by an individual who is -
"(i) a student and receiving assistance under title IV of the
Social Security Act, or
"(ii) enrolled in a job training program receiving assistance
under the Job Training Partnership Act or under other similar
Federal, State, or local laws."
Subsec. (m)(2)(B)(iv). Pub. L. 103-66, Sec. 13142(b)(1), added
cl. (iv).
Subsec. (o). Pub. L. 103-66, Sec. 13142(a)(1), struck out subsec.
(o) which provided that subsec. (h)(3)(C)(i) would not apply to any
amount allocated after June 30, 1992, and that subsec. (h)(4) would
not apply to any building placed in service after June 30, 1992,
with an exception for bond-financed buildings in progress.
1991 - Subsec. (o)(1). Pub. L. 102-227, Sec. 107(a)(1), struck
out ", for any calendar year after 1991" after "paragraph (2)" in
introductory provisions, inserted "to any amount allocated after
June 30, 1992" before comma at end of subpar. (A), and substituted
"June 30, 1992" for "1991" in subpar. (B).
Subsec. (o)(2). Pub. L. 102-227, Sec. 107(a)(2), substituted
"July 1, 1992" for "1992" in introductory provisions and subpar.
(A), "June 30, 1992" for "December 31, 1991" and "June 30, 1994"
for "December 31, 1993" in subpar. (B), and "July 1, 1994" for
"January 1, 1994" in subpar. (C).
1990 - Subsec. (b)(1). Pub. L. 101-508, Sec. 11701(a)(1)(B),
struck out at end "A building shall not be treated as described in
subparagraph (B) if, at any time during the credit period, moderate
rehabilitation assistance is provided with respect to such building
under section 8(e)(2) of the United States Housing Act of 1937."
Subsec. (c)(2). Pub. L. 101-508, Sec. 11701(a)(1)(A), inserted at
end "Such term does not include any building with respect to which
moderate rehabilitation assistance is provided, at any time during
the compliance period, under section 8(e)(2) of the United States
Housing Act of 1937."
Pub. L. 101-508, Sec. 11407(b)(5)(A), inserted before period at
end of last sentence "(other than assistance under the Stewart B.
McKinney Homeless Assistance Act of 1988 (as in effect on the date
of the enactment of this sentence))".
Subsec. (d)(2)(D)(i)(I). Pub. L. 101-508, Sec. 11812(b)(3),
inserted "(as in effect on the day before the date of the enactment
of the Revenue Reconciliation Act of 1990)" after "section 167(k)."
Subsec. (d)(2)(D)(ii)(V). Pub. L. 101-508, Sec. 11407(b)(8),
added subcl. (V).
Subsec. (d)(5)(B). Pub. L. 101-508, Sec. 11812(b)(3), which
directed the insertion of "(as in effect on the day before the date
of the enactment of the Revenue Reconciliation Act of 1990)" after
"section 167(k)", was executed to the text, and not the heading, of
subpar. (B). See 1996 Amendment note above.
Subsec. (d)(5)(C)(ii)(I). Pub. L. 101-508, Sec. 11407(b)(4),
inserted at end "If the Secretary of Housing and Urban Development
determines that sufficient data for any period are not available to
apply this clause on the basis of census tracts, such Secretary
shall apply this clause for such period on the basis of enumeration
districts."
Pub. L. 101-508, Sec. 11701(a)(2)(B), inserted before period at
end "for such year".
Pub. L. 101-508, Sec. 11701(a)(2)(A), which directed the
insertion of "which is designated by the Secretary of Housing and
Urban Development and, for the most recent year for which census
data are available on household income in such tract," after
"census tract", was executed by making the insertion after "any
census tract" to reflect the probable intent of Congress.
Subsec. (g)(2)(B)(iv). Pub. L. 101-508, Sec. 11407(b)(3), added
cl. (iv).
Subsec. (g)(2)(D)(i). Pub. L. 101-508, Sec. 11701(a)(3)(A),
inserted before period at end "and such unit continues to be rent-
restricted".
Subsec. (g)(2)(D)(ii). Pub. L. 101-508, Sec. 11701(a)(4),
inserted at end "In the case of a project described in section
142(d)(4)(B), the preceding sentence shall be applied by
substituting '170 percent' for '140 percent' and by substituting
'any low-income unit in the building is occupied by a new resident
whose income exceeds 40 percent of area median gross income' for
'any residential unit in the building (of a size comparable to, or
smaller than, such unit) is occupied by a new resident whose income
exceeds such income limitation'."
Subsec. (g)(3)(A). Pub. L. 101-508, Sec. 11701(a)(5)(A),
substituted "the 1st year of the credit period for such building"
for "the 12-month period beginning on the date the building is
placed in service".
Subsec. (h)(3)(C). Pub. L. 101-508, Sec. 11701(a)(6)(A),
substituted "the sum of the amounts described in clauses (i) and
(iii)" for "the amount described in clause (i)" in second sentence.
Subsec. (h)(3)(D)(ii)(II). Pub. L. 101-508, Sec. 11701(a)(6)(B),
substituted "the sum of the amounts described in clauses (i) and
(iii)" for "the amount described in clause (i)".
Subsec. (h)(5)(B). Pub. L. 101-508, Sec. 11407(b)(9)(A), inserted
"own an interest in the project (directly or through a partnership)
and" after "nonprofit organization is to".
Subsec. (h)(5)(C)(i) to (iii). Pub. L. 101-508, Sec.
11407(b)(9)(B), added cl. (ii) and redesignated former cl. (ii) as
(iii).
Subsec. (h)(5)(D)(i). Pub. L. 101-508, Sec. 11407(b)(9)(C),
inserted "ownership and" before "material participation".
Subsec. (h)(6)(B)(i). Pub. L. 101-508, Sec. 11701(a)(7)(A),
inserted before comma at end "and which prohibits the actions
described in subclauses (I) and (II) of subparagraph (E)(ii)".
Subsec. (h)(6)(B)(ii). Pub. L. 101-508, Sec. 11701(a)(7)(B),
substituted "requirement and prohibitions" for "requirement".
Subsec. (h)(6)(B)(iii) to (v). Pub. L. 101-508, Sec.
11701(a)(8)(A), added cl. (iii) and redesignated former cls. (iii)
and (iv) as (iv) and (v), respectively.
Subsec. (h)(6)(E)(i)(I). Pub. L. 101-508, Sec. 11701(a)(9),
inserted before comma "unless the Secretary determines that such
acquisition is part of an arrangement with the taxpayer a purpose
of which is to terminate such period".
Subsec. (h)(6)(E)(ii)(II). Pub. L. 101-508, Sec. 11701(a)(8)(C),
inserted before period at end "not otherwise permitted under this
section".
Subsec. (h)(6)(F). Pub. L. 101-508, Sec. 11701(a)(8)(D), inserted
"the nonlow-income portion of the building for fair market value
and" before "the low-income portion" in introductory provisions.
Subsec. (h)(6)(J) to (L). Pub. L. 101-508, Sec. 11701(a)(8)(B),
redesignated subpars. (K) and (L) as (J) and (K), respectively, and
struck out former subpar. (J) which related to sales of less than
the low-income portions of a building.
Subsec. (i)(3)(D). Pub. L. 101-508, Sec. 11407(b)(6), substituted
"Certain students" for "Students in government-supported job
training programs" in heading and amended text generally. Prior to
amendment, text read as follows: "A unit shall not fail to be
treated as a low-income unit merely because it is occupied by an
individual who is enrolled in a job training program receiving
assistance under the Job Training Partnership Act or under other
similar Federal, State, or local laws."
Subsec. (i)(7). Pub. L. 101-508, Sec. 11701(a)(10), redesignated
par. (8) as (7).
Subsec. (i)(7)(A). Pub. L. 101-508, Sec. 11407(b)(1), substituted
"the tenants (in cooperative form or otherwise) or resident
management corporation of such building or by a qualified nonprofit
organization (as defined in subsection (h)(5)(C)) or government
agency" for "the tenants of such building".
Subsec. (i)(8). Pub. L. 101-508, Sec. 11701(a)(10), redesignated
par. (8) as (7).
Subsec. (k)(1). Pub. L. 101-508, Sec. 11813(b)(3)(A), substituted
"49(a)(1)" for "46(c)(8)", "49(a)(2)" for "46(c)(9)", and
"49(b)(1)" for "47(d)(1)".
Subsec. (k)(2)(A)(ii), (D). Pub. L. 101-508, Sec. 11813(b)(3)(B),
substituted "49(a)(1)(D)(iv)(II)" for "46(c)(8)(D)(iv)(II)".
Subsec. (m)(1)(B)(ii) to (iv). Pub. L. 101-508, Sec.
11407(b)(7)(B), redesignated cls. (iii) and (iv) as (ii) and (iii),
respectively, and struck out former cl. (ii) which read as follows:
"which gives the highest priority to those projects as to which the
highest percentage of the housing credit dollar amount is to be
used for project costs other than the cost of intermediaries unless
granting such priority would impede the development of projects in
hard-to-develop areas,".
Pub. L. 101-508, Sec. 11407(b)(2), amended cl. (iv) generally.
Prior to amendment, cl. (iv) read as follows: "which provides a
procedure that the agency will follow in notifying the Internal
Revenue Service of noncompliance with the provisions of this
section which such agency becomes aware of."
Subsec. (m)(2)(B). Pub. L. 101-508, Sec. 11407(b)(7)(A), added
cl. (iii) and inserted provision that cl. (iii) not be applied so
as to impede the development of projects in hard-to-develop areas.
Subsec. (o)(1). Pub. L. 101-508, Sec. 11407(a)(1)(A), substituted
"1991" for "1990" wherever appearing.
Subsec. (o)(2). Pub. L. 101-508, Sec. 11407(a)(1)(B), added par.
(2) and struck out former par. (2) which read as follows: "For
purposes of paragraph (1)(B), a building shall be treated as placed
in service before 1990 if -
"(A) the bonds with respect to such building are issued before
1990,
"(B) such building is constructed, reconstructed, or
rehabilitated by the taxpayer,
"(C) more than 10 percent of the reasonably anticipated cost of
such construction, reconstruction, or rehabilitation has been
incurred as of January 1, 1990, and some of such cost is incurred
on or after such date, and
"(D) such building is placed in service before January 1,
1992."
1989 - Subsec. (b)(1). Pub. L. 101-239, Sec. 7108(h)(5), inserted
at end "A building shall not be treated as described in
subparagraph (B) if, at any time during the credit period, moderate
rehabilitation assistance is provided with respect to such building
under section 8(e)(2) of the United States Housing Act of 1937."
Subsec. (b)(3)(C). Pub. L. 101-239, Sec. 7108(c)(2), which
directed amendment of subpar. (C) by substituting "subsection
(h)(7)" for "subsection (h)(6))", was executed by substituting
"subsection (h)(7)" for "subsection (h)(6)", as the probable intent
of Congress.
Subsec. (c)(1)(E). Pub. L. 101-239, Sec. 7108(i)(2), added
subpar. (E).
Subsec. (d)(1). Pub. L. 101-239, Sec. 7108(l)(1), inserted "as of
the close of the 1st taxable year of the credit period" before
period at end.
Subsec. (d)(2)(A). Pub. L. 101-239, Sec. 7108(l)(2), substituted
"subparagraph (B), its adjusted basis as of the close of the 1st
taxable year of the credit period, and" for "subparagraph (B), the
sum of -
"(I) the portion of its adjusted basis attributable to its
acquisition cost, plus
"(II) amounts chargeable to capital account and incurred by the
taxpayer (before the close of the 1st taxable year of the credit
period for such building) for property (or additions or
improvements to property) of a character subject to the allowance
for depreciation, and".
Subsec. (d)(2)(B)(iv). Pub. L. 101-239, Sec. 7108(d)(1), added
cl. (iv).
Subsec. (d)(2)(C). Pub. L. 101-239, Sec. 7108(l)(3)(A),
substituted "Adjusted basis" for "Acquisition cost" in heading and
"adjusted basis" for "cost" in text.
Subsec. (d)(5). Pub. L. 101-239, Sec. 7108(l)(3)(B), substituted
"Special rules for determining eligible basis" for "Eligible basis
determined when building placed in service" in heading.
Subsec. (d)(5)(A). Pub. L. 101-239, Sec. 7108(l)(3)(B),
redesignated subpar. (B) as (A) and struck out former subpar. (A)
which read as follows: "Except as provided in subparagraphs (B) and
(C), the eligible basis of any building for the entire compliance
period for such building shall be its eligible basis on the date
such building is placed in service (increased, in the case of an
existing building which meets the requirements of paragraph (2)(B),
by the amounts described in paragraph (2)(A)(i)(II))."
Subsec. (d)(5)(B). Pub. L. 101-239, Sec. 7108(l)(3)(B),
redesignated subpar. (C) as (B). Former subpar. (B) redesignated
(A).
Subsec. (d)(5)(C). Pub. L. 101-239, Sec. 7108(l)(3)(B),
redesignated subpar. (D) as (C). Former subpar. (C) redesignated
(B).
Pub. L. 101-239, Sec. 7811(a)(1), inserted "section" before
"167(k)" in heading.
Subsec. (d)(5)(D). Pub. L. 101-239, Sec. 7108(l)(3)(B),
redesignated subpar. (D) as (C).
Pub. L. 101-239, Sec. 7108(g), added subpar. (D).
Subsec. (d)(6)(A)(i). Pub. L. 101-239, Sec. 7841(d)(13),
substituted "Farmers Home Administration" for "Farmers' Home
Administration".
Subsec. (d)(6)(C) to (E). Pub. L. 101-239, Sec. 7108(f), added
subpars. (C) and (D) and redesignated former subpar. (C) as (E).
Subsec. (d)(7)(A). Pub. L. 101-239, Sec. 7831(c)(6), inserted
"(or interest therein)" after "subparagraph (B)" in introductory
provisions.
Subsec. (d)(7)(A)(ii). Pub. L. 101-239, Sec. 7841(d)(14),
substituted "under subsection (a)" for "under sebsection (a)".
Subsec. (e)(2)(A). Pub. L. 101-239, Sec. 7841(d)(15), substituted
"to capital account" for "to captial account".
Subsec. (e)(3). Pub. L. 101-239, Sec. 7108(d)(3), substituted
"Minimum expenditures to qualify" for "Average of rehabilitation
expenditures must be $2,000 or more" in heading, added subpars. (A)
and (B), redesignated former subpar. (B) as (C), and struck out
former subpar. (A) which read as follows: "Paragraph (1) shall
apply to rehabilitation expenditures with respect to any building
only if the qualified basis attributable to such expenditures
incurred during any 24-month period, when divided by the low-income
units in the building, is $2,000 or more."
Subsec. (e)(5). Pub. L. 101-239, Sec. 7108(l)(3)(C), substituted
"subsection (d)(2)(A)(i)" for "subsection (d)(2)(A)(i)(II)".
Subsec. (f)(4). Pub. L. 101-239, Sec. 7831(c)(4), added par. (4).
Subsec. (f)(5). Pub. L. 101-239, Sec. 7108(d)(2), added par. (5).
Subsec. (g)(2)(A). Pub. L. 101-239, Sec. 7108(e)(2), inserted at
end "For purposes of the preceding sentence, the amount of the
income limitation under paragraph (1) applicable for any period
shall not be less than such limitation applicable for the earliest
period the building (which contains the unit) was included in the
determination of whether the project is a qualified low-income
housing project."
Pub. L. 101-239, Sec. 7108(e)(1)(B), substituted "the imputed
income limitation applicable to such unit" for "the income
limitation under paragraph (1) applicable to individuals occupying
such unit".
Subsec. (g)(2)(B). Pub. L. 101-239, Sec. 7108(h)(2), added cl.
(iii) and concluding provisions which defined "supportive service".
Subsec. (g)(2)(C) to (E). Pub. L. 101-239, Sec. 7108(e)(1)(A),
added subpars. (C) and (D) and redesignated former subpar. (C) as
(E).
Subsec. (g)(3)(D). Pub. L. 101-239, Sec. 7108(m)(3), added
subpar. (D).
Subsec. (g)(4). Pub. L. 101-239, Sec. 7108(n)(2), struck out
"(other than section 142(d)(4)(B)(iii))" after "in applying such
provisions".
Subsec. (g)(7). Pub. L. 101-239, Sec. 7108(h)(3), added par. (7).
Subsec. (h)(1)(B). Pub. L. 101-239, Sec. 7108(m)(2), substituted
"(E), or (F)" for "or (E)".
Subsec. (h)(1)(F). Pub. L. 101-239, Sec. 7108(m)(1), added
subpar. (F).
Subsec. (h)(3)(C) to (G). Pub. L. 101-239, Sec. 7108(b)(1), added
subpars. (C) and (D), redesignated former subpars. (D) to (F) as
(E) to (G), respectively, and struck out former subpar. (C) which
read as follows: "The State housing credit ceiling applicable to
any State for any calendar year shall be an amount equal to $1.25
multiplied by the State population."
Subsec. (h)(4)(B). Pub. L. 101-239, Sec. 7108(j), substituted "50
percent" for "70 percent" in heading and in text.
Subsec. (h)(5)(D)(ii). Pub. L. 101-239, Sec. 7811(a)(2),
substituted "clause (i)" for "clause (ii)".
Subsec. (h)(5)(E). Pub. L. 101-239, Sec. 7108(b)(2)(A),
substituted "subparagraph (F)" for "subparagraph (E)".
Subsec. (h)(6). Pub. L. 101-239, Sec. 7108(c)(1), added par. (6).
Former par. (6) redesignated (7).
Subsec. (h)(6)(B) to (E). Pub. L. 101-239, Sec. 7108(b)(2)(B),
redesignated subpars. (C) to (E) as (B) to (D), respectively, and
struck out former subpar. (B) which provided that the housing
credit dollar amount could not be carried over to any other
calendar year.
Subsec. (h)(7), (8). Pub. L. 101-239, Sec. 7108(c)(1),
redesignated pars. (6) and (7) as (7) and (8), respectively.
Subsec. (i)(2)(D). Pub. L. 101-239, Sec. 7108(k), inserted at end
"Such term shall not include any loan which would be a below market
Federal loan solely by reason of assistance provided under section
106, 107, or 108 of the Housing and Community Development Act of
1974 (as in effect on the date of the enactment of this sentence)."
Subsec. (i)(3)(B). Pub. L. 101-239, Sec. 7108(i)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "A unit shall not be treated as a low-income unit unless
the unit is suitable for occupancy (as determined under regulations
prescribed by the Secretary taking into account local health,
safety, and building codes) and used other than on a transient
basis. For purposes of the preceding sentence, a single-room
occupancy unit shall not be treated as used on a transient basis
merely because it is rented on a month-by-month basis."
Pub. L. 101-239, Sec. 7831(c)(1), inserted "(as determined under
regulations prescribed by the Secretary taking into account local
health, safety, and building codes)" after "suitable for
occupancy".
Pub. L. 101-239, Sec. 7108(h)(1), inserted at end "For purposes
of the preceding sentence, a single-room occupancy unit shall not
be treated as used on a transient basis merely because it is rented
on a month-by-month basis."
Subsec. (i)(3)(D). Pub. L. 101-239, Sec. 7831(c)(2), added
subpar. (D).
Subsec. (i)(3)(E). Pub. L. 101-239, Sec. 7108(h)(4), added
subpar. (E).
Subsec. (i)(6). Pub. L. 101-239, Sec. 7831(c)(3), added par. (6).
Subsec. (i)(8). Pub. L. 101-239, Sec. 7108(q), added par. (8).
Subsec. (k)(2)(D). Pub. L. 101-239, Sec. 7108(o), added provision
at end relating to the applicability of cl. (ii) to qualified
nonprofit organizations not described in section
46(c)(8)(D)(iv)(II) with respect to a building.
Subsec. (l)(1). Pub. L. 101-239, Sec. 7108(p), in introductory
provisions, substituted "Following" for "Not later than the 90th
day following" and inserted "at such time and" before "in such
form".
Subsec. (m). Pub. L. 101-239, Sec. 7108(o), added subsec. (m).
Former subsec. (m) redesignated (n).
Subsec. (m)(4). Pub. L. 101-239, Sec. 7831(c)(5), added par. (4).
Subsec. (n). Pub. L. 101-239, Sec. 7108(o), redesignated subsec.
(m) as (n). Former subsec. (n) redesignated (o).
Pub. L. 101-239, Sec. 7108(a)(1), amended subsec. (n) generally.
Prior to amendment, subsec. (n) read as follows: "The State housing
credit ceiling under subsection (h) shall be zero for any calendar
year after 1989 and subsection (h)(4) shall not apply to any
building placed in service after 1989."
Subsec. (o). Pub. L. 101-239, Sec. 7108(o), redesignated subsec.
(n) as (o).
1988 - Subsec. (b)(2)(A). Pub. L. 100-647, Sec. 1002(l)(1)(A),
substituted "for the earlier of - " for "for the month in which
such building is placed in service" and added cls. (i) and (ii) and
concluding provisions.
Subsec. (b)(2)(C)(ii). Pub. L. 100-647, Sec. 1002(l)(1)(B),
substituted "the month applicable under clause (i) or (ii) of
subparagraph (A)" for "the month in which the building was placed
in service".
Subsec. (b)(3). Pub. L. 100-647, Sec. 1002(l)(9)(B), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "For
treatment of certain rehabilitation expenditures as separate new
buildings, see subsection (e)."
Subsec. (c)(2)(A). Pub. L. 100-647, Sec. 1002(l)(2)(A), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "which at all times during the compliance period with
respect to such building is part of a qualified low-income housing
project, and".
Subsec. (d)(2)(D)(ii). Pub. L. 100-647, Sec. 1002(l)(3),
substituted "Special rules for certain transfers" for "Special rule
for nontaxable exchanges" in heading and amended text generally.
Prior to amendment, text read as follows: "For purposes of
determining under subparagraph (B)(ii) when a building was last
placed in service, there shall not be taken into account any
placement in service in connection with the acquisition of the
building in a transaction in which the basis of the building in the
hands of the person acquiring it is determined in whole or in part
by reference to the adjusted basis of such building in the hands of
the person from whom aquired [sic]."
Subsec. (d)(3). Pub. L. 100-647, Sec. 1002(l)(4), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "The
eligible basis of any building shall be reduced by an amount equal
to the portion of the adjusted basis of the building which is
attributable to residential rental units in the building which are
not low-income units and which are above the average quality
standard of the low-income units in the building."
Subsec. (d)(5)(A). Pub. L. 100-647, Sec. 1002(l)(6)(B),
substituted "subparagraphs (B) and (C)" for "subparagraph (B)".
Pub. L. 100-647, Sec. 1002(l)(5), inserted "(increased, in the
case of an existing building which meets the requirements of
paragraph (2)(B), by the amounts described in paragraph
(2)(A)(i)(II))" before period at end.
Subsec. (d)(5)(C). Pub. L. 100-647, Sec. 1002(l)(6)(A), added
subpar. (C).
Subsec. (d)(6)(A)(iii). Pub. L. 100-647, Sec. 1002(l)(7), struck
out cl. (iii) which related to other circumstances of financial
distress.
Subsec. (d)(6)(B)(ii). Pub. L. 100-647, Sec. 1002(l)(8), struck
out "of 1934" after "Act".
Subsec. (f)(1). Pub. L. 100-647, Sec. 1002(l)(2)(B), substituted
"beginning with - " for "beginning with" and subpars. (A) and (B)
and concluding provisions for "the taxable year in which the
building is placed in service or, at the election of the taxpayer,
the succeeding taxable year. Such an election, once made, shall be
irrevocable."
Subsec. (f)(3). Pub. L. 100-647, Sec. 1002(l)(9)(A), amended par.
(3) generally. Prior to amendment, par. (3) "Special rule where
increase in qualified basis after 1st year of credit period" read
as follows:
"(A) Credit increased. - If -
"(i) as of the close of any taxable year in the compliance
period (after the 1st year of the credit period) the qualified
basis of any building exceeds
"(ii) the qualified basis of such building as of the close of
the 1st year of the credit period,
the credit allowable under subsection (a) for the taxable year
(determined without regard to this paragraph) shall be increased by
an amount equal to the product of such excess and the percentage
equal to 2/3 of the applicable percentage for such building.
"(B) 1st year computation applies. - A rule similar to the rule
of paragraph (2)(A) shall apply to the additional credit allowable
by reason of this paragraph for the 1st year in which such
additional credit is allowable."
Subsec. (g)(2)(B)(i). Pub. L. 100-647, Sec. 1002(l)(10), struck
out "Federal" after "comparable".
Subsec. (g)(2)(C). Pub. L. 100-647, Sec. 1002(l)(11), added
subpar. (C).
Subsec. (g)(3). Pub. L. 100-647, Sec. 1002(l)(12), amended par.
(3) generally, substituting subpars. (A) to (C) for former subpars.
(A) and (B).
Subsec. (g)(4). Pub. L. 100-647, Sec. 1002(l)(13), inserted ";
except that, in applying such provisions (other than section
142(d)(4)(B)(iii)) for such purposes, the term 'gross rent' shall
have the meaning given such term by paragraph (2)(B) of this
subsection" before period at end.
Subsec. (g)(6). Pub. L. 100-647, Sec. 1002(l)(32), added par.
(6).
Subsec. (h)(1). Pub. L. 100-647, Sec. 1002(l)(14)(A), amended
par. (1) generally. Prior to amendment, par. (1) read as follows:
"No credit shall be allowed by reason of this section for any
taxable year with respect to any building in excess of the housing
credit dollar amount allocated to such building under this
subsection. An allocation shall be taken into account under the
preceding sentence only if it occurs not later than the earlier of -
"(A) the 60th day after the close of the taxable year, or
"(B) the close of the calendar year in which such taxable year
ends."
Subsec. (h)(1)(B). Pub. L. 100-647, Sec. 4003(b)(1), substituted
"(C), (D), or (E)" for "(C) or (D)".
Subsec. (h)(1)(E). Pub. L. 100-647, Sec. 4003(a), added subpar.
(E).
Subsec. (h)(4)(A). Pub. L. 100-647, Sec. 1002(l)(15), substituted
"if - " for "and which is taken into account under section 146" and
added cls. (i) and (ii).
Subsec. (h)(5)(D), (E). Pub. L. 100-647, Sec. 1002(l)(16), added
subpar. (D) and redesignated former subpar. (D) as (E).
Subsec. (h)(6)(B)(ii). Pub. L. 100-647, Sec. 1002(l)(14)(B),
struck out cl. (ii) which read as follows:
"(ii) Allocation may not be earlier than year in which building
placed in service. - A housing credit agency may allocate its
housing credit dollar amount for any calendar year only to
buildings placed in service before the close of such calendar
year."
Subsec. (h)(6)(D). Pub. L. 100-647, Sec. 1002(l)(17), amended
subpar. (D) generally. Prior to amendment, subpar. (D) "Credit
allowable determined without regard to averaging convention, etc."
read as follows: "For purposes of this subsection, the credit
allowable under subsection (a) with respect to any building shall
be determined -
"(i) without regard to paragraphs (2)(A) and (3)(B) of
subsection (f), and
"(ii) by applying subsection (f)(3)(A) without regard to 'the
percentage equal to 2/3 of'."
Subsec. (h)(6)(E). Pub. L. 100-647, Sec. 1002(l)(18), added
subpar. (E).
Subsec. (i)(2)(A). Pub. L. 100-647, Sec. 1002(l)(19)(A), inserted
"or any prior taxable year" after "such taxable year" and
substituted "is or was outstanding" for "is outstanding" and "are
or were used" for "are used".
Subsec. (i)(2)(B). Pub. L. 100-647, Sec. 1002(l)(19)(B),
substituted "balance of loan or proceeds of obligations" for
"outstanding balance of loan" in heading and amended text
generally. Prior to amendment, text read as follows: "A loan shall
not be taken into account under subparagraph (A) if the taxpayer
elects to exclude an amount equal to the outstanding balance of
such loan from the eligible basis of the building for purposes of
subsection (d)."
Subsec. (i)(2)(C). Pub. L. 100-647, Sec. 1002(l)(19)(C), added
subpar. (C). Former subpar. (C) redesignated (D).
Subsec. (i)(2)(D). Pub. L. 100-647, Sec. 1002(l)(19)(C), (D),
redesignated former subpar. (C) as (D) and substituted "this
paragraph" for "subparagraph (A)".
Subsec. (j)(4)(D). Pub. L. 100-647, Sec. 1007(g)(3)(B),
substituted "D, or G" for "or D".
Subsec. (j)(4)(F). Pub. L. 100-647, Sec. 1002(l)(20), added
subpar. (F).
Subsec. (j)(5)(B). Pub. L. 100-647, Sec. 4004(a), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
"This paragraph shall apply to any partnership -
"(i) more than 1/2 the capital interests, and more than 1/2
the profit interests, in which are owned by a group of 35 or more
partners each of whom is a natural person or an estate, and
"(ii) which elects the application of this paragraph."
Subsec. (j)(5)(B)(i). Pub. L. 100-647, Sec. 1002(l)(21), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
"which has 35 or more partners each of whom is a natural person or
an estate, and".
Subsec. (j)(6). Pub. L. 100-647, Sec. 1002(l)(22), inserted "(or
interest therein)" after "disposition of building" in heading, and
in text inserted "or an interest therein" after "of a building".
Subsec. (k)(2)(B). Pub. L. 100-647, Sec. 1002(l)(23), inserted
before period at end ", except that this subparagraph shall not
apply in the case of a federally assisted building described in
subsection (d)(6)(B) if - " and cls. (i) and (ii).
Subsec. (l). Pub. L. 100-647, Sec. 1002(l)(24)(B), substituted
"Certifications and other reports to Secretary" for "Certifications
to Secretary" in heading.
Subsec. (l)(2), (3). Pub. L. 100-647, Sec. 1002(l)(24)(A), added
par. (2) and redesignated former par. (2) as (3).
Subsec. (n). Pub. L. 100-647, Sec. 4003(b)(3), amended subsec.
(n) generally, substituting a single par. for former pars. (1) and
(2).
Subsec. (n)(1). Pub. L. 100-647, Sec. 1002(l)(25), inserted ",
and, except for any building described in paragraph (2)(B),
subsection (h)(4) shall not apply to any building placed in service
after 1989" after "year after 1989".
1986 - Subsec. (k)(1). Pub. L. 99-509 substituted "subparagraphs
(D)(ii)(II) and (D)(iv)(I)" for "subparagraph (D)(iv)(I)".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 207(8) of Pub. L. 108-311 applicable to
taxable years beginning after Dec. 31, 2004, see section 208 of
Pub. L. 108-311, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title I, subtitle D, Sec. 131(d)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-611, provided that: "The
amendments made by this section [amending this section] shall apply
to calendar years after 2000."
Pub. L. 106-554, Sec. 1(a)(7) [title I, subtitle D, Sec. 137],
Dec. 21, 2000, 114 Stat. 2763, 2763A-613, provided that: "Except as
otherwise provided in this subtitle [amending this section and
enacting provisions set out above], the amendments made by this
subtitle shall apply to -
"(1) housing credit dollar amounts allocated after December 31,
2000; and
"(2) buildings placed in service after such date to the extent
paragraph (1) of section 42(h) of the Internal Revenue Code of
1986 does not apply to any building by reason of paragraph (4)
thereof, but only with respect to bonds issued after such date."
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13142(a)(2) of Pub. L. 103-66 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to periods ending after June 30, 1992."
Section 13142(b)(6) of Pub. L. 103-66, as amended by Pub. L. 104-
188, title I, Sec. 1703(b), Aug. 20, 1996, 110 Stat. 1875,
provided that:
"(A) In general. - Except as provided in subparagraphs (B) and
(C), the amendments made by this subsection [amending this section]
shall apply to -
"(i) determinations under section 42 of the Internal Revenue
Code of 1986 with respect to housing credit dollar amounts
allocated from State housing credit ceilings after June 30, 1992,
or
"(ii) buildings placed in service after June 30, 1992, to the
extent paragraph (1) of section 42(h) of such Code does not apply
to any building by reason of paragraph (4) thereof, but only with
respect to bonds issued after such date.
"(B) Full-time students, waiver authority, and prohibited
discrimination. - The amendments made by paragraphs (2), (3), and
(4) [amending this section] shall take effect on the date of the
enactment of this Act [Aug. 10, 1993].
"(C) HOME assistance. - The amendment made by paragraph (5)
[amending this section] shall apply to periods after the date of
the enactment of this Act."
EFFECTIVE DATE OF 1991 AMENDMENT
Section 107(b) of Pub. L. 102-227 provided that: "The amendments
made by this section [amending this section] shall apply to
calendar years after 1991."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11407(a)(3) of Pub. L. 101-508 provided that: "The
amendments made by this subsection [amending this section and
repealing provisions set out below] shall apply to calendar years
after 1989."
Section 11407(b)(10) of Pub. L. 101-508 provided that:
"(A) In general. - Except as otherwise provided in this
paragraph, the amendments made by this subsection [amending this
section] shall apply to -
"(i) determinations under section 42 of the Internal Revenue
Code of 1986 with respect to housing credit dollar amounts
allocated from State housing credit ceilings for calendar years
after 1990, or
"(ii) buildings placed in service after December 31, 1990, to
the extent paragraph (1) of section 42(h) of such Code does not
apply to any building by reason of paragraph (4) thereof, but
only with respect to bonds issued after such date.
"(B) Tenant rights, etc. - The amendments made by paragraphs (1),
(6), (8), and (9) [amending this section] shall take effect on the
date of the enactment of this Act [Nov. 5, 1990].
"(C) Monitoring. - The amendment made by paragraph (2) [amending
this section] shall take effect on January 1, 1992, and shall apply
to buildings placed in service before, on, or after such date.
"(D) Study. - The Inspector General of the Department of Housing
and Urban Development and the Secretary of the Treasury shall
jointly conduct a study of the effectiveness of the amendment made
by paragraph (5) [amending this section] in carrying out the
purposes of section 42 of the Internal Revenue Code of 1986. The
report of such study shall be submitted not later than January 1,
1993, to the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate."
Section 11701(a)(3)(B) of Pub. L. 101-508 provided that: "In the
case of a building to which (but for this subparagraph) the
amendment made by subparagraph (A) [amending this section] does not
apply, such amendment shall apply to -
"(i) determinations of qualified basis for taxable years
beginning after the date of the enactment of this Act [Nov. 5,
1990], and
"(ii) determinations of qualified basis for taxable years
beginning on or before such date except that determinations for
such taxable years shall be made without regard to any reduction
in gross rent after August 3, 1990, for any period before August
4, 1990."
Section 11701(n) of Pub. L. 101-508 provided that: "Except as
otherwise provided in this section, any amendment made by this
section [amending this section and sections 148, 163, 172, 403,
1031, 1253, 2056, 4682, 4975, 4978B and 6038 of this title, and
provisions set out as notes under this section and section 2040 of
this title] shall take effect as if included in the provision of
the Revenue Reconciliation Act of 1989 [Pub. L. 101-239, title VII]
to which such amendment relates."
Section 11812(c) of Pub. L. 101-508 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
56, 167, 168, 312, 381, 404, 460, 642, 1016, 1250, and 7701 of this
title] shall apply to property placed in service after the date of
the enactment of this Act [Nov. 5, 1990].
"(2) Exception. - The amendments made by this section shall not
apply to any property to which section 168 of the Internal Revenue
Code of 1986 does not apply by reason of subsection (f)(5) thereof.
"(3) Exception for previously grandfather expenditures. - The
amendments made by this section shall not apply to rehabilitation
expenditures described in section 252(f)(5) of the Tax Reform Act
of 1986 [Pub. L. 99-514] (as added by section 1002(l)(31) of the
Technical and Miscellaneous Revenue Act of 1988 [see Transitional
Rules note below])."
Amendment by section 11813(b)(3) of Pub. L. 101-508 applicable to
property placed in service after Dec. 31, 1990, but not applicable
to any transition property (as defined in section 49(e) of this
title), any property with respect to which qualified progress
expenditures were previously taken into account under section 46(d)
of this title, and any property described in section 46(b)(2)(C) of
this title, as such sections were in effect on Nov. 4, 1990, see
section 11813(c) of Pub. L. 101-508, set out as a note under
section 45K of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7108(r) of Pub. L. 101-239, as amended by Pub. L. 101-
508, title XI, Sec. 11701(a)(11), (12), Nov. 5, 1990, 104 Stat.
1388-507; Pub. L. 104-188, title I, Sec. 1702(g)(5)(A), Aug. 20,
1996, 110 Stat. 1873, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and section 142 of this title] shall apply to
determinations under section 42 of the Internal Revenue Code of
1986 with respect to housing credit dollar amounts allocated from
State housing credit ceilings for calendar years after 1989.
"(2) Buildings not subject to allocation limits. - Except as
otherwise provided in this subsection, to the extent paragraph (1)
of section 42(h) of such Code does not apply to any building by
reason of paragraph (4) thereof, the amendments made by this
section shall apply to buildings placed in service after December
31, 1989.
"(3) One-year carryover of unused credit authority, etc. - The
amendments made by subsection (b) [amending this section] shall
apply to calendar years after 1989, but clauses (ii), (iii), and
(iv) of section 42(h)(3)(C) of such Code (as added by this section)
shall be applied without regard to allocations for 1989 or any
preceding year.
"(4) Additional buildings eligible for waiver of 10-year rule. -
The amendments made by subsection (f) [amending this section] shall
take effect on the date of the enactment of this Act [Dec. 19,
1989].
"(5) Certifications with respect to 1st year of credit period. -
The amendment made by subsection (p) [amending this section] shall
apply to taxable years ending on or after December 31, 1989.
"(6) Certain rules which apply to bonds. - Paragraphs (1)(D) and
(2)(D) of section 42(m) of such Code, as added by this section,
shall apply to obligations issued after December 31, 1989.
"(7) Clarifications. - The amendments made by the following
provisions of this section shall apply as if included in the
amendments made by section 252 of the Tax Reform Act of 1986 [Pub.
L. 99-514, enacting this section and amending sections 38 and 55 of
this title]:
"(A) Paragraph (1) of subsection (h) (relating to units rented
on a monthly basis) [amending this section].
"(B) Subsection (l) (relating to eligible basis for new
buildings to include expenditures before close of 1st year of
credit period) [amending this section].
"(8) Guidance on difficult development areas and posting of bond
to avoid recapture. - Not later than 180 days after the date of the
enactment of this Act [Dec. 19, 1989] -
"(A) the Secretary of Housing and Urban Development shall
publish initial guidance on the designation of difficult
development areas under section 42(d)(5)(C) of such Code, as
added by this section, and
"(B) the Secretary of the Treasury shall publish initial
guidance under section 42(j)(6) of such Code (relating to no
recapture on disposition of building (or interest therein) where
bond posted)."
[Pub. L. 104-188, title I, Sec. 1702(g)(5), Aug. 20, 1996, 110
Stat. 1873, provided that:
["(A) Paragraph (11) of section 11701(a) of the Revenue
Reconciliation Act of 1990 (and the amendment made by such
paragraph) [Pub. L. 101-508, which amended section 7108(r)(2) of
Pub. L. 101-239, set out above, by inserting "but only with respect
to bonds issued after such date" before the period at the end of
such section 7108(r)(2)] are hereby repealed, and section
7108(r)(2) of the Revenue Reconciliation Act of 1989 [Pub. L. 101-
239] shall be applied as if such paragraph (and amendment) had
never been enacted.
["(B) Subparagraph (A) shall not apply to any building if the
owner of such building establishes to the satisfaction of the
Secretary of the Treasury or his delegate that such owner
reasonably relied on the amendment made by such paragraph (11)."]
Amendment by section 7811(a) of Pub. L. 101-239 effective, except
as otherwise provided, as if included in the provision of the
Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647,
to which such amendment relates, see section 7817 of Pub. L. 101-
239, set out as a note under section 1 of this title.
Amendment by section 7831(c) of Pub. L. 101-239 effective as if
included in the provision of the Tax Reform Act of 1986, Pub. L. 99-
514, to which such amendment relates, see section 7831(g) of Pub.
L. 101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1002(l)(1)-(25), (32) and 1007(g)(3)(B) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L. 99-
514, to which such amendment relates, see section 1019(a) of Pub.
L. 100-647, set out as a note under section 1 of this title.
Section 4003(c) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending this section and provisions set out
as a note under section 469 of this title] shall apply to amounts
allocated in calendar years after 1987."
Section 4004(b) of Pub. L. 100-647 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall take effect as if included in the amendments
made by section 252 of the Reform Act [section 252 of Pub. L. 99-
514, enacting this section and amending sections 38 and 55 of this
title].
"(2) Period for election. - The period for electing not to have
section 42(j)(5) of the 1986 Code apply to any partnership shall
not expire before the date which is 6 months after the date of the
enactment of this Act [Nov. 10, 1988]."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 8072(b) of Pub. L. 99-509 provided that: "The amendment
made by subsection (a) [amending this section] shall take effect as
if included in the amendment made by section 252(a) of the Tax
Reform Act of 1986 [enacting this section]."
EFFECTIVE DATE
Section 252(e) of Pub. L. 99-514 provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending sections 38 and 55 of this title] shall
apply to buildings placed in service after December 31, 1986, in
taxable years ending after such date.
"(2) Special rule for rehabilitation expenditures. - Subsection
(e) of section 42 of the Internal Revenue Code of 1986 (as added by
this section) shall apply for purposes of paragraph (1)."
SAVINGS PROVISION
For provisions that nothing in amendment by sections 11812(b)(3)
and 11813(b)(3) of Pub. L. 101-508 be construed to affect treatment
of certain transactions occurring, property acquired, or items of
income, loss, deduction, or credit taken into account prior to Nov.
5, 1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
ELECTION TO DETERMINE RENT LIMITATION BASED ON NUMBER OF BEDROOMS
AND DEEP RENT SKEWING
Section 13142(c) of Pub. L. 103-66 provided that:
"(1) In the case of a building to which the amendments made by
subsection (e)(1) or (n)(2) of section 7108 of the Revenue
Reconciliation Act of 1989 [Pub. L. 101-239, amending this section]
did not apply, the taxpayer may elect to have such amendments apply
to such building if the taxpayer has met the requirements of the
procedures described in section 42(m)(1)(B)(iii) of the Internal
Revenue Code of 1986.
"(2) In the case of the amendment made by such subsection (e)(1),
such election shall apply only with respect to tenants first
occupying any unit in the building after the date of the election.
"(3) In the case of the amendment made by such subsection (n)(2),
such election shall apply only if rents of low-income tenants in
such building do not increase as a result of such election.
"(4) An election under this subsection may be made only during
the 180-day period beginning on the date of the enactment of this
Act [Aug. 10, 1993] and, once made, shall be irrevocable."
ELECTION TO ACCELERATE CREDIT INTO 1990
Section 11407(c) of Pub. L. 101-508 provided that:
"(1) In general. - At the election of an individual, the credit
determined under section 42 of the Internal Revenue Code of 1986
for the taxpayer's first taxable year ending on or after October
25, 1990, shall be 150 percent of the amount which would (but for
this paragraph) be so allowable with respect to investments held by
such individual on or before October 25, 1990.
"(2) Reduction in aggregate credit to reflect increased 1990
credit. - The aggregate credit allowable to any person under
section 42 of such Code with respect to any investment for taxable
years after the first taxable year referred to in paragraph (1)
shall be reduced on a pro rata basis by the amount of the increased
credit allowable by reason of paragraph (1) with respect to such
first taxable year. The preceding sentence shall not be construed
to affect whether any taxable year is part of the credit,
compliance, or extended use periods.
"(3) Election. - The election under paragraph (1) shall be made
at the time and in the manner prescribed by the Secretary of the
Treasury or his delegate, and, once made, shall be irrevocable. In
the case of a partnership, such election shall be made by the
partnership."
EXCEPTION TO TIME PERIOD FOR MEETING PROJECT REQUIREMENTS IN ORDER
TO QUALIFY AS LOW-INCOME HOUSING
Section 11701(a)(5)(B) of Pub. L. 101-508 provided that: "In the
case of a building to which the amendment made by subparagraph (A)
[amending this section] does not apply, the period specified in
section 42(g)(3)(A) of the Internal Revenue Code of 1986 (as in
effect before the amendment made by subparagraph (A)) shall not
expire before the close of the taxable year following the taxable
year in which the building is placed in service."
STATE HOUSING CREDIT CEILING FOR CALENDAR YEAR 1990
Section 7108(a)(2) of Pub. L. 101-239 provided that in the case
of calendar year 1990, section 42(h)(3)(C)(i) of the Internal
Revenue Code of 1986 be applied by substituting "$.9375" for
"$1.25", prior to repeal by Pub. L. 101-508, title XI, Sec.
11407(a)(2), (3), Nov. 5, 1990, 104 Stat. 1388-474, applicable to
calendar years after 1989.
TRANSITIONAL RULES
Section 252(f) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1002(l)(28)-(31), Nov. 10, 1988, 102 Stat. 3381,
provided that:
"(1) Limitation to non-acrs buildings not to apply to certain
buildings, etc. -
"(A) In general. - In the case of a building which is part of a
project described in subparagraph (B) -
"(i) section 42(c)(2)(B) of the Internal Revenue Code of 1986
(as added by this section) shall not apply,
"(ii) such building shall be treated as not federally
subsidized for purposes of section 42(b)(1)(A) of such Code,
"(iii) the eligible basis of such building shall be treated,
for purposes of section 42(h)(4)(A) of such Code, as if it were
financed by an obligation the interest on which is exempt from
tax under section 103 of such Code and which is taken into
account under section 146 of such Code, and
"(iv) the amendments made by section 803 [enacting section
263A of this title, amending sections 48, 267, 312, 447, 464,
and 471 of this title, and repealing sections 189, 278, and 280
of this title] shall not apply.
"(B) Project described. - A project is described in this
subparagraph if -
"(i) an urban development action grant application with
respect to such project was submitted on September 13, 1984,
"(ii) a zoning commission map amendment related to such
project was granted on July 17, 1985, and
"(iii) the number assigned to such project by the Federal
Housing Administration is 023-36602.
"(C) Additional units eligible for credit. - In the case of a
building to which subparagraph (A) applies and which is part of a
project which meets the requirements of subparagraph (D), for
each low-income unit in such building which is occupied by
individuals whose income is 30 percent or less of area median
gross income, one additional unit (not otherwise a low-income
unit) in such building shall be treated as a low-income unit for
purposes of such section 42.
"(D) Project described. - A project is described in this
subparagraph if -
"(i) rents charged for units in such project are restricted
by State regulations,
"(ii) the annual cash flow of such project is restricted by
State law,
"(iii) the project is located on land owned by or ground
leased from a public housing authority,
"(iv) construction of such project begins on or before
December 31, 1986, and units within such project are placed in
service on or before June 1, 1990, and
"(v) for a 20-year period, 20 percent or more of the
residential units in such project are occupied by individuals
whose income is 50 percent or less of area median gross income.
"(E) Maximum additional credit. - The maximum present value of
additional credits allowable under section 42 of such Code by
reason of subparagraph (C) shall not exceed 25 percent of the
eligible basis of the building.
"(2) Additional allocation of housing credit ceiling. -
"(A) In general. - There is hereby allocated to each housing
credit agency described in subparagraph (B) an additional housing
credit dollar amount determined in accordance with the following
table:
The additional
"For calendar year: allocation is:
1987 $3,900,000
1988 $7,600,000
1989 $1,300,000.
--------------------------------------------------------------------
"(B) Housing credit agencies described. - The housing credit
agencies described in this subparagraph are:
"(i) A corporate governmental agency constituted as a public
benefit corporation and established in 1971 under the
provisions of Article XII of the Private Housing Finance Law of
the State.
"(ii) A city department established on December 20, 1979,
pursuant to chapter XVIII of a municipal code of such city for
the purpose of supervising and coordinating the formation and
execution of projects and programs affecting housing within
such city.
"(iii) The State housing finance agency referred to in
subparagraph (C), but only with respect to projects described
in subparagraph (C).
"(C) Project described. - A project is described in this
subparagraph if such project is a qualified low-income housing
project which -
"(i) receives financing from a State housing finance agency
from the proceeds of bonds issued pursuant to chapter 708 of
the Acts of 1966 of such State pursuant to loan commitments
from such agency made between May 8, 1984, and July 8, 1986,
and
"(ii) is subject to subsidy commitments issued pursuant to a
program established under chapter 574 of the Acts of 1983 of
such State having award dates from such agency between May 31,
1984, and June 11, 1985.
"(D) Special rules. -
"(i) Any building -
"(I) which is allocated any housing credit dollar amount by
a housing credit agency described in clause (iii) of
subparagraph (B), and
"(II) which is placed in service after June 30, 1986, and
before January 1, 1987,
shall be treated for purposes of the amendments made by this
section as placed in service on January 1, 1987.
"(ii) Section 42(c)(2)(B) of the Internal Revenue Code of
1986 shall not apply to any building which is allocated any
housing credit dollar amount by any agency described in
subparagraph (B).
"(E) All units treated as low income units in certain cases. -
In the case of any building -
"(i) which is allocated any housing credit dollar amount by
any agency described in subparagraph (B), and
"(ii) which after the application of subparagraph (D)(ii) is
a qualified low-income building at all times during any taxable
year,
such building shall be treated as described in section
42(b)(1)(B) of such Code and having an applicable fraction for
such year of 1. The preceding sentence shall apply to any
building only to the extent of the portion of the additional
housing credit dollar amount (allocated to such agency under
subparagraph (A)) allocated to such building.
"(3) Certain projects placed in service before 1987. -
"(A) In general. - In the case of a building which is part of a
project described in subparagraph (B) -
"(i) section 42(c)(2)(B) of such Code shall not apply,
"(ii) such building shall be treated as placed in service
during the first calendar year after 1986 and before 1990 in
which such building is a qualified low-income building
(determined after the application of clause (i)), and
"(iii) for purposes of section 42(h) of such Code, such
building shall be treated as having allocated to it a housing
credit dollar amount equal to the dollar amount appearing in
the clause of subparagraph (B) in which such building is
described.
"(B) Project described. - A project is described in this
subparagraph if the code number assigned to such project by the
Farmers' Home Administration appears in the following table:
The housing credit
"The code number is: dollar amount is:
(i) 49284553664 $16,000
(ii) 4927742022446 $22,000
(iii) 49270742276087 $64,000
(iv) 490270742387293 $48,000
(v) 4927074218234 $32,000
(vi) 49270742274019 $36,000
(vii) 51460742345074 $53,000.
--------------------------------------------------------------------
"(C) Determination of adjusted basis. - The adjusted basis of
any building to which this paragraph applies for purposes of
section 42 of such Code shall be its adjusted basis as of the
close of the taxable year ending before the first taxable year of
the credit period for such building.
"(D) Certain rules to apply. - Rules similar to the rules of
subparagraph (E) of paragraph (2) shall apply for purposes of
this paragraph.
"(4) Definitions. - For purposes of this subsection, terms used
in such subsection which are also used in section 42 of the
Internal Revenue Code of 1986 (as added by this section) shall have
the meanings given such terms by such section 42.
"(5) Transitional rule. - In the case of any rehabilitation
expenditures incurred with respect to units located in the
neighborhood strategy area within the community development block
grant program in Ft. Wayne, Indiana -
"(A) the amendments made by this section [enacting this section
and amending sections 38 and 55 of this title] shall not apply,
and
"(B) paragraph (1) of section 167(k) of the Internal Revenue
Code of 1986, shall be applied as if it did not contain the
phrase 'and before January 1, 1987'.
The number of units to which the preceding sentence applies shall
not exceed 150."
-FOOTNOTE-
(!1) See References in Text note below.
(!2) So in original. Probably should be "sections".
(!3) So in original. Probably should be "etc.,".
(!4) So in original. The semicolon probably should be a comma.
(!5) So in original. Probably should be "satisfactory".
(!6) So in original.
-End-
-CITE-
26 USC Sec. 43 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 43. Enhanced oil recovery credit
-STATUTE-
(a) General rule
For purposes of section 38, the enhanced oil recovery credit for
any taxable year is an amount equal to 15 percent of the taxpayer's
qualified enhanced oil recovery costs for such taxable year.
(b) Phase-out of credit as crude oil prices increase
(1) In general
The amount of the credit determined under subsection (a) for
any taxable year shall be reduced by an amount which bears the
same ratio to the amount of such credit (determined without
regard to this paragraph) as -
(A) the amount by which the reference price for the calendar
year preceding the calendar year in which the taxable year
begins exceeds $28, bears to
(B) $6.
(2) Reference price
For purposes of this subsection, the term "reference price"
means, with respect to any calendar year, the reference price
determined for such calendar year under section 45K(d)(2)(C).
(3) Inflation adjustment
(A) In general
In the case of any taxable year beginning in a calendar year
after 1991, there shall be substituted for the $28 amount under
paragraph (1)(A) an amount equal to the product of -
(i) $28, multiplied by
(ii) the inflation adjustment factor for such calendar
year.
(B) Inflation adjustment factor
The term "inflation adjustment factor" means, with respect to
any calendar year, a fraction the numerator of which is the GNP
implicit price deflator for the preceding calendar year and the
denominator of which is the GNP implicit price deflator for
1990. For purposes of the preceding sentence, the term "GNP
implicit price deflator" means the first revision of the
implicit price deflator for the gross national product as
computed and published by the Secretary of Commerce. Not later
than April 1 of any calendar year, the Secretary shall publish
the inflation adjustment factor for the preceding calendar
year.
(c) Qualified enhanced oil recovery costs
For purposes of this section -
(1) In general
The term "qualified enhanced oil recovery costs" means any of
the following:
(A) Any amount paid or incurred during the taxable year for
tangible property -
(i) which is an integral part of a qualified enhanced oil
recovery project, and
(ii) with respect to which depreciation (or amortization in
lieu of depreciation) is allowable under this chapter.
(B) Any intangible drilling and development costs -
(i) which are paid or incurred in connection with a
qualified enhanced oil recovery project, and
(ii) with respect to which the taxpayer may make an
election under section 263(c) for the taxable year.
(C) Any qualified tertiary injectant expenses (as defined in
section 193(b)) which are paid or incurred in connection with a
qualified enhanced oil recovery project and for which a
deduction is allowable for the taxable year.
(D) Any amount which is paid or incurred during the taxable
year to construct a gas treatment plant which -
(i) is located in the area of the United States (within the
meaning of section 638(1)) lying north of 64 degrees North
latitude,
(ii) prepares Alaska natural gas for transportation through
a pipeline with a capacity of at least 2,000,000,000,000 Btu
of natural gas per day, and
(iii) produces carbon dioxide which is injected into
hydrocarbon-bearing geological formations.
(2) Qualified enhanced oil recovery project
For purposes of this subsection -
(A) In general
The term "qualified enhanced oil recovery project" means any
project -
(i) which involves the application (in accordance with
sound engineering principles) of 1 or more tertiary recovery
methods (as defined in section 193(b)(3)) which can
reasonably be expected to result in more than an
insignificant increase in the amount of crude oil which will
ultimately be recovered,
(ii) which is located within the United States (within the
meaning of section 638(1)), and
(iii) with respect to which the first injection of liquids,
gases, or other matter commences after December 31, 1990.
(B) Certification
A project shall not be treated as a qualified enhanced oil
recovery project unless the operator submits to the Secretary
(at such times and in such manner as the Secretary provides) a
certification from a petroleum engineer that the project meets
(and continues to meet) the requirements of subparagraph (A).
(3) At-risk limitation
For purposes of determining qualified enhanced oil recovery
costs, rules similar to the rules of section 49(a)(1), section
49(a)(2), and section 49(b) shall apply.
(4) Special rule for certain gas displacement projects
For purposes of this section, immiscible non-hydrocarbon gas
displacement shall be treated as a tertiary recovery method under
section 193(b)(3).
(5) Alaska natural gas
For purposes of paragraph (1)(D) -
(A) In general
The term "Alaska natural gas" means natural gas entering the
Alaska natural gas pipeline (as defined in section 168(i)(16)
(determined without regard to subparagraph (B) thereof)) which
is produced from a well -
(i) located in the area of the State of Alaska lying north
of 64 degrees North latitude, determined by excluding the
area of the Alaska National Wildlife Refuge (including the
continental shelf thereof within the meaning of section
638(1)), and
(ii) pursuant to the applicable State and Federal pollution
prevention, control, and permit requirements from such area
(including the continental shelf thereof within the meaning
of section 638(1)).
(B) Natural gas
The term "natural gas" has the meaning given such term by
section 613A(e)(2).
(d) Other rules
(1) Disallowance of deduction
Any deduction allowable under this chapter for any costs taken
into account in computing the amount of the credit determined
under subsection (a) shall be reduced by the amount of such
credit attributable to such costs.
(2) Basis adjustments
For purposes of this subtitle, if a credit is determined under
this section for any expenditure with respect to any property,
the increase in the basis of such property which would (but for
this subsection) result from such expenditure shall be reduced by
the amount of the credit so allowed.
(e) Election to have credit not apply
(1) In general
A taxpayer may elect to have this section not apply for any
taxable year.
(2) Time for making election
An election under paragraph (1) for any taxable year may be
made (or revoked) at any time before the expiration of the 3-year
period beginning on the last date prescribed by law for filing
the return for such taxable year (determined without regard to
extensions).
(3) Manner of making election
An election under paragraph (1) (or revocation thereof) shall
be made in such manner as the Secretary may by regulations
prescribe.
-SOURCE-
(Added Pub. L. 101-508, title XI, Sec. 11511(a), Nov. 5, 1990, 104
Stat. 1388-483; amended Pub. L. 106-554, Sec. 1(a)(7) [title III,
Sec. 317(a)], Dec. 21, 2000, 114 Stat. 2763, 2763A-645; Pub. L. 108-
357, title VII, Sec. 707(a), (b), Oct. 22, 2004, 118 Stat. 1550;
Pub. L. 109-58, title XIII, Sec. 1322(a)(3)(B), Aug. 8, 2005, 119
Stat. 1011; Pub. L. 109-135, title IV, Sec. 412(i), Dec. 21, 2005,
119 Stat. 2637.)
-MISC1-
PRIOR PROVISIONS
A prior section 43 was renumbered section 32 of this title.
Another prior section 43 was renumbered section 36 of this title.
AMENDMENTS
2005 - Subsec. (b)(2). Pub. L. 109-58 substituted "section
45K(d)(2)(C)" for "section 29(d)(2)(C)".
Subsec. (c)(5). Pub. L. 109-135 reenacted heading without change
and amended text generally. Prior to amendment, text read as
follows: "For purposes of paragraph (1)(D) -
"(1) In general. - The term 'Alaska natural gas' means natural
gas entering the Alaska natural gas pipeline (as defined in
section 168(i)(16) (determined without regard to subparagraph (B)
thereof)) which is produced from a well -
"(A) located in the area of the State of Alaska lying north
of 64 degrees North latitude, determined by excluding the area
of the Alaska National Wildlife Refuge (including the
continental shelf thereof within the meaning of section
638(1)), and
"(B) pursuant to the applicable State and Federal pollution
prevention, control, and permit requirements from such area
(including the continental shelf thereof within the meaning of
section 638(1)).
"(2) Natural gas. - The term 'natural gas' has the meaning
given such term by section 613A(e)(2)."
2004 - Subsec. (c)(1)(D). Pub. L. 108-357, Sec. 707(a), added
subpar. (D).
Subsec. (c)(5). Pub. L. 108-357, Sec. 707(b), added par. (5).
2000 - Subsec. (c)(1)(C). Pub. L. 106-554 inserted "(as defined
in section 193(b))" after "expenses" and struck out "under section
193" after "allowable".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-58 applicable to credits determined
under the Internal Revenue Code of 1986 for taxable years ending
after Dec. 31, 2005, see section 1322(c)(1) of Pub. L. 109-58, set
out as a note under section 45K of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VII, Sec. 707(c), Oct. 22, 2004, 118 Stat.
1550, provided that: "The amendment made by this section [amending
this section] shall apply to costs paid or incurred in taxable
years beginning after December 31, 2004."
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 317(b)], Dec. 21,
2000, 114 Stat. 2763, 2763A-645, provided that: "The amendment made
by this section [amending this section] shall take effect as if
included in section 11511 of the Revenue Reconciliation Act of 1990
[Pub. L. 101-508]."
EFFECTIVE DATE
Section 11511(d) of Pub. L. 101-508 provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending sections 38, 39, 196, and 6501 of this
title] shall apply to costs paid or incurred in taxable years
beginning after December 31, 1990.
"(2) Special rule for significant expansion of projects. - For
purposes of section 43(c)(2)(A)(iii) of the Internal Revenue Code
of 1986 (as added by subsection (a)), any significant expansion
after December 31, 1990, of a project begun before January 1, 1991,
shall be treated as a project with respect to which the first
injection commences after December 31, 1990."
-End-
-CITE-
26 USC Sec. 44 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 44. Expenditures to provide access to disabled individuals
-STATUTE-
(a) General rule
For purposes of section 38, in the case of an eligible small
business, the amount of the disabled access credit determined under
this section for any taxable year shall be an amount equal to 50
percent of so much of the eligible access expenditures for the
taxable year as exceed $250 but do not exceed $10,250.
(b) Eligible small business
For purposes of this section, the term "eligible small business"
means any person if -
(1) either -
(A) the gross receipts of such person for the preceding
taxable year did not exceed $1,000,000, or
(B) in the case of a person to which subparagraph (A) does
not apply, such person employed not more than 30 full-time
employees during the preceding taxable year, and
(2) such person elects the application of this section for the
taxable year.
For purposes of paragraph (1)(B), an employee shall be considered
full-time if such employee is employed at least 30 hours per week
for 20 or more calendar weeks in the taxable year.
(c) Eligible access expenditures
For purposes of this section -
(1) In general
The term "eligible access expenditures" means amounts paid or
incurred by an eligible small business for the purpose of
enabling such eligible small business to comply with applicable
requirements under the Americans With Disabilities Act of 1990
(as in effect on the date of the enactment of this section).
(2) Certain expenditures included
The term "eligible access expenditures" includes amounts paid
or incurred -
(A) for the purpose of removing architectural, communication,
physical, or transportation barriers which prevent a business
from being accessible to, or usable by, individuals with
disabilities,
(B) to provide qualified interpreters or other effective
methods of making aurally delivered materials available to
individuals with hearing impairments,
(C) to provide qualified readers, taped texts, and other
effective methods of making visually delivered materials
available to individuals with visual impairments,
(D) to acquire or modify equipment or devices for individuals
with disabilities, or
(E) to provide other similar services, modifications,
materials, or equipment.
(3) Expenditures must be reasonable
Amounts paid or incurred for the purposes described in
paragraph (2) shall include only expenditures which are
reasonable and shall not include expenditures which are
unnecessary to accomplish such purposes.
(4) Expenses in connection with new construction are not eligible
The term "eligible access expenditures" shall not include
amounts described in paragraph (2)(A) which are paid or incurred
in connection with any facility first placed in service after the
date of the enactment of this section.
(5) Expenditures must meet standards
The term "eligible access expenditures" shall not include any
amount unless the taxpayer establishes, to the satisfaction of
the Secretary, that the resulting removal of any barrier (or the
provision of any services, modifications, materials, or
equipment) meets the standards promulgated by the Secretary with
the concurrence of the Architectural and Transportation Barriers
Compliance Board and set forth in regulations prescribed by the
Secretary.
(d) Definition of disability; special rules
For purposes of this section -
(1) Disability
The term "disability" has the same meaning as when used in the
Americans With Disabilities Act of 1990 (as in effect on the date
of the enactment of this section).
(2) Controlled groups
(A) In general
All members of the same controlled group of corporations
(within the meaning of section 52(a)) and all persons under
common control (within the meaning of section 52(b)) shall be
treated as 1 person for purposes of this section.
(B) Dollar limitation
The Secretary shall apportion the dollar limitation under
subsection (a) among the members of any group described in
subparagraph (A) in such manner as the Secretary shall by
regulations prescribe.
(3) Partnerships and S corporations
In the case of a partnership, the limitation under subsection
(a) shall apply with respect to the partnership and each partner.
A similar rule shall apply in the case of an S corporation and
its shareholders.
(4) Short years
The Secretary shall prescribe such adjustments as may be
appropriate for purposes of paragraph (1) of subsection (b) if
the preceding taxable year is a taxable year of less than 12
months.
(5) Gross receipts
Gross receipts for any taxable year shall be reduced by returns
and allowances made during such year.
(6) Treatment of predecessors
The reference to any person in paragraph (1) of subsection (b)
shall be treated as including a reference to any predecessor.
(7) Denial of double benefit
In the case of the amount of the credit determined under this
section -
(A) no deduction or credit shall be allowed for such amount
under any other provision of this chapter, and
(B) no increase in the adjusted basis of any property shall
result from such amount.
(e) Regulations
The Secretary shall prescribe regulations necessary to carry out
the purposes of this section.
-SOURCE-
(Added Pub. L. 101-508, title XI, Sec. 11611(a), Nov. 5, 1990, 104
Stat. 1388-501.)
-REFTEXT-
REFERENCES IN TEXT
The Americans With Disabilities Act of 1990, referred to in
subsecs. (c)(1) and (d)(1) is Pub. L. 101-336, July 26, 1990, 104
Stat. 327, as amended, which is classified principally to chapter
126 (Sec. 12101 et seq.) of Title 42, The Public Health and
Welfare. For complete classification of this Act to the Code, see
Short Title note set out under section 12101 of Title 42 and
Tables.
The date of the enactment of this section, referred to in
subsecs. (c)(1), (4) and (d)(1), is the date of enactment of Pub.
L. 101-508, which was approved Nov. 5, 1990.
-MISC1-
PRIOR PROVISIONS
A prior section 44, added Pub. L. 94-12, title II, Sec. 208(a),
Mar. 29, 1975, 89 Stat. 32; amended Pub. L. 94-45, title IV, Sec.
401(a), June 30, 1975, 89 Stat. 243; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to
purchase of new principal residence, prior to repeal by Pub. L. 98-
369, div. A, title IV, Sec. 474(m)(1), July 18, 1984, 98 Stat.
833, applicable to taxable years beginning after Dec. 31, 1983, and
to carrybacks from such years.
Another prior section 44 was renumbered section 36 of this title.
EFFECTIVE DATE
Section applicable to expenditures paid or incurred after Nov. 5,
1990, see section 11611(e)(1) of Pub. L. 101-508, set out as an
Effective Date of 1990 Amendment note under section 38 of this
title.
-End-
-CITE-
26 USC Sec. 44A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
[Sec. 44A. Renumbered Sec. 21]
-STATUTE-
-End-
-CITE-
26 USC Sec. 44B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
[Sec. 44B. Repealed. Pub. L. 98-369, div. A, title IV, Sec.
474(m)(1), July 18, 1984, 98 Stat. 833]
-MISC1-
Section, added Pub. L. 95-30, title II, Sec. 202(a), May 23,
1977, 91 Stat. 141; amended Pub. L. 95-600, title III, Sec.
321(b)(1), Nov. 6, 1978, 92 Stat. 2834; Pub. L. 96-222, title I,
Sec. 103(a)(6)(G)(i), (ii), Apr. 1, 1980, 94 Stat. 210, related to
credit for employment of certain new employees.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1983,
and to carrybacks from such years, see section 475(a) of Pub. L. 98-
369, set out as an Effective Date of 1984 Amendment note under
section 21 of this title.
-End-
-CITE-
26 USC Sec. 44C 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
[Sec. 44C. Renumbered Sec. 23]
-STATUTE-
-End-
-CITE-
26 USC Sec. 44D 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
[Sec. 44D. Renumbered Sec. 29]
-STATUTE-
-End-
-CITE-
26 USC Sec. 44E 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
[Sec. 44E. Renumbered Sec. 40]
-STATUTE-
-End-
-CITE-
26 USC Sec. 44F 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
[Sec. 44F. Renumbered Sec. 30]
-STATUTE-
-End-
-CITE-
26 USC Sec. 44G 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
[Sec. 44G. Renumbered Sec. 41]
-STATUTE-
-End-
-CITE-
26 USC Sec. 44H 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
[Sec. 44H. Renumbered Sec. 45C]
-STATUTE-
-End-
-CITE-
26 USC Sec. 45 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45. Electricity produced from certain renewable resources,
etc.
-STATUTE-
(a) General rule
For purposes of section 38, the renewable electricity production
credit for any taxable year is an amount equal to the product of -
(1) 1.5 cents, multiplied by
(2) the kilowatt hours of electricity -
(A) produced by the taxpayer -
(i) from qualified energy resources, and
(ii) at a qualified facility during the 10-year period
beginning on the date the facility was originally placed in
service, and
(B) sold by the taxpayer to an unrelated person during the
taxable year.
(b) Limitations and adjustments
(1) Phaseout of credit
The amount of the credit determined under subsection (a) shall
be reduced by an amount which bears the same ratio to the amount
of the credit (determined without regard to this paragraph) as -
(A) the amount by which the reference price for the calendar
year in which the sale occurs exceeds 8 cents, bears to
(B) 3 cents.
(2) Credit and phaseout adjustment based on inflation
The 1.5 cent amount in subsection (a), the 8 cent amount in
paragraph (1), the $4.375 amount in subsection (e)(8)(A), and in
subsection (e)(8)(B)(i) the reference price of fuel used as a
feedstock (within the meaning of subsection (c)(7)(A)) in 2002
shall each be adjusted by multiplying such amount by the
inflation adjustment factor for the calendar year in which the
sale occurs. If any amount as increased under the preceding
sentence is not a multiple of 0.1 cent, such amount shall be
rounded to the nearest multiple of 0.1 cent.
(3) Credit reduced for grants, tax-exempt bonds, subsidized
energy financing, and other credits
The amount of the credit determined under subsection (a) with
respect to any project for any taxable year (determined after the
application of paragraphs (1) and (2)) shall be reduced by the
amount which is the product of the amount so determined for such
year and the lesser of 1/2 or a fraction -
(A) the numerator of which is the sum, for the taxable year
and all prior taxable years, of -
(i) grants provided by the United States, a State, or a
political subdivision of a State for use in connection with
the project,
(ii) proceeds of an issue of State or local government
obligations used to provide financing for the project the
interest on which is exempt from tax under section 103,
(iii) the aggregate amount of subsidized energy financing
provided (directly or indirectly) under a Federal, State, or
local program provided in connection with the project, and
(iv) the amount of any other credit allowable with respect
to any property which is part of the project, and
(B) the denominator of which is the aggregate amount of
additions to the capital account for the project for the
taxable year and all prior taxable years.
The amounts under the preceding sentence for any taxable year
shall be determined as of the close of the taxable year. This
paragraph shall not apply with respect to any facility described
in subsection (d)(2)(A)(ii).
(4) Credit rate and period for electricity produced and sold from
certain facilities
(A) Credit rate
In the case of electricity produced and sold in any calendar
year after 2003 at any qualified facility described in
paragraph (3), (5), (6), (7), or (9) of subsection (d), the
amount in effect under subsection (a)(1) for such calendar year
(determined before the application of the last sentence of
paragraph (2) of this subsection) shall be reduced by one-half.
(B) Credit period
(i) In general
Except as provided in clause (ii) or clause (iii), in the
case of any facility described in paragraph (3), (4), (5),
(6), or (7) of subsection (d), the 5-year period beginning on
the date the facility was originally placed in service shall
be substituted for the 10-year period in subsection
(a)(2)(A)(ii).
(ii) Certain open-loop biomass facilities
In the case of any facility described in subsection
(d)(3)(A)(ii) placed in service before the date of the
enactment of this paragraph, the 5-year period beginning on
January 1, 2005, shall be substituted for the 10-year period
in subsection (a)(2)(A)(ii).
(iii) Termination
Clause (i) shall not apply to any facility placed in
service after the date of the enactment of this clause.
(c) Resources
For purposes of this section:
(1) In general
The term "qualified energy resources" means -
(A) wind,
(B) closed-loop biomass,
(C) open-loop biomass,
(D) geothermal energy,
(E) solar energy,
(F) small irrigation power,
(G) municipal solid waste, and
(H) qualified hydropower production.
(2) Closed-loop biomass
The term "closed-loop biomass" means any organic material from
a plant which is planted exclusively for purposes of being used
at a qualified facility to produce electricity.
(3) Open-loop biomass
(A) In general
The term "open-loop biomass" means -
(i) any agricultural livestock waste nutrients, or
(ii) any solid, nonhazardous, cellulosic waste material or
any lignin material which is segregated from other waste
materials and which is derived from -
(I) any of the following forest-related resources: mill
and harvesting residues, precommercial thinnings, slash,
and brush,
(II) solid wood waste materials, including waste pallets,
crates, dunnage, manufacturing and construction wood wastes
(other than pressure-treated, chemically-treated, or
painted wood wastes), and landscape or right-of-way tree
trimmings, but not including municipal solid waste, gas
derived from the biodegradation of solid waste, or paper
which is commonly recycled, or
(III) agriculture sources, including orchard tree crops,
vineyard, grain, legumes, sugar, and other crop by-products
or residues.
Such term shall not include closed-loop biomass or biomass
burned in conjunction with fossil fuel (cofiring) beyond such
fossil fuel required for startup and flame stabilization.
(B) Agricultural livestock waste nutrients
(i) In general
The term "agricultural livestock waste nutrients" means
agricultural livestock manure and litter, including wood
shavings, straw, rice hulls, and other bedding material for
the disposition of manure.
(ii) Agricultural livestock
The term "agricultural livestock" includes bovine, swine,
poultry, and sheep.
(4) Geothermal energy
The term "geothermal energy" means energy derived from a
geothermal deposit (within the meaning of section 613(e)(2)).
(5) Small irrigation power
The term "small irrigation power" means power -
(A) generated without any dam or impoundment of water through
an irrigation system canal or ditch, and
(B) the nameplate capacity rating of which is not less than
150 kilowatts but is less than 5 megawatts.
(6) Municipal solid waste
The term "municipal solid waste" has the meaning given the term
"solid waste" under section 2(27) (!1) of the Solid Waste
Disposal Act (42 U.S.C. 6903).
(7) Refined coal
(A) In general
The term "refined coal" means a fuel which -
(i) is a liquid, gaseous, or solid fuel produced from coal
(including lignite) or high carbon fly ash, including such
fuel used as a feedstock,
(ii) is sold by the taxpayer with the reasonable
expectation that it will be used for (!2) purpose of
producing steam,
(iii) is certified by the taxpayer as resulting (when used
in the production of steam) in a qualified emission
reduction, and
(iv) is produced in such a manner as to result in an
increase of at least 50 percent in the market value of the
refined coal (excluding any increase caused by materials
combined or added during the production process), as compared
to the value of the feedstock coal.
(B) Qualified emission reduction
The term "qualified emission reduction" means a reduction of
at least 20 percent of the emissions of nitrogen oxide and
either sulfur dioxide or mercury released when burning the
refined coal (excluding any dilution caused by materials
combined or added during the production process), as compared
to the emissions released when burning the feedstock coal or
comparable coal predominantly available in the marketplace as
of January 1, 2003.
(8) Qualified hydropower production
(A) In general
The term "qualified hydropower production" means -
(i) in the case of any hydroelectric dam which was placed
in service on or before the date of the enactment of this
paragraph, the incremental hydropower production for the
taxable year, and
(ii) in the case of any nonhydroelectric dam described in
subparagraph (C), the hydropower production from the facility
for the taxable year.
(B) Determination of incremental hydropower production
(i) In general
For purposes of subparagraph (A), incremental hydropower
production for any taxable year shall be equal to the
percentage of average annual hydropower production at the
facility attributable to the efficiency improvements or
additions of capacity placed in service after the date of the
enactment of this paragraph, determined by using the same
water flow information used to determine an historic average
annual hydropower production baseline for such facility. Such
percentage and baseline shall be certified by the Federal
Energy Regulatory Commission.
(ii) Operational changes disregarded
For purposes of clause (i), the determination of
incremental hydropower production shall not be based on any
operational changes at such facility not directly associated
with the efficiency improvements or additions of capacity.
(C) Nonhydroelectric dam
For purposes of subparagraph (A), a facility is described in
this subparagraph if -
(i) the facility is licensed by the Federal Energy
Regulatory Commission and meets all other applicable
environmental, licensing, and regulatory requirements,
(ii) the facility was placed in service before the date of
the enactment of this paragraph and did not produce
hydroelectric power on the date of the enactment of this
paragraph, and
(iii) turbines or other generating devices are to be added
to the facility after such date to produce hydroelectric
power, but only if there is not any enlargement of the
diversion structure, or construction or enlargement of a
bypass channel, or the impoundment or any withholding of any
additional water from the natural stream channel.
(9) Indian coal
(A) In general
The term "Indian coal" means coal which is produced from coal
reserves which, on June 14, 2005 -
(i) were owned by an Indian tribe, or
(ii) were held in trust by the United States for the
benefit of an Indian tribe or its members.
(B) Indian tribe
For purposes of this paragraph, the term "Indian tribe" has
the meaning given such term by section 7871(c)(3)(E)(ii).
(d) Qualified facilities
For purposes of this section:
(1) Wind facility
In the case of a facility using wind to produce electricity,
the term "qualified facility" means any facility owned by the
taxpayer which is originally placed in service after December 31,
1993, and before January 1, 2008.
(2) Closed-loop biomass facility
(A) In general
In the case of a facility using closed-loop biomass to
produce electricity, the term "qualified facility" means any
facility -
(i) owned by the taxpayer which is originally placed in
service after December 31, 1992, and before January 1, 2008,
or
(ii) owned by the taxpayer which before January 1, 2008, is
originally placed in service and modified to use closed-loop
biomass to co-fire with coal, with other biomass, or with
both, but only if the modification is approved under the
Biomass Power for Rural Development Programs or is part of a
pilot project of the Commodity Credit Corporation as
described in 65 Fed. Reg. 63052.
(B) Special rules
In the case of a qualified facility described in subparagraph
(A)(ii) -
(i) the 10-year period referred to in subsection (a) shall
be treated as beginning no earlier than the date of the
enactment of this clause,
(ii) the amount of the credit determined under subsection
(a) with respect to the facility shall be an amount equal to
the amount determined without regard to this clause
multiplied by the ratio of the thermal content of the closed-
loop biomass used in such facility to the thermal content of
all fuels used in such facility, and
(iii) if the owner of such facility is not the producer of
the electricity, the person eligible for the credit allowable
under subsection (a) shall be the lessee or the operator of
such facility.
(3) Open-loop biomass facilities
(A) In general
In the case of a facility using open-loop biomass to produce
electricity, the term "qualified facility" means any facility
owned by the taxpayer which -
(i) in the case of a facility using agricultural livestock
waste nutrients -
(I) is originally placed in service after the date of the
enactment of this subclause and before January 1, 2008, and
(II) the nameplate capacity rating of which is not less
than 150 kilowatts, and
(ii) in the case of any other facility, is originally
placed in service before January 1, 2008.
(B) Credit eligibility
In the case of any facility described in subparagraph (A), if
the owner of such facility is not the producer of the
electricity, the person eligible for the credit allowable under
subsection (a) shall be the lessee or the operator of such
facility.
(4) Geothermal or solar energy facility
In the case of a facility using geothermal or solar energy to
produce electricity, the term "qualified facility" means any
facility owned by the taxpayer which is originally placed in
service after the date of the enactment of this paragraph and
before January 1, 2008 (January 1, 2006, in the case of a
facility using solar energy). Such term shall not include any
property described in section 48(a)(3) the basis of which is
taken into account by the taxpayer for purposes of determining
the energy credit under section 48.
(5) Small irrigation power facility
In the case of a facility using small irrigation power to
produce electricity, the term "qualified facility" means any
facility owned by the taxpayer which is originally placed in
service after the date of the enactment of this paragraph and
before January 1, 2008.
(6) Landfill gas facilities
In the case of a facility producing electricity from gas
derived from the biodegradation of municipal solid waste, the
term "qualified facility" means any facility owned by the
taxpayer which is originally placed in service after the date of
the enactment of this paragraph and before January 1, 2008.
(7) Trash combustion facilities
In the case of a facility which burns municipal solid waste to
produce electricity, the term "qualified facility" means any
facility owned by the taxpayer which is originally placed in
service after the date of the enactment of this paragraph and
before January 1, 2008. Such term shall include a new unit placed
in service in connection with a facility placed in service on or
before the date of the enactment of this paragraph, but only to
the extent of the increased amount of electricity produced at the
facility by reason of such new unit.
(8) Refined coal production facility
In the case of a facility that produces refined coal, the term
"refined coal production facility" means a facility which is
placed in service after the date of the enactment of this
paragraph and before January 1, 2009.
(9) Qualified hydropower facility
In the case of a facility producing qualified hydroelectric
production described in subsection (c)(8), the term "qualified
facility" means -
(A) in the case of any facility producing incremental
hydropower production, such facility but only to the extent of
its incremental hydropower production attributable to
efficiency improvements or additions to capacity described in
subsection (c)(8)(B) placed in service after the date of the
enactment of this paragraph and before January 1, 2008, and
(B) any other facility placed in service after the date of
the enactment of this paragraph and before January 1, 2008.
(C) Credit period. - In the case of a qualified facility
described in subparagraph (A), the 10-year period referred to
in subsection (a) shall be treated as beginning on the date the
efficiency improvements or additions to capacity are placed in
service.
(10) Indian coal production facility
In the case of a facility that produces Indian coal, the term
"Indian coal production facility" means a facility which is
placed in service before January 1, 2009.
(e) Definitions and special rules
For purposes of this section -
(1) Only production in the United States taken into account
Sales shall be taken into account under this section only with
respect to electricity the production of which is within -
(A) the United States (within the meaning of section 638(1)),
or
(B) a possession of the United States (within the meaning of
section 638(2)).
(2) Computation of inflation adjustment factor and reference
price
(A) In general
The Secretary shall, not later than April 1 of each calendar
year, determine and publish in the Federal Register the
inflation adjustment factor and the reference price for such
calendar year in accordance with this paragraph.
(B) Inflation adjustment factor
The term "inflation adjustment factor" means, with respect to
a calendar year, a fraction the numerator of which is the GDP
implicit price deflator for the preceding calendar year and the
denominator of which is the GDP implicit price deflator for the
calendar year 1992. The term "GDP implicit price deflator"
means the most recent revision of the implicit price deflator
for the gross domestic product as computed and published by the
Department of Commerce before March 15 of the calendar year.
(C) Reference price
The term "reference price" means, with respect to a calendar
year, the Secretary's determination of the annual average
contract price per kilowatt hour of electricity generated from
the same qualified energy resource and sold in the previous
year in the United States. For purposes of the preceding
sentence, only contracts entered into after December 31, 1989,
shall be taken into account.
(3) Production attributable to the taxpayer
In the case of a facility in which more than 1 person has an
ownership interest, except to the extent provided in regulations
prescribed by the Secretary, production from the facility shall
be allocated among such persons in proportion to their respective
ownership interests in the gross sales from such facility.
(4) Related persons
Persons shall be treated as related to each other if such
persons would be treated as a single employer under the
regulations prescribed under section 52(b). In the case of a
corporation which is a member of an affiliated group of
corporations filing a consolidated return, such corporation shall
be treated as selling electricity to an unrelated person if such
electricity is sold to such a person by another member of such
group.
(5) Pass-thru in the case of estates and trusts
Under regulations prescribed by the Secretary, rules similar to
the rules of subsection (d) of section 52 shall apply.
[(6) Repealed. Pub. L. 109-58, title XIII, Sec. 1301(f)(3), Aug.
8, 2005, 119 Stat. 990]
(7) Credit not to apply to electricity sold to utilities under
certain contracts
(A) In general
The credit determined under subsection (a) shall not apply to
electricity -
(i) produced at a qualified facility described in
subsection (d)(1) which is placed in service by the taxpayer
after June 30, 1999, and
(ii) sold to a utility pursuant to a contract originally
entered into before January 1, 1987 (whether or not amended
or restated after that date).
(B) Exception
Subparagraph (A) shall not apply if -
(i) the prices for energy and capacity from such facility
are established pursuant to an amendment to the contract
referred to in subparagraph (A)(ii),
(ii) such amendment provides that the prices set forth in
the contract which exceed avoided cost prices determined at
the time of delivery shall apply only to annual quantities of
electricity (prorated for partial years) which do not exceed
the greater of -
(I) the average annual quantity of electricity sold to
the utility under the contract during calendar years 1994,
1995, 1996, 1997, and 1998, or
(II) the estimate of the annual electricity production
set forth in the contract, or, if there is no such
estimate, the greatest annual quantity of electricity sold
to the utility under the contract in any of the calendar
years 1996, 1997, or 1998, and
(iii) such amendment provides that energy and capacity in
excess of the limitation in clause (ii) may be -
(I) sold to the utility only at prices that do not exceed
avoided cost prices determined at the time of delivery, or
(II) sold to a third party subject to a mutually agreed
upon advance notice to the utility.
For purposes of this subparagraph, avoided cost prices shall be
determined as provided for in 18 CFR 292.304(d)(1) or any
successor regulation.
(8) Refined coal production facilities
(A) Determination of credit amount
In the case of a producer of refined coal, the credit
determined under this section (without regard to this
paragraph) for any taxable year shall be increased by an amount
equal to $4.375 per ton of qualified refined coal -
(i) produced by the taxpayer at a refined coal production
facility during the 10-year period beginning on the date the
facility was originally placed in service, and
(ii) sold by the taxpayer -
(I) to an unrelated person, and
(II) during such 10-year period and such taxable year.
(B) Phaseout of credit
The amount of the increase determined under subparagraph (A)
shall be reduced by an amount which bears the same ratio to the
amount of the increase (determined without regard to this
subparagraph) as -
(i) the amount by which the reference price of fuel used as
a feedstock (within the meaning of subsection (c)(7)(A)) for
the calendar year in which the sale occurs exceeds an amount
equal to 1.7 multiplied by the reference price for such fuel
in 2002, bears to
(ii) $8.75.
(C) Application of rules
Rules similar to the rules of the subsection (b)(3) and
paragraphs (1) through (5) of this subsection shall apply for
purposes of determining the amount of any increase under this
paragraph.
(9) Coordination with credit for producing fuel from a
nonconventional source
(A) In general
The term "qualified facility" shall not include any facility
which produces electricity from gas derived from the
biodegradation of municipal solid waste if such biodegradation
occurred in a facility (within the meaning of section 45K) the
production from which is allowed as a credit under section 45K
for the taxable year or any prior taxable year.
(B) Refined coal facilities
The term "refined coal production facility" shall not include
any facility the production from which is allowed as a credit
under section 45K for the taxable year or any prior taxable
year (or under section 29,(!1) as in effect on the day before
the date of enactment of the Energy Tax Incentives Act of 2005,
for any prior taxable year).
(10) Indian coal production facilities
(A) Determination of credit amount
In the case of a producer of Indian coal, the credit
determined under this section (without regard to this
paragraph) for any taxable year shall be increased by an amount
equal to the applicable dollar amount per ton of Indian coal -
(i) produced by the taxpayer at an Indian coal production
facility during the 7-year period beginning on January 1,
2006, and
(ii) sold by the taxpayer -
(I) to an unrelated person, and
(II) during such 7-year period and such taxable year.
(B) Applicable dollar amount
(i) In general
The term "applicable dollar amount" for any taxable year
beginning in a calendar year means -
(I) $1.50 in the case of calendar years 2006 through
2009, and
(II) $2.00 in the case of calendar years beginning after
2009.
(ii) Inflation adjustment
In the case of any calendar year after 2006, each of the
dollar amounts under clause (i) shall be equal to the product
of such dollar amount and the inflation adjustment factor
determined under paragraph (2)(B) for the calendar year,
except that such paragraph shall be applied by substituting
"2005" for "1992".
(C) Application of rules
Rules similar to the rules of the subsection (b)(3) and
paragraphs (1), (3), (4), and (5) of this subsection shall
apply for purposes of determining the amount of any increase
under this paragraph.
(D) Treatment as specified credit
The increase in the credit determined under subsection (a) by
reason of this paragraph with respect to any facility shall be
treated as a specified credit for purposes of section
38(c)(4)(A) during the 4-year period beginning on the later of
January 1, 2006, or the date on which such facility is placed
in service by the taxpayer.
(11) Allocation of credit to patrons of agricultural cooperative
(A) Election to allocate
(i) In general
In the case of an eligible cooperative organization, any
portion of the credit determined under subsection (a) for the
taxable year may, at the election of the organization, be
apportioned among patrons of the organization on the basis of
the amount of business done by the patrons during the taxable
year.
(ii) Form and effect of election
An election under clause (i) for any taxable year shall be
made on a timely filed return for such year. Such election,
once made, shall be irrevocable for such taxable year. Such
election shall not take effect unless the organization
designates the apportionment as such in a written notice
mailed to its patrons during the payment period described in
section 1382(d).
(B) Treatment of organizations and patrons
The amount of the credit apportioned to any patrons under
subparagraph (A) -
(i) shall not be included in the amount determined under
subsection (a) with respect to the organization for the
taxable year, and
(ii) shall be included in the amount determined under
subsection (a) for the first taxable year of each patron
ending on or after the last day of the payment period (as
defined in section 1382(d)) for the taxable year of the
organization or, if earlier, for the taxable year of each
patron ending on or after the date on which the patron
receives notice from the cooperative of the apportionment.
(C) Special rules for decrease in credits for taxable year
If the amount of the credit of a cooperative organization
determined under subsection (a) for a taxable year is less than
the amount of such credit shown on the return of the
cooperative organization for such year, an amount equal to the
excess of -
(i) such reduction, over
(ii) the amount not apportioned to such patrons under
subparagraph (A) for the taxable year,
shall be treated as an increase in tax imposed by this chapter
on the organization. Such increase shall not be treated as tax
imposed by this chapter for purposes of determining the amount
of any credit under this chapter.
(D) Eligible cooperative defined
For purposes of this section the term "eligible cooperative"
means a cooperative organization described in section 1381(a)
which is owned more than 50 percent by agricultural producers
or by entities owned by agricultural producers. For this
purpose an entity owned by an agricultural producer is one that
is more than 50 percent owned by agricultural producers.
-SOURCE-
(Added Pub. L. 102-486, title XIX, Sec. 1914(a), Oct. 24, 1992, 106
Stat. 3020; amended Pub. L. 106-170, title V, Sec. 507(a)-(c), Dec.
17, 1999, 113 Stat. 1922; Pub. L. 106-554, Sec. 1(a)(7) [title III,
Sec. 319(1)], Dec. 21, 2000, 114 Stat. 2763, 2763A-646; Pub. L. 107-
147, title VI, Sec. 603(a), Mar. 9, 2002, 116 Stat. 59; Pub. L.
108-311, title III, Sec. 313(a), Oct. 4, 2004, 118 Stat. 1181; Pub.
L. 108-357, title VII, Sec. 710(a)-(d), (f), Oct. 22, 2004, 118
Stat. 1552-1557; Pub. L. 109-58, title XIII, Secs. 1301(a)-(f)(4),
1302(a), 1322(a)(3)(C), Aug. 8, 2005, 119 Stat. 986-990, 1011; Pub.
L. 109-135, title IV, Secs. 402(b), 403(t), 412(j), Dec. 21, 2005,
119 Stat. 2610, 2628, 2637.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this paragraph, and the date of the
enactment of this subclause, referred to in subsecs. (b)(4)(B)(ii)
and (d)(3) to (8), is the date of enactment of Pub. L. 108-357,
which was approved Oct. 22, 2004.
The date of the enactment of this clause and the date of the
enactment of this paragraph, referred to in subsecs.
(b)(4)(B)(iii), (c)(8), and (d)(9)(A), (B), are the date of
enactment of Pub. L. 109-58, which was approved Aug. 8, 2005.
Section 2(27) of the Solid Waste Disposal Act, referred to in
subsec. (c)(6), probably should be section 1004(27) of such Act
which is classified to section 6903(27) of Title 42, The Public
Health and Welfare.
Section 29, referred to in subsec. (e)(9)(B), was redesignated
section 45K of this title by Pub. L. 109-58, title XIII, Sec.
1322(a)(1), Aug. 8, 2005, 119 Stat. 1011.
The date of enactment of the Energy Tax Incentives Act of 2005,
referred to in subsec. (e)(9)(B), is the date of enactment of title
XIII of Pub. L. 109-58, which was approved Aug. 8, 2005.
-MISC1-
PRIOR PROVISIONS
A prior section 45 was renumbered section 36 of this title.
AMENDMENTS
2005 - Subsec. (b)(4)(A). Pub. L. 109-58, Sec. 1301(c)(2),
substituted "(7), or (9)" for "or (7)".
Subsec. (b)(4)(B)(i). Pub. L. 109-58, Sec. 1301(b)(1), inserted
"or clause (iii)" after "clause (ii)".
Subsec. (b)(4)(B)(ii). Pub. L. 109-58, Sec. 1301(f)(1),
substituted "January 1, 2005," for "the date of the enactment of
this Act".
Subsec. (b)(4)(B)(iii). Pub. L. 109-58, Sec. 1301(b)(2), added
cl. (iii).
Subsec. (c). Pub. L. 109-58, Sec. 1301(d)(4), substituted
"Resources" for "Qualified energy resources and refined coal" in
heading.
Subsec. (c)(1)(H). Pub. L. 109-58, Sec. 1301(c)(1), added subpar.
(H).
Subsec. (c)(3)(A)(ii). Pub. L. 109-135, Sec. 402(b), substituted
"lignin material" for "nonhazardous lignin waste material".
Pub. L. 109-58, Sec. 1301(f)(2), inserted "or any nonhazardous
lignin waste material" after "cellulosic waste material".
Subsec. (c)(7)(A)(i). Pub. L. 109-135, Sec. 403(t), struck out
"synthetic" after "solid".
Subsec. (c)(8). Pub. L. 109-58, Sec. 1301(c)(3), added par. (8).
Subsec. (c)(9). Pub. L. 109-58, Sec. 1301(d)(2), added par. (9).
Subsec. (d)(1) to (3). Pub. L. 109-58, Sec. 1301(a)(1),
substituted "January 1, 2008" for "January 1, 2006" wherever
appearing.
Subsec. (d)(4). Pub. L. 109-58, Sec. 1301(a)(2), substituted
"January 1, 2008 (January 1, 2006, in the case of a facility using
solar energy)" for "January 1, 2006".
Subsec. (d)(5), (6). Pub. L. 109-58, Sec. 1301(a)(1), substituted
"January 1, 2008" for "January 1, 2006".
Subsec. (d)(7). Pub. L. 109-58, Sec. 1301(e), inserted at end
"Such term shall include a new unit placed in service in connection
with a facility placed in service on or before the date of the
enactment of this paragraph, but only to the extent of the
increased amount of electricity produced at the facility by reason
of such new unit."
Pub. L. 109-58, Sec. 1301(a)(1), substituted "January 1, 2008"
for "January 1, 2006".
Subsec. (d)(8). Pub. L. 109-135, Sec. 412(j)(1), substituted "In
the case of a facility that produces refined coal, the term" for
"The term".
Subsec. (d)(9). Pub. L. 109-58, Sec. 1301(c)(4), added par. (9).
Subsec. (d)(10). Pub. L. 109-135, Sec. 412(j)(2), substituted "In
the case of a facility that produces Indian coal, the term" for
"The term".
Pub. L. 109-58, Sec. 1301(d)(3), added par. (10).
Subsec. (e)(6). Pub. L. 109-58, Sec. 1301(f)(3), struck out
heading and text of par. (6). Text read as follows: "In the case of
a facility using poultry waste to produce electricity and owned by
a governmental unit, the person eligible for the credit under
subsection (a) is the lessee or the operator of such facility."
Subsec. (e)(8)(C). Pub. L. 109-58, Sec. 1301(f)(4)(B), struck out
"and (9)" after "paragraphs (1) through (5)".
Subsec. (e)(9). Pub. L. 109-58, Sec. 1322(a)(3)(C)(i),
substituted "section 45K" for "section 29" wherever appearing.
Pub. L. 109-58, Sec. 1301(f)(4)(A), reenacted heading without
change and amended text of par. (9) generally. Prior to amendment,
text read as follows: "The term 'qualified facility' shall not
include any facility the production from which is allowed as a
credit under section 29 for the taxable year or any prior taxable
year."
Subsec. (e)(9)(B). Pub. L. 109-58, Sec. 1322(a)(3)(C)(ii),
inserted "(or under section 29, as in effect on the day before the
date of enactment of the Energy Tax Incentives Act of 2005, for any
prior taxable year)" before period at end.
Subsec. (e)(10). Pub. L. 109-58, Sec. 1301(d)(1), added par.
(10).
Subsec. (e)(11). Pub. L. 109-58, Sec. 1302(a), added par. (11).
2004 - Pub. L. 108-357, Sec. 710(b)(3)(B), inserted ", etc" after
"resources" in section catchline.
Subsec. (b)(2). Pub. L. 108-357, Sec. 710(b)(3)(C), substituted
"The 1.5 cent amount in subsection (a), the 8 cent amount in
paragraph (1), the $4.375 amount in subsection (e)(8)(A), and in
subsection (e)(8)(B)(i) the reference price of fuel used as a
feedstock (within the meaning of subsection (c)(7)(A)) in 2002" for
"The 1.5 cent amount in subsection (a) and the 8 cent amount in
paragraph (1)".
Subsec. (b)(3). Pub. L. 108-357, Sec. 710(f), inserted "the
lesser of 1/2 or" before "a fraction" in introductory provisions
and "This paragraph shall not apply with respect to any facility
described in subsection (d)(2)(A)(ii)" in concluding provisions.
Subsec. (b)(4). Pub. L. 108-357, Sec. 710(c), added par. (4).
Subsec. (c). Pub. L. 108-357, Sec. 710(a), amended heading and
text of subsec. (c) generally. Prior to amendment, subsec. (c)
defined "qualified energy resources", "closed-loop biomass",
"qualified facility", and "poultry waste" for purposes of this
section.
Subsec. (c)(3). Pub. L. 108-311 substituted "January 1, 2006" for
"January 1, 2004" in subpars. (A) to (C).
Subsec. (d). Pub. L. 108-357, Sec. 710(b)(1), added subsec. (d).
Former subsec. (d) redesignated (e).
Subsec. (e). Pub. L. 108-357, Sec. 710(b)(1), redesignated
subsec. (d) as (e).
Subsec. (e)(7)(A)(i). Pub. L. 108-357, Sec. 710(b)(3)(A),
substituted "subsection (d)(1)" for "subsection (c)(3)(A)".
Subsec. (e)(8). Pub. L. 108-357, Sec. 710(b)(2), added par. (8).
Subsec. (e)(9). Pub. L. 108-357, Sec. 710(d), added par. (9).
2002 - Subsec. (c)(3). Pub. L. 107-147 substituted "2004" for
"2002" in subpars. (A) to (C).
2000 - Subsec. (d)(7)(A)(i). Pub. L. 106-554 substituted
"subsection (c)(3)(A)" for "paragraph (3)(A)".
1999 - Subsec. (c)(1)(C). Pub. L. 106-170, Sec. 507(b)(1), added
subpar. (C).
Subsec. (c)(3). Pub. L. 106-170, Sec. 507(a), reenacted heading
without change and amended text generally. Prior to amendment, text
read as follows: "The term 'qualified facility' means any facility
owned by the taxpayer which is originally placed in service after
December 31, 1993 (December 31, 1992, in the case of a facility
using closed-loop biomass to produce electricity), and before July
1, 1999."
Subsec. (c)(4). Pub. L. 106-170, Sec. 507(b)(2), added par. (4).
Subsec. (d)(6), (7). Pub. L. 106-170, Sec. 507(c), added pars.
(6) and (7).
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendment by section 402(b) of Pub. L. 109-135 effective as if
included in the provision of the Energy Policy Act of 2005, Pub. L.
109-58, to which such amendment relates, see section 402(m)(1) of
Pub. L. 109-135, set out as an Effective and Termination Dates of
2005 Amendments note under section 23 of this title.
Amendment by section 403(t) of Pub. L. 109-135 effective as if
included in the provisions of the American Jobs Creation Act of
2004, Pub. L. 108-357, to which such amendment relates, see section
403(nn) of Pub. L. 109-135, set out as a note under section 26 of
this title.
Pub. L. 109-58, title XIII, Sec. 1301(g), Aug. 8, 2005, 119 Stat.
990, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
168 of this title and amending provisions set out as a note under
this section] shall take effect of [on] the date of the enactment
of this Act [Aug. 8, 2005].
"(2) Technical amendments. - The amendments made by subsections
(e) and (f) [amending this section and section 168 of this title
and amending provisions set out as a note under this section] shall
take effect as if included in the amendments made by section 710 of
the American Jobs Creation Act of 2004 [Pub. L. 108-357]."
Pub. L. 109-58, title XIII, Sec. 1302(c), Aug. 8, 2005, 119 Stat.
991, provided that: "The amendments made by this section [amending
this section and section 55 of this title] shall apply to taxable
years of cooperative organizations ending after the date of the
enactment of this Act [Aug. 8, 2005]."
Amendment by section 1322(a)(3)(C) of Pub. L. 109-58 applicable
to credits determined under the Internal Revenue Code of 1986 for
taxable years ending after Dec. 31, 2005, see section 1322(c)(1) of
Pub. L. 109-58, set out as a note under section 45K of this title.
EFFECTIVE DATE OF 2004 AMENDMENTS
Pub. L. 108-357, title VII, Sec. 710(g), Oct. 22, 2004, 118 Stat.
1557, as amended by Pub. L. 109-58, title XIII, Sec. 1301(f)(6),
Aug. 8, 2005, 119 Stat. 990, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and section 48 of this title] shall apply to electricity
produced and sold after the date of the enactment of this Act [Oct.
22, 2004], in taxable years ending after such date.
"(2) Certain biomass facilities. - With respect to any facility
described in section 45(d)(3)(A)(ii) of the Internal Revenue Code
of 1986, as added by subsection (b)(1), which is placed in service
before the date of the enactment of this Act, the amendments made
by this section shall apply to electricity produced and sold after
December 31, 2004, in taxable years ending after such date.
"(3) Credit rate and period for new facilities. - The amendments
made by subsection (c) [amending this section] shall apply to
electricity produced and sold after December 31, 2004, in taxable
years ending after such date.
"(4) Nonapplication of amendments to preeffective date poultry
waste facilities. - The amendments made by this section shall not
apply with respect to any poultry waste facility (within the
meaning of section 45(c)(3)(C), as in effect on the day before the
date of the enactment of this Act) placed in service before January
1, 2005.
"(5) Refined coal production facilities. - Section 45(e)(8) of
the Internal Revenue Code of 1986, as added by this section, shall
apply to refined coal produced and sold after the date of the
enactment of this Act."
Pub. L. 108-311, title III, Sec. 313(b), Oct. 4, 2004, 118 Stat.
1181, provided that: "The amendments made by subsection (a)
[amending this section] shall apply to facilities placed in service
after December 31, 2003."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title VI, Sec. 603(b), Mar. 9, 2002, 116 Stat.
59, provided that: "The amendments made by subsection (a) [amending
this section] shall apply to facilities placed in service after
December 31, 2001."
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 507(d), Dec. 17, 1999, 113 Stat.
1923, provided that: "The amendments made by this section [amending
this section] shall take effect on the date of the enactment of
this Act [Dec. 17, 1999]."
EFFECTIVE DATE
Section applicable to taxable years ending after Dec. 31, 1992,
see section 1914(e) of Pub. L. 102-486, set out as an Effective
Date of 1992 Amendment note under section 38 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
(!2) So in original. The word "the" probably should follow.
-End-
-CITE-
26 USC Sec. 45A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45A. Indian employment credit
-STATUTE-
(a) Amount of credit
For purposes of section 38, the amount of the Indian employment
credit determined under this section with respect to any employer
for any taxable year is an amount equal to 20 percent of the excess
(if any) of -
(1) the sum of -
(A) the qualified wages paid or incurred during such taxable
year, plus
(B) qualified employee health insurance costs paid or
incurred during such taxable year, over
(2) the sum of the qualified wages and qualified employee
health insurance costs (determined as if this section were in
effect) which were paid or incurred by the employer (or any
predecessor) during calendar year 1993.
(b) Qualified wages; qualified employee health insurance costs
For purposes of this section -
(1) Qualified wages
(A) In general
The term "qualified wages" means any wages paid or incurred
by an employer for services performed by an employee while such
employee is a qualified employee.
(B) Coordination with work opportunity credit
The term "qualified wages" shall not include wages
attributable to service rendered during the 1-year period
beginning with the day the individual begins work for the
employer if any portion of such wages is taken into account in
determining the credit under section 51.
(2) Qualified employee health insurance costs
(A) In general
The term "qualified employee health insurance costs" means
any amount paid or incurred by an employer for health insurance
to the extent such amount is attributable to coverage provided
to any employee while such employee is a qualified employee.
(B) Exception for amounts paid under salary reduction
arrangements
No amount paid or incurred for health insurance pursuant to a
salary reduction arrangement shall be taken into account under
subparagraph (A).
(3) Limitation
The aggregate amount of qualified wages and qualified employee
health insurance costs taken into account with respect to any
employee for any taxable year (and for the base period under
subsection (a)(2)) shall not exceed $20,000.
(c) Qualified employee
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, the term
"qualified employee" means, with respect to any period, any
employee of an employer if -
(A) the employee is an enrolled member of an Indian tribe or
the spouse of an enrolled member of an Indian tribe,
(B) substantially all of the services performed during such
period by such employee for such employer are performed within
an Indian reservation, and
(C) the principal place of abode of such employee while
performing such services is on or near the reservation in which
the services are performed.
(2) Individuals receiving wages in excess of $30,000 not eligible
An employee shall not be treated as a qualified employee for
any taxable year of the employer if the total amount of the wages
paid or incurred by such employer to such employee during such
taxable year (whether or not for services within an Indian
reservation) exceeds the amount determined at an annual rate of
$30,000.
(3) Inflation adjustment
The Secretary shall adjust the $30,000 amount under paragraph
(2) for years beginning after 1994 at the same time and in the
same manner as under section 415(d), except that the base period
taken into account for purposes of such adjustment shall be the
calendar quarter beginning October 1, 1993.
(4) Employment must be trade or business employment
An employee shall be treated as a qualified employee for any
taxable year of the employer only if more than 50 percent of the
wages paid or incurred by the employer to such employee during
such taxable year are for services performed in a trade or
business of the employer. Any determination as to whether the
preceding sentence applies with respect to any employee for any
taxable year shall be made without regard to subsection (e)(2).
(5) Certain employees not eligible
The term "qualified employee" shall not include -
(A) any individual described in subparagraph (A), (B), or (C)
of section 51(i)(1),
(B) any 5-percent owner (as defined in section 416(i)(1)(B)),
and
(C) any individual if the services performed by such
individual for the employer involve the conduct of class I, II,
or III gaming as defined in section 4 of the Indian Gaming
Regulatory Act (25 U.S.C. 2703), or are performed in a building
housing such gaming activity.
(6) Indian tribe defined
The term "Indian tribe" means any Indian tribe, band, nation,
pueblo, or other organized group or community, including any
Alaska Native village, or regional or village corporation, as
defined in, or established pursuant to, the Alaska Native Claims
Settlement Act (43 U.S.C. 1601 et seq.) which is recognized as
eligible for the special programs and services provided by the
United States to Indians because of their status as Indians.
(7) Indian reservation defined
The term "Indian reservation" has the meaning given such term
by section 168(j)(6).
(d) Early termination of employment by employer
(1) In general
If the employment of any employee is terminated by the taxpayer
before the day 1 year after the day on which such employee began
work for the employer -
(A) no wages (or qualified employee health insurance costs)
with respect to such employee shall be taken into account under
subsection (a) for the taxable year in which such employment is
terminated, and
(B) the tax under this chapter for the taxable year in which
such employment is terminated shall be increased by the
aggregate credits (if any) allowed under section 38(a) for
prior taxable years by reason of wages (or qualified employee
health insurance costs) taken into account with respect to such
employee.
(2) Carrybacks and carryovers adjusted
In the case of any termination of employment to which paragraph
(1) applies, the carrybacks and carryovers under section 39 shall
be properly adjusted.
(3) Subsection not to apply in certain cases
(A) In general
Paragraph (1) shall not apply to -
(i) a termination of employment of an employee who
voluntarily leaves the employment of the taxpayer,
(ii) a termination of employment of an individual who
before the close of the period referred to in paragraph (1)
becomes disabled to perform the services of such employment
unless such disability is removed before the close of such
period and the taxpayer fails to offer reemployment to such
individual, or
(iii) a termination of employment of an individual if it is
determined under the applicable State unemployment
compensation law that the termination was due to the
misconduct of such individual.
(B) Changes in form of business
For purposes of paragraph (1), the employment relationship
between the taxpayer and an employee shall not be treated as
terminated -
(i) by a transaction to which section 381(a) applies if the
employee continues to be employed by the acquiring
corporation, or
(ii) by reason of a mere change in the form of conducting
the trade or business of the taxpayer if the employee
continues to be employed in such trade or business and the
taxpayer retains a substantial interest in such trade or
business.
(4) Special rule
Any increase in tax under paragraph (1) shall not be treated as
a tax imposed by this chapter for purposes of -
(A) determining the amount of any credit allowable under this
chapter, and
(B) determining the amount of the tax imposed by section 55.
(e) Other definitions and special rules
For purposes of this section -
(1) Wages
The term "wages" has the same meaning given to such term in
section 51.
(2) Controlled groups
(A) All employers treated as a single employer under section
(a) or (b) of section 52 shall be treated as a single employer
for purposes of this section.
(B) The credit (if any) determined under this section with
respect to each such employer shall be its proportionate share of
the wages and qualified employee health insurance costs giving
rise to such credit.
(3) Certain other rules made applicable
Rules similar to the rules of section 51(k) and subsections
(c), (d), and (e) of section 52 shall apply.
(4) Coordination with nonrevenue laws
Any reference in this section to a provision not contained in
this title shall be treated for purposes of this section as a
reference to such provision as in effect on the date of the
enactment of this paragraph.
(5) Special rule for short taxable years
For any taxable year having less than 12 months, the amount
determined under subsection (a)(2) shall be multiplied by a
fraction, the numerator of which is the number of days in the
taxable year and the denominator of which is 365.
(f) Termination
This section shall not apply to taxable years beginning after
December 31, 2005.
-SOURCE-
(Added Pub. L. 103-66, title XIII, Sec. 13322(b), Aug. 10, 1993,
107 Stat. 559; amended Pub. L. 104-188, title I, Sec. 1201(e)(1),
Aug. 20, 1996, 110 Stat. 1772; Pub. L. 105-206, title VI, Sec.
6023(1), July 22, 1998, 112 Stat. 824; Pub. L. 107-147, title VI,
Sec. 613(a), Mar. 9, 2002, 116 Stat. 61; Pub. L. 108-311, title
III, Sec. 315, title IV, Sec. 404(b)(1), Oct. 4, 2004, 118 Stat.
1181, 1188.)
-REFTEXT-
REFERENCES IN TEXT
The Alaska Native Claims Settlement Act, referred to in subsec.
(c)(6), is Pub. L. 92-203, Dec. 18, 1971, 85 Stat. 688, as amended,
which is classified generally to chapter 33 (Sec. 1601 et seq.) of
Title 43, Public Lands. For complete classification of this Act to
the Code, see Short Title note set out under section 1601 of Title
43 and Tables.
The date of the enactment of this paragraph, referred to in
subsec. (e)(4), is the date of enactment of Pub. L. 103-66, which
was approved Aug. 10, 1993.
-MISC1-
AMENDMENTS
2004 - Subsec. (c)(3). Pub. L. 108-311, Sec. 404(b)(1), inserted
", except that the base period taken into account for purposes of
such adjustment shall be the calendar quarter beginning October 1,
1993" before period at end.
Subsec. (f). Pub. L. 108-311, Sec. 315, substituted "December 31,
2005" for "December 31, 2004".
2002 - Subsec. (f). Pub. L. 107-147 substituted "December 31,
2004" for "December 31, 2003".
1998 - Subsec. (b)(1)(B). Pub. L. 105-206 substituted "work
opportunity credit" for "targeted jobs credit" in heading.
1996 - Subsec. (b)(1)(B). Pub. L. 104-188, which directed that
subsec. (b)(1)(B) of this section be amended in the text by
substituting "work opportunity credit" for "targeted jobs credit",
could not be executed because the words "targeted jobs credit" did
not appear in the text.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-311, title IV, Sec. 404(f), Oct. 4, 2004, 118 Stat.
1188, provided that: "The amendments made by this section [amending
this section and sections 403, 408, 415, 530, and 4972 of this
title] shall take effect as if included in the provisions of the
Economic Growth and Tax Relief Reconciliation Act of 2001 [Pub. L.
107-16] to which they relate."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to individuals who begin
work for the employer after Sept. 30, 1996, see section 1201(g) of
Pub. L. 104-188, set out as a note under section 38 of this title.
EFFECTIVE DATE
Section applicable to wages paid or incurred after Dec. 31, 1993,
see section 13322(f) of Pub. L. 103-66, set out as an Effective
Date of 1993 Amendment note under section 38 of this title.
-End-
-CITE-
26 USC Sec. 45B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45B. Credit for portion of employer social security taxes paid
with respect to employee cash tips
-STATUTE-
(a) General rule
For purposes of section 38, the employer social security credit
determined under this section for the taxable year is an amount
equal to the excess employer social security tax paid or incurred
by the taxpayer during the taxable year.
(b) Excess employer social security tax
For purposes of this section -
(1) In general
The term "excess employer social security tax" means any tax
paid by an employer under section 3111 with respect to tips
received by an employee during any month, to the extent such tips
-
(A) are deemed to have been paid by the employer to the
employee pursuant to section 3121(q) (without regard to whether
such tips are reported under section 6053), and
(B) exceed the amount by which the wages (excluding tips)
paid by the employer to the employee during such month are less
than the total amount which would be payable (with respect to
such employment) at the minimum wage rate applicable to such
individual under section 6(a)(1) of the Fair Labor Standards
Act of 1938 (determined without regard to section 3(m) of such
Act).
(2) Only tips received for food or beverages taken into account
In applying paragraph (1), there shall be taken into account
only tips received from customers in connection with the
providing, delivering, or serving of food or beverages for
consumption if the tipping of employees delivering or serving
food or beverages by customers is customary.
(c) Denial of double benefit
No deduction shall be allowed under this chapter for any amount
taken into account in determining the credit under this section.
(d) Election not to claim credit
This section shall not apply to a taxpayer for any taxable year
if such taxpayer elects to have this section not apply for such
taxable year.
-SOURCE-
(Added Pub. L. 103-66, title XIII, Sec. 13443(a), Aug. 10, 1993,
107 Stat. 568; amended Pub. L. 104-188, title I, Sec. 1112(a)(1),
(b)(1), Aug. 20, 1996, 110 Stat. 1759.)
-REFTEXT-
REFERENCES IN TEXT
Sections 3(m) and 6(a)(1) of the Fair Labor Standards Act of
1938, referred to in subsec. (b)(1)(B), are classified to sections
203(m) and 206(a)(1), respectively, of Title 29, Labor.
-MISC1-
AMENDMENTS
1996 - Subsec. (b)(1)(A). Pub. L. 104-188, Sec. 1112(a)(1),
inserted "(without regard to whether such tips are reported under
section 6053)" after "section 3121(q)".
Subsec. (b)(2). Pub. L. 104-188, Sec. 1112(b)(1), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "Only
tips received at food and beverage establishments taken into
account. - In applying paragraph (1), there shall be taken into
account only tips received from customers in connection with the
provision of food or beverages for consumption on the premises of
an establishment with respect to which the tipping of employees
serving food or beverages by customers is customary."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1112(a)(3) of Pub. L. 104-188 provided that: "The
amendments made by this subsection [amending this section and
provisions set out as a note under section 38 of this title] shall
take effect as if included in the amendments made by, and the
provisions of, section 13443 of the Revenue Reconciliation Act of
1993 [Pub. L. 103-66]."
Section 1112(b)(2) of Pub. L. 104-188 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to tips received for services performed after December 31, 1996."
EFFECTIVE DATE
Section applicable with respect to taxes paid after Dec. 31,
1993, with respect to services performed before, on, or after such
date, see section 13443(d) of Pub. L. 103-66, as amended, set out
as an Effective Date of 1993 Amendment note under section 38 of
this title.
-End-
-CITE-
26 USC Sec. 45C 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45C. Clinical testing expenses for certain drugs for rare
diseases or conditions
-STATUTE-
(a) General rule
For purposes of section 38, the credit determined under this
section for the taxable year is an amount equal to 50 percent of
the qualified clinical testing expenses for the taxable year.
(b) Qualified clinical testing expenses
For purposes of this section -
(1) Qualified clinical testing expenses
(A) In general
Except as otherwise provided in this paragraph, the term
"qualified clinical testing expenses" means the amounts which
are paid or incurred by the taxpayer during the taxable year
which would be described in subsection (b) of section 41 if
such subsection were applied with the modifications set forth
in subparagraph (B).
(B) Modifications
For purposes of subparagraph (A), subsection (b) of section
41 shall be applied -
(i) by substituting "clinical testing" for "qualified
research" each place it appears in paragraphs (2) and (3) of
such subsection, and
(ii) by substituting "100 percent" for "65 percent" in
paragraph (3)(A) of such subsection.
(C) Exclusion for amounts funded by grants, etc.
The term "qualified clinical testing expenses" shall not
include any amount to the extent such amount is funded by any
grant, contract, or otherwise by another person (or any
governmental entity).
(D) Special rule
For purposes of this paragraph, section 41 shall be deemed to
remain in effect for periods after June 30, 1995, and before
July 1, 1996, and periods after December 31, 2005.
(2) Clinical testing
(A) In general
The term "clinical testing" means any human clinical testing -
(i) which is carried out under an exemption for a drug
being tested for a rare disease or condition under section
505(i) of the Federal Food, Drug, and Cosmetic Act (or
regulations issued under such section),
(ii) which occurs -
(I) after the date such drug is designated under section
526 of such Act, and
(II) before the date on which an application with respect
to such drug is approved under section 505(b) of such Act
or, if the drug is a biological product, before the date on
which a license for such drug is issued under section 351
of the Public Health Service Act; (!1) and
(iii) which is conducted by or on behalf of the taxpayer to
whom the designation under such section 526 applies.
(B) Testing must be related to use for rare disease or
condition
Human clinical testing shall be taken into account under
subparagraph (A) only to the extent such testing is related to
the use of a drug for the rare disease or condition for which
it was designated under section 526 of the Federal Food, Drug,
and Cosmetic Act.
(c) Coordination with credit for increasing research expenditures
(1) In general
Except as provided in paragraph (2), any qualified clinical
testing expenses for a taxable year to which an election under
this section applies shall not be taken into account for purposes
of determining the credit allowable under section 41 for such
taxable year.
(2) Expenses included in determining base period research
expenses
Any qualified clinical testing expenses for any taxable year
which are qualified research expenses (within the meaning of
section 41(b)) shall be taken into account in determining base
period research expenses for purposes of applying section 41 to
subsequent taxable years.
(d) Definition and special rules
(1) Rare disease or condition
For purposes of this section, the term "rare disease or
condition" means any disease or condition which -
(A) affects less than 200,000 persons in the United States,
or
(B) affects more than 200,000 persons in the United States
but for which there is no reasonable expectation that the cost
of developing and making available in the United States a drug
for such disease or condition will be recovered from sales in
the United States of such drug.
Determinations under the preceding sentence with respect to any
drug shall be made on the basis of the facts and circumstances as
of the date such drug is designated under section 526 of the
Federal Food, Drug, and Cosmetic Act.
(2) Special limitations on foreign testing
(A) In general
No credit shall be allowed under this section with respect to
any clinical testing conducted outside the United States unless
-
(i) such testing is conducted outside the United States
because there is an insufficient testing population in the
United States, and
(ii) such testing is conducted by a United States person or
by any other person who is not related to the taxpayer to
whom the designation under section 526 of the Federal Food,
Drug, and Cosmetic Act applies.
(B) Special limitation for corporations to which section 936
applies
No credit shall be allowed under this section with respect to
any clinical testing conducted by a corporation to which an
election under section 936 applies.
(3) Certain rules made applicable
Rules similar to the rules of paragraphs (1) and (2) of section
41(f) shall apply for purposes of this section.
(4) Election
This section shall apply to any taxpayer for any taxable year
only if such taxpayer elects (at such time and in such manner as
the Secretary may by regulations prescribe) to have this section
apply for such taxable year.
-SOURCE-
(Added Pub. L. 97-414, Sec. 4(a), Jan. 4, 1983, 96 Stat. 2053, Sec.
44H; renumbered Sec. 28 and amended Pub. L. 98-369, div. A, title
IV, Secs. 471(c), 474(g), title VI, Sec. 612(e)(1), July 18, 1984,
98 Stat. 826, 831, 912; Pub. L. 99-514, title II, Secs.
231(d)(3)(A), 232, title VII, Sec. 701(c)(2), title XII, Sec.
1275(c)(4), title XVIII, Sec. 1879(b)(1), (2), Oct. 22, 1986, 100
Stat. 2178, 2180, 2340, 2599, 2905; Pub. L. 100-647, title I, Sec.
1018(q)(1), title IV, Sec. 4008(c)(1), Nov. 10, 1988, 102 Stat.
3585, 3653; Pub. L. 101-239, title VII, Sec. 7110(a)(3), Dec. 19,
1989, 103 Stat. 2323; Pub. L. 101-508, title XI, Secs. 11402(b)(2),
11411, Nov. 5, 1990, 104 Stat. 1388-473, 1388-479; Pub. L. 102-227,
title I, Secs. 102(b), 111(a), Dec. 11, 1991, 105 Stat. 1686, 1688;
Pub. L. 103-66, title XIII, Sec. 13111(a)(2), (b), Aug. 10, 1993,
107 Stat. 420; renumbered Sec. 45C and amended Pub. L. 104-188,
title I, Secs. 1204(e), 1205(a)(1), (b), (d)(1), (2), Aug. 20,
1996, 110 Stat. 1775, 1776; Pub. L. 105-34, title VI, Secs.
601(b)(2), 604(a), Aug. 5, 1997, 111 Stat. 862, 863; Pub. L. 105-
115, title I, Sec. 125(b)(2)(O), Nov. 21, 1997, 111 Stat. 2326;
Pub. L. 105-277, div. J, title I, Sec. 1001(b), Oct. 21, 1998, 112
Stat. 2681-888; Pub. L. 106-170, title V, Sec. 502(a)(2), Dec. 17,
1999, 113 Stat. 1919; Pub. L. 108-311, title III, Sec. 301(a)(2),
Oct. 4, 2004, 118 Stat. 1178.)
-REFTEXT-
REFERENCES IN TEXT
Sections 505(b), (i) and 526 of the Federal Food, Drug, and
Cosmetic Act, referred to in subsecs. (b)(2)(A) and (d)(1),
(2)(A)(ii), are classified to sections 355(b), (i) and 360bb,
respectively, of Title 21, Food and Drugs.
Section 351 of the Public Health Service Act, referred to in
subsec. (b)(2)(A)(ii)(II), is classified to section 262 of Title
42, The Public Health and Welfare.
-MISC1-
AMENDMENTS
2004 - Subsec. (b)(1)(D). Pub. L. 108-311 substituted "December
31, 2005" for "June 30, 2004".
1999 - Subsec. (b)(1)(D). Pub. L. 106-170 substituted "June 30,
2004" for "June 30, 1999".
1998 - Subsec. (b)(1)(D). Pub. L. 105-277 substituted "June 30,
1999" for "June 30, 1998".
1997 - Subsec. (b)(1)(D). Pub. L. 105-34, Sec. 601(b)(2),
substituted "June 30, 1998" for "May 31, 1997".
Subsec. (b)(2)(A)(ii)(II). Pub. L. 105-115 struck out "or 507"
after "505(b)".
Subsec. (e). Pub. L. 105-34, Sec. 604(a), struck out subsec. (e)
which read as follows:
"(e) Termination. - This section shall not apply to any amount
paid or incurred -
"(1) after December 31, 1994, and before July 1, 1996, or
"(2) after May 31, 1997."
1996 - Pub. L. 104-188, Sec. 1205(a)(1), renumbered section 28 of
this title as this section.
Subsec. (a). Pub. L. 104-188, Sec. 1205(d)(1), substituted "For
purposes of section 38, the credit determined under this section
for the taxable year is" for "There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year".
Subsec. (b)(1)(D). Pub. L. 104-188, Sec. 1204(e), inserted ", and
before July 1, 1996, and periods after May 31, 1997" after "June
30, 1995".
Subsec. (d)(2) to (5). Pub. L. 104-188, Sec. 1205(d)(2),
redesignated pars. (3) to (5) as (2) to (4), respectively, and
struck out former par. (2) which read as follows: "Limitation based
on amount of tax. - The credit allowed by this section for any
taxable year shall not exceed the excess (if any) of -
"(A) the regular tax (reduced by the sum of the credits
allowable under subpart A and section 27), over
"(B) the tentative minimum tax for the taxable year."
Subsec. (e). Pub. L. 104-188, Sec. 1205(b), amended subsec. (e)
generally. Prior to amendment, subsec. (e) read as follows:
"Termination. - This section shall not apply to any amount paid or
incurred after December 31, 1994."
1993 - Subsec. (b)(1)(D). Pub. L. 103-66, Sec. 13111(a)(2),
substituted "June 30, 1995" for "June 30, 1992".
Subsec. (e). Pub. L. 103-66, Sec. 13111(b), substituted "December
31, 1994" for "June 30, 1992".
1991 - Subsec. (b)(1)(D). Pub. L. 102-227, Sec. 102(b),
substituted "June 30, 1992" for "December 31, 1991".
Subsec. (e). Pub. L. 102-227, Sec. 111(a), substituted "June 30,
1992" for "December 31, 1991".
1990 - Subsec. (b)(1)(D). Pub. L. 101-508, Sec. 11402(b)(2),
substituted "December 31, 1991" for "December 31, 1990".
Subsec. (e). Pub. L. 101-508, Sec. 11411, substituted "December
31, 1991" for "December 31, 1990".
1989 - Subsec. (b)(1)(D). Pub. L. 101-239 substituted "1990" for
"1989".
1988 - Subsec. (b)(1)(D). Pub. L. 100-647, Sec. 4008(c)(1),
substituted "1989" for "1988".
Subsec. (b)(2)(A)(ii)(II). Pub. L. 100-647, Sec. 1018(q)(1),
amended subcl. (II) generally. Prior to amendment, subcl. (II) read
as follows: "before the date on which an application with respect
to such drug is approved under section 505(b) of such Act or, if
the drug is a biological product, before the date on which a
license for such drug is issued under section 351 of the Public
Health Services Act, and".
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 231(d)(3)(A)(i),
(iv), substituted "41" for "30" in subpars. (A), (B), and (D), and
substituted "1988" for "1985" in subpar. (D).
Subsec. (b)(2)(A)(ii)(I). Pub. L. 99-514, Sec. 1879(b)(1)(A),
substituted "the date such drug" for "the date of such drug".
Subsec. (b)(2)(A)(ii)(II). Pub. L. 99-514, Sec. 1879(b)(1)(B),
inserted "or, if the drug is a biological product, before the date
on which a license for such drug is issued under section 351 of the
Public Health Services Act".
Subsec. (c). Pub. L. 99-514, Sec. 231(d)(3)(A)(i), (ii),
substituted "41" for "30" in pars. (1) and (2) and "41(b)" for
"30(b)" in par. (2).
Subsec. (d)(1). Pub. L. 99-514, Sec. 1879(b)(2), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "For
purposes of this section, the term 'rare disease or condition'
means any disease or condition which occurs so infrequently in the
United States that there is no reasonable expectation that the cost
of developing and making available in the United States a drug for
such disease or condition will be recovered from sales in the
United States of such drug. Determinations under the preceding
sentence with respect to any drug shall be made on the basis of the
facts and circumstances as of the date such drug is designated
under section 526 of the Federal Food, Drug, and Cosmetic Act."
Subsec. (d)(2). Pub. L. 99-514, Sec. 701(c)(2), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "The
credit allowed by this section for any taxable year shall not
exceed the taxpayer's tax liability for the taxable year (as
defined in section 26(b)), reduced by the sum of the credits
allowable under subpart A and section 27."
Subsec. (d)(3)(B). Pub. L. 99-514, Sec. 1275(c)(4), struck out
"934(b) or" before "936" in heading and amended text generally.
Prior to amendment, text read as follows: "No credit shall be
allowed under this section with respect to any clinical testing
conducted by a corporation to which section 934(b) applies or to
which an election under section 936 applies."
Subsec. (d)(4). Pub. L. 99-514, Sec. 231(d)(3)(A)(iii),
substituted "section 41(f)" for "section 30(f)".
Subsec. (e). Pub. L. 99-514, Sec. 232, substituted "1990" for
"1987".
1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 44H of
this title as this section.
Subsec. (b)(1)(A), (B), (D). Pub. L. 98-369, Sec. 474(g)(1)(A),
substituted "section 30" for "section 44F".
Subsec. (c)(1). Pub. L. 98-369, Sec. 474(g)(1)(A), substituted
"section 30" for "section 44F".
Subsec. (c)(2). Pub. L. 98-369, Sec. 474(g)(1)(A), (B),
substituted "section 30" for "section 44F" and "section 30(b)" for
"section 44F(b)".
Subsec. (d)(2). Pub. L. 98-369, Sec. 612(e)(1), substituted
"section 26(b)" for "section 25(b)".
Pub. L. 98-369, Sec. 474(g)(2), amended par. (2) generally,
substituting "shall not exceed the taxpayer's tax liability for the
taxable year (as defined in section 25(b), reduced by the sum of
the credits allowable under subpart A and section 27" for "shall
not exceed the amount of the tax imposed by this chapter for the
taxable year reduced by the sum of the credits allowable under a
section of this subpart having a lower number or letter designation
than this section, other than the credits allowable by sections 31,
39, and 43. For purposes of the preceding sentence, the term 'tax
imposed by this chapter' shall not include any tax treated as not
imposed by this chapter under the last sentence of section 53(a)".
Subsec. (d)(4). Pub. L. 98-369, Sec. 474(g)(1)(C), substituted
"section 30(f)" for "section 44F(f)".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to amounts paid or
incurred after June 30, 2004, see section 301(b) of Pub. L. 108-
311, set out as a note under section 41 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to amounts paid or
incurred after June 30, 1999, see section 502(a)(3) of Pub. L. 106-
170, set out as a note under section 41 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-277 applicable to amounts paid or
incurred after June 30, 1998, see section 1001(c) of Pub. L. 105-
277, set out as a note under section 41 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 601(b)(2) of Pub. L. 105-34 applicable to
amounts paid or incurred after May 31, 1997, see section 601(c) of
Pub. L. 105-34, set out as a note under section 41 of this title.
Section 604(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
amounts paid or incurred after May 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1204(e) of Pub. L. 104-188 applicable to
taxable years ending after June 30, 1996, and not to be taken into
account under section 6654 or 6655 of this title in determining
amount of any installment required to be paid for a taxable year
beginning in 1997, see section 1204(f) of Pub. L. 104-188, set out
as a note under section 41 of this title.
Amendment by section 1205(a)(1), (b), (d)(1), (2) of Pub. L. 104-
188 applicable to amounts paid or incurred in taxable years ending
after June 30, 1996, see section 1205(e) of Pub. L. 104-188, set
out as a note under section 45K of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13111(c) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and section 41 of this
title] shall apply to taxable years ending after June 30, 1992."
EFFECTIVE DATE OF 1991 AMENDMENT
Section 102(c) of Pub. L. 102-227 provided that: "The amendments
made by this section [amending this section and section 41 of this
title] shall apply to taxable years ending after December 31,
1991."
Section 111(b) of Pub. L. 102-227 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years ending after December 31, 1991."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11402(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section and section
41 of this title and repealing provisions set out as a note under
section 41 of this title] shall apply to taxable years beginning
after December 31, 1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1018(q)(1) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by section 4008(c)(1) of Pub. L. 100-647 applicable to
taxable years beginning after Dec. 31, 1988, see section 4008(d) of
Pub. L. 100-647, set out as a note under section 41 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 231(d)(3)(A) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1985, see section 231(g) of
Pub. L. 99-514, set out as a note under section 41 of this title.
Amendment by section 701(c)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L. 99-
514, set out as an Effective Date note under section 55 of this
title.
Amendment by section 1275(c)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
Section 1879(b)(3) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section] shall
apply to amounts paid or incurred after December 31, 1982, in
taxable years ending after such date."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(g) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 612(e)(1) of Pub. L. 98-369, applicable to
interest paid or accrued after December 31, 1984, on indebtedness
incurred after December 31, 1984, see section 612(g) of Pub. L. 98-
369, set out as an Effective Date note under section 25 of this
title.
EFFECTIVE DATE
Section 4(d) of Pub. L. 97-414 provided that: "The amendments
made by this section [enacting this section and amending sections
280C and 6096 of this title] shall apply to amounts paid or
incurred after December 31, 1982, in taxable years ending after
such date."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUBLIC LAW 99-514 IN
RELATION TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(c)(2) of Pub. L. 99-
514 notwithstanding any treaty obligation of the United States in
effect on Oct. 22, 1986, with provision that for such purposes any
amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original. The semicolon probably should be a comma.
-End-
-CITE-
26 USC Sec. 45D 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45D. New markets tax credit
-STATUTE-
(a) Allowance of credit
(1) In general
For purposes of section 38, in the case of a taxpayer who holds
a qualified equity investment on a credit allowance date of such
investment which occurs during the taxable year, the new markets
tax credit determined under this section for such taxable year is
an amount equal to the applicable percentage of the amount paid
to the qualified community development entity for such investment
at its original issue.
(2) Applicable percentage
For purposes of paragraph (1), the applicable percentage is -
(A) 5 percent with respect to the first 3 credit allowance
dates, and
(B) 6 percent with respect to the remainder of the credit
allowance dates.
(3) Credit allowance date
For purposes of paragraph (1), the term "credit allowance date"
means, with respect to any qualified equity investment -
(A) the date on which such investment is initially made, and
(B) each of the 6 anniversary dates of such date thereafter.
(b) Qualified equity investment
For purposes of this section -
(1) In general
The term "qualified equity investment" means any equity
investment in a qualified community development entity if -
(A) such investment is acquired by the taxpayer at its
original issue (directly or through an underwriter) solely in
exchange for cash,
(B) substantially all of such cash is used by the qualified
community development entity to make qualified low-income
community investments, and
(C) such investment is designated for purposes of this
section by the qualified community development entity.
Such term shall not include any equity investment issued by a
qualified community development entity more than 5 years after
the date that such entity receives an allocation under subsection
(f). Any allocation not used within such 5-year period may be
reallocated by the Secretary under subsection (f).
(2) Limitation
The maximum amount of equity investments issued by a qualified
community development entity which may be designated under
paragraph (1)(C) by such entity shall not exceed the portion of
the limitation amount allocated under subsection (f) to such
entity.
(3) Safe harbor for determining use of cash
The requirement of paragraph (1)(B) shall be treated as met if
at least 85 percent of the aggregate gross assets of the
qualified community development entity are invested in qualified
low-income community investments.
(4) Treatment of subsequent purchasers
The term "qualified equity investment" includes any equity
investment which would (but for paragraph (1)(A)) be a qualified
equity investment in the hands of the taxpayer if such investment
was a qualified equity investment in the hands of a prior holder.
(5) Redemptions
A rule similar to the rule of section 1202(c)(3) shall apply
for purposes of this subsection.
(6) Equity investment
The term "equity investment" means -
(A) any stock (other than nonqualified preferred stock as
defined in section 351(g)(2)) in an entity which is a
corporation, and
(B) any capital interest in an entity which is a partnership.
(c) Qualified community development entity
For purposes of this section -
(1) In general
The term "qualified community development entity" means any
domestic corporation or partnership if -
(A) the primary mission of the entity is serving, or
providing investment capital for, low-income communities or low-
income persons,
(B) the entity maintains accountability to residents of low-
income communities through their representation on any
governing board of the entity or on any advisory board to the
entity, and
(C) the entity is certified by the Secretary for purposes of
this section as being a qualified community development entity.
(2) Special rules for certain organizations
The requirements of paragraph (1) shall be treated as met by -
(A) any specialized small business investment company (as
defined in section 1044(c)(3)), and
(B) any community development financial institution (as
defined in section 103 of the Community Development Banking and
Financial Institutions Act of 1994 (12 U.S.C. 4702)).
(d) Qualified low-income community investments
For purposes of this section -
(1) In general
The term "qualified low-income community investment" means -
(A) any capital or equity investment in, or loan to, any
qualified active low-income community business,
(B) the purchase from another qualified community development
entity of any loan made by such entity which is a qualified low-
income community investment,
(C) financial counseling and other services specified in
regulations prescribed by the Secretary to businesses located
in, and residents of, low-income communities, and
(D) any equity investment in, or loan to, any qualified
community development entity.
(2) Qualified active low-income community business
(A) In general
For purposes of paragraph (1), the term "qualified active low-
income community business" means, with respect to any taxable
year, any corporation (including a nonprofit corporation) or
partnership if for such year -
(i) at least 50 percent of the total gross income of such
entity is derived from the active conduct of a qualified
business within any low-income community,
(ii) a substantial portion of the use of the tangible
property of such entity (whether owned or leased) is within
any low-income community,
(iii) a substantial portion of the services performed for
such entity by its employees are performed in any low-income
community,
(iv) less than 5 percent of the average of the aggregate
unadjusted bases of the property of such entity is
attributable to collectibles (as defined in section
408(m)(2)) other than collectibles that are held primarily
for sale to customers in the ordinary course of such
business, and
(v) less than 5 percent of the average of the aggregate
unadjusted bases of the property of such entity is
attributable to nonqualified financial property (as defined
in section 1397C(e)).
(B) Proprietorship
Such term shall include any business carried on by an
individual as a proprietor if such business would meet the
requirements of subparagraph (A) were it incorporated.
(C) Portions of business may be qualified active low-income
community business
The term "qualified active low-income community business"
includes any trades or businesses which would qualify as a
qualified active low-income community business if such trades
or businesses were separately incorporated.
(3) Qualified business
For purposes of this subsection, the term "qualified business"
has the meaning given to such term by section 1397C(d); except
that -
(A) in lieu of applying paragraph (2)(B) thereof, the rental
to others of real property located in any low-income community
shall be treated as a qualified business if there are
substantial improvements located on such property, and
(B) paragraph (3) thereof shall not apply.
(e) Low-income community
For purposes of this section -
(1) In general
The term "low-income community" means any population census
tract if -
(A) the poverty rate for such tract is at least 20 percent,
or
(B)(i) in the case of a tract not located within a
metropolitan area, the median family income for such tract does
not exceed 80 percent of statewide median family income, or
(ii) in the case of a tract located within a metropolitan
area, the median family income for such tract does not exceed
80 percent of the greater of statewide median family income or
the metropolitan area median family income.
Subparagraph (B) shall be applied using possessionwide median
family income in the case of census tracts located within a
possession of the United States.
(2) Targeted populations
The Secretary shall prescribe regulations under which 1 or more
targeted populations (within the meaning of section 103(20) of
the Riegle Community Development and Regulatory Improvement Act
of 1994 (12 U.S.C. 4702(20))) may be treated as low-income
communities. Such regulations shall include procedures for
determining which entities are qualified active low-income
community businesses with respect to such populations.
(3) Areas not within census tracts
In the case of an area which is not tracted for population
census tracts, the equivalent county divisions (as defined by the
Bureau of the Census for purposes of defining poverty areas)
shall be used for purposes of determining poverty rates and
median family income.
(4) Tracts with low population
A population census tract with a population of less than 2,000
shall be treated as a low-income community for purposes of this
section if such tract -
(A) is within an empowerment zone the designation of which is
in effect under section 1391, and
(B) is contiguous to 1 or more low-income communities
(determined without regard to this paragraph).
(5) Modification of income requirement for census tracts within
high migration rural counties
(A) In general
In the case of a population census tract located within a
high migration rural county, paragraph (1)(B)(i) shall be
applied by substituting "85 percent" for "80 percent".
(B) High migration rural county
For purposes of this paragraph, the term "high migration
rural county" means any county which, during the 20-year period
ending with the year in which the most recent census was
conducted, has a net out-migration of inhabitants from the
county of at least 10 percent of the population of the county
at the beginning of such period.
(f) National limitation on amount of investments designated
(1) In general
There is a new markets tax credit limitation for each calendar
year. Such limitation is -
(A) $1,000,000,000 for 2001,
(B) $1,500,000,000 for 2002 and 2003,
(C) $2,000,000,000 for 2004 and 2005, and
(D) $3,500,000,000 for 2006 and 2007.
(2) Allocation of limitation
The limitation under paragraph (1) shall be allocated by the
Secretary among qualified community development entities selected
by the Secretary. In making allocations under the preceding
sentence, the Secretary shall give priority to any entity -
(A) with a record of having successfully provided capital or
technical assistance to disadvantaged businesses or
communities, or
(B) which intends to satisfy the requirement under subsection
(b)(1)(B) by making qualified low-income community investments
in 1 or more businesses in which persons unrelated to such
entity (within the meaning of section 267(b) or 707(b)(1)) hold
the majority equity interest.
(3) Carryover of unused limitation
If the new markets tax credit limitation for any calendar year
exceeds the aggregate amount allocated under paragraph (2) for
such year, such limitation for the succeeding calendar year shall
be increased by the amount of such excess. No amount may be
carried under the preceding sentence to any calendar year after
2014.
(g) Recapture of credit in certain cases
(1) In general
If, at any time during the 7-year period beginning on the date
of the original issue of a qualified equity investment in a
qualified community development entity, there is a recapture
event with respect to such investment, then the tax imposed by
this chapter for the taxable year in which such event occurs
shall be increased by the credit recapture amount.
(2) Credit recapture amount
For purposes of paragraph (1), the credit recapture amount is
an amount equal to the sum of -
(A) the aggregate decrease in the credits allowed to the
taxpayer under section 38 for all prior taxable years which
would have resulted if no credit had been determined under this
section with respect to such investment, plus
(B) interest at the underpayment rate established under
section 6621 on the amount determined under subparagraph (A)
for each prior taxable year for the period beginning on the due
date for filing the return for the prior taxable year involved.
No deduction shall be allowed under this chapter for interest
described in subparagraph (B).
(3) Recapture event
For purposes of paragraph (1), there is a recapture event with
respect to an equity investment in a qualified community
development entity if -
(A) such entity ceases to be a qualified community
development entity,
(B) the proceeds of the investment cease to be used as
required of subsection (b)(1)(B), or
(C) such investment is redeemed by such entity.
(4) Special rules
(A) Tax benefit rule
The tax for the taxable year shall be increased under
paragraph (1) only with respect to credits allowed by reason of
this section which were used to reduce tax liability. In the
case of credits not so used to reduce tax liability, the
carryforwards and carrybacks under section 39 shall be
appropriately adjusted.
(B) No credits against tax
Any increase in tax under this subsection shall not be
treated as a tax imposed by this chapter for purposes of
determining the amount of any credit under this chapter or for
purposes of section 55.
(h) Basis reduction
The basis of any qualified equity investment shall be reduced by
the amount of any credit determined under this section with respect
to such investment. This subsection shall not apply for purposes of
sections 1202, 1400B, and 1400F.
(i) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out this section, including regulations -
(1) which limit the credit for investments which are directly
or indirectly subsidized by other Federal tax benefits (including
the credit under section 42 and the exclusion from gross income
under section 103),
(2) which prevent the abuse of the purposes of this section,
(3) which provide rules for determining whether the requirement
of subsection (b)(1)(B) is treated as met,
(4) which impose appropriate reporting requirements, and
(5) which apply the provisions of this section to newly formed
entities.
-SOURCE-
(Added Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(a)], Dec.
21, 2000, 114 Stat. 2763, 2763A-605; amended Pub. L. 108-357, title
II, Secs. 221(a), (b), 223(a), Oct. 22, 2004, 118 Stat. 1431,
1432.)
-MISC1-
AMENDMENTS
2004 - Subsec. (e)(2). Pub. L. 108-357, Sec. 221(a), amended
heading and text of par. (2) generally, substituting provisions
relating to regulations under which 1 or more targeted populations
could be treated as low-income communities for provisions
authorizing Secretary to designate any area within any census tract
as a low-income community if certain conditions were met.
Subsec. (e)(4). Pub. L. 108-357, Sec. 221(b), added par. (4).
Subsec. (e)(5). Pub. L. 108-357, Sec. 223(a), added par. (5).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title II, Sec. 221(c), Oct. 22, 2004, 118 Stat.
1431, provided that:
"(1) Targeted areas. - The amendment made by subsection (a)
[amending this section] shall apply to designations made by the
Secretary of the Treasury after the date of the enactment of this
Act [Oct. 22, 2004].
"(2) Tracts with low population. - The amendment made by
subsection (b) [amending this section] shall apply to investments
made after the date of the enactment of this Act [Oct. 22, 2004]."
Pub. L. 108-357, title II, Sec. 223(b), Oct. 22, 2004, 118 Stat.
1432, provided that: "The amendment made by this section [amending
this section] shall take effect as if included in the amendment
made by section 121(a) of the Community Renewal Tax Relief Act of
2000 [Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(a)],
enacting this section]."
EFFECTIVE DATE
Section applicable to investments made after Dec. 31, 2000, see
Sec. 1(a)(7) [title I, Sec. 121(e)] of Pub. L. 106-554, set out as
a Effective Date of 2000 Amendment note under section 38 of this
title.
GUIDANCE ON ALLOCATION OF NATIONAL LIMITATION
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(f)], Dec. 21,
2000, 114 Stat. 2763, 2763A-610, provided that: "Not later than 120
days after the date of the enactment of this Act [Dec. 21, 2000],
the Secretary of the Treasury or the Secretary's delegate shall
issue guidance which specifies -
"(1) how entities shall apply for an allocation under section
45D(f)(2) of the Internal Revenue Code of 1986, as added by this
section;
"(2) the competitive procedure through which such allocations
are made; and
"(3) the actions that such Secretary or delegate shall take to
ensure that such allocations are properly made to appropriate
entities."
AUDIT AND REPORT
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 121(g)], Dec. 21,
2000, 114 Stat. 2763, 2763A-610, provided that: "Not later than
January 31 of 2004, 2007, and 2010, the Comptroller General of the
United States shall, pursuant to an audit of the new markets tax
credit program established under section 45D of the Internal
Revenue Code of 1986 (as added by subsection (a)), report to
Congress on such program, including all qualified community
development entities that receive an allocation under the new
markets credit under such section."
-End-
-CITE-
26 USC Sec. 45E 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45E. Small employer pension plan startup costs
-STATUTE-
(a) General rule
For purposes of section 38, in the case of an eligible employer,
the small employer pension plan startup cost credit determined
under this section for any taxable year is an amount equal to 50
percent of the qualified startup costs paid or incurred by the
taxpayer during the taxable year.
(b) Dollar limitation
The amount of the credit determined under this section for any
taxable year shall not exceed -
(1) $500 for the first credit year and each of the 2 taxable
years immediately following the first credit year, and
(2) zero for any other taxable year.
(c) Eligible employer
For purposes of this section -
(1) In general
The term "eligible employer" has the meaning given such term by
section 408(p)(2)(C)(i).
(2) Requirement for new qualified employer plans
Such term shall not include an employer if, during the 3-
taxable year period immediately preceding the 1st taxable year
for which the credit under this section is otherwise allowable
for a qualified employer plan of the employer, the employer or
any member of any controlled group including the employer (or any
predecessor of either) established or maintained a qualified
employer plan with respect to which contributions were made, or
benefits were accrued, for substantially the same employees as
are in the qualified employer plan.
(d) Other definitions
For purposes of this section -
(1) Qualified startup costs
(A) In general
The term "qualified startup costs" means any ordinary and
necessary expenses of an eligible employer which are paid or
incurred in connection with -
(i) the establishment or administration of an eligible
employer plan, or
(ii) the retirement-related education of employees with
respect to such plan.
(B) Plan must have at least 1 participant
Such term shall not include any expense in connection with a
plan that does not have at least 1 employee eligible to
participate who is not a highly compensated employee.
(2) Eligible employer plan
The term "eligible employer plan" means a qualified employer
plan within the meaning of section 4972(d).
(3) First credit year
The term "first credit year" means -
(A) the taxable year which includes the date that the
eligible employer plan to which such costs relate becomes
effective, or
(B) at the election of the eligible employer, the taxable
year preceding the taxable year referred to in subparagraph
(A).
(e) Special rules
For purposes of this section -
(1) Aggregation rules
All persons treated as a single employer under subsection (a)
or (b) of section 52, or subsection (m) or (o) of section 414,
shall be treated as one person. All eligible employer plans shall
be treated as 1 eligible employer plan.
(2) Disallowance of deduction
No deduction shall be allowed for that portion of the qualified
startup costs paid or incurred for the taxable year which is
equal to the credit determined under subsection (a).
(3) Election not to claim credit
This section shall not apply to a taxpayer for any taxable year
if such taxpayer elects to have this section not apply for such
taxable year.
-SOURCE-
(Added Pub. L. 107-16, title VI, Sec. 619(a), June 7, 2001, 115
Stat. 108; amended Pub. L. 107-147, title IV, Sec. 411(n)(1), Mar.
9, 2002, 116 Stat. 48.)
-STATAMEND-
TERMINATION OF SECTION
For termination of section by section 901 of Pub. L. 107-16, see
Effective and Termination Dates note below.
-MISC1-
AMENDMENTS
2002 - Subsec. (e)(1). Pub. L. 107-147 substituted "subsection
(m)" for "subsection (n)".
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES
Section applicable to costs paid or incurred in taxable years
beginning after Dec. 31, 2001, with respect to qualified employer
plans first effective after such date, see section 619(d) of Pub.
L. 107-16, as amended, set out as an Effective and Termination
Dates of 2001 Amendment note under section 38 of this title.
Section inapplicable to taxable, plan, or limitation years
beginning after Dec. 31, 2010, and the Internal Revenue Code of
1986 to be applied and administered to such years as if it had
never been enacted, see section 901 of Pub. L. 107-16, set out as
an Effective and Termination Dates of 2001 Amendment note under
section 1 of this title.
-End-
-CITE-
26 USC Sec. 45F 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45F. Employer-provided child care credit
-STATUTE-
(a) In general
For purposes of section 38, the employer-provided child care
credit determined under this section for the taxable year is an
amount equal to the sum of -
(1) 25 percent of the qualified child care expenditures, and
(2) 10 percent of the qualified child care resource and
referral expenditures,
of the taxpayer for such taxable year.
(b) Dollar limitation
The credit allowable under subsection (a) for any taxable year
shall not exceed $150,000.
(c) Definitions
For purposes of this section -
(1) Qualified child care expenditure
(A) In general
The term "qualified child care expenditure" means any amount
paid or incurred -
(i) to acquire, construct, rehabilitate, or expand property
-
(I) which is to be used as part of a qualified child care
facility of the taxpayer,
(II) with respect to which a deduction for depreciation
(or amortization in lieu of depreciation) is allowable, and
(III) which does not constitute part of the principal
residence (within the meaning of section 121) of the
taxpayer or any employee of the taxpayer,
(ii) for the operating costs of a qualified child care
facility of the taxpayer, including costs related to the
training of employees, to scholarship programs, and to the
providing of increased compensation to employees with higher
levels of child care training, or
(iii) under a contract with a qualified child care facility
to provide child care services to employees of the taxpayer.
(B) Fair market value
The term "qualified child care expenditures" shall not
include expenses in excess of the fair market value of such
care.
(2) Qualified child care facility
(A) In general
The term "qualified child care facility" means a facility -
(i) the principal use of which is to provide child care
assistance, and
(ii) which meets the requirements of all applicable laws
and regulations of the State or local government in which it
is located, including the licensing of the facility as a
child care facility.
Clause (i) shall not apply to a facility which is the principal
residence (within the meaning of section 121) of the operator
of the facility.
(B) Special rules with respect to a taxpayer
A facility shall not be treated as a qualified child care
facility with respect to a taxpayer unless -
(i) enrollment in the facility is open to employees of the
taxpayer during the taxable year,
(ii) if the facility is the principal trade or business of
the taxpayer, at least 30 percent of the enrollees of such
facility are dependents of employees of the taxpayer, and
(iii) the use of such facility (or the eligibility to use
such facility) does not discriminate in favor of employees of
the taxpayer who are highly compensated employees (within the
meaning of section 414(q)).
(3) Qualified child care resource and referral expenditure
(A) In general
The term "qualified child care resource and referral
expenditure" means any amount paid or incurred under a contract
to provide child care resource and referral services to an
employee of the taxpayer.
(B) Nondiscrimination
The services shall not be treated as qualified unless the
provision of such services (or the eligibility to use such
services) does not discriminate in favor of employees of the
taxpayer who are highly compensated employees (within the
meaning of section 414(q)).
(d) Recapture of acquisition and construction credit
(1) In general
If, as of the close of any taxable year, there is a recapture
event with respect to any qualified child care facility of the
taxpayer, then the tax of the taxpayer under this chapter for
such taxable year shall be increased by an amount equal to the
product of -
(A) the applicable recapture percentage, and
(B) the aggregate decrease in the credits allowed under
section 38 for all prior taxable years which would have
resulted if the qualified child care expenditures of the
taxpayer described in subsection (c)(1)(A) with respect to such
facility had been zero.
(2) Applicable recapture percentage
(A) In general
For purposes of this subsection, the applicable recapture
percentage shall be determined from the following table:
The applicable
If the recapture event recapture
occurs in: percentage is:
Years 1-3 100
Year 4 85
Year 5 70
Year 6 55
Year 7 40
Year 8 25
Years 9 and 10 10
Years 11 and thereafter 0.
(B) Years
For purposes of subparagraph (A), year 1 shall begin on the
first day of the taxable year in which the qualified child care
facility is placed in service by the taxpayer.
(3) Recapture event defined
For purposes of this subsection, the term "recapture event"
means -
(A) Cessation of operation
The cessation of the operation of the facility as a qualified
child care facility.
(B) Change in ownership
(i) In general
Except as provided in clause (ii), the disposition of a
taxpayer's interest in a qualified child care facility with
respect to which the credit described in subsection (a) was
allowable.
(ii) Agreement to assume recapture liability
Clause (i) shall not apply if the person acquiring such
interest in the facility agrees in writing to assume the
recapture liability of the person disposing of such interest
in effect immediately before such disposition. In the event
of such an assumption, the person acquiring the interest in
the facility shall be treated as the taxpayer for purposes of
assessing any recapture liability (computed as if there had
been no change in ownership).
(4) Special rules
(A) Tax benefit rule
The tax for the taxable year shall be increased under
paragraph (1) only with respect to credits allowed by reason of
this section which were used to reduce tax liability. In the
case of credits not so used to reduce tax liability, the
carryforwards and carrybacks under section 39 shall be
appropriately adjusted.
(B) No credits against tax
Any increase in tax under this subsection shall not be
treated as a tax imposed by this chapter for purposes of
determining the amount of any credit under this chapter or for
purposes of section 55.
(C) No recapture by reason of casualty loss
The increase in tax under this subsection shall not apply to
a cessation of operation of the facility as a qualified child
care facility by reason of a casualty loss to the extent such
loss is restored by reconstruction or replacement within a
reasonable period established by the Secretary.
(e) Special rules
For purposes of this section -
(1) Aggregation rules
All persons which are treated as a single employer under
subsections (a) and (b) of section 52 shall be treated as a
single taxpayer.
(2) Pass-thru in the case of estates and trusts
Under regulations prescribed by the Secretary, rules similar to
the rules of subsection (d) of section 52 shall apply.
(3) Allocation in the case of partnerships
In the case of partnerships, the credit shall be allocated
among partners under regulations prescribed by the Secretary.
(f) No double benefit
(1) Reduction in basis
For purposes of this subtitle -
(A) In general
If a credit is determined under this section with respect to
any property by reason of expenditures described in subsection
(c)(1)(A), the basis of such property shall be reduced by the
amount of the credit so determined.
(B) Certain dispositions
If, during any taxable year, there is a recapture amount
determined with respect to any property the basis of which was
reduced under subparagraph (A), the basis of such property
(immediately before the event resulting in such recapture)
shall be increased by an amount equal to such recapture amount.
For purposes of the preceding sentence, the term "recapture
amount" means any increase in tax (or adjustment in carrybacks
or carryovers) determined under subsection (d).
(2) Other deductions and credits
No deduction or credit shall be allowed under any other
provision of this chapter with respect to the amount of the
credit determined under this section.
-SOURCE-
(Added Pub. L. 107-16, title II, Sec. 205(a), June 7, 2001, 115
Stat. 50; amended Pub. L. 107-147, title IV, Sec. 411(d)(1), Mar.
9, 2002, 116 Stat. 46.)
-STATAMEND-
TERMINATION OF SECTION
For termination of section by section 901 of Pub. L. 107-16, see
Effective and Termination Dates note below.
-MISC1-
AMENDMENTS
2002 - Subsec. (d)(4)(B). Pub. L. 107-147 substituted "this
chapter or for purposes of section 55" for "subpart A, B, or D of
this part".
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES
Section applicable to taxable years beginning after Dec. 31,
2001, see section 205(c) of Pub. L. 107-16, set out as an Effective
and Termination Dates of 2001 Amendment note under section 38 of
this title.
Section inapplicable to taxable, plan, or limitation years
beginning after Dec. 31, 2010, and the Internal Revenue Code of
1986 to be applied and administered to such years as if it had
never been enacted, see section 901 of Pub. L. 107-16, set out as
an Effective and Termination Dates of 2001 Amendment note under
section 1 of this title.
-End-
-CITE-
26 USC Sec. 45G 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45G. Railroad track maintenance credit
-STATUTE-
(a) General rule
For purposes of section 38, the railroad track maintenance credit
determined under this section for the taxable year is an amount
equal to 50 percent of the qualified railroad track maintenance
expenditures paid or incurred by an eligible taxpayer during the
taxable year.
(b) Limitation
(1) In general
The credit allowed under subsection (a) for any taxable year
shall not exceed the product of -
(A) $3,500, multiplied by
(B) the sum of -
(i) the number of miles of railroad track owned or leased
by the eligible taxpayer as of the close of the taxable year,
and
(ii) the number of miles of railroad track assigned for
purposes of this subsection to the eligible taxpayer by a
Class II or Class III railroad which owns or leases such
railroad track as of the close of the taxable year.
(2) Assignments
With respect to any assignment of a mile of railroad track
under paragraph (1)(B)(ii) -
(A) such assignment may be made only once per taxable year of
the Class II or Class III railroad and shall be treated as made
as of the close of such taxable year,
(B) such mile may not be taken into account under this
section by such railroad for such taxable year, and
(C) such assignment shall be taken into account for the
taxable year of the assignee which includes the date that such
assignment is treated as effective.
(c) Eligible taxpayer
For purposes of this section, the term "eligible taxpayer" means -
(1) any Class II or Class III railroad, and
(2) any person who transports property using the rail
facilities of a Class II or Class III railroad or who furnishes
railroad-related property or services to a Class II or Class III
railroad, but only with respect to miles of railroad track
assigned to such person by such Class II or Class III railroad
for purposes of subsection (b).
(d) Qualified railroad track maintenance expenditures
For purposes of this section, the term "qualified railroad track
maintenance expenditures" means expenditures (whether or not
otherwise chargeable to capital account) for maintaining railroad
track (including roadbed, bridges, and related track structures)
owned or leased as of January 1, 2005, by a Class II or Class III
railroad.
(e) Other definitions and special rules
(1) Class II or Class III railroad
For purposes of this section, the terms "Class II railroad" and
"Class III railroad" have the respective meanings given such
terms by the Surface Transportation Board.
(2) Controlled groups
Rules similar to the rules of paragraph (1) of section 41(f)
shall apply for purposes of this section.
(3) Basis adjustment
For purposes of this subtitle, if a credit is allowed under
this section with respect to any railroad track, the basis of
such track shall be reduced by the amount of the credit so
allowed.
(f) Application of section
This section shall apply to qualified railroad track maintenance
expenditures paid or incurred during taxable years beginning after
December 31, 2004, and before January 1, 2008.
-SOURCE-
(Added Pub. L. 108-357, title II, Sec. 245(a), Oct. 22, 2004, 118
Stat. 1447; amended Pub. L. 109-135, title IV, Sec. 403(f), Dec.
21, 2005, 119 Stat. 2623.)
-MISC1-
AMENDMENTS
2005 - Subsec. (b). Pub. L. 109-135, Sec. 403(f)(1), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The credit allowed under
subsection (a) for any taxable year shall not exceed the product of
-
"(1) $3,500, and
"(2) the number of miles of railroad track owned or leased by
the eligible taxpayer as of the close of the taxable year.
A mile of railroad track may be taken into account by a person
other than the owner only if such mile is assigned to such person
by the owner for purposes of this subsection. Any mile which is so
assigned may not be taken into account by the owner for purposes of
this subsection."
Subsec. (c)(2). Pub. L. 109-135, Sec. 403(f)(2), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "any
person who transports property using the rail facilities of a
person described in paragraph (1) or who furnishes railroad-related
property or services to such a person."
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
2004, see section 245(e) of Pub. L. 108-357, set out as an
Effective Date of 2004 Amendment note under section 38 of this
title.
-End-
-CITE-
26 USC Sec. 45H 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45H. Credit for production of low sulfur diesel fuel
-STATUTE-
(a) In general
For purposes of section 38, the amount of the low sulfur diesel
fuel production credit determined under this section with respect
to any facility of a small business refiner is an amount equal to 5
cents for each gallon of low sulfur diesel fuel produced during the
taxable year by such small business refiner at such facility.
(b) Maximum credit
(1) In general
The aggregate credit determined under subsection (a) for any
taxable year with respect to any facility shall not exceed -
(A) 25 percent of the qualified capital costs incurred by the
small business refiner with respect to such facility, reduced
by
(B) the aggregate credits determined under this section for
all prior taxable years with respect to such facility.
(2) Reduced percentage
In the case of a small business refiner with average daily
domestic refinery runs for the 1-year period ending on December
31, 2002, in excess of 155,000 barrels, the number of percentage
points described in paragraph (1) shall be reduced (not below
zero) by the product of such number (before the application of
this paragraph) and the ratio of such excess to 50,000 barrels.
(c) Definitions and special rule
For purposes of this section -
(1) Small business refiner
The term "small business refiner" means, with respect to any
taxable year, a refiner of crude oil -
(A) with respect to which not more than 1,500 individuals are
engaged in the refinery operations of the business on any day
during such taxable year, and
(B) the average daily domestic refinery run or average
retained production of which for all facilities of the taxpayer
for the 1-year period ending on December 31, 2002, did not
exceed 205,000 barrels.
(2) Qualified capital costs
The term "qualified capital costs" means, with respect to any
facility, those costs paid or incurred during the applicable
period for compliance with the applicable EPA regulations with
respect to such facility, including expenditures for the
construction of new process operation units or the dismantling
and reconstruction of existing process units to be used in the
production of low sulfur diesel fuel, associated adjacent or
offsite equipment (including tankage, catalyst, and power
supply), engineering, construction period interest, and sitework.
(3) Applicable EPA regulations
The term "applicable EPA regulations" means the Highway Diesel
Fuel Sulfur Control Requirements of the Environmental Protection
Agency.
(4) Applicable period
The term "applicable period" means, with respect to any
facility, the period beginning on January 1, 2003, and ending on
the earlier of the date which is 1 year after the date on which
the taxpayer must comply with the applicable EPA regulations with
respect to such facility or December 31, 2009.
(5) Low sulfur diesel fuel
The term "low sulfur diesel fuel" means diesel fuel with a
sulfur content of 15 parts per million or less.
(d) Reduction in basis
For purposes of this subtitle, if a credit is determined under
this section for any expenditure with respect to any property, the
increase in basis of such property which would (but for this
subsection) result from such expenditure shall be reduced by the
amount of the credit so determined.
(e) Special rule for determination of refinery runs
For purposes (!1) this section and section 179B(b), in the
calculation of average daily domestic refinery run or retained
production, only refineries which on April 1, 2003, were refineries
of the refiner or a related person (within the meaning of section
613A(d)(3)), shall be taken into account.
(f) Certification
(1) Required
No credit shall be allowed unless, not later than the date
which is 30 months after the first day of the first taxable year
in which the low sulfur diesel fuel production credit is
determined with respect to a facility, the small business refiner
obtains certification from the Secretary, after consultation with
the Administrator of the Environmental Protection Agency, that
the taxpayer's qualified capital costs with respect to such
facility will result in compliance with the applicable EPA
regulations.
(2) Contents of application
An application for certification shall include relevant
information regarding unit capacities and operating
characteristics sufficient for the Secretary, after consultation
with the Administrator of the Environmental Protection Agency, to
determine that such qualified capital costs are necessary for
compliance with the applicable EPA regulations.
(3) Review period
Any application shall be reviewed and notice of certification,
if applicable, shall be made within 60 days of receipt of such
application. In the event the Secretary does not notify the
taxpayer of the results of such certification within such period,
the taxpayer may presume the certification to be issued until so
notified.
(4) Statute of limitations
With respect to the credit allowed under this section -
(A) the statutory period for the assessment of any deficiency
attributable to such credit shall not expire before the end of
the 3-year period ending on the date that the review period
described in paragraph (3) ends with respect to the taxpayer,
and
(B) such deficiency may be assessed before the expiration of
such 3-year period notwithstanding the provisions of any other
law or rule of law which would otherwise prevent such
assessment.
(g) Cooperative organizations
(1) Apportionment of credit
(A) In general
In the case of a cooperative organization described in
section 1381(a), any portion of the credit determined under
subsection (a) for the taxable year may, at the election of the
organization, be apportioned among patrons eligible to share in
patronage dividends on the basis of the quantity or value of
business done with or for such patrons for the taxable year.
(B) Form and effect of election
An election under subparagraph (A) for any taxable year shall
be made on a timely filed return for such year. Such election,
once made, shall be irrevocable for such taxable year.
(2) Treatment of organizations and patrons
(A) Organizations
The amount of the credit not apportioned to patrons pursuant
to paragraph (1) shall be included in the amount determined
under subsection (a) for the taxable year of the organization.
(B) Patrons
The amount of the credit apportioned to patrons pursuant to
paragraph (1) shall be included in the amount determined under
subsection (a) for the first taxable year of each patron ending
on or after the last day of the payment period (as defined in
section 1382(d)) for the taxable year of the organization or,
if earlier, for the taxable year of each patron ending on or
after the date on which the patron receives notice from the
cooperative of the apportionment.
(3) Special rule
If the amount of a credit which has been apportioned to any
patron under this subsection is decreased for any reason -
(A) such amount shall not increase the tax imposed on such
patron, and
(B) the tax imposed by this chapter on such organization
shall be increased by such amount.
The increase under subparagraph (B) shall not be treated as tax
imposed by this chapter for purposes of determining the amount of
any credit under this chapter or for purposes of section 55.
-SOURCE-
(Added Pub. L. 108-357, title III, Sec. 339(a), Oct. 22, 2004, 118
Stat. 1481.)
-MISC1-
EFFECTIVE DATE
Section applicable to expenses paid or incurred after Dec. 31,
2002, in taxable years ending after such date, see section 339(f)
of Pub. L. 108-357, set out as an Effective Date of 2004 Amendment
note under section 38 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be followed by "of".
-End-
-CITE-
26 USC Sec. 45I 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45I. Credit for producing oil and gas from marginal wells
-STATUTE-
(a) General rule
For purposes of section 38, the marginal well production credit
for any taxable year is an amount equal to the product of -
(1) the credit amount, and
(2) the qualified crude oil production and the qualified
natural gas production which is attributable to the taxpayer.
(b) Credit amount
For purposes of this section -
(1) In general
The credit amount is -
(A) $3 per barrel of qualified crude oil production, and
(B) 50 cents per 1,000 cubic feet of qualified natural gas
production.
(2) Reduction as oil and gas prices increase
(A) In general
The $3 and 50 cents amounts under paragraph (1) shall each be
reduced (but not below zero) by an amount which bears the same
ratio to such amount (determined without regard to this
paragraph) as -
(i) the excess (if any) of the applicable reference price
over $15 ($1.67 for qualified natural gas production), bears
to
(ii) $3 ($0.33 for qualified natural gas production).
The applicable reference price for a taxable year is the
reference price of the calendar year preceding the calendar
year in which the taxable year begins.
(B) Inflation adjustment
In the case of any taxable year beginning in a calendar year
after 2005, each of the dollar amounts contained in
subparagraph (A) shall be increased to an amount equal to such
dollar amount multiplied by the inflation adjustment factor for
such calendar year (determined under section 43(b)(3)(B) by
substituting "2004" for "1990").
(C) Reference price
For purposes of this paragraph, the term "reference price"
means, with respect to any calendar year -
(i) in the case of qualified crude oil production, the
reference price determined under section 45K(d)(2)(C), and
(ii) in the case of qualified natural gas production, the
Secretary's estimate of the annual average wellhead price per
1,000 cubic feet for all domestic natural gas.
(c) Qualified crude oil and natural gas production
For purposes of this section -
(1) In general
The terms "qualified crude oil production" and "qualified
natural gas production" mean domestic crude oil or natural gas
which is produced from a qualified marginal well.
(2) Limitation on amount of production which may qualify
(A) In general
Crude oil or natural gas produced during any taxable year
from any well shall not be treated as qualified crude oil
production or qualified natural gas production to the extent
production from the well during the taxable year exceeds 1,095
barrels or barrel-of-oil equivalents (as defined in section
45K(d)(5)).
(B) Proportionate reductions
(i) Short taxable years
In the case of a short taxable year, the limitations under
this paragraph shall be proportionately reduced to reflect
the ratio which the number of days in such taxable year bears
to 365.
(ii) Wells not in production entire year
In the case of a well which is not capable of production
during each day of a taxable year, the limitations under this
paragraph applicable to the well shall be proportionately
reduced to reflect the ratio which the number of days of
production bears to the total number of days in the taxable
year.
(3) Definitions
(A) Qualified marginal well
The term "qualified marginal well" means a domestic well -
(i) the production from which during the taxable year is
treated as marginal production under section 613A(c)(6), or
(ii) which, during the taxable year -
(I) has average daily production of not more than 25
barrel-of-oil equivalents (as so defined), and
(II) produces water at a rate not less than 95 percent of
total well effluent.
(B) Crude oil, etc.
The terms "crude oil", "natural gas", "domestic", and
"barrel" have the meanings given such terms by section 613A(e).
(d) Other rules
(1) Production attributable to the taxpayer
In the case of a qualified marginal well in which there is more
than one owner of operating interests in the well and the crude
oil or natural gas production exceeds the limitation under
subsection (c)(2), qualifying crude oil production or qualifying
natural gas production attributable to the taxpayer shall be
determined on the basis of the ratio which taxpayer's revenue
interest in the production bears to the aggregate of the revenue
interests of all operating interest owners in the production.
(2) Operating interest required
Any credit under this section may be claimed only on production
which is attributable to the holder of an operating interest.
(3) Production from nonconventional sources excluded
In the case of production from a qualified marginal well which
is eligible for the credit allowed under section 45K for the
taxable year, no credit shall be allowable under this section
unless the taxpayer elects not to claim the credit under section
45K with respect to the well.
-SOURCE-
(Added Pub. L. 108-357, title III, Sec. 341(a), Oct. 22, 2004, 118
Stat. 1485; amended Pub. L. 109-58, title XIII, Sec. 1322(a)(3)(B),
(D), Aug. 8, 2005, 119 Stat. 1011; Pub. L. 109-135, title IV, Sec.
412(k), Dec. 21, 2005, 119 Stat. 2637.)
-MISC1-
AMENDMENTS
2005 - Subsec. (a)(2). Pub. L. 109-135 substituted "qualified
crude oil production" for "qualified credit oil production".
Subsec. (b)(2)(C)(i). Pub. L. 109-58, Sec. 1322(a)(3)(B),
substituted "section 45K(d)(2)(C)" for "section 29(d)(2)(C)".
Subsec. (c)(2)(A). Pub. L. 109-58, Sec. 1322(a)(3)(D)(i),
substituted "section 45K(d)(5))" for "section 29(d)(5))".
Subsec. (d)(3). Pub. L. 109-58, Sec. 1322(a)(3)(D)(ii),
substituted "section 45K" for "section 29" in two places.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-58 applicable to credits determined
under the Internal Revenue Code of 1986 for taxable years ending
after Dec. 31, 2005, see section 1322(c)(1) of Pub. L. 109-58, set
out as a note under section 45K of this title.
EFFECTIVE DATE
Section applicable to production in taxable years beginning after
Dec. 31, 2004, see section 341(e) of Pub. L. 108-357, set out as an
Effective Date of 2004 Amendment note under section 38 of this
title.
-End-
-CITE-
26 USC Sec. 45J 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45J. Credit for production from advanced nuclear power
facilities
-STATUTE-
(a) General rule
For purposes of section 38, the advanced nuclear power facility
production credit of any taxpayer for any taxable year is equal to
the product of -
(1) 1.8 cents, multiplied by
(2) the kilowatt hours of electricity -
(A) produced by the taxpayer at an advanced nuclear power
facility during the 8-year period beginning on the date the
facility was originally placed in service, and
(B) sold by the taxpayer to an unrelated person during the
taxable year.
(b) National limitation
(1) In general
The amount of credit which would (but for this subsection and
subsection (c)) be allowed with respect to any facility for any
taxable year shall not exceed the amount which bears the same
ratio to such amount of credit as -
(A) the national megawatt capacity limitation allocated to
the facility, bears to
(B) the total megawatt nameplate capacity of such facility.
(2) Amount of national limitation
The national megawatt capacity limitation shall be 6,000
megawatts.
(3) Allocation of limitation
The Secretary shall allocate the national megawatt capacity
limitation in such manner as the Secretary may prescribe.
(4) Regulations
Not later than 6 months after the date of the enactment of this
section, the Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection. Such regulations shall provide a certification
process under which the Secretary, after consultation with the
Secretary of Energy, shall approve and allocate the national
megawatt capacity limitation.
(c) Other limitations
(1) Annual limitation
The amount of the credit allowable under subsection (a) (after
the application of subsection (b)) for any taxable year with
respect to any facility shall not exceed an amount which bears
the same ratio to $125,000,000 as -
(A) the national megawatt capacity limitation allocated under
subsection (b) to the facility, bears to
(B) 1,000.
(2) Phaseout of credit
(A) In general
The amount of the credit determined under subsection (a)
shall be reduced by an amount which bears the same ratio to the
amount of the credit (determined without regard to this
paragraph) as -
(i) the amount by which the reference price (as defined in
section 45(e)(2)(C)) for the calendar year in which the sale
occurs exceeds 8 cents, bears to
(ii) 3 cents.
(B) Phaseout adjustment based on inflation
The 8 cent amount in subparagraph (A) shall be adjusted by
multiplying such amount by the inflation adjustment factor (as
defined in section 45(e)(2)(B)) for the calendar year in which
the sale occurs. If any amount as increased under the preceding
sentence is not a multiple of 0.1 cent, such amount shall be
rounded to the nearest multiple of 0.1 cent.
(d) Advanced nuclear power facility
For purposes of this section -
(1) In general
The term "advanced nuclear power facility" means any advanced
nuclear facility -
(A) which is owned by the taxpayer and which uses nuclear
energy to produce electricity, and
(B) which is placed in service after the date of the
enactment of this paragraph and before January 1, 2021.
(2) Advanced nuclear facility
For purposes of paragraph (1), the term "advanced nuclear
facility" means any nuclear facility the reactor design for which
is approved after December 31, 1993, by the Nuclear Regulatory
Commission (and such design or a substantially similar design of
comparable capacity was not approved on or before such date).
(e) Other rules to apply
Rules similar to the rules of paragraphs (1), (3), (4), and (5)
of section 45(e) shall apply for purposes of this section.
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1306(a), Aug. 8, 2005, 119
Stat. 997; amended Pub. L. 109-135, title IV, Sec. 402(d), Dec. 21,
2005, 119 Stat. 2610.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section and the date of the
enactment of this paragraph, referred to in subsecs. (b)(4) and
(d)(1)(B), are the date of enactment of Pub. L. 109-58, which was
approved Aug. 8, 2005.
-MISC1-
AMENDMENTS
2005 - Subsec. (c)(2). Pub. L. 109-135, Sec. 402(d)(1), amended
heading and text of par. (2) generally. Prior to amendment, text
read as follows: "Rules similar to the rules of section 45(b)(1)
shall apply for purposes of this section."
Subsec. (e). Pub. L. 109-135, Sec. 402(d)(2), struck out "(2),"
after "(1),".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the Energy Policy Act of 2005, Pub. L. 109-58, to
which such amendment relates, see section 402(m)(1) of Pub. L. 109-
135, set out as a note under section 23 of this title.
EFFECTIVE DATE
Section applicable to production in taxable years beginning after
Aug. 8, 2005, see section 1306(d) of Pub. L. 109-58, set out as an
Effective Date of 2005 Amendment note under section 38 of this
title.
-End-
-CITE-
26 USC Sec. 45K 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45K. Credit for producing fuel from a nonconventional source
-STATUTE-
(a) Allowance of credit
For purposes of section 38, the nonconventional source production
credit determined under this section for the taxable year is an
amount equal to -
(1) $3, multiplied by
(2) the barrel-of-oil equivalent of qualified fuels -
(A) sold by the taxpayer to an unrelated person during the
taxable year, and
(B) the production of which is attributable to the taxpayer.
(b) Limitations and adjustments
(1) Phaseout of credit
The amount of the credit allowable under subsection (a) shall
be reduced by an amount which bears the same ratio to the amount
of the credit (determined without regard to this paragraph) as -
(A) the amount by which the reference price for the calendar
year in which the sale occurs exceeds $23.50, bears to
(B) $6.
(2) Credit and phaseout adjustment based on inflation
The $3 amount in subsection (a) and the $23.50 and $6 amounts
in paragraph (1) shall each be adjusted by multiplying such
amount by the inflation adjustment factor for the calendar year
in which the sale occurs. In the case of gas from a tight
formation, the $3 amount in subsection (a) shall not be adjusted.
(3) Credit reduced for grants, tax-exempt bonds, and subsidized
energy financing
(A) In general
The amount of the credit allowable under subsection (a) with
respect to any project for any taxable year (determined after
the application of paragraphs (1) and (2)) shall be reduced by
the amount which is the product of the amount so determined for
such year and a fraction -
(i) the numerator of which is the sum, for the taxable year
and all prior taxable years, of -
(I) grants provided by the United States, a State, or a
political subdivision of a State for use in connection with
the project,
(II) proceeds of any issue of State or local government
obligations used to provide financing for the project the
interest on which is exempt from tax under section 103, and
(III) the aggregate amount of subsidized energy financing
(within the meaning of section 48(a)(4)(C)) provided in
connection with the project, and
(ii) the denominator of which is the aggregate amount of
additions to the capital account for the project for the
taxable year and all prior taxable years.
(B) Amounts determined at close of year
The amounts under subparagraph (A) for any taxable year shall
be determined as of the close of the taxable year.
(4) Credit reduced for energy credit
The amount allowable as a credit under subsection (a) with
respect to any project for any taxable year (determined after the
application of paragraphs (1), (2), and (3)) shall be reduced by
the excess of -
(A) the aggregate amount allowed under section 38 for the
taxable year or any prior taxable year by reason of the energy
percentage with respect to property used in the project, over
(B) the aggregate amount recaptured with respect to the
amount described in subparagraph (A) -
(i) under section 49(b) or 50(a) for the taxable year or
any prior taxable year, or
(ii) under this paragraph for any prior taxable year.
The amount recaptured under section 49(b) or 50(a) with respect
to any property shall be appropriately reduced to take into
account any reduction in the credit allowed by this section by
reason of the preceding sentence.
(5) Credit reduced for enhanced oil recovery credit
The amount allowable as a credit under subsection (a) with
respect to any project for any taxable year (determined after
application of paragraphs (1), (2), (3), and (4)) shall be
reduced by the excess (if any) of -
(A) the aggregate amount allowed under section 38 for the
taxable year and any prior taxable year by reason of any
enhanced oil recovery credit determined under section 43 with
respect to such project, over
(B) the aggregate amount recaptured with respect to the
amount described in subparagraph (A) under this paragraph for
any prior taxable year.
(c) Definition of qualified fuels
For purposes of this section -
(1) In general
The term "qualified fuels" means -
(A) oil produced from shale and tar sands,
(B) gas produced from -
(i) geopressured brine, Devonian shale, coal seams, or a
tight formation, or
(ii) biomass, and
(C) liquid, gaseous, or solid synthetic fuels produced from
coal (including lignite), including such fuels when used as
feedstocks.
(2) Gas from geopressured brine, etc.
(A) In general
Except as provided in subparagraph (B), the determination of
whether any gas is produced from geopressured brine, Devonian
shale, coal seams, or a tight formation shall be made in
accordance with section 503 of the Natural Gas Policy Act of
1978 (as in effect before the repeal of such section).
(B) Special rules for gas from tight formations
The term "gas produced from a tight formation" shall only
include gas from a tight formation -
(i) which, as of April 20, 1977, was committed or dedicated
to interstate commerce (as defined in section 2(18) of the
Natural Gas Policy Act of 1978, as in effect on the date of
the enactment of this clause), or
(ii) which is produced from a well drilled after such date
of enactment.
(3) Biomass
The term "biomass" means any organic material other than -
(A) oil and natural gas (or any product thereof), and
(B) coal (including lignite) or any product thereof.
(d) Other definitions and special rules
For purposes of this section -
(1) Only production within the United States taken into account
Sales shall be taken into account under this section only with
respect to qualified fuels the production of which is within -
(A) the United States (within the meaning of section 638(1)),
or
(B) a possession of the United States (within the meaning of
section 638(2)).
(2) Computation of inflation adjustment factor and reference
price
(A) In general
The Secretary shall, not later than April 1 of each calendar
year, determine and publish in the Federal Register the
inflation adjustment factor and the reference price for the
preceding calendar year in accordance with this paragraph.
(B) Inflation adjustment factor
The term "inflation adjustment factor" means, with respect to
a calendar year, a fraction the numerator of which is the GNP
implicit price deflator for the calendar year and the
denominator of which is the GNP implicit price deflator for
calendar year 1979. The term "GNP implicit price deflator"
means the first revision of the implicit price deflator for the
gross national product as computed and published by the
Department of Commerce.
(C) Reference price
The term "reference price" means with respect to a calendar
year the Secretary's estimate of the annual average wellhead
price per barrel for all domestic crude oil the price of which
is not subject to regulation by the United States.
(3) Production attributable to the taxpayer
In the case of a property or facility in which more than 1
person has an interest, except to the extent provided in
regulations prescribed by the Secretary, production from the
property or facility (as the case may be) shall be allocated
among such persons in proportion to their respective interests in
the gross sales from such property or facility.
(4) Gas from geopressured brine, Devonian shale, coal seams, or a
tight formation
The amount of the credit allowable under subsection (a) shall
be determined without regard to any production attributable to a
property from which gas from Devonian shale, coal seams,
geopressured brine, or a tight formation was produced in
marketable quantities before January 1, 1980.
(5) Barrel-of-oil equivalent
The term "barrel-of-oil equivalent" with respect to any fuel
means that amount of such fuel which has a Btu content of 5.8
million; except that in the case of qualified fuels described in
subparagraph (C) of subsection (c)(1), the Btu content shall be
determined without regard to any material from a source not
described in such subparagraph.
(6) Barrel defined
The term "barrel" means 42 United States gallons.
(7) Related persons
Persons shall be treated as related to each other if such
persons would be treated as a single employer under the
regulations prescribed under section 52(b). In the case of a
corporation which is a member of an affiliated group of
corporations filing a consolidated return, such corporation shall
be treated as selling qualified fuels to an unrelated person if
such fuels are sold to such a person by another member of such
group.
(8) Pass-thru in the case of estates and trusts
Under regulations prescribed by the Secretary, rules similar to
the rules of subsection (d) of section 52 shall apply.
(e) Application of section
This section shall apply with respect to qualified fuels -
(1) which are -
(A) produced from a well drilled after December 31, 1979, and
before January 1, 1993, or
(B) produced in a facility placed in service after December
31, 1979, and before January 1, 1993, and
(2) which are sold before January 1, 2003.
(f) Extension for certain facilities
(1) In general
In the case of a facility for producing qualified fuels
described in subparagraph (B)(ii) or (C) of subsection (c)(1) -
(A) for purposes of subsection (e)(1)(B), such facility shall
be treated as being placed in service before January 1, 1993,
if such facility is placed in service before July 1, 1998,
pursuant to a binding written contract in effect before January
1, 1997, and
(B) if such facility is originally placed in service after
December 31, 1992, paragraph (2) of subsection (e) shall be
applied with respect to such facility by substituting "January
1, 2008" for "January 1, 2003".
(2) Special rule
Paragraph (1) shall not apply to any facility which produces
coke or coke gas unless the original use of the facility
commences with the taxpayer.
(g) Extension for facilities producing coke or coke gas
Notwithstanding subsection (e) -
(1) In general
In the case of a facility for producing coke or coke gas which
was placed in service before January 1, 1993, or after June 30,
1998, and before January 1, 2010, this section shall apply with
respect to coke and coke gas produced in such facility and sold
during the period -
(A) beginning on the later of January 1, 2006, or the date
that such facility is placed in service, and
(B) ending on the date which is 4 years after the date such
period began.
(2) Special rules
In determining the amount of credit allowable under this
section solely by reason of this subsection -
(A) Daily limit
The amount of qualified fuels sold during any taxable year
which may be taken into account by reason of this subsection
with respect to any facility shall not exceed an average barrel-
of-oil equivalent of 4,000 barrels per day. Days before the
date the facility is placed in service shall not be taken into
account in determining such average.
(B) Extension period to commence with unadjusted credit amount
For purposes of applying subsection (b)(2) to the $3 amount
in subsection (a), in the case of fuels sold after 2005,
subsection (d)(2)(B) shall be applied by substituting "2004"
for "1979".
(C) Denial of double benefit
This subsection shall not apply to any facility producing
qualified fuels for which a credit was allowed under this
section for the taxable year or any preceding taxable year by
reason of subsection (f).
-SOURCE-
(Added Pub. L. 96-223, title II, Sec. 231(a), Apr. 2, 1980, 94
Stat. 268, Sec. 44D; amended Pub. L. 97-34, title VI Sec. 611(a),
Aug. 13, 1981, 95 Stat. 339; Pub. L. 97-354, Sec. 5(a)(1), Oct. 19,
1982, 96 Stat. 1692; Pub. L. 97-448, title II, Sec. 202(a), Jan.
12, 1983, 96 Stat. 2396; renumbered Sec. 29 and amended Pub. L. 98-
369, div. A, title IV, Secs. 471(c), 474(h), title VI, Sec.
612(e)(1), title VII, Sec. 722(d)(1), (2), July 18, 1984, 98 Stat.
826, 831, 912, 973; Pub. L. 99-514, title VII, Sec. 701(c)(3),
title XVIII, Sec. 1879(c)(1), Oct. 22, 1986, 100 Stat. 2340, 2906;
Pub. L. 100-647, title VI, Sec. 6302, Nov. 10, 1988, 102 Stat.
3755; Pub. L. 101-508, title XI, Secs. 11501(a), (b)(1), (c)(1),
11813(b)(1), 11816, Nov. 5, 1990, 104 Stat. 1388-479, 1388-550,
1388-558; Pub. L. 102-486, title XIX, Sec. 1918, Oct. 24, 1992, 106
Stat. 3025; Pub. L. 104-188, title I, Secs. 1205(d)(3), 1207(a),
Aug. 20, 1996, 110 Stat. 1776; renumbered Sec. 45K and amended Pub.
L. 109-58, title XIII, Secs. 1321(a), 1322(a)(1), (3)(E), (F), (b),
Aug. 8, 2005, 119 Stat. 1010-1012; Pub. L. 109-135, title IV, Secs.
402(g), 412(l), Dec. 21, 2005, 119 Stat. 2611, 2637.)
-REFTEXT-
REFERENCES IN TEXT
Section 503 of the Natural Gas Policy Act of 1978 (as in effect
before the repeal of such section), referred to in subsec.
(c)(2)(A), was classified to section 3413 of Title 15, Commerce and
Trade, prior to repeal by Pub. L. 101-60, Sec. 3(b)(5), July 26,
1989, 103 Stat. 159, effective Jan. 1, 1993.
Section 2(18) of the Natural Gas Policy Act of 1978, referred to
in subsec. (c)(2)(B)(i), is classified to section 3301(18) of Title
15, Commerce and Trade.
The date of the enactment of this clause, and such date of
enactment, referred to in subsec. (c)(2)(B), probably mean the date
of enactment of Pub. L. 101-508, which amended subsec. (c)(2)(B) of
this section generally, and which was approved Nov. 5, 1990.
-MISC1-
AMENDMENTS
2005 - Pub. L. 109-58, Sec. 1322(a)(1), renumbered section 29 of
this title as this section.
Subsec. (a). Pub. L. 109-135, Sec. 402(g), struck out "if the
taxpayer elects to have this section apply," after "For purposes of
section 38," in introductory provisions.
Pub. L. 109-58, Sec. 1322(a)(3)(E), substituted "For purposes of
section 38, if the taxpayer elects to have this section apply, the
nonconventional source production credit determined under this
section for the taxable year is" for "There shall be allowed as a
credit against the tax imposed by this chapter for the taxable
year" in introductory provisions.
Subsec. (b)(6). Pub. L. 109-58, Sec. 1322(a)(3)(F), struck out
heading and text of par. (6). Text read as follows: "The credit
allowed by subsection (a) for any taxable year shall not exceed the
excess (if any) of -
"(A) the regular tax for the taxable year reduced by the sum of
the credits allowable under subpart A and section 27, over
"(B) the tentative minimum tax for the taxable year."
Subsec. (c)(2)(A). Pub. L. 109-58, Sec. 1322(b)(1)(A), inserted
"(as in effect before the repeal of such section)" after "1978".
Subsecs. (e), (f). Pub. L. 109-58, Sec. 1322(b)(1)(B),
redesignated subsecs. (f) and (g) as (e) and (f), respectively, and
struck out former subsec. (e), which related to application of
section with the Natural Gas Policy Act of 1978.
Subsec. (g). Pub. L. 109-135, Sec. 412(l)(1), substituted
"subsection (e)" for "subsection (f)" in introductory provisions.
Pub. L. 109-58, Sec. 1322(b)(1)(B), redesignated subsec. (h) as
(g).
Subsec. (g)(1)(A). Pub. L. 109-58, Sec. 1322(b)(2)(A),
substituted "subsection (e)(1)(B)" for "subsection (f)(1)(B)".
Subsec. (g)(1)(B). Pub. L. 109-58, Sec. 1322(b)(2)(B),
substituted "subsection (e)" for "subsection (f)".
Subsec. (g)(2)(C). Pub. L. 109-135, Sec. 412(l)(2), substituted
"subsection (f)" for "subsection (g)".
Subsec. (h). Pub. L. 109-58, Sec. 1322(b)(1)(B), redesignated
subsec. (h) as (g).
Pub. L. 109-58, Sec. 1321(a), added subsec. (h).
1996 - Subsec. (b)(6)(A). Pub. L. 104-188, Sec. 1205(d)(3),
substituted "section 27" for "sections 27 and 28".
Subsec. (g)(1)(A). Pub. L. 104-188, Sec. 1207(a), substituted
"July 1, 1998" for "January 1, 1997" and "January 1, 1997" for
"January 1, 1996".
1992 - Subsec. (g). Pub. L. 102-486 added subsec. (g).
1990 - Subsec. (b)(3)(A)(i)(III). Pub. L. 101-508, Sec.
11813(b)(1)(A), substituted "section 48(a)(4)(C)" for "section
48(l)(11)(C)".
Subsec. (b)(4). Pub. L. 101-508, Sec. 11813(b)(1)(B), substituted
"section 49(b) or 50(a)" for "section 47" in two places.
Subsec. (b)(5), (6). Pub. L. 101-508, Sec. 11501(c)(1), added
par. (5) and redesignated former par. (5) as (6).
Subsec. (c)(1)(B) to (E). Pub. L. 101-508, Sec. 11816(a),
inserted "and" at end of subpar. (B), substituted a period for a
comma at end of subpar. (C), and struck out subpar. (D) which
related to qualifying processed wood fuels, and subpar. (E) which
related to steam produced from solid agricultural byproducts (not
including timber byproducts).
Subsec. (c)(2)(B). Pub. L. 101-508, Sec. 11501(b)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "The term 'gas produced from a tight formation' shall only
include -
"(i) gas the price of which is regulated by the United States,
and
"(ii) gas for which the maximum lawful price applicable under
the Natural Gas Policy Act of 1978 is at least 150 percent of the
then applicable price under section 103 of such Act."
Subsec. (c)(3). Pub. L. 101-508, Sec. 11813(b)(1)(C), amended
par. (3) generally. Prior to amendment, par. (3) read as follows:
"The term 'biomass' means any organic material which is an
alternate substance (as defined in section 48(l)(3)(B)) other than
coal (including lignite) or any product of such coal."
Subsec. (c)(4). Pub. L. 101-508, Sec. 11816(b)(1), struck out
par. (4) "Qualifying processed wood fuel" which read as follows:
"(A) In general. - The term 'qualifying processed wood fuel'
means any processed solid wood fuel (other than charcoal, fireplace
products, or a product used for ornamental or recreational
purposes) which has a Btu content per unit of volume or weight,
determined without regard to any nonwood elements, which is at
least 40 percent greater per unit of volume or weight than the Btu
content of the wood from which it is produced (determined
immediately before the processing).
"(B) Election. - A taxpayer shall elect, at such time and in such
manner as the Secretary by regulations may prescribe, as to whether
Btu content per unit shall be determined for purposes of this
paragraph on a volume or weight basis. Any such election -
"(i) shall apply to all production from a facility; and
"(ii) shall be effective for the taxable year with respect to
which it is made and for all subsequent taxable years and, once
made, may be revoked only with the consent of the Secretary."
Subsec. (c)(5). Pub. L. 101-508, Sec. 11816(b)(1), struck out
par. (5) "Agricultural byproduct steam" which read as follows:
"Steam produced from solid agricultural byproducts which is used by
the taxpayer in his trade or business shall be treated as having
been sold by the taxpayer to an unrelated person on the date on
which it is used."
Subsec. (d)(4). Pub. L. 101-508, Sec. 11816(b)(2), amended par.
(4) generally, striking out "Special rules applicable to" before
"Gas" in heading, redesignating former subpar. (A) as par. (4),
striking out subpar. (B) which related to the reference price and
application of phaseout for Devonian shale, and making minor
changes in phraseology.
Subsec. (d)(5), (6). Pub. L. 101-508, Sec. 11816(b)(3), (4),
redesignated par. (6) as (5), substituted "subparagraph (C)" for
"subparagraph (C), (D), or (E)", and struck out former par. (5)
which read as follows: "In the case of a facility for the
production of -
"(A) qualifying processed wood fuel,
or
"(B) steam from solid agricultural byproducts,
paragraph (1) of subsection (b) shall not apply with respect to the
amount of the credit allowable under subsection (a) for fuels sold
during the 3-year period beginning on the date the facility is
placed in service."
Subsec. (d)(7) to (9). Pub. L. 101-508, Sec. 11816(b)(3),
redesignated pars. (7) to (9) as (6) to (8), respectively.
Subsec. (f). Pub. L. 101-508, Sec. 11816(b)(5), amended subsec.
(f) generally, redesignating former par. (1) as subsec. (f), making
minor changes in phraseology, substituting par. (2) for former par.
(1)(B) which read as follows: "which are sold after December 31,
1979, and before January 1, 2003.", and striking out former par.
(2) which related to special rules applicable to qualified
processed wood and solid agricultural byproduct steam.
Subsec. (f)(1)(A)(i), (ii). Pub. L. 101-508, Sec. 11501(a)(1),
substituted "1993" for "1991".
Subsec. (f)(1)(B). Pub. L. 101-508, Sec. 11501(a)(2), substituted
"2003" for "2001".
1988 - Subsec. (f)(1)(A)(i), (ii). Pub. L. 100-647 substituted
"1991" for "1990".
1986 - Subsec. (b)(5). Pub. L. 99-514, Sec. 701(c)(3), amended
par. (5) generally. Prior to amendment, par. (5) read as follows:
"The credit allowed by subsection (a) for a taxable year shall not
exceed the taxpayer's tax liability for the taxable year (as
defined in section 26(b)), reduced by the sum of the credits
allowable under subpart A and sections 27 and 28."
Subsec. (d)(8). Pub. L. 99-514, Sec. 1879(c)(1), inserted
provision directing that a corporation which is a member of an
affiliated group of corporations filing a consolidated return shall
be treated as selling qualified fuels to an unrelated person if
such fuels are sold to such person by another member of such group.
1984 - Pub. L. 98-369, Sec. 471(c), renumbered section 44D of
this title as this section.
Subsec. (b)(1)(A). Pub. L. 98-369, Sec. 722(d)(1), substituted
"in which the sale occurs" for "in which the taxable year begins".
Subsec. (b)(2). Pub. L. 98-369, Sec. 722(d)(2), substituted "in
which the sale occurs" for "in which a taxable year begins".
Subsec. (b)(5). Pub. L. 98-369, Sec. 612(e)(1), substituted
"section 26(b)" for "section 25(b)".
Pub. L. 98-369, Sec. 474(h), amended par. (5) generally,
substituting "shall not exceed the taxpayer's tax liability for the
taxable year (as defined in section 25(b)), reduced by the sum of
the credits allowable under subpart A and sections 27 and 28" for
"shall not exceed the tax imposed by this chapter for such taxable
year, reduced by the sum of the credits allowable under a section
of this subpart having a lower number or letter designation than
this section, other than the credits allowable by sections 31, 39,
and 43. For purposes of the preceding sentence, the term 'tax
imposed by this chapter' shall not include any tax treated as not
imposed by this chapter under the last sentence of section 53(a)".
1983 - Subsec. (f)(1)(B), (2)(A)(i). Pub. L. 97-448 substituted
"December 31, 1979" for "December 3, 1979".
1982 - Subsec. (d)(9). Pub. L. 97-354 substituted "Pass-thru in
the case of estates and trusts" for "Pass-through in the case of
subchapter S corporations, etc." in par. heading, and substituted
provisions relating to the applicability of rules similar to rules
of subsec. (d) of section 52 for provisions relating to the
applicability of rules similar to rules of subsecs. (d) and (e) of
section 52.
1981 - Subsec. (e). Pub. L. 97-34 substituted provisions
respecting application with the Natural Gas Policy Act of 1978 for
prior provision reading "If the taxpayer makes an election under
section 107(d) of the Natural Gas Policy Act of 1978 to have
subsections (a) and (b) of section 107 of that Act, and subtitle B
of title I of that Act, apply with respect to gas described in
subsection (c)(1)(B)(i) produced from any well on a property, then
the credit allowable by subsection (a) shall not be allowed with
respect to any gas produced on that property."
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendment by section 402(g) of Pub. L. 109-135 effective as if
included in the provision of the Energy Policy Act of 2005, Pub. L.
109-58, to which such amendment relates, see section 402(m)(1) of
Pub. L. 109-135, set out as an Effective and Termination Dates of
2005 Amendments note under section 23 of this title.
Pub. L. 109-58, title XIII, Sec. 1321(b), Aug. 8, 2005, 119 Stat.
1011, provided that: "The amendment made by this section [amending
this section] shall apply to fuel produced and sold after December
31, 2005, in taxable years ending after such date."
Pub. L. 109-58, title XIII, Sec. 1322(c), Aug. 8, 2005, 119 Stat.
1012, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
30, 38, 43, 45, 45I, 53, 55, 613A, and 772 of this title and
renumbering section 29 of this title as this section] shall apply
to credits determined under the Internal Revenue Code of 1986 for
taxable years ending after December 31, 2005.
"(2) Subsection (b). - The amendments made by subsection (b)
[amending this section] shall take effect on the date of the
enactment of this Act [Aug. 8, 2005]."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1205(e) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and sections 30, 38,
39, 45C, 53, 55, and 280C of this title] shall apply to amounts
paid or incurred in taxable years ending after June 30, 1996."
Section 1207(b) of Pub. L. 104-188 provided that: "The amendment
made by this section [amending this section] shall take effect on
the date of the enactment of this Act [Aug. 20, 1996]."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11501(b)(2) of Pub. L. 101-508 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to gas produced after December 31, 1990."
Section 11501(c)(2) of Pub. L. 101-508 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years beginning after December 31, 1990."
Section 11813(c) of Pub. L. 101-508 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting section 50 of this title
and amending this section and sections 38, 42, 46 to 49, 52, 55,
108, 145, 147, 168, 170, 179, 196, 280F, 312, 465, 469, 861, 865,
1016, 1033, 1245, 1274A, 1371, 1388 and 1503 of this title] shall
apply to property placed in service after December 31, 1990.
"(2) Exceptions. - The amendments made by this section shall not
apply to -
"(A) any transition property (as defined in section 49(e) of
the Internal Revenue Code of 1986 (as in effect on the day before
the date of the enactment of this Act [Nov. 5, 1990]),
"(B) any property with respect to which qualified progress
expenditures were previously taken into account under section
46(d) of such Code (as so in effect), and
"(C) any property described in section 46(b)(2)(C) of such Code
(as so in effect)."
Section 11821(a) of Pub. L. 101-508 provided that: "Except as
otherwise provided in this part, the amendments made by this part
[part I (Secs. 11801-11821) of subtitle H of title XI of Pub. L.
101-508, see Tables for classification] shall take effect on the
date of the enactment of this Act [Nov. 5, 1990]."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 701(c)(3) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L. 99-
514, set out as an Effective Date note under section 55 of this
title.
Section 1879(c)(2) of Pub. L. 99-514 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section 231 of
Public Law 96-223 [see Effective Date note below]."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(h) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 612(e)(1) of Pub. L. 98-369 applicable to
interest paid or accrued after Dec. 31, 1984, on indebtedness
incurred after Dec. 31, 1984, see section 612(g) of Pub. L. 98-369,
set out as an Effective Date note under section 25 of this title.
Section 722(d)(3) of Pub. L. 98-369 provided that: "The
amendments made by this subsection [amending this section] shall
apply to taxable years ending after December 31, 1979."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the Crude
Oil Windfall Profit Tax Act of 1980, Pub. L. 96-223 to which such
amendment relates, see section 203(a) of Pub. L. 97-448, set out as
a note under section 6652 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 611(b) of Pub. L. 97-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years ending after December 31, 1979."
EFFECTIVE DATE
Section 231(c) of Pub. L. 96-223 provided that: "The amendments
made by this section [enacting this section and amending section
6096 of this title] shall apply to taxable years ending after
December 31, 1979."
SAVINGS PROVISION
Section 11821(b) of Pub. L. 101-508 provided that: "If -
"(1) any provision amended or repealed by this part [part I
(Secs. 11801-11821) of subtitle H of title XI of Pub. L. 101-508,
see Tables for classification] applied to -
"(A) any transaction occurring before the date of the
enactment of this Act [Nov. 5, 1990],
"(B) any property acquired before such date of enactment, or
"(C) any item of income, loss, deduction, or credit taken
into account before such date of enactment, and
"(2) the treatment of such transaction, property, or item under
such provision would (without regard to the amendments made by
this part) affect liability for tax for periods ending after such
date of enactment,
nothing in the amendments made by this part shall be construed to
affect the treatment of such transaction, property, or item for
purposes of determining liability for tax for periods ending after
such date of enactment."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(c)(3) of Pub. L. 99-
514 notwithstanding any treaty obligation of the United States in
effect on Oct. 22, 1986, with provision that for such purposes any
amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 45L 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45L. New energy efficient home credit
-STATUTE-
(a) Allowance of credit
(1) In general
For purposes of section 38, in the case of an eligible
contractor, the new energy efficient home credit for the taxable
year is the applicable amount for each qualified new energy
efficient home which is -
(A) constructed by the eligible contractor, and
(B) acquired by a person from such eligible contractor for
use as a residence during the taxable year.
(2) Applicable amount
For purposes of paragraph (1), the applicable amount is an
amount equal to -
(A) in the case of a dwelling unit described in paragraph (1)
or (2) of subsection (c), $2,000, and
(B) in the case of a dwelling unit described in paragraph (3)
of subsection (c), $1,000.
(b) Definitions
For purposes of this section -
(1) Eligible contractor
The term "eligible contractor" means -
(A) the person who constructed the qualified new energy
efficient home, or
(B) in the case of a qualified new energy efficient home
which is a manufactured home, the manufactured home producer of
such home.
(2) Qualified new energy efficient home
The term "qualified new energy efficient home" means a dwelling
unit -
(A) located in the United States,
(B) the construction of which is substantially completed
after the date of the enactment of this section, and
(C) which meets the energy saving requirements of subsection
(c).
(3) Construction
The term "construction" includes substantial reconstruction and
rehabilitation.
(4) Acquire
The term "acquire" includes purchase.
(c) Energy saving requirements
A dwelling unit meets the energy saving requirements of this
subsection if such unit is -
(1) certified -
(A) to have a level of annual heating and cooling energy
consumption which is at least 50 percent below the annual level
of heating and cooling energy consumption of a comparable
dwelling unit -
(i) which is constructed in accordance with the standards
of chapter 4 of the 2003 International Energy Conservation
Code, as such Code (including supplements) is in effect on
the date of the enactment of this section, and
(ii) for which the heating and cooling equipment
efficiencies correspond to the minimum allowed under the
regulations established by the Department of Energy pursuant
to the National Appliance Energy Conservation Act of 1987 and
in effect at the time of completion of construction, and
(B) to have building envelope component improvements account
for at least 1/5 of such 50 percent,
(2) a manufactured home which conforms to Federal Manufactured
Home Construction and Safety Standards (section 3280 of title 24,
Code of Federal Regulations) and which meets the requirements of
paragraph (1), or
(3) a manufactured home which conforms to Federal Manufactured
Home Construction and Safety Standards (section 3280 of title 24,
Code of Federal Regulations) and which -
(A) meets the requirements of paragraph (1) applied by
substituting "30 percent" for "50 percent" both places it
appears therein and by substituting " 1/3 " for " 1/5 " in
subparagraph (B) thereof, or
(B) meets the requirements established by the Administrator
of the Environmental Protection Agency under the Energy Star
Labeled Homes program.
(d) Certification
(1) Method of certification
A certification described in subsection (c) shall be made in
accordance with guidance prescribed by the Secretary, after
consultation with the Secretary of Energy. Such guidance shall
specify procedures and methods for calculating energy and cost
savings.
(2) Form
Any certification described in subsection (c) shall be made in
writing in a manner which specifies in readily verifiable fashion
the energy efficient building envelope components and energy
efficient heating or cooling equipment installed and their
respective rated energy efficiency performance.
(e) Basis adjustment
For purposes of this subtitle, if a credit is allowed under this
section in connection with any expenditure for any property, the
increase in the basis of such property which would (but for this
subsection) result from such expenditure shall be reduced by the
amount of the credit so determined.
(f) Coordination with investment credit
For purposes of this section, expenditures taken into account
under section 47 or 48(a) shall not be taken into account under
this section.
(g) Termination
This section shall not apply to any qualified new energy
efficient home acquired after December 31, 2007.
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1332(a), Aug. 8, 2005, 119
Stat. 1024.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section, referred to in
subsecs. (b)(2)(B) and (c)(1)(A)(i), is the date of enactment of
Pub. L. 109-58, which was approved Aug. 8, 2005.
The National Appliance Energy Conservation Act of 1987, referred
to in subsec. (c)(1)(A)(ii), is Pub. L. 100-12, Mar. 17, 1987, 101
Stat. 103. For complete classification of this Act to the Code, see
Short Title of 1987 Amendment note set out under section 6201 of
Title 42, The Public Health and Welfare, and Tables.
-MISC1-
EFFECTIVE DATE
Section applicable to qualified new energy efficient homes
acquired after Dec. 31, 2005, in taxable years ending after such
date, see section 1332(f) of Pub. L. 109-58, set out as an
Effective Date of 2005 Amendments note under section 38 of this
title.
-End-
-CITE-
26 USC Sec. 45M 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart D - Business Related Credits
-HEAD-
Sec. 45M. Energy efficient appliance credit
-STATUTE-
(a) General rule
(1) In general
For purposes of section 38, the energy efficient appliance
credit determined under this section for any taxable year is an
amount equal to the sum of the credit amounts determined under
paragraph (2) for each type of qualified energy efficient
appliance produced by the taxpayer during the calendar year
ending with or within the taxable year.
(2) Credit amounts
The credit amount determined for any type of qualified energy
efficient appliance is -
(A) the applicable amount determined under subsection (b)
with respect to such type, multiplied by
(B) the eligible production for such type.
(b) Applicable amount
(1) In general
For purposes of subsection (a) -
(A) Dishwashers
The applicable amount is the energy savings amount in the
case of a dishwasher which -
(i) is manufactured in calendar year 2006 or 2007, and
(ii) meets the requirements of the Energy Star program
which are in effect for dishwashers in 2007.
(B) Clothes washers
The applicable amount is $100 in the case of a clothes washer
which -
(i) is manufactured in calendar year 2006 or 2007, and
(ii) meets the requirements of the Energy Star program
which are in effect for clothes washers in 2007.
(C) Refrigerators
(i) 15 percent savings
The applicable amount is $75 in the case of a refrigerator
which -
(I) is manufactured in calendar year 2006, and
(II) consumes at least 15 percent but not more than 20
percent less kilowatt hours per year than the 2001 energy
conservation standards.
(ii) 20 percent savings
The applicable amount is $125 in the case of a refrigerator
which -
(I) is manufactured in calendar year 2006 or 2007, and
(II) consumes at least 20 percent but not more than 25
percent less kilowatt hours per year than the 2001 energy
conservation standards.
(iii) 25 percent savings
The applicable amount is $175 in the case of a refrigerator
which -
(I) is manufactured in calendar year 2006 or 2007, and
(II) consumes at least 25 percent less kilowatt hours per
year than the 2001 energy conservation standards.
(2) Energy savings amount
For purposes of paragraph (1)(A) -
(A) In general
The energy savings amount is the lesser of -
(i) the product of -
(I) $3, and
(II) 100 multiplied by the energy savings percentage, or
(ii) $100.
(B) Energy savings percentage
For purposes of subparagraph (A), the energy savings
percentage is the ratio of -
(i) the EF required by the Energy Star program for
dishwashers in 2007 minus the EF required by the Energy Star
program for dishwashers in 2005, to
(ii) the EF required by the Energy Star program for
dishwashers in 2007.
(c) Eligible production
(1) In general
Except as provided in paragraphs (!1) (2), the eligible
production in a calendar year with respect to each type of energy
efficient appliance is the excess of -
(A) the number of appliances of such type which are produced
by the taxpayer in the United States during such calendar year,
over
(B) the average number of appliances of such type which were
produced by the taxpayer (or any predecessor) in the United
States during the preceding 3-calendar year period.
(2) Special rule for refrigerators
The eligible production in a calendar year with respect to each
type of refrigerator described in subsection (b)(1)(C) is the
excess of -
(A) the number of appliances of such type which are produced
by the taxpayer in the United States during such calendar year,
over
(B) 110 percent of the average number of appliances of such
type which were produced by the taxpayer (or any predecessor)
in the United States during the preceding 3-calendar year
period.
(d) Types of energy efficient appliance
For purposes of this section, the types of energy efficient
appliances are -
(1) dishwashers described in subsection (b)(1)(A),
(2) clothes washers described in subsection (b)(1)(B),
(3) refrigerators described in subsection (b)(1)(C)(i),
(4) refrigerators described in subsection (b)(1)(C)(ii), and
(5) refrigerators described in subsection (b)(1)(C)(iii).
(e) Limitations
(1) Aggregate credit amount allowed
The aggregate amount of credit allowed under subsection (a)
with respect to a taxpayer for any taxable year shall not exceed
$75,000,000 reduced by the amount of the credit allowed under
subsection (a) to the taxpayer (or any predecessor) for all prior
taxable years.
(2) Amount allowed for 15 percent savings refrigerators
In the case of refrigerators described in subsection
(b)(1)(C)(i), the aggregate amount of the credit allowed under
subsection (a) with respect to a taxpayer for any taxable year
shall not exceed $20,000,000.
(3) Limitation based on gross receipts
The credit allowed under subsection (a) with respect to a
taxpayer for the taxable year shall not exceed an amount equal to
2 percent of the average annual gross receipts of the taxpayer
for the 3 taxable years preceding the taxable year in which the
credit is determined.
(4) Gross receipts
For purposes of this subsection, the rules of paragraphs (2)
and (3) of section 448(c) shall apply.
(f) Definitions
For purposes of this section -
(1) Qualified energy efficient appliance
The term "qualified energy efficient appliance" means -
(A) any dishwasher described in subsection (b)(1)(A),
(B) any clothes washer described in subsection (b)(1)(B), and
(C) any refrigerator described in subsection (b)(1)(C).
(2) Dishwasher
The term "dishwasher" means a residential dishwasher subject to
the energy conservation standards established by the Department
of Energy.
(3) Clothes washer
The term "clothes washer" means a residential model clothes
washer, including a residential style coin operated washer.
(4) Refrigerator
The term "refrigerator" means a residential model automatic
defrost refrigerator-freezer which has an internal volume of at
least 16.5 cubic feet.
(5) EF
The term "EF" means the energy factor established by the
Department of Energy for compliance with the Federal energy
conservation standards.
(6) Produced
The term "produced" includes manufactured.
(7) 2001 energy conservation standard
The term "2001 energy conservation standard" means the energy
conservation standards promulgated by the Department of Energy
and effective July 1, 2001.
(g) Special rules
For purposes of this section -
(1) In general
Rules similar to the rules of subsections (c), (d), and (e) of
section 52 shall apply.
(2) Controlled group
(A) In general
All persons treated as a single employer under subsection (a)
or (b) of section 52 or subsection (m) or (o) of section 414
shall be treated as a single producer.
(B) Inclusion of foreign corporations
For purposes of subparagraph (A), in applying subsections (a)
and (b) of section 52 to this section, section 1563 shall be
applied without regard to subsection (b)(2)(C) thereof.
(3) Verification
No amount shall be allowed as a credit under subsection (a)
with respect to which the taxpayer has not submitted such
information or certification as the Secretary, in consultation
with the Secretary of Energy, determines necessary.
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1334(a), Aug. 8, 2005, 119
Stat. 1030.)
-MISC1-
EFFECTIVE DATE
Section applicable to appliances produced after Dec. 31, 2005,
see section 1334(d) of Pub. L. 109-58, set out as an Effective Date
of 2005 Amendments note under section 38 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be "paragraph".
-End-
-CITE-
26 USC Subpart E - Rules for Computing Investment Credit 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart E - Rules for Computing Investment Credit
-HEAD-
SUBPART E - RULES FOR COMPUTING INVESTMENT CREDIT
-MISC1-
Sec.
46. Amount of credit.
47. Rehabilitation credit.
48. Energy credit.
48A. Qualifying advanced coal project credit.
48B. Qualifying gasification project credit.
49. At-risk rules.
50. Other special rules.
[50A, 50B. Repealed.]
AMENDMENTS
2005 - Pub. L. 109-58, title XIII, Sec. 1307(c)(2), Aug. 8, 2005,
119 Stat. 1006, added items 48A and 48B.
2004 - Pub. L. 108-357, title III, Sec. 322(d)(2)(C), Oct. 22,
2004, 118 Stat. 1475, which directed amendment of item 48 by
striking out ", reforestation credit", was executed by striking out
"; reforestation credit" after "Energy credit" to reflect the
probable intent of Congress.
1990 - Pub. L. 101-508, title XI, Sec. 11813(a), Nov. 5, 1990,
104 Stat. 1388-536, amended heading and analysis generally,
substituting in heading "Investment Credit" for "Credit for
Investment in Certain Depreciable Property", in item 47
"Rehabilitation Credit" for "Certain dispositions, etc., of section
38 property", in item 48 "Energy credit; reforestation credit" for
"Definitions; special rules", in item 49 "At-risk rules" for
"Termination of regular percentage", and adding item 50.
1986 - Pub. L. 99-514, title II, Sec. 211(c), Oct. 22, 1986, 100
Stat. 2168, added item 49.
1984 - Pub. L. 98-369, div. A, title IV, Sec. 474(n)(1), July 18,
1984, 98 Stat. 833, substituted "E" for "B" as subpart designation.
1978 - Pub. L. 95-600, title III, Sec. 312(c)(5), Nov. 6, 1978,
92 Stat. 2826, struck out item 49 "Termination for period beginning
April 19, 1969, and ending during 1971" and item 50 "Restoration of
credit".
1971 - Pub. L. 92-178, title I, Sec. 101(b)(5), Dec. 10, 1971, 85
Stat. 499, substituted "Termination for period beginning April 19,
1969, and ending during 1971" for "Termination of credit" in item
49 and added item 50.
1969 - Pub. L. 91-172, title VII, Sec. 703(d), Dec. 30, 1969, 83
Stat. 667, added item 49.
1962 - Pub. L. 87-834, Sec. 2(b), Oct. 16, 1962, 76 Stat. 963,
added subpart B.
-End-
-CITE-
26 USC Sec. 46 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart E - Rules for Computing Investment Credit
-HEAD-
Sec. 46. Amount of credit
-STATUTE-
For purposes of section 38, the amount of the investment credit
determined under this section for any taxable year shall be the sum
of -
(1) the rehabilitation credit,
(2) the energy credit (!1)
(3) the qualifying advanced coal project credit, and
(4) the qualifying gasification project credit.
-SOURCE-
(Added Pub. L. 87-834, Sec. 2(b), Oct. 16, 1962, 76 Stat. 963;
amended Pub. L. 88-272, title II, Sec. 201(d)(4), Feb. 26, 1964, 78
Stat. 32; Pub. L. 89-384, Sec. 1(c)(1), Apr. 8, 1966, 80 Stat. 102;
Pub. L. 89-389, Sec. 2(b)(5), Apr. 14, 1966, 80 Stat. 114; Pub. L.
89-800, Sec. 3, Nov. 8, 1966, 80 Stat. 1514; Pub. L. 90-225, Sec.
2(a), Dec. 27, 1967, 81 Stat. 731; Pub. L. 91-172, title III, Sec.
301(b)(4), title IV, Sec. 401(e)(1), title VII, Sec. 703(b), Dec.
30, 1969, 83 Stat. 585, 603, 666; Pub. L. 92-178, title I, Secs.
102(a)(1), (b), 105(a)-(c), 106(a)-(c), 107(a)(1), 108(a), Dec. 10,
1971, 85 Stat. 499, 503, 506, 507; Pub. L. 93-406, title II, Secs.
2001(g)(2)(B), 2002(g)(2), 2005(c)(4), Sept. 2, 1974, 88 Stat. 957,
968, 991; Pub. L. 94-12, title III, Sec. 301(a), (b)(1)-(3),
302(a), (b)(1), Mar. 29, 1975, 89 Stat. 36, 37, 40, 43; Pub. L. 94-
455, title V, Sec. 503(b)(4), title VIII, Secs. 802(a), (b)(1)-
(5), 803(a), (b)(1), 805(a), title XVI, Sec. 1607(b)(1)(B), title
XVII, Secs. 1701(b), 1703, title XIX, Secs. 1901(a)(4), (b)(1)(C),
1906(b)(13)(A), title XXI, Sec. 2112(a)(2), Oct. 4, 1976, 90 Stat.
1562, 1580-1583, 1596, 1756, 1759, 1761, 1764, 1790, 1834, 1905;
Pub. L. 95-600, title I, Sec. 141(e), (f)(2), title III, Secs.
311(a), (c), 312(a), (b), (c)(2), 313(a), 316(a), (b)(1), (2),
title VII, Sec. 703(a)(1), (2), (j)(9), Nov. 6, 1978, 92 Stat.
2794, 2795, 2824-2826, 2829, 2939, 2941; Pub. L. 95-618, title II,
Sec. 241(a), title III, Sec. 301(a), (c)(1), Nov. 9, 1978, 92 Stat.
3192, 3194, 3199; Pub. L. 96-222, title I, Secs. 101(a)(7)(A),
(L)(iii)(I), (v)(I), (M)(i), 103(a)(2)(A), (B)(i)-(iii), (3),
(4)(A), 107(a)(3)(A), Apr. 1, 1980, 94 Stat. 197, 200, 201, 208,
209, 223; Pub. L. 96-223, title II, Secs. 221(a), 222(e)(2),
223(b)(1), Apr. 2, 1980, 94 Stat. 260, 263, 266; Pub. L. 97-34,
title II, Secs. 207(c)(1), 211(a)(1), (b), (d), (e)(1), (2),
(f)(1), 212(a)(1), (2), title III, Secs. 302(c)(3), (d)(1), 332(a),
Aug. 13, 1981, 95 Stat. 225, 227-229, 235, 236, 272, 274, 296; Pub.
L. 97-248, title II, Sec. 201(d)(8)(A), formerly Sec. 201(c)(8)(A),
Secs. 205(b), 265(b)(2)(A)(i), Sept. 3, 1982, 96 Stat. 420, 430,
547, renumbered Sec. 201(d)(8)(A), Pub. L. 97-448, title III, Sec.
306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 97-354, Sec.
5(a)(4)-(6), Oct. 19, 1982, 96 Stat. 1692; Pub. L. 97-424, title V,
Secs. 541(b), 546(b), Jan. 6, 1983, 96 Stat. 2192, 2199; Pub. L. 97-
448, title I, Sec. 102(e)(1), (f)(5), title II, Sec. 202(f), Jan.
12, 1983, 96 Stat. 2370, 2372, 2396; Pub. L. 98-21, title I, Sec.
122(c)(1), Apr. 20, 1983, 97 Stat. 87; Pub. L. 98-369, div. A,
title I, Secs. 16(a), 31(f), 113(b)(2)(B), title IV, Secs. 431(a),
(b)(1), (d)(1)-(3), 474(o)(1)-(7), title VII, Sec. 713(c)(1)(C),
July 18, 1984, 98 Stat. 505, 521, 637, 805, 807, 810, 834-836, 957;
Pub. L. 99-514, title II, Secs. 201(d)(7)(B), 251(a), title IV,
Sec. 421(a), (b), title XVIII, Secs. 1802(a)(6), (8), 1844(a),
(b)(3), (5), 1847(b)(11), 1848(a), Oct. 22, 1986, 100 Stat. 2141,
2183, 2229, 2789, 2855, 2857; Pub. L. 100-647, title I, Secs.
1002(a)(4), (15), (17), (25), 1009(a)(1), 1013(a)(44), title IV,
Sec. 4006, Nov. 10, 1988, 102 Stat. 3353, 3355, 3356, 3445, 3545,
3652; Pub. L. 101-239, title VII, Secs. 7106, 7814(d), Dec. 19,
1989, 103 Stat. 2306, 2413; Pub. L. 101-508, title XI, Secs. 11406,
11813(a), Nov. 5, 1990, 104 Stat. 1388-474, 1388-536; Pub. L. 108-
357, title III, Sec. 322(d)(1), Oct. 22, 2004, 118 Stat. 1475;
Pub. L. 109-58, title XIII, Sec. 1307(a), Aug. 8, 2005, 119 Stat.
999.)
-MISC1-
AMENDMENTS
2005 - Pub. L. 109-58 struck out "and" at end of par. (1), struck
out period at end of par. (2), and added pars. (3) and (4).
2004 - Pub. L. 108-357 inserted "and" at end of par. (1),
substituted a period for ", and" at end of par. (2), and struck out
par. (3) which read as follows: "the reforestation credit."
1990 - Pub. L. 101-508, Sec. 11813(a), amended section generally,
substituting present provisions for provisions relating to amount
of investment credit, determination of percentages, qualified
investments and qualified progress expenditures, limitations with
respect to certain persons, a limitation in the case of certain
regulated companies, a 50 percent credit in the case of certain
vessels, and special rule for cooperatives.
Subsec. (b)(2)(A). Pub. L. 101-508, Sec. 11406, substituted "Dec.
31, 1991" for "Sept. 30, 1990" in table items (viii) C. and (ix) B.
1989 - Subsec. (b)(2)(A). Pub. L. 101-239, Sec. 7106, substituted
"Sept. 30, 1990" for "Dec. 31, 1989" in table items (viii) C., (ix)
B., and (x).
Pub. L. 101-239, Sec. 7814(d), made technical correction to
language of Pub. L. 100-647, Sec. 4006, see 1988 Amendment note
below.
1988 - Subsec. (b)(2)(A). Pub. L. 100-647, Sec. 4006, as amended
by Pub. L. 101-239, Sec. 7814(d), substituted "1989" for "1988" in
table items (viii) C., (ix) B., and (x).
Subsec. (c)(5)(B). Pub. L. 100-647, Sec. 1013(a)(44), substituted
"private activity bonds" for "industrial development bonds" in
heading, and in text substituted "a private activity bond (within
the meaning of section 141)" for "an industrial development bond
(within the meaning of section 103(b)(2))".
Subsec. (c)(7). Pub. L. 100-647, Sec. 1002(a)(17), substituted
"property to which section 168 applies" for "recovery property" in
heading, substituted "property to which section 168 applies" for
"recovery property" and "168(e)" for "168(c)" in subpar. (A),
substituted "168(e)" for "168(c)" in subpar. (B), and inserted "(as
in effect on the day before the date of the enactment of the Tax
Reform Act of 1986)" after "section 168(f)(3)(B)" in concluding
provisions.
Subsec. (d)(1)(B)(i). Pub. L. 100-647, Sec. 1002(a)(25)(A),
substituted "property to which section 168 applies" for "recovery
property (within the meaning of section 168)".
Subsec. (d)(1)(B)(ii). Pub. L. 100-647, Sec. 1002(a)(25)(B),
substituted "to which section 168 does not apply" for "which is not
recovery property (within the meaning of section 168)".
Subsec. (e)(3). Pub. L. 100-647, Sec. 1002(a)(15), substituted
"property to which section 168 applies" for "recovery property
(within the meaning of section 168)", "class life" for "present
class life", and "168(i)(1)" for "168(g)(2)".
Subsec. (e)(4)(B). Pub. L. 100-647, Sec. 1002(a)(4)(A),
substituted "168(i)(3)" for "168(j)(6)".
Subsec. (e)(4)(C). Pub. L. 100-647, Sec. 1009(a)(1), inserted
provisions at end which provided that any such election shall
terminate effective with respect to the 1st taxable year of the
organization making such election which begins after 1986, and
which defined "regular investment tax credit property".
Subsec. (e)(4)(D). Pub. L. 100-647, Sec. 1002(a)(4)(B),
substituted "paragraphs (5) and (6) of section 168(h)" for
"paragraphs (8) and (9) of section 168(j)".
Subsec. (e)(4)(E). Pub. L. 100-647, Sec. 1002(a)(4)(C), (D),
substituted "168(h)" for "168(j)" and "168(h)(2)" for "168(j)(4)".
1986 - Subsec. (b)(2)(A). Pub. L. 99-514, Sec. 1847(b)(11),
substituted "48(l)(3)(A)(viii)" for "48(l)(3)(A)(vii)" in table
item (ii).
Pub. L. 99-514, Sec. 421(a), inserted table items (viii) to (xi).
Subsec. (b)(2)(E). Pub. L. 99-514, Sec. 421(b), added subpar.
(E).
Subsec. (b)(4). Pub. L. 99-514, Sec. 251(a), in amending par. (4)
generally, substituted in subpar. (A) definition of "rehabilitation
percentage" for former table specifying specific rehabilitation
percentages, reenacted subpar. (B), and struck out subpar. (C)
which related to definitions.
Subsec. (c)(8)(D)(v). Pub. L. 99-514, Sec. 1844(a), substituted
"this subparagraph" for "clause (i)".
Pub. L. 99-514, Sec. 201(d)(7)(B), substituted "section
465(b)(3)(C)" for "section 168(e)(4)".
Subsec. (c)(9)(A). Pub. L. 99-514, Sec. 1844(b)(3), substituted
"an increase in the credit base for" for "additional qualified
investment in".
Subsec. (c)(9)(C)(i). Pub. L. 99-514, Sec. 1844(b)(5),
substituted "any increase in a taxpayer's credit base for any
property by reason of this paragraph shall be taken into account as
if it were property placed in service by the taxpayer in the
taxable year in which the property referred to in subparagraph (A)
was first placed in service" for "any increase in a taxpayer's
qualified investment in property by reason of this paragraph shall
be deemed to be additional qualified investment made by the
taxpayer in the year in which the property referred to in
subparagraph (A) was first placed in service".
Subsec. (e)(4)(D), (E). Pub. L. 99-514, Sec. 1802(a)(6), (8),
added subpars. (D) and (E).
Subsec. (f)(9). Pub. L. 99-514, Sec. 1848(a), struck out par. (9)
which related to a special rule for additional credit.
1984 - Subsec. (a). Pub. L. 98-369, Sec. 474(o)(1), amended
subsec. (a) generally, so as to contain provisions relating to
amount of investment credit, which formerly constituted only par.
(2)(A)(i), (ii), and (iv) of subsec. (a).
Subsec. (a)(4). Pub. L. 98-369, Sec. 713(c)(1)(C), substituted
"premature distributions to key employees" for "premature
distributions to owner-employees".
Subsec. (b). Pub. L. 98-369, Sec. 474(o)(1), amended subsec. (b)
generally, substituting provisions relating to determination of
percentages for purposes of subsec. (a), for provisions relating to
carryback and carryover of unused credits.
Subsec. (c)(7)(A). Pub. L. 98-369, Sec. 13(b)(2)(B), inserted
"recovery" before first reference to "property".
Subsec. (c)(8). Pub. L. 98-369, Sec. 431(a), substituted "Certain
nonrecourse financing excluded from credit base" for "Limitation to
amount at risk" in heading.
Subsec. (c)(8)(A). Pub. L. 98-369, Sec. 431(a), substituted
provisions reducing the credit base of any property to which this
paragraph applies by the nonqualified nonrecourse financing with
respect to such property for provisions relating to limitation of
the basis to the amount at risk in the case of new or used section
38 property placed in service during the taxable year by a taxpayer
described in section 465(a)(1) and used in connection with an
activity with respect to which any loss was subject to limitation
under section 465.
Subsec. (c)(8)(B). Pub. L. 98-369, Sec. 431(a), substituted
provisions relating to the property to which this paragraph applies
for provisions defining "at risk" and stating the circumstances
under which a taxpayer would be considered to be at risk for
purposes of this paragraph.
Subsec. (c)(8)(C). Pub. L. 98-369, Sec. 431(a), substituted
provisions defining "credit base" for provisions relating to a
special rule for partnerships and subchapter S corporations.
Subsec. (c)(8)(D). Pub. L. 98-369, Sec. 431(a), substituted
provisions defining "nonqualified nonrecourse financing" for
provisions defining "qualified person".
Subsec. (c)(8)(D)(i)(I). Pub. L. 98-369, Sec. 16(a), repealed
amendments made by Pub. L. 97-34, Sec. 302(c). See 1981 Amendment
note below.
Subsec. (c)(8)(E). Pub. L. 98-369, Sec. 431(a), substituted
provisions relating to the application of this paragraph to
partnerships and subchapter S corporations for provisions defining
"related person".
Subsec. (c)(8)(F)(i). Pub. L. 98-369, Sec. 431(d)(1), substituted
provisions that subpar. (A) shall not apply with respect to
qualified energy property for provisions that subpar. (A) would not
apply to amounts borrowed with respect to qualified energy property
(other than amounts described in subpar. (B)).
Subsec. (c)(8)(F)(ii)(II). Pub. L. 98-369, Sec. 474(o)(2),
substituted "subsection (b)(2)" for "section 46(a)(2)(C)".
Subsec. (c)(8)(F)(ii)(III). Pub. L. 98-369, Sec. 431(d)(2),
substituted provisions that qualified energy property means energy
property to which (but for this subpar.) subpar. (A) applies and
not more than 75 percent of the basis of which is attributable to
nonqualified nonrecourse financing for provisions that qualified
energy property meant energy property to which (but for this
subpar.) subpar. (A) applied and with respect to which the taxpayer
was at risk (within the meaning of section 465(b) without regard to
par. (5) thereof) in an amount equal to at least 25 percent of the
basis of the property.
Subsec. (c)(8)(F)(ii)(IV). Pub. L. 98-369, Sec. 431(d)(3),
substituted "nonqualified nonrecourse financing" for "nonrecourse
financing (other than financing described in section
46(c)(8)(B)(ii))".
Subsec. (c)(9). Pub. L. 98-369, Sec. 431(b)(1), substituted
provisions relating to subsequent decreases in nonqualified
nonrecourse financing with respect to the property for provisions
relating to subsequent increases in the taxpayer's amount at risk
with respect to the property.
Subsec. (e)(1). Pub. L. 98-369, Sec. 474(o)(3)(A), struck out
"and the $25,000 amount specified under subparagraphs (A) and (B)
of subsection (a)(3)", and substituted "such qualified investment"
for "such items", in provisions following subpar. (B).
Subsec. (e)(2). Pub. L. 98-369, Sec. 474(o)(3)(B), substituted
"qualified investment" for "the items described therein" in
introductory provisions.
Subsec. (e)(4). Pub. L. 98-369, Sec. 31(b), added par. (4).
Subsec. (f)(1). Pub. L. 98-369, Sec. 474(o)(4)(A), substituted
"no credit determined under subsection (a) shall be allowed by
section 38" for "no credit shall be allowed by section 38" in
introductory provisions.
Subsec. (f)(1)(A), (B). Pub. L. 98-369, Sec. 474(o)(4)(B),
substituted "the credit determined under subsection (a) and
allowable by section 38" for "the credit allowable by section 38".
Subsec. (f)(2). Pub. L. 98-369, Sec. 474(o)(4)(A), substituted
"no credit determined under subsection (a) shall be allowed by
section 38" for "no credit shall be allowed by section 38" in
introductory provisions.
Subsec. (f)(2)(A), (B). Pub. L. 98-369, Sec. 474(o)(4)(B),
substituted "the credit determined under subsection (a) and
allowable by section 38" for "the credit allowable by section 38".
Subsec. (f)(4)(B). Pub. L. 98-369, Sec. 474(o)(4)(C), substituted
"the credit determined under subsection (a) and allowed by section
38" for "the credit allowed by section 38" in introductory
provisions.
Subsec. (f)(8). Pub. L. 98-369, Sec. 474(o)(5), substituted "the
credit determined under subsection (a) and allowable under section
38" for "the credit allowable under section 38" in two places, and
"(within the meaning of the first sentence of subsection
(c)(3)(B))" for "(within the meaning of subsection (a)(7)(C))".
Subsec. (g)(2). Pub. L. 98-369, Sec. 474(o)(6), substituted "the
limitation of section 38(c)" for "the limitation of subsection
(a)(3)".
Subsec. (h)(1). Pub. L. 98-369, Sec. 474(o)(7), substituted "the
credit determined under subsection (a) and allowable to the
organization under section 38" for "the credit allowable to the
organization under section 38" and "the limitation contained in
section 38(c)" for "the limitation contained in subsection (a)(3)".
1983 - Subsec. (a)(2)(C)(i). Pub. L. 97-424, Sec. 546(b), added
section VII to the table.
Subsec. (a)(2)(C)(iii)(I). Pub. L. 97-448, Sec. 202(f),
substituted "before January 1, 1983, all engineering studies in
connection with the commencement of the construction of the project
have been completed and all environmental and construction permits
required under Federal, State, or local law in connection with the
commencement of the construction of the project have been applied
for, and" for "before January 1, 1983, the taxpayer has completed
all engineering studies in connection with the commencement of the
construction of the project, and has applied for all environmental
and construction permits required under Federal, State, or local
law in connection with the commencement of the construction of the
project, and".
Subsec. (a)(2)(F)(iii)(II). Pub. L. 97-448, Sec. 102(f)(5)(A),
substituted "a qualified rehabilitated building" for "any
building".
Subsec. (a)(2)(F)(iii)(III). Pub. L. 97-448, Sec. 102(f)(5)(B),
substituted "means a qualified rehabilitated building which meets
the requirements of section 48(g)(3)" for "has the meaning given to
such term by section 48(g)(3)".
Subsec. (a)(4)(B). Pub. L. 98-21 substituted "relating to credit
for the elderly and the permanently and totally disabled" for
"relating to credit for the elderly".
Subsec. (c)(7). Pub. L. 97-448, Sec. 102(e)(1), substituted "in
the case of property other than 3-year property (within the meaning
of section 168(c))" for "in the case of 15-year public utility, 10-
year, or 5-year property (within the meaning of section 168(c))"
in subpar. (A) and, in provisions following subpar. (B),
substituted "shall be treated as property which is not 3-year
property" for "shall be treated as 5-year property".
Subsec. (f)(10). Pub. L. 97-424, Sec. 541(b), added par. (10).
1982 - Subsec. (a)(3)(B). Pub. L. 97-248, Sec. 205(b)(1),
substituted "85 percent" for "the following percentage",
substituted a period for the colon, and struck out table of
percentages at end of subpar. (B).
Subsec. (a)(4). Pub. L. 97-354, Sec. 5(a)(4), substituted
"section 1374 (relating to tax on certain capital gains of S
corporations)" for "section 1378 (relating to tax on certain
capital gains of subchapter S corporations)".
Pub. L. 97-248, Secs. 201(d)(8)(A), formerly 201(c)(8)(A),
265(b)(2)(A), substituted "(relating to corporate minimum tax)" for
"(relating to minimum tax for tax preferences)" after "section 56",
and inserted "section 72(q)(1) (relating to 5-percent tax on
premature distributions under annuity contracts)," after "owner-
employees)".
Subsec. (a)(7). Pub. L. 97-248, Sec. 205(b)(2), redesignated par.
(9) as (7), and, in par. (7)(B), as so redesignated, substituted
reference to 85 percent for former reference to the percentage
determined under subsec. (a)(3)(B) in cl. (i), struck out former
cl. (ii), which provided that pars. (7) and (8) would not apply in
certain instances, and redesignated former cl. (iii) as (ii).
Former par. (7), which provided for alternative limitations in the
case of certain utilities, was struck out.
Subsec. (a)(8). Pub. L. 97-248, Sec. 205(b)(2)(A), struck out
par. (8) which provided for alternative limitations in the case of
certain railroads and airlines.
Subsec. (a)(9). Pub. L. 97-248, Sec. 205(b)(2)(A), redesignated
par. (9) as (7).
Subsec. (c)(8)(C). Pub. L. 97-354, Sec. 5(a)(5), substituted "S
corporation" for "electing small business corporation (within the
meaning of section 1371(b))".
Subsec. (e)(3). Pub. L. 97-354, Sec. 5(a)(6), substituted "an S
corporation" for "an electing small business corporation (as
defined in section 1371)".
1981 - Subsec. (a)(2)(A)(iv). Pub. L. 97-34, Sec. 212(a)(1),
added cl. (iv).
Subsec. (a)(2)(E). Pub. L. 97-34, Sec. 332(a), substituted
"December 31, 1982" for "December 31, 1983" in cls. (i) and (ii)
and added cl. (iii).
Subsec. (a)(2)(F). Pub. L. 97-34, Sec. 212(a)(2), added subpar.
(F).
Subsec. (b)(1). Pub. L. 97-34, Sec. 207(c)(1), inserted provision
after subpar. (D) directing that, in the case of an unused credit
for an unused credit year ending after Dec. 31, 1973, this
paragraph be applied by substituting "15" for "7" in subpar. (B)
and by substituting "18" for "10" and "17" for "9" in second
sentence.
Subsec. (c)(2). Pub. L. 97-34, Sec. 211(e)(1), inserted
references in provisions preceding table to exceptions provided in
paragraphs (3), (6), and (7).
Subsec. (c)(6)(A). Pub. L. 97-34, Sec. 211(e)(2), substituted
"Notwithstanding paragraph (2) or (3)" for "Notwithstanding
paragraph (2)" and inserted "or which is recovery property (within
the meaning of section 168)," after "3 years or more,".
Subsec. (c)(7). Pub. L. 97-34, Sec. 211(a)(1), added par. (7).
Subsec. (c)(8). Pub. L. 97-34, Sec. 211(f)(1), added par. (8).
Subsec. (c)(8)(D)(i)(I). Pub. L. 97-34, Sec. 302(c)(3), (d)(1),
provided that, applicable to taxable years beginning after Dec. 31,
1984, subsection (c)(8)(D)(i)(I) of this section (relating to
limitation to amount at risk) is amended by striking out "clause
(i), (ii), or (iii) of subparagraph (A) or subparagraph (B) of
section 128(c)(2)" and inserting in lieu thereof "subparagraph (A)
or (B) of section 128(c)(1)". Section 16(a) of Pub. L. 98-369,
repealed section 302(c) of Pub. L. 97-34, and provided that this
title shall be applied and administered as if section 302(c), and
the amendments made by section 302(c), had not been enacted.
Subsec. (c)(9). Pub. L. 97-34, Sec. 211(f)(1), added par. (9).
Subsec. (d)(1). Pub. L. 97-34, Sec. 211(b)(1), designated
existing provisions as subpar. (A), substituted "an amount equal to
the aggregate of the applicable percentage of each qualified
progress expenditure for the taxable year" for "an amount equal to
his aggregate qualified progress expenditures for the taxable year"
in subpar. (A) as so designated, and added subpar. (B).
Subsec. (d)(2)(A)(ii). Pub. L. 97-34, Sec. 211(b)(2), struck out
"having a useful life of 7 years or more" after "it is reasonable
to believe will be new section 38 property".
Subsec. (e)(3). Pub. L. 97-34, Sec. 211(d), in provisions
following subpar. (B), inserted provision that, for purposes of
subpar. (B), in the case of any recovery property (within the
meaning of section 168), the useful life be the present class life
for such property (as defined in section 168(g)(2)).
1980 - Subsec. (a)(2)(A). Pub. L. 96-222, Sec.
101(a)(7)(L)(iii)(I), substituted "employee plan" for "ESOP".
Subsec. (a)(2)(C). Pub. L. 96-223, Sec. 221(a), revised
provisions relating to energy percentage by substituting a tabular
format embracing separate coverage for solar, wind, or geothermal
property, ocean thermal property, qualified hydroelectric
generating property, and biomass property using percentages varying
between 10 and 15 percent and covering periods from Oct. 1, 1978,
to Dec. 31, 1985, with longer periods for certain long-term
projects and certain hydroelectric generating property for
provisions that had set the energy percentage at 10 percent for the
period beginning Oct. 1, 1978, and ending Dec. 31, 1982, and zero
with respect to any other period.
Subsec. (a)(2)(D). Pub. L. 96-223, Sec. 222(e)(2), inserted
provision that in the case of any qualified hydroelectric
generating property which is a fish passageway, the special rule
for certain energy property embraced in the first sentence would
not apply to any period after 1979 for which the energy percentage
for such property is greater than zero.
Subsec. (a)(2)(E). Pub. L. 96-222, Sec. 101(a)(7)(L)(v)(I),
(M)(i), substituted in heading "employee plan" for "ESOP" and in
cls. (i) and (ii) inserted "and ending on" before "December 31,
1983".
Subsec. (a)(9). Pub. L. 96-222, Sec. 103(a)(2)(B)(i),
redesignated par. (10) as (9). A former par. (9) was previously
repealed by section 312(b)(2) of Pub. L. 95-600.
Subsec. (a)(9)(A). Pub. L. 96-223, Sec. 223(b)(1)(A), inserted
"and" at end of cl. (i), substituted a period for "(other than
solar wind energy property), and" at end of cl. (ii), and struck
out cl. (iii) which had provided for the application of so much of
the credit allowed by section 38 as was attributable to the
application of the energy percentage to solar or wind energy
property.
Subsec. (a)(9)(B). Pub. L. 96-223. Sec. 223(b)(1)(B), struck out
"other than solar or wind energy property" after "energy property"
in heading.
Pub. L. 96-222, Sec. 103(a)(2)(B)(ii), (iii), substituted
"paragraph (3)(B) shall be applied by substituting '100 percent'
for the percentage determined under the table contained in such
paragraph" for "paragraph (3)(C) shall be applied by substituting
'100 percent' for '50 percent' " in cl. (i) and "(7) and (8)" for
"(7), (8), and (9)" in cl. (ii).
Subsec. (a)(9)(C). Pub. L. 96-223, Sec. 223(b)(1)(C), struck out
subpar. (C) which related to a refundable credit for solar or wind
energy property.
Subsec. (a)(10). Pub. L. 96-222, Sec. 103(a)(2)(B)(i),
redesignated par. (10) as (9).
Subsec. (c)(5)(B). Pub. L. 96-222, Sec. 103(a)(3), inserted
provisions requiring that this subparagraph not apply for purposes
of applying the energy percentage.
Subsec. (e)(3). Pub. L. 96-222, Sec. 103(a)(4)(A), inserted
provisions requiring that this paragraph not apply with respect to
any property which is treated as section 38 property by reason of
section 48(a)(1)(E).
Subsec. (f)(1), (2). Pub. L. 95-600, Sec. 312(c)(2), as amended
by Pub. L. 96-222, Sec. 103(a)(2)(A), substituted " 'described in
section 50 (as in effect before its repeal by the Revenue Act of
1978)' " for " 'described in section 50' ".
Subsec. (f)(8). Pub. L. 96-222, Sec. 107(a)(3)(A), substituted
"subsection (a)(7)(C)" for "subsection (a)(7)(D)".
Subsec. (f)(9). Pub. L. 96-222, Sec. 101(a)(7)(A), substituted in
provisions preceding subpar. (A) "subparagraph (E) of subsection
(a)(2)" for "subparagraph (B) of subsection (a)(2)" and in subpar.
(A) "a tax credit employee stock ownership plan which meets the
requirements of section 409A" for "an employee ownership plan which
meets the requirements of section 301(d) of the Tax Reduction Act
of 1975".
1978 - Subsec. (a)(2). Pub. L. 95-618, Sec. 301(a)(1), among
other changes, inserted provisions relating to an alternative
energy property tax credit which would pay for a certain percentage
of the cost of equipment which uses sources of energy other than
oil and gas and of associated pollution control, handling, and
preparation equipment.
Subsec. (a)(2)(B). Pub. L. 95-600, Sec. 311(a), made 10 percent
limitation on investment tax credit permanent.
Subsec. (a)(2)(E). Pub. L. 95-600, Sec. 141(e), (f)(2),
substituted "December 31, 1983" for "and ending on December 31,
1980" wherever appearing, "section 48(n)(1)(B)" for "section 301(e)
of the Tax Reduction Act of 1975" and "section 409A" for "section
301(d) of the Tax Reduction Act of 1975".
Subsec. (a)(3). Pub. L. 95-600, Sec. 312(a), increased the
present 50 percent tax liability limitation to 90 percent, to be
phased in at an additional 10 percentage points per year beginning
with taxable years which end in 1979.
Subsec. (a)(7). Pub. L. 95-600, Sec. 312(b)(1), in subpar. (A)
substituted "the taxable year ending in 1979" for "a taxable year
ending after calendar year 1974 and before calendar year 1981",
"subparagraph (B)" for "subparagraph (C)", and "for '60 percent'
the taxpayer's" for "for 50 percent his" and inserted "the
application of this paragraph results in a percentage higher than
60 percent," before "then subparagraph (B)"; in subpar. (B)
substituted "70 percent" for "50 percent plus the tentative
percentage for such year"; struck out former subpar. (C), which
related to the determination of the tentative percentage, and
redesignated former subpar. (D) as (C).
Subsec. (a)(8). Pub. L. 95-600, Sec. 312(b)(2), in subpar. (A)
substituted "the taxable year ending in 1979" for "a taxable year
ending after calendar year 1976, and before calendar year 1983",
"subparagraph (B)" for "subparagraph (C)", and "for '60 percent'
('70 percent' in the case of a taxable year ending in 1980) the
taxpayer's" for "for 50 percent his" and inserted reference to
airline property and "the application of this paragraph results in
a percentage higher than 60 percent (70 percent in the case of a
taxable year ending in 1980)," before "then subparagraph (B)"; in
subpar. (B) inserted reference to airline property and substituted
"90 percent (80 percent in the case of a taxable year ending in
1980)" for "50 percent plus the tentative percentage for such
year"; in subpar. (C) table struck out tentative percentage of 50
for 1977 or 1978, 20 for 1981, and 10 for 1982; and added subpar.
(E).
Subsec. (a)(9). Pub. L. 95-600, Sec. 312(b)(2), struck out par.
(9) which related to the alternative limitation in the case of
certain airlines.
Subsec. (a)(10). Pub. L. 95-618, Sec. 301(c)(1), added par. (10).
Subsec. (c)(3)(A). Pub. L. 95-618, Sec. 301(a)(2)(A), substituted
"For the period beginning on January 1, 1981, in the case of any
property" for "To the extent that subsection (a)(2)(C) applies to
property" and inserted provisions that the preceding sentence not
apply for purposes of applying the energy percentage.
Pub. L. 95-600, Sec. 311(c)(1), substituted "To the extent that
the credit allowed by section 38 with respect to any public utility
property is determined at the rate of 7 percent" for "For the
period beginning on January 1, 1981".
Subsec. (c)(5). Pub. L. 95-600, Sec. 313(a), increased the
investment credit available to pollution control facilities which a
taxpayer has elected to amortize over a five-year period to a full
investment credit from a one-half investment credit.
Subsec. (c)(6). Pub. L. 95-618, Sec. 241(a), added par. (6).
Subsec. (e)(1)(C). Pub. L. 95-600, Sec. 316(b)(1), struck out
subpar. (C) which related to a cooperative organization described
in section 1381(a).
Subsec. (e)(2)(C). Pub. L. 95-600, Sec. 316(b)(2), struck out
subpar. (C) which related to a cooperative organization.
Subsec. (f)(1), (2). Pub. L. 95-600, Sec. 312(c)(2), struck out
"described in section 50" after "with respect to any property". See
1980 Amendment note above.
Subsec. (f)(8). Pub. L. 95-618, Sec. 301(a)(2)(B), substituted ",
the Tax Reform Act of 1976, and the Energy Tax Act of 1978" for
"and the Tax Reform Act of 1976".
Pub. L. 95-600, Secs. 311(c)(2), 703(a)(1), substituted
"subsection (a)(7)(D)" for "subsection (a)(6)(D)" and inserted
reference to the Revenue Act of 1978.
Subsec. (g)(5). Pub. L. 95-600, Sec. 703(a)(2), substituted
"Merchant Marine Act, 1936" for "Merchant Marine Act, 1970".
Subsec. (h). Pub. L. 95-600, Sec. 316(a), added subsec. (h).
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 802(a)(2), added par.
(1) and struck out former par. (1) which related to the percentage
of allowable credit under section 38.
Subsec. (a)(2). Pub. L. 94-455, Sec. 802(a)(2), added par. (2).
Former par. (2) redesignated (3).
Subsec. (a)(3). Pub. L. 94-455, Sec. 802(a)(1), redesignated
former par. (2) as (3). Former par. (3) redesignated (4).
Subsec. (a)(4). Pub. L. 94-455, Secs. 503(b)(4), 802(a)(1),
(b)(1), 1901(a)(4)(A), (b)(1)(C), as amended by Pub. L. 95-600,
Sec. 703(j)(9), redesignated former par. (3) as (4), and in par.
(4) as so redesignated, redesignated former subpar. (C) as (B) and
substituted in provisions preceding subpar. (A) "paragraph (3)" for
"paragraph (2)", in subpar. (B) as so redesignated "credit for the
elderly" for "retirement income", and in provisions following
subpar. (B) "section 408(f)" for "section 408(e)". Former par. (4)
redesignated (5).
Subsec. (a)(5). Pub. L. 94-455, Sec. 802(a)(1), (b)(1),
redesignated former par. (4) as (5) and substituted "paragraph (3)"
for "paragraph (2)". Former par. (5) redesignated (6).
Subsec. (a)(6). Pub. L. 94-455, Secs. 802(a)(1), (b)(1),
1906(b)(13)(A), redesignated former par. (5) as (6) and substituted
"paragraph (3)" for "paragraph (2)" and struck out "or his
delegate" after "Secretary". Former par. (6) redesignated (7).
Subsec. (a)(7). Pub. L. 94-455, Sec. 802(a)(1), (b)(1),
redesignated former par. (6) as (7) and substituted "paragraph (3)"
for "paragraph (2)".
Subsec. (a)(8). Pub. L. 94-455, Sec. 1701(b), added par. (8).
Subsec. (a)(9). Pub. L. 94-455, Sec. 1703, added par. (9).
Subsec. (b). Pub. L. 94-455, Sec. 802(b)(2), among other changes,
inserted requirement that tax credits carried over are applied
first to the tax liability for that year, after which tax credits
earned currently are then applied.
Subsec. (c)(3)(A). Pub. L. 94-455, Sec. 802(b)(3), substituted
"subsection (a)(2)(C)" for "subsection (a)(1)(C)".
Subsec. (c)(3)(B)(iii). Pub. L. 94-455, Sec. 1901(a)(4)(B),
substituted "47 U.S.C. 222(a)(5)" for "47 U.S.C., sec. 222(a)(5)".
Subsec. (c)(5). Pub. L. 94-455, Sec. 2112(a)(2), added par. (5).
Subsec. (d)(4)(D), (6). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (e)(1)(C). Pub. L. 94-455, Sec. 802(b)(4), substituted
"subsection (a)(3)" for "subsection (a)(2)".
Subsec. (e)(2). Pub. L. 94-455, Sec. 1607(b)(1)(B), substituted
in subpar. (B) "857(b)(2)(B)" for "857(b)(2)(C)" and inserted in
provisions following subpar. (C) reference to determine without
regard to any deduction for capital gains dividends (as defined in
section 857(b)(3)(C)) and by excluding any net capital gain.
Subsec. (f)(1)(B), (2), (3). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (f)(4)(A). Pub. L. 94-455, Sec. 803(b)(1)(A), (B),
substituted "paragraphs (1), (2), and (9)" for "paragraphs (1) and
(2)" and "paragraph (1), (2), or (9)" for "paragraph (1) or (2)"
wherever appearing.
Subsec. (f)(4)(B)(ii). Pub. L. 94-455, Sec. 803(b)(1)(C),
substituted "paragraph (2) or the election described in paragraph
(9)," for "paragraph (2),".
Subsec. (f)(7). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (f)(8). Pub. L. 94-455, Secs. 802(b)(5), 1906(b)(13)(A),
inserted reference to the Tax Reform Act of 1976 and struck out "or
his delegate" after "Secretary".
Subsec. (f)(9). Pub. L. 94-455, Sec. 803(a), added par. (9).
Subsec. (g). Pub. L. 94-455, Sec. 805(a), added subsec. (g).
1975 - Subsec. (a)(1). Pub. L. 94-12, Sec. 301(a), designated
existing provisions as subpar. (A), substituted "Except as
otherwise provided in this paragraph, in the case of a property
described in subparagraph (D), the" for "The", "10 percent" for "7
percent", and "(as determined under subsections (c) and (d))" for
"(as defined in subsection (c))" in subpar. (A) as so designated,
and added subpars. (B), (C), and (D).
Subsec. (a)(6). Pub. L. 94-12, Sec. 301(b)(2), added par. (6).
Subsec. (c)(3)(A). Pub. L. 94-12, Sec. 301(b)(1), substituted "To
the extent that subsection (a)(1)(C) applies to property which is
public utility property, the" for "In the case of section 38
property which is public utility property, the".
Subsec. (c)(4). Pub. L. 94-12, Sec. 302(b)(1), added par. (4).
Subsecs. (d), (e). Pub. L. 94-12, Sec. 302(a), added subsec. (d)
and redesignated former subsec. (d) as (e). Former subsec. (e)
redesignated (f) and amended.
Subsec. (f). Pub. L. 94-12, Secs. 301(b)(3), 302(a), redesignated
former subsec. (e) as (f) and in subsec. (f) as so redesignated
added par. (8).
1974 - Subsec. (a)(3). Pub. L. 93-406 inserted reference to
section 402(e) (relating to tax on lump sum distributions), section
72(m)(5)(B) (relating to 10 percent tax on premature distributions
to owner-employees), and section 408(e) (relating to additional tax
on income from certain retirement accounts).
1971 - Subsec. (b)(1). Pub. L. 92-178, Sec. 106(b), inserted
concluding sentence "In the case of an unused credit for an unused
credit year ending before January 1, 1971, which is an investment
credit carryover to a taxable year beginning after December 31,
1970 (determined without regard to this sentence), this paragraph
shall be applied by substituting '10 taxable years' for '7 taxable
years' in subparagraph (B) and by substituting '13 taxable years'
for '10 taxable years' and '12 taxable years' for '9 taxable years'
in the preceding sentence."
Subsec. (b)(3). Pub. L. 92-178, Sec. 106(a), added par. (3).
Subsec. (b)(5). Pub. L. 92-178, Sec. 106(c)(1), substituted
"Certain taxable years ending in 1969, 1970, or 1971" for "Taxable
years beginning after December 31, 1968, and ending after April 18,
1969" in heading; substituted "ending after April 18, 1969, and
before January 1, 1972," for "ending after April 18, 1969,"; and
provided that "In the case of a taxable year ending after August
15, 1971, and before January 1, 1972, the percentage contained in
the preceding sentence shall be increased by 6 percentage points
for each month (or portion thereof) in the taxable year after
August 15, 1971".
Subsec. (b)(6). Pub. L. 92-178, Sec. 106(c)(2), substituted
"ending after April 18, 1969, and before January 1, 1971," for
"ending after April 18, 1969," and "following the 7th taxable year
after the unused credit year" for "following the last taxable year
for which such portion may be added under paragraph (1)",
respectively.
Subsec. (c)(2). Pub. L. 92-178, Sec. 102(a)(1), (b), substituted
"3 years", "5 years", and "7 years" for "4 years" (once), "6 years"
(twice), and "8 years" (twice), respectively in tables of first
sentence and substituted in second sentence "subpart" for
"paragraph" and "useful life of any property shall be the useful
life used in computing the allowance for depreciation under section
167 for the taxable year in which the property is placed in
service" for "useful life of any property shall be determined as of
the time such property is placed in service by the taxpayer".
Subsec. (c)(3)(A). Pub. L. 92-178, Sec. 105(a), substituted the
fraction of " 4/7 " for " 3/7 ".
Subsec. (c)(3)(B). Pub. L. 92-178, Sec. 105(b)(1), (2), struck
out cl. (iii) provisions respecting telephone service, redesignated
cl. (iv) as (iii), included in cl. (iii) provision of former cl.
(iii) respecting telephone service, included other communication
services (other than international telegraph service), and defined
term "public utility property" to also mean communication property
of type used by persons engaged in providing telephone or microwave
communication services to which cl. (iii) applies, if such property
is used predominantly for communication purposes, respectively.
Subsec. (c)(3)(C). Pub. L. 92-178, Sec. 105(b)(3), added subpar.
(C).
Subsec. (c)(4). Pub. L. 92-178, Sec. 107(a)(1), struck out
provisions respecting reduction in basis or cost of certain
replacement property.
Subsec. (d)(3). Pub. L. 92-178, Sec. 108(a), added par. (3).
Subsec. (e). Pub. L. 92-178, Sec. 105(c), added subsec. (e).
1969 - Subsec. (a)(3). Pub. L. 91-172, Sec. 301(b)(4), inserted
"section 56 (relating to minimum tax for tax preference),".
Subsec. (a)(5). Pub. L. 91-172, Sec. 401(e)(1), reenacted
subsection with minor changes and substituted reference to section
1563(a) for reference to section 1504.
Subsec. (b)(5), (6). Pub. L. 91-172, Sec. 703(b), added pars. (5)
and (6).
1967 - Subsec. (b). Pub. L. 90-225 struck out par. (3) which
provided that to the extent that the excess described in par. (1)
of this subsection arises by reason of net operating loss
carryback, subpar. (A) of par. (1) of this subsection shall not
apply.
1966 - Subsec. (a)(2). Pub. L. 89-800, Sec. 3(a), inserted "for
taxable years ending on or before the last day of the suspension
period (as defined in section 48(j))," at beginning of subpar. (B),
and added subpar. (C) and provisions following subpar. (C) covering
the application of subpar. (C) and the reduction of the amount
otherwise determined under par. (2) by the credit allowable but for
the application of section 48(h)(1).
Subsec. (a)(3). Pub. L. 89-389 inserted reference to tax imposed
for the taxable year by section 1378 (relating to tax on certain
capital gains of subchapter S corporations) in the list of taxes
not to be considered tax imposed by this chapter for purposes of
par. (3).
Pub. L. 89-384 added any additional tax imposed for the taxable
year by section 1351 (relating to recoveries of foreign
expropriation losses) to the list of taxes not to be considered a
tax imposed by this chapter for purposes of par. (3).
Subsec. (b)(1). Pub. L. 89-800, Sec. 3(b), substituted "7 taxable
years" for "5 taxable years" in subpar. (B) and "10 taxable years"
and "other 9 taxable years" for "8 taxable years" and "other 7
taxable years" respectively in text following subpar. (B).
1964 - Subsec. (a)(3)(B) to (D). Pub. L. 88-272 struck out
subpar. (B) relating to section 34, and redesignated subpars. (C)
and (D) as (B) and (C), respectively.
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-58, title XIII, Sec. 1307(d), Aug. 8, 2005, 119 Stat.
1006, provided that: "The amendments made by this section [enacting
sections 48A and 48B of this title and amending this section and
section 49 of this title] shall apply to periods after the date of
the enactment of this Act [Aug. 8, 2005], under rules similar to
the rules of section 48(m) of the Internal Revenue Code of 1986 (as
in effect on the day before the date of the enactment of the
Revenue Reconciliation Act of 1990 [Nov. 5, 1990])."
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title III, Sec. 322(e), Oct. 22, 2004, 118 Stat.
1476, provided that: "The amendments made by this section [amending
this section and sections 48, 50, and 194 of this title] shall
apply with respect to expenditures paid or incurred after the date
of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(a) of Pub. L. 101-508 applicable to
property placed in service after Dec. 31, 1990, but not applicable
to any transition property (as defined in section 49(e) of this
title), any property with respect to which qualified progress
expenditures were previously taken into account under section 46(d)
of this title, and any property described in section 46(b)(2)(C) of
this title, as such sections were in effect on Nov. 4, 1990, see
section 11813(c) of Pub. L. 101-508, set out as a note under
section 45K of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7814(d) of Pub. L. 101-239 effective, except
as otherwise provided, as if included in the provision of the
Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647,
to which such amendment relates, see section 7817 of Pub. L. 101-
239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1002(a)(4), (15), (17), (25), 1009(a)(1),
and 1013(a)(44) of Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(7)(B) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Section 251(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1002(k), Nov. 10, 1988, 102 Stat. 3371, provided
that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and section 48 of this title] shall apply to property
placed in service after December 31, 1986, in taxable years ending
after such date.
"(2) General transitional rule. - The amendments made by this
section and section 201 [amending this section and sections 48,
167, 168, 178, 179, 280F, 291, 312, 465, 467, 514, 751, 1245, 4162,
6111, and 7701 of this title] shall not apply to any property
placed in service before January 1, 1994, if such property is
placed in service as part of -
"(A) a rehabilitation which was completed pursuant to a written
contract which was binding on March 1, 1986, or
"(B) a rehabilitation incurred in connection with property
(including any leasehold interest) acquired before March 2, 1986,
or acquired on or after such date pursuant to a written contract
that was binding on March 1, 1986, if -
"(i) parts 1 and 2 of the Historic Preservation Certification
Application were filed with the Department of the Interior (or
its designee) before March 2, 1986, or
"(ii) the lesser of $1,000,000 or 5 percent of the cost of
the rehabilitation is incurred before March 2, 1986, or is
required to be incurred pursuant to a written contract which
was binding on March 1, 1986.
"(3) Certain additional rehabilitations. - The amendments made by
this section and section 201 [amending this section and sections
48, 167, 168, 178, 179, 280F, 291, 312, 465, 467, 514, 751, 1245,
4162, 6111, and 7701 of this title] shall not apply to -
"(A) the rehabilitation of 8 bathhouses within the Hot Springs
National Park or of buildings in the Central Avenue Historic
District at such Park,
"(B) the rehabilitation of the Upper Pontalba Building in New
Orleans, Louisiana,
"(C) the rehabilitation of at least 60 buildings listed on the
National Register at the Frankford Arsenal,
"(D) the rehabilitation of De Baliveriere Arcade, St. Louis
Centre, and Drake Apartments in Missouri,
"(E) the rehabilitation of The Tides in Bristol, Rhode Island,
"(F) the rehabilitation and renovation of the Outlet Company
building and garage in Providence, Rhode Island,
"(G) the rehabilitation of 10 structures in Harrisburg,
Pennsylvania, with respect to which the Harristown Development
Corporation was designated redeveloper and received an option to
acquire title to the entire project site for $1 on June 27, 1984,
"(H) the rehabilitation of a project involving the renovation
of 3 historic structures on the Minneapolis riverfront, with
respect to which the developer of the project entered into a
redevelopment agreement with a municipality dated January 4,
1985, and industrial development bonds were sold in 3 separate
issues in May, July, and October 1985,
"(I) the rehabilitation of a bank's main office facilities of
approximately 120,000 square feet, in connection with which the
bank's board of directors authorized a $3,300,000 expenditure for
the renovation and retrofit on March 20, 1984,
"(J) the rehabilitation of 10 warehouse buildings built between
1906 and 1910 and purchased under a contract dated February 17,
1986,
"(K) the rehabilitation of a facility which is customarily used
for conventions and sporting events if an analysis of operations
and recommendations of utilization of such facility was prepared
by a certified public accounting firm pursuant to an engagement
authorized on March 6, 1984, and presented on June 11, 1984, to
officials of the city in which such facility is located,
"(L) Mount Vernon Mills in Columbia, South Carolina,
"(M) the Barbara Jordan II Apartments,
"(N) the rehabilitation of the Federal Building and Post
Office, 120 Hanover Street, Manchester, New Hampshire,
"(O) the rehabilitation of the Charleston Waterfront project in
South Carolina,
"(P) the Hayes Mansion in San Jose, California,
"(Q) the renovation of a facility owned by the National
Railroad Passenger Corporation ('Amtrak') for which project
Amtrak engaged a development team by letter agreement dated
August 23, 1985, as modified by letter agreement dated September
9, 1985,
"(R) the rehabilitation of a structure or its components which
is listed in the National Register of Historic Places, is located
in Allegheny County, Pennsylvania, will be substantially
rehabilitated (as defined in section 48(g)(1)(C) prior to
amendment by this Act), prior to December 31, 1989; and was
previously utilized as a market and an auto dealership,
"(S) The Bellevue Stratford Hotel in Philadelphia,
Pennsylvania,
"(T) the Dixon Mill Housing project in Jersey City, New Jersey,
"(U) Motor Square Garden,
"(V) the Blackstone Apartments, and the Shriver-Johnson
building, in Sioux Falls, South Dakota,
"(W) the Holy Name Academy in Spokane, Washington,
"(X) the Nike/Clemson Mill in Exeter, New Hampshire,
"(Y) the Central Bank Building in Grand Rapids, Michigan, and
"(Z) the Heritage Hotel, in the City of Marquette, Michigan.
"(4) Additional rehabilitations. - The amendments made by this
section and section 201 [amending sections 46, 48, 167, 168, 178,
179, 280F, 291, 312, 465, 467, 514, 751, 1245, 4162, 6111, and 7701
of this title] shall not apply to -
"(A) the Fort Worth Town Square Project in Texas,
"(B) the American Youth Hostel in New York, New York,
"(C) The Riverwest Loft Development (including all three
phases, two of which do not involve rehabilitations),
"(D) the Gaslamp Quarter Historic District in California,
"(E) the Eberhardt & Ober Brewery, in Pennsylvania,
"(F) the Captain's Walk Limited Partnership-Harris Place
Development, in Connecticut,
"(G) the Velvet Mills in Connecticut,
"(H) the Roycroft Inn, in New York,
"(I) Old Main Village, in Mankato, Minnesota,
"(J) the Washburn-Crosby A Mill, in Minneapolis, Minnesota,
"(K) the Marble Arcade office building in Lakeland, Florida,
"(L) the Willard Hotel, in Washington, D.C.,
"(M) the H. P. Lau Building in Lincoln, Nebraska,
"(N) the Starks Building, in Louisville, Kentucky,
"(O) the Bellevue High School, in Bellevue, Kentucky,
"(P) the Major Hampden Smith House, in Owensboro, Kentucky,
"(Q) the Doe Run Inn, in Brandenburg, Kentucky,
"(R) the State National Bank, in Frankfort, Kentucky,
"(S) the Captain Jack House, in Fleming, Kentucky,
"(T) the Elizabeth Arlinghaus House, in Covington, Kentucky,
"(U) Limerick Shamrock, in Louisville, Kentucky,
"(V) the Robert Mills Project, in South Carolina,
"(W) the 620 Project, consisting of 3 buildings, in Kentucky,
"(X) the Warrior Hotel, Ltd., the first two floors of the
Martin Hotel, and the 105,000 square foot warehouse constructed
in 1910, all in Sioux City, Iowa,
"(Y) the waterpark condominium residential project, to the
extent of $2 million of expenditures,
"(Z) the Bigelow-Hartford Carpet Mill in Enfield, Connecticut,
"(AA) properties abutting 125th street in New York County from
7th Avenue west to Morningside and the pier area on the Hudson
River at the end of such 125th Street,
"(BB) the City of Los Angeles Central Library project pursuant
to an agreement dated December 28, 1983,
"(CC) the Warehouse Row project in Chattanooga, Tennessee,
"(DD) any project described in section 204(a)(1)(F) of this Act
[26 U.S.C. 168 note],
"(EE) the Wood Street Commons project in Pittsburgh,
Pennsylvania,
"(FF) any project described in section 803(d)(6) of this Act
[26 U.S.C. 263A note],
"(GG) Union Station, Indianapolis, Indiana,
"(HH) the Mattress Factory project in Pittsburgh, Pennsylvania,
"(II) Union Station in Providence, Rhode Island,
"(JJ) South Pack Plaza, Asheville, North Carolina,
"(KK) Old Louisville Trust Project, Louisville, Kentucky,
"(LL) Stewarts Rehabilitation Project, Louisville, Kentucky,
"(MM) Bernheim Officenter, Louisville, Kentucky,
"(NN) Springville Mill Project, Rockville, Connecticut, and
"(OO) the D.J. Stewart Company Building, State and Main
Streets, Rockford, Illinois.
"(5) Reduction in credit for property under transitional rules. -
In the case of property placed in service after December 31, 1986,
and to which the amendments made by this section [amending this
section and sections 47 and 48 of this title] do not apply,
subparagraph (A) of section 46(b)(4) of the Internal Revenue Code
of 1954 [now 1986] (as in effect before the enactment of this Act)
shall be applied -
"(A) by substituting '10 percent' for '15 percent', and
"(B) by substituting '13 percent' for '20 percent'.
"(6) Expensing of rehabilitation expenses for the frankford
arsenal. - In the case of any expenditures paid or incurred in
connection with improvements (including repairs and maintenance) of
the Frankford Arsenal pursuant to a contract and partnership
agreement during the 8-year period specified in the contract or
agreement, all such expenditures to be made during the period 1986
through and including 1993 shall -
"(A) be treated as made (and allowable as a deduction) during
1986,
"(B) be treated as qualified rehabilitation expenditures made
during 1986, and
"(C) be allocated in accordance with the partnership agreement
regardless of when the interest in the partnership was acquired,
except that -
"(i) if the taxpayer is not the original holder of such
interest, no person (other than the taxpayer) had claimed any
benefits by reason of this paragraph,
"(ii) no interest under section 6611 of the 1986 Code on any
refund of income taxes which is solely attributable to this
paragraph shall be paid for the period -
"(I) beginning on the date which is 45 days after the later
of April 15, 1987, or the date on which the return for such
taxes was filed, and
"(II) ending on the date the taxpayer acquired the interest
in the partnership, and
"(iii) if the expenditures to be made under this provision
are not paid or incurred before January 1, 1994, then the tax
imposed by chapter 1 of such Code for the taxpayer's last
taxable year beginning in 1993 shall be increased by the amount
of the tax benefits by reason of this paragraph which are
attributable to the expenditures not so paid or incurred.
"(7) Special rule. - In the case of the rehabilitation of the
Willard Hotel in Washington, D.C., section 205(c)(1)(B)(ii) of the
Tax Equity and Fiscal Responsibility Act of 1982 [section
205(c)(1)(B)(ii) of Pub. L. 97-248, set out as a note under section
196 of this title] shall be applied by substituting '1987' for
'1986'."
Section 421(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to periods
beginning after December 31, 1985, under rules similar to rules
under section 48(m) of the Internal Revenue Code of 1986."
Amendment by sections 1802(a)(6), (8), 1844(a), (b)(3), (5),
1847(b)(11), 1848(a) of Pub. L. 99-514 effective, except as
otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 16 of Pub. L. 98-369 applicable to taxable
years ending after Dec. 31, 1983, see section 18(a) of Pub. L. 98-
369, set out as a note under section 48 of this title.
Amendment by section 31(f) of Pub. L. 98-369 effective, except as
otherwise provided in section 31(g) of Pub. L. 98-369, as to
property placed in service by the taxpayer after Nov. 5, 1983, in
taxable years ending after such date and to property placed in
service by the taxpayer on or before Nov. 5, 1983, if the lease to
the organization described in section 593 of this title is entered
into after Nov. 5, 1983, see section 31(g)(1), (14) of Pub. L. 98-
369, set out as a note under section 168 of this title.
Amendment by section 113(b)(2)(B) of Pub. L. 98-369 applicable as
if included in the amendments by sections 201(a), 211(a)(1), and
211(f)(1) of Pub. L. 97-34, which amended this section and enacted
section 168 of this title, see section 113(c)(2)(B) of Pub. L. 98-
369, set out as a note under section 168 of this title.
Section 431(e) of Pub. L. 98-369 provided:
"(1) In general. - The amendments made by this section [amending
this section and sections 47 and 48 of this title] shall apply to
property placed in service after the date of the enactment of this
Act [July 18, 1984] in taxable years ending after such date; except
that such amendments shall not apply to any property to which the
amendments made by section 211(f) of the Economic Recovery Tax Act
of 1981 [section 211(f) of Pub. L. 97-34, amending sections 46 and
47 of this title] do not apply.
"(2) Amendments may be elected retroactively. - At the election
of the taxpayer, the amendments made by this section shall apply as
if included in the amendments made by section 211(f) of the
Economic Recovery Tax Act of 1981. Any election made under the
preceding sentence shall apply to all property of the taxpayer to
which the amendments made by such section 211(f) apply and shall be
made at such time and in such manner as the Secretary of the
Treasury or his delegate may by regulations prescribe."
Amendment by section 474(o)(1)-(7) of Pub. L. 98-369 applicable
to taxable years beginning after Dec. 31, 1983, and to carrybacks
from such years, see section 475(a) of Pub. L. 98-369, set out as a
note under section 21 of this title.
Amendment by section 713 of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1983 AMENDMENTS
Amendment by section 122(c)(1) of Pub. L. 98-21 applicable to
taxable years beginning after Dec. 31, 1983, except that if an
individual's annuity starting date was deferred under section
105(d)(6) of this title as in effect on the day before Apr. 20,
1983, such deferral shall end on the first day of such individual's
first taxable year beginning after Dec. 31, 1983, see section
122(d) of Pub. L. 98-21, set out as a note under section 22 of this
title.
Amendment by title I of Pub. L. 97-448 effective, except as
otherwise provided, as if it had been included in the provision of
the Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
Amendment by section 202(f) of Pub. L. 97-448 effective, except
as otherwise provided, as if it had been included in the provision
of the Crude Oil Windfall Profit Tax Act of 1980, Pub. L. 96-223,
to which such amendment relates, see section 203(a) of Pub. L. 97-
448, set out as a note under section 6652 of this title.
Section 541(c) of Pub. L. 97-424, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) General rule. - The amendments made by subsections (a) and
(b) [amending this section and sections 167 and 168 of this title]
shall apply to taxable years beginning after December 31, 1979.
"(2) Special rule for periods beginning before march 1, 1980. -
"(A) In general. - Subject to the provisions of paragraphs (3)
and (4), notwithstanding the provisions of sections 167(l) and
46(f) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
and of any regulations prescribed by the Secretary of the
Treasury (or his delegate) under such sections, the use for
ratemaking purposes or for reflecting operating results in the
taxpayer's regulated books of account, for any period before
March 1, 1980, of -
"(i) any estimates or projections relating to the amounts of
the taxpayer's tax expense, depreciation expense, deferred tax
reserve, credit allowable under section 38 of such code, or
rate base, or
"(ii) any adjustments to the taxpayer's rate of return,
shall not be treated as inconsistent with the requirements of
subparagraph (G) of such section 167(l)(3) nor inconsistent with
the requirements of paragraph (1) or (2) of such section 46(f),
where such estimates or projections, or such rate of return
adjustments, were included in a qualified order.
"(B) Qualified order defined. - For purposes of this
subsection, the term "qualified order" means an order -
"(i) by a public utility commission which was entered before
March 13, 1980,
"(ii) which used the estimates, projections, or rate of
return adjustments referred to in subparagraph (A) to determine
the amount of the rates to be collected by the taxpayer or the
amount of a refund with respect to rates previously collected,
and
"(iii) which ordered such rates to be collected or refunds to
be made (whether or not such order actually was implemented or
enforced).
"(3) Limitations on application of paragraph (2). -
"(A) Paragraph (2) not to apply to amounts actually flowed
through. - Paragraph (2) shall not apply to the amount of any -
"(i) rate reduction, or
"(ii) refund,
which was actually made pursuant to a qualified order.
"(B) Taxpayer must enter into closing agreement before
paragraph (2) applies. - Paragraph (2) shall not apply to any
taxpayer unless, before the later of -
"(i) July 1, 1983, or
"(ii) 6 months after the refunds or rate reductions are
actually made pursuant to a qualified order.
the taxpayer enters into a closing agreement (within the meaning
of section 7121 of the Internal Revenue Code of 1986) which
provides for the payment by the taxpayer of the amount of which
paragraph (2) does not apply by reason of subparagraph (A).
"(4) Special rules relating to payment of refunds or interest by
the united states or the taxpayer. -
"(A) Refund defined. - For purposes of this subsection, the
term "refund" shall include any credit allowed by the taxpayer
under a qualified order but shall not include interest payable
with respect to any refund (or credit) under such order.
"(B) No interest payable by united states. - No interest shall
be payable under section 6611 of the Internal Revenue Code of
1986 on any overpayment of tax which is attributable to the
application of paragraph (2).
"(C) Payments may be made in two equal installments. -
"(i) In general. - The taxpayer may make any payment required
by reason of paragraph (3) in 2 equal installments, the first
installment being due on the last date on which a taxpayer may
enter into a closing agreement under paragraph (3)(B), and the
second payment being due 1 year after the last date for the
first payment.
"(ii) Interest payments. - For purposes of section 6601 of
such Code, the last date prescribed for payment with respect to
any payment required by reason of paragraph (3) shall be the
last date on which such payment is due under clause (i).
"(5) No inference. - The application of subparagraph (G) of
section 167(l)(3) of the Internal Revenue Code of 1986, and the
application of paragraphs (1) and (2) of section 46(f) of such
Code, to taxable years beginning before January 1, 1980, shall be
determined without any inference drawn from the amendments made by
subsections (a) and (b) of this section [amending this section and
sections 167 and 168 of this title] or from the rules contained in
paragraphs (2), (3), and (4). Nothing in the preceding sentence
shall be construed to limit the relief provided by paragraphs (2),
(3), and (4)."
EFFECTIVE DATE OF 1982 AMENDMENTS
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
Amendment by section 201(d)(8)(A), formerly section 201(c)(8)(A),
of Pub. L. 97-248, applicable to taxable years beginning after Dec.
31, 1982, see section 201(e)(1) of Pub. L. 97-248, set out as a
note under section 5 of this title.
Section 205(c)(2) of Pub. L. 97-248 provided that: "The
amendments made by subsection (b) [amending this section] shall
apply to taxable years beginning after December 31, 1982."
Amendment by section 265(b)(2)(A)(i) of Pub. L. 97-248 applicable
to distributions after Dec. 31, 1982, see section 265(c)(2) of Pub.
L. 97-248, set out as a note under section 72 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 207(c)(1) of Pub. L. 97-34 applicable to
unused credit years ending after Dec. 31, 1973, see section
209(c)(2)(A) of Pub. L. 97-34, set out as an Effective Date note
under section 168 of this title.
Section 211(i) of Pub. L. 97-34 provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and sections
47 and 48 of this title] shall apply to property placed in service
after December 31, 1980.
"(2) Progress expenditures. - The amendments made by subsection
(b) [amending this section] shall apply to progress expenditures
made after December 31, 1980.
"(3) Petroleum storage facilities. - The amendments made by
subsection (c) [amending this section] shall apply to periods after
December 31, 1980, under rules similar to the rules under section
48(m).
"(4) Noncorporate lessors. - The amendments made by subsection
(d) [amending this section] shall apply to leases entered into
after June 25, 1981.
"(5) At risk rules. -
"(A) In general. - The amendment made by subsection (f)
[amending this section and section 47 of this title] shall not
apply to -
"(i) property placed in service by the taxpayer on or before
February 18, 1981, and
"(ii) property placed in service by the taxpayer after
February 18, 1981, where such property is acquired by the
taxpayer pursuant to a binding contract entered into on or
before that date.
"(B) Binding contract. - For purposes of subparagraph (A)(ii),
property acquired pursuant to a binding contract shall, under
regulations prescribed by the Secretary, include property
acquired in a manner so that it would have qualified as
pretermination property under section 49(b) (as in effect before
its repeal by the Revenue Act of 1978) [Pub. L. 95-600].
"(6) Leased rolling stock. - The amendment made by subsection (h)
[amending section 48 of this title] shall apply to taxable years
beginning after December 31, 1980."
Section 212(e) of Pub. L. 97-34, as amended by Pub. L. 97-448,
title I, Sec. 102(f)(1), Jan. 12, 1983, 96 Stat. 2371; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
48, 57, 167, 280B, 642, 1016, 1082, 1245, and 1250 of this title
and repealing section 191 of this title] shall apply to
expenditures incurred after December 31, 1981, in taxable years
ending after such date.
"(2) Transitional rule. - The amendments made by this section
shall not apply with respect to any rehabilitation of a building if
-
"(A) the physical work on such rehabilitation began before
January 1, 1982, and
"(B) such building does not meet the requirements of paragraph
(1) of section 48(g) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as amended by this Act [Pub. L. 97-34])."
Section 332(c)(1) of Pub. L. 97-34 provided that: "The amendments
made by subsection (a) [amending this section] shall be effective
on the date of enactment of this Act [Aug. 13, 1981]."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by section 222(e)(2) of Pub. L. 96-223 applicable to
periods after Dec. 31, 1979, under rules similar to the rules of
section 48(m) of this title, see section 222(j)(1) of Pub. L. 96-
223, set out as a note under section 48 of this title.
Section 223(b)(3) of Pub. L. 96-223 provided that: "The
amendments made by this subsection [amending this section and
section 6401 of this title] shall apply to qualified investment for
taxable years beginning after December 31, 1979."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 141(e), (f)(2) of Pub. L. 95-600 effective
with respect to qualified investment for taxable years beginning
after Dec. 31, 1978, see section 141(g)(1) of Pub. L. 95-600, set
out as an Effective Date note under section 409 of this title.
Section 312(d) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section and sections 48 and 167
of this title and repealing sections 49 and 50 of this title] shall
apply to taxable years ending after December 31, 1978."
Section 313(b) of Pub. L. 95-600 provided that:
"The amendment made by subsection (a) [amending this section]
shall apply to -
"(1) property acquired by the taxpayer after December 31, 1978,
and
"(2) property the construction, reconstruction, or erection of
which was completed by the taxpayer after December 31, 1978 (but
only to the extent of the basis thereof attributable to
construction, reconstruction, or erection after such date)."
Section 316(c) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section and section 1388 of
this title] shall apply to taxable years ending after October 31,
1978."
Section 703(r) of Pub. L. 95-600 provided that: "Except as
otherwise provided, the amendments made by this section [amending
this section and sections 48, 103, 447, 453, 501, 801, 911, 995,
996, 999, 1033, 1212, 1375, 1402, 1561, 4041, 4911, 6104, 6427,
6501, 6504, 6511, 7609 of this title and sections 402, 405, 410,
and 411 of Title 42, The Public Health and Welfare, enacting
provisions set out as notes under sections 103, 311, 443, 501, and
4973 of this title, and amending provisions set out as notes under
section 120, 311, 907, 995, 2011, 2501, and 4940 of this title]
shall take effect on October 4, 1976."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 503(b)(4) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, see section 508 of
Pub. L. 94-455, set out as a note under section 3 of this title.
Section 802(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and section 48 of this
title and provisions set out below] shall apply to taxable years
beginning after December 31, 1975."
Section 803(j) of Pub. L. 94-455 provided that:
"(1) General rule. - Except as provided in paragraph (2), the
amendments made by this section [see Tables for classification of
section 803 of Pub. L. 94-455] shall apply for taxable years
beginning after December 31, 1974.
"(2) Exceptions. -
"(A) Section 301(e) of the Tax Reduction Act of 1975 [set out
below], as added by subsection (d), shall apply for taxable
years beginning after December 31, 1976.
"(B) The amendments made by subsections (a) and (b)(1) shall
apply for taxable years beginning after December 31, 1975.
"(C) The amendments made by subsections (b)(4) and (f) shall
apply for years beginning after December 31, 1975."
Section 805(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in subparagraph (B), the
amendment made by subsection (a) [amending this section] shall
apply to taxable years beginning after December 31, 1975, in the
case of property placed in service after such date.
"(2) Section 46(g)(4). - Section 46(g)(4) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as added by
subsection (a)) shall apply to taxable years beginning after
December 31, 1975."
Amendment by section 1607(b)(1)(B) of Pub. L. 94-455 applicable
to taxable years ending after Oct. 4, 1976, with certain
exceptions, see section 1608(c) of Pub. L. 94-455, set out as a
note under section 857 of this title.
Amendment by section 1901(a)(4)(A), (B), (b)(1)(C) of Pub. L. 94-
455 applicable with respect to taxable years beginning after Dec.
31, 1976, see section 1901(d) of Pub. L. 94-455, set out as a note
under section 2 of this title.
Section 2112(d)(1) of Pub. L. 94-455 provided that: "The
amendments made by subsection (a) [amending this section and
section 48 of this title] shall apply to -
"(A) property acquired by the taxpayer after December 31, 1976,
and
"(B) property the construction, reconstruction, or erection of
which was completed by the taxpayer after December 31, 1976, (but
only to the extent of the basis thereof attributable to
construction, reconstruction, or erection after such date), in
taxable years beginning after such date."
EFFECTIVE DATE OF 1975 AMENDMENT
Section 301(b)(4) of Pub. L. 94-12 provided that: "The amendment
made by paragraph (1) of this subsection [amending this section]
shall apply to property placed in service after January 21, 1975,
in taxable years ending after January 21, 1975. The amendments made
by paragraphs (2) and (3) [amending this section] shall apply to
taxable years ending after December 31, 1974."
Section 305(a) of Pub. L. 94-12 provided that: "The amendments
made by section 302 [amending this section and sections 47, 48, and
50B of this title] shall apply to taxable years ending after
December 31, 1974."
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by section 2001(g)(2)(B) of Pub. L. 93-406 applicable
to distributions made in taxable years beginning after Dec. 31,
1975, see section 2001(i)(5) of Pub. L. 93-406, set out as a note
under section 72 of this title.
Amendment by section 2002(g)(2) of Pub. L. 93-406 effective on
Jan. 1, 1975, see section 2002(i)(2) of Pub. L. 93-406, set out as
an Effective Date note under section 4973 of this title.
Amendment by section 2005(c)(4) of Pub. L. 93-406 applicable only
with respect to distributions or payments made after Dec. 31, 1973,
in taxable years beginning after Dec. 31, 1973, see section 2005(d)
of Pub. L. 93-406, set out as a note under section 402 of this
title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 102(d)(1), (2) of Pub. L. 92-178, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) The amendments made by subsections (a) and (b) [amending
this section and section 48 of this title] shall apply to property
described in section 50 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954].
"(2) In redetermining qualified investment for purposes of
section 47(a) of the Internal Revenue Code of 1986 in the case of
any property which ceases to be section 38 property with respect to
the taxpayer after August 15, 1971, or which becomes public utility
property after such date, section 46(c)(2) of such Code shall be
applied as amended by subsection (a)."
Section 105(d) of Pub. L. 92-178, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and enacting
provisions set out below] shall apply to property described in
section 50 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954]."
Section 106(d) of Pub. L. 92-178 provided that: "The amendments
made by subsections (a), (b), and (c)(2) [amending this section]
shall apply to taxable years beginning after December 31, 1970. The
amendments made by subsection (c)(1) [amending this section] shall
apply to taxable years ending after August 15, 1971."
Section 107(a)(2) of Pub. L. 92-178 provided that: "The repeals
made by paragraph (1) [amending this section and section 47 of this
title] shall apply to casualties and thefts occurring after August
15, 1971."
Section 108(d) of Pub. L. 92-178 provided that: "The amendments
made by subsections (a) and (b) [amending this section and section
48 of this title] shall apply to leases entered into after
September 22, 1971. The amendment made by subsection (c) [amending
section 48 of this title] shall apply to leases entered into after
November 8, 1971."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 301(b)(4) of Pub. L. 91-172 applicable to
taxable years ending after Dec. 31, 1969, see section 301(c) of
Pub. L. 91-172, set out as a note under section 5 of this title.
Amendment by section 401(e)(1) of Pub. L. 91-172 applicable with
respect to taxable years ending on or after Dec. 31, 1970, see
section 401(h)(3) of Pub. L. 91-172, set out as a note under
section 1561 of this title.
EFFECTIVE DATE OF 1967 AMENDMENT
Section 2(g) of Pub. L. 90-225 provided that: "The amendments
made by this section [amending this section and sections 6411,
6501, 6511, 6601, and 6611 of this title] shall apply with respect
to investment credit carrybacks attributable to net operating loss
carrybacks from taxable years ending after July 31, 1967."
EFFECTIVE DATE OF 1966 AMENDMENTS
Section 4 of Pub. L. 89-800 provided that: "The amendments made
by this Act [amending this section and sections 48 and 167 of this
title] shall apply to taxable years ending after October 9, 1966,
except that the amendments made by section 3(b) [amending this
section] shall apply only if the fifth taxable year following the
unused credit year ends after December 31, 1966."
Section 2(c) of Pub. L. 89-389 provided that: "The amendments
made by this section [enacting section 1378 of this title and
amending this section and sections 1372, 1373, and 1375 of this
title] shall apply with respect to taxable years of electing small
business corporations beginning after the date of enactment of this
Act [Apr. 14, 1966], but such amendments shall not apply with
respect to sales or exchanges occurring before February 24, 1966."
Amendment by Pub. L. 89-384 applicable with respect to amounts
received after December 31, 1964, in respect of foreign
expropriation losses (as defined in section 1351(b) of this title)
sustained after December 31, 1958, see section 2 of Pub. L. 89-384,
set out as an Effective Date note under section 1351 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable with respect to dividends
received after Dec. 31, 1964, in taxable years ending after such
date, see section 201(e) of Pub. L. 88-272, set out as a note under
section 22 of this title.
EFFECTIVE DATE
Section 2(h) of Pub. L. 87-834 provided that: "The amendments
made by this section [enacting this section and sections 38, 47,
48, and 181 of this title, amending sections 381, 1016, 6501, 6511,
6601, and 6611 of this title, and renumbering former section 38 as
section 39 of this title] shall apply with respect to taxable years
ending after December 31, 1961."
SAVINGS PROVISION
For provisions that nothing in amendment by section 11813(a) of
Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
CLARIFICATION OF EFFECT OF 1984 AMENDMENT ON INVESTMENT TAX CREDIT
Section 475(c) of Pub. L. 98-369 provided that: "Nothing in the
amendments made by section 474(o) [amending this section and
sections 47 and 48 of this title] shall be construed as reducing
the amount of any credit allowable for qualified investment in
taxable years beginning before January 1, 1984."
REGULATED PUBLIC UTILITIES; SPECIAL TRANSITIONAL RULE
Section 209(d)(2) of Pub. L. 97-34, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If, by the
terms of the applicable rate order last entered before the date of
the enactment of this Act [Aug. 13, 1981] by a regulatory
commission having appropriate jurisdiction, a regulated public
utility would (but for this provision) fail to meet the
requirements of paragraph (1) or (2) of section 46(f) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] with respect
to property for an accounting period ending after December 31,
1980, such regulated public utility shall not fail to meet such
requirements if, by the terms of its first rate order determining
cost of service with respect to such property which becomes
effective after the date of the enactment of this Act and on or
before January 1, 1983, such regulated public utility meets such
requirements. This provision shall not apply to any rate order
which, under the rules in effect before the date of the enactment
of this Act was inconsistent with the requirements of paragraph (1)
or (2) of section 46(f) of such Code (whichever would have been
applicable)."
PLAN REQUIREMENTS FOR TAXPAYERS ELECTING ADDITIONAL CREDITS
Section 301(d), (e), (f) of Pub. L. 94-12, as amended by Pub. L.
94-455, Secs. 802(b)(7), 803(c), (d), (e), relating to plan
requirements for taxpayers electing additional credit, was repealed
by Pub. L. 95-600, title I, Sec. 141(f)(1), Nov. 6, 1978, 92 Stat.
2795.
PUBLIC UTILITY PROPERTY SUBJECT TO SUBSEC. (E); PROVISIONS
RESPECTING TREATMENT OF INVESTMENT CREDIT BY FEDERAL REGULATORY
AGENCIES INAPPLICABLE
Section 105(e) of Pub. L. 92-178, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Section
203(e) of the Revenue Act of 1964 [set out as note under section 38
of this title] shall not apply to public utility property to which
section 46(e) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] (as added by subsection (c)) [subsec. (e) of this section]
applies."
-FOOTNOTE-
(!1) So in original. Probably should be followed by a comma.
-End-
-CITE-
26 USC Sec. 47 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart E - Rules for Computing Investment Credit
-HEAD-
Sec. 47. Rehabilitation credit
-STATUTE-
(a) General rule
For purposes of section 46, the rehabilitation credit for any
taxable year is the sum of -
(1) 10 percent of the qualified rehabilitation expenditures
with respect to any qualified rehabilitated building other than a
certified historic structure, and
(2) 20 percent of the qualified rehabilitation expenditures
with respect to any certified historic structure.
(b) When expenditures taken into account
(1) In general
Qualified rehabilitation expenditures with respect to any
qualified rehabilitated building shall be taken into account for
the taxable year in which such qualified rehabilitated building
is placed in service.
(2) Coordination with subsection (d)
The amount which would (but for this paragraph) be taken into
account under paragraph (1) with respect to any qualified
rehabilitated building shall be reduced (but not below zero) by
any amount of qualified rehabilitation expenditures taken into
account under subsection (d) by the taxpayer or a predecessor of
the taxpayer (or, in the case of a sale and leaseback described
in section 50(a)(2)(C), by the lessee), to the extent any amount
so taken into account has not been required to be recaptured
under section 50(a).
(c) Definitions
For purposes of this section -
(1) Qualified rehabilitated building
(A) In general
The term "qualified rehabilitated building" means any
building (and its structural components) if -
(i) such building has been substantially rehabilitated,
(ii) such building was placed in service before the
beginning of the rehabilitation,
(iii) in the case of any building other than a certified
historic structure, in the rehabilitation process -
(I) 50 percent or more of the existing external walls of
such building are retained in place as external walls,
(II) 75 percent or more of the existing external walls of
such building are retained in place as internal or external
walls, and
(III) 75 percent or more of the existing internal
structural framework of such building is retained in place,
and
(iv) depreciation (or amortization in lieu of depreciation)
is allowable with respect to such building.
(B) Building must be first placed in service before 1936
In the case of a building other than a certified historic
structure, a building shall not be a qualified rehabilitated
building unless the building was first placed in service before
1936.
(C) Substantially rehabilitated defined
(i) In general
For purposes of subparagraph (A)(i), a building shall be
treated as having been substantially rehabilitated only if
the qualified rehabilitation expenditures during the 24-month
period selected by the taxpayer (at the time and in the
manner prescribed by regulation) and ending with or within
the taxable year exceed the greater of -
(I) the adjusted basis of such building (and its
structural components), or
(II) $5,000.
The adjusted basis of the building (and its structural
components) shall be determined as of the beginning of the
1st day of such 24-month period, or of the holding period of
the building, whichever is later. For purposes of the
preceding sentence, the determination of the beginning of the
holding period shall be made without regard to any
reconstruction by the taxpayer in connection with the
rehabilitation.
(ii) Special rule for phased rehabilitation
In the case of any rehabilitation which may reasonably be
expected to be completed in phases set forth in architectural
plans and specifications completed before the rehabilitation
begins, clause (i) shall be applied by substituting "60-month
period" for "24-month period".
(iii) Lessees
The Secretary shall prescribe by regulation rules for
applying this subparagraph to lessees.
(D) Reconstruction
Rehabilitation includes reconstruction.
(2) Qualified rehabilitation expenditure defined
(A) In general
The term "qualified rehabilitation expenditure" means any
amount properly chargeable to capital account -
(i) for property for which depreciation is allowable under
section 168 and which is -
(I) nonresidential real property,
(II) residential rental property,
(III) real property which has a class life of more than
12.5 years, or
(IV) an addition or improvement to property described in
subclause (I), (II), or (III), and
(ii) in connection with the rehabilitation of a qualified
rehabilitated building.
(B) Certain expenditures not included
The term "qualified rehabilitation expenditure" does not
include -
(i) Straight line depreciation must be used
Any expenditure with respect to which the taxpayer does not
use the straight line method over a recovery period
determined under subsection (c) or (g) of section 168. The
preceding sentence shall not apply to any expenditure to the
extent the alternative depreciation system of section 168(g)
applies to such expenditure by reason of subparagraph (B) or
(C) of section 168(g)(1).
(ii) Cost of acquisition
The cost of acquiring any building or interest therein.
(iii) Enlargements
Any expenditure attributable to the enlargement of an
existing building.
(iv) Certified historic structure, etc.
Any expenditure attributable to the rehabilitation of a
certified historic structure or a building in a registered
historic district, unless the rehabilitation is a certified
rehabilitation (within the meaning of subparagraph (C)). The
preceding sentence shall not apply to a building in a
registered historic district if -
(I) such building was not a certified historic structure,
(II) the Secretary of the Interior certified to the
Secretary that such building is not of historic
significance to the district, and
(III) if the certification referred to in subclause (II)
occurs after the beginning of the rehabilitation of such
building, the taxpayer certifies to the Secretary that, at
the beginning of such rehabilitation, he in good faith was
not aware of the requirements of subclause (II).
(v) Tax-exempt use property
(I) In general
Any expenditure in connection with the rehabilitation of
a building which is allocable to the portion of such
property which is (or may reasonably be expected to be) tax-
exempt use property (within the meaning of section
168(h)).
(II) Clause not to apply for purposes of paragraph (1)(C)
This clause shall not apply for purposes of determining
under paragraph (1)(C) whether a building has been
substantially rehabilitated.
(vi) Expenditures of lessee
Any expenditure of a lessee of a building if, on the date
the rehabilitation is completed, the remaining term of the
lease (determined without regard to any renewal periods) is
less than the recovery period determined under section
168(c).
(C) Certified rehabilitation
For purposes of subparagraph (B), the term "certified
rehabilitation" means any rehabilitation of a certified
historic structure which the Secretary of the Interior has
certified to the Secretary as being consistent with the
historic character of such property or the district in which
such property is located.
(D) Nonresidential real property; residential rental property;
class life
For purposes of subparagraph (A), the terms "nonresidential
real property," "residential rental property," and "class life"
have the respective meanings given such terms by section 168.
(3) Certified historic structure defined
(A) In general
The term "certified historic structure" means any building
(and its structural components) which -
(i) is listed in the National Register, or
(ii) is located in a registered historic district and is
certified by the Secretary of the Interior to the Secretary
as being of historic significance to the district.
(B) Registered historic district
The term "registered historic district" means -
(i) any district listed in the National Register, and
(ii) any district -
(I) which is designated under a statute of the
appropriate State or local government, if such statute is
certified by the Secretary of the Interior to the Secretary
as containing criteria which will substantially achieve the
purpose of preserving and rehabilitating buildings of
historic significance to the district, and
(II) which is certified by the Secretary of the Interior
to the Secretary as meeting substantially all of the
requirements for the listing of districts in the National
Register.
(d) Progress expenditures
(1) In general
In the case of any building to which this subsection applies,
except as provided in paragraph (3) -
(A) if such building is self-rehabilitated property, any
qualified rehabilitation expenditure with respect to such
building shall be taken into account for the taxable year for
which such expenditure is properly chargeable to capital
account with respect to such building, and
(B) if such building is not self-rehabilitated property, any
qualified rehabilitation expenditure with respect to such
building shall be taken into account for the taxable year in
which paid.
(2) Property to which subsection applies
(A) In general
This subsection shall apply to any building which is being
rehabilitated by or for the taxpayer if -
(i) the normal rehabilitation period for such building is 2
years or more, and
(ii) it is reasonable to expect that such building will be
a qualified rehabilitated building in the hands of the
taxpayer when it is placed in service.
Clauses (i) and (ii) shall be applied on the basis of facts
known as of the close of the taxable year of the taxpayer in
which the rehabilitation begins (or, if later, at the close of
the first taxable year to which an election under this
subsection applies).
(B) Normal rehabilitation period
For purposes of subparagraph (A), the term "normal
rehabilitation period" means the period reasonably expected to
be required for the rehabilitation of the building -
(i) beginning with the date on which physical work on the
rehabilitation begins (or, if later, the first day of the
first taxable year to which an election under this subsection
applies), and
(ii) ending on the date on which it is expected that the
property will be available for placing in service.
(3) Special rules for applying paragraph (1)
For purposes of paragraph (1) -
(A) Component parts, etc.
Property which is to be a component part of, or is otherwise
to be included in, any building to which this subsection
applies shall be taken into account -
(i) at a time not earlier than the time at which it becomes
irrevocably devoted to use in the building, and
(ii) as if (at the time referred to in clause (i)) the
taxpayer had expended an amount equal to that portion of the
cost to the taxpayer of such component or other property
which, for purposes of this subpart, is properly chargeable
(during such taxable year) to capital account with respect to
such building.
(B) Certain borrowing disregarded
Any amount borrowed directly or indirectly by the taxpayer
from the person rehabilitating the property for him shall not
be treated as an amount expended for such rehabilitation.
(C) Limitation for buildings which are not self-rehabilitated
(i) In general
In the case of a building which is not self-rehabilitated,
the amount taken into account under paragraph (1)(B) for any
taxable year shall not exceed the amount which represents the
portion of the overall cost to the taxpayer of the
rehabilitation which is properly attributable to the portion
of the rehabilitation which is completed during such taxable
year.
(ii) Carryover of certain amounts
In the case of a building which is not a self-rehabilitated
building, if for the taxable year -
(I) the amount which (but for clause (i)) would have been
taken into account under paragraph (1)(B) exceeds the
limitation of clause (i), then the amount of such excess
shall be taken into account under paragraph (1)(B) for the
succeeding taxable year, or
(II) the limitation of clause (i) exceeds the amount
taken into account under paragraph (1)(B), then the amount
of such excess shall increase the limitation of clause (i)
for the succeeding taxable year.
(D) Determination of percentage of completion
The determination under subparagraph (C)(i) of the portion of
the overall cost to the taxpayer of the rehabilitation which is
properly attributable to rehabilitation completed during any
taxable year shall be made, under regulations prescribed by the
Secretary, on the basis of engineering or architectural
estimates or on the basis of cost accounting records. Unless
the taxpayer establishes otherwise by clear and convincing
evidence, the rehabilitation shall be deemed to be completed
not more rapidly than ratably over the normal rehabilitation
period.
(E) No progress expenditures for certain prior periods
No qualified rehabilitation expenditures shall be taken into
account under this subsection for any period before the first
day of the first taxable year to which an election under this
subsection applies.
(F) No progress expenditures for property for year it is placed
in service, etc.
In the case of any building, no qualified rehabilitation
expenditures shall be taken into account under this subsection
for the earlier of -
(i) the taxable year in which the building is placed in
service, or
(ii) the first taxable year for which recapture is required
under section 50(a)(2) with respect to such property,
or for any taxable year thereafter.
(4) Self-rehabilitated building
For purposes of this subsection, the term "self-rehabilitated
building" means any building if it is reasonable to believe that
more than half of the qualified rehabilitation expenditures for
such building will be made directly by the taxpayer.
(5) Election
This subsection shall apply to any taxpayer only if such
taxpayer has made an election under this paragraph. Such an
election shall apply to the taxable year for which made and all
subsequent taxable years. Such an election, once made, may be
revoked only with the consent of the Secretary.
-SOURCE-
(Added Pub. L. 87-834, Sec. 2(b), Oct. 16, 1962, 76 Stat. 966;
amended Pub. L. 91-172, title VII, Sec. 703(c), Dec. 30, 1969, 83
Stat. 666; Pub. L. 91-676, Sec. 1, Jan. 12, 1971, 84 Stat. 2060;
Pub. L. 92-178, title I, Secs. 102(c), 107(a)(1), (b)(1), Dec. 10,
1971, 85 Stat. 500, 507; Mar. 29, 1975, Pub. L. 94-12, title III,
Sec. 302(b)(2)(A), (c)(1), (2), 89 Stat. 43, 44; Pub. L. 94-455,
title VIII, Sec. 804(b), title XIX, Sec. 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1594, 1834; Pub. L. 95-600, title III, Sec. 317(a),
Nov. 6, 1978, 92 Stat. 2830; Pub. L. 95-618, title II, Sec. 241(b),
Nov. 9, 1978, 92 Stat. 3193; Pub. L. 97-34, title II, Sec.
211(f)(2), (g), Aug. 13, 1981, 95 Stat. 231, 233; Pub. L. 97-248,
title II, Sec. 208(a)(2)(B), Sept. 3, 1982, 96 Stat. 435; Pub. L.
97-448, title I, Sec. 102(e)(3), Jan. 12, 1983, 96 Stat. 2371; Pub.
L. 98-369, div. A, title IV, Secs. 421(b)(7), 431(b)(2), (d)(4),
(5), 474(o)(8), (9), July 18, 1984, 98 Stat. 794, 807, 810, 836;
Pub. L. 98-443, Sec. 9(p), Oct. 4, 1984, 98 Stat. 1708; Pub. L. 99-
121, title I, Sec. 103(b)(6), Oct. 11, 1985, 99 Stat. 510; Pub. L.
99-514, title XV, Sec. 1511(c)(2), title XVIII, Secs.
1802(a)(5)(A), 1844(b)(1), (2), (4), Oct. 22, 1986, 100 Stat. 2744,
2788, 2855; Pub. L. 100-647, title I, Secs. 1002(a)(18), (26)-(28),
1007(g)(3)(A), Nov. 10, 1988, 102 Stat. 3356, 3357, 3435; Pub. L.
101-508, title XI, Sec. 11801(c)(8)(A), 11813(a), Nov. 5, 1990, 104
Stat. 1388-524, 1388-536.)
-MISC1-
AMENDMENTS
1990 - Pub. L. 101-508, Sec. 11813(a), amended section generally,
substituting section catchline for one which read: "Certain
dispositions, etc., of section 38 property" and in text
substituting present provisions for provisions relating to general
rules regarding disposition of section 38 property,
nonapplicability of section in certain cases, the treatment of any
increase in tax under the section, increases in nonqualified
nonrecourse financing, and transfers between spouses or incident to
divorce.
Subsec. (b)(1) to (3). Pub. L. 101-508, Sec. 11801(c)(8)(A),
inserted "or" at end of par. (1), substituted a period for ", or"
at end of par. (2), and struck out par. (3) which related to
nonapplicability of subsec. (a) in the case of a transfer of
section 38 property related to exchanges under final system plan
for ConRail.
1988 - Subsec. (a)(5)(D). Pub. L. 100-647, Sec. 1002(a)(26)(B),
struck out at end "If, prior to a disposition to which this
subsection applies, any portion of any credit is not allowable with
respect to any property by reason of section 168(i)(3), such
portion shall be treated (for purposes of this subparagraph) as not
having been used to reduce tax liability."
Subsec. (a)(5)(E)(iii). Pub. L. 100-647, Sec. 1002(a)(26)(C),
substituted "168(e)" for "168(c)".
Subsec. (a)(5)(E)(v). Pub. L. 100-647, Sec. 1002(a)(26)(A), added
cl. (v).
Subsec. (a)(9)(A). Pub. L. 100-647, Sec. 1002(a)(27), substituted
"section 168(h)(2)" for "section 168(j)(4)(C)".
Subsec. (c). Pub. L. 100-647, Sec. 1007(g)(3)(A), substituted "D,
or G" for "or D".
Subsec. (d)(1). Pub. L. 100-647, Sec. 1002(a)(18), substituted
"section 46(c)(8)(C)" for "section 48(c)(8)(C)".
Subsec. (d)(3)(C)(i). Pub. L. 100-647, Sec. 1002(a)(28),
substituted "class life (as defined in section 168(i)(1))" for
"present class life (as defined in section 168(g)(2))" and "no
class life" for "no present class life".
1986 - Subsec. (a)(9). Pub. L. 99-514, Sec. 1802(a)(5)(A), added
par. (9).
Subsec. (d)(1). Pub. L. 99-514, Sec. 1844(b)(1), substituted
"reducing the credit base (as defined in section 48(c)(8)(C))" for
"reducing the qualified investment" and inserted "For purposes of
determining the amount of credit subject to the early disposition
or cessation rules of subsection (a), the net increase in the
amount of the nonqualified nonrecourse financing with respect to
the property shall be treated as reducing the property's credit
base (and correspondingly reducing the qualified investment in the
property) in the year in which the property was first placed in
service."
Subsec. (d)(3)(E)(i). Pub. L. 99-514, Sec. 1844(b)(4), inserted
"reduced by the sum of the credit recapture amounts with respect to
such property for all preceding years".
Subsec. (d)(3)(F). Pub. L. 99-514, Sec. 1844(b)(2), struck out
subpar. (F) which read as follows: "The amount of any increase in
tax under subsection (a) with respect to any property to which this
paragraph applies shall be determined by reducing the qualified
investment with respect to such property by the aggregate credit
recapture amounts for all taxable years under this paragraph."
Subsec. (d)(3)(G). Pub. L. 99-514, Sec. 1511(c)(2), substituted
"determined at the underpayment rate established under section
6621" for "determined under section 6621".
1985 - Subsec. (a)(5)(B). Pub. L. 99-121 substituted "For
property other than 3-year property" for "For 15-year, 10-year, and
5-year property" in table heading.
1984 - Subsec. (a)(5)(D), (6). Pub. L. 98-369, Sec. 474(o)(8),
substituted "under section 39" for "under section 46(b)".
Subsec. (a)(7)(C). Pub. L. 98-443 substituted "Secretary of
Transportation" for "Civil Aeronautics Board".
Subsec. (c). Pub. L. 98-369, Sec. 474(o)(9), substituted "subpart
A, B, or D" for "subpart A".
Subsec. (d). Pub. L. 98-369, Sec. 431(b)(2), substituted
"Increases in nonqualified nonrecourse financing" for "Property
ceasing to be at risk" in heading.
Subsec. (d)(1). Pub. L. 98-369, Sec. 431(b)(2), substituted
provisions relating to increases in tax liability resulting from
increases in nonqualified nonrecourse financing for provisions
relating to increases in tax liability resulting from the taxpayer
ceasing to be at risk with respect to certain property.
Subsec. (d)(2). Pub. L. 98-369, Sec. 431(b)(2), substituted
provisions that for purposes of par. (1), transfers of debt, or
agreements to transfer, occurring more than one year after the
initial borrowing shall not be treated as increasing nonqualified
nonrecourse financing with respect to the taxpayer for provisions
that for purposes of par. (1), such transfers (or agreements to
transfer) by a qualified person to a nonqualified person would not
cause the taxpayer to be treated as ceasing to be at risk.
Subsec. (d)(3)(A). Pub. L. 98-369, Sec. 431(d)(4), substituted
"increasing the amount of nonqualified nonrecourse financing
(within the meaning of section 46(c)(8))" for "ceasing to be at
risk".
Subsec. (d)(3)(B)(i). Pub. L. 98-369, Sec. 431(d)(5), struck out
"other than a loan described in section 46(c)(8)(B)(ii)" after
"section 46(c)(8)(F)(iv)".
Subsec. (e). Pub. L. 98-369, Sec. 421(b)(7), added subsec. (e).
1983 - Subsec. (d)(2). Pub. L. 97-448, Sec. 102(e)(3)(A),
substituted "section 46(c)(8)(D)" and "section 46(c)(8)(B)" for
"section 48(c)(8)(D)" and "section 48(c)(8)(B)", respectively.
Subsec. (d)(3)(A). Pub. L. 97-448, Sec. 102(e)(3)(B), substituted
"section 46(c)(8)(F)" for "section 46(c)(8)(E)".
1982 - Subsec. (a)(5)(D). Pub. L. 97-248, Sec. 208(a)(2)(B),
inserted provision that if, prior to a disposition to which this
subsection applies, any portion of any credit is not allowable with
respect to any property by reason of section 168(i)(3), such
portion shall be treated, for purposes of this subparagraph, as not
having been used to reduce tax liability.
1981 - Subsec. (a)(3)(D). Pub. L. 97-34, Sec. 211(g)(2)(A),
inserted provisions relating to disposition, cessation, or change
in expected use described in paragraph (5).
Subsec. (a)(5), (6). Pub. L. 97-34, Sec. 211(g)(1), (2)(B), added
par. (5), redesignated former par. (5) as (6) and substituted
"paragraph (1), (3), or (5)" for "paragraph (1) or (3)". Former
par. (6) redesignated (7).
Subsec. (a)(7), (8). Pub. L. 97-34, Sec. 211(g)(1), (2)(C),
redesignated former par. (6) as (7), substituted "paragraph (6)"
for "paragraph (5)", and redesignated former par. (7) as (8).
Subsec. (d). Pub. L. 97-34, Sec. 211(f)(2), added subsec. (d).
1978 - Subsec. (a)(4), (5). Pub. L. 95-618, Sec. 241(b)(1), added
par. (4), redesignated former par. (4) as (5) and substituted
"paragraph (2) or (4)" for "paragraph (2)".
Subsec. (a)(6)(B). Pub. L. 95-618, Sec. 241(b)(3), substituted
"paragraph (5)" for "paragraph (4)".
Subsec. (b)(3). Pub. L. 95-600, Sec. 317(a), added par. (3).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out in introductory provision and in par. (3)(C) "or his delegate"
after "Secretary".
Subsec. (a)(7). Pub. L. 94-455, Sec. 804(b), added par. (7).
1975 - Subsec. (a)(3), (4). Pub. L. 94-12, Sec. 302(b)(2)(A),
(c)(1), added par. (3), redesignated former par. (3) as (4) and
substituted "paragraph (1) or (3)" for "paragraph (1)". A former
par. (4), relating to increase or adjustment of tax where property
is destroyed by casualty, etc., was repealed by Pub. L. 92-178.
Subsec. (a)(5), (6)(B). Pub. L. 94-12, Sec. 302(c)(2),
substituted "paragraph (4)" for "paragraph (3)".
1971 - Subsec. (a)(4). Pub. L. 92-178, Sec. 107(a)(1), struck out
par. (4) relating to property destroyed by casualty, etc.
Subsec. (a)(5). Pub. L. 92-178, Sec. 107(b)(1), provided for the
repeal of par. (5) with the repeal not to apply, however, in the
case of certain replacement property. See section 107(b)(2) of Pub.
L. 92-178, set out in the Effective Date of 1971 Amendment note
below.
Subsec. (a)(6)(A). Pub. L. 92-178, Sec. 102(c), substituted "3
1/2 years" for "4 years".
Subsec. (a)(6). Pub. L. 91-676 added par. (6).
1969 - Subsec. (a)(5). Pub. L. 91-172, Sec. 703(c)(2), added par.
(5).
Subsec. (a)(4). Pub. L. 91-172, Sec. 703(c)(1), inserted
provision making subpars. (B) and (C) inapplicable to any casualty
or theft occurring after April 18, 1969.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(a) of Pub. L. 101-508 applicable to
property placed in service after Dec. 31, 1990, but not applicable
to any transition property (as defined in section 49(e) of this
title), any property with respect to which qualified progress
expenditures were previously taken into account under section 46(d)
of this title, and any property described in section 46(b)(2)(C) of
this title, as such sections were in effect on Nov. 4, 1990, see
section 11813(c) of Pub. L. 101-508, set out as a note under
section 45K of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1511(d) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 48, 167,
644, 852, 4497, 6214, 6332, 6343, 6601, 6602, 6611, 6621, 6654,
6655, and 7426 of this title and sections 1961 and 2411 of Title
28, Judiciary and Judicial Procedure, and enacting provisions set
out as a note under section 6621 of this title] shall apply for
purposes of determining interest for periods after December 31,
1986."
Amendment by sections 1802(a)(5)(A) and 1844(b)(1), (2), (4) of
Pub. L. 99-514 effective, except as otherwise provided, as if
included in the provisions of the Tax Reform Act of 1984, Pub. L.
98-369, div. A, to which such amendment relates, see section 1881
of Pub. L. 99-514, set out as a note under section 48 of this
title.
EFFECTIVE DATE OF 1985 AMENDMENT
Amendment by Pub. L. 99-121 applicable as if included in the
amendments made by section 111 of the Tax Reform Act of 1984, Pub.
L. 98-369, see section 105(b)(4) of Pub. L. 99-121, set out as a
note under section 168 of this title, and section 111(g) of Pub. L.
98-369, set out as an Effective Date of 1984 Amendment note under
section 168 of this title.
EFFECTIVE DATE OF 1984 AMENDMENTS
Amendment by Pub. L. 98-443 effective Jan. 1, 1985, see section
9(v) of Pub. L. 98-443, set out as a note under section 5314 of
Title 5, Government Organization and Employees.
Amendment by section 421(b)(7) of Pub. L. 98-369 applicable to
transfers after July 18, 1984, in taxable years ending after such
date, subject to election to have amendment apply to transfers
after 1983 or to transfers pursuant to existing decrees, see
section 421(d) of Pub. L. 98-369, set out as an Effective Date note
under section 1041 of this title.
Amendment by section 431(b)(2), (d)(4), (5) of Pub. L. 98-369
applicable to property placed in service after July 18, 1984, in
taxable years ending after such date, but not applicable to
property to which subsec. (d) of this section and section 46(c)(8),
(9) of this title, as enacted by section 211(f) of Pub. L. 97-34,
do not apply, with the taxpayer having an option to elect
retroactive application of amendment by Pub. L. 98-369, see section
431(e) of Pub. L. 98-369, set out as a note under section 46 of
this title.
Amendment by section 474(o)(8), (9) of Pub. L. 98-369 applicable
to taxable years beginning after Dec. 31, 1983, and to carrybacks
from such years, see section 475(a) of Pub. L. 98-369, set out as a
note under section 21 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to agreements entered into
after July 1, 1982, or to property placed in service after that
date, but not to transitional safe harbor lease property, nor to
qualified leased property described in section 168(f)(8)(D)(v) of
this title which is placed in service before Jan. 1, 1988, or is
placed in service after such date pursuant to a binding contract or
commitment entered into before April 1, 1983, and solely because of
conditions which, as determined by the Secretary of the Treasury or
his delegate, are not within the control of the lessor or lessee,
see section 208(d)(1), (2)(A), (5) of Pub. L. 97-248, set out as a
note under section 168 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 211(g) of Pub. L. 97-34 applicable to
property placed in service after Dec. 31, 1980, see section
211(i)(1) of Pub. L. 97-34, set out in a note under section 46 of
this title.
Amendment by section 211(f)(2) of Pub. L. 97-34 not to apply to
property placed in service by the taxpayer on or before Feb. 18,
1981, and property placed in service by the taxpayer after Feb. 18,
1981, where such property was acquired by the taxpayer pursuant to
a binding contract entered into on or before that date, see section
211(i)(5) of Pub. L. 97-34, set out as a note under section 46 of
this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 317(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after March 31, 1976."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 804(b) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1974, see section 804(e) of
Pub. L. 94-455, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 applicable to taxable years ending
after Dec. 31, 1974, see section 305(a) of Pub. L. 94-12, set out
as a note under section 46 of this title.
EFFECTIVE DATE OF 1971 AMENDMENTS
In redetermining qualified investment for purposes of subsec. (a)
of this section in the case of any property which ceases to be
section 38 property with respect to the taxpayer after Aug. 15,
1971, or which becomes public utility property after such date,
section 46(c)(2) of this title as amended by section 102(a) of Pub.
L. 92-178 as applicable, see section 102(d)(2) of Pub. L. 92-178,
set out as a note under section 46 of this title.
Amendment by section 107(a)(1) of Pub. L. 92-178 applicable to
casualties and thefts occurring after Aug. 15, 1971, see section
107(a)(2) of Pub. L. 92-178, set out as a note under section 46 of
this title.
Section 107(b)(2) of Pub. L. 92-178, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
repeal made by paragraph (1) [repealing subsec. (a)(5) of this
section] shall not apply if replacement property described in
subparagraph (B) of such section 47(a)(5) is not property described
in section 50 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954]."
Section 102(d)(3) of Pub. L. 92-178 provided that: "The amendment
made by subsection (c) [amending this section] shall apply to
leases executed after April 18, 1969."
Section 2 of Pub. L. 91-676 provided that: "The amendment made by
the first section of this Act [amending this section] shall apply
to taxable years ending after April 18, 1969."
EFFECTIVE DATE
Section applicable with respect to taxable years ending after
Dec. 31, 1961, see section 2(h) of Pub. L. 87-834, set out as a
note under section 46 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
CLARIFICATION OF EFFECT OF 1984 AMENDMENT ON INVESTMENT TAX CREDIT
For provision that nothing in the amendments made by section
474(o) of Pub. L. 98-369, which amended this section, be construed
as reducing the investment tax credit in taxable years beginning
before Jan. 1, 1984, see section 475(c) of Pub. L. 98-369, set out
as a note under section 46 of this title.
-TRANS-
TRANSFER OF FUNCTIONS
Functions, powers, and duties of Federal Aviation Agency and of
Administrator and other offices and officers thereof transferred by
Pub. L. 89-670, Oct. 15, 1966, 80 Stat. 931, to Secretary of
Transportation, with functions, powers, and duties of Secretary of
Transportation pertaining to aviation safety to be exercised by
Federal Aviation Administrator in Department of Transportation, see
section 106 of Title 49, Transportation.
-End-
-CITE-
26 USC Sec. 48 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart E - Rules for Computing Investment Credit
-HEAD-
Sec. 48. Energy credit
-STATUTE-
(a) Energy credit
(1) In general
For purposes of section 46, except as provided in paragraphs
(1)(B) and (2)(B) of subsection (c), the energy credit for any
taxable year is the energy percentage of the basis of each energy
property placed in service during such taxable year.
(2) Energy percentage
(A) In general
The energy percentage is -
(i) 30 percent in the case of -
(I) qualified fuel cell property,
(II) energy property described in paragraph (3)(A)(i) but
only with respect to periods ending before January 1, 2008,
and
(III) energy property described in paragraph (3)(A)(ii),
and
(ii) in the case of any energy property to which clause (i)
does not apply, 10 percent.
(B) Coordination with rehabilitation credit
The energy percentage shall not apply to that portion of the
basis of any property which is attributable to qualified
rehabilitation expenditures.
(3) Energy property
For purposes of this subpart, the term "energy property" means
any property -
(A) which is -
(i) equipment which uses solar energy to generate
electricity, to heat or cool (or provide hot water for use
in) a structure, or to provide solar process heat, excepting
property used to generate energy for the purposes of heating
a swimming pool,
(ii) equipment which uses solar energy to illuminate the
inside of a structure using fiber-optic distributed sunlight
but only with respect to periods ending before January 1,
2008,
(iii) equipment used to produce, distribute, or use energy
derived from a geothermal deposit (within the meaning of
section 613(e)(2)), but only, in the case of electricity
generated by geothermal power, up to (but not including) the
electrical transmission stage, or
(iv) qualified fuel cell property or qualified microturbine
property,
(B)(i) the construction, reconstruction, or erection of which
is completed by the taxpayer, or
(ii) which is acquired by the taxpayer if the original use of
such property commences with the taxpayer,
(C) with respect to which depreciation (or amortization in
lieu of depreciation) is allowable, and
(D) which meets the performance and quality standards (if
any) which -
(i) have been prescribed by the Secretary by regulations
(after consultation with the Secretary of Energy), and
(ii) are in effect at the time of the acquisition of the
property.
The term "energy property" shall not include any property which
is public utility property (as defined in section 46(f)(5) as in
effect on the day before the date of the enactment of the Revenue
Reconciliation Act of 1990). Such term shall not include any
property which is part of a facility the production from which is
allowed as a credit under section 45 for the taxable year or any
prior taxable year.
(4) Special rule for property financed by subsidized energy
financing or industrial development bonds
(A) Reduction of basis
For purposes of applying the energy percentage to any
property, if such property is financed in whole or in part by -
(i) subsidized energy financing, or
(ii) the proceeds of a private activity bond (within the
meaning of section 141) the interest on which is exempt from
tax under section 103,
the amount taken into account as the basis of such property
shall not exceed the amount which (but for this subparagraph)
would be so taken into account multiplied by the fraction
determined under subparagraph (B).
(B) Determination of fraction
For purposes of subparagraph (A), the fraction determined
under this subparagraph is 1 reduced by a fraction -
(i) the numerator of which is that portion of the basis of
the property which is allocable to such financing or
proceeds, and
(ii) the denominator of which is the basis of the property.
(C) Subsidized energy financing
For purposes of subparagraph (A), the term "subsidized energy
financing" means financing provided under a Federal, State, or
local program a principal purpose of which is to provide
subsidized financing for projects designed to conserve or
produce energy.
(b) Certain progress expenditure rules made applicable
Rules similar to the rules of subsections (c)(4) and (d) of
section 46 (as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990) shall apply
for purposes of subsection (a).
(c) Qualified fuel cell property; qualified microturbine property
For purposes of this subsection -
(1) Qualified fuel cell property
(A) In general
The term "qualified fuel cell property" means a fuel cell
power plant which -
(i) has a nameplate capacity of at least 0.5 kilowatt of
electricity using an electrochemical process, and
(ii) has an electricity-only generation efficiency greater
than 30 percent.
(B) Limitation
In the case of qualified fuel cell property placed in service
during the taxable year, the credit otherwise determined under
paragraph (1) for such year with respect to such property shall
not exceed an amount equal to $500 for each 0.5 kilowatt of
capacity of such property.
(C) Fuel cell power plant
The term "fuel cell power plant" means an integrated system
comprised of a fuel cell stack assembly and associated balance
of plant components which converts a fuel into electricity
using electrochemical means.
(D) Special rule
The first sentence of the matter in subsection (a)(3) which
follows subparagraph (D) thereof shall not apply to qualified
fuel cell property which is used predominantly in the trade or
business of the furnishing or sale of telephone service,
telegraph service by means of domestic telegraph operations, or
other telegraph services (other than international telegraph
services).
(E) Termination
The term "qualified fuel cell property" shall not include any
property for any period after December 31, 2007.
(2) Qualified microturbine property
(A) In general
The term "qualified microturbine property" means a stationary
microturbine power plant which -
(i) has a nameplate capacity of less than 2,000 kilowatts,
and
(ii) has an electricity-only generation efficiency of not
less than 26 percent at International Standard Organization
conditions.
(B) Limitation
In the case of qualified microturbine property placed in
service during the taxable year, the credit otherwise
determined under paragraph (1) for such year with respect to
such property shall not exceed an amount equal (!1) $200 for
each kilowatt of capacity of such property.
(C) Stationary microturbine power plant
The term "stationary microturbine power plant" means an
integrated system comprised of a gas turbine engine, a
combustor, a recuperator or regenerator, a generator or
alternator, and associated balance of plant components which
converts a fuel into electricity and thermal energy. Such term
also includes all secondary components located between the
existing infrastructure for fuel delivery and the existing
infrastructure for power distribution, including equipment and
controls for meeting relevant power standards, such as voltage,
frequency, and power factors.
(D) Special rule
The first sentence of the matter in subsection (a)(3) which
follows subparagraph (D) thereof shall not apply to qualified
microturbine property which is used predominantly in the trade
or business of the furnishing or sale of telephone service,
telegraph service by means of domestic telegraph operations, or
other telegraph services (other than international telegraph
services).
(E) Termination
The term "qualified microturbine property" shall not include
any property for any period after December 31, 2007.
-SOURCE-
(Added Pub. L. 87-834, Sec. 2(b), Oct. 16, 1962, 76 Stat. 967;
amended Pub. L. 88-272, title II, Sec. 203(a)(1), (3)(A), (b), (c),
Feb. 26, 1964, 78 Stat. 33, 34; Pub. L. 89-800, Sec. 1 Nov. 8,
1966, 80 Stat. 1508; Pub. L. 89-809, title II, Sec. 201(a), Nov.
13, 1966, 80 Stat. 1575; Pub. L. 90-26, Secs. 1, 2(a), 3, June 13,
1967, 81 Stat. 57, 58; Pub. L. 91-172, title I, Sec. 121(d)(2)(A),
title IV, Sec. 401(e)(2)-(4), Dec. 30, 1969, 83 Stat. 547, 603;
Pub. L. 92-178, title I, Secs. 102(a)(2), 103, 104(a)(1), (b)-
(f)(1), (g), 108(b), (c), Dec. 10, 1971, 85 Stat. 499-502, 507;
Pub. L. 94-12, title III, Secs. 301(c)(1), 302(c)(3), title VI,
Sec. 604(a), Mar. 29, 1975, 89 Stat. 38, 44, 65; Pub. L. 94-455,
title VIII, Secs. 802(b)(6), 804(a), title X, Sec. 1051(h)(1),
title XIX, Secs. 1901(a)(5), (b)(11)(A), 1906(b)(13)(A), title XXI,
Sec. 2112(a)(1), Oct. 4, 1976, 90 Stat. 1583, 1591, 1647, 1764,
1795, 1834, 1905; Pub. L. 95-473, Sec. 2(a)(2)(A), Oct. 17, 1978,
92 Stat. 1464; Pub. L. 95-600, title I, Sec. 141(b), title III,
Secs. 312(c)(1)-(3), 314(a), (b), 315(a)-(c), title VII, Sec.
703(a)(3), (4), Nov. 6, 1978, 92 Stat. 2791, 2826-2829, 2939; Pub.
L. 95-618, title III, Sec. 301(b), (d)(1), (2), Nov. 9, 1978, 92
Stat. 3195, 3199, 3200; Pub. L. 96-222, title I, Secs.
101(a)(7)(G), (H), (L)(i)(I)-(IV), (ii)(III)-(VI), (iii)(II),
(III), (v)(II)-(V), (M)(ii), (iii), 103(a)(2)(A), (4)(B),
108(c)(6), Apr. 1, 1980, 94 Stat. 198-201, 208, 209, 228; Pub. L.
96-223, title II, Secs. 221(b), 222(a)-(e)(1), (f)-(i), 223(a)(1),
(c)(1), Apr. 2, 1980, 94 Stat. 261-266; Pub. L. 96-451, title III,
Sec. 302(a), Oct. 14, 1980, 94 Stat. 1991; Pub. L. 96-605, title I,
Sec. 109(a), title II, Sec. 223(a), Dec. 28, 1980, 94 Stat. 3525,
3528; Pub. L. 97-34, title II, Secs. 211(a)(2), (c), (e)(3), (4),
(h), 212(a)(3), (b), (c), (d)(2)(A), 213(a), 214(a), (b), title
III, Sec. 332(b), Aug. 13, 1981, 95 Stat. 227-229, 235, 236, 239,
240, 296; Pub. L. 97-248, title II, Secs. 205(a)(1), (4), (5)(A),
209(c), Sept. 3, 1982, 96 Stat. 427, 429, 447; Pub. L. 97-354,
Secs. 3(d), 5(a)(7), (8), Oct. 19, 1982, 96 Stat. 1689, 1692; Pub.
L. 97-362, title I, Sec. 104(a), Oct. 25, 1982, 96 Stat. 1729; Pub.
L. 97-424, title V, Sec. 546(a), Jan. 6, 1983, 96 Stat. 2198; Pub.
L. 97-448, title I, Sec. 102(e)(2)(A), (f)(2), (3), (6), title II,
Sec. 202(c), title III, Sec. 306(a)(3), Jan. 12, 1983, 96 Stat.
2371, 2372, 2396, 2400; Pub. L. 98-369, div. A, title I, Secs. 11,
31(b), (c), 111(e)(8), 113(a)(1), (b)(3), (4), 114(a), title IV,
Secs. 431(c), 474(o)(10)-(18), title VII, Secs. 712(b), 721(x)(1),
735(c)(1), title X, Sec. 1043(a), July 18, 1984, 98 Stat. 503, 517,
518, 633, 635, 637, 638, 808, 836, 837, 946, 971, 981, 1044; Pub.
L. 99-121, title I, Sec. 103(b)(5), Oct. 11, 1985, 99 Stat. 510;
Pub. L. 99-514, title II, Sec. 251(b), (c), title VII, Sec.
701(e)(4)(C), title VIII, Sec. 803(b)(2)(B), title XII, Secs.
1272(d)(5), 1275(c)(5), title XV, Sec. 1511(c)(3), title XVIII,
Secs. 1802(a)(4)(C), (5)(B), (9)(A), (B), 1809(d)(2), (e),
1847(b)(6), 1879(j)(1), Oct. 22, 1986, 100 Stat. 2184, 2186, 2343,
2355, 2594, 2599, 2745, 2788, 2789, 2821, 2856, 2908; Pub. L. 100-
647, title I, Secs. 1002(a)(14), (16)(A), (20), (29), (30),
1013(a)(41), Nov. 10, 1988, 102 Stat. 3355-3357, 3544; Pub. L. 101-
508, title XI, Secs. 11801(c)(6)(A), 11813(a), Nov. 5, 1990, 104
Stat. 1388-523, 1388-541; Pub. L. 102-227, title I, Sec. 106, Dec.
11, 1991, 105 Stat. 1687; Pub. L. 102-486, title XIX, Sec. 1916(a),
Oct. 24, 1992, 106 Stat. 3024; Pub. L. 108-357, title III, Sec.
322(d)(2)(A), (B), title VII, Sec. 710(e), Oct. 22, 2004, 118 Stat.
1475, 1557; Pub. L. 109-58, title XIII, Secs. 1336(a)-(d), 1337(a)-
(c), Aug. 8, 2005, 119 Stat. 1036-1038; Pub. L. 109-135, title IV,
Sec. 412(m), (n), Dec. 21, 2005, 119 Stat. 2638.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsecs. (a)(3) and (b), is the date of
enactment of Pub. L. 101-508, which was approved Nov. 5, 1990.
-MISC1-
AMENDMENTS
2005 - Subsec. (a)(1). Pub. L. 109-135, Sec. 412(m), substituted
"paragraphs (1)(B) and (2)(B) of subsection (c)" for "paragraph
(1)(B) or (2)(B) of subsection (d)".
Pub. L. 109-58, Sec. 1336(d), inserted "except as provided in
paragraph (1)(B) or (2)(B) of subsection (d)," before "the energy
credit".
Subsec. (a)(2)(A). Pub. L. 109-58, Sec. 1337(a), reenacted
heading without change and amended text of subpar. (A) generally.
Prior to amendment, text read as follows: "The energy percentage is
-
"(i) in the case of qualified fuel cell property, 30 percent,
and
"(ii) in the case of any other energy property, 10 percent."
Pub. L. 109-58, Sec. 1336(c), reenacted heading without change
and amended text of subpar. (A) generally. Prior to amendment, text
read as follows: "The energy percentage is 10 percent."
Subsec. (a)(3)(A)(i). Pub. L. 109-58, Sec. 1337(c), inserted
"excepting property used to generate energy for the purposes of
heating a swimming pool," after "solar process heat,".
Subsec. (a)(3)(A)(ii). Pub. L. 109-135, Sec. 412(n)(2), struck
out "or" at end.
Pub. L. 109-58, Sec. 1337(b), added cl. (ii). Former cl. (ii)
redesignated (iii) relating to equipment used to produce,
distribute, or use energy derived from a geothermal deposit.
Subsec. (a)(3)(A)(iii). Pub. L. 109-58, Sec. 1337(b),
redesignated cl. (ii) as (iii) relating to equipment used to
produce, distribute, or use energy derived from a geothermal
deposit.
Pub. L. 109-58, Sec. 1336(a), added cl. (iii) relating to
qualified fuel cell property or qualified microturbine property.
Subsec. (a)(3)(A)(iv). Pub. L. 109-135, Sec. 412(n)(1),
redesignated cl. (iii), relating to qualified fuel cell property or
qualified microturbine property, as (iv).
Subsec. (c). Pub. L. 109-58, Sec. 1336(b), added subsec. (c).
2004 - Pub. L. 108-357, Sec. 322(d)(2)(B), struck out ";
reforestation credit" after "Energy credit" in section catchline.
Subsec. (a)(3). Pub. L. 108-357, Sec. 710(e), inserted at end of
concluding provisions "Such term shall not include any property
which is part of a facility the production from which is allowed as
a credit under section 45 for the taxable year or any prior taxable
year."
Subsec. (a)(5). Pub. L. 108-357, Sec. 322(d)(2)(A)(iii),
redesignated subsec. (a)(5) as (b).
Pub. L. 108-357, Sec. 322(d)(2)(A)(ii), substituted "subsection
(a)" for "this subsection".
Subsec. (b). Pub. L. 108-357, Sec. 322(d)(2)(A)(iii),
redesignated subsec. (a)(5) as (b).
Pub. L. 108-357, Sec. 322(d)(2)(A)(i), struck out heading and
text of subsec. (b). Text read as follows:
"(1) In general. - For purposes of section 46, the reforestation
credit for any taxable year is 10 percent of the portion of the
amortizable basis of any qualified timber property which was
acquired during such taxable year and which is taken into account
under section 194 (after the application of section 194(b)(1)).
"(2) Definitions. - For purposes of this subpart, the terms
'amortizable basis' and 'qualified timber property' have the
respective meanings given to such terms by section 194."
1992 - Subsec. (a)(2). Pub. L. 102-486 substituted "The" for
"Except as provided in subparagraph (B), the" in subpar. (A),
redesignated subpar. (C) as (B), and struck out former subpar. (B)
which read as follows: "(B) Termination. - Effective with respect
to periods after June 30, 1992, the energy percentage is zero. For
purposes of the preceding sentence, rules similar to the rules of
section 48(m) (as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990) shall apply."
1991 - Subsec. (a)(2)(B). Pub. L. 102-227 substituted "June 30,
1992" for "December 31, 1991".
1990 - Pub. L. 101-508, Sec. 11813(a), amended section generally,
substituting section catchline for one which read: "Definitions;
special rules" and in text substituting present provisions for
provisions defining section 38 property, new section 38 property,
used section 38 property, provisions relating to certain leased
property, estates and trusts, special rules for qualified
rehabilitated buildings, credit for movie and television films,
treatment of energy property, application of certain transitional
rules, definitions of certain credits, definition of single purpose
agricultural or horticultural structure, basis adjustment to
section 38 property, certain section 501(d) organizations, special
rules relating to sound recordings, and a cross reference to
section 381 of this title.
Subsec. (a)(8). Pub. L. 101-508, Sec. 11801(c)(6)(A), struck out
par. (8) "Amortized property" which read as follows: "Any property
with respect to which an election under section 167(k), 184, or 188
applies shall not be treated as section 38 property."
1988 - Subsec. (a)(1). Pub. L. 100-647, Sec. 1002(a)(29), which
directed amendment of par. (1) by substituting "property to which
section 168 applies" for "recovery property (within the meaning of
section 168)" in penultimate sentence, was executed by making the
substitution for "recovery property (within the meaning of section
168", which results in retaining remaining parenthetical material
and closing parenthesis.
Subsec. (a)(5)(A)(ii). Pub. L. 100-647, Sec. 1002(a)(14)(A)-(C),
substituted "168(h)(2)(C)" for "168(j)(4)(C)", "168(h)(2)(A)(iii)"
for "168(j)(4)(A)(iii)", and "168(h)(2)(B)" for "168(j)(4)(B)".
Subsec. (a)(5)(B)(i). Pub. L. 100-647, Sec. 1002(a)(14)(D),
substituted "168(i)(3)" for "168(j)(6)".
Subsec. (a)(5)(B)(ii). Pub. L. 100-647, Sec. 1002(a)(14)(E),
substituted "168(h)(1)(C)(ii)" for "168(j)(3)(C)(ii)".
Subsec. (a)(5)(D). Pub. L. 100-647, Sec. 1002(a)(14)(F),
substituted "paragraphs (5) and (6) of section 168(h)" for
"paragraphs (8) and (9) of section 168(j)".
Subsec. (a)(5)(E). Pub. L. 100-647, Sec. 1002(a)(14)(G), amended
subpar. (E) generally, substituting "provision" for "provisions"
and "168(h)" for "168(j)".
Subsec. (l)(2)(C). Pub. L. 100-647, Sec. 1002(a)(30), substituted
"to which section 168 applies" for "which is recovery property
(within the meaning of section 168)".
Subsec. (l)(11)(A)(ii). Pub. L. 100-647, Sec. 1013(a)(41),
substituted "a private activity bond (within the meaning of section
141)" for "an industrial development bond (within the meaning of
section 103(b)(2))".
Subsec. (s). Pub. L. 100-647, Sec. 1002(a)(20), redesignated
subsec. (s), relating to cross reference, as (t).
Subsec. (s)(9). Pub. L. 100-647, Sec. 1002(a)(16)(A), added par.
(9).
Subsec. (t). Pub. L. 100-647, Sec. 1002(a)(20), redesignated
subsec. (s), relating to cross reference, as (t).
1986 - Subsec. (a)(2)(B)(vii). Pub. L. 99-514, Secs. 1272(d)(5),
1275(c)(5), struck out "932," after "931," and "or which is
entitled to the benefits of section 934(b)" after "in effect under
section 936", and substituted "or 933" for ", 933, or 934(c)".
Subsec. (a)(4). Pub. L. 99-514, Sec. 1802(a)(9)(A), substituted
"514(b)" for "514(c)" and "514(a)" for "514(b)".
Subsec. (a)(5)(B)(iii). Pub. L. 99-514, Sec. 1802(a)(5)(B),
struck out cl. (iii) which provided that (I) in the case of any
aircraft used under a qualifying lease (as defined in section
47(a)(7)(C)) and which is leased to a foreign person or entity
before January 1, 1990, clause (i) shall be applied by substituting
"3 years" for "6 months" and that (II) for purposes of applying
section 47(a)(1) and (5)(B) there shall not be taken into account
any period of a lease to which subclause (I) applies.
Subsec. (a)(5)(D), (E). Pub. L. 99-514, Sec. 1802(a)(4)(C), added
subpar. (D) and redesignated former subpar. (D) as (E).
Subsec. (b)(1). Pub. L. 99-514, Sec. 1809(e)(1), inserted "Such
term includes any section 38 property the reconstruction of which
is completed by the taxpayer, but only with respect to that portion
of the basis which is properly attributable to such
reconstruction."
Subsec. (b)(2). Pub. L. 99-514, Sec. 1809(e)(2), in introductory
provisions substituted "the first sentence of paragraph (1)" for
"paragraph (1)", in subpar. (B) substituted "3 months after" for "3
months of", in closing provisions substituted "used under the
leaseback (or lease) referred to in subparagraph (B)" for "used
under the lease" and inserted "The preceding sentence shall not
apply to any property if the lessee and lessor of such property
make an election under this sentence. Such an election, once made,
may be revoked only with the consent of the Secretary."
Subsec. (d)(4)(D). Pub. L. 99-514, Sec. 701(e)(4)(C), inserted
"(as in effect on the day before the date of the enactment of the
Tax Reform Act of 1986)".
Subsec. (d)(6)(C)(ii). Pub. L. 99-514, Sec. 1511(c)(3),
substituted "the underpayment rate" for "the rate" in closing
provisions.
Subsec. (g)(1). Pub. L. 99-514, Sec. 251(b), amended par. (1)
generally, restating in subpars. (A) to (D) provisions relating to
qualified rehabilitated buildings which had in subpar. (A) provided
general definition of qualified rehabilitated building, in subpar.
(B) directed that 30 years must have elapsed since construction, in
subpar. (C) provided general definition of substantially
rehabilitated with special rule for phased rehabilitation and
application of provision to lessees, and in subpar. (D) provided
that rehabilitation included reconstruction, and striking out
former subpar. (E) which had provided an alternative test for
definition of qualified rehabilitated building.
Subsec. (g)(2). Pub. L. 99-514, Sec. 251(b), amended par. (2)
generally, in subpar. (A) striking out reference to amounts
"incurred after December 31, 1981" in introductory provision, and
in cl. (i) substituting subcls. (I) to (IV) for "for real property
(or additions or improvements to real property) which have a
recovery period (within the meaning of section 168) of 19 (15 years
in the case of low-income housing) years,", in subpar. (B), in cl.
(i), substituting provision relating to use of straight line
depreciation for provision relating to use of accelerated methods
of depreciation, redesignating former cl. (vi) as (v) and
substituting "section 168(h)" for "section 168(j)", redesignating
former cl. (v) as (vi) and substituting "less than the recovery
period determined under section 168(c)" for "less than 19 years (15
years in the case of low-income housing", restating subpar. (C)
without change, and in subpar. (D) substituting provisions defining
nonresidential real property, residential rental property and class
life for provisions defining low-income housing.
Subsec. (g)(2)(B)(vi)(I). Pub. L. 99-514, Sec. 1802(a)(9)(B),
substituted "section 168(j)" for "section 168(j)(3)".
Subsec. (g)(3). Pub. L. 99-514, Sec. 251(b), in amending par. (3)
generally, inserted introductory phrase "For purposes of this
subsection - ".
Subsec. (g)(4). Pub. L. 99-514, Sec. 251(b), in amending subsec.
(g) generally, reenacted par. (4) without change.
Subsec. (l)(5). Pub. L. 99-514, Sec. 1847(b)(6), substituted
"section 23(c)" for "section 44C(c)" and "section
23(c)(4)(A)(viii)" for "section 44C(c)(4)(A)(viii)".
Subsec. (q)(3). Pub. L. 99-514, Sec. 251(c), struck out "other
than a certified historic structure" after "qualified rehabilitated
building".
Subsec. (q)(7). Pub. L. 99-514, Sec. 1809(d)(2), renumbered par.
(6), relating to special rule for qualified films, as (7).
Subsec. (r). Pub. L. 99-514, Sec. 1879(j)(1), added subsec. (r).
Former subsec. (r) redesignated (s).
Subsec. (s). Pub. L. 99-514, Sec. 1879(j)(1), redesignated former
subsec. (r) as (s).
Subsec. (s)(5). Pub. L. 99-514, Sec. 803(b)(2)(B), which directed
the general amendment of par. (5) of subsec. (r), was executed by
amending par. (5) of subsec. (s) to reflect the probable intent of
Congress and the intervening redesignation of subsec. (r) as (s) by
Pub. L. 99-514, Sec. 1879(j)(1), see note above. Prior to
amendment, par. (5) read as follows: "For purposes of this
subsection, the term "sound recording" means any sound recording
described in section 280(c)(2)."
1985 - Subsec. (g)(2)(A)(i), (B)(v). Pub. L. 99-121 substituted
"19" for "18".
1984 - Subsec. (a)(5). Pub. L. 98-369, Sec. 31(b), amended par.
(5) generally, to extend its scope to encompass property used by
foreign persons or entities and to create an exception for short-
term leases by substituting provisions covered by subpars. (A) to
(D) for former provisions which had directed that property used by
the United States, any State or political subdivision thereof, any
international organization, or any agency or instrumentality of any
of the foregoing not be treated as section 38 property, that for
purposes of that prohibition the International Telecommunications
Satellite Consortium, the International Maritime Satellite
Organization, and any successor organization of such Consortium or
Organization not be treated as an international organization, and
that if any qualified rehabilitated building were used by the
governmental unit pursuant to a lease, this paragraph would not
apply to that portion of the basis of such building attributable to
qualified rehabilitation expenditures.
Subsec. (b). Pub. L. 98-369, Sec. 114(a), amended subsec. (b)
generally, substituting a general definition of "new section 38
property" for definitions which made reference to property
constructed, reconstructed or erected after December 31, 1961, and
adding pars. (2) and (3).
Subsec. (c)(2)(A). Pub. L. 98-369, Sec. 11(a), substituted
"$125,000 ($150,000 for taxable years beginning after 1987)" for
"$150,000 ($125,000 for taxable years beginning in 1981, 1982,
1983, or 1984)" in first sentence, and "$125,000 (or $150,000" for
"$150,000 (or $125,000" in two places in second sentence.
Subsec. (c)(2)(B). Pub. L. 98-369, Sec. 11(b), substituted
"$62,500 ($75,000 for taxable years beginning after 1987)" for
"$75,000 ($62,500 for taxable years beginning in 1981, 1982, 1983,
or 1984)".
Subsec. (c)(3)(B). Pub. L. 98-369, Sec. 474(o)(10), substituted
"section 39" for "section 46(b)".
Subsec. (d)(1)(B). Pub. L. 98-369, Sec. 474(o)(11), substituted
"section 38(c)(3)(B)" for "section 46(a)(6)".
Subsec. (d)(6). Pub. L. 98-369, Sec. 431(c), added par. (6).
Subsec. (f)(3). Pub. L. 98-369, Sec. 474(o)(12), struck out par.
(3) which provided that the $25,000 amount specified under
subparagraphs (A) and (B) of section 46(a)(3) applicable to an
estate or trust be reduced to an amount which bore the same ratio
to $25,000 as the amount of the qualified investment allocated to
the estate or trust under paragraph (1) to the entire amount of the
qualified investment.
Subsec. (g)(1)(E). Pub. L. 98-369, Sec. 1043(a), added subpar.
(E).
Subsec. (g)(2)(A)(i). Pub. L. 98-369, Sec. 111(e)(8)(A), (B),
substituted "real property" for "property" in two places, and "18
(15 years in the case of low-income housing)" for "15".
Subsec. (g)(2)(B)(i). Pub. L. 98-369, Sec. 31(c)(2), inserted
"The preceding sentence shall not apply to any expenditure to the
extent subsection (f)(12) or (j) of section 168 applies to such
expenditure."
Subsec. (g)(2)(B)(v). Pub. L. 98-369, Sec. 111(e)(8)(C),
substituted "18 years (15 years in the case of low-income housing)"
for "15 years".
Subsec. (g)(2)(B)(vi). Pub. L. 98-369, Sec. 31(c)(1), added cl.
(vi).
Subsec. (g)(2)(D). Pub. L. 98-369, Sec. 111(e)(8)(D), added
subpar. (D).
Subsec. (k)(4). Pub. L. 98-369, Sec. 113(b)(3)(B), inserted "or
at-risk rules" after "test" in heading.
Subsec. (k)(4)(A). Pub. L. 98-369, Sec. 113(b)(3)(A), inserted ",
section 46(c)(8), or section 46(c)(9)".
Subsec. (k)(4)(B). Pub. L. 98-369, Sec. 113(b)(3)(C), substituted
"used" for "issued".
Subsec. (k)(5)(D)(i). Pub. L. 98-369, Sec. 721(x)(1), substituted
"S corporation" for "electing small business corporation".
Subsec. (l)(1). Pub. L. 98-369, Sec. 474(o)(13), substituted
"section 46(b)(2)" for "section 46(a)(2)(C)".
Subsec. (l)(16)(B)(i). Pub. L. 98-369, Sec. 735(c)(1),
substituted "the chassis of which is an automobile bus chassis and
the body of which is an automobile bus body" for "the chassis and
body of which is exempt under section 4063(a)(6) from the tax
imposed by section 4061(a)".
Subsec. (m). Pub. L. 98-369, Sec. 474(o)(14), substituted
"subsection (b)" for "subsection (a)(2)".
Subsec. (n). Pub. L. 98-369, Sec. 474(o)(15), repealed subsec.
(n). For continuing applicability of par. (4) of subsec. (n), see
section 474(o)(15) of Pub. L. 98-369, set out in Effective Date of
1984 Amendment note below.
Subsec. (o)(3) to (8). Pub. L. 98-369, Sec. 474(o)(16),
redesignated par. (8) as (3) and struck out former pars. (3) to (7)
which defined "employee plan credit", "basic employee plan credit",
"matching employee plan credit", "basic employee plan percentage",
and "matching employee plan percentage", respectively.
Subsec. (q)(1), (3). Pub. L. 98-369, Sec. 474(o)(17)(A),
substituted "section 46(a)" for "section 46(a)(2)".
Subsec. (q)(4)(A)(i). Pub. L. 98-369, Sec. 474(o)(17),
substituted "section 46(a)" for "section 46(a)(2)" and "section
46(b)(1)" for "section 46(a)(2)(B)".
Subsec. (q)(4)(B)(ii). Pub. L. 98-369, Sec. 474(o)(17)(B),
substituted "section 46(b)(1)" for "section 46(a)(2)(B)".
Subsec. (q)(6). Pub. L. 98-369, Sec. 712(b), added par. (6)
relating to adjustment in basis of interest in partnership or S
corporation.
Pub. L. 98-369, Sec. 113(b)(4), added par. (6) relating to
special rule for qualified films.
Subsec. (r). Pub. L. 98-369, Sec. 113(a)(1), added subsec. (r).
Former subsec. (r) redesignated (s).
Pub. L. 98-369, Sec. 474(o)(18), substituted "section 381(c)(26)"
for "section 381(c)(23)".
Subsec. (s). Pub. L. 98-369, Sec. 113(a)(1), redesignated former
subsec. (r) as (s).
1983 - Subsec. (a)(1)(G). Pub. L. 97-448, Sec. 102(e)(2)(A),
inserted "(not including a building and its structural components)
used in connection" after "storage facility".
Subsec. (a)(10). Pub. L. 97-448, Sec. 202(c), amended directory
language of Pub. L. 96-223, Sec. 223(a)(1), to correct an error,
and did not involve any change in text. See 1980 Amendment note
below.
Subsec. (g)(1)(C)(i). Pub. L. 97-448, Sec. 102(f)(2), (6),
substituted "the 24-month period selected by the taxpayer (at the
time and in the manner prescribed by regulation) and ending with or
within the taxable year" for "the 24-month period ending on the
last day of the taxable year" in provisions preceding subcl. (I),
substituted "adjusted basis of such building (and its structural
components)" for "adjusted basis of such property" both in subcl.
(I) and in provision following subcl. (II), and, in provisions
following subcl. (II), substituted "holding period of the building"
for "holding period of the property" and inserted provision that,
for purposes of the preceding sentence, the determination of the
beginning of the holding period shall be made without regard to any
reconstruction by the taxpayer in connection with the
rehabilitation.
Subsec. (g)(5)(A). Pub. L. 97-448, Sec. 102(f)(3), substituted "a
credit is determined under section 46(a)(2)" for "a credit is
allowed under this section" and "the credit so determined" for "the
credit so allowed". See 1982 Amendment note for subsec. (g)(5)
below and see Effective Date of 1982 and 1983 Amendment notes set
out under sections 1 and 196 of this title.
Subsec. (l)(5). Pub. L. 97-424, Sec. 546(a)(3), substituted
reference to subpar. (N) for reference to subpar. (M) in provision
following subparagraphs.
Subsec. (l)(5)(M), (N). Pub. L. 97-424, Sec. 546(a)(1), (2),
added subpar. (M) and redesignated former subpar. (M) as (N).
Subsec. (q)(3). Pub. L. 97-448, Sec. 306(a)(3), substituted
"paragraphs (1) and (2) of this subsection and paragraph (5) of
subsection (d)" for "paragraphs (1) and (2)".
1982 - Subsec. (b). Pub. L. 97-248, Sec. 209(c), inserted
provision that for purposes of determining whether section 38
property subject to a lease is new section 38 property, such
property shall be treated as originally placed in service not
earlier than the date such property is used under the lease, but
only if such property is leased within 3 months after such property
is placed in service.
Subsec. (c)(2)(D). Pub. L. 97-354 substituted "Partnerships and S
corporations" for "Partnerships" in subpar. heading, and inserted
"A similar rule shall apply in the case of an S corporation and its
shareholders".
Subsec. (d)(5). Pub. L. 97-248, Sec. 205(a)(4), added par. (5).
Subsec. (e). Pub. L. 97-354, Sec. 5(a)(7), struck out subsec. (e)
relating to apportionment among shareholders of qualified
investments by an electing small business corporation.
Subsec. (g)(5). Pub. L. 97-248, Sec. 205(a)(5)(A), struck out
par. (5) which, as amended by Sec. 102(f)(3) of Pub. L. 97-448, had
provided that for purposes of this subtitle, if a credit were
determined under section 46(a)(2) for any qualified rehabilitation
expenditure in connection with a qualified rehabilitated building
other than a certified historic structure, the increase in basis of
such property which would (but for this paragraph) have resulted
from such expenditure had to be reduced by the amount of the credit
so determined, that if during any taxable year there was a
recapture amount determined with respect to any qualified
rehabilitated building the basis of which was reduced under subpar.
(A), the basis of such building (immediately before the event
resulting in such recapture), had to be increased by an amount
equal to such recapture amount, and that for purposes of this
paragraph "recapture amount" was defined as any increase in tax (or
adjustment in carrybacks or carryovers) determined under section
47(a)(5). See 1983 Amendment note for subsec. (g)(5) above and see
Effective Date of 1982 and 1983 Amendment notes set out under
sections 1 and 196 of this title.
Subsec. (k)(5)(D)(i). Pub. L. 97-354, Sec. 5(a)(8), substituted
"an S corporation" for "an electing small business corporation
(within the meaning of section 1371)".
Subsec. (l)(7). Pub. L. 97-362, Sec. 104(a), temporarily
substituted the qualification that such term does not include
equipment for hydrogenation, refining, or other process subsequent
to retorting other than hydrogenation or other process which is
applied in the vicinity of the property from which the shale was
extracted and which is applied to bring the shale oil to a grade
and quality suitable for transportation to and processing in a
refinery, for the qualification that such equipment did not include
equipment for hydrogenation, refining, or other processes
subsequent to retorting. See Effective and Termination Dates of
1982 Amendment note below.
Subsecs. (q), (r). Pub. L. 97-248, Sec. 205(a)(1), added subsec.
(q) and redesignated former subsec. (q) as (r).
1981 - Subsec. (a)(1). Pub. L. 97-34, Sec. 211(e)(4), in
provisions following subpar. (G), substituted "Such term includes
only recovery property (within the meaning of section 168 without
regard to any useful life) and any other property" for "Such term
includes only property".
Subsec. (a)(1)(G). Pub. L. 97-34, Sec. 211(c), added subpar. (G).
Subsec. (a)(2)(B)(ii). Pub. L. 97-34, Sec. 211(h), designated
existing provisions as subcl. (I) and added subcl. (II).
Subsec. (a)(3)(D). Pub. L. 97-34, Sec. 212(c), added subpar. (D).
Subsec. (a)(4). Pub. L. 97-34, Sec. 214(a), inserted provision
that, if any qualified rehabilitated building is used by the tax-
exempt organization pursuant to a lease, this paragraph shall not
apply to that portion of the basis of such building which is
attributable to qualified rehabilitation expenditures.
Subsec. (a)(5). Pub. L. 97-34, Sec. 214(b), inserted provision
that, if any qualified rehabilitated building is used by the
governmental unit pursuant to a lease, this paragraph shall not
apply to that portion of the basis of such building which is
attributable to qualified rehabilitation expenditures.
Subsec. (a)(8). Pub. L. 97-34, Sec. 212(d)(2)(A), substituted "or
188" for "188, or 191".
Subsec. (a)(9). Pub. L. 97-34, Sec. 211(a)(2), struck out par.
(9) which set out a special rule for the depreciation of railroad
track.
Subsec. (c)(2)(A) to (C). Pub. L. 97-34, Sec. 213(a), amended
subpars. (A) to (C) generally raising in subpar. (A) the existing
$100,000 dollar limitation to $125,000 in 1981 and to $150,000 in
1985 and in subpar. (B) the existing $50,000 dollar limitation to
$62,500 in 1981 and to $75,000 in 1985.
Subsec. (g). Pub. L. 97-34, Sec. 212(b), in amending subsec. (c)
generally incorporated the concept of "substantial rehabilitation"
into par. (1)(A), substituted "30 years" for "20 years" as the
requisite period in par. (1)(B), substituted a definition of
"substantially rehabilitated" for former provisions that a major
portion could be treated as a separate building in certain cases in
par. (1)(C), reenacted par. (1)(D) without change, substituted
"December 31, 1981" for "October 31, 1978" in provisions of par.
(2)(A) preceding cl. (i), substituted provisions for a recovery
period of 15 years for provisions that had provided for a useful
life of 5 years or more in cl. (i) of par. (2)(A), reenacted cl.
(ii) without change, substituted provisions that accelerated
methods of depreciation may not be used for provisions relating to
property otherwise section 38 property in cl. (i) of par. (2)(B),
reenacted cls. (ii) and (iii) without change, revised the
provisions of cl. (iv) relating to certified historic structures,
and added cl. (v) relating to expenditures of lessees, added par.
(3), redesignated former par. (3) as (4), and added par. (5).
Subsec. (l)(2)(C). Pub. L. 97-34, Sec. 211(e)(3), inserted "or
which is recovery property (within the meaning of section 168)"
after "3 years or more".
Subsec. (n)(1)(A)(i). Pub. L. 97-34, Sec. 332(b), substituted
"which does not exceed" for "equal to".
Subsec. (o)(8). Pub. L. 97-34, Sec. 212(a)(3), added par. (8).
1980 - Subsec. (a)(1). Pub. L. 96-451 added subpar. (F) and
provision for treatment of the useful life of subpar. (F) property
as its normal growing period.
Subsec. (a)(2)(B)(xi). Pub. L. 96-223, Sec. 222(i)(2), added cl.
(xi).
Subsec. (a)(5). Pub. L. 96-605, Sec. 109(a), included the
International Maritime Satellite Organization or any successor
organization within organizations not to be treated as
international organizations.
Subsec. (a)(7)(B). Pub. L. 95-600, Sec. 312(c)(2), as amended by
Pub. L. 96-222, Sec. 103(a)(2)(A), substituted " 'described in
section 50 (as in effect before its repeal by the Revenue Act of
1978' " for " 'described in section 50' ".
Subsec. (a)(10)(A). Pub. L. 96-223, Sec. 223(a)(1), as amended by
Pub. L. 97-448, Sec. 202(c), provided that "petroleum or petroleum
products" does not include petroleum coke or petroleum pitch.
Subsec. (a)(10)(B). Pub. L. 96-222, Sec. 108(c)(6), substituted
"5" for "51".
Subsec. (g)(2)(B)(i). Pub. L. 96-222, Sec. 103(a)(4)(B),
substituted "subsections (a)(1)(E) and (l)" for "subsection
(a)(1)(E)".
Subsec. (l)(1). Pub. L. 96-223, Sec. 221(b)(1), substituted "For
any period for which the energy percentage determined under section
46(a)(2)(C) for any energy property is greater than zero" for "For
the period beginning on October 1, 1978, and ending on December 31,
1982" in provisions preceding subpar. (A) and, in subpars. (A) and
(B), substituted "such energy property" and "such property" for
"any energy property".
Subsec. (l)(2)(A). Pub. L. 96-223, Sec. 222(a), added cls. (vii),
(viii), and (ix).
Subsec. (l)(3)(A). Pub. L. 96-223, Sec. 222(b), (g)(2), struck
out "(other than coke or coke gas)" after "solid fuel" in cl. (iii)
and, in cl. (v), substituted provisions relating to equipment which
converts coal into a substitute for a petroleum or natural gas
derived feedstock for the manufacture of chemicals or other
products and equipment which converts coal into methanol, ammonia,
or hydroprocessed coal liquid or solid for provisions which had
related simply to equipment which used coal as feedstock for the
manufacture of chemicals or other products other than coke or coke
gas, added cl. (ix), and, following cl. (ix), inserted provision
that the equipment described in cl. (vii) includes equipment used
for the storage of fuel derived from garbage at the site at which
such fuel was produced from garbage.
Subsec. (l)(3)(B). Pub. L. 96-223, Sec. 222(i)(1)(A),
redesignated subpar. (C) as (B). Former subpar. (B), which excluded
public utility property from the terms "alternative energy
property", "solar or wind energy property", or "recycling
equipment", was struck out.
Subsec. (l)(3)(C), (D). Pub. L. 96-223, Sec. 222(i)(1)(A), (3),
redesignated subpar. (D) as (C) and inserted following cl. (ii)
provision that, for the purposes of the preceding sentence, in the
case of property which is alternative energy property solely by
reason of the amendments made by section 222(b) of the Crude Oil
Windfall Profit Tax Act of 1980, "January 1, 1980" was to be
substituted for "October 1, 1978". Former subpar. (C) redesignated
(B).
Subsec. (l)(4)(C). Pub. L. 96-223, Sec. 222(c), added subpar.
(C).
Subsec. (l)(5). Pub. L. 96-223, Sec. 222(d), added subpar. (L),
redesignated former subpar. (L) as (M), and inserted provision that
the Secretary shall not specify any property under subpar. (M)
unless he determines that such specification meets the requirements
of par. (9) of section 44C(c) for specification of items under
section 44C(c)(4)(A)(viii).
Subsec. (l)(11). Pub. L. 96-223, Sec. 221(b)(2), substituted "one-
half of the energy percentage determined under section
46(a)(2)(C)" for "5 percent".
Pub. L. 96-223, Sec. 223(c)(1), completely revised par. (11) to
incorporate property financed by subsidized energy financing,
effective with regard to periods after Dec. 31, 1982. Prior to the
revision par. (11) read as follows: "In the case of property which
is financed in whole or in part by the proceeds of an industrial
development bond (within the meaning of section 103(b)(2)) the
interest on which is exempt from tax under section 103, the energy
percentage shall be one-half of the energy percentage determined
under section 46(a)(2)(C)."
Subsec. (l)(13). Pub. L. 96-223, Sec. 222(e)(1), added par. (13).
Subsec. (l)(14). Pub. L. 96-223, Sec. 222(f), added par. (14).
Subsec. (l)(15). Pub. L. 96-223, Sec. 222(g)(1), added par. (15).
Subsec. (l)(16). Pub. L. 96-223, Sec. 222(h), added par. (16).
Subsec. (l)(17). Pub. L. 96-223, Sec. 222(i)(1)(B), added par.
(17).
Subsec. (n). Pub. L. 96-222, Sec. 101(a)(7)(G), (H), (L)(i)(I)-
(IV), (ii)(III)-(VI), (iii)(II), (v)(II)-(IV), (M)(ii), amended
subsec. (n) generally to reflect the renaming of an investment tax
credit ESOP to a tax credit employee stock ownership plan and a
leveraged employee stock ownership plan (commonly referred to as an
ESOP) to an employee stock ownership plan.
Subsec. (n)(6)(B)(i). Pub. L. 96-605, Sec. 223(a), substituted
"the date on which the securities are contributed to the plan" for
"the due date for filing the return for the taxable year
(determined with regard to extensions)".
Subsec. (o). Pub. L. 96-222, Sec. 101(a)(7)(L)(iii)(III),
(v)(IV), (V), (M)(iii), substituted "employee plan" for "ESOP"
wherever appearing and inserted "percentage" after "attributable to
the matching employee plan" in par. (5).
1978 - Subsec. (a)(1)(A). Pub. L. 95-618, Sec. 301(d)(1),
inserted "(other than an air conditioning or heating unit)" after
"personal property".
Subsec. (a)(1)(D). Pub. L. 95-600, Sec. 314(a), added par. (D).
Subsec. (a)(1)(E). Pub. L. 95-600, Sec. 315(a), added par. (E).
Subsec. (a)(2)(B)(ii). Pub. L. 95-473, Sec. 2(a)(2)(A),
substituted "providing transportation subject to subchapter I of
chapter 105 of title 49" for "subject to part I of the Interstate
Commerce Act".
Subsec. (a)(7)(A). Pub. L. 95-600, Sec. 312(c)(3), struck out
"(other than pretermination property)" after "Property".
Subsec. (a)(7)(B). Pub. L. 95-600, Sec. 312(c)(2), struck out
"described in section 50" after "with respect to property". See
1980 Amendment note above.
Subsec. (a)(8). Pub. L. 95-600, Sec. 315(c), substituted "188, or
191" for "or 188".
Subsec. (a)(10). Pub. L. 95-618, Sec. 301(d)(2), added par. (10).
Subsec. (d)(1)(B). Pub. L. 95-600, Sec. 703(a)(3), substituted
"section 46(a)(6)" for "section 46(a)(5)".
Subsec. (d)(4)(D). Pub. L. 95-600, Sec. 703(a)(4), substituted
"section 57(c)(1)(B)" for "section 57(c)(2)".
Subsec. (g). Pub. L. 95-600, Sec. 315(b), added subsec. (g).
Subsec. (h). Pub. L. 95-600, Sec. 312(c)(1), struck out subsec.
(h) which related to suspension of investment credit.
Subsec. (i). Pub. L. 95-600, Sec. 312(c)(1), struck out subsec.
(i) which related to an exemption from suspension of $20,000 of
investment.
Subsec. (j). Pub. L. 95-600, Sec. 312(c)(1), struck out subsec.
(j) which defined "suspension period".
Subsecs. (l), (m). Pub. L. 95-618, Sec. 301(b), added subsecs.
(l) and (m) and redesignated former subsec. (l) as (n).
Subsec. (n). Pub. L. 95-618, Sec. 301(b), redesignated former
subsec. (l) as (n).
Pub. L. 95-600, Sec. 141(b), added subsec. (n). Former subsec.
(n) redesignated (p).
Subsec. (o). Pub. L. 95-600, Sec. 141(b), added subsec. (o).
Subsecs. (p), (q). Pub. L. 95-600, Secs. 141(b), 314(b), added
subsec. (p). Former subsec. (n) redesignated (p) and subsequently
as (q).
1976 - Subsec. (a)(2)(B)(vi). Pub. L. 94-455, Sec. 1901(a)(5)(A),
substituted "(43 U.S.C. 1331))" for "; 43 U.S.C., sec. 1331)".
Subsec. (a)(2)(B)(vii). Pub. L. 94-455, Sec. 1051(h)(1),
substituted "(other than a corporation which has an election in
effect under section 936 or which is entitled to the benefits of
section 934(b))" for "(other than a corporation entitled to the
benefits of section 931 or 934(b))".
Subsec. (a)(2)(B)(viii). Pub. L. 94-455, Sec. 1901(a)(5)(B),
substituted "47 U.S.C. 702" for "47 U.S.C., sec. 702".
Subsec. (a)(8). Pub. L. 94-455, Secs. 1901(b)(11)(A), 2112(a)(1),
struck out "169," after "section 167(k),", "187," before "or 188
applies", and provisions relating to the limitation of the
applicability of this paragraph on property to which section 169
applies.
Subsecs. (c)(2)(A), (d)(1), (2)(A). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (f). Pub. L. 94-455, Sec. 802(b)(6), substituted "section
46(a)(3)" for "section 46(a)(2)".
Subsec. (i)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsecs. (k), (l). Pub. L. 94-455, Sec. 804(a), added subsec. (k)
and redesignated former subsec. (k) as subsec. (l).
1975 - Subsec. (a)(2)(B). Pub. L. 94-12, Sec. 604(a), substituted
"territorial waters within the northern portion of the Western
Hemisphere" for "territorial waters" in cl. (x) and inserted
definition of "northern portion of the Western Hemisphere"
following cl. (x).
Subsec. (c)(2)(A). Pub. L. 94-12 Sec. 301(c)(1)(A), substituted
"$100,000" for "$50,000".
Subsec. (c)(2)(B). Pub. L. 94-12, Sec. 301(c)(1)(A), (B),
substituted "$50,000" for "$25,000" and "$100,000" for "$50,000".
Subsec. (c)(2)(C). Pub. L. 94-12, Sec. 301(c)(1)(A), substituted
"$100,000" for "$50,000".
Subsec. (d)(1), (2)(A). Pub. L. 94-12, Sec. 302(c)(3),
substituted "section 46(e)(1)" for "section 46(d)(1)".
1971 - Subsec. (a)(1). Pub. L. 92-178, Sec. 102(a)(2),
substituted "3 years" for "4 years" in second sentence.
Subsec. (a)(1)(B)(ii), (iii). Pub. L. 92-178, Sec. 104(a)(1),
substituted "research facility" for "research or storage facility"
in cl. (ii) and added cl. (iii).
Subsec. (a)(2)(B). Pub. L. 92-178, Sec. 104(c)(2), (3), (d),
added cls. (viii) to (x), respectively.
Subsec. (a)(3)(C). Pub. L. 92-178, Sec. 104(b), added subpar.
(C).
Subsec. (a)(5). Pub. L. 92-178, Sec. 104(c)(1), inserted "(other
than the International Telecommunications Satellite Consortium or
any successor organization)" after "international organization".
Subsec. (a)(6). Pub. L. 92-178, Sec. 104(e), substituted
provisions for treatment of livestock (other than horses) acquired
by the taxpayer as section 38 property, with exception provision
for reduction of acquisition cost by amount equal to amount
realized on sale or other disposition under certain circumstances,
and for nontreatment of horses as section 38 property for former
provision that livestock shall not be treated as section 38
property.
Subsec. (a)(7) to (9). Pub. L. 92-178, Secs. 103, 104(f)(1), (g),
added pars. (7) to (9), respectively.
Subsec. (d). Pub. L. 92-178, Sec. 108(b) and (c), substituted
"section 46(d)(1)" for "section 46(d)"; and designated as par. (1)
the present first sentence, redesignated as subpars. (A) and (B)
provisions formerly designated cls. (1) and (2), again substituted
"section 46(d)(1)" for "section 46(d)" in par. (1) and inserted
"(other than property described in paragraph (4))" in par. (1),
added pars. (2) and (4), incorporated provisions of former second,
third, and fourth sentences in provisions designated as par. (3),
substituted in par. (3) "the lessee shall be treated for all
purposes of this subpart as having acquired a fractional portion of
such property equal to the fraction determined under paragraph
(2)(B) with respect to such property" for "the lessee shall be
treated for all purposes of this subpart as having acquired such
property", and struck out former fifth and sixth sentences
respecting election regarding treatment of leases of suspension
period property and section 38 property. See Effective Date of 1971
Amendment note below.
1969 - Subsec. (a)(4). Pub. L. 91-172, Sec. 121(d)(2)(A),
inserted provision relating to the percentage of the basis or cost
of debt-financed property that may be considered in computing
qualified investment under section 46(c) of this title.
Subsec. (c)(2)(C). Pub. L. 91-172, Sec. 401(e)(2), reenacted
subpar. (C) with minor changes and substituted reference to
controlled group for reference to affiliated group.
Subsec. (c)(3)(C). Pub. L. 91-172, Sec. 401(e)(3), substituted
definition of controlled group for definition of affiliated group.
Subsec. (d)(2). Pub. L. 91-172, Sec. 401(e)(4), substituted
reference to a component member of a controlled group for reference
to a member of an affiliated group.
1967 - Subsec. (a)(2)(B)(i). Pub. L. 90-26, Sec. 3, inserted "or
is operated under contract with the United States" after "the
United States".
Subsec. (h)(2). Pub. L. 90-26, Sec. 2(a), limited definition of
suspension period property to section 38 property where the
physical construction, reconstruction or erection was begun before
May 24, 1967, pursuant to an order placed during the suspension
period, subject to the proviso that in applying the definition to
property the physical construction, reconstruction or erection of
which was begun before May 24, 1967, only that portion of the basis
properly attributable to construction, reconstruction or erection
before May 24, 1967 be taken into account.
Subsec. (j). Pub. L. 90-26, Sec. 1, substituted "March 9, 1967"
for "December 31, 1967".
1966 - Subsec. (a)(2)(B). Pub. L. 89-809 added cl. (vii).
Subsec. (d). Pub. L. 89-800, Sec. 1(b), inserted provisions
covering the treatment of suspension period property, and the
elections to be deemed made in connection therewith.
Subsecs. (h) to (k). Pub. L. 89-800, Sec. 1(a), added subsecs.
(h) to (j) and redesignated former subsec. (h) as (k).
1964 - Subsec. (a)(1)(C). Pub. L. 88-272, Sec. 203(c)(2), added
subpar. (C).
Subsec. (d). Pub. L. 88-272, Sec. 203(a)(3)(A), (b), substituted
"except as provided in paragraph (2)" for "if such property was
constructed by the lessor (or by a corporation which controls or is
controlled by the lessor within the meaning of section 368(c))" in
par. (1), "if such property is leased by a corporation which is a
member of an affiliated group (within the meaning of section
46(a)(5) to another corporation which is a member of the same
affiliated group" for "if paragraph (1) does not apply" in par.
(2), and deleted provisions which stated that if a lessor made an
election under this subsection, subsec. (g) would not apply with
respect to such property, and deductions otherwise allowable under
section 162 to the lessee for amounts paid the lessor would be
adjusted consistent with subsec. (g).
Subsec. (g). Pub. L. 88-272, Sec. 203(a)(1), repealed subsec. (g)
which required that the basis of section 38 property be reduced by
7 percent of the qualified investment.
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-58, title XIII, Sec. 1336(e), Aug. 8, 2005, 119 Stat.
1038, provided that: "The amendments made by this section [amending
this section] shall apply to periods after December 31, 2005, in
taxable years ending after such date, under rules similar to the
rules of section 48(m) of the Internal Revenue Code of 1986 (as in
effect on the day before the date of the enactment of the Revenue
Reconciliation Act of 1990 [Nov. 5, 1990])."
Pub. L. 109-58, title XIII, Sec. 1337(d), Aug. 8, 2005, 119 Stat.
1038, provided that: "The amendments made by this section [amending
this section] shall apply to periods after December 31, 2005, in
taxable years ending after such date, under rules similar to the
rules of section 48(m) of the Internal Revenue Code of 1986 (as in
effect on the day before the date of the enactment of the Revenue
Reconciliation Act of 1990 [Nov. 5, 1990])."
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 322(d)(2)(A), (B) of Pub. L. 108-357
applicable with respect to expenditures paid or incurred after Oct.
22, 2004, see section 322(e) of Pub. L. 108-357, set out as a note
under section 46 of this title.
Amendment by section 710(e) of Pub. L. 108-357 applicable, except
as otherwise provided, to electricity produced and sold after Oct.
22, 2004, in taxable years ending after such date, see section
710(g) of Pub. L. 108-357, as amended, set out as a note under
section 45 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1916(b) of Pub. L. 102-486 provided that: "The amendments
made by this section [amending this section] shall take effect on
June 30, 1992."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(a) of Pub. L. 101-508 applicable to
property placed in service after Dec. 31, 1990, but not applicable
to any transition property (as defined in section 49(e) of this
title), any property with respect to which qualified progress
expenditures were previously taken into account under section 46(d)
of this title, and any property described in section 46(b)(2)(C) of
this title, as such sections were in effect on Nov. 4, 1990, see
section 11813(c) of Pub. L. 101-508, set out as a note under
section 45K of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the amendment
by section 803(b)(2)(B) of Pub. L. 99-514 is applicable to such
interest costs only to the extent such interest costs are
attributable to costs which were required to be capitalized under
section 263 of the Internal Revenue Code of 1954 and which would
have been taken into account in applying section 189 of the
Internal Revenue Code of 1954 (as in effect before its repeal by
section 803 of Pub. L. 99-514) or, if applicable, section 266 of
such Code, see section 7831(d)(2) of Pub. L. 101-239, set out as an
Effective Date note under section 263A of this title.
Amendment by section 251(b), (c) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, except as otherwise provided for certain
rehabilitations, see section 251(d) of Pub. L. 99-514, set out as a
note under section 46 of this title.
Amendment by section 701(e)(4)(C) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L. 99-
514, set out as an Effective Date note under section 55 of this
title.
Amendment by section 803(b)(2)(B) of Pub. L. 99-514 applicable to
costs incurred after Dec. 31, 1986, in taxable years ending after
such date, except as otherwise provided, see section 803(d) of Pub.
L. 99-514, set out as an Effective Date note under section 263A of
this title.
Amendment by sections 1272(d)(5) and 1275(c)(5) of Pub. L. 99-514
applicable to taxable years beginning after Dec. 31, 1986, with
certain exceptions and qualifications, see section 1277 of Pub. L.
99-514, set out as a note under section 931 of this title.
Amendment by section 1511(c)(3) of Pub. L. 99-514 applicable for
purposes of determining interest for periods after Dec. 31, 1986,
see section 1511(d) of Pub. L. 99-514, set out as a note under
section 47 of this title.
Section 1879(j)(2) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section] shall
apply to periods after December 31, 1978 (under rules similar to
the rules of section 48(m) of the Internal Revenue Code of 1954
[now 1986]), in taxable years ending after such date."
Section 1881 of title XVIII of Pub. L. 99-514 provided that:
"Except as otherwise provided in this subtitle, any amendment made
by this subtitle [subtitle A (Secs. 1801-1881) of title XVIII of
Pub. L. 99-514, see Tables for classification] shall take effect as
if included in the provision of the Tax Reform Act of 1984 [Pub. L.
98-369, div. A] to which such amendment relates."
EFFECTIVE DATE OF 1985 AMENDMENT
Amendment by Pub. L. 99-121 applicable with respect to property
placed in service by the taxpayer after May 8, 1985, with specified
exceptions, but amendment of subsec. (g)(2)(B)(v) not applicable to
leases entered into before May 22, 1985, if the lessee signed the
lease before May 17, 1985, see section 105(b)(1), (5) of Pub. L. 99-
121, set out as a note under section 168 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 18 of Pub. L. 98-369 provided that:
"(a) General Rule. - The amendments made by this part [part I
(Secs. 11-18) of subtitle A of title I of div. A of Pub. L. 98-369,
amending this section and sections 41, 46, 57, 128, 168, 179, 265,
415, 854, 857, and 911 of this title, enacting provisions set out
as a note under section 168 of this title, and amending provisions
set out as notes under sections 128 and 168 of this title] shall
apply to taxable years ending after December 31, 1983.
"(b) Special Rule for Section 14. - The amendment made by section
14 [amending section 41 of this title] shall not apply in the case
of a tax credit employee stock ownership plan if -
"(1) such plan was favorably approved on September 23, 1983, by
employees, and
"(2) not later than January 11, 1984, the employer of such
employees was 100 percent owned by such plan."
Amendment by section 31(b), (c)(1) of Pub. L. 98-369 effective,
except as otherwise provided in section 31(g) of Pub. L. 98-369, as
to property placed in service by the taxpayer after May 23, 1983,
in taxable years ending after such date and to property placed in
service by the taxpayer on or before May 23, 1983, if the lease to
the tax-exempt entity is entered into after May 23, 1983, and
amendment by section 31(c)(2) of Pub. L. 98-369, to the extent it
relates to section 168(f)(12) of this title, effective as if it had
been included in the amendments to section 168 of this title by
section 216(a) of Pub. L. 97-248, see section 31(g)(1), (12) of
Pub. L. 98-369, set out as a note under section 168 of this title.
Amendment by section 111(e)(8) of Pub. L. 98-369 applicable with
respect to property placed in service by the taxpayer after Mar.
15, 1984, subject to certain exceptions, see section 111(g) of Pub.
L. 98-369, set out as a note under section 168 of this title.
Amendment by section 113(b)(3) of Pub. L. 98-369 applicable as if
included in the amendments made by sections 201(a), 211(a)(1), and
211(f)(1) of Pub. L. 97-34, which enacted section 168 and amended
section 46 of this title, see section 113(c)(2)(B) of Pub. L. 98-
369, set out as a note under section 168 of this title.
Amendment by section 113(b)(4) of Pub. L. 98-369 applicable as if
included in the amendments made by section 205(a)(1) of Pub. L. 97-
248, see section 113(c)(2)(C) of Pub. L. 98-369, set out as a note
under section 168 of this title.
Section 113(c)(1) of Pub. L. 98-369 provided that: "The
amendments made by subsection (a) [amending this section and
section 168 of this title] shall apply to property placed in
service after March 15, 1984, in taxable years ending after such
date."
Section 114(b) of Pub. L. 98-369 provided that: "The amendment
made by this section [amending this section] shall apply to
property originally placed in service after April 11, 1984
(determined without regard to such amendment)."
Amendment by section 431(c) of Pub. L. 98-369 applicable to
property placed in service after July 18, 1984, in taxable years
ending after such date, but not applicable to property to which
sections 46(c)(8), (9) and 47(d) of this title, as enacted by
section 211(f) of Pub. L. 97-34, do not apply, with the taxpayer
having an option to elect retroactive application of amendment by
Pub. L. 98-369, see section 431(e) of Pub. L. 98-369, set out as a
note under section 46 of this title.
Amendment by section 474(o)(10)-(18) of Pub. L. 98-369 applicable
to taxable years beginning after Dec. 31, 1983, and to carrybacks
from such years, see section 475(a) of Pub. L. 98-369, set out as a
note under section 21 of this title.
Section 474(o)(15) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"Subsection (n) of section 48 (relating to requirements for
allowance of employee plan percentage) is hereby repealed; except
that paragraph (4) of section 48(n) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] (as in effect before its repeal by this
paragraph) shall continue to apply in the case of any recapture
under section 47(f) of such Code of a credit allowable for a
taxable year beginning before January 1, 1984."
Amendment by section 712(b) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
Amendment by section 721(x)(1) of Pub. L. 98-369 effective as if
included in the Subchapter S Revision Act of 1982, Pub. L. 97-354,
see section 721(y)(1) of Pub. L. 98-369, set out as a note under
section 1361 of this title.
Amendment by section 735(c)(1) of Pub. L. 98-369 effective,
except as otherwise provided, as if included in the provisions of
the Highway Revenue Act of 1982, title V of Pub. L. 97-424, to
which such amendment relates, see section 736 of Pub. L. 98-369,
set out as a note under section 4051 of this title.
Section 1043(b) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to
expenditures incurred after December 31, 1983, in taxable years
ending after such date."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by title I of Pub. L. 97-448 effective, except as
otherwise provided, as if it had been included in the provision of
the Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
Amendment by section 202(c) of Pub. L. 97-448 effective, except
as otherwise provided, as if it had been included in the provision
of the Crude Oil Windfall Profit Tax Act of 1980, Pub. L. 96-223 to
which such amendment relates, see section 203(a) of Pub. L. 97-448,
set out as a note under section 6652 of this title.
Amendment by section 306(a)(3) of Pub. L. 97-448 effective as if
included in the provisions of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 311(d) of Pub. L. 97-448, set out as a note
under section 31 of this title.
EFFECTIVE AND TERMINATION DATES OF 1982 AMENDMENTS
Section 104(b) of Pub. L. 97-362, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by this section [amending this section] shall apply
to periods beginning after December 31, 1980, and before January 1,
1983, under rules similar to the rules of section 48(m) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]."
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
Amendment by section 205(a)(1), (4), (5)(A) of Pub. L. 97-248,
applicable to periods after Dec. 31, 1982, under rules similar to
the rules of subsec. (m) of this section, with certain exceptions
and qualifications, see section 205(c)(1) of Pub. L. 97-248, set
out as an Effective Date note under section 196 of this title.
Amendment by section 209(c) of Pub. L. 97-248 applicable to
property placed in service after Dec. 31, 1983, but not to
qualified leased property described in section 168(f)(8)(D)(v) of
this title which is placed in service before Jan. 1, 1988, or is
placed in service after such date pursuant to a binding contract or
commitment entered into before April 1, 1983, and solely because of
conditions which, as determined by the Secretary of the Treasury or
his delegate, are not within the control of the lessor or lessee,
see sections 208(d)(5) and 209(d)(2) of Pub. L. 97-248, set out as
notes under section 168 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 213(b) of Pub. L. 97-34, as amended by Pub. L. 97-448,
title I, Sec. 102(g), Jan. 12, 1983, 96 Stat. 2372, provided that:
"The amendment made by this section [amending this section] shall
apply to taxable years beginning after December 31, 1980."
Section 214(c) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section] shall apply to uses
after July 29, 1980, in taxable years ending after such date."
Section 332(c)(2) of Pub. L. 97-34 provided that: "The amendment
made by subsection (b) [amending this section] shall apply to
qualified investments made after December 31, 1981."
Amendment by section 211(a)(2), (e)(3), (4) of Pub. L. 97-34
applicable to property placed in service after Dec. 31, 1980, see
section 211(i)(1) of Pub. L. 97-34, set out as a note under section
46 of this title.
Amendment by section 211(c) of Pub. L. 97-34 applicable to
periods after Dec. 31, 1980, under rules similar to the rules under
subsec. (m) of this section, see section 211(i)(3) of Pub. L. 97-
34, set out as a note under section 46 of this title.
Amendment by section 211(h) of Pub. L. 97-34 applicable to
taxable years beginning after Dec. 31, 1980, see section 211(i)(6)
of Pub. L. 97-34, set out as a note under section 46 of this title.
Amendment by section 212(a)(3), (b), (c), (d)(2)(A) of Pub. L. 97-
34 applicable to expenditures incurred after Dec. 31, 1981, in
taxable years ending after such date, see section 212(e) of Pub. L.
97-34, set out as a note under section 46 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 109(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1979."
Section 223(b) of Pub. L. 96-605 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to taxable years beginning after December 31, 1980."
Section 302(b) of Pub. L. 96-451 provided that: "The amendments
made by this section [amending this section] shall apply with
respect to additions to capital account made after December 31,
1979."
Section 222(j) of Pub. L. 96-223, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
46 of this title] shall apply to periods after December 31, 1979,
under rules similar to the rules of section 48(m) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954].
"(2) Alumina electrolytic cells. - The amendments made by
subsection (d)(1) [amending this section] shall apply to periods
after September 30, 1978, under rules similar to the rules of
section 48(m) of such Code."
Section 223(a)(2) of Pub. L. 96-223, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to periods after December 31, 1979, under rules similar to the
rules of section 48(m) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]."
Section 223(c)(2) of Pub. L. 96-223, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - Except as provided in subparagraph (B), the
amendment made by paragraph (1) [amending this section] shall apply
to periods after December 31, 1982, under rules similar to the
rules of section 48(m) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]."
"(B) Earlier application for certain property. - In the case of
property which is -
"(i) qualified hydroelectric generating property (described in
section 48(l)(2)(A)(vii) of such Code),
"(ii) cogeneration equipment (described in section
48(l)(2)(A)(viii) of such Code),
"(iii) qualified intercity buses (described in section
48(l)(2)(A)(ix) of such Code),
"(iv) ocean thermal property (described in section
48(l)(3)(A)(ix) of such Code), or
"(v) expanded energy credit property,
the amendment made by paragraph (1) shall apply to periods after
December 31, 1979, under rules similar to the rules of section
48(m) of the Internal Revenue Code of 1986.
"(C) Expanded energy credit property. - For purposes of
subparagraph (B), the term 'expanded energy credit property' means -
"(i) property to which section 48(l)(3)(A) of such Code applies
because of the amendments made by paragraphs (1) and (2) of
section 222(b) [amending this section],
"(ii) property described in section 48(l)(4)(C) of such Code
(relating to solar process heat),
"(iii) property described in section 48(l)(5)(L) of such Code
(relating to alumina electrolytic cells), and
"(iv) property described in the last sentence of section
48(l)(3)(A) of such Code (relating to storage equipment for
refuse-derived fuel).
"(D) Financing taken into account. - For the purpose of applying
the provisions of section 48(l)(11) of such Code in the case of
property financed in whole or in part by subsidized energy
financing (within the meaning of section 48(l)(11)(C) of such
Code), no financing made before January 1, 1980, shall be taken
into account. The preceding sentence shall not apply to financing
provided from the proceeds of any tax exempt industrial development
bond (within the meaning of section 103(b)(2) of such Code)."
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
Section 108(c)(7) of Pub. L. 96-222 provided that: "Any amendment
made by this subsection [amending sections 4071, 4221, 6416, and
6421 of this title] shall take effect as if included in the
provision of the Energy Tax Act of 1978 [See Short Title of 1978
Amendment note set out under section 1 of this title] to which such
amendment relates; except that the amendment made by paragraph (6)
[amending this section] shall take effect on the first day of the
first calendar month which begins more than 10 days after the date
of the enactment of this Act [Apr. 1, 1980]."
EFFECTIVE DATE OF 1978 AMENDMENTS
Section 301(d)(4) of Pub. L. 95-618 provided that:
"(A) In general. - The amendments made by this subsection
[amending this section and section 167 of this title] shall apply
to property which is placed in service after September 30, 1978.
"(B) Binding contracts. - The amendments made by this subsection
[amending this section and section 167 of this title] shall not
apply to property which is constructed, reconstructed, erected, or
acquired pursuant to a contract which, on October 1, 1978, and at
all times thereafter, was binding on the taxpayer."
Amendment by section 141(b) of Pub. L. 95-600 effective with
respect to qualified investment for taxable years beginning after
Dec. 31, 1978, see section 141(g)(1) of Pub. L. 95-600, set out as
an Effective Date note under section 409 of this title.
Amendment by section 312(c)(1), (2), (3) of Pub. L. 95-600
applicable to taxable years ending after Dec. 31, 1978, see section
312(d) of Pub. L. 95-600, set out as a note under section 46 of
this title.
Section 314(c) of Pub. L. 95-600 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to taxable years ending after August 15, 1971."
Section 315(d) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years ending after October 31, 1978; except that the amendment made
by subsection (c) shall only apply with respect to property placed
in service after such date."
Amendment by section 703(a)(3), (4) of Pub. L. 95-600 effective
on Oct. 4, 1976, see section 703(r) of Pub. L. 95-600, set out as a
note under section 46 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 802(b)(6) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, see section 802(c) of
Pub. L. 94-455, set out as a note under section 46 of this title.
Section 804(e) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by subsections (a) and
(b) [amending this section and section 47 of this title] shall
apply to taxable years beginning after December 31, 1974.
"(2) Election may also apply to property described in section
50(a). - At the election of the taxpayer, made within 1 year
after the date of the enactment of this Act [Oct. 4, 1976] in
such manner as the Secretary of the Treasury or his delegate may
by regulations prescribe, the amendments made by subsections (a)
and (b) shall also apply to property which is property described
in section 50(a) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] and which is placed in service in taxable years
beginning before January 1, 1975."
Amendment by section 1051(h)(1) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975 with certain
exceptions, see section 1051(i) of Pub. L. 94-455, set out as a
note under section 27 of this title.
Amendment by section 1901(a)(5), (b)(11)(A) of Pub. L. 94-455
applicable with respect to taxable years beginning after Dec. 31,
1976, see section 1901(d) of Pub. L. 94-455, set out as a note
under section 2 of this title.
Amendment by section 2112(a) of Pub. L. 94-455 applicable to
property acquired by the taxpayer after Dec. 31, 1976, and
property, the construction, reconstruction, or erection of which
was completed by the taxpayer after Dec. 31, 1976, (but only to the
extent of the basis thereof attributable to construction,
reconstruction, or erection after such date), in taxable years
beginning after such date, see section 2112(d)(1) of Pub. L. 94-
455, set out as a note under section 46 of this title.
EFFECTIVE AND TERMINATION DATES OF 1975 AMENDMENT
Section 301(c)(2) of Pub. L. 94-12, as amended by Pub. L. 94-455,
title VIII, Sec. 801, Oct. 4, 1976, 90 Stat. 1580; Pub. L. 95-600,
title III, Sec. 311(b), Nov. 6, 1978, 92 Stat. 2824, provided that:
"The amendments made by paragraph (1) [amending this section] shall
apply only to taxable years beginning after December 31, 1974."
Amendment by section 302(c)(3) of Pub. L. 94-12 applicable to
taxable years ending after Dec. 31, 1974, see section 305(a) of
Pub. L. 94-12, set out as an Effective Date of 1975 Amendment note
under section 46 of this title.
Section 604(b) of Pub. L. 94-12, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by subsection (a)
[amending this section] shall apply to property, the
construction, reconstruction, or erection of which was completed
after March 18, 1975, or the acquisition of which by the taxpayer
occurred after such date.
"(2) Binding contract. - The amendments made by subsection (a)
[amending this section] shall not apply to property constructed,
reconstructed, erected, or acquired pursuant to a contract which
was on April 1, 1974, and at all times thereafter, binding on the
taxpayer.
"(3) Certain lease-back transactions, etc. - Where a person who
is a party to a binding contract described in paragraph (2)
transfers rights in such contract (or in the property to which
such contract relates) to another person but a party to such
contract retains a right to use the property under a lease with
such other person, then to the extent of the transferred rights
such other person shall, for purposes of paragraph (2), succeed
to the position of the transferor with respect to such binding
contract and such property. The preceding sentence shall apply,
in any case in which the lessor does not make an election under
section 48(d) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954], only if a party to such contract retains a right to
use the property under a long-term lease."
EFFECTIVE DATE OF 1971 AMENDMENT
Section 104(h) of Pub. L. 92-178, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and sections
169 and 1245 of this title] (other than by subsections (c)(1),
(c)(2), and (g) [amending this section]) shall apply to property
described in section 50 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]. The amendments made by subsections (c)(1),
(c)(2), and (g) [amending this section] shall apply to taxable
years ending after December 31, 1961."
Amendment by section 108(b), (c) of Pub. L. 92-178, applicable to
leases entered into after Sept. 22, 1971, and after Nov. 8, 1971,
respectively, see section 108(d) of Pub. L. 92-178, set out as a
note under section 46 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 121(d)(2)(A) of Pub. L. 91-172 applicable to
taxable years beginning after Dec. 31, 1969, see section 121(g) of
Pub. L. 91-172, set out as a note under section 511 of this title.
Amendment by section 401(e)(2)-(4) of Pub. L. 91-172 applicable
with respect to taxable years ending on or after Dec. 31, 1970, see
section 401(h)(3) of Pub. L. 91-172, set out as a note under
section 1561 of this title.
EFFECTIVE DATE OF 1967 AMENDMENT
Section 4 of Pub. L. 90-26 provided that: "The amendments made by
the first three sections of this Act [amending this section and
section 167 of this title] shall apply to taxable years ending
after March 9, 1967."
EFFECTIVE DATE OF 1966 AMENDMENTS
Section 201(b) of Pub. L. 89-809, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by subsection (a) [amending this section] shall
apply to taxable years ending after December 31, 1965, but only
with respect to property placed in service after such date. In
applying section 46(b) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (relating to carryback and carryover of
unused credits), the amount of any investment credit carryback to
any taxable year ending on or before December 31, 1965, shall be
determined without regard to the amendments made by this section."
Amendment by Pub. L. 89-800 applicable to taxable years ending
after Oct. 9, 1966, see section 4 of Pub. L. 89-800, set out as a
note under section 46 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 203(a)(4) of Pub. L. 88-272 provided that: "Paragraphs
(1) [amending this section] and (3) [amending this section and
section 1016 of this title and repealing section 181 of this title]
of this subsection shall apply -
"(A) in the case of property placed in service after December
31, 1963, with respect to taxable years ending after such date,
and
"(B) in the case of property placed in service before January
1, 1964, with respect to taxable years beginning after December
31, 1963."
Section 203(f) of Pub. L. 88-272 provided that:
"(1) The amendments made by subsection (b) [amending this
section] shall apply with respect to property possession of which
is transferred to a lessee on or after the date of enactment of
this Act [Feb. 26, 1964].
"(2) The amendments made by subsection (c) [amending this
section] shall apply with respect to taxable years ending after
June 30, 1963.
"(3) The amendments made by subsection (d) [amending section 1245
of this title] shall apply with respect to dispositions after
December 31, 1963, in taxable years ending after such date."
EFFECTIVE DATE
Section applicable with respect to taxable years ending after
Dec. 31, 1961, see section 2(h) of Pub. L. 87-834, set out as a
note under section 46 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-TRANS-
TRANSFER OF FUNCTIONS
Functions, powers, and duties of Federal Aviation Agency and of
Administrator and other offices and officers thereof transferred by
Pub. L. 89-670, Oct. 15, 1966, 80 Stat. 931, to Secretary of
Transportation, with functions, powers, and duties of Secretary of
Transportation pertaining to aviation safety to be exercised by
Federal Aviation Administrator in Department of Transportation, see
section 106 of Title 49, Transportation.
-MISC2-
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(4)(C) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, with provision that for such purposes
any amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
SPECIAL RULE
Section 1879(j)(3) of Pub. L. 99-514 provided that: "If refund or
credit of any overpayment of tax resulting from the application of
this subsection [amending this section] is prevented at any time
before the close of the date which is 1 year after the date of the
enactment of this Act [Oct. 22, 1986] by operation of any law or
rule of law (including res judicata), refund or credit of such
overpayment (to the extent attributable to the application of the
amendments made by this subsection [amending this section]) may,
nevertheless, be made or allowed if claim therefor is filed before
the close of such 1-year period."
CLARIFICATION OF EFFECT OF 1984 AMENDMENT ON INVESTMENT TAX CREDIT
For provision that nothing in the amendments made by section
474(o) of Pub. L. 98-369, which amended this section, be construed
as reducing the investment tax credit in taxable years beginning
before Jan. 1, 1984, see section 475(c) of Pub. L. 98-369, set out
as a note under section 46 of this title.
ALTERNATIVE METHODS OF COMPUTING CREDIT FOR PAST PERIODS
Section 804(c) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) General rule for determining useful life, predominant
foreign use, etc. - In the case of a qualified film (within the
meaning of section 48(k)(1)(B) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954]) placed in service in a taxable year
beginning before January 1, 1975, with respect to which neither
an election under paragraph (2) of this subsection nor an
election under subsection (e)(2) applies -
"(A) the applicable percentage under section 46(c)(2) of such
Code shall be determined as if the useful life of the film
would have expired at the close of the first taxable year by
the close of which the aggregate amount allowable as a
deduction under section 167 of such Code would equal or exceed
90 percent of the basis of such property (adjusted for any
partial dispositions),
"(B) for purposes of section 46(c)(1) of such Code, the basis
of the property shall be determined by taking into account the
total production costs (within the meaning of section
48(k)(5)(B) of such Code),
"(C) for purposes of section 48(a)(2) of such Code, such film
shall be considered to be used predominantly outside the United
States in the first taxable year for which 50 percent or more
of the gross revenues received or accrued during the taxable
year from showing the film were received or accrued from
showing the film outside the United States, and
"(D) Section 47(a)(7) of such Code shall apply.
"(2) Election of 40-percent method. -
"(A) In general. - A taxpayer may elect to have this
paragraph apply to all qualified films placed in service during
taxable years beginning before January 1, 1975 (other than
films to which an election under subsection (e)(2) of this
section applies).
"(B) Effect of election. - If the taxpayer makes an election
under this paragraph, then section 48(k) of the Internal
Revenue Code of 1986 shall apply to all qualified films
described in subparagraph (A) with the following modifications:
"(i) subparagraph (B) of paragraph (4) shall not apply, but
in determining qualified investment under section 46(c)(1) of
such Code there shall be used (in lieu of the basis of such
property) an amount equal to 40 percent of the aggregate
production costs (within the meaning of paragraph (5)(B) of
such section 48(k)),
"(ii) paragraph (2) shall be applied by substituting '100
percent' for '66 2/3 percent', and
"(iii) paragraph (3) and paragraph (5) (other than
subparagraph (B)) shall not apply.
"(C) Rules relating to elections. - An election under this
paragraph shall be made not later than the day which is 6
months after the date of the enactment of this Act [Oct. 4,
1976] and shall be made in such manner as the Secretary of the
Treasury or his delegate shall by regulations prescribe. Such
an election may be revoked only with the consent of the
Secretary of the Treasury or his delegate.
"(D) The taxpayer must consent to join in certain
proceedings. - No election may be made under this paragraph or
subsection (e)(2) by any taxpayer unless he consents, under
regulations prescribed by the Secretary of the Treasury or his
delegate, to treat the determination of the investment credit
allowable on each film subject to an election as a separate
cause of action, and to join in any judicial proceeding for
determining the person entitled to, and the amount of, the
credit allowable under section 38 of the Internal Revenue Code
of 1986 with respect to any film covered by such election.
"(3) Election to have credit determined in accordance with
previous litigation. -
"(A) In general. - A taxpayer described in subparagraph (B)
may elect to have this paragraph apply to all films (whether or
not qualified) placed in service in taxable years beginning
before January 1, 1975, and with respect to which an election
under subsection (e)(2) is not made.
"(B) Who may elect. - A taxpayer may make an election under
this paragraph if he has filed an action in any court of
competent jurisdiction, before January 1, 1976, for a
determination of such taxpayer's rights to the allowance of a
credit against tax under section 38 of the Internal Revenue
Code of 1986 for any taxable year beginning before January 1,
1975, with respect to any film.
"(C) Effect of election. - If the taxpayer makes an election
under this paragraph -
"(i) paragraphs (1) and (2) of this subsection, and
subsection (d) shall not apply to any film placed in service
by the taxpayer, and
"(ii) subsection 48(k) of the Internal Revenue Code of 1986
shall not apply to any film placed in service by the taxpayer
in any taxable year beginning before January 1, 1975, and
with respect to which an election under subsection (e)(2) is
not made,
and the right of the taxpayer to the allowance of a credit
against tax under section 38 of such Code with respect to any
film placed in service in any taxable year beginning before
January 1, 1975, and as to which an election under subsection
(e)(2) is not made, shall be determined as though this section
(other than this paragraph) has not been enacted.
"(D) Rules relating to elections. - An election under this
paragraph shall be made not later than the day which is 90 days
after the date of the enactment of this Act [Oct. 4, 1976], by
filing a notification of such election with the national office
of the Internal Revenue Service. Such an election, once made,
shall be irrevocable."
ENTITLEMENT TO CREDIT
Section 804(d) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Paragraph
(1) of section 48(k) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (relating to entitlement to credit) shall apply to any
motion picture film or video tape placed in service in any taxable
year beginning before January 1, 1975."
INCREASE IN BASIS OF PROPERTY PLACED IN SERVICE BEFORE JANUARY 1,
1964
Section 203(a)(2) of Pub. L. 88-272, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) The basis of any section 38 property (as defined in section
48(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954])
placed in service before January 1, 1964, shall be increased, under
regulations prescribed by the Secretary of the Treasury or his
delegate, by an amount equal to 7 percent of the qualified
investment with respect to such property under section 46(c) of the
Internal Revenue Code of 1986. If there has been any increase with
respect to such property under section 48(g)(2) of such Code, the
increase under the preceding sentence shall be appropriately
reduced therefor.
"(B) If a lessor made the election provided by section 48(d) of
the Internal Revenue Code of 1986 with respect to property placed
in service before January 1, 1964 -
"(i) subparagraph (A) shall not apply with respect to such
property, but
"(ii) under regulations prescribed by the Secretary of the
Treasury or his delegate, the deductions otherwise allowable
under section 162 of such Code to the lessee for amounts paid to
the lessor under the lease (or, if such lessee has purchased such
property, the basis of such property) shall be adjusted in a
manner consistent with subparagraph (A).
"(C) The adjustments under this paragraph shall be made as of the
first day of the taxpayer's first taxable year which begins after
December 31, 1963."
-FOOTNOTE-
(!1) So in original. Probably should be followed by "to".
-End-
-CITE-
26 USC Sec. 48A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart E - Rules for Computing Investment Credit
-HEAD-
Sec. 48A. Qualifying advanced coal project credit
-STATUTE-
(a) In general
For purposes of section 46, the qualifying advanced coal project
credit for any taxable year is an amount equal to -
(1) 20 percent of the qualified investment for such taxable
year in the case of projects described in subsection
(d)(3)(B)(i), and
(2) 15 percent of the qualified investment for such taxable
year in the case of projects described in subsection
(d)(3)(B)(ii).
(b) Qualified investment
(1) In general
For purposes of subsection (a), the qualified investment for
any taxable year is the basis of eligible property placed in
service by the taxpayer during such taxable year which is part of
a qualifying advanced coal project -
(A)(i) the construction, reconstruction, or erection of which
is completed by the taxpayer, or
(ii) which is acquired by the taxpayer if the original use of
such property commences with the taxpayer, and
(B) with respect to which depreciation (or amortization in
lieu of depreciation) is allowable.
(2) Special rule for certain subsidized property
Rules similar to section 48(a)(4) shall apply for purposes of
this section.
(3) Certain qualified progress expenditures rules made applicable
Rules similar to the rules of subsections (c)(4) and (d) of
section 46 (as in effect on the day before the enactment of the
Revenue Reconciliation Act of 1990) shall apply for purposes of
this section.
(c) Definitions
For purposes of this section -
(1) Qualifying advanced coal project
The term "qualifying advanced coal project" means a project
which meets the requirements of subsection (e).
(2) Advanced coal-based generation technology
The term "advanced coal-based generation technology" means a
technology which meets the requirements of subsection (f).
(3) Eligible property
The term "eligible property" means -
(A) in the case of any qualifying advanced coal project using
an integrated gasification combined cycle, any property which
is a part of such project and is necessary for the gasification
of coal, including any coal handling and gas separation
equipment, and
(B) in the case of any other qualifying advanced coal
project, any property which is a part of such project.
(4) Coal
The term "coal" means anthracite, bituminous coal,
subbituminous coal, lignite, and peat.
(5) Greenhouse gas capture capability
The term "greenhouse gas capture capability" means an
integrated gasification combined cycle technology facility
capable of adding components which can capture, separate on a
long-term basis, isolate, remove, and sequester greenhouse gases
which result from the generation of electricity.
(6) Electric generation unit
The term "electric generation unit" means any facility at least
50 percent of the total annual net output of which is electrical
power, including an otherwise eligible facility which is used in
an industrial application.
(7) Integrated gasification combined cycle
The term "integrated gasification combined cycle" means an
electric generation unit which produces electricity by converting
coal to synthesis gas which is used to fuel a combined-cycle
plant which produces electricity from both a combustion turbine
(including a combustion turbine/fuel cell hybrid) and a steam
turbine.
(d) Qualifying advanced coal project program
(1) Establishment
Not later than 180 days after the date of enactment of this
section, the Secretary, in consultation with the Secretary of
Energy, shall establish a qualifying advanced coal project
program for the deployment of advanced coal-based generation
technologies.
(2) Certification
(A) Application period
Each applicant for certification under this paragraph shall
submit an application meeting the requirements of subparagraph
(B). An applicant may only submit an application during the 3-
year period beginning on the date the Secretary establishes
the program under paragraph (1).
(B) Requirements for applications for certification
An application under subparagraph (A) shall contain such
information as the Secretary may require in order to make a
determination to accept or reject an application for
certification as meeting the requirements under subsection
(e)(1). Any information contained in the application shall be
protected as provided in section 552(b)(4) of title 5, United
States Code.
(C) Time to act upon applications for certification
The Secretary shall issue a determination as to whether an
applicant has met the requirements under subsection (e)(1)
within 60 days following the date of submittal of the
application for certification.
(D) Time to meet criteria for certification
Each applicant for certification shall have 2 years from the
date of acceptance by the Secretary of the application during
which to provide to the Secretary evidence that the criteria
set forth in subsection (e)(2) have been met.
(E) Period of issuance
An applicant which receives a certification shall have 5
years from the date of issuance of the certification in order
to place the project in service and if such project is not
placed in service by that time period then the certification
shall no longer be valid.
(3) Aggregate credits
(A) In general
The aggregate credits allowed under subsection (a) for
projects certified by the Secretary under paragraph (2) may not
exceed $1,300,000,000.
(B) Particular projects
Of the dollar amount in subparagraph (A), the Secretary is
authorized to certify -
(i) $800,000,000 for integrated gasification combined cycle
projects, and
(ii) $500,000,000 for projects which use other advanced
coal-based generation technologies.
(4) Review and redistribution
(A) Review
Not later than 6 years after the date of enactment of this
section, the Secretary shall review the credits allocated under
this section as of the date which is 6 years after the date of
enactment of this section.
(B) Redistribution
The Secretary may reallocate credits available under clauses
(i) and (ii) of paragraph (3)(B) if the Secretary determines
that -
(i) there is an insufficient quantity of qualifying
applications for certification pending at the time of the
review, or
(ii) any certification made pursuant to subsection
paragraph (2) has been revoked pursuant to subsection
paragraph (2)(D) because the project subject to the
certification has been delayed as a result of third party
opposition or litigation to the proposed project.
(C) Reallocation
If the Secretary determines that credits under clause (i) or
(ii) of paragraph (3)(B) are available for reallocation
pursuant to the requirements set forth in paragraph (2), the
Secretary is authorized to conduct an additional program for
applications for certification.
(e) Qualifying advanced coal projects
(1) Requirements
For purposes of subsection (c)(1), a project shall be
considered a qualifying advanced coal project that the Secretary
may certify under subsection (d)(2) if the Secretary determines
that, at a minimum -
(A) the project uses an advanced coal-based generation
technology -
(i) to power a new electric generation unit; or
(ii) to retrofit or repower an existing electric generation
unit (including an existing natural gas-fired combined cycle
unit);
(B) the fuel input for the project, when completed, is at
least 75 percent coal;
(C) the project, consisting of one or more electric
generation units at one site, will have a total nameplate
generating capacity of at least 400 megawatts;
(D) the applicant provides evidence that a majority of the
output of the project is reasonably expected to be acquired or
utilized;
(E) the applicant provides evidence of ownership or control
of a site of sufficient size to allow the proposed project to
be constructed and to operate on a long-term basis; and
(F) the project will be located in the United States.
(2) Requirements for certification
For the purpose of subsection (d)(2)(D), a project shall be
eligible for certification only if the Secretary determines that -
(A) the applicant for certification has received all Federal
and State environmental authorizations or reviews necessary to
commence construction of the project; and
(B) the applicant for certification, except in the case of a
retrofit or repower of an existing electric generation unit,
has purchased or entered into a binding contract for the
purchase of the main steam turbine or turbines for the project,
except that such contract may be contingent upon receipt of a
certification under subsection (d)(2).
(3) Priority for integrated gasification combined cycle projects
In determining which qualifying advanced coal projects to
certify under subsection (d)(2), the Secretary shall -
(A) certify capacity, in accordance with the procedures set
forth in subsection (d), in relatively equal amounts to -
(i) projects using bituminous coal as a primary feedstock,
(ii) projects using subbituminous coal as a primary
feedstock, and
(iii) projects using lignite as a primary feedstock, and
(B) give high priority to projects which include, as
determined by the Secretary -
(i) greenhouse gas capture capability,
(ii) increased by-product utilization, and
(iii) other benefits.
(f) Advanced coal-based generation technology
(1) In general
For the purpose of this section, an electric generation unit
uses advanced coal-based generation technology if -
(A) the unit -
(i) uses integrated gasification combined cycle technology,
or
(ii) except as provided in paragraph (3), has a design net
heat rate of 8530 Btu/kWh (40 percent efficiency), and
(B) the unit is designed to meet the performance requirements
in the following table:
Performance characteristic: Design level for project:
--------------------------------------------------------------------
SO2 (percent removal) 99 percent
NOx (emissions) 0.07 lbs/MMBTU
PM* (emissions) 0.015 lbs/MMBTU
Hg (percent removal) 90 percent
--------------------------------------------------------------------
(2) Design net heat rate
For purposes of this subsection, design net heat rate with
respect to an electric generation unit shall -
(A) be measured in Btu per kilowatt hour (higher heating
value),
(B) be based on the design annual heat input to the unit and
the rated net electrical power, fuels, and chemicals output of
the unit (determined without regard to the cogeneration of
steam by the unit),
(C) be adjusted for the heat content of the design coal to be
used by the unit -
(i) if the heat content is less than 13,500 Btu per pound,
but greater than 7,000 Btu per pound, according to the
following formula: design net heat rate = unit net heat rate
x [1-[((13,500-design coal heat content, Btu per
pound)/1,000)* 0.013]], and
(ii) if the heat content is less than or equal to 7,000 Btu
per pound, according to the following formula: design net
heat rate = unit net heat rate x [1-[((13,500-design coal
heat content, Btu per pound)/1,000)* 0.018]], and
(D) be corrected for the site reference conditions of -
(i) elevation above sea level of 500 feet,
(ii) air pressure of 14.4 pounds per square inch absolute,
(iii) temperature, dry bulb of 63ºF,
(iv) temperature, wet bulb of 54ºF,
and
(v) relative humidity of 55 percent.
(3) Existing units
In the case of any electric generation unit in existence on the
date of the enactment of this section, such unit uses advanced
coal-based generation technology if, in lieu of the requirements
under paragraph (1)(A)(ii), such unit achieves a minimum
efficiency of 35 percent and an overall thermal design efficiency
improvement, compared to the efficiency of the unit as operated,
of not less than -
(A) 7 percentage points for coal of more than 9,000 Btu,
(B) 6 percentage points for coal of 7,000 to 9,000 Btu, or
(C) 4 percentage points for coal of less than 7,000 Btu.
(g) Applicability
No use of technology (or level of emission reduction solely by
reason of the use of the technology), and no achievement of any
emission reduction by the demonstration of any technology or
performance level, by or at one or more facilities with respect to
which a credit is allowed under this section, shall be considered
to indicate that the technology or performance level is -
(1) adequately demonstrated for purposes of section 111 of the
Clean Air Act (42 U.S.C. 7411);
(2) achievable for purposes of section 169 of that Act (42
U.S.C. 7479); or
(3) achievable in practice for purposes of section 171 of such
Act (42 U.S.C. 7501).
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1307(b), Aug. 8, 2005, 119
Stat. 999.)
-REFTEXT-
REFERENCES IN TEXT
The enactment of the Revenue Reconciliation Act of 1990, referred
to in subsec. (b)(3), is the date of enactment of title XI of Pub.
L. 101-508, which was approved Nov. 5, 1990.
The date of enactment of this section, referred to in subsecs.
(d)(1), (4)(A) and (f)(3), is the date of enactment of Pub. L. 109-
58, which was approved Aug. 8, 2005.
-MISC1-
EFFECTIVE DATE
Section applicable to periods after Aug. 8, 2005, under rules
similar to the rules of section 48(m) of this title, as in effect
on the day before Nov. 5, 1990, see section 1307(d) of Pub. L. 109-
58, set out as an Effective Date of 2005 Amendment note under
section 46 of this title.
-End-
-CITE-
26 USC Sec. 48B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart E - Rules for Computing Investment Credit
-HEAD-
Sec. 48B. Qualifying gasification project credit
-STATUTE-
(a) In general
For purposes of section 46, the qualifying gasification project
credit for any taxable year is an amount equal to 20 percent of the
qualified investment for such taxable year.
(b) Qualified investment
(1) In general
For purposes of subsection (a), the qualified investment for
any taxable year is the basis of eligible property placed in
service by the taxpayer during such taxable year which is part of
a qualifying gasification project -
(A)(i) the construction, reconstruction, or erection of which
is completed by the taxpayer, or
(ii) which is acquired by the taxpayer if the original use of
such property commences with the taxpayer, and
(B) with respect to which depreciation (or amortization in
lieu of depreciation) is allowable.
(2) Special rule for certain subsidized property
Rules similar to section 48(a)(4) shall apply for purposes of
this section.
(3) Certain qualified progress expenditures rules made applicable
Rules similar to the rules of subsections (c)(4) and (d) of
section 46 (as in effect on the day before the enactment of the
Revenue Reconciliation Act of 1990) shall apply for purposes of
this section.
(c) Definitions
For purposes of this section -
(1) Qualifying gasification project
The term "qualifying gasification project" means any project
which -
(A) employs gasification technology,
(B) will be carried out by an eligible entity, and
(C) any portion of the qualified investment of which is
certified under the qualifying gasification program as eligible
for credit under this section in an amount (not to exceed
$650,000,000) determined by the Secretary.
(2) Gasification technology
The term "gasification technology" means any process which
converts a solid or liquid product from coal, petroleum residue,
biomass, or other materials which are recovered for their energy
or feedstock value into a synthesis gas composed primarily of
carbon monoxide and hydrogen for direct use or subsequent
chemical or physical conversion.
(3) Eligible property
The term "eligible property" means any property which is a part
of a qualifying gasification project and is necessary for the
gasification technology of such project.
(4) Biomass
(A) In general
The term "biomass" means any -
(i) agricultural or plant waste,
(ii) byproduct of wood or paper mill operations, including
lignin in spent pulping liquors, and
(iii) other products of forestry maintenance.
(B) Exclusion
The term "biomass" does not include paper which is commonly
recycled.
(5) Carbon capture capability
The term "carbon capture capability" means a gasification plant
design which is determined by the Secretary to reflect reasonable
consideration for, and be capable of, accommodating the equipment
likely to be necessary to capture carbon dioxide from the gaseous
stream, for later use or sequestration, which would otherwise be
emitted in the flue gas from a project which uses a nonrenewable
fuel.
(6) Coal
The term "coal" means anthracite, bituminous coal,
subbituminous coal, lignite, and peat.
(7) Eligible entity
The term "eligible entity" means any person whose application
for certification is principally intended for use in a domestic
project which employs domestic gasification applications related
to -
(A) chemicals,
(B) fertilizers,
(C) glass,
(D) steel,
(E) petroleum residues,
(F) forest products, and
(G) agriculture, including feedlots and dairy operations.
(8) Petroleum residue
The term "petroleum residue" means the carbonized product of
high-boiling hydrocarbon fractions obtained in petroleum
processing.
(d) Qualifying gasification project program
(1) In general
Not later than 180 days after the date of the enactment of this
section, the Secretary, in consultation with the Secretary of
Energy, shall establish a qualifying gasification project program
to consider and award certifications for qualified investment
eligible for credits under this section to qualifying
gasification project sponsors under this section. The total
amounts of credit that may be allocated under the program shall
not exceed $350,000,000 under rules similar to the rules of
section 48A(d)(4).
(2) Period of issuance
A certificate of eligibility under paragraph (1) may be issued
only during the 10-fiscal year period beginning on October 1,
2005.
(3) Selection criteria
The Secretary shall not make a competitive certification award
for qualified investment for credit eligibility under this
section unless the recipient has documented to the satisfaction
of the Secretary that -
(A) the award recipient is financially viable without the
receipt of additional Federal funding associated with the
proposed project,
(B) the recipient will provide sufficient information to the
Secretary for the Secretary to ensure that the qualified
investment is spent efficiently and effectively,
(C) a market exists for the products of the proposed project
as evidenced by contracts or written statements of intent from
potential customers,
(D) the fuels identified with respect to the gasification
technology for such project will comprise at least 90 percent
of the fuels required by the project for the production of
chemical feedstocks, liquid transportation fuels, or
coproduction of electricity,
(E) the award recipient's project team is competent in the
construction and operation of the gasification technology
proposed, with preference given to those recipients with
experience which demonstrates successful and reliable
operations of the technology on domestic fuels so identified,
and
(F) the award recipient has met other criteria established
and published by the Secretary.
(e) Denial of double benefit
A credit shall not be allowed under this section for any
qualified investment for which a credit is allowed under section
48A.
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1307(b), Aug. 8, 2005, 119
Stat. 1004.)
-REFTEXT-
REFERENCES IN TEXT
The enactment of the Revenue Reconciliation Act of 1990, referred
to in subsec. (b)(3), is the date of enactment of title XI of Pub.
L. 101-508, which was approved Nov. 5, 1990.
The date of the enactment of this section, referred to in subsec.
(d)(1), is the date of enactment of Pub. L. 109-58, which was
approved Aug. 8, 2005.
-MISC1-
EFFECTIVE DATE
Section applicable to periods after Aug. 8, 2005, under rules
similar to the rules of section 48(m) of this title, as in effect
on the day before Nov. 5, 1990, see section 1307(d) of Pub. L. 109-
58, set out as an Effective Date of 2005 Amendment note under
section 46 of this title.
-End-
-CITE-
26 USC Sec. 49 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart E - Rules for Computing Investment Credit
-HEAD-
Sec. 49. At-risk rules
-STATUTE-
(a) General rule
(1) Certain nonrecourse financing excluded from credit base
(A) Limitation
The credit base of any property to which this paragraph
applies shall be reduced by the nonqualified nonrecourse
financing with respect to such credit base (as of the close of
the taxable year in which placed in service).
(B) Property to which paragraph applies
This paragraph applies to any property which -
(i) is placed in service during the taxable year by a
taxpayer described in section 465(a)(1), and
(ii) is used in connection with an activity with respect to
which any loss is subject to limitation under section 465.
(C) Credit base defined
For purposes of this paragraph, the term "credit base" means -
(i) the portion of the basis of any qualified rehabilitated
building attributable to qualified rehabilitation
expenditures,
(ii) the basis of any energy property,
(iii) the basis of any property which is part of a
qualifying advanced coal project under section 48A, and
(iv) the basis of any property which is part of a
qualifying gasification project under section 48B.
(D) Nonqualified nonrecourse financing
(i) In general
For purposes of this paragraph and paragraph (2), the term
"nonqualified nonrecourse financing" means any nonrecourse
financing which is not qualified commercial financing.
(ii) Qualified commercial financing
For purposes of this paragraph, the term "qualified
commercial financing" means any financing with respect to any
property if -
(I) such property is acquired by the taxpayer from a
person who is not a related person,
(II) the amount of the nonrecourse financing with respect
to such property does not exceed 80 percent of the credit
base of such property, and
(III) such financing is borrowed from a qualified person
or represents a loan from any Federal, State, or local
government or instrumentality thereof, or is guaranteed by
any Federal, State, or local government.
Such term shall not include any convertible debt.
(iii) Nonrecourse financing
For purposes of this subparagraph, the term "nonrecourse
financing" includes -
(I) any amount with respect to which the taxpayer is
protected against loss through guarantees, stop-loss
agreements, or other similar arrangements, and
(II) except to the extent provided in regulations, any
amount borrowed from a person who has an interest (other
than as a creditor) in the activity in which the property
is used or from a related person to a person (other than
the taxpayer) having such an interest.
In the case of amounts borrowed by a corporation from a
shareholder, subclause (II) shall not apply to an interest as
a share-holder.(!1)
(iv) Qualified person
For purposes of this paragraph, the term "qualified person"
means any person which is actively and regularly engaged in
the business of lending money and which is not -
(I) a related person with respect to the taxpayer,
(II) a person from which the taxpayer acquired the
property (or a related person to such person), or
(III) a person who receives a fee with respect to the
taxpayer's investment in the property (or a related person
to such person).
(v) Related person
For purposes of this subparagraph, the term "related
person" has the meaning given such term by section
465(b)(3)(C). Except as otherwise provided in regulations
prescribed by the Secretary, the determination of whether a
person is a related person shall be made as of the close of
the taxable year in which the property is placed in service.
(E) Application to partnerships and S corporations
For purposes of this paragraph and paragraph (2) -
(i) In general
Except as otherwise provided in this subparagraph, in the
case of any partnership or S corporation, the determination
of whether a partner's or shareholder's allocable share of
any financing is nonqualified nonrecourse financing shall be
made at the partner or shareholder level.
(ii) Special rule for certain recourse financing of S
corporation
A shareholder of an S corporation shall be treated as
liable for his allocable share of any financing provided by a
qualified person to such corporation if -
(I) such financing is recourse financing (determined at
the corporate level), and
(II) such financing is provided with respect to qualified
business property of such corporation.
(iii) Qualified business property
For purposes of clause (ii), the term "qualified business
property" means any property if -
(I) such property is used by the corporation in the
active conduct of a trade or business,
(II) during the entire 12-month period ending on the last
day of the taxable year, such corporation had at least 3
full-time employees who were not owner-employees (as
defined in section 465(c)(7)(E)(i)) and substantially all
the services of whom were services directly related to such
trade or business, and
(III) during the entire 12-month period ending on the
last day of such taxable year, such corporation had at
least 1 full-time employee substantially all of the
services of whom were in the active management of the trade
or business.
(iv) Determination of allocable share
The determination of any partner's or shareholder's
allocable share of any financing shall be made in the same
manner as the credit allowable by section 38 with respect to
such property.
(F) Special rules for energy property
Rules similar to the rules of subparagraph (F) of section
46(c)(8) (as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990) shall
apply for purposes of this paragraph.
(2) Subsequent decreases in nonqualified nonrecourse financing
with respect to the property
(A) In general
If, at the close of a taxable year following the taxable year
in which the property was placed in service, there is a net
decrease in the amount of nonqualified nonrecourse financing
with respect to such property, such net decrease shall be taken
into account as an increase in the credit base for such
property in accordance with subparagraph (C).
(B) Certain transactions not taken into account
For purposes of this paragraph, nonqualified nonrecourse
financing shall not be treated as decreased through the
surrender or other use of property financed by nonqualified
nonrecourse financing.
(C) Manner in which taken into account
(i) Credit determined by reference to taxable year property
placed in service
For purposes of determining the amount of credit allowable
under section 38 and the amount of credit subject to the
early disposition or cessation rules under section 50(a), any
increase in a taxpayer's credit base for any property by
reason of this paragraph shall be taken into account as if it
were property placed in service by the taxpayer in the
taxable year in which the property referred to in
subparagraph (A) was first placed in service.
(ii) Credit allowed for year of decrease in nonqualified
nonrecourse financing
Any credit allowable under this subpart for any increase in
qualified investment by reason of this paragraph shall be
treated as earned during the taxable year of the decrease in
the amount of nonqualified nonrecourse financing.
(b) Increases in nonqualified nonrecourse financing
(1) In general
If, as of the close of the taxable year, there is a net
increase with respect to the taxpayer in the amount of
nonqualified nonrecourse financing (within the meaning of
subsection (a)(1)) with respect to any property to which
subsection (a)(1) applied, then the tax under this chapter for
such taxable year shall be increased by an amount equal to the
aggregate decrease in credits allowed under section 38 for all
prior taxable years which would have resulted from reducing the
credit base (as defined in subsection (a)(1)(C)) taken into
account with respect to such property by the amount of such net
increase. For purposes of determining the amount of credit
subject to the early disposition or cessation rules of section
50(a), the net increase in the amount of the nonqualified
nonrecourse financing with respect to the property shall be
treated as reducing the property's credit base in the year in
which the property was first placed in service.
(2) Transfers of debt more than 1 year after initial borrowing
not treated as increasing nonqualified nonrecourse financing
For purposes of paragraph (1), the amount of nonqualified
nonrecourse financing (within the meaning of subsection
(a)(1)(D)) with respect to the taxpayer shall not be treated as
increased by reason of a transfer of (or agreement to transfer)
any evidence of any indebtedness if such transfer occurs (or such
agreement is entered into) more than 1 year after the date such
indebtedness was incurred.
(3) Special rules for certain energy property
Rules similar to the rules of section 47(d)(3) (as in effect on
the day before the date of the enactment of the Revenue
Reconciliation Act of 1990) shall apply for purposes of this
subsection.
(4) Special rule
Any increase in tax under paragraph (1) shall not be treated as
tax imposed by this chapter for purposes of determining the
amount of any credit allowable under this chapter.
-SOURCE-
(Added Pub. L. 99-514, title II, Sec. 211(a), Oct. 22, 1986, 100
Stat. 2166; amended Pub. L. 100-647, title I, Sec. 1002(e)(1)-(3),
(8)(B), Nov. 10, 1988, 102 Stat. 3367, 3369; Pub. L. 101-508, title
XI, Sec. 11813(a), Nov. 5, 1990, 104 Stat. 1388-543; Pub. L. 105-
206, title VI, Sec. 6004(g)(6), July 22, 1998, 112 Stat. 796; Pub.
L. 109-58, title XIII, Sec. 1307(c)(1), Aug. 8, 2005, 119 Stat.
1006.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsecs. (a)(1)(F) and (b)(3), is the date of
enactment of Pub. L. 101-508, which was approved Nov. 5, 1990.
-MISC1-
PRIOR PROVISIONS
A prior section 49, Pub. L. 91-172, title VII, Sec. 703(a), Dec.
30, 1969, 83 Stat. 660; Pub. L. 92-178, title I, Sec. 101(b)(1)-
(4), Dec. 10, 1971, 85 Stat. 498, 499, related to termination of
rules for computing credit for investment in certain depreciable
property for period beginning Apr. 19, 1969, and ending during
1971, prior to repeal by Pub. L. 95-600, title III, Sec. 312(c)(1),
Nov. 6, 1978, 92 Stat. 2826, applicable to taxable years ending
after Dec. 31, 1978.
AMENDMENTS
2005 - Subsec. (a)(1)(C)(iii), (iv). Pub. L. 109-58 added cls.
(iii) and (iv) and struck out former cl. (iii) which read as
follows: "the amortizable basis of any qualified timber property."
1998 - Subsec. (b)(4). Pub. L. 105-206 substituted "this chapter"
for "subpart A, B, D, or G".
1990 - Pub. L. 101-508, Sec. 11813(a), amended section generally,
substituting section catchline for one which read: "Termination of
regular percentage" and in text substituting present provisions for
provisions relating to the nonapplicability of the regular
percentage to any property placed in service after Dec. 31, 1985,
for purposes of determining the investment tax credit, exceptions
to such rule, the 35 percent reduction in credit for taxable years
after 1986, the full basis adjustment in determining investment tax
credit, and the definition of transition property and treatment of
progress expenditures.
1988 - Subsec. (c)(4)(B). Pub. L. 100-647, Sec. 1002(e)(2),
substituted "years" for "year" in heading and amended text
generally. Prior to amendment, text read as follows: "The amount of
the reduction of the regular investment credit under paragraph (3) -
"(i) may not be carried back to any taxable year, but
"(ii) shall be added to the carryforwards from the taxable year
before applying paragraph (2)."
Subsec. (c)(5)(B)(i). Pub. L. 100-647, Sec. 1002(e)(3), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
"The term 'regular investment credit' has the meaning given such
term by section 48(o)".
Subsec. (c)(5)(C). Pub. L. 100-647, Sec. 1002(e)(8)(B), struck
out subpar. (C) which related to portion of credits attributable to
regular investment credit.
Subsec. (d)(1). Pub. L. 100-647, Sec. 1002(e)(1), amended par.
(1) generally. Prior to amendment, par. (1) read as follows: "In
the case of periods after December 31, 1985, section 48(q)
(relating to basis adjustment to section 38 property) shall be
applied with respect to transaction property -
"(A) by substituting '100 percent' for '50 percent' in
paragraph (1), and
"(B) without regard to paragraph (4) thereof (relating to
election of reduced credit in lieu of basis adjustment)."
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-58 applicable to periods after Aug. 8,
2005, under rules similar to the rules of section 48(m) of this
title, as in effect on the day before Nov. 5, 1990, see section
1307(d) of Pub. L. 109-58, set out as a note under section 46 of
this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Dec. 31, 1990, but not applicable to any transition
property (as defined in section 49(e) of this title), any property
with respect to which qualified progress expenditures were
previously taken into account under section 46(d) of this title,
and any property described in section 46(b)(2)(C) of this title, as
such sections were in effect on Nov. 4, 1990, see section 11813(c)
of Pub. L. 101-508, set out as a note under section 45K of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1002(e)(1)-(3) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by section 1002(e)(8)(B) of Pub. L. 100-647 applicable
to taxable years beginning after Dec. 31, 1983, and to carrybacks
from such years, see section 1002(e)(8)(C) of Pub. L. 100-647, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 211(e) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1002(e)(4)-(7), Nov. 10, 1988, 102 Stat. 3367, 3368,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [enacting this section and
provisions set out below] shall apply to property placed in service
after December 31, 1985, in taxable years ending after such date.
Section 49(c) of the Internal Revenue Code of 1986 (as added by
subsection (a)) shall apply to taxable years ending after June 30,
1987, and to amounts carried to such taxable years.
"(2) Exceptions for certain films. - For purposes of determining
whether any property is transition property within the meaning of
section 49(e) of the Internal Revenue Code of 1986 -
"(A) in the case of any motion picture or television film,
construction shall be treated as including production for
purposes of section 203(b)(1) of this Act [enacting provisions
set out as a note under section 168 of this title], and written
contemporary evidence of an agreement (in accordance with
industry practice) shall be treated as a written binding contract
for such purposes,
"(B) in the case of any television film, a license agreement or
agreement for production services between a television network
and a producer shall be treated as a binding contract for
purposes of section 203(b)(1)(A) of this Act, and
"(C) a motion picture film shall be treated as described in
section 203(b)(1)(A) of this Act if -
"(i) funds were raised pursuant to a public offering before
September 26, 1985, for the production of such film,
"(ii) 40 percent of the funds raised pursuant to such public
offering are being spent on films the production of which
commenced before such date, and
"(iii) all of the films funded by such public offering are
required to be distributed pursuant to distribution agreements
entered into before September 26, 1985.
"(3) Normalization rules. - The provisions of subsection (b) [see
Normalization Rules note below] shall apply to any violation of the
normalization requirements under paragraph (1) or (2) of section
46(f) of the Internal Revenue Code of 1986 occurring in taxable
years ending after December 31, 1985.
"(4) Additional exceptions. -
"(A) Subsections (c) and (d) of section 49 of the Internal
Revenue Code of 1986 shall not apply to any continuous caster
facility for slabs and blooms which is subject to a lease and
which is part of a project the second phase of which is a
continuous slab caster which was placed in service before
December 31, 1985.
"(B) For purposes of determining whether an automobile
manufacturing facility (including equipment and incidental
appurtenances) is transition property within the meaning of
section 49(e), property with respect to which the Board of
Directors of an automobile manufacturer formally approved the
plan for the project on January 7, 1985 shall be treated as
transition property and subsections (c) and (d) of section 49 of
such Code shall not apply to such property, but only with respect
to $70,000,000 of regular investment tax credits.
"(C) Any solid waste disposal facility which will process and
incinerate solid waste of one or more public or private entities
including Dakota County, Minnesota, and with respect to which a
bond carryforward from 1985 was elected in an amount equal to
$12,500,000 shall be treated as transition property within the
meaning of section 49(e) of the Internal Revenue Code of 1986.
"(D) For purposes of section 49 of such Code, the following
property shall be treated as transition property:
"(i) 2 catamarans built by a shipbuilder incorporated in the
State of Washington in 1964, the contracts for which were
signed on April 22, 1986 and November 12, 1985, and 1 barge
built by such shipbuilder the contract for which was signed on
August 7, 1985.
"(ii) 2 large passenger ocean-going United States flag cruise
ships with a passenger rated capacity of up to 250 which are
built by the shipbuilder described in clause (i), which are the
first such ships built in the United States since 1952, and
which were designed at the request of a Pacific Coast cruise
line pursuant to a contract entered into in October 1985. This
clause shall apply only to that portion of the cost of each
ship which does not exceed $40,000,000.
"(iii) Property placed in service during 1986 by Satellite
Industries, Inc., with headquarters in Minneapolis, Minnesota,
to the extent that the cost of such property does not exceed
$1,950,000.
"(E) Subsections (c) and (d) of section 49 of such Code shall
not apply to property described in section 204(a)(4) of this Act
[enacting provisions set out as a note under section 168 of this
title]."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
NORMALIZATION RULES
Section 211(b) of Pub. L. 99-514 provided that: "If, for any
taxable year beginning after December 31, 1985, the requirements of
paragraph (1) or (2) of section 46(f) of the Internal Revenue Code
of 1986 are not met with respect to public utility property to
which the regular percentage applied for purposes of determining
the amount of the investment tax credit -
"(1) all credits for open taxable years as of the time of the
final determination referred to in section 46(f)(4)(A) of such
Code shall be recaptured, and
"(2) if the amount of the taxpayer's unamortized credits (or
the credits not previously restored to rate base) with respect to
such property (whether or not for open years) exceeds the amount
referred to in paragraph (1), the taxpayer's tax for the taxable
year shall be increased by the amount of such excess.
If any portion of the excess described in paragraph (2) is
attributable to a credit which is allowable as a carryover to a
taxable year beginning after December 31, 1985, in lieu of applying
paragraph (2) with respect to such portion, the amount of such
carryover shall be reduced by the amount of such portion. Rules
similar to the rules of this subsection shall apply in the case of
any property with respect to which the requirements of section
46(f)(9) of such Code are met."
EXCEPTION FOR CERTAIN AIRCRAFT USED IN ALASKA
Section 211(d) of Pub. L. 99-514 provided that:
"(1) The amendments made by subsection (a) [enacting this section
and provisions set out above] shall not apply to property
originally placed in service after December 29, 1982, and before
August 1, 1985, by a corporation incorporated in Alaska on May 21,
1953, and used by it -
"(A) in part, for the transportation of mail for the United
States Postal Service in the State of Alaska, and
"(B) in part, to provide air service in the State of Alaska on
routes which had previously been served by an air carrier that
received compensation from the Civil Aeronautics Board for
providing service.
"(2) In the case of property described in subparagraph (A) -
"(A) such property shall be treated as recovery property
described in section 208(d)(5) of the Tax Equity and Fiscal
Responsibility Act of 1982 ('TEFRA') [section 208(d)(5) of Pub.
L. 97-248, enacting provisions set out as a note under section
168 of this title];
"(B) '48 months' shall be substituted for '3 months' each place
it appears in applying -
"(i) section 48(b)(2)(B) of the Code [26 U.S.C. 48(b)(2)(B)],
and
"(ii) section 168(f)(8)(D) of the Code [26 U.S.C.
168(f)(8)(D)] (as in effect after the amendments made by the
Technical Corrections Act of 1982 [Pub. L. 97-448] but before
the amendments made by TEFRA); and
"(C) the limitation of section 168(f)(8)(D)(ii)(III) (as then
in effect) shall be read by substituting 'the lessee's original
cost basis.', for 'the adjusted basis of the lessee at the time
of the lease.'
"(3) The aggregate amount of property to which this paragraph
shall apply shall not exceed $60,000,000."
-FOOTNOTE-
(!1) So in original. Probably should not be hyphenated.
-End-
-CITE-
26 USC Sec. 50 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart E - Rules for Computing Investment Credit
-HEAD-
Sec. 50. Other special rules
-STATUTE-
(a) Recapture in case of dispositions, etc.
Under regulations prescribed by the Secretary -
(1) Early disposition, etc.
(A) General rule
If, during any taxable year, investment credit property is
disposed of, or otherwise ceases to be investment credit
property with respect to the taxpayer, before the close of the
recapture period, then the tax under this chapter for such
taxable year shall be increased by the recapture percentage of
the aggregate decrease in the credits allowed under section 38
for all prior taxable years which would have resulted solely
from reducing to zero any credit determined under this subpart
with respect to such property.
(B) Recapture percentage
For purposes of subparagraph (A), the recapture percentage
shall be determined in accordance with the following table:
If the property ceases to be 2The recapture
investment credit property within -
percentage is:
--------------------------------------------------------------------
(i) One full year after placed in service 100
(ii) One full year after the close of the 80
period described in clause (i)
(iii) One full year after the close of the 60
period described in clause (ii)
(iv) One full year after the close of the 40
period described in clause (iii)
(v) One full year after the close of the 20
period described in clause (iv)
--------------------------------------------------------------------
(2) Property ceases to qualify for progress expenditures
(A) In general
If during any taxable year any building to which section
47(d) applied ceases (by reason of sale or other disposition,
cancellation or abandonment of contract, or otherwise) to be,
with respect to the taxpayer, property which, when placed in
service, will be a qualified rehabilitated building, then the
tax under this chapter for such taxable year shall be increased
by an amount equal to the aggregate decrease in the credits
allowed under section 38 for all prior taxable years which
would have resulted solely from reducing to zero the credit
determined under this subpart with respect to such building.
(B) Certain excess credit recaptured
Any amount which would have been applied as a reduction under
paragraph (2) of section 47(b) but for the fact that a
reduction under such paragraph cannot reduce the amount taken
into account under section 47(b)(1) below zero shall be treated
as an amount required to be recaptured under subparagraph (A)
for the taxable year during which the building is placed in
service.
(C) Certain sales and leasebacks
Under regulations prescribed by the Secretary, a sale by, and
leaseback to, a taxpayer who, when the property is placed in
service, will be a lessee to whom the rules referred to in
subsection (d)(5) apply shall not be treated as a cessation
described in subparagraph (A) to the extent that the amount
which will be passed through to the lessee under such rules
with respect to such property is not less than the qualified
rehabilitation expenditures properly taken into account by the
lessee under section 47(d) with respect to such property.
(D) Coordination with paragraph (1)
If, after property is placed in service, there is a
disposition or other cessation described in paragraph (1), then
paragraph (1) shall be applied as if any credit which was
allowable by reason of section 47(d) and which has not been
required to be recaptured before such disposition, cessation,
or change in use were allowable for the taxable year the
property was placed in service.
(E) Special rules
Rules similar to the rules of this paragraph shall apply in
cases where qualified progress expenditures were taken into
account under the rules referred to in section 48(b).
(3) Carrybacks and carryovers adjusted
In the case of any cessation described in paragraph (1) or (2),
the carrybacks and carryovers under section 39 shall be adjusted
by reason of such cessation.
(4) Subsection not to apply in certain cases
Paragraphs (1) and (2) shall not apply to -
(A) a transfer by reason of death, or
(B) a transaction to which section 381(a) applies.
For purposes of this subsection, property shall not be treated as
ceasing to be investment credit property with respect to the
taxpayer by reason of a mere change in the form of conducting the
trade or business so long as the property is retained in such
trade or business as investment credit property and the taxpayer
retains a substantial interest in such trade or business.
(5) Definitions and special rules
(A) Investment credit property
For purposes of this subsection, the term "investment credit
property" means any property eligible for a credit determined
under this subpart.
(B) Transfer between spouses or incident to divorce
In the case of any transfer described in subsection (a) of
section 1041 -
(i) the foregoing provisions of this subsection shall not
apply, and
(ii) the same tax treatment under this subsection with
respect to the transferred property shall apply to the
transferee as would have applied to the transferor.
(C) Special rule
Any increase in tax under paragraph (1) or (2) shall not be
treated as tax imposed by this chapter for purposes of
determining the amount of any credit allowable under this
chapter.
(b) Certain property not eligible
No credit shall be determined under this subpart with respect to -
(1) Property used outside United States
(A) In general
Except as provided in subparagraph (B), no credit shall be
determined under this subpart with respect to any property
which is used predominantly outside the United States.
(B) Exceptions
Subparagraph (A) shall not apply to any property described in
section 168(g)(4).
(2) Property used for lodging
No credit shall be determined under this subpart with respect
to any property which is used predominantly to furnish lodging or
in connection with the furnishing of lodging. The preceding
sentence shall not apply to -
(A) nonlodging commercial facilities which are available to
persons not using the lodging facilities on the same basis as
they are available to persons using the lodging facilities.(!1)
(B) property used by a hotel or motel in connection with the
trade or business of furnishing lodging where the predominant
portion of the accommodations is used by transients;
(C) a certified historic structure to the extent of that
portion of the basis which is attributable to qualified
rehabilitation expenditures; and
(D) any energy property.
(3) Property used by certain tax-exempt organization
No credit shall be determined under this subpart with respect
to any property used by an organization (other than a cooperative
described in section 521) which is exempt from the tax imposed by
this chapter unless such property is used predominantly in an
unrelated trade or business the income of which is subject to tax
under section 511. If the property is debt-financed property (as
defined in section 514(b)), the amount taken into account for
purposes of determining the amount of the credit under this
subpart with respect to such property shall be that percentage of
the amount (which but for this paragraph would be so taken into
account) which is the same percentage as is used under section
514(a), for the year the property is placed in service, in
computing the amount of gross income to be taken into account
during such taxable year with respect to such property. If any
qualified rehabilitated building is used by the tax-exempt
organization pursuant to a lease, this paragraph shall not apply
for purposes of determining the amount of the rehabilitation
credit.
(4) Property used by governmental units or foreign persons or
entities
(A) In general
No credit shall be determined under this subpart with respect
to any property used -
(i) by the United States, any State or political
subdivision thereof, any possession of the United States, or
any agency or instrumentality of any of the foregoing, or
(ii) by any foreign person or entity (as defined in section
168(h)(2)(C)), but only with respect to property to which
section 168(h)(2)(A)(iii) applies (determined after the
application of section 168(h)(2)(B)).
(B) Exception for short-term leases
This paragraph and paragraph (3) shall not apply to any
property by reason of use under a lease with a term of less
than 6 months (determined under section 168(i)(3)).
(C) Exception for qualified rehabilitated buildings leased to
governments, etc.
If any qualified rehabilitated building is leased to a
governmental unit (or a foreign person or entity) this
paragraph shall not apply for purposes of determining the
rehabilitation credit with respect to such building.
(D) Special rules for partnerships, etc.
For purposes of this paragraph and paragraph (3), rules
similar to the rules of paragraphs (5) and (6) of section
168(h) shall apply.
(E) Cross reference
For special rules for the application of this paragraph and
paragraph (3), see section 168(h).
(c) Basis adjustment to investment credit property
(1) In general
For purposes of this subtitle, if a credit is determined under
this subpart with respect to any property, the basis of such
property shall be reduced by the amount of the credit so
determined.
(2) Certain dispositions
If during any taxable year there is a recapture amount
determined with respect to any property the basis of which was
reduced under paragraph (1), the basis of such property
(immediately before the event resulting in such recapture) shall
be increased by an amount equal to such recapture amount. For
purposes of the preceding sentence, the term "recapture amount"
means any increase in tax (or adjustment in carrybacks or
carryovers) determined under subsection (a).
(3) Special rule
In the case of any energy credit -
(A) only 50 percent of such credit shall be taken into
account under paragraph (1), and
(B) only 50 percent of any recapture amount attributable to
such credit shall be taken into account under paragraph (2).
(4) Recapture of reductions
(A) In general
For purposes of sections 1245 and 1250, any reduction under
this subsection shall be treated as a deduction allowed for
depreciation.
(B) Special rule for section 1250
For purposes of section 1250(b), the determination of what
would have been the depreciation adjustments under the straight
line method shall be made as if there had been no reduction
under this section.
(5) Adjustment in basis of interest in partnership or S
corporation
The adjusted basis of -
(A) a partner's interest in a partnership, and
(B) stock in an S corporation,
shall be appropriately adjusted to take into account adjustments
made under this subsection in the basis of property held by the
partnership or S corporation (as the case may be).
(d) Certain rules made applicable
For purposes of this subpart, rules similar to the rules of the
following provisions (as in effect on the day before the date of
the enactment of the Revenue Reconciliation Act of 1990) shall
apply:
(1) Section 46(e) (relating to limitations with respect to
certain persons).
(2) Section 46(f) (relating to limitation in case of certain
regulated companies).
(3) Section 46(h) (relating to special rules for cooperatives).
(4) Paragraphs (2) and (3) of section 48(b) (relating to
special rule for sale-leasebacks).
(5) Section 48(d) (relating to certain leased property).
(6) Section 48(f) (relating to estates and trusts).
(7) Section 48(r) (relating to certain 501(d) organizations).
Paragraphs (1)(A), (2)(A), and (4) of the section 46(e) referred to
in paragraph (1) of this subsection shall not apply to any taxable
year beginning after December 31, 1995.
-SOURCE-
(Added Pub. L. 101-508, title XI, Sec. 11813(a), Nov. 5, 1990, 104
Stat. 1388-546; amended Pub. L. 104-188, title I, Secs. 1616(b)(1),
1702(h)(11), 1704(t)(29), Aug. 20, 1996, 110 Stat. 1856, 1874,
1889; Pub. L. 105-206, title VI, Sec. 6004(g)(7), July 22, 1998,
112 Stat. 796; Pub. L. 108-357, title III, Sec. 322(d)(2)(D), Oct.
22, 2004, 118 Stat. 1475; Pub. L. 109-135, title IV, Sec. 412(o),
Dec. 21, 2005, 119 Stat. 2638.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsec. (d), is the date of enactment of Pub.
L. 101-508, which was approved Nov. 5, 1990.
-MISC1-
PRIOR PROVISIONS
A prior section 50, Pub. L. 92-178, title I, Sec. 101(a), Dec.
10, 1971, 85 Stat. 498, related to restoration of credit for
investment in certain depreciable property, prior to repeal by Pub.
L. 95-600, title III, Sec. 312(c)(1), Nov. 6, 1978, 92 Stat. 2826,
applicable to taxable years ending after Dec. 31, 1978.
AMENDMENTS
2005 - Subsec. (a)(2)(E). Pub. L. 109-135 substituted "section
48(b)" for "section 48(a)(5)".
2004 - Subsec. (c)(3). Pub. L. 108-357 struck out "or
reforestation credit" after "energy credit" in introductory
provisions.
1998 - Subsec. (a)(5)(C). Pub. L. 105-206 substituted "this
chapter" for "subpart A, B, D, or G".
1996 - Subsec. (a)(2)(C). Pub. L. 104-188, Sec. 1704(t)(29),
substituted "subsection (d)(5)" for "subsection (c)(4)".
Subsec. (a)(2)(E). Pub. L. 104-188, Sec. 1702(h)(11), substituted
"48(a)(5)" for "48(a)(5)(A)".
Subsec. (d). Pub. L. 104-188, Sec. 1616(b)(1), inserted closing
provisions.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable with respect to
expenditures paid or incurred after Oct. 22, 2004, see section
322(e) of Pub. L. 108-357, set out as a note under section 46 of
this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1616(b)(1) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1995, see section 1616(c) of
Pub. L. 104-188, set out as a note under section 593 of this title.
Amendment by section 1702(h)(11) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L. 101-
508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE
Section applicable to property placed in service after Dec. 31,
1990, but not applicable to any transition property (as defined in
section 49(e) of this title), any property with respect to which
qualified progress expenditures were previously taken into account
under section 46(d) of this title, and any property described in
section 46(b)(2)(C) of this title, as such sections were in effect
on Nov. 4, 1990, see section 11813(c) of Pub. L. 101-508, set out
as an Effective Date of 1990 Amendment note under section 45K of
this title.
SAVINGS PROVISION
For provisions that nothing in this section be construed to
affect treatment of certain transactions occurring, property
acquired, or items of income, loss, deduction, or credit taken into
account prior to Nov. 5, 1990, for purposes of determining
liability for tax for periods ending after Nov. 5, 1990, see
section 11821(b) of Pub. L. 101-508, set out as a note under
section 45K of this title.
-FOOTNOTE-
(!1) So in original. The period probably should be a semicolon.
-End-
-CITE-
26 USC Secs. 50A, 50B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart E - Rules for Computing Investment Credit
-HEAD-
[Secs. 50A, 50B. Repealed. Pub. L. 98-369, div. A, title IV, Sec.
474(m)(2), July 18, 1984, 98 Stat. 833]
-MISC1-
Section 50A, added Pub. L. 92-178, title VI, Sec. 601(b), Dec.
10, 1971, 85 Stat. 554; amended Pub. L. 93-406, title II, Secs.
2001(g)(2)(B), 2002(g)(2), 2005(c)(4), Sept. 2, 1974, 88 Stat. 957,
968, 991; Pub. L. 94-12, title IV, Sec. 401(a)(1), (2), Mar. 29,
1975, 89 Stat. 45; Pub. L. 94-401, Sec. 4(a), Sept. 7, 1976, 90
Stat. 1217; Pub. L. 94-455, title V, Sec. 503(b)(4), title XIX,
Secs. 1901(a)(6), (b)(1)(D), 1906(b)(13)(A), title XXI, Sec.
2107(a)(1)-(3), (b), (c), Oct. 4, 1976, 90 Stat. 1562, 1765, 1790,
1834, 1903, 1904; Pub. L. 95-600, title III, Sec. 322(a)-(c), Nov.
6, 1978, 92 Stat. 2836, 2837; Pub. L. 96-178, Sec. 6(c)(1), Jan. 2,
1980, 93 Stat. 1298; Pub. L. 96-222, title I, Sec. 103(a)(7)(D)(i),
Apr. 1, 1980, 94 Stat. 211; Pub. L. 97-34, title II, Sec.
207(c)(1), Aug. 13, 1981, 95 Stat. 225; Pub. L. 97-248, title I,
Sec. 265(b)(2)(A)(ii), Sept. 3, 1982, 96 Stat. 547; Pub. L. 97-354,
Sec. 5(a)(9), Oct. 19, 1982, 96 Stat. 1693, provided for a credit
for expenses of work incentive programs, for the determination of
the amount of that credit, and for the carryover and carryback of
unused credit.
Section 50B, added Pub. L. 92-178, title VI, Sec. 601(b), Dec.
10, 1971, 85 Stat. 556; amended Pub. L. 94-12, title III, Sec.
302(c)(4), title IV, Sec. 401(a)(3)-(5), Mar. 29, 1975, 89 Stat.
44, 46; Pub. L. 94-401, Sec. 4(b), Sept. 7, 1976, 90 Stat. 1218;
Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), title XXI, Sec.
2107(a)(4), (d)-(f), Oct. 4, 1976, 90 Stat. 1834, 1903, 1904; Pub.
L. 95-171, Sec. 1(e), Nov. 12, 1977, 91 Stat. 1353; Pub. L. 95-600,
title III, Sec. 322(d), Nov. 6, 1978, 92 Stat. 2837; Pub. L. 96-
178, Secs. 3(a)(1), (3), 6(c)(2), (3), Jan. 2, 1980, 93 Stat.
1295, 1298; Pub. L. 96-222, title I, Sec. 103(a)(5), (7)(C),
(D)(ii), (iii), Apr. 1, 1980, 94 Stat. 209, 211; Pub. L. 96-272,
title II, Sec. 208(b)(1), (2), June 17, 1980, 94 Stat. 526, 527;
Pub. L. 97-34, title II, Sec. 261(b)(2)(B)(i), Aug. 13, 1981, 95
Stat. 261; Pub. L. 97-354, Sec. 5(a)(10), Oct. 19, 1982, 96 Stat.
1693; Pub. L. 101-239, title VII, Sec. 7644, Dec. 19, 1989, 103
Stat. 2381, provided for the definition of terms related to the
expenses of work incentive programs, limitations on such expenses,
and special rules to be applied in connection with the computation
of the credit.
Subsequent to repeal, Pub. L. 101-239, title VII, Sec. 7644(a),
Dec. 19, 1989, 103 Stat. 2381, provided that:
"(a) In General. - So much of subparagraph (A) of section
50B(h)(1) of the Internal Revenue Code of 1954 (as in effect for
taxable years beginning before January 1, 1982) as precedes clause
(i) thereof is amended to read as follows:
" '(A) who has been certified (or for whom a written request
for certification has been made) on or before the day the
individual began work for the taxpayer by the Secretary of Labor
or by the appropriate agency of State or local government as - '.
"(b) Effective Date. - The amendment made by subsection (a) shall
apply for purposes of credits first claimed after March 11, 1987."
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1983,
and to carrybacks from such years, see section 475(a) of Pub. L. 98-
369, set out as an Effective Date of 1984 Amendment note under
section 21 of this title.
-End-
-CITE-
26 USC Subpart F - Rules for Computing Work Opportunity
Credit 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart F - Rules for Computing Work Opportunity Credit
-HEAD-
SUBPART F - RULES FOR COMPUTING WORK OPPORTUNITY CREDIT
-MISC1-
Sec.
51. Amount of credit.
51A. Temporary incentives for employing long-term family
assistance recipients.
52. Special rules.
AMENDMENTS
1997 - Pub. L. 105-34, title VIII, Sec. 801(b), Aug. 5, 1997, 111
Stat. 871, added item 51A.
1996 - Pub. L. 104-188, title I, Sec. 1201(e)(2), Aug. 20, 1996,
110 Stat. 1772, substituted "Work Opportunity Credit" for "Targeted
Jobs Credit" in subpart heading.
1984 - Pub. L. 98-369, div. A, title IV, Sec. 474(n)(1), (2),
(p)(9), July 18, 1984, 98 Stat. 833, 838, substituted "F" for "D"
as subpart designation, substituted "Rules for Computing Targeted
Jobs Credit" for "Rules for Computing Credit for Employment of
Certain New Employees" in heading, and struck out item 53
"Limitation based on amount of tax".
-End-
-CITE-
26 USC Sec. 51 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart F - Rules for Computing Work Opportunity Credit
-HEAD-
Sec. 51. Amount of credit
-STATUTE-
(a) Determination of amount
For purposes of section 38, the amount of the work opportunity
credit determined under this section for the taxable year shall be
equal to 40 percent of the qualified first-year wages for such
year.
(b) Qualified wages defined
For purposes of this subpart -
(1) In general
The term "qualified wages" means the wages paid or incurred by
the employer during the taxable year to individuals who are
members of a targeted group.
(2) Qualified first-year wages
The term "qualified first-year wages" means, with respect to
any individual, qualified wages attributable to service rendered
during the 1-year period beginning with the day the individual
begins work for the employer.
(3) Only first $6,000 of wages per year taken into account
The amount of the qualified first-year wages which may be taken
into account with respect to any individual shall not exceed
$6,000 per year.
(c) Wages defined
For purposes of this subpart -
(1) In general
Except as otherwise provided in this subsection and subsection
(h)(2), the term "wages" has the meaning given to such term by
subsection (b) of section 3306 (determined without regard to any
dollar limitation contained in such section).
(2) On-the-job training and work supplementation payments
(A) Exclusion for employers receiving on-the-job training
payments
The term "wages" shall not include any amounts paid or
incurred by an employer for any period to any individual for
whom the employer receives federally funded payments for on-the-
job training of such individual for such period.
(B) Reduction for work supplementation payments to employers
The amount of wages which would (but for this subparagraph)
be qualified wages under this section for an employer with
respect to an individual for a taxable year shall be reduced by
an amount equal to the amount of the payments made to such
employer (however utilized by such employer) with respect to
such individual for such taxable year under a program
established under section 482(e) (!1) of the Social Security
Act.
(3) Payments for services during labor disputes
If -
(A) the principal place of employment of an individual with
the employer is at a plant or facility, and
(B) there is a strike or lockout involving employees at such
plant or facility,
the term "wages" shall not include any amount paid or incurred by
the employer to such individual for services which are the same
as, or substantially similar to, those services performed by
employees participating in, or affected by, the strike or lockout
during the period of such strike or lockout.
(4) Termination
The term "wages" shall not include any amount paid or incurred
to an individual who begins work for the employer -
(A) after December 31, 1994, and before October 1, 1996, or
(B) after December 31, 2005.
(d) Members of targeted groups
For purposes of this subpart -
(1) In general
An individual is a member of a targeted group if such
individual is -
(A) a qualified IV-A recipient,
(B) a qualified veteran,
(C) a qualified ex-felon,
(D) a high-risk youth,
(E) a vocational rehabilitation referral,
(F) a qualified summer youth employee,
(G) a qualified food stamp recipient, or
(H) a qualified SSI recipient.
(2) Qualified IV-A recipient
(A) In general
The term "qualified IV-A recipient" means any individual who
is certified by the designated local agency as being a member
of a family receiving assistance under a IV-A program for any 9
months during the 18-month period ending on the hiring date.
(B) IV-A program
For purposes of this paragraph, the term "IV-A program" means
any program providing assistance under a State program funded
under part A of title IV of the Social Security Act and any
successor of such program.
(3) Qualified veteran
(A) In general
The term "qualified veteran" means any veteran who is
certified by the designated local agency as being a member of a
family receiving assistance under a food stamp program under
the Food Stamp Act of 1977 for at least a 3-month period ending
during the 12-month period ending on the hiring date.
(B) Veteran
For purposes of subparagraph (A), the term "veteran" means
any individual who is certified by the designated local agency
as -
(i)(I) having served on active duty (other than active duty
for training) in the Armed Forces of the United States for a
period of more than 180 days, or
(II) having been discharged or released from active duty in
the Armed Forces of the United States for a service-connected
disability, and
(ii) not having any day during the 60-day period ending on
the hiring date which was a day of extended active duty in
the Armed Forces of the United States.
For purposes of clause (ii), the term "extended active duty"
means a period of more than 90 days during which the individual
was on active duty (other than active duty for training).
(4) Qualified ex-felon
The term "qualified ex-felon" means any individual who is
certified by the designated local agency -
(A) as having been convicted of a felony under any statute of
the United States or any State,
(B) as having a hiring date which is not more than 1 year
after the last date on which such individual was so convicted
or was released from prison, and
(C) as being a member of a family which had an income during
the 6 months immediately preceding the earlier of the month in
which such income determination occurs or the month in which
the hiring date occurs, which, on an annual basis, would be 70
percent or less of the Bureau of Labor Statistics lower living
standard.
Any determination under subparagraph (C) shall be valid for the
45-day period beginning on the date such determination is made.
(5) High-risk youth
(A) In general
The term "high-risk youth" means any individual who is
certified by the designated local agency -
(i) as having attained age 18 but not age 25 on the hiring
date, and
(ii) as having his principal place of abode within an
empowerment zone, enterprise community, or renewal community.
(B) Youth must continue to reside in zone or community
In the case of a high-risk youth, the term "qualified wages"
shall not include wages paid or incurred for services performed
while such youth's principal place of abode is outside an
empowerment zone, enterprise community, or renewal community.
(6) Vocational rehabilitation referral
The term "vocational rehabilitation referral" means any
individual who is certified by the designated local agency as -
(A) having a physical or mental disability which, for such
individual, constitutes or results in a substantial handicap to
employment, and
(B) having been referred to the employer upon completion of
(or while receiving) rehabilitative services pursuant to -
(i) an individualized written plan for employment under a
State plan for vocational rehabilitation services approved
under the Rehabilitation Act of 1973, or
(ii) a program of vocational rehabilitation carried out
under chapter 31 of title 38, United States Code.
(7) Qualified summer youth employee
(A) In general
The term "qualified summer youth employee" means any
individual -
(i) who performs services for the employer between May 1
and September 15,
(ii) who is certified by the designated local agency as
having attained age 16 but not 18 on the hiring date (or if
later, on May 1 of the calendar year involved),
(iii) who has not been an employee of the employer during
any period prior to the 90-day period described in
subparagraph (B)(i), and
(iv) who is certified by the designated local agency as
having his principal place of abode within an empowerment
zone, enterprise community, or renewal community.
(B) Special rules for determining amount of credit
For purposes of applying this subpart to wages paid or
incurred to any qualified summer youth employee -
(i) subsection (b)(2) shall be applied by substituting "any
90-day period between May 1 and September 15" for "the 1-year
period beginning with the day the individual begins work for
the employer", and
(ii) subsection (b)(3) shall be applied by substituting
"$3,000" for "$6,000".
The preceding sentence shall not apply to an individual who,
with respect to the same employer, is certified as a member of
another targeted group after such individual has been a
qualified summer youth employee.
(C) Youth must continue to reside in zone or community
Paragraph (5)(B) shall apply for purposes of subparagraph
(A)(iv).
(8) Qualified food stamp recipient
(A) In general
The term "qualified food stamp recipient" means any
individual who is certified by the designated local agency -
(i) as having attained age 18 but not age 25 on the hiring
date, and
(ii) as being a member of a family -
(I) receiving assistance under a food stamp program under
the Food Stamp Act of 1977 for the 6-month period ending on
the hiring date, or
(II) receiving such assistance for at least 3 months of
the 5-month period ending on the hiring date, in the case
of a member of a family who ceases to be eligible for such
assistance under section 6(o) of the Food Stamp Act of
1977.
(B) Participation information
Notwithstanding any other provision of law, the Secretary of
the Treasury and the Secretary of Agriculture shall enter into
an agreement to provide information to designated local
agencies with respect to participation in the food stamp
program.
(9) Qualified SSI recipient
The term "qualified SSI recipient" means any individual who is
certified by the designated local agency as receiving
supplemental security income benefits under title XVI of the
Social Security Act (including supplemental security income
benefits of the type described in section 1616 of such Act or
section 212 of Public Law 93-66) for any month ending within the
60-day period ending on the hiring date.
(10) Hiring date
The term "hiring date" means the day the individual is hired by
the employer.
(11) Designated local agency
The term "designated local agency" means a State employment
security agency established in accordance with the Act of June 6,
1933, as amended (29 U.S.C. 49-49n).
(12) Special rules for certifications
(A) In general
An individual shall not be treated as a member of a targeted
group unless -
(i) on or before the day on which such individual begins
work for the employer, the employer has received a
certification from a designated local agency that such
individual is a member of a targeted group, or
(ii)(I) on or before the day the individual is offered
employment with the employer, a pre-screening notice is
completed by the employer with respect to such individual,
and
(II) not later than the 21st day after the individual
begins work for the employer, the employer submits such
notice, signed by the employer and the individual under
penalties of perjury, to the designated local agency as part
of a written request for such a certification from such
agency.
For purposes of this paragraph, the term "pre-screening notice"
means a document (in such form as the Secretary shall
prescribe) which contains information provided by the
individual on the basis of which the employer believes that the
individual is a member of a targeted group.
(B) Incorrect certifications
If -
(i) an individual has been certified by a designated local
agency as a member of a targeted group, and
(ii) such certification is incorrect because it was based
on false information provided by such individual,
the certification shall be revoked and wages paid by the
employer after the date on which notice of revocation is
received by the employer shall not be treated as qualified
wages.
(C) Explanation of denial of request
If a designated local agency denies a request for
certification of membership in a targeted group, such agency
shall provide to the person making such request a written
explanation of the reasons for such denial.
[(e) Repealed. Pub. L. 97-34, title II, Sec. 261(e)(1), Aug. 13,
1981, 95 Stat. 262]
(f) Remuneration must be for trade or business employment
(1) In general
For purposes of this subpart, remuneration paid by an employer
to an employee during any taxable year shall be taken into
account only if more than one-half of the remuneration so paid is
for services performed in a trade or business of the employer.
(2) Special rule for certain determination
Any determination as to whether paragraph (1), or subparagraph
(A) or (B) of subsection (h)(1), applies with respect to any
employee for any taxable year shall be made without regard to
subsections (a) and (b) of section 52.
(g) United States Employment Service to notify employers of
availability of credit
The United States Employment Service, in consultation with the
Internal Revenue Service, shall take such steps as may be necessary
or appropriate to keep employers apprised of the availability of
the work opportunity credit determined under this subpart.
(h) Special rules for agricultural labor and railway labor
For purposes of this subpart -
(1) Unemployment insurance wages
(A) Agricultural labor
If the services performed by any employee for an employer
during more than one-half of any pay period (within the meaning
of section 3306(d)) taken into account with respect to any year
constitute agricultural labor (within the meaning of section
3306(k)), the term "unemployment insurance wages" means, with
respect to the remuneration paid by the employer to such
employee for such year, an amount equal to so much of such
remuneration as constitutes "wages" within the meaning of
section 3121(a), except that the contribution and benefit base
for each calendar year shall be deemed to be $6,000.
(B) Railway labor
If more than one-half of remuneration paid by an employer to
an employee during any year is remuneration for service
described in section 3306(c)(9), the term "unemployment
insurance wages" means, with respect to such employee for such
year, an amount equal to so much of the remuneration paid to
such employee during such year which would be subject to
contributions under section 8(a) of the Railroad Unemployment
Insurance Act (45 U.S.C. 358(a)) if the maximum amount subject
to such contributions were $500 per month.
(2) Wages
In any case to which subparagraph (A) or (B) of paragraph (1)
applies, the term "wages" means unemployment insurance wages
(determined without regard to any dollar limitation).
(i) Certain individuals ineligible
(1) Related individuals
No wages shall be taken into account under subsection (a) with
respect to an individual who -
(A) bears any of the relationships described in subparagraphs
(A) through (G) of section 152(d)(2) to the taxpayer, or, if
the taxpayer is a corporation, to an individual who owns,
directly or indirectly, more than 50 percent in value of the
outstanding stock of the corporation, or, if the taxpayer is an
entity other than a corporation, to any individual who owns,
directly or indirectly, more than 50 percent of the capital and
profits interests in the entity,(!2) (determined with the
application of section 267(c)),
(B) if the taxpayer is an estate or trust, is a grantor,
beneficiary, or fiduciary of the estate or trust, or is an
individual who bears any of the relationships described in
subparagraphs (A) through (G) of section 152(d)(2) to a
grantor, beneficiary, or fiduciary of the estate or trust, or
(C) is a dependent (described in section 152(d)(2)(H)) of the
taxpayer, or, if the taxpayer is a corporation, of an
individual described in subparagraph (A), or, if the taxpayer
is an estate or trust, of a grantor, beneficiary, or fiduciary
of the estate or trust.
(2) Nonqualifying rehires
No wages shall be taken into account under subsection (a) with
respect to any individual if, prior to the hiring date of such
individual, such individual had been employed by the employer at
any time.
(3) Individuals not meeting minimum employment periods
(A) Reduction of credit for individuals performing fewer than
400 hours of service
In the case of an individual who has performed at least 120
hours, but less than 400 hours, of service for the employer,
subsection (a) shall be applied by substituting "25 percent"
for "40 percent".
(B) Denial of credit for individuals performing fewer than 120
hours of service
No wages shall be taken into account under subsection (a)
with respect to any individual unless such individual has
performed at least 120 hours of service for the employer.
(j) Election to have work opportunity credit not apply
(1) In general
A taxpayer may elect to have this section not apply for any
taxable year.
(2) Time for making election
An election under paragraph (1) for any taxable year may be
made (or revoked) at any time before the expiration of the 3-year
period beginning on the last date prescribed by law for filing
the return for such taxable year (determined without regard to
extensions).
(3) Manner of making election
An election under paragraph (1) (or revocation thereof) shall
be made in such manner as the Secretary may by regulations
prescribe.
(k) Treatment of successor employers; treatment of employees
performing services for other persons
(1) Treatment of successor employers
Under regulations prescribed by the Secretary, in the case of a
successor employer referred to in section 3306(b)(1), the
determination of the amount of the credit under this section with
respect to wages paid by such successor employer shall be made in
the same manner as if such wages were paid by the predecessor
employer referred to in such section.
(2) Treatment of employees performing services for other persons
No credit shall be determined under this section with respect
to remuneration paid by an employer to an employee for services
performed by such employee for another person unless the amount
reasonably expected to be received by the employer for such
services from such other person exceeds the remuneration paid by
the employer to such employee for such services.
-SOURCE-
(Added Pub. L. 95-30, title II, Sec. 202(b), May 23, 1977, 91 Stat.
141; amended Pub. L. 95-600, title III, Sec. 321(a), Nov. 6, 1978,
92 Stat. 2830; Pub. L. 96-222, title I, Sec. 103(a)(6)(A), (E),
(F), (G)(iii)-(ix), Apr. 1, 1980, 94 Stat. 209, 210; Pub. L. 97-34,
title II, Sec. 261(a)-(b)(2)(A), (B)(ii)-(f)(1), Aug. 13, 1981, 95
Stat. 260-262; Pub. L. 97-248, title II, Sec. 233(a)-(d), (f),
Sept. 3, 1982, 96 Stat. 501, 502; Pub. L. 97-448, title I, Sec.
102(l)(1), (3), (4), Jan. 12, 1983, 96 Stat. 2374; Pub. L. 98-369,
div. A, title IV, Sec. 474(p)(1)-(3), title VII, Sec. 712(n), title
X, Sec. 1041(a), (c)(1)-(4), div. B, title VI, Secs. 2638(b),
2663(j)(5)(A), July 18, 1984, 98 Stat. 837, 955, 1042, 1043, 1144,
1171; Pub. L. 99-514, title XVII, Sec. 1701(a)-(c), title XVIII,
Sec. 1878(f)(1), Oct. 22, 1986, 100 Stat. 2772, 2904; Pub. L. 100-
203, title X, Sec. 10601(a), Dec. 22, 1987, 101 Stat. 1330-451;
Pub. L. 100-485, title II, Sec. 202(c)(6), Oct. 13, 1988, 102 Stat.
2378; Pub. L. 100-647, title I, Sec. 1017(a), title IV, Sec.
4010(a), (c)(1), (d)(1), Nov. 10, 1988, 102 Stat. 3575, 3655; Pub.
L. 101-239, title VII, Sec. 7103(a), (c)(1), Dec. 19, 1989, 103
Stat. 2305; Pub. L. 101-508, title XI, Sec. 11405(a), Nov. 5, 1990,
104 Stat. 1388-473; Pub. L. 102-227, title I, Sec. 105(a), Dec. 11,
1991, 105 Stat. 1687; Pub. L. 103-66, title XIII, Secs. 13102(a),
13302(d), Aug. 10, 1993, 107 Stat. 420, 556; Pub. L. 104-188, title
I, Sec. 1201(a)-(e)(1), (5), (f), Aug. 20, 1996, 110 Stat. 1768-
1772; Pub. L. 104-193, title I, Sec. 110(l)(1), Aug. 22, 1996, 110
Stat. 2173; Pub. L. 105-33, title V, Sec. 5514(a)(1), Aug. 5, 1997,
111 Stat. 620; Pub. L. 105-34, title VI, Sec. 603(a)-(d), Aug. 5,
1997, 111 Stat. 862; Pub. L. 105-277, div. J, title I, Sec.
1002(a), title IV, Sec. 4006(c)(1), Oct. 21, 1998, 112 Stat. 2681-
888, 2681-912; Pub. L. 106-170, title V, Sec. 505(a), (b), Dec.
17, 1999, 113 Stat. 1921; Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 102(a)-(c), title III, Sec. 316(a)], Dec. 21, 2000, 114 Stat.
2763, 2763A-600, 2763A-644; Pub. L. 107-147, title VI, Sec. 604(a),
Mar. 9, 2002, 116 Stat. 59; Pub. L. 108-311, title II, Sec. 207(5),
title III, Sec. 303(a)(1), Oct. 4, 2004, 118 Stat. 1177, 1179.)
-REFTEXT-
REFERENCES IN TEXT
The Social Security Act, referred to in subsecs. (c)(2)(B) and
(d)(2)(B), (9), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as
amended. Part A of title IV of the Act is classified generally to
part A (Sec. 601 et seq.) of subchapter IV of chapter 7 of Title
42, The Public Health and Welfare. Title XVI of the Act is
classified generally to subchapter XVI (Sec. 1381 et seq.) of
chapter 7 of Title 42. Section 482 of the Act, which was classified
to section 682 of Title 42, was repealed by Pub. L. 104-193, title
I, Sec. 108(e), Aug. 22, 1996, 110 Stat. 2167. Section 1616 of the
Act is classified to section 1382e of Title 42. For complete
classification of this Act to the Code, see section 1305 of Title
42 and Tables.
The Food Stamp Act of 1977, referred to in subsec. (d)(3)(A),
(8)(A)(ii), is Pub. L. 88-525, Aug. 31, 1964, 78 Stat. 703, as
amended, which is classified generally to chapter 51 (Sec. 2011 et
seq.) of Title 7, Agriculture. Section 6(o) of the Act is
classified to section 2015(o) of Title 7. For complete
classification of this Act to the Code, see Short Title note set
out under section 2011 of Title 7 and Tables.
The Rehabilitation Act of 1973, referred to in subsec.
(d)(6)(B)(i), is Pub. L. 93-112, Sept. 26, 1973, 87 Stat. 355, as
amended, which is classified generally to chapter 16 (Sec. 701 et
seq.) of Title 29, Labor. For complete classification of this Act
to the Code, see Short Title note set out under section 701 of
Title 29 and Tables.
Section 212 of Public Law 93-66, referred to in subsec. (d)(9),
is set out as a note under section 1382 of Title 42, The Public
Health and Welfare.
Act of June 6, 1933, referred to in subsec. (d)(11), is act June
6, 1933, ch. 49, 48 Stat. 113, as amended, popularly known as the
Wagner-Peyser Act, which is classified generally to chapter 4B
(Sec. 49 et seq.) of Title 29, Labor. For complete classification
of this Act to the Code, see Short Title note set out under section
49 of Title 29 and Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 51, added Pub. L. 90-364, title I, Sec. 102(a),
June 28, 1968, 82 Stat. 252; amended Pub. L. 91-53, Sec. 5(a), Aug.
7, 1969, 83 Stat. 93; Pub. L. 91-172, title III, Sec. 301(b)(5),
title VII, Sec. 701(a), Dec. 30, 1969, 83 Stat. 585, 657, related
to the imposition of a tax surcharge, prior to repeal by Pub. L. 94-
455, title XIX, Sec. 1901(a)(7), Oct. 4, 1976, 90 Stat. 1765.
AMENDMENTS
2004 - Subsec. (c)(4)(B). Pub. L. 108-311, Sec. 303(a)(1),
substituted "2005" for "2003".
Subsec. (i)(1)(A), (B). Pub. L. 108-311, Sec. 207(5)(A),
substituted "subparagraphs (A) through (G) of section 152(d)(2)"
for "paragraphs (1) through (8) of section 152(a)".
Subsec. (i)(1)(C). Pub. L. 108-311, Sec. 207(5)(B), substituted
"152(d)(2)(H)" for "152(a)(9)".
2002 - Subsec. (c)(4)(B). Pub. L. 107-147 substituted "2003" for
"2001".
2000 - Subsec. (d)(2)(B). Pub. L. 106-554, Sec. 1(a)(7) [title
III, Sec. 316(a)], substituted "program funded" for "plan approved"
and struck out "(relating to assistance for needy families with
minor children)" after "Social Security Act".
Subsec. (d)(5)(A)(ii). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 102(a)], substituted "empowerment zone, enterprise community,
or renewal community" for "empowerment zone or enterprise
community".
Subsec. (d)(5)(B). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
102(a), (c)], inserted "or community" after "zone" in heading and
substituted "empowerment zone, enterprise community, or renewal
community" for "empowerment zone or enterprise community" in text.
Subsec. (d)(7)(A)(iv). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 102(b)], substituted "empowerment zone, enterprise community,
or renewal community" for "empowerment zone or enterprise
community".
Subsec. (d)(7)(C). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
102(c)], inserted "or community" after "zone" in heading.
1999 - Subsec. (c)(4)(B). Pub. L. 106-170, Sec. 505(a),
substituted "December 31, 2001" for "June 30, 1999".
Subsec. (i)(2). Pub. L. 106-170, Sec. 505(b), struck out "during
which he was not a member of a targeted group" before period at
end.
1998 - Subsec. (c)(4)(B). Pub. L. 105-277, Sec. 1002(a),
substituted "June 30, 1999" for "June 30, 1998".
Subsec. (d)(6)(B)(i). Pub. L. 105-277, Sec. 4006(c)(1),
substituted "plan for employment" for "rehabilitation plan".
1997 - Subsec. (a). Pub. L. 105-34, Sec. 603(d)(1), substituted
"40 percent" for "35 percent".
Subsec. (c)(4)(B). Pub. L. 105-34, Sec. 603(a), substituted "June
30, 1998" for "September 30, 1997".
Subsec. (d)(1)(H). Pub. L. 105-34, Sec. 603(c)(1), added subpar.
(H).
Subsec. (d)(2)(A). Pub. L. 105-34, Sec. 603(b)(1), substituted
"for any 9 months during the 18-month period ending on the hiring
date" for "for at least a 9-month period ending during the 9-month
period ending on the hiring date".
Subsec. (d)(3)(A). Pub. L. 105-34, Sec. 603(b)(2), amended
heading and text of subpar. (A) generally. Prior to amendment, text
read as follows: "The term 'qualified veteran' means any veteran
who is certified by the designated local agency as being -
"(i) a member of a family receiving assistance under a IV-A
program (as defined in paragraph (2)(B)) for at least a 9-month
period ending during the 12-month period ending on the hiring
date, or
"(ii) a member of a family receiving assistance under a food
stamp program under the Food Stamp Act of 1977 for at least a 3-
month period ending during the 12-month period ending on the
hiring date."
Subsec. (d)(9). Pub. L. 105-34, Sec. 603(c)(2), added par. (9).
Former par. (9) redesignated (10).
Pub. L. 105-33 repealed Pub. L. 104-193, Sec. 110(l)(1). See 1996
Amendment note below.
Subsec. (d)(10) to (12). Pub. L. 105-34, Sec. 603(c)(2),
redesignated pars. (9) to (11) as (10) to (12), respectively.
Subsec. (i)(3). Pub. L. 105-34, Sec. 603(d)(2), amended heading
and text of par. (3) generally. Prior to amendment, text read as
follows: "No wages shall be taken into account under subsection (a)
with respect to any individual unless such individual either -
"(A) is employed by the employer at least 180 days (20 days in
the case of a qualified summer youth employee), or
"(B) has completed at least 400 hours (120 hours in the case of
a qualified summer youth employee) of services performed for the
employer."
1996 - Subsec. (a). Pub. L. 104-188, Sec. 1201(a), (e)(1),
substituted "work opportunity credit" for "targeted jobs credit"
and "35 percent" for "40 percent".
Subsec. (c)(1). Pub. L. 104-188, Sec. 1201(f), struck out ",
subsection (d)(8)(D)," after "this subsection".
Subsec. (c)(4). Pub. L. 104-188, Sec. 1201(d), amended par. (4)
generally. Prior to amendment, par. (4) read as follows:
"Termination. - The term 'wages' shall not include any amount paid
or incurred to an individual who begins work for the employer after
December 31, 1994."
Subsec. (d). Pub. L. 104-188, Sec. 1201(b), reenacted heading
without change and amended text generally, revising and restating
as pars. (1) to (11) provisions formerly contained in pars. (1) to
(16).
Subsec. (d)(9). Pub. L. 104-193, Sec. 110(l)(1), which directed
amendment of par. (9) by striking all that follows "agency as" and
inserting "being eligible for financial assistance under part A of
title IV of the Social Security Act and as having continually
received such financial assistance during the 90-day period which
immediately precedes the date on which such individual is hired by
the employer.", was repealed by Pub. L. 105-33.
Subsec. (g). Pub. L. 104-188, Sec. 1201(e)(1), substituted "work
opportunity credit" for "targeted jobs credit".
Subsec. (i)(3). Pub. L. 104-188, Sec. 1201(c), amended par. (3)
generally. Prior to amendment, par. (3) read as follows:
"Individuals not meeting minimum employment period. - No wages
shall be taken into account under subsection (a) with respect to
any individual unless such individual either -
"(A) is employed by the employer at least 90 days (14 days in
the case of an individual described in subsection (d)(12)), or
"(B) has completed at least 120 hours (20 hours in the case of
an individual described in subsection (d)(12)) of services
performed for the employer."
Subsec. (j). Pub. L. 104-188, Sec. 1201(e)(5), substituted "Work
opportunity credit" for "Targeted jobs credit" in heading.
1993 - Subsec. (c)(4). Pub. L. 103-66, Sec. 13102(a), substituted
"December 31, 1994" for "June 30, 1992".
Subsec. (i)(1)(A). Pub. L. 103-66, Sec. 13302(d), inserted ", or,
if the taxpayer is an entity other than a corporation, to any
individual who owns, directly or indirectly, more than 50 percent
of the capital and profits interests in the entity," after "of the
corporation".
1991 - Subsec. (c)(4). Pub. L. 102-227 substituted "June 30,
1992" for "December 31, 1991".
1990 - Subsec. (c)(4). Pub. L. 101-508 substituted "December 31,
1991" for "September 30, 1990".
1989 - Subsec. (c)(4). Pub. L. 101-239, Sec. 7103(a), substituted
"September 30, 1990" for "December 31, 1989".
Subsec. (d)(16)(C). Pub. L. 101-239, Sec. 7103(c)(1), added
subpar. (C).
1988 - Subsec. (c)(2)(B). Pub. L. 100-485 substituted "section
482(e)" for "section 414".
Subsec. (c)(4). Pub. L. 100-647, Sec. 4010(a), substituted "1989"
for "1988".
Subsec. (d)(3)(B). Pub. L. 100-647, Sec. 4010(c)(1), substituted
"age 23" for "age 25".
Subsec. (d)(12)(B). Pub. L. 100-647, Sec. 4010(d)(1),
redesignated former cls. (ii) and (iii) as (i) and (ii),
respectively, and struck out former cl. (i) which provided that
subsection (a) shall be applied by substituting "85 percent" for
"40 percent".
Pub. L. 100-647, Sec. 1017(a), substituted "subsection (a)" for
"subsection (a)(1)" in cl. (i).
1987 - Subsec. (c)(3), (4). Pub. L. 100-203 added par. (3) and
redesignated former par. (3) as (4).
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1701(b)(1), amended
subsec. (a) generally. Prior to amendment, subsec. (a) read as
follows: "For purposes of section 38, the amount of the targeted
jobs credit determined under this section for the taxable year
shall be the sum of -
"(1) 50 percent of the qualified first-year wages for such
year, and
"(2) 25 percent of the qualified second-year wages for such
year."
Subsec. (b)(3), (4). Pub. L. 99-514, Sec. 1701(b)(2)(A),
redesignated par. (4) as (3) and struck out ", and the amount of
the qualified second-year wages," after "first-year wages" and
struck out par. (3) which defined "qualified second-year wages".
Subsec. (c)(3). Pub. L. 99-514, Sec. 1701(a), substituted
"December 31, 1988" for "December 31, 1985".
Subsec. (d)(12)(B). Pub. L. 99-514, Sec. 1701(b)(2)(B), in cl.
(i), substituted "40 percent" for "50 percent", struck out cl. (ii)
which directed that subsecs. (a)(2) and (b)(3) were not to apply,
redesignated cl. (iii) as cl. (ii), redesignated cl. (iv) as cl.
(iii), and in cl. (iii) as so redesignated substituted "subsection
(b)(3)" for "subsection (b)(4)".
Subsec. (i)(3). Pub. L. 99-514, Sec. 1701(c), added par. (3).
Subsec. (k). Pub. L. 99-514, Sec. 1878(f)(1), redesignated
subsec. (j) added by section 1041(c)(1) of Pub. L. 98-369 and
relating to treatment of successor employers, and employees
performing services for other persons, as subsec. (k).
1984 - Subsec. (a). Pub. L. 98-369, Sec. 474(p)(1), substituted
"For purposes of section 38, the amount of the targeted jobs credit
determined under this section" for "The amount of the credit
allowable by section 44B" in introductory provisions.
Subsec. (b)(2). Pub. L. 98-369, Sec. 1041(c)(4), struck out "(or,
in the case of a vocational rehabilitation referral, the day the
individual begins work for the employer on or after the beginning
of such individual's rehabilitation plan)" after "begins work for
the employer".
Subsec. (c)(2). Pub. L. 98-369, Sec. 2638(b), designated existing
provisions as subpar. (A), inserted par. (2) heading, and added
subpar. (B).
Subsec. (c)(3). Pub. L. 98-369, Sec. 1041(a), substituted
"December 31, 1985" for "December 31, 1984".
Subsec. (d)(6)(B)(ii). Pub. L. 98-369, Sec. 2663(j)(5)(A),
substituted "Secretary of Health and Human Services" for "Secretary
of Health Education and Welfare".
Subsec. (d)(11). Pub. L. 98-369, Sec. 712(n), made determination
respecting membership of a qualified summer youth employee or youth
participating in a qualified cooperative education program with
respect to an employer applicable for purposes of determining
whether such individual is a member of another targeted group with
respect to such employer.
Subsec. (d)(12)(A)(ii). Pub. L. 98-369, Sec. 1041(c)(3),
substituted "(or if later, on May 1 of the calendar year involved)"
for "(as defined in paragraph (14))".
Subsec. (d)(16)(A). Pub. L. 98-369, Sec. 1041(c)(2), inserted
"For purposes of the preceding sentence, if on or before the day on
which such individual begins work for the employer, such individual
has received from a designated local agency (or other agency or
organization designated pursuant to a written agreement with such
designated local agency) a written preliminary determination that
such individual is a member of a targeted group, then 'the fifth
day' shall be substituted for 'the day' in such sentence."
Subsec. (g). Pub. L. 98-369, Sec. 474(p)(2), substituted "the
targeted jobs credit determined under this subpart" for "the credit
provided by section 44B".
Subsec. (j). Pub. L. 98-369, Sec. 1041(c)(1), added subsec. (j)
relating to treatment of successor employers, and employees
performing services for other persons.
Pub. L. 98-369, Sec. 474(p)(3), added subsec. (j) relating to
election to have targeted jobs credit not apply.
1983 - Subsec. (d)(8)(D). Pub. L. 97-448, Sec. 102(l)(1),
substituted "clauses (i), (ii), and (iii) of subparagraph (A)" for
"subparagraph (A)".
Subsec. (d)(9)(B). Pub. L. 97-448, Sec. 102(l)(3), substituted
"section 432(b)(1) or 445" for "section 432(b)(1)".
Subsec. (d)(11). Pub. L. 97-448, Sec. 102(l)(4), substituted "the
earlier of the month in which such determination occurs or the
month in which the hiring date occurs" for "the month in which such
determination occurs".
1982 - Subsec. (c)(3). Pub. L. 97-248, Sec. 233(a), substituted
"1984" for "1982".
Subsec. (d)(1)(J). Pub. L. 97-248, Sec. 233(b)(3), added subpar.
(J).
Subsec. (d)(6)(B)(i)(II). Pub. L. 97-248, Sec. 233(d),
substituted "consists of money payments or voucher or scrip, and"
for "consists of money payments".
Subsec. (d)(10). Pub. L. 97-248, Sec. 233(c), inserted provision
respecting nonapplicability of paragraph to individuals who begin
work for the employer after December 31, 1982.
Subsec. (d)(12) to (15). Pub. L. 97-248, Sec. 233(b)(4), (5),
added par. (12) and redesignated former pars. (12) to (15) as (13)
to (16), respectively.
Subsec. (d)(16). Pub. L. 97-248, Sec. 233(b)(4), redesignated
former par. (15) as (16).
Pub. L. 97-248, Sec. 233(f), substituted "on or before" for
"before" in subpar. (A).
1981 - Subsec. (c)(3), (4). Pub. L. 97-34, Sec. 261(b)(2)(B)(ii),
redesignated par. (4) as (3). Former par. (3), which excluded from
term "wages" any amount paid or incurred by the employer to an
individual with respect to whom the employer claims credit under
section 40 of this title, was struck out.
Pub. L. 97-34, Sec. 261(a), extended termination date to Dec. 31,
1982, from Dec. 31, 1981, and inserted "to an individual who begins
work for the employer" after "paid or incurred".
Subsec. (d)(1)(H), (I). Pub. L. 97-34, Sec. 261(b)(1), added
subpars. (H) and (I).
Subsec. (d)(3)(A)(ii). Pub. L. 97-34, Sec. 261(b)(2)(B)(iii),
substituted "paragraph (11)" for "paragraph (9)".
Subsec. (d)(4). Pub. L. 97-34, Sec. 261(b)(2)(B)(iii), (3), in
subpar. (B) inserted "and" after "States," in subpar. (C)
substituted "paragraph (11)" for "paragraph (9)", and struck out
"(D) not having attained the age of 35 on the hiring date."
Subsec. (d)(7)(B). Pub. L. 97-34, Sec. 261(b)(2)(B)(iii),
substituted "paragraph (11)" for "paragraph (9)".
Subsec. (d)(8)(A)(iv). Pub L. 97-34, Sec. 261(b)(4), added cl.
(iv).
Subsec. (d)(9), (10). Pub. L. 97-34, Sec. 261(b)(2)(A), added
pars. (9) and (10) and redesignated former pars. (9) and (10) as
(11) and (12), respectively.
Subsec. (d)(11). Pub. L. 97-34, Sec. 261(b)(2)(A), (c)(2),
redesignated former par. (9) as (11), substituted "70 percent or
less" for "less than 70 percent", and provided for validity of any
determination for 45-day period beginning on the date the
determination is made. Former par. (11) redesignated (13).
Subsec. (d)(12), (13). Pub. L. 97-34, Sec. 261(b)(2)(A),
redesignated former pars. (10) and (11) as pars. (12) and (13),
respectively. Former par. (12) redesignated (14).
Subsec. (d)(14). Pub. L. 97-34, Sec. 261(f)(1)(A), substituted as
definition for term " 'designated local agency' means a State
employment security agency established in accordance with the Act
of June 6, 1933, as amended (29 U.S.C. 49-49n)" for " 'designated
local agency' means the agency for any locality designated jointly
by the Secretary and the Secretary of Labor to perform
certification of employees for employers in that locality".
Pub. L. 97-34, Sec. 261(b)(2)(A), redesignated former par. (12)
as (14).
Subsec. (d)(15). Pub. L. 97-34, Sec. 261(c)(1), added par. (15).
Subsec. (e). Pub. L. 97-34, Sec. 261(e)(1), struck out subsec.
(e) which set forth limitation that qualified first-year wages
could not exceed 30 percent of FUTA wages for all employees.
Subsec. (f). Pub. L. 97-34, Sec. 261(e)(2), substituted "any
taxable year" for "any year" in pars. (1) and (2) and struck out
par. (3), defining "year" which is covered in pars. (1) and (2).
Subsec. (g). Pub. L. 97-34, Sec. 261(f)(1)(B), substituted
"United States Employment Service" for "Secretary of Labor" in
heading and text.
Subsec. (i). Pub. L. 97-34, Sec. 261(d), added subsec. (i).
1980 - Subsec. (c)(1). Pub. L. 96-222, Sec. 103(a)(6)(E)(ii),
substituted ", subsection (d)(8)(D), and subsection (h)(2)" for
"subsection (h)(2)".
Subsec. (c)(2). Pub. L. 96-222, Sec. 103(a)(6)(G)(iii), inserted
"or incurred" after "amounts paid".
Subsec. (c)(4). Pub. L. 96-222, Sec. 103(a)(6)(A), substituted
"December 31, 1981" for "December 31, 1980".
Subsec. (d)(1)(E). Pub. L. 96-222, Sec. 103(a)(6)(G)(iv), struck
out "or" after "recipient,".
Subsec. (d)(4)(A)(i). Pub. L. 96-222, Sec. 103(a)(6)(G)(v),
substituted "active duty" for "active day".
Subsec. (d)(4)(B). Pub. L. 96-222, Sec. 103(a)(6)(G)(vi),
substituted "preemployment" for "premployment".
Subsec. (d)(5). Pub. L. 96-222, Sec. 103(a)(6)(G)(vii),
substituted "preemployment" for "pre-employment".
Subsec. (d)(8)(A). Pub. L. 96-222, Sec. 103(a)(6)(F), substituted
"age 20" for "age 19".
Subsec. (d)(8)(D). Pub. L. 96-222, Sec. 103(a)(6)(E)(i), in
heading substituted "Wages" for "Individual must be currently
pursuing program" and in text substituted "In the case of
remuneration" for "Wages shall be taken into account with respect
to a qualified cooperative education program only if the wages are"
and inserted ", wages, and unemployment insurance wages, shall be
determined without regard to section 3306(c)(10)(C)".
Subsec. (d)(12). Pub. L. 96-222, Sec. 103(a)(6)(G)(viii),
substituted "employers" for "employer".
Subsec. (e). Pub. L. 96-222, Sec. 103(a)(6)(G)(ix), inserted
"except as provided in subsection (h)(1)" after "the preceding
sentence,".
1978 - Pub. L. 95-600 amended section generally and limited
allowance of credit to the hiring of seven target groups with high
unemployment rates.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 207(5) of Pub. L. 108-311 applicable to
taxable years beginning after Dec. 31, 2004, see section 208 of
Pub. L. 108-311, set out as a note under section 2 of this title.
Pub. L. 108-311, title III, Sec. 303(b), Oct. 4, 2004, 118 Stat.
1179, provided that:"The amendments made by this section [amending
this section and section 51A of this title] shall apply to
individuals who begin work for the employer after December 31,
2003."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title VI, Sec. 604(b), Mar. 9, 2002, 116 Stat.
59, provided that: "The amendment made by subsection (a) [amending
this section] shall apply to individuals who begin work for the
employer after December 31, 2001."
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 102(d)], Dec. 21,
2000, 114 Stat. 2763, 2763A-600, provided that: "The amendments
made by this section [amending this section] shall apply to
individuals who begin work for the employer after December 31,
2001."
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 316(e)], Dec. 21,
2000, 114 Stat. 2763, 2763A-645, provided that: "The amendments
made by this section [amending this section and sections 219, 401
and 1361 of this title] shall take effect as if included in the
provisions of the Small Business Job Protection Act of 1996 [Pub.
L. 104-188] to which they relate."
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 505(c), Dec. 17, 1999, 113 Stat.
1921, provided that: "The amendments made by this section [amending
this section and section 51A of this title] shall apply to
individuals who begin work for the employer after June 30, 1999."
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title I, Sec. 1002(b), Oct. 21, 1998,
112 Stat. 2681-888, provided that: "The amendment made by this
section [amending this section] shall apply to individuals who
begin work for the employer after June 30, 1998."
EFFECTIVE DATE OF 1997 AMENDMENTS
Section 603(e) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to
individuals who begin work for the employer after September 30,
1997."
Section 5518(c) of Pub. L. 105-33 provided that: "The amendments
made by section 5514(a) of this Act [amending this section and
sections 3304, 6103, 6334, 6402, and 7523 of this title] shall take
effect as if the amendments had been included in section 110 of the
Personal Responsibility and Work Opportunity Reconciliation Act of
1996 [Pub. L. 104-193] at the time such section 110 became law."
EFFECTIVE DATE OF 1996 AMENDMENTS
Amendment by Pub. L. 104-193 effective July 1, 1997, with
transition rules relating to State options to accelerate such date,
rules relating to claims, actions, and proceedings commenced before
such date, rules relating to closing out of accounts for terminated
or substantially modified programs and continuance in office of
Assistant Secretary for Family Support, and provisions relating to
termination of entitlement under AFDC program, see section 116 of
Pub. L. 104-193, as amended, set out as an Effective Date note
under section 601 of Title 42, The Public Health and Welfare.
Amendment by Pub. L. 104-188 applicable to individuals who begin
work for the employer after Sept. 30, 1996, see section 1201(g) of
Pub. L. 104-188, set out as a note under section 38 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13102(b) of Pub. L. 103-66 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
individuals who begin work for the employer after June 30, 1992."
EFFECTIVE DATE OF 1991 AMENDMENT
Section 105(b) of Pub. L. 102-227 provided that: "The amendment
made by this section [amending this section] shall apply to
individuals who begin work for the employer after December 31,
1991."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11405(c) of Pub. L. 101-508 provided that:
"(1) Credit. - The amendment made by subsection (a) [amending
this section] shall apply to individuals who begin work for the
employer after September 30, 1990.
"(2) Authorization. - The amendment made by subsection (b)
[amending provisions set out below] shall apply to fiscal years
beginning after 1990."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7103(c)(2) of Pub. L. 101-239 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to individuals who begin work for the employer after December 31,
1989."
EFFECTIVE DATE OF 1988 AMENDMENTS
Amendment by section 1017(a) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 4010(c)(2) of Pub. L. 100-647 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to individuals who begin work for the employer after December 31,
1988."
Section 4010(d)(2) of Pub. L. 100-647 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to individuals who begin work for the employer after December 31,
1988."
Amendment by Pub. L. 100-485 effective Oct. 1, 1990, with
provision for earlier effective dates in case of States making
certain changes in their State plans and formally notifying the
Secretary of Health and Human Services of their desire to become
subject to the amendments made by title II of Pub. L. 100-485 on
the earlier effective dates, see section 204 of Pub. L. 100-485,
set out as a note under section 671 of Title 42, The Public Health
and Welfare.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10601(b) of Pub. L. 100-203 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
amounts paid or incurred on or after January 1, 1987, for services
rendered on or after such date."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1701(e) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and provisions set out
below] shall apply with respect to individuals who begin work for
the employer after December 31, 1985."
Amendment by section 1878(f)(1) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(p)(1)-(3) of Pub. L. 98-369 applicable
to taxable years beginning after Dec. 31, 1983, and to carrybacks
from such years, see section 475(a) of Pub. L. 98-369, set out as a
note under section 21 of this title.
Amendment by section 712 of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
Section 1041(c)(5) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, title XVIII, Sec. 1878(f)(2), Oct. 22, 1986, 100
Stat. 2095, 2904, provided that:
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by this section [amending this section] shall apply
to individuals who begin work for the employer after the date of
the enactment of this Act [July 18, 1984].
"(B) Special rule for employees performing services for other
persons. - Paragraph (2) of section 51(k) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] (as added by this subsection)
and the amendment made by paragraph (3) of this subsection
[amending this section] shall apply to individuals who begin work
for the employer after December 31, 1984."
Section 2638(c)(2) of Pub. L. 98-369 provided that: "The
amendments made by subsection (b) [amending this section] shall
apply with respect to payments made on or after the date of the
enactment of this Act [July 18, 1984]."
Amendment by section 2663 of Pub. L. 98-369 effective July 18,
1984, but not to be construed as changing or affecting any right,
liability, status or interpretation which existed (under the
provisions of law involved) before that date, see section 2664(b)
of Pub. L. 98-369, set out as a note under section 401 of Title 42,
The Public Health and Welfare.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 102(l)(4) of Pub. L. 97-448 provided that the amendment
made by that section is effective with respect to certifications
made after Jan. 12, 1983, with respect to individuals beginning
work for an employer after May 11, 1982.
Amendment by title I of Pub. L. 97-448 effective, except as
otherwise provided, as if it had been included in the provision of
the Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 233(f) of Pub. L. 97-248 provided that the amendments
made by that section are effective only with respect to individuals
who begin work for the taxpayer after May 11, 1982.
Section 233(g) of Pub. L. 97-248 provided that:
"(1) Subsection (b). - The amendments made by subsection (b)
[amending this section] shall apply to amounts paid or incurred
after April 30, 1983, to individuals beginning work for the
employer after such date.
"(2) Subsection (d). - The amendments made by subsection (d)
[amending this section] shall apply to amounts paid or incurred
after July 1, 1982, to individuals beginning work for the employer
after such date."
EFFECTIVE DATE OF 1981 AMENDMENT
Section 261(g) of Pub. L. 97-34, as amended by Pub. L. 97-448,
title I, Sec. 102(l)(2), Jan. 12, 1983, 96 Stat. 2374; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Amendments relating to members of targeted groups. -
"(A) In general. - Except as provided in subparagraphs (B),
(C), and (D), the amendments made by subsections (b), (c)(2), and
(d) [amending this section and section 50B of this title] shall
apply to wages paid or incurred with respect to individuals first
beginning work for an employer after the date of the enactment of
this Act [Aug. 13, 1981] in taxable years ending after such date.
"(B) Eligible work incentive employees. - The amendments made
by subsection (b)(2) [amending this section] to the extent
relating to the designation of eligible work incentive employees
(within the meaning of section 51(d)(9) [now 51(d)(10)] of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]) as members
of a targeted group and subsection (b)(2)(B)(ii) [amending this
section] shall apply to taxable years beginning after December
31, 1981. In the case of an eligible work incentive employee,
subsections (a) and (b) of section 51 of such Code shall be
applied for taxable years beginning after December 31, 1981, as
if such employees had been members of a targeted group for
taxable years beginning before January 1, 1982.
"(C) Cooperative education program participants. - The
amendments made by subsection (b)(4) [amending this section]
shall apply to wages paid or incurred after December 31, 1981, in
taxable years ending after such date.
"(D) Designated local agency. - The amendments made by
subsection (f)(1) [amending this section] shall take effect on
the date 60 days after the date of the enactment of this act
[Aug. 13, 1981].
"(2) Certifications. -
"(A) In general. - The amendment made by subsection (c)(1)
[amending this section] shall apply to all individuals whether
such individuals began work for their employer before, on, or
after the date of the enactment of this Act [Aug. 13, 1981].
"(B) Special rule for individuals who began work for the
employer before 45th day before date of enactment. - In the case
of any individual (other than an individual described in section
51(d)(8) of the Internal Revenue Code of 1986) who began work for
the employer before the date 45 days before the date of the
enactment of this Act [Aug. 13, 1981], paragraph (15) of section
51(d) of the Internal Revenue Code of 1986 (as added by
subsection (c)(1)) shall be applied by substituting "July 23,
1981," for the day on which such individual begins work for the
employer.
"(C) Individuals who begin work for employer within 45 days
before or after date of enactment. - In the case of any
individual (other than an individual described in section
51(d)(8) of the Internal Revenue Code of 1986) who begins work
for the employer during the 90-day period beginning with the date
45 days before the date of the enactment of this Act [Aug. 13,
1981], and in the case of an individual described in section
51(d)(8) of such Code who begins work before the end of such 90-
day period, paragraph (15) of section 51(d) of such Code (as
added by subsection (c)(1)) shall be applied by substituting "the
last day of the 90-day period beginning with the date 45 days
before the date of the enactment of this Act" for the day on
which such individual begins work for the employer.
"(3) Limitation on qualified first-year wages. - The amendment
made by subsection (e) [amending this section] shall apply to
taxable years beginning after December 31, 1981."
EFFECTIVE DATE OF 1980 AMENDMENT
Section 103(b)(1) of Pub. L. 96-222 provided that: "The amendment
made by subsection (a)(5)(F) [probably means subsec. (a)(6)(F),
amending this section] shall apply to wages paid or incurred on or
after November 27, 1979, in taxable years ending on or after such
date."
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 321(d)(1) of Pub. L. 95-600 provided that: "Except as
otherwise provided in this subsection, the amendments made by this
section [amending this section and sections 44B, 52, 53, and 6501
of this title] shall apply to amounts paid or incurred after
December 31, 1978, in taxable years ending after such date."
EFFECTIVE DATE
Section 202(e) of Pub. L. 95-30 provided that: "The amendments
made by this section [enacting this section and sections 44B, 52,
53, and 280C of this title and amending sections 56, 381, 383,
6096, 6411, 6501, 6511, 6601, and 6611 of this title] shall apply
to taxable years beginning after December 31, 1976, and to credit
carrybacks from such years."
REFERENCE TO PLAN FOR EMPLOYMENT
Pub. L. 105-277, div. J, title IV, Sec. 4006(c)(1), Oct. 21,
1998, 112 Stat. 2681-912, provided that: "The reference to 'plan
for employment' in such clause [26 U.S.C. 51(d)(6)(B)(i)] shall be
treated as including a reference to the rehabilitation plan
referred to in such clause as in effect before the amendment made
by the preceding sentence."
AUTHORIZATION OF APPROPRIATIONS
Section 261(f)(2) of Pub. L. 97-34, as amended by Pub. L. 97-248,
title II, Sec. 233(e), Sept. 3, 1982, 96 Stat. 502; Pub. L. 98-369,
div. A, title X, Sec. 1041(b), July 18, 1984, 98 Stat. 1042; Pub.
L. 99-514, title XVII, Sec. 1701(d), Oct. 22, 1986, 100 Stat. 2772;
Pub. L. 100-647, title IV, Sec. 4010(b), Nov. 10, 1988, 102 Stat.
3655; Pub. L. 101-239, title VII, Sec. 7103(b), Dec. 19, 1989, 103
Stat. 2305; Pub. L. 101-508, title XI, Sec. 11405(b), Nov. 5, 1990,
104 Stat. 1388-473, provided that: "There is authorized to be
appropriated for each fiscal year such sums as may be necessary, to
carry out the functions described by the amendments made by
paragraph (1) [amending this section], except that, of the amounts
appropriated pursuant to this paragraph -
"(A) $5,000,000 shall be used to test whether individuals
certified as members of targeted groups under section 51 of such
Code are eligible for such certification (including the use of
statistical sampling techniques), and
"(B) the remainder shall be distributed under performance
standards prescribed by the Secretary of Labor.
The Secretary of Labor shall each calendar year beginning with
calendar year 1983 report to the Committee on Ways and Means of the
House of Representatives and to the Committee on Finance of the
Senate with respect to the results of the testing conducted under
subparagraph (A) during the preceding calendar year."
[For termination, effective May 15, 2000, of reporting provisions
in section 261(f)(2) of Pub. L. 97-34, set out above, see section
3003 of Pub. L. 104-66, as amended, set out as a note under section
1113 of Title 31, Money and Finance, and page 124 of House Document
No. 103-7.]
[Amendment by Pub. L. 101-508 applicable to fiscal years
beginning after 1990, see section 11405(c)(2) of Pub. L. 101-508,
set out as an Effective Date of 1990 Amendment note above.]
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
SPECIAL RULES FOR NEWLY TARGETED GROUPS
Section 321(d)(2) of Pub. L. 95-600, as amended by Pub. L. 96-
222, title I, Sec. 103(a)(6)(C), (G)(xi), Apr. 1, 1980, 94 Stat.
209, 211; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that:
"(A) Individual must be hired after september 26, 1978. - In the
case of a member of a newly targeted group, for purposes of
applying the amendments made by this section -
"(i) such individual shall be taken into account for purposes
of the credit allowable by section 44B of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] only if such individual is
first hired by the employer after September 26, 1978, and
"(ii) such individual shall be treated for purposes of such
credit as having first begun work for the employer not earlier
than January 1, 1979.
"(B) Member of newly targeted group defined. - For purposes of
subparagraph (A), an individual is a member of a newly targeted
group if -
"(i) such individual meets the requirements of paragraph (1) of
section 51(d) of such Code, and
"(ii) in the case of an individual meeting the requirements of
subparagraph (A) of such paragraph (1), a credit was not claimed
for such individual by the taxpayer for a taxable year beginning
before January 1, 1979."
CREDIT ALLOWABLE BY SECTION 44B IN CASE OF TAXABLE YEAR BEGINNING
IN 1978 AND ENDING AFTER DECEMBER 31, 1978
Section 321(d)(3) of Pub. L. 95-600, as amended by Pub. L. 96-
222, title I, Sec. 103(a)(6)(D), Apr. 1, 1980, 94 Stat. 209; Pub.
L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"In the case of a taxable year which begins in 1978 and ends after
December 31, 1978, the amount of the credit determined under
section 51 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] shall be the sum of -
"(A) the amount of the credit which would be so determined
without regard to the amendments made by this section, plus
"(B) the amount of the credit which would be so determined by
reason of the amendments made by this section."
-FOOTNOTE-
(!1) See References in Text note below.
(!2) So in original. The comma probably should not appear.
-End-
-CITE-
26 USC Sec. 51A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart F - Rules for Computing Work Opportunity Credit
-HEAD-
Sec. 51A. Temporary incentives for employing long-term family
assistance recipients
-STATUTE-
(a) Determination of amount
For purposes of section 38, the amount of the welfare-to-work
credit determined under this section for the taxable year shall be
equal to -
(1) 35 percent of the qualified first-year wages for such year,
and
(2) 50 percent of the qualified second-year wages for such
year.
(b) Qualified wages defined
For purposes of this section -
(1) In general
The term "qualified wages" means the wages paid or incurred by
the employer during the taxable year to individuals who are long-
term family assistance recipients.
(2) Qualified first-year wages
The term "qualified first-year wages" means, with respect to
any individual, qualified wages attributable to service rendered
during the 1-year period beginning with the day the individual
begins work for the employer.
(3) Qualified second-year wages
The term "qualified second-year wages" means, with respect to
any individual, qualified wages attributable to service rendered
during the 1-year period beginning on the day after the last day
of the 1-year period with respect to such individual determined
under paragraph (2).
(4) Only first $10,000 of wages per year taken into account
The amount of the qualified first-year wages, and the amount of
qualified second-year wages, which may be taken into account with
respect to any individual shall not exceed $10,000 per year.
(5) Wages
(A) In general
The term "wages" has the meaning given such term by section
51(c), without regard to paragraph (4) thereof.
(B) Certain amounts treated as wages
The term "wages" includes amounts paid or incurred by the
employer which are excludable from such recipient's gross
income under -
(i) section 105 (relating to amounts received under
accident and health plans),
(ii) section 106 (relating to contributions by employer to
accident and health plans),
(iii) section 127 (relating to educational assistance
programs), but only to the extent paid or incurred to a
person not related to the employer, or
(iv) section 129 (relating to dependent care assistance
programs).
The amount treated as wages by clause (i) or (ii) for any
period shall be based on the reasonable cost of coverage for
the period, but shall not exceed the applicable premium for the
period under section 4980B(f)(4).
(C) Special rules for agricultural and railway labor
If such recipient is an employee to whom subparagraph (A) or
(B) of section 51(h)(1) applies, rules similar to the rules of
such subparagraphs shall apply except that -
(i) such subparagraph (A) shall be applied by substituting
"$10,000" for "$6,000", and
(ii) such subparagraph (B) shall be applied by substituting
"$833.33" for "$500".
(c) Long-term family assistance recipients
For purposes of this section -
(1) In general
The term "long-term family assistance recipient" means any
individual who is certified by the designated local agency (as
defined in section 51(d)(11)) -
(A) as being a member of a family receiving assistance under
a IV-A program (as defined in section 51(d)(2)(B)) for at least
the 18-month period ending on the hiring date,
(B)(i) as being a member of a family receiving such
assistance for 18 months beginning after the date of the
enactment of this section, and
(ii) as having a hiring date which is not more than 2 years
after the end of the earliest such 18-month period, or
(C)(i) as being a member of a family which ceased to be
eligible after the date of the enactment of this section for
such assistance by reason of any limitation imposed by Federal
or State law on the maximum period such assistance is payable
to a family, and
(ii) as having a hiring date which is not more than 2 years
after the date of such cessation.
(2) Hiring date
The term "hiring date" has the meaning given such term by
section 51(d).
(d) Certain rules to apply
(1) In general
Rules similar to the rules of section 52, and subsections
(d)(11), (f), (g), (i) (as in effect on the day before the date
of the enactment of the Taxpayer Relief Act of 1997), (j), and
(k) of section 51, shall apply for purposes of this section.
(2) Credit to be part of general business credit, etc.
References to section 51 in section 38(b), 280C(a), and
1396(c)(3) shall be treated as including references to this
section.
(e) Coordination with work opportunity credit
If a credit is allowed under this section to an employer with
respect to an individual for any taxable year, then for purposes of
applying section 51 to such employer, such individual shall not be
treated as a member of a targeted group for such taxable year.
(f) Termination
This section shall not apply to individuals who begin work for
the employer after December 31, 2005.
-SOURCE-
(Added Pub. L. 105-34, title VIII, Sec. 801(a), Aug. 5, 1997, 111
Stat. 869; amended Pub. L. 105-277, div. J, title I, Sec. 1003,
Oct. 21, 1998, 112 Stat. 2681-888; Pub. L. 106-170, title V, Sec.
505(a), Dec. 17, 1999, 113 Stat. 1921; Pub. L. 107-16, title IV,
Sec. 411(c), June 7, 2001, 115 Stat. 63; Pub. L. 107-147, title IV,
Sec. 417(4), title VI, Sec. 605(a), Mar. 9, 2002, 116 Stat. 56, 60;
Pub. L. 108-311, title III, Sec. 303(a)(2), Oct. 4, 2004, 118 Stat.
1179.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section, referred to in subsec.
(c)(1)(B)(i), (C)(i), is the date of enactment of Pub. L. 105-34,
which was approved Aug. 5, 1997.
The date of the enactment of the Taxpayer Relief Act of 1997,
referred to in subsec. (d)(1), is the date of enactment of Pub. L.
105-34, which was approved Aug. 5, 1997.
-MISC1-
AMENDMENTS
2004 - Subsec. (f). Pub. L. 108-311 substituted "2005" for
"2003".
2002 - Subsec. (c)(1). Pub. L. 107-147, Sec. 417(4), substituted
"51(d)(11)" for "51(d)(10)" in introductory provisions.
Subsec. (f). Pub. L. 107-147, Sec. 605(a), substituted "2003" for
"2001".
2001 - Subsec. (b)(5)(B)(iii). Pub. L. 107-16, Secs. 411(c), 901,
temporarily struck out "or would be so excludable but for section
127(d)" before ", but only". See Effective and Termination Dates of
2001 Amendment note below.
1999 - Subsec. (f). Pub. L. 106-170 substituted "December 31,
2001" for "June 30, 1999".
1998 - Subsec. (f). Pub. L. 105-277 substituted "June 30, 1999"
for "April 30, 1999".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to individuals who begin
work for the employer after Dec. 31, 2003, see section 303(b) of
Pub. L. 108-311, set out as a note under section 51 of this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title VI, Sec. 605(b), Mar. 9, 2002, 116 Stat.
60, provided that: "The amendment made by subsection (a) [amending
this section] shall apply to individuals who begin work for the
employer after December 31, 2001."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title IV, Sec. 411(d), June 7, 2001, 115 Stat.
63, provided that: "The amendments made by this section [amending
this section and section 127 of this title] shall apply with
respect to expenses relating to courses beginning after December
31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to individuals who begin
work for the employer after June 30, 1999, see section 505(c) of
Pub. L. 106-170, set out as a note under section 51 of this title.
EFFECTIVE DATE
Section 801(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting this section] shall apply to
individuals who begin work for the employer after December 31,
1997."
-End-
-CITE-
26 USC Sec. 52 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart F - Rules for Computing Work Opportunity Credit
-HEAD-
Sec. 52. Special rules
-STATUTE-
(a) Controlled group of corporations
For purposes of this subpart, all employees of all corporations
which are members of the same controlled group of corporations
shall be treated as employed by a single employer. In any such
case, the credit (if any) determined under section 51(a) with
respect to each such member shall be its proportionate share of the
wages giving rise to such credit. For purposes of this subsection,
the term "controlled group of corporations" has the meaning given
to such term by section 1563(a), except that -
(1) "more than 50 percent" shall be substituted for "at least
80 percent" each place it appears in section 1563(a)(1), and
(2) the determination shall be made without regard to
subsections (a)(4) and (e)(3)(C) of section 1563.
(b) Employees of partnerships, proprietorships, etc., which are
under common control
For purposes of this subpart, under regulations prescribed by the
Secretary -
(1) all employees of trades or business (whether or not
incorporated) which are under common control shall be treated as
employed by a single employer, and
(2) the credit (if any) determined under section 51(a) with
respect to each trade or business shall be its proportionate
share of the wages giving rise to such credit.
The regulations prescribed under this subsection shall be based on
principles similar to the principles which apply in the case of
subsection (a).
(c) Tax-exempt organizations
No credit shall be allowed under section 38 for any work
opportunity credit determined under this subpart to any
organization (other than a cooperative described in section 521)
which is exempt from income tax under this chapter.
(d) Estates and trusts
In the case of an estate or trust -
(1) the amount of the credit determined under this subpart for
any taxable year shall be apportioned between the estate or trust
and the beneficiaries on the basis of the income of the estate or
trust allocable to each, and
(2) any beneficiary to whom any amount has been apportioned
under paragraph (1) shall be allowed, subject to section 38(c), a
credit under section 38(a) for such amount.
(e) Limitations with respect to certain persons
Under regulations prescribed by the Secretary, in the case of -
(1) a regulated investment company or a real estate investment
trust subject to taxation under subchapter M (section 851 and
following), and
(2) a cooperative organization described in section 1381(a),
rules similar to the rules provided in subsections (e) and (h) of
section 46 (as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990) shall apply in
determining the amount of the credit under this subpart.
-SOURCE-
(Added Pub. L. 95-30, title II, Sec. 202(b), May 23, 1977, 91 Stat.
143; amended Pub. L. 95-600, title III, Sec. 321(c)(1), Nov. 6,
1978, 92 Stat. 2835; Pub. L. 96-222, title I, Sec. 103(a)(5), Apr.
1, 1980, 94 Stat. 209; Pub. L. 97-354, Sec. 5(a)(11), Oct. 19,
1982, 96 Stat. 1693; Pub. L. 98-369, div. A, title IV, Sec.
474(p)(4)-(7), July 18, 1984, 98 Stat. 838; Pub. L. 101-508, title
XI, Sec. 11813(b)(4), Nov. 5, 1990, 104 Stat. 1388-551; Pub. L. 104-
188, title I, Sec. 1616(b)(2), Aug. 20, 1996, 110 Stat. 1856; Pub.
L. 105-34, title XVI, Sec. 1601(b), Aug. 5, 1997, 111 Stat. 1087.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsec. (e), is the date of enactment of Pub.
L. 101-508, which was approved Nov. 5, 1990.
-MISC1-
AMENDMENTS
1997 - Subsec. (c). Pub. L. 105-34 substituted "work opportunity
credit" for "targeted jobs credit".
1996 - Subsec. (e)(1) to (3). Pub. L. 104-188 redesignated pars.
(2) and (3) as (1) and (2), respectively, and struck out former
par. (1) which read as follows: "an organization to which section
593 (relating to reserves for losses on loans) applies,".
1990 - Subsec. (e). Pub. L. 101-508 substituted "section 46 (as
in effect on the day before the date of the enactment of the
Revenue Reconciliation Act of 1990)" for "section 46" in concluding
provisions.
1984 - Subsec. (a). Pub. L. 98-369, Sec. 474(p)(4), substituted
"the credit (if any) determined under section 51(a) with respect to
each such member" for "the credit (if any) allowable by section 44B
to each such member".
Subsec. (b)(2). Pub. L. 98-369, Sec. 474(p)(5), substituted "the
credit (if any) determined under section 51(a)" for "the credit (if
any) allowable by section 44B".
Subsec. (c). Pub. L. 98-369, Sec. 474(p)(6), substituted "credit
shall be allowed under section 38 for any targeted jobs credit
determined under this subpart" for "credit shall be allowed under
section 44B".
Subsec. (d)(2). Pub. L. 98-369, Sec. 474(p)(7), substituted ",
subject to section 38(c), a credit under section 38(a)" for ",
subject to section 53 a credit under section 44B".
1982 - Subsecs. (d) to (f). Pub. L. 97-354 struck out subsec. (d)
relating to apportionment of credit among shareholders, and
redesignated subsecs. (e) and (f) as (d) and (e), respectively.
1980 - Subsec. (f). Pub. L. 96-222 substituted "subsections (e)
and (h) of section 46" for "section 46(e)".
1978 - Subsecs. (a), (b). Pub. L. 95-600, Sec. 321(c)(1)(B),
substituted "proportionate share of the wages" for "proportionate
contribution to the increase in unemployment insurance wages".
Subsecs. (c), (d). Pub. L. 95-600, Sec. 321(c)(1)(A), struck out
subsec. (c) which related to dispositions by an employer, and
redesignated subsecs. (d) and (f) as (c) and (d), respectively.
Subsec. (e). Pub. L. 95-600, Sec. 321(c)(1)(A), (C), redesignated
subsec. (g) as (e) and struck out par. (3) which provided that the
$100,000 amount specified in section 51(d) applicable to such
estate or trust be reduced to an amount which bears the same ratio
to $100,000 as the portion of the credit allocable to the estate or
trust under paragraph (1) bears to the entire amount of such
credit. Former subsec. (e), which related to a change in status
from self-employed to employee, was struck out.
Subsecs. (f) to (h). Pub. L. 95-600, Sec. 321(c)(1)(A),
redesignated subsecs. (f) to (h) as (d) to (f), respectively.
Subsec. (i). Pub. L. 95-600, Sec. 321(c)(1)(A)(i), struck out
subsec. (i) which related to a $50,000 limitation in the case of
married individuals filing separate returns.
Subsec. (j). Pub. L. 95-600, Sec. 321(c)(1)(A)(i), struck out
subsec. (j) which related to certain short taxable years.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
provisions of the Small Business Job Protection Act of 1996, Pub.
L. 104-188, to which it relates, see section 1601(j) of Pub. L. 105-
34, set out as a note under section 23 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1995, see section 1616(c) of Pub. L. 104-
188, set out as a note under section 593 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Dec. 31, 1990, but not applicable to any transition
property (as defined in section 49(e) of this title), any property
with respect to which qualified progress expenditures were
previously taken into account under section 46(d) of this title,
and any property described in section 46(b)(2)(C) of this title, as
such sections were in effect on Nov. 4, 1990, see section 11813(c)
of Pub. L. 101-508, set out as a note under section 45K of this
title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to amounts paid or
incurred after Dec. 31, 1978, in taxable years ending after such
date, see section 321(d)(1) of Pub. L. 95-600, set out as a note
under section 51 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1976, and to credit carrybacks from such years, see section 202(e)
of Pub. L. 95-30, set out as a note under section 51 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Subpart G - Credit Against Regular Tax for Prior
Year Minimum Tax Liability 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart G - Credit Against Regular Tax for Prior Year Minimum Tax
Liability
-HEAD-
SUBPART G - CREDIT AGAINST REGULAR TAX FOR PRIOR YEAR MINIMUM TAX
LIABILITY
-MISC1-
Sec.
53. Credit for prior year minimum tax liability.
-End-
-CITE-
26 USC Sec. 53 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart G - Credit Against Regular Tax for Prior Year Minimum Tax
Liability
-HEAD-
Sec. 53. Credit for prior year minimum tax liability
-STATUTE-
(a) Allowance of credit
There shall be allowed as a credit against the tax imposed by
this chapter for any taxable year an amount equal to the minimum
tax credit for such taxable year.
(b) Minimum tax credit
For purposes of subsection (a), the minimum tax credit for any
taxable year is the excess (if any) of -
(1) the adjusted net minimum tax imposed for all prior taxable
years beginning after 1986, over
(2) the amount allowable as a credit under subsection (a) for
such prior taxable years.
(c) Limitation
The credit allowable under subsection (a) for any taxable year
shall not exceed the excess (if any) of -
(1) the regular tax liability of the taxpayer for such taxable
year reduced by the sum of the credits allowable under subparts
A, B, D, E, and F of this part, over
(2) the tentative minimum tax for the taxable year.
(d) Definitions
For purposes of this section -
(1) Net minimum tax
(A) In general
The term "net minimum tax" means the tax imposed by section
55.
(B) Credit not allowed for exclusion preferences
(i) Adjusted net minimum tax
The adjusted net minimum tax for any taxable year is -
(I) the amount of the net minimum tax for such taxable
year, reduced by
(II) the amount which would be the net minimum tax for
such taxable year if the only adjustments and items of tax
preference taken into account were those specified in
clause (ii).
(ii) Specified items
The following are specified in this clause -
(I) the adjustments provided for in subsection (b)(1) of
section 56, and
(II) the items of tax preference described in paragraphs
(1), (5), and (7) of section 57(a).
(iii) Special rule
The adjusted net minimum tax for the taxable year shall be
increased by the amount of the credit not allowed under
section 30 solely by reason of the application of section
30(b)(3)(B).
(iv) Credit allowable for exclusion preferences of
corporations
In the case of a corporation -
(I) the preceding provisions of this subparagraph shall
not apply, and
(II) the adjusted net minimum tax for any taxable year is
the amount of the net minimum tax for such year increased
in the manner provided in clause (iii).
(2) Tentative minimum tax
The term "tentative minimum tax" has the meaning given to such
term by section 55(b).
-SOURCE-
(Added Pub. L. 99-514, title VII, Sec. 701(b), Oct. 22, 1986, 100
Stat. 2339; amended Pub. L. 100-647, title I, Sec. 1007(g)(4),
title VI, Sec. 6304(a), Nov. 10, 1988, 102 Stat. 3435, 3756; Pub.
L. 101-239, title VII, Secs. 7612(a)(1), (2), (b)(1), 7811(d)(2),
Dec. 19, 1989, 103 Stat. 2373, 2374, 2408; Pub. L. 102-486, title
XIX, Sec. 1913(b)(2)(C), Oct. 24, 1992, 106 Stat. 3020; Pub. L. 103-
66, title XIII, Secs. 13113(b)(2), 13171(c), Aug. 10, 1993, 107
Stat. 429, 455; Pub. L. 104-188, title I, Secs. 1205(d)(5),
1704(j)(1), Aug. 20, 1996, 110 Stat. 1776, 1881; Pub. L. 108-357,
title IV, Sec. 421(a)(2), Oct. 22, 2004, 118 Stat. 1514; Pub. L.
109-58, title XIII, Sec. 1322(a)(3)(G), Aug. 8, 2005, 119 Stat.
1012.)
-MISC1-
PRIOR PROVISIONS
A prior section 53, added Pub. L. 95-30, title II, Sec. 202(b),
May 23, 1977, 91 Stat. 146; amended Pub. L. 95-600, title III, Sec.
321(c)(2), Nov. 6, 1978, 92 Stat. 2835; Pub. L. 97-34, title II,
Sec. 207(c)(2), Aug. 13, 1981, 95 Stat. 225; Pub. L. 97-248, title
II, Sec. 201(d)(8)(A), formerly Sec. 201(c)(8)(A), and Sec.
265(b)(2)(A)(iii), Sept. 3, 1982, 96 Stat. 420, 547, renumbered
Sec. 201(d)(8)(A), Pub. L. 97-448, title III, Sec. 306(a)(1)(A)(i),
Jan. 12, 1983, 96 Stat. 2400; 97-354, Sec. 5(a)(12), Oct. 19, 1982,
96 Stat. 1693; 97-448, title I, Sec. 102(d)(3), Jan. 12, 1983, 96
Stat. 2370; Pub. L. 98-21, title I, Sec. 122(c)(1), Apr. 20, 1983,
97 Stat. 87; Pub. L. 98-369, div. A, title VII, Sec. 713(c)(1)(C),
July 18, 1984, 98 Stat. 957, placed limitations on the amount of
credit allowed by former section 44B for employment of certain new
employees, prior to repeal by Pub. L. 98-369, div. A, title IV,
Sec. 474(p)(8), July 18, 1984, 98 Stat. 838, applicable to taxable
years beginning after Dec. 31, 1983, and to carrybacks from such
years.
AMENDMENTS
2005 - Subsec. (d)(1)(B)(iii). Pub. L. 109-58 struck out "under
section 29 (relating to credit for producing fuel from a
nonconventional source) solely by reason of the application of
section 29(b)(6)(B), or not allowed" before "under section 30".
2004 - Subsec. (d)(1)(B)(i)(II). Pub. L. 108-357 struck out "and
if section 59(a)(2) did not apply" before period at end.
1996 - Subsec. (d)(1)(B)(iii). Pub. L. 104-188, Sec.
1205(d)(5)(A), which directed that cl. (iii) be amended by striking
out "or not allowed under section 28 solely by reason of the
application of section 28(d)(2)(B)," was executed by striking out
"not allowed under section 28 solely by reason of the application
of section 28(d)(2)(B)," after "29(b)(6)(B),", to reflect the
probable intent of Congress.
Subsec. (d)(1)(B)(iv)(II). Pub. L. 104-188, Sec. 1704(j)(1),
amended subcl. (II) generally. Prior to amendment, subcl. (II) read
as follows: "the adjusted net minimum tax for any taxable year is
the amount of the net minimum tax for such year increased by the
amount of any credit not allowed under section 29 solely by reason
of the application of section 29(b)(5)(B) or not allowed under
section 28 solely by reason of the application of section
28(d)(2)(B)."
Pub. L. 104-188, Sec. 1205(d)(5)(B), which directed that subcl.
(II) be amended by striking out "or not allowed under section 28
solely by reason of the application of section 28(d)(2)(B)", could
not be executed because the phrase sought to be struck out did not
appear in text subsequent to the general amendment of subcl. (II)
by Pub. L. 104-188, Sec. 1704(j)(1), see above, which, pursuant to
section 1701 of Pub. L. 104-188, set out as a note under section 1
of this title, is treated as having been enacted before section
1205(d)(5)(B) of Pub. L. 104-188.
1993 - Subsec. (d)(1)(B)(ii)(II). Pub. L. 103-66, Sec. 13171(c),
substituted "(5), and (7)" for "(5), (6), and (8)".
Pub. L. 103-66, Sec. 13113(b)(2), substituted "(6), and (8)" for
"and (6)".
1992 - Subsec. (d)(1)(B)(iii). Pub. L. 102-486, Sec.
1913(b)(2)(C)(i), substituted "section 29(b)(6)(B)," for "section
29(b)(5)(B) or".
Pub. L. 102-486, Sec. 1913(b)(2)(C)(ii), inserted before period
at end ", or not allowed under section 30 solely by reason of the
application of section 30(b)(3)(B)".
1989 - Subsec. (d)(1)(B)(i)(II). Pub. L. 101-239, Sec.
7811(d)(2), inserted before period at end "and if section 59(a)(2)
did not apply".
Subsec. (d)(1)(B)(ii). Pub. L. 101-239, Sec. 7612(a)(2),
substituted "subsection (b)(1)" for "subsections (b)(1) and (c)(3)"
in subcl. (I) and struck out at end "In the case of taxable years
beginning after 1989, the adjustments provided in section 56(g)
shall be treated as specified in this clause to the extent
attributable to items which are excluded from gross income for any
taxable year for purposes of the regular tax, or are not deductible
for any taxable year under the adjusted current earnings method of
section 56(g)."
Subsec. (d)(1)(B)(iii). Pub. L. 101-239, Sec. 7612(b)(1), which
directed amendment of cl. (iii) by inserting "or not allowed under
section 28 solely by reason of the application of section
28(d)(2)(B)" after "section 29(d)(5)(B)", was executed by making
the insertion after "section 29(b)(5)(B)", as the probable intent
of Congress.
Subsec. (d)(1)(B)(iv). Pub. L. 101-239, Sec. 7612(b)(1), which
directed amendment of cl. (iv) by inserting "or not allowed under
section 28 solely by reason of the application of section
28(d)(2)(B)" after "section 29(d)(5)(B)", was executed by making
the insertion after "section 29(b)(5)(B)" in subcl. (II), as the
probable intent of Congress.
Pub. L. 101-239, Sec. 7612(a)(1), added cl. (iv).
1988 - Subsec. (d)(1)(B)(ii). Pub. L. 100-647, Sec. 1007(g)(4),
substituted "current earnings" for "earnings and profits" in last
sentence.
Subsec. (d)(1)(B)(iii). Pub. L. 100-647, Sec. 6304(a), added cl.
(iii).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-58 applicable to credits determined
under the Internal Revenue Code of 1986 for taxable years ending
after Dec. 31, 2005, see section 1322(c)(1) of Pub. L. 109-58, set
out as a note under section 45K of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title IV, Sec. 421(b), Oct. 22, 2004, 118 Stat.
1514, provided that: "The amendments made by this section [amending
this section and section 59 of this title] shall apply to taxable
years beginning after December 31, 2004."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1205(d)(5) of Pub. L. 104-188 applicable to
amounts paid or incurred in taxable years ending after June 30,
1996, see section 1205(e) of Pub. L. 104-188, set out as a note
under section 45K of this title.
Section 1704(j)(1) of Pub. L. 104-188 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1990.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13113(e) of Pub. L. 103-66 provided that: "The amendments
made by this section [enacting section 1202 of this title and
amending this section and sections 57, 172, 642, 643, 691, 871, and
6652 of this title] shall apply to stock issued after the date of
the enactment of this Act [Aug. 10, 1993]."
Section 13171(d) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 56 and 57
of this title] shall apply to contributions made after June 30,
1992, except that in the case of any contribution of capital gain
property which is not tangible personal property, such amendments
shall apply only if the contribution is made after December 31,
1992."
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1702(e)(5) of Pub. L. 104-188 provided that: "The
amendment made by section 1913(b)(2)(C)(i) of the Energy Policy Act
of 1992 [Pub. L. 102-486] shall apply to taxable years beginning
after December 31, 1990."
Amendment by section 1913(b)(2)(C)(ii) of Pub. L. 102-486
applicable to property placed in service after June 30, 1993, see
section 1913(c) of Pub. L. 102-486, set out as an Effective Date
note under section 30 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7612(a)(3) of Pub. L. 101-239 provided that: "The
amendments made by this subsection [amending this section] shall
apply for purposes of determining the adjusted net minimum tax for
taxable years beginning after December 31, 1989."
Section 7612(b)(2) of Pub. L. 101-239 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
for purposes of determining the amount of the minimum tax credit
for taxable years beginning after December 31, 1989; except that,
for such purposes, section 53(b)(1) of the Internal Revenue Code of
1986 shall be applied as if such amendment had been in effect for
all prior taxable years."
Amendment by section 7811(d)(2) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, to which such amendment relates, see section 7817 of Pub. L.
101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1007(g)(4) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6304(b) of Pub. L. 100-647 provided that: "The amendment
made by this section [amending this section] shall take effect as
if included in the amendments made by section 701 of the Tax Reform
Act of 1986 [Pub. L. 99-514]."
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, with certain exceptions and qualifications, see section
701(f) of Pub. L. 99-514, set out as an Effective Date of 1986
Amendment note under section 55 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(b) of Pub. L. 99-
514 [enacting this section] notwithstanding any treaty obligation
of the United States in effect on Oct. 22, 1986, with provision
that for such purposes any amendment by title I of Pub. L. 100-647
be treated as if it had been included in the provision of Pub. L.
99-514 to which such amendment relates, see section 1012(aa)(2),
(4) of Pub. L. 100-647, set out as a note under section 861 of this
title.
-End-
-CITE-
26 USC Subpart H - Nonrefundable Credit to Holders of
Certain Bonds 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart H - Nonrefundable Credit to Holders of Certain Bonds
-HEAD-
SUBPART H - NONREFUNDABLE CREDIT TO HOLDERS OF CERTAIN BONDS
-MISC1-
Sec.
54. Credit to holders of clean renewable energy bonds.
-End-
-CITE-
26 USC Sec. 54 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART IV - CREDITS AGAINST TAX
Subpart H - Nonrefundable Credit to Holders of Certain Bonds
-HEAD-
Sec. 54. Credit to holders of clean renewable energy bonds
-STATUTE-
(a) Allowance of credit
If a taxpayer holds a clean renewable energy bond on one or more
credit allowance dates of the bond occurring during any taxable
year, there shall be allowed as a credit against the tax imposed by
this chapter for the taxable year an amount equal to the sum of the
credits determined under subsection (b) with respect to such dates.
(b) Amount of credit
(1) In general
The amount of the credit determined under this subsection with
respect to any credit allowance date for a clean renewable energy
bond is 25 percent of the annual credit determined with respect
to such bond.
(2) Annual credit
The annual credit determined with respect to any clean
renewable energy bond is the product of -
(A) the credit rate determined by the Secretary under
paragraph (3) for the day on which such bond was sold,
multiplied by
(B) the outstanding face amount of the bond.
(3) Determination
For purposes of paragraph (2), with respect to any clean
renewable energy bond, the Secretary shall determine daily or
cause to be determined daily a credit rate which shall apply to
the first day on which there is a binding, written contract for
the sale or exchange of the bond. The credit rate for any day is
the credit rate which the Secretary or the Secretary's designee
estimates will permit the issuance of clean renewable energy
bonds with a specified maturity or redemption date without
discount and without interest cost to the qualified issuer.
(4) Credit allowance date
For purposes of this section, the term "credit allowance date"
means -
(A) March 15,
(B) June 15,
(C) September 15, and
(D) December 15.
Such term also includes the last day on which the bond is
outstanding.
(5) Special rule for issuance and redemption
In the case of a bond which is issued during the 3-month period
ending on a credit allowance date, the amount of the credit
determined under this subsection with respect to such credit
allowance date shall be a ratable portion of the credit otherwise
determined based on the portion of the 3-month period during
which the bond is outstanding. A similar rule shall apply when
the bond is redeemed or matures.
(c) Limitation based on amount of tax
The credit allowed under subsection (a) for any taxable year
shall not exceed the excess of -
(1) the sum of the regular tax liability (as defined in section
26(b)) plus the tax imposed by section 55, over
(2) the sum of the credits allowable under this part (other
than subpart C, section 1400N(l), and this section).
(d) Clean renewable energy bond
For purposes of this section -
(1) In general
The term "clean renewable energy bond" means any bond issued as
part of an issue if -
(A) the bond is issued by a qualified issuer pursuant to an
allocation by the Secretary to such issuer of a portion of the
national clean renewable energy bond limitation under
subsection (f)(2),
(B) 95 percent or more of the proceeds of such issue are to
be used for capital expenditures incurred by qualified
borrowers for one or more qualified projects,
(C) the qualified issuer designates such bond for purposes of
this section and the bond is in registered form, and
(D) the issue meets the requirements of subsection (h).
(2) Qualified project; special use rules
(A) In general
The term "qualified project" means any qualified facility (as
determined under section 45(d) without regard to paragraph (10)
and to any placed in service date) owned by a qualified
borrower.
(B) Refinancing rules
For purposes of paragraph (1)(B), a qualified project may be
refinanced with proceeds of a clean renewable energy bond only
if the indebtedness being refinanced (including any obligation
directly or indirectly refinanced by such indebtedness) was
originally incurred by a qualified borrower after the date of
the enactment of this section.
(C) Reimbursement
For purposes of paragraph (1)(B), a clean renewable energy
bond may be issued to reimburse a qualified borrower for
amounts paid after the date of the enactment of this section
with respect to a qualified project, but only if -
(i) prior to the payment of the original expenditure, the
qualified borrower declared its intent to reimburse such
expenditure with the proceeds of a clean renewable energy
bond,
(ii) not later than 60 days after payment of the original
expenditure, the qualified issuer adopts an official intent
to reimburse the original expenditure with such proceeds, and
(iii) the reimbursement is made not later than 18 months
after the date the original expenditure is paid.
(D) Treatment of changes in use
For purposes of paragraph (1)(B), the proceeds of an issue
shall not be treated as used for a qualified project to the
extent that a qualified borrower or qualified issuer takes any
action within its control which causes such proceeds not to be
used for a qualified project. The Secretary shall prescribe
regulations specifying remedial actions that may be taken
(including conditions to taking such remedial actions) to
prevent an action described in the preceding sentence from
causing a bond to fail to be a clean renewable energy bond.
(e) Maturity limitations
(1) Duration of term
A bond shall not be treated as a clean renewable energy bond if
the maturity of such bond exceeds the maximum term determined by
the Secretary under paragraph (2) with respect to such bond.
(2) Maximum term
During each calendar month, the Secretary shall determine the
maximum term permitted under this paragraph for bonds issued
during the following calendar month. Such maximum term shall be
the term which the Secretary estimates will result in the present
value of the obligation to repay the principal on the bond being
equal to 50 percent of the face amount of such bond. Such present
value shall be determined without regard to the requirements of
subsection (l)(6) and using as a discount rate the average annual
interest rate of tax-exempt obligations having a term of 10 years
or more which are issued during the month. If the term as so
determined is not a multiple of a whole year, such term shall be
rounded to the next highest whole year.
(f) Limitation on amount of bonds designated
(1) National limitation
There is a national clean renewable energy bond limitation of
$800,000,000.
(2) Allocation by Secretary
The Secretary shall allocate the amount described in paragraph
(1) among qualified projects in such manner as the Secretary
determines appropriate, except that the Secretary may not
allocate more than $500,000,000 of the national clean renewable
energy bond limitation to finance qualified projects of qualified
borrowers which are governmental bodies.
(g) Credit included in gross income
Gross income includes the amount of the credit allowed to the
taxpayer under this section (determined without regard to
subsection (c)) and the amount so included shall be treated as
interest income.
(h) Special rules relating to expenditures
(1) In general
An issue shall be treated as meeting the requirements of this
subsection if, as of the date of issuance, the qualified issuer
reasonably expects -
(A) at least 95 percent of the proceeds of such issue are to
be spent for one or more qualified projects within the 5-year
period beginning on the date of issuance of the clean energy
bond,
(B) a binding commitment with a third party to spend at least
10 percent of the proceeds of such issue will be incurred
within the 6-month period beginning on the date of issuance of
the clean energy bond or, in the case of a clean energy bond
the proceeds of which are to be loaned to two or more qualified
borrowers, such binding commitment will be incurred within the
6-month period beginning on the date of the loan of such
proceeds to a qualified borrower, and
(C) such projects will be completed with due diligence and
the proceeds of such issue will be spent with due diligence.
(2) Extension of period
Upon submission of a request prior to the expiration of the
period described in paragraph (1)(A), the Secretary may extend
such period if the qualified issuer establishes that the failure
to satisfy the 5-year requirement is due to reasonable cause and
the related projects will continue to proceed with due diligence.
(3) Failure to spend required amount of bond proceeds within 5
years
To the extent that less than 95 percent of the proceeds of such
issue are expended by the close of the 5-year period beginning on
the date of issuance (or if an extension has been obtained under
paragraph (2), by the close of the extended period), the
qualified issuer shall redeem all of the nonqualified bonds
within 90 days after the end of such period. For purposes of this
paragraph, the amount of the nonqualified bonds required to be
redeemed shall be determined in the same manner as under section
142.
(i) Special rules relating to arbitrage
A bond which is part of an issue shall not be treated as a clean
renewable energy bond unless, with respect to the issue of which
the bond is a part, the qualified issuer satisfies the arbitrage
requirements of section 148 with respect to proceeds of the issue.
(j) Cooperative electric company; qualified energy tax credit bond
lender; governmental body; qualified borrower
For purposes of this section -
(1) Cooperative electric company
The term "cooperative electric company" means a mutual or
cooperative electric company described in section 501(c)(12) or
section 1381(a)(2)(C), or a not-for-profit electric utility which
has received a loan or loan guarantee under the Rural
Electrification Act.
(2) Clean renewable energy bond lender
The term "clean renewable energy bond lender" means a lender
which is a cooperative which is owned by, or has outstanding
loans to, 100 or more cooperative electric companies and is in
existence on February 1, 2002, and shall include any affiliated
entity which is controlled by such lender.
(3) Governmental body
The term "governmental body" means any State, territory,
possession of the United States, the District of Columbia, Indian
tribal government, and any political subdivision thereof.
(4) Qualified issuer
The term "qualified issuer" means -
(A) a clean renewable energy bond lender,
(B) a cooperative electric company, or
(C) a governmental body.
(5) Qualified borrower
The term "qualified borrower" means -
(A) a mutual or cooperative electric company described in
section 501(c)(12) or 1381(a)(2)(C), or
(B) a governmental body.
(k) Special rules relating to pool bonds
No portion of a pooled financing bond may be allocable to any
loan unless the borrower has entered into a written loan commitment
for such portion prior to the issue date of such issue.
(l) Other definitions and special rules
For purposes of this section -
(1) Bond
The term "bond" includes any obligation.
(2) Pooled financing bond
The term "pooled financing bond" shall have the meaning given
such term by section 149(f)(4)(A).
(3) Partnership; S corporation; and other pass-thru entities
(A) In general
Under regulations prescribed by the Secretary, in the case of
a partnership, trust, S corporation, or other pass-thru entity,
rules similar to the rules of section 41(g) shall apply with
respect to the credit allowable under subsection (a).
(B) No basis adjustment
In the case of a bond held by a partnership or an S
corporation, rules similar to the rules under section 1397E(i)
shall apply.
(4) Bonds held by regulated investment companies
If any clean renewable energy bond is held by a regulated
investment company, the credit determined under subsection (a)
shall be allowed to shareholders of such company under procedures
prescribed by the Secretary.
(5) Ratable principal amortization required
A bond shall not be treated as a clean renewable energy bond
unless it is part of an issue which provides for an equal amount
of principal to be paid by the qualified issuer during each
calendar year that the issue is outstanding.
(6) Reporting
Issuers of clean renewable energy bonds shall submit reports
similar to the reports required under section 149(e).
(m) Termination
This section shall not apply with respect to any bond issued
after December 31, 2007.
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1303(a), Aug. 8, 2005, 119
Stat. 992; amended Pub. L. 109-135, title I, Sec. 101(b)(1), title
IV, Sec. 402(c)(1), Dec. 21, 2005, 119 Stat. 2593, 2610.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section, referred to in subsec.
(d)(2)(B), (C), is the date of enactment of Pub. L. 109-58, which
was approved Aug. 8, 2005.
The Rural Electrification Act, referred to in subsec. (j)(1),
probably means the Rural Electrification Act of 1936, act May 20,
1936, ch. 432, 49 Stat. 1363, as amended, which is classified
generally to chapter 31 (Sec. 901 et seq.) of Title 7, Agriculture.
For complete classification of this Act to the Code, see section
901 of Title 7 and Tables.
-MISC1-
AMENDMENTS
2005 - Subsec. (c)(2). Pub. L. 109-135, Sec. 101(b)(1), inserted
", section 1400N(l)," after "subpart C".
Subsec. (l)(5) to (7). Pub. L. 109-135, Sec. 402(c)(1),
redesignated pars. (6) and (7) as (5) and (6), respectively, and
struck out heading and text of former par. (5). Text read as
follows: "Solely for purposes of sections 6654 and 6655, the credit
allowed by this section (determined without regard to subsection
(c)) to a taxpayer by reason of holding a clean renewable energy
bond on a credit allowance date shall be treated as if it were a
payment of estimated tax made by the taxpayer on such date."
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendment by section 101(b)(1) of Pub. L. 109-135 applicable to
taxable years ending on or after Aug. 28, 2005, see section
101(c)(1) of Pub. L. 109-135, set out as an Effective Date note
under section 1400N of this title.
Amendment by section 402(c) of Pub. L. 109-135 effective as if
included in the provision of the Energy Policy Act of 2005, Pub. L.
109-58, to which such amendment relates, see section 402(m)(1) of
Pub. L. 109-135, set out as an Effective and Termination Dates of
2005 Amendments note under section 23 of this title.
EFFECTIVE DATE
Pub. L. 109-58, title XIII, Sec. 1303(e), Aug. 8, 2005, 119 Stat.
997, as amended by Pub. L. 109-135, title IV, Sec. 402(c)(2), Dec.
21, 2005, 119 Stat. 2610, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting this section and amending
sections 1397E, 6049, and 6401 of this title] shall apply to bonds
issued after December 31, 2005.
"(2) Subsection (c). - The amendments made by subsection (c)
[amending sections 1397E and 6401 of this title] shall apply to
taxable years beginning after December 31, 2005."
REGULATIONS
Pub. L. 109-58, title XIII, Sec. 1303(d), Aug. 8, 2005, 119 Stat.
997, provided that: "The Secretary of the Treasury shall issue
regulations required under section 54 of the Internal Revenue Code
of 1986 (as added by this section) not later than 120 days after
the date of the enactment of this Act [Aug. 8, 2005]."
-End-
-CITE-
26 USC [PART V - REPEALED] 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
[PART V - REPEALED]
-HEAD-
[PART V - REPEALED]
-COD-
CODIFICATION
Part V, consisting of a prior section 51, was repealed by Pub. L.
94-455, title XIX, Sec. 1901(a)(7), Oct. 4, 1976, 90 Stat. 1765.
See Prior Provisions note set out under section 51 of this title.
-End-
-CITE-
26 USC PART VI - ALTERNATIVE MINIMUM TAX 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART VI - ALTERNATIVE MINIMUM TAX
-HEAD-
PART VI - ALTERNATIVE MINIMUM TAX
-MISC1-
Sec.
55. Alternative minimum tax imposed.
56. Adjustments in computing alternative minimum taxable
income.
57. Items of tax preference.
58. Denial of certain losses.
59. Other definitions and special rules.
-End-
-CITE-
26 USC Sec. 55 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART VI - ALTERNATIVE MINIMUM TAX
-HEAD-
Sec. 55. Alternative minimum tax imposed
-STATUTE-
(a) General rule
There is hereby imposed (in addition to any other tax imposed by
this subtitle) a tax equal to the excess (if any) of -
(1) the tentative minimum tax for the taxable year, over
(2) the regular tax for the taxable year.
(b) Tentative minimum tax
For purposes of this part -
(1) Amount of tentative tax
(A) Noncorporate taxpayers
(i) In general
In the case of a taxpayer other than a corporation, the
tentative minimum tax for the taxable year is the sum of -
(I) 26 percent of so much of the taxable excess as does
not exceed $175,000, plus
(II) 28 percent of so much of the taxable excess as
exceeds $175,000.
The amount determined under the preceding sentence shall be
reduced by the alternative minimum tax foreign tax credit for
the taxable year.
(ii) Taxable excess
For purposes of this subsection, the term "taxable excess"
means so much of the alternative minimum taxable income for
the taxable year as exceeds the exemption amount.
(iii) Married individual filing separate return
In the case of a married individual filing a separate
return, clause (i) shall be applied by substituting "$87,500"
for "$175,000" each place it appears. For purposes of the
preceding sentence, marital status shall be determined under
section 7703.
(B) Corporations
In the case of a corporation, the tentative minimum tax for
the taxable year is -
(i) 20 percent of so much of the alternative minimum
taxable income for the taxable year as exceeds the exemption
amount, reduced by
(ii) the alternative minimum tax foreign tax credit for the
taxable year.
(2) Alternative minimum taxable income
The term "alternative minimum taxable income" means the taxable
income of the taxpayer for the taxable year -
(A) determined with the adjustments provided in section 56
and section 58, and
(B) increased by the amount of the items of tax preference
described in section 57.
If a taxpayer is subject to the regular tax, such taxpayer shall
be subject to the tax imposed by this section (and, if the
regular tax is determined by reference to an amount other than
taxable income, such amount shall be treated as the taxable
income of such taxpayer for purposes of the preceding sentence).
(3) Maximum rate of tax on net capital gain of noncorporate
taxpayers
The amount determined under the first sentence of paragraph
(1)(A)(i) shall not exceed the sum of -
(A) the amount determined under such first sentence computed
at the rates and in the same manner as if this paragraph had
not been enacted on the taxable excess reduced by the lesser of
-
(i) the net capital gain; or
(ii) the sum of -
(I) the adjusted net capital gain, plus
(II) the unrecaptured section 1250 gain, plus
(B) 5 percent (0 percent in the case of taxable years
beginning after 2007) of so much of the adjusted net capital
gain (or, if less, taxable excess) as does not exceed an amount
equal to the excess described in section 1(h)(1)(B), plus
(C) 15 percent of the adjusted net capital gain (or, if less,
taxable excess) in excess of the amount on which tax is
determined under subparagraph (B), plus
(D) 25 percent of the amount of taxable excess in excess of
the sum of the amounts on which tax is determined under the
preceding subparagraphs of this paragraph.
Terms used in this paragraph which are also used in section 1(h)
shall have the respective meanings given such terms by section
1(h) but computed with the adjustments under this part.
(c) Regular tax
(1) In general
For purposes of this section, the term "regular tax" means the
regular tax liability for the taxable year (as defined in section
26(b)) reduced by the foreign tax credit allowable under section
27(a), the section 936 credit allowable under section 27(b), and
the Puerto Rico economic activity credit under section 30A. Such
term shall not include any increase in tax under section
45(e)(11)(C), 49(b) or 50(a) or subsection (j) or (k) of section
42.
(2) Coordination with income averaging for farmers and fishermen
Solely for purposes of this section, section 1301 (relating to
averaging of farm and fishing income) shall not apply in
computing the regular tax liability.
(3) Cross references
For provisions providing that certain credits are not
allowable against the tax imposed by this section, see sections
26(a), 30(b)(3), 30B(g)(2), 30C(d)(2), and 38(c).
(d) Exemption amount
For purposes of this section -
(1) Exemption amount for taxpayers other than corporations
In the case of a taxpayer other than a corporation, the term
"exemption amount" means -
(A) $45,000 ($58,000 in the case of taxable years beginning
in 2003, 2004, and 2005) in the case of -
(i) a joint return, or
(ii) a surviving spouse,
(B) $33,750 ($40,250 in the case of taxable years beginning
in 2003, 2004, and 2005) in the case of an individual who -
(i) is not a married individual, and
(ii) is not a surviving spouse,
(C) 50 percent of the dollar amount applicable under
paragraph (1)(A) in the case of a married individual who files
a separate return, and
(D) $22,500 in the case of an estate or trust.
For purposes of this paragraph, the term "surviving spouse" has
the meaning given to such term by section 2(a), and marital
status shall be determined under section 7703.
(2) Corporations
In the case of a corporation, the term "exemption amount" means
$40,000.
(3) Phase-out of exemption amount
The exemption amount of any taxpayer shall be reduced (but not
below zero) by an amount equal to 25 percent of the amount by
which the alternative minimum taxable income of the taxpayer
exceeds -
(A) $150,000 in the case of a taxpayer described in paragraph
(1)(A) or (2),
(B) $112,500 in the case of a taxpayer described in paragraph
(1)(B), and
(C) $75,000 in the case of a taxpayer described in
subparagraph (C) or (D) of paragraph (1).
In the case of a taxpayer described in paragraph (1)(C),
alternative minimum taxable income shall be increased by the
lesser of (i) 25 percent of the excess of alternative minimum
taxable income (determined without regard to this sentence) over
the minimum amount of such income (as so determined) for which
the exemption amount under paragraph (1)(C) is zero, or (ii) such
exemption amount (determined without regard to this paragraph).
(e) Exemption for small corporations
(1) In general
(A) $7,500,000 gross receipts test
The tentative minimum tax of a corporation shall be zero for
any taxable year if the corporation's average annual gross
receipts for all 3-taxable-year periods ending before such
taxable year does not exceed $7,500,000. For purposes of the
preceding sentence, only taxable years beginning after December
31, 1993, shall be taken into account.
(B) $5,000,000 gross receipts test for first 3-year period
Subparagraph (A) shall be applied by substituting
"$5,000,000" for "$7,500,000" for the first 3-taxable-year
period (or portion thereof) of the corporation which is taken
into account under subparagraph (A).
(C) First taxable year corporation in existence
If such taxable year is the first taxable year that such
corporation is in existence, the tentative minimum tax of such
corporation for such year shall be zero.
(D) Special rules
For purposes of this paragraph, the rules of paragraphs (2)
and (3) of section 448(c) shall apply.
(2) Prospective application of minimum tax if small corporation
ceases to be small
In the case of a corporation whose tentative minimum tax is
zero for any prior taxable year by reason of paragraph (1), the
application of this part for taxable years beginning with the
first taxable year such corporation ceases to be described in
paragraph (1) shall be determined with the following
modifications:
(A) Section 56(a)(1) (relating to depreciation) and section
56(a)(5) (relating to pollution control facilities) shall apply
only to property placed in service on or after the change date.
(B) Section 56(a)(2) (relating to mining exploration and
development costs) shall apply only to costs paid or incurred
on or after the change date.
(C) Section 56(a)(3) (relating to treatment of long-term
contracts) shall apply only to contracts entered into on or
after the change date.
(D) Section 56(a)(4) (relating to alternative net operating
loss deduction) shall apply in the same manner as if, in
section 56(d)(2), the change date were substituted for "January
1, 1987" and the day before the change date were substituted
for "December 31, 1986" each place it appears.
(E) Section 56(g)(2)(B) (relating to limitation on allowance
of negative adjustments based on adjusted current earnings)
shall apply only to prior taxable years beginning on or after
the change date.
(F) Section 56(g)(4)(A) (relating to adjustment for
depreciation to adjusted current earnings) shall not apply.
(G) Subparagraphs (D) and (F) of section 56(g)(4) (relating
to other earnings and profits adjustments and depletion) shall
apply in the same manner as if the day before the change date
were substituted for "December 31, 1989" each place it appears
therein.
(3) Exception
The modifications in paragraph (2) shall not apply to -
(A) any item acquired by the corporation in a transaction to
which section 381 applies, and
(B) any property the basis of which in the hands of the
corporation is determined by reference to the basis of the
property in the hands of the transferor,
if such item or property was subject to any provision referred to
in paragraph (2) while held by the transferor.
(4) Change date
For purposes of paragraph (2), the change date is the first day
of the first taxable year for which the taxpayer ceases to be
described in paragraph (1).
(5) Limitation on use of credit for prior year minimum tax
liability
In the case of a taxpayer whose tentative minimum tax for any
taxable year is zero by reason of paragraph (1), section 53(c)
shall be applied for such year by reducing the amount otherwise
taken into account under section 53(c)(1) by 25 percent of so
much of such amount as exceeds $25,000. Rules similar to the
rules of section 38(c)(3)(B) (!1) shall apply for purposes of the
preceding sentence.
-SOURCE-
(Added and amended Pub. L. 99-514, title II, Sec. 252(c), title
VII, Sec. 701(a), Oct. 22, 1986, 100 Stat. 2205, 2321; Pub. L. 100-
647, title I, Secs. 1002(l)(27), 1007(a), Nov. 10, 1988, 102 Stat.
3381, 3428; Pub. L. 101-508, title XI, Secs. 11102(a), 11813(b)(5),
Nov. 5, 1990, 104 Stat. 1388-406, 1388-551; Pub. L. 102-318, title
V, Sec. 521(b)(1), July 3, 1992, 106 Stat. 310; Pub. L. 102-486,
title XIX, Sec. 1913(b)(2)(D), Oct. 24, 1992, 106 Stat. 3020; Pub.
L. 103-66, title XIII, Sec. 13203(a)-(c)(1), Aug. 10, 1993, 107
Stat. 461, 462; Pub. L. 104-188, title I, Secs. 1205(d)(6),
1401(b)(3), 1601(b)(2)(A), Aug. 20, 1996, 110 Stat. 1776, 1788,
1832; Pub. L. 105-34, title III, Sec. 311(b)(1), (2)(A), title IV,
Sec. 401(a), title XVI, Sec. 1601(f)(1)(C), Aug. 5, 1997, 111 Stat.
834, 835, 843, 1090; Pub. L. 105-206, title VI, Secs. 6005(d)(2),
6006(a), July 22, 1998, 112 Stat. 804, 806; Pub. L. 107-16, title
VII, Sec. 701(a), (b), June 7, 2001, 115 Stat. 148; Pub. L. 108-27,
title I, Sec. 106(a), title III, Sec. 301(a)(1), (2)(B), (b)(2),
May 28, 2003, 117 Stat. 755, 758; Pub. L. 108-311, title I, Sec.
103(a), title IV, Sec. 406(d), Oct. 4, 2004, 118 Stat. 1168, 1189;
Pub. L. 108-357, title III, Sec. 314(a), Oct. 22, 2004, 118 Stat.
1468; Pub. L. 109-58, title XIII, Secs. 1302(b), 1322(a)(3)(H),
1341(b)(3), 1342(b)(3), Aug. 8, 2005, 119 Stat. 991, 1012, 1049,
1051; Pub. L. 109-135, title IV, Secs. 403(h), 412(p), Dec. 21,
2005, 119 Stat. 2624, 2638.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 105 of Pub. L. 108-311,
see Effective and Termination Dates of 2004 Amendments note below.
For termination of amendment by sections 107 and 303 of Pub. L.
108-27, see Effective and Termination Dates of 2003 Amendment notes
below.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Section 38(c)(3)(B), referred to in subsec. (e)(5), was
redesignated section 38(c)(4)(B) and subsequently section
38(c)(5)(B) by Pub. L. 107-147, title III, Sec. 301(b)(1), Mar. 9,
2002, 116 Stat. 39, and Pub. L. 108-357, title VII, Sec. 711(a),
Oct. 22, 2004, 118 Stat. 1557, respectively.
-MISC1-
PRIOR PROVISIONS
A prior section 55, Pub. L. 95-600, title IV, Sec. 421(a), Nov.
6, 1978, 92 Stat. 2871; amended Pub. L. 96-222, title I, Sec.
104(a)(4)(A)-(D), (G), (H)(i), (ii), (viii), Apr. 1, 1980, 94 Stat.
215-218; Pub. L. 96-223, title II, Sec. 232(b)(2)(A), (c)(2), Apr.
2, 1980, 94 Stat. 276, 277; Pub. L. 96-603, Sec. 4(a), (b), Dec.
28, 1980, 94 Stat. 3513, 3514; Pub. L. 97-34, title I, Sec.
101(d)(1), title II, Sec. 221(b)(1)(A), title III, Sec.
331(d)(1)(A), Aug. 13, 1981, 95 Stat. 183, 246, 294; Pub. L. 97-
248, title II, Sec. 201(a), Sept. 3, 1982, 96 Stat. 411; Pub. L.
97-354, Sec. 5(a)(13), Oct. 19, 1982, 96 Stat. 1693; Pub. L. 97-
448, title I, Sec. 103(g)(2)(E), title III, Secs. 305(c),
306(a)(1)(B), (C), Jan. 12, 1983, 96 Stat. 2379, 2399, 2400; Pub.
L. 98-369, div. A, title IV, Secs. 474(q), 491(d)(1), title VI,
Sec. 612(e)(3), title VII, Sec. 711(a)(1), (4), (5), July 18, 1984,
98 Stat. 838, 849, 912, 942, 943; Pub. L. 99-514, title XVIII, Sec.
1847(a), Oct. 22, 1986, 100 Stat. 2856, related to alternative
minimum tax for taxpayers other than corporations, prior to the
general revision of this part by Pub. L. 99-514, Sec. 701(a).
AMENDMENTS
2005 - Subsec. (c)(1). Pub. L. 109-58, Sec. 1302(b), which
directed amendment of par. (1) by inserting "45(e)(11)(C)," after
"section" in last sentence, was executed by making the insertion
after "section" the first place it appeared in last sentence, to
reflect the probable intent of Congress.
Subsec. (c)(2). Pub. L. 109-135, Sec. 403(h), substituted
"regular tax liability" for "regular tax".
Pub. L. 109-58, Sec. 1342(b)(3), which directed amendment of par.
(2) by inserting "30C(d)(2)," after "30B(g)(2),", was repealed by
Pub. L. 109-135, Sec. 412(p)(3).
Pub. L. 109-58, Sec. 1341(b)(3), which directed amendment of par.
(2) by inserting "30B(g)(2)," after "30(b)(2),", was repealed by
Pub. L. 109-135, Sec. 412(p)(2).
Subsec. (c)(3). Pub. L. 109-135, Sec. 412(p)(1), inserted
"30B(g)(2), 30C(d)(2)," after "30(b)(3),".
Pub. L. 109-58, Sec. 1322(a)(3)(H), struck out "29(b)(6)," after
"26(a),".
2004 - Subsec. (b)(3)(B). Pub. L. 108-311, Sec. 406(d),
substituted "an amount equal to the excess described in" for "the
amount on which a tax is determined under".
Subsec. (c)(2), (3). Pub. L. 108-357 added par. (2) and
redesignated former par. (2) as (3).
Subsec. (d)(1)(A), (B). Pub. L. 108-311, Secs. 103(a), 105,
temporarily substituted "2003, 2004, and 2005" for "2003 and 2004".
See Effective and Termination Dates of 2004 Amendments note below.
2003 - Subsec. (b)(3). Pub. L. 108-27, Secs. 301(b)(2), 303,
temporarily struck out first sentence of concluding provisions
which read as follows: "In the case of taxable years beginning
after December 31, 2000, rules similar to the rules of section
1(h)(2) shall apply for purposes of subparagraphs (B) and (C)." See
Effective and Termination Dates of 2003 Amendment note below.
Subsec. (b)(3)(B). Pub. L. 108-27, Secs. 301(a)(1), 303,
temporarily substituted "5 percent (0 percent in the case of
taxable years beginning after 2007)" for "10 percent". See
Effective and Termination Dates of 2003 Amendment note below.
Subsec. (b)(3)(C). Pub. L. 108-27, Secs. 301(a)(2)(B), 303,
temporarily substituted "15 percent" for "20 percent". See
Effective and Termination Dates of 2003 Amendment note below.
Subsec. (d)(1)(A). Pub. L. 108-27, Secs. 106(a)(1), 107,
temporarily substituted "$58,000 in the case of taxable years
beginning in 2003 and 2004" for "$49,000 in the case of taxable
years beginning in 2001, 2002, 2003, and 2004". See Effective and
Termination Dates of 2003 Amendment note below.
Subsec. (d)(1)(B). Pub. L. 108-27, Secs. 106(a)(2), 107,
temporarily substituted "$40,250 in the case of taxable years
beginning in 2003 and 2004" for "$35,750 in the case of taxable
years beginning in 2001, 2002, 2003, and 2004". See Effective and
Termination Dates of 2003 Amendment note below.
2001 - Subsec. (d)(1)(A). Pub. L. 107-16, Secs. 701(a)(1), 901,
temporarily substituted "$45,000 ($49,000 in the case of taxable
years beginning in 2001, 2002, 2003, and 2004)" for "$45,000" in
introductory provisions. See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (d)(1)(B). Pub. L. 107-16, Secs. 701(b)(1), 901,
temporarily struck out "and" at end. See Effective and Termination
Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 701(a)(2), 901, temporarily substituted
"$33,750 ($35,750 in the case of taxable years beginning in 2001,
2002, 2003, and 2004)" for "$33,750" in introductory provisions.
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(1)(C), (D). Pub. L. 107-16, Secs. 701(b)(1), 901,
temporarily added subpars. (C) and (D) and struck out former
subpar. (C) which read as follows: "$22,500 in the case of -
"(i) a married individual who files a separate return, or
"(ii) an estate or trust." See Effective and Termination Dates
of 2001 Amendment note below.
Subsec. (d)(3). Pub. L. 107-16, Secs. 701(b)(3), 901, in
concluding provisions, temporarily substituted "paragraph (1)(C)"
for "paragraph (1)(C)(i)" and "the minimum amount of such income
(as so determined) for which the exemption amount under paragraph
(1)(C) is zero, or (ii) such exemption amount (determined without
regard to this paragraph)" for "$165,000 or (ii) $22,500". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(3)(C). Pub. L. 107-16, Secs. 701(b)(2), 901,
temporarily substituted "subparagraph (C) or (D) of paragraph (1)"
for "paragraph (1)(C)". See Effective and Termination Dates of 2001
Amendment note below.
1998 - Subsec. (b)(3). Pub. L. 105-206, Sec. 6005(d)(2),
reenacted par. heading without change and amended text of par. (3)
generally. Prior to amendment, text read as follows: "The amount
determined under the first sentence of paragraph (1)(A)(i) shall
not exceed the sum of -
"(A) the amount determined under such first sentence computed
at the rates and in the same manner as if this paragraph had not
been enacted on the taxable excess reduced by the lesser of -
"(i) the net capital gain, or
"(ii) the sum of -
"(I) the adjusted net capital gain, plus
"(II) the unrecaptured section 1250 gain, plus
"(B) 25 percent of the lesser of -
"(i) the unrecaptured section 1250 gain, or
"(ii) the amount of taxable excess in excess of the sum of -
"(I) the adjusted net capital gain, plus
"(II) the amount on which a tax is determined under
subparagraph (A), plus
"(C) 10 percent of so much of the taxpayer's adjusted net
capital gain (or, if less, taxable excess) as does not exceed the
amount on which a tax is determined under section 1(h)(1)(D),
plus
"(D) 20 percent of the taxpayer's adjusted net capital gain
(or, if less, taxable excess) in excess of the amount on which
tax is determined under subparagraph (C).
In the case of taxable years beginning after December 31, 2000,
rules similar to the rules of section 1(h)(2) shall apply for
purposes of subparagraphs (C) and (D). Terms used in this paragraph
which are also used in section 1(h) shall have the respective
meanings given such terms by section 1(h)."
Subsec. (e)(1). Pub. L. 105-206, Sec. 6006(a), reenacted par.
heading without change and amended text of par. (1) generally.
Prior to amendment, text read as follows: "The tentative minimum
tax of a corporation shall be zero for any taxable year if -
"(A) such corporation met the $5,000,000 gross receipts test of
section 448(c) for its first taxable year beginning after
December 31, 1996, and
"(B) such corporation would meet such test for the taxable year
and all prior taxable years beginning after such first taxable
year if such test were applied by substituting '$7,500,000' for
'$5,000,000'."
1997 - Subsec. (b)(1)(A)(ii). Pub. L. 105-34, Sec. 311(b)(2)(A),
substituted "this subsection" for "clause (i)".
Subsec. (b)(3). Pub. L. 105-34, Sec. 311(b)(1), added par. (3).
Subsec. (c)(1). Pub. L. 105-34, Sec. 1601(f)(1)(C), substituted
"Puerto Rico" for "Puerto Rican".
Subsec. (e). Pub. L. 105-34, Sec. 401(a), added subsec. (e).
1996 - Subsec. (c)(1). Pub. L. 104-188, Sec. 1601(b)(2)(A),
substituted ", the section 936 credit allowable under section
27(b), and the Puerto Rican economic activity credit under section
30A" for "and the section 936 credit allowable under section
27(b)".
Pub. L. 104-188, Sec. 1401(b)(3), struck out "shall not include
any tax imposed by section 402(d) and" before "shall not include
any increase in tax under section 49(b)".
Subsec. (c)(2). Pub. L. 104-188, Sec. 1205(d)(6), struck out
"28(d)(2)," after "26(a),".
1993 - Subsec. (b)(1). Pub. L. 103-66, Sec. 13203(a), amended
heading and text of par. (1) generally. Prior to amendment, text
read as follows: "The tentative minimum tax for the taxable year is
-
"(A) 20 percent (24 percent in the case of a taxpayer other
than a corporation) of so much of the alternative minimum taxable
income for the taxable year as exceeds the exemption amount,
reduced by
"(B) the alternative minimum tax foreign tax credit for the
taxable year."
Subsec. (d)(1). Pub. L. 103-66, Sec. 13203(b), substituted
"$45,000" for "$40,000" in subpar. (A), "$33,750" for "$30,000" in
subpar. (B), and "$22,500" for "$20,000" in subpar. (C).
Subsec. (d)(3). Pub. L. 103-66, Sec. 13203(c)(1), substituted
"$165,000 or (ii) $22,500" for "$155,000 or (ii) $20,000" in last
sentence.
1992 - Subsec. (c)(1). Pub. L. 102-318 substituted "402(d)" for
"402(e)".
Subsec. (c)(2). Pub. L. 102-486 substituted "29(b)(6), 30(b)(3),"
for "29(b)(5),".
1990 - Subsec. (b)(1)(A). Pub. L. 101-508, Sec. 11102(a),
substituted "24 percent" for "21 percent".
Subsec. (c)(1). Pub. L. 101-508, Sec. 11813(b)(5), substituted
"section 49(b) or 50(a)" for "section 47".
1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 1007(a)(2), inserted
at end "If a taxpayer is subject to the regular tax, such taxpayer
shall be subject to the tax imposed by this section (and, if the
regular tax is determined by reference to an amount other than
taxable income, such amount shall be treated as the taxable income
of such taxpayer for purposes of the preceding sentence)."
Subsec. (c)(1). Pub. L. 100-647, Sec. 1007(a)(1), inserted "and
the section 936 credit allowable under section 27(b)" before period
at end of first sentence.
Pub. L. 100-647, Sec. 1002(l)(27), substituted "subsection (j) or
(k) of section 42" for "section 42(j)".
Subsec. (d)(3). Pub. L. 100-647, Sec. 1007(a)(3), inserted at end
"In the case of a taxpayer described in paragraph (1)(C)(i),
alternative minimum taxable income shall be increased by the lesser
of (i) 25 percent of the excess of alternative minimum taxable
income (determined without regard to this sentence) over $155,000,
or (ii) $20,000."
1986 - Subsec. (c)(1). Pub. L. 99-514, Sec. 252(c), inserted "or
section 42(j)".
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendment by section 403(h) of Pub. L. 109-135 effective as if
included in the provision of the American Jobs Creation Act of
2004, Pub. L. 108-357, to which such amendment relates, see section
403(nn) of Pub. L. 109-135, set out as a note under section 26 of
this title.
Amendment by section 1302(b) of Pub. L. 109-58 applicable to
taxable years of cooperative organizations ending after Aug. 8,
2005, see section 1302(c) of Pub. L. 109-58, set out as a note
under section 45 of this title.
Amendment by section 1322(a)(3)(H) of Pub. L. 109-58 applicable
to credits determined under the Internal Revenue Code of 1986 for
taxable years ending after Dec. 31, 2005, see section 1322(c)(1) of
Pub. L. 109-58, set out as a note under section 45K of this title.
Amendment by section 1342(b)(3) of Pub. L. 109-58 applicable to
property placed in service after Dec. 31, 2005, in taxable years
ending after such date, see section 1342(c) of Pub. L. 109-58, set
out as an Effective Date note under section 30C of this title.
Amendment by section 1341(b)(3) of Pub. L. 109-58 applicable to
property placed in service after Dec. 31, 2005, in taxable years
ending after such date, see section 1341(c) of Pub. L. 109-58, set
out as an Effective Date note under section 30B of this title.
EFFECTIVE AND TERMINATION DATES OF 2004 AMENDMENTS
Pub. L. 108-357, title III, Sec. 314(c), Oct. 22, 2004, 118 Stat.
1469, provided that: "The amendments made by this section [amending
this section and section 1301 of this title] shall apply to taxable
years beginning after December 31, 2003."
Pub. L. 108-311, title I, Sec. 103(b), Oct. 4, 2004, 118 Stat.
1168, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2004."
Amendment by section 103(a) of Pub. L. 108-311 subject to title
IX of the Economic Growth and Tax Relief Reconciliation Act of
2001, Pub. L. 107-16, Sec. 901, to the same extent and in the same
manner as the provision of such Act to which such amendment
relates, see section 105 of Pub. L. 108-311, set out as a note
under section 1 of this title.
Pub. L. 108-311, title IV, Sec. 406(h), Oct. 4, 2004, 118 Stat.
1190, provided that: "The amendments made by this section [amending
this section and sections 246, 529, 530, 901, 1259, and 1397E of
this title] shall take effect as if included in the provisions of
the Taxpayer Relief Act of 1997 [Pub. L. 105-34] to which they
relate."
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Pub. L. 108-27, title I, Sec. 106(b), May 28, 2003, 117 Stat.
755, provided that: "The amendments made by subsection (a)
[amending this section] shall apply to taxable years beginning
after December 31, 2002."
Amendment by section 106(a) of Pub. L. 108-27 subject to title IX
of the Economic Growth and Tax Relief Reconciliation Act of 2001,
Pub. L. 107-16, Sec. 901, to the same extent and in the same manner
as the provision of such Act to which such amendment relates, see
section 107 of Pub. L. 108-27, set out as a note under section 1 of
this title.
Amendment by section 301(a)(1), (2)(B), (b)(2) of Pub. L. 108-27
applicable to taxable years ending on or after May 6, 2003, see
section 301(d) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by section 301(a)(1), (2)(B), (b)(2) of Pub. L. 108-27
inapplicable to taxable years beginning after Dec. 31, 2008, and
the Internal Revenue Code of 1986 to be applied and administered to
such years as if such amendment had never been enacted, see section
303 of Pub. L. 108-27, set out as a note under section 1 of this
title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title VII, Sec. 701(c), June 7, 2001, 115 Stat.
148, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2000."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 311(b)(1), (2)(A) of Pub. L. 105-34
applicable to taxable years ending after May 6, 1997, see section
311(d) of Pub. L. 105-34, set out as a note under section 1 of this
title.
Section 401(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997."
Amendment by section 1601(f)(1)(C) of Pub. L. 105-34 effective as
if included in the provisions of the Small Business Job Protection
Act of 1996, Pub. L. 104-188, to which it relates, see section
1601(j) of Pub. L. 105-34, set out as a note under section 23 of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1205(d)(6) of Pub. L. 104-188 applicable to
amounts paid or incurred in taxable years ending after June 30,
1996, see section 1205(e) of Pub. L. 104-188, set out as a note
under section 45K of this title.
Amendment by section 1401(b)(3) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1999, with retention of
certain transition rules, see section 1401(c) of Pub. L. 104-188,
set out as a note under section 402 of this title.
Amendment by section 1601(b)(2)(A) of Pub. L. 104-188 applicable
to taxable years beginning after Dec. 31, 1995, except as otherwise
provided, see section 1601(c) of Pub. L. 104-188, set out as an
Effective Date note under section 30A of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13203(d) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and section 897 of this
title] shall apply to taxable years beginning after December 31,
1992."
EFFECTIVE DATE OF 1992 AMENDMENTS
Amendment by Pub. L. 102-486 applicable to property placed in
service after June 30, 1993, see section 1913(c) of Pub. L. 102-
486, set out as an Effective Date note under section 30 of this
title.
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11102(b) of Pub. L. 101-508 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1990."
Amendment by section 11813(b)(5) of Pub. L. 101-508 applicable to
property placed in service after Dec. 31, 1990, but not applicable
to any transition property (as defined in section 49(e) of this
title), any property with respect to which qualified progress
expenditures were previously taken into account under section 46(d)
of this title, and any property described in section 46(b)(2)(C) of
this title, as such sections were in effect on Nov. 4, 1990, see
section 11813(c) of Pub. L. 101-508, set out as a note under
section 45K of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1002(l)(27) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 1007(a)(3) of Pub. L. 100-647 provided that the amendment
made by that section is effective with respect to taxable years
ending after Nov. 10, 1988.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to buildings placed in
service after Dec. 31, 1986, in taxable years ending after such
date, see section 252(e) of Pub. L. 99-514, set out as an Effective
Date note under section 42 of this title.
EFFECTIVE DATE
Section 701(f) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1007(f)(2), (3), Nov. 10, 1988, 102 Stat. 3433,
provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting this
section and sections 53 and 56 to 59 of this title and amending
sections 5, 12, 26, 28, 29, 38, 48, 173, 174, 263, 381, 443, 703,
882, 897, 904, 936, 1016, 1363, 1366, 1561, 6154, 6425, and 6655 of
this title] shall apply to taxable years beginning after December
31, 1986.
"(2) Adjustment of net operating loss. -
"(A) Individuals. - In the case of a net operating loss of an
individual for a taxable year beginning after December 31, 1982,
and before January 1, 1987, for purposes of determining the
amount of such loss which may be carried to a taxable year
beginning after December 31, 1986, for purposes of the minimum
tax, such loss shall be adjusted in the manner provided in
section 55(d)(2) of the Internal Revenue Code of 1954 [now 1986]
as in effect on the day before the date of the enactment of this
Act [Oct. 22, 1986].
"(B) Corporations. - If the minimum tax of a corporation was
deferred under section 56(b) of the Internal Revenue Code of 1954
[now 1986] (as in effect on the day before the date of the
enactment of this Act [Oct. 22, 1986]) for any taxable year
beginning before January 1, 1987, and the amount of such tax has
not been paid for any taxable year beginning before January 1,
1987, the amount of the net operating loss carryovers of such
corporation which may be carried to taxable years beginning after
December 31, 1986, for purposes of the minimum tax shall be
reduced by the amount of tax preferences a tax on which was so
deferred.
"(3) Installment sales. - Section 56(a)(6) of the Internal
Revenue Code of 1986 (as amended by this section) shall not apply
to any disposition to which the amendments made by section 811 of
this Act [enacting section 453C of this title] (relating to
allocation of dealer's indebtedness to installment obligations) do
not apply by reason of section 811(c)(2) of this Act [enacting
provisions set out as a note under section 453C of this title].
"(4) Exception for charitable contributions before august 16,
1986. - Section 57(a)(6) of the Internal Revenue Code of 1986 (as
amended by this section) shall not apply to any deduction
attributable to contributions made before August 16, 1986.
"(5) Book income. -
"(A) In general. - In the case of a corporation to which this
paragraph applies, the amount of any increase for any taxable
year under section 56(c)(1)(A) of the Internal Revenue Code of
1986 (as added by this section) shall be reduced (but not below
zero) by the excess (if any) of -
"(i) 50 percent of the excess of taxable income for the 5-
taxable year period ending with the taxable year preceding the
1st taxable year to which such section applies over the
adjusted net book income for such period, over
"(ii) the aggregate amounts taken into account under this
paragraph for preceding taxable years.
"(B) Taxpayer to whom paragraph applies. - This paragraph
applies to a taxpayer which was incorporated in Delaware on May
31, 1912.
"(C) Terms. - Any term used in this paragraph which is used in
section 56 of such Code (as so added) shall have the same meaning
as when used in such section.
"(6) Certain public utility. -
"(A) In the case of investment tax credits described in
subparagraph (B) or (C), subsection 38(c)(3)(A)(ii) of the
Internal Revenue Code of 1986 shall be applied by substituting
'25 percent' for '75 percent', and section 38(c)(3)(B) of the
Internal Revenue Code of 1986 shall be applied by substituting
'75 percent' for '25 percent'.
"(B) If, on September 25, 1985, a regulated electric utility
owned an undivided interest, within the range of 1,111 and 1,149,
in the 'maximum dependable capacity, net, megawatts electric' of
an electric generating unit located in Illinois or Mississippi
for which a binding written contract was in effect on December
31, 1980, then any investment tax credit with respect to such
unit shall be described in this subparagraph. The aggregate
amount of investment tax credits with respect to the unit in
Mississippi allowed solely by reason of being described in this
subparagraph shall not exceed $141,000,000.
"(C) If, on September 25, 1985, a regulated electric utility
owned an undivided interest, within the range of 1,104 and 1,111,
in the 'maximum dependable capacity, net, megawatts electric' of
an electric generating unit located in Louisiana for which a
binding written contract was in effect on December 31, 1980, then
any investment tax credit of such electric utility shall be
described in this subparagraph. The aggregate amount of
investment tax credits allowed solely by reason of being
described by this subparagraph shall not exceed $20,000,000.
"(7) Agreement vessel depreciation adjustment. -
"(A) For purposes of part VI of subchapter A of chapter 1 of
the Internal Revenue Code of 1986, in the case of a qualified
taxpayer, alternative minimum taxable income for the taxable year
shall be reduced by an amount equal to the agreement vessel
depreciation adjustment.
"(B) For purposes of this paragraph, the agreement vessel
depreciation adjustment shall be an amount equal to the
depreciation deduction that would have been allowable for such
year under section 167 of such Code with respect to agreement
vessels placed in service before January 1, 1987, if the basis of
such vessels had not been reduced under section 607 of the
Merchant Marine Act of 1936 [46 App. U.S.C. 1177], as amended,
and if depreciation with respect to such vessel had been computed
using the 25-year straight-line method. The aggregate amount by
which basis of a qualified taxpayer is treated as not reduced by
reason of this subparagraph shall not exceed $100,000,000.
"(C) For purposes of this paragraph, the term 'qualified
taxpayer' means a parent corporation incorporated in the State of
Delaware on December 1, 1972, and engaged in water
transportation, and includes any other corporation which is a
member of the affiliated group of which the parent corporation is
the common parent. No taxpayer shall be treated as a qualified
corporation for any taxable year beginning after December 31,
1991."
SAVINGS PROVISION
For provisions that nothing in amendment by section 11813(b)(5)
of Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
TRANSITIONAL PROVISIONS
Section 1007(f)(1) of Pub. L. 100-647 provided that: "In the case
of the taxable year of an estate or trust which begins before
January 1, 1987, and ends on or after such date, the items of tax
preference apportioned to any beneficiary of such estate or trust
under section 58(c) of the Internal Revenue Code of 1954 (as in
effect on the day before the date of the enactment of the Tax
Reform Act of 1986 [Oct. 22, 1986]) shall be taken into account for
purposes of determining the amount of the tax imposed by section 55
of the Internal Revenue Code of 1986 (as amended by the Tax Reform
Act of 1986 [Pub. L. 99-514]) on such beneficiary for such
beneficiary's taxable year in which such taxable year of the estate
or trust ends."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(a) of Pub. L. 99-
514 [enacting this section] notwithstanding any treaty obligation
of the United States in effect on Oct. 22, 1986, with provision
that for such purposes any amendment by title I of Pub. L. 100-647
be treated as if it had been included in the provision of Pub. L.
99-514 to which such amendment relates, see section 1012(aa)(2),
(4) of Pub. L. 100-647, set out as a note under section 861 of this
title.
HIGH INCOME TAXPAYER REPORT
Section 2123 of Pub. L. 94-455, as amended by Pub. L. 98-369,
div. A, title IV, Sec. 441(b)(1), July 18, 1984, 98 Stat. 815,
provided that: "The Secretary of the Treasury shall publish
annually information on the amount of tax paid by individual
taxpayers with high total incomes. Total income for this purpose is
to be calculated and set forth by adding to adjusted gross income
any items of tax preference excluded from, or deducted in arriving
at, adjusted gross income, and by subtracting any investment
expenses incurred in the production of such income to the extent of
the investment income. These data are to include the number of such
individuals with total income over $200,000 who owe no Federal
income tax (after credits) and the deductions, exclusions, or
credits used by them to avoid tax."
[Section 441(b)(2) of Pub. L. 98-369 provided that: "The
amendment made by paragraph (1) [amending section 2123 of Pub. L.
94-455, set out above] shall apply to information published after
the date of the enactment of this Act [July 18, 1984]."]
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 56 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART VI - ALTERNATIVE MINIMUM TAX
-HEAD-
Sec. 56. Adjustments in computing alternative minimum taxable
income
-STATUTE-
(a) Adjustments applicable to all taxpayers
In determining the amount of the alternative minimum taxable
income for any taxable year the following treatment shall apply (in
lieu of the treatment applicable for purposes of computing the
regular tax):
(1) Depreciation
(A) In general
(i) Property other than certain personal property
Except as provided in clause (ii), the depreciation
deduction allowable under section 167 with respect to any
tangible property placed in service after December 31, 1986,
shall be determined under the alternative system of section
168(g). In the case of property placed in service after
December 31, 1998, the preceding sentence shall not apply but
clause (ii) shall continue to apply.
(ii) 150-percent declining balance method for certain
property
The method of depreciation used shall be -
(I) the 150 percent declining balance method,
(II) switching to the straight line method for the 1st
taxable year for which using the straight line method with
respect to the adjusted basis as of the beginning of the
year will yield a higher allowance.
The preceding sentence shall not apply to any section 1250
property (as defined in section 1250(c)) (and the straight
line method shall be used for such section 1250 property) or
to any other property if the depreciation deduction
determined under section 168 with respect to such other
property for purposes of the regular tax is determined by
using the straight line method.
(B) Exception for certain property
This paragraph shall not apply to property described in
paragraph (1), (2), (3), or (4) of section 168(f), or in
section 168(e)(3)(C)(iv).
(C) Coordination with transitional rules
(i) In general
This paragraph shall not apply to property placed in
service after December 31, 1986, to which the amendments made
by section 201 of the Tax Reform Act of 1986 do not apply by
reason of section 203, 204, or 251(d) of such Act.
(ii) Treatment of certain property placed in service before
1987
This paragraph shall apply to any property to which the
amendments made by section 201 of the Tax Reform Act of 1986
apply by reason of an election under section 203(a)(1)(B) of
such Act without regard to the requirement of subparagraph
(A) that the property be placed in service after December 31,
1986.
(D) Normalization rules
With respect to public utility property described in section
168(i)(10), the Secretary shall prescribe the requirements of a
normalization method of accounting for this section.
(2) Mining exploration and development costs
(A) In general
With respect to each mine or other natural deposit (other
than an oil, gas, or geothermal well) of the taxpayer, the
amount allowable as a deduction under section 616(a) or 617(a)
(determined without regard to section 291(b)) in computing the
regular tax for costs paid or incurred after December 31, 1986,
shall be capitalized and amortized ratably over the 10-year
period beginning with the taxable year in which the
expenditures were made.
(B) Loss allowed
If a loss is sustained with respect to any property described
in subparagraph (A), a deduction shall be allowed for the
expenditures described in subparagraph (A) for the taxable year
in which such loss is sustained in an amount equal to the
lesser of -
(i) the amount allowable under section 165(a) for the
expenditures if they had remained capitalized, or
(ii) the amount of such expenditures which have not
previously been amortized under subparagraph (A).
(3) Treatment of certain long-term contracts
In the case of any long-term contract entered into by the
taxpayer on or after March 1, 1986, the taxable income from such
contract shall be determined under the percentage of completion
method of accounting (as modified by section 460(b)). For
purposes of the preceding sentence, in the case of a contract
described in section 460(e)(1), the percentage of the contract
completed shall be determined under section 460(b)(1) by using
the simplified procedures for allocation of costs prescribed
under section 460(b)(3). The first sentence of this paragraph
shall not apply to any home construction contract (as defined in
section 460(e)(6)).
(4) Alternative tax net operating loss deduction
The alternative tax net operating loss deduction shall be
allowed in lieu of the net operating loss deduction allowed under
section 172.
(5) Pollution control facilities
In the case of any certified pollution control facility placed
in service after December 31, 1986, the deduction allowable under
section 169 (without regard to section 291) shall be determined
under the alternative system of section 168(g). In the case of
such a facility placed in service after December 31, 1998, such
deduction shall be determined under section 168 using the
straight line method.
(6) Adjusted basis
The adjusted basis of any property to which paragraph (1) or
(5) applies (or with respect to which there are any expenditures
to which paragraph (2) or subsection (b)(2) applies) shall be
determined on the basis of the treatment prescribed in paragraph
(1), (2), or (5), or subsection (b)(2), whichever applies.
(7) Section 87 not applicable
Section 87 (relating to alcohol fuel credit) shall not apply.
(b) Adjustments applicable to individuals
In determining the amount of the alternative minimum taxable
income of any taxpayer (other than a corporation), the following
treatment shall apply (in lieu of the treatment applicable for
purposes of computing the regular tax):
(1) Limitation on deductions
(A) In general
No deduction shall be allowed -
(i) for any miscellaneous itemized deduction (as defined in
section 67(b)), or
(ii) for any taxes described in paragraph (1), (2), or (3)
of section 164(a) or clause (ii) of section 164(b)(5)(A).
Clause (ii) shall not apply to any amount allowable in
computing adjusted gross income.
(B) Medical expenses
In determining the amount allowable as a deduction under
section 213, subsection (a) of section 213 shall be applied by
substituting "10 percent" for "7.5 percent".
(C) Interest
In determining the amount allowable as a deduction for
interest, subsections (d) and (h) of section 163 shall apply,
except that -
(i) in lieu of the exception under section 163(h)(2)(D),
the term "personal interest" shall not include any qualified
housing interest (as defined in subsection (e)),
(ii) sections 163(d)(6) and 163(h)(5) (relating to phase-
ins) shall not apply,
(iii) interest on any specified private activity bond (and
any amount treated as interest on a specified private
activity bond under section 57(a)(5)(B)), and any deduction
referred to in section 57(a)(5)(A), shall be treated as
includible in gross income (or as deductible) for purposes of
applying section 163(d),
(iv) in lieu of the exception under section
163(d)(3)(B)(i), the term "investment interest" shall not
include any qualified housing interest (as defined in
subsection (e)), and
(v) the adjustments of this section and sections 57 and 58
shall apply in determining net investment income under
section 163(d).
(D) Treatment of certain recoveries
No recovery of any tax to which subparagraph (A)(ii) applied
shall be included in gross income for purposes of determining
alternative minimum taxable income.
(E) Standard deduction and deduction for personal exemptions
not allowed
The standard deduction under section 63(c), the deduction for
personal exemptions under section 151, and the deduction under
section 642(b) shall not be allowed.
(F) Section 68 not applicable
Section 68 shall not apply.
(2) Circulation and research and experimental expenditures
(A) In general
The amount allowable as a deduction under section 173 or
174(a) in computing the regular tax for amounts paid or
incurred after December 31, 1986, shall be capitalized and -
(i) in the case of circulation expenditures described in
section 173, shall be amortized ratably over the 3-year
period beginning with the taxable year in which the
expenditures were made, or
(ii) in the case of research and experimental expenditures
described in section 174(a), shall be amortized ratably over
the 10-year period beginning with the taxable year in which
the expenditures were made.
(B) Loss allowed
If a loss is sustained with respect to any property described
in subparagraph (A), a deduction shall be allowed for the
expenditures described in subparagraph (A) for the taxable year
in which such loss is sustained in an amount equal to the
lesser of -
(i) the amount allowable under section 165(a) for the
expenditures if they had remained capitalized, or
(ii) the amount of such expenditures which have not
previously been amortized under subparagraph (A).
(C) Special rule for personal holding companies
In the case of circulation expenditures described in section
173, the adjustments provided in this paragraph shall apply
also to a personal holding company (as defined in section 542).
(D) Exception for certain research and experimental
expenditures
If the taxpayer materially participates (within the meaning
of section 469(h)) in an activity, this paragraph shall not
apply to any amount allowable as a deduction under section
174(a) for expenditures paid or incurred in connection with
such activity.
(3) Treatment of incentive stock options
Section 421 shall not apply to the transfer of stock acquired
pursuant to the exercise of an incentive stock option (as defined
in section 422). Section 422(c)(2) shall apply in any case where
the disposition and the inclusion for purposes of this part are
within the same taxable year and such section shall not apply in
any other case. The adjusted basis of any stock so acquired shall
be determined on the basis of the treatment prescribed by this
paragraph.
(c) Adjustments applicable to corporations
In determining the amount of the alternative minimum taxable
income of a corporation, the following treatment shall apply:
(1) Adjustment for adjusted current earnings
Alternative minimum taxable income shall be adjusted as
provided in subsection (g).
(2) Merchant marine capital construction funds
In the case of a capital construction fund established under
section 607 of the Merchant Marine Act, 1936 (46 (!1) U.S.C.
1177) -
(A) subparagraphs (A), (B), and (C) of section 7518(c)(1)
(and the corresponding provisions of such section 607) shall
not apply to -
(i) any amount deposited in such fund after December 31,
1986, or
(ii) any earnings (including gains and losses) after
December 31, 1986, on amounts in such fund, and
(B) no reduction in basis shall be made under section 7518(f)
(or the corresponding provisions of such section 607) with
respect to the withdrawal from the fund of any amount to which
subparagraph (A) applies.
For purposes of this paragraph, any withdrawal of deposits or
earnings from the fund shall be treated as allocable first to
deposits made before (and earnings received or accrued before)
January 1, 1987.
(3) Special deduction for certain organizations not allowed
The deduction determined under section 833(b) shall not be
allowed.
(d) Alternative tax net operating loss deduction defined
(1) In general
For purposes of subsection (a)(4), the term "alternative tax
net operating loss deduction" means the net operating loss
deduction allowable for the taxable year under section 172,
except that -
(A) the amount of such deduction shall not exceed the sum of -
(i) the lesser of -
(I) the amount of such deduction attributable to net
operating losses (other than the deduction described in
clause (ii)(I)), or
(II) 90 percent of alternative minimum taxable income
determined without regard to such deduction and the
deduction under section 199, plus
(ii) the lesser of -
(I) the amount of such deduction attributable to the sum
of carrybacks of net operating losses from taxable years
ending during 2001 or 2002 and carryovers of net operating
losses to taxable years ending during 2001 and 2002, or
(II) alternative minimum taxable income determined
without regard to such deduction and the deduction under
section 199 reduced by the amount determined under clause
(i), and
(B) in determining the amount of such deduction -
(i) the net operating loss (within the meaning of section
172(c)) for any loss year shall be adjusted as provided in
paragraph (2), and
(ii) appropriate adjustments in the application of section
172(b)(2) shall be made to take into account the limitation
of subparagraph (A).
(2) Adjustments to net operating loss computation
(A) Post-1986 loss years
In the case of a loss year beginning after December 31, 1986,
the net operating loss for such year under section 172(c) shall
-
(i) be determined with the adjustments provided in this
section and section 58, and
(ii) be reduced by the items of tax preference determined
under section 57 for such year.
An item of tax preference shall be taken into account under
clause (ii) only to the extent such item increased the amount
of the net operating loss for the taxable year under section
172(c).
(B) Pre-1987 years
In the case of loss years beginning before January 1, 1987,
the amount of the net operating loss which may be carried over
to taxable years beginning after December 31, 1986, for
purposes of paragraph (2), shall be equal to the amount which
may be carried from the loss year to the first taxable year of
the taxpayer beginning after December 31, 1986.
(e) Qualified housing interest
For purposes of this part -
(1) In general
The term "qualified housing interest" means interest which is
qualified residence interest (as defined in section 163(h)(3))
and is paid or accrued during the taxable year on indebtedness
which is incurred in acquiring, constructing, or substantially
improving any property which -
(A) is the principal residence (within the meaning of section
121) of the taxpayer at the time such interest accrues, or
(B) is a qualified dwelling which is a qualified residence
(within the meaning of section 163(h)(4)).
Such term also includes interest on any indebtedness resulting
from the refinancing of indebtedness meeting the requirements of
the preceding sentence; but only to the extent that the amount of
the indebtedness resulting from such refinancing does not exceed
the amount of the refinanced indebtedness immediately before the
refinancing.
(2) Qualified dwelling
The term "qualified dwelling" means any -
(A) house,
(B) apartment,
(C) condominium, or
(D) mobile home not used on a transient basis (within the
meaning of section 7701(a)(19)(C)(v)),
including all structures or other property appurtenant thereto.
(3) Special rule for indebtedness incurred before July 1, 1982
The term "qualified housing interest" includes interest which
is qualified residence interest (as defined in section 163(h)(3))
and is paid or accrued on indebtedness which -
(A) was incurred by the taxpayer before July 1, 1982, and
(B) is secured by property which, at the time such
indebtedness was incurred, was -
(i) the principal residence (within the meaning of section
121) of the taxpayer, or
(ii) a qualified dwelling used by the taxpayer (or any
member of his family (within the meaning of section
267(c)(4))).
[(f) Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(3), Nov. 5,
1990, 104 Stat. 1388-520]
(g) Adjustments based on adjusted current earnings
(1) In general
The alternative minimum taxable income of any corporation for
any taxable year shall be increased by 75 percent of the excess
(if any) of -
(A) the adjusted current earnings of the corporation, over
(B) the alternative minimum taxable income (determined
without regard to this subsection and the alternative tax net
operating loss deduction).
(2) Allowance of negative adjustments
(A) In general
The alternative minimum taxable income for any corporation of
any taxable year, shall be reduced by 75 percent of the excess
(if any) of -
(i) the amount referred to in subparagraph (B) of paragraph
(1), over
(ii) the amount referred to in subparagraph (A) of
paragraph (1).
(B) Limitation
The reduction under subparagraph (A) for any taxable year
shall not exceed the excess (if any) of -
(i) the aggregate increases in alternative minimum taxable
income under paragraph (1) for prior taxable years, over
(ii) the aggregate reductions under subparagraph (A) of
this paragraph for prior taxable years.
(3) Adjusted current earnings
For purposes of this subsection, the term "adjusted current
earnings" means the alternative minimum taxable income for the
taxable year -
(A) determined with the adjustments provided in paragraph
(4), and
(B) determined without regard to this subsection and the
alternative tax net operating loss deduction.
(4) Adjustments
In determining adjusted current earnings, the following
adjustments shall apply:
(A) Depreciation
(i) Property placed in service after 1989
The depreciation deduction with respect to any property
placed in service in a taxable year beginning after 1989
shall be determined under the alternative system of section
168(g). The preceding sentence shall not apply to any
property placed in service after December 31, 1993, and the
depreciation deduction with respect to such property shall be
determined under the rules of subsection (a)(1)(A).
(ii) Property to which new ACRS system applies
In the case of any property to which the amendments made by
section 201 of the Tax Reform Act of 1986 apply and which is
placed in service in a taxable year beginning before 1990,
the depreciation deduction shall be determined -
(I) by taking into account the adjusted basis of such
property (as determined for purposes of computing
alternative minimum taxable income) as of the close of the
last taxable year beginning before January 1, 1990, and
(II) by using the straight-line method over the remainder
of the recovery period applicable to such property under
the alternative system of section 168(g).
(iii) Property to which original ACRS system applies
In the case of any property to which section 168 (as in
effect on the day before the date of the enactment of the Tax
Reform Act of 1986 and without regard to subsection
(d)(1)(A)(ii) thereof) applies and which is placed in service
in a taxable year beginning before 1990, the depreciation
deduction shall be determined -
(I) by taking into account the adjusted basis of such
property (as determined for purposes of computing the
regular tax) as of the close of the last taxable year
beginning before January 1, 1990, and
(II) by using the straight line method over the remainder
of the recovery period which would apply to such property
under the alternative system of section 168(g).
(iv) Property placed in service before 1981
In the case of any property not described in clause (i),
(ii), or (iii), the amount allowable as depreciation or
amortization with respect to such property shall be
determined in the same manner as for purposes of computing
taxable income.
(v) Special rule for certain property
In the case of any property described in paragraph (1),
(2), (3), or (4) of section 168(f), the amount of
depreciation allowable for purposes of the regular tax shall
be treated as the amount allowable under the alternative
system of section 168(g).
(B) Inclusion of items included for purposes of computing
earnings and profits
(i) In general
In the case of any amount which is excluded from gross
income for purposes of computing alternative minimum taxable
income but is taken into account in determining the amount of
earnings and profits -
(I) such amount shall be included in income in the same
manner as if such amount were includible in gross income
for purposes of computing alternative minimum taxable
income, and
(II) the amount of such income shall be reduced by any
deduction which would have been allowable in computing
alternative minimum taxable income if such amount were
includible in gross income.
The preceding sentence shall not apply in the case of any
amount excluded from gross income under section 108 (or the
corresponding provisions of prior law) or under section 139A
or 1357. In the case of any insurance company taxable under
section 831(b), this clause shall not apply to any amount not
described in section 834(b).
(ii) Inclusion of buildup in life insurance contracts
In the case of any life insurance contract -
(I) the income on such contract (as determined under
section 7702(g)) for any taxable year shall be treated as
includible in gross income for such year, and
(II) there shall be allowed as a deduction that portion
of any premium which is attributable to insurance coverage.
(C) Disallowance of items not deductible in computing earnings
and profits
(i) In general
A deduction shall not be allowed for any item if such item
would not be deductible for any taxable year for purposes of
computing earnings and profits.
(ii) Special rule for certain dividends
(I) In general
Clause (i) shall not apply to any deduction allowable
under section 243 or 245 for any dividend which is a 100-
percent dividend or which is received from a 20-percent
owned corporation (as defined in section 243(c)(2)), but
only to the extent such dividend is attributable to income
of the paying corporation which is subject to tax under
this chapter (determined after the application of sections
30A, 936 (including subsections (a)(4), (i), and (j)
thereof) and 921).(!2)
(II) 100-percent dividend
For purposes of subclause (I), the term "100 percent
dividend" means any dividend if the percentage used for
purposes of determining the amount allowable as a deduction
under section 243 or 245 with respect to such dividend is
100 percent.
(iii) Treatment of taxes on dividends from 936 corporations
(I) In general
For purposes of determining the alternative minimum
foreign tax credit, 75 percent of any withholding or income
tax paid to a possession of the United States with respect
to dividends received from a corporation eligible for the
credit provided by section 936 shall be treated as a tax
paid to a foreign country by the corporation receiving the
dividend.
(II) Limitation
If the aggregate amount of the dividends referred to in
subclause (I) for any taxable year exceeds the excess
referred to in paragraph (1), the amount treated as tax
paid to a foreign country under subclause (I) shall not
exceed the amount which would be so treated without regard
to this subclause multiplied by a fraction the numerator of
which is the excess referred to in paragraph (1) and the
denominator of which is the aggregate amount of such
dividends.
(III) Treatment of taxes imposed on 936 corporation
For purposes of this clause, taxes paid by any
corporation eligible for the credit provided by section 936
to a possession of the United States shall be treated as a
withholding tax paid with respect to any dividend paid by
such corporation to the extent such taxes would be treated
as paid by the corporation receiving the dividend under
rules similar to the rules of section 902 (and the amount
of any such dividend shall be increased by the amount so
treated).
(IV) Separate application of foreign tax credit limitations
In determining the alternative minimum foreign tax
credit, section 904(d) shall be applied as if dividends
from a corporation eligible for the credit provided by
section 936 were a separate category of income referred to
in a subparagraph of section 904(d)(1).
(V) Coordination with limitation on 936 credit
Any reference in this clause to a dividend received from
a corporation eligible for the credit provided by section
936 shall be treated as a reference to the portion of any
such dividend for which the dividends received deduction is
disallowed under clause (i) after the application of clause
(ii)(I).
(VI) Application to section 30A corporations
References in this clause to section 936 shall be treated
as including references to section 30A.
(iv) Special rule for certain dividends received by certain
cooperatives
In the case of a cooperative described in section
927(a)(4),(!2) clause (i) shall not apply to any amount
allowable as a deduction under section 245(c).
(v) Deduction for domestic production
Clause (i) shall not apply to any amount allowable as a
deduction under section 199.
(vi) Special rule for certain distributions from controlled
foreign corporations
Clause (i) shall not apply to any deduction allowable under
section 965.
(D) Certain other earnings and profits adjustments
(i) Intangible drilling costs
The adjustments provided in section 312(n)(2)(A) shall
apply in the case of amounts paid or incurred in taxable
years beginning after December 31, 1989. In the case of a
taxpayer other than an integrated oil company (as defined in
section 291(b)(4)), in the case of any oil or gas well, this
clause shall not apply in the case of amounts paid or
incurred in taxable years beginning after December 31, 1992.
(ii) Certain amortization provisions not to apply
Sections 173 and 248 shall not apply to expenditures paid
or incurred in taxable years beginning after December 31,
1989.
(iii) LIFO inventory adjustments
The adjustments provided in section 312(n)(4) shall apply,
but only with respect to taxable years beginning after
December 31, 1989.
(iv) Installment sales
In the case of any installment sale in a taxable year
beginning after December 31, 1989, adjusted current earnings
shall be computed as if the corporation did not use the
installment method. The preceding sentence shall not apply to
the applicable percentage (as determined under section 453A)
of the gain from any installment sale with respect to which
section 453A(a)(1) applies.
(E) Disallowance of loss on exchange of debt pools
No loss shall be recognized on the exchange of any pool of
debt obligations for another pool of debt obligations having
substantially the same effective interest rates and maturities.
(F) Depletion
(i) In general
The allowance for depletion with respect to any property
placed in service in a taxable year beginning after December
31, 1989, shall be cost depletion determined under section
611.
(ii) Exception for independent oil and gas producers and
royalty owners
In the case of any taxable year beginning after December
31, 1992, clause (i) (and subparagraph (C)(i)) shall not
apply to any deduction for depletion computed in accordance
with section 613A(c).
(G) Treatment of certain ownership changes
If -
(i) there is an ownership change (within the meaning of
section 382) in a taxable year beginning after 1989 with
respect to any corporation, and
(ii) there is a net unrealized built-in loss (within the
meaning of section 382(h)) with respect to such corporation,
then the adjusted basis of each asset of such corporation
(immediately after the ownership change) shall be its
proportionate share (determined on the basis of respective fair
market values) of the fair market value of the assets of such
corporation (determined under section 382(h)) immediately
before the ownership change.
(H) Adjusted basis
The adjusted basis of any property with respect to which an
adjustment under this paragraph applies shall be determined by
applying the treatment prescribed in this paragraph.
(I) Treatment of charitable contributions
Notwithstanding subparagraphs (B) and (C), no adjustment
related to the earnings and profits effects of any charitable
contribution shall be made in computing adjusted current
earnings.
(5) Other definitions
For purposes of paragraph (4) -
(A) Earnings and profits
The term "earnings and profits" means earnings and profits
computed for purposes of subchapter C.
(B) Treatment of alternative minimum taxable income
The treatment of any item for purposes of computing
alternative minimum taxable income shall be determined without
regard to this subsection.
(6) Exception for certain corporations
This subsection shall not apply to any S corporation, regulated
investment company, real estate investment trust, or REMIC.
-SOURCE-
(Added Pub. L. 99-514, title VII, Sec. 701(a), Oct. 22, 1986, 100
Stat. 2322; amended Pub. L. 100-203, title X, Secs. 10202(d),
10243(a), Dec. 22, 1987, 101 Stat. 1330-392, 1330-423; Pub. L. 100-
647, title I, Secs. 1002(a)(12), 1007(b)(1)-(14)(A), (15)-(19),
title II, Secs. 2001(c)(3)(A), 2004(b)(2), (3), title V, Sec.
5041(b)(4), title VI, Secs. 6079(a)(1), 6303(a), Nov. 10, 1988, 102
Stat. 3355, 3428-3432, 3594, 3599, 3674, 3709, 3755; Pub. L. 101-
239, title VII, Secs. 7205(b), 7611(a)-(f)(4), 7612(c)(1), (d)(1),
7811(d)(3), 7815(e)(2), (4), Dec. 19, 1989, 103 Stat. 2335, 2371-
2374, 2408, 2419; Pub. L. 101-508, title XI, Secs. 11103(b),
11301(b), 11531(a), (b)(1), 11704(a)(1), 11801(a)(3), (c)(2)(A)-
(C), (9)(G), 11812(b)(4), Nov. 5, 1990, 104 Stat. 1388-406, 1388-
449, 1388-488, 1388-490, 1388-518, 1388-520, 1388-522, 1388-523,
1388-526, 1388-535; Pub. L. 102-486, title XIX, Sec. 1915(a)(2),
(b)(2), (c)(1), (2), Oct. 24, 1992, 106 Stat. 3023, 3024; Pub. L.
103-66, title XIII, Secs. 13115(a), 13171(b), 13227(c), Aug. 10,
1993, 107 Stat. 432, 454, 493; Pub. L. 104-188, title I, Secs.
1601(b)(2)(B), (C), 1621(b)(2), 1702(c)(1), (e)(1)(A), (g)(4),
(h)(12), 1704(t)(1), (48), Aug. 20, 1996, 110 Stat. 1832, 1833,
1867, 1869, 1870, 1873, 1874, 1887, 1889; Pub. L. 105-34, title
III, Sec. 312(d)(1), title IV, Secs. 402, 403(a), title XII, Sec.
1212(a), Aug. 5, 1997, 111 Stat. 839, 844, 1000; Pub. L. 105-277,
div. J, title IV, Sec. 4006(c)(2), Oct. 21, 1998, 112 Stat. 2681-
912; Pub. L. 106-519, Sec. 4(1), Nov. 15, 2000, 114 Stat. 2432;
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 314(d)], Dec. 21,
2000, 114 Stat. 2763, 2763A-643; Pub. L. 107-147, title I, Sec.
102(c)(1), title IV, Sec. 417(5), Mar. 9, 2002, 116 Stat. 26, 56;
Pub. L. 108-173, title XII, Sec. 1202(b), Dec. 8, 2003, 117 Stat.
2480; Pub. L. 108-311, title IV, Sec. 403(b)(4), Oct. 4, 2004, 118
Stat. 1187; Pub. L. 108-357, title I, Secs. 101(b)(4), 102(b),
title II, Sec. 248(b)(1), title IV, Sec. 422(b), title VIII, Sec.
835(b)(1), Oct. 22, 2004, 118 Stat. 1423, 1428, 1457, 1519, 1593;
Pub. L. 109-58, title XIII, Sec. 1326(d), Aug. 8, 2005, 119 Stat.
1017; Pub. L. 109-135, title IV, Sec. 403(a)(14), (r)(2), Dec. 21,
2005, 119 Stat. 2619, 2628.)
-REFTEXT-
REFERENCES IN TEXT
Section 201 of the Tax Reform Act of 1986, referred to in
subsecs. (a)(1)(C) and (g)(4)(A)(ii), is section 201 of Pub. L. 99-
514, which amended sections 46, 167, 168, 178, 179, 280F, 291,
312, 465, 467, 514, 751, 1245, 4162, 6111, and 7701 of this title.
Sections 203, 204, and 251(d) of such Act, referred to in subsec.
(a)(1)(C), are sections 203, 204, and 251(d) of the Tax Reform Act
of 1986, Pub. L. 99-514. Sections 203 and 204 are set out as notes
under section 168 of this title. Section 251(d) is set out as a
note under section 46 of this title.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (g)(4)(A)(iii), is the date of enactment of Pub. L.
99-514, which was approved Oct. 22, 1986.
Sections 921 and 927, referred to in subsec. (g)(4)(C), were
repealed by Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
-MISC1-
PRIOR PROVISIONS
A prior section 56, added Pub. L. 91-172, title III, Sec. 301(a),
Dec. 30, 1969, 83 Stat. 580; amended Pub. L. 91-614, title V, Sec.
501(a), Dec. 31, 1970, 84 Stat. 1846; Pub. L. 92-178, title VI,
Sec. 601(c)(4), (5), Dec. 10, 1971, 85 Stat. 558; Pub. L. 93-406,
title II, Secs. 2001(g)(2)(D), 2002(g)(4), 2005(c)(7), Sept. 2,
1974, 88 Stat. 957, 968, 991; Pub. L. 94-12, title II, Secs.
203(b)(2), (3), 208(d)(2), (3), Mar. 29, 1975, 89 Stat. 30, 35;
Pub. L. 94-455, title III, Sec. 301(a), (b), (c)(4)(B), Oct. 4,
1976, 90 Stat. 1549, 1552; Pub. L. 95-30, title II, Sec. 202(d)(2),
May 23, 1977, 91 Stat. 148; Pub. L. 95-600, title I, Sec. 141(d),
Nov. 6, 1978, 92 Stat. 2794; Pub. L. 95-618, title I, Sec.
101(b)(2), Nov. 9, 1978, 92 Stat. 3179; Pub. L. 96-222, title I,
Sec. 101(a)(7)(L)(iii)(IV), Apr. 1, 1980, 94 Stat. 200; Pub. L. 97-
34, title III, Sec. 331(c)(2), Aug. 13, 1981, 95 Stat. 293; Pub.
L. 97-248, title II, Sec. 201(d)(1), formerly Sec. 201(c)(1), Sept.
3, 1982, 96 Stat. 419, renumbered Sec. 201(d)(1), Pub. L. 97-448,
title III, Sec. 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub.
L. 98-369, div. A, title IV, Sec. 474(r)(1), July 18, 1984, 98
Stat. 839; Pub. L. 99-514, title XI, Sec. 1171(b)(3), Oct. 22,
1986, 100 Stat. 2513, related to a corporate minimum tax, prior to
the general revision of this part by Pub. L. 99-514, Sec. 701(a).
AMENDMENTS
2005 - Subsec. (a)(1)(B). Pub. L. 109-58 inserted ", or in
section 168(e)(3)(C)(iv)" before period at end.
Subsec. (b)(1)(A)(ii). Pub. L. 109-135, Sec. 403(r)(2), inserted
"or clause (ii) of section 164(b)(5)(A)" before period at end.
Subsec. (d)(1)(A)(i)(II), (ii)(II). Pub. L. 109-135, Sec.
403(a)(14), substituted "such deduction and the deduction under
section 199" for "such deduction".
2004 - Subsec. (d)(1)(A)(i)(I). Pub. L. 108-311, Sec.
403(b)(4)(A), struck out "attributable to carryovers" after "other
than the deduction".
Subsec. (d)(1)(A)(ii)(I). Pub. L. 108-311, Sec. 403(b)(4)(B),
substituted "from taxable years" for "for taxable years" and
"carryovers" for "carryforwards".
Subsec. (g)(4)(B)(i). Pub. L. 108-357, Sec. 248(b)(1), inserted
"or 1357" after "section 139A" in concluding provisions.
Pub. L. 108-357, Sec. 101(b)(4), struck out "114 or" before
"139A" in concluding provisions.
Subsec. (g)(4)(C)(v). Pub. L. 108-357, Sec. 102(b), added cl.
(v).
Subsec. (g)(4)(C)(vi). Pub. L. 108-357, Sec. 422(b), added cl.
(vi).
Subsec. (g)(6). Pub. L. 108-357, Sec. 835(b)(1), substituted "or
REMIC" for "REMIC, or FASIT".
2003 - Subsec. (g)(4)(B)(i). Pub. L. 108-173 inserted "or 139A"
after "section 114" in concluding provisions.
2002 - Subsec. (a)(1)(A)(ii). Pub. L. 107-147, Sec. 417(5),
substituted "such section 1250" for "such 1250" in concluding
provisions.
Subsec. (d)(1)(A). Pub. L. 107-147, Sec. 102(c)(1), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "the amount of such deduction shall not exceed 90 percent
of alternate minimum taxable income determined without regard to
such deduction, and".
2000 - Subsec. (a)(1)(A)(ii). Pub. L. 106-554 inserted "(and the
straight line method shall be used for such 1250 property)" before
"or to any other property" in concluding provisions.
Subsec. (g)(4)(B)(i). Pub. L. 106-519 inserted "or under section
114" before the period at end of first sentence in concluding
provisions.
1998 - Subsec. (a)(3). Pub. L. 105-277 substituted "section
460(b)(1)" for "section 460(b)(2)" and "section 460(b)(3)" for
"section 460(b)(4)".
1997 - Subsec. (a)(1)(A)(i). Pub. L. 105-34, Sec. 402(a),
inserted at end "In the case of property placed in service after
December 31, 1998, the preceding sentence shall not apply but
clause (ii) shall continue to apply."
Subsec. (a)(5). Pub. L. 105-34, Sec. 402(b), inserted at end "In
the case of such a facility placed in service after December 31,
1998, such deduction shall be determined under section 168 using
the straight line method."
Subsec. (a)(6) to (8). Pub. L. 105-34, Sec. 403(a), redesignated
pars. (7) and (8) as (6) and (7), respectively, and struck out
former par. (6) which read as follows:
"(6) Installment sales of certain property. - In the case of any
disposition after March 1, 1986, of any property described in
section 1221(1), income from such disposition shall be determined
without regard to the installment method under section 453. This
paragraph shall not apply to any disposition with respect to which
an election is in effect under section 453(l)(2)(B)."
Subsec. (e)(1)(A), (3)(B)(i). Pub. L. 105-34, Sec. 312(d)(1),
substituted "section 121" for "section 1034".
Subsec. (g)(4)(B)(i). Pub. L. 105-34, Sec. 1212(a), inserted at
end of concluding provisions "In the case of any insurance company
taxable under section 831(b), this clause shall not apply to any
amount not described in section 834(b)."
1996 - Subsec. (b)(3). Pub. L. 104-188, Sec. 1702(h)(12),
provided that the amendment made by section 11801(c)(9)(G)(ii) of
Pub. L. 101-508 shall be applied as if it struck "Section
422A(c)(2)" and inserted "Section 422(c)(2)". See 1990 Amendment
note below.
Subsec. (d)(1)(B)(ii). Pub. L. 101-508, Sec. 1702(e)(1)(A),
amended cl. (ii) generally. Prior to amendment, cl. (ii) read as
follows: "in the case of taxable years beginning after December 31,
1986, section 172(b)(2) shall be applied by substituting '90
percent of alternative minimum taxable income determined without
regard to the alternative tax net operating loss deduction' for
'taxable income' each place it appears."
Subsec. (g)(1), (2)(A). Pub. L. 104-188, Sec. 1704(t)(48),
provided that section 11801(c)(2)(B) of Pub. L. 101-508 shall be
applied as if "section 56(g)" appeared instead of "section 59(g)".
See 1990 Amendment note below.
Subsec. (g)(4)(C)(ii)(I). Pub. L. 104-188, Sec. 1601(b)(2)(B),
inserted "30A," before "936" and substituted ", (i), and (j)" for
"and (i)".
Subsec. (g)(4)(C)(ii)(II). Pub. L. 104-188, Sec. 1704(t)(1),
substituted "of subclause" for "of the subclause".
Subsec. (g)(4)(C)(iii)(VI). Pub. L. 104-188, Sec. 1601(b)(2)(C),
added subcl. (VI).
Subsec. (g)(4)(D)(iii). Pub. L. 104-188, Sec. 1702(g)(4),
inserted ", but only with respect to taxable years beginning after
December 31, 1989" before period at end.
Subsec. (g)(4)(H) to (J). Pub. L. 104-188, Sec. 1702(c)(1),
redesignated subpars. (I) and (J) as (H) and (I), respectively.
Subsec. (g)(6). Pub. L. 104-188, Sec. 1621(b)(2), substituted
"REMIC, or FASIT" for "or REMIC".
1993 - Subsec. (g)(4)(A)(i). Pub. L. 103-66, Sec. 13115(a),
inserted at end "The preceding sentence shall not apply to any
property placed in service after December 31, 1993, and the
depreciation deduction with respect to such property shall be
determined under the rules of subsection (a)(1)(A)."
Subsec. (g)(4)(C)(ii)(I). Pub. L. 103-66, Sec. 13227(c)(1),
substituted "sections 936 (including subsections (a)(4) and (i)
thereof) and 921" for "sections 936 and 921".
Subsec. (g)(4)(C)(iii)(IV), (V). Pub. L. 103-66, Sec.
13227(c)(2), added subcls. (IV) and (V).
Subsec. (g)(4)(J). Pub. L. 103-66, Sec. 13171(b), added subpar.
(J).
1992 - Subsec. (d)(1)(A). Pub. L. 102-486, Sec. 1915(c)(2),
amended subpar. (A) generally. Prior to amendment, subpar. (A) read
as follows: "the amount of such deduction shall not exceed the
excess (if any) of -
"(i) 90 percent of alternative minimum taxable income
determined without regard to such deduction and the deduction
under subsection (h), over
"(ii) the deduction under subsection (h), and".
Subsec. (g)(4)(D)(i). Pub. L. 102-486, Sec. 1915(b)(2), inserted
at end "In the case of a taxpayer other than an integrated oil
company (as defined in section 291(b)(4)), in the case of any oil
or gas well, this clause shall not apply in the case of amounts
paid or incurred in taxable years beginning after December 31,
1992."
Subsec. (g)(4)(F). Pub. L. 102-486, Sec. 1915(a)(2), amended
subpar. (F) generally. Prior to amendment, subpar. (F) read as
follows: "The allowance for depletion with respect to any property
placed in service in a taxable year beginning after 1989 shall be
cost depletion determined under section 611."
Subsec. (h). Pub. L. 102-486, Sec. 1915(c)(1), struck out subsec.
(h) which related to adjustment based on energy preferences.
1990 - Subsec. (a)(1)(D). Pub. L. 101-508, Sec. 11812(b)(4),
substituted "section 168(i)(10)" for "section 167(l)(3)(A)".
Subsec. (b)(1)(F). Pub. L. 101-508, Sec. 11103(b), added subpar.
(F).
Subsec. (b)(3). Pub. L. 101-508, Sec. 11801(c)(9)(G)(i),
substituted "section 422" for "section 422A".
Pub. L. 101-508, Sec. 11801(c)(9)(G)(ii), which directed the
substitution of "section 422(c)(2)" for "section 422A(c)(2)", was
executed by substituting "Section 422(c)(2)" for "Section
422A(c)(2)". See 1996 Amendment note above.
Subsec. (c)(1). Pub. L. 101-508, Sec. 11801(c)(2)(A), substituted
heading for one which read: "Adjustment for book income or adjusted
current earnings" and amended text generally. Prior to amendment,
text read as follows:
"(A) Book income adjustment. - For taxable years beginning in
1987, 1988, and 1989, alternative minimum taxable income shall be
adjusted as provided under subsection (f).
"(B) Adjusted current earnings. - For taxable years beginning
after 1989, alternative minimum taxable income shall be adjusted as
provided under subsection (g)."
Subsec. (d)(1)(A). Pub. L. 101-508, Sec. 11531(b)(1), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "the amount of such deduction shall not exceed 90 percent
of alternative minimum taxable income determined without regard to
such deduction, and".
Subsec. (f). Pub. L. 101-508, Sec. 11801(a)(3), struck out
subsec. (f) which related to adjustments for book income of
corporations with respect to minimum taxable income, adjusted net
book income, adjustments for certain taxes, special rules for
related corporations for consolidated returns, treatment of
dividends, statements covering different periods, special rule for
cooperatives, treatment and limitation of taxes on dividends from
936 corporations, rules for Alaska native corporations, special
rules for life insurance companies, exclusion of certain income
from transfer of stock for debt, secretarial authority to adjust
items, applicable financial statements, earnings and profits used,
special rules for more than one statement and exception for certain
corporations.
Subsec. (g)(1), (2)(A). Pub. L. 101-508, Sec. 11801(c)(2)(B),
which directed that pars. (1) and (2) "of section 59(g) are each
amended by striking 'beginning after 1989' ", was executed to pars.
(1) and (2)(A) of subsec. (g) of this section after "any taxable
year". See 1996 Amendment note above.
Subsec. (g)(4)(C)(iii). Pub. L. 101-508, Sec. 11801(c)(2)(C),
substituted heading for one which read: "Special rule for dividends
from section 936 companies" and amended text generally. Prior to
amendment, text read as follows: "In the case of any dividend
received from a corporation eligible for the credit provided by
section 936, rules similar to the rules of subparagraph (F) of
subsection (f)(1) shall apply, except that '75 percent' shall be
substituted for '50 percent' in clause (i) thereof."
Subsec. (g)(4)(D)(ii). Pub. L. 101-508, Sec. 11704(a)(1),
substituted "years" for "year".
Subsec. (g)(4)(F) to (H). Pub. L. 101-508, Sec. 11301(b),
redesignated subpars. (G) and (H) as (F) and (G), respectively, and
struck out former subpar. (F) which provided that acquisition
expenses for life insurance companies be capitalized and amortized
in accordance with the treatment generally required under generally
accepted accounting principles as if this subparagraph applied to
all taxable years.
Subsec. (h). Pub. L. 101-508, Sec. 11531(a), added subsec. (h).
1989 - Subsec. (a)(3). Pub. L. 101-239, Sec. 7815(e)(2)(B),
substituted "The first sentence of this paragraph shall not" for
"The preceding sentence shall not".
Pub. L. 101-239, Sec. 7815(e)(2)(A), made clarifying amendment to
directory language of Pub. L. 100-647, Sec. 5041(b)(4), see 1988
Amendment note below.
Pub. L. 101-239, Sec. 7612(c)(1), struck out "with respect to
which the requirements of clauses (i) and (ii) of section
460(e)(1)(B) are met" after "section 460(e)(6))".
Subsec. (b)(2)(D). Pub. L. 101-239, Sec. 7612(d)(1), added
subpar. (D).
Subsec. (b)(3). Pub. L. 101-239, Sec. 7811(d)(3), inserted after
first sentence "Section 422A(c)(2) shall apply in any case where
the disposition and the inclusion for purposes of this part are
within the same taxable year and such section shall not apply in
any other case." and substituted "this paragraph" for "the
preceding sentence" in last sentence.
Subsec. (g)(4)(A)(i). Pub. L. 101-239, Sec. 7611(a)(1)(A),
amended cl. (i) generally. Prior to amendment cl. (i) read as
follows: "The depreciation deduction with respect to any property
placed in service in a taxable year beginning after 1989 shall be
determined under whichever of the following methods yields
deductions with a smaller present value:
"(I) The alternative system of section 168(g), or
"(II) The method used for book purposes."
Subsec. (g)(4)(A)(iii). Pub. L. 101-239, Sec. 7611(a)(2),
inserted "and which is placed in service in a taxable year
beginning before 1990" after "thereof) applies".
Subsec. (g)(4)(A)(v) to (vii). Pub. L. 101-239, Sec.
7611(a)(1)(B), redesignated cl. (vii) as (v), and struck out former
cl. (v), which related to use of slower method if used for book
purposes, and cl. (vi), which related to election to have
cumulative limitation.
Subsec. (g)(4)(B)(i). Pub. L. 101-239, Sec. 7611(f)(2), inserted
at end "The preceding sentence shall not apply in the case of any
amount excluded from gross income under section 108 (or the
corresponding provisions of prior law)."
Subsec. (g)(4)(B)(iii). Pub. L. 101-239, Sec. 7611(f)(3),
repealed cl. (iii) which read as follows: "In the case of any
annuity contract, the income on such contract (as determined under
section 72(u)(2)) shall be treated as includible in gross income
for such year. The preceding sentence shall not apply to any
annuity contract which is held under a plan described in section
403(a) or which is described in section 72(u)(3)(C)."
Subsec. (g)(4)(C)(ii). Pub. L. 101-239, Sec. 7611(d), amended cl.
(ii) generally. Prior to amendment, cl. (ii) read as follows:
"Clause (i) shall not apply to any deduction allowable under
section 243 or 245 for a 100-percent dividend -
"(I) if the corporation receiving such dividend and the
corporation paying such dividend could not be members of the same
affiliated group under section 1504 by reason of section 1504(b),
"(II) but only to the extent such dividend is attributable to
income of the paying corporation which is subject to tax under
this chapter (determined after the application of sections 936
and 921).
For purposes of the preceding sentence, the term '100 percent
dividend' means any dividend if the percentage used for purposes of
determining the amount allowable as a deduction under section 243
or 245 with respect to such dividend is 100 percent."
Subsec. (g)(4)(C)(iv). Pub. L. 101-239, Sec. 7611(e), added cl.
(iv).
Subsec. (g)(4)(D). Pub. L. 101-239, Sec. 7611(b), amended subpar.
(D) generally, in cl. (i), substituting provisions directing that
adjustments in section 312(n)(2)(A) be applied, for provisions
directing adjustments in section 312(n) be applied, with certain
exceptions, in cl. (ii), substituting provisions directing that
sections 173 and 248 not apply to expenditures paid or incurred in
taxable years beginning after December 31, 1989, for material
relating to special rule for intangible drilling costs and mineral
exploration and development costs, and adding cls. (iii) and (iv).
Subsec. (g)(4)(D)(i)(IV), (V). Pub. L. 101-239, Sec. 7815(e)(4),
added subcl. (IV) relating to inapplicability of pars. (6) to (8)
and struck out former subcls. (IV) and (V), which read as follows:
"(IV) paragraph (6) shall apply only to contracts entered into on
or after March 1, 1986, and
"(V) paragraphs (7) and (8) shall not apply."
Subsec. (g)(4)(G). Pub. L. 101-239, Sec. 7611(c), amended subpar.
(G) generally. Prior to amendment, subpar. (G) read as follows:
"The allowances for depletion with respect to any property placed
in service in a taxable year beginning after 1989, shall be
determined under whichever of the following methods yields
deductions with a smaller present value:
"(i) cost depletion determined under section 611, or
"(ii) the method used for book purposes."
Subsec. (g)(4)(H). Pub. L. 101-239, Sec. 7205(b), added cl. (ii)
and concluding provision and struck out former cl. (ii) and
concluding provision which read as follows:
"(ii)(I) the aggregate adjusted bases of the assets of such
corporation (immediately after the change), exceed
"(II) the value of the stock of such corporation (as determined
for purposes of section 382), properly adjusted for liabilities and
other relevant items,
then the adjusted basis of each asset of such corporation (as of
such time) shall be its proportionate share (determined on the
basis of respective fair market values) of the amount referred to
in clause (ii)(II)."
Subsec. (g)(4)(H)(i). Pub. L. 101-239, Sec. 7611(f)(1),
substituted "in a taxable year beginning after 1989" for "after the
date of the enactment of the Tax Reform Act of 1986".
Subsec. (g)(5)(A). Pub. L. 101-239, Sec. 7611(f)(4), redesignated
subpar. (B) as (A) and struck out former subpar. (A) which defined
"book purposes".
Subsec. (g)(5)(B). Pub. L. 101-239, Sec. 7611(f)(4), redesignated
subpar. (D) as (B). Former subpar. (B) redesignated (A).
Subsec. (g)(5)(C). Pub. L. 101-239, Sec. 7611(f)(4), struck out
subpar. (C) which read as follows: "Present value. - Present value
shall be determined as of the time the property is placed in
service (or, if later, as of the beginning of the first taxable
year beginning after 1989) and under regulations prescribed by the
Secretary."
Subsec. (g)(5)(D). Pub. L. 101-239, Sec. 7611(f)(4), redesignated
subpar. (D) as (B).
1988 - Subsec. (a)(1)(A)(i). Pub. L. 100-647, Sec. 1007(b)(15),
substituted "personal" for "real" in heading.
Subsec. (a)(1)(C)(i). Pub. L. 100-647, Sec. 1002(a)(12), inserted
"by reason of section 203, 204, or 251(d) of such Act" after "do
not apply".
Subsec. (a)(3). Pub. L. 100-647, Sec. 5041(b)(4), as amended by
Pub. L. 101-239, Sec. 7815(e)(2)(A), inserted at end "The preceding
sentence shall not apply to any home construction contract (as
defined in section 460(e)(6)) with respect to which the
requirements of clauses (i) and (ii) of section 460(e)(1)(B) are
met."
Pub. L. 100-647, Sec. 1007(b)(1), inserted at end "For purposes
of the preceding sentence, in the case of a contract described in
section 460(e)(1), the percentage of the contract completed shall
be determined under section 460(b)(2) by using the simplified
procedures for allocation of costs prescribed under section
460(b)(4)."
Subsec. (a)(8). Pub. L. 100-647, Sec. 1007(b)(19), added par.
(8).
Subsec. (b)(1). Pub. L. 100-647, Sec. 1007(b)(16), struck out
"itemized" after "Limitation on" in heading.
Subsec. (b)(1)(C)(ii). Pub. L. 100-647, Sec. 2004(b)(2),
substituted "163(h)(5)" for "163(h)(6)".
Subsec. (b)(1)(C)(iii). Pub. L. 100-647, Sec. 1007(b)(4),
substituted "specified private activity bond" for "specified
activity bond" before "under", and "57(a)(5)(B)" for "56(a)(5)(B)".
Subsec. (b)(1)(C)(iv), (v). Pub. L. 100-647, Sec. 1007(b)(3),
added cls. (iv) and (v).
Subsec. (b)(1)(E). Pub. L. 100-647, Sec. 1007(b)(2), substituted
"and deduction for personal exemptions not allowed" for "not
allowed" in heading and amended text generally. Prior to amendment,
text read as follows: "The standard deduction provided in section
63(c) shall not be allowed."
Subsec. (b)(3). Pub. L. 100-647, Sec. 1007(b)(14)(A), added par.
(3).
Subsec. (c)(1). Pub. L. 100-647, Sec. 1007(b)(13)(A), substituted
"adjusted current earnings" for "adjusted earnings and profits" in
heading.
Subsec. (c)(1)(B). Pub. L. 100-647, Sec. 1007(b)(13)(B),
substituted "Adjusted current earnings" for "Adjusted earnings and
profits" in heading.
Subsec. (d)(2)(A). Pub. L. 100-647, Sec. 1007(b)(5), struck out
"(other than subsection (a)(6) thereof)" after "for such year" in
cl. (ii) and inserted sentence at end providing that an item of tax
preference shall be taken into account under clause (ii).
Subsec. (e)(1). Pub. L. 100-647, Sec. 2004(b)(3)(A), substituted
"improving" for "rehabilitating" in introductory text.
Pub. L. 100-647, Sec. 1007(b)(6)(A)(i), inserted "qualified
residence interest (as defined in section 163(h)(3)) and is" after
"interest which is" in introductory text.
Subsec. (e)(1)(A). Pub. L. 100-647, Sec. 2004(b)(3)(B), struck
out "or is paid" after "accrues".
Subsec. (e)(1)(B). Pub. L. 100-647, Sec. 1007(b)(6)(A)(ii),
substituted "section 163(h)(4)" for "section 163(h)(3)".
Subsec. (e)(3). Pub. L. 100-647, Sec. 1007(b)(6)(B), substituted
"interest which is qualified residence interest (as defined in
section 163(h)(3)) and is paid or accrued" for "interest paid or
accrued".
Subsec. (f)(2)(B). Pub. L. 100-647, Sec. 2001(c)(3)(A), inserted
at end "No adjustment shall be made under this subparagraph for the
tax imposed by section 59A."
Pub. L. 100-647, Sec. 1007(b)(7), inserted "(otherwise eligible
for the credit provided by section 901 without regard to section
901(j))" after "any such taxes".
Subsec. (f)(2)(F). Pub. L. 100-647, Sec. 1007(b)(11)(A),
substituted "Treatment of taxes on dividends from 936 corporations"
for "Treatment of dividends from 936 corporations" in heading and
amended text generally, substituting cls. (i) to (iii) for former
cls. (i) and (ii).
Subsec. (f)(2)(I), (J). Pub. L. 100-647, Sec. 6303(a), added
subpar. (I) and redesignated former subpar. (I) as (J).
Subsec. (f)(3)(A)(iii). Pub. L. 100-647, Sec. 1007(b)(8),
inserted "for a substantial nontax purpose" after "an income
statement".
Subsec. (f)(3)(B). Pub. L. 100-647, Sec. 1007(b)(9), substituted
"this subsection" for "paragraph (3)(A)" in penultimate sentence.
Subsec. (f)(3)(C). Pub. L. 100-647, Sec. 1007(b)(10), inserted at
end "If the taxpayer has 2 or more statements described in the
clause (or subclause) with the lowest number designation, the
applicable financial statement shall be the one of such statements
specified in regulations."
Subsec. (g)(4)(A)(vi), (vii). Pub. L. 100-647, Sec. 1007(b)(17),
added cls. (vi) and (vii).
Subsec. (g)(4)(B)(iii). Pub. L. 100-647, Sec. 6079(a)(1), amended
last sentence generally, inserting "which is" after "any annuity
contract" and "or which is described in section 72(u)(3)(C)" after
"in section 403(a)".
Pub. L. 100-647, Sec. 1007(b)(12), inserted at end "The preceding
sentence shall not apply to any annuity contract held under a plan
described in section 403(a)."
Subsec. (g)(4)(C)(iii). Pub. L. 100-647, Sec. 1007(b)(11)(B),
substituted "clause (i)" for "clause (ii)(I)".
Subsec. (g)(4)(I). Pub. L. 100-647, Sec. 1007(b)(18), added
subpar. (I).
1987 - Subsec. (a)(6). Pub. L. 100-203, Sec. 10202(d), amended
par. (6) generally. Prior to amendment, par. (6) read as follows:
"In the case of any -
"(A) disposition after March 1, 1986, of property described in
section 1221(1), or
"(B) other disposition if an obligation arising from such
disposition would be an applicable installment obligation (as
defined in section 453C(e)) to which section 453C applies,
income from such disposition shall be determined without regard to
the installment method under section 453 or 453A and all payments
to be received for the disposition shall be deemed received in the
taxable year of the disposition. This paragraph shall not apply to
any disposition with respect to which an election is in effect
under section 453C(e)(4)."
Subsec. (f)(2)(H), (I). Pub. L. 100-203, Sec. 10243(a), added
subpar. (H) and redesignated former subpar. (H) as (I).
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
Pub. L. 109-58, title XIII, Sec. 1326(e), Aug. 8, 2005, 119 Stat.
1017, provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 168 of this title] shall apply to property
placed in service after April 11, 2005.
"(2) Exception. - The amendments made by this section [amending
this section and section 168 of this title] shall not apply to any
property with respect to which the taxpayer or a related party has
entered into a binding contract for the construction thereof on or
before April 11, 2005, or, in the case of self-constructed
property, has started construction on or before such date."
EFFECTIVE DATE OF 2004 AMENDMENTS
Pub. L. 108-357, title I, Sec. 101(c), Oct. 22, 2004, 118 Stat.
1423, provided that: "The amendments made by this section [amending
this section and sections 275, 864, 903, and 999 of this title and
repealing sections 114 and 941 to 943 of this title] shall apply to
transactions after December 31, 2004."
Pub. L. 108-357, title I, Sec. 102(e), Oct. 22, 2004, 118 Stat.
1429, as amended by Pub. L. 109-135, title IV, Sec. 403(a)(19),
Dec. 21, 2005, 119 Stat. 2619, provided that:
"(1) In general. - The amendments made by this section [enacting
section 199 of this title and amending this section and sections
86, 135, 137, 219, 221, 222, 246, 469, 613, and 1402 of this title]
shall apply to taxable years beginning after December 31, 2004.
"(2) Application to pass-thru entities, etc. - In determining the
deduction under section 199 of the Internal Revenue Code of 1986
(as added by this section), items arising from a taxable year of a
partnership, S corporation, estate, or trust beginning before
January 1, 2005, shall not be taken into account for purposes of
subsection (d)(1) of such section."
Pub. L. 108-357, title II, Sec. 248(c), Oct. 22, 2004, 118 Stat.
1457, provided that: "The amendments made by this section [enacting
subchapter R of this chapter and amending this section] shall apply
to taxable years beginning after the date of the enactment of this
Act [Oct. 22, 2004]."
Pub. L. 108-357, title IV, Sec. 422(d), Oct. 22, 2004, 118 Stat.
1519, provided that: "The amendments made by this section [enacting
section 965 of this title and amending this section] shall apply to
taxable years ending on or after the date of the enactment of this
Act [Oct. 22, 2004]."
Pub. L. 108-357, title VIII, Sec. 835(c), Oct. 22, 2004, 118
Stat. 1594, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
382, 582, 856, 860G, 1202, and 7701 of this title and repealing
part V of subchapter M of this chapter] shall take effect on
January 1, 2005.
"(2) Exception for existing fasits. - Paragraph (1) shall not
apply to any FASIT in existence on the date of the enactment of
this Act [Oct. 22, 2004] to the extent that regular interests
issued by the FASIT before such date continue to remain outstanding
in accordance with the original terms of issuance."
Pub. L. 108-311, title IV, Sec. 403(f), Oct. 4, 2004, 118 Stat.
1188, provided that: "The amendments made by this section [amending
this section, sections 137, 168, 172, and 1400L of this title,
section 1306 of Title 29, Labor, and provisions set out as a note
under this section] shall take effect as if included in the
provisions of the Job Creation and Worker Assistance Act of 2002
[Pub. L. 107-147] to which they relate."
EFFECTIVE DATE OF 2003 AMENDMENT
Pub. L. 108-173, title XII, Sec. 1202(d), Dec. 8, 2003, 117 Stat.
2480, provided that: "The amendments made by this section [enacting
section 139A of this title and amending this section] shall apply
to taxable years ending after the date of the enactment of this Act
[Dec. 8, 2003]."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title I, Sec. 102(c)(2), Mar. 9, 2002, 116 Stat.
26, as amended Pub. L. 108-311, title IV, Sec. 403(b)(3), Oct. 4,
2004, 118 Stat. 1187, provided that: "The amendment made by this
subsection [amending this section] shall apply to taxable years
ending after December 31, 1990."
EFFECTIVE DATE OF 2000 AMENDMENTS
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 314(g)], Dec. 21,
2000, 114 Stat. 2763, 2763A-643, provided that: "The amendments
made by this section [amending this section and sections 403, 414,
415, 3405, 6211 and 7436 of this title and provisions set out as a
note under section 1 of this title] shall take effect as if
included in the provisions of the Taxpayer Relief [Act] of 1997
[Pub. L. 105-34] to which they relate."
Pub. L. 106-519, Sec. 5, Nov. 15, 2000, 114 Stat. 2433, provided
that:
"(a) In General. - The amendments made by this Act [enacting
sections 114 and 941 to 943 of this title, amending this section
and sections 275, 864, 903, and 999 of this title, and repealing
sections 921 to 927 of this title] shall apply to transactions
after September 30, 2000.
"(b) No New FSCs; Termination of Inactive FSCs. -
"(1) No new fscs. - No corporation may elect after September
30, 2000, to be a FSC (as defined in section 922 of the Internal
Revenue Code of 1986, as in effect before the amendments made by
this Act).
"(2) Termination of inactive fscs. - If a FSC has no foreign
trade income (as defined in section 923(b) of such Code, as so in
effect) for any period of 5 consecutive taxable years beginning
after December 31, 2001, such FSC shall cease to be treated as a
FSC for purposes of such Code for any taxable year beginning
after such period.
"(c) Transition Period for Existing Foreign Sales Corporations. -
"(1) In general. - In the case of a FSC (as so defined) in
existence on September 30, 2000, and at all times thereafter, the
amendments made by this Act shall not apply to any transaction in
the ordinary course of trade or business involving a FSC which
occurs -
"(A) before January 1, 2002; or
"(B) after December 31, 2001, pursuant to a binding contract -
"(i) which is between the FSC (or any related person) and
any person which is not a related person; and
"(ii) which is in effect on September 30, 2000, and at all
times thereafter.
For purposes of this paragraph, a binding contract shall include
a purchase option, renewal option, or replacement option which is
included in such contract and which is enforceable against the
seller or lessor.
"(2) Election to have amendments apply earlier. - A taxpayer
may elect to have the amendments made by this Act apply to any
transaction by a FSC or any related person to which such
amendments would apply but for the application of paragraph (1).
Such election shall be effective for the taxable year for which
made and all subsequent taxable years, and, once made, may be
revoked only with the consent of the Secretary of the Treasury.
"(3) Exception for old earnings and profits of certain
corporations. -
"(A) In general. - In the case of a foreign corporation to
which this paragraph applies -
"(i) earnings and profits of such corporation accumulated
in taxable years ending before October 1, 2000, shall not be
included in the gross income of the persons holding stock in
such corporation by reason of section 943(e)(4)(B)(i); and
"(ii) rules similar to the rules of clauses (ii), (iii),
and (iv) of section 953(d)(4)(B) shall apply with respect to
such earnings and profits.
The preceding sentence shall not apply to earnings and profits
acquired in a transaction after September 30, 2000, to which
section 381 applies unless the distributor or transferor
corporation was immediately before the transaction a foreign
corporation to which this paragraph applies.
"(B) Existing fscs. - This paragraph shall apply to any
controlled foreign corporation (as defined in section 957) if -
"(i) such corporation is a FSC (as so defined) in existence
on September 30, 2000;
"(ii) such corporation is eligible to make the election
under section 943(e) by reason of being described in
paragraph (2)(B) of such section; and
"(iii) such corporation makes such election not later than
for its first taxable year beginning after December 31, 2001.
"(C) Other corporations. - This paragraph shall apply to any
controlled foreign corporation (as defined in section 957), and
such corporation shall (notwithstanding any provision of
section 943(e)) be treated as an applicable foreign corporation
for purposes of section 943(e), if -
"(i) such corporation is in existence on September 30,
2000;
"(ii) as of such date, such corporation is wholly owned
(directly or indirectly) by a domestic corporation
(determined without regard to any election under section
943(e));
"(iii) for each of the 3 taxable years preceding the first
taxable year to which the election under section 943(e) by
such controlled foreign corporation applies -
"(I) all of the gross income of such corporation is subpart F
income (as defined in section 952), including by reason of
section 954(b)(3)(B); and
"(II) in the ordinary course of such corporation's trade or
business, such corporation regularly sold (or paid
commissions) to a FSC which on September 30, 2000, was a
related person to such corporation;
"(iv) such corporation has never made an election under
section 922(a)(2) (as in effect before the date of the
enactment of this paragraph [Nov. 15, 2000]) to be treated as
a FSC; and
"(v) such corporation makes the election under section
943(e) not later than for its first taxable year beginning
after December 31, 2001.
The preceding sentence shall cease to apply as of the date that
the domestic corporation referred to in clause (ii) ceases to
wholly own (directly or indirectly) such controlled foreign
corporation.
"(4) Related person. - For purposes of this subsection, the
term 'related person' has the meaning given to such term by
section 943(b)(3).
"(5) Section references. - Except as otherwise expressly
provided, any reference in this subsection to a section or other
provision shall be considered to be a reference to a section or
other provision of the Internal Revenue Code of 1986, as amended
by this Act.
"(d) Special Rules Relating to Leasing Transactions. -
"(1) Sales income. - If foreign trade income in connection with
the lease or rental of property described in section 927(a)(1)(B)
of such Code (as in effect before the amendments made by this
Act) is treated as exempt foreign trade income for purposes of
section 921(a) of such Code (as so in effect), such property
shall be treated as property described in section 941(c)(1)(B) of
such Code (as added by this Act) for purposes of applying section
941(c)(2) of such Code (as so added) to any subsequent
transaction involving such property to which the amendments made
by this Act apply.
"(2) Limitation on use of gross receipts method. - If any
person computed its foreign trade income from any transaction
with respect to any property on the basis of a transfer price
determined under the method described in section 925(a)(1) of
such Code (as in effect before the amendments made by this Act),
then the qualifying foreign trade income (as defined in section
941(a) of such Code, as in effect after such amendment) of such
person (or any related person) with respect to any other
transaction involving such property (and to which the amendments
made by this Act apply) shall be zero."
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 312(d)(1) of Pub. L. 105-34 applicable to
sales and exchanges after May 6, 1997, with certain exceptions, see
section 312(d) of Pub. L. 105-34, set out as a note under section
121 of this title.
Section 403(b) of Pub. L. 105-34 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to dispositions in taxable years
beginning after December 31, 1987.
"(2) Special rule for 1987. - In the case of taxable years
beginning in 1987, the last sentence of section 56(a)(6) of the
Internal Revenue Code of 1986 (as in effect for such taxable years)
shall be applied by inserting 'or in the case of a taxpayer using
the cash receipts and disbursements method of accounting, any
disposition described in section 453C(e)(1)(B)(ii)' after 'section
453C(e)(4)'."
Section 1212(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1601(b)(2)(B), (C) of Pub. L. 104-188
applicable to taxable years beginning after Dec. 31, 1995, except
as otherwise provided, see section 1601(c) of Pub. L. 104-188, set
out as an Effective Date note under section 30A of this title.
Amendment by section 1621(b)(2) of Pub. L. 104-188 effective
Sept. 1, 1997, see section 1621(d) of Pub. L. 104-188, set out as a
note under section 26 of this title.
Amendment by section 1702(c)(1), (e)(1)(A), (g)(4), and (h)(12)
of Pub. L. 104-188 effective, except as otherwise expressly
provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13115(b) of Pub. L. 103-66 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to property placed in service after December 31, 1993.
"(2) Coordination with transitional rules. - The amendments made
by this section shall not apply to any property to which paragraph
(1) of section 56(a) of the Internal Revenue Code of 1986 does not
apply by reason of subparagraph (C)(i) thereof."
Amendment by section 13171(b) of Pub. L. 103-66 applicable to
contributions made after June 30, 1992, except that in case of any
contribution of capital gain property which is not tangible
personal property, such amendment applicable only if the
contribution is made after Dec. 31, 1992, see section 13171(d) of
Pub. L. 103-66, set out as a note under section 53 of this title.
Section 13227(f) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 904, 936,
and 7652 of this title] shall apply to taxable years beginning
after December 31, 1993; except that the amendment made by
subsection (e) [amending section 7652 of this title] shall take
effect on October 1, 1993."
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1915(d) of Pub. L. 102-486 provided that: "The amendments
made by this section [amending this section and sections 57, 59,
and 59A of this title] shall apply to taxable years beginning after
December 31, 1992."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11103(b) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1990, see section 11103(e)
of Pub. L. 101-508, set out as a note under section 1 of this
title.
Section 11301(d)(2) of Pub. L. 101-508 provided that:
"(A) In general. - The amendment made by subsection (b) [amending
this section] shall apply to taxable years beginning on or after
September 30, 1990, except that, in the case of a small insurance
company, such amendment shall apply to taxable years beginning
after December 31, 1989. For purposes of this paragraph, the term
'small insurance company' means any insurance company which meets
the requirements of section 806(a)(3) of the Internal Revenue Code
of 1986; except that paragraph (2) of section 806(c) of such Code
shall not apply.
"(B) Special rules for year which includes september 30, 1990. -
In the case of any taxable year which includes September 30, 1990,
the amount of acquisition expenses which is required to be
capitalized under section 56(g)(4)(F) of the Internal Revenue Code
of 1986 (as in effect before the amendment made by subsection (b))
by a company which is not a small insurance company shall be the
amount which bears the same ratio to the amount which (but for this
subparagraph) would be so required to be capitalized as the number
of days in such taxable year before September 30, 1990, bears to
the total number of days in such taxable year. A similar reduction
shall be made in the amount amortized for such taxable year under
such section 56(g)(4)(F)."
Section 11531(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section and sections
59 and 59A of this title] shall apply to taxable years beginning
after December 31, 1990."
Section 11704(b) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section, sections
172, 351, 413, 461, 469, 597, 857, 860D, 860G, 892, 927, 936, 1017,
1245, 1441, 2056A, 2642, 3231, 4091, 4093, 5061, 6013, 6038A,
6039D, 6045, 6323, 6332, 6655, 7519, 7522, 7608, and 7701 of this
title, and provisions set out as a note under section 231n of Title
45, Railroads] shall take effect on the date of the enactment of
this Act."
Amendment by section 11812(b)(4) of Pub. L. 101-508 applicable to
property placed in service after Nov. 5, 1990, but not applicable
to any property to which section 168 of this title does not apply
by reason of subsec. (f)(5) of section 168, and not applicable to
rehabilitation expenditures described in section 252(f)(5) of Pub.
L. 99-514, see section 11812(c) of Pub. L. 101-508, set out as a
note under section 42 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7205(c) of Pub. L. 101-239 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and section 382 of this title] shall apply to ownership
changes and acquisitions after October 2, 1989, in taxable years
ending after such date.
"(2) Binding contract. - The amendments made by this section
shall not apply to any ownership change or acquisition pursuant to
a written binding contract in effect on October 2, 1989, and at all
times thereafter before such change or acquisition.
"(3) Bankruptcy proceedings. - In the case of a reorganization
described in section 368(a)(1)(G) of the Internal Revenue Code of
1986, or an exchange of debt for stock in a title 11 or similar
case (as defined in section 368(a)(3) of such Code), the amendments
made by this section shall not apply to any ownership change
resulting from such a reorganization or proceeding if a petition in
such case was filed with the court before October 3, 1989.
"(4) Subsidiaries of bankrupt parent. - The amendments made by
this section shall not apply to any built-in loss of a corporation
which is a member (on October 2, 1989) of an affiliated group the
common parent of which (on such date) was subject to title 11 or
similar case (as defined in section 368(a)(3) of such Code). The
preceding sentence shall apply only if the ownership change or
acquisition is pursuant to the plan approved in such proceeding and
is before the date 2 years after the date on which the petition
which commenced such proceeding was filed."
Section 7611(g) of Pub. L. 101-239 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 59 and 312 of this title] shall apply to
taxable years beginning after December 31, 1989.
"(2) Intangible drilling costs. - The amendments made by
subsection (f)(5) [amending sections 59 and 312 of this title]
shall apply to costs paid or incurred in taxable years beginning
after December 31, 1989.
"(3) Regulations on earnings and profits rules. - Not later than
March 15, 1991, the Secretary of the Treasury or his delegate shall
prescribe initial regulations providing guidance as to which items
of income are included in adjusted current earnings under section
56(g)(4)(B)(i) of the Internal Revenue Code of 1986 and which items
of deduction are disallowed under section 56(g)(4)(C) of such
Code."
Section 7612(c)(2) of Pub. L. 101-239 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to contracts entered into in taxable years beginning after
September 30, 1990."
Section 7612(d)(2) of Pub. L. 101-239 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years beginning after December 31, 1990."
Amendment by sections 7811(d)(3) and 7815(e)(2), (4) of Pub. L.
101-239 effective, except as otherwise provided, as if included in
the provision of the Technical and Miscellaneous Revenue Act of
1988, Pub. L. 100-647, to which such amendment relates, see section
7817 of Pub. L. 101-239, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1007(b)(14)(C) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section and
section 57 of this title] shall apply with respect to options
exercised after December 31, 1987."
Amendment by sections 1002(a)(12) and 1007(b)(1)-(13), (15)-(19)
of Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L. 99-
514, to which such amendment relates, see section 1019(a) of Pub.
L. 100-647, set out as a note under section 1 of this title.
Section 2001(e) of Pub. L. 100-647 provided that: "Except as
otherwise provided in this section, the amendments made by this
section [amending this section, sections 59A, 882, 4041, 4081,
4091, 4662, 4672, 6416, 6421, and 6427 of this title, and
provisions set out as a note under section 4081 of this title]
shall take effect as if included in the provision of the Superfund
Revenue Act of 1986 [Pub. L. 99-499, title V] to which it relates."
Section 2004(u) of Pub. L. 100-647 provided that: "Except as
otherwise provided in this section, any amendment made by this
section [amending this section, sections 163, 244, 280H, 301, 304,
355, 384, 444, 453, 453A, 469, 514, 811, 812, 816, 842, 904, 1201,
1363, 1503, 1561, 4093, 5113, 5123, 5276, 5881, 6427, 6655, 7519,
and 7704 of this title, and provisions set out as notes under
sections 21, 219, 243, 301, 304, 444, 453, 1503, and 7704 of this
title] shall take effect as if included in the provisions of the
Revenue Act of 1987 [Pub. L. 100-203, title X] to which such
amendment relates."
Amendment by section 5041(b)(4) of Pub. L. 100-647 applicable to
contracts entered into on or after June 21, 1988, but not
applicable to any contract resulting from the acceptance of a bid
made before June 21, 1988, if the bid could not have been revoked
or altered at any time on or after June 21, 1988, and not
applicable in the case of a qualified ship contract (as defined in
section 10203(b)(2)(B) of Pub. L. 100-203, set out as a note under
section 460 of this title), see section 5041(e) of Pub. L. 100-647,
set out as a note under section 460 of this title.
Section 6079(a)(2) of Pub. L. 100-647 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section 701 of the
Reform Act [Pub. L. 99-514]."
Section 6303(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1986."
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by section 10202(d) of Pub. L. 100-203 applicable to
dispositions in taxable years beginning after Dec. 31, 1986, with
coordination with Tax Reform Act of 1986, see section 10202(e)(4),
(5) of Pub. L. 100-203, set out as a note under section 453 of this
title.
Section 10243(b) of Pub. L. 100-203 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1987."
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, with certain exceptions and qualifications, see section
701(f) of Pub. L. 99-514, set out as a note under section 55 of
this title.
SAVINGS PROVISION
For provisions that nothing in amendment by sections 11801 and
11812 of Pub. L. 101-508 be construed to affect treatment of
certain transactions occurring, property acquired, or items of
income, loss, deduction, or credit taken into account prior to Nov.
5, 1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
APPLICATION OF SUBSECTION (G)(1) AND (3) TO TAXABLE YEARS BEGINNING
IN 1991 AND 1992
Section 1702(e)(1)(B) of Pub. L. 104-188 provided that: "For
purposes of applying sections 56(g)(1) and 56(g)(3) of the Internal
Revenue Code of 1986 with respect to taxable years beginning in
1991 and 1992, the reference in such sections to the alternative
tax net operating loss deduction shall be treated as including a
reference to the deduction under section 56(h) of such Code as in
effect before the amendments made by section 1915 of the Energy
Policy Act of 1992 [Pub. L. 102-486]."
INSTALLMENT SALES; TAXABLE YEARS BEGINNING IN 1987
Section 7821(a)(5) of Pub. L. 101-239 provided that: "In the case
of taxable years beginning in 1987, the reference to section 453
contained in section 56(a)(6) of the Internal Revenue Code of 1986
shall be treated as including a reference to section 453A."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(a) of Pub. L. 99-
514 [enacting this section] notwithstanding any treaty obligation
of the United States in effect on Oct. 22, 1986, with provision
that for such purposes any amendment by title I of Pub. L. 100-647
be treated as if it had been included in the provision of Pub. L.
99-514 to which such amendment relates, see section 1012(aa)(2),
(4) of Pub. L. 100-647, set out as a note under section 861 of this
title.
STUDY OF BOOK AND EARNINGS AND PROFITS ADJUSTMENTS
Section 702 of Pub. L. 99-514 required Secretary of the Treasury
or his delegate to conduct a study of operation and effect of
provisions of sections 56(f) and 56(g) of the Internal Revenue Code
of 1986, prior to repeal by Pub. L. 101-508, title XI, Sec.
11832(4), Nov. 5, 1990, 104 Stat. 1388-559.
-FOOTNOTE-
(!1) So in original. Probably should be "46 App."
(!2) See References in Text note below.
-End-
-CITE-
26 USC Sec. 57 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART VI - ALTERNATIVE MINIMUM TAX
-HEAD-
Sec. 57. Items of tax preference
-STATUTE-
(a) General rule
For purposes of this part, the items of tax preference determined
under this section are -
(1) Depletion
With respect to each property (as defined in section 614), the
excess of the deduction for depletion allowable under section 611
for the taxable year over the adjusted basis of the property at
the end of the taxable year (determined without regard to the
depletion deduction for the taxable year). Effective with respect
to taxable years beginning after December 31, 1992, this
paragraph shall not apply to any deduction for depletion computed
in accordance with section 613A(c).
(2) Intangible drilling costs
(A) In general
With respect to all oil, gas, and geothermal properties of
the taxpayer, the amount (if any) by which the amount of the
excess intangible drilling costs arising in the taxable year is
greater than 65 percent of the net income of the taxpayer from
oil, gas, and geothermal properties for the taxable year.
(B) Excess intangible drilling costs
For purposes of subparagraph (A), the amount of the excess
intangible drilling costs arising in the taxable year is the
excess of -
(i) the intangible drilling and development costs paid or
incurred in connection with oil, gas, and geothermal wells
(other than costs incurred in drilling a nonproductive well)
allowable under section 263(c) or 291(b) for the taxable
year, over
(ii) the amount which would have been allowable for the
taxable year if such costs had been capitalized and straight
line recovery of intangibles (as defined in subsection (b))
had been used with respect to such costs.
(C) Net income from oil, gas, and geothermal properties
For purposes of subparagraph (A), the amount of the net
income of the taxpayer from oil, gas, and geothermal properties
for the taxable year is the excess of -
(i) the aggregate amount of gross income (within the
meaning of section 613(a)) from all oil, gas, and geothermal
properties of the taxpayer received or accrued by the
taxpayer during the taxable year, over
(ii) the amount of any deductions allocable to such
properties reduced by the excess described in subparagraph
(B) for such taxable year.
(D) Paragraph applied separately with respect to geothermal
properties and oil and gas properties
This paragraph shall be applied separately with respect to -
(i) all oil and gas properties which are not described in
clause (ii), and
(ii) all properties which are geothermal deposits (as
defined in section 613(e)(2)).
(E) Exception for independent producers
In the case of any oil or gas well -
(i) In general
In the case of any taxable year beginning after December
31, 1992, this paragraph shall not apply to any taxpayer
which is not an integrated oil company (as defined in section
291(b)(4)).
(ii) Limitation on benefit
The reduction in alternative minimum taxable income by
reason of clause (i) for any taxable year shall not exceed 40
percent (30 percent in case of taxable years beginning in
1993) of the alternative minimum taxable income for such year
determined without regard to clause (i) and the alternative
tax net operating loss deduction under section 56(a)(4).
[(3) Repealed. Pub. L. 100-647, title I, Sec. 1007(b)(14)(B),
Nov. 10, 1988, 102 Stat. 3430]
[(4) Repealed. Pub. L. 104-188, title I, Sec. 1616(b)(3), Aug.
20, 1996, 110 Stat. 1856]
(5) Tax-exempt interest
(A) In general
Interest on specified private activity bonds reduced by any
deduction (not allowable in computing the regular tax) which
would have been allowable if such interest were includible in
gross income.
(B) Treatment of exempt-interest dividends
Under regulations prescribed by the Secretary, any exempt-
interest dividend (as defined in section 852(b)(5)(A)) shall
be treated as interest on a specified private activity bond to
the extent of its proportionate share of the interest on such
bonds received by the company paying such dividend.
(C) Specified private activity bonds
(i) In general
For purposes of this part, the term "specified private
activity bond" means any private activity bond (as defined in
section 141) which is issued after August 7, 1986, and the
interest on which is not includible in gross income under
section 103.
(ii) Exception for qualified 501(c)(3) bonds
For purposes of clause (i), the term "private activity
bond" shall not include any qualified 501(c)(3) bond (as
defined in section 145).
(iii) Exception for refundings
For purposes of clause (i), the term "private activity
bond" shall not include any refunding bond (whether a current
or advance refunding) if the refunded bond (or in the case of
a series of refundings, the original bond) was issued before
August 8, 1986.
(iv) Certain bonds issued before September 1, 1986
For purposes of this subparagraph, a bond issued before
September 1, 1986, shall be treated as issued before August
8, 1986, unless such bond would be a private activity bond if
-
(I) paragraphs (1) and (2) of section 141(b) were applied
by substituting "25 percent" for "10 percent" each place it
appears,
(II) paragraphs (3), (4), and (5) of section 141(b) did
not apply, and
(III) subparagraph (B) of section 141(c)(1) did not
apply.
(6) Accelerated depreciation or amortization on certain property
placed in service before January 1, 1987
The amounts which would be treated as items of tax preference
with respect to the taxpayer under paragraphs (2), (3), (4), and
(12) of this subsection (as in effect on the day before the date
of the enactment of the Tax Reform Act of 1986). The preceding
sentence shall not apply to any property to which section
56(a)(1) or (5) applies.
(7) Exclusion for gains on sale of certain small business stock
An amount equal to 7 percent of the amount excluded from gross
income for the taxable year under section 1202.
(b) Straight line recovery of intangibles defined
For purposes of paragraph (2) of subsection (a) -
(1) In general
The term "straight line recovery of intangibles", when used
with respect to intangible drilling and development costs for any
well, means (except in the case of an election under paragraph
(2)) ratable amortization of such costs over the 120-month period
beginning with the month in which production from such well
begins.
(2) Election
If the taxpayer elects with respect to the intangible drilling
and development costs for any well, the term "straight line
recovery of intangibles" means any method which would be
permitted for purposes of determining cost depletion with respect
to such well and which is selected by the taxpayer for purposes
of subsection (a)(2).
-SOURCE-
(Added Pub. L. 99-514, title VII, Sec. 701(a), Oct. 22, 1986, 100
Stat. 2333; amended Pub. L. 100-647, title I, Sec. 1007(b)(14)(B),
(c), Nov. 10, 1988, 102 Stat. 3430, 3432; Pub. L. 101-508, title
XI, Secs. 11344, 11801(c)(12)(A), 11815(b)(3), Nov. 5, 1990, 104
Stat. 1388-472, 1388-527, 1388-558; Pub. L. 102-227, title I, Sec.
112, Dec. 11, 1991, 105 Stat. 1689; Pub. L. 102-486, title XIX,
Sec. 1915(a)(1), (b)(1), Oct. 24, 1992, 106 Stat. 3023, 3024; Pub.
L. 103-66, title XIII, Secs. 13113(b)(1), 13171(a), Aug. 10, 1993,
107 Stat. 429, 454; Pub. L. 104-188, title I, Sec. 1616(b)(3), Aug.
20, 1996, 110 Stat. 1856; Pub. L. 105-34, title III, Sec.
311(b)(2)(B), Aug. 5, 1997, 111 Stat. 835; Pub. L. 105-206, title
VI, Sec. 6005(d)(3), July 22, 1998, 112 Stat. 805; Pub. L. 108-27,
title III, Sec. 301(b)(3), May 28, 2003, 117 Stat. 759.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (a)(6), is the date of enactment of Pub. L. 99-514,
which was approved Oct. 22, 1986.
-MISC1-
PRIOR PROVISIONS
A prior section 57, added Pub. L. 91-172, title III, Sec. 301(a),
Dec. 30, 1969, 83 Stat. 581; amended Pub. L. 92-178, title III,
Secs. 303(b), 304(a)(1), (b)(1), (d), Dec. 10, 1971, 85 Stat. 522-
524; Pub. L. 94-455, title III, Sec. 301(c)(1)-(4)(A), (C), title
XIX, Secs. 1901(b)(33)(A), (B), 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1550-1552, 1800, 1834; Pub. L. 95-30, title I, Sec.
101(d)(5), title III, Sec. 308(a), title IV, Sec. 402(a)(5), May
23, 1977, 91 Stat. 133, 153, 155; Pub. L. 95-600, title III, Sec.
301(b)(2), title IV, Secs. 402(b)(1), 421(b), title VII, Sec.
701(b)(1), (3), (4), (f)(3)(D), Nov. 6, 1978, 92 Stat. 2820, 2868,
2874, 2898, 2899, 2901; Pub. L. 95-618, title IV, Sec. 402(b), Nov.
9, 1978, 92 Stat. 3202; Pub. L. 96-222, title I, Secs.
104(a)(4)(E), (F), 107(a)(1)(A), Apr. 1, 1980, 94 Stat. 217, 222;
Pub. L. 96-596, Sec. 3(a), Dec. 24, 1980, 94 Stat. 3475; Pub. L. 97-
34, title I, Sec. 121(c)(1), title II, Secs. 205, 212(d)(2)(B),
Aug. 13, 1981, 95 Stat. 197, 223, 239; Pub. L. 97-248, title II,
Secs. 201(b), 204(b), Sept. 3, 1982, 96 Stat. 416, 426; Pub. L. 97-
354, Sec. 5(a)(14), (15), Oct. 19, 1982, 96 Stat. 1693; Pub. L. 97-
448, title I, Sec. 102(b)(1)(A), (3), (4), Jan. 12, 1983, 96 Stat.
2369, 2370; Pub. L. 98-369, div. A, title I, Secs. 16(b), 68(c),
111(e)(5)-(7), title V, Sec. 555(a)(2), title VII, Secs.
711(a)(3)(A), 722(a)(1), July 18, 1984, 98 Stat. 505, 588, 633,
897, 942, 972; Pub. L. 99-121, title I, Sec. 103(b)(1)(B), (7),
Oct. 11, 1985, 99 Stat. 509, 510; Pub. L. 99-272, title XIII, Sec.
13208(a), Apr. 7, 1986, 100 Stat. 321; Pub. L. 99-514, title XVIII,
Secs. 1804(k)(3)(B)-(D), 1809(a)(3), Oct. 22, 1986, 100 Stat. 2809,
2819, related to items of tax preference, prior to the general
revision of this part by Pub. L. 99-514, Sec. 701(a).
AMENDMENTS
2003 - Subsec. (a)(7). Pub. L. 108-27, Secs. 301(b)(3), 303,
temporarily substituted "7 percent" for "42 percent" after "An
amount equal to" and struck out last sentence which read as
follows: "In the case of stock the holding period of which begins
after December 31, 2000 (determined with the application of the
last sentence of section 1(h)(2)(B)), the preceding sentence shall
be applied by substituting '28 percent' for '42 percent'." See
Effective and Termination Dates of 2003 Amendment note below.
1998 - Subsec. (a)(7). Pub. L. 105-206 inserted at end "In the
case of stock the holding period of which begins after December 31,
2000 (determined with the application of the last sentence of
section 1(h)(2)(B)), the preceding sentence shall be applied by
substituting '28 percent' for '42 percent'."
1997 - Subsec. (a)(7). Pub. L. 105-34 substituted "42 percent"
for "one-half".
1996 - Subsec. (a)(4). Pub. L. 104-188 struck out par. (4) which
read as follows: "Reserves for losses on bad debts of financial
institutions. - In the case of a financial institution to which
section 593 applies, the amount by which the deduction allowable
for the taxable year for a reasonable addition to a reserve for bad
debts exceeds the amount that would have been allowable had the
institution maintained its bad debt reserve for all taxable years
on the basis of actual experience."
1993 - Subsec. (a)(6), (7). Pub. L. 103-66, Sec. 13171(a),
redesignated pars. (7) and (8) as (6) and (7), respectively, and
struck out heading and text of former par. (6). Text read as
follows:
"(A) In general. - The amount by which the deduction allowable
under section 170 or 642(c) would be reduced if all capital gain
property were taken into account at its adjusted basis.
"(B) Capital gain property. - For purposes of subparagraph (A),
the term 'capital gain property' has the meaning given to such term
by section 170(b)(1)(C)(iv). Such term shall not include any
property to which an election under section 170(b)(1)(C)(iii)
applies. In the case of any taxable year beginning in 1991, such
term shall not include any tangible personal property. In the case
of a contribution made before July 1, 1992, in a taxable year
beginning in 1992, such term shall not include any tangible
personal property."
Subsec. (a)(8). Pub. L. 103-66, Sec. 13171(a), redesignated par.
(8) as (7).
Pub. L. 103-66, Sec. 13113(b)(1), added par. (8).
1992 - Subsec. (a)(1). Pub. L. 102-486, Sec. 1915(a)(1), inserted
at end "Effective with respect to taxable years beginning after
December 31, 1992, this paragraph shall not apply to any deduction
for depletion computed in accordance with section 613A(c)."
Subsec. (a)(2)(E). Pub. L. 102-486, Sec. 1915(b)(1), added
subpar. (E).
1991 - Subsec. (a)(6)(B). Pub. L. 102-227 inserted at end "In the
case of a contribution made before July 1, 1992, in a taxable year
beginning in 1992, such term shall not include any tangible
personal property."
1990 - Subsec. (a)(2)(D)(ii). Pub. L. 101-508, Sec. 11815(b)(3),
substituted "section 613(e)(2)" for "section 613(e)(3)".
Subsec. (a)(4). Pub. L. 101-508, Sec. 11801(c)(12)(A), struck out
"585 or" after "section".
Subsec. (a)(6)(B). Pub. L. 101-508, Sec. 11344, inserted at end
"In the case of any taxable year beginning in 1991, such term shall
not include any tangible personal property."
1988 - Subsec. (a)(3). Pub. L. 100-647, Sec. 1007(b)(14)(B),
struck out par. (3) which related to incentive stock options.
Subsec. (a)(5)(C)(i). Pub. L. 100-647, Sec. 1007(c)(2), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
"For purposes of this part, the term 'specified private activity
bonds' means any private activity bond (as defined in section 141)
issued after August 7, 1986."
Subsec. (a)(5)(C)(iii). Pub. L. 100-647, Sec. 1007(c)(1),
inserted "(whether a current or advance refunding)" after "any
refunding bond".
Subsec. (a)(6)(A). Pub. L. 100-647, Sec. 1007(c)(3), inserted "or
642(c)" after "section 170".
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable to dispositions on or
after May 6, 2003, see section 301(d)(3) of Pub. L. 108-27, set out
as a note under section 1 of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years ending
after May 6, 1997, see section 311(d) of Pub. L. 105-34, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1995, see section 1616(c) of Pub. L. 104-
188, set out as a note under section 593 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13113(b)(1) of Pub. L. 103-66 applicable to
stock issued after Aug. 10, 1993, see section 13113(e) of Pub. L.
103-66, set out as a note under section 53 of this title.
Amendment by section 13171(a) of Pub. L. 103-66 applicable to
contributions made after June 30, 1992, except that in case of any
contribution of capital gain property which is not tangible
personal property, such amendment applicable only if the
contribution is made after Dec. 31, 1992, see section 13171(d) of
Pub. L. 103-66, set out as a note under section 53 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-486 applicable to taxable years
beginning after Dec. 31, 1992, see section 1915(d) of Pub. L. 102-
486, set out as a note under section 56 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1007(b)(14)(B) of Pub. L. 100-647 applicable
with respect to options exercised after Dec. 31, 1987, see section
1007(b)(14)(C) of Pub. L. 100-647, set out as a note under section
56 of this title.
Amendment by section 1007(c) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, with certain exceptions and qualifications, but subsec.
(a)(6) not to apply to any deduction attributable to contributions
made before Aug. 16, 1986, see section 701(f) of Pub. L. 99-514,
set out as a note under section 55 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by sections 11801 and
11815 of Pub. L. 101-508 be construed to affect treatment of
certain transactions occurring, property acquired, or items of
income, loss, deduction, or credit taken into account prior to Nov.
5, 1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
TRANSITIONAL PROVISIONS
Section 1007(f)(4) of Pub. L. 100-647 provided that:
"(A) If any property to which this paragraph applies is placed in
service in a taxable year which begins before January 1, 1987, and
ends on or after August 1, 1986, the item of tax preference
determined under section 57(a) of the Internal Revenue Code of 1954
(as in effect on the day before the date of the enactment of the
Tax Reform Act of 1986 [Oct. 22, 1986]) with respect to such
property shall be the excess of -
"(i) the amount allowable as a deduction for depreciation or
amortization for such taxable year, over
"(ii) the amount which would be determined for such taxable
year under the rules of paragraph (1) or (5) (whichever is
appropriate) of section 56(a) of the Internal Revenue Code of
1954 (as amended by the Tax Reform Act of 1986 [Pub. L. 99-514]).
"(B) This paragraph shall apply to any property -
"(i) which is described in paragraph (4) or (12) of section
57(a) of the Internal Revenue Code of 1954 (as so in effect), and
"(ii) to which paragraph (1) or (5) of section 56(a) of the
Internal Revenue Code of 1986 would apply if the taxable year
referred to in subparagraph (A) began after December 31, 1986."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(a) of Pub. L. 99-
514 [enacting this section] notwithstanding any treaty obligation
of the United States in effect on Oct. 22, 1986, with provision
that for such purposes any amendment by title I of Pub. L. 100-647
be treated as if it had been included in the provision of Pub. L.
99-514 to which such amendment relates, see section 1012(aa)(2),
(4) of Pub. L. 100-647, set out as a note under section 861 of this
title.
-End-
-CITE-
26 USC Sec. 58 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART VI - ALTERNATIVE MINIMUM TAX
-HEAD-
Sec. 58. Denial of certain losses
-STATUTE-
(a) Denial of farm loss
(1) In general
For purposes of computing the amount of the alternative minimum
taxable income for any taxable year of a taxpayer other than a
corporation -
(A) Disallowance of farm loss
No loss of the taxpayer for such taxable year from any tax
shelter farm activity shall be allowed.
(B) Deduction in succeeding taxable year
Any loss from a tax shelter farm activity disallowed under
subparagraph (A) shall be treated as a deduction allocable to
such activity in the 1st succeeding taxable year.
(2) Tax shelter farm activity
For purposes of this subsection, the term "tax shelter farm
activity" means -
(A) any farming syndicate as defined in section 464(c), and
(B) any other activity consisting of farming which is a
passive activity (within the meaning of section 469(c)).
(3) Application to personal service corporations
For purposes of paragraph (1), a personal service corporation
(within the meaning of section 469(j)(2)) shall be treated as a
taxpayer other than a corporation.
(4) Determination of loss
In determining the amount of the loss from any tax shelter farm
activity, the adjustments of sections 56 and 57 shall apply.
(b) Disallowance of passive activity loss
In computing the alternative minimum taxable income of the
taxpayer for any taxable year, section 469 shall apply, except that
in applying section 469 -
(1) the adjustments of sections 56 and 57 shall apply,
(2) the provisions of section 469(m) (relating to phase-in of
disallowance) shall not apply, and
(3) in lieu of applying section 469(j)(7), the passive activity
loss of a taxpayer shall be computed without regard to qualified
housing interest (as defined in section 56(e)).
(c) Special rules
For purposes of this section -
(1) Special rule for insolvent taxpayers
(A) In general
The amount of losses to which subsection (a) or (b) applies
shall be reduced by the amount (if any) by which the taxpayer
is insolvent as of the close of the taxable year.
(B) Insolvent
For purposes of this paragraph, the term "insolvent" means
the excess of liabilities over the fair market value of assets.
(2) Loss allowed for year of disposition of farm shelter activity
If the taxpayer disposes of his entire interest in any tax
shelter farm activity during any taxable year, the amount of the
loss attributable to such activity (determined after carryovers
under subsection (a)(1)(B)) shall (to the extent otherwise
allowable) be allowed for such taxable year in computing
alternative minimum taxable income and not treated as a loss from
a tax shelter farm activity.
-SOURCE-
(Added Pub. L. 99-514, title VII, Sec. 701(a), Oct. 22, 1986, 100
Stat. 2335; amended Pub. L. 100-203, title X, Sec. 10212(b), Dec.
22, 1987, 101 Stat. 1330-406; Pub. L. 100-647, title I, Sec.
1007(d), Nov. 10, 1988, 102 Stat. 3432.)
-MISC1-
PRIOR PROVISIONS
A prior section 58, added Pub. L. 91-172, title III, Sec. 301(a),
Dec. 30, 1969, 83 Stat. 583; amended Pub. L. 92-178, title III,
Sec. 308(a), Dec. 10, 1971, 85 Stat. 524; Pub. L. 94-455, title
III, Sec. 301(d), title XIX, Secs. 1901(b)(40), 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1553, 1803, 1834; Pub. L. 95-600, title IV,
Secs. 421(c), 423(a), title VII, Sec. 701(b)(2), Nov. 6, 1978, 92
Stat. 2875, 2877, 2898; Pub. L. 96-222, title I, Sec. 107(a)(1)(C),
Apr. 1, 1980, 94 Stat. 222; Pub. L. 97-248, title II, Sec.
201(c)(1), Sec. 201(d)(3), formerly Sec. 201(c)(3), Sept. 3, 1982,
96 Stat. 417, 419, renumbered Sec. 201(d)(3), Pub. L. 97-448, title
III, Sec. 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 97-
354, Secs. 3(c), 5(a)(16), Oct. 19, 1982, 96 Stat. 1688, 1693;
Pub. L. 97-448, title I, Sec. 102(b)(2), Jan. 12, 1983, 96 Stat.
2369; Pub. L. 98-369, div. A, title VII, Sec. 711(a)(2), (3)(B),
July 18, 1984, 98 Stat. 942; Pub. L. 99-514, title XVIII, Sec.
1875(a), Oct. 22, 1986, 100 Stat. 2894, related to rules for
application of minimum tax for tax preferences, prior to the
general revision of this part by Pub. L. 99-514, Sec. 701(a).
AMENDMENTS
1988 - Subsec. (a)(2). Pub. L. 100-647, Sec. 1007(d)(1), struck
out "(as modified by section 461(i)(4)(A))" after "section 464(c)"
in subpar. (A) and substituted "section 469(c)" for "section
469(d), without regard to paragraph (1)(B) thereof" in subpar. (B).
Subsec. (a)(3). Pub. L. 100-647, Sec. 1007(d)(2), substituted
"469(j)(2)" for "469(g)(1)(C)".
Subsec. (a)(4). Pub. L. 100-647, Sec. 1007(d)(3), added par. (4).
Subsec. (b). Pub. L. 100-647, Sec. 1007(d)(4), added pars. (1) to
(3) and struck out former pars. (1) to (3) which read as follows:
"(1) the adjustments of section 56 shall apply,
"(2) any deduction to the extent such deduction is an item of tax
preference under section 57(a) shall not be taken into account, and
"(3) the provisions of section 469(m) (relating to phase-in of
disallowance) shall not apply."
1987 - Subsec. (b)(3). Pub. L. 100-203 substituted "section
469(m)" for "section 469(l)".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10212(c) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section and sections
163 and 469 of this title] shall take effect as if included in the
amendments made by section 501 of the Tax Reform Act of 1986
[section 501 of Pub. L. 99-514, see section 501(c) of Pub. L. 99-
514, set out as an Effective Date note under section 469 of this
title]."
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, with certain exceptions and qualifications, see section
701(f) of Pub. L. 99-514, set out as a note under section 55 of
this title.
APPLICABILITY OF 1986 REPEAL
Pub. L. 101-239, title VII, Sec. 7811(d)(1)(B), Dec. 19, 1989,
103 Stat. 2408, provided that: "The repeal of section 58(h) of the
Internal Revenue Code of 1954 by the Tax Reform Act of 1986 [Pub.
L. 99-514] shall be effective only with respect to items of tax
preference arising in taxable years beginning after December 31,
1986."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(a) of Pub. L. 99-
514 [enacting this section] notwithstanding any treaty obligation
of the United States in effect on Oct. 22, 1986, with provision
that for such purposes any amendment by title I of Pub. L. 100-647
be treated as if it had been included in the provision of Pub. L.
99-514 to which such amendment relates, see section 1012(aa)(2),
(4) of Pub. L. 100-647, set out as a note under section 861 of this
title.
-End-
-CITE-
26 USC Sec. 59 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART VI - ALTERNATIVE MINIMUM TAX
-HEAD-
Sec. 59. Other definitions and special rules
-STATUTE-
(a) Alternative minimum tax foreign tax credit
For purposes of this part -
(1) In general
The alternative minimum tax foreign tax credit for any taxable
year shall be the credit which would be determined under section
27(a) for such taxable year if -
(A) the pre-credit tentative minimum tax were the tax against
which such credit was taken for purposes of section 904 for the
taxable year and all prior taxable years beginning after
December 31, 1986,
(B) section 904 were applied on the basis of alternative
minimum taxable income instead of taxable income, and
(C) the determination of whether any income is high-taxed
income for purposes of section 904(d)(2) were made on the basis
of the applicable rate specified in subparagraph (A)(i) or
(B)(i) of section 55(b)(1) (whichever applies) in lieu of the
highest rate of tax specified in section 1 or 11 (whichever
applies).
(2) Pre-credit tentative minimum tax
For purposes of this subsection, the term "pre-credit tentative
minimum tax" means -
(A) in the case of a taxpayer other than a corporation, the
amount determined under the first sentence of section
55(b)(1)(A)(i), or
(B) in the case of a corporation, the amount determined under
section 55(b)(1)(B)(i).
(3) Election to use simplified section 904 limitation
(A) In general
In determining the alternative minimum tax foreign tax credit
for any taxable year to which an election under this paragraph
applies -
(i) subparagraph (B) of paragraph (1) shall not apply, and
(ii) the limitation of section 904 shall be based on the
proportion which -
(I) the taxpayer's taxable income (as determined for
purposes of the regular tax) from sources without the
United States (but not in excess of the taxpayer's entire
alternative minimum taxable income), bears to
(II) the taxpayer's entire alternative minimum taxable
income for the taxable year.
(B) Election
(i) In general
An election under this paragraph may be made only for the
taxpayer's first taxable year which begins after December 31,
1997, and for which the taxpayer claims an alternative
minimum tax foreign tax credit.
(ii) Election revocable only with consent
An election under this paragraph, once made, shall apply to
the taxable year for which made and all subsequent taxable
years unless revoked with the consent of the Secretary.
(b) Minimum tax not to apply to income eligible for credits under
section 30A or 936
In the case of any corporation for which a credit is allowable
for the taxable year under section 30A or 936, alternative minimum
taxable income shall not include any income with respect to which a
credit is determined under section 30A or 936.
(c) Treatment of estates and trusts
In the case of any estate or trust, the alternative minimum
taxable income of such estate or trust and any beneficiary thereof
shall be determined by applying part I of subchapter J with the
adjustments provided in this part.
(d) Apportionment of differently treated items in case of certain
entities
(1) In general
The differently treated items for the taxable year shall be
apportioned (in accordance with regulations prescribed by the
Secretary) -
(A) Regulated investment companies and real estate investment
trusts
In the case of a regulated investment company to which part I
of subchapter M applies or a real estate investment company to
which part II of subchapter M applies, between such company or
trust and shareholders and holders of beneficial interest in
such company or trust.
(B) Common trust funds
In the case of a common trust fund (as defined in section
584(a)), pro rata among the participants of such fund.
(2) Differently treated items
For purposes of this section, the term "differently treated
item" means any item of tax preference or any other item which is
treated differently for purposes of this part than for purposes
of computing the regular tax.
(e) Optional 10-year writeoff of certain tax preferences
(1) In general
For purposes of this title, any qualified expenditure to which
an election under this paragraph applies shall be allowed as a
deduction ratably over the 10-year period (3-year period in the
case of circulation expenditures described in section 173)
beginning with the taxable year in which such expenditure was
made (or, in the case of a qualified expenditure described in
paragraph (2)(C), over the 60-month period beginning with the
month in which such expenditure was paid or incurred).
(2) Qualified expenditure
For purposes of this subsection, the term "qualified
expenditure" means any amount which, but for an election under
this subsection, would have been allowable as a deduction
(determined without regard to section 291) for the taxable year
in which paid or incurred under -
(A) section 173 (relating to circulation expenditures),
(B) section 174(a) (relating to research and experimental
expenditures),
(C) section 263(c) (relating to intangible drilling and
development expenditures),
(D) section 616(a) (relating to development expenditures), or
(E) section 617(a) (relating to mining exploration
expenditures).
(3) Other sections not applicable
Except as provided in this subsection, no deduction shall be
allowed under any other section for any qualified expenditure to
which an election under this subsection applies.
(4) Election
(A) In general
An election may be made under paragraph (1) with respect to
any portion of any qualified expenditure.
(B) Revocable only with consent
Any election under this subsection may be revoked only with
the consent of the Secretary.
(C) Partners and shareholders of S corporations
In the case of a partnership, any election under paragraph
(1) shall be made separately by each partner with respect to
the partner's allocable share of any qualified expenditure. A
similar rule shall apply in the case of an S corporation and
its shareholders.
(5) Dispositions
(A) Application of section 1254
In the case of any disposition of property to which section
1254 applies (determined without regard to this section), any
deduction under paragraph (1) with respect to amounts which are
allocable to such property shall, for purposes of section 1254,
be treated as a deduction allowable under section 263(c),
616(a), or 617(a), whichever is appropriate.
(B) Application of section 617(d)
In the case of any disposition of mining property to which
section 617(d) applies (determined without regard to this
subsection), any deduction under paragraph (1) with respect to
amounts which are allocable to such property shall, for
purposes of section 617(d), be treated as a deduction allowable
under section 617(a).
(6) Amounts to which election apply not treated as tax preference
Any portion of any qualified expenditure to which an election
under paragraph (1) applies shall not be treated as an item of
tax preference under section 57(a) and section 56 shall not apply
to such expenditure.
(f) Coordination with section 291
Except as otherwise provided in this part, section 291 (relating
to cutback of corporate preferences) shall apply before the
application of this part.
(g) Tax benefit rule
The Secretary may prescribe regulations under which differently
treated items shall be properly adjusted where the tax treatment
giving rise to such items will not result in the reduction of the
taxpayer's regular tax for the taxable year for which the item is
taken into account or for any other taxable year.
(h) Coordination with certain limitations
The limitations of sections 704(d), 465, and 1366(d) (and such
other provisions as may be specified in regulations) shall be
applied for purposes of computing the alternative minimum taxable
income of the taxpayer for the taxable year with the adjustments of
sections 56, 57, and 58.
(i) Special rule for amounts treated as tax preference
For purposes of this subtitle (other than this part), any amount
shall not fail to be treated as wholly exempt from tax imposed by
this subtitle solely by reason of being included in alternative
minimum taxable income.
(j) Treatment of unearned income of minor children
(1) In general
In the case of a child to whom section 1(g) applies, the
exemption amount for purposes of section 55 shall not exceed the
sum of -
(A) such child's earned income (as defined in section
911(d)(2)) for the taxable year, plus
(B) $5,000.
(2) Inflation adjustment
In the case of any taxable year beginning in a calendar year
after 1998, the dollar amount in paragraph (1)(B) shall be
increased by an amount equal to the product of -
(A) such dollar amount, and
(B) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
determined by substituting "1997" for "1992" in subparagraph
(B) thereof.
If any increase determined under the preceding sentence is not a
multiple of $50, such increase shall be rounded to the nearest
multiple of $50.
-SOURCE-
(Added Pub. L. 99-514, title VII, Sec. 701(a), Oct. 22, 1986, 100
Stat. 2336; amended Pub. L. 100-647, title I, Secs. 1007(e),
1014(e)(5)(A), Nov. 10, 1988, 102 Stat. 3432, 3561; Pub. L. 101-
239, title VII, Secs. 7611(f)(5)(B), (6), 7612(e)(1),
7811(d)(1)(A), (j)(7), Dec. 19, 1989, 103 Stat. 2373, 2374, 2408,
2412; Pub. L. 101-508, title XI, Secs. 11101(d)(3), 11531(b)(2),
11702(d), 11801(c)(2)(D), Nov. 5, 1990, 104 Stat. 1388-405, 1388-
490, 1388-514, 1388-523; Pub. L. 102-486, title XIX, Sec.
1915(c)(3), Oct. 24, 1992, 106 Stat. 3024; Pub. L. 104-188, title
I, Secs. 1601(b)(2)(D), 1702(a)(1), 1703(e), 1704(m)(3), Aug. 20,
1996, 110 Stat. 1833, 1868, 1875, 1883; Pub. L. 105-34, title X,
Sec. 1057(a), title XI, Sec. 1103(a), title XII, Sec. 1201(b)(1),
Aug. 5, 1997, 111 Stat. 945, 966, 994; Pub. L. 105-206, title VI,
Secs. 6011(a), 6023(2), July 22, 1998, 112 Stat. 817, 824; Pub. L.
108-357, title IV, Sec. 421(a)(1), Oct. 22, 2004, 118 Stat. 1514.)
-STATAMEND-
ADJUSTMENT OF ALTERNATIVE MINIMUM TAX EXEMPTION AMOUNT FOR TAXABLE
YEARS BEGINNING IN 2006
For adjustment of alternative minimum tax exemption amount under
subsection (j) of this section in the case of a child to whom the
"kiddie tax" applies for taxable years beginning in 2006, see
section 3.08 of Revenue Procedure 2005-70, set out as a note under
section 1 of this title.
-MISC1-
AMENDMENTS
2004 - Subsec. (a)(2) to (4). Pub. L. 108-357 redesignated pars.
(3) and (4) as (2) and (3), respectively, and struck out former
par. (2) which related to limitation on alternative minimum tax
foreign tax credit and carryback and carryforward of excess.
1998 - Subsec. (a)(3), (4). Pub. L. 105-206, Sec. 6011(a),
redesignated par. (3), relating to election to use simplified
section 904 limitation, as (4).
Subsec. (b). Pub. L. 105-206, Sec. 6023(2), substituted "credits
under section 30A or 936" for "section 936 credit" in heading.
1997 - Subsec. (a)(2)(C). Pub. L. 105-34, Sec. 1057(a), struck
out subpar. (C) which read as follows:
"(C) Exception. - Subparagraph (A) shall not apply to any
domestic corporation if -
"(i) more than 50 percent of the stock of such domestic
corporation (by vote and value) is owned by United States persons
who are not members of an affiliated group (as defined in section
1504 of such Code) which includes such corporation,
"(ii) all of the activities of such corporation are conducted
in 1 foreign country with which the United States has an income
tax treaty in effect and such treaty provides for the exchange of
information between such foreign country and the United States,
"(iii) all of the current earnings and profits of such
corporation are distributed at least annually (other than current
earnings and profits retained for normal maintenance or capital
replacements or improvements of an existing business), and
"(iv) all of such distributions by such corporation to United
States persons are used by such persons in a trade or business
conducted in the United States."
Subsec. (a)(3). Pub. L. 105-34, Sec. 1103(a), added par. (3)
relating to election to use simplified section 904 limitation.
Subsec. (j). Pub. L. 105-34, Sec. 1201(b)(1), amended subsec. (j)
generally, restating limitation on exemption amount, adding
provisions for inflation adjustment of such amount, and deleting
provisions relating to limitation based on parental minimum tax and
unused parental minimum tax exemption.
1996 - Subsec. (a)(1)(A). Pub. L. 104-188, Sec. 1703(e)(1),
substituted "the pre-credit tentative minimum tax" for "the amount
determined under section 55(b)(1)(A)".
Subsec. (a)(1)(C). Pub. L. 104-188, Sec. 1703(e)(2), substituted
"specified in subparagraph (A)(i) or (B)(i) of section 55(b)(1)
(whichever applies)" for "specified in section 55(b)(1)(A)".
Subsec. (a)(2)(A)(i). Pub. L. 104-188, Sec. 1703(e)(1),
substituted "the pre-credit tentative minimum tax" for "the amount
determined under section 55(b)(1)(A)".
Subsec. (a)(2)(A)(ii). Pub. L. 104-188, Sec. 1703(e)(3),
substituted "which would be the pre-credit tentative minimum tax"
for "which would be determined under section 55(b)(1)(A)".
Subsec. (a)(3). Pub. L. 104-188, Sec. 1703(e)(4), added par. (3).
Subsec. (b). Pub. L. 104-188, Sec. 1601(b)(2)(D), substituted
"section 30A or 936, alternative minimum taxable income shall not
include any income with respect to which a credit is determined
under section 30A or 936." for "section 936, alternative minimum
taxable income shall not include any amount with respect to which
the requirements of subparagraph (A) or (B) of section 936(a)(1)
are met."
Subsec. (j)(1)(B). Pub. L. 104-188, Sec. 1704(m)(3), substituted
"twice the amount in effect for the taxable year under section
63(c)(5)(A)" for "$1,000".
Subsec. (j)(3)(B). Pub. L. 104-188, Sec. 1702(a)(1), substituted
"section 1(g)(3)(B)" for "section 1(i)(3)(B)".
1992 - Subsec. (a)(2)(A)(ii). Pub. L. 102-486 substituted "and
section 57(a)(2)(E)" for "and the alternative tax energy preference
deduction under section 56(h)".
1990 - Subsec. (a)(1)(B) to (D). Pub. L. 101-508, Sec.
11801(c)(2)(D), inserted "and" at end of subpar. (B), redesignated
subpar. (D) as (C), and struck out former subpar. (C) which read as
follows: "for purposes of section 904, any increase in alternative
minimum taxable income by reason of section 56(c)(1)(A) (relating
to adjustment for book income) shall have the same proportionate
source (and character) as alternative minimum taxable income
determined without regard to such increase, and".
Subsec. (a)(2)(A)(ii). Pub. L. 101-508, Sec. 11531(b)(2),
inserted before period at end "and the alternative tax energy
preference deduction under section 56(h)".
Subsec. (j). Pub. L. 101-508, Sec. 11101(d)(3)(A), substituted
"section 1(g)" for "section 1(i)" in pars. (1), (2)(A), (B)(i)(I),
(II), (D), and (3).
Subsec. (j)(1)(B). Pub. L. 101-508, Sec. 11702(d)(1), inserted
"(or, if greater, the child's share of the unused parental minimum
tax exemption)" before period at end.
Subsec. (j)(2)(C). Pub. L. 101-508, Sec. 11101(d)(3)(B),
substituted "section 1(g)(3)(B)" for "section 1(i)(3)(B)".
Subsec. (j)(2)(D). Pub. L. 101-508, Sec. 11702(d)(3), substituted
"paragraphs (3)(D), (5), and (6)" for "paragraphs (5) and (6)".
Subsec. (j)(3). Pub. L. 101-508, Sec. 11702(d)(2), added par.
(3).
1989 - Subsec. (a)(2)(C). Pub. L. 101-239, Sec. 7612(e)(1), added
subpar. (C).
Subsec. (e)(1). Pub. L. 101-239, Sec. 7611(f)(5)(B), inserted
before period at end "(or, in the case of a qualified expenditure
described in paragraph (2)(C), over the 60-month period beginning
with the month in which such expenditure was paid or incurred)".
Subsec. (g). Pub. L. 101-239, Sec. 7811(d)(1)(A), substituted
"for the taxable year for which the item is taken into account or
for any other taxable year" for "for any taxable year".
Subsec. (i). Pub. L. 101-239, Sec. 7611(f)(6), substituted
"amounts" for "interest" in heading and "any amount shall" for
"interest shall" in text.
Subsec. (j)(2)(D). Pub. L. 101-239, Sec. 7811(j)(7), substituted
"Other rules" for "Others rules" in heading.
1988 - Subsec. (a)(1)(D). Pub. L. 100-647, Sec. 1007(e)(3), added
subpar. (D).
Subsec. (e)(2). Pub. L. 100-647, Sec. 1007(e)(1), inserted
"(determined without regard to section 291)" after "as a
deduction".
Subsec. (h). Pub. L. 100-647, Sec. 1007(e)(2), substituted
"taxable year with the adjustments of sections 56, 57, and 58" for
"taxable year -
"(1) with the adjustments of section 56, and
"(2) by not taking into account any deduction to the extent
such deduction is an item of tax preference under section 57(a)".
Subsec. (i). Pub. L. 100-647, Sec. 1007(e)(4), inserted "(other
than this part)" after "of this subtitle" and substituted
"subtitle" for "title" before "solely".
Subsec. (j). Pub. L. 100-647, Sec. 1014(e)(5)(A), added subsec.
(j).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years
beginning after Dec. 31, 2004, see section 421(b) of Pub. L. 108-
357, set out as a note under section 53 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by section 6023(2) of Pub. L. 105-206 effective July
22, 1998, see section 6023(32) of Pub. L. 105-206, set out as a
note under section 34 of this title.
Amendment by section 6011(a) of Pub. L. 105-206 effective, except
as otherwise provided, as if included in the provisions of the
Taxpayer Relief Act of 1997, Pub. L. 105-34, to which such
amendment relates, see section 6024 of Pub. L. 105-206, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1057(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [Aug.
5, 1997]."
Section 1103(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997."
Section 1201(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and sections 63 and
6103 of this title] shall apply to taxable years beginning after
December 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1601(b)(2)(D) of Pub. L. 104-188 applicable
to taxable years beginning after Dec. 31, 1995, except as otherwise
provided, see section 1601(c) of Pub. L. 104-188, set out as an
Effective Date note under section 30A of this title.
Amendment by section 1702(a)(1) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L. 101-
508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
Amendment by section 1703(e) of Pub. L. 104-188 effective as if
included in the provision of the Revenue Reconciliation Act of
1993, Pub. L. 103-66, Secs. 13001-13444, to which such amendment
relates, see section 1703(o) of Pub. L. 104-188, set out as a note
under section 39 of this title.
Amendment by section 1704(m)(3) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1995, see section 1704(m)(4)
of Pub. L. 104-188, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-486 applicable to taxable years
beginning after Dec. 31, 1992, see section 1915(d) of Pub. L. 102-
486, set out as a note under section 56 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11101(d)(3) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1990, see section 11101(e)
of Pub. L. 101-508, set out as a note under section 1 of this
title.
Amendment by section 11531(b)(2) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1990, see section 11531(c)
of Pub. L. 101-508, set out as a note under section 56 of this
title.
Section 11702(j) of Pub. L. 101-508 provided that: "Any amendment
made by this section [amending this section and sections 135, 216,
355, 367, 447, 453B, 468B, 2056, 2056A, 2523, 4980B, and 6114 of
this title] shall take effect as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988 [Pub. L. 100-
647] to which such amendment relates."
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7611(f)(6) of Pub. L. 101-239 applicable to
taxable years beginning after Dec. 31, 1989, see section 7611(g)(1)
of Pub. L. 101-239, set out as a note under section 56 of this
title.
Amendment by section 7611(f)(5)(B) of Pub. L. 101-239 applicable
to costs paid or incurred in taxable years beginning after Dec. 31,
1989, see section 7611(g)(2) of Pub. L. 101-239, set out as a note
under section 56 of this title.
Section 7612(e)(2) of Pub. L. 101-239 provided that:
"(A) In general. - The amendment made by paragraph (1) [amending
this section] shall apply to taxable years beginning after March
31, 1990.
"(B) Special rule for year which includes march 31, 1990. - In
the case of any taxable year (of a corporation described in
subparagraph (C) of section 59(a)(2) of the Internal Revenue Code
of 1986 (as added by paragraph (1))) which begins after December
31, 1989, and includes March 31, 1990, the amount determined under
clause (ii) of section 59(a)(2)(A) of such Code shall be an amount
which bears the same ratio to the amount which would have been
determined under such clause without regard to this subparagraph as
the number of days in such taxable year on or before March 31,
1990, bears to the total number of days in such taxable year."
Amendment by section 7811(d)(1)(A), (j)(7) of Pub. L. 101-239
effective, except as otherwise provided, as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section 7817
of Pub. L. 101-239, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1007(e) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 1014(e)(5)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to taxable years beginning after December 31, 1988."
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, with certain exceptions and qualifications, see section
701(f) of Pub. L. 99-514, set out as a note under section 55 of
this title.
SAVINGS PROVISION
For provisions that nothing in amendment by section 11801 of Pub.
L. 101-508 be construed to affect treatment of certain transactions
occurring, property acquired, or items of income, loss, deduction,
or credit taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
CONSIDERATION OF CERTAIN TAXES TREATED AS PAID OR ACCRUED UNDER
SECTION 904(C) IN DETERMINATION OF ALTERNATIVE MINIMUM TAX FOREIGN
TAX CREDIT
Section 1007(f)(5) of Pub. L. 100-647 provided that: "In
determining the amount of the alternative minimum tax foreign tax
credit under section 59 of the 1986 Code, there shall not be taken
into account any taxes paid or accrued in a taxable year beginning
after December 31, 1986, which are treated under section 904(c) of
the 1986 Code as paid or accrued in a taxable year beginning on or
before December 31, 1986."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(a) of Pub. L. 99-
514 [enacting this section] notwithstanding any treaty obligation
of the United States in effect on Oct. 22, 1986, with provision
that for such purposes any amendment by title I of Pub. L. 100-647
be treated as if it had been included in the provision of Pub. L.
99-514 to which such amendment relates, see section 1012(aa)(2),
(4) of Pub. L. 100-647, set out as a note under section 861 of this
title.
-End-
-CITE-
26 USC PART VII - ENVIRONMENTAL TAX 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART VII - ENVIRONMENTAL TAX
-HEAD-
PART VII - ENVIRONMENTAL TAX
-MISC1-
Sec.
59A. Environmental tax.
-End-
-CITE-
26 USC Sec. 59A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
PART VII - ENVIRONMENTAL TAX
-HEAD-
Sec. 59A. Environmental tax
-STATUTE-
(a) Imposition of tax
In the case of a corporation, there is hereby imposed (in
addition to any other tax imposed by this subtitle) a tax equal to
0.12 percent of the excess of -
(1) the modified alternative minimum taxable income of such
corporation for the taxable year, over
(2) $2,000,000.
(b) Modified alternative minimum taxable income
For purposes of this section, the term "modified alternative
minimum taxable income" means alternative minimum taxable income
(as defined in section 55(b)(2)) but determined without regard to -
(1) the alternative tax net operating loss deduction (as
defined in section 56(d)), and
(2) the deduction allowed under section 164(a)(5).
(c) Exception for RIC's and REIT's
The tax imposed by subsection (a) shall not apply to -
(1) a regulated investment company to which part I of
subchapter M applies, and
(2) a real estate investment trust to which part II of
subchapter M applies.
(d) Special rules
(1) Short taxable years
The application of this section to taxable years of less than
12 months shall be in accordance with regulations prescribed by
the Secretary.
(2) Section 15 not to apply
Section 15 shall not apply to the tax imposed by this section.
(e) Application of tax
(1) In general
The tax imposed by this section shall apply to taxable years
beginning after December 31, 1986, and before January 1, 1996.
(2) Earlier termination
The tax imposed by this section shall not apply to taxable
years -
(A) beginning during a calendar year during which no tax is
imposed under section 4611(a) by reason of paragraph (2) of
section 4611(e), and
(B) beginning after the calendar year which includes the
termination date under paragraph (3) of section 4611(e).
-SOURCE-
(Added Pub. L. 99-499, title V, Sec. 516(a), Oct. 17, 1986, 100
Stat. 1770; amended Pub. L. 100-647, title II, Sec. 2001(c)(1),
(3)(B), Nov. 10, 1988, 102 Stat. 3594; Pub. L. 101-508, title XI,
Secs. 11231(a)(1)(A), 11531(b)(3), 11801(c)(2)(E), Nov. 5, 1990,
104 Stat. 1388-444, 1388-490, 1388-523; Pub. L. 102-486, title XIX,
Sec. 1915(c)(4), Oct. 24, 1992, 106 Stat. 3024.)
-MISC1-
AMENDMENTS
1992 - Subsec. (b)(1). Pub. L. 102-486 struck out "or the
alternative tax energy preference deduction under section 56(h)"
after "section 56(d))".
1990 - Subsec. (b)(1). Pub. L. 101-508, Sec. 11531(b)(3),
inserted before comma "or the alternative tax energy preference
deduction under section 56(h)".
Subsec. (b)(2). Pub. L. 101-508, Sec. 11801(c)(2)(E), struck out
"(and the last sentence of section 56(f)(2)(B))" after "section
164(a)(5)".
Subsec. (e)(1). Pub. L. 101-508, Sec. 11231(a)(1)(A), substituted
"January 1, 1996" for "January 1, 1992".
1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 2001(c)(3)(B),
inserted "(and the last sentence of section 56(f)(2)(B))" before
period at end.
Subsecs. (c) to (e). Pub. L. 100-647, Sec. 2001(c)(1), added
subsec. (c) and redesignated former subsecs. (c) and (d) as (d) and
(e), respectively.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-486 applicable to taxable years
beginning after Dec. 31, 1992, see section 1915(d) of Pub. L. 102-
486, set out as a note under section 56 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11531(b)(3) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1990, see section 11531(c)
of Pub. L. 101-508, set out as a note under section 56 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Superfund Revenue
Act of 1986, Pub. L. 99-499, title V, to which it relates, see
section 2001(e) of Pub. L. 100-647, set out as a note under section
56 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, see section 516(c) of Pub. L. 99-499, set out as an Effective
Date of 1986 Amendment note under section 26 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by section 11801 of Pub.
L. 101-508 be construed to affect treatment of certain transactions
occurring, property acquired, or items of income, loss, deduction,
or credit taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC [PART VIII - REPEALED] 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
[PART VIII - REPEALED]
-HEAD-
[PART VIII - REPEALED]
-End-
-CITE-
26 USC Sec. 59B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter A - Determination of Tax Liability
[PART VIII - REPEALED]
-HEAD-
[Sec. 59B. Repealed. Pub. L. 101-234, title I, Sec. 102(a), Dec.
13, 1989, 103 Stat. 1980]
-MISC1-
Section, added Pub. L. 100-360, title I, Sec. 111(a), July 1,
1988, 102 Stat. 690, provided for imposition of a supplemental
medicare premium.
EFFECTIVE DATE OF REPEAL
Section 102(d) of Pub. L. 101-234 provided that:
"(1) In general. - Except as provided in this subsection, the
provisions of this section [repealing section 1395i-1a of Title 42,
The Public Health and Welfare, enacting provisions set out as notes
under section 6050F of this title and section 1395t of Title 42,
and repealing provisions set out as a note under section 1395i-1a
of Title 42] shall take effect January 1, 1990.
"(2) Repeal of supplemental medicare premium. - The repeal of
section 111 of MCCA [Pub. L. 100-360, which enacted this section,
amended section 6050F of this title, and enacted provisions set out
as notes below] shall apply to taxable years beginning after
December 31, 1988."
EFFECTIVE DATE
Section 111(e) of Pub. L. 100-360, which provided that the
enactment of this section and the amendment of section 6050F of
this title applied to taxable years beginning after December 31,
1988, and that in case of a taxable year beginning in 1989, the
premium imposed by this section should not be treated as a tax for
purposes of applying section 6654 of this title, was repealed by
Pub. L. 101-234, title I, Sec. 102(a), Dec. 13, 1989, 103 Stat.
1980.
ANNOUNCEMENT OF SUPPLEMENTAL PREMIUM RATE
Section 111(d) of Pub. L. 100-360, which provided that in the
case of calendar year 1993 or any calendar year thereafter (1) not
later than July 1 of such calendar year, the Secretary of the
Treasury or his delegate was required to make an announcement of
the estimated supplemental premium rate under this section for
taxable years beginning in the following calendar year, and (2) not
later than October 1 of such calendar year, the Secretary of the
Treasury or his delegate was required to make an announcement of
the actual supplemental premium rate under this section for such
taxable years, was repealed by Pub. L. 101-234, title I, Sec.
102(a), Dec. 13, 1989, 103 Stat. 1980.
-End-
-CITE-
26 USC Subchapter B - Computation of Taxable Income 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
-HEAD-
SUBCHAPTER B - COMPUTATION OF TAXABLE INCOME
-MISC1-
Part
I. Definition of gross income, adjusted gross income,
taxable income, etc.
II. Items specifically included in gross income.
III. Items specifically excluded from gross income.
IV. Determination of marital status.(!1)
V. Deductions for personal exemptions.
VI. Itemized deductions for individuals and corporations.
VII. Additional itemized deductions for individuals.
VIII. Special deductions for corporations.
IX. Items not deductible.
X. Terminal railroad corporations and their shareholders.
XI. Special rules relating to corporate preference items.
AMENDMENTS
1982 - Pub. L. 97-248, title II, Sec. 204(c)(2), Sept. 3, 1982,
96 Stat. 427, added item for part XI.
1977 - Pub. L. 95-30, title I, Sec. 101(e)(3), May 23, 1977, 91
Stat. 135, substituted "Determination of marital status" for
"Standard deduction for individuals" in item for part IV.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(4)(C), Oct. 4,
1976, 90 Stat. 1793, substituted "taxable income, etc." for "and
taxable income." in item for part I.
1962 - Pub. L. 87-870, Sec. 1(b), Oct. 23, 1962, 76 Stat. 1160,
added item for part X.
-FOOTNOTE-
(!1) Part heading amended by Pub. L. 99-514 without corresponding
amendment of analysis.
-End-
-CITE-
26 USC PART I - DEFINITION OF GROSS INCOME, ADJUSTED
GROSS INCOME, TAXABLE INCOME, ETC. 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART I - DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
-HEAD-
PART I - DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
-MISC1-
Sec.
61. Gross income defined.
62. Adjusted gross income defined.
63. Taxable income defined.
64. Ordinary income defined.
65. Ordinary loss defined.
66. Treatment of community income.
67. 2-percent floor on miscellaneous itemized deductions.
68. Overall limitation on itemized deductions.
AMENDMENTS
1990 - Pub. L. 101-508, title XI, Sec. 11103(d), Nov. 5, 1990,
104 Stat. 1388-407, added item 68.
1986 - Pub. L. 99-514, title I, Sec. 132(d), Oct. 22, 1986, 100
Stat. 2116, added item 67.
1984 - Pub. L. 98-369, div. A, title IV, Sec. 424(b)(2)(C), July
18, 1984, 98 Stat. 803, struck out "where spouses live apart" in
item 66.
1980 - Pub. L. 96-605, title I, Sec. 101(b), Dec. 28, 1980, 94
Stat. 3522, added item 66.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(4)(A), (B), Oct.
4, 1976, 90 Stat. 1793, substituted "TAXABLE INCOME, ETC." for "AND
TAXABLE INCOME" in part heading, and added items 64 and 65.
-End-
-CITE-
26 USC Sec. 61 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART I - DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
-HEAD-
Sec. 61. Gross income defined
-STATUTE-
(a) General definition
Except as otherwise provided in this subtitle, gross income means
all income from whatever source derived, including (but not limited
to) the following items:
(1) Compensation for services, including fees, commissions,
fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.
(b) Cross references
For items specifically included in gross income, see part II
(sec. 71 and following). For items specifically excluded from
gross income, see part III (sec. 101 and following).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 17; Pub. L. 98-369, div. A,
title V, Sec. 531(c), July 18, 1984, 98 Stat. 884.)
-MISC1-
AMENDMENTS
1984 - Subsec. (a)(1). Pub. L. 98-369 inserted reference to
fringe benefits.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective Jan. 1, 1985, see section
531(h) of Pub. L. 98-369, set out as an Effective Date note under
section 132 of this title.
TERMINATION DATE OF 1978 AMENDMENT
Pub. L. 95-615, Sec. 210(a), Nov. 8, 1978, 92 Stat. 3109,
provided that: "Title I of this Act [probably means sections 1 to 8
of Pub. L. 95-615, see Short Title of 1978 Amendment note under
section 1 of this title] (other than sections 4 and 5 thereof)
[amending section 167 of this title, enacting provisions set out as
notes under this section and sections 61 and 62 of this title, and
amending provisions set out as notes under sections 117, 167, and
382 of this title] shall cease to have effect on the day after the
date of the enactment of this Act [Nov. 8, 1978]."
REGULATIONS
Pub. L. 95-427, Sec. 1, Oct. 7, 1978, 92 Stat. 996, as amended by
Pub. L. 96-167, Sec. 1, Dec. 29, 1979, 93 Stat. 1275; Pub. L. 97-
34, title VIII, Sec. 801, Aug. 13, 1981, 95 Stat. 349; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) In General. - No fringe benefit regulation shall be issued -
"(1) in final form on or after May 1, 1978, and on or before
December 31, 1983, or
"(2) in proposed or final form on or after May 1, 1978, if such
regulation has an effective date on or before December 31, 1983.
"(b) Definition of Fringe Benefit Regulation. - For purposes of
subsection (a), the term 'fringe benefit regulation' means a
regulation providing for the inclusion of any fringe benefit in
gross income by reason of section 61 of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954]."
Pub. L. 95-615, Sec. 3, Nov. 8, 1978, 92 Stat. 3097, as amended
by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that no regulations be issued in final form on or after Oct. 1,
1977, and before July 1, 1978, providing for inclusion of any
fringe benefit in gross income by reason of section 61 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954], ceased to
have effect on the day after Nov. 8, 1978, pursuant to section
210(a) of that Act.
NO GAIN RECOGNIZED FROM NET GIFTS MADE BEFORE MARCH 4, 1981
Section 1026 of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) In General. - In the case of any transfer of property
subject to gift tax made before March 4, 1981, for purposes of
subtitle A of the Internal Revenue Code of 1986 [formerly I.R.C.
1954, 26 U.S.C. 1 et seq.], gross income of the donor shall not
include any amount attributable to the donee's payment of (or
agreement to pay) any gift tax imposed with respect to such gift.
"(b) Gift Tax Defined. - For purposes of subsection (a), the term
'gift tax' means -
"(1) the tax imposed by chapter 12 of such Code [26 U.S.C. 2501
et seq.], and
"(2) any tax imposed by a State (or the District of Columbia)
on transfers by gifts.
"(c) Statute of Limitations. - If refund or credit of any
overpayment of tax resulting from subsection (a) is prevented on
the date of the enactment of this Act [July 18, 1984] (or at any
time within 1 year after such date) by the operation of any law or
rule of law (including res judicata), refund or credit of such
overpayment (to the extent attributable to subsection (a)) may
nevertheless be made or allowed if claim therefor is filed within 1
year after the date of the enactment of this Act."
PAYMENT-IN-KIND TAX TREATMENT ACT OF 1983
Pub. L. 98-4, Mar. 11, 1983, 97 Stat. 7, as amended by Pub. L. 98-
369, div. A, title X, Sec. 1061(a), July 18, 1984, 98 Stat. 1046;
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 100-
647, title VI, Sec. 6252(a)(1), Nov. 10, 1988, 102 Stat. 3752,
provided that:
"SECTION 1. SHORT TITLE.
"This Act may be cited as the 'Payment-in-Kind Tax Treatment Act
of 1983'.
"SEC. 2. INCOME TAX TREATMENT OF AGRICULTURAL COMMODITIES
RECEIVED UNDER A 1983 PAYMENT-IN-KIND PROGRAM.
"(a) Income Tax Deferral, Etc. - Except as otherwise provided in
this Act, for purposes of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] -
"(1) a qualified taxpayer shall not be treated as having
realized income when he receives a commodity under a 1983 payment-
in-kind program,
"(2) such commodity shall be treated as if it were produced by
such taxpayer, and
"(3) the unadjusted basis of such commodity in the hands of
such taxpayer shall be zero.
"(b) Effective Date. - This section shall apply to taxable years
ending after December 31, 1982, but only with respect to
commodities received for the 1983 crop year.
"SEC. 3. LAND DIVERTED UNDER 1983 PAYMENT-IN-KIND PROGRAM TREATED
AS USED IN FARMING BUSINESS, ETC.
"(a) General Rule. - For purposes of the provisions specified in
subsection (b), in the case of any land diverted from the
production of an agricultural commodity under a 1983 payment-in-
kind program -
"(1) such land shall be treated as used during the 1983 crop
year by the qualified taxpayer in the active conduct of the trade
or business of farming, and
"(2) any qualified taxpayer who materially participates in the
diversion and devotion to conservation uses required under a 1983
payment-in-kind program shall be treated as materially
participating in the operation of such land during such crop
year.
"(b) Provisions to Which Subsection (a) Applies. - The provisions
specified in this subsection are -
"(1) section 2032A of the Internal Revenue Code of 1986
(relating to valuation of certain farm, etc., real property),
"(2) section 6166 of such Code (relating to extension of time
for payment of estate tax where estate consists largely of
interest in closely held business),
"(3) chapter 2 of such Code (relating to tax on self-employment
income), and
"(4) title II of the Social Security Act [42 U.S.C. 401 et
seq.] (relating to Federal old-age, survivors, and disability
insurance benefits).
"SEC. 4. ANTIABUSE RULES.
"(a) General Rule. - In the case of any person, sections 2 and 3
of this Act shall not apply with respect to any land acquired by
such person after February 23, 1983, unless such land was acquired
in a qualified acquisition.
"(b) Qualified Acquisition. - For purposes of this section, the
term 'qualified acquisition' means any acquisition -
"(1) by reason of the death of a qualified transferor,
"(2) by reason of a gift from a qualified transferor, or
"(3) from a qualified transferor who is a member of the family
of the person acquiring the land.
"(c) Definitions and Special Rules. - For purposes of this
section -
"(1) Qualified transferor. - The term 'qualified transferor'
means any person -
"(A) who held the land on February 23, 1983, or
"(B) who acquired the land after February 23, 1983, in a
qualified acquisition.
"(2) Member of family. - The term 'member of the family' has
the meaning given such term by section 2032A(e)(2) of the
Internal Revenue Code of 1986.
"(3) Mere change in form of business. - Subsection (a) shall
not apply to any change in ownership by reason of a mere change
in the form of conducting the trade or business so long as the
land is retained in such trade or business and the person holding
the land before such change retains a direct or indirect 80-
percent interest in such land.
"(4) Treatment of certain acquisitions of right to the crop. -
The acquisition of a direct or indirect interest in 80 percent or
more of the crop from any land shall be treated as an acquisition
of such land.
"SEC. 5. DEFINITIONS AND SPECIAL RULES.
"(a) General Rule. - For purposes of this Act -
"(1) 1983 payment-in-kind program. - The term '1983 payment-in-
kind program' means any program for the 1983 crop year -
"(A) under which the Secretary of Agriculture (or his
delegate) makes payments in kind of any agricultural commodity
to any person in return for -
"(i) the diversion of farm acreage from the production of
an agricultural commodity, and
"(ii) the devotion of such acreage to conservation uses,
and
"(B) which the Secretary of Agriculture certifies to the
Secretary of the Treasury as being described in subparagraph
(A).
"(2) Crop year. - The term '1983 crop year' means the crop year
for any crop the planting or harvesting period for which occurs
during 1983. The term '1984 crop year' means the crop year for
wheat the planting and harvesting period for which occurs during
1984.
"(3) Qualified taxpayer. - The term 'qualified taxpayer' means
any producer of agricultural commodities (within the meaning of
the 1983 payment-in-kind programs) who receives any agricultural
commodity in return for meeting the requirements of clauses (i)
and (ii) of paragraph (1)(A).
"(4) Receipt includes right to receive, etc. - A right to
receive (or other constructive receipt of) a commodity shall be
treated the same as actual receipt of such commodity.
"(5) Amounts received by the taxpayer as reimbursement for
storage. - A qualified taxpayer reporting on the cash receipts
and disbursements method of accounting shall not be treated as
being entitled to receive any amount as reimbursement for storage
of commodities received under a 1983 payment-in-kind program
until such amount is actually received by the taxpayer.
"(6) Commodity credit loans treated separately. - Subsection
(a) of section 2 shall apply to the receipt of any commodity
under a 1983 payment-in-kind program separately from, and without
taking into account, any related transaction or series of
transactions involving the satisfaction of loans from the
Commodity Credit Corporation.
"(b) Extension to Wheat Planted and Harvested in 1984. - In the
case of wheat -
"(1) any reference in this Act to the 1983 crop year shall
include a reference to the 1984 crop year, and
"(2) any reference to the 1983 payment-in-kind program shall
include a reference to any program for the 1984 year for wheat
which meets the requirements of subparagraphs (A) and (B) of
subsection (a)(1).
"(c) Regulations. - The Secretary of the Treasury or his delegate
(after consultation with the Secretary of Agriculture) shall
prescribe such regulations as may be necessary to carry out the
purposes of this Act, including (but not limited to) such
regulations as may be necessary to carry out the purposes of this
Act where the commodity is received by a cooperative on behalf of
the qualified taxpayer."
[Section 1061(b) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending Pub. L. 98-4 set out above] shall
apply with respect to commodities received for the 1984 crop year
(as defined in section 5(a)(2) of the Payment-in-Kind Tax Treatment
Act of 1983 [Pub. L. 98-4, set out above] as amended by subsection
(a))."]
CANCELLATION OF CERTAIN STUDENT LOANS
Pub. L. 94-455, title XXI, Sec. 2117, Oct. 4, 1976, 90 Stat.
1911, as amended by Pub. L. 95-600, title I, Sec. 162, Nov. 6,
1978, 92 Stat. 2810; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100
Stat. 2095, provided that no amount be included in gross income of
an individual for purposes of 26 U.S.C. 61 by reason of the
discharge made before Jan. 1, 1983 of the indebtedness of the
individual under a student loan if the discharge was pursuant to a
provision of the loan under which the indebtedness of the
individual would be discharged if the individual worked for a
certain period of time in certain geographical areas or for certain
classes of employers.
REGULATIONS RELATING TO TAX TREATMENT OF CERTAIN PREPUBLICATION
EXPENDITURES OF PUBLISHERS
Pub. L. 94-455, title XXI, Sec. 2119, Oct. 4, 1976, 90 Stat.
1912, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100
Stat. 2095, provided that:
"(a) General Rule. - With respect to taxable years beginning on
or before the date on which regulations dealing with prepublication
expenditures are issued after the date of the enactment of this Act
[Oct. 4, 1976], the application of sections 61 (as it relates to
cost of goods sold), 162, 174, 263, and 471 of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] to any prepublication
expenditure shall be administered -
"(1) without regard to Revenue Ruling 73-395, and
"(2) in the manner in which such sections were applied
consistently by the taxpayer to such expenditures before the date
of the issuance of such revenue ruling.
"(b) Regulations To Be Prospective Only. - Any regulations issued
after the date of the enactment of this Act [Oct. 4, 1976] which
deal with the application of sections 61 (as it relates to cost of
goods sold), 162, 174, 263, and 471 of the Internal Revenue Code of
1986 to prepublication expenditures shall apply only with respect
to taxable years beginning after the date on which such regulations
are issued.
"(c) Prepublication Expenditures Defined. - For purposes of this
section, the term 'prepublication expenditures' means expenditures
paid or incurred by the taxpayer (in connection with his trade or
business of publishing) for the writing, editing, compiling,
illustrating, designing, or other development or improvement of a
book, teaching aid, or similar product."
REIMBURSEMENT OF MOVING EXPENSES OF EMPLOYEES OF CERTAIN
CORPORATIONS EXCLUDED FROM GROSS INCOME; CLAIM FOR REFUND OR
CREDIT; LIMITATIONS; INTEREST
Pub. L. 86-780, Sec. 5, Sept. 14, 1960, 74 Stat. 1013, provided
for the exclusion from gross income of any amount received after
Dec. 31, 1949, and before Oct. 1, 1955, by employees of certain
corporations as reimbursement for moving expenses, and the refund
or credit of any overpayments.
-End-
-CITE-
26 USC Sec. 62 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART I - DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
-HEAD-
Sec. 62. Adjusted gross income defined
-STATUTE-
(a) General rule
For purposes of this subtitle, the term "adjusted gross income"
means, in the case of an individual, gross income minus the
following deductions:
(1) Trade and business deductions
The deductions allowed by this chapter (other than by part VII
of this subchapter) which are attributable to a trade or business
carried on by the taxpayer, if such trade or business does not
consist of the performance of services by the taxpayer as an
employee.
(2) Certain trade and business deductions of employees
(A) Reimbursed expenses of employees
The deductions allowed by part VI (section 161 and following)
which consist of expenses paid or incurred by the taxpayer, in
connection with the performance by him of services as an
employee, under a reimbursement or other expense allowance
arrangement with his employer. The fact that the reimbursement
may be provided by a third party shall not be determinative of
whether or not the preceding sentence applies.
(B) Certain expenses of performing artists
The deductions allowed by section 162 which consist of
expenses paid or incurred by a qualified performing artist in
connection with the performances by him of services in the
performing arts as an employee.
(C) Certain expenses of officials
The deductions allowed by section 162 which consist of
expenses paid or incurred with respect to services performed by
an official as an employee of a State or a political
subdivision thereof in a position compensated in whole or in
part on a fee basis.
(D) Certain expenses of elementary and secondary school
teachers
In the case of taxable years beginning during 2002, 2003,
2004, or 2005, the deductions allowed by section 162 which
consist of expenses, not in excess of $250, paid or incurred by
an eligible educator in connection with books, supplies (other
than nonathletic supplies for courses of instruction in health
or physical education), computer equipment (including related
software and services) and other equipment, and supplementary
materials used by the eligible educator in the classroom.
(E) Certain expenses of members of reserve components of the
Armed Forces of the United States
The deductions allowed by section 162 which consist of
expenses, determined at a rate not in excess of the rates for
travel expenses (including per diem in lieu of subsistence)
authorized for employees of agencies under subchapter I of
chapter 57 of title 5, United States Code, paid or incurred by
the taxpayer in connection with the performance of services by
such taxpayer as a member of a reserve component of the Armed
Forces of the United States for any period during which such
individual is more than 100 miles away from home in connection
with such services.
(3) Losses from sale or exchange of property
The deductions allowed by part VI (sec. 161 and following) as
losses from the sale or exchange of property.
(4) Deductions attributable to rents and royalties
The deductions allowed by part VI (sec. 161 and following), by
section 212 (relating to expenses for production of income), and
by section 611 (relating to depletion) which are attributable to
property held for the production of rents or royalties.
(5) Certain deductions of life tenants and income beneficiaries
of property
In the case of a life tenant of property, or an income
beneficiary of property held in trust, or an heir, legatee, or
devisee of an estate, the deduction for depreciation allowed by
section 167 and the deduction allowed by section 611.
(6) Pension, profit-sharing, and annuity plans of self-employed
individuals
In the case of an individual who is an employee within the
meaning of section 401(c)(1), the deduction allowed by section
404.
(7) Retirement savings
The deduction allowed by section 219 (relating to deduction of
certain retirement savings).
[(8) Repealed. Pub. L. 104-188, title I, Sec. 1401(b)(4), Aug.
20, 1996, 110 Stat. 1788]
(9) Penalties forfeited because of premature withdrawal of funds
from time savings accounts or deposits
The deductions allowed by section 165 for losses incurred in
any transaction entered into for profit, though not connected
with a trade or business, to the extent that such losses include
amounts forfeited to a bank, mutual savings bank, savings and
loan association, building and loan association, cooperative bank
or homestead association as a penalty for premature withdrawal of
funds from a time savings account, certificate of deposit, or
similar class of deposit.
(10) Alimony
The deduction allowed by section 215.
(11) Reforestation expenses
The deduction allowed by section 194.
(12) Certain required repayments of supplemental unemployment
compensation benefits
The deduction allowed by section 165 for the repayment to a
trust described in paragraph (9) or (17) of section 501(c) of
supplemental unemployment compensation benefits received from
such trust if such repayment is required because of the receipt
of trade readjustment allowances under section 231 or 232 of the
Trade Act of 1974 (19 U.S.C. 2291 and 2292).
(13) Jury duty pay remitted to employer
Any deduction allowable under this chapter by reason of an
individual remitting any portion of any jury pay to such
individual's employer in exchange for payment by the employer of
compensation for the period such individual was performing jury
duty. For purposes of the preceding sentence, the term "jury pay"
means any payment received by the individual for the discharge of
jury duty.
(14) Deduction for clean-fuel vehicles and certain refueling
property
The deduction allowed by section 179A.
(15) Moving expenses
The deduction allowed by section 217.
(16) Archer MSAs
The deduction allowed by section 220.
(17) Interest on education loans
The deduction allowed by section 221.
(18) Higher education expenses
The deduction allowed by section 222.
(19) Health savings accounts
The deduction allowed by section 223.
(20) Costs involving discrimination suits, etc.
Any deduction allowable under this chapter for attorney fees
and court costs paid by, or on behalf of, the taxpayer in
connection with any action involving a claim of unlawful
discrimination (as defined in subsection (e)) or a claim of a
violation of subchapter III of chapter 37 of title 31, United
States Code (!1) or a claim made under section 1862(b)(3)(A) of
the Social Security Act (42 U.S.C. 1395y(b)(3)(A)). The preceding
sentence shall not apply to any deduction in excess of the amount
includible in the taxpayer's gross income for the taxable year on
account of a judgment or settlement (whether by suit or agreement
and whether as lump sum or periodic payments) resulting from such
claim.
Nothing in this section shall permit the same item to be deducted
more than once.
(b) Qualified performing artist
(1) In general
For purposes of subsection (a)(2)(B), the term "qualified
performing artist" means, with respect to any taxable year, any
individual if -
(A) such individual performed services in the performing arts
as an employee during the taxable year for at least 2
employers,
(B) the aggregate amount allowable as a deduction under
section 162 in connection with the performance of such services
exceeds 10 percent of such individual's gross income
attributable to the performance of such services, and
(C) the adjusted gross income of such individual for the
taxable year (determined without regard to subsection
(a)(2)(B)) does not exceed $16,000.
(2) Nominal employer not taken into account
An individual shall not be treated as performing services in
the performing arts as an employee for any employer during any
taxable year unless the amount received by such individual from
such employer for the performance of such services during the
taxable year equals or exceeds $200.
(3) Special rules for married couples
(A) In general
Except in the case of a husband and wife who lived apart at
all times during the taxable year, if the taxpayer is married
at the close of the taxable year, subsection (a)(2)(B) shall
apply only if the taxpayer and his spouse file a joint return
for the taxable year.
(B) Application of paragraph (1)
In the case of a joint return -
(i) paragraph (1) (other than subparagraph (C) thereof)
shall be applied separately with respect to each spouse, but
(ii) paragraph (1)(C) shall be applied with respect to
their combined adjusted gross income.
(C) Determination of marital status
For purposes of this subsection, marital status shall be
determined under section 7703(a).
(D) Joint return
For purposes of this subsection, the term "joint return"
means the joint return of a husband and wife made under section
6013.
(c) Certain arrangements not treated as reimbursement arrangements
For purposes of subsection (a)(2)(A), an arrangement shall in no
event be treated as a reimbursement or other expense allowance
arrangement if -
(1) such arrangement does not require the employee to
substantiate the expenses covered by the arrangement to the
person providing the reimbursement, or
(2) such arrangement provides the employee the right to retain
any amount in excess of the substantiated expenses covered under
the arrangement.
The substantiation requirements of the preceding sentence shall not
apply to any expense to the extent that substantiation is not
required under section 274(d) for such expense by reason of the
regulations prescribed under the 2nd sentence thereof.
(d) Definition; special rules
(1) Eligible educator
(A) In general
For purposes of subsection (a)(2)(D), the term "eligible
educator" means, with respect to any taxable year, an
individual who is a kindergarten through grade 12 teacher,
instructor, counselor, principal, or aide in a school for at
least 900 hours during a school year.
(B) School
The term "school" means any school which provides elementary
education or secondary education (kindergarten through grade
12), as determined under State law.
(2) Coordination with exclusions
A deduction shall be allowed under subsection (a)(2)(D) for
expenses only to the extent the amount of such expenses exceeds
the amount excludable under section 135, 529(c)(1), or 530(d)(2)
for the taxable year.
(e) Unlawful discrimination defined
For purposes of subsection (a)(20), the term "unlawful
discrimination" means an act that is unlawful under any of the
following:
(1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C.
1202).(!2)
(2) Section 201, 202, 203, 204, 205, 206, or 207 of the
Congressional Accountability Act of 1995 (2 U.S.C. 1311, 1312,
1313, 1314, 1315, 1316, or 1317).
(3) The National Labor Relations Act (29 U.S.C. 151 et seq.).
(4) The Fair Labor Standards Act of 1938 (29 U.S.C. 201 et
seq.).
(5) Section 4 or 15 of the Age Discrimination in Employment Act
of 1967 (29 U.S.C. 623 or 633a).
(6) Section 501 or 504 of the Rehabilitation Act of 1973 (29
U.S.C. 791 or 794).
(7) Section 510 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1140).
(8) Title IX of the Education Amendments of 1972 (20 U.S.C.
1681 et seq.).
(9) The Employee Polygraph Protection Act of 1988 (29 U.S.C.
2001 et seq.).
(10) The Worker Adjustment and Retraining Notification Act (29
U.S.C. 2102 et seq.).
(11) Section 105 of the Family and Medical Leave Act of 1993
(29 U.S.C. 2615).
(12) Chapter 43 of title 38, United States Code (relating to
employment and reemployment rights of members of the uniformed
services).
(13) Section 1977, 1979, or 1980 of the Revised Statutes (42
U.S.C. 1981, 1983, or 1985).
(14) Section 703, 704, or 717 of the Civil Rights Act of 1964
(42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
(15) Section 804, 805, 806, 808, or 818 of the Fair Housing Act
(42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
(16) Section 102, 202, 302, or 503 of the Americans with
Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or
12203).
(17) Any provision of Federal law (popularly known as
whistleblower protection provisions) prohibiting the discharge of
an employee, the discrimination against an employee, or any other
form of retaliation or reprisal against an employee for asserting
rights or taking other actions permitted under Federal law.
(18) Any provision of Federal, State, or local law, or common
law claims permitted under Federal, State, or local law -
(i) providing for the enforcement of civil rights, or
(ii) regulating any aspect of the employment relationship,
including claims for wages, compensation, or benefits, or
prohibiting the discharge of an employee, the discrimination
against an employee, or any other form of retaliation or
reprisal against an employee for asserting rights or taking
other actions permitted by law.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 17; Pub. L. 87-792, Sec. 7(b),
Oct. 10, 1962, 76 Stat. 828; Pub. L. 88-272, title II, Sec. 213(b),
Feb. 26, 1964, 78 Stat. 52; Pub. L. 91-172, title V, Sec. 531(b),
Dec. 30, 1969, 83 Stat. 655; Pub. L. 93-406, title II, Secs.
2002(a)(2), 2005(c)(9), Sept. 2, 1974, 88 Stat. 959, 992; Pub. L.
93-483, Sec. 6(a), Oct. 26, 1974, 88 Stat. 1458; Pub. L. 94-455,
title V, Sec. 502(a), title XV, Sec. 1501(b)(1), title XIX, Sec.
1901(a)(8), (9), Oct. 4, 1976, 90 Stat. 1559, 1735, 1765; Pub. L.
95-615, Sec. 203(b), Nov. 8, 1978, 92 Stat. 3106; Pub. L. 96-451,
title III, Sec. 301(b), Oct. 14, 1980, 94 Stat. 1990; Pub. L. 96-
608, Sec. 3(a), Dec. 28, 1980, 94 Stat. 3551; Pub. L. 97-34, title
I, Secs. 103(b), 112(b)(2), title III, Sec. 311(h)(1), Aug. 13,
1981, 95 Stat. 187, 195, 282; Pub. L. 97-354, Sec. 5(a)(17), Oct.
19, 1982, 96 Stat. 1693; Pub. L. 98-369, div. A, title IV, Sec.
491(d)(2), July 18, 1984, 98 Stat. 849; Pub. L. 99-514, title I,
Secs. 131(b)(1), 132(b), (c), title III, Sec. 301(b)(1), title
XVIII, Sec. 1875(c)(3), Oct. 22, 1986, 100 Stat. 2113, 2115, 2116,
2217, 2894; Pub. L. 100-485, title VII, Sec. 702(a), Oct. 13, 1988,
102 Stat. 2426; Pub. L. 100-647, title I, Sec. 1001(b)(3)(A), title
VI, Sec. 6007(b), Nov. 10, 1988, 102 Stat. 3349, 3687; Pub. L. 101-
508, title XI, Sec. 11802(e)(1), Nov. 5, 1990, 104 Stat. 1388-530;
Pub. L. 102-318, title V, Sec. 521(b)(2), July 3, 1992, 106 Stat.
310; Pub. L. 102-486, title XIX, Sec. 1913(a)(2), Oct. 24, 1992,
106 Stat. 3019; Pub. L. 103-66, title XIII, Sec. 13213(c)(1), Aug.
10, 1993, 107 Stat. 474; Pub. L. 104-188, title I, Sec. 1401(b)(4),
Aug. 20, 1996, 110 Stat. 1788; Pub. L. 104-191, title III, Sec.
301(b), Aug. 21, 1996, 110 Stat. 2048; Pub. L. 105-34, title II,
Sec. 202(b), title IX, Sec. 975(a), Aug. 5, 1997, 111 Stat. 808,
898; Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(b)(1)], Dec.
21, 2000, 114 Stat. 2763, 2763A-629; Pub. L. 107-16, title IV, Sec.
431(b), June 7, 2001, 115 Stat. 68; Pub. L. 107-147, title IV, Sec.
406(a), (b), Mar. 9, 2002, 116 Stat. 43; Pub. L. 108-121, title I,
Sec. 109(b), Nov. 11, 2003, 117 Stat. 1341; Pub. L. 108-173, title
XII, Sec. 1201(b), Dec. 8, 2003, 117 Stat. 2476; Pub. L. 108-311,
title III, Sec. 307(a), Oct. 4, 2004, 118 Stat. 1179; Pub. L. 108-
357, title VII, Sec. 703(a), (b), Oct. 22, 2004, 118 Stat. 1546,
1547; Pub. L. 109-135, title IV, Sec. 412(q), Dec. 21, 2005, 119
Stat. 2638.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Section 302 of the Civil Rights Act of 1991, referred to in
subsec. (e)(1), was formerly classified to section 1202 of Title 2,
The Congress, and was transferred to section 2000e-16b of Title 42,
The Public Health and Welfare.
The National Labor Relations Act, referred to in subsec. (e)(3),
is act July 5, 1935, ch. 372, 49 Stat. 449, as amended, which is
classified generally to subchapter II (Sec. 151 et seq.) of chapter
7 of Title 29, Labor. For complete classification of this Act to
the Code, see section 167 of Title 29 and Tables.
The Fair Labor Standards Act of 1938, referred to in subsec.
(e)(4), is act June 25, 1938, ch. 676, 52 Stat. 1060, as amended,
which is classified generally to chapter 8 (Sec. 201 et seq.) of
Title 29, Labor. For complete classification of this Act to the
Code, see section 201 of Title 29 and Tables.
The Education Amendments of 1972, referred to in subsec. (e)(8),
is Pub. L. 92-318, June 23, 1972, 86 Stat. 235, as amended. Title
IX of the Act, known as the Patsy Takemoto Mink Equal Opportunity
in Education Act, is classified principally to chapter 38 (Sec.
1681 et seq.) of Title 20, Education. For complete classification
of title IX to the Code, see Short Title note set out under section
1681 of Title 20 and Tables.
The Employee Polygraph Protection Act of 1988, referred to in
subsec. (e)(9), is Pub. L. 100-347, June 27, 1988, 102 Stat. 646,
as amended, which is classified generally to chapter 22 (Sec. 2001
et seq.) of Title 29, Labor. For complete classification of this
Act to the Code, see Short Title note set out under section 2001 of
Title 29 and Tables.
The Worker Adjustment and Retraining Notification Act, referred
to in subsec. (e)(10), is Pub. L. 100-379, Aug. 4, 1988, 102 Stat.
890, as amended, which is classified generally to chapter 23 (Sec.
2101 et seq.) of Title 29, Labor. For complete classification of
this Act to the Code, see Short Title note set out under section
2101 of Title 29 and Tables.
-MISC1-
AMENDMENTS
2005 - Subsec. (a)(19), (20). Pub. L. 109-135, Sec. 412(q)(1),
redesignated par. (19) relating to costs involving discrimination
suits, etc., as par. (20) and moved to follow par. (19) relating to
health savings accounts.
Subsec. (e). Pub. L. 109-135, Sec. 412(q)(2), substituted
"subsection (a)(20)" for "subsection (a)(19)" in introductory
provisions.
2004 - Subsec. (a)(2)(D). Pub. L. 108-311 substituted ", 2003,
2004, or 2005" for "or 2003".
Subsec. (a)(19). Pub. L. 108-357, Sec. 703(a), added par. (19)
relating to costs involving discrimination suits, etc.
Subsec. (e). Pub. L. 108-357, Sec. 703(b), added subsec. (e).
2003 - Subsec. (a)(2)(E). Pub. L. 108-121 added subpar. (E).
Subsec. (a)(19). Pub. L. 108-173 added par. (19).
2002 - Subsec. (a)(2)(D). Pub. L. 107-147, Sec. 406(a), added
subpar. (D).
Subsec. (d). Pub. L. 107-147, Sec. 406(b), added subsec. (d).
2001 - Subsec. (a)(18). Pub. L. 107-16, Secs. 431(b), 901,
temporarily added par. (18). See Effective and Termination Dates of
2001 Amendment note below.
2000 - Subsec. (a)(16). Pub. L. 106-554 amended heading and text
of par. (16) generally. Prior to amendment, text read as follows:
"The deduction allowed by section 220."
1997 - Subsec. (a)(2)(C). Pub. L. 105-34, Sec. 975(a), added
subpar. (C).
Subsec. (a)(17). Pub. L. 105-34, Sec. 202(b), added par. (17).
1996 - Subsec. (a)(8). Pub. L. 104-188 struck out par. (8) which
read as follows: "Certain portion of lump-sum distributions from
pension plans taxed under section 402(d). - The deduction allowed
by section 402(d)(3)."
Subsec. (a)(16). Pub. L. 104-191 added par. (16).
1993 - Subsec. (a)(15). Pub. L. 103-66 added par. (15).
1992 - Subsec. (a)(8). Pub. L. 102-318 substituted "402(d)" for
"402(e)" in heading and in text.
Subsec. (a)(14). Pub. L. 102-486 added par. (14).
1990 - Subsec. (a)(13). Pub. L. 101-508, Sec. 11802(e)(1),
amended par. (13) generally. Prior to amendment, par. (13) read as
follows: "The deduction allowed by section 220."
1988 - Subsec. (a)(2)(A). Pub. L. 100-647, Sec. 1001(b)(3)(A),
inserted at end "The fact that the reimbursement may be provided by
a third party shall not be determinative of whether or not the
preceding sentence applies."
Subsec. (a)(13). Pub. L. 100-647, Sec. 6007(b), added par. (13).
Subsec. (c). Pub. L. 100-485 added subsec. (c).
1986 - Subsec. (a). Pub. L. 99-514, Sec. 132(b)(2)(A), designated
existing provisions as subsec. (a) and added heading.
Subsec. (a)(2). Pub. L. 99-514, Sec. 132(b)(1), amended par. (2)
generally, substituting "Certain trade" for "Trade" in heading and
inserting "of employees" in subpar. (A) heading, substituting
provision relating to deduction of certain expenses of performing
artists for provision relating to deduction of expenses for travel
away from home in subpar. (B), and striking out subpar. (C)
relating to deduction of travel expenses and subpar. (D) relating
to deduction of expenses of outside salesmen.
Subsec. (a)(3) to (5). Pub. L. 99-514, Sec. 301(b)(1),
redesignated pars. (4) to (6) as (3) to (5), respectively, and
struck out former par. (3) which related to long-term capital gains
and read as follows: "The deduction allowed by section 1202."
Subsec. (a)(6). Pub. L. 99-514, Sec. 301(b)(1), redesignated par.
(7) as (6). Former par. (6) redesignated (5).
Pub. L. 99-514, Sec. 1875(c)(3), struck out "to the extent
attributable to contributions made on behalf of such individual"
after "section 404".
Subsec. (a)(7). Pub. L. 99-514, Sec. 301(b)(1), redesignated par.
(10) as (7). Former par. (7) redesignated (6).
Subsec. (a)(8). Pub. L. 99-514, Sec. 301(b)(1), redesignated par.
(11) as (8). Former par. (8) struck out.
Pub. L. 99-514, Sec. 132(c), struck out par. (8) which related to
moving expense deduction and read as follows: "The deduction
allowed by section 217."
Subsec. (a)(9) to (15). Pub. L. 99-514, Sec. 301(b)(1),
redesignated pars. (12) to (15) as (9) to (12), respectively.
Former pars. (10) and (11) redesignated (7) and (8), respectively.
Subsec. (a)(16). Pub. L. 99-514, Sec. 131(b)(1), struck out par.
(16) which related to deduction for two-earner married couples and
read as follows: "The deduction allowed by section 221."
Subsec. (b). Pub. L. 99-514, Sec. 132(b)(2)(B), added subsec.
(b).
1984 - Par. (7). Pub. L. 98-369, Sec. 491(d)(2), substituted "and
annuity" for "annuity, and bond purchase" in heading, and
substituted "the deduction allowed by section 404" for "the
deductions allowed by section 404 and section 405(c)" in text.
1983 - Par. (9). Pub. L. 97-354 repealed par. (9) relating to the
deduction allowed by section 1379(b)(3).
1981 - Par. (10). Pub. L. 97-34, Sec. 311(h)(1), struck out "and
the deduction allowed by section 220 (relating to retirement
savings for certain married individuals)" after "retirement
savings".
Par. (14). Pub. L. 97-34, Sec. 112(b)(2), redesignated par. (15)
as (14). Former par. (14), relating to deduction for certain
expenses of living abroad, was struck out.
Par. (15). Pub. L. 97-34, Sec. 112(b)(2), redesignated par. (16)
as (15). Former par. (15) redesignated (14).
Par. (16). Pub. L. 97-34, Secs. 103(b), 112(b)(2), added par.
(16). Former par. (16) redesignated (15).
1980 - Par. (15). Pub. L. 96-451 added par. (15).
Par. (16). Pub. L. 96-608 added par. (16).
1978 - Par. (14). Pub. L. 95-615 added par. (14).
1976 - Par. (10). Pub. L. 94-455, Sec. 1501(b)(1), inserted
reference to the deduction allowed by section 220 (relating to
retirement savings for certain married individuals).
Pars. (11), (12). Pub. L. 94-455, Sec. 1901(a)(8), (9),
redesignated par. (11) relating to penalties forfeited because of
premature withdrawal of funds from time savings accounts or
deposits, as par. (12), and substituted "trade or business, to the
extent" for "trade or business to the extent".
Par. (13). Pub. L. 94-455, Sec. 502(a), added par. (13).
1974 - Par. (10). Pub. L. 93-406, Sec. 2002(a)(2), added par.
(10).
Par. (11). Pub. L. 93-483 added par. (11) relating to penalties
forfeited because of premature withdrawal of funds from time
savings accounts or deposits. Another par. (11) relating to certain
portions of lump-sum distributions from pension plans taxed under
section 402(e) of this title, was added by Pub. L. 93-406, Sec.
2005(c)(9).
1969 - Par. (9). Pub. L. 91-172 added par. (9).
1964 - Par. (8). Pub. L. 88-272 added par. (8).
1962 - Par. (7). Pub. L. 87-792 added par. (7).
EFFECTIVE DATE OF 2004 AMENDMENTS
Pub. L. 108-357, title VII, Sec. 703(c), Oct. 22, 2004, 118 Stat.
1548, provided that: "The amendments made by this section [amending
this section] shall apply to fees and costs paid after the date of
the enactment of this Act [Oct. 22, 2004] with respect to any
judgment or settlement occurring after such date."
Pub. L. 108-311, title III, Sec. 307(b), Oct. 4, 2004, 118 Stat.
1179, provided that: "The amendment made by subsection (a)
[amending this section] shall apply to expenses paid or incurred in
taxable years beginning after December 31, 2003."
EFFECTIVE DATE OF 2003 AMENDMENTS
Pub. L. 108-173, title XII, Sec. 1201(k), Dec. 8, 2003, 117 Stat.
2479, provided that: "The amendments made by this section [enacting
sections 223 and 4980G of this title, amending this section and
sections 106, 125, 220, 848, 3231, 3306, 3401, 4973, 4975, 6051,
and 6693 of this title, and renumbering former section 223 of this
title as 224] shall apply to taxable years beginning after December
31, 2003."
Pub. L. 108-121, title I, Sec. 109(c), Nov. 11, 2003, 117 Stat.
1342, provided that: "The amendments made by this section [amending
this section and section 162 of this title] shall apply to amounts
paid or incurred in taxable years beginning after December 31,
2002."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 406(c), Mar. 9, 2002, 116 Stat.
44, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2001."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title IV, Sec. 431(d), June 7, 2001, 115 Stat.
69, provided that: "The amendments made by this section [enacting
section 222 of this title, amending this section and sections 86,
135, 137, 219, 221, and 469 of this title, and renumbering former
section 222 of this title as 223] shall apply to payments made in
taxable years beginning after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 202(e) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting section 221 of this title, amending
this section and section 6050S of this title, and renumbering
former section 221 of this title as section 222 of this title]
shall apply to any qualified education loan (as defined in section
221(e)(1) of the Internal Revenue Code of 1986, as added by this
section) incurred on, before, or after the date of the enactment of
this Act [Aug. 5, 1997], but only with respect to -
"(1) any loan interest payment due and paid after December 31,
1997, and
"(2) the portion of the 60-month period referred to in section
221(d) of the Internal Revenue Code of 1986 (as added by this
section) after December 31, 1997."
Section 975(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to
expenses paid or incurred in taxable years beginning after December
31, 1986."
EFFECTIVE DATE OF 1996 AMENDMENTS
Section 301(j) of Pub. L. 104-191 provided that: "The amendments
made by this section [enacting sections 220 and 4980E of this
title, amending this section and sections 106, 125, 848, 3231,
3306, 3401, 4973, 4975, 6051, and 6693 of this title, and
renumbering section 220 of this title as section 221] shall apply
to taxable years beginning after December 31, 1996."
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1999, with retention of certain transition
rules, see section 1401(c) of Pub. L. 104-188, set out as a note
under section 402 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13213(e) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 67, 82,
132, 217, 1001, 1016, and 4977 of this title] shall apply to
expenses incurred after December 31, 1993; except that the
amendments made by subsection (d) [amending sections 82, 132, and
4977 of this title] shall apply to reimbursements or other payments
in respect of expenses incurred after such date."
EFFECTIVE DATE OF 1992 AMENDMENTS
Amendment by Pub. L. 102-486 applicable to property placed in
service after June 30, 1993, see section 1913(c) of Pub. L. 102-
486, set out as an Effective Date note under section 30 of this
title.
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1988 AMENDMENTS
Amendment by section 1001(b)(3)(A) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6007(d) of Pub. L. 100-647 provided that: "The amendments
made by this section [enacting section 220 of this title, amending
this section, and renumbering former section 220 of this title as
section 221 of this title] shall apply as if included in the
amendments made by section 132 of the Tax Reform Act of 1986 [Pub.
L. 99-514]."
Section 702(b) of Pub. L. 100-485 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1988."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by sections 131(b)(1) and 132(b), (c) of Pub. L. 99-514
applicable to taxable years beginning after Dec. 31, 1986, see
section 151(a) of Pub. L. 99-514, set out as a note under section 1
of this title.
Section 301(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 170, 172,
219, 220, 223, 642, 643, 691, 871, 1211, 1212, and 1402 of this
title and repealing section 1202 of this title] shall apply to
taxable years beginning after December 31, 1986."
Section 1875(c)(12) of Pub. L. 99-514 provided that: "The
amendments made by paragraphs (3), (4), and (6) [amending this
section and sections 219 and 408 of this title] shall take effect
as if included in the amendments made by section 238 of the Tax
Equity and Fiscal Responsibility Act of 1982 [section 238 of Pub.
L. 97-248, see section 241 of Pub. L. 97-248, set out as an
Effective Date note under section 416 of this title]."
EFFECTIVE DATE OF 1984 AMENDMENT
"Section 491(f)(1) of Pub. L. 98-369 provided that: "The
amendments and repeals made by subsections (a), (b), and (d)
[amending this section, sections 55, 72, 172, 219, 402, 403, 406,
407, 408, 412, 414, 415, 457, 2039, 2517, 3121, 3306, 3401, 4972,
4973, 4975, 6047, 6058, 6104, 6652, 7207, 7476, and 7701 of this
title, section 3107 of Title 31, Money and Finance, and section 409
of Title 42, The Public Health and Welfare, and repealing sections
405 and 409 of this title] shall apply to obligations issued after
December 31, 1983."
EFFECTIVE DATE OF 1983 AMENDMENT
Par. (9) as in effect before date of repeal by Pub. L. 97-354 to
remain in effect for years beginning before Jan. 1, 1984, see
section 6(b)(1) of Pub. L. 97-354, set out as an Effective Date
note under section 3761 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 103(d) of Pub. L. 97-34 provided that: "The amendments
made by this section [enacting section 219 of this title and
amending this section and sections 85 and 105 of this title] shall
apply to taxable years beginning after December 31, 1981."
Amendment by sections 112(b)(2) and 311(h)(1) of Pub. L. 97-34
applicable to taxable years beginning after Dec. 31, 1981, see
sections 115 and 311(i)(1) of Pub. L. 97-34, set out as notes under
sections 911 and 219, respectively, of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 3(b) of Pub. L. 96-608 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to repayments
made in taxable years beginning after the date of the enactment of
this Act [Dec. 28, 1980]."
Amendment by Pub. L. 96-451 applicable with respect to additions
to capital account made after Dec. 31, 1979, see section 301(d) of
Pub. L. 96-451, set out as an Effective Date note under section 194
of this title.
EFFECTIVE DATE OF 1978 AMENDMENT; ELECTION OF PRIOR LAW
Amendment by Pub. L. 95-615 applicable to taxable years beginning
after Dec. 31, 1977, with provision for election of prior law, see
section 209 of Pub. L. 95-615, set out as a note under section 911
of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 502(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and section 3402 of
this title] shall apply to taxable years beginning after December
31, 1976."
Section 1501(d) of Pub. L. 94-455 provided that: "The amendments
made by this section [enacting section 220 of this title, amending
this section and sections 219, 408, 409, 3401, 4973, and 6047 of
this title, and renumbering former section 220 as 221 of this
title], other than the amendment made by subsection (b)(3), shall
apply to taxable years beginning after December 31, 1976. The
amendment made by subsection (b)(3) [amending section 415 of this
title] shall apply to years beginning after December 31, 1976."
Amendment by section 1901(a)(8), (9) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1974 AMENDMENTS
Section 6(b) of Pub. L. 93-483 provided that: "The amendment made
by this section [amending this section] applies to taxable years
beginning after December 31, 1972."
Amendment by section 2002(a)(2) of Pub. L. 93-406 applicable to
taxable years beginning after Dec. 31, 1974, see section 2002(i)(1)
of Pub. L. 93-406, set out as an Effective Date note under section
219 of this title.
Amendment by section 2005(c)(9) of Pub. L. 93-406 applicable only
with respect to distributions or payments made after Dec. 31, 1973,
in taxable years beginning after Dec. 31, 1973, see section 2005(d)
of Pub. L. 93-406, set out as a note under section 402 of this
title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to taxable
years of electing small business corporations beginning after Dec.
31, 1970, see section 531(d) of Pub. L. 91-172, set out as an
Effective Date note under section 1379 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 213(d) of Pub. L. 88-272 provided that: "The amendments
made by subsections (a) [enacting section 217 and redesignating
former section 217 as 218] and (b) [amending this section] shall
apply to expenses incurred after December 31, 1963, in taxable
years ending after such date. The amendment made by subsection (c)
[amending section 3401 of this title] shall apply with respect to
remuneration paid after the seventh day following the date of the
enactment of this Act [Feb. 26, 1964]."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a
note under section 22 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
COMMUTING EXPENSES
Pub. L. 95-427, Sec. 2, Oct. 7, 1978, 92 Stat. 996, as amended by
Pub. L. 96-167, Sec. 2, Dec. 29, 1979, 93 Stat. 1275, provided that
with respect to transportation costs paid or incurred after
December 31, 1976, and on or before May 31, 1981, the application
of sections 62, 162, and 262 and of chapters 21, 23, and 24 of the
Internal Revenue Code of 1954 [now 1986] to transportation expenses
in traveling between a taxpayer's residence and place of work be
determined without regard to Revenue Ruling 76-453 or any other
regulation, ruling, or decision reaching the same or similar
result, and with full regard to the rules in effect before that
Revenue Ruling.
Pub. L. 95-615, Sec. 2, Nov. 8, 1978, 92 Stat. 3097, provided
that with respect to transportation costs paid or incurred after
Dec. 31, 1976, and before Apr. 30, 1978, the application of
sections 62, 162, and 262 and chapters 21, 23, and 24 of the
Internal Revenue Code of 1954 [now 1986] to transportation expenses
in traveling between a taxpayer's residence and place of work be
determined without regard to Revenue Ruling 76-453 or any other
regulation, ruling or decision reaching the same or similar result,
and with full regard to the rules in effect before that Revenue
Ruling, and ceased to have effect on the day after Nov. 8, 1978
pursuant to section 210(a) of that Act.
-FOOTNOTE-
(!1) So in original. Probably should be followed by a comma.
(!2) See References in Text note below.
-End-
-CITE-
26 USC Sec. 63 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART I - DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
-HEAD-
Sec. 63. Taxable income defined
-STATUTE-
(a) In general
Except as provided in subsection (b), for purposes of this
subtitle, the term "taxable income" means gross income minus the
deductions allowed by this chapter (other than the standard
deduction).
(b) Individuals who do not itemize their deductions
In the case of an individual who does not elect to itemize his
deductions for the taxable year, for purposes of this subtitle, the
term "taxable income" means adjusted gross income, minus -
(1) the standard deduction, and
(2) the deduction for personal exemptions provided in section
151.
(c) Standard deduction
For purposes of this subtitle -
(1) In general
Except as otherwise provided in this subsection, the term
"standard deduction" means the sum of -
(A) the basic standard deduction, and
(B) the additional standard deduction.
(2) Basic standard deduction
For purposes of paragraph (1), the basic standard deduction is -
(A) 200 percent of the dollar amount in effect under
subparagraph (C) for the taxable year in the case of -
(i) a joint return, or
(ii) a surviving spouse (as defined in section 2(a)),
(B) $4,400 in the case of a head of household (as defined in
section 2(b)), or
(C) $3,000 in any other case.
(3) Additional standard deduction for aged and blind
For purposes of paragraph (1), the additional standard
deduction is the sum of each additional amount to which the
taxpayer is entitled under subsection (f).
(4) Adjustments for inflation
In the case of any taxable year beginning in a calendar year
after 1988, each dollar amount contained in paragraph (2)(B),
(2)(C), or (5) or subsection (f) shall be increased by an amount
equal to -
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
by substituting for "calendar year 1992" in subparagraph (B)
thereof -
(i) "calendar year 1987" in the case of the dollar amounts
contained in paragraph (2)(B), (2)(C), or (5)(A) or
subsection (f), and
(ii) "calendar year 1997" in the case of the dollar amount
contained in paragraph (5)(B).
(5) Limitation on basic standard deduction in the case of certain
dependents
In the case of an individual with respect to whom a deduction
under section 151 is allowable to another taxpayer for a taxable
year beginning in the calendar year in which the individual's
taxable year begins, the basic standard deduction applicable to
such individual for such individual's taxable year shall not
exceed the greater of -
(A) $500, or
(B) the sum of $250 and such individual's earned income.
(6) Certain individuals, etc., not eligible for standard
deduction
In the case of -
(A) a married individual filing a separate return where
either spouse itemizes deductions,
(B) a nonresident alien individual,
(C) an individual making a return under section 443(a)(1) for
a period of less than 12 months on account of a change in his
annual accounting period, or
(D) an estate or trust, common trust fund, or partnership,
the standard deduction shall be zero.
(d) Itemized deductions
For purposes of this subtitle, the term "itemized deductions"
means the deductions allowable under this chapter other than -
(1) the deductions allowable in arriving at adjusted gross
income, and
(2) the deduction for personal exemptions provided by section
151.
(e) Election to itemize
(1) In general
Unless an individual makes an election under this subsection
for the taxable year, no itemized deduction shall be allowed for
the taxable year. For purposes of this subtitle, the
determination of whether a deduction is allowable under this
chapter shall be made without regard to the preceding sentence.
(2) Time and manner of election
Any election under this subsection shall be made on the
taxpayer's return, and the Secretary shall prescribe the manner
of signifying such election on the return.
(3) Change of election
Under regulations prescribed by the Secretary, a change of
election with respect to itemized deductions for any taxable year
may be made after the filing of the return for such year. If the
spouse of the taxpayer filed a separate return for any taxable
year corresponding to the taxable year of the taxpayer, the
change shall not be allowed unless, in accordance with such
regulations -
(A) the spouse makes a change of election with respect to
itemized deductions, for the taxable year covered in such
separate return, consistent with the change of treatment sought
by the taxpayer, and
(B) the taxpayer and his spouse consent in writing to the
assessment (within such period as may be agreed on with the
Secretary) of any deficiency, to the extent attributable to
such change of election, even though at the time of the filing
of such consent the assessment of such deficiency would
otherwise be prevented by the operation of any law or rule of
law.
This paragraph shall not apply if the tax liability of the
taxpayer's spouse for the taxable year corresponding to the
taxable year of the taxpayer has been compromised under section
7122.
(f) Aged or blind additional amounts
(1) Additional amounts for the aged
The taxpayer shall be entitled to an additional amount of $600 -
(A) for himself if he has attained age 65 before the close of
his taxable year, and
(B) for the spouse of the taxpayer if the spouse has attained
age 65 before the close of the taxable year and an additional
exemption is allowable to the taxpayer for such spouse under
section 151(b).
(2) Additional amount for blind
The taxpayer shall be entitled to an additional amount of $600 -
(A) for himself if he is blind at the close of the taxable
year, and
(B) for the spouse of the taxpayer if the spouse is blind as
of the close of the taxable year and an additional exemption is
allowable to the taxpayer for such spouse under section 151(b).
For purposes of subparagraph (B), if the spouse dies during the
taxable year the determination of whether such spouse is blind
shall be made as of the time of such death.
(3) Higher amount for certain unmarried individuals
In the case of an individual who is not married and is not a
surviving spouse, paragraphs (1) and (2) shall be applied by
substituting "$750" for "$600".
(4) Blindness defined
For purposes of this subsection, an individual is blind only if
his central visual acuity does not exceed 20/200 in the better
eye with correcting lenses, or if his visual acuity is greater
than 20/200 but is accompanied by a limitation in the fields of
vision such that the widest diameter of the visual field subtends
an angle no greater than 20 degrees.
(g) Marital status
For purposes of this section, marital status shall be determined
under section 7703.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 18; Pub. L. 95-30, title I, Sec.
102(a), May 23, 1977, 91 Stat. 135; Pub. L. 95-600, title I, Sec.
101(b), Nov. 6, 1978, 92 Stat. 2769; Pub. L. 97-34, title I, Secs.
104(b), 111(b)(4), 121(b), (c)(2), Aug. 13, 1981, 95 Stat. 189,
194, 196, 197; Pub. L. 99-514, title I, Sec. 102(a), title XII,
Sec. 1272(d)(6), Oct. 22, 1986, 100 Stat. 2099, 2594; Pub. L. 100-
647, title I, Sec. 1001(b)(1), Nov. 10, 1988, 102 Stat. 3349; Pub.
L. 101-508, title XI, Secs. 11101(d)(1)(D), 11801(a)(4), Nov. 5,
1990, 104 Stat. 1388-405, 1388-520; Pub. L. 103-66, title XIII,
Sec. 13201(b)(3)(D), Aug. 10, 1993, 107 Stat. 459; Pub. L. 105-34,
title XII, Sec. 1201(a), Aug. 5, 1997, 111 Stat. 993; Pub. L. 107-
16, title III, Sec. 301(a), (b), (c)(2), June 7, 2001, 115 Stat.
53, 54; Pub. L. 107-147, title IV, Sec. 411(e), Mar. 9, 2002, 116
Stat. 46; Pub. L. 108-27, title I, Sec. 103(a), May 28, 2003, 117
Stat. 754; Pub. L. 108-311, title I, Sec. 101(b), Oct. 4, 2004, 118
Stat. 1167.)
-STATAMEND-
STANDARD DEDUCTION ADJUSTMENTS FOR TAXABLE YEARS BEGINNING IN 2006
For adjustment of standard deduction, limitation on standard
deduction, and additional amounts under subsections (c)(2), (5) and
(f) of this section for taxable years beginning in 2006, see
section 3.10 of Revenue Procedure 2005-70, set out as a note under
section 1 of this title.
AMENDMENT OF SECTION
For termination of amendment by section 105 of Pub. L. 108-311,
see Effective and Termination Dates of 2004 Amendment note below.
For termination of amendment by section 107 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2004 - Subsec. (c)(2). Pub. L. 108-311, Secs. 101(b)(1), 105,
temporarily reenacted heading without change and amended text
generally, substituting provisions relating to a specific
percentage for provisions relating to applicable percentage in
subpar. (A), redesignating subpar. (D) as (C), and deleting former
subpar. (C) relating to married individuals filing separately. See
Effective and Termination Dates of 2004 Amendment note below.
Subsec. (c)(4). Pub. L. 108-311, Secs. 101(b)(2)(A), 105,
temporarily substituted "(2)(C)" for "(2)(D)" in introductory
provisions and in subpar. (B)(i). See Effective and Termination
Dates of 2004 Amendment note below.
Subsec. (c)(7). Pub. L. 108-311, Secs. 101(b)(2)(B), 105,
temporarily struck out par. (7) which related to applicable
percentage for purposes of par. (2). See Effective and Termination
Dates of 2004 Amendment note below.
2003 - Subsec. (c)(7). Pub. L. 108-27, Secs. 103(a), 107,
temporarily inserted table item relating to years 2003 and 2004.
See Effective and Termination Dates of 2003 Amendment note below.
2002 - Subsec. (c)(2). Pub. L. 107-147, Sec. 411(e)(1)(E),
inserted "If any amount determined under subparagraph (A) is not a
multiple of $50, such amount shall be rounded to the next lowest
multiple of $50." at end.
Subsec. (c)(2)(A). Pub. L. 107-147, Sec. 411(e)(1)(A),
substituted "subparagraph (D)" for "subparagraph (C)".
Subsec. (c)(2)(B). Pub. L. 107-147, Sec. 411(e)(1)(B), struck out
"or" at end.
Subsec. (c)(2)(C), (D). Pub. L. 107-147, Sec. 411(e)(1)(C), (D),
added subpar. (C) and redesignated former subpar. (C) as (D).
Subsec. (c)(4). Pub. L. 107-147, Sec. 411(e)(2)(C), which
directed amendment by striking out the flush sentence at the end
added by section 301(c)(2) of Public Law 107-17, was executed by
striking out "The preceding sentence shall not apply to the amount
referred to in paragraph (2)(A).", which was inserted by section
301(c)(2) of Pub. L. 107-16, to reflect the probable intent of
Congress. See 2001 Amendment note below.
Pub. L. 107-147, Sec. 411(e)(2)(A), substituted "paragraph
(2)(B), (2)(D), or (5)" for "paragraph (2) or (5)" in introductory
provisions.
Subsec. (c)(4)(B)(i). Pub. L. 107-147, Sec. 411(e)(2)(B),
substituted "paragraph (2)(B), (2)(D)," for "paragraph (2)".
2001 - Subsec. (c)(2)(A). Pub. L. 107-16, Secs. 301(a)(1), 901,
temporarily substituted "the applicable percentage of the dollar
amount in effect under subparagraph (C) for the taxable year" for
"$5,000". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (c)(2)(B). Pub. L. 107-16, Secs. 301(a)(2), 901,
temporarily inserted "or" at end. See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (c)(2)(C). Pub. L. 107-16, Secs. 301(a)(3), 901,
temporarily substituted "in any other case." for "in the case of an
individual who is not married and who is not a surviving spouse or
head of household, or". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(2)(D). Pub. L. 107-16, Secs. 301(a)(4), 901,
temporarily struck out subpar. (D) which read as follows: "$2,500
in the case of a married individual filing a separate return." See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (c)(4). Pub. L. 107-16, Secs. 301(c)(2), 901, temporarily
inserted at end "The preceding sentence shall not apply to the
amount referred to in paragraph (2)(A)." See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (c)(7). Pub. L. 107-16, Secs. 301(b), 901, temporarily
added par. (7). See Effective and Termination Dates of 2001
Amendment note below.
1997 - Subsec. (c)(4). Pub. L. 105-34, Sec. 1201(a)(2), in
introductory provisions, substituted "(5)" for "(5)(A)" and, in
subpar. (B), substituted "by substituting for 'calendar year 1992'
in subparagraph (B) thereof - " for "by substituting 'calendar year
1987' for 'calendar year 1992' in subparagraph (B) thereof" and
added cls. (i) and (ii).
Subsec. (c)(5)(B). Pub. L. 105-34, Sec. 1201(a)(1), substituted
"the sum of $250 and such individual's earned income" for "such
individual's earned income".
1993 - Subsec. (c)(4)(B). Pub. L. 103-66 substituted "1992" for
"1989".
1990 - Subsec. (c)(4)(B). Pub. L. 101-508, Sec. 11101(d)(1)(D),
inserted before period at end ", by substituting 'calendar year
1987' for 'calendar year 1989' in subparagraph (B) thereof".
Subsec. (h). Pub. L. 101-508, Sec. 11801(a)(4), struck out
subsec. (h) "Transitional rule for taxable years beginning in 1987"
which read as follows: "In the case of any taxable year beginning
in 1987, paragraph (2) of subsection (c) shall be applied -
"(1) by substituting '$3,760' for '$5,000',
"(2) by substituting '$2,540' for '$4,400',
"(3) by substituting '$2,540' for '$3,000', and
"(4) by substituting '$1,880' for '$2,500'.
The preceding sentence shall not apply if the taxpayer is entitled
to an additional amount determined under subsection (f) (relating
to additional amount for aged and blind) for the taxable year."
1988 - Subsec. (c)(5). Pub. L. 100-647 substituted "basic
standard deduction" for "standard deduction" in heading and text.
1986 - Subsec. (a). Pub. L. 99-514, Sec. 102(a), substituted "In
general" for "Corporations" in heading and amended text generally.
Prior to amendment, text read as follows: "For purposes of this
subtitle, in the case of a corporation, the term 'taxable income'
means gross income minus the deductions allowed by this chapter."
Subsec. (b). Pub. L. 99-514, Sec. 102(a), substituted
"Individuals who do not itemize their deductions" for "Individuals"
in heading and amended text generally. Prior to amendment, text
read as follows: "For purposes of this subtitle, in the case of an
individual, the term 'taxable income' means adjusted gross income -
"(1) reduced by the sum of -
"(A) the excess itemized deductions,
"(B) the deductions for personal exemptions provided by
section 151, and
"(C) the direct charitable deduction, and
"(2) increased (in the case of an individual for whom an unused
zero bracket amount computation is provided by subsection (e)) by
the unused zero bracket amount (if any)."
Subsec. (c). Pub. L. 99-514, Sec. 102(a), substituted "Standard
deduction" for "Excess itemized deductions" in heading and amended
text generally. Prior to amendment, text read as follows: "For
purposes of this subtitle, the term 'excess itemized deductions'
means the excess (if any) of -
"(1) the itemized deductions, over
"(2) the zero bracket amount."
Subsec. (c)(6)(C) to (E). Pub. L. 99-514, Sec. 1272(d)(6),
redesignated subpars. (D) and (E) as (C) and (D), respectively, and
struck out former subpar. (C) which read as follows: "a citizen of
the United States entitled to the benefits of section 931 (relating
to income from sources within possessions of the United States),".
Subsec. (d). Pub. L. 99-514, Sec. 102(a), substituted "Itemized
deductions" for "Zero bracket amount" in heading and amended text
generally. Prior to amendment, subsec. (d) read as follows: "For
purposes of this subtitle, the term 'zero bracket amount' means -
"(1) in the case of an individual to whom subsection (a), (b),
(c), or (d) of section 1 applies, the maximum amount of taxable
income on which no tax is imposed by the applicable subsection of
section 1, or
"(2) zero in any other case."
Subsec. (e). Pub. L. 99-514, Sec. 102(a), substituted "Election
to itemize" for "Unused zero bracket amount" in heading.
Subsec. (e)(1). Pub. L. 99-514, Sec. 102(a), substituted "In
general" for "Individuals for whom computation must be made" in
heading and amended text generally. Prior to amendment, text read
as follows: "A computation for the taxable year shall be made under
this subsection for the following individuals:
"(A) a married individual filing a separate return where either
spouse itemized deductions,
"(B) a nonresident alien individual,
"(C) a citizen of the United States entitled to the benefits of
section 931 (relating to income from sources within possessions
of the United States), and
"(D) an individual with respect to whom a deduction under
section 151(e) is allowable to another taxpayer for a taxable
year beginning in the calendar year in which the individual's
taxable year begins."
Subsec. (e)(2). Pub. L. 99-514, Sec. 102(a), substituted "Time
and manner of election" for "Computation" in heading and amended
text generally. Prior to amendment, text read as follows: "For
purposes of this subtitle, an individual's unused zero bracket
amount for the taxable year is an amount equal to the excess (if
any) of -
"(A) the zero bracket amount, over
"(B) the itemized deductions.
In the case of an individual referred to in paragraph (1)(D), if
such individual's earned income (as defined in section 911(d)(2))
exceeds the itemized deductions, such earned income shall be
substituted for the itemized deductions in subparagraph (B)."
Subsec. (e)(3). Pub. L. 99-514, Sec. 102(a), in amending subsec.
(e) generally, added par. (3).
Subsec. (f). Pub. L. 99-514, Sec. 102(a), substituted "Aged or
blind additional amounts" for "Itemized deductions" in heading and
amended text generally. Prior to amendment, text read as follows:
"For purposes of this subtitle, the term 'itemized deductions'
means the deductions allowable by this chapter other than -
"(1) the deductions allowable in arriving at adjusted gross
income,
"(2) the deductions for personal exemptions provided by section
151, and
"(3) the direct charitable deduction."
Subsec. (g). Pub. L. 99-514, Sec. 102(a), amended subsec. (g)
generally, substituting provision that marital status be determined
under section 7703 for provisions relating to election to itemize.
See subsec. (e).
Subsec. (h). Pub. L. 99-514, Sec. 102(a), substituted
"Transitional rule for taxable years beginning in 1987" for
"Marital status" in heading and amended text generally. Prior to
amendment, text read as follows: "For purposes of this section,
marital status shall be determined under section 143."
Subsec. (i). Pub. L. 99-514, Sec. 102(a), in amending section
generally, struck out subsec. (i), "Direct charitable deduction",
which read as follows: "For purposes of this section, the term
'direct charitable deduction' means that portion of the amount
allowable under section 170(a) which is taken as a direct
charitable deduction for the taxable year under section 170(i)."
1981 - Subsec. (b)(1)(C). Pub. L. 97-34, Sec. 121(b)(1), added
subpar. (C).
Subsec. (d). Pub. L. 97-34, Sec. 104(b), substituted a blanket
reference to individuals to whom subsection (a), (b), (c), or (d)
of section 1 applies and the maximum amount of taxable income on
which no tax is imposed by the applicable subsection of section 1
for provisions specifically referring to amounts of $3,400 in the
case of (A) a joint return under section 6013, or (B) a surviving
spouse (as defined in section 2(a)), $2,300 in the case of an
individual who is not married and who is not a surviving spouse (as
so defined), and $1,700 in the case of a married individual filing
a separate return.
Subsec. (e)(2). Pub. L. 97-34, Sec. 111(b)(4), substituted
"section 911(d)(2)" for "section 911(b)" in provisions following
subpar. (B).
Subsec. (f)(3). Pub. L. 97-34, Sec. 121(c)(2), added par. (3).
Subsec. (i). Pub. L. 97-34, Sec. 121(b)(2), added subsec. (i).
1978 - Pub. L. 95-600 substituted "$3,400" for "$3,200" in par.
(1), "$2,300" for "$2,200" in par. (2), and "$1,700" for "$1,600"
in par. (3).
1977 - Pub. L. 95-30 completely revised definition of taxable
income from one using the concept of a standard deduction and
consisting of subsecs. (a) and (b) entitled, respectively, "General
rule" and "Individuals electing standard deduction" to definition
using the concepts of zero bracket amounts and excess itemized
deductions and consisting of subsecs. (a) to (h) entitled,
respectively, "Corporations", "Individuals", "Excess itemized
deductions", "Zero bracket amount", "Unused zero bracket amount",
"Itemized deductions", "Election to itemize", and "Marital status".
EFFECTIVE AND TERMINATION DATES OF 2004 AMENDMENT
Amendment by section 101(b) of Pub. L. 108-311 applicable to
taxable years beginning after Dec. 31, 2003, see section 101(e) of
Pub. L. 108-311, set out as a note under section 1 of this title.
Amendment by section 101(b) of Pub. L. 108-311 subject to title
IX of the Economic Growth and Tax Relief Reconciliation Act of
2001, Pub. L. 107-16, Sec. 901, to the same extent and in the same
manner as the provisions of such Act to which such amendments
relate, see section 105 of Pub. L. 108-311, set out as a note under
section 1 of this title.
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Pub. L. 108-27, title I, Sec. 103(c), May 28, 2003, 117 Stat.
754, provided that: "The amendments made by this section [amending
this section and provisions set out as an Effective and Termination
Dates of 2001 Amendment note under section 1 of this title] shall
apply to taxable years beginning after December 31, 2002."
Amendments by title I of Pub. L. 108-27 subject to title IX of
the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub.
L. 107-16, Sec. 901, to the same extent and in the same manner as
the provisions of such Act to which such amendments relate, see
section 107 of Pub. L. 108-27, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to taxable years beginning
after Dec. 31, 2002, see section 301(d) of Pub. L. 107-16, as
amended, set out as a note under section 1 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years beginning
after Dec. 31, 1997, see section 1201(c) of Pub. L. 105-34, set out
as a note under section 59 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1992, see section 13201(c) of Pub. L. 103-66, set
out as a note under section 1 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11101(d)(1)(D) of Pub. L. 101-508 applicable
to taxable years beginning after Dec. 31, 1990, see section
11101(e) of Pub. L. 101-508, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 102(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1272(d)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 104(b) of Pub. L. 97-34 applicable to
taxable years beginning after Dec. 31, 1984, see section 104(e) of
Pub. L. 97-34, set out as a note under section 1 of this title.
Amendment by section 111(b)(4) of Pub. L. 97-34 applicable with
respect to taxable years beginning after Dec. 31, 1981, see section
115 of Pub. L. 97-34, set out as a note under section 911 of this
title.
Amendment by section 121(b), (c)(2) of Pub. L. 97-34 applicable
to contributions made after Dec. 31, 1981, in taxable years
beginning after such date, see section 121(d) of Pub. L. 97-34, set
out as a note under section 170 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 effective with respect to taxable
years beginning after Dec. 31, 1978, see section 101(f)(1) of Pub.
L. 95-600, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by section 11801 of Pub.
L. 101-508 be construed to affect treatment of certain transactions
occurring, property acquired, or items of income, loss, deduction,
or credit taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 64 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART I - DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
-HEAD-
Sec. 64. Ordinary income defined
-STATUTE-
For purposes of this subtitle, the term "ordinary income"
includes any gain from the sale or exchange of property which is
neither a capital asset nor property described in section 1231(b).
Any gain from the sale or exchange of property which is treated or
considered, under other provisions of this subtitle, as "ordinary
income" shall be treated as gain from the sale or exchange of
property which is neither a capital asset nor property described in
section 1231(b).
-SOURCE-
(Added Pub. L. 94-455, title XIX, Sec. 1901(a)(10), Oct. 4, 1976,
90 Stat. 1765.)
-End-
-CITE-
26 USC Sec. 65 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART I - DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
-HEAD-
Sec. 65. Ordinary loss defined
-STATUTE-
For purposes of this subtitle, the term "ordinary loss" includes
any loss from the sale or exchange of property which is not a
capital asset. Any loss from the sale or exchange of property which
is treated or considered, under other provisions of this subtitle,
as "ordinary loss" shall be treated as loss from the sale or
exchange of property which is not a capital asset.
-SOURCE-
(Added Pub. L. 94-455, title XIX, Sec. 1901(a)(11), Oct. 4, 1976,
90 Stat. 1765.)
-End-
-CITE-
26 USC Sec. 66 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART I - DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
-HEAD-
Sec. 66. Treatment of community income
-STATUTE-
(a) Treatment of community income where spouses live apart
If -
(1) 2 individuals are married to each other at any time during
a calendar year;
(2) such individuals -
(A) live apart at all times during the calendar year, and
(B) do not file a joint return under section 6013 with each
other for a taxable year beginning or ending in the calendar
year;
(3) one or both of such individuals have earned income for the
calendar year which is community income; and
(4) no portion of such earned income is transferred (directly
or indirectly) between such individuals before the close of the
calendar year,
then, for purposes of this title, any community income of such
individuals for the calendar year shall be treated in accordance
with the rules provided by section 879(a).
(b) Secretary may disregard community property laws where spouse
not notified of community income
The Secretary may disallow the benefits of any community property
law to any taxpayer with respect to any income if such taxpayer
acted as if solely entitled to such income and failed to notify the
taxpayer's spouse before the due date (including extensions) for
filing the return for the taxable year in which the income was
derived of the nature and amount of such income.
(c) Spouse relieved of liability in certain other cases
Under regulations prescribed by the Secretary, if -
(1) an individual does not file a joint return for any taxable
year,
(2) such individual does not include in gross income for such
taxable year an item of community income properly includible
therein which, in accordance with the rules contained in section
879(a), would be treated as the income of the other spouse,
(3) the individual establishes that he or she did not know of,
and had no reason to know of, such item of community income, and
(4) taking into account all facts and circumstances, it is
inequitable to include such item of community income in such
individual's gross income,
then, for purposes of this title, such item of community income
shall be included in the gross income of the other spouse (and not
in the gross income of the individual). Under procedures prescribed
by the Secretary, if, taking into account all the facts and
circumstances, it is inequitable to hold the individual liable for
any unpaid tax or any deficiency (or any portion of either)
attributable to any item for which relief is not available under
the preceding sentence, the Secretary may relieve such individual
of such liability.
(d) Definitions
For purposes of this section -
(1) Earned income
The term "earned income" has the meaning given to such term by
section 911(d)(2).
(2) Community income
The term "community income" means income which, under
applicable community property laws, is treated as community
income.
(3) Community property laws
The term "community property laws" means the community property
laws of a State, a foreign country, or a possession of the United
States.
-SOURCE-
(Added Pub. L. 96-605, title I, Sec. 101(a), Dec. 28, 1980, 94
Stat. 3521; amended Pub. L. 98-369, div. A, title IV, Sec.
424(b)(1)-(2)(B), July 18, 1984, 98 Stat. 802, 803; Pub. L. 101-
239, title VII, Sec. 7841(d)(8), Dec. 19, 1989, 103 Stat. 2428;
Pub. L. 105-206, title III, Sec. 3201(b), July 22, 1998, 112 Stat.
739.)
-MISC1-
AMENDMENTS
1998 - Subsec. (c). Pub. L. 105-206 inserted at end "Under
procedures prescribed by the Secretary, if, taking into account all
the facts and circumstances, it is inequitable to hold the
individual liable for any unpaid tax or any deficiency (or any
portion of either) attributable to any item for which relief is not
available under the preceding sentence, the Secretary may relieve
such individual of such liability."
1989 - Subsec. (d)(1). Pub. L. 101-239 substituted "section
911(d)(2)" for "section 911(b)".
1984 - Pub. L. 98-369, Sec. 424(b)(2)(A), struck out "where
spouses live apart" in section catchline.
Subsec. (a). Pub. L. 98-369, Sec. 424(b)(2)(B), substituted
"Treatment of community income where spouses live apart" for
"General rule" in heading.
Subsecs. (b) to (d). Pub. L. 98-369, Sec. 424(b)(1), added
subsecs. (b) and (c) and redesignated former subsec. (b) as (d).
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 applicable to any liability for tax
arising after July 22, 1998, and any liability for tax arising on
or before such date but remaining unpaid as of such date, see
section 3201(g)(1) of Pub. L. 105-206, set out as a note under
section 6015 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to all taxable years to
which the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
applies with corresponding provisions deemed to be included in the
Internal Revenue Code of 1939 and applicable to all taxable years
to which such Code applies, except subsection (b) of this section
is applicable to taxable years beginning after December 31, 1984,
see section 424(c) of Pub. L. 98-369, set out as a note under
section 6013 of this title.
EFFECTIVE DATE
Section 101(c) of Pub. L. 96-605 provided that: "The amendments
made by this section [enacting this section] shall apply to
calendar years beginning after December 31, 1980."
-End-
-CITE-
26 USC Sec. 67 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART I - DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
-HEAD-
Sec. 67. 2-percent floor on miscellaneous itemized deductions
-STATUTE-
(a) General rule
In the case of an individual, the miscellaneous itemized
deductions for any taxable year shall be allowed only to the extent
that the aggregate of such deductions exceeds 2 percent of adjusted
gross income.
(b) Miscellaneous itemized deductions
For purposes of this section, the term "miscellaneous itemized
deductions" means the itemized deductions other than -
(1) the deduction under section 163 (relating to interest),
(2) the deduction under section 164 (relating to taxes),
(3) the deduction under section 165(a) for casualty or theft
losses described in paragraph (2) or (3) of section 165(c) or for
losses described in section 165(d),
(4) the deductions under section 170 (relating to charitable,
etc., contributions and gifts) and section 642(c) (relating to
deduction for amounts paid or permanently set aside for a
charitable purpose),
(5) the deduction under section 213 (relating to medical,
dental, etc., expenses),
(6) any deduction allowable for impairment-related work
expenses,
(7) the deduction under section 691(c) (relating to deduction
for estate tax in case of income in respect of the decedent),
(8) any deduction allowable in connection with personal
property used in a short sale,
(9) the deduction under section 1341 (relating to computation
of tax where taxpayer restores substantial amount held under
claim of right),
(10) the deduction under section 72(b)(3) (relating to
deduction where annuity payments cease before investment
recovered),
(11) the deduction under section 171 (relating to deduction for
amortizable bond premium), and
(12) the deduction under section 216 (relating to deductions in
connection with cooperative housing corporations).
(c) Disallowance of indirect deduction through pass-thru entity
(1) In general
The Secretary shall prescribe regulations which prohibit the
indirect deduction through pass-thru entities of amounts which
are not allowable as a deduction if paid or incurred directly by
an individual and which contain such reporting requirements as
may be necessary to carry out the purposes of this subsection.
(2) Treatment of publicly offered regulated investment companies
(A) In general
Paragraph (1) shall not apply with respect to any publicly
offered regulated investment company.
(B) Publicly offered regulated investment companies
For purposes of this subsection -
(i) In general
The term "publicly offered regulated investment company"
means a regulated investment company the shares of which are -
(I) continuously offered pursuant to a public offering
(within the meaning of section 4 of the Securities Act of
1933, as amended (15 U.S.C. 77a to 77aa)),
(II) regularly traded on an established securities
market, or
(III) held by or for no fewer than 500 persons at all
times during the taxable year.
(ii) Secretary may reduce 500 person requirement
The Secretary may by regulation decrease the minimum
shareholder requirement of clause (i)(III) in the case of
regulated investment companies which experience a loss of
shareholders through net redemptions of their shares.
(3) Treatment of certain other entities
Paragraph (1) shall not apply -
(A) with respect to cooperatives and real estate investment
trusts, and
(B) except as provided in regulations, with respect to
estates and trusts.
(d) Impairment-related work expenses
For purposes of this section, the term "impairment-related work
expenses" means expenses -
(1) of a handicapped individual (as defined in section
190(b)(3)) for attendant care services at the individual's place
of employment and other expenses in connection with such place of
employment which are necessary for such individual to be able to
work, and
(2) with respect to which a deduction is allowable under
section 162 (determined without regard to this section).
(e) Determination of adjusted gross income in case of estates and
trusts
For purposes of this section, the adjusted gross income of an
estate or trust shall be computed in the same manner as in the case
of an individual, except that -
(1) the deductions for costs which are paid or incurred in
connection with the administration of the estate or trust and
which would not have been incurred if the property were not held
in such trust or estate, and
(2) the deductions allowable under sections 642(b), 651, and
661,
shall be treated as allowable in arriving at adjusted gross income.
Under regulations, appropriate adjustments shall be made in the
application of part I of subchapter J of this chapter to take into
account the provisions of this section.
(f) Coordination with other limitation
This section shall be applied before the application of the
dollar limitation of the second sentence of section 162(a)
(relating to trade or business expenses).
-SOURCE-
(Added Pub. L. 99-514, title I, Sec. 132(a), Oct. 22, 1986, 100
Stat. 2113; amended Pub. L. 100-647, title I, Sec. 1001(f), title
IV, Sec. 4011(a), Nov. 10, 1988, 102 Stat. 3351, 3655; Pub. L. 101-
239, title VII, Sec. 7814(f), Dec. 19, 1989, 103 Stat. 2414; Pub.
L. 103-66, title XIII, Sec. 13213(c)(2), Aug. 10, 1993, 107 Stat.
474; Pub. L. 105-277, div. J, title IV, Sec. 4004(b)(1), Oct. 21,
1998, 112 Stat. 2681-910; Pub. L. 106-554, Sec. 1(a)(7) [title III,
Sec. 319(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A-646.)
-REFTEXT-
REFERENCES IN TEXT
Section 4 of the Securities Act of 1933, referred to in subsec.
(c)(2)(B)(i)(I), is classified to section 77d of Title 15, Commerce
and Trade.
-MISC1-
AMENDMENTS
2000 - Subsec. (f). Pub. L. 106-554 substituted "the second
sentence" for "the last sentence".
1998 - Subsec. (b)(3). Pub. L. 105-277 substituted "for casualty
or theft losses described in paragraph (2) or (3) of section 165(c)
or for losses described in section 165(d)" for "for losses
described in subsection (c)(3) or (d) of section 165".
1993 - Subsec. (b)(6) to (13). Pub. L. 103-66 redesignated pars.
(7) to (13) as (6) to (12), respectively, and struck out former
par. (6) which read as follows: "the deduction under section 217
(relating to moving expenses),".
1989 - Subsec. (c)(4). Pub. L. 101-239 struck out par. (4) which
read as follows: "Termination. - This subsection shall not apply to
any taxable year beginning after December 31, 1989."
1988 - Subsec. (b)(4). Pub. L. 100-647, Sec. 1001(f)(2),
substituted "deductions" for "deduction" and inserted before comma
at end "and section 642(c) (relating to deduction for amounts paid
or permanently set aside for a charitable purpose)".
Subsec. (c). Pub. L. 100-647, Sec. 4011(a), amended subsec. (c)
generally. Prior to amendment subsec. (c) read as follows: "The
Secretary shall prescribe regulations which prohibit the indirect
deduction through pass-thru entities of amounts which are not
allowable as a deduction if paid or incurred directly by an
individual and which contain such reporting requirements as may be
necessary to carry out the purposes of this subsection. The
preceding sentence shall not apply -
"(1) with respect to cooperatives and real estate investment
trusts, and
"(2) except as provided in regulations, with respect to estates
and trusts."
Pub. L. 100-647, Sec. 1001(f)(4), amended last sentence
generally. Prior to amendment, last sentence read as follows: "The
preceding sentence shall not apply with respect to estates, trusts,
cooperatives, and real estate investment trusts."
Subsec. (e). Pub. L. 100-647, Sec. 1001(f)(3), amended subsec.
(e) generally. Prior to amendment, subsec. (e) read as follows:
"For purposes of this section, the adjusted gross income of an
estate or trust shall be computed in the same manner as in the case
of an individual, except that the deductions for costs which are
paid or incurred in connection with the administration of the
estate or trust and would not have been incurred if the property
were not held in such trust or estate shall be treated as allowable
in arriving at adjusted gross income."
Subsec. (f). Pub. L. 100-647, Sec. 1001(f)(1), added subsec. (f).
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title IV, Sec. 4004(c)(2), Oct. 21,
1998, 112 Stat. 2681-911, provided that: "The amendment made by
subsection (b)(1) [amending this section] shall apply to taxable
years beginning after December 31, 1986."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to expenses incurred after
Dec. 31, 1993, see section 13213(e) of Pub. L. 103-66 set out as a
note under section 62 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1001(f) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 4011(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1987."
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, see section 151(a) of Pub. L. 99-514, set out as an Effective
Date of 1986 Amendment note under section 1 of this title.
1-YEAR DELAY IN TREATMENT OF PUBLICLY OFFERED REGULATED INVESTMENT
COMPANIES UNDER 2-PERCENT FLOOR
Pub. L. 100-203, title X, Sec. 10104(a), Dec. 22, 1987, 101 Stat.
1330-386, provided that:
"(1) General rule. - Section 67(c) of the Internal Revenue Code
of 1986 to the extent it relates to indirect deductions through a
publicly offered regulated investment company shall apply only to
taxable years beginning after December 31, 1987.
"(2) Publicly offered regulated investment company defined. - For
purposes of this subsection -
"(A) In general. - The term 'publicly offered regulated
investment company' means a regulated investment company the
shares of which are -
"(i) continuously offered pursuant to a public offering
(within the meaning of section 4 of the Securities Act of 1933,
as amended (15 U.S.C. 77a to 77aa) [15 U.S.C. 77d]),
"(ii) regularly traded on an established securities market,
or
"(iii) held by or for no fewer than 500 persons at all times
during the taxable year.
"(B) Secretary may reduce 500 person requirement. - The
Secretary of the Treasury or his delegate may by regulation
decrease the minimum shareholder requirement of subparagraph
(A)(iii) in the case of regulated investment companies which
experience a loss of shareholders through net redemptions of
their shares."
-End-
-CITE-
26 USC Sec. 68 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART I - DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
-HEAD-
Sec. 68. Overall limitation on itemized deductions
-STATUTE-
(a) General rule
In the case of an individual whose adjusted gross income exceeds
the applicable amount, the amount of the itemized deductions
otherwise allowable for the taxable year shall be reduced by the
lesser of -
(1) 3 percent of the excess of adjusted gross income over the
applicable amount, or
(2) 80 percent of the amount of the itemized deductions
otherwise allowable for such taxable year.
(b) Applicable amount
(1) In general
For purposes of this section, the term "applicable amount"
means $100,000 ($50,000 in the case of a separate return by a
married individual within the meaning of section 7703).
(2) Inflation adjustments
In the case of any taxable year beginning in a calendar year
after 1991, each dollar amount contained in paragraph (1) shall
be increased by an amount equal to -
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
by substituting "calendar year 1990" for "calendar year 1992"
in subparagraph (B) thereof.
(c) Exception for certain itemized deductions
For purposes of this section, the term "itemized deductions" does
not include -
(1) the deduction under section 213 (relating to medical, etc.
expenses),
(2) any deduction for investment interest (as defined in
section 163(d)), and
(3) the deduction under section 165(a) for casualty or theft
losses described in paragraph (2) or (3) of section 165(c) or for
losses described in section 165(d).
(d) Coordination with other limitations
This section shall be applied after the application of any other
limitation on the allowance of any itemized deduction.
(e) Exception for estates and trusts
This section shall not apply to any estate or trust.
(f) Phaseout of limitation
(1) In general
In the case of taxable years beginning after December 31, 2005,
and before January 1, 2010, the reduction under subsection (a)
shall be equal to the applicable fraction of the amount which
would (but for this subsection) be the amount of such reduction.
(2) Applicable fraction
For purposes of paragraph (1), the applicable fraction shall be
determined in accordance with the following table:
For taxable years beginning 2The applicable
in calendar year - fraction is -
--------------------------------------------------------------------
2006 and 2007 (!2/3)
2008 and 2009 1/3 .
--------------------------------------------------------------------
(g) Termination
This section shall not apply to any taxable year beginning after
December 31, 2009.
-SOURCE-
(Added Pub. L. 101-508, title XI, Sec. 11103(a), Nov. 5, 1990, 104
Stat. 1388-406; amended Pub. L. 103-66, title XIII, Secs.
13201(b)(3)(E), 13204, Aug. 10, 1993, 107 Stat. 459, 462; Pub. L.
105-277, div. J, title IV, Sec. 4004(b)(2), Oct. 21, 1998, 112
Stat. 2681-911; Pub. L. 107-16, title I, Sec. 103(a), June 7, 2001,
115 Stat. 44.)
-STATAMEND-
ADJUSTMENT OF APPLICABLE AMOUNT UNDER THIS SECTION FOR TAXABLE
YEARS BEGINNING IN 2006
For adjustment of "applicable amount" for determining limitation
on itemized deductions under this section for taxable years
beginning in 2006, see section 3.11 of Revenue Procedure 2005-70,
set out as a note under section 1 of this title.
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2001 - Subsecs. (f), (g). Pub. L. 107 - 16, Secs. 103(a), 901,
temporarily added subsecs. (f) and (g). See Effective and
Termination Dates of 2001 Amendment note below.
1998 - Subsec. (c)(3). Pub. L. 105-277 substituted "for casualty
or theft losses described in paragraph (2) or (3) of section 165(c)
or for losses described in section 165(d)" for "for losses
described in subsection (c)(3) or (d) of section 165".
1993 - Subsec. (b)(2)(B). Pub. L. 103-66, Sec. 13201(b)(3)(E),
substituted "1992" for "1989".
Subsec. (f). Pub. L. 103-66, Sec. 13204, struck out heading and
text of subsec. (f). Text read as follows: "This section shall not
apply to any taxable year beginning after December 31, 1995."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title I, Sec. 103(b), June 7, 2001, 115 Stat. 45,
provided that: "The amendment made by this section [amending this
section] shall apply to taxable years beginning after December 31,
2005."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title IV, Sec. 4004(c)(3), Oct. 21,
1998, 112 Stat. 2681-911, provided that: "The amendment made by
subsection (b)(2) [amending this section] shall apply to taxable
years beginning after December 31, 1990."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13201(b)(3)(E) of Pub. L. 103-66 applicable
to taxable years beginning after Dec. 31, 1992, see section
13201(c) of Pub. L. 103-66, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1990, see section 11103(e) of Pub. L. 101-508, set out as an
Effective Date of 1990 Amendment note under section 1 of this
title.
-End-
-CITE-
26 USC PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS
INCOME 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-MISC1-
Sec.
71. Alimony and separate maintenance payments.
72. Annuities; certain proceeds of endowment and life
insurance contracts.
73. Services of child.
74. Prizes and awards.
75. Dealers in tax-exempt securities.
[76. Repealed.]
77. Commodity credit loans.
78. Dividends received from certain foreign corporations
by domestic corporations choosing foreign tax credit.
79. Group-term life insurance purchased for employees.
80. Restoration of value of certain securities.
[81. Repealed.]
82. Reimbursement of moving expenses.(!1)
83. Property transferred in connection with performance of
services.
84. Transfer of appreciated property to political
organizations.(!1)
85. Unemployment compensation.
86. Social security and tier 1 railroad retirement
benefits.
87. Alcohol and biodiesel fuels credits.
88. Certain amounts with respect to nuclear
decommissioning costs.
[89. Repealed.]
90. Illegal Federal irrigation subsidies.
AMENDMENTS
2004 - Pub. L. 108-357, title III, Sec. 302(c)(1)(B), Oct. 22,
2004, 118 Stat. 1465, substituted "and biodiesel fuels credits" for
"fuel credit" in item 87.
1989 - Pub. L. 101-239, title VII, Sec. 7822(c), Dec. 19, 1989,
103 Stat. 2425, substituted "Illegal Federal irrigation" for
"Federal irrigation" in item 90.
Pub. L. 101-140, title II, Sec. 202(b), Nov. 8, 1989, 103 Stat.
830, struck out item 89 "Benefits provided under certain employee
benefit plans".
1987 - Pub. L. 100-203, title X, Secs. 10201(b)(6), 10611(b),
Dec. 22, 1987, 101 Stat. 1330-387, 1330-452, struck out item 81
"Increase in vacation pay suspense account" and added item 90.
1986 - Pub. L. 99-514, title VIII, Sec. 805(c)(1)(B), title XI,
Sec. 1151(j)(1), Oct. 22, 1986, 100 Stat. 2362, 2508, substituted
"Increase in vacation pay suspense account" for "Certain increases
in suspense accounts" in item 81, and added item 89.
1984 - Pub. L. 98-369, div. A, title I, Sec. 91(f)(2), July 18,
1984, 98 Stat. 608, added item 88.
1983 - Pub. L. 98-21, title I, Sec. 121(f)(3), Apr. 20, 1983, 97
Stat. 84, added item 86 and redesignated former item 86 as 87.
1980 - Pub. L. 96-223, title II, Sec. 232(c)(3), Apr. 2, 1980, 94
Stat. 277, added item 86.
1978 - Pub. L. 95-600, title I, Sec. 112(c)(1), Nov. 6, 1978, 92
Stat. 2778, added item 85.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(5), Oct. 4, 1976,
90 Stat. 1793, struck out item 76 "Mortgages made or obligations
issued by joint-stock land banks".
1975 - Pub. L. 93-625, Secs. 4(c)(2), 13(a)(2), Jan. 3, 1975, 88
Stat. 2111, 2121, substituted "Certain increases in suspense
accounts" for "Increases in suspense account under section 166(g)"
in item 81, and added item 84.
1969 - Pub. L. 91-172, title II, Sec. 231(c)(1), title III, Sec.
321(c), Dec. 30, 1969, 83 Stat. 579, 591, added items 82, 83.
1966 - Pub. L. 89-722, Sec. 1(b)(2), Nov. 2, 1966, 80 Stat. 1152,
added item 81.
Pub. L. 89-384, Sec. 1(b)(2), Apr. 8, 1966, 80 Stat. 102, added
item 80.
1964 - Pub. L. 88-272, title II, Sec. 204(a)(2), Feb. 26, 1964,
78 Stat. 36, added item 79.
1962 - Pub. L. 87-834, Sec. 9(d)(1), Oct. 16, 1962, 76 Stat.
1001, added item 78.
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 71 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 71. Alimony and separate maintenance payments
-STATUTE-
(a) General rule
Gross income includes amounts received as alimony or separate
maintenance payments.
(b) Alimony or separate maintenance payments defined
For purposes of this section -
(1) In general
The term "alimony or separate maintenance payment" means any
payment in cash if -
(A) such payment is received by (or on behalf of) a spouse
under a divorce or separation instrument,
(B) the divorce or separation instrument does not designate
such payment as a payment which is not includible in gross
income under this section and not allowable as a deduction
under section 215,
(C) in the case of an individual legally separated from his
spouse under a decree of divorce or of separate maintenance,
the payee spouse and the payor spouse are not members of the
same household at the time such payment is made, and
(D) there is no liability to make any such payment for any
period after the death of the payee spouse and there is no
liability to make any payment (in cash or property) as a
substitute for such payments after the death of the payee
spouse.
(2) Divorce or separation instrument
The term "divorce or separation instrument" means -
(A) a decree of divorce or separate maintenance or a written
instrument incident to such a decree,
(B) a written separation agreement, or
(C) a decree (not described in subparagraph (A)) requiring a
spouse to make payments for the support or maintenance of the
other spouse.
(c) Payments to support children
(1) In general
Subsection (a) shall not apply to that part of any payment
which the terms of the divorce or separation instrument fix (in
terms of an amount of money or a part of the payment) as a sum
which is payable for the support of children of the payor spouse.
(2) Treatment of certain reductions related to contingencies
involving child
For purposes of paragraph (1), if any amount specified in the
instrument will be reduced -
(A) on the happening of a contingency specified in the
instrument relating to a child (such as attaining a specified
age, marrying, dying, leaving school, or a similar
contingency), or
(B) at a time which can clearly be associated with a
contingency of a kind specified in subparagraph (A),
an amount equal to the amount of such reduction will be treated
as an amount fixed as payable for the support of children of the
payor spouse.
(3) Special rule where payment is less than amount specified in
instrument
For purposes of this subsection, if any payment is less than
the amount specified in the instrument, then so much of such
payment as does not exceed the sum payable for support shall be
considered a payment for such support.
(d) Spouse
For purposes of this section, the term "spouse" includes a former
spouse.
(e) Exception for joint returns
This section and section 215 shall not apply if the spouses make
a joint return with each other.
(f) Recomputation where excess front-loading of alimony payments
(1) In general
If there are excess alimony payments -
(A) the payor spouse shall include the amount of such excess
payments in gross income for the payor spouse's taxable year
beginning in the 3rd post-separation year, and
(B) the payee spouse shall be allowed a deduction in
computing adjusted gross income for the amount of such excess
payments for the payee's taxable year beginning in the 3rd post-
separation year.
(2) Excess alimony payments
For purposes of this subsection, the term "excess alimony
payments" mean the sum of -
(A) the excess payments for the 1st post-separation year, and
(B) the excess payments for the 2nd post-separation year.
(3) Excess payments for 1st post-separation year
For purposes of this subsection, the amount of the excess
payments for the 1st post-separation year is the excess (if any)
of -
(A) the amount of the alimony or separate maintenance
payments paid by the payor spouse during the 1st post-
separation year, over
(B) the sum of -
(i) the average of -
(I) the alimony or separate maintenance payments paid by
the payor spouse during the 2nd post-separation year,
reduced by the excess payments for the 2nd post-separation
year, and
(II) the alimony or separate maintenance payments paid by
the payor spouse during the 3rd post-separation year, plus
(ii) $15,000.
(4) Excess payments for 2nd post-separation year
For purposes of this subsection, the amount of the excess
payments for the 2nd post-separation year is the excess (if any)
of -
(A) the amount of the alimony or separate maintenance
payments paid by the payor spouse during the 2nd post-
separation year, over
(B) the sum of -
(i) the amount of the alimony or separate maintenance
payments paid by the payor spouse during the 3rd post-
separation year, plus
(ii) $15,000.
(5) Exceptions
(A) Where payment ceases by reason of death or remarriage
Paragraph (1) shall not apply if -
(i) either spouse dies before the close of the 3rd post-
separation year, or the payee spouse remarries before the
close of the 3rd post-separation year, and
(ii) the alimony or separate maintenance payments cease by
reason of such death or remarriage.
(B) Support payments
For purposes of this subsection, the term "alimony or
separate maintenance payment" shall not include any payment
received under a decree described in subsection (b)(2)(C).
(C) Fluctuating payments not within control of payor spouse
For purposes of this subsection, the term "alimony or
separate maintenance payment" shall not include any payment to
the extent it is made pursuant to a continuing liability (over
a period of not less than 3 years) to pay a fixed portion or
portions of the income from a business or property or from
compensation for employment or self-employment.
(6) Post-separation years
For purposes of this subsection, the term "1st post-separation
years" means the 1st calendar year in which the payor spouse paid
to the payee spouse alimony or separate maintenance payments to
which this section applies. The 2nd and 3rd post-separation years
shall be the 1st and 2nd succeeding calendar years, respectively.
(g) Cross references
(1) For deduction of alimony or separate maintenance
payments, see section 215.
(2) For taxable status of income of an estate or trust in the
case of divorce, etc., see section 682.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 19; Pub. L. 98-369, div. A,
title IV, Sec. 422(a), July 18, 1984, 98 Stat. 795; Pub. L. 99-514,
title XVIII, Sec. 1843(a)-(c)(1), (d), Oct. 22, 1986, 100 Stat.
2853, 2855.)
-MISC1-
AMENDMENTS
1986 - Subsec. (b)(1)(D). Pub. L. 99-514, Sec. 1843(b), struck
out "(and the divorce or separation instrument states that there is
no such liability)" after "for such payments after the death of the
payee spouse".
Subsec. (c)(2)(B). Pub. L. 99-514, Sec. 1843(d), substituted
"specified in subparagraph (A)" for "specified in paragraph (1)".
Subsec. (f). Pub. L. 99-514, Sec. 1843(c)(1), amended subsec. (f)
generally, substituting provisions for the recomputation of
liability where there has been excess front-loading of alimony
payments for provisions setting forth special rules to prevent
excess front-loading of alimony payments.
Subsec. (g). Pub. L. 99-514, Sec. 1843(a), added subsec. (g).
1984 - Pub. L. 98-369 amended section generally, substituting
present provisions for provisions which had declared in: subsec.
(a), a general rule as to decree of divorce or separate maintenance
in par. (1), written separation agreement in par. (2), and decree
for support in par. (3); subsec. (b), payments to support minor
children; subsec. (c), principal sum paid in installments, par. (1)
stating a general rule and par. (2) the rule where period for
payment is more than 10 years; subsec. (d), the rule for husband in
case of transferred property; and subsec. (e), cross references to
sections 7701(a)(17), 215, and 682.
EFFECTIVE DATE OF 1986 AMENDMENT; TRANSITIONAL RULE
Section 1843(c)(2), (3) of Pub. L. 99-514 provided that:
"(2) Effective dates. -
"(A) In general. - The amendment made by paragraph (1)
[amending this section] shall apply with respect to divorce or
separation instruments (as defined in section 71(b)(2)) of the
Internal Revenue Code of 1986 executed after December 31, 1986.
"(B) Modifications of instruments executed before january 1,
1987. - The amendments made by paragraph (1) [amending this
section] shall also apply to any divorce or separation instrument
(as so defined) executed before January 1, 1987, but modified on
or after such date if the modification expressly provides that
the amendments made by paragraph (1) shall apply to such
modification.
"(3) Transitional rule. - In the case of any instrument to which
the amendment made by paragraph (1) [amending this section] does
not apply, paragraph (2) of section 71(f) of the Internal Revenue
Code of 1954 [now 1986] (as in effect on the day before the date of
the enactment of this Act [Oct. 22, 1986]) shall apply only with
respect to the first 3 post-separation years."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 422(e) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 215, 219, 682, 6676, and 7701 of this title]
shall apply with respect to divorce or separation instruments (as
defined in section 71(b)(2) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], as amended by this section) executed after
December 31, 1984.
"(2) Modifications of instruments executed before january 1,
1985. - The amendments made by this section shall also apply to any
divorce or separation instrument (as so defined) executed before
January 1, 1985, but modified on or after such date if the
modification expressly provides that the amendments made by this
section shall apply to such modification.
"(3) Requirement of identification number. - Section 215(c) of
the Internal Revenue Code of 1986 (as amended by subsection (b))
and the amendments made by subsection (c) [amending section 6676 of
this title] shall apply to payments made after December 31, 1984."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 72 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 72. Annuities; certain proceeds of endowment and life
insurance contracts
-STATUTE-
(a) General rule for annuities
Except as otherwise provided in this chapter, gross income
includes any amount received as an annuity (whether for a period
certain or during one or more lives) under an annuity, endowment,
or life insurance contract.
(b) Exclusion ratio
(1) In general
Gross income does not include that part of any amount received
as an annuity under an annuity, endowment, or life insurance
contract which bears the same ratio to such amount as the
investment in the contract (as of the annuity starting date)
bears to the expected return under the contract (as of such
date).
(2) Exclusion limited to investment
The portion of any amount received as an annuity which is
excluded from gross income under paragraph (1) shall not exceed
the unrecovered investment in the contract immediately before the
receipt of such amount.
(3) Deduction where annuity payments cease before entire
investment recovered
(A) In general
If -
(i) after the annuity starting date, payments as an annuity
under the contract cease by reason of the death of an
annuitant, and
(ii) as of the date of such cessation, there is unrecovered
investment in the contract,
the amount of such unrecovered investment (in excess of any
amount specified in subsection (e)(5) which was not included in
gross income) shall be allowed as a deduction to the annuitant
for his last taxable year.
(B) Payments to other persons
In the case of any contract which provides for payments
meeting the requirements of subparagraphs (B) and (C) of
subsection (c)(2), the deduction under subparagraph (A) shall
be allowed to the person entitled to such payments for the
taxable year in which such payments are received.
(C) Net operating loss deductions provided
For purposes of section 172, a deduction allowed under this
paragraph shall be treated as if it were attributable to a
trade or business of the taxpayer.
(4) Unrecovered investment
For purposes of this subsection, the unrecovered investment in
the contract as of any date is -
(A) the investment in the contract (determined without regard
to subsection (c)(2)) as of the annuity starting date, reduced
by
(B) the aggregate amount received under the contract on or
after such annuity starting date and before the date as of
which the determination is being made, to the extent such
amount was excludable from gross income under this subtitle.
(c) Definitions
(1) Investment in the contract
For purposes of subsection (b), the investment in the contract
as of the annuity starting date is -
(A) the aggregate amount of premiums or other consideration
paid for the contract, minus
(B) the aggregate amount received under the contract before
such date, to the extent that such amount was excludable from
gross income under this subtitle or prior income tax laws.
(2) Adjustment in investment where there is refund feature
If -
(A) the expected return under the contract depends in whole
or in part on the life expectancy of one or more individuals;
(B) the contract provides for payments to be made to a
beneficiary (or to the estate of an annuitant) on or after the
death of the annuitant or annuitants; and
(C) such payments are in the nature of a refund of the
consideration paid,
then the value (computed without discount for interest) of such
payments on the annuity starting date shall be subtracted from
the amount determined under paragraph (1). Such value shall be
computed in accordance with actuarial tables prescribed by the
Secretary. For purposes of this paragraph and of subsection
(e)(2)(A), the term "refund of the consideration paid" includes
amounts payable after the death of an annuitant by reason of a
provision in the contract for a life annuity with minimum period
of payments certain, but (if part of the consideration was
contributed by an employer) does not include that part of any
payment to a beneficiary (or to the estate of the annuitant)
which is not attributable to the consideration paid by the
employee for the contract as determined under paragraph (1)(A).
(3) Expected return
For purposes of subsection (b), the expected return under the
contract shall be determined as follows:
(A) Life expectancy
If the expected return under the contract, for the period on
and after the annuity starting date, depends in whole or in
part on the life expectancy of one or more individuals, the
expected return shall be computed with reference to actuarial
tables prescribed by the Secretary.
(B) Installment payments
If subparagraph (A) does not apply, the expected return is
the aggregate of the amounts receivable under the contract as
an annuity.
(4) Annuity starting date
For purposes of this section, the annuity starting date in the
case of any contract is the first day of the first period for
which an amount is received as an annuity under the contract;
except that if such date was before January 1, 1954, then the
annuity starting date is January 1, 1954.
(d) Special rules for qualified employer retirement plans
(1) Simplified method of taxing annuity payments
(A) In general
In the case of any amount received as an annuity under a
qualified employer retirement plan -
(i) subsection (b) shall not apply, and
(ii) the investment in the contract shall be recovered as
provided in this paragraph.
(B) Method of recovering investment in contract
(i) In general
Gross income shall not include so much of any monthly
annuity payment under a qualified employer retirement plan as
does not exceed the amount obtained by dividing -
(I) the investment in the contract (as of the annuity
starting date), by
(II) the number of anticipated payments determined under
the table contained in clause (iii) (or, in the case of a
contract to which subsection (c)(3)(B) applies, the number
of monthly annuity payments under such contract).
(ii) Certain rules made applicable
Rules similar to the rules of paragraphs (2) and (3) of
subsection (b) shall apply for purposes of this paragraph.
(iii) Number of anticipated payments
If the annuity is payable over the life of a single
individual, the number of anticipated payments shall be
determined as follows:
If the age of the
annuitant on The number
the annuity starting of anticipated
date is: payments is:
Not more than 55 360
More than 55 but not more than 60 310
More than 60 but not more than 65 260
More than 65 but not more than 70 210
More than 70 160.
(iv) Number of anticipated payments where more than one life
If the annuity is payable over the lives of more than 1
individual, the number of anticipated payments shall be
determined as follows:
If the combined ages of
annuitants are: The number is:
Not more than 110 410
More than 110 but not more than 120 360
More than 120 but not more than 130 310
More than 130 but not more than 140 260
More than 140 210.
(C) Adjustment for refund feature not applicable
For purposes of this paragraph, investment in the contract
shall be determined under subsection (c)(1) without regard to
subsection (c)(2).
(D) Special rule where lump sum paid in connection with
commencement of annuity payments
If, in connection with the commencement of annuity payments
under any qualified employer retirement plan, the taxpayer
receives a lump-sum payment -
(i) such payment shall be taxable under subsection (e) as
if received before the annuity starting date, and
(ii) the investment in the contract for purposes of this
paragraph shall be determined as if such payment had been so
received.
(E) Exception
This paragraph shall not apply in any case where the primary
annuitant has attained age 75 on the annuity starting date
unless there are fewer than 5 years of guaranteed payments
under the annuity.
(F) Adjustment where annuity payments not on monthly basis
In any case where the annuity payments are not made on a
monthly basis, appropriate adjustments in the application of
this paragraph shall be made to take into account the period on
the basis of which such payments are made.
(G) Qualified employer retirement plan
For purposes of this paragraph, the term "qualified employer
retirement plan" means any plan or contract described in
paragraph (1), (2), or (3) of section 4974(c).
(2) Treatment of employee contributions under defined
contribution plans
For purposes of this section, employee contributions (and any
income allocable thereto) under a defined contribution plan may
be treated as a separate contract.
(e) Amounts not received as annuities
(1) Application of subsection
(A) In general
This subsection shall apply to any amount which -
(i) is received under an annuity, endowment, or life
insurance contract, and
(ii) is not received as an annuity,
if no provision of this subtitle (other than this subsection)
applies with respect to such amount.
(B) Dividends
For purposes of this section, any amount received which is in
the nature of a dividend or similar distribution shall be
treated as an amount not received as an annuity.
(2) General rule
Any amount to which this subsection applies -
(A) if received on or after the annuity starting date, shall
be included in gross income, or
(B) if received before the annuity starting date -
(i) shall be included in gross income to the extent
allocable to income on the contract, and
(ii) shall not be included in gross income to the extent
allocable to the investment in the contract.
(3) Allocation of amounts to income and investment
For purposes of paragraph (2)(B) -
(A) Allocation to income
Any amount to which this subsection applies shall be treated
as allocable to income on the contract to the extent that such
amount does not exceed the excess (if any) of -
(i) the cash value of the contract (determined without
regard to any surrender charge) immediately before the amount
is received, over
(ii) the investment in the contract at such time.
(B) Allocation to investment
Any amount to which this subsection applies shall be treated
as allocable to investment in the contract to the extent that
such amount is not allocated to income under subparagraph (A).
(4) Special rules for application of paragraph (2)(B)
For purposes of paragraph (2)(B) -
(A) Loans treated as distributions
If, during any taxable year, an individual -
(i) receives (directly or indirectly) any amount as a loan
under any contract to which this subsection applies, or
(ii) assigns or pledges (or agrees to assign or pledge) any
portion of the value of any such contract,
such amount or portion shall be treated as received under the
contract as an amount not received as an annuity. The preceding
sentence shall not apply for purposes of determining investment
in the contract, except that the investment in the contract
shall be increased by any amount included in gross income by
reason of the amount treated as received under the preceding
sentence.
(B) Treatment of policyholder dividends
Any amount described in paragraph (1)(B) shall not be
included in gross income under paragraph (2)(B)(i) to the
extent such amount is retained by the insurer as a premium or
other consideration paid for the contract.
(C) Treatment of transfers without adequate consideration
(i) In general
If an individual who holds an annuity contract transfers it
without full and adequate consideration, such individual
shall be treated as receiving an amount equal to the excess
of -
(I) the cash surrender value of such contract at the time
of transfer, over
(II) the investment in such contract at such time,
under the contract as an amount not received as an annuity.
(ii) Exception for certain transfers between spouses or
former spouses
Clause (i) shall not apply to any transfer to which section
1041(a) (relating to transfers of property between spouses or
incident to divorce) applies.
(iii) Adjustment to investment in contract of transferee
If under clause (i) an amount is included in the gross
income of the transferor of an annuity contract, the
investment in the contract of the transferee in such contract
shall be increased by the amount so included.
(5) Retention of existing rules in certain cases
(A) In general
In any case to which this paragraph applies -
(i) paragraphs (2)(B) and (4)(A) shall not apply, and
(ii) if paragraph (2)(A) does not apply,
the amount shall be included in gross income, but only to the
extent it exceeds the investment in the contract.
(B) Existing contracts
This paragraph shall apply to contracts entered into before
August 14, 1982. Any amount allocable to investment in the
contract after August 13, 1982, shall be treated as from a
contract entered into after such date.
(C) Certain life insurance and endowment contracts
Except as provided in paragraph (10) and except to the extent
prescribed by the Secretary by regulations, this paragraph
shall apply to any amount not received as an annuity which is
received under a life insurance or endowment contract.
(D) Contracts under qualified plans
Except as provided in paragraph (8), this paragraph shall
apply to any amount received -
(i) from a trust described in section 401(a) which is
exempt from tax under section 501(a),
(ii) from a contract -
(I) purchased by a trust described in clause (i),
(II) purchased as part of a plan described in section
403(a),
(III) described in section 403(b), or
(IV) provided for employees of a life insurance company
under a plan described in section 818(a)(3), or
(iii) from an individual retirement account or an
individual retirement annuity.
Any dividend described in section 404(k) which is received by a
participant or beneficiary shall, for purposes of this
subparagraph, be treated as paid under a separate contract to
which clause (ii)(I) applies.
(E) Full refunds, surrenders, redemptions, and maturities
This paragraph shall apply to -
(i) any amount received, whether in a single sum or
otherwise, under a contract in full discharge of the
obligation under the contract which is in the nature of a
refund of the consideration paid for the contract, and
(ii) any amount received under a contract on its complete
surrender, redemption, or maturity.
In the case of any amount to which the preceding sentence
applies, the rule of paragraph (2)(A) shall not apply.
(6) Investment in the contract
For purposes of this subsection, the investment in the contract
as of any date is -
(A) the aggregate amount of premiums or other consideration
paid for the contract before such date, minus
(B) the aggregate amount received under the contract before
such date, to the extent that such amount was excludable from
gross income under this subtitle or prior income tax laws.
[(7) Repealed. Pub. L. 100-647, title I, Sec. 1011A(b)(9)(A),
Nov. 10, 1988, 102 Stat. 3474]
(8) Extension of paragraph (2)(b) (!1) to qualified plans
(A) In general
Notwithstanding any other provision of this subsection, in
the case of any amount received before the annuity starting
date from a trust or contract described in paragraph (5)(D),
paragraph (2)(B) shall apply to such amounts.
(B) Allocation of amount received
For purposes of paragraph (2)(B), the amount allocated to the
investment in the contract shall be the portion of the amount
described in subparagraph (A) which bears the same ratio to
such amount as the investment in the contract bears to the
account balance. The determination under the preceding sentence
shall be made as of the time of the distribution or at such
other time as the Secretary may prescribe.
(C) Treatment of forfeitable rights
If an employee does not have a nonforfeitable right to any
amount under any trust or contract to which subparagraph (A)
applies, such amount shall not be treated as part of the
account balance.
(D) Investment in the contract before 1987
In the case of a plan which on May 5, 1986, permitted
withdrawal of any employee contributions before separation from
service, subparagraph (A) shall apply only to the extent that
amounts received before the annuity starting date (when
increased by amounts previously received under the contract
after December 31, 1986) exceed the investment in the contract
as of December 31, 1986.
(9) Extension of paragraph (2)(B) to qualified tuition programs
and Coverdell education savings accounts
Notwithstanding any other provision of this subsection,
paragraph (2)(B) shall apply to amounts received under a
qualified tuition program (as defined in section 529(b)) or under
a Coverdell education savings account (as defined in section
530(b)). The rule of paragraph (8)(B) shall apply for purposes of
this paragraph.
(10) Treatment of modified endowment contracts
(A) In general
Notwithstanding paragraph (5)(C), in the case of any modified
endowment contract (as defined in section 7702A) -
(i) paragraphs (2)(B) and (4)(A) shall apply, and
(ii) in applying paragraph (4)(A), "any person" shall be
substituted for "an individual".
(B) Treatment of certain burial contracts
Notwithstanding subparagraph (A), paragraph (4)(A) shall not
apply to any assignment (or pledge) of a modified endowment
contract if such assignment (or pledge) is solely to cover the
payment of expenses referred to in section 7702(e)(2)(C)(iii)
and if the maximum death benefit under such contract does not
exceed $25,000.
(11) Anti-abuse rules
(A) In general
For purposes of determining the amount includible in gross
income under this subsection -
(i) all modified endowment contracts issued by the same
company to the same policyholder during any calendar year
shall be treated as 1 modified endowment contract, and
(ii) all annuity contracts issued by the same company to
the same policyholder during any calendar year shall be
treated as 1 annuity contract.
The preceding sentence shall not apply to any contract
described in paragraph (5)(D).
(B) Regulatory authority
The Secretary may by regulations prescribe such additional
rules as may be necessary or appropriate to prevent avoidance
of the purposes of this subsection through serial purchases of
contracts or otherwise.
(f) Special rules for computing employees' contributions
In computing, for purposes of subsection (c)(1)(A), the aggregate
amount of premiums or other consideration paid for the contract,
and for purposes of subsection (e)(6), the aggregate premiums or
other consideration paid, amounts contributed by the employer shall
be included, but only to the extent that -
(1) such amounts were includible in the gross income of the
employee under this subtitle or prior income tax laws; or
(2) if such amounts had been paid directly to the employee at
the time they were contributed, they would not have been
includible in the gross income of the employee under the law
applicable at the time of such contribution.
Paragraph (2) shall not apply to amounts which were contributed by
the employer after December 31, 1962, and which would not have been
includible in the gross income of the employee by reason of the
application of section 911 if such amounts had been paid directly
to the employee at the time of contribution. The preceding sentence
shall not apply to amounts which were contributed by the employer,
as determined under regulations prescribed by the Secretary, to
provide pension or annuity credits, to the extent such credits are
attributable to services performed before January 1, 1963, and are
provided pursuant to pension or annuity plan provisions in
existence on March 12, 1962, and on that date applicable to such
services, or to the extent such credits are attributable to
services performed as a foreign missionary (within the meaning of
section 403(b)(2)(D)(iii), as in effect before the enactment of the
Economic Growth and Tax Relief Reconciliation Act of 2001).
(g) Rules for transferee where transfer was for value
Where any contract (or any interest therein) is transferred (by
assignment or otherwise) for a valuable consideration, to the
extent that the contract (or interest therein) does not, in the
hands of the transferee, have a basis which is determined by
reference to the basis in the hands of the transferor, then -
(1) for purposes of this section, only the actual value of such
consideration, plus the amount of the premiums and other
consideration paid by the transferee after the transfer, shall be
taken into account in computing the aggregate amount of the
premiums or other consideration paid for the contract;
(2) for purposes of subsection (c)(1)(B), there shall be taken
into account only the aggregate amount received under the
contract by the transferee before the annuity starting date, to
the extent that such amount was excludable from gross income
under this subtitle or prior income tax laws; and
(3) the annuity starting date is January 1, 1954, or the first
day of the first period for which the transferee received an
amount under the contract as an annuity, whichever is the later.
For purposes of this subsection, the term "transferee" includes a
beneficiary of, or the estate of, the transferee.
(h) Option to receive annuity in lieu of lump sum
If -
(1) a contract provides for payment of a lump sum in full
discharge of an obligation under the contract, subject to an
option to receive an annuity in lieu of such lump sum;
(2) the option is exercised within 60 days after the day on
which such lump sum first became payable; and
(3) part or all of such lump sum would (but for this
subsection) be includible in gross income by reason of subsection
(e)(1),
then, for purposes of this subtitle, no part of such lump sum shall
be considered as includible in gross income at the time such lump
sum first became payable.
[(i) Repealed. Pub. L. 94-455, title XIX, Sec. 1951(b)(1)(A), Oct.
4, 1976, 90 Stat. 1836]
(j) Interest
Notwithstanding any other provision of this section, if any
amount is held under an agreement to pay interest thereon, the
interest payments shall be included in gross income.
[(k) Repealed. Pub. L. 98-369, div. A, title IV, Sec. 421(b)(1),
July 18, 1984, 98 Stat. 794]
(l) Face-amount certificates
For purposes of this section, the term "endowment contract"
includes a face-amount certificate, as defined in section 2(a)(15)
of the Investment Company Act of 1940 (15 U.S.C., sec. 80a-2),
issued after December 31, 1954.
(m) Special rules applicable to employee annuities and
distributions under employee plans
[(1) Repealed. Pub. L. 93-406, title II, Sec. 2001(h)(2), Sept.
2, 1974, 88 Stat. 957]
(2) Computation of consideration paid by the employee
In computing -
(A) the aggregate amount of premiums or other consideration
paid for the contract for purposes of subsection (c)(1)(A)
(relating to the investment in the contract), and
(B) the aggregate premiums or other consideration paid for
purposes of subsection (e)(6) (relating to certain amounts not
received as an annuity),
any amount allowed as a deduction with respect to the contract
under section 404 which was paid while the employee was an
employee within the meaning of section 401(c)(1) shall be treated
as consideration contributed by the employer, and there shall not
be taken into account any portion of the premiums or other
consideration for the contract paid while the employee was an
owner-employee which is properly allocable (as determined under
regulations prescribed by the Secretary) to the cost of life,
accident, health, or other insurance.
(3) Life insurance contracts
(A) This paragraph shall apply to any life insurance contract
-
(i) purchased as a part of a plan described in section
403(a), or
(ii) purchased by a trust described in section 401(a) which
is exempt from tax under section 501(a) if the proceeds of
such contract are payable directly or indirectly to a
participant in such trust or to a beneficiary of such
participant.
(B) Any contribution to a plan described in subparagraph
(A)(i) or a trust described in subparagraph (A)(ii) which is
allowed as a deduction under section 404, and any income of a
trust described in subparagraph (A)(ii), which is determined in
accordance with regulations prescribed by the Secretary to have
been applied to purchase the life insurance protection under a
contract described in subparagraph (A), is includible in the
gross income of the participant for the taxable year when so
applied.
(C) In the case of the death of an individual insured under a
contract described in subparagraph (A), an amount equal to the
cash surrender value of the contract immediately before the
death of the insured shall be treated as a payment under such
plan or a distribution by such trust, and the excess of the
amount payable by reason of the death of the insured over such
cash surrender value shall not be includible in gross income
under this section and shall be treated as provided in section
101.
[(4) Repealed. Pub. L. 97-248, title II, Sec. 236(b)(1), Sept. 3,
1982, 96 Stat. 510]
(5) Penalties applicable to certain amounts received by 5-percent
owners
(A) This paragraph applies to amounts which are received from
a qualified trust described in section 401(a) or under a plan
described in section 403(a) at any time by an individual who
is, or has been, a 5-percent owner, or by a successor of such
an individual, but only to the extent such amounts are
determined, under regulations prescribed by the Secretary, to
exceed the benefits provided for such individual under the plan
formula.
(B) If a person receives an amount to which this paragraph
applies, his tax under this chapter for the taxable year in
which such amount is received shall be increased by an amount
equal to 10 percent of the portion of the amount so received
which is includible in his gross income for such taxable year.
(C) For purposes of this paragraph, the term "5-percent
owner" means any individual who, at any time during the 5 plan
years preceding the plan year ending in the taxable year in
which the amount is received, is a 5-percent owner (as defined
in section 416(i)(1)(B)).
(6) Owner-employee defined
For purposes of this subsection, the term "owner-employee" has
the meaning assigned to it by section 401(c)(3) and includes an
individual for whose benefit an individual retirement account or
annuity described in section 408(a) or (b) is maintained. For
purposes of the preceding sentence, the term "owner-employee"
shall include an employee within the meaning of section
401(c)(1).
(7) Meaning of disabled
For purposes of this section, an individual shall be considered
to be disabled if he is unable to engage in any substantial
gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or
to be of long-continued and indefinite duration. An individual
shall not be considered to be disabled unless he furnishes proof
of the existence thereof in such form and manner as the Secretary
may require.
[(8) Repealed. Pub. L. 97-248, title II, Sec. 236(b)(1), Sept. 3,
1982, 96 Stat. 510]
[(9) Repealed. Pub. L. 98-369, div. A, title VII, Sec. 713(d)(1),
July 18, 1984, 98 Stat. 957]
(10) Determination of investment in the contract in the case of
qualified domestic relations orders
Under regulations prescribed by the Secretary, in the case of a
distribution or payment made to an alternate payee who is the
spouse or former spouse of the participant pursuant to a
qualified domestic relations order (as defined in section
414(p)), the investment in the contract as of the date prescribed
in such regulations shall be allocated on a pro rata basis
between the present value of such distribution or payment and the
present value of all other benefits payable with respect to the
participant to which such order relates.
(n) Annuities under retired serviceman's family protection plan or
survivor benefit plan
Subsection (b) shall not apply in the case of amounts received
after December 31, 1965, as an annuity under chapter 73 of title 10
of the United States Code, but all such amounts shall be excluded
from gross income until there has been so excluded (under section
122(b)(1) or this section, including amounts excluded before
January 1, 1966) an amount equal to the consideration for the
contract (as defined by section 122(b)(2)), plus any amount treated
pursuant to section 101(b)(2)(D) (as in effect on the day before
the date of the enactment of the Small Business Job Protection Act
of 1996) as additional consideration paid by the employee.
Thereafter all amounts so received shall be included in gross
income.
(o) Special rules for distributions from qualified plans to which
employee made deductible contributions
(1) Treatment of contributions
For purposes of this section and sections 402 and 403,
notwithstanding section 414(h), any deductible employee
contribution made to a qualified employer plan or government plan
shall be treated as an amount contributed by the employer which
is not includible in the gross income of the employee.
[(2) Repealed. Pub. L. 100-647, title I, Sec. 1011A(c)(8), Nov.
10, 1988, 102 Stat. 3476]
(3) Amounts constructively received
(A) In general
For purposes of this subsection, rules similar to the rules
provided by subsection (p) (other than the exception contained
in paragraph (2) thereof) shall apply.
(B) Purchase of life insurance
To the extent any amount of accumulated deductible employee
contributions of an employee are applied to the purchase of
life insurance contracts, such amount shall be treated as
distributed to the employee in the year so applied.
(4) Special rule for treatment of rollover amounts
For purposes of sections 402(c), 403(a)(4), and 403(b)(8),
408(d)(3), and 457(e)(16), the Secretary shall prescribe
regulations providing for such allocations of amounts
attributable to accumulated deductible employee contributions,
and for such other rules, as may be necessary to insure that such
accumulated deductible employee contributions do not become
eligible for additional tax benefits (or freed from limitations)
through the use of rollovers.
(5) Definitions and special rules
For purposes of this subsection -
(A) Deductible employee contributions
The term "deductible employee contributions" means any
qualified voluntary employee contribution (as defined in
section 219(e)(2)) made after December 31, 1981, in a taxable
year beginning after such date and made for a taxable year
beginning before January 1, 1987, and allowable as a deduction
under section 219(a) for such taxable year.
(B) Accumulated deductible employee contributions
The term "accumulated deductible employee contributions"
means the deductible employee contributions -
(i) increased by the amount of income and gain allocable to
such contributions, and
(ii) reduced by the sum of the amount of loss and expense
allocable to such contributions and the amounts distributed
with respect to the employee which are attributable to such
contributions (or income or gain allocable to such
contributions).
(C) Qualified employer plan
The term "qualified employer plan" has the meaning given to
such term by subsection (p)(3)(A)(i).
(D) Government plan
The term "government plan" has the meaning given such term by
subsection (p)(3)(B).
(6) Ordering rules
Unless the plan specifies otherwise, any distribution from such
plan shall not be treated as being made from the accumulated
deductible employee contributions, until all other amounts to the
credit of the employee have been distributed.
(p) Loans treated as distributions
For purposes of this section -
(1) Treatment as distributions
(A) Loans
If during any taxable year a participant or beneficiary
receives (directly or indirectly) any amount as a loan from a
qualified employer plan, such amount shall be treated as having
been received by such individual as a distribution under such
plan.
(B) Assignments or pledges
If during any taxable year a participant or beneficiary
assigns (or agrees to assign) or pledges (or agrees to pledge)
any portion of his interest in a qualified employer plan, such
portion shall be treated as having been received by such
individual as a loan from such plan.
(2) Exception for certain loans
(A) General rule
Paragraph (1) shall not apply to any loan to the extent that
such loan (when added to the outstanding balance of all other
loans from such plan whether made on, before, or after August
13, 1982), does not exceed the lesser of -
(i) $50,000, reduced by the excess (if any) of -
(I) the highest outstanding balance of loans from the
plan during the 1-year period ending on the day before the
date on which such loan was made, over
(II) the outstanding balance of loans from the plan on
the date on which such loan was made, or
(ii) the greater of (I) one-half of the present value of
the nonforfeitable accrued benefit of the employee under the
plan, or (II) $10,000.
For purposes of clause (ii), the present value of the
nonforfeitable accrued benefit shall be determined without
regard to any accumulated deductible employee contributions (as
defined in subsection (o)(5)(B)).
(B) Requirement that loan be repayable within 5 years
(i) In general
Subparagraph (A) shall not apply to any loan unless such
loan, by its terms, is required to be repaid within 5 years.
(ii) Exception for home loans
Clause (i) shall not apply to any loan used to acquire any
dwelling unit which within a reasonable time is to be used
(determined at the time the loan is made) as the principal
residence of the participant.
(C) Requirement of level amortization
Except as provided in regulations, this paragraph shall not
apply to any loan unless substantially level amortization of
such loan (with payments not less frequently than quarterly) is
required over the term of the loan.
(D) Related employers and related plans
For purposes of this paragraph -
(i) the rules of subsections (b), (c), and (m) of section
414 shall apply, and
(ii) all plans of an employer (determined after the
application of such subsections) shall be treated as 1 plan.
(3) Denial of interest deductions in certain cases
(A) In general
No deduction otherwise allowable under this chapter shall be
allowed under this chapter for any interest paid or accrued on
any loan to which paragraph (1) does not apply by reason of
paragraph (2) during the period described in subparagraph (B).
(B) Period to which subparagraph (A) applies
For purposes of subparagraph (A), the period described in
this subparagraph is the period -
(i) on or after the 1st day on which the individual to whom
the loan is made is a key employee (as defined in section
416(i)), or
(ii) such loan is secured by amounts attributable to
elective deferrals described in subparagraph (A) or (C) of
section 402(g)(3).
(4) Qualified employer plan, etc.
For purposes of this subsection -
(A) Qualified employer plan
(i) In general
The term "qualified employer plan" means -
(I) a plan described in section 401(a) which includes a
trust exempt from tax under section 501(a),
(II) an annuity plan described in section 403(a), and
(III) a plan under which amounts are contributed by an
individual's employer for an annuity contract described in
section 403(b).
(ii) Special rule
The term "qualified employer plan" shall include any plan
which was (or was determined to be) a qualified employer plan
or a government plan.
(B) Government plan
The term "government plan" means any plan, whether or not
qualified, established and maintained for its employees by the
United States, by a State or political subdivision thereof, or
by an agency or instrumentality of any of the foregoing.
(5) Special rules for loans, etc., from certain contracts
For purposes of this subsection, any amount received as a loan
under a contract purchased under a qualified employer plan (and
any assignment or pledge with respect to such a contract) shall
be treated as a loan under such employer plan.
(q) 10-percent penalty for premature distributions from annuity
contracts
(1) Imposition of penalty
If any taxpayer receives any amount under an annuity contract,
the taxpayer's tax under this chapter for the taxable year in
which such amount is received shall be increased by an amount
equal to 10 percent of the portion of such amount which is
includible in gross income.
(2) Subsection not to apply to certain distributions
Paragraph 1 shall not apply to any distribution -
(A) made on or after the date on which the taxpayer attains
age 59 1/2 ,
(B) made on or after the death of the holder (or, where the
holder is not an individual, the death of the primary annuitant
(as defined in subsection (s)(6)(B))),
(C) attributable to the taxpayer's becoming disabled within
the meaning of subsection (m)(7),
(D) which is a part of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the taxpayer or the joint
lives (or joint life expectancies) of such taxpayer and his
designated beneficiary,
(E) from a plan, contract, account, trust, or annuity
described in subsection (e)(5)(D),
(F) allocable to investment in the contract before August 14,
1982, or (!2)
(G) under a qualified funding asset (within the meaning of
section 130(d), but without regard to whether there is a
qualified assignment),
(H) to which subsection (t) applies (without regard to
paragraph (2) thereof),
(I) under an immediate annuity contract (within the meaning
of section 72(u)(4)), or
(J) which is purchased by an employer upon the termination of
a plan described in section 401(a) or 403(a) and which is held
by the employer until such time as the employee separates from
service.
(3) Change in substantially equal payments
If -
(A) paragraph (1) does not apply to a distribution by reason
of paragraph (2)(D), and
(B) the series of payments under such paragraph are
subsequently modified (other than by reason of death or
disability) -
(i) before the close of the 5-year period beginning on the
date of the first payment and after the taxpayer attains age
59 1/2 , or
(ii) before the taxpayer attains age 59 1/2 ,
the taxpayer's tax for the 1st taxable year in which such
modification occurs shall be increased by an amount, determined
under regulations, equal to the tax which (but for paragraph
(2)(D)) would have been imposed, plus interest for the deferral
period (within the meaning of subsection (t)(4)(B)).
(r) Certain railroad retirement benefits treated as received under
employer plans
(1) In general
Notwithstanding any other provision of law, any benefit
provided under the Railroad Retirement Act of 1974 (other than a
tier 1 railroad retirement benefit) shall be treated for purposes
of this title as a benefit provided under an employer plan which
meets the requirements of section 401(a).
(2) Tier 2 taxes treated as contributions
(A) In general
For purposes of paragraph (1) -
(i) the tier 2 portion of the tax imposed by section 3201
(relating to tax on employees) shall be treated as an
employee contribution,
(ii) the tier 2 portion of the tax imposed by section 3211
(relating to tax on employee representatives) shall be
treated as an employee contribution, and
(iii) the tier 2 portion of the tax imposed by section 3221
(relating to tax on employers) shall be treated as an
employer contribution.
(B) Tier 2 portion
For purposes of subparagraph (A) -
(i) After 1984
With respect to compensation paid after 1984, the tier 2
portion shall be the taxes imposed by sections 3201(b),
3211(b), and 3221(b).
(ii) After September 30, 1981, and before 1985
With respect to compensation paid before 1985 for services
rendered after September 30, 1981, the tier 2 portion shall
be -
(I) so much of the tax imposed by section 3201 as is
determined at the 2 percent rate, and
(II) so much of the taxes imposed by sections 3211 and
3221 as is determined at the 11.75 percent rate.
With respect to compensation paid for services rendered after
December 31, 1983, and before 1985, subclause (I) shall be
applied by substituting "2.75 percent" for "2 percent", and
subclause (II) shall be applied by substituting "12.75
percent" for "11.75 percent".
(iii) Before October 1, 1981
With respect to compensation paid for services rendered
during any period before October 1, 1981, the tier 2 portion
shall be the excess (if any) of -
(I) the tax imposed for such period by section 3201,
3211, or 3221, as the case may be (other than any tax
imposed with respect to man-hours), over
(II) the tax which would have been imposed by such
section for such period had the rates of the comparable
taxes imposed by chapter 21 for such period applied under
such section.
(C) Contributions not allocable to supplemental annuity or
windfall benefits
For purposes of paragraph (1), no amount treated as an
employee contribution under this paragraph shall be allocated
to -
(i) any supplemental annuity paid under section 2(b) of the
Railroad Retirement Act of 1974, or
(ii) any benefit paid under section 3(h), 4(e), or 4(h) of
such Act.
(3) Tier 1 railroad retirement benefit
For purposes of paragraph (1), the term "tier 1 railroad
retirement benefit" has the meaning given such term by section
86(d)(4).
(s) Required distributions where holder dies before entire interest
is distributed
(1) In general
A contract shall not be treated as an annuity contract for
purposes of this title unless it provides that -
(A) if any holder of such contract dies on or after the
annuity starting date and before the entire interest in such
contract has been distributed, the remaining portion of such
interest will be distributed at least as rapidly as under the
method of distributions being used as of the date of his death,
and
(B) if any holder of such contract dies before the annuity
starting date, the entire interest in such contract will be
distributed within 5 years after the death of such holder.
(2) Exception for certain amounts payable over life of
beneficiary
If -
(A) any portion of the holder's interest is payable to (or
for the benefit of) a designated beneficiary,
(B) such portion will be distributed (in accordance with
regulations) over the life of such designated beneficiary (or
over a period not extending beyond the life expectancy of such
beneficiary), and
(C) such distributions begin not later than 1 year after the
date of the holder's death or such later date as the Secretary
may by regulations prescribe,
then for purposes of paragraph (1), the portion referred to in
subparagraph (A) shall be treated as distributed on the day on
which such distributions begin.
(3) Special rule where surviving spouse beneficiary
If the designated beneficiary referred to in paragraph (2)(A)
is the surviving spouse of the holder of the contract, paragraphs
(1) and (2) shall be applied by treating such spouse as the
holder of such contract.
(4) Designated beneficiary
For purposes of this subsection, the term "designated
beneficiary" means any individual designated a beneficiary by the
holder of the contract.
(5) Exception for certain annuity contracts
This subsection shall not apply to any annuity contract -
(A) which is provided -
(i) under a plan described in section 401(a) which includes
a trust exempt from tax under section 501, or
(ii) under a plan described in section 403(a),
(B) which is described in section 403(b),
(C) which is an individual retirement annuity or provided
under an individual retirement account or annuity, or
(D) which is a qualified funding asset (as defined in section
130(d), but without regard to whether there is a qualified
assignment).
(6) Special rule where holder is corporation or other non-
individual
(A) In general
For purposes of this subsection, if the holder of the
contract is not an individual, the primary annuitant shall be
treated as the holder of the contract.
(B) Primary annuitant
For purposes of subparagraph (A), the term "primary
annuitant" means the individual, the events in the life of whom
are of primary importance in affecting the timing or amount of
the payout under the contract.
(7) Treatment of changes in primary annuitant where holder of
contract is not an individual
For purposes of this subsection, in the case of a holder of an
annuity contract which is not an individual, if there is a change
in a primary annuitant (as defined in paragraph (6)(B)), such
change shall be treated as the death of the holder.
(t) 10-percent additional tax on early distributions from qualified
retirement plans
(1) Imposition of additional tax
If any taxpayer receives any amount from a qualified retirement
plan (as defined in section 4974(c)), the taxpayer's tax under
this chapter for the taxable year in which such amount is
received shall be increased by an amount equal to 10 percent of
the portion of such amount which is includible in gross income.
(2) Subsection not to apply to certain distributions
Except as provided in paragraphs (3) and (4), paragraph (1)
shall not apply to any of the following distributions:
(A) In general
Distributions which are -
(i) made on or after the date on which the employee attains
age 59 1/2 ,
(ii) made to a beneficiary (or to the estate of the
employee) on or after the death of the employee,
(iii) attributable to the employee's being disabled within
the meaning of subsection (m)(7),
(iv) part of a series of substantially equal periodic
payments (not less frequently than annually) made for the
life (or life expectancy) of the employee or the joint lives
(or joint life expectancies) of such employee and his
designated beneficiary,
(v) made to an employee after separation from service after
attainment of age 55,
(vi) dividends paid with respect to stock of a corporation
which are described in section 404(k), or
(vii) made on account of a levy under section 6331 on the
qualified retirement plan.
(B) Medical expenses
Distributions made to the employee (other than distributions
described in subparagraph (A), (C), or (D)) to the extent such
distributions do not exceed the amount allowable as a deduction
under section 213 to the employee for amounts paid during the
taxable year for medical care (determined without regard to
whether the employee itemizes deductions for such taxable
year).
(C) Payments to alternate payees pursuant to qualified domestic
relations orders
Any distribution to an alternate payee pursuant to a
qualified domestic relations order (within the meaning of
section 414(p)(1)).
(D) Distributions to unemployed individuals for health
insurance premiums
(i) In general
Distributions from an individual retirement plan to an
individual after separation from employment -
(I) if such individual has received unemployment
compensation for 12 consecutive weeks under any Federal or
State unemployment compensation law by reason of such
separation,
(II) if such distributions are made during any taxable
year during which such unemployment compensation is paid or
the succeeding taxable year, and
(III) to the extent such distributions do not exceed the
amount paid during the taxable year for insurance described
in section 213(d)(1)(D) with respect to the individual and
the individual's spouse and dependents (as defined in
section 152, determined without regard to subsections
(b)(1), (b)(2), and (d)(1)(B) thereof).
(ii) Distributions after reemployment
Clause (i) shall not apply to any distribution made after
the individual has been employed for at least 60 days after
the separation from employment to which clause (i) applies.
(iii) Self-employed individuals
To the extent provided in regulations, a self-employed
individual shall be treated as meeting the requirements of
clause (i)(I) if, under Federal or State law, the individual
would have received unemployment compensation but for the
fact the individual was self-employed.
(E) Distributions from individual retirement plans for higher
education expenses
Distributions to an individual from an individual retirement
plan to the extent such distributions do not exceed the
qualified higher education expenses (as defined in paragraph
(7)) of the taxpayer for the taxable year. Distributions shall
not be taken into account under the preceding sentence if such
distributions are described in subparagraph (A), (C), or (D) or
to the extent paragraph (1) does not apply to such
distributions by reason of subparagraph (B).
(F) Distributions from certain plans for first home purchases
Distributions to an individual from an individual retirement
plan which are qualified first-time homebuyer distributions (as
defined in paragraph (8)). Distributions shall not be taken
into account under the preceding sentence if such distributions
are described in subparagraph (A), (C), (D), or (E) or to the
extent paragraph (1) does not apply to such distributions by
reason of subparagraph (B).
(3) Limitations
(A) Certain exceptions not to apply to individual retirement
plans
Subparagraphs (A)(v) and (C) of paragraph (2) shall not apply
to distributions from an individual retirement plan.
(B) Periodic payments under qualified plans must begin after
separation
Paragraph (2)(A)(iv) shall not apply to any amount paid from
a trust described in section 401(a) which is exempt from tax
under section 501(a) or from a contract described in section
72(e)(5)(D)(ii) unless the series of payments begins after the
employee separates from service.
(4) Change in substantially equal payments
(A) In general
If -
(i) paragraph (1) does not apply to a distribution by
reason of paragraph (2)(A)(iv), and
(ii) the series of payments under such paragraph are
subsequently modified (other than by reason of death or
disability) -
(I) before the close of the 5-year period beginning with
the date of the first payment and after the employee
attains age 59 1/2 , or
(II) before the employee attains age 59 1/2 ,
the taxpayer's tax for the 1st taxable year in which such
modification occurs shall be increased by an amount, determined
under regulations, equal to the tax which (but for paragraph
(2)(A)(iv)) would have been imposed, plus interest for the
deferral period.
(B) Deferral period
For purposes of this paragraph, the term "deferral period"
means the period beginning with the taxable year in which
(without regard to paragraph (2)(A)(iv)) the distribution would
have been includible in gross income and ending with the
taxable year in which the modification described in
subparagraph (A) occurs.
(5) Employee
For purposes of this subsection, the term "employee" includes
any participant, and in the case of an individual retirement
plan, the individual for whose benefit such plan was established.
(6) Special rules for simple retirement accounts
In the case of any amount received from a simple retirement
account (within the meaning of section 408(p)) during the 2-year
period beginning on the date such individual first participated
in any qualified salary reduction arrangement maintained by the
individual's employer under section 408(p)(2), paragraph (1)
shall be applied by substituting "25 percent" for "10 percent".
(7) Qualified higher education expenses
For purposes of paragraph (2)(E) -
(A) In general
The term "qualified higher education expenses" means
qualified higher education expenses (as defined in section
529(e)(3)) for education furnished to -
(i) the taxpayer,
(ii) the taxpayer's spouse, or
(iii) any child (as defined in section 152(f)(1)) or
grandchild of the taxpayer or the taxpayer's spouse,
at an eligible educational institution (as defined in section
529(e)(5)).
(B) Coordination with other benefits
The amount of qualified higher education expenses for any
taxable year shall be reduced as provided in section 25A(g)(2).
(8) Qualified first-time homebuyer distributions
For purposes of paragraph (2)(F) -
(A) In general
The term "qualified first-time homebuyer distribution" means
any payment or distribution received by an individual to the
extent such payment or distribution is used by the individual
before the close of the 120th day after the day on which such
payment or distribution is received to pay qualified
acquisition costs with respect to a principal residence of a
first-time homebuyer who is such individual, the spouse of such
individual, or any child, grandchild, or ancestor of such
individual or the individual's spouse.
(B) Lifetime dollar limitation
The aggregate amount of payments or distributions received by
an individual which may be treated as qualified first-time
homebuyer distributions for any taxable year shall not exceed
the excess (if any) of -
(i) $10,000, over
(ii) the aggregate amounts treated as qualified first-time
homebuyer distributions with respect to such individual for
all prior taxable years.
(C) Qualified acquisition costs
For purposes of this paragraph, the term "qualified
acquisition costs" means the costs of acquiring, constructing,
or reconstructing a residence. Such term includes any usual or
reasonable settlement, financing, or other closing costs.
(D) First-time homebuyer; other definitions
For purposes of this paragraph -
(i) First-time homebuyer
The term "first-time homebuyer" means any individual if -
(I) such individual (and if married, such individual's
spouse) had no present ownership interest in a principal
residence during the 2-year period ending on the date of
acquisition of the principal residence to which this
paragraph applies, and
(II) subsection (h) or (k) of section 1034 (!3) (as in
effect on the day before the date of the enactment of this
paragraph) did not suspend the running of any period of
time specified in section 1034 (!3) (as so in effect) with
respect to such individual on the day before the date the
distribution is applied pursuant to subparagraph (A).
(ii) Principal residence
The term "principal residence" has the same meaning as when
used in section 121.
(iii) Date of acquisition
The term "date of acquisition" means the date -
(I) on which a binding contract to acquire the principal
residence to which subparagraph (A) applies is entered
into, or
(II) on which construction or reconstruction of such a
principal residence is commenced.
(E) Special rule where delay in acquisition
If any distribution from any individual retirement plan fails
to meet the requirements of subparagraph (A) solely by reason
of a delay or cancellation of the purchase or construction of
the residence, the amount of the distribution may be
contributed to an individual retirement plan as provided in
section 408(d)(3)(A)(i) (determined by substituting "120th day"
for "60th day" in such section), except that -
(i) section 408(d)(3)(B) shall not be applied to such
contribution, and
(ii) such amount shall not be taken into account in
determining whether section 408(d)(3)(B) applies to any other
amount.
(9) Special rule for rollovers to section 457 plans
For purposes of this subsection, a distribution from an
eligible deferred compensation plan (as defined in section
457(b)) of an eligible employer described in section 457(e)(1)(A)
shall be treated as a distribution from a qualified retirement
plan described in 4974(c)(1) to the extent that such distribution
is attributable to an amount transferred to an eligible deferred
compensation plan from a qualified retirement plan (as defined in
section 4974(c)).
(u) Treatment of annuity contracts not held by natural persons
(1) In general
If any annuity contract is held by a person who is not a
natural person -
(A) such contract shall not be treated as an annuity contract
for purposes of this subtitle (other than subchapter L), and
(B) the income on the contract for any taxable year of the
policyholder shall be treated as ordinary income received or
accrued by the owner during such taxable year.
For purposes of this paragraph, holding by a trust or other
entity as an agent for a natural person shall not be taken into
account.
(2) Income on the contract
(A) In general
For purposes of paragraph (1), the term "income on the
contract" means, with respect to any taxable year of the
policyholder, the excess of -
(i) the sum of the net surrender value of the contract as
of the close of the taxable year plus all distributions under
the contract received during the taxable year or any prior
taxable year, reduced by
(ii) the sum of the amount of net premiums under the
contract for the taxable year and prior taxable years and
amounts includible in gross income for prior taxable years
with respect to such contract under this subsection.
Where necessary to prevent the avoidance of this subsection,
the Secretary may substitute "fair market value of the
contract" for "net surrender value of the contract" each place
it appears in the preceding sentence.
(B) Net premiums
For purposes of this paragraph, the term "net premiums" means
the amount of premiums paid under the contract reduced by any
policyholder dividends.
(3) Exceptions
This subsection shall not apply to any annuity contract which -
(A) is acquired by the estate of a decedent by reason of the
death of the decedent,
(B) is held under a plan described in section 401(a) or
403(a), under a program described in section 403(b), or under
an individual retirement plan,
(C) is a qualified funding asset (as defined in section
130(d), but without regard to whether there is a qualified
assignment),
(D) is purchased by an employer upon the termination of a
plan described in section 401(a) or 403(a) and is held by the
employer until all amounts under such contract are distributed
to the employee for whom such contract was purchased or the
employee's beneficiary, or
(E) is an immediate annuity.
(4) Immediate annuity
For purposes of this subsection, the term "immediate annuity"
means an annuity -
(A) which is purchased with a single premium or annuity
consideration,
(B) the annuity starting date (as defined in subsection
(c)(4)) of which commences no later than 1 year from the date
of the purchase of the annuity, and
(C) which provides for a series of substantially equal
periodic payments (to be made not less frequently than
annually) during the annuity period.
(v) 10-percent additional tax for taxable distributions from
modified endowment contracts
(1) Imposition of additional tax
If any taxpayer receives any amount under a modified endowment
contract (as defined in section 7702A), the taxpayer's tax under
this chapter for the taxable year in which such amount is
received shall be increased by an amount equal to 10 percent of
the portion of such amount which is includible in gross income.
(2) Subsection not to apply to certain distributions
Paragraph (1) shall not apply to any distribution -
(A) made on or after the date on which the taxpayer attains
age 59 1/2 ,
(B) which is attributable to the taxpayer's becoming disabled
(within the meaning of subsection (m)(7)), or
(C) which is part of a series of substantially equal periodic
payments (not less frequently than annually) made for the life
(or life expectancy) of the taxpayer or the joint lives (or
joint life expectancies) of such taxpayer and his beneficiary.
(w) Application of basis rules to nonresident aliens
(1) In general
Notwithstanding any other provision of this section, for
purposes of determining the portion of any distribution which is
includible in gross income of a distributee who is a citizen or
resident of the United States, the investment in the contract
shall not include any applicable nontaxable contributions or
applicable nontaxable earnings.
(2) Applicable nontaxable contribution
For purposes of this subsection, the term "applicable
nontaxable contribution" means any employer or employee
contribution -
(A) which was made with respect to compensation -
(i) for labor or personal services performed by an employee
who, at the time the labor or services were performed, was a
nonresident alien for purposes of the laws of the United
States in effect at such time, and
(ii) which is treated as from sources without the United
States, and
(B) which was not subject to income tax (and would have been
subject to income tax if paid as cash compensation when the
services were rendered) under the laws of the United States or
any foreign country.
(3) Applicable nontaxable earnings
For purposes of this subsection, the term "applicable
nontaxable earnings" means earnings -
(A) which are paid or accrued with respect to any employer or
employee contribution which was made with respect to
compensation for labor or personal services performed by an
employee,
(B) with respect to which the employee was at the time the
earnings were paid or accrued a nonresident alien for purposes
of the laws of the United States, and
(C) which were not subject to income tax under the laws of
the United States or any foreign country.
(4) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the provisions of this subsection,
including regulations treating contributions and earnings as not
subject to tax under the laws of any foreign country where
appropriate to carry out the purposes of this subsection.
(x) Cross reference
For limitation on adjustments to basis of annuity contracts
sold, see section 1021.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 20; Pub. L. 87-792, Sec. 4(a),
(b), Oct. 10, 1962, 76 Stat. 821; Pub. L. 87-834, Sec. 11(b), Oct.
16, 1962, 76 Stat. 1005; Pub. L. 88-272, title II, Sec. 232(b),
Feb. 26, 1964, 78 Stat. 110; Pub. L. 89-44, title VIII, Sec.
809(d)(2), June 21, 1965, 79 Stat. 167; Pub. L. 89-97, title I,
Sec. 106(d)(2), July 30, 1965, 79 Stat. 337; Pub. L. 89-365, Sec.
1(b), Mar. 8, 1966, 80 Stat. 32; Pub. L. 91-172, title V, Sec.
515(b), Dec. 30, 1969, 83 Stat. 644; Pub. L. 93-406, title II,
Secs. 2001(e)(5), (g)(1), (2)(A), (h)(2), (3), 2002(g)(10),
2005(c)(3), 2007(b)(2), Sept. 2, 1974, 88 Stat. 955, 957, 970, 991,
994; Pub. L. 94-455, title XIX, Secs. 1901(a)(12), (13),
1906(b)(13)(A), 1951(b)(1)(A), Oct. 4, 1976, 90 Stat. 1765, 1834,
1836; Pub. L. 97-34, title III, Secs. 311(b)(1), 312(d), (e)(1),
Aug. 13, 1981, 95 Stat. 278, 284; Pub. L. 97-248, title II, Secs.
236(a), (b), 237(d), 265(a), (b)(1), Sept. 3, 1982, 96 Stat. 509-
511, 544-546; Pub. L. 97-448, title I, Sec. 103(c)(3)(B)(i), (6),
Jan. 12, 1983, 96 Stat. 2376; Pub. L. 98-76, title II, Sec. 224(a),
Aug. 12, 1983, 97 Stat. 421; Pub. L. 98-369, div. A, title II,
Secs. 211(b)(1), 222(a), (b), title IV, Secs. 421(b)(1), 491(d)(3),
(4), title V, Secs. 521(d), 523(a), (b), title VII, Sec. 713(b)(1)-
(c)(1)(B), (d)(1), July 18, 1984, 98 Stat. 754, 774, 794, 849,
868, 871, 872, 956, 957; Pub. L. 98-397, title II, Sec. 204(c)(2),
Aug. 23, 1984, 98 Stat. 1448; Pub. L. 99-514, title XI, Secs.
1101(b)(2)(B), (C), 1122(c), 1123(a), (b), (d)(1), 1134(a)-(d),
1135(a), title XVIII, Secs. 1826(a), (b)(1)-(3), (c), (d),
1852(a)(2), (c)(1)-(4), 1854(b)(1), 1898(c)(1)(B), Oct. 22, 1986,
100 Stat. 2413, 2414, 2467, 2472, 2474, 2475, 2483, 2484, 2848-
2850, 2864, 2867, 2878, 2951; Pub. L. 100-647, title I, Secs.
1011A(b)(1)(A), (B), (2), (9), (c)(1)-(8), (h), (i), 1018(k),
(t)(1)(A), (B), (u)(8), title V, Sec. 5012(a), (b)(1), (d), Nov.
10, 1988, 102 Stat. 3472, 3474-3476, 3482, 3583, 3587, 3590, 3661,
3662, 3664; Pub. L. 101-239, title VII, Secs. 7811(m)(4),
7815(a)(3), (5), Dec. 19, 1989, 103 Stat. 2412, 2414; Pub. L. 101-
508, title XI, Sec. 11802(a), Nov. 5, 1990, 104 Stat. 1388-529;
Pub. L. 102-318, title V, Sec. 521(b)(3), July 3, 1992, 106 Stat.
310; Pub. L. 104-188, title I, Secs. 1403(a), 1421(b)(4)(A),
1463(a), 1704(l)(1), (t)(2), (77), Aug. 20, 1996, 110 Stat. 1790,
1796, 1824, 1882, 1887, 1891; Pub. L. 104-191, title III, Sec.
361(a)-(c), Aug. 21, 1996, 110 Stat. 2071, 2072; Pub. L. 105-34,
title II, Sec. 203(a), (b), title III, Sec. 303(a), (b), title X,
Sec. 1075(a), (b), Aug. 5, 1997, 111 Stat. 809, 829, 949; Pub. L.
105-206, title III, Sec. 3436(a), title VI, Secs. 6004(d)(3)(B),
6005(c)(1), 6023(3), (4), July 22, 1998, 112 Stat. 761, 794, 800,
824; Pub. L. 107-16, title IV, Sec. 402(a)(4)(A), (B), title VI,
Secs. 632(a)(3)(A), 641(a)(2)(C), (e)(1), June 7, 2001, 115 Stat.
60, 61, 113, 120; Pub. L. 107-22, Sec. 1(b)(1)(A), (3)(A), July 26,
2001, 115 Stat. 196, 197; Pub. L. 107-90, title II, Sec. 204(e)(2),
Dec. 21, 2001, 115 Stat. 893; Pub. L. 108-311, title II, Sec.
207(6), (7), title IV, Sec. 408(a)(4), (b)(3), Oct. 4, 2004, 118
Stat. 1177, 1191, 1192; Pub. L. 108-357, title VIII, Sec. 906(a),
Oct. 22, 2004, 118 Stat. 1653.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendments note below.
-REFTEXT-
REFERENCES IN TEXT
The enactment of the Economic Growth and Tax Relief
Reconciliation Act of 2001, referred to in subsec. (f), means the
enactment of Pub. L. 107-16, which was approved June 7, 2001.
The date of the enactment of the Small Business Job Protection
Act of 1996, referred to in subsec. (n), is the date of enactment
of Pub. L. 104-188, which was approved Aug. 20, 1996.
The Railroad Retirement Act of 1974, referred to in subsec.
(r)(1), (2)(C)(i), (ii), is act Aug. 29, 1935, ch. 812, as amended
generally by Pub. L. 93-445, title I, Sec. 101, Oct. 16, 1974, 88
Stat. 1305, which is classified generally to subchapter IV (Sec.
231 et seq.) of chapter 9 of Title 45, Railroads. Sections 2(b),
3(h), and 4(e) and (h) of the Act are classified to sections
231a(b), 231b(h), and 231c(e) and (h), respectively, of Title 45.
For further details and complete classification of this Act to the
Code, see Codification note set out preceding section 231 of Title
45, section 231t of Title 45, and Tables.
Section 1034 (as in effect on the day before the date of the
enactment of this paragraph), referred to in subsec.
(t)(8)(D)(i)(II), means section 1034 of this title as in effect on
the day before Aug. 5, 1997. Section 1034 was repealed by Pub. L.
105-34, title III, Sec. 312(b), Aug. 5, 1997, 111 Stat. 839.
-MISC1-
AMENDMENTS
2004 - Subsec. (e)(9). Pub. L. 108-311, Sec. 408(b)(3), amended
Pub. L. 107-22, Sec. 1(b)(3)(A). See 2001 Amendment note below.
Subsec. (f). Pub. L. 108-311, Sec. 408(a)(4), substituted
"Economic Growth and Tax Relief Reconciliation Act of 2001)" for
"Economic Growth and Tax Relief Reconciliation Act of 2001" in
concluding provisions.
Subsec. (t)(2)(D)(i)(III). Pub. L. 108-311, Sec. 207(6), inserted
", determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof" after "section 152".
Subsec. (t)(7)(A)(iii). Pub. L. 108-311, Sec. 207(7), substituted
"152(f)(1)" for "151(c)(3)".
Subsecs. (w), (x). Pub. L. 108-357 added subsec. (w) and
redesignated former subsec. (w) as (x).
2001 - Subsec. (e)(9). Pub. L. 107-22, Sec. 1(b)(3)(A), as
amended by Pub. L. 108-311, Sec. 408(b)(3), substituted "Coverdell
education savings" for "educational individual retirement" in
heading.
Pub. L. 107-22, Sec. 1(b)(1)(A), substituted "a Coverdell
education savings" for "an education individual retirement".
Pub. L. 107-16, Secs. 402(a)(4)(A), (B), 901, temporarily
substituted "qualified tuition" for "qualified State tuition" in
heading and text. See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (f). Pub. L. 107-16, Secs. 632(a)(3)(A), 901, temporarily
substituted "section 403(b)(2)(D)(iii), as in effect before the
enactment of the Economic Growth and Tax Relief Reconciliation Act
of 2001" for "section 403(b)(2)(D)(iii))" in concluding provisions.
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (o)(4). Pub. L. 107-16, Secs. 641(e)(1), 901, temporarily
substituted "403(b)(8), 408(d)(3), and 457(e)(16)" for "and
408(d)(3)". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (r)(2)(B)(i). Pub. L. 107-90 substituted "3211(b)" for
"3211(a)(2)".
Subsec. (t)(9). Pub. L. 107-16, Secs. 641(a)(2)(C), 901,
temporarily added par. (9). See Effective and Termination Dates of
2001 Amendments note below.
1998 - Subsec. (e)(9). Pub. L. 105-206, Sec. 6004(d)(3)(B), added
par. (9).
Subsec. (n). Pub. L. 105-206, Sec. 6023(3), inserted "(as in
effect on the day before the date of the enactment of the Small
Business Job Protection Act of 1996)" after "section 101(b)(2)(D)".
Subsec. (t)(2)(A)(iv). Pub. L. 105-206, Sec. 3436(a), which
directed amendment of cl. (iv) by striking out "or" at end, could
not be executed because the word "or" did not appear at end.
Subsec. (t)(2)(A)(vii). Pub. L. 105-206, Sec. 3436(a), added cl.
(vii).
Subsec. (t)(3)(A). Pub. L. 105-206, Sec. 6023(4), substituted
"(A)(v)" for "(A)(v),".
Subsec. (t)(8)(E). Pub. L. 105-206, Sec. 6005(c)(1), in
introductory provisions, substituted "120th day" for "120 days" and
"60th day" for "60 days".
1997 - Subsec. (d)(1)(B)(iii). Pub. L. 105-34, Sec. 1075(b),
inserted "If the annuity is payable over the life of a single
individual, the number of anticipated payments shall be determined
as follows:" before table and struck out "primary" after "If the
age of the" in table.
Subsec. (d)(1)(B)(iv). Pub. L. 105-34, Sec. 1075(a), added cl.
(iv).
Subsec. (t)(2)(E). Pub. L. 105-34, Sec. 203(a), added subpar.
(E).
Subsec. (t)(2)(F). Pub. L. 105-34, Sec. 303(a), added subpar.
(F).
Subsec. (t)(7). Pub. L. 105-34, Sec. 203(b), added par. (7).
Subsec. (t)(8). Pub. L. 105-34, Sec. 303(b), added par. (8).
1996 - Subsec. (b)(4)(A). Pub. L. 104-188, Sec. 1704(l)(1),
inserted "(determined without regard to subsection (c)(2))" after
"contract".
Subsec. (d). Pub. L. 104-188, Sec. 1403(a), amended subsec. (d)
generally. Prior to amendment, subsec. (d) read as follows:
"Treatment of Employee Contributions Under Defined Contribution
Plans as Separate Contracts. - For purposes of this section,
employee contributions (and any income allocable thereto) under a
defined contribution plan may be treated as a separate contract."
Subsec. (f). Pub. L. 104-188, Sec. 1463(a), in closing
provisions, inserted before period at end ", or to the extent such
credits are attributable to services performed as a foreign
missionary (within the meaning of section 403(b)(2)(D)(iii))".
Subsec. (m)(2)(A) to (C). Pub. L. 104-188, Sec. 1704(t)(2),
inserted "and" at end of subpar. (A), redesignated subpar. (C) as
(B), and struck out former subpar. (B) which read as follows: "the
consideration for the contract contributed by the employee for
purposes of subsection (d)(1) (relating to employee's contributions
recoverable in 3 years) and subsection (e)(7) (relating to plans
where substantially all contributions are employee contributions),
and".
Subsec. (p)(4)(A)(ii). Pub. L. 104-188, Sec. 1704(t)(77), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"Special rules. - The term 'qualified employer plan' -
"(I) shall include any plan which was (or was determined to be)
a qualified employer plan or a government plan, but
"(II) shall not include a plan described in subsection (e)(7)."
Subsec. (t)(2)(B). Pub. L. 104-191, Sec. 361(c), substituted ",
(C), or (D)" for "or (C)".
Subsec. (t)(2)(D). Pub. L. 104-191, Sec. 361(b), added subpar.
(D).
Subsec. (t)(3)(A). Pub. L. 104-191, Sec. 361(a), struck out
"(B)," after "Subparagraphs (A)(v),".
Subsec. (t)(6). Pub. L. 104-188, Sec. 1421(b)(4)(A), added par.
(6).
1992 - Subsec. (o)(4). Pub. L. 102-318 substituted "402(c)" for
"402(a)(5), 402(a)(7)".
1990 - Subsec. (t)(2)(C), (D). Pub. L. 101-508, Sec. 11802(a)(1),
(2), redesignated subpar. (D) as (C) and struck out former subpar.
(C) "Exceptions for distributions from employee stock ownership
plans" which read as follows: "Any distribution made before January
1, 1990, to an employee from an employee stock ownership plan (as
defined in section 4975(e)(7)) or a tax credit employee stock
ownership plan (as defined in section 409) if -
"(i) such distribution is attributable to assets which have
been invested in employer securities (within the meaning of
section 409(l)) at all times during the 5-plan-year period
preceding the plan year in which the distribution is made, and
"(ii) at all times during such period the requirements of
sections 401(a)(28) and 409 (as in effect at such times) are met
with respect to such employer securities."
Subsec. (t)(3)(A). Pub. L. 101-508, Sec. 11802(a)(3), substituted
"and (C)" for "(C), and (D)".
1989 - Subsec. (e)(11)(A). Pub. L. 101-239, Sec. 7815(a)(3), (5),
substituted "calendar year" for "12-month period" in cls. (i) and
(ii), and inserted at end "The preceding sentence shall not apply
to any contract described in paragraph (5)(D)."
Subsec. (q)(2)(B). Pub. L. 101-239, Sec. 7811(m)(4), inserted an
additional closing parenthesis after "subsection (s)(6)(B))".
1988 - Subsec. (d). Pub. L. 100-647, Sec. 1011A(b)(2)(A), added
subsec. (d).
Subsec. (e)(4)(A). Pub. L. 100-647, Sec. 5012(d)(1), inserted at
end "The preceding sentence shall not apply for purposes of
determining investment in the contract, except that the investment
in the contract shall be increased by any amount included in gross
income by reason of the amount treated as received under the
preceding sentence."
Subsec. (e)(5)(C). Pub. L. 100-647, Sec. 5012(a)(2), substituted
"Except as provided in paragraph (10) and except to the extent" for
"Except to the extent".
Subsec. (e)(5)(D). Pub. L. 100-647, Sec. 1011A(b)(9)(B),
substituted "paragraph (8)" for "paragraphs (7) and (8)".
Subsec. (e)(7). Pub. L. 100-647, Sec. 1011A(b)(9)(A), struck out
par. (7) which related to special rules for plans where
substantially all contributions are employee contributions.
Subsec. (e)(8)(A). Pub. L. 100-647, Sec. 1011A(b)(9)(C), struck
out "(other than paragraph (7))" after "this subsection".
Subsec. (e)(9). Pub. L. 100-647, Sec. 1011A(b)(2)(B), struck out
par. (9) which related to treatment of employee contributions as
separate contract.
Subsec. (e)(10). Pub. L. 100-647, Sec. 5012(a)(1), added par.
(10).
Subsec. (e)(11). Pub. L. 100-647, Sec. 5012(d)(2), added par.
(11).
Subsec. (f). Pub. L. 100-647, Sec. 1011A(b)(1)(A), struck out
"for purposes of subsections (d)(1) and (e)(7), the consideration
for the contract contributed by the employee," after "contract," in
introductory provisions.
Subsec. (n). Pub. L. 100-647, Sec. 1011A(b)(1)(B), substituted
"Subsection (b)" for "Subsections (b) and (d)".
Subsec. (o)(2). Pub. L. 100-647, Sec. 1011A(c)(8), struck out
par. (2) which related to additional tax if amount received before
age 59 1/2 .
Subsec. (p)(3)(A). Pub. L. 100-647, Sec. 1011A(h)(1), inserted
"to which paragraph (1) does not apply by reason of paragraph (2)
during the period" after "loan".
Subsec. (p)(3)(B). Pub. L. 100-647, Sec. 1011A(h)(2), substituted
"Period" for "Loans" in heading and amended text generally. Prior
to amendment, text read as follows: "For purposes of subparagraph
(A), a loan is described in this subparagraph -
"(i) if paragraph (1) does not apply to such loan by reason of
paragraph (2), and
"(ii) if -
"(I) such loan is made to a key employee (as defined in
section 416(i)), or
"(II) such loan is secured by amounts attributable to
elective 401(k) or 403(b) deferrals (as defined in section
402(g)(3))."
Subsec. (q)(2)(B). Pub. L. 100-647, Sec. 1018(t)(1)(B),
substituted "subsection (s)(6)(B))" for "subsection (s)(6)(B)))".
Subsec. (q)(2)(D). Pub. L. 100-647, Sec. 1011A(c)(7), inserted
"designated" before "beneficiary".
Pub. L. 100-647, Secs. 1011A(c)(4), 1018(u)(8), amended subpar.
(D) identically, substituting a comma for period at end.
Subsec. (q)(2)(E). Pub. L. 100-647, Sec. 1011A(b)(9)(D), struck
out "(determined without regard to subsection (e)(7))" after
"subsection (e)(5)(D)".
Subsec. (q)(2)(G). Pub. L. 100-647, Sec. 1011A(c)(4), substituted
a comma for period at end.
Subsec. (q)(2)(H). Pub. L. 100-647, Sec. 1011A(c)(6), added
subpar. (H).
Subsec. (q)(3)(B). Pub. L. 100-647, Sec. 1011A(c)(5), substituted
"taxpayer" for "employee" in cls. (i) and (ii).
Subsec. (s)(5). Pub. L. 100-647, Sec. 1018(k)(2), substituted
"certain annuity contracts" for "annuity contracts which are part
of qualified plans" in heading.
Subsec. (s)(5)(D). Pub. L. 100-647, Sec. 1018(k)(1), added
subpar. (D).
Subsec. (s)(7). Pub. L. 100-647, Sec. 1018(t)(1)(A), substituted
"primary annuitant" for "primary annuity".
Subsec. (t)(2)(A)(iv). Pub. L. 100-647, Sec. 1011A(c)(7),
inserted "designated" before "beneficiary".
Subsec. (t)(2)(A)(v). Pub. L. 100-647, Sec. 1011A(c)(1), struck
out "on account of early retirement under the plan" after
"separation from service".
Subsec. (t)(2)(C). Pub. L. 100-647, Sec. 1011A(c)(2), substituted
"Exceptions for distributions from employee stock ownership plans"
for "Certain plans" in heading and amended text generally. Prior to
amendment, text read as follows:
"(i) In general. - Except as provided in clause (ii), any
distribution made before January 1, 1990, to an employee from an
employee stock ownership plan defined in section 4975(e)(7) to the
extent that, on average, a majority of assets in the plan have been
invested in employer securities (as defined in section 409(l)) for
the 5-plan-year period preceding the plan year in which the
distribution is made.
"(ii) Benefits distributed must be invested in employer
securities for 5 years. - Clause (i) shall not apply to any
distribution which is attributable to assets which have not been
invested in employer securities at all times during the period
referred to in clause (i)."
Subsec. (t)(3)(A). Pub. L. 100-647, Sec. 1011A(c)(3), substituted
"(C), and (D)" for "and (C)".
Subsec. (u)(1)(A). Pub. L. 100-647, Sec. 1011A(i)(1), inserted
"(other than subchapter L)" after "subtitle".
Subsec. (u)(3)(D). Pub. L. 100-647, Sec. 1011A(i)(3), substituted
"is purchased" for "which is purchased" and "is held" for "which is
held".
Pub. L. 100-647, Sec. 1011A(i)(2), substituted "until all amounts
under such contract are distributed to the employee for whom such
contract was purchased or the employee's beneficiary" for "until
such time as the employee separates from service".
Subsec. (u)(3)(E). Pub. L. 100-647, Sec. 1011A(i)(3), substituted
"is" for "which is".
Subsec. (u)(4)(C). Pub. L. 100-647, Sec. 1011A(i)(4), added
subpar. (C).
Subsecs. (v), (w). Pub. L. 100-647, Sec. 5012(b)(1), added
subsec. (v) and redesignated former subsec. (v) as (w).
1986 - Subsec. (b). Pub. L. 99-514, Sec. 1122(c)(2), amended
subsec. (b) generally. Prior to amendment, subsec. (b) read as
follows: "Gross income does not include that part of any amount
received as an annuity under an annuity, endowment, or life
insurance contract which bears the same ratio to such amount as the
investment in the contract (as of the annuity starting date) bears
to the expected return under the contract (as of such date). This
subsection shall not apply to any amount to which subsection (d)(1)
(relating to certain employee annuities) applies."
Subsec. (d). Pub. L. 99-514, Sec. 1122(c)(1), struck out subsec.
(d) which related to employee's annuities where the employee's
contributions were recoverable in 3 years.
Subsec. (e)(4)(C). Pub. L. 99-514, Sec. 1826(b)(3), added subpar.
(C).
Subsec. (e)(5)(D). Pub. L. 99-514, Sec. 1122(c)(3)(B),
substituted "paragraphs (7) and (8)" for "paragraph (7)" in
introductory provisions.
Pub. L. 99-514, Sec. 1854(b)(1), inserted closing provisions
which read as follows: "Any dividend described in section 404(k)
which is received by a participant or beneficiary shall, for
purposes of this subparagraph, be treated as paid under a separate
contract to which clause (ii)(I) applies."
Subsec. (e)(7)(B). Pub. L. 99-514, Sec. 1852(c)(1), in
introductory provisions substituted "any plan or contract" for "any
trust or contract", in cl. (ii) substituted "85 percent or more of"
for "85 percent of", and inserted closing provision: "For purposes
of clause (ii), deductible employee contributions (as defined in
subsection (o)(5)(A)) shall not be taken into account."
Subsec. (e)(8), (9). Pub. L. 99-514, Sec. 1122(c)(3)(A), added
pars. (8) and (9).
Subsec. (f). Pub. L. 99-514, Sec. 1852(c)(3), in introductory
provisions, substituted "subsections (d)(1) and (e)(7)" for
"subsection (d)(1)" and "subsection (e)(6)" for "subsection
(e)(1)(B)".
Subsec. (m)(2)(B). Pub. L. 99-514, Sec. 1852(c)(4)(A), inserted
"and subsection (e)(7) (relating to plans where substantially all
contributions are employee contributions)".
Subsec. (m)(2)(C). Pub. L. 99-514, Sec. 1852(c)(4)(B),
substituted "subsection (e)(6)" for "subsection (e)(1)(B)".
Subsec. (m)(5). Pub. L. 99-514, Sec. 1852(a)(2)(C), which
directed that par. (5) be amended by substituting "5-percent
owners" for "owner-employees" in heading, was executed by
substituting "5-percent owners" for "key employees", to reflect the
probable intent of Congress and intervening amendment by section
713(c)(1)(B) of Pub. L. 98-369.
Subsec. (m)(5)(A). Pub. L. 99-514, Sec. 1123(d)(1), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "This subparagraph shall apply -
"(i) to amounts which -
"(I) are received from a qualified trust described in section
401(a) or under a plan described in section 403(a), and
"(II) are received by a 5-percent owner before such owner
attains the age of 59 1/2 years, for any reason other than
such owner becoming disabled (within the meaning of paragraph
(7) of this section), and
"(ii) to amounts which are received from a qualified trust
described in section 401(a) or under a plan described in section
403(a) at any time by a 5-percent owner, or by the successor of
such owner, but only to the extent that such amounts are
determined (under regulations prescribed by the Secretary) to
exceed the benefits provided for such individual under the plan
formula.
Clause (i) shall not apply to any amount received by an individual
in his capacity as a policyholder of an annuity, endowment, or life
insurance contract which is in the nature of a dividend or similar
distribution and clause (i) shall not apply to amounts attributable
to benefits accrued before January 1, 1985."
Pub. L. 99-514, Sec. 1852(a)(2)(A), amended subpar. (A)
generally. Prior to amendment, subpar. (A) read as follows: "This
paragraph shall apply -
"(i) to amounts (other than any amount received by an
individual in his capacity as a policyholder of an annuity,
endowment, or life insurance contract which is in the nature of a
dividend or similar distribution) which are received from a
qualified trust described in section 401(a) or under a plan
described in section 403(a) and which are received by an
individual, who is, or has been, a 5-percent owner, before such
individual attains the age of 59 1/2 years, for any reason other
than the individual's becoming disabled (within the meaning of
paragraph (7) of this subsection), but only to the extent that
such amounts are attributable to contributions paid on behalf of
such individual (other than contributions made by him as a 5-
percent owner) while he was a 5-percent owner, and
"(ii) to amounts which are received from a qualified trust
described in section 401(a) or under a plan described in section
403(a) at any time by an individual who is, or has been, a 5-
percent owner or by the successor of such individual, but only
to the extent that such amounts are determined, under regulations
prescribed by the Secretary, to exceed the benefits provided for
such individual under the plan formula."
Subsec. (m)(5)(C). Pub. L. 99-514, Sec. 1852(a)(2)(B), amended
subpar. (C) generally. Prior to amendment, subpar. (C) read as
follows: "For purposes of this paragraph, the term '5 percent
owner' have the same meanings as when used in section 416."
Subsec. (m)(10). Pub. L. 99-514, Sec. 1898(c)(1)(B), inserted
"who is the spouse or former spouse of the participant".
Subsec. (o)(5). Pub. L. 99-514, Sec. 1101(b)(2)(C), inserted "and
made for a taxable year beginning before January 1, 1987," in
subpar. (A), substituted "subsection (p)(3)(A)(i)" for "section
219(e)(3)" in subpar. (C), and substituted "subsection (p)(3)(B)"
for "section 219(e)(4)" in subpar. (D).
Subsec. (p)(2)(A)(i). Pub. L. 99-514, Sec. 1134(a), amended cl.
(i) generally. Prior to amendment, cl. (i) read as follows:
"$50,000, or".
Subsec. (p)(2)(B)(ii). Pub. L. 99-514, Sec. 1134(d), amended cl.
(ii) generally. Prior to amendment, cl. (ii) read as follows:
"Clause (i) shall not apply to any loan used to acquire, construct,
reconstruct, or substantially rehabilitate any dwelling unit which
within a reasonable time is to be used (determined at the time the
loan is made) as a principal residence of the participant or a
member of the family (within the meaning of section 267(c)(4)) of
the participant."
Subsec. (p)(2)(C), (D). Pub. L. 99-514, Sec. 1134(b), added
subpar. (C) and redesignated former subpar. (C) as (D).
Subsec. (p)(3). Pub. L. 99-514, Sec. 1134(c), added par. (3) and
redesignated former par. (3) as (4).
Pub. L. 99-514, Sec. 1101(b)(2)(B), amended par. (3) generally.
Prior to amendment, par. (3) read as follows: "For purposes of this
subsection, the term 'qualified employer plan' means any plan which
was (or was determined to be) a qualified employer plan (as defined
in section 219(e)(3) other than a plan described in subsection
(e)(7)). For purposes of this subsection, such term includes any
government plan (as defined in section 219(e)(4))."
Subsec. (p)(4), (5). Pub. L. 99-514, Sec. 1134(c), redesignated
former pars. (3) and (4) as (4) and 5, respectively.
Subsec. (q). Pub. L. 99-514, Sec. 1123(b)(1)(B), substituted "10-
percent" for "5-percent" in heading.
Subsec. (q)(1). Pub. L. 99-514, Sec. 1123(b)(1)(A), substituted
"10 percent" for "5 percent".
Subsec. (q)(2). Pub. L. 99-514, Sec. 1123(b)(3), substituted
"Paragraph (1)" for "This subsection" in introductory provisions.
Subsec. (q)(2)(B). Pub. L. 99-514, Sec. 1826(c), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
"made to a beneficiary (or to the estate of an annuitant) on or
after the death of an annuitant,".
Subsec. (q)(2)(D). Pub. L. 99-514, Sec. 1123(b)(2), amended
subpar. (D) generally. Prior to amendment, subpar. (D) read as
follows: "which is one of a series of substantially equal periodic
payments made for the life of a taxpayer or over a period extending
for at least 60 months after the annuity starting date,".
Subsec. (q)(2)(E). Pub. L. 99-514, Sec. 1852(c)(2), inserted
"(determined without regard to subsection (e)(7))".
Subsec. (q)(2)(G). Pub. L. 99-514, Sec. 1826(d), added subpar.
(G).
Subsec. (q)(2)(I), (J). Pub. L. 99-514, Sec. 1123(b)(4), which
added subpars. (I) and (J) directed the amendment of subpar. (G) by
striking out "or" at the end thereof, and of subpar. (H) by
striking out the period at the end thereof, could not be executed
to subpars. (G) and (H) because subpar. (G) does not contain "or",
and no subpar. (H) was enacted.
Subsec. (q)(3). Pub. L. 99-514, Sec. 1123(b)(3), added par. (3).
Subsec. (s)(1). Pub. L. 99-514, Sec. 1826(b)(2), substituted "any
holder of such contract" for "the holder of such contract" in
subpars. (A) and (B).
Subsec. (s)(5). Pub. L. 99-514, Sec. 1826(a), added par. (5).
Subsec. (s)(6), (7). Pub. L. 99-514, Sec. 1826(b)(1), added pars.
(6) and (7).
Subsec. (t). Pub. L. 99-514, Sec. 1123(a), added subsec. (t) and
redesignated former subsec. (t) as (u).
Subsecs. (u), (v). Pub. L. 99-514, Sec. 1135(a), added subsec.
(u) and redesignated former subsec. (u) as (v).
1984 - Subsec. (e)(5)(D). Pub. L. 98-369, Sec. 523(b)(1),
substituted "Except as provided in paragraph (7), this" for "This".
Subsec. (e)(5)(D)(ii)(IV). Pub. L. 98-369, Sec. 211(b)(1), which
directed substitution of "section 818(a)(3)" for "805(d)(3)" in
subpar. (D)(i)(IV), was executed to subpar. (D)(ii)(IV) to reflect
the probable intent of Congress.
Subsec. (e)(7). Pub. L. 98-369, Sec. 523(a), added par. (7).
Subsec. (k). Pub. L. 98-369, Sec. 421(b)(1), repealed subsec. (k)
relating to payments in discharge of alimony.
Subsec. (m)(5). Pub. L. 98-369, Sec. 713(c)(1)(B), substituted
"key employees" for "owner-employees" in heading.
Subsec. (m)(5)(A). Pub. L. 98-369, Sec. 521(d)(1), (2),
substituted "5-percent owner" for "key employee" wherever appearing
and struck out "in a top-heavy plan" at end of cl. (i).
Pub. L. 98-369, Sec. 713(c)(1)(A), substituted "as a key
employee" for "as an owner-employee" in cl. (i).
Subsec. (m)(5)(C). Pub. L. 98-369, Sec. 521(d)(3), substituted
"the term '5 percent owner' " for "the terms 'key employee' and
'top-heavy plan' ".
Subsec. (m)(9). Pub. L. 98-369, Sec. 713(d)(1), repealed par. (9)
relating to return of excess contributions before due date of
return.
Subsec. (m)(10). Pub. L. 98-397 added par. (10).
Subsec. (o)(1). Pub. L. 98-369, Sec. 491(d)(3), substituted "402
and 403" for "402, 403, and 405".
Subsec. (o)(3)(A). Pub. L. 98-369, Sec. 713(b)(1)(A), inserted
"(other than the exception contained in paragraph (2) thereof)".
Subsec. (o)(4). Pub. L. 98-369, Sec. 491(d)(4), substituted "and
408(d)(3)" for "408(d)(3), and 409(b)(3)(C)".
Subsec. (p)(2)(A). Pub. L. 98-369, Sec. 713(b)(1)(B), inserted at
end "For purposes of clause (ii), the present value of the
nonforfeitable accrued benefit shall be determined without regard
to any accumulated deductible employee contributions (as defined in
subsection (o)(5)(B))."
Subsec. (p)(2)(A)(ii). Pub. L. 98-369, Sec. 713(b)(4),
substituted as cl. (ii) "the greater of (I) one-half of the present
value of the nonforfeitable accrued benefit of the employee under
the plan, or (II) $10,000" for " 1/2 of the present value of the
nonforfeitable accrued benefit of the employee under the plan (but
not less than $10,000)".
Subsec. (p)(3). Pub. L. 98-369, Sec. 523(b)(2), inserted "other
than a plan described in subsection (e)(7)".
Subsec. (q)(1). Pub. L. 98-369, Sec. 222(a), amended par. (1)
generally, striking out designation "(A) In general. - " preceding
text, substituting "which is includible in gross income" for
"includible in gross income which is properly allocable to any
investment in the annuity contract made during the 10-year period
ending on the date such amount was received by the taxpayer", and
striking out former subpar. (B), which had provided that for
purposes of subpar. (A), the amount includible in gross income
would be allocated to the earliest investment in the contract with
respect to which amounts had not been previously fully allocated
under this par.
Subsecs. (s), (t). Pub. L. 98-369, Sec. 222(b), added subsec. (s)
and redesignated former subsec. (s) as (t).
1983 - Subsec. (o)(2)(A). Pub. L. 97-448, Sec. 103(c)(6), struck
out "to which the employee made one or more deductible employee
contributions" after "from a qualified employer plan or government
plan".
Subsec. (p)(3). Pub. L. 97-448, Sec. 103(c)(3)(B)(i), struck out
"without regard to subparagraph (D) thereof" after "as defined in
section 219(e)(3)".
Subsecs. (r), (s). Pub. L. 98-76 added subsec. (r) and
redesignated former subsec. (r) as (s).
1982 - Subsec. (e). Pub. L. 97-248, Sec. 265(a), in par. (1)
substituted provisions relating to the application of this
subsection to amounts received under annuity, endowment, or life
insurance contracts which are not received as annuities and to
amounts received as dividends for provisions which stated a general
rule relating to the includability as gross income of amounts that
were received under annuity, endowment, or life insurance contracts
which were not received as annuities and also stated that for the
purposes of this section amounts which were received as dividends
would be treated as amounts not received as an annuity, in par. (2)
substituted provisions stating a general rule as to the
includability as gross income of amounts received before or after
the annuity starting date for provisions which set out those
amounts which would be treated as amounts not received as an
annuity, and added pars. (3) to (6).
Subsec. (m)(4). Pub. L. 97-248, Sec. 236(b)(1), struck out par.
(4) which related to amounts constructively received with respect
to assignments or pledges, and loans on contracts.
Subsec. (m)(5). Pub. L. 97-248, Sec. 237(d)(1), (2), in subpar.
(A) substituted applicability to key employees for applicability to
owner-employees and added subpar. (C).
Subsec. (m)(6). Pub. L. 97-248, Sec. 237(d)(3), struck out
"except in applying paragraph (5)," after "shall".
Subsec. (m)(8). Pub. L. 97-248, Sec. 236(b)(1), struck out par.
(8) which related to loans to owner-employees.
Subsec. (o)(3)(A). Pub. L. 97-248, Sec. 236(b)(2), substituted
reference to subsec. (p) of this section for references to subsec.
(m)(4) and (8) of this section.
Subsec. (p). Pub. L. 97-248, Sec. 236(a), added subsec. (p).
Former subsec. (p) redesignated (q).
Subsec. (q). Pub. L. 97-248, Sec. 265(b)(1), added subsec. (q).
Former subsec. (q) redesignated (r).
Pub. L. 97-248, Sec. 236(a), redesignated former subsec. (p) as
(q).
Subsec. (r). Pub. L. 97-248, Secs. 236(a), 265(b)(1),
redesignated former subsec. (p) as (r).
1981 - Subsec. (m)(6). Pub. L. 97-34, Sec. 312(d)(1), expanded
definition of "owner-employee" to include an employee within the
meaning of section 401(c)(1) except in applying paragraph (5).
Subsec. (m)(8). Pub. L. 97-34, Sec. 312(d)(2), added par. (8).
Subsec. (m)(9). Pub. L. 97-34, Sec. 312(e)(1), added par. (9).
Subsecs. (o), (p). Pub. L. 97-34, Sec. 311(b)(1), added subsec.
(o) and redesignated former subsec. (o) as (p).
1976 - Subsec. (c)(2), (3)(A). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (d)(1). Pub. L. 94-455, Sec. 1901(a)(12), struck out in
subpar. (B) "(whether or not before January 1, 1954)" after
"beginning on the date", and in provisions following subpar. (B)
struck out "(under this paragraph and prior income tax laws)" after
"until there has been so excluded".
Subsec. (f). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
Subsec. (i). Pub. L. 94-455, Sec. 1951(b)(1)(A), struck out
subsec. (i) which related to joint annuities where first annuitant
died in 1951, 1952, or 1953.
Subsec. (m)(2), (3). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (m)(4)(A). Pub. L. 94-455, Sec. 1901(a)(13), substituted
"an individual retirement account" for "an individual retirement
amount".
Subsec. (m)(5)(A)(ii), (7). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
1974 - Subsec. (m)(1). Pub. L. 93-406, Sec. 2001(h)(2), struck
out par. (1) which related to certain amounts received before
annuity starting date.
Subsec. (m)(4)(A). Pub. L. 93-406, Sec. 2002(g)(10)(A), inserted
references to an individual retirement amount described in section
408(a) and an individual retirement annuity described in section
408(b).
Subsec. (m)(5)(A). Pub. L. 93-406, Sec. 2001(e)(5), (h)(3),
substituted "(other than contributions made by him as an owner-
employee)" for "(whether or not paid by him)" in cl. (i), and
struck out cl. (iii) which had made reference to amounts which were
received, by an individual who was or had been, an owner-employee,
by reason of the distribution under the provisions of section
401(e)(2)(E) of his entire interest in all qualified trusts
described in section 401(a) and in all plans described in section
403(a).
Subsec. (m)(5)(B). Pub. L. 93-406, Sec. 2001(g)(1), substituted
provisions that if a person receives an amount to which subsec.
(m)(5) applies, his tax under this chapter for the taxable year in
which such amount is received shall be increased by an amount equal
to 10 percent of the portion of the amount so received which is
includible in his gross income for such taxable year for provisions
that if the aggregate amounts to which subsec. (m)(5) applied
received by any person in his taxable year equalled or exceeded
$2,500, the increase in his tax for the taxable year in which such
amounts were received and attributable to such amounts could not be
less than 110 percent of the aggregate increase in taxes, for the
taxable year and the 4 immediately preceding taxable years, which
would have resulted if such amounts had been included in such
person's gross income ratably over such taxable years, with
provision for alternate computation if deductions had been allowed
under section 404 for contributions paid for a number of prior
taxable years less than 4.
Subsec. (m)(5)(C) to (E). Pub. L. 93-406, Sec. 2001(g)(2)(A),
struck out subpars. (C) to (E) which contained special rules for
the application of subsec. (m)(5).
Subsec. (m)(6). Pub. L. 93-406, Sec. 2002(g)(10)(B), inserted
reference to an individual for whose benefit an individual
retirement account or annuity described in section 408(a) or (b) is
maintained.
Subsec. (n). Pub. L. 93-406, Secs. 2005(c)(3), 2007(b)(2),
redesignated former subsec. (o) as (n) and in heading of subsec.
(n) as so redesignated inserted reference to survivor benefit plan.
Former subsec. (n), which set out provisions covering the treatment
to be accorded total distributions, was struck out.
Subsec. (o). Pub. L. 93-406, Sec. 2005(c)(3), redesignated former
subsec. (p) as (o). Former subsec. (o) redesignated (n) and
amended.
Subsec. (p). Pub. L. 93-406, Sec. 2005(c)(3), redesignated
subsec. (p) as (o).
1969 - Subsec. (n)(1). Pub. L. 91-172, Sec. 515(b)(1), altered
section to accommodate the insertion into sections 402 and 403 of
provisions under which employer contributions to qualified pension,
profit sharing, stock bonus, and annuity plans for plan years
beginning after 1969 are to be treated as ordinary income when
received in a lump sum distribution, but with such amounts to be
eligible for a special averaging procedure.
Subsec. (n)(4). Pub. L. 91-172, Sec. 515(b)(2), added par. (4).
1966 - Subsecs. (o), (p). Pub. L. 89-365 added subsec. (o) and
redesignated former subsec. (o) as (p).
1965 - Subsec. (m)(5)(A)(i). Pub. L. 89-97, Sec. 106(d)(2)(A),
substituted "paragraph (7) of this subsection" for "section
213(g)(3)".
Subsec. (m)(7). Pub. L. 89-97, Sec. 106(d)(2)(B), added par. (7).
Subsec. (n)(1). Pub. L. 89-97, Sec. 106(d)(2)(C), substituted in
subpars. (A)(iii) and (B)(iii) "subsection (m)(7)" for "section
213(g)(3)".
Subsec. (n)(3). Pub. L. 89-44 substituted "sections 31 and 39"
for "section 31" in sentence following subpar. (B).
1964 - Subsec. (e)(3). Pub. L. 88-272 struck out par. (3) which
provided for a limit on the tax attributable to the receipt of a
lump sum.
1962 - Subsec. (d)(2). Pub. L. 87-792, Sec. 4(a), designated
existing provisions as cl. (A) and added cl. (B).
Subsec. (f). Pub. L. 87-834 inserted sentence providing that par.
(2) shall not apply to amounts which were contributed by the
employer after Dec. 31, 1962, and which would not have been
includible in the gross income of the employee by reason of the
application of Section 911 if such amounts had been paid directly
to the employee at the time of contribution, and making such
sentence inapplicable to amounts which were contributed by the
employer, as determined under regulations, to provide pension or
annuity credits, to the extent such credits are attributable to
services performed before Jan. 1, 1963, and are provided pursuant
to pension or annuity plan provisions in existence on Mar. 12,
1962, and on that date applicable to such services.
Subsecs. (m) to (o). Pub. L. 87-792, Sec. 4(b), added subsecs.
(m) and (n) and redesignated former subsec. (m) as (o).
EFFECTIVE DATE OF 2004 AMENDMENTS
Pub. L. 108-357, title VIII, Sec. 906(c), Oct. 22, 2004, 118
Stat. 1654, provided that: "The amendments made by this section
[amending this section and section 83 of this title] shall apply to
distributions on or after the date of the enactment of this Act
[Oct. 22, 2004]."
Amendment by section 207(6), (7) of Pub. L. 108-311 applicable to
taxable years beginning after Dec. 31, 2004, see section 208 of
Pub. L. 108-311, set out as a note under section 2 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENTS
Amendment by Pub. L. 107-90 applicable to calendar years
beginning after Dec. 31, 2001, see section 204(f) of Pub. L. 107-
90, set out as a note under section 24 of this title.
Amendment by Pub. L. 107-22 effective July 26, 2001, see section
1(c) of Pub. L. 107-22, set out as a note under section 26 of this
title.
Pub. L. 107-16, title IV, Sec. 402(h), June 7, 2001, 115 Stat.
63, provided that: "The amendments made by this section [amending
this section and sections 135, 221, 529, 530, 4973, and 6693 of
this title] shall apply to taxable years beginning after December
31, 2001."
Pub. L. 107-16, title VI, Sec. 632(a)(4), June 7, 2001, 115 Stat.
115, provided that: "The amendments made by this subsection
[amending this section and sections 402, 403, 404, 415, and 664 of
this title] shall apply to years beginning after December 31,
2001."
Amendment by section 641(a)(2)(C), (e)(1) of Pub. L. 107-16
applicable to distributions after Dec. 31, 2001, see section
641(f)(1) of Pub. L. 107-16, set out as a note under section 402 of
this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-206, title III, Sec. 3436(b), July 22, 1998, 112
Stat. 761, provided that: "The amendments made by this section
[amending this section] shall apply to distributions after December
31, 1999."
Amendment by section 6023(3), (4) of Pub. L. 105-206 effective
July 22, 1998, see section 6023(32) of Pub. L. 105-206, set out as
a note under section 34 of this title.
Amendment by sections 6004(d)(3)(B) and 6005(c)(1) of Pub. L. 105-
206 effective, except as otherwise provided, as if included in the
provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 6024 of Pub. L. 105-206,
set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 203(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to
distributions after December 31, 1997, with respect to expenses
paid after such date (in taxable years ending after such date), for
education furnished in academic periods beginning after such date."
Section 303(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to
payments and distributions in taxable years beginning after
December 31, 1997."
Section 1075(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply with
respect to annuity starting dates beginning after December 31,
1997."
EFFECTIVE DATE OF 1996 AMENDMENTS
Section 361(d) of Pub. L. 104-191 provided that: "The amendments
made by this section [amending this section] shall apply to
distributions after December 31, 1996."
Section 1403(b) of Pub. L. 104-188 provided that: "The amendment
made by this section [amending this section] shall apply in cases
where the annuity starting date is after the 90th day after the
date of the enactment of this Act [Aug. 20, 1996]."
Section 1421(e) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section, sections 219, 280G,
402, 404, 408, 414, 416, 457, 3121, 3306, 3401, 4972, and 6693 of
this title, sections 1021 and 1104 of Title 29, Labor, and section
409 of Title 42, The Public Health and Welfare] shall apply to
taxable years beginning after December 31, 1996."
Section 1463(b) of Pub. L. 104-188 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1996."
Section 1704(l)(2) of Pub. L. 104-188 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section 1122(c) of
the Tax Reform Act of 1986 [Pub. L. 99-514]."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1011A(b)(1)(A), (B), (2), (9), (c)(1)-(8),
(h), (i), and 1018(k), (t)(1)(A), (B), and (u)(8) of Pub. L. 100-
647 effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 5012(a), (b)(1), (d) of Pub. L. 100-647
applicable to contracts entered into on or after June 21, 1988,
with special rule where death benefit increases by more than
$150,000, certain other material changes taken into account,
certain exchanges permitted, and special rule in the case of
annuity contracts, see section 5012(e) of Pub. L. 100-647, set out
as an Effective Date note under section 7702A of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1101(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and section 219 of this
title] shall apply to contributions for taxable years beginning
after December 31, 1986."
Amendment by section 1122(c)(1) of Pub. L. 99-514 applicable to
individuals whose annuity starting date is after July 1, 1986,
amendment by section 1122(c)(2) of Pub. L. 99-514 applicable to
individuals whose annuity starting date is after Dec. 31, 1986, and
amendment by section 1122(c)(3) of Pub. L. 99-514 applicable to
amounts received after July 1, 1986, in the case of any plan not
described in section 72(e)(8)(D) of this title, see section
1122(h)(2) of Pub. L. 99-514, set out as a note under section 402
of this title.
Section 1123(e) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011A(c)(11), (12), Nov. 10, 1988, 102 Stat. 3476,
provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 403 and 408 of this title] shall apply to
taxable years beginning after December 31, 1986.
"(2) Subsection (c). - The amendments made by subsection (c)
[amending section 403 of this title] shall apply to years beginning
after December 31, 1988, but only with respect to distributions
from contracts described in section 403(b) of the Internal Revenue
Code of 1986 which are attributable to assets other than assets
held as of the close of the last year beginning before January 1,
1989.
"(3) Exception where distribution commences. - The amendments
made by this section shall not apply to distributions to any
employee from a plan maintained by any employer if -
"(A) as of March 1, 1986, the employee separated from service
with the employer,
"(B) as of March 1, 1986, the accrued benefit of the employee
was in pay status pursuant to a written election providing a
specific schedule for the distribution of the entire accrued
benefit of the employee, and
"(C) such distribution is made pursuant to such written
election.
"(4) Transition rule. - The amendments made by this section shall
not apply with respect to any benefits with respect to which a
designation is in effect under section 242(b)(2) of the Tax Equity
and Fiscal Responsibility Act of 1982 [section 242(b)(2) of Pub. L.
97-248, formerly set out as an Effective Date of 1982 Amendment
note under section 401 of this title].
"(5) Special rule for distributions under an annuity contract. -
The amendments made by paragraphs (1), (2), and (3) of subsection
(b) [amending this section] shall not apply to any distribution
under an annuity contract if -
"(A) as of March 1, 1986, payments were being made under such
contract pursuant to a written election providing a specific
schedule for the distribution of the taxpayer's interest in such
contract, and
"(B) such distribution is made pursuant to such written
election."
Section 1134(e) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to loans
made, renewed, renegotiated, modified, or extended after December
31, 1986."
Section 1135(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
contributions to annuity contracts after February 28, 1986."
Amendment by sections 1826(a), (d), 1852(a)(2), (c)(1)-(4), and
1854(b)(1) of Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
Section 1826(b)(4) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section] shall
apply to contracts issued after the date which is 6 months after
the date of the enactment of this Act [Oct. 22, 1986] in taxable
years ending after such date."
Section 1826(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1018(t)(1)(D), Nov. 10, 1988, 102 Stat. 3587,
provided that the amendment made by section 1826(c) of Pub. L. 99-
514 is effective with respect to distributions commencing after
the date 6 months after Oct. 22, 1986.
Section 1854(b)(6) of Pub. L. 99-514 provided that: "The
amendments made by paragraphs (1) and (2) [amending this section
and section 404 of this title] shall not apply to dividends paid
before January 1, 1986, if the taxpayer treated such dividends in a
manner inconsistent with such amendments on a return filed with the
Secretary before the date of the enactment of this Act [Oct. 22,
1986]."
Section 1898(c)(1)(C) of Pub. L. 99-514 provided that: "The
amendments made by this paragraph [amending this section and
section 402 of this title] shall apply to payments made after the
date of the enactment of this Act [Oct. 22, 1986]."
EFFECTIVE DATE OF 1984 AMENDMENTS
Amendment by Pub. L. 98-397 effective Jan. 1, 1985, except as
otherwise provided, see section 303(d) of Pub. L. 98-397, set out
as a note under section 1001 of Title 29, Labor.
Amendment by section 211(b)(1) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 215 of
Pub. L. 98-369, set out as an Effective Date note under section 801
of this title.
Section 222(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to contracts issued after the day which
is 6 months after the date of the enactment of this Act [July 18,
1984] in taxable years ending after such date.
"(2) Transitional rules for contracts issued before effective
date. - In the case of any contract (other than a single premium
contract) which is issued on or before the day which is 6 months
after the date of the enactment of this Act, for purposes of
section 72(q)(1)(A) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as in effect on the day before the date of the
enactment of this Act), any investment in such contract which is
made during any calendar year shall be treated as having been made
on January 1 of such calendar year."
Amendment by section 421(b)(1) of Pub. L. 98-369 applicable to
transfers after July 18, 1984, in taxable years ending after such
date, subject to election to have repeal apply to transfers after
1983 or to transfers pursuant to existing decrees, see section
421(d) of Pub. L. 98-369, set out as an Effective Date note under
section 1041 of this title.
Amendment by section 491(d)(3), (4) of Pub. L. 98-369 applicable
to obligations issued after Dec. 31, 1983, see section 491(f)(1) of
Pub. L. 98-369, set out as a note under section 62 of this title.
Amendment by section 521(d) of Pub. L. 98-369 applicable to years
beginning after Dec. 31, 1984, see section 521(e) of Pub. L. 98-
369, set out as a note under section 401 of this title.
Section 523(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to any
amount received or loan made after the 90th day after the date of
enactment of this Act [July 18, 1984]."
Amendment by section 713(b)(1), (4), (c)(1)(A), (B) of Pub. L. 98-
369 effective as if included in the provision of the Tax Equity
and Fiscal Responsibility Act of 1982, Pub. L. 97-248, to which
such amendment relates, see section 715 of Pub. L. 98-369, set out
as a note under section 31 of this title.
Section 713(d)(1) of Pub. L. 98-369, as amended by Pub. L. 99-
514, title XVIII, Sec. 1875(c)(5), Oct. 22, 1986, 100 Stat. 2895,
provided that the amendment made by section 713(d)(1) of Pub. L. 98-
369 is effective with respect to contributions made in taxable
years beginning after Dec. 31, 1983.
EFFECTIVE DATE OF 1983 AMENDMENTS
Section 227(b) of Pub. L. 98-76, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by section 224 [enacting section 6050G of this
title, amending this section and section 86 of this title, and
enacting provisions set out as a note under section 231n of Title
45, Railroads] shall apply to benefits received after December 31,
1983, in taxable years ending after such date.
"(2) Treatment of certain lump-sum payments received after
december 31, 1983. - The amendments made by section 224 shall not
apply to any portion of a lump-sum payment received after December
31, 1983, if the generally applicable payment date for such portion
was before January 1, 1984.
"(3) No fresh start. - For purposes of determining whether any
benefit received after December 31, 1983, is includible in gross
income by reason of section 72(r) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954], as added by this Act, the amendments
made by section 224 be treated as having been in effect during all
periods before 1984."
Section 103(c)(3)(B)(ii) of Pub. L. 97-448 provided that: "The
amendment made by clause (i) [amending this section] shall take
effect as if the matter struck out had never been included in such
paragraph."
Amendment by title I of Pub. L. 97-448 effective, except as
otherwise provided, as if it had been included in the provision of
the Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 236(c) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(a)(11), Jan. 12, 1983, 96 Stat. 2404; Pub. L.
98-369, div. A, title V, Sec. 554, title VII, Sec. 713(b)(2), July
18, 1984, 98 Stat. 897, 957; Pub. L. 99-514, Sec. 2, Oct. 22, 1986,
100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to loans, assignments, and pledges made
after August 13, 1982. For purposes of the preceding sentence, the
outstanding balance of any loan which is renegotiated, extended,
renewed, or revised after such date shall be treated as an amount
received as a loan on the date of such renegotiation, extension,
renewal, or revision.
"(2) Exception for certain loans used to repay outstanding
obligations. -
"(A) In general. - Any qualified refunding loan shall not be
treated as a distribution by reason of the amendments made by
this section to the extent such loan is repaid before August 14,
1983.
"(B) Qualified refunding loan. - For purposes of subparagraph
(A), the term 'qualified refunding loan' means any loan made
after August 13, 1982, and before August 14, 1983, to the extent
such loan is used to make a required principal payment.
"(C) Required principal payment. - For purposes of subparagraph
(B), the term 'required principal payment' means any principal
repayment on a loan made under the plan which was outstanding on
August 13, 1982, if such repayment is required to be made after
August 13, 1982, and before August 14, 1983 or if such loan was
payable on demand.
"(D) Special rule for non-key employees. - In the case of a non-
key employee (within the meaning of section 416(i)(2) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]), this
paragraph shall be applied by substituting 'January 1, 1985' for
'August 14, 1983' each place it appears.
"(3) Treatment of certain renegotiations. - If -
"(A) the taxpayer after August 13, 1982, and before September
4, 1982, borrows money from a government plan (as defined in
section 219(e)(4) of the Internal Revenue Code of 1986),
"(B) under the applicable State law, such loan requires the
renegotiation of all outstanding prior loans made to the taxpayer
under such plan, and
"(C) the renegotiation described in subparagraph (B) does not
change the interest rate on, or extend the duration of, any such
outstanding prior loan,
then the renegotiation described in subparagraph (B) shall not be
treated as a renegotiation, extension, renewal, or revision for
purposes of paragraph (1). If the renegotiation described in
subparagraph (B) does not meet the requirements of subparagraph (C)
solely because it extends the duration of any such outstanding
prior loan, the requirements of subparagraph (C) shall be treated
as met with respect to such renegotiation if, before April 1, 1983,
such extension is eliminated."
Section 265(c) of Pub. L. 97-248 provided that:
"(1) Subsection (a). - The amendments made by subsection (a)
[amending this section] shall take effect on August 13, 1982.
"(2) Subsection (b). - The amendments made by subsection (b)
[amending this section and sections 46, 50A, 53, 901, 1302, and
1304 of this title] shall apply to distributions after December 31,
1982."
Amendment by section 237(d) of Pub. L. 97-248 applicable to years
beginning after Dec. 31, 1983, see section 241 of Pub. L. 97-248,
set out as an Effective Date note under section 416 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 312(f) of Pub. L. 97-34, as amended by Pub. L. 97-448,
title I, Sec. 103(d)(3), 96 Stat. 2378, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
219, 401, 404, 408, 1379, and 4972 of this title] shall apply to
taxable years beginning after December 31, 1981.
"(2) Transitional rule. - The amendments made by subsection (d)
[amending this section] shall not apply to any loan from a plan to
a self-employed individual who is an employee within the meaning of
section 401(c)(1) which is outstanding on December 31, 1981. For
purposes of the preceding sentence, any loan which is renegotiated,
extended, renewed, or revised after such date shall be treated as a
new loan."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(12), (13) of Pub. L. 94-455
applicable with respect to taxable years beginning after Dec. 31,
1976, see section 1901(d) of Pub. L. 94-455, set out as a note
under section 2 of this title.
Section 1951(d) of Pub. L. 94-455 provided that: "Except as
otherwise expressly provided, the amendments made by this section
[see Tables for classification of section 1951 of Pub. L. 94-455]
shall apply with respect to taxable years beginning after December
31, 1976."
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by section 2001(e)(5) of Pub. L. 93-406 applicable to
contributions made in taxable years beginning after Dec. 31, 1975,
see section 2001(i)(4) of Pub. L. 93-406, set out as a note under
section 401 of this title.
Section 2001(i)(5), (6) of Pub. L. 93-406 provided that:
"(5) The amendments made by subsection (g) [amending this
section and sections 46, 50A, 56, 404, and 901 of this title]
apply to distributions made in taxable years beginning after
December 31, 1975.
"(6) The amendments made by subsection (h) [amending this
section and section 401 of this title] apply to taxable years
ending after the date of enactment of this Act [Sept. 2, 1974]."
Amendment by section 2002(g)(10) of Pub. L. 93-406 effective on
Jan. 1, 1975, see section 2002(i)(2) of Pub. L. 93-406, set out as
an Effective Date note under section 4973 of this title.
Amendment by section 2005(c)(3) of Pub. L. 93-406, applicable
only with respect to distributions or payments made after Dec. 31,
1973, in taxable years beginning after Dec. 31, 1973, see section
2005(d) of Pub. L. 93-406, set out as a note under section 402 of
this title.
Amendment by section 2007(b)(2) of Pub. L. 93-406 applicable to
taxable years ending on or after Sept. 21, 1972, see section
2007(c) of Pub. L. 93-406, set out as a note under section 122 of
this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years ending
after Dec. 31, 1969, see section 515(d) of Pub. L. 91-172, set out
as a note under section 402 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-365 applicable with respect to taxable
years ending after Dec. 31, 1965, see section 1(d) of Pub. L. 89-
365, set out as an Effective Date note under section 122 of this
title.
EFFECTIVE DATE OF 1965 AMENDMENTS
Amendment by Pub. L. 89-97 applicable to taxable years beginning
after Dec. 31, 1966, see section 106(e) of Pub. L. 89-97, set out
as a note under section 213 of this title.
Amendment by Pub. L. 89-44 applicable to taxable years beginning
on or after July 1, 1965, see section 809(f) of Pub. L. 89-44, set
out as a note under section 6420 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 232(g) of Pub. L. 88-272, set out
as a note under section 5 of this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Section 11(c)(2) of Pub. L. 87-834 provided that: "The amendment
made by subsection (b) [amending this section] shall apply to
taxable years ending after December 31, 1962."
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a
note under section 22 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
Section 1951(b)(1)(B) of Pub. L. 94-455 provided that:
"Notwithstanding subparagraph (A) [repealing subsec. (i) of this
section], if the provisions of section 72(i) applied to amounts
received in taxable years beginning before January 1, 1977, under
an annuity contract, then amounts received under such contract on
or after such date shall be treated as if such provisions were not
repealed."
APPLICABILITY OF SUBSECTION (T)
Section 1011A(c)(13) of Pub. L. 100-647 provided that: "Section
72(t) of the 1986 Code shall apply to any distribution without
regard to whether such distribution is made without the consent of
the participant pursuant to section 411(a)(11) or section 417(e) of
the 1986 Code."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be paragraph "(2)(B)".
(!2) So in original. The word "or" probably should not appear.
(!3) See References in Text note below.
-End-
-CITE-
26 USC Sec. 73 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 73. Services of child
-STATUTE-
(a) Treatment of amounts received
Amounts received in respect of the services of a child shall be
included in his gross income and not in the gross income of the
parent, even though such amounts are not received by the child.
(b) Treatment of expenditures
All expenditures by the parent or the child attributable to
amounts which are includible in the gross income of the child (and
not of the parent) solely by reason of subsection (a) shall be
treated as paid or incurred by the child.
(c) Parent defined
For purposes of this section, the term "parent" includes an
individual who is entitled to the services of a child by reason of
having parental rights and duties in respect of the child.
(d) Cross reference
For assessment of tax against parent in certain cases, see
section 6201(c).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 24.)
-End-
-CITE-
26 USC Sec. 74 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 74. Prizes and awards
-STATUTE-
(a) General rule
Except as otherwise provided in this section or in section 117
(relating to qualified scholarships), gross income includes amounts
received as prizes and awards.
(b) Exception for certain prizes and awards transferred to
charities
Gross income does not include amounts received as prizes and
awards made primarily in recognition of religious, charitable,
scientific, educational, artistic, literary, or civic achievement,
but only if -
(1) the recipient was selected without any action on his part
to enter the contest or proceeding;
(2) the recipient is not required to render substantial future
services as a condition to receiving the prize or award; and
(3) the prize or award is transferred by the payor to a
governmental unit or organization described in paragraph (1) or
(2) of section 170(c) pursuant to a designation made by the
recipient.
(c) Exception for certain employee achievement awards
(1) In general
Gross income shall not include the value of an employee
achievement award (as defined in section 274(j)) received by the
taxpayer if the cost to the employer of the employee achievement
award does not exceed the amount allowable as a deduction to the
employer for the cost of the employee achievement award.
(2) Excess deduction award
If the cost to the employer of the employee achievement award
received by the taxpayer exceeds the amount allowable as a
deduction to the employer, then gross income includes the greater
of -
(A) an amount equal to the portion of the cost to the
employer of the award that is not allowable as a deduction to
the employer (but not in excess of the value of the award), or
(B) the amount by which the value of the award exceeds the
amount allowable as a deduction to the employer.
The remaining portion of the value of such award shall not be
included in the gross income of the recipient.
(3) Treatment of tax-exempt employers
In the case of an employer exempt from taxation under this
subtitle, any reference in this subsection to the amount
allowable as a deduction to the employer shall be treated as a
reference to the amount which would be allowable as a deduction
to the employer if the employer were not exempt from taxation
under this subtitle.
(4) Cross reference
For provisions excluding certain de minimis fringes from
gross income, see section 132(e).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 24; Pub. L. 99-514, title I,
Secs. 122(a)(1), 123(b)(1), Oct. 22, 1986, 100 Stat. 2109, 2113.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-514, Sec. 123(b)(1), which
directed that subsec. (a) be amended by substituting "(relating to
qualified scholarships)" for "(relating to scholarship and
fellowship grants)", was executed by making the substitution for
"(relating to scholarships and fellowship grants)" to reflect the
probable intent of Congress.
Pub. L. 99-514, Sec. 122(a)(1)(A), substituted "Except as
otherwise provided in this section or" for "Except as provided in
subsection (b) and".
Subsec. (b). Pub. L. 99-514, Sec. 122(a)(1)(B), (C), inserted
"for certain prizes and awards transferred to charities" in heading
and added par. (3).
Subsec. (c). Pub. L. 99-514, Sec. 122(a)(1)(D), added subsec.
(c).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 122(a)(1) of Pub. L. 99-514 applicable to
prizes and awards granted after Dec. 31, 1986, see section 151(c)
of Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 123(b)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, but only in the case
of scholarships and fellowships granted after Aug. 16, 1986, see
section 151(d) of Pub. L. 99-514, set out as a note under section 1
of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUBLIC LAW 99-514 IN
RELATION TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 123(b)(1) of Pub. L.
99-514 to the extent application of such amendment would be
contrary to any treaty obligation of the United States in effect on
Oct. 22, 1986, see section 1012(aa)(3) of Pub. L. 100-647, set out
as a note under section 861 of this title.
-End-
-CITE-
26 USC Sec. 75 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 75. Dealers in tax-exempt securities
-STATUTE-
(a) Adjustment for bond premium
In computing the gross income of a taxpayer who holds during the
taxable year a short-term municipal bond (as defined in subsection
(b)(1) primarily for sale to customers in the ordinary course of
his trade or business -
(1) if the gross income of the taxpayer from such trade or
business is computed by the use of inventories and his
inventories are valued on any basis other than cost, the cost of
securities sold (as defined in subsection (b)(2) during such year
shall be reduced by an amount equal to the amortizable bond
premium which would be disallowed as a deduction for such year by
section 171(a)(2) (relating to deduction for amortizable bond
premium) if the definition in section 171(d) of the term "bond"
did not exclude such municipal bond; or
(2) if the gross income of the taxpayer from such trade or
business is computed without the use of inventories, or by use of
inventories valued at cost, and the municipal bond is sold or
otherwise disposed of during such year, the adjusted basis
(computed without regard to this paragraph) of the municipal bond
shall be reduced by the amount of the adjustment which would be
required under section 1016(a)(5) (relating to adjustment to
basis for amortizable bond premium) if the definition in section
171(d) of the term "bond" did not exclude such municipal bond.
Notwithstanding the provisions of paragraph (1), no reduction to
the cost of securities sold during the taxable year shall be made
in respect of any obligation described in subsection (b)(1)(A)(ii)
which is held by the taxpayer at the close of the taxable year; but
in the taxable year in which any such obligation is sold or
otherwise disposed of, if such obligation is a municipal bond (as
defined in subsection (b)(1)), the cost of securities sold during
such year shall be reduced by an amount equal to the adjustment
described in paragraph (2), without regard to the fact that the
taxpayer values his inventories on any basis other than cost.
(b) Definitions
For purposes of subsection (a) -
(1) The term "municipal bond" means any obligation issued by a
government or political subdivision thereof if the interest on
such obligation is excludable from gross income; but such term
does not include such an obligation if -
(A)(i) it is sold or otherwise disposed of by the taxpayer
within 30 days after the date of its acquisition by him, or
(ii) its earliest maturity or call date is a date more than 5
years from the date on which it was acquired by the taxpayer;
and
(B) when it is sold or otherwise disposed of by the taxpayer -
(i) in the case of a sale, the amount realized, or
(ii) in the case of any other disposition, its fair market
value at the time of such disposition,
is higher than its adjusted basis (computed without regard to
this section and section 1016(a)(6)).
Determinations under subparagraph (B) shall be exclusive of
interest.
(2) The term "cost of securities sold" means the amount
ascertained by subtracting the inventory value of the closing
inventory of a taxable year from the sum of -
(A) the inventory value of the opening inventory for such
year, and
(B) the cost of securities and other property purchased
during such year which would properly be included in the
inventory of the taxpayer if on hand at the close of the
taxable year.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 25; Pub. L. 85-866, title I,
Sec. 2(a), Sept. 2, 1958, 72 Stat. 1606.)
-MISC1-
AMENDMENTS
1958 - Subsec. (a). Pub. L. 85-866, Sec. 2(a)(2), (3), struck out
"short-term" each place it appeared, and inserted sentence to
provide that no reduction to cost of securities sold during taxable
year shall be made in respect of subsec. (b)(1)(A)(ii) obligations
held at close of year, and to permit reduction in cost of
securities sold in taxable year sold if obligation is municipal
bond.
Subsec. (b)(1). Pub. L. 85-866, Sec. 2(a)(1), substituted
"municipal bond" for "short-term municipal bond", designated former
subpars. (A) and (B) as (A)(i) and (ii), respectively, and added
subpar. (B).
EFFECTIVE DATE OF 1958 AMENDMENT
Section 2(c) of Pub. L. 85-866 provided that: "The amendments
made by subsections (a) and (b) [amending this section and section
1016 of this title] shall apply with respect to taxable years
ending after December 31, 1957, but only with respect to
obligations acquired after such date."
-End-
-CITE-
26 USC Sec. 76 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
[Sec. 76. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(14),
Oct. 4, 1976, 90 Stat. 1765]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 25, related to
inclusion in gross of all income derived from mortgages made, or
obligations issued, by a joint-stock land bank.
-End-
-CITE-
26 USC Sec. 77 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 77. Commodity credit loans
-STATUTE-
(a) Election to include loans in income
Amounts received as loans from the Commodity Credit Corporation
shall, at the election of the taxpayer, be considered as income and
shall be included in gross income for the taxable year in which
received.
(b) Effect of election on adjustments for subsequent years
If a taxpayer exercises the election provided for in subsection
(a) for any taxable year, then the method of computing income so
adopted shall be adhered to with respect to all subsequent taxable
years unless with the approval of the Secretary a change to a
different method is authorized.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 25; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
-End-
-CITE-
26 USC Sec. 78 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 78. Dividends received from certain foreign corporations by
domestic corporations choosing foreign tax credit
-STATUTE-
If a domestic corporation chooses to have the benefits of subpart
A of part III of subchapter N (relating to foreign tax credit) for
any taxable year, an amount equal to the taxes deemed to be paid by
such corporation under section 902(a) (relating to credit for
corporate stockholder in foreign corporation) or under section
960(a)(1) (relating to taxes paid by foreign corporation) for such
taxable year shall be treated for purposes of this title (other
than section 245) as a dividend received by such domestic
corporation from the foreign corporation.
-SOURCE-
(Added Pub. L. 87-834, Sec. 9(b), Oct. 16, 1962, 76 Stat. 1001;
amended Pub. L. 94-455, title X, Sec. 1033(b)(1), Oct. 4, 1976, 90
Stat. 1628.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 substituted "section 902(a)" for "section
902(a)(1)" and "section 960(a)(1)" for "section 960(a)(1)(C)".
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable on different dates
depending on the date the distributions were received, see section
1033(c) of Pub. L. 94-455, set out as a note under section 902 of
this title.
EFFECTIVE DATE
Section applicable in respect of any distribution received by a
domestic corporation after Dec. 31, 1964, and in respect of any
distribution received by a domestic corporation before Jan. 1,
1965, in a taxable year of such corporation beginning after Dec.
31, 1962, but only to the extent that such distribution is made out
of the accumulated profits of a foreign corporation for a taxable
year (of such foreign corporation) beginning after Dec. 31, 1962,
see section 9(e) of Pub. L. 87-834, set out as an Effective Date of
1962 Amendment note under section 902 of this title.
-End-
-CITE-
26 USC Sec. 79 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 79. Group-term life insurance purchased for employees
-STATUTE-
(a) General rule
There shall be included in the gross income of an employee for
the taxable year an amount equal to the cost of group-term life
insurance on his life provided for part or all of such year under a
policy (or policies) carried directly or indirectly by his employer
(or employers); but only to the extent that such cost exceeds the
sum of -
(1) the cost of $50,000 of such insurance, and
(2) the amount (if any) paid by the employee toward the
purchase of such insurance.
(b) Exceptions
Subsection (a) shall not apply to -
(1) the cost of group-term life insurance on the life of an
individual which is provided under a policy carried directly or
indirectly by an employer after such individual has terminated
his employment with such employer and is disabled (within the
meaning of section 72(m)(7)),
(2) the cost of any portion of the group-term life insurance on
the life of an employee provided during part or all of the
taxable year of the employee under which -
(A) the employer is directly or indirectly the beneficiary,
or
(B) a person described in section 170(c) is the sole
beneficiary,
for the entire period during such taxable year for which the
employee receives such insurance, and
(3) the cost of any group-term life insurance which is provided
under a contract to which section 72(m)(3) applies.
(c) Determination of cost of insurance
For purposes of this section and section 6052, the cost of group-
term insurance on the life of an employee provided during any
period shall be determined on the basis of uniform premiums
(computed on the basis of 5-year age brackets) prescribed by
regulations by the Secretary.
(d) Nondiscrimination requirements
(1) In general
In the case of a discriminatory group-term life insurance plan -
(A) subsection (a)(1) shall not apply with respect to any key
employee, and
(B) the cost of group-term life insurance on the life of any
key employee shall be the greater of -
(i) such cost determined without regard to subsection (c),
or
(ii) such cost determined with regard to subsection (c).
(2) Discriminatory group-term life insurance plan
For purposes of this subsection, the term "discriminatory group-
term life insurance plan" means any plan of an employer for
providing group-term life insurance unless -
(A) the plan does not discriminate in favor of key employees
as to eligibility to participate, and
(B) the type and amount of benefits available under the plan
do not discriminate in favor of participants who are key
employees.
(3) Nondiscriminatory eligibility classification
(A) In general
A plan does not meet requirements of subparagraph (A) of
paragraph (2) unless -
(i) such plan benefits 70 percent or more of all employees
of the employer,
(ii) at least 85 percent of all employees who are
participants under the plan are not key employees,
(iii) such plan benefits such employees as qualify under a
classification set up by the employer and found by the
Secretary not to be discriminatory in favor of key employees,
or
(iv) in the case of a plan which is part of a cafeteria
plan, the requirements of section 125 are met.
(B) Exclusion of certain employees
For purposes of subparagraph (A), there may be excluded from
consideration -
(i) employees who have not completed 3 years of service;
(ii) part-time or seasonal employees;
(iii) employees not included in the plan who are included
in a unit of employees covered by an agreement between
employee representatives and one or more employers which the
Secretary finds to be a collective bargaining agreement, if
the benefits provided under the plan were the subject of good
faith bargaining between such employee representatives and
such employer or employers; and
(iv) employees who are nonresident aliens and who receive
no earned income (within the meaning of section 911(d)(2))
from the employer which constitutes income from sources
within the United States (within the meaning of section
861(a)(3)).
(4) Nondiscriminatory benefits
A plan does not meet the requirements of paragraph (2)(B)
unless all benefits available to participants who are key
employees are available to all other participants.
(5) Special rule
A plan shall not fail to meet the requirements of paragraph
(2)(B) merely because the amount of life insurance on behalf of
the employees under the plan bears a uniform relationship to the
total compensation or the basic or regular rate of compensation
of such employees.
(6) Key employee defined
For purposes of this subsection, the term "key employee" has
the meaning given to such term by paragraph (1) of section
416(i). Such term also includes any former employee if such
employee when he retired or separated from service was a key
employee.
(7) Exemption for church plans
(A) In general
This subsection shall not apply to a church plan maintained
for church employees.
(B) Definitions
For purposes of subparagraph (A), the terms "church plan" and
"church employee" have the meaning given such terms by
paragraphs (1) and (3)(B) of section 414(e), respectively,
except that -
(i) section 414(e) shall be applied by substituting
"section 501(c)(3)" for "section 501" each place it appears,
and
(ii) the term "church employee" shall not include an
employee of -
(I) an organization described in section 170(b)(1)(A)(ii)
above the secondary school level (other than a school for
religious training),
(II) an organization described in section
170(b)(1)(A)(iii), and
(III) an organization described in section 501(c)(3), the
basis of the exemption for which is substantially similar
to the basis for exemption of an organization described in
subclause (II).
(8) Treatment of former employees
To the extent provided in regulations, this subsection shall be
applied separately with respect to former employees.
(e) Employee includes former employee
For purposes of this section, the term "employee" includes a
former employee.
-SOURCE-
(Added Pub. L. 88-272, title II, Sec. 204(a)(1), Feb. 26, 1964, 78
Stat. 36; amended Pub. L. 89-97, title I, Sec. 106(d)(3), July 30,
1965, 79 Stat. 337; Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97-248, title II, Sec. 244(a),
Sept. 3, 1982, 96 Stat. 523; Pub. L. 98-369, div. A, title II, Sec.
223(a), (b), July 18, 1984, 98 Stat. 775; Pub. L. 99-514, title XI,
Sec. 1151(c)(1), title XVIII, Sec. 1827(a)(1), (c), (d), Oct. 22,
1986, 100 Stat. 2503, 2850, 2851; Pub. L. 100-647, title V, Sec.
5013(a), Nov. 10, 1988, 102 Stat. 3666; Pub. L. 101-140, title II,
Sec. 203(a)(1), (b)(1)(A), Nov. 8, 1989, 103 Stat. 830, 831; Pub.
L. 101-508, title XI, Sec. 11703(e)(1), Nov. 5, 1990, 104 Stat.
1388-517.)
-MISC1-
AMENDMENTS
1990 - Subsec. (d)(6). Pub. L. 101-508 substituted "any former
employee" for "any retired employee".
1989 - Subsec. (d). Pub. L. 101-140, Sec. 203(a)(1), amended
subsec. (d) to read as if amendments by Pub. L. 99-514, Sec.
1151(c)(1), had not been enacted, see 1986 Amendment note below.
Subsec. (d)(7). Pub. L. 101-140, Sec. 203(b)(1)(A), amended par.
(7) generally. Prior to amendment, par. (7) read as follows: "All
employees who are treated as employed by a single employer under
subsection (b), (c), or (m) of section 414 shall be treated as
employed by a single employer for purposes of this section."
1988 - Subsec. (c). Pub. L. 100-647 struck out at end "In the
case of an employee who has attained age 64, the cost prescribed
shall not exceed the cost with respect to such individual if he
were age 63."
1986 - Subsec. (d). Pub. L. 99-514, Sec. 1151(c)(1), amended
subsec. (d) generally, substituting "In the case of a group-term
life insurance plan which is a discriminatory employee benefit
plan, subsection (a)(1) shall apply only to the extent provided in
section 89." for provisions formerly designated as pars. (1)(A) and
(B) that in the case of a discriminatory group-term life insurance
plan subsec. (a)(1) shall not apply with respect to any key
employee and the cost of group-term life insurance on the life of
any key employee shall be determined without regard to subsec. (c),
and striking out pars. (2) to (7) relating to classifications and
eligibility classifications of nondiscriminatory plans.
Subsec. (d)(1)(B). Pub. L. 99-514, Sec. 1827(a)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "the cost of group-term life insurance on the life of any
key employee shall be determined without regard to subsection (c)."
Subsec. (d)(6). Pub. L. 99-514, Sec. 1827(c), struck out ",
except that subparagraph (A)(iv) of such paragraph shall be applied
by not taking into account employees described in paragraph (3)(B)
who are not participants in the plan" from first sentence and
inserted provision that such term also includes any retired
employee if such employee when he retired or separated from service
was a key employee.
Subsec. (d)(8). Pub. L. 99-514, Sec. 1827(d), added par. (8).
1984 - Subsec. (b)(1). Pub. L. 98-369, Sec. 223(a)(2), struck out
"either has reached the retirement age with respect to such
employer or" before "is disabled".
Subsec. (d)(1). Pub. L. 98-369, Sec. 223(b), designated existing
provisions as subpar. (A) and added subpar. (B).
Subsec. (e). Pub. L. 98-369, Sec. 223(a)(1), added subsec. (e).
1982 - Subsec. (d). Pub. L. 97-248 added subsec. (d).
1976 - Subsec. (c). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
1965 - Subsec. (b)(1). Pub. L. 89-97 substituted "section
72(m)(7)" for "paragraph (3) of section 213(g), determined without
regard to paragraph (4) thereof".
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11703(e)(2) of Pub. L. 101-508 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to employees separating from service after the date of the
enactment of this Act [Nov. 5, 1990]."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 203(c) of Pub. L. 101-140 provided that: "The amendments
made by this section [amending this section and sections 105, 117,
120, 125, 127, 129, 132, 162, 401, 414, 505, 3121, 3231, 3306,
3401, 4976, and 6652 of this title, section 409 of title 42, The
Public Health and Welfare, and provisions set out as notes under
sections 89 and 3121 of this title] shall take effect as if
included in section 1151 of the Tax Reform Act of 1986 [Pub. L. 99-
514, see section 1151(k) set out below]."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 5013(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1988."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1151(k) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011B(a)(25), (26), Nov. 10, 1988, 102 Stat. 3486,
provided that:
"(1) In general. - The amendments made by this section [enacting
section 89 of this title and amending this section and sections
105, 106, 117, 120, 125, 127, 129, 132, 414, 505, 6039D, and 6652
of this title] shall apply to years beginning after the later of -
"(A) December 31, 1987, or
"(B) the earlier of -
"(i) the date which is 3 months after the date on which the
Secretary of the Treasury or his delegate issues such
regulations as are necessary to carry out the provisions of
section 89 of the Internal Revenue Code of 1986 (as added by
this section), or
"(ii) December 31, 1988.
Notwithstanding the preceding sentence, the amendments made by
subsections (e)(1) and (i)(3)(C) [amending section 414 of this
title] shall, to the extent they relate to sections 106, 162(i)(2),
and 162(k) of the Internal Revenue Code of 1986, apply to years
beginning after 1986.
"(2) Special rule for collective bargaining plan. - In the case
of a plan maintained pursuant to 1 or more collective bargaining
agreements between employee representatives and 1 or more employers
ratified before March 1, 1986, the amendments made by this section
[enacting section 89 of this title and amending this section and
sections 105, 106, 117, 120, 125, 127, 129, 132, 414, 505, 6039D,
and 6652 of this title] shall not apply to employees covered by
such an agreement in years beginning before the earlier of -
"(A) the date on which the last of such collective bargaining
agreements terminates (determined without regard to any extension
thereof after February 28, 1986), or
"(B) January 1, 1991.
A plan shall not be required to take into account employees to
which the preceding sentence applies for purposes of applying
section 89 of the Internal Revenue Code of 1986 (as added by this
section) to employees to which the preceding sentence does not
apply for any year preceding the year described in the preceding
sentence.
"(3) Exception for certain group-term insurance plans. - In the
case of a plan described in section 223(d)(2) of the Tax Reform Act
of 1984 [section 232(d)(2) of Pub. L. 98-369, set out as an
Effective Date of 1984 Amendment note below], such plan shall be
treated as meeting the requirements of section 89 of the Internal
Revenue Code of 1986 (as added by this section) with respect to
individuals described in section 223(d)(2) of such Act. An employer
may elect to disregard such individuals in applying section 89 of
such Code (as so added) to other employees of the employer.
"(4) Special rule for church plans. - In the case of a church
plan (within the meaning of section 414(e)(3) of the Internal
Revenue Code of 1986) maintaining an insured accident and health
plan, the amendments made by this section [enacting section 89 of
this title and amending this section and sections 105, 106, 117,
120, 125, 127, 129, 132, 414, 505, 6039D, and 6652 of this title]
shall apply to years beginning after December 31, 1988.
"(5) Cafeteria plans. - The amendments made by subsection (d)(2)
[amending sections 3121 and 3306 of this title and section 409 of
Title 42, The Public Health and Welfare] shall apply to taxable
years beginning after December 31, 1983.
"(6) Certain plans maintained by educational institutions. - If
an educational organization described in section 170(b)(1)(A)(ii)
of the Internal Revenue Code of 1986 makes an election under this
paragraph with respect to a plan described in section 125(c)(2)(C)
of such Code, the amendments made by this section shall apply with
respect to such plan for plan years beginning after the date of the
enactment of this Act [Oct. 22, 1986]."
Section 1827(a)(2) of Pub. L. 99-514 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years ending after the date of the enactment of this Act
[Oct. 22, 1986]."
Amendment by section 1827(c), (d) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 223(d) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1827(b), Oct. 22, 1986, 100 Stat. 2095,
2850, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
83 of this title] shall apply to taxable years beginning after
December 31, 1983.
"(2) Inclusion of former employees in the case of existing group-
term insurance plans. -
"(A) In general. - The amendments made by subsection (a)
[amending this section] shall not apply -
"(i) to any group-term life insurance plan of the employer in
existence on January 1, 1984, or
"(ii) to any group-term life insurance plan of the employer
(or a successor employer) which is a comparable successor to a
plan described in clause (i),
but only with respect to an individual who attained age 55 on or
before January 1, 1984, and was employed by such employer (or a
predecessor employer) at any time during 1983. Such amendments
also shall not apply to any employee who retired from employment
on or before January 1, 1984, and who, when he retired, was
covered by the plan (or a predecessor plan).
"(B) Special rule in the case of discriminatory group-term life
insurance plan. - In the case of any plan which, after December
31, 1986, is a discriminatory group-term life insurance plan (as
defined in section 79(d) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]), subparagraph (A) shall not apply in the
case of any individual retiring under such plan after December
31, 1986.
"(C) Benefits to certain retired individuals not taken into
account for purposes of determining whether plan is
discriminatory. - For purposes of determining whether a plan
described in subparagraph (A) meets the requirements of section
79(d) of the Internal Revenue Code of 1986 with respect to group-
term life insurance for former employees, coverage provided to
employees who retired on or before December 31, 1986, may, at the
employer's election, be disregarded.
"(D) Comparable successor plans. - For purposes of subparagraph
(A), a plan shall not fail to be treated as a comparable
successor to a plan described in subparagraph (A)(i) with respect
to any employee whose benefits do not increase under the
successor plan."
EFFECTIVE DATE OF 1982 AMENDMENT
Section 244(b) of Pub. L. 97-248 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1983."
EFFECTIVE DATE OF 1965 AMENDMENT
Amendment by Pub. L. 89-97 applicable to taxable years beginning
after Dec. 31, 1966, see section 106(e) of Pub. L. 89-97, set out
as a note under section 213 of this title.
EFFECTIVE DATE
Section 204(d) of Pub. L. 88-272, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by subsections (a) [amending this section and
section 7701 of this title] and (c) [amending sections 6052 and
6678 of this title] and paragraph (3) of section 6652(a) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by
section 221(b)(2) of this Act), shall apply with respect to group-
term life insurance provided after December 31, 1963, in taxable
years ending after such date. The amendments made by subsection (b)
[amending section 3401 of this title] shall apply with respect to
remuneration paid after December 31, 1963, in the form of group-
term life insurance provided after such date. In applying section
79(b) of the Internal Revenue Code of 1986 (as added by subsection
(a)(1) of this section) to a taxable year beginning before May 1,
1964, if paragraph (2)(B) of such section applies with respect to
an employee for the period beginning May 1, 1964, and ending with
the close of his first taxable year ending after April 30, 1964,
such paragraph (2)(B) shall be treated as applying with respect to
such employee for the period beginning January 1, 1964, and ending
April 30, 1964."
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514
FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement
or enforce section 1151 of Pub. L. 99-514 or the amendments made by
such section, see section 528 of Pub. L. 101-136, set out as a note
under section 89 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 80 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 80. Restoration of value of certain securities
-STATUTE-
(a) General rule
In the case of a domestic corporation subject to the tax imposed
by section 11 or 801, if the value of any security (as defined in
section 165(g)(2)) -
(1) which became worthless by reason of the expropriation,
intervention, seizure, or similar taking by the government of any
foreign country, any political subdivision thereof, or any agency
or instrumentality of the foregoing of property to which such
security was related, and
(2) which was taken into account as a loss from the sale or
exchange of a capital asset or with respect to which a deduction
for a loss was allowed under section 165,
is restored in whole or in part during any taxable year by reason
of any recovery of money or other property in respect of the
property to which such security was related, the value so restored
(to the extent that, when added to the value so restored during
prior taxable years, it does not exceed the amount of the loss
described in paragraph (2)) shall, except as provided in subsection
(b), be included in gross income for the taxable year in which such
restoration occurs.
(b) Reduction for failure to receive tax benefit
The amount otherwise includible in gross income under subsection
(a) in respect of any security shall be reduced by an amount equal
to the amount (if any) of the loss described in subsection (a)(2)
which did not result in a reduction of the taxpayer's tax under
this subtitle for any taxable year, determined under regulations
prescribed by the Secretary.
(c) Character of income
For purposes of this subtitle -
(1) Except as provided in paragraph (2), the amount included in
gross income under this section shall be treated as ordinary
income.
(2) If the loss described in subsection (a)(2) was taken into
account as a loss from the sale or exchange of a capital asset,
the amount included in gross income under this section shall be
treated as long-term capital gain.
(d) Treatment under foreign expropriation loss recovery provisions
This section shall not apply to any recovery of a foreign
expropriation loss to which section 1351 applies.
-SOURCE-
(Added Pub. L. 89-384, Sec. 1(b)(1), Apr. 8, 1966, 80 Stat. 101;
amended Pub. L. 94-455, title XIX, Secs. 1901(b)(3)(K),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1793, 1834; Pub. L. 98-369,
div. A, title II, Sec. 211(b)(2), July 18, 1984, 98 Stat. 754.)
-MISC1-
AMENDMENTS
1984 - Subsec. (a). Pub. L. 98-369 substituted "801" for "802".
1976 - Subsec. (b). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (c)(1). Pub. L. 94-455, Sec. 1901(b)(3)(K), substituted
"ordinary income" for "gain from the sale or exchange of property
which is neither a capital asset nor property described in section
1231".
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(3)(K) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE
Section 1(b)(3) of Pub. L. 89-384, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this subsection [enacting this section] shall
apply to taxable years beginning after December 31, 1965, but only
with respect to losses described in section 80(a)(2) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by
paragraph (1) of this subsection) which were sustained after
December 31, 1958."
-End-
-CITE-
26 USC Sec. 81 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
[Sec. 81. Repealed. Pub. L. 100-203, title X, Sec. 10201(b)(1),
Dec. 22, 1987, 101 Stat. 1330-387]
-MISC1-
Section, added Pub. L. 89-722, Sec. 1(b)(1), Nov. 2, 1966, 80
Stat. 1152; amended Pub. L. 93-625, Sec. 4(c)(1), Jan. 3, 1975, 88
Stat. 2111; Pub. L. 94-455, title VI, Sec. 605(b), Oct. 4, 1976, 90
Stat. 1575; Pub. L. 99-514, title VIII, Sec. 805(c)(1)(A), Oct. 22,
1986, 100 Stat. 2362, included increase in vacation pay suspense
account in gross income.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1987,
see section 10201(c)(1) of Pub. L. 100-203, set out as an Effective
Date of 1987 Amendment note under section 404 of this title.
-End-
-CITE-
26 USC Sec. 82 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 82. Reimbursement for expenses of moving
-STATUTE-
Except as provided in section 132(a)(6), there shall be included
in gross income (as compensation for services) any amount received
or accrued, directly or indirectly, by an individual as a payment
for or reimbursement of expenses of moving from one residence to
another residence which is attributable to employment or self-
employment.
-SOURCE-
(Added Pub. L. 91-172, title II, Sec. 231(b), Dec. 30, 1969, 83
Stat. 579; amended Pub. L. 103-66, title XIII, Sec. 13213(d)(3)(A),
Aug. 10, 1993, 107 Stat. 474.)
-MISC1-
AMENDMENTS
1993 - Pub. L. 103-66 substituted "Except as provided in section
132(a)(6), there shall" for "There shall".
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to reimbursements or other
payments in respect of expenses incurred after Dec. 31, 1993, see
section 13213(e) of Pub. L. 103-66, set out as a note under section
62 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after December 31,
1969, except that it does not apply to moving expenses paid or
incurred before July 1, 1970, in connection with the commencement
of work by the taxpayer as an employee at a new principal place of
work of which the taxpayer had been notified by his employer on or
before December 19, 1969, see section 231(d) of Pub. L. 91-172, set
out as an Effective Date of 1969 Amendment note under section 217
of this title.
MOVING EXPENSES OF MEMBERS OF THE UNIFORMED SERVICES
Withholding, reporting, inclusion within adjusted gross income,
and deduction for reimbursement for moving expenses of members of
the uniformed services, see section 2 of Pub. L. 93-490, Oct. 26,
1974, 88 Stat. 1466, set out as a note under section 217 of this
title.
-End-
-CITE-
26 USC Sec. 83 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 83. Property transferred in connection with performance of
services
-STATUTE-
(a) General rule
If, in connection with the performance of services, property is
transferred to any person other than the person for whom such
services are performed, the excess of -
(1) the fair market value of such property (determined without
regard to any restriction other than a restriction which by its
terms will never lapse) at the first time the rights of the
person having the beneficial interest in such property are
transferable or are not subject to a substantial risk of
forfeiture, whichever occurs earlier, over
(2) the amount (if any) paid for such property, shall be
included in the gross income of the person who performed such
services in the first taxable year in which the rights of the
person having the beneficial interest in such property are
transferable or are not subject to a substantial risk of
forfeiture, whichever is applicable. The preceding sentence shall
not apply if such person sells or otherwise disposes of such
property in an arm's length transaction before his rights in such
property become transferable or not subject to a substantial risk
of forfeiture.
(b) Election to include in gross income in year of transfer
(1) In general
Any person who performs services in connection with which
property is transferred to any person may elect to include in his
gross income for the taxable year in which such property is
transferred, the excess of -
(A) the fair market value of such property at the time of
transfer (determined without regard to any restriction other
than a restriction which by its terms will never lapse), over
(B) the amount (if any) paid for such property.
If such election is made, subsection (a) shall not apply with
respect to the transfer of such property, and if such property is
subsequently forfeited, no deduction shall be allowed in respect
of such forfeiture.
(2) Election
An election under paragraph (1) with respect to any transfer of
property shall be made in such manner as the Secretary prescribes
and shall be made not later than 30 days after the date of such
transfer. Such election may not be revoked except with the
consent of the Secretary.
(c) Special rules
For purposes of this section -
(1) Substantial risk of forfeiture
The rights of a person in property are subject to a substantial
risk of forfeiture if such person's rights to full enjoyment of
such property are conditioned upon the future performance of
substantial services by any individual.
(2) Transferability of property
The rights of a person in property are transferable only if the
rights in such property of any transferee are not subject to a
substantial risk of forfeiture.
(3) Sales which may give rise to suit under section 16(b) of the
Securities Exchange Act of 1934
So long as the sale of property at a profit could subject a
person to suit under section 16(b) of the Securities Exchange Act
of 1934, such person's rights in such property are -
(A) subject to a substantial risk of forfeiture, and
(B) not transferable.
(4) For purposes of determining an individual's basis in
property transferred in connection with the performance of
services, rules similar to the rules of section 72(w) shall
apply.
(d) Certain restrictions which will never lapse
(1) Valuation
In the case of property subject to a restriction which by its
terms will never lapse, and which allows the transferee to sell
such property only at a price determined under a formula, the
price so determined shall be deemed to be the fair market value
of the property unless established to the contrary by the
Secretary, and the burden of proof shall be on the Secretary with
respect to such value.
(2) Cancellation
If, in the case of property subject to a restriction which by
its terms will never lapse, the restriction is canceled, then,
unless the taxpayer establishes -
(A) that such cancellation was not compensatory, and
(B) that the person, if any, who would be allowed a deduction
if the cancellation were treated as compensatory, will treat
the transaction as not compensatory, as evidenced in such
manner as the Secretary shall prescribe by regulations,
the excess of the fair market value of the property (computed
without regard to the restrictions) at the time of cancellation
over the sum of -
(C) the fair market value of such property (computed by
taking the restriction into account) immediately before the
cancellation, and
(D) the amount, if any, paid for the cancellation,
shall be treated as compensation for the taxable year in which
such cancellation occurs.
(e) Applicability of section
This section shall not apply to -
(1) a transaction to which section 421 applies,
(2) a transfer to or from a trust described in section 401(a)
or a transfer under an annuity plan which meets the requirements
of section 404(a)(2),
(3) the transfer of an option without a readily ascertainable
fair market value,
(4) the transfer of property pursuant to the exercise of an
option with a readily ascertainable fair market value at the date
of grant, or
(5) group-term life insurance to which section 79 applies.
(f) Holding period
In determining the period for which the taxpayer has held
property to which subsection (a) applies, there shall be included
only the period beginning at the first time his rights in such
property are transferable or are not subject to a substantial risk
of forfeiture, whichever occurs earlier.
(g) Certain exchanges
If property to which subsection (a) applies is exchanged for
property subject to restrictions and conditions substantially
similar to those to which the property given in such exchange was
subject, and if section 354, 355, 356, or 1036 (or so much of
section 1031 as relates to section 1036) applied to such exchange,
or if such exchange was pursuant to the exercise of a conversion
privilege -
(1) such exchange shall be disregarded for purposes of
subsection (a), and
(2) the property received shall be treated as property to which
subsection (a) applies.
(h) Deduction by employer
In the case of a transfer of property to which this section
applies or a cancellation of a restriction described in subsection
(d), there shall be allowed as a deduction under section 162, to
the person for whom were performed the services in connection with
which such property was transferred, an amount equal to the amount
included under subsection (a), (b), or (d)(2) in the gross income
of the person who performed such services. Such deduction shall be
allowed for the taxable year of such person in which or with which
ends the taxable year in which such amount is included in the gross
income of the person who performed such services.
-SOURCE-
(Added Pub. L. 91-172, title III, Sec. 321(a), Dec. 30, 1969, 83
Stat. 588; amended Pub. L. 94-455, title XIX, Secs. 1901(a)(15),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1765, 1834; Pub. L. 97-34,
title II, Sec. 252(a), Aug. 13, 1981, 95 Stat. 260; Pub. L. 97-448,
title I, Sec. 102(k)(1), Jan. 12, 1983, 96 Stat. 2374; Pub. L. 98-
369, div. A, title II, Sec. 223(c), July 18, 1984, 98 Stat. 775;
Pub. L. 99-514, title XVIII, Sec. 1827(e), Oct. 22, 1986, 100 Stat.
2851; Pub. L. 101-508, title XI, Sec. 11801(a)(5), Nov. 5, 1990,
104 Stat. 1388-520; Pub. L. 108-357, title VIII, Sec. 906(b), Oct.
22, 2004, 118 Stat. 1654.)
-REFTEXT-
REFERENCES IN TEXT
Section 16(b) of the Securities Exchange Act of 1934, referred to
in subsec. (c)(3), is classified to section 78p(b) of Title 15,
Commerce and Trade.
-MISC1-
AMENDMENTS
2004 - Subsec. (c)(4). Pub. L. 108-357 added par. (4).
1990 - Subsec. (i). Pub. L. 101-508 struck out subsec. (i)
"Transition rules" which read as follows: "This section shall apply
to property transferred after June 30, 1969, except that this
section shall not apply to property transferred -
"(1) pursuant to a binding written contract entered into before
April 22, 1969,
"(2) upon the exercise of an option granted before April 22,
1969,
"(3) before May 1, 1970, pursuant to a written plan adopted and
approved before July 1, 1969,
"(4) before January 1, 1973, upon the exercise of an option
granted pursuant to a binding written contract entered into
before April 22, 1969, between a corporation and the transferor
requiring the transferor to grant options to employees of such
corporation (or a subsidiary of such corporation) to purchase a
determinable number of shares of stock of such corporation, but
only if the transferee was an employee of such corporation (or a
subsidiary of such corporation) on or before April 22, 1969, or
"(5) in exchange for (or pursuant to the exercise of a
conversion privilege contained in) property transferred before
July 1, 1969, or for property to which this section does not
apply (by reason of paragraphs (1), (2), (3), or (4)), if section
354, 355, 356, or 1036 (or so much of section 1031 as relates to
section 1036) applies, or if gain or loss is not otherwise
required to be recognized upon the exercise of such conversion
privilege, and if the property received in such exchange is
subject to restrictions and conditions substantially similar to
those to which the property given in such exchange was subject."
1986 - Subsec. (e)(5). Pub. L. 99-514 struck out "the cost of"
before "group-life insurance".
1984 - Subsec. (e)(5). Pub. L. 98-369 added par. (5).
1983 - Subsec. (c)(3). Pub. L. 97-448 substituted "Securities
Exchange Act of 1934" for "Securities and Exchange Act of 1934" in
heading and text.
1981 - Subsec. (c)(3). Pub. L. 97-34 added par. (3).
1976 - Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(a)(15), struck
out "(or, if later, 30 days after the date of the enactment of the
Tax Reform Act of 1969)" after "after the date of such transfer",
and Sec. 1906(b)(13)(A), "or his delegate" after "Secretary"
wherever appearing.
Subsec. (d)(1), (2)(B). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to distributions on or
after Oct. 22, 2004, see section 906(c) of Pub. L. 108-357, set out
as a note under section 72 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 223(d)(1) of Pub. L. 98-369, set
out as a note under section 79 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 252(c) of Pub. L. 97-34, as amended by Pub. L. 97-448,
title I, Sec. 102(k)(2), 96 Stat. 2374, provided that: "The
amendment made by subsection (a) [amending this section] and the
provisions of subsection (b) [set out below] shall apply to
transfers after December 31, 1981."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(15) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE
Section 321(d) of Pub. L. 91-172 provided that: "The amendments
made by subsections (a) and (c) [amending sections 402, 403, and
404 of this title] shall apply to taxable years ending after June
30, 1969. The amendments made by subsection (b) [enacting this
section] shall apply with respect to contributions made and
premiums paid after August 1, 1969."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
APPLICATION OF AMENDMENTS MADE BY SECTION 252 OF PUB. L. 97-34
Section 1879(p) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1018(q)(3), Nov. 10, 1988, 102 Stat. 3585, provided
that:
"(1) Notwithstanding subsection (c) of section 252 of the
Economic Recovery Tax Act of 1981 [section 252(c) of Pub. L. 97-34,
set out above], the amendment made by subsection (a) of such
section 252 [amending this section] (and the provisions of
subsection (b) of such section 252 [set out below]) shall apply to
any transfer of stock to any person if -
"(A) such transfer occurred in November or December of 1973 and
was pursuant to the exercise of an option granted in November or
December of 1971,
"(B) in December 1973 the corporation granting the option was
acquired by another corporation in a transaction qualifying as a
reorganization under section 368 of the Internal Revenue Code of
1954 [now 1986],
"(C) the fair market value (as of July 1, 1974) of the stock
received by such person in the reorganization in exchange for the
stock transferred to him pursuant to the exercise of such option
was less than 50 percent of the fair market value of the stock so
received (as of December 4, 1973),
"(D) in 1975 or 1976 such person sold substantially all of the
stock received in such reorganization, and
"(E) such person makes an election under this section at such
time and in such manner as the Secretary of the Treasury or his
delegate shall prescribe.
"(2) Limitation on amount of benefit. - Paragraph (1) shall not
apply to transfers with respect to any employee to the extent that
the application of paragraph (1) with respect to such employee
would (but for this paragraph) result in a reduction in liability
for income tax with respect to such employee for all taxable years
in excess of $100,000 (determined without regard to any interest).
"(3) Statute of limitations. -
"(A) Overpayments. - If refund or credit of any overpayment of
tax resulting from the application of paragraph (1) is prevented
on the date of the enactment of this Act [Oct. 22, 1986] (or at
any time within 6 months after such date of enactment) by the
operation of any law or rule of law, refund or credit of such
overpayment (to the extent attributable to the application of
paragraph (1)) may, nevertheless, be made or allowed if claim
therefor is filed before the close of such 6-month period.
"(B) Deficiencies. - If the assessment of any deficiency of tax
resulting from the application of paragraph (1) is prevented on
the date of the enactment of this Act [Oct. 22, 1986] (or at any
time within 6 months after such date of enactment) by the
operation of any law or rule of law, assessment of such
deficiency (to the extent attributable to the application of
paragraph (1)) may, nevertheless, be made within such 6-month
period."
TIME FOR MAKING CERTAIN SECTION 83(B) ELECTIONS
Section 556 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec.
2, title XVIII, Sec. 1855(b), Oct. 22, 1986, 100 Stat. 2095, 2882,
provided that: "In the case of any transfer of property in
connection with the performance of services on or before November
18, 1982, the election permitted by section 83(b) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] may be made,
notwithstanding paragraph (2) of such section 83(b), with the
income tax return for any taxable year ending after July 18, 1984,
and beginning before the date of the enactment of the Tax Reform
Act of 1986 [Oct. 22, 1986 if -
"(1) the amount paid for such property was not less than its
fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its
terms will never lapse), and
"(2) the election is consented to by the person transferring
such property.
The election shall contain that information required by the
Secretary of the Treasury or his delegate for elections permitted
by such section 83(b). The period for assessing any tax
attributable to a transfer of property which is the subject of an
election made pursuant to this section shall not expire before the
date which is 3 years after the date such election was made."
PROPERTY SUBJECT TO TRANSFER RESTRICTIONS TO COMPLY WITH
"POOLING-OF-INTERESTS ACCOUNTING" RULES
Section 252(b) of Pub. L. 97-34, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided, effective with
respect to taxable years ending after Dec. 31, 1981, that: "For
purposes of section 83 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], property is subject to substantial risk of
forfeiture and is not transferable so long as such property is
subject to a restriction on transfer to comply with the "Pooling-of-
Interests Accounting" rules set forth in Accounting Series Release
Numbered 130 ((10/5/72) 37 FR 20937; 17 CFR 211.130) and Accounting
Series Release Numbered 135 ((1/18/73) 38 FR 1734; 17 CFR
211.135)."
-End-
-CITE-
26 USC Sec. 84 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 84. Transfer of appreciated property to political organization
-STATUTE-
(a) General rule
If -
(1) any person transfers property to a political organization,
and
(2) the fair market value of such property exceeds its adjusted
basis,
then for purposes of this chapter the transferor shall be treated
as having sold such property to the political organization on the
date of the transfer, and the transferor shall be treated as having
realized an amount equal to the fair market value of such property
on such date.
(b) Basis of property
In the case of a transfer of property to a political organization
to which subsection (a) applies, the basis of such property in the
hands of the political organization shall be the same as it would
be in the hands of the transferor, increased by the amount of gain
recognized to the transferor by reason of such transfer.
(c) Political organization defined
For purposes of this section, the term "political organization"
has the meaning given to such term by section 527(e)(1).
-SOURCE-
(Added Pub. L. 93-625, Sec. 13(a)(1), Jan. 3, 1975, 88 Stat. 2120.)
-MISC1-
EFFECTIVE DATE
Section 13(b) of Pub. L. 93-625 provided that: "The amendments
made by subsection (a) [enacting this section] shall apply to
transfers made after May 7, 1974, in taxable years ending after
such date."
NONRECOGNITION OF GAIN OR LOSS WHERE ORGANIZATION SOLD CONTRIBUTED
PROPERTY BEFORE AUGUST 2, 1973
Section 13(c) of Pub. L. 93-625 provided that in the case of the
sale or exchange of property before Aug. 2, 1973, which was
acquired by the exempt political organization by contribution, no
gain or loss shall be recognized by such organization.
-End-
-CITE-
26 USC Sec. 85 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 85. Unemployment compensation
-STATUTE-
(a) General rule
In the case of an individual, gross income includes unemployment
compensation.
(b) Unemployment compensation defined
For purposes of this section, the term "unemployment
compensation" means any amount received under a law of the United
States or of a State which is in the nature of unemployment
compensation.
-SOURCE-
(Added Pub. L. 95-600, title I, Sec. 112(a), Nov. 6, 1978, 92 Stat.
2777; amended Pub. L. 97-34, title I, Sec. 103(c)(1), Aug. 13,
1981, 95 Stat. 188; Pub. L. 97-248, title VI, Sec. 611(a), Sept. 3,
1982, 96 Stat. 706; Pub. L. 98-21, title I, Secs. 121(f)(1),
122(c)(2), Apr. 20, 1983, 97 Stat. 84, 87; Pub. L. 99-514, title I,
Sec. 121, Oct. 22, 1986, 100 Stat. 2109.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-514 substituted "General rule" for
"In general" in heading and amended text generally. Prior to
amendment, text read as follows: "If the sum for the taxable year
of the adjusted gross income of the taxpayer (determined without
regard to this section, section 86 and section 221) and the
unemployment compensation exceeds the base amount, gross income for
the taxable year includes unemployment compensation in an amount
equal to the lesser of -
"(1) one-half of the amount of the excess of such sum over the
base amount, or
"(2) the amount of the unemployment compensation."
Subsecs. (b), (c). Pub. L. 99-514, in amending section generally,
redesignated former subsec. (c) as (b) and struck out former
subsec. (b), "Base amount defined", which read as follows: "For
purposes of this section, the term 'base amount' means -
"(1) except as provided in paragraphs (2) and (3), $12,000,
"(2) $18,000, in the case of a joint return under section 6013,
or
"(3) zero, in the case of a taxpayer who -
"(A) is married at the close of the taxable year (within the
meaning of section 143) but does not file a joint return for
such year, and
"(B) does not live apart from his spouse at all times during
the taxable year."
1983 - Subsec. (a). Pub. L. 98-21, Sec. 122(c)(2), struck out ",
section 105(d)," after "section 86".
Pub. L. 98-21, Sec. 121(f)(1), inserted "section 86," after "this
section,".
1982 - Subsec. (b)(1). Pub. L. 97-248, Sec. 611(a)(1),
substituted "$12,000" for "$20,000".
Subsec. (b)(2). Pub. L. 97-248, Sec. 611(a)(2), substituted
"$18,000" for "$25,000".
1981 - Subsec. (a). Pub. L. 97-34 substituted "this section,
section 105(d), and section 221" for "this section and without
regard to section 105(d)" in parenthetical provision preceding par.
(1).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to amounts received after
Dec. 31, 1986, in taxable years ending after such date, see section
151(b) of Pub. L. 99-514, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by section 121(f)(1) of Pub. L. 98-21 applicable to
benefits received after Dec. 31, 1983, in taxable years ending
after such date, except for any portion of a lump-sum payment of
social security benefits received after Dec. 31, 1983, if the
generally applicable payment date for such portion was before Jan.
1, 1984, see section 121(g) of Pub. L. 98-21, set out as an
Effective Date note under section 86 of this title.
Amendment by section 122(c)(2) of Pub. L. 98-21 applicable to
taxable years beginning after Dec. 31, 1983, except that if an
individual's annuity starting date was deferred under section
105(d)(6) of this title as in effect on the day before Apr. 20,
1983, such deferral shall end on the first day of such individual's
first taxable year beginning after Dec. 31, 1983, see section
122(d) of Pub. L. 98-21, set out as a note under section 22 of this
title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 611(b) of Pub. L. 97-248, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Compensation paid after 1981. - The amendments made by this
section [amending this section] shall apply to payments of
unemployment compensation made after December 31, 1981, in taxable
years ending after such date.
"(2) No addition to tax for underpayment of estimated tax
attributable to application of amendments to compensation paid in
1982. - No addition to tax shall be made under section 6654 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] with respect
to any underpayment to the extent such underpayment is attributable
to unemployment compensation which is received during 1982 and
which (but for the amendments made by subsection (a)) would not be
includable in gross income.
"(3) Special rule for fiscal year taxpayers. - In the case of a
taxable year (other than a calendar year) which includes January 1,
1982 -
"(A) the amendments made by this section shall be applied by
taking into account the entire amount of unemployment
compensation received during such taxable year, but
"(B) the increase in gross income for such taxable year as a
result of such amendments shall not exceed the amount of
unemployment compensation paid after December 31, 1981.
"(4) Unemployment compensation defined. - For purposes of this
subsection, the term 'unemployment compensation' has the meaning
given to such term by section 85(c) of the Internal Revenue Code of
1986."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1981, see section 103(d) of Pub. L. 97-34, set out
as a note under section 62 of this title.
EFFECTIVE DATE
Section 112(d) of Pub. L. 95-600, as amended by Pub. L. 98-369,
div. A, title X, Sec. 1075(a), July 18, 1984, 98 Stat. 1053,
provided that: "The amendments made by this section [enacting this
section and section 6050B of this title] shall apply to payments of
unemployment compensation made after December 31, 1978, in taxable
years ending after such date, except that such amendments shall not
apply to payments made for weeks of unemployment ending before
December 1, 1978."
WAIVER OF STATUTE OF LIMITATIONS
Pub. L. 98-369, div. A, title X, Sec. 1075(b), July 18, 1984, 98
Stat. 1053, provided that: "If credit or refund of any overpayment
of tax resulting from the amendment made by subsection (a)
[amending section 112(d) of Pub. L. 95-600, set out as an Effective
Date note above] is barred on the date of the enactment of this Act
[July 18, 1984] or at any time during the 1-year period beginning
on the date of the enactment of this Act by the operation of any
law or rule of law (including res judicata), refund or credit of
such overpayment (to the extent attributable to the amendment made
by subsection (a)) may, nevertheless, be made or allowed if claim
therefor is filed before the close of such 1-year period."
-End-
-CITE-
26 USC Sec. 86 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 86. Social security and tier 1 railroad retirement benefits
-STATUTE-
(a) In general
(1) In general
Except as provided in paragraph (2), gross income for the
taxable year of any taxpayer described in subsection (b)
(notwithstanding section 207 of the Social Security Act) includes
social security benefits in an amount equal to the lesser of -
(A) one-half of the social security benefits received during
the taxable year, or
(B) one-half of the excess described in subsection (b)(1).
(2) Additional amount
In the case of a taxpayer with respect to whom the amount
determined under subsection (b)(1)(A) exceeds the adjusted base
amount, the amount included in gross income under this section
shall be equal to the lesser of -
(A) the sum of -
(i) 85 percent of such excess, plus
(ii) the lesser of the amount determined under paragraph
(1) or an amount equal to one-half of the difference between
the adjusted base amount and the base amount of the taxpayer,
or
(B) 85 percent of the social security benefits received
during the taxable year.
(b) Taxpayers to whom subsection (a) applies
(1) In general
A taxpayer is described in this subsection if -
(A) the sum of -
(i) the modified adjusted gross income of the taxpayer for
the taxable year, plus
(ii) one-half of the social security benefits received
during the taxable year, exceeds
(B) the base amount.
(2) Modified adjusted gross income
For purposes of this subsection, the term "modified adjusted
gross income" means adjusted gross income -
(A) determined without regard to this section and sections
135, 137, 199, 221, 222, 911, 931, and 933, and
(B) increased by the amount of interest received or accrued
by the taxpayer during the taxable year which is exempt from
tax.
(c) Base amount and adjusted base amount
For purposes of this section -
(1) Base amount
The term "base amount" means -
(A) except as otherwise provided in this paragraph, $25,000,
(B) $32,000 in the case of a joint return, and
(C) zero in the case of a taxpayer who -
(i) is married as of the close of the taxable year (within
the meaning of section 7703) but does not file a joint return
for such year, and
(ii) does not live apart from his spouse at all times
during the taxable year.
(2) Adjusted base amount
The term "adjusted base amount" means -
(A) except as otherwise provided in this paragraph, $34,000,
(B) $44,000 in the case of a joint return, and
(C) zero in the case of a taxpayer described in paragraph
(1)(C).
(d) Social security benefit
(1) In general
For purposes of this section, the term "social security
benefit" means any amount received by the taxpayer by reason of
entitlement to -
(A) a monthly benefit under title II of the Social Security
Act, or
(B) a tier 1 railroad retirement benefit.
(2) Adjustment for repayments during year
(A) In general
For purposes of this section, the amount of social security
benefits received during any taxable year shall be reduced by
any repayment made by the taxpayer during the taxable year of a
social security benefit previously received by the taxpayer
(whether or not such benefit was received during the taxable
year).
(B) Denial of deduction
If (but for this subparagraph) any portion of the repayments
referred to in subparagraph (A) would have been allowable as a
deduction for the taxable year under section 165, such portion
shall be allowable as a deduction only to the extent it exceeds
the social security benefits received by the taxpayer during
the taxable year (and not repaid during such taxable year).
(3) Workmen's compensation benefits substituted for social
security benefits
For purposes of this section, if, by reason of section 224 of
the Social Security Act (or by reason of section 3(a)(1) of the
Railroad Retirement Act of 1974), any social security benefit is
reduced by reason of the receipt of a benefit under a workmen's
compensation act, the term "social security benefit" includes
that portion of such benefit received under the workmen's
compensation act which equals such reduction.
(4) Tier 1 railroad retirement benefit
For purposes of paragraph (1), the term "tier 1 railroad
retirement benefit" means -
(A) the amount of the annuity under the Railroad Retirement
Act of 1974 equal to the amount of the benefit to which the
taxpayer would have been entitled under the Social Security Act
if all of the service after December 31, 1936, of the employee
(on whose employment record the annuity is being paid) had been
included in the term "employment" as defined in the Social
Security Act, and
(B) a monthly annuity amount under section 3(f)(3) of the
Railroad Retirement Act of 1974.
(5) Effect of early delivery of benefit checks
For purposes of subsection (a), in any case where section 708
of the Social Security Act causes social security benefit checks
to be delivered before the end of the calendar month for which
they are issued, the benefits involved shall be deemed to have
been received in the succeeding calendar month.
(e) Limitation on amount included where taxpayer receives lump-sum
payment
(1) Limitation
If -
(A) any portion of a lump-sum payment of social security
benefits received during the taxable year is attributable to
prior taxable years, and
(B) the taxpayer makes an election under this subsection for
the taxable year,
then the amount included in gross income under this section for the
taxable year by reason of the receipt of such portion shall not
exceed the sum of the increases in gross income under this chapter
for prior taxable years which would result solely from taking into
account such portion in the taxable years to which it is
attributable.
(2) Special rules
(A) Year to which benefit attributable
For purposes of this subsection, a social security benefit is
attributable to a taxable year if the generally applicable
payment date for such benefit occurred during such taxable
year.
(B) Election
An election under this subsection shall be made at such time
and in such manner as the Secretary shall by regulations
prescribe. Such election, once made, may be revoked only with
the consent of the Secretary.
(f) Treatment as pension or annuity for certain purposes
For purposes of -
(1) section 22(c)(3)(A) (relating to reduction for amounts
received as pension or annuity),
(2) section 32(c)(2) (defining earned income),
(3) section 219(f)(1) (defining compensation), and
(4) section 911(b)(1) (defining foreign earned income),
any social security benefit shall be treated as an amount received
as a pension or annuity.
-SOURCE-
(Added and amended Pub. L. 98-21, title I, Sec. 121(a), title III,
Sec. 335(b)(2)(A), Apr. 20, 1983, 97 Stat. 80, 130; Pub. L. 98-76,
title II, Sec. 224(d), Aug. 12, 1983, 97 Stat. 424; Pub. L. 98-369,
div. A, title IV, Sec. 474(r)(2), div. B, title VI, Sec.
2661(o)(1), July 18, 1984, 98 Stat. 839, 1158; Pub. L. 99-272,
title XII, Sec. 12111(b), title XIII, Sec. 13204(a), Apr. 7, 1986,
100 Stat. 287, 313; Pub. L. 99-514, title I, Sec. 131(b)(2), title
XIII, Sec. 1301(j)(8), title XVIII, Sec. 1847(b)(2), Oct. 22, 1986,
100 Stat. 2113, 2658, 2856; Pub. L. 100-647, title I, Sec. 1001(e),
title VI, Sec. 6009(c)(1), Nov. 10, 1988, 102 Stat. 3351, 3690;
Pub. L. 103-66, title XIII, Sec. 13215(a), (b), Aug. 10, 1993, 107
Stat. 475, 476; Pub. L. 103-296, title III, Sec. 309(d), Aug. 15,
1994, 108 Stat. 1523; Pub. L. 104-188, title I, Secs. 1704(t)(3),
1807(c)(2), Aug. 20, 1996, 110 Stat. 1887, 1902; Pub. L. 105-277,
div. J, title IV, Sec. 4003(a)(2)(B), Oct. 21, 1998, 112 Stat. 2681-
908; Pub. L. 107-16, title IV, Sec. 431(c)(1), June 7, 2001, 115
Stat. 68; Pub. L. 108-357, title I, Sec. 102(d)(1), Oct. 22, 2004,
118 Stat. 1428.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The Social Security Act, referred to in subsecs. (a)(1) and
(d)(1)(A), (3), (4)(A), (5), is act Aug. 14, 1935, ch. 531, 49
Stat. 620, as amended, which is classified generally to chapter 7
(Sec. 301 et seq.) of Title 42, The Public Health and Welfare.
Title II of the Act is classified generally to subchapter II (Sec.
401 et seq.) of Title 42. Sections 207, 224, and 708 of the Act are
classified to sections 407, 424a, and 909 of Title 42,
respectively. For complete classification of this Act to the Code,
see section 1305 of Title 42 and Tables.
The Railroad Retirement Act of 1974, referred to in subsec.
(d)(3), (4), is act Aug. 29, 1935, ch. 812, as amended generally by
Pub. L. 93-445, title I, Sec. 101, Oct. 16, 1974, 88 Stat. 1305,
which is classified generally to subchapter IV (Sec. 231 et seq.)
of chapter 9 of Title 45, Railroads. Section 3(a)(1), (f)(3) of the
Act is classified to section 231b(a)(1), (f)(3) of Title 45. For
further details and complete classification of this Act to the
Code, see Codification note set out preceding section 231 of Title
45, section 231t of Title 45, and Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 86 was renumbered section 87 of this title.
AMENDMENTS
2004 - Subsec. (b)(2)(A). Pub. L. 108-357 inserted "199," before
"221".
2001 - Subsec. (b)(2)(A). Pub. L. 107-16, Secs. 431(c)(1), 901,
temporarily inserted "222," after "221,". See Effective and
Termination Dates of 2001 Amendment note below.
1998 - Subsec. (b)(2)(A). Pub. L. 105-277 inserted "221," after
"137,".
1996 - Subsec. (b)(2). Pub. L. 104-188, Sec. 1704(t)(3),
substituted "means adjusted" for "means adusted" in introductory
provisions.
Subsec. (b)(2)(A). Pub. L. 104-188, Sec. 1807(c)(2), inserted
"137," before "911".
1994 - Subsec. (d)(1). Pub. L. 103-296 struck out at end "For
purposes of the preceding sentence, the amount received by any
taxpayer shall be determined as if the Social Security Act did not
contain section 203(i) thereof."
1993 - Subsec. (a). Pub. L. 103-66, Sec. 13215(a), designated
existing provisions as par. (1), inserted par. (1) heading,
substituted "Except as provided in paragraph (2), gross" for
"Gross", redesignated former pars. (1) and (2) as subpars. (A) and
(B), respectively, and added par. (2).
Subsec. (c). Pub. L. 103-66, Sec. 13215(b), amended heading and
text of subsec. (c) generally. Prior to amendment, text read as
follows: "For purposes of this section, the term 'base amount'
means -
"(1) except as otherwise provided in this subsection, $25,000,
"(2) $32,000, in the case of a joint return, and
"(3) zero, in the case of a taxpayer who -
"(A) is married at the close of the taxable year (within the
meaning of section 7703) but does not file a joint return for
such year, and
"(B) does not live apart from his spouse at all times during
the taxable year."
1988 - Subsec. (b)(2)(A). Pub. L. 100-647, Sec. 6009(c)(1),
inserted "135," before "911".
Subsec. (f)(4), (5). Pub. L. 100-647, Sec. 1001(e), redesignated
par. (5) as (4) and struck out former par. (4) which read as
follows: "section 221(b)(2) (defining earned income), and".
1986 - Subsec. (b)(2)(A). Pub. L. 99-514, Sec. 131(b)(2),
substituted "sections" for "sections 221,".
Subsec. (c)(3)(A). Pub. L. 99-514, Sec. 1301(j)(8), substituted
"section 7703" for "section 143".
Subsec. (d)(4). Pub. L. 99-272, Sec. 13204(a), in amending par.
(4) generally, designated existing provisions as introductory
clause of par. (4), struck out "a monthly benefit under section
3(a), 3(f)(3), 4(a), or 4(f) of the Railroad Retirement Act of
1974", and added cls. (A) and (B).
Subsec. (d)(5). Pub. L. 99-272, Sec. 12111(b), added par. (5).
Subsec. (f)(1). Pub. L. 99-514, Sec. 1847(b)(2), substituted
"section 22(c)(3)(A)" for "section 37(c)(3)(A)".
1984 - Subsec. (f)(1). Pub. L. 98-369, Sec. 2661(o)(1), added
par. (1). Former par. (1) redesignated par. (2).
Pub. L. 98-369, Sec. 474(r)(2), substituted "section 32(c)(2)"
for "section 43(c)(2)".
Subsec. (f)(2)-(5). Pub. L. 98-369, Sec. 2661(o)(1), redesignated
pars. (1) to (4) as (2) to (5), respectively.
1983 - Subsec. (a). Pub. L. 98-21, Sec. 335(b)(2)(A), inserted
"(notwithstanding section 207 of the Social Security Act)".
Subsec. (d)(4). Pub. L. 98-76 inserted "3(f)(3)," after "3(a),".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years
beginning after Dec. 31, 2004, see section 102(e) of Pub. L. 108-
357, set out as a note under section 56 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to payments made in
taxable years beginning after Dec. 31, 2001, see section 431(d) of
Pub. L. 107-16, set out as a note under section 62 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title IV, Sec. 4003(l), Oct. 21, 1998,
112 Stat. 2681-910, provided that: "The amendments made by this
section [amending this section and sections 135, 137, 163, 172,
219, 221, 264, 351, 368, 469, 954, 2001, 6311, 6404, and 9510 of
this title and amending provisions set out as a note under section
7508A of this title] shall take effect as if included in the
provisions of the 1997 Act [Pub. L. 105-34] to which they relate."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1807(c)(2) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1996, see section 1807(e) of
Pub. L. 104-188, set out as an Effective Date note under section 23
of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Section 309(e)(2) of Pub. L. 103-296 provided that: "The
amendment made by subsection (d) [amending this section] shall
apply with respect to benefits received after December 31, 1995, in
taxable years ending after such date."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13215(d) of Pub. L. 103-66 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to taxable years beginning after December 31, 1993."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1001(e) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6009(d) of Pub. L. 100-647 provided that: "The amendments
made by this section [enacting section 135 of this title, amending
this section and sections 219 and 469 of this title, and
renumbering former section 135 as section 136 of this title] shall
apply to taxable years beginning after December 31, 1989."
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 131(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1301(j)(8) of Pub. L. 99-514 applicable to
bonds issued after Aug. 15, 1986, except as otherwise provided, see
sections 1311-1318 of Pub. L. 99-514, set out as an Effective Date;
Transitional Rules note under section 141 of this title.
Amendment by section 1847(b)(2) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
Amendment by section 12111(b) of Pub. L. 99-272 applicable with
respect to benefit checks issued for months ending after Apr. 7,
1986, see section 12111(c) of Pub. L. 99-272, set out as a note
under section 909 of Title 42, The Public Health and Welfare.
Section 13204(b) of Pub. L. 99-272 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to any
monthly benefit for which the generally applicable payment date is
after December 31, 1985."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(r)(2) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 2661 of Pub. L. 98-369 effective as though
included in the enactment of the Social Security Amendments of
1983, Pub. L. 98-21, see section 2664(a) of Pub. L. 98-369, set out
as a note under section 401 of Title 42, The Public Health and
Welfare.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 98-76 applicable to benefits received after
Dec. 31, 1983, in taxable years ending after such date, except for
portions of lump-sum payments received after Dec. 31, 1983, if the
generally applicable payment date for such portion was before Jan.
1, 1984, see section 227(b) of Pub. L. 98-76 set out as a note
under section 72 of this title.
EFFECTIVE DATE
Section 121(g) of Pub. L. 98-21, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting this section and section
6050F of this title, amending sections 85, 128, 861, 871, 1441, and
6103 of this title and section 3413 of Title 12, Banks and Banking,
and enacting provisions set out as a note under section 401 of
Title 42, The Public Health and Welfare] shall apply to benefits
received after December 31, 1983, in taxable years ending after
such date.
"(2) Treatment of certain lump-sum payments received after
december 31, 1983. - The amendments made by this section shall not
apply to any portion of a lump-sum payment of social security
benefits (as defined in section 86(d) of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954]) received after December 31, 1983,
if the generally applicable payment date for such portion was
before January 1, 1984."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 87 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 87. Alcohol and biodiesel fuels credits
-STATUTE-
Gross income includes -
(1) the amount of the alcohol fuel credit determined with
respect to the taxpayer for the taxable year under section 40(a),
and
(2) the biodiesel fuels credit determined with respect to the
taxpayer for the taxable year under section 40A(a).
-SOURCE-
(Added Pub. L. 96-223, title II, Sec. 232(c)(1), Apr. 2, 1980, 94
Stat. 276, Sec. 86; renumbered Sec. 87, Pub. L. 98-21, title I,
Sec. 121(a), Apr. 20, 1983, 97 Stat. 80; amended Pub. L. 98-369,
div. A, title IV, Sec. 474(r)(3), July 18, 1984, 98 Stat. 839; Pub.
L. 108-357, title III, Sec. 302(c)(1)(A), Oct. 22, 2004, 118 Stat.
1465.)
-MISC1-
AMENDMENTS
2004 - Pub. L. 108-357 amended section catchline and text
generally. Prior to amendment, text read as follows: "Gross income
includes the amount of the alcohol fuel credit determined with
respect to the taxpayer for the taxable year under section 40(a)."
1984 - Pub. L. 98-369 amended section generally, substituting
"the amount of the alcohol fuel credit determined with respect to
the taxpayer for the taxable year under section 40(a)" for "an
amount equal to the amount of the credit allowable to the taxpayer
under section 44E for the taxable year (determined without regard
to subsection (e) thereof)".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to fuel produced, and
sold or used, after Dec. 31, 2004, in taxable years ending after
such date, see section 302(d) of Pub. L. 108-357, set out as a note
under section 38 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE
Section applicable to sales or uses after Sept. 30, 1980, in
taxable years ending after such date, see section 232(h)(1) of Pub.
L. 96-223, set out as a note under section 40 of this title.
-End-
-CITE-
26 USC Sec. 88 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 88. Certain amounts with respect to nuclear decommissioning
costs
-STATUTE-
In the case of any taxpayer who is required to include the amount
of any nuclear decommissioning costs in the taxpayer's cost of
service for ratemaking purposes, there shall be includible in the
gross income of such taxpayer the amount so included for any
taxable year.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 91(f)(1), July 18,
1984, 98 Stat. 607; amended Pub. L. 99-514, title XVIII, Sec.
1807(a)(4)(E)(vii), Oct. 22, 1986, 100 Stat. 2813.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514 substituted "for ratemaking purposes" for
"of ratemaking purposes".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section effective July 18, 1984, with respect to taxable years
ending after such date, see section 91(g)(5) of Pub. L. 98-369, as
amended, set out as an Effective Date of 1984 Amendment note under
section 461 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 89 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
[Sec. 89. Repealed. Pub. L. 101-140, title II, Sec. 202(a), Nov. 8,
1989, 103 Stat. 830]
-MISC1-
Section, added Pub. L. 99-514, title XI, Sec. 1151(a), Oct. 22,
1986, 100 Stat. 2494; amended Pub. L. 100-647, title I, Sec.
1011B(a)(1)-(9), (21), (28), (29), (34), title III, Sec.
3021(a)(1)(A), (B), (2)(A), (3)-(9), (11)-(13)(A), (b)(2)(B), (3),
title VI, Sec. 6051(a), Nov. 10, 1988, 102 Stat. 3483-3485, 3487,
3488, 3625-3632, 3695, related to nondiscrimination rules regarding
benefits provided under employee benefit plans.
EFFECTIVE DATE OF REPEAL
Section 202(c) of Pub. L. 101-140 provided that: "The amendments
made by this section [repealing this section] shall take effect as
if included in section 1151 of the Tax Reform Act of 1986 [Pub. L.
99-514, see section 1151(k) set out as a note under section 79 of
this title]."
NONENFORCEMENT OF SECTION FOR FISCAL YEAR 1990
Pub. L. 101-136, title V, Sec. 528, Nov. 3, 1989, 103 Stat. 816,
provided that: "No monies appropriated by this Act [see Tables for
classification] may be used to implement or enforce section 1151 of
the Tax Reform Act of 1986 or the amendments made by such section
[section 1151 of Pub. L. 99-514, which enacted section 89 of this
title, amended sections 79, 105, 106, 117, 120, 125, 127, 129, 132,
414, 505, 3121, 3306, 6039D, and 6652 of this title and section 409
of Title 42, The Public Health and Welfare, and enacted provisions
set out as a note under section 89 of this title]."
TRANSITIONAL PROVISIONS
Section 3021(c) of Pub. L. 100-647 provided for the first issue
of valuation rules, the interim impact on former employees, the
meeting of the written requirement for covered plans in connection
with implementation of section 89 of the Code, and the issuance by
Nov. 15, 1988, of rules necessary to carry out section 89, prior to
repeal by Pub. L. 101-140, title II, Sec. 203(a)(7), Nov. 8, 1989,
103 Stat. 831.
PART-TIME EMPLOYEE DEFINED FOR PURPOSES OF SUBSECTION (F)
Section 6070 of Pub. L. 100-647 increased the number of employees
who would be excluded from consideration under this section during
plan years 1989 and 1990, in the case of a plan maintained by an
employer which employs fewer than 10 employees on a normal working
day during a plan year, prior to repeal by Pub. L. 101-140, title
II, Sec. 203(a)(7), Nov. 8, 1989, 103 Stat. 831.
-End-
-CITE-
26 USC Sec. 90 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
-HEAD-
Sec. 90. Illegal Federal irrigation subsidies
-STATUTE-
(a) General rule
Gross income shall include an amount equal to any illegal Federal
irrigation subsidy received by the taxpayer during the taxable
year.
(b) Illegal Federal irrigation subsidy
For purposes of this section -
(1) In general
The term "illegal Federal irrigation subsidy" means the excess
(if any) of -
(A) the amount required to be paid for any Federal irrigation
water delivered to the taxpayer during the taxpayer year, over
(B) the amount paid for such water.
(2) Federal irrigation water
The term "Federal irrigation water" means any water made
available for agricultural purposes from the operation of any
reclamation or irrigation project referred to in paragraph (8) of
section 202 of the Reclamation Reform Act of 1982.
(c) Denial of deduction
No deduction shall be allowed under this subtitle by reason of
any inclusion in gross income under subsection (a).
-SOURCE-
(Added Pub. L. 100-203, title X, Sec. 10611(a), Dec. 22, 1987, 101
Stat. 1330-451.)
-REFTEXT-
REFERENCES IN TEXT
Section 202 of the Reclamation Reform Act of 1982, referred to in
subsec. (b)(2), is classified to section 390bb of Title 43, Public
Lands.
-MISC1-
EFFECTIVE DATE
Section 10611(c) of Pub. L. 100-203 provided that: "The
amendments made by this section [enacting this section] shall apply
to water delivered to the taxpayer in months beginning after the
date of the enactment of this Act [Dec. 22, 1987]."
-End-
-CITE-
26 USC PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS
INCOME 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-MISC1-
Sec.
101. Certain death payments.(!1)
102. Gifts and inheritances.
103. Interest on State and local bonds.
[103A. Repealed.]
104. Compensation for injuries or sickness.
105. Amounts received under accident and health plans.
106. Contributions by employer to accident and health
plans.
107. Rental value of parsonages.
108. Income from discharge of indebtedness.
109. Improvements by lessee on lessor's property.
110. Qualified lessee construction allowances for
short-term leases.
111. Recovery of tax benefit items.
112. Certain combat zone compensation of members of the
Armed Forces.
[113, 114. Repealed.]
115. Income of States, municipalities, etc.
[116. Repealed.]
117. Qualified scholarships.
118. Contributions to the capital of a corporation.
119. Meals or lodging furnished for convenience of
employer.(!1)
120. Amounts received under qualified group legal services
plans.
121. Exclusion of gain from sale of principal residence.
122. Certain reduced uniformed services retirement pay.
123. Amounts received under insurance contracts for certain
living expenses.
[124. Repealed.]
125. Cafeteria plans.
126. Certain cost-sharing payments.
127. Educational assistance programs.
[128. Repealed.]
129. Dependent care assistance programs.(!2)
130. Certain personal injury liability assignments.
131. Certain foster care payments.
132. Certain fringe benefits.
[133. Repealed.]
134. Certain military benefits.
135. Income from United States savings bonds used to pay
higher education tuition and fees.
136. Energy conservation subsidies provided by public
utilities.
137. Adoption assistance programs.
138. Medicare Advantage MSA.
139. Disaster relief payments.
139A. Federal subsidies for prescription drug plans.
140. Cross references to other Acts.
AMENDMENTS
2004 - Pub. L. 108-357, title I, Sec. 101(b)(3), Oct. 22, 2004,
118 Stat. 1423, struck out item 114 "Extraterritorial income".
Pub. L. 108-311, title IV, Sec. 408(a)(5)(G), Oct. 4, 2004, 118
Stat. 1191, substituted "Medicare Advantage MSA" for
"Medicare+Choice MSA" in item 138.
2003 - Pub. L. 108-173, title XII, Sec. 1202(c), Dec. 8, 2003,
117 Stat. 2480, added item 139A.
2002 - Pub. L. 107-134, title I, Sec. 111(b), Jan. 23, 2002, 115
Stat. 2433, added item 139 and redesignated former item 139 as 140.
2000 - Pub. L. 106-519, Sec. 4(6), Nov. 15, 2000, 114 Stat. 2433,
added item 114.
1997 - Pub. L. 105-34, title III, Sec. 312(d)(14), title XII,
Sec. 1213(d), Aug. 5, 1997, 111 Stat. 841, 1001, added item 110 and
substituted "Exclusion of gain from sale of principal residence"
for "One-time exclusion of gain from sale of principal residence by
individual who has attained age 55" in item 121.
Pub. L. 105-33, title IV, Sec. 4006(b)(3), Aug. 5, 1997, 111
Stat. 334, added items 138 and 139 and struck out former item 138
"Cross reference to other Acts".
1996 - Pub. L. 104-188, title I, Secs. 1602(b)(8), 1704(t)(4)(B),
1807(c)(7), Aug. 20, 1996, 110 Stat. 1834, 1887, 1902, substituted
"combat zone compensation" for "combat pay" in item 112, struck out
item 133 "Interest on certain loans used to acquire employer
securities", added items 137 and 138, and struck out former item
137 "Cross reference to other Acts".
1992 - Pub. L. 102-486, title XIX, Sec. 1912(b), Oct. 24, 1992,
106 Stat. 3016, added items 136 and 137 and struck out former item
136 "Cross references to other Acts".
1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(2), Nov. 5, 1990,
104 Stat. 1388-522, struck out item 110 "Income taxes paid by
lessee corporation", item 113 "Mustering-out payments for members
of the Armed Forces", item 114 "Sports programs conducted for the
American National Red Cross", item 124 "Qualified transportation
provided by employer", and item 128 "Interest on certain savings
certificates".
1988 - Pub. L. 100-647, title I, Sec. 1013(a)(37), title VI, Sec.
6009(c)(4), Nov. 10, 1988, 102 Stat. 3544, 3690, substituted
"Interest on State and local bonds" for "Interest on certain
governmental obligations" in item 103, struck out item 103A
"Mortgage subsidy bonds", added item 135 and redesignated former
item 135 "Cross references to other Acts" as item 136.
1986 - Pub. L. 99-514, title I, Sec. 123(b)(4), title VI, Sec.
612(b)(8), title XI, Sec. 1168(b), Oct. 22, 1986, 100 Stat. 2113,
2251, 2512, struck out item 116 "Partial exclusion of dividends
received by individuals", substituted in item 117 "Qualified
scholarships" for "Scholarships and fellowship grants", added item
134, and redesignated former item 134 as 135.
1984 - Pub. L. 98-369, div. A, title I, Sec. 171(b), title V,
Secs. 531(a)(2), 543(b), July 18, 1984, 98 Stat. 699, 881, 892,
substituted "Recovery of tax benefit items" for "Recovery of bad
debts, prior taxes, and delinquency amounts" in item 111, added
items 132 (relating to certain fringe benefits) and 133 (relating
to interest on certain loans used to acquire employer securities),
and redesignated former item 132 (relating to cross references to
other Acts) as item 134.
Pub. L. 98-369, div. A, title I, Sec. 16(a), July 18, 1984, 98
Stat. 505, repealed an amendment made by Pub. L. 97-34, Sec.
302(c). See 1981 Amendment note below.
1983 - Pub. L. 97-473, title I, Sec. 101(b)(2), Jan. 14, 1983, 96
Stat. 2606, purported to strike out the item relating to section
130, and added items 130 (relating to certain personal injury
liability assignments) and 131 (relating to cross references to
other Acts).
Pub. L. 97-473, title I, Sec. 102(b), Jan. 14, 1983, 96 Stat.
2607, struck out item 131 (relating to cross references to other
Acts) and added items 131 (relating to certain foster care
payments) and 132 (relating to cross references to other Acts).
1981 - Pub. L. 97-34, title III, Secs. 301(b)(1), 302(c)(1),
(d)(1), Aug. 13, 1981, 95 Stat. 270, 272, 274, effective with
regard to taxable years beginning after Sept. 30, 1981,
redesignated item 128 "Cross References to other Acts" as 129 and
added item 128 "Interest on certain savings certificates" and,
section 302(c)(1), with regard to taxable years beginning after
Dec. 31, 1984, provided that "Partial exclusion of interest" is
substituted for "Interest on certain savings certificates" in item
128. Section 16(a) of Pub. L. 98-369, repealed section 302(c) of
Pub. L. 97-34, and provided that this title shall be applied and
administered as if section 302(c), and the amendments made by
section 302(c), had not been enacted.
1980 - Pub. L. 96-499, title XI, Sec. 1102(b), Dec. 5, 1980, 94
Stat. 2669, added item 103A.
Pub. L. 96-223, title IV, Sec. 404(b)(1), Apr. 2, 1980, 94 Stat.
306, inserted "and interest" after "dividends" in item 116.
1978 - Pub. L. 95-618, title II, Sec. 242(b), Nov. 9, 1978, 92
Stat. 3194, redesignated former item 124 as 125 and added item 124.
Pub. L. 95-600, title I, Secs. 134(b), 164(c), title IV, Sec.
404(c)(3), title V, Sec. 543(b), Nov. 6, 1978, 92 Stat. 2785, 2814,
2870, 2890, in item 121 substituted "One-time exclusion of gain
from sale of principal residence by individual who has attained age
55" for "Gain from sale of exchange of residence of individual who
has attained age 65", redesignated former item 124 as 128, and
added items 125 to 127.
1976 - Pub. L. 94-455, title XXI, Sec. 2134(c), Oct. 4, 1976, 90
Stat. 1928, added item 120.
1969 - Pub. L. 91-172, title IX, Sec. 901(b), Dec. 30, 1969, 83
Stat. 709, redesignated former item 123 as 124, and added item 123.
1966 - Pub. L. 89-365, Sec. 1(a)(2), Mar. 8, 1966, 80 Stat. 32,
redesignated former item 122 as 123, and added item 122.
1964 - Pub. L. 88-272, title II, Sec. 206(b)(2), Feb. 26, 1964,
78 Stat. 40, redesignated former item 121 as 122, and added item
121.
1958 - Pub. L. 85-866, title I, Sec. 3(b), Sept. 2, 1958, 72
Stat. 1607, struck out item 120 "Statutory subsistence allowance
received by police".
NO FEDERAL INCOME TAX ON RESTITUTION RECEIVED BY VICTIMS OF THE
NAZI REGIME OR THEIR HEIRS OR ESTATES
Pub. L. 107-16, title VIII, Sec. 803, June 7, 2001, 115 Stat.
149, provided that:
"(a) In General. - For purposes of the Internal Revenue Code of
1986, any excludable restitution payments received by an eligible
individual (or the individual's heirs or estate) and any excludable
interest -
"(1) shall not be included in gross income; and
"(2) shall not be taken into account for purposes of applying
any provision of such Code which takes into account excludable
income in computing adjusted gross income, including section 86
of such Code (relating to taxation of Social Security benefits).
For purposes of such Code, the basis of any property received by an
eligible individual (or the individual's heirs or estate) as part
of an excludable restitution payment shall be the fair market value
of such property as of the time of the receipt.
"(b) Eligible Individual. - For purposes of this section, the
term 'eligible individual' means a person who was persecuted on the
basis of race, religion, physical or mental disability, or sexual
orientation by Nazi Germany, any other Axis regime, or any other
Nazi-controlled or Nazi-allied country.
"(c) Excludable Restitution Payment. - For purposes of this
section, the term 'excludable restitution payment' means any
payment or distribution to an individual (or the individual's heirs
or estate) which -
"(1) is payable by reason of the individual's status as an
eligible individual, including any amount payable by any foreign
country, the United States of America, or any other foreign or
domestic entity, or a fund established by any such country or
entity, any amount payable as a result of a final resolution of a
legal action, and any amount payable under a law providing for
payments or restitution of property;
"(2) constitutes the direct or indirect return of, or
compensation or reparation for, assets stolen or hidden from, or
otherwise lost to, the individual before, during, or immediately
after World War II by reason of the individual's status as an
eligible individual, including any proceeds of insurance under
policies issued on eligible individuals by European insurance
companies immediately before and during World War II; or
"(3) consists of interest which is payable as part of any
payment or distribution described in paragraph (1) or (2).
"(d) Excludable Interest. - For purposes of this section, the
term 'excludable interest' means any interest earned by -
"(1) escrow accounts or settlement funds established pursuant
to the settlement of the action entitled 'In re: Holocaust Victim
Assets Litigation,' (E.D.N.Y.) C.A. No. 96-4849,
"(2) funds to benefit eligible individuals or their heirs
created by the International Commission on Holocaust Insurance
Claims as a result of the Agreement between the Government of the
United States of America and the Government of the Federal
Republic of Germany concerning the Foundation 'Remembrance,
Responsibility, and Future,' dated July 17, 2000, or
"(3) similar funds subject to the administration of the United
States courts created to provide excludable restitution payments
to eligible individuals (or eligible individuals' heirs or
estates).
"(e) Effective Date. -
"(1) In general. - This section shall apply to any amount
received on or after January 1, 2000.
"(2) No inference. - Nothing in this Act [see Tables for
classification] shall be construed to create any inference with
respect to the proper tax treatment of any amount received before
January 1, 2000."
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
(!2) Editorially supplied. Section 129 added by Pub. L. 97-34
without corresponding amendment of part analysis.
-End-
-CITE-
26 USC Sec. 101 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 101. Certain death benefits
-STATUTE-
(a) Proceeds of life insurance contracts payable by reason of death
(1) General rule
Except as otherwise provided in paragraph (2), subsection (d),
and subsection (f), gross income does not include amounts
received (whether in a single sum or otherwise) under a life
insurance contract, if such amounts are paid by reason of the
death of the insured.
(2) Transfer for valuable consideration
In the case of a transfer for a valuable consideration, by
assignment or otherwise, of a life insurance contract or any
interest therein, the amount excluded from gross income by
paragraph (1) shall not exceed an amount equal to the sum of the
actual value of such consideration and the premiums and other
amounts subsequently paid by the transferee. The preceding
sentence shall not apply in the case of such a transfer -
(A) if such contract or interest therein has a basis for
determining gain or loss in the hands of a transferee
determined in whole or in part by reference to such basis of
such contract or interest therein in the hands of the
transferor, or
(B) if such transfer is to the insured, to a partner of the
insured, to a partnership in which the insured is a partner, or
to a corporation in which the insured is a shareholder or
officer.
The term "other amounts" in the first sentence of this paragraph
includes interest paid or accrued by the transferee on
indebtedness with respect to such contract or any interest
therein if such interest paid or accrued is not allowable as a
deduction by reason of section 264(a)(4).
[(b) Repealed. Pub. L. 104-188, title I, Sec. 1402(a), Aug. 20,
1996, 110 Stat. 1789]
(c) Interest
If any amount excluded from gross income by subsection (a) is
held under an agreement to pay interest thereon, the interest
payments shall be included in gross income.
(d) Payment of life insurance proceeds at a date later than death
(1) General rule
The amounts held by an insurer with respect to any beneficiary
shall be prorated (in accordance with such regulations as may be
prescribed by the Secretary) over the period or periods with
respect to which such payments are to be made. There shall be
excluded from the gross income of such beneficiary in the taxable
year received any amount determined by such proration. Gross
income includes, to the extent not excluded by the preceding
sentence, amounts received under agreements to which this
subsection applies.
(2) Amount held by an insurer
An amount held by an insurer with respect to any beneficiary
shall mean an amount to which subsection (a) applies which is -
(A) held by any insurer under an agreement provided for in
the life insurance contract, whether as an option or otherwise,
to pay such amount on a date or dates later than the death of
the insured, and
(B) equal to the value of such agreement to such beneficiary
(i) as of the date of death of the insured (as if any
option exercised under the life insurance contract were
exercised at such time), and
(ii) as discounted on the basis of the interest rate used
by the insurer in calculating payments under the agreement
and mortality tables prescribed by the Secretary.
(3) Application of subsection
This subsection shall not apply to any amount to which
subsection (c) is applicable.
[(e) Repealed. Pub. L. 98-369, div. A, title IV, Sec. 421(b)(2),
July 18, 1984, 98 Stat. 794]
(f) Proceeds of flexible premium contracts issued before January 1,
1985 payable by reason of death
(1) In general
Any amount paid by reason of the death of the insured under a
flexible premium life insurance contract issued before January 1,
1985 shall be excluded from gross income only if -
(A) under such contract -
(i) the sum of the premiums paid under such contract does
not at any time exceed the guideline premium limitation as of
such time, and
(ii) any amount payable by reason of the death of the
insured (determined without regard to any qualified
additional benefit) is not at any time less than the
applicable percentage of the cash value of such contract at
such time, or
(B) by the terms of such contract, the cash value of such
contract may not at any time exceed the net single premium with
respect to the amount payable by reason of the death of the
insured (determined without regard to any qualified additional
benefit) at such time.
(2) Guideline premium limitation
For purposes of this subsection -
(A) Guideline premium limitation
The term "guideline premium limitation" means, as of any
date, the greater of -
(i) the guideline single premium, or
(ii) the sum of the guideline level premiums to such date.
(B) Guideline single premium
The term "guideline single premium" means the premium at
issue with respect to future benefits under the contract
(without regard to any qualified additional benefit), and with
respect to any charges for qualified additional benefits, at
the time of a determination under subparagraph (A) or (E) and
which is based on -
(i) the mortality and other charges guaranteed under the
contract, and
(ii) interest at the greater of an annual effective rate of
6 percent or the minimum rate or rates guaranteed upon issue
of the contract.
(C) Guideline level premium
The term "guideline level premium" means the level annual
amount, payable over the longest period permitted under the
contract (but ending not less than 20 years from date of issue
or not later than age 95, if earlier), computed on the same
basis as the guideline single premium, except that subparagraph
(B)(ii) shall be applied by substituting "4 percent" for "6
percent".
(D) Computational rules
In computing the guideline single premium or guideline level
premium under subparagraph (B) or (C) -
(i) the excess of the amount payable by reason of the death
of the insured (determined without regard to any qualified
additional benefit) over the cash value of the contract shall
be deemed to be not greater than such excess at the time the
contract was issued,
(ii) the maturity date shall be the latest maturity date
permitted under the contract, but not less than 20 years
after the date of issue or (if earlier) age 95, and
(iii) the amount of any endowment benefit (or sum of
endowment benefits) shall be deemed not to exceed the least
amount payable by reason of the death of the insured
(determined without regard to any qualified additional
benefit) at any time under the contract.
(E) Adjustments
The guideline single premium and guideline level premium
shall be adjusted in the event of a change in the future
benefits or any qualified additional benefit under the contract
which was not reflected in any guideline single premiums or
guideline level premium previously determined.
(3) Other definitions and special rules
For purposes of this subsection -
(A) Flexible premium life insurance contract
The terms "flexible premium life insurance contract" and
"contract" mean a life insurance contract (including any
qualified additional benefits) which provides for the payment
of one or more premiums which are not fixed by the insurer as
to both timing and amount. Such terms do not include that
portion of any contract which is treated under State law as
providing any annuity benefits other than as a settlement
option.
(B) Premiums paid
The term "premiums paid" means the premiums paid under the
contract less any amounts (other than amounts includible in
gross income) to which section 72(e) applies. If, in order to
comply with the requirements of paragraph (1)(A), any portion
of any premium paid during any contract year is returned by the
insurance company (with interest) within 60 days after the end
of a contract year -
(i) the amount so returned (excluding interest) shall be
deemed to reduce the sum of the premiums paid under the
contract during such year, and
(ii) notwithstanding the provisions of section 72(e), the
amount of any interest so returned shall be includible in the
gross income of the recipient.
(C) Applicable percentage
The term "applicable percentage" means -
(i) 140 percent in the case of an insured with an attained
age at the beginning of the contract year of 40 or less, and
(ii) in the case of an insured with an attained age of more
than 40 as of the beginning of the contract year, 140 percent
reduced (but not below 105 percent) by one percent for each
year in excess of 40.
(D) Cash value
The cash value of any contract shall be determined without
regard to any deduction for any surrender charge or policy
loan.
(E) Qualified additional benefits
The term "qualified additional benefits" means any -
(i) guaranteed insurability,
(ii) accidental death benefit,
(iii) family term coverage, or
(iv) waiver of premium.
(F) Premium payments not disqualifying contract
The payment of a premium which would result in the sum of the
premiums paid exceeding the guideline premium limitation shall
be disregarded for purposes of paragraph (1)(A)(i) if the
amount of such premium does not exceed the amount necessary to
prevent the termination of the contract without cash value on
or before the end of the contract year.
(G) Net single premium
In computing the net single premium under paragraph (1)(B) -
(i) the mortality basis shall be that guaranteed under the
contract (determined by reference to the most recent
mortality table allowed under all State laws on the date of
issuance),
(ii) interest shall be based on the greater of -
(I) an annual effective rate of 4 percent (3 percent for
contracts issued before July 1, 1983), or
(II) the minimum rate or rates guaranteed upon issue of
the contract, and
(iii) the computational rules of paragraph (2)(D) shall
apply, except that the maturity date referred to in clause
(ii) thereof shall not be earlier than age 95.
(H) Correction of errors
If the taxpayer establishes to the satisfaction of the
Secretary that -
(i) the requirements described in paragraph (1) for any
contract year was not satisfied due to reasonable error, and
(ii) reasonable steps are being taken to remedy the error,
the Secretary may waive the failure to satisfy such
requirements.
(I) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection.
(g) Treatment of certain accelerated death benefits
(1) In general
For purposes of this section, the following amounts shall be
treated as an amount paid by reason of the death of an insured:
(A) Any amount received under a life insurance contract on
the life of an insured who is a terminally ill individual.
(B) Any amount received under a life insurance contract on
the life of an insured who is a chronically ill individual.
(2) Treatment of viatical settlements
(A) In general
If any portion of the death benefit under a life insurance
contract on the life of an insured described in paragraph (1)
is sold or assigned to a viatical settlement provider, the
amount paid for the sale or assignment of such portion shall be
treated as an amount paid under the life insurance contract by
reason of the death of such insured.
(B) Viatical settlement provider
(i) In general
The term "viatical settlement provider" means any person
regularly engaged in the trade or business of purchasing, or
taking assignments of, life insurance contracts on the lives
of insureds described in paragraph (1) if -
(I) such person is licensed for such purposes (with
respect to insureds described in the same subparagraph of
paragraph (1) as the insured) in the State in which the
insured resides, or
(II) in the case of an insured who resides in a State not
requiring the licensing of such persons for such purposes
with respect to such insured, such person meets the
requirements of clause (ii) or (iii), whichever applies to
such insured.
(ii) Terminally ill insureds
A person meets the requirements of this clause with respect
to an insured who is a terminally ill individual if such
person -
(I) meets the requirements of sections 8 and 9 of the
Viatical Settlements Model Act of the National Association
of Insurance Commissioners, and
(II) meets the requirements of the Model Regulations of
the National Association of Insurance Commissioners
(relating to standards for evaluation of reasonable
payments) in determining amounts paid by such person in
connection with such purchases or assignments.
(iii) Chronically ill insureds
A person meets the requirements of this clause with respect
to an insured who is a chronically ill individual if such
person -
(I) meets requirements similar to the requirements
referred to in clause (ii)(I), and
(II) meets the standards (if any) of the National
Association of Insurance Commissioners for evaluating the
reasonableness of amounts paid by such person in connection
with such purchases or assignments with respect to
chronically ill individuals.
(3) Special rules for chronically ill insureds
In the case of an insured who is a chronically ill individual -
(A) In general
Paragraphs (1) and (2) shall not apply to any payment
received for any period unless -
(i) such payment is for costs incurred by the payee (not
compensated for by insurance or otherwise) for qualified long-
term care services provided for the insured for such period,
and
(ii) the terms of the contract giving rise to such payment
satisfy -
(I) the requirements of section 7702B(b)(1)(B), and
(II) the requirements (if any) applicable under
subparagraph (B).
For purposes of the preceding sentence, the rule of section
7702B(b)(2)(B) shall apply.
(B) Other requirements
The requirements applicable under this subparagraph are -
(i) those requirements of section 7702B(g) and section
4980C which the Secretary specifies as applying to such a
purchase, assignment, or other arrangement,
(ii) standards adopted by the National Association of
Insurance Commissioners which specifically apply to
chronically ill individuals (and, if such standards are
adopted, the analogous requirements specified under clause
(i) shall cease to apply), and
(iii) standards adopted by the State in which the
policyholder resides (and if such standards are adopted, the
analogous requirements specified under clause (i) and
(subject to section 4980C(f)) standards under clause (ii),
shall cease to apply).
(C) Per diem payments
A payment shall not fail to be described in subparagraph (A)
by reason of being made on a per diem or other periodic basis
without regard to the expenses incurred during the period to
which the payment relates.
(D) Limitation on exclusion for periodic payments
For limitation on amount of periodic payments which are
treated as described in paragraph (1), see section 7702B(d).
(4) Definitions
For purposes of this subsection -
(A) Terminally ill individual
The term "terminally ill individual" means an individual who
has been certified by a physician as having an illness or
physical condition which can reasonably be expected to result
in death in 24 months or less after the date of the
certification.
(B) Chronically ill individual
The term "chronically ill individual" has the meaning given
such term by section 7702B(c)(2); except that such term shall
not include a terminally ill individual.
(C) Qualified long-term care services
The term "qualified long-term care services" has the meaning
given such term by section 7702B(c).
(D) Physician
The term "physician" has the meaning given to such term by
section 1861(r)(1) of the Social Security Act (42 U.S.C.
1395x(r)(1)).
(5) Exception for business-related policies
This subsection shall not apply in the case of any amount paid
to any taxpayer other than the insured if such taxpayer has an
insurable interest with respect to the life of the insured by
reason of the insured being a director, officer, or employee of
the taxpayer or by reason of the insured being financially
interested in any trade or business carried on by the taxpayer.
(h) Survivor benefits attributable to service by a public safety
officer who is killed in the line of duty
(1) In general
Gross income shall not include any amount paid as a survivor
annuity on account of the death of a public safety officer (as
such term is defined in section 1204 of the Omnibus Crime Control
and Safe Streets Act of 1968) killed in the line of duty -
(A) if such annuity is provided, under a governmental plan
which meets the requirements of section 401(a), to the spouse
(or a former spouse) of the public safety officer or to a child
of such officer; and
(B) to the extent such annuity is attributable to such
officer's service as a public safety officer.
(2) Exceptions
Paragraph (1) shall not apply with respect to the death of any
public safety officer if, as determined in accordance with the
provisions of the Omnibus Crime Control and Safe Streets Act of
1968 -
(A) the death was caused by the intentional misconduct of the
officer or by such officer's intention to bring about such
officer's death;
(B) the officer was voluntarily intoxicated (as defined in
section 1204 of such Act) at the time of death;
(C) the officer was performing such officer's duties in a
grossly negligent manner at the time of death; or
(D) the payment is to an individual whose actions were a
substantial contributing factor to the death of the officer.
(i) Certain employee death benefits payable by reason of death of
certain terrorist victims or astronauts
(1) In general
Gross income does not include amounts (whether in a single sum
or otherwise) paid by an employer by reason of the death of an
employee who is a specified terrorist victim (as defined in
section 692(d)(4)).
(2) Limitation
(A) In general
Subject to such rules as the Secretary may prescribe,
paragraph (1) shall not apply to amounts which would have been
payable after death if the individual had died other than as a
specified terrorist victim (as so defined).
(B) Exception
Subparagraph (A) shall not apply to incidental death benefits
paid from a plan described in section 401(a) and exempt from
tax under section 501(a).
(3) Treatment of self-employed individuals
For purposes of paragraph (1), the term "employee" includes a
self-employed individual (as defined in section 401(c)(1)).
(4) Relief with respect to astronauts
The provisions of this subsection shall apply to any astronaut
whose death occurs in the line of duty.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 26; Pub. L. 85-866, title I,
Sec. 23(d), Sept. 2, 1958, 72 Stat. 1622; Pub. L. 87-792, Sec.
7(c), Oct. 10, 1962, 76 Stat. 829; Pub. L. 89-365, Sec. 1(c), Mar.
8, 1966, 80 Stat. 32; Pub. L. 91-172, title I, Sec. 101(j)(l), Dec.
30, 1969, 83 Stat. 526; Pub. L. 93-406, title II, Secs.
2005(c)(15), 2007(b)(3), Sept. 2, 1974, 88 Stat. 992, 994; Pub. L.
94-455, title XIX, Secs. 1901(a)(16), 1906(b)(13)(A), Oct. 4, 1976,
90 Stat. 1765, 1834; Pub. L. 97-248, title II, Secs. 239, 266(a),
(b), Sept. 3, 1982, 96 Stat. 514, 547, 550; Pub. L. 98-369, div. A,
title II, Sec. 221(b)(2), title IV, Sec. 421(b)(2), title VII, Sec.
713(e), July 18, 1984, 98 Stat. 772, 794, 958; Pub. L. 99-514,
title X, Sec. 1001(a)-(c), Oct. 22, 1986, 100 Stat. 2387; Pub. L.
104-188, title I, Sec. 1402(a), (b)(1), Aug. 20, 1996, 110 Stat.
1789; Pub. L. 104-191, title III, Sec. 331(a), Aug. 21, 1996, 110
Stat. 2067; Pub. L. 105-34, title X, Sec. 1084(b)(2), title XV,
Sec. 1528(a), Aug. 5, 1997, 111 Stat. 952, 1074; Pub. L. 107-134,
title I, Sec. 102(a), Jan. 23, 2002, 115 Stat. 2429; Pub. L. 108-
121, title I, Sec. 110(b)(1), (2), Nov. 11, 2003, 117 Stat. 1342.)
-REFTEXT-
REFERENCES IN TEXT
The Omnibus Crime Control and Safe Streets Act of 1968, referred
to in subsec. (h), is Pub. L. 90-351, June 19, 1968, 82 Stat. 197,
as amended. Section 1204 of the Act is classified to section 3796b
of Title 42, The Public Health and Welfare. For complete
classification of this Act to the Code, see Short Title note set
out under section 3711 of Title 42 and Tables.
-COD-
CODIFICATION
Another section 1084(b) of Pub. L. 105-34 amended sections 805,
807, 812, and 832 of this title.
-MISC1-
AMENDMENTS
2003 - Subsec. (i). Pub. L. 108-121, Sec. 110(b)(2), inserted "or
astronauts" after "victims" in heading.
Subsec. (i)(4). Pub. L. 108-121, Sec. 110(b)(1), added par. (4).
2002 - Subsec. (i). Pub. L. 107-134 added subsec. (i).
1997 - Subsec. (a)(2). Pub. L. 105-34, Sec. 1084(b)(2), inserted
at end "The term 'other amounts' in the first sentence of this
paragraph includes interest paid or accrued by the transferee on
indebtedness with respect to such contract or any interest therein
if such interest paid or accrued is not allowable as a deduction by
reason of section 264(a)(4)."
Subsec. (h). Pub. L. 105-34, Sec. 1528(a), added subsec. (h).
1996 - Subsec. (b). Pub. L. 104-188, Sec. 1402(a), struck out
subsec. (b) which related to employees' death benefits.
Subsec. (c). Pub. L. 104-188, Sec. 1402(b)(1), substituted
"subsection (a)" for "subsection (a) or (b)".
Subsec. (g). Pub. L. 104-191 added subsec. (g).
1986 - Subsec. (d)(1). Pub. L. 99-514, Sec. 1001(a), amended
second sentence generally, which prior to amendment read as
follows: "There shall be excluded from the gross income of such
beneficiary in the taxable year received -
"(A) any amount determined by such proration, and
"(B) in the case of the surviving spouse of the insured, that
portion of the excess of the amounts received under one or more
agreements specified in paragraph (2)(A) (whether or not payment
of any part of such amounts is guaranteed by the insurer) over
the amount determined in subparagraph (A) of this paragraph which
is not greater than $1,000 with respect to any insured."
Subsec. (d)(2)(B). Pub. L. 99-514, Sec. 1001(c)(2), substituted
"equal" for "is equal" in introductory provisions.
Subsec. (d)(2)(B)(ii). Pub. L. 99-514, Sec. 1001(b), amended cl.
(ii) generally. Prior to amendment, cl. (ii) read as follows: "as
discounted on the basis of the interest rate and mortality tables
used by the insurer in calculating payments under the agreement."
Subsec. (d)(3), (4). Pub. L. 99-514, Sec. 1001(c)(1),
redesignated par. (4) as (3), and struck out former par. (3),
"Surviving spouse", which read as follows: "For purposes of this
subsection, the term 'surviving spouse' means the spouse of the
insured as of the date of death, including a spouse legally
separated but not under a decree of absolute divorce."
1984 - Subsec. (b)(3)(B). Pub. L. 98-369, Sec. 713(e), amended
subpar. (B) generally, substituting "certain distributions" for
"certain lump sum distributions" in heading, substituting "amount
paid or distributed" for "lump sum distribution described in the
second sentence of paragraph (2)(B)" in introductory text and
adding cls. (i) and (ii).
Subsec. (e). Pub. L. 98-369, Sec. 421(b)(2), repealed subsec. (e)
relating to payments of alimony or of income of an estate or trust
in case of divorce, etc.
Subsec. (f). Pub. L. 98-369, Sec. 221(b)(2)(B), inserted "issued
before January 1, 1985" in heading.
Subsec. (f)(1). Pub. L. 98-369, Sec. 221(b)(2)(A), inserted
"issued before January 1, 1985" in introductory text.
1982 - Subsec. (a)(1). Pub. L. 97-248, Sec. 266(b), substituted
", subsection (d), and subsection (f)" for "and in subsection (d)".
Subsec. (b)(3). Pub. L. 97-248, Sec. 239, amended par. (3)
generally, substituting "Treatment of self-employed individuals"
for "Self-employed individual not considered an employee" in
heading, designating existing provisions as subparagraph (A) and,
as so designated, adding heading and exception for subpar. (B), and
adding subparagraph (B).
Subsec. (f). Pub. L. 97-248, Sec. 266(a), added subsec. (f).
1976 - Subsec. (d)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (f). Pub. L. 94-455, Sec. 1901(a)(16), struck out subsec.
(f) relating to effective date of section.
1974 - Subsec. (b)(2)(B). Pub. L. 93-406, Sec. 2005(c)(15),
substituted "a lump sum distribution (as defined in section
402(e)(4)" for "total distributions payable (as defined in section
402(a)(3)) which are paid to a distributee within one taxable year
of the distributee by reason of the employee's death".
Subsec. (b)(2)(D). Pub. L. 93-406, Sec. 2007(b)(3), substituted
"if the member or former member of the uniformed services by reason
of whose death such annuity is payable" for "if the individual who
made the election under such chapter".
1969 - Subsec. (b)(2)(B)(iii). Pub. L. 91-172 substituted
references to section 170(b)(1)(A) (ii) and (vi), and to religious
organizations, for references to section 503(b)(1), (2), or (3).
1966 - Subsec. (b)(2)(D). Pub. L. 89-365 provided that par. (1)
shall not apply in the case of an annuity under chapter 73 of title
10 if the individual who made the election under that chapter died
after attaining retirement age.
1962 - Subsec. (b)(2)(B)(ii). Pub. L. 87-792, Sec. 7(c)(1),
substituted "described in section 403(a)" for "which meets the
requirements of paragraphs (3), (4), (5), and (6) of section
401(a)".
Subsec. (b)(3). Pub. L. 87-792, Sec. 7(c)(2), added par. (3).
1958 - Subsec. (b)(2)(B). Pub. L. 85-866 substituted "This
subparagraph shall not apply to total distributions payable (as
defined in section 402(a)(3) which are paid to a distributee within
one taxable year of the distributee by reason of the employee's
death - " for "(other than total distributions payable, as defined
in section 402(a)(3), which are paid to distributee, by a stock
bonus, pension, or profit-sharing trust described in section 401(a)
which is exempt from tax under section 501(a), or under an annuity
contract under a plan which meets the requirements of paragraphs
(3), (4), (5), and (6) of section 401(a), within one taxable year
of the distributee by reason of the employee's death)", and added
cls. (i), (ii), and (iii).
EFFECTIVE DATE OF 2003 AMENDMENT
Pub. L. 108-121, title I, Sec. 110(b)(3), Nov. 11, 2003, 117
Stat. 1342, provided that: "The amendments made by this subsection
[amending this section] shall apply to amounts paid after December
31, 2002, with respect to deaths occurring after such date."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-134, title I, Sec. 102(b), Jan. 23, 2002, 115 Stat.
2429, provided that:
"(1) Effective date. - The amendment made by this section
[amending this section] shall apply to taxable years ending before,
on, or after September 11, 2001.
"(2) Waiver of limitations. - If refund or credit of any
overpayment of tax resulting from the amendments made by this
section is prevented at any time before the close of the 1-year
period beginning on the date of the enactment of this Act [Jan. 23,
2002] by the operation of any law or rule of law (including res
judicata), such refund or credit may nevertheless be made or
allowed if claim therefor is filed before the close of such
period."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1084(d) of Pub. L. 105-34, as amended by Pub. L. 105-206,
title VI, Sec. 6010(o)(3)(B), July 22, 1998, 112 Stat. 816,
provided that: "The amendments made by this section [amending this
section and sections 264, 265, 805, 807, 812, and 832 of this
title] shall apply to contracts issued after June 8, 1997, in
taxable years ending after such date. For purposes of the preceding
sentence, any material increase in the death benefit or other
material change in the contract shall be treated as a new contract
except that, in the case of a master contract (within the meaning
of section 264(f)(4)(E) of the Internal Revenue Code of 1986), the
addition of covered lives shall be treated as a new contract only
with respect to such additional covered lives. For purposes of this
subsection, an increase in the death benefit under a policy or
contract issued in connection with a lapse described in section
501(d)(2) of the Health Insurance Portability and Accountability
Act of 1996 [Pub. L. 104-191, set out as a note under section 264
of this title] shall not be treated as a new contract."
Section 1528(b) of Pub. L. 105-34, as amended by Pub. L. 107-15,
Sec. 2, June 5, 2001, 115 Stat. 37, provided that: "The amendments
made by this section [amending this section] shall apply to amounts
received in taxable years beginning after December 31, 1996, with
respect to individuals dying after such date, and to amounts
received in taxable years beginning after December 31, 2001, with
respect to individuals dying on or before December 31, 1996."
EFFECTIVE DATE OF 1996 AMENDMENTS
Section 331(b) of Pub. L. 104-191 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
amounts received after December 31, 1996."
Section 1402(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and sections 406, 407,
and 7701 of this title] shall apply with respect to decedents dying
after the date of the enactment of this Act [Aug. 20, 1996]."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1001(d) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to amounts
received with respect to deaths occurring after the date of the
enactment of this section [Oct. 22, 1986] in taxable years ending
after such date."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 221(b)(2) of Pub. L. 98-369 effective Jan.
1, 1984, see section 221(d)(4) of Pub. L. 98-369, set out as an
Effective Date note under section 7702 of this title.
Amendment by section 421(b)(2) of Pub. L. 98-369 applicable to
transfers after July 18, 1984, in taxable years ending after such
date, subject to election to have repeal apply to transfers after
1983 or to transfers pursuant to existing decrees, see section
421(d) of Pub. L. 98-369, set out as an Effective Date note under
section 1041 of this title.
Amendment by section 713 of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENTS
Section 266(c)(1) of Pub. L. 97-248, as amended by Pub. L. 98-
369, div. A, title II, Sec. 221(b)(1), July 18, 1984, 98 Stat.
772, provided that: "The amendments made by this section [amending
this section] shall apply to contracts entered into before January
1, 1985."
Amendment by section 239 of Pub. L. 97-248 applicable to
decedents dying after Dec. 31, 1983, see section 241(b) of Pub. L.
97-248, set out as an Effective Date note under section 416 of this
title. Such amendment is applicable, in the case of amounts
received under the plan of an S corporation, with respect to
decedents dying after Dec. 31, 1982, notwithstanding section 241(b)
of Pub. L. 97-248, see section 6(b)(2) of Pub. L. 97-354, Oct. 19,
1982, 96 Stat. 1697, set out as a note under section 1361 of this
title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(16) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
Amendment by section 1906(b)(13)(A) of Pub. L. 94-455 effective
Feb. 1, 1977, see section 1906(d)(1) of Pub. L. 94-455, set out as
a note under section 6013 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by section 2005(c)(15) of Pub. L. 93-406 applicable
only with respect to distributions and payments made after Dec. 31,
1973, in taxable years beginning after Dec. 31, 1973, see section
2005(d) of Pub. L. 93-406, set out as a note under section 402 of
this title.
Amendment by section 2007(b)(3) of Pub. L. 93-406 applicable to
taxable years ending on or after Sept. 21, 1972, with respect to
individuals dying on or after Sept. 21, 1972, see section 2007(c)
of Pub. L. 93-406, set out as a note under section 122 of this
title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 effective Jan. 1, 1970, see section
101(k)(1) of Pub. L. 91-172, set out as an Effective Date note
under section 4940 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-365 applicable with respect to
individuals making an election under chapter 73 of Title 10 who
died after Dec. 31, 1965, see section 1(d) of Pub. L. 89-365, set
out as an Effective Date note under section 122 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a
note under section 22 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1957, see section 23(g) of Pub. L. 85-866, set out
as a note under section 403 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
FLEXIBLE PREMIUM CONTRACTS ISSUED DURING 1984 WHICH MEET
REQUIREMENTS OF SECTION 7702 TREATED AS MEETING REQUIREMENTS OF
SECTION 101(F)
Flexible premium contracts issued during 1984 which meet
requirements of section 7702 of this title treated as meeting
requirements of subsec. (f) of this section, see section 221(b)(3)
of Pub. L. 98-369, as added by Pub. L. 99-514, set out as a note
under section 7702 of this title.
SPECIAL RULES FOR CONTRACTS ENTERED INTO BEFORE JANUARY 1, 1983
Section 266(c)(2), (3) of Pub. L. 97-248, as amended by Pub. L.
97-448, title III, Sec. 306(a)(13), Jan. 12, 1983, 96 Stat. 2405;
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(2) Special rule for contracts entered into before january 1,
1983. - Any contract entered into before January 1, 1983, which
meets the requirements of section 101(f) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] on the date which is 1 year
after the date of the enactment of this Act [Sept. 3, 1982] shall
be treated as meeting the requirements of such section for any
period before the date on which such contract meets such
requirements. Any death benefits paid under a flexible premium life
insurance contract (within the meaning of section 101(f)(3)(A) of
such Code) before the date which is 1 year after such date of
enactment [Sept. 3, 1982] shall be excluded from gross income.
"(3) Special rule for certain contracts. - Any contract entered
into before January 1, 1983, shall be treated as meeting the
requirements of subparagraph (A) of section 101(f)(1) of such Code
if such contract would meet such requirements if section
101(f)(2)(C) of such Code were applied by substituting '3 percent'
for '4 percent'."
-End-
-CITE-
26 USC Sec. 102 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 102. Gifts and inheritances
-STATUTE-
(a) General rule
Gross income does not include the value of property acquired by
gift, bequest, devise, or inheritance.
(b) Income
Subsection (a) shall not exclude from gross income -
(1) the income from any property referred to in subsection (a);
or
(2) where the gift, bequest, devise, or inheritance is of
income from property, the amount of such income.
Where, under the terms of the gift, bequest, devise, or
inheritance, the payment, crediting, or distribution thereof is to
be made at intervals, then, to the extent that it is paid or
credited or to be distributed out of income from property, it shall
be treated for purposes of paragraph (2) as a gift, bequest,
devise, or inheritance of income from property. Any amount included
in the gross income of a beneficiary under subchapter J shall be
treated for purposes of paragraph (2) as a gift, bequest, devise,
or inheritance of income from property.
(c) Employee gifts
(1) In general
Subsection (a) shall not exclude from gross income any amount
transferred by or for an employer to, or for the benefit of, an
employee.
(2) Cross references
For provisions excluding certain employee achievement awards
from gross income, see section 74(c).
For provisions excluding certain de minimis fringes from
gross income, see section 132(e).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 28; Pub. L. 99-514, title I,
Sec. 122(b), Oct. 22, 1986, 100 Stat. 2110.)
-MISC1-
AMENDMENTS
1986 - Subsec. (c). Pub. L. 99-514 added subsec. (c).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to prizes and awards
granted after Dec. 31, 1986, see section 151(c) of Pub. L. 99-514,
set out as a note under section 1 of this title.
-End-
-CITE-
26 USC Sec. 103 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 103. Interest on State and local bonds
-STATUTE-
(a) Exclusion
Except as provided in subsection (b), gross income does not
include interest on any State or local bond.
(b) Exceptions
Subsection (a) shall not apply to -
(1) Private activity bond which is not a qualified bond
Any private activity bond which is not a qualified bond (within
the meaning of section 141).
(2) Arbitrage bond
Any arbitrage bond (within the meaning of section 148).
(3) Bond not in registered form, etc.
Any bond unless such bond meets the applicable requirements of
section 149.
(c) Definitions
For purposes of this section and part IV -
(1) State or local bond
The term "State or local bond" means an obligation of a State
or political subdivision thereof.
(2) State
The term "State" includes the District of Columbia and any
possession of the United States.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 29; Pub. L. 90-364, title I,
Sec. 107(a), June 28, 1968, 82 Stat. 266; Pub. L. 90-634, title IV,
Sec. 401(a), Oct. 24, 1968, 82 Stat. 1349; Pub. L. 91-172, title
VI, Sec. 601(a), Dec. 30, 1969, 83 Stat. 656; Pub. L. 92-178, title
III, Sec. 315(a), (b), Dec. 10, 1971, 85 Stat. 529; Pub. L. 94-164,
Sec. 7(a), Dec. 23, 1975, 89 Stat. 976; Pub. L. 94-182, title III,
Sec. 301(a), Dec. 31, 1975, 89 Stat. 1056; Pub. L. 94-455, title
XIX, Secs. 1901(a)(17), (b)(8)(B), 1906(b)(13)(A), title XXI, Secs.
2105(a)-(c), 2137(d), Oct. 4, 1976, 90 Stat. 1765, 1766, 1794,
1834, 1902, 1931; Pub. L. 95-339, title II, Sec. 201(a), Aug. 8,
1978, 92 Stat. 467; Pub. L. 95-600, title III, Secs. 331(a), (b),
332(a), 333(a), 334(a), (b), title VII, Sec. 703(j)(1), (q)(1),
Nov. 6, 1978, 92 Stat. 2839-2841, 2941, 2944; Pub. L. 96-222, title
I, Sec. 107(a)(3)(C), Apr. 1, 1980, 94 Stat. 223; Pub. L. 96-223,
title II, Secs. 241(a), 242(a), 244(a), Apr. 2, 1980, 94 Stat. 281,
283, 286; Pub. L. 96-499, title XI, Sec. 1103, Dec. 5, 1980, 94
Stat. 2669; Pub. L. 97-34, title VIII, Secs. 811(a), (b), 812(a),
Aug. 13, 1981, 95 Stat. 349, 350; Pub. L. 97-248, title II, Secs.
214(a)-(e), 215(a), (b), 217(a)-(d), 219(a), 221(a), (b), (c)(1),
title III, Sec. 310(b)(1), (c)(1), (2), Sept. 3, 1982, 96 Stat. 466-
469, 472-474, 477, 478, 596, 599; Pub. L. 97-424, title V, Sec.
547(a), Jan. 6, 1983, 96 Stat. 2199; Pub. L. 97-473, title II, Sec.
202(b)(2), Jan. 14, 1983, 96 Stat. 2609; Pub. L. 98-369, div. A,
title IV, Sec. 474(r)(4), title VI, Secs. 621-624(a), (b)(2), (3),
626(a), 627, 628(a), (c)-(e), (g), 630, July 18, 1984, 98 Stat.
839, 915-922, 924, 926, 928, 931-933; Pub. L. 99-272, title XIII,
Sec. 13209(e), Apr. 7, 1986, 100 Stat. 323; Pub. L. 99-514, title
XIII, Sec. 1301(a), title XVIII, Secs. 1864(a)(1), (b)-(e),
1865(a), 1869(a), (b), 1870, 1871(a)(1), (b), 1899A(2)-(4), Oct.
22, 1986, 100 Stat. 2602, 2885, 2886, 2888, 2890, 2891, 2958; Pub.
L. 100-647, title I, Sec. 1013(a)(34)(A), (c)(12)(A), Nov. 10,
1988, 102 Stat. 3544, 3547.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b)(6)(N). Pub. L. 100-647, Sec. 1013(c)(12)(A),
amended subpar. (N), as in effect on the day before the date of the
enactment of Pub. L. 99-514 [Oct. 22, 1986], by redesignating cls.
(ii) and (iii) as (iii) and (iv), respectively, and by striking out
cl. (i) and inserting in lieu thereof the following new cls.:
"(i) In general. - Except as provided in clause (ii), this
paragraph shall not apply to any obligation issued after December
31, 1986.
"(ii) Certain refundings. - This paragraph shall apply to any
obligation (or series of obligations) issued to refund an
obligation issued on or before December 31, 1986, if -
"(I) the average maturity date of the issue of which the
refunding obligation is a part is not later than the average
maturity date of the obligations to be refunded by such issue,
"(II) the amount of the refunding obligation does not exceed
the outstanding amount of the refunded obligation, and
"(III) the proceeds of the refunding obligation are used to
redeem the refunded obligation not later than 90 days after the
date of the issuance of the refunding obligation.
For purposes of subclause (I), average maturity shall be determined
in accordance with subsection (b)(14)(B)(i)."
Subsec. (c)(7). Pub. L. 100-647, Sec. 1013(a)(34)(A), amended
par. (7), as in effect on the day before the date of the enactment
of Pub. L. 99-514 [Oct. 22, 1986], by substituting "necessary" for
"necessary".
1986 - Pub. L. 99-514, Sec. 1301(a), in amending section
generally, substituted "Interest on State and local bonds" for
"Interest on certain governmental obligations" in section
catchline.
Subsec. (a). Pub. L. 99-514, Sec. 1301(a), substituted
"Exclusion" for "General rule" in heading and amended text
generally. Prior to amendment, text read as follows: "Gross income
does not include interest on -
"(1) the obligations of a State, a Territory, or a possession
of the United States, or any political subdivision of any of the
foregoing, or of the District of Columbia; and
"(2) qualified scholarship funding bonds."
Subsec. (b). Pub. L. 99-514, Sec. 1301(a), in amending section
generally, substituted provision relating to exceptions for
provision relating to industrial development bonds.
Subsec. (b)(11). Pub. L. 99-272 struck out par. (11) relating to
pollution control facilities acquired by regional pollution control
authorities.
Subsec. (b)(13), (14)(A). Pub. L. 99-514, Sec. 1871(b),
substituted "and (6)" for "(6), and (7)".
Subsec. (b)(16)(A). Pub. L. 99-514, Sec. 1870, substituted
"clause (ii)" for "clause (i)".
Subsec. (b)(17)(A). Pub. L. 99-514, Sec. 1871(b), substituted
"and (6)" for "(6), and (7)".
Subsec. (c). Pub. L. 99-514, Sec. 1301(a), in amending section
generally, substituted provision relating to definitions for
provision relating to arbitrage.
Subsecs. (d) to (g). Pub. L. 99-514, Sec. 1301(a), in amending
section generally, struck out subsecs. (d) to (g) which related to
certain irrigation dams, qualified scholarship funding bonds,
certain federally guaranteed obligations, and qualified steam-
generating or alcohol-producing facilities, respectively.
Subsec. (h). Pub. L. 99-514, Sec. 1301(a), in amending section
generally, struck out subsec. (h) which provided that obligations
must not be guaranteed.
Subsec. (h)(2)(A). Pub. L. 99-514, Sec. 1899A(2), substituted
"guaranteed" for "guaranted".
Subsec. (h)(5)(A). Pub. L. 99-514, Sec. 1865(a), struck out "the
United States," after "program of".
Subsecs. (i) to (k). Pub. L. 99-514, Sec. 1301(a), in amending
section generally, struck out subsecs. (i) to (k) which related to
obligations of certain volunteer fire departments, provided that
obligations must be in registered form to be tax-exempt, and
required public approval for industrial development bonds,
respectively.
Subsec. (l). Pub. L. 99-514, Sec. 1301(a), in amending section
generally, struck out subsec. (l) which related to information
reporting requirements for certain bonds.
Subsec. (l)(2)(F). Pub. L. 99-514, Sec. 1864(d), added subpar.
(F) which read: "if such obligation is a private activity bond (as
defined in subsection (n)(7)), such information as the Secretary
may require for purposes of determining whether the requirements of
subsection (n) are met with respect to such obligation."
Subsec. (m). Pub. L. 99-514, Sec. 1301(a), in amending section
generally, struck out subsec. (m) which related to obligations
exempt other than under this title.
Subsec. (m)(1). Pub. L. 99-514, Sec. 1871(a)(1), substituted
"(j), (k), (l), (n), and (o)" for "(k), (l), and (n)".
Subsec. (m)(3)(B). Pub. L. 99-514, Sec. 1899A(3), substituted
"608(a)(6)(A)" for "608(6)(A)".
Subsec. (n). Pub. L. 99-514, Sec. 1301(a), in amending section
generally, struck out subsec. (n) which related to limitation on
aggregate amount of private activity bonds issued during any
calendar year.
Subsec. (n)(6)(A), (B)(i). Pub. L. 99-514, Sec. 1864(b),
substituted "governmental units or other authorities" for
"governmental units".
Subsec. (n)(7)(C)(i). Pub. L. 99-514, Sec. 1864(c), substituted
"all of the property to be financed by the obligation" for "the
property described in such paragraph".
Subsec. (n)(10)(B). Pub. L. 99-514, Sec. 1864(e), substituted
"identify project" for "specify project" in heading and "identify
(with reasonable specificity) the project" for "specify the
project" in text of subpar. (B)(i).
Subsec. (n)(10)(D). Pub. L. 99-514, Sec. 1864(e)(2), substituted
"any identification or specification" for "any specification".
Subsec. (n)(13). Pub. L. 99-514, Sec. 1864(a)(1), added par.
(13).
Subsec. (o). Pub. L. 99-514, Sec. 1301(a), in amending section
generally, struck out subsec. (o) relating to consumer loan bonds.
Pub. L. 99-514, Sec. 1869(a), (b)(1), substituted "Private loan
bonds" for "Consumer loan bonds" in subsection and par. (2)
headings, "private loan bond" for "consumer loan bond" in text of
pars. (1), (2)(A) and (B), and "subsection (c)(6)(H)(i)" for
"subsection (c)(6)(G)(i)" in par. (2)(C)(ii).
Pub. L. 99-514, Sec. 1869(b)(2), redesignated subsec. (o),
relating to cross references, as (p).
Subsec. (p). Pub. L. 99-514, Sec. 1301(a), in amending section
generally, struck out subsec. (p) which related to cross
references.
Pub. L. 99-514, Sec. 1869(b)(2), redesignated former subsec. (o),
relating to cross references, as (p).
Subsec. (p)(4). Pub. L. 99-514, Sec. 1899A(4), substituted
"October 27, 1949 (48 U.S.C. 1403)" for "October 27, 1919 (48
U.S.C. 1403)".
1984 - Subsec. (b)(4). Pub. L. 98-369, Sec. 628(e), inserted "For
purposes of subparagraph (A), any property shall not be treated as
failing to be residential rental property merely because part of
the building in which such property is located is used for purposes
other than residential rental purposes."
Subsec. (b)(6)(F)(iv). Pub. L. 98-369, Sec. 474(r)(4),
substituted "section 30(b)(2)(A)" for "section 44F(b)(2)(A)".
Subsec. (b)(6)(N). Pub. L. 98-369, Sec. 630, designated existing
provisions as cl. (i) and added cls. (ii) and (iii).
Subsec. (b)(6)(P). Pub. L. 98-369, Sec. 628(c), added subpar.
(P).
Subsec. (b)(7). Pub. L. 98-369, Sec. 628(g), repealed par. (7)
which related to advance refunding of qualified public facilities.
Subsec. (b)(13). Pub. L. 98-369, Sec. 628(d), inserted "For
purposes of this paragraph - (A) a partnership and each of its
partners (and their spouses and minor children) shall be treated as
related persons, and (B) an S corporation and each of its
shareholders (and their spouses and minor children) shall be
treated as related persons."
Subsec. (b)(15). Pub. L. 98-369, Sec. 623, added par. (15).
Subsec. (b)(16) to (18). Pub. L. 98-369, Sec. 627, added pars.
(16) to (18).
Subsec. (c). Pub. L. 98-369, Sec. 624(b)(2), struck out "bonds"
after "Arbitrage" in heading.
Subsec. (c)(1). Pub. L. 98-369, Sec. 624(b)(3), inserted "to
arbitrage bonds" in heading.
Subsec. (c)(6), (7). Pub. L. 98-369, Sec. 624(a), added par. (6)
and redesignated former par. (6) as (7).
Subsec. (h). Pub. L. 98-369, Sec. 622, amended subsec. (h)
generally, in par. (1) substituting provisions that obligations are
not included in the section if they are federally guaranteed for
provisions which excluded obligations guaranteed, in whole or part,
by the U.S. under a program to conserve energy, or under other
Federal or State programs, in par. (2) substituting provisions
defining "federally guaranteed" for provisions setting forth
obligations to which this subsection applies, and adding pars. (3)
to (5).
Subsec. (m)(1). Pub. L. 98-369, Sec. 628(a)(1), inserted "In the
case of an obligation issued after December 31, 1983, such
obligation shall not be treated as described in this paragraph
unless the appropriate requirements of subsections (b), (c), (h),
(k), (l), and (n) of this section and section 103A are met with
respect to such obligation. For purposes of applying such
requirements, a possession of the United States shall be treated as
a State; except that clause (ii) of subsection (n)(4)(A) shall not
apply."
Subsec. (m)(2)(B). Pub. L. 98-369, Sec. 628(a)(2), substituted
"is exempt from tax under this title without regard to any
provision of law which is not contained in this title and which is
not contained in a revenue Act" for "is exempt from taxation under
any provision of this title".
Subsec. (m)(3). Pub. L. 98-369, Sec. 628(a)(3), added par. (3).
Subsec. (n). Pub. L. 98-369, Sec. 621, added subsec. (n). Former
subsec. (n), relating to cross references, redesignated (o).
Subsec. (o). Pub. L. 98-369, Sec. 626(a), added subsec. (o)
relating to consumer loan bonds.
Pub. L. 98-369, Sec. 621, redesignated subsec. (n), relating to
cross references, as (o).
1983 - Subsec. (m). Pub. L. 97-424, Sec. 547(a), added subsec.
(m). Former subsec. (m) redesignated (n).
Pub. L. 97-473 amended subsec. (m) generally, adding pars. (1)
and (2), redesignating former pars. (1) to (3) as (3) to (5),
respectively, and striking out par. (24) which had provided
reference regarding exempt-interest dividends to section
852(b)(5)(B.) See section 722(b) of Pub. L. 98-369, set out as a
note below.
Subsec. (n). Pub. L. 97-424, Sec. 547(a), redesignated former
subsec. (m), relating to cross references, as (n).
1982 - Subsec. (b)(2). Pub. L. 97-248, Sec. 215(b)(2),
substituted "For purposes of this section" for "For purposes of
this subsection".
Subsec. (b)(4). Pub. L. 97-248, Secs. 217(a)(1), (b), 221(a),
(c)(1), 310(c)(1), in subpar. (A) substituted "if at all times
during the qualified project period" for "if each obligation issued
pursuant to the issue is in registered form and if" after
"residential rental property", and struck out "(within the meaning
of section 167(k)(3)(B))" after "low or moderate income", added
subpar. (J), struck out provision that for purposes of subpar. (A),
"targeted area project" meant a project located in a qualified
census tract (within the meaning of section 103A(k)(2)) or an area
of chronic economic distress (within the meaning of section
103A(k)(3)) and, in last sentence, substituted "electric energy or
gas from" for "electric energy from".
Subsec. (b)(6)(C). Pub. L. 97-248, Sec. 217(a)(3), substituted
"paragraph (13)" for "paragraph (7)".
Subsec. (b)(6)(F)(iv). Pub. L. 97-248, Sec. 214(d), added cl.
(iv).
Subsec. (b)(6)(K) to (O). Pub. L. 97-248, Sec. 214(a)-(c), (e),
added subpars. (K) to (O).
Subsec. (b)(9)(A). Pub. L. 97-248, Sec. 217(c), inserted "ferry,"
after "rail car" in provisions preceding cl. (i), and in cl. (ii),
inserted "(or, in the case of a ferry, mass transportation
services)" after "mass commuting services".
Subsec. (b)(10). Pub. L. 97-248, Sec. 217(a)(2), added par. (10).
Former par. (10) redesignated (13).
Subsec. (b)(11). Pub. L. 97-248, Sec. 217(d), added par. (11).
Subsec. (b)(12). Pub. L. 97-248, Sec. 221(b), added par. (12).
[Provisions of par. (12)(A) were formerly contained, as
undesignated provisions, in par. (4).]
Subsec. (b)(13). Pub. L. 97-248, Sec. 217(a)(2), redesignated
former par. (10) as (13).
Subsec. (b)(14). Pub. L. 97-248, Sec. 219(a), added par. (14).
Subsec. (h). Pub. L. 97-248, Sec. 310(c)(2), substituted "must
not be guaranteed or subsidized" for "must be in registered form
and not guaranteed or subsidized" in heading, and in par. (1)
struck out subpar. (A) reading "such obligation is not issued in
registered form", and redesignated subpars. (B) and (C) as (A) and
(B), respectively.
Subsec. (j). Pub. L. 97-248, Sec. 310(b)(1), added subsec. (j).
Former subsec. (j), relating to cross references, redesignated (m).
Subsec. (k). Pub. L. 97-248, Sec. 215(a), added subsec. (k).
Subsec. (l). Pub. L. 97-248, Sec. 215(b)(1), added subsec. (l).
Subsec. (m). Pub. L. 97-248, Secs. 215(a), (b)(1), 310(b)(1),
redesignated former subsec. (j), relating to cross references, as
(m).
1981 - Subsec. (b)(4)(I). Pub. L. 97-34, Sec. 811(a), added
subpar. (I).
Subsec. (b)(9), (10). Pub. L. 97-34, Sec. 811(b), added par. (9)
and redesignated former par. (9) as (10).
Subsecs. (i), (j). Pub. L. 97-34, Sec. 812(a), added subsec. (i)
and redesignated former subsec. (i) as (j).
1980 - Subsec. (b)(4). Pub. L. 96-499, Sec. 1103(b), inserted
before last sentence provisions defining "targeted area project"
for purposes of subpar. (A).
Subsec. (b)(4)(A). Pub. L. 96-499, Sec. 1103(a), substituted
provisions relating to low or moderate income residential rental
property for provisions relating to residential real property for
family units.
Subsec. (b)(4)(H). Pub. L. 96-223, Sec. 242(a)(1), added subpar.
(H).
Subsec. (b)(6)(J). Pub. L. 96-499, Sec. 1103(c), added subpar.
(J).
Subsec. (b)(8), (9). Pub. L. 96-223, Sec. 242(a)(2), added par.
(8) and redesignated former par. (8) as (9).
Subsec. (c)(5). Pub. L. 96-222, Sec. 107(a)(3)(C), amended the
directory language of Pub. L. 96-500, Sec. 703(q)(1). See 1978
Amendment note below for subsec. (c)(5).
Subsec. (g). Pub. L. 96-223, Sec. 241(a), added subsec. (g).
Former subsec. (g) redesignated (i).
Subsec. (h). Pub. L. 96-223, Sec. 244(a), added subsec. (h).
Subsec. (i). Pub. L. 96-223, Secs. 241(a), 244(a), redesignated
former subsec. (g) as (i).
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 703(j)(1)(A),
substituted "subsection (a)(1) or (2)" for "subsection (a)(1)" in
heading.
Subsec. (b)(4). Pub. L. 95-600, Secs. 332(a), 333(a), in subpar.
(G)(i) inserted reference to electric utility, industrial,
agricultural, or commercial users and added subpar. (G)(ii) and
provision following subpar. (G)(ii) relating to the local
furnishing of electric energy.
Subsec. (b)(6)(D). Pub. L. 95-600, Sec. 331(a), substituted in
heading and cl. (i) "$10,000,000" for "$5,000,000".
Subsec. (b)(6)(I). Pub. L. 95-600, Sec. 331(b), added subpar.
(I).
Subsec. (b)(7), (8). Pub. L. 95-600, Sec. 334(a), (b), added par.
(7), redesignated former par. (7) as (8) and, as so redesignated,
substituted "(6), and (7)" for "and (6)".
Subsec. (c)(1). Pub. L. 95-600, Sec. 703(j)(1)(B), substituted in
heading and text "(a)(1) or (2)" for "(a)(1) or (4)".
Subsec. (c)(2)(A). Pub. L. 95-600, Sec. 703(j)(1)(C), substituted
"subsection (a)(1) or (2)" for "subsection (a)(1) or (2) or (4)".
Subsec. (c)(5). Pub. L. 95-600, Sec. 703(j)(1)(D), (q)(1), as
amended by Pub. L. 96-222, Sec. 107(a)(3)(C), substituted "section
438 of the Higher Education Act of 1965" for "section 2 of the
Emergency Insured Student Loan Act of 1969" and "paragraph (2)(A)"
for "subsection (d)(2)(A)".
Subsec. (d). Pub. L. 95-600, Sec. 703(j)(1)(E), substituted
"subsection (b)(4)(G)" for "subsection (c)(4)(G)".
Subsec. (e). Pub. L. 95-339 redesignated second subsec. (e),
relating to cross references, as (g).
Subsec. (f). Pub. L. 95-339 added subsec. (f).
Subsec. (g). Pub. L. 95-339 redesignated second subsec. (e),
relating to cross references, as (g).
1976 - Subsec. (a). Pub. L. 94-455, Secs. 1901(a)(17)(A),
2105(a), added par. (2) relating to qualified scholarship funding
bonds. Former pars. (2) and (3), relating to obligations of the
United States and to the obligations of corporations organized
under an Act of Congress, were struck out.
Subsec. (b). Pub. L. 94-455, Sec. 1901(a)(17)(B), (C),
redesignated subsec. (c) as (b) and in par. (1) of subsec. (b) as
so redesignated substituted "subsection (a)(1) or (2)" for
"subsection (a)(1)". Former subsec. (b), which created an exception
to the rule that gross income did not include interest on
obligations of the United States, by providing that the exception
did not apply to obligations of the United States (with specified
exceptions) unless under the authorizing Acts such interest is
wholly exempt from the taxes imposed by this subtitle, was struck
out.
Subsec. (c). Pub. L. 94-455, Secs. 1901(a)(17)(B), (D),
(b)(8)(B), 1906(b)(13)(A), 2105(c), redesignated subsec. (d) as (c)
and, in subsec. (c) as so redesignated, substituted "(a)(1) or (4)"
for "(a)(1)" in par. (1) and "(a)(1) or (2) or (4)" for "(a)(1)" in
par. (2)(A), substituted "educational organization described in
section 170(b)(1)(A)(ii)" for "educational institution (within the
meaning of section 151(e)(4))" in par. (3)(A), added par. (5),
redesignated former par. (5) as (6), and in par. (6) as so
redesignated substituted "Secretary" for "Secretary or his
delegate". Former subsec. (c) redesignated (b).
Subsec. (d). Pub. L. 94-455, Sec. 1901(a)(17)(B), redesignated
subsec. (e) as (d). Former subsec. (d) redesignated (c).
Subsec. (e). Pub. L. 94-455, Secs. 1901(a)(17)(B), (E), 2105(b),
2137(d), added subsec. (e) relating to qualified scholarship
funding bonds, redesignated former subsec. (f) relating to cross
references as a second subsec. (e), reduced the number of cross
references in subsec. (e) as so redesignated from twenty-three
(which made reference to various obligations of the United States
and of corporations organized under Acts of Congress) to three,
relating, respectively, to Puerto Rican bonds, Virgin Islands
insular and municipal bonds, and certain obligations issued under
title I of the Housing Act of 1949, and inserted a fourth cross
reference, designated as par. (24) relating to the treatment of
exempt-interest dividends. Former subsec. (e) redesignated (d).
Subsec. (f). Pub. L. 94-455, Sec. 1901(a)(17)(B), redesignated
subsec. (f), relating to cross references, as (e).
1975 - Subsecs. (e), (f). Pub. L. 94-182 and Pub. L. 94-164 made
identical amendments, adding subsec. (e) and redesignating former
subsec. (e) as (f).
1971 - Subsec. (c)(4)(E). Pub. L. 92-178, Sec. 315(a)(1),
substituted "energy or gas," for "energy, gas, or water or".
Subsec. (c)(4)(F). Pub. L. 92-178, Sec. 315(a)(2), substituted ",
or" for a period.
Subsec. (c)(4)(G). Pub. L. 92-178, Sec. 315(a)(3), added subpar.
(G).
Subsec. (c)(6)(F)(iii). Pub. L. 92-178, Sec. 315(b), substituted
"$1,000,000" for "$250,000".
1969 - Subsecs. (d), (e). Pub. L. 91-172 added subsec. (d) and
redesignated former subsec. (d) as (e).
1968 - Subsec. (c). Pub. L. 90-364 added subsec. (c). Former
subsec. (c) redesignated (d).
Subsec. (c)(6)(D) to (H). Pub. L. 90-634 added subpars. (D) to
(H).
Subsec. (d). Pub. L. 90-364 redesignated former subsec. (c) as
(d).
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1013(a)(34)(B) of Pub. L. 100-647 provided that:
"Subparagraph (A) [amending this section] shall apply to
obligations sold after May 2, 1978, and to which Treasury
regulation section 1.103-13 (1979) was provided to apply."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1301(a) of Pub. L. 99-514 applicable to
bonds issued after Aug. 15, 1986, except as otherwise provided, see
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective
Date; Transitional Rules note under section 141 of this title.
Amendment by sections 1864(b)-(e), 1865(a), 1869(a), (b), 1870,
and 1871(b) of Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
Section 1864(a)(2) of Pub. L. 99-514 provided that:
"(A) Except as provided in subparagraph (B), the amendment made
by paragraph (1) [amending this section] shall apply to obligations
issued after the date of the enactment of this Act [Oct. 22, 1986]
in taxable years ending after such date.
"(B) At the election of the issuer (made at such time and in such
manner as the Secretary of the Treasury or his delegate shall
prescribe), the amendment made by paragraph (1) shall apply to any
obligation issued on or before the date of the enactment of this
Act."
Section 1871(a)(2) of Pub. L. 99-514 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to obligations issued after March 28, 1985, in taxable years ending
after such date."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(r)(4) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Section 624(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
title XVIII, Sec. 1867(a), Oct. 22, 1986, 100 Stat. 2888, provided
that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and section 103A of this title] shall apply with respect to
bonds issued after December 31, 1984.
"(2) Exception. - The amendments made by this section shall not
apply to obligations issued for the Essex County New Jersey
Resource Recovery Project authorized by the Port Authority of New
York and New Jersey on November 10, 1983, as part of an agreement
approved by Essex County, New Jersey, on July 7, 1981, and approved
by the State of New Jersey on December 31, 1981. The aggregate face
amount of bonds to which this paragraph applies shall not exceed
$350,000,000."
Section 626(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XIII, Sec. 1317(22), title XVIII, Sec. 1869(c)(5),
Oct. 22, 1986, 100 Stat. 2095, 2698, 2890; Pub. L. 100-647, title
I, Sec. 1013(g)(24), Nov. 10, 1988, 102 Stat. 3554, provided that:
"(1) In general. - Except as otherwise provided in this
subsection the amendment made by subsection (a) [amending this
section] shall apply to obligations issued after the date of
enactment of this Act [July 18, 1984].
"(2) Exceptions for certain student loan programs. -
"(A) In general. - The amendments made by this section
[amending this section] shall not apply to obligations issued by
a program described in the following table to the extent the
aggregate face amount of such obligations does not exceed the
amount of allowable obligations specified in the following table
with respect to such program:
Program Amount of
Allowable
Obligations
--------------------------------------------------------------------
Colorado Student Obligation Bond Authority $60 million
Connecticut Higher Education Supplementary Loan $15.5
Authority million
District of Columbia $50 million
Illinois Higher Education Authority $70 million
State of Iowa $16 million
Louisiana Public Facilities Authority $75 million
Maine Health and Higher Education Facilities $5 million
Authority
Maryland Higher Education Supplemental Loan Progra $24 million
Massachusetts College Student Loan Authority $90 million
Minnesota Higher Education Coordinating Board $60 million
New Hampshire Higher Education and Health $39 million
Facilities Authority
New York Dormitory Authority $120 million
Pennsylvania Higher Education Assistance Agency $300 million
Georgia Private Colleges and University Authority $31 million
Wisconsin State Building Commission $60 million
South Dakota Health and Educational Facilities $6 million
Authority
--------------------------------------------------------------------
"(B) Pennsylvania higher education assistance agency. -
Subparagraph (A) shall apply to obligations issued by the
Pennsylvania Higher Education Assistance Agency only if such
obligations are issued solely for the purpose of refunding
student loan bonds outstanding on March 15, 1984.
"(3) Certain tax-exempt mortgage subsidy bonds. - For purposes of
applying section 103(o) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], the term 'consumer loan bond' shall not
include any mortgage subsidy bond (within the meaning of section
103A(b) of such Code) to which the amendments made by section 1102
of the Mortgage Subsidy Bond Tax Act of 1980 [enacting section 103A
of this title] do not apply.
"(4) Refunding exception. - The amendments made by this section
[amending this section] shall not apply to any obligation or series
of obligations the proceeds of which are used exclusively to refund
obligations issued before March 15, 1984, except that -
"(A) the amount of the refunding obligations may not exceed 101
percent of the aggregate face amount of the refunded obligations,
and
"(B) the maturity date of any refunding obligation may not be
later than the date which is 17 years after the date on which the
refunded obligation was issued (or, in the case of a series of
refundings, the date on which the original obligation was
issued).
"(5) Exception for certain established programs. - The amendments
made by this section [amending this section] shall not apply to any
obligation substantially all of the proceeds of which are used to
carry out a program established under State law which has been in
effect in substantially the same form during the 30-year period
ending on the date of enactment of this Act [July 18, 1984], but
only if such proceeds are used to make loans or to fund similar
obligations -
"(A) in the same manner in which,
"(B) in the same (or lesser) amount per participant, and
"(C) for the same purposes for which,
such program was operated on March 15, 1984. This subparagraph
shall not apply to obligations issued on or after March 15, 1987.
"(6) Certain bonds for renewable energy property. - The
amendments made by this section [amending this section] shall not
apply to any obligations described in section 243 of the Crude Oil
Windfall Profit Tax Act of 1980 [Pub. L. 96-223, set out as a note
below].
"(7) Exception for certain downtown redevelopment project. - The
amendments made by this section [amending this section] shall not
apply to any obligation which is issued as part of an issue 95
percent or more of the proceeds of which are to be used to provide
a project to acquire and redevelop a downtown area if -
"(A) on August 15, 1985, a downtown redevelopment authority
adopted a resolution to issue obligations for such project,
"(B) before September 26, 1985, the city expended, or entered
into binding contracts to expend, more than $10,000,000 in
connection with such project, and
"(C) the State supreme court issued a ruling regarding the
proposed financing structure for such project on December 11,
1985.
The aggregate face amount of obligations to which this paragraph
applies shall not exceed $85,000,000 and such obligations must be
issued before January 1, 1992."
Section 631 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec.
2, title XIII, Secs. 1316(j), 1317(43), title XVIII, Sec. 1872(a)-
(c)(1), Oct. 22, 1986, 100 Stat. 2095, 2670, 2708, 2891, 2892;
Pub. L. 100-647, title I, Sec. 1013(f)(8), (g)(40), Nov. 10, 1988,
102 Stat. 3549, 3557, provided that:
"(a) Private Activity Bond Cap. -
"(1) In general. - Except as otherwise provided in this
subsection, the amendment made by section 621 [amending this
section] shall apply to obligations issued after December 31,
1983.
"(2) Inducement resolution before june 19, 1984. - The
amendment made by section 621 shall not apply to any issue of
obligations if -
"(A) there was an inducement resolution (or other comparable
preliminary approval) for the issue before June 19, 1984, and
"(B) the issue is issued before January 1, 1985.
"(3) Certain projects preliminarily approved before october 19,
1983, given approval. - If -
"(A) there was an inducement resolution (or other comparable
preliminary approval) for a project before October 19, 1983, by
any issuing authority,
"(B) a substantial user of such project notifies the issuing
authority within 30 days after the date of the enactment of
this Act [July 18, 1984] that it intends to claim its rights
under this paragraph, and
"(C) construction of such project began before October 19,
1983, or the substantial user was under a binding contract on
such date to incur significant expenditures with respect to
such project,
such issuing authority shall allocate its share of the limitation
under section 103(n) of such Code for the calendar year during
which the obligations were to be issued pursuant to such
resolution (or other approval) first to such project. If the
amount of obligations required by all projects which meet the
requirements of the preceding sentence exceeds the issuing
authority's share of the limitation under section 103(n) of such
Code, priority under the preceding sentence shall be provided
first to those projects for which substantial expenditures were
incurred before October 19, 1983. If any issuing authority fails
to meet the requirements of this paragraph, the limitation under
section 103(n) of such Code for the issuing authority for the
calendar year following such failure shall be reduced by the
amount of obligations with respect to which such failure
occurred.
"(3) [(4)] Exception for certain bonds for a convention center
and resource recovery project. - In the case of any city, if -
"(A) the city council of such city authorized a feasibility
study for a convention center on June 10, 1982, and
"(B) on November 4, 1983, a municipal authority acting for
such city accepted a proposal for the construction of a
facility that is capable of generating steam and electricity
through the combustion of municipal waste,
the amendment made by section 621 shall not apply to any issue,
issued during 1984, 1985, 1986, or 1987 and substantially all of
the proceeds of which are to be used to finance the convention
center (or access ramps and parking facilities therefor)
described in subparagraph (A) or the facility described in
subparagraph (B).
"(b) Property Financed With Tax-Exempt Bonds Required To Be
Depreciated on Straight-Line Basis. -
"(1) In general. - Except as otherwise provided in this
section, the amendments made by section 628(b) [amending section
168 of this title] shall apply to property placed in service
after December 31, 1983, to the extent such property is financed
by the proceeds of an obligation (including a refunding
obligation) issued after October 18, 1983.
"(2) Exceptions. -
"(A) Construction or binding agreement. - The amendments made
by section 628(b) shall not apply with respect to facilities -
"(i) the original use of which commences with the taxpayer
and the construction, reconstruction, or rehabilitation of
which began before October 19, 1983, or
"(ii) with respect to which a binding contract to incur
significant expenditures was entered into before October 19,
1983.
"(B) Refunding. -
"(i) In general. - Except as provided in clause (ii), in
the case of property placed in service after December 31,
1983, which is financed by the proceeds of an obligation
which is issued solely to refund another obligation which was
issued before October 19, 1983, the amendments made by
section 628(b) shall apply only with respect to an amount
equal to the basis in such property which has not been
recovered before the date such refunded obligation is issued.
"(ii) Significant expenditures. - In the case of facilities
the original use of which commences with the taxpayer and
with respect to which significant expenditures are made
before January 1, 1984, the amendments made by section 628(b)
shall not apply with respect to such facilities to the extent
such facilities are financed by the proceeds of an obligation
issued solely to refund another obligation which was issued
before October 19, 1983.
"(C) Facilities. - In the case of an inducement resolution or
other comparable preliminary approval adopted by an issuing
authority before October 19, 1983, for purposes of applying
subparagraphs (A)(i) and (B)(ii) with respect to obligations
described in such resolution, the term 'facilities' means the
facilities described in such resolution.
"(c) Other Provisions Relating to Tax-Exempt Bonds. -
"(1) In general. - Except as otherwise provided in this
subtitle, the amendments made by sections 622, 623, 627, and
628(c), (d), and (e) (and the provisions of sections 625(c),
628(f), and 629(b)) [amending this section and enacting
provisions set out as notes under this section] shall apply to
obligations issued after December 31, 1983.
"(2) Obligations invested in federally insured deposits. -
Notwithstanding any other provision of this section, clause (ii)
of section 103(h)(2)(B) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as amended by this subtitle) shall apply
to obligations issued after April 14, 1983; except that such
clause shall not apply to any obligation issued pursuant to a
binding contract in effect on March 4, 1983.
"(3) Exceptions. -
"(A) Construction or binding agreement. - The amendments (and
provisions) referred to in paragraph (1) shall not apply to
obligations with respect to facilities -
"(i) the original use of which commences with the taxpayer
and the construction, reconstruction, or rehabilitation of
which began before October 19, 1983, and was completed on or
after such date,
"(ii) the original use of which commences with the taxpayer
and with respect to which a binding contract to incur
significant expenditures for construction, reconstruction, or
rehabilitation was entered into before October 19, 1983, and
some of such expenditures are incurred on or after such date,
or
"(iii) acquired after October 19, 1983, pursuant to a
binding contract entered into on or before such date.
"(B) Facilities. - Subparagraph (C) of subsection (b)(2)
shall apply for purposes of subparagraph (A) of this paragraph.
"(C) Exception. - Subparagraph (A) shall not apply with
respect to the amendment made by section 628(e) and the
provisions of sections 628(f) and 629(b) [amending this section
and enacting provisions set out as notes under this section].
"(4) Repeal of advance refunding of qualified public
facilities. - The amendment made by section 628(g) [amending this
section] shall apply to refunding obligations issued after the
date of the enactment of this Act [July 18, 1984]; except that if
substantially all the proceeds of the refunded issue were used to
provide airports or docks, such amendment shall only apply to
refunding obligations issued after December 31, 1984. In the case
of refunding obligations not to exceed $100,000,000 issued after
October 21, 1986, by Dade County, Florida, for the purpose of
advance refunding its Aviation Revenue Bonds (Series J), the
first sentence of this paragraph shall be applied by substituting
'the date which is 1 year after the date of the enactment of the
Technical and Miscellaneous Revenue Act of 1988 [Nov. 10, 1988]'
for 'December 31, 1984' and the amendments made by section 1301
of the Tax Reform Act of 1986 [section 1301 of Pub. L. 99-514,
enacting sections 141 to 150 and 7703 of this title, amending
this section and sections 2, 22, 25, 32, 86, 105, 152, 153, 163,
194, 269A, 414, 879, 1398, 3402, 4701, 4940, 4942, 4988, 6362,
6652, and 7871 of this title, repealing section 103A of this
title, enacting provisions set out as notes under sections 141
and 148 of this title, and amending provisions set out as a note
under section 103A of this title] shall not apply. In the case of
refunding obligations not exceeding $100,000,000 issued by the
Alabama State Docks Department, the first sentence of this
paragraph shall be applied by substituting 'December 31, 1987'
for 'December 31, 1984' and the Internal Revenue Code of 1986
shall be applied without regard to section 149(d)(2)..[sic]
"(5) Special rule for health club facilities. - In the case of
any health club facility, with respect to the amendment made by
section 627(c) [amending this section] -
"(A) paragraph (1) shall be applied by substituting 'April
12, 1984' for 'December 31, 1983', and
"(B) paragraph (3) shall be applied by substituting 'April
13, 1984' for 'October 19, 1983' each place it appears.
"(d) Provisions of This Subtitle Not To Apply to Certain
Property. - The amendments made by this subtitle [sections 621-632
of Pub. L. 98-369, amending this section and sections 103A and 168
of this title and enacting provisions set out as notes under this
section] shall not apply to any property (and shall not apply to
obligations issued to finance such property) if such property is
described in any of the following paragraphs:
"(1) Any property described in paragraph (5), (6), or (7) of
section 31(g) of this Act [set out as an Effective Date of 1984
Amendment note under section 168 of this title].
"(2) Any property described in paragraph (4), (8), or (17) of
section 31(g) of this Act [set out as an Effective Date of 1984
Amendment note under section 168 of this title] but only if the
obligation is issued before January 1, 1985, and only if before
June 19, 1984, the issuer had evidenced an intent to issue
obligations exempt from taxation under the Internal Revenue Code
of 1986 in connection with such property.
"(3) Any property described in paragraph (3) of section 216(b)
of the Tax Equity and Fiscal Responsibility Act of 1982 [set out
as an Effective Date of 1982 Amendment note under section 168 of
this title].
"(4) Any solid waste disposal facility described in section
103(b)(4)(E) of the Internal Revenue Code of 1986 if -
"(A) a State public authority created pursuant to State
legislation which took effect on June 18, 1973, took formal
action before October 19, 1983, to commit development funds for
such facility.
"(B) such authority issues obligations for any such facility
before January 1, 1987, and
"(C) expenditures have been made for the development of any
such facility before October 19, 1983.
"(5) Any solid waste disposal facility described in section
103(b)(4)(E) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] if -
"(A) a city government, by resolutions adopted on April 10,
1980, and December 27, 1982, took formal action to authorize
the submission of a proposal for a feasibility study for such
facility and to authorize the presentation to the Department of
the Army (U.S. Army Missile Command) of a proposed agreement to
jointly pursue construction and operation of such facility,
"(B) such city government (or a public authority on its
behalf) issues obligations for such facility before January 1,
1988, and
"(C) expenditures have been made for the development of such
facility before October 19, 1983. Notwithstanding the foregoing
provisions of this subsection, the amendments made by section
624 [amending sections 103 and 103A of this title and enacting
provisions set out as a note under this section] (relating to
arbitrage) shall apply to obligations issued to finance
property described in paragraph (5).
"(e) Determination of Significant Expenditure. -
"(1) In general. - For purposes of this section, the term
'significant expenditures' means expenditures which equal or
exceed the lesser of -
"(A) $15,000,000, or
"(B) 20 percent of the estimated cost of the facilities.
"(2) Certain grants treated as expenditures. - For purposes of
paragraph (1), the amount of any UDAG grant preliminarily
approved on May 5, 1981, or April 4, 1983, shall be treated as an
expenditure with respect to the facility for which such grant was
so approved.
"(f) Exceptions for Certain Other Amendments. - If -
"(1) there was an inducement resolution (or other comparable
preliminary approval) for an issue before June 19, 1984, by any
issuing authority, and
"(2) such issue is issued before January 1, 1985, the following
amendments shall not apply:
"(A) the amendments made by section 623 [amending this
section],
"(B) the amendments made by subsections (a) and (b) of
section 627 [amending this section] (except to the extent such
amendments relate to farm land),
"(C) in the case of a race track, the amendment made by
section 627(c) [amending this section], and
"(D) the amendments made by section 628(c) [amending this
section]."
[Section 1872(a)(2)(B) of Pub. L. 99-514 provided that the
amendment of section 631(c)(3) of Pub. L. 98-369, set out above,
made by section 1872(a)(2)(B) of Pub. L. 99-514 is effective with
respect to obligations issued after Mar. 28, 1985.]
EFFECTIVE DATE OF 1983 AMENDMENT
For effective date of amendment by Pub. L. 97-473, see section
204(2) of Pub. L. 97-473, set out as an Effective Date note under
section 7871 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 214(f) of Pub. L. 97-248 provided that:
"(1) Composite issues; small issue exemption. - The amendments
made by subsections (a) and (b) [amending this section] shall apply
to obligations issued after the date of the enactment of this Act
[Sept. 3, 1982].
"(2) Termination. - The amendment made by subsection (c)
[amending this section] shall take effect on the date of the
enactment of this Act [Sept. 3, 1982].
"(3) Research expenditures. - The amendment made by subsection
(d) [amending this section] shall apply with respect to
expenditures made after the date of the enactment of this Act
[Sept. 3, 1982].
"(4) Certain facilities. - The amendment made by subsection (e)
[amending this section] shall apply to obligations issued after
December 31, 1982."
Section 215(c) of Pub. L. 97-248 provided that:
"(1) Public approval. - The amendment made by subsection (a)
[amending this section] shall apply to obligations issued after
December 31, 1982, other than obligations issued solely to refund
any obligation which -
"(A) was issued before July 1, 1982, and
"(B) has a maturity which does not exceed 3 years.
"(2) Information reporting. - The amendments made by subsection
(b) [amending this section] shall apply to obligations issued after
December 31, 1982 (including any obligation issued to refund an
obligation issued before such date)."
Section 217(e) of Pub. L. 97-248, as amended by Pub. L. 98-369,
div. A, title VII, Sec. 712(h), July 18, 1984, 98 Stat. 947; Pub.
L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"The amendments made by this section [amending this section] shall
apply to obligations issued after the date of the enactment of this
Act [Sept. 3, 1982]. For purposes of applying section
168(f)(8)(D)(v) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954], the amendments made by subsection (c) [amending this
section] shall apply to agreements entered into after the date of
the enactment of this Act."
Section 219(b) of Pub. L. 97-248 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
obligations issued after December 31, 1982."
Section 221(d) of Pub. L. 97-248 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
1104 of Pub. L. 96-499, formerly set out as a note under section
103A of this title] shall apply to obligations issued after the
date of the enactment of this Act [Sept. 3, 1982].
"(2) Exception. - The amendments made by this section shall not
apply with respect to any obligation to which the amendments made
by section 1103 of the Mortgage Subsidy Bond Tax Act of 1980
[section 1103 of Pub. L. 96-499, amending this section] do not
apply by reason of section 1104 of such Act [section 1104 of Pub.
L. 96-499, formerly set out as a note under section 103A of this
title]."
Section 310(d) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(b)(2), 96 Stat. 2405; Pub. L. 98-216, Sec.
6(b), Feb. 14, 1984, 98 Stat. 8; Pub. L. 99-514, Sec. 2, Oct. 22,
1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting section
4701 of this title and section 757c-5 of former Title 31, Money and
Finance, and amending this section and sections 103A, 163, 165,
312, and 1232 of this title] shall apply to obligations issued
after December 31, 1982.
"(2) [Repealed. Pub. L. 98-216, Sec. 6(b), Feb. 14, 1984, 98
Stat. 8.]
"(3) Exception for certain warrants, etc. - The amendments made
by subsection (b) [enacting section 4701 of this title and amending
this section and sections 163, 165, 312, and 1232 of this title]
shall not apply to any obligations issued after December 31, 1982,
on the exercise of a warrant or the conversion of a convertible
obligation if such warrant or obligation was offered or sold
outside the United States without registration under the Securities
Act of 1933 [15 U.S.C. 77a et seq.] and was issued before August
10, 1982. A rule similar to the rule of the preceding sentence
shall also apply in the case of any regulations issued under
section 163(f)(2)(C) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as added by this section) except that the date on
which such regulations take effect shall be substituted for 'August
10, 1982'.
"(4) [Repealed. Pub. L. 98-216, Sec. 6(b), Feb. 14, 1984, 98
Stat. 8.]"
EFFECTIVE DATE OF 1981 AMENDMENT
Section 811(c) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section] shall apply to
obligations issued after the date of the enactment of this Act
[Aug. 13, 1981]."
Section 812(b)(1) of Pub. L. 97-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
obligations issued after December 31, 1980."
EFFECTIVE DATE OF 1980 AMENDMENTS
For effective date of amendment by Pub. L. 96-499, see section
1104 of Pub. L. 96-499, set out as an Effective Date note under
section 103A of this title.
Section 241(d) of Pub. L. 96-223 provided that: "The amendments
made by subsection (a) [amending this section] and the provisions
of subsections (b) and (c) [set out as notes under this section]
shall apply with respect to obligations issued after October 18,
1979."
Section 242(c) of Pub. L. 96-223 provided that: "The amendments
made by subsection (a) [amending this section] and the provisions
of subsection (b) [set out as a note under this section] shall
apply with respect to obligations issued after October 18, 1979."
Section 244(b) of Pub. L. 96-223 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
obligations issued on or after October 18, 1979."
EFFECTIVE DATE OF 1978 AMENDMENTS
Section 201(c) of Pub. L. 95-339 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years ending after the date of the enactment of this Act
[Aug. 8, 1978]."
Section 331(c) of Pub. L. 95-600 provided that:
"(1) The amendments made by subsection (a) [amending this
section] shall apply to -
"(A) obligations issued after December 31, 1978, in taxable
years ending after such date, and
"(B) capital expenditures made after December 31, 1978, with
respect to obligations issued before January 1, 1979.
"(2) The amendment made by subsection (b) [amending this section]
shall apply to -
"(A) obligations issued after September 30, 1979, in taxable
years ending after such date, and
"(B) capital expenditures made after September 30, 1979, with
respect to obligations issued after such date."
Section 332(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after April 30, 1968, but only with respect to
obligations issued after such date."
Section 333(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
obligations issued after the date of the enactment of this Act
[Nov. 6, 1978] in taxable years ending after such date."
Section 334(c) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section] shall apply to
obligations issued after the date of the enactment of this Act
[Nov. 6, 1978]."
Section 703(q)(2) of Pub. L. 95-600 provided that: "The
amendments made by paragraph (1) [amending this section] shall
apply with respect to payments made by the Commissioner of
Education after December 31, 1976."
Amendment by section 703(j)(1) of Pub. L. 95-600 effective on
Oct. 4, 1976, see section 703(r) of Pub. L. 95-600, set out as a
note under section 46 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(17), (b)(8)(B) of Pub. L. 94-455
applicable with respect to taxable years ending after Oct. 4, 1976,
see section 1901(d) of Pub. L. 94-455, set out as a note under
section 2 of this title.
Amendment by section 1906(b)(13)(A) of Pub. L. 94-455 effective
Feb. 1, 1977, see section 1906(d)(1) of Pub. L. 94-455, set out as
a note under section 6013 of this title.
Section 2105(d) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section] apply to obligations
issued on or after the date of the enactment of this Act [Oct. 4,
1976]."
Amendment by section 2137(d) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, see section 2137(e) of
Pub. L. 94-455, set out as a note under section 852 of this title.
EFFECTIVE DATE OF 1975 AMENDMENTS
Section 301(b) of Pub. L. 94-182 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
obligations issued after the date of the enactment of this Act
[Dec. 31, 1975]."
Section 7(b) of Pub. L. 94-164 provided that: "The amendments
made by this section [amending this section] shall apply to
obligations issued after the date of enactment of this Act [Dec.
23, 1975]."
EFFECTIVE DATE OF 1971 AMENDMENT
Section 315(c) of Pub. L. 92-178 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to obligations issued after January 1, 1969. The amendment
made by subsection (b) [amending this section] shall apply with
respect to expenditures incurred after the date of the enactment of
this Act [Dec. 10, 1971]."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 601(b) of Pub. L. 91-172 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to obligations issued after October 9, 1969."
EFFECTIVE DATE OF 1968 AMENDMENT
Section 401(b) of Pub. L. 90-634 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to obligations issued after the date of the enactment of
this Act [Oct. 24, 1968]."
Section 107(b)(1) of Pub. L. 90-364 provided that: "Except as
provided by paragraph (2) [set out as a note below], the amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after April 30, 1968, but only with respect to
obligations issued after such date."
-TRANS-
TRANSFER OF FUNCTIONS
Functions of Commissioner of Education transferred to Secretary
of Education by section 3441(a)(1) of Title 20, Education.
-MISC2-
COORDINATION OF CERTAIN AMENDMENTS MADE BY PUB. L. 97-424 AND PUB.
L. 97-473
Section 722(b) of Pub. L. 98-369 provided that: "For purposes of
applying the amendments made by section 547 of the Highway Revenue
Act of 1982 [Pub. L. 97-424, amending this section] and the
amendment made by section 202(b)(2) of Public Law 97-473 [amending
this section], Public Law 97-473 shall be deemed to have been
enacted immediately before the Highway Revenue Act of 1982."
VALIDATION OF SINKING FUND REGULATIONS
Section 1013(a)(35) of Pub. L. 100-647 provided that:
"(A) Treasury Regulation section 1.103-13(g) (1979) is hereby
enacted into positive law.
"(B)(i) Except as provided in clause (ii), subparagraph (A) shall
apply to obligations sold after May 2, 1978, and to which such
regulation was provided to apply.
"(ii) Treasury Regulation section 1.103-13(g) (1979) as enacted
into positive law by subparagraph (A) shall cease to apply to the
extent hereafter modified by the Secretary of the Treasury or his
delegate by regulations."
BONDS ISSUED TO REFUND SUBSECTION (O)(3) OBLIGATIONS
Section 1013(c)(15) of Pub. L. 100-647 provided that: "A bond
issued to refund an obligation described in section 103(o)(3) of
the Internal Revenue Code of 1954 (as in effect on the day before
the date of the enactment of the Tax Reform Act of 1986 [Oct. 22,
1986]) shall not be treated as described in section 144(b) of the
1986 Code unless it is described in section 144(b)(1)(A) of the
1986 Code."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TREATMENT OF CERTAIN GUARANTEES BY FARMERS HOME ADMINISTRATION
Section 1865(b) of Pub. L. 99-514 provided that: "An obligation
shall not be treated as federally guaranteed for purposes of
section 103(h) of the Internal Revenue Code of 1954 [now 1986] by
reason of a guarantee by the Farmers Home Administration if -
"(1) such guarantee is pursuant to a commitment made by the
Farmers Home Administration before July 1, 1984, and
"(2) such obligation is issued to finance a convention center
project in Carbondale, Illinois."
TREATMENT OF CERTAIN OBLIGATIONS USED TO FINANCE SOLID WASTE
DISPOSAL FACILITY
Section 1865(c) of Pub. L. 99-514 provided that:
"(1) In general. - Any obligation which is part of an issue a
substantial portion of the proceeds of which is to be used to
finance a solid waste disposal facility described in paragraph (2)
shall not, for purposes of section 103(h) of the Internal Revenue
Code of 1954 [now 1986], be treated as an obligation which is
federally guaranteed by reason of the sale of fuel, steam,
electricity, or other forms of usable energy to the Federal
Government or any agency or instrumentality thereof.
"(2) Solid waste disposal facility. - A solid waste disposal
facility is described in this paragraph if such facility is
described in section 103(b)(4)(E) of such Code and -
"(A) if -
"(i) a public State authority created pursuant to State
legislation which took effect on July 1, 1980, took formal
action before October 19, 1983, to commit development funds for
such facility,
"(ii) such authority issues obligations for such facility
before January 1, 1988, and
"(iii) expenditures have been made for the development of
such facility before October 19, 1983,
"(B) if -
"(i) such facility is operated by the South Eastern Public
Service Authority of Virginia, and
"(ii) on December 20, 1984, the Internal Revenue Service
issued a ruling concluding that a portion of the obligations
with respect to such facility would not be treated as federally
guaranteed under section 103(h) of such Code by reason of the
transitional rule contained in section 631(c)(3)(A)(i) of the
Tax Reform Act of 1984 [section 631(c)(3)(A)(i) of Pub. L. 98-
369, set out as a note above],
"(C) if -
"(i) a political subdivision of a State took formal action on
April 1, 1980, to commit development funds for such facility,
"(ii) such facility has a contract to sell steam to a naval
base,
"(iii) such political subdivision issues obligations for such
facility before January 1, 1988, and
"(iv) expenditures have been made for the development of such
facility before October 19, 1983, or
"(D) if -
"(i) such facility is a thermal transfer facility,
"(ii) is to be built and operated by the Elk Regional
Resource Authority, and
"(iii) is to be on land leased from the United States Air
Force at Arnold Engineering Development Center near Tullahoma,
Tennessee.
"(3) Limitations. -
"(A) In the case of a solid waste disposal facility described
in paragraph (2)(A), the aggregate face amount of obligations to
which paragraph (1) applies shall not exceed $65,000,000.
"(B) In the case of a solid waste disposal facility described
in paragraph (2)(B), the aggregate face amount of obligations to
which paragraph (1) applies shall not exceed $20,000,000. Such
amount shall be in addition to the amount permitted under the
Internal Revenue Service ruling referred to in paragraph
(2)(B)(ii).
"(C) In the case of a solid waste disposal facility described
in paragraph (2)(C), the aggregate face amount of obligations to
which paragraph (1) applies shall not exceed $75,000,000.
"(D) In the case of a solid waste disposal facility described
in paragraph (2)(D), the aggregate face amount of obligations to
which paragraph (1) applies shall not exceed $25,000,000."
TRANSITIONAL RULE FOR LIMIT ON SMALL ISSUE EXCEPTION
Section 1866 of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1018(m)(1)-(4), Nov. 10, 1988, 102 Stat. 3584,
provided that: "The amendment made by section 623 of the Tax Reform
Act of 1984 [section 623 of Pub. L. 98-369, amending this section]
shall not apply to any obligation (or series of obligations) issued
to refund another tax-exempt IDB to which the amendment made by
such section 623 did not apply if -
"(1) the average maturity of the issue of which the refunding
obligation is a part does not exceed the average maturity of the
obligations to be refunded by such issue,
"(2) the amount of the refunding obligation does not exceed the
amount of the refunded obligation, and
"(3) the proceeds of the refunding obligation are used to
redeem the refunded obligation not later than 90 days after the
date of the issuance of the refunding obligation.
For purposes of the preceding sentence, the term 'tax-exempt IDB'
means any industrial development bond (as defined in section 103(b)
of the Internal Revenue Code of 1954 [now 1986]) the interest on
which is exempt from tax under section 103(a) of such Code. For
purposes of paragraph (1), average maturity shall be determined in
accordance with subsection (b)(14)(B)(i) of such Code."
[Section 1018(m)(5) of Pub. L. 100-647 provided that: "A
refunding obligation issued before July 1, 1987, shall be treated
as meeting the requirement of paragraph (1) of section 1866 of the
Reform Act [Pub. L. 99-514, set out above] if such obligation met
the requirement of such paragraph as enacted by the Reform Act
[Pub. L. 99-514]."]
EXCEPTION FROM 1984 AMENDMENT FOR DOWNTOWN MUSKOGEE REVITALIZATION
PROJECT
Section 1867(b) of Pub. L. 99-514 provided that: "The amendment
made by section 624 of the Tax Reform Act of 1984 [amending
sections 103 and 103A of this title and enacting provisions set out
as a note under this section] shall not apply to obligations issued
with respect to the Downtown Muskogee Revitalization Project for
which a UDAG grant was preliminarily approved on May 5, 1981, if -
"(1) such obligation is issued before January 1, 1986, or
"(2) such obligation is issued after such date to provide
additional financing for such project except that the aggregate
amount of obligations to which this subsection applies shall not
exceed $10,000,000."
TRANSITIONAL RULES
Section 1869(c)(1)-(4) of Pub. L. 99-514, as amended by Pub. L.
100-647, title I, Sec. 1018(n), Nov. 10, 1988, 102 Stat. 3584,
provided that:
"(1) Treatment of certain obligations issued by the city of
baltimore. - Obligations issued by the city of Baltimore, Maryland,
after June 30, 1985, shall not be treated as private loan bonds for
purposes of section 103(o) of the Internal Revenue Code of 1954
[now 1986] (or as private activity bonds for purposes of section
103 and part IV of subchapter A of chapter 1 of the Internal
Revenue Code of 1986, as amended by title XIII of this Act
[sections 1301 to 1318 of Pub. L. 99-514]) by reason of the use of
a portion of the proceeds of such obligations to finance or
refinance temporary advances made by the city of Baltimore in
connection with loans to persons who are not exempt persons (within
the meaning of section 103(b)(3) of such Code) if -
"(A) such obligations are not industrial development bonds
(within the meaning of section 103(b)(2) of the Internal Revenue
Code of 1954 [now 1986]),
"(B) the portion of the proceeds of such obligations so used is
attributable to debt approved by voter referendum on or before
November 2, 1982,
"(C) the loans to such nonexempt persons were approved by the
Board of Estimates of the city of Baltimore on or before October
19, 1983, and
"(D) the aggregate amount of such temporary advances financed
or refinanced by such obligations does not exceed $27,000,000.
"(2) White pine power project. - The amendment made by section
626(a) of the Tax Reform Act of 1984 [section 626(a) of Pub. L. 98-
369, amending this section] shall not apply to any obligation
issued during 1984 to provide financing for the White Pine Power
Project in Nevada.
"(3) Tax increment bonds. - The amendment made by section 626(a)
of the Tax Reform Act of 1984 shall not apply to any tax increment
financing obligation issued before August 16, 1986, if -
"(A) substantially all of the proceeds of the issue are to be
used to finance -
"(i) sewer, street, lighting, or other governmental
improvements to real property,
"(ii) the acquisition of any interest in real property (by a
governmental unit having the power to exercise eminent domain),
the preparation of such property for new use, or the transfer
of such interest to a private developer, or
"(iii) payments of reasonable relocation costs of prior users
of such real property,
"(B) all of the activities described in subparagraph (A) are
pursuant to a redevelopment plan adopted by the issuing authority
before the issuance of such issue,
"(C) repayment of such issue is secured exclusively by pledges
of that portion of any increase in real property tax revenues (or
their equivalent) attributable to the redevelopment resulting
from the issue (or similar issues), and
"(D) none of the property described in subparagraph (A) is
subject to a real property or other tax based on a rate or
valuation method which differs from the rate and valuation method
applicable to any other similar property located within the
jurisdiction of the issuing authority.
"(4) Eastern maine electric cooperative. - The amendment made by
section 626(a) of the Tax Reform Act of 1984 shall not apply to
obligations issued by Massachusetts Municipal Wholesale Electric
Company Project No. 6 if -
"(A) such obligation is issued before January 1, 1986,
"(B) such obligation is issued after such date to refund a
prior obligation for such project, except that the aggregate
amount of obligations to which this subparagraph applies shall
not exceed $100,000,000, or
"(C) such obligation is issued after such date to provide
additional financing for such project except that the aggregate
amount of obligations to which this subparagraph applies shall
not exceed $45,000,000.
Subparagraph (B) shall not apply to any obligation issued for the
advance refunding of any obligation."
TREATMENT OF OBLIGATIONS TO FINANCE ST. JOHNS RIVER POWER PARK
Section 1869(c)(6) of Pub. L. 99-514 provided that:
"(A) In general. - The amendment made by section 626(a) of the
Tax Reform Act of 1984 [section 626(a) of Pub. L. 98-369, amending
this section] shall not apply to any obligation issued to finance
the project described in subparagraph (B) if -
"(i) such obligation is issued before September 27, 1985,
"(ii) such obligation is issued after such date to refund a
prior tax exemption obligation for such project, the amount of
such obligation does not exceed the outstanding amount of the
refunded obligation, and such prior tax exempt obligation is
retired not later than the date 30 days after the issuance of the
refunding obligation, or
"(iii) such obligation is issued after such date to provide
additional financing for such project except that the aggregate
amount of obligations to which this clause applies shall not
exceed $150,000,000.
Clause (ii) shall not apply to any obligation issued for the
advance refunding of any obligation.
"(B) Description of project. - The project described in this
subparagraph in the St. Johns River Power Park system in Florida
which was authorized by legislation enacted by the Florida
Legislature in February of 1982."
CERTAIN PUBLIC UTILITIES TREATED AS EXEMPTED PERSONS UNDER SECTION
103(B); SPECIAL RULES FOR CERTAIN RAILROADS
Section 629 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec.
2, title XIII, Sec. 1316(g)(8)(B), Oct. 22, 1986, 100 Stat. 2095,
2670, provided that:
"(a) Certain Public Utilities. - For purposes of applying section
103(b)(3) of the Internal Revenue Code [of 1986] with respect to -
"(1) any obligations issued after the date of enactment of this
Act [July 18, 1984], and
"(2) any obligations issued after December 31, 1969, which were
treated as obligations described in section 103(a) of such Code
on the day on which such obligations were issued,
the term 'exempt person' shall include a regulated public utility
having any customer service area within a State served by a public
power authority which was required as a condition of a Federal
Power Commission license specified by an Act of Congress enacted
prior to the enactment of section 107 of the Revenue and
Expenditure Control Act of 1968 (Public Law 90-364) [June 28, 1968]
to contract to sell power to one such utility and which is
authorized by State law to sell power to other such utilities, but
only with respect to the purchase by any such utility and resale to
its customers of any output of any electrical generation facility
or any portion thereof or any use of any electrical transmission
facility or any portion thereof financed by such power authority
and owned by it or by such State, and provided that by agreement
between such power authority and any such utility there shall be no
markup in the resale price charged by such utility of that
component of the resale price which represents the price paid by
such utility for such output or use. The preceding sentence shall
be applied by inserting 'and a rural electric cooperative utility'
after 'regulated public utility' but only if not more than 1
percent of the load of the public power authority is sold to such
rural electric cooperative utility.
"(b) Certain Railroads. - Section 103(b)(1) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] shall not apply to any
obligation which is described in section 103(b)(6)(A) of such Code
if -
"(1) substantially all of the proceeds of such obligation are
used to acquire railroad track and right-of-way from a railroad
involved in a title 11 or similar proceeding (within the meaning
of section 368(a)(3)(A) of such Code), and
"(2) the Federal Railroad Administration provides joint
financing for such acquisitions.
"(c) Special Rules for Subsection (a). -
"(1) Obligations subject to cap. - Any obligation described in
subsection (a) shall be treated as a private activity bond for
purposes of section 103(n) of the Internal Revenue Code of 1986.
"(2) Limitation on amount of obligations to which subsection
(a)(1) applies - The aggregate amount of obligations to which
subsection (a)(1) applies shall not exceed $911,000,000.
"(3) Limitation on purposes. - Subsection (a)(1) shall only
apply to obligations issued as part of an issue substantially all
the proceeds of which are used to provide 1 or more of the
following:
"(A) Cable facilities.
"(B) Small hydroelectric facilities.
"(C) The acquisition of an interest in an electrical
generating facility.
"(D) Improvements to existing generating facilities.
"(E) Transmission lines.
"(F) Electric generating facilities."
TREATMENT OF CERTAIN RESIDENTIAL REAL PROPERTY AS RESIDENTIAL
RENTAL PROPERTY
Treatment of Pub. L. 98-369, Sec. 631(d)(3), residential real
property as residential rental property, see section 1809(a)(4)(C)
of Pub. L. 99-514, set out as a note under section 168 of this
title.
PUBLIC APPROVAL REQUIREMENT IN THE CASE OF PUBLIC AIRPORT
Section 628(f) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If -
"(1) the proceeds of any issue are to be used to finance a
facility or facilities located on a public airport, and
"(2) the governmental unit issuing such obligations is the
owner or operator of such airport,
such governmental unit shall be deemed to be the only governmental
unit having jurisdiction over such airport for purposes of
subsection (k) of section 103 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (relating to public approval for industrial
development bonds)."
SMALL ISSUE LIMIT IN CASE OF CERTAIN URBAN DEVELOPMENT ACTION
GRANTS
Section 628(h) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the case
of any obligation issued on December 11, 1981, section 103(b)(6)(I)
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall
be applied by substituting '$15,000,000' for '$10,000,000' if -
"(1) such obligation is part of an issue,
"(2) substantially all of the proceeds of such issue are used
to provide facilities with respect to which an urban development
action grant under section 119 of the Housing and Community
Development Act of 1974 [42 U.S.C. 5318] was preliminarily
approved by the Secretary of Housing and Urban Development on
January 10, 1980, and
"(3) the Secretary of Housing and Urban Development determines,
at the time such grant is approved, that the amount of such grant
will equal or exceed 5 percent of the total capital expenditures
incurred with respect to such facilities."
STUDENT LOAN BONDS
Pub. L. 98-369, div. A, title VI, Sec. 625, July 18, 1984, 98
Stat. 924, as amended by Pub. L. 99-514, Sec. 2, title XVIII, Sec.
1868, Oct. 22, 1986, 100 Stat. 2095, 2888, provided that:
"(a) Arbitrage Regulations. -
"(1) In general. - The Secretary shall prescribe regulations
which specify the circumstances under which a qualified student
loan bond shall be treated as an arbitrage bond for purposes of
section 103 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954]. Such regulations may provide that -
"(A) paragraphs (4) and (5) of section 103(c) of such Code
shall not apply, and
"(B) rules similar to section 103(c)(6) shall apply,
to qualified student loan bonds.
"(2) Definitions. - For purposes of this subsection -
"(A) Qualified student loan bond. - The term 'qualified
student loan bond' has the meaning given to such term by
section 103(o)(3) of the Internal Revenue Code of 1986 (as
amended by this Act).
"(B) Arbitrage bond. - The term 'arbitrage bond' has the
meaning given to such term by section 103(c)(2).
"(3) Effective date. -
"(A) In general. - Except as otherwise provided in this
paragraph, any regulations prescribed by the Secretary under
paragraph (1) shall apply to obligations issued after the
qualified date.
"(B) Qualified date. -
"(i) In general. - For purposes of this paragraph, the term
'qualified date' means the earlier of -
"(I) the date on which the Higher Education Act of 1965 [20
U.S.C. 1001 et seq.] expires, or
"(II) the date, after the date of enactment of this Act [July
18, 1984], on which the Higher Education Act of 1965 is
reauthorized.
"(ii) Publication of regulations. - Notwithstanding clause
(i), the qualified date shall not be a date which is prior to
the date that is 6 months after the date on which the
regulations prescribed under paragraph (1) are published in
the Federal Register.
"(C) Refunding obligations. - Regulations prescribed by the
Secretary under paragraph (1) shall not apply to any obligation
(or series of refunding obligations) issued exclusively to
refund any qualified student loan bond which was issued before
the qualified date, except that the requirements of
subparagraphs (A) and (B) of section 626(b)(4) of this Act [set
out in Effective Date of 1984 Amendment note above] must be met
with respect to such refunding.
"(D) Fulfillment of commitments. - Regulations prescribed by
the Secretary under paragraph (1) shall not apply to any
obligations which are needed to fulfill written commitments to
acquire or finance student loans which are originated after
June 30, 1984, and before the qualified date, but only if -
"(i) such commitments are binding on the qualified date,
and
"(ii) the amount of such commitments is consistent with
practices of the issuer which were in effect on March 15,
1984, with respect to establishing secondary markets for
student loans.
"(b) Arbitrage Limitation on Student Loan Bonds Which Are Not
Qualified Student Loan Bonds. - Under regulations prescribed by the
Secretary of the Treasury or his delegate, any student loan bond
(other than a qualified student loan bond) issued after December
31, 1985, shall be treated as an obligation not described in
subsection (a)(1) or (2) of section 103 of the Internal Revenue
Code of 1986 unless the issue of which such obligation is a part
meets requirements similar to those of sections 103(c)(6) and
103A(i) of such Code.
"(c) Issuance of Student Loan Bonds Which Are Not Tax-Exempt. -
Any issuer who may issue obligations described in section 103(a) of
the Internal Revenue Code of 1986 may elect to issue student loan
bonds which are not described in such section 103(a) of such Code
without prejudice to -
"(1) the status of any other obligations issued, or to be
issued, by such issuer as obligations described in section 103(a)
of such Code, or
"(2) the status of the issuer as an organization exempt from
taxation under such Code.
"(d) Federal Executive Branch Jurisdiction Over Tax-Exempt
Status. - For purposes of Federal law, any determination by the
executive branch of the Federal Government of whether interest on
any obligation is exempt from taxation under the Internal Revenue
Code of 1986 shall be exclusively within the jurisdiction of the
Department of the Treasury.
"(e) Study on Tax-Exempt Student Loan Bonds. -
"(1) In general. - The Comptroller General of the United States
and the Director of the Congressional Budget Office, shall
conduct studies of -
"(A) the appropriate role of tax-exempt bonds which are
issued in connection with the guaranteed student loan program
and the PLUS program established under the Higher Education Act
of 1965 [20 U.S.C. 1001 et seq.], and
"(B) the appropriate arbitrage rules for such bonds.
"(2) Report. - The Comptroller General of the United States and
the Director of the Congressional Budget Office, shall submit to
the Committee on Finance and the Committee on Labor and Human
Resources [now Committee on Health, Education, Labor, and
Pensions] of the Senate and the Committee on Ways and Means and
the Committee on Education and Labor of the House of
Representatives reports on the studies conducted under paragraph
(1) by no later than 9 months after the date of enactment of this
Act [July 18, 1984]."
OBLIGATIONS ISSUED TO PROVIDE SOLID WASTE-ENERGY PRODUCING
FACILITIES
Section 241(b) of Pub. L. 96-223, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) General rule. - For purposes of section 103 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954], any obligation issued
by an authority for 2 or more political subdivisions of a State
which is part of an issue substantially all of the proceeds of
which are to be used to provide solid waste-energy producing
facilities shall be treated as an obligation of a political
subdivision of a State which meets the requirements of section
103(b)(4)(E) of such Code (relating to solid waste disposal, etc.,
facilities). Nothing in the preceding sentence shall be construed
to override the limitations of section 103(c) of such Code
(relating to arbitrage bonds).
"(2) Solid waste-energy producing facilities. - For purposes of
paragraph (1), the term 'solid waste-energy producing facilities'
means any solid waste disposal facility and any facility for the
production of steam and electrical energy if -
"(A) substantially all of the fuel for the facility producing
steam and electrical energy is derived from solid waste from such
solid waste disposal facility,
"(B) both such solid waste disposal facility and the facility
producing steam and electrical energy are owned and operated by
the authority referred to in paragraph (1), and
"(C) all of the electrical energy and steam produced by the
facility for producing steam and electricity which is not used by
such facility is sold, for purposes other than resale, to an
agency or instrumentality of the United States.
"(3) Solid waste disposal facility. - For purposes of paragraph
(2), the term 'solid waste disposal facility' means any solid waste
disposal facility within the meaning of section 103(b)(4)(E) of the
Internal Revenue Code of 1986 (determined without regard to section
103(g) of such Code).
"(4) Obligations must be in registered form. - This subsection
shall not apply to any obligation which is not issued in registered
form."
ALCOHOL-PRODUCING FACILITIES
Section 241(c) of Pub. L. 96-223, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Subparagraph (C) of section 103(g)(3) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by
subsection (a)) shall not apply to any facility for the production
of alcohol from solid waste if -
"(A) substantially all of the solid waste derived feedstock for
such facility is produced at a facility which -
"(i) went into full production in 1977,
"(ii) is located within the limits of a city, and
"(iii) is located in the same metropolitan area as the
alcohol-producing facility, and
"(B) before March 1, 1980, there were negotiations between a
governmental body and an organization described in section
501(c)(3) of the Internal Revenue Code of 1986 with respect to
the utilization of a special process for the production of
alcohol at such alcohol-producing facility.
"(2) Limitation. - The aggregate amount of obligations which may
be issued by reason of paragraph (1) with respect to any project
shall not exceed $30,000,000.
"(3) Termination. - This subsection shall not apply to
obligations issued after December 31, 1985."
HYDROELECTRIC GENERATING FACILITIES
Section 242(b) of Pub. L. 96-223, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - For purposes of section 103(b)(4)(H) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to
qualified hydroelectric generating facilities), in the case of a
hydroelectric generating facility described in paragraph (2) -
"(A) the facility shall be treated as a qualified hydroelectric
generating facility (as defined in section 103(b)(8)(A) of such
Code) without regard to clause (ii) of section 48(l)(13)(B) of
such Code (relating to maximum generating capacity), and
"(B) the fraction referred to in subparagraph (C) of section
103(b)(8) of such Code shall be deemed to be 1.
"(2) Facilities to which paragraph (1) applies. - A facility is
described in this paragraph if -
"(A) it would be a qualified hydroelectric generating facility
(as defined in section 103(b)(8)(A) of such Code) if clause (ii)
of section 48(l)(13)(B) did not apply,
"(B) it constitutes an expansion of generating capacity at an
existing hydroelectric generating facility,
"(C) such facility is located at 1 of 2 dams located in the
same county where -
"(i) the rated capacity of the hydroelectric generating
facilities at each such dam on October 18, 1979, was more than
750 megawatts,
"(ii) the construction of the first such dam began in 1956,
power at such first dam was first generated in 1959, and full
power production at such first dam began in 1961, and
"(iii) the construction of the second such dam began in 1959,
power at such second dam was first generated in 1963, and full
power production at such second dam began in 1964,
"(D) acquisition or construction of the existing facility
referred to in subparagraph (B) was financed with the proceeds of
an obligation described in section 103(a)(1) of such Code,
"(E) the existing facility is owned and operated by a State,
political subdivision of a State, or agency or instrumentality of
any of the foregoing,
"(F) no more than 60 percent of the electric power and energy
produced by such existing facility and of the qualified
hydroelectric generating facility is to be sold to anyone other
than an exempt person (within the meaning of section 103(b)(3) of
such Code), and
"(G) the agency of the State in which the facility is located
which has jurisdiction over water rights had granted, before
October 18, 1979, a water right under which expanded power and
energy generating capacity for the facility was contemplated."
STATE OBLIGATIONS FOR RENEWABLE ENERGY PROPERTY
Section 243 of Pub. L. 96-223, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) Certain State Obligations for Renewable Energy Property. -
"(1) In general. - Paragraph (1) of subsection (b) of section
103 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
shall not apply to any obligation issued as part of an issue
substantially all of the proceeds of which are to be used to
provide renewable energy property, if -
"(A) the obligations are general obligations of a State,
"(B) the authority for the issuance of the obligations
requires that taxes be levied in sufficient amount to provide
for the payment of principal and interest on such obligations,
"(C) the amount of such obligations, when added to the sum of
the amounts of all such obligations previously issued by the
State which are outstanding, does not exceed the smaller of -
"(i) $500,000,000 or
"(ii) one-half of 1 percent of the value of all property in
the State,
"(D) such obligations are issued pursuant to a program to
provide financing for small scale energy projects which was
established by a State the legislature of which, before October
18, 1979, approved a constitutional amendment to provide for
such a program, and
"(E) such obligations meet the requirements of paragraph (1)
of section 103(h) of the Internal Revenue Code of 1986.
"(2) Renewable energy property. - For purposes of this
subsection, the term 'renewable energy property' means property
used to produce energy (including heat, electricity, and
substitute fuels) from renewable energy sources (including wind,
solar, and geothermal energy, waste heat, biomass, and water).
"(b) Effective Date. - Subsection (a) shall apply with respect to
obligations issued after the date of enactment of this Act [Apr. 2,
1980]."
DISPOSITION OF AMOUNTS GENERATED BY ADVANCE REFUNDING OF CERTAIN
GOVERNMENTAL OBLIGATIONS
Section 337 of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 103(a)(8), Apr. 1, 1980, 94 Stat. 212; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) General Rule. - The payment to a charitable organization of
a refund profit held in a trust fund or escrow arrangement, or held
by an underwriter or other person under a qualified agreement in
accordance with that agreement -
"(1) shall not cause the refunding obligations out of which the
refund profit arose to be treated as arbitrage bonds (within the
meaning of section 103(c) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]) and
"(2) may be paid without penalty imposed on the issuer of such
obligations.
"(b) Rule for Governments Which Have Already Paid Arbitrage
Profits to the United States. - In the case of a State or local
government which, before January 1, 1977 -
"(1) requested in writing a rule by the Internal Revenue
Service with respect to the tax consequences of paying refund
profit to charitable organizations,
"(2) failed to receive a favorable ruling and did not pay the
refund profit to a charitable organization, and
which accounted to the United States for refund profit by direct
payment to the United States, or by the purchase of low-interest
United States obligations, the Secretary of the Treasury shall pay,
out of any amounts in the Treasury not otherwise appropriated, an
amount equal to the refund profit for which the State or local
government has accounted to the United States. Amounts paid to a
State or local government under this subsection shall be
distributed to such charitable organizations within 90 days after
the date on which the payment is received by the State or local
government in the same manner as if the refund profit had not been
paid to the United States and met the requirements of subsection
(a).
"(c) Definitions. - For purposes of this section -
"(1) Refund profit. - The term 'Refund profit' means interest,
profit, or other amounts generated by, or arising out of, the
advance refunding, before September 24, 1976, of an obligation of
a State or local government described in section 103 of such
Code.
"(2) Charitable organization. - The term 'charitable
organization' means an organization described in section
501(c)(3) of such Code and exempt from taxation under section
501(a) of such Code other than an organization described in
section 509(a) of such Code.
"(3) Qualified agreement. - The term 'qualified agreement'
means an agreement (whether or not enforceable) which provides
for, or contemplates, the payment of refund profit to one or more
charitable organizations.
"(4) Low-interest united states obligations. - The term 'low-
interest United States obligations' means United States
obligations which bear an interest rate lower than the highest
rate of interest borne by public debt securities generally
available for purchase at the time such obligations were
purchased."
TRANSITIONAL PROVISIONS FOR INDUSTRIAL DEVELOPMENT BONDS ISSUED
BEFORE JANUARY 1, 1969
Section 107(b)(2) of Pub. L. 90-364, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"Section 103(c)(1) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954], as amended by subsection (a) [subsec. (b)(1),
formerly subsec. (c)(1) of this section], shall not apply with
respect to any obligation issued before January 1, 1969, if before
May 1, 1968 -
"(A) the issuance of the obligation (or the project in
connection with which the proceeds of the obligations are to be
used) was authorized or approved by the governing body of the
governmental unit issuing the obligation or by the voters of such
governmental unit;
"(B) in connection with the issuance of such obligation or with
the use of the proceeds to be derived from the sale of such
obligation or the property to be acquired or improved with such
proceeds, a governmental unit has made a significant financial
commitment;
"(C) any person (other than a governmental unit) who will use
the proceeds to be derived from the sale of such obligation or
the property to be acquired or improved with such proceeds has
expended (or has entered into a binding contract to expend) for
purposes which are related to the use of such proceeds or
property, an amount equal to or in excess of 20 percent of such
proceeds; or
"(D) in the case of an obligation issued in conjunction with a
project where financial assistance will be provided by a
governmental agency concerned with economic development, such
agency has approved the project or an application for financial
assistance is pending."
-End-
-CITE-
26 USC Sec. 103A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
[Sec. 103A. Repealed. Pub. L. 99-514, title XIII, Sec. 1301(j)(1),
Oct. 22, 1986, 100 Stat. 2657]
-MISC1-
Section, added Pub. L. 96-499, title XI, Sec. 1102(a), Dec. 5,
1980, 94 Stat. 2660; amended Pub. L. 96-595, Sec. 5(a), (b), Dec.
24, 1980, 94 Stat. 3467; Pub. L. 97-248, title II, Sec. 220(a)-(e),
title III, Sec. 310(c)(3), (4), Sept. 3, 1982, 96 Stat. 475, 476,
599; Pub. L. 98-369, div. A, title I, Sec. 42(a)(2), title VI,
Secs. 611(a)-(c), 612(b), 624(b)(1), July 18, 1984, 98 Stat. 556,
901-903, 911, 924; Pub. L. 99-514, title XVIII, Sec. 1861, Oct. 22,
1986, 100 Stat. 2883, related to mortgage subsidy bonds. See
section 143 of this title.
EFFECTIVE DATE OF REPEAL
Repeal applicable to bonds issued after Aug. 15, 1986, except as
otherwise provided, see sections 1311 to 1318 of Pub. L. 99-514,
set out as an Effective Date; Transitional Rules note under section
141 of this title.
-End-
-CITE-
26 USC Sec. 104 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 104. Compensation for injuries or sickness
-STATUTE-
(a) In general
Except in the case of amounts attributable to (and not in excess
of) deductions allowed under section 213 (relating to medical,
etc., expenses) for any prior taxable year, gross income does not
include -
(1) amounts received under workmen's compensation acts as
compensation for personal injuries or sickness;
(2) the amount of any damages (other than punitive damages)
received (whether by suit or agreement and whether as lump sums
or as periodic payments) on account of personal physical injuries
or physical sickness;
(3) amounts received through accident or health insurance (or
through an arrangement having the effect of accident or health
insurance) for personal injuries or sickness (other than amounts
received by an employee, to the extent such amounts (A) are
attributable to contributions by the employer which were not
includible in the gross income of the employee, or (B) are paid
by the employer);
(4) amounts received as a pension, annuity, or similar
allowance for personal injuries or sickness resulting from active
service in the armed forces of any country or in the Coast and
Geodetic Survey or the Public Health Service, or as a disability
annuity payable under the provisions of section 808 of the
Foreign Service Act of 1980; and
(5) amounts received by an individual as disability income
attributable to injuries incurred as a direct result of a
terroristic or military action (as defined in section 692(c)(2)).
For purposes of paragraph (3), in the case of an individual who is,
or has been, an employee within the meaning of section 401(c)(1)
(relating to self-employed individuals), contributions made on
behalf of such individual while he was such an employee to a trust
described in section 401(a) which is exempt from tax under section
501(a), or under a plan described in section 403(a), shall, to the
extent allowed as deductions under section 404, be treated as
contributions by the employer which were not includible in the
gross income of the employee. For purposes of paragraph (2),
emotional distress shall not be treated as a physical injury or
physical sickness. The preceding sentence shall not apply to an
amount of damages not in excess of the amount paid for medical care
(described in subparagraph (A) or (B) of section 213(d)(1))
attributable to emotional distress.
(b) Termination of application of subsection (a)(4) in certain
cases
(1) In general
Subsection (a)(4) shall not apply in the case of any individual
who is not described in paragraph (2).
(2) Individuals to whom subsection (a)(4) continues to apply
An individual is described in this paragraph if -
(A) on or before September 24, 1975, he was entitled to
receive any amount described in subsection (a)(4),
(B) on September 24, 1975, he was a member of any
organization (or reserve component thereof) referred to in
subsection (a)(4) or under a binding written commitment to
become such a member,
(C) he receives an amount described in subsection (a)(4) by
reason of a combat-related injury, or
(D) on application therefor, he would be entitled to receive
disability compensation from the Veterans' Administration.
(3) Special rules for combat-related injuries
For purposes of this subsection, the term "combat-related
injury" means personal injury or sickness -
(A) which is incurred -
(i) as a direct result of armed conflict,
(ii) while engaged in extrahazardous service, or
(iii) under conditions simulating war; or
(B) which is caused by an instrumentality of war.
In the case of an individual who is not described in subparagraph
(A) or (B) of paragraph (2), except as provided in paragraph (4),
the only amounts taken into account under subsection (a)(4) shall
be the amounts which he receives by reason of a combat-related
injury.
(4) Amount excluded to be not less than veterans' disability
compensation
In the case of any individual described in paragraph (2), the
amounts excludable under subsection (a)(4) for any period with
respect to any individual shall not be less than the maximum
amount which such individual, on application therefor, would be
entitled to receive as disability compensation from the Veterans'
Administration.
(c) Application of prior law in certain cases
The phrase "(other than punitive damages)" shall not apply to
punitive damages awarded in a civil action -
(1) which is a wrongful death action, and
(2) with respect to which applicable State law (as in effect on
September 13, 1995 and without regard to any modification after
such date) provides, or has been construed to provide by a court
of competent jurisdiction pursuant to a decision issued on or
before September 13, 1995, that only punitive damages may be
awarded in such an action.
This subsection shall cease to apply to any civil action filed on
or after the first date on which the applicable State law ceases to
provide (or is no longer construed to provide) the treatment
described in paragraph (2).
(d) Cross references
(1) For exclusion from employee's gross income of employer
contributions to accident and health plans, see section 106.
(2) For exclusion of part of disability retirement pay from
the application of subsection (a)(4) of this section, see
section 1403 of title 10, United States Code (relating to
career compensation laws).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 30; Pub. L. 86-723, Sec. 51,
Sept. 8, 1960, 74 Stat. 847; Pub. L. 87-792, Sec. 7(d), Oct. 10,
1962, 76 Stat. 829; Pub. L. 94-455, title V, Sec. 505(b), (e)(1),
title XIX, Sec. 1901(a)(18), Oct. 4, 1976, 90 Stat. 1567, 1568,
1766; Pub. L. 96-465, title II, Sec. 2206(e)(1), Oct. 17, 1980, 94
Stat. 2162; Pub. L. 97-473, title I, Sec. 101(a), Jan. 14, 1983, 96
Stat. 2605; Pub. L. 101-239, title VII, Sec. 7641(a), Dec. 19,
1989, 103 Stat. 2379; Pub. L. 104-188, title I, Sec. 1605(a)-(c),
Aug. 20, 1996, 110 Stat. 1838; Pub. L. 104-191, title III, Sec.
311(b), Aug. 21, 1996, 110 Stat. 2053; Pub. L. 107-134, title I,
Sec. 113(a), Jan. 23, 2002, 115 Stat. 2435.)
-REFTEXT-
REFERENCES IN TEXT
Section 808 of the Foreign Service Act of 1980, referred to in
subsec. (a)(4), is Pub. L. 96-465, title I, Sec. 808, Oct. 17,
1980, 94 Stat. 2110, which is classified to section 4048 of Title
22, Foreign Relations and Intercourse.
-MISC1-
AMENDMENTS
2002 - Subsec. (a)(5). Pub. L. 107-134 substituted "a terroristic
or military action (as defined in section 692(c)(2))." for "a
violent attack which the Secretary of State determines to be a
terrorist attack and which occurred while such individual was an
employee of the United States engaged in the performance of his
official duties outside the United States."
1996 - Subsec. (a). Pub. L. 104-188, Sec. 1605(b), in closing
provisions, substituted "For purposes of paragraph (2), emotional
distress shall not be treated as a physical injury or physical
sickness. The preceding sentence shall not apply to an amount of
damages not in excess of the amount paid for medical care
(described in subparagraph (A) or (B) of section 213(d)(1))
attributable to emotional distress." for "Paragraph (2) shall not
apply to any punitive damages in connection with a case not
involving physical injury or physical sickness."
Subsec. (a)(2). Pub. L. 104-188, Sec. 1605(a), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "the
amount of any damages received (whether by suit or agreement and
whether as lump sums or as periodic payments) on account of
personal injuries or sickness;".
Subsec. (a)(3). Pub. L. 104-191 inserted "(or through an
arrangement having the effect of accident or health insurance)"
after "accident or health insurance".
Subsecs. (c), (d). Pub. L. 104-188, Sec. 1605(c), added subsec.
(c) and redesignated former subsec. (c) as (d).
1989 - Subsec. (a). Pub. L. 101-239 inserted at end "Paragraph
(2) shall not apply to any punitive damages in connection with a
case not involving physical injury or physical sickness."
1983 - Subsec. (a)(2). Pub. L. 97-473 substituted "whether by
suit or agreement and whether as lump sums or as periodic payments"
for "whether by suit or agreement".
1980 - Subsec. (a)(4). Pub. L. 96-465 substituted reference to
section 808 of the Foreign Service Act of 1980 for reference to
section 831 of the Foreign Service Act of 1946.
1976 - Subsec. (a)(4). Pub. L. 94-455, Sec. 1901(a)(18)(A),
struck out "; 60 Stat. 1021" after "(22 U.S.C. 1081".
Subsec. (a)(5). Pub. L. 94-455, Sec. 505(e)(1), added par. (5).
Subsecs. (b), (c). Pub. L. 94-455, Sec. 505(b), added subsec.
(b), redesignated former subsec. (b) as (c) and, as so
redesignated, Sec. 1901(a)(18)(B), substituted "1403 of title 10,
United States Code (relating to career compensation laws)" for
"402(h) of the Career Compensation Act of 1949 (37 U.S.C. 272(h))".
1962 - Subsec. (a). Pub. L. 87-792 inserted sentence requiring
contributions made on behalf of an individual who is, or has been,
an employee within the meaning of section 401(c)(1), while he was
such an employee to a trust which is exempt from tax, or under a
plan described in section 403(a), to be treated as contributions by
the employer which were not includible in the gross income of the
employee.
1960 - Subsec. (a)(4). Pub. L. 86-723 provided for exclusion from
gross income of amounts received as a disability annuity payable
under the provisions of section 831 of the Foreign Service Act of
1946, as amended.
-CHANGE-
CHANGE OF NAME
Reference to Veterans' Administration deemed to refer to
Department of Veterans Affairs pursuant to section 10 of Pub. L.
100-527, set out as a Department of Veterans Affairs Act note under
section 301 of Title 38, Veterans' Benefits.
Coast and Geodetic Survey consolidated with National Weather
Bureau in 1965 to form Environmental Science Services
Administration by Reorg. Plan No. 2 of 1965, eff. July 13, 1965, 30
FR 8819, 79 Stat. 1318. Environmental Science Services
Administration abolished in 1970 and its personnel, property,
records, etc., transferred to National Oceanic and Atmospheric
Administration by Reorg. Plan No. 4 of 1970, eff. Oct. 3, 1970, 35
FR 15627, 84 Stat. 2090. By order of Acting Associate Administrator
of National Oceanic and Atmospheric Administration, 35 FR 19249,
Dec. 19, 1970, Coast and Geodetic Survey redesignated National
Ocean Survey. See notes under section 311 of Title 15, Commerce and
Trade.
-MISC2-
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-134, title I, Sec. 113(c), Jan. 23, 2002, 115 Stat.
2435, provided that: "The amendments made by this section [amending
this section and section 692 of this title] shall apply to taxable
years ending on or after September 11, 2001."
EFFECTIVE DATE OF 1996 AMENDMENTS
Section 311(c) of Pub. L. 104-191 provided that: "The amendments
made by this section [amending this section and section 162 of this
title] shall apply to taxable years beginning after December 31,
1996."
Section 1605(d) of Pub. L. 104-188 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to amounts received after the date of the enactment of this Act
[Aug. 20, 1996], in taxable years ending after such date.
"(2) Exception. - The amendments made by this section shall not
apply to any amount received under a written binding agreement,
court decree, or mediation award in effect on (or issued on or
before) September 13, 1995."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7641(b) of Pub. L. 101-239 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply to amounts received after July 10, 1989, in taxable years
ending after such date.
"(2) Exception. - The amendment made by subsection (a) shall not
apply to any amount received -
"(A) under any written binding agreement, court decree, or
mediation award in effect on (or issued on or before) July 10,
1989, or
"(B) pursuant to any suit filed on or before July 10, 1989."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-465 effective Feb. 15, 1981, except as
otherwise provided, see section 2403 of Pub. L. 96-465, set out as
an Effective Date note under section 3901 of Title 22, Foreign
Relations and Intercourse.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 505(b) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, see section 508 of
Pub. L. 94-455, set out as a note under section 3 of this title.
Section 505(e)(2) of Pub. L. 94-455 provided that: "The
amendments made by this subsection [amending this section] shall
apply to taxable years beginning after December 31, 1976."
Amendment by section 1901(a)(18)(A) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a
note under section 22 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Section 56(e) of Pub. L. 86-723 provided that: "The amendment
made by section 51 of this Act [amending this section] shall be
effective with respect to taxable years ending after the date of
enactment of this Act [Sept. 8, 1960]."
-TRANS-
TRANSFER OF FUNCTIONS
Secretary of Health, Education, and Welfare redesignated
Secretary of Health and Human Services by section 3508 of Title 20,
Education.
Functions of Public Health Service, Surgeon General of Public
Health Service, and all other officers and employees of Public
Health Service, and functions of all agencies of or in Public
Health Service transferred to Secretary of Health, Education, and
Welfare by 1966 Reorg. Plan No. 3, 31 F.R. 8855, 80 Stat. 1610,
effective June 25, 1966, set out in the Appendix to Title 5,
Government Organization and Employees.
-End-
-CITE-
26 USC Sec. 105 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 105. Amounts received under accident and health plans
-STATUTE-
(a) Amounts attributable to employer contributions
Except as otherwise provided in this section, amounts received by
an employee through accident or health insurance for personal
injuries or sickness shall be included in gross income to the
extent such amounts (1) are attributable to contributions by the
employer which were not includible in the gross income of the
employee, or (2) are paid by the employer.
(b) Amounts expended for medical care
Except in the case of amounts attributable to (and not in excess
of) deductions allowed under section 213 (relating to medical,
etc., expenses) for any prior taxable year, gross income does not
include amounts referred to in subsection (a) if such amounts are
paid, directly or indirectly, to the taxpayer to reimburse the
taxpayer for expenses incurred by him for the medical care (as
defined in section 213(d)) of the taxpayer, his spouse, and his
dependents (as defined in section 152, determined without regard to
subsections (b)(1), (b)(2), and (d)(1)(B) thereof). Any child to
whom section 152(e) applies shall be treated as a dependent of both
parents for purposes of this subsection.
(c) Payments unrelated to absence from work
Gross income does not include amounts referred to in subsection
(a) to the extent such amounts -
(1) constitute payment for the permanent loss or loss of use of
a member or function of the body, or the permanent disfigurement,
of the taxpayer, his spouse, or a dependent (as defined in
section 152, determined without regard to subsections (b)(1),
(b)(2), and (d)(1)(B) thereof), and
(2) are computed with reference to the nature of the injury
without regard to the period the employee is absent from work.
[(d) Repealed. Pub. L. 98-21, title I, Sec. 122(b), Apr. 20, 1983,
97 Stat. 87]
(e) Accident and health plans
For purposes of this section and section 104 -
(1) amounts received under an accident or health plan for
employees, and
(2) amounts received from a sickness and disability fund for
employees maintained under the law of a State or the District of
Columbia,
shall be treated as amounts received through accident or health
insurance.
(f) Rules for application of section 213
For purposes of section 213(a) (relating to medical, dental,
etc., expenses) amounts excluded from gross income under subsection
(c) or (d) shall not be considered as compensation (by insurance or
otherwise) for expenses paid for medical care.
(g) Self-employed individual not considered an employee
For purposes of this section, the term "employee" does not
include an individual who is an employee within the meaning of
section 401(c)(1) (relating to self-employed individuals).
(h) Amount paid to highly compensated individuals under a
discriminatory self-insured medical expense reimbursement plan
(1) In general
In the case of amounts paid to a highly compensated individual
under a self-insured medical reimbursement plan which does not
satisfy the requirements of paragraph (2) for a plan year,
subsection (b) shall not apply to such amounts to the extent they
constitute an excess reimbursement of such highly compensated
individual.
(2) Prohibition of discrimination
A self-insured medical reimbursement plan satisfies the
requirements of this paragraph only if -
(A) the plan does not discriminate in favor of highly
compensated individuals as to eligibility to participate; and
(B) the benefits provided under the plan do not discriminate
in favor of participants who are highly compensated
individuals.
(3) Nondiscriminatory eligibility classifications
(A) In general
A self-insured medical reimbursement plan does not satisfy
the requirements of subparagraph (A) of paragraph (2) unless
such plan benefits -
(i) 70 percent or more of all employees, or 80 percent or
more of all the employees who are eligible to benefit under
the plan if 70 percent or more of all employees are eligible
to benefit under the plan; or
(ii) such employees as qualify under a classification set
up by the employer and found by the Secretary not to be
discriminatory in favor of highly compensated individuals.
(B) Exclusion of certain employees
For purposes of subparagraph (A), there may be excluded from
consideration -
(i) employees who have not completed 3 years of service;
(ii) employees who have not attained age 25;
(iii) part-time or seasonal employees;
(iv) employees not included in the plan who are included in
a unit of employees covered by an agreement between employee
representatives and one or more employers which the Secretary
finds to be a collective bargaining agreement, if accident
and health benefits were the subject of good faith bargaining
between such employee representatives and such employer or
employers; and
(v) employees who are nonresident aliens and who receive no
earned income (within the meaning of section 911(d)(2)) from
the employer which constitutes income from sources within the
United States (within the meaning of section 861(a)(3)).
(4) Nondiscriminatory benefits
A self-insured medical reimbursement plan does not meet the
requirements of subparagraph (B) of paragraph (2) unless all
benefits provided for participants who are highly compensated
individuals are provided for all other participants.
(5) Highly compensated individual defined
For purposes of this subsection, the term "highly compensated
individual" means an individual who is -
(A) one of the 5 highest paid officers,
(B) a shareholder who owns (with the application of section
318) more than 10 percent in value of the stock of the
employer, or
(C) among the highest paid 25 percent of all employees (other
than employees described in paragraph (3)(B) who are not
participants).
(6) Self-insured medical reimbursement plan
The term "self-insured medical reimbursement plan" means a plan
of an employer to reimburse employees for expenses referred to in
subsection (b) for which reimbursement is not provided under a
policy of accident and health insurance.
(7) Excess reimbursement of highly compensated individual
For purposes of this section, the excess reimbursement of a
highly compensated individual which is attributable to a self-
insured medical reimbursement plan is -
(A) in the case of a benefit available to highly compensated
individuals but not to all other participants (or which
otherwise fails to satisfy the requirements of paragraph
(2)(B)), the amount reimbursed under the plan to the employee
with respect to such benefit, and
(B) in the case of benefits (other than benefits described in
subparagraph (A) (!1) paid to a highly compensated individual
by a plan which fails to satisfy the requirements of paragraph
(2), the total amount reimbursed to the highly compensated
individual for the plan year multiplied by a fraction -
(i) the numerator of which is the total amount reimbursed
to all participants who are highly compensated individuals
under the plan for the plan year, and
(ii) the denominator of which is the total amount
reimbursed to all employees under the plan for such plan
year.
In determining the fraction under subparagraph (B), there shall
not be taken into account any reimbursement which is attributable
to a benefit described in subparagraph (A).
(8) Certain controlled groups, etc.
All employees who are treated as employed by a single employer
under subsection (b), (c), or (m) of section 414 shall be treated
as employed by a single employer for purposes of this section.
(9) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the provisions of this section.
(10) Time of inclusion
Any amount paid for a plan year that is included in income by
reason of this subsection shall be treated as received or accrued
in the taxable year of the participant in which the plan year
ends.
(i) Sick pay under Railroad Unemployment Insurance Act
Notwithstanding any other provision of law, gross income includes
benefits paid under section 2(a) of the Railroad Unemployment
Insurance Act for days of sickness; except to the extent such
sickness (as determined in accordance with standards prescribed by
the Railroad Retirement Board) is the result of on-the-job injury.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 30; Pub. L. 87-792, Sec. 7(e),
Oct. 10, 1962, 76 Stat. 829; Pub. L. 88-272, title II, Sec. 205(a),
Feb. 26, 1964, 78 Stat. 38; Pub. L. 94-455, title V, Sec. 505(a),
title XIX, Sec. 1901(c)(2), Oct. 4, 1976, 90 Stat. 1566, 1803; Pub.
L. 95-600, title III, Sec. 366(a), title VII, Sec. 701(c)(1), Nov.
6, 1978, 92 Stat. 2855, 2899; Pub. L. 96-222, title I, Sec.
103(a)(13)(B), (C), Apr. 1, 1980, 94 Stat. 213; Pub. L. 96-605,
title II, Sec. 201(b)(1), Dec. 28, 1980, 94 Stat. 3527; Pub. L. 96-
613, Sec. 5(b)(1), Dec. 28, 1980, 94 Stat. 3581; Pub. L. 97-34,
title I, Secs. 103(c)(2), 111(b)(4), Aug. 13, 1981, 95 Stat. 188,
194; Pub. L. 97-248, title II, Sec. 202(b)(3)(C), Sept. 3, 1982, 96
Stat. 421; Pub. L. 98-21, title I, Sec. 122(b), Apr. 20, 1983, 97
Stat. 87; Pub. L. 98-76, title II, Sec. 241(a), Aug. 12, 1983, 97
Stat. 430; Pub. L. 98-369, div. A, title IV, Sec. 423(b)(2), July
18, 1984, 98 Stat. 800; Pub. L. 99-514, title XI, Sec. 1151(c)(2),
title XIII, Sec. 1301(j)(9), Oct. 22, 1986, 100 Stat. 2503, 2658;
Pub. L. 101-140, title II, Sec. 203(a)(1), Nov. 8, 1989, 103 Stat.
830; Pub. L. 108-311, title II, Sec. 207(9), Oct. 4, 2004, 118
Stat. 1177.)
-REFTEXT-
REFERENCES IN TEXT
Section 2(a) of the Railroad Unemployment Insurance Act, referred
to in subsec. (i), is classified to section 352(a) of Title 45,
Railroads.
-MISC1-
AMENDMENTS
2004 - Subsecs. (b), (c)(1). Pub. L. 108-311 inserted ",
determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof" after "section 152".
1989 - Subsecs. (h), (i). Pub. L. 101-140 amended subsecs. (h)
and (i) to read as if amendments by Pub. L. 99-514, Sec.
1151(c)(2), had not been enacted, see 1986 Amendment note below.
1986 - Subsec. (d)(5)(C). Pub. L. 99-514, Sec. 1301(j)(9), which
directed that subpar. (C) be amended by substituting "section
7703(a)" for "section 143(a)", could not be executed because
subsec. (d) was previously repealed by Pub. L. 98-21. See 1983
Amendment note below.
Subsecs. (h), (i). Pub. L. 99-514, Sec. 1151(c)(2), redesignated
subsec. (i) as (h) and struck out former subsec. (h) which related
to amount paid to highly compensated individuals under a
discriminatory self-insured medical expense reimbursement plan.
1984 - Subsec. (b). Pub. L. 98-369 inserted "Any child to whom
section 152(e) applies shall be treated as a dependent of both
parents for purposes of this subsection."
1983 - Subsec. (d). Pub. L. 98-21 struck out subsec. (d) which
provided that no deduction or credit would be allowed with respect
to any expenditure which is properly associated with any amount
excluded from gross income under subsec. (a).
Subsec. (i). Pub. L. 98-76 added subsec. (i).
1982 - Subsec. (b). Pub. L. 97-248 substituted "section 213(d)"
for "section 213(e)".
1981 - Subsec. (d)(3). Pub. L. 97-34, Sec. 103(c)(2), substituted
"this subsection and section 221" for "this subsection" in
parenthetical provision.
Subsec. (h)(3)(B)(v). Pub. L. 97-34, Sec. 111(b)(4), substituted
"section 911(d)(2)" for "section 911(b)".
1980 - Subsec. (h)(3)(A). Pub. L. 96-222, Sec. 103(a)(13)(B),
substituted "highly compensated individuals" for "highly
compensated participants".
Subsec. (h)(7)(A). Pub. L. 96-222, Sec. 103(a)(13)(C),
substituted "highly compensated individuals but not to all other
participants (or which otherwise fails to satisfy the requirements
of paragraph (2)(B))" for "a highly compensated individual but not
to a broad cross-section of employees".
Subsec. (h)(8). Pub. L. 96-613 and Pub. L. 96-605 made identical
amendments by substituting in heading "controlled groups, etc." for
"controlled groups", and by substituting in text "subsection (b),
(c), or (m) of section 414" for "subsection (b) or (c) of section
414".
1978 - Subsec. (d)(4). Pub. L. 95-600, Sec. 701 (c)(1),
redesignated par. (5) as (4). Former par. (4) redesignated (5)(A)
and (C).
Subsec. (d)(5). Pub. L. 95-600, Sec. 701(c)(1), added heading and
subpar. (B), redesignated former par. (4) as subpars. (A) and (C),
adding subpar. (C) heading and substituting "section 143(a)" for
"section 143"; and redesignated former par. (6) as subpar. (D),
inserting "defined" in heading.
Subsec. (d)(6), (7). Pub. L. 95-600, Sec. 701(c)(1), redesignated
par. (7) as (6). Former par. (6) redesignated (5)(D).
Subsec. (h). Pub. L. 95-600, Sec. 366(a), added subsec. (h).
1976 - Subsec. (d). Pub. L. 94-455, Sec. 505(a), substituted
provisions relating to an exclusion of up to $5,200 a year for
taxpayers retiring on disability prior to age 65; dollar-for-dollar
phase out of exclusion for adjusted annual gross income (including
disability income) in excess of $15,000; requirement that married
couple must file joint return; defined "permanent and total
disability" and "joint return"; and inserted special rule for
coordination with section 72 of this title for provisions relating
to wage continuation plans.
Subsec. (e)(2). Pub. L. 94-455, Sec. 1901(c)(2), struck out "a
territory" after "of a State".
1964 - Subsec. (d). Pub. L. 88-272 substituted provisions stating
that "The preceding sentence shall not apply to amounts
attributable to the first 30" days if the amounts exceed 75 percent
of regular weekly wages, and if they do not exceed said 75 percent,
the first sentence of this subsection shall not apply to the extent
the amounts exceed $75 weekly and shall not apply to amounts
attributable to the first 7 calendar days unless the employee is
hospitalized for injury or sickness for at least 1 day in such
period, for provisions stating that said "preceding sentence" did
not apply in cases of sickness, to amounts attributable to the
first 7 days unless the employee was hospitalized for sickness for
at least 1 day during such period.
1962 - Subsec. (g). Pub. L. 87-792 added subsec. (g).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to taxable years
beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-311,
set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-140 effective as if included in section
1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set
out as a note under section 79 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1151(c)(2) of Pub. L. 99-514 applicable,
with certain qualifications and exceptions, to years beginning
after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-514, as
amended, set out as a note under section 79 of this title.
Amendment by section 1301(j)(9) of Pub. L. 99-514 applicable to
bonds issued after Aug. 15, 1986, except as otherwise provided, see
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective
Date; Transitional Rules note under section 141 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1984, see section 423(d) of Pub. L. 98-369, set out
as a note under section 2 of this title.
EFFECTIVE DATE OF 1983 AMENDMENTS
Section 241(b) of Pub. L. 98-76 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
amounts received after December 31, 1983, in taxable years ending
after such date."
Amendment by Pub. L. 98-21 applicable to taxable years beginning
after Dec. 31, 1983, except that if an individual's annuity
starting date was deferred under subsec. (d)(6) as in effect the
day before Apr. 20, 1983, such deferral shall end on the first day
of such individual's first taxable year beginning after Dec. 31,
1983, see section 122(d) of Pub. L. 98-21 set out as a note under
section 22 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1983, see section 202(c) of Pub. L. 97-248, set out
as a note under section 213 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1981, see sections 103(d) and 115 of Pub. L. 97-34,
set out as notes under sections 62 and 911, respectively, of this
title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendments by Pub. L. 96-605 and 96-613 applicable to years
ending after Nov. 30, 1980, except in the case of a plan in
existence on Nov. 30, 1980, where amendments applicable to plan
years beginning after Nov. 30, 1980, see section 201(c) of Pub. L.
96-605 and section 5(c) of Pub. L. 96-613, set out as a note under
section 414 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 366(b) of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 103(a)(13)(D), Apr. 1, 1980, 94 Stat. 213, provided
that: "The amendment made by this section [amending this section]
shall apply to amounts reimbursed after December 31, 1979. For
purposes of applying such amendment, there shall not be taken into
account any amount reimbursed before January 1, 1980."
Section 701(c)(3) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) The amendments made by paragraphs (1) and (2)(A) [amending
this section and provisions set out as a note under this section]
shall take effect as if included in section 105(d) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] as such section was
amended by section 505(a) of the Tax Reform Act of 1976.
"(B) The amendments made by paragraph (2)(B) [amending provisions
set out as notes under this section] shall take effect as if
included in section 301 of the Tax Reduction and Simplification Act
of 1977 [Pub. L. 95-30, title III, Sec. 301, May 23, 1977, 91 Stat.
152]."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 505(f) of Pub. L. 94-455, as added by Pub. L. 95-30,
title III, Sec. 301(a), May 23, 1977, 91 Stat. 151, provided that:
"The amendment made by subsection (a) [amending this section] shall
apply to taxable years beginning after December 31, 1976."
Amendment by section 1901(c)(2) of Pub. L. 94-455 applicable with
respect to taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 205(b) of Pub. L. 88-272 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
amounts attributable to periods of absence commencing after
December 31, 1963."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a
note under section 22 of this title.
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514
FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement
or enforce section 1151 of Pub. L. 99-514 or the amendments made by
such section, see section 528 of Pub. L. 101-136, set out as a note
under section 89 of this title.
REVOCATION OF ELECTION
Pub. L. 95-30, title III, Sec. 301(c), May 23, 1977, 91 Stat.
151, as amended by Pub. L. 95-600, title VII, Sec. 701(c)(2)(B),
Nov. 6, 1978, 92 Stat. 2900; Pub. L. 99-514, Sec. 2, Oct. 22, 1986,
100 Stat. 2095, provided that: "Any election made under section
105(d)(6) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] or under section 505(d) of the Tax Reform Act of 1976 [set
out below] for a taxable year beginning in 1976 may be revoked (in
such manner as may be prescribed by regulations) at any time before
the expiration of the period for assessing a deficiency with
respect to such taxable year (determined without regard to
subsection (d) of this section) [set out below]."
PERIOD FOR ASSESSING DEFICIENCY
Pub. L. 95-30, title III, Sec. 301(d), May 23, 1977, 91 Stat.
152, provided that: "In the case of any revocation made under
subsection (c) [set out above], the period for assessing a
deficiency with respect to any taxable year affected by the
revocation shall not expire before the date which is 1 year after
the date of the making of the revocation, and, notwithstanding any
law or rule of law, such deficiency, to the extent attributable to
such revocation, may be assessed at any time during such 1-year
period."
EFFECTIVE DATE OF CHANGES IN EXCLUSION FOR SICK PAY
Pub. L. 95-30, title III, Sec. 301(e), May 23, 1977, 91 Stat.
152, as amended by Pub. L. 95-600, title VII, Sec. 701(c)(2)(B),
Nov. 6, 1978, 92 Stat. 2900; Pub. L. 99-514, Sec. 2, Oct. 22, 1986,
100 Stat. 2095, provided that: "The amendments made by this section
[enacting and amending provisions set out as notes under this
section] shall take effect on October 4, 1976, but shall not apply -
"(1) with respect to any taxpayer who makes or has made an
election under section 105(d)(6) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] or under section 505(d) of the Tax
Reform Act of 1976 [set out below] (as such sections were in
effect before the enactment of this Act [May 23, 1977]) for a
taxable year beginning in 1976, if such election is not revoked
under subsection (c) of this section [set out above], and
"(2) with respect to any taxpayer (other than a taxpayer
described in paragraph (1)) who has an annuity starting date at
the beginning of a taxable year beginning in 1976 by reason of
the amendments made by section 505 of the Tax Reform Act of 1976
[amending this section and section 104 of this title and enacting
provisions set out as notes under this section] (as in effect
before the enactment of this Act [May 23, 1977]), unless such
person elects (in such manner as the Secretary of the Treasury or
his delegate may by regulations prescribe) to have such
amendments apply."
SPECIAL RULE FOR EXISTING PERMANENT AND TOTAL DISABILITY CASES
Section 505(c) of Pub. L. 94-455, as amended by Pub. L. 95-30,
title III, Sec. 301(b)(1), (2), May 23, 1977, 91 Stat. 151; Pub. L.
95-600, title VII, Sec. 701(c)(2)(A), Nov. 6, 1978, 92 Stat. 2900;
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that: "In the case of any individual who -
"(1) retired before January 1, 1977,
"(2) either retired on disability or was entitled to retire on
disability, and
"(3) on January 1, 1976, or January 1, 1977, was permanently
and totally disabled (within the meaning of section 105(d)(4) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954]),
such individual shall be deemed to have met the requirements of
section 105(d)(1)(B) of such Code (as amended by subsection (a) of
this section)."
SPECIAL RULE FOR COORDINATION WITH SECTION 72 OF THIS TITLE
Section 505(d) of Pub. L. 94-455, as amended by Pub. L. 95-30,
title III, Sec. 301(b)(3)-(5), May 23, 1977, 91 Stat. 151; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In
the case of an individual who -
"(1) retired on disability before January 1, 1977, and
"(2) on December 31, 1975, or December 31, 1976, was entitled
to exclude any amount with respect to such retirement disability
from gross income under section 105(d) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954],
for purposes of section 72 the annuity starting date shall not be
deemed to occur before the beginning of the taxable year in which
the taxpayer attains age 65, or before the beginning of an earlier
taxable year for which the taxpayer makes an irrevocable election
not to seek the benefits of such section 105(d) for such year and
all subsequent years."
-FOOTNOTE-
(!1) So in original. Probably should be followed by a closing
parenthesis.
-End-
-CITE-
26 USC Sec. 106 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 106. Contributions by employer to accident and health plans
-STATUTE-
(a) General rule
Except as otherwise provided in this section, gross income of an
employee does not include employer-provided coverage under an
accident or health plan.
(b) Contributions to Archer MSAs
(1) In general
In the case of an employee who is an eligible individual,
amounts contributed by such employee's employer to any Archer MSA
of such employee shall be treated as employer-provided coverage
for medical expenses under an accident or health plan to the
extent such amounts do not exceed the limitation under section
220(b)(1) (determined without regard to this subsection) which is
applicable to such employee for such taxable year.
(2) No constructive receipt
No amount shall be included in the gross income of any employee
solely because the employee may choose between the contributions
referred to in paragraph (1) and employer contributions to
another health plan of the employer.
(3) Special rule for deduction of employer contributions
Any employer contribution to an Archer MSA, if otherwise
allowable as a deduction under this chapter, shall be allowed
only for the taxable year in which paid.
(4) Employer MSA contributions required to be shown on return
Every individual required to file a return under section 6012
for the taxable year shall include on such return the aggregate
amount contributed by employers to the Archer MSAs of such
individual or such individual's spouse for such taxable year.
(5) MSA contributions not part of COBRA coverage
Paragraph (1) shall not apply for purposes of section 4980B.
(6) Definitions
For purposes of this subsection, the terms "eligible
individual" and "Archer MSA" have the respective meanings given
to such terms by section 220.
(7) Cross reference
For penalty on failure by employer to make comparable
contributions to the Archer MSAs of comparable employees, see
section 4980E.
(c) Inclusion of long-term care benefits provided through flexible
spending arrangements
(1) In general
Effective on and after January 1, 1997, gross income of an
employee shall include employer-provided coverage for qualified
long-term care services (as defined in section 7702B(c)) to the
extent that such coverage is provided through a flexible spending
or similar arrangement.
(2) Flexible spending arrangement
For purposes of this subsection, a flexible spending
arrangement is a benefit program which provides employees with
coverage under which -
(A) specified incurred expenses may be reimbursed (subject to
reimbursement maximums and other reasonable conditions), and
(B) the maximum amount of reimbursement which is reasonably
available to a participant for such coverage is less than 500
percent of the value of such coverage.
In the case of an insured plan, the maximum amount reasonably
available shall be determined on the basis of the underlying
coverage.
(d) Contributions to health savings accounts
(1) In general
In the case of an employee who is an eligible individual (as
defined in section 223(c)(1)), amounts contributed by such
employee's employer to any health savings account (as defined in
section 223(d)) of such employee shall be treated as employer-
provided coverage for medical expenses under an accident or
health plan to the extent such amounts do not exceed the
limitation under section 223(b) (determined without regard to
this subsection) which is applicable to such employee for such
taxable year.
(2) Special rules
Rules similar to the rules of paragraphs (2), (3), (4), and (5)
of subsection (b) shall apply for purposes of this subsection.
(3) Cross reference
For penalty on failure by employer to make comparable
contributions to the health savings accounts of comparable
employees, see section 4980G.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 32; Pub. L. 99-272, title X,
Sec. 10001(b), Apr. 7, 1986, 100 Stat. 223; Pub. L. 99-514, title
XI, Secs. 1114(b)(1), 1151(j)(2), Oct. 22, 1986, 100 Stat. 2450,
2508; Pub. L. 100-647, title I, Sec. 1018(t)(7)(A), title III, Sec.
3011(b)(1), Nov. 10, 1988, 102 Stat. 3589, 3624; Pub. L. 101-239,
title VII, Sec. 7862(c)(1)(A), Dec. 19, 1989, 103 Stat. 2432; Pub.
L. 104-191, title III, Secs. 301(c)(1), 321(c)(2), Aug. 21, 1996,
110 Stat. 2048, 2058; Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(a)(2), (b)(2)(A), (6), (10)], Dec. 21, 2000, 114 Stat. 2763,
2763A-628, 2763A-629; Pub. L. 108-173, title XII, Sec. 1201(d)(1),
Dec. 8, 2003, 117 Stat. 2476.)
-REFTEXT-
REFERENCES IN TEXT
COBRA, referred to in the heading for subsec. (b)(5), probably
means the Consolidated Omnibus Budget Reconciliation Act of 1985,
Pub. L. 99-272, Apr. 7, 1986, 100 Stat. 82, as amended. For
complete classification of this Act to the Code, see Tables.
-MISC1-
AMENDMENTS
2003 - Subsec. (d). Pub. L. 108-173 added subsec. (d).
2000 - Subsec. (b). Pub. L. 106-554 Sec. 1(a)(7) [title II, Sec.
202(b)(6)], substituted "Archer MSAs" for "medical savings
accounts" in heading.
Subsec. (b)(1). Pub. L. 106-554 Sec. 1(a)(7) [title II, Sec.
202(a)(2)], substituted "Archer MSA" for "medical savings account".
Subsec. (b)(3). Pub. L. 106-554 Sec. 1(a)(7) [title II, Sec.
202(b)(10)], substituted "an Archer MSA" for "a Archer MSA".
Pub. L. 106-554 Sec. 1(a)(7) [title II, Sec. 202(a)(2)],
substituted "Archer MSA" for "medical savings account".
Subsec. (b)(4). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(2)(A)], substituted "Archer MSAs" for "medical savings
accounts".
Subsec. (b)(6). Pub. L. 106-554 Sec. 1(a)(7) [title II, Sec.
202(a)(2)], substituted "Archer MSA" for "medical savings account".
Subsec. (b)(7). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(2)(A)], substituted "Archer MSAs" for "medical savings
accounts".
1996 - Pub. L. 104-191, Sec. 301(c)(1), amended text generally.
Prior to amendment, text read as follows: "Gross income of an
employee does not include employer-provided coverage under an
accident or health plan."
Subsec. (c). Pub. L. 104-191, Sec. 321(c)(2), added subsec. (c).
1989 - Subsec. (b)(2). Pub. L. 101-239 amended subsec. (b)(2) as
it existed prior to general amendment by Pub. L. 100-647 by
striking out the last sentence which read as follows: "Under
regulations, rules similar to the rules of subsections (a) and (b)
of section 52 (relating to employers under common control) shall
apply for purposes of subparagraph (A)." See Effective Date of 1989
Amendment note below.
1988 - Pub. L. 100-647, Sec. 3011(b)(1), amended section
generally, substituting a single undesignated par. for former
subsec. (a) providing that gross income does not include employer-
provided coverage under an accident or health plan and subsec. (b)
providing for an exception for highly compensated individuals where
a plan fails to provide certain continuation coverage.
Subsec. (b)(1). Pub. L. 100-647, Sec. 1018(t)(7)(A), substituted
"any employer-provided coverage" for "any amount contributed by an
employer" and "under a group" for "to a group".
1986 - Pub. L. 99-272 designated existing provisions as subsec.
(a) and added subsec. (a) heading and subsec. (b).
Subsec. (a). Pub. L. 99-514, Sec. 1151(j)(2), amended subsec. (a)
generally. Prior to amendment, subsec. (a) read as follows: "Gross
income does not include contributions by the employer to accident
or health plans for compensation (through insurance or otherwise)
to his employees for personal injuries or sickness."
Subsec. (b)(1). Pub. L. 99-514, Sec. 1114(b)(1), substituted
"highly compensated employee (within the meaning of section
414(q))" for "highly compensated individual (within the meaning of
section 105(h)(5))".
EFFECTIVE DATE OF 2003 AMENDMENT
Amendment by Pub. L. 108-173 applicable to taxable years
beginning after Dec. 31, 2003, see section 1201(k) of Pub. L. 108-
173, set out as a note under section 62 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 301(c)(1) of Pub. L. 104-191 applicable to
taxable years beginning after Dec. 31, 1996, see section 301(j) of
Pub. L. 104-191, set out as a note under section 62 of this title.
Amendment by section 321(c)(2) of Pub. L. 104-191 applicable to
contracts issued after Dec. 31, 1996, see section 321(f) of Pub. L.
104-191, set out as an Effective Date note under section 7702B of
this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7862(c)(1)(C) of Pub. L. 101-239 provided that: "The
amendments made by this paragraph [amending this section and
section 1161 of Title 29, Labor] shall apply to years beginning
after December 31, 1986."
Section 7863 of Pub. L. 101-239 provided that: "Except as
otherwise provided in this subpart any amendment made by this
subpart [subpart A (Secs. 7861-7863) of part V of title VII of Pub.
L. 101-239, amending this section and sections 162, 411, 417, and
4980B of this title and sections 1052 to 1055, 1161, 1162, 1167,
1398, and 1461 of Title 29, Labor, enacting provisions set out as
notes under this section and sections 162, 417, 1167, 4980, and
4980B of this title, and amending provisions set out as notes under
sections 401 and 411 of this title and sections 1001 and 1054 of
Title 29], shall take effect as if included in the provision of the
Reform Act [Pub. L. 99-514] to which such amendment relates."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1018(t)(7)(A) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by section 3011(b)(1) of Pub. L. 100-647 applicable to
taxable years beginning after Dec. 31, 1988, but not applicable to
any plan for any plan year to which section 162(k) of this title
(as in effect on the day before Nov. 10, 1988) did not apply by
reason of section 10001(e)(2) of Pub. L. 99-272, see section
3011(d) of Pub. L. 100-647, set out as a note under section 162 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 1114(b)(1) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1986, see section 1114(c)(1) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Amendment by section 1151(j)(2) of Pub. L. 99-514 applicable,
with certain qualifications and exceptions, to years beginning
after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-514, as
amended, set out as a note under section 79 of this title.
Section 10001(e) of Pub. L. 99-272 provided that:
"(1) General rule. - The amendments made by this section
[amending this section and section 162 of this title] shall apply
to plan years beginning on or after July 1, 1986.
"(2) Special rule for collective bargaining agreements. - In the
case of a group health plan maintained pursuant to one or more
collective bargaining agreements between employee representatives
and one or more employers ratified before the date of the enactment
of this Act [Apr. 7, 1986], the amendments made by this section
shall not apply to plan years beginning before the later of -
"(A) the date on which the last of the collective bargaining
agreements relating to the plan terminates (determined without
regard to any extension thereof agreed to after the date of the
enactment of this Act), or
"(B) January 1, 1987.
For purposes of subparagraph (A), any plan amendment made pursuant
to a collective bargaining agreement relating to the plan which
amends the plan solely to conform to any requirement added by this
section shall not be treated as a termination of such collective
bargaining agreement."
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514
FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement
or enforce section 1151 of Pub. L. 99-514 or the amendments made by
such section, see section 528 of Pub. L. 101-136, set out as a note
under section 89 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 107 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 107. Rental value of parsonages
-STATUTE-
In the case of a minister of the gospel, gross income does not
include -
(1) the rental value of a home furnished to him as part of his
compensation; or
(2) the rental allowance paid to him as part of his
compensation, to the extent used by him to rent or provide a home
and to the extent such allowance does not exceed the fair rental
value of the home, including furnishings and appurtenances such
as a garage, plus the cost of utilities.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 32; Pub. L. 107-181, Sec. 2(a),
May 20, 2002, 116 Stat. 583.)
-MISC1-
AMENDMENTS
2002 - Par. (2). Pub. L. 107-181 inserted "and to the extent such
allowance does not exceed the fair rental value of the home,
including furnishings and appurtenances such as a garage, plus the
cost of utilities" before period at end.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-181, Sec. 2(b), May 20, 2002, 116 Stat. 583, provided
that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2001.
"(2) Returns positions. - The amendment made by this section also
shall apply to any taxable year beginning before January 1, 2002,
for which the taxpayer -
"(A) on a return filed before April 17, 2002, limited the
exclusion under section 107 of the Internal Revenue Code of 1986
as provided in such amendment, or
"(B) filed a return after April 16, 2002.
"(3) Other years before 2002. - Except as provided in paragraph
(2), notwithstanding any prior regulation, revenue ruling, or other
guidance issued by the Internal Revenue Service, no person shall be
subject to the limitations added to section 107 of such Code by
this Act for any taxable year beginning before January 1, 2002."
-End-
-CITE-
26 USC Sec. 108 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 108. Income from discharge of indebtedness
-STATUTE-
(a) Exclusion from gross income
(1) In general
Gross income does not include any amount which (but for this
subsection) would be includible in gross income by reason of the
discharge (in whole or in part) of indebtedness of the taxpayer
if -
(A) the discharge occurs in a title 11 case,
(B) the discharge occurs when the taxpayer is insolvent,
(C) the indebtedness discharged is qualified farm
indebtedness, or
(D) in the case of a taxpayer other than a C corporation, the
indebtedness discharged is qualified real property business
indebtedness.
(2) Coordination of exclusions
(A) Title 11 exclusion takes precedence
Subparagraphs (B), (C), and (D) of paragraph (1) shall not
apply to a discharge which occurs in a title 11 case.
(B) Insolvency exclusion takes precedence over qualified farm
exclusion and qualified real property business exclusion
Subparagraphs (C) and (D) of paragraph (1) shall not apply to
a discharge to the extent the taxpayer is insolvent.
(3) Insolvency exclusion limited to amount of insolvency
In the case of a discharge to which paragraph (1)(B) applies,
the amount excluded under paragraph (1)(B) shall not exceed the
amount by which the taxpayer is insolvent.
(b) Reduction of tax attributes
(1) In general
The amount excluded from gross income under subparagraph (A),
(B), or (C) of subsection (a)(1) shall be applied to reduce the
tax attributes of the taxpayer as provided in paragraph (2).
(2) Tax attributes affected; order of reduction
Except as provided in paragraph (5), the reduction referred to
in paragraph (1) shall be made in the following tax attributes in
the following order:
(A) NOL
Any net operating loss for the taxable year of the discharge,
and any net operating loss carryover to such taxable year.
(B) General business credit
Any carryover to or from the taxable year of a discharge of
an amount for purposes for determining the amount allowable as
a credit under section 38 (relating to general business
credit).
(C) Minimum tax credit
The amount of the minimum tax credit available under section
53(b) as of the beginning of the taxable year immediately
following the taxable year of the discharge.
(D) Capital loss carryovers
Any net capital loss for the taxable year of the discharge,
and any capital loss carryover to such taxable year under
section 1212.
(E) Basis reduction
(i) In general
The basis of the property of the taxpayer.
(ii) Cross reference
For provisions for making the reduction described in clause
(i), see section 1017.
(F) Passive activity loss and credit carryovers
Any passive activity loss or credit carryover of the taxpayer
under section 469(b) from the taxable year of the discharge.
(G) Foreign tax credit carryovers
Any carryover to or from the taxable year of the discharge
for purposes of determining the amount of the credit allowable
under section 27.
(3) Amount of reduction
(A) In general
Except as provided in subparagraph (B), the reductions
described in paragraph (2) shall be one dollar for each dollar
excluded by subsection (a).
(B) Credit carryover reduction
The reductions described in subparagraphs (B), (C), and (G)
shall be 33 1/3 cents for each dollar excluded by subsection
(a). The reduction described in subparagraph (F) in any passive
activity credit carryover shall be 33 1/3 cents for each
dollar excluded by subsection (a).
(4) Ordering rules
(A) Reductions made after determination of tax for year
The reductions described in paragraph (2) shall be made after
the determination of the tax imposed by this chapter for the
taxable year of the discharge.
(B) Reductions under subparagraph (A) or (D) of paragraph (2)
The reductions described in subparagraph (A) or (D) of
paragraph (2) (as the case may be) shall be made first in the
loss for the taxable year of the discharge and then in the
carryovers to such taxable year in the order of the taxable
years from which each such carryover arose.
(C) Reductions under subparagraphs (B) and (G) of paragraph (2)
The reductions described in subparagraphs (B) and (G) of
paragraph (2) shall be made in the order in which carryovers
are taken into account under this chapter for the taxable year
of the discharge.
(5) Election to apply reduction first against depreciable
property
(A) In general
The taxpayer may elect to apply any portion of the reduction
referred to in paragraph (1) to the reduction under section
1017 of the basis of the depreciable property of the taxpayer.
(B) Limitation
The amount to which an election under subparagraph (A)
applies shall not exceed the aggregate adjusted bases of the
depreciable property held by the taxpayer as of the beginning
of the taxable year following the taxable year in which the
discharge occurs.
(C) Other tax attributes not reduced
Paragraph (2) shall not apply to any amount to which an
election under this paragraph applies.
(c) Treatment of discharge of qualified real property business
indebtedness
(1) Basis reduction
(A) In general
The amount excluded from gross income under subparagraph (D)
of subsection (a)(1) shall be applied to reduce the basis of
the depreciable real property of the taxpayer.
(B) Cross reference
For provisions making the reduction described in subparagraph
(A), see section 1017.
(2) Limitations
(A) Indebtedness in excess of value
The amount excluded under subparagraph (D) of subsection
(a)(1) with respect to any qualified real property business
indebtedness shall not exceed the excess (if any) of -
(i) the outstanding principal amount of such indebtedness
(immediately before the discharge), over
(ii) the fair market value of the real property described
in paragraph (3)(A) (as of such time), reduced by the
outstanding principal amount of any other qualified real
property business indebtedness secured by such property (as
of such time).
(B) Overall limitation
The amount excluded under subparagraph (D) of subsection
(a)(1) shall not exceed the aggregate adjusted bases of
depreciable real property (determined after any reductions
under subsections (b) and (g)) held by the taxpayer immediately
before the discharge (other than depreciable real property
acquired in contemplation of such discharge).
(3) Qualified real property business indebtedness
The term "qualified real property business indebtedness" means
indebtedness which -
(A) was incurred or assumed by the taxpayer in connection
with real property used in a trade or business and is secured
by such real property,
(B) was incurred or assumed before January 1, 1993, or if
incurred or assumed on or after such date, is qualified
acquisition indebtedness, and
(C) with respect to which such taxpayer makes an election to
have this paragraph apply.
Such term shall not include qualified farm indebtedness.
Indebtedness under subparagraph (B) shall include indebtedness
resulting from the refinancing of indebtedness under subparagraph
(B) (or this sentence), but only to the extent it does not exceed
the amount of the indebtedness being refinanced.
(4) Qualified acquisition indebtedness
For purposes of paragraph (3)(B), the term "qualified
acquisition indebtedness" means, with respect to any real
property described in paragraph (3)(A), indebtedness incurred or
assumed to acquire, construct, reconstruct, or substantially
improve such property.
(5) Regulations
The Secretary shall issue such regulations as are necessary to
carry out this subsection, including regulations preventing the
abuse of this subsection through cross-collateralization or other
means.
(d) Meaning of terms; special rules relating to certain provisions
(1) Indebtedness of taxpayer
For purposes of this section, the term "indebtedness of the
taxpayer" means any indebtedness -
(A) for which the taxpayer is liable, or
(B) subject to which the taxpayer holds property.
(2) Title 11 case
For purposes of this section, the term "title 11 case" means a
case under title 11 of the United States Code (relating to
bankruptcy), but only if the taxpayer is under the jurisdiction
of the court in such case and the discharge of indebtedness is
granted by the court or is pursuant to a plan approved by the
court.
(3) Insolvent
For purposes of this section, the term "insolvent" means the
excess of liabilities over the fair market value of assets. With
respect to any discharge, whether or not the taxpayer is
insolvent, and the amount by which the taxpayer is insolvent,
shall be determined on the basis of the taxpayer's assets and
liabilities immediately before the discharge.
[(4) Repealed. Pub. L. 99-514, title VIII, Sec. 822(b)(3)(A),
Oct. 22, 1986, 100 Stat. 2373]
(5) Depreciable property
The term "depreciable property" has the same meaning as when
used in section 1017.
(6) Certain provisions to be applied at partner level
In the case of a partnership, subsections (a), (b), (c), and
(g) shall be applied at the partner level.
(7) Special rules for S corporation
(A) Certain provisions to be applied at corporate level
In the case of an S corporation, subsections (a), (b), (c),
and (g) shall be applied at the corporate level, including by
not taking into account under section 1366(a) any amount
excluded under subsection (a) of this section.
(B) Reduction in carryover of disallowed losses and deductions
In the case of an S corporation, for purposes of subparagraph
(A) of subsection (b)(2), any loss or deduction which is
disallowed for the taxable year of the discharge under section
1366(d)(1) shall be treated as a net operating loss for such
taxable year. The preceding sentence shall not apply to any
discharge to the extent that subsection (a)(1)(D) applies to
such discharge.
(C) Coordination with basis adjustments under section
1367(b)(2)
For purposes of subsection (e)(6), a shareholder's adjusted
basis in indebtedness of an S corporation shall be determined
without regard to any adjustments made under section
1367(b)(2).
(8) Reductions of tax attributes in title 11 cases of individuals
to be made by estate
In any case under chapter 7 or 11 of title 11 of the United
States Code to which section 1398 applies, for purposes of
paragraphs (1) and (5) of subsection (b) the estate (and not the
individual) shall be treated as the taxpayer. The preceding
sentence shall not apply for purposes of applying section 1017 to
property transferred by the estate to the individual.
(9) Time for making election, etc.
(A) Time
An election under paragraph (5) of subsection (b) or under
paragraph (3)(C) of subsection (c) shall be made on the
taxpayer's return for the taxable year in which the discharge
occurs or at such other time as may be permitted in regulations
prescribed by the Secretary.
(B) Revocation only with consent
An election referred to in subparagraph (A), once made, may
be revoked only with the consent of the Secretary.
(C) Manner
An election referred to in subparagraph (A) shall be made in
such manner as the Secretary may by regulations prescribe.
(10) Cross reference
For provision that no reduction is to be made in the basis of
exempt property of an individual debtor, see section
1017(c)(1).
(e) General rules for discharge of indebtedness (including
discharges not in title 11 cases or insolvency)
For purposes of this title -
(1) No other insolvency exception
Except as otherwise provided in this section, there shall be no
insolvency exception from the general rule that gross income
includes income from the discharge of indebtedness.
(2) Income not realized to extent of lost deductions
No income shall be realized from the discharge of indebtedness
to the extent that payment of the liability would have given rise
to a deduction.
(3) Adjustments for unamortized premium and discount
The amount taken into account with respect to any discharge
shall be properly adjusted for unamortized premium and
unamortized discount with respect to the indebtedness discharged.
(4) Acquisition of indebtedness by person related to debtor
(A) Treated as acquisition by debtor
For purposes of determining income of the debtor from
discharge of indebtedness, to the extent provided in
regulations prescribed by the Secretary, the acquisition of
outstanding indebtedness by a person bearing a relationship to
the debtor specified in section 267(b) or 707(b)(1) from a
person who does not bear such a relationship to the debtor
shall be treated as the acquisition of such indebtedness by the
debtor. Such regulations shall provide for such adjustments in
the treatment of any subsequent transactions involving the
indebtedness as may be appropriate by reason of the application
of the preceding sentence.
(B) Members of family
For purposes of this paragraph, sections 267(b) and 707(b)(1)
shall be applied as if section 267(c)(4) provided that the
family of an individual consists of the individual's spouse,
the individual's children, grandchildren, and parents, and any
spouse of the individual's children or grandchildren.
(C) Entities under common control treated as related
For purposes of this paragraph, two entities which are
treated as a single employer under subsection (b) or (c) of
section 414 shall be treated as bearing a relationship to each
other which is described in section 267(b).
(5) Purchase-money debt reduction for solvent debtor treated as
price reduction
If -
(A) the debt of a purchaser of property to the seller of such
property which arose out of the purchase of such property is
reduced,
(B) such reduction does not occur -
(i) in a title 11 case, or
(ii) when the purchaser is insolvent, and
(C) but for this paragraph, such reduction would be treated
as income to the purchaser from the discharge of indebtedness,
then such reduction shall be treated as a purchase price
adjustment.
(6) Indebtedness contributed to capital
Except as provided in regulations, for purposes of determining
income of the debtor from discharge of indebtedness, if a debtor
corporation acquires its indebtedness from a shareholder as a
contribution to capital -
(A) section 118 shall not apply, but
(B) such corporation shall be treated as having satisfied the
indebtedness with an amount of money equal to the shareholder's
adjusted basis in the indebtedness.
(7) Recapture of gain on subsequent sale of stock
(A) In general
If a creditor acquires stock of a debtor corporation in
satisfaction of such corporation's indebtedness, for purposes
of section 1245 -
(i) such stock (and any other property the basis of which
is determined in whole or in part by reference to the
adjusted basis of such stock) shall be treated as section
1245 property,
(ii) the aggregate amount allowed to the creditor -
(I) as deductions under subsection (a) or (b) of section
166 (by reason of the worthlessness or partial
worthlessness of the indebtedness), or
(II) as an ordinary loss on the exchange,
shall be treated as an amount allowed as a deduction for
depreciation, and
(iii) an exchange of such stock qualifying under section
354(a), 355(a), or 356(a) shall be treated as an exchange to
which section 1245(b)(3) applies.
The amount determined under clause (ii) shall be reduced by the
amount (if any) included in the creditor's gross income on the
exchange.
(B) Special rule for cash basis taxpayers
In the case of any creditor who computes his taxable income
under the cash receipts and disbursements method, proper
adjustment shall be made in the amount taken into account under
clause (ii) of subparagraph (A) for any amount which was not
included in the creditor's gross income but which would have
been included in such gross income if such indebtedness had
been satisfied in full.
(C) Stock of parent corporation
For purposes of this paragraph, stock of a corporation in
control (within the meaning of section 368(c)) of the debtor
corporation shall be treated as stock of the debtor
corporation.
(D) Treatment of successor corporation
For purposes of this paragraph, the term "debtor corporation"
includes a successor corporation.
(E) Partnership rule
Under regulations prescribed by the Secretary, rules similar
to the rules of the foregoing subparagraphs of this paragraph
shall apply with respect to the indebtedness of a partnership.
(8) Indebtedness satisfied by corporate stock or partnership
interest
For purposes of determining income of a debtor from discharge
of indebtedness, if -
(A) a debtor corporation transfers stock, or
(B) a debtor partnership transfers a capital or profits
interest in such partnership,
to a creditor in satisfaction of its recourse or nonrecourse
indebtedness, such corporation or partnership shall be treated as
having satisfied the indebtedness with an amount of money equal
to the fair market value of the stock or interest. In the case of
any partnership, any discharge of indebtedness income recognized
under this paragraph shall be included in the distributive shares
of taxpayers which were the partners in the partnership
immediately before such discharge.
(9) Discharge of indebtedness income not taken into account in
determining whether entity meets REIT qualifications
Any amount included in gross income by reason of the discharge
of indebtedness shall not be taken into account for purposes of
paragraphs (2) and (3) of section 856(c).
(10) Indebtedness satisfied by issuance of debt instrument
(A) In general
For purposes of determining income of a debtor from discharge
of indebtedness, if a debtor issues a debt instrument in
satisfaction of indebtedness, such debtor shall be treated as
having satisfied the indebtedness with an amount of money equal
to the issue price of such debt instrument.
(B) Issue price
For purposes of subparagraph (A), the issue price of any debt
instrument shall be determined under sections 1273 and 1274.
For purposes of the preceding sentence, section 1273(b)(4)
shall be applied by reducing the stated redemption price of any
instrument by the portion of such stated redemption price which
is treated as interest for purposes of this chapter.
(f) Student loans
(1) In general
In the case of an individual, gross income does not include any
amount which (but for this subsection) would be includible in
gross income by reason of the discharge (in whole or in part) of
any student loan if such discharge was pursuant to a provision of
such loan under which all or part of the indebtedness of the
individual would be discharged if the individual worked for a
certain period of time in certain professions for any of a broad
class of employers.
(2) Student loan
For purposes of this subsection, the term "student loan" means
any loan to an individual to assist the individual in attending
an educational organization described in section 170(b)(1)(A)(ii)
made by -
(A) the United States, or an instrumentality or agency
thereof,
(B) a State, territory, or possession of the United States,
or the District of Columbia, or any political subdivision
thereof,
(C) a public benefit corporation -
(i) which is exempt from taxation under section 501(c)(3),
(ii) which has assumed control over a State, county, or
municipal hospital, and
(iii) whose employees have been deemed to be public
employees under State law, or
(D) any educational organization described in section
170(b)(1)(A)(ii) if such loan is made -
(i) pursuant to an agreement with any entity described in
subparagraph (A), (B), or (C) under which the funds from
which the loan was made were provided to such educational
organization, or
(ii) pursuant to a program of such educational organization
which is designed to encourage its students to serve in
occupations with unmet needs or in areas with unmet needs and
under which the services provided by the students (or former
students) are for or under the direction of a governmental
unit or an organization described in section 501(c)(3) and
exempt from tax under section 501(a).
The term "student loan" includes any loan made by an educational
organization described in section 170(b)(1)(A)(ii) or by an
organization exempt from tax under section 501(a) to refinance a
loan to an individual to assist the individual in attending any
such educational organization but only if the refinancing loan is
pursuant to a program of the refinancing organization which is
designed as described in subparagraph (D)(ii).
(3) Exception for discharges on account of services performed for
certain lenders
Paragraph (1) shall not apply to the discharge of a loan made
by an organization described in paragraph (2)(D) if the discharge
is on account of services performed for either such organization.
(4) Payments under National Health Service Corps Loan Repayment
Program and certain State loan repayment programs
In the case of an individual, gross income shall not include
any amount received under section 338B(g) of the Public Health
Service Act or under a State program described in section 338I of
such Act.
(g) Special rules for discharge of qualified farm indebtedness
(1) Discharge must be by qualified person
(A) In general
Subparagraph (C) of subsection (a)(1) shall apply only if the
discharge is by a qualified person.
(B) Qualified person
For purposes of subparagraph (A), the term "qualified person"
has the meaning given to such term by section 49(a)(1)(D)(iv);
except that such term shall include any Federal, State, or
local government or agency or instrumentality thereof.
(2) Qualified farm indebtedness
For purposes of this section, indebtedness of a taxpayer shall
be treated as qualified farm indebtedness if -
(A) such indebtedness was incurred directly in connection
with the operation by the taxpayer of the trade or business of
farming, and
(B) 50 percent or more of the aggregate gross receipts of the
taxpayer for the 3 taxable years preceding the taxable year in
which the discharge of such indebtedness occurs is attributable
to the trade or business of farming.
(3) Amount excluded cannot exceed sum of tax attributes and
business and investment assets
(A) In general
The amount excluded under subparagraph (C) of subsection
(a)(1) shall not exceed the sum of -
(i) the adjusted tax attributes of the taxpayer, and
(ii) the aggregate adjusted bases of qualified property
held by the taxpayer as of the beginning of the taxable year
following the taxable year in which the discharge occurs.
(B) Adjusted tax attributes
For purposes of subparagraph (A), the term "adjusted tax
attributes" means the sum of the tax attributes described in
subparagraphs (A), (B), (C), (D), (F), and (G) of subsection
(b)(2) determined by taking into account $3 for each $1 of the
attributes described in subparagraphs (B), (C), and (G) of
subsection (b)(2) and the attribute described in subparagraph
(F) of subsection (b)(2) to the extent attributable to any
passive activity credit carryover.
(C) Qualified property
For purposes of this paragraph, the term "qualified property"
means any property which is used or is held for use in a trade
or business or for the production of income.
(D) Coordination with insolvency exclusion
For purposes of this paragraph, the adjusted basis of any
qualified property and the amount of the adjusted tax
attributes shall be determined after any reduction under
subsection (b) by reason of amounts excluded from gross income
under subsection (a)(1)(B).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 32; June 29, 1956, ch. 463, Sec.
5, 70 Stat. 403; Pub. L. 88-496, Sec. 1(a), June 8, 1960, 74 Stat.
164; Pub. L. 94-455, title XIX, Secs. 1906(b)(13)(A),
1951(b)(2)(A), Oct. 4, 1976, 90 Stat. 1834, 1836; Pub. L. 96-589,
Sec. 2(a), Dec. 24, 1980, 94 Stat. 3389; Pub. L. 97-354, Sec. 3(e),
Oct. 19, 1982, 96 Stat. 1689; Pub. L. 97-448, title I, Sec.
102(h)(1), title III, Sec. 304(d), Jan. 12, 1983, 96 Stat. 2372,
2398; Pub. L. 98-369, div. A, title I, Sec. 59(a), (b)(1), title
IV, Sec. 474(r)(5), title VII, Sec. 721(b)(2), title X, Sec.
1076(a), July 18, 1984, 98 Stat. 576, 839, 966, 1053; Pub. L. 99-
514, title I, Sec. 104(b)(2), title II, Sec. 231(d)(3)(D), title
IV, Sec. 405(a), title VI, Sec. 621(e)(1), title VIII, Secs.
805(c)(2)-(4), 822(a), (b)(1)-(3), title XI, Sec. 1171(b)(4), title
XVIII, Sec. 1847(b)(7), Oct. 22, 1986, 100 Stat. 2105, 2179, 2224,
2266, 2362, 2373, 2513, 2856; Pub. L. 100-647, title I, Sec.
1004(a)(1)-(4), (6), Nov. 10, 1988, 102 Stat. 3385, 3387; Pub. L.
101-508, title XI, Secs. 11325(a)(1), (b), 11813(b)(6), Nov. 5,
1990, 104 Stat. 1388-466, 1388-551; Pub. L. 103-66, title XIII,
Secs. 13150(a)-(c)(5), 13226(a)(1), (2)(B), (b)(1)-(3), Aug. 10,
1993, 107 Stat. 446-448, 487, 488; Pub. L. 104-188, title I, Sec.
1703(n)(2), Aug. 20, 1996, 110 Stat. 1877; Pub. L. 105-34, title
II, Sec. 225(a), Aug. 5, 1997, 111 Stat. 820; Pub. L. 105-206,
title VI, Sec. 6004(f), July 22, 1998, 112 Stat. 795; Pub. L. 107-
147, title IV, Sec. 402(a), Mar. 9, 2002, 116 Stat. 40; Pub. L.
108-357, title III, Sec. 320(a), title VIII, Sec. 896(a), Oct. 22,
2004, 118 Stat. 1473, 1648.)
-REFTEXT-
REFERENCES IN TEXT
Sections 338B(g) and 338I of the Public Health Service Act,
referred to in subsec. (f)(4), are classified to sections 254l-1(g)
and 254q-1, respectively, of Title 42, The Public Health and
Welfare.
-MISC1-
AMENDMENTS
2004 - Subsec. (e)(8). Pub. L. 108-357, Sec. 896(a), amended
heading and text of par. (8) generally. Prior to amendment, text
read as follows: "For purposes of determining income of a debtor
from discharge of indebtedness, if a debtor corporation transfers
stock to a creditor in satisfaction of its indebtedness, such
corporation shall be treated as having satisfied the indebtedness
with an amount of money equal to the fair market value of the
stock."
Subsec. (f)(4). Pub. L. 108-357, Sec. 320(a), added par. (4).
2002 - Subsec. (d)(7)(A). Pub. L. 107-147 inserted ", including
by not taking into account under section 1366(a) any amount
excluded under subsection (a) of this section" before period at
end.
1998 - Subsec. (f)(2). Pub. L. 105-206, Sec. 6004(f)(1), amended
concluding provisions generally. Prior to amendment, concluding
provisions read as follows: "The term 'student loan' includes any
loan made by an educational organization so described or by an
organization exempt from tax under section 501(a) to refinance a
loan meeting the requirements of the preceding sentence."
Subsec. (f)(3). Pub. L. 105-206, Sec. 6004(f)(2), struck out "(or
by an organization described in paragraph (2)(E) from funds
provided by an organization described in paragraph (2)(D))" after
"paragraph (2)(D)".
1997 - Subsec. (f)(2). Pub. L. 105-34, Sec. 225(a)(1), added
subpar. (D) and concluding provisions and struck out former subpar.
(D) which read as follows: "any educational organization so
described pursuant to an agreement with any entity described in
subparagraph (A), (B), or (C) under which the funds from which the
loan was made were provided to such educational organization."
Subsec. (f)(2)(B). Pub. L. 105-34, Sec. 225(a)(1), struck out
"or" at end.
Subsec. (f)(3). Pub. L. 105-34, Sec. 225(a)(2), added par. (3).
1996 - Subsec. (d)(9)(A). Pub. L. 104-188 substituted "paragraph
(3)(C)" for "paragraph (3)(B)".
1993 - Subsec. (a)(1)(D). Pub. L. 103-66, Sec. 13150(a), added
subpar. (D).
Subsec. (a)(2)(A). Pub. L. 103-66, Sec. 13150(c)(1), substituted
", (C), and (D)" for "and (C)".
Subsec. (a)(2)(B). Pub. L. 103-66, Sec. 13150(c)(2), amended
heading and text of subpar. (B) generally. Prior to amendment, text
read as follows: "Subparagraph (C) of paragraph (1) shall not apply
to a discharge to the extent the taxpayer is insolvent."
Subsec. (b)(2)(C) to (E). Pub. L. 103-66, Sec. 13226(b)(1), added
subpar. (C) and redesignated former subpars. (C) and (D) as (D) and
(E), respectively. Former subpar. (E) redesignated (F).
Subsec. (b)(2)(F). Pub. L. 103-66, Sec. 13226(b)(2), added
subpar. (F). Former subpar. (F) redesignated (G).
Pub. L. 103-66, Sec. 13226(b)(1), redesignated subpar. (E) as
(F).
Subsec. (b)(2)(G). Pub. L. 103-66, Sec. 13226(b)(2), redesignated
subpar. (F) as (G).
Subsec. (b)(3)(B). Pub. L. 103-66, Sec. 13226(b)(3)(A), amended
heading and text of subpar. (B) generally. Prior to amendment, text
read as follows: "The reductions described in subparagraphs (B) and
(E) of paragraph (2) shall be 33 1/3 cents for each dollar
excluded by subsection (a)."
Subsec. (b)(4)(B). Pub. L. 103-66, Sec. 13226(b)(3)(B),
substituted "(D)" for "(C)" in heading and text.
Subsec. (b)(4)(C). Pub. L. 103-66, Sec. 13226(b)(3)(C),
substituted "(G)" for "(E)" in heading and text.
Subsec. (c). Pub. L. 103-66, Sec. 13150(b), added subsec. (c).
Subsec. (d). Pub. L. 103-66, Sec. 13150(c)(3)(B), substituted
"certain provisions" for "subsections (a), (b) and (g)" in heading.
Subsec. (d)(6), (7)(A). Pub. L. 103-66, Sec. 13150(c)(3)(A), (C),
substituted "Certain provisions" for "Subsections (a), (b) and (g)"
in heading and "subsections (a), (b), (c), and (g)" for
"subsections (a), (b), and (g)" in text.
Subsec. (d)(7)(B). Pub. L. 103-66, Sec. 13150(c)(4), inserted at
end "The preceding sentence shall not apply to any discharge to the
extent that subsection (a)(1)(D) applies to such discharge."
Subsec. (d)(9)(A). Pub. L. 103-66, Sec. 13150(c)(5), inserted "or
under paragraph (3)(B) of subsection (c)" after "subsection (b)".
Subsec. (e)(6). Pub. L. 103-66, Sec. 13226(a)(2)(B), substituted
"Except as provided in regulations, for" for "For".
Subsec. (e)(8). Pub. L. 103-66, Sec. 13226(a)(1)(B), amended
heading and text of par. (8) generally. Prior to amendment, text
read as follows: "For purposes of determining income of the debtor
from discharge of indebtedness, the stock for debt exception shall
not apply -
"(A) to the issuance of nominal or token shares, or
"(B) with respect to an unsecured creditor, where the ratio of
the value of the stock received by such unsecured creditor to the
amount of his indebtedness cancelled or exchanged for stock in
the workout is less than 50 percent of a similar ratio computed
for all unsecured creditors participating in the workout.
Any stock which is disqualified stock (as defined in paragraph
(10)(B)(ii)) shall not be treated as stock for purposes of this
paragraph."
Subsec. (e)(10), (11). Pub. L. 103-66, Sec. 13226(a)(1)(A),
redesignated par. (11) as (10) and struck out former par. (10)
which related to satisfaction of indebtedness by transfer of
corporation's stock.
Subsec. (g)(3)(B). Pub. L. 103-66, Sec. 13226(b)(3)(D),
substituted "subparagraphs (A), (B), (C), (D), (F), and (G)" for
"subparagraphs (A), (B), (C), and (E)" and "subparagraphs (B), (C),
and (G)" for "subparagraphs (B) and (E)" and inserted before period
at end "and the attribute described in subparagraph (F) of
subsection (b)(2) to the extent attributable to any passive
activity credit carryover".
1990 - Subsec. (e)(8). Pub. L. 101-508, Sec. 11325(b)(2),
inserted provision at end that any stock which is a disqualified
stock, as so defined, not be treated as stock for purposes of this
paragraph.
Subsec. (e)(10)(B). Pub. L. 101-508, Sec. 11325(b)(1),
substituted heading for one which read: "Exception for title 11
cases and insolvent debtors" and amended text generally. Prior to
amendment, text read as follows: "Subparagraph (A) shall not apply
in the case of a debtor in a title 11 case or to the extent the
debtor is insolvent."
Subsec. (e)(11). Pub. L. 101-508, Sec. 11325(a)(1), added par.
(11).
Subsec. (g)(1)(B). Pub. L. 101-508, Sec. 11813(b)(6), substituted
"section 49(a)(1)(D)(iv)" for "section 46(c)(8)(D)(iv)".
1988 - Subsec. (a)(1)(C). Pub. L. 100-647, Sec. 1004(a)(1), added
subpar. (C).
Subsec. (a)(2). Pub. L. 100-647, Sec. 1004(a)(2), amended par.
(2) generally. Prior to amendment, par. (2) read as follows:
"Subparagraph (B) of paragraph (1) shall not apply to a discharge
which occurs in a title 11 case."
Subsec. (b). Pub. L. 100-647, Sec. 1004(a)(3), struck out "in
title 11 case or insolvency" after "Reduction of tax attributes" in
heading and substituted "subparagraph (A), (B), or (C)" for
"subparagraph (A) or (B)" in text of par. (1).
Subsec. (d). Pub. L. 100-647, Sec. 1004(a)(6)(B), which directed
amendment of subsec. (d) heading by substituting "subsections (a),
(b), and (g)" for "subsections (a), and (b)", was executed by
making the substitution for "subsections (a) and (b)" as the
probable intent of Congress.
Subsec. (d)(6). Pub. L. 100-647, Sec. 1004(a)(6)(A), (C),
substituted "Subsections (a), (b), and (g)" for "Subsections (a)
and (b)" in heading and "subsections (a), (b), and (g)" for
"subsections (a) and (b)" in text.
Subsec. (d)(7)(A). Pub. L. 100-647, Sec. 1004(a)(6)(A), (C),
substituted "Subsections (a), (b), and (g)" for "Subsections (a)
and (b)" in heading and "subsections (a), (b), and (g)" for
"subsections (a) and (b)" in text.
Subsec. (g). Pub. L. 100-647, Sec. 1004(a)(4), substituted
"indebtedness" for "indebtedness of solvent farmers" in heading and
amended text generally. Prior to amendment, text read as follows:
"(1) In general. - For purposes of this section and section 1017,
the discharge by a qualified person of qualified farm indebtedness
of a taxpayer who is not insolvent at the time of the discharge
shall be treated in the same manner as if the discharge had
occurred when the taxpayer was insolvent.
"(2) Qualified farm indebtedness. - For purposes of this
subsection, indebtedness of a taxpayer shall be treated as
qualified farm indebtedness if -
"(A) such indebtedness was incurred directly in connection with
the operation by the taxpayer of the trade or business of
farming, and
"(B) 50 percent or more of the average annual gross receipts of
the taxpayer for the 3 taxable years preceding the taxable year
in which the discharge of such indebtedness occurs is
attributable to the trade or business of farming.
"(3) Qualified person. - For purposes of this subsection, the
term 'qualified person' means a person described in section
46(c)(8)(D)(iv)."
1986 - Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 822(a), struck out
subpar. (C) relating to exclusion from gross income if the
indebtedness discharged is qualified business indebtedness.
Subsec. (a)(2). Pub. L. 99-514, Sec. 822(b)(1), substituted
"Subparagraph (B) of paragraph (1)" for "Subparagraphs (B) and (C)
of paragraph (1)" in subpar. (A), struck out subpar. (A)
designation and heading, and struck out subpar. (B) providing that
insolvency exclusion takes precedence over qualified business
exclusion.
Subsec. (b)(2)(B). Pub. L. 99-514, Sec. 231(d)(3)(D), substituted
"General business credit" for "Research credit and general business
credit" in heading and amended text, as amended by this Act (Pub.
L. 99-514, Sec. 1171(b)(4) (see below)), generally. Prior to
amendment, text read as follows: "Any carryover to or from the
taxable year of a discharge of an amount for purposes of
determining the amount allowable as a credit under -
"(i) section 30 (relating to credit for increasing research
activities), or
"(ii) section 38 (relating to general business credit).
For purposes of this subparagraph, there shall not be taken into
account any portion of a carryover which is attributable to the
employee stock ownership credit determined under section 41."
Pub. L. 99-514, Sec. 1171(b)(4), struck out last sentence which
had been eliminated by the general amendment of subpar. (B) by Pub.
L. 99-514, Sec. 231(d)(3)(D). See above.
Subsec. (b)(2)(E). Pub. L. 99-514, Sec. 1847(b)(7), substituted
"section 27" for "section 33".
Subsec. (b)(3). Pub. L. 99-514, Sec. 104(b)(2), substituted "33
1/3 cents" for "50 cents".
Subsec. (c). Pub. L. 99-514, Sec. 822(b)(2), struck out subsec.
(c) relating to tax treatment of discharge of qualified business
indebtedness.
Subsec. (d). Pub. L. 99-514, Sec. 822(b)(3)(B), struck out
reference to subsec. (c) in heading.
Subsec. (d)(4). Pub. L. 99-514, Sec. 822(b)(3)(A), struck out
par. (4) relating to treatment of indebtedness as qualified
business indebtedness.
Subsec. (d)(6), (7)(A). Pub. L. 99-514, Sec. 822(b)(3)(B), struck
out reference to subsec. (c) in heading and text.
Subsec. (d)(7)(B). Pub. L. 99-514, Sec. 822(b)(3)(C), struck out
"The preceding sentence shall not apply to any discharge to the
extent that subsection (a)(1)(C) applies to such discharge."
Subsec. (d)(9)(A). Pub. L. 99-514, Sec. 822(b)(3)(D), struck out
"under paragraph (4) of this subsection or" after "An election".
Subsec. (e)(7)(A)(ii)(I). Pub. L. 99-514, Sec. 805(c)(2),
substituted "subsection (a) or (b) of section 166" for "subsection
(a), (b), or (c) of section 166".
Subsec. (e)(7)(B) to (D). Pub. L. 99-514, Sec. 805(c)(3),
redesignated subpars. (C) to (E) as (B) to (D), respectively, and
struck out former subpar. (B) which related to taxpayers on reserve
method.
Subsec. (e)(7)(E), (F). Pub. L. 99-514, Sec. 805(c)(3), (4),
redesignated subpar. (F) as (E) and substituted "the foregoing
subparagraphs" for "subparagraphs (A), (B), (C), (D), and (E)".
Former subpar. (E) redesignated (D).
Subsec. (e)(10)(C). Pub. L. 99-514, Sec. 621(e), repealed the
amendment by Pub. L. 98-369, Sec. 59(b)(1), which had added subpar.
(C) creating an exception for transfers in certain workouts of the
satisfaction of indebtedness by corporation's stock. See 1984
Amendment note below.
Subsec. (g). Pub. L. 99-514, Sec. 405(a), added subsec. (g).
1984 - Subsec. (b)(2)(B). Pub. L. 98-369, Sec. 474(r)(5),
substituted provisions relating to research credits and general
business credits covering carryovers to or from the taxable year of
a discharge of an amount for purposes of determining the amount
allowable as a credit under section 30 (relating to credit for
increasing research activities), or section 38 (relating to general
business credit), and directing that there shall not be taken into
account any portion of a carryover which is attributable to the
employee stock ownership credit determined under section 41 for
former provisions covering carryovers to or from the taxable year
of the discharge of an amount for purposes of determining the
amount of a credit allowable under section 38 (relating to
investment in certain depreciable property), section 40 (relating
to expenses of work incentive programs), section 44B (relating to
credit for employment of certain new employees), section 44E
(relating to alcohol used as a fuel), or section 44F (relating to
credit for increasing research activities), and directing that, for
purposes of clause (i), there could not be taken into account any
portion of a carryover which was attributable to the employee plan
credit (within the meaning of section 48(o)(3)).
Subsec. (d)(6). Pub. L. 98-369, Sec. 721(b)(2), struck out "or S
corporation shareholder level" in heading and second sentence which
provided that "In the case of an S corporation, subsections (a),
(b), and (c) shall apply at the shareholder level.". See par.
(7)(A).
Subsec. (d)(7) to (10). Pub. L. 98-369, Sec. 721(b)(2), added
par. (7) and redesignated former pars. (7) to (9) as (8) to (10),
respectively.
Subsec. (e)(10). Pub. L. 98-369, Sec. 59(a), added par. (10).
Subsec. (e)(10)(C). Pub. L. 98-369, Sec. 59(b)(1), which added
subpar. (C), effective as if included in the amendments made by
section 806(e) and (f) of Pub. L. 94-455, was repealed by Pub. L.
99-514, Sec. 621(e), (f)(2), eff. Jan. 1, 1986, with certain
exceptions, see Effective Date of 1986 Amendment note below.
Subsec. (f). Pub. L. 98-369, Sec. 1076(a), added subsec. (f).
1983 - Subsec. (b)(2)(B)(v). Pub. L. 97-448, Sec. 102(h)(1),
added cl. (v).
Subsec. (e)(7)(A)(iii). Pub. L. 97-448, Sec. 304(d), added cl.
(iii).
1982 - Subsec. (d)(6). Pub. L. 97-354 inserted "or S corporation
shareholder level" in heading and inserted "In the case of an S
corporation, subsections (a), (b), and (c) shall be applied at the
shareholder level."
1980 - Pub. L. 96-589 completely revised and expanded provisions
by specifying the types of indebtedness and by setting out
priorities among the exclusions, to reflect the revision of Title
11, Bankruptcy, in 1978.
1976 - Pub. L. 94-455, Sec. 1951(b)(2)(A), struck out "(a)
Special rule of exclusion. - " after "Income from discharge of
indebtedness" and struck out subsec. (b) which related to
discharge, cancellation, or modification of indebtedness of certain
railroad corporations.
Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or his delegate"
after "Secretary".
1960 - Subsec. (b). Pub. L. 86-496 provided that if the
discharge, cancellation, or modification of any indebtedness is
effected pursuant to a court order in a receivership proceeding or
in a proceeding under section 77 of the Bankruptcy Act, commenced
before Jan. 1, 1960, then no amount is to be included in gross
income with respect to it, and struck out provisions which made
subsection inapplicable to discharges occurring in a taxable year
beginning after Dec. 31, 1957.
1956 - Subsec. (b). Act June 29, 1956, substituted "December 31,
1957" for "December 31, 1955".
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title III, Sec. 320(c), Oct. 22, 2004, 118 Stat.
1473, provided that: "The amendments made by this section [amending
this section, sections 3121, 3231, 3306, and 3401 of this title,
and section 409 of Title 42, The Public Health and Welfare] shall
apply to amounts received by an individual in taxable years
beginning after December 31, 2003."
Pub. L. 108-357, title VIII, Sec. 896(b), Oct. 22, 2004, 118
Stat. 1649, provided that: "The amendment made by this section
[amending this section] shall apply with respect to cancellations
of indebtedness occurring on or after the date of the enactment of
this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 402(b), Mar. 9, 2002, 116 Stat.
40, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by this section [amending this section] shall apply
to discharges of indebtedness after October 11, 2001, in taxable
years ending after such date.
"(2) Exception. - The amendment made by this section shall not
apply to any discharge of indebtedness before March 1, 2002,
pursuant to a plan of reorganization filed with a bankruptcy court
on or before October 11, 2001."
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 225(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to
discharges of indebtedness after the date of the enactment of this
Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective as if included in the
provision of the Revenue Reconciliation Act of 1993, Pub. L. 103-
66, Secs. 13001-13444, to which such amendment relates, see
section 1703(o) of Pub. L. 104-188, set out as a note under section
39 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13150(d) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 703 and
1017 of this title] shall apply to discharges after December 31,
1992, in taxable years ending after such date."
Section 13226(a)(3) of Pub. L. 103-66 provided that:
"(A) In general. - Except as otherwise provided in this
paragraph, the amendments made by this subsection [amending this
section and section 382 of this title] shall apply to stock
transferred after December 31, 1994, in satisfaction of any
indebtedness.
"(B) Exception for title 11 cases. - The amendments made by this
subsection shall not apply to stock transferred in satisfaction of
any indebtedness if such transfer is in a title 11 or similar case
(as defined in section 368(a)(3)(A) of the Internal Revenue Code of
1986) which was filed on or before December 31, 1993."
Section 13226(b)(4) of Pub. L. 103-66 provided that: "The
amendments made by this subsection [amending this section] shall
apply to discharges of indebtedness in taxable years beginning
after December 31, 1993."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11325(c) of Pub. L. 101-508 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
1275 of this title] shall apply to debt instruments issued, and
stock transferred, after October 9, 1990, in satisfaction of any
indebtedness.
"(2) Exceptions. - The amendments made by this section shall not
apply to any debt instrument issued, or stock transferred, in
satisfaction of any indebtedness if such issuance or transfer (as
the case may be) -
"(A) is in a title 11 or similar case (as defined in section
368(a)(3)(A) of the Internal Revenue Code of 1986) which was
filed on or before October 9, 1990,
"(B) is pursuant to a written binding contract in effect on
October 9, 1990, and at all times thereafter before such issuance
or transfer,
"(C) is pursuant to a transaction which was described in
documents filed with the Securities and Exchange Commission on or
before October 9, 1990, or
"(D) is pursuant to a transaction -
"(i) the material terms of which were described in a written
public announcement on or before October 9, 1990,
"(ii) which was the subject of a prior filing with the
Securities and Exchange Commission, and
"(iii) which is the subject of a subsequent filing with the
Securities and Exchange Commission before January 1, 1991."
Amendment by section 11813(b)(6) of Pub. L. 101-508 applicable to
property placed in service after Dec. 31, 1990, but not applicable
to any transition property (as defined in section 49(e) of this
title), any property with respect to which qualified progress
expenditures were previously taken into account under section 46(d)
of this title, and any property described in section 46(b)(2)(C) of
this title, as such sections were in effect on Nov. 4, 1990, see
section 11813(c) of Pub. L. 101-508, set out as a note under
section 45K of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 231(d)(3)(D) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1985, see section 231(g) of
Pub. L. 99-514, set out as a note under section 41 of this title.
Section 405(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and section 1017 of
this title] shall apply to discharges of indebtedness occurring
after April 9, 1986, in taxable years ending after such date."
Repeal by section 621(e)(1) of Pub. L. 99-514 of amendment by
section 59(b)(1) of Pub. L. 99-369, which was effective as if
included in the amendments made by section 806(e) and (f) of Pub.
L. 94-455, effective Jan. 1, 1986, with certain exceptions, see
section 621(f)(2) of Pub. L. 99-514, set out as a note under
section 382 of this title.
Amendment by section 805(c)(2), (4) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, with certain
changes required in method of accounting, see section 805(d) of
Pub. L. 99-514, set out as a note under section 166 of this title.
Section 822(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and section 1017 of
this title] shall apply to discharges after December 31, 1986."
Amendment by section 1171(b)(4) of Pub. L. 99-514 applicable to
compensation paid or accrued after Dec. 31, 1986, in taxable years
ending after such date, except as otherwise provided, see section
1171(c) of Pub. L. 99-514, set out as a note under section 38 of
this title.
Amendment by section 1847(b)(7) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 59(b)(2) of Pub. L. 98-369 provided that: "The amendment
made by paragraph (1) [amending this section] shall take effect as
if it had been included in the amendments made by subsections (e)
and (f) of section 806 of the Tax Reform Act of 1976 [Pub. L. 94-
455]." See Effective Date of 1976 Amendment note set out under
section 382 of this title.
Section 59(b)[(c)] of Pub. L. 98-369 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendment made by subsection (a) [amending this
section] shall apply to transfers after the date of the enactment
of this Act [July 18, 1984] in taxable years ending after such
date.
"(2) Transitional rule. - The amendment made by subsection (a)
shall not apply to the transfer by a corporation of its stock in
exchange for debt of the corporation after the date of the
enactment of this Act if such transfer is -
"(A) pursuant to a written contract requiring such transfer
which was binding on the corporation at all times on June 7,
1984, and at all times after such date but only if the transfer
takes place before January 1, 1985, and only if the transferee
held the debt at all times on June 7, 1984, or
"(B) pursuant to the exercise of an option to exchange debt for
stock but only if such option was in effect at all times on June
7, 1984, and at all times after such date and only if at all
times on June 7, 1984, the option and the debt were held by the
same person.
"(3) Certain transfers to controlling shareholder. - The
amendment made by subsection (a) shall not apply to any transfer
before January 1, 1985, by a corporation of its stock in exchange
for debt of such corporation if -
"(A) such transfer is to another corporation which at all times
on June 7, 1984, owned 75 percent or more of the total value of
the stock of the corporation making such transfer, and
"(B) immediately after such transfer, the transferee
corporation owns 80 percent or more of the total value of the
stock of the transferor corporation.
"(4) Certain transfers pursuant to debt restructure agreement. -
The amendment made by subsection (a) shall not apply to the
transfer by a corporation of its stock in exchange for debt of the
corporation after the date of the enactment of this Act and before
January 1, 1985, if -
"(A) such transfer is covered by a debt restructure agreement
entered into by the corporation during November 1983, and
"(B) such agreement was specified in a registration statement
filed with the Securities and Exchange Commission by the
corporation on March 7, 1984."
Amendment by section 474(r)(5) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 721(b) of Pub. L. 98-369 applicable to
contributions to capital after Dec. 31, 1980, in taxable years
ending after such date, see section 721(y)(2) of Pub. L. 98-369,
set out as a note under section 1361 of this title.
Section 1076(b) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to
discharges of indebtedness made on or after January 1, 1983."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by title I of Pub. L. 97-448 effective, except as
otherwise provided, as if it had been included in the provision of
the Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Section 7 of Pub. L. 96-589, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) For Section 2 (Relating to Tax Treatment of Discharge of
Indebtedness). -
"(1) In general. - Except as provided in paragraph (2), the
amendments made by section 2 [amending this section and sections
111, 118, 382, 703 and 1017 of this title] shall apply to any
transaction which occurs after December 31, 1980, other than a
transaction which occurs in a proceeding in a bankruptcy case or
similar judicial proceeding (or in a proceeding under the
Bankruptcy Act) [Title 11, Bankruptcy] commencing on or before
December 31, 1980.
"(2) Transitional rule. - In the case of any discharge of
indebtedness to which subparagraph (A) or (B) of section
108(a)(1) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] (relating to exclusion from gross income), as amended by
section 2, applies and which occurs before January 1, 1982, or
which occurs in a proceeding in a bankruptcy case or similar
judicial proceedings commencing before January 1, 1982, then -
"(A) section 108(b)(2) of the such Code (relating to
reduction of tax attributes), as so amended, shall be applied
without regard to subparagraphs (A), (B), (C), and (E) thereof,
and
"(B) the basis of any property shall not be reduced under
section 1017 of such Code (relating to reduction in basis in
connection with discharges of indebtedness), as so amended,
below the fair market value of such property on the date the
debt is discharged.
"(b) For Section 3 (Relating to Rules Relating to Title 11 Cases
for Individuals). - The amendments made by section 3 [enacting
sections 1398 and 1399 of this title and amending sections 443,
6012 and 6103 of this title] shall apply to any bankruptcy case
commencing more than 90 days after the date of the enactment of
this Act [Dec. 24, 1980].
"(c) For Section 4 (Relating to Corporate Reorganization
Provisions). -
"(1) In general. - The amendments made by section 4 [enacting
section 370 of this title and amending sections 354, 355, 357,
368 and 381 of this title] shall apply to any bankruptcy case or
similar judicial proceeding commencing after December 31, 1980.
"(2) Exchanges of property for accrued interest. - The
amendments made by subsection (e) of section 4 [amending sections
354 and 355 of this title] (relating to treatment of property
attributable to accrued interest) shall also apply to any
exchange -
"(A) which occurs after December 31, 1980, and
"(B) which does not occur in a bankruptcy case or similar
judicial proceeding (or in a proceeding under the Bankruptcy
Act) commenced on or before December 31, 1980.
"(d) For Section 5 (Relating to Miscellaneous Corporate
Amendments). -
"(1) For subsection (a) (relating to exemption from personal
holding company tax). - The amendments made by subsection (a) of
section 5 [amending section 542 of this title] shall apply to any
bankruptcy case or similar judicial proceeding commenced after
December 31, 1980.
"(2) For subsection (b) (relating to repeal of special
treatment for certain railroad redemptions). - The amendments
made by subsection (b) of section 5 [amending section 302 of this
title] shall apply to stock which is issued after December 31,
1980 (other than stock issued pursuant to a plan of
reorganization approved on or before that date).
"(3) For subsection (c) (relating to application of 12-month
liquidation rule). - The amendment made by subsection (c) of
section 5 [amending section 337 of this title] shall apply to any
bankruptcy case or similar judicial proceeding commenced after
December 31, 1980.
"(4) For subsection (d) (relating to permitting bankruptcy
estate to be subchapter s shareholder). - The amendment made by
subsection (d) of section 5 [amending section 1371 of this title]
shall apply to any bankruptcy case commenced on or after October
1, 1979.
"(5) For subsection (e) (relating to certain transfers to
controlled corporations). - The amendments made by subsection (e)
of section 5 [amending section 351 of this title] shall apply as
provided in subsection (a) of this section.
"(6) For subsection (f) (relating to effect of debt discharge
on earnings and profits). - The amendment made by subsection (f)
of section 5 [amending section 312 of this title] shall apply as
provided in subsection (a) of this section.
"(e) For Section 6 (Relating to Changes in Tax Procedures). - The
amendments made by section 6 [enacting sections 6658 and 7464 of
this title, amending sections 128, 354, 422, 1023, 3302, 6012,
6036, 6155, 6161, 6212, 6213, 6216, 6326 [now 6327], 6404, 6503,
6512, 6532, 6871, 6872, 6873, 7430, and 7508 of this title,
repealing section 1018 of this title, and redesignating former
section 7464 of this title as 7465] shall take effect on October 1,
1979, but shall not apply to any proceeding under the Bankruptcy
Act [Title 11] commenced before October 1, 1979.
"(f) Election To Substitute September 30, 1979, for December 31,
1980. -
"(1) In general. - The debtor (or debtors) in a bankruptcy case
or similar judicial proceeding may (with the approval of the
court) elect to apply subsections (a), (c), and (d) by
substituting 'September 30, 1979' for 'December 31, 1980' each
place it appears in such subsections.
"(2) Effect of election. - Any election made under paragraph
(1) with respect to any proceeding shall apply to all parties to
the proceeding.
"(3) Revocation only with consent. - Any election under this
subsection may be revoked only with the consent of the Secretary
of the Treasury or his delegate.
"(4) Time and manner of election. - Any election under this
subsection shall be made at such time, and in such manner, as the
Secretary of the Treasury or his delegate may by regulations
prescribe.
"(g) Definitions. - For purposes of this section -
"(1) Bankruptcy case. - The term 'bankruptcy case' means any
case under title 11 of the United States Code (as recodified by
Public Law 95-598).
"(2) Similar judicial proceeding. - The term 'similar judicial
proceeding' means a receivership, foreclosure, or similar
proceeding in a Federal or State court (as modified by section
368(a)(3)(D) of the Internal Revenue Code of 1986)."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1951(b)(2)(A) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1951(d) of Pub. L. 94-455, set out as a note under section
72 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Section 1(b) of Pub. L. 86-496 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years ending after December 31, 1959, but only with respect to
discharges occurring after such date."
SAVINGS PROVISION
For provisions that nothing in amendment by section 11813 of Pub.
L. 101-508 be construed to affect treatment of certain transactions
occurring, property acquired, or items of income, loss, deduction,
or credit taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
Section 1951(b)(2)(B) of Pub. L. 94-455 provided that: "If any
discharge, cancellation, or modification of indebtedness of a
railroad corporation occurs in a taxable year beginning after
December 31, 1976, pursuant to an order of a court in a proceeding
referred to in section 108(b)(A) or (B) which commenced before
January 1, 1960, then, notwithstanding the amendments made by
subparagraph (A) [amending this section] the provisions of
subsection (b) of section 108 shall be considered as not repealed
with respect to such discharge, cancellation, or modification of
indebtedness."
EXCLUSION OF CERTAIN CANCELLATIONS OF INDEBTEDNESS
Pub. L. 107-134, title I, Sec. 105, Jan. 23, 2002, 115 Stat.
2432, provided that:
"(a) In General. - For purposes of the Internal Revenue Code of
1986 -
"(1) gross income shall not include any amount which (but for
this section) would be includible in gross income by reason of
the discharge (in whole or in part) of indebtedness of any
taxpayer if the discharge is by reason of the death of an
individual incurred as the result of the terrorist attacks
against the United States on September 11, 2001, or as the result
of illness incurred as a result of an attack involving anthrax
occurring on or after September 11, 2001, and before January 1,
2002; and
"(2) return requirements under section 6050P of such Code shall
not apply to any discharge described in paragraph (1).
"(b) Effective Date. - This section shall apply to discharges
made on or after September 11, 2001, and before January 1, 2002."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 109 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 109. Improvements by lessee on lessor's property
-STATUTE-
Gross income does not include income (other than rent) derived by
a lessor of real property on the termination of a lease,
representing the value of such property attributable to buildings
erected or other improvements made by the lessee.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 33.)
-End-
-CITE-
26 USC Sec. 110 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 110. Qualified lessee construction allowances for short-term
leases
-STATUTE-
(a) In general
Gross income of a lessee does not include any amount received in
cash (or treated as a rent reduction) by a lessee from a lessor -
(1) under a short-term lease of retail space, and
(2) for the purpose of such lessee's constructing or improving
qualified long-term real property for use in such lessee's trade
or business at such retail space,
but only to the extent that such amount does not exceed the amount
expended by the lessee for such construction or improvement.
(b) Consistent treatment by lessor
Qualified long-term real property constructed or improved in
connection with any amount excluded from a lessee's income by
reason of subsection (a) shall be treated as nonresidential real
property of the lessor (including for purposes of section
168(i)(8)(B)).
(c) Definitions
For purposes of this section -
(1) Qualified long-term real property
The term "qualified long-term real property" means
nonresidential real property which is part of, or otherwise
present at, the retail space referred to in subsection (a) and
which reverts to the lessor at the termination of the lease.
(2) Short-term lease
The term "short-term lease" means a lease (or other agreement
for occupancy or use) of retail space for 15 years or less (as
determined under the rules of section 168(i)(3)).
(3) Retail space
The term "retail space" means real property leased, occupied,
or otherwise used by a lessee in its trade or business of selling
tangible personal property or services to the general public.
(d) Information required to be furnished to Secretary
Under regulations, the lessee and lessor described in subsection
(a) shall, at such times and in such manner as may be provided in
such regulations, furnish to the Secretary -
(1) information concerning the amounts received (or treated as
a rent reduction) and expended as described in subsection (a),
and
(2) any other information which the Secretary deems necessary
to carry out the provisions of this section.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1213(a), Aug. 5, 1997, 111
Stat. 1000.)
-MISC1-
PRIOR PROVISIONS
A prior section 110, act Aug. 16, 1954, ch. 736, 68A Stat. 33,
related to income taxes paid by lessee corporations, prior to
repeal by Pub. L. 101-508, title XI, Sec. 11801(a)(6), Nov. 5,
1990, 104 Stat. 1388-520.
EFFECTIVE DATE
Section 1213(e) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting this section and amending sections
168 and 6724 of this title] shall apply to leases entered into
after the date of the enactment of this Act [Aug. 5, 1997]."
-End-
-CITE-
26 USC Sec. 111 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 111. Recovery of tax benefit items
-STATUTE-
(a) Deductions
Gross income does not include income attributable to the recovery
during the taxable year of any amount deducted in any prior taxable
year to the extent such amount did not reduce the amount of tax
imposed by this chapter.
(b) Credits
(1) In general
If -
(A) a credit was allowable with respect to any amount for any
prior taxable year, and
(B) during the taxable year there is a downward price
adjustment or similar adjustment,
the tax imposed by this chapter for the taxable year shall be
increased by the amount of the credit attributable to the
adjustment.
(2) Exception where credit did not reduce tax
Paragraph (1) shall not apply to the extent that the credit
allowable for the recovered amount did not reduce the amount of
tax imposed by this chapter.
(3) Exception for investment tax credit and foreign tax credit
This subsection shall not apply with respect to the credit
determined under section 46 and the foreign tax credit.
(c) Treatment of carryovers
For purposes of this section, an increase in a carryover which
has not expired before the beginning of the taxable year in which
the recovery or adjustment takes place shall be treated as reducing
tax imposed by this chapter.
(d) Special rules for accumulated earnings tax and for personal
holding company tax
In applying subsection (a) for the purpose of determining the
accumulated earnings tax under section 531 or the tax under section
541 (relating to personal holding companies) -
(1) any excluded amount under subsection (a) allowed for the
purposes of this subtitle (other than section 531 or section 541)
shall be allowed whether or not such amount resulted in a
reduction of the tax under section 531 or the tax under section
541 for the prior taxable year; and
(2) where any excluded amount under subsection (a) was not
allowable as a deduction for the prior taxable year for purposes
of this subtitle other than of section 531 or section 541 but was
allowable for the same taxable year under section 531 or section
541, then such excluded amount shall be allowable if it did not
result in a reduction of the tax under section 531 or the tax
under section 541.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 33; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 96-589,
Sec. 2(c), Dec. 24, 1980, 94 Stat. 3396; Pub. L. 98-369, div. A,
title I, Sec. 171(a), July 18, 1984, 98 Stat. 698; Pub. L. 99-514,
title XVIII, Sec. 1812(a)(1), (2), Oct. 22, 1986, 100 Stat. 2833.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1812(a)(1), substituted
"did not reduce the amount of tax imposed by this chapter" for "did
not reduce income subject to tax".
Subsec. (c). Pub. L. 99-514, Sec. 1812(a)(2), substituted
"reducing tax imposed by this chapter" for "reducing income subject
to tax or reducing tax imposed by this chapter, as the case may
be".
1984 - Pub. L. 98-369 amended section generally, substituting
provisions relating to recovery of tax benefit items for provisions
relating to recovery of bad debts, prior taxes, and delinquency
amounts.
1980 - Subsec. (d). Pub. L. 96-589 added subsec. (d).
1976 - Subsec. (b)(4). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 171(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to amounts
recovered after December 31, 1983, in taxable years ending after
such date."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to transactions which
occur after Dec. 31, 1980, other than transactions which occur in a
proceeding in a bankruptcy case or similar judicial proceeding or
in a proceeding under Title 11 commencing on or after Dec. 31,
1980, with an exception permitting the debtor to make the amendment
applicable to transactions occurring after Sept. 30, 1979, in a
specified manner, see section 7(a)(1), (f) of Pub. L. 96-589, set
out as a note under section 108 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 112 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 112. Certain combat zone compensation of members of the Armed
Forces
-STATUTE-
(a) Enlisted personnel
Gross income does not include compensation received for active
service as a member below the grade of commissioned officer in the
Armed Forces of the United States for any month during any part of
which such member -
(1) served in a combat zone, or
(2) was hospitalized as a result of wounds, disease, or injury
incurred while serving in a combat zone; but this paragraph shall
not apply for any month beginning more than 2 years after the
date of the termination of combatant activities in such zone.
With respect to service in the combat zone designated for purposes
of the Vietnam conflict, paragraph (2) shall not apply to any month
after January 1978.
(b) Commissioned officers
Gross income does not include so much of the compensation as does
not exceed the maximum enlisted amount received for active service
as a commissioned officer in the Armed Forces of the United States
for any month during any part of which such officer -
(1) served in a combat zone, or
(2) was hospitalized as a result of wounds, disease, or injury
incurred while serving in a combat zone; but this paragraph shall
not apply for any month beginning more than 2 years after the
date of the termination of combatant activities in such zone.
With respect to service in the combat zone designated for purposes
of the Vietnam conflict, paragraph (2) shall not apply to any month
after January 1978.
(c) Definitions
For purposes of this section -
(1) The term "commissioned officer" does not include a
commissioned warrant officer.
(2) The term "combat zone" means any area which the President
of the United States by Executive Order designates, for purposes
of this section or corresponding provisions of prior income tax
laws, as an area in which Armed Forces of the United States are
or have (after June 24, 1950) engaged in combat.
(3) Service is performed in a combat zone only if performed on
or after the date designated by the President by Executive Order
as the date of the commencing of combatant activities in such
zone, and on or before the date designated by the President by
Executive Order as the date of the termination of combatant
activities in such zone; except that June 25, 1950, shall be
considered the date of the commencing of combatant activities in
the combat zone designated in Executive Order 10195.
(4) The term "compensation" does not include pensions and
retirement pay.
(5) The term "maximum enlisted amount" means, for any month,
the sum of -
(A) the highest rate of basic pay payable for such month to
any enlisted member of the Armed Forces of the United States at
the highest pay grade applicable to enlisted members, and
(B) in the case of an officer entitled to special pay under
section 310 of title 37, United States Code, for such month,
the amount of such special pay payable to such officer for such
month.
(d) Prisoners of war, etc.
(1) Members of the Armed Forces
Gross income does not include compensation received for active
service as a member of the Armed Forces of the United States for
any month during any part of which such member is in a missing
status (as defined in section 551(2) of title 37, United States
Code) during the Vietnam conflict as a result of such conflict,
other than a period with respect to which it is officially
determined under section 552(c) of such title 37 that he is
officially absent from his post of duty without authority.
(2) Civilian employees
Gross income does not include compensation received for active
service as an employee for any month during any part of which
such employee is in a missing status during the Vietnam conflict
as a result of such conflict. For purposes of this paragraph, the
terms "active service", "employee", and "missing status" have the
respective meanings given to such terms by section 5561 of title
5 of the United States Code.
(3) Period of conflict
For purposes of this subsection, the Vietnam conflict began
February 28, 1961, and ends on the date designated by the
President by Executive order as the date of the termination of
combatant activities in Vietnam. For purposes of this subsection,
an individual is in a missing status as a result of the Vietnam
conflict if immediately before such status began he was
performing service in Vietnam or was performing service in
Southeast Asia in direct support of military operations in
Vietnam.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 34; Pub. L. 89-739, Sec. 1, Nov.
2, 1966, 80 Stat. 1165; Pub. L. 92-279, Sec. 1, Apr. 26, 1972, 86
Stat. 124; Pub. L. 93-597, Sec. 2(a), (b), Jan. 2, 1975, 88 Stat.
1950; Pub. L. 94-569, Sec. 3(b), Oct. 20, 1976, 90 Stat. 2699; Pub.
L. 104-117, Sec. 1(d), Mar. 20, 1996, 110 Stat. 828; Pub. L. 104-
188, title I, Sec. 1704(t)(4)(A), Aug. 20, 1996, 110 Stat. 1887.)
-MISC1-
AMENDMENTS
1996 - Pub. L. 104-188 substituted "combat zone compensation" for
"combat pay" in section catchline.
Subsec. (b). Pub. L. 104-117, Sec. 1(d)(1), substituted "the
maximum enlisted amount" for "$500" in introductory provisions.
Subsec. (c)(5). Pub. L. 104-117, Sec. 1(d)(2), added par. (5).
1976 - Subsec. (a). Pub. L. 94-569 substituted "after January
1978" for "beginning more than 2 years after the date of the
enactment of this sentence" after "With respect to service in the
combat zone designated for purposes of the Vietnam conflict,
paragraph (2) shall not apply to any month".
Subsec. (b). Pub. L. 94-569 substituted "after January 1978" for
"beginning more than 2 years after the date of enactment of this
sentence" after "With respect to service in the combat zone
designated for purposes of the Vietnam conflict, paragraph (2)
shall not apply to any month".
1975 - Subsec. (a). Pub. L. 93-597, Sec. 2(a)(3), inserted
provision relating to the applicability of par. (2) with respect to
service in the combat zone designated for purposes of the Vietnam
conflict.
Subsec. (a)(1). Pub. L. 93-597, Sec. 2(a)(1), struck out "during
an induction period" after "served in a combat zone".
Subsec. (a)(2). Pub. L. 93-597, Sec. 2(a)(2), substituted "; but
this paragraph shall not apply for any month beginning more than 2
years after the date of the termination of combatant activities in
such zone" for "during an induction period; but this paragraph
shall not apply for any month during any part of which there are no
combatant activities in any combat zone as determined under
subsection (c)(3) of this section".
Subsec. (b). Pub. L. 93-597, Sec. 2(a)(3), inserted provision
relating to applicability of par. (2) with respect to service in
the combat zone designated for purposes of the Vietnam conflict.
Subsec. (b)(1). Pub. L. 93-597, Sec. 2(a)(1), struck out "during
an induction period" after "served in a combat zone".
Subsec. (b)(2). Pub. L. 93-597, Sec. 2(a)(2), substituted "; but
this paragraph shall not apply for any month beginning more than 2
years after the date of the termination of combatant activities in
such zone" for "during an induction period; but this paragraph
shall not apply for any month during any part of which there are no
combatant activities in any combat zone as determined under
subsection (c)(3) of this section".
Subsec. (c)(5). Pub. L. 93-597, Sec. 2(b), struck out par. (5)
which defined "induction period".
1972 - Subsec. (d). Pub. L. 92-279 added subsec. (d).
1966 - Subsec. (b). Pub. L. 89-739 substituted "$500" for "$200".
EFFECTIVE DATE OF 1975 AMENDMENT
Section 2(c) of Pub. L. 93-597 provided that: "The amendments
made by this section [amending this section] shall take effect on
July 1, 1973."
EFFECTIVE DATE OF 1972 AMENDMENT
Section 3(a)(1) of Pub. L. 92-279 provided that: "The amendment
made by the first section of this Act [amending this section] shall
apply to taxable years ending on or after February 28, 1961."
EFFECTIVE DATE OF 1966 AMENDMENT
Section 2 of Pub. L. 89-739 provided that: "The amendment made by
the first section of this Act [amending this section] shall apply
with respect to compensation received in taxable years ending after
December 31, 1965, for periods of active service after such date."
SENSE OF CONGRESS REGARDING TAX TREATMENT OF MEMBERS RECEIVING
SPECIAL PAY FOR DUTY SUBJECT TO HOSTILE FIRE OR IMMINENT DANGER
Pub. L. 106-398, Sec. 1 [[div. A], title X, Sec. 1089], Oct. 30,
2000, 114 Stat. 1654, 1654A-294, provided that: "It is the sense of
Congress that members of the Armed Forces who receive special pay
under section 310 of title 37, United States Code, for duty subject
to hostile fire or imminent danger should receive the same
treatment under Federal income tax laws as members serving in
combat zones."
SENSE OF CONGRESS REGARDING TREATMENT UNDER INTERNAL REVENUE CODE
OF MEMBERS RECEIVING HOSTILE FIRE OR IMMINENT DANGER SPECIAL PAY
DURING CONTINGENCY OPERATIONS
Pub. L. 106-65, div. A, title VI, Sec. 677, Oct. 5, 1999, 113
Stat. 676, provided that: "It is the sense of Congress that a
member of the Armed Forces who is receiving special pay under
section 310 of title 37, United States Code, while assigned to duty
in support of a contingency operation should be treated under the
Internal Revenue Code of 1986 in the same manner as a member of the
Armed Forces serving in a combat zone (as defined in section 112 of
the Internal Revenue Code of 1986)."
AVAILABILITY OF CERTAIN TAX BENEFITS FOR SERVICES AS PART OF
OPERATION ALLIED FORCE
Pub. L. 106-21, Sec. 1, Apr. 19, 1999, 113 Stat. 34, provided
that:
"(a) General Rule. - For purposes of the following provisions of
the Internal Revenue Code of 1986, a qualified hazardous duty area
shall be treated in the same manner as if it were a combat zone (as
determined under section 112 of such Code):
"(1) Section 2(a)(3) (relating to special rule where deceased
spouse was in missing status).
"(2) Section 112 (relating to the exclusion of certain combat
pay of members of the Armed Forces).
"(3) Section 692 (relating to income taxes of members of Armed
Forces on death).
"(4) Section 2201 (relating to members of the Armed Forces
dying in combat zone or by reason of combat-zone-incurred wounds,
etc.).
"(5) Section 3401(a)(1) (defining wages relating to combat pay
for members of the Armed Forces).
"(6) Section 4253(d) (relating to the taxation of phone service
originating from a combat zone from members of the Armed Forces).
"(7) Section 6013(f)(1) (relating to joint return where
individual is in missing status).
"(8) Section 7508 (relating to time for performing certain acts
postponed by reason of service in combat zone).
"(b) Qualified Hazardous Duty Area. - For purposes of this
section, the term 'qualified hazardous duty area' means any area of
the Federal Republic of Yugoslavia (Serbia/Montenegro), Albania,
the Adriatic Sea, and the northern Ionian Sea (above the 39th
parallel) during the period (which includes the date of the
enactment of this Act [Apr. 19, 1999]) that any member of the Armed
Forces of the United States is entitled to special pay under
section 310 of title 37, United States Code (relating to special
pay: duty subject to hostile fire or imminent danger) for services
performed in such area.
"(c) Special Rule for Section 7508. - Solely for purposes of
applying section 7508 of the Internal Revenue Code of 1986, in the
case of an individual who is performing services as part of
Operation Allied Force outside the United States while deployed
away from such individual's permanent duty station, the term
'qualified hazardous duty area' includes, during the period for
which the entitlement referred to in subsection (b) is in effect,
any area in which such services are performed.
"(d) Effective Dates. -
"(1) In general. - Except as provided in paragraph (2), this
section shall take effect on March 24, 1999.
"(2) Withholding. - Subsection (a)(5) shall apply to
remuneration paid after the date of the enactment of this Act
[Apr. 19, 1999]."
TREATMENT OF CERTAIN INDIVIDUALS PERFORMING SERVICES IN CERTAIN
HAZARDOUS DUTY AREAS; EFFECTIVE DATE
Section 1 of Pub. L. 104-117 provided that:
"(a) General Rule. - For purposes of the following provisions of
the Internal Revenue Code of 1986, a qualified hazardous duty area
shall be treated in the same manner as if it were a combat zone (as
determined under section 112 of such Code):
"(1) Section 2(a)(3) (relating to special rule where deceased
spouse was in missing status).
"(2) Section 112 (relating to the exclusion of certain combat
pay of members of the Armed Forces).
"(3) Section 692 (relating to income taxes of members of Armed
Forces on death).
"(4) Section 2201 (relating to members of the Armed Forces
dying in combat zone or by reason of combat-zone-incurred wounds,
etc.).
"(5) Section 3401(a)(1) (defining wages relating to combat pay
for members of the Armed Forces).
"(6) Section 4253(d) (relating to the taxation of phone service
originating from a combat zone from members of the Armed Forces).
"(7) Section 6013(f)(1) (relating to joint return where
individual is in missing status).
"(8) Section 7508 (relating to time for performing certain acts
postponed by reason of service in combat zone).
"(b) Qualified Hazardous Duty Area. - For purposes of this
section, the term 'qualified hazardous duty area' means Bosnia and
Herzegovina, Croatia, or Macedonia, if as of the date of the
enactment of this section [Mar. 20, 1996] any member of the Armed
Forces of the United States is entitled to special pay under
section 310 of title 37, United States Code (relating to special
pay; duty subject to hostile fire or imminent danger) for services
performed in such country. Such term includes any such country only
during the period such entitlement is in effect. Solely for
purposes of applying section 7508 of the Internal Revenue Code of
1986, in the case of an individual who is performing services as
part of Operation Joint Endeavor outside the United States while
deployed away from such individual's permanent duty station, the
term 'qualified hazardous duty area' includes, during the period
for which such entitlement is in effect, any area in which such
services are performed.
"(c) Exclusion of Combat Pay From Withholding Limited to Amount
Excludable From Gross Income. - [Amended section 3401 of this
title.]
"(d) Increase in Combat Pay Exclusion for Officers to Highest
Amount Applicable to Enlisted Personnel. -
"(1) In general. - [Amended this section.]
"(2) Maximum enlisted amount. - [Amended this section.]
"(e) Effective Date. -
"(1) In general. - Except as provided in paragraph (2), the
provisions of and amendments made by this section shall take
effect on November 21, 1995.
"(2) Withholding. - Subsection (a)(5) and the amendment made by
subsection (c) shall apply to remuneration paid after the date of
the enactment of this Act [Mar. 20, 1996]."
REFUND OR CREDIT OF OVERPAYMENT; APPLICABLE PERIOD
Section 3(a)(2), (3) of Pub. L. 92-279, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(2) If refund or credit of any overpayment for any taxable year
resulting from the application of the amendment made by the first
section of this Act [amending this section] (including interest,
additions to the tax, and additional amounts) is prevented at any
time before the expiration of the applicable period specified in
paragraph (3) by the operation of any law or rule of law, such
refund or credit of such overpayment may, nevertheless, be made or
allowed if claim therefor is filed before the expiration of such
applicable period.
"(3) For purposes of paragraph (2), the applicable period for any
individual with respect to any compensation is the period ending on
whichever of the following days is the later:
"(A) the day which is one year after the date of the enactment
of this Act [Apr. 26, 1972], or
"(B) the day which is 2 years after the date on which it is
determined that the individual's missing status (within the
meaning of section 112(d) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]) has terminated for purposes of such
section 112."
-EXEC-
EX. ORD. NO. 10585. TERMINATION OF COMBATANT ACTIVITIES IN KOREA
Ex. Ord. No. 10585, Jan. 1, 1955, 20 F.R. 17, provided:
By virtue of the authority vested in me by section 112(c)(3) of
the Internal Revenue Code of 1954 [now I.R.C. 1986], January 31,
1955, as of midnight thereof, is hereby designated as the date of
termination of combatant activities in the zone comprised of the
area described in Executive Order No. 10195 of December 20, 1950
(15 F.R. 9177).
Dwight D. Eisenhower.
EX. ORD. NO. 11216. DESIGNATION OF VIETNAM AND ADJACENT WATERS AS
COMBAT ZONE
Ex. Ord. No. 11216, Apr. 24, 1965, 30 F.R. 5817, provided:
Pursuant to the authority vested in me by section 112 of the
Internal Revenue Code of 1954 [now I.R.C. 1986], I hereby
designate, for the purposes of that section, as an area in which
Armed Forces of the United States are and have been engaged in
combat:
Vietnam, including the waters adjacent thereto within the
following-described limits: From a point on the East Coast of
Vietnam at the juncture of Vietnam with China southeastward to
21º N Lat., 108º15 E
Long.; thence southward to 18º N Lat.,
108º15 E Long.; thence southeastward to
17º30 N Lat., 111º E
Long.; thence southward to 11º N Lat.,
111º E Long.; thence southwestward to
7º N Lat., 105º E Long.;
thence westward to 7º N Lat., 103º E Long.; thence northward to 9º30
N Lat., 103º E Long.; thence northeastward to
10º15 N Lat., 104º27 E
Long.; thence northward to a point on the West Coast of Vietnam at
the juncture of Vietnam with Cambodia.
The date of the commencing of combatant activities in such area
is hereby designated as January 1, 1964.
Lyndon B. Johnson.
EX. ORD. NO. 12744. DESIGNATION OF ARABIAN PENINSULA AREAS,
AIRSPACE, AND ADJACENT WATERS AS COMBAT ZONE
Ex. Ord. No. 12744, Jan. 21, 1991, 56 F.R. 2663, provided:
By the authority vested in me as President by the Constitution
and the laws of the United States of America, including section 112
of the Internal Revenue Code of 1986 (26 U.S.C. 112), I hereby
designate, for purposes of that section, the following locations,
including the airspace above such locations, as an area in which
Armed Forces of the United States are and have been engaged in
combat:
- the Persian Gulf
- the Red Sea
- the Gulf of Oman
- that portion of the Arabian Sea that lies north of 10 degrees
north latitude and west of 68 degrees east longitude
- the Gulf of Aden
- the total land areas of Iraq, Kuwait, Saudi Arabia, Oman,
Bahrain, Qatar, and the United Arab Emirates.
For the purposes of this order, the date of the commencing of
combatant activities in such zone is hereby designated as January
17, 1991.
George Bush.
EX. ORD. NO. 13002. TERMINATION OF COMBAT ZONE DESIGNATION IN
VIETNAM AND WATERS ADJACENT THERETO
Ex. Ord. No. 13002, May 13, 1996, 61 F.R. 24665, provided:
By the authority vested in me as President by the Constitution
and the laws of the United States of America, including section
112(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C.
112(c)(3)), June 30, 1996, as of midnight thereof, is hereby
designated as the date of termination of combatant activities in
the zone comprised of the area described in Executive Order No.
11216 of April 24, 1965 [set out above].
William J. Clinton.
EX. ORD. NO. 13119. DESIGNATION OF FEDERAL REPUBLIC OF YUGOSLAVIA
(SERBIA/MONTENEGRO), ALBANIA, THE AIRSPACE ABOVE, AND ADJACENT
WATERS AS A COMBAT ZONE
Ex. Ord. No. 13119, April 13, 1999, 64 F.R. 18797, provided:
Pursuant to the authority vested in me as President by the
Constitution and laws of the United States of America, including
section 112 of the Internal Revenue Code of 1986 (26 U.S.C. 112), I
designate, for the purposes of that section, the following
locations, including the airspace above such locations, as an area
in which Armed Forces of the United States are and have been
engaged in combat:
- The Federal Republic of Yugoslavia (Serbia/Montenegro);
- Albania;
- the Adriatic Sea;
- the Ionian Sea north of the 39th parallel.
For the purposes of this order, I designate March 24, 1999, as
the date of the commencement of combatant activities in such zone.
William J. Clinton.
EX. ORD. NO. 13239. DESIGNATION OF AFGHANISTAN AND THE AIRSPACE
ABOVE AS A COMBAT ZONE
Ex. Ord. No. 13239, Dec. 12, 2001, 66 F.R. 64907, provided:
Pursuant to the authority vested in me as President by the
Constitution and the laws of the United States of America,
including section 112 of the Internal Revenue Code of 1986 (26
U.S.C. 112), I designate, for purposes of that section,
Afghanistan, including the airspace above, as an area in which
Armed Forces of the United States are and have been engaged in
combat.
For purposes of this order, I designate September 19, 2001, as
the date of the commencement of combatant activities in such zone.
George W. Bush.
-End-
-CITE-
26 USC Sec. 113 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
[Sec. 113. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(7),
Nov. 5, 1990, 104 Stat. 1388-520]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 35, related to
mustering-out payments for members of Armed Forces.
SAVINGS PROVISION
For provisions that nothing in repeal by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 114 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
[Sec. 114. Repealed. Pub. L. 108-357, title I, Sec. 101(a), Oct.
22, 2004, 118 Stat. 1423]
-MISC1-
Section, added Pub. L. 106-519, Sec. 3(a), Nov. 15, 2000, 114
Stat. 2423, related to exclusion of extraterritorial income from
gross income.
A prior section 114, act Aug. 16, 1954, ch. 736, 68A Stat. 35,
related to sports programs conducted for American National Red
Cross, prior to repeal by Pub. L. 101-508, title XI, Sec.
11801(a)(8), Nov. 5, 1990, 104 Stat. 1388-520.
EFFECTIVE DATE OF REPEAL
Repeal applicable to transactions after Dec. 31, 2004, see
section 101(c) of Pub. L. 108-357, set out as an Effective Date of
2004 Amendments note under section 56 of this title.
TRANSITION PROVISIONS
Pub. L. 108-357, title I, Sec. 101(d)-(f), Oct. 22, 2004, 118
Stat. 1423, 1424, provided that:
"(d) Transitional Rule for 2005 and 2006. -
"(1) In general. - In the case of transactions during 2005 or
2006, the amount includible in gross income by reason of the
amendments made by this section [amending sections 56, 275, 864,
903, and 999 of this title and repealing this section and
sections 941 to 943 of this title] shall not exceed the
applicable percentage of the amount which would have been so
included but for this subsection.
"(2) Applicable percentage. - For purposes of paragraph (1),
the applicable percentage shall be as follows:
"(A) For 2005, the applicable percentage shall be 20 percent.
"(B) For 2006, the applicable percentage shall be 40 percent.
"(e) Revocation of Election To Be Treated as Domestic
Corporation. - If, during the 1-year period beginning on the date
of the enactment of this Act [Oct. 22, 2004], a corporation for
which an election is in effect under section 943(e) of the Internal
Revenue Code of 1986 revokes such election, no gain or loss shall
be recognized with respect to property treated as transferred under
clause (ii) of section 943(e)(4)(B) of such Code to the extent such
property -
"(1) was treated as transferred under clause (i) thereof, or
"(2) was acquired during a taxable year to which such election
applies and before May 1, 2003, in the ordinary course of its
trade or business.
The Secretary of the Treasury (or such Secretary's delegate) may
prescribe such regulations as may be necessary to prevent the abuse
of the purposes of this subsection.
"(f) Binding Contracts. - The amendments made by this section
shall not apply to any transaction in the ordinary course of a
trade or business which occurs pursuant to a binding contract -
"(1) which is between the taxpayer and a person who is not a
related person (as defined in section 943(b)(3) of such Code, as
in effect on the day before the date of the enactment of this
Act), and
"(2) which is in effect on September 17, 2003, and at all times
thereafter.
For purposes of this subsection, a binding contract shall include a
purchase option, renewal option, or replacement option which is
included in such contract and which is enforceable against the
seller or lessor."
-End-
-CITE-
26 USC Sec. 115 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 115. Income of States, municipalities, etc.
-STATUTE-
Gross income does not include -
(1) income derived from any public utility or the exercise of
any essential governmental function and accruing to a State or
any political subdivision thereof, or the District of Columbia;
or
(2) income accruing to the government of any possession of the
United States, or any political subdivision thereof.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 35; Pub. L. 94-455, title XIX,
Sec. 1901(a)(19), Oct. 4, 1976, 90 Stat. 1766.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 struck out "(a) General rule" before "Gross
income does not include", struck out subsecs. (b) and (c) which
related to contracts concerning public utilities made before Sept.
8, 1916, and contracts concerning bridge acquisition made before
May 29, 1928, respectively, and in par. (1) of former subsec. (a),
struck out "or territory" after "accruing to a State".
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
TAX TREATMENT OF STATE OWNERSHIP OF RAILROAD REAL ESTATE INVESTMENT
TRUST
Pub. L. 109-59, title XI, Sec. 11146, Aug. 10, 2005, 119 Stat.
1966, provided that:
"(a) In General. - If a State owns all of the outstanding stock
of a corporation -
"(1) which is a real estate investment trust on the date of the
enactment of this Act [Aug. 10, 2005],
"(2) which is a non-operating class III railroad, and
"(3) substantially all of the activities of which consist of
the ownership, leasing, and operation by such corporation of
facilities, equipment, and other property used by the corporation
or other persons for railroad transportation and for economic
development purposes for the benefit of the State and its
citizens, then, to the extent such activities are of a type which
are an essential governmental function within the meaning of
section 115 of the Internal Revenue Code of 1986, income derived
from such activities by the corporation shall be treated as
accruing to the State for purposes of section 115 of such Code.
"(b) Gain or Loss not Recognized on Conversion. - Notwithstanding
section 337(d) of the Internal Revenue Code of 1986 -
"(1) no gain or loss shall be recognized under section 336 or
337 of such Code, and
"(2) no change in basis of the property of such corporation
shall occur, because of any change of status of a corporation to
a tax-exempt entity by reason of the application of subsection
(a).
"(c) Tax-Exempt Financing. -
"(1) In general. - Any obligation issued by a corporation
described in subsection (a) at least 95 percent of the net
proceeds (as defined in section 150(a) of the Internal Revenue
Code of 1986) of which are to be used to provide for the
acquisition, construction, or improvement of railroad
transportation infrastructure (including railroad terminal
facilities) -
"(A) shall be treated as a State or local bond (within the
meaning of section 103(c) of such Code), and
"(B) shall not be treated as a private activity bond (within
the meaning of section 103(b)(1) of such Code) solely by reason
of the ownership or use of such railroad transportation
infrastructure by the corporation.
"(2) No inference. - Except as provided in paragraph (1),
nothing in this subsection shall be construed to affect the
treatment of the private use of proceeds or property financed
with obligations issued by the corporation for purposes of
section 103 of the Internal Revenue Code of 1986 and part IV of
subchapter B [probably means part IV of subchapter B of chapter
1] of such Code.
"(d) Definitions. - For purposes of this section:
"(1) Real estate investment trust. - The term 'real estate
investment trust' has the meaning given such term by section
856(a) of the Internal Revenue Code of 1986.
"(2) Non-operating class iii railroad. - The term 'non-
operating class III railroad' has the meaning given such term by
part A of subtitle IV of title 49, United States Code (49 U.S.C.
10101 et seq.), and the regulations thereunder.
"(3) State. - The term 'State' includes -
"(A) the District of Columbia and any possession of the
United States, and
"(B) any authority, agency, or public corporation of a State.
"(e) Applicability. -
"(1) In general. - Except as provided in paragraph (2), this
section shall apply on and after the date on which a State
becomes the owner of all of the outstanding stock of a
corporation described in subsection (a) through action of such
corporation's board of directors.
"(2) Exception. - This section shall not apply to any State
which -
"(A) becomes the owner of all of the voting stock of a
corporation described in subsection (a) after December 31,
2003, or
"(B) becomes the owner of all of the outstanding stock of a
corporation described in subsection (a) after December 31,
2006."
-End-
-CITE-
26 USC Sec. 116 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
[Sec. 116. Repealed. Pub. L. 99-514, title VI, Sec. 612(a), Oct.
22, 1986, 100 Stat. 2250]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 37; June 25,
1959, Pub. L. 86-69, Sec. 3(a)(2), 73 Stat. 139; Sept. 14, 1960,
Pub. L. 86-779, Sec. 10(f), 74 Stat. 1009; Feb. 26, 1964, Pub. L.
88-272, title II, Sec. 201(c), (d)(6)(C), 78 Stat. 32; Nov. 13,
1966, Pub. L. 89-809, title I, Sec. 103(g), 80 Stat. 1552; Oct. 4,
1976, Pub. L. 94-455, title X, Secs. 1051(h)(2), 1053(d)(1), title
XIX, Sec. 1901(a)(20), 90 Stat. 1647, 1649, 1766; Apr. 2, 1980,
Pub. L. 96-223, title IV, Sec. 404(a), 94 Stat. 305; Aug. 13, 1981,
Pub. L. 97-34, title III, Sec. 302(b)(2), 95 Stat. 272; July 18,
1984, Pub. L. 98-369, div. A, title V, Sec. 542(b), 98 Stat. 891,
authorized partial exclusion of dividends received by individuals.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1986,
see section 612(c) of Pub. L. 99-514, set out as an Effective Date
of 1986 Amendment note under section 301 of this title.
-End-
-CITE-
26 USC Sec. 117 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 117. Qualified scholarships
-STATUTE-
(a) General rule
Gross income does not include any amount received as a qualified
scholarship by an individual who is a candidate for a degree at an
educational organization described in section 170(b)(1)(A)(ii).
(b) Qualified scholarship
For purposes of this section -
(1) In general
The term "qualified scholarship" means any amount received by
an individual as a scholarship or fellowship grant to the extent
the individual establishes that, in accordance with the
conditions of the grant, such amount was used for qualified
tuition and related expenses.
(2) Qualified tuition and related expenses
For purposes of paragraph (1), the term "qualified tuition and
related expenses" means -
(A) tuition and fees required for the enrollment or
attendance of a student at an educational organization
described in section 170(b)(1)(A)(ii), and
(B) fees, books, supplies, and equipment required for courses
of instruction at such an educational organization.
(c) Limitation
(1) In general
Except as provided in paragraph (2), subsections (a) and (d)
shall not apply to that portion of any amount received which
represents payment for teaching, research, or other services by
the student required as a condition for receiving the qualified
scholarship or qualified tuition reduction.
(2) Exceptions
Paragraph (1) shall not apply to any amount received by an
individual under -
(A) the National Health Service Corps Scholarship Program
under section 338A(g)(1)(A) of the Public Health Service Act,
or
(B) the Armed Forces Health Professions Scholarship and
Financial Assistance program under subchapter I of chapter 105
of title 10, United States Code.
(d) Qualified tuition reduction
(1) In general
Gross income shall not include any qualified tuition reduction.
(2) Qualified tuition reduction
For purposes of this subsection, the term "qualified tuition
reduction" means the amount of any reduction in tuition provided
to an employee of an organization described in section
170(b)(1)(A)(ii) for the education (below the graduate level) at
such organization (or another organization described in section
170(b)(1)(A)(ii)) of -
(A) such employee, or
(B) any person treated as an employee (or whose use is
treated as an employee use) under the rules of section 132(h).
(3) Reduction must not discriminate in favor of highly
compensated, etc.
Paragraph (1) shall apply with respect to any qualified tuition
reduction provided with respect to any highly compensated
employee only if such reduction is available on substantially the
same terms to each member of a group of employees which is
defined under a reasonable classification set up by the employer
which does not discriminate in favor of highly compensated
employees (within the meaning of section 414(q)). For purposes of
this paragraph, the term "highly compensated employee" has the
meaning given such term by section 414(q).
[(4) Repealed. Pub. L. 101-140, title II, Sec. 203(a)(1), (2),
Nov. 8, 1989, 103 Stat. 830]
(5) Special rules for teaching and research assistants
In the case of the education of an individual who is a graduate
student at an educational organization described in section
170(b)(1)(A)(ii) and who is engaged in teaching or research
activities for such organization, paragraph (2) shall be applied
as if it did not contain the phrase "(below the graduate level)".
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 38; Pub. L. 87-256, Sec. 110(a),
Sept. 21, 1961, 75 Stat. 535; Pub. L. 94-455, title XIX, Sec.
1901(b)(8)(A), (c)(3), Oct. 4, 1976, 90 Stat. 1794, 1803; Pub. L.
96-541, Sec. 5(a)(1), Dec. 17, 1980, 94 Stat. 3205; Pub. L. 98-369,
div. A, title V, Sec. 532(a), July 18, 1984, 98 Stat. 887; Pub. L.
99-514, title I, Sec. 123(a), title XI, Secs. 1114(b)(2),
1151(g)(2), Oct. 22, 1986, 100 Stat. 2112, 2450, 2506; Pub. L. 100-
647, title I, Sec. 1011B(a)(31)(B), title IV, Sec. 4001(b)(2),
Nov. 10, 1988, 102 Stat. 3488, 3643; Pub. L. 101-140, title II,
Sec. 203(a)(1), (2), Nov. 8, 1989, 103 Stat. 830; Pub. L. 104-188,
title I, Sec. 1703(n)(14), Aug. 20, 1996, 110 Stat. 1878; Pub. L.
107-16, title IV, Sec. 413(a), June 7, 2001, 115 Stat. 64.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Section 338A(g)(1)(A) of the Public Health Service Act, referred
to in subsec. (c)(2)(A), is classified to section 254l(g)(1)(A) of
Title 42, The Public Health and Welfare.
-MISC1-
AMENDMENTS
2001 - Subsec. (c). Pub. L. 107-16, Secs. 413(a), 901,
temporarily designated existing provisions as par. (1), inserted
par. heading, substituted "Except as provided in paragraph (2),
subsections (a)" for "Subsections (a)", and added par. (2). See
Effective and Termination Dates of 2001 Amendment note below.
1996 - Subsec. (d)(2)(B). Pub. L. 104-188 substituted "section
132(h)" for "section 132(f)".
1989 - Subsec. (d)(4). Pub. L. 101-140, Sec. 203(a)(2), amended
par. (4) to read as if amendments by Pub. L. 100-647, Sec.
1011B(a)(31)(B), had not been enacted, see 1988 Amendment note
below.
Pub. L. 101-140, Sec. 203(a)(1), amended subsec. (d) to read as
if amendments by Pub. L. 99-514, Sec. 1151(g)(2), which added par.
(4), had not been enacted, see 1986 Amendment note below.
1988 - Subsec. (d)(4). Pub. L. 100-647, Sec. 1011B(a)(31)(B),
substituted "there shall" for "there may" and "who are" for "who
may be".
Subsec. (d)(5). Pub. L. 100-647, Sec. 4001(b)(2), added par. (5).
1986 - Pub. L. 99-514, Sec. 123(a), in amending section
generally, substituted "Qualified scholarships" for "Scholarships
and fellowship grants" in section catchline.
Subsec. (a). Pub. L. 99-514, Sec. 123(a), amended subsec. (a)
generally. Prior to amendment, subsec. (a) read as follows: "In the
case of an individual, gross income does not include -
"(1) any amount received -
"(A) as a scholarship at an educational organization
described in section 170(b)(1)(A)(ii), or
"(B) as a fellowship grant, including the value of
contributed services and accommodations; and
"(2) any amount received to cover expenses for -
"(A) travel,
"(B) research,
"(C) clerical help, or
"(D) equipment,
which are incident to such a scholarship or to a fellowship
grant, but only to the extent that the amount is so expended by
the recipient."
Subsec. (b). Pub. L. 99-514, Sec. 123(a), in amending subsec. (b)
generally, substituted qualified scholarship provision for former
limitations provision, which related in par. (1) to individuals who
were candidates for degrees, and in par. (2) to individuals who
were not candidates for degrees, describing in subpar. (A)
conditions for exclusion and in subpar. (B) extent of exclusion,
such detailed provision now covered in subsec. (c).
Subsec. (c). Pub. L. 99-514, Sec. 123(a), in amending subsec. (c)
generally, substituted limitation provision for former provision
relating to Federal grants for tuition and related expenses not
includable merely because there was requirement of future service
as Federal employee.
Subsec. (d). Pub. L. 99-514, Sec. 123(a), in amending subsec. (d)
generally, substituted "reduction" for "reductions" in heading and
inserted "(within the meaning of section 414(q))" after "highly
compensated employees" in par. (3).
Subsec. (d)(3). Pub. L. 99-514, Sec. 1114(b)(2), struck out
"officer, owner, or" after "with respect to any" and "officers,
owners, or" after "in favor of" and inserted at end "For purposes
of this paragraph, the term 'highly compensated employee' has the
meaning given such term by section 414(q)."
Subsec. (d)(4). Pub. L. 99-514, Sec. 1151(g)(2), added par. (4).
1984 - Subsec. (d). Pub. L. 98-369 added subsec. (d).
1980 - Subsec. (c). Pub. L. 96-541 added subsec. (c).
1976 - Subsecs. (a)(1)(A), (b)(1), (2). Pub. L. 94-455, Sec.
1901(b)(8)(A), substituted "educational organization described in
section 170(b)(1)(A)(ii)" for "educational institution (as defined
in section 151(e)(4))" after "scholarship at an".
Subsec. (b)(2)(A)(iv). Pub. L. 94-455, Sec. 1901(c)(3), struck
out "a territory" after "or a State".
Subsec. (b)(2)(B). Pub. L. 94-455, Sec. 1901(b)(8)(A),
substituted "educational organization described in section
170(b)(1)(A)(ii)" for "educational institution (as defined in
section 151(e)(4))" after "degree at an".
1961 - Subsec. (b)(2)(A). Pub. L. 87-256 included cases where the
grantor of the scholarship or fellowship grant is a foreign
government, an international organization, or a binational or
multinational educational and cultural foundation or commission
created or continued pursuant to the Mutual Educational and
Cultural Exchange Act of 1961.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title IV, Sec. 413(b), June 7, 2001, 115 Stat.
64, provided that: "The amendments made by subsection (a) [amending
this section] shall apply to amounts received in taxable years
beginning after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective as if included in the
provision of the Revenue Reconciliation Act of 1993, Pub. L. 103-
66, Secs. 13001-13444, to which such amendment relates, see
section 1703(o) of Pub. L. 104-188, set out as a note under section
39 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-140 effective as if included in section
1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set
out as a note under section 79 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1011B(a)(31)(B) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 4001(c) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending this section and section 127 of this
title] shall apply to taxable years beginning after December 31,
1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 123(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, but only in the case
of scholarships and fellowships granted after Aug. 16, 1986, see
section 151(d) of Pub. L. 99-514, set out as a note under section 1
of this title.
Amendment by section 1114(b)(2) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Amendment by section 1151(g)(2) of Pub. L. 99-514 applicable,
with certain qualifications and exceptions, to years beginning
after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-514, as
amended, set out as a note under section 79 of this title.
EFFECTIVE DATE OF 1984 AMENDMENTS
Section 532(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by this section [amending this section] shall apply
to qualified tuition reductions (as defined in section 117(d)(2) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) for
education furnished after June 30, 1985, in taxable years ending
after such date."
Provisions of subsec. (d) treated as in effect on and after Jan.
1, 1984, in case of education described in section 127(c)(8) of
this title, see section 1(g)(5) of Pub. L. 98-611, set out as a
note under section 127 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Section 5(a)(2) of Pub. L. 96-541 provided: "The amendment made
by paragraph (1) [amending this section] shall apply to taxable
years beginning after December 31, 1980."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1961 AMENDMENT
Section 110(h)(1) of Pub. L. 87-256 provided that: "The
amendments made by subsections (a), (b), and (c) of this section
[amending this section and sections 871 and 872 of this title]
shall apply to taxable years beginning after December 31, 1961."
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514
FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement
or enforce section 1151 of Pub. L. 99-514 or the amendments made by
such section, see section 528 of Pub. L. 101-136, set out as a note
under section 89 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUBLIC LAW 99-514 IN
RELATION TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 123(a) of Pub. L. 99-
514 to the extent application of such amendment would be contrary
to any treaty obligation of the United States in effect on Oct. 22,
1986, with provision that for such purposes any amendment by title
I of Pub. L. 100-647 be treated as if it had been included in the
provision of Pub. L. 99-514 to which such amendment relates, see
section 1012(aa)(3), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TRANSITIONAL RULES FOR TREATMENT OF CERTAIN REDUCTIONS IN TUITION
Section 1853(f) of Pub. L. 99-514 provided that:
"(1) A tuition reduction plan shall be treated as meeting the
requirements of section 117(d)(3) of the Internal Revenue Code of
1954 [now 1986] if -
"(A) such plan would have met the requirements of such section
(as amended by this section but without regard to the lack of
evidence that benefits under such plan were the subject of good
faith bargaining) on the day on which eligibility to participate
in the plan was closed,
"(B) at all times thereafter, the tuition reductions available
under such plan are available on substantially the same terms to
all employees eligible to participate in such plan, and
"(C) the eligibility to participate in such plan closed on June
30, 1972, June 30, 1974, or December 31, 1975.
"(2) For purposes of applying section 117(d)(3) of the Internal
Revenue Code of 1954 [now 1986] to all tuition reduction plans of
an employer with at least 1 such plan described in paragraph (1) of
this subsection, there shall be excluded from consideration
employees not included in the plan who are included in a unit of
employees covered by an agreement that the Secretary of the
Treasury or his delegate finds to be a collective bargaining
agreement between employee representatives and 1 or more employers,
if, with respect to plans other than plans described in paragraph
(1), there is evidence that such benefits were the subject of good
faith bargaining.
"(3) Any reduction in tuition provided with respect to a full-
time course of education furnished at the graduate level before
July 1, 1988, shall not be included in gross income if -
"(A) such reduction would not be included in gross income under
the Internal Revenue Service regulations in effect on the date of
the enactment of the Tax Reform Act of 1984 [July 18, 1984], and
"(B) such reduction is provided with respect to a student who
was accepted for admission to such course of education before
July 1, 1984, and began such course of education before June 30,
1985."
NATIONAL RESEARCH SERVICE AWARDS
Pub. L. 95-600, title I, Sec. 161(b), Nov. 6, 1978, 92 Stat.
2810, as amended by Pub. L. 96-167, Sec. 9(b), Dec. 29, 1979, 93
Stat. 1278; Pub. L. 96-541, Sec. 5(b), Dec. 17, 1980, 94 Stat.
3206; Pub. L. 97-248, title II, Sec. 285, Sept. 3, 1982, 96 Stat.
569; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that any amount paid to, or on behalf of, an individual as
a national research service award under former section 289l-1 of
title 42 during calendar years 1974 through 1983 was to be treated
as a scholarship or fellowship grant under this section.
SCHOLARSHIP PROGRAMS FOR MEMBERS OF THE UNIFORMED SERVICES
Pub. L. 93-483, Sec. 4, Oct. 26, 1974, 88 Stat. 1458, as amended
Pub. L. 94-455, title XXI, Sec. 2130, Oct. 4, 1976, 90 Stat. 1922;
Pub. L. 95-171, Sec. 5, Nov. 12, 1977, 91 Stat. 1355; Pub. L. 95-
600, title I, Sec. 161(a), Nov. 6, 1978, 92 Stat. 2810; Pub. L. 95-
615, title I, Sec. 6, Nov. 8, 1978, 92 Stat. 3098; Pub. L. 96-167,
Sec. 9(a), Dec. 29, 1979, 93 Stat. 1278; Pub. L. 99-514, Sec. 2,
Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) In General. - Any amount received from appropriated funds as
a scholarship, including the value of contributed services and
accommodations, by a member of a uniformed service who is receiving
training under the Armed Forces Health Professions Scholarship
Program (or any other program determined by the Secretary of the
Treasury or his delegate to have substantially similar objectives)
from an educational institution (as defined in section 151(e)(4) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) [see
section 170(b)(1)(A)(ii) of this title] shall be treated as a
scholarship under section 117 of such Code [this section], whether
that member is receiving training while on active duty or in an off-
duty or inactive status, and without regard to whether a period of
active duty is required of the member as a condition of receiving
those payments.
"(b) Definition of Uniformed Services. - For purposes of this
section, the term 'uniformed service' has the meaning given it by
section 101(3) of title 37, United States Code.
"(c) Effective Date. - The provisions of this section shall apply
with respect to amounts received during calendar years 1973, 1974,
and 1975, and, in the case of a member of a uniformed service
receiving training after 1975 and before 1981 in programs described
in subsection (a), with respect to amounts received after 1975 and
before 1985."
[Section 6 of Pub. L. 95-615, which reenacted Sec. 4(c) of Pub.
L. 93-483 without change, to cease to have effect on the day after
Nov. 8, 1978, see section 210(a) of Pub. L. 95-615, set out as a
note under section 61 of this title.]
-End-
-CITE-
26 USC Sec. 118 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 118. Contributions to the capital of a corporation
-STATUTE-
(a) General rule
In the case of a corporation, gross income does not include any
contribution to the capital of the taxpayer.
(b) Contributions in aid of construction, etc.
For purposes of subsection (a), except as provided in subsection
(c), the term "contribution to the capital of the taxpayer" does
not include any contribution in aid of construction or any other
contribution as a customer or potential customer.
(c) Special rules for water and sewerage disposal utilities
(1) General rule
For purposes of this section, the term "contribution to the
capital of the taxpayer" includes any amount of money or other
property received from any person (whether or not a shareholder)
by a regulated public utility which provides water or sewerage
disposal services if -
(A) such amount is a contribution in aid of construction,
(B) in the case of contribution of property other than water
or sewerage disposal facilities, such amount meets the
requirements of the expenditure rule of paragraph (2), and
(C) such amount (or any property acquired or constructed with
such amount) is not included in the taxpayer's rate base for
ratemaking purposes.
(2) Expenditure rule
An amount meets the requirements of this paragraph if -
(A) an amount equal to such amount is expended for the
acquisition or construction of tangible property described in
section 1231(b) -
(i) which is the property for which the contribution was
made or is of the same type as such property, and
(ii) which is used predominantly in the trade or business
of furnishing water or sewerage disposal services,
(B) the expenditure referred to in subparagraph (A) occurs
before the end of the second taxable year after the year in
which such amount was received, and
(C) accurate records are kept of the amounts contributed and
expenditures made, the expenditures to which contributions are
allocated, and the year in which the contributions and
expenditures are received and made.
(3) Definitions
For purposes of this subsection -
(A) Contribution in aid of construction
The term "contribution in aid of construction" shall be
defined by regulations prescribed by the Secretary, except that
such term shall not include amounts paid as service charges for
starting or stopping services.
(B) Predominantly
The term "predominantly" means 80 percent or more.
(C) Regulated public utility
The term "regulated public utility" has the meaning given
such term by section 7701(a)(33), except that such term shall
not include any utility which is not required to provide water
or sewerage disposal services to members of the general public
in its service area.
(4) Disallowance of deductions and credits; adjusted basis
Notwithstanding any other provision of this subtitle, no
deduction or credit shall be allowed for, or by reason of, any
expenditure which constitutes a contribution in aid of
construction to which this subsection applies. The adjusted basis
of any property acquired with contributions in aid of
construction to which this subsection applies shall be zero.
(d) Statute of limitations
If the taxpayer for any taxable year treats an amount as a
contribution to the capital of the taxpayer described in subsection
(c), then -
(1) the statutory period for the assessment of any deficiency
attributable to any part of such amount shall not expire before
the expiration of 3 years from the date the Secretary is notified
by the taxpayer (in such manner as the Secretary may prescribe)
of -
(A) the amount of the expenditure referred to in subparagraph
(A) of subsection (c)(2),
(B) the taxpayer's intention not to make the expenditures
referred to in such subparagraph, or
(C) a failure to make such expenditure within the period
described in subparagraph (B) of subsection (c)(2), and
(2) such deficiency may be assessed before the expiration of
such 3-year period notwithstanding the provisions of any other
law or rule of law which would otherwise prevent such assessment.
(e) Cross references
(1) For basis of property acquired by a corporation through a
contribution to its capital, see section 362.
(2) For special rules in the case of contributions of
indebtedness, see section 108(e)(6).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 39; Pub. L. 94-455, title XXI,
Sec. 2120(a), Oct. 4, 1976, 90 Stat. 1912; Pub. L. 95-600, title
III, Sec. 364(a), Nov. 6, 1978, 92 Stat. 2854; Pub. L. 96-589, Sec.
2(e)(2), Dec. 24, 1980, 94 Stat. 3396; Pub. L. 98-369, div. A,
title I, Sec. 163(a), July 18, 1984, 98 Stat. 697; Pub. L. 99-514,
title VIII, Sec. 824(a), Oct. 22, 1986, 100 Stat. 2374; Pub. L. 104-
188, title I, Sec. 1613(a)(1), (2), Aug. 20, 1996, 110 Stat. 1848-
1850.)
-MISC1-
AMENDMENTS
1996 - Subsec. (b). Pub. L. 104-188, Sec. 1613(a)(2), inserted
"except as provided in subsection (c)," before "the term".
Subsecs. (c) to (e). Pub. L. 104-188, Sec. 1613(a)(1), added
subsecs. (c) and (d) and redesignated former subsec. (c) as (e).
1986 - Subsec. (b). Pub. L. 99-514, Sec. 824(a), added subsec.
(b) and struck out former subsec. (b) relating to contributions in
aid of construction, containing par. (1) general rule, par. (2)
expenditure rule, par. (3) definitions, and par. (4) disallowance
of deductions and investment credit; adjusted basis.
Subsecs. (c), (d). Pub. L. 99-514, Sec. 824(a), redesignated
former subsec. (d) as (c) and struck out former subsec. (c),
statute of limitations, which read as follows: "If the taxpayer for
any taxable year treats an amount as a contribution to the capital
of the taxpayer described in subsection (b), then -
"(1) the statutory period for the assessment of any deficiency
attributable to any part of such amount shall not expire before
the expiration of 3 years from the date the Secretary is notified
by the taxpayer (in such manner as the Secretary may prescribe)
of -
"(A) the amount of the expenditure referred to in
subparagraph (A) of subsection (b)(2),
"(B) the taxpayer's intention not to make the expenditures
referred to in such subparagraph, or
"(C) a failure to make such expenditure within the period
described in subparagraph (B) of subsection (b)(2); and
"(2) such deficiency may be assessed before the expiration of
such 3-year period notwithstanding the provisions of any other
law or rule of law which would otherwise prevent such
assessment."
1984 - Subsecs. (c), (d). Pub. L. 98-369 added subsec. (c) and
redesignated former subsec. (c) as (d).
1980 - Subsec. (c). Pub. L. 96-589 designated existing provisions
as par. (1) and added par. (2).
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 364(a)(1), (2),
substituted in provisions preceding subpar. (A) "electric energy,
gas (through a local distribution system or transportation by
pipeline), water," for "water" and in subpar. (B) "electric energy,
gas, steam, water," for "water".
Subsec. (b)(2)(A)(ii). Pub. L. 95-600, Sec. 364(a)(3),
substituted "electric energy, gas, steam, water," for "water".
Subsec. (b)(3)(A). Pub. L. 95-600, Sec. 364(a)(4), substituted
"line to an electric line, a gas main, a steam line, or a main
water or sewer line" for "property to a main water or sewer line".
Subsec. (b)(3)(C). Pub. L. 95-600, Sec. 364(a)(5), substituted
"electric energy, gas, water," for "water" and inserted "(including
in the case of a gas transmission utility, the provision of gas
services by sale for resale to the general public)" after "members
of the general public".
1976 - Subsecs. (b), (c). Pub. L. 94-455, Sec. 2120(a), added
subsec. (b) and redesignated former subsec. (b) as (c).
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1613(a)(3) of Pub. L. 104-188 provided that: "The
amendments made by this subsection [amending this section] shall
apply to amounts received after June 12, 1996."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 824(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(j)(2), Nov. 10, 1988, 102 Stat. 3445, provided
that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and section 362 of this title] shall apply to amounts
received after December 31, 1986, in taxable years ending after
such date.
"(2) Treatment of certain water supply projects. - The amendments
made by this section shall not apply to amounts which are paid by
the New Jersey Department of Environmental Protection for
construction of alternative water supply projects in zones of
drinking water contamination and which are designated by such
department as being taken into account under this paragraph. Not
more than $4,631,000 of such amounts may be designated under the
preceding sentence.
"(3) Treatment of certain contributions by transportation
authority. - The amendments made by this section shall not apply to
contributions in aid of construction by a qualified transportation
authority which were clearly identified in a master plan in
existence on September 13, 1984, and which are designated by such
authority as being taken into account under this paragraph. Not
more than $68,000,000 of such contributions may be designated under
the preceding sentence. For purposes of this paragraph, a qualified
transportation authority is an entity which was created on February
20, 1967, and which was established by an interstate compact and
consented to by Congress in Public Law 89-774, 80 Stat. 1324
(1966).
"(4) Treatment of certain partnerships. - In the case of a
partnership with a taxable year beginning May 1, 1986, if such
partnership realized net capital gain during the period beginning
on the 1st day of such taxable year and ending on May 29, 1986,
pursuant to an underwriting agreement dated May 6, 1986, then such
partnership may elect to treat each asset to which such net capital
gain relates as having been distributed to the partners of such
partnership in proportion to their distributive share of the
capital gain or loss realized by the partnership with respect to
such asset and to treat each such asset as having been sold by each
partner on the date of the sale of the asset by the partnership. If
such an election is made, the consideration received by the
partnership in connection with the sale of such assets shall be
treated as having been received by the partners in connection with
the deemed sale of such assets. In the case of a tiered
partnership, for purposes of this paragraph each partnership shall
be treated as having realized net capital gain equal to its
proportionate share of the net capital gain of each partnership in
which it is a partner, and the election provided by this paragraph
shall apply to each tier."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 163(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and sections
6501 and 6511 of this title] shall apply to expenditures with
respect to which the second taxable year described in section
118(b)(2)(B) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] ends after December 31, 1984."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to transactions which
occur after Dec. 31, 1980, other than transactions which occur in a
proceeding in a bankruptcy case or similar judicial proceeding or
in a proceeding under Title 11 commencing on or after Dec. 31,
1980, with an exception permitting the debtor to make the amendment
applicable to transactions occurring after Sept. 30, 1979, in a
specified manner, see section 7(a)(1), (f) of Pub. L. 96-589, set
out as a note under section 108 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 364(b) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section] shall apply to
contributions made after January 31, 1976."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2120(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and section 362 of this
title] apply to contributions made after January 31, 1976."
-End-
-CITE-
26 USC Sec. 119 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 119. Meals or lodging furnished for the convenience of the
employer
-STATUTE-
(a) Meals and lodging furnished to employee, his spouse, and his
dependents, pursuant to employment
There shall be excluded from gross income of an employee the
value of any meals or lodging furnished to him, his spouse, or any
of his dependents by or on behalf of his employer for the
convenience of the employer, but only if -
(1) in the case of meals, the meals are furnished on the
business premises of the employer, or
(2) in the case of lodging, the employee is required to accept
such lodging on the business premises of his employer as a
condition of his employment.
(b) Special rules
For purposes of subsection (a) -
(1) Provisions of employment contract or State statute not to be
determinative
In determining whether meals or lodging are furnished for the
convenience of the employer, the provisions of an employment
contract or of a State statute fixing terms of employment shall
not be determinative of whether the meals or lodging are intended
as compensation.
(2) Certain factors not taken into account with respect to meals
In determining whether meals are furnished for the convenience
of the employer, the fact that a charge is made for such meals,
and the fact that the employee may accept or decline such meals,
shall not be taken into account.
(3) Certain fixed charges for meals
(A) In general
If -
(i) an employee is required to pay on a periodic basis a
fixed charge for his meals, and
(ii) such meals are furnished by the employer for the
convenience of the employer,
there shall be excluded from the employee's gross income an
amount equal to such fixed charge.
(B) Application of subparagraph (A)
Subparagraph (A) shall apply -
(i) whether the employee pays the fixed charge out of his
stated compensation or out of his own funds, and
(ii) only if the employee is required to make the payment
whether he accepts or declines the meals.
(4) Meals furnished to employees on business premises where meals
of most employees are otherwise excludable
All meals furnished on the business premises of an employer to
such employer's employees shall be treated as furnished for the
convenience of the employer if, without regard to this paragraph,
more than half of the employees to whom such meals are furnished
on such premises are furnished such meals for the convenience of
the employer.
(c) Employees living in certain camps
(1) In general
In the case of an individual who is furnished lodging in a camp
located in a foreign country by or on behalf of his employer,
such camp shall be considered to be part of the business premises
of the employer.
(2) Camp
For purposes of this section, a camp constitutes lodging which
is -
(A) provided by or on behalf of the employer for the
convenience of the employer because the place at which such
individual renders services is in a remote area where
satisfactory housing is not available on the open market,
(B) located, as near as practicable, in the vicinity of the
place at which such individual renders services, and
(C) furnished in a common area (or enclave) which is not
available to the public and which normally accommodates 10 or
more employees.
(d) Lodging furnished by certain educational institutions to
employees
(1) In general
In the case of an employee of an educational institution, gross
income shall not include the value of qualified campus lodging
furnished to such employee during the taxable year.
(2) Exception in cases of inadequate rent
Paragraph (1) shall not apply to the extent of the excess of -
(A) the lesser of -
(i) 5 percent of the appraised value of the qualified
campus lodging, or
(ii) the average of the rentals paid by individuals (other
than employees or students of the educational institution)
during such calendar year for lodging provided by the
educational institution which is comparable to the qualified
campus lodging provided to the employee, over
(B) the rent paid by the employee for the qualified campus
lodging during such calendar year.
The appraised value under subparagraph (A)(i) shall be determined
as of the close of the calendar year in which the taxable year
begins, or, in the case of a rental period not greater than 1
year, at any time during the calendar year in which such period
begins.
(3) Qualified campus lodging
For purposes of this subsection, the term "qualified campus
lodging" means lodging to which subsection (a) does not apply and
which is -
(A) located on, or in the proximity of, a campus of the
educational institution, and
(B) furnished to the employee, his spouse, and any of his
dependents by or on behalf of such institution for use as a
residence.
(4) Educational institution, etc.
For purposes of this subsection -
(A) In general
The term "educational institution" means -
(i) an institution described in section 170(b)(1)(A)(ii)
(or an entity organized under State law and composed of
public institutions so described), or
(ii) an academic health center.
(B) Academic health center
For purposes of subparagraph (A), the term "academic health
center" means an entity -
(i) which is described in section 170(b)(1)(A)(iii),
(ii) which receives (during the calendar year in which the
taxable year of the taxpayer begins) payments under
subsection (d)(5)(B) or (h) of section 1886 of the Social
Security Act (relating to graduate medical education), and
(iii) which has as one of its principal purposes or
functions the providing and teaching of basic and clinical
medical science and research with the entity's own faculty.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 39; Pub. L. 95-427, Sec. 4(a),
Oct. 7, 1978, 92 Stat. 997; Pub. L. 95-615, title II, Sec. 205,
Nov. 8, 1978, 92 Stat. 3107; Pub. L. 96-222, title I, Sec.
108(a)(1)(G), Apr. 1, 1980, 94 Stat. 225; Pub. L. 97-34, title I,
Sec. 113, Aug. 13, 1981, 95 Stat. 195; Pub. L. 99-514, title XI,
Sec. 1164(a), Oct. 22, 1986, 100 Stat. 2511; Pub. L. 100-647, title
I, Sec. 1011B(d), Nov. 10, 1988, 102 Stat. 3489; Pub. L. 104-188,
title I, Sec. 1123(a), Aug. 20, 1996, 110 Stat. 1768; Pub. L. 105-
206, title V, Sec. 5002(a), July 22, 1998, 112 Stat. 788.)
-REFTEXT-
REFERENCES IN TEXT
Section 1886(d)(5)(B) or (h) of the Social Security Act, referred
to in subsec. (d)(4)(B)(ii), is classified to section
1395ww(d)(5)(B) or (h) of Title 42, The Public Health and Welfare.
-MISC1-
AMENDMENTS
1998 - Subsec. (b)(4). Pub. L. 105-206 added par. (4).
1996 - Subsec. (d)(4). Pub. L. 104-188 amended par. (4)
generally. Prior to amendment, par. (4) read as follows:
"Educational institution. - For purposes of this paragraph, the
term 'educational institution' means an institution described in
section 170(b)(1)(A)(ii)."
1988 - Subsec. (d). Pub. L. 100-647 struck out "(as of the close
of the calendar year in which the taxable year begins)" after
"appraised value" in par. (2)(A)(i) and inserted at end "The
appraised value under subparagraph (A)(i) shall be determined as of
the close of the calendar year in which the taxable year begins,
or, in the case of a rental period not greater than 1 year, at any
time during the calendar year in which such period begins." as
concluding provision.
1986 - Subsec. (d). Pub. L. 99-514 added subsec. (d).
1981 - Subsec. (c). Pub. L. 97-34 added subsec. (c).
1980 - Subsec. (a). Pub. L. 96-222 struck out "General rule" in
subsec. (a) as in effect on the day before the date of enactment of
the Foreign Earned Income Act of 1978 to correct a legislative
oversight in the amendment of subsec. (a) of this section by
section 205 of Pub. L. 95-615. The amendment by Pub. L. 95-615,
however, was executed without reference to "General rule" as the
probable intent of Congress, thereby requiring no change in text.
1978 - Subsec. (a). Pub. L. 95-615 designated existing provisions
as subsec. (a), added subsec. (a) heading, and substituted
"furnished to him, his spouse, or any of his dependents by or on
behalf of his employer for the convenience of the employer" for
"furnished to him by his employer for the convenience of the
employer".
Pub. L. 95-427 inserted provisions relating to factors not taken
into account with respect to meals and certain fixed charges for
meals.
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-206, title v, Sec. 5002(b), July 22, 1998, 112 Stat.
789, provided that: "The amendment made by subsection (a) [amending
this section] shall apply to taxable years beginning before, on, or
after the date of the enactment of this Act [July 22, 1998]."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1123(b) of Pub. L. 104-188 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1995."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1164(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1985."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable with respect to taxable
years beginning after Dec. 31, 1981, see section 115 of Pub. L. 97-
34, set out as a note under section 911 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective as if included in the
Foreign Earned Income Act of 1978, Pub. L. 95-615, see section
108(a)(2)(A) of Pub. L. 96-222, set out as a note under section 3
of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 4(b) of Pub. L. 95-427 provided that: "The amendment made
by subsection (a) [amending this section] shall apply with respect
to taxable years beginning after December 31, 1953, and ending
after August 16, 1954."
EFFECTIVE DATE OF 1978 AMENDMENT; ELECTION OF PRIOR LAW
Amendment by Pub. L. 95-615 applicable to taxable years beginning
after Dec. 31, 1977, with provision for election of prior law, see
section 209 of Pub. L. 95-615, set out as a note under section 911
of this title.
STATUTE OF LIMITATIONS
Pub. L. 96-605, title I, Sec. 107(b), Dec. 28, 1980, 94 Stat.
3524, provided that: "In the case of any allowance received during
calendar year 1974, 1975, 1976, or 1977, subsections (a)(2) and (e)
of such section 3 [section 3 of Pub. L. 95-427, set out below]
shall be applied by substituting the date one year after the date
of the enactment of this Act [Dec. 28, 1980] for 'April 15, 1979'
each place it appears."
TREATMENT OF CERTAIN STATUTORY SUBSISTENCE ALLOWANCES OR
SUBSISTENCE ALLOWANCES NEGOTIATED IN ACCORDANCE WITH STATE LAW
RECEIVED BY STATE POLICE OFFICERS BEFORE JANUARY 1, 1978
Section 3 of Pub. L. 95-427, as amended by Pub. L. 96-605, title
I, Sec. 107(a), Dec. 28, 1980, 94 Stat. 3524; Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) General Rule. - If -
"(1) an individual who was employed as a State police officer
received a statutory subsistence allowance or a subsistence
allowance negotiated in accordance with State law while so
employed,
"(2) such individual elects, on or before April 15, 1979, and
in such manner and form as the Secretary of the Treasury may
prescribe, to have this section apply to such allowance, and
"(3) this section applies to such allowance,
then, for purposes of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954], such allowance shall not be included in such
individual's gross income.
"(b) Allowances to Which Section Applies. - For purposes of this
section, this section applies to any statutory subsistence
allowance or subsistence allowance negotiated in accordance with
State law which was received -
"(1) after December 31, 1969, and before January 1, 1974, to
the extent such individual did not include such allowance in
gross income on his income tax return for the taxable year in
which such allowance was received, or
"(2) during the calendar year 1974, 1975, 1976, or 1977.
"(c) Other Definitions. - For purposes of this section -
"(1) State police officer. - The term 'State police officer'
means any police officer (including a highway patrolman) employed
by a State (or the District of Columbia) on a full-time basis
with the power to arrest.
"(2) Income tax return. - The term 'income tax return' means
the return of the taxes imposed by subtitle A of the Internal
Revenue Code of 1986. If an individual filed before November 29,
1977, an amended return for any taxable year, such amended return
shall be treated as the return for such taxable year.
"(d) Limitation on Deduction. - If any individual receives a
subsistence allowance which is excluded from gross income under
subsection (a), no deduction shall be allowed under any provision
of chapter 1 of the Internal Revenue Code of 1986 for expenses in
respect of which he has received such allowance, except to the
extent that such expenses exceed the amount excludable from gross
income under subsection (a) and the excess is otherwise allowed as
a deduction under such chapter 1.
"(e) Statute of Limitations. - If refund or credit of any
overpayment of tax resulting from the application of this section
is prevented at any time on or before April 15, 1979, by the
operation of any law or rule of law (including res judicata),
refund or credit of such overpayment (to the extent attributable to
the application of this section) may, nevertheless, be made or
allowed if claim therefor is filed on or before April 15, 1979."
-End-
-CITE-
26 USC Sec. 120 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 120. Amounts received under qualified group legal services
plans
-STATUTE-
(a) Exclusion by employee for contributions and legal services
provided by employer
Gross income of an employee, his spouse, or his dependents, does
not include -
(1) amounts contributed by an employer on behalf of an
employee, his spouse, or his dependents under a qualified group
legal services plan (as defined in subsection (b)); or
(2) the value of legal services provided, or amounts paid for
legal services, under a qualified group legal services plan (as
defined in subsection (b)) to, or with respect to, an employee,
his spouse, or his dependents.
No exclusion shall be allowed under this section with respect to an
individual for any taxable year to the extent that the value of
insurance (whether through an insurer or self-insurance) against
legal costs incurred by the individual (or his spouse or
dependents) provided under a qualified group legal services plan
exceeds $70.
(b) Qualified group legal services plan
For purposes of this section, a qualified group legal services
plan is a separate written plan of an employer for the exclusive
benefit of his employees or their spouses or dependents to provide
such employees, spouses, or dependents with specified benefits
consisting of personal legal services through prepayment of, or
provision in advance for, legal fees in whole or in part by the
employer, if the plan meets the requirements of subsection (c).
(c) Requirements
(1) Discrimination
The contributions or benefits provided under the plan shall not
discriminate in favor of employees who are highly compensated
employees (within the meaning of section 414(q)).
(2) Eligibility
The plan shall benefit employees who qualify under a
classification set up by the employer and found by the Secretary
not to be discriminatory in favor of employees who are described
in paragraph (1). For purposes of this paragraph, there shall be
excluded from consideration employees not included in the plan
who are included in a unit of employees covered by an agreement
which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one or more
employers, if there is evidence that group legal services plan
benefits were the subject of good faith bargaining between such
employee representatives and such employer or employers.
(3) Contribution limitation
Not more than 25 percent of the amounts contributed under the
plan during the year may be provided for the class of individuals
who are shareholders or owners (or their spouses or dependents),
each of whom (on any day of the year) owns more than 5 percent of
the stock or of the capital or profits interest in the employer.
(4) Notification
The plan shall give notice to the Secretary, in such manner as
the Secretary may by regulations prescribe, that it is applying
for recognition of the status of a qualified group legal services
plan.
(5) Contributions
Amounts contributed under the plan shall be paid only (A) to
insurance companies, or to organizations or persons that provide
personal legal services, or indemnification against the cost of
personal legal services, in exchange for a prepayment or payment
of a premium, (B) to organizations or trusts described in section
501(c)(20), (C) to organizations described in section 501(c)
which are permitted by that section to receive payments from an
employer for support of one or more qualified group legal
services plan or plans, except that such organizations shall pay
or credit the contribution to an organization or trust described
in section 501(c)(20), (D) as prepayments to providers of legal
services under the plan, or (E) a combination of the above.
(d) Other definitions and special rules
For purposes of this section -
(1) Employee
The term "employee" includes, for any year, an individual who
is an employee within the meaning of section 401(c)(1) (relating
to self-employed individuals).
(2) Employer
An individual who owns the entire interest in an unincorporated
trade or business shall be treated as his own employer. A
partnership shall be treated as the employer of each partner who
is an employee within the meaning of paragraph (1).
(3) Allocations
Allocations of amounts contributed under the plan shall be made
in accordance with regulations prescribed by the Secretary and
shall take into account the expected relative utilization of
benefits to be provided from such contributions or plan assets
and the manner in which any premium or other charge was
developed.
(4) Dependent
The term "dependent" has the meaning given to it by section 152
(determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof).
(5) Exclusive benefit
In the case of a plan to which contributions are made by more
than one employer, in determining whether the plan is for the
exclusive benefit of an employer's employees or their spouses or
dependents, the employees of any employer who maintains the plan
shall be considered to be the employees of each employer who
maintains the plan.
(6) Attribution rules
For purposes of this section -
(A) ownership of stock in a corporation shall be determined
in accordance with the rules provided under subsections (d) and
(e) of section 1563 (without regard to section 1563(e)(3)(C)),
and
(B) the interest of an employee in a trade or business which
is not incorporated shall be determined in accordance with
regulations prescribed by the Secretary, which shall be based
on principles similar to the principles which apply in the case
of subparagraph (A).
(7) Time of notice to Secretary
A plan shall not be a qualified group legal services plan for
any period prior to the time notification was provided to the
Secretary in accordance with subsection (c)(4), if such notice is
given after the time prescribed by the Secretary by regulations
for giving such notice.
(e) Termination
This section and section 501(c)(20) shall not apply to taxable
years beginning after June 30, 1992.
(f) Cross reference
For reporting and recordkeeping requirements, see section
6039D.
-SOURCE-
(Added Pub. L. 94-455, title XXI, Sec. 2134(a), Oct. 4, 1976, 90
Stat. 1926; amended Pub. L. 97-34, title VIII, Sec. 802(a), Aug.
13, 1981, 95 Stat. 349; Pub. L. 97-448, title I, Sec. 108(a), Jan.
12, 1983, 96 Stat. 2391; Pub. L. 98-612, Sec. 1(a), (b)(3)(A), Oct.
31, 1984, 98 Stat. 3180, 3181; Pub. L. 99-514, title XI, Secs.
1114(b)(3), 1151(c)(3), (g)(1), 1162(b), Oct. 22, 1986, 100 Stat.
2450, 2503, 2506, 2510; Pub. L. 100-647, title I, Sec.
1011B(a)(31)(B), title IV, Sec. 4002(a), (b)(1), Nov. 10, 1988, 102
Stat. 3488, 3643; Pub. L. 101-140, title II, Sec. 203(a)(1), (2),
Nov. 8, 1989, 103 Stat. 830; Pub. L. 101-239, title VII, Sec.
7102(a)(1), Dec. 19, 1989, 103 Stat. 2305; Pub. L. 101-508, title
XI, Sec. 11404(a), Nov. 5, 1990, 104 Stat. 1388-473; Pub. L. 102-
227, title I, Sec. 104(a)(1), Dec. 11, 1991, 105 Stat. 1687; Pub.
L. 108-311, title II, Sec. 207(10), Oct. 4, 2004, 118 Stat. 1177.)
-MISC1-
PRIOR PROVISIONS
A prior section 120, act Aug. 16, 1954, ch. 736, 68A Stat. 39,
related to statutory subsistence allowance received by police,
prior to repeal by Pub. L. 85-866, title I, Sec. 3(a), (c), Sept.
2, 1958, 72 Stat. 1607, effective with respect to taxable years
ending after Sept. 30, 1958, but only with respect to amounts
received as a statutory subsistence allowance for any day after
Sept. 30, 1958.
AMENDMENTS
2004 - Subsec. (d)(4). Pub. L. 108-311 inserted "(determined
without regard to subsections (b)(1), (b)(2), and (d)(1)(B)
thereof)" after "section 152".
1991 - Subsec. (e). Pub. L. 102-227 substituted "June 30, 1992"
for "December 31, 1991".
1990 - Subsec. (e). Pub. L. 101-508 substituted "December 31,
1991" for "September 30, 1990".
1989 - Subsec. (b). Pub. L. 101-140, Sec. 203(a)(1), amended
subsec. (b) to read as if amendments by Pub. L. 99-514, Sec.
1151(c)(3), had not been enacted, see 1986 Amendment note below.
Subsec. (c)(2). Pub. L. 101-140, Sec. 203(a)(2), amended par. (2)
to read as if amendments by Pub. L. 100-647, Sec. 1011B(a)(31)(B),
had not been enacted, see 1988 Amendment note below.
Pub. L. 101-140, Sec. 203(a)(1), amended par. (2) to read as if
amendments by Pub. L. 99-514, Sec. 1151(g)(1), had not been
enacted, see 1986 Amendment note below.
Subsec. (e). Pub. L. 101-239 substituted "taxable years beginning
after September 30, 1990" for "taxable years ending after December
31, 1988".
1988 - Subsec. (a). Pub. L. 100-647, Sec. 4002(b)(1), inserted at
end "No exclusion shall be allowed under this section with respect
to an individual for any taxable year to the extent that the value
of insurance (whether through an insurer or self-insurance) against
legal costs incurred by the individual (or his spouse or
dependents) provided under a qualified group legal services plan
exceeds $70."
Subsec. (c)(2). Pub. L. 100-647, Sec. 1011B(a)(31)(B),
substituted "there shall" for "there may" and "who are" for "who
may be".
Subsec. (e). Pub. L. 100-647, Sec. 4002(a), substituted "1988"
for "1987".
1986 - Subsec. (b). Pub. L. 99-514, Sec. 1151(c)(3), amended
subsec. (b) generally. Prior to amendment, subsec. (b) read as
follows: "For purposes of this section, a qualified group legal
services plan is a separate written plan of an employer for the
exclusive benefit of his employees or their spouses or dependents
to provide such employees, spouses, or dependents with specified
benefits consisting of personal legal services through prepayment
of, or provision in advance for, legal fees in whole or in part by
the employer, if the plan meets the requirements of subsection
(c)."
Subsec. (c)(1). Pub. L. 99-514, Sec. 1114(b)(3)(A), substituted
"highly compensated employees (within the meaning of section
414(q))" for "officers, shareholders, self-employed individuals, or
highly compensated".
Subsec. (c)(2). Pub. L. 99-514, Sec. 1151(g)(1), substituted "For
purposes of this paragraph, there may be excluded from
consideration employees who may be excluded from consideration
under section 89(h)." for "For purposes of this paragraph, there
shall be excluded from consideration employees not included in the
plan who are included in a unit of employees covered by an
agreement which the Secretary of Labor finds to be a collective
bargaining agreement between employee representatives and one or
more employers, if there is evidence that group legal services plan
benefits were the subject of good faith bargaining between such
employee representatives and such employer or employers."
Subsec. (d)(1). Pub. L. 99-514, Sec. 1114(b)(3)(B), struck out
reference to self-employed individuals in heading, and substituted
"The" for "The term 'self-employed individual' means, and the" in
text.
Subsec. (e). Pub. L. 99-514, Sec. 1162(b), substituted "December
31, 1987" for "December 31, 1985".
1984 - Subsec. (e). Pub. L. 98-612, Sec. 1(a), substituted
"December 31, 1985" for "December 31, 1984".
Subsec. (f). Pub. L. 98-612, Sec. 1(b)(3)(A), added subsec. (f).
1983 - Subsec. (e). Pub. L. 97-448 substituted "This section and
section 501(c)(20) shall not apply" for "This section shall not
apply".
1981 - Subsec. (e). Pub. L. 97-34 added subsec. (e).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to taxable years
beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-311,
set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1991 AMENDMENT
Section 104(b) of Pub. L. 102-227 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1991."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11404(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section and
repealing provisions set out below] shall apply to taxable years
beginning after December 31, 1989."
EFFECTIVE DATE OF 1989 AMENDMENTS
Section 7102(b) of Pub. L. 101-239 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after December 31, 1988."
Amendment by Pub. L. 101-140 effective as if included in section
1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set
out as a note under section 79 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1011B(a)(31)(B) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 4002(c) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending this section and section 125 of this
title] shall apply to taxable years ending after December 31,
1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1114(b)(3) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Amendment by section 1151(c)(3), (g)(1) of Pub. L. 99-514
applicable, with certain qualifications and exceptions, to years
beginning after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-
514, as amended, set out as a note under section 79 of this title.
Section 1162(c) of Pub. L. 99-514 provided that:
"(1) Subsection (a). - The amendments made by subsection (a)
[amending section 127 of this title] shall apply to taxable years
beginning after December 31, 1985.
"(2) Subsection (b). - The amendment made by subsection (b)
[amending this section] shall apply to years ending after December
31, 1985.
"(3) Cafeteria plan with group legal benefits. - If, within 60
days after the date of the enactment of this Act [Oct. 22, 1986],
an employee elects under a cafeteria plan under section 125 of the
Internal Revenue Code of 1986 coverage for group legal benefits to
which section 120 of such Code applies, such election may, at the
election of the taxpayer, apply to all legal services provided
during 1986. The preceding sentence shall not apply to any plan
which on August 16, 1986, offered such group legal benefits under
such plan."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 1(d)(1) of Pub. L. 98-612 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after December 31, 1984."
Amendment by section 1(b)(3)(A) of Pub. L. 98-612 effective Jan.
1, 1985, see section 1(d)(2) of Pub. L. 98-612.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE
Section 2134(e) of Pub. L. 94-455, as amended by Pub. L. 95-600,
title VII, Sec. 703(b)(1), Nov. 6, 1978, 92 Stat. 2939; Pub. L. 97-
34, title VIII, Sec. 802(b), Aug. 13, 1981, 95 Stat. 349; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting this section and
section 501 of this title] shall apply to taxable years beginning
after December 31, 1976.
"(2) Notice requirement. - For purposes of section 120(d)(7) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954] the time
prescribed by the Secretary of the Treasury by regulations for
giving the notice required by section 120(c)(4) of such Code
shall not expire before the 90th day after the day on which
regulations prescribed under such section 120(c)(4) first become
final.
"(3) Existing plans. -
"(A) For purposes of section 120 of the Internal Revenue Code
of 1986, a written group legal services plan which was in
existence on June 4, 1976, shall be considered as satisfying
the requirements of subsections (b) and (c) of such section 120
for the period ending with the compliance date (determined
under subparagraph (B)).
"(B) Compliance date. - For purposes of this paragraph, the
term 'compliance date' means -
"(i) the date occurring 180 days after the date of the
enactment of this Act [Oct. 4, 1976], or
"(ii) if later, in the case of a plan which is maintained
pursuant to one or more agreements which the Secretary of
Labor finds to be collective bargaining agreements, the
earlier of December 31, 1981, or the date on which the last
of the collective bargaining agreements relating to the plan
terminates (determined without regard to any extension
thereof agreed to after the date of the enactment of this Act
[Oct. 4, 1976])."
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
EXTENSION OF EMPLOYER-PROVIDED GROUP LEGAL SERVICES
Section 104(a)(2) of Pub. L. 102-227 provided that: "In the case
of any taxable year beginning in 1992, only amounts paid before
July 1, 1992, by the employer for coverage for the employee, his
spouse, or his dependents, under a qualified group legal services
plan for periods before July 1, 1992, shall be taken into account
in determining the amount excluded under section 120 of the
Internal Revenue Code of 1986 with respect to such employee for
such taxable year."
SPECIAL RULE FOR TAXABLE YEARS BEGINNING IN 1990
Section 7102(a)(2) of Pub. L. 101-239 provided that in the case
of any taxable year beginning in 1990, only amounts paid before
October 1, 1990, by the employer for coverage for the employee, his
spouse, or his dependents under a qualified group legal services
plan for periods before October 1, 1990, would be taken into
account in determining the amount excluded under this section with
respect to such employee for such taxable year, prior to repeal by
Pub. L. 101-508, title XI, Sec. 11404(b), Nov. 5, 1990, 104 Stat.
1388-473.
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514
FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement
or enforce section 1151 of Pub. L. 99-514 or the amendments made by
such section, see section 528 of Pub. L. 101-136, set out as a note
under section 89 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
STUDY AND REPORT
Section 2134(d) of Pub. L. 94-455 provided that a complete study
and investigation with respect to the desirability and feasibility
of continuing the exclusion from income of certain prepaid group
legal services benefits under section 120 of the Internal Revenue
Code of 1954 be made by the Secretary of Labor and the Secretary of
the Treasury, with a report to the President and the Congress not
later than Dec. 31, 1980.
-End-
-CITE-
26 USC Sec. 121 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 121. Exclusion of gain from sale of principal residence
-STATUTE-
(a) Exclusion
Gross income shall not include gain from the sale or exchange of
property if, during the 5-year period ending on the date of the
sale or exchange, such property has been owned and used by the
taxpayer as the taxpayer's principal residence for periods
aggregating 2 years or more.
(b) Limitations
(1) In general
The amount of gain excluded from gross income under subsection
(a) with respect to any sale or exchange shall not exceed
$250,000.
(2) Special rules for joint returns
In the case of a husband and wife who make a joint return for
the taxable year of the sale or exchange of the property -
(A) $500,000 Limitation for certain joint returns
Paragraph (1) shall be applied by substituting "$500,000" for
"$250,000" if -
(i) either spouse meets the ownership requirements of
subsection (a) with respect to such property;
(ii) both spouses meet the use requirements of subsection
(a) with respect to such property; and
(iii) neither spouse is ineligible for the benefits of
subsection (a) with respect to such property by reason of
paragraph (3).
(B) Other joint returns
If such spouses do not meet the requirements of subparagraph
(A), the limitation under paragraph (1) shall be the sum of the
limitations under paragraph (1) to which each spouse would be
entitled if such spouses had not been married. For purposes of
the preceding sentence, each spouse shall be treated as owning
the property during the period that either spouse owned the
property.
(3) Application to only 1 sale or exchange every 2 years
(A) In general
Subsection (a) shall not apply to any sale or exchange by the
taxpayer if, during the 2-year period ending on the date of
such sale or exchange, there was any other sale or exchange by
the taxpayer to which subsection (a) applied.
(B) Pre-May 7, 1997, sales not taken into account
Subparagraph (A) shall be applied without regard to any sale
or exchange before May 7, 1997.
(c) Exclusion for taxpayers failing to meet certain requirements
(1) In general
In the case of a sale or exchange to which this subsection
applies, the ownership and use requirements of subsection (a),
and subsection (b)(3), shall not apply; but the dollar limitation
under paragraph (1) or (2) of subsection (b), whichever is
applicable, shall be equal to -
(A) the amount which bears the same ratio to such limitation
(determined without regard to this paragraph) as
(B)(i) the shorter of -
(I) the aggregate periods, during the 5-year period ending
on the date of such sale or exchange, such property has been
owned and used by the taxpayer as the taxpayer's principal
residence; or
(II) the period after the date of the most recent prior
sale or exchange by the taxpayer to which subsection (a)
applied and before the date of such sale or exchange, bears
to
(ii) 2 years.
(2) Sales and exchanges to which subsection applies
This subsection shall apply to any sale or exchange if -
(A) subsection (a) would not (but for this subsection) apply
to such sale or exchange by reason of -
(i) a failure to meet the ownership and use requirements of
subsection (a), or
(ii) subsection (b)(3), and
(B) such sale or exchange is by reason of a change in place
of employment, health, or, to the extent provided in
regulations, unforeseen circumstances.
(d) Special rules
(1) Joint returns
If a husband and wife make a joint return for the taxable year
of the sale or exchange of the property, subsections (a) and (c)
shall apply if either spouse meets the ownership and use
requirements of subsection (a) with respect to such property.
(2) Property of deceased spouse
For purposes of this section, in the case of an unmarried
individual whose spouse is deceased on the date of the sale or
exchange of property, the period such unmarried individual owned
and used such property shall include the period such deceased
spouse owned and used such property before death.
(3) Property owned by spouse or former spouse
For purposes of this section -
(A) Property transferred to individual from spouse or former
spouse
In the case of an individual holding property transferred to
such individual in a transaction described in section 1041(a),
the period such individual owns such property shall include the
period the transferor owned the property.
(B) Property used by former spouse pursuant to divorce decree,
etc.
Solely for purposes of this section, an individual shall be
treated as using property as such individual's principal
residence during any period of ownership while such
individual's spouse or former spouse is granted use of the
property under a divorce or separation instrument (as defined
in section 71(b)(2)).
(4) Tenant-stockholder in cooperative housing corporation
For purposes of this section, if the taxpayer holds stock as a
tenant-stockholder (as defined in section 216) in a cooperative
housing corporation (as defined in such section), then -
(A) the holding requirements of subsection (a) shall be
applied to the holding of such stock, and
(B) the use requirements of subsection (a) shall be applied
to the house or apartment which the taxpayer was entitled to
occupy as such stockholder.
(5) Involuntary conversions
(A) In general
For purposes of this section, the destruction, theft,
seizure, requisition, or condemnation of property shall be
treated as the sale of such property.
(B) Application of section 1033
In applying section 1033 (relating to involuntary
conversions), the amount realized from the sale or exchange of
property shall be treated as being the amount determined
without regard to this section, reduced by the amount of gain
not included in gross income pursuant to this section.
(C) Property acquired after involuntary conversion
If the basis of the property sold or exchanged is determined
(in whole or in part) under section 1033(b) (relating to basis
of property acquired through involuntary conversion), then the
holding and use by the taxpayer of the converted property shall
be treated as holding and use by the taxpayer of the property
sold or exchanged.
(6) Recognition of gain attributable to depreciation
Subsection (a) shall not apply to so much of the gain from the
sale of any property as does not exceed the portion of the
depreciation adjustments (as defined in section 1250(b)(3))
attributable to periods after May 6, 1997, in respect of such
property.
(7) Determination of use during periods of out-of-residence care
In the case of a taxpayer who -
(A) becomes physically or mentally incapable of self-care,
and
(B) owns property and uses such property as the taxpayer's
principal residence during the 5-year period described in
subsection (a) for periods aggregating at least 1 year,
then the taxpayer shall be treated as using such property as the
taxpayer's principal residence during any time during such 5-year
period in which the taxpayer owns the property and resides in any
facility (including a nursing home) licensed by a State or
political subdivision to care for an individual in the taxpayer's
condition.
(8) Sales of remainder interests
For purposes of this section -
(A) In general
At the election of the taxpayer, this section shall not fail
to apply to the sale or exchange of an interest in a principal
residence by reason of such interest being a remainder interest
in such residence, but this section shall not apply to any
other interest in such residence which is sold or exchanged
separately.
(B) Exception for sales to related parties
Subparagraph (A) shall not apply to any sale to, or exchange
with, any person who bears a relationship to the taxpayer which
is described in section 267(b) or 707(b).
(9) Members of uniformed services and Foreign Service
(A) In general
At the election of an individual with respect to a property,
the running of the 5-year period described in subsections (a)
and (c)(1)(B) and paragraph (7) of this subsection with respect
to such property shall be suspended during any period that such
individual or such individual's spouse is serving on qualified
official extended duty as a member of the uniformed services or
of the Foreign Service of the United States.
(B) Maximum period of suspension
The 5-year period described in subsection (a) shall not be
extended more than 10 years by reason of subparagraph (A).
(C) Qualified official extended duty
For purposes of this paragraph -
(i) In general
The term "qualified official extended duty" means any
extended duty while serving at a duty station which is at
least 50 miles from such property or while residing under
Government orders in Government quarters.
(ii) Uniformed services
The term "uniformed services" has the meaning given such
term by section 101(a)(5) of title 10, United States Code, as
in effect on the date of the enactment of this paragraph.
(iii) Foreign Service of the United States
The term "member of the Foreign Service of the United
States" has the meaning given the term "member of the
Service" by paragraph (1), (2), (3), (4), or (5) of section
103 of the Foreign Service Act of 1980, as in effect on the
date of the enactment of this paragraph.
(iv) Extended duty
The term "extended duty" means any period of active duty
pursuant to a call or order to such duty for a period in
excess of 90 days or for an indefinite period.
(D) Special rules relating to election
(i) Election limited to 1 property at a time
An election under subparagraph (A) with respect to any
property may not be made if such an election is in effect
with respect to any other property.
(ii) Revocation of election
An election under subparagraph (A) may be revoked at any
time.
(10) Property acquired in like-kind exchange
If a taxpayer acquires property in an exchange with respect to
which gain is not recognized (in whole or in part) to the
taxpayer under subsection (a) or (b) of section 1031, subsection
(a) shall not apply to the sale or exchange of such property by
such taxpayer (or by any person whose basis in such property is
determined, in whole or in part, by reference to the basis in the
hands of such taxpayer) during the 5-year period beginning with
the date of such acquisition.
(e) Denial of exclusion for expatriates
This section shall not apply to any sale or exchange by an
individual if the treatment provided by section 877(a)(1) applies
to such individual.
(f) Election to have section not apply
This section shall not apply to any sale or exchange with respect
to which the taxpayer elects not to have this section apply.
(g) Residences acquired in rollovers under section 1034
For purposes of this section, in the case of property the
acquisition of which by the taxpayer resulted under section 1034
(!1) (as in effect on the day before the date of the enactment of
this section) in the nonrecognition of any part of the gain
realized on the sale or exchange of another residence, in
determining the period for which the taxpayer has owned and used
such property as the taxpayer's principal residence, there shall be
included the aggregate periods for which such other residence (and
each prior residence taken into account under section 1223(6) in
determining the holding period of such property) had been so owned
and used.
-SOURCE-
(Added Pub. L. 88-272, title II, Sec. 206(a), Feb. 26, 1964, 78
Stat. 38; amended Pub. L. 94-455, title XIV, Sec. 1404(a), title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1733, 1834; Pub.
L. 95-600, title IV, Sec. 404(a)-(c)(2), Nov. 6, 1978, 92 Stat.
2869, 2870; Pub. L. 97-34, title I, Sec. 123(a), Aug. 13, 1981, 95
Stat. 197; Pub. L. 100-647, title VI, Sec. 6011(a), Nov. 10, 1988,
102 Stat. 3691; Pub. L. 105-34, title III, Sec. 312(a), Aug. 5,
1997, 111 Stat. 836; Pub. L. 105-206, title VI, Sec. 6005(e)(1),
(2), July 22, 1998, 112 Stat. 805; Pub. L. 107-16, title V, Sec.
542(c), June 7, 2001, 115 Stat. 84; Pub. L. 108-121, title I, Sec.
101(a), Nov. 11, 2003, 117 Stat. 1336; Pub. L. 108-357, title VIII,
Sec. 840(a), Oct. 22, 2004, 118 Stat. 1597; Pub. L. 109-135, title
IV, Secs. 402(a)(3), 403(ee), Dec. 21, 2005, 119 Stat. 2610, 2631.)
-STATAMEND-
AMENDMENT OF SUBSECTION (D)
Pub. L. 107-16, title V, Sec. 542(c), (f)(1), title IX, Sec. 901,
June 7, 2001, 115 Stat. 84, 86, 150, as amended by Pub. L. 108-121,
title I, Sec. 101(a), Nov. 11, 2003, 117 Stat. 1336; Pub. L. 109-
135, title IV, Sec. 403(ee)(1), Dec. 21, 2005, 119 Stat. 2631,
provided that, applicable to estates of decedents dying after Dec.
31, 2009, subsection (d) of this section is temporarily amended by
adding paragraph (11) at end to read as follows:
(11) Property acquired from a decedent
The exclusion under this section shall apply to property sold
by -
(A) the estate of a decedent,
(B) any individual who acquired such property from the
decedent (within the meaning of section 1022), and
(C) a trust which, immediately before the death of the
decedent, was a qualified revocable trust (as defined in
section 645(b)(1)) established by the decedent,
determined by taking into account the ownership and use by the
decedent.
See Codification notes and Effective and Termination Dates of
2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this paragraph, referred to in
subsec. (d)(9)(C)(ii), (iii), is the date of enactment of Pub. L.
108-121, which was approved Nov. 11, 2003.
Section 103 of the Foreign Service Act of 1980, referred to in
subsec. (d)(9)(C)(iii), is classified to section 3903 of Title 22,
Foreign Relations and Intercourse.
Section 1034 (as in effect on the day before the date of the
enactment of this section), referred to in subsec. (g), probably
means section 1034 of this title as in effect on the day before the
date of enactment of Pub. L. 105-34 which amended this section
generally and was approved Aug. 5, 1997. Section 1034 was repealed
by Pub. L. 105-34, title III, Sec. 312(b), Aug. 5, 1997, 111 Stat.
839.
-COD-
CODIFICATION
Pub. L. 109-135, title IV, Sec. 403(ee)(1), (nn), Dec. 21, 2005,
119 Stat. 2631, 2632, which directed that subsec. (d) of this
section be amended by redesignating the paragraph (10) relating to
property acquired from a decedent as paragraph (11), effective as
if included in the provisions to which such amendment relates of
the American Jobs Creation Act of 2004, Pub. L. 108-357, was
executed as the probable intent of Congress by redesignating as
paragraph (11) the paragraph (10) to be added to subsec. (d) of
this section by Pub. L. 107-16, Sec. 542(c), (f)(1), applicable to
estates of decedents dying after Dec. 31, 2009. See italicized
Amendment of Subsection (d) note above and Codification note and
Effective Date of 2005 Amendment note below.
Pub. L. 108-121, title I, Sec. 101(a), (b)(1), Nov. 11, 2003, 117
Stat. 1336, which directed that subsec. (d) of this section be
amended by redesignating paragraph (9) as (10) and adding a new
paragraph (9), effective as if included in the amendments made by
section 312 of the Taxpayer Relief Act of 1997, Pub. L. 105-34,
could not literally be executed insofar as it directed the
redesignation because subsec. (d), as amended by Pub. L. 105-34,
did not contain a paragraph (9). However, to reflect the probable
intent of Congress, the amendment was executed by redesignating as
paragraph (10) the paragraph (9) to be added to subsec. (d) of this
section by Pub. L. 107-16, Sec. 542(c), (f)(1), applicable to
estates of decedents dying after Dec. 31, 2009. See italicized
Amendment of Subsection (d) note above and Effective Date of 2003
Amendment note below.
-MISC1-
PRIOR PROVISIONS
A prior section 121 was renumbered section 140 of this title.
AMENDMENTS
2005 - Subsec. (d)(10). Pub. L. 109-135, Sec. 403(ee)(2), amended
heading and text of par. (10) relating to property acquired in like-
kind exchange generally. Prior to amendment, text read as follows:
"If a taxpayer acquired property in an exchange to which section
1031 applied, subsection (a) shall not apply to the sale or
exchange of such property if it occurs during the 5-year period
beginning with the date of the acquisition of such property."
Subsec. (g). Pub. L. 109-135, Sec. 402(a)(3), substituted
"section 1223(6)" for "section 1223(7)".
2004 - Subsec. (d)(10). Pub. L. 108-357 added par. (10) relating
to property acquired in like-kind exchange.
2003 - Subsec. (d)(9). Pub. L. 108-121 added par. (9).
1998 - Subsec. (b)(2). Pub. L. 105-206, Sec. 6005(e)(1),
substituted "Special rules for joint returns" for "$500,000
limitation for certain joint returns" in heading and amended text
generally. Prior to amendment, text read as follows: "Paragraph (1)
shall be applied by substituting '$500,000' for '$250,000' if -
"(A) a husband and wife make a joint return for the taxable
year of the sale or exchange of the property,
"(B) either spouse meets the ownership requirements of
subsection (a) with respect to such property,
"(C) both spouses meet the use requirements of subsection (a)
with respect to such property, and
"(D) neither spouse is ineligible for the benefits of
subsection (a) with respect to such property by reason of
paragraph (3)."
Subsec. (c)(1). Pub. L. 105-206, Sec. 6005(e)(2), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "In the case of a sale or exchange
to which this subsection applies, the ownership and use
requirements of subsection (a) shall not apply and subsection
(b)(3) shall not apply; but the amount of gain excluded from gross
income under subsection (a) with respect to such sale or exchange
shall not exceed -
"(A) the amount which bears the same ratio to the amount which
would be so excluded under this section if such requirements had
been met, as
"(B) the shorter of -
"(i) the aggregate periods, during the 5-year period ending
on the date of such sale or exchange, such property has been
owned and used by the taxpayer as the taxpayer's principal
residence, or
"(ii) the period after the date of the most recent prior sale
or exchange by the taxpayer to which subsection (a) applied and
before the date of such sale or exchange,
bears to 2 years."
1997 - Pub. L. 105-34 amended section catchline and text
generally. Prior to amendment, section related to one-time
exclusion of gain from sale of principal residence by individual
who had attained age 55.
1988 - Subsec. (d)(9). Pub. L. 100-647 added par. (9).
1981 - Subsec. (b)(1). Pub. L. 97-34 substituted "$125,000
($62,500" for "$100,000 ($50,000".
1978 - Pub. L. 95-600, Sec. 404(a), substituted "One-time
exclusion of gain from sale of principal residence by individual
who has attained age 55" for "Gain from sale or exchange of
residence of individual who has attained age 65" in section
catchline.
Subsec. (a). Pub. L. 95-600, Sec. 404(a), substituted "55" for
"65", "5-year" for "8-year", and "3 years" for "5 years".
Subsec. (b). Pub. L. 95-600, Sec. 404(a), in par. (1) substituted
provisions respecting dollar limitations for amount of gain for
provisions setting forth applicable limitations where the adjusted
sales price exceeds $35,000 and added par. (3).
Subsec. (d)(2). Pub. L. 95-600, Sec. 404(c)(1), substituted "5-
year period" for "8-year period".
Subsec. (d)(5). Pub. L. 95-600, Sec. 404(c)(2), substituted "5-
year period" for "8-year period" and "3 years" for "5 years".
Subsec. (d)(8). Pub. L. 95-600, Sec. 404(b), added par. (8).
1976 - Subsec. (b)(1). Pub. L. 94-455, Sec. 1404(a), substituted
"$35,000" for "$20,000" in three places.
Subsecs. (c), (d)(5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by section 402(a)(3) of Pub. L. 109-135 effective as if
included in the provisions of the Energy Policy Act of 2005, Pub.
L. 109-58, to which it relates, but not applicable with respect to
any transaction ordered in compliance with the Public Utility
Holding Company Act of 1935 (15 U.S.C. 79 et seq.) before its
repeal, see section 402(m) of Pub. L. 109-135, set out as an
Effective and Termination Dates of 2005 Amendments note under
section 23 of this title.
Amendment by section 403(ee) of Pub. L. 109-135 effective as if
included in the provision of the American Jobs Creation Act of
2004, Pub. L. 108-357, to which such amendment relates, see section
403(nn) of Pub. L. 109-135, set out as a note under section 26 of
this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 840(b), Oct. 22, 2004, 118
Stat. 1597, provided that: "The amendment made by this section
[amending this section] shall apply to sales or exchanges after the
date of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 2003 AMENDMENT
Pub. L. 108-121, title I, Sec. 101(b), Nov. 11, 2003, 117 Stat.
1336, provided that:
"(1) Effective date. - The amendments made by this section
[amending this section] shall take effect as if included in the
amendments made by section 312 of the Taxpayer Relief Act of 1997
[Pub. L. 105-34].
"(2) Waiver of limitations. - If refund or credit of any
overpayment of tax resulting from the amendments made by this
section [amending this section] is prevented at any time before the
close of the 1-year period beginning on the date of the enactment
of this Act [Nov. 11, 2003] by the operation of any law or rule of
law (including res judicata), such refund or credit may
nevertheless be made or allowed if claim therefor is filed before
the close of such period."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title V, Sec. 542(f), June 7, 2001, 115 Stat. 86,
provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting sections 1022 and 6716 of
this title and amending this section and sections 170, 684, 1040,
1221, 1246, 1291, 1296, 4947, 6018, 6019, 6075, and 7701 of this
title] shall apply to estates of decedents dying after December 31,
2009.
"(2) Transfers to nonresidents. - The amendments made by
subsection (e)(1) [amending section 684 of this title] shall apply
to transfers after December 31, 2009.
"(3) Section 4947. - The amendment made by subsection (e)(4)
[amending section 4947 of this title] shall apply to deductions for
taxable years beginning after December 31, 2009."
Amendment by Pub. L. 107-16 inapplicable to estates of decedents
dying, gifts made, or generation skipping transfers, after Dec. 31,
2010, and the Internal Revenue Code of 1986 to be applied and
administered to such estates, gifts, and transfers as if such
amendment had never been enacted, see section 901 of Pub. L. 107-
16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 312(d) of Pub. L. 105-34, as amended by Pub. L. 105-206,
title VI, Sec. 6005(e)(3), July 22, 1998, 112 Stat. 806, provided
that:
"(1) In general. - The amendments made by this section [amending
this section and sections 25, 32, 56, 143, 163, 215, 280A, 464,
512, 1016, 1033, 1038, 1223, 1250, 1274, 6012, 6045, 6212, 6334,
6504, and 7872 of this title and repealing section 1034 of this
title] shall apply to sales and exchanges after May 6, 1997.
"(2) Sales on or before date of enactment. - At the election of
the taxpayer, the amendments made by this section shall not apply
to any sale or exchange on or before the date of the enactment of
this Act [Aug. 5, 1997].
"(3) Certain sales within 2 years after date of enactment. -
Section 121 of the Internal Revenue Code of 1986 (as amended by
this section) shall be applied without regard to subsection
(c)(2)(B) thereof in the case of any sale or exchange of property
during the 2-year period beginning on the date of the enactment of
this Act if the taxpayer held such property on the date of the
enactment of this Act and fails to meet the ownership and use
requirements of subsection (a) thereof with respect to such
property.
"(4) Binding contracts. - At the election of the taxpayer, the
amendments made by this section shall not apply to a sale or
exchange after the date of the enactment of this Act, if -
"(A) such sale or exchange is pursuant to a contract which was
binding on such date, or
"(B) without regard to such amendments, gain would not be
recognized under section 1034 of the Internal Revenue Code of
1986 (as in effect on the day before the date of the enactment of
this Act) on such sale or exchange by reason of a new residence
acquired on or before such date or with respect to the
acquisition of which by the taxpayer a binding contract was in
effect on such date.
This paragraph shall not apply to any sale or exchange by an
individual if the treatment provided by section 877(a)(1) of the
Internal Revenue Code of 1986 applies to such individual."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 6011(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to any sale or exchange after September 30, 1988, in
taxable years ending after such date."
EFFECTIVE DATE OF 1981 AMENDMENT
Section 123(b) of Pub. L. 97-34 provided that: "The amendment
made by this section [amending this section] shall apply to
residences sold or exchanged after July 20, 1981."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 404(d)(1) of Pub. L. 95-600 provided that: "The
amendments made by this section [amending this section and sections
1033, 1034, 1038, 1250, and 6012 of this title] shall apply to
sales or exchanges after July 26, 1978, in taxable years ending
after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1404(b) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1976."
EFFECTIVE DATE
Section 206(c) of Pub. L. 88-272 provided that: "The amendments
made by this section [enacting this section, redesignating former
section 121 as 122, and amending sections 1033, 1034, and 6012 of
this title] shall apply to dispositions after Dec. 31, 1963, in
taxable years ending after such date."
SENSE OF CONGRESS CONCERNING TAX TREATMENT OF PRINCIPAL RESIDENCE
OF MEMBERS OF ARMED FORCES WHILE AWAY FROM HOME ON ACTIVE DUTY
Pub. L. 105-261, div. A, title X, Sec. 1074, Oct. 17, 1998, 112
Stat. 2138, provided that: "It is the sense of Congress that a
member of the Armed Forces should be treated for purposes of
section 121 of the Internal Revenue Code of 1986 as using property
as a principal residence during any continuous period that the
member is serving on active duty for 180 days or more with the
Armed Forces, but only if the member used the property as a
principal residence for any period during or immediately before
that period of active duty."
TRANSITIONAL RULE IN CASE OF SALE OR EXCHANGE OF RESIDENCE BEFORE
JULY 26, 1981
Section 404(d)(2) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the
case of a sale or exchange of a residence before July 26, 1981, a
taxpayer who has attained age 65 on the date of such sale or
exchange may elect to have section 121 of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954] applied by substituting '8-year
period' for '5-year period' and '5 years' for '3 years' in
subsections (a), (d)(2), and (d)(5) of such section."
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 122 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 122. Certain reduced uniformed services retirement pay
-STATUTE-
(a) General rule
In the case of a member or former member of the uniformed
services of the United States, gross income does not include the
amount of any reduction in his retired or retainer pay pursuant to
the provisions of chapter 73 of title 10, United States Code.
(b) Special rule
(1) Amount excluded from gross income
In the case of any individual referred to in subsection (a),
all amounts received after December 31, 1965, as retired or
retainer pay shall be excluded from gross income until there has
been so excluded an amount equal to the consideration for the
contract. The preceding sentence shall apply only to the extent
that the amounts received would, but for such sentence, be
includible in gross income.
(2) Consideration for the contract
For purposes of paragraph (1) and section 72(n), the term
"consideration for the contract" means, in respect of any
individual, the sum of -
(A) the total amount of the reductions before January 1,
1966, in his retired or retainer pay by reason of an election
under chapter 73 of title 10 of the United States Code, and
(B) any amounts deposited at any time by him pursuant to
section 1438 or 1452(d) of such title 10.
-SOURCE-
(Added Pub. L. 89-365, Sec. 1(a)(1), Mar. 8, 1966, 80 Stat. 32;
amended Pub. L. 93-406, title II, Secs. 2005(c)(10), 2007(a),
(b)(1), Sept. 2, 1974, 88 Stat. 992, 994.)
-MISC1-
PRIOR PROVISIONS
A prior section 122 was renumbered section 140 of this title.
AMENDMENTS
1974 - Subsec. (a). Pub. L. 93-406, Sec. 2007(a), substituted
"United States, gross income does not include the amount of any
reduction in his retired or retainer pay pursuant to the provisions
of chapter 73 of title 10, United States Code" for "United States
who has made an election under chapter 73 of title 10 of the United
States Code to receive a reduced amount of retired or retainer pay,
gross income does not include the amount of any reduction after
December 31, 1965, in his retired or retainer pay by reason of such
election".
Subsec. (b)(2). Pub. L. 93-406, Sec. 2005(c)(10), substituted
"72(n)" for "72(o)".
Subsec. (b)(2)(B). Pub. L. 93-406, Sec. 2007(b)(1), inserted
reference to section 1452(d) of title 10.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by section 2005(c)(10) of Pub. L. 93-406 applicable
only with respect to distributions or payments made after Dec. 31,
1973, in taxable years beginning after Dec. 31, 1973, see section
2005(d) of Pub. L. 93-406, set out as a note under section 402 of
this title.
Section 2007(c) of Pub. L. 93-406 provided that: "The amendments
made by this section [amending this section and sections 72, 101,
and 2039 of this title] apply to taxable years ending on or after
September 21, 1972. The amendments made by paragraphs (3) and (4)
of subsection (b) [amending sections 101 and 2039 of this title]
apply with respect to individuals dying on or after such date".
EFFECTIVE DATE
Section 1(d) of Pub. L. 89-365 provided that: "The amendments
made by subsections (a) and (b) [enacting this section and amending
section 72 of this title] shall apply with respect to taxable years
ending after December 31, 1965. The amendment made by subsection
(c) [amending section 101 of this title] shall apply with respect
to individuals making an election under chapter 73 of title 10 of
the United States Code who die after December 31, 1965."
-End-
-CITE-
26 USC Sec. 123 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 123. Amounts received under insurance contracts for certain
living expenses
-STATUTE-
(a) General rule
In the case of an individual whose principal residence is damaged
or destroyed by fire, storm, or other casualty, or who is denied
access to his principal residence by governmental authorities
because of the occurrence or threat of occurrence of such a
casualty, gross income does not include amounts received by such
individual under an insurance contract which are paid to compensate
or reimburse such individual for living expenses incurred for
himself and members of his household resulting from the loss of use
or occupancy of such residence.
(b) Limitation
Subsection (a) shall apply to amounts received by the taxpayer
for living expenses incurred during any period only to the extent
the amounts received do not exceed the amount by which -
(1) the actual living expenses incurred during such period for
himself and members of his household resulting from the loss of
use or occupancy of their residence, exceed
(2) the normal living expenses which would have been incurred
for himself and members of his household during such period.
-SOURCE-
(Added Pub. L. 91-172, title IX, Sec. 901(a), Dec. 30, 1969, 83
Stat. 709.)
-MISC1-
PRIOR PROVISIONS
A prior section 123 was renumbered section 140 of this title.
EFFECTIVE DATE
Section 901(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [enacting this section] shall apply with
respect to amounts received on or after January 1, 1969."
-End-
-CITE-
26 USC Sec. 124 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
[Sec. 124. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(9),
Nov. 5, 1990, 104 Stat. 1388-520]
-MISC1-
Section, added Pub. L. 95-618, title II, Sec. 242(a), Nov. 9,
1978, 92 Stat. 3193, related to qualified transportation provided
by employers.
A prior section 124 was renumbered section 140 of this title.
SAVINGS PROVISION
For provisions that nothing in repeal by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 125 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 125. Cafeteria plans
-STATUTE-
(a) General rule
Except as provided in subsection (b), no amount shall be included
in the gross income of a participant in a cafeteria plan solely
because, under the plan, the participant may choose among the
benefits of the plan.
(b) Exception for highly compensated participants and key employees
(1) Highly compensated participants
In the case of a highly compensated participant, subsection (a)
shall not apply to any benefit attributable to a plan year for
which the plan discriminates in favor of -
(A) highly compensated individuals as to eligibility to
participate, or
(B) highly compensated participants as to contributions and
benefits.
(2) Key employees
In the case of a key employee (within the meaning of section
416(i)(1)), subsection (a) shall not apply to any benefit
attributable to a plan for which the statutory nontaxable
benefits provided to key employees exceed 25 percent of the
aggregate of such benefits provided for all employees under the
plan. For purposes of the preceding sentence, statutory
nontaxable benefits shall be determined without regard to the
last sentence of subsection (f).
(3) Year of inclusion
For purposes of determining the taxable year of inclusion, any
benefit described in paragraph (1) or (2) shall be treated as
received or accrued in the taxable year of the participant or key
employee in which the plan year ends.
(c) Discrimination as to benefits or contributions
For purposes of subparagraph (B) of subsection (b)(1), a
cafeteria plan does not discriminate where qualified benefits and
total benefits (or employer contributions allocable to qualified
benefits and employer contributions for total benefits) do not
discriminate in favor of highly compensated participants.
(d) Cafeteria plan defined
For purposes of this section -
(1) In general
The term "cafeteria plan" means a written plan under which -
(A) all participants are employees, and
(B) the participants may choose among 2 or more benefits
consisting of cash and qualified benefits.
(2) Deferred compensation plans excluded
(A) In general
The term "cafeteria plan" does not include any plan which
provides for deferred compensation.
(B) Exception for cash and deferred arrangements
Subparagraph (A) shall not apply to a profit-sharing or stock
bonus plan or rural cooperative plan (within the meaning of
section 401(k)(7)) which includes a qualified cash or deferred
arrangement (as defined in section 401(k)(2)) to the extent of
amounts which a covered employee may elect to have the employer
pay as contributions to a trust under such plan on behalf of
the employee.
(C) Exception for certain plans maintained by educational
institutions
Subparagraph (A) shall not apply to a plan maintained by an
educational organization described in section 170(b)(1)(A)(ii)
to the extent of amounts which a covered employee may elect to
have the employer pay as contributions for post-retirement
group life insurance if -
(i) all contributions for such insurance must be made
before retirement, and
(ii) such life insurance does not have a cash surrender
value at any time.
For purposes of section 79, any life insurance described in the
preceding sentence shall be treated as group-term life
insurance.
(D) Exception for health savings accounts
Subparagraph (A) shall not apply to a plan to the extent of
amounts which a covered employee may elect to have the employer
pay as contributions to a health savings account established on
behalf of the employee.
(e) Highly compensated participant and individual defined
For purposes of this section -
(1) Highly compensated participant
The term "highly compensated participant" means a participant
who is -
(A) an officer,
(B) a shareholder owning more than 5 percent of the voting
power or value of all classes of stock of the employer,
(C) highly compensated, or
(D) a spouse or dependent (within the meaning of section 152,
determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof) of an individual described in subparagraph
(A), (B), or (C).
(2) Highly compensated individual
The term "highly compensated individual" means an individual
who is described in subparagraphs (!1) (A), (B), (C), or (D) of
paragraph (1).
(f) Qualified benefits defined
For purposes of this section, the term "qualified benefit" means
any benefit which, with the application of subsection (a), is not
includible in the gross income of the employee by reason of an
express provision of this chapter (other than section 106(b), 117,
127, or 132). Such term includes any group term life insurance
which is includible in gross income only because it exceeds the
dollar limitation of section 79 and such term includes any other
benefit permitted under regulations. Such term shall not include
any product which is advertised, marketed, or offered as long-term
care insurance.
(g) Special rules
(1) Collectively bargained plan not considered discriminatory
For purposes of this section, a plan shall not be treated as
discriminatory if the plan is maintained under an agreement which
the Secretary finds to be a collective bargaining agreement
between employee representatives and one or more employers.
(2) Health benefits
For purposes of subparagraph (B) of subsection (b)(1), a
cafeteria plan which provides health benefits shall not be
treated as discriminatory if -
(A) contributions under the plan on behalf of each
participant include an amount which -
(i) equals 100 percent of the cost of the health benefit
coverage under the plan of the majority of the highly
compensated participants similarly situated, or
(ii) equals or exceeds 75 percent of the cost of the health
benefit coverage of the participant (similarly situated)
having the highest cost health benefit coverage under the
plan, and
(B) contributions or benefits under the plan in excess of
those described in subparagraph (A) bear a uniform relationship
to compensation.
(3) Certain participation eligibility rules not treated as
discriminatory
For purposes of subparagraph (A) of subsection (b)(1), a
classification shall not be treated as discriminatory if the plan
-
(A) benefits a group of employees described in section
410(b)(2)(A)(i), and
(B) meets the requirements of clauses (i) and (ii):
(i) No employee is required to complete more than 3 years
of employment with the employer or employers maintaining the
plan as a condition of participation in the plan, and the
employment requirement for each employee is the same.
(ii) Any employee who has satisfied the employment
requirement of clause (i) and who is otherwise entitled to
participate in the plan commences participation no later than
the first day of the first plan year beginning after the date
the employment requirement was satisfied unless the employee
was separated from service before the first day of that plan
year.
(4) Certain controlled groups, etc.
All employees who are treated as employed by a single employer
under subsection (b), (c), or (m) of section 414 shall be treated
as employed by a single employer for purposes of this section.
(h) Cross reference
For reporting and recordkeeping requirements, see section
6039D.
(i) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the provisions of this section.
-SOURCE-
(Added Pub. L. 95-600, title I, Sec. 134(a), Nov. 6, 1978, 92 Stat.
2783; amended Pub. L. 96-222, title I, Sec. 101(a)(6)(A), Apr. 1,
1980, 94 Stat. 196; Pub. L. 96-605, title II, Secs. 201(b)(2),
226(a), Dec. 28, 1980, 94 Stat. 3527, 3529; Pub. L. 96-613, Sec.
5(b)(2), Dec. 28, 1980, 94 Stat. 3581; Pub. L. 98-369, div. A,
title V, Sec. 531(b)(1)-(4)(A), July 18, 1984, 98 Stat. 881, 882;
Pub. L. 98-611, Sec. 1(d)(3)(A), Oct. 31, 1984, 98 Stat. 3177; Pub.
L. 98-612, Sec. 1(b)(3)(B), Oct. 31, 1984, 98 Stat. 3181; Pub. L.
99-514, title XI, Sec. 1151(d)(1), title XVIII, Sec. 1853(b)(1),
Oct. 22, 1986, 100 Stat. 2504, 2870; Pub. L. 100-647, title I,
Secs. 1011B(a)(11)-(13), 1018(t)(6), title IV, Sec. 4002(b)(2),
title VI, Sec. 6051(b), Nov. 10, 1988, 102 Stat. 3484, 3485, 3589,
3643, 3696; Pub. L. 101-140, title II, Sec. 203(a)(1), (3), (b)(2),
Nov. 8, 1989, 103 Stat. 830, 831; Pub. L. 101-239, title VII, Sec.
7814(b), Dec. 19, 1989, 103 Stat. 2413; Pub. L. 101-508, title XI,
Sec. 11801(c)(3), Nov. 5, 1990, 104 Stat. 1388-523; Pub. L. 104-
191, title III, Secs. 301(d), 321(c)(1), Aug. 21, 1996, 110 Stat.
2051, 2058; Pub. L. 108-173, title XII, Sec. 1201(i), Dec. 8, 2003,
117 Stat. 2479; Pub. L. 108-311, title II, Sec. 207(11), Oct. 4,
2004, 118 Stat. 1177.)
-COD-
CODIFICATION
Pub. L. 101-140, Sec. 203(a)(1), amended this section to read as
if the amendments made by section 1151(d)(1) of Pub. L. 99-514
(amending this section generally) had not been enacted. Subsequent
to amendment by Pub. L. 99-514, this section was amended by Pub. L.
100-647 and Pub. L. 101-239. See 1989 and 1988 Amendment notes
below.
-MISC1-
PRIOR PROVISIONS
A prior section 125 was renumbered section 140 of this title.
AMENDMENTS
2004 - Subsec. (e)(1)(D). Pub. L. 108-311 inserted ", determined
without regard to subsections (b)(1), (b)(2), and (d)(1)(B)
thereof" after "section 152".
2003 - Subsec. (d)(2)(D). Pub. L. 108-173, which directed the
amendment of section 125(d)(2) by adding subpar. (D), was executed
to this section, which is section 125(d)(2) of the Internal Revenue
Code of 1986, to reflect the probable intent of Congress.
1996 - Subsec. (f). Pub. L. 104-191, Sec. 321(c)(1), inserted at
end "Such term shall not include any product which is advertised,
marketed, or offered as long-term care insurance."
Pub. L. 104-191, Sec. 301(d), inserted "106(b)," before "117".
1990 - Subsec. (f). Pub. L. 101-508 substituted "section 117,"
for "section 117, 124,".
1989 - Pub. L. 101-140, Sec. 203(a)(1), amended section to read
as if amendments by Pub. L. 99-514, Sec. 1151(d)(1), had not been
enacted, see 1986 Amendment note below.
Subsec. (d)(2). Pub. L. 101-140, Sec. 203(b)(2), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "The term
'cafeteria plan' does not include any plan which provides for
deferred compensation. The preceding sentence shall not apply in
the case of a profit-sharing or stock bonus plan which includes a
qualified cash or deferred arrangement (as defined in section
401(k)(2)) to the extent of amounts which a covered employee may
elect to have the employer pay as contributions to a trust under
such plan on behalf of the employee."
Subsec. (e)(2)(A). Pub. L. 101-239 substituted "includible only
because" for "includable only because", see Codification note
above.
Subsec. (g)(3)(A). Pub. L. 101-140, Sec. 203(a)(3), substituted
"section 410(b)(2)(A)(i)" for "subparagraph (B) of section
410(b)(1)".
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1011B(a)(11)(A),
amended subsec. (a) generally, see Codification note above. Prior
to amendment, subsec. (a) read as follows: "In the case of a
cafeteria plan -
"(1) amounts shall not be included in gross income of a
participant in such plan solely because, under the plan, the
participant may choose among the benefits of the plan, and
"(2) if the plan fails to meet the requirements of subsection
(b) for any plan year -
"(A) paragraph (1) shall not apply, and
"(B) notwithstanding any other provision of part III of this
subchapter, any qualified benefits received under such
cafeteria plan by a highly compensated employee for such plan
year shall be included in the gross income of such employee for
the taxable year with or within which such plan year ends."
Subsec. (b)(1). Pub. L. 100-647, Sec. 1011B(a)(11)(B),
substituted "In the case of a highly compensated employee,
subsection (a) shall not apply to any benefit attributable to a
plan year" for "A plan shall be treated as failing to meet the
requirements of this subsection", see Codification note above.
Subsec. (b)(2). Pub. L. 100-647, Sec. 1011B(a)(11)(C),
substituted "subsection (a) shall not apply to any plan year" for
"a plan shall be treated as failing to meet the requirements of
this subsection" in first sentence, see Codification note above.
Pub. L. 100-647, Sec. 1011B(a)(13)(B), substituted "shall not
include benefits which (without regard to this paragraph) are
includible in gross income" for "shall be determined without regard
to the last sentence of subsection (e)", see Codification note
above.
Subsec. (c)(1)(B). Pub. L. 100-647, Sec. 1011B(a)(12), amended
subpar. (B) generally, see Codification note above. Prior to
amendment, subpar. (B) read as follows: "the participants may
choose -
"(i) among 2 or more benefits consisting of cash and qualified
benefits, or
"(ii) among 2 or more qualified benefits."
Subsec. (c)(2)(B). Pub. L. 100-647, Sec. 1018(t)(6), inserted "or
rural electric cooperative plan (within the meaning of section
401(k)(7))" after "stock bonus plan", see Codification note above.
Subsec. (c)(2)(C). Pub. L. 100-647, Sec. 6051(b), inserted at end
"In applying section 89 to a plan described in this subparagraph,
contributions under the plan shall be tested as of the time the
contributions were made.", see Codification note above.
Subsec. (e)(1). Pub. L. 100-647, Sec. 1011B(a)(13)(A), inserted
"and without regard to section 89(a)" after "subsection (a)", see
Codification note above.
Subsec. (e)(2)(A). Pub. L. 100-647, Sec. 4002(b)(2), inserted "or
any insurance under a qualified group legal services plan the value
of which is so includable only because it exceeds the limitation of
section 120(a)" after "section 79", see Codification note above.
1986 - Pub. L. 99-514, Sec. 1151(d)(1), amended section
generally, revising and restating as subsecs. (a) to (g) provisions
of former subsecs. (a) to (i) so as to coincide with the coming
into effect of section 89 of this title.
Subsecs. (c), (d)(1)(B). Pub. L. 99-514, Sec. 1853(b)(1)(A),
substituted "qualified benefits" for "statutory nontaxable
benefits" wherever appearing.
Subsec. (f). Pub. L. 99-514, Sec. 1853(b)(1)(B), substituted
"Qualified benefits defined" for "Statutory nontaxable benefits
defined" in heading and amended text generally. Prior to amendment,
text read as follows: "For purposes of this section, the term
'statutory nontaxable benefit' means any benefit which, with the
application of subsection (a) is not includible in the gross income
of the employee by reason of an express provision of this chapter
(other than section 117, 124, 127, or 132). Such term includes any
group term life insurance which is includible in gross income only
because it exceeds the dollar limitation of section 79."
1984 - Subsec. (b). Pub. L. 98-369, Sec. 531(b)(3), amended
subsec. (b) generally, substituting "and key employees" for "where
plan is discriminatory" in heading and "Highly compensated
participants" for "In general" in par. (1) heading, adding par.
(2), redesignating former par. (2) as (3), and inserting therein
references to par. (2) and to taxable year of key employee.
Subsec. (c). Pub. L. 98-369, Sec. 531(b)(2)(B), inserted
"statutory" before "nontaxable benefits" in two places.
Subsec. (d)(1). Pub. L. 98-369, Sec. 531(b)(1), substituted
"among 2 or more benefits consisting of cash and statutory
nontaxable benefits" for "among two or more benefits" in cl. (B)
and struck out "The benefits which may be chosen may be nontaxable
benefits, or cash, property, or other taxable benefits."
Subsec. (f). Pub. L. 98-369, Sec. 531(b)(2)(A), amended subsec.
(f) generally, inserting "Statutory" in heading and "statutory"
before "nontaxable benefit" in text, providing that the benefit be
excluded by reason of an express provision of this chapter (other
than section 117, 124, 127, or 132), and extending the benefit to
include group term life insurance.
Subsec. (h). Pub. L. 98-611 and Pub. L. 98-612, made identical
amendments, substituting cross reference provision for reporting
requirements provisions.
Pub. L. 98-369, Sec. 531(b)(4)(A), added subsec. (h) relating to
reporting requirements provisions. Former subsec. (h) redesignated
(i).
Subsec. (i). Pub. L. 98-369, Sec. 531(b)(4)(A), redesignated
subsec. (h) as (i).
1980 - Subsec. (d)(2). Pub. L. 96-605, Sec. 226(a), inserted
provision that the sentence excluding deferred compensation plans
not apply in the case of a profit-sharing or stock bonus plan which
includes a qualified cash or deferred arrangement, as defined in
section 401(k)(2) to the extent of amounts which a covered employee
may elect to have the employer pay as contributions to a trust
under such plan on behalf of the employee.
Subsec. (g)(3)(B). Pub. L. 96-222 substituted "employment
requirement" for "service requirement" in cls. (i) and (ii).
Subsec. (g)(4). Pub. L. 96-613, Sec. 5(b)(2), and Pub. L. 96-605,
Sec. 201(b)(2), made identical amendments by substituting
"controlled groups, etc." for "controlled groups" in heading, and
by substituting "subsection (b), (c), or (m) of section 414" for
"subsection (b) or (c) of section 414" in text.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to taxable years
beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-311,
set out as a note under section 2 of this title.
EFFECTIVE DATE OF 2003 AMENDMENT
Amendment by Pub. L. 108-173 applicable to taxable years
beginning after Dec. 31, 2003, see section 1201(k) of Pub. L. 108-
173, set out as a note under section 62 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 301(d) of Pub. L. 104-191 applicable to
taxable years beginning after Dec. 31, 1996, see section 301(j) of
Pub. L. 104-191, set out as a note under section 62 of this title.
Amendment by section 321(c)(1) of Pub. L. 104-191 applicable to
contracts issued after Dec. 31, 1996, see section 321(f) of Pub. L.
104-191, set out as an Effective Date note under section 7702B of
this title.
EFFECTIVE DATE OF 1989 AMENDMENTS
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
Amendment by Pub. L. 101-140 effective as if included in section
1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set
out as a note under section 79 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1011B(a)(11)-(13) and 1018(t)(6) of Pub. L.
100-647 effective, except as otherwise provided, as if included in
the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L. 100-
647, set out as a note under section 1 of this title.
Amendment by section 4002(b)(2) of Pub. L. 100-647 applicable to
taxable years ending after Dec. 31, 1987, see section 4002(c) of
Pub. L. 100-647, set out as a note under section 120 of this title.
Section 6051(c) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending this section and section 89 of this
title] shall take effect as if included in the amendments made by
section 1151 of the Reform Act [Pub. L. 99-514, see Effective Date
of 1986 Amendment note set out under section 79 of this title]."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1151(d)(1) of Pub. L. 99-514 applicable,
with certain qualifications and exceptions, to years beginning
after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-514, as
amended, set out as a note under section 79 of this title.
Amendment by section 1853(b)(1) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENTS
Amendment by Pub. L. 98-612 effective Jan. 1, 1985, see section
1(d)(2) of Pub. L. 98-612.
Amendment by Pub. L. 98-611 effective Jan. 1, 1985, see section
1(g)(2) of Pub. L. 98-611, set out as a note under section 127 of
this title.
Amendment by Pub. L. 98-369 effective Jan. 1, 1985, see section
531(h) of Pub. L. 98-369, set out as an Effective Date note under
section 132 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendments by section 201(b)(2) of Pub. L. 96-605 and section
5(b)(2) of Pub. L. 96-613 applicable to years ending after Nov. 30,
1980, except in the case of a plan in existence on Nov. 30, 1980
where amendments by section 201(b)(2) of Pub. L. 96-605 and section
5(b)(2) of Pub. L. 96-613 applicable to plan years beginning after
Nov. 30, 1980, see section 201(c) of Pub. L. 96-605 and section
5(c) of Pub. L. 96-613, set out as a note under section 414 of this
title.
Section 226(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to taxable years beginning after December 31, 1980."
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 134(c) of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 101(a)(6)(B), Apr. 1, 1980, 94 Stat. 197, provided
that: "The amendments made by this section [enacting this section]
shall apply to plan years beginning after December 31, 1978."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514
FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement
or enforce section 1151 of Pub. L. 99-514 or the amendments made by
such section, see section 528 of Pub. L. 101-136, set out as a note
under section 89 of this title.
TREATMENT OF PRE-1989 ELECTIONS FOR DEPENDENT CARE ASSISTANCE UNDER
CAFETERIA PLANS
Section 6063 of Pub. L. 100-647 provided that: "For purposes of
section 125 of the 1986 Code, a plan shall not be treated as
failing to be a cafeteria plan solely because under the plan a
participant elected before January 1, 1989, to receive
reimbursement under the plan for dependent care assistance for
periods after December 31, 1988, and such assistance is includible
in gross income under the provisions of the Family Support Act of
1988 [Pub. L. 100-485, see Tables for classification]."
For provision that for purposes of section 125 of the Internal
Revenue Code of 1986, a plan shall not be treated as failing to be
a cafeteria plan solely because under the plan a participant
elected before January 1, 1988, to receive reimbursement under the
plan for dependent care assistance for periods after December 31,
1987, and such assistance included reimbursement for expenses at a
camp where the dependent stays overnight, see section 10101(b)(2)
of Pub. L. 100-203, as added by Pub. L. 100-647, set out as an
Effective Date of 1987 Amendment note under section 21 of this
title.
EXCEPTION FOR CERTAIN CAFETERIA PLANS AND BENEFITS
Section 531(b)(5) of Pub. L. 98-369, as amended by Pub. L. 99-
514, title XVIII, Sec. 1853(b)(2), (3), Oct. 22, 1986, 100 Stat.
2870, 2871, provided that:
"(A) General transitional rule. - Any cafeteria plan in existence
on February 10, 1984, which failed as of such date and continued to
fail thereafter to satisfy the rules relating to section 125 under
proposed Treasury regulations, and any benefit offered under such a
cafeteria plan which failed as of such date and continued to fail
thereafter to satisfy the rules of section 105, 106, 120, or 129
under proposed Treasury regulations, will not fail to be a
cafeteria plan under section 125 or a nontaxable benefit under
section 105, 106, 120, or 129 solely because of such failures. The
preceding sentence shall apply only with respect to cafeteria plans
and benefits provided under cafeteria plans before the earlier of -
"(i) January 1, 1985, or
"(ii) the effective date of any modification to provide
additional benefits after February 10, 1984.
"(B) Special transition rule for advance election benefit banks. -
Any benefit offered under a cafeteria plan in existence on
February 10, 1984, which failed as of such date and continued to
fail thereafter to satisfy the rules of section 105, 106, 120, or
129 under proposed Treasury regulations because an employee was
assured of receiving (in cash or any other benefit) amounts
available but unused for covered reimbursement during the year
without regard to whether he incurred covered expenses, will not
fail to be a nontaxable benefit under such applicable section
solely because of such failure. The preceding sentence shall apply
only with respect to benefits provided under cafeteria plans before
the earlier of -
"(i) July 1, 1985, or
"(ii) the effective date of any modification to provide
additional benefits after February 10, 1984.
Except as provided in Treasury regulations, the special transition
rule is available only for benefits with respect to which, after
December 31, 1984, contributions are fixed before the period of
coverage and taxable cash is not available until the end of such
period of coverage.
"(C) Plans for which substantial implementation costs were
incurred. - For purposes of this paragraph, any plan with respect
to which substantial implementation costs had been incurred before
February 10, 1984, shall be treated as in existence on February 10,
1984.
"(D) Collective bargaining agreements. - In the case of any
cafeteria plan in existence on February 10, 1984, and maintained
pursuant to 1 or more collective bargaining agreements between
employee representatives and 1 or more employers, the date on which
the last of such collective bargaining agreements terminates
(determined without regard to any extension thereof agreed to after
July 18, 1984) shall be substituted for 'January 1, 1985' in
subparagraph (A) and for 'July 1, 1985' in subparagraph (B). For
purposes of the preceding sentence, any plan amendment made
pursuant to a collective bargaining agreement relating to the plan
which amends the plan solely to conform to any requirement added by
this section (or any requirement in the regulations under section
125 of the Internal Revenue Code of 1954 [now 1986] proposed on May
6, 1984) shall not be treated as a termination of such collective
bargaining agreement.
"(E) Special rule where contributions or reimbursements
suspended. - For purposes of subparagraphs (A) and (B), a plan
shall not be treated as not continuing to fail to satisfy the rules
referred to in such subparagraphs with respect to any benefit
provided in the form of a flexible spending arrangement merely
because contributions or reimbursements (or both) with respect to
such plan were suspended before January 1, 1985."
-FOOTNOTE-
(!1) So in original. Probably should be "subparagraph".
-End-
-CITE-
26 USC Sec. 126 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 126. Certain cost-sharing payments
-STATUTE-
(a) General rule
Gross income does not include the excludable portion of payments
received under -
(1) The rural clean water program authorized by section 208(j)
of the Federal Water Pollution Control Act (33 U.S.C. 1288(j)).
(2) The rural abandoned mine program authorized by section 406
of the Surface Mining Control and Reclamation Act of 1977 (30
U.S.C. 1236).
(3) The water bank program authorized by the Water Bank Act (16
U.S.C. 1301 et seq.).
(4) The emergency conservation measures program authorized by
title IV of the Agricultural Credit Act of 1978.
(5) The agricultural conservation program authorized by the
Soil Conservation and Domestic Allotment Act (16 U.S.C. 590a).
(6) The great plains conservation program authorized by section
16 (!1) of the Soil Conservation and Domestic Policy Act (16
U.S.C. 590p(b)).
(7) The resource conservation and development program
authorized by the Bankhead-Jones Farm Tenant Act and by the Soil
Conservation and Domestic Allotment Act (7 U.S.C. 1010; 16 U.S.C.
590a et seq.).
(8) The forestry incentives program authorized by section 4 of
the Cooperative Forestry Assistance Act of 1978 (16 U.S.C. 2103).
(9) Any small watershed program administered by the Secretary
of Agriculture which is determined by the Secretary of the
Treasury or his delegate to be substantially similar to the type
of programs described in paragraphs (1) through (8).
(10) Any program of a State, possession of the United States, a
political subdivision of any of the foregoing, or the District of
Columbia under which payments are made to individuals primarily
for the purpose of conserving soil, protecting or restoring the
environment, improving forests, or providing a habitat for
wildlife.
(b) Excludable portion
For purposes of this section -
(1) In general
The term "excludable portion" means that portion (or all) of a
payment made to any person under any program described in
subsection (a) which -
(A) is determined by the Secretary of Agriculture to be made
primarily for the purpose of conserving soil and water
resources, protecting or restoring the environment, improving
forests, or providing a habitat for wildlife, and
(B) is determined by the Secretary of the Treasury or his
delegate as not increasing substantially the annual income
derived from the property.
(2) Payments not chargeable to capital account
The term "excludable portion" does not include that portion of
any payment which is properly associated with an amount which is
allowable as a deduction for the taxable year in which such
amount is paid or incurred.
(c) Election for section not to apply
(1) In general
The taxpayer may elect not to have this section (and section
1255) apply to any excludable portion (or portion thereof).
(2) Manner and time for making election
Any election under paragraph (1) shall be made in the manner
prescribed by the Secretary by regulations and shall be made not
later than the due date prescribed by law (including extensions)
for filing the return of tax under this chapter for the taxable
year in which the payment was received or accrued.
(d) Denial of double benefits
No deduction or credit shall be allowed with respect to any
expenditure which is properly associated with any amount excluded
from gross income under subsection (a).
(e) Basis of property not increased by reason of excludable
payments
Notwithstanding any provision of section 1016 to the contrary, no
adjustment to basis shall be made with respect to property acquired
or improved through the use of any payment, to the extent that such
adjustment would reflect any amount which is excluded from gross
income under subsection (a).
-SOURCE-
(Added Pub. L. 95-600, title V, Sec. 543(a), Nov. 6, 1978, 92 Stat.
2888; amended Pub. L. 96-222, title I, Sec. 105(a)(7)(A), (C), (E),
Apr. 1, 1980, 94 Stat. 220, 221.)
-REFTEXT-
REFERENCES IN TEXT
The Water Bank Act, referred to in subsec. (a)(3), is Pub. L. 91-
559, Dec. 19, 1970, 84 Stat. 1468, as amended, which is classified
generally to chapter 29 (Sec. 1301 et seq.) of Title 16,
Conservation. For complete classification of this Act to the Code,
see Short Title note set out under section 1301 of Title 16 and
Tables.
The Agricultural Credit Act of 1978, referred to in subsec.
(a)(4), is Pub. L. 95-334, Aug. 4, 1978, 92 Stat. 420, as amended.
Title IV of the Agricultural Credit Act of 1978 is classified
generally to chapter 42 (Sec. 2201 et seq.) of Title 16,
Conservation. For complete classification of this Act to the Code,
see Tables.
The Soil Conservation and Domestic Allotment Act, referred to in
subsec. (a)(5), (7), is act Apr. 27, 1935, ch. 85, 49 Stat. 163, as
amended, which is classified generally to chapter 3B (Sec. 590a et
seq.) of Title 16, Conservation. For complete classification of
this Act to the Code, see section 590q of Title 16 and Tables.
Section 16 of the Soil Conservation and Domestic Policy Act,
referred to in subsec. (a)(6), probably means section 16 of the
Soil Conservation and Domestic Allotment Act, which was classified
to section 590p of Title 16, Conservation, prior to repeal by Pub.
L. 104-127, title III, Sec. 336(b)(1), Apr. 4, 1996, 110 Stat.
1006.
The Bankhead-Jones Farm Tenant Act, referred to in subsec.
(a)(7), is act July 22, 1937, ch. 517, 50 Stat. 522, as amended,
which is classified generally to chapter 33 (Sec. 1000 et seq.) of
Title 7, Agriculture. For complete classification of this Act to
the Code, see section 1000 of Title 7 and Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 126 was renumbered section 140 of this title.
AMENDMENTS
1980 - Subsec. (a). Pub. L. 96-222, Sec. 105(a)(7)(C), (E),
inserted in par. (9) "or his delegate" after "Secretary of the
Treasury" and substituted in par. (10) "Any program of a State,
possession of the United States, a political subdivision of any of
the foregoing, or the District of Columbia" for "Any State
program".
Subsec. (b). Pub. L. 96-222, Sec. 105(a)(7)(A), inserted
provisions relating to payments not chargeable to capital account.
Subsec. (c). Pub. L. 96-222, Sec. 105(a)(7)(A), substituted
provisions allowing the taxpayer to elect not to have this section
apply to any excludable portion for provisions relating to the
application of subsec. (a) of this section with other sections.
Subsecs. (d), (e). Pub. L. 96-222, Sec. 105(a)(7)(A), added
subsecs. (d) and (e).
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in provisions of the Revenue
Act of 1978, Pub. L. 95-600, to which such amendment relates, see
section 201 of Pub. L. 96-222, set out as a note under section 32
of this title.
EFFECTIVE DATE
Section 543(d) of Pub. L. 95-600 provided that: "The amendments
made by this section [enacting this section and section 1255 of
this title] shall apply with respect to grants made under the
programs after September 30, 1979."
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 127 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 127. Educational assistance programs
-STATUTE-
(a) Exclusion from gross income
(1) In general
Gross income of an employee does not include amounts paid or
expenses incurred by the employer for educational assistance to
the employee if the assistance is furnished pursuant to a program
which is described in subsection (b).
(2) $5,250 maximum exclusion
If, but for this paragraph, this section would exclude from
gross income more than $5,250 of educational assistance furnished
to an individual during a calendar year, this section shall apply
only to the first $5,250 of such assistance so furnished.
(b) Educational assistance program
(1) In general
For purposes of this section an educational assistance program
is a separate written plan of an employer for the exclusive
benefit of his employees to provide such employees with
educational assistance. The program must meet the requirements of
paragraphs (2) through (6) of this subsection.
(2) Eligibility
The program shall benefit employees who qualify under a
classification set up by the employer and found by the Secretary
not to be discriminatory in favor of employees who are highly
compensated employees (within the meaning of section 414(q)) or
their dependents. For purposes of this paragraph, there shall be
excluded from consideration employees not included in the program
who are included in a unit of employees covered by an agreement
which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one or more
employers, if there is evidence that educational assistance
benefits were the subject of good faith bargaining between such
employee representatives and such employer or employers.
(3) Principal shareholders or owners
Not more than 5 percent of the amounts paid or incurred by the
employer for educational assistance during the year may be
provided for the class of individuals who are shareholders or
owners (or their spouses or dependents), each of whom (on any day
of the year) owns more than 5 percent of the stock or of the
capital or profits interest in the employer.
(4) Other benefits as an alternative
A program must not provide eligible employees with a choice
between educational assistance and other remuneration includible
in gross income. For purposes of this section, the business
practices of the employer (as well as the written program) will
be taken into account.
(5) No funding required
A program referred to in paragraph (1) is not required to be
funded.
(6) Notification of employees
Reasonable notification of the availability and terms of the
program must be provided to eligible employees.
(c) Definitions; special rules
For purposes of this section -
(1) Educational assistance
The term "educational assistance" means -
(A) the payment, by an employer, of expenses incurred by or
on behalf of an employee for education of the employee
(including, but not limited to, tuition, fees, and similar
payments, books, supplies, and equipment), and
(B) the provision, by an employer, of courses of instruction
for such employee (including books, supplies, and equipment),
but does not include payment for, or the provision of, tools or
supplies which may be retained by the employee after completion
of a course of instruction, or meals, lodging, or transportation.
The term "educational assistance" also does not include any
payment for, or the provision of any benefits with respect to,
any course or other education involving sports, games, or
hobbies.
(2) Employee
The term "employee" includes, for any year, an individual who
is an employee within the meaning of section 401(c)(1) (relating
to self-employed individuals).
(3) Employer
An individual who owns the entire interest in an unincorporated
trade or business shall be treated as his own employer. A
partnership shall be treated as the employer of each partner who
is an employee within the meaning of paragraph (2).
(4) Attribution rules
(A) Ownership of stock
Ownership of stock in a corporation shall be determined in
accordance with the rules provided under subsections (d) and
(e) of section 1563 (without regard to section 1563(e)(3)(C)).
(B) Interest in unincorporated trade or business
The interest of an employee in a trade or business which is
not incorporated shall be determined in accordance with
regulations prescribed by the Secretary, which shall be based
on principles similar to the principles which apply in the case
of subparagraph (A).
(5) Certain tests not applicable
An educational assistance program shall not be held or
considered to fail to meet any requirements of subsection (b)
merely because -
(A) of utilization rates for the different types of
educational assistance made available under the program; or
(B) successful completion, or attaining a particular course
grade, is required for or considered in determining
reimbursement under the program.
(6) Relationship to current law
This section shall not be construed to affect the deduction or
inclusion in income of amounts (not within the exclusion under
this section) which are paid or incurred, or received as
reimbursement, for educational expenses under section 117, 162 or
212.
(7) Disallowance of excluded amounts as credit or deduction
No deduction or credit shall be allowed to the employee under
any other section of this chapter for any amount excluded from
income by reason of this section.
(d) Cross reference
For reporting and recordkeeping requirements, see section
6039D.
-SOURCE-
(Added Pub. L. 95-600, title I, Sec. 164(a), Nov. 6, 1978, 92 Stat.
2811; amended Pub. L. 98-611, Sec. 1(a)-(c), (d)(3)(B), (e), Oct.
31, 1984, 98 Stat. 3176-3178; Pub. L. 99-514, title XI, Secs.
1114(b)(4), 1151(c)(4), (g)(3), 1162(a), Oct. 22, 1986, 100 Stat.
2450, 2503, 2507, 2510; Pub. L. 100-647, title I, Sec.
1011B(a)(31)(B), title IV, Sec. 4001(a), (b)(1), Nov. 10, 1988, 102
Stat. 3488, 3643; Pub. L. 101-140, title II, Sec. 203(a)(1), (2),
Nov. 8, 1989, 103 Stat. 830; Pub. L. 101-239, title VII, Secs.
7101(a)(1), 7814(a), Dec. 19, 1989, 103 Stat. 2304, 2413; Pub. L.
101-508, title XI, Sec. 11403(a), (b), Nov. 5, 1990, 104 Stat. 1388-
473; Pub. L. 102-227, title I, Sec. 103(a)(1), Dec. 11, 1991, 105
Stat. 1687; Pub. L. 103-66, title XIII, Sec. 13101(a)(1), Aug. 10,
1993, 107 Stat. 420; Pub. L. 104-188, title I, Sec. 1202(a), (b),
Aug. 20, 1996, 110 Stat. 1772, 1773; Pub. L. 105-34, title II, Sec.
221(a), Aug. 5, 1997, 111 Stat. 818; Pub. L. 106-170, title V, Sec.
506(a), Dec. 17, 1999, 113 Stat. 1922; Pub. L. 107-16, title IV,
Sec. 411(a), (b), June 7, 2001, 115 Stat. 63.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
PRIOR PROVISIONS
A prior section 127 was renumbered section 140 of this title.
AMENDMENTS
2001 - Subsec. (c)(1). Pub. L. 107-16, Secs. 411(b), 901,
temporarily struck out before period at end ", and such term also
does not include any payment for, or the provision of any benefits
with respect to, any graduate level course of a kind normally taken
by an individual pursuing a program leading to a law, business,
medical, or other advanced academic or professional degree". See
Effective and Termination Dates of 2001 Amendment note below.
Subsecs. (d), (e). Pub. L. 107-16, Secs. 411(a), 901, temporarily
redesignated subsec. (e) as (d) and struck out heading and text of
former subsec. (d). Text read as follows: "This section shall not
apply to expenses paid with respect to courses beginning after
December 31, 2001." See Effective and Termination Dates of 2001
Amendment note below.
1999 - Subsec. (d). Pub. L. 106-170 substituted "December 31,
2001" for "May 31, 2000".
1997 - Subsec. (d). Pub. L. 105-34 amended heading and text of
subsec. (d) generally. Prior to amendment, text read as follows:
"This section shall not apply to taxable years beginning after May
31, 1997. In the case of any taxable year beginning in 1997, only
expenses paid with respect to courses beginning before July 1,
1997, shall be taken into account in determining the amount
excluded under this section."
1996 - Subsec. (c)(1). Pub. L. 104-188, Sec. 1202(b), in closing
provisions, inserted before period at end ", and such term also
does not include any payment for, or the provision of any benefits
with respect to, any graduate level course of a kind normally taken
by an individual pursuing a program leading to a law, business,
medical, or other advanced academic or professional degree".
Subsec. (d). Pub. L. 104-188, Sec. 1202(a), substituted "May 31,
1997. In the case of any taxable year beginning in 1997, only
expenses paid with respect to courses beginning before July 1,
1997, shall be taken into account in determining the amount
excluded under this section." for "December 31, 1994."
1993 - Subsec. (d). Pub. L. 103-66 substituted "December 31,
1994" for "June 30, 1992".
1991 - Subsec. (d). Pub. L. 102-227 substituted "June 30, 1992"
for "December 31, 1991".
1990 - Subsec. (c)(1). Pub. L. 101-508, Sec. 11403(b), struck out
at end "The term 'educational assistance' also does not include any
payment for, or the provision of any benefits with respect to, any
graduate level course of a kind normally taken by an individual
pursuing a program leading to a law, business, medical, or other
advanced academic or professional degree."
Subsec. (d). Pub. L. 101-508, Sec. 11403(a), substituted
"December 31, 1991" for "September 30, 1990".
1989 - Subsec. (b)(1). Pub. L. 101-140, Sec. 203(a)(1), amended
par. (1) to read as if amendments by Pub. L. 99-514, Sec.
1151(c)(4)(A), had not been enacted, see 1986 Amendment note below.
Subsec. (b)(2). Pub. L. 101-140, Sec. 203(a)(2), amended par. (2)
to read as if amendments by Pub. L. 100-647, Sec. 1011B(a)(31)(B),
had not been enacted, see 1988 Amendment note below.
Pub. L. 101-140, Sec. 203(a)(1), amended par. (2) to read as if
amendments by Pub. L. 99-514, Sec. 1151(g)(3), had not been
enacted, see 1986 Amendment note below.
Subsec. (b)(6). Pub. L. 101-140, Sec. 203(a)(1), amended par. (6)
to read as if amendments by Pub. L. 99-514, Sec. 1151(c)(4)(B), had
not been enacted, see 1986 Amendment note below.
Subsec. (c)(8). Pub. L. 101-239, Sec. 7814(a), struck out par.
(8) which read as follows: "Coordination with section 117(d). - In
the case of the education of an individual who is a graduate
student at an educational organization described in section
170(b)(1)(A)(ii) and who is engaged in teaching or research
activities for such organization, section 117(d)(2) shall be
applied as if it did not contain the phrase '(below the graduate
level)'."
Subsec. (d). Pub. L. 101-239, Sec. 7101(a)(1), substituted
"September 30, 1990" for "December 31, 1988".
1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 1011B(a)(31)(B),
substituted "there shall" for "there may" and "who are" for "who
may be" in last sentence.
Subsec. (c)(1). Pub. L. 100-647, Sec. 4001(b)(1), inserted at end
"The term 'educational assistance' also does not include any
payment for, or the provision of any benefits with respect to, any
graduate level course of a kind normally taken by an individual
pursuing a program leading to a law, business, medical, or other
advanced academic or professional degree."
Subsec. (d). Pub. L. 100-647, Sec. 4001(a), substituted "1988"
for "1987".
1986 - Subsec. (a)(2). Pub. L. 99-514, Sec. 1162(a)(2),
substituted "$5,250" for "$5,000" in heading and twice in text.
Subsec. (b)(1). Pub. L. 99-514, Sec. 1151(c)(4)(A), added par.
(1) and struck out former par (1) which read as follows: "For
purposes of this section an educational assistance program is a
separate written plan of an employer for the exclusive benefit of
his employees to provide such employees with educational
assistance. The program must meet the requirements of paragraphs
(2) through (6) of this subsection."
Subsec. (b)(2). Pub. L. 99-514, Sec. 1151(g)(3), substituted "For
purposes of this paragraph, there may be excluded from
consideration employees who may be excluded from consideration
under section 89(h)." for "For purposes of this paragraph, there
shall be excluded from consideration employees not included in the
program who are included in a unit of employees covered by an
agreement which the Secretary of Labor finds to be a collective
bargaining agreement between employee representatives and one or
more employers, if there is evidence that educational assistance
benefits were the subject of good faith bargaining between such
employee representatives and such employer or employers."
Pub. L. 99-514, Sec. 1114(b)(4), substituted "highly compensated
employees (within the meaning of section 414(q))" for "officers,
owners, or highly compensated,".
Subsec. (b)(6). Pub. L. 99-514, Sec. 1151(c)(4)(B), struck out
par. (6) which read as follows: "Notification of employees. -
Reasonable notification of the availability and terms of the
program must be provided to eligible employees."
Subsec. (d). Pub. L. 99-514, Sec. 1162(a)(1), substituted
"December 31, 1987" for "December 31, 1985".
1984 - Subsec. (a). Pub. L. 98-611, Sec. 1(b), amended subsec.
generally, substituting "Exclusion from gross income" for "General
rule" in heading, designating existing provision as par. "(1) In
general" and adding par. (2).
Subsec. (c)(7). Pub. L. 98-611, Sec. 1(e), substituted "allowed
to the employee" for "allowed".
Subsec. (c)(8). Pub. L. 98-611, Sec. 1(c), added par. (8).
Subsec. (d). Pub. L. 98-611, Sec. 1(a), substituted "December 31,
1985" for "December 31, 1983".
Subsec. (e). Pub. L. 98-611, Sec. 1(d)(3)(B), added subsec. (e).
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable with respect to expenses
relating to courses beginning after Dec. 31, 2001, see section
411(d) of Pub. L. 107-16, set out as a note under section 51A of
this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 506(b), Dec. 17, 1999, 113 Stat.
1922, provided that: "The amendment made by subsection (a)
[amending this section] shall apply to courses beginning after May
31, 2000."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 221(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1996."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1202(c)(1), (2) of Pub. L. 104-188 provided that:
"(1) Extension. - The amendment made by subsection (a) [amending
this section] shall apply to taxable years beginning after December
31, 1994.
"(2) Graduate education. - The amendment made by subsection (b)
[amending this section] shall apply with respect to expenses
relating to courses beginning after June 30, 1996."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13101(c)(1) of Pub. L. 103-66 provided that: "The
amendments made by subsection (a) [amending this section and
repealing provisions set out below] shall apply to taxable years
ending after June 30, 1992."
EFFECTIVE DATE OF 1991 AMENDMENT
Section 103(b) of Pub. L. 102-227 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1991."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11403(d) of Pub. L. 101-508 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and
repealing provisions set out below] shall apply to taxable years
beginning after December 31, 1989.
"(2) Subsection (b). - The amendment made by subsection (b)
[amending this section] shall apply to taxable years beginning
after December 31, 1990."
EFFECTIVE DATE OF 1989 AMENDMENTS
Section 7101(c) of Pub. L. 101-239 provided that: "The amendments
made by this section [amending this section and section 132 of this
title] shall apply to taxable years beginning after December 31,
1988."
Amendment by section 7814(a) of Pub. L. 101-239 effective, except
as otherwise provided, as if included in the provision of the
Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647,
to which such amendment relates, see section 7817 of Pub. L. 101-
239, set out as a note under section 1 of this title.
Amendment by Pub. L. 101-140 effective as if included in section
1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set
out as a note under section 79 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1011B(a)(31)(B) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 4001(a), (b)(1) of Pub. L. 100-647
applicable to taxable years beginning after Dec. 31, 1987, see
section 4001(c) of Pub. L. 100-647, set out as a note under section
117 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1114(b)(4) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Amendment by section 1151(c)(4), (g)(3) of Pub. L. 99-514
applicable, with certain qualifications and exceptions, to years
beginning after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-
514, as amended, set out as a note under section 79 of this title.
Amendment by section 1162(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1985, see section 1162(c) of
Pub. L. 99-514, set out as a note under section 120 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 1(g) of Pub. L. 98-611, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting section
6039D of this title and amending this section and sections 125,
3231, and 6652 of this title] shall apply to taxable years
beginning after December 31, 1983.
"(2) Subsection (d). - The amendments made by subsection (d)
[enacting section 6039D and amending this section and sections 125
and 6652 of this title] shall take effect on January 1, 1985.
"(3) Subsection (f). - The amendment made by subsection (f)
[amending section 3231 of this title] shall apply to remuneration
paid after December 31, 1984.
"(4) No penalties or interest on failure to withhold. - No
penalty or interest shall be imposed on any failure to withhold
under subtitle C of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (relating to employment taxes) with respect to amounts
excluded from gross income under section 127 of such Code (as
amended by this section and determined without regard to subsection
(a)(2) thereof) with respect to periods during 1984.
"(5) Coordination with section 117(d). - In the case of education
described in section 127(c)(8) of the Internal Revenue Code of
1986, as added by this section, section 117(d) of such Code shall
be treated as in effect on and after January 1, 1984."
EFFECTIVE DATE
Section 164(d) of Pub. L. 95-600 provided that: "The amendments
made by this section [enacting this section and amending sections
3121, 3306, and 3401 of this title and section 409 of Title 42, The
Public Health and Welfare] shall apply with respect to taxable
years beginning after December 31, 1978."
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
EXPEDITED PROCEDURES FOR REFUNDS OF OVERPAYMENTS
Section 1202(c)(3) of Pub. L. 104-188 provided that: "The
Secretary of the Treasury shall establish expedited procedures for
the refund of any overpayment of taxes imposed by the Internal
Revenue Code of 1986 which is attributable to amounts excluded from
gross income during 1995 or 1996 under section 127 of such Code,
including procedures waiving the requirement that an employer
obtain an employee's signature where the employer demonstrates to
the satisfaction of the Secretary that any refund collected by the
employer on behalf of the employee will be paid to the employee."
SPECIAL RULE FOR CERTAIN TAXABLE YEARS
Section 103(a)(2) of Pub. L. 102-227 provided that, in the case
of any taxable year beginning in 1992, only amounts paid before
July 1, 1992, by employer for educational assistance for employee
be taken into account in determining amount excluded under this
section with respect to such employee for such taxable year, prior
to repeal by Pub. L. 103-66, title XIII, Sec. 13101(a)(2), Aug. 10,
1993, 107 Stat. 420.
Section 7101(a)(2) of Pub. L. 101-239 provided that, in the case
of any taxable year beginning in 1990, only amounts paid before
Oct. 1, 1990, by employer for educational assistance for employee
be taken into account in determining amount excluded under this
section with respect to such employee for such taxable year, prior
to repeal by Pub. L. 101-508, title XI, Sec. 11403(c), Nov. 5,
1990, 104 Stat. 1388-473.
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514
FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement
or enforce section 1151 of Pub. L. 99-514 or the amendments made by
such section, see section 528 of Pub. L. 101-136, set out as a note
under section 89 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 128 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
[Sec. 128. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(10),
Nov. 5, 1990, 104 Stat. 1388-520]
-MISC1-
Section, added and amended Pub. L. 97-34, title III, Secs.
301(a), 302(a), (d)(1), Aug. 13, 1981, 95 Stat. 267, 270, 274; Pub.
L. 97-448, title I, Secs. 103(a)(1), (5), (b), 109, Jan. 12, 1983,
96 Stat. 2374, 2375, 2391; Pub. L. 98-21, title I, Secs. 121(f)(2),
(g), 122(c)(3), (d), Apr. 20, 1983, 97 Stat. 84, 87; Pub. L. 98-
369, div. A, title I, Sec. 16(a), July 18, 1984, 98 Stat. 505,
related to interest on certain savings certificates.
A prior section 128 was renumbered section 140 of this title.
SAVINGS PROVISION
For provisions that nothing in repeal by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 129 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 129. Dependent care assistance programs
-STATUTE-
(a) Exclusion
(1) In general
Gross income of an employee does not include amounts paid or
incurred by the employer for dependent care assistance provided
to such employee if the assistance is furnished pursuant to a
program which is described in subsection (d).
(2) Limitation of exclusion
(A) In general
The amount which may be excluded under paragraph (1) for
dependent care assistance with respect to dependent care
services provided during a taxable year shall not exceed $5,000
($2,500 in the case of a separate return by a married
individual).
(B) Year of inclusion
The amount of any excess under subparagraph (A) shall be
included in gross income in the taxable year in which the
dependent care services were provided (even if payment of
dependent care assistance for such services occurs in a
subsequent taxable year).
(C) Marital status
For purposes of this paragraph, marital status shall be
determined under the rules of paragraphs (3) and (4) of section
21(e).
(b) Earned income limitation
(1) In general
The amount excluded from the income of an employee under
subsection (a) for any taxable year shall not exceed -
(A) in the case of an employee who is not married at the
close of such taxable year, the earned income of such employee
for such taxable year, or
(B) in the case of an employee who is married at the close of
such taxable year, the lesser of -
(i) the earned income of such employee for such taxable
year, or
(ii) the earned income of the spouse of such employee for
such taxable year.
(2) Special rule for certain spouses
For purposes of paragraph (1), the provisions of section
21(d)(2) shall apply in determining the earned income of a spouse
who is a student or incapable of caring for himself.
(c) Payments to related individuals
No amount paid or incurred during the taxable year of an employee
by an employer in providing dependent care assistance to such
employee shall be excluded under subsection (a) if such amount was
paid or incurred to an individual -
(1) with respect to whom, for such taxable year, a deduction is
allowable under section 151(c) (relating to personal exemptions
for dependents) to such employee or the spouse of such employee,
or
(2) who is a child of such employee (within the meaning of
section 152(f)(1)) under the age of 19 at the close of such
taxable year.
(d) Dependent care assistance program
(1) In general
For purposes of this section a dependent care assistance
program is a separate written plan of an employer for the
exclusive benefit of his employees to provide such employees with
dependent care assistance which meets the requirements of
paragraphs (2) through (8) of this subsection. If any plan would
qualify as a dependent care assistance program but for a failure
to meet the requirements of this subsection, then,
notwithstanding such failure, such plan shall be treated as a
dependent care assistance program in the case of employees who
are not highly compensated employees.
(2) Discrimination
The contributions or benefits provided under the plan shall not
discriminate in favor of employees who are highly compensated
employees (within the meaning of section 414(q)) or their
dependents.
(3) Eligibility
The program shall benefit employees who qualify under a
classification set up by the employer and found by the Secretary
not to be discriminatory in favor of employees described in
paragraph (2), or their dependents.
(4) Principal shareholders or owners
Not more than 25 percent of the amounts paid or incurred by the
employer for dependent care assistance during the year may be
provided for the class of individuals who are shareholders or
owners (or their spouses or dependents), each of whom (on any day
of the year) owns more than 5 percent of the stock or of the
capital or profits interest in the employer.
(5) No funding required
A program referred to in paragraph (1) is not required to be
funded.
(6) Notification of eligible employees
Reasonable notification of the availability and terms of the
program shall be provided to eligible employees.
(7) Statement of expenses
The plan shall furnish to an employee, on or before January 31,
a written statement showing the amounts paid or expenses incurred
by the employer in providing dependent care assistance to such
employee during the previous calendar year.
(8) Benefits
(A) In general
A plan meets the requirements of this paragraph if the
average benefits provided to employees who are not highly
compensated employees under all plans of the employer is at
least 55 percent of the average benefits provided to highly
compensated employees under all plans of the employer.
(B) Salary reduction agreements
For purposes of subparagraph (A), in the case of any benefits
provided through a salary reduction agreement, a plan may
disregard any employees whose compensation is less than
$25,000. For purposes of this subparagraph, the term
"compensation" has the meaning given such term by section
414(q)(4), except that, under rules prescribed by the
Secretary, an employer may elect to determine compensation on
any other basis which does not discriminate in favor of highly
compensated employees.
(9) Excluded employees
For purposes of paragraphs (3) and (8), there shall be excluded
from consideration -
(A) subject to rules similar to the rules of section
410(b)(4), employees who have not attained the age of 21 and
completed 1 year of service (as defined in section 410(a)(3)),
and
(B) employees not included in a dependent care assistance
program who are included in a unit of employees covered by an
agreement which the Secretary finds to be a collective
bargaining agreement between employee representatives and 1 or
more employees, if there is evidence that dependent care
benefits were the subject of good faith bargaining between such
employee representatives and such employer or employers.
(e) Definitions and special rules
For purposes of this section -
(1) Dependent care assistance
The term "dependent care assistance" means the payment of, or
provision of, those services which if paid for by the employee
would be considered employment-related expenses under section
21(b)(2) (relating to expenses for household and dependent care
services necessary for gainful employment).
(2) Earned income
The term "earned income" shall have the meaning given such term
in section 32(c)(2), but such term shall not include any amounts
paid or incurred by an employer for dependent care assistance to
an employee.
(3) Employee
The term "employee" includes, for any year, an individual who
is an employee within the meaning of section 401(c)(1) (relating
to self-employed individuals).
(4) Employer
An individual who owns the entire interest in an unincorporated
trade or business shall be treated as his own employer. A
partnership shall be treated as the employer of each partner who
is an employee within the meaning of paragraph (3).
(5) Attribution rules
(A) Ownership of stock
Ownership of stock in a corporation shall be determined in
accordance with the rules provided under subsections (d) and
(e) of section 1563 (without regard to section 1563(e)(3)(C)).
(B) Interest in unincorporated trade or business
The interest of an employee in a trade or business which is
not incorporated shall be determined in accordance with
regulations prescribed by the Secretary, which shall be based
on principles similar to the principles which apply in the case
of subparagraph (A).
(6) Utilization test not applicable
A dependent care assistance program shall not be held or
considered to fail to meet any requirements of subsection (d)
(other than paragraphs (4) and (8) thereof) merely because of
utilization rates for the different types of assistance made
available under the program.
(7) Disallowance of excluded amounts as credit or deduction
No deduction or credit shall be allowed to the employee under
any other section of this chapter for any amount excluded from
the gross income of the employee by reason of this section.
(8) Treatment of onsite facilities
In the case of an onsite facility maintained by an employer,
except to the extent provided in regulations, the amount of
dependent care assistance provided to an employee excluded with
respect to any dependent shall be based on -
(A) utilization of the facility by a dependent of the
employee, and
(B) the value of the services provided with respect to such
dependent.
(9) Identifying information required with respect to service
provider
No amount paid or incurred by an employer for dependent care
assistance provided to an employee shall be excluded from the
gross income of such employee unless -
(A) the name, address, and taxpayer identification number of
the person performing the services are included on the return
to which the exclusion relates, or
(B) if such person is an organization described in section
501(c)(3) and exempt from tax under section 501(a), the name
and address of such person are included on the return to which
the exclusion relates.
In the case of a failure to provide the information required
under the preceding sentence, the preceding sentence shall not
apply if it is shown that the taxpayer exercised due diligence in
attempting to provide the information so required.
-SOURCE-
(Added Pub. L. 97-34, title I, Sec. 124(e)(1), Aug. 13, 1981, 95
Stat. 198; amended Pub. L. 97-448, title I, Sec. 101(e), Jan. 12,
1983, 96 Stat. 2366; Pub. L. 98-369, div. A, title IV, Sec.
474(r)(6), July 18, 1984, 98 Stat. 839; Pub. L. 99-514, title I,
Sec. 104(b)(1), title XI, Secs. 1114(b)(4), 1151(c)(5), (f),
(g)(4), 1163(a), (b), Oct. 22, 1986, 100 Stat. 2104, 2450, 2503,
2506, 2507, 2510; Pub. L. 100-485, title VII, Sec. 703(c)(2), Oct.
13, 1988, 102 Stat. 2427; Pub. L. 100-647, title I, Sec.
1011B(a)(14), (15), (18), (30), (31)(A), (c)(1), (2)(A), title III,
Sec. 3021(a)(14), Nov. 10, 1988, 102 Stat. 3485, 3487-3489, 3631;
Pub. L. 101-140, title II, Secs. 203(a)(1), (2), 204(a)(1)-(3)(C),
Nov. 8, 1989, 103 Stat. 830, 832; Pub. L. 101-239, title VII, Sec.
7811(h)(2), Dec. 19, 1989, 103 Stat. 2409; Pub. L. 104-188, title
I, Sec. 1431(c)(1)(B), Aug. 20, 1996, 110 Stat. 1803; Pub. L. 108-
311, title II, Sec. 207(12), Oct. 4, 2004, 118 Stat. 1177.)
-COD-
CODIFICATION
Pub. L. 101-140, Sec. 203(a)(1), amended this section to read as
if the amendments made by section 1151(c)(5)(A) of Pub. L. 99-514
(amending subsec. (d)(1)) had not been enacted. Subsequent to
amendment by Pub. L. 99-514, subsec. (d)(1) was amended by Pub. L.
100-647. See 1988 Amendment note below.
-MISC1-
PRIOR PROVISIONS
A prior section 129 was renumbered section 140 of this title.
AMENDMENTS
2004 - Subsec. (c)(2). Pub. L. 108-311 substituted "152(f)(1)"
for "151(c)(3)".
1996 - Subsec. (d)(8)(B). Pub. L. 104-188 substituted "section
414(q)(4)" for "section 414(q)(7)".
1989 - Subsec. (a). Pub. L. 101-239 struck out at end "For
purposes of the preceding sentence, marital status shall be
determined under the rules of paragraphs (3) and (4) of section
21(e)."
Subsec. (d)(1). Pub. L. 101-140, Sec. 204(a)(3)(B), substituted
"paragraphs (2) through (8)" for "paragraphs (2) through (7)".
Pub. L. 101-140, Sec. 204(a)(1), inserted at end "If any plan
would qualify as a dependent care assistance program but for a
failure to meet the requirements of this subsection, then,
notwithstanding such failure, such plan shall be treated as a
dependent care assistance program in the case of employees who are
not highly compensated employees."
Pub. L. 101-140, Sec. 203(a)(1), amended par. (1) to read as if
the amendments by Pub. L. 99-514, Sec. 1151(c)(5)(A), had not been
enacted, see 1986 Amendment note below.
Subsec. (d)(3). Pub. L. 101-140, Sec. 204(a)(2)(B), struck out at
end "For purposes of this paragraph, there may be excluded from
consideration employees who may be excluded from consideration
under section 89(h)." for "For purposes of this paragraph, there
shall be excluded from consideration employees not included in the
program who are included in a unit of employees covered by an
agreement which the Secretary of Labor finds to be a collective
bargaining agreement between employee representatives and one or
more employers, if there is evidence that dependent care benefits
were the subject of good faith bargaining between such employee
representatives and such employer or employers."
Pub. L. 101-140, Sec. 203(a)(2), amended par. (3) to read as if
amendments by Pub. L. 100-647, Sec. 1011B(a)(31)(A)(i), had not
been enacted, see 1988 Amendment note below.
Pub. L. 101-140, Sec. 203(a)(1), amended par. (3) to read as if
amendments by Pub. L. 99-514, Sec. 1151(g)(4), had not been
enacted, see 1986 Amendment note below.
Subsec. (d)(6). Pub. L. 101-140, Sec. 203(a)(1), amended par. (6)
to read as if amendments by Pub. L. 99-514, Sec. 1151(c)(5)(B), had
not been enacted, see 1986 Amendment note below.
Subsec. (d)(7). Pub. L. 101-140, Sec. 204(a)(3)(A), redesignated
par. (7) as (8).
Pub. L. 101-140, Sec. 203(a)(1), amended par. (7) to read as if
amendments by Pub. L. 99-514, Sec. 1151(c)(5)(B), had not been
enacted, see 1986 Amendment note below.
Subsec. (d)(8). Pub. L. 101-140, Sec. 204(a)(3)(A), redesignated
par. (7) as (8).
Pub. L. 101-140, Sec. 203(a)(2), amended par. (8) to read as if
amendments by Pub. L. 100-647, Sec. 1011B(a)(31)(A)(ii), had not
been enacted, see 1988 Amendment note below.
Subsec. (d)(9). Pub. L. 101-140, Sec. 204(a)(2)(A), added par.
(9).
Subsec. (e)(6). Pub. L. 101-140, Sec. 204(a)(3)(C), substituted
"(8)" for "(7)".
1988 - Subsec. (a)(2). Pub. L. 100-647, Sec. 1011B(c)(2)(A),
amended par. (2) generally. Prior to amendment, par. (2) read as
follows: "The aggregate amount excluded from the gross income of
the taxpayer under this section for any taxable year shall not
exceed $5,000 ($2,500 in the case of a separate return by a married
individual)."
Subsec. (d)(1)(B). Pub. L. 100-647, Sec. 1011B(a)(30),
substituted "(7)" for "(6)", see Codification note above.
Subsec. (d)(3). Pub. L. 100-647, Sec. 1011B(a)(31)(A)(i), struck
out at end "For purposes of this paragraph, there may be excluded
from consideration employees who may be excluded from consideration
under section 89(h)."
Subsec. (d)(7). Pub. L. 100-647, Sec. 1011B(a)(14), redesignated
par. (8) as (7).
Subsec. (d)(7)(A). Pub. L. 100-647, Sec. 1011B(a)(15)(A),
inserted "under all plans of the employer" after second and third
reference to "employees".
Subsec. (d)(7)(B). Pub. L. 100-647, Sec. 3021(a)(14), struck out
"(within the meaning of section 414(q)(7))" after "whose
compensation" and inserted at end "For purposes of this
subparagraph, the term 'compensation' has the meaning given such
term by section 414(q)(7), except that, under rules prescribed by
the Secretary, an employer may elect to determine compensation on
any other basis which does not discriminate in favor of highly
compensated employees."
Pub. L. 100-647, Sec. 1011B(a)(15)(B), (C), substituted "a plan
may disregard" for "there shall be disregarded" and "414(q)(7)" for
"415(q)(7)".
Subsec. (d)(8). Pub. L. 100-647, Sec. 1011B(a)(31)(A)(ii), added
par. (8). Former par. (8) redesignated (7).
Subsec. (e)(6). Pub. L. 100-647, Sec. 1011B(a)(18), inserted
"(other than paragraphs (4) and (7) thereof)" after "subsection
(d)".
Subsec. (e)(8). Pub. L. 100-647, Sec. 1011B(c)(1), in
introductory provisions, inserted "maintained by an employer" after
"onsite facility" and "of dependent care assistance provided to an
employee" after "the amount", in subpar. (A), inserted "of the
facility by a dependent of the employee" after "utilization", and
in subpar. (B), inserted "with respect to such dependent" after
"provided".
Subsec. (e)(9). Pub. L. 100-485 added par. (9).
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1163(a), substituted
"Exclusion" for "In general" in heading and amended text generally.
Prior to amendment, text read as follows: "Gross income of an
employee does not include amounts paid or incurred by the employer
for dependent care assistance provided to such employee if the
assistance is furnished pursuant to a program which is described in
subsection (d)."
Subsec. (c)(1). Pub. L. 99-514, Sec. 104(b)(1)(A), substituted
"section 151(c)" for "section 151(e)".
Subsec. (c)(2). Pub. L. 99-514, Sec. 104(b)(1)(B), substituted
"section 151(c)(3)" for "section 151(e)(3)".
Subsec. (d)(1). Pub. L. 99-514, Sec. 1151(c)(5)(A), added par.
(1) and struck out former par. (1) which read as follows: "For
purposes of this section a dependent care assistance program is a
separate written plan of an employer for the exclusive benefit of
his employees to provide such employees with dependent care
assistance which meets the requirements of paragraphs (2) through
(7) of this subsection."
Subsec. (d)(2). Pub. L. 99-514, Sec. 1114(b)(4), substituted
"highly compensated employees (within the meaning of section
414(q))" for "officers, owners, or highly compensated,".
Subsec. (d)(3). Pub. L. 99-514, Sec. 1151(g)(4), substituted "For
purposes of this paragraph, there may be excluded from
consideration employees who may be excluded from consideration
under section 89(h)." for "For purposes of this paragraph, there
shall be excluded from consideration employees not included in the
program who are included in a unit of employees covered by an
agreement which the Secretary of Labor finds to be a collective
bargaining agreement between employee representatives and one or
more employers, if there is evidence that dependent care benefits
were the subject of good faith bargaining between such employee
representatives and such employer or employers."
Subsec. (d)(6), (7). Pub. L. 99-514, Sec. 1151(c)(5)(B),
redesignated par. (7) as (6) and struck out former par. (6) which
read as follows: "Notification of eligible employees. - Reasonable
notification of the availability and terms of the program shall be
provided to eligible employees."
Subsec. (d)(8). Pub. L. 99-514, Sec. 1151(f), added par. (8).
Subsec. (e)(8). Pub. L. 99-514, Sec. 1163(b), added par. (8).
1984 - Subsec. (b)(2). Pub. L. 98-369, Sec. 474(r)(6)(A),
substituted "section 21(d)(2)" for "section 44A(e)(2)".
Subsec. (e)(1). Pub. L. 98-369, Sec. 474(r)(6)(B), substituted
"section 21(b)(2)" for "section 44A(c)(2)".
Subsec. (e)(2). Pub. L. 98-369, Sec. 474(r)(6)(C), substituted
"section 32(c)(2)" for "section 43(c)(2)".
1983 - Subsec. (d)(1). Pub. L. 97-448, Sec. 101(e)(1)(C),
substituted "paragraphs (2) through (7)" for "paragraphs (2)
through (6)".
Subsec. (d)(2). Pub. L. 97-448, Sec. 101(e)(1)(A), added par.
(2). Former par. (2) redesignated (3).
Subsec. (d)(3). Pub. L. 97-448, Sec. 101(e)(1)(A), (B),
redesignated former par. (2) as (3) and substituted "employees
described in paragraph (2), or their dependents" for "employees who
are officers, owners, or highly compensated, or their dependents".
Former par. (3) redesignated (4).
Subsec. (d)(4) to (7). Pub. L. 97-448, Sec. 101(e)(1)(A),
redesignated former pars. (3) to (6) as (4) to (7), respectively.
Subsec. (e)(7). Pub. L. 97-448, Sec. 101(e)(2), substituted
"shall be allowed to the employee under any other section of this
chapter for any amount excluded from the gross income of the
employee" for "shall be allowed under any other section of this
chapter for any amount excluded from income".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to taxable years
beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-311,
set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to years beginning after
Dec. 31, 1996, except that in determining whether an employee is a
highly compensated employee for years beginning in 1997, such
amendment to be treated as having been in effect for years
beginning in 1996, see section 1431(d)(1) of Pub. L. 104-188, set
out as a note under section 414 of this title.
EFFECTIVE DATE OF 1989 AMENDMENTS
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
Amendment by section 203(a)(1), (2) of Pub. L. 101-140 effective
as if included in section 1151 of Pub. L. 99-514, see section
203(c) of Pub. L. 101-140, set out as a note under section 79 of
this title.
Section 204(a)(3)(D) of Pub. L. 101-140 provided that: "Section
129(d)(8) (as redesignated by subparagraph (A)) shall apply to plan
years beginning after December 31, 1989."
Section 204(d)(1), (2) of Pub. L. 101-140 provided that:
"(1) The amendments made by subsections (a)(1), (a)(2), and
(b)(2) [amending this section and section 414 of this title] shall
apply to years beginning after December 31, 1988.
"(2) The amendments made by subsection (a)(3) [amending this
section] shall apply to plan years beginning after December 31,
1989."
EFFECTIVE DATE OF 1988 AMENDMENTS
Amendment by section 1011B(a)(14), (15), (18), (30), (31)(A),
(c)(1) of Pub. L. 100-647 effective, except as otherwise provided,
as if included in the provision of the Tax Reform Act of 1986, Pub.
L. 99-514, to which such amendment relates, see section 1019(a) of
Pub. L. 100-647, set out as a note under section 1 of this title.
Section 1011B(c)(2)(C) of Pub. L. 100-647 provided that:
"(i) Except as provided in this subparagraph, the amendments made
by this paragraph [amending this section and section 6051 of this
title] shall apply to taxable years beginning after December 31,
1987.
"(ii) A taxpayer may elect to have the amendment made by
subparagraph (A) [amending this section] apply to taxable years
beginning in 1987.
"(iii) In the case of a taxpayer not making an election under
clause (ii), any dependent care assistance provided in a taxable
year beginning in 1987 with respect to which reimbursement was not
received in such taxable year shall be treated as provided in the
taxpayer's first taxable year beginning after December 31, 1987."
Section 3021(d) of Pub. L. 100-647 provided that:
"(1) Subsection (a). - The amendments made by subsection (a)
[amending this section and sections 89, 410, 4976, 6039D, and 6652
of this title] shall take effect as if included in the amendments
made by section 1151 of the Tax Reform Act of 1986 [Pub. L. 99-514,
see Effective Date note below]; except that the amendment made by
subsection (a)(8) [amending section 89 of this title] shall apply
to testing years beginning after December 31, 1989.
"(2) Subsection (b). - The amendments made by subsection (b)
[amending sections 89 and 414 of this title] shall apply to years
beginning after December 31, 1986."
Amendment by Pub. L. 100-485 applicable to taxable years
beginning after Dec. 31, 1988, see section 703(d) of Pub. L. 100-
485, set out as a note under section 21 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1114(b)(4) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Amendment by section 1151(c)(5), (f), (g)(4) of Pub. L. 99-514
applicable, with certain qualifications and exceptions, to years
beginning after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-
514, as amended, set out as a note under section 79 of this title.
Section 1163(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1981, see section 124(f) of Pub. L. 97-34, set out as an Effective
Date of 1981 Amendment note under section 21 of this title.
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514
FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement
or enforce section 1151 of Pub. L. 99-514 or the amendments made by
such section, see section 528 of Pub. L. 101-136, set out as a note
under section 89 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 130 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 130. Certain personal injury liability assignments
-STATUTE-
(a) In general
Any amount received for agreeing to a qualified assignment shall
not be included in gross income to the extent that such amount does
not exceed the aggregate cost of any qualified funding assets.
(b) Treatment of qualified funding asset
In the case of any qualified funding asset -
(1) the basis of such asset shall be reduced by the amount
excluded from gross income under subsection (a) by reason of the
purchase of such asset, and
(2) any gain recognized on a disposition of such asset shall be
treated as ordinary income.
(c) Qualified assignment
For purposes of this section, the term "qualified assignment"
means any assignment of a liability to make periodic payments as
damages (whether by suit or agreement), or as compensation under
any workmen's compensation act, on account of personal injury or
sickness (in a case involving physical injury or physical sickness)
-
(1) if the assignee assumes such liability from a person who is
a party to the suit or agreement, or the workmen's compensation
claim, and
(2) if -
(A) such periodic payments are fixed and determinable as to
amount and time of payment,
(B) such periodic payments cannot be accelerated, deferred,
increased, or decreased by the recipient of such payments,
(C) the assignee's obligation on account of the personal
injuries or sickness is no greater than the obligation of the
person who assigned the liability, and
(D) such periodic payments are excludable from the gross
income of the recipient under paragraph (1) or (2) of section
104(a).
The determination for purposes of this chapter of when the
recipient is treated as having received any payment with respect to
which there has been a qualified assignment shall be made without
regard to any provision of such assignment which grants the
recipient rights as a creditor greater than those of a general
creditor.
(d) Qualified funding asset
For purposes of this section, the term "qualified funding asset"
means any annuity contract issued by a company licensed to do
business as an insurance company under the laws of any State, or
any obligation of the United States, if -
(1) such annuity contract or obligation is used by the assignee
to fund periodic payments under any qualified assignment,
(2) the periods of the payments under the annuity contract or
obligation are reasonably related to the periodic payments under
the qualified assignment, and the amount of any such payment
under the contract or obligation does not exceed the periodic
payment to which it relates,
(3) such annuity contract or obligation is designated by the
taxpayer (in such manner as the Secretary shall by regulations
prescribe) as being taken into account under this section with
respect to such qualified assignment, and
(4) such annuity contract or obligation is purchased by the
taxpayer not more than 60 days before the date of the qualified
assignment and not later than 60 days after the date of such
assignment.
-SOURCE-
(Added Pub. L. 97-473, title I, Sec. 101(b)(1), Jan. 14, 1983, 96
Stat. 2605; amended Pub. L. 99-514, title X, Sec. 1002(a), Oct. 22,
1986, 100 Stat. 2388; Pub. L. 100-647, title VI, Sec. 6079(b)(1),
Nov. 10, 1988, 102 Stat. 3709; Pub. L. 105-34, title IX, Sec.
962(a), Aug. 5, 1997, 111 Stat. 891.)
-MISC1-
PRIOR PROVISIONS
A prior section 130 was renumbered section 140 of this title.
AMENDMENTS
1997 - Subsec. (c). Pub. L. 105-34, Sec. 962(a)(1), inserted ",
or as compensation under any workmen's compensation act," after
"(whether by suit or agreement)" in introductory provisions.
Subsec. (c)(1). Pub. L. 105-34, Sec. 962(a)(2), inserted "or the
workmen's compensation claim," after "agreement,".
Subsec. (c)(2)(D). Pub. L. 105-34, Sec. 962(a)(3), substituted
"paragraph (1) or (2) of section 104(a)" for "section 104(a)(2)".
1988 - Subsec. (c). Pub. L. 100-647, in par. (2), redesignated
subpars. (D) and (E) as (C) and (D), respectively, struck out
former subpar. (C) which provided that the assignee does not
provide to the recipient of such payments rights against the
assignee which are greater than those of a general creditor, and as
concluding provisions, inserted at end "The determination for
purposes of this chapter of when the recipient is treated as having
received any payment with respect to which there has been a
qualified assignment shall be made without regard to any provision
of such assignment which grants the recipient rights as a creditor
greater than those of a general creditor."
1986 - Subsec. (c). Pub. L. 99-514 inserted "(in a case involving
physical injury or physical sickness)".
EFFECTIVE DATE OF 1997 AMENDMENT
Section 962(b) of Pub. L. 105-34 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
claims under workmen's compensation acts filed after the date of
the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 6079(b)(2) of Pub. L. 100-647 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to assignments after the date of the enactment of this Act [Nov.
10, 1988]."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1002(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to
assignments entered into after December 31, 1986, in taxable years
ending after such date."
EFFECTIVE DATE
Section 101(c) of Pub. L. 97-473 provided that: "The amendments
made by this section [enacting this section and amending section
104 of this title] shall apply to taxable years ending after
December 31, 1982."
-End-
-CITE-
26 USC Sec. 131 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 131. Certain foster care payments
-STATUTE-
(a) General rule
Gross income shall not include amounts received by a foster care
provider during the taxable year as qualified foster care payments.
(b) Qualified foster care payment defined
For purposes of this section -
(1) In general
The term "qualified foster care payment" means any payment made
pursuant to a foster care program of a State or political
subdivision thereof -
(A) which is paid by -
(i) a State or political subdivision thereof, or
(ii) a qualified foster care placement agency, and
(B) which is -
(i) paid to the foster care provider for caring for a
qualified foster individual in the foster care provider's
home, or
(ii) a difficulty of care payment.
(2) Qualified foster individual
The term "qualified foster individual" means any individual who
is living in a foster family home in which such individual was
placed by -
(A) an agency of a State or political subdivision thereof, or
(B) a qualified foster care placement agency.
(3) Qualified foster care placement agency
The term "qualified foster care placement agency" means any
placement agency which is licensed or certified by -
(A) a State or political subdivision thereof, or
(B) an entity designated by a State or political subdivision
thereof,
for the foster care program of such State or political
subdivision to make foster care payments to providers of foster
care.
(4) Limitation based on number of individuals over the age of 18
In the case of any foster home in which there is a qualified
foster care individual who has attained age 19, foster care
payments (other than difficulty of care payments) for any period
to which such payments relate shall not be excludable from gross
income under subsection (a) to the extent such payments are made
for more than 5 such qualified foster individuals.
(c) Difficulty of care payments
For purposes of this section -
(1) Difficulty of care payments
The term "difficulty of care payments" means payments to
individuals which are not described in subsection (b)(1)(B)(i),
and which -
(A) are compensation for providing the additional care of a
qualified foster individual which is -
(i) required by reason of a physical, mental, or emotional
handicap of such individual with respect to which the State
has determined that there is a need for additional
compensation, and
(ii) provided in the home of the foster care provider, and
(B) are designated by the payor as compensation described in
subparagraph (A).
(2) Limitation based on number of individuals
In the case of any foster home, difficulty of care payments for
any period to which such payments relate shall not be excludable
from gross income under subsection (a) to the extent such
payments are made for more than -
(A) 10 qualified foster individuals who have not attained age
19, and
(B) 5 qualified foster individuals not described in
subparagraph (A).
-SOURCE-
(Added Pub. L. 97-473, title I, Sec. 102(a), Jan. 14, 1983, 96
Stat. 2606; amended Pub. L. 99-514, title XVII, Sec. 1707(a), Oct.
22, 1986, 100 Stat. 2781; Pub. L. 107-147, title IV, Sec. 404(a)-
(c), Mar. 9, 2002, 116 Stat. 41.)
-MISC1-
PRIOR PROVISIONS
A prior section 131 was renumbered section 140 of this title.
AMENDMENTS
2002 - Subsec. (b)(1). Pub. L. 107-147, Sec. 404(a), amended
provisions preceding subpar. (B) generally. Prior to amendment,
text of such provisions read as follows: "The term 'qualified
foster care payment' means any amount -
"(A) which is paid by a State or political subdivision thereof
or by a placement agency which is described in section 501(c)(3)
and exempt from tax under section 501(a), and".
Subsec. (b)(2)(B). Pub. L. 107-147, Sec. 404(b), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows: "in
the case of an individual who has not attained age 19, an
organization which is licensed by a State (or political subdivision
thereof) as a placement agency and which is described in section
501(c)(3) and exempt from tax under section 501(a)."
Subsec. (b)(3), (4). Pub. L. 107-147, Sec. 404(c), added par. (3)
and redesignated former par. (3) as (4).
1986 - Subsec. (a). Pub. L. 99-514 amended subsec. (a) generally.
Prior to amendment, subsec. (a) read as follows: "Gross income
shall not include amounts received by a foster parent during the
taxable year as qualified foster care payments."
Subsec. (b). Pub. L. 99-514 amended subsec. (b) generally. Prior
to amendment, par. (1) "In general" read as follows: "The term
'qualified foster care payment' means any amount -
"(A) which is paid by a State or political subdivision thereof
or by a child-placing agency which is described in section
501(c)(3) and exempt from tax under section 501(a), and
"(B) which is -
"(i) paid to reimburse the foster parent for the expenses of
caring for a qualified foster child in the foster parent's
home, or
"(ii) a difficulty of care payment."
and par. (2) "Qualified foster child" read as follows: "The term
'qualified foster child' means any individual who -
"(A) has not attained age 19, and
"(B) is living in a foster family home in which such individual
was placed by -
"(i) an agency of a State or political subdivision thereof,
or
"(ii) an organization which is licensed by a State (or
political subdivision thereof) as a child-placing agency and
which is described in section 501(c)(3) and exempt from tax
under section 501(a)."
Subsec. (c). Pub. L. 99-514, in amending subsec. (c) generally,
in par. (1)(A), substituted references to "qualified foster
individual", "such individual", and "foster care provider" for
references to "qualified foster child", "such child", and "foster
parent", respectively, and in par. (2) substituted "more than (A)
10 qualified foster individuals who have not attained age 19, and
(B) 5 qualified foster individuals not described in subparagraph
(A)" for "more than 10 qualified foster children".
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 404(d), Mar. 9, 2002, 116 Stat.
42, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2001."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1707(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1985."
EFFECTIVE DATE
Section 102(c) of Pub. L. 97-473 provided that: "The amendments
made by this section [enacting this section] shall apply to taxable
years beginning after December 31, 1978."
-End-
-CITE-
26 USC Sec. 132 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 132. Certain fringe benefits
-STATUTE-
(a) Exclusion from gross income
Gross income shall not include any fringe benefit which qualifies
as a -
(1) no-additional-cost service,
(2) qualified employee discount,
(3) working condition fringe,
(4) de minimis fringe,
(5) qualified transportation fringe,
(6) qualified moving expense reimbursement,
(7) qualified retirement planning services, or
(8) qualified military base realignment and closure fringe.
(b) No-additional-cost service defined
For purposes of this section, the term "no-additional-cost
service" means any service provided by an employer to an employee
for use by such employee if -
(1) such service is offered for sale to customers in the
ordinary course of the line of business of the employer in which
the employee is performing services, and
(2) the employer incurs no substantial additional cost
(including forgone revenue) in providing such service to the
employee (determined without regard to any amount paid by the
employee for such service).
(c) Qualified employee discount defined
For purposes of this section -
(1) Qualified employee discount
The term "qualified employee discount" means any employee
discount with respect to qualified property or services to the
extent such discount does not exceed -
(A) in the case of property, the gross profit percentage of
the price at which the property is being offered by the
employer to customers, or
(B) in the case of services, 20 percent of the price at which
the services are being offered by the employer to customers.
(2) Gross profit percentage
(A) In general
The term "gross profit percentage" means the percent which -
(i) the excess of the aggregate sales price of property
sold by the employer to customers over the aggregate cost of
such property to the employer, is of
(ii) the aggregate sale price of such property.
(B) Determination of gross profit percentage
Gross profit percentage shall be determined on the basis of -
(i) all property offered to customers in the ordinary
course of the line of business of the employer in which the
employee is performing services (or a reasonable
classification of property selected by the employer), and
(ii) the employer's experience during a representative
period.
(3) Employee discount defined
The term "employee discount" means the amount by which -
(A) the price at which the property or services are provided
by the employer to an employee for use by such employee, is
less than
(B) the price at which such property or services are being
offered by the employer to customers.
(4) Qualified property or services
The term "qualified property or services" means any property
(other than real property and other than personal property of a
kind held for investment) or services which are offered for sale
to customers in the ordinary course of the line of business of
the employer in which the employee is peforming (!1) services.
(d) Working condition fringe defined
For purposes of this section, the term "working condition fringe"
means any property or services provided to an employee of the
employer to the extent that, if the employee paid for such property
or services, such payment would be allowable as a deduction under
section 162 or 167.
(e) De minimis fringe defined
For purposes of this section -
(1) In general
The term "de minimis fringe" means any property or service the
value of which is (after taking into account the frequency with
which similar fringes are provided by the employer to the
employer's employees) so small as to make accounting for it
unreasonable or administratively impracticable.
(2) Treatment of certain eating facilities
The operation by an employer of any eating facility for
employees shall be treated as a de minimis fringe if -
(A) such facility is located on or near the business premises
of the employer, and
(B) revenue derived from such facility normally equals or
exceeds the direct operating costs of such facility.
The preceding sentence shall apply with respect to any highly
compensated employee only if access to the facility is available
on substantially the same terms to each member of a group of
employees which is defined under a reasonable classification set
up by the employer which does not discriminate in favor of highly
compensated employees. For purposes of subparagraph (B), an
employee entitled under section 119 to exclude the value of a
meal provided at such facility shall be treated as having paid an
amount for such meal equal to the direct operating costs of the
facility attributable to such meal.
(f) Qualified transportation fringe
(1) In general
For purposes of this section, the term "qualified
transportation fringe" means any of the following provided by an
employer to an employee:
(A) Transportation in a commuter highway vehicle if such
transportation is in connection with travel between the
employee's residence and place of employment.
(B) Any transit pass.
(C) Qualified parking.
(2) Limitation on exclusion
The amount of the fringe benefits which are provided by an
employer to any employee and which may be excluded from gross
income under subsection (a)(5) shall not exceed -
(A) $100 per month in the case of the aggregate of the
benefits described in subparagraphs (A) and (B) of paragraph
(1), and
(B) $175 per month in the case of qualified parking.
(3) Cash reimbursements
For purposes of this subsection, the term "qualified
transportation fringe" includes a cash reimbursement by an
employer to an employee for a benefit described in paragraph (1).
The preceding sentence shall apply to a cash reimbursement for
any transit pass only if a voucher or similar item which may be
exchanged only for a transit pass is not readily available for
direct distribution by the employer to the employee.
(4) No constructive receipt
No amount shall be included in the gross income of an employee
solely because the employee may choose between any qualified
transportation fringe and compensation which would otherwise be
includible in gross income of such employee.
(5) Definitions
For purposes of this subsection -
(A) Transit pass
The term "transit pass" means any pass, token, farecard,
voucher, or similar item entitling a person to transportation
(or transportation at a reduced price) if such transportation
is -
(i) on mass transit facilities (whether or not publicly
owned), or
(ii) provided by any person in the business of transporting
persons for compensation or hire if such transportation is
provided in a vehicle meeting the requirements of
subparagraph (B)(i).
(B) Commuter highway vehicle
The term "commuter highway vehicle" means any highway vehicle
-
(i) the seating capacity of which is at least 6 adults (not
including the driver), and
(ii) at least 80 percent of the mileage use of which can
reasonably be expected to be -
(I) for purposes of transporting employees in connection
with travel between their residences and their place of
employment, and
(II) on trips during which the number of employees
transported for such purposes is at least 1/2 of the
adult seating capacity of such vehicle (not including the
driver).
(C) Qualified parking
The term "qualified parking" means parking provided to an
employee on or near the business premises of the employer or on
or near a location from which the employee commutes to work by
transportation described in subparagraph (A), in a commuter
highway vehicle, or by carpool. Such term shall not include any
parking on or near property used by the employee for
residential purposes.
(D) Transportation provided by employer
Transportation referred to in paragraph (1)(A) shall be
considered to be provided by an employer if such transportation
is furnished in a commuter highway vehicle operated by or for
the employer.
(E) Employee
For purposes of this subsection, the term "employee" does not
include an individual who is an employee within the meaning of
section 401(c)(1).
(6) Inflation adjustment
(A) In general
In the case of any taxable year beginning in a calendar year
after 1999, the dollar amounts contained in subparagraphs (A)
and (B) of paragraph (2) shall be increased by an amount equal
to -
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year
begins, by substituting "calendar year 1998" for "calendar
year 1992".
In the case of any taxable year beginning in a calendar year
after 2002, clause (ii) shall be applied by substituting
"calendar year 2001" for "calendar year 1998" for purposes of
adjusting the dollar amount contained in paragraph (2)(A).
(B) Rounding
If any increase determined under subparagraph (A) is not a
multiple of $5, such increase shall be rounded to the next
lowest multiple of $5.
(7) Coordination with other provisions
For purposes of this section, the terms "working condition
fringe" and "de minimis fringe" shall not include any qualified
transportation fringe (determined without regard to paragraph
(2)).
(g) Qualified moving expense reimbursement
For purposes of this section, the term "qualified moving expense
reimbursement" means any amount received (directly or indirectly)
by an individual from an employer as a payment for (or a
reimbursement of) expenses which would be deductible as moving
expenses under section 217 if directly paid or incurred by the
individual. Such term shall not include any payment for (or
reimbursement of) an expense actually deducted by the individual in
a prior taxable year.
(h) Certain individuals treated as employees for purposes of
subsections (a)(1) and (2)
For purposes of paragraphs (1) and (2) of subsection (a) -
(1) Retired and disabled employees and surviving spouse of
employee treated as employee
With respect to a line of business of an employer, the term
"employee" includes -
(A) any individual who was formerly employed by such employer
in such line of business and who separated from service with
such employer in such line of business by reason of retirement
or disability, and
(B) any widow or widower of any individual who died while
employed by such employer in such line of business or while an
employee within the meaning of subparagraph (A).
(2) Spouse and dependent children
(A) In general
Any use by the spouse or a dependent child of the employee
shall be treated as use by the employee.
(B) Dependent child
For purposes of subparagraph (A), the term "dependent child"
means any child (as defined in section 152(f)(1)) of the
employee -
(i) who is a dependent of the employee, or
(ii) both of whose parents are deceased and who has not
attained age 25.
For purposes of the preceding sentence, any child to whom
section 152(e) applies shall be treated as the dependent of
both parents.
(3) Special rule for parents in the case of air transportation
Any use of air transportation by a parent of an employee
(determined without regard to paragraph (1)(B)) shall be treated
as use by the employee.
(i) Reciprocal agreements
For purposes of paragraph (1) of subsection (a), any service
provided by an employer to an employee of another employer shall be
treated as provided by the employer of such employee if -
(1) such service is provided pursuant to a written agreement
between such employers, and
(2) neither of such employers incurs any substantial additional
costs (including foregone revenue) in providing such service or
pursuant to such agreement.
(j) Special rules
(1) Exclusions under subsection (a)(1) and (2) apply to highly
compensated employees only if no discrimination
Paragraphs (1) and (2) of subsection (a) shall apply with
respect to any fringe benefit described therein provided with
respect to any highly compensated employee only if such fringe
benefit is available on substantially the same terms to each
member of a group of employees which is defined under a
reasonable classification set up by the employer which does not
discriminate in favor of highly compensated employees.
(2) Special rule for leased sections of department stores
(A) In general
For purposes of paragraph (2) of subsection (a), in the case
of a leased section of a department store -
(i) such section shall be treated as part of the line of
business of the person operating the department store, and
(ii) employees in the leased section shall be treated as
employees of the person operating the department store.
(B) Leased section of department store
For purposes of subparagraph (A), a leased section of a
department store is any part of a department store where over-
the-counter sales of property are made under a lease or
similar arrangement where it appears to the general public that
individuals making such sales are employed by the person
operating the department store.
(3) Auto salesmen
(A) In general
For purposes of subsection (a)(3), qualified automobile
demonstration use shall be treated as a working condition
fringe.
(B) Qualified automobile demonstration use
For purposes of subparagraph (A), the term "qualified
automobile demonstration use" means any use of an automobile by
a full-time automobile salesman in the sales area in which the
automobile dealer's sales office is located if -
(i) such use is provided primarily to facilitate the
salesman's performance of services for the employer, and
(ii) there are substantial restrictions on the personal use
of such automobile by such salesman.
(4) On-premises gyms and other athletic facilities
(A) In general
Gross income shall not include the value of any on-premises
athletic facility provided by an employer to his employees.
(B) On-premises athletic facility
For purposes of this paragraph, the term "on-premises
athletic facility" means any gym or other athletic facility -
(i) which is located on the premises of the employer,
(ii) which is operated by the employer, and
(iii) substantially all the use of which is by employees of
the employer, their spouses, and their dependent children
(within the meaning of subsection (h)).
(5) Special rule for affiliates of airlines
(A) In general
If -
(i) a qualified affiliate is a member of an affiliated
group another member of which operates an airline, and
(ii) employees of the qualified affiliate who are directly
engaged in providing airline-related services are entitled to
no-additional-cost service with respect to air transportation
provided by such other member,
then, for purposes of applying paragraph (1) of subsection (a)
to such no-additional-cost service provided to such employees,
such qualified affiliate shall be treated as engaged in the
same line of business as such other member.
(B) Qualified affiliate
For purposes of this paragraph, the term "qualified
affiliate" means any corporation which is predominantly engaged
in airline-related services.
(C) Airline-related services
For purposes of this paragraph, the term "airline-related
services" means any of the following services provided in
connection with air transportation:
(i) Catering.
(ii) Baggage handling.
(iii) Ticketing and reservations.
(iv) Flight planning and weather analysis.
(v) Restaurants and gift shops located at an airport.
(vi) Such other similar services provided to the airline as
the Secretary may prescribe.
(D) Affiliated group
For purposes of this paragraph, the term "affiliated group"
has the meaning given such term by section 1504(a).
(6) Highly compensated employee
For purposes of this section, the term "highly compensated
employee" has the meaning given such term by section 414(q).
(7) Air cargo
For purposes of subsection (b), the transportation of cargo by
air and the transportation of passengers by air shall be treated
as the same service.
(8) Application of section to otherwise taxable educational or
training benefits
Amounts paid or expenses incurred by the employer for education
or training provided to the employee which are not excludable
from gross income under section 127 shall be excluded from gross
income under this section if (and only if) such amounts or
expenses are a working condition fringe.
(k) Customers not to include employees
For purposes of this section (other than subsection (c)(2)), the
term "customers" shall only include customers who are not
employees.
(l) Section not to apply to fringe benefits expressly provided for
elsewhere
This section (other than subsections (e) and (g)) shall not apply
to any fringe benefits of a type the tax treatment of which is
expressly provided for in any other section of this chapter.
(m) Qualified retirement planning services
(1) In general
For purposes of this section, the term "qualified retirement
planning services" means any retirement planning advice or
information provided to an employee and his spouse by an employer
maintaining a qualified employer plan.
(2) Nondiscrimination rule
Subsection (a)(7) shall apply in the case of highly compensated
employees only if such services are available on substantially
the same terms to each member of the group of employees normally
provided education and information regarding the employer's
qualified employer plan.
(3) Qualified employer plan
For purposes of this subsection, the term "qualified employer
plan" means a plan, contract, pension, or account described in
section 219(g)(5).
(n) Qualified military base realignment and closure fringe
For purposes of this section -
(1) In general
The term "qualified military base realignment and closure
fringe" means 1 or more payments under the authority of section
1013 of the Demonstration Cities and Metropolitan Development Act
of 1966 (42 U.S.C. 3374) (as in effect on the date of the
enactment of this subsection) to offset the adverse effects on
housing values as a result of a military base realignment or
closure.
(2) Limitation
With respect to any property, such term shall not include any
payment referred to in paragraph (1) to the extent that the sum
of all of such payments related to such property exceeds the
maximum amount described in clause (1) of subsection (c) of such
section (as in effect on such date).
(o) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 98-369, div. A, title V, Sec. 531(a)(1), July 18,
1984, 98 Stat. 877; amended Pub. L. 99-272, title XIII, Sec.
13207(a)(1), (b)(1), Apr. 7, 1986, 100 Stat. 319; Pub. L. 99-514,
title XI, Secs. 1114(b)(5), 1151(e)(2)(A), (g)(5), title XVIII,
Secs. 1853(a), 1899A(5), Oct. 22, 1986, 100 Stat. 2451, 2506, 2507,
2870, 2958; Pub. L. 100-647, title I, Sec. 1011B(a)(31)(B), title
VI, Sec. 6066(a), Nov. 10, 1988, 102 Stat. 3488, 3702; Pub. L. 101-
140, title II, Sec. 203(a)(1), (2), Nov. 8, 1989, 103 Stat. 830;
Pub. L. 101-239, title VII, Secs. 7101(b), 7841(d)(7), (19), Dec.
19, 1989, 103 Stat. 2304, 2428, 2429; Pub. L. 102-486, title XIX,
Sec. 1911(a)-(c), Oct. 24, 1992, 106 Stat. 3012-3014; Pub. L. 103-
66, title XIII, Secs. 13101(b), 13201(b)(3)(F), 13213(d)(1), (2),
(3)(B), (C), Aug. 10, 1993, 107 Stat. 420, 459, 474; Pub. L. 105-
34, title IX, Sec. 970(a), title X, Sec. 1072(a), Aug. 5, 1997,
111 Stat. 897, 948; Pub. L. 105-178, title IX, Sec. 9010(a)(1),
(b)(1), (2), (c)(1), (2), June 9, 1998, 112 Stat. 507, 508; Pub. L.
107-16, title VI, Sec. 665(a), (b), June 7, 2001, 115 Stat. 143;
Pub. L. 108-121, title I, Sec. 103(a), (b), Nov. 11, 2003, 117
Stat. 1337; Pub. L. 108-311, title II, Sec. 207(13), Oct. 4, 2004,
118 Stat. 1177.)
-STATAMEND-
QUALIFIED TRANSPORTATION FRINGE BENEFIT EXCLUSION ADJUSTMENT FOR
TAXABLE YEARS BEGINNING IN 2006
For adjustment of qualified transportation fringe benefit
exclusion amount under this section for taxable years beginning in
2006, see section 3.12 of Revenue Procedure 2005-70, set out as a
note under section 1 of this title.
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this subsection, referred to in
subsec. (n), is the date of enactment of Pub. L. 108-121, which was
approved Nov. 11, 2003.
-MISC1-
PRIOR PROVISIONS
A prior section 132 was renumbered section 140 of this title.
AMENDMENTS
2004 - Subsec. (h)(2)(B). Pub. L. 108-311 substituted "152(f)(1)"
for "151(c)(3)" in introductory provisions.
2003 - Subsec. (a)(8). Pub. L. 108-121, Sec. 103(a), added par.
(8).
Subsecs. (n), (o). Pub. L. 108-121, Sec. 103(b), added subsec.
(n) and redesignated former subsec. (n) as (o).
2001 - Subsec. (a)(7). Pub. L. 107-16, Secs. 665(a), 901,
temporarily added par. (7). See Effective and Termination Dates of
2001 Amendment note below.
Subsecs. (m), (n). Pub. L. 107-16, Secs. 665(b), 901, temporarily
added subsec. (m) and redesignated former subsec. (m) as (n). See
Effective and Termination Dates of 2001 Amendment note below.
1998 - Subsec. (f)(2)(A). Pub. L. 105-178, Sec. 9010(c)(1),
substituted "$100" for "$65".
Pub. L. 105-178, Sec. 9010(b)(2)(A), substituted "$65" for "$60".
Subsec. (f)(2)(B). Pub. L. 105-178, Sec. 9010(b)(2)(B),
substituted "$175" for "$155".
Subsec. (f)(4). Pub. L. 105-178, Sec. 9010(a)(1), amended heading
and text of par. (4) generally. Prior to amendment, text read as
follows: "Subsection (a)(5) shall not apply to any qualified
transportation fringe unless such benefit is provided in addition
to (and not in lieu of) any compensation otherwise payable to the
employee. This paragraph shall not apply to any qualified parking
provided in lieu of compensation which otherwise would have been
includible in gross income of the employee, and no amount shall be
included in the gross income of the employee solely because the
employee may choose between the qualified parking and
compensation."
Subsec. (f)(6). Pub. L. 105-178, Sec. 9010(b)(1), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "In the case of any taxable year
beginning in a calendar year after 1993, the dollar amounts
contained in paragraph (2)(A) and (B) shall be increased by an
amount equal to -
"(A) such dollar amount, multiplied by
"(B) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins.
If any increase determined under the preceding sentence is not a
multiple of $5, such increase shall be rounded to the next lowest
multiple of $5."
Subsec. (f)(6)(A). Pub. L. 105-178, Sec. 9010(c)(2), inserted
concluding provisions.
1997 - Subsec. (e)(2). Pub. L. 105-34, Sec. 970(a), inserted at
end of concluding provisions "For purposes of subparagraph (B), an
employee entitled under section 119 to exclude the value of a meal
provided at such facility shall be treated as having paid an amount
for such meal equal to the direct operating costs of the facility
attributable to such meal."
Subsec. (f)(4). Pub. L. 105-34, Sec. 1072(a), inserted at end
"This paragraph shall not apply to any qualified parking provided
in lieu of compensation which otherwise would have been includible
in gross income of the employee, and no amount shall be included in
the gross income of the employee solely because the employee may
choose between the qualified parking and compensation."
1993 - Subsec. (a)(6). Pub. L. 103-66, Sec. 13213(d)(1), added
par. (6).
Subsec. (f)(6)(B). Pub. L. 103-66, Sec. 13201(b)(3)(F), struck
out before period at end ", determined by substituting 'calendar
year 1992' for 'calendar year 1989' in subparagraph (B) thereof".
Subsecs. (g), (h). Pub. L. 103-66, Sec. 13213(d)(2), added
subsec. (g) and redesignated former subsec. (g) as (h). Former
subsec. (h) redesignated (i).
Subsec. (i). Pub. L. 103-66, Sec. 13213(d)(2), redesignated
subsec. (h) as (i). Former subsec. (i) redesignated (j).
Subsec. (i)(8). Pub. L. 103-66, Sec. 13101(b), amended heading
and text of par. (8) generally. Prior to amendment, text read as
follows: "Amounts which would be excludible from gross income under
section 127 but for subsection (a)(2) thereof or the last sentence
of subsection (c)(1) thereof shall be excluded from gross income
under this section if (and only if) such amounts are a working
condition fringe."
Subsec. (j). Pub. L. 103-66, Sec. 13213(d)(2), redesignated
subsec. (i) as (j). Former subsec. (j) redesignated (k).
Subsec. (j)(4)(B)(iii). Pub. L. 103-66, Sec. 13213(d)(3)(B),
substituted "subsection (h)" for "subsection (f)".
Subsec. (k). Pub. L. 103-66, Sec. 13213(d)(2), redesignated
subsec. (j) as (k). Former subsec. (k) redesignated (l).
Subsec. (l). Pub. L. 103-66, Sec. 13213(d)(2), (3)(C),
redesignated subsec. (k) as (l) and substituted "subsections (e)
and (g)" for "subsection (e)". Former subsec. (l) redesignated (m).
Subsec. (m). Pub. L. 103-66, Sec. 13213(d)(2), redesignated
subsec. (l) as (m).
1992 - Subsec. (a)(5). Pub. L. 102-486, Sec. 1911(a), added par.
(5).
Subsecs. (f) to (h). Pub. L. 102-486, Sec. 1911(b), added subsec.
(f) and redesignated former subsecs. (f) and (g) as (g) and (h),
respectively. Former subsec. (h) redesignated (i).
Subsec. (i). Pub. L. 102-486, Sec. 1911(b), (c), redesignated
subsec. (h) as (i), redesignated pars. (5) to (9) as (4) to (8),
respectively, and struck out former par. (4), "Parking", which read
as follows: "The term 'working condition fringe' includes parking
provided to an employee on or near the business premises of the
employer." Former subsec. (i) redesignated (j).
Subsecs. (j) to (l). Pub. L. 102-486, Sec. 1911(b), redesignated
subsecs. (i) to (k) as (j) to (l), respectively.
1989 - Subsec. (f)(2)(B). Pub. L. 101-239, Sec. 7841(d)(19),
substituted "section 151(c)(3)" for "section 151(e)(3)" in
introductory provisions.
Subsec. (h)(1). Pub. L. 101-239, Sec. 7841(d)(7), substituted "to
highly compensated employees" for "to officers, etc.," in heading.
Pub. L. 101-140, Sec. 203(a)(2), amended par. (1) to read as if
amendments by Pub. L. 100-647, Sec. 1011B(a)(31)(B), had not been
enacted, see 1988 Amendment note below.
Pub. L. 101-140, Sec. 203(a)(1), amended par. (1) to read as if
amendments by Pub. L. 99-514, Sec. 1151(g)(5), had not been
enacted, see 1986 Amendment note below.
Subsec. (h)(9). Pub. L. 101-239, Sec. 7101(b), added par. (9).
1988 - Subsec. (h)(1). Pub. L. 100-647, Sec. 1011B(a)(31)(B),
substituted "there shall" for "there may be" and "who are" for "who
may be" in last sentence.
Subsec. (h)(8). Pub. L. 100-647, Sec. 6066(a), added par. (8).
1986 - Subsec. (c)(3)(A). Pub. L. 99-514, Sec. 1853(a)(2),
substituted "are provided by the employer to an employee for use by
such employee" for "are provided to the employee by the employer".
Subsec. (e)(2). Pub. L. 99-514, Sec. 1114(b)(5)(A), struck out
"officer, owner, or" before "highly compensated employee" and
"officers, owners, or" before "highly compensated employees" in
last sentence.
Subsec. (f)(2)(B)(ii). Pub. L. 99-514, Sec. 1853(a)(1),
substituted "are deceased and who has not attained age 25" for "are
deceased".
Subsec. (f)(3). Pub. L. 99-272, Sec. 13207(a)(1), added par. (3).
Subsec. (g). Pub. L. 99-514, Sec. 1151(e)(2)(A), in amending
subsec. (g) generally, designated par. (2) as the entire
subsection, struck out former subsec. heading, "Special rules
relating to employer", struck out "For purposes of this section -
", and struck out par. (1) which read as follows: "All employees
treated as employed by a single employer under subsection (b), (c),
or (m) of section 414 shall be treated as employed by a single
employer for purposes of this section."
Subsec. (h)(1). Pub. L. 99-514, Sec. 1151(g)(5), inserted "For
purposes of this paragraph and subsection (e), there may be
excluded from consideration employees who may be excluded from
consideration under section 89(h)."
Pub. L. 99-514, Sec. 1114(b)(5)(A), struck out "officer, owner,
or" before "highly compensated employee" and "officers, owners, or"
before "highly compensated employees".
Subsec. (h)(3)(B)(i). Pub. L. 99-514, Sec. 1899A(5), substituted
"such use is" for "such use in".
Subsec. (h)(6). Pub. L. 99-272, Sec. 13207(b)(1), added par. (6).
Subsec. (h)(7). Pub. L. 99-514, Sec. 1114(b)(5)(B), added par.
(7).
Subsec. (i). Pub. L. 99-514, Sec. 1853(a)(3), substituted
"subsection (c)(2)" for "subsection (c)(2)(B)".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to taxable years
beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-311,
set out as a note under section 2 of this title.
EFFECTIVE DATE OF 2003 AMENDMENT
Pub. L. 108-121, title I, Sec. 103(c), Nov. 11, 2003, 117 Stat.
1338, provided that: "The amendments made by this section [amending
this section] shall apply to payments made after the date of the
enactment of this Act [Nov. 11, 2003]."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title VI, Sec. 665(c), June 7, 2001, 115 Stat.
143, provided that: "The amendments made by this section [amending
this section] shall apply to years beginning after December 31,
2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-178, title IX, Sec. 9010(a)(2), June 9, 1998, 112
Stat. 507, provided that: "The amendment made by this subsection
[amending this section] shall apply to taxable years beginning
after December 31, 1997."
Pub. L. 105-178, title IX, Sec. 9010(b)(3), June 9, 1998, 112
Stat. 508, provided that: "The amendments made by this subsection
[amending this section] shall apply to taxable years beginning
after December 31, 1998."
Pub. L. 105-178, title IX, Sec. 9010(c)(3), June 9, 1998, 112
Stat. 508, provided that: "The amendments made by this subsection
[amending this section] shall apply to taxable years beginning
after December 31, 2001."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 970(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997."
Section 1072(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13101(c)(2) of Pub. L. 103-66 provided that: "The
amendment made by subsection (b) [amending this section] shall
apply to taxable years beginning after December 31, 1988."
Amendment by section 13201(b)(3)(F) of Pub. L. 103-66 applicable
to taxable years beginning after Dec. 31, 1992, see section
13201(c) of Pub. L. 103-66, set out as a note under section 1 of
this title.
Amendment by section 13213(d)(1), (2), (3)(B) and (C) of Pub. L.
103-66 applicable to reimbursements or other payments in respect of
expenses incurred after Dec. 31, 1993, see section 13213(e) of Pub.
L. 103-66, set out as a note under section 62 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1911(d) of Pub. L. 102-486 provided that: "The amendments
made by this section [amending this section] shall apply to
benefits provided after December 31, 1992."
EFFECTIVE DATE OF 1989 AMENDMENTS
Amendment by section 7101(b) of Pub. L. 101-239 applicable to
taxable years beginning after Dec. 31, 1988, see section 7101(c) of
Pub. L. 101-239, set out as a note under section 127 of this title.
Amendment by Pub. L. 101-140 effective as if included in section
1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set
out as a note under section 79 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1011B(a)(31)(B) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 6066(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
transportation furnished after December 31, 1987, in taxable years
ending after such date."
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 1114(b)(5) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Amendment by section 1151(e)(2)(A), (g)(5) of Pub. L. 99-514
applicable, with certain qualifications and exceptions, to years
beginning after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-
514, as amended, set out as a note under section 79 of this title.
Amendment by section 1853(a) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
Section 13207(a)(2) of Pub. L. 99-272 provided that: "The
amendment made by this subsection [amending this section] shall
take effect on January 1, 1985."
Section 13207(b)(2) of Pub. L. 99-272 provided that: "The
amendment made by this subsection [amending this section] shall
take effect on January 1, 1985."
EFFECTIVE DATE
Section 531(i) of Pub. L. 98-369, formerly Sec. 531(h), as
redesignated by Pub. L. 99-272, title XIII, Sec. 13207(d), Apr. 7,
1986, 100 Stat. 320, provided that: "The amendments made by this
section [enacting this section and section 4977 of this title,
amending sections 61, 125, 3121, 3231, 3306, 3401, 3501, and 6652
of this title and section 409 of Title 42, The Public Health and
Welfare, redesignating former section 132 of this title as 133, and
enacting provisions set out as notes under this section and section
125 of this title] shall take effect on January 1, 1985."
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514
FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement
or enforce section 1151 of Pub. L. 99-514 or the amendments made by
such section, see section 528 of Pub. L. 101-136, set out as a note
under section 89 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
CERTAIN RECORDKEEPING REQUIREMENTS
Section 1567 of Pub. L. 99-514 provided that:
"(a) In General. - For purposes of sections 132 and 274 of the
Internal Revenue Code of 1954 [now 1986], use of an automobile by a
special agent of the Internal Revenue Service shall be treated in
the same manner as use of an automobile by an officer of any other
law enforcement agency.
"(b) Effective Date. - The provisions of this section shall take
effect on January 1, 1985."
TREATMENT OF CERTAIN LEASED OPERATIONS OF DEPARTMENT STORES
Section 1853(e) of Pub. L. 99-514 provided that: "For purposes of
section 132(h)(2)(B) [now 132(j)(2)(B)] of the Internal Revenue
Code of 1954 [now 1986], a leased section of a department store
which, in connection with the offering of beautician services,
customarily makes sales of beauty aids in the ordinary course of
business shall be treated as engaged in over-the-counter sales of
property."
TRANSITIONAL RULE FOR DETERMINATION OF LINE OF BUSINESS IN CASE OF
AFFILIATED GROUP OPERATING AIRLINE
Section 13207(c) of Pub. L. 99-272, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If, as of
September 12, 1984 -
"(1) an individual -
"(A) was an employee (within the meaning of section 132 of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954],
including subsection (f) [now (h)] thereof) of one member of an
affiliated group (as defined in section 1504 of such Code),
hereinafter referred to as the 'first corporation', and
"(B) was eligible for no-additional-cost service in the form
of air transportation provided by another member of such
affiliated group, hereinafter referred to as the 'second
corporation',
"(2) at least 50 percent of the individuals performing service
for the first corporation were or had been employees of, or had
previously performed services for, the second corporation, and
"(3) the primary business of the affiliated group was air
transportation of passengers,
then, for purposes of applying paragraphs (1) and (2) of section
132(a) of the Internal Revenue Code of 1986, with respect to no-
additional-cost services and qualified employee discounts provided
after December 31, 1984, for such individual by the second
corporation, the first corporation shall be treated as engaged in
the same air transportation line of business as the second
corporation. For purposes of the preceding sentence, an employee of
the second corporation who is performing services for the first
corporation shall also be treated as an employee of the first
corporation."
SPECIAL RULE FOR SERVICES RELATED TO PROVIDING AIR TRANSPORTATION
Section 531(g) of Pub. L. 98-369, as added by Pub. L. 99-272,
title XIII, Sec. 13207(d), Apr. 7, 1986, 100 Stat. 320; amended
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(1) In general. - If -
"(A) an individual performs services for a qualified air
transportation organization, and
"(B) such services are performed primarily for persons engaged
in providing air transportation and are of the kind which (if
performed on September 12, 1984) would qualify such individual
for no-additional-cost services in the form of air
transportation,
then, with respect to such individual, such qualified air
transportation organization shall be treated as engaged in the line
of business of providing air transportation.
"(2) Qualified air transportation organization. - For purposes of
paragraph (1), the term 'qualified air transportation organization'
means any organization -
"(A) if such organization (or a predecessor) was in existence
on September 12, 1984,
"(B) if -
"(i) such organization is described in section 501(c)(6) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954] and
the membership of such organization is limited to entities
engaged in the transportation by air of individuals or property
for compensation or hire, or
"(ii) such organization is a corporation all the stock of
which is owned entirely by entities referred to in clause (i),
and
"(C) if such organization is operated in furtherance of the
activities of its members or owners."
DETERMINATION OF LINE OF BUSINESS IN CASE OF AFFILIATED GROUP
OPERATING RETAIL DEPARTMENT STORES
Section 531(f) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If -
"(1) as of October 5, 1983, the employees of one member of an
affiliated group (as defined in section 1504 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] without regard to
subsections (b)(2) and (b)(4) thereof) were entitled to employee
discounts at the retail department stores operated by another
member of such affiliated group, and
"(2) the primary business of the affiliated group is the
operation of retail department stores,
then, for purpose of applying section 132(a)(2) of the Internal
Revenue Code of 1986, with respect to discounts provided for such
employees at the retail department stores operated by such other
member, the employer shall be treated as engaged in the same line
of business as such other member."
-FOOTNOTE-
(!1) So in original. Probably should be "performing".
-End-
-CITE-
26 USC Sec. 133 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
[Sec. 133. Repealed. Pub. L. 104-188, title I, Sec. 1602(a), Aug.
20, 1996, 110 Stat. 1833]
-MISC1-
Section, added Pub. L. 98-369, div. A, title V, Sec. 543(a), July
18, 1984, 98 Stat. 891; amended Pub. L. 99-514, title XI, Sec.
1173(b)(1)(A), (2), title XVIII, Sec. 1854(c)(2)(A), (C), (D), Oct.
22, 1986, 100 Stat. 2515, 2879; Pub. L. 100-647, title I, Sec.
1011B(h)(1), (2), Nov. 10, 1988, 102 Stat. 3490; Pub. L. 101-239,
title VII, Sec. 7301(a)-(c), Dec. 19, 1989, 103 Stat. 2346, 2347,
prior to repeal, read as follows:
Sec. 133. Interest on certain loans used to acquire employer
securities
(a) In general
Gross income does not include 50 percent of the interest received
by -
(1) a bank (within the meaning of section 581),
(2) an insurance company to which subchapter L applies,
(3) a corporation actively engaged in the business of lending
money, or
(4) a regulated investment company (as defined in section 851),
with respect to a securities acquisition loan.
(b) Securities acquisition loan
(1) In general
For purposes of this section, the term "securities acquisition
loan" means -
(A) any loan to a corporation or to an employee stock
ownership plan to the extent that the proceeds are used to
acquire employer securities for the plan, or
(B) any loan to a corporation to the extent that, within 30
days, employer securities are transferred to the plan in an
amount equal to the proceeds of such loan and such securities
are allocable to accounts of plan participants within 1 year of
the date of such loan.
For purposes of this paragraph, the term "employer securities"
has the meaning given such term by section 409(l). The term
"securities acquisition loan" shall not include a loan with a
term greater than 15 years.
(2) Loans between related persons
The term "securities acquisition loan" shall not include -
(A) any loan made between corporations which are members of
the same controlled group of corporations, or
(B) any loan made between an employee stock ownership plan
and any person that is -
(i) the employer of any employees who are covered by the
plan; or
(ii) a member of a controlled group of corporations which
includes such employer.
For purposes of this paragraph, subparagraphs (A) and (B) shall
not apply to any loan which, but for such subparagraphs, would be
a securities acquisition loan if such loan was not originated by
the employer of any employees who are covered by the plan or by
any member of the controlled group of corporations which includes
such employer, except that this section shall not apply to any
interest received on such loan during such time as such loan is
held by such employer (or any member of such controlled group).
(3) Terms applicable to certain securities acquisition loans
A loan to a corporation shall not fail to be treated as a
securities acquisition loan merely because the proceeds of such
loan are lent to an employee stock ownership plan sponsored by
such corporation (or by any member of the controlled group of
corporations which includes such corporation) if such loan
includes -
(A) repayment terms which are substantially similar to the
terms of the loan of such corporation from a lender described
in subsection (a), or
(B) repayment terms providing for more rapid repayment of
principal or interest on such loan, but only if allocations
under the plan attributable to such repayment do not
discriminate in favor of highly compensated employees (within
the meaning of section 414(q)).
(4) Controlled group of corporations
For purposes of this paragraph, the term "controlled group of
corporations" has the meaning given such term by section
409(l)(4).
(5) Treatment of refinancings
The term "securities acquisition loan" shall include any loan
which -
(A) is (or is part of a series of loans) used to refinance a
loan described in subparagraph (A) or (B) of paragraph (1), and
(B) meets the requirements of paragraphs (2) and (3).
(6) Plan must hold more than 50 percent of stock after
acquisition or transfer
(A) In general
A loan shall not be treated as a securities acquisition loan
for purposes of this section unless, immediately after the
acquisition or transfer referred to in subparagraph (A) or (B)
of paragraph (1), respectively, the employee stock ownership
plan owns more than 50 percent of -
(i) each class of outstanding stock of the corporation
issuing the employer securities, or
(ii) the total value of all outstanding stock of the
corporation.
(B) Failure to retain minimum stock interest
(i) In general
Subsection (a) shall not apply to any interest received
with respect to a securities acquisition loan which is
allocable to any period during which the employee stock
ownership plan does not own stock meeting the requirements of
subparagraph (A).
(ii) Exception
To the extent provided by the Secretary, clause (i) shall
not apply to any period if, within 90 days of the first date
on which the failure occurred (or such longer period not in
excess of 180 days as the Secretary may prescribe), the plan
acquires stock which results in its meeting the requirements
of subparagraph (A).
(C) Stock
For purposes of subparagraph (A) -
(i) In general
The term "stock" means stock other than stock described in
section 1504(a)(4).
(ii) Treatment of certain rights
The Secretary may provide that warrants, options, contracts
to acquire stock, convertible debt interests and other
similar interests be treated as stock for 1 or more purposes
under subparagraph (A).
(D) Aggregation rule
For purposes of determining whether the requirements of
subparagraph (A) are met, an employee stock ownership plan
shall be treated as owning stock in the corporation issuing the
employer securities which is held by any other employee stock
ownership plan which is maintained by -
(i) the employer maintaining the plan, or
(ii) any member of a controlled group of corporations
(within the meaning of section 409(l)(4)) of which the
employer described in clause (i) is a member.
(7) Voting rights of employer securities
A loan shall not be treated as a securities acquisition loan
for purposes of this section unless -
(A) the employee stock ownership plan meets the requirements
of section 409(e)(2) with respect to all employer securities
acquired by, or transferred to, the plan in connection with
such loan (without regard to whether or not the employer has a
registration-type class of securities), and
(B) no stock described in section 409(l)(3) is acquired by,
or transferred to, the plan in connection with such loan unless
-
(i) such stock has voting rights equivalent to the stock to
which it may be converted, and
(ii) the requirements of subparagraph (A) are met with
respect to such voting rights.
(c) Employee stock ownership plan
For purposes of this section, the term "employee stock ownership
plan" has the meaning given to such term by section 4975(e)(7).
(d) Application with section 483 and original issue discount rules
In applying section 483 and subpart A of part V of subchapter P
to any obligation to which this section applies, appropriate
adjustments shall be made to the applicable Federal rate to take
into account the exclusion under subsection (a).
(e) Period to which interest exclusion applies
(1) In general
In the case of -
(A) an original securities acquisition loan, and
(B) any securities acquisition loan (or series of such loans)
used to refinance the original securities acquisition loan,
subsection (a) shall apply only to interest accruing during the
excludable period with respect to the original securities
acquisition loan.
(2) Excludable period
For purposes of this subsection, the term "excludable period"
means, with respect to any original securities acquisition loan -
(A) In general
The 7-year period beginning on the date of such loan.
(B) Loans described in subsection (b)(1)(A)
If the term of an original securities acquisition loan
described in subsection (b)(1)(A) is greater than 7 years, the
term of such loan. This subparagraph shall not apply to a loan
described in subsection (b)(3)(B).
(3) Original securities acquisition loan
For the purposes of this subsection, the term "original
securities acquisition loan" means a securities acquisition loan
described in subparagraph (A) or (B) of subsection (b)(1).
PRIOR PROVISIONS
A prior section 133 was renumbered section 140 of this title.
EFFECTIVE DATE OF REPEAL
Section 1602(c) of Pub. L. 104-188 provided that:
"(1) In general. - The amendments made by this section [amending
sections 291, 812, 852, 4978, 6047, and 7872 of this title and
repealing this section and section 4978B of this title] shall apply
to loans made after the date of the enactment of this Act [Aug. 20,
1996].
"(2) Refinancings. - The amendments made by this section shall
not apply to loans made after the date of the enactment of this Act
to refinance securities acquisition loans (determined without
regard to section 133(b)(1)(B) of the Internal Revenue Code of
1986, as in effect on the day before the date of the enactment of
this Act) [set out above] made on or before such date or to
refinance loans described in this paragraph if -
"(A) the refinancing loans meet the requirements of section 133
of such Code (as so in effect),
"(B) immediately after the refinancing the principal amount of
the loan resulting from the refinancing does not exceed the
principal amount of the refinanced loan (immediately before the
refinancing), and
"(C) the term of such refinancing loan does not extend beyond
the last day of the term of the original securities acquisition
loan.
For purposes of this paragraph, the term 'securities acquisition
loan' includes a loan from a corporation to an employee stock
ownership plan described in section 133(b)(3) of such Code (as so
in effect).
"(3) Exception. - Any loan made pursuant to a binding written
contract in effect before June 10, 1996, and at all times
thereafter before such loan is made, shall be treated for purposes
of paragraphs (1) and (2) as a loan made on or before the date of
the enactment of this Act."
-End-
-CITE-
26 USC Sec. 134 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 134. Certain military benefits
-STATUTE-
(a) General rule
Gross income shall not include any qualified military benefit.
(b) Qualified military benefit
For purposes of this section -
(1) In general
The term "qualified military benefit" means any allowance or in-
kind benefit (other than personal use of a vehicle) which -
(A) is received by any member or former member of the
uniformed services of the United States or any dependent of
such member by reason of such member's status or service as a
member of such uniformed services, and
(B) was excludable from gross income on September 9, 1986,
under any provision of law, regulation, or administrative
practice which was in effect on such date (other than a
provision of this title).
(2) No other benefit to be excludable except as provided by this
title
Notwithstanding any other provision of law, no benefit shall be
treated as a qualified military benefit unless such benefit -
(A) is a benefit described in paragraph (1), or
(B) is excludable from gross income under this title without
regard to any provision of law which is not contained in this
title and which is not contained in a revenue Act.
(3) Limitations on modifications
(A) In general
Except as provided in subparagraphs (B) and (C) and
paragraphs (4) and (5), no modification or adjustment of any
qualified military benefit after September 9, 1986, shall be
taken into account.
(B) Exception for certain adjustments to cash benefits
Subparagraph (A) shall not apply to any adjustment to any
qualified military benefit payable in cash which -
(i) is pursuant to a provision of law or regulation (as in
effect on September 9, 1986), and
(ii) is determined by reference to any fluctuation in cost,
price, currency, or other similar index.
(C) Exception for death gratuity adjustments made by law
Subparagraph (A) shall not apply to any adjustment to the
amount of death gratuity payable under chapter 75 of title 10,
United States Code, which is pursuant to a provision of law
enacted after September 9, 1986.
(4) Clarification of certain benefits
For purposes of paragraph (1), such term includes any dependent
care assistance program (as in effect on the date of the
enactment of this paragraph) for any individual described in
paragraph (1)(A).
(5) Travel benefits under operation hero miles
The term "qualified military benefit" includes a travel benefit
provided under section 2613 of title 10, United States Code (as
in effect on the date of the enactment of this paragraph).
-SOURCE-
(Added Pub. L. 99-514, title XI, Sec. 1168(a), Oct. 22, 1986, 100
Stat. 2512; amended Pub. L. 100-647, title I, Sec. 1011B(f)(1),
(2)(A), (3), Nov. 10, 1988, 102 Stat. 3489, 3490; Pub. L. 108-121,
title I, Secs. 102(b)(1), (2), 106(a), (b)(1), Nov. 11, 2003, 117
Stat. 1337-1339; Pub. L. 108-375, div. A, title V, Sec. 585(b)(1),
(2)(A), Oct. 28, 2004, 118 Stat. 1931, 1932.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this paragraph, referred to in
subsec. (b)(4), is the date of enactment of Pub. L. 108-121, which
was approved Nov. 11, 2003.
The date of the enactment of this paragraph, referred to in
subsec. (b)(5), is the date of enactment of Pub. L. 108-375, which
was approved Oct. 28, 2004.
-MISC1-
PRIOR PROVISIONS
A prior section 134 was renumbered section 140 of this title.
AMENDMENTS
2004 - Subsec. (b)(3)(A). Pub. L. 108-375, Sec. 585(b)(2)(A),
substituted "paragraphs (4) and (5)" for "paragraph (4)".
Subsec. (b)(5). Pub. L. 108-375, Sec. 585(b)(1), added par. (5).
2003 - Subsec. (b)(3)(A). Pub. L. 108-121, Sec. 106(b)(1),
inserted "and paragraph (4)" after "subparagraphs (B) and (C)".
Pub. L. 108-121, Sec. 102(b)(2), substituted "subparagraphs (B)
and (C)" for "subparagraph (B)".
Subsec. (b)(3)(C). Pub. L. 108-121, Sec. 102(b)(1), added subpar.
(C).
Subsec. (b)(4). Pub. L. 108-121, Sec. 106(a), added par. (4).
1988 - Subsec. (b)(1). Pub. L. 100-647, Sec. 1011B(f)(2)(A),
inserted "(other than personal use of a vehicle)" after "in-kind
benefit" in introductory text.
Subsec. (b)(1)(B). Pub. L. 100-647, Sec. 1011B(f)(1), substituted
", regulation, or administrative practice" for "or regulation
thereunder".
Subsec. (b)(3)(A). Pub. L. 100-647, Sec. 1011B(f)(3), struck out
"under any provision of law or regulation described in paragraph
(1)" after "September 9, 1986,".
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-375, div. A, title V, Sec. 585(b)(3), Oct. 28, 2004,
118 Stat. 1932, provided that: "The amendments made by this
subsection [amending this section and sections 3121, 3306, and 3401
of this title] shall apply to travel benefits provided after the
date of the enactment of this Act [Oct. 28, 2004]."
EFFECTIVE DATE OF 2003 AMENDMENT
Pub. L. 108-121, title I, Sec. 102(b)(3), Nov. 11, 2003, 117
Stat. 1337, provided that: "The amendments made by this subsection
[amending this section] shall apply with respect to deaths
occurring after September 10, 2001."
Pub. L. 108-121, title I, Sec. 106(c), Nov. 11, 2003, 117 Stat.
1339, provided that: "The amendments made by this section [amending
this section and sections 3121, 3306, and 3401 of this title] shall
apply to taxable years beginning after December 31, 2002."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1011B(f)(2)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to taxable years beginning after December 31, 1986."
Amendment by section 1011B(f)(1), (3) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
EFFECTIVE DATE
Section 1168(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011B(f)(4), Nov. 10, 1988, 102 Stat. 3490, provided
that: "The amendments made by this section [enacting this section]
shall apply to taxable years beginning after December 31, 1984."
NO INFERENCE TO BE DRAWN FROM AMENDMENT BY PUB. L. 108-121
Pub. L. 108-121, title I, Sec. 106(d), Nov. 11, 2003, 117 Stat.
1339, provided that: "No inference may be drawn from the amendments
made by this section [amending this section and sections 3121,
3306, and 3401 of this title] with respect to the tax treatment of
any amounts under the program described in section 134(b)(4) of the
Internal Revenue Code of 1986 (as added by this section) for any
taxable year beginning before January 1, 2003."
-End-
-CITE-
26 USC Sec. 135 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 135. Income from United States savings bonds used to pay
higher education tuition and fees
-STATUTE-
(a) General rule
In the case of an individual who pays qualified higher education
expenses during the taxable year, no amount shall be includible in
gross income by reason of the redemption during such year of any
qualified United States savings bond.
(b) Limitations
(1) Limitation where redemption proceeds exceed higher education
expenses
(A) In general
If -
(i) the aggregate proceeds of qualified United States
savings bonds redeemed by the taxpayer during the taxable
year exceed
(ii) the qualified higher education expenses paid by the
taxpayer during such taxable year,
the amount excludable from gross income under subsection (a)
shall not exceed the applicable fraction of the amount
excludable from gross income under subsection (a) without
regard to this subsection.
(B) Applicable fraction
For purposes of subparagraph (A), the term "applicable
fraction" means the fraction the numerator of which is the
amount described in subparagraph (A)(ii) and the denominator of
which is the amount described in subparagraph (A)(i).
(2) Limitation based on modified adjusted gross income
(A) In general
If the modified adjusted gross income of the taxpayer for the
taxable year exceeds $40,000 ($60,000 in the case of a joint
return), the amount which would (but for this paragraph) be
excludable from gross income under subsection (a) shall be
reduced (but not below zero) by the amount which bears the same
ratio to the amount which would be so excludable as such excess
bears to $15,000 ($30,000 in the case of a joint return).
(B) Inflation adjustment
In the case of any taxable year beginning in a calendar year
after 1990, the $40,000 and $60,000 amounts contained in
subparagraph (A) shall be increased by an amount equal to -
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment under section 1(f)(3)
for the calendar year in which the taxable year begins,
determined by substituting "calendar year 1989" for "calendar
year 1992" in subparagraph (B) thereof.
(C) Rounding
If any amount as adjusted under subparagraph (B) is not a
multiple of $50, such amount shall be rounded to the nearest
multiple of $50 (or if such amount is a multiple of $25, such
amount shall be rounded to the next highest multiple of $50).
(c) Definitions
For purposes of this section -
(1) Qualified United States savings bond
The term "qualified United States savings bond" means any
United States savings bond issued -
(A) after December 31, 1989,
(B) to an individual who has attained age 24 before the date
of issuance, and
(C) at discount under section 3105 of title 31, United States
Code.
(2) Qualified higher education expenses
(A) In general
The term "qualified higher education expenses" means tuition
and fees required for the enrollment or attendance of -
(i) the taxpayer,
(ii) the taxpayer's spouse, or
(iii) any dependent of the taxpayer with respect to whom
the taxpayer is allowed a deduction under section 151,
at an eligible educational institution.
(B) Exception for education involving sports, etc.
Such term shall not include expenses with respect to any
course or other education involving sports, games, or hobbies
other than as part of a degree program.
(C) Contributions to qualified tuition program and Coverdell
education savings accounts
Such term shall include any contribution to a qualified
tuition program (as defined in section 529) on behalf of a
designated beneficiary (as defined in such section), or to a
Coverdell education savings account (as defined in section 530)
on behalf of an account beneficiary, who is an individual
described in subparagraph (A); but there shall be no increase
in the investment in the contract for purposes of applying
section 72 by reason of any portion of such contribution which
is not includible in gross income by reason of this
subparagraph.
(3) Eligible educational institution
The term "eligible educational institution" has the meaning
given such term by section 529(e)(5).
(4) Modified adjusted gross income
The term "modified adjusted gross income" means the adjusted
gross income of the taxpayer for the taxable year determined -
(A) without regard to this section and sections 137, 199,
221, 222, 911, 931, and 933, and
(B) after the application of sections 86, 469, and 219.
(d) Special rules
(1) Adjustment for certain scholarships and veterans benefits
The amount of qualified higher education expenses otherwise
taken into account under subsection (a) with respect to the
education of an individual shall be reduced (before the
application of subsection (b)) by the sum of the amounts received
with respect to such individual for the taxable year as -
(A) a qualified scholarship which under section 117 is not
includable in gross income,
(B) an educational assistance allowance under chapter 30, 31,
32, 34, or 35 of title 38, United States Code,
(C) a payment (other than a gift, bequest, devise, or
inheritance within the meaning of section 102(a)) for
educational expenses, or attributable to attendance at an
eligible educational institution, which is exempt from income
taxation by any law of the United States, or
(D) a payment, waiver, or reimbursement of qualified higher
education expenses under a qualified tuition program (within
the meaning of section 529(b)).
(2) Coordination with other higher education benefits
The amount of the qualified higher education expenses otherwise
taken into account under subsection (a) with respect to the
education of an individual shall be reduced (before the
application of subsection (b)) by -
(A) the amount of such expenses which are taken into account
in determining the credit allowed to the taxpayer or any other
person under section 25A with respect to such expenses; and
(B) the amount of such expenses which are taken into account
in determining the exclusions under sections 529(c)(3)(B) and
530(d)(2).
(3) No exclusion for married individuals filing separate returns
If the taxpayer is a married individual (within the meaning of
section 7703), this section shall apply only if the taxpayer and
his spouse file a joint return for the taxable year.
(4) Regulations
The Secretary may prescribe such regulations as may be
necessary or appropriate to carry out this section, including
regulations requiring record keeping and information reporting.s
-SOURCE-
(Added Pub. L. 100-647, title VI, Sec. 6009(a), Nov. 10, 1988, 102
Stat. 3688; amended Pub. L. 101-239, title VII, Sec. 7816(c)(2),
Dec. 19, 1989, 103 Stat. 2420; Pub. L. 101-508, title XI, Secs.
11101(d)(1)(E), 11702(h), Nov. 5, 1990, 104 Stat. 1388-405, 1388-
516; Pub. L. 104-188, title I, Secs. 1703(d), 1806(b)(1),
1807(c)(2), Aug. 20, 1996, 110 Stat. 1875, 1898, 1902; Pub. L. 105-
34, title II, Secs. 201(d), 211(c), 213(e)(2), Aug. 5, 1997, 111
Stat. 805, 811, 817; Pub. L. 105-206, title VI, Sec. 6004(c)(1),
(d)(4), (9), July 22, 1998, 112 Stat. 793-795; Pub. L. 105-277,
div. J, title IV, Sec. 4003(a)(2)(B), Oct. 21, 1998, 112 Stat. 2681-
908; Pub. L. 107-16, title IV, Secs. 401(g)(2)(B), 402(a)(4)(A),
(B), (b)(2)(A), 431(c)(1), June 7, 2001, 115 Stat. 59-62, 68; Pub.
L. 107-22, Sec. 1(b)(1)(B), (3)(B), July 26, 2001, 115 Stat. 197;
Pub. L. 108-357, title I, Sec. 102(d)(1), Oct. 22, 2004, 118 Stat.
1428.)
-STATAMEND-
ADJUSTMENT OF LIMITATION ON EXCLUSION OF INCOME UNDER THIS SECTION
FOR TAXABLE YEARS BEGINNING IN 2006
For adjustment of limitation on exclusion for income from
redemption of United States savings bonds for taxpayers who pay
qualified higher education expenses under this section for taxable
years beginning in 2006, see section 3.13 of Revenue Procedure 2005-
70, set out as a note under section 1 of this title.
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendments note below.
-MISC1-
PRIOR PROVISIONS
A prior section 135 was renumbered section 140 of this title.
AMENDMENTS
2004 - Subsec. (c)(4)(A). Pub. L. 108-357 inserted "199," before
"221".
2001 - Subsec. (c)(2)(C). Pub. L. 107-22, in heading substituted
"Coverdell education savings" for "education individual retirement"
and in text substituted "a Coverdell education savings" for "an
education individual retirement".
Pub. L. 107-16, Secs. 402(a)(4)(A), (B), 901, temporarily
substituted "qualified tuition" for "qualified State tuition" in
heading and text. See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(4)(A). Pub. L. 107-16, Secs. 431(c)(1), 901,
temporarily inserted "222," after "221,". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (d)(1)(D). Pub. L. 107-16, Secs. 402(a)(4)(A), 901,
temporarily substituted "qualified tuition" for "qualified State
tuition". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (d)(2)(A). Pub. L. 107-16, Secs. 401(g)(2)(B), 901,
temporarily substituted "allowed" for "allowable". See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (d)(2)(B). Pub. L. 107-16, Secs. 402(b)(2)(A), 901,
temporarily substituted "the exclusions under sections 529(c)(3)(B)
and 530(d)(2)" for "the exclusion under section 530(d)(2)". See
Effective and Termination Dates of 2001 Amendment note below.
1998 - Subsec. (c)(2)(C). Pub. L. 105-206, Sec. 6004(d)(9),
inserted "and education individual retirement accounts" after
"program" in heading and substituted "section 72" for "section
529(c)(3)(A)" in text.
Subsec. (c)(3). Pub. L. 105-206, Sec. 6004(c)(1), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The term 'eligible educational
institution' means -
"(A) an institution described in section 1201(a) or
subparagraph (C) or (D) of section 481(a)(1) of the Higher
Education Act of 1965 (as in effect on October 21, 1988), and
"(B) an area vocational education school (as defined in
subparagraph (C) or (D) of section 521(3) of the Carl D. Perkins
Vocational Education Act) which is in any State (as defined in
section 521(27) of such Act), as such sections are in effect on
October 21, 1988."
Subsec. (c)(4)(A). Pub. L. 105-277 inserted "221," after "137,".
Subsec. (d)(2). Pub. L. 105-206, Sec. 6004(d)(4), substituted
"other higher education benefits" for "higher education credit" in
heading and amended text of par. (2) generally. Prior to amendment,
text read as follows: "The amount of the qualified higher education
expenses otherwise taken into account under subsection (a) with
respect to the education of an individual shall be reduced (before
the application of subsection (b)) by the amount of such expenses
which are taken into account in determining the credit allowable to
the taxpayer or any other person under section 25A with respect to
such expenses."
1997 - Subsec. (c)(2)(C). Pub. L. 105-34, Sec. 213(e)(2),
inserted ", or to an education individual retirement account (as
defined in section 530) on behalf of an account beneficiary," after
"(as defined in such section)".
Pub. L. 105-34, Sec. 211(c), added subpar. (C).
Subsec. (d)(2) to (4). Pub. L. 105-34, Sec. 201(d), added par.
(2) and redesignated former pars. (2) and (3) as (3) and (4),
respectively.
1996 - Subsec. (b)(2)(B)(ii). Pub. L. 104-188, Sec. 1703(d),
inserted ", determined by substituting 'calendar year 1989' for
'calendar year 1992' in subparagraph (B) thereof" before period at
end.
Subsec. (c)(4)(A). Pub. L. 104-188, Sec. 1807(c)(2), inserted
"137," before "911".
Subsec. (d)(1)(D). Pub. L. 104-188, Sec. 1806(b)(1), added
subpar. (D).
1990 - Subsec. (b)(2)(B). Pub. L. 101-508, Sec. 11702(h)(1),
substituted "the $40,000 and $60,000 amounts" for "each dollar
amount" in introductory provisions.
Subsec. (b)(2)(B)(ii). Pub. L. 101-508, Sec. 11101(d)(1)(E),
struck out before period at end ", determined by substituting
'calendar year 1989' for 'calendar year 1987' in subparagraph (B)
thereof".
Subsec. (b)(2)(C). Pub. L. 101-508, Sec. 11702(h)(2), struck out
"(A) or" after "subparagraph".
1989 - Subsec. (d)(1). Pub. L. 101-239 substituted "subsection
(a) with respect to" for "subsection (a) respect to".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years
beginning after Dec. 31, 2004, see section 102(e) of Pub. L. 108-
357, set out as a note under section 56 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENTS
Amendment by Pub. L. 107-22 effective July 26, 2001, see section
1(c) of Pub. L. 107-22, set out as a note under section 26 of this
title.
Amendment by section 401(g)(2)(B) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 401(h) of
Pub. L. 107-16, set out as a note under section 25A of this title.
Amendment by section 402(a)(4)(A), (B), (b)(2)(A) of Pub. L. 107-
16 applicable to taxable years beginning after Dec. 31, 2001, see
section 402(h) of Pub. L. 107-16, set out as a note under section
72 of this title.
Amendment by section 431(c)(1) of Pub. L. 107-16 applicable to
payments made in taxable years beginning after Dec. 31, 2001, see
section 431(d) of Pub. L. 107-16, set out as a note under section
62 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L. 105-
277, set out as a note under section 86 of this title.
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 201(d) of Pub. L. 105-34 applicable to
expenses paid after Dec. 31, 1997 (in taxable years ending after
such date), for education furnished in academic periods beginning
after such date, see section 201(f) of Pub. L. 105-34, set out as
an Effective Date note under section 25A of this title.
Amendment by section 211(c) of Pub. L. 105-34 applicable to
taxable years beginning after Dec. 31, 1997, see section 211(f) of
Pub. L. 105-34, set out as a note under section 529 of this title.
Amendment by section 213(e)(2) of Pub. L. 105-34 applicable to
taxable years beginning after Dec. 31, 1997, see section 213(f) of
Pub. L. 105-34, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1703(d) of Pub. L. 104-188 effective as if
included in the provision of the Revenue Reconciliation Act of
1993, Pub. L. 103-66, Secs. 13001-13444, to which such amendment
relates, see section 1703(o) of Pub. L. 104-188, set out as a note
under section 39 of this title.
Amendment by section 1806(b)(1) of Pub. L. 104-188 applicable to
taxable years ending after Aug. 20, 1996, with transition rules
applicable where States or agencies or instrumentalities thereof
maintain on such date programs under which persons may purchase
tuition credits or certificates on behalf of, or make contributions
for education expenses of, designated beneficiaries, see section
1806(c) of Pub. L. 104-188, set out as an Effective Date note under
section 529 of this title.
Amendment by section 1807(c)(2) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1996, see section 1807(e) of
Pub. L. 104-188, set out as an Effective Date note under section 23
of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11101(d)(1)(E) of Pub. L. 101-508 applicable
to taxable years beginning after Dec. 31, 1990, see section
11101(e) of Pub. L. 101-508, set out as a note under section 1 of
this title.
Amendment by section 11702(h) of Pub. L. 101-508 effective as if
included in the provision of the Technical and Miscellaneous
Revenue Act of 1988, Pub. L. 100-647, to which such amendment
relates, see section 11702(j) of Pub. L. 101-508, set out as a note
under section 59 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1989, see section 6009(d) of Pub. L. 100-647, set out as an
Effective Date of 1988 Amendment note under section 86 of this
title.
PROMOTION OF PUBLIC AWARENESS OF PROGRAM
Section 6009(b) of Pub. L. 100-647 provided that: "The Secretary
of the Treasury or his delegate shall take such actions as may be
necessary to make the general public aware of the program
established by this section [enacting this section, amending
sections 86, 219, and 469 of this title, renumbering former section
135 of this title as section 136 of this title, and enacting
provisions set out as notes below and under section 86 of this
title]."
PARENTAL ASSISTANCE WITH TUITION STAMP STUDY
Section 6009(e) of Pub. L. 100-647 directed Secretary of the
Treasury or his delegate, after consultation with Secretary of
Education or his delegate, to conduct a study of feasibility of
using stamps or similar programs to encourage and facilitate
savings by parents towards purchase of Series EE bonds eligible for
exclusion and to submit, not later than Dec. 31, 1989, results of
such study, together with any recommendations deemed appropriate,
to Committee on Ways and Means of House of Representatives and
Committee on Finance of Senate.
-End-
-CITE-
26 USC Sec. 136 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 136. Energy conservation subsidies provided by public
utilities
-STATUTE-
(a) Exclusion
Gross income shall not include the value of any subsidy provided
(directly or indirectly) by a public utility to a customer for the
purchase or installation of any energy conservation measure.
(b) Denial of double benefit
Notwithstanding any other provision of this subtitle, no
deduction or credit shall be allowed for, or by reason of, any
expenditure to the extent of the amount excluded under subsection
(a) for any subsidy which was provided with respect to such
expenditure. The adjusted basis of any property shall be reduced by
the amount excluded under subsection (a) which was provided with
respect to such property.
(c) Energy conservation measure
(1) In general
For purposes of this section, the term "energy conservation
measure" means any installation or modification primarily
designed to reduce consumption of electricity or natural gas or
to improve the management of energy demand with respect to a
dwelling unit.
(2) Other definitions
For purposes of this subsection -
(A) Dwelling unit
The term "dwelling unit" has the meaning given such term by
section 280A(f)(1).
(B) Public utility
The term "public utility" means a person engaged in the sale
of electricity or natural gas to residential, commercial, or
industrial customers for use by such customers. For purposes of
the preceding sentence, the term "person" includes the Federal
Government, a State or local government or any political
subdivision thereof, or any instrumentality of any of the
foregoing.
(d) Exception
This section shall not apply to any payment to or from a
qualified cogeneration facility or qualifying small power
production facility pursuant to section 210 of the Public Utility
Regulatory Policy Act of 1978.
-SOURCE-
(Added Pub. L. 102-486, title XIX, Sec. 1912(a), Oct. 24, 1992, 106
Stat. 3014; amended Pub. L. 104-188, title I, Sec. 1617(a), (b),
Aug. 20, 1996, 110 Stat. 1858.)
-REFTEXT-
REFERENCES IN TEXT
Section 210 of the Public Utility Regulatory Policy Act of 1978,
referred to in subsec. (d), probably means section 210 of the
Public Utility Regulatory Policies Act of 1978, Pub. L. 95-617,
which is classified to section 824a-3 of Title 16, Conservation.
-MISC1-
PRIOR PROVISIONS
A prior section 136 was renumbered section 140 of this title.
AMENDMENTS
1996 - Subsec. (a). Pub. L. 104-188, Sec. 1617(b)(1), reenacted
heading without change and amended text generally, substituting
present provisions for former provisions which consisted of general
exclusion in par. (1) and limitation for exclusion on
nonresidential property in par. (2).
Subsec. (c)(1). Pub. L. 104-188, Sec. 1617(a), substituted
"energy demand with respect to a dwelling unit." for "energy demand
-
"(A) with respect to a dwelling unit, and
"(B) on or after January 1, 1995, with respect to property
other than dwelling units.
The purchase and installation of specially defined energy property
shall be treated as an energy conservation measure described in
subparagraph (B)."
Subsec. (c)(2). Pub. L. 104-188, Sec. 1617(b)(2), struck out "and
special rules" after "definitions" in heading, redesignated
subpars. (B) and (C) as (A) and (B), respectively, and struck out
former subpar. (A) which related to "specially defined energy
property".
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1617(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to amounts
received after December 31, 1996, unless received pursuant to a
written binding contract in effect on September 13, 1995, and at
all times thereafter."
EFFECTIVE DATE
Section 1912(c) of Pub. L. 102-486 provided that: "The amendments
made by this section [enacting this section and renumbering former
section 136 as 137] shall apply to amounts received after December
31, 1992."
-End-
-CITE-
26 USC Sec. 137 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 137. Adoption assistance programs
-STATUTE-
(a) Exclusion
(1) In general
Gross income of an employee does not include amounts paid or
expenses incurred by the employer for qualified adoption expenses
in connection with the adoption of a child by an employee if such
amounts are furnished pursuant to an adoption assistance program.
(2) $10,000 exclusion for adoption of child with special needs
regardless of expenses
In the case of an adoption of a child with special needs which
becomes final during a taxable year, the qualified adoption
expenses with respect to such adoption for such year shall be
increased by an amount equal to the excess (if any) of $10,000
over the actual aggregate qualified adoption expenses with
respect to such adoption during such taxable year and all prior
taxable years.
(b) Limitations
(1) Dollar limitation
The aggregate of the amounts paid or expenses incurred which
may be taken into account under subsection (a) for all taxable
years with respect to the adoption of a child by the taxpayer
shall not exceed $10,000.
(2) Income limitation
The amount excludable from gross income under subsection (a)
for any taxable year shall be reduced (but not below zero) by an
amount which bears the same ratio to the amount so excludable
(determined without regard to this paragraph but with regard to
paragraph (1)) as -
(A) the amount (if any) by which the taxpayer's adjusted
gross income exceeds $150,000, bears to
(B) $40,000.
(3) Determination of adjusted gross income
For purposes of paragraph (2), adjusted gross income shall be
determined -
(A) without regard to this section and sections 199, 221,
222, 911, 931, and 933, and
(B) after the application of sections 86, 135, 219, and 469.
(c) Adoption assistance program
For purposes of this section, an adoption assistance program is a
separate written plan of an employer for the exclusive benefit of
such employer's employees -
(1) under which the employer provides such employees with
adoption assistance, and
(2) which meets requirements similar to the requirements of
paragraphs (2), (3), (5), and (6) of section 127(b).
An adoption reimbursement program operated under section 1052 of
title 10, United States Code (relating to armed forces) or section
514 of title 14, United States Code (relating to members of the
Coast Guard) shall be treated as an adoption assistance program for
purposes of this section.
(d) Qualified adoption expenses
For purposes of this section, the term "qualified adoption
expenses" has the meaning given such term by section 23(d)
(determined without regard to reimbursements under this section).
(e) Certain rules to apply
Rules similar to the rules of subsections (e), (f), and (g) of
section 23 shall apply for purposes of this section.
(f) Adjustments for inflation
In the case of a taxable year beginning after December 31, 2002,
each of the dollar amounts in subsection (a)(2) and paragraphs (1)
and (2)(A) of subsection (b) shall be increased by an amount equal
to -
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
determined by substituting "calendar year 2001" for "calendar
year 1992" in subparagraph (B) thereof.
If any amount as increased under the preceding sentence is not a
multiple of $10, such amount shall be rounded to the nearest
multiple of $10.
-SOURCE-
(Added Pub. L. 104-188, title I, Sec. 1807(b), Aug. 20, 1996, 110
Stat. 1901; amended Pub. L. 105-34, title XVI, Sec. 1601(h)(2)(C),
Aug. 5, 1997, 111 Stat. 1092; Pub. L. 105-277, div. J, title IV,
Sec. 4003(a)(2)(C), Oct. 21, 1998, 112 Stat. 2681-908; Pub. L. 107-
16, title II, Sec. 202(a)(2), (b)(1)(B), (2)(B), (d)(2), (e)(2),
title IV, Sec. 431(c)(1), June 7, 2001, 115 Stat. 47, 48, 68; Pub.
L. 107-147, title IV, Secs. 411(c)(2), 418(a)(2), Mar. 9, 2002, 116
Stat. 45, 57; Pub. L. 108-311, title IV, Sec. 403(e), Oct. 4, 2004,
118 Stat. 1188; Pub. L. 108-357, title I, Sec. 102(d)(1), Oct. 22,
2004, 118 Stat. 1428.)
-STATAMEND-
ADJUSTMENT FOR ADOPTION ASSISTANCE PROGRAM EXPENSES EXCLUSION FOR
TAXABLE YEARS BEGINNING IN 2006
For inflation adjustment for taxable years beginning in 2006 of
maximum exclusion in subsection (a)(2) of this section in
connection with employee's adoption of a child with special needs,
of maximum exclusion in subsection (b)(1) of this section in
connection with adoption assistance program for other adoptions,
and of phaseout of exclusion in subsection (b)(2)(A) of this
section, see section 3.14 of Revenue Procedure 2005-70, set out as
a note under section 1 of this title.
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
PRIOR PROVISIONS
A prior section 137 was renumbered section 140 of this title.
AMENDMENTS
2004 - Subsec. (b)(1). Pub. L. 108-311 amended directory language
of Pub. L. 107-147, Sec. 411(c)(2)(B). See 2002 Amendment note
below.
Subsec. (b)(3)(A). Pub. L. 108-357 inserted "199," before "221".
2002 - Subsec. (a). Pub. L. 107-147, Sec. 411(c)(2)(A), amended
heading and text of subsec. (a) generally. Prior to amendment, text
read as follows: "Gross income of an employee does not include
amounts paid or expenses incurred by the employer for adoption
expenses in connection with the adoption of a child by an employee
if such amounts are furnished pursuant to an adoption assistance
program. The amount of the exclusion shall be -
"(1) in the case of an adoption of a child other than a child
with special needs, the amount of the qualified adoption expenses
paid or incurred by the taxpayer, and
"(2) in the case of an adoption of a child with special needs,
$10,000."
Subsec. (b)(1). Pub. L. 107-147, Sec. 411(c)(2)(B), as amended by
Pub. L. 108-311, substituted "subsection (a)" for "subsection
(a)(1)".
Subsec. (f). Pub. L. 107-147, Sec. 418(a)(2), inserted at end "If
any amount as increased under the preceding sentence is not a
multiple of $10, such amount shall be rounded to the nearest
multiple of $10."
2001 - Subsec. (a). Pub. L. 107-16, Secs. 202(a)(2), 901,
temporarily reenacted heading without change and amended text
generally. Prior to amendment, text read as follows: "Gross income
of an employee does not include amounts paid or expenses incurred
by the employer for qualified adoption expenses in connection with
the adoption of a child by an employee if such amounts are
furnished pursuant to an adoption assistance program." See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (b)(1). Pub. L. 107-16, Secs. 202(b)(1)(B), 901,
temporarily substituted "subsection (a)(1)" for "subsection (a)"
and "$10,000" for "$5,000 ($6,000, in the case of a child with
special needs)". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (b)(2)(A). Pub. L. 107-16, Secs. 202(b)(2)(B), 901,
temporarily substituted "$150,000" for "$75,000". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (b)(3)(A). Pub. L. 107-16, Secs. 431(c)(1), 901,
temporarily inserted "222," after "221,". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (f). Pub. L. 107-16, Secs. 202(d)(2), (e)(2), 901,
temporarily added subsec. (f) and struck out heading and text of
former subsec. (f). Text read as follows: "This section shall not
apply to amounts paid or expenses incurred after December 31,
2001." See Effective and Termination Dates of 2001 Amendment note
below.
1998 - Subsec. (b)(3)(A). Pub. L. 105-277 inserted "221," after
"and sections".
1997 - Subsec. (b)(1). Pub. L. 105-34 substituted "of the amounts
paid or expenses incurred which may be taken into account" for
"amount excludable from gross income".
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendment by Pub. L. 108-357 applicable to taxable years
beginning after Dec. 31, 2004, see section 102(e) of Pub. L. 108-
357, set out as a note under section 56 of this title.
Amendment by Pub. L. 108-311 effective as if included in the
provisions of the Job Creation and Worker Assistance Act of 2002,
Pub. L. 107-147, to which such amendment relates, see section
403(f) of Pub. L. 108-311, set out as a note under section 56 of
this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by section 411(c)(2) of Pub. L. 107-147 applicable to
taxable years beginning after Dec. 31, 2002, except that amendment
by section 411(c)(2)(B) applicable to taxable years beginning after
Dec. 31, 2001, see section 411(c)(3) of Pub. L. 107-147, set out as
a note under section 23 of this title.
Amendment by section 418(a)(2) of Pub. L. 107-147 effective as if
included in the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment
relates, see section 418(c) of Pub. L. 107-147, set out as a note
under section 21 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 202(b)(1)(B), (2)(B), (d)(2), (e)(2) of Pub.
L. 107-16 applicable to taxable years beginning after Dec. 31,
2001, see section 202(g)(1) of Pub. L. 107-16, set out as a note
under section 23 of this title.
Amendment by section 202(a)(2) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2002, see section 202(g)(2)
of Pub. L. 107-16, set out as a note under section 23 of this
title.
Amendment by section 431(c)(1) of Pub. L. 107-16 applicable to
payments made in taxable years beginning after Dec. 31, 2001, see
section 431(d) of Pub. L. 107-16, set out as a note under section
62 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L. 105-
277, set out as a note under section 86 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
provisions of the Small Business Job Protection Act of 1996, Pub.
L. 104-188, to which it relates, see section 1601(j) of Pub. L. 105-
34, set out as a note under section 23 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1996, see section 1807(e) of Pub. L. 104-188, set out as a note
under section 23 of this title.
-TRANS-
TRANSFER OF FUNCTIONS
For transfer of authorities, functions, personnel, and assets of
the Coast Guard, including the authorities and functions of the
Secretary of Transportation relating thereto, to the Department of
Homeland Security, and for treatment of related references, see
sections 468(b), 551(d), 552(d), and 557 of Title 6, Domestic
Security, and the Department of Homeland Security Reorganization
Plan of November 25, 2002, as modified, set out as a note under
section 542 of Title 6.
-End-
-CITE-
26 USC Sec. 138 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 138. Medicare Advantage MSA
-STATUTE-
(a) Exclusion
Gross income shall not include any payment to the Medicare
Advantage MSA of an individual by the Secretary of Health and Human
Services under part C of title XVIII of the Social Security Act.
(b) Medicare Advantage MSA
For purposes of this section, the term "Medicare Advantage MSA"
means an Archer MSA (as defined in section 220(d)) -
(1) which is designated as a Medicare Advantage MSA,
(2) with respect to which no contribution may be made other
than -
(A) a contribution made by the Secretary of Health and Human
Services pursuant to part C of title XVIII of the Social
Security Act, or
(B) a trustee-to-trustee transfer described in subsection
(c)(4),
(3) the governing instrument of which provides that trustee-to-
trustee transfers described in subsection (c)(4) may be made to
and from such account, and
(4) which is established in connection with an MSA plan
described in section 1859(b)(3) of the Social Security Act.
(c) Special rules for distributions
(1) Distributions for qualified medical expenses
In applying section 220 to a Medicare Advantage MSA -
(A) qualified medical expenses shall not include amounts paid
for medical care for any individual other than the account
holder, and
(B) section 220(d)(2)(C) shall not apply.
(2) Penalty for distributions from Medicare Advantage MSA not
used for qualified medical expenses if minimum balance not
maintained
(A) In general
The tax imposed by this chapter for any taxable year in which
there is a payment or distribution from a Medicare Advantage
MSA which is not used exclusively to pay the qualified medical
expenses of the account holder shall be increased by 50 percent
of the excess (if any) of -
(i) the amount of such payment or distribution, over
(ii) the excess (if any) of -
(I) the fair market value of the assets in such MSA as of
the close of the calendar year preceding the calendar year
in which the taxable year begins, over
(II) an amount equal to 60 percent of the deductible
under the Medicare Advantage MSA plan covering the account
holder as of January 1 of the calendar year in which the
taxable year begins.
Section 220(f)(4) shall not apply to any payment or
distribution from a Medicare Advantage MSA.
(B) Exceptions
Subparagraph (A) shall not apply if the payment or
distribution is made on or after the date the account holder -
(i) becomes disabled within the meaning of section
72(m)(7), or
(ii) dies.
(C) Special rules
For purposes of subparagraph (A) -
(i) all Medicare Advantage MSAs of the account holder shall
be treated as 1 account,
(ii) all payments and distributions not used exclusively to
pay the qualified medical expenses of the account holder
during any taxable year shall be treated as 1 distribution,
and
(iii) any distribution of property shall be taken into
account at its fair market value on the date of the
distribution.
(3) Withdrawal of erroneous contributions
Section 220(f)(2) and paragraph (2) of this subsection shall
not apply to any payment or distribution from a Medicare
Advantage MSA to the Secretary of Health and Human Services of an
erroneous contribution to such MSA and of the net income
attributable to such contribution.
(4) Trustee-to-trustee transfers
Section 220(f)(2) and paragraph (2) of this subsection shall
not apply to any trustee-to-trustee transfer from a Medicare
Advantage MSA of an account holder to another Medicare Advantage
MSA of such account holder.
(d) Special rules for treatment of account after death of account
holder
In applying section 220(f)(8)(A) to an account which was a
Medicare Advantage MSA of a decedent, the rules of section 220(f)
shall apply in lieu of the rules of subsection (c) of this section
with respect to the spouse as the account holder of such Medicare
Advantage MSA.
(e) Reports
In the case of a Medicare Advantage MSA, the report under section
220(h) -
(1) shall include the fair market value of the assets in such
Medicare Advantage MSA as of the close of each calendar year, and
(2) shall be furnished to the account holder -
(A) not later than January 31 of the calendar year following
the calendar year to which such reports relate, and
(B) in such manner as the Secretary prescribes in such
regulations.
(f) Coordination with limitation on number of taxpayers having
Archer MSAs
Subsection (i) of section 220 shall not apply to an individual
with respect to a Medicare Advantage MSA, and Medicare Advantage
MSAs shall not be taken into account in determining whether the
numerical limitations under section 220(j) are exceeded.
-SOURCE-
(Added Pub. L. 105-33, title IV, Sec. 4006(a), Aug. 5, 1997, 111
Stat. 332; amended Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(a)(3), (b)(6), (10)], Dec. 21, 2000, 114 Stat. 2763, 2763A-628,
2763A-629; Pub. L. 108-311, title IV, Sec. 408(a)(5)(A)-(F), Oct.
4, 2004, 118 Stat. 1191.)
-REFTEXT-
REFERENCES IN TEXT
The Social Security Act, referred to in subsecs. (a) and
(b)(2)(A), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended.
Part C of title XVIII of the Act is classified generally to part C
(Sec. 1395w-21 et seq.) of subchapter XVIII of chapter 7 of Title
42, The Public Health and Welfare. Section 1859 of the Act is
classified to section 1395w-28 of Title 42. For complete
classification of this Act to the Code, see section 1305 of Title
42 and Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 138 was renumbered section 140 of this title.
AMENDMENTS
2004 - Pub. L. 108-311, Sec. 408(a)(5)(A)-(D), substituted
"Medicare Advantage" for "Medicare+Choice" wherever appearing in
section catchline, headings, and text.
Subsec. (c)(2)(C)(i). Pub. L. 108-311, Sec. 408(a)(5)(E),
substituted "Medicare Advantage MSAs" for "Medicare+Choice MSAs".
Subsec. (f). Pub. L. 108-311, Sec. 408(a)(5)(F), substituted
"Medicare Advantage MSAs" for "Medicare+Choice MSA's".
2000 - Subsec. (b). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(10)], substituted "an Archer MSA" for "a Archer MSA" in
introductory provisions.
Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(3)],
substituted "Archer MSA" for "medical savings account" in
introductory provisions.
Subsec. (f). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(6)], substituted "Archer MSAs" for "medical savings
accounts" in heading.
EFFECTIVE DATE
Section 4006(c) of Pub. L. 105-33 provided that: "The amendments
made by this section [enacting this section, amending sections 220
and 4973 of this title, and renumbering former section 138 of this
title as section 139 of this title] shall apply to taxable years
beginning after December 31, 1998."
-End-
-CITE-
26 USC Sec. 139 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 139. Disaster relief payments
-STATUTE-
(a) General rule
Gross income shall not include any amount received by an
individual as a qualified disaster relief payment.
(b) Qualified disaster relief payment defined
For purposes of this section, the term "qualified disaster relief
payment" means any amount paid to or for the benefit of an
individual -
(1) to reimburse or pay reasonable and necessary personal,
family, living, or funeral expenses incurred as a result of a
qualified disaster,
(2) to reimburse or pay reasonable and necessary expenses
incurred for the repair or rehabilitation of a personal residence
or repair or replacement of its contents to the extent that the
need for such repair, rehabilitation, or replacement is
attributable to a qualified disaster,
(3) by a person engaged in the furnishing or sale of
transportation as a common carrier by reason of the death or
personal physical injuries incurred as a result of a qualified
disaster, or
(4) if such amount is paid by a Federal, State, or local
government, or agency or instrumentality thereof, in connection
with a qualified disaster in order to promote the general
welfare,
but only to the extent any expense compensated by such payment is
not otherwise compensated for by insurance or otherwise.
(c) Qualified disaster defined
For purposes of this section, the term "qualified disaster" means
-
(1) a disaster which results from a terroristic or military
action (as defined in section 692(c)(2)),
(2) a Presidentially declared disaster (as defined in section
1033(h)(3)),
(3) a disaster which results from an accident involving a
common carrier, or from any other event, which is determined by
the Secretary to be of a catastrophic nature, or
(4) with respect to amounts described in subsection (b)(4), a
disaster which is determined by an applicable Federal, State, or
local authority (as determined by the Secretary) to warrant
assistance from the Federal, State, or local government or agency
or instrumentality thereof.
(d) Coordination with employment taxes
For purposes of chapter 2 and subtitle C, qualified disaster
relief payments and qualified disaster mitigation payments shall
not be treated as net earnings from self-employment, wages, or
compensation subject to tax.
(e) No relief for certain individuals
Subsections (a), (f), and (g) shall not apply with respect to any
individual identified by the Attorney General to have been a
participant or conspirator in a terroristic action (as so defined),
or a representative of such individual.
(f) Exclusion of certain additional payments
Gross income shall not include any amount received as payment
under section 406 of the Air Transportation Safety and System
Stabilization Act.
(g) Qualified disaster mitigation payments
(1) In general
Gross income shall not include any amount received as a
qualified disaster mitigation payment.
(2) Qualified disaster mitigation payment defined
For purposes of this section, the term "qualified disaster
mitigation payment" means any amount which is paid pursuant to
the Robert T. Stafford Disaster Relief and Emergency Assistance
Act (as in effect on the date of the enactment of this
subsection) or the National Flood Insurance Act (as in effect on
such date) to or for the benefit of the owner of any property for
hazard mitigation with respect to such property. Such term shall
not include any amount received for the sale or disposition of
any property.
(3) No increase in basis
Notwithstanding any other provision of this subtitle, no
increase in the basis or adjusted basis of any property shall
result from any amount excluded under this subsection with
respect to such property.
(h) Denial of double benefit
Notwithstanding any other provision of this subtitle, no
deduction or credit shall be allowed (to the person for whose
benefit a qualified disaster relief payment or qualified disaster
mitigation payment is made) for, or by reason of, any expenditure
to the extent of the amount excluded under this section with
respect to such expenditure.
-SOURCE-
(Added Pub. L. 107-134, title I, Sec. 111(a), Jan. 23, 2002, 115
Stat. 2432; amended Pub. L. 109-7, Sec. 1(a), Apr. 15, 2005, 119
Stat. 21.)
-REFTEXT-
REFERENCES IN TEXT
Section 406 of the Air Transportation Safety and System
Stabilization Act, referred to in subsec. (f), is section 406 of
Pub. L. 107-42, which is set out as a note under section 40101 of
Title 49, Transportation.
The Robert T. Stafford Disaster Relief and Emergency Assistance
Act, referred to in subsec. (g)(2), is Pub. L. 93-288, May 22,
1974, 88 Stat. 143, as amended, which is classified principally to
chapter 68 (Sec. 5121 et seq.) of Title 42, The Public Health and
Welfare. For complete classification of this Act to the Code, see
Short Title note set out under section 5121 of Title 42 and Tables.
The date of the enactment of this subsection, referred to in
subsec. (g)(2), is the date of enactment of Pub. L. 109-7, which
was approved Apr. 15, 2005.
The National Flood Insurance Act, referred to in subsec. (g)(2),
probably means the National Flood Insurance Act of 1968, title XIII
of Pub. L. 90-448, Aug. 1, 1968, 82 Stat. 572, as amended, which is
classified principally to chapter 50 (Sec. 4001 et seq.) of Title
42, The Public Health and Welfare. For complete classification of
this Act to the Code, see Short Title note set out under section
4001 of Title 42 and Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 139 was renumbered section 140 of this title.
AMENDMENTS
2005 - Subsec. (d). Pub. L. 109-7, Sec. 1(a)(2)(A), substituted
"qualified disaster relief payments and qualified disaster
mitigation payments" for "a qualified disaster relief payment".
Subsec. (e). Pub. L. 109-7, Sec. 1(a)(2)(B), substituted ", (f),
and (g)" for "and (f)".
Subsecs. (g), (h). Pub. L. 109-7, Sec. 1(a)(1), added subsecs.
(g) and (h).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-7, Sec. 1(c)(1), Apr. 15, 2005, 119 Stat. 22,
provided that: "The amendments made by subsection (a) [amending
this section] shall apply to amounts received before, on, or after
the date of the enactment of this Act [Apr. 15, 2005]."
EFFECTIVE DATE
Pub. L. 107-134, title I, Sec. 111(c), Jan. 23, 2002, 115 Stat.
2433, provided that: "The amendments made by this section [enacting
this section and renumbering former section 139 as section 140 of
this title] shall apply to taxable years ending on or after
September 11, 2001."
-End-
-CITE-
26 USC Sec. 139A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 139A. Federal subsidies for prescription drug plans
-STATUTE-
Gross income shall not include any special subsidy payment
received under section 1860D-22 of the Social Security Act. This
section shall not be taken into account for purposes of determining
whether any deduction is allowable with respect to any cost taken
into account in determining such payment.
-SOURCE-
(Added Pub. L. 108-173, title XII, Sec. 1202(a), Dec. 8, 2003, 117
Stat. 2480.)
-REFTEXT-
REFERENCES IN TEXT
Section 1860D-22 of the Social Security Act, referred to in text,
is classified to section 1395w-132 of Title 42, The Public Health
and Welfare.
-MISC1-
EFFECTIVE DATE
Section applicable to taxable years ending after Dec. 8, 2003,
see section 1202(d) of Pub. L. 108-173, set out as an Effective
Date of 2003 Amendment note under section 56 of this title.
-End-
-CITE-
26 USC Sec. 140 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART III - ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
-HEAD-
Sec. 140. Cross references to other Acts
-STATUTE-
(a) For exemption of -
(1) Allowances and expenditures to meet losses sustained by
persons serving the United States abroad, due to appreciation
of foreign currencies, see section 5943 of title 5, United
States Code.
(2) Amounts credited to the Maritime Administration under
section 9(b)(6) of the Merchant Ship Sales Act of 1946, see
section 9(c)(1) of that Act (50 U.S.C. App. 1742).(!1)
(3) Benefits under laws administered by the Veterans'
Administration, see section 5301 of title 38, United States
Code.
(4) Earnings of ship contractors deposited in special
reserve funds, see section 607(d) of the Merchant Marine Act,
1936 (46 U.S.C. 1177).(!1)
(5) Income derived from Federal Reserve banks, including
capital stock and surplus, see section 7 of the Federal
Reserve Act (12 U.S.C. 531).
(6) Special pensions of persons on Army and Navy medal of
honor roll, see 38 U.S.C. 1562(a)-(c).
(b) For extension of military income tax-exemption benefits
to commissioned officers of Public Health Service in certain
circumstances, see section 212 of the Public Health Service Act
(42 U.S.C. 213).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 39, Sec. 121; Aug. 1, 1956, ch.
837, title V, Sec. 501(t), 70 Stat. 885; Pub. L. 85-56, title XXII,
Sec. 2201(25), June 17, 1957, 71 Stat. 160; Pub. L. 85-857, Sec.
13(t), Sept. 2, 1958, 72 Stat. 1266; renumbered Sec. 122, Pub. L.
88-272, title II, Sec. 206(a), Feb. 26, 1964, 78 Stat. 38;
renumbered Sec. 123, Pub. L. 89-365, Sec. 1(a)(1), Mar. 8, 1966, 80
Stat. 32; renumbered Sec. 124, Pub. L. 91-172, title IX, Sec.
901(a), Dec. 30, 1969, 83 Stat. 709; amended Pub. L. 94-455, title
XIX, Sec. 1901(a)(21), Oct. 4, 1976, 90 Stat. 1766; renumbered Sec.
125, Pub. L. 95-618, title II, Sec. 242(a), Nov. 9, 1978, 92 Stat.
3193; renumbered Sec. 126, renumbered Sec. 127, renumbered Sec.
128, Pub. L. 95-600, title I, Secs. 134(a), 164(a), title V,
543(a), Nov. 6, 1978, 92 Stat. 2783, 2811, 2888; amended Pub. L. 96-
222, title I, Sec. 101(a)(3), Apr. 1, 1980, 94 Stat. 195; Pub. L.
96-589, Sec. 6(i)(1), Dec. 24, 1980, 94 Stat. 3410; renumbered Sec.
129, renumbered Sec. 130, Pub. L. 97-34, title I, Sec. 124(e)(1),
title III, Sec. 301(a), Aug. 13, 1981, 95 Stat. 198, 267;
renumbered Sec. 131, renumbered Sec. 132, Pub. L. 97-473, title I,
Secs. 101(b)(1), 102(a), Jan. 14, 1983, 96 Stat. 2605, 2606;
renumbered Sec. 133, renumbered Sec. 134 and amended Pub. L. 98-
369, div. A, title V, Secs. 531(a)(1), 543(a), div. B, title VI,
Sec. 2661(o)(2), July 18, 1984, 98 Stat. 877, 891, 1159; renumbered
Sec. 135, Pub. L. 99-514, title XI, Sec. 1168(a), Oct. 22, 1986,
100 Stat. 2512; renumbered Sec. 136, Pub. L. 100-647, title VI,
Sec. 6009(a), Nov. 10, 1988, 102 Stat. 3688; Pub. L. 102-40, title
IV, Sec. 402(d)(2), May 7, 1991, 105 Stat. 239; Pub. L. 102-83,
Sec. 5(c)(2), Aug. 6, 1991, 105 Stat. 406; renumbered Sec. 137,
Pub. L. 102-486, title XIX, Sec. 1912(a), Oct. 24, 1992, 106 Stat.
3014; renumbered Sec. 138, Pub. L. 104-188, title I, Sec. 1807(b),
Aug. 20, 1996, 110 Stat. 1901; renumbered Sec. 139, Pub. L. 105-33,
title IV, Sec. 4006(a), Aug. 5, 1997, 111 Stat. 331; renumbered
Sec. 140, Pub. L. 107-134, title I, Sec. 111(a), Jan. 23, 2002, 115
Stat. 2432.)
-REFTEXT-
REFERENCES IN TEXT
Section 9 of the Merchant Ship Sales Act of 1946 (50 U.S.C. App.
1742), referred to in subsec. (a)(2), was repealed by Pub. L. 94-
412, title V, Sec. 501(g), Sept. 14, 1976, 90 Stat. 1258.
Section 607(d) of the Merchant Marine Act, 1936, referred to in
subsec. (a)(4), is classified to section 1177 of the Appendix to
Title 46, Shipping.
-MISC1-
AMENDMENTS
2002 - Pub. L. 107-134 renumbered section 139 of this title as
this section.
1997 - Pub. L. 105-33 renumbered section 138 of this title as
this section.
1996 - Pub. L. 104-188 renumbered section 137 of this title as
this section.
1992 - Pub. L. 102-486 renumbered section 136 of this title as
this section.
1991 - Subsec. (a)(3). Pub. L. 102-40 substituted "5301" for
"3101".
Subsec. (a)(6). Pub. L. 102-83 substituted "1562(a)-(c)" for
"562(a)-(c)".
1988 - Pub. L. 100-647 renumbered section 135 of this title as
this section.
1986 - Pub. L. 99-514 renumbered section 134 of this title as
this section.
1984 - Pub. L. 98-369, Secs. 531(a)(1), 543(a), successively
renumbered sections 132 and 133 of this title as this section.
Subsec. (a)(6) to (8). Pub. L. 98-369, Sec. 2661(o)(2), struck
out par. (6) relating to railroad retirement annuities and
pensions, struck out par. (7) relating to railroad unemployment
benefits, and redesignated par. (8) as (6).
1983 - Pub. L. 97-473 successively renumbered sections 130 and
131 of this title as this section.
1981 - Pub. L. 97-34 successively renumbered sections 128 and 129
of this title as this section.
1980 - Subsec. (a). Pub. L. 96-589 redesignated pars. (2) to (9)
as (1) to (8), respectively. Former par. (1), relating to section
1079 of title 11 for adjustments of indebtedness under wage
earners' plans, was struck out.
Subsec. (a)(8). Pub. L. 96-222 substituted "benefits which are
not includible in gross income under section 85," for "benefits,
see".
1978 - Pub. L. 95-600 successively renumbered sections 125, 126,
and 127 of this title as this section.
Pub. L. 95-618 renumbered section 124 of this title as this
section.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(21), struck out
pars. (4), (5), (6), (9), (10), (11), (12), (13), and (17) relating
to: benefits under World War Adjustment Compensation Act; benefits
under World War Veteran's Act 1924; dividends and interest derived
from certain preferred stock by Reconstruction Finance Corporation;
income derived from Ogdensburg bridge; income derived from
Owensburg bridge and ferries; income from Saint Clair River bridge
and ferries; leave compensation payments under section 6 of Armed
Forces Leave Act of 1946; mustering-out payments under Mustering-
Out Payment Act of 1944; and gain derived from sale or other
disposition of Treasury Bills issued after June 17, 1930, under the
Second Liberty Bond Act, respectively, renumbered pars. (7), (8),
(14), (15), (16), and (18) as pars. (5), (6), (7), (8), (9), and
(4), respectively, struck out references to Statutes at Large, and
updated cross references to the United States Code.
Subsec. (b). Pub. L. 94-455, Sec. 1901(a)(21), struck out "58
Stat. 689;" after "Health Service Act".
1969 - Pub. L. 91-172 renumbered section 123 of this title as
this section.
1966 - Pub. L. 89-365 renumbered section 122 of this title as
this section.
1964 - Pub. L. 88-272 renumbered section 121 of this title as
this section.
1958 - Subsec. (a)(18). Pub. L. 85-857 substituted "section 3101
of title 38, United States Code" for "section 1001 of the Veterans'
Benefits Act of 1957".
1957 - Subsec. (a)(18). Pub. L. 85-56 substituted provisions
relating to benefits under laws administered by Veterans'
Administration, for provisions which related to dependency and
indemnity compensation.
1956 - Subsec. (a). Act Aug. 1, 1956, added par. (18) relating to
dependency and indemnity compensation.
-CHANGE-
CHANGE OF NAME
Reference to Veterans' Administration deemed to refer to
Department of Veterans Affairs pursuant to section 10 of Pub. L.
100-527, set out as a Department of Veterans Affairs Act note under
section 301 of Title 38, Veterans' Benefits.
-MISC2-
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 2661(o)(2) of Pub. L. 98-369 effective as
though included in the enactment of the Social Security Amendments
of 1983, Pub. L. 98-21, see section 2664(a) of Pub. L. 98-369, set
out as a note under section 401 of Title 42, The Public Health and
Welfare.
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-589 effective Oct. 1, 1979, but not to
apply to proceedings under Title 11 commenced before Oct. 1, 1979,
see section 7 of Pub. L. 96-589, set out as a note under section
108 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-857 effective Jan. 1, 1959, see section 2
of Pub. L. 85-857, set out as an Effective Date note preceding Part
I of Title 38, Veterans' Benefits.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND
LOCAL BONDS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
-HEAD-
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
-MISC1-
Subpart
A. Private activity bonds.
B. Requirements applicable to all State and local bonds.
C. Definitions and special rules.
AMENDMENTS
1986 - Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986,
100 Stat. 2603, in amending part IV generally, substituted "TAX
EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS" for
"DETERMINATION OF MARITAL STATUS" as heading for part IV and added
part analysis.
1977 - Pub. L. 95-30, title I, Sec. 101(e)(2), May 23, 1977, 91
Stat. 134, substituted "DETERMINATION OF MARITAL STATUS" for
"STANDARD DEDUCTION FOR INDIVIDUALS" as heading for part IV.
-End-
-CITE-
26 USC Subpart A - Private Activity Bonds 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart A - Private Activity Bonds
-HEAD-
SUBPART A - PRIVATE ACTIVITY BONDS
-MISC1-
Sec.
141. Private activity bond; qualified bond.
142. Exempt facility bond.
143. Mortgage revenue bonds: qualified mortgage and
qualified veterans' mortgage bond.(!1)
144. Qualified small issue bond; qualified student loan
bond; qualified redevelopment bond.
145. Qualified 501(c)(3) bond.
146. Volume cap.
147. Other requirements applicable to certain private
activity bonds.
AMENDMENTS
1986 - Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986,
100 Stat. 2603, in amending part IV generally, added subpart
heading and analysis and struck out item 143 "Determination of
marital status".
1977 - Pub. L. 95-30, title I, Sec. 101(e)(2), May 23, 1977, 91
Stat. 134, struck out items 141 "Standard deduction", 142
"Individuals not eligible for standard deduction", 144 "Election of
standard deduction", and 145 "Cross reference".
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 141 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart A - Private Activity Bonds
-HEAD-
Sec. 141. Private activity bond; qualified bond
-STATUTE-
(a) Private activity bond
For purposes of this title, the term "private activity bond"
means any bond issued as part of an issue -
(1) which meets -
(A) the private business use test of paragraph (1) of
subsection (b), and
(B) the private security or payment test of paragraph (2) of
subsection (b), or
(2) which meets the private loan financing test of subsection
(c).
(b) Private business tests
(1) Private business use test
Except as otherwise provided in this subsection, an issue meets
the test of this paragraph if more than 10 percent of the
proceeds of the issue are to be used for any private business
use.
(2) Private security or payment test
Except as otherwise provided in this subsection, an issue meets
the test of this paragraph if the payment of the principal of, or
the interest on, more than 10 percent of the proceeds of such
issue is (under the terms of such issue or any underlying
arrangement) directly or indirectly -
(A) secured by any interest in -
(i) property used or to be used for a private business use,
or
(ii) payments in respect of such property, or
(B) to be derived from payments (whether or not to the
issuer) in respect of property, or borrowed money, used or to
be used for a private business use.
(3) 5 percent test for private business use not related or
disproportionate to government use financed by the issue
(A) In general
An issue shall be treated as meeting the tests of paragraphs
(1) and (2) if such tests would be met if such paragraphs were
applied -
(i) by substituting "5 percent" for "10 percent" each place
it appears, and
(ii) by taking into account only -
(I) the proceeds of the issue which are to be used for
any private business use which is not related to any
government use of such proceeds,
(II) the disproportionate related business use proceeds
of the issue, and
(III) payments, property, and borrowed money with respect
to any use of proceeds described in subclause (I) or (II).
(B) Disproportionate related business use proceeds
For purposes of subparagraph (A), the disproportionate
related business use proceeds of an issue is an amount equal to
the aggregate of the excesses (determined under the following
sentence) for each private business use of the proceeds of an
issue which is related to a government use of such proceeds.
The excess determined under this sentence is the excess of -
(i) the proceeds of the issue which are to be used for the
private business use, over
(ii) the proceeds of the issue which are to be used for the
government use to which such private business use relates.
(4) Lower limitation for certain output facilities
An issue 5 percent or more of the proceeds of which are to be
used with respect to any output facility (other than a facility
for the furnishing of water) shall be treated as meeting the
tests of paragraphs (1) and (2) if the nonqualified amount with
respect to such issue exceeds the excess of -
(A) $15,000,000, over
(B) the aggregate nonqualified amounts with respect to all
prior tax-exempt issues 5 percent or more of the proceeds of
which are or will be used with respect to such facility (or any
other facility which is part of the same project).
There shall not be taken into account under subparagraph (B) any
bond which is not outstanding at the time of the later issue or
which is to be redeemed (other than in an advance refunding) from
the net proceeds of the later issue.
(5) Coordination with volume cap where nonqualified amount
exceeds $15,000,000
If the nonqualified amount with respect to an issue -
(A) exceeds $15,000,000, but
(B) does not exceed the amount which would cause a bond which
is part of such issue to be treated as a private activity bond
without regard to this paragraph,
such bond shall nonetheless be treated as a private activity bond
unless the issuer allocates a portion of its volume cap under
section 146 to such issue in an amount equal to the excess of
such nonqualified amount over $15,000,000.
(6) Private business use defined
(A) In general
For purposes of this subsection, the term "private business
use" means use (directly or indirectly) in a trade or business
carried on by any person other than a governmental unit. For
purposes of the preceding sentence, use as a member of the
general public shall not be taken into account.
(B) Clarification of trade or business
For purposes of the 1st sentence of subparagraph (A), any
activity carried on by a person other than a natural person
shall be treated as a trade or business.
(7) Government use
The term "government use" means any use other than a private
business use.
(8) Nonqualified amount
For purposes of this subsection, the term "nonqualified amount"
means, with respect to an issue, the lesser of -
(A) the proceeds of such issue which are to be used for any
private business use, or
(B) the proceeds of such issue with respect to which there
are payments (or property or borrowed money) described in
paragraph (2).
(9) Exception for qualified 501(c)(3) bonds
There shall not be taken into account under this subsection or
subsection (c) the portion of the proceeds of an issue which (if
issued as a separate issue) would be treated as a qualified
501(c)(3) bond if the issuer elects to treat such portion as a
qualified 501(c)(3) bond.
(c) Private loan financing test
(1) In general
An issue meets the test of this subsection if the amount of the
proceeds of the issue which are to be used (directly or
indirectly) to make or finance loans (other than loans described
in paragraph (2)) to persons other than governmental units
exceeds the lesser of -
(A) 5 percent of such proceeds, or
(B) $5,000,000.
(2) Exception for tax assessment, etc., loans
For purposes of paragraph (1), a loan is described in this
paragraph if such loan -
(A) enables the borrower to finance any governmental tax or
assessment of general application for a specific essential
governmental function,
(B) is a nonpurpose investment (within the meaning of section
148(f)(6)(A)), or
(C) is a qualified natural gas supply contract (as defined in
section 148(b)(4)).
(d) Certain issues used to acquire nongovernmental output property
treated as private activity bonds
(1) In general
For purposes of this title, the term "private activity bond"
includes any bond issued as part of an issue if the amount of the
proceeds of the issue which are to be used (directly or
indirectly) for the acquisition by a governmental unit of
nongovernmental output property exceeds the lesser of -
(A) 5 percent of such proceeds, or
(B) $5,000,000.
(2) Nongovernmental output property
Except as otherwise provided in this subsection, for purposes
of paragraph (1), the term "nongovernmental output property"
means any property (or interest therein) which before such
acquisition was used (or held for use) by a person other than a
governmental unit in connection with an output facility (within
the meaning of subsection (b)(4)) (other than a facility for the
furnishing of water). For purposes of the preceding sentence, use
(or the holding for use) before October 14, 1987, shall not be
taken into account.
(3) Exception for property acquired to provide output to certain
areas
For purposes of paragraph (1) -
(A) In general
The term "nongovernmental output property" shall not include
any property which is to be used in connection with an output
facility 95 percent or more of the output of which will be
consumed in -
(i) a qualified service area of the governmental unit
acquiring the property, or
(ii) a qualified annexed area of such unit.
(B) Definitions
For purposes of subparagraph (A) -
(i) Qualified service area
The term "qualified service area" means, with respect to
the governmental unit acquiring the property, any area
throughout which such unit provided (at all times during the
10-year period ending on the date such property is acquired
by such unit) output of the same type as the output to be
provided by such property. For purposes of the preceding
sentence, the period before October 14, 1987, shall not be
taken into account.
(ii) Qualified annexed area
The term "qualified annexed area" means, with respect to
the governmental unit acquiring the property, any area if -
(I) such area is contiguous to, and annexed for general
governmental purposes into, a qualified service area of
such unit,
(II) output from such property is made available to all
members of the general public in the annexed area, and
(III) the annexed area is not greater than 10 percent of
such qualified service area.
(C) Limitation on size of annexed area not to apply where
output capacity does not increase by more than 10 percent
Subclause (III) of subparagraph (B)(ii) shall not apply to an
annexation of an area by a governmental unit if the output
capacity of the property acquired in connection with the
annexation, when added to the output capacity of all other
property which is not treated as nongovernmental output
property by reason of subparagraph (A)(ii) with respect to such
annexed area, does not exceed 10 percent of the output capacity
of the property providing output of the same type to the
qualified service area into which it is annexed.
(D) Rules for determining relative size, etc.
For purposes of subparagraphs (B)(ii) and (C) -
(i) The size of any qualified service area and the output
capacity of property serving such area shall be determined as
the close of the calendar year preceding the calendar year in
which the acquisition of nongovernmental output property or
the annexation occurs.
(ii) A qualified annexed area shall be treated as part of
the qualified service area into which it is annexed for
purposes of determining whether any other area annexed in a
later year is a qualified annexed area.
(4) Exception for property converted to nonoutput use
For purposes of paragraph (1) -
(A) In general
The term "nongovernmental output property" shall not include
any property which is to be converted to a use not in
connection with an output facility.
(B) Exception
Subparagraph (A) shall not apply to any property which is
part of the output function of a nuclear power facility.
(5) Special rules
In the case of a bond which is a private activity bond solely
by reason of this subsection -
(A) subsections (c) and (d) of section 147 (relating to
limitations on acquisition of land and existing property) shall
not apply, and
(B) paragraph (8) of section 142(a) shall be applied as if it
did not contain "local".
(6) Treatment of joint action agencies
With respect to nongovernmental output property acquired by a
joint action agency the members of which are governmental units,
this subsection shall be applied at the member level by treating
each member as acquiring its proportionate share of such
property.
(7) Exception for qualified electric and natural gas supply
contracts
The term "nongovernmental output property" shall not include
any contract for the prepayment of electricity or natural gas
which is not investment property under section 148(b)(2).
(e) Qualified bond
For purposes of this part, the term "qualified bond" means any
private activity bond if -
(1) In general
Such bond is -
(A) an exempt facility bond,
(B) a qualified mortgage bond,
(C) a qualified veterans' mortgage bond,
(D) a qualified small issue bond,
(E) a qualified student loan bond,
(F) a qualified redevelopment bond, or
(G) a qualified 501(c)(3) bond.
(2) Volume cap
Such bond is issued as part of an issue which meets the
applicable requirements of section 146, and (!1)
(3) Other requirements
Such bond meets the applicable requirements of each subsection
of section 147.
-SOURCE-
(Added Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100
Stat. 2603; amended Pub. L. 100-203, title X, Sec. 10631(a), Dec.
22, 1987, 101 Stat. 1330-453; Pub. L. 100-647, title I, Sec.
1013(a)(38), Nov. 10, 1988, 102 Stat. 3544; Pub. L. 109-58, title
XIII, Sec. 1327(b), (c), Aug. 8, 2005, 119 Stat. 1019.)
-MISC1-
PRIOR PROVISIONS
A prior section 141, acts Aug. 16, 1954, ch. 736, 68A Stat. 40;
Feb. 26, 1964, Pub. L. 88-272, title I, Sec. 112(a), 78 Stat. 23;
Dec. 30, 1969, Pub. L. 91-172, title VIII, Sec. 802(a), (c)(4),
(e), 83 Stat. 676, 678; Dec. 10, 1971, Pub. L. 92-178, title II,
Secs. 202, 203(a)-(c), title III, Sec. 301(a), 85 Stat. 511, 520;
Mar. 29, 1975, Pub. L. 94-12, title II, Secs. 201(a), 202(a), 89
Stat. 28, 29; Dec. 23, 1975, Pub. L. 94-164, Sec. 2(a)(1), (b)(1),
89 Stat. 970, 971; Oct. 4, 1976, Pub. L. 94-455, title IV, Sec.
401(b)(1), (2), title XIX, Sec. 1906(b)(13)(A), 90 Stat. 1556,
1834, provided for standard deduction, prior to repeal by Pub. L.
95-30, title I, Sec. 101(d)(1), May 23, 1977, 91 Stat. 133,
applicable to taxable years beginning after Dec. 31, 1976.
AMENDMENTS
2005 - Subsec. (c)(2)(C). Pub. L. 109-58, Sec. 1327(b), added
subpar. (C).
Subsec. (d)(7). Pub. L. 109-58, Sec. 1327(c), added par. (7).
1988 - Subsec. (b)(5)(B). Pub. L. 100-647 substituted "cause a
bond" for "cause bond".
1987 - Subsecs. (d), (e). Pub. L. 100-203 added subsec. (d) and
redesignated former subsec. (d) as (e).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-58, title XIII, Sec. 1327(d), Aug. 8, 2005, 119 Stat.
1019, provided that: "The amendments made by this section [amending
this section and section 148 of this title] shall apply to
obligations issued after the date of the enactment of this Act
[Aug. 8, 2005]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10631(c) of Pub. L. 100-203 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 142 and 146 of this title] shall apply to
bonds issued after October 13, 1987 (other than bonds issued to
refund bonds issued on or before such date).
"(2) Binding agreements. - The amendments made by this section
shall not apply to bonds (other than advance refunding bonds) with
respect to a facility acquired after October 13, 1987, pursuant to
a binding contract entered into on or before such date.
"(3) Transitional rule. - The amendments made by this section
shall not apply to bonds issued -
"(A) after October 13, 1987, by an authority created by a
statute -
"(i) approved by the State Governor on July 24, 1986, and
"(ii) sections 1 through 10 of which became effective on
January 15, 1987, and
"(B) to provide facilities serving the area specified in such
statute on the date of its enactment."
EFFECTIVE DATE; TRANSITIONAL RULES
Subtitle B (Secs. 1311-1318) of title XIII of Pub. L. 99-514, as
amended by Pub. L. 100-647, title I, Sec. 1013(b), (c)(1), (2)(A),
(3)-(11)(D), (13), (14)(A), (d), (e)(1), (2)(A), (f)(1)(A), (2)-
(7)(A), (8), (9), (11), (g), (h), Nov. 10, 1988, 102 Stat. 3545-
3550, 3558; Pub. L. 101-239, title VII, Sec. 7831(e), Dec. 19,
1989, 103 Stat. 2427, provided that:
"SEC. 1311. GENERAL EFFECTIVE DATES.
"(a) In General. - Except as otherwise provided in this subtitle,
the amendments made by section 1301 [enacting sections 141 to 150
and 7703 of this title, amending sections 2, 22, 25, 32, 86, 103,
105, 152, 153, 163, 194, 269A, 414, 879, 1398, 3402, 4701, 4940,
4942, 4988, 6362, 6652, and 7871 of this title, repealing section
103A of this title, omitting former section 143 of this title,
enacting provisions set out as notes under sections 141 and 148 of
this title, and amending provisions set out as a note under section
103A of this title] shall apply to bonds issued after August 15,
1986.
"(b) Section 1301(f). -
"(1) Increase in trade-in rate. - The amendments made by
paragraph (1) of section 1301(f) [amending section 25 of this
title] shall apply to nonissued bond amounts elected after August
15, 1986.
"(2) Certificates. - The amendments made by paragraph (2) of
section 1301(f) [amending section 25 of this title] shall apply
to certificates issued with respect to non-issued bond amounts
elected after August 15, 1986.
"(c) Changes in Use, Etc., of Facilities Financed With Private
Activity Bonds. - Subsection (b) of section 150 of the 1986 Code
shall apply to changes in use (and ownership) after August 15,
1986, but only with respect to financing (including refinancings)
provided after such date.
"(d) Public Approval and Information Reporting. - Sections 147(f)
and 149(e) of the 1986 Code shall apply to bonds issued after
December 31, 1986.
"(e) Rebate Requirement for Qualified Scholarship Funding Bonds. -
Section 150(d) of the 1986 Code shall apply to payments made
after August 15, 1986.
"(f) Section 1303. - The amendments made by section 1303
[amending sections 172, 1016, and 3402 of this title and repealing
sections 1391 to 1397 and 6039B of this title] shall take effect on
the date of the enactment of this Act [Oct. 22, 1986].
"SEC. 1312. TRANSITIONAL RULES FOR CONSTRUCTION OR BINDING
AGREEMENTS AND CERTAIN GOVERNMENT BONDS ISSUED AFTER AUGUST 15,
1986.
"(a) Exception for Construction or Binding Agreements. -
"(1) In general. - The amendments made by section 1301 [for
classification see section 1311(a) of this note] shall not apply
to bonds (other than a refunding bond) with respect to a facility
-
"(A)(i) the original use of which commences with the
taxpayer, and the construction, reconstruction, or
rehabilitation of which began before September 26, 1985, and
was completed on or after such date,
"(ii) the original use of which begins with the taxpayer and
with respect to which a binding contract to incur significant
expenditures for construction, reconstruction, or
rehabilitation was entered into before September 26, 1985, and
some of such expenditures are incurred on or after such date,
or
"(iii) acquired on or after September 26, 1985, pursuant to a
binding contract entered into before such date, and
"(B) described in an inducement resolution or other
comparable preliminary approval adopted by an issuing authority
(or by a voter referendum) before September 26, 1985.
"(2) Significant expenditures. - For purposes of paragraph
(1)(A), the term 'significant expenditures' means expenditures
greater than 10 percent of the reasonably anticipated cost of the
construction, reconstruction, or rehabilitation of the facility
involved.
"(b) Certain Amendments To Apply to Bonds Under Subsection (a)
Transitional Rule. -
"(1) In general. - In the case of a bond issued after August
15, 1986, and to which subsection (a) of this section applies,
the requirements of the following provisions shall be treated as
included in section 103 and section 103A (as appropriate) of the
1954 Code:
"(A) The requirement that 95 percent or more of the net
proceeds of an issue are to be used for a purpose described in
section 103(b)(4) or (5) of such Code in order for section
103(b)(4) or (5) of such Code to apply, including the
application of section 142(b)(2) of the 1986 Code (relating to
limitation on office space).
"(B) The requirement that 95 percent or more of the net
proceeds of an issue are to be used for a purpose described in
section 103(b)(6)(A) of the 1954 Code in order for section
103(b)(6)(A) of such Code to apply.
"(C) The requirements of section 143 of the 1986 Code
(relating to qualified mortgage bonds and qualified veterans'
mortgage bonds) in order for section 103A(b)(2) of the 1954
Code to apply.
"(D) The requirements of section 144(a)(11) of the 1986 Code
(relating to limitation on acquisition of depreciable farm
property) in order for section 103(b)(6)(A) of the 1954 Code to
apply.
"(E) The requirements of section 147(b) of the 1986 Code
(relating to maturity may not exceed 120 percent of economic
life).
"(F) The requirements of section 147(f) of the 1986 Code
(relating to public approval required for private activity
bonds).
"(G) The requirements of section 147(g) of the 1986 Code
(relating to restriction on issuance costs financed by issue).
"(H) The requirements of section 148 of the 1986 Code
(relating to arbitrage).
"(I) The requirements of section 149(e) of the 1986 Code
(relating to information reporting).
"(J) The provisions of section 150(b) of the 1986 Code
(relating to changes in use).
"(2) Certain requirements apply only to bonds issued after
december 31, 1986. - In the case of subparagraphs (F) and (I) of
paragraphs (1), paragraph (1) shall be applied by substituting
'December 31, 1986' for 'August 15, 1986'.
"(3) Application of volume cap. - Except as provided in section
1315, any bond to which this subsection applies shall be treated
as a private activity bond for purposes of section 146 of the
1986 Code if such bond would have been taken into account under
section 103(n) or 103A(g) of the 1954 Code (determined without
regard to any carryforward election) were such bond issued before
August 16, 1986.
"(4) Application of provisions. - For purposes of applying the
requirements referred to in any subparagraph of paragraph (1) or
of subsection (a)(3) or (b)(3) of section 1313 to any bond, such
bond shall be treated as described in the subparagraph of section
141(d)(1) of the 1986 Code to which the use of the proceeds of
such bond most closely relates.
"(c) Special Rules for Certain Government Bonds Issued After
August 15, 1986. -
"(1) In general. - In the case of any bond described in
paragraph (2) -
"(A) section 1311(a) and (c) and subsection (b) of this
section shall be applied by substituting 'August 31, 1986' for
'August 15, 1986' each place it appears,
"(B) subsection (b)(1) shall be applied without regard to
subparagraphs (F), (G), and (J), and
"(C) such bond shall not be treated as a private activity
bond for purposes of applying the requirements referred to in
subparagraphs (H) and (I) of subsection (b)(1).
"(2) Bond described. - A bond is described in this paragraph if
such bond is not -
"(A) an industrial development bond, as defined in section
103(b)(2) of the 1954 Code but determined -
"(i) by inserting 'directly or indirectly' after 'is' in
the material preceding clause (i) of subparagraph (B)
thereof, and
"(ii) without regard to subparagraph (B) of section
103(b)(3) of such Code,
"(B) a mortgage subsidy bond (as defined in section
103A(b)(1) of such Code, without regard to any exception from
such definition), or
"(C) a private loan bond (as defined in section 103(o)(2)(A)
of such Code, without regard to any exception from such
definition other than section 103(o)(2)(C) of such Code).
"(d) Election Out. - This section shall not apply to any issue
with respect to which the issuer elects not to have this section
apply.
"SEC. 1313. TRANSITIONAL RULES RELATING TO REFUNDINGS.
"(a) Certain Current Refundings. -
"(1) In general. - Except as provided in paragraph (3), the
amendments made by section 1301 [for classification see section
1311(a) of this note] shall not apply to any bond the proceeds of
which are used exclusively to refund (other than to advance
refund) a qualified bond (or a bond which is part of a series of
refundings of a qualified bond) if -
"(A) the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond, and
"(B)(i) the average maturity of the issue of which the
refunding bond is a part does not exceed 120 percent of the
average reasonably expected economic life of the facilities
being financed with the net proceeds of such issue (determined
under section 147(b) of the 1986 Code), or
"(ii) the refunding bond has a maturity date not later than
the date which is 17 years after the date on which the
qualified bond was issued.
In the case of a qualified bond which was (when issued) a
qualified mortgage bond or a qualified veterans' mortgage bond,
subparagraph (B)(i) shall not apply and subparagraph (B)(ii)
shall be applied by substituting '32 years' for '17 years'.
"(2) Qualified bond. - For purposes of paragraph (1), the term
'qualified bond' means any bond (other than a refunding bond) -
"(A) issued before August 16, 1986, or
"(B) issued after August 15, 1986, if section 1312(a) applies
to such bond.
"(3) Certain amendments to apply. - The following provisions of
the 1986 Code shall be treated as included in section 103 and
section 103A (as appropriate) of the 1954 Code and shall apply to
refunding bonds described in paragraph (1):
"(A) The requirements of section 147(f) (relating to public
approval required for private activity bonds) but only if the
maturity date of the refunding bond is later than the maturity
date of the refunded bond.
"(B) The requirements of section 147(g) (relating to
restriction on issuance costs financed by issue).
"(C) The requirements of sections 143(g) and 148 (relating to
arbitrage).
"(D) The requirements of section 149(e) (relating to
information reporting).
"(E) The provisions of section 150(b) (relating to changes in
use).
Subparagraphs (A) and (D) shall apply only if the refunding bond
is issued after December 31, 1986. In the case of a refunding
bond described in paragraph (1) with respect to a qualified bond
described in paragraph (2)(B), the requirements of section
1312(b)(1) which applied to such qualified bond shall be treated
as specified in this paragraph with respect to such refunding
bond.
"(4) Special rules for certain government bonds issued after
august 15, 1986. - In the case of any bond described in section
1312(c)(2) -
"(A) paragraph (2) of this subsection shall be applied by
substituting 'August 31, 1986' for 'August 15, 1986' and by
substituting 'September 1, 1986' for 'August 16, 1986',
"(B) paragraph (3) shall be applied without regard to
subparagraphs (A), (B), and (E), and
"(C) such bond shall not be treated as a private activity
bond for purposes of applying the requirements referred to in
subparagraphs (C) and (D) of paragraph (3).
"(b) Certain Advance Refundings. -
"(1) In general. - Except as provided in paragraph (3), the
amendments made by section 1301 [for classification see section
1311(a) of this note] shall not apply to any bond the proceeds of
which are used exclusively to advance refund a bond if -
"(A) the refunded bond is described in paragraph (2), and
"(B) the requirements of subsection (a)(1)(B) are met.
"(2) Non-idb's, etc. - A bond is described in this paragraph if
such bond is not described in subsection (b)(2) or (o)(2)(A) of
section 103 of the 1954 Code and was issued (or was issued to
refund a bond issued) before August 16, 1986. For purposes of the
preceding sentence, the determination of whether a bond is
described in such subsection (o)(2)(A) shall be made without
regard to any exception other than section 103(o)(2)(C) of such
Code.
"(3) Certain amendments to apply. - The following provisions of
the 1986 Code shall be treated as included in section 103 and
section 103A (as appropriate) of the 1954 Code and shall apply to
refunding bonds described in paragraph (1):
"(A) The requirements of section 147(f) (relating to public
approval required for private activity bonds).
"(B) The requirements of section 147(g) (relating to
restriction on issuance costs financed by issue).
"(C) The requirements of section 148 (relating to arbitrage),
except that section 148(d)(3) shall not apply to proceeds of
such bonds to be used to discharge the refunded bonds.
"(D) The requirements of paragraphs (3) and (4) of section
149(d) (relating to advance refundings).
"(E) The requirements of section 149(e) (relating to
information reporting).
"(F) The provisions of section 150(b) (relating to changes in
use).
"(G) Except as provided in the last sentence of subsection
(c)(2) of this section, the requirements of section 145(b)
(relating to $150,000,000 limitation on bonds other than
hospital bonds).
Subparagraphs (A) and (E) shall apply only if the refunding bond
is issued after December 31, 1986.
"(4) Special rule for certain government bonds issued after
august 15, 1986. - In the case of any bond described in section
1312(c)(2) -
"(A) paragraph (2) of this subsection shall be applied by
substituting 'September 1, 1986' for 'August 16, 1986',
"(B) paragraph (3) shall be applied without regard to
subparagraphs (A), (B), and (F), and
"(C) such bond shall not be treated as a private activity
bond for purposes of applying the requirements referred to in
subparagraphs (C) and (E).
"(5) Certain refunding bonds subject to volume cap. - Any
refunding bond described in paragraph (1) the proceeds of which
are used to refund a bond issued as part of an issue 5 percent or
more of the net proceeds of which are or will be used to provide
an output facility (within the meaning of section 141(b)(4) of
the 1986 Code) shall be treated as a private activity bond for
purposes of section 146 of the 1986 Code (to the extent of the
nongovernmental use of such issue, under rules similar to the
rules of section 146(m)(2) of such Code). For purposes of the
preceding sentence, use by a 501(c)(3) organization with respect
to its activities which do not constitute unrelated trades or
businesses (determined by applying section 513(a) of the 1986
Code) shall not be taken into account.
"(c) Treatment of Certain Refundings of Certain IDB's and
501(c)(3) Bonds. -
"(1) $40,000,000 limit for certain small issue bonds. -
Paragraph (10) of section 144(a) of the 1986 Code shall not apply
to any bond (or series of bonds) the proceeds of which are used
exclusively to refund a tax-exempt bond to which such paragraph
and the corresponding provision of prior law did not apply if -
"(A) the average maturity date of the issue of which the
refunding bond is a part is not later than the average maturity
date of the bonds to be refunded by such issue,
"(B) the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond, and
"(C) the net proceeds of the refunding bond are used to
redeem the refunded bond not later than 90 days after the date
of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be
determined in accordance with section 147(b)(2)(A) of the 1986
Code.
"(2) $150,000,000 limitation for certain 501(c)(3) bonds. -
Subsection (b) of section 145 of the 1986 Code (relating to
$150,000,000 limitation for nonhospital bonds) shall not apply to
any bond (or series of bonds) the proceeds of which are used
exclusively to refund a tax-exempt bond to which such subsection
did not apply if -
"(A)(i) the average maturity of the issue of which the
refunding bond is a part does not exceed 120 percent of the
average reasonably expected economic life of the facilities
being financed with the net proceeds of such issue (determined
under section 147(b) of the 1986 Code), or
"(ii) the refunding bond has a maturity date not later than
the later of the date which is 17 years after the date on which
the qualified bond (as defined in subsection (a)(2)) was
issued, and
"(B) the requirements of subparagraphs (B) and (C) of
paragraph (1) are met with respect to the refunding bond.
Subsection (b) of section 145 of the 1986 Code shall not apply to
the 1st advance refunding after March 14, 1986, of a bond issued
before January 1, 1986.
"(3) Application to later issues. - Any bond to which section
144(a)(10) or 145(b) of the 1986 Code does not apply by reason of
this section shall be taken into account in determining whether
such section applies to any later issue.
"(d) Mortgage and Student Loan Targeting Rules To Apply to Loans
Made More Than 3 Years After the Date of the Original Issue. -
Subsections (a)(3) and (b)(3) shall be treated as including the
requirements of subsections (e) and (f) of section 143 and
paragraphs (3) and (4) of section 144(b) of the 1986 Code with
respect to bonds the proceeds of which are used to finance loans
made more than 3 years after the date of the issuance of the
original bond.
"SEC. 1314. SPECIAL RULES WHICH OVERRIDE OTHER RULES IN THIS
SUBTITLE.
"(a) Arbitrage Restriction on Investments in Annuities. - In the
case of a bond issued after September 25, 1985, section 103(c) of
the 1954 Code shall be applied by treating the reference to
securities in paragraph (2) thereof as including a reference to an
annuity contract. The preceding sentence shall not apply to the
first advance refunding after September 25, 1985, if a bond issued
before September 26, 1985.
"(b) Temporary Period for Advance Refundings. - In the case of a
bond issued after December 31, 1985, to advance refund a bond, the
initial temporary period under section 103(c) of the 1954 Code with
respect to the proceeds of the refunding bond shall end not later
than 30 days after the date of issue of the refunding bond.
"(c) Determination of Yield. - In the case of a bond issued after
December 31, 1985, for purposes of section 103(c) of the 1954 Code,
the yield on an issue shall be determined on the basis of the issue
price (within the meaning of sections 1273 and 1274 of the 1986
Code).
"(d) Arbitrage Rebate Requirement. -
"(1) In general. - Except as otherwise provided in this
subsection, in the case of a bond issued after December 31, 1985,
section 103 of the 1954 Code shall be treated as including the
requirements of section 148(f) of the 1986 Code in order for
section 103(a) of the 1954 Code to apply.
"(2) Government bonds. - In the case of a bond described in
section 1312(c)(2) (and not described in paragraph (3) of this
subsection), paragraph (1) shall be applied by substituting
'August 31, 1986' for 'December 31, 1985'.
"(3) Certain pools. -
"(A) In general. - In the case of a bond described in section
1312(c)(2) and issued as part of an issue described in
subparagraph (B), (C), (D), or (E), paragraph (1) shall be
applied by substituting '3 p.m. E.D.T., July 17, 1986' for
'December 31, 1985'. Such a bond shall not be treated as a
private activity bond for purposes of applying section 148(f)
of the 1986 Code.
"(B) Loans to unrelated governmental units. - An issue is
described in this subparagraph if any portion of the proceeds
of the issue is to be used to make or finance loans to any
governmental unit other than any governmental unit which is
subordinate to the issuer and the jurisdiction of which is
within -
"(i) the jurisdiction of the issuer, or
"(ii) the jurisdiction of the governmental unit on behalf
of which such issuer issued the issue.
"(C) Less than 75 percent of projects identified. - An issue
is described in this subparagraph if less than 75 percent of
the proceeds of the issue is to be used to make or finance
loans to initial borrowers to finance projects identified (with
specificity) by the issuer, on or before the date of issuance
of the issue, as projects to be financed with the proceeds of
the issue.
"(D) Less than 25 percent of funds committed to be borrowed. -
An issue is described in this subparagraph if, on or before
the date of issuance of the issue, commitments have not been
entered into by initial borrowers to borrow at least 25 percent
of the proceeds of the issue.
"(E) Certain long maturity issues. - An issue is described in
this subparagraph if -
"(i) the maturity date of any bond issued as part of such
issue exceeds 30 years, and
"(ii) any principal payment on any loan made or financed by
the proceeds of the issue is to be used to make or finance
additional loans.
"(F) Special rules. -
"(i) Exception from subparagraphs (c) and (d) where similar
pools issued by issuer. - An issue shall not be treated as
described in subparagraph (C) or (D) with respect to any
issue to make or finance loans to governmental units if -
"(I) the issuer, before 1986, issued 1 or more similar issues
to make or finance loans to governmental units, and
"(II) the aggregate face amount of such issues issued during
1986 does not exceed 250 percent of the average of the annual
aggregate face amounts of such similar issues issued during
1983, 1984, or 1985.
"(ii) Determination of issuance. - For purposes of
subparagraph (A), an issue shall not be treated as issued
until -
"(I) the bonds issued as part of such issue are offered to the
public (pursuant to final offering materials), and
"(II) at least 25 percent of such bonds is sold to the public.
For purposes of the preceding sentence, the sale of a bond to
a securities firm, broker, or other person acting in the
capacity of an underwriter or wholesaler shall not be treated
as a sale to the public.
"(e) Information Reporting. - In the case of a bond issued after
December 31, 1986, nothing in section 103(a) of the 1986 Code or
any other provision of law shall be construed to provide an
exemption from Federal income tax for interest on any bond unless
such bond satisfies the requirements of section 149(e) of the 1986
Code. A bond described in section 1312(c)(2) shall not be treated
as a private activity bond for purposes of applying such
requirements.
"(f) Abusive Transaction Limitation on Advance Refundings To
Apply. - In the case of a bond issued after August 31, 1986,
nothing in section 103(a) of the 1986 Code or any other provision
of law shall be construed to provide an exemption from Federal
income tax for interest on any bond if the issue of which such bond
is a part is described in paragraph (4) of section 149(d) of the
1986 Code (relating to abusive transactions).
"(g) Termination of Mortgage Bond Policy Statement Requirement. -
Paragraph (5) of section 103A(j) of the 1954 Code (relating to
policy statement) shall not apply to any bond issued after August
15, 1986, and shall not apply to nonissued bond amounts elected
under section 25 of the 1986 Code after such date.
"(h) Arbitrage Restriction on Investments in Investment-Type
Property. - In the case of a bond issued before August 16, 1986
(September 1, 1986 in the case of a bond described in section
1312(c)(2)), section 103(c) of the 1954 Code shall be applied by
treating the reference to securities in paragraph (2) thereof as
including a reference to investment-type property but only for
purposes of determining whether any bond issued after October 16,
1987, to advance refund such bond (or a bond which is part of a
series of refundings of such bond) is an arbitrage bond (within the
meaning of section 148(a) of the 1986 Code).
"(i) Section To Override Other Rules. - Except as otherwise
expressly provided by reference to a provision to which a
subsection of this section applies, nothing in any other section of
this subtitle shall be construed as exempting any bond from the
application of such provision.
"SEC. 1315. TRANSITIONAL RULES RELATING TO VOLUME CAP.
"(a) In General. - Except as otherwise provided in this section,
section 146(f) of the 1986 Code shall not apply with respect to an
issuing authority's volume cap under section 103(n) of the 1954
Code, and no carryforward under such section 103(n) shall be
recognized for bonds issued after August 15, 1986.
"(b) Certain Bonds for Carryforward Projects Outside of Volume
Cap. - Bonds issued pursuant to an election under section
103(n)(10) of the 1954 Code (relating to elective carryforward of
unused limitation for specified project) made before November 1,
1985, shall not be taken into account under section 146 of the 1986
Code if the carryforward project is a facility to which the
amendments made by section 1301 [for classification see section
1311(a) of this note] do not apply by reason of section 1312(a) of
this Act.
"(c) Volume Cap Not To Apply With Respect to Certain Facilities
and Purposes. - Section 146 of the 1986 Code shall not apply to any
bond issued with respect to any facility or purpose described in a
paragraph of subsection (d) if -
"(1) such bond would not have been taken into account under
section 103(n) of the 1954 Code for calendar year 1986
(determined without regard to any carryforward election) were
such bond issued on August 15, 1986, or
"(2) such bond would not have been taken into account under
section 103(n) of the 1954 Code for calendar year 1986
(determined with regard to any carryforward election made before
January 1, 1986) were such bond issued on August 15, 1986.
The preceding sentence shall not apply to the extent section
1313(b)(5) treats any bond as a private activity bond for purposes
of section 146 of the 1986 Code.
"(d) Facilities and Purposes Described. -
"(1) A facility is described in this paragraph if the
amendments made by section 201 of this Act [amending sections 46,
167, 168, 178, 179, 280F, 291, 312, 465, 467, 514, 751, 1245,
4162, 6111, and 7701 of this title] (relating to depreciation) do
not apply to such facility by reason of section 204(a)(8) of this
Act [set out as a note under section 168 of this title] (or, in
the case of a facility which is governmentally owned, would not
apply to such facility were it owned by a nongovernmental
person).
"(2) A facility or purpose is described in this paragraph if
the facility or purpose is described in a paragraph of section
1317.
"(3) A facility is described in this paragraph if the facility -
"(A) serves Los Osos, California, and
"(B) would be described in paragraph (1) were it a solid
waste disposal facility.
The aggregate face amount of bonds to which this paragraph
applies shall not exceed $35,000,000.
"(4) A facility is described in this paragraph if it is a
sewage disposal facility with respect to which -
"(A) on September 13, 1985, the State public facilities
authority took official action authorizing the issuance of
bonds for such facility, and
"(B) on December 30, 1985, there was an executive order of
the State Governor granting allocation of the State ceiling
under section 103(n) of the 1954 Code in the amount of
$250,000,000 to the Industrial Development Board of the Parish
of East Baton Rouge, Louisiana.
The aggregate face amount of bonds to which this paragraph
applies shall not exceed $98,500,000.
"(5) A facility is described in this paragraph if -
"(A) such facility is a solid waste disposal facility in
Charleston, South Carolina, and
"(B) a State political subdivision took formal action on
April 1, 1980, to commit development funds for such facility.
For purposes of determining whether a bond issued as part of an
issue for a facility described in the preceding sentence is an
exempt facility bond for purposes of part IV of subchapter B of
chapter 1 of the 1986 Code, '90 percent' shall be substituted for
'95 percent' in section 142(a) of the 1986 Code.
"The aggregate face amount of bonds to which this paragraph
applies shall not exceed $75,000,000.
"(6) A facility is described in this paragraph if -
"(A) such facility is a wastewater treatment facility for
which site preparation commenced before September 1985, and
"(B) a parish council approved a service agreement with
respect to such facility on December 4, 1985.
The aggregate face amount of bonds to which this paragraph
applies shall not exceed $120,000,000.
"(e) Treatment of Redevelopment Bonds. - Any bond to which
section 1317(6) of this Act applies shall be treated for purposes
of this section as described in subsection (c)(1). The preceding
sentence shall not apply to any bond which (if issued on August 15,
1986) would have been an industrial development bond (as defined in
section 103(b)(2) of the 1954 Code).
"SEC. 1316. PROVISIONS RELATING TO CERTAIN ESTABLISHED STATE
PROGRAMS.
"(a) Certain Loans to Veterans for the Purchase of Land. -
"(1) In general. - A bond described in paragraph (2) shall be
treated as described in section 141(d)(1) of the 1986 Code and as
having a carryforward purpose described in section 146(f)(5) of
such Code, but subsections (a), (b), (c), and (d) of section 147
of such Code shall not apply to such bond.
"(2) Bond described. - A bond is described in this paragraph if
-
"(A) such bond is a private activity bond solely by reason of
section 141(c) of such Code, and
"(B) such bond is issued as part of an issue 95 percent or
more of the net proceeds of which are to be used to carry out a
program established under State law to provide loans to
veterans for the purchase of land and which has been in effect
in substantially the same form during the 30-year period ending
on July 18, 1984, but only if such proceeds are used to make
loans or to fund similar obligations -
"(i) in the same manner in which,
"(ii) in the same (or lesser) amount or multiple of acres
per participant, and
"(iii) for the same purposes for which,
such program was operated on March 15, 1984.
"(b) Renewable Energy Property. -
"(1) In general. - A bond described in paragraph (2) shall be
treated as described in section 141(d)(1) of the 1986 Code and as
having a carryforward purpose described in section 146(f)(5) of
such Code.
"(2) Bond described. - A bond is described in this paragraph if
paragraph (1) of section 103(b) of the 1954 Code would not
(without regard to the amendments made by this title) have
applied to such bond by reason of section 243 of the Crude Oil
Windfall Profit Tax Act of 1980 [section 243 of Pub. L. 96-223,
set out as a note under section 103 of this title] if -
"(A) such section 243 were applied by substituting '95
percent or more of the net proceeds' for 'substantially all of
the proceeds' in subsection (a)(1) thereof, and
"(B) subparagraph (E) of subsection (a)(1) thereof referred
to section 149(b) of the 1986 Code.
"(c) Certain State Programs. -
"(1) In general. - A bond described in paragraph (2) shall be
treated as described in section 141(d)(1) of the 1986 Code and as
having a carryforward purpose described in section 146(f)(5) of
such Code.
"(2) Bond described. - A bond is described in this paragraph if
such bond is issued as part of an issue 95 percent or more of the
net proceeds of which are to be used to carry out a program
established under sections 280A, 280B, and 280C of the Iowa Code,
but only if -
"(A) such program has been in effect in substantially the
same form since July 1, 1983, and
"(B) such proceeds are to be used to make loans or fund
similar obligations for the same purposes as permitted under
such program on July 1, 1986.
"(3) $100,000,000 limitation. - The aggregate face amount of
outstanding bonds to which this subsection applies shall not
exceed $100,000,000.
"(4) Application of section 147(b). - A bond to which this
subsection applies (other than a refunding bond) shall be treated
as meeting the requirements of section 147(b) of the 1986 Code if
the average maturity (determined in accordance with section
147(b)(2)(A) of such Code) of the issue of which such bond is a
part does not exceed 20 years. A bond issued to refund (or which
is part of a series of bonds issued to refund) a bond described
in the preceding sentence shall be treated as meeting the
requirements of such section if the refunding bond has a maturity
date not later than the date which is 20 years after the date on
which the original bond was issued.
"(d) Use by Certain Federal Instrumentalities Treated as Use by
Governmental Units. - Use by an instrumentality of the United
States shall be treated as use by a State or local governmental
unit for purposes of section 103, and part IV of subchapter B of
chapter 1, of the 1986 Code with respect to a program approved by
Congress before August 3, 1972, but only if -
"(1) a portion of such program has been financed by bonds
issued before such date, to which section 103(a) of the 1954 Code
applied pursuant to a ruling issued by the Commissioner of the
Internal Revenue Service, and
"(2) construction of 1 or more facilities comprising a part of
such program commenced before such date.
"(e) Refunding Permitted of Certain Bonds Invested in Federally
Insured Deposits. -
"(1) In general. - Section 149(b)(2)(B)(ii) of the 1986 Code
(and section 103(h)(2)(B)(ii) of the 1954 Code) shall not apply
to any bond issued to refund a bond -
"(A) which, when issued, would have been treated as federally
guaranteed by reason of being described in clause (ii) of
section 103(h)(2)(B) of the 1954 Code if such section had
applied to such bond, and
"(B)(i) which was issued before April 15, 1983, or
"(ii) to which such clause did not apply by reason of the
except clause in section 631(c)(2) of the Tax Reform Act of
1984 [section 631(c)(2) of Pub. L. 98-369, set out as a note
under section 103 of this title].
Section 147(c) of the 1986 Code (and section 103(b)(16) of the
1954 Code) shall not apply to any refunding bond permitted under
the preceding sentence if section 103(b)(16) of the 1954 Code did
not apply to the refunded bond when issued.
"(2) Requirements. - A refunding bond meets the requirements of
this paragraph if -
"(A) the refunding bond has a maturity date not later than
the maturity date of the refunded bond,
"(B) the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond,
"(C) the weighted average interest rate on the refunding bond
is lower than the weighted average interest rate on the
refunded bond, and
"(D) the net proceeds of the refunding bond are used to
redeem the refunded bond not later than 90 days after the date
of the issuance of the refunding bond.
"(f) Certain Hydroelectric Generating Property. -
"(1) In general. - A bond described in paragraph (2) shall be
treated as described in section 141(d)(1) of the 1986 Code and as
having a carryforward purpose described in section 146(f)(5) of
such Code.
"(2) Description. - A bond is described in this paragraph if
such bond is issued as part of an issue 95 percent or more of the
net proceeds of which are to be used to provide a facility
described in section 103(b)(4)(H) of the 1954 Code determined -
"(A) by substituting 'an application for a license' for 'an
application' in section 103(b)(8)(E)(ii) of the 1954 Code, and
"(B) by applying the requirements of section 142(b)(2) of the
1986 Code.
"(g) Treatment of Bonds Subject to Transitional Rules Under Tax
Reform Act of 1984. -
"(1) Subsections (d)(3) and (f) of section 148 of the 1986 Code
shall not apply to any bond described in section 624(c)(2) of the
Tax Reform Act of 1984 [section 624(c)(2) of Pub. L. 98-369, set
out as a note under section 103 of this title].
"(2)(A) There shall not be taken into account under section 146
of the 1986 Code any bond issued to provide a facility described
in paragraph (3) of section 631(a) of the Tax Reform Act of 1984
[section 631(a)(3) of Pub. L. 98-369, set out as a note under
section 103 of this title] relating to exception for certain
bonds for a convention center and resource recovery project.
"(B) If a bond issued as part of an issue substantially all of
the proceeds of which are used to provide the convention center
to which such paragraph (3) applies, such bond shall be treated
as an exempt facility bond as defined in section 142(a) of the
1986 Code.
"(C) If a bond which is issued as part of an issue
substantially all of the proceeds of which are used to provide
the resource recovery project to which such paragraph (3)
applies, such bond shall be treated as an exempt facility bond as
defined in section 142(a) of the 1986 Code and section 149(b) of
such Code shall not apply.
"(3) The amendments made by section 1301 [for classification
see section 1311(a) of this note] shall not apply to bonds issued
to finance any property described in section 631(d)(4) of the Tax
Reform Act of 1984 [section 631(d)(4) of Pub. L. 98-369, set out
as a note under section 103 of this title].
"(4) The amendments made by section 1301 [for classification
see section 1311(a) of this note] shall not apply to -
"(A) any bond issued to finance property described in section
631(d)(5) of the Tax Reform Act of 1984 [section 631(d)(5) of
Pub. L. 98-369, set out as a note under section 103 of this
title],
"(B) any bond described in paragraph (2), (3), (4), (5), (6),
or (7) of section 632(a), or section 632(b), of such Act [Pub.
L. 98-369, div. A, title VI, Sec. 632, July 18, 1984, 98 Stat.
937], and
"(C) any bond to which section 632(g)(2) of such Act applies.
In the case of bonds to which this paragraph applies, the
requirements of sections 148 and 149(d) shall be treated as
included in section 103 of the 1954 Code and shall apply to such
bonds.
"(5) The preceding provisions of this subsection shall not
apply to any bond issued after December 31, 1988.
"(6) The amendments made by section 1301 [for classification
see section 1311(a) of this note] (and the provisions of section
1314) shall not apply to any bond issued to finance property
described in section 216(b)(3) of the Tax Equity and Fiscal
Responsibility Act of 1982 [section 216(b)(3) of Pub. L. 97-248,
set out as a note under section 168 of this title].
"(7) In the case of a bond described in section 632(d) of the
Tax Reform Act of 1984 [Pub. L. 98-369, div. A, title VI, Sec.
632(d), July 18, 1984, 98 Stat. 938] -
"(A) section 141 of the 1986 Code shall be applied without
regard to subsection (a)(2) and paragraphs (4) and (5) of
subsection (b),
"(B) paragraphs (1) and (2) of section 141(b) of the 1986
Code shall be applied by substituting '25 percent' for '10
percent' each place it appears, and
"(C) section 149(b) of the 1986 Code shall not apply.
This paragraph shall not apply to any bond issued after December
31, 1990.
"(8)(A) The amendments made by section 1301 [for classification
see section 1311(a) of this note] shall not apply to any bond to
which section 629(a)(1) of the Tax Reform Act of 1984 [section
629(a)(1) of Pub. L. 98-369, set out as a note under section 103
of this title] applies, but such bond shall be treated as a
private activity bond for purposes of section 146 of the 1986
Code and as having a carryforward purpose described in section
146(f)(5) of such Code.
"(B) Section 629 of the Tax Reform Act of 1984 [section 629 of
Pub. L. 98-369, set out as a note under section 103 of this
title] is amended -
"(i) in subsection (c)(2), by striking out '$625,000,000' and
inserting in lieu thereof '$911,000,000',
"(ii) in subsection (c)(3), by adding at the end thereof the
following new subparagraphs:
" '(D) Improvements to existing generating facilities.
" '(E) Transmission lines.
" '(F) Electric generating facilities.', and
"(iii) in subsection (a), by adding at the end thereof the
following new sentence: 'The preceding sentence shall be
applied by inserting "and a rural electric cooperative utility"
after "regulated public utility" but only if not more than 1
percent of the load of the public power authority is sold to
such rural electric cooperative utility.'
"(h) Certain Pollution Bonds. - Any bond which is treated as
described in section 103(b)(4)(F) of the 1954 Code by reason of
section 13209 of the Consolidated Omnibus Budget Reconciliation Act
of 1985 [Pub. L. 99-272, title XIII, Sec. 13209, Apr. 7, 1986, 100
Stat. 322] shall be treated as an exempt facility bond for purposes
of part IV of subchapter B of chapter 1 of the 1986 Code, and
section 147(d) of the 1986 Code shall not apply to such bond.
"(i) Transition Rule for Aggregate Limit per Taxpayer. - For
purposes of section 144(a)(10) of the 1986 Code, tax increment
bonds described in section 1869(c)(3) of this Act [set out as a
note under section 103 of this title] which are issued before
August 16, 1986, shall not be taken into account under subparagraph
(B)(ii) thereof.
"(j) Extension of Advance Refunding Exception for Qualified
Public Facility. - Paragraph (4) of section 631(c) of the Tax
Reform Act of 1984 [section 631(c)(4) of Pub. L. 98-369, set out as
a note under section 103 of this title] is amended -
"(1) by striking out 'or the Dade County, Florida, airport' in
the last sentence, and
"(2) by adding at the end thereof the following new sentence:
'In the case of refunding obligations not to exceed $100,000,000
issued after October 21, 1986, by Dade County, Florida, for the
purpose of advance refunding its Aviation Revenue Bonds (Series
J), the first sentence of this paragraph shall be applied by
substituting "the date which is 1 year after the date of the
enactment of the Technical and Miscellaneous Revenue Act of 1988"
[Nov. 10, 1988] for "December 31, 1984" and the amendments made
by section 1301 of the Tax Reform Act of 1986 shall not apply.'
"(k) Expansion of Exception for River Place Project. - Section
1104 of the Mortgage Subsidy Bond Tax Act of 1980 [section 1104 of
Pub. L. 96-499, formerly set out as a note under section 103A of
this title], as added by the Tax Reform Act of 1984, is amended -
"(1) by striking out 'December 31, 1984,' in subsection (p) and
inserting in lieu thereof 'December 31, 1984 (other than
obligations described in subsection (r)(1)),', and
"(2) by striking out '$55,000,000,' in subsection (r)(1)(B) and
inserting in lieu thereof '$110,000,000 of which no more than
$55,000,000 shall be outstanding later than November 1, 1987'.
"SEC. 1317. TRANSITIONAL RULES FOR SPECIFIC FACILITIES.
"(1) Docks and wharves. - A bond issued as part of an issue 95
percent or more of the net proceeds of which are to be used to
provide any dock or wharf (within the meaning of section
103(b)(4)(D) of the 1954 Code) shall be treated as an exempt
facility bond (for a facility described in section 142(a)(2) of the
1986 Code) for purposes of part IV of subchapter B of chapter 1 of
the 1986 Code if such dock or wharf is described in any of the
following subparagraphs:
"(A) A dock or wharf is described in this subparagraph if -
"(i) the issue to finance such dock or wharf was approved by
official city action on September 3, 1985, and by voters on
November 5, 1985, and
"(ii) such dock or wharf is for a slack water harbor with
respect to which a Corps of Engineers grant of approximately
$2,000,000 has been made under section 107 of the Rivers and
Harbors Act [33 U.S.C. 577].
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $2,500,000.
"(B) A dock or wharf is described in this subparagraph if -
"(i) inducement resolutions were adopted on May 23, 1985,
September 18, 1985, and September 24, 1985, for the issuance of
the bonds to finance such dock or wharf,
"(ii) a harbor dredging contract with respect thereto was
entered into on August 2, 1985, and
"(iii) a construction management and joint venture agreement
with respect thereto was entered into on October 1, 1984.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $625,000,000.
"(C) A facility is described in this subparagraph if -
"(i) the legislature first authorized on June 29, 1981, the
State agency issuing the bond to issue at least $30,000,000 of
bonds,
"(ii) the developer of the facility was selected on April 26,
1985, and
"(iii) an inducement resolution for the issuance of such
issue was adopted on October 9, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $200,000,000.
"(D) A facility is described in this subparagraph if -
"(i) an inducement resolution was adopted on October 17,
1985, for such issue, and
"(ii) the city council for the city in which the facility is
to be located approved on July 30, 1985, an application for an
urban development action grant with respect to such facility.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $36,500,000. A facility shall be treated
as described in this subparagraph if it would be so described if
'90 percent' were substituted for '95 percent' in the material
preceding subparagraph (A) of this paragraph.
"(2) Pollution control facilities. - A bond issued as part of an
issue 95 percent or more of the net proceeds of which are to be
used to provide air or water pollution control facilities (within
the meaning of section 103(b)(4)(F) of the 1954 Code) shall be
treated as an exempt facility bond for purposes of part IV of
subchapter B of chapter 1 of the 1986 Code if such facility is
described in any of the following subparagraphs:
"(A) A facility is described in this subparagraph if -
"(i) inducement resolutions with respect to such facility
were adopted on September 23, 1974, and on April 5, 1985,
"(ii) a bond resolution for such facility was adopted on
September 6, 1985, and
"(iii) the issuance of the bonds to finance such facility was
delayed by action of the Securities and Exchange Commission
(file number 70-7127).
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $120,000,000.
"(B) A facility is described in this subparagraph if -
"(i) there was an inducement resolution for such facility on
November 19, 1985, and
"(ii) design and engineering studies for such facility were
completed in March of 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $25,000,000.
"(C) A facility is described in this subparagraph if -
"(i) a resolution was adopted by the county board of
supervisors pertaining to an issuance of bonds with respect to
such facility on April 10, 1974, and
"(ii) such facility was placed in service on June 12, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $90,000,000. For purposes of this
subparagraph, a pollution control facility includes a sewage or
solid waste disposal facility (within the meaning of section
103(b)(4)(E) of the 1954 Code).
"(D) A facility is described in this subparagraph if -
"(i) the issuance of the bonds for such facility was approved
by a State agency on August 22, 1979, and
"(ii) the authority to issue such bonds was scheduled to
expire (under terms of the State approval) on August 22, 1989.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $198,000,000.
"(E) A facility is described in this subparagraph if -
"(i) such facility is 1 of 4 such facilities in 4 States with
respect to which the Ball Corporation transmitted a letter of
intent to purchase such facilities on February 26, 1986, and
"(ii) inducement resolutions were issued on December 30,
1985, January 15, 1986, January 22, 1986, and March 17, 1986
with respect to bond issuance in the 4 respective States.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $6,000,000.
"(F) A facility is described in this subparagraph if -
"(i) inducement resolutions for bonds with respect to such
facility were adopted on September 27, 1977, May 27, 1980, and
October 8, 1981, and
"(ii) such facility is located at a geothermal power complex
owned and operated by a single investor-owned utility.
For purposes of this subparagraph and section 103 of the 1986
Code, all hydrogen sulfide air and water pollution control
equipment, together with functionally related and subordinate
equipment and structures, located or to be located at such power
complex shall be treated as a single pollution control facility.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $600,000,000.
"(G) A facility is described in this subparagraph if -
"(i) such facility is an air pollution control facility
approved by a State bureau of pollution control on July 10,
1986, and by a State board of economic development on July 17,
1986, and
"(ii) on August 15, 1986, the State bond attorney gave notice
to the clerk to initiate validation proceedings with respect to
such issue and on August 28, 1986, the validation decree was
entered.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $900,000.
"(I) A facility is described in this subparagraph if -
"(i) a private company met with a State air control board on
November 14, 1985, to propose construction of a sulften unit,
and
"(ii) the sulften unit is being constructed under a letter of
intent to construct which was signed on April 8, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $11,000,000.
"(J) A facility is described in this subparagraph if it is part
of a 250 megawatt coal-fired electric plant in northeastern
Nevada on which the Sierra Pacific Power Company, a subsidiary of
Sierra Pacific Resources, began in 1980 work to design, finance,
construct, and operate. The aggregate face amount of bonds to
which this subparagraph applies shall not exceed $200,000,000.
"(K) A facility is described in this subparagraph if -
"(i) there was an inducement resolution adopted by a State
industrial development authority on January 14, 1976, and
"(ii) such facility is named in a resolution of such
authority relating to carryforward of the State's unused 1985
private activity bond limit passed by such industrial
development authority on December 18, 1985.
This subparagraph shall apply only to obligations issued at the
request of the party pursuant to whose request the January 14,
1976, inducement was given. The aggregate face amount of bonds to
which this subparagraph applies shall not exceed $75,000,000.
"(L) A facility is described in this subparagraph if a city
council passed an ordinance (ordinance number 4626) agreeing to
issue bonds for such project, December 16, 1985. The aggregate
face amount of obligations to which this subparagraph applies
shall not exceed $45,000,000.
"(3) Sports facilities. - A bond issued as part of an issue 95
percent or more of the net proceeds of which are to be used to
provide sports facilities (within the meaning of section
103(b)(4)(B) of the 1954 Code) shall be treated as an exempt
facility bond for purposes of part IV of subchapter B of chapter 1
of the 1986 Code if such facilities are described in any of the
following subparagraphs:
"(A) A facility is described in this subparagraph if it is a
stadium -
"(i) which was the subject of a city ordinance passed on
September 23, 1985,
"(ii) for which a loan of approximately $4,000,000 for land
acquisition was approved on October 28, 1985, by the State
Controlling Board, and
"(iii) a stadium operating corporation with respect to which
was incorporated on March 20, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $200,000,000.
"(B) A facility is described in this subparagraph if -
"(i) it is a stadium with respect to which a lease agreement
for the ground on which the stadium is to be built was entered
into between a county and the stadium corporation for such
stadium on July 3, 1984,
"(ii) there was a resolution approved on November 14, 1984,
by an industrial development authority setting forth the terms
under which the bonds to be issued to finance such stadium
would be issued, and
"(iii) there was an agreement for consultant and engineering
services for such stadium entered into on September 28, 1984.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $90,000,000.
"(C) A facility is described in this subparagraph if -
"(i) it is one or more stadiums to be used either by an
American League baseball team or a National Football League
team currently using a stadium in a city having a population in
excess of 2,500,000 and described in section 146(d)(3) of the
1986 Code,
"(ii) the bonds to be used to provide financing for one or
more such stadiums are issued by a political subdivision or a
State agency pursuant to a resolution approving an inducement
resolution adopted by a State agency on November 20, 1985, as
it may be amended (whether or not the beneficiaries of such
issue or issues are the beneficiaries (if any) specified in
such inducement resolution and whether or not the number of
such stadiums and the locations thereof are as specified in
such inducement resolution) or pursuant to P.A. 84-1470 of the
State in which such city is located (and by an agency created
thereby), and
"(iii) such stadium or stadiums are located in the city
described in (i).
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $250,000,000. In the case of any
carryforward of volume cap for one or more stadiums described in
the first sentence of this subparagraph, such carryforward shall
be valid with respect to bonds issued for such stadiums
notwithstanding any other provision of the 1986 Code or the 1954
Code, and whether or not (i) there is a change in the number of
stadiums or the beneficiaries or sites of the stadium or stadiums
and (ii) the bonds are issued by either of the state agencies
described in the first sentence of this subparagraph.
"(D) A facility is described in this subparagraph if -
"(i) such facility is a stadium or sports arena for Memphis,
Tennessee,
"(ii) there was an inducement resolution adopted on November
12, 1985, for the issuance of bonds to expand or renovate an
existing stadium and sports arena and/or to construct a new
arena, and
"(iii) the city council for such city adopted a resolution on
April 19, 1983, to include funds in the capital budget of the
city for such facility or facilities.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $35,000,000.
"(E) A facility is described in this subparagraph if such
facility is a baseball stadium located in Bergen, Essex, Union,
Middlesex, or Hudson County, New Jersey with respect to which
governmental action occurred on November 7, 1985. The aggregate
face amount of bonds to which this subparagraph applies shall not
exceed $150,000,000.
"(F) A facility is described in this subparagraph if -
"(i) it is a facility with respect to which -
"(I) an inducement resolution dated December 24, 1985, was
adopted by the county industrial development authority,
"(II) a public hearing of the county industrial development
authority was held on February 6, 1986, regarding such
facility, and
"(III) a contract was entered into by the county, dated
February 19, 1986, for engineering services for a highway
improvement in connection with such project, or
"(ii) it is a domed football stadium adjacent to Cervantes
Convention Center in St. Louis, Missouri, with respect to which
a proposal to evaluate market demand, financial operations, and
economic impact was dated May 9, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $175,000,000.
"(G) A project to provide a roof or dome for an existing sports
facility is described in this subparagraph if -
"(i) in December 1984 the county sports complex authority
filed a carryforward election under section 103(n) of the 1954
Code with respect to such project,
"(ii) in January 1985, the State authorized issuance of
$30,000,000 in bonds in the next 3 years for such project, and
"(iii) an 11-member task force was appointed by the county
executive in June 1985, to further study the feasibility of the
project.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $30,000,000.
"(H) A sports facility renovation or expansion project is
described in this subparagraph if -
"(i) an amendment to the sports team's lease agreement for
such facility was entered into on May 23, 1985, and
"(ii) the lease agreement had previously been amended in
January 1976, on July 6, 1984, on April 1, 1985, and on May 7,
1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $20,000,000.
"(I) A facility is described in this subparagraph if -
"(i) an appraisal for such facility was completed on March 6,
1985,
"(ii) an inducement resolution was adopted with respect to
such facility on June 7, 1985, and
"(iii) a State bond commission granted preliminary approval
for such project on September 3, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $3,200,000.
"(J) A sports facility renovation or expansion project is
described in this subparagraph if -
"(i) such facility is a domed stadium which commenced
operations in 1965,
"(ii) such facility has been the subject of an ongoing
construction, expansion, or renovation program of planned
improvements,
"(iii) part 1 of such improvements began in 1982 with a
preliminary renovation program financed by tax-exempt bonds,
"(iv) part 2 of such program was previously scheduled for a
bond election on February 25, 1986, pursuant to a Commissioners
Court Order of November 5, 1985, and
"(v) the bond election for improvements to such facility was
subsequently postponed on December 10, 1985, in order to
provide for more comprehensive construction planning.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $60,000,000.
"(K) A facility is described in this subparagraph if -
"(i) the 1985 State legislature appropriated a maximum sum of
$22,500,000 to the State urban development corporation to be
made available for such project, and
"(ii) a development and operation agreement was entered into
among such corporation, the city, the State budget director,
and the county industrial development agency, as of March 1,
1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $28,000,000.
"(L) A facility is described in this subparagraph if -
"(i) it is to consist of 1 or 2 stadiums appropriate for
football games and baseball games with related structures and
facilities,
"(ii) governmental action was taken on August 7, 1985, by the
county commission, and on December 19, 1985, by the city
council, concerning such facility, and
"(iii) such facility is located in a city having a National
League baseball team.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $200,000,000.
"(M) A facility is described in this subparagraph if -
"(i) such facility consists of 1 or 2 stadium projects (1 of
which may be a stadium renovation or expansion project) with
related structures and facilities,
"(ii) a special advisory commission commissioned a study by a
national accounting firm with respect to a project for such
facility, which study was released in September 1985, and
recommended construction of either a new multipurpose or a new
baseball-only stadium,
"(iii) a nationally recognized design and architectural firm
released a feasibility study with respect to such project in
April 1985, and
"(iv) the metropolitan area in which the facility is located
is presently the home of an American League baseball team.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $200,000,000.
"(N) A facility is described in this subparagraph if -
"(i) it is to consist of 1 or 2 stadiums appropriate for
football games and baseball games with related structures and
facilities,
"(ii) the site for such facility was approved by the council
of the city in which such facility is to be located on July 9,
1985, and
"(iii) the request for proposals process was authorized by
the council of the city in which such facility is to be located
on November 5, 1985, and such requests were distributed to
potential developers on November 15, 1985, with responses due
by February 14, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $200,000,000.
"(O) A facility is described in this subparagraph if -
"(i) such facility is described in a feasibility study dated
September 1985, and
"(ii) resolutions were adopted or other actions taken on
February 21, 1985, July 18, 1985, August 8, 1985, October 17,
1985, and November 7, 1985, by the Board of Supervisors of the
county in which such facility will be located with respect to
such feasibility study, appropriations to obtain land for such
facility, and approving the location of such facility in the
county.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $20,000,000.
"(P) A facility is described in this subparagraph if such
facility constructed on a site acquired with the sale of revenue
bonds authorized by a city council on December 2, 1985,
(Ordinances No. 669 and 670, series 1985). The aggregate face
amount of bonds to which this subparagraph applies shall not
exceed $90,000,000.
"(Q) A facility is described in this subparagraph if -
"(i) resolutions were adopted approving a ground lease dated
June 27, 1983, by a sports authority (created by a State
legislature) with respect to the land on which the facility
will be erected,
"(ii) such facility is described in a market study dated June
13, 1983, and
"(iii) such facility was the subject of an Act of the State
legislature which was signed on July 1, 1983.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $81,000,000.
"(R) A facility is described in this subparagraph if such
facility is a baseball stadium and adjacent parking facilities
with respect to which a city made a carryforward election of
$52,514,000 on February 25, 1985. The aggregate face amount of
bonds to which this subparagraph applies shall not exceed
$50,000,000.
"(S) A facility is described in this subparagraph if -
"(i) such facility is to be used by both a National Hockey
League team and a National Basketball Association team,
"(ii) such facility is to be constructed on a platform using
air rights over land acquired by a State authority and
identified as site B in a report dated May 30, 1984, prepared
for a State urban development corporation, and
"(iii) such facility is eligible for real property tax (and
power and energy) benefits pursuant to State legislation
approved and effective as of July 7, 1982.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $225,000,000.
"(T) A facility is described in this subparagraph if -
"(i) a resolution authorizing the financing of the facility
through an issuance of revenue bonds was adopted by the City
Commission on August 5, 1986, and
"(ii) the metropolitan area in which the facility is to be
located is currently the spring training home of an American
league baseball team located during the regular season in a
city described in subparagraph (C).
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $10,000,000.
"(U) A facility is described in this subparagraph if it is a
football stadium located in Oakland, California, with respect to
which a design was completed by a nationally recognized
architectural firm for a stadium seating approximately 72,000, to
be located on property adjacent to an existing coliseum complex,
or is a renovation of an existing stadium located in Oakland,
California, and used by an American League baseball team. The
aggregate face amount of bonds to which this subparagraph applies
shall not exceed $100,000,000.
"(V) A facility is described in this subparagraph if it is a
sports arena (and related parking facility) for Grand Rapids,
Michigan. The aggregate face amount of bonds to which this
subparagraph applies shall not exceed $80,000,000.
"(W) A facility is described in this subparagraph if such
facility is located adjacent to the Anacostia River in the
District of Columbia. The aggregate face amount of bonds to which
this subparagraph applies shall not exceed $25,000,000.
"(X) A facility is described in this subparagraph if it is a
spectator sports facility for the City of San Antonio, Texas. The
aggregate face amount of bonds to which this subparagraph applies
shall not exceed $125,000,000.
"(Y) A facility is described in this subparagraph if it will be
part of, or adjacent to, an existing stadium which has been owned
and operated by a State university and if -
"(i) the stadium was the subject of a feasibility report by a
certified public accounting firm which is dated December 28,
1984, and
"(ii) a report by an independent research organization was
prepared in December 1985 demonstrating support among donors
and season ticket holders for the addition of a dome to the
stadium.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $50,000,000.
"(Z) A facility is described in this subparagraph if -
"(i) such facility was a redevelopment project that was
approved in concept by the city council sitting as the
redevelopment agency in October 1984, and
"(ii) $20,000,000 in funds for such facility was identified
in a 5-year budget approved by the city redevelopment agency on
October 25, 1984.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $80,000,000.
"(4) Residential rental property. - A bond issued as part of an
issue 95 percent or more of the net proceeds of which are to be
used to finance a residential rental project within the meaning of
section 103(b)(4) of the 1954 Code shall be treated as an exempt
facility bond within the meaning of section 142(a)(7) of the 1986
Code if the facility with respect to the bond is issued satisfies
all low-income occupancy requirements applicable to such bonds
before August 15, 1986, and the bonds are issued pursuant to -
"(A) a contract to purchase such property dated August 12,
1985;
"(B) the county housing authority approved the property and the
financing thereof on September 24, 1985, and
"(C) there was an inducement resolution adopted on October 10,
1985, by the county industrial development authority.
The aggregate face amount of bonds to which this paragraph applies
shall not exceed $25,400,000.
"(5) Airports. - A bond issued as a part of an issue 95 percent
or more of the net proceeds of which are to be used to provide an
airport (within the meaning of section 103(b)(4)(D) of the 1954
Code) shall be treated as an exempt facility bond (for facilities
described in section 142(a)(1) of the 1986 Code) for purposes of
part IV of subchapter B of chapter 1 of the 1986 Code if the
facility is described in any of the following subparagraphs:
"(A) A facility is described in this subparagraph if such
facility is a hotel at an airport facility serving a city
described in section 631(a)(3) of the Tax Reform Act of 1984
[section 631(a)(3) of Pub. L. 98-369, set out as a note under
section 103 of this title] (relating to certain bonds for a
convention center and resource recovery project). The aggregate
face amount of bonds to which this subparagraph applies shall not
exceed $40,000,000.
"(B) A facility is described in this subparagraph if such
facility is the primary airport for a city described in paragraph
(3)(C). The aggregate face amount of bonds to which this
subparagraph applies shall not exceed $500,000,000. Section
148(d)(2) of the 1986 Code shall not apply to any issue to which
this subparagraph applies. A facility shall be described in this
subparagraph if it would be so described if '90 percent' were
substituted for '95 percent' in the material preceding
subparagraph (A).
"(C) A facility is described in this subparagraph if such
facility is a hotel at Logan airport and such hotel is located on
land leased from a State authority under a lease contemplating
development of such hotel dated May 1, 1983, or under an
amendment, renewal, or extension of such a lease. The aggregate
face amount of bonds to which this subparagraph applies shall not
exceed $40,000,000.
"(D) A facility is described in this subparagraph if such
facility is the airport for the County of Sacramento, California.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $150,000,000.
"(6) Redevelopment projects. - A bond issued as part of an issue
95 percent or more of the net proceeds of which are to be used to
finance redevelopment activities as part of a project within a
specific designated area shall be treated as a qualified
redevelopment bond for purposes of part IV of subchapter B of
chapter 1 of the 1986 Code if such project is described in any of
the following subparagraphs:
"(A) A project is described in this subparagraph if it was the
subject of a city ordinance numbered 82-115 and adopted on
December 2, 1982, or numbered 9590 and adopted on April 6, 1983.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $9,000,000.
"(B) A project is described in this subparagraph if it is a
redevelopment project for an area in a city described in
paragraph (3)(C) which was designated as commercially blighted on
November 14, 1975, by the city council and the redevelopment plan
for which will be approved by the city council before January 31,
1987. The aggregate face amount of bonds to which this
subparagraph applies shall not exceed $20,000,000.
"(C) A project is described in this subparagraph if it is a
redevelopment project for an area in a city described in
paragraph (3)(C) which was designated as commercially blighted on
March 28, 1979, by the city council and the redevelopment plan
for which was approved by the city council on June 20, 1984. The
aggregate face amount of bonds to which this subparagraph applies
shall not exceed $100,000,000.
"(D) A project is described in this subparagraph if it is any
one of three redevelopment projects in areas in a city described
in paragraph (3)(C) designated as blighted by a city council
before January 31, 1987 and with respect to which the
redevelopment plan is approved by the city council before January
31, 1987. The aggregate face amount of bonds to which this
subparagraph applies shall not exceed $20,000,000.
"(E) A project is described in this subparagraph if such
project is for public improvements (including street
reconstruction and improvement of underground utilities) for
Great Falls, Montana, with respect to which engineering estimates
are due on October 1, 1986. The aggregate face amount of bonds to
which this subparagraph applies shall not exceed $3,000,000.
"(F) A project is described in this subparagraph if -
"(i) such project is located in an area designated as
blighted by the governing body of the city on February 15, 1983
(Resolution No. 4573), and
"(ii) such project is developed pursuant to a redevelopment
plan adopted by the governing body of the city on March 1, 1983
(Ordinance No. 15073).
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $5,000,000.
"(G) A project is described in this subparagraph if -
"(i) such project is located in an area designated by the
governing body of the city in 1983,
"(ii) such project is described in a letter dated August 8,
1985, from the developer's legal counsel to the development
agency of the city, and
"(iii) such project consists primarily of retail facilities
to be built by the developer named in a resolution of the
governing body of the city on August 30, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $75,000,000.
"(H) A project is described in this subparagraph if -
"(i) such project is a project for research and development
facilities to be used primarily to benefit a State university
and related hospital, with respect to which an urban renewal
district was created by the city council effective October 11,
1985, and
"(ii) such project was announced by the university and the
city in March 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $40,000,000.
"(I) A project is described in this subparagraph if such
project is a downtown redevelopment project with respect to which
-
"(i) an urban development action grant was made, but only if
such grant was preliminarily approved on November 3, 1983, and
received final approval before June 1, 1984, and
"(ii) the issuer of bonds with respect to such facility
adopted a resolution indicating the issuer's intent to adopt
such redevelopment project on October 6, 1981, and the issuer
adopted an ordinance adopting such redevelopment project on
December 13, 1983.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $10,000,000.
"(J) A project is described in this subparagraph if -
"(i) with respect to such project the city council adopted on
December 16, 1985, an ordinance directing the urban renewal
authority to study blight and produce an urban renewal plan,
"(ii) the blight survey was accepted and approved by the
urban renewal authority on March 20, 1986, and
"(iii) the city planning board approved the urban renewal
plan on May 7, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $60,000,000.
"(K) A project is described in this subparagraph if -
"(i) the city redevelopment agency approved resolutions
authorizing issuance of land acquisition and public
improvements bonds with respect to such project on August 8,
1978,
"(ii) such resolutions were later amended in June 1979, and
"(iii) the State Supreme Court upheld a lower court decree
validating the bonds on December 11, 1980.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $380,000,000.
"(L) A project is described in this subparagraph if it is a
mixed use redevelopment project either -
"(i) in an area (known as the Near South Development Area)
with respect to which the planning department of a city
described in paragraph 3(C) promulgated a draft development
plan dated March 1986, and which was the subject of public
hearings held by a subcommittee of the plan commission of such
city on May 28, 1986, and June 10, 1986, or
"(ii) in an area located within the boundaries of any 1 or
more census tracts which are directly adjacent to a river whose
course runs through such city.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $75,000,000.
"(M) A project is described in this subparagraph if it is a
redevelopment project for an area in a city described in
paragraph 3(C) and such area -
"(i) was the subject of a report released in May 1986,
prepared by the National Park Service, and
"(ii) was the subject of a report released January 1986,
prepared by a task force appointed by the Mayor of such city.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $75,000,000.
"(N) A project is described in this subparagraph if it is a
city-university redevelopment project approved by a city
ordinance No. 152-0-84 and the development plan for which was
adopted on January 28, 1985. The aggregate face amount of bonds
to which this subparagraph applies shall not exceed $23,760,000.
"(O) A project is described in this subparagraph if -
"(i) an inducement resolution was passed on March 9, 1984,
for issuance of bonds with respect to such project,
"(ii) such resolution was extended by resolutions passed on
August 14, 1984, April 2, 1985, August 13, 1985, and July 8,
1986,
"(iii) an urban development action grant was preliminarily
approved for part or all of such project on July 3, 1986, and
"(iv) the project is located in a district designated as the
Peabody-Gayoso District.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $140,000,000.
"(P) A project is described in this subparagraph if the project
is a 1-block area of a central business district containing a
YMCA building with respect to which -
"(i) the city council adopted a resolution expressing an
intent to issue bonds for the project on September 27, 1985,
"(ii) the city council approved project guidelines for the
project on December 20, 1985, and
"(iii) the city council by resolution (adopted on July 30,
1986) directed completion of a development agreement.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $26,000,000.
"(Q) A project is described in this subparagraph if the project
is a 2-block area of a central business district designated as
blocks E and F with respect to which -
"(i) the city council adopted guidelines and criteria and
authorized a request for development proposals on July 22,
1985,
"(ii) the city council adopted a resolution expressing an
intent to issue bonds for the project on September 27, 1985,
and
"(iii) the city issued requests for development proposals on
March 28, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $47,000,000.
"(R) A project is described in this subparagraph if the project
is an urban renewal project covering approximately 5.9 acres of
land in the Shaw area of the northwest section of the District of
Columbia and the 1st portion of such project was the subject of a
District of Columbia public hearing on June 2, 1986. The
aggregate face amount of bonds to which this subparagraph applies
shall not exceed $10,000,000.
"(S) A project is described in this subparagraph if such
project is a hotel, commercial, and residential project on the
east bank of the Grand River in Grand Rapids, Michigan, with
respect to which a developer was selected by the city in June
1985 and a planning agreement was executed in August 1985. The
aggregate face amount of bonds to which this subparagraph applies
shall not exceed $39,000,000.
"(T) A project is described in this subparagraph if such
project is the Wurzburg Block Redevelopment Project in Grand
Rapids, Michigan. The aggregate face amount of bonds to which
this subparagraph applies shall not exceed $60,000,000.
"(U) A project is described in this subparagraph if such
project is consistent with an urban renewal plan adopted or
ordered prepared before August 28, 1986, by the city council of
the most populous city in a state which entered the Union on
February 14, 1859. The aggregate face amount of bonds to which
this subparagraph applies shall not exceed $83,000,000.
"(V) A project is described in this subparagraph if such
project is consistent with an urban renewal plan which was
adopted (or ordered prepared) before August 13, 1985, by an
appropriate jurisdiction of a state which entered the Union on
February 14, 1859. The aggregate face amount of bonds to which
this subparagraph applies shall not exceed $135,000,000 and the
limitation on the period during which bonds under this section
may be issued shall not apply to such bonds.
"(W) A project is described in this subparagraph if such
project is -
"(i) a part of the Kenosha Downtown Redevelopment project,
and
"(ii) located in an area bounded -
"(I) on the east by the east wall of the Army Corps of
Engineers Confined Disposal Facility (extended),
"(II) on the north by 48th Street (extended),
"(III) on the west by the present Chicago & Northwestern
Railroad tracks, and
"(IV) on the south by the north line of Eichelman Park
(60th Street) (extended).
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $105,000,000.
"(X) A project is described in this subparagraph if a
redevelopment plan for such project was approved by the city
council of Bell Gardens, California, on June 12, 1979. The
aggregate face amount of bonds to which this subparagraph applies
shall not exceed $10,000,000.
"(Y) Nothing in this paragraph shall be construed as having the
effect of exempting from tax interest on any bond issued after
June 10, 1987, if such interest would not have been exempt from
tax were such bond issued on August 15, 1986.
"(Z) Any designated area with respect to which a project is
described in any subparagraph of this paragraph shall be taken
into account in applying section 144(c)(4)(C) of the 1986 Code in
determining whether other areas (not so described) may be
designated.
"(7) Convention centers. - A bond issued as part of an issue 95
percent or more of the net proceeds of which are to be used to
provide any convention or trade show facility (within the meaning
of section 103(b)(4)(C) of the 1954 Code) shall be treated as an
exempt facility bond for purposes of part IV of subchapter B of
chapter 1 of the 1986 Code if such facility is described in any of
the following subparagraphs:
"(A) A facility is described in this subparagraph if -
"(i) a feasibility consultant and a design consultant were
hired on April 3, 1985, with respect to such facility, and
"(ii) a draft feasibility report with respect to such
facility was presented on November 3, 1985, to the Mayor of the
city in which such facility is to be located.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $190,000,000. For purposes of this
subparagraph, not more than $20,000,000 of bonds issued to
advance refund existing convention facility bonds sold on May 12,
1978, shall be treated as bonds described in this subparagraph
and section 149(d)(2) of the 1986 Code shall not apply to bonds
so treated.
"(B) A facility is described in this subparagraph if -
"(i) an application for a State loan for such facility was
approved by the city council on March 4, 1985, and
"(ii) the city council of the city in which such facility is
to be located approved on March 25, 1985, an application for an
urban development action grant.
The aggregate face amount of bonds which this subparagraph
applies shall not exceed $10,000,000.
"(C) A facility is described in this subparagraph if -
"(i) on November 1, 1983, a convention development tax took
effect and was dedicated to financing such facility,
"(ii) the State supreme court of the State in which the
facility is to be located validated such tax on February 8,
1985, and
"(iii) an agreement was entered into on November 14, 1985,
between the city and county in which such facility is to be
located on the terms of the bonds to be issued with respect to
such facility.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $66,000,000.
"(D) A facility is described in this subparagraph if -
"(i) it is a convention, trade, or spectator facility,
"(ii) a regional convention, trade, and spectator facilities
study committee was created before March 19, 1985, with respect
to such facility, and
"(iii) feasibility and preliminary design consultants were
hired on May 1, 1985, and October 31, 1985, with respect to
such facility.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed the excess of $175,000,000 over the
amount of bonds to which paragraph (48)(B) applies.
"(E) A facility is described in this subparagraph if -
"(i) such facility is meeting rooms for a convention center,
and
"(ii) resolutions and ordinances were adopted with respect to
such meeting rooms on January 17, 1983, July 11, 1983, December
17, 1984, and September 23, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $75,000,000.
"(F) A facility is described in this subparagraph if it is an
international trade center which is part of the 125th Street
redevelopment project in New York, New York. The aggregate face
amount of obligations to which this subparagraph applies shall
not exceed $165,000,000.
"(G) A facility is described in this subparagraph if -
"(i) such facility is located in a city which was the subject
of a convention center market analysis or study dated March
1983, and prepared by a nationally recognized accounting firm,
"(ii) such facility's location was approved in December 1985
by a task force created jointly by the Governor of the State
within which such facility will be located and the mayor of the
capital city of such State, and
"(iii) the size of such facility is not more than 200,000
square feet.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $70,000,000.
"(H) A facility is described in this subparagraph if an
analysis of operations and recommendations of utilization of such
facility was prepared by a certified public accounting firm
pursuant to an engagement authorized on March 6, 1984, and
presented on June 11, 1984, to officials of the city in which
such facility is located. The aggregate face amount of bonds to
which this subparagraph applies shall not exceed $75,000,000.
"(I) A facility is described in this subparagraph if -
"(i) voters approved a bond issue to finance the acquisition
of the site for such facility on May 4, 1985,
"(ii) title of the property was transferred from the Illinois
Center Gulf Railroad to the city on September 30, 1985, and
"(iii) a United States judge rendered a decision regarding
the fair market value of the site of such facility on December
30, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $131,000,000.
"(J) A facility is described in this subparagraph if -
"(i) such facility is to be used for an annual aquafestival,
"(ii) a referendum was held on April 6, 1985, in which voters
permitted the city council to lease 130 acres of dedicated
parkland for the purpose of constructing such facility, and
"(iii) the city council passed an inducement resolution on
June 19, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $10,000,000.
"(K) A facility is described in this subparagraph if -
"(i) voters approved a bond issued to finance a portion of
the cost of such facility on December 1, 1984, and
"(ii) such facility was the subject of a market study and
financial projections dated March 21, 1986, prepared by a
nationally recognized accounting firm.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $5,000,000.
"(L) A facility is described in this subparagraph if -
"(i) on July 12, 1984, the city council passed a resolution
increasing the local hotel and motel tax to 7 percent to assist
in paying for such facility,
"(ii) on October 25, 1984, the city council selected a
consulting firm for such facility, and
"(iii) with respect to such facility, the city council
appropriated funds for additional work on February 7, 1985,
October 3, 1985, and June 26, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $120,000,000.
"(M) A facility is described in this subparagraph if -
"(i) a board of county commissioners, in an action dated
January 21, 1986, supported an application for official
approval of the facility, and
"(ii) the State economic development commission adopted a
resolution dated February 25, 1986, determining the facility to
be an eligible facility pursuant to State law and the rules
adopted by the commission.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $7,500,000.
"(8) Sports or convention facilities. - A bond issued as a part
of an issue 95 percent or more of the net proceeds of which are to
be used to provide either a sports facility (within the meaning of
section 103(b)(4)(B) of the 1954 Code) or a convention facility
(within the meaning of section 103(b)(4)(C) of the 1954 Code) shall
be treated as an exempt facility bond for purposes of part IV of
subchapter B of chapter 1 of the 1986 Code if such facility is
described in any of the following subparagraphs:
"(A) A combined convention and arena facility, or any part
thereof (whether on the same or different sites), is described in
this subparagraph if -
"(i) bonds for the expansion, acquisition, or construction of
such combined facility are payable from a tax and are issued
under a plan initially approved by the voters of the taxing
authority on April 25, 1978, and
"(ii) such bonds were authorized for expanding a convention
center, for acquiring an arena site, and for building an arena
or any of the foregoing pursuant to a resolution adopted by the
governing body of the bond issuer on March 17, 1986, and
superseded by a resolution adopted by such governing body on
May 27, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $160,000,000.
"(B) A sports or convention facility is described in this
subparagraph if -
"(i) on March 4, 1986, county commissioners held public
hearings on creation of a county convention facilities
authority, and
"(ii) on March 7, 1986, the county commissioners voted to
create a county convention facilities authority and to submit
to county voters a 1/2 cent sales and use tax to finance such
facility.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $150,000,000.
"(C) A sports or convention facility is described in this
subparagraph if -
"(i) a feasibility consultant and a design consultant were
hired prior to October 1980 with respect to such facility,
"(ii) a feasibility report dated October 1980 with respect to
such facility was presented to a city or county in which such
facility is to be located, and
"(iii) on September 7, 1982, a joint city/county resolution
appointed a committee which was charged with the task of
independently reviewing the studies and present need for the
facility.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $60,000,000.
"(D) A sports or convention facility is described in this
subparagraph if -
"(i) such facility is a multipurpose coliseum facility for
which, before January 1, 1985, a city, an auditorium district
created by the State legislature within which such facility
will be located, and a limited partnership executed an
enforceable contract,
"(ii) significant governmental action regarding such facility
was taken before May 23, 1983, and
"(iii) inducement resolutions were passed for issuance of
bonds with respect to such facility on May 26, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $25,000,000.
"(9) Parking facilities. - A bond issued as part of an issue 95
percent or more of the net proceeds of which are to be used to
provide a parking facility (within the meaning of section
103(b)(4)(D) of the 1954 Code) shall be treated as an exempt
facility bond for purposes of part IV of subchapter B of chapter 1
of the 1986 Code if such facility is described in any of the
following subparagraphs:
"(A) A facility is described in this subparagraph if -
"(i) there was an inducement resolution on March 9, 1984, for
the issuance of bonds with respect to such facility, and
"(ii) such resolution was extended by resolutions passed on
August 14, 1984, April 2, 1985, August 13, 1985, and July 8,
1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $30,000,000.
"(B) A facility is described in this subparagraph if -
"(i) such facility is for a university medical school,
"(ii) the last parcel of land necessary for such facility was
purchased on February 4, 1985, and
"(iii) the amount of bonds to be issued with respect to such
facility was increased by the State legislature of the State in
which the facility is to be located as part of its 1983-1984
general appropriations act.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $9,000,000.
"(C) A facility is described in this subparagraph if -
"(i) the development agreement with respect to the project of
which such facility is a part was entered into during May 1984,
and
"(ii) an inducement resolution was passed on October 9, 1985,
for the issuance of bonds with respect to the facility.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $35,000,000.
"(D) A facility is described in this subparagraph if the city
council approved a resolution of intent to issue tax-exempt bonds
(Resolution 34083) for such facility on April 30, 1986. The
aggregate face amount of bonds to which this subparagraph applies
shall not exceed $8,000,000. Solely for purposes of this
subparagraph, a heliport constructed as part of such facility
shall be deemed to be functionally related and subordinate to
such facility.
"(E) A facility is described in this subparagraph if -
"(i) resolutions were adopted by a public joint powers
authority relating to such facility on March 6, 1985, May 1,
1985, October 2, 1985, December 4, 1985, and February 5, 1986;
and
"(ii) such facility is to be located at an exposition park
which includes a coliseum and sports arena.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $150,000,000.
"(F) A facility is described in this subparagraph if -
"(i) it is to be constructed as part of an overall
development that is the subject of a development agreement
dated October 1, 1983, between a developer and an organization
described in section 501(c)(3) of the 1986 Code, and
"(ii) an environmental notification form with respect to the
overall development was filed with a State environmental agency
on February 28, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $60,000,000.
"(G) A facility is described in this subparagraph if -
"(i) an inducement resolution was passed by the city
redevelopment agency on December 3, 1984, and a resolution to
carryforward the private activity bond limit was passed by such
agency on December 21, 1984, with respect to such facility, and
"(ii) the owner participation agreement with respect to such
facility was entered into on July 30, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $18,000,000.
"(H) A facility is described in this subparagraph if -
"(i) an application (dated August 28, 1986) for financial
assistance was submitted to the county industrial development
agency with respect to such facility, and
"(ii) the inducement resolution for such facility was passed
by the industrial development agency on September 10, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $8,000,000.
"(I) A facility is described in this subparagraph if -
"(i) it is located in a city the parking needs of which were
comprehensively described in a 'Downtown Parking Plan' dated
January 1983, and approved by the city's City Plan Commission
on June 1, 1983, and
"(ii) obligations with respect to the construction of which
are issued on behalf of a State or local governmental unit by a
corporation empowered to issue the same which was created by
the legislative body of a State by an Act introduced on May 21,
1985, and thereafter passed, which Act became effective without
the governor's signature on June 26, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $50,000,000.
"(J) A facility is described in this subparagraph if -
"(i) such facility is located in a city which was the subject
of a convention center market analysis or study dated March
1983 and prepared by a nationally recognized accounting firm,
"(ii) such facility is intended for use by, among others,
persons attending a convention center located within the same
town or city, and
"(iii) such facility's location was approved in December 1985
by a task force created jointly by the governor of the State
within which such facility will be located and the mayor of the
capital city of such State.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $30,000,000.
"(K) A facility is described in this subparagraph if -
"(i) scale and components for the facility were determined by
a city downtown plan adopted October 31, 1984 (resolution
number 3882), and
"(ii) the site area for the facility is approximately 51,200
square feet.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $5,000,000.
"(L) A facility is described in this subparagraph if -
"(i) the property for such facility was offered for
development by a city renewal agency on March 19, 1986
(resolution number 920), and
"(ii) the site area for the facility is approximately 25,600
square feet.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $5,000,000.
"(M) A facility is described in this subparagraph if such
facility was approved by official action of the city council on
July 26, 1984 (resolution number 33718), and is for the Moyer
Theatre. The aggregate face amount of bonds to which this
subparagraph applies shall not exceed $8,000,000.
"(N) A facility is described in this subparagraph if it is part
of a renovation project involving the Outlet Company building in
Providence, Rhode Island. The aggregate face amount of
obligations to which this subparagraph applies shall not exceed
$6,000,000.
"(10) Certain advance refundings. -
"(A) Section 149(d)(3) of the 1986 Code shall not apply to a
bond issued by a State admitted to the Union on November 16,
1907, for the advance refunding of not more than $186,000,000
State turnpike obligations.
"(B) A refunding of the Charleston, West Virginia Town Center
Garage Bonds shall not be treated for purposes of part IV of
subchapter A of chapter 1 of the 1986 Code as an advance
refunding if it would not be so treated if '100' were substituted
for '90' in section 149(d)(5) of such Code.
"(11) Principal user provisions. -
"(A) In the case of a bond issued as part of an issue the
proceeds of which are to be used to provide a facility described
in subparagraph (B) or (C), the determination of whether such
bond is an exempt facility bond shall be made by substituting '90
percent' for '95 percent' in section 142(a) of the 1986 Code.
"(B) A facility is described in this subparagraph if -
"(i) it is a waste-to-energy project for which a contract for
the sale of electricity was executed in September 1984, and
"(ii) the design, construction, and operation contract for
such project was signed in March 1985 and the order to begin
construction was issued on March 31, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $29,100,000.
"(C) A facility is described in this subparagraph if it is
described in section 1865(c)(2)(C) of this Act [set out as a note
under section 103 of this title].
"(12) Qualified scholarship funding bonds. - Subsections (d)(3)
and (f) of section 148 of the 1986 Code shall not apply to any bond
or series of bonds the proceeds of which are used exclusively to
refund qualified scholarship funding bonds (as defined in section
150 of the 1986 Code) issued before January 1, 1986, if -
"(A) the amount of the refunding bonds does not exceed the
aggregate face amount of the refunded bonds,
"(B) the maturity date of such refunding bond is not later than
later of -
"(i) the maturity date of the bond to be refunded, or
"(ii) the date which is 15 years after the date on which the
refunded bond was issued (or, in the case of a series of
refundings, the date on which the original bond was issued),
"(C) the bonds to be refunded were issued by the California
Student Loan Finance Corporation, and
"(D) the face amount of the refunding bonds does not exceed
$175,000,000.
"(13) Residential rental property projects. - A bond issued as
part of an issue 95 percent or more of the net proceeds of which
are to be used to provide a project for residential rental property
which satisfies the requirements of section 103(b)(4)(A) of the
1954 Code shall be treated as an exempt facility bond (for projects
described in section 142(a)(7) of the 1986 Code) for purposes of
part IV of subchapter B of chapter 1 of the 1986 Code if the
project is described in any of the following subparagraphs:
"(A) A residential rental property project is described in this
subparagraph if -
"(i) a public building development corporation was formed on
June 6, 1984, with respect to such project,
"(ii) a partnership of which the corporation is a general
partner was formed on June 8, 1984, and
"(iii) the partnership entered into a preliminary agreement
with the State public facilities authority effective as of May
4, 1984, with respect to the issuance of the bonds for such
project.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $6,200,000.
"(B) A residential rental property project is described in this
subparagraph if -
"(i) the Board of Commissioners of the city housing authority
officially selected such project's developer on December 19,
1985,
"(ii) the Board of the City Redevelopment Commission agreed
on February 13, 1986, to conduct a public hearing with respect
to the project on March 6, 1986,
"(iii) an official action resolution for such project was
adopted on March 6, 1986, and
"(iv) an allocation of a portion of the State ceiling was
made with respect to such project on July 29, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $10,000,000.
"(C) A residential rental property project is described in this
subparagraph if -
"(i) the issuance of $1,289,882 of bonds for such project was
approved by a State agency on September 11, 1985, and
"(ii) the authority to issue such bonds was scheduled to
expire (under the terms of the State approval) on September 9,
1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $1,300,000.
"(D) A residential rental property project is described in this
subparagraph if -
"(i) the issuance of $7,020,000 of bonds for such project was
approved by a State agency on October 10, 1985, and
"(ii) the authority to issue such bonds was scheduled to
expire (under the terms of the State approval) on October 9,
1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $7,020,000.
"(E) A residential rental property project is described in this
subparagraph if -
"(i) it is to be located in a city urban renewal project area
which was established pursuant to an urban renewal plan adopted
by the city council on May 17, 1960,
"(ii) the urban renewal plan was revised in 1972 to permit
multifamily dwellings in areas of the urban renewal project
designated as a central business district,
"(iii) an inducement resolution was adopted for such project
on December 14, 1984, and
"(iv) the city council approved on November 6, 1985, an
agreement which provides for conveyance to the city of fee
title to such project site.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $60,000,000.
"(F) A residential rental property project is described in this
subparagraph if -
"(i) such project is to be located in a city urban renewal
project area which was established pursuant to an urban renewal
plan adopted by the city council on May 17, 1960,
"(ii) the urban renewal plan was revised in 1972 to permit
multifamily dwellings in areas of the urban renewal project
designated as a central business district,
"(iii) the amended urban renewal plan adopted by the city
council on May 19, 1972, also provides for the conversion of
any public area site in Block J of the urban renewal project
area for the development of residential facilities, and
"(iv) acquisition of all of the parcels comprising the Block
J project site was completed by the city on December 28, 1984.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $60,000,000.
"(G) A residential rental property project is described in this
subparagraph if -
"(i) such project is to be located on a city-owned site which
is to become available for residential development upon the
relocation of a bus maintenance facility,
"(ii) preliminary design studies for such project site were
completed in December 1985, and
"(iii) such project is located in the same State as the
projects described in subparagraphs (E) and (F).
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $100,000,000.
"(H) A residential rental property project is described in this
subparagraph if -
"(i) at least 20 percent of the residential units in such
project are to be utilized to fulfill the requirements of a
unilateral agreement date July 21, 1983, relating to the
provision of low- and moderate-income housing,
"(ii) the unilateral agreement was incorporated into
ordinance numbers 83-49 and 83-50, adopted by the city council
and approved by the mayor on August 24, 1983, and
"(iii) an inducement resolution was adopted for such project
on September 25, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $8,000,000.
"(I) A residential rental property project is described in this
subparagraph if -
"(i) a letter of understanding was entered into on December
11, 1985, between the city and county housing and community
development office and the project developer regarding the
conveyance of land for such project, and
"(ii) such project is located in the same State as the
projects described in subparagraphs (E), (F), (G), and (H).
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed an amount which, together with the
amounts allowed under subparagraphs (E), (F), (G), and (H), does
not exceed $250,000,000.
"(J) A residential rental property project is described in this
subparagraph if it is a multifamily residential development
located in Arrowhead Springs, within the county of San
Bernardino, California, and a portion of the site of which
currently is owned by the Campus Crusade for Christ. The
aggregate face amount of bonds to which this subparagraph applies
shall not exceed $350,000,000.
"(K) A residential rental property project is described in this
subparagraph if -
"(i) it is a new residential development with approximately
309 dwelling units located in census tract No. 3202, and
"(ii) there was an inducement ordinance for such project
adopted by a city council on November 20, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $32,000,000.
"(L) A residential rental property project is described in this
subparagraph if -
"(i) it is a new residential development with approximately
70 dwelling units located in census tract No. 3901, and
"(ii) there was an inducement ordinance for such project
adopted by a city council on August 14, 1984.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $4,000,000.
"(M) A residential rental property project is described in this
subparagraph if -
"(i) it is a new residential development with approximately
98 dwelling units located in census tract No. 4701, and
"(ii) there was an inducement ordinance for such project
adopted by a city council on August 14, 1984.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $7,000,000.
"(N) A project or projects are described in this subparagraph
if they are part of the Willow Road residential improvement plan
in Menlo Park, California. The aggregate face amount of
obligations to which this subparagraph applies shall not exceed
$9,000,000.
"(O) A residential rental property project is described in this
subparagraph if -
"(i) an inducement resolution for such project was approved
on July 18, 1985, by the city council,
"(ii) such project was approved by such council on August 11,
1986, and
"(iii) such project consists of approximately 22 duplexes to
be used for housing qualified low and moderate income tenants.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $1,500,000.
"(P) A residential rental property project is described in this
subparagraph if -
"(i) an inducement resolution for such project was approved
on April 22, 1986, by the city council,
"(ii) such project was approved by such council on August 11,
1986, and
"(iii) such project consists of a unit apartment complex
(having approximately 60 units) to be used for housing
qualified low and moderate income tenants.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $1,625,000.
"(Q) A residential rental property project is described in this
subparagraph if -
"(i) a State housing authority granted a notice of official
action for the project on May 24, 1985, and
"(ii) a binding agreement was executed for such project with
the State housing finance authority on May 14, 1986, and such
agreement was accepted by the State housing authority on June
5, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $7,800,000.
"(R) A residential rental property project is described in this
subparagraph if such project is either of 2 projects (located in
St. Louis, Missouri) which received commitments to provide
construction and permanent financing through the issuance of
bonds in principal amounts of up to $242,130 and $654,045, on
July 16, 1986. The aggregate face amount of bonds to which this
subparagraph applies shall not exceed $1,000,000.
"(S) A residential rental property project is described in this
subparagraph if -
"(i) a local housing authority approved an inducement
resolution for such project on January 28, 1985, and
"(ii) a suit relating to such project was dismissed without
right of further appeal on April 4, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $13,200,000.
"(T) A residential rental property project is described in this
subparagraph if -
"(i) such project is the renovation of a hotel for residents
for senior citizens,
"(ii) an inducement resolution for such project was adopted
on November 20, 1985, by the State Development Finance
Authority, and
"(iii) such project is to be located in the metropolitan area
of the city described in paragraph (3)(C).
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $9,500,000.
"(U) A residential rental property project is described in this
subparagraph if -
"(i) such project is the renovation of apartment housing,
"(ii) an inducement resolution for such project was adopted
on December 20, 1985, by the State Housing Development
Authority, and
"(iii) such project is to be located in the metropolitan area
of the city described in paragraph (3)(C).
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $12,000,000.
"(V) A residential rental project is described in this
subparagraph if it is a renovation and construction project for
low-income housing in central Louisville, Kentucky, and local
board approval for such project was granted April 22, 1986. The
aggregate face amount of bonds to which this subparagraph applies
shall not exceed $500,000.
"(W) A residential rental project is described in this
subparagraph if -
"(i) such project is 1 of 6 residential rental projects
having in the aggregate approximately 1,010 units,
"(ii) inducement resolutions for such projects were adopted
by the county residential finance authority on November 21,
1985, and
"(iii) a public hearing of the county residential finance
authority was held by such authority on December 19, 1985,
regarding such projects to be constructed by an in-commonwealth
developer.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $62,000,000.
"(X) A residential rental project is described in this
subparagraph if -
"(i) an inducement resolution with respect to such project
was adopted by the State housing development authority on
January 25, 1985, and
"(ii) the issuance of bonds for such project was the subject
of a law suit filed on October 25, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $64,000,000.
"(Y) A project or projects are described in this subparagraph
if they are financed with bonds issued by the Tulare, California,
County Housing Authority. The aggregate face amount of
obligations to which this subparagraph applies shall not exceed
$8,000,000.
"(Z) A residential rental project is described in this
subparagraph if such project is a multifamily mixed-use housing
project located in a city described in paragraph (3)(C), the
zoning for which was changed to residential-business planned
development on November 26, 1985, and with respect to which both
the city on December 4, 1985, and the state housing finance
agency on December 20, 1985, adopted inducement resolutions. The
aggregate face amount of obligations to which this subparagraph
applies shall not exceed $90,000,000.
"(AA) A residential rental property project is described in
this subparagraph if it is the Carriage Trace residential rental
project in Clinton, Tennessee. The aggregate face amount of bonds
to which this subparagraph applies shall not exceed $10,000,000.
"(BB) A residential rental property project is described in
this subparagraph if -
"(i) a contract to purchase such property was dated as of
August 9, 1985,
"(ii) there was an inducement resolution adopted on September
27, 1985, for the issuance of obligations to finance such
property,
"(iii) there was a State court final validation of such
financing on November 15, 1985, and
"(iv) the certificate of nonappeal from such validation was
available on December 15, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $27,750,000.
"(14) Qualified student loans. - The amendments made by section
1301 [for classification see section 1311(a) of this note] shall
not apply to any qualified student loan bonds (as defined in
section 144 of the 1986 Code) issued by the Volunteer State Student
Assistance Corporation incorporated on February 20, 1985. The
aggregate face amount of bonds to which this paragraph applies
shall not exceed $130,000,000. In the case of bonds to which this
paragraph applies, the requirements of sections 148 and 149(d) of
the 1986 Code shall be treated as included in section 103 of the
1954 Code and shall apply to such bonds.
"(15) Annuity contracts. - The treatment of annuity contracts as
investment property under section 148(b)(2) of the 1986 Code shall
not apply to any bond described in any of the following
subparagraphs:
"(A) A bond is described in this subparagraph if such bond is
issued by a city located in a noncontiguous State if -
"(i) the authority to acquire such a contract was approved on
September 24, 1985, by city ordinance A085-176, and
"(ii) formal bid requests for such contracts were mailed to
insurance companies on September 6, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $57,000,000.
"(B) A bond is described in this subparagraph if -
"(i) on or before May 12, 1985, the governing board of the
city pension fund authorized an agreement with an underwriter
to provide planning and financial guidance for a possible bond
issue, and
"(ii) the proceeds of the sale of such bond issue are to be
used to purchase an annuity to fund the unfunded liability of
the City of Berkeley, California's Safety Members Pension Fund.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $40,000,000.
"(C) A bond is described in this subparagraph if such bond is
issued by the South Dakota Building Authority if on September 18,
1985, representatives of such authority and its underwriters met
with bond counsel and approved financing the purchase of an
annuity contract through the sale and leaseback of State
properties. The aggregate face amount of bonds to which this
subparagraph applies shall not exceed $175,000,000.
"(D) A bond is described in this subparagraph if -
"(i) such bond is issued by Los Angeles County, and
"(ii) such county, before September 25, 1985, paid or
incurred at least $50,000 of costs related to the issuance of
such bonds.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $500,000,000.
"(16) Solid waste disposal facility. - The amendments made by
section 1301 [for classification see section 1311(a) of this note]
shall not apply to any solid waste disposal facility if -
"(A) construction of such facility was approved by State law
I.C. 36-9-31,
"(B) there was an inducement resolution on November 19, 1984,
for the bonds with respect to such facility, and
"(C) a carryforward election of unused 1984 volume cap was made
for such project on February 25, 1985.
The aggregate face amount of bonds to which this paragraph applies
shall not exceed $120,000,000.
"(17) Refunding of bond anticipation notes. - There shall not be
taken into account under section 146 of the 1986 Code any refunding
of bond anticipation notes -
"(A) issued in December of 1984 by the Rhode Island Housing and
Mortgage Finance Corporation,
"(B) which mature in December of 1986,
"(C) which is not an advance refunding within the meaning of
section 149(d)(5) of the 1986 Code (determined by substituting
'180 days' for '90 days' therein), and
"(D) the aggregate face amount of the refunding bonds does not
exceed $25,500,000.
"(18) Certain airports. - The amendments made by section 1301
[for classification see section 1311(a) of this note] shall not
apply to a bond issued as part of an issue 95 percent or more of
the net proceeds of which are to be used to provide any airport
(within the meaning of section 103(b)(4)(D) of the 1954 Code) if
such airport is a mid-field airport terminal and accompanying
facilities at a major air carrier airport which during April 1980
opened a new precision instrument approach runway 10R28L. The
aggregate face amount of bonds to which this subparagraph applies
shall not exceed $425,000,000.
"(19) Mass commuting facilities. - A bond issued as a part of an
issue 95 percent or more of the net proceeds of which are to be
used to provide a mass commuting facility (within the meaning of
section 103(b)(4)(D) of the 1954 Code) shall be treated as an
exempt facility bond (for facilities described in section 142(a)(3)
of the 1986 Code) for purposes of part IV of subchapter B of
chapter 1 of the 1986 Code if such facility is described in 1 of
the following subparagraphs:
"(A) A facility is described in this subparagraph if -
"(i) such facility provides access to an international
airport,
"(ii) a corporation was formed in connection with such
project in September 1984,
"(iii) the Board of Directors of such corporation authorized
the hiring of various firms to conduct a feasibility study with
respect to such project in April 1985, and
"(iv) such feasibility study was completed in November 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $150,000,000.
"(B) A facility is described in this subparagraph if -
"(i) enabling legislation with respect to such project was
approved by the State legislature in 1979,
"(ii) a 1-percent local sales tax assessment to be dedicated
to the financing of such project was approved by the voters on
August 13, 1983, and
"(iii) a capital fund with respect to such project was
established upon the issuance of $90,000,000 of notes on
October 22, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $200,000,000 and such bonds must be
issued before January 1, 1996.
"(C) A facility is described in this subparagraph if -
"(i) bonds issued therefor are issued by or on behalf of an
authority organized in 1979 pursuant to enabling legislation
originally enacted by the State legislature in 1973, and
"(ii) such facility is part of a system connector described
in a resolution adopted by the board of directors of the
authority on March 27, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $400,000,000. Notwithstanding the last
paragraph of this subsection, this subparagraph shall apply to
bonds issued before January 1, 1996.
"(D) A facility is described in this subparagraph if -
"(i) the facility is a fixed guideway project,
"(ii) enabling legislation with respect to the issuing
authority was approved by the State legislature in May 1973,
"(iii) on October 28, 1985, a board issued a request for
consultants to conduct a feasibility study on mass transit
corridor analysis in connection with the facility, and
"(iv) on May 12, 1986, a board approved a further binding
contract for expenditures of approximately $1,494,963, to be
expended on a facility study.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $250,000,000. Notwithstanding the last
paragraph of this subsection, this subparagraph shall apply to
bonds issued before January 1, 1996.
"(20) Private colleges. - Subsections (c)(2) and (f) of section
148 of the 1986 Code shall not apply to any bond which is issued as
part of an issue if such bond -
"(A) is issued by a political subdivision pursuant to home rule
and interlocal cooperation powers conferred by the constitution
and laws of a State to provide funds to finance the costs of the
purchase and construction of educational facilities for private
colleges and universities, and
"(B) was the subject of a resolution of official action by such
political subdivision (Resolution No. 86-1039) adopted by the
governing body of such political subdivision on March 18, 1986.
The aggregate face amount of bonds to which this paragraph applies
shall not exceed $100,000,000.
"(21) Pooled financing programs. -
"(A) Section 147(b) of the 1986 Code shall not apply to any
hospital pooled financing program with respect to which -
"(i) a formal presentation was made to a city hospital
facilities authority on January 14, 1986, and
"(ii) such authority passed a resolution approving the bond
issue in principle on February 5, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $95,000,000.
"(B) Subsections (c)(2) and (f) of section 148 of the 1986 Code
shall not apply to bonds for which closing occurred on July 16,
1986, and for which a State municipal league served as
administrator for use in a State described in section
103A(g)(5)(C) of the Internal Revenue Code of 1954. The aggregate
face amount of obligations to which this subparagraph applies
shall not exceed $585,000,000.
"(22) Downtown redevelopment project. - Subsection (b) of section
626 of the Tax Reform Act of 1984 [section 626(b) of Pub. L. 98-
369, set out as a note under section 103 of this title] is amended
by adding at the end thereof the following new paragraph:
" '(7) Exception for certain downtown redevelopment project. -
The amendments made by this section shall not apply to any
obligation which is issued as part of an issue 95 percent or more
of the proceeds of which are to be used to provide a project to
acquire and redevelop a downtown area if -
" '(A) on August 15, 1985, a downtown redevelopment authority
adopted a resolution to issue obligations for such project,
" '(B) before September 26, 1985, the city expended, or entered
into binding contracts to expend, more than $10,000,000 in
connection with such project, and
" '(C) the State supreme court issued a ruling regarding the
proposed financing structure for such project on December 11,
1985.
The aggregate face amount of obligations to which this paragraph
applies shall not exceed $85,000,000 and such obligations must be
issued before January 1, 1992.'
"(23) Mass commuting and parking facilities. - A bond issued as
part of an issue 95 percent or more of the net proceeds of which
are to be used to provide any mass commuting facility or parking
facility (within the meaning of section 103(b)(4)(D) of the 1954
Code) shall be treated as an exempt facility bond for purposes of
part IV of subchapter B of chapter 1 of the 1986 Code if such
facility is provided in connection with the rehabilitation,
renovation, or other improvement to an existing railroad station
owned on the date of the enactment of this Act [Oct. 22, 1986] by
the National Railroad Passenger Corporation in the Northeast
Corridor and which was placed in partial service in 1934 and was
placed in the National Register of Historic Places in 1978. The
aggregate face amount of bonds to which this paragraph applies
shall not exceed $30,000,000.
"(24) Tax-exempt status of bonds of certain educational
organizations. -
"(A) In general. - For purposes of section 103 and part IV of
subchapter B of chapter 1 of the 1986 Code, a qualified
educational organization shall be treated as a governmental unit,
but only with respect to a trade or business carried on by such
organization which is not an unrelated trade or business
(determined by applying section 513(a) of such Code to such
organization). The last paragraph of this section shall not apply
to the treatment under the preceding sentence.
"(B) Qualified educational organization. - For purposes of
subparagraph (A), the term 'qualified educational organization'
means a college or university -
"(i) which was reincorporated and renewed with perpetual
existence as a corporation by specific act of the legislature
of the State within which such college or university is located
on March 19, 1913, or
"(ii) which -
"(I) was initially incorporated or created on February 28,
1787, on April 29, 1854, or on May 14, 1888, and
"(II) as an instrumentality of the State, serves as a
'State-related' university by a specific act of the
legislature of the State within which such college or
university is located.
"(25) Tax-exempt status of bonds of certain public utilities. -
"(A) In general. - Except as provided in subparagraph (B), a
bond shall be treated as a qualified bond for purposes of section
103 of the 1986 Code if such bond is issued after the date of the
enactment of this Act [Oct. 22, 1986] with respect to a public
utility facility if such facility is -
"(i) located at any non-federally owned dam (or on project
waters or adjacent lands) located wholly or partially in 1 or
more of 3 counties, 2 of which are contiguous to the third,
where the rated capacity of the hydroelectric generating
facilities at 5 of such dams on October 18, 1979, was more than
650 megawatts each,
"(ii) located at a dam (or on the project waters or adjacent
lands) at which hydroelectric generating facilities were
financed with the proceeds of tax-exempt obligations before
December 31, 1968,
"(iii) owned and operated by a State, political subdivision
of a State, or any agency or instrumentality of any of the
foregoing, and
"(iv) located at a dam (or on project waters or adjacent
lands) where the general public has access for recreational
purposes to such dam or to such project waters or adjacent
lands.
"(B) Special rules for subparagraph (a). -
"(i) Bonds subject to cap. - Section 146 of the 1986 Code
shall apply to any bond described in subparagraph (A) which
(without regard to subparagraph (A)) is a private activity
bond. For purposes of applying section 146(k) of the 1986 Code,
the public utility facility described in subparagraph (A) shall
be treated as described in paragraph (2) of such section and
such paragraph shall be applied without regard to the
requirement that the issuer establish that a State's share of
the use of a facility (or its output) will equal or exceed the
State's share of the private activity bonds issued to finance
the facility.
"(ii) Limitation on amount of bonds to which subparagraph (a)
applies. - The aggregate face amount of bonds to which
subparagraph (A) applies shall not exceed $750,000,000, not
more than $350,000,000 of which may be issued before January 1,
1992.
"(iii) Limitation on purposes. - Subparagraph (A) shall only
apply to bonds issued as part of an issue 95 percent or more of
the net proceeds of which are used to provide 1 or more of the
following:
"(I) A fish by-pass facility or fisheries enhancement
facility.
"(II) A recreational facility or other improvement which is
required by Federal licensing terms and conditions or other
Federal, State, or local law requirements.
"(III) A project of repair, maintenance, renewal, or
replacement, and safety improvement.
"(IV) Any reconstruction, replacement, or improvement,
including any safety improvement, which increases, or allows
an increase in, the capacity, efficiency, or productivity of
the existing generating equipment.
"(26) Convention and parking facilities. - A bond shall not be
treated as a private activity bond for purposes of section 103 and
part IV of subchapter B of chapter 1 of the 1986 Code if -
"(A) such bond is issued to provide a sports or convention
facility described in section 103(b)(4)(B) or (C) of the 1954
Code,
"(B) such bond is not described in section 103(b)(2) or
(o)(2)(A) of such Code,
"(C) legislation by a State legislature in connection with such
facility was enacted on July 19, 1985, and was designated Chapter
375 of the Laws of 1985, and
"(D) legislation by a State legislature in connection with the
appropriation of funds to a State public benefit corporation for
loans in connection with the construction of such facility was
enacted on April 17, 1985, and was designated Chapter 41 of the
Laws of 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $35,000,000.
"(27) Small issue termination. - Section 144(a)(12) of the 1986
Code shall not apply to any bond issued as part of an issue 95
percent or more of the net proceeds of which are to be used to
provide a facility described in any of the following subparagraphs:
"(A) A facility is described in this subparagraph if -
"(i) the facility is a hotel and office facility located in a
State capital,
"(ii) the economic development corporation of the city in
which the facility is located adopted an initial inducement
resolution on October 30, 1985, and
"(iii) a feasibility consultant was retained on February 21,
1986, with respect to such facility.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $10,000,000.
"(B) A facility is described in this subparagraph if such
facility is financed by bonds issued by a State finance authority
which was created in April 1985 by Act 1062 of the State General
Assembly, and the Bond Guarantee Act (Act 505 of 1985) allowed
such authority to pledge the interest from investment of the
State's general fund as a guarantee for bonds issued by such
authority. The aggregate face amount of bonds to which this
subparagraph applies shall not exceed $75,000,000.
"(C) A facility is described in this subparagraph if such
facility is a downtown mall and parking project for Holland,
Michigan, with respect to which an initial agreement was
formulated with the city in May 1985 and a formal memorandum of
understanding was executed on July 2, 1986. The aggregate face
amount of bonds to which this subparagraph applies shall not
exceed $18,200,000.
"(D) A facility is described in this subparagraph if such
facility is a downtown mall and parking ramp project for Traverse
City, Michigan, with respect to which a final development
agreement was signed in June 1986. The aggregate face amount of
bonds to which this subparagraph applies shall not exceed
$21,500,000.
"(E) A facility is described in this subparagraph if such
facility is the rehabilitation of the Heritage Hotel in
Marquette, Michigan. The aggregate face amount of bonds to which
this subparagraph applies shall not exceed $5,000,000.
"(F) A facility is described in this subparagraph if it is the
Lakeland Center Hotel in Lakeland, Florida. The aggregate face
amount of obligations to which this subparagraph applies shall
not exceed $10,000,000.
"(G) A facility is described in this subparagraph if it is the
Marble Arcade office building renovation project in Lakeland,
Florida. The aggregate face amount of obligations to which this
subparagraph applies shall not exceed $5,900,000.
"(H) A facility is described in this subparagraph if it is a
medical office building in Bradenton, Florida, with respect to
which -
"(i) a memorandum of agreement was entered into on October
17, 1985, and
"(ii) the city council held a public hearing and approved
issuance of the bonds on November 13, 1985.
The aggregate face amount of obligations to which this
subparagraph applies shall not exceed $8,500,000.
"(I) A facility is described in this subparagraph if it
consists of the rehabilitation of the Andover Town Hall in
Andover, Massachusetts. The provisions of section 149(b) of the
1986 Code (relating to federally guaranteed obligations) shall
not apply to obligations to finance such project solely as a
result of the occupation of a portion of such building by a
United States Post Office. For purposes of determining whether
any bond to which this subparagraph applies is a qualified small
issue bond, there shall not be taken into account under section
144(a) of the 1986 Code capital expenditures with respect to any
facility of the United States Government and there shall not be
taken into account any bond allocable to the United States
Government.
"(J) A facility is described in this subparagraph if it is the
Central Bank Building renovation project in Grand Rapids,
Michigan. The aggregate face amount of obligations to which this
subparagraph applies shall not exceed $1,000,000.
"(28) Certain private loans not taken into account. - For
purposes of determining whether any bond is a private activity
bond, an amount of loans (but not in excess of $75,000,000)
provided from the proceeds of 1 or more issues shall not be taken
into account if such loans are provided in furtherance of -
"(A) a city Emergency Conservation Plan as set forth in an
ordinance adopted by the city council of such city on February
17, 1983, or
"(B) a resolution adopted by the city council of such city on
March 10, 1983, committing such city to a goal of reducing the
peak load of such city's electric generation and distribution
system by 553 megawatts in 15 years.
"(29) Certain private business use not taken into account. -
"(A) The nonqualified amount of the proceeds of an issue shall
not be taken into account under section 141(b)(5) of the 1986
Code or in determining whether a bond described in subparagraph
(B) (which is part of such issue) is a private activity bond for
purposes of section 103 and part IV of subchapter B of chapter 1
of the 1986 Code.
"(B) A bond is described in this subparagraph if -
"(i) such bond is issued before January 1, 1993, by the State
of Connecticut, and
"(ii) such bond is issued pursuant to a resolution of the
State Bond Commission adopted before September 26, 1985.
"(C) The nonqualified amount to which this paragraph applies
shall not exceed $150,000,000.
"(D) For purposes of this paragraph, the term 'nonqualified
amount' has the meaning given such term by section 141(b)(8) of
the 1986 Code, except that such term shall include the amount of
the proceeds of an issue which is to be used (directly or
indirectly) to make or finance loans (other than loans described
in section 141(c)(2) of the 1986 Code) to persons other than
governmental units.
"(30) Volume cap not to apply to certain facilities. - For
purposes of section 146 of the 1986 Code, any exempt facility bond
for the following facility shall not be taken into account: The
facility is a facility for the furnishing of water which was
authorized under Public Law 90-537 [43 U.S.C. 1501 et seq.] of the
United States if -
"(A) construction of such facility began on May 6, 1973, and
"(B) forward funding will be provided for the remainder of the
project pursuant to a negotiated agreement between State and
local water users and the Secretary of the Interior signed April
15, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $391,000,000.
"(31) Certain hydroelectric generating property. - A bond shall
be treated as described in paragraph (2) of section 1316(f) of this
Act if -
"(A) such bond would be so described but for the substitution
specified in such paragraph,
"(B) on January 7, 1983, an application for a preliminary
permit was filed for the project for which such bond is issued
and received docket no. 6986, and
"(C) on September 20, 1983, the Federal Energy Regulatory
Commission issued an order granting the preliminary permit for
the project.
The aggregate face amount of bonds to which this paragraph applies
shall not exceed $12,000,000.
"(32) Volume cap. - The State ceiling applicable under section
146 of the 1986 Code for calendar year 1987 for the State which
ratified the United States Constitution on May 29, 1790, shall be
$150,000,000 higher than the State ceiling otherwise applicable
under such section for such year.
"(33) Application of $150,000,000 limitation for certain
qualified 501(c)(3) bonds. - Proceeds of an issue described in any
of the following subparagraphs shall not be taken into account
under section 145(b) of the 1986 Code.
"(A) Proceeds of an issue are described in this subparagraph if
-
"(i) such proceeds are used to provide medical school
facilities or medical research and clinical facilities for a
university medical center,
"(ii) such proceeds are of -
"(I) a $21,550,000 issue dated August 1, 1980,
"(II) a $84,400,000 issue dated September 1, 1984, and
"(III) a $48,500,000 issue (Series 1985 A and 1985 B) dated
on December 1, 1985, and
"(iii) the issuer of all such issues is the same.
"(B) Proceeds of an issue are described in this subparagraph if
such proceeds are for use by Yale University and -
"(i) the bonds are issued after August 8, 1986, by the State
of Connecticut Health and Educational Facilities Authority, or
"(ii) the bonds are the 1st or 2nd refundings (including
advance refundings) of the bonds described in clause (i) or of
original bonds issued before August 7, 1986, by such Authority.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $90,000,000.
"(C) Proceeds of an issue are described in this subparagraph if
-
"(i) such issue is issued on behalf of a university
established by Charter granted by King George II of England on
October 31, 1754, to accomplish a refunding (including an
advance refunding) of bonds issued to finance 1 or more
projects, and
"(ii) the application or other request for the issuance of
the issue to the appropriate State issuer was made by or on
behalf of such university before February 26, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $250,000,000.
"(D) Proceeds of an issue are described in this subparagraph if
-
"(i) such proceeds are to be used for finance construction of
a new student recreation center,
"(ii) a contract for the development phase of the project was
signed by the university on May 21, 1986, with a private
company for 5 percent of the costs of the project, and
"(iii) a committee of the university board of administrators
approved the major program elements for the center on August
11, 1986.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $25,000,000.
"(E) Proceeds of an issue are described in this subparagraph if
-
"(i) such proceeds are to be used in the construction of new
life sciences facilities for a university for medical research
and education,
"(ii) the president of the university authorized a
faculty/administration planning committee for such facilities
on September 17, 1982,
"(iii) the trustees of such university authorized site and
architect selection on October 30, 1984, and
"(iv) the university negotiated a $2,600,000 contract with
the architect on August 9, 1985.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $47,500,000.
"(F) Proceeds of an issue are described in this subparagraph if
such proceeds are to be used to renovate undergraduate chemistry
and engineering laboratories, and to rehabilitate other basic
science facilities, for an institution of higher education in
Philadelphia, Pennsylvania, chartered by legislative Acts of the
Commonwealth of Pennsylvania, including an Act dated September
30, 1791. The aggregate face amount of bonds to which this
subparagraph applies shall not exceed $6,500,000.
"(G) Proceeds of an issue are described in this subparagraph if
such proceeds are of bonds which are the first advance refunding
of bonds issued during 1985 for the development of a computer
network, and construction and renovation or rehabilitation of
other facilities, for an institution of higher education
described in subparagraph (F). The aggregate face amount of bonds
to which this subparagraph applies shall not exceed $80,000,000.
"(H) Proceeds of an issue are described in this subparagraph if
-
"(i) the issue is issued on behalf of a university founded in
1789, and
"(ii) the proceeds of the issue are to be used to finance
projects (to be determined by such university and the issuer)
which are similar to those projects intended to be financed by
bonds that were the subject of a request transmitted to
Congress on November 7, 1985[.]
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $200,000,000. Bonds to which this
subparagraph applies shall be treated as qualified 501(c)(3)
bonds if such bonds would not (if issued on August 15, 1986) be
industrial development bonds (as defined in section 103(b)(2) of
the 1954 Code), and section 147(f) of the 1986 Code shall not
apply to the issue of which such bonds are a part. Bonds issued
to finance facilities described in this subparagraph shall be
treated as issued to finance such facilities notwithstanding the
fact that a period in excess of 1 year has expired since the
facilities were placed in service.
"(I) Proceeds of an issue are described in this subparagraph if
the issue is issued on behalf of a university established on
August 6, 1872, for a project approved by the trustees thereof on
November 1, 1985. The aggregate face amount of bonds to which
this subparagraph applies shall not exceed $100,000,000.
"(J) Proceeds of an issue are described in this subparagraph if
-
"(i) the issue is issued on behalf of a university for which
the founding grant was signed on November 11, 1885, and
"(ii) such bond is issued for the purpose of providing a Near
West Campus Redevelopment Project and a Student Housing
Project.
The aggregate face amount of bonds to which this subparagraph
applies shall not exceed $105,000,000.
"(J) Proceeds of an issue are described in this subparagraph if
-
"(i) they are the proceeds of advance refunding obligations
issued on behalf of a university established on April 21, 1831,
and
"(ii) the application or other request for the issuance of
such obligations was made to the appropriate State issuer
before July 12, 1986.
The aggregate face amount of obligations to which this
subparagraph applies shall not exceed $175,000,000.
"(K) Proceeds of an issue are described in this subparagraph if
-
"(i) the issue or issues are for the purpose of financing or
refinancing costs associated with university facilities
including at least 900 units of housing for students, faculty,
and staff in up to two buildings and an office building
containing up to 245,000 square feet of space, and
"(ii) a bond act authorizing the issuance of such bonds for
such project was adopted on July 8, 1986, and such act under
Federal law was required to be transmitted to Congress.
The aggregate face amount of obligations to which this
subparagraph applies shall not exceed $112,000,000.
"(L) Proceeds of an issue are described in this subparagraph if
such issue is for Cornell University in an aggregate face amount
of not more than $150,000,000.
"(M) Proceeds of an issue are described in this subparagraph if
such issue is issued on behalf of the Society of the New York
Hospital to finance completion of a project commenced by such
hospital in 1981 for construction of a diagnostic and treatment
center or to refund bonds issued on behalf of such hospital in
connection with the construction of such diagnostic and treatment
center or to finance construction and renovation projects
associated with an inpatient psychiatric care facility. The
aggregate face amount of bonds to which this subparagraph applies
shall not exceed $150,000,000.
"(N) Any bond to which section 145(b) of the 1986 Code does not
apply by reason of this paragraph (other than subparagraph (A)
thereof) shall be taken into account in determining whether such
section applies to any later issue.
"(O) In the case of any refunding bond -
"(i) to which any subparagraph of this paragraph applies, and
"(ii) to which the last sentence of section 1313(c)(2)
applies,
such bond shall be treated as having such subparagraph apply (and
the refunding bond shall be treated for purposes of such section
as issued before January 1, 1986, and as not being an advance
refunding) unless the issuer elects the opposite result.
"(34) Arbitrage rebate. - Section 148(f) of the 1986 Code shall
not apply to any period before October 1, 1990, with respect to any
bond the proceeds of which are to be used to provide a high-speed
rail system for the State of Ohio. The aggregate face amount of
bonds to which this paragraph applies shall not exceed
$2,000,000,000.
"(35) Extension of carryforward period. -
"(A) In the case of a carryforward under section 103(n)(10) of
the 1954 Code of $170,000,000 of bond limit for calendar year
1984 for a project described in subparagraph (B), clause (i) of
section 103(n)(10)(C) of the 1954 Code shall be applied by
substituting '6 calendar years' for '3 calendar years', and such
carryforward may be used by any authority designated by the State
in which the facility is located.
"(B) A project is described in this subparagraph if -
"(i) such project is a facility for local furnishing of
electricity described in section 645 of the Tax Reform Act of
1984 [Pub. L. 98-369, div. A, title VI, Sec. 645, July 18,
1984, 98 Stat. 940], and
"(ii) construction of such facility commenced within the 3-
year period following the calendar year in which the
carryforward arose.
"(36) Power purchase bonds. - A bond issued to finance purchase
of power from a power facility at a dam being renovated pursuant to
P.L. 98-381 [43 U.S.C. 619 et seq.] shall not be treated as a
private activity bond if it would not be such under section
141(b)(1) and (2) of the 1986 Code if 25 percent were substituted
for 10 percent and the provisions of section 141(b)(3), (4), and
(5) of the 1986 Code did not apply. The aggregate face amount of
bonds to which this paragraph applies shall not exceed
$400,000,000.
"(37) Qualified mortgage bonds. - A bond issued as part of either
of 2 issues no later than September 8, 1986, shall be treated as a
qualified mortgage bond within the meaning of section 141(d)(1)(B)
of the 1986 Code if it satisfies the requirements of section 103A
of the 1954 Code and if the issues are issued by the two most
populous cities in the Tar Heel State. The aggregate face amount of
bonds to which this paragraph applies shall not exceed $4,000,000.
"(38) Exempt facility bonds. - A bond shall be treated as an
exempt facility bond within the meaning of section 142(a) of the
1986 Code if it is issued to fund residential, office, retail,
light industrial, recreational and parking development known as
Tobacco Row. Such bond shall be subject to section 146 of the 1986
Code. The aggregate face amount of bonds to which this paragraph
applies shall not exceed $100,000,000.
"(39) Certain bonds treated as qualified 501(c)(3) bonds. - A
bond issued as part of an issue shall be treated for purposes of
part IV of subchapter B of chapter 1 of the 1986 Code as a
qualified 501(c)(3) bond if -
"(A) such bond would not (if issued on August 15, 1986) be an
industrial development bond (as defined in section 103(b)(2) of
the 1954 Code), and
"(B) such issue was approved by city voters on January 19,
1985, for construction or renovation of facilities for the
cultural and performing arts.
The aggregate face amount of bonds to which this paragraph applies
shall not exceed $5,000,000.
"(40) Certain library bonds. - In the case of a bond issued
before January 1, 1986, by the City of Los Angeles Community
Redevelopment Agency to provide the library and related structures
associated with the City of Los Angeles Central Library Project,
the ownership and use of the land and facilities associated with
such project by persons which are not governmental units (or
payments from such persons) shall not adversely affect the
exclusion from gross income under section 103 of the 1954 Code of
interest on such bonds.
"(41) Certain refunding obligations for certain power facilities.
- With respect to 2 net billed nuclear power facilities located in
the State of Washington on which construction has been suspended,
the requirements of section 147(b) of the 1986 Code shall be
treated as satisfied with respect to refunding bonds issued before
1992 if -
"(A) each refunding bond has a maturity date not later than the
maturity date of the refunded bond, and
"(B) the facilities have not been placed in service as of the
date of issuance of the refunding bond.
The aggregate face amount of bonds to which this paragraph applies
shall not exceed $2,000,000,000. Section 146 of the 1986 Code and
the last paragraph of this section shall not apply to bonds to
which this paragraph applies.
"(42) Residential rental property. - A bond issued to finance a
residential rental project within the meaning of 103(b)(4) of the
1954 Code shall be treated as an exempt facility bond within the
meaning of section 142(a)(7) of the 1986 Code if the county housing
finance authority adopted an inducement resolution with respect to
the project on May 8, 1985, and the project is located in Polk
County, Florida. The aggregate face amount of bonds to which this
paragraph applies shall not exceed $4,100,000.
"(43) Extension of advance refunding for certain facilities. -
Paragraph (4) of section 631(c) of the Tax Reform Act of 1984
[section 631(c)(4) of Pub. L. 98-369, set out as a note under
section 103 of this title] is amended -
"(A) by striking out the second sentence thereof,
"(B) by adding at the end thereof the following new sentence:
'In the case of refunding obligations not exceeding $100,000,000
issued by the Alabama State Docks Department, the first sentence
of this paragraph shall be applied by substituting "December 31,
1987" for "December 31, 1984".'
"(44) Pool bonds. - The following amounts of pool bonds are
exempt from the arbitrage rebate requirement of section 148(f) of
the 1986 Code and the temporary period limitation of section
148(c)(2) of the 1986 Code:
Pool 2Maximum
Bond Amount
--------------------------------------------------------------------
Tennessee Utility Districts Pool $80,000,000
New Mexico Hospital Equipment Loan Council $35,000,000
Pennsylvania Local Government Investment Trust Po $375,000,000
Indiana Bond Bank Pool $240,000,000
Hernando County, Florida Bond Pool $300,000,000
Utah Municipal Finance Cooperative Pool $262,000,000
North Carolina League of Municipalities Pool $200,000,000
Kentucky Municipal League Bond Pool $170,000,000
Kentucky Association of Counties Bond Pool $200,000,000
Homewood Municipal Bond Pool $50,000,000
Colorado Association of School Boards Pool $300,000,000
Tennessee Municipal League Pooled Bonds $75,000,000
Georgia Municipal Association Pool $130,000,000
--------------------------------------------------------------------
"(45) Certain carryforward elections. - Notwithstanding any other
provision of this title [enacting this section and sections 142 to
150 and 7703 of this title, amending sections 2, 22, 25, 32, 86,
103, 105, 152, 153, 163, 172, 194, 269A, 414, 879, 1016, 1398,
3402, 4701, 4940, 4942, 4988, 6362, 6652, and 7871 of this title,
repealing sections 103A, 1391 to 1397, and 6039B of this title,
omitting former section 143 of this title, enacting provisions set
out as notes under this section and sections 148 and 501 of this
title, and amending provisions set out as a note under section 103A
of this title] -
"(A) In the case of a metropolitan service district created
pursuant to State revised statutes, chapter 268, up to
$100,000,000 unused 1985 bond authority may be carried forward to
any year until 1989 (regardless of the date on which such
carryforward election is made).
"(B) If -
"(i) official action was taken by an industrial development
board on September 16, 1985, with respect to the issuance of
not more than $98,500,000, of waste water treatment revenue
bonds, and
"(ii) an executive order of the governor granted a
carryforward of State bond authority for such project on
December 30, 1985,
such carryforward election shall be valid for any year through
1988. The aggregate face amount of obligations to which this
subparagraph applies shall not exceed $98,500,000.
"(46) Treatment of certain obligations to finance hydroelectric
generating facility. - If -
"(A) obligations are issued in an amount not exceeding
$5,000,000 to finance the construction of a hydroelectric
generating facility located on the North Fork of Cache Creek in
Lake County, California, which was the subject of a preliminary
resolution of the issuer of the obligations on June 29, 1982, or
are issued to refund any of such obligations,
"(B) substantially all of the electrical power generated by
such facility is to be sold to a nongovernmental person pursuant
to a long-term power sales agreement in accordance with the
Public Utility Regulatory Policies Act of 1978 [Pub. L. 95-617,
see Short Title note set out under 16 U.S.C. 2601], and
"(C) the initially issued obligations are issued on or before
December 31, 1986, and any of such refunding obligations are
issued on or before December 31, 1996,
then the person referred to in subparagraph (B) shall not be
treated as a principal user of such facilities by reason of such
sales for purposes of subparagraphs (D) and (E) of section
103(b)(6) of the 1954 Code.
"(47) Treatment of certain obligations to finance steam and
electric cogeneration facility. - If -
"(A) obligations are issued on or before December 31, 1986, in
an amount not exceeding $4,400,000 to finance a facility for the
generation and transmission of steam and electricity having a
maximum electrical capacity of approximately 5.3 megawatts and
located within the City of San Jose, California, or are issued to
refund any of such obligations,
"(B) substantially all of the electrical power generated by
such facility that is not sold to an institution of higher
education created by statute of the State of California is to be
sold to a nongovernmental person pursuant to a long-term power
sales agreement in accordance with the Public Utility Regulatory
Policies Act of 1978 [Pub. L. 95-617, see Short Title note set
out under 16 U.S.C. 2601], and
"(C) the initially issued obligations are issued on or before
December 31, 1986, and any of such refunding obligations are
issued on or before December 31, 1996,
then the nongovernmental person referred to in subparagraph (B)
shall not be treated as a principal user of such facilities by
reason of such sales for purposes of subparagraphs (D) and (E) of
section 103(b)(6) of the Internal Revenue Code of 1954.
"(48) Treatment of certain obligations. - A bond which is not an
industrial development bond under section 103(b)(2) of the Internal
Revenue Code of 1954 shall not be treated as a private activity
bond for purposes of part IV of subchapter B of chapter 1 of the
1986 Code if 95 percent or more of the net proceeds of the issue of
which such bond is a part are used to provide facilities described
in any of the following subparagraphs:
"(A) A facility is described in this subparagraph if it is a
governmentally-owned and operated State fair and exposition
center with respect to which -
"(i) the 1985 session of the State legislature authorized
revenue bonds to be issued in a maximum amount of $10,000,000,
and
"(ii) a market feasibility study dated June 30, 1986,
relating to a major capital improvemental program at the
facility was prepared for the advisory board of the State fair
and exposition center by a certified public accounting firm.
The aggregate face amount of obligations to which this
subparagraph applies shall not exceed $10,000,000.
"(B) A facility is described in this subparagraph if it is a
convention, trade, or spectator facility which is to be located
in the State with respect to which paragraph (6)(U) applies and
with respect to which feasibility and preliminary design
consultants were hired on May 1, 1985 and October 31, 1985. The
aggregate face amount of obligations to which this subparagraph
applies shall not exceed $175,000,000.
"(C) A facility which is part of a project described in
paragraph (6)(O). The aggregate face amount of bonds to which
this subparagraph applies shall not exceed $20,000,000.
"(49) Transition rule for refunding certain housing bonds. -
Sections 146 and 149(d)(2) of the 1986 Code shall not apply to the
refunding of any bond issued under section 11(b) of the United
States Housing Act of 1937 [42 U.S.C. 1437i(b)] before December 31,
1983, if -
"(A) the bond has an original term to maturity of at least 40
years,
"(B) the maturity date of the refunding bonds does not exceed
the maturity date of the refunded bonds,
"(C) the amount of the refunding bonds does not exceed the
outstanding amount of the refunded bonds,
"(D) the interest rate on the refunding bonds is lower than the
interest rate of the refunded bonds, and
"(E) the refunded bond is required to be redeemed not later
than the earliest date on which such bond could be redeemed at
par.
"(50) Transitioned bonds subject to certain rules. - In the case
of any bond to which any provision of this section applies, except
as otherwise expressly provided, sections 103 and 103A of the 1954
Code shall be applied as if the requirements of sections 147(g),
148, and 149(d) of the 1986 Code were included in each such
section.
"(51) Certain additional projects. - Section 141(b) of the 1986
Code shall be applied by substituting '25' for '10' each place it
appears and by not applying sections 141(b)(3) and 141(c)(1)(B) to
bonds substantially all of the proceeds are used for -
"(A) A project is described in this subparagraph if it consists
of a capital improvements program for a metropolitan sewer
district, with respect to which a proposition was submitted to
voters on August 7, 1984. The aggregate face amount of
obligations to which this subparagraph applies shall not exceed
$60,000,000.
"(B) Facilities described in this subparagraph if it consists
of additions, extensions, and improvements to the wastewater
system for Lakeland, Florida. The aggregate face amount of
obligations to which this subparagraph applies shall not exceed
$20,000,000.
"(C) A project is described in this subparagraph if it is the
Central Valley Water Reclamation Project in Utah. The aggregate
face amount of obligations to which this subparagraph applies
shall not exceed $100,000,000.
"(D) A project is described in this subparagraph if it is a
project to construct approximately 26 miles of toll expressways,
with respect to which any appeal to validation was filed July 11,
1986. The aggregate face amount of obligations to which this
subparagraph applies shall not exceed $450,000,000.
"(52) Termination. - Except as otherwise provided in this
section, this section shall not apply to any bond issued after
December 31, 1990.
"SEC. 1318. DEFINITIONS, ETC., RELATING TO EFFECTIVE DATES AND
TRANSITIONAL RULES.
"(a) Definitions. - For purposes of this subtitle -
"(1) 1954 code. - The term '1954 Code' means the Internal
Revenue Code of 1954 as in effect on the day before the date of
the enactment of this Act [Oct. 22, 1986].
"(2) 1986 code. - The term '1986 Code' means the Internal
Revenue Code of 1986 as amended by this Act [see Tables for
classification].
"(3) Bond. - The term 'bond' includes any obligation.
"(4) Advance refund. - A bond shall be treated as issued to
advance refund another bond if it is issued more than 90 days
before the redemption of the refunded bond.
"(5) Net proceeds. - The term 'net proceeds' has the meaning
given such term by section 150(a) of the 1986 Code.
"(6) Continued application of the 1954 code. - Nothing in this
subtitle shall be construed to exempt any bond from any provision
of the 1954 Code by reason of a delay in (or exemption from) the
application of any amendment made by subtitle A [sections 1301 to
1303 of Pub. L. 99-514, enacting this section and sections 142 to
150 and 7703 of this title, amending sections 2, 22, 25, 32, 86,
103, 105, 152, 153, 163, 172, 194, 269A, 414, 879, 1016, 1398,
3402, 4701, 4940, 4942, 4988, 6362, 6652, and 7871 of this title,
repealing sections 103A, 1391 to 1397, and 6039B of this title,
omitting former section 143 of this title, enacting provisions
set out as notes under this section and sections 148 and 501 of
this title, and amending provisions set out as a note under
section 103A of this title].
"(7) Treatment as exempt facility. - Any bond which is treated
as an exempt facility bond by section 1316 or 1317 shall not fail
to be so treated by reason of subsection (b) of section 142 of
the 1986 Code.
"(8) Application of future legislation to transitioned bonds. -
In the case of any bond to which the amendments made by section
1301 [for classification see section 1311(a) of this note] do not
apply by reason of a provision of this Act [see Tables for
classification], any amendment of the 1986 Code (and any other
provision applicable to such Code) included in any law enacted
after October 22, 1986, shall be treated as included in section
103 and section 103A (as appropriate) of the 1954 Code with
respect to such bond unless -
"(A) such law expressly provides that such amendment (or
other provision) shall not apply to such bond, or
"(B) such amendment (or other provision) applies to a
provision of the 1986 Code -
"(i) for which there is no corresponding provision in
section 103 and section 103A (as appropriate) of the 1954
Code, and
"(ii) which is not otherwise treated as included in such
sections 103 and 103A with respect to such bond.
"(b) Minimum Tax Treatment. -
"(1) In general. - Any bond described in paragraph (2) shall
not be treated as a private activity bond for purposes of section
57 of the 1986 Code unless such bond would (if issued on August
7, 1986) be -
"(A) an industrial development bond (as defined in section
103(b)(2) of the 1954 Code), or
"(B) a private loan bond (as defined in section 103(o)(2)(A)
of the 1954 Code, without regard to any exception from such
definition other than section 103(o)(2)(C) of such Code).
"(2) Bonds described. - For purposes of paragraph (1), a bond
is described in this paragraph if -
"(A) the amendments made by section 1301 [for classification
see section 1311(a) of this note] do not apply to such bond by
reason of section 1312 or 1316(g),
"(B) any provision of section 1317 applies to such bond, or
"(C) the proceeds of such bond are used to refund any bond
referred to in subparagraph (A) or (B) (or any bond which is
part of a series of refundings of such a bond) if the
requirements of paragraphs (1), (2), and (3) of subsection (c)
are met with respect to the refunding bond.
"(c) Current Refundings Not Taken Into Account in Applying
Aggregate Limit on Bonds to Which Transitional Rules Apply. - The
limitation on the aggregate face amount of bonds to which any
provision of section 1316(g) or 1317 applies shall not be reduced
by the face amount of any bond the proceeds of which are to be used
exclusively to refund any bond to which such provision applies (or
any bond which is part of a series of refundings of such bond) if -
"(1) the average maturity date of the issue of which the
refunding bond is a part is not later than the average maturity
date of the bonds to be refunded by such issue,
"(2) the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond, and
"(3) the net proceeds of the refunding bond are used to redeem
the refunded bond not later than 90 days after the date of the
issuance of the refunding bond.
For purposes of paragraph (1), average maturity shall be determined
in accordance with section 147(b)(2)(A) of the 1986 Code. No
limitation in section 1316(g) or 1317 on the period during which
bonds may be issued under such section shall apply to any refunding
bond which meets the requirements of this subsection.
"(d) Special Rule Permitting Carryforward of Volume Cap for
Certain Transitioned Projects. - A bond to which section 1312 or
1317 applies shall be treated as having a carryforward purpose
described in section 146(f)(5) of the 1986 Code, and the
requirement of section 146(f)(2)(A) of the 1986 Code shall be
treated as met if such project is identified with reasonable
specificity. The preceding sentence shall not apply so as to permit
a carryforward with respect to any qualified small issue bond."
[Section 1013(c)(2)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending section 1313(a)(3)(C)
of Pub. L. 99-514, set out above] shall apply to bonds issued after
June 30, 1987".]
[Section 1013(c)(11)(E) of Pub. L. 100-647 provided that: "A
refunding bond issued before July 1, 1987, shall be treated as
meeting the requirement of subparagraph (A) of section 1313(c)(1)
of the Reform Act [Pub. L. 99-514, set out above] if such bond met
the requirement of such subparagraph as in effect before the
amendments made by this paragraph [amending section 1313(c) of Pub.
L. 99-514, set out above]."]
[Section 1013(c)(14)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending section 1313 of Pub.
L. 99-514, set out above] shall apply with respect to refunding
bonds issued after October 16, 1987."]
[Section 1013(e)(2)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending section 1315(e) of
Pub. L. 99-514, set out above] shall apply to bonds issued after
June 10, 1987."]
[Section 1013(f)(1)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending section 1316 of Pub.
L. 99-514, set out above] shall apply only with respect to
carryforwards of volume cap for years after 1986."]
[Section 1013(f)(7)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending section 1316(g)(8) of
Pub. L. 99-514, set out above] shall apply only with respect to
carryforwards of volume cap for years after 1986."]
REGULATIONS
Section 1301(i) of Pub. L. 99-514 provided that: "The Secretary
of the Treasury or his delegate shall amend the provision in the
Federal income tax regulations relating to when use pursuant to
certain output contracts is considered to satisfy the private
business tests of paragraphs (1) and (2) of section 141(b) of the
Internal Revenue Code of 1986 to eliminate the requirement of a 3
percent guaranteed minimum payment."
APPLICATION OF SECURITY INTEREST TEST TO BOND FINANCING OF
HAZARDOUS WASTE CLEAN-UP ACTIVITIES
Section 6179 of Pub. L. 100-647 provided that: "Before January 1,
1989, the Secretary of the Treasury or his delegate shall issue
guidance concerning the application of the private security or
payment test under section 141(b)(2) of the Internal Revenue Code
of 1986 to tax-exempt bond financing by State and local governments
of hazardous waste clean-up activities conducted by such
governments where some of the activities occur on privately owned
land."
STATE AND LOCAL GOVERNMENT SERIES MODIFICATIONS
Section 1301(d) of Pub. L. 99-514 provided that: "Notwithstanding
any other provision of law or any regulations promulgated
thereunder (including the provisions of 31 CFR part 344) the
Secretary of the Treasury shall extend by January 1, 1987, the
State and Local Government Series program to provide -
"(1) instruments allowing flexible investment of bond proceeds
in a manner eliminating the earning of rebatable arbitrage,
"(2) demand deposits under such program by eliminating advance
notice and minimum maturity requirements related to the purchase
of bonds,
"(3) operation of such program at no net cost to the Federal
Government, and
"(4) deposits for a stated maturity under reasonable advance
notice requirements."
MANAGEMENT CONTRACTS
Section 1301(e) of Pub. L. 99-514 provided that: "The Secretary
of the Treasury or his delegate shall modify the Secretary's
advance ruling guidelines relating to when use of property pursuant
to a management contract is not considered a trade or business use
by a private person for purposes of section 141(a) of the Internal
Revenue Code of 1986 to provide that use pursuant to a management
contract generally shall not be treated as trade or business use as
long as -
"(1) the term of such contract (including renewal options) does
not exceed 5 years,
"(2) the exempt owner has the option to cancel such contract at
the end of any 3-year period,
"(3) the manager under the contract is not compensated (in
whole or in part) on the basis of a share of net profits, and
"(4) at least 50 percent of the annual compensation of the
manager under such contract is based on a periodic fixed fee."
-FOOTNOTE-
(!1) So in original. Probably should end with a period after
"146".
-End-
-CITE-
26 USC Sec. 142 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart A - Private Activity Bonds
-HEAD-
Sec. 142. Exempt facility bond
-STATUTE-
(a) General rule
For purposes of this part, the term "exempt facility bond" means
any bond issued as part of an issue 95 percent or more of the net
proceeds of which are to be used to provide -
(1) airports,
(2) docks and wharves,
(3) mass commuting facilities,
(4) facilities for the furnishing of water,
(5) sewage facilities,
(6) solid waste disposal facilities,
(7) qualified residential rental projects,
(8) facilities for the local furnishing of electric energy or
gas,
(9) local district heating or cooling facilities,
(10) qualified hazardous waste facilities,
(11) high-speed intercity rail facilities,
(12) environmental enhancements of hydroelectric generating
facilities,
(13) qualified public educational facilities,
(14) qualified green building and sustainable design projects,
or
(15) qualified highway or surface freight transfer facilities.
(b) Special exempt facility bond rules
For purposes of subsection (a) -
(1) Certain facilities must be governmentally owned
(A) In general
A facility shall be treated as described in paragraph (1),
(2), (3), or (12) of subsection (a) only if all of the property
to be financed by the net proceeds of the issue is to be owned
by a governmental unit.
(B) Safe harbor for leases and management contracts
For purposes of subparagraph (A), property leased by a
governmental unit shall be treated as owned by such
governmental unit if -
(i) the lessee makes an irrevocable election (binding on
the lessee and all successors in interest under the lease)
not to claim depreciation or an investment credit with
respect to such property,
(ii) the lease term (as defined in section 168(i)(3)) is
not more than 80 percent of the reasonably expected economic
life of the property (as determined under section 147(b)),
and
(iii) the lessee has no option to purchase the property
other than at fair market value (as of the time such option
is exercised).
Rules similar to the rules of the preceding sentence shall
apply to management contracts and similar types of operating
agreements.
(2) Limitation on office space
An office shall not be treated as described in a paragraph of
subsection (a) unless -
(A) the office is located on the premises of a facility
described in such a paragraph, and
(B) not more than a de minimis amount of the functions to be
performed at such office is not directly related to the day-to-
day operations at such facility.
(c) Airports, docks and wharves, mass commuting facilities and high-
speed intercity rail facilities
For purposes of subsection (a) -
(1) Storage and training facilities
Storage or training facilities directly related to a facility
described in paragraph (1), (2), (3) or (11) of subsection (a)
shall be treated as described in the paragraph in which such
facility is described.
(2) Exception for certain private facilities
Property shall not be treated as described in paragraph (1),
(2), (3) or (11) of subsection (a) if such property is described
in any of the following subparagraphs and is to be used for any
private business use (as defined in section 141(b)(6)).
(A) Any lodging facility.
(B) Any retail facility (including food and beverage
facilities) in excess of a size necessary to serve passengers
and employees at the exempt facility.
(C) Any retail facility (other than parking) for passengers
or the general public located outside the exempt facility
terminal.
(D) Any office building for individuals who are not employees
of a governmental unit or of the operating authority for the
exempt facility.
(E) Any industrial park or manufacturing facility.
(d) Qualified residential rental project
For purposes of this section -
(1) In general
The term "qualified residential rental project" means any
project for residential rental property if, at all times during
the qualified project period, such project meets the requirements
of subparagraph (A) or (B), whichever is elected by the issuer at
the time of the issuance of the issue with respect to such
project:
(A) 20-50 test
The project meets the requirements of this subparagraph if 20
percent or more of the residential units in such project are
occupied by individuals whose income is 50 percent or less of
area median gross income.
(B) 40-60 test
The project meets the requirements of this subparagraph if 40
percent or more of the residential units in such project are
occupied by individuals whose income is 60 percent or less of
area median gross income.
For purposes of this paragraph, any property shall not be treated
as failing to be residential rental property merely because part
of the building in which such property is located is used for
purposes other than residential rental purposes.
(2) Definitions and special rules
For purposes of this subsection -
(A) Qualified project period
The term "qualified project period" means the period
beginning on the 1st day on which 10 percent of the residential
units in the project are occupied and ending on the latest of -
(i) the date which is 15 years after the date on which 50
percent of the residential units in the project are occupied,
(ii) the 1st day on which no tax-exempt private activity
bond issued with respect to the project is outstanding, or
(iii) the date on which any assistance provided with
respect to the project under section 8 of the United States
Housing Act of 1937 terminates.
(B) Income of individuals; area median gross income
The income of individuals and area median gross income shall
be determined by the Secretary in a manner consistent with
determinations of lower income families and area median gross
income under section 8 of the United States Housing Act of 1937
(or, if such program is terminated, under such program as in
effect immediately before such termination). Determinations
under the preceding sentence shall include adjustments for
family size. Section 7872(g) shall not apply in determining the
income of individuals under this subparagraph.
(3) Current income determinations
For purposes of this subsection -
(A) In general
The determination of whether the income of a resident of a
unit in a project exceeds the applicable income limit shall be
made at least annually on the basis of the current income of
the resident.
(B) Continuing resident's income may increase above the
applicable limit
If the income of a resident of a unit in a project did not
exceed the applicable income limit upon commencement of such
resident's occupancy of such unit (or as of any prior
determination under subparagraph (A)), the income of such
resident shall be treated as continuing to not exceed the
applicable income limit. The preceding sentence shall cease to
apply to any resident whose income as of the most recent
determination under subparagraph (A) exceeds 140 percent of the
applicable income limit if after such determination, but before
the next determination, any residential unit of comparable or
smaller size in the same project is occupied by a new resident
whose income exceeds the applicable income limit.
(4) Special rule in case of deep rent skewing
(A) In general
In the case of any project described in subparagraph (B), the
2d sentence of subparagraph (B) of paragraph (3) shall be
applied by substituting -
(i) "170 percent" for "140 percent", and
(ii) "any low-income unit in the same project is occupied
by a new resident whose income exceeds 40 percent of area
median gross income" for "any residential unit of comparable
or smaller size in the same project is occupied by a new
resident whose income exceeds the applicable income limit".
(B) Deep rent skewed project
A project is described in this subparagraph if the owner of
the project elects to have this paragraph apply and, at all
times during the qualified project period, such project meets
the requirements of clauses (i), (ii), and (iii):
(i) The project meets the requirements of this clause if 15
percent or more of the low-income units in the project are
occupied by individuals whose income is 40 percent or less of
area median gross income.
(ii) The project meets the requirements of this clause if
the gross rent with respect to each low-income unit in the
project does not exceed 30 percent of the applicable income
limit which applies to individuals occupying the unit.
(iii) The project meets the requirements of this clause if
the gross rent with respect to each low-income unit in the
project does not exceed 1/2 of the average gross rent with
respect to units of comparable size which are not occupied by
individuals who meet the applicable income limit.
(C) Definitions applicable to subparagraph (B)
For purposes of subparagraph (B) -
(i) Low-income unit
The term "low-income unit" means any unit which is required
to be occupied by individuals who meet the applicable income
limit.
(ii) Gross rent
The term "gross rent" includes -
(I) any payment under section 8 of the United States
Housing Act of 1937, and
(II) any utility allowance determined by the Secretary
after taking into account such determinations under such
section 8.
(5) Applicable income limit
For purposes of paragraphs (3) and (4), the term "applicable
income limit" means -
(A) the limitation under subparagraph (A) or (B) of paragraph
(1) which applies to the project, or
(B) in the case of a unit to which paragraph (4)(B)(i)
applies, the limitation which applies to such unit.
(6) Special rule for certain high cost housing area
In the case of a project located in a city having 5 boroughs
and a population in excess of 5,000,000, subparagraph (B) of
paragraph (1) shall be applied by substituting "25 percent" for
"40 percent".
(7) Certification to Secretary
The operator of any project with respect to which an election
was made under this subsection shall submit to the Secretary (at
such time and in such manner as the Secretary shall prescribe) an
annual certification as to whether such project continues to meet
the requirements of this subsection. Any failure to comply with
the provisions of the preceding sentence shall not affect the tax-
exempt status of any bond but shall subject the operator to
penalty, as provided in section 6652(j).
(e) Facilities for the furnishing of water
For purposes of subsection (a)(4), the term "facilities for the
furnishing of water" means any facility for the furnishing of water
if -
(1) the water is or will be made available to members of the
general public (including electric utility, industrial,
agricultural, or commercial users), and
(2) either the facility is operated by a governmental unit or
the rates for the furnishing or sale of the water have been
established or approved by a State or political subdivision
thereof, by an agency or instrumentality of the United States, or
by a public service or public utility commission or other similar
body of any State or political subdivision thereof.
(f) Local furnishing of electric energy or gas
For purposes of subsection (a)(8) -
(1) In general
The local furnishing of electric energy or gas from a facility
shall only include furnishing solely within the area consisting
of -
(A) a city and 1 contiguous county, or
(B) 2 contiguous counties.
(2) Treatment of certain electric energy transmitted outside
local area
(A) In general
A facility shall not be treated as failing to meet the local
furnishing requirement of subsection (a)(8) by reason of
electricity transmitted pursuant to an order of the Federal
Energy Regulatory Commission under section 211 or 213 of the
Federal Power Act (as in effect on the date of the enactment of
this paragraph) if the portion of the cost of the facility
financed with tax-exempt bonds is not greater than the portion
of the cost of the facility which is allocable to the local
furnishing of electric energy (determined without regard to
this paragraph).
(B) Special rule for existing facilities
In the case of a facility financed with bonds issued before
the date of an order referred to in subparagraph (A) which
would (but for this subparagraph) cease to be tax-exempt by
reason of subparagraph (A), such bonds shall not cease to be
tax-exempt bonds (and section 150(b)(4) shall not apply) if, to
the extent necessary to comply with subparagraph (A) -
(i) an escrow to pay principal of, premium (if any), and
interest on the bonds is established within a reasonable
period after the date such order becomes final, and
(ii) bonds are redeemed not later than the earliest date on
which such bonds may be redeemed.
(3) Termination of future financing
For purposes of this section, no bond may be issued as part of
an issue described in subsection (a)(8) with respect to a
facility for the local furnishing of electric energy or gas on or
after the date of the enactment of this paragraph unless -
(A) the facility will -
(i) be used by a person who is engaged in the local
furnishing of that energy source on January 1, 1997, and
(ii) be used to provide service within the area served by
such person on January 1, 1997 (or within a county or city
any portion of which is within such area), or
(B) the facility will be used by a successor in interest to
such person for the same use and within the same service area
as described in subparagraph (A).
(4) Election to terminate tax-exempt bond financing by certain
furnishers
(A) In general
In the case of a facility financed with bonds issued before
the date of the enactment of this paragraph which would cease
to be tax-exempt by reason of the failure to meet the local
furnishing requirement of subsection (a)(8) as a result of a
service area expansion, such bonds shall not cease to be tax-
exempt bonds (and section 150(b)(4) shall not apply) if the
person engaged in such local furnishing by such facility makes
an election described in subparagraph (B).
(B) Election
An election is described in this subparagraph if it is an
election made in such manner as the Secretary prescribes, and
such person (or its predecessor in interest) agrees that -
(i) such election is made with respect to all facilities
for the local furnishing of electric energy or gas, or both,
by such person,
(ii) no bond exempt from tax under section 103 and
described in subsection (a)(8) may be issued on or after the
date of the enactment of this paragraph with respect to all
such facilities of such person,
(iii) any expansion of the service area -
(I) is not financed with the proceeds of any exempt
facility bond described in subsection (a)(8), and
(II) is not treated as a nonqualifying use under the
rules of paragraph (2), and
(iv) all outstanding bonds used to finance the facilities
for such person are redeemed not later than 6 months after
the later of -
(I) the earliest date on which such bonds may be
redeemed, or
(II) the date of the election.
(C) Related persons
For purposes of this paragraph, the term "person" includes a
group of related persons (within the meaning of section
144(a)(3)) which includes such person.
(g) Local district heating or cooling facility
(1) In general
For purposes of subsection (a)(9), the term "local district
heating or cooling facility" means property used as an integral
part of a local district heating or cooling system.
(2) Local district heating or cooling system
(A) In general
For purposes of paragraph (1), the term "local district
heating or cooling system" means any local system consisting of
a pipeline or network (which may be connected to a heating or
cooling source) providing hot water, chilled water, or steam to
2 or more users for -
(i) residential, commercial, or industrial heating or
cooling, or
(ii) process steam.
(B) Local system
For purposes of this paragraph, a local system includes
facilities furnishing heating and cooling to an area consisting
of a city and 1 contiguous county.
(h) Qualified hazardous waste facilities
For purposes of subsection (a)(10), the term "qualified hazardous
waste facility" means any facility for the disposal of hazardous
waste by incineration or entombment but only if -
(1) the facility is subject to final permit requirements under
subtitle C of title II of the Solid Waste Disposal Act (as in
effect on the date of the enactment of the Tax Reform Act of
1986), and
(2) the portion of such facility which is to be provided by the
issue does not exceed the portion of the facility which is to be
used by persons other than -
(A) the owner or operator of such facility, and
(B) any related person (within the meaning of section
144(a)(3)) to such owner or operator.
(i) High-speed intercity rail facilities
(1) In general
For purposes of subsection (a)(11), the term "high-speed
intercity rail facilities" means any facility (not including
rolling stock) for the fixed guideway rail transportation of
passengers and their baggage between metropolitan statistical
areas (within the meaning of section 143(k)(2)(B)) using vehicles
that are reasonably expected to operate at speeds in excess of
150 miles per hour between scheduled stops, but only if such
facility will be made available to members of the general public
as passengers.
(2) Election by nongovernmental owners
A facility shall be treated as described in subsection (a)(11)
only if any owner of such facility which is not a governmental
unit irrevocably elects not to claim -
(A) any deduction under section 167 or 168, and
(B) any credit under this subtitle,
with respect to the property to be financed by the net proceeds
of the issue.
(3) Use of proceeds
A bond issued as part of an issue described in subsection
(a)(11) shall not be considered an exempt facility bond unless
any proceeds not used within a 3-year period of the date of the
issuance of such bond are used (not later than 6 months after the
close of such period) to redeem bonds which are part of such
issue.
(j) Environmental enhancements of hydroelectric generating
facilities
(1) In general
For purposes of subsection (a)(12), the term "environmental
enhancements of hydroelectric generating facilities" means
property -
(A) the use of which is related to a federally licensed
hydroelectric generating facility owned and operated by a
governmental unit, and
(B) which -
(i) protects or promotes fisheries or other wildlife
resources, including any fish by-pass facility, fish
hatchery, or fisheries enhancement facility, or
(ii) is a recreational facility or other improvement
required by the terms and conditions of any Federal licensing
permit for the operation of such generating facility.
(2) Use of proceeds
A bond issued as part of an issue described in subsection
(a)(12) shall not be considered an exempt facility bond unless at
least 80 percent of the net proceeds of the issue of which it is
a part are used to finance property described in paragraph
(1)(B)(i).
(k) Qualified public educational facilities
(1) In general
For purposes of subsection (a)(13), the term "qualified public
educational facility" means any school facility which is -
(A) part of a public elementary school or a public secondary
school, and
(B) owned by a private, for-profit corporation pursuant to a
public-private partnership agreement with a State or local
educational agency described in paragraph (2).
(2) Public-private partnership agreement described
A public-private partnership agreement is described in this
paragraph if it is an agreement -
(A) under which the corporation agrees -
(i) to do 1 or more of the following: construct,
rehabilitate, refurbish, or equip a school facility, and
(ii) at the end of the term of the agreement, to transfer
the school facility to such agency for no additional
consideration, and
(B) the term of which does not exceed the term of the issue
to be used to provide the school facility.
(3) School facility
For purposes of this subsection, the term "school facility"
means -
(A) any school building,
(B) any functionally related and subordinate facility and
land with respect to such building, including any stadium or
other facility primarily used for school events, and
(C) any property, to which section 168 applies (or would
apply but for section 179), for use in a facility described in
subparagraph (A) or (B).
(4) Public schools
For purposes of this subsection, the terms "elementary school"
and "secondary school" have the meanings given such terms by
section 14101 of the Elementary and Secondary Education Act of
1965 (20 U.S.C. 8801), as in effect on the date of the enactment
of this subsection.
(5) Annual aggregate face amount of tax-exempt financing
(A) In general
An issue shall not be treated as an issue described in
subsection (a)(13) if the aggregate face amount of bonds issued
by the State pursuant thereto (when added to the aggregate face
amount of bonds previously so issued during the calendar year)
exceeds an amount equal to the greater of -
(i) $10 multiplied by the State population, or
(ii) $5,000,000.
(B) Allocation rules
(i) In general
Except as otherwise provided in this subparagraph, the
State may allocate the amount described in subparagraph (A)
for any calendar year in such manner as the State determines
appropriate.
(ii) Rules for carryforward of unused limitation
A State may elect to carry forward an unused limitation for
any calendar year for 3 calendar years following the calendar
year in which the unused limitation arose under rules similar
to the rules of section 146(f), except that the only purpose
for which the carryforward may be elected is the issuance of
exempt facility bonds described in subsection (a)(13).
(l) Qualified green building and sustainable design projects
(1) In general
For purposes of subsection (a)(14), the term "qualified green
building and sustainable design project" means any project which
is designated by the Secretary, after consultation with the
Administrator of the Environmental Protection Agency, as a
qualified green building and sustainable design project and which
meets the requirements of clauses (i), (ii), (iii), and (iv) of
paragraph (4)(A).
(2) Designations
(A) In general
Within 60 days after the end of the application period
described in paragraph (3)(A), the Secretary, after
consultation with the Administrator of the Environmental
Protection Agency, shall designate qualified green building and
sustainable design projects. At least one of the projects
designated shall be located in, or within a 10-mile radius of,
an empowerment zone as designated pursuant to section 1391, and
at least one of the projects designated shall be located in a
rural State. No more than one project shall be designated in a
State. A project shall not be designated if such project
includes a stadium or arena for professional sports exhibitions
or games.
(B) Minimum conservation and technology innovation objectives
The Secretary, after consultation with the Administrator of
the Environmental Protection Agency, shall ensure that, in the
aggregate, the projects designated shall -
(i) reduce electric consumption by more than 150 megawatts
annually as compared to conventional generation,
(ii) reduce daily sulfur dioxide emissions by at least 10
tons compared to coal generation power,
(iii) expand by 75 percent the domestic solar photovoltaic
market in the United States (measured in megawatts) as
compared to the expansion of that market from 2001 to 2002,
and
(iv) use at least 25 megawatts of fuel cell energy
generation.
(3) Limited designations
A project may not be designated under this subsection unless -
(A) the project is nominated by a State or local government
within 180 days of the enactment of this subsection, and
(B) such State or local government provides written
assurances that the project will satisfy the eligibility
criteria described in paragraph (4).
(4) Application
(A) In general
A project may not be designated under this subsection unless
the application for such designation includes a project
proposal which describes the energy efficiency, renewable
energy, and sustainable design features of the project and
demonstrates that the project satisfies the following
eligibility criteria:
(i) Green building and sustainable design
At least 75 percent of the square footage of commercial
buildings which are part of the project is registered for
United States Green Building Council's LEED certification and
is reasonably expected (at the time of the designation) to
receive such certification. For purposes of determining LEED
certification as required under this clause, points shall be
credited by using the following:
(I) For wood products, certification under the
Sustainable Forestry Initiative Program and the American
Tree Farm System.
(II) For renewable wood products, as credited for
recycled content otherwise provided under LEED
certification.
(III) For composite wood products, certification under
standards established by the American National Standards
Institute, or such other voluntary standards as published
in the Federal Register by the Administrator of the
Environmental Protection Agency.
(ii) Brownfield redevelopment
The project includes a brownfield site as defined by
section 101(39) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. 9601),
including a site described in subparagraph (D)(ii)(II)(aa)
thereof.
(iii) State and local support
The project receives specific State or local government
resources which will support the project in an amount equal
to at least $5,000,000. For purposes of the preceding
sentence, the term "resources" includes tax abatement
benefits and contributions in kind.
(iv) Size
The project includes at least one of the following:
(I) At least 1,000,000 square feet of building.
(II) At least 20 acres.
(v) Use of tax benefit
The project proposal includes a description of the net
benefit of the tax-exempt financing provided under this
subsection which will be allocated for financing of one or
more of the following:
(I) The purchase, construction, integration, or other use
of energy efficiency, renewable energy, and sustainable
design features of the project.
(II) Compliance with certification standards cited under
clause (i).
(III) The purchase, remediation, and foundation
construction and preparation of the brownfields site.
(vi) Prohibited facilities
An issue shall not be treated as an issue described in
subsection (a)(14) if any proceeds of such issue are used to
provide any facility the principal business of which is the
sale of food or alcoholic beverages for consumption on the
premises.
(vii) Employment
The project is projected to provide permanent employment of
at least 1,500 full time equivalents (150 full time
equivalents in rural States) when completed and construction
employment of at least 1,000 full time equivalents (100 full
time equivalents in rural States).
The application shall include an independent analysis which
describes the project's economic impact, including the amount
of projected employment.
(B) Project description
Each application described in subparagraph (A) shall contain
for each project a description of -
(i) the amount of electric consumption reduced as compared
to conventional construction,
(ii) the amount of sulfur dioxide daily emissions reduced
compared to coal generation,
(iii) the amount of the gross installed capacity of the
project's solar photovoltaic capacity measured in megawatts,
and
(iv) the amount, in megawatts, of the project's fuel cell
energy generation.
(5) Certification of use of tax benefit
No later than 30 days after the completion of the project, each
project must certify to the Secretary that the net benefit of the
tax-exempt financing was used for the purposes described in
paragraph (4).
(6) Definitions
For purposes of this subsection -
(A) Rural State
The term "rural State" means any State which has -
(i) a population of less than 4,500,000 according to the
2000 census,
(ii) a population density of less than 150 people per
square mile according to the 2000 census, and
(iii) increased in population by less than half the rate of
the national increase between the 1990 and 2000 censuses.
(B) Local government
The term "local government" has the meaning given such term
by section 1393(a)(5).
(C) Net benefit of tax-exempt financing
The term "net benefit of tax-exempt financing" means the
present value of the interest savings (determined by a
calculation established by the Secretary) which result from the
tax-exempt status of the bonds.
(7) Aggregate face amount of tax-exempt financing
(A) In general
An issue shall not be treated as an issue described in
subsection (a)(14) if the aggregate face amount of bonds issued
by the State or local government pursuant thereto for a project
(when added to the aggregate face amount of bonds previously so
issued for such project) exceeds an amount designated by the
Secretary as part of the designation.
(B) Limitation on amount of bonds
The Secretary may not allocate authority to issue qualified
green building and sustainable design project bonds in an
aggregate face amount exceeding $2,000,000,000.
(8) Termination
Subsection (a)(14) shall not apply with respect to any bond
issued after September 30, 2009.
(9) Treatment of current refunding bonds
Paragraphs (7)(B) and (8) shall not apply to any bond (or
series of bonds) issued to refund a bond issued under subsection
(a)(14) before October 1, 2009, if -
(A) the average maturity date of the issue of which the
refunding bond is a part is not later than the average maturity
date of the bonds to be refunded by such issue,
(B) the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond, and
(C) the net proceeds of the refunding bond are used to redeem
the refunded bond not later than 90 days after the date of the
issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be
determined in accordance with section 147(b)(2)(A).
(m) Qualified highway or surface freight transfer facilities
(1) In general
For purposes of subsection (a)(15), the term "qualified highway
or surface freight transfer facilities" means -
(A) any surface transportation project which receives Federal
assistance under title 23, United States Code (as in effect on
the date of the enactment of this subsection),
(B) any project for an international bridge or tunnel for
which an international entity authorized under Federal or State
law is responsible and which receives Federal assistance under
title 23, United States Code (as so in effect), or
(C) any facility for the transfer of freight from truck to
rail or rail to truck (including any temporary storage
facilities directly related to such transfers) which receives
Federal assistance under either title 23 or title 49, United
States Code (as so in effect).
(2) National limitation on amount of tax-exempt financing for
facilities
(A) National limitation
The aggregate amount allocated by the Secretary of
Transportation under subparagraph (C) shall not exceed
$15,000,000,000.
(B) Enforcement of national limitation
An issue shall not be treated as an issue described in
subsection (a)(15) if the aggregate face amount of bonds issued
pursuant to such issue for any qualified highway or surface
freight transfer facility (when added to the aggregate face
amount of bonds previously so issued for such facility) exceeds
the amount allocated to such facility under subparagraph (C).
(C) Allocation by Secretary of Transportation
The Secretary of Transportation shall allocate the amount
described in subparagraph (A) among qualified highway or
surface freight transfer facilities in such manner as the
Secretary determines appropriate.
(3) Expenditure of proceeds
An issue shall not be treated as an issue described in
subsection (a)(15) unless at least 95 percent of the net proceeds
of the issue is expended for qualified highway or surface freight
transfer facilities within the 5-year period beginning on the
date of issuance. If at least 95 percent of such net proceeds is
not expended within such 5-year period, an issue shall be treated
as continuing to meet the requirements of this paragraph if the
issuer uses all unspent proceeds of the issue to redeem bonds of
the issue within 90 days after the end of such 5-year period. The
Secretary, at the request of the issuer, may extend such 5-year
period if the issuer establishes that any failure to meet such
period is due to circumstances beyond the control of the issuer.
(4) Exception for current refunding bonds
Paragraph (2) shall not apply to any bond (or series of bonds)
issued to refund a bond issued under subsection (a)(15) if -
(A) the average maturity date of the issue of which the
refunding bond is a part is not later than the average maturity
date of the bonds to be refunded by such issue,
(B) the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond, and
(C) the refunded bond is redeemed not later than 90 days
after the date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be
determined in accordance with section 147(b)(2)(A).
-SOURCE-
(Added Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100
Stat. 2606; amended Pub. L. 100-647, title I, Sec. 1013(a)(1),
(39), title VI, Sec. 6180(a)-(b)(2), Nov. 10, 1988, 102 Stat. 3537,
3544, 3727, 3728; Pub. L. 101-239, title VII, Secs. 7108(e)(3),
(n)(1), 7816(s)(1), Dec. 19, 1989, 103 Stat. 2313, 2318, 2423; Pub.
L. 102-486, title XIX, Secs. 1919(a), 1921(a), (b)(1), (2), Oct.
24, 1992, 106 Stat. 3025, 3027, 3028; Pub. L. 104-188, title I,
Secs. 1608(a), 1704(j)(7), Aug. 20, 1996, 110 Stat. 1840, 1882;
Pub. L. 105-206, title VI, Sec. 6023(5), July 22, 1998, 112 Stat.
825; Pub. L. 107-16, title IV, Sec. 422(a), (b), June 7, 2001, 115
Stat. 65; Pub. L. 108-357, title VII, Sec. 701(a), (b), Oct. 22,
2004, 118 Stat. 1536; Pub. L. 109-59, title XI, Sec. 11143(a), (b),
Aug. 10, 2005, 119 Stat. 1963.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Section 8 of the United States Housing Act of 1937, referred to
in subsec. (d)(2)(A)(iii), (B), (4)(C)(ii), is classified to
section 1437f of Title 42, The Public Health and Welfare.
Sections 211 and 213 of the Federal Power Act, referred to in
subsec. (f)(2)(A), are classified to sections 824j and 824l,
respectively, of Title 16, Conservation.
The date of the enactment of this paragraph, referred to in
subsec. (f)(2)(A), is the date of enactment of Pub. L. 102-486,
which was approved Oct. 24, 1992.
The date of the enactment of this paragraph, referred to in
subsec. (f)(3), (4)(A), (B)(ii), is the date of enactment of Pub.
L. 104-188, which was approved Aug. 20, 1996.
The Solid Waste Disposal Act, referred to in subsec. (h)(1), is
title II of Pub. L. 89-272, Oct. 20, 1965, 79 Stat. 997, as amended
generally by Pub. L. 94-580, Sec. 2, Oct. 21, 1976, 90 Stat. 2795.
Subtitle C of the Solid Waste Disposal Act is classified generally
to subchapter III (Sec. 6921 et seq.) of chapter 82 of Title 42,
The Public Health and Welfare. For complete classification of this
Act to the Code, see Short Title note set out under section 6901 of
Title 42 and Tables.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (h)(1), is the date of enactment of Pub. L. 99-514,
which was approved Oct. 22, 1986.
Section 14101 of the Elementary and Secondary Education Act of
1965, referred to in subsec. (k)(4), is section 14101 of Pub. L. 89-
10, which was classified to section 8801 of Title 20, Education,
prior to repeal by Pub. L. 107-110, title X, Sec. 1011(5)(C), Jan.
8, 2002, 115 Stat. 1986.
The date of the enactment of this subsection, referred to in
subsec. (k)(4), means the date of enactment of Pub. L. 107-16,
which was approved June 7, 2001.
The enactment of this subsection, referred to in subsec.
(l)(3)(A), probably means the date of enactment of Pub. L. 108-357,
which was approved Oct. 22, 2004.
The date of the enactment of this subsection, referred to in
subsec. (m)(1)(A), is the date of enactment of Pub. L. 109-59,
which was approved Aug. 10, 2005.
-MISC1-
PRIOR PROVISIONS
A prior section 142, act Aug. 16, 1954, ch. 736, 68A Stat. 40,
enumerated individuals not eligible for standard deduction, prior
to repeal by Pub. L. 95-30, title I, Sec. 101(d)(1), May 23, 1977,
91 Stat. 133, applicable to taxable years beginning after Dec. 31,
1976.
AMENDMENTS
2005 - Subsec. (a)(15). Pub. L. 109-59, Sec. 11143(a), added par.
(15).
Subsec. (m). Pub. L. 109-59, Sec. 11143(b), added subsec. (m).
2004 - Subsec. (a)(14). Pub. L. 108-357, Sec. 701(a), added par.
(14).
Subsec. (l). Pub. L. 108-357, Sec. 701(b), added subsec. (l).
2001 - Subsec. (a)(13). Pub. L. 107-16, Secs. 422(a), 901,
temporarily added par. (13). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (k). Pub. L. 107-16, Secs. 422(b), 901, temporarily added
subsec. (k). See Effective and Termination Dates of 2001 Amendment
note below.
1998 - Subsec. (f)(3)(A)(ii). Pub. L. 105-206 struck out comma
after "1997".
1996 - Subsec. (b)(1)(A). Pub. L. 104-188, Sec. 1704(j)(7),
provided that section 1921(b)(2) of Pub. L. 102-486 shall be
applied as if a comma appeared after "(2)" in the material proposed
to be stricken. See 1992 Amendment note below.
Subsec. (f)(3), (4). Pub. L. 104-188, Sec. 1608(a), added pars.
(3) and (4).
1992 - Subsec. (a)(12). Pub. L. 102-486, Sec. 1921(a), added par.
(12).
Subsec. (b)(1)(A). Pub. L. 102-486, Sec. 1921(b)(2), which
directed the substitution of "(2), (3), or (12)" for "(2) or (3)",
was executed by making the substitution for "(2), or (3)". See 1996
Amendment note above.
Subsec. (f). Pub. L. 102-486, Sec. 1919(a), amended subsec. (f)
generally. Prior to amendment, subsec. (f) read as follows: "For
purposes of subsection (a)(8), the local furnishing of electric
energy or gas from a facility shall only include furnishing solely
within the area consisting of -
"(1) a city and 1 contiguous county, or
"(2) 2 contiguous counties."
Subsec. (j). Pub. L. 102-486, Sec. 1921(b)(1), added subsec. (j).
1989 - Subsec. (d)(2)(B). Pub. L. 101-239, Sec. 7108(e)(3),
inserted at end "Section 7872(g) shall not apply in determining the
income of individuals under this subparagraph."
Subsec. (d)(4)(B)(iii). Pub. L. 101-239, Sec. 7108(n)(1),
substituted "exceed 1/2 " for "exceed 1/3 ".
Subsec. (i)(1). Pub. L. 101-239, Sec. 7816(s)(1), inserted
heading "In general".
1988 - Subsec. (a)(11). Pub. L. 100-647, Sec. 6180(a), added par.
(11).
Subsec. (b)(1)(B)(ii). Pub. L. 100-647, Sec. 1013(a)(39),
inserted "section" before "168(i)(3)".
Subsec. (c). Pub. L. 100-647, Sec. 6180(b)(2), substituted "mass
commuting facilities and high-speed intercity rail facilities" for
"and mass commuting facilities" in heading and substituted
"paragraph (1), (2), (3) or (11) of subsection (a)" for "paragraph
(1), (2), or (3) of subsection (a)" in par. (1) and in introductory
text of par. (2).
Subsec. (d)(4)(B)(iii). Pub. L. 100-647, Sec. 1013(a)(1),
substituted "average gross rent" for "average rent".
Subsec. (i). Pub. L. 100-647, Sec. 6180(b)(1), added subsec. (i).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-59, title XI, Sec. 11143(d), Aug. 10, 2005, 119 Stat.
1965, provided that: "The amendments made by this section [amending
this section and section 146 of this title] apply to bonds issued
after the date of the enactment of this Act [Aug. 10, 2005]."
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VII, Sec. 701(e), Oct. 22, 2004, 118 Stat.
1540, provided that: "The amendments made by this section [amending
this section and section 146 of this title] shall apply to bonds
issued after December 31, 2004."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title IV, Sec. 422(f), June 7, 2001, 115 Stat.
66, provided that: "The amendments made by this section [amending
this section and sections 146 and 147 of this title] shall apply to
bonds issued after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1919(b) of Pub. L. 102-486 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
obligations issued before, on, or after the date of the enactment
of this Act [Oct. 24, 1992]."
Section 1921(c) of Pub. L. 102-486 provided that: "The amendments
made by this section [amending this section and section 146 of this
title] shall apply to bonds issued after the date of the enactment
of this Act [Oct. 24, 1992]."
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7108(e)(3), (n)(1) of Pub. L. 101-239
applicable, except as otherwise provided, to determinations under
section 42 of this title with respect to housing credit dollar
amounts allocated from State housing credit ceilings for calendar
years after 1989, see section 7108(r) of Pub. L. 101-239, set out
as a note under section 42 of this title.
Amendment by section 7816(s) of Pub. L. 101-239 effective, except
as otherwise provided, as if included in the provision of the
Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647,
to which such amendment relates, see section 7817 of Pub. L. 101-
239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1013(a)(1), (39) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 6180(c) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending sections 142, 146, and 147 of this
title] shall apply to bonds issued after the date of enactment of
this Act [Nov. 10, 1988]."
ACCOUNTABILITY
Pub. L. 108-357, title VII, Sec. 701(d), Oct. 22, 2004, 118 Stat.
1539, provided that: "Each issuer shall maintain, on behalf of each
project, an interest bearing reserve account equal to 1 percent of
the net proceeds of any bond issued under this section for such
project. Not later than 5 years after the date of issuance, the
Secretary of the Treasury, after consultation with the
Administrator of the Environmental Protection Agency, shall
determine whether the project financed with such bonds has
substantially complied with the terms and conditions described in
section 142(l)(4) of the Internal Revenue Code of 1986 (as added by
this section). If the Secretary, after such consultation, certifies
that the project has substantially complied with such terms and
conditions and meets the commitments set forth in the application
for such project described in section 142(l)(4) of such Code,
amounts in the reserve account, including all interest, shall be
released to the project. If the Secretary determines that the
project has not substantially complied with such terms and
conditions, amounts in the reserve account, including all interest,
shall be paid to the United States Treasury."
NO INFERENCE WITH RESPECT TO OUTSTANDING BONDS FROM USE OF TERM
"PERSON"
Section 1608(b) of Pub. L. 104-188 provided that: "The use of the
term 'person' in section 142(f)(3) of the Internal Revenue Code of
1986, as added by subsection (a), shall not be construed to affect
the tax-exempt status of interest on any bonds issued before the
date of the enactment of this Act [Aug. 20, 1996]."
TAX-EXEMPT BONDS FOR SALE OF ALASKA POWER ADMINISTRATION FACILITY
Section 1804 of Pub. L. 104-188 provided that: "Sections
142(f)(3) (as added by section 1608) and 147(d) of the Internal
Revenue Code of 1986 shall not apply in determining whether any
private activity bond issued after the date of the enactment of
this Act [Aug. 20, 1996] and used to finance the acquisition of the
Snettisham hydroelectric project from the Alaska Power
Administration is a qualified bond for purposes of such Code."
-End-
-CITE-
26 USC Sec. 143 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart A - Private Activity Bonds
-HEAD-
Sec. 143. Mortgage revenue bonds: qualified mortgage bond and
qualified veterans' mortgage bond
-STATUTE-
(a) Qualified mortgage bond
(1) Qualified mortgage bond defined
For purposes of this title, the term "qualified mortgage bond"
means a bond which is issued as part of a qualified mortgage
issue.
(2) Qualified mortgage issue defined
(A) Definition
For purposes of this title, the term "qualified mortgage
issue" means an issue by a State or political subdivision
thereof of 1 or more bonds, but only if -
(i) all proceeds of such issue (exclusive of issuance costs
and a reasonably required reserve) are to be used to finance
owner-occupied residences,
(ii) such issue meets the requirements of subsections (c),
(d), (e), (f), (g), (h), (i), and (m)(7),
(iii) such issue does not meet the private business tests
of paragraphs (1) and (2) of section 141(b), and
(iv) except as provided in subparagraph (D)(ii), repayments
of principal on financing provided by the issue are used not
later than the close of the 1st semiannual period beginning
after the date the prepayment (or complete repayment) is
received to redeem bonds which are part of such issue.
Clause (iv) shall not apply to amounts received within 10 years
after the date of issuance of the issue (or, in the case of
refunding bond, the date of issuance of the original bond).
(B) Good faith effort to comply with mortgage eligibility
requirements
An issue which fails to meet 1 or more of the requirements of
subsections (c), (d), (e), (f), and (i) shall be treated as
meeting such requirements if -
(i) the issuer in good faith attempted to meet all such
requirements before the mortgages were executed,
(ii) 95 percent or more of the proceeds devoted to owner-
financing was devoted to residences with respect to which
(at the time the mortgages were executed) all such
requirements were met, and
(iii) any failure to meet the requirements of such
subsections is corrected within a reasonable period after
such failure is first discovered.
(C) Good faith effort to comply with other requirements
An issue which fails to meet 1 or more of the requirements of
subsections (g), (h), and (m)(7) shall be treated as meeting
such requirements if -
(i) the issuer in good faith attempted to meet all such
requirements, and
(ii) any failure to meet such requirements is due to
inadvertent error after taking reasonable steps to comply
with such requirements.
(D) Proceeds must be used within 42 months of date of issuance
(i) In general
Except as otherwise provided in this subparagraph, an issue
shall not meet the requirement of subparagraph (A)(i) unless -
(I) all proceeds of the issue required to be used to
finance owner-occupied residences are so used within the 42-
month period beginning on the date of issuance of the
issue (or, in the case of a refunding bond, within the 42-
month period beginning on the date of issuance of the
original bond) or, to the extent not so used within such
period, are used within such period to redeem bonds which
are part of such issue, and
(II) no portion of the proceeds of the issue are used to
make or finance any loan (other than a loan which is a
nonpurpose investment within the meaning of section
148(f)(6)(A)) after the close of such period.
(ii) Exception
Clause (i) (and clause (iv) of subparagraph (A)) shall not
be construed to require amounts of less than $250,000 to be
used to redeem bonds. The Secretary may by regulation treat
related issues as 1 issue for purposes of the preceding
sentence.
(b) Qualified veterans' mortgage bond defined
For purposes of this part, the term "qualified veterans' mortgage
bond" means any bond -
(1) which is issued as part of an issue 95 percent or more of
the net proceeds of which are to be used to provide residences
for veterans,
(2) the payment of the principal and interest on which is
secured by the general obligation of a State,
(3) which is part of an issue which meets the requirements of
subsections (c), (g), (i)(1), and (l), and
(4) which is part of an issue which does not meet the private
business tests of paragraphs (1) and (2) of section 141(b).
Rules similar to the rules of subparagraphs (B) and (C) of
subsection (a)(2) shall apply to the requirements specified in
paragraph (3) of this subsection.
(c) Residence requirements
(1) For a residence
A residence meets the requirements of this subsection only if -
(A) it is a single-family residence which can reasonably be
expected to become the principal residence of the mortgagor
within a reasonable time after the financing is provided, and
(B) it is located within the jurisdiction of the authority
issuing the bond.
(2) For an issue
An issue meets the requirements of this subsection only if all
of the residences for which owner-financing is provided under the
issue meet the requirements of paragraph (1).
(d) 3-year requirement
(1) In general
An issue meets the requirements of this subsection only if 95
percent or more of the net proceeds of such issue are used to
finance the residences of mortgagors who had no present ownership
interest in their principal residences at any time during the 3-
year period ending on the date their mortgage is executed.
(2) Exceptions
For purposes of paragraph (1), the proceeds of an issue which
are used to provide -
(A) financing with respect to targeted area residences,
(B) qualified home improvement loans and qualified
rehabilitation loans, and
(C) financing with respect to land described in subsection
(i)(1)(C) and the construction of any residence thereon,
shall be treated as used as described in paragraph (1).
(3) Mortgagor's interest in residence being financed
For purposes of paragraph (1), a mortgagor's interest in the
residence with respect to which the financing is being provided
shall not be taken into account.
(e) Purchase price requirement
(1) In general
An issue meets the requirements of this subsection only if the
acquisition cost of each residence the owner-financing of which
is provided under the issue does not exceed 90 percent of the
average area purchase price applicable to such residence.
(2) Average area purchase price
For purposes of paragraph (1), the term "average area purchase
price" means, with respect to any residence, the average purchase
price of single family residences (in the statistical area in
which the residence is located) which were purchased during the
most recent 12-month period for which sufficient statistical
information is available. The determination under the preceding
sentence shall be made as of the date on which the commitment to
provide the financing is made (or, if earlier, the date of the
purchase of the residence).
(3) Separate application to new residences and old residences
For purposes of this subsection, the determination of average
area purchase price shall be made separately with respect to -
(A) residences which have not been previously occupied, and
(B) residences which have been previously occupied.
(4) Special rule for 2 to 4 family residences
For purposes of this subsection, to the extent provided in
regulations, the determination of average area purchase price
shall be made separately with respect to 1 family, 2 family, 3
family, and 4 family residences.
(5) Special rule for targeted area residences
In the case of a targeted area residence, paragraph (1) shall
be applied by substituting "110 percent" for "90 percent".
(6) Exception for qualified home improvement loans
Paragraph (1) shall not apply with respect to any qualified
home improvement loan.
(f) Income requirements
(1) In general
An issue meets the requirements of this subsection only if all
owner-financing provided under the issue is provided for
mortgagors whose family income is 115 percent or less of the
applicable median family income.
(2) Determination of family income
For purposes of this subsection, the family income of
mortgagors, and area median gross income, shall be determined by
the Secretary after taking into account the regulations
prescribed under section 8 of the United States Housing Act of
1937 (or, if such program is terminated, under such program as in
effect immediately before such termination).
(3) Special rule for applying paragraph (1) in the case of
targeted area residences
In the case of any financing provided under any issue for
targeted area residences -
(A) 1/3 of the amount of such financing may be provided
without regard to paragraph (1), and
(B) paragraph (1) shall be treated as satisfied with respect
to the remainder of the owner financing if the family income of
the mortgagor is 140 percent or less of the applicable median
family income.
(4) Applicable median family income
For purposes of this subsection, the term "applicable median
family income" means, with respect to a residence, whichever of
the following is the greater:
(A) the area median gross income for the area in which such
residence is located, or
(B) the statewide median gross income for the State in which
such residence is located.
(5) Adjustment of income requirement based on relation of high
housing costs to income
(A) In general
If the residence (for which financing is provided under the
issue) is located in a high housing cost area and the
limitation determined under this paragraph is greater than the
limitation otherwise applicable under paragraph (1), there
shall be substituted for the income limitation in paragraph
(1), a limitation equal to the percentage determined under
subparagraph (B) of the area median gross income for such area.
(B) Income requirements for residences in high housing cost
area
The percentage determined under this subparagraph for a
residence located in a high housing cost area is the percentage
(not greater than 140 percent) equal to the product of -
(I) 115 percent, and
(II) the amount by which the housing cost/income ratio for
such area exceeds 0.2.
(C) High housing cost areas
For purposes of this paragraph, the term "high housing cost
area" means any statistical area for which the housing
cost/income ratio is greater than 1.2.
(D) Housing cost/income ratio
For purposes of this paragraph -
(i) In general
The term "housing cost/income ratio" means, with respect to
any statistical area, the number determined by dividing -
(I) the applicable housing price ratio for such area, by
(II) the ratio which the area median gross income for
such area bears to the median gross income for the United
States.
(ii) Applicable housing price ratio
For purposes of clause (i), the applicable housing price
ratio for any area is the new housing price ratio or the
existing housing price ratio, whichever results in the
housing cost/income ratio being closer to 1.
(iii) New housing price ratio
The new housing price ratio for any area is the ratio which
-
(I) the average area purchase price (as defined in
subsection (e)(2)) for residences described in subsection
(e)(3)(A) which are located in such area bears to
(II) the average purchase price (determined in accordance
with the principles of subsection (e)(2)) for residences so
described which are located in the United States.
(iv) Existing housing price ratio
The existing housing price ratio for any area is the ratio
determined in accordance with clause (iii) but with respect
to residences described in subsection (e)(3)(B).
(6) Adjustment to income requirements based on family size
In the case of a mortgagor having a family of fewer than 3
individuals, the preceding provisions of this subsection shall be
applied by substituting -
(A) "100 percent" for "115 percent" each place it appears,
and
(B) "120 percent" for "140 percent" each place it appears.
(g) Requirements related to arbitrage
(1) In general
An issue meets the requirements of this subsection only if such
issue meets the requirements of paragraph (2) of this subsection
and, in the case of an issue described in subsection (b)(1), such
issue also meets the requirements of paragraph (3) of this
subsection. Such requirements shall be in addition to the
requirements of section 148.
(2) Effective rate of mortgage interest cannot exceed bond yield
by more than 1.125 percentage points
(A) In general
An issue shall be treated as meeting the requirements of this
paragraph only if the excess of -
(i) the effective rate of interest on the mortgages
provided under the issue, over
(ii) the yield on the issue,
is not greater than 1.125 percentage points.
(B) Effective rate of mortgage interest
(i) In general
In determining the effective rate of interest on any
mortgage for purposes of this paragraph, there shall be taken
into account all fees, charges, and other amounts borne by
the mortgagor which are attributable to the mortgage or to
the bond issue.
(ii) Specification of some of the amounts to be treated as
borne by the mortgagor
For purposes of clause (i), the following items (among
others) shall be treated as borne by the mortgagor:
(I) all points or similar charges paid by the seller of
the property, and
(II) the excess of the amounts received from any person
other than the mortgagor by any person in connection with
the acquisition of the mortgagor's interest in the property
over the usual and reasonable acquisition costs of a person
acquiring like property where owner-financing is not
provided through the use of qualified mortgage bonds or
qualified veterans' mortgage bonds.
(iii) Specification of some of the amounts to be treated as
not borne by the mortgagor
For purposes of clause (i), the following items shall not
be taken into account:
(I) any expected rebate of arbitrage profits, and
(II) any application fee, survey fee, credit report fee,
insurance charge, or similar amount to the extent such
amount does not exceed amounts charged in such area in
cases where owner-financing is not provided through the use
of qualified mortgage bonds or qualified veterans' mortgage
bonds.
Subclause (II) shall not apply to origination fees, points,
or similar amounts.
(iv) Prepayment assumptions
In determining the effective rate of interest -
(I) it shall be assumed that the mortgage prepayment rate
will be the rate set forth in the most recent applicable
mortgage maturity experience table published by the Federal
Housing Administration, and
(II) prepayments of principal shall be treated as
received on the last day of the month in which the issuer
reasonably expects to receive such prepayments.
The Secretary may by regulation adjust the mortgage
prepayment rate otherwise used in determining the effective
rate of interest to the extent the Secretary determines that
such an adjustment is appropriate by reason of the impact of
subsection (m).
(C) Yield on the issue
For purposes of this subsection, the yield on an issue shall
be determined on the basis of -
(i) the issue price (within the meaning of sections 1273
and 1274), and
(ii) an expected maturity for the bonds which is consistent
with the assumptions required under subparagraph (B)(iv).
(3) Arbitrage and investment gains to be used to reduce costs of
owner-financing
(A) In general
An issue shall be treated as meeting the requirements of this
paragraph only if an amount equal to the sum of -
(i) the excess of -
(I) the amount earned on all nonpurpose investments
(other than investments attributable to an excess described
in this clause), over
(II) the amount which would have been earned if such
investments were invested at a rate equal to the yield on
the issue, plus
(ii) any income attributable to the excess described in
clause (i),
is paid or credited to the mortgagors as rapidly as may be
practicable.
(B) Investment gains and losses
For purposes of subparagraph (A), in determining the amount
earned on all nonpurpose investments, any gain or loss on the
disposition of such investments shall be taken into account.
(C) Reduction where issuer does not use full 1.125 percentage
points under paragraph (2)
(i) In general
The amount required to be paid or credited to mortgagors
under subparagraph (A) (determined under this paragraph
without regard to this subparagraph) shall be reduced by the
unused paragraph (2) amount.
(ii) Unused paragraph (2) amount
For purposes of clause (i), the unused paragraph (2) amount
is the amount which (if it were treated as an interest
payment made by mortgagors) would result in the excess
referred to in paragraph (2)(A) being equal to 1.125
percentage points. Such amount shall be fixed and determined
as of the yield determination date.
(D) Election to pay United States
Subparagraph (A) shall be satisfied with respect to any issue
if the issuer elects before issuing the bonds to pay over to
the United States -
(i) not less frequently than once each 5 years after the
date of issue, an amount equal to 90 percent of the aggregate
amount which would be required to be paid or credited to
mortgagors under subparagraph (A) (and not theretofore paid
to the United States), and
(ii) not later than 60 days after the redemption of the
last bond, 100 percent of such aggregate amount not
theretofore paid to the United States.
(E) Simplified accounting
The Secretary shall permit any simplified system of
accounting for purposes of this paragraph which the issuer
establishes to the satisfaction of the Secretary will assure
that the purposes of this paragraph are carried out.
(F) Nonpurpose investment
For purposes of this paragraph, the term "nonpurpose
investment" has the meaning given such term by section
148(f)(6)(A).
(h) Portion of loans required to be placed in targeted areas
(1) In general
An issue meets the requirements of this subsection only if at
least 20 percent of the proceeds of the issue which are devoted
to providing owner-financing is made available (with reasonable
diligence) for owner-financing of targeted area residences for at
least 1 year after the date on which owner-financing is first
made available with respect to targeted area residences.
(2) Limitation
Nothing in paragraph (1) shall be treated as requiring the
making available of an amount which exceeds 40 percent of the
average annual aggregate principal amount of mortgages executed
during the immediately preceding 3 calendar years for single-
family, owner-occupied residences located in targeted areas
within the jurisdiction of the issuing authority.
(i) Other requirements
(1) Mortgages must be new mortgages
(A) In general
An issue meets the requirements of this subsection only if no
part of the proceeds of such issue is used to acquire or
replace existing mortgages.
(B) Exceptions
Under regulations prescribed by the Secretary, the
replacement of -
(i) construction period loans,
(ii) bridge loans or similar temporary initial financing,
and
(iii) in the case of a qualified rehabilitation, an
existing mortgage,
shall not be treated as the acquisition or replacement of an
existing mortgage for purposes of subparagraph (A).
(C) Exception for certain contract for deed agreements
(i) In general
In the case of land possessed under a contract for deed by
a mortgagor -
(I) whose principal residence (within the meaning of
section 121) is located on such land, and
(II) whose family income (as defined in subsection
(f)(2)) is not more than 50 percent of applicable median
family income (as defined in subsection (f)(4)),
the contract for deed shall not be treated as an existing
mortgage for purposes of subparagraph (A).
(ii) Contract for deed defined
For purposes of this subparagraph, the term "contract for
deed" means a seller-financed contract for the conveyance of
land under which -
(I) legal title does not pass to the purchaser until the
consideration under the contract is fully paid to the
seller, and
(II) the seller's remedy for nonpayment is forfeiture
rather than judicial or nonjudicial foreclosure.
(2) Certain requirements must be met where mortgage is assumed
An issue meets the requirements of this subsection only if each
mortgage with respect to which owner-financing has been provided
under such issue may be assumed only if the requirements of
subsections (c), (d), and (e), and the requirements of paragraph
(1) or (3)(B) of subsection (f) (whichever applies), are met with
respect to such assumption.
(j) Targeted area residences
(1) In general
For purposes of this section, the term "targeted area
residence" means a residence in an area which is either -
(A) a qualified census tract, or
(B) an area of chronic economic distress.
(2) Qualified census tract
(A) In general
For purposes of paragraph (1), the term "qualified census
tract" means a census tract in which 70 percent or more of the
families have income which is 80 percent or less of the
statewide median family income.
(B) Data used
The determination under subparagraph (A) shall be made on the
basis of the most recent decennial census for which data are
available.
(3) Area of chronic economic distress
(A) In general
For purposes of paragraph (1), the term "area of chronic
economic distress" means an area of chronic economic distress -
(i) designated by the State as meeting the standards
established by the State for purposes of this subsection, and
(ii) the designation of which has been approved by the
Secretary and the Secretary of Housing and Urban Development.
(B) Criteria to be used in approving State designations
The criteria used by the Secretary and the Secretary of
Housing and Urban Development in evaluating any proposed
designation of an area for purposes of this subsection shall be
-
(i) the condition of the housing stock, including the age
of the housing and the number of abandoned and substandard
residential units,
(ii) the need of area residents for owner-financing under
this section, as indicated by low per capita income, a high
percentage of families in poverty, a high number of welfare
recipients, and high unemployment rates,
(iii) the potential for use of owner-financing under this
section to improve housing conditions in the area, and
(iv) the existence of a housing assistance plan which
provides a displacement program and a public improvements and
services program.
(k) Other definitions and special rules
For purposes of this section -
(1) Mortgage
The term "mortgage" means any owner-financing.
(2) Statistical area
(A) In general
The term "statistical area" means -
(i) a metropolitan statistical area, and
(ii) any county (or the portion thereof) which is not
within a metropolitan statistical area.
(B) Metropolitan statistical area
The term "metropolitan statistical area" includes the area
defined as such by the Secretary of Commerce.
(C) Designation where adequate statistical information not
available
For purposes of this paragraph, if there is insufficient
recent statistical information with respect to a county (or
portion thereof) described in subparagraph (A)(ii), the
Secretary may substitute for such county (or portion thereof)
another area for which there is sufficient recent statistical
information.
(D) Designation where no county
In the case of any portion of a State which is not within a
county, subparagraphs (A)(ii) and (C) shall be applied by
substituting for "county" an area designated by the Secretary
which is the equivalent of a county.
(3) Acquisition cost
(A) In general
The term "acquisition cost" means the cost of acquiring the
residence as a completed residential unit.
(B) Exceptions
The term "acquisition cost" does not include -
(i) usual and reasonable settlement or financing costs,
(ii) the value of services performed by the mortgagor or
members of his family in completing the residence, and
(iii) the cost of land (other than land described in
subsection (i)(1)(C)(i)) which has been owned by the
mortgagor for at least 2 years before the date on which
construction of the residence begins.
(C) Special rule for qualified rehabilitation loans
In the case of a qualified rehabilitation loan, for purposes
of subsection (e), the term "acquisition cost" includes the
cost of the rehabilitation.
(4) Qualified home improvement loan
The term "qualified home improvement loan" means the financing
(in an amount which does not exceed $15,000) -
(A) of alterations, repairs, and improvements on or in
connection with an existing residence by the owner thereof, but
(B) only of such items as substantially protect or improve
the basic livability or energy efficiency of the property.
(5) Qualified rehabilitation loan
(A) In general
The term "qualified rehabilitation loan" means any owner-
financing provided in connection with -
(i) a qualified rehabilitation, or
(ii) the acquisition of a residence with respect to which
there has been a qualified rehabilitation,
but only if the mortgagor to whom such financing is provided is
the first resident of the residence after the completion of the
rehabilitation.
(B) Qualified rehabilitation
For purposes of subparagraph (A), the term "qualified
rehabilitation" means any rehabilitation of a building if -
(i) there is a period of at least 20 years between the date
on which the building was first used and the date on which
the physical work on such rehabilitation begins,
(ii) in the rehabilitation process -
(I) 50 percent or more of the existing external walls of
such building are retained in place as external walls,
(II) 75 percent or more of the existing external walls of
such building are retained in place as internal or external
walls, and
(III) 75 percent or more of the existing internal
structural framework of such building is retained in place,
and
(iii) the expenditures for such rehabilitation are 25
percent or more of the mortgagor's adjusted basis in the
residence.
For purposes of clause (iii), the mortgagor's adjusted basis
shall be determined as of the completion of the rehabilitation
or, if later, the date on which the mortgagor acquires the
residence.
(6) Determinations on actuarial basis
All determinations of yield, effective interest rates, and
amounts required to be paid or credited to mortgagors or paid to
the United States under subsection (g) shall be made on an
actuarial basis taking into account the present value of money.
(7) Single-family and owner-occupied residences include certain
residences with 2 to 4 units
Except for purposes of subsection (h)(2), the terms "single-
family" and "owner-occupied", when used with respect to
residences, include 2, 3, or 4 family residences -
(A) one unit of which is occupied by the owner of the units,
and
(B) which were first occupied at least 5 years before the
mortgage is executed.
Subparagraph (B) shall not apply to any 2-family residence if the
residence is a targeted area residence and the family income of
the mortgagor meets the requirement of subsection (f)(3)(B).
(8) Cooperative housing corporations
(A) In general
In the case of any cooperative housing corporation -
(i) each dwelling unit shall be treated as if it were
actually owned by the person entitled to occupy such dwelling
unit by reason of his ownership of stock in the corporation,
and
(ii) any indebtedness of the corporation allocable to the
dwelling unit shall be treated as if it were indebtedness of
the shareholder entitled to occupy the dwelling unit.
(B) Adjustment to targeted area requirement
In the case of any issue to provide financing to a
cooperative housing corporation with respect to cooperative
housing not located in a targeted area, to the extent provided
in regulations, such issue may be combined with 1 or more other
issues for purposes of determining whether the requirements of
subsection (h) are met.
(C) Cooperative housing corporation
The term "cooperative housing corporation" has the meaning
given to such term by section 216(b)(1).
(9) Treatment of limited equity cooperative housing
(A) Treatment as residential rental property
Except as provided in subparagraph (B), for purposes of this
part -
(i) any limited equity cooperative housing shall be treated
as residential rental property and not as owner-occupied
housing, and
(ii) bonds issued to provide such housing shall be subject
to the same requirements and limitations as bonds the
proceeds of which are to be used to provide qualified
residential rental projects (as defined in section 142(d)).
(B) Bonds subject to qualified mortgage bond termination date
Subparagraph (A) shall not apply to any bond issued after the
date specified in subsection (a)(1)(B).
(C) Limited equity cooperative housing
For purposes of this paragraph, the term "limited equity
cooperative housing" means any dwelling unit which a person is
entitled to occupy by reason of his ownership of stock in a
qualified cooperative housing corporation.
(D) Qualified cooperative housing corporation
For purposes of this paragraph, the term "qualified
cooperative housing corporation" means any cooperative housing
corporation (as defined in section 216(b)(1)) if -
(i) the consideration paid for stock held by any
stockholder entitled to occupy any house or apartment in a
building owned or leased by the corporation may not exceed
the sum of -
(I) the consideration paid for such stock by the first
such stockholder, as adjusted by a cost-of-living
adjustment determined by the Secretary,
(II) payments made by any stockholder for improvements to
such house or apartment, and
(III) payments (other than amounts taken into account
under subclause (I) or (II)) attributable to any
stockholder to amortize the principal of the corporation's
indebtedness arising from the acquisition or development of
real property, including improvements thereof,
(ii) the value of the corporation's assets (reduced by any
corporate liabilities), to the extent such value exceeds the
combined transfer values of the outstanding corporate stock,
shall be used only for public benefit or charitable purposes,
or directly to benefit the corporation itself, and shall not
be used directly to benefit any stockholder, and
(iii) at the time of issuance of the issue, such
corporation makes an election under this paragraph.
(E) Effect of election
If a cooperative housing corporation makes an election under
this paragraph, section 216 shall not apply with respect to
such corporation (or any successor thereof) during the
qualified project period (as defined in section 142(d)(2)).
(F) Corporation must continue to be qualified cooperative
Subparagraph (A)(i) shall not apply to limited equity
cooperative housing unless the cooperative housing corporation
continues to be a qualified cooperative housing corporation at
all times during the qualified project period (as defined in
section 142(d)(2)).
(G) Election irrevocable
Any election under this paragraph, once made, shall be
irrevocable.
(10) Treatment of resale price control and subsidy lien programs
(A) In general
In the case of a residence which is located in a high housing
cost area (as defined in section 143(f)(5)), the interest of a
governmental unit in such residence by reason of financing
provided under any qualified program shall not be taken into
account under this section (other than subsection (m)), and the
acquisition cost of the residence which is taken into account
under subsection (e) shall be such cost reduced by the amount
of such financing.
(B) Qualified program
For purposes of subparagraph (A), the term "qualified
program" means any governmental program providing mortgage
loans (other than 1st mortgage loans) or grants -
(i) which restricts (throughout the 9-year period beginning
on the date the financing is provided) the resale of the
residence to a purchaser qualifying under this section and to
a price determined by an index that reflects less than the
full amount of any appreciation in the residence's value, or
(ii) which provides for deferred or reduced interest
payments on such financing and grants the governmental unit a
share in the appreciation of the residence,
but only if such financing is not provided directly or
indirectly through the use of any tax-exempt private activity
bond.
(11) Special rules for residences located in disaster areas
In the case of a residence located in an area determined by the
President to warrant assistance from the Federal Government under
the Robert T. Stafford Disaster Relief and Emergency Assistance
Act (as in effect on the date of the enactment of the Taxpayer
Relief Act of 1997), this section shall be applied with the
following modifications to financing provided with respect to
such residence within 2 years after the date of the disaster
declaration:
(A) Subsection (d) (relating to 3-year requirement) shall not
apply.
(B) Subsections (e) and (f) (relating to purchase price
requirement and income requirement) shall be applied as if such
residence were a targeted area residence.
The preceding sentence shall apply only with respect to bonds
issued after December 31, 1996, and before January 1, 1999.
(l) Additional requirements for qualified veterans' mortgage bonds
An issue meets the requirements of this subsection only if it
meets the requirements of paragraphs (1), (2), and (3).
(1) Veterans to whom financing may be provided
An issue meets the requirements of this paragraph only if each
mortgagor to whom financing is provided under the issue is a
qualified veteran.
(2) Requirement that State program be in effect before June 22,
1984
An issue meets the requirements of this paragraph only if it is
a general obligation of a State which issued qualified veterans'
mortgage bonds before June 22, 1984.
(3) Volume limitation
(A) In general
An issue meets the requirements of this paragraph only if the
aggregate amount of bonds issued pursuant thereto (when added
to the aggregate amount of qualified veterans' mortgage bonds
previously issued by the State during the calendar year) does
not exceed the State veterans limit for such calendar year.
(B) State veterans limit
A State veterans limit for any calendar year is the amount
equal to -
(i) the aggregate amount of qualified veterans bonds issued
by such State during the period beginning on January 1, 1979,
and ending on June 22, 1984 (not including the amount of any
qualified veterans bond issued by such State during the
calendar year (or portion thereof) in such period for which
the amount of such bonds so issued was the lowest), divided
by
(ii) the number (not to exceed 5) of calendar years after
1979 and before 1985 during which the State issued qualified
veterans bonds (determined by only taking into account bonds
issued on or before June 22, 1984).
(C) Treatment of refunding issues
(i) In general
For purposes of subparagraph (A), the term "qualified
veterans' mortgage bond" shall not include any bond issued to
refund another bond but only if the maturity date of the
refunding bond is not later than the later of -
(I) the maturity date of the bond to be refunded, or
(II) the date 32 years after the date on which the
refunded bond was issued (or in the case of a series of
refundings, the date on which the original bond was
issued).
The preceding sentence shall apply only to the extent that
the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond.
(ii) Exception for advance refunding
Clause (i) shall not apply to any bond issued to advance
refund another bond.
(4) Qualified veteran
For purposes of this subsection, the term "qualified veteran"
means any veteran -
(A) who served on active duty at some time before January 1,
1977, and
(B) who applied for the financing before the later of -
(i) the date 30 years after the last date on which such
veteran left active service, or
(ii) January 31, 1985.
(5) Special rule for certain short-term bonds
In the case of any bond -
(A) which has a term of 1 year or less,
(B) which is authorized to be issued under O.R.S. 407.435 (as
in effect on the date of the enactment of this subsection), to
provide financing for property taxes, and
(C) which is redeemed at the end of such term,
the amount taken into account under this subsection with respect
to such bond shall be 1/15 of its principal amount.
(m) Recapture of portion of Federal subsidy from use of qualified
mortgage bonds and mortgage credit certificates
(1) In general
If, during the taxable year, any taxpayer disposes of an
interest in a residence with respect to which there is or was any
federally-subsidized indebtedness for the payment of which the
taxpayer was liable in whole or part, then the taxpayer's tax
imposed by this chapter for such taxable year shall be increased
by the lesser of -
(A) the recapture amount with respect to such indebtedness,
or
(B) 50 percent of the gain (if any) on the disposition of
such interest.
(2) Exceptions
Paragraph (1) shall not apply to -
(A) any disposition by reason of death, and
(B) any disposition which is more than 9 years after the
testing date.
(3) Federally-subsidized indebtedness
For purposes of this subsection -
(A) In general
The term "federally-subsidized indebtedness" means any
indebtedness if -
(i) financing for the indebtedness was provided in whole or
part from the proceeds of any tax-exempt qualified mortgage
bond, or
(ii) any credit was allowed under section 25 (relating to
interest on certain home mortgages) to the taxpayer for
interest paid or incurred on such indebtedness.
(B) Exception for home improvement loans
Such term shall not include any indebtedness to the extent
such indebtedness is federally-subsidized indebtedness solely
by reason of being a qualified home improvement loan (as
defined in subsection (k)(4)).
(4) Recapture amount
For purposes of this subsection -
(A) In general
The recapture amount with respect to any indebtedness is the
amount equal to the product of -
(i) the federally-subsidized amount with respect to the
indebtedness,
(ii) the holding period percentage, and
(iii) the income percentage.
(B) Federally-subsidized amount
The federally-subsidized amount with respect to any
indebtedness is the amount equal to 6.25 percent of the highest
principal amount of the indebtedness for which the taxpayer was
liable.
(C) Holding period percentage
(i) In general
The term "holding period percentage" means the percentage
determined in accordance with the following table:
If the disposition occurs
during a year after the The holding
period
testing date which is: percentage is:
The 1st such year 20
The 2d such year 40
The 3d such year 60
The 4th such year 80
The 5th such year 100
The 6th such year 80
The 7th such year 60
The 8th such year 40
The 9th such year 20.
(ii) Retirements of indebtedness
If the federally-subsidized indebtedness is completely
repaid during any year of the 4-year period beginning on the
testing date, the holding period percentage for succeeding
years shall be determined by reducing ratably to zero over
the succeeding 5 years the holding period percentage which
would have been determined under this subparagraph had the
taxpayer disposed of his interest in the residence on the
date of the repayment.
(D) Testing date
The term "testing date" means the earliest date on which all
of the following requirements are met:
(i) The indebtedness is federally-subsidized indebtedness.
(ii) The taxpayer is liable in whole or part for payment of
the indebtedness.
(E) Income percentage
The term "income percentage" means the percentage (but not
greater than 100 percent) which -
(i) the excess of -
(I) the modified adjusted gross income of the taxpayer
for the taxable year in which the disposition occurs, over
(II) the adjusted qualifying income for such taxable
year, bears to
(ii) $5,000.
The percentage determined under the preceding sentence shall be
rounded to the nearest whole percentage point (or, if it
includes a half of a percentage point, shall be increased to
the nearest whole percentage point).
(5) Adjusted qualifying income; modified adjusted gross income
(A) Adjusted qualifying income
For purposes of paragraph (4), the term "adjusted qualifying
income" means the product of -
(i) the highest family income which (as of the date the
financing was provided) would have met the requirements of
subsection (f) with respect to the residents, and
(ii) 1.05 to the nth power where "n" equals the number of
full years during the period beginning on the date the
financing was provided and ending on the date of the
disposition.
For purposes of clause (i), highest family income shall be
determined without regard to subsection (f)(3)(A) and on the
basis of the number of members of the taxpayer's family as of
the date of the disposition.
(B) Modified adjusted gross income
For purposes of paragraph (4), the term "modified adjusted
gross income" means adjusted gross income -
(i) increased by the amount of interest received or accrued
by the taxpayer during the taxable year which is excluded
from gross income under section 103, and
(ii) decreased by the amount of gain (if any) included in
gross income of the taxpayer by reason of the disposition to
which this subsection applies.
(6) Special rules relating to limitation on recapture amount
based on gain realized
(A) In general
For purposes of paragraph (1), gain shall be taken into
account whether or not recognized, and the adjusted basis of
the taxpayer's interest in the residence shall be determined
without regard to sections 1033(b) and 1034(e) (as in effect on
the day before the date of the enactment of the Taxpayer Relief
Act of 1997) for purposes of determining gain.
(B) Dispositions other than sales, exchanges, and involuntary
conversions
In the case of a disposition other than a sale, exchange, or
involuntary conversion, gain shall be determined as if the
interest had been sold for its fair market value.
(C) Involuntary conversions resulting from casualties
In the case of property which (as a result of its destruction
in whole or in part by fire, storm, or other casualty) is
compulsorily or involuntarily converted, paragraph (1) shall
not apply to such conversion if the taxpayer purchases (during
the period specified in section 1033(a)(2)(B)) property for use
as his principal residence on the site of the converted
property. For purposes of subparagraph (A), the adjusted basis
of the taxpayer in the residence shall not be adjusted for any
gain or loss on a conversion to which this subparagraph
applies.
(7) Issuer to inform mortgagor of federally-subsidized amount and
family income limits
The issuer of the issue which provided the federally-subsidized
indebtedness to the mortgagor shall -
(A) at the time of settlement, provide a written statement
informing the mortgagor of the potential recapture under this
subsection, and
(B) not later than 90 days after the date such indebtedness
is provided, provide a written statement to the mortgagor
specifying -
(i) the federally-subsidized amount with respect to such
indebtedness, and
(ii) the adjusted qualifying income (as defined in
paragraph (5)) for each category of family size for each year
of the 9-year period beginning on the date the financing was
provided.
(8) Special rules
(A) No basis adjustment
No adjustment shall be made to the basis of any property for
the increase in tax under this subsection.
(B) Special rule where 2 or more persons hold interests in
residence
Except as provided in subparagraph (C) and in regulations
prescribed by the Secretary, if 2 or more persons hold
interests in any residence and are jointly liable for the
federally-subsidized indebtedness, the recapture amount shall
be determined separately with respect to their respective
interests in the residence.
(C) Transfers to spouses and former spouses
Paragraph (1) shall not apply to any transfer on which no
gain or loss is recognized under section 1041. In any such
case, the transferee shall be treated under this subsection in
the same manner as the transferor would have been treated had
such transfer not occurred.
(D) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out this subsection,
including regulations dealing with dispositions of partial
interests in a residence.
-SOURCE-
(Added Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100
Stat. 2610; amended Pub. L. 100-647, title I, Sec. 1013(a)(2), (3),
title IV, Sec. 4005(a)(1), (b)-(d)(1), (e)-(g)(2), (6), Nov. 10,
1988, 102 Stat. 3537, 3645-3651; Pub. L. 101-239, title VII, Sec.
7104(a), Dec. 19, 1989, 103 Stat. 2305; Pub. L. 101-508, title XI,
Sec. 11408(a), (c), Nov. 5, 1990, 104 Stat. 1388-477; Pub. L. 102-
227, title I, Sec. 108(a), Dec. 11, 1991, 105 Stat. 1688; Pub. L.
103-66, title XIII, Sec. 13141(a), (c)-(e), Aug. 10, 1993, 107
Stat. 436, 437; Pub. L. 104-188, title I, Secs. 1702(d)(2),
1703(n)(3), Aug. 20, 1996, 110 Stat. 1870, 1877; Pub. L. 105-34,
title III, Sec. 312(d)(1), (3), title IX, Sec. 914, Aug. 5, 1997,
111 Stat. 839, 840, 878.)
-REFTEXT-
REFERENCES IN TEXT
Section 8 of the United States Housing Act of 1937, referred to
in subsec. (f)(2), is classified to section 1437f of Title 42, The
Public Health and Welfare.
The Robert T. Stafford Disaster Relief and Emergency Assistance
Act, referred to in subsec. (k)(11), is Pub. L. 93-288, May 22,
1974, 88 Stat. 143, as in effect on the date of enactment of Pub.
L. 105-34, which was approved Aug. 5, 1997. The Act is classified
principally to chapter 68 (Sec. 5121 et seq.) of Title 42, The
Public Health and Welfare. For complete classification of this Act
to the Code, see Short Title note set out under section 5121 of
Title 42 and Tables.
The date of the enactment of this subsection, referred to in
subsec. (l)(5)(B), is the date of enactment of Pub. L. 99-514,
which was approved Oct. 22, 1986.
Section 1034(e) (as in effect on the day before the date of the
enactment of the Taxpayer Relief Act of 1997), referred to in
subsec. (m)(6)(A), means section 1034(e) of this title as in effect
on the day before the date of enactment of Pub. L. 105-34, which
was approved Aug. 5, 1997. Section 1034 was repealed by Pub. L. 105-
34, title III, Sec. 312(b), Aug. 5, 1997, 111 Stat. 839.
-MISC1-
PRIOR PROVISIONS
A prior section 143, acts Aug. 16, 1954, ch. 736, 68A Stat. 41;
Dec. 30, 1969, Pub. L. 91-172, title VIII, Sec. 802(b), 83 Stat.
677; Oct. 4, 1976, Pub. L. 94-455, title XIX, Sec. 1901(a)(22), 90
Stat. 1767; May 23, 1977, Pub. L. 95-30, title I, Sec. 101(d)(4),
91 Stat. 133; July 18, 1984, Pub. L. 98-369, div. A, title IV, Sec.
423(c)(1), 98 Stat. 800, related to determination of marital
status, prior to the general revision of this part by Pub. L. 99-
514. See section 7703 of this title.
Provisions similar to this section were contained in section 103A
of this title prior to repeal by Pub. L. 99-514.
AMENDMENTS
1997 - Subsec. (i)(1)(C)(i)(I). Pub. L. 105-34, Sec. 312(d)(1),
substituted "section 121" for "section 1034".
Subsec. (k)(11). Pub. L. 105-34, Sec. 914, added par. (11).
Subsec. (m)(6)(A). Pub. L. 105-34, Sec. 312(d)(3), inserted "(as
in effect on the day before the date of the enactment of the
Taxpayer Relief Act of 1997)" after "1034(e)".
1996 - Subsec. (d)(2)(C). Pub. L. 104-188, Sec. 1703(n)(3),
substituted "thereon," for "thereon.".
Subsec. (m)(4)(C)(ii). Pub. L. 104-188, Sec. 1702(d)(2),
substituted "any year of the 4-year period" for "any month of the
10-year period", "succeeding years" for "succeeding months", and
"to zero over the succeeding 5 years" for "over the remainder of
such period (or, if lesser, over 5 years)".
1993 - Subsec. (a)(1). Pub. L. 103-66, Sec. 13141(a), amended
heading and text of par. (1) generally. Prior to amendment, text
read as follows:
"(A) In general. - For purposes of this title, the term
'qualified mortgage bond' means a bond which is issued as part of a
qualified mortgage issue.
"(B) Termination on June 30, 1992. - No bond issued after June
30, 1992, may be treated as a qualified mortgage bond."
Subsec. (d)(2)(C). Pub. L. 103-66, Sec. 13141(d)(1), added
subpar. (C).
Subsec. (i)(1)(C). Pub. L. 103-66, Sec. 13141(d)(2), added
subpar. (C).
Subsec. (k)(3)(B)(iii). Pub. L. 103-66, Sec. 13141(d)(3),
inserted "(other than land described in subsection (i)(1)(C)(i))"
after "cost of land".
Subsec. (k)(7). Pub. L. 103-66, Sec. 13141(e), inserted at end
"Subparagraph (B) shall not apply to any 2-family residence if the
residence is a targeted area residence and the family income of the
mortgagor meets the requirement of subsection (f)(3)(B)."
Subsec. (k)(10). Pub. L. 103-66, Sec. 13141(c), added par. (10).
1991 - Subsec. (a)(1)(B). Pub. L. 102-227 substituted "June 30,
1992" for "December 31, 1991" in heading and text.
1990 - Subsec. (a)(1)(B). Pub. L. 101-508, Sec. 11408(a),
substituted "December 31, 1991" for "September 30, 1990" in heading
and text.
Subsec. (m)(1). Pub. L. 101-508, Sec. 11408(c)(3)(A), substituted
"increased by the lesser of - " and subpars. (A) and (B) for
"increased by the recapture amount with respect to such
indebtedness."
Subsec. (m)(2)(B). Pub. L. 101-508, Sec. 11408(c)(1)(C),
substituted "9 years" for "10 years".
Subsec. (m)(4)(A)(iii). Pub. L. 101-508, Sec. 11408(c)(2)(A),
added cl. (iii).
Subsec. (m)(4)(C)(i). Pub. L. 101-508, Sec. 11408(c)(1)(A),
substituted heading for one which read: "Dispositions during 1st 5
years" and amended text generally. Prior to amendment, text read as
follows: "If the disposition of the taxpayer's interest in the
residence occurs during the 5-year period beginning on the testing
date, the holding period percentage is the percentage determined by
dividing the number of full months during which the requirements of
subparagraph (D) were met by 60."
Subsec. (m)(4)(C)(ii), (iii). Pub. L. 101-508, Sec.
11408(c)(1)(B), redesignated cl. (iii) as (ii) and struck out
former cl. (ii) "Dispositions during 2d 5 years" which read as
follows: "If the disposition of the taxpayer's interest in the
residence occurs during the 5-year period following the 5-year
period described in clause (i), the holding period percentage is
the percentage determined by dividing -
"(I) the excess of 120 over the number of full months during
which such requirements were met by
"(II) 60."
Subsec. (m)(4)(E). Pub. L. 101-508, Sec. 11408(c)(2)(B), added
subpar. (E).
Subsec. (m)(5). Pub. L. 101-508, Sec. 11408(c)(2)(C)(i), added
heading and struck out former heading which read: "Reduction of
recapture amount if taxpayer meets certain income limitations".
Subsec. (m)(5)(A). Pub. L. 101-508, Sec. 11408(c)(2)(C)(i), added
subpar. (A) and struck out former subpar. (A) "In general" which
read as follows: "The recapture amount which would (but for this
paragraph) apply with respect to any disposition during a taxable
year shall be reduced (but not below zero) by 2 percent of such
amount for each $100 by which adjusted qualifying income exceeds
the modified adjusted gross income of the taxpayer for such year."
Subsec. (m)(5)(B), (C). Pub. L. 101-508, Sec. 11408(c)(2)(C),
redesignated subpar. (C) as (B), substituted "paragraph (4)" for
"this paragraph" in introductory provisions, and struck out former
subpar. (B) "Adjusted qualifying income" which read as follows:
"For purposes of this paragraph, the term 'adjusted qualifying
income' means the amount equal to the sum of -
"(i) $5,000, plus
"(ii) the product of -
"(I) the highest family income which (as of the date the
financing was provided) would have met the requirement of
subsection (f) with respect to the residence, and
"(II) the percentage equal to the sum of 100 percent plus 5
percent for each full year during the period beginning on such
date and ending on the date of the disposition.
For purposes of clause (ii)(I), highest family income shall be
determined without regard to subsection (f)(3)(A) and on the basis
of the number of members of the taxpayer's family as of the date of
the disposition."
Subsec. (m)(6). Pub. L. 101-508, Sec. 11408(c)(3)(B)(i),
substituted "Special rules relating to limitation" for "Limitation"
in heading.
Subsec. (m)(6)(A). Pub. L. 101-508, Sec. 11408(c)(3)(B)(ii),
(iii), struck out at beginning "In no event shall the recapture
amount of the taxpayer with respect to any indebtedness exceed 50
percent of the gain (if any) on the disposition of the taxpayer's
interest in the residence." and substituted "paragraph (1)" for
"the preceding sentence".
Subsec. (m)(7)(B)(ii). Pub. L. 101-508, Sec. 11408(c)(3)(C),
amended cl. (ii) generally. Prior to amendment, cl. (ii) read as
follows: "the amounts described in paragraph (5)(B)(ii) for each
category of family size for each year of the 10-year period
beginning on the date the financing was provided."
1989 - Subsec. (a)(1)(B). Pub. L. 101-239 substituted "September
30, 1990" for "December 31, 1989" in heading and in text.
1988 - Subsec. (a)(1)(B). Pub. L. 100-647, Sec. 4005(a)(1),
substituted "1989" for "1988" in heading and in text.
Subsec. (a)(2)(A). Pub. L. 100-647, Sec. 4005(f), inserted
sentence at end relating to application of cl. (iv).
Subsec. (a)(2)(A)(ii). Pub. L. 100-647, Sec. 4005(g)(1),
substituted "(i), and (m)(7)" for "and (i)".
Subsec. (a)(2)(A)(iii). Pub. L. 100-647, Sec. 1013(a)(2),
substituted "such issue does not meet" for "no bond which is part
of such issue meets".
Subsec. (a)(2)(A)(iv). Pub. L. 100-647, Sec. 4005(f), added cl.
(iv).
Subsec. (a)(2)(C). Pub. L. 100-647, Sec. 4005(g)(2)(B),
substituted ", (h), and (m)(7)" for "and (h)" in introductory text.
Subsec. (a)(2)(D). Pub. L. 100-647, Sec. 4005(e), added subpar.
(D).
Subsec. (b)(4). Pub. L. 100-647, Sec. 1013(a)(3), inserted "is
part of an issue which" after "which".
Subsec. (f)(5). Pub. L. 100-647, Sec. 4005(b), added par. (5).
Subsec. (f)(6). Pub. L. 100-647, Sec. 4005(c), added par. (6).
Subsec. (g)(1). Pub. L. 100-647, Sec. 4005(d)(1), substituted
"paragraph (2) of this subsection and, in the case of an issue
described in subsection (b)(1), such issue also meets the
requirements of paragraph (3) of this subsection" for "paragraphs
(2) and (3) of this subsection" and struck out "(other than
subsection (f) thereof)" before period at end.
Subsec. (g)(2)(B)(iv). Pub. L. 100-647, Sec. 4005(g)(6), inserted
at end "The Secretary may by regulation adjust the mortgage
prepayment rate otherwise used in determining the effective rate of
interest to the extent the Secretary determines that such an
adjustment is appropriate by reason of the impact of subsection
(m)."
Subsec. (m). Pub. L. 100-647, Sec. 4005(g)(1), added subsec. (m).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 312(d)(1), (3) of Pub. L. 105-34 applicable
to sales and exchanges after May 6, 1997, with certain exceptions,
see section 312(d) of Pub. L. 105-34, set out as a note under
section 121 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1702(d)(2) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L. 101-
508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
Amendment by section 1703(n)(3) of Pub. L. 104-188 effective as
if included in the provision of the Revenue Reconciliation Act of
1993, Pub. L. 103-66, Secs. 13001-13444, to which such amendment
relates, see section 1703(o) of Pub. L. 104-188, set out as a note
under section 39 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13141(f)(1) of Pub. L. 103-66 provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to bonds issued after June 30, 1992."
Section 13141(f)(3) of Pub. L. 103-66 provided that: "The
amendments made by subsections (c) and (e) [amending this section]
shall apply to qualified mortgage bonds issued and mortgage credit
certificates provided on or after the date of enactment of this Act
[Aug. 10, 1993]."
Section 13141(f)(4) of Pub. L. 103-66 provided that: "The
amendments made by subsection (d) [amending this section] shall
apply to loans originated and credit certificates provided after
the date of the enactment of this Act [Aug. 10, 1993]."
EFFECTIVE DATE OF 1991 AMENDMENT
Section 108(c)(1) of Pub. L. 102-227 provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to bonds issued after December 31, 1991."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11408(d) of Pub. L. 101-508 provided that:
"(1) Bonds. - The amendment made by subsection (a) [amending this
section] shall apply to bonds issued after September 30, 1990.
"(2) Certificates. - The amendment made by subsection (b)
[amending section 25 of this title] shall apply to elections for
periods after September 30, 1990.
"(3) Simplification. - The amendment made by subsection (c)
[amending this section] shall take effect as if included in the
amendments made by section 4005 of the Technical and Miscellaneous
Revenue Act of 1988 [Pub. L. 100-647]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1013(a)(2), (3) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 4005(h) of Pub. L. 100-647 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 25, 26, 148, 6045, and 6654 of this title]
shall apply to bonds issued, and nonissued bond amounts elected,
after December 31, 1988.
"(2) Special rules relating to certain requirements and refunding
bonds. - In the case of a bond issued to refund (or which is part
of a series of bonds issued to refund) a bond issued before January
1, 1989 -
"(A) the amendments made by subsections (b) and (c) [amending
this section] shall apply to financing provided after the date of
issuance of the refunding issue, and
"(B) the amendment made by subsection (f) [amending this
section] shall apply to payments (including on loans made before
such date of issuance) received on or after such date of
issuance.
"(3) Subsection (g). -
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by subsection (g) [amending this section and
sections 25, 26, 6045, and 6654 of this title] shall apply to
financing provided, and mortgage credit certificates issued,
after December 31, 1990.
"(B) Exception. - The amendments made by subsection (g) shall
not apply to financing provided pursuant to a binding contract
(entered into before June 23, 1988) with a homebuilder, lender,
or mortgagor if the bonds (the proceeds of which are used to
provide such financing) are issued -
"(i) before June 23, 1988, or
"(ii) before August 1, 1988, pursuant to a written
application (made before July 1, 1988) for State bond volume
authority."
TERMINATION DATE FOR OBLIGATIONS TREATED AS QUALIFIED MORTGAGE
BONDS UNDER FORMER SECTION 103A
Section 1013(a)(27) of Pub. L. 100-647 provided that: "The date
contained in [former] section 143(a)(1)(B) of the 1986 Code shall
be treated as contained in section 103A(c)(1)(B) of the Internal
Revenue Code of 1954, as in effect on the day before the date of
the enactment of the Reform Act [Oct. 22, 1986], for purposes of
any bond issued to refund a bond to which such [section] 103A(c)(1)
applies."
STUDY OF RECAPTURE PROVISIONS
Section 4005(i) of Pub. L. 100-647 provided that: "The
Comptroller General of the United States shall conduct a study of
section 143(m) of the 1986 Code (as added by this section) and of
alternatives to accomplish the purposes of such section. A report
of such study shall be submitted not later than July 1, 1990, to
the Committee on Ways and Means of the House of Representatives and
the Committee on Finance of the Senate."
-End-
-CITE-
26 USC Sec. 144 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart A - Private Activity Bonds
-HEAD-
Sec. 144. Qualified small issue bond; qualified student loan bond;
qualified redevelopment bond
-STATUTE-
(a) Qualified small issue bond
(1) In general
For purposes of this part, the term "qualified small issue
bond" means any bond issued as part of an issue the aggregate
authorized face amount of which is $1,000,000 or less and 95
percent or more of the net proceeds of which are to be used -
(A) for the acquisition, construction, reconstruction, or
improvement of land or property of a character subject to the
allowance for depreciation, or
(B) to redeem part or all of a prior issue which was issued
for purposes described in subparagraph (A) or this
subparagraph.
(2) Certain prior issues taken into account
If -
(A) the proceeds of 2 or more issues of bonds (whether or not
the issuer of each such issue is the same) are or will be used
primarily with respect to facilities located in the same
incorporated municipality or located in the same county (but
not in any incorporated municipality),
(B) the principal user of such facilities is or will be the
same person or 2 or more related persons, and
(C) but for this paragraph, paragraph (1) (or the
corresponding provision of prior law) would apply to each such
issue,
then, for purposes of paragraph (1), in determining the aggregate
face amount of any later issue there shall be taken into account
the aggregate face amount of tax-exempt bonds issued under all
prior such issues and outstanding at the time of such later issue
(not including as outstanding any bond which is to be redeemed
(other than in an advance refunding) from the net proceeds of the
later issue).
(3) Related persons
For purposes of this subsection, a person is a related person
to another person if -
(A) the relationship between such persons would result in a
disallowance of losses under section 267 or 707(b), or
(B) such persons are members of the same controlled group of
corporations (as defined in section 1563(a), except that "more
than 50 percent" shall be substituted for "at least 80 percent"
each place it appears therein).
(4) $10,000,000 limit in certain cases
(A) In general
At the election of the issuer with respect to any issue, this
subsection shall be applied -
(i) by substituting "$10,000,000" for "$1,000,000" in
paragraph (1), and
(ii) in determining the aggregate face amount of such
issue, by taking into account not only the amount described
in paragraph (2), but also the aggregate amount of capital
expenditures with respect to facilities described in
subparagraph (B) paid or incurred during the 6-year period
beginning 3 years before the date of such issue and ending 3
years after such date (and financed otherwise than out of the
proceeds of outstanding tax-exempt issues to which paragraph
(1) (or the corresponding provision of prior law) applied),
as if the aggregate amount of such capital expenditures
constituted the face amount of a prior outstanding issue
described in paragraph (2).
(B) Facilities taken into account
For purposes of subparagraph (A)(ii), the facilities
described in this subparagraph are facilities -
(i) located in the same incorporated municipality or
located in the same county (but not in any incorporated
municipality), and
(ii) the principal user of which is or will be the same
person or 2 or more related persons.
For purposes of clause (i), the determination of whether or not
facilities are located in the same governmental unit shall be
made as of the date of issue of the issue in question.
(C) Certain capital expenditures not taken into account
For purposes of subparagraph (A)(ii), any capital expenditure
-
(i) to replace property destroyed or damaged by fire,
storm, or other casualty, to the extent of the fair market
value of the property replaced,
(ii) required by a change made after the date of issue of
the issue in question in a Federal or State law or local
ordinance of general application or required by a change made
after such date in rules and regulations of general
application issued under such a law or ordinance,
(iii) required by circumstances which could not be
reasonably foreseen on such date of issue or arising out of a
mistake of law or fact (but the aggregate amount of
expenditures not taken into account under this clause with
respect to any issue shall not exceed $1,000,000), or
(iv) described in clause (i) or (ii) of section 41(b)(2)(A)
for which a deduction was allowed under section 174(a),
shall not be taken into account.
(D) Limitation on loss of tax exemption
In applying subparagraph (A)(ii) with respect to capital
expenditures made after the date of any issue, no bond issued
as a part of such issue shall cease to be treated as a
qualified small issue bond by reason of any such expenditure
for any period before the date on which such expenditure is
paid or incurred.
(E) Certain refinancing issues
In the case of any issue described in paragraph (1)(B), an
election may be made under subparagraph (A) of this paragraph
only if all of the prior issues being redeemed are issues to
which paragraph (1) (or the corresponding provision of prior
law) applied. In applying subparagraph (A)(ii) with respect to
such a refinancing issue, capital expenditures shall be taken
into account only for purposes of determining whether the prior
issues being redeemed qualified (and would have continued to
qualify) under paragraph (1) (or the corresponding provision of
prior law).
(F) Aggregate amount of capital expenditures where there is
urban development action grant
In the case of any issue 95 percent or more of the net
proceeds of which are to be used to provide facilities with
respect to which an urban development action grant has been
made under section 119 of the Housing and Community Development
Act of 1974, capital expenditures of not to exceed $10,000,000
shall not be taken into account for purposes of applying
subparagraph (A)(ii). This subparagraph shall not apply to
bonds issued after September 30, 2009.
(G) Additional capital expenditures not taken into account
With respect to bonds issued after September 30, 2009, in
addition to any capital expenditure described in subparagraph
(C), capital expenditures of not to exceed $10,000,000 shall
not be taken into account for purposes of applying subparagraph
(A)(ii).
(5) Issues for residential purposes
This subsection shall not apply to any bond issued as part of
an issue 5 percent or more of the net proceeds of which are to be
used directly or indirectly to provide residential real property
for family units.
(6) Limitations on treatment of bonds as part of the same issue
(A) In general
For purposes of this subsection, separate lots of bonds which
(but for this subparagraph) would be treated as part of the
same issue shall be treated as separate issues unless the
proceeds of such lots are to be used with respect to 2 or more
facilities -
(i) which are located in more than 1 State, or
(ii) which have, or will have, as the same principal user
the same person or related persons.
(B) Franchises
For purposes of subparagraph (A), a person (other than a
governmental unit) shall be considered a principal user of a
facility if such person (or a group of related persons which
includes such person) -
(i) guarantees, arranges, participates in, or assists with
the issuance (or pays any portion of the cost of issuance) of
any bond the proceeds of which are to be used to finance or
refinance such facility, and
(ii) provides any property, or any franchise, trademark, or
trade name (within the meaning of section 1253), which is to
be used in connection with such facility.
(7) Subsection not to apply if bonds issued with certain other
tax-exempt bonds
This subsection shall not apply to any bond issued as part of
an issue (other than an issue to which paragraph (4) applies) if
the interest on any other bond which is part of such issue is
excluded from gross income under any provision of law other than
this subsection.
(8) Restrictions on financing certain facilities
This subsection shall not apply to an issue if -
(A) more than 25 percent of the net proceeds of the issue are
to be used to provide a facility the primary purpose of which
is one of the following: retail food and beverage services,
automobile sales or service, or the provision of recreation or
entertainment; or
(B) any portion of the proceeds of the issue is to be used to
provide the following: any private or commercial golf course,
country club, massage parlor, tennis club, skating facility
(including roller skating, skateboard, and ice skating),
racquet sports facility (including any handball or racquetball
court), hot tub facility, suntan facility, or racetrack.
(9) Aggregation of issues with respect to single project
For purposes of this subsection, 2 or more issues part or all
of the net proceeds of which are to be used with respect to a
single building, an enclosed shopping mall, or a strip of
offices, stores, or warehouses using substantial common
facilities shall be treated as 1 issue (and any person who is a
principal user with respect to any of such issues shall be
treated as a principal user with respect to the aggregated
issue).
(10) Aggregate limit per taxpayer
(A) In general
This subsection shall not apply to any issue if the aggregate
authorized face amount of such issue allocated to any test-
period beneficiary (when increased by the outstanding tax-
exempt facility-related bonds of such beneficiary) exceeds
$40,000,000.
(B) Outstanding tax-exempt facility-related bonds
(i) In general
For purposes of applying subparagraph (A) with respect to
any issue, the outstanding tax-exempt facility-related bonds
of any person who is a test-period beneficiary with respect
to such issue is the aggregate amount of tax-exempt bonds
referred to in clause (ii) -
(I) which are allocated to such beneficiary, and
(II) which are outstanding at the time of such later
issue (not including as outstanding any bond which is to be
redeemed (other than in an advance refunding) from the net
proceeds of the later issue).
(ii) Bonds taken into account
For purposes of clause (i), the bonds referred to in this
clause are -
(I) exempt facility bonds, qualified small issue bonds,
and qualified redevelopment bonds, and
(II) industrial development bonds (as defined in section
103(b)(2), as in effect on the day before the date of the
enactment of the Tax Reform Act of 1986) to which section
141(a) does not apply.
(C) Allocation of face amount of issue
(i) In general
Except as otherwise provided in regulations, the portion of
the face amount of an issue allocated to any test-period
beneficiary of a facility financed by the proceeds of such
issue (other than an owner of such facility) is an amount
which bears the same relationship to the entire face amount
of such issue as the portion of such facility used by such
beneficiary bears to the entire facility.
(ii) Owners
Except as otherwise provided in regulations, the portion of
the face amount of an issue allocated to any test-period
beneficiary who is an owner of a facility financed by the
proceeds of such issue is an amount which bears the same
relationship to the entire face amount of such issue as the
portion of such facility owned by such beneficiary bears to
the entire facility.
(D) Test-period beneficiary
For purposes of this paragraph, except as provided in
regulations, the term "test-period beneficiary" means any
person who is an owner or a principal user of facilities being
financed by the issue at any time during the 3-year period
beginning on the later of -
(i) the date such facilities were placed in service, or
(ii) the date of issue.
(E) Treatment of related persons
For purposes of this paragraph, all persons who are related
(within the meaning of paragraph (3)) to each other shall be
treated as 1 person.
(11) Limitation on acquisition of depreciable farm property
(A) In general
This subsection shall not apply to any issue if more than
$250,000 of the net proceeds of such issue are to be used to
provide depreciable farm property with respect to which the
principal user is or will be the same person or 2 or more
related persons.
(B) Depreciable farm property
For purposes of this paragraph, the term "depreciable farm
property" means property of a character subject to the
allowance for depreciation which is to be used in a trade or
business of farming.
(C) Prior issues taken into account
In determining the amount of proceeds of an issue to be used
as described in subparagraph (A), there shall be taken into
account the aggregate amount of each prior issue to which
paragraph (1) (or the corresponding provisions of prior law)
applied which were or will be so used.
(12) Termination dates
(A) In general
This subsection shall not apply to -
(i) any bond (other than a bond described in clause (ii))
issued after December 31, 1986, or
(ii) any bond (or series of bonds) issued to refund a bond
issued on or before such date unless -
(I) the average maturity date of the issue of which the
refunding bond is a part is not later than the average
maturity date of the bonds to be refunded by such issue,
(II) the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond, and
(III) the net proceeds of the refunding bond are used to
redeem the refunded bond not later than 90 days after the
date of the issuance of the refunding bond.
For purposes of clause (ii)(I), average maturity shall be
determined in accordance with section 147(b)(2)(A).
(B) Bonds issued to finance manufacturing facilities and farm
property
Subparagraph (A) shall not apply to any bond issued as part
of an issue 95 percent or more of the net proceeds of which are
to be used to provide -
(i) any manufacturing facility, or
(ii) any land or property in accordance with section
147(c)(2).
(C) Manufacturing facility
For purposes of this paragraph, the term "manufacturing
facility" means any facility which is used in the manufacturing
or production of tangible personal property (including the
processing resulting in a change in the condition of such
property). A rule similar to the rule of section 142(b)(2)
shall apply for purposes of the preceding sentence. For
purposes of the 1st sentence of this subparagraph, the term
"manufacturing facility" includes facilities which are directly
related and ancillary to a manufacturing facility (determined
without regard to this sentence) if -
(i) such facilities are located on the same site as the
manufacturing facility, and
(ii) not more than 25 percent of the net proceeds of the
issue are used to provide such facilities.
(b) Qualified student loan bond
For purposes of this part -
(1) In general
The term "qualified student loan bond" means any bond issued as
part of an issue the applicable percentage or more of the net
proceeds of which are to be used directly or indirectly to make
or finance student loans under -
(A) a program of general application to which the Higher
Education Act of 1965 applies if -
(i) limitations are imposed under the program on -
(I) the maximum amount of loans outstanding to any
student, and
(II) the maximum rate of interest payable on any loan,
(ii) the loans are directly or indirectly guaranteed by the
Federal Government,
(iii) the financing of loans under the program is not
limited by Federal law to the proceeds of tax-exempt bonds,
and
(iv) special allowance payments under section 438 of the
Higher Education Act of 1965 -
(I) are authorized to be paid with respect to loans made
under the program, or
(II) would be authorized to be made with respect to loans
under the program if such loans were not financed with the
proceeds of tax-exempt bonds, or
(B) a program of general application approved by the State if
no loan under such program exceeds the difference between the
total cost of attendance and other forms of student assistance
(not including loans pursuant to section 428B(a)(1) of the
Higher Education Act of 1965 (relating to parent loans) or
subpart I (!1) of part C of title VII of the Public Health
Service Act (relating to student assistance)) for which the
student borrower may be eligible. A program shall not be
treated as described in this subparagraph if such program is
described in subparagraph (A).
A bond shall not be treated as a qualified student loan bond if
the issue of which such bond is a part meets the private business
tests of paragraphs (1) and (2) of section 141(b) (determined by
treating 501(c)(3) organizations as governmental units with
respect to their activities which do not constitute unrelated
trades or businesses, determined by applying section 513(a)).
(2) Applicable percentage
For purposes of paragraph (1), the term "applicable percentage"
means -
(A) 90 percent in the case of the program described in
paragraph (1)(A), and
(B) 95 percent in the case of the program described in
paragraph (1)(B).
(3) Student borrowers must be residents of issuing State, etc.
A student loan shall be treated as being made or financed under
a program described in paragraph (1) with respect to an issue
only if the student is -
(A) a resident of the State from which the volume cap under
section 146 for such loan was derived, or
(B) enrolled at an educational institution located in such
State.
(4) Discrimination on basis of school location not permitted
A program shall not be treated as described in paragraph (1)(A)
if such program discriminates on the basis of the location (in
the United States) of the educational institution in which the
student is enrolled.
(c) Qualified redevelopment bond
For purposes of this part -
(1) In general
The term "qualified redevelopment bond" means any bond issued
as part of an issue 95 percent or more of the net proceeds of
which are to be used for 1 or more redevelopment purposes in any
designated blighted area.
(2) Additional requirements
A bond shall not be treated as a qualified redevelopment bond
unless -
(A) the issue described in paragraph (1) is issued pursuant
to -
(i) a State law which authorizes the issuance of such bonds
for redevelopment purposes in blighted areas, and
(ii) a redevelopment plan which is adopted before such
issuance by the governing body described in paragraph (4)(A)
with respect to the designated blighted area,
(B)(i) the payment of the principal and interest on such
issue is primarily secured by taxes of general applicability
imposed by a general purpose governmental unit, or
(ii) any increase in real property tax revenues (attributable
to increases in assessed value) by reason of the carrying out
of such purposes in such area is reserved exclusively for debt
service on such issue (and similar issues) to the extent such
increase does not exceed such debt service,
(C) each interest in real property located in such area -
(i) which is acquired by a governmental unit with the
proceeds of the issue, and
(ii) which is transferred to a person other than a
governmental unit,
is transferred for fair market value,
(D) the financed area with respect to such issue meets the no
additional charge requirements of paragraph (5), and
(E) the use of the proceeds of the issue meets the
requirements of paragraph (6).
(3) Redevelopment purposes
For purposes of paragraph (1) -
(A) In general
The term "redevelopment purposes" means, with respect to any
designated blighted area -
(i) the acquisition (by a governmental unit having the
power to exercise eminent domain) of real property located in
such area,
(ii) the clearing and preparation for redevelopment of land
in such area which was acquired by such governmental unit,
(iii) the rehabilitation of real property located in such
area which was acquired by such governmental unit, and
(iv) the relocation of occupants of such real property.
(B) New construction not permitted
The term "redevelopment purposes" does not include the
construction (other than the rehabilitation) of any property or
the enlargement of an existing building.
(4) Designated blighted area
For purposes of this subsection -
(A) In general
The term "designated blighted area" means any blighted area
designated by the governing body of a local general purpose
governmental unit in the jurisdiction of which such area is
located.
(B) Blighted area
The term "blighted area" means any area which the governing
body described in subparagraph (A) determines to be a blighted
area on the basis of the substantial presence of factors such
as excessive vacant land on which structures were previously
located, abandoned or vacant buildings, substandard structures,
vacancies, and delinquencies in payment of real property taxes.
(C) Designated areas may not exceed 20 percent of total
assessed value of real property in government's jurisdiction
(i) In general
An area may be designated by a governmental unit as a
blighted area only if the designation percentage with respect
to such area, when added to the designation percentages of
all other designated blighted areas within the jurisdiction
of such governmental unit, does not exceed 20 percent.
(ii) Designation percentage
For purposes of this subparagraph, the term "designation
percentage" means, with respect to any area, the percentage
(determined at the time such area is designated) which the
assessed value of real property located in such area is of
the total assessed value of all real property located within
the jurisdiction of the governmental unit which designated
such area.
(iii) Exception where bonds not outstanding
The designation percentage of a previously designated
blighted area shall not be taken into account under clause
(i) if no qualified redevelopment bond (or similar bond) is
or will be outstanding with respect to such area.
(D) Minimum designated area
(i) In general
Except as provided in clause (ii), an area shall not be
treated as a designated blighted area for purposes of this
subsection unless such area is contiguous and compact and its
area equals or exceeds 100 acres.
(ii) 10-acre minimum in certain cases
Clause (i) shall be applied by substituting "10 acres" for
"100 acres" if not more than 25 percent of the financed area
is to be provided (pursuant to the issue and all other such
issues) to 1 person. For purposes of the preceding sentence,
all related persons (as defined in subsection (a)(3)) shall
be treated as 1 person. For purposes of this clause, an area
provided to a developer on a short-term interim basis shall
not be treated as provided to such developer.
(5) No additional charge requirements
The financed area with respect to any issue meets the
requirements of this paragraph if, while any bond which is part
of such issue is outstanding -
(A) no owner or user of property located in the financed area
is subject to a charge or fee which similarly situated owners
or users of comparable property located outside such area are
not subject, and
(B) the assessment method or rate of real property taxes with
respect to property located in the financed area does not
differ from the assessment method or rate of real property
taxes with respect to comparable property located outside such
area.
For purposes of the preceding sentence, the term "comparable
property" means property which is of the same type as the
property to which it is being compared and which is located
within the jurisdiction of the designating governmental unit.
(6) Use of proceeds requirements
The use of the proceeds of an issue meets the requirements of
this paragraph if -
(A) not more than 25 percent of the net proceeds of such
issue are to be used to provide (including the provision of
land for) facilities described in subsection (a)(8) or section
147(e), and
(B) no portion of the proceeds of such issue is to be used to
provide (including the provision of land for) any private or
commercial golf course, country club, massage parlor, hot tub
facility, suntan facility, racetrack or other facility used for
gambling, or any store the principal business of which is the
sale of alcoholic beverages for consumption off premises.
(7) Financed area
For purposes of this subsection, the term "financed area"
means, with respect to any issue, the portion of the designated
blighted area with respect to which the proceeds of such issue
are to be used.
(8) Restriction on acquisition of land not to apply
Section 147(c) (other than paragraphs (1)(B) and (2) thereof)
shall not apply to any qualified redevelopment bond.
-SOURCE-
(Added Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100
Stat. 2621; amended Pub. L. 100-647, title I, Sec. 1013(a)(4)(A),
(B)(i), (ii), (C), (5), title VI, Sec. 6176(a), Nov. 10, 1988, 102
Stat. 3537, 3538, 3726; Pub. L. 101-239, title VII, Sec. 7105, Dec.
19, 1989, 103 Stat. 2306; Pub. L. 101-508, title XI, Sec. 11409(a),
Nov. 5, 1990, 104 Stat. 1388-478; Pub. L. 102-227, title I, Sec.
109(a), Dec. 11, 1991, 105 Stat. 1688; Pub. L. 103-66, title XIII,
Sec. 13122(a), Aug. 10, 1993, 107 Stat. 432; Pub. L. 108-357, title
III, Sec. 340, Oct. 22, 2004, 118 Stat. 1485.)
-REFTEXT-
REFERENCES IN TEXT
Section 119 of the Housing and Community Development Act of 1974,
referred to in subsec. (a)(4)(F), is classified to section 5318 of
Title 42, The Public Health and Welfare.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (a)(10)(B)(ii)(II), is the date of enactment of Pub.
L. 99-514, which was approved Oct. 22, 1986.
The Higher Education Act of 1965, referred to in subsec. (b)(1),
is Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, as amended, which
is classified principally to chapter 28 (Sec. 1001 et seq.) of
Title 20, Education. Section 428B(a) of that Act as enacted in the
general amendment of part B of title IV of that Act by Pub. L. 99-
498, title IV, Sec. 402(a), Oct. 17, 1986, 100 Stat. 1386, which
is classified to section 1078-2 of Title 20, does not contain a
par. (1). Section 438 of that Act is classified to section 1087-1
of Title 20. For complete classification of this Act to the Code,
see Short Title note set out under section 1001 of Title 20 and
Tables.
The Public Health Service Act, referred to in subsec. (b)(1)(B),
is act July 1, 1944, ch. 373, 58 Stat. 682, as amended. Subpart I
of part C of title VII of the Act was classified generally to
subpart I (Sec. 294 et seq.) of part C of subchapter V of chapter
6A of Title 42, The Public Health and Welfare, prior to the general
revision of subchapter V of chapter 6A by Pub. L. 102-408, title I,
Sec. 102, Oct. 13, 1992, 106 Stat. 1994. See subpart I (Sec. 292 et
seq.) of part A of revised subchapter V of chapter 6A of Title 42.
For complete classification of this Act to the Code, see Short
Title note set out under section 201 of Title 42 and Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 144, acts Aug. 16, 1954, ch. 736, 68A Stat. 41;
Feb. 26, 1964, Pub. L. 88-272, title I, Sec. 112(c), title II, Sec.
232(c), 78 Stat. 24, 110; Dec. 10, 1971, Pub. L. 92-178, title II,
Sec. 206, title III, Sec. 301(c), 85 Stat. 511, 520; Oct. 4, 1976,
Pub. L. 94-455, title V, Sec. 501(b)(3)-(5), title XIX, Sec.
1906(b)(13)(A), 90 Stat. 1558, 1559, 1834, related to method for
electing to take standard deduction, prior to repeal by Pub. L. 95-
30, title I, Sec. 101(d)(1), May 23, 1977, 91 Stat. 133,
applicable to taxable years beginning after Dec. 31, 1976.
AMENDMENTS
2004 - Subsec. (a)(4)(F). Pub. L. 108-357, Sec. 340(b), inserted
at end "This subparagraph shall not apply to bonds issued after
September 30, 2009."
Subsec. (a)(4)(G). Pub. L. 108-357, Sec. 340(a), added subpar.
(G).
1993 - Subsec. (a)(12)(B). Pub. L. 103-66 amended heading and
text of subpar. (B) generally. Prior to amendment, text read as
follows: "In the case of any bond issued as part of an issue 95
percent or more of the net proceeds of which are to be used to
provide -
"(i) any manufacturing facility, or
"(ii) any land or property in accordance with section
147(c)(2),
subparagraph (A) shall be applied by substituting 'June 30, 1992'
for 'December 31, 1986'."
1991 - Subsec. (a)(12)(B). Pub. L. 102-227 substituted "June 30,
1992" for "December 31, 1991".
1990 - Subsec. (a)(12)(B). Pub. L. 101-508 substituted "December
31, 1991" for "September 30, 1990".
1989 - Subsec. (a)(12)(B). Pub. L. 101-239 substituted "by
substituting 'September 30, 1990' for 'December 31, 1986' " for "by
substituting '1989' for '1986' ".
1988 - Subsec. (a)(12)(A). Pub. L. 100-647, Sec.
1013(a)(4)(B)(ii), inserted sentence at end that for purposes of
cl. (ii)(I), average maturity be determined in accordance with
section 147(b)(2)(A).
Subsec. (a)(12)(A)(ii). Pub. L. 100-647, Sec. 1013(a)(4)(A),
inserted "(or series of bonds)" before "issued to refund" in
introductory text.
Subsec. (a)(12)(A)(ii)(I). Pub. L. 100-647, Sec.
1013(a)(4)(B)(i), amended subcl. (I) generally. Prior to amendment,
subcl. (I) read as follows: "the refunding bond has a maturity date
not later than the maturity date of the refunded bond,".
Subsec. (a)(12)(A)(ii)(III), (IV). Pub. L. 100-647, Sec.
1013(a)(4)(C), redesignated subcl. (IV) as (III) and struck out
former subcl. (III) which provided that this subsection apply when
the interest rate on the refunding bond is lower than the interest
rate on the refunded bond.
Subsec. (a)(12)(C). Pub. L. 100-647, Sec. 6176(a), inserted
sentence at end defining "manufacturing facility".
Subsec. (b)(1). Pub. L. 100-647, Sec. 1013(a)(5), in subpar. (B)
struck out "to which part B of title IV of the Higher Education Act
of 1965 (relating to guaranteed student loans) does not apply"
after "by the State", substituted "of the Higher Education Act of
1965" for "of such Act", amended last sentence generally, and
inserted a new flush sentence at end of par. (1). Prior to
amendment, last sentence of subpar. (B) read as follows: "A bond
issued as part of an issue shall be treated as a qualified student
loan bond only if no bond which is part of such issue meets the
private business tests of paragraphs (1) and (2) of section
141(b)."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13122(b) of Pub. L. 103-66 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to bonds
issued after June 30, 1992."
EFFECTIVE DATE OF 1991 AMENDMENT
Section 109(b) of Pub. L. 102-227 provided that: "The amendment
made by this section [amending this section] shall apply to bonds
issued after December 31, 1991."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11409(b) of Pub. L. 101-508 provided that: "The amendment
made by this section [amending this section] shall apply to bonds
issued after September 30, 1990."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1013(a)(4)(A), (B)(i), (ii), (C), (5) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L. 99-
514, to which such amendment relates, see section 1019(a) of Pub.
L. 100-647, set out as a note under section 1 of this title.
Section 6176(b) of Pub. L. 100-647 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to bonds issued after the date of the
enactment of this Act [Nov. 10, 1988].
"(2) Refundings. - The amendment made by subsection (a) shall not
apply to any bond issued to refund (or which is part of a series of
bonds issued to refund) a bond issued on or before the date of the
enactment of this Act if -
"(A) the average maturity date of the issue of which the
refunding bond is a part is not later than the average maturity
date of the bonds to be refunded by such issue, and
"(B) the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond.
For purposes of subparagraph (A), average maturity shall be
determined in accordance with section 147(b) of the 1986 Code."
APPLICATION OF SUBSECTION (A)(12)(A)(II)(I) TO REFUNDING BONDS
ISSUED BEFORE JULY 1, 1987
Section 1013(a)(4)(B)(iii) of Pub. L. 100-647 provided that: "A
refunding bond issued before July 1, 1987, shall be treated as
meeting the requirement of subclause (I) of section
144(a)(12)(A)(ii) of the 1986 Code if such bond met the requirement
of such subclause as in effect before the amendments made by this
subparagraph [amending this section]."
TERMINATION DATE FOR EXEMPTION FOR CERTAIN SMALL ISSUES UNDER
SECTION 103(B)(6)
Section 1013(c)(12)(B) of Pub. L. 100-647 provided that: "The
date applicable under section 144(a)(12)(B) of the 1986 Code shall
be treated as contained in section 103(b)(6)(N)(iii) of the
Internal Revenue Code of 1954, as in effect on the day before the
date of the enactment of the Reform Act [Oct. 22, 1986], for
purposes of any bond issued to refund a bond to which such section
103(b)(6)(N)(iii) applies."
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 145 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart A - Private Activity Bonds
-HEAD-
Sec. 145. Qualified 501(c)(3) bond
-STATUTE-
(a) In general
For purposes of this part, except as otherwise provided in this
section, the term "qualified 501(c)(3) bond" means any private
activity bond issued as part of an issue if -
(1) all property which is to be provided by the net proceeds of
the issue is to be owned by a 501(c)(3) organization or a
governmental unit, and
(2) such bond would not be a private activity bond if -
(A) 501(c)(3) organizations were treated as governmental
units with respect to their activities which do not constitute
unrelated trades or businesses, determined by applying section
513(a), and
(B) paragraphs (1) and (2) of section 141(b) were applied by
substituting "5 percent" for "10 percent" each place it appears
and by substituting "net proceeds" for "proceeds" each place it
appears.
(b) $150,000,000 limitation on bonds other than hospital bonds
(1) In general
A bond (other than a qualified hospital bond) shall not be
treated as a qualified 501(c)(3) bond if the aggregate authorized
face amount of the issue (of which such bond is a part) allocated
to any 501(c)(3) organization which is a test-period beneficiary
(when increased by the outstanding tax-exempt nonhospital bonds
of such organization) exceeds $150,000,000.
(2) Outstanding tax-exempt nonhospital bonds
(A) In general
For purposes of applying paragraph (1) with respect to any
issue, the outstanding tax-exempt nonhospital bonds of any
organization which is a test-period beneficiary with respect to
such issue is the aggregate amount of tax-exempt bonds referred
to in subparagraph (B) -
(i) which are allocated to such organization, and
(ii) which are outstanding at the time of such later issue
(not including as outstanding any bond which is to be
redeemed (other than in an advance refunding) from the net
proceeds of the later issue).
(B) Bonds taken into account
For purposes of subparagraph (A), the bonds referred to in
this subparagraph are -
(i) any qualified 501(c)(3) bond other than a qualified
hospital bond, and
(ii) any bond to which section 141(a) does not apply if -
(I) such bond would have been an industrial development
bond (as defined in section 103(b)(2), as in effect on the
day before the date of the enactment of the Tax Reform Act
of 1986) if 501(c)(3) organizations were not exempt
persons, and
(II) such bond was not described in paragraph (4), (5),
or (6) of such section 103(b) (as in effect on the date
such bond was issued).
(C) Only nonhospital portion of bonds taken into account
(i) In general
A bond shall be taken into account under subparagraph (B)
only to the extent that the proceeds of the issue of which
such bond is a part are not used with respect to a hospital.
(ii) Special rule
If 90 percent or more of the net proceeds of an issue are
used with respect to a hospital, no bond which is part of
such issue shall be taken into account under subparagraph
(B)(ii).
(3) Aggregation rule
For purposes of this subsection, 2 or more organizations under
common management or control shall be treated as 1 organization.
(4) Allocation of face amount of issue; test-period beneficiary
Rules similar to the rules of subparagraphs (C), (D), and (E)
of section 144(a)(10) shall apply for purposes of this
subsection.
(5) Termination of limitation
This subsection shall not apply with respect to bonds issued
after the date of the enactment of this paragraph as part of an
issue 95 percent or more of the net proceeds of which are to be
used to finance capital expenditures incurred after such date.
(c) Qualified hospital bond
For purposes of this section, the term "qualified hospital bond"
means any bond issued as part of an issue 95 percent or more of the
net proceeds of which are to be used with respect to a hospital.
(d) Restrictions on bonds used to provide residential rental
housing for family units
(1) In general
Except as otherwise provided in this subsection, a bond which
is part of an issue shall not be a qualified 501(c)(3) bond if
any portion of the net proceeds of the issue are to be used
directly or indirectly to provide residential rental property for
family units.
(2) Exception for bonds used to provide qualified residential
rental projects
Paragraph (1) shall not apply to any bond issued as part of an
issue if the portion of such issue which is to be used as
described in paragraph (1) is to be used to provide -
(A) a residential rental property for family units if the
first use of such property is pursuant to such issue,
(B) qualified residential rental projects (as defined in
section 142(d)), or
(C) property which is to be substantially rehabilitated in a
rehabilitation beginning within the 2-year period ending 1 year
after the date of the acquisition of such property.
(3) Certain property treated as new property
Solely for purposes of determining under paragraph (2)(A)
whether the 1st use of property is pursuant to tax-exempt
financing -
(A) In general
If -
(i) the 1st use of property is pursuant to taxable
financing,
(ii) there was a reasonable expectation (at the time such
taxable financing was provided) that such financing would be
replaced by tax-exempt financing, and
(iii) the taxable financing is in fact so replaced within a
reasonable period after the taxable financing was provided,
then the 1st use of such property shall be treated as being
pursuant to the tax-exempt financing.
(B) Special rule where no operating State or local program for
tax-exempt financing
If, at the time of the 1st use of property, there was no
operating State or local program for tax-exempt financing of
the property, the 1st use of the property shall be treated as
pursuant to the 1st tax-exempt financing of the property.
(C) Definitions
For purposes of this paragraph -
(i) Tax-exempt financing
The term "tax-exempt financing" means financing provided by
tax-exempt bonds.
(ii) Taxable financing
The term "taxable financing" means financing which is not
tax-exempt financing.
(4) Substantial rehabilitation
(A) In general
Except as provided in subparagraph (B), rules similar to the
rules of section 47(c)(1)(C) shall apply in determining for
purposes of paragraph (2)(C) whether property is substantially
rehabilitated.
(B) Exception
For purposes of subparagraph (A), clause (ii) of section
47(c)(1)(C) shall not apply, but the Secretary may extend the
24-month period in section 47(c)(1)(C)(i) where appropriate due
to circumstances not within the control of the owner.
(e) Election out
This section shall not apply to an issue if -
(1) the issuer elects not to have this section apply to such
issue, and
(2) such issue is an issue of exempt facility bonds, or
qualified redevelopment bonds, to which section 146 applies.
-SOURCE-
(Added Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100
Stat. 2629; amended Pub. L. 100-647, title I, Sec. 1013(a)(6)-(8),
title V, Sec. 5053(a), Nov. 10, 1988, 102 Stat. 3538, 3677; Pub. L.
101-239, title VII, Sec. 7815(f), Dec. 19, 1989, 103 Stat. 2419;
Pub. L. 101-508, title XI, Sec. 11813(b)(7), Nov. 5, 1990, 104
Stat. 1388-551; Pub. L. 105-34, title II, Sec. 222, Aug. 5, 1997,
111 Stat. 818.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (b)(2)(B)(ii)(I), is the date of enactment of Pub. L.
99-514, which was approved Oct. 22, 1986.
The date of the enactment of this paragraph, referred to in
subsec. (b)(5), is the date of enactment of Pub. L. 105-34, which
was approved Aug. 5, 1997.
-MISC1-
PRIOR PROVISIONS
A prior section 145, act Aug. 16, 1954, ch. 736, 68A Stat. 42,
made a cross reference to section 36 of this title, prior to repeal
by Pub. L. 95-30, title I, Sec. 101(d)(1), May 23, 1977, 91 Stat.
133, applicable to taxable years beginning after Dec. 31, 1976.
AMENDMENTS
1997 - Subsec. (b)(5). Pub. L. 105-34 added par. (5).
1990 - Subsec. (d)(4). Pub. L. 101-508 substituted "section
47(c)(1)(C)" for "section 48(g)(1)(C)" wherever appearing and
"section 47(c)(1)(C)(i)" for "section 48(g)(1)(C)(i)".
1989 - Subsec. (d)(3), (4). Pub. L. 101-239 added par. (3) and
redesignated former par. (3) as (4).
1988 - Subsec. (b)(2)(B)(ii)(I). Pub. L. 100-647, Sec.
1013(a)(6), substituted "section 103(b)(2)" for "section 103(b)".
Subsec. (b)(2)(C)(i). Pub. L. 100-647, Sec. 1013(a)(7),
substituted "subparagraph (B)" for "subparagraph (B)(ii)".
Subsec. (b)(4). Pub. L. 100-647, Sec. 1013(a)(8), substituted
"subparagraphs (C), (D), and (E)" for "subparagraphs (C) and (D)".
Subsecs. (d), (e). Pub. L. 100-647, Sec. 5053(a), added subsec.
(d) and redesignated former subsec. (d) as (e).
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Dec. 31, 1990, but not applicable to any transition
property (as defined in section 49(e) of this title), any property
with respect to which qualified progress expenditures were
previously taken into account under section 46(d) of this title,
and any property described in section 46(b)(2)(C) of this title, as
such sections were in effect on Nov. 4, 1990, see section 11813(c)
of Pub. L. 101-508, set out as a note under section 45K of this
title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1013(a)(6)-(8) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 5053(c) of Pub. L. 100-647 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 148 of this title] shall apply to
obligations issued after October 21, 1988.
"(2) Exception for construction or binding agreement. -
"(A) The amendments made by this section shall not apply to
bonds (other than refunding bonds) with respect to a facility -
"(i)(I) the original use of which begins with the taxpayer,
and the construction, reconstruction, or rehabilitation of
which began before July 14, 1988, and was completed on or after
such date, or
"(II) the original use of which begins with the taxpayer and
with respect to which a binding contract to incur significant
expenditures for construction, reconstruction, or
rehabilitation was entered into before July 14, 1988, and some
of such expenditures are incurred on or after such date, and
"(ii) described in an inducement resolution or other
comparable preliminary approval adopted by an issuing authority
(or by a voter referendum) before July 14, 1988.
For purposes of the preceding sentence, the term 'significant
expenditures' means expenditures greater than 10 percent of the
reasonably anticipated cost of the construction, reconstruction,
or rehabilitation of the facility involved.
"(B) Subparagraph (A) shall not apply to any bond issued after
December 31, 1989, and shall not apply unless it is reasonably
expected (at the time of issuance of the bond) that the facility
will be placed in service before January 1, 1990.
"(3) Refundings. - The amendments made by this section shall not
apply to any bond issued to refund (or which is part of a series of
bonds issued to refund) a bond issued before July 15, 1988, if -
"(A) the average maturity date of the issue of which the
refunding bond is a part is not later than the average maturity
date of the bonds to be refunded by such issue,
"(B) the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond, and
"(C) the proceeds of the refunding bond are used to redeem the
refunded bond not later than 90 days after the date of the
issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be
determined in accordance with section 147(b) of the 1986 Code."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 146 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart A - Private Activity Bonds
-HEAD-
Sec. 146. Volume cap
-STATUTE-
(a) General rule
A private activity bond issued as part of an issue meets the
requirements of this section if the aggregate face amount of the
private activity bonds issued pursuant to such issue, when added to
the aggregate face amount of tax-exempt private activity bonds
previously issued by the issuing authority during the calendar
year, does not exceed such authority's volume cap for such calendar
year.
(b) Volume cap for State agencies
For purposes of this section -
(1) In general
The volume cap for any agency of the State authorized to issue
tax-exempt private activity bonds for any calendar year shall be
50 percent of the State ceiling for such calendar year.
(2) Special rule where State has more than 1 agency
If more than 1 agency of the State is authorized to issue tax-
exempt private activity bonds, all such agencies shall be
treated as a single agency.
(c) Volume cap for other issuers
For purposes of this section -
(1) In general
The volume cap for any issuing authority (other than a State
agency) for any calendar year shall be an amount which bears the
same ratio to 50 percent of the State ceiling for such calendar
year as -
(A) the population of the jurisdiction of such issuing
authority, bears to
(B) the population of the entire State.
(2) Overlapping jurisdictions
For purposes of paragraph (1)(A), if an area is within the
jurisdiction of 2 or more governmental units, such area shall be
treated as only within the jurisdiction of the unit having
jurisdiction over the smallest geographical area unless such unit
agrees to surrender all or part of such jurisdiction for such
calendar year to the unit with overlapping jurisdiction which has
the next smallest geographical area.
(d) State ceiling
For purposes of this section -
(1) In general
The State ceiling applicable to any State for any calendar year
shall be the greater of -
(A) an amount equal to $75 ($62.50 in the case of calendar
year 2001) multiplied by the State population, or
(B) $225,000,000 ($187,500,000 in the case of calendar year
2001).
(2) Cost-of-living adjustment
In the case of a calendar year after 2002, each of the dollar
amounts contained in paragraph (1) shall be increased by an
amount equal to -
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for such calendar year by substituting "calendar year
2001" for "calendar year 1992" in subparagraph (B) thereof.
If any increase determined under the preceding sentence is not a
multiple of $5 ($5,000 in the case of the dollar amount in
paragraph (1)(B)), such increase shall be rounded to the nearest
multiple thereof.
(3) Special rule for States with constitutional home rule cities
For purposes of this section -
(A) In general
The volume cap for any constitutional home rule city for any
calendar year shall be determined under paragraph (1) of
subsection (c) by substituting "100 percent" for "50 percent".
(B) Coordination with other allocations
In the case of any State which contains 1 or more
constitutional home rule cities, for purposes of applying
subsections (b) and (c) with respect to issuing authorities in
such State other than constitutional home rule cities, the
State ceiling for any calendar year shall be reduced by the
aggregate volume caps determined for such year for all
constitutional home rule cities in such State.
(C) Constitutional home rule city
For purposes of this section, the term "constitutional home
rule city" means, with respect to any calendar year, any
political subdivision of a State which, under a State
constitution which was adopted in 1970 and effective on July 1,
1971, had home rule powers on the 1st day of the calendar year.
(4) Special rule for possessions with populations of less than
the population of the least populous State
(A) In general
If the population of any possession of the United States for
any calendar year is less than the population of the least
populous State (other than a possession) for such calendar
year, the limitation under paragraph (1)(A) shall not be less
than the amount determined under subparagraph (B) for such
calendar year.
(B) Limitation
The limitation determined under this subparagraph, with
respect to a possession, for any calendar year is an amount
equal to the product of -
(i) the fraction -
(I) the numerator of which is the amount applicable under
paragraph (1)(B) for such calendar year, and
(II) the denominator of which is the State population of
the least populous State (other than a possession) for such
calendar year, and
(ii) the population of such possession for such calendar
year.
(e) State may provide for different allocation
For purposes of this section -
(1) In general
Except as provided in paragraph (3), a State may, by law
provide a different formula for allocating the State ceiling
among the governmental units (or other authorities) in such State
having authority to issue tax-exempt private activity bonds.
(2) Interim authority for Governor
(A) In general
Except as otherwise provided in paragraph (3), the Governor
of any State may proclaim a different formula for allocating
the State ceiling among the governmental units (or other
authorities) in such State having authority to issue private
activity bonds.
(B) Termination of authority
The authority provided in subparagraph (A) shall not apply to
bonds issued after the earlier of -
(i) the last day of the 1st calendar year after 1986 during
which the legislature of the State met in regular session, or
(ii) the effective date of any State legislation with
respect to the allocation of the State ceiling.
(3) State may not alter allocation to constitutional home rule
cities
Except as otherwise provided in a State constitutional
amendment (or law changing the home rule provision adopted in the
manner provided by the State constitution), the authority
provided in this subsection shall not apply to that portion of
the State ceiling which is allocated to any constitutional home
rule city in the State unless such city agrees to such different
allocation.
(f) Elective carryforward of unused limitation for specified
purpose
(1) In general
If -
(A) an issuing authority's volume cap for any calendar year
after 1985, exceeds
(B) the aggregate amount of tax-exempt private activity bonds
issued during such calendar year by such authority,
such authority may elect to treat all (or any portion) of such
excess as a carryforward for 1 or more carryforward purposes.
(2) Election must identify purpose
In any election under paragraph (1), the issuing authority
shall -
(A) identify the purpose for which the carryforward is
elected, and
(B) specify the portion of the excess described in paragraph
(1) which is to be a carryforward for each such purpose.
(3) Use of carryforward
(A) In general
If any issuing authority elects a carryforward under
paragraph (1) with respect to any carryforward purpose, any
private activity bonds issued by such authority with respect to
such purpose during the 3 calendar years following the calendar
year in which the carryforward arose shall not be taken into
account under subsection (a) to the extent the amount of such
bonds does not exceed the amount of the carryforward elected
for such purpose.
(B) Order in which carryforward used
Carryforwards elected with respect to any purpose shall be
used in the order of the calendar years in which they arose.
(4) Election
Any election under this paragraph (and any identification or
specification contained therein), once made, shall be
irrevocable.
(5) Carryforward purpose
The term "carryforward purpose" means -
(A) the purpose of issuing exempt facility bonds described in
1 of the paragraphs of section 142(a),
(B) the purpose of issuing qualified mortgage bonds or
mortgage credit certificates,
(C) the purpose of issuing qualified student loan bonds, and
(D) the purpose of issuing qualified redevelopment bonds.
(g) Exception for certain bonds
Only for purposes of this section, the term "private activity
bond" shall not include -
(1) any qualified veterans' mortgage bond,
(2) any qualified 501(c)(3) bond,
(3) any exempt facility bond issued as part of an issue
described in paragraph (1), (2), (12), (13), (14), or (15) of
section 142(a), and
(4) 75 percent of any exempt facility bond issued as part of an
issue described in paragraph (11) of section 142(a) (relating to
high-speed intercity rail facilities).
Paragraph (4) shall be applied without regard to "75 percent of" if
all of the property to be financed by the net proceeds of the issue
is to be owned by a governmental unit (within the meaning of
section 142(b)(1)).
(h) Exception for government-owned solid waste disposal facilities
(1) In general
Only for purposes of this section, the term "private activity
bond" shall not include any exempt facility bond described in
section 142(a)(6) which is issued as part of an issue if all of
the property to be financed by the net proceeds of such issue is
to be owned by a governmental unit.
(2) Safe harbor for determination of government ownership
In determining ownership for purposes of paragraph (1), section
142(b)(1)(B) shall apply, except that a lease term shall be
treated as satisfying clause (ii) thereof if it is not more than
20 years.
(i) Treatment of refunding issues
For purposes of the volume cap imposed by this section -
(1) In general
The term "private activity bond" shall not include any bond
which is issued to refund another bond to the extent that the
amount of such bond does not exceed the outstanding amount of the
refunded bond.
(2) Special rules for student loan bonds
In the case of any qualified student loan bond, paragraph (1)
shall apply only if the maturity date of the refunding bond is
not later than the later of -
(A) the average maturity date of the qualified student loan
bonds to be refunded by the issue of which the refunding bond
is a part, or
(B) the date 17 years after the date on which the refunded
bond was issued (or in the case of a series of refundings, the
date on which the original bond was issued).
(3) Special rules for qualified mortgage bonds
In the case of any qualified mortgage bond, paragraph (1) shall
apply only if the maturity date of the refunding bond is not
later than the later of -
(A) the average maturity date of the qualified mortgage bonds
to be refunded by the issue of which the refunding bond is a
part, or
(B) the date 32 years after the date on which the refunded
bond was issued (or in the case of a series of refundings, the
date on which the original bond was issued).
(4) Average maturity
For purposes of paragraphs (2) and (3), average maturity shall
be determined in accordance with section 147(b)(2)(A).
(5) Exception for advance refunding
This subsection shall not apply to any bond issued to advance
refund another bond.
(j) Population
For purposes of this section, determinations of the population of
any State (or issuing authority) shall be made with respect to any
calendar year on the basis of the most recent census estimate of
the resident population of such State (or issuing authority)
released by the Bureau of Census before the beginning of such
calendar year.
(k) Facility must be located within State
(1) In general
Except as provided in paragraphs (2) and (3), no portion of the
State ceiling applicable to any State for any calendar year may
be used with respect to financing for a facility located outside
such State.
(2) Exception for certain facilities where State will get
proportionate share of benefits
Paragraph (1) shall not apply to any exempt facility bond
described in paragraph (4), (5), (6), or (10) of section 142(a)
if the issuer establishes that the State's share of the use of
the facility (or its output) will equal or exceed the State's
share of the private activity bonds issued to finance the
facility.
(3) Treatment of governmental bonds to which volume cap allocated
Paragraph (1) shall not apply to any bond to which volume cap
is allocated under section 141(b)(5) -
(A) for an output facility, or
(B) for a facility of a type described in paragraph (4), (5),
(6), or (10) of section 142(a),
if the issuer establishes that the State's share of the private
business use (as defined by section 141(b)(6)) of the facility
will equal or exceed the State's share of the volume cap
allocated with respect to bonds issued to finance the facility.
(l) Issuer of qualified scholarship funding bonds
In the case of a qualified scholarship funding bond, such bond
shall be treated for purposes of this section as issued by a State
or local issuing authority (whichever is appropriate).
(m) Treatment of amounts allocated to private activity portion of
government use bonds
(1) In general
The volume cap of an issuer shall be reduced by the amount
allocated by the issuer to an issue under section 141(b)(5).
(2) Advance refundings
Except as otherwise provided by the Secretary, any advance
refunding of any part of an issue to which an amount was
allocated under section 141(b)(5) (or would have been allocated
if such section applied to such issue) shall be taken into
account under this section to the extent of the amount of the
volume cap which was (or would have been) so allocated.
(n) Reduction for mortgage credit certificates, etc.
The volume cap of any issuing authority for any calendar year
shall be reduced by the sum of -
(1) the amount of qualified mortgage bonds which such authority
elects not to issue under section 25(c)(2)(A)(ii) during such
year, plus
(2) the amount of any reduction in such ceiling under section
25(f) applicable to such authority for such year.
-SOURCE-
(Added Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100
Stat. 2630; amended Pub. L. 100-203, title X, Sec. 10631(b), Dec.
22, 1987, 101 Stat. 1330-455; Pub. L. 100-647, title I, Sec.
1013(a)(9), (10), (28), (40), title VI, Sec. 6180(b)(3), Nov. 10,
1988, 102 Stat. 3538, 3543, 3544, 3728; Pub. L. 101-239, title VII,
Sec. 7816(s)(2), Dec. 19, 1989, 103 Stat. 2423; Pub. L. 102-486,
title XIX, Sec. 1921(b)(3), Oct. 24, 1992, 106 Stat. 3028; Pub. L.
103-66, title XIII, Sec. 13121(a), Aug. 10, 1993, 107 Stat. 432;
Pub. L. 105-277, div. J, title II, Sec. 2021(a), Oct. 21, 1998, 112
Stat. 2681-903; Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
161(a)], Dec. 21, 2000, 114 Stat. 2763, 2763A-624; Pub. L. 107-16,
title IV, Sec. 422(c), June 7, 2001, 115 Stat. 66; Pub. L. 108-357,
title VII, Sec. 701(c), Oct. 22, 2004, 118 Stat. 1539; Pub. L. 109-
59, title XI, Sec. 11143(c), Aug. 10, 2005, 119 Stat. 1965.)
-STATAMEND-
ADJUSTMENT OF STATE CEILING FOR PRIVATE ACTIVITY BOND VOLUME CAP
FOR CALENDAR YEAR 2006
For inflation adjustment of amounts in subsection (d)(1) of this
section used to calculate the State ceiling for volume cap for
private activity bonds for calendar year 2006, see section 3.15 of
Revenue Procedure 2005-70, set out as a note under section 1 of
this title.
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2005 - Subsec. (g)(3). Pub. L. 109-59 substituted "(14), or (15)
of section 142(a), and" for "or (14) of section 142(a) (relating to
airports, docks and wharves, environmental enhancements of
hydroelectric generating facilities, qualified public educational
facilities, and qualified green building and sustainable design
projects), and".
2004 - Subsec. (g)(3). Pub. L. 108-357 substituted "(13), or
(14)" for "or (13)" and "qualified public educational facilities,
and qualified green building and sustainable design projects" for
"and qualified public educational facilities".
2001 - Subsec. (g)(3). Pub. L. 107-16, Secs. 422(c), 901,
temporarily substituted "(12), or (13)" for "or (12)" and
"environmental enhancements of hydroelectric generating facilities,
and qualified public educational facilities" for "and environmental
enhancements of hydroelectric generating facilities". See Effective
and Termination Dates of 2001 Amendment note below.
2000 - Subsec. (d)(1), (2). Pub. L. 106-554 amended pars. (1) and
(2) generally. Prior to amendment, pars. (1) and (2) provided for
State ceilings based on the per capita limits and aggregate limits
set out in an included table.
1998 - Subsec. (d)(1). Pub. L. 105-277 added par. (1) and struck
out heading and text of former par. (1). Text read as follows: "The
State ceiling applicable to any State for any calendar year shall
be the greater of -
"(A) an amount equal to $75 multiplied by the State population,
or
"(B) $250,000,000.
Subparagraph (B) shall not apply to any possession of the United
States."
Subsec. (d)(2). Pub. L. 105-277 added par. (2) and struck out
heading and text of former par. (2). Text read as follows: "In the
case of calendar years after 1987, paragraph (1) shall be applied
by substituting -
"(A) '$50' for '$75', and
"(B) '$150,000,000' for '$250,000,000'."
1993 - Subsec. (g). Pub. L. 103-66, which directed the amendment
of par. (4) by adding at the end thereof the following flush
sentence: "Paragraph (4) shall be applied without regard to '75
percent of' if all of the property to be financed by the net
proceeds of the issue is to be owned by a governmental unit (within
the meaning of section 142(b)(1)).", was executed by inserting the
sentence at the end of subsec. (g), to reflect the probable intent
of Congress.
1992 - Subsec. (g)(3). Pub. L. 102-486 substituted ", (2), or
(12)" for "or (2)" and ", docks and wharves, and environmental
enhancements of hydroelectric generating facilities" for "and docks
and wharves".
1989 - Subsec. (g)(3), (4). Pub. L. 101-239 redesignated par.
(3), relating to exempt facility bonds issued as part of an issue
described in par. (11) of section 142(a), as (4).
1988 - Subsec. (d)(4)(B). Pub. L. 100-647, Sec. 1013(a)(40),
substituted "respect to a" for "respect a".
Subsec. (f)(5)(A). Pub. L. 100-647, Sec. 1013(a)(9), amended
subpar. (A) generally, as in effect before amendment by Pub. L. 100-
203. Before amendment by Pub. L. 100-203, subpar. (A) read as
follows: "the purpose of issuing bonds referred to in one of the
clauses of section 141(d)(1)(A),".
Subsec. (g)(3). Pub. L. 100-647, Sec. 6180(b)(3), added par. (3)
relating to exempt facility bonds issued as part of an issue
described in par. (11) of section 142(a).
Subsec. (i)(2)(A). Pub. L. 100-647, Sec. 1013(a)(28)(A), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "the maturity date of the bond to be refunded, or".
Subsec. (i)(3)(A). Pub. L. 100-647, Sec. 1013(a)(28)(B), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "the maturity date of the bond to be refunded, or".
Subsec. (i)(4), (5). Pub. L. 100-647, Sec. 1013(a)(28)(C), added
par. (4) and redesignated former par. (4) as (5).
Subsec. (k)(1). Pub. L. 100-647, Sec. 1013(a)(10)(A), substituted
"paragraphs (2) and (3)" for "paragraph (2)".
Subsec. (k)(3). Pub. L. 100-647, Sec. 1013(a)(10)(B), added par.
(3).
1987 - Subsec. (f)(5)(A). Pub. L. 100-203 amended subpar. (A)
generally, as amended by Pub. L. 100-647, Sec. 1013(a)(9),
restating it without change. See 1988 Amendment note above.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-59 applicable to bonds issued after Aug.
10, 2005, see section 11143(d) of Pub. L. 109-59, set out as a note
under section 142 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to bonds issued after
Dec. 31, 2004, see section 701(e) of Pub. L. 108-357, set out as a
note under section 142 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to bonds issued after Dec.
31, 2001, see section 422(f) of Pub. L. 107-16, set out as a note
under section 142 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 161(b)], Dec. 21,
2000, 114 Stat. 2763, 2763A-624, provided that: "The amendment made
by this section [amending this section] shall apply to calendar
years after 2000."
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title II, Sec. 2021(b), Oct. 21, 1998,
112 Stat. 2681-903, provided that: "The amendment made by this
section [amending this section] shall apply to calendar years after
1998."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13121(b) of Pub. L. 103-66 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to bonds
issued after December 31, 1993."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-486 applicable to bonds issued after
Oct. 24, 1992, see section 1921(c) of Pub. L. 102-486, set out as a
note under section 142 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1013(a)(9), (10), (28), (40) of Pub. L. 100-
647 effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 6180(b)(3) of Pub. L. 100-647 applicable to
bonds issued after Nov. 10, 1988, see section 6180(c) of Pub. L.
100-647, set out as a note under section 142 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable, with certain exceptions,
to bonds issued after Oct. 13, 1987 (other than bonds issued to
refund bonds issued on or before such date), see section 10631(c)
of Pub. L. 100-203, set out as a note under section 141 of this
title.
-End-
-CITE-
26 USC Sec. 147 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart A - Private Activity Bonds
-HEAD-
Sec. 147. Other requirements applicable to certain private activity
bonds
-STATUTE-
(a) Substantial user requirement
(1) In general
Except as provided in subsection (h), a private activity bond
shall not be a qualified bond for any period during which it is
held by a person who is a substantial user of the facilities or
by a related person of such a substantial user.
(2) Related person
For purposes of paragraph (1), the following shall be treated
as related persons -
(A) 2 or more persons if the relationship between such
persons would result in a disallowance of losses under section
267 or 707(b),
(B) 2 or more persons which are members of the same
controlled group of corporations (as defined in section
1563(a), except that "more than 50 percent" shall be
substituted for "at least 80 percent" each place it appears
therein),
(C) a partnership and each of its partners (and their spouses
and minor children), and
(D) an S corporation and each of its shareholders (and their
spouses and minor children).
(b) Maturity may not exceed 120 percent of economic life
(1) General rule
Except as provided in subsection (h), a private activity bond
shall not be a qualified bond if it is issued as part of an issue
and -
(A) the average maturity of the bonds issued as part of such
issue, exceeds
(B) 120 percent of the average reasonably expected economic
life of the facilities being financed with the net proceeds of
such issue.
(2) Determination of averages
For purposes of paragraph (1) -
(A) the average maturity of any issue shall be determined by
taking into account the respective issue prices of the bonds
issued as part of such issue, and
(B) the average reasonably expected economic life of the
facilities being financed with any issue shall be determined by
taking into account the respective cost of such facilities.
(3) Special rules
(A) Determination of economic life
For purposes of this subsection, the reasonably expected
economic life of any facility shall be determined as of the
later of -
(i) the date on which the bonds are issued, or
(ii) the date on which the facility is placed in service
(or expected to be placed in service).
(B) Treatment of land
(i) Land not taken into account
Except as provided in clause (ii), land shall not be taken
into account under paragraph (1)(B).
(ii) Issues where 25 percent or more of proceeds used to
finance land
If 25 percent or more of the net proceeds of any issue is
to be used to finance land, such land shall be taken into
account under paragraph (1)(B) and shall be treated as having
an economic life of 30 years.
(4) Special rule for pooled financing of 501(c)(3) organization
(A) In general
At the election of the issuer, a qualified 501(c)(3) bond
shall be treated as meeting the requirements of paragraph (1)
if such bond meets the requirements of subparagraph (B).
(B) Requirements
A qualified 501(c)(3) bond meets the requirements of this
subparagraph if -
(i) 95 percent or more of the net proceeds of the issue of
which such bond is a part are to be used to make or finance
loans to 2 or more 501(c)(3) organizations or governmental
units for acquisition of property to be used by such
organizations,
(ii) each loan described in clause (i) satisfies the
requirements of paragraph (1) (determined by treating each
loan as a separate issue),
(iii) before such bond is issued, a demand survey was
conducted which shows a demand for financing greater than an
amount equal to 120 percent of the lendable proceeds of such
issue, and
(iv) 95 percent or more of the net proceeds of such issue
are to be loaned to 501(c)(3) organizations or governmental
units within 1 year of issuance and, to the extent there are
any unspent proceeds after such 1-year period, bonds issued
as part of such issue are to be redeemed as soon as possible
thereafter (and in no event later than 18 months after
issuance).
A bond shall not meet the requirements of this subparagraph if
the maturity date of any bond issued as part of such issue is
more than 30 years after the date on which the bond was issued
(or, in the case of a refunding or series of refundings, the
date on which the original bond was issued).
(5) Special rule for certain FHA insured loans
Paragraph (1) shall not apply to any bond issued as part of an
issue 95 percent or more of the net proceeds of which are to be
used to finance mortgage loans insured under FHA 242 or under a
similar Federal Housing Administration program (as in effect on
the date of the enactment of the Tax Reform Act of 1986) where
the loan term approved by such Administration plus the maximum
maturity of debentures which could be issued by such
Administration in satisfaction of its obligations exceeds the
term permitted under paragraph (1).
(c) Limitation on use for land acquisition
(1) In general
Except as provided in subsection (h), a private activity bond
shall not be a qualified bond if -
(A) it is issued as part of an issue and 25 percent or more
of the net proceeds of such issue are to be used (directly or
indirectly) for the acquisition of land (or an interest
therein), or
(B) any portion of the proceeds of such issue is to be used
(directly or indirectly) for the acquisition of land (or an
interest therein) to be used for farming purposes.
(2) Exception for first-time farmers
(A) In general
If the requirements of subparagraph (B) are met with respect
to any land, paragraph (1) shall not apply to such land, and
subsection (d) shall not apply to property to be used thereon
for farming purposes, but only to the extent of expenditures
(financed with the proceeds of the issue) not in excess of
$250,000.
(B) Acquisition by first-time farmers
The requirements of this subparagraph are met with respect to
any land if -
(i) such land is to be used for farming purposes, and
(ii) such land is to be acquired by an individual who is a
first-time farmer, who will be the principal user of such
land, and who will materially and substantially participate
on the farm of which such land is a part in the operation of
such farm.
(C) First-time farmer
For purposes of this paragraph -
(i) In general
The term "first-time farmer" means any individual if such
individual -
(I) has not at any time had any direct or indirect
ownership interest in substantial farmland in the operation
of which such individual materially participated, and
(II) has not received financing under this paragraph in
an amount which, when added to the financing to be provided
under this paragraph, exceeds $250,000.
(ii) Aggregation rules
Any ownership or material participation, or financing
received, by an individual's spouse or minor child shall be
treated as ownership and material participation, or financing
received, by the individual.
(iii) Insolvent farmer
For purposes of clause (i), farmland which was previously
owned by the individual and was disposed of while such
individual was insolvent shall be disregarded if section 108
applied to indebtedness with respect to such farmland.
(D) Farm
For purposes of this paragraph, the term "farm" has the
meaning given such term by section 6420(c)(2).
(E) Substantial farmland
For purposes of this paragraph, the term "substantial
farmland" means any parcel of land unless -
(i) such parcel is smaller than 30 percent of the median
size of a farm in the county in which such parcel is located,
and
(ii) the fair market value of the land does not at any time
while held by the individual exceed $125,000.
(F) Used equipment limitation
For purposes of this paragraph, in no event may the amount of
financing provided by reason of this paragraph to a first-time
farmer for personal property -
(i) of a character subject to the allowance for
depreciation,
(ii) the original use of which does not begin with such
farmer, and
(iii) which is to be used for farming purposes,
exceed $62,500. A rule similar to the rule of subparagraph
(C)(ii) shall apply for purposes of the preceding sentence.
(G) Acquisition from related person
For purposes of this paragraph and section 144(a), the
acquisition by a first-time farmer of land or personal property
from a related person (within the meaning of section 144(a)(3))
shall not be treated as an acquisition from a related person,
if -
(i) the acquisition price is for the fair market value of
such land or property, and
(ii) subsequent to such acquisition, the related person
does not have a financial interest in the farming operation
with respect to which the bond proceeds are to be used.
(3) Exception for certain land acquired for environmental
purposes, etc.
Any land acquired by a governmental unit (or issuing authority)
in connection with an airport, mass commuting facility, high-
speed intercity rail facility, dock, or wharf shall not be taken
into account under paragraph (1) if -
(A) such land is acquired for noise abatement or wetland
preservation, or for future use as an airport, mass commuting
facility, high-speed intercity rail facility, dock, or wharf,
and
(B) there is not other significant use of such land.
(d) Acquisition of existing property not permitted
(1) In general
Except as provided in subsection (h), a private activity bond
shall not be a qualified bond if issued as part of an issue and
any portion of the net proceeds of such issue is to be used for
the acquisition of any property (or an interest therein) unless
the 1st use of such property is pursuant to such acquisition.
(2) Exception for certain rehabilitations
Paragraph (1) shall not apply with respect to any building (and
the equipment therefor) if -
(A) the rehabilitation expenditures with respect to such
building, equal or exceed
(B) 15 percent of the portion of the cost of acquiring such
building (and equipment) financed with the net proceeds of the
issue.
A rule similar to the rule of the preceding sentence shall apply
in the case of structures other than a building except that
subparagraph (B) shall be applied by substituting "100 percent"
for "15 percent".
(3) Rehabilitation expenditures
For purposes of this subsection -
(A) In general
Except as provided in this paragraph, the term
"rehabilitation expenditures" means any amount properly
chargeable to capital account which is incurred by the person
acquiring the building for property (or additions or
improvements to property) in connection with the rehabilitation
of a building. In the case of an integrated operation contained
in a building before its acquisition, such term includes
rehabilitating existing equipment in such building or replacing
it with equipment having substantially the same function. For
purposes of this subparagraph, any amount incurred by a
successor to the person acquiring the building or by the seller
under a sales contract with such person shall be treated as
incurred by such person.
(B) Certain expenditures not included
The term "rehabilitation expenditures" does not include any
expenditure described in section 47(c)(2)(B).
(C) Period during which expenditures must be incurred
The term "rehabilitation expenditures" shall not include any
amount which is incurred after the date 2 years after the later
of -
(i) the date on which the building was acquired, or
(ii) the date on which the bond was issued.
(4) Special rule for certain projects
In the case of a project involving 2 or more buildings, this
subsection shall be applied on a project basis.
(e) No portion of bonds may be issued for skyboxes, airplanes,
gambling establishments, etc.
A private activity bond shall not be a qualified bond if issued
as part of an issue and any portion of the proceeds of such issue
is to be used to provide any airplane, skybox or other private
luxury box, health club facility, facility primarily used for
gambling, or store the principal business of which is the sale of
alcoholic beverages for consumption off premises.
(f) Public approval required for private activity bonds
(1) In general
A private activity bond shall not be a qualified bond unless
such bond satisfies the requirements of paragraph (2).
(2) Public approval requirement
(A) In general
A bond shall satisfy the requirements of this paragraph if
such bond is issued as a part of an issue which has been
approved by -
(i) the governmental unit -
(I) which issued such bond, or
(II) on behalf of which such bond was issued, and
(ii) each governmental unit having jurisdiction over the
area in which any facility, with respect to which financing
is to be provided from the net proceeds of such issue, is
located (except that if more than 1 governmental unit within
a State has jurisdiction over the entire area within such
State in which such facility is located, only 1 such unit
need approve such issue).
(B) Approval by a governmental unit
For purposes of subparagraph (A), an issue shall be treated
as having been approved by any governmental unit if such issue
is approved -
(i) by the applicable elected representative of such
governmental unit after a public hearing following reasonable
public notice, or
(ii) by voter referendum of such governmental unit.
(C) Special rules for approval of facility
If there has been public approval under subparagraph (A) of
the plan for financing a facility, such approval shall
constitute approval under subparagraph (A) for any issue -
(i) which is issued pursuant to such plan within 3 years
after the date of the 1st issue pursuant to the approval, and
(ii) all or substantially all of the proceeds of which are
to be used to finance such facility or to refund previous
financing under such plan.
(D) Refunding bonds
No approval under subparagraph (A) shall be necessary with
respect to any bond which is issued to refund (other than to
advance refund) a bond approved under subparagraph (A) (or
treated as approved under subparagraph (C)) unless the average
maturity date of the issue of which the refunding bond is a
part is later than the average maturity date of the bonds to be
refunded by such issue. For purposes of the preceding sentence,
average maturity shall be determined in accordance with
subsection (b)(2)(A).
(E) Applicable elected representative
For purposes of this paragraph -
(i) In general
The term "applicable elected representative" means with
respect to any governmental unit -
(I) an elected legislative body of such unit, or
(II) the chief elected executive officer, the chief
elected State legal officer of the executive branch, or any
other elected official of such unit designated for purposes
of this paragraph by such chief elected executive officer
or by State law.
If the office of any elected official described in subclause
(II) is vacated and an individual is appointed by the chief
elected executive officer of the governmental unit and
confirmed by the elected legislative body of such unit (if
any) to serve the remaining term of the elected official, the
individual so appointed shall be treated as the elected
official for such remaining term.
(ii) No applicable elected representative
If (but for this clause) a governmental unit has no
applicable elected representative, the applicable elected
representative for purposes of clause (i) shall be the
applicable elected representative of the governmental unit -
(I) which is the next higher governmental unit with such
a representative, and
(II) from which the authority of the governmental unit
with no such representative is derived.
(3) Special rule for approval of airports or high-speed intercity
rail facilities
If -
(A) the proceeds of an issue are to be used to finance a
facility or facilities located at an airport or high-speed
intercity rail facilities, and
(B) the governmental unit issuing such bonds is the owner or
operator of such airport or high-speed intercity rail
facilities,
such governmental unit shall be deemed to be the only
governmental unit having jurisdiction over such airport or high-
speed intercity rail facilities for purposes of this subsection.
(4) Special rules for scholarship funding bond issues and
volunteer fire department bond issues
(A) Scholarship funding bonds
In the case of a qualified scholarship funding bond, any
governmental unit which made a request described in section
150(d)(2)(B) with respect to the issuer of such bond shall be
treated for purposes of paragraph (2) of this subsection as the
governmental unit on behalf of which such bond was issued.
Where more than one governmental unit within a State has made a
request described in section 150(d)(2)(B), the State may also
be treated for purposes of paragraph (2) of this subsection as
the governmental unit on behalf of which such bond was issued.
(B) Volunteer fire department bonds
In the case of a bond of a volunteer fire department which
meets the requirements of section 150(e), the political
subdivision described in section 150(e)(2)(B) with respect to
such department shall be treated for purposes of paragraph (2)
of this subsection as the governmental unit on behalf of which
such bond was issued.
(g) Restriction on issuance costs financed by issue
(1) In general
A private activity bond shall not be a qualified bond if the
issuance costs financed by the issue (of which such bond is a
part) exceed 2 percent of the proceeds of the issue.
(2) Special rule for small mortgage revenue bond issues
In the case of an issue of qualified mortgage bonds or
qualified veterans' mortgage bonds, paragraph (1) shall be
applied by substituting "3.5 percent" for "2 percent" if the
proceeds of the issue do not exceed $20,000,000.
(h) Certain rules not to apply to certain bonds
(1) Mortgage revenue bonds and qualified student loan bonds
Subsections (a), (b), (c), and (d) shall not apply to any
qualified mortgage bond, qualified veterans' mortgage bond, or
qualified student loan bond.
(2) Qualified 501(c)(3) bonds
Subsections (a), (c), and (d) shall not apply to any qualified
501(c)(3) bond and subsection (e) shall be applied as if it did
not contain "health club facility" with respect to such a bond.
(3) Exempt facility bonds for qualified public-private schools
Subsection (c) shall not apply to any exempt facility bond
issued as part of an issue described in section 142(a)(13)
(relating to qualified public educational facilities).
-SOURCE-
(Added Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100
Stat. 2635; amended Pub. L. 100-647, title I, Sec. 1013(a)(11)-
(13)(B), (29), (36), title VI, Sec. 6180(b)(4), (5), Nov. 10,
1988, 102 Stat. 3539, 3543, 3544, 3728; Pub. L. 101-239, title VII,
Sec. 7816(s)(3), Dec. 19, 1989, 103 Stat. 2423; Pub. L. 101-508,
title XI, Sec. 11813(b)(8), Nov. 5, 1990, 104 Stat. 1388-552; Pub.
L. 104-188, title I, Sec. 1117(a), (b), Aug. 20, 1996, 110 Stat.
1764; Pub. L. 107-16, title IV, Sec. 422(d), (e), June 7, 2001, 115
Stat. 66.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (b)(5), is the date of enactment of Pub. L. 99-514,
which was approved Oct. 22, 1986.
-MISC1-
AMENDMENTS
2001 - Subsec. (h). Pub. L. 107-16, Secs. 422(e), 901,
temporarily substituted "certain bonds" for "mortgage revenue
bonds, qualified student loan bonds, and qualified 501(c)(3) bonds"
in heading. See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (h)(3). Pub. L. 107-16, Secs. 422(d), 901, temporarily
added par. (3). See Effective and Termination Dates of 2001
Amendment note below.
1996 - Subsec. (c)(2)(E)(i). Pub. L. 104-188, Sec. 1117(b),
substituted "30 percent" for "15 percent".
Subsec. (c)(2)(G). Pub. L. 104-188, Sec. 1117(a), added subpar.
(G).
1990 - Subsec. (d)(3)(B). Pub. L. 101-508 substituted "section
47(c)(2)(B)" for "section 48(g)(2)(B)".
1989 - Subsec. (c)(3). Pub. L. 101-239 inserted a comma after
"mass commuting facility" in introductory provisions and in subpar.
(A).
1988 - Subsec. (c)(3). Pub. L. 100-647, Sec. 6180(b)(4), inserted
"high-speed intercity rail facility" after "mass commuting
facility" in introductory text and in subpar. (A).
Subsec. (e). Pub. L. 100-647, Sec. 1013(a)(11), struck out
"treated as" after "shall not be".
Subsec. (f)(2)(D). Pub. L. 100-647, Sec. 1013(a)(29), substituted
"the average maturity date of the issue of which the refunding bond
is a part is later than the average maturity date of the bonds to
be refunded by such issue. For purposes of the preceding sentence,
average maturity shall be determined in accordance with subsection
(b)(2)(A)" for "the maturity date of such bond is later than the
maturity date of the bond to be refunded".
Subsec. (f)(2)(E)(i). Pub. L. 100-647, Sec. 1013(a)(36), inserted
sentence at end relating to treatment of an individual appointed to
fill a vacancy in the office of an elected official.
Subsec. (f)(3). Pub. L. 100-647, Sec. 6180(b)(5), inserted "or
high-speed intercity rail facilities" after "airports" in heading
and after "airport" in subpars. (A) and (B) and in last sentence.
Subsec. (f)(4). Pub. L. 100-647, Sec. 1013(a)(12), added par.
(4).
Subsec. (g)(1). Pub. L. 100-647, Sec. 1013(a)(13)(A), substituted
"proceeds" for "aggregate face amount".
Subsec. (g)(2). Pub. L. 100-647, Sec. 1013(a)(13)(B), substituted
"proceeds" for "aggregate authorized face amount" and "do" for
"does".
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to bonds issued after Dec.
31, 2001, see section 422(f) of Pub. L. 107-16, set out as a note
under section 142 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1117(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to bonds
issued after the date of the enactment of this Act [Aug. 20,
1996]."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Dec. 31, 1990, but not applicable to any transition
property (as defined in section 49(e) of this title), any property
with respect to which qualified progress expenditures were
previously taken into account under section 46(d) of this title,
and any property described in section 46(b)(2)(C) of this title, as
such sections were in effect on Nov. 4, 1990, see section 11813(c)
of Pub. L. 101-508, set out as a note under section 45K of this
title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1013(a)(13)(C) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section] shall
apply to bonds issued after June 30, 1987."
Amendment by section 1013(a)(11), (12), (29), (36) of Pub. L. 100-
647 effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 6180(b)(4), (5) of Pub. L. 100-647
applicable to bonds issued after Nov. 10, 1988, see section 6180(c)
of Pub. L. 100-647, set out as a note under section 142 of this
title.
EFFECTIVE DATE
Subsec. (f) applicable to bonds issued after Dec. 31, 1986, see
section 1311(d) of Pub. L. 99-514, as amended, set out as an
Effective Date; Transitional Rules note under section 141 of this
title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Subpart B - Requirements Applicable to All State
and Local Bonds 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart B - Requirements Applicable to All State and Local Bonds
-HEAD-
SUBPART B - REQUIREMENTS APPLICABLE TO ALL STATE AND LOCAL BONDS
-MISC1-
Sec.
148. Arbitrage.
149. Bonds must be registered to be tax exempt; other
requirements.
-End-
-CITE-
26 USC Sec. 148 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart B - Requirements Applicable to All State and Local Bonds
-HEAD-
Sec. 148. Arbitrage
-STATUTE-
(a) Arbitrage bond defined
For purposes of section 103, the term "arbitrage bond" means any
bond issued as part of an issue any portion of the proceeds of
which are reasonably expected (at the time of issuance of the bond)
to be used directly or indirectly -
(1) to acquire higher yielding investments, or
(2) to replace funds which were used directly or indirectly to
acquire higher yielding investments.
For purposes of this subsection, a bond shall be treated as an
arbitrage bond if the issuer intentionally uses any portion of the
proceeds of the issue of which such bond is a part in a manner
described in paragraph (1) or (2).
(b) Higher yielding investments
For purposes of this section -
(1) In general
The term "higher yielding investments" means any investment
property which produces a yield over the term of the issue which
is materially higher than the yield on the issue.
(2) Investment property
The term "investment property" means -
(A) any security (within the meaning of section 165(g)(2)(A)
or (B)),
(B) any obligation,
(C) any annuity contract,
(D) any investment-type property, or
(E) in the case of a bond other than a private activity bond,
any residential rental property for family units which is not
located within the jurisdiction of the issuer and which is not
acquired to implement a court ordered or approved housing
desegregation plan.
(3) Alternative minimum tax bonds treated as investment property
in certain cases
(A) In general
Except as provided in subparagraph (B), the term "investment
property" does not include any tax-exempt bond.
(B) Exception
With respect to an issue other than an issue a part of which
is a specified private activity bond (as defined in section
57(a)(5)(C)), the term "investment property" includes a
specified private activity bond (as so defined).
(4) Safe harbor for prepaid natural gas
(A) In general
The term "investment-type property" does not include a
prepayment under a qualified natural gas supply contract.
(B) Qualified natural gas supply contract
For purposes of this paragraph, the term "qualified natural
gas supply contract" means any contract to acquire natural gas
for resale by a utility owned by a governmental unit if the
amount of gas permitted to be acquired under the contract by
the utility during any year does not exceed the sum of -
(i) the annual average amount during the testing period of
natural gas purchased (other than for resale) by customers of
such utility who are located within the service area of such
utility, and
(ii) the amount of natural gas to be used to transport the
prepaid natural gas to the utility during such year.
(C) Natural gas used to generate electricity
Natural gas used to generate electricity shall be taken into
account in determining the average under subparagraph (B)(i) -
(i) only if the electricity is generated by a utility owned
by a governmental unit, and
(ii) only to the extent that the electricity is sold (other
than for resale) to customers of such utility who are located
within the service area of such utility.
(D) Adjustments for changes in customer base
(i) New business customers
If -
(I) after the close of the testing period and before the
date of issuance of the issue, the utility owned by a
governmental unit enters into a contract to supply natural
gas (other than for resale) for a business use at a
property within the service area of such utility, and
(II) the utility did not supply natural gas to such
property during the testing period or the ratable amount of
natural gas to be supplied under the contract is
significantly greater than the ratable amount of gas
supplied to such property during the testing period,
then a contract shall not fail to be treated as a qualified
natural gas supply contract by reason of supplying the
additional natural gas under the contract referred to in
subclause (I).
(ii) Lost customers
The average under subparagraph (B)(i) shall not exceed the
annual amount of natural gas reasonably expected to be
purchased (other than for resale) by persons who are located
within the service area of such utility and who, as of the
date of issuance of the issue, are customers of such utility.
(E) Ruling requests
The Secretary may increase the average under subparagraph
(B)(i) for any period if the utility owned by the governmental
unit establishes to the satisfaction of the Secretary that,
based on objective evidence of growth in natural gas
consumption or population, such average would otherwise be
insufficient for such period.
(F) Adjustment for natural gas otherwise on hand
(i) In general
The amount otherwise permitted to be acquired under the
contract for any period shall be reduced by -
(I) the applicable share of natural gas held by the
utility on the date of issuance of the issue, and
(II) the natural gas (not taken into account under
subclause (I)) which the utility has a right to acquire
during such period (determined as of the date of issuance
of the issue).
(ii) Applicable share
For purposes of the clause (i), the term "applicable share"
means, with respect to any period, the natural gas allocable
to such period if the gas were allocated ratably over the
period to which the prepayment relates.
(G) Intentional acts
Subparagraph (A) shall cease to apply to any issue if the
utility owned by the governmental unit engages in any
intentional act to render the volume of natural gas acquired by
such prepayment to be in excess of the sum of -
(i) the amount of natural gas needed (other than for
resale) by customers of such utility who are located within
the service area of such utility, and
(ii) the amount of natural gas used to transport such
natural gas to the utility.
(H) Testing period
For purposes of this paragraph, the term "testing period"
means, with respect to an issue, the most recent 5 calendar
years ending before the date of issuance of the issue.
(I) Service area
For purposes of this paragraph, the service area of a utility
owned by a governmental unit shall be comprised of -
(i) any area throughout which such utility provided at all
times during the testing period -
(I) in the case of a natural gas utility, natural gas
transmission or distribution services, and
(II) in the case of an electric utility, electricity
distribution services,
(ii) any area within a county contiguous to the area
described in clause (i) in which retail customers of such
utility are located if such area is not also served by
another utility providing natural gas or electricity
services, as the case may be, and
(iii) any area recognized as the service area of such
utility under State or Federal law.
(c) Temporary period exception
(1) In general
For purposes of subsection (a), a bond shall not be treated as
an arbitrage bond solely by reason of the fact that the proceeds
of the issue of which such bond is a part may be invested in
higher yielding investments for a reasonable temporary period
until such proceeds are needed for the purpose for which such
issue was issued.
(2) Limitation on temporary period for pooled financings
(A) In general
The temporary period referred to in paragraph (1) shall not
exceed 6 months with respect to the proceeds of an issue which
are to be used to make or finance loans (other than nonpurpose
investments) to 2 or more persons.
(B) Shorter temporary period for loan repayments, etc.
Subparagraph (A) shall be applied by substituting "3 months"
for "6 months" with respect to the proceeds from the sale or
repayment of any loan which are to be used to make or finance
any loan. For purposes of the preceding sentence, a nonpurpose
investment shall not be treated as a loan.
(C) Bonds used to provide construction financing
In the case of an issue described in subparagraph (A) any
portion of which is used to make or finance loans for
construction expenditures (within the meaning of subsection
(f)(4)(C)(iv)) -
(i) rules similar to the rules of subsection (f)(4)(C)(v)
shall apply, and
(ii) subparagraph (A) shall be applied with respect to such
portion by substituting "2 years" for "6 months".
(D) Exception for mortgage revenue bonds
This paragraph shall not apply to any qualified mortgage bond
or qualified veterans' mortgage bond.
(d) Special rules for reasonably required reserve or replacement
fund
(1) In general
For purposes of subsection (a), a bond shall not be treated as
an arbitrage bond solely by reason of the fact that an amount of
the proceeds of the issue of which such bond is a part may be
invested in higher yielding investments which are part of a
reasonably required reserve or replacement fund. The amount
referred to in the preceding sentence shall not exceed 10 percent
of the proceeds of such issue unless the issuer establishes to
the satisfaction of the Secretary that a higher amount is
necessary.
(2) Limitation on amount in reserve or replacement fund which may
be financed by issue
A bond issued as part of an issue shall be treated as an
arbitrage bond if the amount of the proceeds from the sale of
such issue which is part of any reserve or replacement fund
exceeds 10 percent of the proceeds of the issue (or such higher
amount which the issuer establishes is necessary to the
satisfaction of the Secretary).
(e) Minor portion may be invested in higher yielding investments
Notwithstanding subsections (a), (c), and (d), a bond issued as
part of an issue shall not be treated as an arbitrage bond solely
by reason of the fact that an amount of the proceeds of such issue
(in addition to the amounts under subsections (c) and (d)) is
invested in higher yielding investments if such amount does not
exceed the lesser of -
(1) 5 percent of the proceeds of the issue, or
(2) $100,000.
(f) Required rebate to the United States
(1) In general
A bond which is part of an issue shall be treated as an
arbitrage bond if the requirements of paragraphs (2) and (3) are
not met with respect to such issue. The preceding sentence shall
not apply to any qualified veterans' mortgage bond.
(2) Rebate to United States
An issue shall be treated as meeting the requirements of this
paragraph only if an amount equal to the sum of -
(A) the excess of -
(i) the amount earned on all nonpurpose investments (other
than investments attributable to an excess described in this
subparagraph), over
(ii) the amount which would have been earned if such
nonpurpose investments were invested at a rate equal to the
yield on the issue, plus
(B) any income attributable to the excess described in
subparagraph (A),
is paid to the United States by the issuer in accordance with the
requirements of paragraph (3).
(3) Due date of payments under paragraph (2)
Except to the extent provided by the Secretary, the amount
which is required to be paid to the United States by the issuer
shall be paid in installments which are made at least once every
5 years. Each installment shall be in an amount which ensures
that 90 percent of the amount described in paragraph (2) with
respect to the issue at the time payment of such installment is
required will have been paid to the United States. The last
installment shall be made no later than 60 days after the day on
which the last bond of the issue is redeemed and shall be in an
amount sufficient to pay the remaining balance of the amount
described in paragraph (2) with respect to such issue. A series
of issues which are redeemed during a 6-month period (or such
longer period as the Secretary may prescribe) shall be treated
(at the election of the issuer) as 1 issue for purposes of the
preceding sentence if no bond which is part of any issue in such
series has a maturity of more than 270 days or is a private
activity bond. In the case of a tax and revenue anticipation
bond, the last installment shall not be required to be made
before the date 8 months after the date of issuance of the issue
of which the bond is a part.
(4) Special rules for applying paragraph (2)
(A) In general
In determining the aggregate amount earned on nonpurpose
investments for purposes of paragraph (2) -
(i) any gain or loss on the disposition of a nonpurpose
investment shall be taken into account, and
(ii) any amount earned on a bona fide debt service fund
shall not be taken into account if the gross earnings on such
fund for the bond year is less than $100,000.
In the case of an issue no bond of which is a private activity
bond, clause (ii) shall be applied without regard to the dollar
limitation therein if the average maturity of the issue
(determined in accordance with section 147(b)(2)(A)) is at
least 5 years and the rates of interest on bonds which are part
of the issue do not vary during the term of the issue.
(B) Temporary investments
Under regulations prescribed by the Secretary -
(i) In general
An issue shall, for purposes of this subsection, be treated
as meeting the requirements of paragraph (2) if -
(I) the gross proceeds of such issue are expended for the
governmental purposes for which the issue was issued no
later than the day which is 6 months after the date of
issuance of the issue, and
(II) the requirements of paragraph (2) are met with
respect to amounts not required to be spent as provided in
subclause (I) (other than earnings on amounts in any bona
fide debt service fund).
Gross proceeds which are held in a bona fide debt service
fund or a reasonably required reserve or replacement fund,
and gross proceeds which arise after such 6 months and which
were not reasonably anticipated as of the date of issuance,
shall not be considered gross proceeds for purposes of
subclause (I) only.
(ii) Additional period for certain bonds
(I) In general
In the case of an issue described in subclause (II),
clause (i) shall be applied by substituting "1 year" for "6
months" each place it appears with respect to the portion
of the proceeds of the issue which are not expended in
accordance with clause (i) if such portion does not exceed
5 percent of the proceeds of the issue.
(II) Issues to which subclause (I) applies
An issue is described in this subclause if no bond which
is part of such issue is a private activity bond (other
than a qualified 501(c)(3) bond) or a tax or revenue
anticipation bond.
(iii) Safe harbor for determining when proceeds of tax and
revenue anticipation bonds are expended
(I) In general
For purposes of clause (i), in the case of an issue of
tax or revenue anticipation bonds, the net proceeds of such
issue (including earnings thereon) shall be treated as
expended for the governmental purpose of the issue on the
1st day after the date of issuance that the cumulative cash
flow deficit to be financed by such issue exceeds 90
percent of the proceeds of such issue.
(II) Cumulative cash flow deficit
For purposes of subclause (I), the term "cumulative cash
flow deficit" means, as of the date of computation, the
excess of the expenses paid during the period described in
subclause (III) which would ordinarily be paid out of or
financed by anticipated tax or other revenues over the
aggregate amount available (other than from the proceeds of
the issue) during such period for the payment of such
expenses.
(III) Period involved
For purposes of subclause (II), the period described in
this subclause is the period beginning on the date of
issuance of the issue and ending on the earlier of the date
6 months after such date of issuance or the date of the
computation of cumulative cash flow deficit.
(iv) Payments of principal not to affect requirements
For purposes of this subparagraph, payments of principal on
the bonds which are part of an issue shall not be treated as
expended for the governmental purposes of the issue.
(C) Exception from rebate for certain proceeds to be used to
finance construction expenditures
(i) In general
In the case of a construction issue, paragraph (2) shall
not apply to the available construction proceeds of such
issue if the spending requirements of clause (ii) are met.
(ii) Spending requirements
The spending requirements of this clause are met if at
least -
(I) 10 percent of the available construction proceeds of
the construction issue are spent for the governmental
purposes of the issue within the 6-month period beginning
on the date the bonds are issued,
(II) 45 percent of such proceeds are spent for such
purposes within the 1-year period beginning on such date,
(III) 75 percent of such proceeds are spent for such
purposes within the 18-month period beginning on such date,
and
(IV) 100 percent of such proceeds are spent for such
purposes within the 2-year period beginning on such date.
(iii) Exception for reasonable retainage
The spending requirement of clause (ii)(IV) shall be
treated as met if -
(I) such requirement would be met at the close of such 2-
year period but for a reasonable retainage (not exceeding
5 percent of the available construction proceeds of the
construction issue), and
(II) 100 percent of the available construction proceeds
of the construction issue are spent for the governmental
purposes of the issue within the 3-year period beginning on
the date the bonds are issued.
(iv) Construction issue
For purposes of this subparagraph, the term "construction
issue" means any issue if -
(I) at least 75 percent of the available construction
proceeds of such issue are to be used for construction
expenditures with respect to property which is to be owned
by a governmental unit or a 501(c)(3) organization, and
(II) all of the bonds which are part of such issue are
qualified 501(c)(3) bonds, bonds which are not private
activity bonds, or private activity bonds issued to finance
property to be owned by a governmental unit or a 501(c)(3)
organization.
For purposes of this subparagraph, the term "construction"
includes reconstruction and rehabilitation, and rules similar
to the rules of section 142(b)(1)(B) shall apply.
(v) Portions of issues used for construction
If -
(I) all of the construction expenditures to be financed
by an issue are to be financed from a portion thereof, and
(II) the issuer elects to treat such portion as a
construction issue for purposes of this subparagraph,
then, for purposes of this subparagraph and subparagraph (B),
such portion shall be treated as a separate issue.
(vi) Available construction proceeds
For purposes of this subparagraph -
(I) In general
The term "available construction proceeds" means the
amount equal to the issue price (within the meaning of
sections 1273 and 1274) of the construction issue,
increased by earnings on the issue price, earnings on
amounts in any reasonably required reserve or replacement
fund not funded from the issue, and earnings on all of the
foregoing earnings, and reduced by the amount of the issue
price in any reasonably required reserve or replacement
fund and the issuance costs financed by the issue.
(II) Earnings on reserve included only for certain periods
The term "available construction proceeds" shall not
include amounts earned on any reasonably required reserve
or replacement fund after the earlier of the close of the 2-
year period described in clause (ii) or the date the
construction is substantially completed.
(III) Payments on acquired purpose obligations excluded
The term "available construction proceeds" shall not
include payments on any obligation acquired to carry out
the governmental purposes of the issue and shall not
include earnings on such payments.
(IV) Election to rebate on earnings on reserve
At the election of the issuer, the term "available
construction proceeds" shall not include earnings on any
reasonably required reserve or replacement fund.
(vii) Election to pay penalty in lieu of rebate
(I) In general
At the election of the issuer, paragraph (2) shall not
apply to available construction proceeds which do not meet
the spending requirements of clause (ii) if the issuer pays
a penalty, with respect to each 6-month period after the
date the bonds were issued, equal to 1 1/2 percent of the
amount of the available construction proceeds of the issue
which, as of the close of such 6-month period, is not spent
as required by clause (ii).
(II) Termination
The penalty imposed by this clause shall cease to apply
only as provided in clause (viii) or after the latest
maturity date of any bond in the issue (including any
refunding bond with respect thereto).
(viii) Election to terminate 1 1/2 percent penalty
At the election of the issuer (made not later than 90 days
after the earlier of the end of the initial temporary period
or the date the construction is substantially completed), the
penalty under clause (vii) shall not apply to any 6-month
period after the initial temporary period under subsection
(c) if the requirements of subclauses (I), (II), and (III)
are met.
(I) 3 percent penalty
The requirement of this subclause is met if the issuer
pays a penalty equal to 3 percent of the amount of
available construction proceeds of the issue which is not
spent for the governmental purposes of the issue as of the
close of such initial temporary period multiplied by the
number of years (including fractions thereof) in the
initial temporary period.
(II) Yield restriction at close of temporary period
The requirement of this subclause is met if the amount of
the available construction proceeds of the issue which is
not spent for the governmental purposes of the issue as of
the close of such initial temporary period is invested at a
yield not exceeding the yield on the issue or which is
invested in any tax-exempt bond which is not investment
property.
(III) Redemption of bonds at earliest call date
The requirement of this subclause is met if the amount of
the available construction proceeds of the issue which is
not spent for the governmental purposes of the issue as of
the earliest date on which bonds may be redeemed is used to
redeem bonds on such date.
(ix) Election to terminate 1 1/2 percent penalty before end
of temporary period
If -
(I) the construction to be financed by a construction
issue is substantially completed before the end of the
initial temporary period,
(II) the issuer identifies an amount of available
construction proceeds which will not be spent for the
governmental purposes of the issue,
(III) the issuer has made the election under clause
(viii), and
(IV) the issuer makes an election under this clause
before the close of the initial temporary period and not
later than 90 days after the date the construction is
substantially completed,
then clauses (vii) and (viii) shall be applied to the
available construction proceeds so identified as if the
initial temporary period ended as of the date the election is
made.
(x) Failure to pay penalties
In the case of a failure (which is not due to willful
neglect) to pay any penalty required to be paid under clause
(vii) or (viii) in the amount or at the time prescribed
therefor, the Secretary may treat such failure as not
occurring if, in addition to paying such penalty, the issuer
pays a penalty equal to the sum of -
(I) 50 percent of the amount which was not paid in
accordance with clauses (vii) and (viii), plus
(II) interest (at the underpayment rate established under
section 6621) on the portion of the amount which was not
paid on the date required for the period beginning on such
date.
The Secretary may waive all or any portion of the penalty
under this clause. Bonds which are part of an issue with
respect to which there is a failure to pay the amount
required under this clause (and any refunding bond with
respect thereto) shall be treated as not being, and as never
having been, tax-exempt bonds.
(xi) Election for pooled financing bonds
At the election of the issuer of an issue the proceeds of
which are to be used to make or finance loans (other than
nonpurpose investments) to 2 or more persons, the periods
described in clauses (ii) and (iii) shall begin on -
(I) the date the loan is made, in the case of loans made
within the 1-year period after the date the bonds are
issued, and
(II) the date following such 1-year period, in the case
of loans made after such 1-year period.
If such an election applies to an issue, the requirements of
paragraph (2) shall apply to amounts earned before the
beginning of the periods determined under the preceding
sentence.
(xii) Payments of principal not to affect requirements
For purposes of this subparagraph, payments of principal on
the bonds which are part of the construction issue shall not
be treated as an expenditure of the available construction
proceeds of the issue.
(xiii) Refunding bonds
(I) In general
Except as provided in this clause, clause (vii)(II), and
the last sentence of clause (x), this subparagraph shall
not apply to any refunding bond and no proceeds of a
refunded bond shall be treated for purposes of this
subparagraph as proceeds of a refunding bond.
(II) Determination of construction portion of issue
For purposes of clause (v), any portion of an issue which
is used to refund any issue (or portion thereof) shall be
treated as a separate issue.
(III) Coordination with rebate requirement on refunding
bonds
The requirements of paragraph (2) shall be treated as met
with respect to earnings for any period if a penalty is
paid under clause (vii) or (viii) with respect to such
earnings for such period.
(xiv) Determination of initial temporary period
For purposes of this subpargraph,(!1) the end of the
initial temporary period shall be determined without regard
to section 149(d)(3)(A)(iv).
(xv) Elections
Any election under this subparagraph (other than clauses
(viii) and (ix)) shall be made on or before the date the
bonds are issued; and, once made, shall be irrevocable.
(xvi) Time for payment of penalties
Any penalty under this subparagraph shall be paid to the
United States not later than 90 days after the period to
which the penalty relates.
(xvii) Treatment of bona fide debt service funds
If the spending requirements of clause (ii) are met with
respect to the available construction proceeds of a
construction issue, then paragraph (2) shall not apply to
earnings on a bona fide debt service fund for such issue.
(D) Exception for governmental units issuing $5,000,000 or less
of bonds
(i) In general
An issue shall, for purposes of this subsection, be treated
as meeting the requirements of paragraphs (2) and (3) if -
(I) the issue is issued by a governmental unit with
general taxing powers,
(II) no bond which is part of such issue is a private
activity bond,
(III) 95 percent or more of the net proceeds of such
issue are to be used for local governmental activities of
the issuer (or of a governmental unit the jurisdiction of
which is entirely within the jurisdiction of the issuer),
and
(IV) the aggregate face amount of all tax-exempt bonds
(other than private activity bonds) issued by such unit
during the calendar year in which such issue is issued is
not reasonably expected to exceed $5,000,000.
(ii) Aggregation of issuers
For purposes of subclause (IV) of clause (i) -
(I) an issuer and all entities which issue bonds on
behalf of such issuer shall be treated as 1 issuer,
(II) all bonds issued by a governmental unit to make
loans to other governmental units with general taxing
powers not subordinate to such unit shall, for purposes of
applying such subclause to such unit, be treated as not
issued by such unit.
(III) all bonds issued by a subordinate entity shall, for
purposes of applying such subclause to each other entity to
which such entity is subordinate, be treated as issued by
such other entity, and
(IV) an entity formed (or, to the extent provided by the
Secretary, availed of) to avoid the purposes of such
subclause (IV) and all other entities benefiting thereby
shall be treated as 1 issuer.
(iii) Certain refunding bonds not taken into account in
determining small issuer status
There shall not be taken into account under subclause (IV)
of clause (i) any bond issued to refund (other than to
advance refund) any bond to the extent the amount of the
refunding bond does not exceed the outstanding amount of the
refunded bond.
(iv) Certain issues issued by subordinate governmental units,
etc., exempt from rebate requirement
An issue issued by a subordinate entity of a governmental
unit with general taxing powers shall be treated as described
in clause (i)(I) if the aggregate face amount of such issue
does not exceed the lesser of -
(I) $5,000,000, or
(II) the amount which, when added to the aggregate face
amount of other issues issued by such entity, does not
exceed the portion of the $5,000,000 limitation under
clause (i)(IV) which such governmental unit allocates to
such entity.
For purposes of the preceding sentence, an entity which
issues bonds on behalf of a governmental unit with general
taxing powers shall be treated as a subordinate entity of
such unit. An allocation shall be taken into account under
subclause (II) only if it is irrevocable and made before the
issuance date of such issue and only to the extent that the
limitation so allocated bears a reasonable relationship to
the benefits received by such governmental unit from issues
issued by such entity.
(v) Determination of whether refunding bonds eligible for
exception from rebate requirement
If any portion of an issue is issued to refund other bonds,
such portion shall be treated as a separate issue which does
not meet the requirements of paragraphs (2) and (3) by reason
of this subparagraph unless -
(I) the aggregate face amount of such issue does not
exceed $5,000,000,
(II) each refunded bond was issued as part of an issue
which was treated as meeting the requirements of paragraphs
(2) and (3) by reason of this subparagraph,
(III) the average maturity date of the refunding bonds
issued as part of such issue is not later than the average
maturity date of the bonds to be refunded by such issue,
and
(IV) no refunding bond has a maturity date which is later
than the date which is 30 years after the date the original
bond was issued.
Subclause (III) shall not apply if the average maturity of
the issue of which the original bond was a part (and of the
issue of which the bonds to be refunded are a part) is 3
years or less. For purposes of this clause, average maturity
shall be determined in accordance with section 147(b)(2)(A).
(vi) Refundings of bonds issued under law prior to Tax Reform
Act of 1986
If section 141(a) did not apply to any refunded bond, the
issue of which such refunded bond was a part shall be treated
as meeting the requirements of subclause (II) of clause (v)
if -
(I) such issue was issued by a governmental unit with
general taxing powers,
(II) no bond issued as part of such issue was an
industrial development bond (as defined in section
103(b)(2), but without regard to subparagraph (B) of
section 103(b)(3)) or a private loan bond (as defined in
section 103(o)(2)(A), but without regard to any exception
from such definition other than section 103(o)(2)(C)), and
(III) the aggregate face amount of all tax-exempt bonds
(other than bonds described in subclause (II)) issued by
such unit during the calendar year in which such issue was
issued did not exceed $5,000,000.
References in subclause (II) to section 103 shall be to such
section as in effect on the day before the date of the
enactment of the Tax Reform Act of 1986. Rules similar to the
rules of clauses (ii) and (iii) shall apply for purposes of
subclause (III). For purposes of subclause (II) of clause
(i), bonds described in subclause (II) of this clause to
which section 141(a) does not apply shall not be treated as
private activity bonds.
(vii) Increase in exception for bonds financing public school
capital expenditures
Each of the $5,000,000 amounts in the preceding provisions
of this subparagraph shall be increased by the lesser of
$10,000,000 or so much of the aggregate face amount of the
bonds as are attributable to financing the construction
(within the meaning of subparagraph (C)(iv)) of public school
facilities.
(5) Exemption from gross income of sum rebated
Gross income shall not include the sum described in paragraph
(2). Notwithstanding any other provision of this title, no
deduction shall be allowed for any amount paid to the United
States under paragraph (2).
(6) Definitions
For purposes of this subsection and subsections (c) and (d) -
(A) Nonpurpose investment
The term "nonpurpose investment" means any investment
property which -
(i) is acquired with the gross proceeds of an issue, and
(ii) is not acquired in order to carry out the governmental
purpose of the issue.
(B) Gross proceeds
Except as otherwise provided by the Secretary, the gross
proceeds of an issue include -
(i) amounts received (including repayments of principal) as
a result of investing the original proceeds of the issue, and
(ii) amounts to be used to pay debt service on the issue.
(7) Penalty in lieu of loss of tax exemption
In the case of an issue which would (but for this paragraph)
fail to meet the requirements of paragraph (2) or (3), the
Secretary may treat such issue as not failing to meet such
requirements if -
(A) no bond which is part of such issue is a private activity
bond (other than a qualified 501(c)(3) bond),
(B) the failure to meet such requirements is not due to
willful neglect, and
(C) the issuer pays to the United States a penalty in an
amount equal to the sum of -
(i) 50 percent of the amount which was not paid in
accordance with paragraphs (2) and (3), plus
(ii) interest (at the underpayment rate established under
section 6621) on the portion of the amount which was not paid
on the date required under paragraph (3) for the period
beginning on such date.
The Secretary may waive all or any portion of the penalty under
this paragraph.
(g) Student loan incentive payments
Except to the extent otherwise provided in regulations, payments
made by the Secretary of Education pursuant to section 438 of the
Higher Education Act of 1965 are not to be taken into account, for
purposes of subsection (a)(1), in determining yields on student
loan notes.
(h) Determinations of yield
For purposes of this section, the yield on an issue shall be
determined on the basis of the issue price (within the meaning of
sections 1273 and 1274).
(i) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100
Stat. 2641; amended Pub. L. 100-647, title I, Sec. 1013(a)(14)-
(16)(A), (17)(A), (B), (18), (19), (43)(A), (B), title IV, Sec.
4005(d)(2), title V, Sec. 5053(b), title VI, Secs. 6177(a), (b),
6181(a), (b), 6183(a), Nov. 10, 1988, 102 Stat. 3539, 3540, 3542,
3545, 3646, 3678, 3726, 3727, 3729; Pub. L. 101-239, title VII,
Secs. 7652(a)-(d), 7814(c)(2), 7816(r), (t), Dec. 19, 1989, 103
Stat. 2385-2387, 2413, 2423; Pub. L. 101-508, title XI, Sec.
11701(j)(1)-(6), Nov. 5, 1990, 104 Stat. 1388-508 to 1388-513; Pub.
L. 105-34, title II, Sec. 223(a), title XIV, Secs. 1441-1444, Aug.
5, 1997, 111 Stat. 818, 1053, 1054; Pub. L. 107-16, title IV, Sec.
421(a), June 7, 2001, 115 Stat. 64; Pub. L. 109-58, title XIII,
Sec. 1327(a), Aug. 8, 2005, 119 Stat. 1017.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (f)(4)(C)(vi), is the date of enactment of Pub. L. 99-
514, which was approved Oct. 22, 1986.
Section 438 of the Higher Education Act of 1965, referred to in
subsec. (g), is classified to section 1087-1 of Title 20,
Education.
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(4). Pub. L. 109-58 added par. (4).
2001 - Subsec. (f)(4)(D)(vii). Pub. L. 107-16, Secs. 421(a), 901,
temporarily substituted "the lesser of $10,000,000" for "the lesser
of $5,000,000". See Effective and Termination Dates of 2001
Amendment note below.
1997 - Subsec. (c)(2)(B) to (E). Pub. L. 105-34, Sec. 1444(a),
redesignated subpars. (C) to (E) as (B) to (D), respectively, and
struck out heading and text of former subpar. (B). Text read as
follows: "In the case of the proceeds of an issue to be used to
make or finance loans under a program described in section
144(b)(1)(A), subparagraph (A) shall be applied by substituting '18
months' for '6 months'. The preceding sentence shall not apply to
any bond issued after December 31, 1988."
Subsec. (d)(3). Pub. L. 105-34, Sec. 1443, struck out par. (3)
which related to limitations on investment in nonpurpose
investments.
Subsec. (f)(4)(B)(ii)(I). Pub. L. 105-34, Sec. 1441, substituted
"5 percent of the proceeds of the issue" for "the lesser of 5
percent of the proceeds of the issue or $100,000".
Subsec. (f)(4)(C)(xvii). Pub. L. 105-34, Sec. 1442, added cl.
(xvii).
Subsec. (f)(4)(D)(vii). Pub. L. 105-34, Sec. 223(a), added cl.
(vii).
Subsec. (f)(4)(E). Pub. L. 105-34, Sec. 1444(b), struck out
subpar. (E) which related to exception for certain qualified
student loan bonds.
1990 - Subsec. (c)(2)(D). Pub. L. 101-508, Sec. 11701(j)(5),
substituted "subsection (f)(4)(C)(iv)" for "subsection
(f)(4)(B)(iv)(IV)" in introductory provisions and "subsection
(f)(4)(C)(v)" for "subsection (f)(4)(B)(iv)(VIII)" in cl. (i).
Subsec. (c)(2)(D), (E). Pub. L. 101-508, Sec. 11701(j)(6), made
technical amendment to Pub. L. 101-239, Sec. 7652(c). See 1989
Amendment note below.
Subsec. (f)(4)(B)(i). Pub. L. 101-508, Sec. 11701(j)(2),
substituted in last sentence "replacement fund, and gross proceeds
which arise after such 6 months and which were not reasonably
anticipated as of the date of issuance, shall not be considered
gross proceeds for purposes of subclause (I) only" for "replacement
fund shall not be considered gross proceeds for purposes of this
subparagraph only" in concluding provisions.
Subsec. (f)(4)(B)(i)(II). Pub. L. 101-508, Sec. 11701(j)(1),
amended subcl. (II) generally. Prior to amendment, subcl. (II) read
as follows: "the requirements of paragraph (2) are met after such 6
months with respect to earnings on amounts in any reasonably
required reserve or replacement fund."
Subsec. (f)(4)(B)(iv). Pub. L. 101-508, Sec. 11701(j)(4), amended
cl. (iv) generally, substituting present provisions for provisions
which provided for a special rule to be applied during a 2-year
period for certain construction bonds from issues in which at least
75 percent of the net proceeds of the issue were to be used for
construction expenditures with respect to property which was owned
by a governmental unit or a 501(c)(3) organization.
Subsec. (f)(4)(C) to (E). Pub. L. 101-508, Sec. 11701(j)(3)(A),
(B), added subpar. (C) and redesignated former subpars. (C) and (D)
as (D) and (E), respectively.
1989 - Subsec. (c)(2)(D), (E). Pub. L. 101-239, Sec. 7652(c), as
amended by Pub. L. 101-508, Sec. 11701(j)(6), added subpar. (D) and
redesignated former subpar. (D) as (E).
Subsec. (d)(3)(E)(ii). Pub. L. 101-239, Sec. 7814(c)(2), struck
out "a qualified mortgage bond or" after "in the case of".
Subsec. (f)(4)(B)(i). Pub. L. 101-239, Sec. 7652(a), amended cl.
(i) generally. Prior to amendment, cl. (i) read as follows: "An
issue shall, for purposes of this subsection, be treated as meeting
the requirements of paragraph (2) if the gross proceeds of such
issue are expended for the governmental purpose for which the issue
was issued by no later than the day which is 6 months after the
date of issuance of such issue. Gross proceeds which are held in a
bona fide debt service fund shall not be considered gross proceeds
for purposes of this subparagraph only."
Subsec. (f)(4)(B)(ii)(I). Pub. L. 101-239, Sec. 7652(d), inserted
"each place it appears" after " '6 months' ".
Subsec. (f)(4)(B)(iii)(III). Pub. L. 101-239, Sec. 7816(r),
substituted "such date of issuance or the date" for "such date of
issuance. or the date".
Subsec. (f)(4)(B)(iv). Pub. L. 101-239, Sec. 7652(b), added cl.
(iv).
Subsec. (f)(4)(C)(ii)(II). Pub. L. 101-239, Sec. 7816(t),
substituted "to make loans to" for "on behalf of".
1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 1013(a)(43)(B),
struck out at end "Such term shall not include any tax-exempt
bond."
Subsec. (b)(2)(E). Pub. L. 100-647, Sec. 5053(b), added subpar.
(E).
Subsec. (b)(3). Pub. L. 100-647, Sec. 1013(a)(43)(A), added par.
(3).
Subsec. (d)(2). Pub. L. 100-647, Sec. 1013(a)(14), substituted
"any reserve or replacement fund" for "any fund described in
paragraph (1)".
Subsec. (f)(1). Pub. L. 100-647, Sec. 4005(d)(2), struck out
"qualified mortgage bond or" after "apply to any".
Subsec. (f)(3). Pub. L. 100-647, Sec. 6177(b), inserted at end
"In the case of a tax and revenue anticipation bond, the last
installment shall not be required to be made before the date 8
months after the date of issuance of the issue of which the bond is
a part."
Pub. L. 100-647, Sec. 1013(a)(15), inserted "A series of issues
which are redeemed during a 6-month period (or such longer period
as the Secretary may prescribe) shall be treated (at the election
of the issuer) as 1 issue for purposes of the preceding sentence if
no bond which is part of any issue in such series has a maturity of
more than 270 days or is a private activity bond."
Subsec. (f)(4)(A). Pub. L. 100-647, Sec. 6181(a), (b), struck out
"unless the issuer otherwise elects," before "any amount earned" in
cl. (ii) and inserted at end of subpar. (A) "In the case of an
issue no bond of which is a private activity bond, clause (ii)
shall be applied without regard to the dollar limitation therein if
the average maturity of the issue (determined in accordance with
section 147(b)(2)(A)) is at least 5 years and the rates of interest
on bonds which are part of the issue do not vary during the term of
the issue."
Subsec. (f)(4)(B)(iii)(I). Pub. L. 100-647, Sec. 1013(a)(16)(A),
substituted "proceeds" for "aggregate face amount".
Subsec. (f)(4)(B)(iii)(III). Pub. L. 100-647, Sec. 6177(a),
substituted "the earlier of the date 6 months after such date of
issuance." for "the earliest of the maturity date of the issue, the
date 6 months after such date of issuance,".
Subsec. (f)(4)(C). Pub. L. 100-647, Sec. 1013(a)(17)(A), in
heading substituted "governmental units issuing $5,000,000 or less
of bonds" for "small governmental units", designated existing
provision as cl. (i), inserted heading "In general", redesignated
existing cls. (i) to (iv) as subcls. (I) to (IV) and realigned
their margins, struck out last sentence providing that cl. (iv) not
take into account any bond which is not outstanding at the time of
a later issue or which is redeemed, other than in an advance
refunding, from the net proceeds of the later issue, and added cls.
(ii) to (vi).
Subsec. (f)(4)(C)(i)(IV). Pub. L. 100-647, Sec. 1013(a)(17)(B),
struck out "(and all subordinate entities thereof)" after "such
unit".
Subsec. (f)(4)(C)(ii). Pub. L. 100-647, Sec. 6183(a), added
subcl. (II) and redesignated former subcls. (II) and (III) as (III)
and (IV), respectively.
Subsec. (f)(4)(D)(i). Pub. L. 100-647, Sec. 1013(a)(18), inserted
"for a program" before "described in section 144(b)(1)(A)" in
introductory text, substituted "such program" for "such a program"
in subcl. (I), and inserted at end "Amounts designated as interest
on student loans shall not be taken into account in determining
whether the issuer is reimbursed for such costs. Except as
otherwise hereafter provided in regulations prescribed by the
Secretary, costs described in subclause (I) paid from amounts
earned as described in the first sentence of this clause may also
be taken into account in determining the yield on the student loans
under a program described in section 144(b)(1)(A)."
Subsec. (f)(7)(B). Pub. L. 100-647, Sec. 1013(a)(19), substituted
"not due" for "due to reasonable cause and not".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-58 applicable to obligations issued
after Aug. 8, 2005, see section 1327(d) of Pub. L. 109-58, set out
as a note under section 141 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title IV, Sec. 421(b), June 7, 2001, 115 Stat.
65, provided that: "The amendment made by subsection (a) [amending
this section] shall apply to obligations issued in calendar years
beginning after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 223(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to bonds
issued after December 31, 1997."
Section 1445 of title XIV of Pub. L. 105-34 provided that: "The
amendments made by this subtitle [subtitle B (Secs. 1441-1445) of
title XIV of Pub. L. 105-34, amending this section] shall apply to
bonds issued after the date of the enactment of this Act [Aug. 5,
1997]."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective, except as otherwise
provided, as if included in the provision of the Revenue
Reconciliation Act of 1989, Pub. L. 101-239, title VII, to which
such amendment relates, see section 11701(n) of Pub. L. 101-508,
set out as a note under section 42 of this title.
Section 11701(j)(8) of Pub. L. 101-508 provided that: "Section
148(f)(4)(C)(xiii)(II) of such Code (as added by this subsection)
shall apply only to refunding bonds issued after August 3, 1990."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7652(e) of Pub. L. 101-239 provided that: "The amendments
made by this section [amending this section] shall apply to bonds
issued after the date of the enactment of this Act [Dec. 19,
1989]."
Amendment by sections 7814(c)(2) and 7816(r), (t) of Pub. L. 101-
239 effective, except as otherwise provided, as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section 7817
of Pub. L. 101-239, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1013(a)(16)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to bonds issued after June 30, 1987."
Section 1013(a)(17)(C) of Pub. L. 100-647 provided that:
"(i) Except as provided in clause (ii), the amendments made by
this paragraph [amending this section] shall apply to bonds issued
after June 30, 1987.
"(ii) At the election of an issuer (made at such time and in such
manner as the Secretary of the Treasury or his delegate may
prescribe), the amendments made by this paragraph shall apply to
such issuer as if included in the amendments made by section
1301(a) of the Tax Reform Act of 1986 [amending section 103 of this
title]."
Section 1013(a)(43)(C) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section] shall
apply to obligations issued after March 31, 1988."
Amendment by section 1013(a)(14), (15), (18), (19) of Pub. L. 100-
647 effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 4005(d)(2) of Pub. L. 100-647 applicable to
bonds issued, and nonissued bond amounts elected, after Dec. 31,
1988, see section 4005(h)(1) of Pub. L. 100-647, set out as a note
under section 143 of this title.
Amendment by section 5053(b) of Pub. L. 100-647 applicable, with
certain exceptions, to obligations issued after Oct. 21, 1988, see
section 5053(c) of Pub. L. 100-647, set out as a note under section
145 of this title.
Section 6177(c) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending this section] shall apply to bonds
issued after the date of the enactment of this Act [Nov. 10,
1988]."
Section 6181(c) of Pub. L. 100-647 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to bonds issued after the date of the
enactment of this Act [Nov. 10, 1988].
"(2) Election for outstanding bonds. - Any issue of bonds other
than private activity bonds outstanding as of the date of the
enactment of this Act shall be allowed a 1-time election to apply
the amendments made by subsection (b) [amending this section] to
amounts deposited after such date in bona fide debt service funds
of such bonds.
"(3) Definition of private activity bond. - For purposes of this
section and the last sentence of section 148(f)(4)(A) of the 1986
Code (as added by subsection (b)), the term 'private activity bond'
shall include any qualified 501(c)(3) bond (as defined under
section 145 of the 1986 Code)."
Section 6183(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to bonds
issued after December 31, 1988."
EFFECTIVE DATE
Subpart applicable to bonds issued after Aug. 15, 1986, except as
otherwise provided, see sections 1311 to 1318 of Pub. L. 99-514,
set out as an Effective Date; Transitional Rules note under section
141 of this title.
EXTENSION OF PERIOD TO ELECT TO TERMINATE PERCENT PENALTY FOR BONDS
ISSUED BEFORE NOVEMBER 5, 1990
Section 11701(j)(7) of Pub. L. 101-508 provided that: "In the
case of a bond issued before the date of the enactment of this Act
[Nov. 5, 1990], the period for making the election under section
148(f)(4)(C)(viii) of the Internal Revenue Code of 1986 (as added
by this subsection) shall not expire before the date which is 180
days after such date of enactment."
AMENDMENT TO ARBITRAGE REGULATIONS
Section 1301(c) of Pub. L. 99-514 provided that: "The provision
in the Federal income tax regulations relating to the arbitrage
requirements which permits a higher yield on acquired obligations
if the issuer elects to waive the benefits of the temporary period
provisions shall not apply to bonds issued after August 31, 1986."
-FOOTNOTE-
(!1) So in original. Probably should be "subparagraph,".
-End-
-CITE-
26 USC Sec. 149 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart B - Requirements Applicable to All State and Local Bonds
-HEAD-
Sec. 149. Bonds must be registered to be tax exempt; other
requirements
-STATUTE-
(a) Bonds must be registered to be tax exempt
(1) General rule
Nothing in section 103(a) or in any other provision of law
shall be construed to provide an exemption from Federal income
tax for interest on any registration-required bond unless such
bond is in registered form.
(2) Registration-required bond
For purposes of paragraph (1), the term "registration-required
bond" means any bond other than a bond which -
(A) is not of a type offered to the public,
(B) has a maturity (at issue) of not more than 1 year, or
(C) is described in section 163(f)(2)(B).
(3) Special rules
(A) Book entries permitted
For purposes of paragraph (1), a book entry bond shall be
treated as in registered form if the right to the principal of,
and stated interest on, such bond may be transferred only
through a book entry consistent with regulations prescribed by
the Secretary.
(B) Nominees
The Secretary shall prescribe such regulations as may be
necessary to carry out the purpose of paragraph (1) where there
is a nominee or chain of nominees.
(b) Federally guaranteed bond is not tax exempt
(1) In general
Section 103(a) shall not apply to any State or local bond if
such bond is federally guaranteed.
(2) Federally guaranteed defined
For purposes of paragraph (1), a bond is federally guaranteed
if -
(A) the payment of principal or interest with respect to such
bond is guaranteed (in whole or in part) by the United States
(or any agency or instrumentality thereof),
(B) such bond is issued as part of an issue and 5 percent or
more of the proceeds of such issue is to be -
(i) used in making loans the payment of principal or
interest with respect to which are to be guaranteed (in whole
or in part) by the United States (or any agency or
instrumentality thereof), or
(ii) invested (directly or indirectly) in federally insured
deposits or accounts, or
(C) the payment of principal or interest on such bond is
otherwise indirectly guaranteed (in whole or in part) by the
United States (or an agency or instrumentality thereof).
(3) Exceptions
(A) Certain insurance programs
A bond shall not be treated as federally guaranteed by reason
of -
(i) any guarantee by the Federal Housing Administration,
the Veterans' Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, or
the Government National Mortgage Association,
(ii) any guarantee of student loans and any guarantee by
the Student Loan Marketing Association to finance student
loans, or
(iii) any guarantee by the Bonneville Power Authority
pursuant to the Northwest Power Act (16 U.S.C. 839d) as in
effect on the date of the enactment of the Tax Reform Act of
1984.
(B) Debt service, etc.
Paragraph (1) shall not apply to -
(i) proceeds of the issue invested for an initial temporary
period until such proceeds are needed for the purpose for
which such issue was issued,
(ii) investments of a bona fide debt service fund,
(iii) investments of a reserve which meet the requirements
of section 148(d),
(iv) investments in bonds issued by the United States
Treasury, or
(v) other investments permitted under regulations.
(C) Exception for housing programs
(i) In general
Except as provided in clause (ii), paragraph (1) shall not
apply to -
(I) a private activity bond for a qualified residential
rental project or a housing program obligation under
section 11(b) of the United States Housing Act of 1937,
(II) a qualified mortgage bond, or
(III) a qualified veterans' mortgage bond.
(ii) Exception not to apply where bond invested in federally
insured deposits or accounts
Clause (i) shall not apply to any bond which is federally
guaranteed within the meaning of paragraph (2)(B)(ii).
(D) Loans to, or guarantees by, financial institutions
Except as provided in paragraph (2)(B)(ii), a bond which is
issued as part of an issue shall not be treated as federally
guaranteed merely by reason of the fact that the proceeds of
such issue are used in making loans to a financial institution
or there is a guarantee by a financial institution unless such
guarantee constitutes a federally insured deposit or account.
(4) Definitions
For purposes of this subsection -
(A) Treatment of certain entities with authority to borrow from
United States
To the extent provided in regulations prescribed by the
Secretary, any entity with statutory authority to borrow from
the United States shall be treated as an instrumentality of the
United States. Except in the case of an exempt facility bond, a
qualified small issue bond, and a qualified student loan bond,
nothing in the preceding sentence shall be construed as
treating the District of Columbia or any possession of the
United States as an instrumentality of the United States.
(B) Federally insured deposit or account
The term "federally insured deposit or account" means any
deposit or account in a financial institution to the extent
such deposit or account is insured under Federal law by the
Federal Deposit Insurance Corporation, the Federal Savings and
Loan Insurance Corporation, the National Credit Union
Administration, or any similar federally chartered corporation.
(c) Tax exemption must be derived from this title
(1) General rule
Except as provided in paragraph (2), no interest on any bond
shall be exempt from taxation under this title unless such
interest is exempt from tax under this title without regard to
any provision of law which is not contained in this title and
which is not contained in a revenue Act.
(2) Certain prior exemptions
(A) Prior exemptions continued
For purposes of this title, notwithstanding any provision of
this part, any bond the interest on which is exempt from
taxation under this title by reason of any provision of law
(other than a provision of this title) which is in effect on
January 6, 1983, shall be treated as a bond described in
section 103(a).
(B) Additional requirements for bonds issued after 1983
Subparagraph (A) shall not apply to a bond (not described in
subparagraph (C)) issued after 1983 if the appropriate
requirements of this part (or the corresponding provisions of
prior law) are not met with respect to such bond.
(C) Description of bond
A bond is described in this subparagraph (and treated as
described in subparagraph (A)) if -
(i) such bond is issued pursuant to the Northwest Power Act
(16 U.S.C. 839d), as in effect on July 18, 1984;
(ii) such bond is issued pursuant to section 608(a)(6)(A)
of Public Law 97-468, as in effect on the date of the
enactment of the Tax Reform Act of 1986; or
(iii) such bond is issued before June 19, 1984 under
section 11(b) of the United States Housing Act of 1937.
(d) Advance refundings
(1) In general
Nothing in section 103(a) or in any other provision of law
shall be construed to provide an exemption from Federal income
tax for interest on any bond issued as part of an issue described
in paragraph (2), (3), or (4).
(2) Certain private activity bonds
An issue is described in this paragraph if any bond (issued as
part of such issue) is issued to advance refund a private
activity bond (other than a qualified 501(c)(3) bond).
(3) Other bonds
(A) In general
An issue is described in this paragraph if any bond (issued
as part of such issue), hereinafter in this paragraph referred
to as the "refunding bond", is issued to advance refund a bond
unless -
(i) the refunding bond is only -
(I) the 1st advance refunding of the original bond if the
original bond is issued after 1985, or
(II) the 1st or 2nd advance refunding of the original
bond if the original bond was issued before 1986,
(ii) in the case of refunded bonds issued before 1986, the
refunded bond is redeemed not later than the earliest date on
which such bond may be redeemed at par or at a premium of 3
percent or less,
(iii) in the case of refunded bonds issued after 1985, the
refunded bond is redeemed not later than the earliest date on
which such bond may be redeemed,
(iv) the initial temporary period under section 148(c) ends
-
(I) with respect to the proceeds of the refunding bond
not later than 30 days after the date of issue of such
bond, and
(II) with respect to the proceeds of the refunded bond on
the date of issue of the refunding bond, and
(v) in the case of refunded bonds to which section 148(e)
did not apply, on and after the date of issue of the
refunding bond, the amount of proceeds of the refunded bond
invested in higher yielding investments (as defined in
section 148(b)) which are nonpurpose investments (as defined
in section 148(f)(6)(A)) does not exceed -
(I) the amount so invested as part of a reasonably
required reserve or replacement fund or during an allowable
temporary period, and
(II) the amount which is equal to the lesser of 5 percent
of the proceeds of the issue of which the refunded bond is
a part or $100,000 (to the extent such amount is allocable
to the refunded bond).
(B) Special rules for redemptions
(i) Issuer must redeem only if debt service savings
Clause (ii) and (iii) of subparagraph (A) shall apply only
if the issuer may realize present value debt service savings
(determined without regard to administrative expenses) in
connection with the issue of which the refunding bond is a
part.
(ii) Redemptions not required before 90th day
For purposes of clauses (ii) and (iii) of subparagraph (A),
the earliest date referred to in such clauses shall not be
earlier than the 90th day after the date of issuance of the
refunding bond.
(4) Abusive transactions prohibited
An issue is described in this paragraph if any bond (issued as
part of such issue) is issued to advance refund another bond and
a device is employed in connection with the issuance of such
issue to obtain a material financial advantage (based on
arbitrage) apart from savings attributable to lower interest
rates.
(5) Advance refunding
For purposes of this part, a bond shall be treated as issued to
advance refund another bond if it is issued more than 90 days
before the redemption of the refunded bond.
(6) Special rules for purposes of paragraph (3)
For purposes of paragraph (3), bonds issued before the date of
the enactment of this subsection shall be taken into account
under subparagraph (A)(i) thereof except -
(A) a refunding which occurred before 1986 shall be treated
as an advance refunding only if the refunding bond was issued
more than 180 days before the redemption of the refunded bond,
and
(B) a bond issued before 1986, shall be treated as advance
refunded no more than once before March 15, 1986.
(7) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection.
(e) Information reporting
(1) In general
Nothing in section 103(a) or any other provision of law shall
be construed to provide an exemption from Federal income tax for
interest on any bond unless such bond satisfies the requirements
of paragraph (2).
(2) Information reporting requirements
A bond satisfies the requirements of this paragraph if the
issuer submits to the Secretary, not later than the 15th day of
the 2d calendar month after the close of the calendar quarter in
which the bond is issued (or such later time as the Secretary may
prescribe with respect to any portion of the statement), a
statement concerning the issue of which the bond is a part which
contains -
(A) the name and address of the issuer,
(B) the date of issue, the amount of net proceeds of the
issue, the stated interest rate, term, and face amount of each
bond which is part of the issue, the amount of issuance costs
of the issue, and the amount of reserves of the issue,
(C) where required, the name of the applicable elected
representative who approved the issue, or a description of the
voter referendum by which the issue was approved,
(D) the name, address, and employer identification number of -
(i) each initial principal user of any facility provided
with the proceeds of the issue,
(ii) the common parent of any affiliated group of
corporations (within the meaning of section 1504(a)) of which
such initial principal user is a member, and
(iii) if the issue is treated as a separate issue under
section 144(a)(6)(A), any person treated as a principal user
under section 144(a)(6)(B),
(E) a description of any property to be financed from the
proceeds of the issue,
(F) a certification by a State official designated by State
law (or, where there is no such official, the Governor) that
the bond meets the requirements of section 146 (relating to cap
on private activity bonds), if applicable, and
(G) such other information as the Secretary may require.
Subparagraphs (C) and (D) shall not apply to any bond which is
not a private activity bond. The Secretary may provide that
certain information specified in the 1st sentence need not be
included in the statement with respect to an issue where the
inclusion of such information is not necessary to carry out the
purposes of this subsection.
(3) Extension of time
The Secretary may grant an extension of time for the filing of
any statement required under paragraph (2) if the failure to file
in a timely fashion is not due to willful neglect.
(f) Treatment of certain pooled financing bonds
(1) In general
Section 103(a) shall not apply to any pooled financing bond
unless, with respect to the issue of which such bond is a part,
the requirements of paragraphs (2) and (3) are met.
(2) Reasonable expectation requirement
(A) In general
The requirements of this paragraph are met with respect to an
issue if the issuer reasonably expects that as of the close of
the 3-year period beginning on the date of issuance of the
issue, at least 95 percent of the net proceeds of the issue (as
of the close of such period) will have been used directly or
indirectly to make or finance loans to ultimate borrowers.
(B) Certain factors may not be taken into account in
determining expectations
Expectations as to changes in interest rates or in the
provisions of this title (or in the regulations or rulings
thereunder) may not be taken into account in determining
whether expectations are reasonable for purposes of this
paragraph.
(C) Net proceeds
For purposes of subparagraph (A), the term "net proceeds" has
the meaning given such term by section 150 but shall not
include proceeds used to finance issuance costs and shall not
include proceeds necessary to pay interest (during such period)
on the bonds which are part of the issue.
(D) Refunding bonds
For purposes of subparagraph (A), in the case of a refunding
bond, the date of issuance taken into account is the date of
issuance of the original bond.
(3) Cost of issuance payment requirements
The requirements of this paragraph are met with respect to an
issue if -
(A) the payment of legal and underwriting costs associated
with the issuance of the issue is not contingent, and
(B) at least 95 percent of the reasonably expected legal and
underwriting costs associated with the issuance of the issue
are paid not later than the 180th day after the date of the
issuance of the issue.
(4) Pooled financing bond
For purposes of this subsection -
(A) In general
The term "pooled financing bond" means any bond issued as
part of an issue more than $5,000,000 of the proceeds of which
are reasonably expected (at the time of the issuance of the
bonds) to be used (or are intentionally used) directly or
indirectly to make or finance loans to 2 or more ultimate
borrowers.
(B) Exceptions
Such term shall not include any bond if -
(i) section 146 applies to the issue of which such bond is
a part (other than by reason of section 141(b)(5)) or would
apply but for section 146(i), or
(ii) section 143(l)(3) applies to such issue.
(5) Definition of loan; treatment of mixed use issues
(A) Loan
For purposes of this subsection, the term "loan" does not
include -
(i) any loan which is a nonpurpose investment (within the
meaning of section 148(f)(6)(A), determined without regard to
section 148(b)(3)), and
(ii) any use of proceeds by an agency of the issuer unless
such agency is a political subdivision or instrumentality of
the issuer.
(B) Portion of issue to be used for loans treated as separate
issue
If only a portion of the proceeds of an issue is reasonably
expected (at the time of issuance of the bond) to be used (or
is intentionally used) as described in paragraph (4)(A), such
portion and the other portion of such issue shall be treated as
separate issues for purposes of determining whether such
portion meets the requirements of this subsection.
(g) Treatment of hedge bonds
(1) In general
Section 103(a) shall not apply to any hedge bond unless, with
respect to the issue of which such bond is a part -
(A) the requirement of paragraph (2) is met, and
(B) the requirement of subsection (f)(3) is met.
(2) Reasonable expectations as to when proceeds will be spent
An issue meets the requirement of this paragraph if the issuer
reasonably expects that -
(A) 10 percent of the spendable proceeds of the issue will be
spent for the governmental purposes of the issue within the 1-
year period beginning on the date the bonds are issued,
(B) 30 percent of the spendable proceeds of the issue will be
spent for such purposes within the 2-year period beginning on
such date,
(C) 60 percent of the spendable proceeds of the issue will be
spent for such purposes within the 3-year period beginning on
such date, and
(D) 85 percent of the spendable proceeds of the issue will be
spent for such purposes within the 5-year period beginning on
such date.
(3) Hedge bond
(A) In general
For purposes of this subsection, the term "hedge bond" means
any bond issued as part of an issue unless -
(i) the issuer reasonably expects that 85 percent of the
spendable proceeds of the issue will be used to carry out the
governmental purposes of the issue within the 3-year period
beginning on the date the bonds are issued, and
(ii) not more than 50 percent of the proceeds of the issue
are invested in nonpurpose investments (as defined in section
148(f)(6)(A)) having a substantially guaranteed yield for 4
years or more.
(B) Exception for investment in tax-exempt bonds not subject to
minimum tax
(i) In general
Such term shall not include any bond issued as part of an
issue 95 percent of the net proceeds of which are invested in
bonds -
(I) the interest on which is not includible in gross
income under section 103, and
(II) which are not specified private activity bonds (as
defined in section 57(a)(5)(C)).
(ii) Amounts in bona fide debt service fund
Amounts in a bona fide debt service fund shall be treated
as invested in bonds described in clause (i).
(iii) Amounts held pending reinvestment or redemption
Amounts held for not more than 30 days pending reinvestment
or bond redemption shall be treated as invested in bonds
described in clause (i).
(C) Exception for refunding bonds
(i) In general
A refunding bond shall be treated as meeting the
requirements of this subsection only if the original bond met
such requirements.
(ii) General rule for refunding of pre-effective date bonds
A refunding bond shall be treated as meeting the
requirements of this subsection if -
(I) this subsection does not apply to the original bond,
(II) the average maturity date of the issue of which the
refunding bond is a part is not later than the average
maturity date of the bonds to be refunded by such issue,
and
(III) the amount of the refunding bond does not exceed
the outstanding amount of the refunded bond.
(iii) Refunding of pre-effective date bonds entitled to 5-
year temporary period
A refunding bond shall be treated as meeting the
requirements of this subsection if -
(I) this subsection does not apply to the original bond,
(II) the issuer reasonably expected that 85 percent of
the spendable proceeds of the issue of which the original
bond is a part would be used to carry out the governmental
purposes of the issue within the 5-year period beginning on
the date the original bonds were issued but did not
reasonably expect that 85 percent of such proceeds would be
so spent within the 3-year period beginning on such date,
and
(III) at least 85 percent of the spendable proceeds of
the original issue (and all other prior original issues
issued to finance the governmental purposes of such issue)
were spent before the date the refunding bonds are issued.
(4) Special rules
For purposes of this subsection -
(A) Construction period in excess of 5 years
The Secretary may, at the request of any issuer, provide that
the requirement of paragraph (2) shall be treated as met with
respect to the portion of the spendable proceeds of an issue
which is to be used for any construction project having a
construction period in excess of 5 years if it is reasonably
expected that such proceeds will be spent over a reasonable
construction schedule specified in such request.
(B) Rules for determining expectations
The rules of subsection (f)(2)(B) shall apply.
(5) Regulations
The Secretary may prescribe regulations to prevent the
avoidance of the rules of this subsection, including through the
aggregation of projects within a single issue.
-SOURCE-
(Added Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100
Stat. 2646; amended Pub. L. 100-647, title I, Sec. 1013(a)(20)-
(22), title V, Sec. 5051(a), Nov. 10, 1988, 102 Stat. 3542, 3676;
Pub. L. 101-239, title VII, Sec. 7651(a), Dec. 19, 1989, 103 Stat.
2383; Pub. L. 104-188, title I, Sec. 1704(b)(1), Aug. 20, 1996, 110
Stat. 1878.)
-REFTEXT-
REFERENCES IN TEXT
The Northwest Power Act, referred to in subsecs. (b)(3)(A)(iii)
and (c)(2)(C)(i), probably means the Pacific Northwest Electric
Power Planning and Conservation Act, Pub. L. 96-501, Dec. 5, 1980,
94 Stat 2697, which is classified principally to chapter 12H (Sec.
839 et seq.) of Title 16, Conservation. For complete classification
of this Act to the Code, see Short Title note set out under section
839 of Title 16 and Tables.
The date of the enactment of the Tax Reform Act of 1984, referred
to in subsec. (b)(3)(A)(iii), is the date of enactment of Pub. L.
98-369, div. A, which was approved July 18, 1984.
Section 11(b) of the United States Housing Act of 1937, referred
to in subsecs. (b)(3)(C)(i)(I) and (c)(2)(C)(iii), is classified to
section 1473i(b) of Title 42, The Public Health and Welfare.
Section 608(a)(6)(A) of Pub. L. 97-468, referred to in subsec.
(c)(2)(C)(ii), is classified to section 1207(a)(6)(A) of Title 45,
Railroads.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (c)(2)(C)(ii), is the date of enactment of Pub. L. 99-
514, which was approved Oct. 22, 1986.
The date of the enactment of this subsection, referred to in
subsec. (d)(6), is the date of enactment of Pub. L. 99-514, which
was approved Oct. 22, 1986.
-MISC1-
AMENDMENTS
1996 - Subsec. (g)(3)(B)(iii). Pub. L. 104-188 amended cl. (iii)
generally. Prior to amendment, cl. (iii) read as follows:
"Investment earnings held pending reinvestment. - Investment
earnings held for not more than 30 days pending reinvestment shall
be treated as invested in bonds described in clause (i)."
1989 - Subsec. (g). Pub. L. 101-239 added subsec. (g).
1988 - Subsec. (b)(3)(A)(iii). Pub. L. 100-647, Sec. 1013(a)(20),
struck out "with respect to any bond issued before July 1, 1989"
after "1984".
Subsec. (b)(4)(A). Pub. L. 100-647, Sec. 1013(a)(21), substituted
"and a qualified student loan bond" for "a qualified student loan
bond, and a qualified redevelopment bond".
Subsec. (e)(3). Pub. L. 100-647, Sec. 1013(a)(22), substituted
"the failure to file in a timely fashion is not due to willful
neglect" for "there is reasonable cause for the failure to file
such statement in a timely fashion".
Subsec. (f). Pub. L. 100-647, Sec. 5051(a), added subsec. (f).
-CHANGE-
CHANGE OF NAME
Reference to Veterans' Administration deemed to refer to
Department of Veterans Affairs pursuant to section 10 of Pub. L.
100-527, set out as a Department of Veterans Affairs Act note under
section 301 of Title 38, Veterans' Benefits.
-MISC2-
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1704(b)(2) of Pub. L. 104-188 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section 7651 of the
Omnibus Budget Reconciliation Act of 1989 [Pub. L. 101-239]."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7651(b) of Pub. L. 101-239 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendment made by subsection (a) [amending this
section] shall apply to bonds issued after September 14, 1989.
"(2) Bonds sold before september 15, 1989. - The amendment made
by subsection (a) shall not apply to any bond sold before September
15, 1989, and issued before October 15, 1989.
"(3) Bonds with respect to which preliminary offering materials
mailed. - The amendment made by subsection (a) shall not apply to
any issue issued after the date of the enactment of this Act [Dec.
19, 1989] if the preliminary offering materials with respect to
such issue were mailed (or otherwise delivered) to members of the
underwriting syndicate before September 15, 1989.
"(4) Certain other bonds. - In the case of a bond issued before
January 1, 1991, with respect to which official action was taken
(or a series of official actions were taken), or other comparable
preliminary approval was given, before November 18, 1989,
demonstrating an intent to issue such bonds in a maximum specified
amount for such issue or with a maximum specified amount of net
proceeds of such issue, the issuer may elect to apply section
149(g)(2) of the Internal Revenue Code of 1986 (as added by this
section) by substituting '15 percent' for '10 percent' in
subparagraph (A) and '50 percent' for '60 percent' in subparagraph
(C).
"(5) Bonds issued to finance self-insurance funds. - The
amendment made by subsection (a) shall not apply to any bonds
issued before July 1, 1990, to finance a self-insurance fund if
official action was taken (or a series of official actions were
taken), or other comparable preliminary approval was given, before
September 15, 1989, demonstrating an intent to issue such bonds in
a maximum specified amount for such issue or with a maximum
specified amount of net proceeds of such issue."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1013(a)(20)-(22) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 5051(b) of Pub. L. 100-647 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to bonds issued after October 21, 1988.
"(2) Special rule for refunding bonds. - In the case of a bond
issued to refund a bond issued before October 22, 1988 -
"(A) if the 3-year period described in section 149(f)(2)(A) of
the 1986 Code would (but for this paragraph) expire on or before
October 22, 1989, such period shall expire on October 21, 1990,
and
"(B) if such period expires after October 22, 1989, the portion
of the proceeds of the issue of which the refunded bond is a part
which is available (on the date of issuance of the refunding
issue) to provide loans shall be treated as proceeds of a
separate issue (issued after October 21, 1988) for purposes of
applying section 149(f) of the 1986 Code."
EFFECTIVE DATE
Subsec. (e) applicable to bonds issued after Dec. 31, 1986, see
section 1311(d) of Pub. L. 99-514, as amended, set out as an
Effective Date; Transitional Rules note under section 141 of this
title.
-TRANS-
TRANSFER OF FUNCTIONS
Federal Savings and Loan Insurance Corporation abolished and its
functions transferred, see sections 401 to 406 of Pub. L. 101-73
set out as a note under section 1437 of Title 12, Banks and
Banking.
-End-
-CITE-
26 USC Subpart C - Definitions and Special Rules 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart C - Definitions and Special Rules
-HEAD-
SUBPART C - DEFINITIONS AND SPECIAL RULES
-MISC1-
Sec.
150. Definitions and special rules.
-End-
-CITE-
26 USC Sec. 150 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IV - TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS
Subpart C - Definitions and Special Rules
-HEAD-
Sec. 150. Definitions and special rules
-STATUTE-
(a) General rule
For purposes of this part -
(1) Bond
The term "bond" includes any obligation.
(2) Governmental unit not to include Federal Government
The term "governmental unit" does not include the United States
or any agency or instrumentality thereof.
(3) Net proceeds
The term "net proceeds" means, with respect to any issue, the
proceeds of such issue reduced by amounts in a reasonably
required reserve or replacement fund.
(4) 501(c)(3) organization
The term "501(c)(3) organization" means any organization
described in section 501(c)(3) and exempt from tax under section
501(a).
(5) Ownership of property
Property shall be treated as owned by a governmental unit if it
is owned on behalf of such unit.
(6) Tax-exempt bond
The term "tax-exempt" means, with respect to any bond (or
issue), that the interest on such bond (or on the bonds issued as
part of such issue) is excluded from gross income.
(b) Change in use of facilities financed with tax-exempt private
activity bonds
(1) Mortgage revenue bonds
(A) In general
In the case of any residence with respect to which financing
is provided from the proceeds of a tax-exempt qualified
mortgage bond or qualified veterans' mortgage bond, if there is
a continuous period of at least 1 year during which such
residence is not the principal residence of at least 1 of the
mortgagors who received such financing, then no deduction shall
be allowed under this chapter for interest on such financing
which accrues on or after the date such period began and before
the date such residence is again the principal residence of at
least 1 of the mortgagors who received such financing.
(B) Exception
Subparagraph (A) shall not apply to the extent the Secretary
determines that its application would result in undue hardship
and that the failure to meet the requirements of subparagraph
(A) resulted from circumstances beyond the mortgagor's control.
(2) Qualified residential rental projects
In the case of any project for residential rental property -
(A) with respect to which financing is provided from the
proceeds of any private activity bond which, when issued,
purported to be a tax-exempt bond described in paragraph (7) of
section 142(a), and
(B) which does not meet the requirements of section 142(d),
no deduction shall be allowed under this chapter for interest on
such financing which accrues during the period beginning on the
1st day of the taxable year in which such project fails to meet
such requirements and ending on the date such project meets such
requirements. If the provisions of prior law corresponding to
section 142(d) apply to a refunded bond, such provisions shall
apply (in lieu of section 142(d)) to the refunding bond.
(3) Qualified 501(c)(3) bonds
(A) In general
In the case of any facility with respect to which financing
is provided from the proceeds of any private activity bond
which, when issued, purported to be a tax-exempt qualified
501(c)(3) bond, if any portion of such facility -
(i) is used in a trade or business of any person other than
a 501(c)(3) organization or a governmental unit, but
(ii) continues to be owned by a 501(c)(3) organization,
then the owner of such portion shall be treated for purposes of
this title as engaged in an unrelated trade or business (as
defined in section 513) with respect to such portion. The
amount of gross income attributable to such portion for any
period shall not be less than the fair rental value of such
portion for such period.
(B) Denial of deduction for interest
No deduction shall be allowed under this chapter for interest
on financing described in subparagraph (A) which accrues during
the period beginning on the date such facility is used as
described in subparagraph (A)(i) and ending on the date such
facility is not so used.
(4) Certain exempt facility bonds and small issue bonds
(A) In general
In the case of any facility with respect to which financing
is provided from the proceeds of any private activity bond to
which this paragraph applies, if such facility is not used for
a purpose for which a tax-exempt bond could be issued on the
date of such issue, no deduction shall be allowed under this
chapter for interest on such financing which accrues during the
period beginning on the date such facility is not so used and
ending on the date such facility is so used.
(B) Bonds to which paragraph applies
This paragraph applies to any private activity bond which,
when issued, purported to be a tax-exempt exempt facility bond
described in a paragraph (other than paragraph (7)) of section
142(a) or a qualified small issue bond.
(5) Facilities required to be owned by governmental units or
501(c)(3) organizations
If -
(A) financing is provided with respect to any facility from
the proceeds of any private activity bond which, when issued,
purported to be a tax-exempt bond,
(B) such facility is required to be owned by a governmental
unit or a 501(c)(3) organization as a condition of such tax
exemption, and
(C) such facility is not so owned,
then no deduction shall be allowed under this chapter for
interest on such financing which accrues during the period
beginning on the date such facility is not so owned and ending on
the date such facility is so owned.
(6) Small issue bonds which exceed capital expenditure limitation
In the case of any financing provided from the proceeds of any
bond which, when issued, purported to be a qualified small issue
bond, no deduction shall be allowed under this chapter for
interest on such financing which accrues during the period such
bond is not a qualified small issue bond.
(c) Exception and special rules for purposes of subsection (b)
For purposes of subsection (b) -
(1) Exception
Any use with respect to facilities financed with proceeds of an
issue which are not required to be used for the exempt purpose of
such issue shall not be taken into account.
(2) Treatment of amounts other than interest
If the amounts payable for the use of a facility are not
interest, subsection (b) shall apply to such amounts as if they
were interest but only to the extent such amounts for any period
do not exceed the amount of interest accrued on the bond
financing for such period.
(3) Use of portion of facility
In the case of any person which uses only a portion of the
facility, only the interest accruing on the financing allocable
to such portion shall be taken into account by such person.
(4) Cessation with respect to portion of facility
In the case of any facility where part but not all of the
facility is not used for an exempt purpose, only the interest
accruing on the financing allocable to such part shall be taken
into account.
(5) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection and subsection (b).
(d) Qualified scholarship funding bond
For purposes of this part and section 103 -
(1) Treatment as State or local bond
A qualified scholarship funding bond shall be treated as a
State or local bond.
(2) Qualified scholarship funding bond defined
The term "qualified scholarship funding bond" means a bond
issued by a corporation which -
(A) is a corporation not for profit established and operated
exclusively for the purpose of acquiring student loan notes
incurred under the Higher Education Act of 1965, and
(B) is organized at the request of the State or 1 or more
political subdivisions thereof or is requested to exercise such
power by 1 or more political subdivisions and required by its
corporate charter and bylaws, or required by State law, to
devote any income (after payment of expenses, debt service, and
the creation of reserves for the same) to the purchase of
additional student loan notes or to pay over any income to the
United States.
(3) Election to cease status as qualified scholarship funding
corporation
(A) In general
Any qualified scholarship funding bond, and qualified student
loan bond, outstanding on the date of the issuer's election
under this paragraph (and any bond (or series of bonds) issued
to refund such a bond) shall not fail to be a tax-exempt bond
solely because the issuer ceases to be described in
subparagraphs (A) and (B) of paragraph (2) if the issuer meets
the requirements of subparagraphs (B) and (C) of this
paragraph.
(B) Assets and liabilities of issuer transferred to taxable
subsidiary
The requirements of this subparagraph are met by an issuer if
-
(i) all of the student loan notes of the issuer and other
assets pledged to secure the repayment of qualified
scholarship funding bond indebtedness of the issuer are
transferred to another corporation within a reasonable period
after the election is made under this paragraph;
(ii) such transferee corporation assumes or otherwise
provides for the payment of all of the qualified scholarship
funding bond indebtedness of the issuer within a reasonable
period after the election is made under this paragraph;
(iii) to the extent permitted by law, such transferee
corporation assumes all of the responsibilities, and succeeds
to all of the rights, of the issuer under the issuer's
agreements with the Secretary of Education in respect of
student loans;
(iv) immediately after such transfer, the issuer, together
with any other issuer which has made an election under this
paragraph in respect of such transferee, hold all of the
senior stock in such transferee corporation; and
(v) such transferee corporation is not exempt from tax
under this chapter.
(C) Issuer to operate as independent organization described in
section 501(c)(3)
The requirements of this subparagraph are met by an issuer
if, within a reasonable period after the transfer referred to
in subparagraph (B) -
(i) the issuer is described in section 501(c)(3) and exempt
from tax under section 501(a);
(ii) the issuer no longer is described in subparagraphs (A)
and (B) of paragraph (2); and
(iii) at least 80 percent of the members of the board of
directors of the issuer are independent members.
(D) Senior stock
For purposes of this paragraph, the term "senior stock" means
stock -
(i) which participates pro rata and fully in the equity
value of the corporation with all other common stock of the
corporation but which has the right to payment of liquidation
proceeds prior to payment of liquidation proceeds in respect
of other common stock of the corporation;
(ii) which has a fixed right upon liquidation and upon
redemption to an amount equal to the greater of -
(I) the fair market value of such stock on the date of
liquidation or redemption (whichever is applicable); or
(II) the fair market value of all assets transferred in
exchange for such stock and reduced by the amount of all
liabilities of the corporation which has made an election
under this paragraph assumed by the transferee corporation
in such transfer;
(iii) the holder of which has the right to require the
transferee corporation to redeem on a date that is not later
than 10 years after the date on which an election under this
paragraph was made and pursuant to such election such stock
was issued; and
(iv) in respect of which, during the time such stock is
outstanding, there is not outstanding any equity interest in
the corporation having any liquidation, redemption or
dividend rights in the corporation which are superior to
those of such stock.
(E) Independent member
The term "independent member" means a member of the board of
directors of the issuer who (except for services as a member of
such board) receives no compensation directly or indirectly -
(i) for services performed in connection with such
transferee corporation, or
(ii) for services as a member of the board of directors or
as an officer of such transferee corporation.
For purposes of clause (ii), the term "officer" includes any
individual having powers or responsibilities similar to those
of officers.
(F) Coordination with certain private foundation taxes
For purposes of sections 4942 (relating to the excise tax on
a failure to distribute income) and 4943 (relating to the
excise tax on excess business holdings), the transferee
corporation referred to in subparagraph (B) shall be treated as
a functionally related business (within the meaning of section
4942(j)(4)) with respect to the issuer during the period
commencing with the date on which an election is made under
this paragraph and ending on the date that is the earlier of -
(i) the last day of the last taxable year for which more
than 50 percent of the gross income of such transferee
corporation is derived from, or more than 50 percent of the
assets (by value) of such transferee corporation consists of,
student loan notes incurred under the Higher Education Act of
1965; or
(ii) the last day of the taxable year of the issuer during
which occurs the date which is 10 years after the date on
which the election under this paragraph is made.
(G) Election
An election under this paragraph may be revoked only with the
consent of the Secretary.
(e) Bonds of certain volunteer fire departments
For purposes of this part and section 103 -
(1) In general
A bond of a volunteer fire department shall be treated as a
bond of a political subdivision of a State if -
(A) such department is a qualified volunteer fire department
with respect to an area within the jurisdiction of such
political subdivision, and
(B) such bond is issued as part of an issue 95 percent or
more of the net proceeds of which are to be used for the
acquisition, construction, reconstruction, or improvement of a
firehouse (including land which is functionally related and
subordinate thereto) or firetruck used or to be used by such
department.
(2) Qualified volunteer fire department
For purposes of this subsection, the term "qualified volunteer
fire department" means, with respect to a political subdivision
of a State, any organization -
(A) which is organized and operated to provide firefighting
or emergency medical services for persons in an area (within
the jurisdiction of such political subdivision) which is not
provided with any other firefighting services, and
(B) which is required (by written agreement) by the political
subdivision to furnish firefighting services in such area.
For purposes of subparagraph (A), other firefighting services
provided in an area shall be disregarded in determining whether
an organization is a qualified volunteer fire department if such
other firefighting services are provided by a qualified volunteer
fire department (determined with the application of this
sentence) and such organization and the provider of such other
services have been continuously providing firefighting services
to such area since January 1, 1981.
(3) Treatment as private activity bonds only for certain purposes
Bonds which are part of an issue which meets the requirements
of paragraph (1) shall not be treated as private activity bonds
except for purposes of sections 147(f) and 149(d).
-SOURCE-
(Added Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100
Stat. 2651; amended Pub. L. 100-647, title I, Sec. 1013(a)(23),
(24)(A), (30)-(33), title VI, Sec. 6182(a), (b), Nov. 10, 1988, 102
Stat. 3542, 3543, 3729; Pub. L. 104-188, title I, Sec. 1614(a),
Aug. 20, 1996, 110 Stat. 1851.)
-REFTEXT-
REFERENCES IN TEXT
The Higher Education Act of 1965, referred to in subsec.
(d)(2)(A), (3)(F)(i), is Pub. L. 89-329, Nov. 8, 1965, 79 Stat.
1219, as amended, which is classified principally to chapter 28
(Sec. 1001 et seq.) of Title 20, Education. For complete
classification of this Act to the Code, see Short Title note set
out under section 1001 of Title 20 and Tables.
-MISC1-
AMENDMENTS
1996 - Subsec. (d)(3). Pub. L. 104-188 added par. (3).
1988 - Subsec. (b)(1)(A). Pub. L. 100-647, Sec. 1013(a)(23)(C),
inserted "tax-exempt" before "qualified mortgage bond".
Pub. L. 100-647, Sec. 1013(a)(30), inserted before period at end
"and before the date such residence is again the principal
residence of at least 1 of the mortgagors who received such
financing".
Subsec. (b)(2). Pub. L. 100-647, Sec. 1013(a)(32), inserted at
end "If the provisions of prior law corresponding to section 142(d)
apply to a refunded bond, such provisions shall apply (in lieu of
section 142(d)) to the refunding bond."
Subsec. (b)(2)(A). Pub. L. 100-647, Sec. 1013(a)(31), substituted
"described in paragraph" for "described paragraph".
Subsec. (b)(4). Pub. L. 100-647, Sec. 1013(a)(23)(A), (B),
inserted "and small issue bonds" after "bonds" in heading, and "or
a qualified small issue bond" before period at end of subpar. (B).
Subsec. (b)(6). Pub. L. 100-647, Sec. 1013(a)(33), added par.
(6).
Subsec. (e)(1)(B). Pub. L. 100-647, Sec. 6182(b), inserted
"(including land which is functionally related and subordinate
thereto)" after "a firehouse".
Subsec. (e)(2). Pub. L. 100-647, Sec. 6182(a), inserted at end
"For purposes of subparagraph (A), other firefighting services
provided in an area shall be disregarded in determining whether an
organization is a qualified volunteer fire department if such other
firefighting services are provided by a qualified volunteer fire
department (determined with the application of this sentence) and
such organization and the provider of such other services have been
continuously providing firefighting services to such area since
January 1, 1981."
Subsec. (e)(3). Pub. L. 100-647, Sec. 1013(a)(24)(A), added par.
(3).
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1614(b) of Pub. L. 104-188 provided that: "The amendment
made by this section [amending this section] shall take effect on
the date of the enactment of this Act [Aug. 20, 1996]."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1013(a)(24)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to bonds issued after October 21, 1988."
Amendment by section 1013(a)(23), (30)-(33) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 6182(c) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending this section] shall apply to bonds
issued after the date of the enactment of this Act [Nov. 10,
1988]."
EFFECTIVE DATE
Section applicable to bonds issued after Aug. 15, 1986, except as
otherwise provided, with subsec. (b) applicable to changes in use
(and ownership) after Aug. 15, 1986, but only with respect to
financing (including refinancings) provided after such date, and
with subsec. (d) applicable to payments made after Aug. 15, 1986,
see sections 1311 to 1318 of Pub. L. 99-514, as amended, set out as
an Effective Date; Transitional Rules note under section 141 of
this title.
-End-
-CITE-
26 USC PART V - DEDUCTIONS FOR PERSONAL EXEMPTIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART V - DEDUCTIONS FOR PERSONAL EXEMPTIONS
-HEAD-
PART V - DEDUCTIONS FOR PERSONAL EXEMPTIONS
-MISC1-
Sec.
151. Allowance of deductions for personal exemptions.
152. Dependent defined.
153. Cross references.
AMENDMENTS
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(7)(A)(ii), Oct. 4,
1976, 90 Stat. 1794, redesignated item 154 as 153 and struck out
former item 153 "Determination of marital status".
-End-
-CITE-
26 USC Sec. 151 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART V - DEDUCTIONS FOR PERSONAL EXEMPTIONS
-HEAD-
Sec. 151. Allowance of deductions for personal exemptions
-STATUTE-
(a) Allowance of deductions
In the case of an individual, the exemptions provided by this
section shall be allowed as deductions in computing taxable income.
(b) Taxpayer and spouse
An exemption of the exemption amount for the taxpayer; and an
additional exemption of the exemption amount for the spouse of the
taxpayer if a joint return is not made by the taxpayer and his
spouse, and if the spouse, for the calendar year in which the
taxable year of the taxpayer begins, has no gross income and is not
the dependent of another taxpayer.
(c) Additional exemption for dependents
An exemption of the exemption amount for each individual who is a
dependent (as defined in section 152) of the taxpayer for the
taxable year.
(d) Exemption amount
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, the term
"exemption amount" means $2,000.
(2) Exemption amount disallowed in case of certain dependents
In the case of an individual with respect to whom a deduction
under this section is allowable to another taxpayer for a taxable
year beginning in the calendar year in which the individual's
taxable year begins, the exemption amount applicable to such
individual for such individual's taxable year shall be zero.
(3) Phaseout
(A) In general
In the case of any taxpayer whose adjusted gross income for
the taxable year exceeds the threshold amount, the exemption
amount shall be reduced by the applicable percentage.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable
percentage" means 2 percentage points for each $2,500 (or
fraction thereof) by which the taxpayer's adjusted gross income
for the taxable year exceeds the threshold amount. In the case
of a married individual filing a separate return, the preceding
sentence shall be applied by substituting "$1,250" for
"$2,500". In no event shall the applicable percentage exceed
100 percent.
(C) Threshold amount
For purposes of this paragraph, the term "threshold amount"
means -
(i) $150,000 in the case of a joint return or a surviving
spouse (as defined in section 2(a)),
(ii) $125,000 in the case of a head of a household (as
defined in section 2(b),(!1)
(iii) $100,000 in the case of an individual who is not
married and who is not a surviving spouse or head of a
household, and
(iv) $75,000 in the case of a married individual filing a
separate return.
For purposes of this paragraph, marital status shall be
determined under section 7703.
(D) Coordination with other provisions
The provisions of this paragraph shall not apply for purposes
of determining whether a deduction under this section with
respect to any individual is allowable to another taxpayer for
any taxable year.
(E) Reduction of phaseout
(i) In general
In the case of taxable years beginning after December 31,
2005, and before January 1, 2010, the reduction under
subparagraph (A) shall be equal to the applicable fraction of
the amount which would (but for this subparagraph) be the
amount of such reduction.
(ii) Applicable fraction
For purposes of clause (i), the applicable fraction shall
be determined in accordance with the following table:
For taxable years beginning 2The applicable
in calendar year - fraction is -
--------------------------------------------------------------------
2006 and 2007 (!2/3)
2008 and 2009 1/3 .
--------------------------------------------------------------------
(F) Termination
This paragraph shall not apply to any taxable year beginning
after December 31, 2009.
(4) Inflation adjustments
(A) Adjustment to basic amount of exemption
In the case of any taxable year beginning in a calendar year
after 1989, the dollar amount contained in paragraph (1) shall
be increased by an amount equal to -
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year
begins, by substituting "calendar year 1988" for "calendar
year 1992" in subparagraph (B) thereof.
(B) Adjustment to threshold amounts for years after 1991
In the case of any taxable year beginning in a calendar year
after 1991, each dollar amount contained in paragraph (3)(C)
shall be increased by an amount equal to -
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year
begins, by substituting "calendar year 1990" for "calendar
year 1992" in subparagraph (B) thereof.
(e) Identifying information required
No exemption shall be allowed under this section with respect to
any individual unless the TIN of such individual is included on the
return claiming the exemption.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 42; Pub. L. 91-172, title VIII,
Sec. 801(a)(1), (b)(1), (c)(1), (d)(1), title IX, Sec. 941(b), Dec.
30, 1969, 83 Stat. 675, 676, 726; Pub. L. 92-178, title II, Sec.
201(a)(1), (b)(1), (c), Dec. 10, 1971, 85 Stat. 510, 511; Pub. L.
94-455, title XIX, Sec. 1901(a)(23), Oct. 4, 1976, 90 Stat. 1767;
Pub. L. 95-600, title I, Sec. 102(a), Nov. 6, 1978, 92 Stat. 2771;
Pub. L. 97-34, title I, Sec. 104(c), Aug. 13, 1981, 95 Stat. 189;
Pub. L. 98-369, div. A, title IV, Sec. 426(a), July 18, 1984, 98
Stat. 804; Pub. L. 99-514, title I, Sec. 103, title XVIII, Sec.
1847(b)(3), Oct. 22, 1986, 100 Stat. 2102, 2856; Pub. L. 100-647,
title VI, Sec. 6010(a), Nov. 10, 1988, 102 Stat. 3691; Pub. L. 101-
508, title XI, Secs. 11101(d)(1)(F), 11104(a), Nov. 5, 1990, 104
Stat. 1388-405, 1388-407; Pub. L. 102-318, title V, Sec. 511, July
3, 1992, 106 Stat. 300; Pub. L. 103-66, title XIII, Secs.
13201(b)(3)(G), 13205, Aug. 10, 1993, 107 Stat. 459, 462; Pub. L.
104-188, title I, Secs. 1615(a)(1), 1702(a)(2), Aug. 20, 1996, 110
Stat. 1853, 1868; Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec.
306(a)], Dec. 21, 2000, 114 Stat. 2763, 2763A-634; Pub. L. 107-16,
title I, Sec. 102(a), June 7, 2001, 115 Stat. 44; Pub. L. 107-147,
title IV, Secs. 412(b), 417(6), Mar. 9, 2002, 116 Stat. 53, 56;
Pub. L. 108-311, title II, Sec. 206, Oct. 4, 2004, 118 Stat. 1176.)
-STATAMEND-
PERSONAL EXEMPTION ADJUSTMENT FOR TAXABLE YEARS BEGINNING IN 2006
For adjustment and phaseout of personal exemption under
subsection (d) of this section for taxable years beginning in 2006,
see section 3.17 of Revenue Procedure 2005-70, set out as a note
under section 1 of this title.
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2004 - Subsec. (c). Pub. L. 108-311 reenacted heading without
change and amended text generally. Prior to amendment, text
consisted of pars. (1) to (6) relating to additional exemption for
dependents in general, exemption denied in case of certain married
dependents, child defined, student defined, certain income of
handicapped dependents not taken into account, and treatment of
missing children, respectively.
2002 - Subsec. (c)(6)(B)(iii). Pub. L. 107-147, Sec. 417(6),
inserted "as" before "such terms".
Subsec. (c)(6)(C). Pub. L. 107-147, Sec. 412(b), substituted "for
principal place of abode requirements" for "for earned income
credit" in heading, "An" for "For purposes of section 32, an" in
introductory provisions, and "principal place of abode requirements
of section 2(a)(1)(B), section 2(b)(1)(A), and section
32(c)(3)(A)(ii)" for "requirement of section 32(c)(3)(A)(ii)" in
concluding provisions.
2001 - Subsec. (d)(3)(E), (F). Pub. L. 107 - 16, Secs. 102(a),
901, temporarily added subpars. (E) and (F). See Effective and
Termination Dates of 2001 Amendment note below.
2000 - Subsec. (c)(6). Pub. L. 106-554 added par. (6).
1996 - Subsec. (d)(3)(C)(i). Pub. L. 104-188, Sec. 1702(a)(2),
substituted "joint return" for "joint of a return".
Subsec. (e). Pub. L. 104-188, Sec. 1615(a)(1), added subsec. (e).
1993 - Subsec. (d)(3)(E). Pub. L. 103-66, Sec. 13205, struck out
heading and text of subpar. (E). Text read as follows: "This
paragraph shall not apply to any taxable year beginning after
December 31, 1996."
Subsec. (d)(4)(A)(ii), (B)(ii). Pub. L. 103-66, Sec.
13201(b)(3)(G), substituted "1992" for "1989".
1992 - Subsec. (d)(3)(E). Pub. L. 102-318 substituted "1996" for
"1995".
1990 - Subsec. (d). Pub. L. 101-508, Sec. 11104(a), amended
subsec. (d) generally. Prior to amendment, subsec. (d) read as
follows: "For purposes of this section -
"(1) In general. - Except as provided in paragraph (2), the term
'exemption amount' means -
"(A) $1,900 for taxable years beginning during 1987,
"(B) $1,950 for taxable years beginning during 1988, and
"(C) $2,000 for taxable years beginning after December 31,
1988.
"(2) Exemption amount disallowed in the case of certain
dependents. - In the case of an individual with respect to whom a
deduction under this section is allowable to another taxpayer for a
taxable year beginning in the calendar year in which the
individual's taxable year begins, the exemption amount applicable
to such individual for such individual's taxable year shall be
zero.
"(3) Inflation adjustment for years after 1989. - In the case of
any taxable year beginning in a calendar year after 1989, the
dollar amount contained in paragraph (1)(C) shall be increased by
an amount equal to -
"(A) such dollar amount, multiplied by
"(B) the cost-of-living adjustment determined under section
1(f)(3), for the calendar year in which the taxable year begins,
by substituting 'calendar year 1988' for 'calendar year 1987' in
subparagraph (B) thereof."
Subsec. (d)(3)(B). Pub. L. 101-508, Sec. 11101(d)(1)(F),
substituted "1989" for "1987".
1988 - Subsec. (c)(1)(B)(ii). Pub. L. 100-647 inserted "who has
not attained the age of 24 at the close of such calendar year"
after "student".
1986 - Subsec. (c). Pub. L. 99-514, Sec. 103(b), redesignated
subsec. (e) as (c) and struck out former subsec. (c) which provided
for an additional exemption for taxpayer or spouse aged 65 or more.
Subsec. (d). Pub. L. 99-514, Sec. 103(b), redesignated subsec.
(f) as (d) and struck out former subsec. (d) which provided for an
additional exemption for blindness of taxpayer or spouse.
Subsec. (e). Pub. L. 99-514, Sec. 103(b), redesignated subsec.
(e) as (c).
Pub. L. 99-514, Sec. 1847(b)(3), substituted "section 22(e)" for
"section 37(e)" in par. (5)(C).
Subsec. (f). Pub. L. 99-514, Sec. 103(b), redesignated subsec.
(f) as (d).
Pub. L. 99-514, Sec. 103(a), amended subsec. (f) generally. Prior
to amendment, subsec. (f) read as follows: "For purposes of this
section, the term 'exemption amount' means, with respect to any
taxable year, $1,000 increased by an amount equal to $1,000
multiplied by the cost-of-living adjustment (as defined in section
1(f)(3)) for the calendar year in which the taxable year begins. If
the amount determined under the preceding sentence is not a
multiple of $10, such amount shall be rounded to the nearest
multiple of $10 (or if such amount is a multiple of $5, such amount
shall be increased to the next highest multiple of $10)."
1984 - Subsec. (e)(5). Pub. L. 98-369 added par. (5).
1981 - Subsecs. (b), (c), (d)(1), (2), (e)(1). Pub. L. 97-34,
Sec. 104(c)(1), substituted "the exemption amount" for "$1,000"
wherever appearing.
Subsec. (f). Pub. L. 97-34, Sec. 104(c)(2), added subsec. (f).
1978 - Pub. L. 95-600 increased exemption from $750 to $1,000
with respect to taxable years beginning after Dec. 31, 1978.
1976 - Subsec. (e)(4). Pub. L. 94-455 struck out "and educational
institution" after "Student" in heading, substituted in subpars.
(A) and (B) "organization described in section 170(b)(1)(A)(ii)"
for "institution", and struck out provisions following subpar. (B)
defining educational institution.
1971 - Pub. L. 92-178 increased exemption from $650 to $675 with
respect to taxable years beginning after Dec. 31, 1970, and before
Jan. 1, 1972, and from $675 to $750 with respect to taxable years
beginning after Dec. 31, 1971.
1969 - Pub. L. 91-172, Sec. 801(a)(1), (b)(1), (c)(1), (d)(1),
increased exemption from $600 to $625 with respect to taxable years
beginning after Dec. 31, 1969, and before Jan. 1, 1971, from $625
to $650 for taxable years beginning after Dec. 31, 1970, and before
Jan. 1, 1972, from $650 to $700 for taxable years beginning after
Dec. 31, 1971, and before Jan. 1, 1973, and from $700 to $750 for
taxable years beginning after Dec. 31, 1972.
Subsecs. (b), (c), Pub. L. 91-172, Sec. 941(b), substituted "if a
joint return is not made by the taxpayer and his spouse" for "if a
separate return is made by the taxpayer".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to taxable years
beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-311,
set out as a note under section 2 of this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 412(e), Mar. 9, 2002, 116 Stat.
54, provided that: "The amendments made by this section [amending
this section and sections 358, 469, 1091, 1233, 1234A, and 1234B of
this title] shall take effect as if included in the provisions of
the Community Renewal Tax Relief Act of 2000 [H.R. 5662, as enacted
by section 1(a)(7) of Pub. L. 106-554, Dec. 21, 2000, 114 Stat.
2763, 2763A-587] to which they relate."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title I, Sec. 102(b), June 7, 2001, 115 Stat. 44,
provided that: "The amendment made by this section [amending this
section] shall apply to taxable years beginning after December 31,
2005."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 306(b)], Dec. 21,
2000, 114 Stat. 2763, 2763A-635, provided that: "The amendment made
by this section [amending this section] shall apply to taxable
years ending after the date of the enactment of this Act [Dec. 21,
2000]."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1615(a)(1) of Pub. L. 104-188 applicable
with respect to returns the due date for which, without regard to
extensions, is on or after the 30th day after Aug. 20, 1996, with
special rule for 1995 and 1996, see section 1615(d) of Pub. L. 104-
188, set out as a note under section 21 of this title.
Amendment by section 1702(a)(2) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L. 101-
508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13201(b)(3)(G) of Pub. L. 103-66 applicable
to taxable years beginning after Dec. 31, 1992, see section
13201(c) of Pub. L. 103-66, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11101(d)(1)(F) of Pub. L. 101-508 applicable
to taxable years beginning after Dec. 31, 1990, see section
11101(e) of Pub. L. 101-508, set out as a note under section 1 of
this title.
Amendment by section 11104(a) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1990, see section 11104(c)
of Pub. L. 101-508, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 6010(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1988."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 103 of Pub. L. 99-514 applicable to taxable
years beginning after Dec. 31, 1986, see section 151(a) of Pub. L.
99-514, set out as a note under section 1 of this title.
Amendment by section 1847(b)(3) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 426(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1984."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1984, see section 104(e) of Pub. L. 97-34, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 102(d)(1) of Pub. L. 95-600 provided that: "The
amendments made by subsections (a) and (b) [amending this section
and sections 6012 and 6013 of this title] shall apply to taxable
years beginning after December 31, 1978."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 201(a), (b) of Pub. L. 92-178 provided in part that the
increase in exemption from $650 to $675 was effective with respect
to taxable years beginning after Dec. 31, 1970, and before Jan. 1,
1972, and from $675 to $750 was effective with respect to taxable
years beginning after Dec. 31, 1971.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 801(a)(1) of Pub. L. 91-172 provided in part that the
increase in exemption from $600 to $625 is effective with respect
to taxable years beginning after Dec. 31, 1969, and before Jan. 1,
1971.
Section 801(b)(1) of Pub. L. 91-172 provided in part that the
increase in the exemption from $625 to $650 is effective with
respect to taxable years beginning after Dec. 31, 1970, and before
Jan. 1, 1972.
Section 941(c) of Pub. L. 91-172 provided that: "The amendments
made by subsections (a) [amending section 6012 of this title] and
(b) [amending this section] shall apply to taxable years beginning
after December 31, 1969."
REPEALS
Section 801(c)(1), (d)(1) of Pub. L. 91-172 provided for an
increase in the personal exemption to $700, effective with respect
to taxable years beginning after Dec. 31, 1971, and before Jan. 1,
1973, and to $750, effective with respect to taxable years
beginning after Dec. 31, 1972, prior to repeal by section 201(c) of
Pub. L. 92-178.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original. A closing parenthesis probably should
precede the comma.
-End-
-CITE-
26 USC Sec. 152 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART V - DEDUCTIONS FOR PERSONAL EXEMPTIONS
-HEAD-
Sec. 152. Dependent defined
-STATUTE-
(a) In general
For purposes of this subtitle, the term "dependent" means -
(1) a qualifying child, or
(2) a qualifying relative.
(b) Exceptions
For purposes of this section -
(1) Dependents ineligible
If an individual is a dependent of a taxpayer for any taxable
year of such taxpayer beginning in a calendar year, such
individual shall be treated as having no dependents for any
taxable year of such individual beginning in such calendar year.
(2) Married dependents
An individual shall not be treated as a dependent of a taxpayer
under subsection (a) if such individual has made a joint return
with the individual's spouse under section 6013 for the taxable
year beginning in the calendar year in which the taxable year of
the taxpayer begins.
(3) Citizens or nationals of other countries
(A) In general
The term "dependent" does not include an individual who is
not a citizen or national of the United States unless such
individual is a resident of the United States or a country
contiguous to the United States.
(B) Exception for adopted child
Subparagraph (A) shall not exclude any child of a taxpayer
(within the meaning of subsection (f)(1)(B)) from the
definition of "dependent" if -
(i) for the taxable year of the taxpayer, the child has the
same principal place of abode as the taxpayer and is a member
of the taxpayer's household, and
(ii) the taxpayer is a citizen or national of the United
States.
(c) Qualifying child
For purposes of this section -
(1) In general
The term "qualifying child" means, with respect to any taxpayer
for any taxable year, an individual -
(A) who bears a relationship to the taxpayer described in
paragraph (2),
(B) who has the same principal place of abode as the taxpayer
for more than one-half of such taxable year,
(C) who meets the age requirements of paragraph (3), and
(D) who has not provided over one-half of such individual's
own support for the calendar year in which the taxable year of
the taxpayer begins.
(2) Relationship
For purposes of paragraph (1)(A), an individual bears a
relationship to the taxpayer described in this paragraph if such
individual is -
(A) a child of the taxpayer or a descendant of such a child,
or
(B) a brother, sister, stepbrother, or stepsister of the
taxpayer or a descendant of any such relative.
(3) Age requirements
(A) In general
For purposes of paragraph (1)(C), an individual meets the
requirements of this paragraph if such individual -
(i) has not attained the age of 19 as of the close of the
calendar year in which the taxable year of the taxpayer
begins, or
(ii) is a student who has not attained the age of 24 as of
the close of such calendar year.
(B) Special rule for disabled
In the case of an individual who is permanently and totally
disabled (as defined in section 22(e)(3)) at any time during
such calendar year, the requirements of subparagraph (A) shall
be treated as met with respect to such individual.
(4) Special rule relating to 2 or more claiming qualifying child
(A) In general
Except as provided in subparagraph (B), if (but for this
paragraph) an individual may be and is claimed as a qualifying
child by 2 or more taxpayers for a taxable year beginning in
the same calendar year, such individual shall be treated as the
qualifying child of the taxpayer who is -
(i) a parent of the individual, or
(ii) if clause (i) does not apply, the taxpayer with the
highest adjusted gross income for such taxable year.
(B) More than 1 parent claiming qualifying child
If the parents claiming any qualifying child do not file a
joint return together, such child shall be treated as the
qualifying child of -
(i) the parent with whom the child resided for the longest
period of time during the taxable year, or
(ii) if the child resides with both parents for the same
amount of time during such taxable year, the parent with the
highest adjusted gross income.
(d) Qualifying relative
For purposes of this section -
(1) In general
The term "qualifying relative" means, with respect to any
taxpayer for any taxable year, an individual -
(A) who bears a relationship to the taxpayer described in
paragraph (2),
(B) whose gross income for the calendar year in which such
taxable year begins is less than the exemption amount (as
defined in section 151(d)),
(C) with respect to whom the taxpayer provides over one-half
of the individual's support for the calendar year in which such
taxable year begins, and
(D) who is not a qualifying child of such taxpayer or of any
other taxpayer for any taxable year beginning in the calendar
year in which such taxable year begins.
(2) Relationship
For purposes of paragraph (1)(A), an individual bears a
relationship to the taxpayer described in this paragraph if the
individual is any of the following with respect to the taxpayer:
(A) A child or a descendant of a child.
(B) A brother, sister, stepbrother, or stepsister.
(C) The father or mother, or an ancestor of either.
(D) A stepfather or stepmother.
(E) A son or daughter of a brother or sister of the taxpayer.
(F) A brother or sister of the father or mother of the
taxpayer.
(G) A son-in-law, daughter-in-law, father-in-law, mother-in-
law, brother-in-law, or sister-in-law.
(H) An individual (other than an individual who at any time
during the taxable year was the spouse, determined without
regard to section 7703, of the taxpayer) who, for the taxable
year of the taxpayer, has the same principal place of abode as
the taxpayer and is a member of the taxpayer's household.
(3) Special rule relating to multiple support agreements
For purposes of paragraph (1)(C), over one-half of the support
of an individual for a calendar year shall be treated as received
from the taxpayer if -
(A) no one person contributed over one-half of such support,
(B) over one-half of such support was received from 2 or more
persons each of whom, but for the fact that any such person
alone did not contribute over one-half of such support, would
have been entitled to claim such individual as a dependent for
a taxable year beginning in such calendar year,
(C) the taxpayer contributed over 10 percent of such support,
and
(D) each person described in subparagraph (B) (other than the
taxpayer) who contributed over 10 percent of such support files
a written declaration (in such manner and form as the Secretary
may by regulations prescribe) that such person will not claim
such individual as a dependent for any taxable year beginning
in such calendar year.
(4) Special rule relating to income of handicapped dependents
(A) In general
For purposes of paragraph (1)(B), the gross income of an
individual who is permanently and totally disabled (as defined
in section 22(e)(3)) at any time during the taxable year shall
not include income attributable to services performed by the
individual at a sheltered workshop if -
(i) the availability of medical care at such workshop is
the principal reason for the individual's presence there, and
(ii) the income arises solely from activities at such
workshop which are incident to such medical care.
(B) Sheltered workshop defined
For purposes of subparagraph (A), the term "sheltered
workshop" means a school -
(i) which provides special instruction or training designed
to alleviate the disability of the individual, and
(ii) which is operated by an organization described in
section 501(c)(3) and exempt from tax under section 501(a),
or by a State, a possession of the United States, any
political subdivision of any of the foregoing, the United
States, or the District of Columbia.
(5) Special rules for support
For purposes of this subsection -
(A) payments to a spouse which are includible in the gross
income of such spouse under section 71 or 682 shall not be
treated as a payment by the payor spouse for the support of any
dependent, and
(B) in the case of the remarriage of a parent, support of a
child received from the parent's spouse shall be treated as
received from the parent.
(e) Special rule for divorced parents, etc.
(1) In general
Notwithstanding subsection (c)(1)(B), (c)(4), or (d)(1)(C), if -
(A) a child receives over one-half of the child's support
during the calendar year from the child's parents -
(i) who are divorced or legally separated under a decree of
divorce or separate maintenance,
(ii) who are separated under a written separation
agreement, or
(iii) who live apart at all times during the last 6 months
of the calendar year, and -
(B) such child is in the custody of 1 or both of the child's
parents for more than one-half of the calendar year, such child
shall be treated as being the qualifying child or qualifying
relative of the noncustodial parent for a calendar year if the
requirements described in paragraph (2) or (3) are met.
(2) Exception where custodial parent releases claim to exemption
for the year
For purposes of paragraph (1), the requirements described in
this paragraph are met with respect to any calendar year if -
(A) the custodial parent signs a written declaration (in such
manner and form as the Secretary may by regulations prescribe)
that such custodial parent will not claim such child as a
dependent for any taxable year beginning in such calendar year,
and
(B) the noncustodial parent attaches such written declaration
to the noncustodial parent's return for the taxable year
beginning during such calendar year.
(3) Exception for certain pre-1985 instruments
(A) In general
For purposes of paragraph (1), the requirements described in
this paragraph are met with respect to any calendar year if -
(i) a qualified pre-1985 instrument between the parents
applicable to the taxable year beginning in such calendar
year provides that the noncustodial parent shall be entitled
to any deduction allowable under section 151 for such child,
and
(ii) the noncustodial parent provides at least $600 for the
support of such child during such calendar year.
For purposes of this subparagraph, amounts expended for the
support of a child or children shall be treated as received
from the noncustodial parent to the extent that such parent
provided amounts for such support.
(B) Qualified pre-1985 instrument
For purposes of this paragraph, the term "qualified pre-1985
instrument" means any decree of divorce or separate maintenance
or written agreement -
(i) which is executed before January 1, 1985,
(ii) which on such date contains the provision described in
subparagraph (A)(i), and
(iii) which is not modified on or after such date in a
modification which expressly provides that this paragraph
shall not apply to such decree or agreement.
(4) Custodial parent and noncustodial parent
For purposes of this subsection -
(A) Custodial parent
The term "custodial parent" means the parent having custody
for the greater portion of the calendar year.
(B) Noncustodial parent
The term "noncustodial parent" means the parent who is not
the custodial parent.
(5) Exception for multiple-support agreement
This subsection shall not apply in any case where over one-half
of the support of the child is treated as having been received
from a taxpayer under the provision of subsection (d)(3).
(6) Special rule for support received from new spouse of parent
For purposes of this subsection, in the case of the remarriage
of a parent, support of a child received from the parent's spouse
shall be treated as received from the parent.
(f) Other definitions and rules
For purposes of this section -
(1) Child defined
(A) In general
The term "child" means an individual who is -
(i) a son, daughter, stepson, or stepdaughter of the
taxpayer, or
(ii) an eligible foster child of the taxpayer.
(B) Adopted child
In determining whether any of the relationships specified in
subparagraph (A)(i) or paragraph (4) exists, a legally adopted
individual of the taxpayer, or an individual who is lawfully
placed with the taxpayer for legal adoption by the taxpayer,
shall be treated as a child of such individual by blood.
(C) Eligible foster child
For purposes of subparagraph (A)(ii), the term "eligible
foster child" means an individual who is placed with the
taxpayer by an authorized placement agency or by judgment,
decree, or other order of any court of competent jurisdiction.
(2) Student defined
The term "student" means an individual who during each of 5
calendar months during the calendar year in which the taxable
year of the taxpayer begins -
(A) is a full-time student at an educational organization
described in section 170(b)(1)(A)(ii), or
(B) is pursuing a full-time course of institutional on-farm
training under the supervision of an accredited agent of an
educational organization described in section 170(b)(1)(A)(ii)
or of a State or political subdivision of a State.
(3) Determination of household status
An individual shall not be treated as a member of the
taxpayer's household if at any time during the taxable year of
the taxpayer the relationship between such individual and the
taxpayer is in violation of local law.
(4) Brother and sister
The terms "brother" and "sister" include a brother or sister by
the half blood.
(5) Special support test in case of students
For purposes of subsections (c)(1)(D) and (d)(1)(C), in the
case of an individual who is -
(A) a child of the taxpayer, and
(B) a student,
amounts received as scholarships for study at an educational
organization described in section 170(b)(1)(A)(ii) shall not be
taken into account.
(6) Treatment of missing children
(A) In general
Solely for the purposes referred to in subparagraph (B), a
child of the taxpayer -
(i) who is presumed by law enforcement authorities to have
been kidnapped by someone who is not a member of the family
of such child or the taxpayer, and
(ii) who had, for the taxable year in which the kidnapping
occurred, the same principal place of abode as the taxpayer
for more than one-half of the portion of such year before the
date of the kidnapping,
shall be treated as meeting the requirement of subsection
(c)(1)(B) with respect to a taxpayer for all taxable years
ending during the period that the child is kidnapped.
(B) Purposes
Subparagraph (A) shall apply solely for purposes of
determining -
(i) the deduction under section 151(c),
(ii) the credit under section 24 (relating to child tax
credit),
(iii) whether an individual is a surviving spouse or a head
of a household (as such terms are defined in section 2), and
(iv) the earned income credit under section 32.
(C) Comparable treatment of certain qualifying relatives
For purposes of this section, a child of the taxpayer -
(i) who is presumed by law enforcement authorities to have
been kidnapped by someone who is not a member of the family
of such child or the taxpayer, and
(ii) who was (without regard to this paragraph) a
qualifying relative of the taxpayer for the portion of the
taxable year before the date of the kidnapping,
shall be treated as a qualifying relative of the taxpayer for
all taxable years ending during the period that the child is
kidnapped.
(D) Termination of treatment
Subparagraphs (A) and (C) shall cease to apply as of the
first taxable year of the taxpayer beginning after the calendar
year in which there is a determination that the child is dead
(or, if earlier, in which the child would have attained age
18).
(7) Cross references
For provision treating child as dependent of both parents for
purposes of certain provisions, see sections 105(b),
132(h)(2)(B), and 213(d)(5).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 43; Aug. 9, 1955, ch. 693, Sec.
2, 69 Stat. 626; Pub. L. 85-866, title I, Sec. 4(a)-(c), Sept. 2,
1958, 72 Stat. 1607; Pub. L. 86-376, Sec. 1(a), Sept. 23, 1959, 73
Stat. 699; Pub. L. 90-78, Sec. 1, Aug. 31, 1967, 81 Stat. 191; Pub.
L. 91-172, title IX, Sec. 912(a), Dec. 30, 1969, 83 Stat. 722; Pub.
L. 92-580, Sec. 1(a), Oct. 27, 1972, 86 Stat. 1276; Pub. L. 94-455,
title XIX, Secs. 1901(a)(24), (b)(7)(B), (8)(A), 1906(b)(13)(A),
title XXI, Sec. 2139(a), Oct. 4, 1976, 90 Stat. 1767, 1794, 1834,
1932; Pub. L. 98-369, div. A, title IV, Secs. 423(a), 482(b)(2),
July 18, 1984, 98 Stat. 799, 848; Pub. L. 99-514, title I, Sec.
104(b)(1)(B), (3), title XIII, Sec. 1301(j)(8), Oct. 22, 1986, 100
Stat. 2104, 2105, 2658; Pub. L. 108-311, title II, Sec. 201, Oct.
4, 2004, 118 Stat. 1169; Pub. L. 109-135, title IV, Sec. 404(a),
Dec. 21, 2005, 119 Stat. 2632.)
-MISC1-
AMENDMENTS
2005 - Subsec. (e). Pub. L. 109-135 amended heading and text of
subsec. (e) generally. Prior to amendment, text consisted of pars.
(1) to (4) relating to special rule for divorced parents,
requirements for divorced parents, definitions of custodial and
noncustodial parent, and exception for multiple-support agreements.
2004 - Pub. L. 108-311 reenacted section catchline without change
and amended text generally. Prior to amendment, section consisted
of subsecs. (a) to (e) relating to general definition of dependent,
rules relating to general definition, multiple support agreements,
special support test in case of students, and support test in case
of child of divorced parents, etc., respectively.
1986 - Subsec. (a)(9). Pub. L. 99-514, Sec. 1301(j)(8),
substituted "section 7703" for "section 143".
Subsec. (d)(2). Pub. L. 99-514, Sec. 104(b)(3), substituted
"section 151(c)(4)" for "section 151(e)(4)".
Subsec. (e)(1)(A). Pub. L. 99-514, Sec. 104(b)(1)(B), substituted
"section 151(c)(3)" for "section 151(e)(3)".
1984 - Subsec. (e). Pub. L. 98-369, Sec. 423(a), amended subsec.
(e) generally, and in substantially revising support test
provisions, enacted par. (1) custodial parent exemption, former
par. (1) declaring the general rule that where a child received
over one-half of his calendar year support from parents who were
divorced or legally separated under a decree of divorce or separate
maintenance, or were separated under a written separation agreement
and the child was in the custody of one or both parents for more
than one-half of the calendar year, the child would be treated as
receiving over half of his support from the parent having custody
for a greater portion of the calendar year unless treated under
special rule provision as having received over half of his support
from the parent not having custody; enacted par. (2) release of
custodial parent exemption for the year, former par. (2) declaring
the special rule that parent without custody would be deemed as
furnishing over half of the support where the decree of divorce or
separate maintenance, or written agreement, covering the taxable
year, provided that parent without custody should be entitled to
the section 151 deduction for the child and such parent provided at
least $600 calendar year support, or alternatively, such parent
without custody provided $1,200 or more calendar year support and
the parent with custody did not establish more support of the child
than the parent without custody; redesignated as par. (3) former
par. (4) provision respecting exception for multiple-support
agreement, deleting former par. (3) respecting requirement of an
itemized statement of expenditures to resolve more support claims;
added par. (4) respecting exception for certain pre-1985
instruments; added par. (5) enunciating special rule for support
received from new spouse of parent, deleting former par. (5)
regulations prescription provision; and added par. (6) cross
reference provision.
Subsec. (e)(6). Pub. L. 98-369, Sec. 482(b)(2), substituted
"section 213(d)(5)" for "section 213(d)(4)".
1976 - Subsec. (a)(9). Pub. L. 94-455, Sec. 1901(b)(7)(B),
substituted "section 143" for "section 153".
Subsec. (a)(10). Pub. L. 94-455, Sec. 1901(a)(24)(A), struck out
par. (10) relating to descendents of a taxpayer, who were members
of taxpayer's household, before receiving institutional care.
Subsec. (b)(3). Pub. L. 94-455, Sec. 1901(a)(24)(B), among other
changes struck out "of the Canal Zone, or of the Republic of
Panama" after "country contiguous to the United States," and
provisions relating to children born or adopted in Philippines.
Subsec. (c)(4). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (d). Pub. L. 94-455, Sec. 1901(b)(8)(A), substituted
"organization described in section 170(b)(1)(A)(ii)" for
"institution (as defined in section 151(e)(4))".
Subsec. (e)(2)(B)(i). Pub. L. 94-455, Sec. 2139(a), substituted
"each" for "all".
Subsec. (e)(3), (5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
1972 - Subsec. (b)(3). Pub. L. 92-580 substituted "citizen or
national of the United States" for "citizen of the United States"
in two places.
1969 - Subsec. (b)(2). Pub. L. 91-172 inserted reference to
foster children who satisfy requirements of subsec. (a)(9) of this
section.
1967 - Subsec. (a). Pub. L. 90-78, Sec. 1(b), inserted "or (e)"
after "subsection (c)".
Subsec. (e). Pub. L. 90-78, Sec. 1(a), added subsec. (e).
1959 - Subsec. (b)(2). Pub. L. 86-376 provided that a child who
is a member of an individual's household if placed with such
individual by an authorized placement agency for legal adoption by
such individual shall be treated as a child by blood.
1958 - Subsec. (a)(9). Pub. L. 85-866, Sec. 4(a), inserted
"(other than an individual who at any time during the taxable year
was the spouse, determined without regard to section 153, of the
taxpayer)".
Subsec. (b)(3). Pub. L. 85-866, Sec. 4(b), among other changes,
struck out provision that "dependent" does not include any
individual who is not a United States citizen unless such
individual is a resident of United States or of a contiguous
country, or of Canal Zone or Panama, and inserted provision barring
exclusion from definition of "dependent" any child of taxpayer,
legally adopted by him, if, for taxable year of taxpayer, child's
principal place of abode is taxpayer's home and child is member of
taxpayer's household, if taxpayer is United States citizen.
Subsec. (b)(5). Pub. L. 85-866, Sec. 4(c), added par. (5).
1955 - Subsec. (b)(3). Act Aug. 9, 1955, substituted "January 1,
1956" for "July 5, 1946".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provisions of the Working Families Tax Relief Act of 2004, Pub. L.
108-311, to which such amendment relates, see section 404(d) of
Pub. L. 109-135, set out as a note under section 21 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to taxable years
beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-311,
set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(1)(B), (3) of Pub. L. 99-514
applicable to taxable years beginning after Dec. 31, 1986, see
section 151(a) of Pub. L. 99-514, set out as a note under section 1
of this title.
Amendment by section 1301(j)(8) of Pub. L. 99-514 applicable to
bonds issued after Aug. 15, 1986, except as otherwise provided, see
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective
Date; Transitional Rules note under section 141 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 423(a) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1984, see section 423(d) of
Pub. L. 98-369, set out as a note under section 2 of this title.
Amendment by section 482(b)(2) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 482(c) of
Pub. L. 98-369, set out as a note under section 213 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(24), (b)(7)(B), (8)(A) of Pub. L. 94-
455 applicable with respect to taxable years beginning after Dec.
31, 1976, see section 1901(d) of Pub. L. 94-455, set out as a note
under section 2 of this title.
Section 2139(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [Oct.
4, 1976]."
EFFECTIVE DATE OF 1972 AMENDMENT
Section 1(c) of Pub. L. 92-580 provided that: "The amendments
made by subsections (a) [amending this section] and (b) [amending
section 873 of this title] shall apply to taxable years beginning
after December 31, 1971."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 912(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) of this section [amending this section]
shall apply to taxable years beginning after December 31, 1969."
EFFECTIVE DATE OF 1967 AMENDMENT
Section 2 of Pub. L. 90-78 provided that: "The amendments made by
the first section of this Act [amending this section] shall apply
with respect to taxable years beginning after December 31, 1966."
EFFECTIVE DATE OF 1959 AMENDMENT
Section 1(b) of Pub. L. 86-376 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years beginning after December 31, 1958."
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by section 4(a), (c) of Pub. L. 85-866 applicable to
taxable years beginning after Dec. 31, 1953, and ending after Aug.
16, 1954, see section 1(c)(1) of Pub. L. 85-866, set out as a note
under section 165 of this title.
Section 4(d) of Pub. L. 85-866 provided that: "The amendment made
by subsection (b) [amending this section] shall apply with respect
to taxable years beginning after December 31, 1957."
EFFECTIVE DATE OF 1955 AMENDMENT
Section 3(b) of act Aug. 9, 1955, provided that: "The amendment
made by section 2 of this Act [amending this section] shall apply
with respect to taxable years beginning after December 31, 1953,
and ending after August 16, 1954."
-End-
-CITE-
26 USC Sec. 153 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART V - DEDUCTIONS FOR PERSONAL EXEMPTIONS
-HEAD-
Sec. 153. Cross references
-STATUTE-
(1) For deductions of estates and trusts, in lieu of the
exemptions under section 151, see section 642(b).
(2) For exemptions of nonresident aliens, see section
873(b)(3).
(3) For determination of marital status, see section 7703.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 45, Sec. 154; Pub. L. 89-809,
title I, Sec. 103(c)(2), Nov. 13, 1966, 80 Stat. 1551; renumbered
Sec. 153 and amended Pub. L. 94-455, title XIX, Sec.
1901(b)(7)(A)(i), (C), Oct. 4, 1976, 90 Stat. 1794; Pub. L. 99-514,
title XII, Sec. 1272(d)(7), title XIII, Sec. 1301(j)(8), Oct. 22,
1986, 100 Stat. 2594, 2658; Pub. L. 108-311, title II, Sec.
207(14), Oct. 4, 2004, 118 Stat. 1177.)
-MISC1-
PRIOR PROVISIONS
A prior section 153, act Aug. 16, 1954, ch. 736, 68A Stat. 45,
related to determination of marital status, prior to repeal by Pub.
L. 94-455, title XIX, Sec. 1901(b)(7)(A)(i), (d), Oct. 4, 1976, 90
Stat. 1794, 1803, applicable with respect to taxable years
beginning after Dec. 31, 1976. See section 143 of this title.
AMENDMENTS
2004 - Pars. (1) to (4). Pub. L. 108-311 redesignated pars. (2)
to (4) as (1) to (3), respectively, and struck out former par. (1)
which read as follows: "For definitions of 'husband' and 'wife', as
used in section 152(b)(4), see section 7701(a)(17)."
1986 - Par. (4). Pub. L. 99-514, Sec. 1272(d)(7), redesignated
par. (5) as (4) and struck out former par. (4) which read as
follows: "For exemptions of citizens deriving income mainly from
sources within possessions of the United States, see section
931(e)."
Par. (5). Pub. L. 99-514, Sec. 1272(d)(7), redesignated par. (5)
as (4).
Pub. L. 99-514, Sec. 1301(j)(8), substituted "section 7703" for
"section 143".
1976 - Par. (5). Pub. L. 94-455, Sec. 1901(b)(7)(C), added par.
(5).
1966 - Par. (3). Pub. L. 89-809 substituted "873(b)(3)" for
"873(d)".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to taxable years
beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-311,
set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1272(d)(7) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
Amendment by section 1301(j)(8) of Pub. L. 99-514 applicable to
bonds issued after Aug. 15, 1986, except as otherwise provided, see
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective
Date; Transitional Rules note under section 141 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 103(n)(1) of Pub.
L. 89-809, set out as a note under section 871 of this title.
-End-
-CITE-
26 USC PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND
CORPORATIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-MISC1-
Sec.
161. Allowance of deductions.
162. Trade or business expenses.
163. Interest.
164. Taxes.
165. Losses.
166. Bad debts.
167. Depreciation.
168. Accelerated cost recovery system.
169. Amortization of pollution control facilities.
170. Charitable, etc., contributions and gifts.
171. Amortizable bond premium.
172. Net operating loss deduction.
173. Circulation expenditures.
174. Research and experimental expenditures.
175. Soil and water conservation expenditures.
176. Payments with respect to employees of certain foreign
corporations.
[177. Repealed.]
178. Amortization of cost of acquiring a lease.
179. Election to expense certain depreciable business
assets.
179A. Deduction for clean-fuel vehicles and certain
refueling property.
179B. Deduction for capital costs incurred in complying with
Environmental Protection Agency sulfur regulations.
179C. Election to expense certain refineries.
179D. Energy efficient commercial buildings deduction.
180. Expenditures by farmers for fertilizer, etc.
181. Treatment of certain qualified film and television
productions.
[182. Repealed.]
183. Activities not engaged in for profit.
[184, 185. Repealed.]
186. Recoveries of damages for antitrust violations, etc.
[187 to 189. Repealed.]
190. Expenditures to remove architectural and
transportation barriers to the handicapped and
elderly.
191. Amortization of certain rehabilitation expenditures
for certified historic structures.(!1)
192. Contributions to black lung benefit trust.
193. Tertiary injectants.
194. Treatment of reforestation expenditures.
194A. Contributions to employer liability trusts.
195. Start-up expenditures.
196. Deduction for certain unused business credits.
197. Amortization of goodwill and certain other
intangibles.
198. Expensing of environmental remediation costs.
199. Income attributable to domestic production activities.
AMENDMENTS
2005 - Pub. L. 109-58, title XIII, Secs. 1323(b)(4), 1331(c),
Aug. 8, 2005, 119 Stat. 1015, 1024, added items 179C and 179D.
2004 - Pub. L. 108-357, title I, Sec. 102(d)(8), title II, Sec.
244(b), title III, Secs. 322(c)(5), 338(b)(6), Oct. 22, 2004, 118
Stat. 1429, 1446, 1475, 1481, added items 179B, 181, and 199, and
substituted "Treatment" for "Amortization" in item 194.
1997 - Pub. L. 105-34, title IX, Sec. 941(b), Aug. 5, 1997, 111
Stat. 885, added item 198.
1993 - Pub. L. 103-66, title XIII, Sec. 13261(f)(6), Aug. 10,
1993, 107 Stat. 539, added item 197.
1992 - Pub. L. 102-486, title XIX, Sec. 1913(a)(3)(B), Oct. 24,
1992, 106 Stat. 3019, added item 179A.
1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(3), Nov. 5, 1990,
104 Stat. 1388-522, struck out item 184 "Amortization of certain
railroad rolling stock" and item 188 "Amortization of certain
expenditures for child care facilities".
1986 - Pub. L. 99-514, title II, Secs. 201(d)(2)(B), 241(b)(3),
242(b)(3), title IV, Sec. 402(b)(3), title VIII, Sec. 803(c)(2),
Oct. 22, 1986, 100 Stat. 2139, 2181, 2221, 2356, substituted
"Amortization of cost of acquiring a lease" for "Depreciation or
amortization of improvements made by lessee on lessor's property"
in item 178, and struck out items 177 "Trademark and trade name
expenditures", 182 "Expenditures by farmers for clearing land", 185
"Amortization of railroad grading and tunnel bores", and 189
"Amortization of real property construction period interest and
taxes".
1984 - Pub. L. 98-369, div. A, title I, Sec. 94(b), title IV,
Sec. 474(r)(8)(B), July 18, 1984, 98 Stat. 615, 841, reenacted item
195 without change, and substituted "business credits" for
"investment credits" in item 196.
1983 - Pub. L. 97-448, title III, Sec. 305(b)(2), Jan. 12, 1983,
96 Stat. 2399, redesignated item 194 (relating to contributions to
employer liability trusts) as 194A.
1982 - Pub. L. 97-248, title II, Sec. 205(a)(5)(C), Sept. 3,
1982, 96 Stat. 430, added item 196.
1981 - Pub. L. 97-34, title II, Secs. 201(d), 202(d)(3), Aug. 13,
1981, 95 Stat. 219, 221, added item 168 and substituted "Election
to expense certain depreciable business assets" for "Additional
first-year depreciation allowance for small business" in item 179.
1980 - Pub. L. 96-605, title I, Sec. 102(b), Dec. 28, 1980, 94
Stat. 3522, added item 195.
Pub. L. 96-451, title III, Sec. 301(c)(2), Oct. 14, 1980, 94
Stat. 1991, added item 194 relating to amortization of
reforestation expenditures.
Pub. L. 96-364, title II, Sec. 209(c)(2), Sept. 26, 1980, 94
Stat. 1291, added item 194 relating to contributions to employer
liability trusts.
Pub. L. 96-223, title II, Sec. 251(a)(2)(A), Apr. 2, 1980, 94
Stat. 287, added item 193.
1978 - Pub. L. 95-227, Sec. 4(b)(2), Feb. 10, 1978, 95 Stat. 17,
added item 192.
1977 - Pub. L. 95-30, title IV, Sec. 402(a)(4), May 23, 1977, 91
Stat. 155, struck out "on-the-job training and" after "certain
expenditures for" in item 188.
1976 - Pub. L. 94-455, title II, Sec. 201(b), title XIX, Secs.
1901(b)(11)(B), 1951(c)(2)(D), title XXI, Secs. 2122(b)(1),
2124(a)(3)(A), Oct. 4, 1976, 90 Stat. 1527, 1795, 1841, 1915, 1917,
struck out item 168 "Amortization of emergency facilities" and item
187 "Amortization of certain coal mine safety equipment" and added
items 189, 190, and 191.
1971 - Pub. L. 92-178, title III, Sec. 303(c)(6), Dec. 10, 1971,
85 Stat. 522, added item 188.
1969 - Pub. L. 91-172, title II, Sec. 213(c)(1), title VII, Secs.
704(b)(1), 705(b), 707(b), title IX, Sec. 904(b), Dec. 30, 1969, 83
Stat. 572, 669, 674, 675, 712, substituted reference to pollution
control facilities for reference to grain storage facilities in
item 169, and added items 183 to 187.
1964 - Pub. L. 88-272, title II, Sec. 203(a)(3)(D). Feb. 26,
1964, 78 Stat. 34, struck out item 181 "Deduction for certain
unused investment credit".
1962 - Pub. L. 87-834, Secs. 2(g)(3), 21(c), Oct. 16, 1962, 76
Stat. 973, 1064, added items 181, 182.
1960 - Pub. L. 86-779, Sec. 6(b), Sept. 14, 1960, 74 Stat. 1001,
added item 180.
1958 - Pub. L. 85-866, title I, Sec. 15(b), title II, Sec.
204(b), Sept. 2, 1958, 72 Stat. 1613, 1680, added items 178 and
179.
1956 - Act June 29, 1956, ch. 464, Sec. 4(b), 70 Stat. 406, added
item 177.
1954 - Act Sept. 1, 1954, ch. 1206, title II, Sec. 210(b), 68
Stat. 1097, added item 176.
-FOOTNOTE-
(!1) Section 191 was repealed by Pub. L. 97-34 without corresponding
amendment of part analysis.
-End-
-CITE-
26 USC Sec. 161 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 161. Allowance of deductions
-STATUTE-
In computing taxable income under section 63, there shall be
allowed as deductions the items specified in this part, subject to
the exceptions provided in part IX (sec. 261 and following,
relating to items not deductible).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 45; Pub. L. 95-30, title I, Sec.
102(b)(1), May 23, 1977, 91 Stat. 137.)
-MISC1-
AMENDMENTS
1977 - Pub. L. 95-30 substituted "section 63" for "section
63(a)".
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
-End-
-CITE-
26 USC Sec. 162 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 162. Trade or business expenses
-STATUTE-
(a) In general
There shall be allowed as a deduction all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including -
(1) a reasonable allowance for salaries or other compensation
for personal services actually rendered;
(2) traveling expenses (including amounts expended for meals
and lodging other than amounts which are lavish or extravagant
under the circumstances) while away from home in the pursuit of a
trade or business; and
(3) rentals or other payments required to be made as a
condition to the continued use or possession, for purposes of the
trade or business, of property to which the taxpayer has not
taken or is not taking title or in which he has no equity.
For purposes of the preceding sentence, the place of residence of a
Member of Congress (including any Delegate and Resident
Commissioner) within the State, congressional district, or
possession which he represents in Congress shall be considered his
home, but amounts expended by such Members within each taxable year
for living expenses shall not be deductible for income tax purposes
in excess of $3,000. For purposes of paragraph (2), the taxpayer
shall not be treated as being temporarily away from home during any
period of employment if such period exceeds 1 year. The preceding
sentence shall not apply to any Federal employee during any period
for which such employee is certified by the Attorney General (or
the designee thereof) as traveling on behalf of the United States
in temporary duty status to investigate or prosecute, or provide
support services for the investigation or prosecution of, a Federal
crime.
(b) Charitable contributions and gifts excepted
No deduction shall be allowed under subsection (a) for any
contribution or gift which would be allowable as a deduction under
section 170 were it not for the percentage limitations, the dollar
limitations, or the requirements as to the time of payment, set
forth in such section.
(c) Illegal bribes, kickbacks, and other payments
(1) Illegal payments to government officials or employees
No deduction shall be allowed under subsection (a) for any
payment made, directly or indirectly, to an official or employee
of any government, or of any agency or instrumentality of any
government, if the payment constitutes an illegal bribe or
kickback or, if the payment is to an official or employee of a
foreign government, the payment is unlawful under the Foreign
Corrupt Practices Act of 1977. The burden of proof in respect of
the issue, for the purposes of this paragraph, as to whether a
payment constitutes an illegal bribe or kickback (or is unlawful
under the Foreign Corrupt Practices Act of 1977) shall be upon
the Secretary to the same extent as he bears the burden of proof
under section 7454 (concerning the burden of proof when the issue
relates to fraud).
(2) Other illegal payments
No deduction shall be allowed under subsection (a) for any
payment (other than a payment described in paragraph (1)) made,
directly or indirectly, to any person, if the payment constitutes
an illegal bribe, illegal kickback, or other illegal payment
under any law of the United States, or under any law of a State
(but only if such State law is generally enforced), which
subjects the payor to a criminal penalty or the loss of license
or privilege to engage in a trade or business. For purposes of
this paragraph, a kickback includes a payment in consideration of
the referral of a client, patient, or customer. The burden of
proof in respect of the issue, for purposes of this paragraph, as
to whether a payment constitutes an illegal bribe, illegal
kickback, or other illegal payment shall be upon the Secretary to
the same extent as he bears the burden of proof under section
7454 (concerning the burden of proof when the issue relates to
fraud).
(3) Kickbacks, rebates, and bribes under medicare and medicaid
No deduction shall be allowed under subsection (a) for any
kickback, rebate, or bribe made by any provider of services,
supplier, physician, or other person who furnishes items or
services for which payment is or may be made under the Social
Security Act, or in whole or in part out of Federal funds under a
State plan approved under such Act, if such kickback, rebate, or
bribe is made in connection with the furnishing of such items or
services or the making or receipt of such payments. For purposes
of this paragraph, a kickback includes a payment in consideration
of the referral of a client, patient, or customer.
(d) Capital contributions to Federal National Mortgage Association
For purposes of this subtitle, whenever the amount of capital
contributions evidenced by a share of stock issued pursuant to
section 303(c) of the Federal National Mortgage Association Charter
Act (12 U.S.C., sec. 1718) exceeds the fair market value of the
stock as of the issue date of such stock, the initial holder of the
stock shall treat the excess as ordinary and necessary expenses
paid or incurred during the taxable year in carrying on a trade or
business.
(e) Denial of deduction for certain lobbying and political
expenditures
(1) In general
No deduction shall be allowed under subsection (a) for any
amount paid or incurred in connection with -
(A) influencing legislation,
(B) participation in, or intervention in, any political
campaign on behalf of (or in opposition to) any candidate for
public office,
(C) any attempt to influence the general public, or segments
thereof, with respect to elections, legislative matters, or
referendums, or
(D) any direct communication with a covered executive branch
official in an attempt to influence the official actions or
positions of such official.
(2) Exception for local legislation
In the case of any legislation of any local council or similar
governing body -
(A) paragraph (1)(A) shall not apply, and
(B) the deduction allowed by subsection (a) shall include all
ordinary and necessary expenses (including, but not limited to,
traveling expenses described in subsection (a)(2) and the cost
of preparing testimony) paid or incurred during the taxable
year in carrying on any trade or business -
(i) in direct connection with appearances before,
submission of statements to, or sending communications to the
committees, or individual members, of such council or body
with respect to legislation or proposed legislation of direct
interest to the taxpayer, or
(ii) in direct connection with communication of information
between the taxpayer and an organization of which the
taxpayer is a member with respect to any such legislation or
proposed legislation which is of direct interest to the
taxpayer and to such organization,
and that portion of the dues so paid or incurred with respect
to any organization of which the taxpayer is a member which is
attributable to the expenses of the activities described in
clauses (i) and (ii) carried on by such organization.
(3) Application to dues of tax-exempt organizations
No deduction shall be allowed under subsection (a) for the
portion of dues or other similar amounts paid by the taxpayer to
an organization which is exempt from tax under this subtitle
which the organization notifies the taxpayer under section
6033(e)(1)(A)(ii) is allocable to expenditures to which paragraph
(1) applies.
(4) Influencing legislation
For purposes of this subsection -
(A) In general
The term "influencing legislation" means any attempt to
influence any legislation through communication with any member
or employee of a legislative body, or with any government
official or employee who may participate in the formulation of
legislation.
(B) Legislation
The term "legislation" has the meaning given such term by
section 4911(e)(2).
(5) Other special rules
(A) Exception for certain taxpayers
In the case of any taxpayer engaged in the trade or business
of conducting activities described in paragraph (1), paragraph
(1) shall not apply to expenditures of the taxpayer in
conducting such activities directly on behalf of another person
(but shall apply to payments by such other person to the
taxpayer for conducting such activities).
(B) De minimis exception
(i) In general
Paragraph (1) shall not apply to any in-house expenditures
for any taxable year if such expenditures do not exceed
$2,000. In determining whether a taxpayer exceeds the $2,000
limit under this clause, there shall not be taken into
account overhead costs otherwise allocable to activities
described in paragraphs (1)(A) and (D).
(ii) In-house expenditures
For purposes of clause (i), the term "in-house
expenditures" means expenditures described in paragraphs
(1)(A) and (D) other than -
(I) payments by the taxpayer to a person engaged in the
trade or business of conducting activities described in
paragraph (1) for the conduct of such activities on behalf
of the taxpayer, or
(II) dues or other similar amounts paid or incurred by
the taxpayer which are allocable to activities described in
paragraph (1).
(C) Expenses incurred in connection with lobbying and political
activities
Any amount paid or incurred for research for, or preparation,
planning, or coordination of, any activity described in
paragraph (1) shall be treated as paid or incurred in
connection with such activity.
(6) Covered executive branch official
For purposes of this subsection, the term "covered executive
branch official" means -
(A) the President,
(B) the Vice President,
(C) any officer or employee of the White House Office of the
Executive Office of the President, and the 2 most senior level
officers of each of the other agencies in such Executive
Office, and
(D)(i) any individual serving in a position in level I of the
Executive Schedule under section 5312 of title 5, United States
Code, (ii) any other individual designated by the President as
having Cabinet level status, and (iii) any immediate deputy of
an individual described in clause (i) or (ii).
(7) Special rule for Indian tribal governments
For purposes of this subsection, an Indian tribal government
shall be treated in the same manner as a local council or similar
governing body.
(8) Cross reference
For reporting requirements and alternative taxes related to
this subsection, see section 6033(e).
(f) Fines and penalties
No deduction shall be allowed under subsection (a) for any fine
or similar penalty paid to a government for the violation of any
law.
(g) Treble damage payments under the antitrust laws
If in a criminal proceeding a taxpayer is convicted of a
violation of the antitrust laws, or his plea of guilty or nolo
contendere to an indictment or information charging such a
violation is entered or accepted in such a proceeding, no deduction
shall be allowed under subsection (a) for two-thirds of any amount
paid or incurred -
(1) on any judgment for damages entered against the taxpayer
under section 4 of the Act entitled "An Act to supplement
existing laws against unlawful restraints and monopolies, and for
other purposes", approved October 15, 1914 (commonly known as the
Clayton Act), on account of such violation or any related
violation of the antitrust laws which occurred prior to the date
of the final judgment of such conviction, or
(2) in settlement of any action brought under such section 4 on
account of such violation or related violation.
The preceding sentence shall not apply with respect to any
conviction or plea before January 1, 1970, or to any conviction or
plea on or after such date in a new trial following an appeal of a
conviction before such date.
(h) State legislators' travel expenses away from home
(1) In general
For purposes of subsection (a), in the case of any individual
who is a State legislator at any time during the taxable year and
who makes an election under this subsection for the taxable year -
(A) the place of residence of such individual within the
legislative district which he represented shall be considered
his home,
(B) he shall be deemed to have expended for living expenses
(in connection with his trade or business as a legislator) an
amount equal to the sum of the amounts determined by
multiplying each legislative day of such individual during the
taxable year by the greater of -
(i) the amount generally allowable with respect to such day
to employees of the State of which he is a legislator for per
diem while away from home, to the extent such amount does not
exceed 110 percent of the amount described in clause (ii)
with respect to such day, or
(ii) the amount generally allowable with respect to such
day to employees of the executive branch of the Federal
Government for per diem while away from home but serving in
the United States, and
(C) he shall be deemed to be away from home in the pursuit of
a trade or business on each legislative day.
(2) Legislative days
For purposes of paragraph (1), a legislative day during any
taxable year for any individual shall be any day during such year
on which -
(A) the legislature was in session (including any day in
which the legislature was not in session for a period of 4
consecutive days or less), or
(B) the legislature was not in session but the physical
presence of the individual was formally recorded at a meeting
of a committee of such legislature.
(3) Election
An election under this subsection for any taxable year shall be
made at such time and in such manner as the Secretary shall by
regulations prescribe.
(4) Section not to apply to legislators who reside near capitol
For taxable years beginning after December 31, 1980, this
subsection shall not apply to any legislator whose place of
residence within the legislative district which he represents is
50 or fewer miles from the capitol building of the State.
[(i) Repealed. Pub. L. 101-239, title VI, Sec. 6202(b)(3)(A), Dec.
19, 1989, 103 Stat. 2233]
(j) Certain foreign advertising expenses
(1) In general
No deduction shall be allowed under subsection (a) for any
expenses of an advertisement carried by a foreign broadcast
undertaking and directed primarily to a market in the United
States. This paragraph shall apply only to foreign broadcast
undertakings located in a country which denies a similar
deduction for the cost of advertising directed primarily to a
market in the foreign country when placed with a United States
broadcast undertaking.
(2) Broadcast undertaking
For purposes of paragraph (1), the term "broadcast undertaking"
includes (but is not limited to) radio and television stations.
(k) Stock reacquisition expenses
(1) In general
Except as provided in paragraph (2), no deduction otherwise
allowable shall be allowed under this chapter for any amount paid
or incurred by a corporation in connection with the reacquisition
of its stock or of the stock of any related person (as defined in
section 465(b)(3)(C)).
(2) Exceptions
Paragraph (1) shall not apply to -
(A) Certain specific deductions
Any -
(i) deduction allowable under section 163 (relating to
interest),
(ii) deduction for amounts which are properly allocable to
indebtedness and amortized over the term of such
indebtedness, or
(iii) deduction for dividends paid (within the meaning of
section 561).
(B) Stock of certain regulated investment companies
Any amount paid or incurred in connection with the redemption
of any stock in a regulated investment company which issues
only stock which is redeemable upon the demand of the
shareholder.
(l) Special rules for health insurance costs of self-employed
individuals
(1) Allowance of deduction
(A) In general
In the case of an individual who is an employee within the
meaning of section 401(c)(1), there shall be allowed as a
deduction under this section an amount equal to the applicable
percentage of the amount paid during the taxable year for
insurance which constitutes medical care for the taxpayer, his
spouse, and dependents.
(B) Applicable percentage
For purposes of subparagraph (A), the applicable percentage
shall be determined under the following table:
For taxable years beginning 2The applicable
in calendar year - percentage is -
--------------------------------------------------------------------
1999 through 2001 60
2002 70
2003 and thereafter 100.
--------------------------------------------------------------------
(2) Limitations
(A) Dollar amount
No deduction shall be allowed under paragraph (1) to the
extent that the amount of such deduction exceeds the taxpayer's
earned income (within the meaning of section 401(c)) derived by
the taxpayer from the trade or business with respect to which
the plan providing the medical care coverage is established.
(B) Other coverage
Paragraph (1) shall not apply to any taxpayer for any
calendar month for which the taxpayer is eligible to
participate in any subsidized health plan maintained by any
employer of the taxpayer or of the spouse of the taxpayer. The
preceding sentence shall be applied separately with respect to -
(i) plans which include coverage for qualified long-term
care services (as defined in section 7702B(c)) or are
qualified long-term care insurance contracts (as defined in
section 7702B(b)), and
(ii) plans which do not include such coverage and are not
such contracts.
(C) Long-term care premiums
In the case of a qualified long-term care insurance contract
(as defined in section 7702B(b)), only eligible long-term care
premiums (as defined in section 213(d)(10)) shall be taken into
account under paragraph (1).
(3) Coordination with medical deduction
Any amount paid by a taxpayer for insurance to which paragraph
(1) applies shall not be taken into account in computing the
amount allowable to the taxpayer as a deduction under section
213(a).
(4) Deduction not allowed for self-employment tax purposes
The deduction allowable by reason of this subsection shall not
be taken into account in determining an individual's net earnings
from self-employment (within the meaning of section 1402(a)) for
purposes of chapter 2.
(5) Treatment of certain S corporation shareholders
This subsection shall apply in the case of any individual
treated as a partner under section 1372(a), except that -
(A) for purposes of this subsection, such individual's wages
(as defined in section 3121) from the S corporation shall be
treated as such individual's earned income (within the meaning
of section 401(c)(1)), and
(B) there shall be such adjustments in the application of
this subsection as the Secretary may by regulations prescribe.
(m) Certain excessive employee remuneration
(1) In general
In the case of any publicly held corporation, no deduction
shall be allowed under this chapter for applicable employee
remuneration with respect to any covered employee to the extent
that the amount of such remuneration for the taxable year with
respect to such employee exceeds $1,000,000.
(2) Publicly held corporation
For purposes of this subsection, the term "publicly held
corporation" means any corporation issuing any class of common
equity securities required to be registered under section 12 of
the Securities Exchange Act of 1934.
(3) Covered employee
For purposes of this subsection, the term "covered employee"
means any employee of the taxpayer if -
(A) as of the close of the taxable year, such employee is the
chief executive officer of the taxpayer or is an individual
acting in such a capacity, or
(B) the total compensation of such employee for the taxable
year is required to be reported to shareholders under the
Securities Exchange Act of 1934 by reason of such employee
being among the 4 highest compensated officers for the taxable
year (other than the chief executive officer).
(4) Applicable employee remuneration
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the term
"applicable employee remuneration" means, with respect to any
covered employee for any taxable year, the aggregate amount
allowable as a deduction under this chapter for such taxable
year (determined without regard to this subsection) for
remuneration for services performed by such employee (whether
or not during the taxable year).
(B) Exception for remuneration payable on commission basis
The term "applicable employee remuneration" shall not include
any remuneration payable on a commission basis solely on
account of income generated directly by the individual
performance of the individual to whom such remuneration is
payable.
(C) Other performance-based compensation
The term "applicable employee remuneration" shall not include
any remuneration payable solely on account of the attainment of
one or more performance goals, but only if -
(i) the performance goals are determined by a compensation
committee of the board of directors of the taxpayer which is
comprised solely of 2 or more outside directors,
(ii) the material terms under which the remuneration is to
be paid, including the performance goals, are disclosed to
shareholders and approved by a majority of the vote in a
separate shareholder vote before the payment of such
remuneration, and
(iii) before any payment of such remuneration, the
compensation committee referred to in clause (i) certifies
that the performance goals and any other material terms were
in fact satisfied.
(D) Exception for existing binding contracts
The term "applicable employee remuneration" shall not include
any remuneration payable under a written binding contract which
was in effect on February 17, 1993, and which was not modified
thereafter in any material respect before such remuneration is
paid.
(E) Remuneration
For purposes of this paragraph, the term "remuneration"
includes any remuneration (including benefits) in any medium
other than cash, but shall not include -
(i) any payment referred to in so much of section
3121(a)(5) as precedes subparagraph (E) thereof, and
(ii) any benefit provided to or on behalf of an employee if
at the time such benefit is provided it is reasonable to
believe that the employee will be able to exclude such
benefit from gross income under this chapter.
For purposes of clause (i), section 3121(a)(5) shall be applied
without regard to section 3121(v)(1).
(F) Coordination with disallowed golden parachute payments
The dollar limitation contained in paragraph (1) shall be
reduced (but not below zero) by the amount (if any) which would
have been included in the applicable employee remuneration of
the covered employee for the taxable year but for being
disallowed under section 280G.
(G) Coordination with excise tax on specified stock
compensation
The dollar limitation contained in paragraph (1) with respect
to any covered employee shall be reduced (but not below zero)
by the amount of any payment (with respect to such employee) of
the tax imposed by section 4985 directly or indirectly by the
expatriated corporation (as defined in such section) or by any
member of the expanded affiliated group (as defined in such
section) which includes such corporation.
(n) Special rule for certain group health plans
(1) In general
No deduction shall be allowed under this chapter to an employer
for any amount paid or incurred in connection with a group health
plan if the plan does not reimburse for inpatient hospital care
services provided in the State of New York -
(A) except as provided in subparagraphs (B) and (C), at the
same rate as licensed commercial insurers are required to
reimburse hospitals for such services when such reimbursement
is not through such a plan,
(B) in the case of any reimbursement through a health
maintenance organization, at the same rate as health
maintenance organizations are required to reimburse hospitals
for such services for individuals not covered by such a plan
(determined without regard to any government-supported
individuals exempt from such rate), or
(C) in the case of any reimbursement through any corporation
organized under Article 43 of the New York State Insurance Law,
at the same rate as any such corporation is required to
reimburse hospitals for such services for individuals not
covered by such a plan.
(2) State law exception
Paragraph (1) shall not apply to any group health plan which is
not required under the laws of the State of New York (determined
without regard to this subsection or other provisions of Federal
law) to reimburse at the rates provided in paragraph (1).
(3) Group health plan
For purposes of this subsection, the term "group health plan"
means a plan of, or contributed to by, an employer or employee
organization (including a self-insured plan) to provide health
care (directly or otherwise) to any employee, any former
employee, the employer, or any other individual associated or
formerly associated with the employer in a business relationship,
or any member of their family.
(o) Treatment of certain expenses of rural mail carriers
(1) General rule
In the case of any employee of the United States Postal Service
who performs services involving the collection and delivery of
mail on a rural route and who receives qualified reimbursements
for the expenses incurred by such employee for the use of a
vehicle in performing such services -
(A) the amount allowable as a deduction under this chapter
for the use of a vehicle in performing such services shall be
equal to the amount of such qualified reimbursements; and
(B) such qualified reimbursements shall be treated as paid
under a reimbursement or other expense allowance arrangement
for purposes of section 62(a)(2)(A) (and section 62(c) shall
not apply to such qualified reimbursements).
(2) Special rule where expenses exceed reimbursements
Notwithstanding paragraph (1)(A), if the expenses incurred by
an employee for the use of a vehicle in performing services
described in paragraph (1) exceed the qualified reimbursements
for such expenses, such excess shall be taken into account in
computing the miscellaneous itemized deductions of the employee
under section 67.
(3) Definition of qualified reimbursements
For purposes of this subsection, the term "qualified
reimbursements" means the amounts paid by the United States
Postal Service to employees as an equipment maintenance allowance
under the 1991 collective bargaining agreement between the United
States Postal Service and the National Rural Letter Carriers'
Association. Amounts paid as an equipment maintenance allowance
by such Postal Service under later collective bargaining
agreements that supersede the 1991 agreement shall be considered
qualified reimbursements if such amounts do not exceed the
amounts that would have been paid under the 1991 agreement,
adjusted for changes in the Consumer Price Index (as defined in
section 1(f)(5)) since 1991.
(p) Treatment of expenses of members of reserve component of Armed
Forces of the United States
For purposes of subsection (a)(2), in the case of an individual
who performs services as a member of a reserve component of the
Armed Forces of the United States at any time during the taxable
year, such individual shall be deemed to be away from home in the
pursuit of a trade or business for any period during which such
individual is away from home in connection with such service.
(q) Cross reference
(1) For special rule relating to expenses in connection with
subdividing real property for sale, see section 1237.
(2) For special rule relating to the treatment of payments by
a transferee of a franchise, trademark, or trade name, see
section 1253.
(3) For special rules relating to -
(A) funded welfare benefit plans, see section 419, and
(B) deferred compensation and other deferred benefits, see
section 404.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 45; Pub. L. 85-866, title I,
Sec. 5(a), Sept. 2, 1958, 72 Stat. 1608; Pub. L. 86-779, Secs.
7(b), 8(a), Sept. 14, 1960, 74 Stat. 1002, 1003; Pub. L. 87-834,
Secs. 3(a), 4(b), Oct. 16, 1962, 76 Stat. 973, 976; Pub. L. 91-172,
title V, Sec. 516(c)(2)(A), title IX, Sec. 902(a), (b), Dec. 30,
1969, 83 Stat. 648, 710; Pub. L. 92-178, title III, Sec. 310(a),
Dec. 10, 1971, 85 Stat. 525; Pub. L. 94-455, title XIX, Secs.
1901(c)(4), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1803, 1834; Pub.
L. 97-34, title I, Sec. 127(a), Aug. 13, 1981, 95 Stat. 202; Pub.
L. 97-35, title XXI, Sec. 2146(b), Aug. 13, 1981, 95 Stat. 801;
Pub. L. 97-51, Sec. 139(b)(1), Oct. 1, 1981, 95 Stat. 967; Pub. L.
97-216, title II, Sec. 215(a), July 18, 1982, 96 Stat. 194; Pub. L.
97-248, title I, Sec. 128(b), title II, Sec. 288(a), Sept. 3, 1982,
96 Stat. 366, 571; Pub. L. 98-369, div. A, title V, Sec. 512(b),
div. B, title III, Sec. 2354(d), July 18, 1984, 98 Stat. 863, 1102;
Pub. L. 98-573, title II, Sec. 232(a), Oct. 30, 1984, 98 Stat.
2991; Pub. L. 99-272, title X, Sec. 10001(a), (c), (d), Apr. 7,
1986, 100 Stat. 222, 223, 227; Pub. L. 99-509, title IX, Secs.
9307(c)(2)(B), 9501(a)(1), (b)(1)(A), (2)(A), (c)(1), (d)(1), Oct.
21, 1986, 100 Stat. 1995, 2075-2077; Pub. L. 99-514, title VI, Sec.
613(a), title XI, Sec. 1161(a), title XVIII, Sec. 1895(d)(1)(A),
(2)(A), (3)(A), (4)(A), (5)(A), (6)(A), (7), Oct. 22, 1986, 100
Stat. 2251, 2509, 2936-2940; Pub. L. 100-647, title I, Secs.
1011B(b)(1)-(3), 1018(t)(7)(B), title III, Sec. 3011(b)(2), (3),
Nov. 10, 1988, 102 Stat. 3488, 3589, 3624, 3625; Pub. L. 101-140,
title II, Sec. 203(a)(4), Nov. 8, 1989, 103 Stat. 830; Pub. L. 101-
239, title VI, Sec. 6202(b)(3)(A), title VII, Secs. 7107(a)(1),
(b), 7862(c)(3)(A), Dec. 19, 1989, 103 Stat. 2233, 2306, 2432; Pub.
L. 101-508, title XI, Secs. 11111(d)(2), 11410(a), Nov. 5, 1990,
104 Stat. 1388-413, 1388-479; Pub. L. 102-227, title I, Sec.
110(a)(1), Dec. 11, 1991, 105 Stat. 1688; Pub. L. 102-486, title
XIX, Sec. 1938(a), Oct. 24, 1992, 106 Stat. 3033; Pub. L. 103-66,
title XIII, Secs. 13131(d)(2), 13174(a)(1), (b)(1), 13211(a),
13222(a), 13442(a), Aug. 10, 1993, 107 Stat. 435, 457, 469, 477,
568; Pub. L. 104-7, Sec. 1(a), (b), Apr. 11, 1995, 109 Stat. 93;
Pub. L. 104-188, title I, Sec. 1704(p)(1)-(3), Aug. 20, 1996, 110
Stat. 1886; Pub. L. 104-191, title III, Secs. 311(a), 322(b)(2)(B),
Aug. 21, 1996, 110 Stat. 2053, 2060; Pub. L. 105-34, title IX, Sec.
934(a), title XII, Secs. 1203(a), 1204(a), title XVI, Sec. 1602(c),
Aug. 5, 1997, 111 Stat. 882, 994, 995, 1094; Pub. L. 105-206, title
VI, Sec. 6012(a), July 22, 1998, 112 Stat. 818; Pub. L. 105-277,
div. J, title II, Sec. 2002(a), Oct. 21, 1998, 112 Stat. 2681-901;
Pub. L. 108-121, title I, Sec. 109(a), Nov. 11, 2003, 117 Stat.
1341; Pub. L. 108-357, title III, Sec. 318(a), (b), title VIII,
Sec. 802(b)(2), Oct. 22, 2004, 118 Stat. 1470, 1568.)
-REFTEXT-
REFERENCES IN TEXT
The Foreign Corrupt Practices Act of 1977, referred to in subsec.
(c)(1), is title I of Pub. L. 95-213, Dec. 19, 1977, 91 Stat. 1494,
as amended, which enacted sections 78dd-1 to 78dd-3 of Title 15,
Commerce and Trade, and amended sections 78m and 78ff of Title 15.
For complete classification of this Act to the Code, see Short
Title of 1977 Amendment note set out under section 78a of Title 15
and Tables.
The Social Security Act, referred to in subsec. (c)(3), is act
Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended, which is
classified generally to chapter 7 (Sec. 301 et seq.) of Title 42,
The Public Health and Welfare. For complete classification of this
Act to the Code, see section 1305 of Title 42 and Tables.
The antitrust laws, referred to in subsec. (g), are classified
generally to section 1 et seq. of Title 15, Commerce and Trade.
Section 4 of the Clayton Act, referred to in subsec. (g)(1), is
classified to section 15 of Title 15.
The Securities Exchange Act of 1934, referred to in subsec.
(m)(2), (3)(B), is act June 6, 1934, ch. 404, 48 Stat. 881, as
amended, which is classified principally to chapter 2B (Sec. 78a et
seq.) of Title 15. Section 12 of the Act is classified to section
78l of Title 15. For complete classification of this Act to the
Code, see section 78a of Title 15 and Tables.
-MISC1-
AMENDMENTS
2004 - Subsec. (m)(4)(G). Pub. L. 108-357, Sec. 802(b)(2), added
subpar. (G).
Subsec. (o). Pub. L. 108-357, Sec. 318(b), struck out
"reimbursed" before "expenses" in heading.
Subsec. (o)(2), (3). Pub. L. 108-357, Sec. 318(a), added par. (2)
and redesignated former par. (2) as (3).
2003 - Subsecs. (p), (q). Pub. L. 108-121 added subsec. (p) and
redesignated former subsec. (p) as (q).
1998 - Subsec. (a). Pub. L. 105-206, in last sentence,
substituted "investigate or prosecute, or provide support services
for the investigation or prosecution of, a Federal crime." for
"investigate, or provide support services for the investigation of,
a Federal crime."
Subsec. (l)(1)(B). Pub. L. 105-277 amended table in subpar. (B)
generally. Prior to amendment, table read as follows:
"For taxable years beginning 2The applicable
in calendar year - percentage is -
--------------------------------------------------------------------
1997 40
1998 and 1999 45
2000 and 2001 50
2002 60
2003 through 2005 80
2006 90
2007 and thereafter 100."
--------------------------------------------------------------------
1997 - Subsec. (a). Pub. L. 105-34, Sec. 1204(a), inserted at end
of concluding provisions "The preceding sentence shall not apply to
any Federal employee during any period for which such employee is
certified by the Attorney General (or the designee thereof) as
traveling on behalf of the United States in temporary duty status
to investigate, or provide support services for the investigation
of, a Federal crime."
Subsec. (l)(1)(B). Pub. L. 105-34, Sec. 934(a), amended table
generally. Prior to amendment, table read as follows:
"For taxable years beginning 2The applicable
in calendar year -
percentage is -
--------------------------------------------------------------------
1997 40 percent
1998 through 2002 45 percent
2003 50 percent
2004 60 percent
2005 70 percent
2006 or thereafter 80 percent."
--------------------------------------------------------------------
Subsec. (l)(2)(B). Pub. L. 105-34, Sec. 1602(c), inserted "The
preceding sentence shall be applied separately with respect to - "
at end and added cls. (i) and (ii).
Subsecs. (o), (p). Pub. L. 105-34, Sec. 1203(a), added subsec.
(o) and redesignated former subsec. (o) as (p).
1996 - Subsec. (k). Pub. L. 104-188, Sec. 1704(p)(3), substituted
"reaquisition" for "redemption" in heading.
Subsec. (k)(1). Pub. L. 104-188, Sec. 1704(p)(1), substituted
"the reacquisition of its stock or of the stock of any related
person (as defined in section 465(b)(3)(C))" for "the redemption of
its stock".
Subsec. (k)(2)(A). Pub. L. 104-188, Sec. 1704(p)(2), struck out
"or" at end of cl. (i), added cl. (ii), and redesignated former cl.
(ii) as (iii).
Subsec. (l)(1). Pub. L. 104-191, Sec. 311(a), amended par. (1)
generally. Prior to amendment, par. (1) read as follows:
"(1) In general. - In the case of an individual who is an
employee within the meaning of section 401(c)(1), there shall be
allowed as a deduction under this section an amount equal to 30
percent of the amount paid during the taxable year for insurance
which constitutes medical care for the taxpayer, his spouse, and
dependents."
Subsec. (l)(2)(C). Pub. L. 104-191, Sec. 322(b)(2)(B), added
subpar. (C).
1995 - Subsec. (l)(1). Pub. L. 104-7, Sec. 1(b), substituted "30
percent" for "25 percent".
Subsec. (l)(6). Pub. L. 104-7, Sec. 1(a), struck out par. (6)
"Termination" which read as follows: "This subsection shall not
apply to any taxable year beginning after December 31, 1993."
1993 - Subsec. (e). Pub. L. 103-66, Sec. 13222(a), amended
heading and text generally. Prior to amendment, text consisted of
pars. (1) and (2) relating to deduction of ordinary and necessary
expenses paid or incurred in connection with certain activities
relating to congressional, State, and local legislation.
Subsec. (l)(2)(B). Pub. L. 103-66, Sec. 13174(b)(1), amended
heading and text of subpar. (B) generally. Prior to amendment, text
read as follows: "Paragraph (1) shall not apply to any taxpayer who
is eligible to participate in any subsidized health plan maintained
by any employer of the taxpayer or of the spouse of the taxpayer."
Subsec. (l)(3). Pub. L. 103-66, Sec. 13131(d)(2), amended heading
and text of par. (3) generally. Prior to amendment, text read as
follows:
"(A) Medical deduction. - Any amount paid by a taxpayer for
insurance to which paragraph (1) applies shall not be taken into
account in computing the amount allowable to the taxpayer as a
deduction under section 213(a).
"(B) Health insurance credit. - The amount otherwise taken into
account under paragraph (1) as paid for insurance which constitutes
medical care shall be reduced by the amount (if any) of the health
insurance credit allowable to the taxpayer for the taxable year
under section 32."
Subsec. (l)(6). Pub. L. 103-66, Sec. 13174(a)(1), substituted
"December 31, 1993" for "June 30, 1992".
Subsec. (m). Pub. L. 103-66, Sec. 13211(a), added subsec. (m).
Former subsec. (m) redesignated (n).
Subsec. (n). Pub. L. 103-66, Sec. 13442(a), added subsec. (n).
Former subsec. (n) redesignated (o).
Pub. L. 103-66, Sec. 13211(a), redesignated subsec. (m) as (n).
Subsec. (o). Pub. L. 103-66, Sec. 13442(a), redesignated subsec.
(n) as (o).
1992 - Subsec. (a). Pub. L. 102-486 inserted at end "For purposes
of paragraph (2), the taxpayer shall not be treated as being
temporarily away from home during any period of employment if such
period exceeds 1 year."
1991 - Subsec. (l)(6). Pub. L. 102-227 substituted "June 30,
1992" for "December 31, 1991".
1990 - Subsec. (l)(3). Pub. L. 101-508, Sec. 11111(d)(2),
substituted heading for one which read: "Coordination with medical
deduction" and amended text generally. Prior to amendment, text
read as follows: "Any amount paid by a taxpayer for insurance to
which paragraph (1) applies shall not be taken into account in
computing the amount allowable to the taxpayer as a deduction under
section 213(a)."
Subsec. (l)(6). Pub. L. 101-508, Sec. 11410(a), substituted
"December 31, 1991" for "September 30, 1990".
1989 - Subsec. (i). Pub. L. 101-239, Sec. 6202(b)(3)(A), struck
out subsec. (i) which read as follows:
"(1) Coverage relating to end stage renal disease. - The expenses
paid or incurred by an employer for a group health plan shall not
be allowed as a deduction under this section if the plan
differentiates in the benefits it provides between individuals
having end stage renal disease and other individuals covered by
such plan on the basis of the existence of end stage renal disease,
the need for renal dialysis, or in any other manner.
"(2) Group health plan. - For purposes of this subsection the
term 'group health plan' means any plan of, or contributed to by,
an employer to provide medical care (as defined in section 213(d)
to his employees, former employees, or the families of such
employees or former employees, directly or through insurance,
reimbursement, or otherwise."
Subsec. (k)(2)(B)(iv). Pub. L. 101-239, Sec. 7862(c)(3)(A),
amended cl. (iv) as it existed prior to repeal of subsec. (k) by
Pub. L. 100-647, by substituting "entitlement" for "eligibility" in
heading and inserting "which does not contain any exclusion or
limitation with respect to any preexisting condition of such
beneficiary" after "or otherwise)" in subclause (I).
Subsec. (l)(2). Pub. L. 101-140 redesignated subpar. (C) as (B)
and struck out former subpar. (B) which read as follows: "Required
coverage. - Paragraph (1) shall not apply to any taxpayer for any
taxable year unless coverage is provided under 1 or more plans
meeting the requirements of section 89, treating such coverage as
an employer-provided benefit."
Subsec. (l)(5). Pub. L. 101-239, Sec. 7107(b), added par. (5).
Former par. (5) redesignated (6).
Pub. L. 101-239, Sec. 7107(a)(1), substituted "September 30,
1990" for "December 31, 1989".
Subsec. (l)(6). Pub. L. 101-239, Sec. 7107(b), redesignated
former par. (5) as (6).
1988 - Subsec. (i)(2), (3). Pub. L. 100-647, Sec. 3011(b)(2),
redesignated par. (3) as (2) and struck out former par. (2) which
required plans to provide continuation coverage to certain
individuals.
Subsec. (k). Pub. L. 100-647, Sec. 3011(b)(3), redesignated
subsec. (l), relating to stock redemption expenses, as (k) and
struck out former subsec. (k) which related to continuation
coverage requirements of group health plans.
Subsec. (k)(5)(B). Pub. L. 100-647, Sec. 1018(t)(7)(B), made
amendment identical to Pub. L. 99-509, Sec. 9307(c)(2)(B), which
amended directory language of Pub. L. 99-514, Sec. 1895(d)(5)(A),
by substituting "section 162(k)(5)" for "section 162(k)(2)". See
1986 Amendment note below.
Subsec . (l). Pub. L. 100-647, Sec. 3011(b)(3)(A), (B),
redesignated subsec. (m), relating to special rules for health
insurance costs of self-employed individuals, as (l). Former
subsec. (l), relating to stock redemption expenses, redesignated
(k).
Subsec. (m). Pub. L. 100-647, Sec. 3011(b)(3)(B), (C),
redesignated subsec. (n), relating to cross references, as (m).
Former subsec. (m), relating to special rules for health insurance
costs of self-employed individuals, redesignated (l).
Pub. L. 100-647, Sec. 1011B(b)(2), redesignated subsec. (m),
relating to cross references, as (n).
Subsec. (m)(2)(A). Pub. L. 100-647, Sec. 1011B(b)(3), inserted
"derived by the taxpayer from the trade or business with respect to
which the plan providing the medical care coverage is established"
after "401(c))".
Subsec. (m)(4), (5). Pub. L. 100-647, Sec. 1011B(b)(1), added
par. (4) and redesignated former par. (4) as (5).
Subsec. (n). Pub. L. 100-647, Sec. 3011(b)(3)(C), redesignated
subsec. (n) as (m).
Pub. L. 100-647, Sec. 1011B(b)(2), redesignated subsec. (m),
relating to cross references, as (n).
1986 - Subsec. (i)(1). Pub. L. 99-272, Sec. 10001(d), substituted
"Coverage relating to end stage renal disease" for "General rule"
in heading.
Subsec. (i)(2), (3). Pub. L. 99-272, Sec. 10001(a), added par.
(2) and redesignated former par. (2) as (3).
Subsec. (k). Pub. L. 99-272, Sec. 10001(c), added subsec. (k).
Former subsec. (k) redesignated (l).
Subsec. (k)(2)(A). Pub. L. 99-514, Sec. 1895(d)(1)(A), inserted
"If coverage under the plan is modified for any group of similarly
situated beneficiaries, the coverage shall also be modified in the
same manner for all individuals who are qualified beneficiaries
under the plan pursuant to this subsection in connection with such
group."
Subsec. (k)(2)(B)(i). Pub. L. 99-514, Sec. 1895(d)(2)(A),
substituted "Maximum required period" for "Maximum period" in
heading and amended text generally. Prior to amendment, text read
as follows: "In the case of -
"(I) a qualifying event described in paragraph (3)(B) (relating
to terminations and reduced hours), the date which is 18 months
after the date of the qualifying event, and
"(II) any qualifying event not described in subclause (I), the
date which is 36 months after the date of the qualifying event."
Subsec. (k)(2)(B)(i)(II). Pub. L. 99-509, Sec. 9501(b)(1)(A)(i),
inserted "(other than a qualifying event described in paragraph
(3)(F))".
Subsec. (k)(2)(B)(i)(III), (IV). Pub. L. 99-509, Sec.
9501(b)(1)(A)(ii)-(iv), added subcl. (III), redesignated former
subcl. (III) as (IV), and inserted "or (3)(F)".
Subsec. (k)(2)(B)(iii). Pub. L. 99-514, Sec. 1895(d)(3)(A),
inserted "The payment of any premium (other than any payment
referred to in the last sentence of subparagraph (C)) shall be
considered to be timely if made within 30 days after the date due
or within such longer period as applies to or under the plan."
Subsec. (k)(2)(B)(iv). Pub. L. 99-514, Sec. 1895(d)(4)(A)(iii),
substituted "Group health plan coverage" for "Reemployment" in
heading.
Subsec. (k)(2)(B)(iv)(I). Pub. L. 99-514, Sec. 1895(d)(4)(A)(ii),
substituted "covered under any other group health plan (as an
employee or otherwise)" for "a covered employee under any other
group health plan".
Subsec. (k)(2)(B)(iv)(II). Pub. L. 99-509, Sec. 9501(b)(2)(A),
inserted "in the case of a qualified beneficiary other than a
qualified beneficiary described in paragraph (7)(B)(iv),".
Subsec. (k)(2)(B)(v). Pub. L. 99-514, Sec. 1895(d)(4)(A)(i),
struck out cl. (v), remarriage of spouse, which read as follows:
"In the case of an individual who is a qualified beneficiary by
reason of being the spouse of a covered employee, the date on which
the beneficiary remarries and becomes covered under a group health
plan."
Subsec. (k)(3). Pub. L. 99-509, Sec. 9501(a)(1), added subpar.
(F) and concluding provisions.
Subsec. (k)(5)(B). Pub. L. 99-514, Sec. 1895(d)(5)(A), as amended
by Pub. L. 99-509, Sec. 9307(c)(2)(B), and Pub. L. 100-647, Sec.
1018(t)(7)(B), inserted "of continuation coverage" and "If there is
a choice among types of coverage under the plan, each qualified
beneficiary is entitled to make a separate selection among such
types of coverage." See 1988 Amendment note above.
Subsec. (k)(6)(B). Pub. L. 99-509, Sec. 9501(d)(1), substituted
"(D), or (F)" for "or (D)".
Subsec. (k)(6)(C). Pub. L. 99-514, Sec. 1895(d)(6)(A), inserted
"within 60 days after the date of the qualifying event".
Subsec. (k)(6)(D)(i). Pub. L. 99-509, Sec. 9501(d)(1),
substituted "(D), or (F)" for "or (D)".
Subsec. (k)(7)(B)(iii). Pub. L. 99-514, Sec. 1895(d)(7), added
cl. (iii).
Subsec. (k)(7)(B)(iv). Pub. L. 99-509, Sec. 9501(c)(1), added cl.
(iv).
Subsec. (l). Pub. L. 99-514, Sec. 613(a), added subsec. (l).
Former subsec. (l) redesignated (m).
Pub. L. 99-272, Sec. 10001(c), redesignated former subsec. (k),
relating to cross references, as (l).
Subsec. (m). Pub. L. 99-514, Sec. 1161(a), added subsec. (m)
relating to special rules for health insurance costs of self-
employed individuals, and further directed that this section be
amended "by redesignating subsection (n) as subsection (m)", which
directory language could not be executed because this section does
not contain a subsec. (n).
Pub. L. 99-514, Sec. 613(a), redesignated subsec. (l), relating
to cross references, as (m).
1984 - Subsec. (i)(2). Pub. L. 98-369, Sec. 2354(d), substituted
"section 213(d)" for "section 213(e)".
Subsec. (j). Pub. L. 98-573 added subsec. (j). Former subsec. (j)
redesignated (k).
Subsec. (j)(3). Pub. L. 98-369, Sec. 512(b), added par. (3).
Subsec. (k). Pub. L. 98-573 redesignated former subsec. (j) as
(k).
1982 - Subsec. (a). Pub. L. 97-216 inserted provisions under
which amounts expended by Members of Congress within each taxable
year for living expenses shall not be deductible for income tax
purposes in excess of $3,000.
Subsec. (c)(1). Pub. L. 97-248, Sec. 288(a), substituted "is
unlawful under the Foreign Corrupt Practices Act of 1977" for
"would be unlawful under the laws of the United States if such laws
were applicable to such payment and to such official or employee"
after "government, the payment", and "(or is unlawful under the
Foreign Corrupt Practices Act of 1977)" for "(or would be unlawful
under the laws of the United States)" before "shall be upon the
Secretary".
Subsec. (h). Pub. L. 97-248, Sec. 128(b)(2), redesignated subsec.
(i), relating to State legislators' travel expenses away from home,
as (h). Former subsec. (h), relating to group health plans,
redesignated (i).
Subsec. (i). Pub. L. 97-248, Sec. 128(b)(2), redesignated former
subsec. (h), relating to group health plans, as (i). Former subsec.
(i), relating to State legislators' travel expenses away from home,
redesignated (h). Former subsec. (i), relating to cross references,
redesignated (j).
Subsec. (j). Pub. L. 97-248, Sec. 128(b)(1), redesignated former
subsec. (i), relating to cross references, as (j).
1981 - Subsec. (a). Pub L. 97-51 struck out provisions under
which amounts expended by Members of Congress within each taxable
year for living expenses could not be deductible for income tax
purposes in excess of $3,000.
Subsec. (h). Pub. L. 97-35 added subsec. (h) relating to group
health plans. Former subsec. (h), as added by Pub. L. 97-34 and
relating to State legislators' travel expenses away from home,
redesignated (i). See 1982 Amendment note above.
Pub. L. 97-34 added subsec. (h) relating to State legislators'
travel expenses away from home. Former subsec. (h), relating to
cross references, redesignated (i). See 1982 Amendment note above.
Subsec. (i). Pub. L. 97-35 redesignated former subsec. (h), as
added by Pub. L. 97-34 and relating to State legislators' travel
expenses away from home, as (i). See 1982 Amendment note above.
Pub. L. 97-34 redesignated former subsec. (h), relating to cross
references, as (i). See 1982 Amendment note above.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(c)(4), struck out
reference to Territory in provisions following par. (3).
Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out in
pars. (1) and (2) "or his delegate" after "Secretary".
1971 - Subsec. (c). Pub. L. 92-178, Sec. 310(a)(2), substituted
"Illegal bribes, kickbacks, and other payments" for "Bribes and
illegal kickbacks" in heading.
Subsec. (c)(2). Pub. L. 92-178, Sec. 310(a)(1), substituted
provisions respecting "Other illegal payments" for former
provisions on "Other bribes or kickbacks" reading "If in a criminal
proceeding a taxpayer is convicted of making a payment (other than
a payment described in paragraph (1) which is an illegal bribe or
kickback, or his plea of guilty or nolo contendere to an indictment
or information charging the making of such a payment is entered or
accepted in such a proceeding, no deduction shall be allowed under
subsection (a) on account of such payment or any related payment
made prior to the date of the final judgment in such proceeding."
Subsec. (c)(3). Pub. L. 92-178, Sec. 310(a)(1), substituted
provisions respecting kickbacks, rebates, and bribes under medicare
and medicaid for former statute of limitations provisions.
1969 - Subsec. (c). Pub. L. 91-172, Sec. 902(b), designated
existing provisions as par. (1), extended the applicability of
nondeductible expenses for payments to any official or employee of
any government, or of any agency or instrumentality of any
government, and added pars. (2) and (3).
Subsecs. (f), (g). Pub. L. 91-172, Sec. 902(a), added subsecs.
(f) and (g). Former subsec. (f) redesignated (h).
Subsec. (h). Pub. L. 91-172, Secs. 516(c)(2)(A), 902(a),
redesignated former subsec. (f) as (h), substituted "(1) For" for
"For", and inserted reference to section 1253 for special rule
relating to the treatment of payments by a transferee of a
franchise, trademark, or trade name.
1962 - Subsec. (a)(2). Pub. L. 87-834, Sec. 4(b), substituted
"(including amounts expended for meals and lodging other than
amounts which are lavish or extravagant under the circumstances)"
for "including the entire amount expended for meals and lodging)".
Subsecs. (e), (f). Pub. L. 87-834, Sec. 3(a), added subsec. (e)
and redesignated former subsec. (e) as (f).
1960 - Subsec. (b). Pub. L. 86-779, Sec. 7(b), inserted "the
dollar limitations," after "the percentage limitations,".
Subsecs. (d), (e). Pub. L. 86-779, Sec. 8(a), added subsec. (d)
and redesignated former subsec. (d) as (e).
1958 - Subsecs. (c), (d). Pub. L. 85-866, Sec. 5(a), added
subsec. (c) and redesignated former subsec. (c) as (d).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title III, Sec. 318(c), Oct. 22, 2004, 118 Stat.
1470, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2003."
Amendment by section 802(b)(2) of Pub. L. 108-357 effective Mar.
4, 2003, see section 802(d) of Pub. L. 108-357, set out as an
Effective Date note under section 4985 of this title.
EFFECTIVE DATE OF 2003 AMENDMENT
Amendment by Pub. L. 108-121 applicable to amounts paid or
incurred in taxable years beginning after Dec. 31, 2002, see
section 109(c) of Pub. L. 108-121, set out as a note under section
62 of this title.
EFFECTIVE DATE OF 1998 AMENDMENTS
Pub. L. 105-277, div. J, title II, Sec. 2002(b), Oct. 21, 1998,
112 Stat. 2681-901, provided that: "The amendment made by this
section [amending this section] shall apply to taxable years
beginning after December 31, 1998."
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 934(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1996."
Section 1203(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and repealing
provisions set out as a note below] shall apply to taxable years
beginning after December 31, 1997."
Section 1204(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
amounts paid or incurred with respect to taxable years ending after
the date of the enactment of this Act [Aug. 5, 1997]."
Amendment by section 1602(c) of Pub. L. 105-34 effective as if
included in the provisions of the Health Insurance Portability and
Accountability Act of 1996, Pub. L. 104-191, to which such
amendment relates, see section 1602(i) of Pub. L. 105-34, set out
as a note under section 26 of this title.
EFFECTIVE DATE OF 1996 AMENDMENTS
Amendment by section 311(a) of Pub. L. 104-191 applicable to
taxable years beginning after Dec. 31, 1996, see section 311(c) of
Pub. L. 104-191, set out as a note under section 104 of this title.
Section 322(c) of Pub. L. 104-191 provided that: "The amendments
made by this section [amending this section and section 213 of this
title] shall apply to taxable years beginning after December 31,
1996."
Section 1704(p)(4) of Pub. L. 104-188 provided that:
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by this subsection [amending this section] shall
apply to amounts paid or incurred after September 13, 1995, in
taxable years ending after such date.
"(B) Paragraph (2). - The amendment made by paragraph (2)
[amending this section] shall take effect as if included in the
amendment made by section 613 of the Tax Reform Act of 1986 [Pub.
L. 99-514]."
EFFECTIVE DATE OF 1995 AMENDMENT
Section 1(c) of Pub. L. 104-7 provided that:
"(1) Extension. - The amendment made by subsection (a) [amending
this section] shall apply to taxable years beginning after December
31, 1993.
"(2) Increase. - The amendment made by subsection (b) [amending
this section] shall apply to taxable years beginning after December
31, 1994."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13131(d)(2) of Pub. L. 103-66 applicable to
taxable years beginning after Dec. 31, 1993, see section 13131(e)
of Pub. L. 103-66, set out as a note under section 32 of this
title.
Section 13174(a)(3) of Pub. L. 103-66 provided that: "The
amendments made by this subsection [amending this section and
repealing provisions set out below] shall apply to taxable years
ending after June 30, 1992."
Section 13174(b)(2) of Pub. L. 103-66 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years beginning after December 31, 1992."
Section 13211(b) of Pub. L. 103-66 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
amounts which would otherwise be deductible for taxable years
beginning on or after January 1, 1994."
Section 13222(e) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 170, 6033,
and 7871 of this title] shall apply to amounts paid or incurred
after December 31, 1993."
Section 13442(b) of Pub. L. 103-66, as amended by Pub. L. 104-7,
Sec. 5, Apr. 11, 1995, 109 Stat. 96, provided that: "The provisions
of this section [amending this section] shall apply to services
provided after February 2, 1993, and on or before December 31,
1995."
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1938(b) of Pub. L. 102-486 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to costs
paid or incurred after December 31, 1992."
EFFECTIVE DATE OF 1991 AMENDMENT
Section 110(b) of Pub. L. 102-227 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1991."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11111(d)(2) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1990, see section 11111(f)
of Pub. L. 101-508, set out as a note under section 32 of this
title.
Section 11410(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section and
repealing provisions set out below] shall apply to taxable years
beginning after December 31, 1989."
EFFECTIVE DATE OF 1989 AMENDMENTS
Section 6202(b)(5) of Pub. L. 101-239 provided that: "The
amendments made by this subsection [amending this section, sections
4980B and 5000 of this title, sections 623 and 631 of Title 29,
Labor, and sections 1395p, 1395r, and 1395y of Title 42, The Public
Health and Welfare] shall apply to items and services furnished
after the date of the enactment of this Act [Dec. 19, 1989]."
Section 7107(c) of Pub. L. 101-239 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1989."
Section 7862(c)(3)(D) of Pub. L. 101-239 provided that: "The
amendments made by this paragraph [amending this section, section
4980B of this title, and section 1162 of Title 29, Labor] shall
apply to -
"(i) qualifying events occurring after December 31, 1989, and
"(ii) in the case of qualified beneficiaries who elected
continuation coverage after December 31, 1988, the period for
which the required premium was paid (or was attempted to be paid
but was rejected as such)."
Amendment by Pub. L. 101-140 effective as if included in section
1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set
out as a note under section 79 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1011B(b)(1)-(3) and 1018(t)(7)(B) of Pub.
L. 100-647 effective, except as otherwise provided, as if included
in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L. 100-
647, set out as a note under section 1 of this title.
Section 3011(d) of Pub. L. 100-647 provided that: "The amendments
made by this section [enacting section 4980B of this title, and
amending this section, sections 106 and 414 of this title, section
1167 of Title 29, Labor, and section 300bb-8 of Title 42, The
Public Health and Welfare] shall apply to taxable years beginning
after December 31, 1988, but shall not apply to any plan for any
plan year to which section 162(k) of the Internal Revenue Code of
1986 (as in effect on the day before the date of the enactment of
this Act [Nov. 10, 1988]) did not apply by reason of section
10001(e)(2) of the Consolidated Omnibus Budget Reconciliation Act
of 1985 [section 10001(e)(2) of Pub. L. 99-272, set out as an
Effective Date of 1986 Amendment note under section 106 of this
title]."
EFFECTIVE DATE OF 1986 AMENDMENTS
Section 613(b) of Pub. L. 99-514 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to any
amount paid or incurred after February 28, 1986, in taxable years
ending after such date."
Section 1161(b) of Pub. L. 99-514 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1986.
"(2) Transitional rule. - In the case of any year to which
section 89 of the Internal Revenue Code of 1986 does not apply,
[former] section 162(m)(2)(B) of such Code shall be applied by
substituting any nondiscrimination requirements otherwise
applicable for the requirements of section 89 of such Code.
"(3) Assistance. - The Secretary of the Treasury or his delegate
shall provide guidance to self-employed individuals to assist them
in meeting the requirements of section 89 of the Internal Revenue
Code of 1986 with respect to coverage required by the amendments
made by this section [amending this section]."
Section 1895(d)(6)(D) of Pub. L. 99-514 provided that: "The
amendments made by this paragraph [amending this section, section
1166 of Title 29, Labor, and section 300bb-6 of Title 42, The
Public Health and Welfare] shall only apply with respect to
qualifying events occurring after the date of the enactment of this
Act [Oct. 22, 1986]."
Section 1895(e) of Pub. L. 99-514 provided that: "Except as
otherwise provided in this section, the amendments made by this
section [amending this section, section 3121 of this title,
sections 1162 and 1165 to 1167 of Title 29, sections 300bb-2, 300bb-
5, 300bb-6, 410, 1301, 1320c-13, 1395p, 1395u, 1395cc, 1395dd,
1395mm, 1395ww, 1395yy, 1396a, 1396b, 1396d, and 1396s of Title 42,
enacting provisions set out as notes under this section, section
3121 of this title, section 1167 of Title 29, and sections 1395u,
1395y, 1395ww, and 1395yy of Title 42, and amending provisions set
out as notes under sections 403, 1395u, 1395cc, 1395mm, 1395ww,
1395yy, and 1396b of Title 42] shall be effective as if included in
the enactment of the Consolidated Omnibus Budget Reconciliation Act
of 1985 [Pub. L. 99-272]."
Amendment by section 9307(c)(2)(B) of Pub. L. 99-509 effective as
if included in the enactment of Tax Reform Act of 1986, Pub. L. 99-
514, see section 9307(c)(2) of Pub. L. 99-509, set out as a note
under section 1395u of Title 42.
Section 9501(e) of Pub. L. 99-509 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 1162, 1163, 1166, and 1167 of Title 29,
Labor] shall take effect as if included in title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 [sections
10001 to 10003 of Pub. L. 99-272].
"(2) Treatment of certain bankruptcy proceedings. -
Notwithstanding paragraph (1), section 10001(e) of the Consolidated
Omnibus Budget Reconciliation Act of 1985 [set out as a note under
section 106 of this title], and section 10002(d) of such Act [set
out as a note under section 1161 of Title 29], the amendments made
by this section [amending this section and sections 1162, 1163,
1166, and 1167 of Title 29] and by sections 10001 and 10002 of such
Act [enacting sections 1161 to 1168 of Title 29, amending this
section, section 106 of this title, and section 1132 of Title 29,
and enacting provisions set out as notes under section 106 of this
title and sections 1161 and 1166 of Title 29] shall apply in the
case of plan years ending during the 12-month period beginning July
1, 1986, but only with respect to -
"(A) a qualifying event described in section 162(k)(3)(F) of
the Internal Revenue Code of 1986 or section 603(6) of the
Employee Retirement Income Security Act of 1974 [29 U.S.C.
1163(6)], and
"(B) a qualifying event described in section 162(k)(3)(A) of
the Internal Revenue Code of 1986 or section 603(1) of the
Employee Retirement Income Security Act of 1974 [29 U.S.C.
1163(1)] relating to the death of a retired employee occurring
after the date of the qualifying event described in subparagraph
(A).
"(3) Treatment of current retirees. - Section 162(k)(3)(F) of the
Internal Revenue Code of 1986 and section 603(6) of the Employee
Retirement Income Security Act of 1974 [29 U.S.C. 1163(6)] apply to
covered employees who retired before, on, or after the date of the
enactment of this Act [Oct. 21, 1986].
"(4) Notice. - In the case of a qualifying event described in
section 603(6) of the Employee Retirement Income Security Act of
1974 [29 U.S.C. 1163(6)] that occurred before the date of the
enactment of this Act [Oct. 21, 1986], the notice required under
section 606(2) of such Act [29 U.S.C. 1166(2)] (and under section
162(k)(6)(B) of the Internal Revenue Code of 1986) with respect to
such event shall be provided no later than 30 days after the date
of the enactment of this Act [Oct. 21, 1986]."
Amendment by Pub. L. 99-272 applicable to plan years beginning on
or after July 1, 1986, with special rule for collective bargaining
agreements, see section 10001(e) of Pub. L. 99-272, set out as a
note under section 106 of this title.
EFFECTIVE DATE OF 1984 AMENDMENTS
Section 232(b) of Pub. L. 98-573 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[Oct. 30, 1984]."
Amendment by section 512(b) of Pub. L. 98-369 applicable to
amounts paid or incurred after July 18, 1984, in taxable years
ending after such date, subject to an exception for certain
extended vacation pay plans, see section 512(c) of Pub. L. 98-369,
set out as a note under section 404 of this title.
Amendment by section 2354(d) of Pub. L. 98-369 effective July 18,
1984, but not to be construed as changing or affecting any right,
liability, status, or interpretation which existed (under the
provisions of law involved) before that date, see section 2354(e)
of Pub. L. 98-369, set out as a note under section 1320a-1 of Title
42, The Public Health and Welfare.
EFFECTIVE DATE OF 1982 AMENDMENTS
Section 288(c) of Pub. L. 97-248 provided that: "The amendments
made by this section [amending this section and sections 952 and
964 of this title] shall apply to payments made after the date of
the enactment of this Act [Sept. 3, 1982]."
Amendment by section 128(b) of Pub. L. 97-248 effective as if
such amendment had been originally included as part of this section
as this section was amended by the Omnibus Budget Reconciliation
Act of 1981, Pub. L. 97-35, see section 128(e)(2) of Pub. L. 97-
248, set out as a note under section 1395x of Title 42, The Public
Health and Welfare.
Section 215(d) of Pub. L. 97-216 provided that: "The amendments
made by this section [amending this section and section 280A of
this title and repealing provisions set out as a note under this
section] shall apply to taxable years beginning after December 31,
1981."
EFFECTIVE DATE OF 1981 AMENDMENTS
Section 139(b)(3) of Pub. L. 97-51, as amended by Pub. L. 97-92,
Sec. 133a, Dec. 15, 1981, 95 Stat. 1199, provided that: "The
amendments made by this subsection [amending this section and
repealing section 31c of Title 2, The Congress] shall apply to
taxable years beginning after December 31, 1980."
Section 2146(c)(2) of Pub. L. 97-35 provided that: "The
amendments made by subsection (b) [amending this section] shall be
effective with respect to taxable years beginning on or after
January 1, 1982."
Section 127(b) of Pub. L. 97-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning on or after January 1, 1976."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(c)(4) of Pub. L. 94-455 applicable with
respect to taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 310(b) of Pub. L. 92-178 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to payments after December 30, 1969, except that section
162(c)(3) of the Internal Revenue Act of 1954 (as added by
subsection (a)) shall apply only with respect to kickbacks,
rebates, and bribes payment of which is made on or after the date
of the enactment of this Act [Dec. 10, 1971]."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 902(c) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Section
162(f) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
(as added by subsection (a)) shall apply to all taxable years to
which such Code applies. Section 162(g) of such Code (as added by
subsection (a)) shall apply with respect to amounts paid or
incurred after December 31, 1969. Section 162(c)(1) of such Code
(as amended by subsection (b)) shall apply to all taxable years to
which such Code applies. Sections 162(c)(2) and (3) of such Code
(as amended by subsection (b)) shall apply with respect to payments
made after the date of the enactment of this Act [Dec. 30, 1969]."
Amendment by section 516(c)(2)(A) of Pub. L. 91-172 applicable to
transfers after Dec. 31, 1969, see section 516(d)(3) of Pub. L. 91-
172, set out as a note under section 1001 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Section 4(c) of Pub. L. 87-834 provided that: "The amendments
made by this section [amending this section and enacting section
274 of this title] shall apply with respect to taxable years ending
after December 31, 1962, but only in respect of periods after such
date."
Section 3(b) of Pub. L. 87-834 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1962."
EFFECTIVE DATE OF 1960 AMENDMENT
Section 7(c) of Pub. L. 86-779 provided that: "The amendments
made by subsections (a) and (b) [amending this section and section
170 of this title] shall apply with respect to taxable years
beginning after December 31, 1959."
Section 8(d) of Pub. L. 86-779 provided that: "The amendments
made by subsections (a), (b), and (c) [amending this section and
section 1054 of this title and amending table of sections for Part
IV by adding item 1054 and numbering former item 1054 as 1055]
shall apply with respect to taxable years beginning after December
31, 1959."
EFFECTIVE DATE OF 1958 AMENDMENT
Section 5(b) of Pub. L. 85-866 provided that: "The amendment made
by subsection (a) [amending this section] shall apply only with
respect to expenses paid or incurred after the date of the
enactment of this Act [Sept. 2, 1958]. The determination as to
whether any expense paid or incurred on or before the date of the
enactment of this Act shall be allowed as a deduction shall be made
as if this section had not been enacted and without inference drawn
from the fact that this section is not made applicable with respect
to expenses paid or incurred on or before the date of the enactment
of this Act."
DEDUCTION FOR SPECIAL ASSESSMENTS
Pub. L. 104-208, div. A, title II, Sec. 2711, Sept. 30, 1996, 110
Stat. 3009-498, provided that, for purposes of subtitle A of this
title, the amount allowed as a deduction under this section for a
taxable year would include any amount paid during that year by
reason of an assessment under section 2702 of Pub. L. 104-208, set
out as a note under section 1817 of Title 12, Banks and Banking,
and that section 172(f) of this title would not apply to that
deduction.
SPECIAL RULE FOR DEDUCTIONS UNDER SUBSECTION (L) FOR CERTAIN
TAXABLE YEARS
Section 110(a)(2) of Pub. L. 102-227 provided that, in the case
of any taxable year beginning in 1992 only amounts paid before July
1, 1992, by the individual for insurance coverage for periods
before July 1, 1992, would be taken into account in determining the
amount deductible under subsec. (l) of this section with respect to
such individual for such taxable year, and that for purposes of
subparagraph (A) of subsec. (l)(2) of this section, the amount of
the earned income described in such subparagraph taken into account
for such taxable year would be the amount which bears the same
ratio to the total amount of such earned income as the number of
months in such taxable year ending before July 1, 1992, bears to
the number of months in such taxable year, prior to repeal by Pub.
L. 103-66, title XIII, Sec. 13174(a)(2), Aug. 10, 1993, 107 Stat.
457.
Section 7107(a)(2) of Pub. L. 101-239 provided that, in the case
of any taxable year beginning in 1990 only amounts paid before Oct.
1, 1990, by the individual for insurance coverage for periods
before Oct. 1, 1990, would be taken into account in determining the
amount deductible under subsec. (l) of this section with respect to
such individual for such taxable year, and that for purposes of
subsec. (l)(2)(A) of this section, the amount of the earned income
described in such paragraph taken into account for such taxable
year would be the amount which bears the same ratio to the total
amount of such earned income as the number of months in such
taxable year ending before Oct. 1, 1990, bears to the number of
months in such taxable year, prior to repeal by Pub. L. 101-508,
title XI, Sec. 11410(b), Nov. 5, 1990, 104 Stat. 1388-479.
BUSINESS USE OF AUTOMOBILES BY RURAL MAIL CARRIERS
Section 6008 of Pub. L. 100-647 provided that in the case of any
employee of the United States Postal Service who performed services
involving the collection and delivery of mail on a rural route,
such employee was permitted to compute the amount allowable as a
deduction under this chapter for the use of an automobile in
performing such services by using a standard mileage rate for all
miles of such use equal to 150 percent of the basic standard rate,
prior to repeal by Pub. L. 105-34, title XII, Sec. 1203(b), Aug. 5,
1997, 111 Stat. 995. See subsec. (o) of this section.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
LIVING EXPENSES OF MEMBERS OF CONGRESS WHILE AWAY FROM HOME; SENSE
OF CONGRESS
Section 139(a) of Pub. L. 97-51, which expressed the sense of
Congress that the dollar limits on tax deductions for living
expenses of Members of Congress while away from home be the same as
such limits for businessmen and other private citizens, was
repealed by Pub. L. 97-216, title II, Sec. 215(c), July 18, 1982,
96 Stat. 194.
STATE LEGISLATORS' TRAVEL EXPENSES AWAY FROM HOME
Section 604 of Pub. L. 94-455, as amended by Pub. L. 95-30, title
III, Sec. 307, May 23, 1977, 91 Stat. 153; Pub. L. 95-258, Sec. 2,
Apr. 7, 1978, 92 Stat. 195; Pub. L. 96-167, Sec. 3, Dec. 29, 1979,
93 Stat. 1275; Pub. L. 96-178, Sec. 1, Jan. 2, 1980, 93 Stat. 1295;
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(a) In General. - For purposes of section 162(a) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954], in the case of any
individual who was a State legislator at any time during any
taxable year beginning before January 1, 1981, and who, for the
taxable year, elects the application of this section, for any
period during such a taxable year in which he was a State
legislator -
"(1) the place of residence of such individual within the
legislative district which he represented shall be considered his
home, and
"(2) he shall be deemed to have expended for living expenses
(in connection with his trade or business as a legislator) an
amount equal to the sum of the amounts determined by multiplying
each legislative day of such individual during the taxable year
by the amount generally allowable with respect to such day to
employees of the executive branch of the Federal Government for
per diem while away from home but serving in the United States.
"(b) Legislative Days. - For purposes of subsection (a), a
legislative day during any taxable year for any individual shall be
any day during such year on which (1) the legislature was in
session (including any day in which the legislature was not in
session for a period of 4 consecutive days or less), or (2) the
legislature was not in session but the physical presence of the
individual was formally recorded at a meeting of a committee of
such legislature.
"(c) Limitation. - The amount taken into account as living
expenses attributable to a trade or business as a State legislator
for any taxable year beginning before January 1, 1976, under an
election made under this section shall not exceed the amount
claimed for such purpose under a return (or amended return) filed
before May 21, 1976.
"(d) Making and Effect of Election. - An election under this
section shall be made at such time and in such manner as the
Secretary of the Treasury or his delegate shall by regulations
prescribe."
[Amendment by section 604 of Pub. L. 94-455 by section 1 of Pub.
L. 96-178, which purported to substitute "January 1, 1979" for
"January 1, 1978", was not executed because of the prior amendment
by section 3(a)(2), (b) of Pub. L. 96-167 which substituted
"January 1, 1981" for "January 1, 1978" in subsec. (a) and which
struck out the last sentence of subsec. (d).]
DENIAL OF DEDUCTION FOR AMOUNTS PAID OR INCURRED ON JUDGMENTS IN
SUITS BROUGHT TO RECOVER PRICE INCREASES IN PURCHASE OF NEW
PRINCIPAL RESIDENCE
No deductions to be allowed in computing taxable income for two-
thirds of any amount paid or incurred on a judgment entered
against any person in a suit brought under section 208(b) of Pub.
L. 94-12, see section 208(c) of Pub. L. 94-12, title II, Mar. 29,
1975, 89 Stat. 35, set out as a note under section 44 of this
title.
DEDUCTIBILITY OF ACCRUED VACATION PAY
Section 97 of Pub. L. 85-866, as amended by Pub. L. 86-496, Sec.
2, June 8, 1960, 74 Stat. 164; Pub. L. 88-153, Oct. 17, 1963, 77
Stat. 272; Pub. L. 88-554, Sec. 1, Aug. 31, 1964, 78 Stat. 761;
Pub. L. 89-692, Oct. 15, 1966, 80 Stat. 1025; Pub. L. 91-172, title
IX, Sec. 903, Dec. 30, 1969, 83 Stat. 711; Pub. L. 92-580, Sec. 3,
Oct. 27, 1972, 86 Stat. 1276, provided that deductions for accrued
vacation pay under this section would not be denied for any taxable
year ending before Jan. 1, 1973, so long as the employee at the
time of accrual of pay has performed the necessary qualifying
service under an appropriate plan.
INVESTIGATION OF, AND REPORTS ON, TREATMENT OF ENTERTAINMENT AND
CERTAIN OTHER EXPENSES
Pub. L. 86-564, title III, Sec. 301, June 30, 1960, 74 Stat. 291,
authorized the Joint Committee on Internal Revenue Taxation to
investigate and report on the use of entertainment and certain
other expense deductions to the 87th Congress and authorized the
Secretary of the Treasury to report to the 87th Congress on the
enforcement program of the Internal Revenue Service relating to
such deductions.
FILING OF CLAIMS FOR REFUNDS OF OVERPAYMENTS
Extension of time for filing of claims for refunds or credit of
overpayments of income tax resulting from application of this
section, see section 96 of Pub. L. 85-866, set out as a note under
section 6511 of this title.
-End-
-CITE-
26 USC Sec. 163 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 163. Interest
-STATUTE-
(a) General rule
There shall be allowed as a deduction all interest paid or
accrued within the taxable year on indebtedness.
(b) Installment purchases where interest charge is not separately
stated
(1) General rule
If personal property or educational services are purchased
under a contract -
(A) which provides that payment of part or all of the
purchase price is to be made in installments, and
(B) in which carrying charges are separately stated but the
interest charge cannot be ascertained,
then the payments made during the taxable year under the contract
shall be treated for purposes of this section as if they included
interest equal to 6 percent of the average unpaid balance under
the contract during the taxable year. For purposes of the
preceding sentence, the average unpaid balance is the sum of the
unpaid balance outstanding on the first day of each month
beginning during the taxable year, divided by 12. For purposes of
this paragraph, the term "educational services" means any service
(including lodging) which is purchased from an educational
organization described in section 170(b)(1)(A)(ii) and which is
provided for a student of such organization.
(2) Limitation
In the case of any contract to which paragraph (1) applies, the
amount treated as interest for any taxable year shall not exceed
the aggregate carrying charges which are properly attributable to
such taxable year.
(c) Redeemable ground rents
For purposes of this subtitle, any annual or periodic rental
under a redeemable ground rent (excluding amounts in redemption
thereof) shall be treated as interest on an indebtedness secured by
a mortgage.
(d) Limitation on investment interest
(1) In general
In the case of a taxpayer other than a corporation, the amount
allowed as a deduction under this chapter for investment interest
for any taxable year shall not exceed the net investment income
of the taxpayer for the taxable year.
(2) Carryforward of disallowed interest
The amount not allowed as a deduction for any taxable year by
reason of paragraph (1) shall be treated as investment interest
paid or accrued by the taxpayer in the succeeding taxable year.
(3) Investment interest
For purposes of this subsection -
(A) In general
The term "investment interest" means any interest allowable
as a deduction under this chapter (determined without regard to
paragraph (1)) which is paid or accrued on indebtedness
properly allocable to property held for investment.
(B) Exceptions
The term "investment interest" shall not include -
(i) any qualified residence interest (as defined in
subsection (h)(3)), or
(ii) any interest which is taken into account under section
469 in computing income or loss from a passive activity of
the taxpayer.
(C) Personal property used in short sale
For purposes of this paragraph, the term "interest" includes
any amount allowable as a deduction in connection with personal
property used in a short sale.
(4) Net investment income
For purposes of this subsection -
(A) In general
The term "net investment income" means the excess of -
(i) investment income, over
(ii) investment expenses.
(B) Investment income
The term "investment income" means the sum of -
(i) gross income from property held for investment (other
than any gain taken into account under clause (ii)(I)),
(ii) the excess (if any) of -
(I) the net gain attributable to the disposition of
property held for investment, over
(II) the net capital gain determined by only taking into
account gains and losses from dispositions of property held
for investment, plus
(iii) so much of the net capital gain referred to in clause
(ii)(II) (or, if lesser, the net gain referred to in clause
(ii)(I)) as the taxpayer elects to take into account under
this clause.
Such term shall include qualified dividend income (as defined
in section 1(h)(11)(B)) only to the extent the taxpayer elects
to treat such income as investment income for purposes of this
subsection.
(C) Investment expenses
The term "investment expenses" means the deductions allowed
under this chapter (other than for interest) which are directly
connected with the production of investment income.
(D) Income and expenses from passive activities
Investment income and investment expenses shall not include
any income or expenses taken into account under section 469 in
computing income or loss from a passive activity.
(E) Reduction in investment income during phase-in of passive
loss rules
Investment income of the taxpayer for any taxable year shall
be reduced by the amount of the passive activity loss to which
section 469(a) does not apply for such taxable year by reason
of section 469(m). The preceding sentence shall not apply to
any portion of such passive activity loss which is attributable
to a rental real estate activity with respect to which the
taxpayer actively participates (within the meaning of section
469(i)(6)) during such taxable year.
(5) Property held for investment
For purposes of this subsection -
(A) In general
The term "property held for investment" shall include -
(i) any property which produces income of a type described
in section 469(e)(1), and
(ii) any interest held by a taxpayer in an activity
involving the conduct of a trade or business -
(I) which is not a passive activity, and
(II) with respect to which the taxpayer does not
materially participate.
(B) Investment expenses
In the case of property described in subparagraph (A)(i),
expenses shall be allocated to such property in the same manner
as under section 469.
(C) Terms
For purposes of this paragraph, the terms "activity",
"passive activity", and "materially participate" have the
meanings given such terms by section 469.
(6) Phase-in of disallowance
In the case of any taxable year beginning in calendar years
1987 through 1990 -
(A) In general
The amount of interest paid or accrued during any such
taxable year which is disallowed under this subsection shall
not exceed the sum of -
(i) the amount which would be disallowed under this
subsection if -
(I) paragraph (1) were applied by substituting "the sum
of the ceiling amount and the net investment income" for
"the net investment income", and
(II) paragraphs (4)(E) and (5)(A)(ii) did not apply, and
(ii) the applicable percentage of the excess of -
(I) the amount which (without regard to this paragraph)
is not allowable as a deduction under this subsection for
the taxable year, over
(II) the amount described in clause (i).
The preceding sentence shall not apply to any interest treated
as paid or accrued during the taxable year under paragraph (2).
(B) Applicable percentage
For purposes of this paragraph, the applicable percentage
shall be determined in accordance with the following table:
In the case of taxable 2The applicable
years beginning in:
percentage is:
--------------------------------------------------------------------
1987 35
1988 60
1989 80
1990 90.
--------------------------------------------------------------------
(C) Ceiling amount
For purposes of this paragraph, the term "ceiling amount"
means -
(i) $10,000 in the case of a taxpayer not described in
clause (ii) or (iii),
(ii) $5,000 in the case of a married individual filing a
separate return, and
(iii) zero in the case of a trust.
(e) Original issue discount
(1) In general
In the case of any debt instrument issued after July 1, 1982,
the portion of the original issue discount with respect to such
debt instrument which is allowable as a deduction to the issuer
for any taxable year shall be equal to the aggregate daily
portions of the original issue discount for days during such
taxable year.
(2) Definitions and special rules
For purposes of this subsection -
(A) Debt instrument
The term "debt instrument" has the meaning given such term by
section 1275(a)(1).
(B) Daily portions
The daily portion of the original issue discount for any day
shall be determined under section 1272(a) (without regard to
paragraph (7) thereof and without regard to section
1273(a)(3)).
(C) Short-term obligations
In the case of an obligor of a short-term obligation (as
defined in section 1283(a)(1)(A)) who uses the cash receipts
and disbursements method of accounting, the original issue
discount (and any other interest payable) on such obligation
shall be deductible only when paid.
(3) Special rule for original issue discount on obligation held
by related foreign person
(A) In general
If any debt instrument having original issue discount is held
by a related foreign person, any portion of such original issue
discount shall not be allowable as a deduction to the issuer
until paid. The preceding sentence shall not apply to the
extent that the original issue discount is effectively
connected with the conduct by such foreign related person of a
trade or business within the United States unless such original
issue discount is exempt from taxation (or is subject to a
reduced rate of tax) pursuant to a treaty obligation of the
United States.
(B) Special rule for certain foreign entities
(i) In general
In the case of any debt instrument having original issue
discount which is held by a related foreign person which is a
controlled foreign corporation (as defined in section 957) or
a passive foreign investment company (as defined in section
1297), a deduction shall be allowable to the issuer with
respect to such original issue discount for any taxable year
before the taxable year in which paid only to the extent such
original issue discount is includible (determined without
regard to properly allocable deductions and qualified
deficits under section 952(c)(1)(B)) during such prior
taxable year in the gross income of a United States person
who owns (within the meaning of section 958(a)) stock in such
corporation.
(ii) Secretarial authority
The Secretary may by regulation exempt transactions from
the application of clause (i), including any transaction
which is entered into by a payor in the ordinary course of a
trade or business in which the payor is predominantly
engaged.
(C) Related foreign person
For purposes of subparagraph (A), the term "related foreign
person" means any person -
(i) who is not a United States person, and
(ii) who is related (within the meaning of section 267(b))
to the issuer.
(4) Exceptions
This subsection shall not apply to any debt instrument
described in -
(A) subparagraph (D) of section 1272(a)(2) (relating to
obligations issued by natural persons before March 2, 1984),
and
(B) subparagraph (E) of section 1272(a)(2) (relating to loans
between natural persons).
(5) Special rules for original issue discount on certain high
yield obligations
(A) In general
In the case of an applicable high yield discount obligation
issued by a corporation -
(i) no deduction shall be allowed under this chapter for
the disqualified portion of the original issue discount on
such obligation, and
(ii) the remainder of such original issue discount shall
not be allowable as a deduction until paid.
For purposes of this paragraph, rules similar to the rules of
subsection (i)(3)(B) shall apply in determining the amount of
the original issue discount and when the original issue
discount is paid.
(B) Disqualified portion treated as stock distribution for
purposes of dividend received deduction
(i) In general
Solely for purposes of sections 243, 245, 246, and 246A,
the dividend equivalent portion of any amount includible in
gross income of a corporation under section 1272(a) in
respect of an applicable high yield discount obligation shall
be treated as a dividend received by such corporation from
the corporation issuing such obligation.
(ii) Dividend equivalent portion
For purposes of clause (i), the dividend equivalent portion
of any amount includible in gross income under section
1272(a) in respect of an applicable high yield discount
obligation is the portion of the amount so includible -
(I) which is attributable to the disqualified portion of
the original issue discount on such obligation, and
(II) which would have been treated as a dividend if it
had been a distribution made by the issuing corporation
with respect to stock in such corporation.
(C) Disqualified portion
(i) In general
For purposes of this paragraph, the disqualified portion of
the original issue discount on any applicable high yield
discount obligation is the lesser of -
(I) the amount of such original issue discount, or
(II) the portion of the total return on such obligation
which bears the same ratio to such total return as the
disqualified yield on such obligation bears to the yield to
maturity on such obligation.
(ii) Definitions
For purposes of clause (i), the term "disqualified yield"
means the excess of the yield to maturity on the obligation
over the sum referred to (!1) subsection (i)(1)(B) plus 1
percentage point, and the term "total return" is the amount
which would have been the original issue discount on the
obligation if interest described in the parenthetical in
section 1273(a)(2) were included in the stated redemption
price at maturity.
(D) Exception for S corporations
This paragraph shall not apply to any obligation issued by
any corporation for any period for which such corporation is an
S corporation.
(E) Effect on earnings and profits
This paragraph shall not apply for purposes of determining
earnings and profits; except that, for purposes of determining
the dividend equivalent portion of any amount includible in
gross income under section 1272(a) in respect of an applicable
high yield discount obligation, no reduction shall be made for
any amount attributable to the disqualified portion of any
original issue discount on such obligation.
(F) Cross reference
For definition of applicable high yield discount obligation,
see subsection (i).
(6) Cross references
For provision relating to deduction of original issue
discount on tax-exempt obligation, see section 1288.
For special rules in the case of the borrower under certain
loans for personal use, see section 1275(b).
(f) Denial of deduction for interest on certain obligations not in
registered form
(1) In general
Nothing in subsection (a) or in any other provision of law
shall be construed to provide a deduction for interest on any
registration-required obligation unless such obligation is in
registered form.
(2) Registration-required obligation
For purposes of this section -
(A) In general
The term "registration-required obligation" means any
obligation (including any obligation issued by a governmental
entity) other than an obligation which -
(i) is issued by a natural person,
(ii) is not of a type offered to the public,
(iii) has a maturity (at issue) of not more than 1 year, or
(iv) is described in subparagraph (B).
(B) Certain obligations not included
An obligation is described in this subparagraph if -
(i) there are arrangements reasonably designed to ensure
that such obligation will be sold (or resold in connection
with the original issue) only to a person who is not a United
States person, and
(ii) in the case of an obligation not in registered form -
(I) interest on such obligation is payable only outside
the United States and its possessions, and
(II) on the face of such obligation there is a statement
that any United States person who holds such obligation
will be subject to limitations under the United States
income tax laws.
(C) Authority to include other obligations
Clauses (ii) and (iii) of subparagraph (A), and subparagraph
(B), shall not apply to any obligation if -
(i) in the case of -
(I) subparagraph (A), such obligation is of a type which
the Secretary has determined by regulations to be used
frequently in avoiding Federal taxes, or
(II) subparagraph (B), such obligation is of a type
specified by the Secretary in regulations, and
(ii) such obligation is issued after the date on which the
regulations referred to in clause (i) take effect.
(3) Book entries permitted, etc.
For purposes of this subsection, rules similar to the rules of
section 149(a)(3) shall apply.
(g) Reduction of deduction where section 25 credit taken
The amount of the deduction under this section for interest paid
or accrued during any taxable year on indebtedness with respect to
which a mortgage credit certificate has been issued under section
25 shall be reduced by the amount of the credit allowable with
respect to such interest under section 25 (determined without
regard to section 26).
(h) Disallowance of deduction for personal interest
(1) In general
In the case of a taxpayer other than a corporation, no
deduction shall be allowed under this chapter for personal
interest paid or accrued during the taxable year.
(2) Personal interest
For purposes of this subsection, the term "personal interest"
means any interest allowable as a deduction under this chapter
other than -
(A) interest paid or accrued on indebtedness properly
allocable to a trade or business (other than the trade or
business of performing services as an employee),
(B) any investment interest (within the meaning of subsection
(d)),
(C) any interest which is taken into account under section
469 in computing income or loss from a passive activity of the
taxpayer,
(D) any qualified residence interest (within the meaning of
paragraph (3)),
(E) any interest payable under section 6601 on any unpaid
portion of the tax imposed by section 2001 for the period
during which an extension of time for payment of such tax is in
effect under section 6163, and
(F) any interest allowable as a deduction under section 221
(relating to interest on educational loans).
(3) Qualified residence interest
For purposes of this subsection -
(A) In general
The term "qualified residence interest" means any interest
which is paid or accrued during the taxable year on -
(i) acquisition indebtedness with respect to any qualified
residence of the taxpayer, or
(ii) home equity indebtedness with respect to any qualified
residence of the taxpayer.
For purposes of the preceding sentence, the determination of
whether any property is a qualified residence of the taxpayer
shall be made as of the time the interest is accrued.
(B) Acquisition indebtedness
(i) In general
The term "acquisition indebtedness" means any indebtedness
which -
(I) is incurred in acquiring, constructing, or
substantially improving any qualified residence of the
taxpayer, and
(II) is secured by such residence.
Such term also includes any indebtedness secured by such
residence resulting from the refinancing of indebtedness
meeting the requirements of the preceding sentence (or this
sentence); but only to the extent the amount of the
indebtedness resulting from such refinancing does not exceed
the amount of the refinanced indebtedness.
(ii) $1,000,000 limitation
The aggregate amount treated as acquisition indebtedness
for any period shall not exceed $1,000,000 ($500,000 in the
case of a married individual filing a separate return).
(C) Home equity indebtedness
(i) In general
The term "home equity indebtedness" means any indebtedness
(other than acquisition indebtedness) secured by a qualified
residence to the extent the aggregate amount of such
indebtedness does not exceed -
(I) the fair market value of such qualified residence,
reduced by
(II) the amount of acquisition indebtedness with respect
to such residence.
(ii) Limitation
The aggregate amount treated as home equity indebtedness
for any period shall not exceed $100,000 ($50,000 in the case
of a separate return by a married individual).
(D) Treatment of indebtedness incurred on or before October 13,
1987
(i) In general
In the case of any pre-October 13, 1987, indebtedness -
(I) such indebtedness shall be treated as acquisition
indebtedness, and
(II) the limitation of subparagraph (B)(ii) shall not
apply.
(ii) Reduction in $1,000,000 limitation
The limitation of subparagraph (B)(ii) shall be reduced
(but not below zero) by the aggregate amount of outstanding
pre-October 13, 1987, indebtedness.
(iii) Pre-October 13, 1987, indebtedness
The term "pre-October 13, 1987, indebtedness" means -
(I) any indebtedness which was incurred on or before
October 13, 1987, and which was secured by a qualified
residence on October 13, 1987, and at all times thereafter
before the interest is paid or accrued, or
(II) any indebtedness which is secured by the qualified
residence and was incurred after October 13, 1987, to
refinance indebtedness described in subclause (I) (or
refinanced indebtedness meeting the requirements of this
subclause) to the extent (immediately after the
refinancing) the principal amount of the indebtedness
resulting from the refinancing does not exceed the
principal amount of the refinanced indebtedness
(immediately before the refinancing).
(iv) Limitation on period of refinancing
Subclause (II) of clause (iii) shall not apply to any
indebtedness after -
(I) the expiration of the term of the indebtedness
described in clause (iii)(I), or
(II) if the principal of the indebtedness described in
clause (iii)(I) is not amortized over its term, the
expiration of the term of the 1st refinancing of such
indebtedness (or if earlier, the date which is 30 years
after the date of such 1st refinancing).
(4) Other definitions and special rules
For purposes of this subsection -
(A) Qualified residence
(i) In general
The term "qualified residence" means -
(I) the principal residence (within the meaning of
section 121) of the taxpayer, and
(II) 1 other residence of the taxpayer which is selected
by the taxpayer for purposes of this subsection for the
taxable year and which is used by the taxpayer as a
residence (within the meaning of section 280A(d)(1)).
(ii) Married individuals filing separate returns
If a married couple does not file a joint return for the
taxable year -
(I) such couple shall be treated as 1 taxpayer for
purposes of clause (i), and
(II) each individual shall be entitled to take into
account 1 residence unless both individuals consent in
writing to 1 individual taking into account the principal
residence and 1 other residence.
(iii) Residence not rented
For purposes of clause (i)(II), notwithstanding section
280A(d)(1), if the taxpayer does not rent a dwelling unit at
any time during a taxable year, such unit may be treated as a
residence for such taxable year.
(B) Special rule for cooperative housing corporations
Any indebtedness secured by stock held by the taxpayer as a
tenant-stockholder (as defined in section 216) in a cooperative
housing corporation (as so defined) shall be treated as secured
by the house or apartment which the taxpayer is entitled to
occupy as such a tenant-stockholder. If stock described in the
preceding sentence may not be used to secure indebtedness,
indebtedness shall be treated as so secured if the taxpayer
establishes to the satisfaction of the Secretary that such
indebtedness was incurred to acquire such stock.
(C) Unenforceable security interests
Indebtedness shall not fail to be treated as secured by any
property solely because, under any applicable State or local
homestead or other debtor protection law in effect on August
16, 1986, the security interest is ineffective or the
enforceability of the security interest is restricted.
(D) Special rules for estates and trusts
For purposes of determining whether any interest paid or
accrued by an estate or trust is qualified residence interest,
any residence held by such estate or trust shall be treated as
a qualified residence of such estate or trust if such estate or
trust establishes that such residence is a qualified residence
of a beneficiary who has a present interest in such estate or
trust or an interest in the residuary of such estate or trust.
(5) Phase-in of limitation
In the case of any taxable year beginning in calendar years
1987 through 1990, the amount of interest with respect to which a
deduction is disallowed under this subsection shall be equal to
the applicable percentage (within the meaning of subsection
(d)(6)(B)) of the amount which (but for this paragraph) would
have been so disallowed.
(i) Applicable high yield discount obligation
(1) In general
For purposes of this section, the term "applicable high yield
discount obligation" means any debt instrument if -
(A) the maturity date of such instrument is more than 5 years
from the date of issue,
(B) the yield to maturity on such instrument equals or
exceeds the sum of -
(i) the applicable Federal rate in effect under section
1274(d) for the calendar month in which the obligation is
issued, plus
(ii) 5 percentage points, and
(C) such instrument has significant original issue discount.
For purposes of subparagraph (B)(i), the Secretary may by
regulation permit a rate to be used with respect to any debt
instrument which is higher than the applicable Federal rate if
the taxpayer establishes to the satisfaction of the Secretary
that such higher rate is based on the same principles as the
applicable Federal rate and is appropriate for the term of the
instrument.
(2) Significant original issue discount
For purposes of paragraph (1)(C), a debt instrument shall be
treated as having significant original issue discount if -
(A) the aggregate amount which would be includible in gross
income with respect to such instrument for periods before the
close of any accrual period (as defined in section 1272(a)(5))
ending after the date 5 years after the date of issue, exceeds -
(B) the sum of -
(i) the aggregate amount of interest to be paid under the
instrument before the close of such accrual period, and
(ii) the product of the issue price of such instrument (as
defined in sections 1273(b) and 1274(a)) and its yield to
maturity.
(3) Special rules
For purposes of determining whether a debt instrument is an
applicable high yield discount obligation -
(A) any payment under the instrument shall be assumed to be
made on the last day permitted under the instrument, and
(B) any payment to be made in the form of another obligation
of the issuer (or a related person within the meaning of
section 453(f)(1)) shall be assumed to be made when such
obligation is required to be paid in cash or in property other
than such obligation.
Except for purposes of paragraph (1)(B), any reference to an
obligation in subparagraph (B) of this paragraph shall be treated
as including a reference to stock.
(4) Debt instrument
For purposes of this subsection, the term "debt instrument"
means any instrument which is a debt instrument as defined in
section 1275(a).
(5) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this subsection and
subsection (e)(5), including -
(A) regulations providing for modifications to the provisions
of this subsection and subsection (e)(5) in the case of varying
rates of interest, put or call options, indefinite maturities,
contingent payments, assumptions of debt instruments,
conversion rights, or other circumstances where such
modifications are appropriate to carry out the purposes of this
subsection and subsection (e)(5), and
(B) regulations to prevent avoidance of the purposes of this
subsection and subsection (e)(5) through the use of issuers
other than C corporations, agreements to borrow amounts due
under the debt instrument, or other arrangements.
(j) Limitation on deduction for interest on certain indebtedness
(1) Limitation
(A) In general
If this subsection applies to any corporation for any taxable
year, no deduction shall be allowed under this chapter for
disqualified interest paid or accrued by such corporation
during such taxable year. The amount disallowed under the
preceding sentence shall not exceed the corporation's excess
interest expense for the taxable year.
(B) Disallowed amount carried to succeeding taxable year
Any amount disallowed under subparagraph (A) for any taxable
year shall be treated as disqualified interest paid or accrued
in the succeeding taxable year (and clause (ii) of paragraph
(2)(A) shall not apply for purposes of applying this subsection
to the amount so treated).
(2) Corporations to which subsection applies
(A) In general
This subsection shall apply to any corporation for any
taxable year if -
(i) such corporation has excess interest expense for such
taxable year, and
(ii) the ratio of debt to equity of such corporation as of
the close of such taxable year (or on any other day during
the taxable year as the Secretary may by regulations
prescribe) exceeds 1.5 to 1.
(B) Excess interest expense
(i) In general
For purposes of this subsection, the term "excess interest
expense" means the excess (if any) of -
(I) the corporation's net interest expense, over
(II) the sum of 50 percent of the adjusted taxable income
of the corporation plus any excess limitation carryforward
under clause (ii).
(ii) Excess limitation carryforward
If a corporation has an excess limitation for any taxable
year, the amount of such excess limitation shall be an excess
limitation carryforward to the 1st succeeding taxable year
and to the 2nd and 3rd succeeding taxable years to the extent
not previously taken into account under this clause. The
amount of such a carryforward taken into account for any such
succeeding taxable year shall not exceed the excess interest
expense for such succeeding taxable year (determined without
regard to the carryforward from the taxable year of such
excess limitation).
(iii) Excess limitation
For purposes of clause (ii), the term "excess limitation"
means the excess (if any) of -
(I) 50 percent of the adjusted taxable income of the
corporation, over
(II) the corporation's net interest expense.
(C) Ratio of debt to equity
For purposes of this paragraph, the term "ratio of debt to
equity" means the ratio which the total indebtedness of the
corporation bears to the sum of its money and all other assets
reduced (but not below zero) by such total indebtedness. For
purposes of the preceding sentence -
(i) the amount taken into account with respect to any asset
shall be the adjusted basis thereof for purposes of
determining gain,
(ii) the amount taken into account with respect to any
indebtedness with original issue discount shall be its issue
price plus the portion of the original issue discount
previously accrued as determined under the rules of section
1272 (determined without regard to subsection (a)(7) or
(b)(4) thereof), and
(iii) there shall be such other adjustments as the
Secretary may by regulations prescribe.
(3) Disqualified interest
For purposes of this subsection, the term "disqualified
interest" means -
(A) any interest paid or accrued by the taxpayer (directly or
indirectly) to a related person if no tax is imposed by this
subtitle with respect to such interest,
(B) any interest paid or accrued by the taxpayer with respect
to any indebtedness to a person who is not a related person if -
(i) there is a disqualified guarantee of such indebtedness,
and
(ii) no gross basis tax is imposed by this subtitle with
respect to such interest, and
(C) any interest paid or accrued (directly or indirectly) by
a taxable REIT subsidiary (as defined in section 856(l)) of a
real estate investment trust to such trust.
(4) Related person
For purposes of this subsection -
(A) In general
Except as provided in subparagraph (B), the term "related
person" means any person who is related (within the meaning of
section 267(b) or 707(b)(1)) to the taxpayer.
(B) Special rule for certain partnerships
(i) In general
Any interest paid or accrued to a partnership which
(without regard to this subparagraph) is a related person
shall not be treated as paid or accrued to a related person
if less than 10 percent of the profits and capital interests
in such partnership are held by persons with respect to whom
no tax is imposed by this subtitle on such interest. The
preceding sentence shall not apply to any interest allocable
to any partner in such partnership who is a related person to
the taxpayer.
(ii) Special rule where treaty reduction
If any treaty between the United States and any foreign
country reduces the rate of tax imposed by this subtitle on a
partner's share of any interest paid or accrued to a
partnership, such partner's interests in such partnership
shall, for purposes of clause (i), be treated as held in part
by a tax-exempt person and in part by a taxable person under
rules similar to the rules of paragraph (5)(B).
(5) Special rules for determining whether interest is subject to
tax
(A) Treatment of pass-thru entities
In the case of any interest paid or accrued to a partnership,
the determination of whether any tax is imposed by this
subtitle on such interest shall be made at the partner level.
Rules similar to the rules of the preceding sentence shall
apply in the case of any pass-thru entity other than a
partnership and in the case of tiered partnerships and other
entities.
(B) Interest treated as tax-exempt to extent of treaty
reduction
If any treaty between the United States and any foreign
country reduces the rate of tax imposed by this subtitle on any
interest paid or accrued by the taxpayer, such interest shall
be treated as interest on which no tax is imposed by this
subtitle to the extent of the same proportion of such interest
as -
(i) the rate of tax imposed without regard to such treaty,
reduced by the rate of tax imposed under the treaty, bears to
(ii) the rate of tax imposed without regard to the treaty.
(6) Other definitions and special rules
For purposes of this subsection -
(A) Adjusted taxable income
The term "adjusted taxable income" means the taxable income
of the taxpayer -
(i) computed without regard to -
(I) any deduction allowable under this chapter for the
net interest expense,
(II) the amount of any net operating loss deduction under
section 172,
(III) any deduction allowable under section 199, and
(IV) any deduction allowable for depreciation,
amortization, or depletion, and
(ii) computed with such other adjustments as the Secretary
may by regulations prescribe.
(B) Net interest expense
The term "net interest expense" means the excess (if any) of -
(i) the interest paid or accrued by the taxpayer during the
taxable year, over
(ii) the amount of interest includible in the gross income
of such taxpayer for such taxable year.
The Secretary may by regulations provide for adjustments in
determining the amount of net interest expense.
(C) Treatment of affiliated group
All members of the same affiliated group (within the meaning
of section 1504(a)) shall be treated as 1 taxpayer.
(D) Disqualified guarantee
(i) In general
Except as provided in clause (ii), the term "disqualified
guarantee" means any guarantee by a related person which is -
(I) an organization exempt from taxation under this
subtitle, or
(II) a foreign person.
(ii) Exceptions
The term "disqualified guarantee" shall not include a
guarantee -
(I) in any circumstances identified by the Secretary by
regulation, where the interest on the indebtedness would
have been subject to a net basis tax if the interest had
been paid to the guarantor, or
(II) if the taxpayer owns a controlling interest in the
guarantor.
For purposes of subclause (II), except as provided in
regulations, the term "a controlling interest" means direct
or indirect ownership of at least 80 percent of the total
voting power and value of all classes of stock of a
corporation, or 80 percent of the profit and capital
interests in any other entity. For purposes of the preceding
sentence, the rules of paragraphs (1) and (5) of section
267(c) shall apply; except that such rules shall also apply
to interest in entities other than corporations.
(iii) Guarantee
Except as provided in regulations, the term "guarantee"
includes any arrangement under which a person (directly or
indirectly through an entity or otherwise) assures, on a
conditional or unconditional basis, the payment of another
person's obligation under any indebtedness.
(E) Gross basis and net basis taxation
(i) Gross basis tax
The term "gross basis tax" means any tax imposed by this
subtitle which is determined by reference to the gross amount
of any item of income without any reduction for any deduction
allowed by this subtitle.
(ii) Net basis tax
The term "net basis tax" means any tax imposed by this
subtitle which is not a gross basis tax.
(7) Coordination with passive loss rules, etc.
This subsection shall be applied before sections 465 and 469.
(8) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this subsection,
including -
(A) such regulations as may be appropriate to prevent the
avoidance of the purposes of this subsection,
(B) regulations providing such adjustments in the case of
corporations which are members of an affiliated group as may be
appropriate to carry out the purposes of this subsection, and
(C) regulations for the coordination of this subsection with
section 884.
(k) Section 6166 interest
No deduction shall be allowed under this section for any interest
payable under section 6601 on any unpaid portion of the tax imposed
by section 2001 for the period during which an extension of time
for payment of such tax is in effect under section 6166.
(l) Disallowance of deduction on certain debt instruments of
corporations
(1) In general
No deduction shall be allowed under this chapter for any
interest paid or accrued on a disqualified debt instrument.
(2) Disqualified debt instrument
For purposes of this subsection, the term "disqualified debt
instrument" means any indebtedness of a corporation which is
payable in equity of the issuer or a related party or equity held
by the issuer (or any related party) in any other person.
(3) Special rules for amounts payable in equity
For purposes of paragraph (2), indebtedness shall be treated as
payable in equity of the issuer or any other person only if -
(A) a substantial amount of the principal or interest is
required to be paid or converted, or at the option of the
issuer or a related party is payable in, or convertible into,
such equity,
(B) a substantial amount of the principal or interest is
required to be determined, or at the option of the issuer or a
related party is determined, by reference to the value of such
equity, or
(C) the indebtedness is part of an arrangement which is
reasonably expected to result in a transaction described in
subparagraph (A) or (B).
For purposes of this paragraph, principal or interest shall be
treated as required to be so paid, converted, or determined if it
may be required at the option of the holder or a related party
and there is a substantial certainty the option will be
exercised.
(4) Capitalization allowed with respect to equity of persons
other than issuer and related parties
If the disqualified debt instrument of a corporation is payable
in equity held by the issuer (or any related party) in any other
person (other than a related party), the basis of such equity
shall be increased by the amount not allowed as a deduction by
reason of paragraph (1) with respect to the instrument.
(5) Exception for certain instruments issued by dealers in
securities
For purposes of this subsection, the term "disqualified debt
instrument" does not include indebtedness issued by a dealer in
securities (or a related party) which is payable in, or by
reference to, equity (other than equity of the issuer or a
related party) held by such dealer in its capacity as a dealer in
securities. For purposes of this paragraph, the term "dealer in
securities" has the meaning given such term by section 475.
(6) Related party
For purposes of this subsection, a person is a related party
with respect to another person if such person bears a
relationship to such other person described in section 267(b) or
707(b).
(7) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection, including regulations preventing avoidance of this
subsection through the use of an issuer other than a corporation.
(m) Interest on unpaid taxes attributable to nondisclosed
reportable transactions
No deduction shall be allowed under this chapter for any interest
paid or accrued under section 6601 on any underpayment of tax which
is attributable to the portion of any reportable transaction
understatement (as defined in section 6662A(b)) with respect to
which the requirement of section 6664(d)(2)(A) is not met.
(n) Cross references
(1) For disallowance of certain amounts paid in connection
with insurance, endowment, or annuity contracts, see section
264.
(2) For disallowance of deduction for interest relating to
tax-exempt income, see section 265(a)(2).
(3) For disallowance of deduction for carrying charges
chargeable to capital account, see section 266.
(4) For disallowance of interest with respect to transactions
between related taxpayers, see section 267.
(5) For treatment of redeemable ground rents and real
property held subject to liabilities under redeemable ground
rents, see section 1055.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 46; Pub. L. 88-9, Sec. 1(a),
(c), Apr. 10, 1963, 77 Stat. 6, 7; Pub. L. 88-272, title II, Sec.
224(c), Feb. 26, 1964, 78 Stat. 79; Pub. L. 91-172, title II, Sec.
221(a), Dec. 30, 1969, 83 Stat. 574; Pub. L. 92-178, title III,
Sec. 304(a)(2), (b)(2), (d), Dec. 10, 1971, 85 Stat. 523, 524; Pub.
L. 94-455, title II, Secs. 205(c)(3), 209(a), title XIX, Secs.
1901(b)(3)(K), (8)(C), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1535,
1542, 1793, 1794, 1834; Pub. L. 97-248, title II, Sec. 231(b),
title III, Sec. 310(b)(2), Sept. 3, 1982, 96 Stat. 498, 596; Pub.
L. 97-354, Sec. 5(a)(18), Oct. 19, 1982, 96 Stat. 1693; Pub. L. 98-
369, div. A, title I, Secs. 42(a)(3), 56(b), 127(f), 128(c), title
VI, Sec. 612(c), July 18, 1984, 98 Stat. 556, 574, 652, 654, 911;
Pub. L. 99-514, title V, Sec. 511(a), (b), title IX, Sec.
902(e)(1), title XIII, Sec. 1301(j)(3), title XVIII, Secs.
1803(a)(4), 1810(e)(1), Oct. 22, 1986, 100 Stat. 2244, 2246, 2382,
2657, 2793, 2825; Pub. L. 100-203, title X, Secs. 10102(a), (b),
10212(b), Dec. 22, 1987, 101 Stat. 1330-384, 1330-386, 1330-406;
Pub. L. 100-647, title I, Secs. 1005(c)(1)-(9), (12), 1006(u)(1),
1009(b)(6), title II, Sec. 2004(b)(1), Nov. 10, 1988, 102 Stat.
3390-3392, 3427, 3449, 3598; Pub. L. 101-239, title VII, Secs.
7202(a), (b), 7210(a), Dec. 19, 1989, 103 Stat. 2330, 2331, 2339;
Pub. L. 101-508, title XI, Sec. 11701(b), (c), Nov. 5, 1990, 104
Stat. 1388-507; Pub. L. 103-66, title XIII, Secs. 13206(d)(1),
13228(a)-(c), Aug. 10, 1993, 107 Stat. 467, 494, 495; Pub. L. 104-
188, title I, Secs. 1703(n)(4), 1704(f)(2)(A), (B), Aug. 20, 1996,
110 Stat. 1877, 1879; Pub. L. 105-34, title III, Sec. 312(d)(1),
title V, Sec. 503(b)(2), title X, Sec. 1005(a), title XVI, Sec.
1604(g)(1), Aug. 5, 1997, 111 Stat. 839, 853, 911, 1099; Pub. L.
105-277, div. J, title IV, Sec. 4003(a)(1), Oct. 21, 1998, 112
Stat. 2681-908; Pub. L. 106-170, title V, Sec. 544, Dec. 17, 1999,
113 Stat. 1944; Pub. L. 108-27, title III, Sec. 302(b), May 28,
2003, 117 Stat. 762; Pub. L. 108-357, title VIII, Secs. 838(a),
841(a), 845(a)-(d), Oct. 22, 2004, 118 Stat. 1596, 1597, 1600,
1601; Pub. L. 109-135, title IV, Sec. 403(a)(15), Dec. 21, 2005,
119 Stat. 2619.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2005 - Subsec. (j)(6)(A)(i)(III), (IV). Pub. L. 109-135 added
subcl. (III) and redesignated former subcl. (III) as (IV).
2004 - Subsec. (e)(3)(B), (C). Pub. L. 108-357, Sec. 841(a),
added subpar. (B) and redesignated former subpar. (B) as (C).
Subsec. (l)(2). Pub. L. 108-357, Sec. 845(a), inserted "or equity
held by the issuer (or any related party) in any other person"
after "or a related party".
Subsec. (l)(3). Pub. L. 108-357, Sec. 845(d), substituted "or any
other person" for "or a related party" in introductory provisions.
Subsec. (l)(4) to (7). Pub. L. 108-357, Sec. 845(b), (c), added
pars. (4) and (5) and redesignated former pars. (4) and (5) as (6)
and (7), respectively.
Subsecs. (m), (n). Pub. L. 108-357, Sec. 838(a), added subsec.
(m) and redesignated former subsec. (m) as (n).
2003 - Subsec. (d)(4)(B). Pub. L. 108-27, Secs. 302(b), 303,
temporarily inserted at end "Such term shall include qualified
dividend income (as defined in section 1(h)(11)(B)) only to the
extent the taxpayer elects to treat such income as investment
income for purposes of this subsection." See Effective and
Termination Dates of 2003 Amendment note below.
1999 - Subsec. (j)(3)(C). Pub. L. 106-170 added subpar. (C).
1998 - Subsec. (h)(2)(F). Pub. L. 105-277 added subpar. (F).
1997 - Subsec. (h)(2)(E). Pub. L. 105-34, Sec. 503(b)(2)(B),
struck out "or 6166 or under section 6166A (as in effect before its
repeal by the Economic Recovery Tax Act of 1981)" after "section
6163".
Subsec. (h)(4)(A)(i)(I). Pub. L. 105-34, Sec. 312(d)(1),
substituted "section 121" for "section 1034".
Subsec. (j)(2)(B)(iii). Pub. L. 105-34, Sec. 1604(g)(1),
substituted "clause (ii)" for "clause (i)" in introductory
provisions.
Subsec. (k). Pub. L. 105-34, Sec. 503(b)(2)(A), added subsec.
(k). Former subsec. (k) redesignated (l).
Subsec. (l). Pub. L. 105-34, Sec. 1005(a), added subsec. (l).
Former subsec. (l) redesignated (m).
Pub. L. 105-34, Sec. 503(b)(2)(A), redesignated subsec. (k) as
(l).
Subsec. (m). Pub. L. 105-34, Sec. 1005(a), redesignated subsec.
(l) as (m).
1996 - Subsec. (j)(1)(B). Pub. L. 104-188, Sec. 1704(f)(2)(A),
inserted before period at end "(and clause (ii) of paragraph (2)(A)
shall not apply for purposes of applying this subsection to the
amount so treated)".
Subsec. (j)(6)(E)(ii). Pub. L. 104-188, Sec. 1703(n)(4), which
directed that cl. (ii) be amended by substituting "which is" for
"which is a", could not be executed, because "which is a" does not
appear.
Subsec. (j)(7), (8). Pub. L. 104-188, Sec. 1704(f)(2)(B), added
par. (7) and redesignated former par. (7) as (8).
1993 - Subsec. (d)(4)(B). Pub. L. 103-66, Sec. 13206(d)(1),
amended heading and text of subpar. (B) generally. Prior to
amendment, text read as follows: "The term 'investment income'
means the sum of -
"(i) gross income (other than gain taken into account under
clause (ii)) from property held for investment, and
"(ii) any net gain attributable to the disposition of property
held for investment."
Subsec. (j). Pub. L. 103-66, Sec. 13228(c)(2), substituted "for
interest on certain indebtedness" for "for certain interest paid by
corporation to related person" in heading.
Subsec. (j)(3). Pub. L. 103-66, Sec. 13228(a), amended heading
and text of par. (3) generally. Prior to amendment, text read as
follows: "For purposes of this subsection -
"(A) In general. - Except as provided in subparagraph (B), the
term 'disqualified interest' means any interest paid or accrued
by the taxpayer (directly or indirectly) to a related person if
no tax is imposed by this subtitle with respect to such interest.
"(B) Exception for certain existing indebtedness. - The term
'disqualified interest' does not include any interest paid or
accrued under indebtedness with a fixed term -
"(i) which was issued on or before July 10, 1989, or
"(ii) which was issued after such date pursuant to a written
binding contract in effect on such date and all times
thereafter before such indebtedness was issued."
Subsec. (j)(5)(B). Pub. L. 103-66, Sec. 13228(c)(1), struck out
"to a related person" after "by the taxpayer" in introductory
provisions.
Subsec. (j)(6)(D), (E). Pub. L. 103-66, Sec. 13228(b), added
subpars. (D) and (E).
1990 - Subsec. (e)(5)(A). Pub. L. 101-508, Sec. 11701(b)(1),
amended last sentence generally. Prior to amendment, last sentence
read as follows: "For purposes of clause (ii), rules similar to the
rules of subsection (i)(3)(B) shall apply in determining the time
when the original issue discount is paid."
Subsec. (i)(3). Pub. L. 101-508, Sec. 11701(b)(2)(B), inserted
sentence at end.
Subsec. (i)(3)(B). Pub. L. 101-508, Sec. 11701(b)(2)(A), struck
out "(or stock)" after "obligation" wherever appearing.
Subsec. (j)(2)(A)(ii). Pub. L. 101-508, Sec. 11701(c)(2),
substituted "or on any other day" for "and on such other days".
Subsec. (j)(2)(C). Pub. L. 101-508, Sec. 11701(c)(1), substituted
"reduced (but not below zero) by such" for "less such" in
introductory provisions.
1989 - Subsec. (e)(5), (6). Pub. L. 101-239, Sec. 7202(a), added
par. (5) and redesignated former par. (5) as (6).
Subsec. (i). Pub. L. 101-239, Sec. 7202(b), added subsec. (i).
Former subsec. (i) redesignated (j).
Subsec. (j). Pub. L. 101-239, Sec. 7210(a), added subsec. (j).
Former subsec. (j) redesignated (k).
Pub. L. 101-239, Sec. 7202(b), redesignated subsec. (i) as (j).
Subsec. (k). Pub. L. 101-239, Sec. 7210(a), redesignated subsec.
(j) as (k).
1988 - Subsec. (d)(3)(A). Pub. L. 100-647, Sec. 1005(c)(1),
substituted "properly allocable to" for "incurred or continued to
purchase or carry".
Subsec. (d)(4)(B). Pub. L. 100-647, Sec. 1005(c)(2), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "The term 'investment income' means the sum of -
"(i) gross income (other than gain described in clause (ii))
from property held for investment, and
"(ii) any net gain attributable to the disposition of property
held for investment,
but only to the extent such amounts are not derived from the
conduct of a trade or business."
Subsec. (d)(6)(A). Pub. L. 100-647, Sec. 1005(c)(3), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "The amount of interest disallowed under this subsection
for any such taxable year shall be equal to the sum of -
"(i) the applicable percentage of the amount which (without
regard to this paragraph) is not allowed as a deduction under
this subsection for the taxable year to the extent such amount
does not exceed the ceiling amount,
"(ii) the amount which (without regard to this paragraph) is
not allowed as a deduction under this subsection in excess of the
ceiling amount, plus
"(iii) the amount of any carryforward to such taxable year
under paragraph (2) with respect to which a deduction was
disallowed under this subsection for a preceding taxable year.
For purposes of this subparagraph, the amount under clause (i) or
(ii) shall be computed without regard to the amount described in
clause (iii)."
Subsec. (e)(2)(B). Pub. L. 100-647, Sec. 1006(u)(1), substituted
"paragraph (7)" for "paragraph (6)".
Subsec. (h)(2)(A). Pub. L. 100-647, Sec. 1005(c)(4), substituted
"properly allocable to" for "incurred or continued in connection
with the conduct of".
Subsec. (h)(2)(E). Pub. L. 100-647, Sec. 1005(c)(12), inserted
"or under section 6166A (as in effect before its repeal by the
Economic Recovery Tax Act of 1981)" before period at end.
Subsec. (h)(3)(C). Pub. L. 100-647, Sec. 1005(c)(5), effective as
if enacted immediately before enactment of Pub. L. 100-203 (see
1987 Amendment note below), amended subpar. (C) generally. Prior to
amendment, subpar. (C) read as follows: "The amount under
subparagraph (B)(ii)(I) at any time after August 16, 1986, shall
not be less than the outstanding aggregate principal amount (as of
such time) of indebtedness which was incurred on or before August
16, 1986, and which was secured by the qualified residence on
August 16, 1986."
Subsec. (h)(4). Pub. L. 100-647, Sec. 1005(c)(6)(A), effective as
if enacted immediately before enactment of Pub. L. 100-203
(redesignating par. (5) as (4), see 1987 Amendment note below),
amended heading by substituting "Other definitions and special
rules - For purposes of this subsection - " for "Other definitions
and special rules".
Subsec. (h)(4)(A). Pub. L. 100-647, Sec. 1005(c)(6)(B)(i), (7),
effective as if enacted immediately before enactment of Pub. L. 100-
203 (redesignating par. (5) as (4), see 1987 Amendment note
below), amended subpar. (A) by striking out "For purposes of this
subsection - " after "Qualified residence" in introductory
provisions, "used or" after "Residence not" in cl. (iii) heading,
and "or use" after "does not rent" in cl. (iii) text.
Subsec. (h)(4)(B). Pub. L. 100-647, Sec. 1005(c)(6)(B)(ii),
effective as if enacted immediately before enactment of Pub. L. 100-
203 (redesignating par. (5) as (4), see 1987 Amendment note
below), amended subpar. (B) by substituting "Any" for "For purposes
of this paragraph, any".
Subsec. (h)(4)(C), (D). Pub. L. 100-647, Sec. 1005(c)(8),
effective as if enacted immediately before enactment of Pub. L. 100-
203 (redesignating par. (5) as (4), see 1987 Amendment note
below), par. (4) added subpars. (C) and (D).
Subsec. (h)(5). Pub. L. 100-647, Sec. 2004(b)(1), redesignated
par. (6) as (5).
Subsec. (h)(6). Pub. L. 100-647, Sec. 2004(b)(1), redesignated
par. (6) as (5).
Pub. L. 100-647, Sec. 1005(c)(9), substituted "but for this
paragraph" for "but for this subsection".
Subsec. (i)(2). Pub. L. 100-647, Sec. 1009(b)(6), made technical
correction to directory language of Pub. L. 99-514, Sec. 902(e)(1),
see 1986 Amendment note below.
1987 - Subsec. (d)(4)(E). Pub. L. 100-203, Sec. 10212(b),
substituted "section 469(m)" for "section 469(l)".
Subsec. (h)(3). Pub. L. 100-203, Sec. 10102(a), amended par. (3)
generally. Prior to amendment (see 1988 Amendment note above), par.
(3) read as follows: "For purposes of this subsection -
"(A) In general. - The term 'qualified residence interest'
means interest which is paid or accrued during the taxable year
on indebtedness which is secured by any property which (at the
time such interest is paid or accrued) is a qualified residence
of the taxpayer.
"(B) Limitation on amount of interest. - The term 'qualified
residence interest' shall not include any interest paid or
accrued on indebtedness secured by any qualified residence which
is allocable to that portion of the principal amount of such
indebtedness which, when added to the outstanding aggregate
principal amount of all other indebtedness previously incurred
and secured by such qualified residence, exceeds the lesser of -
"(i) the fair market value of such qualified residence, or
"(ii) the sum of -
"(I) the taxpayer's basis in such qualified residence
(adjusted only by the cost of any improvements to such
residence), plus
"(II) the aggregate amount of qualified indebtedness of the
taxpayer with respect to such qualified residence.
"(C) Cost not less than balance of indebtedness incurred on or
before august 16, 1986. -
"(i) In general. - The amount under subparagraph (B)(ii)(I)
at any time after August 16, 1986, shall not be less than the
outstanding principal amount (as of such time) of indebtedness -
"(I) which was incurred on or before August 16, 1986, and
which was secured by the qualified residence on August 16,
1986, or
"(II) which is secured by the qualified residence and was
incurred after August 16, 1986, to refinance indebtedness
described in subclause (I) (or refinanced indebtedness
meeting the requirements of this subclause) to the extent
(immediately after the refinancing) the principal amount of
the indebtedness resulting from the refinancing does not
exceed the principal amount of the refinanced indebtedness
(immediately before the refinancing).
"(ii) Limitation on period of refinancing. - Subclause (II)
of clause (i) shall not apply to any indebtedness after -
"(I) the expiration of the term of the indebtedness
described in clause (i)(I), or
"(II) if the principal of the indebtedness described in
clause (i)(I) is not amortized over its term, the expiration
of the term of the 1st refinancing of such indebtedness (or
if earlier, the date which is 30 years after the date of such
refinancing).
"(D) Time for determination. - Except as provided in
regulations, any determination under subparagraph (B) shall be
made as of the time the indebtedness is incurred."
Subsec. (h)(4), (5). Pub. L. 100-203, Sec. 10102(b), redesignated
par. (5) as (4) and struck out former par. (4) which defined
"qualified indebtedness" for purposes of this subsection.
1986 - Subsec. (d). Pub. L. 99-514, Sec. 511(a), substituted
"Limitation on investment interest" for "Limitation on interest on
investment indebtedness" in heading, and amended text generally,
revising and restating as pars. (1) to (6) provisions of former
pars. (1) to (7).
Subsec. (e)(2)(C). Pub. L. 99-514, Sec. 1803(a)(4), added subpar.
(C).
Subsec. (e)(3)(A). Pub. L. 99-514, Sec. 1810(e)(1)(A), inserted
"The preceding sentence shall not apply to the extent that the
original issue discount is effectively connected with the conduct
by such foreign related person of a trade or business within the
United States unless such original issue discount is exempt from
taxation (or is subject to a reduced rate of tax) pursuant to a
treaty obligation of the United States."
Subsec. (e)(5). Pub. L. 99-514, Sec. 1810(e)(1)(B), redesignated
par. (4), relating to cross references, as (5).
Subsec. (f)(3). Pub. L. 99-514, Sec. 1301(j)(3), substituted
"section 149(a)(3)" for "section 103(j)(3)".
Subsec. (h). Pub. L. 99-514, Sec. 511(b), added subsec. (h).
Former subsec. (h) redesignated (i).
Subsec. (i)(2). Pub. L. 99-514, Sec. 902(e)(1), as amended by
Pub. L. 100-647, Sec. 1009(b)(6), substituted "section 265(a)(2)"
for "section 265(2)".
Pub. L. 99-514, Sec. 511(b), redesignated former subsec. (h) as
(i).
1984 - Subsec. (d)(3)(D). Pub. L. 98-369, Sec. 56(b), designated
existing provisions as cl. (i) and added cl. (ii).
Subsec. (e)(1). Pub. L. 98-369, Sec. 42(a)(3), substituted "debt
instrument" for "bond" in two places and struck out "by an issuer
(other than a natural person)" before ", the portion of the
original issue".
Subsec. (e)(2). Pub. L. 98-369, Sec. 42(a)(3), substituted
provisions relating to debt instruments for provisions relating to
bonds.
Subsec. (e)(3). Pub. L. 98-369, Sec. 128(c), added par. (3)
relating to special rule for original issue discount on obligation
held by related foreign person. Former par. (3), relating to
exceptions, redesignated (4).
Pub. L. 98-369, Sec. 42(a)(3), added par. (3) relating to
exceptions.
Subsec. (e)(4). Pub. L. 98-369, Sec. 128(c), redesignated par.
(3), relating to exceptions, as (4).
Pub. L. 98-369, Sec. 42(a)(3), added par. (4) relating to cross
references.
Subsec. (f)(2)(C)(i). Pub. L. 98-369, Sec. 127(f), redesignated
existing provision as subcl. (I), and in subcl. (I) as so
redesignated, inserted reference to subpar. (A) and substituted
"or" for "and", and added subcl. (II).
Subsecs. (g), (h). Pub. L. 98-369, Sec. 612(c), added subsec. (g)
and redesignated former subsec. (g) as (h).
1982 - Subsec. (d)(4). Pub. L. 97-354 redesignated subpar. (D) as
(B). Former subpars. (B) and (C), relating to partnerships and
shareholders of electing small business corporations, respectively,
were struck out.
Subsec. (e). Pub. L. 97-248, Sec. 231(b), added subsec. (e)
relating to original issue discount. Former subsec. (e), setting
forth cross references, redesignated (f).
Pub. L. 97-248, Sec. 231(b), redesignated former subsec. (e),
setting forth cross references, as (f).
Subsec. (f). Pub. L. 97-248, Sec. 310(b)(2), added subsec. (f)
relating to the requirement that obligations be in registered form
to be tax-exempt. Former subsec. (f), setting forth cross
references, redesignated (g).
Subsec. (g). Pub. L. 97-248, Sec. 310(b)(2), redesignated former
subsec. (f), setting forth cross references, as (g).
1976 - Subsec. (b)(1). Pub. L. 94-455, Sec. 1901(b)(8)(C),
substituted "organization described in section 170(b)(1)(A)(ii) and
which is provided for a student of such organization" for
"institution (as defined in section 151(e)(4)) and which is
provided for a student of such institution".
Subsec. (d)(1). Pub. L. 94-455, Sec. 209(a)(1), among other
changes, substituted in subpar. (A) "$10,000" for "$25,000" and
"$5,000" for "$12,500", struck out subpar. (C) relating to the
excess of net long-term capital gain over short-term capital loss
and subpar. (D) relating to the excess of investment interest over
amounts in subpar. (A), and in provisions following lettered
paragraphs substituted "$10,000" for "$25,000" and struck out
provisions relating to the determination of the amount referred to
in subpar. (C).
Subsec. (d)(2). Pub. L. 94-455, Sec. 209(a)(1), among other
changes, struck out provisions relating to the limitation on the
amount of interest allowable by this par. and to reduction of
disallowed investment interest for capital gain deduction purposes.
Subsec. (d)(3)(A). Pub. L. 94-455, Sec. 209(a)(2), inserted
provision relating to determination of the amount of net investment
income where taxpayer has investment interest for taxable year to
which this subsection applies.
Subsec. (d)(3)(B)(iii). Pub. L. 94-455, Secs. 205(c)(3),
1901(b)(3)(K), substituted "1250, and 1254" for "and 1250", and
"ordinary income" for "gain from the sale or exchange of property
which is neither a capital asset nor property described in section
1231". Section 205(c)(3) of Pub. L. 94-455, which directed the
amendment of subsec. (d)(3)(A)(iii), was executed by amending
subsec. (d)(3)(B)(iii) to reflect the probable intent of Congress.
Subsec. (d)(3)(E). Pub. L. 94-455, Sec. 209(a)(3), substituted
"limitation in paragraph (1)" for "limitations in paragraphs (1)
and (2)(A)".
Subsec. (d)(4)(B), (C). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (d)(5). Pub. L. 94-455, Sec. 209(a)(4), (5), redesignated
par. (6) as (5) and inserted provision relating to the application
of this paragraph after Dec. 31, 1975, on an allocation basis
rather than a specific item basis. Former par. (5), relating to
capital gains treatment of investment interest, was struck out.
Pub. L. 94-455, Sec. 1901(b)(3)(K), directed the amendment of
par. (5) by substituting "ordinary income" for "gain from the sale
or exchange of property which is neither a capital asset nor
property described in section 1231", such par. (5) having been
struck out by Pub. L. 94-455, Sec. 209(a)(4).
Subsec. (d)(6). Pub. L. 94-455, Secs. 209(a)(4), 1906(b)(13)(A),
redesignated par. (7) as (6) and struck out in provision following
subpar. (B) "or his delegate" after "Secretary". Former par. (6)
redesignated (5).
Subsec. (d)(7). Pub. L. 94-455, Sec. 209(a)(6), added par. (7).
Former par. (7) redesignated (6).
1971 - Subsec. (d)(1)(B). Pub. L. 92-178, Sec. 304(b)(2),
inserted "the amount (if any) by which the deductions allowable
under this section (determined without regard to this subsection)
and sections 162, 164(a)(1) or (2), or 212 attributable to property
of the taxpayer subject to a net lease exceeds the rental income
produced by such property for the property year, plus" after
"plus".
Subsec. (d)(3)(C). Pub. L. 92-178, Sec. 304(d), inserted
reference to section 162.
Subsec. (d)(4)(A)(i). Pub. L. 92-178, Sec. 304(a)(2)(A), inserted
"of the lessor" after "deductions" and "(other than rents and
reimbursed amounts with respect to such property)" after "section
162".
Subsec. (d)(7). Pub. L. 92-178, Sec. 304(a)(2)(B), added par.
(7).
1969 - Subsecs. (d), (e). Pub. L. 91-172 added subsec. (d).
Former subsec. (d) redesignated (e).
1964 - Subsec. (b)(1). Pub. L. 88-272 included the purchase of
educational services, and defined "educational services".
1963 - Subsecs. (c), (d). Pub. L. 88-9, Sec. 1(a), (c), added
subsec. (c), redesignated former subsec. (c) as (d) and added par.
(5).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 838(b), Oct. 22, 2004, 118
Stat. 1597, provided that: "The amendments made by this section
[amending this section] shall apply to transactions in taxable
years beginning after the date of the enactment of this Act [Oct.
22, 2004]."
Pub. L. 108-357, title VIII, Sec. 841(c), Oct. 22, 2004, 118
Stat. 1598, provided that: "The amendments made by this section
[amending this section and section 267 of this title] shall apply
to payments accrued on or after the date of the enactment of this
Act [Oct. 22, 2004]."
Pub. L. 108-357, title VIII, Sec. 845(e), Oct. 22, 2004, 118
Stat. 1601, provided that: "The amendments made by this section
[amending this section] shall apply to debt instruments issued
after October 3, 2004."
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to taxable years
beginning after Dec. 31, 2000, see section 546(a) of Pub. L. 106-
170, set out as a note under section 856 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L. 105-
277, set out as a note under section 86 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 312(d)(1) of Pub. L. 105-34 applicable to
sales and exchanges after May 6, 1997, with certain exceptions, see
section 312(d) of Pub. L. 105-34, set out as a note under section
121 of this title.
Section 503(d) of Pub. L. 105-34 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 2053, 6166, and 6601 of this title] shall
apply to estates of decedents dying after December 31, 1997.
"(2) Election. - In the case of the estate of any decedent dying
before January 1, 1998, with respect to which there is an election
under section 6166 of the Internal Revenue Code of 1986, the
executor of the estate may elect to have the amendments made by
this section apply with respect to installments due after the
effective date of the election; except that the 2-percent portion
of such installments shall be equal to the amount which would be
the 4-percent portion of such installments without regard to such
election. Such an election shall be made before January 1, 1999 in
the manner prescribed by the Secretary of the Treasury and, once
made, is irrevocable."
Section 1005(b) of Pub. L. 105-34 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to disqualified debt instruments issued
after June 8, 1997.
"(2) Transition rule. - The amendment made by this section shall
not apply to any instrument issued after June 8, 1997, if such
instrument is -
"(A) issued pursuant to a written agreement which was binding
on such date and at all times thereafter,
"(B) described in a ruling request submitted to the Internal
Revenue Service on or before such date, or
"(C) described on or before such date in a public announcement
or in a filing with the Securities and Exchange Commission
required solely by reason of the issuance."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1703(n)(4) of Pub. L. 104-188 effective as
if included in the provision of the Revenue Reconciliation Act of
1993, Pub. L. 103-66, Secs. 13001-13444, to which such amendment
relates, see section 1703(o) of Pub. L. 104-188, set out as a note
under section 39 of this title.
Section 1704(f)(2)(C) of Pub. L. 104-188 provided that: "The
amendments made by this paragraph [amending this section] shall
apply as if included in the amendments made by section 7210(a) of
the Revenue Reconciliation Act of 1989 [Pub. L. 101-239]."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13206(d)(1) of Pub. L. 103-66 applicable to
taxable years beginning after Dec. 31, 1992, see section
13206(d)(3) of Pub. L. 103-66 set out as a note under section 1 of
this title.
Section 13228(d) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section] shall apply to
interest paid or accrued in taxable years beginning after December
31, 1993."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective, except as otherwise
provided, as if included in the provision of the Revenue
Reconciliation Act of 1989, Pub. L. 101-239, title VII, to which
such amendment relates, see section 11701(n) of Pub. L. 101-508,
set out as a note under section 42 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7202(c) of Pub. L. 101-239 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to instruments issued after July 10, 1989.
"(2) Exceptions. -
"(A) The amendments made by this section shall not apply to any
instrument if -
"(i) such instrument is issued in connection with an
acquisition -
"(I) which is made on or before July 10, 1989,
"(II) for which there was a written binding contract in
effect on July 10, 1989, and at all times thereafter before
such acquisition, or
"(III) for which a tender offer was filed with the
Securities and Exchange Commission on or before July 10,
1989,
"(ii) the term of such instrument is not greater than -
"(I) the term specified in the written documents described
in clause (iii), or
"(II) if no term is determined under subclause (I), 10
years, and
"(iii) the use of such instrument in connection with such
acquisition (and the maximum amount of proceeds from such
instrument) was determined on or before July 10, 1989, and such
determination is evidenced by written documents -
"(I) which were transmitted on or before July 10, 1989,
between the issuer and any governmental regulatory bodies or
prospective parties to the issuance or acquisition, and
"(II) which are customarily used for the type of
acquisition or financing involved.
"(B) The amendments made by this section shall not apply to any
instrument issued pursuant to the terms of a debt instrument
issued on or before July 10, 1989, or described in subparagraph
(A) or (D).
"(C) The amendments made by this section shall not apply to any
instrument issued to refinance an original issue discount debt
instrument to which the amendments made by this section do not
apply if -
"(i) the maturity date of the refinancing instrument is not
later than the maturity date of the refinanced instrument,
"(ii) the issue price of the refinancing instrument does not
exceed the adjusted issue price of the refinanced instrument,
"(iii) the stated redemption price at maturity of the
refinancing instrument is not greater than the stated
redemption price at maturity of the refinanced instrument, and
"(iv) the interest payments required under the refinancing
instrument before maturity are not less than (and are paid not
later than) the interest payments required under the refinanced
instrument.
"(D) The amendments made by this section shall not apply to
instruments issued after July 10, 1989, pursuant to a
reorganization plan in a title 11 or similar case (as defined in
section 368(a)(3) of the Internal Revenue Code of 1986) if the
amount of proceeds of such instruments, and the maturities of
such instruments, do not exceed the amount or maturities
specified in the last reorganization plan filed in such case on
or before July 10, 1989."
Section 7210(b) of Pub. L. 101-239 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to interest paid or accrued in taxable
years beginning after July 10, 1989.
"(2) Special rule for demand loans, etc. - In the case of any
demand loan (or other loan without a fixed term) which was
outstanding on July 10, 1989, interest on such loan to the extent
attributable to periods before September 1, 1989, shall not be
treated as disqualified interest for purposes of section 163(j) of
the Internal Revenue Code of 1986 (as added by subsection (a))."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1005(c)(13) of Pub. L. 100-647 provided that: "For
purposes of applying the amendments made by this subsection
[amending this section and sections 467, 1255, and 7872 of this
title] and the amendments made by section 10102 of the Revenue Act
of 1987 [section 10102 of Pub. L. 100-203, amending this section],
the provisions of this subsection shall be treated as having been
enacted immediately before the enactment of the Revenue Act of
1987."
Amendment by sections 1006(u)(1) and 1009(b)(6) of Pub. L. 100-
647 effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 2004(b)(1) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provisions of
the Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10102(c) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1987."
Amendment by section 10212(b) of Pub. L. 100-203 effective as if
included in the amendments made by section 501 of the Tax Reform
Act of 1986, Pub. L. 99-514, see section 10212(c) of Pub. L. 100-
203, set out as a note under section 58 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 511(e) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 467, 703,
1255, 1363, and 7872 of this title] shall apply to taxable years
beginning after December 31, 1986."
Amendment by section 902(e)(1) of Pub. L. 99-514 applicable to
taxable years ending after Dec. 31, 1986, with certain exceptions
and qualifications, see section 902(f) of Pub. L. 99-514, set out
as a note under section 265 of this title.
Amendment by section 1301(j)(3) of Pub. L. 99-514 applicable to
bonds issued after Aug. 15, 1986, except as otherwise provided, see
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective
Date; Transitional Rules note under section 141 of this title.
Amendment by sections 1803(a)(4) and 1810(e)(1) of Pub. L. 99-514
effective, except as otherwise provided, as if included in the
provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,
to which such amendment relates, see section 1881 of Pub. L. 99-
514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 42(a)(3) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Section 56(d) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and sections 263 and
265 of this title] shall apply to short sales after the date of
enactment of this Act [July 18, 1984] in taxable years ending after
such date."
Amendment by section 127(f) of Pub. L. 98-369 applicable to
interest received after July 18, 1984, with respect to obligations
issued after such date, in taxable years ending after such date,
see section 127(g)(1) of Pub. L. 98-369, set out as a note under
section 871 of this title.
Amendment by section 128(c) of Pub. L. 98-369 applicable to
obligations issued after June 9, 1984, see section 128(d)(2) of
Pub. L. 98-369, set out as a note under section 871 of this title.
Amendment by section 612(c) of Pub. L. 98-369 applicable to
interest paid or accrued after Dec. 31, 1984, on indebtedness
incurred after Dec. 31, 1984, see section 612(g) of Pub. L. 98-369,
set out as an Effective Date note under section 25 of this title.
EFFECTIVE DATE OF 1982 AMENDMENTS
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
Amendment by Pub. L. 97-248 applicable to obligations issued
after Dec. 31, 1982, with exceptions for certain warrants, see
section 310(d) of Pub. L. 97-248, set out as a note under section
103 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 205(c)(3) of Pub. L. 94-455 applicable with
respect to taxable years ending after Dec. 31, 1975, see section
205(e) of Pub. L. 94-455, set out as an Effective Date note under
section 1254 of this title.
Section 209(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by subsection (a) [amending this section] shall
apply to taxable years beginning after December 31, 1975.
"(2) Indebtedness incurred before september 11, 1975. - In the
case of indebtedness attributable to a specific item of property
which -
"(A) is for a specified term, and
"(B) was incurred before September 11, 1975, or is incurred
after September 10, 1975, pursuant to a written contract or
commitment which on September 11, 1975, and at all times
thereafter before the incurring of such indebtedness, is binding
on the taxpayer,
the amendments made by this section shall not apply, but section
163(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
(as in effect before the enactment of this Act [Oct. 4, 1976])
shall apply. For purposes of the preceding sentence, so much of the
net investment income (as defined in section 163(d)(3)(A) of such
Code) for any taxable year as is not taken into account under
section 163(d) of such Code, as amended by this Act, by reason of
the last sentence of section 163(d)(3)(A) of such Code, shall be
taken into account for purposes of applying such section as in
effect before the date of enactment of this Act [Oct. 4, 1976] with
respect to interest on indebtedness referred to in the preceding
sentence."
Amendment by section 1901(b)(8)(C), (3)(K) of Pub. L. 94-455
applicable with respect to taxable years beginning after Dec. 31,
1976, see section 1901(d) of Pub. L. 94-455, set out as a note
under section 2 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 304(e) of Pub. L. 92-178 provided that: "The amendments
made by this section to section 57 of the Internal Revenue Code of
1954 shall apply to taxable years beginning after December 31,
1969. The amendments made by this section to section 163 of such
Code shall apply to taxable years beginning after December 31,
1971."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 221(b) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1971."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 224(d) of Pub. L. 88-272 provided that: "The amendments
made by subsections (a) [enacting section 483 of this title] and
(b) [amending the analysis preceding section 481 of this title]
shall apply to payments made after December 31, 1963, on account of
sales or exchanges of property occurring after June 30, 1963, other
than any sale or exchange made pursuant to a binding written
contract (including an irrevocable written option) entered into
before July 1, 1963. The amendments made by subsection (c)
[amending this section] shall apply to payments made during taxable
years beginning after December 31, 1963."
EFFECTIVE DATE OF 1963 AMENDMENT
Subsec. (c) effective as of Jan. 1, 1962, and applicable with
respect to taxable years ending on or after such date, see section
2 of Pub. L. 88-9, set out as an Effective Date note under section
1055 of this title.
APPLICATION OF SUBSECTION (H) TO TAXABLE YEARS BEGINNING IN 1987
Section 1005(c)(14) of Pub. L. 100-647 provided that:
"(A) For purposes of applying section 163(h) of the 1986 Code to
any taxable year beginning during 1987, if, incident to a divorce
or legal separation -
"(i) an individual acquires the interest of a spouse or former
spouse in a qualified residence in a transfer to which section
1041 of the 1986 Code applies, and
"(ii) such individual incurs indebtedness which is secured by
such qualified residence,
the amount determined under paragraph (3)(B)(ii)(I) of section
163(h) of the 1986 Code (as in effect before the amendments made by
the Revenue Act of 1987 [Pub. L. 100-203, title X]) with respect to
such qualified residence shall be increased by the amount
determined under subparagraph (B).
"(B) The amount determined under this subparagraph shall be equal
to the excess (if any) of -
"(i) the lesser of the amount of the indebtedness described in
subparagraph (A)(ii), or the fair market value of the spouse's or
former spouse's interest in the qualified residence as of the
time of the transfer, over
"(ii) the basis of the spouse or former spouse in such interest
in such residence (adjusted only by the cost of any improvements
to such residence)."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TRANSITIONAL RULE FOR TREATMENT OF CERTAIN INCOME FROM S
CORPORATIONS
Section 1066 of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) In General. - If -
"(1) a corporation had an election in effect under subchapter S
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] for
the taxable years of such corporation beginning in 1982, 1983,
and 1984, and
"(2) a shareholder of such corporation makes an election to
have this section apply,
then any qualified income which such shareholder takes into account
by reason of holding stock in such corporation for any taxable year
of such corporation beginning in 1983 or 1984 shall be treated for
purposes of section 163(d) of the Internal Revenue Code of 1986 as
such income would have been treated but for the enactment of the
Subchapter S Revision Act of 1982 [Pub. L. 97-354, see Tables for
classification].
"(b) Qualified Income. - For purposes of subsection (a), the term
'qualified income' means any income other than income which is
attributable to personal services performed by the shareholder for
the corporation.
"(c) Election. - The election under subsection (a)(2) shall be
made at such time and in such manner as the Secretary of the
Treasury or his delegate may by regulations prescribe."
TRANSITIONAL RULE
For provision that, for purposes of amendments by section 231(b)
of Pub. L. 97-248, any evidence of indebtedness issued pursuant to
a written commitment which was binding on July 1, 1982, and at all
times thereafter be treated as issued on July 1, 1982, see section
231(e) of Pub. L. 97-248, set out as a note under section 1232A of
this title.
-FOOTNOTE-
(!1) So in original. Probably should be followed by "in".
-End-
-CITE-
26 USC Sec. 164 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 164. Taxes
-STATUTE-
(a) General rule
Except as otherwise provided in this section, the following taxes
shall be allowed as a deduction for the taxable year within which
paid or accrued:
(1) State and local, and foreign, real property taxes.
(2) State and local personal property taxes.
(3) State and local, and foreign, income, war profits, and
excess profits taxes.
(4) The GST tax imposed on income distributions.
(5) The environmental tax imposed by section 59A.
In addition, there shall be allowed as a deduction State and local,
and foreign, taxes not described in the preceding sentence which
are paid or accrued within the taxable year in carrying on a trade
or business or an activity described in section 212 (relating to
expenses for production of income). Notwithstanding the preceding
sentence, any tax (not described in the first sentence of this
subsection) which is paid or accrued by the taxpayer in connection
with an acquisition or disposition of property shall be treated as
part of the cost of the acquired property or, in the case of a
disposition, as a reduction in the amount realized on the
disposition.
(b) Definitions and special rules
For purposes of this section -
(1) Personal property taxes
The term "personal property tax" means an ad valorem tax which
is imposed on an annual basis in respect of personal property.
(2) State or local taxes
A State or local tax includes only a tax imposed by a State, a
possession of the United States, or a political subdivision of
any of the foregoing, or by the District of Columbia.
(3) Foreign taxes
A foreign tax includes only a tax imposed by the authority of a
foreign country.
(4) Special rules for GST tax
(A) In general
The GST tax imposed on income distributions is -
(i) the tax imposed by section 2601, and
(ii) any State tax described in section 2604,
but only to the extent such tax is imposed on a transfer which
is included in the gross income of the distributee and to which
section 666 does not apply.
(B) Special rule for tax paid before due date
Any tax referred to in subparagraph (A) imposed with respect
to a transfer occurring during the taxable year of the
distributee (or, in the case of a taxable termination, the
trust) which is paid not later than the time prescribed by law
(including extensions) for filing the return with respect to
such transfer shall be treated as having been paid on the last
day of the taxable year in which the transfer was made.
(5) General sales taxes
For purposes of subsection (a) -
(A) Election to deduct State and local sales taxes in lieu of
State and local income taxes
At the election of the taxpayer for the taxable year,
subsection (a) shall be applied -
(i) without regard to the reference to State and local
income taxes, and
(ii) as if State and local general sales taxes were
referred to in a paragraph thereof.
(B) Definition of general sales tax
The term "general sales tax" means a tax imposed at one rate
with respect to the sale at retail of a broad range of classes
of items.
(C) Special rules for food, etc.
In the case of items of food, clothing, medical supplies, and
motor vehicles -
(i) the fact that the tax does not apply with respect to
some or all of such items shall not be taken into account in
determining whether the tax applies with respect to a broad
range of classes of items, and
(ii) the fact that the rate of tax applicable with respect
to some or all of such items is lower than the general rate
of tax shall not be taken into account in determining whether
the tax is imposed at one rate.
(D) Items taxed at different rates
Except in the case of a lower rate of tax applicable with
respect to an item described in subparagraph (C), no deduction
shall be allowed under this paragraph for any general sales tax
imposed with respect to an item at a rate other than the
general rate of tax.
(E) Compensating use taxes
A compensating use tax with respect to an item shall be
treated as a general sales tax. For purposes of the preceding
sentence, the term "compensating use tax" means, with respect
to any item, a tax which -
(i) is imposed on the use, storage, or consumption of such
item, and
(ii) is complementary to a general sales tax, but only if a
deduction is allowable under this paragraph with respect to
items sold at retail in the taxing jurisdiction which are
similar to such item.
(F) Special rule for motor vehicles
In the case of motor vehicles, if the rate of tax exceeds the
general rate, such excess shall be disregarded and the general
rate shall be treated as the rate of tax.
(G) Separately stated general sales taxes
If the amount of any general sales tax is separately stated,
then, to the extent that the amount so stated is paid by the
consumer (other than in connection with the consumer's trade or
business) to the seller, such amount shall be treated as a tax
imposed on, and paid by, such consumer.
(H) Amount of deduction may be determined under tables
(i) In general
At the election of the taxpayer for the taxable year, the
amount of the deduction allowed under this paragraph for such
year shall be -
(I) the amount determined under this paragraph (without
regard to this subparagraph) with respect to motor
vehicles, boats, and other items specified by the
Secretary, and
(II) the amount determined under tables prescribed by the
Secretary with respect to items to which subclause (I) does
not apply.
(ii) Requirements for tables
The tables prescribed under clause (i) -
(I) shall reflect the provisions of this paragraph,
(II) shall be based on the average consumption by
taxpayers on a State-by-State basis (as determined by the
Secretary) of items to which clause (i)(I) does not apply,
taking into account filing status, number of dependents,
adjusted gross income, and rates of State and local general
sales taxation, and
(III) need only be determined with respect to adjusted
gross incomes up to the applicable amount (as determined
under section 68(b)).
(I) Application of paragraph
This paragraph shall apply to taxable years beginning after
December 31, 2003, and before January 1, 2006.
(c) Deduction denied in case of certain taxes
No deduction shall be allowed for the following taxes:
(1) Taxes assessed against local benefits of a kind tending to
increase the value of the property assessed; but this paragraph
shall not prevent the deduction of so much of such taxes as is
properly allocable to maintenance or interest charges.
(2) Taxes on real property, to the extent that subsection (d)
requires such taxes to be treated as imposed on another taxpayer.
(d) Apportionment of taxes on real property between seller and
purchaser
(1) General rule
For purposes of subsection (a), if real property is sold during
any real property tax year, then -
(A) so much of the real property tax as is properly allocable
to that part of such year which ends on the day before the date
of the sale shall be treated as a tax imposed on the seller,
and
(B) so much of such tax as is properly allocable to that part
of such year which begins on the date of the sale shall be
treated as a tax imposed on the purchaser.
(2) Special rules
(A) in the case of any sale of real property, if -
(i) a taxpayer may not, by reason of his method of
accounting, deduct any amount for taxes unless paid, and
(ii) the other party to the sale is (under the law imposing
the real property tax) liable for the real property tax for
the real property tax year,
then for purposes of subsection (a) the taxpayer shall be
treated as having paid, on the date of the sale, so much of
such tax as, under paragraph (1) of this subsection, is treated
as imposed on the taxpayer. For purposes of the preceding
sentence, if neither party is liable for the tax, then the
party holding the property at the time the tax becomes a lien
on the property shall be considered liable for the real
property tax for the real property tax year.
(B) In the case of any sale of real property, if the
taxpayer's taxable income for the taxable year during which the
sale occurs is computed under an accrual method of accounting,
and if no election under section 461(c) (relating to the
accrual of real property taxes) applies, then, for purposes of
subsection (a), that portion of such tax which -
(i) is treated, under paragraph (1) of this subsection, as
imposed on the taxpayer, and
(ii) may not, by reason of the taxpayer's method of
accounting, be deducted by the taxpayer for any taxable year,
shall be treated as having accrued on the date of the sale.
(e) Taxes of shareholder paid by corporation
Where a corporation pays a tax imposed on a shareholder on his
interest as a shareholder, and where the shareholder does not
reimburse the corporation, then -
(1) the deduction allowed by subsection (a) shall be allowed to
the corporation; and
(2) no deduction shall be allowed the shareholder for such tax.
(f) Deduction for one-half of self-employment taxes
(1) In general
In the case of an individual, in addition to the taxes
described in subsection (a), there shall be allowed as a
deduction for the taxable year an amount equal to one-half of the
taxes imposed by section 1401 for such taxable year.
(2) Deduction treated as attributable to trade or business
For purposes of this chapter, the deduction allowed by
paragraph (1) shall be treated as attributable to a trade or
business carried on by the taxpayer which does not consist of the
performance of services by the taxpayer as an employee.
(g) Cross references
(1) For provisions disallowing any deduction for certain
taxes, see section 275.
(2) For treatment of taxes imposed by Indian tribal
governments (or their subdivisions), see section 7871.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 47; Pub. L. 85-866, title I,
Sec. 6(a), Sept. 2, 1958, 72 Stat. 1608; Pub. L. 88-272, title II,
Sec. 207(a), (b)(1), (2), Feb. 26, 1964, 78 Stat. 40-42; Pub. L. 92-
580, Sec. 4(a), Oct. 27, 1972, 86 Stat. 1277; Pub. L. 94-455,
title XIX, Secs. 1901(a)(25), 1951(b)(3)(A), Oct. 4, 1976, 90 Stat.
1767, 1837; Pub. L. 95-600, title I, Sec. 111(a), (b), Nov. 6,
1978, 92 Stat. 2777; Pub. L. 96-223, title I, Sec. 101(b), Apr. 2,
1980, 94 Stat. 250; Pub. L. 97-473, title II, Sec. 202(b)(3), Jan.
14, 1983, 96 Stat. 2609; Pub. L. 98-21, title I, Sec. 124(c)(1),
Apr. 20, 1983, 97 Stat. 90; Pub. L. 98-369, div. A, title IV, Sec.
474(r)(29)(F), July 18, 1984, 98 Stat. 844; Pub. L. 99-499, title
V, Sec. 516(b)(2)(A), Oct. 17, 1986, 100 Stat. 1771; Pub. L. 99-
514, title I, Sec. 134, title XIV, Sec. 1432(a)(1), (2), Oct. 22,
1986, 100 Stat. 2116, 2729; Pub. L. 100-418, title I, Sec.
1941(b)(2)(A), Aug. 23, 1988, 102 Stat. 1323; Pub. L. 100-647,
title I, Sec. 1018(u)(11), Nov. 10, 1988, 102 Stat. 3590; Pub. L.
104-188, title I, Sec. 1704(t)(79), Aug. 20, 1996, 110 Stat. 1891;
Pub. L. 108-357, title V, Sec. 501(a), Oct. 22, 2004, 118 Stat.
1520; Pub. L. 109-135, title IV, Sec. 403(r)(1), Dec. 21, 2005, 119
Stat. 2628.)
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(5)(A). Pub. L. 109-135 reenacted heading
without change and amended text generally. Prior to amendment, text
read as follows:
"(i) In general. - At the election of the taxpayer for the
taxable year, subsection (a) shall be applied -
"(I) without regard to the reference to State and local income
taxes, and
"(II) as if State and local general sales taxes were referred
to in a paragraph thereof."
2004 - Subsec. (b)(5). Pub. L. 108-357 added par. (5).
1996 - Subsec. (a)(4), (5). Pub. L. 104-188 added pars. (4) and
(5) and struck out former pars. (4) and (5) which read as follows:
"(4) The environmental tax imposed by section 59A.
"(5) The GST tax imposed on income distributions."
1988 - Subsec. (a)(4). Pub. L. 100-418 struck out par. (4)
relating to windfall profit tax imposed by section 4986 and
redesignated par. (5) relating to environmental tax as (4).
Subsec. (a)(5). Pub. L. 100-647 substituted "The GST" for "the
GST".
Pub. L. 100-418 redesignated par. (5), relating to environmental
tax, as (4).
1986 - Subsec. (a). Pub. L. 99-514, Sec. 134(a)(2), inserted
"Notwithstanding the preceding sentence, any tax (not described in
the first sentence of this subsection) which is paid or accrued by
the taxpayer in connection with an acquisition or disposition of
property shall be treated as part of the cost of the acquired
property or, in the case of a disposition, as a reduction in the
amount realized on the disposition."
Subsec. (a)(4). Pub. L. 99-514, Sec. 134(a)(1), struck out par.
(4) relating to "State and local general sales taxes" and
redesignated as par. (4) former par. (5) relating to windfall
profit tax.
Subsec. (a)(5). Pub. L. 99-514, Sec. 1432(a)(1), added par. (5)
relating to GST tax imposed on income distributions.
Pub. L. 99-499 added par. (5) relating to environmental tax.
Subsec. (b)(2). Pub. L. 99-514, Sec. 134(b)(1), (2), redesignated
par. (3) as (2) and struck out former par. (2), general sales taxes
provisions, subpars. (A) to (E) of which covered in general rule,
special rules for food, etc., items taxed at different rates,
compensating use taxes, and special rules for motor vehicles,
respectively.
Subsec. (b)(3). Pub. L. 99-514, Sec. 134(b)(2), redesignated par.
(4) as (3). Former par. (3) redesignated (2).
Subsec. (b)(4). Pub. L. 99-514, Sec. 1432(a)(2), added par. (4).
Pub. L. 99-514, Sec. 134(b)(2), redesignated par. (4) as (3).
Subsec. (b)(5). Pub. L. 99-514, Sec. 134(b)(1), struck out par.
(5), separately stated general sales taxes, which read as follows:
"If the amount of any general sales tax is separately stated, then,
to the extent that the amount so stated is paid by the consumer
(otherwise than in connection with the consumer's trade or
business) to his seller, such amount shall be treated as a tax
imposed on, and paid by, such consumer."
1984 - Subsec. (f). Pub. L. 98-369 redesignated pars. (2) and (3)
as pars. (1) and (2), respectively. Former par. (1), which referred
to section 1451 for provisions disallowing any deduction for the
payment of the tax imposed by subchapter B of chapter 3 (relating
to tax-free covenant bonds), was struck out.
1983 - Subsec. (f). Pub. L. 98-21 added subsec. (f). Former
subsec. (f) redesignated (g).
Subsec. (f)(3). Pub. L. 97-473 added par. (3).
Subsec. (g). Pub. L. 98-21 redesignated subsec. (f) as (g).
1980 - Subsec. (a)(5). Pub. L. 96-223 added par. (5).
1978 - Subsec. (a)(5). Pub. L. 95-600, Sec. 111(a), struck out
par. (5) relating to a deduction for State and local taxes on the
sale of gasoline, diesel fuel, and other motor fuels.
Subsec. (b)(5). Pub. L. 95-600, Sec. 111(b), struck out in
heading "and gasoline taxes" after "sales taxes", and in text "or
of any tax on the sale of gasoline, diesel fuel, or other motor
fuel" after "sales tax".
1976 - Subsec. (d)(2). Pub. L. 94-455, Sec. 1901(a)(25),
redesignated subpar. (D) as (B), and struck out subpar. (B) which
related to the taxable years that subsec. (d)(1) applied and
subpar. (C) which related to the limitations on subsec. (d)(1)
where real property tax was allowable as a deduction under the
Internal Revenue Code of 1939.
Subsecs. (f), (g). Pub. L. 94-455, Sec. 1951(b)(3)(A),
redesignated subsec. (g) as (f). Former subsec. (f), which related
to payments for municipal services in atomic energy communities,
was struck out.
1972 - Subsec. (b)(2)(E). Pub. L. 92-580 added subpar. (E).
1964 - Subsec. (a). Pub. L. 88-272, Sec. 207(a), limited the
subsection to State, local and foreign real property, income, war
profits, excess profits, and unspecified taxes, on a business or
activity described in section 212, and to State and local personal
property, general sales, gasoline, diesel fuel and other motor fuel
taxes.
Subsec. (b). Pub. L. 88-272, Sec. 207(a), added subsec. (b).
Former subsec. (b), which denied the deduction for certain Federal
income taxes, for Federal war profits and excess profits taxes,
import duties, excise and stamp taxes, and estate, inheritance,
legacy, succession and gift taxes, local assessments against
benefits increasing property values, and certain taxes imposed by
any foreign country or possession of the United States if the
taxpayer chose to benefit by section 901 relating to foreign tax
credit, and for taxes on real property to the extent that they are
treated as imposed on another taxpayer, was struck out.
Subsec. (c). Pub. L. 88-272, Sec. 207(a), substituted provisions
denying the deduction for taxes assessed against local benefits
which increase property value, except for so much as is properly
allocable to maintenance or interest charges, and for real property
taxes to the extent they are treated as imposed on another
taxpayer, for provisions relating to certain retail sales taxes and
gasoline taxes, the extent to which they were deductible, and to
definition of "state or local sales tax".
Subsec. (f). Pub. L. 88-272, Sec. 207(b)(1), inserted "State"
before "real property taxes".
Subsec. (g). Pub. L. 88-272, Sec. 207(b)(2), designated existing
provisions as par. (1), substituted "1451" for "1451(f)" and added
par. (2).
1958 - Subsecs. (f), (g). Pub. L. 85-866, Sec. 6(a), added
subsec. (f) and redesignated former subsec. (f) as (g).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title V, Sec. 501(b), Oct. 22, 2004, 118 Stat.
1521, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2003."
EFFECTIVE DATE OF 1988 AMENDMENTS
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
Section 1941(c) of Pub. L. 100-418 provided that: "The amendments
made by this section [amending this section and sections 193, 291,
6161, 6211, 6212, 6213, 6214, 6302, 6344, 6501, 6511, 6512, 6611,
6654, 6655, 6724, 6862, 7422, and 7512 of this title, and repealing
sections 280D, 4986 to 4998, 6050C, 6076, 6232, 6429, 6430, and
7241 of this title] shall apply to crude oil removed from the
premises on or after the date of the enactment of this Act [Aug.
23, 1988]."
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 134 of Pub. L. 99-514 applicable to taxable
years beginning after Dec. 31, 1986, see section 151(a) of Pub. L.
99-514, set out as a note under section 1 of this title.
Amendment by section 1432(a)(1), (2) of Pub. L. 99-514 applicable
to generation-skipping transfers (within the meaning of section
2611 of this title) made after Oct. 22, 1986, except as otherwise
provided, see section 1433 of Pub. L. 99-514, set out as an
Effective Date note under section 2601 of this title.
Amendment by Pub. L. 99-499 applicable to taxable years beginning
after Dec. 31, 1986, see section 516(c) of Pub. L. 99-499, set out
as a note under section 26 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 not applicable with respect to
obligations issued before Jan. 1, 1984, see section 475(b) of Pub.
L. 98-369, set out as a note under section 33 of this title.
EFFECTIVE DATE OF 1983 AMENDMENTS
Amendment by Pub. L. 98-21 applicable to taxable years beginning
after Dec. 31, 1989, see section 124(d)(2) of Pub. L. 98-21, set
out as a note under section 1401 of this title.
For effective date of amendment by Pub. L. 97-473, see section
204(1) of Pub. L. 97-473, set out as an Effective Date note under
section 7871 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 applicable to periods after Feb. 29,
1980, see section 101(i) of Pub. L. 96-223, set out as an Effective
Date note under section 6161 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 111(c) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1978."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see sections 1901(d) and
1951(d) of Pub. L. 94-455, set out as notes under sections 2 and 72
of this title, respectively.
EFFECTIVE DATE OF 1972 AMENDMENT
Section 4(b) of Pub. L. 92-580 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years ending on or after January 1, 1971."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 207(c) of Pub. L. 88-272, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) General rule. - Except as provided in paragraph (2), the
amendments made by this section [enacting section 275 of this title
and amending this section and sections 535, 545, 556, 901, and 903
of this title] shall apply to taxable years beginning after
December 31, 1963.
"(2) Special taxing districts. - Section 164(c)(1) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by
subsection (a)) shall not prevent the deduction under section 164
of such Code (as so amended) of taxes levied by a special taxing
district which is described in section 164(b)(5) of such Code (as
in effect for a taxable year ending on December 31, 1963) and which
was in existence on December 31, 1963, for the purpose of retiring
indebtedness existing on such date."
EFFECTIVE DATE OF 1958 AMENDMENT
Section 6(b) of Pub. L. 85-866 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to taxable years beginning after December 31, 1957."
SAVINGS PROVISION
Section 1951(b)(3)(B) of Pub. L. 94-455 provided that:
"Notwithstanding subparagraph (A) [amending this section], any
amount paid or accrued in a taxable year beginning after December
31, 1976, to the Atomic Energy Commission or its successors for
municipal-type services shall be allowed as a deduction under
section 164 if such amount would have been deductible by reason of
section 164(f) (as in effect for a taxable year ending on December
31, 1976) and if the amount is paid or accrued with respect to real
property in a community (within the meaning of section 21(b) of the
Atomic Energy Community Act of 1955 (42 U.S.C. 2304(b))) in which
the Commission on December 31, 1976, was rendering municipal-type
services for which it received compensation from the owners of
property within such community."
-End-
-CITE-
26 USC Sec. 165 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 165. Losses
-STATUTE-
(a) General rule
There shall be allowed as a deduction any loss sustained during
the taxable year and not compensated for by insurance or otherwise.
(b) Amount of deduction
For purposes of subsection (a), the basis for determining the
amount of the deduction for any loss shall be the adjusted basis
provided in section 1011 for determining the loss from the sale or
other disposition of property.
(c) Limitation on losses of individuals
In the case of an individual, the deduction under subsection (a)
shall be limited to -
(1) losses incurred in a trade or business;
(2) losses incurred in any transaction entered into for profit,
though not connected with a trade or business; and
(3) except as provided in subsection (h), losses of property
not connected with a trade or business or a transaction entered
into for profit, if such losses arise from fire, storm,
shipwreck, or other casualty, or from theft.
(d) Wagering losses
Losses from wagering transactions shall be allowed only to the
extent of the gains from such transactions.
(e) Theft losses
For purposes of subsection (a), any loss arising from theft shall
be treated as sustained during the taxable year in which the
taxpayer discovers such loss.
(f) Capital losses
Losses from sales or exchanges of capital assets shall be allowed
only to the extent allowed in sections 1211 and 1212.
(g) Worthless securities
(1) General rule
If any security which is a capital asset becomes worthless
during the taxable year, the loss resulting therefrom shall, for
purposes of this subtitle, be treated as a loss from the sale or
exchange, on the last day of the taxable year, of a capital
asset.
(2) Security defined
For purposes of this subsection, the term "security" means -
(A) a share of stock in a corporation;
(B) a right to subscribe for, or to receive, a share of stock
in a corporation; or
(C) a bond, debenture, note, or certificate, or other
evidence of indebtedness, issued by a corporation or by a
government or political subdivision thereof, with interest
coupons or in registered form.
(3) Securities in affiliated corporation
For purposes of paragraph (1), any security in a corporation
affiliated with a taxpayer which is a domestic corporation shall
not be treated as a capital asset. For purposes of the preceding
sentence, a corporation shall be treated as affiliated with the
taxpayer only if -
(A) the taxpayer owns directly stock in such corporation
meeting the requirements of section 1504(a)(2), and
(B) more than 90 percent of the aggregate of its gross
receipts for all taxable years has been from sources other than
royalties, rents (except rents derived from rental of
properties to employees of the corporation in the ordinary
course of its operating business), dividends, interest (except
interest received on deferred purchase price of operating
assets sold), annuities, and gains from sales or exchanges of
stocks and securities.
In computing gross receipts for purposes of the preceding
sentence, gross receipts from sales or exchanges of stocks and
securities shall be taken into account only to the extent of
gains therefrom.
(h) Treatment of casualty gains and losses
(1) $100 limitation per casualty
Any loss of an individual described in subsection (c)(3) shall
be allowed only to the extent that the amount of the loss to such
individual arising from each casualty, or from each theft,
exceeds $100.
(2) Net casualty loss allowed only to the extent it exceeds 10
percent of adjusted gross income
(A) In general
If the personal casualty losses for any taxable year exceed
the personal casualty gains for such taxable year, such losses
shall be allowed for the taxable year only to the extent of the
sum of -
(i) the amount of the personal casualty gains for the
taxable year, plus
(ii) so much of such excess as exceeds 10 percent of the
adjusted gross income of the individual.
(B) Special rule where personal casualty gains exceed personal
casualty losses
If the personal casualty gains for any taxable year exceed
the personal casualty losses for such taxable year -
(i) all such gains shall be treated as gains from sales or
exchanges of capital assets, and
(ii) all such losses shall be treated as losses from sales
or exchanges of capital assets.
(3) Definitions of personal casualty gain and personal casualty
loss
For purposes of this subsection -
(A) Personal casualty gain
The term "personal casualty gain" means the recognized gain
from any involuntary conversion of property which is described
in subsection (c)(3) arising from fire, storm, shipwreck, or
other casualty, or from theft.
(B) Personal casualty loss
The term "personal casualty loss" means any loss described in
subsection (c)(3). For purposes of paragraph (2), the amount of
any personal casualty loss shall be determined after the
application of paragraph (1).
(4) Special rules
(A) Personal casualty losses allowable in computing adjusted
gross income to the extent of personal casualty gains
In any case to which paragraph (2)(A) applies, the deduction
for personal casualty losses for any taxable year shall be
treated as a deduction allowable in computing adjusted gross
income to the extent such losses do not exceed the personal
casualty gains for the taxable year.
(B) Joint returns
For purposes of this subsection, a husband and wife making a
joint return for the taxable year shall be treated as 1
individual.
(C) Determination of adjusted gross income in case of estates
and trusts
For purposes of paragraph (2), the adjusted gross income of
an estate or trust shall be computed in the same manner as in
the case of an individual, except that the deductions for costs
paid or incurred in connection with the administration of the
estate or trust shall be treated as allowable in arriving at
adjusted gross income.
(D) Coordination with estate tax
No loss described in subsection (c)(3) shall be allowed if,
at the time of filing the return, such loss has been claimed
for estate tax purposes in the estate tax return.
(E) Claim required to be filed in certain cases
Any loss of an individual described in subsection (c)(3) to
the extent covered by insurance shall be taken into account
under this section only if the individual files a timely
insurance claim with respect to such loss.
(i) Disaster losses
(1) Election to take deduction for preceding year
Notwithstanding the provisions of subsection (a), any loss
attributable to a disaster occurring in an area subsequently
determined by the President of the United States to warrant
assistance by the Federal Government under the Robert T. Stafford
Disaster Relief and Emergency Assistance Act may, at the election
of the taxpayer, be taken into account for the taxable year
immediately preceding the taxable year in which the disaster
occurred.
(2) Year of loss
If an election is made under this subsection, the casualty
resulting in the loss shall be treated for purposes of this title
as having occurred in the taxable year for which the deduction is
claimed.
(3) Amount of loss
The amount of the loss taken into account in the preceding
taxable year by reason of paragraph (1) shall not exceed the
uncompensated amount determined on the basis of the facts
existing at the date the taxpayer claims the loss.
(4) Use of disaster loan appraisals to establish amount of loss
Nothing in this title shall be construed to prohibit the
Secretary from prescribing regulations or other guidance under
which an appraisal for the purpose of obtaining a loan of Federal
funds or a loan guarantee from the Federal Government as a result
of a Presidentially declared disaster (as defined by section
1033(h)(3)) may be used to establish the amount of any loss
described in paragraph (1) or (2).
(j) Denial of deduction for losses on certain obligations not in
registered form
(1) In general
Nothing in subsection (a) or in any other provision of law
shall be construed to provide a deduction for any loss sustained
on any registration-required obligation unless such obligation is
in registered form (or the issuance of such obligation was
subject to tax under section 4701).
(2) Definitions
For purposes of this subsection -
(A) Registration-required obligation
The term "registration-required obligation" has the meaning
given to such term by section 163(f)(2) except that clause (iv)
of subparagraph (A), and subparagraph (B), of such section
shall not apply.
(B) Registered form
The term "registered form" has the same meaning as when used
in section 163(f).
(3) Exceptions
The Secretary may, by regulations, provide that this subsection
and section 1287 shall not apply with respect to obligations held
by any person if -
(A) such person holds such obligations in connection with a
trade or business outside the United States,
(B) such person holds such obligations as a broker dealer
(registered under Federal or State law) for sale to customers
in the ordinary course of his trade or business,
(C) such person complies with reporting requirements with
respect to ownership, transfers, and payments as the Secretary
may require, or
(D) such person promptly surrenders the obligation to the
issuer for the issuance of a new obligation in registered form,
but only if such obligations are held under arrangements provided
in regulations or otherwise which are designed to assure that
such obligations are not delivered to any United States person
other than a person described in subparagraph (A), (B), or (C).
(k) Treatment as disaster loss where taxpayer ordered to demolish
or relocate residence in disaster area because of disaster
In the case of a taxpayer whose residence is located in an area
which has been determined by the President of the United States to
warrant assistance by the Federal Government under the Robert T.
Stafford Disaster Relief and Emergency Assistance Act, if -
(1) not later than the 120th day after the date of such
determination, the taxpayer is ordered, by the government of the
State or any political subdivision thereof in which such
residence is located, to demolish or relocate such residence, and
(2) the residence has been rendered unsafe for use as a
residence by reason of the disaster,
any loss attributable to such disaster shall be treated as a loss
which arises from a casualty and which is described in subsection
(i).
(l) Treatment of certain losses in insolvent financial institutions
(1) In general
If -
(A) as of the close of the taxable year, it can reasonably be
estimated that there is a loss on a qualified individual's
deposit in a qualified financial institution, and
(B) such loss is on account of the bankruptcy or insolvency
of such institution,
then the taxpayer may elect to treat the amount so estimated as a
loss described in subsection (c)(3) incurred during the taxable
year.
(2) Qualified individual defined
For purposes of this subsection, the term "qualified
individual" means any individual, except an individual -
(A) who owns at least 1 percent in value of the outstanding
stock of the qualified financial institution,
(B) who is an officer of the qualified financial institution,
(C) who is a sibling (whether by the whole or half blood),
spouse, aunt, uncle, nephew, niece, ancestor, or lineal
descendant of an individual described in subparagraph (A) or
(B), or
(D) who otherwise is a related person (as defined in section
267(b)) with respect to an individual described in subparagraph
(A) or (B).
(3) Qualified financial institution
For purposes of this subsection, the term "qualified financial
institution" means -
(A) any bank (as defined in section 581),
(B) any institution described in section 591,
(C) any credit union the deposits or accounts in which are
insured under Federal or State law or are protected or
guaranteed under State law, or
(D) any similar institution chartered and supervised under
Federal or State law.
(4) Deposit
For purposes of this subsection, the term "deposit" means any
deposit, withdrawable account, or withdrawable or repurchasable
share.
(5) Election to treat as ordinary loss
(A) In general
In lieu of any election under paragraph (1), the taxpayer may
elect to treat the amount referred to in paragraph (1) for the
taxable year as an ordinary loss described in subsection (c)(2)
incurred during the taxable year.
(B) Limitations
(i) Deposit may not be federally insured
No election may be made under subparagraph (A) with respect
to any loss on a deposit in a qualified financial institution
if part or all of such deposit is insured under Federal law.
(ii) Dollar limitation
With respect to each financial institution, the aggregate
amount of losses attributable to deposits in such financial
institution to which an election under subparagraph (A) may
be made by the taxpayer for any taxable year shall not exceed
$20,000 ($10,000 in the case of a separate return by a
married individual). The limitation of the preceding sentence
shall be reduced by the amount of any insurance proceeds
under any State law which can reasonably be expected to be
received with respect to losses on deposits in such
institution.
(6) Election
Any election by the taxpayer under this subsection for any
taxable year -
(A) shall apply to all losses for such taxable year of the
taxpayer on deposits in the institution with respect to which
such election was made, and
(B) may be revoked only with the consent of the Secretary.
(7) Coordination with section 166
Section 166 shall not apply to any loss to which an election
under this subsection applies.
(m) Cross references
(1) For special rule for banks with respect to worthless
securities, see section 582.
(2) For disallowance of deduction for worthlessness of
securities to which subsection (g)(2)(C) applies, if issued by
a political party or similar organization, see section 271.
(3) For special rule for losses on stock in a small business
investment company, see section 1242.
(4) For special rule for losses of a small business
investment company, see section 1243.
(5) For special rule for losses on small business stock, see
section 1244.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 49; Pub. L. 85-866, title I,
Secs. 7, 57(c)(1), title II, Sec. 202(a), Sept. 2, 1958, 72 Stat.
1608, 1646, 1676; Pub. L. 87-426, Sec. 2(a), Mar. 31, 1962, 76
Stat. 51; Pub. L. 88-272, title II, Secs. 208(a), 238, Feb. 26,
1964, 78 Stat. 43, 128; Pub. L. 88-348, Sec. 3(a), June 30, 1964,
78 Stat. 237; Pub. L. 91-606, title III, Sec. 301(h), Dec. 31,
1970, 84 Stat. 1759; Pub. L. 91-677, Sec. 1(a), Jan. 12, 1971, 84
Stat. 2061; Pub. L. 91-687, Sec. 1, Jan. 12, 1971, 84 Stat. 2071;
Pub. L. 92-336, Sec. 2(a), July 1, 1972, 86 Stat. 406; Pub. L. 92-
418, Sec. 2(a), Aug. 29, 1972, 86 Stat. 656, 657; Pub. L. 93-288,
title VII, Sec. 702(h), formerly title VI, Sec. 602(h), May 22,
1974, 88 Stat. 164, renumbered title VII, Sec. 702(h), Pub. L. 103-
337, div. C, title XXXIV, Sec. 3411(a)(1), (2), Oct. 5, 1994, 108
Stat. 3100; Pub. L. 94-455, title XIX, Sec. 1901(a)(26), Oct. 4,
1976, 90 Stat. 1767; Pub. L. 97-248, title II, Sec. 203(a), (b),
title III, Sec. 310(b)(5), Sept. 3, 1982, 96 Stat. 422, 598; Pub.
L. 98-369, div. A, title I, Sec. 42(a)(4), title VII, Sec.
711(c)(1), (2)(A)(i), (ii), title X, Sec. 1051(a), July 18, 1984,
98 Stat. 556, 943, 1044; Pub. L. 99-514, title IX, Sec. 905(a),
title X, Sec. 1004(a), Oct. 22, 1986, 100 Stat. 2385, 2388; Pub. L.
100-647, title I, Sec. 1009(d)(1), Nov. 10, 1988, 102 Stat. 3449;
Pub. L. 100-707, title I, Sec. 109(l), Nov. 23, 1988, 102 Stat.
4709; Pub. L. 105-34, title IX, Sec. 912(a), Aug. 5, 1997, 111
Stat. 878; Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec.
318(b)(1), (2)], Dec. 21, 2000, 114 Stat. 2763, 2763A-645; Pub. L.
108-311, title IV, Sec. 408(a)(7)(A), (B), Oct. 4, 2004, 118 Stat.
1191.)
-REFTEXT-
REFERENCES IN TEXT
The Robert T. Stafford Disaster Relief and Emergency Assistance
Act, referred to in subsecs. (i)(1) and (k), is Pub. L. 93-288, May
22, 1974, 88 Stat. 143, as amended, which is classified principally
to chapter 68 (Sec. 5121 et seq.) of Title 42, The Public Health
and Welfare. For complete classification of this Act to the Code,
see Short Title note set out under section 5121 of Title 42 and
Tables.
-MISC1-
AMENDMENTS
2004 - Subsecs. (i)(1), (k). Pub. L. 108-311 inserted "Robert T.
Stafford" before "Disaster Relief and Emergency Assistance Act".
2000 - Subsec. (g)(3). Pub. L. 106-554, Sec. 1(a)(7) [title III,
Sec. 318(b)(2)], struck out last sentence of concluding provisions
which read as follows: "As used in subparagraph (A), the term
'stock' does not include nonvoting stock which is limited and
preferred as to dividends."
Subsec. (g)(3)(A). Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec.
318(b)(1)], amended subpar. (A) generally. Prior to amendment,
subpar. (A) read as follows: "stock possessing at least 80 percent
of the voting power of all classes of its stock and at least 80
percent of each class of its nonvoting stock is owned directly by
the taxpayer, and".
1997 - Subsec. (i)(4). Pub. L. 105-34 added par. (4).
1988 - Subsecs. (i)(1), (k). Pub. L. 100-707 substituted "and
Emergency Assistance Act" for "Act of 1974".
Subsec. (l)(5) to (7). Pub. L. 100-647 added pars. (5) and (6),
redesignated former par. (6) as (7), and struck out former par. (5)
which read as follows: "Election. - Any election by the taxpayer
under this subsection may be revoked only with the consent of the
Secretary and shall apply to all losses of the taxpayer on deposits
in the institution with respect to which such election was made."
1986 - Subsec. (h)(4)(E). Pub. L. 99-514, Sec. 1004(a), added
subpar. (E).
Subsecs. (l), (m). Pub. L. 99-514, Sec. 905(a), added subsec. (l)
and redesignated former subsec. (l) as (m).
1984 - Subsec. (c)(3). Pub. L. 98-369, Sec. 711(c)(2)(A)(i),
extended limitation to losses of property not connected with a
transaction entered into for profit.
Subsec. (h). Pub. L. 98-369, Sec. 711(c)(2)(A)(ii), substituted
heading "Treatment of casualty gains and losses" for "Casualty and
theft losses"; substituted par. (1) "$100 limitation per casualty"
provision for former par. (1) "General rule" provision stating
that: "Any loss of an individual described in subsection (c)(3)
shall be allowed for any taxable year only to the extent that -
"(A) the amount of loss to such individual arising from each
casualty, or from each theft, exceeds $100, and
"(B) the aggregate amount of all such losses sustained by such
individual during the taxable year (determined after application
of subparagraph (A) exceeds 10 percent of the adjusted gross
income of the individual.";
added par. (2) "Net casualty loss allowed only to the extent it
exceeds 10 percent of adjusted gross income" provision and par. (3)
"Definitions of personal casualty gain and personal casualty loss"
provisions; redesignated as par. (4) former par. (2) catchline;
added par. (4)(A) "Personal casualty losses allowable in computing
adjusted gross income to the extent of personal casualty gains"
provision; redesignated as par. (4)(B) former par. (2)(A) joint
returns provision, substituting "For purposes of this section" for
"For purposes of the $100 and 10 percent limitations described in
paragraph (1)" and "individual" for "one individual"; redesignated
as par. (4)(C) former par. (2)(B), substituting therein paragraph
"(2)" for "(1)"; and redesignated as par. (4)(D) former par.
(2)(C).
Pub. L. 98-369, Sec. 711(c)(1), amended par. (2) by redesignating
subpar. (B) as (C) and by adding a new subpar. (B) relating to the
determination of adjusted gross income in case of estates and
trusts.
Subsec. (j)(3). Pub. L. 98-369, Sec. 42(a)(4), substituted
"section 1287" for "subsection (d) of section 1232".
Subsecs. (k), (l). Pub. L. 98-369, Sec. 1051(a), added subsec.
(k) and redesignated former subsec. (k) as (l).
1982 - Subsec. (c)(3). Pub. L. 97-248, Sec. 203(b), inserted
"except as provided in subsection (h)," before "losses of property"
and struck out provisions that a loss described in this paragraph
would be allowed only to the extent that the amount of loss to such
individual arising from each casualty, or from each theft, exceeded
$100, that, for purposes of the $100 limitation, a husband and wife
making a joint return under section 6013 for the taxable year in
which the loss was allowed as a deduction would be treated as one
individual, and that no loss described in this paragraph would be
allowed if, at the time of filing the return, such loss had been
claimed for estate tax purposes in the estate tax return.
Subsec. (h). Pub. L. 97-248, Sec. 203(a), added subsec. (h)
relating to casualty and theft losses. Former subsec. (h), relating
to disaster losses, redesignated (i).
Subsec. (i). Pub. L. 97-248, Sec. 203(a), redesignated former
subsec. (h), relating to disaster losses, as (i), in subsec. (i),
as so redesignated, further redesignated existing unnumbered
provisions as pars. (1) and (2), in par. (1), as so redesignated,
substituted "be taken into account for the taxable year" for "be
deducted for the taxable year", in par. (2), as so redesignated,
substituted "shall be treated for purposes of this title as having
occurred" for "will be deemed to have occurred", added par. (3),
and struck out provision that a deduction under this subsection
could not be in excess of so much of the loss as would have been
deductible in the taxable year in which the casualty occurred,
based on facts existing at the date the taxpayer claimed the loss.
Former subsec. (i), setting forth cross references, redesignated
(j).
Subsec. (j). Pub. L. 97-248, Sec. 310(b)(5), added subsec. (j)
relating to denial of deduction for losses on certain obligations
not in registered form. Former subsec. (j), setting forth cross
references, redesignated (k).
Pub. L. 97-248, Sec. 203(a), redesignated former subsec. (i),
setting forth cross references, as (j).
Subsec. (k). Pub. L. 97-248, Sec. 310(b)(5), redesignated former
subsec. (j), setting forth cross references, as (k).
1976 - Subsecs. (i), (j). Pub. L. 94-455 redesignated subsec. (j)
as subsec. (i). Former subsec. (i), which related to property
confiscated by Cuba, was struck out.
1974 - Subsec. (h). Pub. L. 93-288 substituted "Disaster Relief
Act of 1974" for "Disaster Relief Act of 1970".
1972 - Subsec. (h). Pub. L. 92-418 struck out par. (1) provisions
relating to losses attributable to a disaster occurring during
period following close of taxable year and on or before time
prescribed by law for filing the income tax return for the taxable
year without regard to any extension of time, struck out par. (2)
designation, and inserted "attributable to a disaster" before
"occurring in an area", and at end of second sentence, inserted
"based on facts existing at the date the taxpayer claims the loss".
Subsec. (h)(1). Pub. L. 92-336 substituted provisions relating to
losses attributable to a disaster which occurs during the period
after the close of the taxable year and on or before the last day
of the 6th calendar month beginning after the close of the taxable
year, for provisions relating to losses attributable to a disaster
which occurs during the period following the close of the taxable
year and on or before the time prescribed by law for filing the
income tax return for the taxable year, determined without regard
to any extension of time.
1971 - Subsec. (g)(3). Pub. L. 91-687 substituted "stock
possessing at least 80 percent of the voting power of all classes
of its stock and at least 80 percent of each class of its nonvoting
stock" for "at least 95 percent of each class of its stock" in
subpar. (A), and inserted at the end of the subsection the sentence
providing that the term "stock", as used in subpar. (A), does not
include nonvoting stock which is limited and preferred as to
dividends.
Subsec. (i)(1). Pub. L. 91-677, Sec. 1(a)(1), (2), struck out "or
(2)" after "paragraph (1)" in cl. (B), and substituted "one or more
days in the period beginning on December 31, 1958, and ending on
May 16, 1959" for "December 31, 1958".
Subsec. (i)(2)(B). Pub. L. 91-677, Sec. 1(a)(3), substituted "one
or more days during the period beginning on December 31, 1958, and
ending on May 16, 1959" for "December 31, 1958" and "the first day
in such period on which the property was held by the taxpayer" for
"December 31, 1958".
Subsec. (i)(3). Pub. L. 91-677, Sec. 1(a)(4), struck out subsec.
(i)(3) which authorized a refund or credit to be given for any
overpayment attributable to the application of par. (1), provided
that a claim was filed for such refund or credit before Jan. 1,
1965.
1970 - Subsec. (h)(2). Pub. L. 91-606 substituted "the Disaster
Relief Act of 1970" for "sections 1855-1855g of title 42".
1964 - Subsec. (c)(3). Pub. L. 88-272, Sec. 208(a), inserted
requirement that losses must exceed $100 to be deductible.
Subsec. (i). Pub. L. 88-348 designated existing provisions as
par. (1), substituted provisions permitting individuals who were
citizens of the United States or resident aliens on Dec. 31, 1958,
who sustained any loss of property prior to Jan. 1, 1964, and which
was not a loss described in par. (1) or (2) of subsec. (c), to
treat such loss as a loss under subsec. (c)(3), except that in
cases of tangible property, the property had to be held by the
taxpayer, and located in Cuba, on Dec. 31, 1958, for provisions
which permitted any loss of tangible property to be treated as a
loss from a casualty within subsec. (c)(3), therein, and added
pars. (2) and (3).
Pub. L. 88-272, Sec. 238, added subsec. (i). Former subsec. (i)
redesignated (j).
Subsec. (j). Pub. L. 88-272, Sec. 238, redesignated former
subsec. (i) as (j).
1962 - Subsecs. (h), (i). Pub. L. 87-426 added subsec. (h) and
redesignated former subsec. (h) as (i).
1958 - Subsec. (g)(3)(B). Pub. L. 85-866, Sec. 7, substituted
"rental of" for "rental from".
Subsec. (h)(3), (4). Pub. L. 85-866, Sec. 57(c)(1), added pars.
(3) and (4).
Subsec. (h)(5). Pub. L. 85-866, Sec. 202(a), added par. (5).
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 318(b)(3)], Dec.
21, 2000, 114 Stat. 2763, 2763A-645, provided that: "The amendments
made by this subsection [amending this section] shall apply to
taxable years beginning after December 31, 1984."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 912(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall take effect on
the date of the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 905(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1981, see section 905(c)(1)
of Pub. L. 99-514, as amended, set out as a note under section 451
of this title.
Section 1004(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to losses
sustained in taxable years beginning after December 31, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 42(a)(4) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Amendment by section 711(c)(1) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
Section 711(c)(2)(A)(v) of Pub. L. 98-369 provided that: "The
amendments made by this subparagraph [amending this section and
sections 873, 931, and 1231 of this title] shall apply to taxable
years beginning after December 31, 1983."
Section 1051(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after December 31, 1981, with respect to
residences in areas determined by the President of the United
States, after such date, to warrant assistance by the Federal
Government under the Disaster Relief Act of 1974 [42 U.S.C. 5121 et
seq.]."
EFFECTIVE DATE OF 1982 AMENDMENT
Section 203(c) of Pub. L. 97-248, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1982. Such amendments
shall also apply to the taxpayer's last taxable year beginning
before January 1, 1983, solely for purposes of determining the
amount allowable as a deduction with respect to any loss taken into
account for such year by reason of an election under section 165(i)
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as
amended by this section)."
Amendment by section 310(b)(5) of Pub. L. 97-248 applicable to
obligations issued after Dec. 31, 1982, with exceptions for certain
warrants, see section 310(d) of Pub. L. 97-248, set out as a note
under section 103 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by Pub. L. 93-288 effective Apr. 1, 1974, see section
605 of Pub. L. 93-288, set out as an Effective Date note under
section 5121 of Title 42, The Public Health and Welfare.
EFFECTIVE DATE OF 1972 AMENDMENTS
Section 2(c) of Pub. L. 92-418 provided in part that: "The
amendment made by subsection (a) [amending this section] shall
apply to disasters occurring after December 31, 1971, in taxable
years ending after such date."
Section 2(b) of Pub. L. 92-336 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to disasters
occurring after December 31, 1971, in taxable years ending after
such date."
EFFECTIVE DATE OF 1971 AMENDMENTS
Section 2 of Pub. L. 91-687 provided that: "The amendments made
by this Act [amending this section] shall apply with respect to
taxable years beginning on or after January 1, 1970."
Section 1(b)(1) of Pub. L. 91-677 provided that: "The amendments
made by subsection (a) [amending this section] shall apply in
respect of losses sustained in taxable years ending after December
31, 1958."
EFFECTIVE DATE OF 1970 AMENDMENT
Section 304 of Pub. L. 91-606 provided that: "This Act [enacting
sections 4401 to 4485 of Title 42, The Public Health and Welfare,
amending this section, sections 5064 and 5708 of this title,
sections 1706e, 1709, 1715l of Title 12, Banks and Banking,
sections 241-1, 646 and 758 of Title 20, Education, section 1820
[now 3720] of Title 38, Veterans' Benefits, section 461 of former
Title 40, Public Buildings, Property, and Works, section 1681 note
of Title 42, repealing sections 1855 to 1855g, 1855aa, 1855aa note,
1855bb to 1855ii, 1855aaa, 1855aaa note, 1855bbb to 1855nnn of
Title 42, and section 1926 of Title 7, Agriculture, and enacting
provisions set out as notes under section 4401 and section 4434 of
Title 42] shall take effect immediately upon its enactment [Dec.
31, 1970], except that sections 226(b), 237, 241, 252(a), and 254
[sections 4436(b), 4456, 4460, 4482(a), and 4484 of Title 42,
respectively] shall take effect as of August 1, 1969, and sections
231, 232, and 233 [sections 4451, 4452 of Title 42 and amendments
to section 1820 [now 3720] of Title 38, respectively] shall take
effect as of April 1, 1970."
EFFECTIVE DATE OF 1964 AMENDMENTS
Section 208(b) of Pub. L. 88-272 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
losses sustained after December 31, 1963, in taxable years ending
after such date."
Section 3(b) of Pub. L. 88-348 provided that: "The amendment made
by subsection (a) [amending this section] shall apply in respect of
losses sustained in taxable years ending after December 31, 1958."
EFFECTIVE DATE OF 1962 AMENDMENT
Section 2(b) of Pub. L. 87-426 provided that: "The amendments
made by this section [amending this section] shall be effective
with respect to any disaster occurring after December 31, 1961."
EFFECTIVE DATE OF 1958 AMENDMENT
Section 1(c) of title I of Pub. L. 85-866, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"Except as otherwise expressly provided -
"(1) amendments made by this title to subtitle A of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to
income taxes) [enacting section 558 of this title and amending
this section and sections 152, 166, 168, 170, 172, 213, 337, 404,
421, 535, 545, 556, 582, 611, 613, 851, 1015, 1031, 1033, 1034,
1053, 1232, 1233, 1234, 1237, 1341, and 1347 of this title] shall
apply to taxable years beginning after December 31, 1953, and
ending after August 16, 1954; and
"(2) amendments made by this title to subtitle F of such Code
(relating to procedure and administration) [enacting sections
7513 and 7514 of this title and amending sections 6013, 6015,
6212, 6325, 6338, 6339, 6501, 6504, 6511, 6601, 6652, 6653, 6851,
6871, 7213, 7324, 7325, and 7422 of this title] shall take effect
as of August 17, 1954, and such subtitle, as so amended, shall
apply as provided in section 7851 of the Internal Revenue Code of
1986".
Amendment by section 57(c)(1) of Pub. L. 85-866 applicable with
respect to taxable years beginning after Sept. 2, 1958, see section
57(d) of Pub. L. 85-866, set out as a note under section 243 of
this title.
TRANSITIONAL RULE FOR 1984 AMENDMENT
Section 711(c)(2)(B) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the
case of taxable years beginning before January 1, 1984 -
"(i) For purposes of paragraph (1)(B) of section 165(h) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954], adjusted
gross income shall be determined without regard to the
application of section 1231 of such Code to any gain or loss from
an involuntary conversion of property described in subsection
(c)(3) of section 165 of such Code arising from fire, storm,
shipwreck, or other casualty or from theft.
"(ii) Section 1231 of such Code shall be applied after the
application of paragraph (1) of section 165(h) of such Code."
CLARIFICATION OF TREATMENT OF CERTAIN FSLIC FINANCIAL ASSISTANCE
Pub. L. 103-66, title XIII, Sec. 13224, Aug. 10, 1993, 107 Stat.
485, provided that:
"(a) General Rule. - For purposes of chapter 1 of the Internal
Revenue Code of 1986 -
"(1) any FSLIC assistance with respect to any loss of
principal, capital, or similar amount upon the disposition of any
asset shall be taken into account as compensation for such loss
for purposes of section 165 of such Code, and
"(2) any FSLIC assistance with respect to any debt shall be
taken into account for purposes of section 166, 585, or 593 of
such Code in determining whether such debt is worthless (or the
extent to which such debt is worthless) and in determining the
amount of any addition to a reserve for bad debts arising from
the worthlessness or partial worthlessness of such debts.
"(b) FSLIC Assistance. - For purposes of this section, the term
'FSLIC assistance' means any assistance (or right to assistance)
with respect to a domestic building and loan association (as
defined in section 7701(a)(19) of such Code without regard to
subparagraph (C) thereof) under section 406(f) of the National
Housing Act [former 12 U.S.C. 1729(f)] or section 21A of the
Federal Home Loan Bank Act [12 U.S.C. 1441a] (or under any similar
provision of law).
"(c) Effective Date. -
"(1) In general. - Except as otherwise provided in this
subsection -
"(A) The provisions of this section shall apply to taxable
years ending on or after March 4, 1991, but only with respect
to FSLIC assistance not credited before March 4, 1991.
"(B) If any FSLIC assistance not credited before March 4,
1991, is with respect to a loss sustained or charge-off in a
taxable year ending before March 4, 1991, for purposes of
determining the amount of any net operating loss carryover to a
taxable year ending on or after March 4, 1991, the provisions
of this section shall apply to such assistance for purposes of
determining the amount of the net operating loss for the
taxable year in which such loss was sustained or debt written
off. Except as provided in the preceding sentence, this section
shall not apply to any FSLIC assistance with respect to a loss
sustained or charge-off in a taxable year ending before March
4, 1991.
"(2) Exceptions. - The provisions of this section shall not
apply to any assistance to which the amendments made by section
1401(a)(3) of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 [Pub. L. 101-73, amending section 597 of
this title and repealing provisions set out as a note under
section 597 of this title] apply."
OVERPAYMENTS OR UNDERPAYMENTS OF TAX ATTRIBUTABLE TO CERTAIN
AMENDMENTS BY PUB. L. 99-514 OR PUB. L. 100-647
Section 1009(d)(4) of Pub. L. 100-647 provided that: "If on the
date of the enactment of this Act [Nov. 10, 1988] (or at any time
before the date 1 year after such date of enactment) credit or
refund of any overpayment of tax attributable to amendments made by
section 905 of the Reform Act [section 905 of Pub. L. 99-514,
amending this section and section 451 of this title] or by this
subsection [amending this section and section 451 of this title and
provisions set out as a note under section 451 of this title] (or
the assessment of any underpayment of tax so attributable) is
barred by any law or rule of law -
"(A) credit or refund of any such overpayment may nevertheless
be made if claim therefore [sic] is filed before the date 1 year
after such date of enactment, and
"(B) assessment of any such underpayment may nevertheless be
made if made before the date 1 year after such date of
enactment."
DEDUCTION FOR BUS AND FREIGHT FORWARDER OPERATING AUTHORITY
Section 243 of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1002(j), Nov. 10, 1988, 102 Stat. 3371, provided
that:
"(a) Bus Operating Authority. -
"(1) In general. - Subject to the modifications contained in
paragraph (2), section 266 of the Economic Recovery Tax Act of
1981 [section 266 of Pub. L. 97-34, set out below] shall be
applied as if the term 'motor carrier operating authority'
included a bus operating authority.
"(2) Modifications. - For purposes of paragraph (1), section
266 of such Act shall be applied -
"(A) by substituting 'November 19, 1982' for 'July 1, 1980'
each place it appears, and
"(B) by substituting 'November 1982' for 'July 1980' in
subsection (a) thereof.
"(3) Bus operating authority defined. - For purposes of this
subsection and section 266 of such Act, the term 'bus operating
authority' means -
"(A) a certificate or permit held by a motor common or
contract carrier of passengers which was issued pursuant to
subchapter II of chapter 109 of title 49, United States Code,
and
"(B) a certificate or permit held by a motor carrier
authorizing the transportation of passengers, as a common
carrier, over regular routes in intrastate commerce which was
issued by the appropriate State agency.
"(b) Freight Forwarder Operating Authority. -
"(1) In general. - Subject to the modifications contained in
paragraph (2), section 266 of the Economic Recovery Tax Act of
1981 [section 266 of Pub. L. 97-34, set out below] shall be
applied as if subsection (b) thereof contained 'or a freight
forwarder' after 'contract carrier of property'.
"(2) Modifications. - The modifications referred to in this
paragraph are:
"(A) 60-month period. - The 60-month period referred to in
section 266(a) of such Act shall begin with the later of -
"(i) the deregulation month, or
"(ii) at the election of the taxpayer, the 1st month of the
taxpayer's 1st taxable year beginning after the deregulation
month.
"(B) Authority must be held as of beginning of 60-month
period. - A motor carrier operating authority shall not be
taken into account unless such authority is held by the
taxpayer at the beginning of the 60-month period applicable to
the taxpayer under subparagraph (A).
"(C) Adjusted basis not to exceed adjusted basis at beginning
of 60-month period. - The adjusted basis taken into account
with respect to any motor carrier operating authority shall not
exceed the adjusted basis of such authority as of the beginning
of the 60-month period applicable to the taxpayer under
subparagraph (A).
"(3) Deregulation month. - For purposes of this section, the
term 'deregulation month' means the month in which the Secretary
of the Treasury or his delegate determines that a Federal law has
been enacted which deregulates the freight forwarding industry.
"(c) Special Rule for Motor Carrier Operating Authority. - In the
case of a corporation which was incorporated on December 29, 1969,
in the State of Delaware, notwithstanding any other provision of
law, there shall be allowed as a deduction for the taxable year of
the taxpayer beginning in 1980 an amount equal to $2,705,188 for
its entire loss due to a decline in value of its motor carrier
operating authority by reason of deregulation.
"(d) Application of Section 334(b)(2). - For purposes of
subsections (a) and (b), the reference to section 334(b)(2) in
section 266(c)(2)(A)(ii) of the Economic Recovery Tax Act of 1981
[section 266(c)(2)(A)(ii) of Pub. L. 97-34, set out below] shall be
a reference to such section as in effect before its repeal.
"(e) Effective Dates. -
"(1) Bus operating authority. -
"(A) In general. - Subsection (a) shall apply to taxable
years ending after November 18, 1982.
"(B) Statute of limitations. - If refund or credit of any
overpayment of tax resulting from subsection (a) is prevented
at any time on or before the date which is 1 year after the
date of the enactment of this Act [Oct. 22, 1986] by the
operation of any law or rule of law (including res judicata),
refund or credit of such overpayment (to the extent
attributable to the application of such subsection) may,
notwithstanding such law or rule of law, be made or allowed if
claim therefore [sic] is filed on or before the date which is
18 months after such date of enactment.
"(2) Freight forwarder operating authority. - Subsection (b)
shall apply to taxable years ending after the month preceding the
deregulation month."
DEDUCTION FOR MOTOR CARRIER OPERATING AUTHORITY
Pub. L. 97-34, title II, Sec. 266, Aug. 13, 1981, 95 Stat. 265,
as amended by Pub. L. 97-424, title V, Sec. 517(a), Jan. 6, 1983,
96 Stat. 2183; Pub. L. 97-448, title I, Sec. 102(n), Jan. 12, 1983,
96 Stat. 2374; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat.
2095, provided that:
"(a) General Rule. - For purposes of chapter 1 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] [this chapter], in
computing the taxable income of a taxpayer who, on July 1, 1980,
held one or more motor carrier operating authorities, an amount
equal to the aggregate adjusted basis of all motor carrier
operating authorities held by the taxpayer on July 1, 1980, or
acquired subsequent thereto pursuant to a binding contract in
effect on July 1, 1980, shall be allowed as a deduction ratably
over a period of 60 months. Such 60-month period shall begin with
the month of July 1980 (or if later, the month in which acquired),
or at the election of the taxpayer, the first month of the
taxpayer's first taxable year beginning after July 1, 1980.
"(b) Definition of Motor Carrier Operating Authority. - For
purposes of this section, the term 'motor carrier operating
authority' means a certificate or permit held by a motor common or
contract carrier of property and issued pursuant to subchapter II
of chapter 109 of title 49 of the United States Code.
"(c) Special Rules. -
"(1) Adjusted basis. - For purposes of the Internal Revenue
Code of 1986, proper adjustments shall be made in the adjusted
basis of any motor carrier operating authority held by the
taxpayer on July 1, 1980, for the amounts allowable as a
deduction under this section.
"(2) Certain stock acquisitions. -
"(A) In general. - Under regulations prescribed by the
Secretary of the Treasury or his delegate, and at the election
of the holder of the authority, in any case in which a
corporation -
"(i) on or before July 1, 1980 (or after such date pursuant
to a binding contract in effect on such date), acquired stock
in a corporation which held, directly or indirectly, any
motor carrier operating authority at the time of such
acquisition, and
"(ii) would have been able to allocate to the basis of such
authority that portion of the acquiring corporation's cost
basis in such stock attributable to such authority if the
acquiring corporation had received such authority in the
liquidation of the acquired corporation immediately following
such acquisition and such allocation would have been proper
under section 334(b)(2) of such Code,
the holder of the authority may, for purposes of this section,
allocate a portion of the basis of the acquiring corporation in
the stock of the acquired corporation to the basis of such
authority in such manner as the Secretary may prescribe in such
regulations.
"(B) Treatment of certain noncorporate taxpayers. - Under
regulations prescribed by the Secretary of the Treasury or his
delegate, and at the election of the holder of the authority,
in any case in which -
"(i) a noncorporate taxpayer or group of noncorporate
taxpayers on or before July 1, 1980, acquired in one purchase
stock in a corporation which held, directly or indirectly,
any motor carrier operating authority at the time of such
acquisition, and
"(ii) the acquisition referred to in clause (i) would have
satisfied the requirements of subparagraph (A) if the stock
had been acquired by a corporation,
then, for purposes of subparagraphs (A) and (C), the noncorporate
taxpayer or group of noncorporate taxpayers referred to in clause
(i) shall be treated as a corporation. The preceding sentence
shall apply only if such noncorporate taxpayer (or group of
noncorporate taxpayers) on July 1, 1980, held stock constituting
control (within the meaning of section 368(c) of the Internal
Revenue Code of 1986) of the corporation holding (directly or
indirectly) the motor carrier operating authority.
"(C) Adjustment to basis. - Under regulations prescribed by
the Secretary of the Treasury or his delegate, proper
adjustment shall be made to the basis of the stock or other
assets in the manner provided by such regulations to take into
account any allocation under subparagraph (A).
"(3) Section 381 of the internal revenue code of 1986 to apply.
- For purposes of section 381 of the Internal Revenue Code of
1986, any item described in this section shall be treated as an
item described in subsection (c) of such section 381.
"(d) Effective Date. - The provisions of this section shall apply
to taxable years ending after June 30, 1980."
[Section 517(b) of Pub. L. 97-424 provided that: "The amendment
made by subsection (a) [adding subsec. (c)(2)(B) of this note]
shall apply to taxable years ending after July 30, 1980."]
TAX TREATMENT OF CERTAIN 1972 DISASTER LOANS
Section 2103 of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) Application of Section. - This section shall apply to any
individual -
"(1) who was allowed a deduction under section 165 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to
losses) for a loss attributable to a disaster occurring during
calendar year 1972 which was determined by the President, under
section 102 of the Disaster Relief Act of 1970, to warrant
disaster assistance by the Federal Government.
"(2) who in connection with such disaster -
"(A) received income in the form of cancellation of a
disaster loan under section 7 of the Small Business Act
[section 636 of Title 15, Commerce and Trade] or an emergency
loan under subtitle C of the Consolidated Farm and Rural
Development Act [section 1961 et seq. of Title 7, Agriculture],
or
"(B) received income in the form of compensation (not taken
into account in computing the amount of the deduction) for such
loss in settlement of any claim of the taxpayer against a
person for that person's liability in tort for the damage or
destruction of that taxpayer's property in connection with the
disaster, and
"(3) who elects (at such time and in such manner as the
Secretary of the Treasury or his delegate may by regulations
prescribe) to take the benefits of this section.
"(b) Effect of Election. - In the case of any individual to whom
this section applies -
"(1) the tax imposed by chapter 1 of the Internal Revenue Code
of 1986 for the taxable year in which the income taken into
account is received or accrued which is attributable to such
income shall not exceed the additional tax under such chapter
which would have been payable for the year in which the deduction
for the loss was taken if such deduction had not been taken for
such year,
"(2) any amount of tax imposed by chapter 1 attributable to the
income taken into account which, on October 1, 1975, was unpaid
may be paid in 3 equal annual installments (with the first such
installment due and payable on April 15, 1977), and
"(3) no interest on any deficiency shall be payable for any
period before April 16, 1977, to the extent such deficiency is
attributable to the receipt of such compensation, and no interest
on any installment referred to in paragraph (2) shall be payable
for any period before the due date of such installment.
"(c) Income Taken Into Account. - For purposes of this section,
the income taken into account is -
"(1) in the case of an individual described in subsection
(a)(2)(A), the amount of income (not in excess of $5,000)
attributable to the cancellation of a disaster loan under section
7 of the Small Business Act or an emergency loan under subtitle C
of the Consolidated Farm and Rural Development Act received by
reason of the disaster described in subsection (a)(1), or
"(2) in the case of an individual described in subsection
(a)(2)(B), the amount of compensation (not in excess of $5,000)
for the loss in settlement of any claim of the taxpayer against a
person for that person's liability in tort for the damage or
destruction of that taxpayer's property in connection with the
disaster described in subsection (a)(1).
"(d) Phaseout Where Adjusted Gross Income Exceeds $15,000. - If
for the taxable year for which the deduction for the loss was taken
the individual's adjusted gross income exceeded $15,000, the $5,000
limit set forth in paragraph (1) or (2) of subsection (c)
(whichever applies) shall be reduced by one dollar for each full
dollar that such adjusted gross income exceeds $15,000. In the case
of a married individual filing a separate return, the preceding
sentence shall be applied by substituting '$7,500' for '$15,000'.
"(e) Statute of Limitations. - If refund or credit of any
overpayment of income tax resulting from an election made under
this section is prevented on the date of the enactment of this Act
[Oct. 4, 1976], or at any time within one year after such date, by
the operation of any law, or rule of law, refund or credit of such
overpayment (to the extent attributable to such election) may,
nevertheless, be made or allowed if claim therefor is filed within
one year after such date. If the taxpayer makes an election under
this section and if assessment of any deficiency for any taxable
year resulting from such election is prevented on the date of the
enactment of this Act [Oct. 4, 1976], or at any time within one
year after such date, by the operation of any law or rule of law,
such assessment (to the extent attributable to such election) may,
nevertheless, be made if made within one year after such date."
REFUND OR CREDIT OF OVERPAYMENT; TIME FOR FILING CLAIM; INTEREST
Section 1(b)(2) of Pub. L. 91-677 authorized refund or credit of
overpayment attributable to the amendments made by subsec. (a) to
subsec. (i) of this section if claim therefor was filed after Jan.
12, 1971, and before July 1, 1971, without interest for any period
before Jan. 1, 1972.
-End-
-CITE-
26 USC Sec. 166 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 166. Bad debts
-STATUTE-
(a) General rule
(1) Wholly worthless debts
There shall be allowed as a deduction any debt which becomes
worthless within the taxable year.
(2) Partially worthless debts
When satisfied that a debt is recoverable only in part, the
Secretary may allow such debt, in an amount not in excess of the
part charged off within the taxable year, as a deduction.
(b) Amount of deduction
For purposes of subsection (a), the basis for determining the
amount of the deduction for any bad debt shall be the adjusted
basis provided in section 1011 for determining the loss from the
sale or other disposition of property.
[(c) Repealed. Pub. L. 99-514, title VIII, Sec. 805(a), Oct. 22,
1986, 100 Stat. 2361]
(d) Nonbusiness debts
(1) General rule
In the case of a taxpayer other than a corporation -
(A) subsection (a) shall not apply to any nonbusiness debt;
and
(B) where any nonbusiness debt becomes worthless within the
taxable year, the loss resulting therefrom shall be considered
a loss from the sale or exchange, during the taxable year, of a
capital asset held for not more than 1 year.
(2) Nonbusiness debt defined
For purposes of paragraph (1), the term "nonbusiness debt"
means a debt other than -
(A) a debt created or acquired (as the case may be) in
connection with a trade or business of the taxpayer; or
(B) a debt the loss from the worthlessness of which is
incurred in the taxpayer's trade or business.
(e) Worthless securities
This section shall not apply to a debt which is evidenced by a
security as defined in section 165(g)(2)(C).
(f) Cross references
(1) For disallowance of deduction for worthlessness of debts
owed by political parties and similar organizations, see
section 271.
(2) For special rule for banks with respect to worthless
securities, see section 582.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 50; Pub. L. 85-866, title I,
Sec. 8, Sept. 2, 1958, 72 Stat. 1608; Pub. L. 89-722, Sec. 1(a),
Nov. 2, 1966, 80 Stat. 1151; Pub. L. 91-172, title IV, Sec.
431(c)(1), Dec. 30, 1969, 83 Stat. 619; Pub. L. 94-455, title VI,
Sec. 605(a), title XIV, Sec. 1402(b)(1)(A), (2), title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1575, 1731, 1732, 1834; Pub.
L. 98-369, div. A, title X, Sec. 1001(b)(1), (e), July 18, 1984, 98
Stat. 1011, 1012; Pub. L. 99-514, title VIII, Sec. 805(a), (b),
title IX, Sec. 901(d)(4)(A), Oct. 22, 1986, 100 Stat. 2361, 2379;
Pub. L. 100-647, title I, Sec. 1008(d)(1), (2), Nov. 10, 1988, 102
Stat. 3439.)
-MISC1-
AMENDMENTS
1988 - Subsec. (d)(1)(A). Pub. L. 100-647, Sec. 1008(d)(1),
substituted "subsection (a)" for "subsections (a) and (c)".
Subsecs. (f), (g). Pub. L. 100-647, Sec. 1008(d)(2), made
clarifying amendment to directory language of Pub. L. 99-514, Sec.
805(b), see 1986 Amendment note below.
1986 - Subsec. (c). Pub. L. 99-514, Sec. 805(a), struck out
subsec. (c), reserve for bad debts, which read as follows: "In lieu
of any deduction under subsection (a), there shall be allowed (in
the discretion of the Secretary) a deduction for a reasonable
addition to a reserve for bad debts."
Subsec. (f). Pub. L. 99-514, Sec. 805(b), as amended by Pub. L.
100-647, Sec. 1008(d)(2), redesignated subsec. (g) as (f) and
struck out former subsec. (f) which related to reserve for certain
guaranteed debt obligations, par. (1) thereof providing for
allowance of deduction, par. (2) disallowing deduction in other
cases, par. (3) relating to opening balance of reserve, and par.
(4) relating to suspense account.
Subsec. (g). Pub. L. 99-514, Sec. 805(b), as amended by Pub. L.
100-647, Sec. 1008(d)(2), redesignated subsec. (g) as (f).
Pub. L. 99-514, Sec. 901(d)(4)(A), struck out pars. (3) and (4)
which read as follows:
"(3) For special rule for bad debt reserves of certain mutual
savings banks, domestic building and loan associations, and
cooperative banks, see section 593.
"(4) For special rule for bad debt reserves of banks, small
business investment-companies, etc., see sections 585 and 586."
1984 - Subsec. (d)(1)(B). Pub. L. 98-369 substituted "6 months"
for "1 year", applicable to property acquired after June 22, 1984,
and before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
1976 - Subsecs. (a)(2), (c). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (d)(1)(B). Pub. L. 94-455, Sec. 1401(b)(1)(A), (2),
provided that "6 months" would be changed to "9 months" for taxable
years beginning in 1977, and "9 months" would be changed to "1
year" for taxable years beginning after Dec. 31, 1977.
Subsec. (f). Pub. L. 94-455, Secs. 605(a), 1906(b)(13)(A),
redesignated subsec. (g) as (f) and struck out "or his delegate"
after "Secretary" in pars. (1), (3) and (4)(D). Former subsec. (f),
which related to treatment of payments made by guarantors of
certain noncorporate obligations, was struck out.
Subsecs. (g), (h). Pub. L. 94-455, Sec. 605(a), redesignated
subsecs. (g) and (h) as (f) and (g), respectively.
1969 - Subsec. (h)(4). Pub. L. 91-172 added par. (4).
1966 - Subsecs. (g), (h). Pub. L. 89-722 added subsec. (g) and
redesignated former subsec. (g) as (h).
1958 - Subsec. (d)(2)(A). Pub. L. 85-866 substituted "a trade or
business of the taxpayer" for "a taxpayer's trade or business".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 805(d) of Pub. L. 99-514 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 81, 108, 461, and 805 of this title]
shall apply to taxable years beginning after December 31, 1986.
"(2) Change in method of accounting. - In the case of any
taxpayer who maintained a reserve for bad debts for such taxpayer's
last taxable year beginning before January 1, 1987, and who is
required by the amendments made by this section to change its
method of accounting for any taxable year -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as made with the consent of
the Secretary, and
"(C) the net amount of adjustments required by section 481 of
the Internal Revenue Code of 1986 to be taken into account by the
taxpayer shall -
"(i) in the case of a taxpayer maintaining a reserve under
section 166(f), be reduced by the balance in the suspense
account under section 166(f)(4) of such Code as of the close of
such last taxable year, and
"(ii) be taken into account ratably in each of the first 4
taxable years beginning after December 31, 1986."
Section 901(e) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 172, 291,
582, 585, 593, 596, 856, 1277, and 1361 of this title and repealing
section 586 of this title] shall apply to taxable years beginning
after December 31, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 1001(e) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and sections 341, 402,
403, 423, 582, 584, 631, 642, 702, 818, 852, 856, 857, 1222, 1223,
1231, 1232, 1233, 1234, 1235, 1246, 1247, 1248, 1251, and 1278 of
this title] shall apply to property acquired after June 22, 1984,
and before January 1, 1988."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 605(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and section 81 of this
title] shall apply to guarantees made after December 31, 1975, in
taxable years beginning after such date."
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after July 11, 1969, see section 431(d) of Pub. L. 91-172, set out
as an Effective Date note under section 585 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 2 of Pub. L. 89-722, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) Except as provided in subsections (b) and (c), the
amendments made by the first section of this Act [amending this
section and section 81 of this title] shall apply to taxable years
ending after October 21, 1965.
"(b) If -
"(1) the taxpayer before October 22, 1965, claimed a deduction,
for a taxable year ending before such date, under section 166(c)
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] for
an addition to a reserve for bad debts on account of debt
obligations described in section 166(g)(1)(A) of such Code (as
amended by the first section of this Act), and
"(2) the assessment of a deficiency of the tax imposed by
chapter 1 of such Code for such taxable year and each subsequent
taxable year ending before October 22, 1965, is not prevented on
December 31, 1966, by the operation of any law or rule of law,
then such deduction on account of such debt obligations shall be
allowed for each such taxable year under such section 166(c) to the
extent that the deduction would have been allowable under the
provisions of such section 166(g)(1)(A) if such provisions applied
to such taxable years.
"(c) Section 166(g)(2) of the Internal Revenue Code of 1986 (as
amended by the first section of this Act) shall apply to taxable
years beginning after December 31, 1953, and ending after August
16, 1954."
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
ESTABLISHMENT OF RESERVE FOR TAXABLE YEAR ENDING AFTER OCT. 21,
1965, AND BEGINNING BEFORE AUG. 2, 1966
Section 1(c) of Pub. L. 89-722, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If the
taxpayer establishes a reserve described in section 166(g)(1) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as
amended by subsection (a) of this section) for a taxable year
ending after October 21, 1965, and beginning before August 2, 1966,
the establishment of such reserve shall not be considered as a
change in method of accounting for purposes of section 446(e) of
such Code."
-End-
-CITE-
26 USC Sec. 167 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 167. Depreciation
-STATUTE-
(a) General rule
There shall be allowed as a depreciation deduction a reasonable
allowance for the exhaustion, wear and tear (including a reasonable
allowance for obsolescence) -
(1) of property used in the trade or business, or
(2) of property held for the production of income.
(b) Cross reference
For determination of depreciation deduction in case of
property to which section 168 applies, see section 168.
(c) Basis for depreciation
(1) In general
The basis on which exhaustion, wear and tear, and obsolescence
are to be allowed in respect of any property shall be the
adjusted basis provided in section 1011, for the purpose of
determining the gain on the sale or other disposition of such
property.
(2) Special rule for property subject to lease
If any property is acquired subject to a lease -
(A) no portion of the adjusted basis shall be allocated to
the leasehold interest, and
(B) the entire adjusted basis shall be taken into account in
determining the depreciation deduction (if any) with respect to
the property subject to the lease.
(d) Life tenants and beneficiaries of trusts and estates
In the case of property held by one person for life with
remainder to another person, the deduction shall be computed as if
the life tenant were the absolute owner of the property and shall
be allowed to the life tenant. In the case of property held in
trust, the allowable deduction shall be apportioned between the
income beneficiaries and the trustee in accordance with the
pertinent provisions of the instrument creating the trust, or, in
the absence of such provisions, on the basis of the trust income
allocable to each. In the case of an estate, the allowable
deduction shall be apportioned between the estate and the heirs,
legatees, and devisees on the basis of the income of the estate
allocable to each.
(e) Certain term interests not depreciable
(1) In general
No depreciation deduction shall be allowed under this section
(and no depreciation or amortization deduction shall be allowed
under any other provision of this subtitle) to the taxpayer for
any term interest in property for any period during which the
remainder interest in such property is held (directly or
indirectly) by a related person.
(2) Coordination with other provisions
(A) Section 273
This subsection shall not apply to any term interest to which
section 273 applies.
(B) Section 305(e)
This subsection shall not apply to the holder of the dividend
rights which were separated from any stripped preferred stock
to which section 305(e)(1) applies.
(3) Basis adjustments
If, but for this subsection, a depreciation or amortization
deduction would be allowable to the taxpayer with respect to any
term interest in property -
(A) the taxpayer's basis in such property shall be reduced by
any depreciation or amortization deductions disallowed under
this subsection, and
(B) the basis of the remainder interest in such property
shall be increased by the amount of such disallowed deductions
(properly adjusted for any depreciation deductions allowable
under subsection (d) to the taxpayer).
(4) Special rules
(A) Denial of increase in basis of remainderman
No increase in the basis of the remainder interest shall be
made under paragraph (3)(B) for any disallowed deductions
attributable to periods during which the term interest was held
-
(i) by an organization exempt from tax under this subtitle,
or
(ii) by a nonresident alien individual or foreign
corporation but only if income from the term interest is not
effectively connected with the conduct of a trade or business
in the United States.
(B) Coordination with subsection (d)
If, but for this subsection, a depreciation or amortization
deduction would be allowable to any person with respect to any
term interest in property, the principles of subsection (d)
shall apply to such person with respect to such term interest.
(5) Definitions
For purposes of this subsection -
(A) Term interest in property
The term "term interest in property" has the meaning given
such term by section 1001(e)(2).
(B) Related person
The term "related person" means any person bearing a
relationship to the taxpayer described in subsection (b) or (e)
of section 267.
(6) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection, including
regulations preventing avoidance of this subsection through cross-
ownership arrangements or otherwise.
(f) Treatment of certain property excluded from section 197
(1) Computer software
(A) In general
If a depreciation deduction is allowable under subsection (a)
with respect to any computer software, such deduction shall be
computed by using the straight line method and a useful life of
36 months.
(B) Computer software
For purposes of this section, the term "computer software"
has the meaning given to such term by section 197(e)(3)(B);
except that such term shall not include any such software which
is an amortizable section 197 intangible.
(C) Tax-exempt use property subject to lease
In the case of computer software which would be tax-exempt
use property as defined in subsection (h) of section 168 if
such section applied to computer software, the useful life
under subparagraph (A) shall not be less than 125 percent of
the lease term (within the meaning of section 168(i)(3)).
(2) Certain interests or rights acquired separately
If a depreciation deduction is allowable under subsection (a)
with respect to any property described in subparagraph (B), (C),
or (D) of section 197(e)(4), such deduction shall be computed in
accordance with regulations prescribed by the Secretary. If such
property would be tax-exempt use property as defined in
subsection (h) of section 168 if such section applied to such
property, the useful life under such regulations shall not be
less than 125 percent of the lease term (within the meaning of
section 168(i)(3)).
(3) Mortgage servicing rights
If a depreciation deduction is allowable under subsection (a)
with respect to any right described in section 197(e)(6), such
deduction shall be computed by using the straight line method and
a useful life of 108 months.
(g) Depreciation under income forecast method
(1) In general
If the depreciation deduction allowable under this section to
any taxpayer with respect to any property is determined under the
income forecast method or any similar method -
(A) the income from the property to be taken into account in
determining the depreciation deduction under such method shall
be equal to the amount of income earned in connection with the
property before the close of the 10th taxable year following
the taxable year in which the property was placed in service,
(B) the adjusted basis of the property shall only include
amounts with respect to which the requirements of section
461(h) are satisfied,
(C) the depreciation deduction under such method for the 10th
taxable year beginning after the taxable year in which the
property was placed in service shall be equal to the adjusted
basis of such property as of the beginning of such 10th taxable
year, and
(D) such taxpayer shall pay (or be entitled to receive)
interest computed under the look-back method of paragraph (2)
for any recomputation year.
(2) Look-back method
The interest computed under the look-back method of this
paragraph for any recomputation year shall be determined by -
(A) first determining the depreciation deductions under this
section with respect to such property which would have been
allowable for prior taxable years if the determination of the
amounts so allowable had been made on the basis of the sum of
the following (instead of the estimated income from such
property) -
(i) the actual income earned in connection with such
property for periods before the close of the recomputation
year, and
(ii) an estimate of the future income to be earned in
connection with such property for periods after the
recomputation year and before the close of the 10th taxable
year following the taxable year in which the property was
placed in service,
(B) second, determining (solely for purposes of computing
such interest) the overpayment or underpayment of tax for each
such prior taxable year which would result solely from the
application of subparagraph (A), and
(C) then using the adjusted overpayment rate (as defined in
section 460(b)(7)), compounded daily, on the overpayment or
underpayment determined under subparagraph (B).
For purposes of the preceding sentence, any cost incurred after
the property is placed in service (which is not treated as a
separate property under paragraph (5)) shall be taken into
account by discounting (using the Federal mid-term rate
determined under section 1274(d) as of the time such cost is
incurred) such cost to its value as of the date the property is
placed in service. The taxpayer may elect with respect to any
property to have the preceding sentence not apply to such
property.
(3) Exception from look-back method
Paragraph (1)(D) shall not apply with respect to any property
which had a cost basis of $100,000 or less.
(4) Recomputation year
For purposes of this subsection, except as provided in
regulations, the term "recomputation year" means, with respect to
any property, the 3d and the 10th taxable years beginning after
the taxable year in which the property was placed in service,
unless the actual income earned in connection with the property
for the period before the close of such 3d or 10th taxable year
is within 10 percent of the income earned in connection with the
property for such period which was taken into account under
paragraph (1)(A).
(5) Special rules
(A) Certain costs treated as separate property
For purposes of this subsection, the following costs shall be
treated as separate properties:
(i) Any costs incurred with respect to any property after
the 10th taxable year beginning after the taxable year in
which the property was placed in service.
(ii) Any costs incurred after the property is placed in
service and before the close of such 10th taxable year if
such costs are significant and give rise to a significant
increase in the income from the property which was not
included in the estimated income from the property.
(B) Syndication income from television series
In the case of property which is 1 or more episodes in a
television series, income from syndicating such series shall
not be required to be taken into account under this subsection
before the earlier of -
(i) the 4th taxable year beginning after the date the first
episode in such series is placed in service, or
(ii) the earliest taxable year in which the taxpayer has an
arrangement relating to the future syndication of such
series.
(C) Special rules for financial exploitation of characters,
etc.
For purposes of this subsection, in the case of television
and motion picture films, the income from the property shall
include income from the exploitation of characters, designs,
scripts, scores, and other incidental income associated with
such films, but only to the extent that such income is earned
in connection with the ultimate use of such items by, or the
ultimate sale of merchandise to, persons who are not related
persons (within the meaning of section 267(b)) to the taxpayer.
(D) Collection of interest
For purposes of subtitle F (other than sections 6654 and
6655), any interest required to be paid by the taxpayer under
paragraph (1) for any recomputation year shall be treated as an
increase in the tax imposed by this chapter for such year.
(E) Treatment of distribution costs
For purposes of this subsection, the income with respect to
any property shall be the taxpayer's gross income from such
property.
(F) Determinations
For purposes of paragraph (2), determinations of the amount
of income earned in connection with any property shall be made
in the same manner as for purposes of applying the income
forecast method; except that any income from the disposition of
such property shall be taken into account.
(G) Treatment of pass-thru entities
Rules similar to the rules of section 460(b)(4) shall apply
for purposes of this subsection.
(6) Limitation on property for which income forecast method may
be used
The depreciation deduction allowable under this section may be
determined under the income forecast method or any similar method
only with respect to -
(A) property described in paragraph (3) or (4) of section
168(f),
(B) copyrights,
(C) books,
(D) patents, and
(E) other property specified in regulations.
Such methods may not be used with respect to any amortizable
section 197 intangible (as defined in section 197(c)).
(7) Treatment of participations and residuals
(A) In general
For purposes of determining the depreciation deduction
allowable with respect to a property under this subsection, the
taxpayer may include participations and residuals with respect
to such property in the adjusted basis of such property for the
taxable year in which the property is placed in service, but
only to the extent that such participations and residuals
relate to income estimated (for purposes of this subsection) to
be earned in connection with the property before the close of
the 10th taxable year referred to in paragraph (1)(A).
(B) Participations and residuals
For purposes of this paragraph, the term "participations and
residuals" means, with respect to any property, costs the
amount of which by contract varies with the amount of income
earned in connection with such property.
(C) Special rules relating to recomputation years
If the adjusted basis of any property is determined under
this paragraph, paragraph (4) shall be applied by substituting
"for each taxable year in such period" for "for such period".
(D) Other special rules
(i) Participations and residuals
Notwithstanding subparagraph (A), the taxpayer may exclude
participations and residuals from the adjusted basis of such
property and deduct such participations and residuals in the
taxable year that such participations and residuals are paid.
(ii) Coordination with other rules
Deductions computed in accordance with this paragraph shall
be allowable notwithstanding paragraph (1)(B), section 263,
263A, 404, 419, or 461(h).
(E) Authority to make adjustments
The Secretary shall prescribe appropriate adjustments to the
basis of property and to the look-back method for the
additional amounts allowable as a deduction solely by reason of
this paragraph.
(h) Amortization of geological and geophysical expenditures
(1) In general
Any geological and geophysical expenses paid or incurred in
connection with the exploration for, or development of, oil or
gas within the United States (as defined in section 638) shall be
allowed as a deduction ratably over the 24-month period beginning
on the date that such expense was paid or incurred.
(2) Half-year convention
For purposes of paragraph (1), any payment paid or incurred
during the taxable year shall be treated as paid or incurred on
the mid-point of such taxable year.
(3) Exclusive method
Except as provided in this subsection, no depreciation or
amortization deduction shall be allowed with respect to such
payments.
(4) Treatment upon abandonment
If any property with respect to which geological and
geophysical expenses are paid or incurred is retired or abandoned
during the 24-month period described in paragraph (1), no
deduction shall be allowed on account of such retirement or
abandonment and the amortization deduction under this subsection
shall continue with respect to such payment.
(i) Cross references
(1) For additional rule applicable to depreciation of
improvements in the case of mines, oil and gas wells, other
natural deposits, and timber, see section 611.
(2) For amortization of goodwill and certain other
intangibles, see section 197.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 51; Pub. L. 85-866, title I,
Sec. 89(b), Sept. 2, 1958, 72 Stat. 1665; Pub. L. 87-834, Sec.
13(b), (c)(1), Oct. 16, 1962, 76 Stat. 1034; Pub. L. 89-800, Sec.
2, Nov. 8, 1966, 80 Stat. 1513; Pub. L. 90-26, Secs. 1, 2(b), June
13, 1967, 81 Stat. 57, 58; Pub. L. 91-172, title IV, Sec. 441(a),
title V, Sec. 521(a), (d), Dec. 30, 1969, 83 Stat. 625, 649, 653;
Pub. L. 92-178, title I, Sec. 109(a), Dec. 10, 1971, 85 Stat. 508;
Pub. L. 93-625, Sec. 3(c), Jan. 3, 1975, 88 Stat. 2109; Pub. L. 94-
455, title II, Secs. 202(c)(3), 203(a), title XIX, Secs.
1901(a)(27), 1906(b)(13)(A), title XXI, Sec. 2124(c)(1), (d)(1),
Oct. 4, 1976, 90 Stat. 1530, 1768, 1834, 1918; Pub. L. 95-171, Sec.
4(a), Nov. 12, 1977, 91 Stat. 1355; Pub. L. 95-600, title III,
Secs. 312(c)(4), 367, title VII, Sec. 701(f)(4), (6), Nov. 6, 1978,
92 Stat. 2826, 2857, 2901, 2902; Pub. L. 95-615, Sec. 7(a), Nov. 8,
1978, 92 Stat. 3098; Pub. L. 95-618, title III, Sec. 301(d)(3),
(e)(1), Nov. 9, 1978, 92 Stat. 3200, 3201; Pub. L. 96-541, Secs.
2(c), (d), 3, Dec. 17, 1980, 94 Stat. 3204, 3205; Pub. L. 96-613,
Sec. 2(a), Dec. 28, 1980, 94 Stat. 3579; Pub. L. 97-34, title II,
Secs. 203(a)-(c)(1), (d), 209(d)(3), 212(d)(1), 264(a), Aug. 13,
1981, 95 Stat. 221, 222, 227, 239, 264; Pub. L. 97-424, title V,
Sec. 541(a)(2), Jan. 6, 1983, 96 Stat. 2192; Pub. L. 98-369, div.
A, title X, Sec. 1064, July 18, 1984, 98 Stat. 1047; Pub. L. 99-
514, title II, Sec. 201(d)(1), title XV, Sec. 1511(c)(4), title
XVIII, Sec. 1809(d)(1), Oct. 22, 1986, 100 Stat. 2139, 2745, 2821;
Pub. L. 100-647, title I, Sec. 1002(a)(22), (24), (31), (i)(1),
Nov. 10, 1988, 102 Stat. 3356, 3357, 3370; Pub. L. 101-239, title
VII, Secs. 7622(b)(1) [(d)(1)], 7645(a), Dec. 19, 1989, 103 Stat.
2378, 2381; Pub. L. 101-508, title XI, Sec. 11812(a), (b)(1), Nov.
5, 1990, 104 Stat. 1388-534; Pub. L. 103-66, title XIII, Secs.
13206(c)(2), 13261(b), (f)(1), Aug. 10, 1993, 107 Stat. 466, 538,
539; Pub. L. 104-188, title I, Sec. 1604(a), Aug. 20, 1996, 110
Stat. 1836; Pub. L. 105-34, title X, Sec. 1086(a), Aug. 5, 1997,
111 Stat. 957; Pub. L. 108-357, title II, Sec. 242(a), (b), title
VIII, Sec. 847(b)(1), (2), Oct. 22, 2004, 118 Stat. 1438, 1439,
1601; Pub. L. 109-58, title XIII, Sec. 1329(a), Aug. 8, 2005, 119
Stat. 1020; Pub. L. 109-135, title IV, Sec. 412(r), Dec. 21, 2005,
119 Stat. 2638.)
-MISC1-
AMENDMENTS
2005 - Subsec. (f)(3). Pub. L. 109-135 substituted "section
197(e)(6)" for "section 197(e)(7)".
Subsecs. (h), (i). Pub. L. 109-58 added subsec. (h) and
redesignated former subsec. (h) as (i).
2004 - Subsec. (f)(1)(C). Pub. L. 108-357, Sec. 847(b)(1), added
subpar. (C).
Subsec. (f)(2). Pub. L. 108-357, Sec. 847(b)(2), inserted at end
"If such property would be tax-exempt use property as defined in
subsection (h) of section 168 if such section applied to such
property, the useful life under such regulations shall not be less
than 125 percent of the lease term (within the meaning of section
168(i)(3))."
Subsec. (g)(5)(E) to (G). Pub. L. 108-357, Sec. 242(b), added
subpar. (E) and redesignated former subpars. (E) and (F) as (F) and
(G), respectively.
Subsec. (g)(7). Pub. L. 108-357, Sec. 242(a), added par. (7).
1997 - Subsec. (g)(6). Pub. L. 105-34 added par. (6).
1996 - Subsecs. (g), (h). Pub. L. 104-188 added subsec. (g) and
redesignated former subsec. (g) as (h).
1993 - Subsec. (c). Pub. L. 103-66, Sec. 13261(b)(2), amended
heading and text of subsec. (c) generally. Prior to amendment, text
read as follows: "The basis on which exhaustion, wear and tear, and
obsolescence are to be allowed in respect of any property shall be
the adjusted basis provided in section 1011 for the purpose of
determining the gain on the sale or other disposition of such
property."
Subsec. (e)(2). Pub. L. 103-66, Sec. 13206(c)(2), amended heading
and text of par. (2) generally. Prior to amendment, text read as
follows: "This subsection shall not apply to any term interest to
which section 273 applies."
Subsec. (f). Pub. L. 103-66, Sec. 13261(b)(1), added subsec. (f).
Former subsec. (f) redesignated (g).
Subsec. (g). Pub. L. 103-66, Sec. 13261(b)(1), (f)(1),
redesignated subsec. (f) as (g) and amended heading and text
generally, designating existing provisions of text as par. (1) and
adding par. (2).
1990 - Subsec. (b). Pub. L. 101-508, Sec. 11812(a), added subsec.
(b) and struck out former subsec. (b) "Use of certain methods and
rates" which read as follows: "For taxable years ending after
December 31, 1953, the term 'reasonable allowance' as used in
subsection (a) shall include (but shall not be limited to) an
allowance computed in accordance with regulations prescribed by the
Secretary, under any of the following methods:
"(1) the straight line method,
"(2) the declining balance method, using a rate not exceeding
twice the rate which would have been used had the annual
allowance been computed under the method described in paragraph
(1),
"(3) the sum of the years-digits method, and
"(4) any other consistent method productive of an annual
allowance which, when added to all allowances for the period
commencing with the taxpayer's use of the property and including
the taxable year, does not, during the first two-thirds of the
useful life of the property, exceed the total of such allowances
which would have been used had such allowances been computed
under the method described in paragraph (2).
Nothing in this subsection shall be construed to limit or reduce an
allowance otherwise allowable under subsection (a)."
Subsec. (c). Pub. L. 101-508, Sec. 11812(a)(1), redesignated
subsec. (g) as (c) and struck out former subsec. (c) "Limitations
on use of certain methods and rates" which read as follows:
"Paragraphs (2), (3), and (4) of subsection (b) shall apply only in
the case of property (other than intangible property) described in
subsection (a) with a useful life of 3 years or more -
"(1) the construction, reconstruction, or erection of which is
completed after December 31, 1953, and then only to that portion
of the basis which is properly attributable to such construction,
reconstruction, or erection after December 31, 1953, or
"(2) acquired after December 31, 1953, if the original use of
such property commences with the taxpayer and commences after
such date.
Paragraphs (2), (3), and (4) of subsection (b) shall not apply to
any motion picture film, video tape, or sound recording."
Subsec. (d). Pub. L. 101-508, Sec. 11812(a)(1), redesignated
subsec. (h) as (d) and struck out former subsec. (d) "Agreement as
to useful life on which depreciation rate is based" which read as
follows: "Where, under regulations prescribed by the Secretary, the
taxpayer and the Secretary have, after August 16, 1954, entered
into an agreement in writing specifically dealing with the useful
life and rate of depreciation of any property, the rate so agreed
upon shall be binding on both the taxpayer and the Secretary in the
absence of facts or circumstances not taken into consideration in
the adoption of such agreement. The responsibility of establishing
the existence of such facts and circumstances shall rest with the
party initiating the modification. Any change in the agreed rate
and useful life specified in the agreement shall not be effective
for taxable years before the taxable year in which notice in
writing by certified mail or registered mail is served by the party
to the agreement initiating such change. This subsection shall not
apply with respect to property to which section 168 applies."
Subsec. (e). Pub. L. 101-508, Sec. 11812(a)(1), redesignated
subsec. (r) as (e) and struck out former subsec. (e) which related
to changes in method of depreciation from declining balance method
and changes with respect to sections 1245 and 1250 property.
Subsec. (e)(3)(B). Pub. L. 101-508, Sec. 11812(b)(1) substituted
"(d)" for "(h)".
Subsec. (e)(4)(B). Pub. L. 101-508, Sec. 11812(b)(1), substituted
"(d)" for "(h)" in heading and text.
Subsec. (f). Pub. L. 101-508, Sec. 11812(a)(1), redesignated
subsec. (s) as (f) and struck out former subsec. (f) "Salvage
value" which read as follows:
"(1) General rule. - Under regulations prescribed by the
Secretary, a taxpayer may, for purposes of computing the allowance
under subsection (a) with respect to personal property, reduce the
amount taken into account as salvage value by an amount which does
not exceed 10 percent of the basis of such property (as determined
under subsection (g) as of the time as of which such salvage value
is required to be determined).
"(2) Personal property defined. - For purposes of this
subsection, the term 'personal property' means depreciable personal
property (other than livestock) with a useful life of 3 years or
more acquired after October 16, 1962."
Subsecs. (g), (h). Pub. L. 101-508, Sec. 11812(a)(1),
redesignated subsecs. (g) and (h) as (c) and (d), respectively.
Subsec. (j). Pub. L. 101-508, Sec. 11812(a)(1), struck out
subsec. (j) which related to special rules for section 1250
property including residential rental property and change in method
of depreciation.
Subsec. (k). Pub. L. 101-508, Sec. 11812(a)(1), struck out
subsec. (k) which related to depreciation of expenditures to
rehabilitate low-income rental housing.
Subsec. (l). Pub. L. 101-508, Sec. 11812(a)(1), struck out
subsec. (l) which related to reasonable allowance in case of
property of certain utilities, pre-1970 public utility property and
post-1969 public utility property.
Subsec. (m). Pub. L. 101-508, Sec. 11812(a)(1), struck out
subsec. (m) which related to class lives.
Subsec. (p). Pub. L. 101-508, Sec. 11812(a)(1), struck out
subsec. (p) which related to straight line method for boilers
fueled by oil or gas.
Subsec. (q). Pub. L. 101-508, Sec. 11812(a)(1), struck out
subsec. (q) which related to retirement or replacement of certain
boilers, etc., fueled by oil or gas.
Subsecs. (r), (s). Pub. L. 101-508, Sec. 11812(a)(1),
redesignated subsecs. (r) and (s) as (e) and (f), respectively.
1989 - Subsec. (r). Pub. L. 101-239, Sec. 7645(a), added subsec.
(r).
Pub. L. 101-239, Sec. 7622(b)(1) [(d)(1)], repealed subsec. (r)
which provided that trademark or trade name expenditures were not
depreciable.
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1002(a)(24), struck out
at end "In the case of recovery property (within the meaning of
section 168), the deduction allowable under section 168 shall be
deemed to constitute the reasonable allowance provided by this
section, except with respect to that portion of the basis of such
property to which subsection (k) applies."
Subsec. (d). Pub. L. 100-647, Sec. 1002(a)(31), substituted
"property to which section 168 applies" for "recovery property
defined in section 168".
Subsec. (l)(3)(G). Pub. L. 100-647, Sec. 1002(a)(22), substituted
"section 168(i)(9)(B)" for "section 168(e)(3)(C)" in last sentence.
Subsecs. (r), (s). Pub. L. 100-647, Sec. 1002(i)(1), added
subsec. (r) and redesignated former subsec. (r) as (s).
1986 - Subsec. (c). Pub. L. 99-514, Sec. 1809(d)(1), inserted
"Paragraphs (2), (3), and (4) of subsection (b) shall not apply to
any motion picture film, video tape, or sound recording."
Subsec. (m)(4). Pub. L. 99-514, Sec. 201(d)(1), amended par. (4)
generally. Prior to amendment, par. (4) read as follows: "This
subsection shall not apply with respect to recovery property
(within the meaning of section 168) placed in service after
December 31, 1980."
Subsec. (q)(2)(B). Pub. L. 99-514, Sec. 1511(c)(4), substituted
"at the underpayment rate established under section 6621" for "at
the rate determined under section 6621".
1984 - Subsec. (k)(1), (3)(D). Pub. L. 98-369 substituted
"January 1, 1987" for "January 1, 1984" wherever appearing.
1983 - Subsec. (l)(3)(G). Pub. L. 97-424 inserted provision that,
for the purposes of this paragraph, rules similar to the rules of
section 168(e)(3)(C) of this title shall apply.
1981 - Subsec. (a). Pub. L. 97-34, Sec. 203(a), inserted
provision that, in the case of recovery property (within the
meaning of section 168), the deduction allowable under section 168
shall be deemed to constitute the reasonable allowance provided by
this section, except with respect to that portion of the basis of
such property to which subsection (k) applies.
Subsec. (d). Pub. L. 97-34, Sec. 203(d), provided that subsec.
(d) did not apply with respect to recovery property defined in
section 168.
Subsec. (k)(2). Pub. L. 97-34, Sec. 264(a), substituted "Except
as provided in subparagraph (B), the aggregate amount" for "The
aggregate amount" in subpar. (A), added subpar. (B), and
redesignated former subpar. (B) as (C).
Subsec. (l)(3)(C). Pub. L. 97-34, Sec. 209(d)(3), inserted "and
which is placed in service before January 1, 1981" after "pre-1970
public utility property".
Subsec. (m)(4). Pub. L. 97-34, Sec. 203(b), added par. (4).
Subsecs. (n), (o). Pub. L. 97-34, Sec. 212(d)(1), struck out
subsec. (n) which dealt with the use of the straight line method of
depreciation in certain cases, and subsec. (o) which dealt with the
method of depreciation to be used in the case of substantially
rehabilitated historic property.
Subsec. (r). Pub. L. 97-34, Sec. 203(c)(1), redesignated subsec.
(s) as (r). Former subsec. (r), relating to the retirement-
replacement-betterment method of calculating depreciation, was
struck out.
Subsec. (s). Pub. L. 97-34, Sec. 203(c)(1), redesignated subsec.
(s) as (r).
1980 - Subsec. (k). Pub. L. 96-541, Sec. 3, substituted in pars.
(1) and (3)(D) "January 1, 1984" for "January 1, 1982" wherever
appearing.
Subsec. (n)(4). Pub. L. 96-541, Sec. 2(c), added par. (4).
Subsec. (o)(3). Pub. L. 96-541, Sec. 2(d), added par. (3).
Subsecs. (r), (s). Pub. L. 96-613 added subsec. (r) and
redesignated former subsec. (r) as (s).
1978 - Subsec. (i). Pub. L. 95-600, Sec. 312(c)(4), struck out
subsec. (i) which related to a limitation in the case of property
constructed or acquired during the suspension period.
Subsec. (k)(1), (3)(D). Pub. L. 95-615 substituted "January 1,
1979" for "January 1, 1978" wherever appearing.
Pub. L. 95-600, Sec. 367, substituted "January 1, 1982" for
"January 1, 1979" wherever appearing.
Subsec. (n). Pub. L. 95-600, Sec. 701(f)(4), in par. (1),
substituted "occupied by a certified historic structure (or by any
structure in a registered historic district) which is demolished or
substantially altered after such date" for "occupied by a certified
historic structure (as defined in section 191(d)(1)) which is
demolished or substantially altered (other than by virtue of a
certified rehabilitation as defined in section 191(d)(3) after such
date", inserted "and" preceding subpar. (B), substituted "means"
for "shall mean" in subpar. (B), and inserted provision that "The
preceding sentence shall not apply if the last substantial
alteration of the structure is a certified rehabilitation."; in
par. (2), substituted heading "Exceptions" for "Exception",
designated existing text as subpar. (A), and added subpar. (B); and
added par. (3).
Subsec. (o). Pub. L. 95-600, Sec. 701(f)(6), inserted in par. (1)
"(other than property with respect to which an amortization
deduction has been allowed to the taxpayer under section 191)"
after "substantially rehabilitated historic property" and
substituted in par. (2) "section 191(d)(4)" for "section
191(d)(3)".
Subsec. (p). Pub. L. 95-618, Sec. 301(d)(3), added subsec. (p).
Former subsec. (p) redesignated (r).
Subsec. (q). Pub. L. 95-618, Sec. 301(e)(1), added subsec. (q).
Subsec. (r). Pub. L. 95-618, Sec. 301(d)(3), redesignated former
subsec. (p) as (r).
1977 - Subsec. (k). Pub. L. 95-171 substituted "January 1, 1979"
for "January 1, 1978" wherever appearing in pars. (1) and (3)(D).
1976 - Subsec. (b). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (d). Pub. L. 94-455, Secs. 1901(a)(27)(A),
1906(b)(13)(A), substituted "after August 16, 1954" for "after the
date of enactment of this title" and struck out "or his delegate"
after "Secretary" in first sentence before "shall be binding".
Subsec. (e). Pub. L. 94-455, Secs. 202(c)(3), 1906(b)(13)(A),
substituted in par. (3) "beginning after December 31, 1975" for
"beginning after July 24, 1969" and in pars. (1) to (3) struck out
"or his delegate" after "Secretary".
Subsec. (f)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (f)(2). Pub. L. 94-455, Sec. 1901(a)(27)(B), substituted
"October 16, 1962" for "the date of enactment of the Revenue Act of
1962".
Subsec. (i). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out in
pars. (1) and (2) "or his delegate" after "Secretary".
Subsec. (j). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out in
pars. (1), (4)(B), (5)(C), and (6)(A) "or his delegate" after
"Secretary".
Subsec. (k)(1). Pub. L. 94-455, Secs. 203(a)(1), 1906(b)(13)(A),
substituted reference to January 1, 1978 for reference to January
1, 1976 and struck out "or his delegate" after "Secretary".
Subsec. (k)(2)(A). Pub. L. 94-455, Sec. 203(a)(2), substituted
"$20,000" for "$15,000".
Subsec. (k)(3)(B). Pub. L. 94-455, Secs. 203(a)(3),
1906(b)(13)(A), substituted "the Leased Housing Program under
section 8 of the United States Housing Act of 1937" for "the
policies of the Housing and Urban Development Act of 1968" and
struck out "or his delegate" after "Secretary".
Subsec. (k)(3)(D). Pub. L. 94-455, Sec. 203(a)(4), added subpar.
(D).
Subsec. (l)(3)(F). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (l)(4)(A). Pub. L. 94-455, Secs. 1901(a)(27)(C),
1906(b)(13)(A), substituted "before June 29, 1970," for "within 180
days after the date of the enactment of this subparagraph" and
struck out "or his delegate" after "Secretary".
Subsec. (l)(5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (m). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out in
pars. (1) and (3) "or his delegate" after "Secretary".
Subsec. (n). Pub. L. 94-455, Sec. 2124(c)(1), added subsec. (n).
Former subsec. (n) redesignated (p).
Subsec. (o). Pub. L. 94-455, Sec. 2124(d)(1), added subsec. (o).
Subsec. (p). Pub. L. 94-455, Sec. 2124(c)(1), redesignated former
subsec. (n) as (p).
1975 - Subsec. (k)(1). Pub. L. 93-625 substituted "January 1,
1976" for "January 1, 1975".
1971 - Subsecs. (m), (n). Pub. L. 92-178 added subsec. (m) and
redesignated former subsec. (m) as (n).
1969 - Subsec. (e)(3). Pub. L. 91-172, Sec. 521(d), added par.
(3).
Subsecs. (j), (k). Pub. L. 91-172, Sec. 521(a), added subsecs.
(j) and (k). Former subsec. (j) redesignated (m).
Subsec. (l). Pub. L. 91-172, Sec. 441(a), added subsec. (l).
Subsec. (m). Pub. L. 91-172, Sec. 521(a), redesignated former
subsec. (j) as (m).
1967 - Subsec. (i)(1). Pub. L. 90-26, Sec. 2(b), provided that
accelerated depreciation was not to apply if the physical
construction, reconstruction or erection by any person was begun
during the suspension period or begun, pursuant to an order placed
during such period, before May 24, 1967, subject to the proviso
that only that portion of the basis which was properly attributable
to construction, reconstruction or erection before May 24, 1967,
shall be affected by the applicability of the suspension period.
Subsec. (i)(3). Pub. L. 90-26, Sec. 1, substituted "March 9,
1967" for "December 31, 1967".
1966 - Subsecs. (i), (j). Pub. L. 89-800 added subsec. (i) and
redesignated former subsec. (i) as (j).
1962 - Subsec. (e). Pub. L. 87-834, Sec. 13(b), designated
existing provisions as par. (1) and added par. (2).
Subsecs. (f) to (i). Pub. L. 87-834, Sec. 13(c)(1), added subsec.
(f) and redesignated former subsecs. (f), (g), and (h) as (g), (h),
and (i), respectively.
1958 - Subsec. (d). Pub. L. 85-866 inserted "certified mail or"
before "registered mail".
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-58, title XIII, Sec. 1329(c), Aug. 8, 2005, 119 Stat.
1020, provided that: "The amendments made by this section [amending
this section and section 263A of this title] shall apply to amounts
paid or incurred in taxable years beginning after the date of the
enactment of this Act [Aug. 8, 2005]."
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title II, Sec. 242(c), Oct. 22, 2004, 118 Stat.
1439, provided that: "The amendments made by this section [amending
this section] shall apply to property placed in service after the
date of the enactment of this Act [Oct. 22, 2004]."
Amendment by section 847(b)(1) of Pub. L. 108-357 applicable to
leases entered into after Mar. 12, 2004, and amendment by section
847(b)(2) of Pub. L. 108-357 applicable to leases entered into
after Oct. 3, 2004, except that such amendments inapplicable to
qualified transportation property, see section 849 of Pub. L. 108-
357, set out as an Effective Date note under section 470 of this
title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1086(c) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section and section 168 of this
title] shall apply to property placed in service after the date of
the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1604(b) of Pub. L. 104-188, as amended by Pub. L. 105-
206, title VI, Sec. 6018(d), July 22, 1998, 112 Stat. 823,
provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to property placed in service after
September 13, 1995.
"(2) Binding contracts. - The amendment made by subsection (a)
shall not apply to any property produced or acquired by the
taxpayer pursuant to a written contract which was binding on
September 13, 1995, and at all times thereafter before such
production or acquisition.
"(3) Underpayments of income tax. - No addition to tax shall be
made under section 6662 of the Internal Revenue Code of 1986 as a
result of the application of subsection (d) of that section
(relating to substantial understatements of income tax) with
respect to any underpayment of income tax for any taxable year
ending before the date of the enactment of this Act [Aug. 20,
1996], to the extent such underpayment was created or increased by
the amendments made by subsection (a)."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13206(c)(3) of Pub. L. 103-66 provided that: "The
amendments made by this subsection [amending this section and
section 305 of this title] shall take effect on April 30, 1993."
Amendment by section 13261(b) and (f)(1) of Pub. L. 103-66
applicable, except as otherwise provided, with respect to property
acquired after Aug. 10, 1993, see section 13261(g) of Pub. L. 103-
66, set out as an Effective Date note under section 197 of this
title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Nov. 5, 1990, but not applicable to any property to
which section 168 of this title does not apply by reason of subsec.
(f)(5) of section 168, and not applicable to rehabilitation
expenditures described in section 252(f)(5) of Pub. L. 99-514, see
section 11812(c) of Pub. L. 101-508, set out as a note under
section 42 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7622(c)[(e)] of Pub. L. 101-239 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 1245 and 1253 of this title] shall apply
to transfers after October 2, 1989.
"(2) Binding contract. - The amendments made by this section
shall not apply to any transfer pursuant to a written binding
contract in effect on October 2, 1989, and at all times thereafter
before the transfer."
Section 7645(b) of Pub. L. 101-239 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
interests created or acquired after July 27, 1989, in taxable years
ending after such date."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(1) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(1) of Pub. L. 99-514 not applicable
to any property placed in service before Jan. 1, 1994, if such
property placed in service as part of specified rehabilitations,
and not applicable to certain additional rehabilitations, see
section 251(d)(2), (3) of Pub. L. 99-514, set out as a note under
section 46 of this title.
Amendment by section 1511(c)(4) of Pub. L. 99-514 applicable for
purposes of determining interest for periods after Dec. 31, 1986,
see section 1511(d) of Pub. L. 99-514, set out as a note under
section 47 of this title.
Section 1809(d)(1) of Pub. L. 99-514 provided that subsec. (c) is
amended except with respect to property placed in service by the
taxpayer on or before Mar. 28, 1985.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-424 applicable to taxable years beginning
after Dec. 31, 1979, with a special rule for periods beginning
before Mar. 1, 1980, see section 541(c) of Pub. L. 97-424, set out
as a note under section 46 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 264(b) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section] shall apply with
respect to rehabilitation expenditures incurred after December 31,
1980."
Amendment by sections 203 and 209 of Pub. L. 97-34 applicable to
property placed in service after Dec. 31, 1980, in taxable years
ending after that date, except that amendment by section 203(c) of
Pub. L. 97-34 effective Jan. 1, 1981, and applicable with respect
to taxable years ending after that date, see section 209(a), (b) of
Pub. L. 97-34, set out as an Effective Date note under section 168
of this title.
Amendment by section 212(d)(1) of Pub. L. 97-34 applicable to
expenditures incurred after Dec. 31, 1981, in taxable years ending
after that date, see section 212(e) of Pub. L. 97-34, set out as a
note under section 46 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Section 2(b) of Pub. L. 96-613 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to taxable years ending after December 31, 1953."
EFFECTIVE AND TERMINATION DATES OF 1978 AMENDMENTS
Amendment by section 312(c)(4) of Pub. L. 95-600 applicable to
taxable years ending after Dec. 31, 1978, see section 312(d) of
Pub. L. 95-600, set out as an Effective Date of 1978 Amendment note
under section 46 of this title.
Section 701(f)(8) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this subsection [amending this section and
sections 57, 191, 280B, 1245, and 1250 of this title] shall take
effect as if included in the respective provisions of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] to which such
amendments relate, as such provision[s] were added to such Code, or
amended, by section 2124 of the Tax Reform Act of 1976 [Pub. L. 94-
455, title XXI, Sec. 2124, Oct. 4, 1976, 90 Stat. 1916]."
Amendment by Pub. L. 95-615 to cease to have effect on the day
after Nov. 8, 1978, see section 210(a) of Pub. L. 95-615, set out
as a Termination Date of 1978 Amendment note under section 61 of
this title.
Amendment by section 301(d)(3) of Pub. L. 95-618 applicable to
property which is placed in service after Sept. 30, 1978, but not
to property which is constructed, reconstructed, erected, or
acquired pursuant to a contract which, on Oct. 1, 1978, and at all
times thereafter, was binding on the taxpayer, see section
301(d)(4) of Pub. L. 95-618, set out as an Effective Date of 1978
Amendment note under section 48 of this title.
Section 301(e)(2) of Pub. L. 95-618 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply to
taxable years ending after the date of enactment of this Act [Nov.
9, 1978]."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(27)(A) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
Amendment by section 202(c)(3) of Pub. L. 94-455 applicable for
taxable years ending after Dec. 31, 1975, see section 202(d) of
Pub. L. 94-455, set out as a note under section 1250 of this title.
Section 203(b) of Pub. L. 94-455, as amended by Pub. L. 95-171,
Sec. 4(b), Nov. 12, 1977, 91 Stat. 1355; Pub. L. 95-615, Sec. 7(b),
Nov. 8, 1978, 92 Stat. 3098, provided that: "The amendments made by
paragraphs (1), (3), and (4) of subsection (a) [amending this
section] shall apply to expenditures paid or incurred after
December 31, 1975. The amendment made by paragraph (2) of
subsection (a) [amending this section] shall apply to expenditures
incurred after December 31, 1975."
[Section 7(b) of Pub. L. 95-615 [which amended section 203(b) of
Pub. L. 94-455 exactly as that section 203(b) had been amended by
Pub. L. 95-171] to cease to have effect on the day after Nov. 8,
1978, see section 210(a) of Pub. L. 95-615, set out as a
Termination Date of 1978 Amendment note under section 61 of this
title.]
Section 2124(c)(2), (d)(2) of Pub. L. 94-455, which provided that
the amendment of this section was applicable to that portion of the
basis attributable to construction, reconstruction, or erection
after Dec. 31, 1975, and before Jan. 1, 1981, and with respect to
additions to capital account occurring after June 30, 1976, and
before July 1, 1981, was repealed by section 2(e)(3), (4) of Pub.
L. 96-541.
EFFECTIVE DATE OF 1975 AMENDMENT
Section 5(d) of Pub. L. 93-625 provided that: "The amendments
made by this section [amending section 1250 of this title and
enacting and repealing provisions set out as notes under this
section] shall apply with respect to property placed in service
after December 31, 1973."
EFFECTIVE DATE OF 1971 AMENDMENT
Section 109(d)(1) of Pub. L. 92-178 provided that: "The
amendments made by subsection (a) [amending this section] shall
apply to property placed in service after December 31, 1970."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 441(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to all taxable years for which a return has not been filed
before August 1, 1969."
Section 521(g) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and sections 381 and
1250 of this title] shall apply with respect to taxable years
ending after July 24, 1969."
EFFECTIVE DATE OF 1967 AMENDMENT
Amendment by Pub. L. 90-26 applicable with respect to taxable
years ending after March 9, 1967, see section 4 of Pub. L. 90-26,
set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-800 applicable to taxable years ending
after Oct. 9, 1966, see section 4 of Pub. L. 89-800, set out as a
note under section 46 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by section 13(b) of Pub. L. 87-834 applicable to
taxable years beginning after Dec. 31, 1962, and amendment by
section 13(c)(1) of Pub. L. 87-834 applicable to taxable years
beginning after Dec. 31, 1961, and ending after Oct. 16, 1962, see
section 13(g) of Pub. L. 87-834, set out as an Effective Date note
under section 1245 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable only if mailing occurs
after Sept. 2, 1958, see section 89(d) of Pub. L. 85-866, set out
as a note under section 7502 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
DISCONTINUATION OF RETIREMENT-REPLACEMENT-BETTERMENT METHOD OF
DEPRECIATION; TRANSITIONAL RULE
Section 203(c)(2), (3) of Pub. L. 97-34, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(2) Change in method of accounting. - Sections 446 and 481 of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall not
apply to the change in the method of depreciation to comply with
the provisions of this subsection [which struck out subsec. (r) of
this section relating to the retirement-replacement-betterment
method of accounting].
"(3) Transitional rule. - The adjusted basis of RRB property (as
defined in section 168(g)(6) of such Code) as of December 31, 1980,
shall be depreciated using a useful life of no less than 5 years
and no more than 50 years and a method described in section 167(b)
of such Code, including the method described in section 167(b)(2)
of such Code, switching to the method described in section
167(b)(3) of such Code at a time to maximize the deduction."
INTERNAL REVENUE CODE PROVISIONS RELATING TO DEPRECIATION AS NOT
APPLICABLE TO CALCULATIONS OF SECRETARY OF HEALTH AND HUMAN
SERVICES IN DETERMINING COSTS OF PROGRAMS
Section 203(e) of Pub. L. 97-34, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
Secretary of Health and Human Services is not required to apply any
provision of the Internal Revenue Code of 1986 [formerly I.R.C.
1954], as amended, in calculating depreciation (for the purpose of
determining any cost under a program administered by the
Secretary), unless a provision of law requires so expressly."
CLASS LIFE SYSTEM; APPLICATION TO REAL PROPERTY; GENERAL RULE
Section 5(a) of Pub. L. 93-625, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the case
of buildings and other items of section 1250 property (within the
meaning of section 1250(c) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]) placed in service before the effective date
of the class lives first prescribed by the Secretary of the
Treasury or his delegate under section 167(m) of such Code for the
class in which such property falls, if an election under such
section 167(m) applies to the taxpayer for the taxable year in
which such property is placed in service, the taxpayer may, in
accordance with regulations prescribed by the Secretary of the
Treasury or his delegate, elect to determine the useful life of
such property -
"(1) under Revenue Procedure 62-21 (as amended and
supplemented) as in effect on December 31, 1970, or
"(2) on the facts and circumstances."
TRANSITIONAL RULES FOR REASONABLE ALLOWANCE FOR DEPRECIATION
Section 109(e) of Pub. L. 92-178, as amended by Pub. L. 93-625,
Sec. 5(b), Jan. 3, 1975, 88 Stat. 2112; Pub. L. 99-514, Sec. 2,
Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) [Repealed. Pub. L. 93-625, Sec. 5(b), Jan. 3, 1975, 88 Stat.
2112.]
"(2) Subsidiary assets. - If a significant portion of a class of
property first prescribed by the Secretary of the Treasury or his
delegate under section 167(m) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] consists of subsidiary assets, all such
subsidiary assets in such class placed in service by the taxpayer
during the period beginning on January 1, 1971, and ending on
December 31, 1973 (or such earlier date on which a class which
includes such subsidiary assets subsequently prescribed by the
Secretary of the Treasury or his delegate under such section
becomes effective), may, in accordance with regulations prescribed
by the Secretary of the Treasury or his delegate, be excluded by
the taxpayer from an election under such section."
REHABILITATION EXPENDITURES FOR LOW INCOME RENTAL HOUSING INCURRED
AFTER DECEMBER 31, 1974, AND BEFORE JANUARY 1, 1978, PURSUANT TO
CONTRACT ENTERED BEFORE DECEMBER 31, 1974
Pub. L. 93-482, Sec. 4, Oct. 26, 1974, 88 Stat. 1456, as amended
by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that: "Notwithstanding the provisions of section 167(k)(1) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to
depreciation of expenditures to rehabilitate low income rental
housing), the provisions of section 167(k) shall apply with respect
to rehabilitation expenditures incurred with respect to low income
rental housing after December 31, 1974, and before January 1, 1978,
if such expenditures are incurred pursuant to a binding contract
entered into before December 31, 1974."
-End-
-CITE-
26 USC Sec. 168 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 168. Accelerated cost recovery system
-STATUTE-
(a) General rule
Except as otherwise provided in this section, the depreciation
deduction provided by section 167(a) for any tangible property
shall be determined by using -
(1) the applicable depreciation method,
(2) the applicable recovery period, and
(3) the applicable convention.
(b) Applicable depreciation method
For purposes of this section -
(1) In general
Except as provided in paragraphs (2) and (3), the applicable
depreciation method is -
(A) the 200 percent declining balance method,
(B) switching to the straight line method for the 1st taxable
year for which using the straight line method with respect to
the adjusted basis as of the beginning of such year will yield
a larger allowance.
(2) 150 percent declining balance method in certain cases
Paragraph (1) shall be applied by substituting "150 percent"
for "200 percent" in the case of -
(A) any 15-year or 20-year property not referred to in
paragraph (3),
(B) any property used in a farming business (within the
meaning of section 263A(e)(4)), or
(C) any property (other than property described in paragraph
(3)) with respect to which the taxpayer elects under paragraph
(5) to have the provisions of this paragraph apply.
(3) Property to which straight line method applies
The applicable depreciation method shall be the straight line
method in the case of the following property:
(A) Nonresidential real property.
(B) Residential rental property.
(C) Any railroad grading or tunnel bore.
(D) Property with respect to which the taxpayer elects under
paragraph (5) to have the provisions of this paragraph apply.
(E) Property described in subsection (e)(3)(D)(ii).
(F) Water utility property described in subsection (e)(5).
(G) Qualified leasehold improvement property described in
subsection (e)(6).
(H) Qualified restaurant property described in subsection
(e)(7).
(4) Salvage value treated as zero
Salvage value shall be treated as zero.
(5) Election
An election under paragraph (2)(C) or (3)(D) may be made with
respect to 1 or more classes of property for any taxable year and
once made with respect to any class shall apply to all property
in such class placed in service during such taxable year. Such an
election, once made, shall be irrevocable.
(c) Applicable recovery period
For purposes of this section, the applicable recovery period
shall be determined in accordance with the following table:
In the case of: 2The applicable
recovery period
is:
--------------------------------------------------------------------
3-year property 3 years
5-year property 5 years
7-year property 7 years
10-year property 10 years
15-year property 15 years
20-year property 20 years
Water utility property 25 years
Residential rental property 27.5 years
Nonresidential real property 39 years.
Any railroad grading or tunnel bore 50 years.
--------------------------------------------------------------------
(d) Applicable convention
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, the applicable
convention is the half-year convention.
(2) Real property
In the case of -
(A) nonresidential real property,
(B) residential rental property, and
(C) any railroad grading or tunnel bore,
the applicable convention is the mid-month convention.
(3) Special rule where substantial property placed in service
during last 3 months of taxable year
(A) In general
Except as provided in regulations, if during any taxable year
-
(i) the aggregate bases of property to which this section
applies placed in service during the last 3 months of the
taxable year, exceed
(ii) 40 percent of the aggregate bases of property to which
this section applies placed in service during such taxable
year,
the applicable convention for all property to which this section
applies placed in service during such taxable year shall be the
mid-quarter convention.
(B) Certain property not taken into account
For purposes of subparagraph (A), there shall not be taken
into account -
(i) any nonresidential real property (!1) residential
rental property, and railroad grading or tunnel bore, and
(ii) any other property placed in service and disposed of
during the same taxable year.
(4) Definitions
(A) Half-year convention
The half-year convention is a convention which treats all
property placed in service during any taxable year (or disposed
of during any taxable year) as placed in service (or disposed
of) on the mid-point of such taxable year.
(B) Mid-month convention
The mid-month convention is a convention which treats all
property placed in service during any month (or disposed of
during any month) as placed in service (or disposed of) on the
mid-point of such month.
(C) Mid-quarter convention
The mid-quarter convention is a convention which treats all
property placed in service during any quarter of a taxable year
(or disposed of during any quarter of a taxable year) as placed
in service (or disposed of) on the mid-point of such quarter.
(e) Classification of property
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, property shall
be classified under the following table:
Property shall be treated If such property has a class
as: life (in years) of:
--------------------------------------------------------------------
3-year property 4 or less
5-year property More than 4 but less than 10
7-year property 10 or more but less than 16
10-year property 16 or more but less than 20
15-year property 20 or more but less than 25
20-year property 25 or more.
--------------------------------------------------------------------
(2) Residential rental or nonresidential real property
(A) Residential rental property
(i) Residential rental property
The term "residential rental property" means any building
or structure if 80 percent or more of the gross rental income
from such building or structure for the taxable year is
rental income from dwelling units.
(ii) Definitions
For purposes of clause (i) -
(I) the term "dwelling unit" means a house or apartment
used to provide living accommodations in a building or
structure, but does not include a unit in a hotel, motel,
or other establishment more than one-half of the units in
which are used on a transient basis, and
(II) if any portion of the building or structure is
occupied by the taxpayer, the gross rental income from such
building or structure shall include the rental value of the
portion so occupied.
(B) Nonresidential real property
The term "nonresidential real property" means section 1250
property which is not -
(i) residential rental property, or
(ii) property with a class life of less than 27.5 years.
(3) Classification of certain property
(A) 3-year property
The term "3-year property" includes -
(i) any race horse which is more than 2 years old at the
time it is placed in service,
(ii) any horse other than a race horse which is more than
12 years old at the time it is placed in service, and
(iii) any qualified rent-to-own property.
(B) 5-year property
The term "5-year property" includes -
(i) any automobile or light general purpose truck,
(ii) any semi-conductor manufacturing equipment,
(iii) any computer-based telephone central office switching
equipment,
(iv) any qualified technological equipment,
(v) any section 1245 property used in connection with
research and experimentation, and
(vi) any property which -
(I) is described in subparagraph (A) of section 48(a)(3)
(or would be so described if "solar or wind energy" were
substituted for "solar energy" in clause (i) thereof and
the last sentence of such section did not apply to such
subparagraph),
(II) is described in paragraph (15) of section 48(l) (as
in effect on the day before the date of the enactment of
the Revenue Reconciliation Act of 1990) and is a qualifying
small power production facility within the meaning of
section 3(17)(C) of the Federal Power Act (16 U.S.C.
796(17)(C)), as in effect on September 1, 1986, or
(III) is described in section 48(l)(3)(A)(ix) (as in
effect on the day before the date of the enactment of the
Revenue Reconciliation Act of 1990).
Nothing in any provision of law shall be construed to treat
property as not being described in clause (vi)(I) (or the
corresponding provisions of prior law) by reason of being
public utility property (within the meaning of section
48(a)(3)).
(C) 7-year property
The term "7-year property" includes -
(i) any railroad track, and (!2)
(ii) any motorsports entertainment complex,
(iii) any Alaska natural gas pipeline,
(iv) any natural gas gathering line the original use of
which commences with the taxpayer after April 11, 2005, and
(v) any property which -
(I) does not have a class life, and
(II) is not otherwise classified under paragraph (2) or
this paragraph.
(D) 10-year property
The term "10-year property" includes -
(i) any single purpose agricultural or horticultural
structure (within the meaning of subsection (i)(13)), and
(ii) any tree or vine bearing fruit or nuts.
(E) 15-year property
The term "15-year property" includes -
(i) any municipal wastewater treatment plant,
(ii) any telephone distribution plant and comparable
equipment used for 2-way exchange of voice and data
communications,
(iii) any section 1250 property which is a retail motor
fuels outlet (whether or not food or other convenience items
are sold at the outlet),
(iv) any qualified leasehold improvement property placed in
service before January 1, 2006,
(v) any qualified restaurant property placed in service
before January 1, 2006,
(vi) initial clearing and grading land improvements with
respect to gas utility property,
(vii) any section 1245 property (as defined in section
1245(a)(3)) used in the transmission at 69 or more kilovolts
of electricity for sale and the original use of which
commences with the taxpayer after April 11, 2005, and
(viii) any natural gas distribution line the original use
of which commences with the taxpayer after April 11, 2005,
and which is placed in service before January 1, 2011.
(F) 20-year property
The term "20-year property" means initial clearing and
grading land improvements with respect to any electric utility
transmission and distribution plant.
(4) Railroad grading or tunnel bore
The term "railroad grading or tunnel bore" means all
improvements resulting from excavations (including tunneling),
construction of embankments, clearings, diversions of roads and
streams, sodding of slopes, and from similar work necessary to
provide, construct, reconstruct, alter, protect, improve,
replace, or restore a roadbed or right-of-way for railroad track.
(5) Water utility property
The term "water utility property" means property -
(A) which is an integral part of the gathering, treatment, or
commercial distribution of water, and which, without regard to
this paragraph, would be 20-year property, and
(B) any municipal sewer.
(6) Qualified leasehold improvement property
The term "qualified leasehold improvement property" has the
meaning given such term in section 168(k)(3) except that the
following special rules shall apply:
(A) Improvements made by lessor
In the case of an improvement made by the person who was the
lessor of such improvement when such improvement was placed in
service, such improvement shall be qualified leasehold
improvement property (if at all) only so long as such
improvement is held by such person.
(B) Exception for changes in form of business
Property shall not cease to be qualified leasehold
improvement property under subparagraph (A) by reason of -
(i) death,
(ii) a transaction to which section 381(a) applies,
(iii) a mere change in the form of conducting the trade or
business so long as the property is retained in such trade or
business as qualified leasehold improvement property and the
taxpayer retains a substantial interest in such trade or
business,
(iv) the acquisition of such property in an exchange
described in section 1031, 1033, or 1038 to the extent that
the basis of such property includes an amount representing
the adjusted basis of other property owned by the taxpayer or
a related person, or
(v) the acquisition of such property by the taxpayer in a
transaction described in section 332, 351, 361, 721, or 731
(or the acquisition of such property by the taxpayer from the
transferee or acquiring corporation in a transaction
described in such section), to the extent that the basis of
the property in the hands of the taxpayer is determined by
reference to its basis in the hands of the transferor or
distributor.
(7) Qualified restaurant property
The term "qualified restaurant property" means any section 1250
property which is an improvement to a building if -
(A) such improvement is placed in service more than 3 years
after the date such building was first placed in service, and
(B) more than 50 percent of the building's square footage is
devoted to preparation of, and seating for on-premises
consumption of, prepared meals.
(f) Property to which section does not apply
This section shall not apply to -
(1) Certain methods of depreciation
Any property if -
(A) the taxpayer elects to exclude such property from the
application of this section, and
(B) for the 1st taxable year for which a depreciation
deduction would be allowable with respect to such property in
the hands of the taxpayer, the property is properly depreciated
under the unit-of-production method or any method of
depreciation not expressed in a term of years (other than the
retirement-replacement-betterment method or similar method).
(2) Certain public utility property
Any public utility property (within the meaning of subsection
(i)(10)) if the taxpayer does not use a normalization method of
accounting.
(3) Films and video tape
Any motion picture film or video tape.
(4) Sound recordings
Any works which result from the fixation of a series of
musical, spoken, or other sounds, regardless of the nature of the
material (such as discs, tapes, or other phonorecordings) in
which such sounds are embodied.
(5) Certain property placed in service in churning transactions
(A) In general
Property -
(i) described in paragraph (4) of section 168(e) (as in
effect before the amendments made by the Tax Reform Act of
1986), or
(ii) which would be described in such paragraph if such
paragraph were applied by substituting "1987" for "1981" and
"1986" for "1980" each place such terms appear.
(B) Subparagraph (A)(ii) not to apply
Clause (ii) of subparagraph (A) shall not apply to -
(i) any residential rental property or nonresidential real
property,
(ii) any property if, for the 1st taxable year in which
such property is placed in service -
(I) the amount allowable as a deduction under this
section (as in effect before the date of the enactment of
this paragraph) with respect to such property is greater
than,
(II) the amount allowable as a deduction under this
section (as in effect on or after such date and using the
half-year convention) for such taxable year, or
(iii) any property to which this section (as amended by the
Tax Reform Act of 1986) applied in the hands of the
transferor.
(C) Special rule
In the case of any property to which this section would apply
but for this paragraph, the depreciation deduction under
section 167 shall be determined under the provisions of this
section as in effect before the amendments made by section 201
of the Tax Reform Act of 1986.
(g) Alternative depreciation system for certain property
(1) In general
In the case of -
(A) any tangible property which during the taxable year is
used predominantly outside the United States,
(B) any tax-exempt use property,
(C) any tax-exempt bond financed property,
(D) any imported property covered by an Executive order under
paragraph (6), and
(E) any property to which an election under paragraph (7)
applies,
the depreciation deduction provided by section 167(a) shall be
determined under the alternative depreciation system.
(2) Alternative depreciation system
For purposes of paragraph (1), the alternative depreciation
system is depreciation determined by using -
(A) the straight line method (without regard to salvage
value),
(B) the applicable convention determined under subsection
(d), and
(C) a recovery period determined under the following table:
In the case of: 2The recovery
period
shall be:
--------------------------------------------------------------------
(i) Property not described in clause (ii) The class life.
or (iii)
(ii) Personal property with no class life 12 years.
(iii) Nonresidential real and residential 40 years.
rental property
(iv) Any railroad grading or tunnel bore 50 years.
or water utility property
--------------------------------------------------------------------
(3) Special rules for determining class life
(A) Tax-exempt use property subject to lease
In the case of any tax-exempt use property subject to a
lease, the recovery period used for purposes of paragraph (2)
shall (notwithstanding any other subparagraph of this
paragraph) in no event be less than 125 percent of the lease
term.
(B) Special rule for certain property assigned to classes
For purposes of paragraph (2), in the case of property
described in any of the following subparagraphs of subsection
(e)(3), the class life shall be determined as follows:
If property is described 2 The
in subparagraph: class
life is:
--------------------------------------------------------------------
(A)(iii) 4
(B)(ii) 5
(B)(iii) 9.5
(C)(i) 10
(C)(iii) 22
(C)(iv) 14
(D)(i) 15
(D)(ii) 20
(E)(i) 24
(E)(ii) 24
(E)(iii) 20
(E)(iv) 39
(E)(v) 39
(E)(vi) 20
(E)(vii) 30
(E)(viii) 35
(F) 25
--------------------------------------------------------------------
(C) Qualified technological equipment
In the case of any qualified technological equipment, the
recovery period used for purposes of paragraph (2) shall be 5
years.
(D) Automobiles, etc.
In the case of any automobile or light general purpose truck,
the recovery period used for purposes of paragraph (2) shall be
5 years.
(E) Certain real property
In the case of any section 1245 property which is real
property with no class life, the recovery period used for
purposes of paragraph (2) shall be 40 years.
(4) Exception for certain property used outside United States
Subparagraph (A) of paragraph (1) shall not apply to -
(A) any aircraft which is registered by the Administrator of
the Federal Aviation Agency and which is operated to and from
the United States or is operated under contract with the United
States;
(B) rolling stock which is used within and without the United
States and which is -
(i) of a rail carrier subject to part A of subtitle IV of
title 49, or
(ii) of a United States person (other than a corporation
described in clause (i)) but only if the rolling stock is not
leased to one or more foreign persons for periods aggregating
more than 12 months in any 24-month period;
(C) any vessel documented under the laws of the United States
which is operated in the foreign or domestic commerce of the
United States;
(D) any motor vehicle of a United States person (as defined
in section 7701(a)(30)) which is operated to and from the
United States;
(E) any container of a United States person which is used in
the transportation of property to and from the United States;
(F) any property (other than a vessel or an aircraft) of a
United States person which is used for the purpose of exploring
for, developing, removing, or transporting resources from the
outer Continental Shelf (within the meaning of section 2 of the
Outer Continental Shelf Lands Act, as amended and supplemented;
(43 U.S.C. 1331));
(G) any property which is owned by a domestic corporation
(other than a corporation which has an election in effect under
section 936) or by a United States citizen (other than a
citizen entitled to the benefits of section 931 or 933) and
which is used predominantly in a possession of the United
States by such a corporation or such a citizen, or by a
corporation created or organized in, or under the law of, a
possession of the United States;
(H) any communications satellite (as defined in section
103(3) of the Communications Satellite Act of 1962, 47 U.S.C.
702(3)), or any interest therein, of a United States person;
(I) any cable, or any interest therein, of a domestic
corporation engaged in furnishing telephone service to which
section 168(i)(10)(C) applies (or of a wholly owned domestic
subsidiary of such a corporation), if such cable is part of a
submarine cable system which constitutes part of a
communication link exclusively between the United States and
one or more foreign countries;
(J) any property (other than a vessel or an aircraft) of a
United States person which is used in international or
territorial waters within the northern portion of the Western
Hemisphere for the purpose of exploring for, developing,
removing, or transporting resources from ocean waters or
deposits under such waters;
(K) any property described in section 48(l)(3)(A)(ix) (as in
effect on the day before the date of the enactment of the
Revenue Reconciliation Act of 1990) which is owned by a United
States person and which is used in international or territorial
waters to generate energy for use in the United States; and
(L) any satellite (not described in subparagraph (H)) or
other spacecraft (or any interest therein) held by a United
States person if such satellite or other spacecraft was
launched from within the United States.
For purposes of subparagraph (J), the term "northern portion of
the Western Hemisphere" means the area lying west of the 30th
meridian west of Greenwich, east of the international dateline,
and north of the Equator, but not including any foreign country
which is a country of South America.
(5) Tax-exempt bond financed property
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the term "tax-
exempt bond financed property" means any property to the
extent such property is financed (directly or indirectly) by an
obligation the interest on which is exempt from tax under
section 103(a).
(B) Allocation of bond proceeds
For purposes of subparagraph (A), the proceeds of any
obligation shall be treated as used to finance property
acquired in connection with the issuance of such obligation in
the order in which such property is placed in service.
(C) Qualified residential rental projects
The term "tax-exempt bond financed property" shall not
include any qualified residential rental project (within the
meaning of section 142(a)(7)).
(6) Imported property
(A) Countries maintaining trade restrictions or engaging in
discriminatory acts
If the President determines that a foreign country -
(i) maintains nontariff trade restrictions, including
variable import fees, which substantially burden United
States commerce in a manner inconsistent with provisions of
trade agreements, or
(ii) engages in discriminatory or other acts (including
tolerance of international cartels) or policies unjustifiably
restricting United States commerce,
the President may by Executive order provide for the
application of paragraph (1)(D) to any article or class of
articles manufactured or produced in such foreign country for
such period as may be provided by such Executive order. Any
period specified in the preceding sentence shall not apply to
any property ordered before (or the construction,
reconstruction, or erection of which began before) the date of
the Executive order unless the President determines an earlier
date to be in the public interest and specifies such date in
the Executive order.
(B) Imported property
For purposes of this subsection, the term "imported property"
means any property if -
(i) such property was completed outside the United States,
or
(ii) less than 50 percent of the basis of such property is
attributable to value added within the United States.
For purposes of this subparagraph, the term "United States"
includes the Commonwealth of Puerto Rico and the possessions of
the United States.
(7) Election to use alternative depreciation system
(A) In general
If the taxpayer makes an election under this paragraph with
respect to any class of property for any taxable year, the
alternative depreciation system under this subsection shall
apply to all property in such class placed in service during
such taxable year. Notwithstanding the preceding sentence, in
the case of nonresidential real property or residential rental
property, such election may be made separately with respect to
each property.
(B) Election irrevocable
An election under subparagraph (A), once made, shall be
irrevocable.
(h) Tax-exempt use property
(1) In general
For purposes of this section -
(A) Property other than nonresidential real property
Except as otherwise provided in this subsection, the term
"tax-exempt use property" means that portion of any tangible
property (other than nonresidential real property) leased to a
tax-exempt entity.
(B) Nonresidential real property
(i) In general
In the case of nonresidential real property, the term "tax-
exempt use property" means that portion of the property
leased to a tax-exempt entity in a disqualified lease.
(ii) Disqualified lease
For purposes of this subparagraph, the term "disqualified
lease" means any lease of the property to a tax-exempt
entity, but only if -
(I) part or all of the property was financed (directly or
indirectly) by an obligation the interest on which is
exempt from tax under section 103(a) and such entity (or a
related entity) participated in such financing,
(II) under such lease there is a fixed or determinable
price purchase or sale option which involves such entity
(or a related entity) or there is the equivalent of such an
option,
(III) such lease has a lease term in excess of 20 years,
or
(IV) such lease occurs after a sale (or other transfer)
of the property by, or lease of the property from, such
entity (or a related entity) and such property has been
used by such entity (or a related entity) before such sale
(or other transfer) or lease.
(iii) 35-percent threshold test
Clause (i) shall apply to any property only if the portion
of such property leased to tax-exempt entities in
disqualified leases is more than 35 percent of the property.
(iv) Treatment of improvements
For purposes of this subparagraph, improvements to a
property (other than land) shall not be treated as a separate
property.
(v) Leasebacks during 1st 3 months of use not taken into
account
Subclause (IV) of clause (ii) shall not apply to any
property which is leased within 3 months after the date such
property is first used by the tax-exempt entity (or a related
entity).
(C) Exception for short-term leases
(i) In general
Property shall not be treated as tax-exempt use property
merely by reason of a short-term lease.
(ii) Short-term lease
For purposes of clause (i), the term "short-term lease"
means any lease the term of which is -
(I) less than 3 years, and
(II) less than the greater of 1 year or 30 percent of the
property's present class life.
In the case of nonresidential real property and property with
no present class life, subclause (II) shall not apply.
(D) Exception where property used in unrelated trade or
business
The term "tax-exempt use property" shall not include any
portion of a property if such portion is predominantly used by
the tax-exempt entity (directly or through a partnership of
which such entity is a partner) in an unrelated trade or
business the income of which is subject to tax under section
511. For purposes of subparagraph (B)(iii), any portion of a
property so used shall not be treated as leased to a tax-exempt
entity in a disqualified lease.
(E) Nonresidential real property defined
For purposes of this paragraph, the term "nonresidential real
property" includes residential rental property.
(2) Tax-exempt entity
(A) In general
For purposes of this subsection, the term "tax-exempt entity"
means -
(i) the United States, any State or political subdivision
thereof, any possession of the United States, or any agency
or instrumentality of any of the foregoing,
(ii) an organization (other than a cooperative described in
section 521) which is exempt from tax imposed by this
chapter,
(iii) any foreign person or entity, and
(iv) any Indian tribal government described in section
7701(a)(40).
For purposes of applying this subsection, any Indian tribal
government referred to in clause (iv) shall be treated in the
same manner as a State.
(B) Exception for certain property subject to United States tax
and used by foreign person or entity
Clause (iii) of subparagraph (A) shall not apply with respect
to any property if more than 50 percent of the gross income for
the taxable year derived by the foreign person or entity from
the use of such property is -
(i) subject to tax under this chapter, or
(ii) included under section 951 in the gross income of a
United States shareholder for the taxable year with or within
which ends the taxable year of the controlled foreign
corporation in which such income was derived.
For purposes of the preceding sentence, any exclusion or
exemption shall not apply for purposes of determining the
amount of the gross income so derived, but shall apply for
purposes of determining the portion of such gross income
subject to tax under this chapter.
(C) Foreign person or entity
For purposes of this paragraph, the term "foreign person or
entity" means -
(i) any foreign government, any international organization,
or any agency or instrumentality of any of the foregoing, and
(ii) any person who is not a United States person.
Such term does not include any foreign partnership or other
foreign pass-thru entity.
(D) Treatment of certain taxable instrumentalities
For purposes of this subsection, a corporation shall not be
treated as an instrumentality of the United States or of any
State or political subdivision thereof if -
(i) all of the activities of such corporation are subject
to tax under this chapter, and
(ii) a majority of the board of directors of such
corporation is not selected by the United States or any State
or political subdivision thereof.
(E) Certain previously tax-exempt organizations
(i) In general
For purposes of this subsection, an organization shall be
treated as an organization described in subparagraph (A)(ii)
with respect to any property (other than property held by
such organization) if such organization was an organization
(other than a cooperative described in section 521) exempt
from tax imposed by this chapter at any time during the 5-
year period ending on the date such property was first used
by such organization. The preceding sentence and subparagraph
(D)(ii) shall not apply to the Federal Home Loan Mortgage
Corporation.
(ii) Election not to have clause (i) apply
(I) In general
In the case of an organization formerly exempt from tax
under section 501(a) as an organization described in
section 501(c)(12), clause (i) shall not apply to such
organization with respect to any property if such
organization elects not to be exempt from tax under section
501(a) during the tax-exempt use period with respect to
such property.
(II) Tax-exempt use period
For purposes of subclause (I), the term "tax-exempt use
period" means the period beginning with the taxable year in
which the property described in subclause (I) is first used
by the organization and ending with the close of the 15th
taxable year following the last taxable year of the
applicable recovery period of such property.
(III) Election
Any election under subclause (I), once made, shall be
irrevocable.
(iii) Treatment of successor organizations
Any organization which is engaged in activities
substantially similar to those engaged in by a predecessor
organization shall succeed to the treatment under this
subparagraph of such predecessor organization.
(iv) First used
For purposes of this subparagraph, property shall be
treated as first used by the organization -
(I) when the property is first placed in service under a
lease to such organization, or
(II) in the case of property leased to (or held by) a
partnership (or other pass-thru entity) in which the
organization is a member, the later of when such property
is first used by such partnership or pass-thru entity or
when such organization is first a member of such
partnership or pass-thru entity.
(3) Special rules for certain high technology equipment
(A) Exemption where lease term is 5 years or less
For purposes of this section, the term "tax-exempt use
property" shall not include any qualified technological
equipment if the lease to the tax-exempt entity has a lease
term of 5 years or less. Notwithstanding subsection
(i)(3)(A)(i), in determining a lease term for purposes of the
preceding sentence, there shall not be taken into account any
option of the lessee to renew at the fair market value rent
determined at the time of renewal; except that the aggregate
period not taken into account by reason of this sentence shall
not exceed 24 months.
(B) Exception for certain property
(i) In general
For purposes of subparagraph (A), the term "qualified
technological equipment" shall not include any property
leased to a tax-exempt entity if -
(I) part or all of the property was financed (directly or
indirectly) by an obligation the interest on which is
exempt from tax under section 103(a),
(II) such lease occurs after a sale (or other transfer)
of the property by, or lease of such property from, such
entity (or related entity) and such property has been used
by such entity (or a related entity) before such sale (or
other transfer) or lease, or
(III) such tax-exempt entity is the United States or any
agency or instrumentality of the United States.
(ii) Leasebacks during 1st 3 months of use not taken into
account
Subclause (II) of clause (i) shall not apply to any
property which is leased within 3 months after the date such
property is first used by the tax-exempt entity (or a related
entity).
(4) Related entities
For purposes of this subsection -
(A)(i) Each governmental unit and each agency or
instrumentality of a governmental unit is related to each other
such unit, agency, or instrumentality which directly or
indirectly derives its powers, rights, and duties in whole or
in part from the same sovereign authority.
(ii) For purposes of clause (i), the United States, each
State, and each possession of the United States shall be
treated as a separate sovereign authority.
(B) Any entity not described in subparagraph (A)(i) is
related to any other entity if the 2 entities have -
(i) significant common purposes and substantial common
membership, or
(ii) directly or indirectly substantial common direction or
control.
(C)(i) An entity is related to another entity if either
entity owns (directly or through 1 or more entities) a 50
percent or greater interest in the capital or profits of the
other entity.
(ii) For purposes of clause (i), entities treated as related
under subparagraph (A) or (B) shall be treated as 1 entity.
(D) An entity is related to another entity with respect to a
transaction if such transaction is part of an attempt by such
entities to avoid the application of this subsection.
(5) Tax-exempt use of property leased to partnerships, etc.,
determined at partner level
For purposes of this subsection -
(A) In general
In the case of any property which is leased to a partnership,
the determination of whether any portion of such property is
tax-exempt use property shall be made by treating each tax-
exempt entity partner's proportionate share (determined under
paragraph (6)(C)) of such property as being leased to such
partner.
(B) Other pass-thru entities; tiered entities
Rules similar to the rules of subparagraph (A) shall also
apply in the case of any pass-thru entity other than a
partnership and in the case of tiered partnerships and other
entities.
(C) Presumption with respect to foreign entities
Unless it is otherwise established to the satisfaction of the
Secretary, it shall be presumed that the partners of a foreign
partnership (and the beneficiaries of any other foreign pass-
thru entity) are persons who are not United States persons.
(6) Treatment of property owned by partnerships, etc.
(A) In general
For purposes of this subsection, if -
(i) any property which (but for this subparagraph) is not
tax-exempt use property is owned by a partnership which has
both a tax-exempt entity and a person who is not a tax-exempt
entity as partners, and
(ii) any allocation to the tax-exempt entity of partnership
items is not a qualified allocation,
an amount equal to such tax-exempt entity's proportionate share
of such property shall (except as provided in paragraph (1)(D))
be treated as tax-exempt use property.
(B) Qualified allocation
For purposes of subparagraph (A), the term "qualified
allocation" means any allocation to a tax-exempt entity which -
(i) is consistent with such entity's being allocated the
same distributive share of each item of income, gain, loss,
deduction, credit, and basis and such share remains the same
during the entire period the entity is a partner in the
partnership, and
(ii) has substantial economic effect within the meaning of
section 704(b)(2).
For purposes of this subparagraph, items allocated under
section 704(c) shall not be taken into account.
(C) Determination of proportionate share
(i) In general
For purposes of subparagraph (A), a tax-exempt entity's
proportionate share of any property owned by a partnership
shall be determined on the basis of such entity's share of
partnership items of income or gain (excluding gain allocated
under section 704(c)), whichever results in the largest
proportionate share.
(ii) Determination where allocations vary
For purposes of clause (i), if a tax-exempt entity's share
of partnership items of income or gain (excluding gain
allocated under section 704(c)) may vary during the period
such entity is a partner in the partnership, such share shall
be the highest share such entity may receive.
(D) Determination of whether property used in unrelated trade
or business
For purposes of this subsection, in the case of any property
which is owned by a partnership which has both a tax-exempt
entity and a person who is not a tax-exempt entity as partners,
the determination of whether such property is used in an
unrelated trade or business of such an entity shall be made
without regard to section 514.
(E) Other pass-thru entities; tiered entities
Rules similar to the rules of subparagraphs (A), (B), (C),
and (D) shall also apply in the case of any pass-thru entity
other than a partnership and in the case of tiered partnerships
and other entities.
(F) Treatment of certain taxable entities
(i) In general
For purposes of this paragraph and paragraph (5), except as
otherwise provided in this subparagraph, any tax-exempt
controlled entity shall be treated as a tax-exempt entity.
(ii) Election
If a tax-exempt controlled entity makes an election under
this clause -
(I) such entity shall not be treated as a tax-exempt
entity for purposes of this paragraph and paragraph (5),
and
(II) any gain recognized by a tax-exempt entity on any
disposition of an interest in such entity (and any dividend
or interest received or accrued by a tax-exempt entity from
such tax-exempt controlled entity) shall be treated as
unrelated business taxable income for purposes of section
511.
Any such election shall be irrevocable and shall bind all tax-
exempt entities holding interests in such tax-exempt
controlled entity. For purposes of subclause (II), there
shall only be taken into account dividends which are properly
allocable to income of the tax-exempt controlled entity which
was not subject to tax under this chapter.
(iii) Tax-exempt controlled entity
(I) In general
The term "tax-exempt controlled entity" means any
corporation (which is not a tax-exempt entity determined
without regard to this subparagraph and paragraph (2)(E))
if 50 percent or more (in value) of the stock in such
corporation is held by 1 or more tax-exempt entities (other
than a foreign person or entity).
(II) Only 5-percent shareholders taken into account in case
of publicly traded stock
For purposes of subclause (I), in the case of a
corporation the stock of which is publicly traded on an
established securities market, stock held by a tax-exempt
entity shall not be taken into account unless such entity
holds at least 5 percent (in value) of the stock in such
corporation. For purposes of this subclause, related
entities (within the meaning of paragraph (4)) shall be
treated as 1 entity.
(III) Section 318 to apply
For purposes of this clause, a tax-exempt entity shall be
treated as holding stock which it holds through application
of section 318 (determined without regard to the 50-percent
limitation contained in subsection (a)(2)(C) thereof).
(G) Regulations
For purposes of determining whether there is a qualified
allocation under subparagraph (B), the regulations prescribed
under paragraph (8) for purposes of this paragraph -
(i) shall set forth the proper treatment for partnership
guaranteed payments, and
(ii) may provide for the exclusion or segregation of items.
(7) Lease
For purposes of this subsection, the term "lease" includes any
grant of a right to use property.
(8) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection.
(i) Definitions and special rules
For purposes of this section -
(1) Class life
Except as provided in this section, the term "class life" means
the class life (if any) which would be applicable with respect to
any property as of January 1, 1986, under subsection (m) of
section 167 (determined without regard to paragraph (4) and as if
the taxpayer had made an election under such subsection). The
Secretary, through an office established in the Treasury, shall
monitor and analyze actual experience with respect to all
depreciable assets. The reference in this paragraph to subsection
(m) of section 167 shall be treated as a reference to such
subsection as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990.
(2) Qualified technological equipment
(A) In general
The term "qualified technological equipment" means -
(i) any computer or peripheral equipment,
(ii) any high technology telephone station equipment
installed on the customer's premises, and
(iii) any high technology medical equipment.
(B) Computer or peripheral equipment defined
For purposes of this paragraph -
(i) In general
The term "computer or peripheral equipment" means -
(I) any computer, and
(II) any related peripheral equipment.
(ii) Computer
The term "computer" means a programmable electronically
activated device which -
(I) is capable of accepting information, applying
prescribed processes to the information, and supplying the
results of these processes with or without human
intervention, and
(II) consists of a central processing unit containing
extensive storage, logic, arithmetic, and control
capabilities.
(iii) Related peripheral equipment
The term "related peripheral equipment" means any auxiliary
machine (whether on-line or off-line) which is designed to be
placed under the control of the central processing unit of a
computer.
(iv) Exceptions
The term "computer or peripheral equipment" shall not
include -
(I) any equipment which is an integral part of other
property which is not a computer,
(II) typewriters, calculators, adding and accounting
machines, copiers, duplicating equipment, and similar
equipment, and
(III) equipment of a kind used primarily for amusement or
entertainment of the user.
(C) High technology medical equipment
For purposes of this paragraph, the term "high technology
medical equipment" means any electronic, electromechanical, or
computer-based high technology equipment used in the screening,
monitoring, observation, diagnosis, or treatment of patients in
a laboratory, medical, or hospital environment.
(3) Lease term
(A) In general
In determining a lease term -
(i) there shall be taken into account options to renew,
(ii) the term of a lease shall include the term of any
service contract or similar arrangement (whether or not
treated as a lease under section 7701(e)) -
(I) which is part of the same transaction (or series of
related transactions) which includes the lease, and
(II) which is with respect to the property subject to the
lease or substantially similar property, and
(iii) 2 or more successive leases which are part of the
same transaction (or a series of related transactions) with
respect to the same or substantially similar property shall
be treated as 1 lease.
(B) Special rule for fair rental options on nonresidential real
property or residential rental property
For purposes of clause (i) of subparagraph (A), in the case
of nonresidential real property or residential rental property,
there shall not be taken into account any option to renew at
fair market value, determined at the time of renewal.
(4) General asset accounts
Under regulations, a taxpayer may maintain 1 or more general
asset accounts for any property to which this section applies.
Except as provided in regulations, all proceeds realized on any
disposition of property in a general asset account shall be
included in income as ordinary income.
(5) Changes in use
The Secretary shall, by regulations, provide for the method of
determining the deduction allowable under section 167(a) with
respect to any tangible property for any taxable year (and the
succeeding taxable years) during which such property changes
status under this section but continues to be held by the same
person.
(6) Treatments of additions or improvements to property
In the case of any addition to (or improvement of) any property
-
(A) any deduction under subsection (a) for such addition or
improvement shall be computed in the same manner as the
deduction for such property would be computed if such property
had been placed in service at the same time as such addition or
improvement, and
(B) the applicable recovery period for such addition or
improvement shall begin on the later of -
(i) the date on which such addition (or improvement) is
placed in service, or
(ii) the date on which the property with respect to which
such addition (or improvement) was made is placed in service.
(7) Treatment of certain transferees
(A) In general
In the case of any property transferred in a transaction
described in subparagraph (B), the transferee shall be treated
as the transferor for purposes of computing the depreciation
deduction determined under this section with respect to so much
of the basis in the hands of the transferee as does not exceed
the adjusted basis in the hands of the transferor. In any case
where this section as in effect before the amendments made by
section 201 of the Tax Reform Act of 1986 applied to the
property in the hands of the transferor, the reference in the
preceding sentence to this section shall be treated as a
reference to this section as so in effect.
(B) Transactions covered
The transactions described in this subparagraph are -
(i) any transaction described in section 332, 351, 361,
721, or 731, and
(ii) any transaction between members of the same affiliated
group during any taxable year for which a consolidated return
is made by such group.
Subparagraph (A) shall not apply in the case of a termination
of a partnership under section 708(b)(1)(B).
(C) Property reacquired by the taxpayer
Under regulations, property which is disposed of and then
reacquired by the taxpayer shall be treated for purposes of
computing the deduction allowable under subsection (a) as if
such property had not been disposed of.
(8) Treatment of leasehold improvements
(A) In general
In the case of any building erected (or improvements made) on
leased property, if such building or improvement is property to
which this section applies, the depreciation deduction shall be
determined under the provisions of this section.
(B) Treatment of lessor improvements which are abandoned at
termination of lease
An improvement -
(i) which is made by the lessor of leased property for the
lessee of such property, and
(ii) which is irrevocably disposed of or abandoned by the
lessor at the termination of the lease by such lessee,
shall be treated for purposes of determining gain or loss under
this title as disposed of by the lessor when so disposed of or
abandoned.
(C) Cross reference
For treatment of qualified long-term real property
constructed or improved in connection with cash or rent
reduction from lessor to lessee, see section 110(b).
(9) Normalization rules
(A) In general
In order to use a normalization method of accounting with
respect to any public utility property for purposes of
subsection (f)(2) -
(i) the taxpayer must, in computing its tax expense for
purposes of establishing its cost of service for ratemaking
purposes and reflecting operating results in its regulated
books of account, use a method of depreciation with respect
to such property that is the same as, and a depreciation
period for such property that is no shorter than, the method
and period used to compute its depreciation expense for such
purposes; and
(ii) if the amount allowable as a deduction under this
section with respect to such property differs from the amount
that would be allowable as a deduction under section 167
using the method (including the period, first and last year
convention, and salvage value) used to compute regulated tax
expense under clause (i), the taxpayer must make adjustments
to a reserve to reflect the deferral of taxes resulting from
such difference.
(B) Use of inconsistent estimates and projections, etc.
(i) In general
One way in which the requirements of subparagraph (A) are
not met is if the taxpayer, for ratemaking purposes, uses a
procedure or adjustment which is inconsistent with the
requirements of subparagraph (A).
(ii) Use of inconsistent estimates and projections
The procedures and adjustments which are to be treated as
inconsistent for purposes of clause (i) shall include any
procedure or adjustment for ratemaking purposes which uses an
estimate or projection of the taxpayer's tax expense,
depreciation expense, or reserve for deferred taxes under
subparagraph (A)(ii) unless such estimate or projection is
also used, for ratemaking purposes, with respect to the other
2 such items and with respect to the rate base.
(iii) Regulatory authority
The Secretary may by regulations prescribe procedures and
adjustments (in addition to those specified in clause (ii))
which are to be treated as inconsistent for purposes of
clause (i).
(C) Public utility property which does not meet normalization
rules
In the case of any public utility property to which this
section does not apply by reason of subsection (f)(2), the
allowance for depreciation under section 167(a) shall be an
amount computed using the method and period referred to in
subparagraph (A)(i).
(10) Public utility property
The term "public utility property" means property used
predominantly in the trade or business of the furnishing or sale
of -
(A) electrical energy, water, or sewage disposal services,
(B) gas or steam through a local distribution system,
(C) telephone services, or other communication services if
furnished or sold by the Communications Satellite Corporation
for purposes authorized by the Communications Satellite Act of
1962 (47 U.S.C. 701), or
(D) transportation of gas or steam by pipeline,
if the rates for such furnishing or sale, as the case may be,
have been established or approved by a State or political
subdivision thereof, by any agency or instrumentality of the
United States, or by a public service or public utility
commission or other similar body of any State or political
subdivision thereof.
(11) Research and experimentation
The term "research and experimentation" has the same meaning as
the term research and experimental has under section 174.
(12) Section 1245 and 1250 property
The terms "section 1245 property" and "section 1250 property"
have the meanings given such terms by sections 1245(a)(3) and
1250(c), respectively.
(13) Single purpose agricultural or horticultural structure
(A) In general
The term "single purpose agricultural or horticultural
structure" means -
(i) a single purpose livestock structure, and
(ii) a single purpose horticultural structure.
(B) Definitions
For purposes of this paragraph -
(i) Single purpose livestock structure
The term "single purpose livestock structure" means any
enclosure or structure specifically designed, constructed,
and used -
(I) for housing, raising, and feeding a particular type
of livestock and their produce, and
(II) for housing the equipment (including any
replacements) necessary for the housing, raising, and
feeding referred to in subclause (I).
(ii) Single purpose horticultural structure
The term "single purpose horticultural structure" means -
(I) a greenhouse specifically designed, constructed, and
used for the commercial production of plants, and
(II) a structure specifically designed, constructed, and
used for the commercial production of mushrooms.
(iii) Structures which include work space
An enclosure or structure which provides work space shall
be treated as a single purpose agricultural or horticultural
structure only if such work space is solely for -
(I) the stocking, caring for, or collecting of livestock
or plants (as the case may be) or their produce,
(II) the maintenance of the enclosure or structure, and
(III) the maintenance or replacement of the equipment or
stock enclosed or housed therein.
(iv) Livestock
The term "livestock" includes poultry.
(14) Qualified rent-to-own property
(A) In general
The term "qualified rent-to-own property" means property held
by a rent-to-own dealer for purposes of being subject to a rent-
to-own contract.
(B) Rent-to-own dealer
The term "rent-to-own dealer" means a person that, in the
ordinary course of business, regularly enters into rent-to-own
contracts with customers for the use of consumer property, if a
substantial portion of those contracts terminate and the
property is returned to such person before the receipt of all
payments required to transfer ownership of the property from
such person to the customer.
(C) Consumer property
The term "consumer property" means tangible personal property
of a type generally used within the home for personal use.
(D) Rent-to-own contract
The term "rent-to-own contract" means any lease for the use
of consumer property between a rent-to-own dealer and a
customer who is an individual which -
(i) is titled "Rent-to-Own Agreement" or "Lease Agreement
with Ownership Option," or uses other similar language,
(ii) provides for level (or decreasing where no payment is
less than 40 percent of the largest payment), regular
periodic payments (for a payment period which is a week or
month),
(iii) provides that legal title to such property remains
with the rent-to-own dealer until the customer makes all the
payments described in clause (ii) or early purchase payments
required under the contract to acquire legal title to the
item of property,
(iv) provides a beginning date and a maximum period of time
for which the contract may be in effect that does not exceed
156 weeks or 36 months from such beginning date (including
renewals or options to extend),
(v) provides for payments within the 156-week or 36-month
period that, in the aggregate, generally exceed the normal
retail price of the consumer property plus interest,
(vi) provides for payments under the contract that, in the
aggregate, do not exceed $10,000 per item of consumer
property,
(vii) provides that the customer does not have any legal
obligation to make all the payments referred to in clause
(ii) set forth under the contract, and that at the end of
each payment period the customer may either continue to use
the consumer property by making the payment for the next
payment period or return such property to the rent-to-own
dealer in good working order, in which case the customer does
not incur any further obligations under the contract and is
not entitled to a return of any payments previously made
under the contract, and
(viii) provides that the customer has no right to sell,
sublease, mortgage, pawn, pledge, encumber, or otherwise
dispose of the consumer property until all the payments
stated in the contract have been made.
(15) Motorsports entertainment complex
(A) In general
The term "motorsports entertainment complex" means a racing
track facility which -
(i) is permanently situated on land, and
(ii) during the 36-month period following the first day of
the month in which the asset is placed in service, hosts 1 or
more racing events for automobiles (of any type), trucks, or
motorcycles which are open to the public for the price of
admission.
(B) Ancillary and support facilities
Such term shall include, if owned by the taxpayer who owns
the complex and provided for the benefit of patrons of the
complex -
(i) ancillary facilities and land improvements in support
of the complex's activities (including parking lots,
sidewalks, waterways, bridges, fences, and landscaping),
(ii) support facilities (including food and beverage
retailing, souvenir vending, and other nonlodging
accommodations), and
(iii) appurtenances associated with such facilities and
related attractions and amusements (including ticket booths,
race track surfaces, suites and hospitality facilities,
grandstands and viewing structures, props, walls, facilities
that support the delivery of entertainment services, other
special purpose structures, facades, shop interiors, and
buildings).
(C) Exception
Such term shall not include any transportation equipment,
administrative services assets, warehouses, administrative
buildings, hotels, or motels.
(D) Termination
Such term shall not include any property placed in service
after December 31, 2007.
(16) Alaska natural gas pipeline
The term "Alaska natural gas pipeline" means the natural gas
pipeline system located in the State of Alaska which -
(A) has a capacity of more than 500,000,000,000 Btu of
natural gas per day, and
(B) is -
(i) placed in service after December 31, 2013, or
(ii) treated as placed in service on January 1, 2014, if
the taxpayer who places such system in service before January
1, 2014, elects such treatment.
Such term includes the pipe, trunk lines, related equipment, and
appurtenances used to carry natural gas, but does not include any
gas processing plant.
(17) Natural gas gathering line
The term "natural gas gathering line" means -
(A) the pipe, equipment, and appurtenances determined to be a
gathering line by the Federal Energy Regulatory Commission, and
(B) the pipe, equipment, and appurtenances used to deliver
natural gas from the wellhead or a commonpoint to the point at
which such gas first reaches -
(i) a gas processing plant,
(ii) an interconnection with a transmission pipeline for
which a certificate as an interstate transmission pipeline
has been issued by the Federal Energy Regulatory Commission,
(iii) an interconnection with an intrastate transmission
pipeline, or
(iv) a direct interconnection with a local distribution
company, a gas storage facility, or an industrial consumer.
(j) Property on Indian reservations
(1) In general
For purposes of subsection (a), the applicable recovery period
for qualified Indian reservation property shall be determined in
accordance with the table contained in paragraph (2) in lieu of
the table contained in subsection (c).
(2) Applicable recovery period for Indian reservation property
For purposes of paragraph (1) -
In the case of: 2The
applicable
recovery
period is:
--------------------------------------------------------------------
3-year property 2 years
5-year property 3 years
7-year property 4 years
10-year property 6 years
15-year property 9 years
20-year property 12 years
Nonresidential real property 22 years.
--------------------------------------------------------------------
(3) Deduction allowed in computing minimum tax
For purposes of determining alternative minimum taxable income
under section 55, the deduction under subsection (a) for property
to which paragraph (1) applies shall be determined under this
section without regard to any adjustment under section 56.
(4) Qualified Indian reservation property defined
For purposes of this subsection -
(A) In general
The term "qualified Indian reservation property" means
property which is property described in the table in paragraph
(2) and which is -
(i) used by the taxpayer predominantly in the active
conduct of a trade or business within an Indian reservation,
(ii) not used or located outside the Indian reservation on
a regular basis,
(iii) not acquired (directly or indirectly) by the taxpayer
from a person who is related to the taxpayer (within the
meaning of section 465(b)(3)(C)), and
(iv) not property (or any portion thereof) placed in
service for purposes of conducting or housing class I, II, or
III gaming (as defined in section 4 of the Indian Regulatory
Act (25 U.S.C. 2703)).
(B) Exception for alternative depreciation property
The term "qualified Indian reservation property" does not
include any property to which the alternative depreciation
system under subsection (g) applies, determined -
(i) without regard to subsection (g)(7) (relating to
election to use alternative depreciation system), and
(ii) after the application of section 280F(b) (relating to
listed property with limited business use).
(C) Special rule for reservation infrastructure investment
(i) In general
Subparagraph (A)(ii) shall not apply to qualified
infrastructure property located outside of the Indian
reservation if the purpose of such property is to connect
with qualified infrastructure property located within the
Indian reservation.
(ii) Qualified infrastructure property
For purposes of this subparagraph, the term "qualified
infrastructure property" means qualified Indian reservation
property (determined without regard to subparagraph (A)(ii))
which -
(I) benefits the tribal infrastructure,
(II) is available to the general public, and
(III) is placed in service in connection with the
taxpayer's active conduct of a trade or business within an
Indian reservation.
Such term includes, but is not limited to, roads, power
lines, water systems, railroad spurs, and communications
facilities.
(5) Real estate rentals
For purposes of this subsection, the rental to others of real
property located within an Indian reservation shall be treated as
the active conduct of a trade or business within an Indian
reservation.
(6) Indian reservation defined
For purposes of this subsection, the term "Indian reservation"
means a reservation, as defined in -
(A) section 3(d) of the Indian Financing Act of 1974 (25
U.S.C. 1452(d)), or
(B) section 4(10) of the Indian Child Welfare Act of 1978 (25
U.S.C. 1903(10)).
For purposes of the preceding sentence, such section 3(d) shall
be applied by treating the term "former Indian reservations in
Oklahoma" as including only lands which are within the
jurisdictional area of an Oklahoma Indian tribe (as determined by
the Secretary of the Interior) and are recognized by such
Secretary as eligible for trust land status under 25 CFR Part 151
(as in effect on the date of the enactment of this sentence).
(7) Coordination with nonrevenue laws
Any reference in this subsection to a provision not contained
in this title shall be treated for purposes of this subsection as
a reference to such provision as in effect on the date of the
enactment of this paragraph.
(8) Termination
This subsection shall not apply to property placed in service
after December 31, 2005.
(k) Special allowance for certain property acquired after September
10, 2001, and before January 1, 2005
(1) Additional allowance
In the case of any qualified property -
(A) the depreciation deduction provided by section 167(a) for
the taxable year in which such property is placed in service
shall include an allowance equal to 30 percent of the adjusted
basis of the qualified property, and
(B) the adjusted basis of the qualified property shall be
reduced by the amount of such deduction before computing the
amount otherwise allowable as a depreciation deduction under
this chapter for such taxable year and any subsequent taxable
year.
(2) Qualified property
For purposes of this subsection -
(A) In general
The term "qualified property" means property -
(i)(I) to which this section applies which has a recovery
period of 20 years or less,
(II) which is computer software (as defined in section
167(f)(1)(B)) for which a deduction is allowable under
section 167(a) without regard to this subsection,
(III) which is water utility property, or
(IV) which is qualified leasehold improvement property,
(ii) the original use of which commences with the taxpayer
after September 10, 2001,
(iii) which is -
(I) acquired by the taxpayer after September 10, 2001,
and before January 1, 2005, but only if no written binding
contract for the acquisition was in effect before September
11, 2001, or
(II) acquired by the taxpayer pursuant to a written
binding contract which was entered into after September 10,
2001, and before January 1, 2005, and
(iv) which is placed in service by the taxpayer before
January 1, 2005, or, in the case of property described in
subparagraph (B) or (C), before January 1, 2006.
(B) Certain property having longer production periods treated
as qualified property
(i) In general
The term "qualified property" includes any property if such
property -
(I) meets the requirements of clauses (i), (ii), and
(iii) of subparagraph (A),
(II) has a recovery period of at least 10 years or is
transportation property,
(III) is subject to section 263A, and
(IV) meets the requirements of clause (ii) or (iii) of
section 263A(f)(1)(B) (determined as if such clauses also
apply to property which has a long useful life (within the
meaning of section 263A(f))).
(ii) Only pre-January 1, 2005, basis eligible for additional
allowance
In the case of property which is qualified property solely
by reason of clause (i), paragraph (1) shall apply only to
the extent of the adjusted basis thereof attributable to
manufacture, construction, or production before January 1,
2005.
(iii) Transportation property
For purposes of this subparagraph, the term "transportation
property" means tangible personal property used in the trade
or business of transporting persons or property.
(iv) Application of subparagraph
This subparagraph shall not apply to any property which is
described in subparagraph (C).
(C) Certain aircraft
The term "qualified property" includes property -
(i) which meets the requirements of clauses (ii) and (iii)
of subparagraph (A),
(ii) which is an aircraft which is not a transportation
property (as defined in subparagraph (B)(iii)) other than for
agricultural or firefighting purposes,
(iii) which is purchased and on which such purchaser, at
the time of the contract for purchase, has made a
nonrefundable deposit of the lesser of -
(I) 10 percent of the cost, or
(II) $100,000, and
(iv) which has -
(I) an estimated production period exceeding 4 months,
and
(II) a cost exceeding $200,000.
(D) Exceptions
(i) Alternative depreciation property
The term "qualified property" shall not include any
property to which the alternative depreciation system under
subsection (g) applies, determined -
(I) without regard to paragraph (7) of subsection (g)
(relating to election to have system apply), and
(II) after application of section 280F(b) (relating to
listed property with limited business use).
(ii) Qualified new york liberty zone leasehold improvement
property
The term "qualified property" shall not include any
qualified New York Liberty Zone leasehold improvement
property (as defined in section 1400L(c)(2)).
(iii) Election out
If a taxpayer makes an election under this clause with
respect to any class of property for any taxable year, this
subsection shall not apply to all property in such class
placed in service during such taxable year. The preceding
sentence shall be applied separately with respect to property
treated as qualified property by paragraph (4) and other
qualified property.
(E) Special rules
(i) Self-constructed property
In the case of a taxpayer manufacturing, constructing, or
producing property for the taxpayer's own use, the
requirements of clause (iii) of subparagraph (A) shall be
treated as met if the taxpayer begins manufacturing,
constructing, or producing the property after September 10,
2001, and before January 1, 2005.
(ii) Sale-leasebacks
For purposes of clause (iii) and subparagraph (A)(ii), if
property is -
(I) originally placed in service after September 10,
2001, by a person, and
(II) sold and leased back by such person within 3 months
after the date such property was originally placed in
service,
such property shall be treated as originally placed in
service not earlier than the date on which such property is
used under the leaseback referred to in subclause (II).
(iii) Syndication
For purposes of subparagraph (A)(ii), if -
(I) property is originally placed in service after
September 10, 2001, by the lessor of such property,
(II) such property is sold by such lessor or any
subsequent purchaser within 3 months after the date such
property was originally placed in service (or, in the case
of multiple units of property subject to the same lease,
within 3 months after the date the final unit is placed in
service, so long as the period between the time the first
unit is placed in service and the time the last unit is
placed in service does not exceed 12 months), and
(III) the user of such property after the last sale
during such 3-month period remains the same as when such
property was originally placed in service,
such property shall be treated as originally placed in
service not earlier than the date of such last sale.
(iv) Limitations related to users and related parties
The term "qualified property" shall not include any
property if -
(I) the user of such property (as of the date on which
such property is originally placed in service) or a person
which is related (within the meaning of section 267(b) or
707(b)) to such user or to the taxpayer had a written
binding contract in effect for the acquisition of such
property at any time on or before September 10, 2001, or
(II) in the case of property manufactured, constructed,
or produced for such user's or person's own use, the
manufacture, construction, or production of such property
began at any time on or before September 10, 2001.
(F) Coordination with section 280F
For purposes of section 280F -
(i) Automobiles
In the case of a passenger automobile (as defined in
section 280F(d)(5)) which is qualified property, the
Secretary shall increase the limitation under section
280F(a)(1)(A)(i) by $4,600.
(ii) Listed property
The deduction allowable under paragraph (1) shall be taken
into account in computing any recapture amount under section
280F(b)(2).
(G) Deduction allowed in computing minimum tax
For purposes of determining alternative minimum taxable
income under section 55, the deduction under subsection (a) for
qualified property shall be determined under this section
without regard to any adjustment under section 56.
(3) Qualified leasehold improvement property
For purposes of this subsection -
(A) In general
The term "qualified leasehold improvement property" means any
improvement to an interior portion of a building which is
nonresidential real property if -
(i) such improvement is made under or pursuant to a lease
(as defined in subsection (h)(7)) -
(I) by the lessee (or any sublessee) of such portion, or
(II) by the lessor of such portion,
(ii) such portion is to be occupied exclusively by the
lessee (or any sublessee) of such portion, and
(iii) such improvement is placed in service more than 3
years after the date the building was first placed in
service.
(B) Certain improvements not included
Such term shall not include any improvement for which the
expenditure is attributable to -
(i) the enlargement of the building,
(ii) any elevator or escalator,
(iii) any structural component benefiting a common area,
and
(iv) the internal structural framework of the building.
(C) Definitions and special rules
For purposes of this paragraph -
(i) Commitment to lease treated as lease
A commitment to enter into a lease shall be treated as a
lease, and the parties to such commitment shall be treated as
lessor and lessee, respectively.
(ii) Related persons
A lease between related persons shall not be considered a
lease. For purposes of the preceding sentence, the term
"related persons" means -
(I) members of an affiliated group (as defined in section
1504), and
(II) persons having a relationship described in
subsection (b) of section 267; except that, for purposes of
this clause, the phrase "80 percent or more" shall be
substituted for the phrase "more than 50 percent" each
place it appears in such subsection.
(4) 50-percent bonus depreciation for certain property
(A) In general
In the case of 50-percent bonus depreciation property -
(i) paragraph (1)(A) shall be applied by substituting "50
percent" for "30 percent", and
(ii) except as provided in paragraph (2)(D), such property
shall be treated as qualified property for purposes of this
subsection.
(B) 50-percent bonus depreciation property
For purposes of this subsection, the term "50-percent bonus
depreciation property" means property described in paragraph
(2)(A)(i) -
(i) the original use of which commences with the taxpayer
after May 5, 2003,
(ii) which is -
(I) acquired by the taxpayer after May 5, 2003, and
before January 1, 2005, but only if no written binding
contract for the acquisition was in effect before May 6,
2003, or
(II) acquired by the taxpayer pursuant to a written
binding contract which was entered into after May 5, 2003,
and before January 1, 2005, and
(iii) which is placed in service by the taxpayer before
January 1, 2005, or, in the case of property described in
paragraph (2)(B) (as modified by subparagraph (C) of this
paragraph) or paragraph (2)(C) (as so modified), before
January 1, 2006.
(C) Special rules
Rules similar to the rules of subparagraphs (B), (C), and (E)
of paragraph (2) shall apply for purposes of this paragraph;
except that references to September 10, 2001, shall be treated
as references to May 5, 2003.
(D) Automobiles
Paragraph (2)(F) shall be applied by substituting "$7,650"
for "$4,600" in the case of 50-percent bonus depreciation
property.
(E) Election of 30-percent bonus
If a taxpayer makes an election under this subparagraph with
respect to any class of property for any taxable year,
subparagraph (A)(i) shall not apply to all property in such
class placed in service during such taxable year.
-SOURCE-
(Added Pub. L. 97-34, title II, Sec. 201(a), Aug. 13, 1981, 95
Stat. 203; amended Pub. L. 97-248, title II, Secs. 206, 208(a)(1),
(2)(A), (b), 209(a), (b), 216(a), 224(c)(1), (2), Sept. 3, 1982, 96
Stat. 431, 432, 435, 442, 445, 470, 489; Pub. L. 97-354, Sec.
5(a)(19), (20), Oct. 19, 1982, 96 Stat. 1693, 1694; Pub. L. 97-424,
title V, Sec. 541(a)(1), Jan. 6, 1983, 96 Stat. 2192; Pub. L. 97-
448, title I, Sec. 102(a)(1)-(5), (8)-(10)(A), (f)(4), Jan. 12,
1983, 96 Stat. 2367, 2368, 2371; Pub. L. 98-369, div. A, title I,
Secs. 12(a)(3), 31(a), (d), 32(a), 111(a)-(e)(4), (9), 113(a)(2),
(b)(1), (2)(A), title IV, Sec. 474(r)(7), title VI, Secs.
612(e)(4), (5), 628(b), July 18, 1984, 98 Stat. 503, 509, 518, 530,
631-633, 636, 637, 840, 912, 931; Pub. L. 99-121, title I, Sec.
103(a), (b)(1)(A), (2)-(4), Oct. 11, 1985, 99 Stat. 509; Pub. L. 99-
514, title II, Sec. 201(a), title XVIII, Secs. 1802(a)(1)-
(2)(E)(i), (G), (3), (4)(A), (B), (7), (b)(1), 1809(a)(1)-
(2)(C)(i), (4)(A), (B), (b)(1), (2), Oct. 22, 1986, 100 Stat.
2121, 2786-2789, 2791, 2818-2821; Pub. L. 100-647, title I, Secs.
1002(a)(5)-(8), (11), (16)(B), (21), (23)(A), (i)(2)(A)-(G),
1018(b)(2), title VI, Secs. 6027(a), (b), 6028(a), 6029(a)-(c),
6253, Nov. 10, 1988, 102 Stat. 3353-3356, 3370, 3371, 3577, 3693,
3694, 3753; Pub. L. 101-239, title VII, Sec. 7816(e), (f), (w),
Dec. 19, 1989, 103 Stat. 2421, 2423; Pub. L. 101-508, title XI,
Secs. 11801(c)(8)(B), 11812(b)(2), 11813(b)(9), Nov. 5, 1990, 104
Stat. 1388-524, 1388-534, 1388-552; Pub. L. 103-66, title XIII,
Secs. 13151(a), 13321(a), Aug. 10, 1993, 107 Stat. 448, 558; Pub.
L. 104-88, title III, Sec. 304(a), Dec. 29, 1995, 109 Stat. 943;
Pub. L. 104-188, title I, Secs. 1120(a), (b), 1121(a), 1613(b)(1)-
(4), 1702(h)(1), 1704(t)(54), Aug. 20, 1996, 110 Stat. 1765, 1766,
1850, 1873, 1890; Pub. L. 105-34, title X, Sec. 1086(b), title XII,
Sec. 1213(c), title XVI, Sec. 1604(c)(1), Aug. 5, 1997, 111 Stat.
957, 1001, 1097; Pub. L. 105-206, title VI, Sec. 6006(b), July 22,
1998, 112 Stat. 806; Pub. L. 107-147, title I, Sec. 101(a), title
VI, Sec. 613(b), Mar. 9, 2002, 116 Stat. 22, 61; Pub. L. 108-27,
title II, Sec. 201(a)-(c)(1), May 28, 2003, 117 Stat. 756, 757;
Pub. L. 108-311, title III, Sec. 316, title IV, Secs. 403(a),
408(a)(6), (8), Oct. 4, 2004, 118 Stat. 1181, 1186, 1191; Pub. L.
108-357, title II, Sec. 211(a)-(e), title III, Secs. 336(a), (b),
337(a), title VII, Secs. 704(a), (b), 706(a)-(c), title VIII, Secs.
847(a), (c)-(e), 901(a)-(c), Oct. 22, 2004, 118 Stat. 1429, 1430,
1479, 1480, 1548-1550, 1601, 1602, 1650; Pub. L. 109-58, title
XIII, Secs. 1301(f)(5), 1308(a), (b), 1325(a), (b), 1326(a)-(c),
Aug. 8, 2005, 119 Stat. 990, 1006, 1016, 1017; Pub. L. 109-135,
title IV, Secs. 403(j), 405(a)(1), 410(a), 412(s), Dec. 21, 2005,
119 Stat. 2625, 2634, 2636, 2638.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsecs. (e)(3)(B)(vi)(II), (III), (g)(4)(K),
and (i)(1), is the date of enactment of Pub. L. 101-508, which was
approved Nov. 5, 1990.
Section 168(e) as in effect before the amendments made by the Tax
Reform Act of 1986, referred to in subsec. (f)(5)(A)(i), is subsec.
(e) of this section prior to the general amendment of this section
by Pub. L. 99-514.
The date of the enactment of this paragraph, referred to in
subsec. (f)(5)(B)(ii)(I), probably means the date of enactment of
Pub. L. 99-514, which was approved Oct. 22, 1986.
The Tax Reform Act of 1986, referred to in subsecs.
(f)(5)(B)(iii), (C) and (i)(7)(A), is Pub. L. 99-514, section
201(a) of which amended this section generally.
The Communications Satellite Act of 1962, referred to in subsec.
(i)(10)(C), is Pub. L. 87-624, Aug. 31, 1962, 76 Stat. 419, as
amended, which is classified generally to chapter 6 (Sec. 701 et
seq.) of Title 47, Telegraphs, Telephones, and Radiotelegraphs. For
complete classification of this Act to the Code, see Short Title
note set out under section 701 of Title 47 and Tables.
The date of the enactment of this sentence, referred to in
subsec. (j)(6), is the date of enactment of Pub. L. 105-34, which
was approved Aug. 5, 1997.
The date of the enactment of this paragraph, referred to in
subsec. (j)(7), is the date of enactment of Pub. L. 103-66, which
was approved Aug. 10, 1993.
-MISC1-
PRIOR PROVISIONS
A prior section 168, acts Aug. 16, 1954, ch. 746, 68A Stat. 52;
Aug. 26, 1957, Pub. L. 85-165, Sec. 4, 71 Stat. 414; Sept. 2, 1958,
Pub. L. 85-866, title I, Sec. 9(a), (b), 72 Stat. 1608, 1609,
related to deductions with respect to amortization of emergency
facilities, prior to repeal by Pub. L. 94-455, title XIX, Sec.
1951(b)(4)(A), Oct. 4, 1976, 90 Stat. 1837.
Section 1951(b)(4)(B) of Pub. L. 94-455 provided that:
"Notwithstanding the repeal made by subparagraph (A) [repealing
former section 168], if a certificate was issued before January 1,
1960, with respect to an emergency facility which is or has been
placed in service before the date of the enactment of this Act
[Oct. 4, 1976], the provisions of [former] section 168 shall not,
with respect to such facility, be considered repealed. The benefit
of deductions by reason of the preceding sentence shall be allowed
to estates and trusts in the same manner as in the case of an
individual. The allowable deduction shall be apportioned between
the income beneficiaries and the fiduciary in accordance with
regulations prescribed under section 642(f)."
AMENDMENTS
2005 - Subsec. (e)(3)(B)(vi)(I). Pub. L. 109-135, Sec. 410(a),
substituted "if 'solar or wind energy' were substituted for 'solar
energy' in clause (i) thereof" for "if 'solar and wind' were
substituted for 'solar' in clause (i) thereof".
Pub. L. 109-58, Sec. 1301(f)(5), amended subcl. (I) generally.
Prior to amendment, subcl. (I) read as follows: "is described in
subparagraph (A) of section 48(a)(3) (or would be so described if
'solar and wind' were substituted for 'solar' in clause (i)
thereof),".
Subsec. (e)(3)(C)(iv), (v). Pub. L. 109-58, Sec. 1326(a), added
cl. (iv) and redesignated former cl. (iv) as (v).
Subsec. (e)(3)(E)(vii). Pub. L. 109-58, Sec. 1308(a), added cl.
(vii).
Subsec. (e)(3)(E)(viii). Pub. L. 109-58, Sec. 1325(a), added cl.
(viii).
Subsec. (g)(3)(B). Pub. L. 109-58, Sec. 1326(c), inserted table
item relating to subpar. (C)(iv).
Pub. L. 109-58, Sec. 1325(b), inserted table item relating to
subpar. (E)(viii).
Pub. L. 109-58, Sec. 1308(b), inserted table item relating to
subpar. (E)(vii).
Subsec. (i)(15)(D). Pub. L. 109-135, Sec. 412(s), substituted
"Such term shall not include" for "This paragraph shall not apply
to".
Subsec. (i)(17). Pub. L. 109-58, Sec. 1326(b), added par. (17).
Subsec. (k)(2)(A)(iv). Pub. L. 109-135, Sec. 403(j)(1),
substituted "subparagraph (B) or (C)" for "subparagraphs (B) and
(C)".
Subsec. (k)(4)(B)(ii). Pub. L. 109-135, Sec. 405(a)(1), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"which is acquired by the taxpayer after May 5, 2003, and before
January 1, 2005, but only if no written binding contract for the
acquisition was in effect before May 6, 2003, and".
Subsec. (k)(4)(B)(iii). Pub. L. 109-135, Sec. 403(j)(2),
substituted "or paragraph (2)(C) (as so modified)" for "and
paragraph (2)(C)".
2004 - Subsec. (b)(2)(A). Pub. L. 108-357, Sec. 211(d)(2),
inserted "not referred to in paragraph (3)" before comma at end.
Subsec. (b)(3)(G), (H). Pub. L. 108-357, Sec. 211(d)(1), added
subpars. (G) and (H).
Subsec. (e)(3)(C)(ii). Pub. L. 108-357, Sec. 704(a), added cl.
(ii). Former cl. (ii) redesignated (iii).
Subsec. (e)(3)(C)(iii). Pub. L. 108-357, Sec. 706(a), added cl.
(iii). Former cl. (iii) redesignated (iv).
Pub. L. 108-357, Sec. 704(a), redesignated cl. (ii) as (iii).
Subsec. (e)(3)(C)(iv). Pub. L. 108-357, Sec. 706(a), redesignated
cl. (iii) as (iv).
Subsec. (e)(3)(E)(iv), (v). Pub. L. 108-357, Sec. 211(a), added
cls. (iv) and (v).
Subsec. (e)(3)(E)(vi). Pub. L. 108-357, Sec. 901(a), added cl.
(vi).
Subsec. (e)(3)(F). Pub. L. 108-357, Sec. 901(b), added subpar.
(F).
Subsec. (e)(6), (7). Pub. L. 108-357, Sec. 211(b), (c), added
pars. (6) and (7).
Subsec. (g)(3)(A). Pub. L. 108-357, Sec. 847(a), inserted
"(notwithstanding any other subparagraph of this paragraph)" after
"shall".
Subsec. (g)(3)(B). Pub. L. 108-357, Sec. 901(c), inserted table
items relating to subpars. (E)(vi) and (F).
Pub. L. 108-357, Sec. 706(c), which directed amendment of table
by inserting item relating to subpar. (C)(iii) after item relating
to subpar. (C)(ii), was executed by making the insertion after item
relating to subpar. (C)(i) to reflect the probable intent of
Congress.
Pub. L. 108-357, Sec. 211(e), inserted table items relating to
subpars. (E)(iv) and (E)(v).
Subsec. (h)(2)(A). Pub. L. 108-357, Sec. 847(e), added cl. (iv)
and concluding provisions.
Subsec. (h)(3)(A). Pub. L. 108-357, Sec. 847(d), inserted at end
"Notwithstanding subsection (i)(3)(A)(i), in determining a lease
term for purposes of the preceding sentence, there shall not be
taken into account any option of the lessee to renew at the fair
market value rent determined at the time of renewal; except that
the aggregate period not taken into account by reason of this
sentence shall not exceed 24 months."
Subsec. (i)(3)(A)(ii), (iii). Pub. L. 108-357, Sec. 847(c), added
cl. (ii) and redesignated former cl. (ii) as (iii).
Subsec. (i)(15). Pub. L. 108-357, Sec. 704(b), added par. (15).
Subsec. (i)(16). Pub. L. 108-357, Sec. 706(b), added par. (16).
Subsec. (j)(8). Pub. L. 108-311, Sec. 316, substituted "2005" for
"2004".
Subsec. (k)(2)(A)(iv). Pub. L. 108-357, Sec. 336(a)(2),
substituted "subparagraphs (B) and (C)" for "subparagraph (B)".
Subsec. (k)(2)(B)(i). Pub. L. 108-311, Sec. 403(a)(1), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The term 'qualified property'
includes property -
"(I) which meets the requirements of clauses (i), (ii), and
(iii) of subparagraph (A),
"(II) which has a recovery period of at least 10 years or is
transportation property, and
"(III) which is subject to section 263A by reason of clause
(ii) or (iii) of subsection (f)(1)(B) thereof."
Subsec. (k)(2)(B)(iv). Pub. L. 108-357, Sec. 336(b)(1), added cl.
(iv).
Subsec. (k)(2)(C). Pub. L. 108-357, Sec. 336(a)(1), added subpar.
(C). Former subpar. (C) redesignated (D).
Subsec. (k)(2)(D). Pub. L. 108-357, Sec. 336(a)(1), redesignated
subpar. (C) as (D). Former subpar. (D) redesignated (E).
Subsec. (k)(2)(D)(ii). Pub. L. 108-311, Sec. 408(a)(6)(A),
inserted "is" after "if property" in introductory provisions.
Pub. L. 108-311, Sec. 403(a)(2)(B), inserted "clause (iii) and"
before "subparagraph (A)(ii)" in introductory provisions.
Subsec. (k)(2)(D)(ii)(I). Pub. L. 108-311, Sec. 408(a)(6)(B),
struck out "is" before "originally".
Subsec. (k)(2)(D)(iii), (iv). Pub. L. 108-311, Sec. 403(a)(2)(A),
added cls. (iii) and (iv).
Subsec. (k)(2)(E). Pub. L. 108-357, Sec. 336(a)(1), redesignated
subpar. (D) as (E). Former subpar. (E) redesignated (F).
Subsec. (k)(2)(E)(iii)(II). Pub. L. 108-357, Sec. 337(a), which
directed amendment of subcl. (II) by inserting before comma at end
"(or, in the case of multiple units of property subject to the same
lease, within 3 months after the date the final unit is placed in
service, so long as the period between the time the first unit is
placed in service and the time the last unit is placed in service
does not exceed 12 months)", was executed by making the insertion
before ", and" to reflect the probable intent of Congress.
Subsec. (k)(2)(F). Pub. L. 108-357, Sec. 336(a)(1), redesignated
subpar. (E) as (F). Former subpar. (F) redesignated (G).
Pub. L. 108-311, Sec. 408(a)(8), substituted "minimum" for
"miniumum" in heading.
Subsec. (k)(2)(G). Pub. L. 108-357, Sec. 336(a)(1), redesignated
subpar. (F) as (G).
Subsec. (k)(4)(A)(ii). Pub. L. 108-357, Sec. 336(b)(2),
substituted "paragraph (2)(D)" for "paragraph (2)(C)".
Subsec. (k)(4)(B)(iii). Pub. L. 108-357, Sec. 336(b)(3), inserted
"and paragraph (2)(C)" after "of this paragraph)".
Subsec. (k)(4)(C). Pub. L. 108-357, Sec. 336(b)(4), substituted
"subparagraphs (B), (C), and (E)" for "subparagraphs (B) and (D)".
Subsec. (k)(4)(D). Pub. L. 108-357, Sec. 336(b)(5), substituted
"Paragraph (2)(F)" for "Paragraph (2)(E)".
2003 - Subsec. (k). Pub. L. 108-27, Sec. 201(c)(1), substituted
"January 1, 2005" for "September 11, 2004" in heading.
Subsec. (k)(2)(A)(iii). Pub. L. 108-27, Sec. 201(b)(2),
substituted "January 1, 2005" for "September 11, 2004" in subcls.
(I) and (II).
Subsec. (k)(2)(B)(ii). Pub. L. 108-27, Sec. 201(b)(1),
substituted "pre-January 1, 2005" for "pre-September 11, 2004" in
heading and "January 1, 2005" for "September 11, 2004" in text.
Subsec. (k)(2)(C)(iii). Pub. L. 108-27, Sec. 201(b)(3), inserted
at end "The preceding sentence shall be applied separately with
respect to property treated as qualified property by paragraph (4)
and other qualified property."
Subsec. (k)(2)(D)(i). Pub. L. 108-27, Sec. 201(b)(1)(A),
substituted "January 1, 2005" for "September 11, 2004".
Subsec. (k)(4). Pub. L. 108-27, Sec. 201(a), added par. (4).
2002 - Subsec. (j)(8). Pub. L. 107-147, Sec. 613(b), substituted
"December 31, 2004" for "December 31, 2003".
Subsec. (k). Pub. L. 107-147, Sec. 101(a), added subsec. (k).
1998 - Subsec. (c). Pub. L. 105-206, Sec. 6006(b)(2), reenacted
subsec. heading without change and substituted "For purposes of
this section, the applicable recovery period shall be determined in
accordance with the following table:" for "For purposes of this
section -
"(1) In general. - Except as provided in paragraph (2), the
applicable recovery period shall be determined in accordance with
the following table:".
Subsec. (c)(2). Pub. L. 105-206, Sec. 6006(b)(1), struck out
heading and text of par. (2). Text read as follows: "In the case of
property to which an election under subsection (b)(2)(C) applies,
the applicable recovery period shall be determined under the table
contained in subsection (g)(2)(C)."
1997 - Subsec. (e)(3)(A)(iii). Pub. L. 105-34, Sec. 1086(b)(1),
added cl. (iii).
Subsec. (g)(3)(B). Pub. L. 105-34, Sec. 1086(b)(2), inserted
table item relating to subpar. (A)(iii).
Subsec. (i)(8)(C). Pub. L. 105-34, Sec. 1213(c), added subpar.
(C).
Subsec. (i)(14). Pub. L. 105-34, Sec. 1086(b)(3), added par.
(14).
Subsec. (j)(6). Pub. L. 105-34, Sec. 1604(c)(1), inserted
concluding provisions "For purposes of the preceding sentence, such
section 3(d) shall be applied by treating the term 'former Indian
reservations in Oklahoma' as including only lands which are within
the jurisdictional area of an Oklahoma Indian tribe (as determined
by the Secretary of the Interior) and are recognized by such
Secretary as eligible for trust land status under 25 CFR Part 151
(as in effect on the date of the enactment of this sentence)."
1996 - Subsec. (b)(3)(F). Pub. L. 104-188, Sec. 1613(b)(1), added
subpar. (F).
Subsec. (c)(1). Pub. L. 104-188, Sec. 1613(b)(2), inserted table
item relating to water utility property.
Subsec. (e)(3)(B). Pub. L. 104-188, Sec. 1702(h)(1)(B), inserted
closing provisions.
Subsec. (e)(3)(B)(vi)(I). Pub. L. 104-188, Sec. 1704(t)(54),
provided that section 11813(b)(9)(A)(i) of Pub. L. 101-508 shall be
applied as if a comma appeared after "(3)(A)(ix)" in the material
proposed to be stricken. See 1990 Amendment note below.
Subsec. (e)(3)(B)(vi)(III). Pub. L. 104-188, Sec. 1702(h)(1)(A),
added subcl. (III).
Subsec. (e)(3)(E)(iii). Pub. L. 104-188, Sec. 1120(a), added cl.
(iii).
Subsec. (e)(3)(F). Pub. L. 104-188, Sec. 1613(b)(3)(B)(i), struck
out subpar. (F) which read as follows: "20-year property. - The
term '20-year property' includes any municipal sewers."
Subsec. (e)(5). Pub. L. 104-188, Sec. 1613(b)(3)(A), added par.
(5).
Subsec. (g)(2)(C)(iv). Pub. L. 104-188, Sec. 1613(b)(4), inserted
"or water utility property" after "tunnel bore".
Subsec. (g)(3)(B). Pub. L. 104-188, Sec. 1120(b), inserted table
item relating to subpar. (E)(iii).
Pub. L. 104-188, Sec. 1613(b)(3)(B)(ii), struck out table item
relating to subpar. (F) for which the class life was 50.
Subsec. (g)(4)(K). Pub. L. 104-188, Sec. 1702(h)(1)(C),
substituted "section 48(l)(3)(A)(ix) (as in effect on the day
before the date of the enactment of the Revenue Reconciliation Act
of 1990)" for "section 48(a)(3)(A)(iii)".
Subsec. (i)(8). Pub. L. 104-188, Sec. 1121(a), reenacted heading
without change and amended text generally. Prior to amendment, text
read as follows: "In the case of any building erected (or
improvements made) on leased property, if such building or
improvement is property to which this section applies, the
depreciation deduction shall be determined under the provisions of
this section."
1995 - Subsec. (g)(4)(B)(i). Pub. L. 104-88 substituted "rail
carrier subject to part A of subtitle IV" for "domestic railroad
corporation providing transportation subject to subchapter I of
chapter 105".
1993 - Subsec. (c)(1). Pub. L. 103-66, Sec. 13151(a), substituted
"39 years" for "31.5 years" in table item relating to
nonresidential real property.
Subsec. (j). Pub. L. 103-66, Sec. 13321(a), added subsec. (j).
1990 - Subsec. (e)(2)(A). Pub. L. 101-508, Sec. 11812(b)(2)(A),
amended subpar. (A) generally. Prior to amendment, subpar. (A) read
as follows: "The term 'residential rental property' has the meaning
given such term by section 167(j)(2)(B)."
Subsec. (e)(3)(B)(vi)(I). Pub. L. 101-508, Sec.
11813(b)(9)(A)(i), which directed the substitution of "subparagraph
(A) of section 48(a)(3) (or would be so described if 'solar and
wind' were substituted for 'solar' in clause (i) thereof)" for
"paragraph (3)(A)(viii), (3)(A)(ix) or (4) of section 48(l)" was
executed by making the substitution for "paragraph (3)(A)(viii),
(3)(A)(ix), or (4) of section 48(l)". See 1996 Amendment note
above.
Subsec. (e)(3)(B)(vi)(II). Pub. L. 101-508, Sec.
11813(b)(9)(A)(ii), inserted "(as in effect on the day before the
date of the enactment of the Revenue Reconciliation Act of 1990)"
after "48(l)".
Subsec. (e)(3)(D)(i). Pub. L. 101-508, Sec. 11813(b)(9)(B)(i),
substituted "subsection (i)(13)" for "section 48(p)".
Subsec. (f)(2). Pub. L. 101-508, Sec. 11812(b)(2)(C), substituted
"subsection (i)(10)" for "section 167(l)(3)(A)."
Subsec. (g)(4). Pub. L. 101-508, Sec. 11813(b)(9)(C), substituted
heading for one which read: "Property used predominantly outside
the United States" and amended text generally. Prior to amendment,
text read as follows: "For purposes of this subsection, rules
similar to the rules under section 48(a)(2) (including the
exceptions contained in subparagraph (B) thereof) shall apply in
determining whether property is used predominantly outside the
United States. In addition to the exceptions contained in such
subparagraph (B), there shall be excepted any satellite or other
spacecraft (or any interest therein) held by a United States person
if such satellite or spacecraft was launched from within the United
States."
Subsec. (i)(1). Pub. L. 101-508, Sec. 11812(b)(2)(D), inserted at
end "The reference in this paragraph to subsection (m) of section
167 shall be treated as a reference to such subsection as in effect
on the day before the date of the enactment of the Revenue
Reconciliation Act of 1990."
Subsec. (i)(7)(B)(i). Pub. L. 101-508, Sec. 11801(c)(8)(B),
struck out, "371(a), 374(a)," after "361,".
Subsec. (i)(9)(A)(ii). Pub. L. 101-508, Sec. 11812(b)(2)(E),
struck out "(determined without regard to section 167(l))" after
"section 167".
Subsec. (i)(10). Pub. L. 101-508, Sec. 11812(b)(2)(B), amended
par. (10) generally. Prior to amendment, par. (10) read as follows:
"The term 'public utility property' has the meaning given such term
by section 167(l)(3)(A)."
Subsec. (i)(13). Pub. L. 101-508, Sec. 11813(b)(9)(B)(ii), added
par. (13).
1989 - Subsec. (b)(3)(D), (E). Pub. L. 101-239, Sec. 7816(f),
redesignated subpar. (D), relating to property described in subsec.
(e)(3)(D)(ii), as (E).
Subsec. (b)(5). Pub. L. 101-239, Sec. 7816(e)(1), substituted
"paragraph (2)(C)" for "paragraph (2)(B)".
Subsec. (c)(2). Pub. L. 101-239, Sec. 7816(e)(2), substituted
"subsection (b)(2)(C)" for "subsection (b)(2)(B)".
Subsec. (i)(1). Pub. L. 101-239, Sec. 7816(w), made clarifying
amendment to directory language of Pub. L. 100-647, Sec. 6253, see
1988 Amendment note below.
1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 1002(a)(11)(A),
substituted "150 percent declining balance method in certain cases"
for "15-year and 20-year property" in heading and amended text
generally. Prior to amendment, text read as follows: "In the case
of 15-year and 20-year property, paragraph (1) shall be applied by
substituting '150 percent' for '200 percent'."
Subsec. (b)(2)(B), (C). Pub. L. 100-647, Sec. 6028(a), added
subpar. (B) and redesignated former subpar. (B) as (C).
Subsec. (b)(3)(C). Pub. L. 100-647, Sec. 1002(i)(2)(B)(i), added
subpar. (C). Former subpar. (C) redesignated (D).
Subsec. (b)(3)(D). Pub. L. 100-647, Sec. 6029(b), added subpar.
(D) relating to property described in subsec. (e)(3)(D)(ii).
Pub. L. 100-647, Sec. 1002(i)(2)(B)(i), redesignated subpar. (C),
relating to property with respect to which the taxpayer elects
under par. (5), as (D).
Subsec. (b)(5). Pub. L. 100-647, Sec. 1002(i)(2)(B)(ii),
substituted "paragraph (3)(D)" for "paragraph (3)(C)".
Pub. L. 100-647, Sec. 1002(a)(11)(B), substituted "paragraph
(2)(B) or (3)(C)" for "paragraph (3)(C)".
Subsec. (c). Pub. L. 100-647, Sec. 1002(a)(11)(C), amended
subsec. (c) generally, designating existing provisions as par. (1)
and adding par. (2).
Subsec. (c)(1). Pub. L. 100-647, Sec. 1002(i)(2)(A), inserted
table item relating to any railroad grading or tunnel bore.
Subsec. (d)(2)(C). Pub. L. 100-647, Sec. 1002(i)(2)(D), added
subpar. (C).
Subsec. (d)(3)(A)(i). Pub. L. 100-647, Sec. 1002(a)(5), struck
out "and which are" after "this section applies".
Subsec. (d)(3)(B). Pub. L. 100-647, Sec. 1002(a)(23)(A), struck
out "real" after "Certain" in heading and amended text generally.
Prior to amendment, text read as follows: "For purposes of
subparagraph (A), nonresidential real property and residential
rental property shall not be taken into account."
Subsec. (d)(3)(B)(i). Pub. L. 100-647, Sec. 1002(i)(2)(E),
substituted "residential rental property, and railroad grading or
tunnel bore" for "and residential rental property".
Subsec. (e)(3)(B)(v). Pub. L. 100-647, Sec. 1002(a)(21),
substituted "any section 1245 property" for "any property".
Subsec. (e)(3)(C). Pub. L. 100-647, Sec. 6027(b)(1)(C),
redesignated cl. (iii) as (ii), and struck out former cl. (ii)
which read as follows: "any single-purpose agricultural or
horticultural structure (within the meaning of section 48(p)),
and".
Subsec. (e)(3)(D). Pub. L. 100-647, Sec. 6029(a), amended subpar.
(D) generally. Prior to amendment, subpar. (D) read as follows:
"The term '10-year property' includes any single purpose
agricultural or horticultural structure (within the meaning of
section 48(p))."
Pub. L. 100-647, Sec. 6027(a), added subpar. (D). Former subpar.
(D) redesignated (E).
Subsec. (e)(3)(E), (F). Pub. L. 100-647, Sec. 6027(a),
redesignated former subpars. (D) and (E) as (E) and (F),
respectively.
Subsec. (e)(4). Pub. L. 100-647, Sec. 1002(i)(2)(C), added par.
(4).
Subsec. (f)(4). Pub. L. 100-647, Sec. 1002(a)(16)(B), amended
par. (4) generally. Prior to amendment, par. (4) read as follows:
"Any sound recording described in section 48(r)(5)."
Subsec. (f)(5)(B)(ii). Pub. L. 100-647, Sec. 1002(a)(6)(A)(i),
substituted "1st taxable year" for "1st full taxable year".
Subsec. (f)(5)(B)(iii). Pub. L. 100-647, Sec. 1002(a)(6)(A)(ii),
added cl. (iii).
Subsec. (f)(5)(C). Pub. L. 100-647, Sec. 100-647, Sec.
1002(a)(6)(B), added subpar. (C).
Subsec. (g)(2)(C). Pub. L. 100-647, Sec. 1002(i)(2)(F), added
item (iv) in table.
Subsec. (g)(3)(B). Pub. L. 100-647, Sec. 6029(c), substituted
"(D)(i)" for "(D)" and added item for "(D)(ii)" in table.
Pub. L. 100-647, Sec. 6027(b)(2), substituted "(D)" for
"(C)(ii)", "(E)(i)" for "(D)(i)", "(E)(ii)" for "(D)(ii)", and
"(F)" for "(E)" in table.
Subsec. (h)(2)(B). Pub. L. 100-647, Sec. 1002(a)(8), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows:
"(i) Income from property subject to United States tax. - Clause
(iii) of subparagraph (A) shall not apply with respect to any
property if more than 50 percent of the gross income for the
taxable year derived by the foreign person or entity from the use
of such property is -
"(I) subject to tax under this chapter, or
"(II) included under section 951 in the gross income of a
United States shareholder for the taxable year with or within
which ends the taxable year of the controlled foreign corporation
in which such income was derived.
For purposes of the preceding sentence, any exclusion or exemption
shall not apply for purposes of determining the amount of the gross
income so derived, but shall apply for purposes of determining the
portion of such gross income subject to tax under this chapter.
"(ii) Movies and sound recordings. - Clause (iii) of subparagraph
(A) shall not apply with respect to any qualified film (as defined
in section 48(k)(1)(B)) or any sound recording (as defined in
section 48(r)(5))."
Subsec. (i)(1). Pub. L. 100-647, Sec. 6253, as amended by Pub. L.
101-239, Sec. 7816(w), amended par. (1) generally, substituting a
single par. relating to class life for former subpar. (A) relating
to class life generally, (B) relating to Secretarial authority, (C)
relating to effect of modification, (D) prohibiting modification of
assigned property before January 1, 1992, and (E) relating to
assigned property and item.
Subsec. (i)(1)(E)(iii). Pub. L. 100-647, Sec. 1002(i)(2)(G),
added cl. (iii), which provided: "Special rule for railroad grading
or tunnel bores. - In the case of any property which is a railroad
grading or tunnel bore -
"(I) such property shall be treated as an assigned property,
"(II) the recovery period applicable to such property shall be
treated as an assigned item, and
"(III) clause (ii) of subparagraph (D) shall not apply."
Subsec. (i)(7)(A). Pub. L. 100-647, Sec. 1002(a)(7)(A), inserted
at end "In any case where this section as in effect before the
amendments made by section 201 of the Tax Reform Act of 1986
applied to the property in the hands of the transferor, the
reference in the preceding sentence to this section shall be
treated as a reference to this section as so in effect."
Subsec. (i)(7)(B). Pub. L. 100-647, Sec. 1002(a)(7)(B), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "The transactions described in this subparagraph are any
transaction described in section 332, 351, 361, 371(a), 374(a),
721, or 731. Subparagraph (A) shall not apply in the case of a
termination of a partnership under section 708(b)(1)(B)."
Subsec. (i)(7)(D). Pub. L. 100-647, Sec. 1002(a)(7)(C), struck
out subpar. (D) which read as follows: "This paragraph shall not
apply to any transaction to which subsection (f)(5) applies
(relating to churning transactions)."
Subsec. (j)(9)(E). Pub. L. 100-647, Sec. 1018(b)(2), amended
subpar. (E), as amended by section 1802(a)(2) of Pub. L. 99-514 and
as in effect before the general amendment by section 201(a) of Pub.
L. 99-514, by substituting "this paragraph and paragraph (8)" for
"this paragraph" in cls. (i) and (ii)(I) and by striking out cl.
(iii) and inserting a new cl. (iii) which read as follows: "Tax-
exempt controlled entity. -
"(I) In general. - The term 'tax-exempt controlled entity' means
any corporation (which is not a tax-exempt entity determined
without regard to this subparagraph and paragraph (4)(E)) if 50
percent or more (in value) of the stock in such corporation is held
by 1 or more tax-exempt entities (other than a foreign person or
entity).
"(II) Only 5-percent shareholders taken into account in case of
publicly traded stock. - For purposes of subclause (I), in the case
of a corporation the stock of which is publicly traded on an
established securities market, stock held by a tax-exempt entity
shall not be taken into account unless such entity holds at least 5
percent (in value) of the stock in such corporation. For purposes
of this subclause, related entities (within the meaning of
paragraph (7)) shall be treated as 1 entity.
"(III) Section 318 to apply. - For purposes of this clause, a tax-
exempt entity shall be treated as holding stock which it holds
through application of section 318 (determined without regard to
the 50-percent limitation contained in subsection (a)(2)(C)
thereof)."
1986 - Pub. L. 99-514, Sec. 201(a), amended section generally,
applicable, with exceptions enumerated in sections 203, 204, and
251(d) of Pub. L. 99-514 [set out as notes below and under section
46 of this title], to property placed in service after Dec. 31,
1986, modifying existing accelerated cost recovery system by
substituting new subsecs. (a) to (i) for former subsecs. (a) to
(k). See following paragraphs of 1986 Amendment note for amendments
to former text by sections 1802 and 1809 of Pub. L. 99-514.
Subsec. (b)(2)(A). Pub. L. 99-514, Sec. 1809(a)(2)(A)(i)(I),
struck out closing provisions relating to determination, in the
case of 19-year real property, of applicable percentage in taxable
year in which the property is placed in service.
Subsec. (b)(2)(B). Pub. L. 99-514, Sec. 1809(a)(2)(A)(i)(II),
substituted "Mid-month convention for 19-year real property" for
"Special rule for year of disposition" in heading and amended text
generally, substituting "In the case of 19-year real property, the
amount of the deduction determined under any provision of this
section (or for purposes of section 57(a)(12)(B) or 312(k)) for any
taxable year shall be determined on the basis of the number of
months (using a mid-month convention) in which the property is in
service." for prior provisions.
Subsec. (b)(3)(A). Pub. L. 99-514, Sec. 1809(a)(1)(A), which
directed that the table be amended by striking "and low-income
housing" in last item, was executed by striking "and low-income
housing" after "19-year real property" in next-to-the-last item, to
reflect the probable intent of Congress, because that phrase did
not appear in last item.
Pub. L. 99-514, Sec. 1809(a)(1)(B), inserted at the end item for
low-income housing with recovery periods of 15, 35, or 45 years.
Subsec. (b)(4)(B). Pub. L. 99-514, Sec. 1809(a)(2)(B),
substituted "Monthly convention" for "Special rule for year of
disposition" in heading and amended text generally, substituting
"In the case of low-income housing, the amount of the deduction
determined under any provision of this section (or for purposes of
section 57(a)(12)(B) or 312(k)) for any taxable year shall be
determined on the basis of the number of months (treating all
property placed in service or disposed of during any month as
placed in service or disposed of on the first day of such month) in
which the property is in service." for prior provisions.
Subsec. (f)(2)(B). Pub. L. 99-514, Sec. 1809(a)(2)(A)(ii),
redesignated existing provisions as entire subpar. (B), struck out
"(i) In general", redesignated subcls. (I) and (II) as cls. (i) and
(ii), and in cl. (ii) struck out "(taking into account the next to
the last sentence of subsection (b)(2)(A))" after "assign
percentages" and struck out heading, "(ii) Special rule for
disposition" and text, "In the case of a disposition of 19-year
real property or low-income housing described in clause (i),
subsection (b)(2)(B) shall apply."
Subsec. (f)(10)(A). Pub. L. 99-514, Sec. 1809(b)(1), amended
subpar. (A) generally, substituting "In the case of recovery
property transferred in a transaction described in subparagraph
(B), for purposes of computing the deduction allowable under
subsection (a) with respect to so much of the basis in the hands of
the transferee as does not exceed the adjusted basis in the hands
of the transferor -
"(i) if the transaction is described in subparagraph (B)(i),
the transferee shall be treated in the same manner as the
transferor, or
"(ii) if the transaction is described in clause (ii) or (iii)
of subparagraph (B) and the transferor made an election with
respect to such property under subsection (b)(3) or (f)(2)(C),
the transferee shall be treated as having made the same election
(or its equivalent)."
for prior provisions.
Subsec. (f)(10)(B). Pub. L. 99-514, Sec. 1809(b)(2), inserted at
end "Clause (i) shall not apply in the case of the termination of a
partnership under section 708(b)(1)(B)."
Subsec. (f)(12)(B)(ii). Pub. L. 99-514, Sec. 1809(a)(4)(A),
amended cl. (ii) generally, substituting "In the case of 19-year
real property, the amount of the deduction allowed shall be
determined by using the straight-line method (without regard to
salvage value) and a recovery period of 19 years." for prior
provisions.
Subsec. (f)(12)(C). Pub. L. 99-514, Sec. 1809(a)(4)(B),
substituted "Exception for low- and moderate-income housing" for
"Exception for projects for residential rental property" in heading
and amended text generally, substituting "Subparagraph (A) shall
not apply to -
"(i) any low-income housing, and
"(ii) any other recovery property which is placed in service in
connection with projects for residential rental property financed
by the proceeds of obligations described in section
103(b)(4)(A)."
for prior provisions.
Subsec. (f)(14), (15). Pub. L. 99-514, Sec. 1802(b)(1),
redesignated the par. (13) relating to motor vehicle operating
leases as (14) and redesignated former par. (14) as (15).
Subsec. (j)(2)(B)(ii). Pub. L. 99-514, Sec. 1809(a)(2)(C)(i),
substituted "Cross reference" for "19-year real property" in
heading and amended text generally, substituting "For other
applicable conventions, see paragraphs (2)(B) and (4)(B) of
subsection (b)." for prior provisions.
Subsec. (j)(3)(D). Pub. L. 99-514, Sec. 1802(a)(1), inserted at
end "For purposes of subparagraph (B)(iii), any portion of a
property so used shall not be treated as leased to a tax-exempt
entity in a disqualified lease."
Subsec. (j)(4)(E)(i). Pub. L. 99-514, Sec. 1802(a)(2)(A), (G),
substituted "any property (other than property held by such
organization)" for "any property of which such organization is the
lessee", "first used by" for "first leased to", and "preceding
sentence and subparagraph (D)(ii)" for "preceding sentence".
Subsec. (j)(4)(E)(ii). Pub. L. 99-514, Sec. 1802(a)(2)(B), (C),
struck out "of which such organization is the lessee" after
"respect to any property" in subcl. (I) and substituted "is first
used by the organization" for "is placed in service under the
lease" in subcl. (II).
Subsec. (j)(4)(E)(iv). Pub. L. 99-514, Sec. 1802(a)(2)(D), added
cl. (iv), first used, which read as follows: "For purposes of this
subparagraph, property shall be treated as first used by the
organization -
"(I) when the property is first placed in service under a lease
to such organization, or
"(II) in the case of property leased to (or held by) a
partnership (or other pass-thru entity) in which the organization
is a member, the later of when such property is first used by
such partnership or pass-thru entity or when such organization is
first a member of such partnership or pass-thru entity."
Subsec. (j)(5)(C)(iv). Pub. L. 99-514, Sec. 1802(a)(3), struck
out cl. (iv), relating to exclusion of property not subject to
rapid obsolescence.
Subsec. (j)(8), (9)(A). Pub. L. 99-514, Sec. 1802(a)(4)(A),
(B)(i), struck out "and paragraphs (4) and (5) of section 48(a)"
after "For purposes of this subsection" in introductory provisions.
Subsec. (j)(9)(B)(i). Pub. L. 99-514, Sec. 1802(a)(4)(B)(ii),
inserted a comma between "loss" and "deduction".
Subsec. (j)(9)(D). Pub. L. 99-514, Sec. 1802(a)(7)(A), added
subpar. (D), determination of whether property used in unrelated
trade or business, which read as follows: "For purposes of this
subsection, in the case of any property which is owned by a
partnership which has both a tax-exempt entity and a person who is
not a tax-exempt entity as partners, the determination of whether
such property is used in an unrelated trade or business of such an
entity shall be made without regard to section 514." Former subpar.
(D) was redesignated (E).
Subsec. (j)(9)(E). Pub. L. 99-514, Sec. 1802(a)(7), redesignated
former subpar. (D) as (E) and substituted "(C), and (D)" for "and
(C)". Former subpar. (E), was redesignated (F).
Pub. L. 99-514, Sec. 1802(a)(2)(E)(i), added subpar. (E),
treatment of certain taxable entities, consisting of cl. (i), in
general, which read: "For purposes of this paragraph, except as
otherwise provided in this subparagraph, any tax-exempt controlled
entity shall be treated as a tax-exempt entity.", cl. (ii),
election, which read: "If a tax-exempt controlled entity makes an
election under this clause -
"(I) such entity shall not be treated as a tax-exempt entity
for purposes of this paragraph, and
"(II) any gain recognized by a tax-exempt entity on any
disposition of an interest in such entity (and any dividend or
interest received or accrued by a tax-exempt entity from such tax-
exempt controlled entity) shall be treated as unrelated business
taxable income for purposes of section 511.
Any such election shall be irrevocable and shall bind all tax-
exempt entities holding interests in such tax-exempt controlled
entity. For purposes of subclause (II), there shall only be taken
into account dividends which are properly allocable to income of
the tax-exempt controlled entity which was not subject to tax under
this chapter.", and cl. (iii), tax-exempt controlled entity, which
read "The term 'tax-exempt controlled entity' means any corporation
(which is not a tax-exempt entity determined without regard to this
subparagraph and paragraph (4)(E)) if 50 percent or more (by value)
of the stock in such corporation is held (directly or through the
application of section 318 determined without regard to the 50-
percent limitation contained in subsection (a)(2)(C) thereof) by 1
or more tax-exempt entities." Former subpar. (E) was redesignated
(F).
Subsec. (j)(9)(F). Pub. L. 99-514, Sec. 1802(a)(7)(A),
redesignated former subpar. (E) as (F). Former subpar. (F)
redesignated (G).
Pub. L. 99-514, Sec. 1802(a)(2)(E)(i), redesignated former
subpar. (E) as (F).
Subsec. (j)(9)(G). Pub. L. 99-514, Sec. 1802(a)(7)(A),
redesignated former subpar. (F) as (G).
1985 - Subsec. (b)(2). Pub. L. 99-121, Sec. 103(b)(1)(A),
substituted "19-year real property" for "18-year real property" in
heading and wherever appearing in text.
Subsec. (b)(2)(A)(i). Pub. L. 99-121, Sec. 103(a), substituted
"19-year recovery period" for "18-year recovery period".
Subsec.(b)(3)(A). Pub. L. 99-121, Sec. 103(b)(1)(A), substituted
"19-year real property" for "18-year real property" in table.
Pub. L. 99-121, Sec. 103(b)(2), substituted "19, 35, or 45 years"
for "18, 35, or 45" in table.
Subsec. (b)(3)(B)(ii), (iii). Pub. L. 99-121, Sec. 103(b)(1)(A),
substituted "19-year real property" for "18-year real property"
wherever appearing.
Subsec. (c)(2)(D). Pub. L. 99-121, Sec. 103(b)(1)(A), substituted
"19-year real property" for "18-year real property" in heading and
in text.
Subsec. (d)(2)(B). Pub. L. 99-121, Sec. 103(b)(1)(A), substituted
"19-year real property" for "18-year real property".
Subsec. (f)(1)(B)(ii). Pub. L. 99-121, Sec. 103(b)(3)(B),
substituted "March 15, 1984, and before May, 9, 1985, the" for
"March 15, 1984, the".
Subsec. (f)(1)(B)(iii), (iv). Pub. L. 99-121, Sec. 103(b)(3)(A),
(C), added cl. (iii), redesignated former cl. (iii) as (iv), and in
cl. (iv) substituted ", (ii), or (iii)" for "or (ii)".
Subsec. (f)(2), (5). Pub. L. 99-121, Sec. 103(b)(1)(A),
substituted "19-year real property" for "18-year real property"
wherever appearing.
Subsec. (f)(12)(B)(ii). Pub. L. 99-121, Sec. 103(b)(4),
substituted "19-year real property" for "15-year real property" in
heading and wherever appearing in text, and substituted "19 years"
for "15 years".
Subsec. (j). Pub. L. 99-121, Sec. 103(b)(1)(A), substituted "19-
year real property" for "18-year real property" wherever appearing
in headings, table, and text.
1984 - Subsec. (b)(2). Pub. L. 98-369, Sec. 111(a)(1),
substituted "18-year real property" for "15-year real property" in
heading and wherever appearing in text.
Pub. L. 98-369, Sec. 111(d), inserted in provision following cl.
(ii) "(using a mid-month convention)".
Subsec. (b)(2)(A). Pub. L. 98-369, Sec. 111(b)(3)(A), struck out
in text following cl. (ii) provision that for purposes of this
subparagraph "low-income housing" means property described in
section 1250(a)(1)(B)(i), (ii), (iii), or (iv).
Subsec. (b)(2)(A)(i). Pub. L. 98-369, Sec. 111(a)(2), substituted
"18-year recovery period" for "15-year recovery period".
Subsec. (b)(2)(A)(ii). Pub. L. 98-369, Sec. 111(a)(3), struck out
"(200 percent declining balance method in the case of low-income
housing)" after "declining balance method".
Subsec. (b)(2)(B). Pub. L. 98-369, Sec. 111(d), inserted "(using
a mid-month convention)".
Subsec. (b)(3)(A). Pub. L. 98-369, Sec. 111(e)(9)(A), substituted
"under paragraph (1), (2), or (4)" for "under paragraphs (1) and
(2)".
Pub. L. 98-369, Sec. 111(e)(9)(B), substituted in table "18-year
real property and low-income housing" for "15-year real property"
and "18" for "15" and struck out "years" after "45".
Subsec. (b)(3)(B)(ii). Pub. L. 98-369, Sec. 111(e)(2),
substituted "18-year real property or low-income housing," for "15-
year real property".
Subsec. (b)(3)(B)(iii). Pub. L. 98-369, Sec. 111(e)(1),
substituted "18-year real property or low-income housing" for "15-
year real property".
Subsec. (b)(4). Pub. L. 98-369, Sec. 111(b)(1), added par. (4).
Subsec. (c)(2)(D). Pub. L. 98-369, Sec. 111(b)(3)(B), amended
subpar. (D) generally, substituting "18-year real property" for "15-
year real property" in heading and text and including within such
definition section 1250 property which is not low-income housing.
Subsec. (c)(2)(F), (G). Pub. L. 98-369, Sec. 111(b)(2), added
subpar. (F) and redesignated former subpar. (F) as (G).
Subsec. (d)(2)(B). Pub. L. 98-369, Sec. 111(e)(3), substituted
"18-year real property or low-income housing" for "15-year real
property".
Subsec. (e). Pub. L. 98-369, Sec. 113(b)(2)(A), substituted
"title" for "section" in provision preceding par. (1).
Subsec. (e)(5). Pub. L. 98-369, Sec. 113(b)(1), added par. (5).
Subsec. (f)(1)(B). Pub. L. 98-369, Sec. 111(c), designated
existing provision as cl. (i), inserted heading, inserted ", and
before March 16, 1984," and struck out provision that for the
purposes of the preceding sentence, the method of computing the
deduction allowable with respect to such first component be
determined as if it were a separate building, which provision is
covered in cl. (iii), and added cls. (ii) and (iii).
Subsec. (f)(2)(B). Pub. L. 98-369, Sec. 111(e)(1), substituted
"18-year real property or low-income housing" for "15-year real
property" wherever appearing.
Subsec. (f)(2)(C)(i). Pub. L. 98-369, Sec. 111(e)(4), substituted
in table "18-year real property or low-income housing" for "15-year
real property".
Subsec. (f)(2)(C)(ii)(II), (E), (5). Pub. L. 98-369, Sec.
111(e)(1), substituted "18-year real property or low-income
housing" for "15-year real property".
Subsec. (f)(8)(B)(ii)(I). Pub. L. 98-369, Sec. 12(a)(3)(A), in
par. (8) as amended by section 209(a) of Pub. L. 97-248,
substituted "1990" for "1986".
Subsec. (f)(12)(C). Pub. L. 98-369, Sec. 628(b)(1), designated
provisions preceding cl. (i) and cl. (i) as subpar. (C), and struck
out cls. (ii), (iii), and (iv) which dealt with the application of
subpar. (A) to a sewage or solid waste disposal facility, an air or
water pollution control facility or a facility which has received
an urban development action grant under section 119 of the Housing
and Community Development Act of 1974.
Subsec. (f)(12)(D), (E). Pub. L. 98-369, Sec. 628(b)(2),
redesignated subpar. (E) as (D) and struck out former subpar. (D)
which read as follows: "For purposes of this paragraph, the term
'existing facility' means a plant or property in operation before
July 1, 1982."
Subsec. (f)(13). Pub. L. 98-369, Sec. 32(a), added second par.
(13) relating to motor vehicle operating leases.
Subsec. (f)(14). Pub. L. 98-369, Sec. 113(a)(2), added par. (14).
Subsec. (g)(2). Pub. L. 98-369, Sec. 31(d), inserted "If any
property (other than section 1250 class property) does not have a
present class life within the meaning of the preceding sentence,
the Secretary may prescribe a present class life for such property
which reasonably reflects the anticipated useful life of such
property to the industry or other group."
Subsec. (i)(1)(D)(i). Pub. L. 98-369, Sec. 474(r)(7)(D), in
subsec. (i) as amended by section 209(b) of Pub. L. 97-248,
substituted "subparts A, B, and D of part IV" for "subpart A of
part IV".
Pub. L. 98-369, Sec. 474(r)(7)(A), in subsec. (i) as added by
section 208(a)(1) of Pub. L. 97-248, substituted "subparts A, B,
and D of part IV" for "subpart A of part IV".
Subsec. (i)(1)(D)(iii). Pub. L. 98-369, Sec. 612(e)(5), in
subsec. (i) as amended by section 209(b) of Pub. L. 97-248,
substituted "section 26(b)(2)" for "section 25(b)(2)".
Pub. L. 98-369, Sec. 612(e)(4), in subsec. (i) as added by
section 208(a)(1) of Pub. L. 97-248, substituted "section 26(b)(2)"
for "section 25(b)(2)".
Pub. L. 98-369, Sec. 474(r)(7)(E), in subsec. (i) as amended by
section 209(b) of Pub. L. 97-248, substituted "section 25(b)(2)"
for "the last sentence of section 53(a)".
Pub. L. 98-369, Sec. 474(r)(7)(B), in subsec. (i) as added by
section 208(a)(1) of Pub. L. 97-248, substituted "section 25(b)(2)"
for "the last sentence of section 53(a)".
Subsec. (i)(4)(A). Pub. L. 98-369, Sec. 12(a)(3)(B), in subsec.
(i) as amended by section 209(b) of Pub. L. 97-248, substituted
"1989" for "1985" in cls. (i) and (ii).
Pub. L. 98-369, Sec. 474(r)(7)(C), in subsec. (i) as added by
section 208(a)(1) of Pub. L. 97-248, substituted "section 38" for
"subpart A of part IV of subchapter A of this chapter".
Subsecs. (j), (k). Pub. L. 98-369, Sec. 31(a), added subsec. (j)
and redesignated former subsec. (j) as (k).
1983 - Subsec. (b)(2)(A). Pub. L. 97-448, Sec. 102(a)(5),
substituted "In the case of 15-year real property" for "For
purposes of this subparagraph" in third sentence.
Subsec. (c)(2)(F). Pub. L. 97-448, Sec. 102(a)(8), added subpar.
(F).
Subsec. (d)(2)(B). Pub. L. 97-448, Sec. 102(a)(2), substituted
"paragraph (7) or (10) of subsection (f)" for "subsection (f)(7)".
Subsec. (e)(3)(C), (D). Pub. L. 97-424, Sec. 541(a)(1), added
subpar. (C). Former subpar. (C) redesignated (D).
Subsec. (e)(4)(D). Pub. L. 97-448, Sec. 102(a)(9)(A), inserted
provision that, in the case of the acquisition of property by any
partnership which results from the termination of another
partnership under section 708(b)(1)(B), the determination of
whether the acquiring partnership is related to the other
partnership shall be made immediately before the event resulting in
such termination occurs.
Subsec. (e)(4)(H), (I). Pub. L. 97-448, Sec. 102(a)(9)(B), added
subpars. (H) and (I).
Subsec. (f)(4)(B). Pub. L. 97-448, Sec. 102(f)(4), substituted
"Election made on return" for "Made on return" as the subpar. (B)
heading, designated existing provisions as cl. (i), added heading
for cl. (i), substituted "Except as provided in clause (ii), any
election" for "Any election", in cl. (i) as so designated, and
added cl. (ii).
Subsec. (f)(5). Pub. L. 97-448, Sec. 102(a)(1), inserted
provision that, in the case of 15-year real property, the first
sentence of this paragraph shall not apply to the taxable year in
which the property is placed in service or disposed of.
Subsec. (f)(8)(D). Pub. L. 97-448, Sec. 102(a)(10)(A), amended
subpar. (D), as in effect before the amendments made by the Tax
Equity and Fiscal Responsibility Act of 1982 [Pub. L. 97-248], by
inserting at end thereof the following new sentence: "Under
regulations prescribed by the Secretary, public utility property
shall not be treated as qualified leased property unless the
requirements of rules similar to the rules of subsection (e)(3) of
this section and section 46(f) are met with respect to such
property." See 1982 Amendment note below for subsec. (f)(8)(D).
Subsec. (f)(13). Pub. L. 97-448, Sec. 102(a)(3), added par. (13).
Subsec. (g)(8)(A). Pub. L. 97-448, Sec. 102(a)(4)(B), substituted
"Qualified coal utilization property" for "In general" in heading.
Subsec. (g)(8)(B). Pub. L. 97-448, Sec. 102(a)(4)(C), substituted
"Coal utilization property" for "In general" in heading.
Subsec. (h)(4). Pub. L. 97-448, Sec. 102(a)(4)(A), substituted
"coal utilization property which would otherwise be 15-year public
utility property" for "coal utilization property which is not 3-
year property, 5-year property, or 10-year property (determined
without regard to this paragraph)".
1982 - Subsec. (b)(1). Pub. L. 97-248, Sec. 206(a), substituted
"table" for "tables" in introductory provisions, struck out
designation "(A)" preceding the table and struck out subpar. (A)
heading which had limited the application of the table to property
placed in service after Dec. 31, 1980, and before Jan. 1, 1985, and
struck out subpars. (B) and (C), which had provided tables,
respectively, for property placed in service in 1985 and for
property placed in service after Dec. 31, 1985.
Subsec. (e)(4). Pub. L. 97-248, Secs. 206(b), 224(c)(1),
substituted "1981" for "1986" in heading, in subpar. (E) inserted
provision that a similar rule shall apply in the case of a deemed
liquidation under section 338, and struck out former subpar. (H)
which had provided for special rules for property placed in service
before certain percentages took effect.
Subsec. (f)(8). Pub. L. 97-248, Sec. 209(a), amended par. (8)
generally, substituting provisions relating to special rules for
finance leases for provisions relating to special rule for leases.
Subsec. (f)(8)(A). Pub. L. 97-248, Sec. 208(a)(2)(A), inserted
"except as provided in subsection (i)," before "for purposes of
this subtitle".
Subsec. (f)(8)(B)(i)(I). Pub. L. 97-354, Sec. 5(a)(19),
substituted "an S corporation" for "an electing small business
corporation (within the meaning of section 1371(b))" in subsec.
(f)(8)(B)(i)(I) as in effect before the enactment of the Tax Equity
and Fiscal Responsibility Act of 1982 [Pub. L. 97-248].
Pub. L. 97-248, Sec. 208(b)(1), inserted "which is not a related
person with respect to the lessee".
Subsec. (f)(8)(B)(iii). Pub. L. 97-248, Sec. 208(b)(2), in subcl.
(I) substituted "120 percent of the present class life of the
property, or" for "90 percent of the useful life of such property
for purposes of section 167, or", and in subcl. II substituted "the
period equal to the recovery period determined with respect to such
property under subsection (i)(2)" for "150 percent of the present
class life of such property".
Subsec. (f)(8)(C)(i). Pub. L. 97-354, Sec. 5(a)(20), in par. (8)
as amended by section 209(a) of Pub. L. 97-248, substituted "an S
corporation" for "an electing small business corporation within the
meaning of section 1371(b)".
Subsec. (f)(8)(D). Pub. L. 97-248, Sec. 208(b)(3), amended
subpar. (D) generally. Prior to amendment, subpar. (D) read as
follows:
"(D) Qualified leased property defined. - For purposes of
subparagraph (A), the term 'qualified leased property' means
recovery property (other than a qualified rehabilitated building
within the meaning of section 48(g)(1)) which is -
"(i) new section 38 property (as defined in section 48(b)) of
the lessor which is leased within 3 months after such property
was placed in service and which, if acquired by the lessee, would
have been new section 38 property of the lessee,
"(ii) property -
"(I) which was new section 38 property of the lessee,
"(II) which was leased within 3 months after such property
was placed in service by the lessee, and
"(III) with respect to which the adjusted basis of the lessor
does not exceed the adjusted basis of the lessee at the time of
the lease, or
"(iii) property which is a qualified mass commuting vehicle (as
defined in section 103(b)(9)) and which is financed in whole or
in part by obligations the interest on which is excludable from
income under section 103(a).
For purposes of this title (other than this subparagraph), any
property described in clause (i) or (ii) to which subparagraph (A)
applies shall be deemed originally placed in service not earlier
than the date such property is used under the lease. In the case of
property placed in service after December 31, 1980, and before the
date of the enactment of this subparagraph, this subparagraph shall
be applied by submitting 'the date of the enactment of this
subparagraph' for 'such property was placed in service'." See 1983
Amendment note above for subsec. (f)(8)(D).
Subsec. (f)(8)(H) to (K). Pub. L. 97-248, Sec. 208(b)(4), added
subpars. (H) to (J) and redesignated former subpar. (H) as (K).
Subsec. (f)(10)(B)(i). Pub. L. 97-248, Sec. 224(c)(2), struck out
"(other than a transaction with respect to which the basis is
determined under section 334(b)(2))" after "section 332".
Subsec. (f)(12). Pub. L. 97-248, Sec. 216(a), added par. (12).
Subsec. (i). Pub. L. 97-248, Sec. 209(b), amended subsec. (i)
generally, substituting provisions concerning limitations relating
to leases of finance lease property for provisions concerning
limitations relating to lease of qualified leased property.
Pub. L. 97-248, Sec. 208(a)(1), added subsec. (i). Former subsec.
(i) redesignated (j).
Subsec. (j). Pub. L. 97-248, Sec. 208(a)(1), redesignated former
subsec. (i) as (j).
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendment by section 403(j) of Pub. L. 109-135 effective as if
included in the provision of the American Jobs Creation Act of
2004, Pub. L. 108-357, to which such amendment relates, see section
403(nn) of Pub. L. 109-135, set out as a note under section 26 of
this title.
Pub. L. 109-135, title IV, Sec. 405(b), Dec. 21, 2005, 119 Stat.
2634, provided that: "The amendments made by this section [amending
this section and section 1400L of this title] shall take effect as
if included in section 201 of the Jobs and Growth Tax Relief and
Reconciliation Act of 2003 [probably means the Jobs and Growth Tax
Relief Reconciliation Act of 2003, Pub. L. 108-27]."
Pub. L. 109-135, title IV, Sec. 410(b), Dec. 21, 2005, 119 Stat.
2636, provided that: "The amendment made by this section [amending
this section] shall take effect as if included in section 11813 of
the Omnibus Budget Reconciliation Act of 1990 [Pub. L. 101-508]."
Amendment by section 1301(f)(5) of Pub. L. 109-58 effective as if
included in the amendments made by section 710 of the American Jobs
Creation Act of 2004, Pub. L. 108-357, see section 1301(g) of Pub.
L. 109-58, set out as a note under section 45 of this title.
Pub. L. 109-58, title XIII, Sec. 1308(c), Aug. 8, 2005, 119 Stat.
1006, provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to property placed in service after April
11, 2005.
"(2) Exception. - The amendments made by this section [amending
this section] shall not apply to any property with respect to which
the taxpayer or a related party has entered into a binding contract
for the construction thereof on or before April 11, 2005, or, in
the case of self-constructed property, has started construction on
or before such date."
Pub. L. 109-58, title XIII, Sec. 1325(c), Aug. 8, 2005, 119 Stat.
1016, provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to property placed in service after April
11, 2005.
"(2) Exception. - The amendments made by this section [amending
this section] shall not apply to any property with respect to which
the taxpayer or a related party has entered into a binding contract
for the construction thereof on or before April 11, 2005, or, in
the case of self-constructed property, has started construction on
or before such date."
Amendment by section 1326(a)-(c) of Pub. L. 109-58 applicable to
property placed in service after Apr. 11, 2005, with exception for
property with respect to which the taxpayer or a related party has
entered into a binding contract for the construction thereof on or
before Apr. 11, 2005, or, in the case of self-constructed property,
has started construction on or before such date, see section
1326(e) of Pub. L. 109-58, set out as a note under section 56 of
this title.
EFFECTIVE DATE OF 2004 AMENDMENTS
Pub. L. 108-357, title II, Sec. 211(f), Oct. 22, 2004, 118 Stat.
1430, provided that: "The amendments made by this section [amending
this section] shall apply to property placed in service after the
date of the enactment of this Act [Oct. 22, 2004]."
Pub. L. 108-357, title III, Sec. 336(c), Oct. 22, 2004, 118 Stat.
1480, provided that: "The amendments made by this section [amending
this section] shall take effect as if included in the amendments
made by section 101 of the Job Creation and Worker Assistance Act
of 2002 [Pub. L. 107-147]."
Pub. L. 108-357, title III, Sec. 337(b), Oct. 22, 2004, 118 Stat.
1480, provided that: "The amendment made by this section [amending
this section] shall apply to property sold after June 4, 2004."
Pub. L. 108-357, title VII, Sec. 704(c), Oct. 22, 2004, 118 Stat.
1548, provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to any property placed in service after
the date of the enactment of this Act [Oct. 22, 2004].
"(2) Special rule for asset class 80.0. - In the case of race
track facilities placed in service after the date of the enactment
of this Act, such facilities shall not be treated as theme and
amusement facilities classified under asset class 80.0.
"(3) No inference. - Nothing in this section or the amendments
made by this section shall be construed to affect the treatment of
property placed in service on or before the date of the enactment
of this Act."
Pub. L. 108-357, title VII, Sec. 706(d), Oct. 22, 2004, 118 Stat.
1550, provided that: "The amendments made by this section [amending
this section] shall apply to property placed in service after
December 31, 2004."
Amendment by section 847(a), (c), (d) of Pub. L. 108-357
applicable to leases entered into after Mar. 12, 2004, and
amendment by section 847(e) of Pub. L. 108-357 applicable to leases
entered into after Oct. 3, 2004, except that such amendments
inapplicable to qualified transportation property, see section 849
of Pub. L. 108-357, set out as an Effective Date note under section
470 of this title.
Pub. L. 108-357, title VIII, Sec. 901(d), Oct. 22, 2004, 118
Stat. 1651, provided that: "The amendments made by this section
[amending this section] shall apply to property placed in service
after the date of the enactment of this Act [Oct. 22, 2004]."
Amendment by section 403(a) of Pub. L. 108-311 effective as if
included in the provisions of the Job Creation and Worker
Assistance Act of 2002, Pub. L. 107-147, to which such amendment
relates, see section 403(f) of Pub. L. 108-311, set out as a note
under section 56 of this title.
EFFECTIVE DATE OF 2003 AMENDMENT
Pub. L. 108-27, title II, Sec. 201(d), May 28, 2003, 117 Stat.
757, provided that: "The amendments made by this section [amending
this section and section 1400L of this title] shall apply to
taxable years ending after May 5, 2003."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title I, Sec. 101(b), Mar. 9, 2002, 116 Stat.
25, provided that: "The amendments made by this section [amending
this section] shall apply to property placed in service after
September 10, 2001, in taxable years ending after such date."
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 1086(b) of Pub. L. 105-34 applicable to
property placed in service after Aug. 5, 1997, see section 1086(c)
of Pub. L. 105-34, set out as a note under section 167 of this
title.
Amendment by section 1213(c) of Pub. L. 105-34 applicable to
leases entered into after Aug. 5, 1997, see section 1213(e) of Pub.
L. 105-34, set out as an Effective Date note under section 110 of
this title.
Section 1604(c)(2) of Pub. L. 105-34 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
as if included in the amendments made by section 13321 of the
Omnibus Budget Reconciliation Act of 1993 [Pub. L. 103-66], except
that such amendment shall not apply -
"(A) with respect to property (with an applicable recovery
period under section 168(j) of the Internal Revenue Code of 1986
of 6 years or less) held by the taxpayer if the taxpayer claimed
the benefits of section 168(j) of such Code with respect to such
property on a return filed before March 18, 1997, but only if
such return is the first return of tax filed for the taxable year
in which such property was placed in service, or
"(B) with respect to wages for which the taxpayer claimed the
benefits of section 45A of such Code for a taxable year on a
return filed before March 18, 1997, but only if such return was
the first return of tax filed for such taxable year."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1120(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to
property which is placed in service on or after the date of the
enactment of this Act [Aug. 20, 1996] and to which section 168 of
the Internal Revenue Code of 1986 applies after the amendment made
by section 201 of the Tax Reform Act of 1986 [Pub. L. 99-514]. A
taxpayer may elect (in such form and manner as the Secretary of the
Treasury may prescribe) to have such amendments apply with respect
to any property placed in service before such date and to which
such section so applies."
Section 1121(b) of Pub. L. 104-188 provided that: "Subparagraph
(B) of section 168(i)(8) of the Internal Revenue Code of 1986, as
added by the amendment made by subsection (a), shall apply to
improvements disposed of or abandoned after June 12, 1996."
Section 1613(b)(5) of Pub. L. 104-188 provided that: "The
amendments made by this subsection [amending this section] shall
apply to property placed in service after June 12, 1996, other than
property placed in service pursuant to a binding contract in effect
before June 10, 1996, and at all times thereafter before the
property is placed in service."
Amendment by section 1702(h)(1) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L. 101-
508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE OF 1995 AMENDMENT
Amendment by Pub. L. 104-88 effective Jan. 1, 1996, see section 2
of Pub. L. 104-88, set out as an Effective Date note under section
701 of Title 49, Transportation.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13151(b) of Pub. L. 103-66 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply to property placed in service by the taxpayer on or after May
13, 1993.
"(2) Exception. - The amendments made by this section [amending
this section] shall not apply to property placed in service by the
taxpayer before January 1, 1994, if -
"(A) the taxpayer or a qualified person entered into a binding
written contract to purchase or construct such property before
May 13, 1993, or
"(B) the construction of such property was commenced by or for
the taxpayer or a qualified person before May 13, 1993.
For purposes of this paragraph, the term 'qualified person' means
any person who transfers his rights in such a contract or such
property to the taxpayer but only if the property is not placed in
service by such person before such rights are transferred to the
taxpayer."
Section 13321(b) of Pub. L. 103-66 provided that: "The amendment
made by this section [amending this section] shall apply to
property placed in service after December 31, 1993."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11812(b)(2) of Pub. L. 101-508 applicable to
property placed in service after Nov. 5, 1990, but not applicable
to any property to which section 168 of this title does not apply
by reason of subsec. (f)(5) of section 168, and not applicable to
rehabilitation expenditures described in section 252(f)(5) of Pub.
L. 99-514, see section 11812(c) of Pub. L. 101-508, set out as a
note under section 42 of this title.
Amendment by section 11813(b)(9) of Pub. L. 101-508 applicable to
property placed in service after Dec. 31, 1990, but not applicable
to any transition property (as defined in section 49(e) of this
title), any property with respect to which qualified progress
expenditures were previously taken into account under section 46(d)
of this title, and any property described in section 46(b)(2)(C) of
this title, as such sections were in effect on Nov. 4, 1990, see
section 11813(c) of Pub. L. 101-508, set out as a note under
section 45K of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1002(a)(23)(B) of Pub. L. 100-647 provided that: "Clause
(ii) of section 168(d)(3)(B) of the 1986 Code (as added by
subparagraph (A)) shall apply to taxable years beginning after
March 31, 1988, unless the taxpayer elects, at such time and in
such manner as the Secretary of the Treasury or his delegate may
prescribe, to have such clause apply to taxable years beginning on
or before such date."
Amendment by sections 1002(a)(5)-(8), (11), (16)(B), (21),
(i)(2)(A)-(G), and 1018(b)(2) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6027(c) of Pub. L. 100-647 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to property placed in service after December 31, 1988.
"(2) Exception. - The amendments made by this section shall not
apply to any property if such property is placed in service before
January 1, 1990, and if such property -
"(A) is constructed, reconstructed, or acquired by the taxpayer
pursuant to a written contract which was binding on July 14,
1988, or
"(B) is constructed or reconstructed by the taxpayer and such
construction or reconstruction began by July 14, 1988."
Section 6028(b) of Pub. L. 100-647 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to property placed in service after December 31, 1988.
"(2) Exception. - The amendments made by this section shall not
apply to any property if such property is placed in service before
July 1, 1989, and if such property -
"(A) is constructed, reconstructed, or acquired by the taxpayer
pursuant to a written contract which was binding on July 14,
1988, or
"(B) is constructed or reconstructed by the taxpayer and such
construction or reconstruction began by July 14, 1988."
Section 6029(d) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending this section] shall apply to
property placed in service after December 31, 1988."
EFFECTIVE DATE OF 1986 AMENDMENT; TRANSITIONAL RULES
Sections 203 and 204 of Pub. L. 99-514, as amended by Pub. L. 99-
509, title VIII, Sec. 8071, Oct. 21, 1986, 100 Stat. 1964; Pub. L.
100-647, title I, Sec. 1002(c)(1), (2), (4)-(8), (d)(1)-(7)(A), (8)-
(35), Nov. 10, 1988, 102 Stat. 3358-3367, provided that:
"SEC. 203. EFFECTIVE DATES; GENERAL TRANSITIONAL RULES.
"(a) General Effective Dates. -
"(1) Section 201. -
"(A) In general. - Except as provided in this section,
section 204, and section 251(d) [set out as a note under
section 46 of this title], the amendments made by section 201
[amending sections 46, 167, 168, 178, 179, 280F, 291, 312, 465,
467, 514, 751, 1245, 4162, 6111, and 7701 of this title] shall
apply to property placed in service after December 31, 1986, in
taxable years ending after such date.
"(B) Election to have amendments made by section 201 apply. -
A taxpayer may elect (at such time and in such manner as the
Secretary of the Treasury or his delegate may prescribe) to
have the amendments made by section 201 apply to any property
placed in service after July 31, 1986, and before January 1,
1987. No election may be made under this subparagraph with
respect to property to which section 168 of the Internal
Revenue Code of 1986 would not apply by reason of section
168(f)(5) of such Code if such property were placed in service
after December 31, 1986.
"(2) Section 202. -
"(A) In general. - The amendments made by section 202
[amending section 179 of this title] shall apply to property
placed in service after December 31, 1986, in taxable years
ending after such date.
"(B) Special rule for fiscal years including january 1, 1987.
- In the case of any taxable year (other than a calendar year)
which includes January 1, 1987, for purposes of applying the
amendments made by section 202 to property placed in service
during such taxable year and after December 31, 1986 -
"(i) the limitation of section 179(b)(1) of the Internal
Revenue Code of 1986 (as amended by section 202) shall be
reduced by the aggregate deduction under section 179 (as in
effect on the day before the date of the enactment of the Tax
Reform Act of 1986 [Oct. 22, 1986]) for section 179 property
placed in service during such taxable year and before January
1, 1987,
"(ii) the limitation of section 179(b)(2) of such Code (as
so amended) shall be applied by taking into account the cost
of all section 179 property placed in service during such
taxable year, and
"(iii) the limitation of section 179(b)(3) of such Code
shall be applied by taking into account the taxable income
for the entire taxable year reduced by the amount of any
deduction under section 179 of such Code for property placed
in service during such taxable year and before January 1,
1987.
"(b) General Transitional Rule. -
"(1) In general. - The amendments made by section 201 [amending
this section and sections 46, 167, 178, 179, 280F, 291, 312, 465,
467, 514, 751, 1245, 4162, 6111, and 7701 of this title] shall
not apply to -
"(A) any property which is constructed, reconstructed, or
acquired by the taxpayer pursuant to a written contract which
was binding on March 1, 1986,
"(B) property which is constructed or reconstructed by the
taxpayer if -
"(i) the lesser of (I) $1,000,000, or (II) 5 percent of the
cost of such property has been incurred or committed by March
1, 1986, and
"(ii) the construction or reconstruction of such property
began by such date, or
"(C) an equipped building or plant facility if construction
has commenced as of March 1, 1986, pursuant to a written
specific plan and more than one-half of the cost of such
equipped building or facility has been incurred or committed by
such date.
For purposes of this paragraph, all members of the same
affiliated group of corporations (within the meaning of section
1504 of the Internal Revenue Code of 1986) filing a consolidated
return shall be treated as one taxpayer.
"(2) Requirement that certain property be placed in service
before certain date. -
"(A) In general. - Paragraph (1) and section 204(a) (other
than paragraph (8) or (12) thereof) shall not apply to any
property unless such property has a class life of at least 7
years and is placed in service before the applicable date
determined under the following table:
"In the case of property The applicable
with a class life of: date is:
At least 7 but less than 20 years January 1, 1989
20 years or more January 1, 1991.
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"(B) Residential rental and nonresidential real property. -
In the case of residential rental property and nonresidential
real property, the applicable date is January 1, 1991.
"(C) Class lives. - For purposes of subparagraph (A) -
"(i) the class life of property to which section
168(g)(3)(B) of the Internal Revenue Code of 1986 (as added
by section 201) applies shall be the class life in effect on
January 1, 1986, except that computer-based telephone central
office switching equipment described in section
168(e)(3)(B)(iii) of such Code shall be treated as having a
class life of 6 years,
"(ii) property described in section 204(a) shall be treated
as having a class life of 20 years, and
"(iii) property with no class life shall be treated as
having a class life of 12 years.
"(D) Substitution of applicable dates. - If any provision of
this Act [see Tables for classification] substitutes a date for
an applicable date, this paragraph shall be applied by using
such date.
"(3) Property qualifies if sold and leased back in 3 months. -
Property shall be treated as meeting the requirements of
paragraphs (1) and (2) or section 204(a) with respect to any
taxpayer if such property is acquired by the taxpayer from a
person -
"(A) in whose hands such property met the requirements of
paragraphs (1) and (2) or section 204(a) (or would have met
such requirements if placed in service by such person), or
"(B) who placed the property in service before January 1,
1987,
and such property is leased back by the taxpayer to such person,
or is leased to such person, not later than the earlier of the
applicable date under paragraph (2) or the day which is 3 months
after such property was placed in service.
"(4) Plant facility. - For purposes of paragraph (1), the term
'plant facility' means a facility which does not include any
building (or with respect to which buildings constitute an
insignificant portion) and which is -
"(A) a self-contained single operating unit or processing
operation,
"(B) located on a single site, and
"(C) identified as a single unitary project as of March 1,
1986.
"(c) Property Financed With Tax-Exempt Bonds. -
"(1) In general. - Except as otherwise provided in this
subsection or section 204, subparagraph (C) of section 168(g)(1)
of the Internal Revenue Code of 1986 (as added by this Act) shall
apply to property placed in service after December 31, 1986, in
taxable years ending after such date, to the extent such property
is financed by the proceeds of an obligation (including a
refunding obligation) issued after March 1, 1986.
"(2) Exceptions. -
"(A) Construction or binding agreements. - Subparagraph (C)
of section 168(g)(1) of such Code (as so added) shall not apply
to obligations with respect to a facility -
"(i)(I) the original use of which commences with the
taxpayer, and the construction, reconstruction, or
rehabilitation of which began before March 2, 1986, and was
completed on or after such date,
"(II) with respect to which a binding contract to incur
significant expenditures for construction, reconstruction, or
rehabilitation was entered into before March 2, 1986, and
some of such expenditures are incurred on or after such date,
or
"(III) acquired on or after March 2, 1986, pursuant to a
binding contract entered into before such date, and
"(ii) described in an inducement resolution or other
comparable preliminary approval adopted by the issuing
authority (or by a voter referendum) before March 2, 1986.
"(B) Refunding. -
"(i) In general. - Except as provided in clause (ii), in
the case of property placed in service after December 31,
1986, which is financed by the proceeds of an obligation
which is issued solely to refund another obligation which was
issued before March 2, 1986, subparagraph (C) of section
168(g)(1) of such Code (as so added) shall apply only with
respect to an amount equal to the basis in such property
which has not been recovered before the date such refunded
obligation is issued.
"(ii) Significant expenditures. - In the case of facilities
the original use of which commences with the taxpayer and
with respect to which significant expenditures are made
before January 1, 1987, subparagraph (C) of section 168(g)(1)
of such Code (as so added) shall not apply with respect to
such facilities to the extent such facilities are financed by
the proceeds of an obligation issued solely to refund another
obligation which was issued before March 2, 1986.
"(C) Facilities. - In the case of an inducement resolution or
other comparable preliminary approval adopted by an issuing
authority before March 2, 1986, for purposes of subparagraphs
(A) and (B)(ii) with respect to obligations described in such
resolution, the term 'facilities' means the facilities
described in such resolution.
"(D) Significant expenditures. - For purposes of this
paragraph, the term 'significant expenditures' means
expenditures greater than 10 percent of the reasonably
anticipated cost of the construction, reconstruction, or
rehabilitation of the facility involved.
"(d) Mid-Quarter Convention. - In the case of any taxable year
beginning before October 1, 1987 in which property to which the
amendments made by section 201 [amending this section and sections
46, 167, 178, 179, 280F, 291, 312, 465, 467, 514, 751, 1245, 4162,
6111, and 7701 of this title] do not apply is placed in service,
such property shall be taken into account in determining whether
section 168(d)(3) of the Internal Revenue Code of 1986 (as added by
section 201) applies for such taxable year to property to which
such amendments apply. The preceding sentence shall only apply to
property which would be taken into account if such amendments did
apply.
"(e) Normalization Requirements. -
"(1) In general. - A normalization method of accounting shall
not be treated as being used with respect to any public utility
property for purposes of section 167 or 168 of the Internal
Revenue Code of 1986 if the taxpayer, in computing its cost of
service for ratemaking purposes and reflecting operating results
in its regulated books of account, reduces the excess tax reserve
more rapidly or to a greater extent than such reserve would be
reduced under the average rate assumption method.
"(2) Definitions. - For purposes of this subsection -
"(A) Excess tax reserve. - The term 'excess tax reserve'
means the excess of -
"(i) the reserve for deferred taxes (as described in
section 167(l)(3)(G)(ii) or 168(e)(3)(B)(ii) of the Internal
Revenue Code of 1954 as in effect on the day before the date
of the enactment of this Act [Oct. 22, 1986]), over
"(ii) the amount which would be the balance in such reserve
if the amount of such reserve were determined by assuming
that the corporate rate reductions provided in this Act [see
Tables for classification] were in effect for all prior
periods.
"(B) Average rate assumption method. - The average rate
assumption method is the method under which the excess in the
reserve for deferred taxes is reduced over the remaining lives
of the property as used in its regulated books of account which
gave rise to the reserve for deferred taxes. Under such method,
if timing differences for the property reverse, the amount of
the adjustment to the reserve for the deferred taxes is
calculated by multiplying -
"(i) the ratio of the aggregate deferred taxes for the
property to the aggregate timing differences for the property
as of the beginning of the period in question, by
"(ii) the amount of the timing differences which reverse
during such period.
"SEC. 204. ADDITIONAL TRANSITIONAL RULES.
"(a) Other Transitional Rules. -
"(1) Urban renovation projects. -
"(A) In general. - The amendments made by section 201
[amending this section and sections 46, 167, 178, 179, 280F,
291, 312, 465, 467, 514, 751, 1245, 4162, 6111, and 7701 of
this title] shall not apply to any property which is an
integral part of any qualified urban renovation project.
"(B) Qualified urban renovation project. - For purposes of
subparagraph (A), the term 'qualified urban renovation project'
means any project -
"(i) described in subparagraph (C), (D), (E), or (G) which
before March 1, 1986, was publicly announced by a political
subdivision of a State for a renovation of an urban area
within its jurisdiction,
"(ii) described in subparagraph (C), (D) or (G) which
before March 1, 1986, was identified as a single unitary
project in the internal financing plans of the primary
developer of the project,
"(iii) described in subparagraph (C) or (D), which is not
substantially modified on or after March 1, 1986, and
"(iv) described in subparagraph (F) or (H).
"(C) Project where agreement on december 19, 1984. - A
project is described in this subparagraph if -
"(i) a political subdivision granted on July 11, 1985,
development rights to the primary developer-purchaser of such
project, and
"(ii) such project was the subject of a development
agreement between a political subdivision and a bridge
authority on December 19, 1984.
For purposes of this subparagraph, section 203(b)(2) shall be
applied by substituting 'January 1, 1994' for 'January 1, 1991'
each place it appears.
"(D) Certain additional projects. - A project is described in
this subparagraph if it is described in any of the following
clauses of this subparagraph and the primary developer of all
such projects is the same person:
"(i) A project is described in this clause if the
development agreement with respect thereto was entered into
during April 1984 and the estimated cost of the project is
approximately $194,000,000.
"(ii) A project is described in this clause if the
development agreement with respect thereto was entered into
during May 1984 and the estimated cost of the project is
approximately $190,000,000.
"(iii) A project is described in this clause if the project
has an estimated cost of approximately $92,000,000 and at
least $7,000,000 was spent before September 26, 1985, with
respect to such project.
"(iv) A project is described in this clause if the
estimated project cost is approximately $39,000,000 and at
least $2,000,000 of construction cost for such project were
incurred before September 26, 1985.
"(v) A project is described in this clause if the
development agreement with respect thereto was entered into
before September 26, 1985, and the estimated cost of the
project is approximately $150,000,000.
"(vi) A project is described in this clause if the board of
directors of the primary developer approved such project in
December 1982, and the estimated cost of such project is
approximately $107,000,000.
"(vii) A project is described in this clause if the board
of directors of the primary developer approved such project
in December 1982, and the estimated cost of such project is
approximately $59,000,000.
"(viii) A project is described in this clause if the Board
of Directors of the primary developer approved such project
in December 1983, following selection of the developer by a
city council on September 26, 1983, and the estimated cost of
such project is approximately $107,000,000.
"(E) Project where plan confirmed on october 4, 1984. - A
project is described in this subparagraph if -
"(i) a State or an agency, instrumentality, or political
subdivision thereof approved the filing of a general project
plan on June 18, 1981, and on October 4, 1984, a State or an
agency, instrumentality, or political subdivision thereof
confirmed such plan,
"(ii) the project plan as confirmed on October 4, 1984,
included construction or renovation of office buildings, a
hotel, a trade mart, theaters, and a subway complex, and
"(iii) significant segments of such project were the
subject of one or more conditional designations granted by a
State or an agency, instrumentality, or political subdivision
thereof to one or more developers before January 1, 1985.
The preceding sentence shall apply with respect to a property
only to the extent that a building on such property site was
identified as part of the project plan before September 26, 1985,
and only to the extent that the size of the building on such
property site was not substantially increased by reason of a
modification to the project plan with respect to such property on
or after such date. For purposes of this subparagraph, section
203(b)(2) shall be applied by substituting 'January 1, 1998' for
'January 1, 1991' each place it appears.
"(F) A project is described in this subparagraph if it is a
sports and entertainment facility which -
"(i) is to be used by both a National Hockey League team
and a National Basketball Association team;
"(ii) is to be constructed on a platform utilizing air
rights over land acquired by a State authority and identified
as site B in a report dated May 30, 1984, prepared for a
State urban development corporation; and
"(iii) is eligible for real property tax, and power and
energy benefits pursuant to the provisions of State
legislation approved and effective July 7, 1982.
A project is also described in this subparagraph if it is a mixed-
use development which is -
"(I) to be constructed above a public railroad station
utilized by the national railroad passenger corporation and
commuter railroads serving two States; and
"(II) will include the reconstruction of such station so as to
make it a more efficient transportation center and to better
integrate the station with the development above, such
reconstruction plans to be prepared in cooperation with a
State transportation authority.
For purposes of this subparagraph, section 203(b)(2) shall be
applied by substituting 'January 1, 1998' for the applicable date
that would otherwise apply.
"(G) A project is described in this subparagraph if -
"(i) an inducement resolution was passed on March 9, 1984,
for the issuance of obligations with respect to such project,
"(ii) such resolution was extended by resolutions passed on
August 14, 1984, April 2, 1985, August 13, 1985, and July 8,
1986,
"(iii) an application was submitted on January 31, 1984,
for an Urban Development Action Grant with respect to such
project, and
"(iv) an Urban Development Action Grant was preliminarily
approved for all or part of such project on July 3, 1986.
"(H) A project is described in this subparagraph if it is a
redevelopment project, with respect to which $10,000,000 in
industrial revenue bonds were approved by a State Development
Finance Authority on January 15, 1986, a village transferred
approximately $4,000,000 of bond volume authority to the State
in June 1986, and a binding Redevelopment Agreement was
executed between a city and the development team on June 30,
1986.
"(2) Certain projects granted ferc licenses, etc. - The
amendments made by section 201 [amending this section and
sections 46, 167, 178, 179, 280F, 291, 312, 465, 467, 514, 751,
1245, 4162, 6111, and 7701 of this title] shall not apply to any
property which is part of a project -
"(A) which is certified by the Federal Energy Regulatory
Commission before March 2, 1986, as a qualifying facility for
purposes of the Public Utility Regulatory Policies Act of 1978
[see Short Title note set out under 16 U.S.C. 2601],
"(B) which was granted before March 2, 1986, a hydroelectric
license for such project by the Federal Energy Regulatory
Commission, or
"(C) which is a hydroelectric project of less than 80
megawatts that filed an application for a permit, exemption, or
license with the Federal Energy Regulatory Commission before
March 2, 1986.
"(3) Supply or service contracts. - The amendments made by
section 201 shall not apply to any property which is readily
identifiable with and necessary to carry out a written supply or
service contract, or agreement to lease, which was binding on
March 1, 1986.
"(4) Property treated under prior tax acts. - The amendments
made by section 201 shall not apply -
"(A) to property described in section 12(c)(2) (as amended by
the Technical and Miscellaneous Revenue Act of 1988), 31(g)(5),
or 31(g)(17)(J) of the Tax Reform Act of 1984 [sections
12(c)(2) and 31(g)(5), (17)(J) of Pub. L. 98-369, set out
below],
"(B) to property described in section 209(d)(1)(B) of the Tax
Equity and Fiscal Responsibility Act of 1982, as amended by the
Tax Reform Act of 1984 [section 209(d)(1)(B) of Pub. L. 97-248,
as amended, set out below], and
"(C) to property described in section 216(b)(3) of the Tax
Equity and Fiscal Responsibility Act of 1982 [section 216(b)(3)
of Pub. L. 97-248, set out below].
"(5) Special rules for property included in master plans of
integrated projects. - The amendments made by section 201 shall
not apply to any property placed in service pursuant to a master
plan which is clearly identifiable as of March 1, 1986, for any
project described in any of the following subparagraphs of this
paragraph:
"(A) A project is described in this subparagraph if -
"(i) the project involves production platforms for offshore
drilling, oil and gas pipeline to shore, process and storage
facilities, and a marine terminal, and
"(ii) at least $900,000,000 of the costs of such project
were incurred before September 26, 1985.
"(B) A project is described in this subparagraph if -
"(i) such project involves a fiber optic network of at
least 20,000 miles, and
"(ii) before September 26, 1985, construction commenced
pursuant to the master plan and at least $85,000,000 was
spent on construction.
"(C) A project is described in this subparagraph if -
"(i) such project passes through at least 10 States and
involves intercity communication links (including one or more
repeater sites, terminals and junction stations for microwave
transmissions, regenerators or fiber optics and other related
equipment),
"(ii) the lesser of $150,000,000 or 5 percent of the total
project cost has been expended, incurred, or committed before
March 2, 1986, by one or more taxpayers each of which is a
member of the same affiliated group (as defined in section
1504(a) [of the Internal Revenue Code of 1986]), and
"(iii) such project consists of a comprehensive plan for
meeting network capacity requirements as encompassed within
either:
"(I) a November 5, 1985, presentation made to and accepted by
the Chairman of the Board and the president of the taxpayer,
or
"(II) the approvals by the Board of Directors of the parent
company of the taxpayer on May 3, 1985, and September 22,
1985, and of the executive committee of said board on
December 23, 1985.
"(D) A project is described in this subparagraph if -
"(i) such project is part of a flat rolled product
modernization plan which was initially presented to the Board
of Directors of the taxpayer on July 8, 1983,
"(ii) such program will be carried out at 3 locations, and
"(iii) such project will involve a total estimated minimum
capital cost of at least $250,000,000.
"(E) A project is described in this subparagraph if the
project is being carried out by a corporation engaged in the
production of paint, chemicals, fiberglass, and glass, and if -
"(i) the project includes a production line which applies a
thin coating to glass in the manufacture of energy efficient
residential products, if approved by the management committee
of the corporation on January 29, 1986,
"(ii) the project is a turbogenerator which was approved by
the president of such corporation and at least $1,000,000 of
the cost of which was incurred or committed before such date,
"(iii) the project is a waste-to-energy disposal system
which was initially approved by the management committee of
the corporation on March 29, 1982, and at least $5,000,000 of
the cost of which was incurred before September 26, 1985,
"(iv) the project, which involves the expansion of an
existing service facility and the addition of new lab
facilities needed to accommodate topcoat and undercoat
production needs of a nearby automotive assembly plant, was
approved by the corporation's management committee on March
5, 1986, or
"(v) the project is part of a facility to consolidate and
modernize the silica production of such corporation and the
project was approved by the president of such corporation on
August 19, 1985.
"(F) A project is described in this subparagraph if -
"(i) such project involves a port terminal and oil pipeline
extending generally from the area of Los Angeles, California,
to the area of Midland, Texas, and
"(ii) before September 26, 1985, there is a binding
contract for dredging and channeling with respect thereto and
a management contract with a construction manager for such
project.
"(G) A project is described in this subparagraph if -
"(i) the project is a newspaper printing and distribution
plant project with respect to which a contract for the
purchase of 8 printing press units and related equipment to
be installed in a single press line was entered into on
January 8, 1985, and
"(ii) the contract price for such units and equipment
represents at least 50 percent of the total cost of such
project.
"(H) A project is described in this subparagraph if it is the
second phase of a project involving direct current transmission
lines spanning approximately 190 miles from the United States-
Canadian border to Ayer, Massachusetts, alternating current
transmission lines in Massachusetts from Ayers to Millbury to
West Medway, DC-AC converted terminals to Monroe, New
Hampshire, and Ayer, Massachusetts, and other related equipment
and facilities.
"(I) A project is described in this subparagraph if it
involves not more than two natural gas-fired combined cycle
electric generating units each having a net electrical
capability of approximately 233 megawatts, and a sales contract
for approximately one-half of the output of the 1st unit was
entered into in December 1985.
"(J) A project is described in this subparagraph if -
"(i) the project involves an automobile manufacturing
facility (including equipment and incidental appurtenances)
to be located in the United States, and
"(ii) either -
"(I) the project was the subject of a memorandum of
understanding between 2 automobile manufacturers that was
signed before September 25, 1985, the automobile
manufacturing facility (including equipment and incidental
appurtenances) will involve a total estimated cost of
approximately $750,000,000, and will have an annual
production capacity of approximately 240,000 vehicles or
"(II) the Board of Directors of an automobile manufacturer
approved a written plan for the conversion of existing
facilities to produce new models of a vehicle not currently
produced in the United States, such facilities will be placed
in service by July 1, 1987, and such Board action occurred in
July 1985 with respect to a $602,000,000 expenditure, a
$438,000,000 expenditure, and a $321,000,000 expenditure.
"(K) A project is described in this subparagraph if -
"(i) the project involves a joint venture between a utility
company and a paper company for a supercalendered paper mill,
and at least $50,000,000 was incurred or committed with
respect to such project before March 1, 1986, or
"(ii) the project involves a paper mill for the manufacture
of newsprint (including a cogeneration facility) is generally
based on a written design and feasibility study that was
completed on December 15, 1981, and will be placed in service
before January 1, 1991, or
"(iii) the project is undertaken by a Maine corporation and
involves the modernization of pulp and paper mills in
Millinocket and/or East Millinocket, Maine, or
"(iv) the project involves the installation of a paper
machine for production of coated publication papers, the
modernization of a pulp mill, and the installation of
machinery and equipment with respect to related processes, as
of December 31, 1985, in excess of $50,000,000 was incurred
for the project, as of July 1986, in excess of $150,000,000
was incurred for the project, and the project is located in
Pine Bluff, Arkansas, or
"(v) the project involves property of a type described in
ADR classes 26.1, 26.2, 25, 00.3 and 00.4 included in a paper
plant which will manufacture and distribute tissue, towel or
napkin products; is located in Effingham County, Georgia; and
is generally based upon a written General Description which
was submitted to the Georgia Department of Revenue on or
about June 13, 1985.
"(L) A project is described in this subparagraph if -
"(i) a letter of intent with respect to such project was
executed on June 4, 1985, and
"(ii) a 5-percent downpayment was made in connection with
such project for 2 10-unit press lines and related equipment.
"(M) A project is described in this subparagraph if -
"(i) the project involves the retrofit of ammonia plants,
"(ii) as of March 1, 1986, more than $390,000 had been
expended for engineering and equipment, and
"(iii) more than $170,000 was expensed in 1985 as a portion
of preliminary engineering expense.
"(N) A project is described in this subparagraph if the
project involves bulkhead intermodal flat cars which are placed
in service before January 1, 1987, and either -
"(i) more than $2,290,000 of expenditures were made before
March 1, 1986, with respect to a project involving up to 300
platforms, or
"(ii) more than $95,000 of expenditures were made before
March 1, 1986, with respect to a project involving up to 850
platforms.
"(O) A project is described in this subparagraph if -
"(i) the project involves the production and transportation
of oil and gas from a well located north of the Arctic
Circle, and
"(ii) more than $200,000,000 of cost had been incurred or
committed before September 26, 1985.
"(P) A project is described in this subparagraph if -
"(i) a commitment letter was entered into with a financial
institution on January 23, 1986, for the financing of the
project,
"(ii) the project involves intercity communication links
(including microwave and fiber optics communications systems
and related property),
"(iii) the project consists of communications links between
-
"(I) Omaha, Nebraska, and Council Bluffs, Iowa,
"(II) Waterloo, Iowa and Sioux City, Iowa,
"(III) Davenport, Iowa and Springfield, Illinois, and
"(iv) the estimated cost of such project is approximately
$13,000,000.
"(Q) A project is described in this subparagraph if -
"(i) such project is a mining modernization project
involving mining, transport, and milling operations,
"(ii) before September 26, 1985, at least $20,000,000 was
expended for engineering studies which were approved by the
Board of Directors of the taxpayer on January 27, 1983, and
"(iii) such project will involve a total estimated minimum
cost of $350,000,000.
"(R) A project is described in this subparagraph if -
"(i) such project is a dragline acquired in connection with
a 3-stage program which began in 1980 to increase production
from a coal mine,
"(ii) at least $35,000,000 was spent before September 26,
1985, on the 1st 2 stages of the program, and
"(iii) at least $4,000,000 was spent to prepare the mine
site for the dragline.
"(S) A project is described in this subparagraph if - it is a
project consisting of a mineral processing facility using a
heap leaching system (including waste dumps, low-grade dumps, a
leaching area, and mine roads) and if -
"(i) convertible subordinated debentures were issued in
August 1985, to finance the project,
"(ii) construction of the project was authorized by the
Board of Directors of the taxpayer on or before December 31,
1985,
"(iii) at least $750,000 was paid or incurred with respect
to the project on or before December 31, 1985, and
"(iv) the project is placed in service on or before
December 31, 1986.
"(T) A project is described in this subparagraph if it is a
plant facility on Alaska's North Slope which is placed in
service before January 1, 1988, and -
"(i) the approximate cost of which is $675,000,000, of
which approximately $400,000,000 was spent on off-site
construction,
"(ii) the approximate cost of which is $445,000,000, of
which approximately $400,000,000 was spent on off-site
construction and more than 50 percent of the project cost was
spent prior to December 31, 1985, or
"(iii) the approximate cost of which is $375,000,000, of
which approximately $260,000,000 was spent on off-site
construction.
"(U) A project is described in this subparagraph if it
involves the connecting of existing retail stores in the
downtown area of a city to a new covered area, the total
project will be 250,000 square feet, a formal Memorandum of
Understanding relating to development of the project was
executed with the city on July 2, 1986, and the estimated cost
of the project is $18,186,424.
"(V) A project is described in this subparagraph if it
includes a 200,000 square foot office tower, a 200-room hotel,
a 300,000 square foot retail center, an 800-space parking
facility, the total cost is projected to be $60,000,000, and
$1,250,000 was expended with respect to the site before August
25, 1986.
"(W) A project is described in this subparagraph if it is a
joint use and development project including an integrated
hotel, convention center, office, related retail facilities and
public mass transportation terminal, and vehicle parking
facilities which satisfies the following conditions:
"(i) is developed within certain air space rights and upon
real property exchanged for such joint use and development
project which is owned or acquired by a state department of
transportation, a regional mass transit district in a county
with a population of at least 5,000,000 and a community
redevelopment agency;
"(ii) such project affects an existing, approximately 40
acre public mass transportation bus-way terminal facility
located adjacent to an interstate highway;
"(iii) a memorandum of understanding with respect to such
joint use and development project is executed by a state
department of transportation, such a county regional mass
transit district and a community redevelopment agency on or
before December 31, 1986, and
"(iv) a major portion of such joint use and development
project is placed in service by December 31, 1990.
"(X) A project is described in this subparagraph if -
"(i) it is an $8,000,000 project to provide advanced
control technology for adipic acid at a plant, which was
authorized by the company's Board of Directors in October
1985, at December 31, 1985, $1,400,000 was committed and
$400,000 expended with respect to such project, or
"(ii) it is an $8,300,000 project to achieve compliance
with State and Federal regulations for particulates
emissions, which was authorized by the company's Board of
Directors in December 1985, by March 31, 1986, $250,000 was
committed and $250,000 was expended with respect to such
project, or
"(iii) it is a $22,000,000 project for the retrofit of a
plant that makes a raw material for aspartame, which was
approved in the company's December 1985 capital budget, if
approximately $3,000,000 of the $22,000,000 was spent before
August 1, 1986.
"(Y) A project is described in this subparagraph if such
project passes through at least 9 States and involves an
intercity communication link (including multiple repeater sites
and junction stations for microwave transmissions and
amplifiers for fiber optics); the link from Buffalo to New
York/Elizabeth was completed in 1984; the link from Buffalo to
Chicago was completed in 1985; and the link from New York to
Washington is completed in 1986.
"(Z) A project is described in this subparagraph if -
"(i) such project involves a fiber optic network of at
least 475 miles, passing through Minnesota and Wisconsin; and
"(ii) before January 1, 1986, at least $15,000,000 was
expended or committed for electronic equipment or fiber optic
cable to be used in constructing the network.
"(6) Natural gas pipeline. - The amendments made by section 201
[amending sections 46, 167, 168, 178, 179, 280F, 291, 312, 465,
467, 514, 751, 1245, 4162, 6111, and 7701 of this title] shall
not apply to any interstate natural gas pipeline (and related
equipment) if -
"(A) 3 applications for the construction of such pipeline
were filed with the Federal Energy Regulatory Commission before
November 22, 1985 (and 2 of which were filed before September
26, 1985), and
"(B) such pipeline has 1 of its terminal points near
Bakersfield, California.
"(7) Certain leasehold improvements. - The amendments made by
section 201 shall not apply to any reasonable leasehold
improvements, equipment and furnishings placed in service by a
lessee or its affiliates if -
"(A) the lessee or an affiliate is the original lessee of
each building in which such property is to be used,
"(B) such lessee is obligated to lease the building under an
agreement to lease entered into before September 26, 1985, and
such property is provided for such building, and
"(C) such buildings are to serve as world headquarters of the
lessee and its affiliates.
For purposes of this paragraph, a corporation is an affiliate of
another corporation if both corporations are members of a
controlled group of corporations within the meaning of section
1563(a) of the Internal Revenue Code of 1954 without regard to
section 1563(b)(2) of such Code. Such lessee shall include a
securities firm that meets the requirements of subparagraph (A),
except the lessee is obligated to lease the building under a
lease entered into on June 18, 1986.
"(8) Solid waste disposal facilities. - The amendments made by
section 201 [amending sections 46, 167, 168, 178, 179, 280F, 291,
312, 465, 467, 514, 751, 1245, 4162, 6111, and 7701 of this
title] shall not apply to the taxpayer who originally places in
service any qualified solid waste disposal facility (as defined
in section 7701(e)(3)(B) of the Internal Revenue Code of 1986) if
before March 2, 1986 -
"(A) there is a binding written contract between a service
recipient and a service provider with respect to the operation
of such facility to pay for the services to be provided by such
facility,
"(B) a service recipient or governmental unit (or any entity
related to such recipient or unit) made a financial commitment
of at least $200,000 for the financing or construction of such
facility,
"(C) such facility is the Tri-Cities Solid Waste Recovery
Project involving Fremont, Newark, and Union City, California,
and has received an authority to construct from the
Environmental Protection Agency or from a State or local agency
authorized by the Environmental Protection Agency to issue air
quality permits under the Clean Air Act [42 U.S.C. 7401 et
seq.],
"(D) a bond volume carryforward election was made for the
facility and the facility is for Chattanooga, Knoxville, or
Kingsport, Tennessee, or
"(E) such facility is to serve Haverhill, Massachusetts.
"(9) Certain submersible drilling units. - In the case of a
binding contract entered into on October 30, 1984, for the
purchase of 6 semi-submersible drilling units at a cost of
$425,000,000, such units shall be treated as having an applicable
date under subsection [section] 203(b)(2) of January 1, 1991.
"(10) Wastewater or sewage treatment facility. - The amendments
made by section 201 [amending this section and sections 46, 167,
178, 179, 280F, 291, 312, 465, 467, 514, 751, 1245, 4162, 6111,
and 7701 of this title] shall not apply to any property which is
part of a wastewater or sewage treatment facility if -
"(A) site preparation for such facility commenced before
September 1985, and a parish council approved a service
agreement with respect to such facility on December 4, 1985;
"(B) a city-parish advertised in September 1985, for bids for
construction of secondary treatment improvements for such
facility, in May 1985, the city-parish received statements from
16 firms interested in privatizing the wastewater treatment
facilities, and the metropolitan council selected a privatizer
at its meeting on November 20, 1985, and adopted a resolution
authorizing the Mayor to enter into contractual negotiation
with the selected privatizer;
"(C) the property is part of a wastewater treatment facility
serving Greenville, South Carolina with respect to which a
binding service agreement between a privatizer and the Western
Carolina Regional Sewer Authority with respect to such facility
was signed before January 1, 1986; or
"(D) such property is part of a wastewater treatment facility
(located in Cameron County, Texas, within one mile of the City
of Harlingen), an application for a wastewater discharge permit
was filed with respect to such facility on December 4, 1985,
and a City Commission approved a letter of intent relating to a
service agreement with respect to such facility on August 7,
1986; or a wastewater facility (located in Harlingen, Texas)
which is a subject of such letter of intent and service
agreement and the design of which was contracted for in a
letter of intent dated January 23, 1986.
"(11) Certain aircraft. - The amendments made by section 201
[amending this section and sections 46, 167, 178, 179, 280F, 291,
312, 465, 467, 514, 751, 1245, 4162, 6111, and 7701 of this
title] shall not apply to any new aircraft with 19 or fewer
passenger seats if -
"(A) the aircraft is manufactured in the United States. For
purposes of this subparagraph, an aircraft is 'manufactured' at
the point of its final assembly,
"(B) the aircraft was in inventory or in the planned
production schedule of the final assembly manufacturer, with
orders placed for the engine(s) on or before August 16, 1986,
and
"(C) the aircraft is purchased or subject to a binding
contract on or before December 31, 1986, and is delivered and
placed in service by the purchaser, before July 1, 1987.
"(12) Certain satellites. - The amendments made by section 201
shall not apply to any satellite with respect to which -
"(A) on or before January 28, 1986, there was a binding
contract to construct or acquire a satellite, and
"(i) an agreement to launch was in existence on that date,
or
"(ii) on or before August 5, 1983, the Federal
Communications Commission had authorized the construction and
for which the authorized party has a specific although
undesignated agreement to launch in existence on January 28,
1986;
"(B) by order adopted on July 25, 1985, the Federal
Communications Commission granted the taxpayer an orbital slot
and authorized the taxpayer to launch and operate 2 satellites
with a cost of approximately $300,000,000; or
"(C) the International Telecommunications Satellite
Organization or the International Maritime Satellite
Organization entered into written binding contracts before May
1, 1985.
"(13) Certain nonwire line cellular telephone systems. - The
amendments made by section 201 shall not apply to property that
is part of a nonwire line system in the Domestic Public Cellular
Radio Telecommunications Service for which the Federal
Communications Commission has issued a construction permit before
September 26, 1985, but only if such property is placed in
service before January 1, 1987.
"(14) Certain cogeneration facilities. - The amendments made by
section 201 shall not apply to projects consisting of 1 or more
facilities for the cogeneration and distribution of electricity
and steam or other forms of thermal energy if -
"(A) at least $100,000 was paid or incurred with respect to
the project before March 1, 1986, a memorandum of understanding
was executed on September 13, 1985, and the project is placed
in service before January 1, 1989,
"(B) at least $500,000 was paid or incurred with respect to
the projects before May 6, 1986, the projects involve a 22-
megawatt combined cycle gas turbine plant and a 45-megawatt
coal waste plant, and applications for qualifying facility
status were filed with the Federal Energy Regulatory Commission
on March 5, 1986,
"(C) the project cost approximates $125,000,000 to
$140,000,000 and an application was made to the Federal Energy
Regulatory Commission in July 1985,
"(D) an inducement resolution for such facility was adopted
on September 10, 1985, a development authority was given an
inducement date of September 10, 1985, for a loan not to exceed
$80,000,000 with respect to such facility, and such facility is
expected to have a capacity of approximately 30 megawatts of
electric power and 70,000 pounds of steam per hour,
"(E) at least $1,000,000 was incurred with respect to the
project before May 6, 1986, the project involves a 52-megawatt
combined cycle gas turbine plant and a petition was filed with
the Connecticut Department of Public Utility Control to approve
a power sales agreement with respect to the project on March
27, 1986,
"(F) the project has a planned scheduled capacity of
approximately 38,000 kilowatts, the project property is placed
in service before January 1, 1991, and the project is operated,
established, or constructed pursuant to certain agreements, the
negotiation of which began before 1986, with public or
municipal utilities conducting business in Massachusetts, or
"(G) the Board of Regents of Oklahoma State University took
official action on July 25, 1986, with respect to the project.
In the case of the project described in subparagraph (F), section
203(b)(2)(A) shall be applied by substituting 'January 1, 1991'
for 'January 1, 1989'.
"(15) Certain electric generating stations. - The amendments
made by section 201 shall not apply to a project located in New
Mexico consisting of a coal-fired electric generating station
(including multiple generating units, coal mine equipment, and
transmission facilities) if -
"(A) a tax-exempt entity will own an equity interest in all
property included in the project (except the coal mine
equipment), and
"(B) at least $72,000,000 was expended in the acquisition of
coal leases, land and water rights, engineering studies, and
other development costs before May 6, 1986.
For purposes of this paragraph, section 203(b)(2) shall be
applied by substituting 'January 1, 1996' for 'January 1, 1991'
each place it appears.
"(16) Sports arenas. -
"(A) Indoor sports facility. - The amendments made by section
201 shall not apply to up to $20,000,000 of improvements made
by a lessee of any indoor sports facility pursuant to a lease
from a State commission granting the right to make limited and
specified improvements (including planned seat explanations),
if architectural renderings of the project were commissioned
and received before December 22, 1985.
"(B) Metropolitan sports arena. - The amendments made by
section 201 shall not apply to any property which is part of an
arena constructed for professional sports activities in a
metropolitan area, provided that such arena is capable of
seating no less than 18,000 spectators and a binding contract
to incur significant expenditures for its construction was
entered into before June 1, 1986.
"(17) Certain waste-to-energy facilities. - The amendments made
by section 201 shall not apply to 2 agricultural waste-to-energy
powerplants (and required transmission facilities), in connection
with which a contract to sell 100 megawatts of electricity to a
city was executed in October 1984.
"(18) Certain coal-fired plants. - The amendments made by
section 201 shall not apply to one of three 540 megawatt coal-
fired plants that are placed in service after a sale leaseback
occurring after January 1, 1986, if -
"(A) the Board of Directors of an electric power cooperation
authorized the investigation of a sale leaseback of a nuclear
generation facility by resolution dated January 22, 1985, and
"(B) a loan was extended by the Rural Electrification
Administration on February 20, 1986, which contained a covenant
with respect to used property leasing from unit II.
"(19) Certain rail systems. -
"(A) The amendments made by section 201 shall not apply to a
light rail transit system, the approximate cost of which is
$235,000,000, if, with respect to which, the board of directors
of a corporation (formed in September 1984 for the purpose of
developing, financing, and operating the system) authorized a
$300,000 expenditure for a feasibility study in April 1985.
"(B) The amendments made by section 201 shall not apply to
any project for rehabilitation of regional railroad rights of
way and properties including grade crossings which was
authorized by the Board of Directors of such company prior to
October 1985; and/or was modified, altered or enlarged as a
result of termination of company contracts, but approved by
said Board of Directors no later than January 30, 1986, and
which is in the public interest, and which is subject to
binding contracts or substantive commitments by December 31,
1987.
"(20) Certain detergent manufacturing facility. - The
amendments made by section 201 shall not apply to a laundry
detergent manufacturing facility, the approximate cost of which
is $13,200,000, with respect to which a project agreement was
fully executed on March 17, 1986.
"(21) Certain resource recovery facility. - The amendments made
by section 201 shall not apply to any of 3 resource recovery
plants, the aggregate cost of which approximates $300,000,000, if
an industrial development authority adopted a bond resolution
with respect to such facilities on December 17, 1984, and the
projects were approved by the department of commerce of a
Commonwealth on December 27, 1984.
"(22) The amendments made by section 201 shall not apply to a
computer and office support center building in Minneapolis, with
respect to which the first contract, with an architecture firm,
was signed on April 30, 1985, and a construction contract was
signed on March 12, 1986.
"(23) Certain district heating and cooling facilities. - The
amendments made by section 201 shall not apply to pipes, mains,
and related equipment included in district heating and cooling
facilities, with respect to which the development authority of a
State approved the project through an inducement resolution
adopted on October 8, 1985, and in connection with which
approximately $11,000,000 of tax-exempt bonds are to be issued.
"(24) Certain vessels. -
"(A) Certain offshore vessels. - The amendments made by
section 201 shall not apply to any offshore vessel the
construction contract for which was signed on February 28,
1986, and the approximate cost of which is $9,000,000.
"(B) Certain inland river vessel. - The amendments made by
section 201 shall not apply to a project involving the
reconstruction of an inland river vessel docked on the
Mississippi River at St. Louis, Missouri, on July 14, 1986, and
with respect to which:
"(i) the estimated cost of reconstruction is approximately
$39,000,000;
"(ii) reconstruction was commenced prior to December 1,
1985;
"(iii) at least $17,000,000 was expended before December
31, 1985; and
"(C) Special automobile carrier vessels. - The amendments
made by section 201 shall not apply to two new automobile
carrier vessels which will cost approximately $47,000,000 and
will be constructed by a United States-flag carrier to operate,
under the United States-flag and with an American crew, to
transport foreign automobiles to the United States, in a case
where negotiations for such transportation arrangements
commenced in April 1985, formal contract bids were submitted
prior to the end of 1985, and definitive transportation
contracts were awarded in May 1986.
"(D) The amendments made by section 201 shall not apply to a
562-foot passenger cruise ship, which was purchased in 1980 for
the purpose of returning the vessel to United States service,
the approximate cost of refurbishment of which is approximately
$47,000,000.
"(E) The amendments made by section 201 shall not apply to
the Muskegon, Michigan, Cross-Lake Ferry project having a
projected cost of approximately $7,200,000.
"(F) The amendments made by section 201 shall not apply to a
new automobile carrier vessel, the contract price for which is
no greater than $28,000,000, and which will be constructed for
and placed in service by OSG Car Carriers, Inc., to transport,
under the United States flag and with an American crew, foreign
automobiles to North America in a case where negotiations for
such transportation arrangements commenced in 1985, and
definitive transportation contracts were awarded before June
1986.
"(25) Certain wood energy projects. - The amendments made by
section 201 shall not apply to two wood energy projects for which
applications with the Federal Energy Regulatory Commission were
filed before January 1, 1986, which are described as follows:
"(A) a 26.5 megawatt plant in Fresno, California, and
"(B) a 26.5 megawatt plant in Rocklin, California.
"(26) The amendments made by section 201 shall not apply to
property which is a geothermal project of less than 20 megawatts
that was certified by the Federal Energy Regulatory Commission on
July 14, 1986, as a qualifying small power production facility
for purposes of the Public Utility Regulatory Policies Act of
1978 [see Short Title note set out under 16 U.S.C. 2601] pursuant
to an application filed with the Federal Energy Regulatory
Commission on April 17, 1986.
"(27) Certain economic development projects. - The amendments
made by section 201 shall not apply to any of the following
projects:
"(A) A mixed use development on the East River the total cost
of which is approximately $400,000,000, with respect to which a
letter of intent was executed on January 24, 1984, and with
respect to which approximately $2.5 million had been spent by
March 1, 1986.
"(B) A 356-room hotel, banquet, and conference facility
(including 540,000 square feet of office space) the approximate
cost of which is $158,000,000, with respect to which a letter
of intent was executed on June 1, 1984, and with respect to
which an inducement resolution and bond resolution was adopted
on August 20, 1985.
"(C) Phase 1 of a 4-phase project involving the construction
of laboratory space and ground-floor retail space the estimated
cost of which is $22,000,000 and with respect to which a
memoradum [sic] of understanding was made on August 29, 1983.
"(D) A project involving the development of a 490,000 square
foot mixed-use building at 152 W. 57th Street, New York, New
York, the estimated cost of which is $100,000,000, and with
respect to which a building permit application was filed in May
1986.
"(E) A mixed-use project containing a 300 unit, 12-story
hotel, garage, two multi-rise office buildings, and also
included a park, renovated riverboat, and barge with festival
marketplace, the capital outlays for which approximate
$68,000,000.
"(F) The construction of a three-story office building that
will serve as the home office for an insurance group and its
affiliated companies, with respect to which a city agreed to
transfer its ownership of the land for the project in a
Redevelopment Agreement executed on September 18, 1985, once
certain conditions are met.
"(G) A commercial bank formed under the laws of the State of
New York which entered into an agreement on September 5, 1985,
to construct its headquarters at 60 Wall Street, New York, New
York, with respect to such headquarters.
"(H) Any property which is part of a commercial and
residential project, the first phase of which is currently
under construction, to be developed on land which is the
subject of an ordinance passed on July 20, 1981, by the city
council of the city in which such land is located, designating
such land and the improvements to be placed thereon as a
residential-business planned development, which development is
being financed in part by the proceeds of industrial
development bonds in the amount of $62,600,000 issued on
December 4, 1985.
"(I) A 600,000 square foot mixed use building known as
Flushing Center with respect to which a letter of intent was
executed on March 26, 1986.
In the case of the building described in subparagraph (I),
section 203(b)(2)(A) shall be applied by substituting 'January 1,
1993' for the applicable date which would otherwise apply.
"(28) The amendments made by section 201 shall not apply to an
$80,000,000 capital project steel seamless tubular casings
minimill and melting facility located in Youngstown, Ohio, which
was purchased by the taxpayer in April 1985, and -
"(A) the purchase and renovation of which was approved by a
committee of the Board of Directors on February 22, 1985, and
"(B) as of December 31, 1985, more than $20,000,000 was
incurred or committed with respect to the renovation.
"(29) The amendments made by section 201 shall not apply to any
project for residential rental property if -
"(A) an inducement resolution with respect to such project
was adopted by the State housing development authority on
January 25, 1985, and
"(B) such project was the subject of a law suit filed on
October 25, 1985.
"(30) The amendments made by section 201 shall not apply to a
30 megawatt electric generating facility fueled by geothermal and
wood waste, the approximate cost of which is $55,000,000, and
with respect to which a 30-year power sales contract was executed
on March 22, 1985.
"(31) The amendments made by section 201 shall not apply to
railroad maintenance-of-way equipment, with respect to which a
Boston bank entered into a firm binding contract with a major
northeastern railroad before March 2, 1986, to finance
$10,500,000 of such equipment, if all of the equipment was placed
in service before August 1, 1986.
"(32) The amendment made by section 201 shall not apply to -
"(A) a facility constructed on approximately seven acres of
land located on Ogle's Poso Creek Oil field, the primary fuel
of which will be bituminous coal from Utah or Wyoming, with
respect to which an application for an authority to construct
was filed on December 26, 1985, an authority to construct was
issued on July 2, 1986, and a prevention of significant
deterioration permit application was submitted in May 1985,
"(B) a facility constructed on approximately seven acres of
land located on Teorco's Jasmin oil field, the primary fuel of
which will be bituminous coal from Utah or Wyoming, with
respect to which an authority to construct was filed on
December 26, 1985, an authority to construct was issued on July
2, 1986, and a prevention of significant deterioration permit
application was submitted in July 1985,
"(C) the Mountain View Apartments, in Hadley, Massachusetts,
"(D) a facility expected to have a capacity of not less than
65 megawatts of electricity, the steam from which is to be sold
to a pulp and paper mill, with respect to which application was
made to the Federal Regulatory Commission for certification as
a qualified facility on November 1, 1985, and received such
certification on January 24, 1986,
"(E) $5,000,000 of equipment ordered in 1986, in connection
with a 60,000 square foot plant in Masontown, Pennsylvania,
that was completed in 1983,
"(F) a magnetic resonance imaging machine, with respect to
which a binding contract to purchase was entered into in April
1986, in connection with the construction of a magnetic
resonance imaging clinic with respect to which a Determination
of Need certification was obtained from a State Department of
Public Health on October 22, 1985, if such property is placed
in service before December 31, 1986,
"(G) a company located in Salina, Kansas, which has been
engaged in the construction of highways and city streets since
1946, but only to the extent of $1,410,000 of investment in new
section 38 property,
"(H) a $300,000 project undertaken by a small metal finishing
company located in Minneapolis, Minnesota, the first parts of
which were received and paid for in January 1986, with respect
to which the company received Board approval to purchase the
largest piece of machinery it has ever ordered in 1985,
"(I) A $1,200,000 finishing machine that was purchased on
April 2, 1986 and placed into service in September 1986 by a
company located in Davenport, Iowa,
"(J) A 25 megawatt small power production facility, with
respect to which Qualifying Facility status numbered QF86-593-
000 was granted on March 5, 1986,
"(K) A 250 megawatt coal-fired electric plant in northeastern
Nevada estimated to cost $600,000,000 and known as the Thousand
Springs project, on which the Sierra Pacific Power Company, a
subsidiary of Sierra Pacific Resources, began in 1980 work to
design, finance, construct, and operate (and section 203(b)(2)
shall be applied with respect to such plant by substituting
'January 1, 1995' for 'January 1, 1991'),
"(L) 128 units of rental housing in connection with the Point
Gloria Limited Partnership,
"(M) property which is part of the Kenosha Downtown
Redevelopment Project and which is financed with the proceeds
of bonds issued pursuant to section 1317(6)(W) [set out as a
note under section 141 of this title],
"(N) Lakeland Park Phase II, in Baton Rouge, Louisiana,
"(O) the Santa Rosa Hotel, in Pensacola, Florida,
"(P) the Sheraton Baton Rouge, in Baton Rouge, Louisiana,
"(Q) $300,000 of equipment placed in service in 1986, in
connection with the renovation of the Best Western Townhouse
Convention Center in Cedar Rapids, Iowa,
"(R) the segment of a nationwide fiber optics
telecommunications network placed in service by SouthernNet,
the total estimated cost of which is $37,000,000,
"(S) two cogeneration facilities, to be placed in service by
the Reading Anthracite Coal Company (or any subsidiary
thereof), costing approximately $110,000,000 each, with respect
to which filings were made with the Federal Energy Regulatory
Commission by December 31, 1985, and which are located in
Pennsylvania,
"(T) a portion of a fiber optics network placed in service by
LDX NET after December 31, 1988, but only to the extent the
cost of such portion does not exceed $25,000,000,
"(U) 3 newly constructed fishing vessels, and one vessel that
is overhauled, constructed by Mid Coast Marine, but only to the
extent of $6,700,000 of investment,
"(V) $350,000 of equipment acquired in connection with the
reopening of a plant in Bristol, Rhode Island, which plant was
purchased by Buttonwoods, Ltd., Associates on February 7, 1986,
"(W) $4,046,000 of equipment placed in service by Brendle's
Incorporated, acquired in connection with a Distribution
Center,
"(X) a multi-family mixed-use housing project located in a
home rule city, the zoning for which was changed to residential
business planned development on November 26, 1985, and with
respect to which both the home rule city on December 4, 1985,
and the State housing finance agency on December 20, 1985,
adopted inducement resolutions,
"(Y) the Myrtle Beach Convention Center, in South Carolina,
to the extent of $25,000,000 of investment, and
"(Z) railroad cars placed in service by the Pullman Leasing
Company, pursuant to an April 3, 1986 purchase order, costing
approximately $10,000,000.
"(33) The amendments made by section 201 [amending this section
and sections 46, 167, 178, 179, 280F, 291, 312, 465, 467, 514,
751, 1245, 4162, 6111, and 7701 of this title] shall not apply to
-
"(A) $400,000 of equipment placed in service by Super Key
Market, if such equipment is placed in service before January
1, 1987,
"(B) the Trolley Square project, the total project cost of
which is $24,500,000, and the amount of depreciable real
property of which is $14,700,000.
"(C)(i) a waste-to-energy project in Derry, New Hampshire,
costing approximately $60,000,000, and
"(ii) a waste-to-energy project in Manchester, New Hampshire,
costing approximately $60,000,000,
"(D) the City of Los Angeles Co-composting project, the
estimated cost of which is $62,000,000, with respect to which,
on July 17, 1985, the California Pollution Control Financing
Authority issued an initial resolution in the maximum amount of
$75,000,000 to finance this project,
"(E) the St. Charles, Missouri Mixed-Use Center,
"(F) Oxford Place in Tulsa, Oklahoma,
"(G) an amount of investment generating $20,000,000 of
investment tax credits attributable to property used on the
Illinois Diversatech Campus,
"(H) $25,000,000 of equipment used in the Melrose Park Engine
Plant that is sold and leased back by Navistar,
"(I) 80,000 vending machines, for a cost approximating
$3,400,000 placed into service by Folz Vending Co.,
"(J) A 25.85 megawatt alternative energy facility located in
Deblois, Maine, with respect to which certification by the
Federal Energy Regulatory Commission was made on April 3, 1986,
"(K) Burbank Manors, in Illinois, and
"(L) a cogeneration facility to be built at a paper company
in Turners Falls, Massachusetts, with respect to which a letter
of intent was executed on behalf of the paper company on
September 26, 1985.
"(40) [Par. (40) probably should follow par. (39).] Certain
trucks, etc. - The amendments made by section 201 shall not apply
to trucks, tractor units, and trailers which a privately held
truck leasing company headquartered in Des Moines, Iowa,
contracted to purchase in September 1985 but only to the extent
the aggregate reduction in Federal tax liability by reason of the
application of this paragraph does not exceed $8,500,000.
"(34) The amendments made by section 201 shall not apply to an
approximately 240,000 square foot beverage container
manufacturing plant located in Batesville, Mississippi, or plant
equipment used exclusively on the plant premises if -
"(A) a 2-year supply contract was signed by the taxpayer and
a customer on November 1, 1985,
"(B) such contract further obligated the customer to purchase
beverage containers for an additional 5-year period if physical
signs of construction of the plant are present before September
1986,
"(C) ground clearing for such plant began before August 1986,
and
"(D) construction is completed, the equipment is installed,
and operations are commenced before July 1, 1987.
"(35) The amendments made by section 201 shall not apply to any
property which is part of the multifamily housing at the Columbia
Point Project in Boston, Massachusetts. A project shall be
treated as not described in the preceding sentence and as not
described in section 252(f)(1)(D) [set out as a note under
section 42 of this title] unless such project includes at
substantially all times throughout the compliance period (within
the meaning of section 42(i)(1) of the Internal Revenue Code of
1986), a facility which provides health services to the residents
of such project for fees commensurate with the ability of such
individuals to pay for such services.
"(36) The amendments made by section 201 shall not apply to any
ethanol facility located in Blair, Nebraska, if -
"(A) in July of 1984 an initial binding construction contract
was entered into for such facility,
"(B) in June of 1986, certain Department of Energy
recommended contract changes required a change of contractor,
and
"(C) in September of 1986, a new contract to construct such
facility, consistent with such recommended changes, was entered
into.
"(37) The amendments made by section 201 shall not apply to any
property which is part of a sewage treatment facility if, prior
to January 1, 1986, the City of Conyers, Georgia, selected a
privatizer to construct such facility, received a guaranteed
maximum price bid for the construction of such facility, signed a
letter of intent and began substantial negotiations of a service
agreement with respect to such facility.
"(38) The amendments made by section 201 shall not apply to -
"(A) a $28,000,000 wood resource complex for which
construction was authorized by the Board of Directors on August
9, 1985,
"(B) an electrical cogeneration plant in Bethel, Maine which
is to generate 2 megawatts of electricity from the burning of
wood residues, with respect to which a contract was entered
into on July 10, 1984, and with respect to which $200,000 of
the expected $2,000,000 cost had been committed before June 15,
1986,
"(C) a mixed income housing project in Portland, Maine which
is known as the Back Bay Tower and which is expected to cost
$17,300,000,
"(D) the Eastman Place project and office building in
Rochester, New York, which is projected to cost $20,000,000,
with respect to which an inducement resolution was adopted in
December 1986, and for which a binding contract of $500,000 was
entered into on April 30, 1986,
"(E) the Marquis Two project in Atlanta, Georgia which has a
total budget of $72,000,000 and the construction phase of which
began under a contract entered into on March 26, 1986,
"(F) a 166-unit continuing care retirement center in New
Orleans, Louisiana, the construction contract for which was
signed on February 12, 1986, and is for a maximum amount not to
exceed $8,500,000,
"(G) the expansion of the capacity of an oil refining
facility in Rosemont, Minnesota from 137,000 to 207,000 barrels
per day which is expected to be completed by December 31, 1990,
and
"(H) a project in Ransom, Pennsylvania which will burn coal
waste (known as 'culm') with an approximate cost of $64,000,000
and for which a certification from the Federal Energy
Regulatory Commission was received on March 11, 1986.
"(39) The amendments made by section 201 shall not apply to any
facility for the manufacture of an improved particle board if a
binding contract to purchase such equipment was executed March 3,
1986, such equipment will be placed in service by January 1,
1988, and such facility is located in or near Moncure, North
Carolina.
"(b) Special Rule for Certain Property. - The provisions of
section 168(f)(8) of the Internal Revenue Code of 1954 (as amended
by section 209 of the Tax Equity and Fiscal Responsibility Act of
1982) shall continue to apply to any transaction permitted by
reason of section 12(c)(2) of the Tax Reform Act of 1984 or section
209(d)(1)(B) of the Tax Equity and Fiscal Responsibility Act of
1982 (as amended by the Tax Reform Act of 1984) [section 12(c)(2)
of Pub. L. 98-369 and section 209(d)(1)(B) of Pub. L. 97-248,
respectively, set out below].
"(c) Applicable Date in Certain Cases. -
"(1) Section 203(b)(2) shall be applied by substituting
'January 1, 1992' for 'January 1, 1991' in the following cases.
"(A) in the case of a 2-unit nuclear powered electric
generating plant (and equipment and incidental appurtenances),
located in Pennsylvania and constructed pursuant to contracts
entered into by the owner operator of the facility before
December 31, 1975, including contracts with the
engineer/constructor and the nuclear steam system supplier,
such contracts shall be treated as contracts described in
section 203(b)(1)(A),
"(B) a cogeneration facility with respect to which an
application with the Federal Energy Regulatory Commission was
filed on August 2, 1985, and approved October 15, 1985.
"(C) in the case of a 1,300 megawatt coal-fired steam powered
electric generating plant (and related equipment and incidental
appurtenances), which the three owners determined in 1984 to
convert from nuclear power to coal power and for which more
than $600,000,000 had been incurred or committed for
construction before September 25, 1985, except that no
investment tax credit will be allowable under section 49(d)(3)
added by section 211(a) of this Act [section 49(d) of this
title does not contain a par. (3)] for any qualified progress
expenditures made after December 31, 1990.
"(2) Section 203(b)(2) shall be applied by substituting 'April
1, 1992' for the applicable date that would otherwise apply, in
the case of the second unit of a twin steam electric generating
facility and related equipment which was granted a certificate of
public convenience and necessity by a public service commission
prior to January 1, 1982, if the first unit of the facility was
placed in service prior to January 1, 1985, and before September
26, 1985, more than $100,000,000 had been expended toward the
construction of the second unit.
"(3) Section 203(b)(2) shall be applied by substituting
'January 1, 1990,' (or, in the case of a project described in
subparagraph (B), by substituting 'April 1, 1992') for the
applicable date that would otherwise apply in the case of -
"(A) new commercial passenger aircraft used by a domestic
airline, if a binding contract with respect to such aircraft
was entered into on or before April 1, 1986, and such aircraft
has a present class life of 12 years,
"(B) a pumped storage hydroelectric project with respect to
which an application was made to the Federal Energy Regulatory
Commission for a license on February 4, 1974, and license was
issued August 1, 1977, the project number of which is 2740, and
"(C) a newsprint mill in Pend Oreille county, Washington,
costing about $290,000,000.
In the case of an aircraft described in subparagraph (A), section
203(b)(1)(A) shall be applied by substituting 'April 1, 1986' for
'March 1, 1986' and section 49(e)(1)(B) of the Internal Revenue
Code of 1986 shall not apply.
"(4) The amendments made by section 201 [amending this section
and sections 46, 167, 178, 179, 280F, 291, 312, 465, 467, 514,
751, 1245, 4162, 6111, and 7701 of this title] shall not apply to
a limited amount of the following property or a limited amount of
property set forth in a submission before September 16, 1986, by
the following taxpayers:
"(A) Arena project, Michigan, but only with respect to
$78,000,000 of investments.
"(B) Campbell Soup Company, Pennsylvania, California, North
Carolina, Ohio, Maryland, Florida, Nebraska, Michigan, South
Carolina, Texas, New Jersey, and Delaware, but only with
respect to $9,329,000 of regular investment tax credits.
"(C) The Southeast Overtown/Park West development, Florida,
but only with respect to $200,000,000 of investments.
"(D) Equipment placed in service and operated by Leggett and
Platt before July 1, 1987, but only with respect to $2,000,000
of regular investment tax credits, and subsections (c) and (d)
of section 49 of the Internal Revenue Code of 1986 shall not
apply to such equipment.
"(E) East Bank Housing Project.
"(F) $1,561,215 of investments by Standard Telephone Company.
"(G) Five aircraft placed in service before January 1, 1987,
by Presidential Air.
"(H) A rehabilitation project by Ann Arbor Railroad, but only
with respect to $2,900,000 of investments.
"(I) Property that is part of a cogeneration project located
in Ada, Michigan, but only with respect to $30,000,000 of
investments.
"(J) Anchor Store Project, Michigan, but only with respect to
$21,000,000 of investments.
"(K) A waste-fired electrical generating facility of Biogen
Power, but only with respect to $34,000,000 of investments.
"(L) $14,000,000 of television transmitting towers placed in
service by Media General, Inc., which were subject to binding
contracts as of January 21, 1986, and will be placed in service
before January 1, 1988,
"(M) Interests of Samuel A. Hardage (whether owned
individually or in partnership form).
"(N) Two aircraft of Mesa Airlines with an aggregate cost of
$5,723,484.
"(O) Yarn-spinning equipment used at Spray Cotton Mills, but
only with respect to $3,000,000 of investments.
"(P) 328 units of low-income housing at Angelus Plaza, but
only with respect to $20,500,000 of investments.
"(Q) One aircraft of Continental Aviation Services with a
cost of approximately $15,000,000 that was purchased pursuant
to a contract entered into during March of 1983 and that is
placed in service by December 31, 1988.
"(d) Railroad Grading and Tunnel Bores. -
"(1) In general. - In the case of expenditures for railroad
grading and tunnel bores which were incurred by a common carrier
by railroad to replace property destroyed in a disaster occurring
on or about April 17, 1983, near Thistle, Utah, such
expenditures, to the extent not in excess of $15,000,000, shall
be treated as recovery property which is 5-year property under
section 168 of the Internal Revenue Code of 1954 (as in effect
before the amendments made by this Act) and which is placed in
service at the time such expenditures were incurred.
"(2) Business interruption proceeds. - Business interruption
proceeds received for loss of use, revenues, or profits in
connection with the disaster described in paragraph (1) and
devoted by the taxpayer described in paragraph (1) to the
construction of replacement track and related grading and tunnel
bore expenditures shall be treated as constituting an amount
received from the involuntary conversion of property under
section 1033(a)(2) of such Code.
"(3) Effective date. - This subsection shall apply to taxable
years ending after April 17, 1983.
"(e) Treatment of Certain Disaster Losses. -
"(1) In general. - In the case of a disaster described in
paragraph (2), at the election of the taxpayer, the amendments
made by section 201 of this Act [amending this section and
sections 46, 167, 178, 179, 280F, 291, 312, 465, 467, 514, 751,
1245, 4162, 6111, and 7701 of this title] -
"(A) shall not apply to any property placed in service during
1987 or 1988, or
"(B) shall apply to any property placed in service during
1985 or 1986,
which is property to replace property lost, damaged, or destroyed
in such disaster.
"(2) Disaster to which section applies. - This section shall
apply to a flood which occurred on November 3 through 7, 1985,
and which was declared a natural disaster area by the President
of the United States."
Section 1002(c)(3) of Pub. L. 100-647 provided that:
"Notwithstanding section 203 of the Reform Act [section 203 of Pub.
L. 99-514, set out above], the amendments made by section 201 of
the Reform Act [section 201 of Pub. L. 99-514, amending this
section and sections 46, 167, 178, 179, 280F, 291, 312, 465, 467,
514, 751, 1245, 4162, 6111, and 7701 of this title] shall apply to
any real property which was acquired before January 1, 1987, and
was converted on or after such date from personal use to a use for
which depreciation is allowable."
Amendment by section 201(a) of Pub. L. 99-514 not applicable to
any property placed in service before Jan. 1, 1994, if such
property placed in service as part of specified rehabilitations,
and not applicable to certain additional rehabilitations, see
section 251(d)(2), (3) of Pub. L. 99-514, set out as a note under
section 46 of this title.
Amendment by sections 1802(a)(1)-(2)(D), (G), (3), (4)(A), (B),
(7), (b)(1), 1809(a)(1)-(2)(B), (4)(A), (B) of Pub. L. 99-514
effective, except as otherwise provided, as if included in the
provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,
to which such amendment relates, see section 1881 of Pub. L. 99-
514, set out as a note under section 48 of this title.
Section 1802(a)(2)(E)(ii) of Pub. L. 99-514 provided that:
"(I) Except as otherwise provided in this clause, the amendment
made by clause (i) [amending this section] shall apply to property
placed in service after September 27, 1985; except that such
amendment shall not apply to any property acquired pursuant to a
binding written contract in effect on such date (and at all times
thereafter).
"(II) If an election under this subclause is made with respect to
any property, the amendment made by clause (i) shall apply to such
property whether or not placed in service on or before September
27, 1985."
Section 1809(a)(2)(C)(i) of Pub. L. 99-514 provided in part that
amendment by section 1809(a)(2)(C)(i) of Pub. L. 99-514 is
effective on and after Oct. 22, 1986.
Section 1809(b)(3) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section] shall
apply to property placed in service by the transferee after
December 31, 1985, in taxable years ending after such date."
EFFECTIVE DATE OF 1985 AMENDMENT
Section 105(b) of Pub. L. 99-121, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by section 103 [amending this
section and sections 47, 48, 57, 312, and 1245 of this title] shall
apply with respect to property placed in service by the taxpayer
after May 8, 1985.
"(2) Exception. - The amendments made by section 103 shall not
apply to property placed in service by the taxpayer before January
1, 1987, if -
"(A) the taxpayer or a qualified person entered into a binding
contract to purchase or construct such property before May 9,
1985, or
"(B) construction of such property was commenced by or for the
taxpayer or a qualified person before May 9, 1985.
For purposes of this paragraph, the term 'qualified person' means
any person whose rights in such a contract or such property are
transferred to the taxpayer, but only if such property is not
placed in service before such rights are transferred to the
taxpayer.
"(3) Special rule for components. - For purposes of applying
section 168(f)(1)(B) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as amended by section 103) to components placed in
service after December 31, 1986, property to which paragraph (2) of
this subsection applies shall be treated as placed in service by
the taxpayer before May 9, 1985.
"(4) Technical correction. - The amendment made by paragraph (6)
of section 103(b) [amending section 47 of this title] shall apply
as if included in the amendments made by section 111 of the Tax
Reform Act of 1984 [Pub. L. 98-369, see Effective Date of 1984
Amendment note below].
"(5) Special rule for leasing of qualified rehabilitated
buildings. - The amendment made by paragraph (5) of section 103(b)
to section 48(g)(2)(B)(v) of the Internal Revenue Code of 1986
shall not apply to leases entered into before May 22, 1985, but
only if the lessee signed the lease before May 17, 1985."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 12 of Pub. L. 98-369 applicable to taxable
years ending after Dec. 31, 1983, see section 18(a) of Pub. L. 98-
369, set out as a note under section 48 of this title.
Section 31(g) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1802(a)(2)(F), (10)(A)-(D)(i), (E)-(G),
Oct. 22, 1986, 100 Stat. 2095, 2788, 2790, 2791; Pub. L. 100-647,
title I, Sec. 1018(b)(1), Nov. 10, 1988, 102 Stat. 3577, provided
that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 46, 48, and 7701 of this title] shall apply -
"(A) to property placed in service by the taxpayer after May
23, 1983, in taxable years ending after such date, and
"(B) to property placed in service by the taxpayer on or before
May 23, 1983, if the lease to the tax-exempt entity is entered
into after May 23, 1983.
"(2) Leases entered into on or before may 23, 1983. - The
amendments made by this section shall not apply with respect to any
property leased to a tax-exempt entity if the property is leased
pursuant to -
"(A) a lease entered into on or before May 23, 1983 (or a
sublease under such a lease), or
"(B) any renewal or extension of a lease entered into on or
before May 23, 1983, if such renewal or extension is pursuant to
an option exercisable by the tax-exempt entity which was held by
the tax-exempt entity on May 23, 1983.
"(3) Binding contracts, etc. -
"(A) The amendments made by this section shall not apply with
respect to any property leased to a tax-exempt entity if such
lease is pursuant to 1 or more written binding contracts which,
on May 23, 1983, and at all times thereafter, required -
"(i) the taxpayer (or his predecessor in interest under the
contract) to acquire, construct, reconstruct, or rehabilitate
such property, and
"(ii) the tax-exempt entity (or a tax-exempt predecessor
thereof) to be the lessee of such property.
"(B) Paragraph (9) of section 168(j) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] (as added by this section)
shall not apply with respect to any property owned by a
partnership if -
"(i) such property was acquired by such partnership on or
before October 21, 1983, or
"(ii) such partnership entered into a written binding
contract which, on October 21, 1983, and at all times
thereafter, required the partnership to acquire or construct
such property.
"(C) The amendments made by this section shall not apply with
respect to any property leased to a tax-exempt entity (other than
any foreign person or entity) -
"(i) if -
"(I) on or before May 23, 1983, the taxpayer (or his
predecessor in interest under the contract) or the tax-exempt
entity entered into a written binding contract to acquire,
construct, reconstruct, or rehabilitate such property and
such property had not previously been used by the tax-exempt
entity, or
"(II) the taxpayer or the tax-exempt entity acquired the
property after June 30, 1982, and on or before May 23, 1983,
or completed the construction, reconstruction, or
rehabilitation of the property after December 31, 1982, and
on or before May 23, 1983, and
"(ii) if such lease is pursuant to a written binding contract
entered into before January 1, 1985, which requires the tax-
exempt entity to be the lessee of such property.
"(4) Official governmental action on or before november 1, 1983. -
"(A) In general. - The amendments made by this section shall
not apply with respect to any property leased to a tax-exempt
entity (other than the United States, any agency or
instrumentality thereof, or any foreign person or entity) if -
"(i) on or before November 1, 1983, there was significant
official governmental action with respect to the project or its
design, and
"(ii) the lease to the tax-exempt entity is pursuant to a
written binding contract entered into before January 1, 1985,
which requires the tax-exempt entity to be the lessee of the
property.
"(B) Significant official governmental action. - For purposes
of subparagraph (A), the term 'significant official governmental
action' does not include granting of permits, zoning changes,
environmental impact statements, or similar governmental actions.
"(C) Special rule for credit unions. - In the case of any
property leased to a credit union pursuant to a written binding
contract with an expiration date of December 31, 1984, which was
entered into by such organization on August 23, 1984 -
"(i) such credit union shall not be treated as an agency or
instrumentality of the United States; and
"(ii) clause (ii) of subparagraph (A) shall be applied by
substituting 'January 1, 1987' for 'January 1, 1985'.
"(D) Special rule for greenville auditorium board. - For
purposes of this paragraph, significant official governmental
action taken by the Greenville County Auditorium Board of
Greenville, South Carolina, before May 23, 1983, shall be treated
as significant official governmental action with respect to the
coliseum facility subject to a binding contract to lease which
was in effect on January 1, 1985.
"(E) Treatment of certain historic structures. - If -
"(i) on June 16, 1982, the legislative body of the local
governmental unit adopted a bond ordinance to provide funds to
renovate elevators in a deteriorating building owned by the
local governmental unit and listed in the National Register,
and
"(ii) the chief executive officer of the local governmental
unit, in connection with the renovation of such building, made
an application on June 1, 1983, to a State agency for a Federal
historic preservation grant and made an application on June 17,
1983, to the Economic Development Administration of the United
States Department of Commerce for a grant,
the requirements of clauses (i) and (ii) of subparagraph (A)
shall be treated as met.
"(5) Mass commuting vehicles. - The amendments made by this
section shall not apply to any qualified mass commuting vehicle (as
defined in section 103(b)(9) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]) which is financed in whole or in part by
obligations the interest on which is excludable from gross income
under section 103(a) of such Code if -
"(A) such vehicle is placed in service before January 1, 1988,
or
"(B) such vehicle is placed in service on or after such date -
"(i) pursuant to a binding contract or commitment entered
into before April 1, 1983, and
"(ii) solely because of conditions which, as determined by
the Secretary of the Treasury or his delegate, are not within
the control of the lessor or lessee.
"(6) Certain turbines and boilers. - The amendments made by this
section shall not apply to any property described in section
208(d)(3)(E) of the Tax Equity and Fiscal Responsibility Act of
1982 [section 208(d)(3)(E) of Pub. L. 97-248, set out as an
Effective Date of 1982 Amendments note below].
"(7) Certain facilities for which ruling requests filed on or
before may 23, 1983. - The amendments made by this section shall
not apply with respect to any facilities described in clause (ii)
of section 168(f)(12)(C) of the Internal Revenue Code of 1986
(relating to certain sewage or solid waste disposal facilities), as
in effect on the day before the date of the enactment of this Act
[July 18, 1984], if a ruling request with respect to the lease of
such facility to the tax-exempt entity was filed with the Internal
Revenue Service on or before May 23, 1983.
"(8) Recovery period for certain qualified sewage facilities. -
"(A) In general. - In the case of any property (other than 15-
year real property) which is part of a qualified sewage
facility, the recovery period used for purposes of paragraph (1)
of section 168(j) of the Internal Revenue Code of 1986 (as added
by this section) shall be 12 years. For purposes of the preceding
sentence, the term '15-year real property' includes 18-year real
property.
"(B) Qualified sewage facility. - For purposes of subparagraph
(A), the term 'qualified sewage facility' means any facility
which is part of the sewer system of a city, if -
"(i) on June 15, 1983, the City Council approved a resolution
under which the city authorized the procurement of equity
investments for such facility, and
"(ii) on July 12, 1983, the Industrial Development Board of
the city approved a resolution to issue a $100,000,000
industrial development bond issue to provide funds to purchase
such facility.
"(9) Property used by the postal service. - In the case of
property used by the United States Postal Service, paragraphs (1)
and (2) shall be applied by substituting 'October 31' for 'May 23'.
"(10) Existing appropriations. - The amendments made by this
section shall not apply to personal property leased to or used by
the United States if -
"(A) an express appropriation has been made for rentals under
such lease for the fiscal year 1983 before May 23, 1983, and
"(B) the United States or an agency or instrumentality thereof
has not provided an indemnification against the loss of all or a
portion of the tax benefits claimed under the lease or service
contract.
"(11) Special rule for certain partnerships. -
"(A) Partnerships for which qualifying action existed before
october 21, 1983. - Paragraph (9) of section 168(j) of the
Internal Revenue Code of 1986 (as added by this section) shall
not apply to any property acquired, directly or indirectly,
before January 1, 1985, by any partnership described in
subparagraph (B).
"(B) Application filed before october 21, 1983. - A partnership
is described in this subparagraph if -
"(i) before October 21, 1983, the partnership was organized,
a request for exemption with respect to such partnership was
filed with the Department of Labor, and a private placement
memorandum stating the maximum number of units in the
partnership that would be offered had been circulated,
"(ii) the interest in the property to be acquired, directly
or indirectly (including through acquiring an interest in
another partnership) by such partnership was described in such
private placement memorandum, and
"(iii) the marketing of partnership units in such partnership
is completed not later than two years after the later of the
date of the enactment of this Act [July 18, 1984] or the date
of publication in the Federal Register of such exemption by the
Department of Labor and the aggregate number of units in such
partnership sold does not exceed the amount described in clause
(i).
"(C) Partnerships for which qualifying action existed before
march 6, 1984. - Paragraph (9) of section 168(j) of the Internal
Revenue Code of 1986 (as added by this section) shall not apply
to any property acquired directly or indirectly, before January
1, 1986, by any partnership described in subparagraph (D). For
purposes of this subparagraph, property shall be deemed to have
been acquired prior to January 1, 1986, if the partnership had
entered into a written binding contract to acquire such property
prior to January 1, 1986 and the closing of such contract takes
place within 6 months of the date of such contract (24 months in
the case of new construction).
"(D) Partnership organized before march 6, 1984. - A
partnership is described in this subparagraph if -
"(i) before March 6, 1984, the partnership was organized and
publicly announced the maximum amount (as shown in the
registration statement, prospectus or partnership agreement,
whichever is greater) of interests which would be sold in the
partnership, and
"(ii) the marketing or partnership interests in such
partnership was completed not later than the 90th day after the
date of the enactment of this Act [July 18, 1984] and the
aggregate amount of interest in such partnership sold does not
exceed the maximum amount described in clause (i).
"(12) Special rule for amendment made by subsection (c)(2). - The
amendment made by subsection (c)(2) [amending section
48(g)(2)(B)(i) of this title] to the extent it relates to
subsection (f)(12) of section 168 of the Internal Revenue Code of
1986 shall take effect as if it had been included in the amendments
made by section 216(a) of the Tax Equity and Fiscal Responsibility
Act of 1982 [section 216(a) of Pub. L. 97-248, which amended this
section].
"(13) Special rule for service contracts not involving tax-exempt
entities. - In the case of a service contract or other arrangement
described in section 7701(e) of the Internal Revenue Code of 1986
(as added by this section) with respect to which no party is a tax-
exempt entity, such section 7701(e) shall not apply to -
"(A) such contract or other arrangement if such contract or
other arrangement was entered into before November 5, 1983, or
"(B) any renewal or other extension of such contract or other
arrangement pursuant to an option contained in such contract or
other arrangement on November 5, 1983.
"(14) Property leased to section 593 organizations. - For
purposes of the amendment made by subsection (f) [enacting section
46(e)(4) of this title], paragraphs (1), (2), and (4) shall be
applied by substituting -
"(A) 'November 5, 1983' for 'May 23, 1983' and 'November 1,
1983', as the case may be, and
"(B) 'organization described in section 593 of the Internal
Revenue Code of 1986' for 'tax-exempt entity'.
"(15) Special rules relating to foreign persons or entities. -
"(A) In general. - In the case of tax-exempt use property which
is used by a foreign person or entity, the amendments made by
this section shall not apply to any property which -
"(i) is placed in service by the taxpayer before January 1,
1984, and
"(ii) is used by such foreign person or entity pursuant to a
lease entered into before January 1, 1984.
"(B) Special rule for subleases. - If tax-exempt use property
is being used by a foreign person or entity pursuant to a
sublease under a lease described in subparagraph (A)(ii),
subparagraph (A) shall apply to such property only if such
property was used before January 1, 1984, by any foreign person
or entity pursuant to such lease.
"(C) Binding contracts, etc. - The amendments made by this
section shall not apply with respect to any property (other than
aircraft described in subparagraph (D)) leased to a foreign
person or entity -
"(i) if -
"(I) on or before May 23, 1983, the taxpayer (or a
predecessor in interest under the contract) or the foreign
person or entity entered into a written binding contract to
acquire, construct, or rehabilitate such property and such
property had not previously been used by the foreign person
or entity, or
"(II) the taxpayer or the foreign person or entity acquired
the property or completed the construction, reconstruction,
or rehabilitation of the property after December 31, 1982 and
on or before May 23, 1983, and
"(ii) if such lease is pursuant to a written binding contract
entered into before January 1, 1984, which requires the foreign
person or entity to be the lessee of such property.
"(D) Certain aircraft. - The amendments made by this section
shall not apply with respect to any wide-body, four-engine,
commercial aircraft used by a foreign person or entity if -
"(i) on or before November 1, 1983, the foreign person or
entity entered into a written binding contract to acquire such
aircraft, and
"(ii) such aircraft is originally placed in service by such
foreign person or entity (or its successor in interest under
the contract) after May 23, 1983, and before January 1, 1986.
"(E) Use after 1983. - Qualified container equipment placed in
service before January 1, 1984, which is used before such date by
a foreign person shall not, for purposes of section 47 of the
Internal Revenue Code of 1986, be treated as ceasing to be
section 38 property by reason of the use of such equipment before
January 1, 1985, by a foreign person or entity. For purposes of
this subparagraph, the term 'qualified container equipment' means
any container, container chassis, or container trailer of a
United States person with a present class life of not more than 6
years.
"(16) Organizations electing exemption from rules relating to
previously tax-exempt organizations must elect taxation of exempt
arbitrage profits. -
"(A) In general. - An organization may make the election under
section 168(j)(4)(E)(ii) of the Internal Revenue Code of 1986
(relating to election not to have rules relating to previously
tax-exempt organizations apply) only if such organization elects
the tax treatment of exempt arbitrage profits described in
subparagraph (B).
"(B) Taxation of exempt arbitrage profits. -
"(i) In general. - In the case of an organization which
elects the application of this subparagraph, there is hereby
imposed a tax on the exempt arbitrage profits of such
organization.
"(ii) Rate of tax, etc. - The tax imposed by clause (i) -
"(I) shall be the amount of tax which would be imposed by
section 11 of such Code if the exempt arbitrage profits were
taxable income (and there were no other taxable income), and
"(II) shall be imposed for the first taxable year of the
tax-exempt use period (as defined in section 168(j)(4)(E)(ii)
of such Code).
"(C) Exempt arbitrage profits. -
"(i) In general. - For purposes of this paragraph, the term
exempt arbitrage profits means the aggregate amount described
in clauses (i) and (ii) of subparagraph (D) of section
103(c)(6) of such Code for all taxable years for which the
organization was exempt from tax under section 501(a) of such
Code with respect to obligations -
"(I) associated with property described in section
168(j)(4)(E)(i), and
"(II) issued before January 1, 1985.
"(ii) Application of section 103(b)(6). - For purposes of
this paragraph, section 103(b)(6) of such Code shall apply to
obligations issued before January 1, 1985, but the amount
described in clauses (i) and (ii) of subparagraph (D) thereof
shall be determined without regard to clauses (i)(II) and (ii)
of subparagraph (F) thereof.
"(D) Other laws applicable. -
"(i) In general. - Except as provided in clause (ii), all
provisions of law, including penalties, applicable with respect
to the tax imposed by section 11 of such Code shall apply with
respect to the tax imposed by this paragraph.
"(ii) No credits against tax, etc. - The tax imposed by this
paragraph shall not be treated as imposed by section 11 of such
Code for purposes of -
"(I) part VI of subchapter A of chapter 1 of such Code
(relating to minimum tax for tax preferences), and
"(II) determining the amount of any credit allowable under
subpart A of part IV of such subchapter.
"(E) Election. - Any election under subparagraph (A) -
"(i) shall be made at such time and in such manner as the
Secretary may prescribe,
"(ii) shall apply to any successor organization which is
engaged in substantially similar activities, and
"(iii) once made, shall be irrevocable.
"(17) Certain transitional leased property. - The amendments made
by this section shall not apply to property described in section
168(c)(2)(D) of the Internal Revenue Code of 1986, as in effect on
the day before the date of the enactment of this Act [July 18,
1984], and which is described in any of the following
subparagraphs:
"(A) Property is described in this subparagraph if such
property is leased to a university, and -
"(i) on June 16, 1983, the Board of Administrators of the
university adopted a resolution approving the rehabilitation of
the property in connection with an overall campus development
program; and
"(ii) the property houses a basketball arena and university
offices.
"(B) Property is described in this subparagraph if such
property is leased to a charitable organization, and -
"(i) on August 21, 1981, the charitable organization acquired
the property, with a view towards rehabilitating the property;
and
"(ii) on June 12, 1982, an arson fire caused substantial
damage to the property, delaying the planned rehabilitation.
"(C) Property is described in this subparagraph if such
property is leased to a corporation that is described in section
501(c)(3) of the Internal Revenue Code of 1986 (relating to
organizations exempt from tax) pursuant to a contract -
"(i) which was entered into on August 3, 1983; and
"(ii) under which the corporation first occupied the property
on December 22, 1983.
"(D) Property is described in this subparagraph if such
property is leased to an educational institution for use as an
Arts and Humanities Center and with respect to which -
"(i) in November 1982, an architect was engaged to design a
planned renovation;
"(ii) in January 1983, the architectural plans were
completed;
"(iii) in December 1983, a demolition contract was entered
into; and
"(iv) in March 1984, a renovation contract was entered into.
"(E) Property is described in this subparagraph if such
property is used by a college as a dormitory, and -
"(i) in October 1981, the college purchased the property with
a view towards renovating the property;
"(ii) renovation plans were delayed because of a zoning
dispute; and
"(iii) in May 1983, the court of highest jurisdiction in the
State in which the college is located resolved the zoning
dispute in favor of the college.
"(F) Property is described in this subparagraph if such
property is a fraternity house related to a university with
respect to which -
"(i) in August 1982, the university retained attorneys to
advise the university regarding the rehabilitation of the
property;
"(ii) on January 21, 1983, the governing body of the
university established a committee to develop rehabilitation
plans;
"(iii) on January 10, 1984, the governor of the state in
which the university is located approved historic district
designation for an area that includes the property; and
"(iv) on February 2, 1984, historic preservation
certification applications for the property were filed with a
historic landmarks commission.
"(G) Property is described in this subparagraph if such
property is leased to a retirement community with respect to
which -
"(i) on January 5, 1977, a certificate of incorporation was
filed with the appropriate authority of the state in which the
retirement community is located; and
"(ii) on November 22, 1983, the Board of Trustees adopted a
resolution evidencing the intention to begin immediate
construction of the property.
"(H) Property is described in this subparagraph if such
property is used by a university, and -
"(i) in July 1982, the Board of Trustees of the university
adopted a master plan for the financing of the property; and
"(ii) as of August 1, 1983, at least $60,000 in private
expenditures had been expended in connection with the property.
In the case of Clemson University, the preceding sentence applies
only to the Continuing Education Center and the component housing
project.
"(I) Property is described in this subparagraph if such
property is used by a university as a fine arts center and the
Board of Trustees of such university authorized the sale-
leaseback agreement with respect to such property on March 7,
1984.
"(J) Property is described in this subparagraph if such
property is used by a tax-exempt entity as an international trade
center, and
"(i) prior to 1982, an environmental impact study for such
property was completed;
"(ii) on June 24, 1981, a developer made a written commitment
to provide one-third of the financing for the development of
such property; and
"(iii) on October 20, 1983, such developer was approved by
the Board of Directors of the tax-exempt entity.
"(K) Property is described in this subparagraph if such
property is used by university of osteopathic medicine and health
sciences, and on or before December 31, 1983, the Board of
Trustees of such university approved the construction of such
property.
"(L) Property is described in this subparagraph if such
property is used by a tax-exempt entity, and -
"(i) such use is pursuant to a lease with a taxpayer which
placed substantial improvements in service;
"(ii) on May 23, 1983, there existed architectural plans and
specifications (within the meaning of sec. 48(g)(1)(C)(ii) of
the Internal Revenue Code of 1986); and
"(iii) prior to May 23, 1983, at least 10 percent of the
total cost of such improvements was actually paid or incurred.
Property is described in this subparagraph if such property was
leased to a tax-exempt entity pursuant to a lease recorded in the
Register of Deed of Essex County, New Jersey, on May 7, 1984, and
a deed of such property was recorded in the Register of Deed of
Essex County, New Jersey, on May 7, 1984.
"(M) Property is described in this subparagraph if such
property is used as a convention center and on June 2, 1983, the
City Council of the city in which the center is located provided
for over $6 million for the project.
"(18) Special rule for amendment made by subsection (c)(1). -
"(A) In general. - The amendment made by subsection (c)(1)
[enacting section 48(g)(2)(B)(vi) of this title] shall not apply
to property -
"(i) leased by the taxpayer on or before November 1, 1983, or
"(ii) leased by the taxpayer after November 1, 1983, if on or
before such date the taxpayer entered into a written binding
contract requiring the taxpayer to lease such property.
"(B) Limitation. - Subparagraph (A) shall apply to the
amendment made by subsection (c)(1) only to the extent such
amendment relates to property described in subclause (II), (III),
or (IV) of section 168(j)(3)(B)(ii) of the Internal Revenue Code
of 1986 (as added by this section).
"(19) Special rule for certain energy management contracts. -
"(A) In general. - The amendments made by subsection (e)
[amending section 7701 of this title] shall not apply to property
used pursuant to an energy management contract that was entered
into prior to May 1, 1984.
"(B) Definition of energy management contract. - For purposes
of subparagraph (A), the term 'energy management contract' means
a contract for the providing of energy conservation or energy
management services.
"(20) Definitions. - For purposes of this subsection -
"(A) Tax-exempt entity. - The term 'tax-exempt entity' has the
same meaning as when used in section 168(j) of the Internal
Revenue Code of 1986 (as added by this section), except that such
term shall include any related entity (within the meaning of such
section).
"(B) Treatment of improvements. -
"(i) In general. - For purposes of this subsection, an
improvement to property shall not be treated as a separate
property unless such improvement is a substantial improvement
with respect to such property.
"(ii) Substantial improvement. - For purposes of clause (i),
the term 'substantial improvement' has the meaning given such
term by section 168(f)(1)(C) of such Code determined -
"(I) by substituting 'property' for 'building' each place
it appears therein,
"(II) by substituting '20 percent' for '25 percent' in
clause (ii) thereof, and
"(III) without regard to clause (iii) thereof.
"(C) Foreign person or entity. - The term 'foreign person or
entity' has the meaning given to such term by subparagraph (C) of
section 168(j)(4) of such Code (as added by this section). For
purposes of this subparagraph and subparagraph (A), such
subparagraph (C) shall be applied without regard to the last
sentence thereof.
"(D) Leases and subleases. - The determination of whether there
is a lease or sublease to a tax-exempt entity shall take into
account sections 168(j)(6)(A), 168(j)(8)(A), and 7701(e) of the
Internal Revenue Code of 1986 (as added by this section)."
[Section 1802(a)(10)(B) of Pub. L. 99-514 provided in part that
amendment by section 1802(a)(10)(B) of Pub. L. 99-514, amending
section 31(g)(15)(D)(ii) of Pub. L. 98-369, set out above, is
effective with respect to property placed in service by the
taxpayer after July 18, 1984.]
[Section 1802(a)(10)(D)(ii) of Pub. L. 99-514 provided that: "The
amendment made by clause (i) [amending section 31(g)(20)(B)(ii) of
Pub. L. 98-369, set out above] shall not apply to any property if -
"(I) on or before March 28, 1985, the taxpayer (or a
predecessor in interest under the contract) or the tax-exempt
entity entered into a written binding contract to acquire,
construct, or rehabilitate the property, or
"(II) the taxpayer or the tax-exempt entity began the
construction, reconstruction, or rehabilitation of the property
on or before March 28, 1985."]
Section 32(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1802(b)(2), Oct. 22, 1986, 100 Stat.
2095, 2791, provided that: "The amendment made by subsection (a)
[amending this section] shall apply to agreements described in
section 168(f)(14) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as added by subsection (a)) entered into more than 90
days after the date of the enactment of this Act [July 18, 1984]."
Section 111(g) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 48, 51, 312, and 1245 of this title] shall
apply with respect to property placed in service by the taxpayer
after March 15, 1984.
"(2) Exception. - The amendments made by this section shall not
apply to property placed in service by the taxpayer before January
1, 1987, if -
"(A) the taxpayer or a qualified person entered into a binding
contract to purchase or construct such property before March 16,
1984, or
"(B) construction of such property was commenced by or for the
taxpayer or a qualified person before March 16, 1984.
For purposes of this paragraph the term 'qualified person' means
any person who transfers his rights in such a contract or such
property to the taxpayer, but only if such property is not placed
in service by such person before such rights are transferred to the
taxpayer.
"(3) Special rules for application of paragraph (2). -
"(A) Certain inventory. - In the case of any property which -
"(i) is held by a person as property described in section
1221(1) [26 U.S.C. 1221(1)], and
"(ii) is disposed of by such person before January 1, 1985,
such person shall not, for purposes of paragraph (2), be treated
as having placed such property in service before such property is
disposed of merely because such person rented such property or
held such property for rental. No deduction for depreciation or
amortization shall be allowed to such person with respect to such
property,
"(B) Certain property financed by bonds. - In the case of any
property with respect to which -
"(i) bonds were issued to finance such property before 1984,
and
"(ii) an architectural contract was entered into before March
16, 1984,
paragraph (2) shall be applied by substituting 'May 2' for 'March
16'.
"(4) Special rule for components. - For purposes of applying
section 168(f)(1)(B) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as amended by this section) to components placed in
service after December 31, 1986, property to which paragraph (2)
applies shall be treated as placed in service by the taxpayer
before March 16, 1984.
"(5) Special rule for mid-month convention. - In the case of the
amendment made by subsection (d) [amending subsec. (b)(2)(A), (B)
of this section] -
"(A) paragraph (1) shall be applied by substituting 'June 22,
1984' for 'March 15, 1984', and
"(B) paragraph (2) shall be applied by substituting 'June 23,
1984' for 'March 15, 1984' each place it appears."
Amendment by section 113(a)(2) of Pub. L. 98-369 applicable to
property placed in service after Mar. 15, 1984, in taxable years
ending after such date, see section 113(c)(1) of Pub. L. 98-369,
set out as a note under section 48 of this title.
Section 113(c)(2) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) The amendments made by paragraphs (1) of subsection (b)
[amending this section] shall apply to any motion picture film or
video tape placed in service before, on, or after the date of the
enactment of this Act [July 18, 1984], except that such amendment
shall not apply to -
"(i) any qualified film placed in service by the taxpayer
before March 15, 1984, if the taxpayer treated such film as
recovery property for purposes of section 168 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] on a return of tax
under chapter 1 of such Code filed before March 16, 1984, or
"(ii) any qualified film placed in service by the taxpayer
before January 1, 1985, if -
"(I) 20 percent or more of the production costs of such film
were incurred before March 16, 1984, and
"(II) the taxpayer treats such film as recovery property for
purposes of section 168 of such Code.
No credit shall be allowable under section 38 of such Code with
respect to any qualified film described in clause (ii), except to
the extent provided in section 48(k) of such Code.
"(B) The amendment made by paragraph (2) and (3) of subsection
(b) [amending this section and sections 46 and 48 of this title]
shall apply as if included in the amendments made by section
201(a), 211(a)(1), and 211(f)(1) of the Economic Recovery Tax Act
of 1981 [sections 201(a), 211(a)(1), and 211(f)(1) of Pub. L. 97-
34, enacting this section and amending section 46 of this title].
"(C) The amendment made by paragraph (4) of subsection (b)
[amending section 48 of this title] shall take effect as if
included in the amendments made by section 205(a)(1) of the Tax
Equity and Fiscal Responsibility Act of 1982 [section 205(a)(1) of
Pub. L. 97-248, amending section 48 of this title].
"(D) For purposes of this paragraph, the terms 'qualified film'
and 'production costs' have the same respective meanings as when
used in section 48(k) of the Internal Revenue Code of 1986."
Amendment by section 474(r)(7) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 612(e) of Pub. L. 98-369 applicable to
interest paid or accrued after Dec. 31, 1984, on indebtedness
incurred after Dec. 31, 1984, see section 612(g) of Pub. L. 98-369,
set out as an Effective Date note under section 25 of this title.
Amendment by section 628(b) of Pub. L. 98-369 applicable to
property placed in service after Dec. 31, 1983, with certain
conditions and exceptions, see section 631(b) of Pub. L. 98-369,
set out as a note under section 103 of this title.
EFFECTIVE DATE OF 1983 AMENDMENTS
Amendment by title I of Pub. L. 97-448 effective, except as
otherwise provided, as if it had been included in the provision of
the Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
Section 102(a)(10)(B) of Pub. L. 97-448, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply with respect to property to which the provisions of section
168(f)(8) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] (as in effect before the amendments made by the Tax Equity
and Fiscal Responsibility Act of 1982 [Pub. L. 97-248]) apply."
Amendment by section 541 of Pub. L. 97-424 applicable to taxable
years beginning after Dec. 31, 1979, with a special rule for
periods beginning before Mar. 1, 1980, see section 541(c) of Pub.
L. 97-424, set out as a note under section 46 of this title.
EFFECTIVE DATE OF 1982 AMENDMENTS
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
Section 208(d) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(a)(4), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 98-
369, div. A, title X, Sec. 1067(a), July 18, 1984, 98 Stat. 1048;
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by subsections (a) and (b) of this
section [amending this section and section 47 of this title] shall
apply to agreements entered into after July 1, 1982, or to property
placed in service after July 1, 1982.
"(2) Transitional rule for certain safe harbor lease property. -
"(A) In general. - The amendments made by subsections (a) and
(b) [amending this section and section 47 of this title] shall
not apply to transitional safe harbor lease property.
"(B) Special rule for certain provisions. - Subparagraph (A)
shall not apply with respect to the provisions of paragraph (6)
of section 168(i) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as added by subsection (a)(1)), to the provisions
of section 168(f)(8)(J) of such Code (as added by subsection
(b)(4)), or to the amendment made by subsection (b)(1).
"(3) Transitional safe harbor lease property. - For purposes of
this subsection, the term 'transitional safe harbor lease property'
means property described in any of the following subparagraphs:
"(A) In general. - Property is described in this subparagraph
if such property is placed in service before January 1, 1983, if -
"(i) with respect to such property a binding contract to
acquire or to construct such property was entered into by the
lessee after December 31, 1980, and before July 2, 1982, or
"(ii) such property was acquired by the lessee, or
construction of such property was commenced by or for the
lessee, after December 31, 1980, and before July 2, 1982.
"(B) Certain qualified lessees. - Property is described in this
subparagraph if such property is placed in service before July 1,
1982, and with respect to which -
"(i) an agreement to which section 168(f)(8)(A) of the
Internal Revenue Code of 1986 applies was entered into before
August 15, 1982, and
"(ii) the lessee under such agreement is a qualified lessee
(within the meaning of paragraph (6)).
"(C) Automotive manufacturing property. -
"(i) In general. - Property is described in this subparagraph
if -
"(I) such property is used principally by the taxpayer
directly in connection with the trade or business of the
taxpayer of the manufacture of automobiles or light-duty
trucks,
"(II) such property is automotive manufacturing property,
and
"(III) such property would be described in subparagraph (A)
if 'October 1' were substituted for 'January 1'.
"(ii) Light-duty truck. - For purposes of this subparagraph,
the term 'light-duty truck' means any truck with a gross
vehicle weight of 13,000 pounds or less. Such term shall not
include any truck tractor.
"(iii) Automotive manufacturing property. - For purposes of
this subparagraph, the term 'automotive manufacturing property'
means machinery, equipment, and special tools of the type
included in the former asset depreciation range guideline
classes 37.11 and 37.12.
"(iv) Special tools used by certain vendors. - For purposes
of this subparagraph, any special tools owned by a taxpayer
described in subclause (I) of clause (i) which are used by a
vendor solely for the production of component parts for sale to
the taxpayer shall be treated as automotive manufacturing
property used directly by such taxpayer.
"(D) Certain aircraft. - Property is described in this
subparagraph if such property -
"(i) is a commercial passenger aircraft (other than a
helicopter), and
"(ii) would be described in subparagraph (A) if 'January 1,
1984' were substituted for 'January 1, 1983'.
For purposes of determining whether property described in this
subparagraph is described in subparagraph (A), subparagraph
(A)(ii) shall be applied by substituting 'June 25, 1981' for
'December 31, 1980' and by substituting 'February 20, 1982' for
'July 2, 1982' and construction of the aircraft shall be treated
as having been begun during the period referred to in
subparagraph (A)(ii) if during such period construction or
reconstruction of a subassembly was commenced, or the stub wing
join occurred.
"(E) Turbines and boilers. - Property is described in this
subparagraph if such property -
"(i) is a turbine or boiler of a cooperative organization
engaged in the furnishing of electric energy to persons in
rural areas, and
"(ii) would be property described in subparagraph (A) if
'July 1' were substituted for 'January 1'.
For purposes of determining whether property described in this
subparagraph is described in subparagraph (A), such property
shall be treated as having been acquired during the period
referred to in subparagraph (A)(ii) if at least 20 percent of the
cost of such property is paid during such period.
"(F) Property used in the production of steel. - Property is
described in this subparagraph if such property -
"(i) is used by the taxpayer directly in connection with the
trade or business of the taxpayer of the manufacture or
production of steel, and
"(ii) would be described in subparagraph (A) if 'January 1,
1984' were substituted for 'January 1, 1983'.
"(G) Coal gasification facilities. -
"(i) In general. - Property is described in this subparagraph
if such property -
"(I) is used directly in connection with the manufacture or
production of low sulfur gaseous fuel from coal, and
"(II) would be described in subparagraph (A) if 'July 1,
1984' were substituted for 'January 1, 1983'.
"(ii) Special rule. - For purposes of determining whether
property described in this subparagraph is described in
subparagraph (A), such property shall be treated as having been
acquired during the period referred to in subparagraph (A)(ii)
if at least 20 percent of the cost of such property is paid
during such period.
"(iii) Limitation on amount. - Clause (i) shall only apply to
the lease of an undivided interest in the property in an amount
which does not exceed the lesser of -
"(I) 50 percent of the cost basis of such property, or
"(II) $67,500,000.
"(iv) Placed in service. - In the case of property to which
this subparagraph applies -
"(I) such property shall be treated as placed in service
when the taxpayer receives an operating permit with respect
to such property from a State environmental protection
agency, and
"(II) the term of the lease with respect to such property
shall be treated as being 5 years.
"(4) Special rule for antiavoidance provisions. - The provisions
of paragraph (6) of section 168(i) of such Code (as added by
subsection (a)(1)), and the amendment made by subsection (b)(1)
[amending this section] shall apply to leases entered into after
February 19, 1982, in taxable years ending after such date.
"(5) Special rule for mass commuting vehicles. - The amendments
made by this section (other than section 168(i)(1) and (7) of such
Code, as added by subsection (a)(1) or section 168(f)(8)(J) of such
Code, as added by subsection (b)(4)) and section 209 [amending this
section and section 48 of this title] shall not apply to qualified
leased property described in section 168(f)(8)(D)(V) of such Code
(as in effect after the amendments made by this section) which -
"(A) is placed in service before January 1, 1988, or
"(B) is placed in service after such date -
"(i) pursuant to a binding contract or commitment entered
into before April 1, 1983, and
"(ii) solely because of conditions which, as determined by
the Secretary of the Treasury or his delegate, are not within
the control of the lessor or lessee.
"(6) Qualified lessee defined. -
"(A) In general. - The term 'qualified lessee' means a taxpayer
which is a lessee of an agreement to which section 168(f)(8)(A)
of such Code applies and which -
"(i) had net operating losses in each of the three most
recent taxable years ending before July 1, 1982, and had an
aggregate net operating loss for the five most recent taxable
years ending before July 1, 1982, and
"(ii) which uses the property subject to the agreement to
manufacture and produce within the United States a class of
products in an industry with respect to which -
"(I) the taxpayer produced less than 5 percent of the total
number of units (or value) of such products during the period
covering the three most recent taxable years of the taxpayer
ending before July 1, 1982, and
"(II) four or fewer United States persons (including as one
person an affiliated group as defined in section 1504(a))
other than the taxpayer manufactured 85 percent or more of
the total number of all units (or value) within such class of
products manufactured and produced in the United States
during such period.
"(B) Class of products. - For purposes of subparagraph (A) -
"(i) the term 'class of products' means any of the categories
designated and numbered as a 'class of products' in the 1977
Census of Manufacturers compiled and published by the Secretary
of Commerce under title 13 of the United States Code, and
"(ii) information -
"(I) compiled or published by the Secretary of Commerce, as
part of or in connection with the Statistical Abstract of the
United States or the Census of Manufacturers, regarding the
number of units (or value) of a class of products
manufactured and produced in the United States during any
period, or
"(II) if information under subclause (I) is not available,
so compiled or published with respect to the number of such
units shipped or sold by such manufacturers during any
period,
shall constitute prima facie evidence of the total number of all
units of such class of products manufactured and produced in the
United States in such period.
"(6) Underpayments of tax for 1982. - No addition to the tax
shall be made under section 6655 of the Internal Revenue Code of
1954 (relating to failure by corporation to pay estimated income
tax) for any period before October 15, 1982, with respect to any
underpayment of estimated tax by a taxpayer with respect to any tax
imposed by chapter 1 of such Code to the extent that such
underpayment was created or increased by any provision of this
section.
"(7) Coordination with at risk rules. - Subparagraph (J) of
section 168(f)(8) of the Internal Revenue Code of 1986 (as added by
subsection (b)(4)) shall take effect as provided in such
subparagraph (J)."
[Section 1067(c) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [enacting section 208(d)(3)(G) of Pub. L. 97-
248, set out above] shall take effect as if included in the
provision of section 208(d)(3) of the Tax Equity and Fiscal
Responsibility Act of 1982 [Pub. L. 97-248]."
Section 209(d) of Pub. L. 97-248; as amended by Pub. L. 98-369,
div. A, title I, Sec. 12(a)(1), (2), July 18, 1984, 98 Stat. 503,
provided that:
"(1) Subsection (a). -
"(A) In general. - Except as provided in subparagraph (B) and
paragraph (2), the amendments made by this section [amending this
section and section 48 of this title] shall apply to agreements
entered into after December 31, 1987.
"(B) Special rule for farm property aggregating $150,000 or
less. -
"(i) In general. - The amendments made by subsection (a)
[amending this section] shall also apply to any agreement
entered into after July 1, 1982, and before January 1, 1988, if
the property subject to such agreement is section 38 property
which is used for farming purposes (within the meaning of
section 2032A(e)(5)).
"(ii) $150,000 limitation. - The provisions of clause (i)
shall not apply to any agreement if the sum of -
"(I) the cost basis of the property subject to the
agreement, plus
"(II) the cost basis of any property subject to an
agreement to which this subparagraph previously applied,
which was entered into during the same calendar year, and
with respect to which the lessee was the lessee of the
agreement described in subclause (I) (or any related person
within the meaning of section 168(e)(4)(D)),
exceeds $150,000. For purposes of subclause (II), in the case of
an individual, there shall not be taken into account any
agreement of any individual who is a related person involving
property which is used in a trade or business of farming of such
related person which is separate from the trade or business of
farming of the lessee described in subclause (II).
"(2) Special rule for definition of new section 38 property. -
The amendment made by subsection (c) [amending section 48 of this
title] shall apply to property placed in service after December 31,
1983."
Section 216(b) of Pub. L. 97-248, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section] shall apply with respect to property placed in service
after December 31, 1982, to the extent such property is financed by
the proceeds of an obligation (including a refunding obligation)
issued after June 30, 1982.
"(2) Exceptions. -
"(A) Construction or binding agreement. - The amendments made
by this section [amending this section] shall not apply with
respect to facilities the original use of which commences with
the taxpayer and -
"(i) the construction, reconstruction, or rehabilitation of
which began before July 1, 1982, or
"(ii) with respect to which a binding agreement to incur
significant expenditures was entered into before July 1, 1982.
"(B) Refunding. -
"(i) In general. - Except as provided in clause (ii), in the
case of property placed in service after December 31, 1982
which is financed by the proceeds of an obligation which is
issued solely to refund another obligation which was issued
before July 1, 1982, the amendments made by this section
[amending this section] shall apply only with respect to the
basis in such property which has not been recovered before the
date such refunding obligation is issued.
"(ii) Significant expenditures. - In the case of facilities
the original use of which commences with the taxpayer and with
respect to which significant expenditures are made before
January 1, 1983, the amendments made by this section shall not
apply with respect to such facilities to the extent such
facilities are financed by the proceeds of an obligation issued
solely to refund another obligation which was issued before
July 1, 1982.
In the case of an inducement resolution adopted by an issuing
authority before July 1, 1982, for purposes of applying
subparagraphs (A)(i) and (B)(ii) with respect to obligations
described in such resolution, the term 'facilities' means the
facilities described in such resolution.
"(3) Certain projects for residential real property. - For
purposes of clause (i) of section 168(f)(12)(C) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as added by this
section), any obligation issued to finance a project described in
the table contained in paragraph (1) of section 1104(n) of the
Mortgage Subsidy Bond Tax Act of 1980 [section 1104(n) of Pub. L.
96-499, set out as a note under section 103A of this title] shall
be treated as an obligation described in section 103(b)(4)(A) of
the Internal Revenue Code of 1986."
Amendment by section 224(c)(1), (2) of Pub. L. 97-248 to apply to
any target corporation, within the meaning of section 338 of this
title, with respect to which the acquisition date, within the
meaning of such section, occurs after Aug. 31, 1982, and also to
apply to certain acquisitions before September 1, 1982, but not to
apply in the case of certain acquisitions of financial
institutions, see section 224(d) of Pub. L. 97-248, set out as an
Effective Date note under section 338 of this title.
EFFECTIVE DATE
Section 209(a)-(c) of Pub. L. 97-34, as amended by Pub. L. 97-
448, title I, Sec. 102(d)(1), (g), Jan. 12, 1983, 96 Stat. 2370;
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this subtitle [subtitle A (Secs.
201-209) of title II of Pub. L. 97-34, enacting this section,
amending sections 44E, 46, 50A, 53, 57, 167, 172, 179, 263, 312,
381, 453, 812, 825, 964, 1033, 1245, and 1250 of this title, and
enacting provisions set out as notes under this section and
sections 46 and 167 of this title] shall apply to property placed
in service after December 31, 1980, in taxable years ending after
such date.
"(b) Special Rule for RRB Property. - The amendment made by
subsection (c) of section 203 [amending section 167 of this title
and enacting provisions set out as notes under section 167 of this
title] shall take effect on January 1, 1981, and shall apply with
respect to taxable years ending after such date.
"(c) Special Rule for Carryovers. -
"(1)(A) Except as provided in subparagraph (B), the amendments
made by subsections (a) and (b) of section 207 [amending sections
172, 812, and 825 of this title] shall apply to net operating
losses in taxable years ending after December 31, 1975.
"(B) The amendments made by subparagraph (B)(i) of section
207(a)(2) [amending section 172 of this title] shall take effect
as if they had been included in the amendments made by section
1(a) of Public Law 96-595 [amending section 172 of this title];
except that the amendments made by such subparagraph shall apply
only to net operating losses in taxable years ending after
December 31, 1972.
"(C) If any net operating loss for any taxable year ending on
or before December 31, 1975, could be a net operating loss
carryover to a taxable year ending in 1981 by reason of subclause
(II) of section 172(b)(1)(E)(ii) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] (as in effect on the day before the
date of the enactment of this Act [Aug. 13, 1981] and as modified
by section 1(b) of Public Law 96-595 [set out as an Effective
Date of 1980 Amendment note under section 172 of this title]),
such net operating loss shall be a net operating loss carryover
under section 172 of such Code to each of the 15 taxable years
following the taxable year of such loss.
"(2)(A) The amendments made by subsection (c)(1) of section 207
[amending sections 46 and 50A of this title] shall apply to
unused credit years ending after December 31, 1973.
"(B) The amendment made by subsection (c)(2) of section 207
[amending section 53 of this title] shall apply to unused credit
years beginning after December 31, 1976.
"(C) The amendments made by subsection (c)(3) of section 207
[amending section 44E of this title] shall apply to unused credit
years ending after September 30, 1980.
"(3) Carryover must have been alive in 1981. - The amendments
made by subsections (a), (b), and (c) of section 207 [amending
sections 44E, 46, 50A, 53, 172, 812, and 825 of this title] shall
not apply to any amount which, under the law in effect on the day
before the date of the enactment of this Act [Aug. 13, 1981],
could not be carried to a taxable year ending in 1981."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
DEPRECIATION STUDY
Pub. L. 105-277, div. J, title II, Sec. 2022, Oct. 21, 1998, 112
Stat. 2681-903, provided that: "The Secretary of the Treasury (or
the Secretary's delegate) -
"(1) shall conduct a comprehensive study of the recovery
periods and depreciation methods under section 168 of the
Internal Revenue Code of 1986, and
"(2) not later than March 31, 2000, shall submit the results of
such study, together with recommendations for determining such
periods and methods in a more rational manner, to the Committee
on Ways and Means of the House of Representatives and the
Committee on Finance of the Senate."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TREATMENT OF CERTAIN FARM FINANCE LEASES
Section 1801(a)(2) of Pub. L. 99-514, as amended by Pub. L. 100-
647, title I, Sec. 1018(a), Nov. 10, 1988, 102 Stat. 3577,
provided that:
"(A) In general. - If -
"(i) any partnership or grantor trust is the lessor under a
specified agreement,
"(ii) such partnership or grantor trust met the requirements of
section 168(f)(8)(C)(i) of the Internal Revenue Code of 1954
(relating to special rules for finance leases) when the agreement
was entered into, and
"(iii) a person became a partner in such partnership (or a
beneficiary in such trust) after its formation but before
September 26, 1985,
then, for purposes of applying the revenue laws of the United
States in respect to such agreement, the portion of the property
allocable to partners (or beneficiaries) not described in clause
(iii) shall be treated as if it were subject to a separate
agreement and the portion of such property allocable to the partner
or beneficiary described in clause (iii) shall be treated as if it
were subject to a separate agreement.
"(B) Specified agreement. - For purposes of subparagraph (A), the
term 'specified agreement' means an agreement to which subparagraph
(B) of section 209(d)[(1)] of the Tax Equity and Fiscal
Responsibility Act of 1982 [section 209(d)(1) of Pub. L. 97-248,
set out as a note above] applies which is -
"(i) an agreement dated as of December 20, 1982, as amended and
restated as of February 1, 1983, involving approximately
$8,734,000 of property at December 31, 1983,
"(ii) an agreement dated as of December 15, 1983, as amended
and restated as of January 3, 1984, involving approximately
$13,199,000 of property at December 31, 1984, or
"(iii) an agreement dated as of October 25, 1984, as amended
and restated as of December 1, 1984, involving approximately
$966,000 of property at December 31, 1984."
CERTAIN RESIDENTIAL REAL PROPERTY TREATED AS RESIDENTIAL RENTAL
PROPERTY
Section 1809(a)(4)(C) of Pub. L. 99-514 provided that: "Any
property described in paragraph (3) of section 631(d) of the Tax
Reform Act of 1984 [section 631(d) of Pub. L. 99-369, set out as a
note under section 103 of this title] shall be treated as property
described in clause (ii) of section 168(f)(12)(C) of the Internal
Revenue Code of 1954 [now 1986] as amended by subparagraph (B)."
COORDINATION WITH IMPUTED INTEREST CHANGES
Section 1809(a)(5) of Pub. L. 99-514 provided that: "In the case
of any property placed in service before May 9, 1985 (or treated as
placed in service before such date by section 105(b)(3) of Public
Law 99-121 [set out as a note above]) -
"(A) any reference in any amendment made by this subsection
[amending this section and sections 57 and 312 of this title] to
19-year real property shall be treated as a reference to 18-year
real property, and
"(B) section 168(f)(12)(B)(ii) of the Internal Revenue Code of
1954 [now 1986] (as amended by paragraph (4)(A)) shall be applied
by substituting '18 years' for '19 years'."
TERMINATION OF SAFE HARBOR LEASING RULES
Section 12(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Paragraph
(8) of section 168(f) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (relating to special rules for leasing), as
in effect after the amendments made by section 208 of the Tax
Equity and Fiscal Responsibility Act of 1982 [Pub. L. 97-248] but
before the amendments made by section 209 of such Act, shall not
apply to agreements entered into after December 31, 1983. The
preceding sentence shall not apply to property described in
paragraph (3)(G) or (5) of section 208(d) of such Act [set out as
an Effective Date of 1982 Amendments note above]."
TRANSITIONAL RULES FOR 1984 AMENDMENT
Section 12(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1801(a)(1), Oct. 22, 1986, 100 Stat.
2095, 2785; Pub. L. 100-647, title I, Sec. 1002(d)(7)(B), Nov. 10,
1988, 102 Stat. 3360, provided that:
"(1) In general. - The amendments made by subsection (a)
[amending this section and section 208(d) of Pub. L. 97-248, set
out as an Effective Date of 1982 Amendments note above] shall not
apply with respect to any property if -
"(A) a binding contract to acquire or to construct such
property was entered into by or for the lessee before March 7,
1984, or
"(B) such property was acquired by the lessee, or the
construction of such property was begun, by or for the lessee,
before March 7, 1984.
The preceding sentence shall not apply to any property with respect
to which an election is made under this sentence at such time after
the date of the enactment of the Tax Reform Act of 1986 [Oct. 22,
1986] as the Secretary of the Treasury or his delegate may
prescribe.
"(2) Special rule for certain automotive property. -
"(A) In general. - The amendments made by subsection (a) shall
not apply to property -
"(i) which is automotive manufacturing property, and
"(ii) with respect to which the lessee is a qualified lessee
(within the meaning of section 208(d)(6) of the Tax Equity and
Fiscal Responsibility Act of 1982) [Pub. L. 97-248, set out as
an Effective Date of 1982 Amendments note above].
"(B) $150,000,000 limitation. - The provisions of subparagraph
(A) shall not apply to any agreement if the sum of -
"(i) the cost basis of the property subject to the agreement,
plus
"(ii) the cost basis of any property subject to an agreement
to which subparagraph (A) previously applied and with respect
to which the lessee was the lessee under the agreement
described in clause (i) (or any related person within the
meaning of section 168(e)(4)(D) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954]),
exceeds $150,000,000.
"(C) Automotive manufacturing property. - For purposes of this
paragraph, the term 'automotive manufacturing property' means -
"(i) property used principally by the taxpayer directly in
connection with the trade or business of the taxpayer of the
manufacturing of automobiles or trucks (other than truck
tractors) with a gross vehicle weight of 13,000 pounds or less,
"(ii) machinery, equipment, and special tools of the type
included in former depreciation range guideline classes 37.11
and 37.12, and
"(iii) any special tools owned by the taxpayer which are used
by a vendor solely for the production of component parts for
sale to the taxpayer.
"(3) Special rule for certain cogeneration facilities. - The
amendments made by subsection (a) shall not apply with respect to
any property which is part of a coal-fired cogeneration facility -
"(A) for which an application for certification was filed with
the Federal Energy Regulatory Commission on December 30, 1983,
"(B) for which an application for a construction permit was
filed with a State environmental protection agency on February
20, 1984, and
"(C) which is placed in service before January 1, 1988."
SPECIAL LEASING RULE REGARDING COAL GASIFICATION FACILITIES
Section 1067(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The amount
of any recapture under section 47 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] with respect to the credit allowed
under section 38 of such Code with respect to progress expenditures
(within the meaning of section 46(d) of such Code) shall apply only
to the percentage of the cost basis of the coal gasification
facility to which the amendment made by subsection (a) [amending
section 208(d) of Pub. L. 97-248, set out as an Effective Date of
1982 Amendments note above] applies."
CERTAIN LEASES BEFORE OCTOBER 20, 1981, TREATED AS QUALIFIED LEASES
Section 208(c) of Pub. L. 97-248, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Nothing in
paragraph (8) of section 168(f) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954], or in any regulations prescribed
thereunder, shall be treated as making such paragraph inapplicable
to any agreement entered into before October 20, 1981, solely
because under such agreement 1 party to such agreement is entitled
to the credit allowable under section 38 of such Code with respect
to property and another party to such agreement is entitled to the
deduction allowable under section 168 of such Code with respect to
such property. Section 168(f)(8)(B)(ii) of such Code shall not
apply to the party entitled to such credit."
MOTOR VEHICLE OPERATING LEASES
Section 210 of Pub. L. 97-248, as amended by Pub. L. 98-369, div.
A, title I, Sec. 32(b), title VII, Sec. 712(d), July 18, 1984, 98
Stat. 531, 947; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat.
2095, provided that:
"(a) In general. - In the case of any qualified motor vehicle
agreement entered into on or before the 90th day after the date of
the enactment of the Tax Reform Act of 1984 [July 18, 1984], the
fact that such agreement contains a terminal rental adjustment
clause shall not be taken into account in determining whether such
agreement is a lease.
"(b) Definitions. - For purposes of this section -
"(1) Qualified motor vehicle agreement. - The term 'qualified
motor vehicle agreement' means any agreement with respect to a
motor vehicle (including a trailer) -
"(A) which was entered into before -
"(i) the enactment of any law, or
"(ii) the publication by the Secretary of the Treasury or
his delegate of any regulation,
which provides that any agreement with a terminal rental
adjustment clause is not a lease,
"(B) with respect to which the lessor under the agreement -
"(i) is personally liable for the repayment of, or
"(ii) has pledged property (but only to the extent of the
net fair market value of the lessor's interest in such
property), other than property subject to the agreement or
property directly or indirectly financed by indebtedness
secured by property subject to the agreement, as security
for,
all amounts borrowed to finance the acquisition of property
subject to the agreement, and
"(C) with respect to which the lessee under the agreement
uses the property subject to the agreement in a trade or
business or for the production of income.
"(2) Terminal rental adjustment clause. - The term 'terminal
rental adjustment clause' means a provision of an agreement which
permits or requires the rental price to be adjusted upward or
downward by reference to the amount realized by the lessor under
the agreement upon sale or other disposition of such property.
Such term also includes a provision of an agreement which
requires a lessee who is a dealer in motor vehicles to purchase
the motor vehicle for a predetermined price and then resell such
vehicle where such provision achieves substantially the same
results as a provision described in the preceding sentence.
"(c) Exception Where Lessee Took Position on Return. - Subsection
(a) shall not apply to deny a deduction for interest paid or
accrued claimed by a lessee with respect to a qualified motor
vehicle agreement on a return of tax imposed by chapter 1 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] which was
filed before the date of the enactment of this Act [Sept. 3, 1982]
or to deny a credit for investment in depreciable property claimed
by the lessee on such a return pursuant to an agreement with the
lessor that the lessor would not claim the credit."
INFORMATION RETURNS WITH RESPECT TO SAFE HARBOR LEASES
Pub. L. 97-119, title I, Sec. 112, Dec. 29, 1981, 95 Stat. 1640,
as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat.
2095, provided that:
"(a) Requirement of Return. -
"(1) In general. - Except as provided in paragraph (2),
paragraph (8) of section 168(f) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] (relating to special rule for leases)
shall not apply with respect to an agreement unless a return,
signed by the lessor and lessee and containing the information
required to be included in the return pursuant to subsection (b),
has been filed with the Internal Revenue Service not later than
the 30th day after the date on which the agreement is executed.
"(2) Special rules for agreements executed before january 1,
1982. -
"(A) In general. - In the case of an agreement executed
before January 1, 1982, such agreement shall cease on February
1, 1982, to be treated as a lease under section 168(f)(8)
unless a return, signed by the lessor and containing the
information required to be included in subsection (b), has been
filed with the Internal Revenue Service not later than January
31, 1982.
"(B) Filing by lessee. - If the lessor does not file a return
under subparagraph (A), the return requirement under
subparagraph (A) shall be satisfied if such return is filed by
the lessee before January 31, 1982.
"(3) Certain failure to file. - If -
"(A) a lessor or lessee fails to file any return within the
time prescribed by this subsection, and
"(B) such failure is shown to be due to reasonable cause and
not due to willful neglect,
the lessor or lessee shall be treated as having filed a timely
return if a return is filed within a reasonable time after the
failure is ascertained.
"(b) Information Required. - The information required to be
included in the return pursuant to this subsection is as follows:
"(1) The name, address, and taxpayer identifying number of the
lessor and the lessee (and parent company if a consolidated
return is filed);
"(2) The district director's office with which the income tax
returns of the lessor and lessee are filed;
"(3) A description of each individual property with respect to
which the election is made;
"(4) The date on which the lessee places the property in
service, the date on which the lease begins and the term of the
lease;
"(5) The recovery property class and the ADR midpoint life of
the leased property;
"(6) The payment terms between the parties to the lease
transaction;
"(7) Whether the ACRS deductions and the investment tax credit
are allowable to the same taxpayer;
"(8) The aggregate amount paid to outside parties to arrange or
carry out the transaction;
"(9) For the lessor only: the unadjusted basis of the property
as defined in section 168(d)(1);
"(10) For the lessor only: if the lessor is a partnership or a
grantor trust, the name, address, and taxpayer identifying number
of the partners or the beneficiaries, and the district director's
office with which the income tax return of each partner or
beneficiary is filed; and
"(11) Such other information as may be required by the return
or its instructions.
Paragraph (8) shall not apply with respect to any person for any
calendar year if it is reasonable to estimate that the aggregate
adjusted basis of the property of such person which will be subject
to subsection (a) for such year is $1,000,000 or less.
"(c) Coordination With Other Information Requirements. - In the
case of agreements executed after December 31, 1982, to the extent
provided in regulations prescribed by the Secretary of the Treasury
or his delegate, the provisions of this section shall be modified
to coordinate such provisions with the other information
requirements of the Internal Revenue Code of 1986."
REGULATED PUBLIC UTILITIES; SPECIAL TRANSITIONAL RULE FOR
NORMALIZATION REQUIREMENTS
Section 209(d)(1) of Pub. L. 97-34, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If, by the
terms of the applicable rate order last entered before the date of
the enactment of this Act [Aug. 13, 1981] by a regulatory
commission having appropriate jurisdiction, a regulated public
utility would (but for this provision) fail to meet the
requirements of section 168(e)(3) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] with respect to property because, for
an accounting period ending after December 31, 1980, such public
utility used a method of accounting other than a normalization
method of accounting, such regulated public utility shall not fail
to meet such requirements if, by the terms of its first rate order
determining cost of service with respect to such property which
becomes effective after the date of the enactment of this Act and
on or before January 1, 1983, such regulated public utility uses a
normalization method of accounting. This provision shall not apply
to any rate order which, under the rules in effect before the date
of the enactment of this Act, required a regulated public utility
to use a method of accounting with respect to the deduction
allowable by section 167 which, under section 167(l), it was not
permitted to use."
INTERIM REGULATIONS WITH RESPECT TO NORMALIZATION; AUTHORITY TO
PRESCRIBE
Section 209(d)(4) of Pub. L. 97-34, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Until
Congress acts further, the Secretary of the Treasury or his
delegate may prescribe such interim regulations as may be necessary
or appropriate to determine whether the requirements of section
168(e)(3)(B) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] have been met with respect to property placed in service
after December 31, 1980."
-FOOTNOTE-
(!1) So in original. Probably should be "property,".
(!2) So in original. The word "and" probably should not appear.
-End-
-CITE-
26 USC Sec. 169 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 169. Amortization of pollution control facilities
-STATUTE-
(a) Allowance of deduction
Every person, at his election, shall be entitled to a deduction
with respect to the amortization of the amortizable basis of any
certified pollution control facility (as defined in subsection
(d)), based on a period of 60 months. Such amortization deduction
shall be an amount, with respect to each month of such period
within the taxable year, equal to the amortizable basis of the
pollution control facility at the end of such month divided by the
number of months (including the month for which the deduction is
computed) remaining in the period. Such amortizable basis at the
end of the month shall be computed without regard to the
amortization deduction for such month. The amortization deduction
provided by this section with respect to any month shall be in lieu
of the depreciation deduction with respect to such pollution
control facility for such month provided by section 167. The 60-
month period shall begin, as to any pollution control facility, at
the election of the taxpayer, with the month following the month in
which such facility was completed or acquired, or with the
succeeding taxable year.
(b) Election of amortization
The election of the taxpayer to take the amortization deduction
and to begin the 60-month period with the month following the month
in which the facility is completed or acquired, or with the taxable
year succeeding the taxable year in which such facility is
completed or acquired, shall be made by filing with the Secretary,
in such manner, in such form, and within such time, as the
Secretary may by regulations prescribe, a statement of such
election.
(c) Termination of amortization deduction
A taxpayer which has elected under subsection (b) to take the
amortization deduction provided in subsection (a) may, at any time
after making such election, discontinue the amortization deduction
with respect to the remainder of the amortization period, such
discontinuance to begin as of the beginning of any month specified
by the taxpayer in a notice in writing filed with the Secretary
before the beginning of such month. The depreciation deduction
provided under section 167 shall be allowed, beginning with the
first month as to which the amortization deduction does not apply,
and the taxpayer shall not be entitled to any further amortization
deduction under this section with respect to such pollution control
facility.
(d) Definitions and special rules
For purposes of this section -
(1) Certified pollution control facility
The term "certified pollution control facility" means a new
identifiable treatment facility which is used, in connection with
a plant or other property in operation before January 1, 1976, to
abate or control water or atmospheric pollution or contamination
by removing, altering, disposing, storing, or preventing the
creation or omission of pollutants, contaminants, wastes, or heat
and which -
(A) the State certifying authority having jurisdiction with
respect to such facility has certified to the Federal
certifying authority as having been constructed, reconstructed,
erected, or acquired in conformity with the State program or
requirements for abatement or control of water or atmospheric
pollution or contamination;
(B) the Federal certifying authority has certified to the
Secretary (i) as being in compliance with the applicable
regulations of Federal agencies and (ii) as being in
furtherance of the general policy of the United States for
cooperation with the States in the prevention and abatement of
water pollution under the Federal Water Pollution Control Act,
as amended (33 U.S.C. 466 et seq.), or in the prevention and
abatement of atmospheric pollution and contamination under the
Clean Air Act, as amended (42 U.S.C. 1857 et seq.); and
(C) does not significantly -
(i) increase the output or capacity, extend the useful
life, or reduce the total operating costs of such plant or
other property (or any unit thereof), or
(ii) alter the nature of the manufacturing or production
process or facility.
(2) State certifying authority
The term "State certifying authority" means, in the case of
water pollution, the State water pollution control agency as
defined in section 13(a) of the Federal Water Pollution Control
Act and, in the case of air pollution, the air pollution control
agency as defined in section 302(b) of the Clean Air Act. The
term "State certifying authority" includes any interstate agency
authorized to act in place of a certifying authority of the
State.
(3) Federal certifying authority
The term "Federal certifying authority" means, in the case of
water pollution, the Secretary of the Interior and, in the case
of air pollution, the Secretary of Health and Human Services.
(4) New identifiable treatment facility
(A) In general
For purposes of paragraph (1), the term "new identifiable
treatment facility" includes only tangible property (not
including a building and its structural components, other than
a building which is exclusively a treatment facility) which is
of a character subject to the allowance for depreciation
provided in section 167, which is identifiable as a treatment
facility, and which is property -
(i) the construction, reconstruction, or erection of which
is completed by the taxpayer after December 31, 1968, or
(ii) acquired after December 31, 1968, if the original use
of the property commences with the taxpayer and commences
after such date.
In applying this section in the case of property described in
clause (i) there shall be taken into account only that portion
of the basis which is properly attributable to construction,
reconstruction, or erection after December 31, 1968.
(B) Certain facilities placed in operation after April 11, 2005
In the case of any facility described in paragraph (1) solely
by reason of paragraph (5), subparagraph (A) shall be applied
by substituting "April 11, 2005" for "December 31, 1968" each
place it appears therein.
(5) Special rule relating to certain atmospheric pollution
control facilities
In the case of any atmospheric pollution control facility which
is placed in service after April 11, 2005, and used in connection
with an electric generation plant or other property which is
primarily coal fired -
(A) paragraph (1) shall be applied without regard to the
phrase "in operation before January 1, 1976", and
(B) in the case of facility (!1) placed in service in
connection with a plant or other property placed in operation
after December 31, 1975, this section shall be applied by
substituting "84" for "60" each place it appears in subsections
(a) and (b).
(e) Profitmaking abatement works, etc.
The Federal certifying authority shall not certify any property
under subsection (d)(1)(B) to the extent it appears that by reason
of profits derived through the recovery of wastes or otherwise in
the operation of such property, its costs will be recovered over
its actual useful life.
(f) Amortizable basis
(1) Defined
For purposes of this section, the term "amortizable basis"
means that portion of the adjusted basis (for determining gain)
of a certified pollution control facility which may be amortized
under this section.
(2) Special rules
(A) If a certified pollution control facility has a useful
life (determined as of the first day of the first month for
which a deduction is allowable under this section) in excess of
15 years, the amortizable basis of such facility shall be equal
to an amount which bears the same ratio to the portion of the
adjusted basis of such facility, which would be eligible for
amortization but for the application of this subparagraph, as
15 bears to the number of years of useful life of such
facility.
(B) The amortizable basis of a certified pollution control
facility with respect to which an election under this section
is in effect shall not be increased, for purposes of this
section, for additions or improvements after the amortization
period has begun.
(g) Depreciation deduction
The depreciation deduction provided by section 167 shall, despite
the provisions of subsection (a), be allowed with respect to the
portion of the adjusted basis which is not the amortizable basis.
[(h) Repealed. Pub. L. 92-178, title I, Sec. 104(f)(2), Dec. 10,
1971, 85 Stat. 502]
(i) Life tenant and remainderman
In the case of property held by one person for life with
remainder to another person, the deduction under this section shall
be computed as if the life tenant were the absolute owner of the
property and shall be allowable to the life tenant.
(j) Cross reference
For special rule with respect to certain gain derived from
the disposition of property the adjusted basis of which is
determined with regard to this section, see section 1245.
-SOURCE-
(Added Pub. L. 91-172, title VII, Sec. 704(a), Dec. 30, 1969, 83
Stat. 667; amended Pub. L. 92-178, title I, Sec. 104(f)(2), Dec.
10, 1971, 85 Stat. 502; Pub. L. 93-625, Sec. 3(a), Jan. 3, 1975, 88
Stat. 2109; Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), title
XXI, Sec. 2112(b), (c), Oct. 4, 1976, 90 Stat. 1834, 1906; Pub. L.
109-58, title XIII, Sec. 1309(a)-(d), Aug. 8, 2005, 119 Stat. 1007;
Pub. L. 109-135, title IV, Sec. 402(e), Dec. 21, 2005, 119 Stat.
2611.)
-REFTEXT-
REFERENCES IN TEXT
The Federal Water Pollution Control Act, as amended (33 U.S.C.
466 et seq.), referred to in subsec. (d)(1)(B), is act June 30,
1948, ch. 758, as amended generally by Pub. L. 92-500, Sec. 2, Oct.
18, 1972, 86 Stat. 816, which is classified generally to chapter 26
(Sec. 1251 et seq.) of Title 33, Navigation and Navigable Waters.
The subject matter of section 13(a) of the act, referred to in
subsec. (d)(2), is covered by section 1362(1) of Title 33. For
complete classification of this Act to the Code, see Short Title
note set out under section 1251 of Title 33 and Tables.
The Clean Air Act, referred to in subsec. (d)(1)(B), is act July
14, 1955, ch. 360, 69 Stat. 322, as amended, which is classified
generally to chapter 85 (Sec. 7401 et seq.) of Title 42, The Public
Health and Welfare. For complete classification of this Act to the
Code, see Short Title note set out under section 7401 of Title 42
and Tables.
Section 302(b) of the Clean Air Act, referred to in subsec.
(d)(2), formerly classified to section 1857h(b) of Title 42, was
reclassified to section 7602(b) of Title 42 on enactment of Pub. L.
95-95.
-MISC1-
PRIOR PROVISIONS
A prior section 169, act Aug. 16, 1954, ch. 736, 68A Stat. 55,
related to amortization of grain-storage facilities, prior to the
reorganization of part VI of subchapter B of chapter 1 of this
title by Pub. L. 91-172.
AMENDMENTS
2005 - Subsec. (d). Pub. L. 109-58, Sec. 1309(c), inserted "and
special rules" after "Definitions" in heading.
Subsec. (d)(3). Pub. L. 109-58, Sec. 1309(d), substituted "Health
and Human Services" for "Health, Education, and Welfare".
Subsec. (d)(4)(B). Pub. L. 109-58, Sec. 1309(b), amended heading
and text of subpar. (B) generally. Prior to amendment, text read as
follows: "In the case of any treatment facility used in connection
with any plant or other property not in operation before January 1,
1969, the preceding sentence shall be applied by substituting
December 31, 1975, for December 31, 1968."
Subsec. (d)(5). Pub. L. 109-58, Sec. 1309(a), added par. (5).
Subsec. (d)(5)(B). Pub. L. 109-135 inserted "in the case of
facility placed in service in connection with a plant or other
property placed in operation after December 31, 1975," before "this
section".
1976 - Subsecs. (b), (c). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (d)(1). Pub. L. 94-455, Secs. 1906(b)(13)(A), 2112(b),
substituted in provisions preceding subpar. (A) "January 1, 1976,"
for "January 1, 1969," and "storing, or preventing the creation or
emission of" for "or storing", struck out in subpar. (B) "or his
delegate" after "Secretary", and added subpar. (C).
Subsec. (d)(4). Pub. L. 94-455, Sec. 2112(c), among other
changes, struck out provisions relating to treatment facilities
placed in service by taxpayer before Jan. 1, 1976, and inserted
provisions that in case of treatment facilities used in connection
with any plan or other property not in operation before Jan. 1,
1969, Dec. 31, 1975, shall be substituted for Dec. 31, 1968, as the
cut-off date for taking into account that portion of the basis
which is attributable to construction, reconstruction, or erection.
1975 - Subsec. (d)(4)(B). Pub. L. 93-625 substituted "January 1,
1976" for "January 1, 1975".
1971 - Subsec. (h). Pub. L. 92-178 struck out provision that
investment credit not be allowed. See section 48(a)(8) of this
title.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the Energy Policy Act of 2005, Pub. L. 109-58, to
which such amendment relates, see section 402(m)(1) of Pub. L. 109-
135, set out as an Effective and Termination Dates of 2005
Amendments note under section 23 of this title.
Pub. L. 109-58, title XIII, Sec. 1309(e), Aug. 8, 2005, 119 Stat.
1007, provided that: "The amendments made by this section [amending
this section] shall apply to facilities placed in service after
April 11, 2005."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2112(d)(2) of Pub. L. 94-455, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by subsection (b) [amending this section] shall
apply to taxable years beginning after December 31, 1975. Such
amendments shall not apply in the case of any property with respect
to which the amortization period under section 169 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] has begun before
January 1, 1976."
EFFECTIVE DATE
Section 704(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [enacting this section and amending sections
642, 1082, 1245, and 1250 of this title] shall apply with respect
to taxable years ending after December 31, 1968."
-TRANS-
TRANSFER OF FUNCTIONS
Functions vested in Secretary of the Interior and Secretary of
Health, Education, and Welfare by subsec. (d)(1)(B), (3) of this
section transferred to Administrator of Environmental Protection
Agency by Reorg. Plan No. 3, of 1970, Sec. 2(a)(9), eff. Dec. 2,
1970, 35 F.R. 15623, 84 Stat. 2086, set out in the Appendix to
Title 5, Government Organization and Employees.
-FOOTNOTE-
(!1) So in original. Probably should be "a facility".
-End-
-CITE-
26 USC Sec. 170 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 170. Charitable, etc., contributions and gifts
-STATUTE-
(a) Allowance of deduction
(1) General rule
There shall be allowed as a deduction any charitable
contribution (as defined in subsection (c)) payment of which is
made within the taxable year. A charitable contribution shall be
allowable as a deduction only if verified under regulations
prescribed by the Secretary.
(2) Corporations on accrual basis
In the case of a corporation reporting its taxable income on
the accrual basis, if -
(A) the board of directors authorizes a charitable
contribution during any taxable year, and
(B) payment of such contribution is made after the close of
such taxable year and on or before the 15th day of the third
month following the close of such taxable year,
then the taxpayer may elect to treat such contribution as paid
during such taxable year. The election may be made only at the
time of the filing of the return for such taxable year, and shall
be signified in such manner as the Secretary shall by regulations
prescribe.
(3) Future interests in tangible personal property
For purposes of this section, payment of a charitable
contribution which consists of a future interest in tangible
personal property shall be treated as made only when all
intervening interests in, and rights to the actual possession or
enjoyment of, the property have expired or are held by persons
other than the taxpayer or those standing in a relationship to
the taxpayer described in section 267(b) or 707(b). For purposes
of the preceding sentence, a fixture which is intended to be
severed from the real property shall be treated as tangible
personal property.
(b) Percentage limitations
(1) Individuals
In the case of an individual, the deduction provided in
subsection (a) shall be limited as provided in the succeeding
subparagraphs.
(A) General rule
Any charitable contribution to -
(i) a church or a convention or association of churches,
(ii) an educational organization which normally maintains a
regular faculty and curriculum and normally has a regularly
enrolled body of pupils or students in attendance at the
place where its educational activities are regularly carried
on,
(iii) an organization the principal purpose or functions of
which are the providing of medical or hospital care or
medical education or medical research, if the organization is
a hospital, or if the organization is a medical research
organization directly engaged in the continuous active
conduct of medical research in conjunction with a hospital,
and during the calendar year in which the contribution is
made such organization is committed to spend such
contributions for such research before January 1 of the fifth
calendar year which begins after the date such contribution
is made,
(iv) an organization which normally receives a substantial
part of its support (exclusive of income received in the
exercise or performance by such organization of its
charitable, educational, or other purpose or function
constituting the basis for its exemption under section
501(a)) from the United States or any State or political
subdivision thereof or from direct or indirect contributions
from the general public, and which is organized and operated
exclusively to receive, hold, invest, and administer property
and to make expenditures to or for the benefit of a college
or university which is an organization referred to in clause
(ii) of this subparagraph and which is an agency or
instrumentality of a State or political subdivision thereof,
or which is owned or operated by a State or political
subdivision thereof or by an agency or instrumentality of one
or more States or political subdivisions,
(v) a governmental unit referred to in subsection (c)(1),
(vi) an organization referred to in subsection (c)(2) which
normally receives a substantial part of its support
(exclusive of income received in the exercise or performance
by such organization of its charitable, educational, or other
purpose or function constituting the basis for its exemption
under section 501(a)) from a governmental unit referred to in
subsection (c)(1) or from direct or indirect contributions
from the general public,
(vii) a private foundation described in subparagraph (E),
or
(viii) an organization described in section 509(a)(2) or
(3),
shall be allowed to the extent that the aggregate of such
contributions does not exceed 50 percent of the taxpayer's
contribution base for the taxable year.
(B) Other contributions
Any charitable contribution other than a charitable
contribution to which subparagraph (A) applies shall be allowed
to the extent that the aggregate of such contributions does not
exceed the lesser of -
(i) 30 percent of the taxpayer's contribution base for the
taxable year, or
(ii) the excess of 50 percent of the taxpayer's
contribution base for the taxable year over the amount of
charitable contributions allowable under subparagraph (A)
(determined without regard to subparagraph (C)).
If the aggregate of such contributions exceeds the limitation
of the preceding sentence, such excess shall be treated (in a
manner consistent with the rules of subsection (d)(1)) as a
charitable contribution (to which subparagraph (A) does not
apply) in each of the 5 succeeding taxable years in order of
time.
(C) Special limitation with respect to contributions described
in subparagraph (A) of certain capital gain property
(i) In the case of charitable contributions described in
subparagraph (A) of capital gain property to which subsection
(e)(1)(B) does not apply, the total amount of contributions
of such property which may be taken into account under
subsection (a) for any taxable year shall not exceed 30
percent of the taxpayer's contribution base for such year.
For purposes of this subsection, contributions of capital
gain property to which this subparagraph applies shall be
taken into account after all other charitable contributions
(other than charitable contributions to which subparagraph
(D) applies).
(ii) If charitable contributions described in subparagraph
(A) of capital gain property to which clause (i) applies
exceeds 30 percent of the taxpayer's contribution base for
any taxable year, such excess shall be treated, in a manner
consistent with the rules of subsection (d)(1), as a
charitable contribution of capital gain property to which
clause (i) applies in each of the 5 succeeding taxable years
in order of time.
(iii) At the election of the taxpayer (made at such time
and in such manner as the Secretary prescribes by
regulations), subsection (e)(1) shall apply to all
contributions of capital gain property (to which subsection
(e)(1)(B) does not otherwise apply) made by the taxpayer
during the taxable year. If such an election is made, clauses
(i) and (ii) shall not apply to contributions of capital gain
property made during the taxable year, and, in applying
subsection (d)(1) for such taxable year with respect to
contributions of capital gain property made in any prior
contribution year for which an election was not made under
this clause, such contributions shall be reduced as if
subsection (e)(1) had applied to such contributions in the
year in which made.
(iv) For purposes of this paragraph, the term "capital gain
property" means, with respect to any contribution, any
capital asset the sale of which at its fair market value at
the time of the contribution would have resulted in gain
which would have been long-term capital gain. For purposes of
the preceding sentence, any property which is property used
in the trade or business (as defined in section 1231(b))
shall be treated as a capital asset.
(D) Special limitation with respect to contributions of capital
gain property to organizations not described in subparagraph
(A)
(i) In general
In the case of charitable contributions (other than
charitable contributions to which subparagraph (A) applies)
of capital gain property, the total amount of such
contributions of such property taken into account under
subsection (a) for any taxable year shall not exceed the
lesser of -
(I) 20 percent of the taxpayer's contribution base for
the taxable year, or
(II) the excess of 30 percent of the taxpayer's
contribution base for the taxable year over the amount of
the contributions of capital gain property to which
subparagraph (C) applies.
For purposes of this subsection, contributions of capital
gain property to which this subparagraph applies shall be
taken into account after all other charitable contributions.
(ii) Carryover
If the aggregate amount of contributions described in
clause (i) exceeds the limitation of clause (i), such excess
shall be treated (in a manner consistent with the rules of
subsection (d)(1)) as a charitable contribution of capital
gain property to which clause (i) applies in each of the 5
succeeding taxable years in order of time.
(E) Certain private foundations
The private foundations referred to in subparagraph (A)(vii)
and subsection (e)(1)(B) are -
(i) a private operating foundation (as defined in section
4942(j)(3)),
(ii) any other private foundation (as defined in section
509(a)) which, not later than the 15th day of the third month
after the close of the foundation's taxable year in which
contributions are received, makes qualifying distributions
(as defined in section 4942(g), without regard to paragraph
(3) thereof), which are treated, after the application of
section 4942(g)(3), as distributions out of corpus (in
accordance with section 4942(h)) in an amount equal to 100
percent of such contributions, and with respect to which the
taxpayer obtains adequate records or other sufficient
evidence from the foundation showing that the foundation made
such qualifying distributions, and
(iii) a private foundation all of the contributions to
which are pooled in a common fund and which would be
described in section 509(a)(3) but for the right of any
substantial contributor (hereafter in this clause called
"donor") or his spouse to designate annually the recipients,
from among organizations described in paragraph (1) of
section 509(a), of the income attributable to the donor's
contribution to the fund and to direct (by deed or by will)
the payment, to an organization described in such paragraph
(1), of the corpus in the common fund attributable to the
donor's contribution; but this clause shall apply only if all
of the income of the common fund is required to be (and is)
distributed to one or more organizations described in such
paragraph (1) not later than the 15th day of the third month
after the close of the taxable year in which the income is
realized by the fund and only if all of the corpus
attributable to any donor's contribution to the fund is
required to be (and is) distributed to one or more of such
organizations not later than one year after his death or
after the death of his surviving spouse if she has the right
to designate the recipients of such corpus.
(F) Contribution base defined
For purposes of this section, the term "contribution base"
means adjusted gross income (computed without regard to any net
operating loss carryback to the taxable year under section
172).
(2) Corporations
In the case of a corporation, the total deductions under
subsection (a) for any taxable year shall not exceed 10 percent
of the taxpayer's taxable income computed without regard to -
(A) this section,
(B) part VIII (except section 248),
(C) section 199,
(D) any net operating loss carryback to the taxable year
under section 172, and
(E) any capital loss carryback to the taxable year under
section 1212(a)(1).
(c) Charitable contribution defined
For purposes of this section, the term "charitable contribution"
means a contribution or gift to or for the use of -
(1) A State, a possession of the United States, or any
political subdivision of any of the foregoing, or the United
States or the District of Columbia, but only if the contribution
or gift is made for exclusively public purposes.
(2) A corporation, trust, or community chest, fund, or
foundation -
(A) created or organized in the United States or in any
possession thereof, or under the law of the United States, any
State, the District of Columbia, or any possession of the
United States;
(B) organized and operated exclusively for religious,
charitable, scientific, literary, or educational purposes, or
to foster national or international amateur sports competition
(but only if no part of its activities involve the provision of
athletic facilities or equipment), or for the prevention of
cruelty to children or animals;
(C) no part of the net earnings of which inures to the
benefit of any private shareholder or individual; and
(D) which is not disqualified for tax exemption under section
501(c)(3) by reason of attempting to influence legislation, and
which does not participate in, or intervene in (including the
publishing or distributing of statements), any political
campaign on behalf of (or in opposition to) any candidate for
public office.
A contribution or gift by a corporation to a trust, chest, fund,
or foundation shall be deductible by reason of this paragraph
only if it is to be used within the United States or any of its
possessions exclusively for purposes specified in subparagraph
(B). Rules similar to the rules of section 501(j) shall apply for
purposes of this paragraph.
(3) A post or organization of war veterans, or an auxiliary
unit or society of, or trust or foundation for, any such post or
organization -
(A) organized in the United States or any of its possessions,
and
(B) no part of the net earnings of which inures to the
benefit of any private shareholder or individual.
(4) In the case of a contribution or gift by an individual, a
domestic fraternal society, order, or association, operating
under the lodge system, but only if such contribution or gift is
to be used exclusively for religious, charitable, scientific,
literary, or educational purposes, or for the prevention of
cruelty to children or animals.
(5) A cemetery company owned and operated exclusively for the
benefit of its members, or any corporation chartered solely for
burial purposes as a cemetery corporation and not permitted by
its charter to engage in any business not necessarily incident to
that purpose, if such company or corporation is not operated for
profit and no part of the net earnings of such company or
corporation inures to the benefit of any private shareholder or
individual.
For purposes of this section, the term "charitable contribution"
also means an amount treated under subsection (g) as paid for the
use of an organization described in paragraph (2), (3), or (4).
(d) Carryovers of excess contributions
(1) Individuals
(A) In general
In the case of an individual, if the amount of charitable
contributions described in subsection (b)(1)(A) payment of
which is made within a taxable year (hereinafter in this
paragraph referred to as the "contribution year") exceeds 50
percent of the taxpayer's contribution base for such year, such
excess shall be treated as a charitable contribution described
in subsection (b)(1)(A) paid in each of the 5 succeeding
taxable years in order of time, but, with respect to any such
succeeding taxable year, only to the extent of the lesser of
the two following amounts:
(i) the amount by which 50 percent of the taxpayer's
contribution base for such succeeding taxable year exceeds
the sum of the charitable contributions described in
subsection (b)(1)(A) payment of which is made by the taxpayer
within such succeeding taxable year (determined without
regard to this subparagraph) and the charitable contributions
described in subsection (b)(1)(A) payment of which was made
in taxable years before the contribution year which are
treated under this subparagraph as having been paid in such
succeeding taxable year; or
(ii) in the case of the first succeeding taxable year, the
amount of such excess, and in the case of the second, third,
fourth, or fifth succeeding taxable year, the portion of such
excess not treated under this subparagraph as a charitable
contribution described in subsection (b)(1)(A) paid in any
taxable year intervening between the contribution year and
such succeeding taxable year.
(B) Special rule for net operating loss carryovers
In applying subparagraph (A), the excess determined under
subparagraph (A) for the contribution year shall be reduced to
the extent that such excess reduces taxable income (as computed
for purposes of the second sentence of section 172(b)(2)) and
increases the net operating loss deduction for a taxable year
succeeding the contribution year.
(2) Corporations
(A) In general
Any contribution made by a corporation in a taxable year
(hereinafter in this paragraph referred to as the "contribution
year") in excess of the amount deductible for such year under
subsection (b)(2) shall be deductible for each of the 5
succeeding taxable years in order of time, but only to the
extent of the lesser of the two following amounts: (i) the
excess of the maximum amount deductible for such succeeding
taxable year under subsection (b)(2) over the sum of the
contributions made in such year plus the aggregate of the
excess contributions which were made in taxable years before
the contribution year and which are deductible under this
subparagraph for such succeeding taxable year; or (ii) in the
case of the first succeeding taxable year, the amount of such
excess contribution, and in the case of the second, third,
fourth, or fifth succeeding taxable year, the portion of such
excess contribution not deductible under this subparagraph for
any taxable year intervening between the contribution year and
such succeeding taxable year.
(B) Special rule for net operating loss carryovers
For purposes of subparagraph (A), the excess of -
(i) the contributions made by a corporation in a taxable
year to which this section applies, over
(ii) the amount deductible in such year under the
limitation in subsection (b)(2),
shall be reduced to the extent that such excess reduces taxable
income (as computed for purposes of the second sentence of
section 172(b)(2)) and increases a net operating loss carryover
under section 172 to a succeeding taxable year.
(e) Certain contributions of ordinary income and capital gain
property
(1) General rule
The amount of any charitable contribution of property otherwise
taken into account under this section shall be reduced by the sum
of -
(A) the amount of gain which would not have been long-term
capital gain if the property contributed had been sold by the
taxpayer at its fair market value (determined at the time of
such contribution), and
(B) in the case of a charitable contribution -
(i) of tangible personal property, if the use by the donee
is unrelated to the purpose or function constituting the
basis for its exemption under section 501 (or, in the case of
a governmental unit, to any purpose or function described in
subsection (c)),
(ii) to or for the use of a private foundation (as defined
in section 509(a)), other than a private foundation described
in subsection (b)(1)(E), or
(iii) of any patent, copyright (other than a copyright
described in section 1221(a)(3) or 1231(b)(1)(C)), trademark,
trade name, trade secret, know-how, software (other than
software described in section 197(e)(3)(A)(i)), or similar
property, or applications or registrations of such property,
the amount of gain which would have been long-term capital gain
if the property contributed had been sold by the taxpayer at
its fair market value (determined at the time of such
contribution).
For purposes of applying this paragraph (other than in the case
of gain to which section 617(d)(1), 1245(a), 1250(a), 1252(a), or
1254(a) applies), property which is property used in the trade or
business (as defined in section 1231(b)) shall be treated as a
capital asset. For purposes of applying this paragraph in the
case of a charitable contribution of stock in an S corporation,
rules similar to the rules of section 751 shall apply in
determining whether gain on such stock would have been long-term
capital gain if such stock were sold by the taxpayer.
(2) Allocation of basis
For purposes of paragraph (1), in the case of a charitable
contribution of less than the taxpayer's entire interest in the
property contributed, the taxpayer's adjusted basis in such
property shall be allocated between the interest contributed and
any interest not contributed in accordance with regulations
prescribed by the Secretary.
(3) Special rule for certain contributions of inventory and other
property
(A) Qualified contributions
For purposes of this paragraph, a qualified contribution
shall mean a charitable contribution of property described in
paragraph (1) or (2) of section 1221(a), by a corporation
(other than a corporation which is an S corporation) to an
organization which is described in section 501(c)(3) and is
exempt under section 501(a) (other than a private foundation,
as defined in section 509(a), which is not an operating
foundation, as defined in section 4942(j)(3)), but only if -
(i) the use of the property by the donee is related to the
purpose or function constituting the basis for its exemption
under section 501 and the property is to be used by the donee
solely for the care of the ill, the needy, or infants;
(ii) the property is not transferred by the donee in
exchange for money, other property, or services;
(iii) the taxpayer receives from the donee a written
statement representing that its use and disposition of the
property will be in accordance with the provisions of clauses
(i) and (ii); and
(iv) in the case where the property is subject to
regulation under the Federal Food, Drug, and Cosmetic Act, as
amended, such property must fully satisfy the applicable
requirements of such Act and regulations promulgated
thereunder on the date of transfer and for one hundred and
eighty days prior thereto.
(B) Amount of reduction
The reduction under paragraph (1)(A) for any qualified
contribution (as defined in subparagraph (A)) shall be no
greater than the sum of -
(i) one-half of the amount computed under paragraph (1)(A)
(computed without regard to this paragraph), and
(ii) the amount (if any) by which the charitable
contribution deduction under this section for any qualified
contribution (computed by taking into account the amount
determined in clause (i), but without regard to this clause)
exceeds twice the basis of such property.
(C) Special rule for contributions of food inventory
(i) General rule
In the case of a charitable contribution of food from any
trade or business of the taxpayer, this paragraph shall be
applied -
(I) without regard to whether the contribution is made by
a C corporation, and
(II) only to food that is apparently wholesome food.
(ii) Limitation
In the case of a taxpayer other than a C corporation, the
aggregate amount of such contributions for any taxable year
which may be taken into account under this section shall not
exceed 10 percent of the taxpayer's aggregate net income for
such taxable year from all trades or businesses from which
such contributions were made for such year, computed without
regard to this section.
(iii) Apparently wholesome food
For purposes of this subparagraph, the term "apparently
wholesome food" has the meaning given to such term by section
22(b)(2) of the Bill Emerson Good Samaritan Food Donation Act
(42 U.S.C. 1791(b)(2)), as in effect on the date of the
enactment of this subparagraph.
(iv) Termination
This subparagraph shall not apply to contributions made
after December 31, 2005.
(D) Special rule for contributions of book inventory to public
schools
(i) Contributions of book inventory
In determining whether a qualified book contribution is a
qualified contribution, subparagraph (A) shall be applied
without regard to whether the donee is an organization
described in the matter preceding clause (i) of subparagraph
(A).
(ii) Qualified book contribution
For purposes of this paragraph, the term "qualified book
contribution" means a charitable contribution of books to a
public school which is an educational organization described
in subsection (b)(1)(A)(ii) and which provides elementary
education or secondary education (kindergarten through grade
12).
(iii) Certification by donee
Subparagraph (A) shall not apply to any contribution unless
(in addition to the certifications required by subparagraph
(A) (as modified by this subparagraph)), the donee certifies
in writing that -
(I) the books are suitable, in terms of currency,
content, and quantity, for use in the donee's educational
programs, and
(II) the donee will use the books in its educational
programs.
(iv) Termination
This subparagraph shall not apply to contributions made
after December 31, 2005.
(E) This paragraph shall not apply to so much of the amount
of the gain described in paragraph (1)(A) which would be long-
term capital gain but for the application of sections 617,
1245, 1250, or 1252.
(4) Special rule for contributions of scientific property used
for research
(A) Limit on reduction
In the case of a qualified research contribution, the
reduction under paragraph (1)(A) shall be no greater than the
amount determined under paragraph (3)(B).
(B) Qualified research contributions
For purposes of this paragraph, the term "qualified research
contribution" means a charitable contribution by a corporation
of tangible personal property described in paragraph (1) of
section 1221(a), but only if -
(i) the contribution is to an organization described in
subparagraph (A) or subparagraph (B) of section 41(e)(6),
(ii) the property is constructed by the taxpayer,
(iii) the contribution is made not later than 2 years after
the date the construction of the property is substantially
completed,
(iv) the original use of the property is by the donee,
(v) the property is scientific equipment or apparatus
substantially all of the use of which by the donee is for
research or experimentation (within the meaning of section
174), or for research training, in the United States in
physical or biological sciences,
(vi) the property is not transferred by the donee in
exchange for money, other property, or services, and
(vii) the taxpayer receives from the donee a written
statement representing that its use and disposition of the
property will be in accordance with the provisions of clauses
(v) and (vi).
(C) Construction of property by taxpayer
For purposes of this paragraph, property shall be treated as
constructed by the taxpayer only if the cost of the parts used
in the construction of such property (other than parts
manufactured by the taxpayer or a related person) do not exceed
50 percent of the taxpayer's basis in such property.
(D) Corporation
For purposes of this paragraph, the term "corporation" shall
not include -
(i) an S corporation,
(ii) a personal holding company (as defined in section
542), and
(iii) a service organization (as defined in section
414(m)(3)).
(5) Special rule for contributions of stock for which market
quotations are readily available
(A) In general
Subparagraph (B)(ii) of paragraph (1) shall not apply to any
contribution of qualified appreciated stock.
(B) Qualified appreciated stock
Except as provided in subparagraph (C), for purposes of this
paragraph, the term "qualified appreciated stock" means any
stock of a corporation -
(i) for which (as of the date of the contribution) market
quotations are readily available on an established securities
market, and
(ii) which is capital gain property (as defined in
subsection (b)(1)(C)(iv)).
(C) Donor may not contribute more than 10 percent of stock of
corporation
(i) In general
In the case of any donor, the term "qualified appreciated
stock" shall not include any stock of a corporation
contributed by the donor in a contribution to which paragraph
(1)(B)(ii) applies (determined without regard to this
paragraph) to the extent that the amount of the stock so
contributed (when increased by the aggregate amount of all
prior such contributions by the donor of stock in such
corporation) exceeds 10 percent (in value) of all of the
outstanding stock of such corporation.
(ii) Special rule
For purposes of clause (i), an individual shall be treated
as making all contributions made by any member of his family
(as defined in section 267(c)(4)).
(6) Special rule for contributions of computer technology and
equipment for educational purposes
(A) Limit on reduction
In the case of a qualified computer contribution, the
reduction under paragraph (1)(A) shall be no greater than the
amount determined under paragraph (3)(B).
(B) Qualified computer contribution
For purposes of this paragraph, the term "qualified computer
contribution" means a charitable contribution by a corporation
of any computer technology or equipment, but only if -
(i) the contribution is to -
(I) an educational organization described in subsection
(b)(1)(A)(ii),
(II) an entity described in section 501(c)(3) and exempt
from tax under section 501(a) (other than an entity
described in subclause (I)) that is organized primarily for
purposes of supporting elementary and secondary education,
or
(III) a public library (within the meaning of section
213(1)(A) of the Library Services and Technology Act (20
U.S.C. 9122(1)(A))),(!1) as in effect on the date of the
enactment of the Community Renewal Tax Relief Act of 2000),
established and maintained by an entity described in
subsection (c)(1),
(ii) the contribution is made not later than 3 years after
the date the taxpayer acquired the property (or in the case
of property constructed by the taxpayer, the date the
construction of the property is substantially completed),
(iii) the original use of the property is by the donor or
the donee,
(iv) substantially all of the use of the property by the
donee is for use within the United States for educational
purposes that are related to the purpose or function of the
donee,
(v) the property is not transferred by the donee in
exchange for money, other property, or services, except for
shipping, installation and transfer costs,
(vi) the property will fit productively into the donee's
education plan,
(vii) the donee's use and disposition of the property will
be in accordance with the provisions of clauses (iv) and (v),
and
(viii) the property meets such standards, if any, as the
Secretary may prescribe by regulation to assure that the
property meets minimum functionality and suitability
standards for educational purposes.
(C) Contribution to private foundation
A contribution by a corporation of any computer technology or
equipment to a private foundation (as defined in section 509)
shall be treated as a qualified computer contribution for
purposes of this paragraph if -
(i) the contribution to the private foundation satisfies
the requirements of clauses (ii) and (v) of subparagraph (B),
and
(ii) within 30 days after such contribution, the private
foundation -
(I) contributes the property to a donee described in
clause (i) of subparagraph (B) that satisfies the
requirements of clauses (iv) through (vii) of subparagraph
(B), and
(II) notifies the donor of such contribution.
(D) Donations of property reacquired by manufacturer
In the case of property which is reacquired by the person who
constructed the property -
(i) subparagraph (B)(ii) shall be applied to a contribution
of such property by such person by taking into account the
date that the original construction of the property was
substantially completed, and
(ii) subparagraph (B)(iii) shall not apply to such
contribution.
(E) Special rule relating to construction of property
For the purposes of this paragraph, the rules of paragraph
(4)(C) shall apply.
(F) Definitions
For the purposes of this paragraph -
(i) Computer technology or equipment
The term "computer technology or equipment" means computer
software (as defined by section 197(e)(3)(B)), computer or
peripheral equipment (as defined by section 168(i)(2)(B)),
and fiber optic cable related to computer use.
(ii) Corporation
The term "corporation" has the meaning given to such term
by paragraph (4)(D).
(G) Termination
This paragraph shall not apply to any contribution made
during any taxable year beginning after December 31, 2005.
(f) Disallowance of deduction in certain cases and special rules
(1) In general
No deduction shall be allowed under this section for a
contribution to or for the use of an organization or trust
described in section 508(d) or 4948(c)(4) subject to the
conditions specified in such sections.
(2) Contributions of property placed in trust
(A) Remainder interest
In the case of property transferred in trust, no deduction
shall be allowed under this section for the value of a
contribution of a remainder interest unless the trust is a
charitable remainder annuity trust or a charitable remainder
unitrust (described in section 664), or a pooled income fund
(described in section 642(c)(5)).
(B) Income interests, etc.
No deduction shall be allowed under this section for the
value of any interest in property (other than a remainder
interest) transferred in trust unless the interest is in the
form of a guaranteed annuity or the trust instrument specifies
that the interest is a fixed percentage distributed yearly of
the fair market value of the trust property (to be determined
yearly) and the grantor is treated as the owner of such
interest for purposes of applying section 671. If the donor
ceases to be treated as the owner of such an interest for
purposes of applying section 671, at the time the donor ceases
to be so treated, the donor shall for purposes of this chapter
be considered as having received an amount of income equal to
the amount of any deduction he received under this section for
the contribution reduced by the discounted value of all amounts
of income earned by the trust and taxable to him before the
time at which he ceases to be treated as the owner of the
interest. Such amounts of income shall be discounted to the
date of the contribution. The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subparagraph.
(C) Denial of deduction in case of payments by certain trusts
In any case in which a deduction is allowed under this
section for the value of an interest in property described in
subparagraph (B), transferred in trust, no deduction shall be
allowed under this section to the grantor or any other person
for the amount of any contribution made by the trust with
respect to such interest.
(D) Exception
This paragraph shall not apply in a case in which the value
of all interests in property transferred in trust are
deductible under subsection (a).
(3) Denial of deduction in case of certain contributions of
partial interests in property
(A) In general
In the case of a contribution (not made by a transfer in
trust) of an interest in property which consists of less than
the taxpayer's entire interest in such property, a deduction
shall be allowed under this section only to the extent that the
value of the interest contributed would be allowable as a
deduction under this section if such interest had been
transferred in trust. For purposes of this subparagraph, a
contribution by a taxpayer of the right to use property shall
be treated as a contribution of less than the taxpayer's entire
interest in such property.
(B) Exceptions
Subparagraph (A) shall not apply to -
(i) a contribution of a remainder interest in a personal
residence or farm,
(ii) a contribution of an undivided portion of the
taxpayer's entire interest in property, and
(iii) a qualified conservation contribution.
(4) Valuation of remainder interest in real property
For purposes of this section, in determining the value of a
remainder interest in real property, depreciation (computed on
the straight line method) and depletion of such property shall be
taken into account, and such value shall be discounted at a rate
of 6 percent per annum, except that the Secretary may prescribe a
different rate.
(5) Reduction for certain interest
If, in connection with any charitable contribution, a liability
is assumed by the recipient or by any other person, or if a
charitable contribution is of property which is subject to a
liability, then, to the extent necessary to avoid the duplication
of amounts, the amount taken into account for purposes of this
section as the amount of the charitable contribution -
(A) shall be reduced for interest (i) which has been paid (or
is to be paid) by the taxpayer, (ii) which is attributable to
the liability, and (iii) which is attributable to any period
after the making of the contribution, and
(B) in the case of a bond, shall be further reduced for
interest (i) which has been paid (or is to be paid) by the
taxpayer on indebtedness incurred or continued to purchase or
carry such bond, and (ii) which is attributable to any period
before the making of the contribution.
The reduction pursuant to subparagraph (B) shall not exceed the
interest (including interest equivalent) on the bond which is
attributable to any period before the making of the contribution
and which is not (under the taxpayer's method of accounting)
includible in the gross income of the taxpayer for any taxable
year. For purposes of this paragraph, the term "bond" means any
bond, debenture, note, or certificate or other evidence of
indebtedness.
(6) Deductions for out-of-pocket expenditures
No deduction shall be allowed under this section for an out-of-
pocket expenditure made by any person on behalf of an
organization described in subsection (c) (other than an
organization described in section 501(h)(5) (relating to
churches, etc.)) if the expenditure is made for the purpose of
influencing legislation (within the meaning of section
501(c)(3)).
(7) Reformations to comply with paragraph (2)
(A) In general
A deduction shall be allowed under subsection (a) in respect
of any qualified reformation (within the meaning of section
2055(e)(3)(B)).
(B) Rules similar to section 2055(e)(3) to apply
For purposes of this paragraph, rules similar to the rules of
section 2055(e)(3) shall apply.
(8) Substantiation requirement for certain contributions
(A) General rule
No deduction shall be allowed under subsection (a) for any
contribution of $250 or more unless the taxpayer substantiates
the contribution by a contemporaneous written acknowledgment of
the contribution by the donee organization that meets the
requirements of subparagraph (B).
(B) Content of acknowledgement
An acknowledgement meets the requirements of this
subparagraph if it includes the following information:
(i) The amount of cash and a description (but not value) of
any property other than cash contributed.
(ii) Whether the donee organization provided any goods or
services in consideration, in whole or in part, for any
property described in clause (i).
(iii) A description and good faith estimate of the value of
any goods or services referred to in clause (ii) or, if such
goods or services consist solely of intangible religious
benefits, a statement to that effect.
For purposes of this subparagraph, the term "intangible
religious benefit" means any intangible religious benefit which
is provided by an organization organized exclusively for
religious purposes and which generally is not sold in a
commercial transaction outside the donative context.
(C) Contemporaneous
For purposes of subparagraph (A), an acknowledgment shall be
considered to be contemporaneous if the taxpayer obtains the
acknowledgment on or before the earlier of -
(i) the date on which the taxpayer files a return for the
taxable year in which the contribution was made, or
(ii) the due date (including extensions) for filing such
return.
(D) Substantiation not required for contributions reported by
the donee organization
Subparagraph (A) shall not apply to a contribution if the
donee organization files a return, on such form and in
accordance with such regulations as the Secretary may
prescribe, which includes the information described in
subparagraph (B) with respect to the contribution.
(E) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
paragraph, including regulations that may provide that some or
all of the requirements of this paragraph do not apply in
appropriate cases.
(9) Denial of deduction where contribution for lobbying
activities
No deduction shall be allowed under this section for a
contribution to an organization which conducts activities to
which section 162(e)(1) applies on matters of direct financial
interest to the donor's trade or business, if a principal purpose
of the contribution was to avoid Federal income tax by securing a
deduction for such activities under this section which would be
disallowed by reason of section 162(e) if the donor had conducted
such activities directly. No deduction shall be allowed under
section 162(a) for any amount for which a deduction is disallowed
under the preceding sentence.
(10) Split-dollar life insurance, annuity, and endowment
contracts
(A) In general
Nothing in this section or in section 545(b)(2), 642(c),
2055, 2106(a)(2), or 2522 shall be construed to allow a
deduction, and no deduction shall be allowed, for any transfer
to or for the use of an organization described in subsection
(c) if in connection with such transfer -
(i) the organization directly or indirectly pays, or has
previously paid, any premium on any personal benefit contract
with respect to the transferor, or
(ii) there is an understanding or expectation that any
person will directly or indirectly pay any premium on any
personal benefit contract with respect to the transferor.
(B) Personal benefit contract
For purposes of subparagraph (A), the term "personal benefit
contract" means, with respect to the transferor, any life
insurance, annuity, or endowment contract if any direct or
indirect beneficiary under such contract is the transferor, any
member of the transferor's family, or any other person (other
than an organization described in subsection (c)) designated by
the transferor.
(C) Application to charitable remainder trusts
In the case of a transfer to a trust referred to in
subparagraph (E), references in subparagraphs (A) and (F) to an
organization described in subsection (c) shall be treated as a
reference to such trust.
(D) Exception for certain annuity contracts
If, in connection with a transfer to or for the use of an
organization described in subsection (c), such organization
incurs an obligation to pay a charitable gift annuity (as
defined in section 501(m)) and such organization purchases any
annuity contract to fund such obligation, persons receiving
payments under the charitable gift annuity shall not be treated
for purposes of subparagraph (B) as indirect beneficiaries
under such contract if -
(i) such organization possesses all of the incidents of
ownership under such contract,
(ii) such organization is entitled to all the payments
under such contract, and
(iii) the timing and amount of payments under such contract
are substantially the same as the timing and amount of
payments to each such person under such obligation (as such
obligation is in effect at the time of such transfer).
(E) Exception for certain contracts held by charitable
remainder trusts
A person shall not be treated for purposes of subparagraph
(B) as an indirect beneficiary under any life insurance,
annuity, or endowment contract held by a charitable remainder
annuity trust or a charitable remainder unitrust (as defined in
section 664(d)) solely by reason of being entitled to any
payment referred to in paragraph (1)(A) or (2)(A) of section
664(d) if -
(i) such trust possesses all of the incidents of ownership
under such contract, and
(ii) such trust is entitled to all the payments under such
contract.
(F) Excise tax on premiums paid
(i) In general
There is hereby imposed on any organization described in
subsection (c) an excise tax equal to the premiums paid by
such organization on any life insurance, annuity, or
endowment contract if the payment of premiums on such
contract is in connection with a transfer for which a
deduction is not allowable under subparagraph (A), determined
without regard to when such transfer is made.
(ii) Payments by other persons
For purposes of clause (i), payments made by any other
person pursuant to an understanding or expectation referred
to in subparagraph (A) shall be treated as made by the
organization.
(iii) Reporting
Any organization on which tax is imposed by clause (i) with
respect to any premium shall file an annual return which
includes -
(I) the amount of such premiums paid during the year and
the name and TIN of each beneficiary under the contract to
which the premium relates, and
(II) such other information as the Secretary may require.
The penalties applicable to returns required under section
6033 shall apply to returns required under this clause.
Returns required under this clause shall be furnished at such
time and in such manner as the Secretary shall by forms or
regulations require.
(iv) Certain rules to apply
The tax imposed by this subparagraph shall be treated as
imposed by chapter 42 for purposes of this title other than
subchapter B of chapter 42.
(G) Special rule where State requires specification of
charitable gift annuitant in contract
In the case of an obligation to pay a charitable gift annuity
referred to in subparagraph (D) which is entered into under the
laws of a State which requires, in order for the charitable
gift annuity to be exempt from insurance regulation by such
State, that each beneficiary under the charitable gift annuity
be named as a beneficiary under an annuity contract issued by
an insurance company authorized to transact business in such
State, the requirements of clauses (i) and (ii) of subparagraph
(D) shall be treated as met if -
(i) such State law requirement was in effect on February 8,
1999,
(ii) each such beneficiary under the charitable gift
annuity is a bona fide resident of such State at the time the
obligation to pay a charitable gift annuity is entered into,
and
(iii) the only persons entitled to payments under such
contract are persons entitled to payments as beneficiaries
under such obligation on the date such obligation is entered
into.
(H) Member of family
For purposes of this paragraph, an individual's family
consists of the individual's grandparents, the grandparents of
such individual's spouse, the lineal descendants of such
grandparents, and any spouse of such a lineal descendant.
(I) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
paragraph, including regulations to prevent the avoidance of
such purposes.
(11) Qualified appraisal and other documentation for certain
contributions
(A) In general
(i) Denial of deduction
In the case of an individual, partnership, or corporation,
no deduction shall be allowed under subsection (a) for any
contribution of property for which a deduction of more than
$500 is claimed unless such person meets the requirements of
subparagraphs (B), (C), and (D), as the case may be, with
respect to such contribution.
(ii) Exceptions
(I) Readily valued property
Subparagraphs (C) and (D) shall not apply to cash,
property described in subsection (e)(1)(B)(iii) or section
1221(a)(1), publicly traded securities (as defined in
section 6050L(a)(2)(B)), and any qualified vehicle
described in paragraph (12)(A)(ii) for which an
acknowledgement under paragraph (12)(B)(iii) is provided.
(II) Reasonable cause
Clause (i) shall not apply if it is shown that the
failure to meet such requirements is due to reasonable
cause and not to willful neglect.
(B) Property description for contributions of more than $500
In the case of contributions of property for which a
deduction of more than $500 is claimed, the requirements of
this subparagraph are met if the individual, partnership or
corporation includes with the return for the taxable year in
which the contribution is made a description of such property
and such other information as the Secretary may require. The
requirements of this subparagraph shall not apply to a C
corporation which is not a personal service corporation or a
closely held C corporation.
(C) Qualified appraisal for contributions of more than $5,000
In the case of contributions of property for which a
deduction of more than $5,000 is claimed, the requirements of
this subparagraph are met if the individual, partnership, or
corporation obtains a qualified appraisal of such property and
attaches to the return for the taxable year in which such
contribution is made such information regarding such property
and such appraisal as the Secretary may require.
(D) Substantiation for contributions of more than $500,000
In the case of contributions of property for which a
deduction of more than $500,000 is claimed, the requirements of
this subparagraph are met if the individual, partnership, or
corporation attaches to the return for the taxable year a
qualified appraisal of such property.
(E) Qualified appraisal
For purposes of this paragraph, the term "qualified
appraisal" means, with respect to any property, an appraisal of
such property which is treated for purposes of this paragraph
as a qualified appraisal under regulations or other guidance
prescribed by the Secretary.
(F) Aggregation of similar items of property
For purposes of determining thresholds under this paragraph,
property and all similar items of property donated to 1 or more
donees shall be treated as 1 property.
(G) Special rule for pass-thru entities
In the case of a partnership or S corporation, this paragraph
shall be applied at the entity level, except that the deduction
shall be denied at the partner or shareholder level.
(H) Regulations
The Secretary may prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
paragraph, including regulations that may provide that some or
all of the requirements of this paragraph do not apply in
appropriate cases.
(12) Contributions of used motor vehicles, boats, and airplanes
(A) In general
In the case of a contribution of a qualified vehicle the
claimed value of which exceeds $500 -
(i) paragraph (8) shall not apply and no deduction shall be
allowed under subsection (a) for such contribution unless the
taxpayer substantiates the contribution by a contemporaneous
written acknowledgement of the contribution by the donee
organization that meets the requirements of subparagraph (B)
and includes the acknowledgement with the taxpayer's return
of tax which includes the deduction, and
(ii) if the organization sells the vehicle without any
significant intervening use or material improvement of such
vehicle by the organization, the amount of the deduction
allowed under subsection (a) shall not exceed the gross
proceeds received from such sale.
(B) Content of acknowledgement
An acknowledgement meets the requirements of this
subparagraph if it includes the following information:
(i) The name and taxpayer identification number of the
donor.
(ii) The vehicle identification number or similar number.
(iii) In the case of a qualified vehicle to which
subparagraph (A)(ii) applies -
(I) a certification that the vehicle was sold in an arm's
length transaction between unrelated parties,
(II) the gross proceeds from the sale, and
(III) a statement that the deductible amount may not
exceed the amount of such gross proceeds.
(iv) In the case of a qualified vehicle to which
subparagraph (A)(ii) does not apply -
(I) a certification of the intended use or material
improvement of the vehicle and the intended duration of
such use, and
(II) a certification that the vehicle would not be
transferred in exchange for money, other property, or
services before completion of such use or improvement.
(v) Whether the donee organization provided any goods or
services in consideration, in whole or in part, for the
qualified vehicle.
(vi) A description and good faith estimate of the value of
any goods or services referred to in clause (v) or, if such
goods or services consist solely of intangible religious
benefits (as defined in paragraph (8)(B)), a statement to
that effect.
(C) Contemporaneous
For purposes of subparagraph (A), an acknowledgement shall be
considered to be contemporaneous if the donee organization
provides it within 30 days of -
(i) the sale of the qualified vehicle, or
(ii) in the case of an acknowledgement including a
certification described in subparagraph (B)(iv), the
contribution of the qualified vehicle.
(D) Information to Secretary
A donee organization required to provide an acknowledgement
under this paragraph shall provide to the Secretary the
information contained in the acknowledgement. Such information
shall be provided at such time and in such manner as the
Secretary may prescribe.
(E) Qualified vehicle
For purposes of this paragraph, the term "qualified vehicle"
means any -
(i) motor vehicle manufactured primarily for use on public
streets, roads, and highways,
(ii) boat, or
(iii) airplane.
Such term shall not include any property which is described in
section 1221(a)(1).
(F) Regulations or other guidance
The Secretary shall prescribe such regulations or other
guidance as may be necessary to carry out the purposes of this
paragraph. The Secretary may prescribe regulations or other
guidance which exempts sales by the donee organization which
are in direct furtherance of such organization's charitable
purpose from the requirements of subparagraphs (A)(ii) and
(B)(iv)(II).
(g) Amounts paid to maintain certain students as members of
taxpayer's household
(1) In general
Subject to the limitations provided by paragraph (2), amounts
paid by the taxpayer to maintain an individual (other than a
dependent, as defined in section 152 (determined without regard
to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), or a
relative of the taxpayer) as a member of his household during the
period that such individual is -
(A) a member of the taxpayer's household under a written
agreement between the taxpayer and an organization described in
paragraph (2), (3), or (4) of subsection (c) to implement a
program of the organization to provide educational
opportunities for pupils or students in private homes, and
(B) a full-time pupil or student in the twelfth or any lower
grade at an educational organization described in section
170(b)(1)(A)(ii) located in the United States,
shall be treated as amounts paid for the use of the organization.
(2) Limitations
(A) Amount
Paragraph (1) shall apply to amounts paid within the taxable
year only to the extent that such amounts do not exceed $50
multiplied by the number of full calendar months during the
taxable year which fall within the period described in
paragraph (1). For purposes of the preceding sentence, if 15 or
more days of a calendar month fall within such period such
month shall be considered as a full calendar month.
(B) Compensation or reimbursement
Paragraph (1) shall not apply to any amount paid by the
taxpayer within the taxable year if the taxpayer receives any
money or other property as compensation or reimbursement for
maintaining the individual in his household during the period
described in paragraph (1).
(3) Relative defined
For purposes of paragraph (1), the term "relative of the
taxpayer" means an individual who, with respect to the taxpayer,
bears any of the relationships described in subparagraphs (A)
through (G) of section 152(d)(2).
(4) No other amount allowed as deduction
No deduction shall be allowed under subsection (a) for any
amount paid by a taxpayer to maintain an individual as a member
of his household under a program described in paragraph (1)(A)
except as provided in this subsection.
(h) Qualified conservation contribution
(1) In general
For purposes of subsection (f)(3)(B)(iii), the term "qualified
conservation contribution" means a contribution -
(A) of a qualified real property interest,
(B) to a qualified organization,
(C) exclusively for conservation purposes.
(2) Qualified real property interest
For purposes of this subsection, the term "qualified real
property interest" means any of the following interests in real
property:
(A) the entire interest of the donor other than a qualified
mineral interest,
(B) a remainder interest, and
(C) a restriction (granted in perpetuity) on the use which
may be made of the real property.
(3) Qualified organization
For purposes of paragraph (1), the term "qualified
organization" means an organization which -
(A) is described in clause (v) or (vi) of subsection
(b)(1)(A), or
(B) is described in section 501(c)(3) and -
(i) meets the requirements of section 509(a)(2), or
(ii) meets the requirements of section 509(a)(3) and is
controlled by an organization described in subparagraph (A)
or in clause (i) of this subparagraph.
(4) Conservation purpose defined
(A) In general
For purposes of this subsection, the term "conservation
purpose" means -
(i) the preservation of land areas for outdoor recreation
by, or the education of, the general public,
(ii) the protection of a relatively natural habitat of
fish, wildlife, or plants, or similar ecosystem,
(iii) the preservation of open space (including farmland
and forest land) where such preservation is -
(I) for the scenic enjoyment of the general public, or
(II) pursuant to a clearly delineated Federal, State, or
local governmental conservation policy,
and will yield a significant public benefit, or
(iv) the preservation of an historically important land
area or a certified historic structure.
(B) Certified historic structure
For purposes of subparagraph (A)(iv), the term "certified
historic structure" means any building, structure, or land area
which -
(i) is listed in the National Register, or
(ii) is located in a registered historic district (as
defined in section 47(c)(3)(B)) and is certified by the
Secretary of the Interior to the Secretary as being of
historic significance to the district.
A building, structure, or land area satisfies the preceding
sentence if it satisfies such sentence either at the time of the
transfer or on the due date (including extensions) for filing the
transferor's return under this chapter for the taxable year in
which the transfer is made.
(5) Exclusively for conservation purposes
For purposes of this subsection -
(A) Conservation purpose must be protected
A contribution shall not be treated as exclusively for
conservation purposes unless the conservation purpose is
protected in perpetuity.
(B) No surface mining permitted
(i) In general
Except as provided in clause (ii), in the case of a
contribution of any interest where there is a retention of a
qualified mineral interest, subparagraph (A) shall not be
treated as met if at any time there may be extraction or
removal of minerals by any surface mining method.
(ii) Special rule
With respect to any contribution of property in which the
ownership of the surface estate and mineral interests has
been and remains separated, subparagraph (A) shall be treated
as met if the probability of surface mining occurring on such
property is so remote as to be negligible.
(6) Qualified mineral interest
For purposes of this subsection, the term "qualified mineral
interest" means -
(A) subsurface oil, gas, or other minerals, and
(B) the right to access to such minerals.
(i) Standard mileage rate for use of passenger automobile
For purposes of computing the deduction under this section for
use of a passenger automobile, the standard mileage rate shall be
14 cents per mile.
(j) Denial of deduction for certain travel expenses
No deduction shall be allowed under this section for traveling
expenses (including amounts expended for meals and lodging) while
away from home, whether paid directly or by reimbursement, unless
there is no significant element of personal pleasure, recreation,
or vacation in such travel.
(k) Disallowance of deductions in certain cases
For disallowance of deductions for contributions to or for
the use of communist controlled organizations, see section
11(a) (!2) of the Internal Security Act of 1950 (50 U.S.C.
790).
(l) Treatment of certain amounts paid to or for the benefit of
institutions of higher education
(1) In general
For purposes of this section, 80 percent of any amount
described in paragraph (2) shall be treated as a charitable
contribution.
(2) Amount described
For purposes of paragraph (1), an amount is described in this
paragraph if -
(A) the amount is paid by the taxpayer to or for the benefit
of an educational organization -
(i) which is described in subsection (b)(1)(A)(ii), and
(ii) which is an institution of higher education (as
defined in section 3304(f)), and
(B) such amount would be allowable as a deduction under this
section but for the fact that the taxpayer receives (directly
or indirectly) as a result of paying such amount the right to
purchase tickets for seating at an athletic event in an
athletic stadium of such institution.
If any portion of a payment is for the purchase of such tickets,
such portion and the remaining portion (if any) of such payment
shall be treated as separate amounts for purposes of this
subsection.
(m) Certain donee income from intellectual property treated as an
additional charitable contribution
(1) Treatment as additional contribution
In the case of a taxpayer who makes a qualified intellectual
property contribution, the deduction allowed under subsection (a)
for each taxable year of the taxpayer ending on or after the date
of such contribution shall be increased (subject to the
limitations under subsection (b)) by the applicable percentage of
qualified donee income with respect to such contribution which is
properly allocable to such year under this subsection.
(2) Reduction in additional deductions to extent of initial
deduction
With respect to any qualified intellectual property
contribution, the deduction allowed under subsection (a) shall be
increased under paragraph (1) only to the extent that the
aggregate amount of such increases with respect to such
contribution exceed the amount allowed as a deduction under
subsection (a) with respect to such contribution determined
without regard to this subsection.
(3) Qualified donee income
For purposes of this subsection, the term "qualified donee
income" means any net income received by or accrued to the donee
which is properly allocable to the qualified intellectual
property.
(4) Allocation of qualified donee income to taxable years of
donor
For purposes of this subsection, qualified donee income shall
be treated as properly allocable to a taxable year of the donor
if such income is received by or accrued to the donee for the
taxable year of the donee which ends within or with such taxable
year of the donor.
(5) 10-year limitation
Income shall not be treated as properly allocable to qualified
intellectual property for purposes of this subsection if such
income is received by or accrued to the donee after the 10-year
period beginning on the date of the contribution of such
property.
(6) Benefit limited to life of intellectual property
Income shall not be treated as properly allocable to qualified
intellectual property for purposes of this subsection if such
income is received by or accrued to the donee after the
expiration of the legal life of such property.
(7) Applicable percentage
For purposes of this subsection, the term "applicable
percentage" means the percentage determined under the following
table which corresponds to a taxable year of the donor ending on
or after the date of the qualified intellectual property
contribution:
Taxable Year of Donor 2Applicable
Ending on or After Percentage:
Date of Contribution:
--------------------------------------------------------------------
1st 100
2nd 100
3rd 90
4th 80
5th 70
6th 60
7th 50
8th 40
9th 30
10th 20
11th 10
12th 10.
--------------------------------------------------------------------
(8) Qualified intellectual property contribution
For purposes of this subsection, the term "qualified
intellectual property contribution" means any charitable
contribution of qualified intellectual property -
(A) the amount of which taken into account under this section
is reduced by reason of subsection (e)(1), and
(B) with respect to which the donor informs the donee at the
time of such contribution that the donor intends to treat such
contribution as a qualified intellectual property contribution
for purposes of this subsection and section 6050L.
(9) Qualified intellectual property
For purposes of this subsection, the term "qualified
intellectual property" means property described in subsection
(e)(1)(B)(iii) (other than property contributed to or for the use
of an organization described in subsection (e)(1)(B)(ii)).
(10) Other special rules
(A) Application of limitations on charitable contributions
Any increase under this subsection of the deduction provided
under subsection (a) shall be treated for purposes of
subsection (b) as a deduction which is attributable to a
charitable contribution to the donee to which such increase
relates.
(B) Net income determined by donee
The net income taken into account under paragraph (3) shall
not exceed the amount of such income reported under section
6050L(b)(1).
(C) Deduction limited to 12 taxable years
Except as may be provided under subparagraph (D)(i), this
subsection shall not apply with respect to any qualified
intellectual property contribution for any taxable year of the
donor after the 12th taxable year of the donor which ends on or
after the date of such contribution.
(D) Regulations
The Secretary may issue regulations or other guidance to
carry out the purposes of this subsection, including
regulations or guidance -
(i) modifying the application of this subsection in the
case of a donor or donee with a short taxable year, and
(ii) providing for the determination of an amount to be
treated as net income of the donee which is properly
allocable to qualified intellectual property in the case of a
donee who uses such property to further a purpose or function
constituting the basis of the donee's exemption under section
501 (or, in the case of a governmental unit, any purpose
described in section 170(c)) and does not possess a right to
receive any payment from a third party with respect to such
property.
(n) Expenses paid by certain whaling captains in support of Native
Alaskan subsistence whaling
(1) In general
In the case of an individual who is recognized by the Alaska
Eskimo Whaling Commission as a whaling captain charged with the
responsibility of maintaining and carrying out sanctioned whaling
activities and who engages in such activities during the taxable
year, the amount described in paragraph (2) (to the extent such
amount does not exceed $10,000 for the taxable year) shall be
treated for purposes of this section as a charitable
contribution.
(2) Amount described
(A) In general
The amount described in this paragraph is the aggregate of
the reasonable and necessary whaling expenses paid by the
taxpayer during the taxable year in carrying out sanctioned
whaling activities.
(B) Whaling expenses
For purposes of subparagraph (A), the term "whaling expenses"
includes expenses for -
(i) the acquisition and maintenance of whaling boats,
weapons, and gear used in sanctioned whaling activities,
(ii) the supplying of food for the crew and other
provisions for carrying out such activities, and
(iii) storage and distribution of the catch from such
activities.
(3) Sanctioned whaling activities
For purposes of this subsection, the term "sanctioned whaling
activities" means subsistence bowhead whale hunting activities
conducted pursuant to the management plan of the Alaska Eskimo
Whaling Commission.
(4) Substantiation of expenses
The Secretary shall issue guidance requiring that the taxpayer
substantiate the whaling expenses for which a deduction is
claimed under this subsection, including by maintaining
appropriate written records with respect to the time, place,
date, amount, and nature of the expense, as well as the
taxpayer's eligibility for such deduction, and that (to the
extent provided by the Secretary) such substantiation be provided
as part of the taxpayer's return of tax.
(o) Other cross references
(1) For treatment of certain organizations providing child
care, see section 501(k).
(2) For charitable contributions of estates and trusts, see
section 642(c).
(3) For nondeductibility of contributions by common trust
funds, see section 584.
(4) For charitable contributions of partners, see section
702.
(5) For charitable contributions of nonresident aliens, see
section 873.
(6) For treatment of gifts for benefit of or use in
connection with the Naval Academy as gifts to or for use of the
United States, see section 6973 of title 10, United States
Code.
(7) For treatment of gifts accepted by the Secretary of
State, the Director of the International Communication Agency,
or the Director of the United States International Development
Cooperation Agency, as gifts to or for the use of the United
States, see section 25 of the State Department Basic
Authorities Act of 1956.
(8) For treatment of gifts of money accepted by the Attorney
General for credit to the "Commissary Funds Federal Prisons" as
gifts to or for the use of the United States, see section 4043
of title 18, United States Code.
(9) For charitable contributions to or for the use of Indian
tribal governments (or their subdivisions), see section 7871.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 58; Aug. 7, 1956, ch. 1031, Sec.
1, 70 Stat. 1117; Pub. L. 85-866, title I, Secs. 10(a), 11, 12(a),
Sept. 2, 1958, 72 Stat. 1609, 1610; Pub. L. 86-779, Sec. 7(a),
Sept. 14, 1960, 74 Stat. 1002; Pub. L. 87-834, Sec. 13(d), Oct. 16,
1962, 76 Stat. 1034; Pub. L. 87-858, Sec. 2(a), (b), Oct. 23, 1962,
76 Stat. 1134; Pub. L. 88-272, title II, Secs. 209(a), (b), (c)(1),
(d)(1), (e), 231(b)(1), Feb. 26, 1964, 78 Stat. 43, 45-47, 105;
Pub. L. 89-570, Sec. 1(b)(1), Sept. 12, 1966, 80 Stat. 762; Pub. L.
91-172, title I, Sec. 101(j)(2), title II, Sec. 201(a)(1), (2)(A),
(h)(1), Dec. 30, 1969, 83 Stat. 526, 549, 558, 565; Pub. L. 94-455,
title II, Sec. 205(c)(1)(A), title X, Sec. 1052(c)(2), title XIII,
Secs. 1307(c), (d)(1)(B)(i), 1313(b)(1), title XIX, Secs.
1901(a)(28), (b)(8)(A), 1906(b)(13)(A), title XXI, Secs.
2124(e)(1), 2135(a), Oct. 4, 1976, 90 Stat. 1535, 1648, 1726, 1727,
1730, 1768, 1794, 1834, 1919, 1928; Pub. L. 95-30, title III, Sec.
309(a), May 23, 1977, 91 Stat. 154; Pub. L. 95-600, title IV, Secs.
402(b)(2), 403(c)(1), Nov. 6, 1978, 92 Stat. 2868; Pub. L. 96-465,
title II, Sec. 2206(e)(2), Oct. 17, 1980, 94 Stat. 2162; Pub. L. 96-
541, Sec. 6(a), (b), Dec. 17, 1980, 94 Stat. 3206; Pub. L. 97-34,
title I, Sec. 121(a), title II, Secs. 222(a), 263(a), Aug. 13,
1981, 95 Stat. 196, 248, 264; Pub. L. 97-248, title II, Sec.
286(b)(1), Sept. 3, 1982, 96 Stat. 570; Pub. L. 97-258, Sec.
3(f)(1), Sept. 13, 1982, 96 Stat. 1064; Pub. L. 97-354, Sec.
5(a)(21), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 97-448, title I,
Sec. 102(f)(7), Jan. 12, 1983, 96 Stat. 2372; Pub. L. 97-473, title
II, Sec. 202(b)(4), Jan. 14, 1983, 96 Stat. 2609; Pub. L. 98-369,
div. A, title I, Sec. 174(b)(5)(A), title III, Sec. 301(a)-(c),
title IV, Sec. 492(b)(1), title X, Secs. 1022(b), 1031(a),
1032(b)(1), 1035(a), July 18, 1984, 98 Stat. 707, 777, 778, 854,
1028, 1033, 1042; Pub. L. 99-514, title I, Sec. 142(d), title II,
Sec. 231(f), title III, Sec. 301(b)(2), title XVIII, Sec. 1831,
Oct. 22, 1986, 100 Stat. 2120, 2180, 2217, 2851; Pub. L. 100-203,
title X, Sec. 10711(a)(1), Dec. 22, 1987, 101 Stat. 1330-464; Pub.
L. 100-647, title VI, Sec. 6001(a), Nov. 10, 1988, 102 Stat. 3683;
Pub. L. 101-508, title XI, Secs. 11801(a)(11), (c)(5),
11813(b)(10), Nov. 5, 1990, 104 Stat. 1388-520, 1388-523, 1388-554;
Pub. L. 103-66, title XIII, Secs. 13172(a), 13222(b), Aug. 10,
1993, 107 Stat. 455, 479; Pub. L. 104-188, title I, Secs. 1206(a),
1316(b), Aug. 20, 1996, 110 Stat. 1776, 1786; Pub. L. 105-34, title
II, Sec. 224(a), title V, Sec. 508(d), title VI, Sec. 602(a), title
IX, Sec. 973(a), Aug. 5, 1997, 111 Stat. 818, 860, 862, 898; Pub.
L. 105-206, title VI, Sec. 6004(e), July 22, 1998, 112 Stat. 795;
Pub. L. 105-277, div. J, title I, Sec. 1004(a)(1), Oct. 21, 1998,
112 Stat. 2681-888; Pub. L. 106-170, title V, Secs. 532(c)(1)(A),
(B), 537(a), Dec. 17, 1999, 113 Stat. 1930, 1936; Pub. L. 106-554,
Sec. 1(a)(7) [title I, Sec. 165(a)-(e)], Dec. 21, 2000, 114 Stat.
2763, 2763A-626; Pub. L. 107-16, title V, Sec. 542(e)(2)(B), June
7, 2001, 115 Stat. 85; Pub. L. 107-147, title IV, Sec. 417(7),
(22), Mar. 9, 2002, 116 Stat. 56, 57; Pub. L. 108-81, title V, Sec.
503, Sept. 25, 2003, 117 Stat. 1003; Pub. L. 108-311, title II,
Sec. 207(15), (16), title III, Sec. 306(a), Oct. 4, 2004, 118 Stat.
1177, 1179; Pub. L. 108-357, title III, Sec. 335(a), title IV, Sec.
413(c)(30), title VIII, Secs. 882(a), (b), (d), 883(a), 884(a),
Oct. 22, 2004, 118 Stat. 1478, 1509, 1627, 1631, 1632; Pub. L. 109-
73, title III, Secs. 305(a), 306(a), Sept. 23, 2005, 119 Stat.
2025; Pub. L. 109-135, title IV, Sec. 403(a)(16), (gg), Dec. 21,
2005, 119 Stat. 2619, 2631.)
-STATAMEND-
AMENDMENT OF SUBSECTION (E)(1)
Pub. L. 107-16, title V, Sec. 542(e)(2)(B), (f)(1), title IX,
Sec. 901, June 7, 2001, 115 Stat. 85, 86, 150, provided that,
applicable to estates of decedents dying after Dec. 31, 2009,
subsection (e)(1) of this section is temporarily amended by
inserting at end "For purposes of this paragraph, the determination
of whether property is a capital asset shall be made without regard
to the exception contained in section 1221(a)(3)(C) for basis
determined under section 1022.". See Effective and Termination
Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The Federal Food, Drug, and Cosmetic Act, as amended, referred to
in subsec. (e)(3)(A)(iv), is act June 25, 1938, ch. 675, 52 Stat.
1040, as amended, which is classified generally to chapter 9 (Sec.
301 et seq.) of Title 21, Food and Drugs. For complete
classification of this Act to the Code, see section 301 of Title 21
and Tables.
The date of the enactment of this subparagraph, referred to in
subsec. (e)(3)(C)(iii), is the date of enactment of Pub. L. 109-73,
which was approved Sept. 23, 2005.
The date of the enactment of the Community Renewal Tax Relief Act
of 2000, referred to in subsec. (e)(6)(B)(i)(III), is the date of
enactment of H.R. 5662, as enacted by Pub. L. 106-554, which was
approved Dec. 21, 2000.
Section 11(a) of the Internal Security Act of 1950 (50 U.S.C.
790), referred to in subsec. (k), was repealed by Pub. L. 103-199,
title VIII, Sec. 803(1), Dec. 17, 1993, 107 Stat. 2329.
Section 25 of the State Department Basic Authorities Act of 1956,
referred to in subsec. (o)(7), is classified to section 2697 of
Title 22, Foreign Relations and Intercourse.
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(2)(C) to (E). Pub. L. 109-135, Sec.
403(a)(16), added subpar. (C) and redesignated former subpars. (C)
and (D) as (D) and (E), respectively.
Subsec. (e)(3)(C). Pub. L. 109-73, Sec. 305(a), added subpar.
(C). Former subpar. (C) redesignated (D).
Subsec. (e)(3)(D). Pub. L. 109-73, Sec. 306(a), added subpar.
(D). Former subpar. (D) redesignated (E).
Pub. L. 109-73, Sec. 305(a), redesignated subpar. (C) as (D).
Subsec. (e)(3)(E). Pub. L. 109-73, Sec. 306(a), redesignated
subpar. (D) as (E).
Subsec. (f)(12)(B)(v), (vi). Pub. L. 109-135, Sec. 403(gg), added
cls. (v) and (vi).
2004 - Subsec. (e)(1)(B)(iii). Pub. L. 108-357, Sec. 882(a),
added cl. (iii).
Subsec. (e)(6)(G). Pub. L. 108-311, Sec. 306(a), substituted
"2005" for "2003".
Subsec. (f)(10)(A). Pub. L. 108-357, Sec. 413(c)(30), struck out
"556(b)(2)," after "545(b)(2)," in introductory provisions.
Subsec. (f)(11). Pub. L. 108-357, Sec. 883(a), added par. (11).
Subsec. (f)(11)(A)(ii)(I). Pub. L. 108-357, Sec. 882(d), inserted
"subsection (e)(1)(B)(iii) or" before "section 1221(a)(1)".
Subsec. (f)(12). Pub. L. 108-357, Sec. 884(a), added par. (12).
Subsec. (g)(1). Pub. L. 108-311, Sec. 207(15), inserted
"(determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof)" after "section 152" in introductory provisions.
Subsec. (g)(3). Pub. L. 108-311, Sec. 207(16), substituted
"subparagraphs (A) through (G) of section 152(d)(2)" for
"paragraphs (1) through (8) of section 152(a)".
Subsec. (m). Pub. L. 108-357, Sec. 882(b), added subsec. (m).
Former subsec. (m) redesignated (n).
Subsec. (n). Pub. L. 108-357, Sec. 335(a), added subsec. (n).
Former subsec. (n) redesignated (o).
Pub. L. 108-357, Sec. 882(b), redesignated subsec. (m) as (n).
Amendment was executed before the amendment by Pub. L. 108-357,
Sec. 335(a). See note below.
Subsec. (o). Pub. L. 108-357, Sec. 335(a), redesignated subsec.
(n) as (o).
2003 - Subsec. (e)(6)(B)(i)(III). Pub. L. 108-81 substituted
"section 213(1)(A) of the Library Services and Technology Act (20
U.S.C. 9122(1)(A))" for "section 213(2)(A) of the Library Services
and Technology Act (20 U.S.C. 9122(2)(A)".
2002 - Subsec. (e)(6)(B)(i)(III). Pub. L. 107-147, Sec. 417(7),
substituted "2000)," for " 2000,".
Subsec. (e)(6)(B)(iv). Pub. L. 107-147, Sec. 417(22), provided
that the amendment made by section 165(b)(1) of the Community
Renewal Tax Relief Act of 2000 [Pub. L. 106-554, Sec. 1(a)(7)[title
I, Sec. 165(b)(1)]] shall be applied as if it struck "in any of the
grades K-12". See 2000 Amendment note below.
2000 - Subsec. (e)(6). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 165(b)(2)], substituted "educational purposes" for "elementary
or secondary school purposes" in heading.
Subsec. (e)(6)(A), (B). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 165(a)(1)], substituted "qualified computer contribution" for
"qualified elementary or secondary educational contribution" in
subpar. (A) and in heading and introductory provisions of subpar.
(B).
Subsec. (e)(6)(B)(i)(III). Pub. L. 106-554, Sec. 1(a)(7) [title
I, Sec. 165(a)(2)], added subcl. (III).
Subsec. (e)(6)(B)(ii). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 165(a)(3)], substituted "3 years" for "2 years".
Subsec. (e)(6)(B)(iv). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 165(b)(1)], which directed the amendment of cl. (iv) by
striking "in any grades of the K-12", was executed by striking out
"in any of the grades K-12" after "educational purposes". See 2002
Amendment note above.
Subsec. (e)(6)(B)(viii). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 165(d)], added cl. (viii).
Subsec. (e)(6)(C). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
165(a)(1)], substituted "qualified computer contribution" for
"qualified elementary or secondary educational contribution" in
introductory provisions.
Subsec. (e)(6)(D), (E). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 165(e)], added subpar. (D) and redesignated former subpar. (D)
as (E). Former subpar. (E) redesignated (F).
Subsec. (e)(6)(F). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
165(e)], redesignated subpar. (E) as (F). Former subpar. (F)
redesignated (G).
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 165(c)], substituted
"December 31, 2003" for "December 31, 2000".
Subsec. (e)(6)(G). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
165(e)], redesignated subpar. (F) as (G).
1999 - Subsec. (e)(3)(A), (4)(B). Pub. L. 106-170, Sec.
532(c)(1)(A), (B), substituted "section 1221(a)" for "section
1221".
Subsec. (f)(10). Pub. L. 106-170, Sec. 537(a), added par. (10).
1998 - Subsec. (e)(5)(D). Pub. L. 105-277 struck out heading and
text of subpar. (D). Text read as follows: "This paragraph shall
not apply to contributions made -
"(i) after December 31, 1994, and before July 1, 1996, or
"(ii) after June 30, 1998."
Subsec. (e)(6)(B)(iv). Pub. L. 105-206, Sec. 6004(e)(2),
substituted "function of the donee" for "function of the
organization or entity".
Subsec. (e)(6)(B)(vi), (vii). Pub. L. 105-206, Sec. 6004(e)(1),
substituted "donee's" for "entity's".
Subsec. (e)(6)(C)(ii)(I). Pub. L. 105-206, Sec. 6004(e)(3),
substituted "a donee" for "an entity".
Subsec. (e)(6)(F). Pub. L. 105-206, Sec. 6004(e)(4), substituted
"2000" for "1999".
1997 - Subsec. (e)(5)(D)(ii). Pub. L. 105-34, Sec. 602(a),
substituted "June 30, 1998" for "May 31, 1997".
Subsec. (e)(6). Pub. L. 105-34, Sec. 224(a), added par. (6).
Subsec. (h)(5)(B)(ii). Pub. L. 105-34, Sec. 508(d), amended
heading and text of cl. (ii) generally. Prior to amendment, text
read as follows: "With respect to any contribution of property in
which the ownership of the surface estate and mineral interests
were separated before June 13, 1976, and remain so separated,
subparagraph (A) shall be treated as met if the probability of
surface mining occurring on such property is so remote as to be
negligible."
Subsec. (i). Pub. L. 105-34, Sec. 973(a), amended heading and
text of subsec. (i) generally. Prior to amendment, text read as
follows: "For purposes of computing the deduction under this
section for use of a passenger automobile the standard mileage rate
shall be 12 cents per mile."
1996 - Subsec. (e)(1). Pub. L. 104-188, Sec. 1316(b), inserted at
end "For purposes of applying this paragraph in the case of a
charitable contribution of stock in an S corporation, rules similar
to the rules of section 751 shall apply in determining whether gain
on such stock would have been long-term capital gain if such stock
were sold by the taxpayer."
Subsec. (e)(5)(D). Pub. L. 104-188, Sec. 1206(a), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "This paragraph shall not apply to
contributions made after December 31, 1994."
1993 - Subsec. (f)(8). Pub. L. 103-66, Sec. 13172(a), added par.
(8).
Subsec. (f)(9). Pub. L. 103-66, Sec. 13222(b), added par. (9).
1990 - Subsec. (h)(4)(B)(ii). Pub. L. 101-508, Sec. 11813(b)(10),
substituted "section 47(c)(3)(B)" for "section 48(g)(3)(B)".
Subsec. (i). Pub. L. 101-508, Sec. 11801(a)(11), (c)(5),
redesignated subsec. (j) as (i) and struck out former subsec. (i)
which related to rule for nonitemization of deductions, applicable
percentage for individuals, limitation for taxable years beginning
before 1985, and termination.
Subsecs. (j) to (n). Pub. L. 101-508, Sec. 11801(c)(5),
redesignated subsecs. (j) to (n) as (i) to (m), respectively.
1988 - Subsecs. (m), (n). Pub. L. 100-647 added subsec. (m) and
redesignated former subsec. (m) as (n).
1987 - Subsec. (c)(2)(D). Pub. L. 100-203 inserted "(or in
opposition to)" after "on behalf of".
1986 - Subsec. (b)(1)(C)(iv). Pub. L. 99-514, Sec. 1831,
substituted "this paragraph" for "this subparagraph".
Subsec. (e)(1)(B). Pub. L. 99-514, Sec. 301(b)(2), in closing
provisions, struck out "40 percent ( 28/46 in the case of a
corporation) of" before "the amount of gain".
Subsec. (e)(4)(B)(i). Pub. L. 99-514, Sec. 231(f), amended cl.
(i) generally. Prior to amendment, cl. (i) read as follows: "the
contribution is to an educational organization which is described
in subsection (b)(1)(A)(ii) of this section and which is an
institution of higher education (as defined in section 3304(f)),".
Subsecs. (k) to (m). Pub. L. 99-514, Sec. 142(d), added subsec.
(k) and redesignated former subsecs. (k) and (l) as (l) and (m),
respectively.
1984 - Subsec. (a)(3). Pub. L. 98-369, Sec. 174(b)(5)(A),
substituted "section 267(b) or 707(b)" for "section 267(b)".
Subsec. (b)(1)(A)(vii). Pub. L. 98-369, Sec. 301(c)(2)(A),
substituted "subparagraph (E)" for "subparagraph (D)".
Subsec. (b)(1)(B). Pub. L. 98-369, Sec. 301(a)(2), inserted at
end "If the aggregate of such contributions exceeds the limitation
of the preceding sentence, such excess shall be treated (in a
manner consistent with the rules of subsection (d)(1)) as a
charitable contribution (to which subparagraph (A) does not apply)
in each of the 5 succeeding taxable years in order of time."
Subsec. (b)(1)(B)(i). Pub. L. 98-369, Sec. 301(a)(1), substituted
"30 percent" for "20 percent".
Subsec. (b)(1)(C). Pub. L. 98-369, Sec. 301(c)(2)(B), inserted
"described in subparagraph (A)" in subpar. (C) heading, and in text
of cl. (i) substituted "In the case of charitable contributions
described in subparagraph (A) of capital gain property to which
subsection (e)(1)(B) does not apply, the total amount of
contributions of such property which may be taken into account
under subsection (a) for any taxable year shall not exceed 30
percent of the taxpayer's contribution base for such year. For
purposes of this subsection, contributions of capital gain property
to which this subparagraph applies shall be taken into account
after all other charitable contributions (other than charitable
contributions to which subparagraph (D) applies)" for "In the case
of charitable contributions of capital gain property to which
subsection (e)(1)(B) does not apply, the total amount of
contributions of such property which may be taken into account
under subsection (a) for any taxable year shall not exceed 30
percent of the taxpayer's contribution base for such year. For
purposes of this subsection, contributions of capital gain property
to which this paragraph applies shall be taken into account after
all other charitable contributions".
Subsec. (b)(1)(D) to (F). Pub. L. 98-369, Sec. 301(c)(1), added
subpar. (D) and redesignated former subpars. (D) and (E) as (E) and
(F), respectively.
Subsec. (e)(1). Pub. L. 98-369, Sec. 492(b)(1)(A), struck out in
provision following subpar. (B) "1251(c)," after "1250(a)".
Subsec. (e)(1)(B)(ii). Pub. L. 98-369, Sec. 301(c)(2)(C),
substituted "subsection (b)(1)(E)" for "subsection (b)(1)(D)".
Subsec. (e)(3)(C). Pub. L. 98-369, Sec. 492(b)(1)(B), struck out
"1251," after "1250,".
Subsec. (e)(5). Pub. L. 98-369, Sec. 301(b), added par. (5).
Subsec. (f)(7). Pub. L. 98-369, Sec. 1022(b), added par. (7).
Subsec. (h)(5)(B). Pub. L. 98-369, Sec. 1035(a), designated
existing provisions as cl. (i), inserted "Except as provided in
clause (ii)", and added cl. (ii).
Subsec. (j). Pub. L. 98-369, Sec. 1031(a), added subsec. (j).
Former subsec. (j) redesignated (k).
Subsec. (k). Pub. L. 98-369, Sec. 1031(a), redesignated subsec.
(j) as (k). Former subsec. (k) redesignated (l).
Subsec. (l). Pub. L. 98-369, Sec. 1032(b)(1), added par. (1) and
redesignated former pars. (1) to (8) as (2) to (9), respectively.
Pub. L. 98-369, Sec. 1031(a), redesignated subsec. (k) as (l).
1983 - Subsec. (h)(4)(B)(ii). Pub. L. 97-448 substituted "section
48(g)(3)(B)" for "section 191(d)(2)".
Subsec. (k)(8). Pub. L. 97-473 added par. (8).
1982 - Subsec. (c)(2). Pub. L. 97-248 inserted provision that
rules similar to the rules of section 501(j) of this title shall
apply for purposes of this paragraph.
Subsec. (e)(3)(A). Pub. L. 97-354, Sec. 5(a)(21)(A), substituted
"an S corporation" for "an electing small business corporation
within the meaning of section 1371(b)".
Subsec. (e)(4)(D)(i). Pub. L. 97-354, Sec. 5(a)(21)(B),
substituted "an S corporation" for "an electing small business
corporation (as defined in section 1371(b))".
Subsec. (k)(7). Pub. L. 97-258 substituted "section 4043 of title
18, United States Code" for "section 2 of the Act of May 15, 1952,
as amended by the Act of July 9, 1952 (31 U.S.C. 725s-4)".
1981 - Subsec. (b)(2). Pub. L. 97-34, Sec. 263(a), increased to
10 from 5 percent deduction allowable to a corporation in any
taxable year for charitable contributions.
Subsec. (e)(4). Pub. L. 97-34, Sec. 222(a), added par. (4).
Subsec. (i). Pub. L. 97-34, Sec. 121(a), added subsec. (i).
Former subsec. (i) redesignated (j).
Subsecs. (j), (k). Pub. L. 97-34, Sec. 121(a), redesignated
former subsecs. (i) and (j) as (j) and (k), respectively.
1980 - Subsec. (f)(3). Pub. L. 96-541, Sec. 6(a), reenacted
subpar. (B), cls. (i) and (ii), substituted cl. (B)(iii) relating
to qualified conservation contribution for prior cl. (B)(iii)
relating to contribution of a lease on, option to purchase, or
easement with respect to real property granted in perpetuity to a
subsec. (b)(1)(A) organization exclusively for conservation
purposes, deleted cl. (B)(iv) respecting contribution of a
remainder interest in real property granted to a subsec. (b)(1)(A)
organization exclusively for conservation purposes, and deleted
subpar. (C) definition of "conservation purposes", now covered in
an expanded subsec. (h)(4)(A).
Subsecs. (h), (i). Pub. L. 96-541, Sec. 6(b), added subsec. (h)
and redesignated former subsec. (h) as (i). Former subsec. (i)
redesignated (j).
Subsec. (i)(6). Pub. L. 96-465, among other changes, inserted
references to Director of the International Communication Agency
and the Director of the United States International Development
Cooperation Agency, and substituted reference to section 25 of the
State Department Basic Authorities Act of 1956 for reference to
section 1021(e) of the Foreign Service Act of 1946.
Subsec. (j). Pub. L. 96-541, Sec. 6(b), redesignated former
subsec. (i) as (j).
1978 - Subsec. (e)(1)(B). Pub. L. 95-600 substituted "40 percent"
for "50 percent" and " 28/46 " for "62 1/2 percent".
1977 - Subsec. (f)(3)(B)(iii). Pub. L. 95-30 substituted "real
property granted in perpetuity to an organization" for "real
property of not less than 30 years' duration granted to an
organization".
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (b)(1)(A)(vii). Pub. L. 94-455, Sec. 1901(a)(28)(A)(iii),
substituted "subparagraph (D)" for "subparagraph (E)" after
"described in".
Subsec. (b)(1)(B)(ii). Pub. L. 94-455, Sec. 1901(a)(28)(A)(iv),
substituted "subparagraph (C)" for "subparagraph (D)" after
"without regard to".
Subsec. (b)(1)(C). Pub. L. 94-455, Sec. 1901(a)(28)(A)(ii),
struck out subpar. (C) which related to unlimited deductions for
certain individuals, redesignated subpar. (D) as (C) and, as so
redesignated, Sec. 1906(b)(13)(A), struck out "or his delegate"
after "Secretary" in cl. (iii).
Subsec. (b)(1)(D) to (F). Pub. L. 94-455, Sec.
1901(a)(28)(A)(ii), redesignated subpars. (D) to (F) as (C) to (E),
respectively.
Subsec. (b)(2). Pub. L. 95-455, Sec. 1052(c)(2), struck out
subpar. (D) which related to a special deduction for Western
Hemisphere trade corporations, and redesignated subpar. (E) as (D).
Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(28)(A)(v), substituted
"subsection (g)" for "subsection (h)" after "amount treated under".
Subsec. (c)(2)(B). Pub. L. 94-455, Sec. 1313(b)(1), inserted "or
to foster national or international amateur sports competition (but
only if no part of its activities involves the provision of
athletic facilities or equipment)" after "or educational purposes".
Subsec. (c)(2)(D). Pub. L. 94-445, Sec. 1307(d)(1)(B)(i),
substituted "which is not disqualified for tax exemption under
section 501(c)(3) by reason of attempting to influence legislation"
for "no substantial part of the activities of which is carrying on
propaganda, or otherwise attempting to influence legislation" after
"(D)".
Subsec. (d)(1)(A). Pub. L. 94-455, Sec. 1901(a)(28)(B), struck
out "(30 percent in the case of a contribution year beginning
before January 1, 1970)" after "exceeds 50 percent".
Subsec. (e)(1). Pub. L. 94-455, Sec. 205(c)(1)(A), substituted
"1252(a), or 1254(a)" for "or 1252(a)" after "1251(c)".
Subsec. (e)(1)(B)(ii). Pub. L. 94-455, Sec. 1901(a)(28)(A)(vi),
substituted "subsection (b)(1)(D)" for "subsection (b)(1)(E)" after
"foundation described in".
Subsec. (e)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (e)(3). Pub. L. 94-455, Sec. 2135(a), added par. (3).
Subsec. (f)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (f)(3). Pub. L. 94-455, Sec. 2124(e)(1), added subpars.
(B)(iii), (iv), and (C).
Subsec. (f)(4). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (f)(6). Pub. L. 94-455, Secs. 1307(c), 1901(a)(28)(A)(i),
added par. (6). Former par. (6), which related to the partial
reduction of unlimited deduction and definitions for transitional
income and deduction percentages, was struck out. Section
1901(a)(28)(A)(i) of Pub. L. 94-455 struck out par. (6) a second
time.
Subsec. (g). Pub. L. 94-455, Sec. 1901(a)(28)(A)(i), struck out
subsec. (g) which related to application of unlimited charitable
contribution deductions allowed for taxable years beginning before
January 1, 1975, and redesignated subsecs. (h), (i), and (j) as
(g), (h), and (i), respectively. Section 1901(a)(28)(A)(i) also
struck out former subsec. (f)(6) but this direction was not
executed as such former subsec. (f)(6) had previously been stricken
by section 1307(c) of Pub. L. 94-455.
Subsec. (g)(1)(B). Pub. L. 94-455, Sec. 1901(b)(8)(A),
substituted "educational organization described in section
170(b)(1)(A)(ii)" for "educational institution (as defined in
section 151(e)(4)" after "grade at an".
Subsec. (h). Pub. L. 94-455, Sec. 1901(a)(28)(A)(i), (C),
redesignated subsec. (i) as (h), and struck out "64 Stat. 996"
after "Act of 1950". Former subsec. (h) redesignated (g).
Subsec. (i). Pub. L. 94-455, Sec. 1901(a)(28)(A)(i), (D),
redesignated subsec. (j) as (i) and substituted "6973 of title 10,
United States Code" for "3 of the Act of March 31, 1944 (58 Stat.
135; 34 U.S.C. 1115b)" after "see section" in par. (5); struck out
par. (6) relating to gifts to library of Post Office Department;
struck out "60 Stat. 924" after "1946" in par. (7); substituted "as
amended by the Act of July 9, 1952 (3 U.S.C. 725s-4)" for "(66
Stat. 73, as amended by Act of July 9, 1952, 66 Stat. 479, 31
U.S.C. 725s-4)" after "May 15, 1952" in par. (8); and redesignated
pars. (7) and (8) as pars. (6) and (7), respectively. Former
subsec. (i) redesignated (h).
Subsec. (j). Pub. L. 94-455, Sec. 1901(a)(28)(A)(i), redesignated
subsec. (j) as (i).
1969 - Subsec. (a)(3). Pub. L. 91-172, Sec. 201(a)(1)(B), added
par. (3).
Subsec. (b). Pub. L. 91-172, Sec. 201(a)(1)(B), (h)(1), increased
the general limitation on the charitable contributions deduction
for individual taxpayers from 30 percent of adjusted gross income
to 50 percent of his contribution base and provided that where a
taxpayer makes a contribution to a public charity of property which
has appreciated in value the taxpayer could deduct such
contributions of property under the 50 percent limitation if he
elects to take the unrealized appreciation in value into account
for the tax purposes, the unlimited charitable deduction is phased
out over a 5-year period and contributions to a private operating
foundation and contributions to a private nonoperating foundation
distributing such contributions to public charities or private
operating foundations within two and half months following the year
of receipt are also subjected to 50 percent limitation (30 percent
in the case of gifts of appreciated property), and, in par. (1)(C),
inserted provisions relating to the determination of the amount of
charitable contributions and taxes paid by a married individual who
previously filed a joint return with a former deceased spouse.
Subsec. (c). Pub. L. 91-172, Sec. 201(a)(1)(B), struck out
references to "Territory" in pars. (1) and (2)(A), and inserted
reference to participation in or intervention in any political
campaign on behalf of any candidate for public office in par.
(2)(D).
Subsec. (d). Pub. L. 91-172, Sec. 201(a)(1)(B), added subsec. (d)
consisting of provisions substantially transferred from subsec. (b)
in the general amendment of subsec. (b) by Pub. L. 91-172. Former
subsec. (d) redesignated (b).
Subsec. (e). Pub. L. 91-172, Sec. 201(a)(1)(B), substituted
provisions covering certain contributions of ordinary income and
capital gain property for provisions setting out a special rule for
charitable contributions.
Subsec. (f). Pub. L. 91-172, Sec. 201(a)(1)(B), substituted
provisions for the disallowance of the deduction in specified cases
for provision covering future interests in tangible personal
property.
Subsec. (g). Pub. L. 91-172, Sec. 201(a)(2)(A), substituted
"subsection (d)(1)" for "subsection (b)(5)" in two places in par.
(1) and struck out par. (2)(B) covering contributions to
organizations substantially more than half of the assets and the
total income were devoted to charitable purposes.
Subsec. (h). Pub. L. 91-172, Sec. 201(a)(1)(A), redesignated
subsec. (d) as (h). Former subsec. (h) redesignated (i).
Subsec. (i). Pub. L. 91-172, Secs. 101(j)(2), 201(a)(1)(A),
redesignated former subsec. (h) as (i), struck out par. (1)
covering disallowance of deductions for gifts to charitable
organizations engaging in prohibited transactions, and removed the
par. (2) designation from the provisions covering disallowance of
deductions for use of communist controlled organizations. Former
subsec. (i) redesignated (j).
Subsec. (j). Pub. L. 91-172, Sec. 201(a)(1)(A), redesignated
former subsec. (i) as (j).
1966 - Subsec. (e). Pub. L. 89-570 inserted reference to section
617(d)(1).
1964 - Subsec. (b)(1)(A)(v), (vi), (2), (5). Pub. L. 88-272, Sec.
209 (a), (c)(1), (d)(1), added cls. (v) and (vi) in par. (1)(A),
and par. (5), and in par. (2), extended the 2-year carryforward of
unused charitable contributions to 5 years and changed the method
of computation by including the aggregate of the excess
contributions made in taxable years before the contribution year,
in cl. (i), and references to third, fourth or fifth succeeding
years in cl. (ii).
Subsec. (e). Pub. L. 88-272, Sec. 231(b)(1), substituted "certain
property" for "section 1245 property" in heading, and inserted
reference to section 1250(a) in text.
Subsec. (f). Pub. L. 88-272, Sec. 209(e), added subsec. (f).
Former subsec. (f) redesignated (h).
Subsec. (g). Pub. L. 88-272, Sec. 209(b), added subsec. (g).
Former subsec. (g) redesignated (i).
Subsecs. (h), (i). Pub. L. 88-272, Sec. 209(e), redesignated
former subsecs. (f) and (g) as (h) and (i), respectively.
1962 - Subsec. (b)(1)(A)(iv). Pub. L. 87-858, Sec. 2(a), added
cl. (iv).
Subsec. (b)(1)(B). Pub. L. 87-858, Sec. 2(b), substituted "any
charitable contributions described in subparagraph (A)" for "any
charitable contributions to the organizations described in clauses
(i), (ii), and (iii)".
Subsecs. (e) to (g). Pub. L. 87-834 added subsec. (e) and
redesignated former subsecs. (e) and (f) as (f) and (g),
respectively.
1960 - Subsec. (c). Pub. L. 86-779, Sec. 7(a)(1), inserted
sentence additionally defining "charitable contribution" for
purposes of the section.
Subsecs. (d) to (f). Pub. L. 86-779, Sec. 7(a)(2), added subsec.
(d) and redesignated former subsecs. (d) and (e) as (e) and (f),
respectively.
1958 - Subsec. (b)(1)(C). Pub. L. 85-866, Sec. 10(a), inserted
sentence allowing substitution, in lieu of amount of tax paid
during year, amount of tax paid in respect of such year, provided
amount so included in the year in respect of which payment was made
be not included in any other year.
Subsec. (b)(3). Pub. L. 85-866, Sec. 11, added par. (3).
Subsec. (b)(4). Pub. L. 85-866, Sec. 12, added par. (4).
1956 - Subsec. (b)(1)(A)(iii). Act Aug. 7, 1956, Sec. 1, provided
for the allowance, as deductions, of contributions to medical
research organizations.
-CHANGE-
CHANGE OF NAME
International Communication Agency, and Director thereof,
redesignated United States Information Agency, and Director
thereof, by section 303 of Pub. L. 97-241, title III, Aug. 24,
1982, 96 Stat. 291, set out as a note under section 1461 of Title
22, Foreign Relations and Intercourse. United States Information
Agency (other than Broadcasting Board of Governors and
International Broadcasting Bureau) abolished and functions
transferred to Secretary of State, see sections 6531 and 6532 of
Title 22.
-MISC2-
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendments by Pub. L. 109-135 effective as if included in the
provisions of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which they relate, see section 403(nn) of Pub. L. 109-135,
set out as a note under section 26 of this title.
Pub. L. 109-73, title III, Sec. 305(b), Sept. 23, 2005, 119 Stat.
2025, provided that: "The amendment made by this section [amending
this section] shall apply to contributions made on or after August
28, 2005, in taxable years ending after such date."
Pub. L. 109-73, title III, Sec. 306(b), Sept. 23, 2005, 119 Stat.
2026, provided that: "The amendments made by this section [amending
this section] shall apply to contributions made on or after August
28, 2005, in taxable years ending after such date."
EFFECTIVE DATE OF 2004 AMENDMENTS
Pub. L. 108-357, title III, Sec. 335(b), Oct. 22, 2004, 118 Stat.
1479, provided that: "The amendments made by subsection (a)
[amending this section] shall apply to contributions made after
December 31, 2004."
Amendment by section 413(c)(30) of Pub. L. 108-357 applicable to
taxable years of foreign corporations beginning after Dec. 31,
2004, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end, see
section 413(d)(1) of Pub. L. 108-357, set out as an Effective and
Termination Dates of 2004 Amendments note under section 1 of this
title.
Pub. L. 108-357, title VIII, Sec. 882(f), Oct. 22, 2004, 118
Stat. 1631, provided that: "The amendments made by this section
[amending this section and section 6050L of this title] shall apply
to contributions made after June 3, 2004."
Pub. L. 108-357, title VIII, Sec. 883(b), Oct. 22, 2004, 118
Stat. 1632, provided that: "The amendment made by this section
[amending this section] shall apply to contributions made after
June 3, 2004."
Pub. L. 108-357, title VIII, Sec. 884(c), Oct. 22, 2004, 118
Stat. 1634, provided that: "The amendments made by this section
[enacting section 6720 of this title and amending this section]
shall apply to contributions made after December 31, 2004."
Amendment by section 207(15), (16) of Pub. L. 108-311 applicable
to taxable years beginning after Dec. 31, 2004, see section 208 of
Pub. L. 108-311, set out as a note under section 2 of this title.
Pub. L. 108-311, title III, Sec. 306(b), Oct. 4, 2004, 118 Stat.
1179, provided that: "The amendment made by this section [amending
this section] shall apply to contributions made in taxable years
beginning after December 31, 2003."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to estates of decedents
dying after Dec. 31, 2009, see section 542(f)(1) of Pub. L. 107-16,
set out as a note under section 121 of this title.
Amendment by Pub. L. 107-16 inapplicable to estates of decedents
dying, gifts made, or generation skipping transfers, after Dec. 31,
2010, and the Internal Revenue Code of 1986 to be applied and
administered to such estates, gifts, and transfers as if such
amendment had never been enacted, see section 901 of Pub. L. 107-
16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 165(f)], Dec. 21,
2000, 114 Stat. 2763, 2763A-627, provided that: "The amendments
made by this section [amending this section] shall apply to
contributions made after December 31, 2000."
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 532(d), Dec. 17, 1999, 113 Stat.
1931, provided that: "The amendments made by this section [amending
this section and sections 198, 263A, 267, 341, 367, 475, 543, 751,
775, 818, 856, 857, 864, 865, 871, 954, 988, 995, 1017, 1092, 1221,
1231, 1234, 1256, 1362, 1397B, 4662, and 7704 of this title] shall
apply to any instrument held, acquired, or entered into, any
transaction entered into, and supplies held or acquired on or after
the date of the enactment of this Act [Dec. 17, 1999]."
Pub. L. 106-170, title V, Sec. 537(b), Dec. 17, 1999, 113 Stat.
1938, provided that:
"(1) In general. - Except as otherwise provided in this section
[amending this section], the amendment made by this section shall
apply to transfers made after February 8, 1999.
"(2) Excise tax. - Except as provided in paragraph (3) of this
subsection, section 170(f)(10)(F) of the Internal Revenue Code of
1986 (as added by this section) shall apply to premiums paid after
the date of the enactment of this Act [Dec. 17, 1999].
"(3) Reporting. - Clause (iii) of such section 170(f)(10)(F)
shall apply to premiums paid after February 8, 1999 (determined as
if the tax imposed by such section applies to premiums paid after
such date)."
EFFECTIVE DATE OF 1998 AMENDMENTS
Pub. L. 105-277, div. J, title I, Sec. 1004(a)(2), Oct. 21, 1998,
112 Stat. 2681-888, provided that: "The amendment made by paragraph
(1) [amending this section] shall apply to contributions made after
June 30, 1998."
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 224(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997."
Section 508(e)(2) of Pub. L. 105-34 provided that: "The
amendments made by subsections (c) and (d) [amending this section
and section 2032A of this title] shall apply to easements granted
after December 31, 1997."
Section 602(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
contributions made after May 31, 1997."
Section 973(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1206(b) of Pub. L. 104-188 provided that: "The amendment
made by this section [amending this section] shall apply to
contributions made after June 30, 1996."
Section 1316(f) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and sections 404, 512,
1042, and 1361 of this title] shall apply to taxable years
beginning after December 31, 1997."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13172(b) of Pub. L. 103-66 provided that: "The provisions
of this section [amending this section] shall apply to
contributions made on or after January 1, 1994."
Amendment by section 13222(b) of Pub. L. 103-66 applicable to
amounts paid or incurred after Dec. 31, 1993, see section 13222(e)
of Pub. L. 103-66 set out as a note under section 162 of this
title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(b)(10) of Pub. L. 101-508 applicable
to property placed in service after Dec. 31, 1990, but not
applicable to any transition property (as defined in section 49(e)
of this title), any property with respect to which qualified
progress expenditures were previously taken into account under
section 46(d) of this title, and any property described in section
46(b)(2)(C) of this title, as such sections were in effect on Nov.
4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
under section 45K of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 6001(b) of Pub. L. 100-647 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1983.
"(2) Waiver of statute of limitations. - If on the date of the
enactment of this Act [Nov. 10, 1988] (or at any time within 1 year
after such date of enactment) refund or credit of any overpayment
of tax resulting from the application of section 170(m) of the 1986
Code (as added by subsection (a)) is barred by any law or rule of
law, refund or credit of such overpayment shall, nevertheless, be
made or allowed if claim therefore [sic] is filed before the date 1
year after the date of the enactment of this Act."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10711(c) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section and sections
501, 504, 2055, 2106, and 2522 of this title] shall apply with
respect to activities after the date of the enactment of this Act
[Dec. 22, 1987]."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 142(d) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 231(f) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1985, see section 231(g) of
Pub. L. 99-514, set out as a note under section 41 of this title.
Amendment by section 301(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 301(c) of
Pub. L. 99-514, set out as a note under section 62 of this title.
Amendment by section 1831 of Pub. L. 99-514 effective, except as
otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 174(b)(5)(A) of Pub. L. 98-369, applicable
to transactions after Dec. 31, 1983, in taxable years ending after
that date, see section 174(c)(2)(A) of Pub. L. 98-369, set out as a
note under section 267 of this title.
Section 301(d) of Pub. L. 98-369 provided that:
"(1) Subsections (a) and (c). - The amendments made by
subsections (a) and (c) [amending this section] shall apply to
contributions made in taxable years ending after the date of the
enactment of this Act [July 18, 1984].
"(2) Subsection (b). - The amendment made by subsection (b)
[amending this section] shall apply to contributions made after the
date of the enactment of this Act [July 18, 1984] in taxable years
ending after such date."
Section 492(d) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and sections 341, 453B,
751, and 1252 of this title and repealing section 1251 of this
title] shall apply to taxable years beginning after December 31,
1983."
Amendment by section 1022(b) of Pub. L. 98-369 applicable to
reformations after Dec. 31, 1978, except inapplicable to any
reformation to which section 2055(e)(3) of this title as in effect
before July 18, 1984, applies, see section 1022(e)(1) of Pub. L. 98-
369, set out as a note under section 2055 of this title.
Section 1031(b) of Pub. L. 98-369 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1984."
Section 1032(c) of Pub. L. 98-369 provided that: "The amendments
made by subsections (a) and (b) [amending this section and sections
501, 2055, and 2522 of this title] shall apply to taxable years
beginning after the date of the enactment of this Act [July 18,
1984]."
Section 1035(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
contributions made after the date of the enactment of this Act
[July 18, 1984]."
EFFECTIVE DATE OF 1983 AMENDMENTS
For effective date of amendment by Pub. L. 97-473, see section
204(1) of Pub. L. 97-473, set out as an Effective Date note under
section 7871 of this title.
Amendment by title I of Pub. L. 97-448 effective, except as
otherwise provided, as if it had been included in the provision of
the Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENTS
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
Amendment by Pub. L. 97-248 effective Oct. 5, 1976, see section
286(c) of Pub. L. 97-248, set out as a note under section 501 of
this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 121(d) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section and sections 3, 57, and
63 of this title] shall apply to contributions made after December
31, 1981, in taxable years beginning after such date."
Section 222(b) of Pub. L. 97-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
charitable contributions made after the date of the enactment of
this Act [Aug. 13, 1981], in taxable years ending after such date."
Section 263(b) of Pub. L. 97-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1981."
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 6(d) of Pub. L. 96-541 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to transfers made after the date of the enactment of this Act [Dec.
17, 1980] in taxable years ending after such date."
Amendment by Pub. L. 96-465 effective Feb. 15, 1981, except as
otherwise provided, see section 2403 of Pub. L. 96-465, set out as
an Effective Date note under section 3901 of Title 22, Foreign
Relations and Intercourse.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 402(c)(2) of Pub. L. 95-600 provided that: "The amendment
made by subsection (b)(2) [amending this section by substituting
"40 percent" for "50 percent"] shall apply to contributions made
after October 31, 1978."
Section 403(d)(2) of Pub. L. 95-600 provided that: "The amendment
made by paragraph (1) of subsection (c) [amending this section by
substituting " 28/46 " for "62 1/2 percent"] shall apply to gifts
made after December 31, 1978."
EFFECTIVE DATE OF 1977 AMENDMENT
Section 309(b)(1) of Pub. L. 95-30, as amended by Pub. L. 96-541,
Sec. 6(c), Dec. 17, 1980, 94 Stat. 3207, provided that: "The
amendment made by subsection (a) [amending this section] shall
apply with respect to contributions or transfers made after June
13, 1977."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1052(d) of Pub. L. 94-455 provided that: "The amendments
made by subsection (a) and paragraph (1) of subsection (c)
[amending section 922 of this title] shall apply with respect to
taxable years beginning after December 31, 1975. The amendments
made by subsection (b) [repealing sections 921 and 922 of this
title] and by subsection (c) (other than paragraph (1)) [amending
this section and sections 172, 907, 1503, and 6091 of this title]
shall apply with respect to taxable years beginning after December
31, 1979."
Amendment by section 1307 (d)(1)(B)(i), (c) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1307(e) of Pub. L. 94-455, set out as a note under section
501 of this title.
Amendment by section 1313(b)(1) of Pub. L. 94-455 effective Oct.
5, 1976, see section 1313(e) of Pub. L. 94-455, set out as a note
under section 501 of this title.
Amendment by section 1901(a)(28) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Section 2124(e)(4) of Pub. L. 94-455, as amended by Pub. L. 95-
30, title III, Sec. 309(b)(2), May 23, 1977, 91 Stat. 154; Pub. L.
96-541, Sec. 6(c), Dec. 17, 1980, 94 Stat. 3207, provided that:
"The amendments made by this subsection [amending this section and
sections 2055 and 2522 of this title] shall apply with respect to
contributions or transfers made after June 13, 1976."
Section 2135(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] applies to charitable
contributions made after the date of enactment of this Act [Oct. 4,
1976], in taxable years ending after such date."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 101(j)(2) of Pub. L. 91-172 to take effect
on Jan. 1, 1970, see section 101(k)(1) of Pub. L. 91-172, set out
as an Effective Date note under section 4940 of this title.
Section 201(g) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1)(A) Except as provided in subparagraphs (B) and (C), the
amendments made by subsection (a) [amending this section and
sections 545, 556, and 809 of this title] shall apply to taxable
years beginning after December 31, 1969.
"(B) Subsections (e) and (f)(1) of section 170 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by
subsection (a)) shall apply to contributions paid after December
31, 1969, except that, with respect to a letter or memorandum or
similar property described in section 1221(3) of such Code (as
amended by section 514 of this Act), such subsection (e) shall
apply to contributions paid after July 25, 1969.
"(C) Paragraphs (2), (3), and (4) of section 170(f) of such Code
(as amended by subsection (a)) shall apply to transfers in trust
and contributions made after July 31, 1969.
"(D) For purposes of applying section 170(d) of such Code (as
amended by subsection (a)) with respect to contributions paid in a
taxable year beginning before January 1, 1970, subsection
(b)(1)(D), subsection (e), and paragraphs (1), (2), (3), and (4) of
subsection (f) of section 170 of such Code shall not apply.
"(2) The amendments made by subsection (b) [amending section 642
of this title] shall apply with respect to amounts paid,
permanently set aside, or to be used for a charitable purpose in
taxable years beginning after December 31, 1969, except that
section 642(c)(5) of the Internal Revenue Code of 1986 (as added by
subsection (b)) shall apply to transfers in trust made after July
31, 1969.
"(3) The amendment made by subsection (c) [amending section 673
of this title] shall apply to transfers in trust made after April
22, 1969.
"(4)(A) Except as provided in subparagraphs (B) and (C), the
amendments made by paragraphs (1) and (2) of subsection (d)
[amending sections 2055 and 2126 of this title] shall apply in the
case of decedents dying after December 31, 1969.
"(B) Such amendments shall not apply in the case of property
passing under the terms of a will executed on or before October 9,
1969 -
"(i) if the decedent dies before October 9, 1972, without
having republished the will after October 9, 1969, by codicil or
otherwise,
"(ii) if the decedent at no time after October 9, 1969, had the
right to change the portions of the will which pertain to the
passing of the property to, or for the use of, an organization
described in section 2055(a) [section 2055(a) of this title], or
"(iii) if the will is not republished by codicil or otherwise
before October 9, 1972, and the decedent is on such date and at
all times thereafter under a mental disability to republish the
will by codicil or otherwise.
"(C) Such amendments shall not apply in the case of property
transferred in trust on or before October 9, 1969 -
"(i) if the decedent dies before October 9, 1972, without
having amended after October 9, 1969, the instrument governing
the disposition of the property,
"(ii) if the property transferred was an irrevocable interest
to, or for the use of, an organization described in section
2055(a), or
"(iii) if the instrument governing the disposition of the
property was not amended by the decedent before October 9, 1972,
and the decedent is on such date and at all times thereafter
under a mental disability to change the disposition of the
property.
"(D) The amendment made by paragraph (3) of subsection (d)
[amending section 2522 of this title] shall apply to gifts made
after December 31, 1969, except that the amendments made to section
2522(c)(2) of the Internal Revenue Code of 1986 shall apply to
gifts made after July 31, 1969.
"(E) The amendments made by paragraph (4) of subsection (d)
[amending sections 2055, 2106, and 2522 of this title] shall apply
to gifts and transfers made after December 31, 1969.
"(5) The amendment made by subsection (e) [enacting section 664
of this title] shall apply to transfers in trust made after July
31, 1969.
"(6) The amendments made by subsection (f) [amending section 1011
of this title] shall apply with respect to sales made after
December 19, 1969."
Section 201(h)(2) of Pub. L. 91-172 provided that: "The amendment
made by this subsection [amending this section] shall apply to
taxable years beginning after December 31, 1968."
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-570 applicable to taxable years ending
after Sept. 12, 1966, but only in respect of expenditures paid or
incurred after such date, see section 3 of Pub. L. 89-570, set out
as an Effective Date note under section 617 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 209(f) of Pub. L. 88-272, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) The amendments made by subsections (a), (b), and (c)
[amending this section and sections 545 and 556 of this title],
shall apply with respect to contributions which are paid in taxable
years beginning after December 31, 1963.
"(2) The amendments made by subsection (d) [amending this section
and section 381 of this title] shall apply to taxable years
beginning after December 31, 1963, with respect to contributions
which are paid (or treated as paid under section 170(a)(2) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]) in taxable
years beginning after December 31, 1961.
"(3) The amendments made by subsection (e) [amending this
section] shall apply to transfers of future interests made after
December 31, 1963, in taxable years ending after such date, except
that such amendments shall not apply to any transfer of a future
interest made before July 1, 1964, where -
"(A) the sole intervening interest or right is a
nontransferable life interest reserved by the donor, or
"(B) in the case of a joint gift by husband and wife, the sole
intervening interest or right is a nontransferable life interest
reserved by the donors which expires not later than the death of
whichever of such donors dies later.
For purposes of the exception contained in the preceding sentence,
a right to make a transfer of the reserved life interest to the
donee of the future interest shall not be treated as making a life
interest transferable."
Amendment by section 231(b)(1) of Pub. L. 88-272 applicable to
dispositions after Dec. 31, 1963, in taxable years ending after
such date, see section 231(c) of Pub. L. 88-272, set out as an
Effective Date note under section 1250 of this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Section 2(c) of Pub. L. 87-858 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to taxable years beginning after December 31, 1960."
Amendment by Pub. L. 87-834 applicable to taxable years beginning
after Dec. 31, 1962, see section 13(g) of Pub. L. 87-834, set out
as an Effective Date note under section 1245 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable with respect to taxable
years beginning after Dec. 31, 1959, see section 7(c) of Pub. L. 86-
779, set out as a note under section 162 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 10(b) of Pub. L. 85-866 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to taxable years beginning after December 31, 1957."
Amendment by section 11 of Pub. L. 85-866 applicable to taxable
years beginning after Dec. 31, 1953, and ending after Aug. 16,
1954, see section 1(c)(1) of Pub. L. 85-866, set out as a note
under section 165 of this title.
Section 12(b) of Pub. L. 85-866 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after December 31, 1957, but only with respect
to charitable contributions made after such date."
EFFECTIVE DATE OF 1956 AMENDMENT
Section 2 of act Aug. 7, 1956, provided that: "The amendment made
by this Act [amending this section] shall apply only with respect
to taxable years beginning after December 31, 1955."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-TRANS-
TRANSFER OF FUNCTIONS
United States International Development Cooperation Agency (other
than Agency for International Development and Overseas Private
Investment Corporation) abolished and functions and authorities
transferred, see sections 6561 and 6562 of Title 22, Foreign
Relations and Intercourse.
-MISC3-
ANTI-ABUSE RULES
Pub. L. 108-357, title VIII, Sec. 882(e), Oct. 22, 2004, 118
Stat. 1631, provided that: "The Secretary of the Treasury may
prescribe such regulations or other guidance as may be necessary or
appropriate to prevent the avoidance of the purposes of section
170(e)(1)(B)(iii) of the Internal Revenue Code of 1986 (as added by
subsection (a)), including preventing -
"(1) the circumvention of the reduction of the charitable
deduction by embedding or bundling the patent or similar property
as part of a charitable contribution of property that includes
the patent or similar property,
"(2) the manipulation of the basis of the property to increase
the amount of the charitable deduction through the use of related
persons, pass-thru entities, or other intermediaries, or through
the use of any provision of law or regulation (including the
consolidated return regulations), and
"(3) a donor from changing the form of the patent or similar
property to property of a form for which different deduction
rules would apply."
AUTHORITY TO WAIVE APPRAISAL REQUIREMENT FOR CERTAIN CHARITABLE
CONTRIBUTIONS OF PROPERTY
Section 6281 of Pub. L. 100-647 provided that: "Notwithstanding
paragraph (2) of section 155(a) of the Tax Reform Act of 1984
[section 155(a)(2) of Pub. L. 98-369, set out below], the Secretary
of the Treasury or his delegate may in the regulations prescribed
pursuant to such section waive the requirement of a qualified
appraisal in the case of a qualified contribution (within the
meaning of section 170(e)(3)(A) of the 1986 Code) of property
described in section 1221(1) [probably means section 1221(1) of the
1986 Code] with a claimed value in excess of $5,000."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TREATMENT OF CERTAIN AMOUNTS PAID TO OR FOR THE BENEFIT OF CERTAIN
INSTITUTIONS OF HIGHER EDUCATION
Section 1608 of Pub. L. 99-514, which related to treatment of
certain amounts paid to or for the benefit of certain institutions
of higher education, was repealed by Pub. L. 100-647, title I, Sec.
1016(b), Nov. 10, 1988, 102 Stat. 3575.
SUBSTANTIATION OF CHARITABLE CONTRIBUTIONS OF PROPERTY
Section 155(a) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Not later than December 31, 1984, the
Secretary shall prescribe regulations under section 170(a)(1) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954], which
require any individual, closely held corporation, or personal
service corporation claiming a deduction under section 170 of such
Code for a contribution described in paragraph (2) -
"(A) to obtain a qualified appraisal for the property
contributed,
"(B) to attach an appraisal summary to the return on which such
deduction is first claimed for such contribution, and
"(C) to include on such return such additional information
(including the cost basis and acquisition date of the contributed
property) as the Secretary may prescribe in such regulations.
Such regulations shall require the taxpayer to retain any qualified
appraisal.
"(2) Contributions to which paragraph (1) applies. - For purposes
of paragraph (1), a contribution is described in this paragraph -
"(A) if such contribution is of property (other than publicly
traded securities), and
"(B) if the claimed value of such property (plus the claimed
value of all similar items of property donated to 1 or more
donees) exceeds $5,000.
In the case of any property which is nonpublicly traded stock,
subparagraph (B) shall be applied by substituting '$10,000' for
'$5,000'.
"(3) Appraisal summary. - For purposes of this subsection, the
appraisal summary shall be in such form and include such
information as the Secretary prescribes by regulations. Such
summary shall be signed by the qualified appraiser preparing the
qualified appraisal and shall contain the TIN of such appraiser.
Such summary shall be acknowledged by the donee of the property
appraised in such manner as the Secretary prescribes in such
regulations.
"(4) Qualified appraisal. - The term 'qualified appraisal' means
an appraisal prepared by a qualified appraiser which includes -
"(A) a description of the property appraised,
"(B) the fair market value of such property on the date of
contribution and the specific basis for the valuation,
"(C) a statement that such appraisal was prepared for income
tax purposes,
"(D) the qualifications of the qualified appraiser,
"(E) the signature and TIN of such appaiser, [sic] and
"(F) such additional information as the Secretary prescribes in
such regulations.
"(5) Qualified appraiser. -
"(A) In general. - For purposes of this subsection, the term
'qualified appraiser' means an appraiser qualified to make
appraisals of the type of property donated, who is not -
"(i) the taxpayer,
"(ii) a party to the transaction in which the taxpayer
acquired the property,
"(iii) the donee,
"(iv) any person employed by any of the foregoing persons or
related to any of the foregoing persons under section 267(b) of
the Internal Revenue Code of 1986, or
"(v) to the extent provided in such regulations, any person
whose relationship to the taxpayer would cause a reasonable
person to question the independence of such appraiser.
"(B) Appraisal fees. - For purposes of this subsection, an
appraisal shall not be treated as a qualified appraisal if all or
part of the fee paid for such appraisal is based on a percentage
of the appraised value of the property. The preceding sentence
shall not apply to fees based on a sliding scale that are paid to
a generally recognized association regulating appraisers.
"(6) Other definitions. - For purposes of this subsection -
"(A) Closely held corporation. - The term 'closely held
corporation' means any corporation (other than an S corporation)
with respect to which the stock ownership requirement of
paragraph (2) of section 542(a) of such Code is met.
"(B) Personal service corporation. - The term 'personal service
corporation' means any corporation (other than an S corporation)
which is a service organization (within the meaning of section
414(m)(3) of such Code).
"(C) Publicly traded securities. - The term 'publicly traded
securities' means securities for which (as of the date of the
contribution) market quotations are readily available on an
established securities market.
"(D) Nonpublicly traded stock. - The term 'nonpublicly traded
stock' means any stock of a corporation which is not a publicly
traded security.
"(E) The secretary. - The term 'Secretary' means the Secretary
of the Treasury or his delegate."
CHARITABLE LEAD TRUSTS AND CHARITABLE REMAINDER TRUSTS IN CASE OF
INCOME AND GIFT TAXES
For includibility of provisions comparable to section 2055(e)(3)
of this title in this section, see section 514(b) of Pub. L. 95-
600, set out as a note under section 2055 of this title.
DEDUCTION OF CONTRIBUTIONS TO CERTAIN ORGANIZATIONS FOR JUDICIAL
REFORM
Section 29 of Pub. L. 87-834, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided that: "For purposes of
section 170 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] (relating to deduction for charitable, etc., contributions
and gifts), a contribution or gift made after December 31, 1961,
with respect to a referendum occurring during the calendar year
1962 to or for the use of any nonprofit organization created and
operated exclusively -
"(1) to consider proposals for the reorganization of the
judicial branch of the government of any State of the United
States or political subdivision of such State, and
"(2) to provide information, make recommendations, and seek
public support or opposition as to such proposals,
shall be treated as a charitable contribution if no part of the net
earnings of such organization inures to the benefit of any private
shareholder or individual. The provisions of the preceding sentence
shall not apply to any organization which participates in, or
intervenes in, any political campaign on behalf of any candidate
for public office."
-FOOTNOTE-
(!1) So in original. The third closing parenthesis probably should
not appear.
(!2) See References in Text note below.
-End-
-CITE-
26 USC Sec. 171 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 171. Amortizable bond premium
-STATUTE-
(a) General rule
In the case of any bond, as defined in subsection (d), the
following rules shall apply to the amortizable bond premium
(determined under subsection (b)) on the bond:
(1) Taxable bonds
In the case of a bond (other than a bond the interest on which
is excludable from gross income), the amount of the amortizable
bond premium for the taxable year shall be allowed as a
deduction.
(2) Tax-exempt bonds
In the case of any bond the interest on which is excludable
from gross income, no deduction shall be allowed for the
amortizable bond premium for the taxable year.
(3) Cross reference
For adjustment to basis on account of amortizable bond
premium, see section 1016(a)(5).
(b) Amortizable bond premium
(1) Amount of bond premium
For purposes of paragraph (2), the amount of bond premium, in
the case of the holder of any bond, shall be determined -
(A) with reference to the amount of the basis (for
determining loss on sale or exchange) of such bond,
(B)(i) with reference to the amount payable on maturity or on
earlier call date, in the case of any bond other than a bond to
which clause (ii) applies, or and (!1)
(ii) with reference to the amount payable on maturity (or if
it results in a smaller amortizable bond premium attributable
to the period to earlier call date, with reference to the
amount payable on earlier call date), in the case of any bond
described in subsection (a)(1) which is acquired after December
31, 1957, and
(C) with adjustments proper to reflect unamortized bond
premium, with respect to the bond, for the period before the
date as of which subsection (a) becomes applicable with respect
to the taxpayer with respect to such bond.
In no case shall the amount of bond premium on a convertible bond
include any amount attributable to the conversion features of the
bond.
(2) Amount amortizable
The amortizable bond premium of the taxable year shall be the
amount of the bond premium attributable to such year. In the case
of a bond to which paragraph (1)(B)(ii) applies and which has a
call date, the amount of bond premium attributable to the taxable
year in which the bond is called shall include an amount equal to
the excess of the amount of the adjusted basis (for determining
loss on sale or exchange) of such bond as of the beginning of the
taxable year over the amount received on redemption of the bond
or (if greater) the amount payable on maturity.
(3) Method of determination
(A) In general
Except as provided in regulations prescribed by the
Secretary, the determinations required under paragraphs (1) and
(2) shall be made on the basis of the taxpayer's yield to
maturity determined by -
(i) using the taxpayer's basis (for purposes of determining
loss on sale or exchange) of the obligation, and
(ii) compounding at the close of each accrual period (as
defined in section 1272(a)(5)).
(B) Special rule where earlier call date is used
For purposes of subparagraph (A), if the amount payable on an
earlier call date is used under paragraph (1)(B)(ii) in
determining the amortizable bond premium attributable to the
period before the earlier call date, such bond shall be treated
as maturing on such date for the amount so payable and then
reissued on such date for the amount so payable.
(4) Treatment of certain bonds acquired in exchange for other
property
(A) In general
If -
(i) a bond is acquired by any person in exchange for other
property, and
(ii) the basis of such bond is determined (in whole or in
part) by reference to the basis of such other property,
for purposes of applying this subsection to such bond while
held by such person, the basis of such bond shall not exceed
its fair market value immediately after the exchange. A similar
rule shall apply in the case of such bond while held by any
other person whose basis is determined (in whole or in part) by
reference to the basis in the hands of the person referred to
in clause (i).
(B) Special rule where bond exchanged in reorganization
Subparagraph (A) shall not apply to an exchange by the
taxpayer of a bond for another bond if such exchange is a part
of a reorganization (as defined in section 368). If any portion
of the basis of the taxpayer in a bond transferred in such an
exchange is not taken into account in determining bond premium
by reason of this paragraph, such portion shall not be taken
into account in determining the amount of bond premium on any
bond received in the exchange.
(c) Election as to taxable bonds
(1) Eligibility to elect; bonds with respect to which election
permitted
In the case of bonds the interest on which is not excludible
from gross income, this section shall apply only if the taxpayer
has so elected.
(2) Manner and effect of election
The election authorized under this subsection shall be made in
accordance with such regulations as the Secretary shall
prescribe. If such election is made with respect to any bond
(described in paragraph (1)) of the taxpayer, it shall also apply
to all such bonds held by the taxpayer at the beginning of the
first taxable year to which the election applies and to all such
bonds thereafter acquired by him and shall be binding for all
subsequent taxable years with respect to all such bonds of the
taxpayer, unless, on application by the taxpayer, the Secretary
permits him, subject to such conditions as the Secretary deems
necessary, to revoke such election. In the case of bonds held by
a common trust fund, as defined in section 584(a), the election
authorized under this subsection shall be exercisable with
respect to such bonds only by the common trust fund. In case of
bonds held by an estate or trust, the election authorized under
this subsection shall be exercisable with respect to such bonds
only by the fiduciary.
(d) Bond defined
For purposes of this section, the term "bond" means any bond,
debenture, note, or certificate or other evidence of indebtedness,
but does not include any such obligation which constitutes stock in
trade of the taxpayer or any such obligation of a kind which would
properly be included in the inventory of the taxpayer if on hand at
the close of the taxable year, or any such obligation held by the
taxpayer primarily for sale to customers in the ordinary course of
his trade or business.
(e) Treatment as offset to interest payments
Except as provided in regulations, in the case of any taxable
bond -
(1) the amount of any bond premium shall be allocated among the
interest payments on the bond under rules similar to the rules of
subsection (b)(3), and
(2) in lieu of any deduction under subsection (a), the amount
of any premium so allocated to any interest payment shall be
applied against (and operate to reduce) the amount of such
interest payment.
For purposes of the preceding sentence, the term "taxable bond"
means any bond the interest of which is not excludable from gross
income.
(f) Dealers in tax-exempt securities
For special rules applicable, in the case of dealers in
securities, with respect to premium attributable to certain
wholly tax-exempt securities, see section 75.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 61; Pub. L. 85-866, title I,
Sec. 13(a), Sept. 2, 1958, 72 Stat. 1610; Pub. L. 94-455, title
XIX, Secs. 1901(b)(1)(E), 1906(b)(13)(A), 1951(b)(5)(A), Oct. 4,
1976, 90 Stat. 1790, 1834, 1837; Pub. L. 99-514, title VI, Sec.
643(a), title XVIII, Sec. 1803(a)(11)(A), (B), (12)(A), Oct. 22,
1986, 100 Stat. 2285, 2795; Pub. L. 100-647, title I, Sec.
1006(j)(1)(A), Nov. 10, 1988, 102 Stat. 3411; Pub. L. 108-357,
title IV, Sec. 413(c)(2), Oct. 22, 2004, 118 Stat. 1507.)
-MISC1-
AMENDMENTS
2004 - Subsec. (c)(2). Pub. L. 108-357, Sec. 413(c)(2)(B), which
directed amendment of par. (2) by striking out ", or foreign
personal holding company", was executed by striking out "or foreign
personal holding company" after "the common trust fund", to reflect
the probable intent of Congress.
Pub. L. 108-357, Sec. 413(c)(2)(A), struck out ", or by a foreign
personal holding company, as defined in section 552" after "section
584(a)".
1988 - Subsec. (e). Pub. L. 100-647 substituted "Treatment as
offset to interest payments" for "Treatment as interest" in heading
and amended text generally. Prior to amendment, text read as
follows: "Except as provided in regulations, the amount of any
amortizable bond premium with respect to which a deduction is
allowed under subsection (a)(1) for any taxable year shall be
treated as interest for purposes of this title."
1986 - Subsec. (b)(3). Pub. L. 99-514, Sec. 1803(a)(11)(A),
amended par. (3) generally. Prior to amendment, par. (3) read as
follows: "The determinations required under paragraphs (1) and (2)
shall be made -
"(A) in accordance with the method of amortizing bond premium
regularly employed by the holder of the bond, if such method is
reasonable;
"(B) in all other cases, in accordance with regulations
prescribing reasonable methods of amortizing bond premium
prescribed by the Secretary."
Subsec. (b)(4). Pub. L. 99-514, Sec. 1803(a)(12)(A), added par.
(4).
Subsec. (d). Pub. L. 99-514, Sec. 1803(a)(11)(B), struck out
"issued by any corporation and bearing interest (including any like
obligation issued by a government or political subdivision
thereof)," after "evidence of indebtedness,".
Subsecs. (e), (f). Pub. L. 99-514, Sec. 643(a), added subsec. (e)
and redesignated former subsec. (e) as (f).
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1901(b)(1)(E)(i),
substituted "Taxable bonds" for "Interest wholly or partially
taxable" after "(1)".
Subsec. (a)(2). Pub. L. 94-455, Sec. 1901(b)(1)(E)(ii),
substituted "Tax-exempt bonds" for "Interest wholly tax-exempt"
after "(2)".
Subsec. (a)(3). Pub. L. 94-455, Sec. 1901(b)(1)(E)(iii),
redesignated par. (4) as (3). Former par. (3), relating to
adjustment of credit or deduction for interest partially tax-
exempt, was struck out.
Subsec. (a)(4). Pub. L. 94-455, Sec. 1901(b)(1)(E)(iii),
redesignated par. (4) as par. (3).
Subsec. (b)(1)(B)(i). Pub. L. 94-455, Sec. 1951(b)(5)(A)(ii),
substituted "clause (ii) applies, or" for "clause (ii) or (iii)
applies" after "bond to which" and inserted "and" at the end.
Subsec. (b)(1)(B)(ii). Pub. L. 94-455, Secs. 1901(b)(1)(E)(iv),
1951(b)(5)(A)(iii), substituted "subsection (a)(1)" for "subsection
(c)(1)(B)" after "bond described in" and "and" for "or" after
"1957".
Subsec. (b)(1)(B)(iii). Pub. L. 94-455, Sec. 1951(b)(5)(A)(i),
struck out cl. (iii) relating to certain bonds acquired before
1958.
Subsec. (b)(2). Pub. L. 94-455, Sec. 1951(b)(5)(A)(iv), struck
out "or (iii)" after "paragraph (1)(B)(ii)".
Subsec. (b)(3)(B). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (c)(1). Pub. L. 94-455, Sec. 1901(b)(1)(E)(v),
substituted "In the case of bonds the interest on which is not
excludible from gross income, this section shall apply only if the
taxpayer has so elected" for "This section shall apply with respect
to the following classes of taxpayers with respect to the following
classes of bonds only if the taxpayer has elected to have this
section apply" after "election permitted", and struck out subpars.
(A) and (B) relating to partially tax-exempt, and wholly taxable,
bonds.
Subsec. (c)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" in three places after "Secretary".
1958 - Subsec. (b)(1)(B). Pub. L. 85-866, Sec. 13(a)(1),
substituted ", in the case of any bond other than a bond to which
clause (ii) or (iii) applies" for "(but in the case of bonds
described in subsection (c)(1)(B) issued after January 22, 1951,
and acquired after January 22, 1954, only if such earlier call date
is a date more than 3 years after the date of such issue), and",
designated such provision as cl. (i), and added cl. (ii) and (iii).
Subsec. (b)(2). Pub. L. 85-866, Sec. 13(a)(2), substituted "In
the case of a bond to which paragraph (1)(B)(ii) or (iii) applies
and which has a call date," for "In the case of a bond described in
subsection (c)(1)(B) issued after January 22, 1951, and acquired
after January 22, 1954, which has a call date not more than 3 years
after the date of such issue," in second sentence.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years of
foreign corporations beginning after Dec. 31, 2004, and to taxable
years of United States shareholders with or within which such
taxable years of foreign corporations end, see section 413(d)(1) of
Pub. L. 108-357, set out as an Effective and Termination Dates of
2004 Amendments note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(j)(1)(C) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section and
section 1016 of this title] shall apply in the case of obligations
acquired after December 31, 1987; except that the taxpayer may
elect to have such amendment apply to obligations acquired after
October 22, 1986."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 643(b) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1006(j)(2), Nov. 10, 1988, 102 Stat. 3411, provided
that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to obligations acquired after the date of
the enactment of this Act [Oct. 22, 1986], in taxable years ending
after such date.
"(2) Revocation of election. - In the case of a taxpayer with
respect to whom an election is in effect on the date of enactment
of this Act [Oct. 22, 1986], under section 171(c) of the Internal
Revenue Code of 1986, such election shall apply to obligations
acquired after the date of the enactment of this Act only if the
taxpayer chooses (at such time and in such manner as may be
prescribed by the Secretary of the Treasury or his delegate) to
have such election apply with respect to such obligations."
Section 1803(a)(11)(C) of Pub. L. 99-514 provided that:
"(i) The amendments made by this paragraph [amending this
section] shall apply to obligations issued after September 27,
1985.
"(ii) In the case of a taxpayer with respect to whom an election
is in effect on the date of the enactment of this Act [Oct. 22,
1986] under section 171(c) of the Internal Revenue Code of 1954
[now 1986], such election shall apply to obligations issued after
September 27, 1985, only if the taxpayer chooses (at such time and
in such manner as may be prescribed by the Secretary of the
Treasury or his delegate) to have such election apply with respect
to such obligations."
Section 1803(a)(12)(B) of Pub. L. 99-514 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to exchanges after May 6, 1986."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(1)(E)(iii)-(v) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
Amendment by section 1951(b)(5)(A)(i) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1951(d) of Pub. L. 94-455, set out as a note under section 72 of
this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 13(b) of Pub. L. 85-866 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to taxable years ending after December 31, 1957."
SAVINGS PROVISION
Section 1951(b)(5)(B) of Pub. L. 94-455 provided that:
"Notwithstanding the amendments made by subparagraph (A) [amending
this section], in the case of a bond the interest on which is not
excludable from gross income -
"(i) which was issued after January 22, 1951, with a call date
not more than 3 years after the date of such issue, and
"(ii) which was acquired by the taxpayer after January 22,
1954, and before January 1, 1958,
the bond premium for a taxable year beginning after December 31,
1975, shall not be determined under section 171(b)(1)(B)(i) but
shall be determined with reference to the amount payable on
maturity, and if the bond is called before its maturity, the bond
premium for the year in which the bond is called shall be
determined in accordance with the provisions of section 171(b)(2)."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original.
-End-
-CITE-
26 USC Sec. 172 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 172. Net operating loss deduction
-STATUTE-
(a) Deduction allowed
There shall be allowed as a deduction for the taxable year an
amount equal to the aggregate of (1) the net operating loss
carryovers to such year, plus (2) the net operating loss carrybacks
to such year. For purposes of this subtitle, the term "net
operating loss deduction" means the deduction allowed by this
subsection.
(b) Net operating loss carrybacks and carryovers
(1) Years to which loss may be carried
(A) General rule
Except as otherwise provided in this paragraph, a net
operating loss for any taxable year -
(i) shall be a net operating loss carryback to each of the
2 taxable years preceding the taxable year of such loss, and
(ii) shall be a net operating loss carryover to each of the
20 taxable years following the taxable year of the loss.
(B) Special rules for REIT's
(i) In general
A net operating loss for a REIT year shall not be a net
operating loss carryback to any taxable year preceding the
taxable year of such loss.
(ii) Special rule
In the case of any net operating loss for a taxable year
which is not a REIT year, such loss shall not be carried back
to any taxable year which is a REIT year.
(iii) REIT year
For purposes of this subparagraph, the term "REIT year"
means any taxable year for which the provisions of part II of
subchapter M (relating to real estate investment trusts)
apply to the taxpayer.
(C) Specified liability losses
In the case of a taxpayer which has a specified liability
loss (as defined in subsection (f)) for a taxable year, such
specified liability loss shall be a net operating loss
carryback to each of the 10 taxable years preceding the taxable
year of such loss.
(D) Bad debt losses of commercial banks
In the case of any bank (as defined in section 585(a)(2)),
the portion of the net operating loss for any taxable year
beginning after December 31, 1986, and before January 1, 1994,
which is attributable to the deduction allowed under section
166(a) shall be a net operating loss carryback to each of the
10 taxable years preceding the taxable year of the loss and a
net operating loss carryover to each of the 5 taxable years
following the taxable year of such loss.
(E) Excess interest loss
(i) In general
If -
(I) there is a corporate equity reduction transaction,
and
(II) an applicable corporation has a corporate equity
reduction interest loss for any loss limitation year ending
after August 2, 1989,
then the corporate equity reduction interest loss shall be a
net operating loss carryback and carryover to the taxable
years described in subparagraph (A), except that such loss
shall not be carried back to a taxable year preceding the
taxable year in which the corporate equity reduction
transaction occurs.
(ii) Loss limitation year
For purposes of clause (i) and subsection (h), the term
"loss limitation year" means, with respect to any corporate
equity reduction transaction, the taxable year in which such
transaction occurs and each of the 2 succeeding taxable
years.
(iii) Applicable corporation
For purposes of clause (i), the term "applicable
corporation" means -
(I) a C corporation which acquires stock, or the stock of
which is acquired in a major stock acquisition,
(II) a C corporation making distributions with respect
to, or redeeming, its stock in connection with an excess
distribution, or
(III) a C corporation which is a successor of a
corporation described in subclause (I) or (II).
(iv) Other definitions
For definitions of terms used in this subparagraph, see
subsection (h).
(F) Retention of 3-year carryback in certain cases
(i) In general
Subparagraph (A)(i) shall be applied by substituting "3
taxable years" for "2 taxable years" with respect to the
portion of the net operating loss for the taxable year which
is an eligible loss with respect to the taxpayer.
(ii) Eligible loss
For purposes of clause (i), the term "eligible loss" means -
(I) in the case of an individual, losses of property
arising from fire, storm, shipwreck, or other casualty, or
from theft,
(II) in the case of a taxpayer which is a small business,
net operating losses attributable to Presidentially
declared disasters (as defined in section 1033(h)(3)), and
(III) in the case of a taxpayer engaged in the trade or
business of farming (as defined in section 263A(e)(4)), net
operating losses attributable to such Presidentially
declared disasters.
Such term shall not include any farming loss (as defined in
subsection (i)).
(iii) Small business
For purposes of this subparagraph, the term "small
business" means a corporation or partnership which meets the
gross receipts test of section 448(c) for the taxable year in
which the loss arose (or, in the case of a sole
proprietorship, which would meet such test if such
proprietorship were a corporation).
(iv) Coordination with paragraph (2)
For purposes of applying paragraph (2), an eligible loss
for any taxable year shall be treated in a manner similar to
the manner in which a specified liability loss is treated.
(G) Farming losses
In the case of a taxpayer which has a farming loss (as
defined in subsection (i)) for a taxable year, such farming
loss shall be a net operating loss carryback to each of the 5
taxable years preceding the taxable year of such loss.
(H) In the case of a net operating loss for any taxable year
ending during 2001 or 2002, subparagraph (A)(i) shall be
applied by substituting "5" for "2" and subparagraph (F) shall
not apply.
(I) Transmission property and pollution control investment
(i) In general
At the election of the taxpayer for any taxable year ending
after December 31, 2005, and before January 1, 2009, in the
case of a net operating loss for a taxable year ending after
December 31, 2002, and before January 1, 2006, there shall be
a net operating loss carryback to each of the 5 taxable years
preceding the taxable year of such loss to the extent that
such loss does not exceed 20 percent of the sum of the
electric transmission property capital expenditures and the
pollution control facility capital expenditures of the
taxpayer for the taxable year preceding the taxable year for
which such election is made.
(ii) Limitations
For purposes of this subsection -
(I) not more than one election may be made under clause
(i) with respect to any net operating loss for a taxable
year, and
(II) an election may not be made under clause (i) for
more than 1 taxable year beginning in any calendar year.
(iii) Coordination with ordering rule
For purposes of applying subsection (b)(2), the portion of
any loss which is carried back 5 years by reason of clause
(i) shall be treated in a manner similar to the manner in
which a specified liability loss is treated.
(iv) Special rules relating to credit or refund
In the case of the portion of the loss which is carried
back 5 years by reason of clause (i) -
(I) an application under section 6411(a) with respect to
such portion shall not fail to be treated as timely filed
if filed within 24 months after the due date specified
under such section, and
(II) references in sections 6501(h), 6511(d)(2)(A), and
6611(f)(1) to the taxable year in which such net operating
loss arises or results in a net operating loss carryback
shall be treated as references to the taxable year for
which such election is made.
(v) Definitions
For purposes of this subparagraph -
(I) Electric transmission property capital expenditures
The term "electric transmission property capital
expenditures" means any expenditure, chargeable to capital
account, made by the taxpayer which is attributable to
electric transmission property used by the taxpayer in the
transmission at 69 or more kilovolts of electricity for
sale. Such term shall not include any expenditure which may
be refunded or the purpose of which may be modified at the
option of the taxpayer so as to cease to be treated as an
expenditure within the meaning of such term.
(II) Pollution control facility capital expenditures
The term "pollution control facility capital
expenditures" means any expenditure, chargeable to capital
account, made by an electric utility company (as defined in
section 2(3) of the Public Utility Holding Company Act (!1)
(15 U.S.C. 79b(3)), as in effect on the day before the date
of the enactment of the Energy Tax Incentives Act of 2005)
which is attributable to a facility which will qualify as a
certified pollution control facility as determined under
section 169(d)(1) by striking "before January 1, 1976," and
by substituting "an identifiable" for "a new identifiable".
Such term shall not include any expenditure which may be
refunded or the purpose of which may be modified at the
option of the taxpayer so as to cease to be treated as an
expenditure within the meaning of such term.
(2) Amount of carrybacks and carryovers
The entire amount of the net operating loss for any taxable
year (hereinafter in this section referred to as the "loss year")
shall be carried to the earliest of the taxable years to which
(by reason of paragraph (1)) such loss may be carried. The
portion of such loss which shall be carried to each of the other
taxable years shall be the excess, if any, of the amount of such
loss over the sum of the taxable income for each of the prior
taxable years to which such loss may be carried. For purposes of
the preceding sentence, the taxable income for any such prior
taxable year shall be computed -
(A) with the modifications specified in subsection (d) other
than paragraphs (1), (4), and (5) thereof, and
(B) by determining the amount of the net operating loss
deduction without regard to the net operating loss for the loss
year or for any taxable year thereafter,
and the taxable income so computed shall not be considered to be
less than zero.
(3) Election to waive carryback
Any taxpayer entitled to a carryback period under paragraph (1)
may elect to relinquish the entire carryback period with respect
to a net operating loss for any taxable year. Such election shall
be made in such manner as may be prescribed by the Secretary, and
shall be made by the due date (including extensions of time) for
filing the taxpayer's return for the taxable year of the net
operating loss for which the election is to be in effect. Such
election, once made for any taxable year, shall be irrevocable
for such taxable year.
(c) Net operating loss defined
For purposes of this section, the term "net operating loss" means
the excess of the deductions allowed by this chapter over the gross
income. Such excess shall be computed with the modifications
specified in subsection (d).
(d) Modifications
The modifications referred to in this section are as follows:
(1) Net operating loss deduction
No net operating loss deduction shall be allowed.
(2) Capital gains and losses of taxpayers other than corporations
In the case of a taxpayer other than a corporation -
(A) the amount deductible on account of losses from sales or
exchanges of capital assets shall not exceed the amount
includable on account of gains from sales or exchanges of
capital assets; and
(B) the exclusion provided by section 1202 shall not be
allowed.
(3) Deduction for personal exemptions
No deduction shall be allowed under section 151 (relating to
personal exemptions). No deduction in lieu of any such deduction
shall be allowed.
(4) Nonbusiness deductions of taxpayers other than corporations
In the case of a taxpayer other than a corporation, the
deductions allowable by this chapter which are not attributable
to a taxpayer's trade or business shall be allowed only to the
extent of the amount of the gross income not derived from such
trade or business. For purposes of the preceding sentence -
(A) any gain or loss from the sale or other disposition of -
(i) property, used in the trade or business, of a character
which is subject to the allowance for depreciation provided
in section 167, or
(ii) real property used in the trade or business,
shall be treated as attributable to the trade or business;
(B) the modifications specified in paragraphs (1), (2)(B),
and (3) shall be taken into account;
(C) any deduction for casualty or theft losses allowable
under paragraph (2) or (3) of section 165(c) shall be treated
as attributable to the trade or business; and
(D) any deduction allowed under section 404 to the extent
attributable to contributions which are made on behalf of an
individual who is an employee within the meaning of section
401(c)(1) shall not be treated as attributable to the trade or
business of such individual.
(5) Computation of deduction for dividends received, etc.
The deductions allowed by sections 243 (relating to dividends
received by corporations), 244 (relating to dividends received on
certain preferred stock of public utilities), and 245 (relating
to dividends received from certain foreign corporations) shall be
computed without regard to section 246(b) (relating to limitation
on aggregate amount of deductions); and the deduction allowed by
section 247 (relating to dividends paid on certain preferred
stock of public utilities) shall be computed without regard to
subsection (a)(1)(B) of such section.
(6) Modifications related to real estate investment trusts
In the case of any taxable year for which part II of subchapter
M (relating to real estate investment trusts) applies to the
taxpayer -
(A) the net operating loss for such taxable year shall be
computed by taking into account the adjustments described in
section 857(b)(2) (other than the deduction for dividends paid
described in section 857(b)(2)(B)); and
(B) where such taxable year is a "prior taxable year"
referred to in paragraph (2) of subsection (b), the term
"taxable income" in such paragraph shall mean "real estate
investment trust taxable income" (as defined in section
857(b)(2)).
(7) Manufacturing deduction
The deduction under section 199 shall not be allowed.
(e) Law applicable to computations
In determining the amount of any net operating loss carryback or
carryover to any taxable year, the necessary computations involving
any other taxable year shall be made under the law applicable to
such other taxable year.
(f) Rules relating to specified liability loss
For purposes of this section -
(1) In general
The term "specified liability loss" means the sum of the
following amounts to the extent taken into account in computing
the net operating loss for the taxable year:
(A) Any amount allowable as a deduction under section 162 or
165 which is attributable to -
(i) product liability, or
(ii) expenses incurred in the investigation or settlement
of, or opposition to, claims against the taxpayer on account
of product liability.
(B)(i) Any amount allowable as a deduction under this chapter
(other than section 468(a)(1) or 468A(a)) which is in
satisfaction of a liability under a Federal or State law
requiring -
(I) the reclamation of land,
(II) the decommissioning of a nuclear power plant (or any
unit thereof),
(III) the dismantlement of a drilling platform,
(IV) the remediation of environmental contamination, or
(V) a payment under any workers compensation act (within
the meaning of section 461(h)(2)(C)(i)).
(ii) A liability shall be taken into account under this
subparagraph only if -
(I) the act (or failure to act) giving rise to such
liability occurs at least 3 years before the beginning of the
taxable year, and
(II) the taxpayer used an accrual method of accounting
throughout the period or periods during which such act (or
failure to act) occurred.
(2) Limitation
The amount of the specified liability loss for any taxable year
shall not exceed the amount of the net operating loss for such
taxable year.
(3) Special rule for nuclear powerplants
Except as provided in regulations prescribed by the Secretary,
that portion of a specified liability loss which is attributable
to amounts incurred in the decommissioning of a nuclear
powerplant (or any unit thereof) may, for purposes of subsection
(b)(1)(C), be carried back to each of the taxable years during
the period -
(A) beginning with the taxable year in which such plant (or
unit thereof) was placed in service, and
(B) ending with the taxable year preceding the loss year.
(4) Product liability
The term "product liability" means -
(A) liability of the taxpayer for damages on account of
physical injury or emotional harm to individuals, or damage to
or loss of the use of property, on account of any defect in any
product which is manufactured, leased, or sold by the taxpayer,
but only if
(B) such injury, harm, or damage arises after the taxpayer
has completed or terminated operations with respect to, and has
relinquished possession of, such product.
(5) Coordination with subsection (b)(2)
For purposes of applying subsection (b)(2), a specified
liability loss for any taxable year shall be treated as a
separate net operating loss for such taxable year to be taken
into account after the remaining portion of the net operating
loss for such taxable year.
(6) Election
Any taxpayer entitled to a 10-year carryback under subsection
(b)(1)(C) from any loss year may elect to have the carryback
period with respect to such loss year determined without regard
to subsection (b)(1)(C). Such election shall be made in such
manner as may be prescribed by the Secretary and shall be made by
the due date (including extensions of time) for filing the
taxpayer's return for the taxable year of the net operating loss.
Such election, once made for any taxable year, shall be
irrevocable for that taxable year.
(g) Rules relating to bad debt losses of commercial banks
For purposes of this section -
(1) Portion attributable to deduction for bad debts
The portion of the net operating loss for any taxable year
which is attributable to the deduction allowed under section
166(a) shall be the excess of -
(i) the net operating loss for such taxable year, over
(ii) the net operating loss for such taxable year determined
without regard to the amount allowed as a deduction under
section 166(a) for such taxable year.
(2) Coordination with subsection (b)(2)
For purposes of subsection (b)(2), the portion of a net
operating loss for any taxable year which is attributable to the
deduction allowed under section 166(a) shall be treated in a
manner similar to the manner in which a specified liability loss
is treated.
(h) Corporate equity reduction interest losses
For purposes of this section -
(1) In general
The term "corporate equity reduction interest loss" means, with
respect to any loss limitation year, the excess (if any) of -
(A) the net operating loss for such taxable year, over
(B) the net operating loss for such taxable year determined
without regard to any allocable interest deductions otherwise
taken into account in computing such loss.
(2) Allocable interest deductions
(A) In general
The term "allocable interest deductions" means deductions
allowed under this chapter for interest on the portion of any
indebtedness allocable to a corporate equity reduction
transaction.
(B) Method of allocation
Except as provided in regulations and subparagraph (E),
indebtedness shall be allocated to a corporate equity reduction
transaction in the manner prescribed under clause (ii) of
section 263A(f)(2)(A) (without regard to clause (i) thereof).
(C) Allocable deductions not to exceed interest increases
Allocable interest deductions for any loss limitation year
shall not exceed the excess (if any) of -
(i) the amount allowable as a deduction for interest paid
or accrued by the taxpayer during the loss limitation year,
over
(ii) the average of such amounts for the 3 taxable years
preceding the taxable year in which the corporate equity
reduction transaction occurred.
(D) De minimis rule
A taxpayer shall be treated as having no allocable interest
deductions for any taxable year if the amount of such
deductions (without regard to this subparagraph) is less than
$1,000,000.
(E) Special rule for certain unforeseeable events
If an unforeseeable extraordinary adverse event occurs during
a loss limitation year but after the corporate equity reduction
transaction -
(i) indebtedness shall be allocated in the manner described
in subparagraph (B) to unreimbursed costs paid or incurred in
connection with such event before being allocated to the
corporate equity reduction transaction, and
(ii) the amount determined under subparagraph (C)(i) shall
be reduced by the amount of interest on indebtedness
described in clause (i).
(F) Transition rule
If any of the 3 taxable years described in subparagraph
(C)(ii) end on or before August 2, 1989, the taxpayer may
substitute for the amount determined under such subparagraph an
amount equal to the interest paid or accrued (determined on an
annualized basis) during the taxpayer's taxable year which
includes August 3, 1989, on indebtedness of the taxpayer
outstanding on August 2, 1989.
(3) Corporate equity reduction transaction
(A) In general
The term "corporate equity reduction transaction" means -
(i) a major stock acquisition, or
(ii) an excess distribution.
(B) Major stock acquisition
(i) In general
The term "major stock acquisition" means the acquisition by
a corporation pursuant to a plan of such corporation (or any
group of persons acting in concert with such corporation) of
stock in another corporation representing 50 percent or more
(by vote or value) of the stock in such other corporation.
(ii) Exception
The term "major stock acquisition" does not include a
qualified stock purchase (within the meaning of section 338)
to which an election under section 338 applies.
(C) Excess distribution
The term "excess distribution" means the excess (if any) of -
(i) the aggregate distributions (including redemptions)
made during a taxable year by a corporation with respect to
its stock, over
(ii) the greater of -
(I) 150 percent of the average of such distributions
during the 3 taxable years immediately preceding such
taxable year, or
(II) 10 percent of the fair market value of the stock of
such corporation as of the beginning of such taxable year.
(D) Rules for applying subparagraph (B)
For purposes of subparagraph (B) -
(i) Plans to acquire stock
All plans referred to in subparagraph (B) by any
corporation (or group of persons acting in concert with such
corporation) with respect to another corporation shall be
treated as 1 plan.
(ii) Acquisitions during 24-month period
All acquisitions during any 24-month period shall be
treated as pursuant to 1 plan.
(E) Rules for applying subparagraph (C)
For purposes of subparagraph (C) -
(i) Certain preferred stock disregarded
Stock described in section 1504(a)(4), and distributions
(including redemptions) with respect to such stock, shall be
disregarded.
(ii) Issuance of stock
The amounts determined under clauses (i) and (ii)(I) of
subparagraph (C) shall be reduced by the aggregate amount of
stock issued by the corporation during the applicable period
in exchange for money or property other than stock in the
corporation.
(4) Other rules
(A) Ordering rule
For purposes of paragraph (1), in determining the allocable
interest deductions taken into account in computing the net
operating loss for any taxable year, taxable income for such
taxable year shall be treated as having been computed by taking
allocable interest deductions into account after all other
deductions.
(B) Coordination with subsection (b)(2)
For purposes of subsection (b)(2) -
(i) a corporate equity reduction interest loss shall be
treated in a manner similar to the manner in which a
specified liability loss is treated, and
(ii) in determining the net operating loss deduction for
any prior taxable year referred to in the 3rd sentence of
subsection (b)(2), the portion of any net operating loss
which may not be carried to such taxable year under
subsection (b)(1)(E) shall not be taken into account.
(C) Members of affiliated groups
Except as provided by regulations, all members of an
affiliated group filing a consolidated return under section
1501 shall be treated as 1 taxpayer for purposes of this
subsection and subsection (b)(1)(E).
(5) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection, including
regulations -
(A) for applying this subsection to successor corporations
and in cases where a taxpayer becomes, or ceases to be, a
member of an affiliated group filing a consolidated return
under section 1501,
(B) to prevent the avoidance of this subsection through
related parties, pass-through entities, and intermediaries, and
(C) for applying this subsection where more than 1
corporation is involved in a corporate equity reduction
transaction.
(i) Rules relating to farming losses
For purposes of this section -
(1) In general
The term "farming loss" means the lesser of -
(A) the amount which would be the net operating loss for the
taxable year if only income and deductions attributable to
farming businesses (as defined in section 263A(e)(4)) are taken
into account, or
(B) the amount of the net operating loss for such taxable
year.
(2) Coordination with subsection (b)(2)
For purposes of applying subsection (b)(2), a farming loss for
any taxable year shall be treated in a manner similar to the
manner in which a specified liability loss is treated.
(3) Election
Any taxpayer entitled to a 5-year carryback under subsection
(b)(1)(G) from any loss year may elect to have the carryback
period with respect to such loss year determined without regard
to subsection (b)(1)(G). Such election shall be made in such
manner as may be prescribed by the Secretary and shall be made by
the due date (including extensions of time) for filing the
taxpayer's return for the taxable year of the net operating loss.
Such election, once made for any taxable year, shall be
irrevocable for such taxable year.
(j) Election to disregard 5-year carryback for certain net
operating losses
Any taxpayer entitled to a 5-year carryback under subsection
(b)(1)(H) from any loss year may elect to have the carryback period
with respect to such loss year determined without regard to
subsection (b)(1)(H). Such election shall be made in such manner as
may be prescribed by the Secretary and shall be made by the due
date (including extensions of time) for filing the taxpayer's
return for the taxable year of the net operating loss. Such
election, once made for any taxable year, shall be irrevocable for
such taxable year.
(k) Cross references
(1) For treatment of net operating loss carryovers in certain
corporate acquisitions, see section 381.
(2) For special limitation on net operating loss carryovers
in case of a corporate change of ownership, see section 382.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 63; Pub. L. 85-866, title I,
Secs. 14(a), (b), 64(b), title II, Sec. 203(a), (b), Sept. 2, 1958,
72 Stat. 1611, 1656, 1678; Pub. L. 87-710, Sec. 1, Sept. 27, 1962,
76 Stat. 648; Pub. L. 87-792, Sec. 7(f), Oct. 10, 1962, 76 Stat.
829; Pub. L. 87-794, title III, Sec. 317(b), Oct. 11, 1962, 76
Stat. 889; Pub. L. 88-272, title II, Secs. 210(a), (b), 234(b)(5),
Feb. 26, 1964, 78 Stat. 47, 48, 115; Pub. L. 90-225, Sec. 3(a),
Dec. 27, 1967, 81 Stat. 732; Pub. L. 91-172, title IV, Sec. 431(b),
Dec. 30, 1969, 83 Stat. 619; Pub. L. 91-677, Sec. 2(a)-(c), Jan.
12, 1971, 84 Stat. 2061; Pub. L. 94-455, title VIII, Sec. 806(a)-
(c), title X, Sec. 1052(c)(3), title XVI, Sec. 1606(b), (c), title
XIX, Secs. 1901(a)(29), 1906(b)(13)(A), title XXI, Sec. 2126, Oct.
4, 1976, 90 Stat. 1598, 1648, 1755, 1756, 1769, 1834, 1920; Pub. L.
95-30, title I, Sec. 102(b)(2), May 23, 1977, 91 Stat. 137; Pub. L.
95-600, title III, Sec. 371(a), (b), title VI, Sec. 601(b)(1),
title VII, Secs. 701(d)(1), 703(p)(1), Nov. 6, 1978, 92 Stat. 2859,
2896, 2900, 2943; Pub. L. 96-222, title I, Secs. 103(a)(15),
106(a)(1), (6), (7), Apr. 1, 1980, 94 Stat. 214, 221; Pub. L. 96-
595, Sec. 1(a), Dec. 24, 1980, 94 Stat. 3464; Pub. L. 97-34, title
II, Sec. 207(a), Aug. 13, 1981, 95 Stat. 225; Pub. L. 97-354, Sec.
5(a)(22), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 97-362, title I,
Sec. 102(a)-(c), Oct. 25, 1982, 96 Stat. 1727, 1728; Pub. L. 98-
369, div. A, title I, Secs. 91(d), 177(c), title IV, Sec.
491(d)(5), title VII, Sec. 722(a)(4), July 18, 1984, 98 Stat. 606,
710, 849, 973; Pub. L. 99-514, title I, Sec. 104(b)(4), title III,
Sec. 301(b)(3), title IX, Secs. 901(d)(4)(B), 903(a), (b), title
XIII, Sec. 1303(b)(1), (2), title XVIII, Sec. 1899A(6), Oct. 22,
1986, 100 Stat. 2105, 2217, 2380, 2383, 2658, 2958; Pub. L. 100-
647, title I, Secs. 1003(a)(1), 1009(c), Nov. 10, 1988, 102 Stat.
3382, 3449; Pub. L. 101-239, title VII, Sec. 7211(a), (b), Dec. 19,
1989, 103 Stat. 2342, 2343; Pub. L. 101-508, title XI, Secs.
11324(a), 11701(d), 11704(a)(2), 11811(a)-(b)(2)(A), (3), (4), Nov.
5, 1990, 104 Stat. 1388-465, 1388-507, 1388-518, 1388-530, 1388-532
to 1388-534; Pub. L. 103-66, title XIII, Sec. 13113(d)(1), Aug. 10,
1993, 107 Stat. 429; Pub. L. 104-188, title I, Secs. 1702(h)(2),
(16), 1704(t)(5), (30), Aug. 20, 1996, 110 Stat. 1873, 1874, 1887,
1889; Pub. L. 105-34, title X, Sec. 1082(a), (b), Aug. 5, 1997, 111
Stat. 950; Pub. L. 105-277, div. J, title II, Sec. 2013(a)-(c),
title III, Sec. 3004(a), title IV, Secs. 4003(h), 4004(a), Oct. 21,
1998, 112 Stat. 2681-902, 2681-905, 2681-910; Pub. L. 107-147,
title I, Sec. 102(a), (b), title IV, Sec. 417(8), Mar. 9, 2002, 116
Stat. 25, 56; Pub. L. 108-311, title IV, Sec. 403(b)(1), Oct. 4,
2004, 118 Stat. 1187; Pub. L. 109-58, title XIII, Sec. 1311, Aug.
8, 2005, 119 Stat. 1009; Pub. L. 109-135, title IV, Secs. 402(f),
403(a)(17), Dec. 21, 2005, 119 Stat. 2611, 2619.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Energy Tax Incentives Act of
2005, referred to in subsec. (b)(1)(I)(v)(II), is the date of
enactment of title XIII of Pub. L. 109-58, which was approved Aug.
8, 2005.
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(1)(I). Pub. L. 109-58 added subpar. (I).
Subsec. (b)(1)(I)(i). Pub. L. 109-135, Sec. 402(f)(1), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "At the election of the taxpayer
in any taxable year ending after December 31, 2005, and before
January 1, 2009, in the case of a net operating loss in a taxable
year ending after December 31, 2002, and before January 1, 2006,
there shall be a net operating loss carryback to each of the 5
years preceding the taxable year of such loss to the extent that
such loss does not exceed 20 percent of the sum of electric
transmission property capital expenditures and pollution control
facility capital expenditures of the taxpayer for the taxable year
preceding the taxable year in which such election is made."
Subsec. (b)(1)(I)(ii)(I). Pub. L. 109-135, Sec. 402(f)(2),
substituted "for a taxable year" for "in a taxable year".
Subsec. (b)(1)(I)(iv) to (vi). Pub. L. 109-135, Sec. 402(f)(3),
added cl. (iv), redesignated cl. (vi) as (v), and struck out former
cls. (iv) and (v) which read as follows:
"(iv) Application for adjustment. - In the case of any portion of
a net operating loss to which an election under clause (i) applies,
an application under section 6411(a) with respect to such loss
shall not fail to be treated as timely filed if filed within 24
months after the due date specified under such section.
"(v) Special rules relating to refund. - For purposes of a net
operating loss to which an election under clause (i) applies,
references in sections 6501(h), 6511(d)(2)(A), and 6611(f)(1) to
the taxable year in which such net operating loss arises or result
in a net loss carryback shall be treated as references to the
taxable year in which such election occurs."
Subsec. (d)(7). Pub. L. 109-135, Sec. 403(a)(17), added par. (7).
2004 - Subsec. (b)(1)(H). Pub. L. 108-311 struck out "a taxpayer
which has" after "In the case of".
2002 - Subsec. (b)(1)(F)(i). Pub. L. 107-147, Sec. 417(8),
substituted "3 taxable years" for "3 years" and "2 taxable years"
for '2 years".
Subsec. (b)(1)(H). Pub. L. 107-147, Sec. 102(a), added subpar.
(H).
Subsecs. (j), (k). Pub. L. 107-147, Sec. 102(b), added subsec.
(j) and redesignated former subsec. (j) as (k).
1998 - Subsec. (b)(1)(F)(ii). Pub. L. 105-277, Sec. 2013(c),
inserted concluding provisions.
Subsec. (b)(1)(F)(iv). Pub. L. 105-277, Sec. 4003(h), added cl.
(iv).
Subsec. (b)(1)(G). Pub. L. 105-277, Sec. 2013(a), added subpar.
(G).
Subsec. (d)(4)(C). Pub. L. 105-277, Sec. 4004(a), amended subpar.
(C) generally. Prior to amendment, subpar. (C) read as follows:
"any deduction allowable under section 165(c)(3) (relating to
casualty losses) shall not be taken into account; and".
Subsec. (f)(1)(B). Pub. L. 105-277, Sec. 3004(a), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
"Any amount (not described in subparagraph (A)) allowable as a
deduction under this chapter with respect to a liability which
arises under a Federal or State law or out of any tort of the
taxpayer if -
"(i) in the case of a liability arising out of a Federal or
State law, the act (or failure to act) giving rise to such
liability occurs at least 3 years before the beginning of the
taxable year, or
"(ii) in the case of a liability arising out of a tort, such
liability arises out of a series of actions (or failures to act)
over an extended period of time a substantial portion of which
occurs at least 3 years before the beginning of the taxable year.
A liability shall not be taken into account under subparagraph (B)
unless the taxpayer used an accrual method of accounting throughout
the period or periods during which the acts or failures to act
giving rise to such liability occurred."
Subsecs. (i), (j). Pub. L. 105-277, Sec. 2013(b), added subsec.
(i) and redesignated former subsec. (i) as (j).
1997 - Subsec. (b)(1)(A)(i). Pub. L. 105-34, Sec. 1082(a)(1),
substituted "2" for "3".
Subsec. (b)(1)(A)(ii). Pub. L. 105-34, Sec. 1082(a)(2),
substituted "20" for "15".
Subsec. (b)(1)(F). Pub. L. 105-34, Sec. 1082(b), added subpar.
(F).
1996 - Subsec. (b)(1)(E)(ii). Pub. L. 104-188, Sec. 1702(h)(2),
substituted "subsection (h)" for "subsection (m)".
Subsec. (h)(3)(B)(i). Pub. L. 104-188, Sec. 1704(t)(5),
substituted "corporation." for "corporation," at end.
Subsec. (h)(4)(B). Pub. L. 104-188, Sec. 1704(t)(30), substituted
"For purposes of subsection (b)(2) - " for "For purposes of
subsection (b)(2)" in introductory provisions.
Subsec. (h)(4)(C). Pub. L. 104-188, Sec. 1702(h)(16), substituted
"(b)(1)(E)" for "(b)(1)(M)".
1993 - Subsec. (d)(2). Pub. L. 103-66, Sec. 13113(d)(1)(A),
amended heading and text of par. (2) generally. Prior to amendment,
text read as follows: "In the case of a taxpayer other than a
corporation, the amount deductible on account of losses from sales
or exchanges of capital assets shall not exceed the amount
includible on account of gains from sales or exchanges of capital
assets."
Subsec. (d)(4)(B). Pub. L. 103-66, Sec. 13113(d)(1)(B), which
directed the insertion of ", (2)(B)," after "paragraph (1)", was
executed by making the insertion after "paragraphs (1)" to reflect
the probable intent of Congress.
1990 - Subsec. (b). Pub. L. 101-508, Sec. 11811(a), amended
subsec. (b) generally, substituting present provisions for
provisions delineating years to which loss may be carried, relating
to amount of carrybacks and carryovers, and providing for special
rules for foreign expropriation losses.
Subsec. (b)(1)(M)(iii). Pub. L. 101-508, Sec. 11701(d), struck
out "a C corporation" after "means" in introductory provisions,
substituted "a C corporation which acquires" for "which acquires"
in subcl. (I), "a C corporation" for "a corporation" in subcl.
(II), and "any C corporation which is a successor" for "any
successor corporation" in subcl. (III).
Subsec. (f). Pub. L. 101-508, Sec. 11811(b)(1), (2)(A),
redesignated subsec. (j) as (f), substituted heading for one which
read: "Rules relating to product liability losses", and amended
text generally, substituting present provisions for provisions
defining terms "product liability loss" and "product liability",
and providing for an election with respect to carrybacks of such
losses.
Subsec. (g). Pub. L. 101-508, Sec. 11811(b)(1), redesignated
subsec. (l) as (g) and struck out former subsec. (g) which related
to carryover of net operating losses for certain regulated
transportation corporations.
Subsec. (g)(2). Pub. L. 101-508, Sec. 11811(b)(3), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "In
applying paragraph (2) of subsection (b), the portion of the net
operating loss for any taxable year which is attributable to the
deduction allowed under section 166(a) shall be treated in a manner
similar to the manner in which a foreign expropriation loss is
treated."
Subsec. (h). Pub. L. 101-508, Sec. 11811(b)(1), redesignated
subsec. (m) as (h) and struck out former subsec. (h) which defined
"foreign expropriation loss".
Subsec. (h)(3)(B)(ii). Pub. L. 101-508, Sec. 11324(a), in par.
(3)(B)(ii), formerly subsec. (m)(3)(B)(ii), substituted heading for
one which read: "Exceptions" and amended text generally. Prior to
amendment, text read as follows: "The term 'major stock
acquisition' shall not include -
"(I) a qualified stock purchase (within the meaning of section
338) to which an election under section 338 applies, or
"(II) except as provided in regulations, an acquisition in
which a corporation acquires stock of another corporation which,
immediately before the acquisition, was a member of an affiliated
group (within the meaning of section 1504(a)) other than the
common parent of such group."
Subsec. (h)(4)(B). Pub. L. 101-508, Sec. 11811(b)(4), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "In applying paragraph (2) of subsection (b), the
corporate equity reduction interest loss shall be treated in a
manner similar to the manner in which a foreign expropriation loss
is treated."
Pub. L. 101-508, Sec. 11704(a)(2), substituted "subsection
(b)(2)" for "subsection (B)(2)" in heading.
Subsec. (i). Pub. L. 101-508, Sec. 11811(b)(1), redesignated
subsec. (n) as (i) and struck out former subsec. (i) which provided
for rules relating to mortgage disposition losses of the Federal
National Mortgage Association or the Federal Home Loan Mortgage
Corporation.
Subsec. (j). Pub. L. 101-508, Sec. 11811(b)(1), redesignated
subsec. (j) as (f).
Subsec. (k). Pub. L. 101-508, Sec. 11811(b)(1), struck out
subsec. (k) which related to definitions and special rules relating
to deferred statutory or tort liability losses.
Subsecs. (l) to (n). Pub. L. 101-508, Sec. 11811(b)(1),
redesignated subsecs. (l) to (n) as (g) to (i), respectively.
1989 - Subsec. (b)(1)(M). Pub. L. 101-239, Sec. 7211(a), added
subpar. (M).
Subsecs. (m), (n). Pub. L. 101-239, Sec. 7211(b), added subsec.
(m) and redesignated former subsec. (m) as (n).
1988 - Subsec. (b)(1)(A). Pub. L. 100-647, Sec. 1009(c)(2),
substituted "Except as otherwise provided in this paragraph, a net
operating loss" for "Except as provided in subparagraphs (D), (E),
(F), (G), (H), (I), (J), (K), (L), and (M), a net operating loss".
Subsec. (b)(1)(B). Pub. L. 100-647, Sec. 1009(c)(3), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "Except as provided in subparagraphs (C), (D), and (E), a
net operating loss for any taxable year ending after December 31,
1955, shall be a net operating loss carryover to each of the 5
taxable years following the taxable year of such loss. Except as
provided in subparagraphs (C), (D), (E), (F), (G), (H), (J), (L),
and (M), a net operating loss for any taxable year ending after
December 31, 1975, shall be a net operating loss carryover to each
of the 15 taxable years following the taxable year of such loss."
Subsec. (b)(1)(K) to (M). Pub. L. 100-647, Sec. 1009(c)(1),
redesignated subpars. (L) and (M) as (K) and (L), respectively.
Subsec. (d)(4)(B). Pub. L. 100-647, Sec. 1003(a)(1), substituted
"paragraphs (1) and (3)" for "paragraphs (1), (2)(B), and (3)".
1986 - Subsec. (b)(1)(A), (B). Pub. L. 99-514, Sec. 903(b)(2)(A),
(B), inserted reference to subpars. (L) and (M).
Subsec. (b)(1)(F). Pub. L. 99-514, Sec. 903(a)(1), inserted "and
before January 1, 1987,".
Pub. L. 99-514, Sec. 901(d)(4)(B), substituted "referred to in
section 582(c)(5)" for "to which section 585, 586, or 593 applies".
Subsec. (b)(1)(G). Pub. L. 99-514, Sec. 903(a)(2), inserted "and
before January 1, 1987,".
Subsec. (b)(1)(H). Pub. L. 99-514, Sec. 903(a)(3)(A), struck out
"after December 31, 1981," and inserted "after December 31, 1981,
and before January 1, 1987,".
Pub. L. 99-514, Sec. 903(a)(3)(B), which directed that subpar.
(H) be amended by striking out "after December 31, 1984," and
inserting "after December 31, 1984, and before January 1, 1987,",
was executed by striking out "after December 31, 1984" and
inserting "after December 31, 1984, and before January 1, 1987", to
reflect the probable intent of Congress and the fact that no comma
appeared after "1984" and was not necessary after "1987".
Subsec. (b)(1)(J), (K). Pub. L. 99-514, Sec. 1303(b)(1),
redesignated subpar. (K) as (J) and struck out former subpar. (J)
which read as follows: "In the case of an electing GSOC which has a
net operating loss for any taxable year such loss shall not be a
net operating loss carryback to any taxable year preceding the year
of such loss, but shall be a net operating loss carryover to each
of the 10 taxable years following the year of such loss."
Subsec. (b)(1)(L), (M). Pub. L. 99-514, Sec. 903(b)(1), added
subpars. (L) and (M).
Subsec. (d)(2). Pub. L. 99-514, Sec. 301(b)(3), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "In the
case of a taxpayer other than a corporation -
"(A) the amount deductible on account of losses from sales or
exchanges of capital assets shall not exceed the amount
includible on account of gains from sales or exchanges of capital
assets; and
"(B) the deduction for long-term capital gains provided by
section 1202 shall not be allowed."
Subsec. (d)(6). Pub. L. 99-514, Sec. 1899A(6), added heading.
Subsec. (d)(7). Pub. L. 99-514, Sec. 104(b)(4), struck out par.
(7), zero bracket amount, which read as follows: "In the case of a
taxpayer other than a corporation, the zero bracket amount shall be
treated as a deduction allowed by this chapter. For purposes of
subsection (c) -
"(A) the deduction provided by the preceding sentence shall be
in lieu of any itemized deductions of the taxpayer, and
"(B) such sentence shall not apply to an individual who elects
to itemize deductions."
Subsec. (k)(2), (4). Pub. L. 99-514, Sec. 1303(b)(2), substituted
"subsection (b)(1)(J)" for "subsection (b)(1)(K)".
Subsecs. (l), (m). Pub. L. 99-514, Sec. 903(b)(2)(C), added
subsec. (l) and redesignated former subsec. (l) as (m).
1984 - Subsec. (b)(1)(A). Pub. L. 98-369, Sec. 91(d)(3)(A),
substituted "(J), and (K)" for "and (J)".
Subsec. (b)(1)(H). Pub. L. 98-369, Sec. 177(c)(1)(A), inserted ",
or a net operating loss of the Federal Home Loan Mortgage
Corporation for any taxable year beginning after December 31, 1984"
in introductory provisions.
Subsec. (b)(1)(H)(i), (ii). Pub. L. 98-369, Sec. 177(c)(1)(B),
(C), struck out "FNMA" before "mortgage disposition loss".
Subsec. (b)(1)(K). Pub. L. 98-369, Sec. 91(d)(1), added subpar.
(K).
Subsec. (b)(2)(A). Pub. L. 98-369, Sec. 722(a)(4)(A), substituted
"and (5)" for "and (6)".
Subsec. (d)(4)(D). Pub. L. 98-369, Sec. 491(d)(5), struck out "or
section 405(c)" after "section 404".
Subsec. (d)(6) to (8). Pub. L. 98-369, Sec. 722(a)(4)(B),
redesignated pars. (7) and (8) as (6) and (7), respectively.
Subsec. (h). Pub. L. 98-369, Sec. 91(d)(3)(B), substituted "this
section" for "subsection (b)" in introductory provisions.
Subsec. (i). Pub. L. 98-369, Sec. 177(c)(2), substituted
"Mortgage disposition loss of the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation" for
"FNMA mortgage disposition loss" in heading and struck out "FNMA"
before "mortgage disposition loss" wherever appearing in text.
Subsec. (j). Pub. L. 98-369, Sec. 91(d)(3)(B), substituted "this
section" for "subsection (b)" in introductory provisions.
Subsecs. (k), (l). Pub. L. 98-369, Sec. 91(d)(2), added subsec.
(k) and redesignated former subsec. (k) as (l).
1982 - Subsec. (b)(1)(A). Pub. L. 97-362, Sec. 102(c)(1),
substituted "(H), (I), and (J)" for "(H), and (I)".
Subsec. (b)(1)(B). Pub. L. 97-362, Sec. 102(c)(2), substituted
"(H), and (J)" for "and (I)".
Subsec. (b)(1)(H). Pub. L. 97-362, Sec. 102(a), added subpar.
(H). Former subpar. (H) redesignated (I).
Subsec. (b)(1)(I). Pub. L. 97-362, Sec. 102(a), (c)(3),
redesignated former subpar. (H) as (I) and substituted "subsection
(j)" for "subsection (i)". Former subpar. (I) redesignated (J).
Subsec. (b)(1)(J). Pub. L. 97-362, Sec. 102(a), redesignated
former subpar. (I) as (J).
Subsec. (f). Pub. L. 97-354 struck out subsec. (f) relating to
net operating loss of electing small business corporation.
Subsec. (i). Pub. L. 97-362, Sec. 102(b), added subsec. (i).
Former subsec. (i) redesignated (j).
Subsec. (j). Pub. L. 97-362, Sec. 102(b), (c)(4), redesignated
former subsec. (i) as (j) and, in par. (3) of subsec. (j) as so
redesignated, substituted "subsection (b)(1)(I)" for "subsection
(b)(1)(H)" wherever appearing. Former subsec. (j) redesignated (k).
Subsec. (k). Pub. L. 97-362, Sec. 102(b), redesignated former
subsec. (j) as (k).
1981 - Subsec. (b)(1)(B). Pub. L. 97-34, Sec. 207(a)(1),
substituted "15 taxable years" for "7 taxable years".
Subsec. (b)(1)(C). Pub. L. 97-34, Sec. 207(a)(2)(A), substituted
"ending after December 31, 1955, and before January 1, 1976, shall"
for "ending after December 31, 1955, shall" and struck out
provision that, for any taxable year ending after Dec. 31, 1975,
the preceding sentence was to be applied by substituting "9 taxable
years" for "7 taxable years".
Subsec. (b)(1)(E)(i)(II). Pub. L. 97-34, Sec. 207(a)(2)(B)(i),
substituted "15" for "8".
Subsec. (b)(1)(E)(ii). Pub. L. 97-34, Sec. 207(a)(2)(B)(ii),
struck out designation subclause "(I)" for provisions prohibiting a
loss carryback to any taxable year which is a REIT year and struck
out provision formerly designated as subclause (II) directing that
the number of taxable years to which a loss could be a net
operating loss carryover under subparagraph (B) be increased (to a
number not greater than 8) by the number of taxable years to which
such loss could not be a net operating loss carryback by reason of
subclause (I).
Subsec. (g)(3)(C). Pub. L. 97-34, Sec. 207(a)(2)(C), struck out
subpar. (C) which provided that, in the case of a net operating
loss carryover from a loss year ending after Dec. 31, 1975,
subpars. (A) and (B) were to be applied by substituting "8th
taxable year" for "6th taxable year" and "9th taxable year" for
"7th taxable year".
1980 - Subsec. (b)(1)(A). Pub. L. 96-222, Sec. 106(a)(6),
substituted ", (H), and (I)" for "and (H)".
Pub. L. 96-222, Sec. 103(a)(15), amended directory language of
Pub. L. 95-600, Sec. 371(a)(2), to correct an error, and did not
involve any change in text. See 1978 Amendment note for subsec.
(b)(1)(A) below.
Subsec. (b)(1)(B). Pub. L. 96-222, Sec. 106(a)(7), substituted
"(G), and (I)" for "and (G)".
Subsec. (b)(1)(E). Pub. L. 96-595 generally revised subpar. (E)
to permit a trust which was formerly a real estate investment trust
an additional year of carryforward of net operating losses for each
year it was denied a net operating loss carryback because of its
status as a real estate investment trust, and removed the
restriction that a net operating loss incurred before 1976 can be
carried forward to the 6th, 7th, or 8th year only if it qualified
as a real estate investment trust for all years from the loss year
through the carryover year.
Subsec. (b)(1)(I). Pub. L. 96-222, Sec. 106(a)(1), redesignated
former subpar. (H), added by section 601(b) of Pub. L. 95-600
relating to an electing GSOC, as (I).
1978 - Subsec. (b)(1)(A). Pub. L. 95-600, Sec. 371(a)(2), as
amended by Pub. L. 96-222, Sec. 103(a)(15), substituted "(G), and
(H)" for "and (G)".
Pub. L. 95-600, Sec. 703(p)(1)(A), struck out provisions relating
to net operating loss carryback with respect to a taxable year
ending on or after Dec. 31, 1962, for which a certification has
been issued under section 317 of the Trade Expansion Act of 1962.
Subsec. (b)(1)(B). Pub. L. 95-600, Sec. 701(d)(1), inserted
reference to subpar. (G).
Subsec. (b)(1)(H). Pub. L. 95-600, Sec. 371(a)(1), added subpar.
(H) relating to product liability losses.
Pub. L. 95-600, Sec. 601(b)(1), added subpar. (H) relating to an
electing GSOC.
Subsec. (b)(3)(A). Pub. L. 95-600, Sec. 703(p)(1)(B),
redesignated subpar. (C) as (A). Former subpar. (A), which related
to conditions for application of paragraph (1)(A)(ii), was struck
out.
Subsec. (b)(3)(B). Pub. L. 95-600, Sec. 703(p)(1)(B), (C),
redesignated subpar. (D) as (B) and substituted "subparagraph
(A)(iii)" for "subparagraph (C)(iii)". Former subpar. (B), which
related to the applicability of paragraph (1)(A)(ii) to
partnerships and electing small business corporations, was struck
out.
Subsec. (b)(3)(C). Pub. L. 95-600, Sec. 703(p)(1)(B),
redesignated subpar. (E) as (C). Former subpar. (C) redesignated
(A).
Subsec. (b)(3)(D), (E). Pub. L. 95-600, Sec. 703(p)(1)(B),
redesignated subpars. (D) and (E) as (B) and (C), respectively.
Subsecs. (i), (j). Pub. L. 95-600, Sec. 371(b), added subsec. (i)
and redesignated former subsec. (i) as (j).
1977 - Subsec. (d)(8). Pub. L. 95-30 added par. (8).
1976 - Subsec. (b)(1)(B). Pub. L. 94-455, Sec. 806(a), inserted
"Except as provided in subparagraphs (C), (D), (E), and (F), a net
operating loss for any taxable year ending after December 31, 1975,
shall be a net operating loss carryover to each of the 7 taxable
years following the taxable year of such loss" after "year of such
loss".
Subsec. (b)(1)(C). Pub. L. 94-455, Secs. 806(b)(1),
1901(a)(29)(C)(ii), inserted "For any taxable year ending after
December 31, 1975, the preceding sentence shall be applied by
substituting '9 taxable years' for '7 taxable years' " after "year
of such loss", substituted "subsection (g)(1)" for "subsection
(j)(1)" after "as defined in" and "subsection (g)" for "subsection
(j)" after "as provided in".
Subsec. (b)(1)(D). Pub. L. 94-455, Secs. 1901(a)(29)(C)(iii),
2126, substituted "subsection (h)" for "subsection (k)" after "as
defined in" and "20" for "15" after "expropriation loss, to each of
the".
Subsec. (b)(1)(E). Pub. L. 94-455, Sec. 1606(b), added subpar.
(E).
Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(a)(29)(C)(iv),
substituted "subsection (g)" for "subsections (i) and (j)" after
"provided in".
Subsec. (b)(3). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (b)(3)(A)(i), (ii). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" in two places after "Secretary".
Subsec. (b)(3)(C)(i). Pub. L. 94-455, Sec. 1901(a)(29)(C)(iii),
substituted "subsection (h)" for "subsection (k)" after "as defined
in".
Subsec. (b)(3)(C)(ii), (iii). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "Or his delegate" in two places after
"Secretary".
Subsec. (b)(3)(E). Pub. L. 94-455, Secs. 806(c),
1901(a)(29)(A)(ii), added subpar. (E). Former subpar. (E), which
related to applicability of special rules in computing taxpayer's
net operating loss deduction, was struck out.
Subsec. (b)(3)(F). Pub. L. 94-455, Sec. 1901(a)(29)(A)(ii),
struck out subpar. (F) which defined "class of products" and
provided for the use of information compiled or published by
Secretary of Commerce or manufacturers as prima facie evidence of
the total number of units of such class of products manufactured
and produced in the United States in a calendar year.
Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(29)(B), struck out
"(for any taxable year ending after December 31, 1953)" after
"means".
Subsec. (d)(5), (6). Pub. L. 94-455, Sec. 1052(c)(3), struck out
par. (5) relating to special deductions for corporations concerning
partially tax-exempt interest and Western Hemisphere corporations,
and redesignated par. (6) as (5).
Subsec. (d)(7). Pub. L. 94-455, Sec. 1606(c), added par. (7).
Subsec. (e). Pub. L. 94-455, Sec. 1901(a)(29)(D), struck out "The
preceding sentence shall apply with respect to all taxable years,
whether they begin before, on, or after January 1, 1954" after
"applicable to such other taxable year".
Subsec. (f). Pub. L. 94-455, Sec. 1901(a)(29)(C)(i), redesignated
subsec. (h) as (f). Former subsec. (f), relating to net operating
loss deduction for taxable years beginning in 1953 and ending in
1954, was struck out.
Subsec. (g). Pub. L. 94-455, Sec. 1901(a)(29)(C)(i), redesignated
subsec. (j) as (g). Former subsec. (g), relating to special
transitional rules to be applied to net operating loss deductions,
was struck out.
Subsec. (g)(3)(C). Pub. L. 94-455, Sec. 806(b)(2), added subpar.
(C).
Subsec. (g)(4). Pub. L. 94-455, Sec. 1901(a)(29)(E), struck out
par. (4) relating to carryover of net operating loss for certain
regulated transportation corporations for taxable years beginning
in 1955 and ending in 1956.
Subsec. (h). Pub. L. 94-455, Sec. 1901(a)(29)(C)(i), redesignated
subsec. (k) as (h). Former subsec. (h) redesignated (f).
Subsec. (i). Pub. L. 94-455, Sec. 1901(a)(29)(C)(i), redesignated
subsec. (l) as (i). Former subsec. (i), relating to carryback of
net operating loss for taxable years beginning in 1957 and ending
in 1958, was struck out.
Subsecs. (j) to (l). Pub. L. 94-455, Sec. 1901(a)(29)(C)(i),
redesignated subsecs. (j) to (l) as (g) to (i), respectively.
1971 - Subsec. (b)(1)(D). Pub. L. 91-677, Sec. 2(a), inserted
"(or, with respect to that portion of the net operating loss for
such year attributable to a Cuban expropriation loss, to each of
the 15 taxable years following the taxable year of such loss)"
after "the 10 taxable years following the taxable year of such
loss".
Subsec. (b)(2). Pub. L. 91-677, Sec. 2(b), inserted provisions
relating to treatment of Cuban expropriation losses.
Subsec. (k)(3). Pub. L. 91-677, Sec. 2(c), added par. (3).
1969 - Subsec. (b)(1). Pub. L. 91-172 substituted "(E), (F), and
(G)", for "and (E)" in subpar. (A)(i) and added subpars. (F) and
(G).
1967 - Subsec. (b)(1). Pub. L. 90-225, Sec. 3(a)(1)-(3), inserted
reference to subpar. (E) in subpars. (A)(i) and (B), and added
subpar. (E).
Subsec. (b)(3)(E), (F). Pub. L. 90-225, Sec. 3(a)(4), added
subpars. (E) and (F).
1964 - Subsec. (b). Pub. L. 88-272, Sec. 210(a)(1)-(4), (b),
inserted subpar. (D) in par. (1), references to such subpar. (D) in
par. (1)(A)(i) and (1)(B), subpars. (C) and (D) in par. (3),
provided that the net operating loss deduction in par. (2)(B) be
determined without regard to that portion of a net operating loss
due to a foreign expropriation loss, if such portion may not, under
par. (1)(D), be carried back to such prior taxable year, and that
if a portion of the net operating loss is attributable to foreign
expropriation to which par. (1)(D) applied, such portion shall be
considered a separate loss for such year to be applied after the
other portion of such net operating loss.
Subsec. (j)(1), (2), Pub. L. 88-272, Sec. 234(b)(5), substituted
references to section 7701(a)(33) for references to section
1503(c)(1) or (2), wherever appearing.
Subsecs. (k), (l). Pub. L. 88-272, Sec. 210(a)(5), added subsec.
(k) and redesignated former subsec. (k) as (l).
1962 - Subsec. (b)(1). Pub. L. 87-794 designated existing
provisions as cl. (A)(i) and struck out provisions therefrom which
authorized a net operating loss for any taxable year ending after
Dec. 31, 1957, to be a net operating loss carryover to each of the
5 taxable years following the taxable year of such loss, and added
cls. (A)(ii), (B), and (C).
Subsec. (b)(2). Pub. L. 87-794 inserted reference to subsection
(j), and substituted "shall be carried to the earliest of the
taxable years to which (by reason of paragraph (1))" for "shall be
carried to the earliest of the 8 taxable years to which (by reason
of subparagraphs (A) and (B) of paragraph (1))", and "each of the
other taxable years" for "each of the other 7 taxable years".
Subsec. (b)(3). Pub. L. 87-794 added par. (3).
Pub. L. 87-710, Sec. 1(a), authorized a carryover of a net
operating loss for any taxable year ending after Dec. 31, 1955, to
each of the 5 taxable years following the taxable year of loss, or
when such loss occurs in the case of regulated transportation
corporation, except as provided in subsec. (j), then to each of the
7 taxable years following the taxable year of loss, and struck out
provisions authorizing a net operating loss for any taxable years
ending Dec. 31, 1957, to be carried over to each of the 5 taxable
years following the taxable year of such loss, in par. (1), and
inserted reference to subsec. (j) in par. (2).
Subsec. (d)(4)(D). Pub. L. 87-792 added subpar. (D).
Subsecs. (j), (k). Pub. L. 87-710, Sec. 1(b), added subsec. (j)
and redesignated former subsec. (j) as (k).
1958 - Subsec. (b). Pub. L. 85-866, Sec. 203(a), substituted
"1957" for "1953", and "3" for "2" in par. (1), and substituted
"subsection (i)" for "subsection (f)", "8" for "7", and "7" for "6"
in par. (2).
Subsecs. (f)(3), (4). Pub. L. 85-866, Sec. 14(a), added pars. (3)
and (4).
Subsec. (g)(3), (4). Pub. L. 85-866, Sec. 14(b), added par. (3)
and redesignated former par. (3) as (4).
Subsecs. (h) to (j). Pub. L. 85-866, Secs. 64(b), 203(b), added
subsecs. (h) and (i) and redesignated former subsec. (h) as (j).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by 402(f) of Pub. L. 109-135 effective as if included
in the provision of the Energy Policy Act of 2005, Pub. L. 109-58,
to which such amendment relates, see section 402(m)(1) of Pub. L.
109-135, set out as an Effective and Termination Dates of 2005
Amendments note under section 23 of this title.
Amendment by section 403(a)(17) of Pub. L. 109-135 effective as
if included in the provision of the American Jobs Creation Act of
2004, Pub. L. 108-357, to which such amendment relates, see section
403(nn) of Pub. L. 109-135, set out as a note under section 26 of
this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 effective as if included in the
provisions of the Job Creation and Worker Assistance Act of 2002,
Pub. L. 107-147, to which such amendment relates, see section
403(f) of Pub. L. 108-311, set out as a note under section 56 of
this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title I, Sec. 102(d), Mar. 9, 2002, 116 Stat.
26, provided that: "Except as provided in subsection (c) [amending
section 56 of this title and enacting provisions set out as a note
under section 56 of this title], the amendments made by this
section [amending this section and section 56 of this title] shall
apply to net operating losses for taxable years ending after
December 31, 2000."
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title II, Sec. 2013(d), Oct. 21, 1998,
112 Stat. 2681-903, provided that: "The amendments made by this
section [amending this section] shall apply to net operating losses
for taxable years beginning after December 31, 1997."
Pub. L. 105-277, div. J, title III, Sec. 3004(b), Oct. 21, 1998,
112 Stat. 2681-906, provided that: "The amendment made by this
section [amending this section] shall apply to net operating losses
arising in taxable years ending after the date of the enactment of
this Act [Oct. 21, 1998]."
Amendment by section 4003(h) of Pub. L. 105-277 effective as if
included in the provision of the Taxpayer Relief Act of 1997, Pub.
L. 105-34, to which such amendment relates, see section 4003(l) of
Pub. L. 105-277, set out as a note under section 86 of this title.
Pub. L. 105-277, div. J, title IV, Sec. 4004(c)(1), Oct. 21,
1998, 112 Stat. 2681-911, provided that: "The amendments made by
subsections (a) and (b)(3) [amending this section and section 873
of this title] shall apply to taxable years beginning after
December 31, 1983."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1082(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to net
operating losses for taxable years beginning after the date of the
enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1702(h)(2), (16) of Pub. L. 104-188
effective, except as otherwise expressly provided, as if included
in the provision of the Revenue Reconciliation Act of 1990, Pub. L.
101-508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to stock issued after Aug.
10, 1993, see section 13113(e) of Pub. L. 103-66, set out as a note
under section 53 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11324(b) of Pub. L. 101-508 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply to acquisitions after October 9, 1990.
"(2) Binding contract exception. - The amendment made by
subsection (a) shall not apply to any acquisition pursuant to a
written binding contract in effect on October 9, 1990, and at all
times thereafter before such acquisition."
Amendment by section 11701(d) of Pub. L. 101-508 effective,
except as otherwise provided, as if included in the provision of
the Revenue Reconciliation Act of 1989, Pub. L. 101-239, title VII,
to which such amendment relates, see section 11701(n) of Pub. L.
101-508, set out as a note under section 42 of this title.
Section 11811(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section] shall apply
to net operating losses for taxable years beginning after December
31, 1990."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7211(c) of Pub. L. 101-239 provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section] shall apply
to corporate equity reduction transactions occurring after August
2, 1989, in taxable years ending after August 2, 1989.
"(2) Exceptions. - In determining whether a corporate equity
reduction transaction has occurred after August 2, 1989, there
shall not be taken into account -
"(A) acquisitions or redemptions of stock, or distributions
with respect to stock, occurring on or before August 2, 1989,
"(B) acquisitions or redemptions of stock after August 2, 1989,
pursuant to a binding written contract (or tender offer filed
with the Securities and Exchange Commission) in effect on August
2, 1989, and at all times thereafter before such acquisition or
redemption, or
"(C) any distribution with respect to stock after August 2,
1989, which was declared on or before August 2, 1989.
Any distribution to which the preceding sentence applies shall be
taken into account under section 172(m)(3)(C)(ii)(I) of the
Internal Revenue Code of 1986 (relating to base period for
distributions)."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 301(b)(3) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 301(c) of
Pub. L. 99-514, set out as a note under section 62 of this title.
Amendment by section 901(d)(4)(B) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 901(e) of
Pub. L. 99-514, set out as a note under section 166 of this title.
Section 903(c) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to losses incurred in taxable years beginning after December 31,
1986.
"(2) Additional carryforward period for losses of thrift
institutions. - Subparagraph (M) of section 172(b)(1) of the
Internal Revenue Code of 1986 (as added by this section) shall
apply to losses incurred in taxable years beginning after December
31, 1981."
Amendment by section 1303(b)(1), (2) of Pub. L. 99-514 effective
Oct. 22, 1986, see section 1311(f) of Pub. L. 99-514, as amended,
set out as an Effective Date; Transitional Rules note under section
141 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 91(d) of Pub. L. 98-369 applicable to losses
for taxable years beginning after Dec. 31, 1983, see section
91(g)(6) of Pub. L. 98-369, as amended, set out as a note under
section 461 of this title.
Section 177(d) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1812(d)(2), Oct. 22, 1986, 100 Stat.
2095, 2836, provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 246 of this title and section 1452 of
Title 12, Banks and Banking] shall take effect on January 1, 1985.
"(2) Adjusted basis of assets. -
"(A) In general. - Except as otherwise provided in subparagraph
(B), the adjusted basis of any asset of the Federal Home Loan
Mortgage Corporation held on January 1, 1985, shall -
"(i) for purposes of determining any loss, be equal to the
lesser of the adjusted basis of such asset or the fair market
value of such asset as of such date, and
"(ii) for purposes of determining any gain, be equal to the
higher of the adjusted basis of such asset or the fair market
value of such asset as of such date.
"(B) Special rule for tangible depreciable property. - In the
case of any tangible property which -
"(i) is of a character subject to the allowance for
depreciation provided by section 167 of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954], and
"(ii) is held by the Federal Home Loan Mortgage Corporation
on January 1, 1985,
the adjusted basis of such property shall be equal to the lesser
of the basis of such property or the fair market value of such
property as of such date.
"(3) Treatment of participation certificates. -
"(A) In general. - Paragraph (2) shall not apply to any right
to receive income with respect to any mortgage pool participation
certificate or other similar interest in any mortgage (not
including any mortgage).
"(B) Treatment of certain sales after march 15, 1984, and
before january 1, 1985. - If any gain is realized on the sale or
exchange of any right described in subparagraph (A) after March
15, 1984, and before January 1, 1985, the gain shall not be
recognized when realized but shall be recognized on January 1,
1985.
"(4) Clarification of earnings and profits of federal home loan
mortgage corporation. -
"(A) Treatment of distribution of preferred stock, etc. - For
purposes of the Internal Revenue Code of 1986, the distribution
of preferred stock by the Federal Home Loan Mortgage Corporation
during December of 1984, and the other distributions of such
stock by Federal Home Loan Banks during January of 1985, shall be
treated as if they were distributions of money equal to the fair
market value of the stock on the date of the distribution by the
Federal Home Loan Banks (and such stock shall be treated as if it
were purchased with the money treated as so distributed). No
deduction shall be allowed under section 243 of the Internal
Revenue Code of 1986 with respect to any dividend paid by the
Federal Home Loan Mortgage Corporation out of earnings and
profits accumulated before January 1, 1985.
"(B) Section 246(a) not to apply to distributions out of
earnings and profits accumulated during 1985. - Subsection (a) of
section 246 of the Internal Revenue Code of 1986 shall not apply
to any dividend paid by the Federal Home Loan Mortgage
Corporation during 1985 out of earnings and profits accumulated
after December 31, 1984.
"(5) Adjusted basis. - For purposes of this subsection, the
adjusted basis of any asset shall be determined under part II of
subchapter O of the Internal Revenue Code of 1986.
"(6) No carrybacks for years before 1985. - No net operating
loss, capital loss, or excess credit of the Federal Home Loan
Mortgage Corporation for any taxable year beginning after December
31, 1984, shall be allowed as a carryback to any taxable year
beginning before January 1, 1985.
"(7) No deduction allowed for interest on replacement
obligations. -
"(A) In general. - The Federal Home Loan Mortgage Corporation
shall not be allowed any deduction for interest accruing after
December 31, 1984, on any replacement obligation.
"(B) Replacement obligation defined. - For purposes of
subparagraph (A), the term 'replacement obligation' means any
obligation to any person created after March 15, 1984, which the
Secretary of the Treasury or his delegate determines replaces any
equity or debt interest of a Federal Home Loan Bank or any other
person in the Federal Home Loan Mortgage Corporation existing on
such date. The preceding sentence shall not apply to any
obligation with respect to which the Federal Home Loan Mortgage
Corporation establishes that there is no tax avoidance effect."
Amendment by section 491(d)(5) of Pub. L. 98-369 applicable to
obligations issued after Dec. 31, 1983, see section 491(f)(1) of
Pub. L. 98-369, set out as a note under section 62 of this title.
Section 722(a)(6) of Pub. L. 98-369 provided that: "Any amendment
made by this subsection [amending this section and sections 57,
1256, and 5684 of this title, and provisions set out as a note
under section 338 of this title] shall take effect as if included
in the provisions of the Technical Corrections Act of 1982 [Pub. L.
97-448] to which such amendment relates."
EFFECTIVE DATE OF 1982 AMENDMENTS
Section 102(d) of Pub. L. 97-362 provided that: "The amendments
made by this section [amending this section] shall apply to net
operating losses for taxable years beginning after December 31,
1981."
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to net operating losses in
taxable years ending after Dec. 31, 1975, with special effective
date for the amendment by section 207(a)(2)(B)(i) of Pub. L. 97-34,
and net operating loss for any taxable year ending on or before
Dec. 31, 1975, which could be a net operating loss carryover to a
taxable year ending in 1981 by reason of subsec. (b)(1)(E)(ii) (as
in effect before the date of enactment of Pub. L. 97-34 and as
modified by section 1(b) of Pub. L. 96-595), to be a net operating
loss carryover under this section to each of the 15 taxable years
following the taxable year of such loss, see section 209(c)(1) of
Pub. L. 97-34, set out as an Effective Date note under section 168
of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 1(b) of Pub. L. 96-595, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to the determination of the net operating loss deduction for
taxable years ending after October 4, 1976. For purposes of
applying the preceding sentence to any net operating loss for a
taxable year which is not a REIT year and which ends on or before
October 4, 1976, subclause (II) of section 172(b)(1)(E)(ii) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall be
applied by substituting "the number of REIT years to which such
loss was a net operating loss carryback" for "the number of taxable
years to which such loss may not be a net operating loss carryback
by reason of subclause (I)". In the case of a net operating loss
for a taxable year described in the preceding sentence, subclause
(II) of section 172(b)(1)(E)(ii) of such Code shall not apply to
any taxpayer which acted so as to cause it to cease to qualify as a
"real estate investment trust" within the meaning of section 856 of
such Code if the principal purpose for such action was to secure
the benefit of the allowance of a net operating loss carryover
under section 172(b)(1)(B) of such Code."
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 371(d) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section and section 537 of this
title] shall apply with respect to taxable years beginning after
September 30, 1979."
Section 601(d) of Pub. L. 95-600 provided that: "The amendments
made by this section [enacting sections 1391 to 1397 and 6039B of
this title and amending this section and sections 1016 and 3402 of
this title] shall apply with respect to corporations chartered
after December 31, 1978, and before January 1, 1984."
Section 701(d)(2) of Pub. L. 95-600 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply to losses
incurred in taxable years ending after December 31, 1975."
Section 703(p)(4) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section and
sections 6501 and 6511 of this title] shall apply with respect to
losses sustained in taxable years ending after the date of the
enactment of this Act [Nov. 6, 1978]."
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 806(g)(1) of Pub. L. 94-455 provided that: "The
amendments made by subsections (a), (b), (c), and (d) [amending
this section and sections 812 and 825 of this title] shall apply to
losses incurred in taxable years ending after December 31, 1975."
Amendment by section 1052(c)(3) of Pub. L. 94-455 effective with
respect to taxable years beginning after December 31, 1979, see
section 1052(d) of Pub. L. 94-455, set out as a note under section
170 of this title.
Amendment by section 1606(b), (c) of Pub. L. 94-455 effective for
taxable years ending after Oct. 4, 1976, see section 1608(c) of
Pub. L. 94-455, set out as a note under section 857 of this title.
Amendment by section 1901(a)(29) of Pub. L. 94-455 effective for
taxable years ending after Oct. 4, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 2(d) of Pub. L. 91-677 provided that: "The amendments
made by this section [amending this section] shall apply in respect
of foreign expropriation losses sustained in taxable years ending
after December 31, 1958."
EFFECTIVE DATE OF 1967 AMENDMENT
Section 3(b) of Pub. L. 90-225 provided that: "No interest shall
be paid or allowed with respect to any overpayment of tax resulting
from the application of the amendments made by subsection (a)
[amending this section] for any period prior to the date of the
enactment of this Act [Dec. 27, 1967]."
Section 3(c) of Pub. L. 90-225 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to net operating losses sustained in taxable years ending
after December 31, 1966."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 210(c) of Pub. L. 88-272, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section] shall apply
in respect of foreign expropriation losses (as defined in section
172(k) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954],
as amended by subsection (a)(5) of this section), sustained in
taxable years ending after December 31, 1958."
Amendment by section 234(b)(5) of Pub. L. 88-272 applicable to
taxable years beginning after Dec. 31, 1963, see section 234(c) of
Pub. L. 88-272, set out as a note under section 1503 of this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Section 317(b) of Pub. L. 87-794 provided that the amendment made
by that section is effective with respect to net operating losses
for taxable years ending after Dec. 31, 1955.
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a
note under section 22 of this title.
Section 2 of Pub. L. 87-710 provided that: "The amendments made
by the first section of this Act [amending this section] shall
apply only with respect to net operating losses for taxable years
ending after December 31, 1955."
EFFECTIVE DATE OF 1958 AMENDMENT
Section 203(c) of Pub. L. 85-866 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
in respect of net operating losses for taxable years ending after
December 31, 1957."
Amendment by section 14(a), (b) of Pub. L. 85-866 applicable to
taxable years beginning after Dec. 31, 1953, and ending after Aug.
16, 1954, see section 1(c)(1) of Pub. L. 85-866, set out as a note
under section 165 of this title.
Section 64(e) of Pub. L. 85-866 provided that: "The amendments
made by this section [enacting sections 1371 to 1377 and 6037 of
this title, amending this section and sections 1016 and 1504, and
renumbering former section 6037 as 6038 of this title] shall apply
only with respect to taxable years beginning after December 31,
1957".
SAVINGS PROVISION
For provisions that nothing in amendment by section 11811 of Pub.
L. 101-508 be construed to affect treatment of certain transactions
occurring, property acquired, or items of income, loss, deduction,
or credit taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
NET OPERATING LOSS CARRYBACK FOR TAXABLE YEAR ENDING DURING 2001 OR
2002
Pub. L. 108-311, title IV, Sec. 403(b)(2), Oct. 4, 2004, 118
Stat. 1187, provided that: "In the case of a net operating loss for
a taxable year ending during 2001 or 2002 -
"(A) an application under section 6411(a) of the Internal
Revenue Code of 1986 with respect to such loss shall not fail to
be treated as timely filed if filed before November 1, 2002,
"(B) any election made under section 172(b)(3) of such Code may
(notwithstanding such section) be revoked before November 1,
2002, and
"(C) any election made under section 172(j) of such Code shall
(notwithstanding such section) be treated as timely made if made
before November 1, 2002."
AMTRAK REFORM LEGISLATION
Pub. L. 105-134, title III, Sec. 301(b), Dec. 2, 1997, 111 Stat.
2585, provided that: "This Act [see Short Title of 1997 Amendment
note set out under section 20101 of Title 49, Transportation]
constitutes Amtrak reform legislation within the meaning of section
977(f)(1) of the Taxpayer Relief Act of 1997 [Pub. L. 105-34, set
out as a note below]."
ELECTIVE CARRYBACK OF EXISTING CARRYOVERS OF NATIONAL RAILROAD
PASSENGER CORPORATION
Section 977 of Pub. L. 105-34, as amended by Pub. L. 105-178,
title IX, Sec. 9007(a), June 9, 1998, 112 Stat. 506; Pub. L. 105-
206, title VI, Sec. 6009(e), July 22, 1998, 112 Stat. 812,
provided that:
"(a) Elective Carryback. -
"(1) In general. - If the National Railroad Passenger
Corporation (in this section referred to as the 'Corporation') -
"(A) makes an election under this section for its first
taxable year ending after September 30, 1997, and
"(B) agrees to the conditions specified in paragraph (2),
then the Corporation shall be treated as having made a payment of
the tax imposed by chapter 1 of the Internal Revenue Code of 1986
for such first taxable year and the succeeding taxable year in an
amount (for each such taxable year) equal to 50 percent of the
amount determined under paragraph (3). Each such payment shall be
treated as having been made by the Corporation on the last day
prescribed by law (without regard to extensions) for filing its
return of tax under chapter 1 of such Code for the taxable year
to which such payment relates.
"(2) Conditions. -
"(A) In general. - This section shall only apply to the
Corporation if it agrees (in such manner as the Secretary of
the Treasury or his delegate may prescribe) to -
"(i) except as provided in clause (ii), use any refund of
the payment described in paragraph (1) (and any interest
thereon) solely to finance qualified expenses of the
Corporation, and
"(ii) make the payments to non-Amtrak States as described
in subsection (c).
"(B) Repayment. -
"(i) In general. - The Corporation shall repay to the
United States any amount not used in accordance with this
paragraph and any amount remaining unused as of January 1,
2010.
"(ii) Special rules. - For purposes of clause (i) -
"(I) no amount shall be treated as remaining unused as of
January 1, 2010, if it is obligated as of such date for a
qualified expense, and
"(II) the Corporation shall not be treated as failing to meet
the requirements of clause (i) by reason of investing any
amount for a temporary period.
"(3) Amount. - For purposes of paragraph (1) -
"(A) In general. - The amount determined under this paragraph
shall be the lesser of -
"(i) 35 percent of the Corporation's existing qualified
carryovers, or
"(ii) the Corporation's net tax liability for the carryback
period.
"(B) Dollar limit. - Such amount shall not exceed
$2,323,000,000.
"(b) Existing Qualified Carryovers; Net Tax Liability. - For
purposes of this section -
"(1) Existing qualified carryovers. - The term 'existing
qualified carryovers' means the aggregate of the amounts which
are net operating loss carryovers under section 172(b) of the
Internal Revenue Code of 1986 to the Corporation's first taxable
year ending after September 30, 1997.
"(2) Net tax liability for carryback period. -
"(A) In general. - The Corporation's net tax liability for
the carryback period is the aggregate of the net tax liability
of the Corporation's railroad predecessors for taxable years in
the carryback period.
"(B) Net tax liability. - The term 'net tax liability' means,
with respect to any taxable year, the amount of the tax imposed
by chapter 1 of the Internal Revenue Code of 1986 (or any
corresponding provision of prior law) for such taxable year,
reduced by the sum of the credits allowable against such tax
under such Code (or any corresponding provision of prior law).
"(C) Carryback period. - The term 'carryback period' means
the period -
"(i) which begins with the first taxable year of any
railroad predecessor beginning before January 1, 1971, for
which there is a net tax liability, and
"(ii) which ends with the last taxable year of any railroad
predecessor beginning before January 1, 1971.
"(3) Railroad predecessor. -
"(A) In general. - The term 'railroad predecessor' means -
"(i) any railroad which entered into a contract under
section 401 or 404(a) of the Rail Passenger Service Act of
1970 [former sections 561 and 564(a) of Title 45, Railroads]
relieving the railroad of its entire responsibility for the
provision of intercity rail passenger service, and
"(ii) any predecessor thereof.
"(B) Consolidated returns. - If any railroad described in
subparagraph (A) was a member of an affiliated group which
filed a consolidated return for any taxable year in the
carryback period, each member of such group shall be treated as
a railroad predecessor for such year.
"(c) Payments to Non-Amtrak States. -
"(1) In general. - Within 30 days after receipt of any refund
of any payment described in subsection (a)(1), the Corporation
shall pay to each non-Amtrak State an amount equal to 1 percent
of the amount of such refund.
"(2) Use of payment. - Each non-Amtrak State shall use the
payment described in paragraph (1) (and any interest thereon)
solely to finance qualified expenses of the State.
"(3) Repayment. - A non-Amtrak State shall pay to the United
States -
"(A) any portion of the payment received by the State under
paragraph (1) (and any interest thereon) which is used for a
purpose other than to finance qualified expenses of the State
or which remains unused as of January 1, 2010, or
"(B) if such State ceases to be a non-Amtrak State, the
portion of such payment (and any interest thereon) remaining as
of the date of the cessation.
Rules similar to the rules of subsection (a)(2)(B) shall apply
for purposes of this paragraph.
"(d) Tax Consequences. -
"(1) Reduction in carryovers. - If the Corporation elects the
application of this section, the Corporation's existing qualified
carryovers shall be reduced by an amount equal to the amount
determined under subsection (a)(3) divided by 0.35.
"(2) Reduction in tax paid by railroad predecessors. -
"(A) In general. - The Secretary of the Treasury or his
delegate shall appropriately adjust the tax account of each
railroad predecessor to reduce the net tax liability of such
predecessor for taxable years beginning in the carryback period
which is offset by reason of the application of this section.
"(B) FIFO ordering rule. - The Secretary shall make the
adjustments under subparagraph (A) first for the earliest year
in the carryback period and then for each subsequent year in
such period.
"(C) No effect on other taxpayers. - In no event shall any
taxpayer other than the Corporation be allowed a refund or
credit by reason of this section.
"(D) Waiver of limitations. - If the adjustment under
subparagraph (A) is barred by the operation of any law or rule
of law, such law or rule of law shall be waived solely for
purposes of making such adjustment.
"(3) Tax treatment of expenditures. - With respect to any
payment by the Corporation of qualified expenses described in
subsection (e)(1)(A) during any taxable year from the amount of
any refund of the payment described in subsection (a)(1) -
"(A) no deduction shall be allowed to the Corporation with
respect to any amount paid or incurred which is attributable to
such amount, and
"(B) the basis of any property shall be reduced by the
portion of the cost of such property which is attributable to
such amount.
"(4) Payments to a non-amtrak state. - No deduction shall be
allowed to the Corporation under chapter 1 of the Internal
Revenue Code of 1986 for any payment to a non-Amtrak State
required under subsection (a)(2)(A)(ii).
"(e) Definitions. - For purposes of this section -
"(1) Qualified expenses. - The term 'qualified expenses' means
expenses incurred for -
"(A) in the case of the Corporation -
"(i) the acquisition of equipment, rolling stock, and other
capital improvements, the upgrading of maintenance
facilities, and the maintenance of existing equipment, in
intercity passenger rail service, and
"(ii) the payment of interest and principal on obligations
incurred for such acquisition, upgrading, and maintenance,
and
"(B) in the case of a non-Amtrak State -
"(i) the acquisition of equipment, rolling stock, and other
capital improvements, the upgrading of maintenance
facilities, and the maintenance of existing equipment, in
intercity passenger rail service,
"(ii) the acquisition of equipment, rolling stock, and
other capital improvements, the upgrading of maintenance
facilities, and the maintenance of existing equipment, in
intercity bus service,
"(iii) the purchase of intercity passenger rail services
from the Corporation,
"(iv) capital expenditures related to State-owned rail
operations in the State,
"(v) any project that is eligible to receive funding under
section 5309, 5310, or 5311 of title 49, United States Code,
"(vi) any project that is eligible to receive funding under
section 103, 130, 133, 144, 149, or 152 of title 23, United
States Code,
"(vii) the upgrading and maintenance of intercity primary
and rural air service facilities, and the purchase of
intercity air service between primary and rural airports and
regional hubs,
"(viii) the provision of passenger ferryboat service within
the State,
"(ix) the provision of harbor improvements within the
State, and
"(x) the payment of interest and principal on obligations
incurred for such acquisition, upgrading, maintenance,
purchase, expenditures, provision, and projects.
In the case of a non-Amtrak State which provides its own
intercity passenger rail service on the date of the enactment of
this paragraph [Aug. 5, 1997], subparagraph (B) shall be applied
by only taking into account clauses (i) and (iv).
"(2) Non-amtrak state. - The term 'non-Amtrak State' means any
State which is not receiving intercity passenger rail service
from the Corporation as of the date of the enactment of this Act
[Aug. 5, 1997].
"(f) Authorizing Reform Required. -
"(1) In general. - The Secretary of the Treasury shall not make
payment of any refund of any payment described in subsection
(a)(1) earlier than the date of the enactment of Federal
legislation, other than legislation included in this section,
which is enacted after July 29, 1997, and which authorizes
reforms of the National Railroad Passenger Corporation.
"(2) No interest. - Notwithstanding any other provision of law,
if the payment of any refund is delayed by reason of paragraph
(1), no interest shall accrue with respect to such payment prior
to the 45th day following the date of the enactment of Federal
legislation described in paragraph (1).
"(3) Estimate of revenue. - For purposes of estimating revenues
under budget reconciliation, the impact of this section on
Federal revenues shall be determined without regard to this
subsection."
[Pub. L. 105-178, title IX, Sec. 9007(b), June 9, 1998, 112 Stat.
506, provided that: "The amendments made by this section [amending
section 977 of Pub. L. 105-34, set out above] shall take effect as
if included in the enactment of section 977 of the Taxpayer Relief
Act of 1997 [Pub. L. 105-34]."]
DEDUCTION FOR SPECIAL ASSESSMENTS
Subsec. (f) of this section not applicable to deduction for
special assessments, see section 2711(2) of Pub. L. 104-208, set
out as a note under section 162 of this title.
CARRYBACK OF DEFERRED STATUTORY OR TORT LIABILITY LOSS TO TAXABLE
YEAR BEGINNING BEFORE JANUARY 1, 1984
Section 11811(b)(2)(B) of Pub. L. 101-508 provided that: "The
portion of any loss which is attributable to a deferred statutory
or tort liability loss (as defined in section 172(k) of the
Internal Revenue Code of 1986 as in effect on the day before the
date of the enactment of this Act [Nov. 5, 1990]) may not be
carried back to any taxable year beginning before January 1, 1984,
by reason of the amendment made by subparagraph (A) [amending this
section]."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
REFUND OR CREDIT OF OVERPAYMENT; LIMITATIONS; INTEREST
Section 14 of Pub. L. 85-866 provided that if any refund or
credit of any overpayment resulting from application of subsecs.
(a) and (b) of Pub. L. 85-866, amending former subsecs. (f)(3), (4)
and (g)(3), (4), was prevented on Sept. 2, 1958 or 6 months
thereafter, by operation of any law or rule of law, refund was to
be allowed if a claim was filed within six months of the date of
such date but such refund was to be without interest.
INTEREST ATTRIBUTABLE TO NET OPERATING LOSS CARRYBACK FOR CERTAIN
TAXABLE YEARS ENDING IN 1954
For payment of interest attributable to net operating loss
carryback, see section 83(e) of Pub. L. 85-866, set out as a note
under section 6601 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be followed by "of 1935".
-End-
-CITE-
26 USC Sec. 173 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 173. Circulation expenditures
-STATUTE-
(a) General rule
Notwithstanding section 263, all expenditures (other than
expenditures for the purchase of land or depreciable property or
for the acquisition of circulation through the purchase of any part
of the business of another publisher of a newspaper, magazine, or
other periodical) to establish, maintain, or increase the
circulation of a newspaper, magazine, or other periodical shall be
allowed as a deduction; except that the deduction shall not be
allowed with respect to the portion of such expenditures as, under
regulations prescribed by the Secretary, is chargeable to capital
account if the taxpayer elects, in accordance with such
regulations, to treat such portion as so chargeable. Such election,
if made, must be for the total amount of such portion of the
expenditures which is so chargeable to capital account, and shall
be binding for all subsequent taxable years unless, upon
application by the taxpayer, the Secretary permits a revocation of
such election subject to such conditions as he deems necessary.
(b) Cross reference
For election of 3-year amortization of expenditures allowable
as a deduction under subsection (a), see section 59(e).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 65; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97-248,
title II, Sec. 201(d)(9)(A), formerly Sec. 201(c)(9)(A), Sept. 3,
1982, 96 Stat. 420, renumbered Sec. 201(d)(9)(A), Pub. L. 97-448,
title III, Sec. 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub.
L. 98-369, div. A, title VII, Sec. 711(a)(3)(C), July 18, 1984, 98
Stat. 942; Pub. L. 99-514, title VII, Sec. 701(e)(4)(D), Oct. 22,
1986, 100 Stat. 2343; Pub. L. 100-647, title I, Sec. 1007(g)(5),
Nov. 10, 1988, 102 Stat. 3435.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b). Pub. L. 100-647 substituted "section 59(e)"
for "section 59(d)".
1986 - Subsec. (b). Pub. L. 99-514 substituted "section 59(d)"
for "section 58(i)".
1984 - Subsec. (b). Pub. L. 98-369 substituted "3-year" for "10-
year".
1982 - Pub. L. 97-248, Sec. 201(d)(9)(A), designated existing
provisions as subsec. (a), added subsec. (a) heading, and added
subsec. (b).
1976 - Pub. L. 94-455 struck out "or his delegate" after
"Secretary" in two places.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, with certain exceptions and qualifications,
see section 701(f) of Pub. L. 99-514, set out as an Effective Date
note under section 55 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in the
provision of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 715 of
Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, see section 201(e)(1) of Pub. L. 97-248, set
out as a note under section 5 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by Pub. L. 99-514 notwithstanding
any treaty obligation of the United States in effect on Oct. 22,
1986, with provision that for such purposes any amendment by title
I of Pub. L. 100-647 be treated as if it had been included in the
provision of Pub. L. 99-514 to which such amendment relates, see
section 1012(aa)(2), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
-End-
-CITE-
26 USC Sec. 174 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 174. Research and experimental expenditures
-STATUTE-
(a) Treatment as expenses
(1) In general
A taxpayer may treat research or experimental expenditures
which are paid or incurred by him during the taxable year in
connection with his trade or business as expenses which are not
chargeable to capital account. The expenditures so treated shall
be allowed as a deduction.
(2) When method may be adopted
(A) Without consent
A taxpayer may, without the consent of the Secretary, adopt
the method provided in this subsection for his first taxable
year -
(i) which begins after December 31, 1953, and ends after
August 16, 1954, and
(ii) for which expenditures described in paragraph (1) are
paid or incurred.
(B) With consent
A taxpayer may, with the consent of the Secretary, adopt at
any time the method provided in this subsection.
(3) Scope
The method adopted under this subsection shall apply to all
expenditures described in paragraph (1). The method adopted shall
be adhered to in computing taxable income for the taxable year
and for all subsequent taxable years unless, with the approval of
the Secretary, a change to a different method is authorized with
respect to part or all of such expenditures.
(b) Amortization of certain research and experimental expenditures
(1) In general
At the election of the taxpayer, made in accordance with
regulations prescribed by the Secretary, research or experimental
expenditures which are -
(A) paid or incurred by the taxpayer in connection with his
trade or business,
(B) not treated as expenses under subsection (a), and
(C) chargeable to capital account but not chargeable to
property of a character which is subject to the allowance under
section 167 (relating to allowance for depreciation, etc.) or
section 611 (relating to allowance for depletion),
may be treated as deferred expenses. In computing taxable income,
such deferred expenses shall be allowed as a deduction ratably
over such period of not less than 60 months as may be selected by
the taxpayer (beginning with the month in which the taxpayer
first realizes benefits from such expenditures). Such deferred
expenses are expenditures properly chargeable to capital account
for purposes of section 1016(a)(1) (relating to adjustments to
basis of property).
(2) Time for and scope of election
The election provided by paragraph (1) may be made for any
taxable year beginning after December 31, 1953, but only if made
not later than the time prescribed by law for filing the return
for such taxable year (including extensions thereof). The method
so elected, and the period selected by the taxpayer, shall be
adhered to in computing taxable income for the taxable year for
which the election is made and for all subsequent taxable years
unless, with the approval of the Secretary, a change to a
different method (or to a different period) is authorized with
respect to part or all of such expenditures. The election shall
not apply to any expenditure paid or incurred during any taxable
year before the taxable year for which the taxpayer makes the
election.
(c) Land and other property
This section shall not apply to any expenditure for the
acquisition or improvement of land, or for the acquisition or
improvement of property to be used in connection with the research
or experimentation and of a character which is subject to the
allowance under section 167 (relating to allowance for
depreciation, etc.) or section 611 (relating to allowance for
depletion); but for purposes of this section allowances under
section 167, and allowances under section 611, shall be considered
as expenditures.
(d) Exploration expenditures
This section shall not apply to any expenditure paid or incurred
for the purpose of ascertaining the existence, location, extent, or
quality of any deposit of ore or other mineral (including oil and
gas).
(e) Only reasonable research expenditures eligible
This section shall apply to a research or experimental
expenditure only to the extent that the amount thereof is
reasonable under the circumstances.
(f) Cross references
(1) For adjustments to basis of property for amounts allowed
as deductions as deferred expenses under subsection (b), see
section 1016(a)(14).
(2) For election of 10-year amortization of expenditures
allowable as a deduction under subsection (a), see section
59(e).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 66; Pub. L. 94-455, title XIX,
Secs. 1901(a)(30), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1769,
1834; Pub. L. 97-248, title II, Sec. 201(d)(9)(B) formerly Sec.
201(c)(9)(B), Sept. 3, 1982, 96 Stat. 420, renumbered Sec.
201(d)(9)(B), Pub. L. 97-448, title III, Sec. 306(a)(1)(A)(i), Jan.
12, 1983, 96 Stat. 2400; amended Pub. L. 99-514, title VII, Sec.
701(e)(4)(D), Oct. 22, 1986, 100 Stat. 2343; Pub. L. 100-647, title
I, Sec. 1007(g)(5), Nov. 10, 1988, 102 Stat. 3435; Pub. L. 101-239,
title VII, Sec. 7110(d), Dec. 19, 1989, 103 Stat. 2325.)
-MISC1-
AMENDMENTS
1989 - Subsecs. (e), (f). Pub. L. 101-239 added subsec. (e) and
redesignated former subsec. (e) as (f).
1988 - Subsec. (e)(2). Pub. L. 100-647 substituted "section
59(e)" for "section 59(d)".
1986 - Subsec. (e)(2). Pub. L. 99-514 substituted "section 59(d)"
for "section 58(i)".
1982 - Subsec. (e). Pub. L. 97-248, Sec. 201(d)(9)(B),
substituted "Cross references" for "Cross reference" in heading,
designated existing provisions as par. (1), and added par. (2).
1976 - Subsec. (a)(2)(A). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (a)(2)(A)(i). Pub. L. 94-455, Sec. 1901(a)(30),
substituted "August 16, 1954" for "the date on which this title is
enacted" after "ends after".
Subsecs. (a)(3), (b)(1), (2). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 applicable to taxable years
beginning after Dec. 31, 1989, see section 7110(e) of Pub. L. 101-
239, set out as a note under section 41 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, with certain exceptions and qualifications,
see section 701(f) of Pub. L. 99-514, set out as an Effective Date
note under section 55 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, see section 201(e)(1) of Pub. L. 97-248, set
out as a note under section 5 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by Pub. L. 99-514 notwithstanding
any treaty obligation of the United States in effect on Oct. 22,
1986, with provision that for such purposes any amendment by title
I of Pub. L. 100-647 be treated as if it had been included in the
provision of Pub. L. 99-514 to which such amendment relates, see
section 1012(aa)(2), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
ALLOCATION OR APPORTIONMENT TO SOURCES WITHIN UNITED STATES OF
RESEARCH AND EXPERIMENTAL EXPENDITURES PAID OR INCURRED FOR
RESEARCH ACTIVITIES CONDUCTED IN UNITED STATES; 2-YEAR PROGRAM
Pub. L. 97-34, title II, Sec. 223(a), Aug. 13, 1981, 95 Stat.
249, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat.
2095, provided that: "In the case of the taxpayer's first 2 taxable
years beginning within 2 years after the date of the enactment of
this Act [Aug. 13, 1981], all research and experimental
expenditures (within the meaning of section 174 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954]) which are paid or
incurred in such year for research activities conducted in the
United States shall be allocated or apportioned to sources within
the United States."
-End-
-CITE-
26 USC Sec. 175 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 175. Soil and water conservation expenditures
-STATUTE-
(a) In general
A taxpayer engaged in the business of farming may treat
expenditures which are paid or incurred by him during the taxable
year for the purpose of soil or water conservation in respect of
land used in farming, or for the prevention of erosion of land used
in farming, as expenses which are not chargeable to capital
account. The expenditures so treated shall be allowed as a
deduction.
(b) Limitation
The amount deductible under subsection (a) for any taxable year
shall not exceed 25 percent of the gross income derived from
farming during the taxable year. If for any taxable year the total
of the expenditures treated as expenses which are not chargeable to
capital account exceeds 25 percent of the gross income derived from
farming during the taxable year, such excess shall be deductible
for succeeding taxable years in order of time; but the amount
deductible under this section for any one such succeeding taxable
year (including the expenditures actually paid or incurred during
the taxable year) shall not exceed 25 percent of the gross income
derived from farming during the taxable year.
(c) Definitions
For purposes of subsection (a) -
(1) The term "expenditures which are paid or incurred by him
during the taxable year for the purpose of soil or water
conservation in respect of land used in farming, or for the
prevention of erosion of land used in farming" means expenditures
paid or incurred for the treatment or moving of earth, including
(but not limited to) leveling, grading and terracing, contour
furrowing, the construction, control, and protection of diversion
channels, drainage ditches, earthen dams, watercourses, outlets,
and ponds, the eradication of brush, and the planting of
windbreaks. Such term does not include -
(A) the purchase, construction, installation, or improvement
of structures, appliances, or facilities which are of a
character which is subject to the allowance for depreciation
provided in section 167, or
(B) any amount paid or incurred which is allowable as a
deduction without regard to this section.
Notwithstanding the preceding sentences, such term also includes
any amount, not otherwise allowable as a deduction, paid or
incurred to satisfy any part of an assessment levied by a soil or
water conservation or drainage district to defray expenditures
made by such district (i) which, if paid or incurred by the
taxpayer, would without regard to this sentence constitute
expenditures deductible under this section, or (ii) for property
of a character subject to the allowance for depreciation provided
in section 167 and used in the soil or water conservation or
drainage district's business as such (to the extent that the
taxpayer's share of the assessment levied on the members of the
district for such property does not exceed 10 percent of such
assessment).
(2) The term "land used in farming" means land used (before or
simultaneously with the expenditures described in paragraph (1))
by the taxpayer or his tenant for the production of crops,
fruits, or other agricultural products or for the sustenance of
livestock.
(3) Additional limitations. -
(A) Expenditures must be consistent with soil conservation
plan. - Notwithstanding any other provision of this section,
subsection (a) shall not apply to any expenditures unless such
expenditures are consistent with -
(i) the plan (if any) approved by the Soil Conservation
Service of the Department of Agriculture for the area in
which the land is located, or
(ii) if there is no plan described in clause (i), any soil
conservation plan of a comparable State agency.
(B) Certain wetland, etc., activities not qualified. -
Subsection (a) shall not apply to any expenditures in
connection with the draining or filling of wetlands or land
preparation for center pivot irrigation systems.
(d) When method may be adopted
(1) Without consent
A taxpayer may, without the consent of the Secretary, adopt the
method provided in this section for his first taxable year -
(A) which begins after December 31, 1953, and ends after
August 16, 1954, and
(B) for which expenditures described in subsection (a) are
paid or incurred.
(2) With consent
A taxpayer may, with the consent of the Secretary, adopt at any
time the method provided in this section.
(e) Scope
The method adopted under this section shall apply to all
expenditures described in subsection (a). The method adopted shall
be adhered to in computing taxable income for the taxable year and
for all subsequent taxable years unless, with the approval of the
Secretary, a change to a different method is authorized with
respect to part or all of such expenditures.
(f) Rules applicable to assessments for depreciable property
(1) Amounts treated as paid or incurred over 9-year period
In the case of an assessment levied to defray expenditures for
property described in clause (ii) of the last sentence of
subsection (c)(1), if the amount of such assessment paid or
incurred by the taxpayer during the taxable year (determined
without the application of this paragraph) is in excess of an
amount equal to 10 percent of the aggregate amounts which have
been and will be assessed as the taxpayer's share of the
expenditures by the district for such property, and if such
excess is more than $500, the entire excess shall be treated as
paid or incurred ratably over each of the 9 succeeding taxable
years.
(2) Disposition of land during 9-year period
If paragraph (1) applies to an assessment and the land with
respect to which such assessment was made is sold or otherwise
disposed of by the taxpayer (other than by the reason of his
death) during the 9 succeeding taxable years, any amount of the
excess described in paragraph (1) which has not been treated as
paid or incurred for a taxable year ending on or before the sale
or other disposition shall be added to the adjusted basis of such
land immediately prior to its sale or other disposition and shall
not thereafter be treated as paid or incurred ratably under
paragraph (1).
(3) Disposition by reason of death
If paragraph (1) applies to an assessment and the taxpayer dies
during the 9 succeeding taxable years, any amount of the excess
described in paragraph (1) which has not been treated as paid or
incurred for a taxable year ending before his death shall be
treated as paid or incurred in the taxable year in which he dies.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 67; Pub. L. 90-630, Sec. 5(a),
(b), Oct. 22, 1968, 82 Stat. 1329; Pub. L. 94-455, title XIX, Secs.
1901(a)(30), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1769, 1834;
Pub. L. 99-514, title IV, Sec. 401(a), Oct. 22, 1986, 100 Stat.
2221.)
-MISC1-
AMENDMENTS
1986 - Subsec. (c)(3). Pub. L. 99-514 added par. (3).
1976 - Subsec. (d)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (d)(1)(A). Pub. L. 94-455, Sec. 1901(a)(30), substituted
"August 16, 1954" for "the date on which this title is enacted"
after "and ends after".
Subsecs. (d)(2), (e). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
1968 - Subsec. (c)(1). Pub. L. 90-630, Sec. 5(a), in text
following subpar. (B), designated as cl. (i) existing provisions
covering amounts which, if paid or incurred by the taxpayer, would
without regard to the exception constitute deductible expenditures,
and added cl. (ii).
Subsec. (f). Pub. L. 90-630, Sec. 5(b), added subsec. (f).
EFFECTIVE DATE OF 1986 AMENDMENT
Section 401(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to amounts
paid or incurred after December 31, 1986, in taxable years ending
after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(30) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1968 AMENDMENT
Section 5(c) of Pub. L. 90-630 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to assessments levied after the date of the enactment of this Act
[Oct. 22, 1968] in taxable years ending after such date."
-End-
-CITE-
26 USC Sec. 176 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 176. Payments with respect to employees of certain foreign
corporations
-STATUTE-
In the case of a domestic corporation, there shall be allowed as
a deduction amounts (to the extent not compensated for) paid or
incurred pursuant to an agreement entered into under section
3121(l) with respect to services performed by United States
citizens employed by foreign subsidiary corporations. Any
reimbursement of any amount previously allowed as a deduction under
this section shall be included in gross income for the taxable year
in which received.
-SOURCE-
(Added Sept. 1, 1954, ch. 1206, title II, Sec. 210(a), 68 Stat.
1096.)
-End-
-CITE-
26 USC Sec. 177 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
[Sec. 177. Repealed. Pub. L. 99-514, title II, Sec. 241(a), Oct.
22, 1986, 100 Stat. 2181]
-MISC1-
Section, added June 29, 1956, ch. 464, Sec. 4(a), 70 Stat. 406;
amended Oct. 4, 1976, Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), 90 Stat. 1834, related to deductions for trademark
and trade name expenditures.
EFFECTIVE DATE OF REPEAL
Section 241(c) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending sections 312 and 1016 of
this title and repealing this section] shall apply to expenditures
paid or incurred after December 31, 1986.
"(2) Transitional rule. - The amendments made by this section
shall not apply to any expenditure incurred -
"(A) pursuant to a binding contract entered into before March
2, 1986, or
"(B) with respect to the development, protection, expansion,
registration, or defense of a trademark or trade name commenced
before March 2, 1986, but only if not less than the lesser of
$1,000,000 or 5 percent of the aggregate cost of such
development, protection, expansion, registration, or defense has
been incurred or committed before such date.
The preceding sentence shall not apply to any expenditure with
respect to a trademark or trade name placed in service after
December 31, 1987."
-End-
-CITE-
26 USC Sec. 178 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 178. Amortization of cost of acquiring a lease
-STATUTE-
(a) General rule
In determining the amount of the deduction allowable to a lessee
for exhaustion, wear and tear, obsolescence, or amortization in
respect of any cost of acquiring the lease, the term of the lease
shall be treated as including all renewal options (and any other
period for which the parties reasonably expect the lease to be
renewed) if less than 75 percent of such cost is attributable to
the period of the term of the lease remaining on the date of its
acquisition.
(b) Certain periods excluded
For purposes of subsection (a), in determining the period of the
term of the lease remaining on the date of acquisition, there shall
not be taken into account any period for which the lease may
subsequently be renewed, extended, or continued pursuant to an
option exercisable by the lessee.
-SOURCE-
(Added Pub. L. 85-866, title I, Sec. 15(a), Sept. 2, 1958, 72 Stat.
1612; amended Pub. L. 99-514, title II, Sec. 201(d)(2)(A), title
XVIII, Sec. 1812(c)(4)(B), Oct. 22, 1986, 100 Stat. 2139, 2835;
Pub. L. 100-647, title I, Sec. 1002(a)(9), Nov. 10, 1988, 102 Stat.
3354.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647 substituted "the deduction
allowable to a lessee for exhaustion, wear and tear, obsolescence,
or amortization" for "the deduction allowable to a lessee of a
lease for any taxable year for amortization under section 167, 169,
179, 185, 190, 193, or 194".
1986 - Pub. L. 99-514, Sec. 201(d)(2)(A), in amending section
generally, substituted provision relating to amortization of cost
of acquiring a lease, subsec. (a) setting out a general rule and
subsec. (b) excluding certain periods, for former provision for
depreciation or amortization of improvements made by lessee on
lessor's property, subsec. (a) setting out a general rule, subsec.
(b), in case of related lessee and lessor, setting out a general
rule in par. (1) and defining related persons in par. (2), and
subsec. (c) setting out a reasonable certainty test.
Subsec. (b)(2)(B). Pub. L. 99-514, Sec. 1812(c)(4)(B), inserted
before the period "and subsection (f)(1)(A) of such section shall
not apply".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(2)(A) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(2)(A) of Pub. L. 99-514 not
applicable to any property placed in service before Jan. 1, 1994,
if such property placed in service as part of specified
rehabilitations, and not applicable to certain additional
rehabilitations, see section 251(d)(2), (3) of Pub. L. 99-514, set
out as a note under section 46 of this title.
Amendment by section 1812(c)(4)(B) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE
Section 15(c) of Pub. L. 85-866 provided that: "The amendments
made by this section [enacting this section and amending analysis
preceding section 161 of this title] shall apply with respect to
costs of acquiring a lease incurred, and improvements begun, after
July 28, 1958 (other than improvements which, on July 28, 1958, and
at all times thereafter, the lessee was under a binding legal
obligation to make)."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 179 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 179. Election to expense certain depreciable business assets
-STATUTE-
(a) Treatment as expenses
A taxpayer may elect to treat the cost of any section 179
property as an expense which is not chargeable to capital account.
Any cost so treated shall be allowed as a deduction for the taxable
year in which the section 179 property is placed in service.
(b) Limitations
(1) Dollar limitation
The aggregate cost which may be taken into account under
subsection (a) for any taxable year shall not exceed $25,000
($100,000 in the case of taxable years beginning after 2002 and
before 2008).
(2) Reduction in limitation
The limitation under paragraph (1) for any taxable year shall
be reduced (but not below zero) by the amount by which the cost
of section 179 property placed in service during such taxable
year exceeds $200,000 ($400,000 in the case of taxable years
beginning after 2002 and before 2008).
(3) Limitation based on income from trade or business
(A) In general
The amount allowed as a deduction under subsection (a) for
any taxable year (determined after the application of
paragraphs (1) and (2)) shall not exceed the aggregate amount
of taxable income of the taxpayer for such taxable year which
is derived from the active conduct by the taxpayer of any trade
or business during such taxable year.
(B) Carryover of disallowed deduction
The amount allowable as a deduction under subsection (a) for
any taxable year shall be increased by the lesser of -
(i) the aggregate amount disallowed under subparagraph (A)
for all prior taxable years (to the extent not previously
allowed as a deduction by reason of this subparagraph), or
(ii) the excess (if any) of -
(I) the limitation of paragraphs (1) and (2) (or if
lesser, the aggregate amount of taxable income referred to
in subparagraph (A)), over
(II) the amount allowable as a deduction under subsection
(a) for such taxable year without regard to this
subparagraph.
(C) Computation of taxable income
For purposes of this paragraph, taxable income derived from
the conduct of a trade or business shall be computed without
regard to the deduction allowable under this section.
(4) Married individuals filing separately
In the case of a husband and wife filing separate returns for
the taxable year -
(A) such individuals shall be treated as 1 taxpayer for
purposes of paragraphs (1) and (2), and
(B) unless such individuals elect otherwise, 50 percent of
the cost which may be taken into account under subsection (a)
for such taxable year (before application of paragraph (3))
shall be allocated to each such individual.
(5) Inflation adjustments
(A) In general
In the case of any taxable year beginning in a calendar year
after 2003 and before 2008, the $100,000 and $400,000 amounts
in paragraphs (1) and (2) shall each be increased by an amount
equal to -
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year
begins, by substituting "calendar year 2002" for "calendar
year 1992" in subparagraph (B) thereof.
(B) Rounding
(i) Dollar limitation
If the amount in paragraph (1) as increased under
subparagraph (A) is not a multiple of $1,000, such amount
shall be rounded to the nearest multiple of $1,000.
(ii) Phaseout amount
If the amount in paragraph (2) as increased under
subparagraph (A) is not a multiple of $10,000, such amount
shall be rounded to the nearest multiple of $10,000.
(6) Limitation on cost taken into account for certain passenger
vehicles
(A) In general
The cost of any sport utility vehicle for any taxable year
which may be taken into account under this section shall not
exceed $25,000.
(B) Sport utility vehicle
For purposes of subparagraph (A) -
(i) In general
The term "sport utility vehicle" means any 4-wheeled
vehicle -
(I) which is primarily designed or which can be used to
carry passengers over public streets, roads, or highways
(except any vehicle operated exclusively on a rail or
rails),
(II) which is not subject to section 280F, and
(III) which is rated at not more than 14,000 pounds gross
vehicle weight.
(ii) Certain vehicles excluded
Such term does not include any vehicle which -
(I) is designed to have a seating capacity of more than 9
persons behind the driver's seat,
(II) is equipped with a cargo area of at least 6 feet in
interior length which is an open area or is designed for
use as an open area but is enclosed by a cap and is not
readily accessible directly from the passenger compartment,
or
(III) has an integral enclosure, fully enclosing the
driver compartment and load carrying device, does not have
seating rearward of the driver's seat, and has no body
section protruding more than 30 inches ahead of the leading
edge of the windshield.
(c) Election
(1) In general
An election under this section for any taxable year shall -
(A) specify the items of section 179 property to which the
election applies and the portion of the cost of each of such
items which is to be taken into account under subsection (a),
and
(B) be made on the taxpayer's return of the tax imposed by
this chapter for the taxable year.
Such election shall be made in such manner as the Secretary may
by regulations prescribe.
(2) Election irrevocable
Any election made under this section, and any specification
contained in any such election, may not be revoked except with
the consent of the Secretary. Any such election or specification
with respect to any taxable year beginning after 2002 and before
2008 may be revoked by the taxpayer with respect to any property,
and such revocation, once made, shall be irrevocable.
(d) Definitions and special rules
(1) Section 179 property
For purposes of this section, the term "section 179 property"
means property -
(A) which is -
(i) tangible property (to which section 168 applies), or
(ii) computer software (as defined in section 197(e)(3)(B))
which is described in section 197(e)(3)(A)(i), to which
section 167 applies, and which is placed in service in a
taxable year beginning after 2002 and before 2008,
(B) which is section 1245 property (as defined in section
1245(a)(3)), and
(C) which is acquired by purchase for use in the active
conduct of a trade or business.
Such term shall not include any property described in section
50(b) and shall not include air conditioning or heating units.
(2) Purchase defined
For purposes of paragraph (1), the term "purchase" means any
acquisition of property, but only if -
(A) the property is not acquired from a person whose
relationship to the person acquiring it would result in the
disallowance of losses under section 267 or 707(b) (but, in
applying section 267(b) and (c) for purposes of this section,
paragraph (4) of section 267(c) shall be treated as providing
that the family of an individual shall include only his spouse,
ancestors, and lineal descendants),
(B) the property is not acquired by one component member of a
controlled group from another component member of the same
controlled group, and
(C) the basis of the property in the hands of the person
acquiring it is not determined -
(i) in whole or in part by reference to the adjusted basis
of such property in the hands of the person from whom
acquired, or
(ii) under section 1014(a) (relating to property acquired
from a decedent).
(3) Cost
For purposes of this section, the cost of property does not
include so much of the basis of such property as is determined by
reference to the basis of other property held at any time by the
person acquiring such property.
(4) Section not to apply to estates and trusts
This section shall not apply to estates and trusts.
(5) Section not to apply to certain noncorporate lessors
This section shall not apply to any section 179 property which
is purchased by a person who is not a corporation and with
respect to which such person is the lessor unless -
(A) the property subject to the lease has been manufactured
or produced by the lessor, or
(B) the term of the lease (taking into account options to
renew) is less than 50 percent of the class life of the
property (as defined in section 168(i)(1)), and for the period
consisting of the first 12 months after the date on which the
property is transferred to the lessee the sum of the deductions
with respect to such property which are allowable to the lessor
solely by reason of section 162 (other than rents and
reimbursed amounts with respect to such property) exceeds 15
percent of the rental income produced by such property.
(6) Dollar limitation of controlled group
For purposes of subsection (b) of this section -
(A) all component members of a controlled group shall be
treated as one taxpayer, and
(B) the Secretary shall apportion the dollar limitation
contained in subsection (b)(1) among the component members of
such controlled group in such manner as he shall by regulations
prescribe.
(7) Controlled group defined
For purposes of paragraphs (2) and (6), the term "controlled
group" has the meaning assigned to it by section 1563(a), except
that, for such purposes, the phrase "more than 50 percent" shall
be substituted for the phrase "at least 80 percent" each place it
appears in section 1563(a)(1).
(8) Treatment of partnerships and S corporations
In the case of a partnership, the limitations of subsection (b)
shall apply with respect to the partnership and with respect to
each partner. A similar rule shall apply in the case of an S
corporation and its shareholders.
(9) Coordination with section 38
No credit shall be allowed under section 38 with respect to any
amount for which a deduction is allowed under subsection (a).
(10) Recapture in certain cases
The Secretary shall, by regulations, provide for recapturing
the benefit under any deduction allowable under subsection (a)
with respect to any property which is not used predominantly in a
trade or business at any time.
-SOURCE-
(Added Pub. L. 85-866, title II, Sec. 204(a), Sept. 2, 1958, 72
Stat. 1679; amended Pub. L. 87-834, Sec. 13(c)(2), Oct. 16, 1962,
76 Stat. 1034; Pub. L. 91-172, title IV, Sec. 401(f), Dec. 30,
1969, 83 Stat. 603; Pub. L. 94-455, title II, Sec. 213(a), title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1547, 1834; Pub.
L. 97-34, title II, Sec. 202(a), Aug. 13, 1981, 95 Stat. 219; Pub.
L. 97-354, Sec. 3(f), Oct. 19, 1982, 96 Stat. 1689; Pub. L. 97-448,
title I, Sec. 102(aa), Jan. 12, 1983, 96 Stat. 2369; Pub. L. 98-
369, div. A, title I, Sec. 13, July 18, 1984, 98 Stat. 505; Pub.
L. 99-514, title II, Secs. 201(d)(3), 202, Oct. 22, 1986, 100 Stat.
2139, 2142; Pub. L. 100-647, title I, Sec. 1002(a)(19), (b)(1),
Nov. 10, 1988, 102 Stat. 3356, 3357; Pub. L. 101-508, title XI,
Sec. 11813(b)(11), Nov. 5, 1990, 104 Stat. 1388-554; Pub. L. 103-
66, title XIII, Sec. 13116(a), Aug. 10, 1993, 107 Stat. 432; Pub.
L. 104-188, title I, Secs. 1111(a), 1702(h)(10), (19), Aug. 20,
1996, 110 Stat. 1758, 1874; Pub. L. 108-27, title II, Sec. 202(a)-
(e), May 28, 2003, 117 Stat. 757, 758; Pub. L. 108-357, title II,
Sec. 201, title VIII, Sec. 910(a), Oct. 22, 2004, 118 Stat. 1429,
1659.)
-STATAMEND-
ADJUSTMENT OF LIMITATION ON ELECTION TO EXPENSE CERTAIN DEPRECIABLE
ASSETS FOR TAXABLE YEARS BEGINNING IN 2006
For adjustment of limitation on aggregate cost under subsection
(b)(1) of this section and the reduction of the limitation under
subsection (b)(2) of this section for taxable years beginning in
2006, see section 3.18 of Revenue Procedure 2005-70, set out as a
note under section 1 of this title.
-MISC1-
AMENDMENTS
2004 - Subsec. (b)(1), (2), (5)(A). Pub. L. 108-357, Sec. 201,
substituted "2008" for "2006".
Subsec. (b)(6). Pub. L. 108-357, Sec. 910(a), added par. (6).
Subsecs. (c)(2), (d)(1)(A)(ii). Pub. L. 108-357, Sec. 201,
substituted "2008" for "2006".
2003 - Subsec. (b)(1). Pub. L. 108-27, Sec. 202(a), reenacted
heading without change and amended text generally. Prior to
amendment, par. (1) contained a table specifying the maximum
amounts for taxable years 1997 to 2003 and thereafter which could
be taken into account as the aggregate costs under subsec. (a).
Subsec. (b)(2). Pub. L. 108-27, Sec. 202(b), inserted "($400,000
in the case of taxable years beginning after 2002 and before 2006)"
after "$200,000".
Subsec. (b)(5). Pub. L. 108-27, Sec. 202(d), added par. (5).
Subsec. (c)(2). Pub. L. 108-27, Sec. 202(e), inserted at end "Any
such election or specification with respect to any taxable year
beginning after 2002 and before 2006 may be revoked by the taxpayer
with respect to any property, and such revocation, once made, shall
be irrevocable."
Subsec. (d)(1). Pub. L. 108-27, Sec. 202(c), reenacted heading
without change and amended text generally. Prior to amendment, text
read as follows: "For purposes of this section, the term 'section
179 property' means any tangible property (to which section 168
applies) which is section 1245 property (as defined in section
1245(a)(3)) and which is acquired by purchase for use in the active
conduct of a trade or business. Such term shall not include any
property described in section 50(b) and shall not include air
conditioning or heating units."
1996 - Subsec. (b)(1). Pub. L. 104-188, Sec. 1111(a), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The aggregate cost which may be
taken into account under subsection (a) for any taxable year shall
not exceed $17,500."
Subsec. (d)(1). Pub. L. 104-188, Sec. 1702(h)(10), struck out
"in" before "a trade or business".
Pub. L. 104-188, Sec. 1702(h)(19), inserted at end "Such term
shall not include any property described in section 50(b) and shall
not include air conditioning or heating units."
1993 - Subsec. (b)(1). Pub. L. 103-66 substituted "$17,500" for
"$10,000".
1990 - Subsec. (d)(1). Pub. L. 101-508, Sec. 11813(b)(11)(A),
substituted "section 1245 property (as defined in section
1245(a)(3))" for "section 38 property".
Subsec. (d)(5). Pub. L. 101-508, Sec. 11813(b)(11)(B), amended
par. (5) generally. Prior to amendment, par. (5) read as follows:
"This section shall not apply to any section 179 property purchased
by any person described in section 46(e)(3) unless the credit under
section 38 is allowable with respect to such person for such
property (determined without regard to this section)."
1988 - Subsec. (b)(3). Pub. L. 100-647, Sec. 1002(b)(1), amended
par. (3) generally. Prior to amendment, par. (3) read as follows:
"(A) In general. - The aggregate cost of section 179 property
taken into account under subsection (a) for any taxable year shall
not exceed the aggregate amount of taxable income of the taxpayer
for such taxable year which is derived from the active conduct by
the taxpayer of any trade or business during such taxable year.
"(B) Carryover of unused cost. - The amount of any cost which
(but for subparagraph (A)) would have been allowed as a deduction
under subsection (a) for any taxable year shall be carried to the
succeeding taxable year and added to the amount allowable as a
deduction under subsection (a) for such succeeding taxable year.
"(C) Computation of taxable income. - For purposes of this
paragraph, taxable income derived from the conduct of a trade or
business shall be computed without regard to the cost of any
section 179 property."
Subsec. (d)(1). Pub. L. 100-647, Sec. 1002(a)(19), substituted
"tangible property (to which section 168 applies)" for "recovery
property".
1986 - Subsec. (b). Pub. L. 99-514, Sec. 202(a), in amending
subsec. (b) generally, substituted "Limitations" for "Dollar
limitation" in heading, in par. (1) substituted as heading "Dollar
limitation" for "In general" and in text "shall not exceed $10,000"
for "shall not exceed the following applicable amount:" and a table
specifying amounts for specific years, added pars. (2) to (4), and
struck out former par. (2) which read as follows: "In the case of a
husband and wife filing separate returns for a taxable year, the
applicable amount under paragraph (1) shall be equal to 50 percent
of the amount otherwise determined under paragraph (1)."
Subsec. (d)(1). Pub. L. 99-514, Sec. 202(b), inserted "in the
active conduct of".
Subsec. (d)(8). Pub. L. 99-514, Sec. 201(d)(3), substituted
"Treatment of" for "Dollar limitation in case of" in heading and
amended text generally. Prior to amendment, text read as follows:
"In the case of a partnership, the dollar limitation contained in
subsection (b)(1) shall apply with respect to the partnership and
with respect to each partner. A similar rule shall apply in the
case of an S corporation and its shareholders."
Subsec. (d)(10). Pub. L. 99-514, Sec. 202(c), struck out "before
the close of the second taxable year following the taxable year in
which it is placed in service by the taxpayer" after "at any time".
1984 - Subsec. (b)(1). Pub. L. 98-369 amended table by dropping
items setting applicable amounts of $0 for 1981 and $5,000 for
1982, substituting an applicable amount of $5,000 for 1983, 1984,
1985, 1986, and 1987 for former table items which had set
applicable amounts of $5,000 for 1983, $7,500 for 1984, $7,500 for
1985, and $10,000 for 1986 or thereafter, and added items setting
applicable amounts of $7,500 for 1988 or 1989, and $10,000 for 1990
or thereafter.
1983 - Subsec. (d)(10). Pub. L. 97-448 added par. (10).
1982 - Subsec. (d)(8). Pub. L. 97-354 substituted "partnerships
and S corporations" for "partnerships" in heading, and inserted "A
similar rule shall apply in the case of an S corporation and its
shareholders."
1981 - Pub. L. 97-34 amended section generally, changing its
content from provisions that formerly made available an additional
first-year depreciation allowance for small businesses to
provisions allowing a taxpayer to elect to treat the cost of
section 179 property as an expense which is not chargeable to
capital account, with any cost so treated to be allowed as a
deduction for the taxable year in which the section 179 property is
placed in service.
1976 - Subsecs. (c)(1), (2), (d)(6)(B). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (d)(8), (9). Pub. L. 94-455, Sec. 213(a), added par. (8)
and redesignated former par. (8) as par. (9).
Subsec. (e). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
1969 - Subsec. (d). Pub. L. 91-172 substituted reference to
component members of a controlled group for reference to members of
an affiliated group in pars. (2)(B) and (b), and substituted
definition of controlled group for definition of affiliated group
in par. (7).
1962 - Subsec. (d)(5). Pub. L. 87-834, Sec. 13(c)(2)(A),
substituted "section 167(h)" for "section 167(g)".
Subsec. (d)(8). Pub. L. 87-834, Sec. 13(c)(2)(B), substituted
"section 167(g)" for "section 167(f)".
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 910(b), Oct. 22, 2004, 118
Stat. 1660, provided that: "The amendment made by this section
[amending this section] shall apply to property placed in service
after the date of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 2003 AMENDMENT
Pub. L. 108-27, title II, Sec. 202(f), May 28, 2003, 117 Stat.
758, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2002."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1111(b) of Pub. L. 104-188 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1996."
Amendment by section 1702(h)(10), (19) of Pub. L. 104-188
effective, except as otherwise expressly provided, as if included
in the provision of the Revenue Reconciliation Act of 1990, Pub. L.
101-508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13116(b) of Pub. L. 103-66 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1992."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Dec. 31, 1990, but not applicable to any transition
property (as defined in section 49(e) of this title), any property
with respect to which qualified progress expenditures were
previously taken into account under section 46(d) of this title,
and any property described in section 46(b)(2)(C) of this title, as
such sections were in effect on Nov. 4, 1990, see section 11813(c)
of Pub. L. 101-508, set out as a note under section 45K of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(3) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(3) of Pub. L. 99-514 not applicable
to any property placed in service before Jan. 1, 1994, if such
property placed in service as part of specified rehabilitations,
and not applicable to certain additional rehabilitations, see
section 251(d)(2), (3) of Pub. L. 99-514, set out as a note under
section 46 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years ending
after Dec. 31, 1983, see section 18(a) of Pub. L. 98-369, set out
as a note under section 48 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property placed in
service after Dec. 31, 1980, in taxable years ending after that
date, see section 209(a) of Pub. L. 97-34, set out as an Effective
Date note under section 168 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 213(a) of Pub. L. 94-455 applicable in the
case of partnership taxable years beginning after Dec. 31, 1975,
see section 213(f) of Pub. L. 94-455, set out as an Effective Date
note under section 709 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to taxable
years ending on or after Dec. 31, 1970, see section 401(h)(3) of
Pub. L. 91-172, set out as a note under section 1561 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable to taxable years beginning
after Dec. 31, 1961, and ending after Oct. 16, 1962, see section
13(g) of Pub. L. 87-834, set out as an Effective Date note under
section 1245 of this title.
EFFECTIVE DATE
Section 204(c) of Pub. L. 85-866 provided that: "The amendments
made by this section [enacting this section] shall apply with
respect to taxable years ending after June 30, 1958."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 179A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 179A. Deduction for clean-fuel vehicles and certain refueling
property
-STATUTE-
(a) Allowance of deduction
(1) In general
There shall be allowed as a deduction an amount equal to the
cost of -
(A) any qualified clean-fuel vehicle property, and
(B) any qualified clean-fuel vehicle refueling property.
The deduction under the preceding sentence with respect to any
property shall be allowed for the taxable year in which such
property is placed in service.
(2) Incremental cost for certain vehicles
If a vehicle may be propelled by both a clean-burning fuel and
any other fuel, only the incremental cost of permitting the use
of the clean-burning fuel shall be taken into account.
(b) Limitations
(1) Qualified clean-fuel vehicle property
(A) In general
The cost which may be taken into account under subsection
(a)(1)(A) with respect to any motor vehicle shall not exceed -
(i) in the case of a motor vehicle not described in clause
(ii) or (iii), $2,000,
(ii) in the case of any truck or van with a gross vehicle
weight rating greater than 10,000 pounds but not greater than
26,000 pounds, $5,000, or
(iii) $50,000 in the case of -
(I) a truck or van with a gross vehicle weight rating
greater than 26,000 pounds, or
(II) any bus which has a seating capacity of at least 20
adults (not including the driver).
(B) Phaseout
In the case of any qualified clean-fuel vehicle property
placed in service after December 31, 2005, the limit otherwise
allowable under subparagraph (A) shall be reduced by 75
percent.
(2) Qualified clean-fuel vehicle refueling property
(A) In general
The aggregate cost which may be taken into account under
subsection (a)(1)(B) with respect to qualified clean-fuel
vehicle refueling property placed in service during the taxable
year at a location shall not exceed the excess (if any) of -
(i) $100,000, over
(ii) the aggregate amount taken into account under
subsection (a)(1)(B) by the taxpayer (or any related person
or predecessor) with respect to property placed in service at
such location for all preceding taxable years.
(B) Related person
For purposes of this paragraph, a person shall be treated as
related to another person if such person bears a relationship
to such other person described in section 267(b) or 707(b)(1).
(C) Election
If the limitation under subparagraph (A) applies for any
taxable year, the taxpayer shall, on the return of tax for such
taxable year, specify the items of property (and the portion of
costs of such property) which are to be taken into account
under subsection (a)(1)(B).
(c) Qualified clean-fuel vehicle property defined
For purposes of this section -
(1) In general
The term "qualified clean-fuel vehicle property" means property
which is acquired for use by the taxpayer and not for resale, the
original use of which commences with the taxpayer, with respect
to which the environmental standards of paragraph (2) are met,
and which is described in either of the following subparagraphs:
(A) Retrofit parts and components
Any property installed on a motor vehicle which is propelled
by a fuel which is not a clean-burning fuel for purposes of
permitting such vehicle to be propelled by a clean-burning fuel
-
(i) if the property is an engine (or modification thereof)
which may use a clean-burning fuel, or
(ii) to the extent the property is used in the storage or
delivery to the engine of such fuel, or the exhaust of gases
from combustion of such fuel.
(B) Original equipment manufacturer's vehicles
A motor vehicle produced by an original equipment
manufacturer and designed so that the vehicle may be propelled
by a clean-burning fuel, but only to the extent of the portion
of the basis of such vehicle which is attributable to an engine
which may use such fuel, to the storage or delivery to the
engine of such fuel, or to the exhaust of gases from combustion
of such fuel.
(2) Environmental standards
Property shall not be treated as qualified clean-fuel vehicle
property unless -
(A) the motor vehicle of which it is a part meets any
applicable Federal or State emissions standards with respect to
each fuel by which such vehicle is designed to be propelled, or
(B) in the case of property described in paragraph (1)(A),
such property meets applicable Federal and State emissions-
related certification, testing, and warranty requirements.
(3) Exception for qualified electric vehicles
The term "qualified clean-fuel vehicle property" does not
include any qualified electric vehicle (as defined in section
30(c)).
(d) Qualified clean-fuel vehicle refueling property defined
For purposes of this section, the term "qualified clean-fuel
vehicle refueling property" means any property (not including a
building and its structural components) if -
(1) such property is of a character subject to the allowance
for depreciation,
(2) the original use of such property begins with the taxpayer,
and
(3) such property is -
(A) for the storage or dispensing of a clean-burning fuel
into the fuel tank of a motor vehicle propelled by such fuel,
but only if the storage or dispensing of the fuel is at the
point where such fuel is delivered into the fuel tank of the
motor vehicle, or
(B) for the recharging of motor vehicles propelled by
electricity, but only if the property is located at the point
where the motor vehicles are recharged.
(e) Other definitions and special rules
For purposes of this section -
(1) Clean-burning fuel
The term "clean-burning fuel" means -
(A) natural gas,
(B) liquefied natural gas,
(C) liquefied petroleum gas,
(D) hydrogen,
(E) electricity, and
(F) any other fuel at least 85 percent of which is 1 or more
of the following: methanol, ethanol, any other alcohol, or
ether.
(2) Motor vehicle
The term "motor vehicle" means any vehicle which is
manufactured primarily for use on public streets, roads, and
highways (not including a vehicle operated exclusively on a rail
or rails) and which has at least 4 wheels.
(3) Cost of retrofit parts includes cost of installation
The cost of any qualified clean-fuel vehicle property referred
to in subsection (c)(1)(A) shall include the cost of the original
installation of such property.
(4) Recapture
The Secretary shall, by regulations, provide for recapturing
the benefit of any deduction allowable under subsection (a) with
respect to any property which ceases to be property eligible for
such deduction.
(5) Property used outside United States, etc., not qualified
No deduction shall be allowed under subsection (a) with respect
to any property referred to in section 50(b) or with respect to
the portion of the cost of any property taken into account under
section 179.
(6) Basis reduction
(A) In general
For purposes of this title, the basis of any property shall
be reduced by the portion of the cost of such property taken
into account under subsection (a).
(B) Ordinary income recapture
For purposes of section 1245, the amount of the deduction
allowable under subsection (a) with respect to any property
which is of a character subject to the allowance for
depreciation shall be treated as a deduction allowed for
depreciation under section 167.
(f) Termination
This section shall not apply to any property placed in service
after December 31, 2005.
-SOURCE-
(Added Pub. L. 102-486, title XIX, Sec. 1913(a)(1), Oct. 24, 1992,
106 Stat. 3016; amended Pub. L. 104-188, title I, Sec. 1704(j)(2),
Aug. 20, 1996, 110 Stat. 1881; Pub. L. 107-147, title VI, Sec.
606(a), Mar. 9, 2002, 116 Stat. 60; Pub. L. 108-311, title III,
Sec. 319(a), Oct. 4, 2004, 118 Stat. 1182; Pub. L. 109-58, title
XIII, Sec. 1348, Aug. 8, 2005, 119 Stat. 1056.)
-MISC1-
AMENDMENTS
2005 - Subsec. (f). Pub. L. 109-58 substituted "December 31,
2005" for "December 31, 2006".
2004 - Subsec. (b)(1)(B). Pub. L. 108-311 reenacted heading
without change and amended text generally. Prior to amendment, text
read as follows: "In the case of any qualified clean-fuel vehicle
property placed in service after December 31, 2003, the limit
otherwise applicable under subparagraph (A) shall be reduced by -
"(i) 25 percent in the case of property placed in service in
calendar year 2004,
"(ii) 50 percent in the case of property placed in service in
calendar year 2005, and
"(iii) 75 percent in the case of property placed in service in
calendar year 2006."
2002 - Subsec. (b)(1)(B). Pub. L. 107-147, Sec. 606(a)(1)(A),
substituted "December 31, 2003," for "December 31, 2001," in
introductory provisions.
Subsec. (b)(1)(B)(i). Pub. L. 107-147, Sec. 606(a)(1)(B),
substituted "2004" for "2002"
Subsec. (b)(1)(B)(ii). Pub. L. 107-147, Sec. 606(a)(1)(B),
substituted "2005" for "2003".
Subsec. (b)(1)(B)(iii). Pub. L. 107-147, Sec. 606(a)(1)(B),
substituted "2006" for "2004".
Subsec. (f). Pub. L. 107-147, Sec. 606(a)(2), substituted
"December 31, 2006" for "December 31, 2004".
1996 - Subsecs. (f), (g). Pub. L. 104-188 redesignated subsec.
(g) as (f).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-311, title III, Sec. 319(b), Oct. 4, 2004, 118 Stat.
1182, provided that: "The amendment made by subsection (a)
[amending this section] shall apply to property placed in service
after December 31, 2003."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title VI, Sec. 606(b), Mar. 9, 2002, 116 Stat.
60, provided that: "The amendments made by subsection (a) [amending
this section] shall apply to property placed in service after
December 31, 2001."
EFFECTIVE DATE
Section applicable to property placed in service after June 30,
1993, see section 1913(c) of Pub. L. 102-486, set out as a note
under section 30 of this title.
-End-
-CITE-
26 USC Sec. 179B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 179B. Deduction for capital costs incurred in complying with
Environmental Protection Agency sulfur regulations
-STATUTE-
(a) Allowance of deduction
In the case of a small business refiner (as defined in section
45H(c)(1)) which elects the application of this section, there
shall be allowed as a deduction an amount equal to 75 percent of
qualified capital costs (as defined in section 45H(c)(2)) which are
paid or incurred by the taxpayer during the taxable year.
(b) Reduced percentage
In the case of a small business refiner with average daily
domestic refinery runs for the 1-year period ending on December 31,
2002, in excess of 155,000 barrels, the number of percentage points
described in subsection (a) shall be reduced (not below zero) by
the product of such number (before the application of this
subsection) and the ratio of such excess to 50,000 barrels.
(c) Basis reduction
(1) In general
For purposes of this title, the basis of any property shall be
reduced by the portion of the cost of such property taken into
account under subsection (a).
(2) Ordinary income recapture
For purposes of section 1245, the amount of the deduction
allowable under subsection (a) with respect to any property which
is of a character subject to the allowance for depreciation shall
be treated as a deduction allowed for depreciation under section
167.
(d) Coordination with other provisions
Section 280B shall not apply to amounts which are treated as
expenses under this section.
(e) Election to allocate deduction to cooperative owner
(1) In general
If -
(A) a small business refiner to which subsection (a) applies
is an organization to which part I of subchapter T applies, and
(B) one or more persons directly holding an ownership
interest in the refiner are organizations to which part I of
subchapter T apply,
the refiner may elect to allocate all or a portion of the
deduction allowable under subsection (a) to such persons. Such
allocation shall be equal to the person's ratable share of the
total amount allocated, determined on the basis of the person's
ownership interest in the taxpayer. The taxable income of the
refiner shall not be reduced under section 1382 by reason of any
amount to which the preceding sentence applies.
(2) Form and effect of election
An election under paragraph (1) for any taxable year shall be
made on a timely filed return for such year. Such election, once
made, shall be irrevocable for such taxable year.
(3) Written notice to owners
If any portion of the deduction available under subsection (a)
is allocated to owners under paragraph (1), the cooperative shall
provide any owner receiving an allocation written notice of the
amount of the allocation. Such notice shall be provided before
the date on which the return described in paragraph (2) is due.
-SOURCE-
(Added Pub. L. 108-357, title III, Sec. 338(a), Oct. 22, 2004, 118
Stat. 1480; amended Pub. L. 109-58, title XIII, Sec. 1324(a), Aug.
8, 2005, 119 Stat. 1015.)
-MISC1-
AMENDMENTS
2005 - Subsec. (e). Pub. L. 109-58 added subsec. (e).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-58, title XIII, Sec. 1324(b), Aug. 8, 2005, 119 Stat.
1015, provided that: "The amendment made by this section [amending
this section] shall take effect as if included in the amendment
made by section 338(a) of the American Jobs Creation Act of 2004
[Pub. L. 108-357, enacting this section]."
EFFECTIVE DATE
Pub. L. 108-357, title III, Sec. 338(c), Oct. 22, 2004, 118 Stat.
1481, provided that: "The amendment made by this section [enacting
this section and amending sections 263, 263A, 312, 1016, and 1245
of this title] shall apply to expenses paid or incurred after
December 31, 2002, in taxable years ending after such date."
-End-
-CITE-
26 USC Sec. 179C 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 179C. Election to expense certain refineries
-STATUTE-
(a) Treatment as expenses
A taxpayer may elect to treat 50 percent of the cost of any
qualified refinery property as an expense which is not chargeable
to capital account. Any cost so treated shall be allowed as a
deduction for the taxable year in which the qualified refinery
property is placed in service.
(b) Election
(1) In general
An election under this section for any taxable year shall be
made on the taxpayer's return of the tax imposed by this chapter
for the taxable year. Such election shall be made in such manner
as the Secretary may by regulations prescribe.
(2) Election irrevocable
Any election made under this section may not be revoked except
with the consent of the Secretary.
(c) Qualified refinery property
(1) In general
The term "qualified refinery property" means any portion of a
qualified refinery -
(A) the original use of which commences with the taxpayer,
(B) which is placed in service by the taxpayer after the date
of the enactment of this section and before January 1, 2012,
(C) in the case any portion of a qualified refinery (other
than a qualified refinery which is separate from any existing
refinery), which meets the requirements of subsection (e),
(D) which meets all applicable environmental laws in effect
on the date such portion was placed in service,
(E) no written binding contract for the construction of which
was in effect on or before June 14, 2005, and
(F)(i) the construction of which is subject to a written
binding construction contract entered into before January 1,
2008,
(ii) which is placed in service before January 1, 2008, or
(iii) in the case of self-constructed property, the
construction of which began after June 14, 2005, and before
January 1, 2008.
(2) Special rule for sale-leasebacks
For purposes of paragraph (1)(A), if property is -
(A) originally placed in service after the date of the
enactment of this section by a person, and
(B) sold and leased back by such person within 3 months after
the date such property was originally placed in service,
such property shall be treated as originally placed in service
not earlier than the date on which such property is used under
the leaseback referred to in subparagraph (B).
(3) Effect of waiver under Clean Air Act
A waiver under the Clean Air Act shall not be taken into
account in determining whether the requirements of paragraph
(1)(D) are met.
(d) Qualified refinery
For purposes of this section, the term "qualified refinery" means
any refinery located in the United States which is designed to
serve the primary purpose of processing liquid fuel from crude oil
or qualified fuels (as defined in section 45K(c)).
(e) Production capacity
The requirements of this subsection are met if the portion of the
qualified refinery -
(1) enables the existing qualified refinery to increase total
volume output (determined without regard to asphalt or lube oil)
by 5 percent or more on an average daily basis, or
(2) enables the existing qualified refinery to process
qualified fuels (as defined in section 45K(c)) at a rate which is
equal to or greater than 25 percent of the total throughput of
such qualified refinery on an average daily basis.
(f) Ineligible refinery property
No deduction shall be allowed under subsection (a) for any
qualified refinery property -
(1) the primary purpose of which is for use as a topping plant,
asphalt plant, lube oil facility, crude or product terminal, or
blending facility, or
(2) which is built solely to comply with consent decrees or
projects mandated by Federal, State, or local governments.
(g) Election to allocate deduction to cooperative owner
(1) In general
If -
(A) a taxpayer to which subsection (a) applies is an
organization to which part I of subchapter T applies, and
(B) one or more persons directly holding an ownership
interest in the taxpayer are organizations to which part I of
subchapter T apply,
the taxpayer may elect to allocate all or a portion of the
deduction allowable under subsection (a) to such persons. Such
allocation shall be equal to the person's ratable share of the
total amount allocated, determined on the basis of the person's
ownership interest in the taxpayer. The taxable income of the
taxpayer shall not be reduced under section 1382 by reason of any
amount to which the preceding sentence applies.
(2) Form and effect of election
An election under paragraph (1) for any taxable year shall be
made on a timely filed return for such year. Such election, once
made, shall be irrevocable for such taxable year.
(3) Written notice to owners
If any portion of the deduction available under subsection (a)
is allocated to owners under paragraph (1), the cooperative shall
provide any owner receiving an allocation written notice of the
amount of the allocation. Such notice shall be provided before
the date on which the return described in paragraph (2) is due.
(h) Reporting
No deduction shall be allowed under subsection (a) to any
taxpayer for any taxable year unless such taxpayer files with the
Secretary a report containing such information with respect to the
operation of the refineries of the taxpayer as the Secretary shall
require.
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1323(a), Aug. 8, 2005, 119
Stat. 1013.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section, referred to in subsec.
(c)(1)(B), (2)(A), is the date of enactment of Pub. L. 109-58,
which was approved Aug. 8, 2005.
The Clean Air Act, referred to in subsec. (c)(3), is act July 14,
1955, ch. 360, 69 Stat. 322, as amended, which is classified
generally to chapter 85 (Sec. 7401 et seq.) of Title 42, The Public
Health and Welfare. For complete classification of this Act to the
Code, see Short Title note set out under section 7401 of Title 42
and Tables.
-MISC1-
EFFECTIVE DATE
Pub. L. 109-58, title XIII, Sec. 1323(c), Aug. 8, 2005, 119 Stat.
1015, provided that: "The amendments made by this section [enacting
this section and amending sections 263, 312, and 1245 of this
title] shall apply to properties placed in service after the date
of the enactment of this Act [Aug. 8, 2005]."
-End-
-CITE-
26 USC Sec. 179D 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 179D. Energy efficient commercial buildings deduction
-STATUTE-
(a) In general
There shall be allowed as a deduction an amount equal to the cost
of energy efficient commercial building property placed in service
during the taxable year.
(b) Maximum amount of deduction
The deduction under subsection (a) with respect to any building
for any taxable year shall not exceed the excess (if any) of -
(1) the product of -
(A) $1.80, and
(B) the square footage of the building, over
(2) the aggregate amount of the deductions under subsection (a)
with respect to the building for all prior taxable years.
(c) Definitions
For purposes of this section -
(1) Energy efficient commercial building property
The term "energy efficient commercial building property" means
property -
(A) with respect to which depreciation (or amortization in
lieu of depreciation) is allowable,
(B) which is installed on or in any building which is -
(i) located in the United States, and
(ii) within the scope of Standard 90.1-2001,
(C) which is installed as part of -
(i) the interior lighting systems,
(ii) the heating, cooling, ventilation, and hot water
systems, or
(iii) the building envelope, and
(D) which is certified in accordance with subsection (d)(6)
as being installed as part of a plan designed to reduce the
total annual energy and power costs with respect to the
interior lighting systems, heating, cooling, ventilation, and
hot water systems of the building by 50 percent or more in
comparison to a reference building which meets the minimum
requirements of Standard 90.1-2001 using methods of calculation
under subsection (d)(2).
(2) Standard 90.1-2001
The term "Standard 90.1-2001" means Standard 90.1-2001 of the
American Society of Heating, Refrigerating, and Air Conditioning
Engineers and the Illuminating Engineering Society of North
America (as in effect on April 2, 2003).
(d) Special rules
(1) Partial allowance
(A) In general
Except as provided in subsection (f), if -
(i) the requirement of subsection (c)(1)(D) is not met, but
(ii) there is a certification in accordance with paragraph
(6) that any system referred to in subsection (c)(1)(C)
satisfies the energy-savings targets established by the
Secretary under subparagraph (B) with respect to such system,
then the requirement of subsection (c)(1)(D) shall be treated
as met with respect to such system, and the deduction under
subsection (a) shall be allowed with respect to energy
efficient commercial building property installed as part of
such system and as part of a plan to meet such targets, except
that subsection (b) shall be applied to such property by
substituting "$.60" for "$1.80".
(B) Regulations
The Secretary, after consultation with the Secretary of
Energy, shall establish a target for each system described in
subsection (c)(1)(C) which, if such targets were met for all
such systems, the building (!1) would meet the requirements of
subsection (c)(1)(D).
(2) Methods of calculation
The Secretary, after consultation with the Secretary of Energy,
shall promulgate regulations which describe in detail methods for
calculating and verifying energy and power consumption and cost,
based on the provisions of the 2005 California Nonresidential
Alternative Calculation Method Approval Manual.
(3) Computer software
(A) In general
Any calculation under paragraph (2) shall be prepared by
qualified computer software.
(B) Qualified computer software
For purposes of this paragraph, the term "qualified computer
software" means software -
(i) for which the software designer has certified that the
software meets all procedures and detailed methods for
calculating energy and power consumption and costs as
required by the Secretary,
(ii) which provides such forms as required to be filed by
the Secretary in connection with energy efficiency of
property and the deduction allowed under this section, and
(iii) which provides a notice form which documents the
energy efficiency features of the building and its projected
annual energy costs.
(4) Allocation of deduction for public property
In the case of energy efficient commercial building property
installed on or in property owned by a Federal, State, or local
government or a political subdivision thereof, the Secretary
shall promulgate a regulation to allow the allocation of the
deduction to the person primarily responsible for designing the
property in lieu of the owner of such property. Such person shall
be treated as the taxpayer for purposes of this section.
(5) Notice to owner
Each certification required under this section shall include an
explanation to the building owner regarding the energy efficiency
features of the building and its projected annual energy costs as
provided in the notice under paragraph (3)(B)(iii).
(6) Certification
(A) In general
The Secretary shall prescribe the manner and method for the
making of certifications under this section.
(B) Procedures
The Secretary shall include as part of the certification
process procedures for inspection and testing by qualified
individuals described in subparagraph (C) to ensure compliance
of buildings with energy-savings plans and targets. Such
procedures shall be comparable, given the difference between
commercial and residential buildings, to the requirements in
the Mortgage Industry National Accreditation Procedures for
Home Energy Rating Systems.
(C) Qualified individuals
Individuals qualified to determine compliance shall be only
those individuals who are recognized by an organization
certified by the Secretary for such purposes.
(e) Basis reduction
For purposes of this subtitle, if a deduction is allowed under
this section with respect to any energy efficient commercial
building property, the basis of such property shall be reduced by
the amount of the deduction so allowed.
(f) Interim rules for lighting systems
Until such time as the Secretary issues final regulations under
subsection (d)(1)(B) with respect to property which is part of a
lighting system -
(1) In general
The lighting system target under subsection (d)(1)(A)(ii) shall
be a reduction in lighting power density of 25 percent (50
percent in the case of a warehouse) of the minimum requirements
in Table 9.3.1.1 or Table 9.3.1.2 (not including additional
interior lighting power allowances) of Standard 90.1-2001.
(2) Reduction in deduction if reduction less than 40 percent
(A) In general
If, with respect to the lighting system of any building other
than a warehouse, the reduction in lighting power density of
the lighting system is not at least 40 percent, only the
applicable percentage of the amount of deduction otherwise
allowable under this section with respect to such property
shall be allowed.
(B) Applicable percentage
For purposes of subparagraph (A), the applicable percentage
is the number of percentage points (not greater than 100) equal
to the sum of -
(i) 50, and
(ii) the amount which bears the same ratio to 50 as the
excess of the reduction of lighting power density of the
lighting system over 25 percentage points bears to 15.
(C) Exceptions
This subsection shall not apply to any system -
(i) the controls and circuiting of which do not comply
fully with the mandatory and prescriptive requirements of
Standard 90.1-2001 and which do not include provision for
bilevel switching in all occupancies except hotel and motel
guest rooms, store rooms, restrooms, and public lobbies, or
(ii) which does not meet the minimum requirements for
calculated lighting levels as set forth in the Illuminating
Engineering Society of North America Lighting Handbook,
Performance and Application, Ninth Edition, 2000.
(g) Regulations
The Secretary shall promulgate such regulations as necessary -
(1) to take into account new technologies regarding energy
efficiency and renewable energy for purposes of determining
energy efficiency and savings under this section, and
(2) to provide for a recapture of the deduction allowed under
this section if the plan described in subsection (c)(1)(D) or
(d)(1)(A) is not fully implemented.
(h) Termination
This section shall not apply with respect to property placed in
service after December 31, 2007.
-SOURCE-
(Added Pub. L. 109-58, title XIII, Sec. 1331(a), Aug. 8, 2005, 119
Stat. 1020.)
-MISC1-
EFFECTIVE DATE
Pub. L. 109-58, title XIII, Sec. 1331(d), Aug. 8, 2005, 119 Stat.
1024, provided that: "The amendments made by this section [enacting
this section and amending sections 263, 312, 1016, 1245, and 1250
of this title] shall apply to property placed in service after
December 31, 2005."
-FOOTNOTE-
(!1) So in original.
-End-
-CITE-
26 USC Sec. 180 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 180. Expenditures by farmers for fertilizer, etc.
-STATUTE-
(a) In general
A taxpayer engaged in the business of farming may elect to treat
as expenses which are not chargeable to capital account
expenditures (otherwise chargeable to capital account) which are
paid or incurred by him during the taxable year for the purchase or
acquisition of fertilizer, lime, ground limestone, marl, or other
materials to enrich, neutralize, or condition land used in farming,
or for the application of such materials to such land. The
expenditures so treated shall be allowed as a deduction.
(b) Land used in farming
For purposes of subsection (a), the term "land used in farming"
means land used (before or simultaneously with the expenditures
described in subsection (a)) by the taxpayer or his tenant for the
production of crops, fruits, or other agricultural products or for
the sustenance of livestock.
(c) Election
The election under subsection (a) for any taxable year shall be
made within the time prescribed by law (including extensions
thereof) for filing the return for such taxable year. Such election
shall be made in such manner as the Secretary may by regulations
prescribe. Such election may not be revoked except with the consent
of the Secretary.
-SOURCE-
(Added Pub. L. 86-779, Sec. 6(a), Sept. 14, 1960, 74 Stat. 1001;
amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (c). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE
Section 6(d) of Pub. L. 86-779 provided that: "The amendments
made by subsections (a), (b), and (c) [enacting this section and
amending section 263 of this title] shall apply to taxable years
beginning after December 31, 1959."
-End-
-CITE-
26 USC Sec. 181 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 181. Treatment of certain qualified film and television
productions
-STATUTE-
(a) Election to treat costs as expenses
(1) In general
A taxpayer may elect to treat the cost of any qualified film or
television production as an expense which is not chargeable to
capital account. Any cost so treated shall be allowed as a
deduction.
(2) Dollar limitation
(A) In general
Paragraph (1) shall not apply to any qualified film or
television production the aggregate cost of which exceeds
$15,000,000.
(B) Higher dollar limitation for productions in certain areas
In the case of any qualified film or television production
the aggregate cost of which is significantly incurred in an
area eligible for designation as -
(i) a low-income community under section 45D, or
(ii) a distressed county or isolated area of distress by
the Delta Regional Authority established under section 2009aa-
1 of title 7, United States Code,
subparagraph (A) shall be applied by substituting "$20,000,000"
for "$15,000,000".
(b) No other deduction or amortization deduction allowable
With respect to the basis of any qualified film or television
production to which an election is made under subsection (a), no
other depreciation or amortization deduction shall be allowable.
(c) Election
(1) In general
An election under this section with respect to any qualified
film or television production shall be made in such manner as
prescribed by the Secretary and by the due date (including
extensions) for filing the taxpayer's return of tax under this
chapter for the taxable year in which costs of the production are
first incurred.
(2) Revocation of election
Any election made under this section may not be revoked without
the consent of the Secretary.
(d) Qualified film or television production
For purposes of this section -
(1) In general
The term "qualified film or television production" means any
production described in paragraph (2) if 75 percent of the total
compensation of the production is qualified compensation.
(2) Production
(A) In general
A production is described in this paragraph if such
production is property described in section 168(f)(3).
(B) Special rules for television series
In the case of a television series -
(i) each episode of such series shall be treated as a
separate production, and
(ii) only the first 44 episodes of such series shall be
taken into account.
(C) Exception
A production is not described in this paragraph if records
are required under section 2257 of title 18, United States
Code, to be maintained with respect to any performer in such
production.
(3) Qualified compensation
For purposes of paragraph (1) -
(A) In general
The term "qualified compensation" means compensation for
services performed in the United States by actors, directors,
producers, and other relevant production personnel.
(B) Participations and residuals excluded
The term "compensation" does not include participations and
residuals (as defined in section 167(g)(7)(B)).
(e) Application of certain other rules
For purposes of this section, rules similar to the rules of
subsections (b)(2) and (c)(4) of section 194 shall apply.
(f) Termination
This section shall not apply to qualified film and television
productions commencing after December 31, 2008.
-SOURCE-
(Added Pub. L. 108-357, title II, Sec. 244(a), Oct. 22, 2004, 118
Stat. 1445; amended Pub. L. 109-135, title IV, Sec. 403(e)(1), Dec.
21, 2005, 119 Stat. 2623.)
-MISC1-
PRIOR PROVISIONS
A prior section 181, Pub. L. 87-834, Sec. 2(c), Oct. 16, 1962, 76
Stat. 970, related to a deduction for unused investment credit,
prior to repeal by Pub. L. 88-272, title II, Sec. 203(a)(3)(B),
(4), Feb. 26, 1964, 78 Stat. 34, applicable in case of property
placed in service after Dec. 31, 1963, with respect to taxable
years ending after such date, and in case of property placed in
service before Jan. 1, 1964, with respect to taxable years
beginning after Dec. 31, 1963.
AMENDMENTS
2005 - Subsec. (d)(2). Pub. L. 109-135 struck out "For purposes
of a television series, only the first 44 episodes of such series
may be taken into account." at end of subpar. (A), added subpar.
(B), and redesignated former subpar. (B) as (C).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE
Pub. L. 108-357, title II, Sec. 244(c), Oct. 22, 2004, 118 Stat.
1447, provided that: "The amendments made by this section [enacting
this section] shall apply to qualified film and television
productions (as defined in section 181(d)(1) of the Internal
Revenue Code of 1986, as added by this section) commencing after
the date of the enactment of this Act [Oct. 22, 2004]."
-End-
-CITE-
26 USC Sec. 182 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
[Sec. 182. Repealed. Pub. L. 99-514, title IV, Sec. 402(a), Oct.
22, 1986, 100 Stat. 2221]
-MISC1-
Section, added Pub. L. 87-834, Sec. 21(a), Oct. 16, 1962, 76
Stat. 1063; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834, authorized deduction of expenditures
by farmers for clearing land.
EFFECTIVE DATE OF REPEAL
Section 402(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending sections 263 and 1252 of this title
and repealing this section] shall apply to amounts paid or incurred
after December 31, 1985, in taxable years ending after such date."
-End-
-CITE-
26 USC Sec. 183 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 183. Activities not engaged in for profit
-STATUTE-
(a) General rule
In the case of an activity engaged in by an individual or an S
corporation, if such activity is not engaged in for profit, no
deduction attributable to such activity shall be allowed under this
chapter except as provided in this section.
(b) Deductions allowable
In the case of an activity not engaged in for profit to which
subsection (a) applies, there shall be allowed -
(1) the deductions which would be allowable under this chapter
for the taxable year without regard to whether or not such
activity is engaged in for profit, and
(2) a deduction equal to the amount of the deductions which
would be allowable under this chapter for the taxable year only
if such activity were engaged in for profit, but only to the
extent that the gross income derived from such activity for the
taxable year exceeds the deductions allowable by reason of
paragraph (1).
(c) Activity not engaged in for profit defined
For purposes of this section, the term "activity not engaged in
for profit" means any activity other than one with respect to which
deductions are allowable for the taxable year under section 162 or
under paragraph (1) or (2) of section 212.
(d) Presumption
If the gross income derived from an activity for 3 or more of the
taxable years in the period of 5 consecutive taxable years which
ends with the taxable year exceeds the deductions attributable to
such activity (determined without regard to whether or not such
activity is engaged in for profit), then, unless the Secretary
establishes to the contrary, such activity shall be presumed for
purposes of this chapter for such taxable year to be an activity
engaged in for profit. In the case of an activity which consists in
major part of the breeding, training, showing, or racing of horses,
the preceding sentence shall be applied by substituting "2" for "3"
and "7" for "5".
(e) Special rule
(1) In general
A determination as to whether the presumption provided by
subsection (d) applies with respect to any activity shall, if the
taxpayer so elects, not be made before the close of the fourth
taxable year (sixth taxable year, in the case of an activity
described in the last sentence of such subsection) following the
taxable year in which the taxpayer first engages in the activity.
For purposes of the preceding sentence, a taxpayer shall be
treated as not having engaged in an activity during any taxable
year beginning before January 1, 1970.
(2) Initial period
If the taxpayer makes an election under paragraph (1), the
presumption provided by subsection (d) shall apply to each
taxable year in the 5-taxable year (or 7-taxable year) period
beginning with the taxable year in which the taxpayer first
engages in the activity, if the gross income derived from the
activity for 3 (or 2 if applicable) or more of the taxable years
in such period exceeds the deductions attributable to the
activity (determined without regard to whether or not the
activity is engaged in for profit).
(3) Election
An election under paragraph (1) shall be made at such time and
manner, and subject to such terms and conditions, as the
Secretary may prescribe.
(4) Time for assessing deficiency attributable to activity
If a taxpayer makes an election under paragraph (1) with
respect to an activity, the statutory period for the assessment
of any deficiency attributable to such activity shall not expire
before the expiration of 2 years after the date prescribed by law
(determined without extensions) for filing the return of tax
under chapter 1 for the last taxable year in the period of 5
taxable years (or 7 taxable years) to which the election relates.
Such deficiency may be assessed notwithstanding the provisions of
any law or rule of law which would otherwise prevent such an
assessment.
-SOURCE-
(Added Pub. L. 91-172, title II, Sec. 213(a), Dec. 30, 1969, 83
Stat. 571; amended Pub. L. 92-178, title III, Sec. 311(a), Dec. 10,
1971, 85 Stat. 525; Pub. L. 94-455, title II, Sec. 214(a), title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1549, 1834; Pub.
L. 97-354, Sec. 5(a)(23), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 99-
514, title I, Sec. 143(a), Oct. 22, 1986, 100 Stat. 2120; Pub. L.
100-647, title I, Sec. 1001(h)(3), Nov. 10, 1988, 102 Stat. 3352.)
-MISC1-
AMENDMENTS
1988 - Subsec. (e)(2). Pub. L. 100-647 substituted "activity for
3 (or 2 if applicable)" for "activity for 2".
1986 - Subsec. (d). Pub. L. 99-514 substituted "3" for "2" before
"or more" in first sentence and " '2' for '3' and '7' for '5' " for
"the period of 7 consecutive taxable years for the period of 5
consecutive taxable years" in second sentence.
1982 - Subsec. (a). Pub. L. 97-354 substituted "an S corporation"
for "an electing small business corporation (as defined in section
1371(b))".
1976 - Subsecs. (d), (e)(3). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (e)(4). Pub. L. 94-455, Sec. 214(a), added par. (4).
1971 - Subsec. (e). Pub. L. 92-178 added subsec. (e).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 214(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and section 6212 of
this title] shall apply with respect to taxable years beginning
after December 31, 1969; except that such amendments shall not
apply to any taxable year ending before the date of the enactment
of this Act [Oct. 4, 1976] with respect to which the period for
assessing a deficiency has expired before such date of enactment."
EFFECTIVE DATE OF 1971 AMENDMENT
Section 311(b) of Pub. L. 92-178 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1969."
EFFECTIVE DATE
Section 213(d) of Pub. L. 91-172 provided that: "The amendments
made by this section [enacting this section, amending section 6504
of this title, and repealing section 270 of this title] shall apply
to taxable years beginning after December 31, 1969."
-End-
-CITE-
26 USC Sec. 184 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
[Sec. 184. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(12),
Nov. 5, 1990, 104 Stat. 1388-520]
-MISC1-
Section, added Pub. L. 91-172, title VII, Sec. 705(a), Dec. 30,
1969, 83 Stat. 670; amended Pub. L. 93-625, Sec. 3(b), Jan. 3,
1975, 88 Stat. 2109; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to
amortization of certain railroad rolling stock.
SAVINGS PROVISION
For provisions that nothing in repeal by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 185 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
[Sec. 185. Repealed. Pub. L. 99-514, title II, Sec. 242(a), Oct.
22, 1986, 100 Stat. 2181]
-MISC1-
Section, added Pub. L. 91-172, title VII, Sec. 705(a), Dec. 30,
1969, 83 Stat. 672; amended Pub. L. 94-455, title XVII, Sec. 1702,
title XIX, Sec. 1906(b) (13)(A), Oct. 4, 1976, 90 Stat. 1760, 1834;
Pub. L. 95-473, Sec. 2(a)(2)(B), Oct. 17, 1978, 92 Stat. 1464,
related to amortization of railroad grading and tunnel bores.
EFFECTIVE DATE OF REPEAL
Section 242(c) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending sections 1082 and 1250 of
this title and repealing this section] shall apply to that portion
of the basis of any property which is attributable to expenditures
paid or incurred after December 31, 1986.
"(2) Transitional rule. - The amendments made by this section
shall not apply to any expenditure incurred -
"(A) pursuant to a binding contract entered into before March
2, 1986, or
"(B) with respect to any improvement commenced before March 2,
1986, but only if not less than the lesser of $1,000,000 or 5
percent of the aggregate cost of such improvement has been
incurred or committed before such date.
The preceding sentence shall not apply to any expenditure with
respect to an improvement placed in service after December 31,
1987."
-End-
-CITE-
26 USC Sec. 186 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 186. Recoveries of damages for antitrust violations, etc.
-STATUTE-
(a) Allowance of deduction
If a compensatory amount which is included in gross income is
received or accrued during the taxable year for a compensable
injury, there shall be allowed as a deduction for the taxable year
an amount equal to the lesser of -
(1) the amount of such compensatory amount, or
(2) the amount of the unrecovered losses sustained as a result
of such compensable injury.
(b) Compensable injury
For purposes of this section, the term "compensable injury" means
-
(1) injuries sustained as a result of an infringement of a
patent issued by the United States,
(2) injuries sustained as a result of a breach of contract or a
breach of fiduciary duty or relationship, or
(3) injuries sustained in business, or to property, by reason
of any conduct forbidden in the antitrust laws for which a civil
action may be brought under section 4 of the Act entitled "An Act
to supplement existing laws against unlawful restraints and
monopolies, and for other purposes", approved October 15, 1914
(commonly known as the Clayton Act).
(c) Compensatory amount
For purposes of this section, the term "compensatory amount"
means the amount received or accrued during the taxable year as
damages as a result of an award in, or in settlement of, a civil
action for recovery for a compensable injury, reduced by any
amounts paid or incurred in the taxable year in securing such award
or settlement.
(d) Unrecovered losses
(1) In general
For purposes of this section, the amount of any unrecovered
loss sustained as a result of any compensable injury is -
(A) the sum of the amount of the net operating losses (as
determined under section 172) for each taxable year in whole or
in part within the injury period, to the extent that such net
operating losses are attributable to such compensable injury,
reduced by
(B) the sum of -
(i) the amount of the net operating losses described in
subparagraph (A) which were allowed for any prior taxable
year as a deduction under section 172 as a net operating loss
carryback or carryover to such taxable year, and
(ii) the amounts allowed as a deduction under subsection
(a) for any prior taxable year for prior recoveries of
compensatory amounts for such compensable injury.
(2) Injury period
For purposes of paragraph (1), the injury period is -
(A) with respect to any infringement of a patent, the period
in which such infringement occurred,
(B) with respect to a breach of contract or breach of
fiduciary duty or relationship, the period during which amounts
would have been received or accrued but for the breach of
contract or breach of fiduciary duty or relationship, and
(C) with respect to injuries sustained by reason of any
conduct forbidden in the antitrust laws, the period in which
such injuries were sustained.
(3) Net operating losses attributable to compensable injuries
For purposes of paragraph (1) -
(A) a net operating loss for any taxable year shall be
treated as attributable to a compensable injury to the extent
of the compensable injury sustained during such taxable year,
and
(B) if only a portion of a net operating loss for any taxable
year is attributable to a compensable injury, such portion
shall (in applying section 172 for purposes of this section) be
considered to be a separate net operating loss for such year to
be applied after the other portion of such net operating loss.
(e) Effect on net operating loss carryovers
If for the taxable year in which a compensatory amount is
received or accrued any portion of a net operating loss carryover
to such year is attributable to the compensable injury for which
such amount is received or accrued, such portion of such net
operating loss carryover shall be reduced by an amount equal to -
(1) the deduction allowed under subsection (a) with respect to
such compensatory amount, reduced by
(2) any portion of the unrecovered losses sustained as a result
of the compensable injury with respect to which the period for
carryover under section 172 has expired.
-SOURCE-
(Added Pub. L. 91-172, title IX, Sec. 904(a), Dec. 30, 1969, 83
Stat. 711.)
-REFTEXT-
REFERENCES IN TEXT
The antitrust laws, referred to in subsecs. (b)(3), (d)(2)(C),
are classified generally to section 1 et seq. of Title 15, Commerce
and Trade.
Section 4 of the Clayton Act, referred to in subsec. (b)(3), is
classified to section 15 of Title 15.
-MISC1-
EFFECTIVE DATE
Section 904(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [enacting this section] shall apply to taxable
years beginning after December 31, 1968."
-End-
-CITE-
26 USC Sec. 187 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
[Sec. 187. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(31),
Oct. 4, 1976, 90 Stat. 1769]
-MISC1-
Section, added Pub. L. 91-172, title VII, Sec. 707(a), Dec. 30,
1969, 83 Stat. 674; amended Pub. L. 93-625, Sec. 3(d), Jan. 3,
1975, 88 Stat. 2109, provided for an allowance of an amortization
deduction for certain coal mine safety equipment, the method of
election and termination of such deduction, the definition of term
"certified coal mine safety equipment", and special rules
applicable to the amortization deduction.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
-CITE-
26 USC Sec. 188 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
[Sec. 188. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(13),
Nov. 5, 1990, 104 Stat. 1388-520]
-MISC1-
Section, added Pub. L. 92-178, title III, Sec. 303(a), Dec. 10,
1971, 85 Stat. 521; amended Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-30, title
IV, Sec. 402(a)(1)-(3), May 23, 1977, 91 Stat. 155, related to
amortization of certain expenditures for child care facilities.
SAVINGS PROVISION
For provisions that nothing in repeal by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 189 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
[Sec. 189. Repealed. Pub. L. 99-514, title VIII, Sec. 803(b)(1),
Oct. 22, 1986, 100 Stat. 2355]
-MISC1-
Section, added Pub. L. 94-455, title II, Sec. 201(a), Oct. 4,
1976, 90 Stat. 1525; amended Pub. L. 95-600, title VII, Sec.
701(m)(1), Nov. 6, 1978, 92 Stat. 2907; Pub. L. 97-34, title II,
Sec. 262(a), (b), Aug. 13, 1981, 95 Stat. 264; Pub. L. 97-248,
title II, Sec. 207(a)-(d), Sept. 3, 1982, 96 Stat. 431, 432; Pub.
L. 97-354, Sec. 5(a)(24), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 98-
369, div. A, title I, Sec. 93(a), title VII, Sec. 712(c), July 18,
1984, 98 Stat. 614, 947, related to amortization of real property
construction period interest and taxes.
EFFECTIVE DATE OF REPEAL
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the repeal of
this section is applicable to such interest costs only to the
extent such interest costs are attributable to costs which were
required to be capitalized under section 263 of the Internal
Revenue Code of 1954 and which would have been taken into account
in applying this section (as in effect before its repeal) or, if
applicable, section 266 of such Code, see section 7831(d)(2) of
Pub. L. 101-239, set out as an Effective Date note under section
263A of this title.
Repeal applicable to costs incurred after Dec. 31, 1986, in
taxable years ending after such date, except as otherwise provided,
see section 803(d) of Pub. L. 99-514, set out as an Effective Date
note under section 263A of this title.
-End-
-CITE-
26 USC Sec. 190 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 190. Expenditures to remove architectural and transportation
barriers to the handicapped and elderly
-STATUTE-
(a) Treatment as expenses
(1) In general
A taxpayer may elect to treat qualified architectural and
transportation barrier removal expenses which are paid or
incurred by him during the taxable year as expenses which are not
chargeable to capital account. The expenditures so treated shall
be allowed as a deduction.
(2) Election
An election under paragraph (1) shall be made at such time and
in such manner as the Secretary prescribes by regulations.
(b) Definitions
For purposes of this section -
(1) Architectural and transportation barrier removal expenses
The term "architectural and transportation barrier removal
expenses" means an expenditure for the purpose of making any
facility or public transportation vehicle owned or leased by the
taxpayer for use in connection with his trade or business more
accessible to, and usable by, handicapped and elderly
individuals.
(2) Qualified architectural and transportation barrier removal
expenses
The term "qualified architectural and transportation barrier
removal expense" means, with respect to any such facility or
public transportation vehicle, an architectural or transportation
barrier removal expense with respect to which the taxpayer
establishes, to the satisfaction of the Secretary, that the
resulting removal of any such barrier meets the standards
promulgated by the Secretary with the concurrence of the
Architectural and Transportation Barriers Compliance Board and
set forth in regulations prescribed by the Secretary.
(3) Handicapped individual
The term "handicapped individual" means any individual who has
a physical or mental disability (including, but not limited to,
blindness or deafness) which for such individual constitutes or
results in a functional limitation to employment, or who has any
physical or mental impairment (including, but not limited to, a
sight or hearing impairment) which substantially limits one or
more major life activities of such individual.
(c) Limitation
The deduction allowed by subsection (a) for any taxable year
shall not exceed $15,000.
-SOURCE-
(Added Pub. L. 94-455, title XXI, Sec. 2122(a), Oct. 4, 1976, 90
Stat. 1914; amended Pub. L. 98-369, div. A, title X, Sec.
1062(a)(1), (b), July 18, 1984, 98 Stat. 1047; Pub. L. 99-514,
title II, Sec. 244, Oct. 22, 1986, 100 Stat. 2183; Pub. L. 101-508,
title XI, Secs. 11611(c), 11801(a)(14), Nov. 5, 1990, 104 Stat.
1388-503, 1388-520.)
-MISC1-
AMENDMENTS
1990 - Subsec. (c). Pub. L. 101-508, Sec. 11611(c), substituted
"$15,000" for "$35,000".
Subsec. (d). Pub. L. 101-508, Sec. 11801(a)(14), struck out
subsec. (d) which related to application of section to taxable
years beginning after Dec. 31, 1976, and before Jan. 1, 1983, and
to taxable years beginning after Dec. 31, 1983.
1986 - Subsec. (d)(2). Pub. L. 99-514 substituted "1983" for
"1983, and before January 1, 1986".
1984 - Subsec. (c). Pub. L. 98-369, Sec. 1062(b), substituted
"$35,000" for "$25,000".
Subsec. (d). Pub. L. 98-369, Sec. 1062(a)(1), amended subsec. (d)
generally, substituting provisions that this section shall apply to
taxable years beginning after December 31, 1976, and before January
1, 1983, and to taxable years beginning after December 31, 1983,
and before January 1, 1986 for provisions which had required the
Secretary to prescribe such regulations as might be necessary to
carry out this section within 180 days after October 4, 1976.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11611(c) of Pub. L. 101-508 applicable to
taxable years beginning after Nov. 5, 1990, see section 11611(e)(2)
of Pub. L. 101-508, set out as a note under section 38 of this
title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 1062(c) of Pub. L. 98-369 provided that: "The amendment
made by subsection (b) [amending this section] shall apply to
taxable years beginning after December 31, 1983."
EFFECTIVE DATE
Section 2122(c) of Pub. L. 94-455, as amended by Pub. L. 96-167,
Sec. 9(c), Dec. 29, 1979, 93 Stat. 1278; Pub. L. 98-369, div. A,
title X, Sec. 1062(a)(2), July 18, 1984, 98 Stat. 1047, provided
that: "The amendments made by this section [enacting this section
and amending sections 263, 1245, and 1250 of this title] shall
apply to taxable years beginning after December 31, 1976."
SAVINGS PROVISION
For provisions that nothing in amendment by section 11801(a)(14)
of Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
-End-
-CITE-
26 USC Sec. 191 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
[Sec. 191. Repealed. Pub. L. 97-34, title II, Sec. 212(d)(1), Aug.
13, 1981, 95 Stat. 239]
-MISC1-
Section, added Pub. L. 94-455, title XXI, Sec. 2124(a)(1), Oct.
4, 1976, 90 Stat. 1916; amended Pub. L. 95-600, title VII, Sec.
701(f)(1), (2), (7), Nov. 6, 1978, 92 Stat. 2900-2902; Pub. L. 96-
222, title I, Sec. 107(a)(1)(E)(ii), Apr. 1, 1980, 94 Stat. 222;
Pub. L. 96-541, Sec. 2(a), Dec. 17, 1980, 94 Stat. 3204, related to
amortization of certain rehabilitation expenditures for certified
historic structures.
EFFECTIVE DATE OF REPEAL
Repeal applicable to expenditures incurred after Dec. 31, 1981,
in taxable years ending after such date, with exceptions, see
section 212(e) of Pub. L. 97-34, set out as an Effective Date of
1981 Amendment note under section 46 of this title.
-End-
-CITE-
26 USC Sec. 192 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 192. Contributions to black lung benefit trust
-STATUTE-
(a) Allowance of deduction
There is allowed as a deduction for the taxable year an amount
equal to the sum of the amounts contributed by the taxpayer during
the taxable year to or under a trust or trusts described in section
501(c)(21).
(b) Limitation
The maximum amount of the deduction allowed by subsection (a) for
any taxpayer for any taxable year shall not exceed the greater of -
(1) the amount necessary to fund (with level funding) the
remaining unfunded liability of the taxpayer for black lung
claims filed (or expected to be filed) by (or with respect to)
past or present employees of the taxpayer, or
(2) the aggregate amount necessary to increase each trust
described in section 501(c)(21) to the amount required to pay all
amounts payable out of such trust for the taxable year.
(c) Special rules
(1) Method of determining amounts referred to in subsection (b)
(A) In general
The amounts described in subsection (b) shall be determined
by using reasonable actuarial methods and assumptions which are
not inconsistent with regulations prescribed by the Secretary.
(B) Funding period
Except as provided in subparagraph (C), the funding period
for purposes of subsection (b)(1) shall be the greater of -
(i) the average remaining working life of miners who are
present employees of the taxpayer, or
(ii) 10 taxable years.
For purposes of the preceding sentence, the term "miner" has
the same meaning as such term has when used in section 402(d)
of the Black Lung Benefits Act (30 U.S.C. 902(d)).
(C) Different funding periods
To the extent that -
(i) regulations prescribed by the Secretary provide for a
different period, or
(ii) the Secretary consents to a different period proposed
by the taxpayer,
such different period shall be substituted for the funding
period provided in subparagraph (B).
(2) Benefit payments taken into account
In determining the amounts described in subsection (b), only
those black lung benefit claims the payment of which is expected
to be made from the trust shall be taken into account.
(3) Time when contributions deemed made
For purposes of this section, a taxpayer shall be deemed to
have made a payment of a contribution on the last day of a
taxable year if the payment is on account of that taxable year
and is made not later than the time prescribed by law for filing
the return for that taxable year (including extensions thereof).
(4) Contributions to be in cash or certain other items
No deduction shall be allowed under subsection (a) with respect
to any contribution to a trust described in section 501(c)(21)
other than a contribution in cash or in items in which such trust
may invest under subclause (II) of section 501(c)(21)(A)(ii).
(5) Denial of section 162 deduction with respect to liability
No deduction shall be allowed under section 162(a) with respect
to any liability taken into account in determining the deduction
under subsection (a) of this section of the taxpayer (or a
predecessor).
(d) Carryover of excess contributions
If the amount of the deduction determined under subsection (a)
for the taxable year (without regard to the limitation imposed by
subsection (b)) with respect to a trust exceeds the limitation
imposed by subsection (b) for the taxable year, the excess shall be
carried over to the succeeding taxable year and treated as
contributed to the trust during that year.
(e) Definition of black lung benefit claim
For purposes of this section, the term "black lung benefit claim"
means a claim for compensation for disability or death due to
pneumoconiosis under part C of title IV of the Federal Mine Safety
and Health Act of 1977 or under any State law providing for such
compensation.
-SOURCE-
(Added Pub. L. 95-227, Sec. 4(b)(1), Feb. 10, 1978, 92 Stat. 16;
amended Pub. L. 95-488, Sec. 1(a)-(c), Oct. 20, 1978, 92 Stat.
1637; Pub. L. 96-222, title I, Sec. 108(b)(2)(B), Apr. 1, 1980, 94
Stat. 226; Pub. L. 102-486, title XIX, Sec. 1940(c), Oct. 24, 1992,
106 Stat. 3035.)
-REFTEXT-
REFERENCES IN TEXT
The Federal Mine Safety and Health Act of 1977, referred to in
subsec. (e), is Pub. L. 91-173, Dec. 30, 1969, 83 Stat. 742, as
amended by Pub. L. 95-164, Nov. 9, 1977, 91 Stat. 1290. Part C of
title IV of the Federal Mine Safety and Health Act of 1977 is
classified generally to part C of subchapter IV of chapter 22 (Sec.
931 et seq.) of Title 30, Mineral Lands and Mining. For complete
classification of this Act to the Code, see Short Title note set
out under section 801 of Title 30 and Tables.
-MISC1-
AMENDMENTS
1992 - Subsec. (c)(4). Pub. L. 102-486 substituted "subclause
(II) of section 501(c)(21)(A)(ii)" for "clause (ii) of section
501(c)(21)(B)".
1980 - Subsec. (e). Pub. L. 96-222 substituted "Federal Mine
Safety and Health Act of 1977" for "Federal Coal Mine Health and
Safety Act of 1969".
1978 - Subsec. (b). Pub. L. 95-488, Sec. 1(a), substituted
provision limiting the allowable deduction to the greater of the
amount necessary to fund the remaining unfunded liability of the
taxpayer for the black lung claims filed or expected to be filed by
past or present employees of the taxpayer or the aggregate amount
necessary to increase each trust described in section 501(c)(21) to
the amount required to pay all amounts payable out of such trust
for the taxable year for provision limiting the allowable deduction
to the amount necessary, when added to the fair market value of
trust assets at the beginning of the taxable year, to fund the
greater of current year obligations or certain future obligations.
Subsec. (c)(1). Pub. L. 95-488, Sec. 1(b), substituted "Method of
determining amounts referred to in subsection (b)" for
"Determination of expected future payments" in heading and in text
inserted provisions establishing the funding period as the greater
of the average remaining working life of miners who are present
employees of the taxpayer or 10 taxable years and permitting a
different funding period if prescribed or consented to by the
Secretary.
Subsec. (c)(5). Pub. L. 95-488, Sec. 1(c), added par. (5).
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1940(d) of Pub. L. 102-486 provided that: "The amendments
made by this section [amending this section and sections 501 and
4951 of this title] shall apply to taxable years beginning after
December 31, 1991."
EFFECTIVE DATE OF 1980 AMENDMENT
Section 108(b)(4) of Pub. L. 96-222 provided that: "Any amendment
made by this subsection [amending this section, sections 6503,
6511, 6862, 7422, and 7454 of this title, and sections 934 and 934a
of Title 30, Mineral Lands and Mining] shall take effect as if
included in the provision of the Black Lung Benefits Revenue Act of
1977 [see Short Title of 1978 Amendments note set out under section
1 of this title] to which such amendment relates."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 1(e) of Pub. L. 95-488, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and section
6104 of this title] shall apply to taxable years beginning after
December 31, 1977. Nothing in the amendments made by subsection (d)
to section 6104 of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] shall be construed to permit the disclosure under such
section 6104 of confidential business information of contributors
to any trust described in section 501(c)(21) of such Code."
EFFECTIVE DATE
Section 4(f) of Pub. L. 95-227 provided that: "The amendments
made by this section [enacting this section and sections 4951 to
4953 and amending sections 501, 4946, 6104, 6213, 6405, 6501, 6503,
and 7451 of this title] shall apply with respect to contributions,
acts, and expenditures made after December 31, 1977, in and for
taxable years beginning after such date."
-End-
-CITE-
26 USC Sec. 193 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 193. Tertiary injectants
-STATUTE-
(a) Allowance of deduction
There shall be allowed as a deduction for the taxable year an
amount equal to the qualified tertiary injectant expenses of the
taxpayer for tertiary injectants injected during such taxable year.
(b) Qualified tertiary injectant expenses
For purposes of this section -
(1) In general
The term "qualified tertiary injectant expenses" means any cost
paid or incurred (whether or not chargeable to capital account)
for any tertiary injectant (other than a hydrocarbon injectant
which is recoverable) which is used as a part of a tertiary
recovery method.
(2) Hydrocarbon injectant
The term "hydrocarbon injectant" includes natural gas, crude
oil, and any other injectant which is comprised of more than an
insignificant amount of natural gas or crude oil. The term does
not include any tertiary injectant which is hydrocarbon-based, or
a hydrocarbon-derivative, and which is comprised of no more than
an insignificant amount of natural gas or crude oil. For purposes
of this paragraph, that portion of a hydrocarbon injectant which
is not a hydrocarbon shall not be treated as a hydrocarbon
injectant.
(3) Tertiary recovery method
The term "tertiary recovery method" means -
(A) any method which is described in subparagraphs (1)
through (9) of section 212.78(c) of the June 1979 energy
regulations (as defined by section 4996(b)(8)(C) as in effect
before its repeal), or
(B) any other method to provide tertiary enhanced recovery
which is approved by the Secretary for purposes of this
section.
(c) Application with other deductions
No deduction shall be allowed under subsection (a) with respect
to any expenditure -
(1) with respect to which the taxpayer has made an election
under section 263(c), or
(2) with respect to which a deduction is allowed or allowable
to the taxpayer under any other provision of this chapter.
-SOURCE-
(Added Pub. L. 96-223, title II, Sec. 251(a)(1), Apr. 2, 1980, 94
Stat. 286; amended Pub. L. 97-448, title II, Sec. 202(b), Jan. 12,
1983, 96 Stat. 2396; Pub. L. 100-418, title I, Sec. 1941(b)(7),
Aug. 23, 1988, 102 Stat. 1324.)
-REFTEXT-
REFERENCES IN TEXT
Section 4996(b)(8)(C), referred to in subsec. (b)(3)(A), was
repealed by Pub. L. 100-418, title I, Sec. 1941(a), Aug. 23, 1988,
102 Stat. 1322.
-MISC1-
AMENDMENTS
1988 - Subsec. (b)(3)(A). Pub. L. 100-418 substituted "section
4996(b)(8)(C) as in effect before its repeal" for "section
4996(b)(8)(C)".
1983 - Subsec. (b)(1). Pub. L. 97-448 struck out "during the
taxable year" after "any cost paid or incurred".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-418 applicable to crude oil removed from
the premises on or after Aug. 23, 1988, see section 1941(c) of Pub.
L. 100-418, set out as a note under section 164 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the Crude
Oil Windfall Profit Tax Act of 1980, Pub. L. 96-223, to which such
amendment relates, see section 203(a) of Pub. L. 97-448, set out as
a note under section 6652 of this title.
EFFECTIVE DATE
Section 251(b) of Pub. L. 96-223 provided that: "The amendments
made by this section [enacting this section and amending sections
263, 1245, and 1250 of this title] shall apply to taxable years
beginning after December 31, 1979."
-End-
-CITE-
26 USC Sec. 194 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 194. Treatment of reforestation expenditures
-STATUTE-
(a) Allowance of deduction
In the case of any qualified timber property with respect to
which the taxpayer has made (in accordance with regulations
prescribed by the Secretary) an election under this subsection, the
taxpayer shall be entitled to a deduction with respect to the
amortization of the amortizable basis of qualified timber property
based on a period of 84 months. Such amortization deduction shall
be an amount, with respect to each month of such period within the
taxable year, equal to the amortizable basis at the end of such
month divided by the number of months (including the month for
which the deduction is computed) remaining in the period. Such
amortizable basis at the end of the month shall be computed without
regard to the amortization deduction for such month. The 84-month
period shall begin on the first day of the first month of the
second half of the taxable year in which the amortizable basis is
acquired.
(b) Treatment as expenses
(1) Election to treat certain reforestation expenditures as
expenses
(A) In general
In the case of any qualified timber property with respect to
which the taxpayer has made (in accordance with regulations
prescribed by the Secretary) an election under this subsection,
the taxpayer shall treat reforestation expenditures which are
paid or incurred during the taxable year with respect to such
property as an expense which is not chargeable to capital
account. The reforestation expenditures so treated shall be
allowed as a deduction.
(B) Dollar limitation
The aggregate amount of reforestation expenditures which may
be taken into account under subparagraph (A) with respect to
each qualified timber property for any taxable year shall not
exceed -
(i) except as provided in clause (ii) or (iii), $10,000,
(ii) in the case of a separate return by a married
individual (as defined in section 7703), $5,000, and
(iii) in the case of a trust, zero.
(2) Allocation of dollar limit
(A) Controlled group
For purposes of applying the dollar limitation under
paragraph (1)(B) -
(i) all component members of a controlled group shall be
treated as one taxpayer, and
(ii) the Secretary shall, under regulations prescribed by
him, apportion such dollar limitation among the component
members of such controlled group.
For purposes of the preceding sentence, the term "controlled
group" has the meaning assigned to it by section 1563(a),
except that the phrase "more than 50 percent" shall be
substituted for the phrase "at least 80 percent" each place it
appears in section 1563(a)(1).
(B) Partnerships and S corporations
In the case of a partnership, the dollar limitation contained
in paragraph (1)(B) shall apply with respect to the partnership
and with respect to each partner. A similar rule shall apply in
the case of an S corporation and its shareholders.
(c) Definitions and special rule
For purposes of this section -
(1) Qualified timber property
The term "qualified timber property" means a woodlot or other
site located in the United States which will contain trees in
significant commercial quantities and which is held by the
taxpayer for the planting, cultivating, caring for, and cutting
of trees for sale or use in the commercial production of timber
products.
(2) Amortizable basis
The term "amortizable basis" means that portion of the basis of
the qualified timber property attributable to reforestation
expenditures which have not been taken into account under
subsection (b).
(3) Reforestation expenditures
(A) In general
The term "reforestation expenditures" means direct costs
incurred in connection with forestation or reforestation by
planting or artificial or natural seeding, including costs -
(i) for the preparation of the site;
(ii) of seeds or seedlings; and
(iii) for labor and tools, including depreciation of
equipment such as tractors, trucks, tree planters, and
similar machines used in planting or seeding.
(B) Cost-sharing programs
Reforestation expenditures shall not include any expenditures
for which the taxpayer has been reimbursed under any
governmental reforestation cost-sharing program unless the
amounts reimbursed have been included in the gross income of
the taxpayer.
(4) Treatment of trusts and estates
The aggregate amount of reforestation expenditures incurred by
any trust or estate shall be apportioned between the income
beneficiaries and the fiduciary under regulations prescribed by
the Secretary. Any amount so apportioned to a beneficiary shall
be taken into account as expenditures incurred by such
beneficiary in applying this section to such beneficiary.
(5) Application with other deductions
No deduction shall be allowed under any other provision of this
chapter with respect to any expenditure with respect to which a
deduction is allowed or allowable under this section to the
taxpayer.
(d) Life tenant and remainderman
In the case of property held by one person for life with
remainder to another person, the deduction under this section shall
be computed as if the life tenant were the absolute owner of the
property and shall be allowed to the life tenant.
-SOURCE-
(Added Pub. L. 96-451, title III, Sec. 301(a), Oct. 14, 1980, 94
Stat. 1989; amended Pub. L. 97-354, Sec. 3(g), Oct. 19, 1982, 96
Stat. 1689; Pub. L. 99-514, title XIII, Sec. 1301(j)(8), Oct. 22,
1986, 100 Stat. 2658; Pub. L. 108-357, title III, Sec. 322(a)-
(c)(4), Oct. 22, 2004, 118 Stat. 1474, 1475; Pub. L. 109-135,
title IV, Sec. 403(i)(1), Dec. 21, 2005, 119 Stat. 2624.)
-MISC1-
PRIOR PROVISIONS
A prior section 194 was renumbered section 194A of this title.
AMENDMENTS
2005 - Subsec. (b)(1)(B). Pub. L. 109-135, Sec. 403(i)(1)(A),
reenacted heading without change and amended text generally. Prior
to amendment, text read as follows: "The aggregate amount of
reforestation expenditures which may be taken into account under
subparagraph (A) with respect to each qualified timber property for
any taxable year shall not exceed $10,000 ($5,000 in the case of a
separate return by a married individual (as defined in section
7703))."
Subsec. (c)(4). Pub. L. 109-135, Sec. 403(i)(1)(B), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows:
"(A) In general. - Except as provided in subparagraph (B), this
section shall not apply to trusts and estates.
"(B) Amortization deduction allowed to estates. - The benefit of
the deduction for amortization provided by subsection (a) shall be
allowed to estates in the same manner as in the case of an
individual. The allowable deduction shall be apportioned between
the income beneficiary and the fiduciary under regulations
prescribed by the Secretary. Any amount so apportioned to a
beneficiary shall be taken into account for purposes of determining
the amount allowable as a deduction under subsection (a) to such
beneficiary."
2004 - Pub. L. 108-357, Sec. 322(c)(4), substituted "Treatment"
for "Amortization" in section catchline.
Subsec. (b). Pub. L. 108-357, Sec. 322(a), substituted "Treatment
as expenses" for "Limitations" in heading.
Subsec. (b)(1). Pub. L. 108-357, Sec. 322(a), amended heading and
text of par. (1) generally. Prior to amendment, text read as
follows: "The aggregate amount of amortizable basis acquired during
the taxable year which may be taken into account under subsection
(a) for such taxable year shall not exceed $10,000 ($5,000 in the
case of a separate return by a married individual (as defined in
section 7703))."
Subsec. (b)(2). Pub. L. 108-357, Sec. 322(c)(2), substituted
"paragraph (1)(B)" for "paragraph (1)" in introductory provisions
of subpar. (A) and in subpar. (B).
Subsec. (b)(3), (4). Pub. L. 108-357, Sec. 322(c)(1), struck out
pars. (3) and (4) which related to inapplicability of section to
trusts and applicability of section to estates, respectively.
Subsec. (c)(2). Pub. L. 108-357, Sec. 322(b), inserted "which
have not been taken into account under subsection (b)" after
"expenditures".
Subsec. (c)(4), (5). Pub. L. 108-357, Sec. 322(c)(3), added pars.
(4) and (5) and struck out former par. (4) which related to basis
allocation if the amount of the amortizable basis acquired during
the taxable year of all qualified timber property with respect to
which the taxpayer had made an election under subsec. (a) exceeded
the amount of the limitation under subsec. (b)(1).
1986 - Subsec. (b)(1). Pub. L. 99-514 substituted "section 7703"
for "section 143".
1982 - Subsec. (b)(2)(B). Pub. L. 97-354 substituted
"Partnerships and S corporations" for "Partnerships" in heading,
and inserted "A similar rule shall apply in the case of an S
corporation and its shareholders."
EFFECTIVE DATE OF 2005 AMENDMENT
Amendments by Pub. L. 109-135 effective as if included in the
provisions of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which they relate, see section 403(nn) of Pub. L. 109-135,
set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable with respect to
expenditures paid or incurred after Oct. 22, 2004, see section
322(e) of Pub. L. 108-357, set out as a note under section 46 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to bonds issued after Aug.
15, 1986, except as otherwise provided, see sections 1311 to 1318
of Pub. L. 99-514, set out as an Effective Date; Transitional Rules
note under section 141 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE
Section 301(d) of Pub. L. 96-451 provided that: "The amendments
made by this section [enacting this section and amending sections
62 and 1245 of this title] shall apply with respect to additions to
capital account made after December 31, 1979."
-End-
-CITE-
26 USC Sec. 194A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 194A. Contributions to employer liability trusts
-STATUTE-
(a) Allowance of deduction
There shall be allowed as a deduction for the taxable year an
amount equal to the amount -
(1) which is contributed by an employer to a trust described in
section 501(c)(22) (relating to withdrawal liability payment
fund) which meets the requirements of section 4223(h) of the
Employee Retirement Income Security Act of 1974, and
(2) which is properly allocable to such taxable year.
(b) Allocation to taxable year
In the case of a contribution described in subsection (a) which
relates to any specified period of time which includes more than
one taxable year, the amount properly allocable to any taxable year
in such period shall be determined by prorating such amounts to
such taxable years under regulations prescribed by the Secretary.
(c) Disallowance of deduction
No deduction shall be allowed under subsection (a) with respect
to any contribution described in subsection (a) which does not
relate to any specified period of time.
-SOURCE-
(Added Pub. L. 96-364, title II, Sec. 209(c)(1), Sept. 26, 1980, 94
Stat. 1290, Sec. 194; renumbered Sec. 194A, Pub. L. 97-448, title
III, Sec. 305(b)(1), Jan. 12, 1983, 96 Stat. 2399.)
-REFTEXT-
REFERENCES IN TEXT
Section 4223(h) of the Employee Retirement Income Security Act of
1974, referred to in subsec. (a), is classified to section 1403(h)
of Title 29, Labor.
-MISC1-
EFFECTIVE DATE OF 1983 AMENDMENT
Section 311(c)(2) of Pub. L. 97-448 provided that: "The
amendments made by subsection (b) of section 305 [redesignating
section 194 of this title, relating to contributions to employer
liability trusts, as this section] shall take effect on October 14,
1980."
EFFECTIVE DATE
Section applicable to taxable years ending after Sept. 26, 1980,
see section 210(c) of Pub. L. 96-364, set out as a note under
section 418 of this title.
-End-
-CITE-
26 USC Sec. 195 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 195. Start-up expenditures
-STATUTE-
(a) Capitalization of expenditures
Except as otherwise provided in this section, no deduction shall
be allowed for start-up expenditures.
(b) Election to deduct
(1) Allowance of deduction
If a taxpayer elects the application of this subsection with
respect to any start-up expenditures -
(A) the taxpayer shall be allowed a deduction for the taxable
year in which the active trade or business begins in an amount
equal to the lesser of -
(i) the amount of start-up expenditures with respect to the
active trade or business, or
(ii) $5,000, reduced (but not below zero) by the amount by
which such start-up expenditures exceed $50,000, and
(B) the remainder of such start-up expenditures shall be
allowed as a deduction ratably over the 180-month period
beginning with the month in which the active trade or business
begins.
(2) Dispositions before close of amortization period
In any case in which a trade or business is completely disposed
of by the taxpayer before the end of the period to which
paragraph (1) applies, any deferred expenses attributable to such
trade or business which were not allowed as a deduction by reason
of this section may be deducted to the extent allowable under
section 165.
(c) Definitions
For purposes of this section -
(1) Start-up expenditures
The term "start-up expenditure" means any amount -
(A) paid or incurred in connection with -
(i) investigating the creation or acquisition of an active
trade or business, or
(ii) creating an active trade or business, or
(iii) any activity engaged in for profit and for the
production of income before the day on which the active trade
or business begins, in anticipation of such activity becoming
an active trade or business, and
(B) which, if paid or incurred in connection with the
operation of an existing active trade or business (in the same
field as the trade or business referred to in subparagraph
(A)), would be allowable as a deduction for the taxable year in
which paid or incurred.
The term "start-up expenditure" does not include any amount with
respect to which a deduction is allowable under section 163(a),
164, or 174.
(2) Beginning of trade or business
(A) In general
Except as provided in subparagraph (B), the determination of
when an active trade or business begins shall be made in
accordance with such regulations as the Secretary may
prescribe.
(B) Acquired trade or business
An acquired active trade or business shall be treated as
beginning when the taxpayer acquires it.
(d) Election
(1) Time for making election
An election under subsection (b) shall be made not later than
the time prescribed by law for filing the return for the taxable
year in which the trade or business begins (including extensions
thereof).
(2) Scope of election
The period selected under subsection (b) shall be adhered to in
computing taxable income for the taxable year for which the
election is made and all subsequent taxable years.
-SOURCE-
(Added Pub. L. 96-605, title I, Sec. 102(a), Dec. 28, 1980, 94
Stat. 3522; amended Pub. L. 98-369, div. A, title I, Sec. 94(a),
July 18, 1984, 98 Stat. 614; Pub. L. 108-357, title VIII, Sec.
902(a), Oct. 22, 2004, 118 Stat. 1651.)
-MISC1-
AMENDMENTS
2004 - Subsec. (b). Pub. L. 108-357, Sec. 902(a)(2), substituted
"deduct" for "amortize" in heading.
Subsec. (b)(1). Pub. L. 108-357, Sec. 902(a)(1), amended heading
and text of par. (1) generally. Prior to amendment, text read as
follows: "Start-up expenditures may, at the election of the
taxpayer, be treated as deferred expenses. Such deferred expenses
shall be allowed as a deduction prorated equally over such period
of not less than 60 months as may be selected by the taxpayer
(beginning with the month in which the active trade or business
begins)."
1984 - Subsec. (a). Pub. L. 98-369 amended subsec. (a) generally,
substituting provisions dealing with capitalization of expenditures
for provisions dealing with election to amortize.
Subsec. (b). Pub. L. 98-369 amended subsec. (b) generally,
substituting provisions dealing with election to amortize for
provisions dealing with start-up expenditures.
Subsec. (c). Pub. L. 98-369 amended subsec. (c) generally,
substituting provisions setting forth definitions for provisions
dealing with election.
Subsec. (d). Pub. L. 98-369 amended subsec. (d) generally,
substituting provisions dealing with election for provisions
dealing with business beginning.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 902(d), Oct. 22, 2004, 118
Stat. 1652, provided that: "The amendments made by this section
[amending this section and sections 248 and 709 of this title]
shall apply to amounts paid or incurred after the date of the
enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 94(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after June 30, 1984."
EFFECTIVE DATE
Section 102(c) of Pub. L. 96-605 provided that: "The amendments
made by this section [enacting this section] shall apply to amounts
paid or incurred after July 29, 1980, in taxable years ending after
such date."
-End-
-CITE-
26 USC Sec. 196 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 196. Deduction for certain unused business credits
-STATUTE-
(a) Allowance of deduction
If any portion of the qualified business credits determined for
any taxable year has not, after the application of section 38(c),
been allowed to the taxpayer as a credit under section 38 for any
taxable year, an amount equal to the credit not so allowed shall be
allowed to the taxpayer as a deduction for the first taxable year
following the last taxable year for which such credit could, under
section 39, have been allowed as a credit.
(b) Taxpayer's dying or ceasing to exist
If a taxpayer dies or ceases to exist before the first taxable
year following the last taxable year for which the qualified
business credits could, under section 39, have been allowed as a
credit, the amount described in subsection (a) (or the proper
portion thereof) shall, under regulations prescribed by the
Secretary, be allowed to the taxpayer as a deduction for the
taxable year in which such death or cessation occurs.
(c) Qualified business credits
For purposes of this section, the term "qualified business
credits" means -
(1) the investment credit determined under section 46 (but only
to the extent attributable to property the basis of which is
reduced by section 50(c)),
(2) the work opportunity credit determined under section 51(a),
(3) the alcohol fuels credit determined under section 40(a),
(4) the research credit determined under section 41(a) (other
than such credit determined under section 280C(c)(3)) for taxable
years beginning after December 31, 1988,
(5) the enhanced oil recovery credit determined under section
43(a),
(6) the empowerment zone employment credit determined under
section 1396(a),
(7) the Indian employment credit determined under section
45A(a),
(8) the employer Social Security credit determined under
section 45B(a),
(9) the new markets tax credit determined under section 45D(a),
(10) the small employer pension plan startup cost credit
determined under section 45E(a),
(11) the biodiesel fuels credit determined under section
40A(a),
(12) the low sulfur diesel fuel production credit determined
under section 45H(a), and
(13) the new energy efficient home credit determined under
section 45L(a).
(d) Special rule for investment tax credit and research credit
Subsection (a) shall be applied by substituting "an amount equal
to 50 percent of" for "an amount equal to" in the case of -
(1) the investment credit determined under section 46 (other
than the rehabilitation credit), and
(2) the research credit determined under section 41(a) for a
taxable year beginning before January 1, 1990.
-SOURCE-
(Added Pub. L. 97-248, title II, Sec. 205(a)(2), Sept. 3, 1982, 96
Stat. 428; amended Pub. L. 98-369, div. A, title IV, Sec.
474(r)(8)(A), July 18, 1984, 98 Stat. 840; Pub. L. 100-647, title
IV, Sec. 4008(b)(2), Nov. 10, 1988, 102 Stat. 3653; Pub. L. 101-
239, title VII, Secs. 7110(c)(2), 7814(e)(1), (2)(D), Dec. 19,
1989, 103 Stat. 2325, 2413, 2414; Pub. L. 101-508, title XI, Secs.
11511(b)(3), 11813(b)(12), Nov. 5, 1990, 104 Stat. 1388-485, 1388-
554; Pub. L. 103-66, title XIII, Secs. 13302(b)(2), 13322(c)(2),
Aug. 10, 1993, 107 Stat. 555, 563; Pub. L. 104-188, title I, Sec.
1201(e)(1), Aug. 20, 1996, 110 Stat. 1772; Pub. L. 105-206, title
VI, Sec. 6020(a), July 22, 1998, 112 Stat. 823; Pub. L. 106-554,
Sec. 1(a)(7) [title I, Sec. 121(c)], Dec. 21, 2000, 114 Stat. 2763,
2763A-610; Pub. L. 107-16, title VI, Sec. 619(c)(2), June 7, 2001,
115 Stat. 110; Pub. L. 108-357, title III, Secs. 302(c)(2), 339(e),
Oct. 22, 2004, 118 Stat. 1465, 1484; Pub. L. 109-58, title XIII,
Sec. 1332(d), Aug. 8, 2005, 119 Stat. 1026.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-COD-
CODIFICATION
Another section 339(e) of Pub. L. 108-357 amended the table of
sections for subpart D of part IV of subchapter A of this chapter.
-MISC1-
AMENDMENTS
2005 - Subsec. (c)(13). Pub. L. 109-58 added par. (13).
2004 - Subsec. (c)(11). Pub. L. 108-357, Sec. 302(c)(2), added
par. (11).
Subsec. (c)(12). Pub. L. 108-357, Sec. 339(e), added par. (12).
2001 - Subsec. (c)(10). Pub. L. 107-16, Secs. 619(c)(2), 901,
temporarily added par. (10). See Effective and Termination Dates of
2001 Amendment note below.
2000 - Subsec. (c)(9). Pub. L. 106-554 added par. (9).
1998 - Subsec. (c)(8). Pub. L. 105-206 added par. (8).
1996 - Subsec. (c)(2). Pub. L. 104-188 substituted "work
opportunity credit" for "targeted jobs credit".
1993 - Subsec. (c)(6). Pub. L. 103-66, Sec. 13302(b)(2), added
par. (6).
Subsec. (c)(7). Pub. L. 103-66, Sec. 13322(c)(2), added par. (7).
1990 - Subsec. (c)(1). Pub. L. 101-508, Sec. 11813(b)(12)(A),
substituted "section 46" for "section 46(a)" and "section 50(c)"
for "section 48(q)".
Subsec. (c)(5). Pub. L. 101-508, Sec. 11511(b)(3), added par.
(5).
Subsec. (d)(1). Pub. L. 101-508, Sec. 11813(b)(12)(B),
substituted "section 46" for "section 46(a)" and "other than the
rehabilitation credit" for "other than a credit to which section
48(q)(3) applies".
1989 - Subsec. (c)(4). Pub. L. 101-239, Sec. 7814(e)(2)(D),
inserted "(other than such credit determined under section
280C(c)(3))" after "section 41(a)".
Subsec. (d). Pub. L. 101-239, Sec. 7814(e)(1), substituted
"substituting 'an amount equal to 50 percent of' for 'an amount
equal to' in the case of" for "substituting an amount equal to 50
percent of for an amount equal to in the case of" in introductory
provisions.
Subsec. (d)(2). Pub. L. 101-239, Sec. 7110(c)(2), inserted "for a
taxable year beginning before January 1, 1990" after "under section
41(a)".
1988 - Subsec. (c)(4). Pub. L. 100-647, Sec. 4008(b)(2)(A), added
par. (4).
Subsec. (d). Pub. L. 100-647, Sec. 4008(b)(2)(B), inserted "and
research credit" after "tax credit" in heading and amended text
generally. Prior to amendment, text read as follows: "In the case
of the investment credit determined under section 46(a) (other than
a credit to which section 48(q)(3) applies), subsection (a) shall
be applied by substituting 'an amount equal to 50 percent of' for
'an amount equal to'."
1984 - Pub. L. 98-369 amended section generally, substituting
provisions relating to deduction for certain unused business
credits for provisions relating to deduction for certain unused
investment credits.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-58 applicable to qualified new energy
efficient homes acquired after Dec. 31, 2005, in taxable years
ending after such date, see section 1332(f) of Pub. L. 109-58, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 302(c)(2) of Pub. L. 108-357 applicable to
fuel produced, and sold or used, after Dec. 31, 2004, in taxable
years ending after such date, see section 302(d) of Pub. L. 108-
357, set out as a note under section 38 of this title.
Amendment by section 339(e) of Pub. L. 108-357 applicable to
expenses paid or incurred after Dec. 31, 2002, in taxable years
ending after such date, see section 339(f) of Pub. L. 108-357, set
out as a note under section 38 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to costs paid or incurred
in taxable years beginning after Dec. 31, 2001, with respect to
qualified employer plans first effective after such date, see
section 619(d) of Pub. L. 107-16, set out as a note under section
38 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 applicable to investments made after
Dec. 31, 2000, see Sec. 1(a)(7) [title I, Sec. 121(e)] of Pub. L.
106-554, set out as a note under section 38 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-206, title VI, Sec. 6020(b), July 22, 1998, 112 Stat.
823, provided that: "The amendment made by this section [amending
this section] shall take effect as if included in the amendments
made by section 13443 of the Revenue Reconciliation Act of 1993
[see section 13443(d) of Pub. L. 103-66, set out as an Effective
Date of 1993 Amendment note under section 38 of this title]."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to individuals who begin
work for the employer after Sept. 30, 1996, see section 1201(g) of
Pub. L. 104-188, set out as a note under section 38 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13322(c)(2) of Pub. L. 103-66 applicable to
wages paid or incurred after Dec. 31, 1993, see section 13322(f) of
Pub. L. 103-66, set out as a note under section 38 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11511(b)(3) of Pub. L. 101-508 applicable to
costs paid or incurred in taxable years beginning after Dec. 31,
1990, see section 11511(d)(1) of Pub. L. 101-508, set out as an
Effective Date note under section 43 of this title.
Amendment by section 11813(b)(12) of Pub. L. 101-508 applicable
to property placed in service after Dec. 31, 1990, but not
applicable to any transition property (as defined in section 49(e)
of this title), any property with respect to which qualified
progress expenditures were previously taken into account under
section 46(d) of this title, and any property described in section
46(b)(2)(C) of this title, as such sections were in effect on Nov.
4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
under section 45K of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7110(c)(2) of Pub. L. 101-239 applicable to
taxable years beginning after Dec. 31, 1989, see section 7110(e) of
Pub. L. 101-239, set out as a note under section 41 of this title.
Amendment by section 7814(e)(1), (2)(D) of Pub. L. 101-239
effective, except as otherwise provided, as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section 7817
of Pub. L. 101-239, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 applicable to taxable years
beginning after Dec. 31, 1988, see section 4008(d) of Pub. L. 100-
647, set out as a note under section 41 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE
Section 205(c)(1) of Pub. L. 97-248, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) General rule. - Except as otherwise provided in this
paragraph, the amendments made by subsection (a) [enacting this
section and amending sections 48, 312, and 1016 of this title]
shall apply to periods after December 31, 1982, under rules similar
to the rules of section 48(m) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954].
"(B) Exception. - The amendments made by subsection (a) shall not
apply to any property which -
"(i) is constructed, reconstructed, erected, or acquired
pursuant to a contract which was entered into after August 13,
1981, and was, on July 1, 1982, and at all times thereafter,
binding on the taxpayer,
"(ii) is placed in service after December 31, 1982, and before
January 1, 1986,
"(iii) with respect to which an election under section
168(f)(8)(A) of such Code is not in effect at any time, and
"(iv) is not described in section 167(l)(3)(A) of such Code.
"(C) Special rule for integrated manufacturing facilities. -
"(i) In general. - In the case of any integrated manufacturing
facility, the requirements of clause (i) of subparagraph (B)
shall be treated as met if -
"(I) the on-site construction of the facility began before
July 1, 1982, and
"(II) during the period beginning after August 13, 1981, and
ending on July 1, 1982, the taxpayer constructed (or entered
into binding contracts for the construction of) more than 20
percent of the cost of such facility.
"(ii) Integrated manufacturing facility. - For purposes of
clause (i), the term 'integrated manufacturing facility' means 1
or more facilities -
"(I) located on a single site,
"(II) for the manufacture of 1 or more manufactured products
from raw materials by the application of 2 or more integrated
manufacturing processes.
"(D) Special rule for historic structures. - In the case of any
certified historic structure (as defined in section 48(g)(3) of the
Internal Revenue Code of 1986), clause (i) of subparagraph (B)
shall be applied by substituting 'December 31, 1980' for 'August
13, 1981.'
"(E) Certain projects with respect to historic structures. - In
the case of any certified historic structure (as so defined), the
requirements of clause (i) of subparagraph (B) shall be treated as
met with respect to such property -
"(i) if the rehabilitation begins after December 31, 1980, and
before July 1, 1982, or
"(ii) if -
"(I) before July 1, 1982, a public offering with respect to
interests in such property was registered with the Securities
and Exchange Commission,
"(II) before such date an application with respect to such
property was filed under section 8 of the United States Housing
Act of 1937 [section 1437f of Title 42, The Public Health and
Welfare], and
"(III) such property is placed in service before July 1,
1984."
SAVINGS PROVISION
For provisions that nothing in amendment by section 11813(b)(12)
of Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
-End-
-CITE-
26 USC Sec. 197 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 197. Amortization of goodwill and certain other intangibles
-STATUTE-
(a) General rule
A taxpayer shall be entitled to an amortization deduction with
respect to any amortizable section 197 intangible. The amount of
such deduction shall be determined by amortizing the adjusted basis
(for purposes of determining gain) of such intangible ratably over
the 15-year period beginning with the month in which such
intangible was acquired.
(b) No other depreciation or amortization deduction allowable
Except as provided in subsection (a), no depreciation or
amortization deduction shall be allowable with respect to any
amortizable section 197 intangible.
(c) Amortizable section 197 intangible
For purposes of this section -
(1) In general
Except as otherwise provided in this section, the term
"amortizable section 197 intangible" means any section 197
intangible -
(A) which is acquired by the taxpayer after the date of the
enactment of this section, and
(B) which is held in connection with the conduct of a trade
or business or an activity described in section 212.
(2) Exclusion of self-created intangibles, etc.
The term "amortizable section 197 intangible" shall not include
any section 197 intangible -
(A) which is not described in subparagraph (D), (E), or (F)
of subsection (d)(1), and
(B) which is created by the taxpayer.
This paragraph shall not apply if the intangible is created in
connection with a transaction (or series of related transactions)
involving the acquisition of assets constituting a trade or
business or substantial portion thereof.
(3) Anti-churning rules
For exclusion of intangibles acquired in certain
transactions, see subsection (f)(9).
(d) Section 197 intangible
For purposes of this section -
(1) In general
Except as otherwise provided in this section, the term "section
197 intangible" means -
(A) goodwill,
(B) going concern value,
(C) any of the following intangible items:
(i) workforce in place including its composition and terms
and conditions (contractual or otherwise) of its employment,
(ii) business books and records, operating systems, or any
other information base (including lists or other information
with respect to current or prospective customers),
(iii) any patent, copyright, formula, process, design,
pattern, knowhow, format, or other similar item,
(iv) any customer-based intangible,
(v) any supplier-based intangible, and
(vi) any other similar item,
(D) any license, permit, or other right granted by a
governmental unit or an agency or instrumentality thereof,
(E) any covenant not to compete (or other arrangement to the
extent such arrangement has substantially the same effect as a
covenant not to compete) entered into in connection with an
acquisition (directly or indirectly) of an interest in a trade
or business or substantial portion thereof, and
(F) any franchise, trademark, or trade name.
(2) Customer-based intangible
(A) In general
The term "customer-based intangible" means -
(i) composition of market,
(ii) market share, and
(iii) any other value resulting from future provision of
goods or services pursuant to relationships (contractual or
otherwise) in the ordinary course of business with customers.
(B) Special rule for financial institutions
In the case of a financial institution, the term "customer-
based intangible" includes deposit base and similar items.
(3) Supplier-based intangible
The term "supplier-based intangible" means any value resulting
from future acquisitions of goods or services pursuant to
relationships (contractual or otherwise) in the ordinary course
of business with suppliers of goods or services to be used or
sold by the taxpayer.
(e) Exceptions
For purposes of this section, the term "section 197 intangible"
shall not include any of the following:
(1) Financial interests
Any interest -
(A) in a corporation, partnership, trust, or estate, or
(B) under an existing futures contract, foreign currency
contract, notional principal contract, or other similar
financial contract.
(2) Land
Any interest in land.
(3) Computer software
(A) In general
Any -
(i) computer software which is readily available for
purchase by the general public, is subject to a nonexclusive
license, and has not been substantially modified, and
(ii) other computer software which is not acquired in a
transaction (or series of related transactions) involving the
acquisition of assets constituting a trade or business or
substantial portion thereof.
(B) Computer software defined
For purposes of subparagraph (A), the term "computer
software" means any program designed to cause a computer to
perform a desired function. Such term shall not include any
data base or similar item unless the data base or item is in
the public domain and is incidental to the operation of
otherwise qualifying computer software.
(4) Certain interests or rights acquired separately
Any of the following not acquired in a transaction (or series
of related transactions) involving the acquisition of assets
constituting a trade business or substantial portion thereof:
(A) Any interest in a film, sound recording, video tape,
book, or similar property.
(B) Any right to receive tangible property or services under
a contract or granted by a governmental unit or agency or
instrumentality thereof.
(C) Any interest in a patent or copyright.
(D) To the extent provided in regulations, any right under a
contract (or granted by a governmental unit or an agency or
instrumentality thereof) if such right -
(i) has a fixed duration of less than 15 years, or
(ii) is fixed as to amount and, without regard to this
section, would be recoverable under a method similar to the
unit-of-production method.
(5) Interests under leases and debt instruments
Any interest under -
(A) an existing lease of tangible property, or
(B) except as provided in subsection (d)(2)(B), any existing
indebtedness.
(6) Mortgage servicing
Any right to service indebtedness which is secured by
residential real property unless such right is acquired in a
transaction (or series of related transactions) involving the
acquisition of assets (other than rights described in this
paragraph) constituting a trade or business or substantial
portion thereof.
(7) Certain transaction costs
Any fees for professional services, and any transaction costs,
incurred by parties to a transaction with respect to which any
portion of the gain or loss is not recognized under part III of
subchapter C.
(f) Special rules
(1) Treatment of certain dispositions, etc.
(A) In general
If there is a disposition of any amortizable section 197
intangible acquired in a transaction or series of related
transactions (or any such intangible becomes worthless) and one
or more other amortizable section 197 intangibles acquired in
such transaction or series of related transactions are retained
-
(i) no loss shall be recognized by reason of such
disposition (or such worthlessness), and
(ii) appropriate adjustments to the adjusted bases of such
retained intangibles shall be made for any loss not
recognized under clause (i).
(B) Special rule for covenants not to compete
In the case of any section 197 intangible which is a covenant
not to compete (or other arrangement) described in subsection
(d)(1)(E), in no event shall such covenant or other arrangement
be treated as disposed of (or becoming worthless) before the
disposition of the entire interest described in such subsection
in connection with which such covenant (or other arrangement)
was entered into.
(C) Special rule
All persons treated as a single taxpayer under section
41(f)(1) shall be so treated for purposes of this paragraph.
(2) Treatment of certain transfers
(A) In general
In the case of any section 197 intangible transferred in a
transaction described in subparagraph (B), the transferee shall
be treated as the transferor for purposes of applying this
section with respect to so much of the adjusted basis in the
hands of the transferee as does not exceed the adjusted basis
in the hands of the transferor.
(B) Transactions covered
The transactions described in this subparagraph are -
(i) any transaction described in section 332, 351, 361,
721, 731, 1031, or 1033, and
(ii) any transaction between members of the same affiliated
group during any taxable year for which a consolidated return
is made by such group.
(3) Treatment of amounts paid pursuant to covenants not to
compete, etc.
Any amount paid or incurred pursuant to a covenant or
arrangement referred to in subsection (d)(1)(E) shall be treated
as an amount chargeable to capital account.
(4) Treatment of franchises, etc.
(A) Franchise
The term "franchise" has the meaning given to such term by
section 1253(b)(1).
(B) Treatment of renewals
Any renewal of a franchise, trademark, or trade name (or of a
license, a permit, or other right referred to in subsection
(d)(1)(D)) shall be treated as an acquisition. The preceding
sentence shall only apply with respect to costs incurred in
connection with such renewal.
(C) Certain amounts not taken into account
Any amount to which section 1253(d)(1) applies shall not be
taken into account under this section.
(5) Treatment of certain reinsurance transactions
In the case of any amortizable section 197 intangible resulting
from an assumption reinsurance transaction, the amount taken into
account as the adjusted basis of such intangible under this
section shall be the excess of -
(A) the amount paid or incurred by the acquirer under the
assumption reinsurance transaction, over
(B) the amount required to be capitalized under section 848
in connection with such transaction.
Subsection (b) shall not apply to any amount required to be
capitalized under section 848.
(6) Treatment of certain subleases
For purposes of this section, a sublease shall be treated in
the same manner as a lease of the underlying property involved.
(7) Treatment as depreciable
For purposes of this chapter, any amortizable section 197
intangible shall be treated as property which is of a character
subject to the allowance for depreciation provided in section
167.
(8) Treatment of certain increments in value
This section shall not apply to any increment in value if,
without regard to this section, such increment is properly taken
into account in determining the cost of property which is not a
section 197 intangible.
(9) Anti-churning rules
For purposes of this section -
(A) In general
The term "amortizable section 197 intangible" shall not
include any section 197 intangible which is described in
subparagraph (A) or (B) of subsection (d)(1) (or for which
depreciation or amortization would not have been allowable but
for this section) and which is acquired by the taxpayer after
the date of the enactment of this section, if -
(i) the intangible was held or used at any time on or after
July 25, 1991, and on or before such date of enactment by the
taxpayer or a related person,
(ii) the intangible was acquired from a person who held
such intangible at any time on or after July 25, 1991, and on
or before such date of enactment, and, as part of the
transaction, the user of such intangible does not change, or
(iii) the taxpayer grants the right to use such intangible
to a person (or a person related to such person) who held or
used such intangible at any time on or after July 25, 1991,
and on or before such date of enactment.
For purposes of this subparagraph, the determination of whether
the user of property changes as part of a transaction shall be
determined in accordance with regulations prescribed by the
Secretary. For purposes of this subparagraph, deductions
allowable under section 1253(d) shall be treated as deductions
allowable for amortization.
(B) Exception where gain recognized
If -
(i) subparagraph (A) would not apply to an intangible
acquired by the taxpayer but for the last sentence of
subparagraph (C)(i), and
(ii) the person from whom the taxpayer acquired the
intangible elects, notwithstanding any other provision of
this title -
(I) to recognize gain on the disposition of the
intangible, and
(II) to pay a tax on such gain which, when added to any
other income tax on such gain under this title, equals such
gain multiplied by the highest rate of income tax
applicable to such person under this title,
then subparagraph (A) shall apply to the intangible only to
the extent that the taxpayer's adjusted basis in the
intangible exceeds the gain recognized under clause (ii)(I).
(C) Related person defined
For purposes of this paragraph -
(i) Related person
A person (hereinafter in this paragraph referred to as the
"related person") is related to any person if -
(I) the related person bears a relationship to such
person specified in section 267(b) or section 707(b)(1), or
(II) the related person and such person are engaged in
trades or businesses under common control (within the
meaning of subparagraphs (A) and (B) of section 41(f)(1)).
For purposes of subclause (I), in applying section 267(b) or
707(b)(1), "20 percent" shall be substituted for "50
percent".
(ii) Time for making determination
A person shall be treated as related to another person if
such relationship exists immediately before or immediately
after the acquisition of the intangible involved.
(D) Acquisitions by reason of death
Subparagraph (A) shall not apply to the acquisition of any
property by the taxpayer if the basis of the property in the
hands of the taxpayer is determined under section 1014(a).
(E) Special rule for partnerships
With respect to any increase in the basis of partnership
property under section 732, 734, or 743, determinations under
this paragraph shall be made at the partner level and each
partner shall be treated as having owned and used such
partner's proportionate share of the partnership assets.
(F) Anti-abuse rules
The term "amortizable section 197 intangible" does not
include any section 197 intangible acquired in a transaction,
one of the principal purposes of which is to avoid the
requirement of subsection (c)(1) that the intangible be
acquired after the date of the enactment of this section or to
avoid the provisions of subparagraph (A).
(10) Tax-exempt use property subject to lease
In the case of any section 197 intangible which would be tax-
exempt use property as defined in subsection (h) of section 168
if such section applied to such intangible, the amortization
period under this section shall not be less than 125 percent of
the lease term (within the meaning of section 168(i)(3)).
(g) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this section, including
such regulations as may be appropriate to prevent avoidance of the
purposes of this section through related persons or otherwise.
-SOURCE-
(Added Pub. L. 103-66, title XIII, Sec. 13261(a), Aug. 10, 1993,
107 Stat. 532; amended Pub. L. 108-357, title VIII, Secs.
847(b)(3), 886(a), Oct. 22, 2004, 118 Stat. 1602, 1641.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section, referred to in
subsecs. (c)(1)(A) and (f)(9)(A), (F), is the date of enactment of
Pub. L. 103-66, which was approved Aug. 10, 1993.
-MISC1-
AMENDMENTS
2004 - Subsec. (e)(6) to (8). Pub. L. 108-357, Sec. 886(a),
redesignated pars. (7) and (8) as (6) and (7), respectively, and
struck out heading and text of former par. (6). Text read as
follows: "A franchise to engage in professional football,
basketball, baseball, or other professional sport, and any item
acquired in connection with such a franchise."
Subsec. (f)(10). Pub. L. 108-357, Sec. 847(b)(3), added par.
(10).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 847(b)(3) of Pub. L. 108-357 applicable to
leases entered into after Oct. 3, 2004, see section 849(b)(4) of
Pub. L. 108-357, set out as an Effective Date note under section
470 of this title.
Pub. L. 108-357, title VIII, Sec. 886(c), Oct. 22, 2004, 118
Stat. 1641, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
1245 and 1253 of this title and repealing section 1056 of this
title] shall apply to property acquired after the date of the
enactment of this Act [Oct. 22, 2004].
"(2) Section 1245. - The amendment made by subsection (b)(2)
[amending section 1245 of this title] shall apply to franchises
acquired after the date of the enactment of this Act [Oct. 22,
2004]."
EFFECTIVE DATE
Section 13261(g) of Pub. L. 103-66, as amended by Pub. L. 104-
188, title I, Sec. 1703(l), Aug. 20, 1996, 110 Stat. 1877,
provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting this
section and amending sections 167, 642, 848, 1016, 1060, 1245, and
1253 of this title] shall apply with respect to property acquired
after the date of the enactment of this Act [Aug. 10, 1993].
"(2) Election to have amendments apply to property acquired after
july 25, 1991. -
"(A) In general. - If an election under this paragraph applies
to the taxpayer -
"(i) the amendments made by this section shall apply to
property acquired by the taxpayer after July 25, 1991,
"(ii) subsection (c)(1)(A) of section 197 of the Internal
Revenue Code of 1986 (as added by this section) (and so much of
subsection (f)(9)(A) of such section 197 as precedes clause (i)
thereof) shall be applied with respect to the taxpayer by
treating July 25, 1991, as the date of the enactment of such
section, and
"(iii) in applying subsection (f)(9) of such section, with
respect to any property acquired by the taxpayer or a related
person on or before the date of the enactment of this Act, only
holding or use on July 25, 1991, shall be taken into account.
"(B) Election. - An election under this paragraph shall be made
at such time and in such manner as the Secretary of the Treasury
or his delegate may prescribe. Such an election by any taxpayer,
once made -
"(i) may be revoked only with the consent of the Secretary,
and
"(ii) shall apply to the taxpayer making such election and
any other taxpayer under common control with the taxpayer
(within the meaning of subparagraphs (A) and (B) of section
41(f)(1) of such Code) at any time after August 2, 1993, and on
or before the date on which such election is made.
"(3) Elective binding contract exception. -
"(A) In general. - The amendments made by this section shall
not apply to any acquisition of property by the taxpayer if -
"(i) such acquisition is pursuant to a written binding
contract in effect on the date of the enactment of this Act and
at all times thereafter before such acquisition,
"(ii) an election under paragraph (2) does not apply to the
taxpayer, and
"(iii) the taxpayer makes an election under this paragraph
with respect to such contract.
"(B) Election. - An election under this paragraph shall be made
at such time and in such manner as the Secretary of the Treasury
or his delegate shall prescribe. Such an election, once made -
"(i) may be revoked only with the consent of the Secretary,
and
"(ii) shall apply to all property acquired pursuant to the
contract with respect to which such election was made."
-End-
-CITE-
26 USC Sec. 198 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 198. Expensing of environmental remediation costs
-STATUTE-
(a) In general
A taxpayer may elect to treat any qualified environmental
remediation expenditure which is paid or incurred by the taxpayer
as an expense which is not chargeable to capital account. Any
expenditure which is so treated shall be allowed as a deduction for
the taxable year in which it is paid or incurred.
(b) Qualified environmental remediation expenditure
For purposes of this section -
(1) In general
The term "qualified environmental remediation expenditure"
means any expenditure -
(A) which is otherwise chargeable to capital account, and
(B) which is paid or incurred in connection with the
abatement or control of hazardous substances at a qualified
contaminated site.
(2) Special rule for expenditures for depreciable property
Such term shall not include any expenditure for the acquisition
of property of a character subject to the allowance for
depreciation which is used in connection with the abatement or
control of hazardous substances at a qualified contaminated site;
except that the portion of the allowance under section 167 for
such property which is otherwise allocated to such site shall be
treated as a qualified environmental remediation expenditure.
(c) Qualified contaminated site
For purposes of this section -
(1) In general
The term "qualified contaminated site" means any area -
(A) which is held by the taxpayer for use in a trade or
business or for the production of income, or which is property
described in section 1221(a)(1) in the hands of the taxpayer,
and
(B) at or on which there has been a release (or threat of
release) or disposal of any hazardous substance.
(2) National priorities listed sites not included
Such term shall not include any site which is on, or proposed
for, the national priorities list under section 105(a)(8)(B) of
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (as in effect on the date of the enactment
of this section).
(3) Taxpayer must receive statement from State environmental
agency
An area shall be treated as a qualified contaminated site with
respect to expenditures paid or incurred during any taxable year
only if the taxpayer receives a statement from the appropriate
agency of the State in which such area is located that such area
meets the requirement of paragraph (1)(B).
(4) Appropriate State agency
For purposes of paragraph (3), the chief executive officer of
each State may, in consultation with the Administrator of the
Environmental Protection Agency, designate the appropriate State
environmental agency within 60 days of the date of the enactment
of this section. If the chief executive officer of a State has
not designated an appropriate environmental agency within such 60-
day period, the appropriate environmental agency for such State
shall be designated by the Administrator of the Environmental
Protection Agency.
(d) Hazardous substance
For purposes of this section -
(1) In general
The term "hazardous substance" means -
(A) any substance which is a hazardous substance as defined
in section 101(14) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, and
(B) any substance which is designated as a hazardous
substance under section 102 of such Act.
(2) Exception
Such term shall not include any substance with respect to which
a removal or remedial action is not permitted under section 104
of such Act by reason of subsection (a)(3) thereof.
(e) Deduction recaptured as ordinary income on sale, etc.
Solely for purposes of section 1245, in the case of property to
which a qualified environmental remediation expenditure would have
been capitalized but for this section -
(1) the deduction allowed by this section for such expenditure
shall be treated as a deduction for depreciation, and
(2) such property (if not otherwise section 1245 property)
shall be treated as section 1245 property solely for purposes of
applying section 1245 to such deduction.
(f) Coordination with other provisions
Sections 280B and 468 shall not apply to amounts which are
treated as expenses under this section.
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section.
(h) Termination
This section shall not apply to expenditures paid or incurred
after December 31, 2005.
-SOURCE-
(Added Pub. L. 105-34, title IX, Sec. 941(a), Aug. 5, 1997, 111
Stat. 882; amended Pub. L. 106-170, title V, Secs. 511,
532(c)(2)(A), Dec. 17, 1999, 113 Stat. 1924, 1930; Pub. L. 106-554,
Sec. 1(a)(7) [title I, Sec. 162(a), (b)], Dec. 21, 2000, 114 Stat.
2763, 2763A-625; Pub. L. 108-311, title III, Sec. 308(a), Oct. 4,
2004, 118 Stat. 1179.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section, referred to in subsec.
(c)(2), (4), is the date of enactment of Pub. L. 105-34, which was
approved Aug. 5, 1997.
Sections 101(14), 102, 104, and 105(a)(8)(B) of the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
referred to in subsecs. (c)(2) and (d), are classified to sections
9601(14), 9602, 9604, and 9605(a)(8)(B), respectively, of Title 42,
The Public Health and Welfare.
-MISC1-
AMENDMENTS
2004 - Subsec. (h). Pub. L. 108-311 substituted "2005" for
"2003".
2000 - Subsec. (c). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
162(a)], amended subsec. (c) generally. Prior to amendment, subsec.
(c) defined the term "qualified contaminated site" to include
certain property described in section 1221(a)(1) of this title,
within a targeted area, and at which there had been a release or
disposal of any hazardous substance, provided that an area could be
treated as a qualified contaminated site only if the taxpayer
received a certain statement from an appropriate State agency,
provided for designation of appropriate State agencies, and defined
targeted area.
Subsec. (h). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
162(b)], substituted "2003" for "2001".
1999 - Subsec. (c)(1)(A)(i). Pub. L. 106-170, Sec. 532(c)(2)(A),
substituted "section 1221(a)(1)" for "section 1221(1)".
Subsec. (h). Pub. L. 106-170, Sec. 511, substituted "2001" for
"2000".
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-311, title III, Sec. 308(b), Oct. 4, 2004, 118 Stat.
1179, provided that: "The amendment made by subsection (a)
[amending this section] shall apply to expenditures paid or
incurred after December 31, 2003."
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 162(c)], Dec. 21,
2000, 114 Stat. 2763, 2763A-625, provided that: "The amendments
made by this section [amending this section] shall apply to
expenditures paid or incurred after the date of the enactment of
this Act [Dec. 21, 2000]."
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by section 532(c)(2)(A) of Pub. L. 106-170 applicable
to any instrument held, acquired, or entered into, any transaction
entered into, and supplies held or acquired on or after Dec. 17,
1999, see section 532(d) of Pub. L. 106-170, set out as a note
under section 170 of this title.
EFFECTIVE DATE
Section 941(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting this section] shall apply to
expenditures paid or incurred after the date of the enactment of
this Act [Aug. 5, 1997], in taxable years ending after such date."
-End-
-CITE-
26 USC Sec. 199 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VI - ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
-HEAD-
Sec. 199. Income attributable to domestic production activities
-STATUTE-
(a) Allowance of deduction
(1) In general
There shall be allowed as a deduction an amount equal to 9
percent of the lesser of -
(A) the qualified production activities income of the
taxpayer for the taxable year, or
(B) taxable income (determined without regard to this
section) for the taxable year.
(2) Phasein
In the case of any taxable year beginning after 2004 and before
2010, paragraph (1) and subsection (d)(1) shall be applied by
substituting for the percentage contained therein the transition
percentage determined under the following table:
For taxable years The transition
beginning in: percentage is:
2005 or 2006 3
2007, 2008, or 2009 6.
(b) Deduction limited to wages paid
(1) In general
The amount of the deduction allowable under subsection (a) for
any taxable year shall not exceed 50 percent of the W-2 wages of
the taxpayer for the taxable year.
(2) W-2 wages
For purposes of this section, the term "W-2 wages" means, with
respect to any person for any taxable year of such person, the
sum of the amounts described in paragraphs (3) and (8) of section
6051(a) paid by such person with respect to employment of
employees by such person during the calendar year ending during
such taxable year. Such term shall not include any amount which
is not properly included in a return filed with the Social
Security Administration on or before the 60th day after the due
date (including extensions) for such return.
(3) Acquisitions and dispositions
The Secretary shall provide for the application of this
subsection in cases where the taxpayer acquires, or disposes of,
the major portion of a trade or business or the major portion of
a separate unit of a trade or business during the taxable year.
(c) Qualified production activities income
For purposes of this section -
(1) In general
The term "qualified production activities income" for any
taxable year means an amount equal to the excess (if any) of -
(A) the taxpayer's domestic production gross receipts for
such taxable year, over
(B) the sum of -
(i) the cost of goods sold that are allocable to such
receipts, and
(ii) other expenses, losses, or deductions (other than the
deduction allowed under this section), which are properly
allocable to such receipts.
(2) Allocation method
The Secretary shall prescribe rules for the proper allocation
of items described in paragraph (1) for purposes of determining
qualified production activities income. Such rules shall provide
for the proper allocation of items whether or not such items are
directly allocable to domestic production gross receipts.
(3) Special rules for determining costs
(A) In general
For purposes of determining costs under clause (i) of
paragraph (1)(B), any item or service brought into the United
States shall be treated as acquired by purchase, and its cost
shall be treated as not less than its value immediately after
it entered the United States. A similar rule shall apply in
determining the adjusted basis of leased or rented property
where the lease or rental gives rise to domestic production
gross receipts.
(B) Exports for further manufacture
In the case of any property described in subparagraph (A)
that had been exported by the taxpayer for further manufacture,
the increase in cost or adjusted basis under subparagraph (A)
shall not exceed the difference between the value of the
property when exported and the value of the property when
brought back into the United States after the further
manufacture.
(4) Domestic production gross receipts
(A) In general
The term "domestic production gross receipts" means the gross
receipts of the taxpayer which are derived from -
(i) any lease, rental, license, sale, exchange, or other
disposition of -
(I) qualifying production property which was
manufactured, produced, grown, or extracted by the taxpayer
in whole or in significant part within the United States,
(II) any qualified film produced by the taxpayer, or
(III) electricity, natural gas, or potable water produced
by the taxpayer in the United States,
(ii) in the case of a taxpayer engaged in the active
conduct of a construction trade or business, construction of
real property performed in the United States by the taxpayer
in the ordinary course of such trade or business, or
(iii) in the case of a taxpayer engaged in the active
conduct of an engineering or architectural services trade or
business, engineering or architectural services performed in
the United States by the taxpayer in the ordinary course of
such trade or business with respect to the construction of
real property in the United States.
(B) Exceptions
Such term shall not include gross receipts of the taxpayer
which are derived from -
(i) the sale of food and beverages prepared by the taxpayer
at a retail establishment,
(ii) the transmission or distribution of electricity,
natural gas, or potable water, or
(iii) the lease, rental, license, sale, exchange, or other
disposition of land.
(C) Special rule for certain Government contracts
Gross receipts derived from the manufacture or production of
any property described in subparagraph (A)(i)(I) shall be
treated as meeting the requirements of subparagraph (A)(i) if -
(i) such property is manufactured or produced by the
taxpayer pursuant to a contract with the Federal Government,
and
(ii) the Federal Acquisition Regulation requires that title
or risk of loss with respect to such property be transferred
to the Federal Government before the manufacture or
production of such property is complete.
(D) Partnerships owned by expanded affiliated groups
For purposes of this paragraph, if all of the interests in
the capital and profits of a partnership are owned by members
of a single expanded affiliated group at all times during the
taxable year of such partnership, the partnership and all
members of such group shall be treated as a single taxpayer
during such period.
(5) Qualifying production property
The term "qualifying production property" means -
(A) tangible personal property,
(B) any computer software, and
(C) any property described in section 168(f)(4).
(6) Qualified film
The term "qualified film" means any property described in
section 168(f)(3) if not less than 50 percent of the total
compensation relating to the production of such property is
compensation for services performed in the United States by
actors, production personnel, directors, and producers. Such term
does not include property with respect to which records are
required to be maintained under section 2257 of title 18, United
States Code.
(7) Related persons
(A) In general
The term "domestic production gross receipts" shall not
include any gross receipts of the taxpayer derived from
property leased, licensed, or rented by the taxpayer for use by
any related person.
(B) Related person
For purposes of subparagraph (A), a person shall be treated
as related to another person if such persons are treated as a
single employer under subsection (a) or (b) of section 52 or
subsection (m) or (o) of section 414, except that
determinations under subsections (a) and (b) of section 52
shall be made without regard to section 1563(b).
(d) Definitions and special rules
(1) Application of section to pass-thru entities
(A) Partnerships and S corporations
In the case of a partnership or S corporation -
(i) this section shall be applied at the partner or
shareholder level,
(ii) each partner or shareholder shall take into account
such person's allocable share of each item described in
subparagraph (A) or (B) of subsection (c)(1) (determined
without regard to whether the items described in such
subparagraph (A) exceed the items described in such
subparagraph (B)), and
(iii) each partner or shareholder shall be treated for
purposes of subsection (b) as having W-2 wages for the
taxable year in an amount equal to the lesser of -
(I) such person's allocable share of the W-2 wages of the
partnership or S corporation for the taxable year (as
determined under regulations prescribed by the Secretary),
or
(II) 2 times 9 percent of so much of such person's
qualified production activities income as is attributable
to items allocated under clause (ii) for the taxable year.
(B) Trusts and estates
In the case of a trust or estate -
(i) the items referred to in subparagraph (A)(ii) (as
determined therein) and the W-2 wages of the trust or estate
for the taxable year, shall be apportioned between the
beneficiaries and the fiduciary (and among the beneficiaries)
under regulations prescribed by the Secretary, and
(ii) for purposes of paragraph (2), adjusted gross income
of the trust or estate shall be determined as provided in
section 67(e) with the adjustments described in such
paragraph.
(C) Regulations
The Secretary may prescribe rules requiring or restricting
the allocation of items and wages under this paragraph and may
prescribe such reporting requirements as the Secretary
determines appropriate.
(2) Application to individuals
In the case of an individual, subsection (a)(1)(B) shall be
applied by substituting "adjusted gross income" for "taxable
income". For purposes of the preceding sentence, adjusted gross
income shall be determined -
(A) after application of sections 86, 135, 137, 219, 221,
222, and 469, and
(B) without regard to this section.
(3) Agricultural and horticultural cooperatives
(A) Deduction allowed to patrons
Any person who receives a qualified payment from a specified
agricultural or horticultural cooperative shall be allowed for
the taxable year in which such payment is received a deduction
under subsection (a) equal to the portion of the deduction
allowed under subsection (a) to such cooperative which is -
(i) allowed with respect to the portion of the qualified
production activities income to which such payment is
attributable, and
(ii) identified by such cooperative in a written notice
mailed to such person during the payment period described in
section 1382(d).
(B) Cooperative denied deduction for portion of qualified
payments
The taxable income of a specified agricultural or
horticultural cooperative shall not be reduced under section
1382 by reason of that portion of any qualified payment as does
not exceed the deduction allowable under subparagraph (A) with
respect to such payment.
(C) Taxable income of cooperatives determined without regard to
certain deductions
For purposes of this section, the taxable income of a
specified agricultural or horticultural cooperative shall be
computed without regard to any deduction allowable under
subsection (b) or (c) of section 1382 (relating to patronage
dividends, per-unit retain allocations, and nonpatronage
distributions).
(D) Special rule for marketing cooperatives
For purposes of this section, a specified agricultural or
horticultural cooperative described in subparagraph (F)(ii)
shall be treated as having manufactured, produced, grown, or
extracted in whole or significant part any qualifying
production property marketed by the organization which its
patrons have so manufactured, produced, grown, or extracted.
(E) Qualified payment
For purposes of this paragraph, the term "qualified payment"
means, with respect to any person, any amount which -
(i) is described in paragraph (1) or (3) of section
1385(a),
(ii) is received by such person from a specified
agricultural or horticultural cooperative, and
(iii) is attributable to qualified production activities
income with respect to which a deduction is allowed to such
cooperative under subsection (a).
(F) Specified agricultural or horticultural cooperative
For purposes of this paragraph, the term "specified
agricultural or horticultural cooperative" means an
organization to which part I of subchapter T applies which is
engaged -
(i) in the manufacturing, production, growth, or extraction
in whole or significant part of any agricultural or
horticultural product, or
(ii) in the marketing of agricultural or horticultural
products.
(4) Special rule for affiliated groups
(A) In general
All members of an expanded affiliated group shall be treated
as a single corporation for purposes of this section.
(B) Expanded affiliated group
For purposes of this section, the term "expanded affiliated
group" means an affiliated group as defined in section 1504(a),
determined -
(i) by substituting "more than 50 percent" for "at least 80
percent" each place it appears, and
(ii) without regard to paragraphs (2) and (4) of section
1504(b).
(C) Allocation of deduction
Except as provided in regulations, the deduction under
subsection (a) shall be allocated among the members of the
expanded affiliated group in proportion to each member's
respective amount (if any) of qualified production activities
income.
(5) Trade or business requirement
This section shall be applied by only taking into account items
which are attributable to the actual conduct of a trade or
business.
(6) Coordination with minimum tax
For purposes of determining alternative minimum taxable income
under section 55 -
(A) qualified production activities income shall be
determined without regard to any adjustments under sections 56
through 59, and
(B) in the case of a corporation, subsection (a)(1)(B) shall
be applied by substituting "alternative minimum taxable income"
for "taxable income".
(7) Unrelated business taxable income
For purposes of determining the tax imposed by section 511,
subsection (a)(1)(B) shall be applied by substituting "unrelated
business taxable income" for "taxable income".
(8) Regulations
The Secretary shall prescribe such regulations as are necessary
to carry out the purposes of this section, including regulations
which prevent more than 1 taxpayer from being allowed a deduction
under this section with respect to any activity described in
subsection (c)(4)(A)(i).
-SOURCE-
(Added Pub. L. 108-357, title I, Sec. 102(a), Oct. 22, 2004, 118
Stat. 1424; amended Pub. L. 109-135, title IV, Sec. 403(a)(1)-(13),
Dec. 21, 2005, 119 Stat. 2615-2619.)
-MISC1-
AMENDMENTS
2005 - Subsec. (a)(2). Pub. L. 109-135, Sec. 403(a)(11)(B),
substituted "subsection (d)(1)" for "subsections (d)(1) and
(d)(6)".
Subsec. (b)(1). Pub. L. 109-135, Sec. 403(a)(1), substituted "the
taxpayer" for "the employer".
Subsec. (b)(2). Pub. L. 109-135, Sec. 403(a)(2), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "For purposes of paragraph (1),
the term 'W-2 wages' means the sum of the aggregate amounts the
taxpayer is required to include on statements under paragraphs (3)
and (8) of section 6051(a) with respect to employment of employees
of the taxpayer during the calendar year ending during the
taxpayer's taxable year."
Subsec. (c)(1)(B). Pub. L. 109-135, Sec. 403(a)(3), inserted
"and" at end of cl. (i), added cl. (ii), and struck out former cls.
(ii) and (iii) which read as follows:
"(ii) other deductions, expenses, or losses directly allocable to
such receipts, and
"(iii) a ratable portion of other deductions, expenses, and
losses that are not directly allocable to such receipts or another
class of income."
Subsec. (c)(2). Pub. L. 109-135, Sec. 403(a)(4), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The Secretary shall prescribe
rules for the proper allocation of items of income, deduction,
expense, and loss for purposes of determining income attributable
to domestic production activities."
Subsec. (c)(4)(A)(ii), (iii). Pub. L. 109-135, Sec. 403(a)(5),
added cls. (ii) and (iii) and struck out former cls. (ii) and (iii)
which read as follows:
"(ii) construction performed in the United States, or
"(iii) engineering or architectural services performed in the
United States for construction projects in the United States."
Subsec. (c)(4)(B)(iii). Pub. L. 109-135, Sec. 403(a)(6), added
cl. (iii).
Subsec. (c)(4)(C), (D). Pub. L. 109-135, Sec. 403(a)(7), added
subpars. (C) and (D).
Subsec. (d)(1). Pub. L. 109-135, Sec. 403(a)(8), reenacted
heading without change and amended text generally. Prior to
amendment, text consisted of subpars. (A) and (B) relating to
general application of section to pass-thru entities and
application of wage limitation.
Subsec. (d)(3). Pub. L. 109-135, Sec. 403(a)(9), amended heading
and text of par. (3) generally. Prior to amendment, text related to
deductions allowed to patrons of agricultural and horticultural
cooperatives.
Subsec. (d)(4)(B)(i). Pub. L. 109-135, Sec. 403(a)(10),
substituted "more than 50 percent" for "50 percent" and "at least
80 percent" for "80 percent".
Subsec. (d)(6). Pub. L. 109-135, Sec. 403(a)(11)(A), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The deduction under this section
shall be allowed for purposes of the tax imposed by section 55;
except that for purposes of section 55, the deduction under
subsection (a) shall be 9 percent of the lesser of -
"(A) qualified production activities income (determined without
regard to part IV of subchapter A), or
"(B) alternative minimum taxable income (determined without
regard to this section) for the taxable year.
In the case of an individual, subparagraph (B) shall be applied by
substituting 'adjusted gross income' for 'alternative minimum
taxable income'. For purposes of the preceding sentence, adjusted
gross income shall be determined in the same manner as provided in
paragraph (2)."
Subsec. (d)(7). Pub. L. 109-135, Sec. 403(a)(12), added par. (7).
Former par. (7) redesignated (8).
Subsec. (d)(8). Pub. L. 109-135, Sec. 403(a)(12), (13),
redesignated par. (7) as (8) and inserted before period at end ",
including regulations which prevent more than 1 taxpayer from being
allowed a deduction under this section with respect to any activity
described in subsection (c)(4)(A)(i)".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendments by Pub. L. 109-135 effective as if included in the
provisions of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which they relate, see section 403(nn) of Pub. L. 109-135,
set out as a note under section 26 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
2004, subject to transition rule, see section 102(e) of Pub. L. 108-
357, as amended, set out as an Effective Date of 2004 Amendments
note under section 56 of this title.
-End-
-CITE-
26 USC PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR
INDIVIDUALS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-MISC1-
Sec.
211. Allowance of deductions.
212. Expenses for production of income.
213. Medical, dental, etc., expenses.
[214. Repealed.]
215. Alimony, etc., payments.
216. Deduction of taxes, interest, and business
depreciation by cooperative housing corporation
tenant-stockholder.
217. Moving expenses.
[218. Repealed.]
219. Retirement savings.
220. Archer MSAs.
221. Interest on education loans.
222. Qualified tuition and related expenses.
223. Health savings accounts.
224. Cross reference.
AMENDMENTS
2003 - Pub. L. 108-173, title XII, Sec. 1201(j), Dec. 8, 2003,
117 Stat. 2479, added items 223 and 224 and struck out former item
223 "Cross reference".
2001 - Pub. L. 107-16, title IV, Sec. 431(c)(4), June 7, 2001,
115 Stat. 68, added items 222 and 223 and struck out former item
222 "Cross reference".
2000 - Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(b)(9)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-629, substituted "Archer MSAs"
for "Medical savings accounts" in item 220.
1997 - Pub. L. 105-34, title II, Sec. 202(d), Aug. 5, 1997, 111
Stat. 809, added items 221 and 222 and struck out former item 221
"Cross reference".
1996 - Pub. L. 104-191, title III, Sec. 301(i), Aug. 21, 1996,
110 Stat. 2052, added items 220 and 221 and struck out former item
220 "Cross reference".
1990 - Pub. L. 101-508, title XI, Sec. 11802(e)(3), Nov. 5, 1990,
104 Stat. 1388-530, added item 220 and struck out former items 220
"Jury duty pay remitted to employer" and 221 "Cross references".
1988 - Pub. L. 100-647, title VI, Sec. 6007(c), Nov. 10, 1988,
102 Stat. 3687, added item 220 and redesignated former item 220 as
221.
1986 - Pub. L. 99-514, title I, Secs. 131(b)(3), 135(b)(2), title
III, Sec. 301(b)(5)(B), Oct. 22, 1986, 100 Stat. 2113, 2116, 2217,
added item 220, struck out items 221 "Deduction for two-earner
married couples" and 222 "Adoption expenses", substituted
"reference" for "references" in item 223, and struck out item 223
"Cross reference".
1981 - Pub. L. 97-34, title I, Secs. 103(c)(3), 125(b), title
III, Sec. 311(h)(11), Aug. 13, 1981, 95 Stat. 188, 201, 282,
repealed item 220 "Retirement savings for certain married
individuals", added items 221 and 222 and redesignated former item
221 as 223.
1978 - Pub. L. 95-600, title I, Sec. 113(a)(2)(A), Nov. 6, 1978,
92 Stat. 2778, struck out item 218 "Contributions to candidates for
public office".
1976 - Pub. L. 94-455, title V, Sec. 504(b)(2), Oct. 4, 1976, 90
Stat. 1565, struck out item 214 "Expenses for household and
dependent care services necessary for gainful employment".
Pub. L. 94-455, title XV, Sec. 1501(c), Oct. 4, 1976, 90 Stat.
1737, added item 220 and redesignated former item 220 as 221.
1974 - Pub. L. 93-406, title II, Sec. 2002(h)(1), Sept. 2, 1974,
88 Stat. 970, added item 219 and redesignated former item 219 as
220.
1971 - Pub. L. 92-178, title II, Sec. 210(b), title VII, Sec.
702(c), Dec. 10, 1971, 85 Stat. 520, 562, substituted "Expenses for
household and dependent care services necessary for gainful
employment" for "expenses for care of certain dependents" in item
214, added item 218, and redesignated former item 218 as 219.
1964 - Pub. L. 88-272, title II, Sec. 213(a)(2), Feb. 26, 1964,
78 Stat. 52, added item 217 and redesignated former item 217 as
218.
1962 - Pub. L. 87-834, Sec. 28(b), Oct. 16, 1962, 76 Stat. 1068,
substituted "Deduction of taxes, interest, and business
depreciation by cooperative housing corporation tenant-stockholder"
for "Amounts representing taxes and interest paid to cooperative
housing corporation" in item 216.
-End-
-CITE-
26 USC Sec. 211 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 211. Allowance of deductions
-STATUTE-
In computing taxable income under section 63, there shall be
allowed as deductions the items specified in this part, subject to
the exceptions provided in part IX (section 261 and following,
relating to items not deductible).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 69; Pub. L. 95-30, title I, Sec.
102(b)(3), May 23, 1977, 91 Stat. 137.)
-MISC1-
AMENDMENTS
1977 - Pub. L. 95-30 substituted "section 63" for "section
63(a)".
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
-End-
-CITE-
26 USC Sec. 212 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 212. Expenses for production of income
-STATUTE-
In the case of an individual, there shall be allowed as a
deduction all the ordinary and necessary expenses paid or incurred
during the taxable year -
(1) for the production or collection of income;
(2) for the management, conservation, or maintenance of
property held for the production of income; or
(3) in connection with the determination, collection, or refund
of any tax.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 69.)
-MISC1-
DENIAL OF DEDUCTION FOR AMOUNTS PAID OR INCURRED ON JUDGMENTS IN
SUITS BROUGHT TO RECOVER PRICE INCREASES IN PURCHASE OF NEW
PRINCIPAL RESIDENCE
No deductions to be allowed in computing taxable income for two-
thirds of any amount paid or incurred on a judgment entered
against any person in a suit brought under section 208(b) of Pub.
L. 94-12, see section 208(c) of Pub. L. 94-12, set out as a note
under section 44 of this title.
-End-
-CITE-
26 USC Sec. 213 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 213. Medical, dental, etc., expenses
-STATUTE-
(a) Allowance of deduction
There shall be allowed as a deduction the expenses paid during
the taxable year, not compensated for by insurance or otherwise,
for medical care of the taxpayer, his spouse, or a dependent (as
defined in section 152, determined without regard to subsections
(b)(1), (b)(2), and (d)(1)(B) thereof), to the extent that such
expenses exceed 7.5 percent of adjusted gross income.
(b) Limitation with respect to medicine and drugs
An amount paid during the taxable year for medicine or a drug
shall be taken into account under subsection (a) only if such
medicine or drug is a prescribed drug or is insulin.
(c) Special rule for decedents
(1) Treatment of expenses paid after death
For purposes of subsection (a), expenses for the medical care
of the taxpayer which are paid out of his estate during the 1-
year period beginning with the day after the date of his death
shall be treated as paid by the taxpayer at the time incurred.
(2) Limitation
Paragraph (1) shall not apply if the amount paid is allowable
under section 2053 as a deduction in computing the taxable estate
of the decedent, but this paragraph shall not apply if (within
the time and in the manner and form prescribed by the Secretary)
there is filed -
(A) a statement that such amount has not been allowed as a
deduction under section 2053, and
(B) a waiver of the right to have such amount allowed at any
time as a deduction under section 2053.
(d) Definitions
For purposes of this section -
(1) The term "medical care" means amounts paid -
(A) for the diagnosis, cure, mitigation, treatment, or
prevention of disease, or for the purpose of affecting any
structure or function of the body,
(B) for transportation primarily for and essential to medical
care referred to in subparagraph (A),
(C) for qualified long-term care services (as defined in
section 7702B(c)), or
(D) for insurance (including amounts paid as premiums under
part B of title XVIII of the Social Security Act, relating to
supplementary medical insurance for the aged) covering medical
care referred to in subparagraphs (A) and (B) or for any
qualified long-term care insurance contract (as defined in
section 7702B(b)).
In the case of a qualified long-term care insurance contract (as
defined in section 7702B(b)), only eligible long-term care
premiums (as defined in paragraph (10)) shall be taken into
account under subparagraph (D).
(2) Amounts paid for certain lodging away from home treated as
paid for medical care. - Amounts paid for lodging (not lavish or
extravagant under the circumstances) while away from home
primarily for and essential to medical care referred to in
paragraph (1)(A) shall be treated as amounts paid for medical
care if -
(A) the medical care referred to in paragraph (1)(A) is
provided by a physician in a licensed hospital (or in a medical
care facility which is related to, or the equivalent of, a
licensed hospital), and
(B) there is no significant element of personal pleasure,
recreation, or vacation in the travel away from home.
The amount taken into account under the preceding sentence shall
not exceed $50 for each night for each individual.
(3) Prescribed drug. - The term "prescribed drug" means a drug
or biological which requires a prescription of a physician for
its use by an individual.
(4) Physician. - The term "physician" has the meaning given to
such term by section 1861(r) of the Social Security Act (42
U.S.C. 1395x(r)).
(5) Special rule in the case of child of divorced parents, etc.
- Any child to whom section 152(e) applies shall be treated as a
dependent of both parents for purposes of this section.
(6) In the case of an insurance contract under which amounts
are payable for other than medical care referred to in
subparagraphs (A), (B), and (C) of paragraph (1) -
(A) no amount shall be treated as paid for insurance to which
paragraph (1)(D) applies unless the charge for such insurance
is either separately stated in the contract, or furnished to
the policyholder by the insurance company in a separate
statement,
(B) the amount taken into account as the amount paid for such
insurance shall not exceed such charge, and
(C) no amount shall be treated as paid for such insurance if
the amount specified in the contract (or furnished to the
policyholder by the insurance company in a separate statement)
as the charge for such insurance is unreasonably large in
relation to the total charges under the contract.
(7) Subject to the limitations of paragraph (6), premiums paid
during the taxable year by a taxpayer before he attains the age
of 65 for insurance covering medical care (within the meaning of
subparagraphs (A), (B), and (C) of paragraph (1)) for the
taxpayer, his spouse, or a dependent after the taxpayer attains
the age of 65 shall be treated as expenses paid during the
taxable year for insurance which constitutes medical care if
premiums for such insurance are payable (on a level payment
basis) under the contract for a period of 10 years or more or
until the year in which the taxpayer attains the age of 65 (but
in no case for a period of less than 5 years).
(8) The determination of whether an individual is married at
any time during the taxable year shall be made in accordance with
the provisions of section 6013(d) (relating to determination of
status as husband and wife).
(9) Cosmetic surgery. -
(A) In general. - The term "medical care" does not include
cosmetic surgery or other similar procedures, unless the
surgery or procedure is necessary to ameliorate a deformity
arising from, or directly related to, a congenital abnormality,
a personal injury resulting from an accident or trauma, or
disfiguring disease.
(B) Cosmetic surgery defined. - For purposes of this
paragraph, the term "cosmetic surgery" means any procedure
which is directed at improving the patient's appearance and
does not meaningfully promote the proper function of the body
or prevent or treat illness or disease.
(10) Eligible long-term care premiums. -
(A) In general. - For purposes of this section, the term
"eligible long-term care premiums" means the amount paid during
a taxable year for any qualified long-term care insurance
contract (as defined in section 7702B(b)) covering an
individual, to the extent such amount does not exceed the
limitation determined under the following table:
In the case of an individual
with an attained age before the The limitation
close of the taxable year of: is:
40 or less $ 200
More than 40 but not more than 50 375
More than 50 but not more than 60 750
More than 60 but not more than 70 2,000
More than 70 2,500 .
(B) Indexing. -
(i) In general. - In the case of any taxable year beginning
in a calendar year after 1997, each dollar amount contained
in subparagraph (A) shall be increased by the medical care
cost adjustment of such amount for such calendar year. If any
increase determined under the preceding sentence is not a
multiple of $10, such increase shall be rounded to the
nearest multiple of $10.
(ii) Medical care cost adjustment. - For purposes of clause
(i), the medical care cost adjustment for any calendar year
is the percentage (if any) by which -
(I) the medical care component of the Consumer Price
Index (as defined in section 1(f)(5)) for August of the
preceding calendar year, exceeds
(II) such component for August of 1996.
The Secretary shall, in consultation with the Secretary of
Health and Human Services, prescribe an adjustment which the
Secretary determines is more appropriate for purposes of this
paragraph than the adjustment described in the preceding
sentence, and the adjustment so prescribed shall apply in
lieu of the adjustment described in the preceding sentence.
(11) Certain payments to relatives treated as not paid for
medical care. - An amount paid for a qualified long-term care
service (as defined in section 7702B(c)) provided to an
individual shall be treated as not paid for medical care if such
service is provided -
(A) by the spouse of the individual or by a relative
(directly or through a partnership, corporation, or other
entity) unless the service is provided by a licensed
professional with respect to such service, or
(B) by a corporation or partnership which is related (within
the meaning of section 267(b) or 707(b)) to the individual.
For purposes of this paragraph, the term "relative" means an
individual bearing a relationship to the individual which is
described in any of subparagraphs (A) through (G) of section
152(d)(2). This paragraph shall not apply for purposes of section
105(b) with respect to reimbursements through insurance.
(e) Exclusion of amounts allowed for care of certain dependents
Any expense allowed as a credit under section 21 shall not be
treated as an expense paid for medical care.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 69; Pub. L. 85-866, title I,
Secs. 16, 17(a), (b), Sept. 2, 1958, 72 Stat. 1613, 1614; Pub. L.
86-470, Sec. 3(a), May 14, 1960, 74 Stat. 133; Pub. L. 87-863, Sec.
1(a), (b), Oct. 23, 1962, 76 Stat. 1141; Pub. L. 88-272, title II,
Sec. 211(a), Feb. 26, 1964, 78 Stat. 49; Pub. L. 89-97, title I,
Sec. 106(a)-(d)(1), July 30, 1965, 79 Stat. 336, 337; Pub. L. 94-
455, title V, Sec. 504(c)(1), title XIX, Sec. 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1565, 1834; Pub. L. 97-248, title II, Sec. 202(a)-
(b)(3)(B), Sept. 3, 1982, 96 Stat. 421; Pub. L. 98-369, div. A,
title IV, Secs. 423(b)(1), (3), 474(r)(9), 482(a), (b)(1), title
VII, Sec. 711(b), July 18, 1984, 98 Stat. 800, 841, 847, 848, 943;
Pub. L. 99-514, title I, Sec. 133, Oct. 22, 1986, 100 Stat. 2116;
Pub. L. 101-508, title XI, Secs. 11111(d)(1), 11342(a), Nov. 5,
1990, 104 Stat. 1388-412, 1388-471; Pub. L. 103-66, title XIII,
Sec. 13131(d)(3), Aug. 10, 1993, 107 Stat. 435; Pub. L. 104-191,
title III, Sec. 322(a)-(b)(2)(A), (C), (3), (4), Aug. 21, 1996, 110
Stat. 2060-2062; Pub. L. 108-311, title II, Sec. 207(17), (18),
Oct. 4, 2004, 118 Stat. 1177.)
-STATAMEND-
ADJUSTMENT OF LONG-TERM CARE PREMIUM LIMITATION FOR TAXABLE YEARS
BEGINNING IN 2006
For adjustment of limitation of amount of eligible long-term care
premiums includible in term "medical care" under subsection (d) of
this section for taxable years beginning in 2006, see section 3.19
of Revenue Procedure 2005-70, set out as a note under section 1 of
this title.
-REFTEXT-
REFERENCES IN TEXT
The Social Security Act, referred to in subsec. (d)(1)(D), is act
Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Part B of title
XVIII of the Social Security Act is classified generally to part B
(Sec. 1395j et seq.) of subchapter XVIII of chapter 7 of Title 42,
The Public Health and Welfare. For complete classification of this
Act to the Code, see section 1305 of Title 42 and Tables.
-MISC1-
AMENDMENTS
2004 - Subsec. (a). Pub. L. 108-311, Sec. 207(17), inserted ",
determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof" after "section 152".
Subsec. (d)(11). Pub. L. 108-311, Sec. 207(18), substituted
"subparagraphs (A) through (G) of section 152(d)(2)" for
"paragraphs (1) through (8) of section 152(a)" in concluding
provisions.
1996 - Subsec. (d)(1). Pub. L. 104-191, Sec. 322(b)(2)(A),
inserted concluding provisions "In the case of a qualified long-
term care insurance contract (as defined in section 7702B(b)),
only eligible long-term care premiums (as defined in paragraph
(10)) shall be taken into account under subparagraph (D)."
Subsec. (d)(1)(B). Pub. L. 104-191, Sec. 322(a), struck out "or"
at end.
Subsec. (d)(1)(C). Pub. L. 104-191, Sec. 322(a), added subpar.
(C). Former subpar. (C) redesignated (D).
Subsec. (d)(1)(D). Pub. L. 104-191, Sec. 322(b)(1), inserted
before period "or for any qualified long-term care insurance
contract (as defined in section 7702B(b))".
Pub. L. 104-191, Sec. 322(a), redesignated subpar. (C) as (D).
Subsec. (d)(6). Pub. L. 104-191, Sec. 322(b)(3)(A), substituted
"subparagraphs (A), (B), and (C)" for "subparagraphs (A) and (B)"
in introductory provisions.
Subsec. (d)(6)(A). Pub. L. 104-191, Sec. 322(b)(3)(B),
substituted "paragraph (1)(D)" for "paragraph (1)(C)".
Subsec. (d)(7). Pub. L. 104-191, Sec. 322(b)(4), substituted
"subparagraphs (A), (B), and (C)" for "subparagraphs (A) and (B)".
Subsec. (d)(10), (11). Pub. L. 104-191, Sec. 322(b)(2)(C), added
pars. (10) and (11).
1993 - Subsec. (f). Pub. L. 103-66 struck out heading and text of
subsec. (f). Text read as follows: "The amount otherwise taken into
account under subsection (a) as expenses paid for medical care
shall be reduced by the amount (if any) of the health insurance
credit allowable to the taxpayer for the taxable year under section
32."
1990 - Subsec. (d)(9). Pub. L. 101-508, Sec. 11342(a), added par.
(9).
Subsec. (f). Pub. L. 101-508, Sec. 11111(d)(1), added subsec.
(f).
1986 - Subsec. (a). Pub. L. 99-514 substituted "7.5 percent" for
"5 percent".
1984 - Subsec. (d)(2), (3). Pub. L. 98-369, Sec. 482(a), added
par. (2) and redesignated former par. (2) as (3). Former par. (3)
redesignated (4).
Subsec. (d)(4). Pub. L. 98-369, Sec. 482(a), redesignated par.
(3) as (4). Former par. (4), as added by Pub. L. 98-369, Sec.
423(b)(1), redesignated (5).
Pub. L. 98-369, Sec. 423(b)(1), added par. (4). Former par. (4)
redesignated (5).
Subsec. (d)(5). Pub. L. 98-369, Sec. 482(a), redesignated par.
(4) as (5). Former par. (5) redesignated (6).
Pub. L. 98-369, Sec. 423(b)(1), redesignated former par. (4) as
(5). Former par. (5) redesignated (6).
Pub. L. 98-369, Sec. 711(b), substituted "paragraph (4)" for
"paragraph (2)".
Subsec. (d)(6). Pub. L. 98-369, Sec. 482(a), redesignated par.
(5) as (6). Former par. (6) redesignated (7).
Pub. L. 98-369, Sec. 423(b)(1), (3), redesignated former par. (5)
as (6) and substituted therein "limitations of paragraph (5)" for
"limitations of paragraph (4)". Former par. (6) redesignated (7).
Subsec. (d)(7). Pub. L. 98-369, Sec. 482(a), (b)(1), redesignated
par. (6) as (7) and substituted therein "paragraph (6)" for
"paragraph (5)". Former par. (7) redesignated (8).
Pub. L. 98-369, Sec. 423(b)(1), redesignated former par. (6) as
(7).
Subsec. (d)(8). Pub. L. 98-369, Sec. 482(a), redesignated par.
(7) as (8).
Subsec. (e). Pub. L. 98-369, Sec. 474(r)(9), substituted "section
21" for "section 44A".
1982 - Subsec. (a). Pub. L. 97-248, Sec. 202(a), substituted
provisions that there shall be allowed as a deduction the expenses
paid during the taxable year, not compensated for by insurance or
otherwise, for medical care of the taxpayer, his spouse, or a
dependent (as defined in section 152), to the extent that such
expenses exceed 5 percent of adjusted gross income, for provision
allowing as deductions the amount by which the amount of the
expenses paid during the taxable year (reduced by any amount
deductible under paragraph (2)) for medical care of the taxpayer,
his spouse, and dependents (as defined in section 152) exceeded 3
percent of the adjusted gross income, and an amount (not in excess
of $150) equal to one-half of the expenses paid during the taxable
year for insurance which constituted medical care for the taxpayer,
his spouse, and dependents.
Subsec. (b). Pub. L. 97-248, Sec. 202(b)(1), amended subsec. (b)
generally, substituting provision that an amount paid during the
taxable year for medicine or a drug shall be taken into account
under subsec. (a) only if such medicine or drug is a prescribed
drug or is insulin for former provision that amounts paid during
the taxable year for medicine and drugs which (but for this
subsection) would have been taken into account in computing the
deduction under subsec. (a) would be taken into account only to the
extent that the aggregate of such amounts exceeded 1 percent of the
adjusted gross income.
Subsec. (c). Pub. L. 97-248, Sec. 202(b)(3)(B), redesignated
subsec. (d) as (c). Former subsec. (c) was repealed by Pub. L. 89-
97.
Subsec. (d). Pub. L. 97-248, Sec. 202(b)(2), (3)(A), (B),
redesignated subsec. (e) as (d), added pars. (2) and (3), and
redesignated former pars. (2), (3), and (4) as (4), (5), and (6),
respectively. Former subsec. (d) redesignated (c).
Subsecs. (e), (f). Pub. L. 97-248, Sec. 202(b)(3)(B),
redesignated subsecs. (e) and (f) as (d) and (e), respectively.
1976 - Subsec. (d)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (f). Pub. L. 94-455, Sec. 504(c)(1), substituted "a
credit under section 44A" for "a deduction under section 214" after
"allowed as".
1965 - Subsec. (a). Pub. L. 89-97, Sec. 106(a), amended subsec.
(a) generally. Prior to amendment, subsec. (a) read as follows:
"There shall be allowed as a deduction the following amounts of the
expenses paid during the taxable year, not compensated for by
insurance or otherwise, for medical care of the taxpayer, his
spouse, or a dependent (as defined in section 152):
"(1) If neither the taxpayer nor his spouse has attained the
age of 65 before the close of the taxable year -
"(A) the amount of such expenses for the care of any
dependent who -
"(i) is the mother or father of the taxpayer or of his
spouse, and
"(ii) has attained the age of 65 before the close of the
taxable year, and
"(B) the amount by which such expenses for the care of the
taxpayer, his spouse, and such dependents (other than any
dependent described in subparagraph (A)) exceed 3 percent of
the adjusted gross income.
"(2) If either the taxpayer or his spouse has attained the age
of 65 before the close of the taxable year -
"(A) the amount of such expenses for the care of the taxpayer
and his spouse.
"(B) the amount of such expenses for the care of any
dependent described in paragraph (1)(A), and
"(C) the amount by which such expenses for the care of such
dependents (other than any dependent described in paragraph
(1)(A)) exceed 3 percent of the adjusted gross income."
Subsec. (b). Pub. L. 89-97, Sec. 106(b), struck out second
sentence which read: "The preceding sentence shall not apply to
amounts paid for the care of -
"(1) the taxpayer and his spouse, if either of them has
attained the age of 65 before the close of the taxable year, or
"(2) any dependent described in subsection (a)(1)(A)."
Subsec. (c). Pub. L. 89-97, Sec. 106(d)(1), struck out subsec.
(c) relating to maximum limitations on medical and dental expenses
under this section.
Subsec. (e). Pub. L. 89-97, Sec. 106(c), struck out from par.
(1)(A) "including amounts paid for accident or health insurance"
after "function of the body", added pars. (1)(C), (2), and (3), and
renumbered former par. (2) as (4).
Subsec. (g). Pub. L. 89-97, Sec. 106(d)(1), struck out provisions
relating to maximum limitation if taxpayer or spouse has attained
age 65 and is disabled, special rule, amounts taken into account,
meaning of disabled, and determination of status.
1964 - Subsec. (b). Pub. L. 88-272 excluded persons attaining age
65 before the close of the taxable year from the limitation,
whether they are the taxpayer and his spouse, or the mother or
father of the taxpayer and his spouse.
1962 - Subsec. (c). Pub. L. 87-863, Sec. 1(a), substituted
"$5,000" for "$2,500", "$10,000" for "$5,000", and "$20,000" for
"$10,000".
Subsec. (g). Pub. L. 87-863, Sec. 1(b), substituted "$20,000" for
"$15,000" in three places, and "$40,000" for "$30,000".
1960 - Subsec. (a). Pub. L. 86-470 authorized a taxpayer to
deduct medical care expenses for dependent parents of the taxpayer
or his spouse who have attained the age of 65 before the close of
the taxable year without applying the three percent limitation.
1958 - Subsec. (c). Pub. L. 85-866, Sec. 17(b), substituted
"Except as provided in subsection (g), the" for "The".
Subsec. (d)(2)(A). Pub. L. 85-866, Sec. 16, struck out "claimed
or" before "allowed".
Subsec. (g). Pub. L. 85-866, Sec. 17(A), added subsec. (g).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 applicable to taxable years
beginning after Dec. 31, 2004, see section 208 of Pub. L. 108-311,
set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-191 applicable to taxable years
beginning after Dec. 31, 1996, see section 322(c) of Pub. L. 104-
191, set out as a note under section 162 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1993, see section 13131(e) of Pub. L. 103-66, set
out as a note under section 32 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11111(d)(1) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1990, see section 11111(f)
of Pub. L. 101-508, set out as a note under section 32 of this
title.
Section 11342(b) of Pub. L. 101-508 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1990."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 423(b) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1984, see section 423(d) of
Pub. L. 98-369, set out as a note under section 2 of this title.
Amendment by section 474(r)(9) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Section 482(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and section 152 of this
title] shall apply to taxable years beginning after December 31,
1983."
Amendment by section 711(b) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 202(c) of Pub. L. 97-248 provided that:
"(1) Subsection (a). - The amendment made by subsection (a)
[amending this section] shall apply to taxable years beginning
after December 31, 1982.
"(2) Subsection (b). - The amendments made by subsection (b)
[amending this section and section 105 of this title] shall apply
to taxable years beginning after December 31, 1983."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 504(c)(1) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, see section 508 of
Pub. L. 94-455, set out as a note under section 3 of this title.
EFFECTIVE DATE OF 1965 AMENDMENT
Section 106(e) of Pub. L. 89-97 provided that: "The amendments
made by this section [amending this section and sections 72, 79,
401, and 405 of this title] shall apply to taxable years beginning
after December 31, 1966."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 211(b) of Pub. L. 88-272 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1963."
EFFECTIVE DATE OF 1962 AMENDMENT
Section 1(c) of Pub. L. 87-863 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
only with respect to taxable years beginning after December 31,
1961."
EFFECTIVE DATE OF 1960 AMENDMENT
Section 3(b) of Pub. L. 86-470 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years beginning after December 31, 1959."
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by section 16 of Pub. L. 85-866 applicable to taxable
years beginning after Dec. 31, 1953, and ending after Aug. 16,
1954, see section 1(c)(1) of Pub. L. 85-866, set out as a note
under section 165 of this title.
Section 17(c) of Pub. L. 85-866 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
only with respect to taxable years beginning after December 31,
1957."
-End-
-CITE-
26 USC Sec. 214 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
[Sec. 214. Repealed. Pub. L. 94-455, title V, Sec. 504(b)(1), Oct.
4, 1976, 90 Stat. 1565]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 70; Apr. 2, 1963,
Pub. L. 88-4, Sec. 1, 77 Stat. 4; Feb. 26, 1964, Pub. L. 88-272,
title II, Sec. 212(a), 78 Stat. 49; Dec. 10, 1971, Pub. L. 92-178,
title II, Sec. 210(a), 85 Stat. 518; Mar. 29, 1975, Pub. L. 94-12,
title II, Sec. 206, 89 Stat. 32, provided for allowance of
deduction for household and dependent care services necessary for
gainful employment; defined "qualifying individual", "employment-
related expenses", "maintaining a household"; limitation on
deductible amount; income limitation; and special rules and
regulations applicable in the determination and allowance of
deduction.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1975,
see section 508 of Pub. L. 94-455, set out as an Effective Date of
1976 Amendment note under section 3 of this title.
-End-
-CITE-
26 USC Sec. 215 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 215. Alimony, etc., payments
-STATUTE-
(a) General rule
In the case of an individual, there shall be allowed as a
deduction an amount equal to the alimony or separate maintenance
payments paid during such individual's taxable year.
(b) Alimony or separate maintenance payments defined
For purposes of this section, the term "alimony or separate
maintenance payment" means any alimony or separate maintenance
payment (as defined in section 71(b)) which is includible in the
gross income of the recipient under section 71.
(c) Requirement of identification number
The Secretary may prescribe regulations under which -
(1) any individual receiving alimony or separate maintenance
payments is required to furnish such individual's taxpayer
identification number to the individual making such payments, and
(2) the individual making such payments is required to include
such taxpayer identification number on such individual's return
for the taxable year in which such payments are made.
(d) Coordination with section 682
No deduction shall be allowed under this section with respect to
any payment if, by reason of section 682 (relating to income of
alimony trusts), the amount thereof is not includible in such
individual's gross income.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 71; Pub. L. 98-369, div. A,
title IV, Sec. 422(b), July 18, 1984, 98 Stat. 797.)
-MISC1-
AMENDMENTS
1984 - Pub. L. 98-369 amended section generally, substituting
present provisions for provisions which had declared in: subsec.
(a) a general rule as to allowance of deduction for amounts
includible under section 71 in the gross income of the wife,
payment of which was made within husband's taxable year, and
prohibited any deduction with respect to any payment where by
reason of section 71(d) or 682 the amount thereof was not
includible in husband's gross income; and subsec. (b) cross
reference to definitions of husband and wife in section
7701(a)(17).
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable with respect to divorce or
separation instruments executed after Dec. 31, 1984, or executed
before Jan. 1, 1985, but modified on or after Jan. 1, 1985, with
express provision for application of amendment to modification; and
amendment of subsec. (c) by Pub. L. 98-369 applicable to payments
made after Dec. 31, 1984, see section 422(e) of Pub. L. 98-369, set
out as a note under section 71 of this title.
-End-
-CITE-
26 USC Sec. 216 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 216. Deduction of taxes, interest, and business depreciation
by cooperative housing corporation tenant-stockholder
-STATUTE-
(a) Allowance of deduction
In the case of a tenant-stockholder (as defined in subsection
(b)(2)), there shall be allowed as a deduction amounts (not
otherwise deductible) paid or accrued to a cooperative housing
corporation within the taxable year, but only to the extent that
such amounts represent the tenant-stockholder's proportionate share
of -
(1) the real estate taxes allowable as a deduction to the
corporation under section 164 which are paid or incurred by the
corporation on the houses or apartment building and on the land
on which such houses (or building) are situated, or
(2) the interest allowable as a deduction to the corporation
under section 163 which is paid or incurred by the corporation on
its indebtedness contracted -
(A) in the acquisition, construction, alteration,
rehabilitation, or maintenance of the houses or apartment
building, or
(B) in the acquisition of the land on which the houses (or
apartment building) are situated.
(b) Definitions
For purposes of this section -
(1) Cooperative housing corporation
The term "cooperative housing corporation" means a corporation -
(A) having one and only one class of stock outstanding,
(B) each of the stockholders of which is entitled, solely by
reason of his ownership of stock in the corporation, to occupy
for dwelling purposes a house, or an apartment in a building,
owned or leased by such corporation,
(C) no stockholder of which is entitled (either conditionally
or unconditionally) to receive any distribution not out of
earnings and profits of the corporation except on a complete or
partial liquidation of the corporation, and
(D) 80 percent or more of the gross income of which for the
taxable year in which the taxes and interest described in
subsection (a) are paid or incurred is derived from tenant-
stockholders.
(2) Tenant-stockholder
The term "tenant-stockholder" means a person who is a
stockholder in a cooperative housing corporation, and whose stock
is fully paid-up in an amount not less than an amount shown to
the satisfaction of the Secretary as bearing a reasonable
relationship to the portion of the value of the corporation's
equity in the houses or apartment building and the land on which
situated which is attributable to the house or apartment which
such person is entitled to occupy.
(3) Tenant-stockholder's proportionate share
(A) In general
Except as provided in subparagraph (B), the term "tenant-
stockholder's proportionate share" means that proportion which
the stock of the cooperative housing corporation owned by the
tenant-stockholder is of the total outstanding stock of the
corporation (including any stock held by the corporation).
(B) Special rule where allocation of taxes or interest reflect
cost to corporation of stockholder's unit
(i) In general
If, for any taxable year -
(I) each dwelling unit owned or leased by a cooperative
housing corporation is separately allocated a share of such
corporation's real estate taxes described in subsection
(a)(1) or a share of such corporation's interest described
in subsection (a)(2), and
(II) such allocations reasonably reflect the cost to such
corporation of such taxes, or of such interest,
attributable to the tenant-stockholder's dwelling unit (and
such unit's share of the common areas),
then the term "tenant-stockholder's proportionate share"
means the shares determined in accordance with the
allocations described in subclause (II).
(ii) Election by corporation required
Clause (i) shall apply with respect to any cooperative
housing corporation only if such corporation elects its
application. Such an election, once made, may be revoked only
with the consent of the Secretary.
(4) Stock owned by governmental units
For purposes of this subsection, in determining whether a
corporation is a cooperative housing corporation, stock owned and
apartments leased by the United States or any of its possessions,
a State or any political subdivision thereof, or any agency or
instrumentality of the foregoing empowered to acquire shares in a
cooperative housing corporation for the purpose of providing
housing facilities, shall not be taken into account.
(5) Prior approval of occupancy
For purposes of this section, in the following cases there
shall not be taken into account the fact that (by agreement with
the cooperative housing corporation) the person or his nominee
may not occupy the house or apartment without the prior approval
of such corporation:
(A) In any case where a person acquires stock of a
cooperative housing corporation by operation of law.
(B) In any case where a person other than an individual
acquires stock of a cooperative housing corporation.
(C) In any case where the original seller acquires any stock
of the cooperative housing corporation from the corporation not
later than 1 year after the date on which the apartments or
houses (or leaseholds therein) are transferred by the original
seller to the corporation.
(6) Original seller defined
For purposes of paragraph (5), the term "original seller" means
the person from whom the corporation has acquired the apartments
or houses (or leaseholds therein).
(c) Treatment as property subject to depreciation
(1) In general
So much of the stock of a tenant-stockholder in a cooperative
housing corporation as is allocable, under regulations prescribed
by the Secretary, to a proprietary lease or right of tenancy in
property subject to the allowance for depreciation under section
167(a) shall, to the extent such proprietary lease or right of
tenancy is used by such tenant-stockholder in a trade or business
or for the production of income, be treated as property subject
to the allowance for depreciation under section 167(a). The
preceding sentence shall not be construed to limit or deny a
deduction for depreciation under section 167(a) by a cooperative
housing corporation with respect to property owned by such a
corporation and leased to tenant-stockholders.
(2) Deduction limited to adjusted basis in stock
(A) In general
The amount of any deduction for depreciation allowable under
section 167(a) to a tenant-stockholder with respect to any
stock for any taxable year by reason of paragraph (1) shall not
exceed the adjusted basis of such stock as of the close of the
taxable year of the tenant-stockholder in which such deduction
was incurred.
(B) Carryforward of disallowed amount
The amount of any deduction which is not allowed by reason of
subparagraph (A) shall, subject to the provisions of
subparagraph (A), be treated as a deduction allowable under
section 167(a) in the succeeding taxable year.
(d) Disallowance of deduction for certain payments to the
corporation
No deduction shall be allowed to a stockholder in a cooperative
housing corporation for any amount paid or accrued to such
corporation during any taxable year (in excess of the stockholder's
proportionate share of the items described in subsections (a)(1)
and (a)(2)) to the extent that, under regulations prescribed by the
Secretary, such amount is properly allocable to amounts paid or
incurred at any time by the corporation which are chargeable to the
corporation's capital account. The stockholder's adjusted basis in
the stock in the corporation shall be increased by the amount of
such disallowance.
(e) Distributions by cooperative housing corporations
Except as provided in regulations no gain or loss shall be
recognized on the distribution by a cooperative housing corporation
of a dwelling unit to a stockholder in such corporation if such
distribution is in exchange for the stockholder's stock in such
corporation and such dwelling unit is used as his principal
residence (within the meaning of section 121).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 71; Pub. L. 87-834, Sec. 28(a),
Oct. 16, 1962, 76 Stat. 1068; Pub. L. 91-172, title IX, Sec.
913(a), Dec. 30, 1969, 83 Stat. 723; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), title XXI, Sec. 2101(b), (f)(1), Oct. 4, 1976,
90 Stat. 1834, 1899; Pub. L. 95-600, title V, Sec. 531(a), Nov. 6,
1978, 92 Stat. 2886; Pub. L. 96-222, title I, Sec. 105(a)(6), Apr.
1, 1980, 94 Stat. 219; Pub. L. 99-514, title VI, Sec. 644(a)-(d),
Oct. 22, 1986, 100 Stat. 2285, 2286; Pub. L. 100-647, title VI,
Sec. 6282(a), Nov. 10, 1988, 102 Stat. 3755; Pub. L. 101-508, title
XI, Sec. 11702(i), Nov. 5, 1990, 104 Stat. 1388-516; Pub. L. 105-
34, title III, Sec. 312(d)(4), Aug. 5, 1997, 111 Stat. 840.)
-MISC1-
AMENDMENTS
1997 - Subsec. (e). Pub. L. 105-34 substituted "such dwelling
unit is used as his principal residence (within the meaning of
section 121)" for "such exchange qualifies for nonrecognition of
gain under section 1034(f)".
1990 - Subsec. (e). Pub. L. 101-508 substituted "corporations"
for "associations" in heading and "corporation" for "association"
after "housing" in text.
1988 - Subsec. (e). Pub. L. 100-647 added subsec. (e).
1986 - Subsec. (b)(2). Pub. L. 99-514, Sec. 644(a)(1),
substituted "a person" and "such person" for "an individual" and
"such individual", respectively.
Subsec. (b)(3). Pub. L. 99-514, Sec. 644(d), added heading and
amended text generally. Prior to amendment, text read as follows:
"The term 'tenant-stockholder's proportionate share' means that
proportion which the stock of the cooperative housing corporation
owned by the tenant-stockholder is of the total outstanding stock
of the corporation (including any stock held by the corporation)."
Subsec. (b)(5). Pub. L. 99-514, Sec. 644(a)(2), substituted
"Prior approval of occupancy" for "Stock acquired through
foreclosure by lending institution" in heading and amended text
generally. Prior to amendment, text read as follows: "If a bank or
other lending institution acquires by foreclosure (or by instrument
in lieu of foreclosure) the stock of a tenant-stockholder, and a
lease or the right to occupy an apartment or house to which such
stock is appurtenant, such bank or other lending institution shall
be treated as a tenant-stockholder for a period not to exceed three
years from the date of acquisition. The preceding sentence shall
apply even though, by agreement with the cooperative housing
corporation, the bank (or other lending institution) or its nominee
may not occupy the house or apartment without the prior approval of
such corporation."
Subsec. (b)(6). Pub. L. 99-514, Sec. 644(a)(2), amended par. (6)
generally, substituting provisions defining "original seller" for
purposes of par. (5) for provisions relating to stock owned by
person from whom corporation acquired its property, subpar. (A)
thereof providing for general rule, subpar. (B) providing that
stock acquisition must take place not later than 1 year after
transfer of dwelling units, subpar. (C) providing that original
seller must have right to occupy apartment or house, and subpar.
(D) defining "original seller" for purposes of former par. (6).
Subsec. (c). Pub. L. 99-514, Sec. 644(b), amended subsec. (c)
generally. Prior to amendment, subsec. (c) read as follows: "So
much of the stock of a tenant-stockholder in a cooperative housing
corporation as is allocable, under regulations prescribed by the
Secretary, to a proprietary lease or right of tenancy in property
subject to the allowance for depreciation under section 167(a)
shall, to the extent such proprietary lease or right of tenancy is
used by such tenant-stockholder in a trade or business or for the
production of income, be treated as property subject to the
allowance for depreciation under section 167(a). The preceding
sentence shall not be construed to limit or deny a deduction for
depreciation under 167(a) by a cooperative housing corporation with
respect to property owned by such a corporation and leased to
tenant-stockholders."
Subsec. (d). Pub. L. 99-514, Sec. 644(c), added subsec. (d).
1980 - Subsec. (b)(6)(A). Pub. L. 96-222, Sec. 105(a)(6)(A),
added subpar. (A). Former subpar. (A), which required the original
seller who acquired stock of the corporation from the corporation
by purchase or foreclosure to be treated as a tenant-stockholder
for a period not to exceed 3 years from the date of acquisition,
was struck out.
Subsec. (b)(6)(B) to (D). Pub. L. 96-222, Sec. 105(a)(6)(A), (B),
added subpar. (B), redesignated former subpars. (B) and (C) as (C)
and (D), and, in subpar. (D) as so redesignated, inserted
provisions requiring that the estate of the original seller succeed
to, and take into account, the tax treatment of the original seller
under this paragraph.
1978 - Subsec. (b)(6). Pub. L. 95-600, added par. (6).
1976 - Subsec. (b)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (b)(5). Pub. L. 94-455, Sec. 2101(f), added par. (5).
Subsec. (c). Pub. L. 94-455, Secs. 1906(b)(13)(A), 2101(b),
struck out "or his delegate" after "Secretary" and inserted at end
"The preceding sentence shall not be construed to limit or deny a
deduction for depreciation under 167(a) by a cooperative housing
corporation with respect to property owned by such corporation and
leased to tenant-stockholders."
1969 - Subsec. (b)(4). Pub. L. 91-172 added par. (4).
1962 - Pub. L. 87-834 substituted "Deduction of taxes, interest,
and business depreciation by cooperative housing corporation tenant-
stockholders" for "Amounts representing taxes and interest paid to
cooperative housing corporation" in section catchline, and added
subsec. (c).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to sales and exchanges
after May 6, 1997, with certain exceptions, see section 312(d)[(e)]
of Pub. L. 105-34, set out as a note under section 121 of this
title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section
11702(j) of Pub. L. 101-508, set out as a note under section 59 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 6282(b) of Pub. L. 100-647 provided that: "The amendment
made by this section [amending this section] shall take effect as
if included in the amendments made by section 631 of the Tax Reform
Act of 1986 [section 631 of Pub. L. 99-514, see Tables for
classification]."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 644(f) of Pub. L. 99-514 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1986.
"(2) Subsection (e). -
"(A) Except as provided in subparagraph (B), subsection (e)
[set out below] shall apply to taxable years beginning before
January 1, 1986.
"(B) Subsection (e)(7) [set out below] shall apply to amounts
paid or incurred, and property acquired, in taxable years
beginning, after December 31, 1985."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 531(b) of Pub. L. 95-600 provided that: "The amendment
made by this section [amending this section] shall apply to stock
acquired after the date of the enactment of this Act [Nov. 6,
1978]."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2101(f)(2) of Pub. L. 94-455 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to stock acquired by banks or other lending institutions after the
date of the enactment of this Act [Oct. 4, 1976]."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 913(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1969."
EFFECTIVE DATE OF 1962 AMENDMENT
Section 28(c) of Pub. L. 87-834 provided that: "The amendments
made by subsection (a) [amending this section] shall be effective
with respect to taxable years beginning after December 31, 1961."
TREATMENT OF AMOUNTS RECEIVED IN CONNECTION WITH REFINANCING OF
INDEBTEDNESS OF CERTAIN COOPERATIVE HOUSING CORPORATIONS; TREATMENT
OF AMOUNTS PAID FROM QUALIFIED REFINANCING-RELATED RESERVE
Section 644(e) of Pub. L. 99-514 provided that:
"(1) Payment of closing costs and creation of reserve excluded
from gross income. - For purposes of the Internal Revenue Code of
1954 [now 1986], no amount shall be included in the gross income of
a qualified cooperative housing corporation by reason of the
payment or reimbursement by a city housing development agency or
corporation of amounts for -
"(A) closing costs, or
"(B) the creation of reserves for the qualified cooperative
housing corporation,
in connection with a qualified refinancing.
"(2) Income from reserve fund treated as member income. -
"(A) In general. - Income from a qualified refinancing-related
reserve shall be treated as derived from its members for purposes
of -
"(i) section 216 of the Internal Revenue Code of 1954 [now
1986] (relating to deduction of taxes, interest, and business
depreciation by cooperative housing corporation tenant-
stockholder), and
"(ii) section 277 of such Code (relating to deductions
incurred by certain membership organizations in transactions
with members).
"(B) No inference. - Nothing in the provisions of this
paragraph shall be construed to infer that a change in law is
intended with respect to the treatment of deductions under
section 277 of the Internal Revenue Code of 1954 [now 1986] with
respect to cooperative housing corporations, and any
determination of such issue shall be made as if such provisions
had not been enacted.
"(3) Treatment of certain interest claimed as deduction. - Any
amount -
"(A) claimed (on a return of tax imposed by chapter 1 of the
Internal Revenue Code of 1954 [now 1986]) as a deduction by a
qualified cooperative housing corporation for interest for any
taxable year beginning before January 1, 1986, on a second
mortgage loan made by a city housing development agency or
corporation in connection with a qualified refinancing, and
"(B) reported (before April 16, 1986) by the qualified
cooperative housing corporation to its tenant-stockholders as
interest described in section 216(a)(2) of such Code,
shall be treated for purposes of such Code as if such amount were
paid by such qualified cooperative housing corporation during such
taxable year.
"(4) Qualified cooperative housing corporation. -
"(A) In general. - For purposes of this subsection, the term
'qualified cooperative housing corporation' means any corporation
if -
"(i) such corporation is, after the application of paragraphs
(1) and (2), a cooperative housing corporation (as defined in
section 216(b) of the Internal Revenue Code of 1954 [now
1986]),
"(ii) such corporation is subject to a qualified limited-
profit housing companies law, and
"(iii) such corporation either -
"(I) filed for incorporation on July 22, 1965, or
"(II) filed for incorporation on March 5, 1964.
"(B) Qualified limited-profit housing companies law. - For
purposes of subparagraph (A), the term 'qualified limited-profit
housing companies law' means any limited-profit housing companies
law which limits the resale price for a tenant-stockholder's
stock in a cooperative housing corporation to the sum of his
basis for such stock plus his proportionate share of part or all
of the amortization of any mortgage on the building owned by such
corporation.
"(5) Qualified refinancing. - For purposes of this subsection,
the term 'qualified refinancing' means any refinancing -
"(A) which occurred -
"(i) with respect to a qualified cooperative housing
corporation described in paragraph (4)(A)(iii)(I) on September
20, 1978, or
"(ii) with respect to a qualified cooperative housing
corporation described in paragraph (4)(A)(iii)(II) on November
21, 1978, and
"(B) in which a qualified cooperative housing corporation
refinanced a first mortgage loan made to such corporation by a
city housing development agency with a first mortgage loan made
by a city housing development corporation and insured by an
agency of the Federal Government and a second mortgage loan made
by such city housing development agency, in the process of which
a reserve was created (as required by such Federal agency) and
closing costs were paid or reimbursed by such city housing
development agency or corporation.
"(6) Qualified refinancing-related reserve. - For purposes of
this subsection, the term 'qualified refinancing-related reserve'
means any reserve of a qualified cooperative housing corporation
with respect to the creation of which no amount was included in the
gross income of such corporation by reason of paragraph (a).
"(7) Treatment of amounts paid from qualified refinancing-related
reserve. -
"(A) In general. - With respect to any payment from a qualified
refinancing-related reserve out of amounts excluded from gross
income by reason of paragraph (1) -
"(i) no deduction shall be allowed under chapter 1 of such
Code, and
"(ii) the basis of any property acquired with such payment
(determined without regard to this subparagraph) shall be
reduced by the amount of such payment.
"(B) Ordering rules. - For purposes of subparagraph (A),
payments from a reserve shall be treated as being made -
"(i) first from amounts excluded from gross income by reason
of paragraph (1) to the extent thereof, and
"(ii) then from other amounts in the reserve."
-End-
-CITE-
26 USC Sec. 217 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 217. Moving expenses
-STATUTE-
(a) Deduction allowed
There shall be allowed as a deduction moving expenses paid or
incurred during the taxable year in connection with the
commencement of work by the taxpayer as an employee or as a self-
employed individual at a new principal place of work.
(b) Definition of moving expenses
(1) In general
For purposes of this section, the term "moving expenses" means
only the reasonable expenses -
(A) of moving household goods and personal effects from the
former residence to the new residence, and
(B) of traveling (including lodging) from the former
residence to the new place of residence.
Such term shall not include any expenses for meals.
(2) Individuals other than taxpayer
In the case of any individual other than the taxpayer, expenses
referred to in paragraph (1) shall be taken into account only if
such individual has both the former residence and the new
residence as his principal place of abode and is a member of the
taxpayer's household.
(c) Conditions for allowance
No deduction shall be allowed under this section unless -
(1) the taxpayer's new principal place of work -
(A) is at least 50 miles farther from his former residence
than was his former principal place of work, or
(B) if he had no former principal place of work, is at least
50 miles from his former residence, and
(2) either -
(A) during the 12-month period immediately following his
arrival in the general location of his new principal place of
work, the taxpayer is a full-time employee, in such general
location, during at least 39 weeks, or
(B) during the 24-month period immediately following his
arrival in the general location of his new principal place of
work, the taxpayer is a full-time employee or performs services
as a self-employed individual on a full-time basis, in such
general location, during at least 78 weeks, of which not less
than 39 weeks are during the 12-month period referred to in
subparagraph (A).
For purposes of paragraph (1), the distance between two points
shall be the shortest of the more commonly traveled routes
between such two points.
(d) Rules for application of subsection (c)(2)
(1) The condition of subsection (c)(2) shall not apply if the
taxpayer is unable to satisfy such condition by reason of -
(A) death or disability, or
(B) involuntary separation (other than for willful
misconduct) from the service of, or transfer for the benefit
of, an employer after obtaining full-time employment in which
the taxpayer could reasonably have been expected to satisfy
such condition.
(2) If a taxpayer has not satisfied the condition of subsection
(c)(2) before the time prescribed by law (including extensions
thereof) for filing the return for the taxable year during which
he paid or incurred moving expenses which would otherwise be
deductible under this section, but may still satisfy such
condition, then such expenses may (at the election of the
taxpayer) be deducted for such taxable year notwithstanding
subsection (c)(2).
(3) If -
(A) for any taxable year moving expenses have been deducted
in accordance with the rule provided in paragraph (2), and
(B) the condition of subsection (c)(2) cannot be satisfied at
the close of a subsequent taxable year,
then an amount equal to the expenses which were so deducted shall
be included in gross income for the first such subsequent taxable
year.
[(e) Repealed. Pub. L. 103-66, title XIII, Sec. 13213(a)(2)(A),
Aug. 10, 1993, 107 Stat. 473]
(f) Self-employed individual
For purposes of this section, the term "self-employed individual"
means an individual who performs personal services -
(1) as the owner of the entire interest in an unincorporated
trade or business, or
(2) as a partner in a partnership carrying on a trade or
business.
(g) Rules for members of the Armed Forces of the United States
In the case of a member of the Armed Forces of the United States
on active duty who moves pursuant to a military order and incident
to a permanent change of station -
(1) the limitations under subsection (c) shall not apply;
(2) any moving and storage expenses which are furnished in kind
(or for which reimbursement or an allowance is provided, but only
to the extent of the expenses paid or incurred) to such member,
his spouse, or his dependents, shall not be includible in gross
income, and no reporting with respect to such expenses shall be
required by the Secretary of Defense or the Secretary of
Transportation, as the case may be; and
(3) if moving and storage expenses are furnished in kind (or if
reimbursement or an allowance for such expenses is provided) to
such member's spouse and his dependents with regard to moving to
a location other than the one to which such member moves (or from
a location other than the one from which such member moves), this
section shall apply with respect to the moving expenses of his
spouse and dependents -
(A) as if his spouse commenced work as an employee at a new
principal place of work at such location; and
(B) without regard to the limitations under subsection (c).
(h) Special rules for foreign moves
(1) Allowance of certain storage fees
In the case of a foreign move, for purposes of this section,
the moving expenses described in subsection (b)(1)(A) include the
reasonable expenses -
(A) of moving household goods and personal effects to and
from storage, and
(B) of storing such goods and effects for part or all of the
period during which the new place of work continues to be the
taxpayer's principal place of work.
(2) Foreign move
For purposes of this subsection, the term "foreign move" means
the commencement of work by the taxpayer at a new principal place
of work located outside the United States.
(3) United States defined
For purposes of this subsection and subsection (i), the term
"United States" includes the possessions of the United States.
(i) Allowance of deductions in case of retirees or decedents who
were working abroad
(1) In general
In the case of any qualified retiree moving expenses or
qualified survivor moving expenses -
(A) this section (other than subsection (h)) shall be applied
with respect to such expenses as if they were incurred in
connection with the commencement of work by the taxpayer as an
employee at a new principal place of work located within the
United States, and
(B) the limitations of subsection (c)(2) shall not apply.
(2) Qualified retiree moving expenses
For purposes of paragraph (1), the term "qualified retiree
moving expenses" means any moving expenses -
(A) which are incurred by an individual whose former
principal place of work and former residence were outside the
United States, and
(B) which are incurred for a move to a new residence in the
United States in connection with the bona fide retirement of
the individual.
(3) Qualified survivor moving expenses
For purposes of paragraph (1), the term "qualified survivor
moving expenses" means moving expenses -
(A) which are paid or incurred by the spouse or any dependent
of any decedent who (as of the time of his death) had a
principal place of work outside the United States, and
(B) which are incurred for a move which begins within 6
months after the death of such decedent and which is to a
residence in the United States from a former residence outside
the United States which (as of the time of the decedent's
death) was the residence of such decedent and the individual
paying or incurring the expense.
(j) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 88-272, title II, Sec. 213(a)(1), Feb. 26, 1964, 78
Stat. 50; amended Pub. L. 91-172, title II, Sec. 231(a), Dec. 30,
1969, 83 Stat. 577; Pub. L. 94-455, title V, Sec. 506 (a)-(c),
title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1568, 1834;
Pub. L. 95-615, title II, Sec. 204, Nov. 8, 1978, 92 Stat. 3106;
Pub. L. 103-66, title XIII, Sec. 13213(a)(1)-(2)(D), (b), Aug. 10,
1993, 107 Stat. 473, 474.)
-MISC1-
PRIOR PROVISIONS
A prior section 217 was renumbered section 224 of this title.
AMENDMENTS
1993 - Subsec. (b). Pub. L. 103-66, Sec. 13213(a)(1), amended
subsec. (b) generally, restating former par. (1)(A) and (B) as par.
(1) and former par. (3)(C) as par. (2) and striking out former par.
(1)(C) to (E) which included certain traveling, meals, lodging, and
residence sale, purchase, and lease expenses in the term "moving
expenses", par. (2) which defined "qualified residence sale,
purchase, or lease expenses", and par. (3)(A) and (B) which placed
dollar limits on the amount allowed to be deducted as moving
expenses.
Subsec. (c)(1). Pub. L. 103-66, Sec. 13213(b), substituted "50
miles" for "35 miles" in subpars. (A) and (B).
Subsec. (e). Pub. L. 103-66, Sec. 13213(a)(2)(A), struck out
heading and text of subsec. (e). Text read as follows: "The amount
realized on the sale of the residence described in subparagraph (A)
of subsection (b)(2) shall not be decreased by the amount of any
expenses described in such subparagraph which are allowed as a
deduction under subsection (a), and the basis of a residence
described in subparagraph (B) of subsection (b)(2) shall not be
increased by the amount of any expenses described in such
subparagraph which are allowed as a deduction under subsection (a).
This subsection shall not apply to any expenses with respect to
which an amount is included in gross income under subsection
(d)(3)."
Subsec. (f). Pub. L. 103-66, Sec. 13213(a)(2)(B), amended heading
and text of subsec. (f) generally. Prior to amendment, text read as
follows:
"(1) Definition. - For purposes of this section, the term 'self-
employed individual' means an individual who performs personal
services -
"(A) as the owner of the entire interest in an unincorporated
trade or business, or
"(B) as a partner in a partnership carrying on a trade or
business.
"(2) Rule for application of subsections (b)(1)(c) and (d). - For
purposes of subparagraphs (C) and (D) of subsection (b)(1), an
individual who commences work at a new principal place of work as a
self-employed individual shall be treated as having obtained
employment when he has made substantial arrangements to commence
such work."
Subsec. (g)(3). Pub. L. 103-66, Sec. 13213(a)(2)(C), inserted
"and" at end of subpar. (A), redesignated subpar. (C) as (B), and
struck out former subpar. (B) which read as follows: "for purposes
of subsection (b)(3), as if such place of work was within the same
general location as the member's new principal place of work, and".
Subsec. (h). Pub. L. 103-66, Sec. 13213(a)(2)(D), redesignated
pars. (2) to (4) as (1) to (3), respectively, and struck out
heading and text of former par. (1). Text read as follows: "In the
case of a foreign move -
"(A) subsection (b)(1)(D) shall be applied by substituting '90
consecutive days' for '30 consecutive days',
"(B) subsection (b)(3)(A) shall be applied by substituting
'$4,500' for '$1,500' and by substituting '$6,000' for '$3,000',
and
"(C) subsection (b)(3)(B) shall be applied as if the last
sentence of such subsection read as follows: 'In the case of a
husband and wife filing separate returns, subparagraph (A) shall
be applied by substituting "$2,250" for "$4,500", and by
substituting "$3,000" for "$6,000".' "
1978 - Subsecs. (h) to (j). Pub. L. 95-615 added subsecs. (h) and
(i) and redesignated former subsec. (h) as (j).
1976 - Subsec. (b)(3)(A). Pub. L. 94-455, Sec. 506(b)(1), (2),
substituted "$1,500" for "$1,000" after "(1) shall not exceed" and
"$3,000" for "$2,500" after "lease expenses shall not exceed".
Subsec. (b)(3)(B). Pub. L. 94-455, Sec. 506(b)(3), substituted "
'$750' for '$1,500' " for " '$500' for '$1,000' " after "applied by
substituting" and " '$1,500' for '$3,000' " for " '$1,250' for
'$2,500' " after "and by substituting".
Subsec. (c)(1)(A), (B). Pub. L. 94-455, Sec. 506(a), substituted
"35" for "50" after "at least".
Subsecs. (g), (h). Pub. L. 94-455, Secs. 506(c), 1906(b)(13)(A),
added subsec. (g), redesignated former subsec. (g) as (h) and
struck out "or his delegate" after "Secretary".
1969 - Pub. L. 91-172 substantially reenacted existing provisions
and extended the coverage to self-employed persons working at the
new location for 78 weeks, made it a requirement that the new
principal place of work be located 50 miles from the former
residence, and redefined the deduction to include costs of house-
hunting trips, temporary living expenses prior to locating a new
home, and expenses of selling an old home or buying a new one.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to expenses incurred after
Dec. 31, 1993, see section 13213(e) of Pub. L. 103-66 set out as a
note under section 62 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT; ELECTION OF PRIOR LAW
Amendment by Pub. L. 95-615 applicable to taxable years beginning
after Dec. 31, 1977, with provision for election of prior law, see
section 209 of Pub. L. 95-615, set out as an Effective Date of 1978
Amendment note under section 911 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 506(d) of Pub. L. 94-455 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to taxable years beginning after December 31, 1976."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 231(d) of Pub. L. 91-172, as amended by Pub. L. 91-642,
Sec. 2, Dec. 31, 1970, 84 Stat. 1880; Pub. L. 99-514, Sec. 2, Oct.
22, 1986, 100 Stat. 2095, provided that: "The amendments made by
this section [enacting section 82 of this title and amending this
section and sections 1001 and 1016 of this title] shall apply to
taxable years beginning after December 31, 1969, except that -
"(1) section 217 of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as amended by subsection (a)) shall not apply to
any item to the extent that the taxpayer received or accrued
reimbursement or other expense allowance for such item in a
taxable year beginning on or before December 31, 1969, which was
not included in his gross income; and
"(2) the amendments made by this section shall not apply (at
the election of the taxpayer made at such time and manner as the
Secretary of the Treasury or his delegate prescribes) with
respect to moving expenses paid or incurred before January 1,
1971, in connection with the commencement of work by the taxpayer
as an employee at a new principal place of work of which the
taxpayer had been notified by his employer on or before December
19, 1969."
EFFECTIVE DATE
Section applicable to expenses incurred after Dec. 31, 1963, in
taxable years ending after such date, see section 213(d) of Pub. L.
88-272, set out as an Effective Date of 1964 Amendment note under
section 62 of this title.
MOVING EXPENSES OF MEMBERS OF THE UNIFORMED SERVICES
Pub. L. 93-490, Sec. 2, Oct. 26, 1974, 88 Stat. 1466, authorized
the Secretary of the Treasury, applicable with respect to taxable
years ending before January 1, 1976, to:
(1) enter into an agreement with the Secretary concerned under
which the Secretary concerned would not be required to withhold
tax on, or to report, moving expense reimbursements made to
members of the armed forces;
(2) permit any taxpayer who was a member of the armed forces
not to include in adjusted gross income the amount of any
reimbursement in kind of moving expenses made by the Secretary
concerned; and
(3) permit any taxpayer who was a member of the armed forces to
deduct any amount paid by him as moving expenses in connection
with any move required by the Secretary concerned, in excess of
any reimbursement received for such expenses, without regard to
the provisions of subsec. (c) of this section, to the extent it
was otherwise deductible under this section.
-End-
-CITE-
26 USC Sec. 218 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
[Sec. 218. Repealed. Pub. L. 95-600, title I, Sec. 113(a)(1), Nov.
6, 1978, 92 Stat. 2778]
-MISC1-
Section, added Pub. L. 92-178, title VII, Sec. 702(a), Dec. 10,
1971, 85 Stat. 561; amended Pub. L. 93-625, Secs. 11(d), 12(b),
Jan. 3, 1975, 88 Stat. 2120; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to
contributions to candidates for public office.
A prior section 218 was renumbered section 224 of this title.
EFFECTIVE DATE OF REPEAL
Repeal effective with respect to contributions the payment of
which is made after Dec. 31, 1978, in taxable years beginning after
such date, see section 113(d) of Pub. L. 95-600, set out as an
Effective Date of 1978 Amendment note under section 24 of this
title.
-End-
-CITE-
26 USC Sec. 219 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 219. Retirement savings
-STATUTE-
(a) Allowance of deduction
In the case of an individual, there shall be allowed as a
deduction an amount equal to the qualified retirement contributions
of the individual for the taxable year.
(b) Maximum amount of deduction
(1) In general
The amount allowable as a deduction under subsection (a) to any
individual for any taxable year shall not exceed the lesser of -
(A) the deductible amount, or
(B) an amount equal to the compensation includible in the
individual's gross income for such taxable year.
(2) Special rule for employer contributions under simplified
employee pensions
This section shall not apply with respect to an employer
contribution to a simplified employee pension.
(3) Plans under section 501(c)(18)
Notwithstanding paragraph (1), the amount allowable as a
deduction under subsection (a) with respect to any contributions
on behalf of an employee to a plan described in section
501(c)(18) shall not exceed the lesser of -
(A) $7,000, or
(B) an amount equal to 25 percent of the compensation (as
defined in section 415(c)(3)) includible in the individual's
gross income for such taxable year.
(4) Special rule for simple retirement accounts
This section shall not apply with respect to any amount
contributed to a simple retirement account established under
section 408(p).
(5) Deductible amount
For purposes of paragraph (1)(A) -
(A) In general
The deductible amount shall be determined in accordance with
the following table:
For taxable years The deductible
beginning in: amount is:
2002 through 2004 $3,000
2005 through 2007 $4,000
2008 and thereafter $5,000.
(B) Catch-up contributions for individuals 50 or older
(i) In general
In the case of an individual who has attained the age of 50
before the close of the taxable year, the deductible amount
for such taxable year shall be increased by the applicable
amount.
(ii) Applicable amount
For purposes of clause (i), the applicable amount shall be
the amount determined in accordance with the following table:
For taxable years The applicable
beginning in: amount is:
2002 through 2005 $500
2006 and thereafter $1,000.
(C) Cost-of-living adjustment
(i) In general
In the case of any taxable year beginning in a calendar
year after 2008, the $5,000 amount under subparagraph (A)
shall be increased by an amount equal to -
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which the taxable
year begins, determined by substituting "calendar year
2007" for "calendar year 1992" in subparagraph (B) thereof.
(ii) Rounding rules
If any amount after adjustment under clause (i) is not a
multiple of $500, such amount shall be rounded to the next
lower multiple of $500.
(c) Special rules for certain married individuals
(1) In general
In the case of an individual to whom this paragraph applies for
the taxable year, the limitation of paragraph (1) of subsection
(b) shall be equal to the lesser of -
(A) the dollar amount in effect under subsection (b)(1)(A)
for the taxable year, or
(B) the sum of -
(i) the compensation includible in such individual's gross
income for the taxable year, plus
(ii) the compensation includible in the gross income of
such individual's spouse for the taxable year reduced by -
(I) the amount allowed as a deduction under subsection
(a) to such spouse for such taxable year,
(II) the amount of any designated nondeductible
contribution (as defined in section 408(o)) on behalf of
such spouse for such taxable year, and
(III) the amount of any contribution on behalf of such
spouse to a Roth IRA under section 408A for such taxable
year.
(2) Individuals to whom paragraph (1) applies
Paragraph (1) shall apply to any individual if -
(A) such individual files a joint return for the taxable
year, and
(B) the amount of compensation (if any) includible in such
individual's gross income for the taxable year is less than the
compensation includible in the gross income of such
individual's spouse for the taxable year.
(d) Other limitations and restrictions
(1) Beneficiary must be under age 70 1/2
No deduction shall be allowed under this section with respect
to any qualified retirement contribution for the benefit of an
individual if such individual has attained age 70 1/2 before the
close of such individual's taxable year for which the
contribution was made.
(2) Recontributed amounts
No deduction shall be allowed under this section with respect
to a rollover contribution described in section 402(c),
403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16).
(3) Amounts contributed under endowment contract
In the case of an endowment contract described in section
408(b), no deduction shall be allowed under this section for that
portion of the amounts paid under the contract for the taxable
year which is properly allocable, under regulations prescribed by
the Secretary, to the cost of life insurance.
(4) Denial of deduction for amount contributed to inherited
annuities or accounts
No deduction shall be allowed under this section with respect
to any amount paid to an inherited individual retirement account
or individual retirement annuity (within the meaning of section
408(d)(3)(C)(ii)).
(e) Qualified retirement contribution
For purposes of this section, the term "qualified retirement
contribution" means -
(1) any amount paid in cash for the taxable year by or on
behalf of an individual to an individual retirement plan for such
individual's benefit, and
(2) any amount contributed on behalf of any individual to a
plan described in section 501(c)(18).
(f) Other definitions and special rules
(1) Compensation
For purposes of this section, the term "compensation" includes
earned income (as defined in section 401(c)(2)). The term
"compensation" does not include any amount received as a pension
or annuity and does not include any amount received as deferred
compensation. The term "compensation" shall include any amount
includible in the individual's gross income under section 71 with
respect to a divorce or separation instrument described in
subparagraph (A) of section 71(b)(2). For purposes of this
paragraph, section 401(c)(2) shall be applied as if the term
trade or business for purposes of section 1402 included service
described in subsection (c)(6).
(2) Married individuals
The maximum deduction under subsection (b) shall be computed
separately for each individual, and this section shall be applied
without regard to any community property laws.
(3) Time when contributions deemed made
For purposes of this section, a taxpayer shall be deemed to
have made a contribution to an individual retirement plan on the
last day of the preceding taxable year if the contribution is
made on account of such taxable year and is made not later than
the time prescribed by law for filing the return for such taxable
year (not including extensions thereof).
(4) Reports
The Secretary shall prescribe regulations which prescribe the
time and the manner in which reports to the Secretary and plan
participants shall be made by the plan administrator of a
qualified employer or government plan receiving qualified
voluntary employee contributions.
(5) Employer payments
For purposes of this title, any amount paid by an employer to
an individual retirement plan shall be treated as payment of
compensation to the employee (other than a self-employed
individual who is an employee within the meaning of section
401(c)(1)) includible in his gross income in the taxable year for
which the amount was contributed, whether or not a deduction for
such payment is allowable under this section to the employee.
(6) Excess contributions treated as contribution made during
subsequent year for which there is an unused limitation
(A) In general
If for the taxable year the maximum amount allowable as a
deduction under this section for contributions to an individual
retirement plan exceeds the amount contributed, then the
taxpayer shall be treated as having made an additional
contribution for the taxable year in an amount equal to the
lesser of -
(i) the amount of such excess, or
(ii) the amount of the excess contributions for such
taxable year (determined under section 4973(b)(2) without
regard to subparagraph (C) thereof).
(B) Amount contributed
For purposes of this paragraph, the amount contributed -
(i) shall be determined without regard to this paragraph,
and
(ii) shall not include any rollover contribution.
(C) Special rule where excess deduction was allowed for closed
year
Proper reduction shall be made in the amount allowable as a
deduction by reason of this paragraph for any amount allowed as
a deduction under this section for a prior taxable year for
which the period for assessing deficiency has expired if the
amount so allowed exceeds the amount which should have been
allowed for such prior taxable year.
(7) Election not to deduct contributions
For election not to deduct contributions to individual
retirement plans, see section 408(o)(2)(B)(ii).
(g) Limitation on deduction for active participants in certain
pension plans
(1) In general
If (for any part of any plan year ending with or within a
taxable year) an individual or the individual's spouse is an
active participant, each of the dollar limitations contained in
subsections (b)(1)(A) and (c)(1)(A) for such taxable year shall
be reduced (but not below zero) by the amount determined under
paragraph (2).
(2) Amount of reduction
(A) In general
The amount determined under this paragraph with respect to
any dollar limitation shall be the amount which bears the same
ratio to such limitation as -
(i) the excess of -
(I) the taxpayer's adjusted gross income for such taxable
year, over
(II) the applicable dollar amount, bears to
(ii) $10,000 ($20,000 in the case of a joint return for a
taxable year beginning after December 31, 2006).
(B) No reduction below $200 until complete phase-out
No dollar limitation shall be reduced below $200 under
paragraph (1) unless (without regard to this subparagraph) such
limitation is reduced to zero.
(C) Rounding
Any amount determined under this paragraph which is not a
multiple of $10 shall be rounded to the next lowest $10.
(3) Adjusted gross income; applicable dollar amount
For purposes of this subsection -
(A) Adjusted gross income
Adjusted gross income of any taxpayer shall be determined -
(i) after application of sections 86 and 469, and
(ii) without regard to sections 135, 137, 199, 221, 222,
and 911 or the deduction allowable under this section.
(B) Applicable dollar amount
The term "applicable dollar amount" means the following:
(i) In the case of a taxpayer filing a joint return:
The
applicable
For taxable years beginning in: dollar amount
is:
1998 $50,000
1999 $51,000
2000 $52,000
2001 $53,000
2002 $54,000
2003 $60,000
2004 $65,000
2005 $70,000
2006 $75,000
2007 and thereafter $80,000.
(ii) In the case of any other taxpayer (other than a
married individual filing a separate return):
The
applicable
For taxable years beginning in: dollar amount
is:
1998 $30,000
1999 $31,000
2000 $32,000
2001 $33,000
2002 $34,000
2003 $40,000
2004 $45,000
2005 and thereafter $50,000.
(iii) In the case of a married individual filing a separate
return, zero.
(4) Special rule for married individuals filing separately and
living apart
A husband and wife who -
(A) file separate returns for any taxable year, and
(B) live apart at all times during such taxable year,
shall not be treated as married individuals for purposes of this
subsection.
(5) Active participant
For purposes of this subsection, the term "active participant"
means, with respect to any plan year, an individual -
(A) who is an active participant in -
(i) a plan described in section 401(a) which includes a
trust exempt from tax under section 501(a),
(ii) an annuity plan described in section 403(a),
(iii) a plan established for its employees by the United
States, by a State or political subdivision thereof, or by an
agency or instrumentality of any of the foregoing,
(iv) an annuity contract described in section 403(b),
(v) a simplified employee pension (within the meaning of
section 408(k)), or
(vi) any simple retirement account (within the meaning of
section 408(p)), or
(B) who makes deductible contributions to a trust described
in section 501(c)(18).
The determination of whether an individual is an active
participant shall be made without regard to whether or not such
individual's rights under a plan, trust, or contract are
nonforfeitable. An eligible deferred compensation plan (within
the meaning of section 457(b)) shall not be treated as a plan
described in subparagraph (A)(iii).
(6) Certain individuals not treated as active participants
For purposes of this subsection, any individual described in
any of the following subparagraphs shall not be treated as an
active participant for any taxable year solely because of any
participation so described:
(A) Members of reserve components
Participation in a plan described in subparagraph (A)(iii) of
paragraph (5) by reason of service as a member of a reserve
component of the Armed Forces (as defined in section 10101 of
title 10), unless such individual has served in excess of 90
days on active duty (other than active duty for training)
during the year.
(B) Volunteer firefighters
A volunteer firefighter -
(i) who is a participant in a plan described in
subparagraph (A)(iii) of paragraph (5) based on his activity
as a volunteer firefighter, and
(ii) whose accrued benefit as of the beginning of the
taxable year is not more than an annual benefit of $1,800
(when expressed as a single life annuity commencing at age
65).
(7) Special rule for spouses who are not active participants
If this subsection applies to an individual for any taxable
year solely because their spouse is an active participant, then,
in applying this subsection to the individual (but not their
spouse) -
(A) the applicable dollar amount under paragraph (3)(B)(i)
shall be $150,000; and
(B) the amount applicable under paragraph (2)(A)(ii) shall be
$10,000.
(h) Cross reference
For failure to provide required reports, see section 6652(g).
-SOURCE-
(Added Pub. L. 93-406, title II, Sec. 2002(a)(1), Sept. 2, 1974, 88
Stat. 958; amended Pub. L. 94-455, title XV, Secs. 1501(b)(4),
1503(a), title XIX, Secs. 1901(a)(32), 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1736, 1738, 1769, 1834; Pub. L. 95-600, title I,
Secs. 152(c), 156(c)(3), 157(a)(1), (b)(1), title VII, Sec.
703(c)(1), Nov. 6, 1978, 92 Stat. 2798, 2803, 2939; Pub. L. 96-222,
title I, Sec. 101(a)(10)(D), (14)(B), Apr. 1, 1980, 94 Stat. 202,
204; Pub. L. 97-34, title III, Secs. 311(a), 312(c)(1), 313(b)(2),
Aug. 13, 1981, 95 Stat. 274, 284, 286; Pub. L. 97-248, title II,
Sec. 243(b)(2), Sept. 3, 1982, 96 Stat. 523; Pub. L. 97-448, title
I, Sec. 103(c)(1), (2), (3)(A), (4), (5), (12)(A), Jan. 12, 1983,
96 Stat. 2375-2377; Pub. L. 98-369, div. A, title I, Sec. 147(c),
title IV, Secs. 422(d)(1), 491(d)(6)-(8), title V, Sec. 529(a),
(b), title VII, Sec. 713(d)(2), July 18, 1984, 98 Stat. 687, 798,
849, 877, 957; Pub. L. 99-514, title III, Sec. 301(b)(4), title XI,
Secs. 1101(a), (b)(1), (2)(A), 1102(f), 1103(a), 1108(g)(2), (3),
1109(b), title XV, Sec. 1501(d)(1)(B), title XVIII, Sec.
1875(c)(4), (6)(B), Oct. 22, 1986, 100 Stat. 2217, 2411, 2413,
2417, 2434, 2435, 2740, 2894, 2895; Pub. L. 100-647, title I, Sec.
1011(a)(1), title VI, Sec. 6009(c)(2), Nov. 10, 1988, 102 Stat.
3456, 3690; Pub. L. 101-239, title VII, Secs. 7816(c)(1),
7841(c)(1), Dec. 19, 1989, 103 Stat. 2420, 2428; Pub. L. 102-318,
title V, Sec. 521(b)(4), July 3, 1992, 106 Stat. 310; Pub. L. 103-
337, div. A, title XVI, Sec. 1677(c), Oct. 5, 1994, 108 Stat.
3020; Pub. L. 104-188, title I, Secs. 1421(b)(1), 1427(a)-(b)(2),
1807(c)(3), Aug. 20, 1996, 110 Stat. 1795, 1802, 1902; Pub. L. 105-
34, title III, Secs. 301(a), (b), 302(c), Aug. 5, 1997, 111 Stat.
824, 825, 829; Pub. L. 105-206, title VI, Secs. 6005(a),
6018(f)(2), July 22, 1998, 112 Stat. 796, 823; Pub. L. 105-277,
div. J, title IV, Sec. 4003(a)(2)(B), Oct. 21, 1998, 112 Stat. 2681-
908; Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 316(d)], Dec.
21, 2000, 114 Stat. 2763, 2763A-644; Pub. L. 107-16, title IV, Sec.
431(c)(1), title VI, Secs. 601(a), 641(e)(2), June 7, 2001, 115
Stat. 68, 94, 120; Pub. L. 108-357, title I, Sec. 102(d)(1), Oct.
22, 2004, 118 Stat. 1428.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
PRIOR PROVISIONS
A prior section 219 was renumbered section 224 of this title.
AMENDMENTS
2004 - Subsec. (g)(3)(A)(ii). Pub. L. 108-357 inserted "199,"
before "221".
2001 - Subsec. (b)(1)(A). Pub. L. 107-16, Secs. 601(a)(1), 901,
temporarily substituted "the deductible amount" for "$2,000". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (b)(5). Pub. L. 107-16, Secs. 601(a)(2), 901, temporarily
added par. (5). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (d)(2). Pub. L. 107-16, Secs. 641(e)(2), 901, temporarily
substituted "408(d)(3), or 457(e)(16)" for "or 408(d)(3)". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (g)(3)(A)(ii). Pub. L. 107-16, Secs. 431(c)(1), 901,
temporarily inserted "222," after "221,". See Effective and
Termination Dates of 2001 Amendment note below.
2000 - Subsec. (c)(1)(B)(ii)(II), (III). Pub. L. 106-554 added
subcl. (II) and redesignated former subcl. (II) as (III).
1998 - Subsec. (g)(1). Pub. L. 105-206, Sec. 6005(a)(1)(A),
inserted "or the individual's spouse" after "individual".
Subsec. (g)(2)(A)(ii). Pub. L. 105-206, Sec. 6005(a)(2), made
technical amendment to directory language of Pub. L. 105-34, Sec.
301(a)(2). See 1997 Amendment note below.
Subsec. (g)(3)(A)(ii). Pub. L. 105-277 inserted "221," after
"137,".
Pub. L. 105-206, Sec. 6018(f)(2), made technical amendment to
directory language of Pub. L. 104-188, Sec. 1807(c)(3). See 1996
Amendment note below.
Subsec. (g)(7). Pub. L. 105-206, Sec. 6005(a)(1)(B), added par.
(7) and struck out heading and text of former par. (7). Text read
as follows: "In the case of an individual who is an active
participant at no time during any plan year ending with or within
the taxable year but whose spouse is an active participant for any
part of any such plan year -
"(A) the applicable dollar amount under paragraph (3)(B)(i)
with respect to the taxpayer shall be $150,000, and
"(B) the amount applicable under paragraph (2)(A)(ii) shall be
$10,000."
1997 - Subsec. (c)(1)(B)(ii). Pub. L. 105-34, Sec. 302(c),
amended cl. (ii) generally. Prior to amendment, cl. (ii) read as
follows: "the compensation includible in the gross income of such
individual's spouse for the taxable year reduced by the amount
allowed as a deduction under subsection (a) to such spouse for such
taxable year."
Subsec. (g)(1). Pub. L. 105-34, Sec. 301(b)(1), struck out "or
the individual's spouse" after "an individual".
Subsec. (g)(2)(A)(ii). Pub. L. 105-34, Sec. 301(a)(2), as amended
by Pub. L. 105-206, Sec. 6005(a)(2), inserted "($20,000 in the case
of a joint return for a taxable year beginning after December 31,
2006)" after "$10,000".
Subsec. (g)(3)(B). Pub. L. 105-34, Sec. 301(a)(1), amended
heading and text of subpar. (B) generally. Prior to amendment, text
read as follows: "The term 'applicable dollar amount' means -
"(i) in the case of a taxpayer filing a joint return, $40,000,
"(ii) in the case of any other taxpayer (other than a married
individual filing a separate return), $25,000, and
"(iii) in the case of a married individual filing a separate
return, zero."
Subsec. (g)(7). Pub. L. 105-34, Sec. 301(b)(2), added par. (7).
1996 - Subsec. (b)(4). Pub. L. 104-188, Sec. 1421(b)(1)(A), added
par. (4).
Subsec. (c). Pub. L. 104-188, Sec. 1427(a), amended subsec. (c)
generally, substituting present provisions for former provisions
relating to special rules for certain married individuals which set
out general provisions in par. (1) and a limitation in par. (2).
Subsec. (f)(2). Pub. L. 104-188, Sec. 1427(b)(1), substituted
"subsection (b)" for "subsections (b) and (c)".
Subsec. (g)(1). Pub. L. 104-188, Sec. 1427(b)(2), substituted
"(c)(1)(A)" for "(c)(2)".
Subsec. (g)(3)(A)(ii). Pub. L. 104-188, Sec. 1807(c)(3), as
amended by Pub. L. 105-206, Sec. 6018(f)(2), inserted ", 137,"
before "and 911".
Subsec. (g)(5)(A)(vi). Pub. L. 104-188, Sec. 1421(b)(1)(B), added
cl. (vi).
1994 - Subsec. (g)(6)(A). Pub. L. 103-337 substituted "section
10101 of title 10" for "section 261(a) of title 10".
1992 - Subsec. (d)(2). Pub. L. 102-318 substituted "402(c)" for
"402(a)(5), 402(a)(7)".
1989 - Subsec. (f)(1). Pub. L. 101-239, Sec. 7841(c)(1), inserted
at end "For purposes of this paragraph, section 401(c)(2) shall be
applied as if the term trade or business for purposes of section
1402 included service described in subsection (c)(6)."
Subsec. (g)(3)(A)(ii). Pub. L. 101-239, Sec. 7816(c)(1), made
technical correction to directory language of Pub. L. 100-647, Sec.
6009(c)(2), see 1988 Amendment note below.
1988 - Subsec. (g)(3)(A)(ii). Pub. L. 100-647, Sec. 6009(c)(2),
as amended by Pub. L. 101-239, Sec. 7816(c)(1), substituted
"sections 135 and 911" for "section 911".
Subsec. (g)(4). Pub. L. 100-647, Sec. 1011(a)(1), inserted "and
living apart" after "filing separately" in heading and amended text
generally. Prior to amendment, text read as follows: "In the case
of a married individual filing a separate return for any taxable
year, paragraph (1) shall be applied without regard to whether such
individual's spouse is an active participant for any plan year
ending with or within such taxable year."
1986 - Subsec. (b)(2). Pub. L. 99-514, Sec. 1108(g)(2), amended
par. (2) generally, substituting provision that this section shall
not apply with respect to an employer contribution to a simplified
employee pension for former provisions consisting of subpars. (A),
(B), and (C) which set out detailed limits on deductibility of
employer contributions.
Subsec. (b)(2)(C). Pub. L. 99-514, Sec. 1875(c)(6)(B),
substituted "the dollar limitation in effect under section
415(c)(1)(A)" for "the $15,000 amount specified in subparagraph
(A)(ii)".
Subsec. (b)(3). Pub. L. 99-514, Sec. 1109(b), added par. (3).
Pub. L. 99-514, Sec. 1101(b)(2)(A), struck out par. (3), special
rule for individual retirement plans, which read as follows: "If
the individual has paid any qualified voluntary employee
contributions for the taxable year, the amount of the qualified
retirement contributions (other than employer contributions to a
simplified employee pension) which are paid for the taxable year to
an individual retirement plan and which are allowable as a
deduction under subsection (a) for such taxable year shall not
exceed -
"(A) the amount determined under paragraph (1) for such taxable
year, reduced by
"(B) the amount of the qualified voluntary employee
contributions for the taxable year."
Subsec. (c)(1)(B). Pub. L. 99-514, Sec. 1103(a), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
"whose spouse has no compensation (determined without regard to
section 911) for such taxable year,".
Subsec. (c)(2)(B). Pub. L. 99-514, Sec. 1108(g)(3), struck out
"(determined without regard to so much of the employer
contributions to a simplified employee pension as is allowable by
reason of paragraph (2) of subsection (b))" after "for the taxable
year".
Subsec. (e). Pub. L. 99-514, Sec. 1101(b)(1), amended subsec. (e)
generally, revising the definition of "qualified retirement
contribution".
Subsec. (f)(1). Pub. L. 99-514, Sec. 301(b)(4), which directed
that par. (1) be amended by substituting "paragraph (6)" for
"paragraph (7)", could not be executed because prior amendment by
Pub. L. 99-514, Sec. 1875(c)(4), see below, struck out language
which included phrase "paragraph (7)".
Pub. L. 99-514, Sec. 1875(c)(4), struck out "reduced by any
amount allowable as a deduction to the individual in computing
adjusted gross income under paragraph (7) of section 62" after "(as
defined in section 401(c)(2))".
Subsec. (f)(3). Pub. L. 99-514, Sec. 1101(a)(2), in amending par.
(3) generally, reenacted existing provision without its subpar.
"(A) Individual retirement plans" designation, and struck out
subpar. (B) relating to time when contributions deemed made with
respect to qualified employer or government plans.
Subsec. (f)(7). Pub. L. 99-514, Sec. 1102(f), added par. (7).
Subsec. (g). Pub. L. 99-514, Sec. 1101(a)(1), added subsec. (g).
Former subsec. (g) redesignated (h).
Subsec. (h). Pub. L. 99-514, Sec. 1501(d)(1)(B), which directed
that subsec. (g) be amended by substituting "6652(g)" for
"6652(h)", was executed by making the substitution in subsec. (h)
to reflect the probable intent of Congress and the prior
redesignation of former subsec. (g) as (h) by Pub. L. 99-514, Sec.
1101(a)(1).
Pub. L. 99-514, Sec. 1101(a)(1), redesignated former subsec. (g)
as (h).
1984 - Subsec. (b)(2)(A)(ii). Pub. L. 98-369, Sec. 713(d)(2),
substituted "not in excess of the limitation in effect under
section 415(c)(1)(A)" for "not in excess of $15,000".
Subsec. (b)(4). Pub. L. 98-369, Sec. 529(b), struck out par. (4)
which related to a deduction for qualified retirement savings of
certain divorced individuals.
Subsec. (b)(4)(B). Pub. L. 98-369, Sec. 422(d)(1), substituted
"gross income under section 71 (relating to alimony and separate
maintenance payments) by reason of a payment under a decree of
divorce or separate maintenance or a written agreement incident to
such a decree" for "gross income under paragraph (1) of section
71(a) (relating to decree of divorce or separate maintenance)".
Subsec. (d)(2). Pub. L. 98-369, Sec. 491(d)(6), substituted "or
408(d)(3)" for "405(d)(3), 408(d)(3), or 409(b)(3)(C)".
Subsec. (e)(1). Pub. L. 98-369, Sec. 491(d)(7), struck out
concluding provision that for the purposes of the preceding
sentence, the term "individual retirement plan" includes retirement
bonds described in section 409 only if the bond was not redeemed
within 12 months of its issuance.
Subsec. (e)(3). Pub. L. 98-369, Sec. 491(d)(8), struck out
subpar. (C) which included a qualified bond purchase plan described
in section 405(a) within term "qualified employer plan", and
redesignated subpar. (D) as (C).
Subsec. (f)(1). Pub. L. 98-369, Sec. 529(a), inserted provision
that "compensation" shall include any amount includible in the
individual's gross income under section 71 with respect to a
divorce or separation instrument described in subparagraph (A) of
section 71(b)(2).
Subsec. (f)(3)(A). Pub. L. 98-369, Sec. 147(c), substituted "not
including" for "including".
1983 - Subsec. (b)(2)(A). Pub. L. 97-448, Sec. 103(c)(12)(A),
inserted a close parenthesis after "allowable under paragraph (1)"
in introductory provisions.
Subsec. (c)(2)(B). Pub. L. 97-448, Sec. 103(c)(1), substituted
"the amount allowable as a deduction under subsection (a) for the
taxable year (determined without regard to so much of the employer
contributions to a simplified employee pension as is allowable by
reason of paragraph (2) of subsection (b))" for "the amount allowed
as a deduction under subsection (a) for the taxable year".
Subsec. (d)(1). Pub. L. 97-448, Sec. 103(c)(2), substituted
"Beneficiary must be under age 70 1/2 " for "Individuals who have
attained age 70 1/2 " as par. (1) heading and, in text, substituted
"qualified retirement contribution for the benefit of an individual
if such individual has attained age 70 1/2 before the close of
such individual's taxable year for which the contribution was made"
for "qualified retirement contribution which is made for a taxable
year of an individual if such individual has attained age 70 1/2
before the close of such taxable year".
Subsec. (e)(3)(D), (E). Pub. L. 97-448, Sec. 103(c)(3)(A),
redesignated subpar. (E) as (D). Former subpar. (D), which related
to simplified employee pension (within the meaning of section
408(k)), was struck out.
Subsec. (f)(1). Pub. L. 97-448, Sec. 103(c)(4), substituted
"earned income (as defined in section 401(c)(2)) reduced by any
amount allowable as a deduction to the individual in computing
adjusted gross income under paragraph (7) of section 62" for
"earned income as defined in section 401(c)(2)" and inserted
provision that "compensation" does not include any amount received
as a pension or annuity and does not include any amount received as
deferred compensation.
Subsec. (f)(3)(B). Pub. L. 97-448, Sec. 103(c)(5), substituted
"if the contribution is made on account of the taxable year which
includes such last day and by April 15 of the calendar year" for
"if the contribution is made by April 15 of the calendar year".
1982 - Subsec. (d)(4). Pub. L. 97-248 added par. (4).
1981 - Subsec. (a). Pub. L. 97-34, Sec. 311(a), amended subsec.
(a) generally, substituting in heading "Allowance of deduction" for
"Deduction allowed" and in text "shall be allowed" for "is
allowed", allowed as a deduction an amount equal to the qualified
retirement contributions of the individual for the taxable year,
eliminated part of first sentence for allowance as a deduction
amounts paid in cash for the taxable year by or on behalf of the
individual for his benefit - (1) to an individual retirement
annuity described in section 408(a), (2) for an individual
retirement annuity described in section 408(b), or (3) for a
retirement bond described in section 409 (but only if the bond is
not redeemed within 12 months of the date of its issuance), covered
in subsec. (e)(1) and (5) of this section, and eliminated second
sentence respecting employer payments, covered in subsec. (f)(5) of
this section.
Subsec. (b). Pub. L. 97-34, Sec. 311(a), in heading substituted
"Maximum amount of deduction" for "Limitations and restrictions".
Subsec. (b)(1). Pub. L. 97-34, Sec. 311(a), amended par. (1)
generally, substituting "In general" for "Maximum deduction" in
heading and in text provision for allowance of a deduction not to
exceed the lesser of (A) $2,000, or (B) an amount equal to the
compensation includible in the individual's gross income for such
taxable year, for provision for an amount not to exceed amount
equal to 15 percent of the compensation includible in gross income
for the taxable year, or $1,500, whichever is less.
Subsec. (b)(2)(A)(ii), (C). Pub. L. 97-34, Sec. 312(c)(1),
substituted "$15,000" for "$7,500".
Pub. L. 97-34, Sec. 311(a), redesignated par. (7) as (2),
substituted in heading "rules for employer contributions under" for
"rules in case of", substituted in subpar. (A) introductory text
"an employee shall be allowed as a deduction under subsection (a)
(in addition to the amount allowable under paragraph (1) an amount
equal to the lesser of" for "the limitation under paragraph (1)
shall be the lesser of", inserted in subpar. (A)(i) "from such
employer" before "includible" and substituted therein "without
regard" for "with regard", substituted in subpar. (A)(ii) "the
amount contributed by such employer to the simplified employee
pension and included in gross income (but not in excess of $7,500"
for "the sum of - (I) the amount contributed by the employer to the
simplified employee pension and included in gross income (but not
in excess of $7,500), and (II) $1,500, reduced (but not below zero)
by the amount described in subclause (I)", and substituted in
subpar. (B) "Paragraph (1) of this subsection and paragraph (1) of
subsection (d)" for "Paragraphs (2) and (3)". Former subsec. (b)(2)
provisions which disallowed any deduction under subsec. (a) for an
individual for the taxable year if for any part of such year (A) he
was an active participant in (i) a plan described in section
401(a), (ii) an annuity plan described in section 403(a), (iii) a
qualified bond purchase plan described in section 405(a), or (iv) a
plan established for its employees by the United States, by a State
or political subdivision thereof, or by an agency or
instrumentality of any of the foregoing, or (B) amounts were
contributed by his employer for an annuity contract described in
section 403(b), are now covered by subsec. (e)(3) and (4) of this
section.
Subsec. (b)(3) to (5). Pub. L. 97-34, Sec. 311(a), added pars.
(3) and (4). Former pars. (3) to (5) redesignated subsec. (d)(1) to
(3).
Subsec. (b)(6). Pub. L. 97-34, Sec. 311(a), struck out par. (6)
which set forth alternative deduction provisions which disallowed a
deduction for the taxable year if the individual claimed the
deduction allowed by section 220 for the taxable year.
Subsec. (b)(7). Pub. L. 97-34, Sec. 311(a), redesignated par. (7)
as (2).
Subsec. (c). Pub. L. 97-34, Sec. 311(a), added subsec. (c).
Former subsec. (c)(1) to (3) and (5) redesignated subsec. (f)(1),
(2), (3)(A), and (6). Former subsec. (c)(4), which provided for
participation in governmental plans by certain individuals, with
subpars. (A) and (B) covering members of reserve components and
volunteer firefighters, was struck out.
Subsec. (d). Pub. L. 97-34, Sec. 311(a), in heading redesignated
former subsec. (b) heading as subsec. (d) heading and inserted
"Other" before "limitations".
Subsec. (d)(1). Pub. L. 97-34, Sec. 311(a), redesignated former
subsec. (b)(3) as par. (1), substituted as heading "Individuals who
have attained age 70 1/2 " for "Contributions after age 70 1/2 "
and in text "shall be allowed under this section" for "is allowed
under subsection (a)", "qualified retirement contribution" for
"payment described in subsection (a)", and "made for a taxable year
of an individual if such individual has attained" for "made during
the taxable year of an individual who has attained".
Subsec. (d)(2). Pub. L. 97-34, Sec. 313(b)(2), inserted reference
to section 405(d)(3).
Pub. L. 97-34, Sec. 311(a), redesignated former subsec. (b)(4) as
par. (2) and substituted "shall be allowed" for "is allowed".
Subsec. (d)(3). Pub. L. 97-34, Sec. 311(a), redesignated former
subsec. (b)(5) as par. (3) and, as so redesignated, substituted
"shall be allowed under this section" for "is allowed under
subsection (a)" and "year which is properly allocable" for "year
properly allocable".
Subsec. (e). Pub. L. 97-34, Sec. 311(a), added subsec. (e)
incorporating former provisions of subsecs. (a) and (b)(2) as pars.
(1), and (3) and (4) and, among other changes, inserted provisions
relating to a qualified employee pension.
Subsec. (f)(1). Pub. L. 97-34, Sec. 311(a), redesignated former
subsec. (c)(1) as par. (1).
Subsec. (f)(2). Pub. L. 97-34, Sec. 311(a), redesignated former
subsec. (c)(2) as par. (2) and, as so redesignated, substituted
"deduction under subsections (b) and (c)" for "deduction under
subsection (b)(1)", and struck out provision that for purposes of
this section, the determination of whether an individual is married
shall be made in accordance with the provisions of section 143(a).
Subsec. (f)(3). Pub. L. 97-34, Sec. 311(a), redesignated former
subsec. (c)(3) as subpar. (A) and, as so redesignated, added
subpar. (A) heading "Individual retirement plans", and "to an
individual retirement plan" before "on the last day" in text, and
added subpar. (B).
Subsec. (f)(4). Pub. L. 97-34, Sec. 311(a), added par. (4).
Subsec. (f)(5). Pub. L. 97-34, Sec. 311(a), redesignated former
provisions of subsec. (a) as par. (5), added par. (5) heading
"Employer payments", substituted "to an individual retirement plan
shall be treated as payment of compensation to the employee" for
"to such a retirement account, or for such a retirement annuity or
retirement bond constitutes payment of compensation to the
employee", and "in the taxable year for which the amount was
contributed" after "gross income", and struck out "after the
application of subsection (b)" after "under this section to the
employee".
Subsec. (f)(6). Pub. L. 97-34, Sec. 311(a), redesignated former
subsec. (c)(5) as par. (6), inserted "for contributions to an
individual retirement plan" after "under this section" in subpar.
(A), and struck out in subpar. (C) "or section 220" after "under
this section".
Subsec. (g). Pub. L. 97-34, Sec. 311(a), added subsec. (g).
1980 - Subsec. (b)(4). Pub. L. 96-222, Sec. 101(a)(14)(B),
inserted "402(a)(7)," after "section 402(a)(5)".
Subsec. (b)(7). Pub. L. 96-222, Sec. 101(a)(10)(D), amended par.
(7) generally, including provision requiring that paragraph (3) not
apply with respect to employer contribution to a simplified
employee pension.
1978 - Subsec. (b)(4). Pub. L. 95-600, Sec. 156(c)(3), inserted
"403(b)(8)" after "403(a)(4)".
Subsec. (b)(7). Pub. L. 95-600, Sec. 152(c), added par. (7).
Subsec. (c)(3). Pub. L. 95-600, Sec. 157(a)(1), substituted "not
later than the time prescribed by law for filing the return for
such taxable year (including extensions thereof)" for "not later
than 45 days after the end of such taxable year".
Subsec. (c)(4). Pub. L. 95-600, Sec. 703(c)(1), substituted
"subsection (b)(2)(A)(iv)" for "subsection (b)(3)(A)(iv)" wherever
appearing.
Subsec. (c)(5). Pub. L. 95-600, Sec. 157(b)(1), added par. (5).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1501(b)(4)(B),
substituted "for" for "during" after "paid in cash".
Subsec. (b)(2)(A)(iv). Pub. L. 94-455, Sec. 1901(a)(32),
substituted "subdivision" for "division" after "State or
political".
Subsec. (b)(5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (b)(6). Pub. L. 94-455, Sec. 1501(b)(4)(B), added par.
(6).
Subsec. (c)(2). Pub. L. 94-455, Sec. 1501(b)(4)(C), inserted "For
purposes of this section, the determination of whether an
individual is married shall be made in accordance with the
provisions of section 143(a)" after "community property laws".
Subsec. (c)(3). Pub. L. 94-455, Sec. 1501(b)(4)(D), added par.
(3).
Subsec. (c)(4). Pub. L. 94-455, Sec. 1503(a), added par. (4).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years
beginning after Dec. 31, 2004, see section 102(e) of Pub. L. 108-
357, set out as a note under section 56 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 431(c)(1) of Pub. L. 107-16 applicable to
payments made in taxable years beginning after Dec. 31, 2001, see
section 431(d) of Pub. L. 107-16, set out as a note under section
62 of this title.
Pub. L. 107-16, title VI, Sec. 601(c), June 7, 2001, 115 Stat.
95, provided that: "The amendments made by this section [amending
this section and section 408 of this title] shall apply to taxable
years beginning after December 31, 2001."
Amendment by section 641(e)(2) of Pub. L. 107-16 applicable to
distributions after Dec. 31, 2001, see section 641(f)(1) of Pub. L.
107-16, set out as a note under section 402 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 effective as if included in the
provisions of the Small Business Job Protection Act of 1996, Pub.
L. 104-188, to which such amendment relates, see section Sec.
1(a)(7) [title III, Sec. 316(e)] of Pub. L. 106-554, set out as a
note under section 51 of this title.
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L. 105-
277, set out as a note under section 86 of this title.
Amendment by section 6018(f)(2) of Pub. L. 105-206 effective as
if included in the provisions of the Small Business Job Protection
Act of 1996, Pub. L. 104-188, to which such amendment relates, see
section 6018(h) of Pub. L. 105-206, set out as a note under section
23 of this title.
Amendment by section 6005(a) of Pub. L. 105-206 effective, except
as otherwise provided, as if included in the provisions of the
Taxpayer Relief Act of 1997, Pub. L. 105-34, to which such
amendment relates, see section 6024 of Pub. L. 105-206, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 301(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997."
Section 302(f) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting section 408A of this title and
amending this section and sections 408 and 4973 of this title]
shall apply to taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1421(b)(1) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1996, see section 1421(e) of
Pub. L. 104-188, set out as a note under section 72 of this title.
Section 1427(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and section 408 of this
title] shall apply to taxable years beginning after December 31,
1996."
Amendment by section 1807(c)(3) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1996, see section 1807(e) of
Pub. L. 104-188, set out as an Effective Date note under section 23
of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-337 effective Dec. 1, 1994, except as
otherwise provided, see section 1691 of Pub. L. 103-337, set out as
an Effective Date note under section 10001 of Title 10, Armed
Forces.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7816(c)(1) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, to which such amendment relates, see section 7817 of Pub. L.
101-239, set out as a note under section 1 of this title.
Section 7841(c)(2) of Pub. L. 101-239 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to contributions after the date of the enactment of this Act [Dec.
19, 1989] in taxable years ending after such date."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1011(a)(2) of Pub. L. 100-647 provided that:
"(A) Except as provided in subparagraph (B), the amendment made
by paragraph (1) [amending this section] shall apply to taxable
years beginning after December 31, 1987.
"(B) A taxpayer may elect to have the amendment made by paragraph
(1) apply to any taxable year beginning in 1987."
Amendment by section 6009(c)(2) of Pub. L. 100-647 applicable to
taxable years beginning after Dec. 31, 1989, see section 6009(d) of
Pub. L. 100-647, set out as a note under section 86 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 301(b)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 301(c) of
Pub. L. 99-514, set out as a note under section 62 of this title.
Amendment by section 1101(a), (b)(1), (2)(A) of Pub. L. 99-514
applicable to contributions for taxable years beginning after Dec.
31, 1986, see section 1101(c) of Pub. L. 99-514, set out as a note
under section 72 of this title.
Section 1102(g) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 408, 3405,
4973, and 6693 of this title] shall apply to contributions and
distributions for taxable years beginning after December 31, 1986."
Section 1103(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning before, on, or after December 31, 1985."
Section 1108(h) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011(f)(7), Nov. 10, 1988, 102 Stat. 3463, provided
that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
402, 404, 408, 415, 3121, and 3306 of this title] shall apply to
years beginning after December 31, 1986.
"(2) Integration rules. - Subparagraphs (D) and (E) of section
408(k)(3) of the Internal Revenue Code of 1954 (as in effect before
the amendments made by this section) shall continue to apply for
years beginning after December 31, 1986, and before January 1,
1989, except that employer contributions under an arrangement under
section 408(k)(6) of the Internal Revenue Code of 1986 (as added by
this section) may not be integrated under such subparagraphs."
Section 1109(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and section 501 of this
title] shall apply to taxable years beginning after December 31,
1986."
Amendment by section 1501(d)(1)(B) of Pub. L. 99-514, applicable
to returns the due date for which (determined without regard to
extensions) is after Dec. 31, 1986, see section 1501(e) of Pub. L.
99-514, set out as an Effective Date note under section 6721 of
this title.
Amendment by section 1875(c)(4), (6)(B) of Pub. L. 99-514
effective as if included in the amendments made by section 238 of
Pub. L. 97-248, which amended sections 401, 404, 408, 415, and 1379
of this title, see section 1875(c)(12) of Pub. L. 99-514, set out
as a note under section 62 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 147(d) of Pub. L. 98-369 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
408 of this title] shall apply to contributions made after December
31, 1984.
"(2) Subsection (b). - The amendment made by subsection (b)
[amending section 6693 of this title] shall apply to failures
occurring after the date of the enactment of this Act [July 18,
1984]."
Amendment by section 422(d)(1) of Pub. L. 98-369 applicable with
respect to divorce or separation instruments executed after Dec.
31, 1984, or executed before Jan. 1, 1985, but modified on or after
Jan. 1, 1985, with express provision for application of amendment
to modification, see section 422(e)(1), (2) of Pub. L. 98-369, set
out as a note under section 71 of this title.
Amendment by section 491(d)(6)-(8) of Pub. L. 98-369 applicable
to obligations issued after Dec. 31, 1983, see section 491(f)(1) of
Pub. L. 98-369, set out as a note under section 62 of this title.
Section 529(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1984."
Amendment by section 713(d)(2) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to with respect to
individuals dying after Dec. 31, 1983, see section 243(c) of Pub.
L. 97-248, as amended, set out as a note under section 408 of this
title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 311(i) of Pub. L. 97-34, as amended by Pub. L. 97-448,
title I, Sec. 103(c)(11), Jan. 12, 1983, 96 Stat. 2377; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and sections
62, 72, 402, 403, 408, 409, 415, 2039, 2503, 2517, 3401, 4973,
6047, and 6652 of this title and repealing section 220 of this
title] shall apply to taxable years beginning after December 31,
1981.
"(2) Transitional rule. - For purposes of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954], any amount allowed as a
deduction under section 220 of such Code (as in effect before its
repeal by this Act) shall be treated as if it were allowed by
section 219 of such Code.
"(3) Certain bond rollover provisions. - The amendment made by
subsection (g)(3) [amending section 409 of this title] shall apply
to taxable years beginning after December 31, 1974.
"(4) Section 415 amendments. - The amendments made by subsections
(g)(4) and (h)(3) [amending section 415 of this title] shall apply
to years after December 31, 1981.
"(5) Estate and gift tax provisions. -
"(A) Estate tax. - The amendments made by subsections (d)(1)
and (h)(4) [amending section 2039 of this title] shall apply to
the estates of decedents dying after December 31, 1981.
"(B) Gift tax. - The amendments made by subsections (d)(2) and
(h)(5) [amending sections 2503 and 2517 of this title] shall
apply to transfers after December 31, 1981."
Amendment by section 312(c)(1) of Pub. L. 97-34 applicable to
plans which include employees within the meaning of section
401(c)(1) of this title with respect to taxable years beginning
after Dec. 31, 1981, see section 312(f)(1) of Pub. L. 97-34, set
out as a note under section 72 of this title.
Section 313(c) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section and sections 405, 408,
2039, and 4973 of this title] shall apply to redemptions after the
date of the enactment of this Act [Aug. 13, 1981] in taxable years
ending after such date."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600 to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 152(c) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 152(h) of
Pub. L. 95-600, set out as a note under section 408 of this title.
Amendment by section 156(c)(3) of Pub. L. 95-600 applicable to
distributions or transfers made after Dec. 31, 1977, in taxable
years beginning after such date, see section 156(d) of Pub. L. 95-
600 set out as a note under section 403 of this title.
Section 157(a)(3) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section and
section 220 of this title] shall apply to taxable years beginning
after December 31, 1977."
Section 157(b)(4)(A) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section and
sections 220 and 4973 of this title] shall apply to the
determination of deductions for taxable years beginning after
December 31, 1975."
Section 703(c)(5) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section and
sections 220 and 408 of this title] shall apply to taxable years
beginning after December 31, 1976."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1501(b)(4) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1976, see section 1501(d) of
Pub. L. 94-455, set out as an Effective Date note under section 62
of this title.
Section 1503(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1975."
Amendment by section 1901(a)(32) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as an Effective Date of
1976 Amendment note under section 2 of this title.
EFFECTIVE DATE
Section 2002(i)(1) of Pub. L. 93-406 provided that: "The
amendments made by subsections (a), (b), and (c) [of section 2002
of Pub. L. 93-406, enacting this section and sections 408 and 409
of this title and amending section 62 of this title] apply to
taxable years beginning after December 31, 1974."
CLARIFICATION OF TREATMENT OF FEDERAL JUDGES
Pub. L. 100-203, title X, Sec. 10103, Dec. 22, 1987, 101 Stat.
1330-386, as amended by Pub. L. 100-647, title II, Sec. 2004(c),
Nov. 10, 1988, 102 Stat. 3599, provided that:
"(a) General Rule. - A Federal judge -
"(1) shall be treated as an active participant in a plan
established for its employees by the United States for purposes
of section 219(g) of the Internal Revenue Code of 1986, and
"(2) shall be treated as an employee for purposes of chapter 1
of such Code.
"(b) Effective Date. - The provisions of subsection (a) shall
apply to taxable years beginning after December 31, 1987."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TRANSITIONAL RULES FOR ALLOWABLE DEDUCTIONS FOR FIRST TAXABLE YEAR
BEGINNING IN 1978
Section 157(b)(4)(B) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If,
but for this subparagraph, an amount would be allowable as a
deduction by reason of section 219(c)(5) or 220(c)(6) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] for a taxable
year beginning before January 1, 1978, such amount shall be
allowable only for the taxpayer's first taxable year beginning in
1978."
-End-
-CITE-
26 USC Sec. 220 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 220. Archer MSAs
-STATUTE-
(a) Deduction allowed
In the case of an individual who is an eligible individual for
any month during the taxable year, there shall be allowed as a
deduction for the taxable year an amount equal to the aggregate
amount paid in cash during such taxable year by such individual to
an Archer MSA of such individual.
(b) Limitations
(1) In general
The amount allowable as a deduction under subsection (a) to an
individual for the taxable year shall not exceed the sum of the
monthly limitations for months during such taxable year that the
individual is an eligible individual.
(2) Monthly limitation
The monthly limitation for any month is the amount equal to
1/12 of -
(A) in the case of an individual who has self-only coverage
under the high deductible health plan as of the first day of
such month, 65 percent of the annual deductible under such
coverage, and
(B) in the case of an individual who has family coverage
under the high deductible health plan as of the first day of
such month, 75 percent of the annual deductible under such
coverage.
(3) Special rule for married individuals
In the case of individuals who are married to each other, if
either spouse has family coverage -
(A) both spouses shall be treated as having only such family
coverage (and if such spouses each have family coverage under
different plans, as having the family coverage with the lowest
annual deductible), and
(B) the limitation under paragraph (1) (after the application
of subparagraph (A) of this paragraph) shall be divided equally
between them unless they agree on a different division.
(4) Deduction not to exceed compensation
(A) Employees
The deduction allowed under subsection (a) for contributions
as an eligible individual described in subclause (I) of
subsection (c)(1)(A)(iii) shall not exceed such individual's
wages, salaries, tips, and other employee compensation which
are attributable to such individual's employment by the
employer referred to in such subclause.
(B) Self-employed individuals
The deduction allowed under subsection (a) for contributions
as an eligible individual described in subclause (II) of
subsection (c)(1)(A)(iii) shall not exceed such individual's
earned income (as defined in section 401(c)(1)) derived by the
taxpayer from the trade or business with respect to which the
high deductible health plan is established.
(C) Community property laws not to apply
The limitations under this paragraph shall be determined
without regard to community property laws.
(5) Coordination with exclusion for employer contributions
No deduction shall be allowed under this section for any amount
paid for any taxable year to an Archer MSA of an individual if -
(A) any amount is contributed to any Archer MSA of such
individual for such year which is excludable from gross income
under section 106(b), or
(B) if such individual's spouse is covered under the high
deductible health plan covering such individual, any amount is
contributed for such year to any Archer MSA of such spouse
which is so excludable.
(6) Denial of deduction to dependents
No deduction shall be allowed under this section to any
individual with respect to whom a deduction under section 151 is
allowable to another taxpayer for a taxable year beginning in the
calendar year in which such individual's taxable year begins.
(7) Medicare eligible individuals
The limitation under this subsection for any month with respect
to an individual shall be zero for the first month such
individual is entitled to benefits under title XVIII of the
Social Security Act and for each month thereafter.
(c) Definitions
For purposes of this section -
(1) Eligible individual
(A) In general
The term "eligible individual" means, with respect to any
month, any individual if -
(i) such individual is covered under a high deductible
health plan as of the 1st day of such month,
(ii) such individual is not, while covered under a high
deductible health plan, covered under any health plan -
(I) which is not a high deductible health plan, and
(II) which provides coverage for any benefit which is
covered under the high deductible health plan, and
(iii)(I) the high deductible health plan covering such
individual is established and maintained by the employer of
such individual or of the spouse of such individual and such
employer is a small employer, or
(II) such individual is an employee (within the meaning of
section 401(c)(1)) or the spouse of such an employee and the
high deductible health plan covering such individual is not
established or maintained by any employer of such individual
or spouse.
(B) Certain coverage disregarded
Subparagraph (A)(ii) shall be applied without regard to -
(i) coverage for any benefit provided by permitted
insurance, and
(ii) coverage (whether through insurance or otherwise) for
accidents, disability, dental care, vision care, or long-term
care.
(C) Continued eligibility of employee and spouse establishing
Archer MSAs
If, while an employer is a small employer -
(i) any amount is contributed to an Archer MSA of an
individual who is an employee of such employer or the spouse
of such an employee, and
(ii) such amount is excludable from gross income under
section 106(b) or allowable as a deduction under this
section,
such individual shall not cease to meet the requirement of
subparagraph (A)(iii)(I) by reason of such employer ceasing to
be a small employer so long as such employee continues to be an
employee of such employer.
(D) Limitations on eligibility
For limitations on number of taxpayers who are eligible to
have Archer MSAs, see subsection (i).
(2) High deductible health plan
(A) In general
The term "high deductible health plan" means a health plan -
(i) in the case of self-only coverage, which has an annual
deductible which is not less than $1,500 and not more than
$2,250,
(ii) in the case of family coverage, which has an annual
deductible which is not less than $3,000 and not more than
$4,500, and
(iii) the annual out-of-pocket expenses required to be paid
under the plan (other than for premiums) for covered benefits
does not exceed -
(I) $3,000 for self-only coverage, and
(II) $5,500 for family coverage.
(B) Special rules
(i) Exclusion of certain plans
Such term does not include a health plan if substantially
all of its coverage is coverage described in paragraph
(1)(B).
(ii) Safe harbor for absence of preventive care deductible
A plan shall not fail to be treated as a high deductible
health plan by reason of failing to have a deductible for
preventive care if the absence of a deductible for such care
is required by State law.
(3) Permitted insurance
The term "permitted insurance" means -
(A) insurance if substantially all of the coverage provided
under such insurance relates to -
(i) liabilities incurred under workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to ownership or use of property,
or
(iv) such other similar liabilities as the Secretary may
specify by regulations,
(B) insurance for a specified disease or illness, and
(C) insurance paying a fixed amount per day (or other period)
of hospitalization.
(4) Small employer
(A) In general
The term "small employer" means, with respect to any calendar
year, any employer if such employer employed an average of 50
or fewer employees on business days during either of the 2
preceding calendar years. For purposes of the preceding
sentence, a preceding calendar year may be taken into account
only if the employer was in existence throughout such year.
(B) Employers not in existence in preceding year
In the case of an employer which was not in existence
throughout the 1st preceding calendar year, the determination
under subparagraph (A) shall be based on the average number of
employees that it is reasonably expected such employer will
employ on business days in the current calendar year.
(C) Certain growing employers retain treatment as small
employer
The term "small employer" includes, with respect to any
calendar year, any employer if -
(i) such employer met the requirement of subparagraph (A)
(determined without regard to subparagraph (B)) for any
preceding calendar year after 1996,
(ii) any amount was contributed to the Archer MSA of any
employee of such employer with respect to coverage of such
employee under a high deductible health plan of such employer
during such preceding calendar year and such amount was
excludable from gross income under section 106(b) or
allowable as a deduction under this section, and
(iii) such employer employed an average of 200 or fewer
employees on business days during each preceding calendar
year after 1996.
(D) Special rules
(i) Controlled groups
For purposes of this paragraph, all persons treated as a
single employer under subsection (b), (c), (m), or (o) of
section 414 shall be treated as 1 employer.
(ii) Predecessors
Any reference in this paragraph to an employer shall
include a reference to any predecessor of such employer.
(5) Family coverage
The term "family coverage" means any coverage other than self-
only coverage.
(d) Archer MSA
For purposes of this section -
(1) Archer MSA
The term "Archer MSA" means a trust created or organized in the
United States as a medical savings account exclusively for the
purpose of paying the qualified medical expenses of the account
holder, but only if the written governing instrument creating the
trust meets the following requirements:
(A) Except in the case of a rollover contribution described
in subsection (f)(5), no contribution will be accepted -
(i) unless it is in cash, or
(ii) to the extent such contribution, when added to
previous contributions to the trust for the calendar year,
exceeds 75 percent of the highest annual limit deductible
permitted under subsection (c)(2)(A)(ii) for such calendar
year.
(B) The trustee is a bank (as defined in section 408(n)), an
insurance company (as defined in section 816), or another
person who demonstrates to the satisfaction of the Secretary
that the manner in which such person will administer the trust
will be consistent with the requirements of this section.
(C) No part of the trust assets will be invested in life
insurance contracts.
(D) The assets of the trust will not be commingled with other
property except in a common trust fund or common investment
fund.
(E) The interest of an individual in the balance in his
account is nonforfeitable.
(2) Qualified medical expenses
(A) In general
The term "qualified medical expenses" means, with respect to
an account holder, amounts paid by such holder for medical care
(as defined in section 213(d)) for such individual, the spouse
of such individual, and any dependent (as defined in section
152, determined without regard to subsections (b)(1), (b)(2),
and (d)(1)(B) thereof) of such individual, but only to the
extent such amounts are not compensated for by insurance or
otherwise.
(B) Health insurance may not be purchased from account
(i) In general
Subparagraph (A) shall not apply to any payment for
insurance.
(ii) Exceptions
Clause (i) shall not apply to any expense for coverage
under -
(I) a health plan during any period of continuation
coverage required under any Federal law,
(II) a qualified long-term care insurance contract (as
defined in section 7702B(b)), or
(III) a health plan during a period in which the
individual is receiving unemployment compensation under any
Federal or State law.
(C) Medical expenses of individuals who are not eligible
individuals
Subparagraph (A) shall apply to an amount paid by an account
holder for medical care of an individual who is not described
in clauses (i) and (ii) of subsection (c)(1)(A) for the month
in which the expense for such care is incurred only if no
amount is contributed (other than a rollover contribution) to
any Archer MSA of such account holder for the taxable year
which includes such month. This subparagraph shall not apply to
any expense for coverage described in subclause (I) or (III) of
subparagraph (B)(ii).
(3) Account holder
The term "account holder" means the individual on whose behalf
the Archer MSA was established.
(4) Certain rules to apply
Rules similar to the following rules shall apply for purposes
of this section:
(A) Section 219(d)(2) (relating to no deduction for
rollovers).
(B) Section 219(f)(3) (relating to time when contributions
deemed made).
(C) Except as provided in section 106(b), section 219(f)(5)
(relating to employer payments).
(D) Section 408(g) (relating to community property laws).
(E) Section 408(h) (relating to custodial accounts).
(e) Tax treatment of accounts
(1) In general
An Archer MSA is exempt from taxation under this subtitle
unless such account has ceased to be an Archer MSA.
Notwithstanding the preceding sentence, any such account is
subject to the taxes imposed by section 511 (relating to
imposition of tax on unrelated business income of charitable,
etc. organizations).
(2) Account terminations
Rules similar to the rules of paragraphs (2) and (4) of section
408(e) shall apply to Archer MSAs, and any amount treated as
distributed under such rules shall be treated as not used to pay
qualified medical expenses.
(f) Tax treatment of distributions
(1) Amounts used for qualified medical expenses
Any amount paid or distributed out of an Archer MSA which is
used exclusively to pay qualified medical expenses of any account
holder shall not be includible in gross income.
(2) Inclusion of amounts not used for qualified medical expenses
Any amount paid or distributed out of an Archer MSA which is
not used exclusively to pay the qualified medical expenses of the
account holder shall be included in the gross income of such
holder.
(3) Excess contributions returned before due date of return
(A) In general
If any excess contribution is contributed for a taxable year
to any Archer MSA of an individual, paragraph (2) shall not
apply to distributions from the Archer MSAs of such individual
(to the extent such distributions do not exceed the aggregate
excess contributions to all such accounts of such individual
for such year) if -
(i) such distribution is received by the individual on or
before the last day prescribed by law (including extensions
of time) for filing such individual's return for such taxable
year, and
(ii) such distribution is accompanied by the amount of net
income attributable to such excess contribution.
Any net income described in clause (ii) shall be included in
the gross income of the individual for the taxable year in
which it is received.
(B) Excess contribution
For purposes of subparagraph (A), the term "excess
contribution" means any contribution (other than a rollover
contribution) which is neither excludable from gross income
under section 106(b) nor deductible under this section.
(4) Additional tax on distributions not used for qualified
medical expenses
(A) In general
The tax imposed by this chapter on the account holder for any
taxable year in which there is a payment or distribution from
an Archer MSA of such holder which is includible in gross
income under paragraph (2) shall be increased by 15 percent of
the amount which is so includible.
(B) Exception for disability or death
Subparagraph (A) shall not apply if the payment or
distribution is made after the account holder becomes disabled
within the meaning of section 72(m)(7) or dies.
(C) Exception for distributions after medicare eligibility
Subparagraph (A) shall not apply to any payment or
distribution after the date on which the account holder attains
the age specified in section 1811 of the Social Security Act.
(5) Rollover contribution
An amount is described in this paragraph as a rollover
contribution if it meets the requirements of subparagraphs (A)
and (B).
(A) In general
Paragraph (2) shall not apply to any amount paid or
distributed from an Archer MSA to the account holder to the
extent the amount received is paid into an Archer MSA or a
health savings account (as defined in section 223(d)) for the
benefit of such holder not later than the 60th day after the
day on which the holder receives the payment or distribution.
(B) Limitation
This paragraph shall not apply to any amount described in
subparagraph (A) received by an individual from an Archer MSA
if, at any time during the 1-year period ending on the day of
such receipt, such individual received any other amount
described in subparagraph (A) from an Archer MSA which was not
includible in the individual's gross income because of the
application of this paragraph.
(6) Coordination with medical expense deduction
For purposes of determining the amount of the deduction under
section 213, any payment or distribution out of an Archer MSA for
qualified medical expenses shall not be treated as an expense
paid for medical care.
(7) Transfer of account incident to divorce
The transfer of an individual's interest in an Archer MSA to an
individual's spouse or former spouse under a divorce or
separation instrument described in subparagraph (A) of section
71(b)(2) shall not be considered a taxable transfer made by such
individual notwithstanding any other provision of this subtitle,
and such interest shall, after such transfer, be treated as an
Archer MSA with respect to which such spouse is the account
holder.
(8) Treatment after death of account holder
(A) Treatment if designated beneficiary is spouse
If the account holder's surviving spouse acquires such
holder's interest in an Archer MSA by reason of being the
designated beneficiary of such account at the death of the
account holder, such Archer MSA shall be treated as if the
spouse were the account holder.
(B) Other cases
(i) In general
If, by reason of the death of the account holder, any
person acquires the account holder's interest in an Archer
MSA in a case to which subparagraph (A) does not apply -
(I) such account shall cease to be an Archer MSA as of
the date of death, and
(II) an amount equal to the fair market value of the
assets in such account on such date shall be includible if
such person is not the estate of such holder, in such
person's gross income for the taxable year which includes
such date, or if such person is the estate of such holder,
in such holder's gross income for the last taxable year of
such holder.
(ii) Special rules
(I) Reduction of inclusion for pre-death expenses
The amount includible in gross income under clause (i) by
any person (other than the estate) shall be reduced by the
amount of qualified medical expenses which were incurred by
the decedent before the date of the decedent's death and
paid by such person within 1 year after such date.
(II) Deduction for estate taxes
An appropriate deduction shall be allowed under section
691(c) to any person (other than the decedent or the
decedent's spouse) with respect to amounts included in
gross income under clause (i) by such person.
(g) Cost-of-living adjustment
In the case of any taxable year beginning in a calendar year
after 1998, each dollar amount in subsection (c)(2) shall be
increased by an amount equal to -
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which such taxable year begins
by substituting "calendar year 1997" for "calendar year 1992" in
subparagraph (B) thereof.
If any increase under the preceding sentence is not a multiple of
$50, such increase shall be rounded to the nearest multiple of $50.
(h) Reports
The Secretary may require the trustee of an Archer MSA to make
such reports regarding such account to the Secretary and to the
account holder with respect to contributions, distributions, and
such other matters as the Secretary determines appropriate. The
reports required by this subsection shall be filed at such time and
in such manner and furnished to such individuals at such time and
in such manner as may be required by the Secretary.
(i) Limitation on number of taxpayers having Archer MSAs
(1) In general
Except as provided in paragraph (5), no individual shall be
treated as an eligible individual for any taxable year beginning
after the cut-off year unless -
(A) such individual was an active MSA participant for any
taxable year ending on or before the close of the cut-off year,
or
(B) such individual first became an active MSA participant
for a taxable year ending after the cut-off year by reason of
coverage under a high deductible health plan of an MSA-
participating employer.
(2) Cut-off year
For purposes of paragraph (1), the term "cut-off year" means
the earlier of -
(A) calendar year 2005, or
(B) the first calendar year before 2005 for which the
Secretary determines under subsection (j) that the numerical
limitation for such year has been exceeded.
(3) Active MSA participant
For purposes of this subsection -
(A) In general
The term "active MSA participant" means, with respect to any
taxable year, any individual who is the account holder of any
Archer MSA into which any contribution was made which was
excludable from gross income under section 106(b), or allowable
as a deduction under this section, for such taxable year.
(B) Special rule for cut-off years before 2005
In the case of a cut-off year before 2005 -
(i) an individual shall not be treated as an eligible
individual for any month of such year or an active MSA
participant under paragraph (1)(A) unless such individual is,
on or before the cut-off date, covered under a high
deductible health plan, and
(ii) an employer shall not be treated as an MSA-
participating employer unless the employer, on or before the
cut-off date, offered coverage under a high deductible health
plan to any employee.
(C) Cut-off date
For purposes of subparagraph (B) -
(i) In general
Except as otherwise provided in this subparagraph, the cut-
off date is October 1 of the cut-off year.
(ii) Employees with enrollment periods after October 1
In the case of an individual described in subclause (I) of
subsection (c)(1)(A)(iii), if the regularly scheduled
enrollment period for health plans of the individual's
employer occurs during the last 3 months of the cut-off year,
the cut-off date is December 31 of the cut-off year.
(iii) Self-employed individuals
In the case of an individual described in subclause (II) of
subsection (c)(1)(A)(iii), the cut-off date is November 1 of
the cut-off year.
(iv) Special rules for 1997
If 1997 is a cut-off year by reason of subsection (j)(1)(A)
-
(I) each of the cut-off dates under clauses (i) and (iii)
shall be 1 month earlier than the date determined without
regard to this clause, and
(II) clause (ii) shall be applied by substituting "4
months" for "3 months".
(4) MSA-participating employer
For purposes of this subsection, the term "MSA-participating
employer" means any small employer if -
(A) such employer made any contribution to the Archer MSA of
any employee during the cut-off year or any preceding calendar
year which was excludable from gross income under section
106(b), or
(B) at least 20 percent of the employees of such employer who
are eligible individuals for any month of the cut-off year by
reason of coverage under a high deductible health plan of such
employer each made a contribution of at least $100 to their
Archer MSAs for any taxable year ending with or within the cut-
off year which was allowable as a deduction under this
section.
(5) Additional eligibility after cut-off year
If the Secretary determines under subsection (j)(2)(A) that the
numerical limit for the calendar year following a cut-off year
described in paragraph (2)(B) has not been exceeded -
(A) this subsection shall not apply to any otherwise eligible
individual who is covered under a high deductible health plan
during the first 6 months of the second calendar year following
the cut-off year (and such individual shall be treated as an
active MSA participant for purposes of this subsection if a
contribution is made to any Archer MSA with respect to such
coverage), and
(B) any employer who offers coverage under a high deductible
health plan to any employee during such 6-month period shall be
treated as an MSA-participating employer for purposes of this
subsection if the requirements of paragraph (4) are met with
respect to such coverage.
For purposes of this paragraph, subsection (j)(2)(A) shall be
applied for 1998 by substituting "750,000" for "600,000".
(j) Determination of whether numerical limits are exceeded
(1) Determination of whether limit exceeded for 1997
The numerical limitation for 1997 is exceeded if, based on the
reports required under paragraph (4), the number of Archer MSAs
established as of -
(A) April 30, 1997, exceeds 375,000, or
(B) June 30, 1997, exceeds 525,000.
(2) Determination of whether limit exceeded for 1998, 1999, 2001,
2002, or 2004
(A) In general
The numerical limitation for 1998, 1999, 2001, 2002, or 2004
is exceeded if the sum of -
(i) the number of MSA returns filed on or before April 15
of such calendar year for taxable years ending with or within
the preceding calendar year, plus
(ii) the Secretary's estimate (determined on the basis of
the returns described in clause (i)) of the number of MSA
returns for such taxable years which will be filed after such
date,
exceeds 750,000 (600,000 in the case of 1998). For purposes of
the preceding sentence, the term "MSA return" means any return
on which any exclusion is claimed under section 106(b) or any
deduction is claimed under this section.
(B) Alternative computation of limitation
The numerical limitation for 1998, 1999, 2001, 2002, or 2004
is also exceeded if the sum of -
(i) 90 percent of the sum determined under subparagraph (A)
for such calendar year, plus
(ii) the product of 2.5 and the number of Archer MSAs
established during the portion of such year preceding July 1
(based on the reports required under paragraph (4)) for
taxable years beginning in such year,
exceeds 750,000.
(C) No limitation for 2000 or 2003
The numerical limitation shall not apply for 2000 or 2003.
(3) Previously uninsured individuals not included in
determination
(A) In general
The determination of whether any calendar year is a cut-off
year shall be made by not counting the Archer MSA of any
previously uninsured individual.
(B) Previously uninsured individual
For purposes of this subsection, the term "previously
uninsured individual" means, with respect to any Archer MSA,
any individual who had no health plan coverage (other than
coverage referred to in subsection (c)(1)(B)) at any time
during the 6-month period before the date such individual's
coverage under the high deductible health plan commences.
(4) Reporting by MSA trustees
(A) In general
Not later than August 1 of 1997, 1998, 1999, 2001, 2002, and
2004, each person who is the trustee of an Archer MSA
established before July 1 of such calendar year shall make a
report to the Secretary (in such form and manner as the
Secretary shall specify) which specifies -
(i) the number of Archer MSAs established before such July
1 (for taxable years beginning in such calendar year) of
which such person is the trustee,
(ii) the name and TIN of the account holder of each such
account, and
(iii) the number of such accounts which are accounts of
previously uninsured individuals.
(B) Additional report for 1997
Not later than June 1, 1997, each person who is the trustee
of an Archer MSA established before May 1, 1997, shall make an
additional report described in subparagraph (A) but only with
respect to accounts established before May 1, 1997.
(C) Penalty for failure to file report
The penalty provided in section 6693(a) shall apply to any
report required by this paragraph, except that -
(i) such section shall be applied by substituting "$25" for
"$50", and
(ii) the maximum penalty imposed on any trustee shall not
exceed $5,000.
(D) Aggregation of accounts
To the extent practicable, in determining the number of
Archer MSAs on the basis of the reports under this paragraph,
all Archer MSAs of an individual shall be treated as 1 account
and all accounts of individuals who are married to each other
shall be treated as 1 account.
(5) Date of making determinations
Any determination under this subsection that a calendar year is
a cut-off year shall be made by the Secretary and shall be
published not later than October 1 of such year.
-SOURCE-
(Added Pub. L. 104-191, title III, Sec. 301(a), Aug. 21, 1996, 110
Stat. 2037; amended Pub. L. 105-33, title IV, Sec. 4006(b)(2), Aug.
5, 1997, 111 Stat. 333; Pub. L. 105-34, title XVI, Sec. 1602(a)(2),
(3), Aug. 5, 1997, 111 Stat. 1093, 1094; Pub. L. 106-554, Sec.
1(a)(7) [title II, Secs. 201(a), (b), 202(a)(4), (b)(2)(B), (3)-
(8), (10), (11)], Dec. 21, 2000, 114 Stat. 2763, 2763A-628, 2763A-
629; Pub. L. 107-147, title VI, Sec. 612(a), (b), Mar. 9, 2002,
116 Stat. 61; Pub. L. 108-173, title XII, Sec. 1201(c), Dec. 8,
2003, 117 Stat. 2476; Pub. L. 108-311, title II, Sec. 207(19),
title III, Sec. 322(a), (b), Oct. 4, 2004, 118 Stat. 1178, 1183.)
-STATAMEND-
ADJUSTMENT OF ANNUAL DEDUCTIBLE AMOUNTS FOR TAXABLE YEARS BEGINNING
IN 2006
For adjustment of annual deductible amounts in determining "high
deductible health plan" under subsection (c)(2)(A) of this section
for taxable years beginning in 2006, see section 3.20 of Revenue
Procedure 2005-70, set out as a note under section 1 of this title.
-REFTEXT-
REFERENCES IN TEXT
The Social Security Act, referred to in subsecs. (b)(7) and
(f)(4)(C), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended.
Title XVIII of the Act is classified generally to subchapter XVIII
(Sec. 1395 et seq.) of chapter 7 of Title 42, The Public Health and
Welfare. Section 1811 of the Act is classified to section 1395c of
Title 42. For complete classification of this Act to the Code, see
section 1305 of Title 42 and Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 220 was renumbered 224 of this title.
Another prior section 220, added Pub. L. 100-647, title VI, Sec.
6007(a), Nov. 10, 1988, 102 Stat. 3687, related to jury duty pay
remitted to employer, prior to repeal by Pub. L. 101-508, title XI,
Sec. 11802(e)(2), Nov. 5, 1990, 104 Stat. 1388-530.
Another prior section 220, added Pub. L. 94-455, title XV, Sec.
1501(a), Oct. 4, 1976, 90 Stat. 1734; amended Pub. L. 95-600, title
I, Secs. 156(c)(3), 157(a)(2), (b)(2), title VII, Sec. 703(c)(2),
(3), Nov. 6, 1978, 92 Stat. 2803, 2804, 2939; Pub. L. 96-222, title
I, Sec. 101(a)(14)(B), Apr. 1, 1980, 94 Stat. 204, related to
retirement savings for certain married individuals, prior to repeal
by Pub. L. 97-34, title III, Sec. 311(e), Aug. 13, 1981, 95 Stat.
280, applicable to taxable years beginning after Dec. 31, 1981, and
deductions allowed under section 220 of this title, as in effect
prior to its repeal, treated as deductions under section 219 of
this title.
AMENDMENTS
2004 - Subsec. (d)(2)(A). Pub. L. 108-311, Sec. 207(19), inserted
", determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof" after "section 152".
Subsec. (i)(2), (3)(B). Pub. L. 108-311, Sec. 322(a), substituted
"2005" for "2003" wherever appearing in headings and text.
Subsec. (j)(2). Pub. L. 108-311, Sec. 322(b)(1)(B), substituted
"2002, or 2004" for "or 2002" in heading.
Subsec. (j)(2)(A), (B). Pub. L. 108-311, Sec. 322(b)(1)(A),
substituted "2002, or 2004" for "or 2002" in introductory
provisions.
Subsec. (j)(2)(C). Pub. L. 108-311, Sec. 322(b)(3), amended
heading and text of subpar. (C) generally. Prior to amendment text
read as follows: "The numerical limitation shall not apply for
2000."
Subsec. (j)(4)(A). Pub. L. 108-311, Sec. 322(b)(2), substituted
"2002, and 2004" for "and 2002" in introductory provisions.
2003 - Subsec. (f)(5)(A). Pub. L. 108-173 inserted "or a health
savings account (as defined in section 223(d))" after "paid into an
Archer MSA".
2002 - Subsec. (i)(2). Pub. L. 107-147, Sec. 612(a), substituted
"2003" for "2002" in subpars. (A) and (B).
Subsec. (i)(3)(B). Pub. L. 107-147, Sec. 612(a), substituted
"2003" for "2002" in heading and introductory provisions.
Subsec. (j)(2). Pub. L. 107-147, Sec. 612(b)(1), substituted
"1998, 1999, 2001, or 2002" for "1998, 1999, or 2001" wherever
appearing in heading and text.
Subsec. (j)(4)(A). Pub. L. 107-147, Sec. 612(b)(2), substituted
"2001, and 2002" for "and 2001".
2000 - Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(b)(8)],
substituted "Archer MSAs" for "Medical savings accounts" in section
catchline.
Subsecs. (a), (b)(5). Pub. L. 106-554, Sec. 1(a)(7) [title II,
Sec. 202(b)(10)], substituted "an Archer MSA" for "a Archer MSA".
Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(4)],
substituted "Archer MSA" for "medical savings account" wherever
appearing.
Subsec. (c)(1)(C). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(7)], substituted "Archer MSAs" for "medical savings
accounts" in heading.
Subsec. (c)(1)(C)(i). Pub. L. 106-554, Sec. 1(a)(7) [title II,
Sec. 202(b)(10)], substituted "an Archer MSA" for "a Archer MSA".
Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(4)],
substituted "Archer MSA" for "medical savings account".
Subsec. (c)(1)(D). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(2)(B)], substituted "Archer MSAs" for "medical savings
accounts".
Subsec. (c)(4)(C)(ii). Pub. L. 106-554, Sec. 1(a)(7) [title II,
Sec. 202(a)(4)], substituted "Archer MSA" for "medical savings
account".
Subsec. (d). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(4)], substituted "Archer MSA" for "Medical savings account"
in heading.
Subsec. (d)(1). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(5)], substituted "Archer MSA" for "Medical savings account"
in heading.
Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(4), (b)(3)],
in introductory provisions, substituted "Archer MSA" for "medical
savings account" and inserted "as a medical savings account" after
"United States".
Subsec. (d)(2)(C), (3). Pub. L. 106-554, Sec. 1(a)(7) [title II,
Sec. 202(a)(4)], substituted "Archer MSA" for "medical savings
account".
Subsec. (e)(1). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(10), (11)], substituted "An Archer MSA is exempt" for "A
Archer MSA is exempt" and "ceased to be an Archer MSA" for "ceased
to be a Archer MSA".
Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(4)],
substituted "Archer MSA" for "medical savings account" in two
places.
Subsec. (e)(2). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(2)(B)], substituted "Archer MSAs" for "medical savings
accounts".
Subsec. (f). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(10)], substituted "an Archer MSA" for "a Archer MSA"
wherever appearing.
Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(4),
(b)(2)(B)], substituted "Archer MSA" for "medical savings account"
wherever appearing and "Archer MSAs" for "medical savings accounts"
in introductory provisions of par. (3)(A).
Subsec. (h). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(10)], substituted "an Archer MSA" for "a Archer MSA".
Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(4)],
substituted "Archer MSA" for "medical savings account".
Subsec. (i). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(6)], substituted "Archer MSAs" for "medical savings
accounts" in heading.
Subsec. (i)(2)(A), (B). Pub. L. 106-554, Sec. 1(a)(7) [title II,
Sec. 201(a)], substituted "2002" for "2000".
Subsec. (i)(3)(A). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(a)(4)], substituted "Archer MSA" for "medical savings account".
Subsec. (i)(3)(B). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
201(a)], substituted "2002" for "2000" in heading and introductory
provisions.
Subsec. (i)(4)(A). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(a)(4)], substituted "Archer MSA" for "medical savings account".
Subsec. (i)(4)(B). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(2)(B)], substituted "Archer MSAs" for "medical savings
accounts".
Subsec. (i)(5)(A). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(a)(4)], substituted "Archer MSA" for "medical savings account".
Subsec. (j)(1). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(2)(B)], substituted "Archer MSAs" for "medical savings
accounts" in introductory provisions.
Subsec. (j)(2). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
201(b)(1)(A)], substituted "1998, 1999, or 2001" for "1998 or 1999"
in heading and in introductory provisions of subpars. (A) and (B).
Subsec. (j)(2)(A). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
201(b)(1)(B)], substituted "750,000 (600,000 in the case of 1998)"
for "600,000 (750,000 in the case of 1999)" in concluding
provisions.
Subsec. (j)(2)(B)(ii). Pub. L. 106-554, Sec. 1(a)(7) [title II,
Sec. 202(b)(2)(B)], substituted "Archer MSAs" for "medical savings
accounts".
Subsec. (j)(2)(C). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
201(b)(1)(C)], added subpar. (C).
Subsec. (j)(3)(A), (B). Pub. L. 106-554, Sec. 1(a)(7) [title II,
Sec. 202(a)(4)], substituted "Archer MSA" for "medical savings
account".
Subsec. (j)(4)(A). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(10)], substituted "an Archer MSA" for "a Archer MSA" in
introductory provisions.
Pub. L. 106-554, Sec. 1(a)(7) [title II, Secs. 201(b)(2),
202(a)(4)], in introductory provisions, substituted "1999, and
2001" for "and 1999" and "Archer MSA" for "medical savings
account".
Subsec. (j)(4)(A)(i). Pub. L. 106-554, Sec. 1(a)(7) [title II,
Sec. 202(b)(2)(B)], substituted "Archer MSAs" for "medical savings
accounts".
Subsec. (j)(4)(B). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(10)], substituted "an Archer MSA" for "a Archer MSA".
Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(4)],
substituted "Archer MSA" for "medical savings account".
Subsec. (j)(4)(D). Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec.
202(b)(2)(B)], substituted "Archer MSAs" for "medical savings
accounts" in two places.
1997 - Subsec. (b)(7). Pub. L. 105-33 added par. (7).
Subsec. (c)(3). Pub. L. 105-34, Sec. 1602(a)(2), redesignated
subpars. (B) to (D) as (A) to (C), respectively, and struck out
former subpar. (A) which read as follows: "Medicare supplemental
insurance,".
Subsec. (d)(2)(C). Pub. L. 105-34, Sec. 1602(a)(3), substituted
"described in clauses (i) and (ii) of subsection (c)(1)(A)" for "an
eligible individual".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 207(19) of Pub. L. 108-311 applicable to
taxable years beginning after Dec. 31, 2004, see section 208 of
Pub. L. 108-311, set out as a note under section 2 of this title.
Pub. L. 108-311, title III, Sec. 322(c), Oct. 4, 2004, 118 Stat.
1183, provided that: "The amendments made by this section [amending
this section] shall take effect on January 1, 2004."
EFFECTIVE DATE OF 2003 AMENDMENT
Amendment by Pub. L. 108-173 applicable to taxable years
beginning after Dec. 31, 2003, see section 1201(k) of Pub. L. 108-
173, set out as a note under section 62 of this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title VI, Sec. 612(c), Mar. 9, 2002, 116 Stat.
61, provided that: "The amendments made by this section [amending
this section] shall take effect on January 1, 2002."
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 201(c)], Dec. 21,
2000, 114 Stat. 2763, 2763A-628, provided that: "The amendments
made by this section [amending this section] shall take effect on
the date of the enactment of this Act [Dec. 21, 2000]."
EFFECTIVE DATE OF 1997 AMENDMENTS
Amendment by Pub. L. 105-34 effective as if included in the
provisions of the Health Insurance Portability and Accountability
Act of 1996, Pub. L. 104-191, to which such amendment relates, see
section 1602(i) of Pub. L. 105-34, set out as a note under section
26 of this title.
Amendment by Pub. L. 105-33 applicable to taxable years beginning
after Dec. 31, 1998, see section 4006(c) of Pub. L. 105-33, set out
as an Effective Date note under section 138 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1996, see section 301(j) of Pub. L. 104-191, set out as an
Effective Date of 1996 Amendment note under section 62 of this
title.
TIME FOR FILING REPORTS, ETC.
Pub. L. 108-311, title III, Sec. 322(d), Oct. 4, 2004, 118 Stat.
1183, provided that:
"(1) The report required by section 220(j)(4) of the Internal
Revenue Code of 1986 to be made on August 1, 2004, shall be treated
as timely if made before the close of the 90-day period beginning
on the date of the enactment of this Act [Oct. 4, 2004].
"(2) The determination and publication required by section
220(j)(5) of such Code with respect to calendar year 2004 shall be
treated as timely if made before the close of the 120-day period
beginning on the date of the enactment of this Act. If the
determination under the preceding sentence is that 2004 is a cut-
off year under section 220(i) of such Code, the cut-off date under
such section 220(i) shall be the last day of such 120-day period."
MONITORING OF PARTICIPATION IN MEDICAL SAVINGS ACCOUNTS
Section 301(k) of Pub. L. 104-191 provided that: "The Secretary
of the Treasury or his delegate shall -
"(1) during 1997, 1998, 1999, and 2000, regularly evaluate the
number of individuals who are maintaining medical savings
accounts and the reduction in revenues to the United States by
reason of such accounts, and
"(2) provide such reports of such evaluations to Congress as
such Secretary determines appropriate."
STUDY OF EFFECTS OF MEDICAL SAVINGS ACCOUNTS ON SMALL GROUP MARKET
Section 301(l) of Pub. L. 104-191 provided that: "The Comptroller
General of the United States shall enter into a contract with an
organization with expertise in health economics, health insurance
markets, and actuarial science to conduct a comprehensive study
regarding the effects of medical savings accounts in the small
group market on -
"(1) selection, including adverse selection,
"(2) health costs, including any impact on premiums of
individuals with comprehensive coverage,
"(3) use of preventive care,
"(4) consumer choice,
"(5) the scope of coverage of high deductible plans purchased
in conjunction with such accounts, and
"(6) other relevant items.
A report on the results of the study conducted under this
subsection shall be submitted to the Congress no later than January
1, 1999."
-End-
-CITE-
26 USC Sec. 221 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 221. Interest on education loans
-STATUTE-
(a) Allowance of deduction
In the case of an individual, there shall be allowed as a
deduction for the taxable year an amount equal to the interest paid
by the taxpayer during the taxable year on any qualified education
loan.
(b) Maximum deduction
(1) In general
Except as provided in paragraph (2), the deduction allowed by
subsection (a) for the taxable year shall not exceed the amount
determined in accordance with the following table:
In the case of taxable years The dollar
beginning in: amount is:
1998 $1,000
1999 $1,500
2000 $2,000
2001 or thereafter $2,500.
(2) Limitation based on modified adjusted gross income
(A) In general
The amount which would (but for this paragraph) be allowable
as a deduction under this section shall be reduced (but not
below zero) by the amount determined under subparagraph (B).
(B) Amount of reduction
The amount determined under this subparagraph is the amount
which bears the same ratio to the amount which would be so
taken into account as -
(i) the excess of -
(I) the taxpayer's modified adjusted gross income for
such taxable year, over
(II) $50,000 ($100,000 in the case of a joint return),
bears to
(ii) $15,000 ($30,000 in the case of a joint return).
(C) Modified adjusted gross income
The term "modified adjusted gross income" means adjusted
gross income determined -
(i) without regard to this section and sections 199, 222,
911, 931, and 933, and
(ii) after application of sections 86, 135, 137, 219, and
469.
(c) Dependents not eligible for deduction
No deduction shall be allowed by this section to an individual
for the taxable year if a deduction under section 151 with respect
to such individual is allowed to another taxpayer for the taxable
year beginning in the calendar year in which such individual's
taxable year begins.
(d) Definitions
For purposes of this section -
(1) Qualified education loan
The term "qualified education loan" means any indebtedness
incurred by the taxpayer solely to pay qualified higher education
expenses -
(A) which are incurred on behalf of the taxpayer, the
taxpayer's spouse, or any dependent of the taxpayer as of the
time the indebtedness was incurred,
(B) which are paid or incurred within a reasonable period of
time before or after the indebtedness is incurred, and
(C) which are attributable to education furnished during a
period during which the recipient was an eligible student.
Such term includes indebtedness used to refinance indebtedness
which qualifies as a qualified education loan. The term
"qualified education loan" shall not include any indebtedness
owed to a person who is related (within the meaning of section
267(b) or 707(b)(1)) to the taxpayer or to any person by reason
of a loan under any qualified employer plan (as defined in
section 72(p)(4)) or under any contract referred to in section
72(p)(5).
(2) Qualified higher education expenses
The term "qualified higher education expenses" means the cost
of attendance (as defined in section 472 of the Higher Education
Act of 1965, 20 U.S.C. 1087ll, as in effect on the day before the
date of the enactment of the Taxpayer Relief Act of 1997) at an
eligible educational institution, reduced by the sum of -
(A) the amount excluded from gross income under section 127,
135, 529, or 530 by reason of such expenses, and
(B) the amount of any scholarship, allowance, or payment
described in section 25A(g)(2).
For purposes of the preceding sentence, the term "eligible
educational institution" has the same meaning given such term by
section 25A(f)(2), except that such term shall also include an
institution conducting an internship or residency program leading
to a degree or certificate awarded by an institution of higher
education, a hospital, or a health care facility which offers
postgraduate training.
(3) Eligible student
The term "eligible student" has the meaning given such term by
section 25A(b)(3).
(4) Dependent
The term "dependent" has the meaning given such term by section
152 (determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof).
(e) Special rules
(1) Denial of double benefit
No deduction shall be allowed under this section for any amount
for which a deduction is allowable under any other provision of
this chapter.
(2) Married couples must file joint return
If the taxpayer is married at the close of the taxable year,
the deduction shall be allowed under subsection (a) only if the
taxpayer and the taxpayer's spouse file a joint return for the
taxable year.
(3) Marital status
Marital status shall be determined in accordance with section
7703.
(f) Inflation adjustments
(1) In general
In the case of a taxable year beginning after 2002, the $50,000
and $100,000 amounts in subsection (b)(2) shall each be increased
by an amount equal to -
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
determined by substituting "calendar year 2001" for "calendar
year 1992" in subparagraph (B) thereof.
(2) Rounding
If any amount as adjusted under paragraph (1) is not a multiple
of $5,000, such amount shall be rounded to the next lowest
multiple of $5,000.
-SOURCE-
(Added Pub. L. 105-34, title II, Sec. 202(a), Aug. 5, 1997, 111
Stat. 806; amended Pub. L. 105-206, title VI, Sec. 6004(b), July
22, 1998, 112 Stat. 792; Pub. L. 105-277, div. J, title IV, Sec.
4003(a)(2)(A), (3), Oct. 21, 1998, 112 Stat. 2681-908; Pub. L. 107-
16, title IV, Secs. 402(b)(2)(B), 412(a)(1), (b)(1), (2),
431(c)(2), June 7, 2001, 115 Stat. 62-64, 68; Pub. L. 108-311,
title II, Sec. 207(20), title IV, Sec. 408(b)(5), Oct. 4, 2004, 118
Stat. 1178, 1192; Pub. L. 108-357, title I, Sec. 102(d)(2), Oct.
22, 2004, 118 Stat. 1428; Pub. L. 109-135, title IV, Sec. 412(t),
Dec. 21, 2005, 119 Stat. 2638.)
-STATAMEND-
ADJUSTMENT OF AMOUNTS TO DETERMINE AVAILABILITY OF INTEREST
DEDUCTION FOR TAXABLE YEARS BEGINNING IN 2006
For adjustment of maximum deduction in subsection (b)(2)(B) of
this section for interest paid on qualified education loans for
taxable years beginning in 2006, see section 3.21 of Revenue
Procedure 2005-70, set out as a note under section 1 of this title.
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Taxpayer Relief Act of 1997,
referred to in subsec. (d)(2), is the date of enactment of Pub. L.
105-34, which was approved Aug. 5, 1997.
-MISC1-
PRIOR PROVISIONS
A prior section 221 was renumbered section 224 of this title.
Another prior section 221, added Pub. L. 97-34, title I, Sec.
103(a), Aug. 13, 1981, 95 Stat. 187; amended Pub. L. 97-448, title
III, Sec. 305(d)(4), Jan. 12, 1983, 96 Stat. 2400, related to
deduction for two-earner married couples, prior to repeal by Pub.
L. 99-514, title I, Sec. 131(a), Oct. 22, 1986, 100 Stat. 2113,
applicable to taxable years beginning after Dec. 31, 1986.
AMENDMENTS
2005 - Subsec. (d)(2). Pub. L. 109-135 substituted "the Taxpayer
Relief Act of 1997" for "this Act".
2004 - Subsec. (b)(2)(C)(i). Pub. L. 108-357 inserted "199,"
before "222".
Subsec. (d)(4). Pub. L. 108-311, Sec. 207(20), inserted
"(determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof)" after "section 152".
Subsec. (f)(1). Pub. L. 108-311, Sec. 408(b)(5), amended
directory language of Pub. L. 107-16, Sec. 412(b)(2). See 2001
Amendment note below.
2001 - Subsec. (b)(2)(B)(i), (ii). Pub. L. 107-16, Secs.
412(b)(1), 901, temporarily amended cls. (i) and (ii) generally.
Prior to amendment, cls. (i) and (ii) read as follows:
"(i) the excess of -
"(I) the taxpayer's modified adjusted gross income for such
taxable year, over
"(II) $40,000 ($60,000 in the case of a joint return), bears to
"(ii) $15,000."
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (b)(2)(C)(i). Pub. L. 107-16, Secs. 431(c)(2), 901,
temporarily inserted "222," before "911". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (d). Pub. L. 107-16, Secs. 412(a)(1), 901, temporarily
redesignated subsec. (e) as (d), and struck out heading and text of
former subsec. (d). Text read as follows: "A deduction shall be
allowed under this section only with respect to interest paid on
any qualified education loan during the first 60 months (whether or
not consecutive) in which interest payments are required. For
purposes of this paragraph, any loan and all refinancings of such
loan shall be treated as 1 loan. Such 60 months shall be determined
in the manner prescribed by the Secretary in the case of multiple
loans which are refinanced by, or serviced as, a single loan and in
the case of loans incurred before the date of the enactment of this
section." See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (e). Pub. L. 107-16, Secs. 412(a)(1), 901, temporarily
redesignated subsec. (f) as (e). Former subsec. (e) redesignated
(d). See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (e)(2)(A). Pub. L. 107-16, Secs. 402(b)(2)(B), 901,
temporarily inserted "529," after "135,". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (f). Pub. L. 107-16, Secs. 412(a)(1), 901, temporarily
redesignated former subsec. (g) as (f). Former subsec. (f)
redesignated (e). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (f)(1). Pub. L. 107-16, Secs. 412(b)(2), 901, as amended
by Pub. L. 108-311, Sec. 408(b)(5), temporarily substituted
"$50,000 and $100,000 amounts" for "$40,000 and $60,000 amounts".
See above and Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (g). Pub. L. 107-16, Secs. 412(a)(1), 901, temporarily
redesignated former subsec. (g) as (f). See Effective and
Termination Dates of 2001 Amendment note below.
1998 - Subsec. (b)(2)(C). Pub. L. 105-277, Sec.
4003(a)(2)(A)(iii), struck out concluding provisions which read as
follows: "For purposes of sections 86, 135, 137, 219, and 469,
adjusted gross income shall be determined without regard to the
deduction allowed under this section."
Subsec. (b)(2)(C)(i). Pub. L. 105-277, Sec. 4003(a)(2)(A)(i),
struck out "135, 137," after "sections".
Subsec. (b)(2)(C)(ii). Pub. L. 105-277, Sec. 4003(a)(2)(A)(ii),
inserted "135, 137," after "sections 86,".
Subsec. (d). Pub. L. 105-206, Sec. 6004(b)(2), inserted at end
"Such 60 months shall be determined in the manner prescribed by the
Secretary in the case of multiple loans which are refinanced by, or
serviced as, a single loan and in the case of loans incurred before
the date of the enactment of this section."
Subsec. (e)(1). Pub. L. 105-277, Sec. 4003(a)(3), inserted before
period at end "or to any person by reason of a loan under any
qualified employer plan (as defined in section 72(p)(4)) or under
any contract referred to in section 72(p)(5)".
Pub. L. 105-206, Sec. 6004(b)(1), inserted "by the taxpayer
solely" after "incurred" in introductory provisions.
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendment by Pub. L. 108-357 applicable to taxable years
beginning after Dec. 31, 2004, see section 102(e) of Pub. L. 108-
357, set out as a note under section 56 of this title.
Amendment by section 207(20) of Pub. L. 108-311 applicable to
taxable years beginning after Dec. 31, 2004, see section 208 of
Pub. L. 108-311, set out as a note under section 2 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 402(b)(2)(B) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 402(h) of
Pub. L. 107-16, set out as a note under section 72 of this title.
Pub. L. 107-16, title IV, Sec. 412(a)(3), June 7, 2001, 115 Stat.
64, provided that: "The amendments made by this subsection
[amending this section and section 6050S of this title] shall apply
with respect to any loan interest paid after December 31, 2001, in
taxable years ending after such date."
Pub. L. 107-16, title IV, Sec. 412(b)(3), June 7, 2001, 115 Stat.
64, provided that: "The amendments made by this subsection
[amending this section] shall apply to taxable years ending after
December 31, 2001."
Amendment by section 431(c)(2) of Pub. L. 107-16 applicable to
payments made in taxable years beginning after Dec. 31, 2001, see
section 431(d) of Pub. L. 107-16, set out as a note under section
62 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L. 105-
277, set out as a note under section 86 of this title.
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE
Section applicable to any qualified education loan (as defined in
subsec. (e)(1) of this section) incurred on, before, or after Aug.
5, 1997, but only with respect to any loan interest payment due and
paid after Dec. 31, 1997, and to the portion of the 60-month period
referred to in subsec. (d) of this section after Dec. 31, 1997, see
section 202(e) of Pub. L. 105-34, set out as an Effective Date of
1997 Amendment note under section 62 of this title.
-End-
-CITE-
26 USC Sec. 222 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 222. Qualified tuition and related expenses
-STATUTE-
(a) Allowance of deduction
In the case of an individual, there shall be allowed as a
deduction an amount equal to the qualified tuition and related
expenses paid by the taxpayer during the taxable year.
(b) Dollar limitations
(1) In general
The amount allowed as a deduction under subsection (a) with
respect to the taxpayer for any taxable year shall not exceed the
applicable dollar limit.
(2) Applicable dollar limit
(A) 2002 and 2003
In the case of a taxable year beginning in 2002 or 2003, the
applicable dollar limit shall be equal to -
(i) in the case of a taxpayer whose adjusted gross income
for the taxable year does not exceed $65,000 ($130,000 in the
case of a joint return), $3,000, and -
(ii) in the case of any other taxpayer, zero.
(B) 2004 and 2005
In the case of a taxable year beginning in 2004 or 2005, the
applicable dollar amount shall be equal to -
(i) in the case of a taxpayer whose adjusted gross income
for the taxable year does not exceed $65,000 ($130,000 in the
case of a joint return), $4,000,
(ii) in the case of a taxpayer not described in clause (i)
whose adjusted gross income for the taxable year does not
exceed $80,000 ($160,000 in the case of a joint return),
$2,000, and
(iii) in the case of any other taxpayer, zero.
(C) Adjusted gross income
For purposes of this paragraph, adjusted gross income shall
be determined -
(i) without regard to this section and sections 199, 911,
931, and 933, and
(ii) after application of sections 86, 135, 137, 219, 221,
and 469.
(c) No double benefit
(1) In general
No deduction shall be allowed under subsection (a) for any
expense for which a deduction is allowed to the taxpayer under
any other provision of this chapter.
(2) Coordination with other education incentives
(A) Denial of deduction if credit elected
No deduction shall be allowed under subsection (a) for a
taxable year with respect to the qualified tuition and related
expenses with respect to an individual if the taxpayer or any
other person elects to have section 25A apply with respect to
such individual for such year.
(B) Coordination with exclusions
The total amount of qualified tuition and related expenses
shall be reduced by the amount of such expenses taken into
account in determining any amount excluded under section 135,
529(c)(1), or 530(d)(2). For purposes of the preceding
sentence, the amount taken into account in determining the
amount excluded under section 529(c)(1) shall not include that
portion of the distribution which represents a return of any
contributions to the plan.
(3) Dependents
No deduction shall be allowed under subsection (a) to any
individual with respect to whom a deduction under section 151 is
allowable to another taxpayer for a taxable year beginning in the
calendar year in which such individual's taxable year begins.
(d) Definitions and special rules
For purposes of this section -
(1) Qualified tuition and related expenses
The term "qualified tuition and related expenses" has the
meaning given such term by section 25A(f). Such expenses shall be
reduced in the same manner as under section 25A(g)(2).
(2) Identification requirement
No deduction shall be allowed under subsection (a) to a
taxpayer with respect to the qualified tuition and related
expenses of an individual unless the taxpayer includes the name
and taxpayer identification number of the individual on the
return of tax for the taxable year.
(3) Limitation on taxable year of deduction
(A) In general
A deduction shall be allowed under subsection (a) for
qualified tuition and related expenses for any taxable year
only to the extent such expenses are in connection with
enrollment at an institution of higher education during the
taxable year.
(B) Certain prepayments allowed
Subparagraph (A) shall not apply to qualified tuition and
related expenses paid during a taxable year if such expenses
are in connection with an academic term beginning during such
taxable year or during the first 3 months of the next taxable
year.
(4) No deduction for married individuals filing separate returns
If the taxpayer is a married individual (within the meaning of
section 7703), this section shall apply only if the taxpayer and
the taxpayer's spouse file a joint return for the taxable year.
(5) Nonresident aliens
If the taxpayer is a nonresident alien individual for any
portion of the taxable year, this section shall apply only if
such individual is treated as a resident alien of the United
States for purposes of this chapter by reason of an election
under subsection (g) or (h) of section 6013.
(6) Regulations
The Secretary may prescribe such regulations as may be
necessary or appropriate to carry out this section, including
regulations requiring recordkeeping and information reporting.
(e) Termination
This section shall not apply to taxable years beginning after
December 31, 2005.
-SOURCE-
(Added Pub. L. 107-16, title IV, Sec. 431(a), June 7, 2001, 115
Stat. 66; amended Pub. L. 108-357, title I, Sec. 102(d)(3), Oct.
22, 2004, 118 Stat. 1429.)
-STATAMEND-
TERMINATION OF SECTION
For termination of section by section 901 of Pub. L. 107-16, see
Effective and Termination Dates note below.
-MISC1-
PRIOR PROVISIONS
A prior section 222 was renumbered section 224 of this title.
Another prior section 222, added Pub. L. 97-34, title I, Sec.
125(a), Aug. 13, 1981, 95 Stat. 201; amended Pub. L. 97-448, title
I, Sec. 101(f), Jan. 12, 1983, 96 Stat. 2367, related to deduction
of adoption expenses, prior to repeal by Pub. L. 99-514, title I,
Secs. 135(a), 151(a), Oct. 22, 1986, 100 Stat. 2116, 2121,
applicable to taxable years beginning after Dec. 31, 1986.
AMENDMENTS
2004 - Subsec. (b)(2)(C)(i). Pub. L. 108-357 inserted "199,"
before "911".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years
beginning after Dec. 31, 2004, see section 102(e) of Pub. L. 108-
357, set out as a note under section 56 of this title.
EFFECTIVE AND TERMINATION DATES
Section applicable to payments made in taxable years beginning
after Dec. 31, 2001, see section 431(d) of Pub. L. 107-16, set out
as an Effective and Termination Dates of 2001 Amendment note under
section 62 of this title.
Section inapplicable to taxable, plan, or limitation years
beginning after Dec. 31, 2010, and the Internal Revenue Code of
1986 to be applied and administered to such years as if it had
never been enacted, see section 901 of Pub. L. 107-16, set out as
an Effective and Termination Dates of 2001 Amendment note under
section 1 of this title.
-End-
-CITE-
26 USC Sec. 223 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 223. Health savings accounts
-STATUTE-
(a) Deduction allowed
In the case of an individual who is an eligible individual for
any month during the taxable year, there shall be allowed as a
deduction for the taxable year an amount equal to the aggregate
amount paid in cash during such taxable year by or on behalf of
such individual to a health savings account of such individual.
(b) Limitations
(1) In general
The amount allowable as a deduction under subsection (a) to an
individual for the taxable year shall not exceed the sum of the
monthly limitations for months during such taxable year that the
individual is an eligible individual.
(2) Monthly limitation
The monthly limitation for any month is 1/12 of -
(A) in the case of an eligible individual who has self-only
coverage under a high deductible health plan as of the first
day of such month, the lesser of -
(i) the annual deductible under such coverage, or
(ii) $2,250, or
(B) in the case of an eligible individual who has family
coverage under a high deductible health plan as of the first
day of such month, the lesser of -
(i) the annual deductible under such coverage, or
(ii) $4,500.
(3) Additional contributions for individuals 55 or older
(A) In general
In the case of an individual who has attained age 55 before
the close of the taxable year, the applicable limitation under
subparagraphs (A) and (B) of paragraph (2) shall be increased
by the additional contribution amount.
(B) Additional contribution amount
For purposes of this section, the additional contribution
amount is the amount determined in accordance with the
following table:
For taxable years The additional
beginning in: contribution
amount is:
2004 $500
2005 $600
2006 $700
2007 $800
2008 $900
2009 and thereafter $1,000.
(4) Coordination with other contributions
The limitation which would (but for this paragraph) apply under
this subsection to an individual for any taxable year shall be
reduced (but not below zero) by the sum of -
(A) the aggregate amount paid for such taxable year to Archer
MSAs of such individual, and
(B) the aggregate amount contributed to health savings
accounts of such individual which is excludable from the
taxpayer's gross income for such taxable year under section
106(d) (and such amount shall not be allowed as a deduction
under subsection (a)).
Subparagraph (A) shall not apply with respect to any individual
to whom paragraph (5) applies.
(5) Special rule for married individuals
In the case of individuals who are married to each other, if
either spouse has family coverage -
(A) both spouses shall be treated as having only such family
coverage (and if such spouses each have family coverage under
different plans, as having the family coverage with the lowest
annual deductible), and
(B) the limitation under paragraph (1) (after the application
of subparagraph (A) and without regard to any additional
contribution amount under paragraph (3)) -
(i) shall be reduced by the aggregate amount paid to Archer
MSAs of such spouses for the taxable year, and
(ii) after such reduction, shall be divided equally between
them unless they agree on a different division.
(6) Denial of deduction to dependents
No deduction shall be allowed under this section to any
individual with respect to whom a deduction under section 151 is
allowable to another taxpayer for a taxable year beginning in the
calendar year in which such individual's taxable year begins.
(7) Medicare eligible individuals
The limitation under this subsection for any month with respect
to an individual shall be zero for the first month such
individual is entitled to benefits under title XVIII of the
Social Security Act and for each month thereafter.
(c) Definitions and special rules
For purposes of this section -
(1) Eligible individual
(A) In general
The term "eligible individual" means, with respect to any
month, any individual if -
(i) such individual is covered under a high deductible
health plan as of the 1st day of such month, and
(ii) such individual is not, while covered under a high
deductible health plan, covered under any health plan -
(I) which is not a high deductible health plan, and
(II) which provides coverage for any benefit which is
covered under the high deductible health plan.
(B) Certain coverage disregarded
Subparagraph (A)(ii) shall be applied without regard to -
(i) coverage for any benefit provided by permitted
insurance, and
(ii) coverage (whether through insurance or otherwise) for
accidents, disability, dental care, vision care, or long-term
care.
(2) High deductible health plan
(A) In general
The term "high deductible health plan" means a health plan -
(i) which has an annual deductible which is not less than -
(I) $1,000 for self-only coverage, and
(II) twice the dollar amount in subclause (I) for family
coverage, and
(ii) the sum of the annual deductible and the other annual
out-of-pocket expenses required to be paid under the plan
(other than for premiums) for covered benefits does not
exceed -
(I) $5,000 for self-only coverage, and
(II) twice the dollar amount in subclause (I) for family
coverage.
(B) Exclusion of certain plans
Such term does not include a health plan if substantially all
of its coverage is coverage described in paragraph (1)(B).
(C) Safe harbor for absence of preventive care deductible
A plan shall not fail to be treated as a high deductible
health plan by reason of failing to have a deductible for
preventive care (within the meaning of section 1871 of the
Social Security Act, except as otherwise provided by the
Secretary).
(D) Special rules for network plans
In the case of a plan using a network of providers -
(i) Annual out-of-pocket limitation
Such plan shall not fail to be treated as a high deductible
health plan by reason of having an out-of-pocket limitation
for services provided outside of such network which exceeds
the applicable limitation under subparagraph (A)(ii).
(ii) Annual deductible
Such plan's annual deductible for services provided outside
of such network shall not be taken into account for purposes
of subsection (b)(2).
(3) Permitted insurance
The term "permitted insurance" means -
(A) insurance if substantially all of the coverage provided
under such insurance relates to -
(i) liabilities incurred under workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to ownership or use of property,
or
(iv) such other similar liabilities as the Secretary may
specify by regulations,
(B) insurance for a specified disease or illness, and
(C) insurance paying a fixed amount per day (or other period)
of hospitalization.
(4) Family coverage
The term "family coverage" means any coverage other than self-
only coverage.
(5) Archer MSA
The term "Archer MSA" has the meaning given such term in
section 220(d).
(d) Health savings account
For purposes of this section -
(1) In general
The term "health savings account" means a trust created or
organized in the United States as a health savings account
exclusively for the purpose of paying the qualified medical
expenses of the account beneficiary, but only if the written
governing instrument creating the trust meets the following
requirements:
(A) Except in the case of a rollover contribution described
in subsection (f)(5) or section 220(f)(5), no contribution will
be accepted -
(i) unless it is in cash, or
(ii) to the extent such contribution, when added to
previous contributions to the trust for the calendar year,
exceeds the sum of -
(I) the dollar amount in effect under subsection
(b)(2)(B)(ii), and
(II) the dollar amount in effect under subsection
(b)(3)(B).
(B) The trustee is a bank (as defined in section 408(n)), an
insurance company (as defined in section 816), or another
person who demonstrates to the satisfaction of the Secretary
that the manner in which such person will administer the trust
will be consistent with the requirements of this section.
(C) No part of the trust assets will be invested in life
insurance contracts.
(D) The assets of the trust will not be commingled with other
property except in a common trust fund or common investment
fund.
(E) The interest of an individual in the balance in his
account is nonforfeitable.
(2) Qualified medical expenses
(A) In general
The term "qualified medical expenses" means, with respect to
an account beneficiary, amounts paid by such beneficiary for
medical care (as defined in section 213(d) (!1) for such
individual, the spouse of such individual, and any dependent
(as defined in section 152, determined without regard to
subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of such
individual, but only to the extent such amounts are not
compensated for by insurance or otherwise.
(B) Health insurance may not be purchased from account
Subparagraph (A) shall not apply to any payment for
insurance.
(C) Exceptions
Subparagraph (B) shall not apply to any expense for coverage
under -
(i) a health plan during any period of continuation
coverage required under any Federal law,
(ii) a qualified long-term care insurance contract (as
defined in section 7702B(b)),
(iii) a health plan during a period in which the individual
is receiving unemployment compensation under any Federal or
State law, or
(iv) in the case of an account beneficiary who has attained
the age specified in section 1811 of the Social Security Act,
any health insurance other than a medicare supplemental
policy (as defined in section 1882 of the Social Security
Act).
(3) Account beneficiary
The term "account beneficiary" means the individual on whose
behalf the health savings account was established.
(4) Certain rules to apply
Rules similar to the following rules shall apply for purposes
of this section:
(A) Section 219(d)(2) (relating to no deduction for
rollovers).
(B) Section 219(f)(3) (relating to time when contributions
deemed made).
(C) Except as provided in section 106(d), section 219(f)(5)
(relating to employer payments).
(D) Section 408(g) (relating to community property laws).
(E) Section 408(h) (relating to custodial accounts).
(e) Tax treatment of accounts
(1) In general
A health savings account is exempt from taxation under this
subtitle unless such account has ceased to be a health savings
account. Notwithstanding the preceding sentence, any such account
is subject to the taxes imposed by section 511 (relating to
imposition of tax on unrelated business income of charitable,
etc. organizations).
(2) Account terminations
Rules similar to the rules of paragraphs (2) and (4) of section
408(e) shall apply to health savings accounts, and any amount
treated as distributed under such rules shall be treated as not
used to pay qualified medical expenses.
(f) Tax treatment of distributions
(1) Amounts used for qualified medical expenses
Any amount paid or distributed out of a health savings account
which is used exclusively to pay qualified medical expenses of
any account beneficiary shall not be includible in gross income.
(2) Inclusion of amounts not used for qualified medical expenses
Any amount paid or distributed out of a health savings account
which is not used exclusively to pay the qualified medical
expenses of the account beneficiary shall be included in the
gross income of such beneficiary.
(3) Excess contributions returned before due date of return
(A) In general
If any excess contribution is contributed for a taxable year
to any health savings account of an individual, paragraph (2)
shall not apply to distributions from the health savings
accounts of such individual (to the extent such distributions
do not exceed the aggregate excess contributions to all such
accounts of such individual for such year) if -
(i) such distribution is received by the individual on or
before the last day prescribed by law (including extensions
of time) for filing such individual's return for such taxable
year, and
(ii) such distribution is accompanied by the amount of net
income attributable to such excess contribution.
Any net income described in clause (ii) shall be included in
the gross income of the individual for the taxable year in
which it is received.
(B) Excess contribution
For purposes of subparagraph (A), the term "excess
contribution" means any contribution (other than a rollover
contribution described in paragraph (5) or section 220(f)(5))
which is neither excludable from gross income under section
106(d) nor deductible under this section.
(4) Additional tax on distributions not used for qualified
medical expenses
(A) In general
The tax imposed by this chapter on the account beneficiary
for any taxable year in which there is a payment or
distribution from a health savings account of such beneficiary
which is includible in gross income under paragraph (2) shall
be increased by 10 percent of the amount which is so
includible.
(B) Exception for disability or death
Subparagraph (A) shall not apply if the payment or
distribution is made after the account beneficiary becomes
disabled within the meaning of section 72(m)(7) or dies.
(C) Exception for distributions after medicare eligibility
Subparagraph (A) shall not apply to any payment or
distribution after the date on which the account beneficiary
attains the age specified in section 1811 of the Social
Security Act.
(5) Rollover contribution
An amount is described in this paragraph as a rollover
contribution if it meets the requirements of subparagraphs (A)
and (B).
(A) In general
Paragraph (2) shall not apply to any amount paid or
distributed from a health savings account to the account
beneficiary to the extent the amount received is paid into a
health savings account for the benefit of such beneficiary not
later than the 60th day after the day on which the beneficiary
receives the payment or distribution.
(B) Limitation
This paragraph shall not apply to any amount described in
subparagraph (A) received by an individual from a health
savings account if, at any time during the 1-year period ending
on the day of such receipt, such individual received any other
amount described in subparagraph (A) from a health savings
account which was not includible in the individual's gross
income because of the application of this paragraph.
(6) Coordination with medical expense deduction
For purposes of determining the amount of the deduction under
section 213, any payment or distribution out of a health savings
account for qualified medical expenses shall not be treated as an
expense paid for medical care.
(7) Transfer of account incident to divorce
The transfer of an individual's interest in a health savings
account to an individual's spouse or former spouse under a
divorce or separation instrument described in subparagraph (A) of
section 71(b)(2) shall not be considered a taxable transfer made
by such individual notwithstanding any other provision of this
subtitle, and such interest shall, after such transfer, be
treated as a health savings account with respect to which such
spouse is the account beneficiary.
(8) Treatment after death of account beneficiary
(A) Treatment if designated beneficiary is spouse
If the account beneficiary's surviving spouse acquires such
beneficiary's interest in a health savings account by reason of
being the designated beneficiary of such account at the death
of the account beneficiary, such health savings account shall
be treated as if the spouse were the account beneficiary.
(B) Other cases
(i) In general
If, by reason of the death of the account beneficiary, any
person acquires the account beneficiary's interest in a
health savings account in a case to which subparagraph (A)
does not apply -
(I) such account shall cease to be a health savings
account as of the date of death, and
(II) an amount equal to the fair market value of the
assets in such account on such date shall be includible if
such person is not the estate of such beneficiary, in such
person's gross income for the taxable year which includes
such date, or if such person is the estate of such
beneficiary, in such beneficiary's gross income for the
last taxable year of such beneficiary.
(ii) Special rules
(I) Reduction of inclusion for predeath expenses
The amount includible in gross income under clause (i) by
any person (other than the estate) shall be reduced by the
amount of qualified medical expenses which were incurred by
the decedent before the date of the decedent's death and
paid by such person within 1 year after such date.
(II) Deduction for estate taxes
An appropriate deduction shall be allowed under section
691(c) to any person (other than the decedent or the
decedent's spouse) with respect to amounts included in
gross income under clause (i) by such person.
(g) Cost-of-living adjustment
(1) In general
Each dollar amount in subsections (b)(2) and (c)(2)(A) shall be
increased by an amount equal to -
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which such taxable year begins
determined by substituting for "calendar year 1992" in
subparagraph (B) thereof -
(i) except as provided in clause (ii), "calendar year
1997", and
(ii) in the case of each dollar amount in subsection
(c)(2)(A), "calendar year 2003".
(2) Rounding
If any increase under paragraph (1) is not a multiple of $50,
such increase shall be rounded to the nearest multiple of $50.
(h) Reports
The Secretary may require -
(1) the trustee of a health savings account to make such
reports regarding such account to the Secretary and to the
account beneficiary with respect to contributions, distributions,
the return of excess contributions, and such other matters as the
Secretary determines appropriate, and
(2) any person who provides an individual with a high
deductible health plan to make such reports to the Secretary and
to the account beneficiary with respect to such plan as the
Secretary determines appropriate.
The reports required by this subsection shall be filed at such time
and in such manner and furnished to such individuals at such time
and in such manner as may be required by the Secretary.
-SOURCE-
(Added Pub. L. 108-173, title XII, Sec. 1201(a), Dec. 8, 2003, 117
Stat. 2469; amended Pub. L. 109-135, title IV, Sec. 404(c), Dec.
21, 2005, 119 Stat. 2634.)
-STATAMEND-
ADJUSTMENT OF LIMITATION ON DEDUCTIONS FOR CALENDAR YEAR 2006
For adjustment of limitation on deductions for monthly
contributions to health savings accounts for calendar year 2006
under subsection (b)(2)(A), (B) of this section, and for adjustment
of dollar amounts for calendar year 2006 under subsection (c)(2)(A)
of this section, see section 3.22 of Revenue Procedure 2005-70, set
out as a note under section 1 of this title.
-REFTEXT-
REFERENCES IN TEXT
The Social Security Act, referred to in subsecs. (b)(7),
(c)(2)(C), (d)(2)(C)(iv), (f)(4)(C), is act Aug. 14, 1935, ch. 531,
49 Stat. 620, as amended. Title XVIII of the Act is classified
generally to subchapter XVIII (Sec. 1395 et seq.) of chapter 7 of
Title 42, The Public Health and Welfare. Sections 1811, 1871, and
1882 of the Act are classified to sections 1395c, 1395hh, and
1395ss, respectively, of Title 42. For complete classification of
this Act to the Code, see section 1305 of Title 42 and Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 223 was renumbered section 224 of this title.
AMENDMENTS
2005 - Subsec. (d)(2)(A). Pub. L. 109-135 inserted ", determined
without regard to subsections (b)(1), (b)(2), and (d)(1)(B)
thereof" after "section 152".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provisions of the Working Families Tax Relief Act of 2004, Pub. L.
108-311, to which such amendment relates, see section 404(d) of
Pub. L. 109-135, set out as a note under section 21 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
2003, see section 1201(k) of Pub. L. 108-173, set out as an
Effective Date of 2003 Amendment note under section 62 of this
title.
-FOOTNOTE-
(!1) So in original. Probably should be followed by a second closing
parenthesis.
-End-
-CITE-
26 USC Sec. 224 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
-HEAD-
Sec. 224. Cross reference
-STATUTE-
For deductions in respect of a decedent, see section 691.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 72, Sec. 217; renumbered Sec.
218, Pub. L. 88-272, title II, Sec. 213(a)(1), Feb. 26, 1964, 78
Stat. 50; renumbered Sec. 219, Pub. L. 92-178, title VII, Sec.
702(a), Dec. 10, 1971, 85 Stat. 561; renumbered Sec. 220, Pub. L.
93-406, title II, Sec. 2002(a)(1), Sept. 2, 1974, 88 Stat. 958;
renumbered Sec. 221, Pub. L. 94-455, title XV, Sec. 1501(a), Oct.
4, 1976, 90 Stat. 1734; renumbered Sec. 222, renumbered Sec. 223,
Pub. L. 97-34, title I, Secs. 103(a), 125(a), Aug. 13, 1981, 95
Stat. 187, 201; renumbered Sec. 220 and amended Pub. L. 99-514,
title I, Sec. 135(b)(1), title III, Sec. 301(b)(5)(A), Oct. 22,
1986, 100 Stat. 2116, 2217; renumbered Sec. 221, Pub. L. 100-647,
title VI, Sec. 6007(a), Nov. 10, 1988, 102 Stat. 3687; renumbered
Sec. 220, Pub. L. 101-508, title XI, Sec. 11802(e)(2), Nov. 5,
1990, 104 Stat. 1388-530; renumbered Sec. 221, Pub. L. 104-191,
title III, Sec. 301(a), Aug. 21, 1996, 110 Stat. 2037; renumbered
Sec. 222, Pub. L. 105-34, title II, Sec. 202(a), Aug. 5, 1997, 111
Stat. 806; renumbered Sec. 223, Pub. L. 107-16, title IV, Sec.
431(a), June 7, 2001, 115 Stat. 66; renumbered Sec. 224, Pub. L.
108-173, title XII, Sec. 1201(a), Dec. 8, 2003, 117 Stat. 2469.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Pub. L. 108-173 renumbered section 223 of this title as
this section.
2001 - Pub. L. 107-16, Secs. 431(a), 901, temporarily renumbered
section 222 as this section. See Effective and Termination Dates of
2001 Amendment note below.
1997 - Pub. L. 105-34 renumbered section 221 of this title as
this section.
1996 - Pub. L. 104-191 renumbered section 220 of this title as
this section.
1990 - Pub. L. 101-508 renumbered section 221 of this title as
this section.
1986 - Pub. L. 99-514, Sec. 135(b)(1), renumbered section 223 of
this title as this section.
Pub. L. 99-514, Sec. 301(b)(5)(A), amended section generally,
substituting "reference" for "references" in section catchline,
striking out par. (1) which referred to section 1202 for deduction
for long-term capital gains in the case of a taxpayer other than a
corporation, and striking out par. (2) designation.
1981 - Pub. L. 97-34 successively renumbered sections 221 and 222
of this title as this section.
1976 - Pub. L. 94-455 renumbered section 220 of this title as
this section.
1974 - Pub. L. 93-406 renumbered section 219 of this title as
this section.
1971 - Pub. L. 92-178 renumbered section 218 of this title as
this section.
1964 - Pub. L. 88-272 renumbered section 217 of this title as
this section.
EFFECTIVE DATE OF 2003 AMENDMENT
Amendment by Pub. L. 108-173 applicable to taxable years
beginning after Dec. 31, 2003, see section 1201(k) of Pub. L. 108-
173, set out as a note under section 62 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to payments made in
taxable years beginning after Dec. 31, 2001, see section 431(d) of
Pub. L. 107-16, set out as a note under section 62 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 301(b)(5)(A) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 301(c) of
Pub. L. 99-514, set out as a note under section 62 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by section 11802(e)(2)
of Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
-End-
-CITE-
26 USC PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-MISC1-
Sec.
241. Allowance of special deductions.
[242. Repealed.]
243. Dividends received by corporations.
244. Dividends received on certain preferred stock.
245. Dividends received from certain foreign corporations.
246. Rules applying to deductions for dividends received.
246A. Dividends received deduction reduced where portfolio
stock is debt financed.
247. Dividends paid on certain preferred stock of public
utilities.
248. Organizational expenditures.
249. Limitation on deduction of bond premium on repurchase.
[250. Repealed.]
AMENDMENTS
1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(4), Nov. 5, 1990,
104 Stat. 1388-522, struck out item 250 "Certain payments to the
National Railroad Passenger Corporation".
1984 - Pub. L. 98-369, div. A, title I, Sec. 51(b), July 18,
1984, 98 Stat. 564, added item 246A.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(1)(AA), Oct. 4,
1976, 90 Stat. 1792, struck out item 242 "Partially tax-exempt
interest".
1970 - Pub. L. 91-518, title IX, Sec. 901(b), Oct. 30, 1970, 84
Stat. 1342, added item 250.
1969 - Pub. L. 91-172, title IV, Sec. 414(b), Dec. 30, 1969, 83
Stat. 613, added item 249.
-End-
-CITE-
26 USC Sec. 241 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
Sec. 241. Allowance of special deductions
-STATUTE-
In addition to the deductions provided in part VI (sec. 161 and
following), there shall be allowed as deductions in computing
taxable income the items specified in this part.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 72.)
-End-
-CITE-
26 USC Sec. 242 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
[Sec. 242. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(33),
Oct. 4, 1976, 90 Stat. 1769]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 72; Feb. 26,
1964, Pub. L. 88-272, title I, Sec. 123(c), 78 Stat. 30, allowed to
corporations as a deduction the amount received as interest on
obligations of the United States or on obligations of corporations
organized under Acts of Congress which are instrumentalities of the
United States under certain conditions.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
-CITE-
26 USC Sec. 243 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
Sec. 243. Dividends received by corporations
-STATUTE-
(a) General rule
In the case of a corporation, there shall be allowed as a
deduction an amount equal to the following percentages of the
amount received as dividends from a domestic corporation which is
subject to taxation under this chapter:
(1) 70 percent, in the case of dividends other than dividends
described in paragraph (2) or (3);
(2) 100 percent, in the case of dividends received by a small
business investment company operating under the Small Business
Investment Act of 1958 (15 U.S.C. 661 and following); and
(3) 100 percent, in the case of qualifying dividends (as
defined in subsection (b)(1)).
(b) Qualifying dividends
(1) In general
For purposes of this section, the term "qualifying dividend"
means any dividend received by a corporation -
(A) if at the close of the day on which such dividend is
received, such corporation is a member of the same affiliated
group as the corporation distributing such dividend, and
(B) if -
(i) such dividend is distributed out of the earnings and
profits of a taxable year of the distributing corporation
which ends after December 31, 1963, for which an election
under section 1562 was not in effect, and on each day of
which the distributing corporation and the corporation
receiving the dividend were members of such affiliated group,
or
(ii) such dividend is paid by a corporation with respect to
which an election under section 936 is in effect for the
taxable year in which such dividend is paid.
(2) Affiliated group
For purposes of this subsection:
(A) In general
The term "affiliated group" has the meaning given such term
by section 1504(a), except that for such purposes sections
1504(b)(2), 1504(b)(4), and 1504(c) shall not apply.
(B) Group must be consistent in foreign tax treatment
The requirements of paragraph (1)(A) shall not be treated as
being met with respect to any dividend received by a
corporation if, for any taxable year which includes the day on
which such dividend is received -
(i) 1 or more members of the affiliated group referred to
in paragraph (1)(A) choose to any extent to take the benefits
of section 901, and
(ii) 1 or more other members of such group claim to any
extent a deduction for taxes otherwise creditable under
section 901.
(3) Special rule for groups which include life insurance
companies
(A) In general
In the case of an affiliated group which includes 1 or more
insurance companies under section 801, no dividend by any
member of such group shall be treated as a qualifying dividend
unless an election under this paragraph is in effect for the
taxable year in which the dividend is received. The preceding
sentence shall not apply in the case of a dividend described in
paragraph (1)(B)(ii).
(B) Effect of election
If an election under this paragraph is in effect with respect
to any affiliated group -
(i) part II of subchapter B of chapter 6 (relating to
certain controlled corporations) shall be applied with
respect to the members of such group without regard to
sections 1563(a)(4) and 1563(b)(2)(D), and
(ii) for purposes of this subsection, a distribution by any
member of such group which is subject to tax under section
801 shall not be treated as a qualifying dividend if such
distribution is out of earnings and profits for a taxable
year for which an election under this paragraph is not
effective and for which such distributing corporation was not
a component member of a controlled group of corporations
within the meaning of section 1563 solely by reason of
section 1563(b)(2)(D).
(C) Election
An election under this paragraph shall be made by the common
parent of the affiliated group and at such time and in such
manner as the Secretary shall by regulations prescribe. Any
such election shall be binding on all members of such group and
may be revoked only with the consent of the Secretary.
(c) Retention of 80-percent dividends received deduction for
dividends from 20-percent owned corporations
(1) In general
In the case of any dividend received from a 20-percent owned
corporation -
(A) subsection (a)(1) of this section, and
(B) subsections (a)(3) and (b)(2) of section 244,
shall be applied by substituting "80 percent" for "70 percent".
(2) 20-percent owned corporation
For purposes of this section, the term "20-percent owned
corporation" means any corporation if 20 percent or more of the
stock of such corporation (by vote and value) is owned by the
taxpayer. For purposes of the preceding sentence, stock described
in section 1504(a)(4) shall not be taken into account.
(d) Special rules for certain distributions
For purposes of subsection (a) -
(1) Any amount allowed as a deduction under section 591
(relating to deduction for dividends paid by mutual savings
banks, etc.) shall not be treated as a dividend.
(2) A dividend received from a regulated investment company
shall be subject to the limitations prescribed in section 854.
(3) Any dividend received from a real estate investment trust
which, for the taxable year of the trust in which the dividend is
paid, qualifies under part II of subchapter M (section 856 and
following) shall not be treated as a dividend.
(4) Any dividend received which is described in section 244
(relating to dividends received on preferred stock of a public
utility) shall not be treated as a dividend.
(e) Certain dividends from foreign corporations
For purposes of subsection (a) and for purposes of section 245,
any dividend from a foreign corporation from earnings and profits
accumulated by a domestic corporation during a period with respect
to which such domestic corporation was subject to taxation under
this chapter (or corresponding provisions of prior law) shall be
treated as a dividend from a domestic corporation which is subject
to taxation under this chapter.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 73; Pub. L. 85-866, title I,
Sec. 57(b), Sept. 2, 1958, 72 Stat. 1645; Pub. L. 86-779, Secs.
3(a), 10(g), Sept. 14, 1960, 74 Stat. 998, 1009; Pub. L. 88-272,
title II, Sec. 214(a), Feb. 26, 1964, 78 Stat. 52; Pub. L. 90-364,
title I, Sec. 103(e)(2), June 28, 1968, 82 Stat. 264; Pub. L. 91-
172, title V, Sec. 504(c)(1), Dec. 30, 1969, 83 Stat. 633; Pub. L.
94-12, title III, Sec. 304(b), Mar. 29, 1975, 89 Stat. 45; Pub. L.
94-455, title X, Secs. 1031(b)(2), 1051(f)(1), (2), title XIX,
Secs. 1901(a)(34), (b)(1)(J)(ii), (21)(A)(i), 1906(b)(3)(C)(ii),
(13)(A), Oct. 4, 1976, 90 Stat. 1622, 1646, 1769, 1791, 1797, 1833,
1834; Pub. L. 97-34, title II, Sec. 232(b)(2), Aug. 13, 1981, 95
Stat. 250; Pub. L. 98-369, div. A, title II, Sec. 211(b)(3), July
18, 1984, 98 Stat. 754; Pub. L. 99-514, title IV, Sec.
411(b)(2)(C)(iv), title VI, Sec. 611(a)(1), Oct. 22, 1986, 100
Stat. 2227, 2249; Pub. L. 100-203, title X, Sec. 10221(a)(1), (b),
Dec. 22, 1987, 101 Stat. 1330-408; Pub. L. 100-647, title I, Sec.
1010(f)(4), Nov. 10, 1988, 102 Stat. 3454; Pub. L. 101-508, title
XI, Sec. 11814(a), Nov. 5, 1990, 104 Stat. 1388-556; Pub. L. 104-
188, title I, Sec. 1702(h)(4), (8), Aug. 20, 1996, 110 Stat. 1873,
1874.)
-REFTEXT-
REFERENCES IN TEXT
The Small Business Investment Act of 1958, referred to in subsec.
(a)(2), is Pub. L. 85-699, Aug. 21, 1958, 72 Stat. 689, as amended,
which is classified principally to chapter 14B (Sec. 661 et seq.)
of Title 15, Commerce and Trade. For complete classification of
this Act to the Code, see Short Title note set out under section
661 of Title 15 and Tables.
Section 1562, referred to in subsec. (b)(1)(B)(i), was repealed
by Pub. L. 91-172, title IV, Sec. 401(a)(2), Dec. 30, 1969, 83
Stat. 600.
-MISC1-
AMENDMENTS
1996 - Subsec. (b)(2). Pub. L. 104-188, Sec. 1702(h)(8),
reenacted heading without change and amended text generally. Prior
to amendment, text read as follows: "For purposes of this
subsection, the term 'affiliated group' has the meaning given such
term by section 1504(a), except that for such purposes sections
1504(b)(2), 1504(b)(4), and 1504(c) shall not apply."
Subsec. (b)(3)(A). Pub. L. 104-188, Sec. 1702(h)(4), inserted
"of" after "In the case".
1990 - Subsec. (b). Pub. L. 101-508 amended subsec. (b)
generally, substituting present provisions for provisions defining
"qualifying dividends", providing for an election by or for an
affiliated group, the effect of an election, and the termination of
an election, defining an "affiliated group", and providing special
rules for insurance companies.
1988 - Subsec. (b)(6). Pub. L. 100-647 substituted "section 801"
for "section 801 or 821".
1987 - Subsec. (a)(1). Pub. L. 100-203, Sec. 10221(a)(1),
substituted "70 percent" for "80 percent".
Subsecs. (c) to (e). Pub. L. 100-203, Sec. 10221(b), added
subsec. (c) and redesignated former subsecs. (c) and (d) as (d) and
(e), respectively.
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 611(a)(1),
substituted "80 percent" for "85 percent".
Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 411(b)(2)(C)(iv),
inserted "and" at end of cl. (i), redesignated cl. (iii) as (ii),
and struck out former cl. (ii) which read as follows: "$400,000
limitation for certain exploration expenditures under section
617(h)(1), and".
1984 - Subsec. (b)(3)(C). Pub. L. 98-369, Sec. 211(b)(3)(A),
inserted "and" at end of cl. (ii), struck out cl. (iii) which
provided for a $25,000 limitation on small business deduction of
life insurance companies under sections 804(a)(3) and 809(d)(10),
and redesignated cl. (iv) as (iii).
Subsec. (b)(6). Pub. L. 98-369, Sec. 211(b)(3)(B), substituted
"section 801" for "section 802".
1981 - Subsec. (b)(3)(C)(i). Pub. L. 97-34 struck out "$150,000"
before "minimum accumulated earnings credit".
1976 - Subsec. (a)(2). Pub. L. 94-455, Sec. 1901(a)(34)(A),
inserted "(15 U.S.C. 661 and following)" after "Small Business
Investment Act of 1958".
Subsec. (b)(1). Pub. L. 94-455, Sec. 1051(f)(1), inserted
"either" at end of subpar. (A), substituted a comma for a period
and inserted "or" at end of subpar. (B), and added subpar. (C).
Subsec. (b)(2), (3), (4). Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 1901(a)(34)(B), struck
out "(except that in the case of a taxable year of a member
beginning in 1963 and ending in 1964, if the election is effective
for the taxable year of the common parent corporation which
includes the last day of such taxable year of such member, such
election shall be effective for such taxable year of such member,
if such member consents to such election with respect to such
taxable year)" after "with respect to which the election is made".
Subsec. (b)(3)(B). Pub. L. 94-455, Sec. 1031(b)(2), substituted
"election under section 901(a) (relating to allowance of foreign
tax credit)" for "elections under section 901(a) (relating to
allowance of foreign tax credit) and section 904(b)(1) (relating to
election of overall limitation)".
Subsec. (b)(3)(C). Pub. L. 94-455, Secs. 1901(b)(1)(J)(ii),
(21)(A)(i), 1906(b)(3)(C)(ii), struck out cl. (ii) which set a
$100,000 limitation for exploration expenditures under section 615
(a) and (b), redesignated former cls. (iii), (iv), and (v) as cls.
(ii), (iii), and (iv), respectively, and substituted "certain
exploration expenditures under section 617(h)(1)" for "exploration
expenditures under sections 615(c)(1) and 617(h)(1)" in cl. (ii) as
so redesignated, "804(a)(3)" for "804(a)(4)" in cl. (iii) as so
redesignated, and "section 6154(c)(2) and section 6655(e)(2)" for
"sections 6154(c)(2) and (3) and sections 6655(e)(2) and (3)" in
cl. (iv) as so redesignated.
Subsec. (b)(5). Pub. L. 94-455, Sec. 1051(f)(2), inserted ",
1504(b)(4)," after "sections 1504(b)(2)".
1975 - Subsec. (b)(3)(C)(i). Pub. L. 94-12 substituted "$150,000"
for "$100,000".
1969 - Subsec. (b)(3)(C)(iii). Pub. L. 91-172 substituted
"sections 615(c)(1) and 617(h)(1)" for "section 615(c)(1)".
1968 - Subsec. (b)(3)(C)(v). Pub. L. 90-364 substituted "surtax
exemption, and one amount under section 6154(c)(2) and (3) and
sections 6655(e)(2) and (3), for purposes of estimated tax payment
requirements under section 6154" for "$100,000 exemption for
purposes of estimated tax filing requirements under section 6016".
1964 - Subsec. (a). Pub. L. 88-272 substituted provisions
permitting a deduction for 85 percent of dividends received except
that it shall be 100 percent when received by a small business
investment company operating under the Small Business Investment
Act of 1958, and 100 percent in case of qualifying dividends, for
provisions permitting an 85 percent deduction for corporations
other than one operating under the Small Business Investment Act of
1958, and for other than dividends described in section 244(1) of
this title.
Subsec. (b). Pub. L. 88-272 added subsec. (b) and omitted a prior
subsec. (b) which allowed a 100 percent deduction of dividends
received by a small business investment company operating under the
Small Business Investment Act of 1958, other than dividends
described in section 244(1) of this title.
Subsec. (c). Pub. L. 88-272 substituted "subsection (a)" for
"subsections (a) and (b)" and added par. (4).
Subsec. (d). Pub. L. 88-272 substituted "subsection (a)" for
"subsections (a) and (b)".
1960 - Subsec. (c)(3). Pub. L. 86-779, Sec. 10(g), added par.
(3).
Subsec. (d). Pub. L. 86-779, Sec. 3(a), added subsec. (d).
1958 - Subsec. (a). Pub. L. 85-866, Sec. 57(b)(1), inserted
"(other than a small business investment company operating under
the Small Business Investment Act of 1958)".
Subsecs. (b), (c). Pub. L. 85-866, Sec. 57(b)(2), (3), added
subsec. (b), redesignated former subsec. (b) as (c), and
substituted "subsections (a) and (b)" for "subsection (a)".
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11814(c) of Pub. L. 101-508 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 1504 of this title] shall apply to taxable
years beginning after December 31, 1990.
"(2) Treatment of old elections. - For purposes of section
243(b)(3) of the Internal Revenue Code of 1986 (as amended by
subsection (a)), any reference to an election under such section
shall be treated as including a reference to an election under
section 243(b) of such Code (as in effect on the day before the
date of the enactment of this Act [Nov. 5, 1990])."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10221(e) of Pub. L. 100-203, as amended by Pub. L. 100-
647, title II, Sec. 2004(i)(1), Nov. 10, 1988, 102 Stat. 3603,
provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
244 to 246A, 805, 854, and 861 of this title] shall apply to
dividends received or accrued after December 31, 1987, in taxable
years ending after such date.
"(2) Amendments relating to limitations. - The amendments made by
subsection (c) [amending sections 246 and 805 of this title] shall
apply to taxable years beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 411(b)(2)(C)(iv) of Pub. L. 99-514
applicable, except as otherwise provided, to costs paid or incurred
after Dec. 31, 1986, in taxable years ending after such date, see
section 411(c) of Pub. L. 99-514 set out as a note under section
263 of this title.
Amendment by section 611(a)(1) of Pub. L. 99-514 applicable to
dividends received or accrued after Dec. 31, 1986, in taxable years
ending after such date, see section 611(b) of Pub. L. 99-514, set
out as a note under section 246 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1981, see section 232(c) of Pub. L. 97-34, set out
as a note under section 535 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1031(b)(2) of Pub. L.
94-455, see section 1031(c) of Pub. L. 94-455, set out as a note
set out under section 904 of this title.
For effective date of amendment by section 1051(f)(1), (2) of
Pub. L. 94-455, see section 1051(i) of Pub. L. 94-455, set out as a
note under section 27 of this title.
Amendment by section 1901(a)(34), (b)(1), (21) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
For effective date of amendment by section 1906(b)(3)(C)(ii) of
Pub. L. 94-455, see section 1906(d) of Pub. L. 94-455, set out as a
note under section 6013 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 applicable to taxable years beginning
after Dec. 31, 1974, see section 305(c) of Pub. L. 94-12, set out
as a note under section 535 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 504(d) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 381, 615, 617, 703, and 1016 of this
title] shall apply with respect to exploration expenditures paid or
incurred after December 31, 1969.
"(2) Presumption of election under section 617. - For purposes of
section 617 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954], an election under section 615(e) of such Code, which is
effective with respect to exploration expenditures paid or incurred
before January 1, 1970, shall be treated as an election under
section 617(a) of such Code with respect to exploration
expenditures paid or incurred after December 31, 1969. The
preceding sentence shall not apply to any taxpayer who notifies the
Secretary of the Treasury or his delegate (at such time and in such
manner as the Secretary or his delegate prescribes by regulations)
that he does not desire his election under section 615(e) to be so
treated."
EFFECTIVE DATE OF 1968 AMENDMENT
Section 103(f) of Pub. L. 90-364 provided that: "Except as
provided by section 104 [formerly set out as notes under sections
51 and 6154 of this title], the amendments made by this section
[enacting section 6425, amending this section and sections 6020,
6154, 6651, 6655, 7203, and 7701, and repealing sections 6016 and
6074 of this title] shall apply with respect to taxable years
beginning after December 31, 1967."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 214(c) of Pub. L. 88-272 provided that: "The amendments
made by subsections (a) [amending this section] and (b) [amending
sections 244, 246, 804, and 809 of this title] shall apply with
respect to dividends received in taxable years ending after
December 31, 1963."
EFFECTIVE DATE OF 1960 AMENDMENT
Section 3(c) of Pub. L. 86-779 provided that: "The amendments
made by subsections (a) and (b) [amending this section and section
861 of this title] shall apply to dividends received after December
31, 1959, in taxable years ending after such date."
Amendment by section 10(g) of Pub. L. 86-779 applicable with
respect to taxable years of real estate investment trusts beginning
after Dec. 31, 1960, see section 10(k) of Pub. L. 86-779, set out
as an Effective Date note under section 856 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 57(d) of Pub. L. 85-866 provided that: "The amendments
made by this section [enacting sections 1242 and 1243 and amending
this section and sections 165 and 246 of this title] shall apply
with respect to taxable years beginning after the date of the
enactment of this Act [Sept. 2, 1958]."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 244 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
Sec. 244. Dividends received on certain preferred stock
-STATUTE-
(a) General rule
In the case of a corporation, there shall be allowed as a
deduction an amount computed as follows:
(1) First determine the amount received as dividends on the
preferred stock of a public utility which is subject to taxation
under this chapter and with respect to which the deduction
provided in section 247 for dividends paid is allowable.
(2) Then multiply the amount determined under paragraph (1) by
the fraction -
(A) the numerator of which is 14 percent, and
(B) the denominator of which is that percentage which equals
the highest rate of tax specified in section 11(b).
(3) Finally ascertain the amount which is 70 percent of the
excess of -
(A) the amount determined under paragraph (1), over
(B) the amount determined under paragraph (2).
(b) Exception
If the dividends described in subsection (a)(1) are qualifying
dividends (as defined in section 243(b)(1), but determined without
regard to section 243(d)(4)) -
(1) subsection (a) shall be applied separately to such
qualifying dividends, and
(2) for purposes of subsection (a)(3), the percentage
applicable to such qualifying dividends shall be 100 percent in
lieu of 70 percent.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 73; Pub. L. 88-272, title II,
Sec. 214(b)(1), Feb. 26, 1964, 78 Stat. 55; Pub. L. 95-600, title
III, Sec. 301(b)(3), Nov. 6, 1978, 92 Stat. 2820; Pub. L. 99-514,
title VI, Sec. 611(a)(2), Oct. 22, 1986, 100 Stat. 2249; Pub. L.
100-203, title X, Sec. 10221(a)(2), Dec. 22, 1987, 101 Stat. 1330-
408; Pub. L. 100-647, title II, Sec. 2004(i)(2), Nov. 10, 1988,
102 Stat. 3603.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b). Pub. L. 100-647 substituted "section
243(d)(4)" for "section 243(c)(4)".
1987 - Subsecs. (a)(3), (b)(2). Pub. L. 100-203 substituted "70
percent" for "80 percent".
1986 - Subsecs. (a)(3), (b)(2). Pub. L. 99-514 substituted "80
percent" for "85 percent".
1978 - Subsec. (a)(2)(B). Pub. L. 95-600 substituted "the highest
rate of tax specified in section 11(b)" for "the sum of the normal
tax rate and the surtax rate for the taxable year prescribed by
section 11".
1964 - Pub. L. 88-272 designated existing provisions as subsec.
(a) and added subsec. (b).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dividends received or
accrued after Dec. 31, 1987, in taxable years ending after such
date, see section 10221(e)(1) of Pub. L. 100-203, set out as a note
under section 243 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to dividends received or
accrued after Dec. 31, 1986, in taxable years ending after such
date, see section 611(b) of Pub. L. 99-514, set out as a note under
section 246 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out
as a note under section 11 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to dividends received in
taxable years ending after Dec. 31, 1963, see section 214(c) of
Pub. L. 88-272, set out as a note under section 243 of this title.
-End-
-CITE-
26 USC Sec. 245 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
Sec. 245. Dividends received from certain foreign corporations
-STATUTE-
(a) Dividends from 10-percent owned foreign corporations
(1) In general
In the case of dividends received by a corporation from a
qualified 10-percent owned foreign corporation, there shall be
allowed as a deduction an amount equal to the percent (specified
in section 243 for the taxable year) of the U.S.-source portion
of such dividends.
(2) Qualified 10-percent owned foreign corporation
For purposes of this subsection, the term "qualified 10-percent
owned foreign corporation" means any foreign corporation (other
than a passive foreign investment company) if at least 10 percent
of the stock of such corporation (by vote and value) is owned by
the taxpayer.
(3) U.S.-source portion
For purposes of this subsection, the U.S.-source portion of any
dividend is an amount which bears the same ratio to such dividend
as -
(A) the post-1986 undistributed U.S. earnings, bears to
(B) the total post-1986 undistributed earnings.
(4) Post-1986 undistributed earnings
For purposes of this subsection, the term "post-1986
undistributed earnings" has the meaning given to such term by
section 902(c)(1).
(5) Post-1986 undistributed U.S. earnings
For purposes of this subsection, the term "post-1986
undistributed U.S. earnings" means the portion of the post-1986
undistributed earnings which is attributable to -
(A) income of the qualified 10-percent owned foreign
corporation which is effectively connected with the conduct of
a trade or business within the United States and subject to tax
under this chapter, or
(B) any dividend received (directly or through a wholly owned
foreign corporation) from a domestic corporation at least 80
percent of the stock of which (by vote and value) is owned
(directly or through such wholly owned foreign corporation) by
the qualified 10-percent owned foreign corporation.
(6) Special rule
If the 1st day on which the requirements of paragraph (2) are
met with respect to any foreign corporation is in a taxable year
of such corporation beginning after December 31, 1986, the post-
1986 undistributed earnings and the post-1986 undistributed U.S.
earnings of such corporation shall be determined by only taking
into account periods beginning on and after the 1st day of the
1st taxable year in which such requirements are met.
(7) Coordination with subsection (b)
Earnings and profits of any qualified 10-percent owned foreign
corporation for any taxable year shall not be taken into account
under this subsection if the deduction provided by subsection (b)
would be allowable with respect to dividends paid out of such
earnings and profits.
(8) Disallowance of foreign tax credit
No credit shall be allowed under section 901 for any taxes paid
or accrued (or treated as paid or accrued) with respect to the
United States-source portion of any dividend received by a
corporation from a qualified 10-percent-owned foreign
corporation.
(9) Coordination with section 904
For purposes of section 904, the U.S.-source portion of any
dividend received by a corporation from a qualified 10-percent
owned foreign corporation shall be treated as from sources in the
United States.
(10) Coordination with treaties
If -
(A) any portion of a dividend received by a corporation from
a qualified 10-percent-owned foreign corporation would be
treated as from sources in the United States under paragraph
(9),
(B) under a treaty obligation of the United States (applied
without regard to this subsection), such portion would be
treated as arising from sources outside the United States, and
(C) the taxpayer chooses the benefits of this paragraph,
this subsection shall not apply to such dividend (but subsections
(a), (b), and (c) of section 904 and sections 902, 907, and 960
shall be applied separately with respect to such portion of such
dividend).
(11) Coordination with section 1248
For purposes of this subsection, the term "dividend" does not
include any amount treated as a dividend under section 1248.
(b) Certain dividends received from wholly owned foreign
subsidiaries
(1) In general
In the case of dividends described in paragraph (2) received
from a foreign corporation by a domestic corporation which, for
its taxable year in which such dividends are received, owns
(directly or indirectly) all of the outstanding stock of such
foreign corporation, there shall be allowed as a deduction (in
lieu of the deduction provided by subsection (a)) an amount equal
to 100 percent of such dividends.
(2) Eligible dividends
Paragraph (1) shall apply only to dividends which are paid out
of the earnings and profits of a foreign corporation for a
taxable year during which -
(A) all of its outstanding stock is owned (directly or
indirectly) by the domestic corporation to which such dividends
are paid; and
(B) all of its gross income from all sources is effectively
connected with the conduct of a trade or business within the
United States.
(3) Exception
Paragraph (1) shall not apply to any dividends if an election
under section 1562 is effective for either -
(A) the taxable year of the domestic corporation in which
such dividends are received, or
(B) the taxable year of the foreign corporation out of the
earnings and profits of which such dividends are paid.
(c) Certain dividends received from FSC
(1) In general
In the case of a domestic corporation, there shall be allowed
as a deduction an amount equal to -
(A) 100 percent of any dividend received from another
corporation which is distributed out of earnings and profits
attributable to foreign trade income for a period during which
such other corporation was a FSC, and
(B) 70 percent (80 percent in the case of dividends from a 20-
percent owned corporation as defined in section 243(c)(2)) of
any dividend received from another corporation which is
distributed out of earnings and profits attributable to
effectively connected income received or accrued by such other
corporation while such other corporation was a FSC.
(2) Exception for certain dividends
Paragraph (1) shall not apply to any dividend which is
distributed out of earnings and profits attributable to foreign
trade income which -
(A) is section 923(a)(2) (!1) nonexempt income (within the
meaning of section 927(d)(6)),(!1) or
(B) would not, but for section 923(a)(4),(!1) be treated as
exempt foreign trade income.
(3) No deduction under subsection (a) or (b)
No deduction shall be allowable under subsection (a) or (b)
with respect to any dividend which is distributed out of earnings
and profits of a corporation accumulated while such corporation
was a FSC.
(4) Definitions
For purposes of this subsection -
(A) Foreign trade income; exempt foreign trade income
The terms "foreign trade income" and "exempt foreign trade
income" have the respective meanings given such terms by
section 923.(!1)
(B) Effectively connected income
The term "effectively connected income" means any income
which is effectively connected (or treated as effectively
connected) with the conduct of a trade or business in the
United States and is subject to tax under this chapter. Such
term shall not include any foreign trade income.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 73; Pub. L. 87-834, Sec. 5(c),
Oct. 16, 1962, 76 Stat. 977; Pub. L. 89-809, title I, Sec. 104(d),
(e), Nov. 13, 1966, 80 Stat. 1558; Pub. L. 98-369, div. A, title
VIII, Sec. 801(b)(1), (2)(B), July 18, 1984, 98 Stat. 994, 995;
Pub. L. 99-514, title XII, Sec. 1226(a), title XVIII, Sec.
1876(d)(1), (j), Oct. 22, 1986, 100 Stat. 2559, 2898, 2900; Pub. L.
100-203, title X, Sec. 10221(d)(1), Dec. 22, 1987, 101 Stat. 1330-
409; Pub. L. 100-647, title I, Secs. 1006(e)(16), 1012(l)(2), (3),
(bb)(9)(A), Nov. 10, 1988, 102 Stat. 3403, 3513, 3537; Pub. L. 101-
239, title VII, Sec. 7811(i)(14), Dec. 19, 1989, 103 Stat. 2411;
Pub. L. 108-357, title IV, Sec. 413(c)(3), Oct. 22, 2004, 118 Stat.
1507.)
-REFTEXT-
REFERENCES IN TEXT
Section 1562, referred to in subsec. (b)(3), was repealed by Pub.
L. 91-172, title IV, Sec. 401(a)(2), Dec. 30, 1969, 83 Stat. 600.
Sections 923 and 927, referred to in subsec. (c)(2), (4)(A), were
repealed by Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
-MISC1-
AMENDMENTS
2004 - Subsec. (a)(2). Pub. L. 108-357 struck out "foreign
personal holding company or" after "(other than a".
1989 - Subsec. (a)(8). Pub. L. 101-239 made clarifying amendment
to directory language of Pub. L. 100-647, Sec. 1012(l)(2)(A), see
1988 Amendment note below.
1988 - Subsec. (a)(8). Pub. L. 100-647, Sec. 1012(l)(2)(A), as
amended by Pub. L. 101-239, substituted "Disallowance of foreign
tax credit" for "Coordination with section 902" in heading and
amended text generally. Prior to amendment, text read as follows:
"In the case of a dividend received by a corporation from a
qualified 10-percent owned foreign corporation, no credit shall be
allowed under section 901 for any taxes treated as paid under
section 902 with respect to the U.S.-source portion of such
dividend."
Subsec. (a)(10), (11). Pub. L. 100-647, Sec. 1012(l)(2)(B), (3),
added pars. (10) and (11).
Subsec. (c). Pub. L. 100-647, Sec. 1012(bb)(9)(A), amended
subsec. (c) generally, revising and restating provisions of pars.
(1) to (4).
Subsec. (d). Pub. L. 100-647, Sec. 1006(e)(16), struck out
subsec. (d) which read as follows: "Property distributions. - For
purposes of this section, the amount of any distribution of
property other than money shall be the amount determined by
applying section 301(b)(1)(B)."
1987 - Subsec. (c)(1)(B). Pub. L. 100-203 substituted "70 percent
(80 percent in the case of dividends from a 20-percent owned
corporation as defined in section 243(c)(2))" for "85 percent".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1226(a), in amending
subsec. (a) generally, substituted "Dividends from 10-percent owned
foreign corporations" for "General rule" as heading, and in text
substituted provisions set out in nine numbered paragraphs allowing
for deduction for dividends received from certain foreign
corporations qualifying as "10-percent owned foreign corporations"
for former provisions which directed that, in the case of dividends
received from a foreign corporation (other than a foreign personal
holding company) which was subject to taxation under this chapter,
if, for an uninterrupted period of not less than 36 months ending
with the close of such foreign corporation's taxable year in which
such dividends were paid (or, if the corporation had not been in
existence for 36 months at the close of such taxable year, for the
period the foreign corporation had been in existence as of the
close of such taxable year) such foreign corporation had been
engaged in trade or business within the United States and if 50
percent or more of the gross income of such corporation from all
sources for such period was effectively connected with the conduct
of a trade or business within the United States, there was allowed
as a deduction in the case of a corporation a percentage of
dividends received.
Subsec. (c)(1). Pub. L. 99-514, Sec. 1876(d)(1)(A), amended par.
(1) generally. Prior to amendment, par. (1) read as follows: "In
the case of a domestic corporation, there shall be allowed as a
deduction an amount equal to 100 percent of any dividend received
by such corporation from another corporation which is distributed
out of earnings and profits attributable to foreign trade income
for a period during which such other corporation was a FSC. The
deduction allowable under the preceding sentence with respect to
any dividend shall be in lieu of any deduction allowable under
subsection (a) or (b) with respect to such dividend."
Subsec. (c)(3). Pub. L. 99-514, Sec. 1876(j), added par. (3).
Former par. (3) redesignated (4).
Pub. L. 99-514, Sec. 1876(d)(1)(B), inserted "For purposes of
this subsection, the term 'qualified interest and carrying charges'
means any interest or carrying charges (as defined in section
927(d)(1)) derived from a transaction which results in foreign
trade income."
Subsec. (c)(4). Pub. L. 99-514, Sec. 1876(j), redesignated former
par. (3) as (4).
1984 - Subsec. (c). Pub. L. 98-369 added subsec. (c),
redesignated former subsec. (c) as (d), and substituted therein
"this section" for "subsections (a) and (b)".
1966 - Subsec. (a). Pub. L. 89-809, Sec. 104(d), (e)(2),
substituted "and if 50 percent or more of the gross income of such
corporation from all sources for such period is effectively
connected with the conduct of a trade or business within the United
States" for "and has derived 50 percent or more of its gross income
from sources within the United States" in provisions preceding par.
(1), "which is effectively connected with the conduct of a trade or
business within the United States" for "from sources within the
United States" in par. (1), ", which is effectively connected with
the conduct of a trade or business within the United States," for
"from sources within the United States" in par. (2), and inserted
provisions following par. (2).
Subsecs. (b), (c). Pub. L. 89-809, Sec. 104(e)(1), (3), added
subsec. (b), redesignated former subsec. (b) as (c), and
substituted therein "subsections (a) and (b)" for "subsection (a)".
1962 - Subsec. (b). Pub. L. 87-834 designated existing provisions
as subsec. (a), inserted heading, and added subsec. (b).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years of
foreign corporations beginning after Dec. 31, 2004, and to taxable
years of United States shareholders with or within which such
taxable years of foreign corporations end, see section 413(d)(1) of
Pub. L. 108-357, set out as an Effective and Termination Dates of
2004 Amendments note under section 1 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1012(bb)(9)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply as if included in the provision of the Tax Reform Act of 1984
[Pub. L. 98-369, div. A] to which it relates."
Amendment by sections 1006(e)(16) and 1012(l)(2), (3) of Pub. L.
100-647 effective, except as otherwise provided, as if included in
the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L. 100-
647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dividends received or
accrued after Dec. 31, 1987, in taxable years ending after such
date, see section 10221(e)(1) of Pub. L. 100-203, set out as a note
under section 243 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1226(c)(1) of Pub. L. 99-514 provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to distributions out of earnings and profits for taxable
years beginning after December 31, 1986."
Amendment by section 1876(d)(1), (j) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 805(a) of title VIII of div. A of Pub. L. 98-369, as
amended by Pub. L. 99-514, Sec. 2, title XVIII, Sec. 1876(i), (o),
(p)(4), Oct. 22, 1986, 100 Stat. 2095, 2900-2902, provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this title [enacting sections 921 to 927 of this
title, amending this section and sections 246, 274, 275, 441, 901,
904, 906, 934, 936, 951, 956, 992, 993, 995, 996, 999, 1248, 6011,
6072, 6501, 6686, and 7651 of this title, and enacting provisions
set out as notes under sections 921 and 991 of this title] shall
apply to transactions after December 31, 1984, in taxable years
ending after such date.
"(2) Special rule for certain contracts. - To the extent provided
in regulations prescribed by the Secretary of the Treasury or his
delegate, any event or activity required to occur or required to be
performed, before January 1, 1985, by section 924(c) or (d) or
925(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
shall be treated as meeting the requirements of such section if
such event or activity is with respect to -
"(A) any lease of more than 3 years duration which was entered
into before January 1, 1985,
"(B) any contract with respect to which the taxpayer uses the
completed contract method of accounting which was entered into
before January 1, 1985, or
"(C) in the case of any contract other than a lease or contract
described in subparagraph (A) or (B), any contract which was
entered into before January 1, 1985; except that this
subparagraph shall only apply to the first 3 taxable years of the
FSC ending after January 1, 1985, or such later taxable years as
the Secretary of the Treasury or his delegate may prescribe.
"(3) Section 801(d)(10). - The amendment made by section
801(d)(10) [amending section 996 of this title] shall apply to
distributions on or after June 22, 1984.
"(4) Section 803. - The amendments made by section 803 [amending
section 441 of this title] shall apply to taxable years beginning
after December 31, 1984."
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable to distributions made
after Dec. 31, 1962, see section 5(d) of Pub. L. 87-834, set out as
a note under section 301 of this title.
DIVIDENDS RECEIVED OR ACCRUED DURING 1987
Section 1006(b)(1) of Pub. L. 100-647 provided that: "In the case
of dividends received or accrued during 1987 -
"(A) subparagraph (B) of section 245(c)(1) of the 1986 Code
shall be applied by substituting '80 percent' for the percentage
specified therein, and
"(B) subparagraph (B) of section 861(a)(2) of the 1986 Code
shall be applied by substituting ' 100/80 ths' for the fraction
specified therein."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 246 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
Sec. 246. Rules applying to deductions for dividends received
-STATUTE-
(a) Deduction not allowed for dividends from certain corporations
(1) In general
The deductions allowed by sections 243, 244, and 245 shall not
apply to any dividend from a corporation which, for the taxable
year of the corporation in which the distribution is made, or for
the next preceding taxable year of the corporation, is a
corporation exempt from tax under section 501 (relating to
certain charitable, etc., organizations) or section 521 (relating
to farmers' cooperative associations).
(2) Subsection not to apply to certain dividends of Federal Home
Loan Banks
(A) Dividends out of current earnings and profits
In the case of any dividend paid by any FHLB out of earnings
and profits of the FHLB for the taxable year in which such
dividend was paid, paragraph (1) shall not apply to that
portion of such dividend which bears the same ratio to the
total dividend as -
(i) the dividends received by the FHLB from the FHLMC
during such taxable year, bears to
(ii) the total earnings and profits of the FHLB for such
taxable year.
(B) Dividends out of accumulated earnings and profits
In the case of any dividend which is paid out of any
accumulated earnings and profits of any FHLB, paragraph (1)
shall not apply to that portion of the dividend which bears the
same ratio to the total dividend as -
(i) the amount of dividends received by such FHLB from the
FHLMC which are out of earnings and profits of the FHLMC -
(I) for taxable years ending after December 31, 1984, and
(II) which were not previously treated as distributed
under subparagraph (A) or this subparagraph, bears to
(ii) the total accumulated earnings and profits of the FHLB
as of the time such dividend is paid.
For purposes of clause (ii), the accumulated earnings and
profits of the FHLB as of January 1, 1985, shall be treated as
equal to its retained earnings as of such date.
(C) Coordination with section 243
To the extent that paragraph (1) does not apply to any
dividend by reason of subparagraph (A) or (B) of this
paragraph, the requirement contained in section 243(a) that the
corporation paying the dividend be subject to taxation under
this chapter shall not apply.
(D) Definitions
For purposes of this paragraph -
(i) FHLB
The term "FHLB" means any Federal Home Loan Bank.
(ii) FHLMC
The term "FHLMC" means the Federal Home Loan Mortgage
Corporation.
(iii) Taxable year of FHLB
The taxable year of an FHLB shall, except as provided in
regulations prescribed by the Secretary, be treated as the
calendar year.
(iv) Earnings and profits
The earnings and profits of any FHLB for any taxable year
shall be treated as equal to the sum of -
(I) any dividends received by the FHLB from the FHLMC
during such taxable year, and
(II) the total earnings and profits (determined without
regard to dividends described in subclause (I)) of the FHLB
as reported in its annual financial statement prepared in
accordance with section 20 of the Federal Home Loan Bank
Act (12 U.S.C. 1440).
(b) Limitation on aggregate amount of deductions
(1) General rule
Except as provided in paragraph (2), the aggregate amount of
the deductions allowed by sections 243(a)(1), 244(a), and
subsection (a) or (b) of section 245 shall not exceed the
percentage determined under paragraph (3) of the taxable income
computed without regard to the deductions allowed by sections
172, 199, 243(a)(1), 244(a), subsection (a) or (b) of section
245, and 247, without regard to any adjustment under section
1059, and without regard to any capital loss carryback to the
taxable year under section 1212(a)(1).
(2) Effect of net operating loss
Paragraph (1) shall not apply for any taxable year for which
there is a net operating loss (as determined under section 172).
(3) Special rules
The provisions of paragraph (1) shall be applied -
(A) first separately with respect to dividends from 20-
percent owned corporations (as defined in section 243(c)(2))
and the percentage determined under this paragraph shall be 80
percent, and
(B) then separately with respect to dividends not from 20-
percent owned corporations and the percentage determined under
this paragraph shall be 70 percent and the taxable income shall
be reduced by the aggregate amount of dividends from 20-percent
owned corporations (as so defined).
(c) Exclusion of certain dividends
(1) In general
No deduction shall be allowed under section 243, 244, or 245,
in respect of any dividend on any share of stock -
(A) which is held by the taxpayer for 45 days or less during
the 91-day period beginning on the date which is 45 days before
the date on which such share becomes ex-dividend with respect
to such dividend, or
(B) to the extent that the taxpayer is under an obligation
(whether pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or
related property.
(2) 90-day rule in the case of certain preference dividends
In the case of stock having preference in dividends, if the
taxpayer receives dividends with respect to such stock which are
attributable to a period or periods aggregating in excess of 366
days, paragraph (1)(A) shall be applied -
(A) by substituting "90 days" for "45 days" each place it
appears, and
(B) by substituting "181-day period" for "91-day period".
(3) Determination of holding periods
For purposes of this subsection, in determining the period for
which the taxpayer has held any share of stock -
(A) the day of disposition, but not the day of acquisition,
shall be taken into account, and
(B) paragraph (3) of section 1223 shall not apply.
(4) Holding period reduced for periods where risk of loss
diminished
The holding periods determined for purposes of this subsection
shall be appropriately reduced (in the manner provided in
regulations prescribed by the Secretary) for any period (during
such periods) in which -
(A) the taxpayer has an option to sell, is under a
contractual obligation to sell, or has made (and not closed) a
short sale of, substantially identical stock or securities,
(B) the taxpayer is the grantor of an option to buy
substantially identical stock or securities, or
(C) under regulations prescribed by the Secretary, a taxpayer
has diminished his risk of loss by holding 1 or more other
positions with respect to substantially similar or related
property.
The preceding sentence shall not apply in the case of any
qualified covered call (as defined in section 1092(c)(4) but
without regard to the requirement that gain or loss with respect
to the option not be ordinary income or loss), other than a
qualified covered call option to which section 1092(f) applies.
(d) Dividends from a DISC or former DISC
No deduction shall be allowed under section 243 in respect of a
dividend from a corporation which is a DISC or former DISC (as
defined in section 992(a)) to the extent such dividend is paid out
of the corporation's accumulated DISC income or previously taxed
income, or is a deemed distribution pursuant to section 995(b)(1).
(e) Certain distributions to satisfy requirements
No deduction shall be allowed under section 243(a) with respect
to a dividend received pursuant to a distribution described in
section 936(h)(4).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 74; Pub. L. 85-866, title I,
Secs. 18(a), 57(c)(2), Sept. 2, 1958, 72 Stat. 1614, 1646; Pub. L.
88-272, title II, Sec. 214(b)(2), Feb. 26, 1964, 78 Stat. 55; Pub.
L. 91-172, title IV, Sec. 434(b)(1), title V, Sec. 512(f)(3), Dec.
30, 1969, 83 Stat. 625, 641; Pub. L. 92-178, title V, Sec. 502(a),
Dec. 10, 1971, 85 Stat. 549; Pub. L. 94-455, title X, Sec.
1051(f)(3), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1646, 1834; Pub. L. 97-248, title II, Sec. 213(c), Sept. 3, 1982,
96 Stat. 465; Pub. L. 98-369, div. A, title I, Secs. 53(b), (d)(2),
177(b), title VIII, Sec. 801(b)(2)(A), July 18, 1984, 98 Stat. 567,
568, 709, 995; Pub. L. 99-514, title VI, Sec. 611(a)(3), title XII,
Sec. 1275(a)(2)(B), title XVIII, Secs. 1804(b)(1)(A), (B),
1812(d)(1), Oct. 22, 1986, 100 Stat. 2249, 2598, 2798, 2835; Pub.
L. 100-203, title X, Sec. 10221(c)(1), Dec. 22, 1987, 101 Stat.
1330-409; Pub. L. 100-647, title I, Sec. 1018(u)(10), Nov. 10,
1988, 102 Stat. 3590; Pub. L. 104-188, title I, Sec. 1616(b)(4),
Aug. 20, 1996, 110 Stat. 1856; Pub. L. 105-34, title X, Sec.
1015(a), (b), Aug. 5, 1997, 111 Stat. 921, 922; Pub. L. 108-311,
title IV, Sec. 406(f), Oct. 4, 2004, 118 Stat. 1190; Pub. L. 108-
357, title I, Sec. 102(d)(4), title VIII, Sec. 888(d), Oct. 22,
2004, 118 Stat. 1429, 1643; Pub. L. 109-135, title IV, Sec.
402(a)(4), Dec. 21, 2005, 119 Stat. 2610.)
-MISC1-
AMENDMENTS
2005 - Subsec. (c)(3)(B). Pub. L. 109-135 substituted "paragraph
(3) of section 1223" for "paragraph (4) of section 1223".
2004 - Subsec. (b)(1). Pub. L. 108-357, Sec. 102(d)(4), inserted
"199," after "172,".
Subsec. (c)(1)(A). Pub. L. 108-311, Sec. 406(f)(1), substituted
"91-day period" for "90-day period".
Subsec. (c)(2)(B). Pub. L. 108-311, Sec. 406(f)(2), substituted
"181-day period" for "180-day period" and "91-day period" for "90-
day period".
Subsec. (c)(4). Pub. L. 108-357, Sec. 888(d), inserted ", other
than a qualified covered call option to which section 1092(f)
applies" before period at end of concluding provisions.
1997 - Subsec. (c)(1)(A). Pub. L. 105-34, Sec. 1015(a), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "which is held by the taxpayer for 45 days or less, or".
Subsec. (c)(2). Pub. L. 105-34, Sec. 1015(b)(1), amended heading
and text of par. (2) generally. Prior to amendment, text read as
follows: "In the case of any stock having preference in dividends,
the holding period specified in paragraph (1)(A) shall be 90 days
in lieu of 45 days if the taxpayer receives dividends with respect
to such stock which are attributable to a period or periods
aggregating in excess of 366 days."
Subsec. (c)(3). Pub. L. 105-34, Sec. 1015(b)(2), inserted "and"
at end of subpar. (A), redesignated subpar. (C) as (B), and struck
out former subpar. (B) which read as follows: "there shall not be
taken into account any day which is more than 45 days (or 90 days
in the case of stock to which paragraph (2) applies) after the date
on which such share becomes ex-dividend, and".
1996 - Subsec. (f). Pub. L. 104-188 struck out subsec. (f) which
provided a cross reference to section 596 of this title for special
rule relating to mutual savings banks, etc., to which section 593
applies.
1988 - Subsec. (c)(1)(A). Pub. L. 100-647 substituted "which" for
"Which".
1987 - Subsec. (b)(1). Pub. L. 100-203, Sec. 10221(c)(1)(A),
substituted "the percentage determined under paragraph (3)" for "80
percent".
Subsec. (b)(3). Pub. L. 100-203, Sec. 10221(c)(1)(B), added par.
(3).
1986 - Subsec. (a)(2)(B). Pub. L. 99-514, Sec. 1812(d)(1)(A),
substituted "In" for "For purposes of subparagraph (A), in" in
introductory provisions and substituted cl. (i)(II) for former cl.
(i)(II) which read as follows: "which were not taken into account
under subparagraph (A), bears to".
Subsec. (a)(2)(C), (D). Pub. L. 99-514, Sec. 1812(d)(1)(B), (C),
added subpar. (C), redesignated former subpar. (C) as (D), and
added cl. (iv) to subpar. (D).
Subsec. (b)(1). Pub. L. 99-514, Sec. 611(a)(3), substituted "80
percent" for "85 percent".
Subsec. (c)(1)(A). Pub. L. 99-514, Sec. 1804(b)(1)(A), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "which is sold or otherwise disposed of in any case in
which the taxpayer has held such share for 45 days or less, or".
Subsec. (c)(4). Pub. L. 99-514, Sec. 1804(b)(1)(B), substituted
"determined for purposes of this subsection" for "determined under
paragraph (3)".
Subsec. (e). Pub. L. 99-514, Sec. 1275(a)(2)(B), struck out "or
934(e)(3)" after "936(h)(4)".
1984 - Subsec. (a). Pub. L. 98-369, Sec. 177(b), amended subsec.
(a) generally, designating existing provisions as par. (1) and
adding par. (2).
Subsec. (b)(1). Pub. L. 98-369, Sec. 801(b)(2)(A), substituted
"subsection (a) or (b) of section 245" for "245" in two places.
Pub. L. 98-369, Sec. 53(d)(2), substituted "without regard to any
adjustment under section 1059, and without regard" for "and without
regard".
Subsec. (c)(1)(A). Pub. L. 98-369, Sec. 53(b)(1), substituted
"45" for "15".
Subsec. (c)(1)(B). Pub. L. 98-369, Sec. 53(b)(3), substituted "to
make related payments with respect to positions in substantially
similar or related property" for "to make corresponding payments
with respect to substantially identical stock or securities".
Subsec. (c)(2). Pub. L. 98-369, Sec. 53(b)(1), substituted "45"
for "15".
Subsec. (c)(3). Pub. L. 98-369, Sec. 53(b)(4), struck out last
sentence which directed that the holding periods determined under
the preceding provisions of this paragraph be appropriately reduced
(in the manner provided in regulations prescribed by the Secretary)
for any period (during such holding periods) in which the taxpayer
had an option to sell, was under a contractual obligation to sell,
or had made (and not closed) a short sale of, substantially
identical stock or securities.
Subsec. (c)(3)(B). Pub. L. 98-369, Sec. 53(b)(1), substituted
"45" for "15".
Subsec. (c)(4). Pub. L. 98-369, Sec. 53(b)(2), added par. (4).
1982 - Subsecs. (e), (f). Pub. L. 97-248 added subsec. (e) and
redesignated former subsec. (e) as (f).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1051(f)(3), struck out
references to dividends from corporations organized under the China
Trade Act, 1922, and corporations to which section 931 (relating to
income from sources within possessions of the United States)
applies.
Subsec. (c)(3). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
1971 - Subsecs. (d), (e). Pub. L. 92-178 added subsec. (d) and
redesignated former subsec. (d) as (e).
1969 - Subsec. (b)(1). Pub. L. 91-172, Sec. 512(f)(3),
substituted "and 247, and without regard to any capital loss
carryback to the taxable year under section 1212(a)(1)" for "and
247".
Subsec. (d). Pub. L. 91-172, Sec. 434(b)(1), added subsec. (d).
1964 - Subsec. (b). Pub. L. 88-272 substituted "243(a)(1),
244(a)" for "243(a), 244" wherever appearing.
1958 - Subsec. (b)(1). Pub. L. 85-866, Sec. 57(c)(2), substituted
"243(a)" for "243" wherever appearing.
Subsec. (c). Pub. L. 85-866, Sec. 18(a), added subsec. (c).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provisions of the Energy Policy Act of 2005, Pub. L. 109-58, to
which it relates, but not applicable with respect to any
transaction ordered in compliance with the Public Utility Holding
Company Act of 1935 (15 U.S.C. 79 et seq.) before its repeal, see
section 402(m) of Pub. L. 109-135, set out as an Effective and
Termination Dates of 2005 Amendments note under section 23 of this
title.
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendment by section 102(d)(4) of Pub. L. 108-357 applicable to
taxable years beginning after Dec. 31, 2004, see section 102(e) of
Pub. L. 108-357, set out as a note under section 56 of this title.
Pub. L. 108-357, title VIII, Sec. 888(e), Oct. 22, 2004, 118
Stat. 1643, provided that: "The amendments made by this section
[amending this section and sections 1092 and 1258 of this title]
shall apply to positions established on or after the date of the
enactment of this Act [Oct. 22, 2004]."
Amendment by Pub. L. 108-311 effective as if included in the
provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 406(h) of Pub. L. 108-
311, set out as a note under section 55 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1015(c) of Pub. L. 105-34 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to dividends received or accrued after
the 30th day after the date of the enactment of this Act [Aug. 5,
1997].
"(2) Transitional rule. - The amendments made by this section
shall not apply to dividends received or accrued during the 2-year
period beginning on the date of the enactment of this Act if -
"(A) the dividend is paid with respect to stock held by the
taxpayer on June 8, 1997, and all times thereafter until the
dividend is received,
"(B) such stock is continuously subject to a position described
in section 246(c)(4) of the Internal Revenue Code of 1986 on June
8, 1997, and all times thereafter until the dividend is received,
and
"(C) such stock and position are clearly identified in the
taxpayer's records within 30 days after the date of the enactment
of this Act.
Stock shall not be treated as meeting the requirement of
subparagraph (B) if the position is sold, closed, or otherwise
terminated and reestablished."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1995, see section 1616(c) of Pub. L. 104-
188, set out as a note under section 593 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 31, 1987, see section 10221(e)(2) of Pub. L.
100-203, as amended, set out as a note under section 243 of this
title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 611(b) of Pub. L. 99-514 provided that:
"(1) In general. - The amendments made by subsection (a)
[amending this section and sections 243, 244, 246A, and 805 of this
title] shall apply to dividends received or accrued after December
31, 1986, in taxable years ending after such date.
"(2) Amendment relating to limitation on deductions. - The
amendment made by subsection (a) to section 246(b) of the Internal
Revenue Code of 1986 shall apply to taxable years beginning after
December 31, 1986."
Amendment by section 1275(a)(2)(B) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
Section 1804(b)(1)(C) of Pub. L. 99-514 provided that: "The
amendments made by this paragraph [amending this section] shall
apply to stock acquired after March 1, 1986."
Amendment by section 1812(d)(1) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 53(d)(2) of Pub. L. 98-369 applicable to
distributions after Mar. 1, 1984, in taxable years ending after
such date, and amendment of subsec. (c) of this section by section
53(b) of Pub. L. 98-369, applicable to stock acquired after July
18, 1984, in taxable years ending after such date, see section
53(e)(1), (2) of Pub. L. 98-369, set out as an Effective Date note
under section 1059 of this title.
Amendment by section 177(b) of Pub. L. 98-369, effective Jan. 1,
1985, see section 177(d) of Pub. L. 98-369, set out as a note under
section 172 of this title.
Amendment by section 801(b)(2)(A) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1984, in taxable years ending after
such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
out as a note under section 245 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, see section 213(e)(1) of Pub. L. 97-248, set
out as a note under section 936 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1051(f)(3) of Pub. L.
94-455, see section 1051(i) of Pub. L. 94-455, set out as a note
under section 27 of this title.
Amendment by section 1906(b)(13)(A) of Pub. L. 94-455 effective
Feb. 1, 1977, see section 1906(d)(1) of Pub. L. 94-455, set out as
a note under section 6013 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by Pub. L. 92-178 applicable with respect to taxable
years ending after Dec. 31, 1971, except that a corporation may not
be a DISC for any taxable year beginning before Jan. 1, 1972, see
section 507 of Pub. L. 92-178, set out as an Effective Date note
under section 991 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 512(f)(3) of Pub. L. 91-172 applicable with
respect to net capital losses sustained in taxable years beginning
after Dec. 31, 1969, see section 512(g) of Pub. L. 91-172, set out
as a note under section 1212 of this title.
Section 434(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [enacting section 596 of this title and
amending this section] shall apply to taxable years beginning after
July 11, 1969."
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to dividends received in
taxable years ending after Dec. 31, 1963, see section 214(c) of
Pub. L. 88-272, set out as a note under section 243 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 18(b) of Pub. L. 85-866 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to taxable years ending after December 31, 1957, but only
with respect to shares of stock acquired or short sales made after
December 31, 1957."
Amendment by section 57(c)(2) of Pub. L. 85-866 applicable with
respect to taxable years beginning after Sept. 2, 1958, see section
57(d) of Pub. L. 85-866, set out as a note under section 243 of
this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 246A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
Sec. 246A. Dividends received deduction reduced where portfolio
stock is debt financed
-STATUTE-
(a) General rule
In the case of any dividend on debt-financed portfolio stock,
there shall be substituted for the percentage which (but for this
subsection) would be used in determining the amount of the
deduction allowable under section 243, 244, or 245(a) a percentage
equal to the product of -
(1) 70 percent (80 percent in the case of any dividend from a
20-percent owned corporation as defined in section 243(c)(2)),
and
(2) 100 percent minus the average indebtedness percentage.
(b) Section not to apply to dividends for which 100 percent
dividends received deduction allowable
Subsection (a) shall not apply to -
(1) qualifying dividends (as defined in section 243(b) without
regard to section 243(d)(4)), and
(2) dividends received by a small business investment company
operating under the Small Business Investment Act of 1958.
(c) Debt financed portfolio stock
For purposes of this section -
(1) In general
The term "debt financed portfolio stock" means any portfolio
stock if at some time during the base period there is portfolio
indebtedness with respect to such stock.
(2) Portfolio stock
The term "portfolio stock" means any stock of a corporation
unless -
(A) as of the beginning of the ex-dividend date, the taxpayer
owns stock of such corporation -
(i) possessing at least 50 percent of the total voting
power of the stock of such corporation, and
(ii) having a value equal to at least 50 percent of the
total value of the stock of such corporation, or
(B) as of the beginning of the ex-dividend date -
(i) the taxpayer owns stock of such corporation which would
meet the requirements of subparagraph (A) if "20 percent"
were substituted for "50 percent" each place it appears in
such subparagraph, and
(ii) stock meeting the requirements of subparagraph (A) is
owned by 5 or fewer corporate shareholders.
(3) Special rule for stock in a bank or bank holding company
(A) In general
If, as of the beginning of the ex-dividend date, the taxpayer
owns stock of any bank or bank holding company having a value
equal to at least 80 percent of the total value of the stock of
such bank or bank holding company, for purposes of paragraph
(2)(A)(i), the taxpayer shall be treated as owning any stock of
such bank or bank holding company which the taxpayer has an
option to acquire.
(B) Definitions
For purposes of subparagraph (A) -
(i) Bank
The term "bank" has the meaning given such term by section
581.
(ii) Bank holding company
The term "bank holding company" means a bank holding
company (within the meaning of section 2(a) of the Bank
Holding Company Act of 1956).
(4) Treatment of certain preferred stock
For purposes of determining whether the requirements of
subparagraph (A) or (B) of paragraph (2) or of subparagraph (A)
of paragraph (3) are met, stock described in section 1504(a)(4)
shall not be taken into account.
(d) Average indebtedness percentage
For purposes of this section -
(1) In general
Except as provided in paragraph (2), the term "average
indebtedness percentage" means the percentage obtained by
dividing -
(A) the average amount (determined under regulations
prescribed by the Secretary) of the portfolio indebtedness with
respect to the stock during the base period, by
(B) the average amount (determined under regulations
prescribed by the Secretary) of the adjusted basis of the stock
during the base period.
(2) Special rule where stock not held throughout base period
In the case of any stock which was not held by the taxpayer
throughout the base period, paragraph (1) shall be applied as if
the base period consisted only of that portion of the base period
during which the stock was held by the taxpayer.
(3) Portfolio indebtedness
(A) In general
The term "portfolio indebtedness" means any indebtedness
directly attributable to investment in the portfolio stock.
(B) Certain amounts received from short sale treated as
indebtedness
For purposes of subparagraph (A), any amount received from a
short sale shall be treated as indebtedness for the period
beginning on the day on which such amount is received and
ending on the day the short sale is closed.
(4) Base period
The term "base period" means, with respect to any dividend, the
shorter of -
(A) the period beginning on the ex-dividend date for the most
recent previous dividend on the stock and ending on the day
before the ex-dividend date for the dividend involved, or
(B) the 1-year period ending on the day before the ex-
dividend date for the dividend involved.
(e) Reduction in dividends received deduction not to exceed
allocable interest
Under regulations prescribed by the Secretary, any reduction
under this section in the amount allowable as a deduction under
section 243, 244, or 245 with respect to any dividend shall not
exceed the amount of any interest deduction (including any
deductible short sale expense) allocable to such dividend.
(f) Regulations
The regulations prescribed for purposes of this section under
section 7701(f) shall include regulations providing for the
disallowance of interest deductions or other appropriate treatment
(in lieu of reducing the dividend received deduction) where the
obligor of the indebtedness is a person other than the person
receiving the dividend.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 51(a), July 18, 1984,
98 Stat. 562; amended Pub. L. 99-514, title VI, Sec. 611(a)(4),
title XVIII, Sec. 1804(a), Oct. 22, 1986, 100 Stat. 2249, 2798;
Pub. L. 100-203, title X, Sec. 10221(d)(2), Dec. 22, 1987, 101
Stat. 1330-409; Pub. L. 100-647, title I, Sec. 1012(l)(1), Nov. 10,
1988, 102 Stat. 3513; Pub. L. 108-311, title IV, Sec. 408(a)(9),
Oct. 4, 2004, 118 Stat. 1191.)
-REFTEXT-
REFERENCES IN TEXT
The Small Business Investment Act of 1958, referred to in subsec.
(b)(2), is Pub. L. 85-699, Aug. 21, 1958, 72 Stat. 689, as amended,
which is classified principally to chapter 14B (Sec. 661 et seq.)
of Title 15, Commerce and Trade. For complete classification of
this Act to the Code, see Short Title note set out under section
661 of Title 15 and Tables.
Section 2(a) of the Bank Holding Company Act of 1956, referred to
in subsec. (c)(3)(B)(ii), is classified to section 1841(a) of Title
12, Banks and Banking.
-MISC1-
AMENDMENTS
2004 - Subsec. (b)(1). Pub. L. 108-311 substituted "section
243(d)(4)" for "section 243(c)(4)".
1988 - Subsec. (a). Pub. L. 100-647 struck out at end "The
preceding sentence shall be applied before any determination of a
ratio under paragraph (1) or (2) of section 245(a)."
1987 - Subsec. (a)(1). Pub. L. 100-203 substituted "70 percent
(80 percent in the case of any dividend from a 20-percent owned
corporation as defined in section 243(c)(2))" for "80 percent".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1804(a), substituted "or
245(a)" for "or 245" and inserted "The preceding sentence shall be
applied before any determination of a ratio under paragraph (1) or
(2) of section 245(a)."
Subsec. (a)(1). Pub. L. 99-514, Sec. 611(a)(4), substituted "80
percent" for "85 percent".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dividends received or
accrued after Dec. 31, 1987, in taxable years ending after such
date, see section 10221(e)(1) of Pub. L. 100-203, set out as a note
under section 243 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 611(a)(4) of Pub. L. 99-514 applicable to
dividends received or accrued after Dec. 31, 1986, in taxable years
ending after such date, see section 611(b) of Pub. L. 99-514, set
out as a note under section 246 of this title.
Amendment by section 1804(a) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE
Section 51(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [enacting this section] shall apply with
respect to stock the holding period for which begins after the date
of the enactment of this Act [July 18, 1984] in taxable years
ending after such date."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 247 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
Sec. 247. Dividends paid on certain preferred stock of public
utilities
-STATUTE-
(a) Amount of deduction
In the case of a public utility, there shall be allowed as a
deduction an amount computed as follows:
(1) First determine the amount which is the lesser of -
(A) the amount of dividends paid during the taxable year on
its preferred stock, or
(B) the taxable income for the taxable year (computed without
the deduction allowed by this section).
(2) Then multiply the amount determined under paragraph (1) by
the fraction -
(A) the numerator of which is 14 percent, and
(B) the denominator of which is that percentage which equals
the highest rate of tax specified in section 11(b).
For purposes of the deduction provided in this section, the amount
of dividends paid shall not include any amount distributed in the
current taxable year with respect to dividends unpaid and
accumulated in any taxable year ending before October 1, 1942.
Amounts distributed in the current taxable year with respect to
dividends unpaid and accumulated for a prior taxable year shall for
purposes of this subsection be deemed to be distributed with
respect to the earliest year or years for which there are dividends
unpaid and accumulated.
(b) Definitions
For purposes of this section and section 244 -
(1) Public utility
The term "public utility" means a corporation engaged in the
furnishing of telephone service or in the sale of electrical
energy, gas, or water, if the rates for such furnishing or sale,
as the case may be, have been established or approved by a State
or political subdivision thereof or by an agency or
instrumentality of the United States or by a public utility or
public service commission or other similar body of the District
of Columbia or of any State or political subdivision thereof.
(2) Preferred stock
(A) In general
The term "preferred stock" means stock issued before October
1, 1942, which during the whole of the taxable year (or the
part of the taxable year after its issue) was stock the
dividends in respect of which were cumulative, limited to the
same amount, and payable in preference to the payment of
dividends on other stock.
(B) Certain stock issued on or after October 1, 1942
Stock issued on or after October 1, 1942, shall be deemed for
purposes of this paragraph to have been issued before October
1, 1942, if it was issued to refund or replace bonds or
debentures issued before October 1, 1942, or to refund or
replace other preferred stock (including stock which is
preferred stock by reason of this subparagraph or subparagraph
(D)), but only to the extent that the par or stated value of
the new stock does not exceed the par, stated, or face value of
the bonds or debentures issued before October 1, 1942, or the
other preferred stock, which such new stock is issued to refund
or replace.
(C) Determination under regulations
The determination of whether stock was issued to refund or
replace bonds or debentures issued before October 1, 1942, or
to refund or replace other preferred stock, shall be made under
regulations prescribed by the Secretary.
(D) Issuance of stock
For purposes of subparagraph (B), issuance of stock includes
issuance either by the same or another corporation in a
transaction which is a reorganization (as defined in section
368(a)) or a transaction subject to part VI of subchapter O as
in effect before its repeal (relating to exchanges in SEC
obedience orders), or the respectively corresponding provisions
of the Internal Revenue Code of 1939.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 75; Pub. L. 94-455, title XIX,
Sec. 1901(a)(35), Oct. 4, 1976, 90 Stat. 1770; Pub. L. 95-600,
title III, Sec. 301(b)(4), Nov. 6, 1978, 92 Stat. 2820; Pub. L. 101-
508, title XI, Sec. 11801(c)(8)(C), Nov. 5, 1990, 104 Stat. 1388-
524; Pub. L. 104-188, title I, Sec. 1704(t)(49), Aug. 20, 1996,
110 Stat. 1890; Pub. L. 109-135, title IV, Sec. 402(a)(5), Dec. 21,
2005, 119 Stat. 2610.)
-REFTEXT-
REFERENCES IN TEXT
The Internal Revenue Code of 1939, referred to in subsec.
(b)(2)(D), is act Feb. 10, 1939, ch. 2, 53 Stat. 1, as amended.
Prior to the enactment of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], the 1939 Code was classified to former
Title 26, Internal Revenue Code. For table of comparisons of the
1939 Code to the 1986 Code, see Table I preceding section 1 of this
title.
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(2)(D). Pub. L. 109-135 inserted "as in effect
before its repeal" after "part VI of subchapter O".
1996 - Subsec. (b)(2)(D). Pub. L. 104-188 provided that section
11801(c)(8)(C) of Pub. L. 101-508 shall be applied as if
"reorganizations" appeared instead of "reorganization" in the
material proposed to be stricken. See 1990 Amendment note below.
1990 - Subsec. (b)(2)(D). Pub. L. 101-508 which directed that ",
a transaction to which section 371 (relating to insolvency
reorganization) applies," be struck out was executed by striking
out ", a transaction to which section 371 (relating to insolvency
reorganizations) applies," after "(as defined in section 368(a))".
See 1996 Amendment note above.
1978 - Subsec. (a)(2)(B). Pub. L. 95-600 substituted "the highest
rate of tax specified in section 11(b)" for "the sum of the normal
tax rate and the surtax rate for the taxable year specified in
section 11".
1976 - Subsec. (b)(2). Pub. L. 94-455 divided existing provisions
into subpars. (A), (B), (C), and (D), added headings for subpars.
(A), (B), (C), and (D), and, in subpar. (C) as so redesignated,
substituted "prescribed by the Secretary" for "prescribed by the
Secretary or his delegate".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provisions of the Energy Policy Act of 2005, Pub. L. 109-58, to
which it relates, but not applicable with respect to any
transaction ordered in compliance with the Public Utility Holding
Company Act of 1935 (15 U.S.C. 79 et seq.) before its repeal, see
section 402(m) of Pub. L. 109-135, set out as an Effective and
Termination Dates of 2005 Amendments note under section 23 of this
title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out
as a note under section 11 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 effective for taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 248 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
Sec. 248. Organizational expenditures
-STATUTE-
(a) Election to deduct
If a corporation elects the application of this subsection (in
accordance with regulations prescribed by the Secretary) with
respect to any organizational expenditures -
(1) the corporation shall be allowed a deduction for the
taxable year in which the corporation begins business in an
amount equal to the lesser of -
(A) the amount of organizational expenditures with respect to
the taxpayer, or
(B) $5,000, reduced (but not below zero) by the amount by
which such organizational expenditures exceed $50,000, and
(2) the remainder of such organizational expenditures shall be
allowed as a deduction ratably over the 180-month period
beginning with the month in which the corporation begins
business.
(b) Organizational expenditures defined
The term "organizational expenditures" means any expenditure
which -
(1) is incident to the creation of the corporation;
(2) is chargeable to capital account; and
(3) is of a character which, if expended incident to the
creation of a corporation having a limited life, would be
amortizable over such life.
(c) Time for and scope of election
The election provided by subsection (a) may be made for any
taxable year beginning after December 31, 1953, but only if made
not later than the time prescribed by law for filing the return for
such taxable year (including extensions thereof). The period so
elected shall be adhered to in computing the taxable income of the
corporation for the taxable year for which the election is made and
all subsequent taxable years. The election shall apply only with
respect to expenditures paid or incurred on or after August 16,
1954.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 76; Pub. L. 94-455, title XIX,
Secs. 1901(a)(36), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1770,
1834; Pub. L. 108-357, title VIII, Sec. 902(b), Oct. 22, 2004, 118
Stat. 1651.)
-MISC1-
AMENDMENTS
2004 - Subsec. (a). Pub. L. 108-357 amended heading and text of
subsec. (a) generally. Prior to amendment, text read as follows:
"The organizational expenditures of a corporation may, at the
election of the corporation (made in accordance with regulations
prescribed by the Secretary, be treated as deferred expenses. In
computing taxable income, such deferred expenses shall be allowed
as a deduction ratably over such period of not less than 60 months
as may be selected by the corporation (beginning with the month in
which the corporation begins business)."
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(36), substituted
"August 16, 1954" for "the date of enactment of this title".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to amounts paid or
incurred after Oct. 22, 2004, see section 902(d) of Pub. L. 108-
357, set out as a note under section 195 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(36) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Amendment by section 1906(b)(13)(A) of Pub. L. 94-455 effective
Feb. 1, 1977, see section 1906(d)(1) of Pub. L. 94-455, set out as
a note under section 6013 of this title.
-End-
-CITE-
26 USC Sec. 249 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
Sec. 249. Limitation on deduction of bond premium on repurchase
-STATUTE-
(a) General rule
No deduction shall be allowed to the issuing corporation for any
premium paid or incurred upon the repurchase of a bond, debenture,
note, or certificate or other evidence of indebtedness which is
convertible into the stock of the issuing corporation, or a
corporation in control of, or controlled by, the issuing
corporation, to the extent the repurchase price exceeds an amount
equal to the adjusted issue price plus a normal call premium on
bonds or other evidences of indebtedness which are not convertible.
The preceding sentence shall not apply to the extent that the
corporation can demonstrate to the satisfaction of the Secretary
that such excess is attributable to the cost of borrowing and is
not attributable to the conversion feature.
(b) Special rules
For purposes of subsection (a) -
(1) Adjusted issue price
The adjusted issue price is the issue price (as defined in
sections 1273(b) and 1274) increased by any amount of discount
deducted before repurchase, or, in the case of bonds or other
evidences of indebtedness issued after February 28, 1913,
decreased by any amount of premium included in gross income
before repurchase by the issuing corporation.
(2) Control
The term "control" has the meaning assigned to such term by
section 368(c).
-SOURCE-
(Added Pub. L. 91-172, title IV, Sec. 414(a), Dec. 30, 1969, 83
Stat. 612; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369, div. A, title I, Sec.
42(a)(5), July 18, 1984, 98 Stat. 557.)
-MISC1-
AMENDMENTS
1984 - Subsec. (b)(1). Pub. L. 98-369 substituted "sections
1273(b) and 1274" for "section 1232(b)".
1976 - Subsec. (a). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years ending
after July 18, 1984, see section 44 of Pub. L. 98-369, set out as
an Effective Date note under section 1271 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 effective Feb. 1, 1977, see section
1906(d)(1) of Pub. L. 94-455, set out as a note under section 6013
of this title.
EFFECTIVE DATE
Section 414(c) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [enacting this section] shall apply
to a convertible bond or other convertible evidence of indebtedness
repurchased after April 22, 1969, other than such a bond or other
evidence of indebtedness repurchased pursuant to a binding
obligation incurred on or before April 22, 1969, to repurchase such
bond or other evidence of indebtedness at a specified call premium,
but no inference shall be drawn from the fact that section 249 of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added
by subsection (a) of this section) does not apply to the repurchase
of such convertible bond or other convertible evidence of
indebtedness."
-End-
-CITE-
26 USC Sec. 250 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART VIII - SPECIAL DEDUCTIONS FOR CORPORATIONS
-HEAD-
[Sec. 250. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(15),
Nov. 5, 1990, 104 Stat. 1388-520]
-MISC1-
Section, added Pub. L. 91-518, title IX, Sec. 901(a), Oct. 30,
1970, 84 Stat. 1341; amended Pub. L. 93-496, Sec. 12, Oct. 28,
1974, 88 Stat. 1531; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-473, Sec.
2(a)(2)(C), Oct. 17, 1978, 92 Stat. 1464; Pub. L. 96-454, Sec.
3(b)(1), Oct. 15, 1980, 94 Stat. 2012; Pub. L. 97-261, Sec.
6(d)(3), Sept. 20, 1982, 96 Stat. 1107; Pub. L. 99-521, Sec. 4(3),
Oct. 22, 1986, 100 Stat. 2993, related to certain payments to
National Railroad Passenger Corporation.
SAVINGS PROVISION
For provisions that nothing in repeal by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC PART IX - ITEMS NOT DEDUCTIBLE 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
PART IX - ITEMS NOT DEDUCTIBLE
-MISC1-
Sec.
261. General rule for disallowance of deductions.
262. Personal, living, and family expenses.
263. Capital expenditures.
263A. Capitalization and inclusion in inventory costs of
certain expenses.
264. Certain amounts paid in connection with insurance
contracts.
265. Expenses and interest relating to tax-exempt income.
266. Carrying charges.
267. Losses, expenses, and interest with respect to
transactions between related taxpayers.
268. Sale of land with unharvested crop.
269. Acquisitions made to evade or avoid income tax.
269A. Personal service corporations formed or availed of to
avoid or evade income tax.
269B. Stapled entities.
[270. Repealed.]
271. Debts owed by political parties, etc.
272. Disposal of coal or domestic iron ore.
273. Holders of life or terminable interest.
274. Disallowance of certain entertainment, etc., expenses.
275. Certain taxes.
276. Certain indirect contributions to political parties.
277. Deductions incurred by certain membership
organizations in transactions with members.
[278. Repealed.]
279. Interest on indebtedness incurred by corporation to
acquire stock or assets of another corporation.
[280. Repealed.]
280A. Disallowance of certain expenses in connection with
business use of home, rental of vacation homes, etc.
280B. Demolition of structures.
280C. Certain expenses for which credits are allowable.
[280D. Repealed.]
280E. Expenditures in connection with the illegal sale of
drugs.
280F. Limitation on depreciation for luxury automobiles;
limitation where certain property used for personal
purposes.
280G. Golden parachute payments.
280H. Limitation on certain amounts paid to owner-employees
by personal service corporations electing alternative
taxable years.(!1)
AMENDMENTS
1996 - Pub. L. 104-188, title I, Sec. 1704(t)(55), Aug. 20, 1996,
110 Stat. 1890, provided that section 11813(b)(13)(F) of Pub. L.
101-508 shall be applied as if "tax" appeared after "investment" in
the material proposed to be stricken. See 1990 Amendment note
below.
1990 - Pub. L. 101-508, title XI, Sec. 11813(b)(13)(F), Nov. 5,
1990, 104 Stat. 1388-555, which directed the striking out of
"investment credit and" in item 280F, was executed by striking out
"investment tax credit and" after "Limitation on". See 1996
Amendment note above.
1988 - Pub. L. 100-418, title I, Sec. 1941(b)(4)(B), Aug. 23,
1988, 102 Stat. 1324, struck out item 280D "Portion of chapter 45
taxes for which credit or refund is allowable under section 6429".
1987 - Pub. L. 100-203, title X, Sec. 10206(c)(2), Dec. 22, 1987,
101 Stat. 1330-402, added item 280H.
1986 - Pub. L. 99-514, title VIII, Sec. 803(c)(1), (3), Oct. 22,
1986, 100 Stat. 2356, added item 263A and struck out items 278
"Capital expenditures incurred in planting and developing citrus
and almond groves" and 280 "Certain expenditures incurred in
production of films, books, records, or similar property".
1984 - Pub. L. 98-369, div. A, title I, Secs. 67(d)(1), 136(b),
179(c), title X, Sec. 1063(b)(2), July 18, 1984, 98 Stat. 587, 670,
718, 1047, added items 269B, 280F, and 280G, and struck out
"certain historic" before "structures" in item 280B.
1983 - Pub. L. 97-414, Sec. 4(b)(2)(B), Jan. 4, 1983, 96 Stat.
2056, substituted "Certain expenses for which credits are
allowable" for "Portion of wages for which credit is claimed under
section 44B" in item 280C.
1982 - Pub. L. 97-248, title II, Sec. 250(b), title III, Sec.
351(b), Sept. 3, 1982, 96 Stat. 528, 640, added items 269A and
280E.
1980 - Pub. L. 96-499, title XI, Sec. 1131(d)(2), Dec. 5, 1980,
94 Stat. 2693, added item 280D.
1977 - Pub. L. 95-30, title II, Sec. 202(c)(2), May 23, 1977, 91
Stat. 147, added item 280C.
1976 - Pub. L. 94-455, title II, Sec. 210(b), title VI, Sec.
601(b), title XXI, Sec. 2124(b)(2), Oct. 4, 1976, 90 Stat. 1544,
1572, 1918, added items 280, 280A, and 280B.
1971 - Pub. L. 91-680, Sec. 1(c), Jan. 12, 1971, 84 Stat. 2064,
inserted "and almond" after "citrus" in item 278.
1969 - Pub. L. 91-172, title I, Sec. 121(b)(3)(B), title II,
Secs. 213(c)(2), 216(b), title IV, Sec. 411(b), Dec. 30, 1969, 83
Stat. 541, 572, 574, 608, struck out item 270 "Limitation on
deductions allowable to individuals in certain cases", and added
items 277 to 279.
1966 - Pub. L. 89-368, title III, Sec. 301(b), Mar. 15, 1966, 80
Stat. 67, added item 276.
1964 - Pub. L. 88-272, title II, Secs. 207(b)(3)(B), 227(b)(4),
Feb. 26, 1964, 78 Stat. 42, 98, inserted "or domestic iron ore" in
item 272, and added item 275.
1962 - Pub. L. 87-834, Sec. 4(a)(2), Oct. 16, 1962, 76 Stat. 976,
added item 274.
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 261 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 261. General rule for disallowance of deductions
-STATUTE-
In computing taxable income no deduction shall in any case be
allowed in respect of the items specified in this part.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 76.)
-End-
-CITE-
26 USC Sec. 262 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 262. Personal, living, and family expenses
-STATUTE-
(a) General rule
Except as otherwise expressly provided in this chapter, no
deduction shall be allowed for personal, living, or family
expenses.
(b) Treatment of certain phone expenses
For purposes of subsection (a), in the case of an individual, any
charge (including taxes thereon) for basic local telephone service
with respect to the 1st telephone line provided to any residence of
the taxpayer shall be treated as a personal expense.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 76; Pub. L. 100-647, title V,
Sec. 5073(a), Nov. 10, 1988, 102 Stat. 3682.)
-MISC1-
AMENDMENTS
1988 - Pub. L. 100-647 amended section generally. Prior to
amendment, section read as follows: "Except as otherwise expressly
provided in this chapter, no deduction shall be allowed for
personal, living, or family expenses."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 5073(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1988."
-End-
-CITE-
26 USC Sec. 263 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 263. Capital expenditures
-STATUTE-
(a) General rule
No deduction shall be allowed for -
(1) Any amount paid out for new buildings or for permanent
improvements or betterments made to increase the value of any
property or estate. This paragraph shall not apply to -
(A) expenditures for the development of mines or deposits
deductible under section 616,
(B) research and experimental expenditures deductible under
section 174,
(C) soil and water conservation expenditures deductible under
section 175,
(D) expenditures by farmers for fertilizer, etc., deductible
under section 180,
(E) expenditures for removal of architectural and
transportation barriers to the handicapped and elderly which
the taxpayer elects to deduct under section 190,
(F) expenditures for tertiary injectants with respect to
which a deduction is allowed under section 193; (!1)
(G) expenditures for which a deduction is allowed under
section 179; (!1)
(H) expenditures for which a deduction is allowed under
section 179A,
(I) expenditures for which a deduction is allowed under
section 179B,
(J) expenditures for which a deduction is allowed under
section 179C, or
(K) expenditures for which a deduction is allowed under
section 179D.
(2) Any amount expended in restoring property or in making good
the exhaustion thereof for which an allowance is or has been
made.
[(b) Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(16), Nov.
5, 1990, 104 Stat. 1388-520]
(c) Intangible drilling and development costs in the case of oil
and gas wells and geothermal wells
Notwithstanding subsection (a), and except as provided in
subsection (i), regulations shall be prescribed by the Secretary
under this subtitle corresponding to the regulations which granted
the option to deduct as expenses intangible drilling and
development costs in the case of oil and gas wells and which were
recognized and approved by the Congress in House Concurrent
Resolution 50, Seventy-ninth Congress. Such regulations shall also
grant the option to deduct as expenses intangible drilling and
development costs in the case of wells drilled for any geothermal
deposit (as defined in section 613(e)(2)) to the same extent and in
the same manner as such expenses are deductible in the case of oil
and gas wells. This subsection shall not apply with respect to any
costs to which any deduction is allowed under section 59(e) or 291.
(d) Expenditures in connection with certain railroad rolling stock
In the case of expenditures in connection with the rehabilitation
of a unit of railroad rolling stock (except a locomotive) used by a
domestic common carrier by railroad which would, but for this
subsection, be properly chargeable to capital account, such
expenditures, if during any 12-month period they do not exceed an
amount equal to 20 percent of the basis of such unit in the hands
of the taxpayer, shall, at the election of the taxpayer, be treated
(notwithstanding subsection (a)) as deductible repairs under
section 162 or 212. An election under this subsection shall be made
for any taxable year at such time and in such manner as the
Secretary prescribes by regulations. An election may not be made
under this subsection for any taxable year to which an election
under subsection (e) applies to railroad rolling stock (other than
locomotives).
[(e) Repealed. Pub. L. 97-34, title II, Sec. 201(c), Aug. 13, 1981,
95 Stat. 219]
(f) Railroad ties
In the case of a domestic common carrier by rail (including a
railroad switching or terminal company) which uses the retirement-
replacement method of accounting for depreciation of its railroad
track, expenditures for acquiring and installing replacement ties
of any material (and fastenings related to such ties) shall be
accorded the same tax accounting treatment as expenditures for
replacement ties of wood (and fastenings related to such ties).
(g) Certain interest and carrying costs in the case of straddles
(1) General rule
No deduction shall be allowed for interest and carrying charges
properly allocable to personal property which is part of a
straddle (as defined in section 1092(c)). Any amount not allowed
as a deduction by reason of the preceding sentence shall be
chargeable to the capital account with respect to the personal
property to which such amount relates.
(2) Interest and carrying charges defined
For purposes of paragraph (1), the term "interest and carrying
charges" means the excess of -
(A) the sum of -
(i) interest on indebtedness incurred or continued to
purchase or carry the personal property, and
(ii) all other amounts (including charges to insure, store,
or transport the personal property) paid or incurred to carry
the personal property, over
(B) the sum of -
(i) the amount of interest (including original issue
discount) includible in gross income for the taxable year
with respect to the property described in subparagraph (A),
(ii) any amount treated as ordinary income under section
1271(a)(3)(A), 1276, or 1281(a) with respect to such property
for the taxable year,
(iii) the excess of any dividends includible in gross
income with respect to such property for the taxable year
over the amount of any deduction allowable with respect to
such dividends under section 243, 244, or 245, and
(iv) any amount which is a payment with respect to a
security loan (within the meaning of section 512(a)(5))
includible in gross income with respect to such property for
the taxable year.
For purposes of subparagraph (A), the term "interest" includes
any amount paid or incurred in connection with personal property
used in a short sale.
(3) Exception for hedging transactions
This subsection shall not apply in the case of any hedging
transaction (as defined in section 1256(e)).
(4) Application with other provisions
(A) Subsection (c)
In the case of any short sale, this subsection shall be
applied after subsection (h).
(B) Section 1277 or 1282
In the case of any obligation to which section 1277 or 1282
applies, this subsection shall be applied after section 1277 or
1282.
(h) Payments in lieu of dividends in connection with short sales
(1) In general
If -
(A) a taxpayer makes any payment with respect to any stock
used by such taxpayer in a short sale and such payment is in
lieu of a dividend payment on such stock, and
(B) the closing of such short sale occurs on or before the
45th day after the date of such short sale,
then no deduction shall be allowed for such payment. The basis of
the stock used to close the short sale shall be increased by the
amount not allowed as a deduction by reason of the preceding
sentence.
(2) Longer period in case of extraordinary dividends
If the payment described in paragraph (1)(A) is in respect of
an extraordinary dividend, paragraph (1)(B) shall be applied by
substituting "the day 1 year after the date of such short sale"
for "the 45th day after the date of such short sale".
(3) Extraordinary dividend
For purposes of this subsection, the term "extraordinary
dividend" has the meaning given to such term by section 1059(c);
except that such section shall be applied by treating the amount
realized by the taxpayer in the short sale as his adjusted basis
in the stock.
(4) Special rule where risk of loss diminished
The running of any period of time applicable under paragraph
(1)(B) (as modified by paragraph (2)) shall be suspended during
any period in which -
(A) the taxpayer holds, has an option to buy, or is under a
contractual obligation to buy, substantially identical stock or
securities, or
(B) under regulations prescribed by the Secretary, a taxpayer
has diminished his risk of loss by holding 1 or more other
positions with respect to substantially similar or related
property.
(5) Deduction allowable to extent of ordinary income from amounts
paid by lending broker for use of collateral
(A) In general
Paragraph (1) shall apply only to the extent that the
payments or distributions with respect to any short sale exceed
the amount which -
(i) is treated as ordinary income by the taxpayer, and
(ii) is received by the taxpayer as compensation for the
use of any collateral with respect to any stock used in such
short sale.
(B) Exception not to apply to extraordinary dividends
Subparagraph (A) shall not apply if one or more payments or
distributions is in respect of an extraordinary dividend.
(6) Application of this subsection with subsection (g)
In the case of any short sale, this subsection shall be applied
before subsection (g).
(i) Special rules for intangible drilling and development costs
incurred outside the United States
In the case of intangible drilling and development costs paid or
incurred with respect to an oil, gas, or geothermal well located
outside the United States -
(1) subsection (c) shall not apply, and
(2) such costs shall -
(A) at the election of the taxpayer, be included in adjusted
basis for purposes of computing the amount of any deduction
allowable under section 611 (determined without regard to
section 613), or
(B) if subparagraph (A) does not apply, be allowed as a
deduction ratably over the 10-taxable year period beginning
with the taxable year in which such costs were paid or
incurred.
This subsection shall not apply to costs paid or incurred with
respect to a nonproductive well.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 77; Pub. L. 86-779, Sec. 6(c),
Sept. 14, 1960, 74 Stat. 1001; Pub. L. 87-834, Sec. 21(b), Oct. 16,
1962, 76 Stat. 1064; Pub. L. 88-563, Sec. 4, Sept. 2, 1964, 78
Stat. 845; Pub. L. 89-243, Sec. 4(p)(1), (2), Oct. 9, 1965, 79
Stat. 964; Pub. L. 91-172, title VII, Sec. 706(a), Dec. 30, 1969,
83 Stat. 674; Pub. L. 92-178, title I, Sec. 109(b), (c), Dec. 10,
1971, 85 Stat. 509; Pub. L. 94-455, title XVII, Sec. 1701(a), title
XIX, Secs. 1904(b)(10)(A)(i), 1906(b)(13)(A), title XXI, Sec.
2122(b)(2), Oct. 4, 1976, 90 Stat. 1759, 1817, 1834, 1915; Pub. L.
95-618, title IV, Sec. 402(a), Nov. 9, 1978, 92 Stat. 3201; Pub. L.
96-223, title II, Sec. 251(a)(2)(B), Apr. 2, 1980, 94 Stat. 287;
Pub. L. 97-34, title II, Secs. 201(c), 202(d)(1), title V, Sec.
502, Aug. 13, 1981, 95 Stat. 219, 221, 327; Pub. L. 97-248, title
II, Sec. 204(c)(1), Sept. 3, 1982, 96 Stat. 426; Pub. L. 97-448,
title I, Sec. 105(b)(1), title III, Sec. 306(a)(9)(A), Jan. 12,
1983, 96 Stat. 2385, 2403; Pub. L. 98-369, div. A, title I, Secs.
56(a), 102(e)(7), (8), July 18, 1984, 98 Stat. 573, 624, 625; Pub.
L. 99-514, title IV, Secs. 402(b)(1), 411(b)(1), title VII, Sec.
701(e)(4)(D), title XVIII, Sec. 1808(b), Oct. 22, 1986, 100 Stat.
2221, 2225, 2343, 2817; Pub. L. 100-647, title I, Sec. 1007(g)(5),
Nov. 10, 1988, 102 Stat. 3435; Pub. L. 101-508, title XI, Secs.
11801(a)(16), 11815(b)(3), Nov. 5, 1990, 104 Stat. 1388-520, 1388-
558; Pub. L. 105-34, title XVI, Sec. 1604(a)(1), Aug. 5, 1997, 111
Stat. 1097; Pub. L. 108-311, title IV, Sec. 408(a)(10), Oct. 4,
2004, 118 Stat. 1191; Pub. L. 108-357, title III, Sec. 338(b)(1),
Oct. 22, 2004, 118 Stat. 1481; Pub. L. 109-58, title XIII, Secs.
1323(b)(2), 1331(b)(4), Aug. 8, 2005, 119 Stat. 1015, 1024.)
-MISC1-
AMENDMENTS
2005 - Subsec. (a)(1)(J). Pub. L. 109-58, Sec. 1323(b)(2), added
subpar. (J).
Subsec. (a)(1)(K). Pub. L. 109-58, Sec. 1331(b)(4), added subpar.
(K).
2004 - Subsec. (a)(1)(I). Pub. L. 108-357 added subpar. (I).
Subsec. (g)(2)(B)(ii). Pub. L. 108-311 substituted "1276" for
"1278".
1997 - Subsec. (a)(1)(H). Pub. L. 105-34 added subpar. (H).
1990 - Subsec. (b). Pub. L. 101-508, Sec. 11801(a)(16), struck
out subsec. (b) "Expenditures for advertising and good will" which
read as follows: "If a corporation has, for the purpose of
computing its excess profits tax credit under chapter 2E or
subchapter D of chapter 1 of the Internal Revenue Code of 1939
claimed the benefits of the election provided in section 733 or
section 451 of such code, as the case may be, no deduction shall be
allowable under section 162 to such corporation for expenditures
for advertising or the promotion of good will which, under the
rules and regulations prescribed under section 733 or section 451
of such code, as the case may be, may be regarded as capital
investments."
Subsec. (c). Pub. L. 101-508, Sec. 11815(b)(3), substituted
"section 613(e)(2)" for "section 613(e)(3)".
1988 - Subsec. (c). Pub. L. 100-647 substituted "section 59(e)"
for "section 59(d)".
1986 - Subsec. (a)(1)(E) to (H). Pub. L. 99-514, Sec. 402(b)(1),
struck out subpar. (E) relating to nonapplication of par. (1) to
expenditures by farmers for clearing land deductible under section
182, and redesignated subpars. (F) to (H) as (E) to (G),
respectively.
Subsec. (c). Pub. L. 99-514, Sec. 701(e)(4)(D), substituted
"59(d)" for "58(i)".
Pub. L. 99-514, Sec. 411(b)(1)(B), inserted "and except as
provided in subsection (i),".
Subsec. (g)(2)(B)(iv). Pub. L. 99-541, Sec. 1808(b), added cl.
(iv).
Subsec. (i). Pub. L. 99-514, Sec. 411(b)(1)(A), added subsec.
(i).
1984 - Subsec. (g)(2). Pub. L. 98-369, Sec. 102(e)(7), amended
par. (2) generally, striking out "charges for temporary use of the
personal property in a short sale, or" after "(including" in
subpar. (A)(ii), substituting "any amount treated as ordinary
income under section 1271(a)(3)(A), 1278, or 1281(a) with respect
to such property for the taxable year, and" for "any amount treated
as ordinary income under section 1232(a)(3)(A) with respect to such
property for the taxable year" in subpar. (B)(ii), and adding
subpar. (B)(iii).
Subsec. (g)(4). Pub. L. 98-369, Sec. 102(e)(8), added par. (4).
Subsec. (h). Pub. L. 98-369, Sec. 56(a), added subsec. (h).
1983 - Subsec. (g)(2)(A)(ii). Pub. L. 97-448, Sec. 105(b)(1),
substituted "all other amounts (including charges for temporary use
of the personal property in a short sale, or to insure, store, or
transport the personal property) paid or incurred to carry the
personal property, over" for "amounts paid or incurred to insure,
store, or transport the personal property, over".
Subsec. (g)(2)(B)(ii). Pub. L. 97-448, Sec. 306(a)(9)(A),
substituted "section 1232(a)(3)(A)" for "section 1232(a)(4)(A)".
1982 - Subsec. (c). Pub. L. 97-248, Sec. 204(c)(1), inserted
provision that this subsection not apply with respect to any costs
to which any deduction is allowed under section 58(i) or 291.
1981 - Subsec. (a)(1)(H). Pub. L. 97-34, Sec. 202(d)(1), added
subpar. (H).
Subsec. (e). Pub. L. 97-34, Sec. 201(c), struck out subsec. (e)
which related to the allowance of repair expenses or specified
repair, rehabilitation, or improvement expenditures.
Subsec. (g). Pub. L. 97-34, Sec. 502, added subsec. (g).
1980 - Subsec. (a)(1)(G). Pub. L. 96-223 added subpar. (G).
1978 - Subsec. (c). Pub. L. 95-618 inserted "and geothermal
wells" after "gas wells" in heading and in text inserted provision
that such regulations also grant the option to deduct as expenses
intangible drilling and development costs in the case of wells
drilled for any geothermal deposit (as defined in section
613(e)(3)) to the same extent and in the same manner as such
expenses are deductible in the case of oil and gas wells.
1976 - Subsec. (a)(1)(F). Pub. L. 94-455, Sec. 2122(b)(2), added
subpar. (F).
Subsec. (a)(3). Pub. L. 94-455, Sec. 1904(b)(10)(A)(i)(I), struck
out par. (3) which provided that no deduction be allowed for
amounts paid as tax under section 4911 (relating to imposition of
interest equalization tax) except as provided in subsec. (d).
Subsec. (d). Pub. L. 94-455, Secs. 1904(b)(10)(A)(i)(I), (II),
1906(b)(13)(A), redesignated subsec. (e) as (d) and struck out "or
his delegate" after "Secretary" and substituted "subsection (e)"
for "subsection (f)". Former subsec. (d) was struck out.
Subsec. (e). Pub. L. 94-455, Secs. 1904(b)(10)(A)(i)(I),
1906(b)(13)(A), redesignated subsec. (f) as (e) and struck out "or
his delegate" after "Secretary". Former subsec. (e) redesignated
(d).
Subsec. (f). Pub. L. 94-455, Secs. 1701(a), 1904(b)(10)(A)(i)(I),
added subsec. (f). Former subsec. (f) redesignated (e).
1971 - Subsec. (e). Pub. L. 92-178, Sec. 109(c), substituted
"shall, at the election of the taxpayer, be treated" for "shall be
treated" and inserted provisions respecting making of election
under this subsection for any taxable year at such time and in such
manner as Secretary or his delegate prescribed by regulation and
prohibiting making of election for any taxable year to which an
election under subsec. (f) applies to railroad rolling stock (other
than locomotives).
Subsec. (f). Pub. L. 92-178, Sec. 109(b), added subsec. (f).
1969 - Subsec. (e). Pub. L. 91-172 added subsec. (e).
1965 - Subsec. (a)(3). Pub. L. 89-243, Sec. 4(p)(1), inserted
"Except as provided in subsection (d)", and struck out "except to
the extent that any amount attributable to the amount paid as tax
is included in gross income for the taxable year" after
parenthetical provision.
Subsec. (d). Pub. L. 89-243, Sec. 4(p)(2), added subsec. (d).
1964 - Subsec. (a)(3). Pub. L. 88-563 added par. (3).
1962 - Subsec. (a)(1)(E). Pub. L. 87-834 added subpar. (E).
1960 - Subsec. (a)(1)(D). Pub. L. 86-779 added subpar. (D).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by section 1323(b)(2) of Pub. L. 109-58 applicable to
properties placed in service after Aug. 8, 2005, see section
1323(c) of Pub. L. 109-58, set out as an Effective Date note under
section 179C of this title.
Amendment by section 1331(b)(4) of Pub. L. 109-58 applicable to
property placed in service after Dec. 31, 2005, see section 1331(d)
of Pub. L. 109-58, set out as an Effective Date note under section
179D of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to expenses paid or
incurred after Dec. 31, 2002, in taxable years ending after such
date, see section 338(c) of Pub. L. 108-357, set out as an
Effective Date note under section 179B of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1604(a)(4) of Pub. L. 105-34 provided that: "The
amendments made by this subsection [amending this section and
sections 312 and 1245 of this title] shall take effect as if
included in the amendments made by section 1913 of the Energy
Policy Act of 1992 [Pub. L. 102-486]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 402(b)(1) of Pub. L. 99-514 applicable to
amounts paid or incurred after Dec. 31, 1985, in taxable years
ending after such date, see section 402(c) of Pub. L. 99-514 set
out as an Effective Date of Repeal note under former section 182 of
this title.
Section 411(c) of Pub. L. 99-514 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 243, 291, 381, 616, and 617 of this
title] shall apply to costs paid or incurred after December 31,
1986, in taxable years ending after such date.
"(2) Transition rule. - The amendments made by this section shall
not apply with respect to intangible drilling and development costs
incurred by United States companies pursuant to a minority interest
in a license for Netherlands or United Kingdom North Sea
development if such interest was acquired on or before December 31,
1985."
Amendment by section 701(e)(4)(D) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L. 99-
514, set out as an Effective Date note under section 55 of this
title.
Amendment by section 1808(b) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 56(a) of Pub. L. 98-369 applicable to short
sales after July 18, 1984, in taxable years ending after that date,
see section 56(d) of Pub. L. 98-369, set out as a note under
section 163 of this title.
Amendment by section 102(e)(7), (8) of Pub. L. 98-369 applicable
to positions established after July 18, 1984, in taxable years
ending after that date, except as otherwise provided, see section
102(f), (g) of Pub. L. 98-369, set out as a note under section 1256
of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 105(b)(2) of Pub. L. 97-448 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply to
property acquired, and positions established, by the taxpayer after
September 22, 1982, in taxable years ending after such date."
Amendment by section 306 of Pub. L. 97-448 effective as if
included in the provisions of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 311(d) of Pub. L. 97-448, set out as a note
under section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after December 31, 1982, see section 204(d)(1) of Pub. L. 97-248,
set out as an Effective Date note under section 291 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by sections 201(c) and 202(d)(1) of Pub. L. 97-34
applicable to property placed in service after Dec. 31, 1980, in
taxable years ending after that date, see section 209(a) of Pub. L.
97-34, set out as an Effective Date note under section 168 of this
title.
Amendment by section 502 of Pub. L. 97-34 applicable to property
acquired and positions established by the taxpayer after June 23,
1981, in taxable years ending after such date, and applicable when
so elected with respect to property held on June 23, 1981, see
section 508 of Pub. L. 97-34, set out as an Effective Date note
under section 1092 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 applicable to taxable years beginning
after Dec. 31, 1979, see section 251(b) of Pub. L. 96-223, set out
as an Effective Date note under section 193 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 402(e) of Pub. L. 95-618, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 57, 465, 751, and 1254 of this title]
shall apply with respect to wells commenced on or after October 1,
1978, in taxable years ending on or after such date.
"(2) Election. - The taxpayer may elect to capitalize or deduct
any costs to which section 263(c) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] applies by reason of the amendments
made by this section [amending this section and sections 57, 465,
751, and 1254 of this title]. Any such election shall be made
before the expiration of the time for filing claim for credit or
refund of any overpayment of tax imposed by chapter 1 of such Code
[section 1 et seq. of this title] with respect to the taxpayer's
first taxable year to which the amendments made by this section
apply and for which he pays or incurs costs to which such section
263(c) applies by reason of the amendments made by this section.
Any election under this paragraph may be changed or revoked at any
time before the expiration of the time referred to in the preceding
sentence, but after the expiration of such time such election may
not be changed or revoked."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1904(b)(10)(A)(vii) of Pub. L. 94-455 provided that: "The
amendments made by this subparagraph [amending this section and
sections 6011, 6611, and 6651 of this title and repealing sections
6076 and 6680 of this title] shall apply with respect to
acquisitions of stock or debt obligations made after June 30, 1974,
except that the repeal of paragraph (2) of section 6011(d) under
clause (ii) shall apply with respect to loans and commitments made
after such date."
Amendment by section 2122(b)(2) of Pub. L. 94-455, as amended by
Pub. L. 96-167, Sec. 9(c), Dec. 29, 1979, 93 Stat. 1278, applicable
to taxable years beginning after Dec. 31, 1976, see section 2122(c)
of Pub. L. 94-455, as amended, set out as an Effective Date note
under section 190 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 109(d)(2), (3) of Pub. L. 92-178 provided that:
"(2) The amendment made by subsection (b) [amending this section]
shall apply to taxable years ending after December 31, 1970.
"(3) The amendments made by subsection (c) [amending this
section] shall apply to taxable years beginning after December 31,
1969."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 706(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to taxable years beginning after December 31, 1969."
EFFECTIVE DATE OF 1965 AMENDMENT
Section 4(p)(3) of Pub. L. 89-243 provided that: "The amendments
made by this subsection [amending this section] shall apply to
taxable years ending after September 2, 1964."
Section 4(q) of Pub. L. 89-243 provided in part that: "Except as
otherwise specifically provided in this section and in the
amendments made by this section [amending this section and sections
4912, 4914, 4916, 4917, 4919, 4920, and 4931 of this title], such
amendments shall apply with respect to acquisitions of stock and
debt obligations made after February 10, 1965."
EFFECTIVE DATE OF 1962 AMENDMENT
Section 21(d) of Pub. L. 87-834 provided that: "The amendments
made by this section [enacting section 182 of this title and
amending this section] shall apply with respect to taxable years
beginning after December 31, 1962."
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable to taxable years beginning
after Dec. 31, 1959, see section 6(d) of Pub. L. 86-779, set out as
an Effective Date note under section 180 of this title.
SHORT TITLE OF 1965 AMENDMENT
Section 1(a) of Pub. L. 89-243 provided that: "This Act [amending
this section and sections 4912, 4914, 4916, 4917, 4919, 4920, and
4931 of this title, and enacting provisions set out as notes under
sections 6011 and 6076 of this title] may be cited as the 'Interest
Equalization Tax Extension Act of 1965'."
SHORT TITLE OF 1964 AMENDMENT
Section 1(a) of Pub. L. 88-563 provided that: "This Act [enacting
sections 4911 to 4920, 4931, 6076, 6680, 6681, and 7241 of this
title, amending this section and sections 1232, 6011, and 6103 of
this title, and enacting provisions set out as notes under section
6011 of this title] may be cited as the 'Interest Equalization Tax
Act'."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(4)(D) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, with provision that for such purposes
any amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original. The semicolon probably should be a comma.
-End-
-CITE-
26 USC Sec. 263A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 263A. Capitalization and inclusion in inventory costs of
certain expenses
-STATUTE-
(a) Nondeductibility of certain direct and indirect costs
(1) In general
In the case of any property to which this section applies, any
costs described in paragraph (2) -
(A) in the case of property which is inventory in the hands
of the taxpayer, shall be included in inventory costs, and
(B) in the case of any other property, shall be capitalized.
(2) Allocable costs
The costs described in this paragraph with respect to any
property are -
(A) the direct costs of such property, and
(B) such property's proper share of those indirect costs
(including taxes) part or all of which are allocable to such
property.
Any cost which (but for this subsection) could not be taken into
account in computing taxable income for any taxable year shall
not be treated as a cost described in this paragraph.
(b) Property to which section applies
Except as otherwise provided in this section, this section shall
apply to -
(1) Property produced by taxpayer
Real or tangible personal property produced by the taxpayer.
(2) Property acquired for resale
(A) In general
Real or personal property described in section 1221(a)(1)
which is acquired by the taxpayer for resale.
(B) Exception for taxpayer with gross receipts of $10,000,000
or less
Subparagraph (A) shall not apply to any personal property
acquired during any taxable year by the taxpayer for resale if
the average annual gross receipts of the taxpayer (or any
predecessor) for the 3-taxable year period ending with the
taxable year preceding such taxable year do not exceed
$10,000,000.
(C) Aggregation rules, etc.
For purposes of subparagraph (B), rules similar to the rules
of paragraphs (2) and (3) of section 448(c) shall apply.
For purposes of paragraph (1), the term "tangible personal
property" shall include a film, sound recording, video tape, book,
or similar property.
(c) General exceptions
(1) Personal use property
This section shall not apply to any property produced by the
taxpayer for use by the taxpayer other than in a trade or
business or an activity conducted for profit.
(2) Research and experimental expenditures
This section shall not apply to any amount allowable as a
deduction under section 174.
(3) Certain development and other costs of oil and gas wells or
other mineral property
This section shall not apply to any cost allowable as a
deduction under section 167(h), 179B, 263(c), 263(i), 291(b)(2),
616, or 617.
(4) Coordination with long-term contract rules
This section shall not apply to any property produced by the
taxpayer pursuant to a long-term contract.
(5) Timber and certain ornamental trees
This section shall not apply to -
(A) trees raised, harvested, or grown by the taxpayer other
than trees described in clause (ii) of subsection (e)(4)(B)
(after application of the last sentence thereof), and
(B) any real property underlying such trees.
(6) Coordination with section 59(e)
Paragraphs (2) and (3) shall apply to any amount allowable as a
deduction under section 59(e) for qualified expenditures
described in subparagraphs (B), (C), (D), and (E) of paragraph
(2) thereof.
(d) Exception for farming businesses
(1) Section not to apply to certain property
(A) In general
This section shall not apply to any of the following which is
produced by the taxpayer in a farming business:
(i) Any animal.
(ii) Any plant which has a preproductive period of 2 years
or less.
(B) Exception for taxpayers required to use accrual method
Subparagraph (A) shall not apply to any corporation,
partnership, or tax shelter required to use an accrual method
of accounting under section 447 or 448(a)(3).
(2) Treatment of certain plants lost by reason of casualty
(A) In general
If plants bearing an edible crop for human consumption were
lost or damaged (while in the hands of the taxpayer) by reason
of freezing temperatures, disease, drought, pests, or casualty,
this section shall not apply to any costs of the taxpayer of
replanting plants bearing the same type of crop (whether on the
same parcel of land on which such lost or damaged plants were
located or any other parcel of land of the same acreage in the
United States).
(B) Special rule for person with minority interest who
materially participates
Subparagraph (A) shall apply to amounts paid or incurred by a
person (other than the taxpayer described in subparagraph (A))
if -
(i) the taxpayer described in subparagraph (A) has an
equity interest of more than 50 percent in the plants
described in subparagraph (A) at all times during the taxable
year in which such amounts were paid or incurred, and
(ii) such other person holds any part of the remaining
equity interest and materially participates in the planting,
maintenance, cultivation, or development of such the plants
described in subparagraph (A) during the taxable year in
which such amounts were paid or incurred.
The determination of whether an individual materially
participates in any activity shall be made in a manner similar
to the manner in which such determination is made under section
2032A(e)(6).
(3) Election to have this section not apply
(A) In general
If a taxpayer makes an election under this paragraph, this
section shall not apply to any plant produced in any farming
business carried on by such taxpayer.
(B) Certain persons not eligible
No election may be made under this paragraph by a
corporation, partnership, or tax shelter, if such corporation,
partnership, or tax shelter is required to use an accrual
method of accounting under section 447 or 448(a)(3).
(C) Special rule for citrus and almond growers
An election under this paragraph shall not apply with respect
to any item which is attributable to the planting, cultivation,
maintenance, or development of any citrus or almond grove (or
part thereof) and which is incurred before the close of the 4th
taxable year beginning with the taxable year in which the trees
were planted. For purposes of the preceding sentence, the
portion of a citrus or almond grove planted in 1 taxable year
shall be treated separately from the portion of such grove
planted in another taxable year.
(D) Election
Unless the Secretary otherwise consents, an election under
this paragraph may be made only for the taxpayer's 1st taxable
year which begins after December 31, 1986, and during which the
taxpayer engages in a farming business. Any such election, once
made, may be revoked only with the consent of the Secretary.
(e) Definitions and special rules for purposes of subsection (d)
(1) Recapture of expensed amounts on disposition
(A) In general
In the case of any plant with respect to which amounts would
have been capitalized under subsection (a) but for an election
under subsection (d)(3) -
(i) such plant (if not otherwise section 1245 property)
shall be treated as section 1245 property, and
(ii) for purposes of section 1245, the recapture amount
shall be treated as a deduction allowed for depreciation with
respect to such property.
(B) Recapture amount
For purposes of subparagraph (A), the term "recapture amount"
means any amount allowable as a deduction to the taxpayer
which, but for an election under subsection (d)(3), would have
been capitalized with respect to the plant.
(2) Effects of election on depreciation
(A) In general
If the taxpayer (or any related person) makes an election
under subsection (d)(3), the provisions of section 168(g)(2)
(relating to alternative depreciation) shall apply to all
property of the taxpayer used predominantly in the farming
business and placed in service in any taxable year during which
any such election is in effect.
(B) Related person
For purposes of subparagraph (A), the term "related person"
means -
(i) the taxpayer and members of the taxpayer's family,
(ii) any corporation (including an S corporation) if 50
percent or more (in value) of the stock of such corporation
is owned (directly or through the application of section 318)
by the taxpayer or members of the taxpayer's family,
(iii) a corporation and any other corporation which is a
member of the same controlled group described in section
1563(a)(1), and
(iv) any partnership if 50 percent or more (in value) of
the interests in such partnership is owned directly or
indirectly by the taxpayer or members of the taxpayer's
family.
(C) Members of family
For purposes of this paragraph, the term "family" means the
taxpayer, the spouse of the taxpayer, and any of their children
who have not attained age 18 before the close of the taxable
year.
(3) Preproductive period
(A) In general
For purposes of this section, the term "preproductive period"
means -
(i) in the case of a plant which will have more than 1 crop
or yield, the period before the 1st marketable crop or yield
from such plant, or
(ii) in the case of any other plant, the period before such
plant is reasonably expected to be disposed of.
For purposes of this subparagraph, use by the taxpayer in a
farming business of any supply produced in such business shall
be treated as a disposition.
(B) Rule for determining period
In the case of a plant grown in commercial quantities in the
United States, the preproductive period for such plant if grown
in the United States shall be based on the nationwide weighted
average preproductive period for such plant.
(4) Farming business
For purposes of this section -
(A) In general
The term "farming business" means the trade or business of
farming.
(B) Certain trades and businesses included
The term "farming business" shall include the trade or
business of -
(i) operating a nursery or sod farm, or
(ii) the raising or harvesting of trees bearing fruit,
nuts, or other crops, or ornamental trees.
For purposes of clause (ii), an evergreen tree which is more
than 6 years old at the time severed from the roots shall not
be treated as an ornamental tree.
(5) Certain inventory valuation methods permitted
The Secretary shall by regulations permit the taxpayer to use
reasonable inventory valuation methods to compute the amount
required to be capitalized under subsection (a) in the case of
any plant.
(f) Special rules for allocation of interest to property produced
by the taxpayer
(1) Interest capitalized only in certain cases
Subsection (a) shall only apply to interest costs which are -
(A) paid or incurred during the production period, and
(B) allocable to property which is described in subsection
(b)(1) and which has -
(i) a long useful life,
(ii) an estimated production period exceeding 2 years, or
(iii) an estimated production period exceeding 1 year and a
cost exceeding $1,000,000.
(2) Allocation rules
(A) In general
In determining the amount of interest required to be
capitalized under subsection (a) with respect to any property -
(i) interest on any indebtedness directly attributable to
production expenditures with respect to such property shall
be assigned to such property, and
(ii) interest on any other indebtedness shall be assigned
to such property to the extent that the taxpayer's interest
costs could have been reduced if production expenditures (not
attributable to indebtedness described in clause (i)) had not
been incurred.
(B) Exception for qualified residence interest
Subparagraph (A) shall not apply to any qualified residence
interest (within the meaning of section 163(h)).
(C) Special rule for flow-through entities
Except as provided in regulations, in the case of any flow-
through entity, this paragraph shall be applied first at the
entity level and then at the beneficiary level.
(3) Interest relating to property used to produce property
This subsection shall apply to any interest on indebtedness
allocable (as determined under paragraph (2)) to property used to
produce property to which this subsection applies to the extent
such interest is allocable (as so determined) to the produced
property.
(4) Definitions
For purposes of this subsection -
(A) Long useful life
Property has a long useful life if such property is -
(i) real property, or
(ii) property with a class life of 20 years or more (as
determined under section 168).
(B) Production period
The term "production period" means, when used with respect to
any property, the period -
(i) beginning on the date on which production of the
property begins, and
(ii) ending on the date on which the property is ready to
be placed in service or is ready to be held for sale.
(C) Production expenditures
The term "production expenditures" means the costs (whether
or not incurred during the production period) required to be
capitalized under subsection (a) with respect to the property.
(g) Production
For purposes of this section -
(1) In general
The term "produce" includes construct, build, install,
manufacture, develop, or improve.
(2) Treatment of property produced under contract for the
taxpayer
The taxpayer shall be treated as producing any property
produced for the taxpayer under a contract with the taxpayer;
except that only costs paid or incurred by the taxpayer (whether
under such contract or otherwise) shall be taken into account in
applying subsection (a) to the taxpayer.
(h) Exemption for free lance authors, photographers, and artists
(1) In general
Nothing in this section shall require the capitalization of any
qualified creative expense.
(2) Qualified creative expense
For purposes of this subsection, the term "qualified creative
expense" means any expense -
(A) which is paid or incurred by an individual in the trade
or business of such individual (other than as an employee) of
being a writer, photographer, or artist, and
(B) which, without regard to this section, would be allowable
as a deduction for the taxable year.
Such term does not include any expense related to printing,
photographic plates, motion picture films, video tapes, or
similar items.
(3) Definitions
For purposes of this subsection -
(A) Writer
The term "writer" means any individual if the personal
efforts of such individual create (or may reasonably be
expected to create) a literary manuscript, musical composition
(including any accompanying words), or dance score.
(B) Photographer
The term "photographer" means any individual if the personal
efforts of such individual create (or may reasonably be
expected to create) a photograph or photographic negative or
transparency.
(C) Artist
(i) In general
The term "artist" means any individual if the personal
efforts of such individual create (or may reasonably be
expected to create) a picture, painting, sculpture, statue,
etching, drawing, cartoon, graphic design, or original print
edition.
(ii) Criteria
In determining whether any expense is paid or incurred in
the trade or business of being an artist, the following
criteria shall be taken into account:
(I) The originality and uniqueness of the item created
(or to be created).
(II) The predominance of aesthetic value over utilitarian
value of the item created (or to be created).
(D) Treatment of certain corporations
(i) In general
If -
(I) substantially all of the stock of a corporation is
owned by a qualified employee-owner and members of his
family (as defined in section 267(c)(4)), and
(II) the principal activity of such corporation is
performance of personal services directly related to the
activities of the qualified employee-owner and such
services are substantially performed by the qualified
employee-owner,
this subsection shall apply to any expense of such
corporation which directly relates to the activities of such
employee-owner in the same manner as if such expense were
incurred by such employee-owner.
(ii) Qualified employee-owner
For purposes of this subparagraph, the term "qualified
employee-owner" means any individual who is an employee-owner
of the corporation (as defined in section 269A(b)(2)) and who
is a writer, photographer, or artist.
(i) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including -
(1) regulations to prevent the use of related parties, pass-
thru entities, or intermediaries to avoid the application of
this section, and
(2) regulations providing for simplified procedures for the
application of this section in the case of property described in
subsection (b)(2).
-SOURCE-
(Added Pub. L. 99-514, title VIII, Sec. 803(a), Oct. 22, 1986, 100
Stat. 2350; amended Pub. L. 100-647, title I, Sec. 1008(b)(1)-(4),
title VI, Sec. 6026(a)-(c), Nov. 10, 1988, 102 Stat. 3437, 3438,
3691-3693; Pub. L. 101-239, title VII, Sec. 7816(d)(1), Dec. 19,
1989, 103 Stat. 2420; Pub. L. 106-170, title V, Sec. 532(c)(2)(B),
Dec. 17, 1999, 113 Stat. 1930; Pub. L. 108-357, title III, Sec.
338(b)(2), Oct. 22, 2004, 118 Stat. 1481; Pub. L. 109-58, title
XIII, Sec. 1329(b), Aug. 8, 2005, 119 Stat. 1020).
-MISC1-
AMENDMENTS
2005 - Subsec. (c)(3). Pub. L. 109-58 inserted "167(h)," after
"under section".
2004 - Subsec. (c)(3). Pub. L. 108-357, which directed amendment
of par. (3) by inserting "179B," after "section", was executed by
making the insertion after "section" the second place it appeared
to reflect the probable intent of Congress.
1999 - Subsec. (b)(2)(A). Pub. L. 106-170 substituted
"1221(a)(1)" for "1221(1)".
1989 - Subsec. (h)(3)(D). Pub. L. 101-239 substituted
"corporations" for "personal service corporations" in heading and
amended text generally. Prior to amendment, text read as follows:
"(i) In general. - In the case of a personal service corporation,
this subsection shall apply to any expense of such corporation
which directly relates to the activities of the qualified employee-
owner in the same manner as if such expense were incurred by such
employee-owner.
"(ii) Qualified employee-owner. - The term 'qualified employee-
owner' means any individual who is an employee-owner of the
personal service corporation and who is a writer, photographer, or
artist, but only if substantially all of the stock of such
corporation is owned by such individual and members of his family
(as defined in section 267(c)(4)).
"(iii) Personal service corporation. - For purposes of this
subparagraph, the term 'personal service corporation' means any
personal service corporation (as defined in section 269A(b))."
1988 - Subsec. (a)(2). Pub. L. 100-647, Sec. 1008(b)(1), inserted
at end "Any cost which (but for this subsection) could not be taken
into account in computing taxable income for any taxable year shall
not be treated as a cost described in this paragraph."
Subsec. (c)(3). Pub. L. 100-647, Sec. 1008(b)(2)(A), substituted
"section 263(c), 263(i), 291(b)(2), 616, or 617" for "section
263(c), 616(a), or 617(a)".
Subsec. (c)(6). Pub. L. 100-647, Sec. 1008(b)(2)(B), added par.
(6).
Subsec. (d)(1). Pub. L. 100-647, Sec. 6026(b)(2)(A), substituted
"Section not to apply to certain property" for "Section to apply
only if preproductive period is more than 2 years" in heading.
Subsec. (d)(1)(A). Pub. L. 100-647, Sec. 6026(b)(1), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "This section shall not apply to any plant or animal which
is produced by the taxpayer in a farming business and which has a
preproductive period of 2 years or less."
Subsec. (d)(2)(B)(i). Pub. L. 100-647, Sec. 1008(b)(3)(A),
substituted "the plants described in subparagraph (A) at all times
during the taxable year in which such amounts were paid or
incurred" for "such grove, orchard, or vineyard".
Subsec. (d)(2)(B)(ii). Pub. L. 100-647, Sec. 1008(b)(3)(B),
substituted "the plants described in subparagraph (A) during the
taxable year in which such amounts were paid or incurred" for "such
grove, orchard, or vineyard during the 4-taxable year period
beginning with the taxable year in which the grove, orchard, or
vineyard was lost or damaged".
Subsec. (d)(3)(A). Pub. L. 100-647, Sec. 6026(b)(2)(B), struck
out "or animal" after "plant".
Subsec. (d)(3)(B). Pub. L. 100-647, Sec. 6026(c), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows: "No
election may be made under this paragraph -
"(i) by a corporation, partnership, or tax shelter, if such
corporation, partnership, or tax shelter is required to use an
accrual method of accounting under section 447 or 448(a)(3), or
"(ii) with respect to the planting, cultivation, maintenance,
or development of pistachio trees."
Subsec. (e). Pub. L. 100-647, Sec. 6026(b)(2)(B), struck out "or
animal" after "plant" wherever appearing in pars. (1), (3), and
(5).
Subsec. (f)(3). Pub. L. 100-647, Sec. 1008(b)(4), substituted
"allocable (as determined under paragraph (2)) to" for "incurred or
continued in connection with" and inserted "(as so determined)"
after "allocable".
Subsecs. (h), (i). Pub. L. 100-647, Sec. 6026(a), added subsec.
(h) and redesignated former subsec. (h) as (i).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-58 applicable to amounts paid or
incurred in taxable years beginning after Aug. 8, 2005, see section
1329(c) of Pub. L. 109-58, set out as a note under section 167 of
this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to expenses paid or
incurred after Dec. 31, 2002, in taxable years ending after such
date, see section 338(c) of Pub. L. 108-357, set out as an
Effective Date note under section 179B of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1008(b)(1)-(4) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6026(d) of Pub. L. 100-647, as amended by Pub. L. 101-
239, title VII, Sec. 7816(d)(2), Dec. 19, 1989, 103 Stat. 2421,
provided that:
"(1) In general. - Except as otherwise provided in this
paragraph, the amendments made by this section [amending this
section] shall take effect as if included in the amendments made by
section 803 of the Tax Reform Act of 1986 [section 803 of Pub. L.
99-514].
"(2) Subsection (b). -
"(A) In general. - The amendments made by subsection (b)
[amending this section] shall apply to costs incurred after
December 31, 1988, in taxable years ending after such date.
"(B) Revocation of election. - If a taxpayer engaged in a
farming business involving the production of animals having a
preproductive period of more than 2 years made an election under
section 263A(d)(3) of the 1986 Code for a taxable year beginning
before January 1, 1989, such taxpayer may, without the consent of
the Secretary of the Treasury or his delegate, revoke such
election effective for the taxpayer's 1st taxable year beginning
after December 31, 1988."
EFFECTIVE DATE
Section 7831(d)(2) of Pub. L. 101-239 provided that: "If any
interest costs incurred after December 31, 1986, are attributable
to costs incurred before January 1, 1987, the amendments made by
section 803 of the Tax Reform Act of 1986 [section 803 of Pub. L.
99-514, enacting this section, amending sections 48, 267, 312, 447,
464, and 471 of this title, and repealing sections 189, 278, and
280 of this title] shall apply to such interest costs only to the
extent such interest costs are attributable to costs which were
required to be capitalized under section 263 of the Internal
Revenue Code of 1954 and which would have been taken into account
in applying section 189 of the Internal Revenue Code of 1954 (as in
effect before its repeal by section 803 of the Tax Reform Act of
1986) or, if applicable, section 266 of such Code."
Section 803(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(b)(7), Nov. 10, 1988, 102 Stat. 3438; Pub. L.
101-239, title VII, Sec. 7831(d)(1), Dec. 19, 1989, 103 Stat. 2426,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [enacting this section, amending
sections 48, 267, 312, 447, 464, and 471 of this title, and
repealing sections 189, 278, and 280 of this title] shall apply to
costs incurred after December 31, 1986, in taxable years ending
after such date.
"(2) Special rule for inventory property. - In the case of any
property which is inventory in the hands of the taxpayer -
"(A) In general. - The amendments made by this section shall
apply to taxable years beginning after December 31, 1986.
"(B) Change in method of accounting. - If the taxpayer is
required by the amendments made by this section to change its
method of accounting with respect to such property for any
taxable year -
"(i) such change shall be treated as initiated by the
taxpayer,
"(ii) such change shall be treated as made with the consent
of the Secretary, and
"(iii) the period for taking into account the adjustments
under section 481 by reason of such change shall not exceed 4
years.
"(3) Special rule for self-constructed property. - The amendments
made by this section shall not apply to any property which is
produced by the taxpayer for use by the taxpayer if substantial
construction had occurred before March 1, 1986.
"(4) Transitional rule for capitalization of interest and taxes. -
"(A) Transition property exempted from interest capitalization.
- Section 263A of the Internal Revenue Code of 1986 (as added by
this section) and the amendment made by subsection (b)(1)
[repealing section 189 of this title] shall not apply to interest
costs which are allocable to any property -
"(i) to which the amendments made by section 201 [amending
sections 46, 167, 168, 178, 179, 280F, 291, 312, 465, 467, 514,
751, 1245, 4162, 6111, and 7701 of this title] do not apply by
reason of sections 204(a)(1)(D) and (E) and 204(a)(5)(A) [set
out as a note under section 168 of this title], and
"(ii) to which the amendments made by section 251 [amending
sections 46 and 48 of this title and enacting provisions set
out as a note under section 46 of this title] do not apply by
reason of section 251(d)(3)(M) [set out as a note under section
46 of this title].
"(B) Interest and taxes. - Section 263A of such Code shall not
apply to property described in the matter following subparagraph
(B) of section 207(e)(2) of the Tax Equity and Fiscal
Responsibility Act of 1982 [section 207(e)(2)(B) of Pub. L. 97-
248, formerly set out as a note under section 189 of this title]
to the extent it would require the capitalization of interest and
taxes paid or incurred in connection with such property which are
not required to be capitalized under section 189 of such Code (as
in effect before the amendment made by subsection (b)(1))
[repealing section 189 of this title].
"(5) Transition rule concerning capitalization of inventory
rules. - In the case of a corporation which on the date of the
enactment of this Act [Oct. 22, 1986] was a member of an affiliated
group of corporations (within the meaning of section 1504(a) of the
Internal Revenue Code of 1986), the parent of which -
"(A) was incorporated in California on April 15, 1925,
"(B) adopted LIFO accounting as of the close of the taxable
year ended December 31, 1950, and
"(C) was, on May 22, 1986, merged into a Delaware corporation
incorporated on March 12, 1986,
the amendments made by this section shall apply under a cut-off
method whereby the uniform capitalization rules are applied only in
costing layers of inventory acquired during taxable years beginning
on or after January 1, 1987.
"(6) Treatment of certain rehabilitation project. - The
amendments made by this section shall not apply to interest and
taxes paid or incurred with respect to the rehabilitation and
conversion of a certified historic building which was formerly a
factory into an apartment project with 155 units, 39 units of which
are for low-income families, if the project was approved for annual
interest assistance on June 10, 1986, by the housing authority of
the State in which the project is located.
"(7) Special rule for casualty losses. - Section 263A(d)(2) of
the Internal Revenue Code of 1986 (as added by this section) shall
apply to expenses incurred on or after the date of the enactment of
this Act [Oct. 22, 1986]."
ALLOCATION RATIO FOR APPORTIONING STORAGE COSTS AND RELATED
HANDLING COSTS
Section 1008(b)(8) of Pub. L. 100-647 provided that: "The
allocation used in the regulations prescribed under section
263A(h)(2) of the Internal Revenue Code of 1986 for apportioning
storage costs and related handling costs shall be determined by
dividing the amount of such costs by the beginning inventory
balances and the purchases during the year and by multiplying the
resulting allocation ratio by inventory amounts determined in
accordance with the provisions of the joint explanatory statement
of the committee of conference of the conference report
accompanying H.R. 3838 (H.R. Rept. No. 99-841, Vol. II., 99th
Cong., 2d Sess. II-306-307 (1986))."
AMORTIZATION OF PAST SERVICE PENSION COSTS
Pub. L. 100-203, title X, Sec. 10204, Dec. 22, 1987, 101 Stat.
1330-394, provided that:
"(a) In General. - For purposes of sections 263A and 460 of the
Internal Revenue Code of 1986, the allocable costs (within the
meaning of section 263A(a)(2) or section 460(c) of such Code,
whichever is applicable) with respect to any property shall include
contributions paid to or under a pension or annuity plan whether or
not such contributions represent past service costs.
"(b) Effective Date. -
"(1) In general. - Except as provided in paragraph (2),
subsection (a) shall apply to costs incurred after December 31,
1987, in taxable years ending after such date.
"(2) Special rule for inventory property. - In the case of any
property which is inventory in the hands of the taxpayer -
"(A) In general. - Subsection (a) shall apply to taxable
years beginning after December 31, 1987.
"(B) Change in method of accounting. - If the taxpayer is
required by this section to change its method of accounting for
any taxable year -
"(i) such change shall be treated as initiated by the
taxpayer,
"(ii) such change shall be treated as made with the consent
of the Secretary of the Treasury or his delegate, and
"(iii) the net amount of adjustments required by section
481 of the Internal Revenue Code of 1986 shall be taken into
account over a period not longer than 4 taxable years."
-End-
-CITE-
26 USC Sec. 264 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 264. Certain amounts paid in connection with insurance
contracts
-STATUTE-
(a) General rule
No deduction shall be allowed for -
(1) Premiums on any life insurance policy, or endowment or
annuity contract, if the taxpayer is directly or indirectly a
beneficiary under the policy or contract.
(2) Any amount paid or accrued on indebtedness incurred or
continued to purchase or carry a single premium life insurance,
endowment, or annuity contract.
(3) Except as provided in subsection (d), any amount paid or
accrued on indebtedness incurred or continued to purchase or
carry a life insurance, endowment, or annuity contract (other
than a single premium contract or a contract treated as a single
premium contract) pursuant to a plan of purchase which
contemplates the systematic direct or indirect borrowing of part
or all of the increases in the cash value of such contract
(either from the insurer or otherwise).
(4) Except as provided in subsection (e), any interest paid or
accrued on any indebtedness with respect to 1 or more life
insurance policies owned by the taxpayer covering the life of any
individual, or any endowment or annuity contracts owned by the
taxpayer covering any individual.
Paragraph (2) shall apply in respect of annuity contracts only as
to contracts purchased after March 1, 1954. Paragraph (3) shall
apply only in respect of contracts purchased after August 6, 1963.
Paragraph (4) shall apply with respect to contracts purchased after
June 20, 1986.
(b) Exceptions to subsection (a)(1)
Subsection (a)(1) shall not apply to -
(1) any annuity contract described in section 72(s)(5), and
(2) any annuity contract to which section 72(u) applies.
(c) Contracts treated as single premium contracts
For purposes of subsection (a)(2), a contract shall be treated as
a single premium contract -
(1) if substantially all the premiums on the contract are paid
within a period of 4 years from the date on which the contract is
purchased, or
(2) if an amount is deposited after March 1, 1954, with the
insurer for payment of a substantial number of future premiums on
the contract.
(d) Exceptions
Subsection (a)(3) shall not apply to any amount paid or accrued
by a person during a taxable year on indebtedness incurred or
continued as part of a plan referred to in subsection (a)(3) -
(1) if no part of 4 of the annual premiums due during the 7-
year period (beginning with the date the first premium on the
contract to which such plan relates was paid) is paid under such
plan by means of indebtedness,
(2) if the total of the amounts paid or accrued by such person
during such taxable year for which (without regard to this
paragraph) no deduction would be allowable by reason of
subsection (a)(3) does not exceed $100.
(3) if such amount was paid or accrued on indebtedness incurred
because of an unforeseen substantial loss of income or unforeseen
substantial increase in his financial obligations, or
(4) if such indebtedness was incurred in connection with his
trade or business.
For purposes of applying paragraph (1), if there is a substantial
increase in the premiums on a contract, a new 7-year period
described in such paragraph with respect to such contract shall
commence on the date of first such increased premium is paid.
(e) Special rules for application of subsection (a)(4)
(1) Exception for key persons
Subsection (a)(4) shall not apply to any interest paid or
accrued on any indebtedness with respect to policies or contracts
covering an individual who is a key person to the extent that the
aggregate amount of such indebtedness with respect to policies
and contracts covering such individual does not exceed $50,000.
(2) Interest rate cap on key persons and pre-1986 contracts
(A) In general
No deduction shall be allowed by reason of paragraph (1) or
the last sentence of subsection (a) with respect to interest
paid or accrued for any month beginning after December 31,
1995, to the extent the amount of such interest exceeds the
amount which would have been determined if the applicable rate
of interest were used for such month.
(B) Applicable rate of interest
For purposes of subparagraph (A) -
(i) In general
The applicable rate of interest for any month is the rate
of interest described as Moody's Corporate Bond Yield Average-
Monthly Average Corporates as published by Moody's Investors
Service, Inc., or any successor thereto, for such month.
(ii) Pre-1986 contracts
In the case of indebtedness on a contract purchased on or
before June 20, 1986 -
(I) which is a contract providing a fixed rate of
interest, the applicable rate of interest for any month
shall be the Moody's rate described in clause (i) for the
month in which the contract was purchased, or
(II) which is a contract providing a variable rate of
interest, the applicable rate of interest for any month in
an applicable period shall be such Moody's rate for the
third month preceding the first month in such period.
For purposes of subclause (II), the term "applicable period"
means the 12-month period beginning on the date the policy is
issued (and each successive 12-month period thereafter)
unless the taxpayer elects a number of months (not greater
than 12) other than such 12-month period to be its applicable
period. Such an election shall be made not later than the
90th day after the date of the enactment of this sentence
and, if made, shall apply to the taxpayer's first taxable
year ending on or after October 13, 1995, and all subsequent
taxable years unless revoked with the consent of the
Secretary.
(3) Key person
For purposes of paragraph (1), the term "key person" means an
officer or 20-percent owner, except that the number of
individuals who may be treated as key persons with respect to any
taxpayer shall not exceed the greater of -
(A) 5 individuals, or
(B) the lesser of 5 percent of the total officers and
employees of the taxpayer or 20 individuals.
(4) 20-percent owner
For purposes of this subsection, the term "20-percent owner"
means -
(A) if the taxpayer is a corporation, any person who owns
directly 20 percent or more of the outstanding stock of the
corporation or stock possessing 20 percent or more of the total
combined voting power of all stock of the corporation, or
(B) if the taxpayer is not a corporation, any person who owns
20 percent or more of the capital or profits interest in the
taxpayer.
(5) Aggregation rules
(A) In general
For purposes of paragraph (4)(A) and applying the $50,000
limitation in paragraph (1) -
(i) all members of a controlled group shall be treated as
one taxpayer, and
(ii) such limitation shall be allocated among the members
of such group in such manner as the Secretary may prescribe.
(B) Controlled group
For purposes of this paragraph, all persons treated as a
single employer under subsection (a) or (b) of section 52 or
subsection (m) or (o) of section 414 shall be treated as
members of a controlled group.
(f) Pro rata allocation of interest expense to policy cash values
(1) In general
No deduction shall be allowed for that portion of the
taxpayer's interest expense which is allocable to unborrowed
policy cash values.
(2) Allocation
For purposes of paragraph (1), the portion of the taxpayer's
interest expense which is allocable to unborrowed policy cash
values is an amount which bears the same ratio to such interest
expense as -
(A) the taxpayer's average unborrowed policy cash values of
life insurance policies, and annuity and endowment contracts,
issued after June 8, 1997, bears to
(B) the sum of -
(i) in the case of assets of the taxpayer which are life
insurance policies or annuity or endowment contracts, the
average unborrowed policy cash values of such policies and
contracts, and
(ii) in the case of assets of the taxpayer not described in
clause (i), the average adjusted bases (within the meaning of
section 1016) of such assets.
(3) Unborrowed policy cash value
For purposes of this subsection, the term "unborrowed policy
cash value" means, with respect to any life insurance policy or
annuity or endowment contract, the excess of -
(A) the cash surrender value of such policy or contract
determined without regard to any surrender charge, over
(B) the amount of any loan with respect to such policy or
contract.
If the amount described in subparagraph (A) with respect to any
policy or contract does not reasonably approximate its actual
value, the amount taken into account under subparagraph (A) shall
be the greater of the amount of the insurance company liability
or the insurance company reserve with respect to such policy or
contract (as determined for purposes of the annual statement
approved by the National Association of Insurance Commissioners)
or shall be such other amount as is determined by the Secretary.
(4) Exception for certain policies and contracts
(A) Policies and contracts covering 20-percent owners,
officers, directors, and employees
Paragraph (1) shall not apply to any policy or contract owned
by an entity engaged in a trade or business if such policy or
contract covers only 1 individual and if such individual is (at
the time first covered by the policy or contract) -
(i) a 20-percent owner of such entity, or
(ii) an individual (not described in clause (i)) who is an
officer, director, or employee of such trade or business.
A policy or contract covering a 20-percent owner of such entity
shall not be treated as failing to meet the requirements of the
preceding sentence by reason of covering the joint lives of
such owner and such owner's spouse.
(B) Contracts subject to current income inclusion
Paragraph (1) shall not apply to any annuity contract to
which section 72(u) applies.
(C) Coordination with paragraph (2)
Any policy or contract to which paragraph (1) does not apply
by reason of this paragraph shall not be taken into account
under paragraph (2).
(D) 20-percent owner
For purposes of subparagraph (A), the term "20-percent owner"
has the meaning given such term by subsection (e)(4).
(E) Master contracts
If coverage for each insured under a master contract is
treated as a separate contract for purposes of sections 817(h),
7702, and 7702A, coverage for each such insured shall be
treated as a separate contract for purposes of subparagraph
(A). For purposes of the preceding sentence, the term "master
contract" shall not include any group life insurance contract
(as defined in section 848(e)(2)).
(5) Exception for policies and contracts held by natural persons;
treatment of partnerships and S corporations
(A) Policies and contracts held by natural persons
(i) In general
This subsection shall not apply to any policy or contract
held by a natural person.
(ii) Exception where business is beneficiary
If a trade or business is directly or indirectly the
beneficiary under any policy or contract, such policy or
contract shall be treated as held by such trade or business
and not by a natural person.
(iii) Special rules
(I) Certain trades or businesses not taken into account
Clause (ii) shall not apply to any trade or business
carried on as a sole proprietorship and to any trade or
business performing services as an employee.
(II) Limitation on unborrowed cash value
The amount of the unborrowed cash value of any policy or
contract which is taken into account by reason of clause
(ii) shall not exceed the benefit to which the trade or
business is directly or indirectly entitled under the
policy or contract.
(iv) Reporting
The Secretary shall require such reporting from
policyholders and issuers as is necessary to carry out clause
(ii).
(B) Treatment of partnerships and S corporations
In the case of a partnership or S corporation, this
subsection shall be applied at the partnership and corporate
levels.
(6) Special rules
(A) Coordination with subsection (a) and section 265
If interest on any indebtedness is disallowed under
subsection (a) or section 265 -
(i) such disallowed interest shall not be taken into
account for purposes of applying this subsection, and
(ii) the amount otherwise taken into account under
paragraph (2)(B) shall be reduced (but not below zero) by the
amount of such indebtedness.
(B) Coordination with section 263A
This subsection shall be applied before the application of
section 263A (relating to capitalization of certain expenses
where taxpayer produces property).
(7) Interest expense
The term "interest expense" means the aggregate amount
allowable to the taxpayer as a deduction for interest (within the
meaning of section 265(b)(4)) for the taxable year (determined
without regard to this subsection, section 265(b), and section
291).
(8) Aggregation rules
(A) In general
All members of a controlled group (within the meaning of
subsection (e)(5)(B)) shall be treated as 1 taxpayer for
purposes of this subsection.
(B) Treatment of insurance companies
This subsection shall not apply to an insurance company
subject to tax under subchapter L, and subparagraph (A) shall
be applied without regard to any member of an affiliated group
which is an insurance company.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 77; Pub. L. 88-272, title II,
Sec. 215(a), (b), Feb. 26, 1964, 78 Stat. 55; Pub. L. 99-514, title
X, Sec. 1003(a), (b), Oct. 22, 1986, 100 Stat. 2388; Pub. L. 104-
191, title V, Sec. 501(a), (b), Aug. 21, 1996, 110 Stat. 2090;
Pub. L. 105-34, title X, Sec. 1084(a), (b)(1), (c), title XVI, Sec.
1602(f)(1)-(3), Aug. 5, 1997, 111 Stat. 951, 952, 1094, 1095; Pub.
L. 105-206, title VI, Sec. 6010(o)(1)-(3)(A), (4)(A), (5), July 22,
1998, 112 Stat. 816; Pub. L. 105-277, div. J, title IV, Sec.
4003(i), Oct. 21, 1998, 112 Stat. 2681-910.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this sentence, referred to in
subsec. (e)(2)(B)(ii), probably means the date of enactment of Pub.
L. 105-34, which was approved Aug. 5, 1997.
-COD-
CODIFICATION
Another section 1084(b) of Pub. L. 105-34 amended sections 805,
807, 812, and 832 of this title. Another section 1084(c) of Pub. L.
105-34 amended section 265 of this title.
-MISC1-
AMENDMENTS
1998 - Subsec. (a)(3). Pub. L. 105-206, Sec. 6010(o)(1),
substituted "subsection (d)" for "subsection (c)".
Subsec. (a)(4). Pub. L. 105-206, Sec. 6010(o)(2), substituted
"subsection (e)" for "subsection (d)".
Subsec. (f)(3). Pub. L. 105-277 inserted concluding provisions.
Subsec. (f)(4)(E). Pub. L. 105-206, Sec. 6010(o)(3)(A), added
subpar. (E).
Subsec. (f)(5)(A)(iv). Pub. L. 105-206, Sec. 6010(o)(4)(A),
struck out at end "Any report required under the preceding sentence
shall be treated as a statement referred to in section 6724(d)(1)."
Subsec. (f)(8)(A). Pub. L. 105-206, Sec. 6010(o)(5), substituted
"subsection (e)(5)(B)" for "subsection (d)(5)(B)".
1997 - Subsec. (a)(1). Pub. L. 105-34, Sec. 1084(a)(1), amended
par. (1) generally. Prior to amendment, par. (1) read as follows:
"Premiums paid on any life insurance policy covering the life of
any officer or employee, or of any person financially interested in
any trade or business carried on by the taxpayer, when the taxpayer
is directly or indirectly a beneficiary under such policy."
Subsec. (a)(4). Pub. L. 105-34, Sec. 1602(f)(1), added subpars.
(A) and (B) and concluding provisions and struck out former
subpars. (A) and (B) and concluding provisions which read as
follows:
"(A) is an officer or employee of, or
"(B) is financially interested in,
any trade or business carried on by the taxpayer."
Pub. L. 105-34, Sec. 1084(b)(1), substituted "individual." for
"individual, who -
"(A) is or was an officer or employee, or
"(B) is or was financially interested in,
any trade or business carried on (currently or formerly) by the
taxpayer."
Subsecs. (b), (c). Pub. L. 105-34, Sec. 1084(a)(2), added subsec.
(b) and redesignated former subsec. (b) as (c). Former subsec. (c)
redesignated (d).
Subsec. (d). Pub. L. 105-34, Sec. 1084(a)(2), redesignated
subsec. (c) as (d). Former subsec. (d) redesignated (e).
Subsec. (d)(2)(B)(ii). Pub. L. 105-34, Sec. 1602(f)(2), amended
concluding provisions generally. Prior to amendment, concluding
provisions read as follows: "For purposes of subclause (II), the
taxpayer shall elect an applicable period for such contract on its
return of tax imposed by this chapter for its first taxable year
ending on or after October 13, 1995. Such applicable period shall
be for any number of months (not greater than 12) specified in the
election and may not be changed by the taxpayer without the consent
of the Secretary."
Subsec. (d)(4)(B). Pub. L. 105-34, Sec. 1602(f)(3), substituted
"interest in the taxpayer" for "interest in the employer".
Subsec. (e). Pub. L. 105-34, Sec. 1084(a)(2), redesignated
subsec. (d) as (e).
Subsec. (f). Pub. L. 105-34, Sec. 1084(c), added subsec. (f).
1996 - Subsec. (a)(4). Pub. L. 104-191, Sec. 501(a)(1), (b)(1),
in introductory provisions, substituted "Except as provided in
subsection (d), any" for "Any" and inserted ", or any endowment or
annuity contracts owned by the taxpayer covering any individual,"
after "the life of any individual".
Pub. L. 104-191, Sec. 501(a)(2), struck out "to the extent that
the aggregate amount of such indebtedness with respect to policies
covering such individual exceeds $50,000" after "carried on by the
taxpayer" in concluding provisions.
Subsec. (d). Pub. L. 104-191, Sec. 501(b)(2), added subsec. (d).
1986 - Subsec. (a). Pub. L. 99-514 added par. (4) and last
sentence providing that par. (4) shall apply with respect to
contracts purchased after June 20, 1986.
1964 - Subsec. (a). Pub. L. 88-272 added par. (3) and sentence
providing that par. (3) shall apply only to contracts purchased
after August 6, 1963.
Subsec. (c). Pub. L. 88-272 added subsec. (c).
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L. 105-
277, set out as a note under section 86 of this title.
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 1084(a), (b)(1), (c) of Pub. L. 105-34
applicable to contracts issued after June 8, 1997, in taxable years
ending after such date, with special provisions relating to changes
in contracts to be treated as new contracts, see section 1084(d) of
Pub. L. 105-34, set out as a note under section 101 of this title.
Amendment by section 1602(f)(1)-(3) of Pub. L. 105-34 effective
as if included in the provisions of the Health Insurance
Portability and Accountability Act of 1996, Pub. L. 104-191, to
which such amendment relates, see section 1602(i) of Pub. L. 105-
34, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 501(c) of Pub. L. 104-191, as amended by Pub. L. 105-34,
title XVI, Sec. 1602(f)(4), Aug. 5, 1997, 111 Stat. 1095, provided
that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to interest paid or accrued after October
13, 1995.
"(2) Transition rule for existing indebtedness. -
"(A) In general. - In the case of -
"(i) indebtedness incurred before January 1, 1996, or
"(ii) indebtedness incurred before January 1, 1997 with
respect to any contract or policy entered into in 1994 or 1995,
the amendments made by this section shall not apply to qualified
interest paid or accrued on such indebtedness after October 13,
1995, and before January 1, 1999.
"(B) Qualified interest. - For purposes of subparagraph (A),
the qualified interest with respect to any indebtedness for any
month is the amount of interest (otherwise deductible) which
would be paid or accrued for such month on such indebtedness if -
"(i) in the case of any interest paid or accrued after
December 31, 1995, indebtedness with respect to no more than
20,000 insured individuals were taken into account, and
"(ii) the lesser of the following rates of interest were used
for such month:
"(I) The rate of interest specified under the terms of the
indebtedness as in effect on October 13, 1995 (and without
regard to modification of such terms after such date).
"(II) The applicable percentage of the rate of interest
described as Moody's Corporate Bond Yield Average-Monthly
Average Corporates as published by Moody's Investors Service,
Inc., or any successor thereto, for such month.
For purposes of clause (i), all persons treated as a single
employer under subsection (a) or (b) of section 52 of the
Internal Revenue Code of 1986 or subsection (m) or (o) of section
414 of such Code shall be treated as 1 person. Subclause (II) of
clause (ii) shall not apply to any month before January 1, 1996.
"(C) Applicable percentage. - For purposes of subparagraph (B),
the applicable percentage is as follows:
For calendar year: The percentage
is:
1996 100 percent
1997 90 percent
1998 80 percent."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1003(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to
contracts purchased after June 20, 1986, in taxable years ending
after such date."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 215(c) of Pub. L. 88-272 provided that: "The amendments
made by this section [amending this section] shall apply with
respect to amounts paid or accrued in taxable years beginning after
December 31, 1963."
SPREAD OF INCOME INCLUSION ON SURRENDER, ETC. OF CONTRACTS
Section 501(d) of Pub. L. 104-191, as amended by Pub. L. 105-34,
title XVI, Sec. 1602(f)(5), Aug. 5, 1997, 111 Stat. 1095, provided
that:
"(1) In general. - If any amount is received under any life
insurance policy or endowment or annuity contract described in
paragraph (4) of section 264(a) of the Internal Revenue Code of
1986 -
"(A) on the complete surrender, redemption, or maturity of such
policy or contract during calendar year 1996, 1997, or 1998, or
"(B) in full discharge during any such calendar year of the
obligation under the policy or contract which is in the nature of
a refund of the consideration paid for the policy or contract,
then (in lieu of any other inclusion in gross income) such amount
shall be includible in gross income ratably over the 4-taxable year
period beginning with the taxable year such amount would (but for
this paragraph) be includible. The preceding sentence shall only
apply to the extent the amount is includible in gross income for
the taxable year in which the event described in subparagraph (A)
or (B) occurs.
"(2) Special rules for applying section 264. - A contract shall
not be treated as -
"(A) failing to meet the requirement of section 264(c)(1) of
the Internal Revenue Code of 1986, or
"(B) a single premium contract under section 264(b)(1) of such
Code,
solely by reason of an occurrence described in subparagraph (A) or
(B) of paragraph (1) of this subsection or solely by reason of a
lapse occurring after October 13, 1995, by reason of no additional
premiums being received under the contract.
"(3) Special rule for deferred acquisition costs. - In the case
of the occurrence of any event described in subparagraph (A) or (B)
of paragraph (1) of this subsection with respect to any policy or
contract -
"(A) section 848 of the Internal Revenue Code of 1986 shall not
apply to the unamortized balance (if any) of the specified policy
acquisition expenses attributable to such policy or contract
immediately before the insurance company's taxable year in which
such event occurs, and
"(B) there shall be allowed as a deduction to such company for
such taxable year under chapter 1 of such Code an amount equal to
such unamortized balance."
-End-
-CITE-
26 USC Sec. 265 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 265. Expenses and interest relating to tax-exempt income
-STATUTE-
(a) General rule
No deduction shall be allowed for -
(1) Expenses
Any amount otherwise allowable as a deduction which is
allocable to one or more classes of income other than interest
(whether or not any amount of income of that class or classes is
received or accrued) wholly exempt from the taxes imposed by this
subtitle, or any amount otherwise allowable under section 212
(relating to expenses for production of income) which is
allocable to interest (whether or not any amount of such interest
is received or accrued) wholly exempt from the taxes imposed by
this subtitle.
(2) Interest
Interest on indebtedness incurred or continued to purchase or
carry obligations the interest on which is wholly exempt from the
taxes imposed by this subtitle.
(3) Certain regulated investment companies
In the case of a regulated investment company which distributes
during the taxable year an exempt-interest dividend (including
exempt-interest dividends paid after the close of the taxable
year as described in section 855), that portion of any amount
otherwise allowable as a deduction which the amount of the income
of such company wholly exempt from taxes under this subtitle
bears to the total of such exempt income and its gross income
(excluding from gross income, for this purpose, capital gain net
income, as defined in section 1222(9)).
(4) Interest related to exempt-interest dividends
Interest on indebtedness incurred or continued to purchase or
carry shares of stock of a regulated investment company which
during the taxable year of the holder thereof distributes exempt-
interest dividends.
(5) Special rules for application of paragraph (2) in the case of
short sales
For purposes of paragraph (2) -
(A) In general
The term "interest" includes any amount paid or incurred -
(i) by any person making a short sale in connection with
personal property used in such short sale, or
(ii) by any other person for the use of any collateral with
respect to such short sale.
(B) Exception where no return on cash collateral
If -
(i) the taxpayer provides cash as collateral for any short
sale, and
(ii) the taxpayer receives no material earnings on such
cash during the period of the sale,
subparagraph (A)(i) shall not apply to such short sale.
(6) Section not to apply with respect to parsonage and military
housing allowances
No deduction shall be denied under this section for interest on
a mortgage on, or real property taxes on, the home of the
taxpayer by reason of the receipt of an amount as -
(A) a military housing allowance, or
(B) a parsonage allowance excludable from gross income under
section 107.
(b) Pro rata allocation of interest expense of financial
institutions to tax-exempt interest
(1) In general
In the case of a financial institution, no deduction shall be
allowed for that portion of the taxpayer's interest expense which
is allocable to tax-exempt interest.
(2) Allocation
For purposes of paragraph (1), the portion of the taxpayer's
interest expense which is allocable to tax-exempt interest is an
amount which bears the same ratio to such interest expense as -
(A) the taxpayer's average adjusted bases (within the meaning
of section 1016) of tax-exempt obligations acquired after
August 7, 1986, bears to
(B) such average adjusted bases for all assets of the
taxpayer.
(3) Exception for certain tax-exempt obligations
(A) In general
Any qualified tax-exempt obligation acquired after August 7,
1986, shall be treated for purposes of paragraph (2) and
section 291(e)(1)(B) as if it were acquired on August 7, 1986.
(B) Qualified tax-exempt obligation
(i) In general
For purposes of subparagraph (A), the term "qualified tax-
exempt obligation" means a tax-exempt obligation -
(I) which is issued after August 7, 1986, by a qualified
small issuer,
(II) which is not a private activity bond (as defined in
section 141), and
(III) which is designated by the issuer for purposes of
this paragraph.
(ii) Certain bonds not treated as private activity bonds
For purposes of clause (i)(II), there shall not be treated
as a private activity bond -
(I) any qualified 501(c)(3) bond (as defined in section
145), or
(II) any obligation issued to refund (or which is part of
a series of obligations issued to refund) an obligation
issued before August 8, 1986, which was not an industrial
development bond (as defined in section 103(b)(2) as in
effect on the day before the date of the enactment of the
Tax Reform Act of 1986) or a private loan bond (as defined
in section 103(o)(2)(A), as so in effect, but without
regard to any exemption from such definition other than
section 103(o)(2)(A)).
(C) Qualified small issuer
(i) In general
For purposes of subparagraph (B), the term "qualified small
issuer" means, with respect to obligations issued during any
calendar year, any issuer if the reasonably anticipated
amount of tax-exempt obligations (other than obligations
described in clause (ii)) which will be issued by such issuer
during such calendar year does not exceed $10,000,000.
(ii) Obligations not taken into account in determining status
as qualified small issuer
For purposes of clause (i), an obligation is described in
this clause if such obligation is -
(I) a private activity bond (other than a qualified
501(c)(3) bond, as defined in section 145),
(II) an obligation to which section 141(a) does not apply
by reason of section 1312, 1313, 1316(g), or 1317 of the
Tax Reform Act of 1986 and which would (if issued on August
15, 1986) have been an industrial development bond (as
defined in section 103(b)(2) as in effect on the day before
the date of the enactment of such Act) or a private loan
bond (as defined in section 103(o)(2)(A), as so in effect,
but without regard to any exception from such definition
other than section 103(o)(2)(A)), or
(III) an obligation issued to refund (other than to
advance refund within the meaning of section 149(d)(5)) any
obligation to the extent the amount of the refunding
obligation does not exceed the outstanding amount of the
refunded obligation.
(iii) Allocation of amount of issue in certain cases
In the case of an issue under which more than 1
governmental entity receives benefits, if -
(I) all governmental entities receiving benefits from
such issue irrevocably agree (before the date of issuance
of the issue) on an allocation of the amount of such issue
for purposes of this subparagraph, and
(II) such allocation bears a reasonable relationship to
the respective benefits received by such entities,
then the amount of such issue so allocated to an entity (and
only such amount with respect to such issue) shall be taken
into account under clause (i) with respect to such entity.
(D) Limitation on amount of obligations which may be designated
(i) In general
Not more than $10,000,000 of obligations issued by an
issuer during any calendar year may be designated by such
issuer for purposes of this paragraph.
(ii) Certain refundings of designated obligations deemed
designated
Except as provided in clause (iii), in the case of a
refunding (or series of refundings) of a qualified tax-exempt
obligation, the refunding obligation shall be treated as a
qualified tax-exempt obligation (and shall not be taken into
account under clause (i)) if -
(I) the refunding obligation was not taken into account
under subparagraph (C) by reason of clause (ii)(III)
thereof,
(II) the average maturity date of the refunding
obligations issued as part of the issue of which such
refunding obligation is a part is not later than the
average maturity date of the obligations to be refunded by
such issue, and
(III) the refunding obligation has a maturity date which
is not later than the date which is 30 years after the date
the original qualified tax-exempt obligation was issued.
Subclause (II) shall not apply if the average maturity of the
issue of which the original qualified tax-exempt obligation
was a part (and of the issue of which the obligations to be
refunded are a part) is 3 years or less. For purposes of this
clause, average maturity shall be determined in accordance
with section 147(b)(2)(A).
(iii) Certain obligations may not be designated or deemed
designated
No obligation issued as part of an issue may be designated
under this paragraph (or may be treated as designated under
clause (ii)) if -
(I) any obligation issued as part of such issue is issued
to refund another obligation, and
(II) the aggregate face amount of such issue exceeds
$10,000,000.
(E) Aggregation of issuers
For purposes of subparagraphs (C) and (D) -
(i) an issuer and all entities which issue obligations on
behalf of such issuer shall be treated as 1 issuer,
(ii) all obligations issued by a subordinate entity shall,
for purposes of applying subparagraphs (C) and (D) to each
other entity to which such entity is subordinate, be treated
as issued by such other entity, and
(iii) an entity formed (or, to the extent provided by the
Secretary, availed of) to avoid the purposes of subparagraph
(C) or (D) and all entities benefiting thereby shall be
treated as 1 issuer.
(F) Treatment of composite issues
In the case of an obligation which is issued as part of a
direct or indirect composite issue, such obligation shall not
be treated as a qualified tax-exempt obligation unless -
(i) the requirements of this paragraph are met with respect
to such composite issue (determined by treating such
composite issue as a single issue), and
(ii) the requirements of this paragraph are met with
respect to each separate lot of obligations which are part of
the issue (determined by treating each such separate lot as a
separate issue).
(4) Definitions
For purposes of this subsection -
(A) Interest expense
The term "interest expense" means the aggregate amount
allowable to the taxpayer as a deduction for interest for the
taxable year (determined without regard to this subsection,
section 264, and section 291). For purposes of the preceding
sentence, the term "interest" includes amounts (whether or not
designated as interest) paid in respect of deposits, investment
certificates, or withdrawable or repurchasable shares.
(B) Tax-exempt obligation
The term "tax-exempt obligation" means any obligation the
interest on which is wholly exempt from taxes imposed by this
subtitle. Such term includes shares of stock of a regulated
investment company which during the taxable year of the holder
thereof distributes exempt-interest dividends.
(5) Financial institution
For purposes of this subsection, the term "financial
institution" means any person who -
(A) accepts deposits from the public in the ordinary course
of such person's trade or business, and is subject to Federal
or State supervision as a financial institution, or
(B) is a corporation described in section 585(a)(2).
(6) Special rules
(A) Coordination with subsection (a)
If interest on any indebtedness is disallowed under
subsection (a) with respect to any tax-exempt obligation -
(i) such disallowed interest shall not be taken into
account for purposes of applying this subsection, and
(ii) for purposes of applying paragraph (2), the adjusted
basis of such tax-exempt obligation shall be reduced (but not
below zero) by the amount of such indebtedness.
(B) Coordination with section 263A
This section shall be applied before the application of
section 263A (relating to capitalization of certain expenses
where taxpayer produces property).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 78; Pub. L. 88-272, title II,
Sec. 216(a), Feb. 26, 1964, 78 Stat. 56; Pub. L. 94-455, title XIX,
Secs. 1901(a)(37), 1906(b)(13)(A), title XXI, Sec. 2137(e), Oct. 4,
1976, 90 Stat. 1770, 1834, 1931; Pub. L. 96-223, title IV, Sec.
404(b)(2), Apr. 2, 1980, 94 Stat. 306; Pub. L. 97-34, title III,
Secs. 301(b)(2), 302(c)(2), (d)(1), Aug. 13, 1981, 95 Stat. 270,
272, 274; Pub. L. 98-369, div. A, title I, Secs. 16(a), 56(c), July
18, 1984, 98 Stat. 505, 574; Pub. L. 99-514, title I, Sec. 144,
title IX, Sec. 902(a), (b), (d), Oct. 22, 1986, 100 Stat. 2121,
2380-2382; Pub. L. 100-647, title I, Sec. 1009(b)(3)(A), Nov. 10,
1988, 102 Stat. 3446; Pub. L. 101-508, title XI, Sec. 11801(c)(4),
Nov. 5, 1990, 104 Stat. 1388-523; Pub. L. 105-34, title X, Sec.
1084(c), Aug. 5, 1997, 111 Stat. 955.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (b)(3)(B)(ii)(II), (C)(ii)(II), is the date of
enactment of Pub. L. 99-514, which was approved Oct. 22, 1986.
Sections 1312, 1313, 1316(g), and 1317 of the Tax Reform Act of
1986, referred to in subsec. (b)(3)(C)(ii)(II), are sections 1312,
1313, 1316(g), and 1317 of Pub. L. 99-514, which are set out as a
note under section 141 of this title.
-COD-
CODIFICATION
Another section 1084(c) of Pub. L. 105-34 amended section 264 of
this title.
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(4)(A). Pub. L. 105-34 inserted ", section
264," before "and section 291".
1990 - Subsec. (a)(2). Pub. L. 101-508, Sec. 11801(c)(4), struck
out before period at end ", or to purchase or carry any certificate
to the extent the interest on such certificate is excludable under
section 128".
1988 - Subsec. (b)(3). Pub. L. 100-647 amended par. (3)
generally, reenacting subpar. (A) without change, revising and
restating provisions of subpars. (B) to (E), and adding subpar.
(F).
1986 - Pub. L. 99-514, Sec. 902(a), (d), designated existing
provisions as subsec. (a), inserted heading, and added subsec. (b).
Par. (2). Pub. L. 99-514, Sec. 902(b), struck out last sentence
which read as follows: "In applying the preceding sentence to a
financial institution (other than a bank) which is a face-amount
certificate company registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1 and following) and which is subject to the
banking laws of the State in which such institution is
incorporated, interest on face-amount certificates (as defined in
section 2(a)(15) of such Act) issued by such institution, and
interest on amounts received for the purchase of such certificates
to be issued by such institution, shall not be considered as
interest on indebtedness incurred or continued to purchase or carry
obligations the interest on which is wholly exempt from the taxes
imposed by this subtitle, to the extent that the average amount of
such obligations held by such institution during the taxable year
(as determined under regulations prescribed by the Secretary) does
not exceed 15 percent of the average of the total assets held by
such institution during the taxable year (as so determined)."
Par. (6). Pub. L. 99-514, Sec. 144, added par. (6).
1984 - Par. (2). Pub. L. 98-369, Sec. 16(a), repealed amendments
made by Pub. L. 97-34, Sec. 302(c). See 1981 Amendment note below.
Par. (5). Pub. L. 98-369, Sec. 56(c), added par. (5).
1981 - Par. (2). Pub. L. 97-34, Sec. 302(c)(2), (d)(1), provided
that, applicable to taxable years beginning after Dec. 31, 1984,
par. (2) is amended by striking out "or to purchase or carry any
certificate to the extent the interest on such certificate is
excludable under section 128" and inserting in lieu thereof "or to
purchase or carry obligations or shares, or to make other deposits
or investments, the interest on which is described in section
128(c)(1) to the extent such interest is excludable from gross
income under section 128". Section 16(a) of Pub. L. 98-369,
repealed section 302(c) of Pub. L. 97-34, and provided that this
title shall be applied and administered as if section 302(c), and
the amendments made by such section 302(c), had not been enacted.
Pub. L. 97-34, Sec. 301(b)(2), inserted ", or to purchase or
carry any certificate to the extent the interest on such
certificate is excludable under section 128" after "116".
1980 - Par. (2). Pub. L. 96-223 inserted ", or to purchase or
carry obligations or shares, or to make deposits or other
investments, the interest on which is described in section 116(c)
to the extent such interest is excludable from gross income under
section 116" after "subtitle".
1976 - Par. (2). Pub. L. 94-455, Secs. 1901(a)(37),
1906(b)(13)(A), struck out "(other than obligations of the United
States issued after September 24, 1917, and originally subscribed
for by the taxpayer)" after "to purchase or carry obligations" and
"or his delegate" after "Secretary".
Pars. (3), (4). Pub. L. 94-455, Sec. 2137(e), added pars. (3) and
(4).
1964 - Par. (2). Pub. L. 88-272 provided that interest on face-
amount certificates issued by a face-amount certificate company,
and interest on amounts received for the purchase of such
certificates to be issued by such institution, shall not be
considered interest on indebtedness to purchase or carry
obligations the interest on which is wholly exempt from the taxes
under this subtitle, to the extent the average amount of such
obligations held by such institution during the taxable year
doesn't exceed 15 percent of the average total assets held by such
institution during the taxable year.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to contracts issued after
June 8, 1997, in taxable years ending after such date, with special
provisions relating to changes in contracts to be treated as new
contracts, see section 1084(d) of Pub. L. 105-34, set out as a note
under section 101 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1009(b)(3)(B)-(D) of Pub. L. 100-647, as amended by Pub.
L. 101-239, title VII, Sec. 7811(f)(2), Dec. 19, 1989, 103 Stat.
2409, provided that:
"(B) In the case of any obligation issued after August 7, 1986,
and before January 1, 1987, the time for making a designation with
respect to such obligation under section 265(b)(3)(B)(i)(III) of
the 1986 Code shall not expire before January 1, 1989.
"(C) If -
"(i) an obligation is issued on or after January 1, 1986, and
on or before August 7, 1986,
"(ii) when such obligation was issued, the issuer made a
designation that it intended to qualify under section 802(e)(3)
of H.R. 3838 of the 99th Congress as passed by the House of
Representatives [H.R. 3838 was enacted as Pub. L. 99-514], and
"(iii) the issuer makes an election under this subparagraph
with respect to such obligation,
for purposes of section 265(b)(3) of the 1986 Code, such obligation
shall be treated as issued on August 8, 1986.
"(D)(i) Except as provided in clause (ii), the following
provisions of section 265(b)(3) of the 1986 Code (as amended by
this subparagraph (A)) shall apply to obligations issued after June
30, 1987:
"(I) subparagraph (C)(ii)(III),
"(II) clauses (ii) and (iii) of subparagraph (D), and
"(III) subparagraphs (E) and (F).
"(ii) At the election of an issuer (made at such time and in such
manner as the Secretary of the Treasury or his delegate may
prescribe), the provisions referred to in clause (i) shall apply to
such issuer as if included in the amendments made by section 902(a)
of the Tax Reform Act of 1986 [section 902(a) of Pub. L. 99-514,
amending this section]."
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 144 of Pub. L. 99-514 applicable to taxable
years beginning before, on, or after Dec. 31, 1986, see section
151(e) of Pub. L. 99-514, set out as a note under section 1 of this
title.
Section 902(f) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1009(b)(1), (2), (7), Nov. 10, 1988, 102 Stat. 3445,
3446, 3449, provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and sections
163, 291, and 1277 of this title] shall apply to taxable years
ending after December 31, 1986.
"(2) Obligations acquired pursuant to certain commitments. - For
purposes of sections 265(b) and 291(e)(1)(B) of the Internal
Revenue Code of 1986, any tax-exempt obligation which is acquired
after August 7, 1986, pursuant to a direct or indirect written
commitment -
"(A) to purchase or repurchase such obligation, and
"(B) entered into on or before September 25, 1985,
shall be treated as an obligation acquired before August 8, 1986.
"(3) Transitional rules. - For purposes of sections 265(b) and
291(e)(1)(B) of the Internal Revenue Code of 1986, obligations with
respect to any of the following projects shall be treated as
obligations acquired before August 8, 1986, in the hands of the
first and any subsequent financial institution acquiring such
obligations:
"(A) Park Forest, Illinois, redevelopment project.
"(B) Clinton, Tennessee, Carriage Trace project.
"(C) Savannah, Georgia, Mall Terrace Warehouse project.
"(D) Chattanooga, Tennessee, Warehouse Row project.
"(E) Dalton, Georgia, Towne Square project.
"(F) Milwaukee, Wisconsin, Standard Electric Supply Company -
distribution facility.
"(G) Wausau, Wisconsin, urban renewal project.
"(H) Cassville, Missouri, UDAG project.
"(I) Outlook Envelope Company - plant expansion.
"(J) Woodstock, Connecticut, Crabtree Warehouse partnership.
"(K) Louisville, Kentucky, Speed Mansion renovation project.
"(L) Charleston, South Carolina, 2 Festival Market Place
projects at Union Pier Terminal and 1 project at the Remount Road
Container Yard, State Pier No. 15 at North Charleston Terminal.
"(M) New Orleans, Louisiana, Upper Pontalba Building
renovation.
"(N) Woodward Wight Building.
"(O) Minneapolis, Minnesota, Miller Milling Company - flour
mill project.
"(P) Homewood, Alabama, the Club Apartments.
"(Q) Charlotte, North Carolina - qualified mortgage bonds
acquired by NCNB bank ($5,250,000).
"(R) Grand Rapids, Michigan, Central Bank project.
"(S) Ruppman Marketing Services, Inc. - building project.
"(T) Bellows Falls, Vermont - building project.
"(U) East Broadway Project, Louisville, Kentucky.
"(V) O.K. Industries, Oklahoma.
"(4) Additional transitional rule. - Obligations issued pursuant
to an allocation of a State's volume limitation for private
activity bonds, which allocation was made by Executive Order 25
signed by the Governor of the State on May 22, 1986 (as such order
may be amended before January 1, 1987), and qualified 501(c)(3)
bonds designated by such Governor for purposes of this paragraph,
shall be treated as acquired on or before August 7, 1986, in the
hands of the first and any subsequent financial institution
acquiring such obligation. The aggregate face amount of obligations
to which this paragraph applies shall not exceed $200,000,000."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 16(a) of Pub. L. 98-369 applicable to
taxable years ending after Dec. 31, 1983, see section 18(a) of Pub.
L. 98-369, set out as a note under section 48 of this title.
Amendment by section 56(c) of Pub. L. 98-369 applicable to short
sales after July 18, 1984, in taxable years ending after that date,
see section 56(d) of Pub. L. 98-369, set out as a note under
section 163 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 301(d) of Pub. L. 97-34 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting section 128 of this
title and amending this section and sections 584, 643, and 702 of
this title] shall apply to taxable years ending after September
30, 1981.
"(2) Conforming amendments. - The amendments made by subsection
(b)(6) [amending sections 584, 643, and 702 of this title] shall
apply to taxable years beginning after December 31, 1981."
EFFECTIVE AND TERMINATION DATES OF 1980 AMENDMENT
Section 404(c) of Pub. L. 96-223, as amended by Pub. L. 97-34,
title III, Sec. 302(b)(1), Aug. 13, 1981, 95 Stat. 272, provided
that: "The amendments made by this section [amending this section
and sections 116, 584, 643, 702, 854, and 857 of this title] shall
apply with respect to taxable years beginning after December 31,
1980, and before January 1, 1982."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(37) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Amendment by section 2137(e) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1975, see section 2137(e) of
Pub. L. 94-455, set out as a note under section 852 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 216(b) of Pub. L. 88-272 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to taxable years ending after the date of the enactment of
this Act [Feb. 21, 1964]."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
CLARIFICATION OF TREATMENT OF AMOUNTS EXCLUDED UNDER SECTION 597
Section 904(c)(2)(B) of Pub. L. 99-514 provided that this section
shall not deny any deduction by reason of such deduction being
allocable to amounts excluded from gross income under section 597
of this title as in effect on Oct. 21, 1986, prior to repeal by
Pub. L. 101-73, title XIV, Sec. 1401(a)(3)(B), Aug. 9, 1989, 103
Stat. 549.
-End-
-CITE-
26 USC Sec. 266 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 266. Carrying charges
-STATUTE-
No deduction shall be allowed for amounts paid or accrued for
such taxes and carrying charges as, under regulations prescribed by
the Secretary, are chargeable to capital account with respect to
property, if the taxpayer elects, in accordance with such
regulations, to treat such taxes or charges as so chargeable.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 78; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 struck out "or his delegate" after
"Secretary".
-End-
-CITE-
26 USC Sec. 267 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 267. Losses, expenses, and interest with respect to
transactions between related taxpayers
-STATUTE-
(a) In general
(1) Deduction for losses disallowed
No deduction shall be allowed in respect of any loss from the
sale or exchange of property, directly or indirectly, between
persons specified in any of the paragraphs of subsection (b). The
preceding sentence shall not apply to any loss of the
distributing corporation (or the distributee) in the case of a
distribution in complete liquidation.
(2) Matching of deduction and payee income item in the case of
expenses and interest
If -
(A) by reason of the method of accounting of the person to
whom the payment is to be made, the amount thereof is not
(unless paid) includible in the gross income of such person,
and
(B) at the close of the taxable year of the taxpayer for
which (but for this paragraph) the amount would be deductible
under this chapter, both the taxpayer and the person to whom
the payment is to be made are persons specified in any of the
paragraphs of subsection (b),
then any deduction allowable under this chapter in respect of
such amount shall be allowable as of the day as of which such
amount is includible in the gross income of the person to whom
the payment is made (or, if later, as of the day on which it
would be so allowable but for this paragraph). For purposes of
this paragraph, in the case of a personal service corporation
(within the meaning of section 441(i)(2)), such corporation and
any employee-owner (within the meaning of section 269A(b)(2), as
modified by section 441(i)(2)) shall be treated as persons
specified in subsection (b).
(3) Payments to foreign persons
(A) In general
The Secretary shall by regulations apply the matching
principle of paragraph (2) in cases in which the person to whom
the payment is to be made is not a United States person.
(B) Special rule for certain foreign entities
(i) In general
Notwithstanding subparagraph (A), in the case of any item
payable to a controlled foreign corporation (as defined in
section 957) or a passive foreign investment company (as
defined in section 1297), a deduction shall be allowable to
the payor with respect to such amount for any taxable year
before the taxable year in which paid only to the extent that
an amount attributable to such item is includible (determined
without regard to properly allocable deductions and qualified
deficits under section 952(c)(1)(B)) during such prior
taxable year in the gross income of a United States person
who owns (within the meaning of section 958(a)) stock in such
corporation.
(ii) Secretarial authority
The Secretary may by regulation exempt transactions from
the application of clause (i), including any transaction
which is entered into by a payor in the ordinary course of a
trade or business in which the payor is predominantly engaged
and in which the payment of the accrued amounts occurs within
8 1/2 months after accrual or within such other period as
the Secretary may prescribe.
(b) Relationships
The persons referred to in subsection (a) are:
(1) Members of a family, as defined in subsection (c)(4);
(2) An individual and a corporation more than 50 percent in
value of the outstanding stock of which is owned, directly or
indirectly, by or for such individual;
(3) Two corporations which are members of the same controlled
group (as defined in subsection (f));
(4) A grantor and a fiduciary of any trust;
(5) A fiduciary of a trust and a fiduciary of another trust, if
the same person is a grantor of both trusts;
(6) A fiduciary of a trust and a beneficiary of such trust;
(7) A fiduciary of a trust and a beneficiary of another trust,
if the same person is a grantor of both trusts;
(8) A fiduciary of a trust and a corporation more than 50
percent in value of the outstanding stock of which is owned,
directly or indirectly, by or for the trust or by or for a person
who is a grantor of the trust;
(9) A person and an organization to which section 501 (relating
to certain educational and charitable organizations which are
exempt from tax) applies and which is controlled directly or
indirectly by such person or (if such person is an individual) by
members of the family of such individual;
(10) A corporation and a partnership if the same persons own -
(A) more than 50 percent in value of the outstanding stock of
the corporation, and
(B) more than 50 percent of the capital interest, or the
profits interest, in the partnership;
(11) An S corporation and another S corporation if the same
persons own more than 50 percent in value of the outstanding
stock of each corporation;
(12) An S corporation and a C corporation, if the same persons
own more than 50 percent in value of the outstanding stock of
each corporation; or
(13) Except in the case of a sale or exchange in satisfaction
of a pecuniary bequest, an executor of an estate and a
beneficiary of such estate.
(c) Constructive ownership of stock
For purposes of determining, in applying subsection (b), the
ownership of stock -
(1) Stock owned, directly or indirectly, by or for a
corporation, partnership, estate, or trust shall be considered as
being owned proportionately by or for its shareholders, partners,
or beneficiaries;
(2) An individual shall be considered as owning the stock
owned, directly or indirectly, by or for his family;
(3) An individual owning (otherwise than by the application of
paragraph (2)) any stock in a corporation shall be considered as
owning the stock owned, directly or indirectly, by or for his
partner;
(4) The family of an individual shall include only his brothers
and sisters (whether by the whole or half blood), spouse,
ancestors, and lineal descendants; and
(5) Stock constructively owned by a person by reason of the
application of paragraph (1) shall, for the purpose of applying
paragraph (1), (2), or (3), be treated as actually owned by such
person, but stock constructively owned by an individual by reason
of the application of paragraph (2) or (3) shall not be treated
as owned by him for the purpose of again applying either of such
paragraphs in order to make another the constructive owner of
such stock.
(d) Amount of gain where loss previously disallowed
If -
(1) in the case of a sale or exchange of property to the
taxpayer a loss sustained by the transferor is not allowable to
the transferor as a deduction by reason of subsection (a)(1) (or
by reason of section 24(b) of the Internal Revenue Code of 1939);
and
(2) after December 31, 1953, the taxpayer sells or otherwise
disposes of such property (or of other property the basis of
which in his hands is determined directly or indirectly by
reference to such property) at a gain,
then such gain shall be recognized only to the extent that it
exceeds so much of such loss as is properly allocable to the
property sold or otherwise disposed of by the taxpayer. This
subsection applies with respect to taxable years ending after
December 31, 1953. This subsection shall not apply if the loss
sustained by the transferor is not allowable to the transferor as a
deduction by reason of section 1091 (relating to wash sales) or by
reason of section 118 of the Internal Revenue Code of 1939.
(e) Special rules for pass-thru entities
(1) In general
In the case of any amount paid or incurred by, to, or on behalf
of, a pass-thru entity, for purposes of applying subsection
(a)(2) -
(A) such entity,
(B) in the case of -
(i) a partnership, any person who owns (directly or
indirectly) any capital interest or profits interest of such
partnership, or
(ii) an S corporation, any person who owns (directly or
indirectly) any of the stock of such corporation,
(C) any person who owns (directly or indirectly) any capital
interest or profits interest of a partnership in which such
entity owns (directly or indirectly) any capital interest or
profits interest, and
(D) any person related (within the meaning of subsection (b)
of this section or section 707(b)(1)) to a person described in
subparagraph (B) or (C),
shall be treated as persons specified in a paragraph of
subsection (b). Subparagraph (C) shall apply to a transaction
only if such transaction is related either to the operations of
the partnership described in such subparagraph or to an interest
in such partnership.
(2) Pass-thru entity
For purposes of this section, the term "pass-thru entity" means
-
(A) a partnership, and
(B) an S corporation.
(3) Constructive ownership in the case of partnerships
For purposes of determining ownership of a capital interest or
profits interest of a partnership, the principles of subsection
(c) shall apply, except that -
(A) paragraph (3) of subsection (c) shall not apply, and
(B) interests owned (directly or indirectly) by or for a C
corporation shall be considered as owned by or for any
shareholder only if such shareholder owns (directly or
indirectly) 5 percent or more in value of the stock of such
corporation.
(4) Subsection (a)(2) not to apply to certain guaranteed payments
of partnerships
In the case of any amount paid or incurred by a partnership,
subsection (a)(2) shall not apply to the extent that section
707(c) applies to such amount.
(5) Exception for certain expenses and interest of partnerships
owning low-income housing
(A) In general
This subsection shall not apply with respect to qualified
expenses and interest paid or incurred by a partnership owning
low-income housing to -
(i) any qualified 5-percent or less partner of such
partnership, or
(ii) any person related (within the meaning of subsection
(b) of this section or section 707(b)(1)) to any qualified 5-
percent or less partner of such partnership.
(B) Qualified 5-percent or less partner
For purposes of this paragraph, the term "qualified 5-percent
or less partner" means any partner who has (directly or
indirectly) an interest of 5 percent or less in the aggregate
capital and profits interests of the partnership but only if -
(i) such partner owned the low-income housing at all times
during the 2-year period ending on the date such housing was
transferred to the partnership, or
(ii) such partnership acquired the low-income housing
pursuant to a purchase, assignment, or other transfer from
the Department of Housing and Urban Development or any State
or local housing authority.
For purposes of the preceding sentence, a partner shall be
treated as holding any interest in the partnership which is
held (directly or indirectly) by any person related (within the
meaning of subsection (b) of this section or section 707(b)(1))
to such partner.
(C) Qualified expenses and interest
For purpose of this paragraph, the term "qualified expenses
and interest" means any expense or interest incurred by the
partnership with respect to low-income housing held by the
partnership but -
(i) only if the amount of such expense or interest (as the
case may be) is unconditionally required to be paid by the
partnership not later than 10 years after the date such
amount was incurred, and
(ii) in the case of such interest, only if such interest is
incurred at an annual rate not in excess of 12 percent.
(D) Low-income housing
For purposes of this paragraph, the term "low-income housing"
means -
(i) any interest in property described in clause (i), (ii),
(iii), or (iv) of section 1250(a)(1)(B), and
(ii) any interest in a partnership owning such property.
(6) Cross reference
For additional rules relating to partnerships, see section
707(b).
(f) Controlled group defined; special rules applicable to
controlled groups
(1) Controlled group defined
For purposes of this section, the term "controlled group" has
the meaning given to such term by section 1563(a), except that -
(A) "more than 50 percent" shall be substituted for "at least
80 percent" each place it appears in section 1563(a), and
(B) the determination shall be made without regard to
subsections (a)(4) and (e)(3)(C) of section 1563.
(2) Deferral (rather than denial) of loss from sale or exchange
between members
In the case of any loss from the sale or exchange of property
which is between members of the same controlled group and to
which subsection (a)(1) applies (determined without regard to
this paragraph but with regard to paragraph (3)) -
(A) subsections (a)(1) and (d) shall not apply to such loss,
but
(B) such loss shall be deferred until the property is
transferred outside such controlled group and there would be
recognition of loss under consolidated return principles or
until such other time as may be prescribed in regulations.
(3) Loss deferral rules not to apply in certain cases
(A) Transfer to DISC
For purposes of applying subsection (a)(1), the term
"controlled group" shall not include a DISC.
(B) Certain sales of inventory
Except to the extent provided in regulations prescribed by
the Secretary, subsection (a)(1) shall not apply to the sale or
exchange of property between members of the same controlled
group (or persons described in subsection (b)(10)) if -
(i) such property in the hands of the transferor is
property described in section 1221(a)(1),
(ii) such sale or exchange is in the ordinary course of the
transferor's trade or business,
(iii) such property in the hands of the transferee is
property described in section 1221(a)(1), and
(iv) the transferee or the transferor is a foreign
corporation.
(C) Certain foreign currency losses
To the extent provided in regulations, subsection (a)(1)
shall not apply to any loss sustained by a member of a
controlled group on the repayment of a loan made to another
member of such group if such loan is payable in a foreign
currency or is denominated in such a currency and such loss is
attributable to a reduction in value of such foreign currency.
(4) Determination of relationship resulting in disallowance of
loss, for purposes of other provisions
For purposes of any other section of this title which refers to
a relationship which would result in a disallowance of losses
under this section, deferral under paragraph (2) shall be treated
as disallowance.
(g) Coordination with section 1041
Subsection (a)(1) shall not apply to any transfer described in
section 1041(a) (relating to transfers of property between spouses
or incident to divorce).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 78; Pub. L. 95-628, Sec. 2(a),
Nov. 10, 1978, 92 Stat. 3627; Pub. L. 97-354, Sec. 3(h), Oct. 19,
1982, 96 Stat. 1689; Pub. L. 98-369, div. A, title I, Sec. 174(a)-
(b)(4), title VII, Sec. 721(s), July 18, 1984, 98 Stat. 704-707,
970; Pub. L. 99-514, title VIII, Secs. 803(b)(5), 806(c)(2), title
XVIII, Secs. 1812(c)(1), (2), (3)(C), (4)(A), 1842(a), Oct. 22,
1986, 100 Stat. 2356, 2364, 2834, 2835, 2852; Pub. L. 100-647,
title I, Secs. 1006(e)(9), 1008(e)(6), Nov. 10, 1988, 102 Stat.
3401, 3441; Pub. L. 105-34, title XIII, Sec. 1308(a), title XVI,
Sec. 1604(e)(1), Aug. 5, 1997, 111 Stat. 1041, 1098; Pub. L. 106-
170, title V, Sec. 532(c)(2)(C), Dec. 17, 1999, 113 Stat. 1930;
Pub. L. 108-357, title VIII, Sec. 841(b), Oct. 22, 2004, 118 Stat.
1598.)
-REFTEXT-
REFERENCES IN TEXT
Sections 24(b) and 118 of the Internal Revenue Code of 1939,
referred to in subsec. (d), were classified to sections 24(b) and
118 of former Title 26, Internal Revenue Code. Sections 24(b) and
118 were repealed by section 7851(a)(1) of this title. For table of
comparisons of the 1939 Code to the 1986 Code [formerly I.R.C.
1954], see Table I preceding section 1 of this title. See, also,
section 7851(e) of this title for provision that references in the
1986 Code to a provision of the 1939 Code, not then applicable,
shall be deemed a reference to the corresponding provision of the
1986 Code, which is then applicable.
-MISC1-
AMENDMENTS
2004 - Subsec. (a)(3). Pub. L. 108-357 designated existing
provisions as subpar. (A), inserted heading, and added subpar. (B).
1999 - Subsec. (f)(3)(B)(i), (iii). Pub. L. 106-170 substituted
"1221(a)(1)" for "1221(1)".
1997 - Subsec. (b)(13). Pub. L. 105-34, Sec. 1308(a), added par.
(13).
Subsec. (f)(4). Pub. L. 105-34, Sec. 1604(e)(1), added par. (4).
1988 - Subsec. (a)(1). Pub. L. 100-647, Sec. 1006(e)(9), struck
out "(other than a loss in case of a distribution in corporate
liquidation)" after "exchange of property" and inserted at end "The
preceding sentence shall not apply to any loss of the distributing
corporation (or the distributee) in the case of a distribution in
complete liquidation."
Subsec. (a)(2). Pub. L. 100-647, Sec. 1008(e)(6), made technical
correction to directory language of Pub. L. 99-514, Sec. 806(c)(2),
see 1986 Amendment note below.
1986 - Subsec. (a)(2). Pub. L. 99-514, Sec. 806(c)(2), as amended
by Pub. L. 100-647, Sec. 1008(e)(6), inserted at end "For purposes
of this paragraph, in the case of a personal service corporation
(within the meaning of section 441(i)(2)), such corporation and any
employee-owner (within the meaning of section 269A(b)(2), as
modified by section 441(i)(2)) shall be treated as persons
specified in subsection (b)."
Subsec. (a)(3). Pub. L. 99-514, Sec. 1812(c)(1), added par. (3).
Subsec. (b)(12). Pub. L. 99-514, Sec. 1812(c)(4)(A), substituted
"same persons own" for "same persons owns".
Subsec. (e)(5)(D). Pub. L. 99-514, Sec. 803(b)(5), substituted in
cl. (i) "interest in property described in clause (i), (ii), (iii),
or (iv) of section 1250(a)(1)(B)" for "interest in low-income
housing (as defined in paragraph (5) of section 189(e))" and in cl.
(ii) "such property" for "low-income housing (as so defined)".
Subsec. (e)(6). Pub. L. 99-514, Sec. 1812(c)(3)(C), added par.
(6).
Subsec. (f)(3)(B). Pub. L. 99-514, Sec. 1812(c)(2), inserted "(or
persons described in subsection (b)(10))".
Subsec. (g). Pub. L. 99-514, Sec. 1842(a), added subsec. (g).
1984 - Subsec. (a). Pub. L. 98-369, Sec. 174(a), amended subsec.
(a) generally, substituting "In general" for "Deduction disallowed"
in heading, "Deduction for losses disallowed" for "Losses" in par.
(1) heading, and provisions dealing with matching of deduction and
payee income item in the case of expenses and interest for
provisions dealing with unpaid expenses and interest in par. (2).
Subsec. (b)(3). Pub. L. 98-369, Sec. 174(b)(2)(A), substituted
"Two corporations which are members of the same controlled group
(as defined in subsection (f))" for "Two corporations more than 50
percent in value of the outstanding stock of each of which is
owned, directly or indirectly, by or for the same individual, if
either one of such corporations, with respect to the taxable year
of the corporation preceding the date of the sale or exchange was,
under the law applicable to such taxable year, a personal holding
company or a foreign personal holding company".
Subsec. (b)(10). Pub. L. 98-369, Sec. 174(b)(3), substituted "A
corporation" for "An S corporation" in introductory provisions and
"the corporation" for "the S corporation" in subpar. (A).
Subsec. (b)(12). Pub. L. 98-369, Sec. 174(b)(4), substituted "the
same persons" for "the same individual".
Subsec. (e). Pub. L. 98-369, Sec. 174(b)(1), added subsec. (e).
Pub. L. 98-369, Sec. 174(a)(2), struck out subsec. (e) which
provided that for purposes of subsection (a)(2) where the last day
of the 2 1/2 month period falls on Saturday, Sunday, or a legal
holiday, such last day be treated as falling on the next succeeding
day which is not a Saturday, Sunday, or a legal holiday, and the
determination of what constitutes a legal holiday be made under
section 7503 with respect to the payor's return of tax under this
chapter for the preceding taxable year.
Subsec. (f). Pub. L. 98-369, Sec. 174(b)(2)(B), added subsec.
(f).
Pub. L. 98-369, Sec. 174(b)(1), struck out subsec. (f) which
related to special rules for unpaid expenses and interest of S
corporations and treatment under such provisions of certain
shareholders, etc., as related persons.
Pub. L. 98-369, Sec. 721(s), in closing provision of par. (1)
substituted "then any deduction allowable under such sections in
respect of such amount shall be allowable as of the day as of which
such payment is includible in the gross income of the person to
whom the payment is made (or, if later, as of the day on which it
would be so allowable but for this paragraph)" for "then no
deduction shall be allowed in respect of expenses otherwise
deductible under section 162 or 212, or of interest otherwise
deductible under section 163, before the day as of which the amount
thereof is includible in the gross income of the person to whom the
payment is made".
1982 - Subsec. (b)(10) to (12). Pub. L. 97-354, Sec. 3(h)(1),
(3), added pars. (10) to (12).
Subsec. (f). Pub. L. 97-354, Sec. 3(h)(2), added subsec. (f).
1978 - Subsec. (e). Pub. L. 95-628 added subsec. (e).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to payments accrued on or
after Oct. 22, 2004, see section 841(c) of Pub. L. 108-357, set out
as a note under section 163 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1308(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and section 1239 of
this title] shall apply to taxable years beginning after the date
of the enactment of this Act [Aug. 5, 1997]."
Section 1604(e)(2) of Pub. L. 105-34 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in section 174(b) of the Tax Reform Act of
1984 [Pub. L. 98-369]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the amendment
by section 803(b)(5) of Pub. L. 99-514 is applicable to such
interest costs only to the extent such interest costs are
attributable to costs which were required to be capitalized under
section 263 of the Internal Revenue Code of 1954 and which would
have been taken into account in applying section 189 of the
Internal Revenue Code of 1954 (as in effect before its repeal by
section 803 of Pub. L. 99-514) or, if applicable, section 266 of
such Code, see section 7831(d)(2) of Pub. L. 101-239, set out as an
Effective Date note under section 263A of this title.
Amendment by section 803(b)(5) of Pub. L. 99-514 applicable,
except as otherwise provided, to costs incurred after Dec. 31,
1986, in taxable years ending after that date, see section 803(d)
of Pub. L. 99-514, set out as a note under section 263A of this
title.
Amendment by section 806(c)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with special
provisions applicable to taxpayers who are required to change their
accounting periods, see section 806(e) of Pub. L. 99-514, set out
as a note under section 1378 of this title.
Amendment by sections 1812(c)(1), (2), (3)(C), (4)(A) and 1842(a)
of Pub. L. 99-514 effective, except as otherwise provided, as if
included in the provisions of the Tax Reform Act of 1984, Pub. L.
98-369, div. A, to which such amendment relates, see section 1881
of Pub. L. 99-514, set out as a note under section 48 of this
title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 174(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Subsections (a) and (b)(1). - The amendments made by
subsections (a) and (b)(1) [amending this section] shall apply to
amounts allowable as deductions under chapter 1 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] for taxable years
beginning after December 31, 1983. For purposes of the preceding
sentence, the allowability of a deduction shall be determined
without regard to any disallowance or postponement of deductions
under section 267 of such Code.
"(2) Subsection (b) (other than paragraph (1)). -
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by subsection (b) (other than paragraph (1)
thereof) [amending this section and sections 170, 368, 514, and
1235 of this title] shall apply to transactions after December
31, 1983, in taxable years ending after such date.
"(B) Exception for transfers to foreign corporations on or
before march 1, 1984. - The amendments made by subsection (b)(2)
[amending this section] shall not apply to property transferred
to a foreign corporation on or before March 1, 1984.
"(3) Exception for existing indebtedness, etc. -
"(A) In general. - The amendments made by this section
[amending this section and sections 170, 368, 514, and 1235 of
this title] shall not apply to any amount paid or incurred -
"(i) on indebtedness incurred on or before September 29,
1983, or
"(ii) pursuant to a contract which was binding on September
29, 1983, and at all times thereafter before the amount is paid
or incurred.
"(B) Treatment of renegotiations, extensions, etc. - If any
indebtedness (or contract described in subparagraph (A)) is
renegotiated, extended, renewed, or revised after September 29,
1983, subparagraph (A) shall not apply to any amount paid or
incurred on such indebtedness (or pursuant to such contract)
after the date of such renegotiation, extension, renewal, or
revision."
Amendment by section 721(s) of Pub. L. 98-369 effective as if
included in the Subchapter S Revision Act of 1982, Pub. L. 97-354,
see section 721(y)(1) of Pub. L. 98-369, set out as a note under
section 1361 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 2(b) of Pub. L. 95-628 provided that: "The amendment made
by subsection (a) [amending this section] shall apply with respect
to payments made after the date of the enactment of this Act [Nov.
10, 1978]."
CONSTRUCTION OF SECTION 806 OF PUB. L. 99-514
Nothing in section 806 of Pub. L. 99-514 [amending this section]
or in any legislative history relating thereto to be construed as
requiring the Secretary of the Treasury or his delegate to permit
an automatic change of a taxable year, see section 1008(e)(9) of
Pub. L. 100-647, set out as a note under section 1378 of this
title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
EXCEPTION FOR CERTAIN INDEBTEDNESS
Section 1812(c)(5) of Pub. L. 99-514 provided that: "Clause (i)
of section 174(c)(3)(A) of the Tax Reform Act of 1984 [section
174(c)(3)(A)(i) of Pub. L. 98-369, set out as a note above] shall
be applied by substituting 'December 31, 1983' for 'September 29,
1983' in the case of indebtedness which matures on January 1, 1999,
the payments on which from January 1989 through November 1993 equal
U/L plus $77,600, the payments on which from December 1993 to
maturity equal U/L plus $50,100, and which accrued interest at
13.75 percent through December 31, 1989."
-End-
-CITE-
26 USC Sec. 268 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 268. Sale of land with unharvested crop
-STATUTE-
Where an unharvested crop sold by the taxpayer is considered
under the provisions of section 1231 as "property used in the trade
or business", in computing taxable income no deduction (whether or
not for the taxable year of the sale and whether for expenses,
depreciation, or otherwise) attributable to the production of such
crop shall be allowed.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 80.)
-End-
-CITE-
26 USC Sec. 269 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 269. Acquisitions made to evade or avoid income tax
-STATUTE-
(a) In general
If -
(1) any person or persons acquire, or acquired on or after
October 8, 1940, directly or indirectly, control of a
corporation, or
(2) any corporation acquires, or acquired on or after October
8, 1940, directly or indirectly, property of another corporation,
not controlled, directly or indirectly, immediately before such
acquisition, by such acquiring corporation or its stockholders,
the basis of which property, in the hands of the acquiring
corporation, is determined by reference to the basis in the hands
of the transferor corporation,
and the principal purpose for which such acquisition was made is
evasion or avoidance of Federal income tax by securing the benefit
of a deduction, credit, or other allowance which such person or
corporation would not otherwise enjoy, then the Secretary may
disallow such deduction, credit, or other allowance. For purposes
of paragraphs (1) and (2), control means the ownership of stock
possessing at least 50 percent of the total combined voting power
of all classes of stock entitled to vote or at least 50 percent of
the total value of shares of all classes of stock of the
corporation.
(b) Certain liquidations after qualified stock purchases
(1) In general
If -
(A) there is a qualified stock purchase by a corporation of
another corporation,
(B) an election is not made under section 338 with respect to
such purchase,
(C) the acquired corporation is liquidated pursuant to a plan
of liquidation adopted not more than 2 years after the
acquisition date, and
(D) the principal purpose for such liquidation is the evasion
or avoidance of Federal income tax by securing the benefit of a
deduction, credit, or other allowance which the acquiring
corporation would not otherwise enjoy,
then the Secretary may disallow such deduction, credit, or other
allowance.
(2) Meaning of terms
For purposes of paragraph (1), the terms "qualified stock
purchase" and "acquisition date" have the same respective
meanings as when used in section 338.
(c) Power of Secretary to allow deduction, etc., in part
In any case to which subsection (a) or (b) applies the Secretary
is authorized -
(1) to allow as a deduction, credit, or allowance any part of
any amount disallowed by such subsection, if he determines that
such allowance will not result in the evasion or avoidance of
Federal income tax for which the acquisition was made; or
(2) to distribute, apportion, or allocate gross income, and
distribute, apportion, or allocate the deductions, credits, or
allowances the benefit of which was sought to be secured, between
or among the corporations, or properties, or parts thereof,
involved, and to allow such deductions, credits, or allowances so
distributed, apportioned, or allocated, but to give effect to
such allowance only to such extent as he determines will not
result in the evasion or avoidance of Federal income tax for
which the acquisition was made; or
(3) to exercise his powers in part under paragraph (1) and in
part under paragraph (2).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 80; Pub. L. 88-272, title II,
Sec. 235(c)(2), Feb. 26, 1964, 78 Stat. 126; Pub. L. 94-455, title
XIX, Secs. 1901(a)(38), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1771, 1834; Pub. L. 98-369, div. A, title VII, Sec. 712(k)(8)(A),
(B), July 18, 1984, 98 Stat. 952.)
-MISC1-
AMENDMENTS
1984 - Subsecs. (b), (c). Pub. L. 98-369 added subsec. (b),
redesignated former subsec. (b) as (c) and inserted reference to
subsec. (b).
1976 - Subsecs. (a), (b). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary" wherever appearing.
Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(38), struck out subsec.
(c) relating to presumptions in the case of disproportionate
purchase price.
1964 - Subsec. (a). Pub. L. 88-272 substituted "the Secretary or
his delegate may disallow such deduction, credit, or other
allowance" for "such deduction, credit or other allowance shall not
be allowed".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 712(k)(8)(C) of Pub. L. 98-369 provided that: "The
amendments made by this paragraph [amending this section] shall
apply to liquidations after October 20, 1983, in taxable years
ending after such date."
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years ending
after Dec. 31, 1963, see section 235(d) of Pub. L. 88-272, set out
as a note under section 1551 of this title.
-End-
-CITE-
26 USC Sec. 269A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 269A. Personal service corporations formed or availed of to
avoid or evade income tax
-STATUTE-
(a) General rule
If -
(1) substantially all of the services of a personal service
corporation are performed for (or on behalf of) 1 other
corporation, partnership, or other entity, and
(2) the principal purpose for forming, or availing of, such
personal service corporation is the avoidance or evasion of
Federal income tax by reducing the income of, or securing the
benefit of any expense, deduction, credit, exclusion, or other
allowance for, any employee-owner which would not otherwise be
available,
then the Secretary may allocate all income, deductions, credits,
exclusions, and other allowances between such personal service
corporation and its employee-owners, if such allocation is
necessary to prevent avoidance or evasion of Federal income tax or
clearly to reflect the income of the personal service corporation
or any of its employee-owners.
(b) Definitions
For purposes of this section -
(1) Personal service corporation
The term "personal service corporation" means a corporation the
principal activity of which is the performance of personal
services and such services are substantially performed by
employee-owners.
(2) Employee-owner
The term "employee-owner" means any employee who owns, on any
day during the taxable year, more than 10 percent of the
outstanding stock of the personal service corporation. For
purposes of the preceding sentence, section 318 shall apply,
except that "5 percent" shall be substituted for "50 percent" in
section 318(a)(2)(C).
(3) Related persons
All related persons (within the meaning of section 144(a)(3))
shall be treated as 1 entity.
-SOURCE-
(Added Pub. L. 97-248, title II, Sec. 250(a), Sept. 3, 1982, 96
Stat. 528; amended Pub. L. 99-514, title XIII, Sec. 1301(j)(4),
Oct. 22, 1986, 100 Stat. 2657.)
-MISC1-
AMENDMENTS
1986 - Subsec. (b)(3). Pub. L. 99-514 substituted "section
144(a)(3)" for "section 103(b)(6)(C)".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to bonds issued after Aug.
15, 1986, except as otherwise provided, see sections 1311 to 1318
of Pub. L. 99-514, set out as an Effective Date; Transitional Rules
note under section 141 of this title.
EFFECTIVE DATE
Section 250(c) of Pub. L. 97-248 provided that: "The amendments
made by this section [enacting this section] shall apply to taxable
years beginning after December 31, 1982."
-End-
-CITE-
26 USC Sec. 269B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 269B. Stapled entities
-STATUTE-
(a) General rule
Except as otherwise provided by regulations, for purposes of this
title -
(1) if a domestic corporation and a foreign corporation are
stapled entities, the foreign corporation shall be treated as a
domestic corporation.
(2) in applying section 1563, stock in a second corporation
which constitutes a stapled interest with respect to stock of a
first corporation shall be treated as owned by such first
corporation, and
(3) in applying subchapter M for purposes of determining
whether any stapled entity is a regulated investment company or a
real estate investment trust, all entities which are stapled
entities with respect to each other shall be treated as 1 entity.
(b) Secretary to prescribe regulations
The Secretary shall prescribe such regulations as may be
necessary to prevent avoidance or evasion of Federal income tax
through the use of stapled entities. Such regulations may include
(but shall not be limited to) regulations providing the extent to
which 1 of such entities shall be treated as owning the other
entity (to the extent of the stapled interest) and regulations
providing that any tax imposed on the foreign corporation referred
to in subsection (a)(1) may, if not paid by such corporation, be
collected from the domestic corporation referred to in such
subsection or the shareholders of such foreign corporation.
(c) Definitions
For purposes of this section -
(1) Entity
The term "entity" means any corporation, partnership, trust,
association, estate, or other form of carrying on a business or
activity.
(2) Stapled entities
The term "stapled entities" means any group of 2 or more
entities if more than 50 percent in value of the beneficial
ownership in each of such entities consists of stapled interests.
(3) Stapled interests
Two or more interests are stapled interests if, by reason of
form of ownership, restrictions on transfer, or other terms or
conditions, in connection with the transfer of 1 of such
interests the other such interests are also transferred or
required to be transferred.
(d) Special rule for treaties
Nothing in section 894 or 7852(d) or in any other provision of
law shall be construed as permitting an exemption, by reason of any
treaty obligation of the United States heretofore or hereafter
entered into, from the provisions of this section.
(e) Subsection (a)(1) not to apply in certain cases
(1) In general
Subsection (a)(1) shall not apply if it is established to the
satisfaction of the Secretary that the domestic corporation and
the foreign corporation referred to in such subsection are
foreign owned.
(2) Foreign owned
For purposes of paragraph (1), a corporation is foreign owned
if less than 50 percent of -
(A) the total combined voting power of all classes of stock
of such corporation entitled to vote, and
(B) the total value of the stock of the corporation,
is held directly (or indirectly through applying paragraphs (2)
and (3) of section 958(a) and paragraph (4) of section 318(a)) by
United States persons (as defined in section 7701(a)(30)).
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 136(a), July 18, 1984,
98 Stat. 669; amended Pub. L. 99-514, title XVIII, Sec. 1810(j),
Oct. 22, 1986, 100 Stat. 2829.)
-MISC1-
AMENDMENTS
1986 - Subsec. (b). Pub. L. 99-514, Sec. 1810(j)(1), inserted
"and regulations providing that any tax imposed on the foreign
corporation referred to in subsection (a)(1) may, if not paid by
such corporation, be collected from the domestic corporation
referred to in such subsection or the shareholders of such foreign
corporation".
Subsec. (e). Pub. L. 99-514, Sec. 1810(j)(2), added subsec. (e).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section 136(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting this
section] shall take effect on the date of the enactment of this Act
[July 18, 1984].
"(2) Interests stapled as of june 30, 1983. - Except as otherwise
provided in this subsection, in the case of any interests which on
June 30, 1983, were stapled interests (as defined in section
269B(c)(3) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] (as added by this section)), the amendments made by this
section shall take effect on January 1, 1985 (January 1, 1987, in
the case of stapled interests in a foreign corporation).
"(3) Certain stapled entities which include real estate
investment trust. - Paragraph (3) of section 269B(a) of such Code
shall not apply in determining the application of the provisions of
part II of subchapter M of chapter 1 of such Code to any real
estate investment trust which is part of a group of stapled
entities if -
"(A) all members of such group were stapled entities as of June
30, 1983, and
"(B) as of June 30, 1983, such group included one or more real
estate investment trusts.
"(4) Certain stapled entities which include puerto rican
corporations. -
"(A) Paragraph (1) of section 269B(a) of such Code shall not
apply to a domestic corporation and a qualified Puerto Rican
corporation which, on June 30, 1983, were stapled entities.
"(B) For purposes of subparagraph (A), the term 'qualified
Puerto Rican corporation' means any corporation organized in
Puerto Rico -
"(i) which is described in section 957(c) of such Code or
would be so described if any dividends it received from any
other corporation described in such section 957(c) were treated
as gross income of the type described in such section 957(c),
and
"(ii) does not, at any time during the taxable year, own
(within the meaning of section 958 of such Code but before
applying paragraph (2) of section 269B(a) of such Code) any
stock of any corporation which is not described in such section
957(c).
"(5) Treaty rule not to apply to stapled entities entitled to
treaty benefits as of june 30, 1983. - In the case of any entity
which was a stapled entity as of June 30, 1983, subsection (d) of
section 269B of such Code shall not apply to any treaty benefit to
which such entity was entitled as of June 30, 1983.
"(6) Elections to treat stapled foreign entities as subsidiaries.
-
"(A) In general. - In the case of any foreign corporation and
domestic corporation which as of June 30, 1983, were stapled
entities, such domestic corporation may elect (in lieu of
applying paragraph (1) of section 269B(a) of such Code) to be
treated as owning all interests in the foreign corporation which
constitute stapled interests with respect to stock of the
domestic corporation.
"(B) Election. - Any election under subparagraph (A) shall be
made not later than 180 days after the date of the enactment of
this Act and shall be made in such manner as the Secretary of the
Treasury or his delegate shall prescribe.
"(C) Election irrevocable. - Any election under subparagraph
(A), once made, may be revoked only with the consent of the
Secretary of the Treasury or his delegate.
"(7) Other stapled entities which include real estate investment
trust. -
"(A) In general. - Paragraph (3) of section 269B(a) of such
Code shall not apply in determining the application of the
provisions of part II of subchapter M of chapter 1 of such Code
to any qualified real estate investment trust which is a part of
a group of stapled entities -
"(i) which was created pursuant to a written board of
directors resolution adopted on April 5, 1984, and
"(ii) all members of such group were stapled entities as of
June 16, 1985.
"(B) Qualified real estate investment trust. - The term
'qualified real estate investment trust' means any real estate
trust -
"(i) at least 75 percent of the gross income of which is
derived from interest on obligations secured by mortgages on
real property (as defined in section 856 of such Code),
"(ii) with respect to which the interest on the obligations
described in clause (i) made or acquired by such trust (other
than to persons who are independent contractors, as defined in
section 856(d)(3) of such Code) is at an arm's length rate or a
rate not more than 1 percentage point greater than the
associated borrowing cost of the trust, and
"(iii) with respect to which any real property held by the
trust is not used in the trade or business of any other member
of the group of stapled entities."
TERMINATION OF EXCEPTION FOR CERTAIN REAL ESTATE INVESTMENT TRUSTS
FROM THE TREATMENT OF STAPLED ENTITIES
Pub. L. 105-206, title VII, Sec. 7002, July 22, 1998, 112 Stat.
827, provided that:
"(a) In General. - Notwithstanding paragraph (3) of section
136(c) of the Tax Reform Act of 1984 [Pub. L. 98-369, set out
above] (relating to stapled stock; stapled entities), the REIT
gross income provisions shall be applied by treating the activities
and gross income of members of the stapled REIT group properly
allocable to any nonqualified real property interest held by the
exempt REIT or any stapled entity which is a member of such group
(or treated under subsection (c) as held by such REIT or stapled
entity) as the activities and gross income of the exempt REIT in
the same manner as if the exempt REIT and such group were one
entity.
"(b) Nonqualified Real Property Interest. - For purposes of this
section -
"(1) In general. - The term 'nonqualified real property
interest' means, with respect to any exempt REIT, any interest in
real property acquired after March 26, 1998, by the exempt REIT
or any stapled entity.
"(2) Exception for binding contracts, etc. - Such term shall
not include any interest in real property acquired after March
26, 1998, by the exempt REIT or any stapled entity if -
"(A) the acquisition is pursuant to a written agreement
(including a put option, buy-sell agreement, and an agreement
relating to a third party default) which was binding on such
date and at all times thereafter on such REIT or stapled
entity; or
"(B) the acquisition is described on or before such date in a
public announcement or in a filing with the Securities and
Exchange Commission.
"(3) Improvements and leases. -
"(A) In general. - Except as otherwise provided in this
paragraph, the term 'nonqualified real property interest' shall
not include -
"(i) any improvement to land owned or leased by the exempt
REIT or any member of the stapled REIT group; and
"(ii) any repair to, or improvement of, any improvement
owned or leased by the exempt REIT or any member of the
stapled REIT group,
if such ownership or leasehold interest is a qualified real
property interest.
"(B) Leases. - The term 'nonqualified real property interest'
shall not include -
"(i) any lease of a qualified real property interest if
such lease is not otherwise such an interest; or
"(ii) any renewal of a lease which is a qualified real
property interest,
but only if the rent on any lease referred to in clause (i) or
any renewal referred to in clause (ii) does not exceed an arm's
length rate.
"(C) Termination where change in use. -
"(i) In general. - Subparagraph (A) shall not apply to any
improvement placed in service after December 31, 1999, which
is part of a change in the use of the property to which such
improvement relates unless the cost of such improvement does
not exceed 200 percent of -
"(I) the cost of such property; or
"(II) if such property is substituted basis property (as
defined in section 7701(a)(42) of the Internal Revenue Code
of 1986), the fair market value of the property at the time
of acquisition.
"(ii) Binding contracts. - For purposes of clause (i), an
improvement shall be treated as placed in service before
January 1, 2000, if such improvement is placed in service
before January 1, 2004, pursuant to a binding contract in
effect on December 31, 1999, and at all times thereafter.
"(4) Exception for permitted transfers, etc. - The term
'nonqualified real property interest' shall not include any
interest in real property acquired solely as a result of a direct
or indirect contribution, distribution, or other transfer of such
interest from the exempt REIT or any member of the stapled REIT
group to such REIT or any such member, but only to the extent the
aggregate of the interests of the exempt REIT and all stapled
entities in such interest in real property (determined in
accordance with subsection (c)(1)) is not increased by reason of
the transfer.
"(5) Treatment of entities which are not stapled, etc. on march
26, 1998. - Notwithstanding any other provision of this section,
all interests in real property held by an exempt REIT or any
stapled entity with respect to such REIT (or treated under
subsection (c) as held by such REIT or stapled entity) shall be
treated as nonqualified real property interests unless -
"(A) such stapled entity was a stapled entity with respect to
such REIT as of March 26, 1998, and at all times thereafter;
and
"(B) as of March 26, 1998, and at all times thereafter, such
REIT was a real estate investment trust.
"(6) Qualified real property interest. - The term 'qualified
real property interest' means any interest in real property other
than a nonqualified real property interest.
"(c) Treatment of Property Held by 10-Percent Subsidiaries. - For
purposes of this section -
"(1) In general. - Any exempt REIT and any stapled entity shall
be treated as holding their proportionate shares of each interest
in real property held by any 10-percent subsidiary entity of the
exempt REIT or stapled entity, as the case may be.
"(2) Property held by 10-percent subsidiaries treated as
nonqualified. -
"(A) In general. - Except as provided in subparagraph (B),
any interest in real property held by a 10-percent subsidiary
entity of an exempt REIT or stapled entity shall be treated as
a nonqualified real property interest.
"(B) Exception for interests in real property held on march
26, 1998, etc. - In the case of an entity which was a 10-
percent subsidiary entity of an exempt REIT or stapled entity
on March 26, 1998, and at all times thereafter, an interest in
real property held by such subsidiary entity shall be treated
as a qualified real property interest if such interest would be
so treated if held or acquired directly by the exempt REIT or
the stapled entity.
"(3) Reduction in qualified real property interests if increase
in ownership of subsidiary. - If, after March 26, 1998, an exempt
REIT or stapled entity increases its ownership interest in a
subsidiary entity to which paragraph (2)(B) applies above its
ownership interest in such subsidiary entity as of such date, the
additional portion of each interest in real property which is
treated as held by the exempt REIT or stapled entity by reason of
such increased ownership shall be treated as a nonqualified real
property interest.
"(4) Special rules for determining ownership. - For purposes of
this subsection -
"(A) percentage ownership of an entity shall be determined in
accordance with subsection (e)(4);
"(B) interests in the entity which are acquired by an exempt
REIT or a member of the stapled REIT group in any acquisition
described in an agreement, announcement, or filing described in
subsection (b)(2) shall be treated as acquired on March 26,
1998; and
"(C) except as provided in guidance prescribed by the
Secretary, any change in proportionate ownership which is
attributable solely to fluctuations in the relative fair market
values of different classes of stock shall not be taken into
account.
"(5) Treatment of 60-percent partnerships. -
"(A) In general. - If, as of March 26, 1998 -
"(i) an exempt REIT or stapled entity held directly or
indirectly at least 60 percent of the capital or profits
interest in a partnership; and
"(ii) 90 percent or more of the capital interests and 90
percent or more of the profits interests in such partnership
(other than interests held directly or indirectly by the
exempt REIT or stapled entity) are, or will be, redeemable or
exchangeable for consideration the amount of which is
determined by reference to the value of shares of stock in
the exempt REIT or stapled entity (or both),
paragraph (3) shall not apply to such partnership, and such REIT
or entity shall be treated for all purposes of this section as
holding all of the capital and profits interests in such
partnership.
"(B) Limitation to one partnership. - If, as of January 1,
1999, more than one partnership owned by any exempt REIT or
stapled entity meets the requirements of subparagraph (A), only
the largest such partnership on such date (determined by
aggregate asset bases) shall be treated as meeting such
requirements.
"(C) Mirror entity. - For purposes of subparagraph (A), an
interest in a partnership formed after March 26, 1998, shall be
treated as held by an exempt REIT or stapled entity on March
26, 1998, if such partnership is formed to mirror the stapling
of an exempt REIT and a stapled entity in connection with an
acquisition agreed to or announced on or before March 26, 1998.
"(d) Treatment of Property Secured by Mortgage Held by Exempt
REIT or Member of Stapled REIT Group. -
"(1) In general. - In the case of any nonqualified obligation
held by an exempt REIT or any member of the stapled REIT group,
the REIT gross income provisions shall be applied by treating the
exempt REIT as having impermissible tenant service income equal
to -
"(A) the interest income from such obligation which is
properly allocable to the property described in paragraph (2);
and
"(B) the income of any member of the stapled REIT group from
services described in paragraph (2) with respect to such
property.
If the income referred to in subparagraph (A) or (B) is of a 10-
percent subsidiary entity, only the portion of such income which
is properly allocable to the exempt REIT's or the stapled
entity's interest in the subsidiary entity shall be taken into
account.
"(2) Nonqualified obligation. - Except as otherwise provided in
this subsection, the term 'nonqualified obligation' means any
obligation secured by a mortgage on an interest in real property
if the income of any member of the stapled REIT group for
services furnished with respect to such property would be
impermissible tenant service income were such property held by
the exempt REIT and such services furnished by the exempt REIT.
"(3) Exception for certain market rate obligations. - Such term
shall not include any obligation -
"(A) payments under which would be treated as interest if
received by a REIT; and
"(B) the rate of interest on which does not exceed an arm's
length rate.
"(4) Exception for existing obligations. - Such term shall not
include any obligation -
"(A) which is secured on March 26, 1998, by an interest in
real property; and
"(B) which is held on such date by the exempt REIT or any
entity which is a member of the stapled REIT group on such date
and at all times thereafter,
but only so long as such obligation is secured by such interest,
and the interest payable on such obligation is not changed to a
rate which exceeds an arm's length rate unless such change is
pursuant to the terms of the obligation in effect on March 26,
1998. The preceding sentence shall not cease to apply by reason
of the refinancing of the obligation if (immediately after the
refinancing) the principal amount of the obligation resulting
from the refinancing does not exceed the principal amount of the
refinanced obligation (immediately before the refinancing) and
the interest payable on such refinanced obligation does not
exceed an arm's length rate.
"(5) Treatment of entities which are not stapled, etc. on march
26, 1998. - A rule similar to the rule of subsection (b)(5) shall
apply for purposes of this subsection.
"(6) Increase in amount of nonqualified obligations if increase
in ownership of subsidiary. - A rule similar to the rule of
subsection (c)(3) shall apply for purposes of this subsection.
"(7) Coordination with subsection (a). - This subsection shall
not apply to the portion of any interest in real property that
the exempt REIT or stapled entity holds or is treated as holding
under this section without regard to this subsection.
"(e) Definitions. - For purposes of this section -
"(1) REIT gross income provisions. - The term 'REIT gross
income provisions' means -
"(A) paragraphs (2), (3), and (6) of section 856(c) of the
Internal Revenue Code of 1986; and
"(B) section 857(b)(5) of such Code.
"(2) Exempt reit. - The term 'exempt REIT' means a real estate
investment trust to which section 269B of the Internal Revenue
Code of 1986 does not apply by reason of paragraph (3) of section
136(c) of the Tax Reform Act of 1984.
"(3) Stapled reit group. - The term 'stapled REIT group' means,
with respect to an exempt REIT, the group consisting of -
"(A) all entities which are stapled entities with respect to
the exempt REIT; and
"(B) all entities which are 10-percent subsidiary entities of
the exempt REIT or any such stapled entity.
"(4) 10-percent subsidiary entity. -
"(A) In general. - The term '10-percent subsidiary entity'
means, with respect to any exempt REIT or stapled entity, any
entity in which the exempt REIT or stapled entity (as the case
may be) directly or indirectly holds at least a 10-percent
interest.
"(B) Exception for certain c corporation subsidiaries of
reits. - A corporation which would, but for this subparagraph,
be treated as a 10-percent subsidiary of an exempt REIT shall
not be so treated if such corporation is taxable under section
11 of the Internal Revenue Code of 1986.
"(C) 10-percent interest. - The term '10-percent interest'
means -
"(i) in the case of an interest in a corporation, ownership
of 10 percent (by vote or value) of the stock in such
corporation;
"(ii) in the case of an interest in a partnership,
ownership of 10 percent of the capital or profits interest in
the partnership; and
"(iii) in any other case, ownership of 10 percent of the
beneficial interests in the entity.
"(5) Other definitions. - Terms used in this section which are
used in section 269B or section 856 of such Code shall have the
respective meanings given such terms by such section.
"(f) Guidance. - The Secretary may prescribe such guidance as may
be necessary or appropriate to carry out the purposes of this
section, including guidance to prevent the avoidance of such
purposes and to prevent the double counting of income.
"(g) Effective Date. - This section shall apply to taxable years
ending after March 26, 1998."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 270 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
[Sec. 270. Repealed. Pub. L. 91-172, title II, Sec. 213(b), Dec.
30, 1969, 83 Stat. 572]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 81, related to the
limitation on deductions allowable to certain individuals. See
section 183 of this title.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1969,
see section 213(d) of Pub. L. 91-172, set out as an Effective Date
note under section 183 of this title.
-End-
-CITE-
26 USC Sec. 271 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 271. Debts owed by political parties, etc.
-STATUTE-
(a) General rule
In the case of a taxpayer (other than a bank as defined in
section 581) no deduction shall be allowed under section 166
(relating to bad debts) or under section 165(g) (relating to
worthlessness of securities) by reason of the worthlessness of any
debt owed by a political party.
(b) Definitions
(1) Political party
For purposes of subsection (a), the term "political party"
means -
(A) a political party;
(B) a national, State, or local committee of a political
party; or
(C) a committee, association, or organization which accepts
contributions or makes expenditures for the purpose of
influencing or attempting to influence the election of
presidential or vice-presidential electors or of any individual
whose name is presented for election to any Federal, State, or
local elective public office, whether or not such individual is
elected.
(2) Contributions
For purposes of paragraph (1)(C), the term "contributions"
includes a gift, subscription, loan, advance, or deposit, of
money, or anything of value, and includes a contract, promise, or
agreement to make a contribution, whether or not legally
enforceable.
(3) Expenditures
For purposes of paragraph (1)(C), the term "expenditures"
includes a payment, distribution, loan, advance, deposit, or
gift, of money, or anything of value, and includes a contract,
promise, or agreement to make an expenditure, whether or not
legally enforceable.
(c) Exception
In the case of a taxpayer who uses an accrual method of
accounting, subsection (a) shall not apply to a debt which accrued
as a receivable on a bona fide sale of goods or services in the
ordinary course of the taxpayer's trade or business if -
(1) for the taxable year in which such receivable accrued, more
than 30 percent of all receivables which accrued in the ordinary
course of the trades and businesses of the taxpayer were due from
political parties, and
(2) the taxpayer made substantial continuing efforts to collect
on the debt.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 82; Pub. L. 94-455, title XXI,
Sec. 2104(a), Oct. 4, 1976, 90 Stat. 1901.)
-MISC1-
AMENDMENTS
1976 - Subsec. (c). Pub. L. 94-455 added subsec. (c).
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2104(b) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1975."
-End-
-CITE-
26 USC Sec. 272 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 272. Disposal of coal or domestic iron ore
-STATUTE-
Where the disposal of coal or iron ore is covered by section 631,
no deduction shall be allowed for expenditures attributable to the
making and administering of the contract under which such
disposition occurs and to the preservation of the economic interest
retained under such contract, except that if in any taxable year
such expenditures plus the adjusted depletion basis of the coal or
iron ore disposed of in such taxable year exceed the amount
realized under such contract, such excess, to the extent not
availed of as a reduction of gain under section 1231, shall be a
loss deductible under section 165(a). This section shall not apply
to any taxable year during which there is no income under the
contract.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 82; Pub. L. 88-272, title II,
Sec. 227(a)(3), (b)(3), Feb. 26, 1964, 78 Stat. 98.)
-MISC1-
AMENDMENTS
1964 - Pub. L. 88-272 inserted "or domestic iron ore" in section
catchline, and "or iron ore" wherever appearing in text.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 227(c) of Pub. L. 88-272 provided that: "The amendments
made by this section [amending this section and sections 631, 1016,
1231, and 1402 and section 411 of Title 42, The Public Health and
Welfare] shall apply with respect to amounts received or accrued in
taxable years beginning after December 31, 1963, attributable to
iron ore mined in such taxable years."
-End-
-CITE-
26 USC Sec. 273 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 273. Holders of life or terminable interest
-STATUTE-
Amounts paid under the laws of a State, the District of Columbia,
a possession of the United States, or a foreign country as income
to the holder of a life or terminable interest acquired by gift,
bequest, or inheritance shall not be reduced or diminished by any
deduction for shrinkage (by whatever name called) in the value of
such interest due to the lapse of time.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 83; Pub. L. 94-455, title XIX,
Sec. 1901(c)(2), Oct. 4, 1976, 90 Stat. 1803.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 struck out reference to amounts paid under
laws of a Territory.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 effective for taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
-End-
-CITE-
26 USC Sec. 274 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 274. Disallowance of certain entertainment, etc., expenses
-STATUTE-
(a) Entertainment, amusement, or recreation
(1) In general
No deduction otherwise allowable under this chapter shall be
allowed for any item -
(A) Activity
With respect to an activity which is of a type generally
considered to constitute entertainment, amusement, or
recreation, unless the taxpayer establishes that the item was
directly related to, or, in the case of an item directly
preceding or following a substantial and bona fide business
discussion (including business meetings at a convention or
otherwise), that such item was associated with, the active
conduct of the taxpayer's trade or business, or
(B) Facility
With respect to a facility used in connection with an
activity referred to in subparagraph (A).
In the case of an item described in subparagraph (A), the
deduction shall in no event exceed the portion of such item which
meets the requirements of subparagraph (A).
(2) Special rules
For purposes of applying paragraph (1) -
(A) Dues or fees to any social, athletic, or sporting club or
organization shall be treated as items with respect to
facilities.
(B) An activity described in section 212 shall be treated as
a trade or business.
(C) In the case of a club, paragraph (1)(B) shall apply
unless the taxpayer establishes that the facility was used
primarily for the furtherance of the taxpayer's trade or
business and that the item was directly related to the active
conduct of such trade or business.
(3) Denial of deduction for club dues
Notwithstanding the preceding provisions of this subsection, no
deduction shall be allowed under this chapter for amounts paid or
incurred for membership in any club organized for business,
pleasure, recreation, or other social purpose.
(b) Gifts
(1) Limitation
No deduction shall be allowed under section 162 or section 212
for any expense for gifts made directly or indirectly to any
individual to the extent that such expense, when added to prior
expenses of the taxpayer for gifts made to such individual during
the same taxable year, exceeds $25. For purposes of this section,
the term "gift" means any item excludable from gross income of
the recipient under section 102 which is not excludable from his
gross income under any other provision of this chapter, but such
term does not include -
(A) an item having a cost to the taxpayer not in excess of
$4.00 on which the name of the taxpayer is clearly and
permanently imprinted and which is one of a number of identical
items distributed generally by the taxpayer, or
(B) a sign, display rack, or other promotional material to be
used on the business premises of the recipient.
(2) Special rules
(A) In the case of a gift by a partnership, the limitation
contained in paragraph (1) shall apply to the partnership as
well as to each member thereof.
(B) For purposes of paragraph (1), a husband and wife shall
be treated as one taxpayer.
(c) Certain foreign travel
(1) In general
In the case of any individual who travels outside the United
States away from home in pursuit of a trade or business or in
pursuit of an activity described in section 212, no deduction
shall be allowed under section 162, or section 212 for that
portion of the expenses of such travel otherwise allowable under
such section which, under regulations prescribed by the
Secretary, is not allocable to such trade or business or to such
activity.
(2) Exception
Paragraph (1) shall not apply to the expenses of any travel
outside the United States away from home if -
(A) such travel does not exceed one week, or
(B) the portion of the time of travel outside the United
States away from home which is not attributable to the pursuit
of the taxpayer's trade or business or an activity described in
section 212 is less than 25 percent of the total time on such
travel.
(3) Domestic travel excluded
For purposes of this subsection, travel outside the United
States does not include any travel from one point in the United
States to another point in the United States.
(d) Substantiation required
No deduction or credit shall be allowed -
(1) under section 162 or 212 for any traveling expense
(including meals and lodging while away from home),
(2) for any item with respect to an activity which is of a type
generally considered to constitute entertainment, amusement, or
recreation, or with respect to a facility used in connection with
such an activity,
(3) for any expense for gifts, or
(4) with respect to any listed property (as defined in section
280F(d)(4)),
unless the taxpayer substantiates by adequate records or by
sufficient evidence corroborating the taxpayer's own statement (A)
the amount of such expense or other item, (B) the time and place of
the travel, entertainment, amusement, recreation, or use of the
facility or property, or the date and description of the gift, (C)
the business purpose of the expense or other item, and (D) the
business relationship to the taxpayer of persons entertained, using
the facility or property, or receiving the gift. The Secretary may
by regulations provide that some or all of the requirements of the
preceding sentence shall not apply in the case of an expense which
does not exceed an amount prescribed pursuant to such regulations.
This subsection shall not apply to any qualified nonpersonal use
vehicle (as defined in subsection (i)).
(e) Specific exceptions to application of subsection (a)
Subsection (a) shall not apply to -
(1) Food and beverages for employees
Expenses for food and beverages (and facilities used in
connection therewith) furnished on the business premises of the
taxpayer primarily for his employees.
(2) Expenses treated as compensation
(A) In general
Except as provided in subparagraph (B), expenses for goods,
services, and facilities, to the extent that the expenses are
treated by the taxpayer, with respect to the recipient of the
entertainment, amusement, or recreation, as compensation to an
employee on the taxpayer's return of tax under this chapter and
as wages to such employee for purposes of chapter 24 (relating
to withholding of income tax at source on wages).
(B) Specified individuals
(i) In general
In the case of a recipient who is a specified individual,
subparagraph (A) and paragraph (9) shall each be applied by
substituting "to the extent that the expenses do not exceed
the amount of the expenses which" for "to the extent that the
expenses".
(ii) Specified individual
For purposes of clause (i), the term "specified individual"
means any individual who -
(I) is subject to the requirements of section 16(a) of
the Securities Exchange Act of 1934 with respect to the
taxpayer or a related party to the taxpayer, or
(II) would be subject to such requirements if the
taxpayer (or such related party) were an issuer of equity
securities referred to in such section.
For purposes of this clause, a person is a related party with
respect to another person if such person bears a relationship
to such other person described in section 267(b) or 707(b).
(3) Reimbursed expenses
Expenses paid or incurred by the taxpayer, in connection with
the performance by him of services for another person (whether or
not such other person is his employer), under a reimbursement or
other expense allowance arrangement with such other person, but
this paragraph shall apply -
(A) where the services are performed for an employer, only if
the employer has not treated such expenses in the manner
provided in paragraph (2), or
(B) where the services are performed for a person other than
an employer, only if the taxpayer accounts (to the extent
provided by subsection (d)) to such person.
(4) Recreational, etc., expenses for employees
Expenses for recreational, social, or similar activities
(including facilities therefor) primarily for the benefit of
employees (other than employees who are highly compensated
employees (within the meaning of section 414(q))). For purposes
of this paragraph, an individual owning less than a 10-percent
interest in the taxpayer's trade or business shall not be
considered a shareholder or other owner, and for such purposes an
individual shall be treated as owning any interest owned by a
member of his family (within the meaning of section 267(c)(4)).
This paragraph shall not apply for purposes of subsection (a)(3).
(5) Employees, stockholder, etc., business meetings
Expenses incurred by a taxpayer which are directly related to
business meetings of his employees, stockholders, agents, or
directors.
(6) Meetings of business leagues, etc.
Expenses directly related and necessary to attendance at a
business meeting or convention of any organization described in
section 501(c)(6) (relating to business leagues, chambers of
commerce, real estate boards, and boards of trade) and exempt
from taxation under section 501(a).
(7) Items available to public
Expenses for goods, services, and facilities made available by
the taxpayer to the general public.
(8) Entertainment sold to customers
Expenses for goods or services (including the use of
facilities) which are sold by the taxpayer in a bona fide
transaction for an adequate and full consideration in money or
money's worth.
(9) Expenses includible in income of persons who are not
employees
Expenses paid or incurred by the taxpayer for goods, services,
and facilities to the extent that the expenses are includible in
the gross income of a recipient of the entertainment, amusement,
or recreation who is not an employee of the taxpayer as
compensation for services rendered or as a prize or award under
section 74. The preceding sentence shall not apply to any amount
paid or incurred by the taxpayer if such amount is required to be
included (or would be so required except that the amount is less
than $600) in any information return filed by such taxpayer under
part III of subchapter A of chapter 61 and is not so included.
For purposes of this subsection, any item referred to in subsection
(a) shall be treated as an expense.
(f) Interest, taxes, casualty losses, etc.
This section shall not apply to any deduction allowable to the
taxpayer without regard to its connection with his trade or
business (or with his income-producing activity). In the case of a
taxpayer which is not an individual, the preceding sentence shall
be applied as if it were an individual.
(g) Treatment of entertainment, etc., type facility
For purposes of this chapter, if deductions are disallowed under
subsection (a) with respect to any portion of a facility, such
portion shall be treated as an asset which is used for personal,
living, and family purposes (and not as an asset used in the trade
or business).
(h) Attendance at conventions, etc.
(1) In general
In the case of any individual who attends a convention,
seminar, or similar meeting which is held outside the North
American area, no deduction shall be allowed under section 162
for expenses allocable to such meeting unless the taxpayer
establishes that the meeting is directly related to the active
conduct of his trade or business and that, after taking into
account in the manner provided by regulations prescribed by the
Secretary -
(A) the purpose of such meeting and the activities taking
place at such meeting,
(B) the purposes and activities of the sponsoring
organizations or groups,
(C) the residences of the active members of the sponsoring
organization and the places at which other meetings of the
sponsoring organization or groups have been held or will be
held, and
(D) such other relevant factors as the taxpayer may present,
it is as reasonable for the meeting to be held outside the North
American area as within the North American area.
(2) Conventions on cruise ships
In the case of any individual who attends a convention,
seminar, or other meeting which is held on any cruise ship, no
deduction shall be allowed under section 162 for expenses
allocable to such meeting, unless the taxpayer meets the
requirements of paragraph (5) and establishes that the meeting is
directly related to the active conduct of his trade or business
and that -
(A) the cruise ship is a vessel registered in the United
States; and
(B) all ports of call of such cruise ship are located in the
United States or in possessions of the United States.
With respect to cruises beginning in any calendar year, not more
than $2,000 of the expenses attributable to an individual
attending one or more meetings may be taken into account under
section 162 by reason of the preceding sentence.
(3) Definitions
For purposes of this subsection -
(A) North American area
The term "North American area" means the United States, its
possessions, and the Trust Territory of the Pacific Islands,
and Canada and Mexico.
(B) Cruise ship
The term "cruise ship" means any vessel sailing within or
without the territorial waters of the United States.
(4) Subsection to apply to employer as well as to traveler
(A) Except as provided in subparagraph (B), this subsection
shall apply to deductions otherwise allowable under section 162
to any person, whether or not such person is the individual
attending the convention, seminar, or similar meeting.
(B) This subsection shall not deny a deduction to any person
other than the individual attending the convention, seminar, or
similar meeting with respect to any amount paid by such person
to or on behalf of such individual if includible in the gross
income of such individual. The preceding sentence shall not
apply if the amount is required to be included in any
information return filed by such person under part III of
subchapter A of chapter 61 and is not so included.
(5) Reporting requirements
No deduction shall be allowed under section 162 for expenses
allocable to attendance at a convention, seminar, or similar
meeting on any cruise ship unless the taxpayer claiming the
deduction attaches to the return of tax on which the deduction is
claimed -
(A) a written statement signed by the individual attending
the meeting which includes -
(i) information with respect to the total days of the trip,
excluding the days of transportation to and from the cruise
ship port, and the number of hours of each day of the trip
which such individual devoted to scheduled business
activities,
(ii) a program of the scheduled business activities of the
meeting, and
(iii) such other information as may be required in
regulations prescribed by the Secretary; and
(B) a written statement signed by an officer of the
organization or group sponsoring the meeting which includes -
(i) a schedule of the business activities of each day of
the meeting,
(ii) the number of hours which the individual attending the
meeting attended such scheduled business activities, and
(iii) such other information as may be required in
regulations prescribed by the Secretary.
(6) Treatment of conventions in certain Caribbean countries
(A) In general
For purposes of this subsection, the term "North American
area" includes, with respect to any convention, seminar, or
similar meeting, any beneficiary country if (as of the time
such meeting begins) -
(i) there is in effect a bilateral or multilateral
agreement described in subparagraph (C) between such country
and the United States providing for the exchange of
information between the United States and such country, and
(ii) there is not in effect a finding by the Secretary that
the tax laws of such country discriminate against conventions
held in the United States.
(B) Beneficiary country
For purposes of this paragraph, the term "beneficiary
country" has the meaning given to such term by section
212(a)(1)(A) of the Caribbean Basin Economic Recovery Act;
except that such term shall include Bermuda.
(C) Authority to conclude exchange of information agreements
(i) In general
The Secretary is authorized to negotiate and conclude an
agreement for the exchange of information with any
beneficiary country. Except as provided in clause (ii), an
exchange of information agreement shall provide for the
exchange of such information (not limited to information
concerning nationals or residents of the United States or the
beneficiary country) as may be necessary or appropriate to
carry out and enforce the tax laws of the United States and
the beneficiary country (whether criminal or civil
proceedings), including information which may otherwise be
subject to nondisclosure provisions of the local law of the
beneficiary country such as provisions respecting bank
secrecy and bearer shares. The exchange of information
agreement shall be terminable by either country on reasonable
notice and shall provide that information received by either
country will be disclosed only to persons or authorities
(including courts and administrative bodies) involved in the
administration or oversight of, or in the determination of
appeals in respect of, taxes of the United States or the
beneficiary country and will be used by such persons or
authorities only for such purposes.
(ii) Nondisclosure of qualified confidential information
sought for civil tax purposes
An exchange of information agreement need not provide for
the exchange of qualified confidential information which is
sought only for civil tax purposes if -
(I) the Secretary of the Treasury, after making all
reasonable efforts to negotiate an agreement which includes
the exchange of such information, determines that such an
agreement cannot be negotiated but that the agreement which
was negotiated will significantly assist in the
administration and enforcement of the tax laws of the
United States, and
(II) the President determines that the agreement as
negotiated is in the national security interest of the
United States.
(iii) Qualified confidential information defined
For purposes of this subparagraph, the term "qualified
confidential information" means information which is subject
to the nondisclosure provisions of any local law of the
beneficiary country regarding bank secrecy or ownership of
bearer shares.
(iv) Civil tax purposes
For purposes of this subparagraph, the determination of
whether information is sought only for civil tax purposes
shall be made by the requesting party.
(D) Coordination with other provisions
Any exchange of information agreement negotiated under
subparagraph (C) shall be treated as an income tax convention
for purposes of section 6103(k)(4). The Secretary may exercise
his authority under subchapter A of chapter 78 to carry out any
obligation of the United States under an agreement referred to
in subparagraph (C).
(E) Determinations published in the Federal Register
The following shall be published in the Federal Register -
(i) any determination by the President under subparagraph
(C)(ii) (including the reasons for such determination),
(ii) any determination by the Secretary under subparagraph
(C)(ii) (including the reasons for such determination), and
(iii) any finding by the Secretary under subparagraph
(A)(ii) (and any termination thereof).
(7) Seminars, etc. for section 212 purposes
No deduction shall be allowed under section 212 for expenses
allocable to a convention, seminar, or similar meeting.
(i) Qualified nonpersonal use vehicle
For purposes of subsection (d), the term "qualified nonpersonal
use vehicle" means any vehicle which, by reason of its nature, is
not likely to be used more than a de minimis amount for personal
purposes.
(j) Employee achievement awards
(1) General rule
No deduction shall be allowed under section 162 or section 212
for the cost of an employee achievement award except to the
extent that such cost does not exceed the deduction limitations
of paragraph (2).
(2) Deduction limitations
The deduction for the cost of an employee achievement award
made by an employer to an employee -
(A) which is not a qualified plan award, when added to the
cost to the employer for all other employee achievement awards
made to such employee during the taxable year which are not
qualified plan awards, shall not exceed $400, and
(B) which is a qualified plan award, when added to the cost
to the employer for all other employee achievement awards made
to such employee during the taxable year (including employee
achievement awards which are not qualified plan awards), shall
not exceed $1,600.
(3) Definitions
For purposes of this subsection -
(A) Employee achievement award
The term "employee achievement award" means an item of
tangible personal property which is -
(i) transferred by an employer to an employee for length of
service achievement or safety achievement,
(ii) awarded as part of a meaningful presentation, and
(iii) awarded under conditions and circumstances that do
not create a significant likelihood of the payment of
disguised compensation.
(B) Qualified plan award
(i) In general
The term "qualified plan award" means an employee
achievement award awarded as part of an established written
plan or program of the taxpayer which does not discriminate
in favor of highly compensated employees (within the meaning
of section 414(q)) as to eligibility or benefits.
(ii) Limitation
An employee achievement award shall not be treated as a
qualified plan award for any taxable year if the average cost
of all employee achievement awards which are provided by the
employer during the year, and which would be qualified plan
awards but for this subparagraph, exceeds $400. For purposes
of the preceding sentence, average cost shall be determined
by including the entire cost of qualified plan awards,
without taking into account employee achievement awards of
nominal value.
(4) Special rules
For purposes of this subsection -
(A) Partnerships
In the case of an employee achievement award made by a
partnership, the deduction limitations contained in paragraph
(2) shall apply to the partnership as well as to each member
thereof.
(B) Length of service awards
An item shall not be treated as having been provided for
length of service achievement if the item is received during
the recipient's 1st 5 years of employment or if the recipient
received a length of service achievement award (other than an
award excludable under section 132(e)(1)) during that year or
any of the prior 4 years.
(C) Safety achievement awards
An item provided by an employer to an employee shall not be
treated as having been provided for safety achievement if -
(i) during the taxable year, employee achievement awards
(other than awards excludable under section 132(e)(1)) for
safety achievement have previously been awarded by the
employer to more than 10 percent of the employees of the
employer (excluding employees described in clause (ii)), or
(ii) such item is awarded to a manager, administrator,
clerical employee, or other professional employee.
(k) Business meals
(1) In general
No deduction shall be allowed under this chapter for the
expense of any food or beverages unless -
(A) such expense is not lavish or extravagant under the
circumstances, and
(B) the taxpayer (or an employee of the taxpayer) is present
at the furnishing of such food or beverages.
(2) Exceptions
Paragraph (1) shall not apply to -
(A) any expense described in paragraph (2), (3), (4), (7),
(8), or (9) of subsection (e), and
(B) any other expense to the extent provided in regulations.
(l) Additional limitations on entertainment tickets
(1) Entertainment tickets
(A) In general
In determining the amount allowable as a deduction under this
chapter for any ticket for any activity or facility described
in subsection (d)(2), the amount taken into account shall not
exceed the face value of such ticket.
(B) Exception for certain charitable sports events
Subparagraph (A) shall not apply to any ticket for any sports
event -
(i) which is organized for the primary purpose of
benefiting an organization which is described in section
501(c)(3) and exempt from tax under section 501(a),
(ii) all of the net proceeds of which are contributed to
such organization, and
(iii) which utilizes volunteers for substantially all of
the work performed in carrying out such event.
(2) Skyboxes, etc.
In the case of a skybox or other private luxury box leased for
more than 1 event, the amount allowable as a deduction under this
chapter with respect to such events shall not exceed the sum of
the face value of non-luxury box seat tickets for the seats in
such box covered by the lease. For purposes of the preceding
sentence, 2 or more related leases shall be treated as 1 lease.
(m) Additional limitations on travel expenses
(1) Luxury water transportation
(A) In general
No deduction shall be allowed under this chapter for expenses
incurred for transportation by water to the extent such
expenses exceed twice the aggregate per diem amounts for days
of such transportation. For purposes of the preceding sentence,
the term "per diem amounts" means the highest amount generally
allowable with respect to a day to employees of the executive
branch of the Federal Government for per diem while away from
home but serving in the United States.
(B) Exceptions
Subparagraph (A) shall not apply to -
(i) any expense allocable to a convention, seminar, or
other meeting which is held on any cruise ship, and
(ii) any expense described in paragraph (2), (3), (4), (7),
(8), or (9) of subsection (e).
(2) Travel as form of education
No deduction shall be allowed under this chapter for expenses
for travel as a form of education.
(3) Travel expenses of spouse, dependent, or others
No deduction shall be allowed under this chapter (other than
section 217) for travel expenses paid or incurred with respect to
a spouse, dependent, or other individual accompanying the
taxpayer (or an officer or employee of the taxpayer) on business
travel, unless -
(A) the spouse, dependent, or other individual is an employee
of the taxpayer,
(B) the travel of the spouse, dependent, or other individual
is for a bona fide business purpose, and
(C) such expenses would otherwise be deductible by the
spouse, dependent, or other individual.
(n) Only 50 percent of meal and entertainment expenses allowed as
deduction
(1) In general
The amount allowable as a deduction under this chapter for -
(A) any expense for food or beverages, and
(B) any item with respect to an activity which is of a type
generally considered to constitute entertainment, amusement, or
recreation, or with respect to a facility used in connection
with such activity,
shall not exceed 50 percent of the amount of such expense or item
which would (but for this paragraph) be allowable as a deduction
under this chapter.
(2) Exceptions
Paragraph (1) shall not apply to any expense if -
(A) such expense is described in paragraph (2), (3), (4),
(7), (8), or (9) of subsection (e),
(B) in the case of an expense for food or beverages, such
expense is excludable from the gross income of the recipient
under section 132 by reason of subsection (e) thereof (relating
to de minimis fringes),
(C) such expense is covered by a package involving a ticket
described in subsection (l)(1)(B),
(D) in the case of an employer who pays or reimburses moving
expenses of an employee, such expenses are includible in the
income of the employee under section 82, or
(E) such expense is for food or beverages -
(i) required by any Federal law to be provided to crew
members of a commercial vessel,
(ii) provided to crew members of a commercial vessel -
(I) which is operating on the Great Lakes, the Saint
Lawrence Seaway, or any inland waterway of the United
States, and
(II) which is of a kind which would be required by
Federal law to provide food and beverages to crew members
if it were operated at sea,
(iii) provided on an oil or gas platform or drilling rig if
the platform or rig is located offshore, or
(iv) provided on an oil or gas platform or drilling rig, or
at a support camp which is in proximity and integral to such
platform or rig, if the platform or rig is located in the
United States north of 54 degrees north latitude.
Clauses (i) and (ii) of subparagraph (E) shall not apply to
vessels primarily engaged in providing luxury water
transportation (determined under the principles of subsection
(m)). In the case of the employee, the exception of subparagraph
(A) shall not apply to expenses described in subparagraph (D).
(3) Special rule for individuals subject to Federal hours of
service
(A) In general
In the case of any expenses for food or beverages consumed
while away from home (within the meaning of section 162(a)(2))
by an individual during, or incident to, the period of duty
subject to the hours of service limitations of the Department
of Transportation, paragraph (1) shall be applied by
substituting "the applicable percentage" for "50 percent".
(B) Applicable percentage
For purposes of this paragraph, the term "applicable
percentage" means the percentage determined under the following
table:
For taxable years beginning The applicable
in calendar year - percentage is -
1998 or 1999 55
2000 or 2001 60
2002 or 2003 65
2004 or 2005 70
2006 or 2007 75
2008 or thereafter 80.
(o) Regulatory authority
The Secretary shall prescribe such regulations as he may deem
necessary to carry out the purposes of this section, including
regulations prescribing whether subsection (a) or subsection (b)
applies in cases where both such subsections would otherwise apply.
-SOURCE-
(Added Pub. L. 87-834, Sec. 4(a)(1), Oct. 16, 1962, 76 Stat. 974;
amended Pub. L. 88-272, title II, Sec. 217(a), Feb. 26, 1964, 78
Stat. 56; Pub. L. 94-455, title VI, Sec. 602(a), title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1572, 1834; Pub. L. 95-600,
title III, Sec. 361(a), (b), title VII, Sec. 701(g)(1)-(3), Nov. 6,
1978, 92 Stat. 2847, 2903, 2904; Pub. L. 96-222, title I, Sec.
103(a)(10)(A), (B) Apr. 1, 1980, 94 Stat. 212; Pub. L. 96-598, Sec.
5(a), Dec. 24, 1980, 94 Stat. 3488; Pub. L. 96-605, title I, Sec.
108(a), Dec. 28, 1980, 94 Stat. 3524; Pub. L. 96-608, Sec. 4(a),
Dec. 28, 1980, 94 Stat. 3552; Pub. L. 97-34, title II, Sec. 265(a),
(b), Aug. 13, 1981, 95 Stat. 265; Pub. L. 97-248, title III, Secs.
307(a)(1), 308(a), Sept. 3, 1982, 96 Stat. 589, 591; Pub. L. 97-
424, title V, Sec. 543(a), Jan. 6, 1983, 96 Stat. 2195; Pub. L. 98-
67, title I, Sec. 102(a), title II, Sec. 222(a), Aug. 5, 1983, 97
Stat. 369, 395; Pub. L. 98-369, div. A, title I, Sec. 179(b)(1),
title VIII, Sec. 801(c), July 18, 1984, 98 Stat. 718, 995; Pub. L.
99-44, Secs. 1(a), 2, 6(b), May 24, 1985, 99 Stat. 77, 79; Pub. L.
99-514, title I, Secs. 122(c), (d), 142(a)-(c), title XI, Sec.
1114(b)(6), Oct. 22, 1986, 100 Stat. 2110, 2117-2120, 2451; Pub. L.
100-647, title I, Secs. 1001(g)(1)-(4)(A), (5), 1018(u)(2), title
VI, Sec. 6003(a), Nov. 10, 1988, 102 Stat. 3351, 3352, 3590, 3684;
Pub. L. 101-239, title VII, Secs. 7816(a), 7841(d)(18), Dec. 19,
1989, 103 Stat. 2420, 2429; Pub. L. 101-508, title XI, Sec.
11802(b), Nov. 5, 1990, 104 Stat. 1388-529; Pub. L. 103-66, title
XIII, Secs. 13209(a), (b), 13210(a), (b), 13272(a), Aug. 10, 1993,
107 Stat. 469, 542; Pub. L. 105-34, title IX, Sec. 969(a), Aug. 5,
1997, 111 Stat. 896; Pub. L. 108-357, title VIII, Sec. 907(a), Oct.
22, 2004, 118 Stat. 1654; Pub. L. 109-135, title IV, Sec. 403(mm),
Dec. 21, 2005, 119 Stat. 2632.)
-REFTEXT-
REFERENCES IN TEXT
Section 16 of the Securities Exchange Act of 1934, referred to in
subsec. (e)(2)(B)(ii), is classified to section 78p of Title 15,
Commerce and Trade.
Section 212(a)(1)(A) of the Caribbean Basin Economic Recovery
Act, referred to in subsec. (h)(6)(B), is classified to section
2702(a)(1)(A) of Title 19, Customs Duties.
-MISC1-
AMENDMENTS
2005 - Subsec. (e)(2)(B)(ii). Pub. L. 109-135, Sec. 403(mm)(1),
(2), inserted "or a related party to the taxpayer" after "with
respect to the taxpayer" in subcl. (I), "(or such related party)"
after "the taxpayer" in subcl. (II), and "For purposes of this
clause, a person is a related party with respect to another person
if such person bears a relationship to such other person described
in section 267(b) or 707(b)." at end.
2004 - Subsec. (e)(2). Pub. L. 108-357 reenacted heading without
change and amended text generally. Prior to amendment, text read as
follows: "Expenses for goods, services, and facilities, to the
extent that the expenses are treated by the taxpayer, with respect
to the recipient of the entertainment, amusement, or recreation, as
compensation to an employee on the taxpayer's return of tax under
this chapter and as wages to such employee for purposes of chapter
24 (relating to withholding of income tax at source on wages)."
1997 - Subsec. (n)(3). Pub. L. 105-34 added par. (3).
1993 - Subsec. (a)(3). Pub. L. 103-66, Sec. 13210(a), added par.
(3).
Subsec. (e)(4). Pub. L. 103-66, Sec. 13210(b), inserted at end
"This paragraph shall not apply for purposes of subsection (a)(3)."
Subsec. (m)(3). Pub. L. 103-66, Sec. 13272(a), added par. (3).
Subsec. (n). Pub. L. 103-66, Sec. 13209(a), (b), substituted "50"
for "80" in heading and in concluding provisions of par. (1).
1990 - Subsec. (l)(2). Pub. L. 101-508, Sec. 11802(b)(1), in
amending par. (2) generally, struck out "(A) In general" and
subpar. (B) which provided for phasein deductions of skybox tickets
in the 1987 and 1988 taxable years.
Subsec. (n)(2). Pub. L. 101-508, Sec. 11802(b)(2)(A)(ii), (iii),
substituted "described in subparagraph (D)" for "described in
subparagraph (E)" and "of subparagraph (E)" for "of subparagraph
(F)" in concluding provisions.
Subsec. (n)(2)(D) to (F). Pub. L. 101-508, Sec.
11802(b)(2)(A)(i), redesignated subpars. (E) and (F) as (D) and
(E), respectively, and struck out former subpar. (D) which read as
follows: "in the case of an expense for food or beverages before
January 1, 1989, such expense is an integral part of a qualified
meeting,".
Subsec. (n)(3). Pub. L. 101-508, Sec. 11802(b)(2)(B), struck out
par. (3) "Qualified meeting" which read as follows: "For purposes
of paragraph (2)(D), the term 'qualified meeting' means any
convention, seminar, annual meeting, or similar business program
with respect to which -
"(A) an expense for food or beverages is not separately stated,
"(B) more than 50 percent of the participants are away from
home,
"(C) at least 40 individuals attend, and
"(D) such food and beverages are part of a program which
includes a speaker."
1989 - Subsec. (n)(2). Pub. L. 101-239, Sec. 7816(a), added a new
subpar. (E), substantially identical to former subpar. (E), and
moved sentence formerly appearing between subpars. (E) and (F) to
end of concluding provisions after subpar. (F).
Subsec. (n)(2)(F)(i). Pub. L. 101-239, Sec. 7841(d)(18), inserted
"any" before "Federal law".
1988 - Subsec. (b)(1). Pub. L. 100-647, Sec. 1018(u)(2), related
to execution of amendment by Pub. L. 99-514, Sec. 122(c)(2), see
1986 Amendment note below.
Subsec. (h)(1), (2). Pub. L. 100-647, Sec. 1001(g)(5),
substituted "trade or business and that" for "trade or business
that".
Subsec. (k)(2). Pub. L. 100-647, Sec. 1001(g)(2), amended par.
(2) generally. Prior to amendment, par. (2) read as follows:
"Paragraph (1) shall not apply to any expense if subsection (a)
does not apply to such expense by reason of paragraph (2), (3),
(4), (7), (8), or (9) of subsection (e)."
Subsec. (m)(1)(B)(ii). Pub. L. 100-647, Sec. 1001(g)(3), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"any expense to which subsection (a) does not apply by reason of
paragraph (2), (3), (4), (7), (8), or (9) of subsection (e)."
Subsec. (n)(2). Pub. L. 100-647, Sec. 6003(a), struck out "or" at
end of subpar. (D), substituted ", or" for the period at end of
subpar. (E), and added subpar. (F) and flush sentence at end.
Pub. L. 100-647, Sec. 1001(g)(4)(A), struck out "or" at end of
subpar. (C), substituted ", or" for the period at end of subpar.
(D), and added subpar. (E) and flush sentence at end.
Pub. L. 100-647, Sec. 1001(g)(1), amended subpar. (A) generally.
Prior to amendment, subpar. (A) read as follows: "subsection (a)
does not apply to such expense by reason of paragraph (2), (3),
(4), (7), (8), or (9) of subsection (e),".
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 122(c)(1)-(3), and
Pub. L. 100-647, Sec. 1018(u)(2), made conforming amendments to
subpars. (A) and (B) and struck out subpar. (C) which read as
follows: "an item of tangible personal property which is awarded to
an employee by reason of length of service, productivity, or safety
achievement, but only to the extent that -
"(i) the cost of such item to the taxpayer does not exceed
$400, or
"(ii) such item is a qualified plan award."
Subsec. (b)(3). Pub. L. 99-514, Sec. 122(c)(4), struck out par.
(3) relating to qualified plan award, defining such term in subpar.
(A), and providing for average amount of awards in subpar. (B) and
maximum amount per item in subpar. (C).
Subsec. (e)(1). Pub. L. 99-514, Sec. 142(a)(2)(A), redesignated
par. (2) as (1) and struck out former par. (1), business meals,
which read as follows: "Expenses for food and beverages furnished
to any individual under circumstances which (taking into account
the surroundings in which furnished, the taxpayer's trade,
business, or income-producing activity and the relationship to such
trade, business, or activity of the persons to whom the food and
beverages are furnished) are of a type generally considered to be
conducive to a business discussion."
Subsec. (e)(2). Pub. L. 99-514, Sec. 142(a)(2)(A), redesignated
par. (3) as (2). Former par. (2) redesignated (1).
Subsec. (e)(3). Pub. L. 99-514, Sec. 142(a)(2), redesignated par.
(4) as (3) and substituted "paragraph (2)" for "paragraph (3)" in
subpar. (A). Former par. (3) redesignated (2).
Subsec. (e)(4). Pub. L. 99-514, Sec. 1114(b)(6), which directed
the substitution of "highly compensated employees (within the
meaning of section 414(q))" for "officers, shareholders or other
owners, or highly compensated employees" in par. (5) was executed
to par. (4) to reflect the probable intent of Congress, in view of
the redesignation of par. (5) as (4) by section 142(a)(2)(A) of
Pub. L. 99-514.
Pub. L. 99-514, Sec. 142(a)(2)(A), redesignated par. (5) as (4).
Former par. (4) redesignated (3).
Subsec. (e)(5) to (10). Pub. L. 99-514, Sec. 142(a)(2)(A),
redesignated pars. (5) to (10) as pars. (4) to (9), respectively.
Subsec. (h). Pub. L. 99-514, Sec. 142(c), struck out "or 212"
after "section 162" in introductory provisions of pars. (1), (2),
and (5), in closing provisions of par. (2), and in par. (4)(A),
struck out "or to an activity described in section 212 and" after
"active conduct of his trade or business" in introductory
provisions of pars. (1) and (2), and added par. (7).
Subsec. (j). Pub. L. 99-514, Sec. 122(d), added subsec. (j).
Former subsec. (j) redesignated (k).
Subsec. (k). Pub. L. 99-514, Sec. 142(a)(1), added subsec. (k).
Former subsec. (k) redesignated (o).
Subsecs. (l) to (n). Pub. L. 99-514, Sec. 142(b), added subsecs.
(l) to (n).
Subsec. (o). Pub. L. 99-514, Sec. 142(a)(1), redesignated former
subsec. (k) as (o).
1985 - Subsec. (d). Pub. L. 99-44, Sec. 2(a), inserted at end
"This subsection shall not apply to any qualified nonpersonal use
vehicle (as defined in subsection (i))."
Pub. L. 99-44, Sec. 1(a), substituted "adequate records or by
sufficient evidence corroborating the taxpayer's own statement" for
"adequate contemporaneous records", and provided that the Internal
Revenue Code of 1954 [now 1986] [this title] shall be applied as if
"contemporaneous" had not been added to subsec. (d). See Effective
Date of 1985 Amendment note below.
Subsecs. (i), (j). Pub. L. 99-44, Sec. 2(b), added subsec. (i)
and redesignated former subsec. (i) as (j).
1984 - Subsec. (d). Pub. L. 98-369, Sec. 179(b), substituted, in
introductory provisions, "No deduction or credit" for "No
deduction" and, in provisions following par. (4), "adequate
contemporaneous records" for "adequate records or by sufficient
evidence corroborating his own statement" and "the facility or
property" for "the facility" in two places, and added par. (4).
Subsec. (h)(6)(D). Pub. L. 98-369, Sec. 801(c), substituted in
heading "with other provisions" for "with section 6103" and in text
inserted provision that the Secretary may exercise his authority
under subchapter A of chapter 78 to carry out any obligations of
the United States under an agreement referred to in subpar. (C).
1983 - Subsec. (e)(3). Pub. L. 98-67, Sec. 102(a), repealed
amendments made by Pub. L. 97-248. See 1982 Amendment note below.
Subsec. (h)(2). Pub. L. 97-424, Sec. 543(a)(1), inserted
provisions relating to requirements of par. (5) and the description
in section 212, and inserted the $2,000 limit relating to section
162 or 212.
Subsec. (h)(5). Pub. L. 97-424, Sec. 543(a)(2), added par. (5).
Subsec. (h)(6). Pub. L. 98-67, Sec. 227(a), added par. (6).
1982 - Subsec. (e)(3). Pub. L. 97-248 provided that, applicable
to payments of interest, dividends, and patronage dividends paid or
credited after June 30, 1983, par. (3) is amended by inserting
"subchapter A of" before "chapter 24". Section 102(a), (b) of Pub.
L. 98-67, title I, Aug. 5, 1983, 97 Stat. 369, repealed subtitle A
(Secs. 301-308) of title III of Pub. L. 97-248 as of the close of
June 30, 1983, and provided that the Internal Revenue Code of 1954
[now 1986] [this title] shall be applied and administered (subject
to certain exceptions) as if such subtitle A (and the amendments
made by such subtitle A) had not been enacted.
1981 - Subsec. (b)(1)(C). Pub. L. 97-34, Sec. 265(a), excluded
from term "gift" an award for productivity, designated existing
provisions as cl. (i), and as so designated, increased the
limitation to $400 from $100, and added cl. (ii).
Subsec. (b)(3). Pub. L. 97-34, Sec. 265(b), added par. (3).
1980 - Subsec. (a)(2)(C). Pub. L. 96-222, Sec. 103(a)(10)(A),
struck out "country" after "the case of a".
Subsec. (e)(10). Pub. L. 96-605 and Pub. L. 96-598 made identical
amendments by adding par. (10).
Subsec. (h) Pub. L. 96-608 substituted provision disallowing any
deductions for expenses allocable to a convention, seminar, or
other similar meeting outside the North American area unless,
taking certain factors into account, it is as reasonable for the
meeting to be held outside the North American area as within it,
disallowing any deductions for a convention, seminar, or similar
meeting held on any cruise ship, and defining North American area
and cruise ship, for provision allowing deductions with respect to
not more than 2 foreign conventions per year, limiting deductible
transportation cost to not to exceed the cost of coach or economy
air fare, permitting transportation costs to be fully deductible
only if at least one-half of the days are devoted to business
related activities, disallowing deductions for subsistence expenses
unless the individual attends two-thirds of the business
activities, limiting deductible subsistence costs to not to exceed
the per diem rate for United States civil servants, defining
foreign convention and subsistence expenses, providing that if
transportation expenses or subsistence expenses are not separately
stated or do not reflect the proper allocation all amounts paid be
treated as subsistence expenses, and prescribing special reporting
and substantiation requirements.
1978 - Subsec. (a)(1). Pub. L. 95-600, Sec. 361(a), substituted
provisions allowing no deduction for expenses paid or incurred with
respect to a facility which is used in conjunction with an activity
which is of a type generally considered to constitute
entertainment, amusement, or recreation for provisions allowing a
deduction for expenses paid or incurred with respect to a facility
if the facility used is primarily for the furtherance of the
taxpayer's business, and the expense is "directly related" to the
active conduct of taxpayer's business.
Subsec. (a)(2)(C). Pub. L. 95-600, Sec. 361(b), as amended by
Pub. L. 96-222, Sec. 103(a)(10)(B), added subpar. (C).
Subsec. (h)(3). Pub. L. 95-600, Sec. 701(g)(3), substituted "at
least one-half" for "more than one-half" in first sentence.
Subsec. (h)(6)(D). Pub. L. 95-600, Sec. 701(g)(1), designated
existing provisions as cl. (i), inserted introductory phrase
"Except as provided in clause (ii)" and substituted "For the
purposes" for "For purpose", and added cl. (ii).
Subsec. (h)(6)(E). Pub. L. 95-600, Sec. 701(g)(2), added subpar.
(E).
1976 - Subsecs. (c)(1), (d). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (h). Pub. L. 94-455, Sec. 602(a), added subsec. (h).
Former subsec. (h) redesignated (i).
Subsec. (i). Pub. L. 94-455, Secs. 602(a), 1906(b)(13)(A),
redesignated former subsec. (h) as (i) and struck out "or his
delegate" after "Secretary".
1964 - Subsec. (c). Pub. L. 88-272 limited subsec. (c) to
individuals traveling outside the United States.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendments by Pub. L. 109-135 effective as if included in the
provisions of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which they relate, see section 403(nn) of Pub. L. 109-135,
set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 907(b), Oct. 22, 2004, 118
Stat. 1655, provided that: "The amendment made by this section
[amending this section] shall apply to expenses incurred after the
date of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 969(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13209(c) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1993."
Section 13210(c) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section] shall apply to amounts
paid or incurred after December 31, 1993."
Section 13272(b) of Pub. L. 103-66 provided that: "The amendment
made by this section [amending this section] shall apply to amounts
paid or incurred after December 31, 1993."
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7816(a) of Pub. L. 101-239 effective, except
as otherwise provided, as if included in the provision of the
Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647,
to which such amendment relates, see section 7817 of Pub. L. 101-
239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1001(g)(1)-(4)(A), (5) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 6003(b) of Pub. L. 100-647 provided that:
"(1) Clauses (i) and (ii) of section 274(n)(2)(F) of the 1986
Code, as added by subsection (a), shall apply to taxable years
beginning after December 31, 1988.
"(2) Clauses (iii) and (iv) of section 274(n)(2)(F) of the 1986
Code, as added by subsection (a), shall apply to taxable years
beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 122(c), (d) of Pub. L. 99-514 applicable to
prizes and awards granted after Dec. 31, 1986, see section 151(c)
of Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 142(a)-(c) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1114(b)(6) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1986, see section 1114(c)(1) of Pub.
L. 99-514, set out as a note under section 414 of this title.
EFFECTIVE DATE OF 1985 AMENDMENT
Section 6(a)-(c) of Pub. L. 99-44, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) Repeals. - The amendment and repeals made by subsections (a)
and (b) of section 1 [amending this section and repealing section
179(b)(2), (3) of Pub. L. 98-369 which had amended sections 6653
and 6695 of this title] shall take effect as if included in the
amendments made by section 179(b) of the Tax Reform Act of 1984
[Pub. L. 98-369].
"(b) Restoration of Prior Law for 1985. - For taxable years
beginning in 1985, section 274(d) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] shall apply as it read before the
amendments made by section 179(b)(1) of the Tax Reform Act of 1984
[Pub. L. 98-369, see 1984 Amendments note above].
"(c) Exception From Substantiation Requirements for Qualified
Nonpersonal Use Vehicles. - The amendments made by section 2
[amending this section] shall apply to taxable years beginning
after December 31, 1985."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 179(b)(1) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1984, see section 179(d)(2)
of Pub. L. 98-369, set out as an Effective Date note under section
280F of this title.
Amendment by section 801(c) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1984, in taxable years ending after
such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
out as a note under section 245 of this title.
EFFECTIVE DATE OF 1983 AMENDMENTS
Section 222(b) of Pub. L. 98-67 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
conventions, seminars, or other meetings which begin after June 30,
1983."
Section 543(b) of Pub. L. 97-424 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1982."
EFFECTIVE DATE OF 1981 AMENDMENT
Section 265(c) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years ending on or after the date of the enactment of this Act
[Aug. 13, 1981]."
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 4(b) of Pub. L. 96-608, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subsection (a) of this section [amending this
section] shall apply to conventions, seminars, and meetings
beginning after December 31, 1980, except that in the case of any
convention, seminar, or meeting beginning after such date which was
scheduled on or before such date, a person, in such manner as the
Secretary of the Treasury or his delegate may prescribe, may elect
to have the provisions of section 274(h) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] be applied to such convention
seminar or meeting without regard to such amendment."
Section 5(b) of Pub. L. 96-598 and section 108(b) of Pub. L. 96-
605 provided that: "The amendment made by this section [amending
this section] shall apply to any expenses paid or incurred after
December 31, 1980, in taxable years ending after such date."
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 361(c) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section] shall apply to items
paid or incurred after December 31, 1978, in taxable years ending
after such date."
Section 701(g)(4) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section] shall
apply to conventions beginning after December 31, 1976."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 602(b) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section] shall apply to
conventions beginning after December 31, 1976."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 217(b) of Pub. L. 88-272 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to taxable years ending after December 31, 1962, but only
in respect of periods after such date."
EFFECTIVE DATE
Section applicable with respect to taxable years ending after
Dec. 31, 1962, but only in respect of periods after such date, see
section 4(c) of Pub. L. 87-834, set out as an Effective Date of
1962 Amendment note under section 162 of this title.
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
Section 5 of Pub. L. 99-44 provided that: "Not later than October
1, 1985, the Secretary of the Treasury or his delegate shall
prescribe regulations to carry out the provisions of this Act
[amending sections 274, 280F, 3402, 6653, and 6695 of this title,
and enacting provisions set out as notes under sections 274, 280F,
3402, and 6653 of this title] which shall fully reflect such
provisions."
Section 1(c) of Pub. L. 99-44 provided that: "Regulations issued
before the date of the enactment of this Act [May 24, 1985] to
carry out the amendments made by paragraphs (1)(C), (2), and (3) of
section 179(b) of the Tax Reform Act of 1984 [Pub. L. 98-369,
amending sections 274, 6653, and 6695 of this title] shall have no
force and effect."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-TRANS-
TERMINATION OF TRUST TERRITORY OF THE PACIFIC ISLANDS
For termination of Trust Territory of the Pacific Islands, see
note set out preceding section 1681 of Title 48, Territories and
Insular Possessions.
-MISC2-
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
CERTAIN RECORDKEEPING REQUIREMENTS
For treatment of use of automobile by I.R.S. special agent for
purposes of this section and section 132 of this title, see section
1567 of Pub. L. 99-514, set out as a note under section 132 of this
title.
SUBSTANTIATION BY ADEQUATE CONTEMPORANEOUS RECORDS
Section 1(a) of Pub. L. 99-44, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided in part that: "the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall be
applied and administered as if the word 'contemporaneous' had not
been added [by Pub. L. 98-369] to such subsection (d) [subsec. (d)
of this section]."
USE OF FACILITIES IN CASE OF INDEPENDENT CONTRACTORS, ETC.
Section 103(a)(10)(C) of Pub. L. 96-222, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(i) In general. - Subsection (a) of section 274 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (relating to
disallowance of certain entertainment, etc., expenses) shall not
apply to expenses paid or incurred by the taxpayer for goods,
services, and facilities to the extent that the expenses are
includible in the gross income of a recipient of the entertainment,
amusement, or recreation who is not an employee of the taxpayer as
compensation for services rendered or as a prize or award under
section 74 of such Code.
"(ii) Information return requirement. - Clause (i) shall not
apply to any amount paid or incurred by the taxpayer if such amount
is required to be included in any information return filed by such
taxpayer under part III of subchapter A of chapter 61 of such Code
[section 6031 et seq. of this title] and is not so included.
"(iii) Application of subparagraph. - This subparagraph shall
only apply with respect to expenses paid or incurred during 1979 or
1980."
-End-
-CITE-
26 USC Sec. 275 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 275. Certain taxes
-STATUTE-
(a) General rule
No deduction shall be allowed for the following taxes:
(1) Federal income taxes, including -
(A) the tax imposed by section 3101 (relating to the tax on
employees under the Federal Insurance Contributions Act);
(B) the taxes imposed by sections 3201 and 3211 (relating to
the taxes on railroad employees and railroad employee
representatives); and
(C) the tax withheld at source on wages under section 3402.
(2) Federal war profits and excess profits taxes.
(3) Estate, inheritance, legacy, succession, and gift taxes.
(4) Income, war profits, and excess profits taxes imposed by
the authority of any foreign country or possession of the United
States if -
(A) the taxpayer chooses to take to any extent the benefits
of section 901, or
(B) such taxes are paid or accrued with respect to foreign
trade income (within the meaning of section 923(b)) (!1) of a
FSC,.(!2)
(5) Taxes on real property, to the extent that section 164(d)
requires such taxes to be treated as imposed on another taxpayer.
(6) Taxes imposed by chapters 41, 42, 43, 44, 45, 46, and 54.
Paragraph (1) shall not apply to the tax imposed by section 59A.
Paragraph (1) shall not apply to any taxes to the extent such taxes
are allowable as a deduction under section 164(f).
(b) Cross reference
For disallowance of certain other taxes, see section 164(c).
-SOURCE-
(Added Pub. L. 88-272, title II, Sec. 207(b)(3)(A), Feb. 26, 1964,
78 Stat. 42; amended Pub. L. 93-406, title II, Sec. 1016(a)(1),
Sept. 2, 1974, 88 Stat. 929; Pub. L. 94-455, title XIII, Sec.
1307(d)(2)(A), title XVI, Sec. 1605(b)(1), title XIX, Sec.
1901(a)(39), Oct. 4, 1976, 90 Stat. 1727, 1754, 1771; Pub. L. 95-
600, title VII, Sec. 701(t)(3)(B), Nov. 6, 1978, 92 Stat. 2912;
Pub. L. 97-248, title III, Secs. 305(a), 308(a), Sept. 3, 1982, 96
Stat. 588, 591; Pub. L. 98-21, title I, Sec. 124(c)(5), Apr. 20,
1983, 97 Stat. 91; Pub. L. 98-67, title I, Sec. 102(a) Aug. 5,
1983, 97 Stat. 369; Pub. L. 98-369, div. A, title I, Sec. 67(b)(2),
title VIII, Sec. 801(d)(5), July 18, 1984, 98 Stat. 587, 996; Pub.
L. 99-499, title V, Sec. 516(b)(2)(B), Oct. 17, 1986, 100 Stat.
1771; Pub. L. 100-203, title X, Sec. 10228(b), Dec. 22, 1987, 101
Stat. 1330-418; Pub. L. 106-519, Sec. 4(2), Nov. 15, 2000, 114
Stat. 2432; Pub. L. 108-357, title I, Sec. 101(b)(5), title VIII,
Sec. 802(b)(1), Oct. 22, 2004, 118 Stat. 1423, 1568.)
-REFTEXT-
REFERENCES IN TEXT
The Federal Insurance Contributions Act, referred to in subsec.
(a)(1)(A), is act Aug. 16, 1954, ch. 736, Secs. 3101, 3102, 3111,
3112, 3121 to 3128, 68A Stat. 415, as amended, which is classified
generally to chapter 21 (Sec. 3101 et seq.) of this title. For
complete classification of this Act to the Code, see section 3128
of this title and Tables.
Section 923, referred to in subsec. (a)(4)(B), was repealed by
Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
-COD-
CODIFICATION
Pub. L. 95-600, Sec. 701(t)(3)(B) (effective Oct. 4, 1976, see
Pub. L. 95-600, Sec. 701(t)(5), set out as an Effective Date of
1978 Amendment note under section 859 of this title) repealed Sec.
1605(b)(1) of Pub. L. 94-455, cited as a credit to this section,
which had duplicated the amendment to subsec. (a)(6) made by Sec.
1307(d)(2)(A) of Pub. L. 94-455.
-MISC1-
AMENDMENTS
2004 - Subsec. (a). Pub. L. 108-357, Sec. 101(b)(5)(B), struck
out at end of concluding provisions "A rule similar to the rule of
section 943(d) shall apply for purposes of paragraph (4)(C)."
Subsec. (a)(4). Pub. L. 108-357, Sec. 101(b)(5)(A), inserted "or"
at end of subpar. (A), substituted period for "or" at end of
subpar. (B), and struck out subpar. (C) which read as follows:
"such taxes are paid or accrued with respect to qualifying foreign
trade income (as defined in section 941)."
Subsec. (a)(6). Pub. L. 108-357, Sec. 802(b)(1), inserted "45,"
before "46,".
2000 - Subsec. (a). Pub. L. 106-519, Sec. 4(2)(B), inserted at
end "A rule similar to the rule of section 943(d) shall apply for
purposes of paragraph (4)(C)."
Subsec. (a)(4)(C). Pub. L. 106-519, Sec. 4(2)(A), added subpar.
(C).
1987 - Subsec. (a)(6). Pub. L. 100-203 substituted "46, and 54"
for "and 46".
1986 - Subsec. (a). Pub. L. 99-499 inserted at end "Paragraph (1)
shall not apply to the tax imposed by section 59A."
1984 - Subsec. (a)(4). Pub. L. 98-369, Sec. 801(d)(5), inserted
provision disallowing a deduction for income, war profits, and
excess profits taxes if such taxes are paid or accrued with respect
to foreign trade income, within the meaning of section 923(b), of a
FSC.
Subsec. (a)(6). Pub. L. 98-369, Sec. 67(b)(2), inserted reference
to chapter 46.
1983 - Subsec. (a). Pub. L. 98-21 inserted at end "Paragraph (1)
shall not apply to any taxes to the extent such taxes are allowable
as a deduction under section 164(f)."
Subsec. (a)(1). Pub. L. 98-67 repealed amendments made by Pub. L.
97-248. See 1982 Amendment note below.
1982 - Subsec. (a)(1). Pub. L. 97-248 provided that, applicable
to payments of interest, dividends, and patronage dividends paid or
credited after June 30, 1983, par. (1) is amended by striking out
"and" at end of subpar. (B), by substituting "; and" for the period
at end of subpar. (C), and by inserting subpar. (D) relating to the
tax withheld at source on interest, dividends, and patronage
dividends under section 3451. Section 102(a), (b) of Pub. L. 98-67,
title I, Aug. 5, 1983, 97 Stat. 369, repealed subtitle A (Secs. 301-
308) of title III of Pub. L. 97-248 as of the close of June 30,
1983, and provided that the Internal Revenue Code of 1954 [now
1986] [this title] shall be applied and administered (subject to
certain exceptions) as if such subtitle A (and the amendments made
by such subtitle A) had not been enacted.
1976 - Subsec. (a)(1)(C). Pub. L. 94-455, Sec. 1901(a)(39),
struck out ", and corresponding provisions of prior revenue laws"
after "under section 3402".
Subsec. (a)(6). Pub. L. 94-455, Secs. 1307(d)(2)(A), 1605(b)(1),
inserted reference to chapters 41 and 44.
1974 - Subsec. (a)(6). Pub. L. 93-406 added par. (6).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 101(b)(5) of Pub. L. 108-357 applicable to
transactions after Dec. 31, 2004, see section 101(c) of Pub. L. 108-
357, set out as a note under section 56 of this title.
Amendment by section 802(b)(1) of Pub. L. 108-357 effective Mar.
4, 2003, see section 802(d) of Pub. L. 108-357, set out as an
Effective Date note under section 4985 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-519 applicable to transactions after
Sept. 30, 2000, with special rules relating to existing foreign
sales corporations, see section 5 of Pub. L. 106-519, set out as a
note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to consideration received
after Dec. 22, 1987, in taxable years ending after such date,
except not applicable in the case of any acquisition pursuant to a
written binding contract in effect on Dec. 15, 1987, and at all
times thereafter before the acquisition, see section 10228(d) of
Pub. L. 100-203, set out as an Effective Date note under section
5881 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-499 applicable to taxable years beginning
after Dec. 31, 1986, see section 516(c) of Pub. L. 99-499, set out
as a note under section 26 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 67(b)(2) of Pub. L. 98-369 applicable to
payments under agreements entered into or renewed after June 14,
1984, in taxable years ending after such date, with contracts
entered into before June 15, 1984, which are amended after June 14,
1984, in any significant relevant aspect to be treated as a
contract entered into after June 14, 1984, see section 67(e) of
Pub. L. 98-369, set out as an Effective Date note under section
280G of this title.
Amendment by section 801(d)(5) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1984, in taxable years ending after
such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
out as a note under section 245 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 98-21 applicable to taxable years beginning
after Dec. 31, 1989, see section 124(d)(2) of Pub. L. 98-21, set
out as a note under section 1401 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1307(d)(2)(A) of Pub.
L. 94-455, see section 1307(e) of Pub. L. 94-455, set out as a note
under section 501 of this title.
For effective date of amendment by section 1605(b)(1) of Pub. L.
94-455, see section 1608(d) of Pub. L. 94-455, set out as a note
under section 856 of this title.
Amendment by section 1901(a)(39) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by Pub. L. 93-406 applicable, except as otherwise
provided in section 1017(c) through (i) of Pub. L. 93-406, for plan
years beginning after Sept. 2, 1974, but, in the case of plans in
existence on Jan. 1, 1974, amendment by Pub. L. 93-406 applicable
for plan years beginning after Dec. 31, 1975, see section 1017 of
Pub. L. 93-406, set out as a note under section 410 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1963, see section 207(c) of Pub. L. 88-272, set out as an Effective
Date of 1964 Amendment note under section 164 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
(!2) So in original.
-End-
-CITE-
26 USC Sec. 276 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 276. Certain indirect contributions to political parties
-STATUTE-
(a) Disallowance of deduction
No deduction otherwise allowable under this chapter shall be
allowed for any amount paid or incurred for -
(1) advertising in a convention program of a political party,
or in any other publication if any part of the proceeds of such
publication directly or indirectly inures (or is intended to
inure) to or for the use of a political party or a political
candidate,
(2) admission to any dinner or program, if any part of the
proceeds of such dinner or program directly or indirectly inures
(or is intended to inure) to or for the use of a political party
or a political candidate, or
(3) admission to an inaugural ball, inaugural gala, inaugural
parade, or inaugural concert, or to any similar event which is
identified with a political party or a political candidate.
(b) Definitions
For purposes of this section -
(1) Political party
The term "political party" means -
(A) a political party;
(B) a National, State, or local committee of a political
party; or
(C) a committee, association, or organization, whether
incorporated or not, which directly or indirectly accepts
contributions (as defined in section 271(b)(2)) or make
expenditures (as defined in section 271(b)(3)) for the purpose
of influencing or attempting to influence the selection,
nomination, or election of any individual to any Federal,
State, or local elective public office, or the election of
presidential and vice-presidential electors, whether or not
such individual or electors are selected, nominated, or
elected.
(2) Proceeds inuring to or for the use of political candidates
Proceeds shall be treated as inuring to or for the use of a
political candidate only if -
(A) such proceeds may be used directly or indirectly for the
purpose of furthering his candidacy for selection, nomination,
or election to any elective public office, and
(B) such proceeds are not received by such candidate in the
ordinary course of a trade or business (other than the trade or
business of holding elective public office).
(c) Cross reference
For disallowance of certain entertainment, etc., expenses,
see section 274.
-SOURCE-
(Added Pub. L. 89-368, title III, Sec. 301(a), Mar. 15, 1966, 80
Stat. 66; amended Pub. L. 90-364, title I, Sec. 108(a), June 28,
1968, 82 Stat. 268; Pub. L. 93-443, title IV, Sec. 406(d), Oct. 15,
1974, 88 Stat. 1296.)
-MISC1-
AMENDMENTS
1974 - Subsecs. (c), (d). Pub. L. 93-443 struck out subsec. (c)
relating to advertising in a convention program of a national
political convention, and redesignated subsec. (d) as (c).
1968 - Subsecs. (c), (d). Pub. L. 90-364 added subsec. (c) and
redesignated former subsec. (c) as (d).
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by Pub. L. 93-443 applicable with respect to taxable
years beginning after Dec. 31, 1974, see section 410(c)(1) of Pub.
L. 93-443, set out as a note under section 431 of Title 2, The
Congress.
EFFECTIVE DATE OF 1968 AMENDMENT
Section 108(b) of Pub. L. 90-364 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to amounts paid or incurred on or after January 1, 1968."
EFFECTIVE DATE
Section 301(c) of Pub. L. 89-368 provided that: "The amendments
made by subsections (a) and (b) [enacting this section] shall apply
to taxable years beginning after December 31, 1965, but only with
respect to amounts paid or incurred after the date of the enactment
of this Act [Mar. 15, 1966]."
PROGRAM ADVERTISING FOR PRESIDENTIAL AND VICE-PRESIDENTIAL
NOMINATING CONVENTIONS
Pub. L. 90-346, June 18, 1968, 82 Stat. 183, provided for
advertising in a convention program of a national political
convention, applicable with respect to amounts paid or incurred on
or after Jan. 1, 1968, prior to repeal by Pub. L. 93-625, Sec.
10(g), Jan. 3, 1975, 88 Stat. 2119.
-End-
-CITE-
26 USC Sec. 277 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 277. Deductions incurred by certain membership organizations
in transactions with members
-STATUTE-
(a) General rule
In the case of a social club or other membership organization
which is operated primarily to furnish services or goods to members
and which is not exempt from taxation, deductions for the taxable
year attributable to furnishing services, insurance, goods, or
other items of value to members shall be allowed only to the extent
of income derived during such year from members or transactions
with members (including income derived during such year from
institutes and trade shows which are primarily for the education of
members). If for any taxable year such deductions exceed such
income, the excess shall be treated as a deduction attributable to
furnishing services, insurance, goods, or other items of value to
members paid or incurred in the succeeding taxable year. The
deductions provided by sections 243, 244, and 245 (relating to
dividends received by corporations) shall not be allowed to any
organization to which this section applies for the taxable year.
(b) Exceptions
Subsection (a) shall not apply to any organization -
(1) which for the taxable year is subject to taxation under
subchapter H or L,
(2) which has made an election before October 9, 1969, under
section 456(c) or which is affiliated with such an organization,
(3) which for each day of any taxable year is a national
securities exchange subject to regulation under the Securities
Exchange Act of 1934 or a contract market subject to regulation
under the Commodity Exchange Act, or
(4) which is engaged primarily in the gathering and
distribution of news to its members for publication.
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 121(b)(3)(A), Dec. 30, 1969,
83 Stat. 540; amended Pub. L. 94-568, Sec. 1(c), Oct. 20, 1976, 90
Stat. 2697; Pub. L. 99-514, title XVI, Sec. 1604(a), Oct. 22, 1986,
100 Stat. 2769.)
-REFTEXT-
REFERENCES IN TEXT
The Securities Exchange Act of 1934, referred to in subsec.
(b)(3), is act June 6, 1934, ch. 404, 48 Stat. 881, as amended,
which is classified principally to chapter 2B (Sec. 78a et seq.) of
Title 15, Commerce and Trade. For complete classification of this
Act to the Code, see section 78a of Title 15 and Tables.
The Commodity Exchange Act, referred to in subsec. (b)(3), is act
Sept. 21, 1922, ch. 369, 42 Stat. 998, as amended, which is
classified generally to chapter 1 (Sec. 1 et seq.) of Title 7,
Agriculture. For complete classification of this Act to the Code,
see section 1 of Title 7 and Tables.
-MISC1-
AMENDMENTS
1986 - Subsec. (b)(4). Pub. L. 99-514 added par. (4).
1976 - Subsec. (a). Pub. L. 94-568 provided that the deductions
provided by sections 243, 244, and 245 (relating to dividends
received by corporations) shall not be allowed to any organization
to which this section applies for the taxable year.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1604(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [Oct.
22, 1986]."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-568 applicable to taxable years beginning
after Oct. 20, 1976, see section 1(d) of Pub. L. 94-568, set out as
a note under section 501 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1970, see section 121(g) of Pub. L. 91-172, set out as an Effective
Date of 1969 Amendment note under section 511 of this title.
-End-
-CITE-
26 USC Sec. 278 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
[Sec. 278. Repealed. Pub. L. 99-514, title VIII, Sec. 803(b)(6),
Oct. 22, 1986, 100 Stat. 2356]
-MISC1-
Section, added Pub. L. 91-172, title II, Sec. 216(a), Dec. 30,
1969, 83 Stat. 573; amended Pub. L. 91-680, Sec. 1(a), (b), (d),
Jan. 12, 1971, 84 Stat. 2064; Pub. L. 94-455, title II, Sec.
207(b)(1), (2), Oct. 4, 1976, 90 Stat. 1538, related to capital
expenditures incurred in planting and developing citrus and almond
groves, and certain capital expenditures of farming syndicates.
EFFECTIVE DATE OF REPEAL
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the repeal of
this section is applicable to such interest costs only to the
extent such interest costs are attributable to costs which were
required to be capitalized under section 263 of the Internal
Revenue Code of 1954 and which would have been taken into account
in applying section 189 of the Internal Revenue Code of 1954 (as in
effect before its repeal by section 803 of Pub. L. 99-514) or, if
applicable, section 266 of such Code, see section 7831(d)(2) of
Pub. L. 101-239, set out as an Effective Date note under section
263A of this title.
Repeal applicable to costs incurred after Dec. 31, 1986, in
taxable years ending after such date, except as otherwise provided,
see section 803(d) of Pub. L. 99-514, set out as an Effective Date
note under section 263A of this title.
-End-
-CITE-
26 USC Sec. 279 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 279. Interest on indebtedness incurred by corporation to
acquire stock or assets of another corporation
-STATUTE-
(a) General rule
No deduction shall be allowed for any interest paid or incurred
by a corporation during the taxable year with respect to its
corporate acquisition indebtedness to the extent that such interest
exceeds -
(1) $5,000,000, reduced by
(2) the amount of interest paid or incurred by such corporation
during such year on obligations (A) issued after December 31,
1967, to provide consideration for an acquisition described in
paragraph (1) of subsection (b), but (B) which are not corporate
acquisition indebtedness.
(b) Corporate acquisition indebtedness
For purposes of this section, the term "corporate acquisition
indebtedness" means any obligation evidenced by a bond, debenture,
note, or certificate or other evidence of indebtedness issued after
October 9, 1969, by a corporation (hereinafter in this section
referred to as "issuing corporation") if -
(1) such obligation is issued to provide consideration for the
acquisition of -
(A) stock in another corporation (hereinafter in this section
referred to as "acquired corporation"), or
(B) assets of another corporation (hereinafter in this
section referred to as "acquired corporation") pursuant to a
plan under which at least two-thirds (in value) of all the
assets (excluding money) used in trades and businesses carried
on by such corporation are acquired,
(2) such obligation is either -
(A) subordinated to the claims of trade creditors of the
issuing corporation generally, or
(B) expressly subordinated in right of payment to the payment
of any substantial amount of unsecured indebtedness, whether
outstanding or subsequently issued, of the issuing corporation,
(3) the bond or other evidence of indebtedness is either -
(A) convertible directly or indirectly into stock of the
issuing corporation, or
(B) part of an investment unit or other arrangement which
includes, in addition to such bond or other evidence of
indebtedness, an option to acquire, directly or indirectly,
stock in the issuing corporation, and
(4) as of a day determined under subsection (c)(1), either -
(A) the ratio of debt to equity (as defined in subsection
(c)(2)) of the issuing corporation exceeds 2 to 1, or
(B) the projected earnings (as defined in subsection (c)(3))
do not exceed 3 times the annual interest to be paid or
incurred (determined under subsection (c)(4)).
(c) Rules for application of subsection (b)(4)
For purposes of subsection (b)(4) -
(1) Time of determination
Determinations are to be made as of the last day of any taxable
year of the issuing corporation in which it issues any obligation
to provide consideration for an acquisition described in
subsection (b)(1) of stock in, or assets of, the acquired
corporation.
(2) Ratio of debt to equity
The term "ratio of debt to equity" means the ratio which the
total indebtedness of the issuing corporation bears to the sum of
its money and all its other assets (in an amount equal to their
adjusted basis for determining gain) less such total
indebtedness.
(3) Projected earnings
(A) The term "projected earnings" means the "average annual
earnings" (as defined in subparagraph (B)) of -
(i) the issuing corporation only, if clause (ii) does not
apply, or
(ii) both the issuing corporation and the acquired
corporation, in any case where the issuing corporation has
acquired control (as defined in section 368(c)), or has
acquired substantially all of the properties, of the acquired
corporation.
(B) The average annual earnings referred to in subparagraph
(A) is, for any corporation, the amount of its earnings and
profits for any 3-year period ending with the last day of a
taxable year of the issuing corporation described in paragraph
(1), computed without reduction for -
(i) interest paid or incurred,
(ii) depreciation or amortization allowed under this
chapter,
(iii) liability for tax under this chapter, and
(iv) distributions to which section 301(c)(1) applies
(other than such distributions from the acquired to the
issuing corporation),
and reduced to an annual average for such 3-year period
pursuant to regulations prescribed by the Secretary. Such
regulations shall include rules for cases where any corporation
was not in existence for all of such 3-year period or such
period includes only a portion of a taxable year of any
corporation.
(4) Annual interest to be paid or incurred
The term "annual interest to be paid or incurred" means -
(A) if subparagraph (B) does not apply, the annual interest
to be paid or incurred by the issuing corporation only,
determined by reference to its total indebtedness outstanding,
or
(B) if projected earnings are determined under clause (ii) of
paragraph (3)(A), the annual interest to be paid or incurred by
both the issuing corporation and the acquired corporation,
determined by reference to their combined total indebtedness
outstanding.
(5) Special rules for banks and lending or finance companies
With respect to any corporation which is a bank (as defined in
section 581) or is primarily engaged in a lending or finance
business -
(A) in determining under paragraph (2) the ratio of debt to
equity of such corporation (or of the affiliated group of which
such corporation is a member), the total indebtedness of such
corporation (and the assets of such corporation) shall be
reduced by an amount equal to the total indebtedness owed to
such corporation which arises out of the banking business of
such corporation, or out of the lending or finance business of
such corporation, as the case may be;
(B) in determining under paragraph (4) the annual interest to
be paid or incurred by such corporation (or by the issuing and
acquired corporations referred to in paragraph (4)(B) or by the
affiliated group of which such corporation is a member) the
amount of such interest (determined without regard to this
paragraph) shall be reduced by an amount which bears the same
ratio to the amount of such interest as the amount of the
reduction for the taxable year under subparagraph (A) bears to
the total indebtedness of such corporation; and
(C) in determining under paragraph (3)(B) the average annual
earnings, the amount of the earnings and profits for the 3-year
period shall be reduced by the sum of the reductions under
subparagraph (B) for such period.
For purposes of this paragraph, the term "lending or finance
business" means a business of making loans or purchasing or
discounting accounts receivable, notes, or installment
obligations.
(d) Taxable years to which applicable
In applying this section -
(1) First year of disallowance
The deduction of interest on any obligation shall not be
disallowed under subsection (a) before the first taxable year of
the issuing corporation as of the last day of which the
application of either subparagraph (A) or subparagraph (B) of
subsection (b)(4) results in such obligation being corporate
acquisition indebtedness.
(2) General rule for succeeding years
Except as provided in paragraphs (3), (4), and (5), if an
obligation is determined to be corporate acquisition indebtedness
as of the last day of any taxable year of the issuing
corporation, it shall be corporate acquisition indebtedness for
such taxable year and all subsequent taxable years.
(3) Redetermination where control, etc., is acquired
If an obligation is determined to be corporate acquisition
indebtedness as of the close of a taxable year of the issuing
corporation in which clause (i) of subsection (c)(3)(A) applied,
but would not be corporate acquisition indebtedness if the
determination were made as of the close of the first taxable year
of such corporation thereafter in which clause (ii) of subsection
(c)(3)(A) could apply, such obligation shall be considered not to
be corporate acquisition indebtedness for such later taxable year
and all taxable years thereafter.
(4) Special 3-year rule
If an obligation which has been determined to be corporate
acquisition indebtedness for any taxable year would not be such
indebtedness for each of any 3 consecutive taxable years
thereafter if subsection (b)(4) were applied as of the close of
each of such 3 years, then such obligation shall not be corporate
acquisition indebtedness for all taxable years after such 3
consecutive taxable years.
(5) 5 percent stock rule
In the case of obligations issued to provide consideration for
the acquisition of stock in another corporation, such obligations
shall be corporate acquisition indebtedness for a taxable year
only if at some time after October 9, 1969, and before the close
of such year the issuing corporation owns 5 percent or more of
the total combined voting power of all classes of stock entitled
to vote of such other corporation.
(e) Certain nontaxable transactions
An acquisition of stock of a corporation of which the issuing
corporation is in control (as defined in section 368(c)) in a
transaction in which gain or loss is not recognized shall be deemed
an acquisition described in paragraph (1) of subsection (b) only if
immediately before such transaction (1) the acquired corporation
was in existence, and (2) the issuing corporation was not in
control (as defined in section 368(c)) of such corporation.
(f) Exemption for certain acquisitions of foreign corporations
For purposes of this section, the term "corporate acquisition
indebtedness" does not include any indebtedness issued to any
person to provide consideration for the acquisition of stock in, or
assets of, any foreign corporation substantially all of the income
of which, for the 3-year period ending with the date of such
acquisition or for such part of such period as the foreign
corporation was in existence, is from sources without the United
States.
(g) Affiliated groups
In any case in which the issuing corporation is a member of an
affiliated group, the application of this section shall be
determined, pursuant to regulations prescribed by the Secretary, by
treating all of the members of the affiliated group in the
aggregate as the issuing corporation, except that the ratio of debt
to equity of, projected earnings of, and annual interest to be paid
or incurred by any corporation (other than the issuing corporation
determined without regard to this subsection) shall be included in
the determinations required under subparagraphs (A) and (B) of
subsection (b)(4) as of any day only if such corporation is a
member of the affiliated group on such day, and, in determining
projected earnings of such corporation under subsection (c)(3),
there shall be taken into account only the earnings and profits of
such corporation for the period during which it was a member of the
affiliated group. For purposes of the preceding sentence, the term
"affiliated group" has the meaning assigned to such term by section
1504(a), except that all corporations other than the acquired
corporation shall be treated as includible corporations (without
any exclusion under section 1504(b)) and the acquired corporation
shall not be treated as an includible corporation.
(h) Changes in obligation
For purposes of this section -
(1) Any extension, renewal, or refinancing of an obligation
evidencing a preexisting indebtedness shall not be deemed to be
the issuance of a new obligation.
(2) Any obligation which is corporate acquisition indebtedness
of the issuing corporation is also corporate acquisition
indebtedness of any corporation which becomes liable for such
obligation as guarantor, endorser, or indemnitor or which assumes
liability for such obligation in any transaction.
(i) Certain obligations issued after October 9, 1969
For purposes of this section, an obligation shall not be
corporate acquisition indebtedness if issued after October 9, 1969,
to provide consideration for the acquisition of -
(1) stock or assets pursuant to a binding written contract
which was in effect on October 9, 1969, and at all times
thereafter before such acquisition, or
(2) stock in any corporation where the issuing corporation, on
October 9, 1969, and at all times thereafter before such
acquisition, owned at least 50 percent of the total combined
voting power of all classes of stock entitled to vote of the
acquired corporation.
(j) Effect on other provisions
No inference shall be drawn from any provision in this section
that any instrument designated as a bond, debenture, note, or
certificate or other evidence of indebtedness by its issuer
represents an obligation or indebtedness of such issuer in applying
any other provision of this title.
-SOURCE-
(Added Pub. L. 91-172, title IV, Sec. 411(a), Dec. 30, 1969, 83
Stat. 604; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 94-514, Sec. 1(a), Oct. 15,
1976, 90 Stat. 2443.)
-MISC1-
AMENDMENTS
1976 - Subsecs. (c)(3)(B), (g). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
Subsec. (i). Pub. L. 94-514 struck out provisions that par. (2)
would cease to apply when (at any time on or after October 9, 1969)
the issuing corporation has acquired control (as defined in section
368(c)) of the acquired corporation.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1(b) of Pub. L. 94-514 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years ending after October 9, 1969. If refund or credit of any
overpayment of income tax resulting from the amendment made by
subsection (a) [amending this section] is prevented on the date of
the enactment of this Act [Oct. 15, 1976], or at any time within
one year after such date, by the operation of any law or rule of
law, refund or credit of such overpayment may, nevertheless, be
made or allowed if claim therefor is filed within one year from
such date."
EFFECTIVE DATE
Section 411(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [enacting this section] shall apply to the
determination of the allowability of the deduction of interest paid
or incurred with respect to indebtedness incurred after October 9,
1969."
-End-
-CITE-
26 USC Sec. 280 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
[Sec. 280. Repealed. Pub. L. 99-514, title VIII, Sec. 803(b)(2)(A),
Oct. 22, 1986, 100 Stat. 2355]
-MISC1-
Section, added Pub. L. 94-455, title II, Sec. 210(a), Oct. 4,
1976, 90 Stat. 1544; amended Pub. L. 95-600, title VII, Sec.
701(m)(2), Nov. 6, 1978, 92 Stat. 2907; Pub. L. 97-354, Sec.
5(a)(25), Oct. 19, 1982, 96 Stat. 1694, related to certain
expenditures incurred in the production of films, books, records,
or similar property.
EFFECTIVE DATE OF REPEAL
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the repeal of
this section is applicable to such interest costs only to the
extent such interest costs are attributable to costs which were
required to be capitalized under section 263 of the Internal
Revenue Code of 1954 and which would have been taken into account
in applying section 189 of the Internal Revenue Code of 1954 (as in
effect before its repeal by section 803 of Pub. L. 99-514) or, if
applicable, section 266 of such Code, see section 7831(d)(2) of
Pub. L. 101-239, set out as an Effective Date note under section
263A of this title.
Repeal applicable to costs incurred after Dec. 31, 1986, in
taxable years ending after such date, except as otherwise provided,
see section 803(d) of Pub. L. 99-514, set out as an Effective Date
note under section 263A of this title.
-End-
-CITE-
26 USC Sec. 280A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 280A. Disallowance of certain expenses in connection with
business use of home, rental of vacation homes, etc.
-STATUTE-
(a) General rule
Except as otherwise provided in this section, in the case of a
taxpayer who is an individual or an S corporation, no deduction
otherwise allowable under this chapter shall be allowed with
respect to the use of a dwelling unit which is used by the taxpayer
during the taxable year as a residence.
(b) Exception for interest, taxes, casualty losses, etc.
Subsection (a) shall not apply to any deduction allowable to the
taxpayer without regard to its connection with his trade or
business (or with his income-producing activity).
(c) Exceptions for certain business or rental use; limitation on
deductions for such use
(1) Certain business use
Subsection (a) shall not apply to any item to the extent such
item is allocable to a portion of the dwelling unit which is
exclusively used on a regular basis -
(A) as the principal place of business for any trade or
business of the taxpayer,
(B) as a place of business which is used by patients,
clients, or customers in meeting or dealing with the taxpayer
in the normal course of his trade or business, or
(C) in the case of a separate structure which is not attached
to the dwelling unit, in connection with the taxpayer's trade
or business.
In the case of an employee, the preceding sentence shall apply
only if the exclusive use referred to in the preceding sentence
is for the convenience of his employer. For purposes of
subparagraph (A), the term "principal place of business" includes
a place of business which is used by the taxpayer for the
administrative or management activities of any trade or business
of the taxpayer if there is no other fixed location of such trade
or business where the taxpayer conducts substantial
administrative or management activities of such trade or
business.
(2) Certain storage use
Subsection (a) shall not apply to any item to the extent such
item is allocable to space within the dwelling unit which is used
on a regular basis as a storage unit for the inventory or product
samples of the taxpayer held for use in the taxpayer's trade or
business of selling products at retail or wholesale, but only if
the dwelling unit is the sole fixed location of such trade or
business.
(3) Rental use
Subsection (a) shall not apply to any item which is
attributable to the rental of the dwelling unit or portion
thereof (determined after the application of subsection (e)).
(4) Use in providing day care services
(A) In general
Subsection (a) shall not apply to any item to the extent that
such item is allocable to the use of any portion of the
dwelling unit on a regular basis in the taxpayer's trade or
business of providing day care for children, for individuals
who have attained age 65, or for individuals who are physically
or mentally incapable of caring for themselves.
(B) Licensing, etc., requirement
Subparagraph (A) shall apply to items accruing for a period
only if the owner or operator of the trade or business referred
to in subparagraph (A) -
(i) has applied for (and such application has not been
rejected),
(ii) has been granted (and such granting has not been
revoked), or
(iii) is exempt from having,
a license, certification, registration, or approval as a day
care center or as a family or group day care home under the
provisions of any applicable State law. This subparagraph shall
apply only to items accruing in periods beginning on or after
the first day of the first month which begins more than 90 days
after the date of the enactment of the Tax Reduction and
Simplification Act of 1977.
(C) Allocation formula
If a portion of the taxpayer's dwelling unit used for the
purposes described in subparagraph (A) is not used exclusively
for those purposes, the amount of the expenses attributable to
that portion shall not exceed an amount which bears the same
ratio to the total amount of the items allocable to such
portion as the number of hours the portion is used for such
purposes bears to the number of hours the portion is available
for use.
(5) Limitation on deductions
In the case of a use described in paragraph (1), (2), or (4),
and in the case of a use described in paragraph (3) where the
dwelling unit is used by the taxpayer during the taxable year as
a residence, the deductions allowed under this chapter for the
taxable year by reason of being attributed to such use shall not
exceed the excess of -
(A) the gross income derived from such use for the taxable
year, over
(B) the sum of -
(i) the deductions allocable to such use which are
allowable under this chapter for the taxable year whether or
not such unit (or portion thereof) was so used, and
(ii) the deductions allocable to the trade or business (or
rental activity) in which such use occurs (but which are not
allocable to such use) for such taxable year.
Any amount not allowable as a deduction under this chapter by
reason of the preceding sentence shall be taken into account as a
deduction (allocable to such use) under this chapter for the
succeeding taxable year. Any amount taken into account for any
taxable year under the preceding sentence shall be subject to the
limitation of the 1st sentence of this paragraph whether or not
the dwelling unit is used as a residence during such taxable
year.
(6) Treatment of rental to employer
Paragraphs (1) and (3) shall not apply to any item which is
attributable to the rental of the dwelling unit (or any portion
thereof) by the taxpayer to his employer during any period in
which the taxpayer uses the dwelling unit (or portion) in
performing services as an employee of the employer.
(d) Use as residence
(1) In general
For purposes of this section, a taxpayer uses a dwelling unit
during the taxable year as a residence if he uses such unit (or
portion thereof) for personal purposes for a number of days which
exceeds the greater of -
(A) 14 days, or
(B) 10 percent of the number of days during such year for
which such unit is rented at a fair rental.
For purposes of subparagraph (B), a unit shall not be treated as
rented at a fair rental for any day for which it is used for
personal purposes.
(2) Personal use of unit
For purposes of this section, the taxpayer shall be deemed to
have used a dwelling unit for personal purposes for a day if, for
any part of such day, the unit is used -
(A) for personal purposes by the taxpayer or any other person
who has an interest in such unit, or by any member of the
family (as defined in section 267(c)(4)) of the taxpayer or
such other person;
(B) by any individual who uses the unit under an arrangement
which enables the taxpayer to use some other dwelling unit
(whether or not a rental is charged for the use of such other
unit); or
(C) by any individual (other than an employee with respect to
whose use section 119 applies), unless for such day the
dwelling unit is rented for a rental which, under the facts and
circumstances, is fair rental.
The Secretary shall prescribe regulations with respect to the
circumstances under which use of the unit for repairs and annual
maintenance will not constitute personal use under this
paragraph, except that if the taxpayer is engaged in repair and
maintenance on a substantially full time basis for any day, such
authority shall not allow the Secretary to treat a dwelling unit
as being used for personal use by the taxpayer on such day merely
because other individuals who are on the premises on such day are
not so engaged.
(3) Rental to family member, etc., for use as principal residence
(A) In general
A taxpayer shall not be treated as using a dwelling unit for
personal purposes by reason of a rental arrangement for any
period if for such period such dwelling unit is rented, at a
fair rental, to any person for use as such person's principal
residence.
(B) Special rules for rental to person having interest in unit
(i) Rental must be pursuant to shared equity financing
agreement
Subparagraph (A) shall apply to a rental to a person who
has an interest in the dwelling unit only if such rental is
pursuant to a shared equity financing agreement.
(ii) Determination of fair rental
In the case of a rental pursuant to a shared equity
financing agreement, fair rental shall be determined as of
the time the agreement is entered into and by taking into
account the occupant's qualified ownership interest.
(C) Shared equity financing agreement
For purposes of this paragraph, the term "shared equity
financing agreement" means an agreement under which -
(i) 2 or more persons acquire qualified ownership interests
in a dwelling unit, and
(ii) the person (or persons) holding 1 or more of such
interests -
(I) is entitled to occupy the dwelling unit for use as a
principal residence, and
(II) is required to pay rent to 1 or more other persons
holding qualified ownership interests in the dwelling unit.
(D) Qualified ownership interest
For purposes of this paragraph, the term "qualified ownership
interest" means an undivided interest for more than 50 years in
the entire dwelling unit and appurtenant land being acquired in
the transaction to which the shared equity financing agreement
relates.
(4) Rental of principal residence
(A) In general
For purposes of applying subsection (c)(5) to deductions
allocable to a qualified rental period, a taxpayer shall not be
considered to have used a dwelling unit for personal purposes
for any day during the taxable year which occurs before or
after a qualified rental period described in subparagraph
(B)(i), or before a qualified rental period described in
subparagraph (B)(ii), if with respect to such day such unit
constitutes the principal residence (within the meaning of
section 121) of the taxpayer.
(B) Qualified rental period
For purposes of subparagraph (A), the term "qualified rental
period" means a consecutive period of -
(i) 12 or more months which begins or ends in such taxable
year, or
(ii) less than 12 months which begins in such taxable year
and at the end of which such dwelling unit is sold or
exchanged, and
for which such unit is rented, or is held for rental, at a fair
rental.
(e) Expenses attributable to rental
(1) In general
In any case where a taxpayer who is an individual or an S
corporation uses a dwelling unit for personal purposes on any day
during the taxable year (whether or not he is treated under this
section as using such unit as a residence), the amount deductible
under this chapter with respect to expenses attributable to the
rental of the unit (or portion thereof) for the taxable year
shall not exceed an amount which bears the same relationship to
such expenses as the number of days during each year that the
unit (or portion thereof) is rented at a fair rental bears to the
total number of days during such year that the unit (or portion
thereof) is used.
(2) Exception for deductions otherwise allowable
This subsection shall not apply with respect to deductions
which would be allowable under this chapter for the taxable year
whether or not such unit (or portion thereof) was rented.
(f) Definitions and special rules
(1) Dwelling unit defined
For purposes of this section -
(A) In general
The term "dwelling unit" includes a house, apartment,
condominium, mobile home, boat, or similar property, and all
structures or other property appurtenant to such dwelling unit.
(B) Exception
The term "dwelling unit" does not include that portion of a
unit which is used exclusively as a hotel, motel, inn, or
similar establishment.
(2) Personal use by shareholders of S corporation
In the case of an S corporation, subparagraphs (A) and (B) of
subsection (d)(2) shall be applied by substituting "any
shareholder of the S corporation" for "the taxpayer" each place
it appears.
(3) Coordination with section 183
If subsection (a) applies with respect to any dwelling unit (or
portion thereof) for the taxable year -
(A) section 183 (relating to activities not engaged in for
profit) shall not apply to such unit (or portion thereof) for
such year, but
(B) such year shall be taken into account as a taxable year
for purposes of applying subsection (d) of section 183
(relating to 5-year presumption).
(4) Coordination with section 162(a)(2)
Nothing in this section shall be construed to disallow any
deduction allowable under section 162(a)(2) (or any deduction
which meets the tests of section 162(a)(2) but is allowable under
another provision of this title) by reason of the taxpayer's
being away from home in the pursuit of a trade or business (other
than the trade or business of renting dwelling units).
(g) Special rule for certain rental use
Notwithstanding any other provision of this section or section
183, if a dwelling unit is used during the taxable year by the
taxpayer as a residence and such dwelling unit is actually rented
for less than 15 days during the taxable year, then -
(1) no deduction otherwise allowable under this chapter because
of the rental use of such dwelling unit shall be allowed, and
(2) the income derived from such use for the taxable year shall
not be included in the gross income of such taxpayer under
section 61.
-SOURCE-
(Added Pub. L. 94-455, title VI, Sec. 601(a), Oct. 4, 1976, 90
Stat. 1569; amended Pub. L. 95-30, title III, Sec. 306(a), (b), May
23, 1977, 91 Stat. 152, 153; Pub. L. 95-600, title VII, Sec.
701(h)(1), Nov. 6, 1978, 92 Stat. 2904; Pub. L. 97-119, title I,
Sec. 113(a)-(d), Dec. 29, 1981, 95 Stat. 1641, 1642; Pub. L. 97-
216, title II, Sec. 215(b), July 18, 1982, 96 Stat. 194; Pub. L.
97-354, Sec. 5(a)(26), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 99-
514, title I, Sec. 143(b), (c), Oct. 22, 1986, 100 Stat. 2120;
Pub. L. 100-647, title I, Sec. 1001(h)(1), (2), Nov. 10, 1988, 102
Stat. 3352; Pub. L. 104-188, title I, Secs. 1113(a), 1704(t)(39),
Aug. 20, 1996, 110 Stat. 1759, 1889; Pub. L. 105-34, title III,
Sec. 312(d)(1), title IX, Sec. 932(a), Aug. 5, 1997, 111 Stat. 839,
881.)
-REFTEXT-
REFERENCES IN TEXT
The date of enactment of the Tax Reduction and Simplification Act
of 1977, referred to in subsec. (c)(4)(B), is the date of enactment
of Pub. L. 95-30, 91 Stat. 126, which was May 23, 1977.
-MISC1-
AMENDMENTS
1997 - Subsec. (c)(1). Pub. L. 105-34, Sec. 932(a), inserted at
end "For purposes of subparagraph (A), the term 'principal place of
business' includes a place of business which is used by the
taxpayer for the administrative or management activities of any
trade or business of the taxpayer if there is no other fixed
location of such trade or business where the taxpayer conducts
substantial administrative or management activities of such trade
or business."
Subsec. (d)(4)(A). Pub. L. 105-34, Sec. 312(d)(1), substituted
"section 121" for "section 1034".
1996 - Subsec. (c)(1)(A). Pub. L. 104-188, Sec. 1704(t)(39),
amended subpar. (A) generally. Prior to amendment, subpar. (A) read
as follows: "the principal place of business for any trade or
business of the taxpayer."
Subsec. (c)(2). Pub. L. 104-188, Sec. 1113(a), substituted
"inventory or product samples" for "inventory".
1988 - Subsec. (c)(5). Pub. L. 100-647 inserted "(or rental
activity)" after "trade or business" in subpar. (B)(ii) and
inserted at end "Any amount taken into account for any taxable year
under the preceding sentence shall be subject to the limitation of
the 1st sentence of this paragraph whether or not the dwelling unit
is used as a residence during such taxable year."
1986 - Subsec. (c)(5)(B). Pub. L. 99-514, Sec. 143(c), added
subpar. (B) and struck out former subpar. (B) which read as
follows: "the deductions allocable to such use which are allowable
under this chapter for the taxable year whether or not such unit
(or portion thereof) was so used."
Subsec. (c)(6). Pub. L. 99-514, Sec. 143(b), added par. (6).
1982 - Subsecs. (a), (e)(1). Pub. L. 97-354, Sec. 5(a)(26)(A),
(B), substituted "an S corporation" for "an electing small business
corporation".
Subsec. (f)(2). Pub. L. 97-354, Sec. 5(a)(26)(C), substituted
"shareholders of S corporation" for "electing small business
corporation" in subsec. heading, substituted "an S corporation" for
"an electing small business corporation" and "any shareholder of
the S corporation" for "any shareholder of the electing small
business corporation".
Subsec. (f)(4). Pub. L. 97-216 struck out ", etc." after "section
162(a)(2)" in heading, struck out "(A) In general. - " before
"Nothing in this section", and struck out subpar. (B) which
directed the Secretary to prescribe amounts deductible (without
substantiation) pursuant to last sentence of section 162(a) and
that no other provisions of this title could permit such a
deduction for any taxable year of amounts in excess of the amounts
determined to be appropriate under the circumstances.
1981 - Subsec. (c)(1)(A). Pub. L. 97-119, Sec. 113(c),
substituted "the principal place of business for any trade or
business of the taxpayer" for "as the taxpayer's principal place of
business".
Subsec. (d)(2). Pub. L. 97-119, Sec. 113(d), inserted in
provision following subpar. (C) ", except that if the taxpayer is
engaged in repair and maintenance on a substantially full time
basis for any day, such authority shall not allow the Secretary to
treat a dwelling unit as being used for personal use by the
taxpayer on such day merely because other individuals who are on
the premises on such day are not so engaged".
Subsec. (d)(3), (4). Pub. L. 97-119, Sec. 113(a), added par. (3),
redesignated former par. (3) as (4) and struck out "to a person
other than a member of the family (as defined in section 267(c)(4))
of the taxpayer" after "such unit is rented" in subpar. (B).
Subsec. (f)(4). Pub. L. 97-119, Sec. 113(b)(1), added par. (4).
1978 - Subsec. (d)(3). Pub. L. 95-600 added par. (3).
1977 - Subsec. (c)(4), (5). Pub. L. 95-30 added par. (4),
redesignated former par. (4) as (5) and substituted "paragraph (1),
(2), or (4)" for "paragraph (1) or (2)" in introductory provisions.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 312(d)(1) of Pub. L. 105-34 applicable to
sales and exchanges after May 6, 1997, with certain exceptions, see
section 312(d) of Pub. L. 105-34, set out as a note under section
121 of this title.
Section 932(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1998."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1113(b) of Pub. L. 104-188 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1995."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
as a note under section 1 of this title.
EFFECTIVE DATES OF 1982 AMENDMENTS
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
Amendment by Pub. L. 97-216 applicable to taxable years beginning
after Dec. 31, 1981, see section 215(d) of Pub. L. 97-216, set out
as a note under section 162 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 113(e) of Pub. L. 97-119 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1975, except that in the case of
taxable years beginning after December 31, 1975, and before January
1, 1980, the amendment made by this section shall apply only to
taxable years for which, on the date of the enactment of this Act
[Dec. 29, 1981], the making of a refund, or the assessment of a
deficiency, was not barred by law or any rule of law."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 701(h)(2) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in section 280A of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954], as such provision was added to such
Code by section 601(a) of the Tax Reform Act of 1976 [Pub. L. 94-
455, title VI, Sec. 601(a), Oct. 4, 1976, 90 Stat. 1569]."
EFFECTIVE DATE OF 1977 AMENDMENT
Section 306(c) of Pub. L. 95-30 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1975."
EFFECTIVE DATE
Section 601(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [enacting this section and amending the
analysis of sections preceding section 261 of this title] shall
apply to taxable years beginning after December 31, 1975."
-End-
-CITE-
26 USC Sec. 280B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 280B. Demolition of structures
-STATUTE-
In the case of the demolition of any structure -
(1) no deduction otherwise allowable under this chapter shall
be allowed to the owner or lessee of such structure for -
(A) any amount expended for such demolition, or
(B) any loss sustained on account of such demolition; and
(2) amounts described in paragraph (1) shall be treated as
properly chargeable to capital account with respect to the land
on which the demolished structure was located.
-SOURCE-
(Added Pub. L. 94-455, title XXI, Sec. 2124(b)(1), Oct. 4, 1976, 90
Stat. 1918; amended Pub. L. 95-600, title VII, Sec. 701(f)(5), Nov.
6, 1978, 92 Stat. 2902; Pub. L. 96-541, Sec. 2(b), Dec. 17, 1980,
94 Stat. 3204; Pub. L. 97-34, title II, Sec. 212(d)(2)(C), Aug. 13,
1981, 95 Stat. 239; Pub. L. 98-369, div. A, title X, Sec. 1063(a),
(b)(1), July 18, 1984, 98 Stat. 1047.)
-MISC1-
AMENDMENTS
1984 - Pub. L. 98-369 struck out "certain historic" before
"structures" in section catchline, struck out heading "(a) General
rule", substituted "In the case of the demolition of any structure"
for "In the case of the demolition of a certified historic
structure (as defined in 48(g)(3)(A))" in text, and struck out
subsecs. (b) and (c) which contained provisions relating to a
special rule for registered historic districts and to the
application of this section, respectively.
1981 - Subsec. (a). Pub. L. 97-34, Sec. 212(d)(2)(C)(i),
substituted "48(g)(3)(A)" for "section 191(d)(1)" in provisions
preceding par. (1).
Subsec. (b). Pub. L. 97-34, Sec. 212(d)(2)(C)(ii), substituted
"section 48(g)(3)(B)" for "section 191(d)(2)".
1980 - Subsec. (c). Pub. L. 96-541 added subsec. (c).
1978 - Subsec. (b). Pub. L. 95-600 substituted "registered
historic district (as defined in section 191(d)(2))" for
"Registered Historic District" and "Secretary of the Interior has
certified that such structure is not a certified historic
structure, and that such structure is not of historic significance
to the district, and if such certification occurs after the
beginning of the demolition of such structure, the taxpayer has
certified to the Secretary that, at the time of such demolition, he
in good faith was not aware of the certification requirement by the
Secretary of the Interior" for "Secretary of the Interior has
certified, prior to the demolition of such structure, that such
structure is not of historic significance to the district".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 1063(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
title XVIII, Sec. 1878(h), Oct. 22, 1986, 100 Stat. 2904, provided
that:
"(1) The amendments made by this section [amending this section]
shall apply to taxable years ending after December 31, 1983, but
shall not apply to any demolition (other than of a certified
historic structure) commencing before July 19, 1984.
"(2) For purposes of paragraph (1), if a demolition is delayed
until the completion of the replacement structure on the same site,
the demolition shall be treated as commencing when construction of
the replacement structure commences.
"(3) The amendments made by this section [amending this section]
shall not apply to any demolition commencing before September 1,
1984, pursuant to a bank headquarters building project if -
"(A) on April 1, 1984, a corporation was retained to advise the
bank on the final completion of the project, and
"(B) on June 12, 1984, the Comptroller of the Currency approved
the project.
"(4) The amendments made by this section shall not apply to the
remaining adjusted basis at the time of demolition of any structure
if -
"(A) such structure was used in the manufacture, storage, or
distribution of lead alkyl antiknock products and intermediate
and related products at facilities located in or near Baton
Rouge, Louisiana, and Houston, Texas, owned by the same
corporation, and
"(B) demolition of at least one such structure at the Baton
Rouge facility commenced before January 1, 1984."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to expenditures incurred
after Dec. 31, 1981, in taxable years ending after such date, see
section 212(e) of Pub. L. 97-34, set out as a note under section 46
of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 effective as if included within the
enactment of this section by section 2124 of Pub. L. 94-455, see
section 701(f)(8) of Pub. L. 95-600, set out as an Effective and
Termination Dates of 1978 Amendments note under section 167 of this
title.
EFFECTIVE DATE
Section 2124(b)(3) of Pub. L. 94-455, which had provided that
enactment of this section by subsec. (b) shall apply with respect
to demolitions commencing after June 30, 1976, and before Jan. 1,
1981, was repealed by Pub. L. 96-541, Sec. 2(e)(2), Dec. 17, 1980,
94 Stat. 3205. See subsec. (c) of this section.
-End-
-CITE-
26 USC Sec. 280C 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 280C. Certain expenses for which credits are allowable
-STATUTE-
(a) Rule for employment credits
No deduction shall be allowed for that portion of the wages or
salaries paid or incurred for the taxable year which is equal to
the sum of the credits determined for the taxable year under
sections 45A(a), 51(a), and (!1) 1396(a), 1400P(b), and 1400R. In
the case of a corporation which is a member of a controlled group
of corporations (within the meaning of section 52(a)) or a trade or
business which is treated as being under common control with other
trades or businesses (within the meaning of section 52(b)), this
subsection shall be applied under rules prescribed by the Secretary
similar to the rules applicable under subsections (a) and (b) of
section 52.
(b) Credit for qualified clinical testing expenses for certain
drugs
(1) In general
No deduction shall be allowed for that portion of the qualified
clinical testing expenses (as defined in section 45C(b))
otherwise allowable as a deduction for the taxable year which is
equal to the amount of the credit allowable for the taxable year
under section 45C (determined without regard to section 38(c)).
(2) Similar rule where taxpayer capitalizes rather than deducts
expenses
If -
(A) the amount of the credit allowable for the taxable year
under section 45C (determined without regard to section 38(c)),
exceeds
(B) the amount allowable as a deduction for the taxable year
for qualified clinical testing expenses (determined without
regard to paragraph (1)),
the amount chargeable to capital account for the taxable year for
such expenses shall be reduced by the amount of such excess.
(3) Controlled groups
In the case of a corporation which is a member of a controlled
group of corporations (within the meaning of section 41(f)(5)) or
a trade or business which is treated as being under common
control with other trades or business (within the meaning of
section 41(f)(1)(B)), this subsection shall be applied under
rules prescribed by the Secretary similar to the rules applicable
under subparagraphs (A) and (B) of section 41(f)(1).
(c) Credit for increasing research activities
(1) In general
No deduction shall be allowed for that portion of the qualified
research expenses (as defined in section 41(b)) or basic research
expenses (as defined in section 41(e)(2)) otherwise allowable as
a deduction for the taxable year which is equal to the amount of
the credit determined for such taxable year under section 41(a).
(2) Similar rule where taxpayer capitalizes rather than deducts
expenses
If -
(A) the amount of the credit determined for the taxable year
under section 41(a)(1), exceeds
(B) the amount allowable as a deduction for such taxable year
for qualified research expenses or basic research expenses
(determined without regard to paragraph (1)),
the amount chargeable to capital account for the taxable year for
such expenses shall be reduced by the amount of such excess.
(3) Election of reduced credit
(A) In general
In the case of any taxable year for which an election is made
under this paragraph -
(i) paragraphs (1) and (2) shall not apply, and
(ii) the amount of the credit under section 41(a) shall be
the amount determined under subparagraph (B).
(B) Amount of reduced credit
The amount of credit determined under this subparagraph for
any taxable year shall be the amount equal to the excess of -
(i) the amount of credit determined under section 41(a)
without regard to this paragraph, over
(ii) the product of -
(I) the amount described in clause (i), and
(II) the maximum rate of tax under section 11(b)(1).
(C) Election
An election under this paragraph for any taxable year shall
be made not later than the time for filing the return of tax
for such year (including extensions), shall be made on such
return, and shall be made in such manner as the Secretary may
prescribe. Such an election, once made, shall be irrevocable.
(4) Controlled groups
Paragraph (3) of subsection (b) shall apply for purposes of
this subsection.
(d) Low sulfur diesel fuel production credit
No deduction shall be allowed for that portion of the expenses
otherwise allowable as a deduction for the taxable year which is
equal to the amount of the credit determined for the taxable year
under section 45H(a).
-SOURCE-
(Added Pub. L. 95-30, title II, Sec. 202(c)(1), May 23, 1977, 91
Stat. 147; amended Pub. L. 95-600, title III, Sec. 322(d)(1), Nov.
6, 1978, 92 Stat. 2838; Pub. L. 96-178, Sec. 6(c)(4), Jan. 2, 1980,
93 Stat. 1298; Pub. L. 96-222, title I, Sec. 103(a)(7)(D)(iv), Apr.
1, 1980, 94 Stat. 212; Pub. L. 97-414, Sec. 4(b)(1), (2)(A), Jan.
4, 1983, 96 Stat. 2055; Pub. L. 98-369, div. A, title IV, Sec.
474(r)(10), July 18, 1984, 98 Stat. 841; Pub. L. 99-514, title II,
Sec. 231(d)(3)(E), title XVIII, Sec. 1847(b)(8), Oct. 22, 1986, 100
Stat. 2179, 2856; Pub. L. 100-647, title IV, Sec. 4008(a), Nov. 10,
1988, 102 Stat. 3652; Pub. L. 101-239, title VII, Secs. 7110(c)(1),
7814(e)(2)(A), Dec. 19, 1989, 103 Stat. 2325, 2413; Pub. L. 103-66,
title XIII, Secs. 13302(b)(1), 13322(c)(1), Aug. 10, 1993, 107
Stat. 555, 563; Pub. L. 104-188, title I, Sec. 1205(d)(7), Aug. 20,
1996, 110 Stat. 1776; Pub. L. 106-170, title V, Sec. 502(c)(2),
Dec. 17, 1999, 113 Stat. 1919; Pub. L. 106-554, Sec. 1(a)(7) [title
III, Sec. 311(a)(1)], Dec. 21, 2000, 114 Stat. 2763, 2763A-639;
Pub. L. 108-357, title III, Sec. 339(c), Oct. 22, 2004, 118 Stat.
1484; Pub. L. 109-135, title I, Sec. 103(b)(2), title II, Sec.
201(b)(2), Dec. 21, 2005, 119 Stat. 2595, 2607.)
-REFTEXT-
REFERENCES IN TEXT
Reference in subsec. (a) to section 51 of this title treated as
including reference to section 51A of this title, see section
51A(d)(2) of this title.
-MISC1-
AMENDMENTS
2005 - Subsec. (a). Pub. L. 109-135, Sec. 201(b)(2), substituted
"1400P(b), and 1400R" for "and 1400P(b)".
Pub. L. 109-135, Sec. 103(b)(2), substituted "1396(a), and
1400P(b)" for "and 1396(a)".
2004 - Subsec. (d). Pub. L. 108-357 added subsec. (d).
2000 - Subsec. (c)(1). Pub. L. 106-554 struck out "or credit"
after "deduction" in two places.
1999 - Subsec. (c)(1). Pub. L. 106-170 inserted "or credit" after
"deduction" in two places.
1996 - Subsec. (b)(1). Pub. L. 104-188, Sec. 1205(d)(7),
substituted "section 45C(b)" for "section 28(b)", "section 45C" for
"section 28", and "section 38(c)" for "subsection (d)(2) thereof".
Subsec. (b)(2)(A). Pub. L. 104-188, Sec. 1205(d)(7)(B), (C),
substituted "section 45C" for "section 28" and "section 38(c)" for
"subsection (d)(2) thereof".
1993 - Subsec. (a). Pub. L. 103-66, Sec. 13322(c)(1), substituted
"45A(a), 51(a), and" for "51(a)".
Pub. L. 103-66, Sec. 13302(b)(1), substituted "Rule for
employment credits" for "Rule for targeted jobs credit" in heading
and "the sum of the credits determined for the taxable year under
sections 51(a) and 1396(a)" for "the amount of the credit
determined for the taxable year under section 51(a)" in text.
1989 - Subsec. (c)(1), (2)(A). Pub. L. 101-239, Sec. 7110(c)(1),
struck out "50 percent of" before "the amount of the credit".
Subsec. (c)(3). Pub. L. 101-239, Sec. 7814(e)(2)(A), added par.
(3). Former par. (3) redesignated (4).
Subsec. (c)(3)(B)(ii)(I). Pub. L. 101-239, Sec. 7110(c)(1),
struck out "50 percent of" before "the amount described".
Subsec. (c)(4). Pub. L. 101-239, Sec. 7814(e)(2)(A), redesignated
par. (3) as (4).
1988 - Subsec. (c). Pub. L. 100-647 added subsec. (c).
1986 - Subsec. (b)(1), (2)(A). Pub. L. 99-514, Sec. 1847(b)(8),
substituted "section 28(b)" for "section 29(b)" in par. (1) and
"section 28" for "section 29" in pars. (1) and (2)(A).
Subsec. (b)(3). Pub. L. 99-514, Sec. 231(d)(3)(E), substituted
"section 41(f)(5)", "section 41(f)(1)(B)", and "section 41(f)(1)"
for "section 30(f)(5)", "section 30(f)(1)(B)", and "section
30(f)(1)", respectively.
1984 - Subsec. (a). Pub. L. 98-369, Sec. 474(r)(10)(A), (B),
redesignated subsec. (b) as (a), in heading substituted "targeted
jobs credit" for "section 44B credit", and in text substituted "No
deduction shall be allowed for that portion of the wages or
salaries paid or incurred for the taxable year which is equal to
the amount of the credit determined for the taxable year under
section 51(a)" for "No deduction shall be allowed for that portion
of the wage or salaries paid or incurred for the taxable year which
is equal to the amount of the credit allowable for the taxable year
under section 44B (relating to credit for employment of certain new
employees) determined without regard to the provisions of section
53 (relating to limitation based on amount of tax)". Former subsec.
(a), which had provided that no deduction would be allowed for that
portion of the work incentive program expenses paid or incurred for
the taxable year which was equal to the amount of the credit
allowable for the taxable year under section 40 (relating to credit
for expenses of work incentive programs) determined without regard
to the provisions of section 50A(a)(2) (relating to limitation
based on amount of tax), and that in the case of a corporation
which was a member of a controlled group of corporations (within
the meaning of section 50B(g)(1) or a trade or business which was
treated as being under common control with other trades or
businesses within the meaning of section 50B(g)(2), this subsection
would be applied under rules prescribed by the Secretary similar to
the rules applicable under paragraphs (1) and (2) of section
50B(g), was struck out.
Subsec. (b). Pub. L. 98-369, Sec. 474(r)(10)(A), redesignated
subsec. (c) as (b). Former subsec. (b) redesignated (a).
Subsec. (b)(1), (2)(A). Pub. L. 98-369, Sec. 474(r)(10)(C),
substituted "29" for "44H".
Subsec. (b)(3). Pub. L. 98-369, Sec. 474(r)(10)(D), substituted
"section 30(f)(5)" for "section 44F(f)(5)", "section 30(f)(1)(B)"
for "section 44F(f)(1)(B)", and "section 30(f)(1)" for "section
44F(f)(1)".
Subsec. (c). Pub. L. 98-369, Sec. 474(r)(10)(A), redesignated
subsec. (c) as (b).
1983 - Pub. L. 97-414, Sec. 4(b)(2)(A), substituted "Certain
expenses for which credits are allowable" for "Portion of wages for
which credit is claimed under section 40 or 44B" in section
catchline.
Subsec. (c). Pub. L. 97-414, Sec. 4(b)(1), added subsec. (c).
1978 - Pub. L. 95-600, as amended by Pub. L. 96-178 and Pub. L.
96-222, substituted "section 40 or 44B" for "section 44B" in
section catchline, and in text designated existing provisions as
subsec. (b) and added subsec. (a).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to expenses paid or
incurred after Dec. 31, 2002, in taxable years ending after such
date, see section 339(f) of Pub. L. 108-357, set out as a note
under section 38 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 effective as if included in the
provisions of the Ticket to Work and Work Incentives Improvement
Act of 1999, Pub. L. 106-170, to which such amendment relates, see
section 1(a)(7) [title III, Sec. 311(d)] of Pub. L. 106-554, set
out as a note under section 30A of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to amounts paid or
incurred after June 30, 1999, see section 502(c)(3) of Pub. L. 106-
170, set out as a note under section 41 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to amounts paid or
incurred in taxable years ending after June 30, 1996, see section
1205(e) of Pub. L. 104-188, set out as a note under section 45K of
this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13322(c)(1) of Pub. L. 103-66 applicable to
wages paid or incurred after Dec. 31, 1993, see section 13322(f) of
Pub. L. 103-66, set out as a note under section 38 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7110(c)(1) of Pub. L. 101-239 applicable to
taxable years beginning after Dec. 31, 1989, see section 7110(e) of
Pub. L. 101-239, set out as a note under section 41 of this title.
Amendment by section 7814(e)(2)(A) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, to which such amendment relates, see section 7817 of Pub. L.
101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 applicable to taxable years
beginning after Dec. 31, 1988, see section 4008(d) of Pub. L. 100-
647, set out as a note under section 41 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 231(d)(3)(E) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1985, see section 231(g) of
Pub. L. 99-514, set out as a note under section 41 of this title.
Amendment by section 1847(b)(8) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-414 applicable to amounts paid or
incurred after December 31, 1982, in taxable years ending after
such date, see section 4(d) of Pub. L. 97-414, set out as an
Effective Date note under section 28 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 322(e) of Pub. L. 95-600, as amended by Pub. L. 96-178,
Sec. 6(a), (b), Jan. 2, 1980, 93 Stat. 1297; Pub. L. 96-222, title
I, Sec. 103(a)(7)(A), (B), Apr. 1, 1980, 94 Stat. 211; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 50A and 50B of this title] shall apply to work
incentive program expenses paid or incurred after December 31,
1978, in taxable years ending after such date; except that so much
of the amendment made by subsection (a) as affects section
50A(a)(2) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] shall apply to taxable years beginning after December 31,
1978. For purposes of applying section 50A(a)(2) of the Internal
Revenue Code of 1986 with respect to a taxable year beginning
before January 1, 1979, the rules of sections 50A(a)(4), 50A(a)(5),
and 50B(e)(3) of such Code (as in effect on the day before the date
of the enactment of this Act [Nov. 6, 1978] shall apply.
"(2) Special rules for certain eligible employees. -
"(A) Eligible employees hired before september 27, 1978. - In
the case of any eligible employee (as defined in section 50B(h))
hired before September 27, 1978, no credit shall be allowed under
section 40 with respect to second-year work incentive program
expenses (as defined in section 50B(a)) attributable to service
performed by such employee.
"(B) Eligible employees hired after september 26, 1978. - In
the case of any eligible employee (as defined in section 50B(h))
hired after September 26, 1978, for purposes of applying the
amendments made by this section, such individual shall be treated
for purposes of the credit allowed by section 40 as having first
begun work for the taxpayer not earlier than January 1, 1979, and
any wages paid or incurred after December 31, 1978, with respect
to such individual shall be considered to be attributable to
services rendered after that date."
[Section 6(d) of Pub. L. 96-178 provided that: "Any amendment
made by this section to the Revenue Act of 1978 [amending section
322(e)(1) and (2) of Pub. L. 95-600, set out above] shall take
effect as if it had been included in the provision of the Revenue
Act of 1978 [Pub. L. 95-600] to which such amendment relates."]
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1976, and to credit carrybacks from such years, see section 202(e)
of Pub. L. 95-30, set out as a note under section 51 of this title.
TIME AND FORM OF CERTAIN ELECTIONS UNDER SUBSECTION (C)(3)
Section 7814(e)(2)(B) of Pub. L. 101-239 provided that: "In the
case of a taxable year for which the last date for making the
election under section 280C(c)(3) of the Internal Revenue Code of
1986 (as added by subparagraph (A)) is on or before the date which
is 75 days after the date of the enactment of this Act [Dec. 19,
1989], such an election for such year may be made -
"(i) at any time before the date which is 75 days after such
date of enactment, and
"(ii) in such form and manner as the Secretary of the Treasury
or his delegate may prescribe."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original. The word "and" probably should not appear.
-End-
-CITE-
26 USC Sec. 280D 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
[Sec. 280D. Repealed. Pub. L. 100-418, title I, Sec. 1941(b)(4)(A),
Aug. 23, 1988, 102 Stat. 1324]
-MISC1-
Section, added Pub. L. 96-499, title XI, Sec. 1131(d)(1), Dec. 5,
1980, 94 Stat. 2693, related to portion of chapter 45 windfall
profit tax on domestic crude oil for which credit or refund was
allowable under section 6429.
EFFECTIVE DATE OF REPEAL
Repeal applicable to crude oil removed from the premises on or
after Aug. 23, 1988, see section 1941(c) of Pub. L. 100-418, set
out as an Effective Date of 1988 Amendment note under section 164
of this title.
-End-
-CITE-
26 USC Sec. 280E 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 280E. Expenditures in connection with the illegal sale of
drugs
-STATUTE-
No deduction or credit shall be allowed for any amount paid or
incurred during the taxable year in carrying on any trade or
business if such trade or business (or the activities which
comprise such trade or business) consists of trafficking in
controlled substances (within the meaning of schedule I and II of
the Controlled Substances Act) which is prohibited by Federal law
or the law of any State in which such trade or business is
conducted.
-SOURCE-
(Added Pub. L. 97-248, title III, Sec. 351(a), Sept. 3, 1982, 96
Stat. 640.)
-REFTEXT-
REFERENCES IN TEXT
The Controlled Substances Act, referred to in text, is title II
of Pub. L. 91-513, Oct. 27, 1970, 84 Stat. 1242, as amended, which
is classified principally to subchapter I (Sec. 801 et seq.) of
chapter 13 of Title 21, Food and Drugs. Schedules I and II are set
out in section 812 of Title 21. For complete classification of this
Act to the Code, see Short Title note set out under section 801 of
Title 21 and Tables.
-MISC1-
EFFECTIVE DATE
Section 351(c) of Pub. L. 97-248 provided that: "The amendments
made by this section [enacting this section] shall apply to amounts
paid or incurred after the date of the enactment of this Act [Sept.
3, 1982] in taxable years ending after such date."
-End-
-CITE-
26 USC Sec. 280F 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 280F. Limitation on depreciation for luxury automobiles;
limitation where certain property used for personal purposes
-STATUTE-
(a) Limitation on amount of depreciation for luxury automobiles
(1) Depreciation
(A) Limitation
The amount of the depreciation deduction for any taxable year
for any passenger automobile shall not exceed -
(i) $2,560 for the 1st taxable year in the recovery period,
(ii) $4,100 for the 2nd taxable year in the recovery
period,
(iii) $2,450 for the 3rd taxable year in the recovery
period, and
(iv) $1,475 for each succeeding taxable year in the
recovery period.
(B) Disallowed deductions allowed for years after recovery
period
(i) In general
Except as provided in clause (ii), the unrecovered basis of
any passenger automobile shall be treated as an expense for
the 1st taxable year after the recovery period. Any excess of
the unrecovered basis over the limitation of clause (ii)
shall be treated as an expense in the succeeding taxable
year.
(ii) $1,475 limitation
The amount treated as an expense under clause (i) for any
taxable year shall not exceed $1,475.
(iii) Property must be depreciable
No amount shall be allowable as a deduction by reason of
this subparagraph with respect to any property for any
taxable year unless a depreciation deduction would be
allowable with respect to such property for such taxable
year.
(iv) Amount treated as depreciation deduction
For purposes of this subtitle, any amount allowable as a
deduction by reason of this subparagraph shall be treated as
a depreciation deduction allowable under section 168.
(C) Special rule for certain clean-fuel passenger automobiles
(i) Modified automobiles
In the case of a passenger automobile which is propelled by
a fuel which is not a clean-burning fuel and to which is
installed qualified clean-fuel vehicle property (as defined
in section 179A(c)(1)(A)) for purposes of permitting such
vehicle to be propelled by a clean burning fuel (as defined
in section 179A(e)(1)), subparagraph (A) shall not apply to
the cost of the installed qualified clean burning vehicle
property.
(ii) Purpose built passenger vehicles
In the case of a purpose built passenger vehicle (as
defined in section 4001(a)(2)(C)(ii)), each of the annual
limitations specified in subparagraphs (A) and (B) shall be
tripled.
(iii) Application of subparagraph
This subparagraph shall apply to property placed in service
after August 5, 1997, and before January 1, 2007.
(2) Coordination with reductions in amount allowable by reason of
personal use, etc.
This subsection shall be applied before -
(A) the application of subsection (b), and
(B) the application of any other reduction in the amount of
any depreciation deduction allowable under section 168 by
reason of any use not qualifying the property for such credit
or depreciation deduction.
(b) Limitation where business use of listed property not greater
than 50 percent
(1) Depreciation
If any listed property is not predominantly used in a qualified
business use for any taxable year, the deduction allowed under
section 168 with respect to such property for such taxable year
and any subsequent taxable year shall be determined under section
168(g) (relating to alternative depreciation system).
(2) Recapture
(A) Where business use percentage does not exceed 50 percent
If -
(i) property is predominantly used in a qualified business
use in a taxable year in which it is placed in service, and
(ii) such property is not predominantly used in a qualified
business use for any subsequent taxable year,
then any excess depreciation shall be included in gross income
for the taxable year referred to in clause (ii), and the
depreciation deduction for the taxable year referred to in
clause (ii) and any subsequent taxable years shall be
determined under section 168(g) (relating to alternative
depreciation system).
(B) Excess depreciation
For purposes of subparagraph (A), the term "excess
depreciation" means the excess (if any) of -
(i) the amount of the depreciation deductions allowable
with respect to the property for taxable years before the 1st
taxable year in which the property was not predominantly used
in a qualified business use, over
(ii) the amount which would have been so allowable if the
property had not been predominantly used in a qualified
business use for the taxable year in which it was placed in
service.
(3) Property predominantly used in qualified business use
For purposes of this subsection, property shall be treated as
predominantly used in a qualified business use for any taxable
year if the business use percentage for such taxable year exceeds
50 percent.
(c) Treatment of leases
(1) Lessor's deductions not affected
This section shall not apply to any listed property leased or
held for leasing by any person regularly engaged in the business
of leasing such property.
(2) Lessee's deductions reduced
For purposes of determining the amount allowable as a deduction
under this chapter for rentals or other payments under a lease
for a period of 30 days or more of listed property, only the
allowable percentage of such payments shall be taken into
account.
(3) Allowable percentage
For purposes of paragraph (2), the allowable percentage shall
be determined under tables prescribed by the Secretary. Such
tables shall be prescribed so that the reduction in the deduction
under paragraph (2) is substantially equivalent to the applicable
restrictions contained in subsections (a) and (b).
(4) Lease term
In determining the term of any lease for purposes of paragraph
(2), the rules of section 168(i)(3)(A) shall apply.
(5) Lessee recapture
Under regulations prescribed by the Secretary, rules similar to
the rules of subsection (b)(3) shall apply to any lessee to which
paragraph (2) applies.
(d) Definitions and special rules
For purposes of this section -
(1) Coordination with section 179
Any deduction allowable under section 179 with respect to any
listed property shall be subject to the limitations of
subsections (a) and (b), and the limitation of paragraph (3) of
this subsection, in the same manner as if it were a depreciation
deduction allowable under section 168.
(2) Subsequent depreciation deductions reduced for deductions
allocable to personal use
Solely for purposes of determining the amount of the
depreciation deduction for subsequent taxable years, if less than
100 percent of the use of any listed property during any taxable
year is use in a trade or business (including the holding for the
production of income), all of the use of such property during
such taxable year shall be treated as use so described.
(3) Deductions of employee
(A) In general
Any employee use of listed property shall not be treated as
use in a trade or business for purposes of determining the
amount of any depreciation deduction allowable to the employee
(or the amount of any deduction allowable to the employee for
rentals or other payments under a lease of listed property)
unless such use is for the convenience of the employer and
required as a condition of employment.
(B) Employee use
For purposes of subparagraph (A), the term "employee use"
means any use in connection with the performance of services as
an employee.
(4) Listed property
(A) In general
Except as provided in subparagraph (B), the term "listed
property" means -
(i) any passenger automobile,
(ii) any other property used as a means of transportation,
(iii) any property of a type generally used for purposes of
entertainment, recreation, or amusement,
(iv) any computer or peripheral equipment (as defined in
section 168(i)(2)(B)),
(v) any cellular telephone (or other similar
telecommunications equipment), and
(vi) any other property of a type specified by the
Secretary by regulations.
(B) Exception for certain computers
The term "listed property" shall not include any computer or
peripheral equipment (as so defined) used exclusively at a
regular business establishment and owned or leased by the
person operating such establishment. For purposes of the
preceding sentence, any portion of a dwelling unit shall be
treated as a regular business establishment if (and only if)
the requirements of section 280A(c)(1) are met with respect to
such portion.
(C) Exception for property used in business of transporting
persons or property
Except to the extent provided in regulations, clause (ii) of
subparagraph (A) shall not apply to any property substantially
all of the use of which is in a trade or business of providing
to unrelated persons services consisting of the transportation
of persons or property for compensation or hire.
(5) Passenger automobile
(A) In general
Except as provided in subparagraph (B), the term "passenger
automobile" means any 4-wheeled vehicle -
(i) which is manufactured primarily for use on public
streets, roads, and highways, and
(ii) which is rated at 6,000 pounds unloaded gross vehicle
weight or less.
In the case of a truck or van, clause (ii) shall be applied by
substituting "gross vehicle weight" for "unloaded gross vehicle
weight".
(B) Exception for certain vehicles
The term "passenger automobile" shall not include -
(i) any ambulance, hearse, or combination ambulance-hearse
used by the taxpayer directly in a trade or business,
(ii) any vehicle used by the taxpayer directly in the trade
or business of transporting persons or property for
compensation or hire, and
(iii) under regulations, any truck or van.
(6) Business use percentage
(A) In general
The term "business use percentage" means the percentage of
the use of any listed property during any taxable year which is
a qualified business use.
(B) Qualified business use
Except as provided in subparagraph (C), the term "qualified
business use" means any use in a trade or business of the
taxpayer.
(C) Exception for certain use by 5-percent owners and related
persons
(i) In general
The term "qualified business use" shall not include -
(I) leasing property to any 5-percent owner or related
person,
(II) use of property provided as compensation for the
performance of services by a 5-percent owner or related
person, or
(III) use of property provided as compensation for the
performance of services by any person not described in
subclause (II) unless an amount is included in the gross
income of such person with respect to such use, and, where
required, there was withholding under chapter 24.
(ii) Special rule for aircraft
Clause (i) shall not apply with respect to any aircraft if
at least 25 percent of the total use of the aircraft during
the taxable year consists of qualified business use not
described in clause (i).
(D) Definitions
For purposes of this paragraph -
(i) 5-percent owner
The term "5-percent owner" means any person who is a 5-
percent owner with respect to the taxpayer (as defined in
section 416(i)(1)(B)(i)).
(ii) Related person
The term "related person" means any person related to the
taxpayer (within the meaning of section 267(b)).
(7) Automobile price inflation adjustment
(A) In general
In the case of any passenger automobile placed in service
after 1988, subsection (a) shall be applied by increasing each
dollar amount contained in such subsection by the automobile
price inflation adjustment for the calendar year in which such
automobile is placed in service. Any increase under the
preceding sentence shall be rounded to the nearest multiple of
$100 (or if the increase is a multiple of $50, such increase
shall be increased to the next higher multiple of $100).
(B) Automobile price inflation adjustment
For purposes of this paragraph -
(i) In general
The automobile price inflation adjustment for any calendar
year is the percentage (if any) by which -
(I) the CPI automobile component for October of the
preceding calendar year, exceeds
(II) the CPI automobile component for October of 1987.
(ii) CPI automobile component
The term "CPI automobile component" means the automobile
component of the Consumer Price Index for All Urban Consumers
published by the Department of Labor.
(8) Unrecovered basis
For purposes of subsection (a)(2), the term "unrecovered basis"
means the adjusted basis of the passenger automobile determined
after the application of subsection (a) and as if all use during
the recovery period were use in a trade or business (including
the holding of property for the production of income).
(9) All taxpayers holding interests in passenger automobile
treated as 1 taxpayer
All taxpayers holding interests in any passenger automobile
shall be treated as 1 taxpayer for purposes of applying
subsection (a) to such automobile, and the limitations of
subsection (a) shall be allocated among such taxpayers in
proportion to their interests in such automobile.
(10) Special rule for property acquired in nonrecognition
transactions
For purposes of subsection (a)(2) any property acquired in a
nonrecognition transaction shall be treated as a single property
originally placed in service in the taxable year in which it was
placed in service after being so acquired.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations with respect to items properly included in,
or excluded from, the adjusted basis of any listed property.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 179(a), July 18, 1984,
98 Stat. 713; amended Pub. L. 99-44, Sec. 4, May 24, 1985, 99 Stat.
78; Pub. L. 99-514, title II, Sec. 201(d)(4), title XVIII, Sec.
1812(e)(1)(A), (C), (2)-(5), Oct. 22, 1986, 100 Stat. 2139, 2836,
2837; Pub. L. 100-647, title I, Secs. 1002(a)(10), (b)(2),
1018(u)(3), Nov. 10, 1988, 102 Stat. 3354, 3357, 3590; Pub. L. 101-
239, title VII, Sec. 7643(a), Dec. 19, 1989, 103 Stat. 2381; Pub.
L. 101-508, title XI, Sec. 11813(b)(13)(A)-(E), Nov. 5, 1990, 104
Stat. 1388-554, 1388-555; Pub. L. 104-188, title I, Sec.
1702(h)(5), Aug. 20, 1996, 110 Stat. 1874; Pub. L. 105-34, title
IX, Sec. 971(a), Aug. 5, 1997, 111 Stat. 897; Pub. L. 105-206,
title VI, Sec. 6009(c), July 22, 1998, 112 Stat. 812; Pub. L. 107-
147, title VI, Sec. 602(b)(1), Mar. 9, 2002, 116 Stat. 59.)
-MISC1-
AMENDMENTS
2002 - Subsec. (a)(1)(C)(iii). Pub. L. 107-147 added cl. (iii).
1998 - Subsec. (a)(1)(C)(ii). Pub. L. 105-206 substituted
"subparagraphs (A) and (B)" for "subparagraph (A)".
1997 - Subsec. (a)(1)(C). Pub. L. 105-34 added subpar. (C).
1996 - Subsec. (a). Pub. L. 104-188 struck out "investment tax
credit and" after "amount of" in heading.
1990 - Pub. L. 101-508, Sec. 11813(b)(13)(E), struck out
"investment tax credit and" after "Limitation on" in section
catchline.
Subsec. (a)(1). Pub. L. 101-508, Sec. 11813(b)(13)(A)(i),
redesignated par. (2) as (1) and struck out former par. (1)
"Investment tax credit" which read as follows: "The amount of the
credit determined under section 46(a) for any passenger automobile
shall not exceed $675."
Subsec. (a)(2). Pub. L. 101-508, Sec. 11813(b)(13)(A)(i),
redesignated par. (3) as (2). Former par. (2) redesignated (1).
Subsec. (a)(2)(B). Pub. L. 101-508, Sec. 11813(b)(13)(A)(ii),
struck out "the credit determined under section 46(a) or" after
"the amount of".
Subsec. (a)(3). Pub. L. 101-508, Sec. 11813(b)(13)(A)(i),
redesignated par. (3) as (2).
Subsec. (a)(4). Pub. L. 101-508, Sec. 11813(b)(13)(A)(i), struck
out par. (4) "Special rule where election of reduced credit in lieu
of the basis adjustment" which read as follows: "In the case of any
election under section 48(q)(4) with respect to any passenger
automobile, the limitation of paragraph (1) applicable to such
passenger automobile shall be 2/3 of the amount which would be so
applicable but for this paragraph."
Subsec. (b). Pub. L. 101-508, Sec. 11813(b)(13)(B), redesignated
pars. (2) to (4) as (1) to (3), respectively, and struck out former
par. (1) "Investment tax credit" which read as follows: "For
purposes of this subtitle, any listed property shall not be treated
as section 38 property for any taxable year unless such property is
predominantly used in a qualified business use for such taxable
year."
Subsec. (c)(1). Pub. L. 101-508, Sec. 11813(b)(13)(C), struck out
"credits and" after "Lessor's" in heading.
Subsec. (d)(3)(A). Pub. L. 101-508, Sec. 11813(b)(13)(D), struck
out "the amount of any credit allowable under section 38 to the
employee or" after "of determining".
1989 - Subsec. (d)(4)(A)(v), (vi). Pub. L. 101-239 added cl. (v)
and redesignated former cl. (v) as (vi).
1988 - Subsec. (b)(3)(B)(i). Pub. L. 100-647, Sec. 1018(u)(3),
substituted "depreciation deductions" for "recovery deductions".
Subsec. (d)(1). Pub. L. 100-647, Sec. 1002(b)(2), substituted
"subsections (a) and (b), and the limitation of paragraph (3) of
this subsection," for "subsections (a) and (b)".
Subsec. (d)(3)(A). Pub. L. 100-647, Sec. 1002(a)(10), substituted
"depreciation deduction" for "recovery deduction".
1986 - Subsec. (a)(2)(A). Pub. L. 99-514, Sec. 201(d)(4)(A)(i),
(K), substituted "depreciation deduction" for "recovery deduction"
in introductory provisions and substituted cls. (i) to (iv) for
former cls. (i) and (ii) which read as follows:
"(i) $3,200 for the first taxable year in the recovery period,
and
"(ii) $4,800 for each succeeding taxable year in the recovery
period."
Subsec. (a)(2)(B). Pub. L. 99-514, Sec. 201(d)(4)(A)(ii), (K),
substituted "$1,475" for "$4,800" in heading and text of cl. (ii),
and "depreciation deduction" for "recovery deduction" in heading
and text of cl. (iv).
Subsec. (a)(3)(B). Pub. L. 99-514, Sec. 201(d)(4)(K), substituted
"depreciation deduction" for "recovery deduction" in two places.
Subsec. (b)(2). Pub. L. 99-514, Sec. 201(d)(4)(J), substituted
"section 168(g) (relating to alternative depreciation system)" for
"the straight line method over the earnings and profits life for
such property".
Subsec. (b)(3)(A). Pub. L. 99-514, Sec. 201(d)(4)(B), (K),
substituted "depreciation deduction" for "recovery deduction" and
"section 168(g) (relating to alternative depreciation system)" for
"the straight line method over the earnings and profits life" in
closing provisions.
Subsec. (b)(4). Pub. L. 99-514, Sec. 201(d)(4)(C), in amending
par. (4) generally, struck out heading "Definitions", redesignated
as par. (4) former subpar. (A) heading and text, substituted "For
purposes of this section, property" for "Property", and struck out
former subpar. (B) definition of straight line method over earnings
and profits life.
Subsec. (c)(4). Pub. L. 99-514, Sec. 201(d)(4)(D), substituted
"section 168(i)(3)(A)" for "section 168(j)(6)(B)".
Subsec. (d)(1). Pub. L. 99-514, Sec. 201(d)(4)(E), substituted
"depreciation deduction" for "recovery deduction".
Subsec. (d)(2). Pub. L. 99-514, Sec. 1812(e)(5), substituted "is
use described in" for "is not use described in".
Pub. L. 99-514, Sec. 201(d)(4)(F), substituted "depreciation
deduction" for "recovery deduction" and "use in a trade or business
(including the holding for the production of income)" for "use
described in section 168(c)(1) (defining recovery property)".
Subsec. (d)(3)(A). Pub. L. 99-514, Sec. 1812(e)(2), inserted "(or
the amount of any deduction allowable to the employee for rentals
or other payments under a lease of listed property)".
Subsec. (d)(4)(A)(iv). Pub. L. 99-514, Sec. 201(d)(4)(G),
substituted "section 168(i)(2)(B)" for "section 168(j)(5)(D)".
Subsec. (d)(4)(B). Pub. L. 99-514, Sec. 1812(e)(3), inserted "and
owned or leased by the person operating such establishment".
Subsec. (d)(4)(C). Pub. L. 99-514, Sec. 1812(e)(4), added subpar.
(C).
Subsec. (d)(5)(A). Pub. L. 99-514, Sec. 1812(e)(1)(A), (C),
substituted "unloaded gross vehicle weight" for "gross vehicle
weight" in cl. (ii) and inserted at end "In the case of a truck or
van, clause (ii) shall be applied by substituting 'gross vehicle
weight' for 'unloaded gross vehicle weight'."
Subsec. (d)(8). Pub. L. 99-514, Sec. 201(d)(4)(H), amended par.
(8) generally. Prior to amendment, par. (8) read as follows: "For
purposes of subsection (a)(2), the term "unrecovered basis" means
the excess (if any) of -
"(A) the unadjusted basis (as defined in section 168(d)(1)(A))
of the passenger automobile, over
"(B) the amount of the recovery deductions which would have
been allowable for taxable years in the recovery period
determined after the application of subsection (a) and as if all
use during the recovery period were use described in section
168(c)(1)."
Subsec. (d)(10). Pub. L. 99-514, Sec. 201(d)(4)(I), struck out ",
notwithstanding any regulations prescribed under section
168(f)(7)," after "For purposes of subsection (a)(2)".
1985 - Subsec. (a)(1). Pub. L. 99-44, Sec. 4(a)(1), substituted
"$675" for "$1,000".
Subsec. (a)(2)(A)(i). Pub. L. 99-44, Sec. 4(a)(2)(A), substituted
"$3,200" for "$4,000".
Subsec. (a)(2)(A)(ii), (B)(ii). Pub. L. 99-44, Sec. 4(a)(2)(B),
substituted "$4,800" for "$6,000" wherever appearing in text and
heading.
Subsec. (d)(7)(A). Pub. L. 99-44, Sec. 4(b)(1), inserted "placed
in service after 1988" after "passenger automobile".
Subsec. (d)(7)(B)(i). Pub. L. 99-44, Sec. 4(b)(3), struck out
last sentence which directed that in the case of calendar year
1984, the automobile price inflation adjustment would be zero.
Subsec. (d)(7)(B)(i)(II). Pub. L. 99-44, Sec. 4(b)(2),
substituted "1987" for "1983".
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 applicable to property placed in
service after Dec. 31, 2001, see section 602(c) of Pub. L. 107-147,
set out as a note under section 30 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Pub. L. 105-34, title IX, Sec. 971(b), Aug. 5, 1997, 111 Stat.
897, as amended by Pub. L. 107-147, title VI, Sec. 602(b)(2), Mar.
9, 2002, 116 Stat. 59, provided that: "The amendments made by this
section [amending this section] shall apply to property placed in
service after the date of enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Dec. 31, 1990, but not applicable to any transition
property (as defined in section 49(e) of this title), any property
with respect to which qualified progress expenditures were
previously taken into account under section 46(d) of this title,
and any property described in section 46(b)(2)(C) of this title, as
such sections were in effect on Nov. 4, 1990, see section 11813(c)
of Pub. L. 101-508, set out as a note under section 45K of this
title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7643(b) of Pub. L. 101-239 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
property placed in service or leased in taxable years beginning
after December 31, 1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(4) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(4) of Pub. L. 99-514 not applicable
to any property placed in service before Jan. 1, 1994, if such
property placed in service as part of specified rehabilitations,
and not applicable to certain additional rehabilitations, see
section 251(d)(2), (3) of Pub. L. 99-514, set out as a note under
section 46 of this title.
Amendment by section 1812(e)(1)(A), (C), (2)-(5) of Pub. L. 99-
514 effective, except as otherwise provided, as if included in the
provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,
to which such amendment relates, see section 1881 of Pub. L. 99-
514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1985 AMENDMENT
Section 6(e) of Pub. L. 99-44 provided that:
"(1) Except as provided in paragraph (2), the amendments made by
section 4 [amending this section] shall apply to -
"(A) property placed in service after April 2, 1985, in taxable
years ending after such date, and
"(B) property leased after April 2, 1985, in taxable years
ending after such date.
"(2) The amendments made by section 4 [amending this section]
shall not apply to any property -
"(A) acquired by the taxpayer pursuant to a binding contract in
effect on April 1, 1985, and at all times thereafter, but only if
the property is placed in service before August 1, 1985, or
"(B) of which the taxpayer is the lessee, but only if the lease
is pursuant to a binding contract in effect on April 1, 1985, and
at all times thereafter, and only if the taxpayer first uses such
property under the lease before August 1, 1985."
EFFECTIVE DATE
Section 179(d) of Pub. L. 98-369 provided that:
"(1) In general. -
"(A) Except as provided in subparagraph (B), the amendments
made by subsections (a) and (c) [enacting this section] shall
apply to -
"(i) property placed in service after June 18, 1984, in
taxable years ending after such date, and
"(ii) property leased after June 18, 1984, in taxable years
ending after such date.
"(B) The amendments made by subsections (a) and (c) shall not
apply to any property -
"(i) acquired by the taxpayer pursuant to a binding contract
in effect on June 18, 1984, and at all times thereafter (or
under construction on such date) but only if the property is
placed in service before January 1, 1985 (January 1, 1987, in
the case of 15-year real property), or
"(ii) of which the taxpayer is the lessee but only if the
lease is pursuant to a binding contract in effect on June 18,
1984, and at all times thereafter and only if the taxpayer
first uses such property under the lease before January 1, 1985
(January 1, 1987, in the case of 15-year real property).
For purposes of the preceding sentence, the term '15-year real
property' includes 18-year real property.
"(2) Compliance provisions. - The amendments made by subsection
(b) [amending sections 274, 6653, and 6695 of this title] shall
apply to taxable years beginning after December 31, 1984."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 280G 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 280G. Golden parachute payments
-STATUTE-
(a) General rule
No deduction shall be allowed under this chapter for any excess
parachute payment.
(b) Excess parachute payment
For purposes of this section -
(1) In general
The term "excess parachute payment" means an amount equal to
the excess of any parachute payment over the portion of the base
amount allocated to such payment.
(2) Parachute payment defined
(A) In general
The term "parachute payment" means any payment in the nature
of compensation to (or for the benefit of) a disqualified
individual if -
(i) such payment is contingent on a change -
(I) in the ownership or effective control of the
corporation, or
(II) in the ownership of a substantial portion of the
assets of the corporation, and
(ii) the aggregate present value of the payments in the
nature of compensation to (or for the benefit of) such
individual which are contingent on such change equals or
exceeds an amount equal to 3 times the base amount.
For purposes of clause (ii), payments not treated as parachute
payments under paragraph (4)(A), (5), or (6) shall not be taken
into account.
(B) Agreements
The term "parachute payment" shall also include any payment
in the nature of compensation to (or for the benefit of) a
disqualified individual if such payment is made pursuant to an
agreement which violates any generally enforced securities laws
or regulations. In any proceeding involving the issue of
whether any payment made to a disqualified individual is a
parachute payment on account of a violation of any generally
enforced securities laws or regulations, the burden of proof
with respect to establishing the occurrence of a violation of
such a law or regulation shall be upon the Secretary.
(C) Treatment of certain agreements entered into within 1 year
before change of ownership
For purposes of subparagraph (A)(i), any payment pursuant to -
(i) an agreement entered into within 1 year before the
change described in subparagraph (A)(i), or
(ii) an amendment made within such 1-year period of a
previous agreement,
shall be presumed to be contingent on such change unless the
contrary is established by clear and convincing evidence.
(3) Base amount
(A) In general
The term "base amount" means the individual's annualized
includible compensation for the base period.
(B) Allocation
The portion of the base amount allocated to any parachute
payment shall be an amount which bears the same ratio to the
base amount as -
(i) the present value of such payment, bears to
(ii) the aggregate present value of all such payments.
(4) Treatment of amounts which taxpayer establishes as reasonable
compensation
In the case of any payment described in paragraph (2)(A) -
(A) the amount treated as a parachute payment shall not
include the portion of such payment which the taxpayer
establishes by clear and convincing evidence is reasonable
compensation for personal services to be rendered on or after
the date of the change described in paragraph (2)(A)(i), and
(B) the amount treated as an excess parachute payment shall
be reduced by the portion of such payment which the taxpayer
establishes by clear and convincing evidence is reasonable
compensation for personal services actually rendered before the
date of the change described in paragraph (2)(A)(i).
For purposes of subparagraph (B), reasonable compensation for
services actually rendered before the date of the change
described in paragraph (2)(A)(i) shall be first offset against
the base amount.
(5) Exemption for small business corporations, etc.
(A) In general
Notwithstanding paragraph (2), the term "parachute payment"
does not include -
(i) any payment to a disqualified individual with respect
to a corporation which (immediately before the change
described in paragraph (2)(A)(i)) was a small business
corporation (as defined in section 1361(b) but without regard
to paragraph (1)(C) thereof), and
(ii) any payment to a disqualified individual with respect
to a corporation (other than a corporation described in
clause (i)) if -
(I) immediately before the change described in paragraph
(2)(A)(i), no stock in such corporation was readily
tradeable on an established securities market or otherwise,
and
(II) the shareholder approval requirements of
subparagraph (B) are met with respect to such payment.
The Secretary may, by regulations, prescribe that the
requirements of subclause (I) of clause (ii) are not met where
a substantial portion of the assets of any entity consists
(directly or indirectly) of stock in such corporation and
interests in such other entity are readily tradeable on an
established securities market, or otherwise. Stock described in
section 1504(a)(4) shall not be taken into account under clause
(ii)(I) if the payment does not adversely affect the
shareholder's redemption and liquidation rights.
(B) Shareholder approval requirements
The shareholder approval requirements of this subparagraph
are met with respect to any payment if -
(i) such payment was approved by a vote of the persons who
owned, immediately before the change described in paragraph
(2)(A)(i), more than 75 percent of the voting power of all
outstanding stock of the corporation, and
(ii) there was adequate disclosure to shareholders of all
material facts concerning all payments which (but for this
paragraph) would be parachute payments with respect to a
disqualified individual.
The regulations prescribed under subsection (e) shall include
regulations providing for the application of this subparagraph
in the case of shareholders which are not individuals
(including the treatment of nonvoting interests in an entity
which is a shareholder) and where an entity holds a de minimis
amount of stock in the corporation.
(6) Exemption for payments under qualified plans
Notwithstanding paragraph (2), the term "parachute payment"
shall not include any payment to or from -
(A) a plan described in section 401(a) which includes a trust
exempt from tax under section 501(a),
(B) an annuity plan described in section 403(a),
(C) a simplified employee pension (as defined in section
408(k)), or
(D) a simple retirement account described in section 408(p).
(c) Disqualified individuals
For purposes of this section, the term "disqualified individual"
means any individual who is -
(1) an employee, independent contractor, or other person
specified in regulations by the Secretary who performs personal
services for any corporation, and
(2) is an officer, shareholder, or highly-compensated
individual.
For purposes of this section, a personal service corporation (or
similar entity) shall be treated as an individual. For purposes of
paragraph (2), the term "highly-compensated individual" only
includes an individual who is (or would be if the individual were
an employee) a member of the group consisting of the highest paid 1
percent of the employees of the corporation or, if less, the
highest paid 250 employees of the corporation.
(d) Other definitions and special rules
For purposes of this section -
(1) Annualized includible compensation for base period
The term "annualized includible compensation for the base
period" means the average annual compensation which -
(A) was payable by the corporation with respect to which the
change in ownership or control described in paragraph (2)(A) of
subsection (b) occurs, and
(B) was includible in the gross income of the disqualified
individual for taxable years in the base period.
(2) Base period
The term "base period" means the period consisting of the most
recent 5 taxable years ending before the date on which the change
in ownership or control described in paragraph (2)(A) of
subsection (b) occurs (or such portion of such period during
which the disqualified individual performed personal services for
the corporation).
(3) Property transfers
Any transfer of property -
(A) shall be treated as a payment, and
(B) shall be taken into account as its fair market value.
(4) Present value
Present value shall be determined by using a discount rate
equal to 120 percent of the applicable Federal rate (determined
under section 1274(d)), compounded semiannually.
(5) Treatment of affiliated groups
Except as otherwise provided in regulations, all members of the
same affiliated group (as defined in section 1504, determined
without regard to section 1504(b)) shall be treated as 1
corporation for purposes of this section. Any person who is an
officer of any member of such group shall be treated as an
officer of such 1 corporation.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section
(including regulations for the application of this section in the
case of related corporations and in the case of personal service
corporations).
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 67(a), July 18, 1984,
98 Stat. 585; amended Pub. L. 99-121, title I, Sec. 102(c)(4), Oct.
11, 1985, 99 Stat. 508; Pub. L. 99-514, title XVIII, Sec. 1804(j),
Oct. 22, 1986, 100 Stat. 2807; Pub. L. 100-647, title I, Sec.
1018(d)(6)-(8), Nov. 10, 1988, 102 Stat. 3581; Pub. L. 104-188,
title I, Sec. 1421(b)(9)(A), Aug. 20, 1996, 110 Stat. 1798.)
-MISC1-
AMENDMENTS
1996 - Subsec. (b)(6)(D). Pub. L. 104-188 added subpar. (D).
1988 - Subsec. (b)(5)(A). Pub. L. 100-647, Sec. 1018(d)(6),
substituted "section 1361(b) but without regard to paragraph (1)(C)
thereof)" for "section 1361(b))" in cl. (i) and inserted at end
"Stock described in section 1504(a)(4) shall not be taken into
account under clause (ii)(I) if the payment does not adversely
affect the shareholder's redemption and liquidation rights."
Subsec. (b)(5)(B). Pub. L. 100-647, Sec. 1018(d)(7), inserted at
end "The regulations prescribed under subsection (e) shall include
regulations providing for the application of this subparagraph in
the case of shareholders which are not individuals (including the
treatment of nonvoting interests in an entity which is a
shareholder) and where an entity holds a de minimis amount of stock
in the corporation."
Subsec. (d)(5). Pub. L. 100-647, Sec. 1018(d)(8), substituted
"officer of any member" for "officer or any member".
1986 - Subsec. (b)(2)(A). Pub. L. 99-514, Sec. 1804(j)(6),
inserted "For purposes of clause (ii), payments not treated as
parachute payments under paragraph (4)(A), (5), or (6) shall not be
taken into account."
Subsec. (b)(2)(B). Pub. L. 99-514, Sec. 1804(j)(7), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "The term 'parachute payment' shall also include any
payment in the nature of compensation to (or for the benefit of) a
disqualified individual if such payment is pursuant to an agreement
which violates any securities laws or regulations."
Subsec. (b)(4). Pub. L. 99-514, Sec. 1804(j)(2), substituted
"Treatment of amounts which taxpayer establishes as reasonable
compensation" for "Excess parachute payments reduced to extent
taxpayer establishes reasonable compensation" in heading and
amended text generally. Prior to amendment, text read as follows:
"In the case of any parachute payment described in paragraph
(2)(A), the amount of any excess parachute payment shall be reduced
by the portion of such payment which the taxpayer establishes by
clear and convincing evidence is reasonable compensation for
personal services actually rendered. For purposes of the preceding
sentence, reasonable compensation shall be first offset against the
base amount."
Subsec. (b)(5). Pub. L. 99-514, Sec. 1804(j)(1), added par. (5).
Subsec. (b)(6). Pub. L. 99-514, Sec. 1804(j)(3), added par. (6).
Subsec. (c). Pub. L. 99-514, Sec. 1804(j)(5), inserted provision
defining "highly-compensated individual".
Subsec. (d)(2). Pub. L. 99-514, Sec. 1804(j)(8), substituted
"performed personal services for the corporation" for "was an
employee of the corporation".
Subsec. (d)(5). Pub. L. 99-514, Sec. 1804(j)(4), added par. (5).
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1996, see section 1421(e) of Pub. L. 104-
188, set out as a note under section 72 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1985 AMENDMENT
Amendment by Pub. L. 99-121 applicable to sales and exchanges
after June 30, 1985, in taxable years ending after such date, see
section 105(a)(1) of Pub. L. 99-121, set out as a note under
section 1274 of this title.
EFFECTIVE DATE
Section 67(e) of Pub. L. 98-369 provided that:
"(1) In general. - The amendments made by this section [enacting
this section and section 4999 of this title and amending sections
275 and 3121 of this title] shall apply to payments under
agreements entered into or renewed after June 14, 1984, in taxable
years ending after such date.
"(2) Special rule for contract amendments. - Any contract entered
into before June 15, 1984, which is amended after June 14, 1984, in
any significant relevant aspect shall be treated as a contract
entered into after June 14, 1984."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 280H 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART IX - ITEMS NOT DEDUCTIBLE
-HEAD-
Sec. 280H. Limitation on certain amounts paid to employee-owners by
personal service corporations electing alternative taxable years
-STATUTE-
(a) General rule
If -
(1) an election by a personal service corporation under section
444 is in effect for a taxable year, and
(2) such corporation does not meet the minimum distribution
requirements of subsection (c) for such taxable year,
then the deduction otherwise allowed under this chapter for
applicable amounts paid or incurred by such corporation to employee-
owners shall not exceed the maximum deductible amount. The
preceding sentence shall not apply for purposes of subchapter G
(relating to personal holding companies).
(b) Carryover of nondeductible amounts
If any amount is not allowed as a deduction for a taxable year
under subsection (a), such amount shall be treated as paid or
incurred in the succeeding taxable year.
(c) Minimum distribution requirement
For purposes of this section -
(1) In general
A personal service corporation meets the minimum distribution
requirements of this subsection if the applicable amounts paid or
incurred during the deferral period of the taxable year
(determined without regard to subsection (b)) equal or exceed the
lesser of -
(A) the product of -
(i) the applicable amounts paid during the preceding
taxable year, divided by the number of months in such taxable
year, multiplied by
(ii) the number of months in the deferral period of the
preceding taxable year, or
(B) the applicable percentage of the adjusted taxable income
for the deferral period of the taxable year.
(2) Applicable percentage
The term "applicable percentage" means the percentage (not in
excess of 95 percent) determined by dividing -
(A) the applicable amounts paid or incurred during the 3
taxable years immediately preceding the taxable year, by
(B) the adjusted taxable income of such corporation for such
3 taxable years.
(d) Maximum deductible amount
For purposes of this section, the term "maximum deductible
amount" means the sum of -
(1) the applicable amounts paid during the deferral period,
plus
(2) an amount equal to the product of -
(A) the amount determined under paragraph (1), divided by the
number of months in the deferral period, multiplied by
(B) the number of months in the nondeferral period.
(e) Disallowance of net operating loss carrybacks
No net operating loss carryback shall be allowed to (or from) any
taxable year of a personal service corporation to which an election
under section 444 applies.
(f) Other definitions and special rules
For purposes of this section -
(1) Applicable amount
The term "applicable amount" means any amount paid to an
employee-owner which is includible in the gross income of such
employee, other than -
(A) any gain from the sale or exchange of property between
the owner-employee and the corporation, or
(B) any dividend paid by the corporation.
(2) Employee-owner
The term "employee-owner" has the meaning given such term by
section 269A(b)(2) (as modified by section 441(i)(2)).
(3) Nondeferral and deferral periods
(A) Deferral period
The term "deferral period" has the meaning given to such term
by section 444(b)(4).
(B) Nondeferral period
The term "nondeferral period" means the portion of the
taxable year of the personal service corporation which occurs
after the portion of such year constituting the deferral
period.
(4) Adjusted taxable income
The term "adjusted taxable income" means taxable income
determined without regard to -
(A) any amount paid to an employee-owner which is includible
in the gross income of such employee-owner, and
(B) any net operating loss carryover to the extent such
carryover is attributable to amounts described in subparagraph
(A).
(5) Personal service corporation
The term "personal service corporation" has the meaning given
to such term by section 441(i)(2).
-SOURCE-
(Added Pub. L. 100-203, title X, Sec. 10206(c)(1), Dec. 22, 1987,
101 Stat. 1330-401; amended Pub. L. 100-647, title II, Sec.
2004(e)(2)(B), (3), (14)(A), (C), Nov. 10, 1988, 102 Stat. 3600,
3602.)
-MISC1-
AMENDMENTS
1988 - Subsecs. (c)(1)(A)(i), (d)(1). Pub. L. 100-647, Sec.
2004(e)(14)(C), substituted "amounts paid" for "amounts paid or
incurred".
Subsec. (f)(2). Pub. L. 100-647, Sec. 2004(e)(3), substituted
"section 269A(b)(2) (as modified by section 441(i)(2))" for
"section 296A(b)(2)".
Subsec. (f)(4). Pub. L. 100-647, Sec. 2004(e)(14)(A), amended
par. (4) generally. Prior to amendment, par. (4) read as follows:
"The term 'adjusted taxable income' means taxable income increased
by any amount paid or incurred to an employee-owner which was
includible in the gross income of such employee-owner."
Subsec. (f)(5). Pub. L. 100-647, Sec. 2004(e)(2)(B), added par.
(5).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, see section 10206(d)(1) of Pub. L. 100-203, set out as a note
under section 444 of this title.
-End-
-CITE-
26 USC PART X - TERMINAL RAILROAD CORPORATIONS AND THEIR
SHAREHOLDERS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART X - TERMINAL RAILROAD CORPORATIONS AND THEIR SHAREHOLDERS
-HEAD-
PART X - TERMINAL RAILROAD CORPORATIONS AND THEIR SHAREHOLDERS
-MISC1-
Sec.
281. Terminal railroad corporations and their shareholders.
AMENDMENTS
1962 - Pub. L. 87-870, Sec. 1(a), Oct. 23, 1962, 76 Stat. 1158,
added part X and item 281.
-End-
-CITE-
26 USC Sec. 281 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART X - TERMINAL RAILROAD CORPORATIONS AND THEIR SHAREHOLDERS
-HEAD-
Sec. 281. Terminal railroad corporations and their shareholders
-STATUTE-
(a) Computation of taxable income of terminal railroad corporations
(1) In general
In computing the taxable income of a terminal railroad
corporation -
(A) such corporation shall not be considered to have received
or accrued -
(i) the portion of any liability of any railroad
corporation, with respect to related terminal services
provided by such corporation, which is discharged by
crediting such liability with an amount of related terminal
income, or
(ii) the portion of any charge which would be made by such
corporation for related terminal services provided by it, but
which is not made as a result of taking related terminal
income into account in computing such charge; and
(B) no deduction otherwise allowable under this chapter shall
be disallowed as a result of any discharge of liability
described in subparagraph (A)(i) or as a result of any
computation of charges in the manner described in subparagraph
(A)(ii).
(2) Limitation
In the case of any taxable year ending after the date of the
enactment of this section, paragraph (1) shall not apply to the
extent that it would (but for this paragraph) operate to create
(or increase) a net operating loss for the terminal railroad
corporation for the taxable year.
(b) Computation of taxable income of shareholders
Subject to the limitation in subsection (a)(2), in computing the
taxable income of any shareholder of a terminal railroad
corporation, no amount shall be considered to have been received or
accrued or paid or incurred by such shareholder as a result of any
discharge of liability described in subsection (a)(1)(A)(i) or as a
result of any computation of charges in the manner described in
subsection (a)(1)(A)(ii).
(c) Agreement required
In the case of any taxable year, subsections (a) and (b) shall
apply with respect to any discharge of liability described in
subsection (a)(1)(A)(i), and to any computation of charges in the
manner described in subsection (a)(1)(A)(ii), only if such
discharge or computation (as in the case may be) was provided for
in a written agreement, to which all of the shareholders of the
terminal railroad corporation were parties, entered into before the
beginning of such taxable year.
(d) Definitions
For purposes of this section -
(1) Terminal railroad corporation
The term "terminal railroad corporation" means a domestic
railroad corporation which is not a member, other than as a
common parent corporation, of an affiliated group (as defined in
section 1504) and -
(A) all of the shareholders of which are rail carriers
subject to part A of subtitle IV of title 49;
(B) the primary business of which is the providing of
railroad terminal and switching facilities and services to rail
carriers subject to part A of subtitle IV of title 49 and to
the shippers and passengers of such railroad corporations;
(C) a substantial part of the services of which for the
taxable year is rendered to one or more of its shareholders;
and
(D) each shareholder of which computes its taxable income on
the basis of a taxable year beginning or ending on the same day
that the taxable year of the terminal railroad corporation
begins or ends.
(2) Related terminal income
The term "related terminal income" means the income (determined
in accordance with regulations prescribed by the Secretary) of a
terminal railroad corporation derived -
(A) from services or facilities of a character ordinarily and
regularly provided by terminal railroad corporations for
railroad corporations or for the employees, passengers, or
shippers of railroad corporations;
(B) from the use by persons other than railroad corporations
of portions of a facility, or a service which is used primarily
for railroad purposes;
(C) from any railroad corporation for services or facilities
provided by such terminal railroad corporation in connection
with railroad operations; and
(D) from the United States in payment for facilities or
services in connection with mail handling.
For purposes of subparagraph (B), a substantial addition,
constructed after the date of the enactment of this section, to a
facility shall be treated as a separate facility.
(3) Related terminal services
The term "related terminal services" includes only services,
and the use of facilities, taken into account in computing
related terminal income.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 87-870, Sec. 1(a), Oct. 23, 1962, 76 Stat. 1158;
amended Pub. L. 94-455, title XIX, Secs. 1901(a)(40),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1771, 1834; Pub. L. 95-473,
Sec. 2(a)(2)(D), (E), Oct. 17, 1978, 92 Stat. 1464; Pub. L. 104-88,
title III, Sec. 304(b), Dec. 29, 1995, 109 Stat. 943.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section, referred to in
subsecs. (a)(2), (d)(2), refers to the date of enactment of Pub. L.
87-870, which was approved Oct. 23, 1962.
-MISC1-
AMENDMENTS
1995 - Subsec. (d)(1)(A), (B). Pub. L. 104-88 substituted "rail
carriers subject to part A of subtitle IV" for "domestic railroad
corporations providing transportation subject to subchapter I of
chapter 105".
1978 - Subsec. (d)(1)(A). Pub. L. 95-473, Sec. 2(a)(2)(D),
substituted "providing transportation subject to subchapter I of
chapter 105 of title 49" for "subject to part I of the Interstate
Commerce Act (49 U.S.C. 1 and following)".
Subsec. (d)(1)(B). Pub. L. 95-473, Sec. 2(a)(2)(E), substituted
"providing transportation subject to subchapter I of chapter 105 of
title 49" for "subject to part I of the Interstate Commerce Act".
1976 - Subsec. (d)(1)(A). Pub. L. 94-455, Sec. 1901(a) (40)(A),
inserted "(49 U.S.C. 1 and following)" after "Interstate Commerce
Act".
Subsecs. (e), (f). Pub. L. 94-455, Secs. 1901(a)(40)(B),
1906(b)(13)(A), redesignated subsec. (f) as (e) and struck out "or
his delegate" after "Secretary". Former subsec. (e), which made
special provision for the application of this section to taxable
years ending before Oct. 23, 1962, was struck out.
EFFECTIVE DATE OF 1995 AMENDMENT
Amendment by Pub. L. 104-88 effective Jan. 1, 1996, see section 2
of Pub. L. 104-88, set out as an Effective Date note under section
701 of Title 49, Transportation.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(40) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE
Section 2(a) of Pub. L. 87-870 provided that: "The amendments
made by the first section of this Act [enacting this section] shall
apply with respect to taxable years beginning after December 31,
1953, and ending after August 16, 1954."
INTERNAL REVENUE CODE OF 1939; INCLUSION OF TERMINAL RAILROAD
CORPORATIONS AND THEIR SHAREHOLDERS PROVISION
Section 2(b) of Pub. L. 87-870, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Provisions
having the same effect as section 281 of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954] (as added by the first section of
this Act) shall be deemed to be included in the Internal Revenue
Code of 1939, effective with respect to all taxable years to which
such Code applies."
-End-
-CITE-
26 USC PART XI - SPECIAL RULES RELATING TO CORPORATE
PREFERENCE ITEMS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART XI - SPECIAL RULES RELATING TO CORPORATE PREFERENCE ITEMS
-HEAD-
PART XI - SPECIAL RULES RELATING TO CORPORATE PREFERENCE ITEMS
-MISC1-
Sec.
291. Special rules relating to corporate preference items.
AMENDMENTS
1982 - Pub. L. 97-248, title II, Sec. 204(a), Sept. 3, 1982, 96
Stat. 423, added part XI heading and analysis of sections
consisting of item 291.
-End-
-CITE-
26 USC Sec. 291 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART XI - SPECIAL RULES RELATING TO CORPORATE PREFERENCE ITEMS
-HEAD-
Sec. 291. Special rules relating to corporate preference items
-STATUTE-
(a) Reduction in certain preference items, etc.
For purposes of this subtitle, in the case of a corporation -
(1) Section 1250 capital gain treatment
In the case of section 1250 property which is disposed of
during the taxable year, 20 percent of the excess (if any) of -
(A) the amount which would be treated as ordinary income if
such property was section 1245 property, over
(B) the amount treated as ordinary income under section 1250
(determined without regard to this paragraph),
shall be treated as gain which is ordinary income under section
1250 and shall be recognized notwithstanding any other provision
of this title. Under regulations prescribed by the Secretary, the
provisions of this paragraph shall not apply to the disposition
of any property to the extent section 1250(a) does not apply to
such disposition by reason of section 1250(d).
(2) Reduction in percentage depletion
In the case of iron ore and coal (including lignite), the
amount allowable as a deduction under section 613 with respect to
any property (as defined in section 614) shall be reduced by 20
percent of the amount of the excess (if any) of -
(A) the amount of the deduction allowable under section 613
for the taxable year (determined without regard to this
paragraph), over
(B) the adjusted basis of the property at the close of the
taxable year (determined without regard to the depletion
deduction for the taxable year).
(3) Certain financial institution preference items
The amount allowable as a deduction under this chapter
(determined without regard to this section) with respect to any
financial institution preference item shall be reduced by 20
percent.
(4) Certain FSC income
In the case of taxable years beginning after December 31, 1984,
section 923(a) (!1) shall be applied with respect to any FSC by
substituting -
(A) "30 percent" for "32 percent" in paragraph (2), and
(B) " 15/23 " for " 16/23 " in paragraph (3).
If all of the stock in the FSC is not held by 1 or more C
corporations throughout the taxable year, under regulations,
proper adjustments shall be made in the application of the
preceding sentence to take into account stock held by persons
other than C corporations.
(5) Amortization of pollution control facilities
If an election is made under section 169 with respect to any
certified pollution control facility, the amortizable basis of
such facility for purposes of such section shall be reduced by 20
percent.
(b) Special rules for treatment of intangible drilling costs and
mineral exploration and development costs
For purposes of this subtitle, in the case of a corporation -
(1) In general
The amount allowable as a deduction for any taxable year
(determined without regard to this section) -
(A) under section 263(c) in the case of an integrated oil
company, or
(B) under section 616(a) or 617(a),
shall be reduced by 30 percent.
(2) Amortization of amounts not allowable as deductions under
paragraph (1)
The amount not allowable as a deduction under section 263(c),
616(a), or 617(a) (as the case may be) for any taxable year by
reason of paragraph (1) shall be allowable as a deduction ratably
over the 60-month period beginning with the month in which the
costs are paid or incurred.
(3) Dispositions
For purposes of section 1254, any deduction under paragraph (2)
shall be treated as a deduction allowable under section 263(c),
616(a), or 617(a) (whichever is appropriate).
(4) Integrated oil company defined
For purposes of this subsection, the term "integrated oil
company" means, with respect to any taxable year, any producer of
crude oil to whom subsection (c) of section 613A does not apply
by reason of paragraph (2) or (4) of section 613A(d).
(5) Coordination with cost depletion
The portion of the adjusted basis of any property which is
attributable to amounts to which paragraph (1) applied shall not
be taken into account for purposes of determining depletion under
section 611.
(c) Special rules relating to pollution control facilities
For purposes of this subtitle -
(1) Accelerated cost recovery deduction
Section 168 shall apply with respect to that portion of the
basis of any property not taken into account under section 169 by
reason of subsection (a)(5).
(2) 1250 Recapture
Subsection (a)(1) shall not apply to any section 1250 property
which is part of a certified pollution control facility (within
the meaning of section 169(d)(1)) with respect to which an
election under section 169 was made.
(d) Special rule for real estate investment trusts
In the case of a real estate investment trust (as defined in
section 856), the difference between the amounts described in
subparagraphs (A) and (B) of subsection (a)(1) shall be reduced to
the extent that a capital gain dividend (as defined in section
857(b)(3)(C), applied without regard to this section) is treated as
paid out of such difference. Any capital gain dividend treated as
having been paid out of such difference to a shareholder which is
an applicable corporation retains its character in the hands of the
shareholder as gain from the disposition of section 1250 property
for purposes of applying subsection (a)(1) to such shareholder.
(e) Definitions
For purposes of this section -
(1) Financial institution preference item
The term "financial institution preference item" includes the
following:
[(A) Repealed. Pub. L. 101-508, title XI, Sec. 11801(c)(12)(B),
Nov. 5, 1990, 104 Stat. 1388-527]
(B) Interest on debt to carry tax-exempt obligations acquired
after December 31, 1982, and before August 8, 1986
(i) In general
In the case of a financial institution which is a bank (as
defined in section 585(a)(2)), the amount of interest on
indebtedness incurred or continued to purchase or carry
obligations acquired after December 31, 1982, and before
August 8, 1986, the interest on which is exempt from taxes
for the taxable year, to the extent that a deduction would
(but for this paragraph or section 265(b)) be allowable with
respect to such interest for such taxable year.
(ii) Determination of interest allocable to indebtedness on
tax-exempt obligations
Unless the taxpayer (under regulations prescribed by the
Secretary) establishes otherwise, the amount determined under
clause (i) shall be an amount which bears the same ratio to
the aggregate amount allowable (determined without regard to
this section and section 265(b)) to the taxpayer as a
deduction for interest for the taxable year as -
(I) the taxpayer's average adjusted basis (within the
meaning of section 1016) of obligations described in clause
(i), bears to
(II) such average adjusted basis for all assets of the
taxpayer.
(iii) Interest
For purposes of this subparagraph, the term "interest"
includes amounts (whether or not designated as interest) paid
in respect of deposits, investment certificates, or
withdrawable or repurchasable shares.
(iv) Application of subparagraph to certain obligations
issued after August 7, 1986
For application of this subparagraph to certain obligations
issued after August 7, 1986, see section 265(b)(3).
(2) Section 1245 and 1250 property
The terms "section 1245 property" and "section 1250 property"
have the meanings given such terms by sections 1245(a)(3) and
1250(c), respectively.
-SOURCE-
(Added Pub. L. 97-248, title II, Sec. 204(a), Sept. 3, 1982, 96
Stat. 423; amended Pub. L. 97-354, Sec. 5(a)(27), Oct. 19, 1982, 96
Stat. 1694; Pub. L. 97-448, title III, Sec. 306(a)(2), Jan. 12,
1983, 96 Stat. 2400; Pub. L. 98-369, div. A, title I, Sec. 68(a),
(b), title VII, Sec. 712(a)(1)(A), (2)-(4), July 18, 1984, 98 Stat.
588, 946; Pub. L. 99-514, title II, Sec. 201(d)(5), title IV, Secs.
411(a), (b)(2)(C)(ii), 412(b)(1), title IX, Secs. 901(b)(4),
(d)(4)(C), 902(c), title XVIII, Secs. 1804(k)(1), (3)(A),
1854(c)(1), 1876(b)(1), Oct. 22, 1986, 100 Stat. 2140, 2225, 2227,
2378, 2380, 2382, 2809, 2878, 2898; Pub. L. 100-418, title I, Sec.
1941(b)(5), Aug. 23, 1988, 102 Stat. 1324; Pub. L. 100-647, title
I, Sec. 1009(b)(4), (5), Nov. 10, 1988, 102 Stat. 3449; Pub. L. 101-
508, title XI, Sec. 11801(c)(12)(B), Nov. 5, 1990, 104 Stat. 1388-
527; Pub. L. 104-188, title I, Secs. 1602(b)(1), 1616(b)(5), Aug.
20, 1996, 110 Stat. 1833, 1856.)
-REFTEXT-
REFERENCES IN TEXT
Section 923, referred to in subsec. (a)(4), was repealed by Pub.
L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
-MISC1-
AMENDMENTS
1996 - Subsec. (e)(1)(B)(i). Pub. L. 104-188, Sec. 1616(b)(5),
struck out "or to which section 593 applies" after "585(a)(2))".
Subsec. (e)(1)(B)(iv), (v). Pub. L. 104-188, Sec. 1602(b)(1),
redesignated cl. (v) as (iv) and struck out former cl. (iv) which
read as follows: "Special rules for obligations to which section
133 applies. - In the case of an obligation to which section 133
applies, interest on such obligation shall not be treated as exempt
from taxes for purposes of this subparagraph."
1990 - Subsec. (e)(1)(A). Pub. L. 101-508 struck out subpar. (A)
"Excess reserves for losses on bad debts of financial institutions"
which read as follows: "In the case of a financial institution to
which section 585 applies, the excess of -
"(i) the amount which would, but for this section, be allowable
as a deduction for the taxable year for a reasonable addition to
a reserve for bad debts, over
"(ii) the amount which would have been allowable had such
institution maintained its bad debt reserve for all taxable years
on the basis of actual experience."
1988 - Subsec. (b)(4). Pub. L. 100-418 amended par. (4)
generally. Prior to amendment, par. (4) read as follows: "For
purposes of this subsection, the term 'integrated oil company'
means, with respect to any taxable year, any producer (within the
meaning of section 4996(a)(1)) of crude oil other than an
independent producer (within the meaning of section 4992(b))."
Subsec. (e)(1)(B)(i). Pub. L. 100-647, Sec. 1009(b)(5),
substituted "section 585(a)(2)" for "section 582(a)(2)".
Subsec. (e)(1)(B)(iv), (v). Pub. L. 100-647, Sec. 1009(b)(4),
redesignated cl. (iv), relating to application of subparagraph to
certain obligations issued after Aug. 7, 1986, as (v).
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1804(k)(3)(A),
substituted "Reduction" for "20-percent reduction" in heading.
Subsec. (a)(1)(A). Pub. L. 99-514, Sec. 201(d)(5)(A), struck out
"or section 1245 recovery property" after "section 1245 property".
Subsec. (a)(2). Pub. L. 99-514, Sec. 412(b)(1), substituted "20
percent" for "15 percent".
Subsec. (a)(4). Pub. L. 99-514, Sec. 1876(b)(1), substituted
"Certain FSC income" for "Certain deferred FSC income" in heading
and amended text generally. Prior to amendment, text read as
follows: "If a C corporation is a shareholder of the FSC, in the
case of taxable years beginning after December 31, 1984, section
923(a) shall be applied with respect to such corporation by
substituting -
"(A) '30 percent' for '32 percent' in paragraph (2), and
"(B) '15/23' for '16/23' in paragraph (3)."
Pub. L. 99-514, Sec. 1804(k)(1), substituted "If a C corporation"
for "If a corporation".
Subsec. (b)(1). Pub. L. 99-514, Sec. 411(a)(1), (b)(2)(C)(ii),
substituted "30 percent" for "20 percent" in closing provisions and
"617(a)" for "617" in subpar. (B).
Subsec. (b)(2) to (6). Pub. L. 99-514, Sec. 411(a)(2), added
pars. (2) to (5) and struck out former pars. (2) to (6) as follows:
former par. (2), special rule for amounts not allowable as
deductions under paragraph (1), related in subpar. (A) to
intangible drilling costs and in subpar. (B) to mineral exploration
and development costs; former par. (3) defined applicable
percentage in accordance with table for taxable years 1 to 5;
former par. (4) dispositions, related in subpar. (A) to oil, gas,
and geothermal property, in subpar. (B) to application of section
617(d) of this title, and in subpar. (C) to recapture of investment
credit; former par. (5) defined integrated oil company; and former
par. (6) related to coordination with cost depletion.
Subsec. (c)(1). Pub. L. 99-514, Sec. 201(d)(5)(B), amended par.
(1) generally. Prior to amendment, par. (1) read as follows: "For
purposes of subclause (1) of section 168(d)(1)(A)(ii), a taxpayer
shall not be treated as electing the amortization deduction under
section 169 with respect to that portion of the basis not taken
into account under section 169 by reason of subsection (a)(5)."
Subsec. (e)(1)(A). Pub. L. 99-514, Sec. 901(b)(4), struck out "or
593" after "section 585".
Subsec. (e)(1)(B). Pub. L. 99-514, Sec. 902(c)(2)(C), substituted
"1982, and before August 8, 1986" for "1982" in heading.
Subsec. (e)(1)(B)(i). Pub. L. 99-514, Sec. 902(c)(1), (2)(A),
substituted "1982, and before August 8, 1986" for "1982" and "(but
for this paragraph or section 265(b))" for "(but for this
paragraph)".
Pub. L. 99-514, Sec. 901(d)(4)(C), substituted "which is a bank
(as defined in section 582(a)(2)) or to which section 593 applies"
for "to which section 585 or 593 applies".
Subsec. (e)(1)(B)(ii). Pub. L. 99-514, Sec. 902(c)(2)(B),
inserted "and section 265(b)".
Subsec. (e)(1)(B)(iv). Pub. L. 99-514, Sec. 1854(c)(1), added cl.
(iv) relating to special rules for obligations to which section 133
applies.
Pub. L. 99-514, Sec. 902(c)(2)(D), added cl. (iv) relating to
application of subparagraph to certain obligations issued after
August 7, 1986.
Subsec. (e)(2). Pub. L. 99-514, Sec. 201(d)(5)(C), struck out ",
'section 1245 recovery property'," after " 'section 1245 property'
" and directed that par. (2) be amended by striking out ", section
1245(a)(5)," which was executed by striking out ", 1245(a)(5),"
after "sections 1245(a)(3)" to reflect the probable intent of
Congress.
1984 - Subsec. (a). Pub. L. 98-369, Sec. 68(a), which directed
that each subsection be amended by substituting "20 percent" for
"15 percent" wherever appearing, was executed in heading by
substituting "20-percent" for "15-percent" to reflect the probable
intent of Congress.
Subsec. (a)(1). Pub. L. 98-369, Sec. 68(a), substituted "20
percent" for "15 percent" in provisions preceding subpar. (A).
Pub. L. 98-369, Sec. 712(a)(1)(A)(ii), inserted "under section
1250" in provisions following subpar. (B).
Subsec. (a)(1)(B). Pub. L. 98-369, Sec. 712(a)(1)(A)(i), inserted
"(determined without regard to this paragraph)".
Subsec. (a)(3). Pub. L. 98-369, Sec. 68(a), substituted "20
percent" for "15 percent".
Subsec. (a)(4). Pub. L. 98-369, Sec. 68(b), amended par. (4)
generally. Prior to amendment, par. (4) read as follows:
"(4) Certain deferred disc income. - If a corporation is a
shareholder of a DISC, in the case of taxable years beginning after
December 31, 1982, section 995(b)(1)(F)(i) shall be applied with
respect to such corporation by substituting '57.5 percent' for 'one-
half'."
Subsec. (a)(5). Pub. L. 98-369, Sec. 68(a), substituted "20
percent" for "15 percent".
Subsec. (b)(1). Pub. L. 98-369, Sec. 68(a), substituted "20
percent" for "15 percent" in provisions following subpar. (B).
Subsec. (b)(2)(B)(ii). Pub. L. 98-369, Sec. 712(a)(2), inserted
"in the case of a deposit located in the United States,".
Subsec. (b)(6). Pub. L. 98-369, Sec. 712(a)(3), substituted
"attributable to amounts to which paragraph (1) applied" for
"attributable to intangible drilling and development costs or
mining exploration and development costs".
Subsec. (e)(1)(B)(iii). Pub. L. 98-369, Sec. 712(a)(4), added cl.
(iii).
1983 - Subsec. (a)(1). Pub. L. 97-448 inserted provision that,
under regulations prescribed by the Secretary, the provisions of
this paragraph shall not apply to the disposition of any property
to the extent section 1250(a) does not apply to such disposition by
reason of section 1250(d).
1982 - Subsec. (a). Pub. L. 97-354, Sec. 5(a)(27)(A), substituted
"a corporation" for "an applicable corporation" wherever appearing.
Subsec. (b). Pub. L. 97-354, Sec. 5(a)(27)(A), substituted "a
corporation" for "an applicable corporation".
Subsec. (e)(2), (3). Pub. L. 97-354, Sec. 5(a)(27)(B),
redesignated par. (3) as (2). Former par. (2), defining "applicable
corporation", was struck out.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1602(b)(1) of Pub. L. 104-188 applicable to
loans made after Aug. 20, 1996, with exception and provisions
relating to certain refinancings, see section 1602(c) of Pub. L.
104-188, set out as an Effective Date of Repeal note under former
section 133 of this title.
Amendment by section 1616(b)(5) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1995, see section 1616(c) of
Pub. L. 104-188, set out as a note under section 593 of this title.
EFFECTIVE DATE OF 1988 AMENDMENTS
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
Amendment by Pub. L. 100-418 applicable to crude oil removed from
the premises on or after Aug. 23, 1988, see section 1941(c) of Pub.
L. 100-418, set out as a note under section 164 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(5) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(5) of Pub. L. 99-514 not applicable
to any property placed in service before Jan. 1, 1994, if such
property placed in service as part of specified rehabilitations,
not applicable to certain additional rehabilitations, see section
251(d)(2), (3) of Pub. L. 99-514, set out as a note under section
46 of this title.
Amendment by section 411(a), (b)(2)(C)(ii) of Pub. L. 99-514
applicable, except as otherwise provided, to costs paid or incurred
after Dec. 31, 1986, in taxable years ending after such date, see
section 411(c) of Pub. L. 99-514 set out as a note under section
263 of this title.
Section 412(b)(2) of Pub. L. 99-514 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply to
taxable years beginning after December 31, 1986."
Amendment by section 901(b)(4), (d)(4)(C) of Pub. L. 99-514
applicable to taxable years beginning after Dec. 31, 1986, see
section 901(e) of Pub. L. 99-514, set out as a note under section
166 of this title.
Amendment by section 902(c) of Pub. L. 99-514 applicable to
taxable years ending after Dec. 31, 1986, with certain exceptions
and qualifications, see section 902(f) of Pub. L. 99-514, set out
as a note under section 265 of this title.
Section 1804(k)(1) of Pub. L. 99-514 provided that amendment made
by section 1804(k)(1) of Pub. L. 99-514 is effective with respect
to taxable years beginning after Dec. 31, 1982.
Amendment by sections 1804(k)(3)(A), 1854(c)(1), and 1876(b)(1)
of Pub. L. 99-514 effective, except as otherwise provided, as if
included in the provisions of the Tax Reform Act of 1984, Pub. L.
98-369, div. A, to which such amendment relates, see section 1881
of Pub. L. 99-514, set out as a note under section 48 of this
title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 68(e) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1804(k)(2), Oct. 22, 1986, 100 Stat.
2095, 2809, provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and sections
57 and 995 of this title] shall apply to taxable years beginning
after December 31, 1984.
"(2) 1250 gain. - The amendments made by this section to section
291(a)(1) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954], and the amendment made by subsection (c)(2) of this section
[amending section 57 of this title], shall apply to sales or other
dispositions after December 31, 1984, in taxable years ending after
such date.
"(3) Pollution control facilities. - The amendments made by this
section to section 291(a)(5) of such Code, and so much of the
amendment made by subsection (c)(1) of this section [amending
section 57 of this title] as relates to pollution control
facilities, shall apply to property placed in service after
December 31, 1984, in taxable years ending after such date.
"(4) Drilling and mining costs. - The amendments made by this
section to section 291(b) of such Code shall apply to expenditures
after December 31, 1984, in taxable years ending after such date."
Amendment by section 712 of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective as if included in the
provisions of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 311(d)
of Pub. L. 97-448, set out as a note under section 31 of this
title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE
Section 204(d) of Pub. L. 97-248, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [enacting this section and amending
sections 57 and 263 of this title] shall apply to taxable years
beginning after December 31, 1982.
"(2) 1250 Gain. - Section 291(a)(1) of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954] shall apply to sales or other
disposition after December 31, 1982, in taxable years ending after
such date.
"(3) Pollution control facilities. - Section 291(a)(5) of such
Code shall apply to property placed in service after December 31,
1982, in taxable years ending after such date.
"(4) Drilling and mining costs. - Section 291(b) of such Code
shall apply to expenditures after December 31, 1982, in taxable
years ending after such date.
"(5) Reduction in percentage depletion for coal and iron ore. -
Section 291(a)(2) of such Code shall apply to taxable years
beginning after December 31, 1983.
"(6) Minimum tax. - The amendment made by subsection (b)
[amending section 57 of this title] shall apply to taxable years
ending after December 31, 1982, with respect to items of tax
preference described in section 57(b) of such Code to which section
291 of such Code applies; except that in the case of an item
described in section 291(a)(2) of such Code, such amendment shall
apply to taxable years beginning after December 31, 1983."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Subchapter C - Corporate Distributions and
Adjustments 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
-HEAD-
SUBCHAPTER C - CORPORATE DISTRIBUTIONS AND ADJUSTMENTS
-MISC1-
Part
I. Distributions by corporations.
II. Corporate liquidations.
III. Corporate organizations and reorganizations.
[IV. Repealed.]
V. Carryovers.
VI. Treatment of certain corporate interests as stock or
indebtedness.
[VII. Repealed.]
AMENDMENTS
1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(5), Nov. 5, 1990,
104 Stat. 1388-522, struck out item for part IV "Insolvency
reorganizations".
1988 - Pub. L. 100-647, title I, Sec. 1006(e)(8)(C), Nov. 10,
1988, 102 Stat. 3401, struck out item for part VII "Miscellaneous
corporate provisions".
1984 - Pub. L. 98-369, div. A, title I, Sec. 75(d), July 18,
1984, 98 Stat. 595, added item for part VII.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(15), Oct. 4, 1976,
90 Stat. 1796, struck out item for part VII "Effective date of
subchapter C."
1969 - Pub. L. 91-172, title IV, Sec. 415(b), Dec. 30, 1969, 83
Stat. 614, redesignated item for part VI as VII and added part VI.
-End-
-CITE-
26 USC PART I - DISTRIBUTIONS BY CORPORATIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
-HEAD-
PART I - DISTRIBUTIONS BY CORPORATIONS
-MISC1-
Subpart
A. Effects on recipients.
B. Effects on corporation.
C. Definitions; constructive ownership of stock.
-End-
-CITE-
26 USC Subpart A - Effects on Recipients 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
SUBPART A - EFFECTS ON RECIPIENTS
-MISC1-
Sec.
301. Distributions of property.
302. Distributions in redemption of stock.
303. Distributions in redemption of stock to pay death
taxes.
304. Redemption through use of related corporations.
305. Distributions of stock and stock rights.
306. Dispositions of certain stock.
307. Basis of stock and stock rights acquired in
distributions.
-End-
-CITE-
26 USC Sec. 301 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 301. Distributions of property
-STATUTE-
(a) In general
Except as otherwise provided in this chapter, a distribution of
property (as defined in section 317(a)) made by a corporation to a
shareholder with respect to its stock shall be treated in the
manner provided in subsection (c).
(b) Amount distributed
(1) General rule
For purposes of this section, the amount of any distribution
shall be the amount of money received, plus the fair market value
of the other property received.
(2) Reduction for liabilities
The amount of any distribution determined under paragraph (1)
shall be reduced (but not below zero) by -
(A) the amount of any liability of the corporation assumed by
the shareholder in connection with the distribution, and
(B) the amount of any liability to which the property
received by the shareholder is subject immediately before, and
immediately after, the distribution.
(3) Determination of fair market value
For purposes of this section, fair market value shall be
determined as of the date of the distribution.
(c) Amount taxable
In the case of a distribution to which subsection (a) applies -
(1) Amount constituting dividend
That portion of the distribution which is a dividend (as
defined in section 316) shall be included in gross income.
(2) Amount applied against basis
That portion of the distribution which is not a dividend shall
be applied against and reduce the adjusted basis of the stock.
(3) Amount in excess of basis
(A) In general
Except as provided in subparagraph (B), that portion of the
distribution which is not a dividend, to the extent that it
exceeds the adjusted basis of the stock, shall be treated as
gain from the sale or exchange of property.
(B) Distributions out of increase in value accrued before March
1, 1913
That portion of the distribution which is not a dividend, to
the extent that it exceeds the adjusted basis of the stock and
to the extent that it is out of increase in value accrued
before March 1, 1913, shall be exempt from tax.
(d) Basis
The basis of property received in a distribution to which
subsection (a) applies shall be the fair market value of such
property.
(e) Special rule for certain distributions received by 20 percent
corporate shareholder
(1) In general
Except to the extent otherwise provided in regulations, solely
for purposes of determining the taxable income of any 20 percent
corporate shareholder (and its adjusted basis in the stock of the
distributing corporation), section 312 shall be applied with
respect to the distributing corporation as if it did not contain
subsections (k) and (n) thereof.
(2) 20 percent corporate shareholder
For purposes of this subsection, the term "20 percent corporate
shareholder" means, with respect to any distribution, any
corporation which owns (directly or through the application of
section 318) -
(A) stock in the corporation making the distribution
possessing at least 20 percent of the total combined voting
power of all classes of stock entitled to vote, or
(B) at least 20 percent of the total value of all stock of
the distributing corporation (except nonvoting stock which is
limited and preferred as to dividends),
but only if, but for this subsection, the distributee corporation
would be entitled to a deduction under section 243, 244, or 245
with respect to such distribution.
(3) Application of section 312(n)(7) not affected
The reference in paragraph (1) to subsection (n) of section 312
shall be treated as not including a reference to paragraph (7) of
such subsection.
(4) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection.
(f) Special rules
(1) For distributions in redemption of stock, see section
302.
(2) For distributions in complete liquidation, see part II
(sec. 331 and following).
(3) For distributions in corporate organizations and
reorganizations, see part III (sec. 351 and following).
(4) For taxation of dividends received by individuals at
capital gain rates, see section 1(h)(11).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 84; Pub. L. 87-403, Sec. 2(a),
Feb. 2, 1962, 76 Stat. 5; Pub. L. 87-834, Secs. 5(a), (b),
13(f)(2), Oct. 16, 1962, 76 Stat. 977, 1035; Pub. L. 88-272, title
II, Sec. 231(b)(2), Feb. 26, 1964, 78 Stat. 105; Pub. L. 88-484,
Sec. 1(b)(1), Aug. 22, 1964, 78 Stat. 597; Pub. L. 89-570, Sec.
1(b)(2), Sept. 12, 1966, 80 Stat. 762; Pub. L. 89-809, title I,
Sec. 104(f), Nov. 13, 1966, 80 Stat. 1559; Pub. L. 91-172, title
II, Sec. 211(b)(1), (2), title IX, Sec. 905(b)(2), Dec. 30, 1969,
83 Stat. 570, 714; Pub. L. 92-178, title III, Sec. 312(a), Dec. 10,
1971, 85 Stat. 526; Pub. L. 94-455, title II, Sec. 205(c)(1)(B),
(C), title XIX, Secs. 1901(a)(41), (b)(32)(A), 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1535, 1771, 1800, 1834; Pub. L. 95-628, Sec.
3(a), (b), Nov. 10, 1978, 92 Stat. 3627; Pub. L. 98-369, div. A,
title I, Secs. 54(b), 61(d), title VII, Sec. 712(i)(1), July 18,
1984, 98 Stat. 569, 582, 948; Pub. L. 99-514, title VI, Sec.
612(b)(1), title XVIII, Sec. 1804(f)(2)(B), Oct. 22, 1986, 100
Stat. 2250, 2805; Pub. L. 100-203, title X, Sec. 10222(b)(1), Dec.
22, 1987, 101 Stat. 1330-411; Pub. L. 100-647, title I, Sec.
1006(e)(10)-(12), title II, Sec. 2004(j)(3)(B), Nov. 10, 1988, 102
Stat. 3401, 3402, 3605; Pub. L. 108-27, title III, Sec. 302(e)(2),
May 28, 2003, 117 Stat. 763.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Subsec. (f)(4). Pub. L. 108-27, Secs. 302(e)(2), 303,
temporarily added par. (4). See Effective and Termination Dates of
2003 Amendment note below.
1988 - Subsec. (b)(1). Pub. L. 100-647, Sec. 1006(e)(10), amended
par. (1) generally. Prior to amendment, par. (1) contained subpars.
(A) to (D) which provided what the amount of any distribution would
be for noncorporate distributees, corporate distributees, certain
corporate distributees of foreign corporations, and foreign
corporate distributees.
Subsec. (d). Pub. L. 100-647, Sec. 1006(e)(11), amended subsec.
(d) generally. Prior to amendment, subsec. (d) contained pars. (1)
to (4) which provided what the basis of property received would be
for noncorporate distributees, corporate distributees, foreign
corporate distributees, and certain corporate distributees of
foreign corporations.
Subsec. (e). Pub. L. 100-647, Sec. 2004(j)(3)(B), added par. (3)
and redesignated former par. (3) as (4).
Pub. L. 100-647, Sec. 1006(e)(12), redesignated subsec. (f) as
(e) and struck out former subsec. (e) which related to special rule
for holding period of appreciated property distributed to
corporation.
Subsecs. (f), (g). Pub. L. 100-647, Sec. 1006(e)(12),
redesignated subsec. (g) as (f). Former subsec. (f) redesignated
(e).
1987 - Subsec. (f)(1). Pub. L. 100-203 substituted "subsections
(k) and (n)" for "subsection (n)".
1986 - Subsec. (f)(3). Pub. L. 99-514, Sec. 1804(f)(2)(B),
substituted "this subsection" for "this section".
Subsec. (g)(4). Pub. L. 99-514, Sec. 612(b)(1), struck out par.
(4) which provided: "For partial exclusion from gross income of
dividends received by individuals, see section 116."
1984 - Subsec. (e). Pub. L. 98-369, Sec. 54(b), added subsec.
(e). Former subsec. (e) redesignated (f).
Subsec. (e)(2). Pub. L. 98-369, Sec. 712(i)(1), substituted
"complete liquidation" for "partial or complete liquidation" in
subsec. (e)(2), which became subsec. (g)(2).
Subsec. (f). Pub. L. 98-369, Sec. 61(d), added subsec. (f).
Former subsec. (f) redesignated (g).
Pub. L. 98-369, Sec. 54(b), redesignated former subsec. (e) as
(f).
Subsec. (g). Pub. L. 98-369, Secs. 54(b), 61(d), redesignated
former subsec. (e) successively as subsec. (f) and as subsec. (g).
Subsec. (g)(2). Pub. L. 98-369, Sec. 712(i)(1), substituted
"complete liquidation" for "partial or complete liquidation" in
subsec. (e)(2), which became subsec. (g)(2).
1978 - Subsec. (b)(1)(B)(ii). Pub. L. 95-628, Sec. 3(a),
substituted "amount of gain recognized to the distributing
corporation on the distribution" for "amount of gain to the
distributing corporation which is recognized under subsection (b),
(c), or (d) of section 311, under section 341(f), or under section
617(d)(1), 1245(a), 1250(a), 1251(c), 1252(a), or 1254(a)".
Subsec. (d)(2)(B). Pub. L. 95-628, Sec. 3(b), substituted "amount
of gain recognized to the distributing corporation on the
distribution" for "amount of gain to the distributing corporation
which is recognized under subsection (b), (c), or (d) of section
311, under section 341(f), or under section 617(d)(1), 1245(a),
1250(a), 1251(c), 1252(a), or 1254(a)".
1976 - Subsec. (b)(1)(B)(ii). Pub. L. 94-455, Sec. 205(c)(1)(B),
substituted "1252(a), or 1254(a)" for "or 1252(a)".
Subsec. (b)(1)(C). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (d)(2)(B). Pub. L. 94-455, Sec. 205(c)(1)(C), substituted
"1252(a), or 1254(a)" for "or 1252(a)".
Subsec. (e). Pub. L. 94-455, Sec. 1901(a)(41), (b)(32)(A),
redesignated subsec. (g) as (e). Former subsec. (e), which related
to exceptions for certain distributions by personal service
corporations, was struck out.
Subsec. (f). Pub. L. 94-455, Sec. 1901(b)(32)(A), struck out
subsec. (f) which related to special rules for distribution of
antitrust stock to corporations.
Subsec. (g). Pub. L. 94-455, Sec. 1901(b)(32)(A), redesignated
subsec. (g) as (e).
1971 - Subsec. (b)(1)(B). Pub. L. 92-178, Sec. 312(a)(1),
substituted "corporation, unless subparagraph (D) applies" for
"corporation" where first appearing.
Subsec. (b)(1)(D). Pub. L. 92-178, Sec. 312(a)(2), added subpar.
(D).
Subsec. (d)(2). Pub. L. 92-178, Sec. 312(a)(3), substituted
"corporation, unless paragraph (3) applies" for "corporation" where
first appearing.
Subsec. (d)(3), (4). Pub. L. 92-178, Sec. 312(a)(4), added par.
(3) and redesignated former par. (3) as (4).
1969 - Subsec. (b)(1)(B)(ii). Pub. L. 91-172, Secs. 211(b)(1),
905(b)(2), substituted "1250(a), 1251(c), or 1252(a)" for "or
1250(a)" and inserted reference to section 311(a).
Subsec. (d)(2)(B). Pub. L. 91-172, Secs. 211(b)(2), 905(b)(2),
substituted "1250(a), 1251(c), or 1252(a)", for "or 1250(a)" and
inserted reference to section 311(a).
1966 - Subsec. (b)(1)(B)(ii). Pub. L. 89-570 included reference
to section 617(d)(1).
Subsec. (b)(1)(C). Pub. L. 89-809 substituted "gross income which
is effectively connected with the conduct of a trade or business
within the United States" for "gross income from sources within the
United States" in cl. (i), "gross income which is not effectively
connected with the conduct of a trade or business within the United
States" for "gross income from sources without the United States"
in cl. (ii), and inserted text following cl. (ii) setting out the
treatment to be accorded gross income for any period before the
first taxable year beginning after December 31, 1966.
Subsec. (d)(2)(B). Pub. L. 89-570 included reference to section
617(d)(1).
1964 - Subsec. (b). Pub. L. 88-484 included amount of gain
recognized under section 341(f).
Pub. L. 88-272 inserted reference to section 1250(a).
Subsec. (d). Pub. L. 88-484 included amount of gain recognized
under section 341(f).
Pub. L. 88-272 inserted reference to section 1250(a).
1962 - Subsec. (b)(1)(B). Pub. L. 87-834, Sec. 13(f)(2),
substituted "subsection (b) or (c) of section 311 or under section
1245(a)" for "subsection (b) or (c) of section 311".
Subsec. (b)(1)(C). Pub. L. 87-834, Sec. 5(a), added subpar. (C).
Subsec. (d)(2). Pub. L. 87-834, Sec. 13(f)(2), substituted
"subsection (b) or (c) of section 311 or under section 1245(a)" for
"subsection (b) or (c) of section 311".
Subsec. (d)(3). Pub. L. 87-834, Sec. 5(b), added par. (3).
Subsecs. (f), (g). Pub. L. 87-403 added subsec. (f) and
redesignated former subsec. (f) as (g).
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1006(e)(10)-(12) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 2004(j)(3)(B) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provisions of
the Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10222(b)(2) of Pub. L. 100-203, as amended by Pub. L. 100-
647, title II, Sec. 2004(j)(4), Nov. 10, 1988, 102 Stat. 3605,
provided that:
"(A) In general. - The amendment made by paragraph (1) [amending
this section] shall apply to distributions after December 15, 1987.
For purposes of applying such amendment to any such distribution -
"(i) for purposes of determining earnings and profits, such
amendment shall be deemed to be in effect for all periods whether
before, on, or after December 15, 1987, but
"(ii) such amendment shall not affect the determination of
whether any distribution on or before December 15, 1987, is a
dividend and the amount of any reduction in accumulated earnings
and profits on account of any such distribution.
"(B) Exception. - The amendment made by paragraph (1) shall not
apply for purposes of determining gain or loss on any disposition
of stock after December 15, 1987, and before January 1, 1989, if
such disposition is pursuant to a written binding contract,
governmental order, letter of intent or preliminary agreement, or
stock acquisition agreement, in effect on or before December 15,
1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 612(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 584, 642,
643, 702, 854, and 857 of this title, repealing section 116 of this
title, and enacting provisions set out as a note under section 584
of this title] shall apply to taxable years beginning after
December 31, 1986."
Amendment by section 1804(f)(2)(B) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 54(b) of Pub. L. 98-369 applicable to
distributions after July 18, 1984, in taxable years ending after
July 18, 1984, see section 54(d)(2) of Pub. L. 98-369, set out as a
note under section 311 of this title.
Section 61(e)(4) of Pub. L. 98-369 provided that: "The amendment
made by subsection (d) [amending this section] shall apply to
distributions after the date of the enactment of this Act [July 18,
1984] in taxable years ending after such date."
Amendment by section 712(i)(1) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 3(d) of Pub. L. 95-628 provided that: "The amendments
made by this section [amending this section and section 312 of this
title] shall apply to distributions made after the date of the
enactment of this Act [Nov. 10, 1978]."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 205(c)(1)(B), (C) of Pub. L. 94-455
effective for taxable years ending after Dec. 31, 1975, see section
205(e) of Pub. L. 94-455, set out as an Effective Date note under
section 1254 of this title.
Amendment by section 1901(a)(41), (b)(32)(A) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 312(b) of Pub. L. 92-178 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to distributions made after November 8, 1971."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 211(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [enacting section 1251 of this title and
amending this section and sections 312, 341, 453, and 751 of this
title] shall apply to taxable years beginning after December 31,
1969."
Amendment by section 905(b)(2) of Pub. L. 91-172 effective with
respect to distributions made after Nov. 30, 1969, see section
905(c) of Pub. L. 91-172, set out as a note under section 311 of
this title.
EFFECTIVE DATE OF 1966 AMENDMENTS
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
Amendment by Pub. L. 89-570 applicable to taxable years ending
after Sept. 12, 1966, but only in respect of expenditures paid or
incurred after such date, see section 3 of Pub. L. 89-570, set out
as an Effective Date note under section 617 of this title.
EFFECTIVE DATE OF 1964 AMENDMENTS
Pub. L. 88-484, Sec. 2, Aug. 22, 1964, 78 Stat. 597, provided
that: "The amendments made by the first section of this Act
[amending this section and sections 312, 341, and 453 of this
title] shall apply with respect to transactions after the date of
the enactment of this Act [Aug. 22, 1964] in taxable years ending
after such date."
Amendment by Pub. L. 88-272 applicable to dispositions after Dec.
31, 1963, in taxable years ending after such date, see section
231(c) of Pub. L. 88-272, set out as an Effective Date note under
section 1250 of this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Section 5(d) of Pub. L. 87-834 provided that: "The amendments
made by this section [amending this section and section 245 of this
title] shall apply to distributions made after December 31, 1962."
Amendment by section 13(f)(2) of Pub. L. 87-834 applicable to
taxable years beginning after Dec. 31, 1962, see section 13(g) of
Pub. L. 87-834, set out as an Effective Date note under section
1245 of this title.
Section 2(b) of Pub. L. 87-403 provided that: "The amendments
made by this section [amending this section] shall apply only with
respect to distributions made after the date of the enactment of
this Act [Feb. 2, 1962]."
STUDY OF CORPORATE PROVISIONS
Section 634 of Pub. L. 99-514 directed Secretary of the Treasury
or his delegate to conduct a study of proposals to reform the
provisions of subchapter C of chapter 1 of the Internal Revenue
Code of 1986, and not later than Jan. 1, 1988 (due date extended to
Jan. 1, 1992, by Pub. L. 101-508, title XI, Sec. 11831(b), Nov. 5,
1990, 104 Stat. 1388-559), to submit to Committee on Ways and Means
of House of Representatives and Committee on Finance of Senate a
report on the study conducted (together with such recommendations
he deemed advisable).
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 302 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 302. Distributions in redemption of stock
-STATUTE-
(a) General rule
If a corporation redeems its stock (within the meaning of section
317(b)), and if paragraph (1), (2), (3), or (4) of subsection (b)
applies, such redemption shall be treated as a distribution in part
or full payment in exchange for the stock.
(b) Redemptions treated as exchanges
(1) Redemptions not equivalent to dividends
Subsection (a) shall apply if the redemption is not essentially
equivalent to a dividend.
(2) Substantially disproportionate redemption of stock
(A) In general
Subsection (a) shall apply if the distribution is
substantially disproportionate with respect to the shareholder.
(B) Limitation
This paragraph shall not apply unless immediately after the
redemption the shareholder owns less than 50 percent of the
total combined voting power of all classes of stock entitled to
vote.
(C) Definitions
For purposes of this paragraph, the distribution is
substantially disproportionate if -
(i) the ratio which the voting stock of the corporation
owned by the shareholder immediately after the redemption
bears to all of the voting stock of the corporation at such
time,
is less than 80 percent of -
(ii) the ratio which the voting stock of the corporation
owned by the shareholder immediately before the redemption
bears to all of the voting stock of the corporation at such
time.
For purposes of this paragraph, no distribution shall be
treated as substantially disproportionate unless the
shareholder's ownership of the common stock of the corporation
(whether voting or nonvoting) after and before redemption also
meets the 80 percent requirement of the preceding sentence. For
purposes of the preceding sentence, if there is more than one
class of common stock, the determinations shall be made by
reference to fair market value.
(D) Series of redemptions
This paragraph shall not apply to any redemption made
pursuant to a plan the purpose or effect of which is a series
of redemptions resulting in a distribution which (in the
aggregate) is not substantially disproportionate with respect
to the shareholder.
(3) Termination of shareholder's interest
Subsection (a) shall apply if the redemption is in complete
redemption of all of the stock of the corporation owned by the
shareholder.
(4) Redemption from noncorporate shareholder in partial
liquidation
Subsection (a) shall apply to a distribution if such
distribution is -
(A) in redemption of stock held by a shareholder who is not a
corporation, and
(B) in partial liquidation of the distributing corporation.
(5) Application of paragraphs
In determining whether a redemption meets the requirements of
paragraph (1), the fact that such redemption fails to meet the
requirements of paragraph (2), (3), or (4) shall not be taken
into account. If a redemption meets the requirements of paragraph
(3) and also the requirements of paragraph (1), (2), or (4), then
so much of subsection (c)(2) as would (but for this sentence)
apply in respect of the acquisition of an interest in the
corporation within the 10-year period beginning on the date of
the distribution shall not apply.
(c) Constructive ownership of stock
(1) In general
Except as provided in paragraph (2) of this subsection, section
318(a) shall apply in determining the ownership of stock for
purposes of this section.
(2) For determining termination of interest
(A) In the case of a distribution described in subsection
(b)(3), section 318(a)(1) shall not apply if -
(i) immediately after the distribution the distributee has
no interest in the corporation (including an interest as
officer, director, or employee), other than an interest as a
creditor,
(ii) the distributee does not acquire any such interest
(other than stock acquired by bequest or inheritance) within
10 years from the date of such distribution, and
(iii) the distributee, at such time and in such manner as
the Secretary by regulations prescribes, files an agreement
to notify the Secretary of any acquisition described in
clause (ii) and to retain such records as may be necessary
for the application of this paragraph.
If the distributee acquires such an interest in the corporation
(other than by bequest or inheritance) within 10 years from the
date of the distribution, then the periods of limitation
provided in sections 6501 and 6502 on the making of an
assessment and the collection by levy or a proceeding in court
shall, with respect to any deficiency (including interest and
additions to the tax) resulting from such acquisition, include
one year immediately following the date on which the
distributee (in accordance with regulations prescribed by the
Secretary) notifies the Secretary of such acquisition; and such
assessment and collection may be made notwithstanding any
provision of law or rule of law which otherwise would prevent
such assessment and collection.
(B) Subparagraph (A) of this paragraph shall not apply if -
(i) any portion of the stock redeemed was acquired,
directly or indirectly, within the 10-year period ending on
the date of the distribution by the distributee from a person
the ownership of whose stock would (at the time of
distribution) be attributable to the distributee under
section 318(a), or
(ii) any person owns (at the time of the distribution)
stock the ownership of which is attributable to the
distributee under section 318(a) and such person acquired any
stock in the corporation, directly or indirectly, from the
distributee within the 10-year period ending on the date of
the distribution, unless such stock so acquired from the
distributee is redeemed in the same transaction.
The preceding sentence shall not apply if the acquisition (or,
in the case of clause (ii), the disposition) by the distributee
did not have as one of its principal purposes the avoidance of
Federal income tax.
(C) Special rule for waivers by entities
(i) In general
Subparagraph (A) shall not apply to a distribution to any
entity unless -
(I) such entity and each related person meet the
requirements of clauses (i), (ii), and (iii) of
subparagraph (A), and
(II) each related person agrees to be jointly and
severally liable for any deficiency (including interest and
additions to tax) resulting from an acquisition described
in clause (ii) of subparagraph (A).
In any case to which the preceding sentence applies, the
second sentence of subparagraph (A) and subparagraph (B)(ii)
shall be applied by substituting "distributee or any related
person" for "distributee" each place it appears.
(ii) Definitions
For purposes of this subparagraph -
(I) the term "entity" means a partnership, estate, trust,
or corporation; and
(II) the term "related person" means any person to whom
ownership of stock in the corporation is (at the time of
the distribution) attributable under section 318(a)(1) if
such stock is further attributable to the entity under
section 318(a)(3).
(d) Redemptions treated as distributions of property
Except as otherwise provided in this subchapter, if a corporation
redeems its stock (within the meaning of section 317(b)), and if
subsection (a) of this section does not apply, such redemption
shall be treated as a distribution of property to which section 301
applies.
(e) Partial liquidation defined
(1) In general
For purposes of subsection (b)(4), a distribution shall be
treated as in partial liquidation of a corporation if -
(A) the distribution is not essentially equivalent to a
dividend (determined at the corporate level rather than at the
shareholder level), and
(B) the distribution is pursuant to a plan and occurs within
the taxable year in which the plan is adopted or within the
succeeding taxable year.
(2) Termination of business
The distributions which meet the requirements of paragraph
(1)(A) shall include (but shall not be limited to) a distribution
which meets the requirements of subparagraphs (A) and (B) of this
paragraph:
(A) The distribution is attributable to the distributing
corporation's ceasing to conduct, or consists of the assets of,
a qualified trade or business.
(B) Immediately after the distribution, the distributing
corporation is actively engaged in the conduct of a qualified
trade or business.
(3) Qualified trade or business
For purposes of paragraph (2), the term "qualified trade or
business" means any trade or business which -
(A) was actively conducted throughout the 5-year period
ending on the date of the redemption, and
(B) was not acquired by the corporation within such period in
a transaction in which gain or loss was recognized in whole or
in part.
(4) Redemption may be pro rata
Whether or not a redemption meets the requirements of
subparagraphs (A) and (B) of paragraph (2) shall be determined
without regard to whether or not the redemption is pro rata with
respect to all of the shareholders of the corporation.
(5) Treatment of certain pass-thru entities
For purposes of determining under subsection (b)(4) whether any
stock is held by a shareholder who is not a corporation, any
stock held by a partnership, estate, or trust shall be treated as
if it were actually held proportionately by its partners or
beneficiaries.
(f) Cross references
For special rules relating to redemption -
(1) Death Taxes. - Of stock to pay death taxes, see section
303.
(2) Section 306 Stock. - Of section 306 stock, see section
306.
(3) Liquidations. - Of stock in complete liquidation, see
section 331.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 85; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 96-589,
Sec. 5(b), Dec. 24, 1980, 94 Stat. 3405; Pub. L. 97-248, title II,
Secs. 222(c), 228(a), Sept. 3, 1982, 96 Stat. 478, 493; Pub. L. 98-
369, div. A, title VII, Sec. 712(i)(1), July 18, 1984, 98 Stat.
948.)
-MISC1-
AMENDMENTS
1984 - Subsec. (f)(3). Pub. L. 98-369 substituted "complete
liquidation" for "partial or complete liquidation".
1982 - Subsec. (a). Pub. L. 97-248, Sec. 222(c)(3), substituted
"paragraph (1), (2), (3), or (4)" for "paragraph (1), (2), or (3)".
Subsec. (b)(4), (5). Pub. L. 97-248, Sec. 222(c)(1), (4), added
par. (4), redesignated former par. (4) as (5) and substituted
"paragraph (2), (3), or (4)" for "paragraph (2) or (3)" after "to
meet the requirements of", and "paragraph (1), (2), or (4)" for
"paragraph (1) or (2)" after "and also the requirements of".
Subsec. (c)(2)(C). Pub. L. 97-248, Sec. 228(a), added subpar.
(C).
Subsecs. (e), (f). Pub. L. 97-248, Sec. 222(c)(2), added subsec.
(e) and redesignated former subsec. (e) as (f).
1980 - Subsec. (a). Pub. L. 96-589, Sec. 5(b)(2)(A), struck out
reference to par. (4) of subsec. (b).
Subsec. (b)(4), (5). Pub. L. 96-589, Sec. 5(b)(1), (2)(B),
redesignated par. (5) as (4) and struck out reference to par. (4)
in two places. Former par. (4) was struck out.
1976 - Subsec. (c)(2). Pub. L. 94-455 struck out "or his
delegate" after "Secretary" wherever appearing.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in the
provision of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 715 of
Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT; PARTIAL LIQUIDATIONS
Section 228(b) of Pub. L. 97-248 provided that: "The amendment
made by subsection (a) [amending this section]" shall apply with
respect to distributions after August 31, 1982, in taxable years
ending after such date."
Section 222(f) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(a)(6)(A), Jan. 12, 1983, 96 Stat. 2402; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 306, 312, 331, 334, 336, 341, 346, 543,
and 562 of this title and repealing section 338 of this title]
shall apply to distributions after August 31, 1982.
"(2) Exceptions. -
"(A) Ruling requests. - The amendments made by this section
shall not apply to distributions made by any corporation if -
"(i)(I) on July 22, 1982, there was a ruling request by such
corporation pending with the Internal Revenue Service as to
whether such distributions would qualify as a partial
liquidation, or
"(II) within the period beginning on July 12, 1981, and
ending on July 22, 1982, the Internal Revenue Service granted a
ruling to such corporation that the distributions would qualify
as a partial liquidation, and
"(ii) such distributions are pursuant to a plan of partial
liquidation adopted before October 1, 1982 (or, if later, 90
days after the date on which the Internal Revenue Service
granted a ruling pursuant to the request described in clause
(i)(I)).
"(B) Plans adopted before july 23, 1982. - The amendments made
by this section shall not apply to distributions made pursuant to
a plan of partial liquidation adopted before July 23, 1982.
"(C) Control acquired after 1981 and before july 23, 1982. -
The amendments made by this section shall not apply to
distributions made pursuant to a plan of partial liquidation
adopted before October 1, 1982, where control of the corporation
making the distributions was acquired after December 31, 1981,
and before July 23, 1982.
"(D) Tender offer or binding contract outstanding on july 22,
1982. -
"(i) In general. - The amendments made by this section shall
not apply to distributions made by a corporation if -
"(I) such distributions are pursuant to a plan of
liquidation adopted before October 1, 1982, and
"(II) control of such corporation was acquired after July
22, 1982, pursuant to a tender offer or binding contract
outstanding on such date.
"(ii) Extension of time for adopting plan where acquisition
subject to federal regulatory approval. - If the acquisition
described in clause (i)(II) is subject to approval by a Federal
regulatory agency, clause (i) shall be applied by substituting
for 'October 1, 1982' the date which is 90 days after the date
on which approval by the Federal regulatory agency of such
acquisition becomes final.
"(iii) Special rule where offer subject to approval by
foreign regulatory body. - In any case where an offer to
acquire stock in a corporation was subject to intervention by a
foreign regulatory body and a public announcement of such an
offer resulted in the intervention by such foreign regulatory
body before July 23, 1982 -
"(I) such public announcement shall be treated as a tender
offer, and
"(II) clause (i) shall be applied by substituting for
'October 1, 1982' the date which is 90 days after the date on
which such regulatory body approves a public offer to acquire
stock in such corporation.
"(iv) Special rule where one-third of shares acquired during
march and april 1982. - If -
"(I) one-third or more of the shares of a corporation were
acquired by another corporation during March and April 1982,
and
"(II) during March or April 1982, the acquiring corporation
filed with the Federal Trade Commission notification of its
intent to acquire control of the acquired corporation,
subclause (II) of clause (i) shall not apply with respect to
distributions made by the acquired corporation.
"(E) Insurance companies. - The amendments made by this section
shall not apply to distributions made by an insurance company
pursuant to a plan of partial liquidation adopted before October
1, 1982, where control was acquired by the distributee or its
parent after December 31, 1980, and before July 23, 1982, and the
conduct of the insurance business by the distributee is
conditioned on approval by a State regulatory authority.
For purposes of this paragraph, the term 'control' has the meaning
given to such term by section 368(c) of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954], except that in applying such
section both direct and indirect ownership of stock shall be taken
into account.
"(3) Approval of plan by board of directors. - For purposes of -
"(A) paragraph (2), and
"(B) applying section 346(a)(2) of the Internal Revenue Code of
1986 (as in effect on the day before the date of the enactment of
this Act) [Sept. 3, 1982] to distributions to which (but for
paragraph (2)) the amendments made by this section would apply,
a plan of liquidation shall be treated as adopted when approved by
the corporation's board of directors.
"(4) Coordination with amendments made by section 224. - For
purposes of section 338(e)(2)(C) of the Internal Revenue Code of
1986 (as added by section 224), any property acquired in a
distribution to which the amendments made by this section do not
apply by reason of paragraph (2) shall be treated as acquired
before September 1, 1982."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to stock which is issued
after Dec. 31, 1980, except as otherwise provided, see section
7(d)(2), (f) of Pub. L. 96-589, set out as a note under section 108
of this title.
SAVINGS PROVISIONS
Applicability of subsec. (b)(1) to the determination of gross
investment income under sections 4940 and 4948(a) of this title,
see section 101(l)(8) of Pub. L. 91-172, set out as a note under
section 4940 of this title.
-End-
-CITE-
26 USC Sec. 303 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 303. Distributions in redemption of stock to pay death taxes
-STATUTE-
(a) In general
A distribution of property to a shareholder by a corporation in
redemption of part or all of the stock of such corporation which
(for Federal estate tax purposes) is included in determining the
gross estate of a decedent, to the extent that the amount of such
distribution does not exceed the sum of -
(1) the estate, inheritance, legacy, and succession taxes
(including any interest collected as a part of such taxes)
imposed because of such decedent's death, and
(2) the amount of funeral and administration expenses allowable
as deductions to the estate under section 2053 (or under section
2106 in the case of the estate of a decedent nonresident, not a
citizen of the United States),
shall be treated as a distribution in full payment in exchange for
the stock so redeemed.
(b) Limitations on application of subsection (a)
(1) Period for distribution
Subsection (a) shall apply only to amounts distributed after
the death of the decedent and -
(A) within the period of limitations provided in section
6501(a) for the assessment of the Federal estate tax
(determined without the application of any provision other than
section 6501(a)), or within 90 days after the expiration of
such period,
(B) if a petition for redetermination of a deficiency in such
estate tax has been filed with the Tax Court within the time
prescribed in section 6213, at any time before the expiration
of 60 days after the decision of the Tax Court becomes final,
or
(C) if an election has been made under section 6166 and if
the time prescribed by this subparagraph expires at a later
date than the time prescribed by subparagraph (B) of this
paragraph, within the time determined under section 6166 for
the payment of the installments.
(2) Relationship of stock to decedent's estate
(A) In general
Subsection (a) shall apply to a distribution by a corporation
only if the value (for Federal estate tax purposes) of all of
the stock of such corporation which is included in determining
the value of the decedent's gross estate exceeds 35 percent of
the excess of -
(i) the value of the gross estate of such decedent, over
(ii) the sum of the amounts allowable as a deduction under
section 2053 or 2054.
(B) Special rule for stock of two or more corporations
For purposes of subparagraph (A), stock of 2 or more
corporations, with respect to each of which there is included
in determining the value of the decedent's gross estate 20
percent or more in value of the outstanding stock, shall be
treated as the stock of a single corporation. For purposes of
the 20-percent requirement of the preceding sentence, stock
which, at the decedent's death, represents the surviving
spouse's interest in property held by the decedent and the
surviving spouse as community property or as joint tenants,
tenants by the entirety, or tenants in common shall be treated
as having been included in determining the value of the
decedent's gross estate.
(3) Relationship of shareholder to estate tax
Subsection (a) shall apply to a distribution by a corporation
only to the extent that the interest of the shareholder is
reduced directly (or through a binding obligation to contribute)
by any payment of an amount described in paragraph (1) or (2) of
subsection (a).
(4) Additional requirements for distributions made more than 4
years after decedent's death
In the case of amounts distributed more than 4 years after the
date of the decedent's death, subsection (a) shall apply to a
distribution by a corporation only to the extent of the lesser of
-
(A) the aggregate of the amounts referred to in paragraph (1)
or (2) of subsection (a) which remained unpaid immediately
before the distribution, or
(B) the aggregate of the amounts referred to in paragraph (1)
or (2) of subsection (a) which are paid during the 1-year
period beginning on the date of such distribution.
(c) Stock with substituted basis
If -
(1) a shareholder owns stock of a corporation (referred to in
this subsection as "new stock") the basis of which is determined
by reference to the basis of stock of a corporation (referred to
in this subsection as "old stock"),
(2) the old stock was included (for Federal estate tax
purposes) in determining the gross estate of a decedent, and
(3) subsection (a) would apply to a distribution of property to
such shareholder in redemption of the old stock,
then, subject to the limitation specified in subsection (b),
subsection (a) shall apply in respect of a distribution in
redemption of the new stock.
(d) Special rules for generation-skipping transfers
Where stock in a corporation is the subject of a generation-
skipping transfer (within the meaning of section 2611(a))
occurring at the same time as and as a result of the death of an
individual -
(1) the stock shall be deemed to be included in the gross
estate of such individual;
(2) taxes of the kind referred to in subsection (a)(1) which
are imposed because of the generation-skipping transfer shall be
treated as imposed because of such individual's death (and for
this purpose the tax imposed by section 2601 shall be treated as
an estate tax);
(3) the period of distribution shall be measured from the date
of the generation-skipping transfer; and
(4) the relationship of stock to the decedent's estate shall be
measured with reference solely to the amount of the generation-
skipping transfer.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 88; Pub. L. 94-455, title XX,
Secs. 2004(e), 2006(b)(4), Oct. 4, 1976, 90 Stat. 1871, 1889; Pub.
L. 97-34, title IV, Sec. 422(b), (e)(1), Aug. 13, 1981, 95 Stat.
314, 316; Pub. L. 99-514, title XIV, Sec. 1432(b), Oct. 22, 1986,
100 Stat. 2730.)
-MISC1-
AMENDMENTS
1986 - Subsec. (d). Pub. L. 99-514 amended subsec. (d) generally.
Prior to amendment, subsec. (d) read as follows: "Under regulations
prescribed by the Secretary, where stock in a corporation is
subject to tax under section 2601 as a result of a generation-
skipping transfer (within the meaning of section 2611(a)), which
occurs at or after the death of the deemed transferor (within the
meaning of section 2612) -
"(1) the stock shall be deemed to be included in the gross
estate of the deemed transferor;
"(2) taxes of the kind referred to in subsection (a)(1) which
are imposed because of the generation-skipping transfer shall be
treated as imposed because of the deemed transferor's death (and
for this purpose the tax imposed by section 2601 shall be treated
as an estate tax);
"(3) the period of distribution shall be measured from the date
of the generation-skipping transfer; and
"(4) the relationship of stock to the decedent's estate shall
be measured with reference solely to the amount of the generation-
skipping transfer."
1981 - Subsec. (b)(1)(C). Pub. L. 97-34, Sec. 422(e)(1), struck
out "or 6166A" after "section 6166" in two places.
Subsec. (b)(2)(A). Pub. L. 97-34, Sec. 422(b)(1), substituted
"35" for "50" before percent.
Subsec. (b)(2)(B). Pub. L. 97-34, Sec. 422(b)(2), in heading,
substituted "stock in 2" for "stock of two", in first sentence,
struck out "the 50 percent requirement" before "of subparagraph
(A)" and substituted "2" for "two" and "20 percent or more in
value" for "more than 75 percent in value", and, in last sentence,
substituted "For purposes of the 20-percent requirement" for "For
the purpose of the 75 percent requirement" and, in determining
value of decedent's gross estate, treated the estate as including
stock which at decedent's death represented surviving spouse's
interest in property held by the decedent and surviving spouse
either as joint tenants, tenants by the entirety, or tenants in
common.
1976 - Subsec. (b)(1)(C). Pub. L. 94-455, Sec. 2004(e)(1), added
subpar. (C).
Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 2004(e)(2)(A),
substituted provisions limiting the applicability of subsec. (a) to
corporate distributions in which the value of the corporate stock
included in decedent's gross estate exceeds 50 percent of the gross
estate over deductions allowed under sections 2053 and 2054 for
provisions limiting the applicability of subsec. (a) to corporate
distributions in which the value of the corporate stock included in
decedent's gross estate is either more than 35 percent of the gross
estate or 50 percent of the taxable estate.
Subsec. (b)(2)(B). Pub. L. 94-455, Sec. 2004(e)(2)(B),
substituted "the 50 percent requirement" for "the 35 percent and 50
percent requirements".
Subsec. (b)(3), (4). Pub. L. 94-455, Sec. 2004(e)(3), added pars.
(3) and (4).
Subsec. (c). Pub. L. 94-455, Sec. 2004(e)(4), substituted
"limitation specified in subsection (b)" for "limitation specified
in subsection (b)(1)".
Subsec. (d). Pub. L. 94-455, Sec. 2006(b)(4), added subsec. (d).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to generation-skipping
transfers (within the meaning of section 2611 of this title) made
after Oct. 22, 1986, except as otherwise provided, see section 1433
of Pub. L. 99-514, set out as an Effective Date note under section
2601 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to estates of decedents
dying after Dec. 31, 1981, see section 422(f) of Pub. L. 97-34, set
out as a note under section 6166 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 2004(e)(1)-(4) of Pub. L. 94-455 applicable
to estates of decedents dying after Dec. 31, 1976, see section
2004(g) of Pub. L. 94-455, set out as an Effective Date note under
section 6166 of this title.
For effective date of amendment by section 2006(b)(4) of Pub. L.
94-455, see section 2006(c) of Pub. L. 94-455, set out as an
Effective Date note under section 2601 of this title.
-End-
-CITE-
26 USC Sec. 304 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 304. Redemption through use of related corporations
-STATUTE-
(a) Treatment of certain stock purchases
(1) Acquisition by related corporation (other than subsidiary)
For purposes of sections 302 and 303, if -
(A) one or more persons are in control of each of two
corporations, and
(B) in return for property, one of the corporations acquires
stock in the other corporation from the person (or persons) so
in control,
then (unless paragraph (2) applies) such property shall be
treated as a distribution in redemption of the stock of the
corporation acquiring such stock. To the extent that such
distribution is treated as a distribution to which section 301
applies, the transferor and the acquiring corporation shall be
treated in the same manner as if the transferor had transferred
the stock so acquired to the acquiring corporation in exchange
for stock of the acquiring corporation in a transaction to which
section 351(a) applies, and then the acquiring corporation had
redeemed the stock it was treated as issuing in such transaction.
(2) Acquisition by subsidiary
For purposes of sections 302 and 303, if -
(A) in return for property, one corporation acquires from a
shareholder of another corporation stock in such other
corporation, and
(B) the issuing corporation controls the acquiring
corporation,
then such property shall be treated as a distribution in
redemption of the stock of the issuing corporation.
(b) Special rules for application of subsection (a)
(1) Rules for determinations under section 302(b)
In the case of any acquisition of stock to which subsection (a)
of this section applies, determinations as to whether the
acquisition is, by reason of section 302(b), to be treated as a
distribution in part or full payment in exchange for the stock
shall be made by reference to the stock of the issuing
corporation. In applying section 318(a) (relating to constructive
ownership of stock) with respect to section 302(b) for purposes
of this paragraph, sections 318(a)(2)(C) and 318(a)(3)(C) shall
be applied without regard to the 50 percent limitation contained
therein.
(2) Amount constituting dividend
In the case of any acquisition of stock to which subsection (a)
applies, the determination of the amount which is a dividend (and
the source thereof) shall be made as if the property were
distributed -
(A) by the acquiring corporation to the extent of its
earnings and profits, and
(B) then by the issuing corporation to the extent of its
earnings and profits.
(3) Coordination with section 351
(A) Property treated as received in redemption
Except as otherwise provided in this paragraph, subsection
(a) (and not section 351 and not so much of sections 357 and
358 as relates to section 351) shall apply to any property
received in a distribution described in subsection (a).
(B) Certain assumptions of liability, etc.
(i) In general
In the case of an acquisition described in section 351,
subsection (a) shall not apply to any liability -
(I) assumed by the acquiring corporation, or
(II) to which the stock is subject,
if such liability was incurred by the transferor to acquire
the stock. For purposes of the preceding sentence, the term
"stock" means stock referred to in paragraph (1)(B) or (2)(A)
of subsection (a).
(ii) Extension of obligations, etc.
For purposes of clause (i), an extension, renewal, or
refinancing of a liability which meets the requirements of
clause (i) shall be treated as meeting such requirements.
(iii) Clause (i) does not apply to stock acquired from
related person except where complete termination
Clause (i) shall apply only to stock acquired by the
transferor from a person -
(I) none of whose stock is attributable to the transferor
under section 318(a) (other than paragraph (4) thereof), or
(II) who satisfies rules similar to the rules of section
302(c)(2) with respect to both the acquiring and the
issuing corporations (determined as if such person were a
distributee of each such corporation).
(C) Distributions incident to formation of bank holding
companies
If -
(i) pursuant to a plan, control of a bank is acquired and
within 2 years after the date on which such control is
acquired, stock constituting control of such bank is
transferred to a BHC in connection with its formation,
(ii) incident to the formation of the BHC there is a
distribution of property described in subsection (a), and
(iii) the shareholders of the BHC who receive distributions
of such property do not have control of such BHC,
then, subsection (a) shall not apply to any securities received
by a qualified minority shareholder incident to the formation
of such BHC. For purposes of this subparagraph, any assumption
of (or acquisition of stock subject to) a liability under
subparagraph (B) shall not be treated as a distribution of
property.
(D) Definitions and special rule
For purposes of subparagraph (C) and this subparagraph -
(i) Qualified minority shareholder
The term "qualified minority shareholder" means any
shareholder who owns less than 10 percent (in value) of the
stock of the BHC. For purposes of the preceding sentence, the
rules of paragraph (3) of subsection (c) shall apply.
(ii) BHC
The term "BHC" means a bank holding company (within the
meaning of section 2(a) of the Bank Holding Company Act of
1956).
(iii) Special rule in case of BHC's formed before 1985
In the case of a BHC which is formed before 1985, clause
(i) of subparagraph (C) shall not apply.
(4) Treatment of certain intragroup transactions
(A) In general
In the case of any transfer described in subsection (a) of
stock from 1 member of an affiliated group to another member of
such group, proper adjustments shall be made to -
(i) the adjusted basis of any intragroup stock, and
(ii) the earnings and profits of any member of such group,
to the extent necessary to carry out the purposes of this
section.
(B) Definitions
For purposes of this paragraph -
(i) Affiliated group
The term "affiliated group" has the meaning given such term
by section 1504(a).
(ii) Intragroup stock
The term "intragroup stock" means any stock which -
(I) is in a corporation which is a member of an
affiliated group, and
(II) is held by another member of such group.
(5) Acquisitions by foreign corporations
(A) In general
In the case of any acquisition to which subsection (a)
applies in which the acquiring corporation is a foreign
corporation, the only earnings and profits taken into account
under paragraph (2)(A) shall be those earnings and profits -
(i) which are attributable (under regulations prescribed by
the Secretary) to stock of the acquiring corporation owned
(within the meaning of section 958(a)) by a corporation or
individual which is -
(I) a United States shareholder (within the meaning of
section 951(b)) of the acquiring corporation, and
(II) the transferor or a person who bears a relationship
to the transferor described in section 267(b) or 707(b),
and
(ii) which were accumulated during the period or periods
such stock was owned by such person while the acquiring
corporation was a controlled foreign corporation.
(B) Regulations
The Secretary shall prescribe such regulations as are
appropriate to carry out the purposes of this paragraph.
(6) Avoidance of multiple inclusions, etc.
In the case of any acquisition to which subsection (a) applies
in which the acquiring corporation or the issuing corporation is
a foreign corporation, the Secretary shall prescribe such
regulations as are appropriate in order to eliminate a multiple
inclusion of any item in income by reason of this subpart and to
provide appropriate basis adjustments (including modifications to
the application of sections 959 and 961).
(c) Control
(1) In general
For purposes of this section, control means the ownership of
stock possessing at least 50 percent of the total combined voting
power of all classes of stock entitled to vote, or at least 50
percent of the total value of shares of all classes of stock. If
a person (or persons) is in control (within the meaning of the
preceding sentence) of a corporation which in turn owns at least
50 percent of the total combined voting power of all stock
entitled to vote of another corporation, or owns at least 50
percent of the total value of the shares of all classes of stock
of another corporation, then such person (or persons) shall be
treated as in control of such other corporation.
(2) Stock acquired in the transaction
For purposes of subsection (a)(1) -
(A) General rule
Where 1 or more persons in control of the issuing corporation
transfer stock of such corporation in exchange for stock of the
acquiring corporation, the stock of the acquiring corporation
received shall be taken into account in determining whether
such person or persons are in control of the acquiring
corporation.
(B) Definition of control group
Where 2 or more persons in control of the issuing corporation
transfer stock of such corporation to the acquiring corporation
and, after the transfer, the transferors are in control of the
acquiring corporation, the person or persons in control of each
corporation shall include each of the persons who so transfer
stock.
(3) Constructive ownership
(A) In general
Section 318(a) (relating to constructive ownership of stock)
shall apply for purposes of determining control under this
section.
(B) Modification of 50-percent limitations in section 318
For purposes of subparagraph (A) -
(i) paragraph (2)(C) of section 318(a) shall be applied by
substituting "5 percent" for "50 percent", and
(ii) paragraph (3)(C) of section 318(a) shall be applied -
(I) by substituting "5 percent" for "50 percent", and
(II) in any case where such paragraph would not apply but
for subclause (I), by considering a corporation as owning
the stock (other than stock in such corporation) owned by
or for any shareholder of such corporation in that
proportion which the value of the stock which such
shareholder owned in such corporation bears to the value of
all stock in such corporation.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 89; Pub. L. 88-554, Sec.
4(b)(1), Aug. 31, 1964, 78 Stat. 763; Pub. L. 97-248, title II,
Sec. 226(a)(1)(A), (2), (3), Sept. 3, 1982, 96 Stat. 490, 491; Pub.
L. 98-369, div. A, title VII, Sec. 712(l)(1)-(5)(A), July 18, 1984,
98 Stat. 953, 954; Pub. L. 99-514, title XVIII, Sec. 1875(b), Oct.
22, 1986, 100 Stat. 2894; Pub. L. 100-203, title X, Sec. 10223(c),
Dec. 22, 1987, 101 Stat. 1330-411; Pub. L. 100-647, title II, Sec.
2004(k)(2), Nov. 10, 1988, 102 Stat. 3605; Pub. L. 105-34, title X,
Sec. 1013(a), (c), Aug. 5, 1997, 111 Stat. 918; Pub. L. 105-206,
title VI, Sec. 6010(d), July 22, 1998, 112 Stat. 814.)
-REFTEXT-
REFERENCES IN TEXT
Section 2(a) of the Bank Holding Company Act of 1956, referred to
in subsec. (b)(3)(D)(ii), is classified to section 1841(a) of Title
12, Banks and Banking.
-MISC1-
AMENDMENTS
1998 - Subsec. (b)(5)(B), (C). Pub. L. 105-206, Sec. 6010(d)(1),
redesignated subpar. (C) as (B) and struck out heading and text of
former subpar. (B). Text read as follows: "For purposes of
subparagraph (A), the rules of section 1248(d) shall apply except
to the extent otherwise provided by the Secretary."
Subsec. (b)(6). Pub. L. 105-206, Sec. 6010(d)(2), added par. (6).
1997 - Subsec. (a)(1). Pub. L. 105-34, Sec. 1013(a), amended last
sentence generally. Prior to amendment, last sentence read as
follows: "To the extent that such distribution is treated as a
distribution to which section 301 applies, the stock so acquired
shall be treated as having been transferred by the person from whom
acquired, and as having been received by the corporation acquiring
it, as a contribution to the capital of such corporation."
Subsec. (b)(5). Pub. L. 105-34, Sec. 1013(c), added par. (5).
1988 - Subsec. (b)(4)(A). Pub. L. 100-647 substituted "stock from
1 member" for "stock of 1 member".
1987 - Subsec. (b)(4). Pub. L. 100-203 added par. (4).
1986 - Subsec. (a)(1). Pub. L. 99-514 substituted "To the extent
that such distribution is treated as a distribution to which
section 301 applies" for "In any such case" in last sentence.
1984 - Subsec. (b)(2). Pub. L. 98-369, Sec. 712(l)(1),
consolidated former subpars. "(A) Where subsection (a)(1) applies"
and "(B) Where subsection (a)(2) applies" in one paragraph,
inserted provision respecting source of dividend, and incorporated
in cls. (A) and (B) former subpar. (A) and (B) provisions which had
required determination of amount which is a dividend to be made by
reference to earnings and profits of the acquiring corporation and
as if the property were distributed by the acquiring corporation to
the issuing corporation and immediately thereafter distributed by
the issuing corporation.
Subsec. (b)(3)(A). Pub. L. 98-369, Sec. 712(l)(2), substituted
"section 351 and not so much of sections 357 and 358 as relates to
section 351" for "part III".
Subsec. (b)(3)(B)(i). Pub. L. 98-369, Sec. 712(l)(3)(A)(i),
substituted "In the case of an acquisition described in section
351, subsection (a)" for "Subsection (a)".
Subsec. (b)(3)(B)(iii). Pub. L. 98-369, Sec. 712(l)(3)(B), added
cl. (iii).
Subsec. (b)(3)(C). Pub. L. 98-369, Sec. 712(l)(4), inserted
following cl. (iii) "For purposes of this subparagraph, any
assumption of (or acquisition of stock subject to) a liability
under subparagraph (B) shall not be treated as a distribution of
property."
Subsec. (c)(3). Pub. L. 98-369, Sec. 712(l)(5)(A), designated
existing first sentence as subpar. "(A) In general" and substituted
subpar. (B) for former second sentence which read "For purposes of
the preceding sentence, sections 318(a)(2)(C) and 318(a)(3)(C)
shall be applied without regard to the 50 percent limitation
contained therein."
1982 - Subsec. (b)(2)(A). Pub. L. 97-248, Sec. 226(a)(3),
substituted "as if the property were distributed by the issuing
corporation to the acquiring corporation and immediately thereafter
distributed by the acquiring corporation" for "soley by reference
to the earnings and profits of the acquiring corporation" after
"dividend shall be made".
Subsec. (b)(3). Pub. L. 97-248, Sec. 226(a)(1)(A), added par.
(3).
Subsec. (c)(2), (3). Pub. L. 97-248, Sec. 226(a)(2), added par.
(2), redesignated former par. (2) as (3) and substituted "this
section" for "paragraph (1)" after "determining control under".
1964 - Subsecs. (b)(1), (c)(2). Pub. L. 88-554 inserted reference
to section 318(a)(3)(C) of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1013(d) of Pub. L. 105-34 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 1059 of this title] shall apply to
distributions and acquisitions after June 8, 1997.
"(2) Transition rule. - The amendments made by this section shall
not apply to any distribution or acquisition after June 8, 1997, if
such distribution or acquisition is -
"(A) made pursuant to a written agreement which was binding on
such date and at all times thereafter,
"(B) described in a ruling request submitted to the Internal
Revenue Service on or before such date, or
"(C) described in a public announcement or filing with the
Securities and Exchange Commission on or before such date."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10223(d) of Pub. L. 100-203, as amended by Pub. L. 100-
647, title II, Sec. 2004(k)(3), (4), Nov. 10, 1988, 102 Stat.
3605, 3606, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 337 and 355 of this title] shall apply to
distributions or transfers after December 15, 1987.
"(2) Exceptions. -
"(A) Distributions. - The amendments made by this section shall
not apply to any distribution after December 15, 1987, and before
January 1, 1993, if -
"(i) 80 percent or more of the stock of the distributing
corporation was acquired by the distributee before December 15,
1987, or
"(ii) 80 percent or more of the stock of the distributing
corporation was acquired by the distributee before January 1,
1989, pursuant to a binding written contract or tender offer in
effect on December 15, 1987.
For purposes of the preceding sentence, stock described in
section 1504(a)(4) of the Internal Revenue Code of 1986 shall not
be taken into account.
"(B) Section 304 transfers. - The amendment made by subsection
(c) [amending this section] shall not apply to any transfer after
December 15, 1987, and on or before March 31, 1988, if such
transfer is -
"(i) between corporations which are members of the same
affiliated group on December 15, 1987, or
"(ii) between corporations which become members of the same
affiliated group pursuant to a binding written contract or
tender offer in effect on December 15, 1987.
"(C) Distributions covered by prior transition rule. - The
amendments made by this section shall not apply to any
distribution to which the amendments made by subtitle D of title
VI of the Tax Reform Act of 1986 [sections 631 to 634 of Pub. L.
99-514, see Tables for classification] do not apply.
"(D) Treatment of certain members of affiliated group. -
"(i) In general. - For purposes of subparagraph (A), all
corporations which were in existence on the designated date and
were members of the same affiliated group which included the
distributees on such date shall be treated as 1 distributee.
"(ii) Limitation to stock held on designated date. - Clause
(i) shall not exempt any distribution from the amendments made
by this section if such distribution is with respect to stock
not held by the distributee (determined without regard to
clause (i)) on the designated date directly or indirectly
through a corporation which goes out of existence in the
transaction.
"(iii) Designated date. - For purposes of this subparagraph,
the term 'designated date' means the later of -
"(I) December 15, 1987, or
"(II) the date on which the acquisition meeting the
requirements of subparagraph (A) occurred."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 712(l)(7) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - Except as otherwise provided in this
paragraph, the amendments made by paragraphs (1) and (3) [amending
this section] shall apply to stock acquired after June 18, 1984, in
taxable years ending after such date.
"(B) Election by taxpayer to have amendments apply earlier. - Any
taxpayer may elect, at such time and in such manner as the
Secretary of the Treasury or his delegate may prescribe, to have
the amendments made by paragraphs (1) and (3) apply as if included
in section 226 of the Tax Equity and Fiscal Responsibility Act of
1982 [section 226 of Pub. L. 97-248, which amended this section and
section 306 of this title and enacted Effective Date of 1982
Amendment note set out below].
"(C) Special rule for certain transfers to form bank holding
company. - Except as provided in subparagraph (D), the amendments
made by paragraphs (1) and (3) shall not apply to transfers
pursuant to an application to form a BHC (as defined in section
304(b)(3)(D)(ii) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]) filed with the Federal Reserve Board before June 18,
1984, if -
"(i) such BHC was formed not later than the 90th day after the
date of the last required approval of any regulatory authority to
form such BHC, and
"(ii) such BHC did not elect (at such time and in such manner
as the Secretary of the Treasury or his delegate shall prescribe)
not to have the provisions of this subparagraph apply.
"(D) Amendments to apply to certain liabilities incurred before
october 20, 1983. - The amendment made by paragraph (3)(A) shall
apply to the acquisition of any stock to the extent the liability
assumed, or to which such stock is subject, was incurred by the
transferor after October 20, 1983."
Amendment by section 712(l)(2), (4), (5)(A) of Pub. L. 98-369
effective as if included in the provision of the Tax Equity and
Fiscal Responsibility Act of 1982, Pub. L. 97-248, to which such
amendment relates, see section 715 of Pub. L. 98-369, set out as a
note under section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 226(c) of Pub. L. 97-248 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
306 and 351 of this title] shall apply to transfers occurring after
August 31, 1982, in taxable years ending after such date.
"(2) Approval by federal reserve board. - The amendments made by
this section shall not apply to transfers pursuant to an
application to form a BHC filed with the Federal Reserve Board
before August 16, 1982, if the BHC was formed not later than the
later of -
"(A) the 90th day after the date of the last required approval
of any regulatory authority to form such BHC, or
"(B) January 1, 1983.
For purposes of this paragraph, the term 'BHC' means a bank holding
company (within the meaning of section 2(a) of the Bank Holding
Company Act of 1956 [section 1841(a) of Title 12, Banks and
Banking])."
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-554 effective Aug. 31, 1964, except that
for purposes of this section and section 302 of this title, such
amendments shall not apply to distributions in payment for stock
acquisitions or redemptions, if such acquisition or redemption
occurred before Aug. 31, 1964, see section 4(c) of Pub. L. 88-554,
set out as a note under section 318 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 305 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 305. Distributions of stock and stock rights
-STATUTE-
(a) General rule
Except as otherwise provided in this section, gross income does
not include the amount of any distribution of the stock of a
corporation made by such corporation to its shareholders with
respect to its stock.
(b) Exceptions
Subsection (a) shall not apply to a distribution by a corporation
of its stock, and the distribution shall be treated as a
distribution of property to which section 301 applies -
(1) Distributions in lieu of money
If the distribution is, at the election of any of the
shareholders (whether exercised before or after the declaration
thereof), payable either -
(A) in its stock, or
(B) in property.
(2) Disproportionate distributions
If the distribution (or a series of distributions of which such
distribution is one) has the result of -
(A) the receipt of property by some shareholders, and
(B) an increase in the proportionate interests of other
shareholders in the assets or earnings and profits of the
corporation.
(3) Distributions of common and preferred stock
If the distribution (or a series of distributions of which such
distribution is one) has the result of -
(A) the receipt of preferred stock by some common
shareholders, and
(B) the receipt of common stock by other common shareholders.
(4) Distributions on preferred stock
If the distribution is with respect to preferred stock, other
than an increase in the conversion ratio of convertible preferred
stock made solely to take account of a stock dividend or stock
split with respect to the stock into which such convertible stock
is convertible.
(5) Distributions of convertible preferred stock
If the distribution is of convertible preferred stock, unless
it is established to the satisfaction of the Secretary that such
distribution will not have the result described in paragraph (2).
(c) Certain transactions treated as distributions
For purposes of this section and section 301, the Secretary shall
prescribe regulations under which a change in conversion ratio, a
change in redemption price, a difference between redemption price
and issue price, a redemption which is treated as a distribution to
which section 301 applies, or any transaction (including a
recapitalization) having a similar effect on the interest of any
shareholder shall be treated as a distribution with respect to any
shareholder whose proportionate interest in the earnings and
profits or assets of the corporation is increased by such change,
difference, redemption, or similar transaction. Regulations
prescribed under the preceding sentence shall provide that -
(1) where the issuer of stock is required to redeem the stock
at a specified time or the holder of stock has the option to
require the issuer to redeem the stock, a redemption premium
resulting from such requirement or option shall be treated as
reasonable only if the amount of such premium does not exceed the
amount determined under the principles of section 1273(a)(3),
(2) a redemption premium shall not fail to be treated as a
distribution (or series of distributions) merely because the
stock is callable, and
(3) in any case in which a redemption premium is treated as a
distribution (or series of distributions), such premium shall be
taken into account under principles similar to the principles of
section 1272(a).
(d) Definitions
(1) Rights to acquire stock
For purposes of this section, the term "stock" includes rights
to acquire such stock.
(2) Shareholders
For purposes of subsections (b) and (c), the term "shareholder"
includes a holder of rights or of convertible securities.
(e) Treatment of purchaser of stripped preferred stock
(1) In general
If any person purchases after April 30, 1993, any stripped
preferred stock, then such person, while holding such stock,
shall include in gross income amounts equal to the amounts which
would have been so includible if such stripped preferred stock
were a bond issued on the purchase date and having original issue
discount equal to the excess, if any, of -
(A) the redemption price for such stock, over
(B) the price at which such person purchased such stock.
The preceding sentence shall also apply in the case of any person
whose basis in such stock is determined by reference to the basis
in the hands of such purchaser.
(2) Basis adjustments
Appropriate adjustments to basis shall be made for amounts
includible in gross income under paragraph (1).
(3) Tax treatment of person stripping stock
If any person strips the rights to 1 or more dividends from any
stock described in paragraph (5)(B) and after April 30, 1993,
disposes of such dividend rights, for purposes of paragraph (1),
such person shall be treated as having purchased the stripped
preferred stock on the date of such disposition for a purchase
price equal to such person's adjusted basis in such stripped
preferred stock.
(4) Amounts treated as ordinary income
Any amount included in gross income under paragraph (1) shall
be treated as ordinary income.
(5) Stripped preferred stock
For purposes of this subsection -
(A) In general
The term "stripped preferred stock" means any stock described
in subparagraph (B) if there has been a separation in ownership
between such stock and any dividend on such stock which has not
become payable.
(B) Description of stock
Stock is described in this subsection if such stock -
(i) is limited and preferred as to dividends and does not
participate in corporate growth to any significant extent,
and
(ii) has a fixed redemption price.
(6) Purchase
For purposes of this subsection, the term "purchase" means -
(A) any acquisition of stock, where
(B) the basis of such stock is not determined in whole or in
part by the reference to the adjusted basis of such stock in
the hands of the person from whom acquired.
(7) Cross reference
For treatment of stripped interests in certain accounts or
entities holding preferred stock, see section 1286(f).
(f) Cross references
For special rules -
(1) Relating to the receipt of stock and stock rights in
corporate organizations and reorganizations, see part III (sec.
351 and following).
(2) In the case of a distribution which results in a gift,
see section 2501 and following.
(3) In the case of a distribution which has the effect of the
payment of compensation, see section 61(a)(1).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 90; Pub. L. 91-172, title IV,
Sec. 421(a), Dec. 30, 1969, 83 Stat. 614; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97-
34, title III, Sec. 321(a), (b), Aug. 13, 1981, 95 Stat. 287, 289;
Pub. L. 97-448, title I, Sec. 103(f), Jan. 12, 1983, 96 Stat. 2378;
Pub. L. 101-508, title XI, Secs. 11322(a), 11801(a)(17), (c)(7),
Nov. 5, 1990, 104 Stat. 1388-463, 1388-521, 1388-524; Pub. L. 103-
66, title XIII, Sec. 13206(c)(1), Aug. 10, 1993, 107 Stat. 465;
Pub. L. 108-357, title VIII, Sec. 831(b), Oct. 22, 2004, 118 Stat.
1587.)
-MISC1-
AMENDMENTS
2004 - Subsec. (e)(7). Pub. L. 108-357 added par. (7).
1993 - Subsecs. (e), (f). Pub. L. 103-66 added subsec. (e) and
redesignated former subsec. (e) as (f).
1990 - Subsec. (c). Pub. L. 101-508, Sec. 11322(a), inserted
sentence at end specifying the contents of regulations.
Subsec. (d)(1). Pub. L. 101-508, Sec. 11801(c)(7)(A), struck out
"(other than subsection (e))" after "this section".
Subsecs. (e), (f). Pub. L. 101-508, Sec. 11801(a)(17), (c)(7)(B),
redesignated subsec. (f) as (e) and struck out former subsec. (e)
relating to dividend reinvestment in stock of public utilities.
1983 - Subsec. (e)(3)(A). Pub. L. 97-448, Sec. 103(f)(1),
substituted "placed in service qualified long-life public utility
property having a cost equal to at least 60 percent of the
aggregate cost of all tangible property described in subparagraph
(A) or (B) of section 1245(a)(3) placed in service by the
corporation during such period" for "acquired public utility
recovery property having a cost equal to at least 60 percent of the
aggregate cost of all tangible property described in section
1245(a)(3) (other than subparagraphs (C) and (D) thereof) acquired
by the corporation during such period".
Subsec. (e)(3)(C)(ii). Pub. L. 97-448, Sec. 103(f)(2),
substituted definition of "qualified long-life public utility
property" for definition of "public utility recovery property"
which had been defined as public utility property (within the
meaning of section 167(l)(3)(A)) which was recovery property which
was 10-year property or 15-year public utility property (within the
meaning of section 168), except that any requirement that the
property be placed in service after December 31, 1980, did not
apply.
1981 - Subsec. (d)(1). Pub. L. 97-34, Sec. 321(b), inserted
"(other than subsection (e))" after "this section".
Subsecs. (e), (f). Pub. L. 97-34, Sec. 321(a), added subsec. (e)
and redesignated former subsec. (e) as (f).
1976 - Subsecs. (b)(5), (c). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1969 - Subsec. (a). Pub. L. 91-172 substituted reference to this
section for reference to subsec. (b), and omitted reference to
rights to acquire its stock.
Subsec. (b). Pub. L. 91-172 omitted reference to rights to
acquire its stock, in text preceding par. (1), redesignated former
par. (2) as par. (1) and added pars. (2) to (5). Former par. (1),
providing for the extent to which distribution of preference
dividends were to be treated as distribution of property to which
section 301 applied, was struck out.
Subsecs. (c) to (e). Pub. L. 91-172 added subsecs. (c) and (d)
and redesignated former subsec. (c) as (e).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 831(c), Oct. 22, 2004, 118
Stat. 1587, provided that: "The amendments made by this section
[amending this section and section 1286 of this title] shall apply
to purchases and dispositions after the date of the enactment of
this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 effective Apr. 30, 1993, see section
13206(c)(3) of Pub. L. 103-66 set out as a note under section 167
of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11322(b) of Pub. L. 101-508 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply to stock issued after October 9, 1990.
"(2) Exception. - The amendment made by subsection (a) shall not
apply to any stock issued after October 9, 1990, if -
"(A) such stock is issued pursuant to a written binding
contract in effect on October 9, 1990, and at all times
thereafter before such issuance,
"(B) such stock is issued pursuant to a registration or
offering statement filed on or before October 9, 1990, with a
Federal or State agency regulating the offering or sale of
securities and such stock is issued before the date 90 days after
the date of such filing, or
"(C) such stock is issued pursuant to a plan filed on or before
October 9, 1990, in a title 11 or similar case (as defined in
section 368(a)(3)(A) of the Internal Revenue Code of 1986)."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 321(c) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section] shall apply to
distributions after December 31, 1981, in taxable years ending
after such date."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 421(b) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Except as otherwise provided in this subsection, the
amendment made by subsection (a) [amending this section] shall
apply with respect to distributions (or deemed distributions) made
after January 10, 1969, in taxable years ending after such date.
"(2)(A) Section 305(b)(2) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as added by subsection (a)) shall not apply
to a distribution (or deemed distribution) of stock made before
January 1, 1991, with respect to stock (i) outstanding on January
10, 1969, (ii) issued pursuant to a contract binding on January 10,
1969, on the distributing corporation, (iii) which is additional
stock of that class of stock which (as of January 10, 1969) had the
largest fair market value of all classes of stock of the
corporation (taking into account only stock outstanding on January
10, 1969, or issued pursuant to a contract binding on January 10,
1969), (iv) described in subparagraph (C)(iii), or (v) issued in a
prior distribution described in clause (i), (ii), (iii), or (iv).
"(B) Subparagraph (A) shall apply only if -
"(i) the stock as to which there is a receipt of property was
outstanding on January 10, 1969 (or was issued pursuant to a
contract binding on January 10, 1969, on the distributing
corporation), and
"(ii) if such stock and any stock described in subparagraph
(A)(i) were also outstanding on January 10, 1968, a distribution
of property was made on or before January 10, 1969, with respect
to such stock, and a distribution of stock was made on or before
January 10, 1969, with respect to such stock described in
subparagraph (A)(i).
"(C) Subparagraph (A) shall cease to apply when at any time after
October 9, 1969, the distributing corporation issues any of its
stock (other than in a distribution of stock with respect to stock
of the same class) which is not -
"(i) nonconvertible preferred stock.
"(ii) additional stock of that class of stock which meets the
requirements of subparagraph (A)(iii), or
"(iii) preferred stock which is convertible into stock which
meets the requirements of subparagraph (A)(iii) at a fixed
conversion ratio which takes account of all stock dividends and
stock splits with respect to the stock into which such
convertible stock is convertible.
"(D) For purposes of this paragraph, the term 'stock' includes
rights to acquire such stock.
"(3) In cases to which Treasury Decision 6990 (promulgated
January 10, 1969) would not have applied, in applying paragraphs
(1) and (2) April 22, 1969, shall be substituted for January 10,
1969.
"(4) Section 305(b)(4) of the Internal Revenue Code of 1986 (as
added by subsection (a)) shall not apply to any distribution (or
deemed distribution) with respect to preferred stock (including any
increase in the conversion ratio of convertible stock) made before
January 1, 1991, pursuant to the terms relating to the issuance of
such stock which were in effect on January 10, 1969.
"(5) With respect to distributions made or considered as made
after January 10, 1969, in taxable years ending after such date, to
the extent that the amendment made by subsection (a) [amending this
section] does not apply by reason of paragraph (2), (3), or (4) of
this subsection, section 305 of the Internal Revenue Code of 1986
(as in effect before the amendment made by subsection (a)) shall
continue to apply."
SAVINGS PROVISION
For provisions that nothing in amendment by section 11801(a)(17),
(c)(7) of Pub. L. 101-508 be construed to affect treatment of
certain transactions occurring, property acquired, or items of
income, loss, deduction, or credit taken into account prior to Nov.
5, 1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
-End-
-CITE-
26 USC Sec. 306 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 306. Dispositions of certain stock
-STATUTE-
(a) General rule
If a shareholder sells or otherwise disposes of section 306 stock
(as defined in subsection (c)) -
(1) Dispositions other than redemptions
If such disposition is not a redemption (within the meaning of
section 317(b)) -
(A) The amount realized shall be treated as ordinary income.
This subparagraph shall not apply to the extent that -
(i) the amount realized, exceeds
(ii) such stock's ratable share of the amount which would
have been a dividend at the time of distribution if (in lieu
of section 306 stock) the corporation had distributed money
in an amount equal to the fair market value of the stock at
the time of distribution.
(B) Any excess of the amount realized over the sum of -
(i) the amount treated under subparagraph (A) as ordinary
income, plus
(ii) the adjusted basis of the stock,
shall be treated as gain from the sale of such stock.
(C) No loss shall be recognized.
(D) Treatment as dividend. - For purposes of section 1(h)(11)
and such other provisions as the Secretary may specify, any
amount treated as ordinary income under this paragraph shall be
treated as a dividend received from the corporation.
(2) Redemption
If the disposition is a redemption, the amount realized shall
be treated as a distribution of property to which section 301
applies.
(b) Exceptions
Subsection (a) shall not apply -
(1) Termination of shareholder's interest, etc.
(A) Not in redemption
If the disposition -
(i) is not a redemption;
(ii) is not, directly or indirectly, to a person the
ownership of whose stock would (under section 318(a)) be
attributable to the shareholder; and
(iii) terminates the entire stock interest of the
shareholder in the corporation (and for purposes of this
clause, section 318(a) shall apply).
(B) In redemption
If the disposition is a redemption and paragraph (3) or (4)
of section 302(b) applies.
(2) Liquidations
If the section 306 stock is redeemed in a distribution in
complete liquidation to which part II (sec. 331 and following)
applies.
(3) Where gain or loss is not recognized
To the extent that, under any provision of this subtitle, gain
or loss to the shareholder is not recognized with respect to the
disposition of the section 306 stock.
(4) Transactions not in avoidance
If it is established to the satisfaction of the Secretary -
(A) that the distribution, and the disposition or redemption,
or
(B) in the case of a prior or simultaneous disposition (or
redemption) of the stock with respect to which the section 306
stock disposed of (or redeemed) was issued, that the
disposition (or redemption) of the section 306 stock,
was not in pursuance of a plan having as one of its principal
purposes the avoidance of Federal income tax.
(c) Section 306 stock defined
(1) In general
For purposes of this subchapter, the term "section 306 stock"
means stock which meets the requirements of subparagraph (A),
(B), or (C) of this paragraph.
(A) Distributed to seller
Stock (other than common stock issued with respect to common
stock) which was distributed to the shareholder selling or
otherwise disposing of such stock if, by reason of section
305(a), any part of such distribution was not includible in the
gross income of the shareholder.
(B) Received in a corporate reorganization or separation
Stock which is not common stock and -
(i) which was received, by the shareholder selling or
otherwise disposing of such stock, in pursuance of a plan of
reorganization (within the meaning of section 368(a)), or in
a distribution or exchange to which section 355 (or so much
of section 356 as relates to section 355) applied, and
(ii) with respect to the receipt of which gain or loss to
the shareholder was to any extent not recognized by reason of
part III, but only to the extent that either the effect of
the transaction was substantially the same as the receipt of
a stock dividend, or the stock was received in exchange for
section 306 stock.
For purposes of this section, a receipt of stock to which the
foregoing provisions of this subparagraph apply shall be
treated as a distribution of stock.
(C) Stock having transferred or substituted basis
Except as otherwise provided in subparagraph (B), stock the
basis of which (in the hands of the shareholder selling or
otherwise disposing of such stock) is determined by reference
to the basis (in the hands of such shareholder or any other
person) of section 306 stock.
(2) Exception where no earnings and profits
For purposes of this section, the term "section 306 stock" does
not include any stock no part of the distribution of which would
have been a dividend at the time of the distribution if money had
been distributed in lieu of the stock.
(3) Certain stock acquired in section 351 exchange
The term "section 306 stock" also includes any stock which is
not common stock acquired in an exchange to which section 351
applied if receipt of money (in lieu of the stock) would have
been treated as a dividend to any extent. Rules similar to the
rules of section 304(b)(2) shall apply -
(A) for purposes of the preceding sentence, and
(B) for purposes of determining the application of this
section to any subsequent disposition of stock which is section
306 stock by reason of an exchange described in the preceding
sentence.
(4) Application of attribution rules for certain purposes
For purposes of paragraphs (1)(B)(ii) and (3), section 318(a)
shall apply. For purposes of applying the preceding sentence to
paragraph (3), the rules of section 304(c)(3)(B) shall apply.
(d) Stock rights
For purposes of this section -
(1) stock rights shall be treated as stock, and
(2) stock acquired through the exercise of stock rights shall
be treated as stock distributed at the time of the distribution
of the stock rights, to the extent of the fair market value of
such rights at the time of the distribution.
(e) Convertible stock
For purposes of subsection (c) -
(1) if section 306 stock was issued with respect to common
stock and later such section 306 stock is exchanged for common
stock in the same corporation (whether or not such exchange is
pursuant to a conversion privilege contained in the section 306
stock), then (except as provided in paragraph (2)) the common
stock so received shall not be treated as section 306 stock; and
(2) common stock with respect to which there is a privilege of
converting into stock other than common stock (or into property),
whether or not the conversion privilege is contained in such
stock, shall not be treated as common stock.
(f) Source of gain
The amount treated under subsection (a)(1)(A) as ordinary income
shall, for purposes of part I of subchapter N (sec. 861 and
following, relating to determination of sources of income), be
treated as derived from the same source as would have been the
source if money had been received from the corporation as a
dividend at the time of the distribution of such stock. If under
the preceding sentence such amount is determined to be derived from
sources within the United States, such amount shall be considered
to be fixed or determinable annual or periodical gains, profits,
and income within the meaning of section 871(a) or section 881(a),
as the case may be.
(g) Change in terms and conditions of stock
If a substantial change is made in the terms and conditions of
any stock, then, for purposes of this section -
(1) the fair market value of such stock shall be the fair
market value at the time of the distribution or at the time of
such change, whichever such value is higher;
(2) such stock's ratable share of the amount which would have
been a dividend if money had been distributed in lieu of stock
shall be determined as of the time of distribution or as of the
time of such change, whichever such ratable share is higher; and
(3) subsection (c)(2) shall not apply unless the stock meets
the requirements of such subsection both at the time of such
distribution and at the time of such change.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 90; Pub. L. 94-455, title XIX,
Secs. 1901(b)(3)(J), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1793,
1834; Pub. L. 95-600, title VII, Sec. 702(a)(1), (2), Nov. 6, 1978,
92 Stat. 2925; Pub. L. 96-223, title IV, Sec. 401(a), Apr. 2, 1980,
94 Stat. 299; Pub. L. 97-248, title II, Secs. 222(e)(1)(A), (2),
226(b), 227(a), Sept. 3, 1982, 96 Stat. 480, 492; Pub. L. 98-369,
div. A, title VII, Sec. 712(i)(2), (l)(5)(B), (6), July 18, 1984,
98 Stat. 948, 954; Pub. L. 101-508, title XI, Sec. 11801(a)(18),
Nov. 5, 1990, 104 Stat. 1388-521; Pub. L. 108-27, title III, Sec.
302(e)(3), May 28, 2003, 117 Stat. 763.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Subsec. (a)(1)(D). Pub. L. 108-27, Secs. 302(e)(3), 303,
temporarily added subpar. (D). See Effective and Termination Dates
of 2003 Amendment note below.
1990 - Subsec. (h). Pub. L. 101-508 struck out subsec. (h) which
related to stock received in distributions and reorganizations to
which 1939 Code applied.
1984 - Subsec. (b)(1). Pub. L. 98-369, Sec. 712(i)(2),
substituted "interest, etc." for "interest" in heading.
Subsec. (c)(3). Pub. L. 98-369, Sec. 712(l)(6), incorporated
existing second sentence in provision designated subpar. (A) and
added subpar. (B).
Subsec. (c)(4). Pub. L. 98-369, Sec. 712(l)(5)(B), substituted
"the rules of section 304(c)(3)(B) shall apply" for "sections
318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to
the 50 percent limitation contained therein".
1982 - Subsec. (b)(1)(B). Pub. L. 97-248, Sec. 222(e)(2),
substituted "paragraph (3) or (4) of section 302(b)" for "section
302(b)(3)".
Subsec. (b)(2). Pub. L. 97-248, Sec. 222(e)(1)(A), struck out
"partial or" before "complete liquidation".
Subsec. (c)(3). Pub. L. 97-248, Sec. 226(b), added par. (3).
Subsec. (c)(4). Pub. L. 97-248, Sec. 227(a), added par. (4).
1980 - Subsecs. (a)(3), (b)(5). Pub. L. 96-223 repealed the
amendments made by Pub. L. 95-600, Sec. 702(a)(1), (2). See 1978
Amendment notes below.
1978 - Subsec. (a)(3). Pub. L. 95-600, Sec. 702(a)(1), added par.
(3) which related to ordinary income from the sale or redemption of
section 306 stock which was carryover basis property adjusted for
1976 value. See Repeals note below.
Subsec. (b)(5). Pub. L. 95-600, Sec. 702(a)(2), added par. (5)
which provided that subsec. (a) of this section shall not apply to
the extent that section 303 applies to a distribution in redemption
of section 306 stock. See Repeals note below.
1976 - Subsec. (a)(1)(A), (B)(i). Pub. L. 94-455, Sec.
1901(b)(3)(J), substituted "ordinary income" for "gain from the
sale of property which is not a capital asset".
Subsec. (b)(4). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (f). Pub. L. 94-455, Sec. 1901(b)(3)(J), substituted
"ordinary income" for "gain from the sale of property which is not
a capital asset".
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in the
provision of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 715 of
Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by section 222(e)(1)(A), (2) of Pub. L. 97-248
applicable to distributions after Aug. 31, 1982, with exceptions
for certain partial liquidations, see section 222(f) of Pub. L. 97-
248, set out as a note under section 302 of this title.
Amendment by section 226(b) of Pub. L. 97-248 applicable to
transfers occurring after Aug. 31, 1982, except for certain
transfers pursuant to an application to form a BHC filed with the
Federal Reserve Board before Aug. 16, 1982, see section 226(c) of
Pub. L. 97-248, set out as a note under section 304 of this title.
Section 227(c)(1) of Pub. L. 97-248 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to stock
received after August 31, 1982, in taxable years ending after such
date."
EFFECTIVE DATE OF 1980 AMENDMENT AND REVIVAL OF PRIOR LAW
Amendment by Pub. L. 96-223 (repealing section 702(a)(1), (2) of
Pub. L. 95-600 and the amendments made thereby, which had amended
this section) applicable in respect of decedents dying after Dec.
31, 1976, and, except for certain elections, this title to be
applied and administered as if those repealed provisions had not
been enacted, see section 401(b), (e) of Pub. L. 96-223, set out as
a note under section 1023 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 702(a)(3) of Pub. L. 95-600 provided that the amendments
made by section 702(a) of Pub. L. 95-600 would apply to the estates
of decedents dying after Dec. 31, 1979, prior to repeal by Pub. L.
96-223, title IV, Sec. 401(a), Apr. 2, 1980, 94 Stat. 299.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(3)(J) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
REPEALS
Pub. L. 95-600, Sec. 702(a)(1), (2), cited as a credit to this
section, and the amendments made thereby, were repealed by Pub. L.
96-223, title IV, Sec. 401(a), Apr. 2, 1980, 94 Stat. 299,
resulting in the text of this section reading as it read prior to
enactment of section 702(a)(1), (2). See Effective Date of 1980
Amendment and Revival of Prior Law note above.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 307 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 307. Basis of stock and stock rights acquired in distributions
-STATUTE-
(a) General rule
If a shareholder in a corporation receives its stock or rights to
acquire its stock (referred to in this subsection as "new stock")
in a distribution to which section 305(a) applies, then the basis
of such new stock and of the stock with respect to which it is
distributed (referred to in this section as "old stock"),
respectively, shall, in the shareholder's hands, be determined by
allocating between the old stock and the new stock the adjusted
basis of the old stock. Such allocation shall be made under
regulations prescribed by the Secretary.
(b) Exception for certain stock rights
(1) In general
If -
(A) a corporation distributes rights to acquire its stock to
a shareholder in a distribution to which section 305(a)
applies, and
(B) the fair market value of such rights at the time of the
distribution is less than 15 percent of the fair market value
of the old stock at such time,
then subsection (a) shall not apply and the basis of such rights
shall be zero, unless the taxpayer elects under paragraph (2) of
this subsection to determine the basis of the old stock and of
the stock rights under the method of allocation provided in
subsection (a).
(2) Election
The election referred to in paragraph (1) shall be made in the
return filed within the time prescribed by law (including
extensions thereof) for the taxable year in which such rights
were received. Such election shall be made in such manner as the
Secretary may by regulations prescribe, and shall be irrevocable
when made.
(c) Cross reference
For basis of stock and stock rights distributed before June
22, 1954, see section 1052.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 93; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsecs. (a), (b)(2). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
-End-
-CITE-
26 USC Subpart B - Effects on Corporation 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart B - Effects on Corporation
-HEAD-
SUBPART B - EFFECTS ON CORPORATION
-MISC1-
Sec.
311. Taxability of corporation on distribution.
312. Effect on earnings and profits.
-End-
-CITE-
26 USC Sec. 311 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart B - Effects on Corporation
-HEAD-
Sec. 311. Taxability of corporation on distribution
-STATUTE-
(a) General rule
Except as provided in subsection (b), no gain or loss shall be
recognized to a corporation on the distribution (not in complete
liquidation) with respect to its stock of -
(1) its stock (or rights to acquire its stock), or
(2) property.
(b) Distributions of appreciated property
(1) In general
If -
(A) a corporation distributes property (other than an
obligation of such corporation) to a shareholder in a
distribution to which subpart A applies, and
(B) the fair market value of such property exceeds its
adjusted basis (in the hands of the distributing corporation),
then gain shall be recognized to the distributing corporation as
if such property were sold to the distributee at its fair market
value.
(2) Treatment of liabilities
Rules similar to the rules of section 336(b) shall apply for
purposes of this subsection.
(3) Special rule for certain distributions of partnership or
trust interests
If the property distributed consists of an interest in a
partnership or trust, the Secretary may by regulations provide
that the amount of the gain recognized under paragraph (1) shall
be computed without regard to any loss attributable to property
contributed to the partnership or trust for the principal purpose
of recognizing such loss on the distribution.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 94; Pub. L. 91-172, title IX,
Sec. 905(a), (b)(1), Dec. 30, 1969, 83 Stat. 713, 714; Pub. L. 94-
452, Sec. 2(b), Oct. 2, 1976, 90 Stat. 1511; Pub. L. 94-455, title
XIX, Sec. 1901(a)(42)(A), (B)(i), (C), Oct. 4, 1976, 90 Stat. 1771;
Pub. L. 95-600, title VII, Sec. 703(j)(2)(A), (B), Nov. 6, 1978, 92
Stat. 2941; Pub. L. 96-471, Sec. 2(b)(1), Oct. 19, 1980, 94 Stat.
2253; Pub. L. 97-248, title II, Sec. 223(a), Sept. 3, 1982, 96
Stat. 483; Pub. L. 98-369, div. A, title I, Sec. 54(a), title VII,
Sec. 712(j), July 18, 1984, 98 Stat. 568, 948; Pub. L. 99-514,
title VI, Sec. 631(c), Oct. 22, 1986, 100 Stat. 2272; Pub. L. 100-
647, title I, Secs. 1006(e)(8)(B), (21)(B), 1018(d)(5)(E), Nov.
10, 1988, 102 Stat. 3401, 3403, 3580.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1018(d)(5)(E),
substituted "distribution (not in complete liquidation) with
respect to its stock" for "distribution, with respect to its
stock,".
Subsec. (b)(2). Pub. L. 100-647, Sec. 1006(e)(21)(B), substituted
"liabilities" for "liabilities in excess of basis" in heading.
Subsec. (b)(3). Pub. L. 100-647, Sec. 1006(e)(8)(B), added par.
(3).
1986 - Pub. L. 99-514 amended section generally, substituting
provisions relating to distributions of appreciated property for
provisions relating to LIFO inventory, liability in excess of
basis, and appreciated property used to redeem stock.
1984 - Subsec. (d). Pub. L. 98-369, Sec. 54(a)(3), substituted
"Distributions of appreciated property" for "Appreciated property
used to redeem stock" in heading.
Subsec. (d)(1). Pub. L. 98-369, Sec. 54(a)(1), substituted "This
subsection shall be applied after the applications of subsections
(b) and (c)" for "Subsections (b) and (c) shall not apply to any
distribution to which this subsection applies" in provisions
following subpar. (B).
Subsec. (d)(1)(A). Pub. L. 98-369, Sec. 54(a)(1), struck out "of
part or all of his stock in such corporation" before "and".
Subsec. (d)(2)(A). Pub. L. 98-369, Sec. 54(a)(2)(A), substituted
provisions relating to a distribution which is made with respect to
qualified stock if section 302(b)(4) applies to such distribution
or such distribution is a qualified distribution for provisions
which had related to a distribution to a corporate shareholder if
the basis of the property distributed was determined under section
301(d)(2).
Subsec. (d)(2)(B) to (F). Pub. L. 98-369, Sec. 54(a)(2)(A), (B),
redesignated subpars. (C) to (F) as (B) to (E), respectively, and
struck out former subpar. (B) which related to distributions to
which section 302(b)(4) applied and which were made with respect to
qualified stock.
Subsec. (e)(1)(C). Pub. L. 98-369, Sec. 712(j), added subpar.
(C).
Subsec. (e)(3). Pub. L. 98-369, Sec. 54(a)(2)(C), added par. (3).
1982 - Subsec. (d)(2)(A). Pub. L. 97-248, Sec. 223(a)(1),
substituted reference to a distribution to a corporate shareholder
if the basis of the property distributed is determined under
section 301(d)(2) for reference to a distribution in complete
redemption of all of the stock of a shareholder who, at all times
within the 12-month period ending on the date of such distribution
owned at least 10 percent in value of the outstanding stock of the
distributing corporation, but only if the redemption qualified
under section 302(b)(3) (determined without the application of
section 302(c)(2)(A)(ii)).
Subsec. (d)(2)(B). Pub. L. 97-248, Sec. 223(a)(1), substituted
reference to a distribution to which section 302(b)(4) applies and
which is made with respect to qualified stock for reference to a
distribution of stock or an obligation of a corporation, which was
engaged in at least one trade or business, which had not received
property constituting a substantial part of its assets from the
distributing corporation, in a transaction to which section 351
applied or as a contribution to capital, within the 5-year period
ending on the date of the distribution, and at least 50 percent in
value of the outstanding stock of which was owned by the
distributing corporation at any time within the 9-year period
ending one year before the date of the distribution.
Subsec. (d)(2)(C). Pub. L. 97-248, Sec. 223(a)(1), substituted
reference to a distribution of stock or an obligation of a
corporation if the requirements of subsec. (e)(2) of this section
are met with respect to the distribution for reference to a
distribution of stock or securities pursuant to the terms of a
final judgment rendered by a court with respect to the distributing
corporation in a court proceeding under the Sherman Act (15 U.S.C.
1-7) or the Clayton Act (15 U.S.C. 12-27), or both, to which the
United States was a party, but only if the distribution of such
stock or securities in redemption of the distributing corporation's
stock was in furtherance of the purposes of the judgment.
Subsec. (d)(2)(G). Pub. L. 97-248, Sec. 223(a)(3), struck out
subpar. (G) which provided that a distribution of stock to a
distributee which is not an organization exempt from tax under
section 501(a) of this title, if with respect to such distributee,
subsec. (a)(1) or (b)(1) of section 1101 of this title applied to
such distribution.
Subsec. (e). Pub. L. 97-248, Sec. 223(a)(2), added subsec. (e).
1980 - Subsec. (a). Pub. L. 96-471 substituted "section 453B" for
"Section 453(d)".
1978 - Subsec. (d)(2)(G), (H). Pub. L. 95-600 redesignated
subpar. (H) as (G).
1976 - Subsec. (d)(1)(B). Pub. L. 94-455, Sec. 1901(a) (42)(A),
substituted "then a gain shall be recognized" for "then again shall
be recognized".
Subsec. (d)(2). Pub. L. 94-452 and Pub. L. 94-455 Sec.
1901(a)(42)(B)(i), (C), struck out subpar. (C) relating to certain
distributions before Dec. 1, 1974, struck out "26 Stat. 209;"
before "15 U.S.C. 1-7)" and "38 Stat. 730;" before "15 U.S.C. 12-
27)" in subpar. (D), added subpar. (H), and redesignated subpars.
(D) to (G), as so amended, as subpars. (C) to (F), respectively.
1969 - Subsec. (a). Pub. L. 91-172, Sec. 905(b)(1), inserted
reference to subsec. (d).
Subsec. (d). Pub. L. 91-172, Sec. 905(a), added subsec. (d).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to any distribution in
complete liquidation, and any sale or exchange, made by a
corporation after July 31, 1986, unless such corporation is
completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 54(d) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1804(b)(3), Oct. 22, 1986, 100 Stat.
2095, 2799; Pub. L. 100-647, title I, Sec. 1018(d)(1)-(3), Nov. 10,
1988, 102 Stat. 3578, provided that:
"(1) Subsection (a). - Except as otherwise provided in this
subsection, the amendments made by subsection (a) [amending this
section] shall apply to distributions declared on or after June 14,
1984, in taxable years ending after such date.
"(2) Subsection (b). - The amendment made by subsection (b)
[amending section 301 of this title] shall apply to distributions
after the date of the enactment of this Act [July 18, 1984] in
taxable years ending after such date.
"(3) Exception for distributions before january 1, 1985, to 80-
percent corporate shareholders. -
"(A) In general. - The amendments made by subsection (a) shall
not apply to any distribution before January 1, 1985, to an 80-
percent corporate shareholder if the basis of the property
distributed is determined under section 301(d)(2) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954].
"(B) 80-percent corporate shareholder. - The term '80-percent
corporate shareholder' means, with respect to any distribution,
any corporation which owns -
"(i) stock in the corporation making the distribution
possessing at least 80 percent of the total combined voting
power of all classes of stock entitled to vote, and
"(ii) at least 80 percent of the total number of shares of
all other classes of stock of the distributing corporation
(except nonvoting stock which is limited and preferred as to
dividends).
"(C) Special rule for affiliated group filing consolidated
return. - For purposes of this paragraph and paragraph (4), all
members of the same affiliated group (as defined in section 1504
of the Internal Revenue Code of 1986) which file a consolidated
return for the taxable year which includes the date of the
distribution shall be treated as 1 corporation.
"(D) Special rule for certain distributions before january 1,
1988. -
"(i) In general. - In the case of a transaction to which this
subparagraph applies, subparagraph (A) shall be applied by
substituting '1988' for '1985' and the amendments made by
subtitle D of title VI of the Tax Reform Act of 1986 [sections
631 to 634 of Pub. L. 99-514, enacting sections 336 and 337 of
this title, amending this section and sections 26, 312, 332,
334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248,
1255, 1276, 1363, 1366, 1374, and 1375 of this title, repealing
sections 333, 336, and 337 of this title, and enacting
provisions set out as a note under section 301 of this title]
shall not apply.
"(ii) Transaction to which subparagaph [sic] applies. - This
subparagraph appies [applies] to a transaction in which a
Delaware corporation which was incorporated on May 31, 1927,
and which was acquired by the transferee on December 10, 1968,
transfers to the transferee stock in a corporation -
"(I) with respect to which such Delaware corporation is a
100-percent corporate shareholder, and
"(II) which is a Tennessee corporation which was
incorporated on March 2, 1978,, [sic] and which is a
successor to an Indiana corporation which was incorporated on
June 28, 1946, and acquired by the transferee on December 9
[10], 1968.
"(4) Exception for certain distributions where tender offer
commenced on may 23, 1984. -
"(A) In general. - The amendments made by subsection (a) shall
not apply to any distribution made before September 1, 1986, if -
"(i) such distribution consists of qualified stock held
(directly or indirectly) on June 15, 1984, by the distributing
corporation,
"(ii) control of the distributing corporation (as defined in
section 368(c) of the Internal Revenue Code of 1986) is
acquired other than in a tax-free transaction after January 1,
1984, but before January 1, 1985,
"(iii) a tender offer for the shares of the distributing
corporation was commenced on May 23, 1984, and was amended on
May 24, 1984, and
"(iv) the distributing corporation and the distributee
corporation are members of the same affiliated group (as
defined in section 1504 of such Code) which filed a
consolidated return for the taxable year which includes the
date of the distribution.
If the common parent of any affiliated group filing a consolidated
return meets the requirements of clauses (ii) and (iii), each other
member of such group shall be treated as meeting such requirements.
"(B) Qualified stock. - For purposes of subparagraph (A), the
term 'qualified stock' means any stock in a corporation which on
June 15, 1984, was a member of the same affiliated group as the
distributing corporation and which filed a consolidated return
with the distributing corporation for the taxable year which
included June 15, 1984.
"(5) Exception for certain distributions. -
"(A) In general. - The amendments made by this section
[amending this section and sections 301 and 1223 of this title]
shall not apply to distributions before February 1, 1986, if -
"(i) the distribution consists of property held on March 7,
1984 (or property acquired thereafter in the ordinary course of
a trade or business) by -
"(I) the controlled corporation, or
"(II) any subsidiary controlled corporation,
"(ii) a group of 1 or more shareholders (acting in concert) -
"(I) acquired, during the 1-year period ending on February
1, 1984, at least 10 percent of the outstanding stock of the
controlled corporation,
"(II) held at least 10 percent of the outstanding stock of
the common parent on February 1, 1984, and
"(III) submitted a proposal for distributions of interests
in a royalty trust from the common parent or the controlled
corporation, and
"(iii) the common parent acquired control of the controlled
corporation during the 1-year period ending on February 1,
1984.
"(B) Definitions. - For purposes of this paragraph -
"(i) The term 'common parent' has the meaning given such term
by section 1504(a) of the Internal Revenue Code of 1986.
"(ii) The term 'controlled corporation' means a corporation
with respect to which 50 percent or more of the outstanding
stock of its common parent is tendered for pursuant to a tender
offer outstanding on March 7, 1984.
"(iii) The term 'subsidiary controlled corporation' means any
corporation with respect to which the controlled corporation
has control (within the meaning of section 368(c) of such Code)
on March 7, 1984.
"(6) Exception for certain distribution of partnership interests.
- The amendments made by this section shall not apply to any
distribution before February 1, 1986, of an interest in a
partnership the interests of which were being traded on a national
securities exchange on March 7, 1984, if -
"(A) such interest was owned by the distributing corporation
(or any member of an affiliated group within the meaning of
section 1504(a) of such Code of which the distributing
corporation was a member) on March 7, 1984,
"(B) the distributing corporation (or any such affiliated
member) owned more than 80 percent of the interests in such
partnership on March 7, 1984, and
"(C) more than 10 percent of the interests in such partnership
was offered for sale to the public during the 1-year period
ending on March 7, 1984."
Amendment by section 712(j) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENTS; EXCEPTIONS
Section 223(b) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(a)(7), Jan. 12, 1983, 96 Stat. 2402; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section] shall apply to distributions after August 31, 1982.
"(2) Distributions pursuant to ruling requests before july 23,
1982. - In the case of a ruling request under section 311(d)(2)(A)
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in
effect before the amendments made by this section) made before July
23, 1982, the amendments made by this section [amending this
section] shall not apply to distributions made -
"(A) pursuant to a ruling granted pursuant to such request, and
"(B) either before October 21, 1982, or within 90 days after
the date of such ruling.
"(3) Distributions pursuant to final judgments of court. - In the
case of a final judgment described in section 311(d)(2)(C) of such
Code (as in effect before the amendments made by this section)
rendered before July 23, 1982, the amendments made by this section
[amending this section] shall not apply to distributions made
before January 1, 1986, pursuant to such judgment.
"(4) Certain distributions with respect to stock acquired before
may 1982. - The amendments made by this section [amending this
section] shall not apply to distributions -
"(A) which meet the requirements of section 311(d)(2)(A) of
such Code (as in effect on the day before the date of the
enactment of this Act [Sept. 3, 1982]),
"(B) which are made on or before August 31, 1983, and
"(C) which are made with respect to stock acquired after 1980
and before May 1982.
"(5) Distributions of timberland with respect to stock of forest
products company. - If -
"(A) a forest products company distributes timberland to a
shareholder in redemption of the common and preferred stock in
such corporation held by such shareholder,
"(B) section 311(d)(2)(A) of the Internal Revenue Code of 1986
(as in effect before the amendments made by this section) would
have applied to such distributions, and
"(C) such distributions are made pursuant to 1 of 2 options
contained in a contract between such company and such shareholder
which is binding on August 31, 1982, and at all times thereafter,
then such distributions of timberland having an aggregate fair
market value on August 31, 1982, not in excess of $10,000,000 shall
be treated as distributions to which section 311(d)(2)(A) of such
Code (as in effect before the date of the enactment of this Act
[Sept. 3, 1982] applies."
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-471, see section
6(a)(1) of Pub. L. 96-471, set out as an Effective Date note under
section 453 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 703(j)(2)(C) of Pub. L. 95-600 provided that: "The
amendments made by this paragraph [amending this section] shall
take effect as if included in section 2(b) of the Bank Holding
Company Tax Act of 1976 [amending this section]."
EFFECTIVE DATE OF 1976 AMENDMENTS
Amendment by section 1901(a)(42)(A), (C) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
Section 1901(a)(42)(B)(ii) of Pub. L. 94-455 provided that: "The
amendments made by clause (i) [amending this section] shall apply
only with respect to distributions after November 30, 1974."
Section 2(d)(4) of Pub. L. 94-452 provided that: "The amendment
made by subsection (b) [amending this section] shall take effect on
October 1, 1977, with respect to distributions after December 31,
1975, in taxable years ending after December 31, 1975."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 905(c) of Pub. L. 91-172, as amended by Pub. L. 91-675,
Jan. 12, 1971, 84 Stat. 2059, provided that:
"(1) Except as provided in paragraphs (2), (3), (4), and (5), the
amendments made by subsections (a) and (b) [amending this section
and sections 301 and 312 of this title] shall apply with respect to
distributions after November 30, 1969.
"(2) The amendments made by subsections (a) and (b) shall not
apply to a distribution before April 1, 1970, pursuant to the terms
of -
"(A) a written contract which was binding on the distributing
corporation on November 30, 1969, and at all times thereafter
before the distribution,
"(B) an offer made by the distributing corporation before
December 1, 1969,
"(C) an offer made in accordance with a request for a ruling
filed by the distributing corporation with the Internal Revenue
Service before December 1, 1969, or
"(D) an offer made in accordance with a registration statement
filed with the Securities and Exchange Commission before December
1, 1969.
For purposes of subparagraphs (B), (C), and (D), an offer shall be
treated as an offer only if it was in writing and not revocable by
its express terms.
"(3) The amendments made by subsections (a) and (b) shall not
apply to a distribution by a corporation of specific property in
redemption of stock outstanding on November 30, 1969, if -
"(A) every holder of such stock on such date had the right to
demand redemption of his stock in such specific property, and
"(B) the corporation had such specific property on hand on such
date in a quantity sufficient to redeem all of such stock.
For purposes of the preceding sentence, stock shall be considered
to have been outstanding on November 30, 1969, if it could have
been acquired on such date through the exercise of an existing
right of conversion contained in other stock held on such date.
"(4) The amendments made by subsections (a) and (b) shall not
apply to a distribution by a corporation of property (held on
December 1, 1969, by the distributing corporation or a corporation
which was a wholly owned subsidiary of the distributing corporation
on such date) in redemption of stock outstanding on November 30,
1969, which is redeemed and canceled before July 31, 1971, if -
"(A) such redemption is pursuant to a resolution adopted before
November 1, 1969, by the Board of Directors authorizing the
redemption of a specific amount of stock constituting more than
10 percent of the outstanding stock of the corporation at the
time of the adoption of such resolution; and
"(B) more than 40 percent of the stock authorized to be
redeemed pursuant to such resolution was redeemed before December
30, 1969, and more than one-half of the stock so redeemed was
redeemed with property other than money.
"(5) The amendments made by subsections (a) and (b) shall not
apply to a distribution of stock, by a corporation organized prior
to December 1, 1969, for the principal purpose of providing an
equity participation plan for employees of the corporation whose
stock is being distributed (hereinafter referred to as the
'employer corporation') if -
"(A) the stock being distributed was owned by the distributing
corporation on November 30, 1969,
"(B) the stock being redeemed was acquired before January 1,
1973, pursuant to such equity participation plan by the
shareholder presenting such stock for redemption (or by a
predecessor of such shareholder),
"(C) the employment of the shareholder presenting the stock for
redemption (or the predecessor of such shareholder) by the
employer corporation commenced before January 1, 1971,
"(D) at least 90 percent in value of the assets of the
distributing corporation on November 30, 1969, consisted of
common stock of the employer corporation, and
"(E) at least 50 percent of the outstanding voting stock of the
employer corporation is owned by the distributing corporation at
any time within the nine-year period ending one year before the
date of such distribution."
-End-
-CITE-
26 USC Sec. 312 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart B - Effects on Corporation
-HEAD-
Sec. 312. Effect on earnings and profits
-STATUTE-
(a) General rule
Except as otherwise provided in this section, on the distribution
of property by a corporation with respect to its stock, the
earnings and profits of the corporation (to the extent thereof)
shall be decreased by the sum of -
(1) the amount of money,
(2) the principal amount of the obligations of such corporation
(or, in the case of obligations having original issue discount,
the aggregate issue price of such obligations), and
(3) the adjusted basis of the other property, so distributed.
(b) Distributions of appreciated property
On the distribution by a corporation, with respect to its stock,
of any property (other than an obligation of such corporation) the
fair market value of which exceeds the adjusted basis thereof -
(1) the earnings and profits of the corporation shall be
increased by the amount of such excess, and
(2) subsection (a)(3) shall be applied by substituting "fair
market value" for "adjusted basis".
For purposes of this subsection and subsection (a), the adjusted
basis of any property is its adjusted basis as determined for
purposes of computing earnings and profits.
(c) Adjustments for liabilities
In making the adjustments to the earnings and profits of a
corporation under subsection (a) or (b), proper adjustment shall be
made for -
(1) the amount of any liability to which the property
distributed is subject, and
(2) the amount of any liability of the corporation assumed by a
shareholder in connection with the distribution.
(d) Certain distributions of stock and securities
(1) In general
The distribution to a distributee by or on behalf of a
corporation of its stock or securities, of stock or securities in
another corporation, or of property, in a distribution to which
this title applies, shall not be considered a distribution of the
earnings and profits of any corporation -
(A) if no gain to such distributee from the receipt of such
stock or securities, or property, was recognized under this
title, or
(B) if the distribution was not subject to tax in the hands
of such distributee by reason of section 305(a).
(2) Prior distributions
In the case of a distribution of stock or securities, or
property, to which section 115(h) of the Internal Revenue Code of
1939 (or the corresponding provision of prior law) applied, the
effect on earnings and profits of such distribution shall be
determined under such section 115(h), or the corresponding
provision of prior law, as the case may be.
(3) Stock or securities
For purposes of this subsection, the term "stock or securities"
includes rights to acquire stock or securities.
[(e) Repealed. Pub. L. 98-369, div. A, title I, Sec. 61(a)(2)(B),
July 18, 1984, 98 Stat. 581]
(f) Effect on earnings and profits of gain or loss and of receipt
of tax-free distributions
(1) Effect on earnings and profits of gain or loss
The gain or loss realized from the sale or other disposition
(after February 28, 1913) of property by a corporation -
(A) for the purpose of the computation of the earnings and
profits of the corporation, shall (except as provided in
subparagraph (B)) be determined by using as the adjusted basis
the adjusted basis (under the law applicable to the year in
which the sale or other disposition was made) for determining
gain, except that no regard shall be had to the value of the
property as of March 1, 1913; but
(B) for purposes of the computation of the earnings and
profits of the corporation for any period beginning after
February 28, 1913, shall be determined by using as the adjusted
basis the adjusted basis (under the law applicable to the year
in which the sale or other disposition was made) for
determining gain.
Gain or loss so realized shall increase or decrease the earnings
and profits to, but not beyond, the extent to which such a
realized gain or loss was recognized in computing taxable income
under the law applicable to the year in which such sale or
disposition was made. Where, in determining the adjusted basis
used in computing such realized gain or loss, the adjustment to
the basis differs from the adjustment proper for the purpose of
determining earnings and profits, then the latter adjustment
shall be used in determining the increase or decrease above
provided. For purposes of this subsection, a loss with respect to
which a deduction is disallowed under section 1091 (relating to
wash sales of stock or securities), or the corresponding
provision of prior law, shall not be deemed to be recognized.
(2) Effect on earnings and profits of receipt of tax-free
distributions
Where a corporation receives (after February 28, 1913) a
distribution from a second corporation which (under the law
applicable to the year in which the distribution was made) was
not a taxable dividend to the shareholders of the second
corporation, the amount of such distribution shall not increase
the earnings and profits of the first corporation in the
following cases:
(A) no such increase shall be made in respect of the part of
such distribution which (under such law) is directly applied in
reduction of the basis of the stock in respect of which the
distribution was made; and
(B) no such increase shall be made if (under such law) the
distribution causes the basis of the stock in respect of which
the distribution was made to be allocated between such stock
and the property received (or such basis would, but for section
307(b), be so allocated).
(g) Earnings and profits - increase in value accrued before March
1, 1913
(1) If any increase or decrease in the earnings and profits for
any period beginning after February 28, 1913, with respect to any
matter would be different had the adjusted basis of the property
involved been determined without regard to its March 1, 1913,
value, then, except as provided in paragraph (2), an increase
(properly reflecting such difference) shall be made in that part
of the earnings and profits consisting of increase in value of
property accrued before March 1, 1913.
(2) If the application of subsection (f) to a sale or other
disposition after February 28, 1913, results in a loss which is
to be applied in decrease of earnings and profits for any period
beginning after February 28, 1913, then, notwithstanding
subsection (f) and in lieu of the rule provided in paragraph (1)
of this subsection, the amount of such loss so to be applied
shall be reduced by the amount, if any, by which the adjusted
basis of the property used in determining the loss exceeds the
adjusted basis computed without regard to the value of the
property on March 1, 1913, and if such amount so applied in
reduction of the decrease exceeds such loss, the excess over such
loss shall increase that part of the earnings and profits
consisting of increase in value of property accrued before March
1, 1913.
(h) Allocation in certain corporate separations and reorganizations
(1) Section 355
In the case of a distribution or exchange to which section 355
(or so much of section 356 as relates to section 355) applies,
proper allocation with respect to the earnings and profits of the
distributing corporation and the controlled corporation (or
corporations) shall be made under regulations prescribed by the
Secretary.
(2) Section 368(a)(1)(C) or (D)
In the case of a reorganization described in subparagraph (C)
or (D) of section 368(a)(1), proper allocation with respect to
the earnings and profits of the acquired corporation shall, under
regulations prescribed by the Secretary, be made between the
acquiring corporation and the acquired corporation (or any
corporation which had control of the acquired corporation before
the reorganization).
(i) Distribution of proceeds of loan insured by the United States
If a corporation distributes property with respect to its stock
and if, at the time of distribution -
(1) there is outstanding a loan to such corporation which was
made, guaranteed, or insured by the United States (or by any
agency or instrumentality thereof), and
(2) the amount of such loan so outstanding exceeds the adjusted
basis of the property constituting security for such loan,
then the earnings and profits of the corporation shall be increased
by the amount of such excess, and (immediately after the
distribution) shall be decreased by the amount of such excess. For
purposes of paragraph (2), the adjusted basis of the property at
the time of distribution shall be determined without regard to any
adjustment under section 1016(a)(2) (relating to adjustment for
depreciation, etc.). For purposes of this subsection, a commitment
to make, guarantee, or insure a loan shall be treated as the
making, guaranteeing, or insuring of a loan.
[(j) Repealed. Pub. L. 108-357, title IV, Sec. 413(c)(4), Oct. 22,
2004, 118 Stat. 1507]
(k) Effect of depreciation on earnings and profits
(1) General rule
For purposes of computing the earnings and profits of a
corporation for any taxable year beginning after June 30, 1972,
the allowance for depreciation (and amortization, if any) shall
be deemed to be the amount which would be allowable for such year
if the straight line method of depreciation had been used for
each taxable year beginning after June 30, 1972.
(2) Exception
If for any taxable year a method of depreciation was used by
the taxpayer which the Secretary has determined results in a
reasonable allowance under section 167(a) and which is the unit-
of-production method or other method not expressed in a term of
years, then the adjustment to earnings and profits for
depreciation for such year shall be determined under the method
so used (in lieu of the straight line method).
(3) Exception for tangible property
(A) In general
Except as provided in subparagraph (B), in the case of
tangible property to which section 168 applies, the adjustment
to earnings and profits for depreciation for any taxable year
shall be determined under the alternative depreciation system
(within the meaning of section 168(g)(2)).
(B) Treatment of amounts deductible under section 179, 179A,
179B, 179C, or 179D
For purposes of computing the earnings and profits of a
corporation, any amount deductible under section 179, 179A,
179B, 179C, or 179D shall be allowed as a deduction ratably
over the period of 5 taxable years (beginning with the taxable
year for which such amount is deductible under section 179,
179A, 179B, 179C, or 179D, as the case may be).
(4) Certain foreign corporations
The provisions of paragraph (1) shall not apply in computing
the earnings and profits of a foreign corporation for any taxable
year for which less than 20 percent of the gross income from all
sources of such corporation is derived from sources within the
United States.
(5) Basis adjustment not taken into account
In computing the earnings and profits of a corporation for any
taxable year, the allowance for depreciation (and amortization,
if any) shall be computed without regard to any basis adjustment
under section 50(c).
(l) Discharge of indebtedness income
(1) Does not increase earnings and profits if applied to reduce
basis
The earnings and profits of a corporation shall not include
income from the discharge of indebtedness to the extent of the
amount applied to reduce basis under section 1017.
(2) Reduction of deficit in earnings and profits in certain cases
If -
(A) the interest of any shareholder of a corporation is
terminated or extinguished in a title 11 or similar case
(within the meaning of section 368(a)(3)(A)), and
(B) there is a deficit in the earnings and profits of the
corporation,
then such deficit shall be reduced by an amount equal to the paid-
in capital which is allocable to the interest of the shareholder
which is so terminated or extinguished.
(m) No adjustment for interest paid on certain registration-
required obligations not in registered form
The earnings and profits of any corporation shall not be
decreased by any interest with respect to which a deduction is not
or would not be allowable by reason of section 163(f), unless at
the time of issuance the issuer is a foreign corporation that is
not a controlled foreign corporation (within the meaning of section
957) and the issuance did not have as a purpose the avoidance of
section 163(f) of this subsection (!1)
(n) Adjustments to earnings and profits to more accurately reflect
economic gain and loss
For purposes of computing the earnings and profits of a
corporation, the following adjustments shall be made:
(1) Construction period carrying charges
(A) In general
In the case of any amount paid or incurred for construction
period carrying charges -
(i) no deduction shall be allowed with respect to such
amount, and
(ii) the basis of the property with respect to which such
charges are allocable shall be increased by such amount.
(B) Construction period carrying charges defined
For purposes of this paragraph, the term "construction period
carrying charges" means all -
(i) interest paid or accrued on indebtedness incurred or
continued to acquire, construct, or carry property,
(ii) property taxes, and
(iii) similar carrying charges,
to the extent such interest, taxes, or charges are attributable
to the construction period for such property and would be
allowable as a deduction in determining taxable income under
this chapter for the taxable year in which paid or incurred.
(C) Construction period
The term "construction period" has the meaning given the term
production period under section 263A(f)(4)(B).
(2) Intangible drilling costs and mineral exploration and
development costs
(A) Intangible drilling costs
Any amount allowable as a deduction under section 263(c) in
determining taxable income (other than costs incurred in
connection with a nonproductive well) -
(i) shall be capitalized, and
(ii) shall be allowed as a deduction ratably over the 60-
month period beginning with the month in which such amount
was paid or incurred.
(B) Mineral exploration and development costs
Any amount allowable as a deduction under section 616(a) or
617 in determining taxable income -
(i) shall be capitalized, and
(ii) shall be allowed as a deduction ratably over the 120-
month period beginning with the later of -
(I) the month in which production from the deposit
begins, or
(II) the month in which such amount was paid or incurred.
(3) Certain amortization provisions not to apply
Sections 173 and 248 shall not apply.
(4) LIFO inventory adjustments
(A) In general
Earnings and profits shall be increased or decreased by the
amount of any increase or decrease in the LIFO recapture amount
as of the close of each taxable year; except that any decrease
below the LIFO recapture amount as of the close of the taxable
year preceding the 1st taxable year to which this paragraph
applies to the taxpayer shall be taken into account only to the
extent provided in regulations prescribed by the Secretary.
(B) LIFO recapture amount
For purposes of this paragraph, the term "LIFO recapture
amount" means the amount (if any) by which -
(i) the inventory amount of the inventory assets under the
first-in, first-out method authorized by section 471, exceeds
(ii) the inventory amount of such assets under the LIFO
method.
(C) Definitions
For purposes of this paragraph -
(i) LIFO method
The term "LIFO method" means the method authorized by
section 472 (relating to last-in, first-out inventories).
(ii) Inventory assets
The term "inventory assets" means stock in trade of the
corporation, or other property of a kind which would properly
be included in the inventory of the corporation if on hand at
the close of the taxable year.
(iii) Inventory amount
The inventory amount of assets under the first-in, first-
out method authorized by section 471 shall be determined -
(I) if the corporation uses the retail method of valuing
inventories under section 472, by using such method, or
(II) if subclause (I) does not apply, by using cost or
market, whichever is lower.
(5) Installment sales
In the case of any installment sale, earnings and profits shall
be computed as if the corporation did not use the installment
method.
(6) Completed contract method of accounting
In the case of a taxpayer who uses the completed contract
method of accounting, earnings and profits shall be computed as
if such taxpayer used the percentage of completion method of
accounting.
(7) Redemptions
If a corporation distributes amounts in a redemption to which
section 302(a) or 303 applies, the part of such distribution
which is properly chargeable to earnings and profits shall be an
amount which is not in excess of the ratable share of the
earnings and profits of such corporation accumulated after
February 28, 1913, attributable to the stock so redeemed.
(8) Special rule for certain foreign corporations
In the case of a foreign corporation described in subsection
(k)(4) -
(A) paragraphs (4) and (6) shall apply only in the case of
taxable years beginning after December 31, 1985, and
(B) paragraph (5) shall apply only in the case of taxable
years beginning after December 31, 1987.
(o) Definition of original issue discount and issue price for
purposes of subsection (a)(2)
For purposes of subsection (a)(2), the terms "original issue
discount" and "issue price" have the same respective meanings as
when used in subpart A of part V of subchapter P of this chapter.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 95; Pub. L. 87-403, Sec. 3(a),
Feb. 2, 1962, 76 Stat. 6; Pub. L. 87-834, Secs. 13(f)(3), 14(b)(1),
Oct. 16, 1962, 76 Stat. 1035, 1040; Pub. L. 88-272, title II, Sec.
231(b)(3), Feb. 26, 1964, 78 Stat. 105; Pub. L. 88-484, Sec.
1(b)(1), Aug. 22, 1964, 78 Stat. 597; Pub. L. 89-570, Sec. 1(b)(3),
Sept. 12, 1966, 80 Stat. 762; Pub. L. 91-172, title II, Sec.
211(b)(3), title IV, Sec. 442(a), title IX, Sec. 905(b)(2), Dec.
30, 1969, 83 Stat. 570, 628, 714; Pub. L. 94-455, title II, Sec.
205(c)(1)(D), title XIX, Secs. 1901(a)(43), (b)(32)(B)(i),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1535, 1771, 1800, 1834; Pub.
L. 95-628, Sec. 3(c), Nov. 10, 1978, 92 Stat. 3627; Pub. L. 96-589,
Sec. 5(f), Dec. 24, 1980, 94 Stat. 3406; Pub. L. 97-34, title II,
Sec. 206(a), (b), Aug. 13, 1981, 95 Stat. 224; Pub. L. 97-248,
title II, Secs. 205(a)(3), 222(e)(3), title III, Sec. 310(b)(3),
Sept. 3, 1982, 96 Stat. 429, 480, 597; Pub. L. 97-448, title III,
Sec. 306(a)(6)(B), Jan. 12, 1983, 96 Stat. 2402; Pub. L. 98-369,
div. A, title I, Secs. 61(a)-(c)(1), 63(b), 111(e)(5), July 18,
1984, 98 Stat. 579-581, 583, 633; Pub. L. 99-121, title I, Sec.
103(b)(1)(C), Oct. 11, 1985, 99 Stat. 509; Pub. L. 99-514, title
II, Secs. 201(b), (d)(6), 241(b)(1), title VI, Sec. 631(e)(1),
title VIII, Sec. 803(b)(3), title XVIII, Secs. 1804(f)(1)(A)-(E),
1809(a)(2)(C)(ii), Oct. 22, 1986, 100 Stat. 2137, 2141, 2181, 2273,
2355, 2804, 2805, 2819; Pub. L. 100-647, title I, Secs. 1002(a)(3),
1018(d)(4), (u)(4), Nov. 10, 1988, 102 Stat. 3353, 3578, 3590; Pub.
L. 101-239, title VII, Secs. 7611(f)(5)(A), 7811(m)(2), Dec. 19,
1989, 103 Stat. 2373, 2412; Pub. L. 101-508, title XI, Secs.
11812(b)(5), 11813(b)(14), Nov. 5, 1990, 104 Stat. 1388-535, 1388-
555; Pub. L. 105-34, title XVI, Sec. 1604(a)(2), Aug. 5, 1997, 111
Stat. 1097; Pub. L. 108-357, title III, Sec. 338(b)(3), title IV,
Sec. 413(c)(4), (5), Oct. 22, 2004, 118 Stat. 1481, 1507; Pub. L.
109-58, title XIII, Secs. 1323(b)(3), 1331(b)(5), Aug. 8, 2005, 119
Stat. 1015, 1024.)
-REFTEXT-
REFERENCES IN TEXT
Section 115(h) of the Internal Revenue Code of 1939, referred to
in subsec. (d)(2), was classified to section 115(h) of former Title
26, Internal Revenue Code. Section 115(h) was repealed by section
7851(a)(1) of this title. For table of comparisons of the 1939 Code
to the 1986 Code [formerly I.R.C. 1954], see Table I preceding
section 1 of this title. See, also, section 7851(e) of this title
for provision that references in the 1986 Code to a provision of
the 1939 Code, not then applicable, shall be deemed a reference to
the corresponding provision of the 1986 Code, then applicable.
-MISC1-
AMENDMENTS
2005 - Subsec. (k)(3)(B). Pub. L. 109-58, Sec. 1331(b)(5),
substituted "179, 179A, 179B, 179C, or 179D" for "179, 179A, 179B,
or 179C" in heading and two places in text.
Pub. L. 109-58, Sec. 1323(b)(3), substituted "179, 179A, 179B, or
179C" for "179 179A, or 179B" in heading and two places in text.
2004 - Subsec. (j). Pub. L. 108-357, Sec. 413(c)(4), struck out
subsec. (j) which related to earnings and profits of foreign
investment companies.
Subsec. (k)(3)(B). Pub. L. 108-357, Sec. 338(b)(3), substituted
"179A, or 179B" for "or 179A" in heading and two places in text.
Subsec. (m). Pub. L. 108-357, Sec. 413(c)(5), struck out ", a
foreign investment company (within the meaning of section 1246(b)),
or a foreign personal holding company (within the meaning of
section 552)" before "and the issuance".
1997 - Subsec. (k)(3)(B). Pub. L. 105-34, in heading substituted
"179 or 179A" for "179" and in text substituted "section 179 or
179A shall" for "section 179 shall" and "section 179 or 179A, as
the case may be)" for "section 179)".
1990 - Subsec. (k)(2). Pub. L. 101-508, Sec. 11812(b)(5),
substituted heading for one which read: "Exceptions" and amended
text generally. Prior to amendment, text read as follows: "If for
any taxable year beginning after June 30, 1972, a method of
depreciation was used by the taxpayer which the Secretary has
determined results in a reasonable allowance under section 167(a),
and which is not -
"(A) a declining balance method,
"(B) the sum of the years-digit method, or
"(C) any other method allowable solely by reason of the
application of subsection (b)(4) or (j)(1)(C) of section 167,
then the adjustment to earnings and profits for depreciation for
such year shall be determined under the method so used (in lieu of
under the straight line method)."
Subsec. (k)(5). Pub. L. 101-508, Sec. 11813(b)(14), substituted
"section 50(c)" for "section 48(q)".
1989 - Subsec. (b). Pub. L. 101-239, Sec. 7811(m)(2), made
clarifying amendment to directory language of Pub. L. 100-647, Sec.
1018(d)(4), see 1988 Amendment note below.
Subsec. (n)(2)(A)(ii). Pub. L. 101-239, Sec. 7611(f)(5)(A),
substituted "in which such amount was paid or incurred" for "in
which the production from the well begins".
1988 - Subsec. (b). Pub. L. 100-647, Sec. 1018(d)(4), as amended
by Pub. L. 101-239, Sec. 7811(m)(2), substituted "of any property
(other than an obligation of such corporation)" for "of any
property" in introductory provisions.
Subsec. (k)(4). Pub. L. 100-647, Sec. 1002(a)(3), substituted
"paragraph (1)" for "paragraphs (1) and (3)".
Subsec. (n)(1)(B). Pub. L. 100-647, Sec. 1018(u)(4), made
technical amendment to directory language of Pub. L. 99-514, Sec.
803(b)(3)(A). See 1986 Amendment note below.
1986 - Subsec. (b). Pub. L. 99-514, Sec. 1804(f)(1)(A), amended
subsec. (b) generally, substituting provisions relating to
distributions of appreciated property for provisions relating to
distribution of certain inventory assets.
Subsec. (c). Pub. L. 99-514, Sec. 1804(f)(1)(B), (C), struck out
", etc." after "liabilities" in heading and struck out par. (3)
which read as follows: "any gain recognized to the corporation on
the distribution."
Subsec. (k)(3). Pub. L. 99-514, Sec. 201(b), amended par. (3)
generally, substituting provisions relating to tangible property to
which section 168 applies and amounts deductible under section 179
for provisions relating to recovery property within the meaning of
section 168, amounts deductible under section 179, and flexibility
if a different recovery percentage is elected under section 168
based on a longer recovery period.
Subsec. (k)(3)(A). Pub. L. 99-514, Sec. 1809(a)(2)(C)(ii), in
subpar. (A), struck out "and rules similar to the rules under the
next to the last sentence of section 168(b)(2)(A) and section
168(b)(2)(B) shall apply" after "low-income housing)".
Subsec. (k)(4). Pub. L. 99-514, Sec. 201(d)(6), struck out last
sentence "In determining the earnings and profits of such
corporation in the case of recovery property (within the meaning of
section 168), the rules of section 168(f)(2) shall apply."
Subsec. (n)(1)(B). Pub. L. 99-514, Sec. 803(b)(3)(A), as amended
by Pub. L. 100-647, Sec. 1018(u)(4), struck out "(determined
without regard to section 189)" after "incurred".
Subsec. (n)(1)(C). Pub. L. 99-514, Sec. 803(b)(3)(B), added
subpar. (C) and struck out former subpar. (C) which read as
follows: "The term 'construction period' has the meaning given such
term by section 189(e)(2) (determined without regard to any real
property limitation)."
Subsec. (n)(3). Pub. L. 99-514, Sec. 241(b)(1), struck out ",
177," after "sections 173".
Subsec. (n)(4). Pub. L. 99-514, Sec. 631(e)(1), amended par. (4)
generally. Prior to amendment, par. (4) read as follows: "Earnings
and profits shall be increased or decreased by the amount of any
increase or decrease in the LIFO recapture amount (determined under
section 336(b)(3)) as of the close of each taxable year; except
that any decrease below the LIFO recapture amount as of the close
of the taxable year preceding the first taxable year to which this
paragraph applies to the taxpayer shall be taken into account only
to the extent provided in regulations prescribed by the Secretary."
Pub. L. 99-514, Sec. 1804(f)(1)(D), redesignated par. (5) as (4).
Former par. (4), relating to certain untaxed appreciation of
distributed property, was struck out.
Subsec. (n)(5) to (7). Pub. L. 99-514, Sec. 1804(f)(1)(D),
redesignated pars. (6) to (8) as (5) to (7), respectively. Former
par. (5) redesignated (4).
Subsec. (n)(8), (9). Pub. L. 99-514, Sec. 1804(f)(1)(D), (E),
redesignated par. (9) as (8) and substituted provisions of subpars.
(A) and (B) for "paragraphs (5), (6), and (7) shall apply only in
the case of taxable years beginning after December 31, 1985."
Former par. (8) redesignated (7).
1985 - Subsec. (k)(3)(A). Pub. L. 99-121 substituted "19-year
real property" for "18-year real property" wherever appearing.
1984 - Subsec. (a)(2). Pub. L. 98-369, Sec. 61(c)(1)(A), inserted
"(or, in the case of obligations having original issue discount,
the aggregate issue price of such obligations)".
Subsec. (e). Pub. L. 98-369, Sec. 61(a)(2)(B), struck out subsec.
(e) which provided: "In the case of amounts distributed in a
redemption to which section 302(a) or 303 applies, the part of such
distribution which is properly chargeable to capital account shall
not be treated as a distribution of earnings and profits."
Subsec. (h). Pub. L. 98-369, Sec. 63(b), amended subsec. (h)
generally, designating existing provisions as par. (1) and adding
par. (2).
Subsec. (j)(3). Pub. L. 98-369, Sec. 61(a)(2)(A), struck out par.
(3) which provided: "If a foreign investment company (as defined in
section 1246) distributes amounts in a redemption to which section
302(a) or 303 applies, the part of such distribution which is
properly chargeable to earnings and profits shall be an amount
which is not in excess of the ratable share of the earnings and
profits of the company accumulated after February 28, 1913,
attributable to the stock so redeemed."
Subsec. (k)(3)(A). Pub. L. 98-369, Sec. 111(e)(5), substituted
"18-year real property and low-income housing" for "15-year real
property" in three places.
Pub. L. 98-369, Sec. 61(b), substituted "40 years" for "35 years"
in table item relating to 15-year real property. Directory language
that table be amended by substituting "40 years" for "35 years" in
item relating to 15-year real property and 20-year real property,
was executed by making the substitution in item relating to 15-year
real property. The table contained no item relating to 20-year real
property.
Subsec. (n). Pub. L. 98-369, Sec. 61(a)(1), added subsec. (n).
Subsec. (o). Pub. L. 98-369, Sec. 61(c)(1)(B), added subsec. (o).
1983 - Subsec. (j)(3). Pub. L. 97-448 substituted "Redemptions"
for "Partial liquidations and redemptions" in heading, and in text
struck out "in partial liquidation or" after "distributes amounts".
1982 - Subsec. (e). Pub. L. 97-248, Sec. 222(e)(3), struck out
"partial liquidations and" in heading, and in text struck out "in
partial liquidation (whether before, on, or after June 22, 1954)
or" after "amounts distributed".
Subsec. (k)(5). Pub. L. 97-248, Sec. 205(a)(3), added par. (5).
Subsec. (m). Pub. L. 97-248, Sec. 310(b)(3), added subsec. (m).
1981 - Subsec. (k)(3), (4). Pub. L. 97-34 added par. (3),
redesignated former par. (3) as (4) substituted "The provisions of
paragraphs (1) and (3)" for "The provisions of paragraph (1)", and
inserted provision that the rules of section 168(f)(2) shall apply
in determining the earnings and profits of the corporation in the
case of recovery property (within the meaning of section 168).
1980 - Subsec. (l). Pub. L. 96-589 added subsec. (l).
1978 - Subsec. (c)(3). Pub. L. 95-628 substituted "gain
recognized to the corporation on the distribution" for "gain to the
corporation recognized under subsection (b), (c), or (d) of section
311, under section 341(f), or under section 617(d)(1), 1245(a),
1250(a), 1251(c), 1252(a), or 1254(a)".
1976 - Subsec. (c)(3). Pub. L. 94-455, Sec. 205(c)(1)(D),
substituted "1252(a), or 1254(a)" for "or 1252(a)".
Subsec. (d)(1). Pub. L. 94-455, Sec. 1901(a)(43)(A), substituted
"this title" for "this Code" wherever appearing.
Subsec. (h). Pub. L. 94-455, Secs. 1901(a)(43)(B),
1906(b)(13)(A), redesignated subsec. (i) as (h) and struck out "or
his delegate" after "Secretary". Former subsec. (h), which related
to earnings and profits of personal service corporations, was
struck out.
Subsec. (i). Pub. L. 94-455, Sec. 1901(a)(43)(B), (C),
redesignated subsec. (j) as (i), and, among other changes,
substituted "paragraph (2)" for "subparagraph (B) of the preceding
sentence" and "of this subsection" for "of this paragraph", and
struck out provisions relating to the effective date of this
subsec. Former subsec. (i) redesignated (h).
Subsec. (j). Pub. L. 94-455, Secs. 1901(a)(43)(D), (b)(32)(B)(i),
1906(b)(13)(A), redesignated subsec. (l) as (j), struck out "or his
delegate" after "Secretary" in par. (1) and in par. (3) provision
relating to the effective date of such paragraph. Former subsec.
(j) redesignated (i).
Subsec. (k). Pub. L. 94-455, Secs. 1901(b)(32)(B)(i),
1906(b)(13)(A), redesignated subsec. (m) as (k) and struck out "or
his delegate" after "Secretary" in par. (2). Former subsec. (k),
relating to special adjustment on disposition of antitrust stock
received as a dividend, was struck out.
Subsec. (l). Pub. L. 94-455, Sec. 1901(b)(32)(B)(i), redesignated
subsec. (l) as (j).
Subsec. (m). Pub. L. 94-455, Sec. 1901(b)(32)(B)(i), redesignated
subsec. (m) as (k).
1969 - Subsec. (c)(3). Pub. L. 91-172, Secs. 211(b)(3),
905(b)(2), substituted "1250(a), 1251(c), or 1252(a)", for "or
1250(a)" and inserted reference to section 311(d).
Subsec. (m). Pub. L. 91-172, Sec. 442(a), added subsec. (m).
1966 - Subsec. (c)(3). Pub. L. 89-570 inserted reference to
section 617(d)(1).
1964 - Subsec. (c)(3). Pub. L. 88-484 authorized adjustment for
amount of gain recognized under section 341(f).
Pub. L. 88-272 inserted reference to section 1250(a).
1962 - Subsec. (c)(3). Pub. L. 87-834, Sec. 13(f)(3), included
any gain recognized under section 1245(a).
Subsec. (k). Pub. L. 87-403 added subsec. (k).
Subsec. (l). Pub. L. 87-834, Sec. 14(b)(1), added subsec. (l).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by section 1323(b)(3) of Pub. L. 109-58 applicable to
properties placed in service after Aug. 8, 2005, see section
1323(c) of Pub. L. 109-58, set out as an Effective Date note under
section 179C of this title.
Amendment by section 1331(b)(5) of Pub. L. 109-58 applicable to
property placed in service after Dec. 31, 2005, see section 1331(d)
of Pub. L. 109-58, set out as an Effective Date note under section
179D of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 338(b)(3) of Pub. L. 108-357 applicable to
expenses paid or incurred after Dec. 31, 2002, in taxable years
ending after such date, see section 338(c) of Pub. L. 108-357, set
out as an Effective Date note under section 179B of this title.
Amendment by section 413(c)(4), (5) of Pub. L. 108-357 applicable
to taxable years of foreign corporations beginning after Dec. 31,
2004, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end, see
section 413(d)(1) of Pub. L. 108-357, set out as an Effective and
Termination Dates of 2004 Amendments note under section 1 of this
title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
amendments made by section 1913 of the Energy Policy Act of 1992,
Pub. L. 102-486, see section 1604(a)(4) of Pub. L. 105-34, set out
as a note under section 263 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11812(b)(5) of Pub. L. 101-508 applicable to
property placed in service after Nov. 5, 1990, but not applicable
to any property to which section 168 of this title does not apply
by reason of subsec. (f)(5) of section 168, and not applicable to
rehabilitation expenditures described in section 252(f)(5) of Pub.
L. 99-514, see section 11812(c) of Pub. L. 101-508, set out as a
note under section 42 of this title.
Amendment by section 11813(b)(14) of Pub. L. 101-508 applicable
to property placed in service after Dec. 31, 1990, but not
applicable to any transition property (as defined in section 49(e)
of this title), any property with respect to which qualified
progress expenditures were previously taken into account under
section 46(d) of this title, and any property described in section
46(b)(2)(C) of this title, as such sections were in effect on Nov.
4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
under section 45K of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7611(f)(5)(A) of Pub. L. 101-239 applicable
to costs paid or incurred in taxable years beginning after Dec. 31,
1989, see section 7611(g)(2) of Pub. L. 101-239, set out as a note
under section 56 of this title.
Amendment by section 7811(m)(2) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, to which such amendment relates, see section 7817 of Pub. L.
101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the amendment
by section 803(b)(3) of Pub. L. 99-514 is applicable to such
interest costs only to the extent such interest costs are
attributable to costs which were required to be capitalized under
section 263 of the Internal Revenue Code of 1954 and which would
have been taken into account in applying section 189 of the
Internal Revenue Code of 1954 (as in effect before its repeal by
section 803 of Pub. L. 99-514) or, if applicable, section 266 of
such Code, see section 7831(d)(2) of Pub. L. 101-239, set out as an
Effective Date note under section 263A of this title.
Amendment by section 201(b), (d)(6) of Pub. L. 99-514 applicable
to property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(b), (d)(6) of Pub. L. 99-514 not
applicable to any property placed in service before Jan. 1, 1994,
if such property placed in service as part of specified
rehabilitations, and not applicable to certain additional
rehabilitations, see section 251(d)(2), (3) of Pub. L. 99-514, set
out as a note under section 46 of this title.
Amendment by section 241(b)(1) of Pub. L. 99-514 applicable to
expenditures paid or incurred after Dec. 31, 1986, except as
otherwise provided, see section 241(c) of Pub. L. 99-514, set out
as an Effective Date of Repeal note under former section 177 of
this title.
Amendment by section 631(e)(1) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 803(b)(3) of Pub. L. 99-514 applicable to
costs incurred after Dec. 31, 1986, in taxable years ending after
such date, except as otherwise provided, see section 803(d) of Pub.
L. 99-514, set out as an Effective Date note under section 263A of
this title.
Amendment by sections 1804(f)(1)(A)-(E) and 1809(a)(2)(C)(ii) of
Pub. L. 99-514 effective, except as otherwise provided, as if
included in the provisions of the Tax Reform Act of 1984, Pub. L.
98-369, div. A, to which such amendment relates, see section 1881
of Pub. L. 99-514, set out as a note under section 48 of this
title.
Section 1804(f)(3) of Pub. L. 99-514 provided that: "Paragraph
(7) of section 312(n) of the Internal Revenue Code of 1954 [now
1986] (as redesignated by paragraph (1)(D) of this subsection), and
the amendments made by section 61(a)(2) of the Tax Reform Act of
1984 [amending this section], shall apply to distributions in
taxable years beginning after September 30, 1984."
EFFECTIVE DATE OF 1985 AMENDMENT
Amendment by Pub. L. 99-121 applicable with respect to property
placed in service by the taxpayer after May 8, 1985, with specified
exceptions, see section 105(b) of Pub. L. 99-121, set out as a note
under section 168 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 61(e)(1)-(3) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Adjustments to earnings and profits. -
"(A) Paragraphs (1), (2), and (3) of section 312(n). - The
provisions of paragraphs (1), (2), and (3) of section 312(n) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as
added by subsection (a)) shall apply to amounts paid or incurred
in taxable years beginning after September 30, 1984.
"(B) Paragraph (4) of section 312(n). - The provisions of
paragraph (4) of section 312(n) of such Code (as so added) shall
apply to distributions after September 30, 1984; except that such
provisions shall not apply to any distribution to which the
amendments made by section 54(a) of this Act [amending section
311 of this title] do not apply.
"(C) LIFO inventory. - The provisions of paragraph (5) of
section 312(n) of such Code (as so added) shall apply to taxable
years beginning after September 30, 1984.
"(D) Installment sales. - The provisions of paragraph (6) of
section 312(n) of such Code (as so added) shall apply to sales
after September 30, 1984, in taxable years ending after such
date.
"(E) Completed contract method. - The provisions of paragraph
(7) of section 312(n) of such Code (as so added) shall apply to
contracts entered into after September 30, 1984, in taxable years
ending after such date.
"(2) Subsection (b). - The amendments made by subsection (b)
[amending this section] shall apply to property placed in service
in taxable years beginning after September 30, 1984.
"(3) Subsection (c). - The amendments made by subsection (c)
[amending this section and section 1275 of this title] shall apply
with respect to distributions declared after March 15, 1984, in
taxable years ending after such date."
Amendment by section 61(a)(2) of Pub. L. 98-369 applicable to
distributions in taxable years beginning after Sept. 30, 1984, see
section 1804(f)(3) of Pub. L. 99-514, set out as an Effective Date
of 1986 Amendment note above.
Section 1804(f)(1)(F) of Pub. L. 99-514 provided that: "Any
reference in subsection (e) of section 61 of the Tax Reform Act of
1984 [set out above] to a paragraph of section 312(n) of the
Internal Revenue Code of 1954 [now 1986] shall be treated as a
reference to such paragraph as in effect before its redesignation
by subparagraph (D) [see 1986 Amendment note above]."
Section 63(c) of Pub. L. 98-369 provided that: "The amendment
made by this section [amending this section and section 368 of this
title] shall apply to transactions pursuant to plans adopted after
the date of the enactment of this Act [July 18, 1984]."
Amendment by section 111(e)(5) of Pub. L. 98-369 applicable with
respect to property placed in service by the taxpayer after Mar.
15, 1984, subject to certain exceptions, see section 111(g) of Pub.
L. 98-369, set out as a note under section 168 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective as if included in the
provisions of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 311(d)
of Pub. L. 97-448, set out as a note under section 31 of this
title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by section 205(a)(3) of Pub. L. 97-248 applicable to
periods after Dec. 31, 1982, under rules similar to the rules of
section 48(m) of this title, with certain qualifications, see
section 205(c)(1) of Pub. L. 97-248, set out as an Effective Date
note under section 196 of this title.
Amendment by section 222(e)(3) of Pub. L. 97-248 applicable to
distributions after Aug. 31, 1982, with exceptions for certain
partial liquidations, see section 222(f) of Pub. L. 97-248, set out
as a note under section 302 of this title.
Amendment by section 310(b)(3) of Pub. L. 97-248 applicable to
obligations issued after Dec. 31, 1982, with exceptions for certain
warrants, see section 310(d) of Pub. L. 97-248, set out as a note
under section 103 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property placed in
service after Dec. 31, 1980, in taxable years ending after that
date, see section 209(a) of Pub. L. 97-34, set out as an Effective
Date note under section 168 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to transactions which
occur after Dec. 31, 1980, other than transactions which occur in
proceedings in bankruptcy cases or similar judicial proceedings or
in proceedings under Title 11, Bankruptcy, commencing on or before
Dec. 31, 1980, except as otherwise provided, see section 7 of Pub.
L. 96-589, set out as a note under section 108 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-628 applicable to distributions made
after Nov. 10, 1978, see section 3(d) of Pub. L. 95-628, set out as
a note under section 301 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 205(c)(1)(D) of Pub. L. 94-455 effective for
taxable years ending after Dec. 31, 1975, see section 205(e) of
Pub. L. 94-455, set out as a note under section 1254 of this title.
Amendment by section 1901(a)(43) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Amendment by section 1901(b)(32) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 211(b)(3) of Pub. L. 91-172 applicable to
taxable years beginning after December 31, 1969, see section 211(c)
of Pub. L. 91-172, set out as a note under section 301 of this
title.
Amendment by section 905(b)(2) Pub. L. 91-172 effective with
respect to distributions made after Nov. 30, 1969, see section
905(c) of Pub. L. 91-172, set out as a note under section 311 of
this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-570 applicable to taxable years ending
after Sept. 12, 1966, but only in respect of expenditures paid or
incurred after such date, see section 3 of Pub. L. 89-570, set out
as an Effective Date note under section 617 of this title.
EFFECTIVE DATE OF 1964 AMENDMENTS
Amendment by Pub. L. 88-484 applicable with respect to
transactions after Aug. 22, 1964 in taxable years ending after such
date, see section 2 of Pub. L. 88-484, set out as a note under
section 301 of this title.
Amendment by Pub. L. 88-272 applicable to dispositions after Dec.
31, 1963, in taxable years ending after such date, see section
231(c) of Pub. L. 88-272, set out as an Effective Date note under
section 1250 of this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Amendment by section 13(f)(3) of Pub. L. 87-834 applicable to
taxable years beginning after Dec. 31, 1962, see section 13(g) of
Pub. L. 87-834, set out as an Effective Date note under section
1245 of this title.
Pub. L. 87-834, Sec. 14(c), Oct. 16, 1962, 76 Stat. 1041,
provided that: "The amendments made by this section [enacting
sections 1246 and 1247 of this title and amending this section and
sections 751 and 1223 of this title] shall apply with respect to
taxable years beginning after December 31, 1962."
Section 3(g) of Pub. L. 87-403 provided that: "The amendments
made by this section [amending this section and sections 535, 543,
545, 556 and 561 of this title] shall apply only with respect to
distributions made after the date of the enactment of this Act
[Feb. 2, 1962]."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) Subsec. (m) was enacted without a period at the end.
-End-
-CITE-
26 USC Subpart C - Definitions; Constructive Ownership of
Stock 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart C - Definitions; Constructive Ownership of Stock
-HEAD-
SUBPART C - DEFINITIONS; CONSTRUCTIVE OWNERSHIP OF STOCK
-MISC1-
Sec.
316. Dividend defined.
317. Other definitions.
318. Constructive ownership of stock.
-End-
-CITE-
26 USC Sec. 316 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart C - Definitions; Constructive Ownership of Stock
-HEAD-
Sec. 316. Dividend defined
-STATUTE-
(a) General rule
For purposes of this subtitle, the term "dividend" means any
distribution of property made by a corporation to its shareholders -
(1) out of its earnings and profits accumulated after February
28, 1913, or
(2) out of its earnings and profits of the taxable year
(computed as of the close of the taxable year without diminution
by reason of any distributions made during the taxable year),
without regard to the amount of the earnings and profits at the
time the distribution was made.
Except as otherwise provided in this subtitle, every distribution
is made out of earnings and profits to the extent thereof, and from
the most recently accumulated earnings and profits. To the extent
that any distribution is, under any provision of this subchapter,
treated as a distribution of property to which section 301 applies,
such distribution shall be treated as a distribution of property
for purposes of this subsection.
(b) Special rules
(1) Certain insurance company dividends
The definition in subsection (a) shall not apply to the term
"dividend" as used in subchapter L in any case where the
reference is to dividends of insurance companies paid to
policyholders as such.
(2) Distributions by personal holding companies
(A) In the case of a corporation which -
(i) under the law applicable to the taxable year in which
the distribution is made, is a personal holding company (as
defined in section 542), or
(ii) for the taxable year in respect of which the
distribution is made under section 563(b) (relating to
dividends paid after the close of the taxable year), or
section 547 (relating to deficiency dividends), or the
corresponding provisions of prior law, is a personal holding
company under the law applicable to such taxable year,
the term "dividend" also means any distribution of property
(whether or not a dividend as defined in subsection (a)) made
by the corporation to its shareholders, to the extent of its
undistributed personal holding company income (determined under
section 545 without regard to distributions under this
paragraph) for such year.
(B) For purposes of subparagraph (A), the term "distribution
of property" includes a distribution in complete liquidation
occurring within 24 months after the adoption of a plan of
liquidation, but -
(i) only to the extent of the amounts distributed to
distributees other than corporate shareholders, and
(ii) only to the extent that the corporation designates
such amounts as a dividend distribution and duly notifies
such distributees of such designation, under regulations
prescribed by the Secretary, but
(iii) not in excess of the sum of such distributees'
allocable share of the undistributed personal holding company
income for such year, computed without regard to this
subparagraph or section 562(b).
(3) Deficiency dividend distributions by a regulated investment
company or real estate investment trust
The term "dividend" also means any distribution of property
(whether or not a dividend as defined in subsection (a)) which
constitutes a "deficiency dividend" as defined in section 860(f).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 98; Mar. 13, 1956, ch. 83, Sec.
5(1), 70 Stat. 49; Pub. L. 88-272, title II, Sec. 225(f)(1), Feb.
26, 1964, 78 Stat. 87; Pub. L. 94-455, title XVI, Sec. 1601(d),
title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1746, 1834;
Pub. L. 95-600, title III, Sec. 362(d)(1), Nov. 6, 1978, 92 Stat.
2851.)
-MISC1-
AMENDMENTS
1978 - Subsec. (b)(3). Pub. L. 95-600 inserted "regulated
investment company or" after "distributions by a" in heading and
substituted in text "section 860(f)" for "section 859(d)".
1976 - Subsec. (b)(2)(B)(ii). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (b)(3). Pub. L. 94-455, Sec. 1601(d), added par. (3).
1964 - Subsec. (b)(2). Pub. L. 88-272 inserted definition of
"distribution of property".
1956 - Subsec. (b)(1). Act Mar. 13, 1956, substituted "subchapter
L" for "sections 803(e), 821(a)(2), and 832(c)(11)".
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable with respect to
determinations (as defined in section 860(e) of this title) after
Nov. 6, 1978, see section 362(e) of Pub. L. 95-600, set out as an
Effective Date note under section 860 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1601(d) of Pub. L. 94-
455, see section 1608(a) of Pub. L. 94-455, set out as a note
under section 857 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 225(l) of Pub. L. 88-272 provided that:
"(1) The amendments made by this section [enacting section 1022,
redesignating former section 1022 as 1023, amending this section
and sections 331, 333, 381, 541, 542, 543, 544, 545, 551, 553, 554,
562, 856, 1016, 1361, 6501, and the analysis preceding section
1011, and enacting provisions set out as a note under section 333
of this title] (other than by subsections (c)(1), (f), (g), and (j)
[enacting section 1022, redesignating former section 1022 as 1023,
amending this section and sections 331, 333, 542, 551, 562, 1016,
and the analysis preceding section 1011 of this title]) shall apply
to taxable years beginning after December 31, 1963.
"(2) The amendment made by subsection (c)(1) [amending section
542 of this title] shall apply to taxable years beginning after
October 16, 1962.
"(3) The amendments made by subsections (f) and (g) [amending
this section and sections 331, 333, 551, and 562 of this title]
shall apply to distributions made in any taxable year of the
distributing corporation beginning after December 31, 1963.
"(4) The amendments made by subsection (j) [enacting section
1022, redesignating former section 1022 as 1023, and amending
section 1016 and the analysis preceding section 1011 of this title]
shall apply in respect of decedents dying after December 31, 1963.
"(5) Subsection (h) [set out as a note under section 333 of this
title] shall apply to taxable years beginning after December 31,
1963."
EFFECTIVE DATE OF 1956 AMENDMENT
Section 6 of act Mar. 13, 1956, provided that: "The amendments
made by this Act [amending this section and sections 501, 594, 801
to 805, 811 to 813, 816 to 818, 821, 822, 832, 841, 842, 843, 891,
1201, 1504, and 4371 of this title] shall apply only to taxable
years beginning after December 31, 1954."
-End-
-CITE-
26 USC Sec. 317 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart C - Definitions; Constructive Ownership of Stock
-HEAD-
Sec. 317. Other definitions
-STATUTE-
(a) Property
For purposes of this part, the term "property" means money,
securities, and any other property; except that such term does not
include stock in the corporation making the distribution (or rights
to acquire such stock).
(b) Redemption of stock
For purposes of this part, stock shall be treated as redeemed by
a corporation if the corporation acquires its stock from a
shareholder in exchange for property, whether or not the stock so
acquired is cancelled, retired, or held as treasury stock.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 99.)
-End-
-CITE-
26 USC Sec. 318 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart C - Definitions; Constructive Ownership of Stock
-HEAD-
Sec. 318. Constructive ownership of stock
-STATUTE-
(a) General rule
For purposes of those provisions of this subchapter to which the
rules contained in this section are expressly made applicable -
(1) Members of family
(A) In general
An individual shall be considered as owning the stock owned,
directly or indirectly, by or for -
(i) his spouse (other than a spouse who is legally
separated from the individual under a decree of divorce or
separate maintenance), and
(ii) his children, grandchildren, and parents.
(B) Effect of adoption
For purposes of subparagraph (A)(ii), a legally adopted child
of an individual shall be treated as a child of such individual
by blood.
(2) Attribution from partnerships, estates, trusts, and
corporations
(A) From partnerships and estates
Stock owned, directly or indirectly, by or for a partnership
or estate shall be considered as owned proportionately by its
partners or beneficiaries.
(B) From trusts
(i) Stock owned, directly or indirectly, by or for a trust
(other than an employees' trust described in section 401(a)
which is exempt from tax under section 501(a)) shall be
considered as owned by its beneficiaries in proportion to the
actuarial interest of such beneficiaries in such trust.
(ii) Stock owned, directly or indirectly, by or for any
portion of a trust of which a person is considered the owner
under subpart E of part I of subchapter J (relating to
grantors and others treated as substantial owners) shall be
considered as owned by such person.
(C) From corporations
If 50 percent or more in value of the stock in a corporation
is owned, directly or indirectly, by or for any person, such
person shall be considered as owning the stock owned, directly
or indirectly, by or for such corporation, in that proportion
which the value of the stock which such person so owns bears to
the value of all the stock in such corporation.
(3) Attribution to partnerships, estates, trusts, and
corporations
(A) To partnerships and estates
Stock owned, directly or indirectly, by or for a partner or a
beneficiary of an estate shall be considered as owned by the
partnership or estate.
(B) To trusts
(i) Stock owned, directly or indirectly, by or for a
beneficiary of a trust (other than an employees' trust
described in section 401(a) which is exempt from tax under
section 501(a)) shall be considered as owned by the trust,
unless such beneficiary's interest in the trust is a remote
contingent interest. For purposes of this clause, a
contingent interest of a beneficiary in a trust shall be
considered remote if, under the maximum exercise of
discretion by the trustee in favor of such beneficiary, the
value of such interest, computed actuarially, is 5 percent or
less of the value of the trust property.
(ii) Stock owned, directly or indirectly, by or for a
person who is considered the owner of any portion of a trust
under subpart E of part I of subchapter J (relating to
grantors and others treated as substantial owners), shall be
considered as owned by the trust.
(C) To corporations
If 50 percent or more in value of the stock in a corporation
is owned, directly or indirectly, by or for any person, such
corporation shall be considered as owning the stock owned,
directly or indirectly, by or for such person.
(4) Options
If any person has an option to acquire stock, such stock shall
be considered as owned by such person. For purposes of this
paragraph, an option to acquire such an option, and each one of a
series of such options, shall be considered as an option to
acquire such stock.
(5) Operating rules
(A) In general
Except as provided in subparagraphs (B) and (C), stock
constructively owned by a person by reason of the application
of paragraph (1), (2), (3), or (4), shall, for purposes of
applying paragraphs (1), (2), (3), and (4), be considered as
actually owned by such person.
(B) Members of family
Stock constructively owned by an individual by reason of the
application of paragraph (1) shall not be considered as owned
by him for purposes of again applying paragraph (1) in order to
make another the constructive owner of such stock.
(C) Partnerships, estates, trusts, and corporations
Stock constructively owned by a partnership, estate, trust,
or corporation by reason of the application of paragraph (3)
shall not be considered as owned by it for purposes of applying
paragraph (2) in order to make another the constructive owner
of such stock.
(D) Option rule in lieu of family rule
For purposes of this paragraph, if stock may be considered as
owned by an individual under paragraph (1) or (4), it shall be
considered as owned by him under paragraph (4).
(E) S corporation treated as partnership
For purposes of this subsection -
(i) an S corporation shall be treated as a partnership, and
(ii) any shareholder of the S corporation shall be treated
as a partner of such partnership.
The preceding sentence shall not apply for purposes of
determining whether stock in the S corporation is
constructively owned by any person.
(b) Cross references
For provisions to which the rules contained in subsection (a)
apply, see -
(1) section 302 (relating to redemption of stock);
(2) section 304 (relating to redemption by related
corporations);
(3) section 306(b)(1)(A) (relating to disposition of section
306 stock);
(4) section 338(h)(3) (defining purchase);
(5) section 382(l)(3) (relating to special limitations on net
operating loss carryovers);
(6) section 856(d) (relating to definition of rents from real
property in the case of real estate investment trusts);
(7) section 958(b) (relating to constructive ownership rules
with respect to controlled foreign corporations); and
(8) section 6038(e)(2) (relating to information with respect
to certain foreign corporations).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 99; Pub. L. 86-779, Sec. 10(h),
Sept. 14, 1960, 74 Stat. 1009; Pub. L. 87-834, Sec. 20(d)(1), Oct.
16, 1962, 76 Stat. 1063; Pub. L. 88-554, Sec. 4(a), (b)(2), Aug.
31, 1964, 78 Stat. 762, 763; Pub. L. 97-248, title II, Sec.
224(c)(3), Sept. 3, 1982, 96 Stat. 489; Pub. L. 98-369, div. A,
title VII, Secs. 712(k)(5)(E), 721(j), July 18, 1984, 98 Stat. 950,
969; Pub. L. 99-514, title VI, Sec. 621(c)(1), Oct. 22, 1986, 100
Stat. 2266; Pub. L. 105-34, title XI, Sec. 1142(e)(3), Aug. 5,
1997, 111 Stat. 983; Pub. L. 109-135, title IV, Sec. 412(u), Dec.
21, 2005, 119 Stat. 2638.)
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(8). Pub. L. 109-135 substituted "section
6038(e)(2)" for "section 6038(d)(2)".
1997 - Subsec. (b)(8). Pub. L. 105-34 substituted "6038(d)(2)"
for "6038(d)(1)".
1986 - Subsec. (b)(5). Pub. L. 99-514 substituted "382(l)(3)" for
"382(a)(3)".
1984 - Subsec. (a)(5)(E). Pub. L. 98-369, Sec. 721(j), added
subpar. (E).
Subsec. (b)(4). Pub. L. 98-369, Sec. 712(k)(5)(E), substituted
"section 338(h)(3) (defining purchase)" for "section 338(h)(3)(B)
(relating to purchase of stock from subsidiaries, etc.)".
1982 - Subsec. (b)(4). Pub. L. 97-248 substituted "section
338(h)(3)(B) (relating to purchase of stock from subsidiaries,
etc.)" for "section 334(b)(3)(C) (relating to basis of property
received in certain liquidations of subsidiaries)".
1964 - Subsec. (a). Pub. L. 88-554, Sec. 4(a), struck out
sidewise attribution by providing that when stock is attributed to
a partnership, estate, trust, or corporation from a partner,
shareholder, or beneficiary, this stock is not to be attributed
again to another partner, beneficiary, or shareholder.
Subsec. (b)(7), (8). Pub. L. 88-554, Sec. 4(b)(2), added par. (7)
and redesignated former par. (7) as (8).
1962 - Subsec. (b)(7). Pub. L. 87-834 added par. (7).
1960 - Subsec. (b)(6). Pub. L. 86-779 added par. (6).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1142(f) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and sections 901 and
6038 of this title] shall apply to annual accounting periods
beginning after the date of the enactment of this Act [Aug. 5,
1997]."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to any ownership change
after Dec. 31, 1986, except as otherwise provided, see section
621(f) of Pub. L. 99-514, as amended, set out as a note under
section 382 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 712(k)(5)(E) of Pub. L. 98-369 not
applicable to any qualified stock purchase where the acquisition
date is before Sept. 1, 1982, see section 712(k)(9)(A) of Pub. L.
98-369, set out as a note under section 338 of this title.
Amendment by section 712(k)(5)(E) of Pub. L. 98-369 effective as
if included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
Amendment by section 721(j) of Pub. L. 98-369 effective as if
included in the Subchapter S Revision Act of 1982, Pub. L. 97-354,
see section 721(y)(1) of Pub. L. 98-369, set out as a note under
section 1361 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to any target corporation
with respect to which the acquisition date occurs after Aug. 31,
1982, with special rules for certain acquisitions before Sept. 1,
1982, and certain acquisitions of financial institutions in which
there was a binding contract on July 22, 1982, to acquire control,
see section 224(d) of Pub. L. 97-248, set out as an Effective Date
note under section 338 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 4(c) of Pub. L. 88-554, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and sections
304, 382, 856, 958, and 6038 of this title] shall take effect on
the date of the enactment of this Act, [Aug. 31, 1964], except
that, for purposes of sections 302 and 304 of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954], such amendments shall not
apply with respect to distributions in payment for stock
acquisitions or redemptions, if such acquisitions or redemptions
occurred before the date of the enactment of this Act."
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable with respect to taxable
years of real estate investment trusts beginning after Dec. 31,
1960, see section 10(k) of Pub. L. 86-779, set out as an Effective
Date note under section 856 of this title.
-End-
-CITE-
26 USC PART II - CORPORATE LIQUIDATIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
-HEAD-
PART II - CORPORATE LIQUIDATIONS
-MISC1-
Subpart
A. Effects on recipients.
B. Effects on corporation.
[C. Repealed.]
D. Definition and special rule.
-STATAMEND-
AMENDMENT OF ANALYSIS
For inapplicability of amendment by Pub. L. 108-27 to taxable
years beginning after Dec. 31, 2008, see section 303 of Pub. L. 108-
27, set out as an Effective and Termination Dates of 2003
Amendment note under section 1 of this title.
-MISC2-
AMENDMENTS
2003 - Pub. L. 108-27, title III, Secs. 302(e)(4)(B)(iii), 303,
May 28, 2003, 117 Stat. 764, temporarily struck out item for
subpart C "Collapsible corporations".
1982 - Pub. L. 97-248, title II, Sec. 222(e)(8)(B), Sept. 3,
1982, 96 Stat. 481, inserted "and special rule" in item for subpart
D.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(12)(B), Oct. 4,
1976, 90 Stat. 1795, struck out in table of subparts for part II of
subchapter C of chapter 1 in subpart (C) "; foreign personal
holding companies" after "corporations".
-End-
-CITE-
26 USC Subpart A - Effects on Recipients 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart A - Effects on Recipients
-HEAD-
SUBPART A - EFFECTS ON RECIPIENTS
-MISC1-
Sec.
331. Gain or loss to shareholder in corporate
liquidations.(!1)
332. Complete liquidations of subsidiaries.
[333. Repealed.]
334. Basis of property received in liquidations.
AMENDMENTS
1986 - Pub. L. 99-514, title VI, Sec. 631(e)(16), Oct. 22, 1986,
100 Stat. 2275, struck out item 333 "Election as to recognition of
gain in certain liquidations".
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 331 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 331. Gain or loss to shareholders in corporate liquidations
-STATUTE-
(a) Distributions in complete liquidation treated as exchanges
Amounts received by a shareholder in a distribution in complete
liquidation of a corporation shall be treated as in full payment in
exchange for the stock.
(b) Nonapplication of section 301
Section 301 (relating to effects on shareholder of distributions
of property) shall not apply to any distribution of property (other
than a distribution referred to in paragraph (2)(B) of section
316(b)) in complete liquidation.
(c) Cross reference
For general rule for determination of the amount of gain or
loss recognized, see section 1001.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 101; Pub. L. 88-272, title II,
Sec. 225(f)(2), Feb. 26, 1964, 78 Stat. 88; Pub. L. 94-455, title
XIX, Sec. 1901(b)(28)(A), Oct. 4, 1976, 90 Stat. 1799; Pub. L. 97-
248, title II, Sec. 222(a), (e)(1)(B), Sept. 3, 1982, 96 Stat.
478, 480.)
-MISC1-
AMENDMENTS
1982 - Subsec. (a). Pub. L. 97-248, Sec. 222(a), substituted
provisions that amounts received by a shareholder in a distribution
in complete liquidation of a corporation shall be treated as in
full payment in exchange for the stock for provisions that, in
complete liquidations, amounts distributed shall be treated as in
full payment in exchange for the stock, while amounts distributed
in partial liquidation shall be treated as in part or full payment
in exchange for the stock.
Subsec. (b). Pub. L. 97-248, Sec. 222(e)(1)(B), struck out
"partial or" before "complete liquidation".
1976 - Subsec. (c). Pub. L. 94-455 substituted "reference" for
"references" in heading and struck out cross reference relating to
general rule for determination of the amount of gain or loss to the
distributee and substituted "section 1001" for "section 1002".
1964 - Subsec. (b). Pub. L. 88-272 inserted "(other than a
distribution referred to in paragraph (2)(B) of section 316(b))".
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to distributions after
Aug. 31, 1982, with exceptions for certain partial liquidations,
see section 222(f) of Pub. L. 97-248, set out as a note under
section 302 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 effective for taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to distribution made in
any taxable year of the distributing corporation beginning after
Dec. 31, 1963, see section 225(l) of Pub. L. 88-272, set out as a
note under section 316 of this title.
LIQUIDATIONS BEFORE JANUARY 1, 1966
Section 225(h) of Pub. L. 88-272 provided that in the case of
corporations referred to in former subsec. (g)(3) of this section
the amendments made by section 225 of Pub. L. 88-272 do not apply
if there is a complete liquidation of such corporation and if the
distribution of all the property under such liquidation occurs
before Jan. 1, 1966, except for certain liquidations to which
section 332 of this title applies.
-End-
-CITE-
26 USC Sec. 332 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 332. Complete liquidations of subsidiaries
-STATUTE-
(a) General rule
No gain or loss shall be recognized on the receipt by a
corporation of property distributed in complete liquidation of
another corporation.
(b) Liquidations to which section applies
For purposes of this section, a distribution shall be considered
to be in complete liquidation only if -
(1) the corporation receiving such property was, on the date of
the adoption of the plan of liquidation, and has continued to be
at all times until the receipt of the property, the owner of
stock (in such other corporation) meeting the requirements of
section 1504(a)(2); and either
(2) the distribution is by such other corporation in complete
cancellation or redemption of all its stock, and the transfer of
all the property occurs within the taxable year; in such case the
adoption by the shareholders of the resolution under which is
authorized the distribution of all the assets of such corporation
in complete cancellation or redemption of all its stock shall be
considered an adoption of a plan of liquidation, even though no
time for the completion of the transfer of the property is
specified in such resolution; or
(3) such distribution is one of a series of distributions by
such other corporation in complete cancellation or redemption of
all its stock in accordance with a plan of liquidation under
which the transfer of all the property under the liquidation is
to be completed within 3 years from the close of the taxable year
during which is made the first of the series of distributions
under the plan, except that if such transfer is not completed
within such period, or if the taxpayer does not continue
qualified under paragraph (1) until the completion of such
transfer, no distribution under the plan shall be considered a
distribution in complete liquidation.
If such transfer of all the property does not occur within the
taxable year, the Secretary may require of the taxpayer such bond,
or waiver of the statute of limitations on assessment and
collection, or both, as he may deem necessary to insure, if the
transfer of the property is not completed within such 3-year
period, or if the taxpayer does not continue qualified under
paragraph (1) until the completion of such transfer, the assessment
and collection of all income taxes then imposed by law for such
taxable year or subsequent taxable years, to the extent
attributable to property so received. A distribution otherwise
constituting a distribution in complete liquidation within the
meaning of this subsection shall not be considered as not
constituting such a distribution merely because it does not
constitute a distribution or liquidation within the meaning of the
corporate law under which the distribution is made; and for
purposes of this subsection a transfer of property of such other
corporation to the taxpayer shall not be considered as not
constituting a distribution (or one of a series of distributions)
in complete cancellation or redemption of all the stock of such
other corporation, merely because the carrying out of the plan
involves (A) the transfer under the plan to the taxpayer by such
other corporation of property, not attributable to shares owned by
the taxpayer, on an exchange described in section 361, and (B) the
complete cancellation or redemption under the plan, as a result of
exchanges described in section 354, of the shares not owned by the
taxpayer.
(c) Deductible liquidating distributions of regulated investment
companies and real estate investment trusts
If a corporation receives a distribution from a regulated
investment company or a real estate investment trust which is
considered under subsection (b) as being in complete liquidation of
such company or trust, then, notwithstanding any other provision of
this chapter, such corporation shall recognize and treat as a
dividend from such company or trust an amount equal to the
deduction for dividends paid allowable to such company or trust by
reason of such distribution.
(d) Recognition of gain on liquidation of certain holding companies
(1) In general
In the case of any distribution to a foreign corporation in
complete liquidation of an applicable holding company -
(A) subsection (a) and section 331 shall not apply to such
distribution, and
(B) such distribution shall be treated as a distribution of
property to which section 301 applies.
(2) Applicable holding company
For purposes of this subsection:
(A) In general
The term "applicable holding company" means any domestic
corporation -
(i) which is a common parent of an affiliated group,
(ii) stock of which is directly owned by the distributee
foreign corporation,
(iii) substantially all of the assets of which consist of
stock in other members of such affiliated group, and
(iv) which has not been in existence at all times during
the 5 years immediately preceding the date of the
liquidation.
(B) Affiliated group
For purposes of this subsection, the term "affiliated group"
has the meaning given such term by section 1504(a) (without
regard to paragraphs (2) and (4) of section 1504(b)).
(3) Coordination with subpart F
If the distributee of a distribution described in paragraph (1)
is a controlled foreign corporation (as defined in section 957),
then notwithstanding paragraph (1) or subsection (a), such
distribution shall be treated as a distribution to which section
331 applies.
(4) Regulations
The Secretary shall provide such regulations as appropriate to
prevent the abuse of this subsection, including regulations which
provide, for the purposes of clause (iv) of paragraph (2)(A),
that a corporation is not in existence for any period unless it
is engaged in the active conduct of a trade or business or owns a
significant ownership interest in another corporation so engaged.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 102; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99-514,
title VI, Sec. 631(e)(2), title XVIII, Sec. 1804(e)(6)(A), Oct. 22,
1986, 100 Stat. 2273, 2803; Pub. L. 105-277, div. J, title III,
Sec. 3001(a), (b)(1), Oct. 21, 1998, 112 Stat. 2681-904; Pub. L.
108-357, title VIII, Sec. 893(a), Oct. 22, 2004, 118 Stat. 1646;
Pub. L. 109-135, title IV, Sec. 412(v), Dec. 21, 2005, 119 Stat.
2638.)
-MISC1-
AMENDMENTS
2005 - Subsec. (d)(1)(B). Pub. L. 109-135 substituted
"distribution of property to which section 301 applies" for
"distribution to which section 301 applies".
2004 - Subsec. (d). Pub. L. 108-357 added subsec. (d).
1998 - Subsec. (b). Pub. L. 105-277, Sec. 3001(b)(1), substituted
"this section" for "subsection (a)" in introductory provisions.
Subsec. (c). Pub. L. 105-277, Sec. 3001(a), added subsec. (c).
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1804(e)(6)(A),
amended par. (1) generally. Prior to amendment, par. (1) read as
follows: "the corporation receiving such property was, on the date
of the adoption of the plan of liquidation, and has continued to be
at all times until the receipt of the property, the owner of stock
(in such other corporation) possessing at least 80 percent of the
total combined voting power of all classes of stock entitled to
vote and the owner of at least 80 percent of the total number of
shares of all other classes of stock (except nonvoting stock which
is limited and preferred as to dividends); and either".
Subsec. (c). Pub. L. 99-514, Sec. 631(e)(2), struck out subsec.
(c) containing special rule for indebtedness of subsidiary to
parent in relation to complete liquidations of subsidiaries.
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 893(b), Oct. 22, 2004, 118
Stat. 1647, provided that: "The amendment made by this section
[amending this section] shall apply to distributions in complete
liquidation occurring on or after the date of the enactment of this
Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title III, Sec. 3001(c), Oct. 21, 1998,
112 Stat. 2681-904, provided that: "The amendments made by this
section [amending this section and section 334 of this title] shall
apply to distributions after May 21, 1998."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(e)(2) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Section 1804(e)(6)(B) of Pub. L. 99-514 provided that:
"(i) In general. - Except as provided in clause (iii), the
amendment made by subparagraph (A) [amending this section] shall
apply with respect to plans of complete liquidation adopted after
March 28, 1985.
"(ii) Certain distributions made after december 31, 1984. -
Except as provided in clause (iii), the amendment made by
subparagraph (A) shall also apply with respect to plans of complete
liquidations adopted on or before March 28, 1985, pursuant to which
any distribution is made in a taxable year beginning after December
31, 1984 (December 31, 1983, in the case of an affiliated group to
which an election under section 60(b)(7) of the Tax Reform Act of
1984 [Pub. L. 98-369, set out as a note under section 1504 of this
title] applies), but only if the liquidating corporation and any
corporation which receives a distribution in complete liquidation
of such corporation are members of an affiliated group of
corporations filing a consolidated return for the taxable year
which includes the date of the distribution.
"(iii) Transitional rule for affiliated groups. - The amendment
made by subparagraph (A) shall not apply with respect to plans of
complete liquidation if the liquidating corporation is a member of
an affiliated group of corporations under section 60(b) (2), (5),
(6), or (8) of the Tax Reform Act of 1984 [Pub. L. 98-369, set out
as a note under section 1504 of this title], for all taxable years
which include the date of any distribution pursuant to such plan."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 333 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart A - Effects on Recipients
-HEAD-
[Sec. 333. Repealed. Pub. L. 99-514, title VI, Sec. 631(e)(3), Oct.
22, 1986, 100 Stat. 2273]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 103; Feb. 26,
1964, Pub. L. 88-272, title II, Sec. 225(g), 78 Stat. 89; Oct. 4,
1976, Pub. L. 94-455, title XIX, Secs. 1901(a)(44), 1906(b)(13)(A),
1951(b)(6)(A), 90 Stat. 1772, 1834, 1838, related to election as to
recognition of gain in certain liquidations.
EFFECTIVE DATE OF REPEAL
Repeal applicable to any distribution in complete liquidation,
and any sale or exchange, made by a corporation after July 31,
1986, unless such corporation is completely liquidated before Jan.
1, 1987, any transaction described in section 338 of this title for
which the acquisition date occurs after Dec. 31, 1986, and any
distribution, not in complete liquidation, made after Dec. 31,
1986, with exceptions and special and transitional rules, see
section 633 of Pub. L. 99-514, set out as an Effective Date note
under section 336 of this title.
-End-
-CITE-
26 USC Sec. 334 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 334. Basis of property received in liquidations
-STATUTE-
(a) General rule
If property is received in a distribution in complete
liquidation, and if gain or loss is recognized on receipt of such
property, then the basis of the property in the hands of the
distributee shall be the fair market value of such property at the
time of the distribution.
(b) Liquidation of subsidiary
(1) In general
If property is received by a corporate distributee in a
distribution in a complete liquidation to which section 332
applies (or in a transfer described in section 337(b)(1)), the
basis of such property in the hands of such distributee shall be
the same as it would be in the hands of the transferor; except
that, in the hands of such distributee -
(A) the basis of such property shall be the fair market value
of the property at the time of the distribution in any case in
which gain or loss is recognized by the liquidating corporation
with respect to such property, and
(B) the basis of any property described in section
362(e)(1)(B) shall be the fair market value of the property at
the time of the distribution in any case in which such
distributee's aggregate adjusted basis of such property would
(but for this subparagraph) exceed the fair market value of
such property immediately after such liquidation.
(2) Corporate distributee
For purposes of this subsection, the term "corporate
distributee" means only the corporation which meets the stock
ownership requirements specified in section 332(b).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 104; Pub. L. 89-809, title II,
Sec. 202(a), (b), Nov. 13, 1966, 80 Stat. 1576; Pub. L. 94-455,
title XIX, Secs. 1901(a)(45), 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1772, 1834; Pub. L. 97-248, title II, Secs. 222(e)(1)(C),
224(b), Sept. 3, 1982, 96 Stat. 480, 488; Pub. L. 99-514, title VI,
Sec. 631(e)(4), Oct. 22, 1986, 100 Stat. 2273; Pub. L. 100-647,
title I, Sec. 1006(e)(6), Nov. 10, 1988, 102 Stat. 3401; Pub. L.
105-277, div. J, title III, Sec. 3001(b)(2), Oct. 21, 1998, 112
Stat. 2681-904; Pub. L. 108-357, title VIII, Sec. 836(b), Oct. 22,
2004, 118 Stat. 1595; Pub. L. 109-135, title IV, Sec. 403(dd)(1),
Dec. 21, 2005, 119 Stat. 2630.)
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(1). Pub. L. 109-135 substituted "except that,
in the hands of such distributee - " for "except that the basis of
such property in the hands of such distributee shall be the fair
market value of the property at the time of the distribution - " in
introductory provisions, added subpars. (A) and (B), and struck out
former subpars. (A) and (B) which read as follows:
"(A) in any case in which gain or loss is recognized by the
liquidating corporation with respect to such property, or
"(B) in any case in which the liquidating corporation is a
foreign corporation, the corporate distributee is a domestic
corporation, and the corporate distributee's aggregate adjusted
bases of property described in section 362(e)(1)(B) which is
distributed in such liquidation would (but for this subparagraph)
exceed the fair market value of such property immediately after
such liquidation."
2004 - Subsec. (b)(1). Pub. L. 108-357 reenacted heading without
change and amended text of par. (1) generally. Prior to amendment,
text read as follows: "If property is received by a corporate
distributee in a distribution in a complete liquidation to which
section 332 applies (or in a transfer described in section
337(b)(1)), the basis of such property in the hands of such
distributee shall be the same as it would be in the hands of the
transferor; except that, in any case in which gain or loss is
recognized by the liquidating corporation with respect to such
property, the basis of such property in the hands of such
distributee shall be the fair market value of the property at the
time of the distribution."
1998 - Subsec. (b)(1). Pub. L. 105-277 substituted "section 332"
for "section 332(a)".
1988 - Subsec. (b). Pub. L. 100-647 amended subsec. (b)
generally. Prior to amendment, subsec. (b) read as follows:
"(1) Distribution in complete liquidation. - If property is
received by a corporation in a distribution in a complete
liquidation to which section 332(a) applies, the basis of the
property in the hands of the distributee shall be the same as it
would be in the hands of the transferor.
"(2) Transfers to which section 332(c) applies. - If property is
received by a corporation in a transfer to which section 332(c)
applies, the basis of the property in the hands of the transferee
shall be the same as it would be in the hands of the transferor.
"(3) Distributee defined. - For purposes of this subsection, the
term 'distributee' means only the corporation which meets the 80-
percent stock ownership requirements specified in section 332(b)."
1986 - Subsec. (a). Pub. L. 99-514, Sec. 631(e)(4)(A), struck out
"(other than a distribution to which section 333 applies)" after
"liquidation".
Subsec. (c). Pub. L. 99-514, Sec. 631(e)(4)(B), struck out
subsec. (c) relating to property received in liquidation under
section 333.
1982 - Subsec. (a). Pub. L. 97-248, Sec. 222(e)(1)(C), struck out
"partial or" before "complete liquidation".
Subsec. (b). Pub. L. 97-248, Sec. 224(b), struck out heading to
par. (1) "In general", redesignated first sentence as par. (1) with
heading "Distribution in complete liquidation", in par. (1) as so
redesignated substituted reference to section 332(a) for reference
to section 332(b) relating to a distribution in complete
liquidation, struck out reference to par. (2) as an exception to
the determination of basis, redesignated second sentence as par.
(2) with heading "Transfers to which section 332(c) applies", in
par. (2) as so redesignated struck out reference to par. (2) as an
exception to the determination of basis, struck out par. (2) which
had provided that if property was received by a corporation in a
distribution in complete liquidation of another corporation and if
the distribution was pursuant to a plan of liquidation adopted not
more than 2 years after the date of the transaction described
below, or in the case of a series of transactions, the date of the
last such transaction, and stock of the distributing corporation
possessing at least 80 percent of the total combined voting power
of all classes of stock entitled to vote, and at least 80 percent
of the total number of shares of all other classes of stock (except
nonvoting stock which was limited and preferred as to dividends),
was acquired by the distributee by purchase (as defined in par.
(3)) during a 12-month period beginning with the earlier of the
date of the first acquisition by purchase of such stock, or if any
of such stock was acquired in an acquisition which is a purchase
within the meaning of second sentence of par. (3), the date on
which the distributee was first considered under section 318(a) as
owning stock owned by the corporation from which such acquisition
was made, then the basis of the property in the hands of the
distributee would be the adjusted basis of the stock with respect
to which the distribution was made, and under regulations
prescribed by the Secretary, proper adjustment in the adjusted
basis of any stock would be made for any distribution made to the
distributee with respect to such stock before the adoption of the
plan of liquidation, for any money received, for any liabilities
assumed or subject to which the property was received, and for
other items, and struck out par. (3) which provided that "purchase"
meant any acquisition of stock, but only if the basis of the stock
in the hands of the distributee was not determined in whole or in
part by reference to the adjusted basis of such stock in the hands
of the person from whom acquired, or under section 1014(a) of this
title the stock was not acquired in an exchange to which section
351 of this title applies, and the stock was not acquired from a
person the ownership of whose stock would, under section 318(a) of
this title, be attributed to the person acquiring such stock, but
that "purchase" also meant an acquisition of stock from a
corporation when ownership of such stock would be attributed under
section 318(a) to the person acquiring such stock, if the stock of
such corporation by reason of which such ownership would be
attributed was acquired by purchase, and redesignated par. (4) as
(3).
1976 - Subsec. (b)(2). Pub. L. 94-455, Secs. 1901(a)(45),
1906(b)(13)(A), struck out in subpar. (A) provision relating to
distributions made pursuant to a plan of liquidation adopted on or
before June 22, 1954, and in provisions following subpar. (B)(ii)
"or his delegate" after "Secretary".
1966 - Subsec. (b)(2)(B). Pub. L. 89-809, Sec. 202(b), inserted
provisions for the determination of the date on which to commence
the running of the 12-month period during which the distributee
must have acquired the stock by purchase by adding clauses (i) and
(ii).
Subsec. (b)(3). Pub. L. 89-809, Sec. 202(a), inserted provision
that, for purposes of par. (2)(B), "purchase" also means an
acquisition of stock from a corporation when ownership of such
stock would be attributed under section 318(a) to the person
acquiring such stock, if the stock of such corporation by reason of
which such ownership would be attributed was acquired by purchase.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 836(c)(2), Oct. 22, 2004, 118
Stat. 1596, provided that: "The amendment made by subsection (b)
[amending this section] shall apply to liquidations after the date
of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-277 applicable to distributions after
May 21, 1998, see section 3001(c) of Pub. L. 105-277, set out as a
note under section 332 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to any distribution in
complete liquidation, and any sale or exchange, made by a
corporation after July 31, 1986, unless such corporation is
completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by section 222(e)(1)(C) of Pub. L. 97-248 applicable to
distributions after Aug. 31, 1982, with exceptions for certain
partial liquidations, see section 222(f) of Pub. L. 97-248, set out
as a note under section 302 of this title.
Amendment by section 224(b) of Pub. L. 97-248 applicable to any
target corporation with respect to which the acquisition date
occurs after Aug. 31, 1982, with special rules for certain
acquisitions before Sept. 1, 1982, and certain acquisitions of
financial institutions in which there was a binding contract on
July 22, 1982, to acquire control, see section 224(d) of Pub. L. 97-
248, set out as an Effective Date note under section 338 of this
title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(45) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 202(d) of Pub. L. 89-809 provided that: "The amendment
made by subsection (a) [amending this section] shall apply only
with respect to acquisitions of stock after December 31, 1965. The
amendment made by subsections (b) and (c) [amending this section
and section 453 of this title] shall apply only with respect to
distributions made after the date of the enactment of this Act
[Nov. 13, 1966]."
ADJUSTMENT FOR LIABILITY TO BASIS OF PROPERTY DISTRIBUTED IN
COMPLETE LIQUIDATION OF CORPORATION PRIOR TO JULY 1, 1957;
DEDUCTION FOR UNCOMPENSATED LIABILITY
Pub. L. 93-497, Sec. 3, Oct. 29, 1974, 88 Stat. 1534, as amended
by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(a) Notwithstanding the provisions of section 334 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to
basis of property received in liquidations), no adjustment to the
basis of any property distributed in complete liquidation of a
corporation prior to July 1, 1957, shall be made for any liability
if -
"(1) the distributor and distributee did not consider the
liability relevant to the value of the stock with respect to
which the distribution was made,
"(2) the distributor and distributee reasonably relied upon a
decision of a United States district court specifically
adjudicating the amount of the liability and its affirmance by
the appropriate United States court of appeals, and
"(3) the amount of liability so adjudicated was not greater
than would be compensated for by insurance.
The provisions of this section apply without regard to whether such
decision was subsequently reversed or modified by that United
States court of appeals following distribution of such property in
complete liquidation.
"(b) To the extent that the liability described in subsection (a)
is not compensated for by insurance or otherwise, the amount
thereof shall be allowed as a deduction under the appropriate
provision of the Internal Revenue Code of 1986 for the taxable year
in which payment thereof was made and shall be effective in
determining income tax liabilities of all taxable years prior
thereto."
-End-
-CITE-
26 USC Subpart B - Effects on Corporation 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart B - Effects on Corporation
-HEAD-
SUBPART B - EFFECTS ON CORPORATION
-MISC1-
Sec.
336. Gain or loss recognized on property distributed in
complete liquidation.
337. Nonrecognition for property distributed to parent in
complete liquidation of subsidiary.
338. Certain stock purchases treated as asset acquisitions.
AMENDMENTS
1986 - Pub. L. 99-514, title VI, Sec. 631(e)(17), Oct. 22, 1986,
100 Stat. 2275, substituted "Gain or loss recognized on property
distributed in complete liquidation" for "General rule" in item 336
and "Nonrecognition for property distributed to parent in complete
liquidation of subsidiary" for "Gain or loss on sales or exchanges
in connection with certain liquidations" in item 337.
1982 - Pub. L. 97-248, title II, Sec. 224(c)(9), Sept. 3, 1982,
96 Stat. 489, substituted "Certain stock purchases treated as asset
acquisitions" for "Effect on earnings and profits" in item 338.
-End-
-CITE-
26 USC Sec. 336 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart B - Effects on Corporation
-HEAD-
Sec. 336. Gain or loss recognized on property distributed in
complete liquidation
-STATUTE-
(a) General rule
Except as otherwise provided in this section or section 337, gain
or loss shall be recognized to a liquidating corporation on the
distribution of property in complete liquidation as if such
property were sold to the distributee at its fair market value.
(b) Treatment of liabilities
If any property distributed in the liquidation is subject to a
liability or the shareholder assumes a liability of the liquidating
corporation in connection with the distribution, for purposes of
subsection (a) and section 337, the fair market value of such
property shall be treated as not less than the amount of such
liability.
(c) Exception for liquidations which are part of a reorganization
For provision providing that this subpart does not apply to
distributions in pursuance of a plan of reorganization, see
section 361(c)(4).
(d) Limitations on recognition of loss
(1) No loss recognized in certain distributions to related
persons
(A) In general
No loss shall be recognized to a liquidating corporation on
the distribution of any property to a related person (within
the meaning of section 267) if -
(i) such distribution is not pro rata, or
(ii) such property is disqualified property.
(B) Disqualified property
For purposes of subparagraph (A), the term "disqualified
property" means any property which is acquired by the
liquidating corporation in a transaction to which section 351
applied, or as a contribution to capital, during the 5-year
period ending on the date of the distribution. Such term
includes any property if the adjusted basis of such property is
determined (in whole or in part) by reference to the adjusted
basis of property described in the preceding sentence.
(2) Special rule for certain property acquired in certain
carryover basis transactions
(A) In general
For purposes of determining the amount of loss recognized by
any liquidating corporation on any sale, exchange, or
distribution of property described in subparagraph (B), the
adjusted basis of such property shall be reduced (but not below
zero) by the excess (if any) of -
(i) the adjusted basis of such property immediately after
its acquisition by such corporation, over
(ii) the fair market value of such property as of such
time.
(B) Description of property
(i) In general
For purposes of subparagraph (A), property is described in
this subparagraph if -
(I) such property is acquired by the liquidating
corporation in a transaction to which section 351 applied
or as a contribution to capital, and
(II) the acquisition of such property by the liquidating
corporation was part of a plan a principal purpose of which
was to recognize loss by the liquidating corporation with
respect to such property in connection with the
liquidation.
Other property shall be treated as so described if the
adjusted basis of such other property is determined (in whole
or in part) by reference to the adjusted basis of property
described in the preceding sentence.
(ii) Certain acquisitions treated as part of plan
For purposes of clause (i), any property described in
clause (i)(I) acquired by the liquidated corporation after
the date 2 years before the date of the adoption of the plan
of complete liquidation shall, except as provided in
regulations, be treated as acquired as part of a plan
described in clause (i)(II).
(C) Recapture in lieu of disallowance
The Secretary may prescribe regulations under which, in lieu
of disallowing a loss under subparagraph (A) for a prior
taxable year, the gross income of the liquidating corporation
for the taxable year in which the plan of complete liquidation
is adopted shall be increased by the amount of the disallowed
loss.
(3) Special rule in case of liquidation to which section 332
applies
In the case of any liquidation to which section 332 applies, no
loss shall be recognized to the liquidating corporation on any
distribution in such liquidation. The preceding sentence shall
apply to any distribution to the 80-percent distributee only if
subsection (a) or (b)(1) of section 337 applies to such
distribution.
(e) Certain stock sales and distributions may be treated as asset
transfers
Under regulations prescribed by the Secretary, if -
(1) a corporation owns stock in another corporation meeting the
requirements of section 1504(a)(2), and
(2) such corporation sells, exchanges, or distributes all of
such stock,
an election may be made to treat such sale, exchange, or
distribution as a disposition of all of the assets of such other
corporation, and no gain or loss shall be recognized on the sale,
exchange, or distribution of such stock.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 631(a), Oct. 22, 1986, 100
Stat. 2269; amended Pub. L. 100-647, title I, Secs. 1006(e)(1)-(3),
(21)(A), 1018(d)(5)(D), Nov. 10, 1988, 102 Stat. 3400, 3403, 3580.)
-MISC1-
PRIOR PROVISIONS
A prior section 336, acts Aug. 16, 1954, ch. 736, 68A Stat. 106;
Apr. 2, 1980, Pub. L. 96-223, title IV, Sec. 403(b)(1), 94 Stat.
304; Oct. 19, 1980, Pub. L. 96-471, Sec. 2(b)(1), (c)(1), 94 Stat.
2253, 2254; Sept. 3, 1982, Pub. L. 97-248, title II, Sec. 222(b),
(e)(1)(D), 224(c)(4), 96 Stat. 478, 480, 489, related to
distributions of property in liquidation, prior to repeal by Pub.
L. 99-514, Sec. 631(a).
AMENDMENTS
1988 - Subsec. (b). Pub. L. 100-647, Sec. 1006(e)(21)(A),
substituted "liabilities" for "liabilities in excess of basis" in
heading.
Subsec. (c). Pub. L. 100-647, Sec. 1018(d)(5)(D), substituted
"liquidations which are part of a reorganization" for "certain
liquidations to which part III applies" in heading and amended text
generally. Prior to amendment, text read as follows: "This section
shall not apply with respect to any distribution of property to the
extent there is nonrecognition of gain or loss with respect to such
property to the recipient under part III."
Subsec. (d)(2)(B)(ii). Pub. L. 100-647, Sec. 1006(e)(1), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"For purposes of clause (i), any property described in clause
(i)(I) acquired by the liquidating corporation during the 2-year
period ending on the date of the adoption of the plan of complete
liquidation shall, except as provided in regulations, be treated as
part of a plan described in clause (i)(II)."
Subsec. (d)(3). Pub. L. 100-647, Sec. 1006(e)(2), inserted at end
"The preceding sentence shall apply to any distribution to the 80-
percent distributee only if subsection (a) or (b)(1) of section
337 applies to such distribution."
Subsec. (e). Pub. L. 100-647, Sec. 1006(e)(3), substituted "an
election may be made" for "such corporation may elect" in
concluding provisions.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section 633 of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1006(g), Nov. 10, 1988, 102 Stat. 3407, provided
that:
"(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this subtitle [subtitle D (Secs.
631-634) of title VI of Pub. L. 99-514, enacting this section and
section 337 of this title, amending sections 26, 311, 312, 332,
334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248,
1255, 1276, 1363, 1366, 1374, and 1375 of this title, and repealing
former sections 333, 336, and 337 of this title] shall apply to -
"(1) any distribution in complete liquidation, and any sale or
exchange, made by a corporation after July 31, 1986, unless such
corporation is completely liquidated before January 1, 1987,
"(2) any transaction described in section 338 of the Internal
Revenue Code of 1986 for which the acquisition date occurs after
December 31, 1986, and
"(3) any distribution (not in complete liquidation) made after
December 31, 1986.
"(b) Built-In Gains of S Corporations. -
"(1) In general. - The amendments made by section 632 (other
than subsection (b) thereof) [amending sections 26, 1366, 1374,
and 1375 of this title] shall apply to taxable years beginning
after December 31, 1986, but only in cases where the return for
the taxable year is filed pursuant to an S election made after
December 31, 1986.
"(2) Application of prior law. - In the case of any taxable
year of an S corporation which begins after December 31, 1986,
and to which the amendments made by section 632 (other than
subsection (b) thereof) do not apply, paragraph (1) of section
1374(b) of the Internal Revenue Code of 1954 (as in effect on the
date before the date of the enactment of this Act [Oct. 22,
1986]) shall be applied as if it read as follows:
" '(1) an amount equal to 34 percent of the amount by which
the net capital gain of the corporation for the taxable year
exceeds $25,000, or'[.]
"(c) Exception for Certain Plans of Liquidation and Binding
Contracts. -
"(1) In general. - The amendments made by this subtitle shall
not apply to -
"(A) any distribution or sale or exchange made pursuant to a
plan of liquidation adopted before August 1, 1986, if the
liquidating corporation is completely liquidated before January
1, 1988,
"(B) any distribution or sale or exchange made by any
corporation if more than 50 percent of the voting stock (by
value) of such corporation is acquired on or after August 1,
1986, pursuant to a written binding contract in effect before
such date and if such corporation is completely liquidated
before January 1, 1988,
"(C) any distribution or sale or exchange made by any
corporation if substantially all of the assets of such
corporation are sold on or after August 1, 1986, pursuant to 1
or more written binding contracts in effect before such date
and if such corporation is completely liquidated before January
1, 1988, or
"(D) any transaction described in section 338 of the Internal
Revenue Code of 1986 with respect to any target corporation if
a qualified stock purchase of such target corporation is made
on or after August 1, 1986, pursuant to a written binding
contract in effect before such date and the acquisition date
(within the meaning of such section 338) is before January 1,
1988.
"(2) Special rule for certain actions taken before november 20,
1985. - For purposes of paragraph (1), transactions shall be
treated as pursuant to a plan of liquidation adopted before
August 1, 1986, if -
"(A) before November 20, 1985 -
"(i) the board of directors of the liquidating corporation
adopted a resolution to solicit shareholder approval for a
transaction of a kind described in section 336 or 337, or
"(ii) the shareholders or board of directors have approved
such a transaction,
"(B) before November 20, 1985 -
"(i) there has been an offer to purchase a majority of the
voting stock of the liquidating corporation, or
"(ii) the board of directors of the liquidating corporation
has adopted a resolution approving an acquisition or
recommending the approval of an acquisition to the
shareholders, or
"(C) before November 20, 1985, a ruling request was submitted
to the Secretary of the Treasury or his delegate with respect
to a transaction of a kind described in section 336 or 337 of
the Internal Revenue Code of 1954 (as in effect before the
amendments made by this subtitle).
For purposes of the preceding sentence, any action taken by the
board of directors or shareholders of a corporation with respect
to any subsidiary of such corporation shall be treated as taken
by the board of directors or shareholders of such subsidiary.
"(d) Transitional Rule for Certain Small Corporations. -
"(1) In general. - In the case of the complete liquidation
before January 1, 1989, of a qualified corporation, the
amendments made by this subtitle shall not apply to the
applicable percentage of each gain or loss which (but for this
paragraph) would be recognized by the liquidating corporation by
reason of the amendments made by this subtitle. Section 333 of
the Internal Revenue Code of 1954 (as in effect on the day before
the date of the enactment of this Act [Oct. 22, 1986]) shall
continue to apply to any complete liquidation described in the
preceding sentence.
"(2) Paragraph (1) not to apply to certain items. - Paragraph
(1) shall not apply to -
"(A) any gain or loss which is an ordinary gain or loss
(determined without regard to section 1239 of the Internal
Revenue Code of 1986),
"(B) any gain or loss on a capital asset held for not more
than 6 months, and
"(C) any gain on an asset acquired by the qualified
corporation if -
"(i) the basis of such asset in the hands of the qualified
corporation is determined (in whole or in part) by reference
to the basis of such asset in the hands of the person from
whom acquired, and
"(ii) a principal purpose for the transfer of such asset to
the qualified corporation was to secure the benefits of this
subsection.
"(3) Applicable percentage. - For purposes of this subsection,
the term 'applicable percentage' means -
"(A) 100 percent if the applicable value of the qualified
corporation is less than $5,000,000, or
"(B) 100 percent reduced by an amount which bears the same
ratio to 100 percent as -
"(i) the excess of the applicable value of the corporation
over $5,000,000, bears to
"(ii) $5,000,000.
"(4) Applicable value. - For purposes of this subsection, the
applicable value is the fair market value of all of the stock of
the corporation on the date of the adoption of the plan of
complete liquidation (or if greater, on August 1, 1986).
"(5) Qualified corporation. - For purposes of this subsection,
the term 'qualified corporation' means any corporation if -
"(A) on August 1, 1986, and at all times thereafter before
the corporation is completely liquidated, more than 50 percent
(by value) of the stock in such corporation is held by a
qualified group, and
"(B) the applicable value of such corporation does not exceed
$10,000,000.
"(6) Definitions and special rules. - For purposes of this
subsection -
"(A) Qualified group. -
"(i) In general. - Except as provided in clause (ii), the
term 'qualified group' means any group of 10 or fewer
qualified persons who at all times during the 5-year period
ending on the date of the adoption of the plan of complete
liquidation (or, if shorter, the period during which the
corporation or any predecessor was in existence) owned (or
was treated as owning under the rules of subparagraph (C))
more than 50 percent (by value) of the stock in such
corporation.
"(ii) 5-year ownership requirement not to apply in certain
cases. - In the case of -
"(I) any complete liquidation pursuant to a plan of
liquidation adopted before March 31, 1988,
"(II) any distribution not in liquidation made before March
31, 1988,
"(III) an election to be an S corporation filed before March
31, 1988, or
"(IV) a transaction described in section 338 of the Internal
Revenue Code of 1986 where the acquisition date (within the
meaning of such section 338) is before March 31, 1988,
the term 'qualified group' means any group of 10 or fewer
qualified persons.
"(B) Qualified person. - The term 'qualified person' means -
"(i) an individual,
"(ii) an estate, or
"(iii) any trust described in clause (ii) or clause (iii)
of section 1361(c)(2)(A) of the Internal Revenue Code of
1986.
"(C) Attribution rules. -
"(i) In general. - Any stock owned by a corporation, trust
(other than a trust referred to in subparagraph (B)(iii)[)],
or partnership shall be treated as owned proportionately by
its shareholders, beneficiaries, or partners, and shall not
be treated as owned by such corporation, trust, or
partnership. Stock considered to be owned by a person by
reason of the application of the preceding sentence shall,
for purposes of applying such sentence, be treated as
actually owned by such person.
"(ii) Family members. - Stock owned (or treated as owned)
by members of the same family (within the meaning of section
318(a)(1) of the Internal Revenue Code of 1986) shall be
treated as owned by 1 person, and shall be treated as owned
by such 1 person for any period during which it was owned (or
treated as owned) by any such member.
"(iii) Treatment of certain trusts. - Stock owned (or
treated as owned) by the estate of any decedent or by any
trust referred to in subparagraph (B)(iii) with respect to
such decedent shall be treated as owned by 1 person and shall
be treated as owned by such 1 person for the period during
which it was owned (or treated as owned) by such estate or
any such trust or by the decedent.
"(D) Special holding period rules. - Any property acquired by
reason of the death of an individual shall be treated as owned
at all times during which such property was owned (or treated
as owned) by the decedent.
"(E) Controlled group of corporations. - All members of the
same controlled group (as defined in section 267(f)(1) of such
Code) shall be treated as 1 corporation for purposes of
determining whether any of such corporations met the
requirement of paragraph (5)(B) and for purposes of determining
the applicable percentage with respect to any of such
corporations. For purposes of the preceding sentence, an S
corporation shall not be treated as a member of a controlled
group unless such corporation was a C corporation for its
taxable year which includes August 1, 1986, or it was not
described for such taxable year in paragraph (1) or (2) of
section 1374(c) of such Code (as in effect on the day before
the date of the enactment of this Act [Oct. 22, 1986]).
"(7) Section 338 transactions. - The provisions of this
subsection shall also apply in the case of a transaction
described in section 338 of the Internal Revenue Code of 1986
where the acquisition date (within the meaning of such section
338) is before January 1, 1989.
"(8) Application of section 1374. - Rules similar to the rules
of this subsection shall apply for purposes of applying section
1374 of the Internal Revenue Code of 1986 (as amended by section
632) in the case of a qualified corporation which makes an
election to be an S corporation under section 1362 of such Code
before January 1, 1989, without regard to whether such
corporation is completely liquidated.
"(9) Application to nonliquidating distributions. - The
provisions of this subsection shall also apply in the case of any
distribution (not in complete liquidation) made by a qualified
corporation before January 1, 1989, without regard to whether
such corporation is completely liquidated.
"(e) Complete Liquidation Defined. - For purposes of this
section, a corporation shall be treated as completely liquidated if
all of the assets of such corporation are distributed in complete
liquidation, less assets retained to meet claims.
"(f) Other Transitional Rules. -
"(1) The amendments made by this subtitle shall not apply to
any liquidation of a corporation incorporated under the laws of
Pennsylvania on August 3, 1970, if -
"(A) the board of directors of such corporation approved a
plan of liquidation before January 1, 1986,
"(B) an agreement for the sale of a material portion of the
assets of such corporation was signed on May 9, 1986 (whether
or not the assets are sold in accordance with such agreement),
and
"(C) the corporation is completely liquidated on or before
December 31, 1988.
"(2) The amendments made by this subtitle shall not apply to
any liquidation (or deemed liquidation under section 338 of the
Internal Revenue Code of 1986) of a diversified financial
services corporation incorporated under the laws of Delaware on
May 9, 1929 (or any direct or indirect subsidiary of such
corporation), pursuant to a binding written contract entered into
on or before December 31, 1986; but only if the liquidation is
completed (or in the case of a section 338 election, the
acquisition date occurs) before January 1, 1988.
"(3) The amendments made by this subtitle shall not apply to
any distribution, or sale, or exchange -
"(A) of the assets owned (directly or indirectly) by a
testamentary trust established under the will of a decedent
dying on June 15, 1956, or its beneficiaries,
"(B) made pursuant to a court order in an action filed on
January 18, 1984, if such order -
"(i) is issued after July 31, 1986, and
"(ii) directs the disposition of the assets of such trust
and the division of the trust corpus into 3 separate sub-
trusts.
For purposes of the preceding sentence, an election under section
338(g) of the Internal Revenue Code of 1986 (or an election under
section 338(h)(10) of such Code qualifying as a section 337
liquidation pursuant to regulations prescribed by the Secretary
under section 1.338(h)(10)-1T(j)) made in connection with a sale
or exchange pursuant to a court order described in subparagraph
(B) shall be treated as a sale of [or] exchange.
"(4)(A) The amendments made by this subtitle shall not apply to
any distribution, or sale, or exchange -
"(i) if -
"(I) an option agreement to sell substantially all of the
assets of a selling corporation organized under the laws of
Massachusetts on October 20, 1976, is executed before August
1, 1986, the corporation adopts (by approval of its
shareholders) a conditional plan of liquidation before August
1, 1986 to become effective upon the exercise of such option
agreement (or modification thereto), and the assets are sold
pursuant to the exercise of the option (as originally
executed or subsequently modified provided that the purchase
price is not thereby increased), or
"(II) in the event that the optionee does not acquire
substantially all the assets of the corporation, the optionor
corporation sells substantially all its assets to another
purchaser at a purchase price not greater than that
contemplated by such option agreement pursuant to an
effective plan of liquidation, and
"(ii) the complete liquidation of the corporation occurs
within 12 months of the time the plan of liquidation becomes
effective, but in no event later than December 31, 1989.
"(B) For purposes of subparagraph (A), a distribution, or sale,
or exchange, of a distributee corporation (within the meaning of
section 337(c)(3) of the Internal Revenue Code of 1986) shall be
treated as satisfying the requirements of subparagraph (A) if its
subsidiary satisfies the requirements of subparagraph (A).
"(C) For purposes of section 56 of the Internal Revenue Code of
1986 (as amended by this Act), any gain or loss not recognized by
reason of this paragraph shall not be taken into account in
determining the adjusted net book income of the corporation.
"(5) In the case of a corporation incorporated under the laws
of Wisconsin on April 3, 1948 -
"(A) a voting trust established not later than December 31,
1987, shall qualify as a trust permitted as a shareholder of an
S corporation and shall be treated as only 1 shareholder if the
holders of beneficial interests in such voting trust are -
"(i) employees or retirees of such corporation, or
"(ii) in the case of stock or voting trust certificates
acquired from an employee or retiree of such corporation, the
spouse, child, or estate of such employee or retiree or a
trust created by such employee or retiree which is described
in section 1361(c)(2) of the Internal Revenue Code of 1986
(or treated as described in such section by reason of section
1361(d) of such Code), and
"(B) the amendment made by section 632 (other than subsection
(b) thereof) shall not apply to such corporation if it elects
to be an S corporation before January 1, 1989.
"(6) The amendments made by this subtitle shall not apply to
the liquidation of a corporation incorporated on January 26,
1982, under the laws of the State of Alabama with a principal
place of business in Colbert County, Alabama, but only if such
corporation is completely liquidated on or before December 31,
1987.
"(7) The amendments made by this subtitle shall not apply to
the acquisition by a Delaware bank holding company of all of the
assets of an Iowa bank holding company pursuant to a written
contract dated December 9, 1981.
"(8) The amendments made by this subtitle shall not apply to
the liquidation of a corporation incorporated under the laws of
Delaware on January 20, 1984, if more than 40 percent of the
stock of such corporation was acquired by purchase on June 11,
1986, and there was a tender offer with respect to all additional
outstanding shares of such corporation on July 29, 1986, but only
if the corporation is completely liquidated on or before December
31, 1987.
"(g) Treatment of Certain Distributions in Response To Hostile
Tender Offer. -
"(1) In general. - No gain or loss shall be recognized under
the Internal Revenue Code of 1986 to a corporation (hereinafter
in this subsection referred to as 'parent') on a qualified
distribution.
"(2) Qualified Distribution Defined. - For purposes of
paragraph (1) -
"(A) In general. - The term 'qualified distribution' means a
distribution -
"(i) by parent of all of the stock of a qualified
subsidiary in exchange for stock of parent which was acquired
for purposes of such exchange pursuant to a tender offer
dated February 16, 1982, and
"(ii) pursuant to a contract dated February 13, 1982, and
"(iii) which was made not more than 60 days after the board
of directors of parent recommended rejection of an
unsolicited tender offer to obtain control of parent.
"(B) Qualified subsidiary. - The term 'qualified subsidiary'
means a corporation created or organized under the laws of
Delaware on September 7, 1976, all of the stock of which was
owned by parent immediately before the qualified distribution."
-End-
-CITE-
26 USC Sec. 337 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart B - Effects on Corporation
-HEAD-
Sec. 337. Nonrecognition for property distributed to parent in
complete liquidation of subsidiary
-STATUTE-
(a) In general
No gain or loss shall be recognized to the liquidating
corporation on the distribution to the 80-percent distributee of
any property in a complete liquidation to which section 332
applies.
(b) Treatment of indebtedness of subsidiary, etc.
(1) Indebtedness of subsidiary to parent
If -
(A) a corporation is liquidated in a liquidation to which
section 332 applies, and
(B) on the date of the adoption of the plan of liquidation,
such corporation was indebted to the 80-percent distributee,
for purposes of this section and section 336, any transfer of
property to the 80-percent distributee in satisfaction of such
indebtedness shall be treated as a distribution to such
distributee in such liquidation.
(2) Treatment of tax-exempt distributee
(A) In general
Except as provided in subparagraph (B), paragraph (1) and
subsection (a) shall not apply where the 80-percent distributee
is an organization (other than a cooperative described in
section 521) which is exempt from the tax imposed by this
chapter.
(B) Exception where property will be used in unrelated business
(i) In general
Subparagraph (A) shall not apply to any distribution of
property to an organization described in section 511(a)(2)
if, immediately after such distribution, such organization
uses such property in an activity the income from which is
subject to tax under section 511(a).
(ii) Later disposition or change in use
If any property to which clause (i) applied is disposed of
by the organization acquiring such property, notwithstanding
any other provision of law, any gain (not in excess of the
amount not recognized by reason of clause (i)) shall be
included in such organization's unrelated business taxable
income. For purposes of the preceding sentence, if such
property ceases to be used in an activity referred to in
clause (i), such organization shall be treated as having
disposed of such property on the date of such cessation.
(c) 80-percent distributee
For purposes of this section, the term "80-percent distributee"
means only the corporation which meets the 80-percent stock
ownership requirements specified in section 332(b). For purposes of
this section, the determination of whether any corporation is an 80-
percent distributee shall be made without regard to any
consolidated return regulation.
(d) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of the
amendments made by subtitle D of title VI of the Tax Reform Act of
1986, including -
(1) regulations to ensure that such purposes may not be
circumvented through the use of any provision of law or
regulations (including the consolidated return regulations and
part III of this subchapter) or through the use of a regulated
investment company, real estate investment trust, or tax-exempt
entity, and
(2) regulations providing for appropriate coordination of the
provisions of this section with the provisions of this title
relating to taxation of foreign corporations and their
shareholders.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 631(a), Oct. 22, 1986, 100
Stat. 2271; amended Pub. L. 100-203, title X, Sec. 10223(a), Dec.
22, 1987, 101 Stat. 1330-411; Pub. L. 100-647, title I, Sec.
1006(e)(4), (5)(A), Nov. 10, 1988, 102 Stat. 3400.)
-REFTEXT-
REFERENCES IN TEXT
The Tax Reform Act of 1986, referred to in subsec. (d), is Pub.
L. 99-514, Oct. 22, 1986, 100 Stat. 2085, as amended. Subtitle D
(Secs. 631-634) of title VI of the Tax Reform Act of 1986 enacted
sections 336 and 337 of this title, amended sections 26, 311, 312,
332, 334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248,
1255, 1276, 1363, 1366, 1374, and 1375 of this title, and repealed
former sections 333, 336, and 337 of this title. For complete
classification of this Act to the Code, see Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 337, acts Aug. 16, 1954, ch. 736, 68A Stat. 106;
Sept. 2, 1958, Pub. L. 85-866, title I, Sec. 19, 72 Stat. 1615;
Oct. 4, 1976, Pub. L. 94-455, title XIX, Secs. 1901(a)(46),
1906(b)(13)(A), title XXI, Sec. 2118(a), 90 Stat. 1772, 1834, 1912;
Nov. 6, 1978, Pub. L. 95-600, title VII, Sec. 701(i)(1), 92 Stat.
2904; Nov. 10, 1978, Pub. L. 95-628, Sec. 4(a), 92 Stat. 3628; Apr.
2, 1980, Pub. L. 96-223, title IV, Sec. 403(b)(2)(A), 94 Stat. 304;
Oct. 19, 1980, Pub. L. 96-471, Sec. 2(c)(2), 94 Stat. 2254; Dec.
24, 1980, Pub. L. 96-589, Sec. 5(c), 94 Stat. 3405; Sept. 3, 1982,
Pub. L. 97-248, title II, Sec. 224(c)(5), (6), 96 Stat. 489; Oct.
22, 1986, Pub. L. 99-514, title XVIII, Sec. 1804(e)(7)(A), 100
Stat. 2803, related to gain or loss on sales or exchanges in
connection with certain liquidations, prior to repeal by Pub. L. 99-
514, Sec. 631(a).
AMENDMENTS
1988 - Subsec. (b)(2)(B)(i). Pub. L. 100-647, Sec. 1006(e)(4)(A),
(B), substituted "described in section 511(a)(2)" for "described in
section 511(a)(2) or 511(b)(2)" and "in an activity the income from
which is subject to tax under section 511(a)" for "in an unrelated
trade or business (as defined in section 513)".
Subsec. (b)(2)(B)(ii). Pub. L. 100-647, Sec. 1006(e)(4)(C),
substituted "an activity referred to in clause (i)" for "an
unrelated trade or business of such organization".
Subsec. (d). Pub. L. 100-647, Sec. 1006(e)(5)(A), in introductory
provisions, substituted "amendments made by subtitle D of title VI
of the Tax Reform Act of 1986" for "amendments made to this subpart
by the Tax Reform Act of 1986", and in par. (1), substituted "this
subchapter) or through the use of a regulated investment company,
real estate investment trust, or tax-exempt entity" for "this
subchapter)".
1987 - Subsec. (c). Pub. L. 100-203 inserted at end "For purposes
of this section, the determination of whether any corporation is an
80-percent distributee shall be made without regard to any
consolidated return regulation."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(e)(5)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A)(ii) [amending this section]
shall not apply to any reorganization if before June 10, 1987 -
"(i) the board of directors of a party to the reorganization
adopted a resolution to solicit shareholder approval for the
transaction, or
"(ii) the shareholders or the board of directors of a party to
the reorganization approved the transaction."
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to distributions or
transfers after Dec. 15, 1987, with exceptions for certain
distributee corporations and distributions covered by prior
transition rule, see section 10223(d) of Pub. L. 100-203, set out
as a note under section 304 of this title.
EFFECTIVE DATE
Section applicable to any distribution in complete liquidation,
and any sale or exchange, made by a corporation after July 31,
1986, unless such corporation is completely liquidated before Jan.
1, 1987, any transaction described in section 338 of this title for
which the acquisition date occurs after Dec. 31, 1986, and any
distribution, not in complete liquidation, made after Dec. 31,
1986, with exceptions and special and transitional rules, see
section 633 of Pub. L. 99-514, set out as a note under section 336
of this title.
-End-
-CITE-
26 USC Sec. 338 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart B - Effects on Corporation
-HEAD-
Sec. 338. Certain stock purchases treated as asset acquisitions
-STATUTE-
(a) General rule
For purposes of this subtitle, if a purchasing corporation makes
an election under this section (or is treated under subsection (e)
as having made such an election), then, in the case of any
qualified stock purchase, the target corporation -
(1) shall be treated as having sold all of its assets at the
close of the acquisition date at fair market value in a single
transaction, and
(2) shall be treated as a new corporation which purchased all
of the assets referred to in paragraph (1) as of the beginning of
the day after the acquisition date.
(b) Basis of assets after deemed purchase
(1) In general
For purposes of subsection (a), the assets of the target
corporation shall be treated as purchased for an amount equal to
the sum of -
(A) the grossed-up basis of the purchasing corporation's
recently purchased stock, and
(B) the basis of the purchasing corporation's nonrecently
purchased stock.
(2) Adjustment for liabilities and other relevant items
The amount described in paragraph (1) shall be adjusted under
regulations prescribed by the Secretary for liabilities of the
target corporation and other relevant items.
(3) Election to step-up the basis of certain target stock
(A) In general
Under regulations prescribed by the Secretary, the basis of
the purchasing corporation's nonrecently purchased stock shall
be the basis amount determined under subparagraph (B) of this
paragraph if the purchasing corporation makes an election to
recognize gain as if such stock were sold on the acquisition
date for an amount equal to the basis amount determined under
subparagraph (B).
(B) Determination of basis amount
For purposes of subparagraph (A), the basis amount determined
under this subparagraph shall be an amount equal to the grossed-
up basis determined under subparagraph (A) of paragraph (1)
multiplied by a fraction -
(i) the numerator of which is the percentage of stock (by
value) in the target corporation attributable to the
purchasing corporation's nonrecently purchased stock, and
(ii) the denominator of which is 100 percent minus the
percentage referred to in clause (i).
(4) Grossed-up basis
For purposes of paragraph (1), the grossed-up basis shall be an
amount equal to the basis of the corporation's recently purchased
stock, multiplied by a fraction -
(A) the numerator of which is 100 percent, minus the
percentage of stock (by value) in the target corporation
attributable to the purchasing corporation's nonrecently
purchased stock, and
(B) the denominator of which is the percentage of stock (by
value) in the target corporation attributable to the purchasing
corporation's recently purchased stock.
(5) Allocation among assets
The amount determined under paragraphs (1) and (2) shall be
allocated among the assets of the target corporation under
regulations prescribed by the Secretary.
(6) Definitions of recently purchased stock and nonrecently
purchased stock
For purposes of this subsection -
(A) Recently purchased stock
The term "recently purchased stock" means any stock in the
target corporation which is held by the purchasing corporation
on the acquisition date and which was purchased by such
corporation during the 12-month acquisition period.
(B) Nonrecently purchased stock
The term "nonrecently purchased stock" means any stock in the
target corporation which is held by the purchasing corporation
on the acquisition date and which is not recently purchased
stock.
[(c) Repealed. Pub. L. 99-514, title VI, Sec. 631(b)(2), Oct. 22,
1986, 100 Stat. 2272]
(d) Purchasing corporation; target corporation; qualified stock
purchase
For purposes of this section -
(1) Purchasing corporation
The term "purchasing corporation" means any corporation which
makes a qualified stock purchase of stock of another corporation.
(2) Target corporation
The term "target corporation" means any corporation the stock
of which is acquired by another corporation in a qualified stock
purchase.
(3) Qualified stock purchase
The term "qualified stock purchase" means any transaction or
series of transactions in which stock (meeting the requirements
of section 1504(a)(2)) of 1 corporation is acquired by another
corporation by purchase during the 12-month acquisition period.
(e) Deemed election where purchasing corporation acquires asset of
target corporation
(1) In general
A purchasing corporation shall be treated as having made an
election under this section with respect to any target
corporation if, at any time during the consistency period, it
acquires any asset of the target corporation (or a target
affiliate).
(2) Exceptions
Paragraph (1) shall not apply with respect to any acquisition
by the purchasing corporation if -
(A) such acquisition is pursuant to a sale by the target
corporation (or the target affiliate) in the ordinary course of
its trade or business,
(B) the basis of the property acquired is determined wholly
by reference to the adjusted basis of such property in the
hands of the person from whom acquired,
(C) such acquisition was before September 1, 1982, or
(D) such acquisition is described in regulations prescribed
by the Secretary and meets such conditions as such regulations
may provide.
(3) Anti-avoidance rule
Whenever necessary to carry out the purpose of this subsection
and subsection (f), the Secretary may treat stock acquisitions
which are pursuant to a plan and which meet the requirements of
section 1504(a)(2) as qualified stock purchases.
(f) Consistency required for all stock acquisitions from same
affiliated group
If a purchasing corporation makes qualified stock purchases with
respect to the target corporation and 1 or more target affiliates
during any consistency period, then (except as otherwise provided
in subsection (e)) -
(1) any election under this section with respect to the first
such purchase shall apply to each other such purchase, and
(2) no election may be made under this section with respect to
the second or subsequent such purchase if such an election was
not made with respect to the first such purchase.
(g) Election
(1) When made
Except as otherwise provided in regulations, an election under
this section shall be made not later than the 15th day of the 9th
month beginning after the month in which the acquisition date
occurs.
(2) Manner
An election by the purchasing corporation under this section
shall be made in such manner as the Secretary shall by
regulations prescribe.
(3) Election irrevocable
An election by a purchasing corporation under this section,
once made, shall be irrevocable.
(h) Definitions and special rules
For purposes of this section -
(1) 12-month acquisition period
The term "12-month acquisition period" means the 12-month
period beginning with the date of the first acquisition by
purchase of stock included in a qualified stock purchase (or, if
any of such stock was acquired in an acquisition which is a
purchase by reason of subparagraph (C) of paragraph (3), the date
on which the acquiring corporation is first considered under
section 318(a) (other than paragraph (4) thereof) as owning stock
owned by the corporation from which such acquisition was made).
(2) Acquisition date
The term "acquisition date" means, with respect to any
corporation, the first day on which there is a qualified stock
purchase with respect to the stock of such corporation.
(3) Purchase
(A) In general
The term "purchase" means any acquisition of stock, but only
if -
(i) the basis of the stock in the hands of the purchasing
corporation is not determined (I) in whole or in part by
reference to the adjusted basis of such stock in the hands of
the person from whom acquired, or (II) under section 1014(a)
(relating to property acquired from a decedent),
(ii) the stock is not acquired in an exchange to which
section 351, 354, 355, or 356 applies and is not acquired in
any other transaction described in regulations in which the
transferor does not recognize the entire amount of the gain
or loss realized on the transaction, and
(iii) the stock is not acquired from a person the ownership
of whose stock would, under section 318(a) (other than
paragaraph (!1) (4) thereof), be attributed to the person
acquiring such stock.
(B) Deemed purchase under subsection (a)
The term "purchase" includes any deemed purchase under
subsection (a)(2). The acquisition date for a corporation which
is deemed purchased under subsection (a)(2) shall be determined
under regulations prescribed by the Secretary.
(C) Certain stock acquisitions from related corporations
(i) In general
Clause (iii) of subparagraph (A) shall not apply to an
acquisition of stock from a related corporation if at least
50 percent in value of the stock of such related corporation
was acquired by purchase (within the meaning of subparagraphs
(A) and (B)).
(ii) Certain distributions
Clause (i) of subparagraph (A) shall not apply to an
acquisition of stock described in clause (i) of this
subparagraph if the corporation acquiring such stock -
(I) made a qualified stock purchase of stock of the
related corporation, and
(II) made an election under this section (or is treated
under subsection (e) as having made such an election) with
respect to such qualified stock purchase.
(iii) Related corporation defined
For purposes of this subparagraph, a corporation is a
related corporation if stock owned by such corporation is
treated (under section 318(a) other than paragraph (4)
thereof) as owned by the corporation acquiring the stock.
(4) Consistency period
(A) In general
Except as provided in subparagraph (B), the term "consistency
period" means the period consisting of -
(i) the 1-year period before the beginning of the 12-month
acquisition period for the target corporation,
(ii) such acquisition period (up to and including the
acquisition date), and
(iii) the 1-year period beginning on the day after the
acquisition date.
(B) Extension where there is plan
The period referred to in subparagraph (A) shall also include
any period during which the Secretary determines that there was
in effect a plan to make a qualified stock purchase plus 1 or
more other qualified stock purchases (or asset acquisitions
described in subsection (e)) with respect to the target
corporation or any target affiliate.
(5) Affiliated group
The term "affiliated group" has the meaning given to such term
by section 1504(a) (determined without regard to the exceptions
contained in section 1504(b)).
(6) Target affiliate
(A) In general
A corporation shall be treated as a target affiliate of the
target corporation if each of such corporations was, at any
time during so much of the consistency period as ends on the
acquisition date of the target corporation, a member of an
affiliated group which had the same common parent.
(B) Certain foreign corporations, etc.
Except as otherwise provided in regulations (and subject to
such conditions as may be provided in regulations) -
(i) the term "target affiliate" does not include a foreign
corporation, a DISC, or a corporation to which an election
under section 936 applies, and
(ii) stock held by a target affiliate in a foreign
corporation or a domestic corporation which is a DISC or
described in section 1248(e) shall be excluded from the
operation of this section.
[(7) Repealed. Pub. L. 100-647, title I, Sec. 1006(e)(20), Nov.
10, 1988, 102 Stat. 3403]
(8) Acquisitions by affiliated group treated as made by 1
corporation
Except as provided in regulations prescribed by the Secretary,
stock and asset acquisitions made by members of the same
affiliated group shall be treated as made by 1 corporation.
(9) Target not treated as member of affiliated group
Except as otherwise provided in paragraph (10) or in
regulations prescribed under this paragraph, the target
corporation shall not be treated as a member of an affiliated
group with respect to the sale described in subsection (a)(1).
(10) Elective recognition of gain or loss by target corporation,
together with nonrecognition of gain or loss on stock sold by
selling consolidated group
(A) In general
Under regulations prescribed by the Secretary, an election
may be made under which if -
(i) the target corporation was, before the transaction, a
member of the selling consolidated group, and
(ii) the target corporation recognizes gain or loss with
respect to the transaction as if it sold all of its assets in
a single transaction,
then the target corporation shall be treated as a member of the
selling consolidated group with respect to such sale, and (to
the extent provided in regulations) no gain or loss will be
recognized on stock sold or exchanged in the transaction by
members of the selling consolidated group.
(B) Selling consolidated group
For purposes of subparagraph (A), the term "selling
consolidated group" means any group of corporations which (for
the taxable period which includes the transaction) -
(i) includes the target corporation, and
(ii) files a consolidated return.
To the extent provided in regulations, such term also includes
any affiliated group of corporations which includes the target
corporation (whether or not such group files a consolidated
return).
(C) Information required to be furnished to the Secretary
Under regulations, where an election is made under
subparagraph (A), the purchasing corporation and the common
parent of the selling consolidated group shall, at such times
and in such manner as may be provided in regulations, furnish
to the Secretary the following information:
(i) The amount allocated under subsection (b)(5) to
goodwill or going concern value.
(ii) Any modification of the amount described in clause
(i).
(iii) Any other information as the Secretary deems
necessary to carry out the provisions of this paragraph.
(11) Elective formula for determining fair market value
For purposes of subsection (a)(1), fair market value may be
determined on the basis of a formula provided in regulations
prescribed by the Secretary which takes into account liabilities
and other relevant items.
[(12) Repealed. Pub. L. 99-514, title VI, Sec. 631(e)(5), Oct.
22, 1986, 100 Stat. 2273]
(13) Tax on deemed sale not taken into account for estimated tax
purposes
For purposes of section 6655, tax attributable to the sale
described in subsection (a)(1) shall not be taken into account.
The preceding sentence shall not apply with respect to a
qualified stock purchase for which an election is made under
paragraph (10).
[(14) Repealed. Pub. L. 108-27, title III, Sec. 302(e)(4)(B)(i),
May 28, 2003, 117 Stat. 763]
(15) Combined deemed sale return
Under regulations prescribed by the Secretary, a combined
deemed sale return may be filed by all target corporations
acquired by a purchasing corporation on the same acquisition date
if such target corporations were members of the same selling
consolidated group (as defined in subparagraph (B) of paragraph
(10)).
(16) Coordination with foreign tax credit provisions
Except as provided in regulations, this section shall not apply
for purposes of determining the source or character of any item
for purposes of subpart A of part III of subchapter N of this
chapter (relating to foreign tax credit). The preceding sentence
shall not apply to any gain to the extent such gain is includible
in gross income as a dividend under section 1248 (determined
without regard to any deemed sale under this section by a foreign
corporation).
(i) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including -
(1) regulations to ensure that the purpose of this section to
require consistency of treatment of stock and asset sales and
purchases may not be circumvented through the use of any
provision of law or regulations (including the consolidated
return regulations) and
(2) regulations providing for the coordination of the
provisions of this section with the provision of this title
relating to foreign corporations and their shareholders.
-SOURCE-
(Added Pub. L. 97-248, title II, Sec. 224(a), Sept. 3, 1982, 96
Stat. 485; amended Pub. L. 97-448, title III, Sec. 306(a)(8)(A)(i),
Jan. 12, 1983, 96 Stat. 2402; Pub. L. 98-369, div. A, title VII,
Sec. 712(k)(1)-(5)(D), (6), (7), July 18, 1984, 98 Stat. 948-952;
Pub. L. 99-514, title VI, Sec. 631(b), (e)(5), title XII, Sec.
1275(c)(6), title XVIII, Secs. 1804(e)(8)(A), 1899A(7), Oct. 22,
1986, 100 Stat. 2272, 2273, 2599, 2804, 2958; Pub. L. 100-647,
title I, Secs. 1006(e)(20), 1012(bb)(5)(A), 1018(d)(9), Nov. 10,
1988, 102 Stat. 3403, 3535, 3581; Pub. L. 101-508, title XI, Sec.
11323(c)(1), Nov. 5, 1990, 104 Stat. 1388-465; Pub. L. 108-27,
title III, Sec. 302(e)(4)(B)(i), May 28, 2003, 117 Stat. 763; Pub.
L. 108-357, title VIII, Sec. 839(a), Oct. 22, 2004, 118 Stat.
1597.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
PRIOR PROVISIONS
A prior section 338, act Aug. 16, 1954, ch. 736, 68A Stat. 107,
made reference to a special rule relating to the effect on earnings
and profits of certain distributions in partial liquidation in
section 312(e), prior to repeal by Pub. L. 97-248, Sec. 222(e)(4).
AMENDMENTS
2004 - Subsec. (h)(13). Pub. L. 108-357 inserted at end "The
preceding sentence shall not apply with respect to a qualified
stock purchase for which an election is made under paragraph (10)."
2003 - Subsec. (h)(14). Pub. L. 108-27, Secs. 302(e)(4)(B)(i),
303, temporarily struck out heading and text of par. (14). Text
read as follows: "For purposes of determining whether section 341
applies to a disposition within 1 year after the acquisition date
of stock by a shareholder (other than the acquiring corporation)
who held stock in the target corporation on the acquisition date,
section 341 shall be applied without regard to this section." See
Effective and Termination Dates of 2003 Amendment note below.
1990 - Subsec. (h)(10)(C). Pub. L. 101-508 added subpar. (C).
1988 - Subsec. (e)(3). Pub. L. 100-647, Sec. 1018(d)(9),
substituted "which meet the requirements of section 1504(a)(2)" for
"which meet the 80 percent requirements of subparagraphs (A) and
(B) of subsection (d)(3)".
Subsec. (h)(7). Pub. L. 100-647, Sec. 1006(e)(20), struck out
par. (7) which read as follows: "Additional percentage must be
attributable to purchase, etc. - For purposes of subsection (c)(1),
any increase in the maximum percentage of stock taken into account
over the percentage of stock (by value) of the target corporation
held by the purchasing corporation on the acquisition date shall be
taken into account only to the extent such increase is attributable
to -
"(A) purchase, or
"(B) a redemption of stock of the target corporation -
"(i) to which section 302(a) applies, or
"(ii) in the case of a shareholder who is not a corporation,
to which section 301 applies."
Subsec. (h)(16). Pub. L. 100-647, Sec. 1012(bb)(5)(A), added par.
(16).
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 631(b)(1), struck out
"to which section 337 applies" after "in a single transaction".
Subsec. (c). Pub. L. 99-514, Sec. 631(b)(2), struck out subsec.
(c) relating to special rules for coordination with section 337
where purchasing corporation holds less than 100 percent of stock,
and in case of certain redemptions where an election is made under
this section.
Subsec. (d)(3). Pub. L. 99-514, Sec. 1804(e)(8)(A), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "The
term 'qualified stock purchase' means any transaction or series of
transactions in which stock of 1 corporation possessing -
"(A) at least 80 percent of total combined voting power of all
classes of stock entitled to vote, and
"(B) at least 80 percent of the total number of shares of all
other classes of stock (except nonvoting stock which is limited
and preferred as to dividends),
is acquired by another corporation by purchase during the 12-month
acquisition period."
Subsec. (h)(3)(C)(i). Pub. L. 99-514, Sec. 1899A(7), substituted
"subparagraphs" for "subparagraph".
Subsec. (h)(6)(B)(i). Pub. L. 99-514, Sec. 1275(c)(6), struck out
"a corporation described in section 934(b)," after "DISC,".
Subsec. (h)(10)(B). Pub. L. 99-514, Sec. 631(b)(3), inserted
provision that to the extent provided in regulations, term "selling
consolidated group" also includes any affiliated group of
corporations which includes the target corporation (whether or not
such group files a consolidated return).
Subsec. (h)(12). Pub. L. 99-514, Sec. 631(e)(5), struck out par.
(12) relating to applicability of section 337 where target had
adopted plan for complete liquidation.
1984 - Subsec. (a)(1). Pub. L. 98-369, Sec. 712(k)(1)(A),
inserted "at fair market value" after "acquisition date".
Subsec. (b). Pub. L. 98-369, Sec. 712(k)(1)(B), substituted
"Basis of assets after deemed purchase" for "Price at which deemed
sale made" in heading.
Subsec. (b)(1). Pub. L. 98-369, Sec. 712(k)(1)(B), amended par.
(1) generally, substituting "as purchased for an amount equal to
the sum of" for "as sold (and purchased) at an amount equal to" in
introductory text, "purchasing corporation's recently purchased
stock, and" for "purchasing corporation's stock in the target
corporation on the acquisition date" in subpar. (A), and "the basis
of the purchasing corporation's nonrecently purchased stock" in
subpar. (B) in lieu of provision relating to adjustment for
liabilities and other relevant items, now covered in par. (2).
Subsec. (b)(2). Pub. L. 98-369, Sec. 712(k)(1)(B), amended par.
(2) generally, incorporating former par. (1)(B) provision,
inserting heading "Adjustment for liabilities and other relevant
items" and substituting "adjusted under regulations" for "properly
adjusted under regulations". Former par. (2) redesignated (4).
Subsec. (b)(3). Pub. L. 98-369, Sec. 712(k)(1)(B), added par.
(3). Former par. (3) redesignated (5).
Subsec. (b)(4). Pub. L. 98-369, Sec. 712(k)(1)(B), redesignated
former par. (2) as (4), substituted in introductory text
"corporation's recently purchased stock," for "purchasing
corporation's stock in the target corporation on the acquisition
date", inserted in subpar. (A) "minus the percentage of stock (by
value) in the target corporation attributable to the purchasing
corporation's nonrecently purchased stock", and substituted in
subpar. (B) "in the target corporation attributable to the
purchasing corporation's recently purchased stock" for "of the
target corporation held by the purchasing corporation on the
acquisition date".
Subsec. (b)(5). Pub. L. 98-369, Sec. 712(k)(1)(B), redesignated
former par. (3) as (5) and inserted reference to par. (2).
Subsec. (b)(6). Pub. L. 98-369, Sec. 712(k)(1)(B), added par.
(6).
Subsec. (c)(1). Pub. L. 98-369, Sec. 712(k)(2), inserted in last
sentence "and section 333 does not apply to such liquidation".
Subsec. (e)(2). Pub. L. 98-369, Sec. 712(k)(3), substituted
"wholly" for "(in whole or in part)" in subpar. (B), struck out
subpar. (D) providing for nonapplication of par. (1) to any
acquisition by the purchasing corporation if, to the extent
provided in regulations, the property acquired is located outside
the United States, redesignated subpar. (E) as (D), and, in subpar.
(D) as redesignated, inserted "and meets such conditions as such
regulations may provide".
Subsec. (g)(1). Pub. L. 98-369, Sec. 712(k)(4), substituted "the
15th day of the 9th month beginning after the month in which the
acquisition date occurs" for "75 days after the acquisition date".
Subsec. (h)(1). Pub. L. 98-369, Sec. 712(k)(5)(C), included
within 12-month acquisition period the period beginning with the
date on which the acquiring corporation is first considered as
owning stock owned by corporation from which acquisition was made.
Subsec. (h)(3)(A)(ii). Pub. L. 98-369, Sec. 712(k)(5)(D),
included references to sections 354, 355, and 356 and in defining
"purchase" provided that the stock not be acquired in any other
transaction described in regulations in which the transferor does
not recognize the entire amount of the gain or loss realized on the
transaction.
Subsec. (h)(3)(B). Pub. L. 98-369, Sec. 712(k)(5)(A), substituted
in heading "under subsection (a)" for "of stock of subsidiaries"
and in text "The term 'purchase' includes any deemed purchase under
subsection (a)(2). The acquisition date for a corporation which is
deemed purchased under subsection (a)(2) shall be determined under
regulations prescribed by the Secretary" for "If stock in a
corporation is acquired by purchase (within the meaning of
subparagraph (A)) and, as a result of such acquisition, the
corporation making such purchase is treated (by reason of section
318(a)) as owning stock in a 3rd corporation, the corporation
making such purchase shall be treated as having purchased such
stock in such 3rd corporation. The corporation making such purchase
shall be treated as purchasing stock in the 3rd corporation by
reason of the preceding sentence on the first day on which the
purchasing corporation is considered under section 318(a) as owning
such stock".
Subsec. (h)(3)(C). Pub. L. 98-369, Sec. 712(k)(5)(B), added
subpar. (C).
Subsec. (h)(7). Pub. L. 98-369, Sec. 712(k)(6)(A), added par. (7)
and struck out former par. (7) which had provided that acquisitions
by purchasing corporation include acquisitions by corporations
affiliated with purchasing corporation. See subsec. (h)(8).
Subsec. (h)(8). Pub. L. 98-369, Sec. 712(k)(6)(A), added par. (8)
incorporating former par. (7) provision stating that "Except as
otherwise provided in regulations, an acquisition of stock or
assets by any member of an affiliated group which includes a
purchasing corporation shall be treated as made by the purchasing
corporation." Former par. (8) redesignated (9).
Subsec. (h)(9). Pub. L. 98-369, Sec. 712(k)(6)(A), (B),
redesignated former par. (8) as (9) and substituted therein
"paragraph (10)" for "paragraph (9)". Former par. (9) redesignated
(10).
Subsec. (h)(10). Pub. L. 98-369, Sec. 712(k)(6)(A), redesignated
former par. (9) as (10).
Subsec. (h)(11) to (15). Pub. L. 98-369, Sec. 712(k)(6)(C), added
pars. (11) to (15).
Subsec. (i). Pub. L. 98-369, Sec. 712(k)(7), provided in
introductory text that the regulations be appropriate to carry out
the purposes of this section; designated existing provisions as
par. (1) and substituted therein "treatment of stock and asset
sales and purchases" for "treatment of stock and asset purchases
with respect to a target corporation and its target affiliates
(whether by treating all of them as stock purchases or as asset
purchases)" before "may not be circumvented", and added par. (2).
1983 - Subsec. (h)(8), (9). Pub. L. 97-448 added pars. (8) and
(9).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 839(b), Oct. 22, 2004, 118
Stat. 1597, provided that: "The amendment made by subsection (a)
[amending this section] shall apply to transactions occurring after
the date of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11323(d) of Pub. L. 101-508 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
1060 and 6724 of this title] shall apply to acquisitions after
October 9, 1990.
"(2) Binding contract exception. - The amendments made by this
section shall not apply to any acquisition pursuant to a written
binding contract in effect on October 9, 1990, and at all times
thereafter before such acquisition."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1012(bb)(5)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to qualified stock purchases (as defined in section 338(d)(3)
of the 1986 Code) after March 31, 1988, except that, in the case of
an election under section 338(h)(10) of the 1986 Code, such
amendment shall apply to qualified stock purchases (as so defined)
after June 10, 1987."
Amendment by sections 1006(e)(20) and 1018(d)(9) of Pub. L. 100-
647 effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(b), (e)(5) of Pub. L. 99-514 applicable
to any distribution in complete liquidation, and any sale or
exchange, made by a corporation after July 31, 1986, unless such
corporation is completely liquidated before Jan. 1, 1987, any
transaction described in section 338 of this title for which the
acquisition date occurs after Dec. 31, 1986, and any distribution,
not in complete liquidation, made after Dec. 31, 1986, with
exceptions and special and transitional rules, see section 633 of
Pub. L. 99-514, set out as an Effective Date note under section 336
of this title.
Amendment by section 1275(c)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
Section 1804(e)(8)(B) of Pub. L. 99-514 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply in cases where the 12-month acquisition period (as defined in
section 338(h)(1) of the Internal Revenue Code of 1954 [now 1986]
begins after December 31, 1985."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 712(k)(9) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - The amendments made by this subsection
[amending this section and sections 269 and 318 of this title]
shall not apply to any qualified stock purchase (as defined in
section 338(d)(3) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]) where the acquisition date (as defined in section
338(h)(2) of such Code) is before September 1, 1982.
"(B) Extension of time for making election. - In the case of any
qualified stock purchase described in subparagraph (A), the time
for making an election under section 338 of such Code shall not
expire before the close of the 60th day after the date of the
enactment of this Act [July 18, 1984]."
Amendment by section 712(k) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective as if included in the
provisions of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 311(d)
of Pub. L. 97-448, set out as a note under section 31 of this
title.
EFFECTIVE DATE
Section 224(d) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(a)(8)(B), Jan. 12, 1983, 96 Stat. 2403; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending sections 168, 318, 334, 336, 337, 381,
and 617 of this title] shall apply to any target corporation
(within the meaning of section 338 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] as added by this section) with respect
to which the acquisition date (within the meaning of such section)
occurs after August 31, 1982.
"(2) Certain acquisitions before september 1, 1982. - If -
"(A) an acquisition date (within the meaning of section 338 of
such Code without regard to paragraph (5) of this subsection)
occurred after August 31, 1980, and before September 1, 1982,
"(B) the target corporation (within the meaning of section 338
of such Code) is not liquidated before September 1, 1982, and
"(C) the purchasing corporation (within the meaning of section
338 of such Code makes, not later than November 15, 1982, an
election under section 338 of such Code,
then the amendments made by this section shall apply to the
acquisition of such target corporation.
"(3) Certain acquisitions of financial institutions. - In any
case in which -
"(A) there is, on July 22, 1982, a binding contract to acquire
control (within the meaning of section 368(c) of such Code of any
financial institution,
"(B) the approval of one or more regulatory authorities is
required in order to complete such acquisition, and
"(C) within 90 days after the date of the final approval of the
last such regulatory authority granting final approval, a plan of
complete liquidation of such financial institution is adopted,
then the purchasing corporation may elect not to have the
amendments made by this section apply to the acquisition pursuant
to such contract.
"(4) Extension of time for making elections; revocation of
elections. -
"(A) Extension. - The time for making an election under section
338 of such Code shall not expire before the close of February
28, 1983.
"(B) Revocation. - Any election made under section 338 of such
Code may be revoked by the purchasing corporation if revoked
before March 1, 1983.
"(5) Rules for acquisitions described in paragraph (2). -
"(A) In general. - For purposes of applying section 338 of such
Code with respect to any acquisition described in paragraph (2) -
"(i) the date selected under subparagraph (B) of this
paragraph shall be treated as the acquisition date,
"(ii) a rule similar to the last sentence of section
334(b)(2) of such Code (as in effect on August 31, 1982) shall
apply, and
"(iii) subsections (e), (f), and (i) of such section 338, and
paragraphs (4), (6), (8), and (9) of subsection (h) of such
section 338, shall not apply.
"(B) Selection of acquisition date by purchasing corporation. -
The purchasing corporation may select any date for purposes of
subparagraph (A)(i) if such date -
"(i) is after the later of June 30, 1982, or the acquisition
date (within the meaning of section 338 of such Code without
regard to this paragraph), and
"(ii) is on or before the date on which the election
described in paragraph (2)(C) is made."
TREATMENT OF CERTAIN CORPORATION ORGANIZED ON FEBRUARY 22, 1983
Section 1804(e)(9) of Pub. L. 99-514 provided that: "In the case
of a Rhode Island corporation which was organized on February 22,
1983, and which on February 25, 1983 -
"(A) purchased the stock of another corporation,
"(B) filed an election under section 338(g) of the Internal
Revenue Code of 1986 with respect to such purchase, and
"(C) merged into the acquired corporation,
such purchase of stock shall be considered as made by the acquiring
corporation, such election shall be valid, and the acquiring
corporation shall be considered a purchasing corporation for
purposes of section 338 of such Code without regard to the duration
of the existence of the acquiring corporation."
SPECIAL RULES FOR DEEMED PURCHASES UNDER PRIOR LAW
Section 712(k)(10) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If,
before October 20, 1983, a corporation was treated as making a
qualified stock purchase (as defined in section 338(d)(3) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]), but would
not be so treated under the amendments made by paragraphs (5) and
(6) [amending subsec. (h) and section 318(b)(4) of this title] of
this subsection, the amendments made by such paragraphs shall not
apply to such purchase unless such corporation elects (at such time
and in such manner as the Secretary of the Treasury or his delegate
may by regulations prescribe) to have the amendments made by such
paragraphs apply."
EXCEPTION FOR STOCK PURCHASES IN CONTEMPLATION OF TARGET
CORPORATION AS MEMBER OF AFFILIATED GROUP
Section 306(a)(8)(A)(ii) of Pub. L. 97-448, as amended by Pub. L.
98-369, div. A, title VII, Sec. 722(a)(3), July 18, 1984, 98 Stat.
973; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that: "If -
"(I) any portion of a qualified stock purchase is pursuant to a
binding contract entered into on or after September 1, 1982, and
on or before the date of the enactment of this Act [Jan. 12,
1983], and
"(II) the purchasing corporation establishes by clear and
convincing evidence that such contract was negotiated on the
contemplation that, with respect to the deemed sale under section
338 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954],
the target corporation would be treated as a member of the
affiliated group which includes the selling corporation,
then the amendment made by clause (i) [amending subsec. (h)] shall
not apply to such qualified stock purchase."
-FOOTNOTE-
(!1) So in original.
-End-
-CITE-
26 USC [Subpart C - Repealed] 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
[Subpart C - Repealed]
-HEAD-
[SUBPART C - REPEALED]
-End-
-CITE-
26 USC Sec. 341 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
[Subpart C - Repealed]
-HEAD-
[Sec. 341. Repealed. Pub. L. 108-27, title III, Sec. 302(e)(4)(A),
May 28, 2003, 117 Stat. 763]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 107; Pub. L. 85-
866, title I, Sec. 20(a), Sept. 2, 1958, 72 Stat. 1615; Pub. L. 87-
834, Sec. 13(f)(4), Oct. 16, 1962, 76 Stat. 1035; Pub. L. 88-272,
title II, Sec. 231(b)(4), Feb. 26, 1964, 78 Stat. 105; Pub. L. 88-
484, Sec. 1(a), Aug. 22, 1964, 78 Stat. 596; Pub. L. 89-570, Sec.
1(b)(4), Sept. 12, 1966, 80 Stat. 762; Pub. L. 91-172, title II,
Sec. 211(b)(4), title V, Sec. 514(b)(1), Dec. 30, 1969, 83 Stat.
570, 643; Pub. L. 94-455, title II, Sec. 205(c)(2), title XIV, Sec.
1402(b)(1)(B), (2), title XIX, Secs. 1901(b)(3)(A), (I),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1535, 1731, 1732, 1792,
1793, 1834; Pub. L. 97-34, title V, Sec. 505(c)(2), Aug. 13, 1981,
95 Stat. 332; Pub. L. 97-248, title II, Sec. 222(e)(5), Sept. 3,
1982, 96 Stat. 480; Pub. L. 98-369, div. A, title I, Secs.
43(c)(1), 65(a)-(c), 135(a), title IV, Sec. 492(b)(2), title X,
Sec. 1001(b)(2), (e), July 18, 1984, 98 Stat. 558, 584, 669, 854,
1011, 1012; Pub. L. 99-514, title VI, Sec. 631(e)(6), title XVIII,
Secs. 1804(i)(1), 1899A(8), Oct. 22, 1986, 100 Stat. 2273, 2807,
2958; Pub. L. 100-647, title I, Sec. 1006(e)(18), Nov. 10, 1988,
102 Stat. 3403; Pub. L. 104-188, title I, Sec. 1702(h)(7), Aug. 20,
1996, 110 Stat. 1874; Pub. L. 106-170, title V, Sec. 532(c)(2)(D),
Dec. 17, 1999, 113 Stat. 1930; Pub. L. 107-147, title IV, Sec.
417(24)(B)(i), Mar. 9, 2002, 116 Stat. 57, related to collapsible
corporations.
-STATAMEND-
TERMINATION OF REPEAL
For termination of repeal by section 303 of Pub. L. 108-27, see
Effective and Termination Dates of Repeal note below.
-MISC1-
EFFECTIVE AND TERMINATION DATES OF REPEAL
Repeal applicable, except as otherwise provided, to taxable years
beginning after Dec. 31, 2002, see section 302(f) of Pub. L. 108-
27, set out as an Effective and Termination Dates of 2003
Amendment note under section 1 of this title.
Repeal terminated for taxable years beginning after Dec. 31,
2008, and the Internal Revenue Code of 1986 to be applied and
administered to such years as if section had never been repealed,
see section 303 of Pub. L. 108-27, set out as an Effective and
Termination Dates of 2003 Amendment note under section 1 of this
title.
-End-
-CITE-
26 USC Sec. 342 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
[Subpart C - Repealed]
-HEAD-
[Sec. 342. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(47),
Oct. 4, 1976, 90 Stat. 1772]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 110, related to
liquidation of certain foreign personal holding companies.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
-CITE-
26 USC Subpart D - Definition and Special Rule 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart D - Definition and Special Rule
-HEAD-
SUBPART D - DEFINITION AND SPECIAL RULE
-MISC1-
Sec.
346. Definition and special rule.
AMENDMENTS
1982 - Pub. L. 97-248, title II, Sec. 222(e)(8)(A), Sept. 3,
1982, 96 Stat. 481, inserted "and Special Rule" in subpart heading,
and substituted "Definition and special rule" for "Partial
liquidation defined" in item 346.
-End-
-CITE-
26 USC Sec. 346 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart D - Definition and Special Rule
-HEAD-
Sec. 346. Definition and special rule
-STATUTE-
(a) Complete liquidation
For purposes of this subchapter, a distribution shall be treated
as in complete liquidation of a corporation if the distribution is
one of a series of distributions in redemption of all of the stock
of the corporation pursuant to a plan.
(b) Transactions which might reach same result as partial
liquidations
The Secretary shall prescribe such regulations as may be
necessary to ensure that the purposes of subsections (a) and (b) of
section 222 of the Tax Equity and Fiscal Responsibility Act of 1982
(which repeal the special tax treatment for partial liquidations)
may not be circumvented through the use of section 355, 351, or any
other provision of law or regulations (including the consolidated
return regulations).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 110; Pub. L. 97-248, title II,
Sec. 222(d), Sept. 3, 1982, 96 Stat. 479; Pub. L. 99-514, title VI,
Sec. 631(e)(7), Oct. 22, 1986, 100 Stat. 2273.)
-REFTEXT-
REFERENCES IN TEXT
Subsections (a) and (b) of section 222 of the Tax Equity and
Fiscal Responsibility Act of 1982, referred to in subsec. (b), are
subsecs. (a) and (b) of Pub. L. 97-248, title II, Sec. 222, Sept.
3, 1982, 96 Stat. 478, which amended sections 331(a) and 336(a) of
this title.
-MISC1-
AMENDMENTS
1986 - Subsec. (b). Pub. L. 99-514 struck out "337," after
"351,".
1982 - Subsec. (a). Pub. L. 97-248 substituted provision that a
distribution shall be treated as in complete liquidation if the
distribution is one of a series in redemption of all the stock
pursuant to a plan for provision that a distribution was to be
treated as in partial liquidation if the distribution was one of a
series in redemption of all the stock pursuant to a plan, or the
distribution was not essentially equivalent to a dividend, was in
redemption of part of the stock pursuant to a plan, and occurred
within the taxable year or the next taxable year of the plan being
adopted, including but not limited to a distribution which met the
requirements of former subsec. (b) of this section, and that for
the purposes of sections 562(b) and 6043 of this title, a partial
liquidation included a redemption of stock to which section 302 of
this title applied.
Subsec. (b). Pub. L. 97-248 added subsec. (b) and struck out
former subsec. (b) which provided that a distribution was to be
treated as in partial liquidation of a corporation if the
distribution was attributable to the cessation of a business which
had been carried on for the previous 5-year period and had not been
acquired by the corporation in a transaction involving recognition
of gain or loss during that time, and if the distributing
corporation was actively involved in a trade or business
immediately after the distribution under the terms described above
for the business being liquidated, and that compliance with the
above requirements would be determined without regard to whether or
not the distribution was pro rata with respect to all the
shareholders of the corporation.
Subsec. (c). Pub. L. 97-248 struck out subsec. (c) which provided
that the fact that, with respect to a shareholder, a distribution
qualified under section 302(a) by reason of section 302(b) would
not be taken into account in determining whether the distribution,
with respect to such shareholder, was also a distribution in
partial liquidation of the corporation.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to any distribution in
complete liquidation, and any sale or exchange, made by a
corporation after July 31, 1986, unless such corporation is
completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to distributions after
Aug. 31, 1982, with exceptions for certain partial liquidations,
see section 222(f) of Pub. L. 97-248, set out as a note under
section 302 of this title.
-End-
-CITE-
26 USC PART III - CORPORATE ORGANIZATIONS AND
REORGANIZATIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
-HEAD-
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
-MISC1-
Subpart
A. Corporate organizations.
B. Effects on shareholders and security holders.
C. Effects on corporations.(!1)
D. Special rule; definitions.
-FOOTNOTE-
(!1) So in original. Does not conform to subpart heading.
-End-
-CITE-
26 USC Subpart A - Corporate Organizations 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart A - Corporate Organizations
-HEAD-
SUBPART A - CORPORATE ORGANIZATIONS
-MISC1-
Sec.
351. Transfer to corporation controlled by transferor.
-End-
-CITE-
26 USC Sec. 351 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart A - Corporate Organizations
-HEAD-
Sec. 351. Transfer to corporation controlled by transferor
-STATUTE-
(a) General rule
No gain or loss shall be recognized if property is transferred to
a corporation by one or more persons solely in exchange for stock
in such corporation and immediately after the exchange such person
or persons are in control (as defined in section 368(c)) of the
corporation.
(b) Receipt of property
If subsection (a) would apply to an exchange but for the fact
that there is received, in addition to the stock permitted to be
received under subsection (a), other property or money, then -
(1) gain (if any) to such recipient shall be recognized, but
not in excess of -
(A) the amount of money received, plus
(B) the fair market value of such other property received;
and
(2) no loss to such recipient shall be recognized.
(c) Special rules where distribution to shareholders
(1) In general
In determining control for purposes of this section, the fact
that any corporate transferor distributes part or all of the
stock in the corporation which it receives in the exchange to its
shareholders shall not be taken into account.
(2) Special rule for section 355
If the requirements of section 355 (or so much of section 356
as relates to section 355) are met with respect to a distribution
described in paragraph (1), then, solely for purposes of
determining the tax treatment of the transfers of property to the
controlled corporation by the distributing corporation, the fact
that the shareholders of the distributing corporation dispose of
part or all of the distributed stock, or the fact that the
corporation whose stock was distributed issues additional stock,
shall not be taken into account in determining control for
purposes of this section.
(d) Services, certain indebtedness, and accrued interest not
treated as property
For purposes of this section, stock issued for -
(1) services,
(2) indebtedness of the transferee corporation which is not
evidenced by a security, or
(3) interest on indebtedness of the transferee corporation
which accrued on or after the beginning of the transferor's
holding period for the debt,
shall not be considered as issued in return for property.
(e) Exceptions
This section shall not apply to -
(1) Transfer of property to an investment company
A transfer of property to an investment company. For purposes
of the preceding sentence, the determination of whether a company
is an investment company shall be made -
(A) by taking into account all stock and securities held by
the company, and
(B) by treating as stock and securities -
(i) money,
(ii) stocks and other equity interests in a corporation,
evidences of indebtedness, options, forward or futures
contracts, notional principal contracts and derivatives,
(iii) any foreign currency,
(iv) any interest in a real estate investment trust, a
common trust fund, a regulated investment company, a publicly-
traded partnership (as defined in section 7704(b)) or any
other equity interest (other than in a corporation) which
pursuant to its terms or any other arrangement is readily
convertible into, or exchangeable for, any asset described in
any preceding clause, this clause or clause (v) or (viii),
(v) except to the extent provided in regulations prescribed
by the Secretary, any interest in a precious metal, unless
such metal is used or held in the active conduct of a trade
or business after the contribution,
(vi) except as otherwise provided in regulations prescribed
by the Secretary, interests in any entity if substantially
all of the assets of such entity consist (directly or
indirectly) of any assets described in any preceding clause
or clause (viii),
(vii) to the extent provided in regulations prescribed by
the Secretary, any interest in any entity not described in
clause (vi), but only to the extent of the value of such
interest that is attributable to assets listed in clauses (i)
through (v) or clause (viii), or
(viii) any other asset specified in regulations prescribed
by the Secretary.
The Secretary may prescribe regulations that, under appropriate
circumstances, treat any asset described in clauses (i) through
(v) as not so listed.
(2) Title 11 or similar case
A transfer of property of a debtor pursuant to a plan while the
debtor is under the jurisdiction of a court in a title 11 or
similar case (within the meaning of section 368(a)(3)(A)), to the
extent that the stock received in the exchange is used to satisfy
the indebtedness of such debtor.
(f) Treatment of controlled corporation
If -
(1) property is transferred to a corporation (hereinafter in
this subsection referred to as the "controlled corporation") in
an exchange with respect to which gain or loss is not recognized
(in whole or in part) to the transferor under this section, and
(2) such exchange is not in pursuance of a plan of
reorganization,
section 311 shall apply to any transfer in such exchange by the
controlled corporation in the same manner as if such transfer were
a distribution to which subpart A of part I applies.
(g) Nonqualified preferred stock not treated as stock
(1) In general
In the case of a person who transfers property to a corporation
and receives nonqualified preferred stock -
(A) subsection (a) shall not apply to such transferor, and
(B) if (and only if) the transferor receives stock other than
nonqualified preferred stock -
(i) subsection (b) shall apply to such transferor; and
(ii) such nonqualified preferred stock shall be treated as
other property for purposes of applying subsection (b).
(2) Nonqualified preferred stock
For purposes of paragraph (1) -
(A) In general
The term "nonqualified preferred stock" means preferred stock
if -
(i) the holder of such stock has the right to require the
issuer or a related person to redeem or purchase the stock,
(ii) the issuer or a related person is required to redeem
or purchase such stock,
(iii) the issuer or a related person has the right to
redeem or purchase the stock and, as of the issue date, it is
more likely than not that such right will be exercised, or
(iv) the dividend rate on such stock varies in whole or in
part (directly or indirectly) with reference to interest
rates, commodity prices, or other similar indices.
(B) Limitations
Clauses (i), (ii), and (iii) of subparagraph (A) shall apply
only if the right or obligation referred to therein may be
exercised within the 20-year period beginning on the issue date
of such stock and such right or obligation is not subject to a
contingency which, as of the issue date, makes remote the
likelihood of the redemption or purchase.
(C) Exceptions for certain rights or obligations
(i) In general
A right or obligation shall not be treated as described in
clause (i), (ii), or (iii) of subparagraph (A) if -
(I) it may be exercised only upon the death, disability,
or mental incompetency of the holder, or
(II) in the case of a right or obligation to redeem or
purchase stock transferred in connection with the
performance of services for the issuer or a related person
(and which represents reasonable compensation), it may be
exercised only upon the holder's separation from service
from the issuer or a related person.
(ii) Exception
Clause (i)(I) shall not apply if the stock relinquished in
the exchange, or the stock acquired in the exchange is in -
(I) a corporation if any class of stock in such
corporation or a related party is readily tradable on an
established securities market or otherwise, or
(II) any other corporation if such exchange is part of a
transaction or series of transactions in which such
corporation is to become a corporation described in
subclause (I).
(3) Definitions
For purposes of this subsection -
(A) Preferred stock
The term "preferred stock" means stock which is limited and
preferred as to dividends and does not participate in corporate
growth to any significant extent. Stock shall not be treated as
participating in corporate growth to any significant extent
unless there is a real and meaningful likelihood of the
shareholder actually participating in the earnings and growth
of the corporation. If there is not a real and meaningful
likelihood that dividends beyond any limitation or preference
will actually be paid, the possibility of such payments will be
disregarded in determining whether stock is limited and
preferred as to dividends.
(B) Related person
A person shall be treated as related to another person if
they bear a relationship to such other person described in
section 267(b) or 707(b).
(4) Regulations
The Secretary may prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection and sections 354(a)(2)(C), 355(a)(3)(D), and 356(e).
The Secretary may also prescribe regulations, consistent with the
treatment under this subsection and such sections, for the
treatment of nonqualified preferred stock under other provisions
of this title.
(h) Cross references
(1) For special rule where another party to the exchange
assumes a liability, see section 357.
(2) For the basis of stock or property received in an
exchange to which this section applies, see sections 358 and
362.
(3) For special rule in the case of an exchange described in
this section but which results in a gift, see section 2501 and
following.
(4) For special rule in the case of an exchange described in
this section but which has the effect of the payment of
compensation by the corporation or by a transferor, see section
61(a)(1).
(5) For coordination of this section with section 304, see
section 304(b)(3).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 111; Pub. L. 89-809, title II,
Sec. 203(a), (b), Nov. 13, 1966, 80 Stat. 1577; Pub. L. 94-455,
title XIX, Sec. 1901(a)(48)(A), (B), Oct. 4, 1976, 90 Stat. 1772;
Pub. L. 96-589, Sec. 5(e), Dec. 24, 1980, 94 Stat. 3406; Pub. L. 97-
248, title II, Sec. 226(a)(1)(B), Sept. 3, 1982, 96 Stat. 491;
Pub. L. 100-647, title I, Sec. 1018(d)(5)(G), Nov. 10, 1988, 102
Stat. 3580; Pub. L. 101-239, title VII, Sec. 7203(a), (b), Dec. 19,
1989, 103 Stat. 2333; Pub. L. 101-508, title XI, Sec. 11704(a)(3),
Nov. 5, 1990, 104 Stat. 1388-518; Pub. L. 105-34, title X, Secs.
1002(a), 1012(c)(1), 1014(a), Aug. 5, 1997, 111 Stat. 909, 916,
919; Pub. L. 105-206, title VI, Sec. 6010(c)(3)(A), (e)(1), July
22, 1998, 112 Stat. 813, 814; Pub. L. 105-277, div. J, title IV,
Sec. 4003(f)(1), Oct. 21, 1998, 112 Stat. 2681-910; Pub. L. 106-36,
title III, Sec. 3001(d)(1), June 25, 1999, 113 Stat. 183; Pub. L.
107-147, title IV, Sec. 417(9), Mar. 9, 2002, 116 Stat. 56; Pub. L.
108-357, title VIII, Sec. 899(a), Oct. 22, 2004, 118 Stat. 1649;
Pub. L. 109-135, title IV, Sec. 403(kk), Dec. 21, 2005, 119 Stat.
2632.)
-MISC1-
AMENDMENTS
2005 - Subsec. (g)(3)(A). Pub. L. 109-135 inserted at end "If
there is not a real and meaningful likelihood that dividends beyond
any limitation or preference will actually be paid, the possibility
of such payments will be disregarded in determining whether stock
is limited and preferred as to dividends."
2004 - Subsec. (g)(3)(A). Pub. L. 108-357 inserted at end "Stock
shall not be treated as participating in corporate growth to any
significant extent unless there is a real and meaningful likelihood
of the shareholder actually participating in the earnings and
growth of the corporation."
2002 - Subsec. (h)(1). Pub. L. 107-147 inserted comma after
"liability".
1999 - Subsec. (h)(1). Pub. L. 106-36 struck out ", or acquires
property subject to a liability," after "liability".
1998 - Subsec. (c). Pub. L. 105-206, Sec. 6010(c)(3)(A),
reenacted heading without change and amended text generally. Prior
to amendment, text read as follows: "In determining control for
purposes of this section -
"(1) the fact that any corporate transferor distributes part or
all of the stock in the corporation which it receives in the
exchange to its shareholders shall not be taken into account, and
"(2) if the requirements of section 355 are met with respect to
such distribution, the shareholders shall be treated as in
control of such corporation immediately after the exchange if the
shareholders own (immediately after the distribution) stock
possessing -
"(A) more than 50 percent of the total combined voting power
of all classes of stock of such corporation entitled to vote,
and
"(B) more than 50 percent of the total value of shares of all
classes of stock of such corporation."
Subsec. (c)(2). Pub. L. 105-277 inserted ", or the fact that the
corporation whose stock was distributed issues additional stock,"
after "dispose of part or all of the distributed stock".
Subsec. (g)(1)(A) to (C). Pub. L. 105-206, Sec. 6010(e)(1),
inserted "and" at end of subpar. (A), added subpar. (B), and struck
out former subpars. (B) and (C) which read as follows:
"(B) subsection (b) shall apply to such transferor, and
"(C) such nonqualified preferred stock shall be treated as other
property for purposes of applying subsection (b)."
1997 - Subsec. (c). Pub. L. 105-34, Sec. 1012(c)(1), amended
heading and text of subsec. (c) generally. Prior to amendment, text
read as follows: "In determining control, for purposes of this
section, the fact that any corporate transferor distributes part or
all of the stock which it receives in the exchange to its
shareholders shall not be taken into account."
Subsec. (e)(1). Pub. L. 105-34, Sec. 1002(a), inserted last two
sentences.
Subsecs. (g), (h). Pub. L. 105-34, Sec. 1014(a), added subsec.
(g) and redesignated former subsec. (g) as (h).
1990 - Subsec. (e)(2). Pub. L. 101-508 substituted "is used" for
"are used".
1989 - Subsec. (a). Pub. L. 101-239, Sec. 7203(a), struck out "or
securities" after "stock".
Subsecs. (b), (d), (e)(2). Pub. L. 101-239, Sec. 7203(b)(1),
struck out "or securities" after "stock".
Subsec. (g)(2). Pub. L. 101-239, Sec. 7203(b)(2), substituted
"stock or property" for "stock, securities, or property".
1988 - Subsecs. (f), (g). Pub. L. 100-647 added subsec. (f) and
redesignated former subsec. (f) as (g).
1982 - Subsec. (f)(5). Pub. L. 97-248 added par. (5).
1980 - Subsec. (a). Pub. L. 96-589, Sec. 5(e)(2), struck out
provision that stock or securities issued for services shall not be
considered as issued in return for property for purposes of this
section.
Subsec. (d). Pub. L. 96-589, Sec. 5(e)(1), added subsec. (d).
Former subsec. (d) redesignated (e)(1).
Subsec. (e). Pub. L. 96-589, Sec. 5(e)(2), redesignated former
subsec. (d) as par. (1) and added par. (2). Former subsec. (e)
redesignated (f).
Subsec. (f). Pub. L. 96-589, Sec. 5(e)(1), redesignated former
subsec. (e) as (f).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(48)(A), struck
out "(including, in the case of transfers made on or before June
30, 1967, an investment company)" after "property is transferred to
a corporation".
Subsec. (d). Pub. L. 94-455, Sec. 1901(a)(48)(B), among other
changes, substituted "Exception" for "Application of June 30, 1967,
date" in heading and in text provision that this section does not
apply to a transfer of property to an investment company for
provisions relating to treatment of a transfer of property to an
investment company as made on or before June 30, 1967.
1966 - Subsec. (a). Pub. L. 89-809, Sec. 203(a), inserted
"(including, in the case of transfers made on or before June 30,
1967, an investment company)" after "if property is transferred to
a corporation".
Subsecs. (d), (e). Pub. L. 89-809, Sec. 203(b), added subsec. (d)
and redesignated former subsec. (d) as (e).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 899(b), Oct. 22, 2004, 118
Stat. 1649, provided that: "The amendment made by this section
[amending this section] shall apply to transactions after May 14,
2003."
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-36, title III, Sec. 3001(e), June 25, 1999, 113 Stat.
184, provided that: "The amendments made by this section [amending
this section and sections 357, 358, 362, 368, 584, and 1031 of this
title] shall apply to transfers after October 18, 1998."
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L. 105-
277, set out as a note under section 86 of this title.
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1002(b) of Pub. L. 105-34 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to transfers after June 8, 1997, in
taxable years ending after such date.
"(2) Binding contracts. - The amendment made by subsection (a)
shall not apply to any transfer pursuant to a written binding
contract in effect on June 8, 1997, and at all times thereafter
before such transfer if such contract provides for the transfer of
a fixed amount of property."
Section 1012(d) of Pub. L. 105-34, as amended by Pub. L. 105-206,
title VI, Sec. 6010(c)(1), July 22, 1998, 112 Stat. 813, provided
that:
"(1) Section 355 rules. - The amendments made by subsections (a)
and (b) [amending sections 355 and 358 of this title] shall apply
to distributions after April 16, 1997; except that the amendment
made by subsection (a) [amending section 355 of this title] shall
apply to such distributions only if pursuant to a plan (or series
of related transactions) which involves an acquisition described in
section 355(e)(2)(A)(ii) of the Internal Revenue Code of 1986
occurring after such date.
"(2) Divisive transactions. - The amendments made by subsection
(c) [amending this section and section 368 of this title] shall
apply to transfers after the date of the enactment of this Act
[Aug. 5, 1997].
"(3) Transition rule. - The amendments made by this section
[amending this section and sections 355, 358, and 368 of this
title] shall not apply to any distribution pursuant to a plan (or
series of related transactions) which involves an acquisition
described in section 355(e)(2)(A)(ii) of the Internal Revenue Code
of 1986 (or, in the case of the amendments made by subsection (c),
any transfer) occurring after April 16, 1997, if such acquisition
or transfer is -
"(A) made pursuant to an agreement which was binding on such
date and at all times thereafter,
"(B) described in a ruling request submitted to the Internal
Revenue Service on or before such date, or
"(C) described on or before such date in a public announcement
or in a filing with the Securities and Exchange Commission
required solely by reason of the acquisition or transfer.
This paragraph shall not apply to any agreement, ruling request, or
public announcement or filing unless it identifies the acquirer of
the distributing corporation or any controlled corporation, or the
transferee, whichever is applicable."
Section 1014(f) of Pub. L. 105-34 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 354 to 356 and 1036 of this title] shall
apply to transactions after June 8, 1997.
"(2) Transition rule. - The amendments made by this section shall
not apply to any transaction after June 8, 1997, if such
transaction is -
"(A) made pursuant to a written agreement which was binding on
such date and at all times thereafter,
"(B) described in a ruling request submitted to the Internal
Revenue Service on or before such date, or
"(C) described on or before such date in a public announcement
or in a filing with the Securities and Exchange Commission
required solely by reason of the transaction."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7203(c) of Pub. L. 101-239 provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section] shall apply
to transfers after October 2, 1989, in taxable years ending after
such date.
"(2) Binding contract. - The amendments made by this section
shall not apply to any transfer pursuant to a written binding
contract in effect on October 2, 1989, and at all times thereafter
before such transfer.
"(3) Corporate transfers. - In the case of property transferred
(directly or indirectly through a partnership or otherwise) by a C
corporation, paragraphs (1) and (2) shall be applied by
substituting 'July 11, 1989' for 'October 2, 1989'. The preceding
sentence shall not apply where the corporation meets the
requirements of section 1504(a)(2) of the Internal Revenue Code of
1986 with respect to the transferee corporation (and where the
transfer is not part of a plan pursuant to which the transferor
subsequently fails to meet such requirements)."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1018(d)(5)(G) of Pub. L. 100-647 provided that the
amendment made by that section is effective with respect to
transfers on or after June 21, 1988.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to transfers occurring
after Aug. 31, 1982, except for certain transfers pursuant to an
application to form a BHC filed with the Federal Reserve Board
before Aug. 16, 1982, see section 226(c) of Pub. L. 97-248, set out
as a note under section 304 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to transactions which
occur after Dec. 31, 1980, other than transactions which occur in
proceedings in bankruptcy cases or similar judicial proceedings or
in proceedings under Title 11, Bankruptcy, commencing on or before
Dec. 31, 1980, except as otherwise provided, see section 7 of Pub.
L. 96-589, set out as a note under section 108 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1901(a)(48)(C) of Pub. L. 94-455 provided that: "The
amendments made by this paragraph [amending this section] shall
take effect with respect to transfers of property occurring after
the date of the enactment of this Act [Oct. 4, 1976]."
EFFECTIVE DATE OF 1966 AMENDMENT
Section 203(c) of Pub. L. 89-809 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
with respect to transfers of property to investment companies
whether made before, on, or after the date of the enactment of this
Act [Nov. 13, 1966]."
-End-
-CITE-
26 USC Subpart B - Effects on Shareholders and Security
Holders 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
SUBPART B - EFFECTS ON SHAREHOLDERS AND SECURITY HOLDERS
-MISC1-
Sec.
354. Exchanges of stock and securities in certain
reorganizations.
355. Distribution of stock and securities of a controlled
corporation.
356. Receipt of additional consideration.
357. Assumption of liability.
358. Basis to distributees.
-End-
-CITE-
26 USC Sec. 354 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
Sec. 354. Exchanges of stock and securities in certain
reorganizations
-STATUTE-
(a) General rule
(1) In general
No gain or loss shall be recognized if stock or securities in a
corporation a party to a reorganization are, in pursuance of the
plan of reorganization, exchanged solely for stock or securities
in such corporation or in another corporation a party to the
reorganization.
(2) Limitation
(A) Excess principal amount
Paragraph (1) shall not apply if -
(i) the principal amount of any such securities received
exceeds the principal amount of any such securities
surrendered, or
(ii) any such securities are received and no such
securities are surrendered.
(B) Property attributable to accrued interest
Neither paragraph (1) nor so much of section 356 as relates
to paragraph (1) shall apply to the extent that any stock
(including nonqualified preferred stock, as defined in section
351(g)(2)), securities, or other property received is
attributable to interest which has accrued on securities on or
after the beginning of the holder's holding period.
(C) Nonqualified preferred stock
(i) In general
Nonqualified preferred stock (as defined in section
351(g)(2)) received in exchange for stock other than
nonqualified preferred stock (as so defined) shall not be
treated as stock or securities.
(ii) Recapitalizations of family-owned corporations
(I) In general
Clause (i) shall not apply in the case of a
recapitalization under section 368(a)(1)(E) of a family-
owned corporation.
(II) Family-owned corporation
For purposes of this clause, except as provided in
regulations, the term "family-owned corporation" means any
corporation which is described in clause (i) of section
447(d)(2)(C) throughout the 8-year period beginning on the
date which is 5 years before the date of the
recapitalization. For purposes of the preceding sentence,
stock shall not be treated as owned by a family member
during any period described in section 355(d)(6)(B).
(III) Extension of statute of limitations
The statutory period for the assessment of any deficiency
attributable to a corporation failing to be a family-owned
corporation shall not expire before the expiration of 3
years after the date the Secretary is notified by the
corporation (in such manner as the Secretary may prescribe)
of such failure, and such deficiency may be assessed before
the expiration of such 3-year period notwithstanding the
provisions of any other law or rule of law which would
otherwise prevent such assessment.
(3) Cross references
(A) For treatment of the exchange if any property is received
which is not permitted to be received under this subsection
(including nonqualified preferred stock and an excess principal
amount of securities received over securities surrendered, but
not including property to which paragraph (2)(B) applies), see
section 356.
(B) For treatment of accrued interest in the case of an
exchange described in paragraph (2)(B), see section 61.
(b) Exception
(1) In general
Subsection (a) shall not apply to an exchange in pursuance of a
plan of reorganization within the meaning of subparagraph (D) or
(G) of section 368(a)(1), unless -
(A) the corporation to which the assets are transferred
acquires substantially all of the assets of the transferor of
such assets; and
(B) the stock, securities, and other properties received by
such transferor, as well as the other properties of such
transferor, are distributed in pursuance of the plan of
reorganization.
(2) Cross reference
For special rules for certain exchanges in pursuance of plans
of reorganization within the meaning of subparagraph (D) or (G)
of section 368(a)(1), see section 355.
(c) Certain railroad reorganizations
Notwithstanding any other provision of this subchapter,
subsection (a)(1) (and so much of section 356 as relates to this
section) shall apply with respect to a plan of reorganization
(whether or not a reorganization within the meaning of section
368(a)) for a railroad confirmed under section 1173 of title 11 of
the United States Code, as being in the public interest.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 112; Pub. L. 94-253, Sec. 1(c),
Mar. 31, 1976, 90 Stat. 296; Pub. L. 95-473, Sec. 2(a)(2)(F), Oct.
17, 1978, 92 Stat. 1465; Pub. L. 96-589, Secs. 4(e)(1), (h)(1),
6(i)(2), Dec. 24, 1980, 94 Stat. 3403, 3404, 3410; Pub. L. 101-508,
title XI, Sec. 11801(c)(8)(D), Nov. 5, 1990, 104 Stat. 1388-524;
Pub. L. 104-88, title III, Sec. 304(c), Dec. 29, 1995, 109 Stat.
944; Pub. L. 105-34, title X, Sec. 1014(b), (e)(1), (2), Aug. 5,
1997, 111 Stat. 920, 921; Pub. L. 105-206, title VI, Sec.
6010(e)(2), July 22, 1998, 112 Stat. 814.)
-MISC1-
AMENDMENTS
1998 - Subsec. (a)(2)(C)(ii)(III). Pub. L. 105-206 added subcl.
(III).
1997 - Subsec. (a)(2)(B). Pub. L. 105-34, Sec. 1014(e)(1),
inserted "(including nonqualified preferred stock, as defined in
section 351(g)(2))" after "stock".
Subsec. (a)(2)(C). Pub. L. 105-34, Sec. 1014(b), added subpar.
(C).
Subsec. (a)(3)(A). Pub. L. 105-34, Sec. 1014(e)(2), inserted
"nonqualified preferred stock and" after "subsection (including".
1995 - Subsec. (c). Pub. L. 104-88 struck out "or approved by the
Interstate Commerce Commission under subchapter IV of chapter 113
of title 49," after "Code,".
1990 - Subsec. (d). Pub. L. 101-508 struck out subsec. (d)
"Exchanges under the final system plan for ConRail" which read as
follows: "No gain or loss shall be recognized if stock or
securities in a corporation are, in pursuance of an exchange to
which paragraph (1) or (2) of section 374(c) applies, exchanged
solely for stock of the Consolidated Rail Corporation, securities
of such Corporation, certificates of value of the United States
Railway Association, or any combination thereof."
1980 - Subsec. (a)(2). Pub. L. 96-589, Sec. 4(e)(1), redesignated
existing pars. (A) and (B) as par. (A)(i), (ii), and added par.
(B).
Subsec. (a)(3). Pub. L. 96-589, Sec. 4(e)(1), designated existing
provisions as subpar. (A), inserted provisions excluding property
to which paragraph (2)(B) applies, and added subpar. (B).
Subsec. (b). Pub. L. 96-589, Sec. 4(h)(1), substituted
"subparagraph (D) or (G) of section 368(a)(1)" for "section
368(a)(1)(D)", wherever appearing.
Subsec. (c). Pub. L. 96-589, Sec. 6(i)(2), substituted "confirmed
under section 1173 of title 11 of the United States Code, or
approved by the Interstate Commerce Commission" for "approved by
the Interstate Commerce Commission under section 77 of the
Bankruptcy Act, or".
1978 - Subsec. (c). Pub. L. 95-473 substituted "subchapter IV of
chapter 113 of title 49" for "section 20b of the Interstate
Commerce Act".
1976 - Subsec. (d). Pub. L. 94-253 added subsec. (d).
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable, with certain exceptions,
to transactions after June 8, 1997, see section 1014(f) of Pub. L.
105-34, set out as a note under section 351 of this title.
EFFECTIVE DATE OF 1995 AMENDMENT
Amendment by Pub. L. 104-88 effective Jan. 1, 1996, see section 2
of Pub. L. 104-88, set out as an Effective Date note under section
701 of Title 49, Transportation.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by section 4(e)(1) of Pub. L. 96-589 applicable to
bankruptcy cases or similar judicial proceedings commencing after
Dec. 31, 1980, and to exchanges which occur after Dec. 31, 1980,
and which do not occur in a bankruptcy case or similar judicial
proceeding or in a proceeding under Title 11, Bankruptcy, commenced
on or before Dec. 31, 1980, with an exception permitting the debtor
to make the amendment applicable to such cases, proceedings or
exchanges commencing after Sept. 30, 1979, see section 7(c), (f) of
Pub. L. 96-589, set out as a note under section 108 of this title.
Amendment by section 4(h)(1) of Pub. L. 96-589 applicable to
bankruptcy cases or similar judicial proceedings commencing after
Dec. 31, 1980, with an exception permitting the debtor to make the
amendment applicable to such cases or proceedings commencing after
Sept. 30, 1979, see section 7(c)(1), (f) of Pub. L. 96-589, set out
as a note under section 108 of this title.
Amendment by section 6(i)(2) of Pub. L. 96-589 effective Oct. 1,
1979, but not applicable to any proceeding under Title 11 commenced
before Oct. 1, 1979, see section 7(e) of Pub. L. 96-589, set out as
a note under section 108 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2 of Pub. L. 94-253 provided that: "The amendments made
by section 1 [amending this section and sections 356, 358, and 374
of this title] shall apply to taxable years ending after March 31,
1976."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-TRANS-
ABOLITION OF UNITED STATES RAILWAY ASSOCIATION AND TRANSFER OF
FUNCTIONS
United States Railway Association abolished effective Apr. 1,
1987, all powers, duties, rights, and obligations of Association
relating to Consolidated Rail Corporation under Regional Rail
Reorganization Act of 1973 (45 U.S.C. 701 et seq.) transferred to
Secretary of Transportation on Jan. 1, 1987, and any securities of
Corporation held by Association transferred to Secretary of
Transportation on Oct. 21, 1986, see section 1341 of Title 45,
Railroads.
-End-
-CITE-
26 USC Sec. 355 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
Sec. 355. Distribution of stock and securities of a controlled
corporation
-STATUTE-
(a) Effect on distributees
(1) General rule
If -
(A) a corporation (referred to in this section as the
"distributing corporation") -
(i) distributes to a shareholder, with respect to its
stock, or
(ii) distributes to a security holder, in exchange for its
securities,
solely stock or securities of a corporation (referred to in
this section as "controlled corporation") which it controls
immediately before the distribution,
(B) the transaction was not used principally as a device for
the distribution of the earnings and profits of the
distributing corporation or the controlled corporation or both
(but the mere fact that subsequent to the distribution stock or
securities in one or more of such corporations are sold or
exchanged by all or some of the distributees (other than
pursuant to an arrangement negotiated or agreed upon prior to
such distribution) shall not be construed to mean that the
transaction was used principally as such a device),
(C) the requirements of subsection (b) (relating to active
businesses) are satisfied, and
(D) as part of the distribution, the distributing corporation
distributes -
(i) all of the stock and securities in the controlled
corporation held by it immediately before the distribution,
or
(ii) an amount of stock in the controlled corporation
constituting control within the meaning of section 368(c),
and it is established to the satisfaction of the Secretary
that the retention by the distributing corporation of stock
(or stock and securities) in the controlled corporation was
not in pursuance of a plan having as one of its principal
purposes the avoidance of Federal income tax,
then no gain or loss shall be recognized to (and no amount shall
be includible in the income of) such shareholder or security
holder on the receipt of such stock or securities.
(2) Non pro rata distributions, etc.
Paragraph (1) shall be applied without regard to the following:
(A) whether or not the distribution is pro rata with respect
to all of the shareholders of the distributing corporation,
(B) whether or not the shareholder surrenders stock in the
distributing corporation, and
(C) whether or not the distribution is in pursuance of a plan
of reorganization (within the meaning of section 368(a)(1)(D)).
(3) Limitations
(A) Excess principal amount
Paragraph (1) shall not apply if -
(i) the principal amount of the securities in the
controlled corporation which are received exceeds the
principal amount of the securities which are surrendered in
connection with such distribution, or
(ii) securities in the controlled corporation are received
and no securities are surrendered in connection with such
distribution.
(B) Stock acquired in taxable transactions within 5 years
treated as boot
For purposes of this section (other than paragraph (1)(D) of
this subsection) and so much of section 356 as relates to this
section, stock of a controlled corporation acquired by the
distributing corporation by reason of any transaction -
(i) which occurs within 5 years of the distribution of such
stock, and
(ii) in which gain or loss was recognized in whole or in
part,
shall not be treated as stock of such controlled corporation,
but as other property.
(C) Property attributable to accrued interest
Neither paragraph (1) nor so much of section 356 as relates
to paragraph (1) shall apply to the extent that any stock
(including nonqualified preferred stock, as defined in section
351(g)(2)), securities, or other property received is
attributable to interest which has accrued on securities on or
after the beginning of the holder's holding period.
(D) Nonqualified preferred stock
Nonqualified preferred stock (as defined in section
351(g)(2)) received in a distribution with respect to stock
other than nonqualified preferred stock (as so defined) shall
not be treated as stock or securities.
(4) Cross references
(A) For treatment of the exchange if any property is received
which is not permitted to be received under this subsection
(including nonqualified preferred stock and an excess principal
amount of securities received over securities surrendered, but
not including property to which paragraph (3)(C) applies), see
section 356.
(B) For treatment of accrued interest in the case of an
exchange described in paragraph (3)(C), see section 61.
(b) Requirements as to active business
(1) In general
Subsection (a) shall apply only if either -
(A) the distributing corporation, and the controlled
corporation (or, if stock of more than one controlled
corporation is distributed, each of such corporations), is
engaged immediately after the distribution in the active
conduct of a trade or business, or
(B) immediately before the distribution, the distributing
corporation had no assets other than stock or securities in the
controlled corporations and each of the controlled corporations
is engaged immediately after the distribution in the active
conduct of a trade or business.
(2) Definition
For purposes of paragraph (1), a corporation shall be treated
as engaged in the active conduct of a trade or business if and
only if -
(A) it is engaged in the active conduct of a trade or
business, or substantially all of its assets consist of stock
and securities of a corporation controlled by it (immediately
after the distribution) which is so engaged,
(B) such trade or business has been actively conducted
throughout the 5-year period ending on the date of the
distribution,
(C) such trade or business was not acquired within the period
described in subparagraph (B) in a transaction in which gain or
loss was recognized in whole or in part, and
(D) control of a corporation which (at the time of
acquisition of control) was conducting such trade or business -
(i) was not acquired by any distributee corporation
directly (or through 1 or more corporations, whether through
the distributing corporation or otherwise) within the period
described in subparagraph (B) and was not acquired by the
distributing corporation directly (or through 1 or more
corporations) within such period, or
(ii) was so acquired by any such corporation within such
period, but, in each case in which such control was so
acquired, it was so acquired, only by reason of transactions
in which gain or loss was not recognized in whole or in part,
or only by reason of such transactions combined with
acquisitions before the beginning of such period.
For purposes of subparagraph (D), all distributee corporations
which are members of the same affiliated group (as defined in
section 1504(a) without regard to section 1504(b)) shall be
treated as 1 distributee corporation.
(c) Taxability of corporation on distribution
(1) In general
Except as provided in paragraph (2), no gain or loss shall be
recognized to a corporation on any distribution to which this
section (or so much of section 356 as relates to this section)
applies and which is not in pursuance of a plan of
reorganization.
(2) Distribution of appreciated property
(A) In general
If -
(i) in a distribution referred to in paragraph (1), the
corporation distributes property other than qualified
property, and
(ii) the fair market value of such property exceeds its
adjusted basis (in the hands of the distributing
corporation),
then gain shall be recognized to the distributing corporation
as if such property were sold to the distributee at its fair
market value.
(B) Qualified property
For purposes of subparagraph (A), the term "qualified
property" means any stock or securities in the controlled
corporation.
(C) Treatment of liabilities
If any property distributed in the distribution referred to
in paragraph (1) is subject to a liability or the shareholder
assumes a liability of the distributing corporation in
connection with the distribution, then, for purposes of
subparagraph (A), the fair market value of such property shall
be treated as not less than the amount of such liability.
(3) Coordination with sections 311 and 336(a)
Sections 311 and 336(a) shall not apply to any distribution
referred to in paragraph (1).
(d) Recognition of gain on certain distributions of stock or
securities in controlled corporation
(1) In general
In the case of a disqualified distribution, any stock or
securities in the controlled corporation shall not be treated as
qualified property for purposes of subsection (c)(2) of this
section or section 361(c)(2).
(2) Disqualified distribution
For purposes of this subsection, the term "disqualified
distribution" means any distribution to which this section (or so
much of section 356 as relates to this section) applies if,
immediately after the distribution -
(A) any person holds disqualified stock in the distributing
corporation which constitutes a 50-percent or greater interest
in such corporation, or
(B) any person holds disqualified stock in the controlled
corporation (or, if stock of more than 1 controlled corporation
is distributed, in any controlled corporation) which
constitutes a 50-percent or greater interest in such
corporation.
(3) Disqualified stock
For purposes of this subsection, the term "disqualified stock"
means -
(A) any stock in the distributing corporation acquired by
purchase after October 9, 1990, and during the 5-year period
ending on the date of the distribution, and
(B) any stock in any controlled corporation -
(i) acquired by purchase after October 9, 1990, and during
the 5-year period ending on the date of the distribution, or
(ii) received in the distribution to the extent
attributable to distributions on -
(I) stock described in subparagraph (A), or
(II) any securities in the distributing corporation
acquired by purchase after October 9, 1990, and during the
5-year period ending on the date of the distribution.
(4) 50-percent or greater interest
For purposes of this subsection, the term "50-percent or
greater interest" means stock possessing at least 50 percent of
the total combined voting power of all classes of stock entitled
to vote or at least 50 percent of the total value of shares of
all classes of stock.
(5) Purchase
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the term
"purchase" means any acquisition but only if -
(i) the basis of the property acquired in the hands of the
acquirer is not determined (I) in whole or in part by
reference to the adjusted basis of such property in the hands
of the person from whom acquired, or (II) under section
1014(a), and
(ii) the property is not acquired in an exchange to which
section 351, 354, 355, or 356 applies.
(B) Certain section 351 exchanges treated as purchases
The term "purchase" includes any acquisition of property in
an exchange to which section 351 applies to the extent such
property is acquired in exchange for -
(i) any cash or cash item,
(ii) any marketable stock or security, or
(iii) any debt of the transferor.
(C) Carryover basis transactions
If -
(i) any person acquires property from another person who
acquired such property by purchase (as determined under this
paragraph with regard to this subparagraph), and
(ii) the adjusted basis of such property in the hands of
such acquirer is determined in whole or in part by reference
to the adjusted basis of such property in the hands of such
other person,
such acquirer shall be treated as having acquired such property
by purchase on the date it was so acquired by such other
person.
(6) Special rule where substantial diminution of risk
(A) In general
If this paragraph applies to any stock or securities for any
period, the running of any 5-year period set forth in
subparagraph (A) or (B) of paragraph (3) (whichever applies)
shall be suspended during such period.
(B) Property to which suspension applies
This paragraph applies to any stock or securities for any
period during which the holder's risk of loss with respect to
such stock or securities, or with respect to any portion of the
activities of the corporation, is (directly or indirectly)
substantially diminished by -
(i) an option,
(ii) a short sale,
(iii) any special class of stock, or
(iv) any other device or transaction.
(7) Aggregation rules
(A) In general
For purposes of this subsection, a person and all persons
related to such person (within the meaning of section 267(b) or
707(b)(1)) shall be treated as one person.
(B) Persons acting pursuant to plans or arrangements
If two or more persons act pursuant to a plan or arrangement
with respect to acquisitions of stock or securities in the
distributing corporation or controlled corporation, such
persons shall be treated as one person for purposes of this
subsection.
(8) Attribution from entities
(A) In general
Paragraph (2) of section 318(a) shall apply in determining
whether a person holds stock or securities in any corporation
(determined by substituting "10 percent" for "50 percent" in
subparagraph (C) of such paragraph (2) and by treating any
reference to stock as including a reference to securities).
(B) Deemed purchase rule
If -
(i) any person acquires by purchase an interest in any
entity, and
(ii) such person is treated under subparagraph (A) as
holding any stock or securities by reason of holding such
interest,
such stock or securities shall be treated as acquired by
purchase by such person on the later of the date of the
purchase of the interest in such entity or the date such stock
or securities are acquired by purchase by such entity.
(9) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection, including
-
(A) regulations to prevent the avoidance of the purposes of
this subsection through the use of related persons,
intermediaries, pass-thru entities, options, or other
arrangements, and
(B) regulations modifying the definition of the term
"purchase".
(e) Recognition of gain on certain distributions of stock or
securities in connection with acquisitions
(1) General rule
If there is a distribution to which this subsection applies,
any stock or securities in the controlled corporation shall not
be treated as qualified property for purposes of subsection
(c)(2) of this section or section 361(c)(2).
(2) Distributions to which subsection applies
(A) In general
This subsection shall apply to any distribution -
(i) to which this section (or so much of section 356 as
relates to this section) applies, and
(ii) which is part of a plan (or series of related
transactions) pursuant to which 1 or more persons acquire
directly or indirectly stock representing a 50-percent or
greater interest in the distributing corporation or any
controlled corporation.
(B) Plan presumed to exist in certain cases
If 1 or more persons acquire directly or indirectly stock
representing a 50-percent or greater interest in the
distributing corporation or any controlled corporation during
the 4-year period beginning on the date which is 2 years before
the date of the distribution, such acquisition shall be treated
as pursuant to a plan described in subparagraph (A)(ii) unless
it is established that the distribution and the acquisition are
not pursuant to a plan or series of related transactions.
(C) Certain plans disregarded
A plan (or series of related transactions) shall not be
treated as described in subparagraph (A)(ii) if, immediately
after the completion of such plan or transactions, the
distributing corporation and all controlled corporations are
members of a single affiliated group (as defined in section
1504 without regard to subsection (b) thereof).
(D) Coordination with subsection (d)
This subsection shall not apply to any distribution to which
subsection (d) applies.
(3) Special rules relating to acquisitions
(A) Certain acquisitions not taken into account
Except as provided in regulations, the following acquisitions
shall not be taken into account in applying paragraph
(2)(A)(ii):
(i) The acquisition of stock in any controlled corporation
by the distributing corporation.
(ii) The acquisition by a person of stock in any controlled
corporation by reason of holding stock or securities in the
distributing corporation.
(iii) The acquisition by a person of stock in any successor
corporation of the distributing corporation or any controlled
corporation by reason of holding stock or securities in such
distributing or controlled corporation.
(iv) The acquisition of stock in the distributing
corporation or any controlled corporation to the extent that
the percentage of stock owned directly or indirectly in such
corporation by each person owning stock in such corporation
immediately before the acquisition does not decrease.
This subparagraph shall not apply to any acquisition if the
stock held before the acquisition was acquired pursuant to a
plan (or series of related transactions) described in paragraph
(2)(A)(ii).
(B) Asset acquisitions
Except as provided in regulations, for purposes of this
subsection, if the assets of the distributing corporation or
any controlled corporation are acquired by a successor
corporation in a transaction described in subparagraph (A),
(C), or (D) of section 368(a)(1) or any other transaction
specified in regulations by the Secretary, the shareholders
(immediately before the acquisition) of the corporation
acquiring such assets shall be treated as acquiring stock in
the corporation from which the assets were acquired.
(4) Definition and special rules
For purposes of this subsection -
(A) 50-percent or greater interest
The term "50-percent or greater interest" has the meaning
given such term by subsection (d)(4).
(B) Distributions in title 11 or similar case
Paragraph (1) shall not apply to any distribution made in a
title 11 or similar case (as defined in section 368(a)(3)).
(C) Aggregation and attribution rules
(i) Aggregation
The rules of paragraph (7)(A) of subsection (d) shall
apply.
(ii) Attribution
Section 318(a)(2) shall apply in determining whether a
person holds stock or securities in any corporation. Except
as provided in regulations, section 318(a)(2)(C) shall be
applied without regard to the phrase "50 percent or more in
value" for purposes of the preceding sentence.
(D) Successors and predecessors
For purposes of this subsection, any reference to a
controlled corporation or a distributing corporation shall
include a reference to any predecessor or successor of such
corporation.
(E) Statute of limitations
If there is a distribution to which paragraph (1) applies -
(i) the statutory period for the assessment of any
deficiency attributable to any part of the gain recognized
under this subsection by reason of such distribution shall
not expire before the expiration of 3 years from the date the
Secretary is notified by the taxpayer (in such manner as the
Secretary may by regulations prescribe) that such
distribution occurred, and
(ii) such deficiency may be assessed before the expiration
of such 3-year period notwithstanding the provisions of any
other law or rule of law which would otherwise prevent such
assessment.
(5) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection, including
regulations -
(A) providing for the application of this subsection where
there is more than 1 controlled corporation,
(B) treating 2 or more distributions as 1 distribution where
necessary to prevent the avoidance of such purposes, and
(C) providing for the application of rules similar to the
rules of subsection (d)(6) where appropriate for purposes of
paragraph (2)(B).
(f) Section not to apply to certain intragroup distributions
Except as provided in regulations, this section (or so much of
section 356 as relates to this section) shall not apply to the
distribution of stock from 1 member of an affiliated group (as
defined in section 1504(a)) to another member of such group if such
distribution is part of a plan (or series of related transactions)
described in subsection (e)(2)(A)(ii) (determined after the
application of subsection (e)).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 113; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 96-589,
Sec. 4(e)(2), Dec. 24, 1980, 94 Stat. 3403; Pub. L. 100-203, title
X, Sec. 10223(b), Dec. 22, 1987, 101 Stat. 1330-411; Pub. L. 100-
647, title I, Sec. 1018(d)(5)(C), title II, Sec. 2004(k)(1), Nov.
10, 1988, 102 Stat. 3580, 3605; Pub. L. 101-508, title XI, Secs.
11321(a), 11702(e)(2), Nov. 5, 1990, 104 Stat. 1388-460, 1388-515;
Pub. L. 104-188, title I, Sec. 1704(t)(31), Aug. 20, 1996, 110
Stat. 1889; Pub. L. 105-34, title X, Secs. 1012(a), (b)(1),
1014(c), (e)(1), (2), Aug. 5, 1997, 111 Stat. 914, 916, 921; Pub.
L. 105-206, title VI, Sec. 6010(c)(2), July 22, 1998, 112 Stat.
813.)
-MISC1-
AMENDMENTS
1998 - Subsec. (e)(3)(A). Pub. L. 105-206, Sec. 6010(c)(2)(A),
substituted "shall not be taken into account in applying" for
"shall not be treated as described in" in introductory provisions.
Subsec. (e)(3)(A)(iv). Pub. L. 105-206, Sec. 6010(c)(2)(B), added
cl. (iv) and struck out former cl. (iv) which read as follows: "The
acquisition of stock in a corporation if shareholders owning
directly or indirectly stock possessing -
"(I) more than 50 percent of the total combined voting power of
all classes of stock entitled to vote, and
"(II) more than 50 percent of the total value of shares of all
classes of stock,
in the distributing corporation or any controlled corporation
before such acquisition own directly or indirectly stock possessing
such vote and value in such distributing or controlled corporation
after such acquisition."
1997 - Subsec. (a)(3)(C). Pub. L. 105-34, Sec. 1014(e)(1),
inserted "(including nonqualified preferred stock, as defined in
section 351(g)(2))" after "stock".
Subsec. (a)(3)(D). Pub. L. 105-34, Sec. 1014(c), added subpar.
(D).
Subsec. (a)(4)(A). Pub. L. 105-34, Sec. 1014(e)(2), inserted
"nonqualified preferred stock and" after "subsection (including".
Subsec. (e). Pub. L. 105-34, Sec. 1012(a), added subsec. (e).
Subsec. (f). Pub. L. 105-34, Sec. 1012(b)(1), added subsec. (f).
1996 - Subsec. (d)(7)(A). Pub. L. 104-188 inserted "section"
before "267(b)".
1990 - Subsec. (c). Pub. L. 101-508, Sec. 11321(a), added subsec.
(c) and struck out former subsec. (c) which read as follows:
"(1) In general. - Except as provided in paragraph (2), no gain
or loss shall be recognized to a corporation on any distribution to
which this section (or so much of section 356 as relates to this
section) applies and which is not in pursuance of a plan of
reorganization.
"(2) Distribution of appreciated property. -
"(A) In general. - If -
"(i) in a distribution referred to in paragraph (1), the
corporation distributes property other than stock or securities
in the controlled corporation, and
"(ii) the fair market value of such property exceeds its
adjusted basis (in the hands of the distributing corporation),
then gain shall be recognized to the distributing corporation as
if such property were sold to the distributee at its fair market
value.
"(B) Treatment of liabilities. - If any property distributed in
the distribution referred to in paragraph (1) is subject to a
liability or the shareholder assumes a liability of the
distributing corporation in connection with the distribution,
then, for purposes of subparagraph (A), the fair market value of
such property shall be treated as not less than the amount of
such liability.
"(3) Coordination with sections 311 and 336(a). - Sections 311
and 336(a) shall not apply to any distribution referred to in
paragraph (1)."
Pub. L. 101-508, Sec. 11702(e)(2), amended subsec. (c) generally.
Prior to amendment, subsec. (c) read as follows: "Section 311 shall
apply to any distribution -
"(1) to which this section (or so much of section 356 as
relates to this section) applies, and
"(2) which is not in pursuance of a plan of reorganization,
in the same manner as if such distribution were a distribution to
which subpart A of part I applies; except that subsection (b) of
section 311 shall not apply to any distribution of stock or
securities in the controlled corporation."
Subsec. (d). Pub. L. 101-508, Sec. 11321(a), added subsec. (d).
1988 - Subsec. (b)(2)(D)(i), (ii). Pub. L. 100-647, Sec.
2004(k)(1), added cls. (i) and (ii) and struck out former cls. (i)
and (ii) which read as follows:
"(i) was not acquired by any distributee corporation directly (or
through 1 or more corporations, whether through the distributing
corporation or otherwise) within the period described in
subparagraph (B), or
"(ii) was so acquired such distributee corporation within such
period, but such control was so acquired only by reason of
transactions in which gain or loss was not recognized in whole or
in part, or only by reason of such transactions combined with
acquisitions before the beginning of such period."
Subsec. (c). Pub. L. 100-647, Sec. 1018(d)(5)(C), added subsec.
(c).
1987 - Subsec. (b)(2)(D). Pub. L. 100-203, Sec. 10223(b)(3),
inserted at end "For purposes of subparagraph (D), all distributee
corporations which are members of the same affiliated group (as
defined in section 1504(a) without regard to section 1504(b)) shall
be treated as 1 distributee corporation."
Subsec. (b)(2)(D)(i). Pub. L. 100-203, Sec. 10223(b)(1), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
"was not acquired directly (or through one or more corporations) by
another corporation within the period described in subparagraph
(B), or".
Subsec. (b)(2)(D)(ii). Pub. L. 100-203, Sec. 10223(b)(2),
substituted "such distributee corporation" for "by another
corporation".
1980 - Subsec. (a)(3). Pub. L. 96-589 designated existing
provisions as subpars. (A) and (B) and added subpar. (C).
Subsec. (a)(4). Pub. L. 96-589, Sec. 4(e)(2), designated existing
provisions as subpar. (A), substituted "exchange if any property"
for "distribution if any property", inserted provisions excluding
property to which paragraph (3)(C) applies, and added subpar. (B).
1976 - Subsec. (a)(1)(D)(ii). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 1012(a), (b)(1) of Pub. L. 105-34
applicable, with transition rule, to distributions after Apr. 16,
1997, except that amendment by section 1012(a) applicable to such
distributions only if pursuant to a plan (or series of related
transactions) which involves an acquisition described in subsec.
(e)(2)(A)(ii) of this section occurring after such date, see
section 1012(d) of Pub. L. 105-34, as amended, set out as a note
under section 351 of this title.
Amendment by section 1014(c), (e)(1), (2) of Pub. L. 105-34
applicable, with certain exceptions, to transactions after June 8,
1997, see section 1014(f) of Pub. L. 105-34, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11321(c) of Pub. L. 101-508 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and section 361 of this title] shall apply to distributions
after October 9, 1990.
"(2) Binding contract exception. - The amendments made by this
section shall not apply to any distribution pursuant to a written
binding contract in effect on October 9, 1990, and at all times
thereafter before such distribution.
"(3) Transitional rules. - For purposes of subparagraphs (A) and
(B) of section 355(d)(3) of the Internal Revenue Code of 1986 (as
amended by subsection (a)), an acquisition shall be treated as
occurring on or before October 9, 1990, if -
"(A) such acquisition is pursuant to a written binding contract
in effect on October 9, 1990, and at all times thereafter before
such acquisition,
"(B) such acquisition is pursuant to a transaction which was
described in documents filed with the Securities and Exchange
Commission on or before October 9, 1990, or
"(C) such acquisition is pursuant to a transaction -
"(i) the material terms of which were described in a written
public announcement on or before October 9, 1990,
"(ii) which was the subject of a prior filing with the
Securities and Exchange Commission, and
"(iii) which is the subject of a subsequent filing with the
Securities and Exchange Commission before January 1, 1991."
Amendment by section 11702(e)(2) of Pub. L. 101-508 effective as
if included in the provision of the Technical and Miscellaneous
Revenue Act of 1988, Pub. L. 100-647, to which such amendment
relates, see section 11702(j) of Pub. L. 101-508, set out as a note
under section 59 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1018(d)(5)(C) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by section 2004(k)(1) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provisions of
the Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to distributions or
transfers after Dec. 15, 1987, with exceptions for certain
distributee corporations and distributions covered by prior
transition rule, see section 10223(d) of Pub. L. 100-203, set out
as a note under section 304 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to bankruptcy cases or
similar judicial proceedings commencing after Dec. 31, 1980, and to
exchanges which occur after Dec. 31, 1980, and which do not occur
in a bankruptcy case or similar judicial proceeding or in a
proceeding under Title 11, Bankruptcy, commenced on or before Dec.
31, 1980, with an exception permitting the debtor to make the
amendment applicable to such cases, proceedings or exchanges
commencing after Sept. 30, 1979, see section 7(c), (f) of Pub. L.
96-589, set out as a note under section 108 of this title.
-End-
-CITE-
26 USC Sec. 356 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
Sec. 356. Receipt of additional consideration
-STATUTE-
(a) Gain on exchanges
(1) Recognition of gain
If -
(A) section 354 or 355 would apply to an exchange but for the
fact that
(B) the property received in the exchange consists not only
of property permitted by section 354 or 355 to be received
without the recognition of gain but also of other property or
money,
then the gain, if any, to the recipient shall be recognized, but
in an amount not in excess of the sum of such money and the fair
market value of such other property.
(2) Treatment as dividend
If an exchange is described in paragraph (1) but has the effect
of the distribution of a dividend (determined with the
application of section 318(a)), then there shall be treated as a
dividend to each distributee such an amount of the gain
recognized under paragraph (1) as is not in excess of his ratable
share of the undistributed earnings and profits of the
corporation accumulated after February 28, 1913. The remainder,
if any, of the gain recognized under paragraph (1) shall be
treated as gain from the exchange of property.
(b) Additional consideration received in certain distributions
If -
(1) section 355 would apply to a distribution but for the fact
that
(2) the property received in the distribution consists not only
of property permitted by section 355 to be received without the
recognition of gain, but also of other property or money,
then an amount equal to the sum of such money and the fair market
value of such other property shall be treated as a distribution of
property to which section 301 applies.
(c) Loss
If -
(1) section 354 would apply to an exchange or section 355 would
apply to an exchange or distribution, but for the fact that
(2) the property received in the exchange or distribution
consists not only of property permitted by section 354 or 355 to
be received without the recognition of gain or loss, but also of
other property or money,
then no loss from the exchange or distribution shall be recognized.
(d) Securities as other property
For purposes of this section -
(1) In general
Except as provided in paragraph (2), the term "other property"
includes securities.
(2) Exceptions
(A) Securities with respect to which nonrecognition of gain
would be permitted
The term "other property" does not include securities to the
extent that, under section 354 or 355, such securities would be
permitted to be received without the recognition of gain.
(B) Greater principal amount in section 354 exchange
If -
(i) in an exchange described in section 354 (other than
subsection (c) thereof), securities of a corporation a party
to the reorganization are surrendered and securities of any
corporation a party to the reorganization are received, and
(ii) the principal amount of such securities received
exceeds the principal amount of such securities surrendered,
then, with respect to such securities received, the term "other
property" means only the fair market value of such excess. For
purposes of this subparagraph and subparagraph (C) if no
securities are surrendered, the excess shall be the entire
principal amount of the securities received.
(C) Greater principal amount in section 355 transaction
If, in an exchange or distribution described in section 355,
the principal amount of the securities in the controlled
corporation which are received exceeds the principal amount of
the securities in the distributing corporation which are
surrendered, then, with respect to such securities received,
the term "other property" means only the fair market value of
such excess.
(e) Nonqualified preferred stock treated as other property
For purposes of this section -
(1) In general
Except as provided in paragraph (2), the term "other property"
includes nonqualified preferred stock (as defined in section
351(g)(2)).
(2) Exception
The term "other property" does not include nonqualified
preferred stock (as so defined) to the extent that, under section
354 or 355, such preferred stock would be permitted to be
received without the recognition of gain.
(f) Exchanges for section 306 stock
Notwithstanding any other provision of this section, to the
extent that any of the other property (or money) is received in
exchange for section 306 stock, an amount equal to the fair market
value of such other property (or the amount of such money) shall be
treated as a distribution of property to which section 301 applies.
(g) Transactions involving gift or compensation
For special rules for a transaction described in section 354,
355, or this section, but which -
(1) results in a gift, see section 2501 and following, or
(2) has the effect of the payment of compensation, see
section 61(a)(1).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 115; Pub. L. 94-253, Sec. 1(c),
Mar. 31, 1976, 90 Stat. 296; Pub. L. 97-248, title II, Sec. 227(b),
Sept. 3, 1982, 96 Stat. 492; Pub. L. 101-508, title XI, Sec.
11801(c)(8)(E), Nov. 5, 1990, 104 Stat. 1388-524; Pub. L. 105-34,
title X, Sec. 1014(d), Aug. 5, 1997, 111 Stat. 921.)
-MISC1-
AMENDMENTS
1997 - Subsecs. (e) to (g). Pub. L. 105-34 added subsec. (e) and
redesignated former subsecs. (e) and (f) as (f) and (g),
respectively.
1990 - Subsec. (d)(2)(B)(i). Pub. L. 101-508 struck out "or (d)"
after "subsection (c)".
1982 - Subsec. (a)(2). Pub. L. 97-248 inserted "(determined with
the application of section 318(a))" after "distribution of a
dividend".
1976 - Subsec. (d)(2)(B)(i). Pub. L. 94-253 substituted
"subsection (c) or (d) thereof" for "subsection (c) thereof".
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable, with certain exceptions,
to transactions after June 8, 1997, see section 1014(f) of Pub. L.
105-34, set out as a note under section 351 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 227(c)(2) of Pub. L. 97-248 provided that: "The amendment
made by subsection (b) [amending this section] shall apply to
distributions after August 31, 1982, in taxable years ending after
such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-253 applicable to taxable years ending
after Mar. 31, 1976, see section 2 of Pub. L. 94-253, set out as a
note under section 354 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 357 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
Sec. 357. Assumption of liability
-STATUTE-
(a) General rule
Except as provided in subsections (b) and (c), if -
(1) the taxpayer receives property which would be permitted to
be received under section 351 or 361 without the recognition of
gain if it were the sole consideration, and
(2) as part of the consideration, another party to the exchange
assumes a liability of the taxpayer,
then such assumption shall not be treated as money or other
property, and shall not prevent the exchange from being within the
provisions of section 351 or 361, as the case may be.
(b) Tax avoidance purpose
(1) In general
If, taking into consideration the nature of the liability and
the circumstances in the light of which the arrangement for the
assumption was made, it appears that the principal purpose of the
taxpayer with respect to the assumption described in subsection
(a) -
(A) was a purpose to avoid Federal income tax on the
exchange, or
(B) if not such purpose, was not a bona fide business
purpose,
then such assumption (in the total amount of the liability
assumed pursuant to such exchange) shall, for purposes of section
351 or 361 (as the case may be), be considered as money received
by the taxpayer on the exchange.
(2) Burden of proof
In any suit or proceeding where the burden is on the taxpayer
to prove such assumption is not to be treated as money received
by the taxpayer, such burden shall not be considered as sustained
unless the taxpayer sustains such burden by the clear
preponderance of the evidence.
(c) Liabilities in excess of basis
(1) In general
In the case of an exchange -
(A) to which section 351 applies, or
(B) to which section 361 applies by reason of a plan of
reorganization within the meaning of section 368(a)(1)(D) with
respect to which stock or securities of the corporation to
which the assets are transferred are distributed in a
transaction which qualifies under section 355,
if the sum of the amount of the liabilities assumed exceeds the
total of the adjusted basis of the property transferred pursuant
to such exchange, then such excess shall be considered as a gain
from the sale or exchange of a capital asset or of property which
is not a capital asset, as the case may be.
(2) Exceptions
Paragraph (1) shall not apply to any exchange -
(A) to which subsection (b)(1) of this section applies, or
(B) which is pursuant to a plan of reorganization within the
meaning of section 368(a)(1)(G) where no former shareholder of
the transferor corporation receives any consideration for his
stock.
(3) Certain liabilities excluded
(A) In general
If a taxpayer transfers, in an exchange to which section 351
applies, a liability the payment of which either -
(i) would give rise to a deduction, or
(ii) would be described in section 736(a),
then, for purposes of paragraph (1), the amount of such
liability shall be excluded in determining the amount of
liabilities assumed.
(B) Exception
Subparagraph (A) shall not apply to any liability to the
extent that the incurrence of the liability resulted in the
creation of, or an increase in, the basis of any property.
(d) Determination of amount of liability assumed
(1) In general
For purposes of this section, section 358(d), section 358(h),
section 361(b)(3), section 362(d), section 368(a)(1)(C), and
section 368(a)(2)(B), except as provided in regulations -
(A) a recourse liability (or portion thereof) shall be
treated as having been assumed if, as determined on the basis
of all facts and circumstances, the transferee has agreed to,
and is expected to, satisfy such liability (or portion),
whether or not the transferor has been relieved of such
liability; and
(B) except to the extent provided in paragraph (2), a
nonrecourse liability shall be treated as having been assumed
by the transferee of any asset subject to such liability.
(2) Exception for nonrecourse liability
The amount of the nonrecourse liability treated as described in
paragraph (1)(B) shall be reduced by the lesser of -
(A) the amount of such liability which an owner of other
assets not transferred to the transferee and also subject to
such liability has agreed with the transferee to, and is
expected to, satisfy; or
(B) the fair market value of such other assets (determined
without regard to section 7701(g)).
(3) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection and
section 362(d). The Secretary may also prescribe regulations
which provide that the manner in which a liability is treated as
assumed under this subsection is applied, where appropriate,
elsewhere in this title.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 116; June 29, 1956, ch. 463,
Sec. 2, 70 Stat. 403; Pub. L. 95-600, title III, Sec. 365(a), Nov.
6, 1978, 92 Stat. 2854; Pub. L. 96-222, title I, Sec. 103(a)(12),
Apr. 1, 1980, 94 Stat. 213; Pub. L. 96-589, Sec. 4(h)(2), Dec. 24,
1980, 94 Stat. 3405; Pub. L. 101-508, title XI, Sec.
11801(c)(8)(F), Nov. 5, 1990, 104 Stat. 1388-524; Pub. L. 106-36,
title III, Sec. 3001(a)(1), (b)(1), (d)(2)-(5), June 25, 1999, 113
Stat. 181-184; Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec.
309(b)], Dec. 21, 2000, 114 Stat. 2763, 2763A-638; Pub. L. 108-357,
title VIII, Sec. 898(b), Oct. 22, 2004, 118 Stat. 1649; Pub. L. 109-
135, title IV, Sec. 403(jj)(2), Dec. 21, 2005, 119 Stat. 2632.)
-MISC1-
AMENDMENTS
2005 - Subsec. (d)(1). Pub. L. 109-135 inserted "section
361(b)(3)," after "section 358(h),".
2004 - Subsec. (c)(1)(B). Pub. L. 108-357 inserted "with respect
to which stock or securities of the corporation to which the assets
are transferred are distributed in a transaction which qualifies
under section 355" after "section 368(a)(1)(D)".
2000 - Subsec. (d)(1). Pub. L. 106-554 inserted "section 358(h),"
after "section 358(d)," in introductory provisions.
1999 - Subsec. (a). Pub. L. 106-36, Sec. 3001(d)(2), struck out
"or acquisition" after "assumption" in concluding provisions.
Subsec. (a)(2). Pub. L. 106-36, Sec. 3001(a)(1), struck out ", or
acquires from the taxpayer property subject to a liability" before
comma at end.
Subsec. (b). Pub. L. 106-36, Sec. 3001(d)(2), (3), struck out "or
acquisition" after "assumption" wherever appearing and struck out
"or acquired" after "liability assumed" in concluding provisions of
par. (1).
Subsec. (c)(1). Pub. L. 106-36, Sec. 3001(d)(4), struck out ",
plus the amount of the liabilities to which the property is
subject," after "liabilities assumed" in concluding provisions.
Subsec. (c)(3)(A). Pub. L. 106-36, Sec. 3001(d)(5), struck out
"or to which the property transferred is subject" after
"liabilities assumed" in concluding provisions.
Subsec. (d). Pub. L. 106-36, Sec. 3001(b)(1), added subsec. (d).
1990 - Subsecs. (a), (b)(1). Pub. L. 101-508, Sec.
11801(c)(8)(F)(i), substituted "351 or 361" for "351, 361, 371, or
374" wherever appearing.
Subsec. (c)(2). Pub. L. 101-508, Sec. 11801(c)(8)(F)(ii),
inserted "or" at end of subpar. (A), redesignated subpar. (C) as
(B), and struck out former subpar. (B) which read as follows: "to
which section 371 or 374 applies, or".
1980 - Subsec. (c)(2)(C). Pub. L. 96-589 added subpar. (C).
Subsec. (c)(3)(A). Pub. L. 96-222 struck out requirement that
only taxpayers who compute taxable income under the cash receipts
and disbursements method of accounting are eligible to exclude
certain liabilities in determining the amount of gain realized on a
transfer to a controlled corporation and the requirement that the
excluded liability must be an account payable.
1978 - Subsec. (c)(3). Pub. L. 95-600 added par. (3).
1956 - Subsec. (a). Act June 29, 1956, Sec. 2(1), substituted
"371, or 374" for "or 371" in two places.
Subsec. (b). Act June 29, 1956, Sec. 2(1), substituted "371, or
374" for "or 371".
Subsec. (c)(2)(B). Act June 29, 1956, Sec. 2(2), substituted "371
or 374" for "371".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 898(c), Oct. 22, 2004, 118
Stat. 1649, provided that: "The amendments made by this section
[amending this section and section 361 of this title] shall apply
to transfers of money or other property, or liabilities assumed, in
connection with a reorganization occurring on or after the date of
the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 applicable to assumptions of
liability after Oct. 18, 1999, see section 1(a)(7) [title III, Sec.
309(d)] of Pub. L. 106-554, set out as a note under section 358 of
this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-36 applicable to transfers after Oct.
18, 1998, see section 3001(e) of Pub. L. 106-36, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-589 applicable to bankruptcy cases or
similar judicial proceedings commencing after Dec. 31, 1980, with
exception permitting the debtor to make the amendment applicable to
such cases or proceedings commencing after Sept. 30, 1979, see
section 7(c)(1), (f) of Pub. L. 96-589, set out as a note under
section 108 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 365(c) of Pub. L. 95-600 provided that: "The amendments
made by subsections (a) and (b) [amending this section and section
358 of this title] shall apply to transfers occurring on or after
the date of the enactment of this Act [Nov. 6, 1978]."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 358 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
Sec. 358. Basis to distributees
-STATUTE-
(a) General rule
In the case of an exchange to which section 351, 354, 355, 356,
or 361 applies -
(1) Nonrecognition property
The basis of the property permitted to be received under such
section without the recognition of gain or loss shall be the same
as that of the property exchanged -
(A) decreased by -
(i) the fair market value of any other property (except
money) received by the taxpayer,
(ii) the amount of any money received by the taxpayer, and
(iii) the amount of loss to the taxpayer which was
recognized on such exchange, and
(B) increased by -
(i) the amount which was treated as a dividend, and
(ii) the amount of gain to the taxpayer which was
recognized on such exchange (not including any portion of
such gain which was treated as a dividend).
(2) Other property
The basis of any other property (except money) received by the
taxpayer shall be its fair market value.
(b) Allocation of basis
(1) In general
Under regulations prescribed by the Secretary, the basis
determined under subsection (a)(1) shall be allocated among the
properties permitted to be received without the recognition of
gain or loss.
(2) Special rule for section 355
In the case of an exchange to which section 355 (or so much of
section 356 as relates to section 355) applies, then in making
the allocation under paragraph (1) of this subsection, there
shall be taken into account not only the property so permitted to
be received without the recognition of gain or loss, but also the
stock or securities (if any) of the distributing corporation
which are retained, and the allocation of basis shall be made
among all such properties.
(c) Section 355 transactions which are not exchanges
For purposes of this section, a distribution to which section 355
(or so much of section 356 as relates to section 355) applies shall
be treated as an exchange, and for such purposes the stock and
securities of the distributing corporation which are retained shall
be treated as surrendered, and received back, in the exchange.
(d) Assumption of liability
(1) In general
Where, as part of the consideration to the taxpayer, another
party to the exchange assumed a liability of the taxpayer, such
assumption shall, for purposes of this section, be treated as
money received by the taxpayer on the exchange.
(2) Exception
Paragraph (1) shall not apply to the amount of any liability
excluded under section 357(c)(3).
(e) Exception
This section shall not apply to property acquired by a
corporation by the exchange of its stock or securities (or the
stock or securities of a corporation which is in control of the
acquiring corporation) as consideration in whole or in part for the
transfer of the property to it.
(f) Definition of nonrecognition property in case of section 361
exchange
For purposes of this section, the property permitted to be
received under section 361 without the recognition of gain or loss
shall be treated as consisting only of stock or securities in
another corporation a party to the reorganization.
(g) Adjustments in intragroup transactions involving section 355
In the case of a distribution to which section 355 (or so much of
section 356 as relates to section 355) applies and which involves
the distribution of stock from 1 member of an affiliated group (as
defined in section 1504(a) without regard to subsection (b)
thereof) to another member of such group, the Secretary may,
notwithstanding any other provision of this section, provide
adjustments to the adjusted basis of any stock which -
(1) is in a corporation which is a member of such group, and
(2) is held by another member of such group,
to appropriately reflect the proper treatment of such distribution.
(h) Special rules for assumption of liabilities to which subsection
(d) does not apply
(1) In general
If, after application of the other provisions of this section
to an exchange or series of exchanges, the basis of property to
which subsection (a)(1) applies exceeds the fair market value of
such property, then such basis shall be reduced (but not below
such fair market value) by the amount (determined as of the date
of the exchange) of any liability -
(A) which is assumed by another person as part of the
exchange, and
(B) with respect to which subsection (d)(1) does not apply to
the assumption.
(2) Exceptions
Except as provided by the Secretary, paragraph (1) shall not
apply to any liability if -
(A) the trade or business with which the liability is
associated is transferred to the person assuming the liability
as part of the exchange, or
(B) substantially all of the assets with which the liability
is associated are transferred to the person assuming the
liability as part of the exchange.
(3) Liability
For purposes of this subsection, the term "liability" shall
include any fixed or contingent obligation to make payment,
without regard to whether the obligation is otherwise taken into
account for purposes of this title.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 117; Pub. L. 85-866, title I,
Sec. 21(a), Sept. 2, 1958, 72 Stat. 1620; Pub. L. 90-621, Sec.
2(a), Oct. 22, 1968, 82 Stat. 1311; Pub. L. 94-253, Sec. 1(b), Mar.
31, 1976, 90 Stat. 296; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-600, title
III, Sec. 365(b), Nov. 6, 1978, 92 Stat. 2855; Pub. L. 100-647,
title I, Sec. 1018(d)(5)(B), Nov. 10, 1988, 102 Stat. 3580; Pub. L.
101-508, title XI, Sec. 11801(c)(8)(G), Nov. 5, 1990, 104 Stat.
1388-524; Pub. L. 105-34, title X, Sec. 1012(b)(2), Aug. 5, 1997,
111 Stat. 916; Pub. L. 106-36, title III, Sec. 3001(a)(2), (d)(6),
June 25, 1999, 113 Stat. 182, 184; Pub. L. 106-554, Sec. 1(a)(7)
[title III, Sec. 309(a)], Dec. 21, 2000, 114 Stat. 2763, 2763A-638;
Pub. L. 107-147, title IV, Sec. 412(c), Mar. 9, 2002, 116 Stat.
53.)
-MISC1-
AMENDMENTS
2002 - Subsec. (h)(1)(A). Pub. L. 107-147 amended subpar. (A)
generally. Prior to amendment, subpar. (A) read as follows: "which
is assumed in exchange for such property, and".
2000 - Subsec. (h). Pub. L. 106-554 added subsec. (h).
1999 - Subsec. (d)(1). Pub. L. 106-36 struck out "or acquired
from the taxpayer property subject to a liability" after "liability
of the taxpayer" and "or acquisition (in the amount of the
liability)" after "such assumption".
1997 - Subsec. (g). Pub. L. 105-34 added subsec. (g).
1990 - Subsec. (a). Pub. L. 101-508, Sec. 11801(c)(8)(G)(i),
substituted "or 361" for "361, 371(b), or 374".
Subsec. (b)(3). Pub. L. 101-508, Sec. 11801(c)(8)(G)(ii), struck
out par. (3) "Certain exchanges involving ConRail" which read as
follows: "To the extent provided in regulations prescribed by the
Secretary in the case of an exchange to which section 354(d) (or so
much of section 356 as relates to section 354(d)) or section 374(c)
applies, for purposes of allocating basis under paragraph (1),
stock of the Consolidated Rail Corporation and the certificate of
value of the United States Railway Association which relates to
such stock shall, so long as they are held by the same person, be
treated as one property."
1988 - Subsec. (f). Pub. L. 100-647 added subsec. (f).
1978 - Subsec. (d). Pub. L. 95-600 designated existing provisions
as par. (1) and added par. (2).
1976 - Subsec. (a). Pub. L. 94-253, Sec. 1(b)(1), substituted
"371(b), or 374" for "or 371(b)".
Subsec. (b)(1), (3). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
Pub. L. 94-253, Sec. 1(b)(2), added par. (3).
1968 - Subsec. (e). Pub. L. 90-621 substituted exchange of stock
and securities for issuance of stock or securities as the
transaction involved and inserted parenthetical provisions making
reference to stock or securities of a corporation which is in
control of the acquiring corporation.
1958 - Subsec. (a)(1)(A)(iii). Pub. L. 85-866 added cl. (iii).
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Community Renewal Tax Relief Act of 2000 [H.R.
5662, as enacted by Pub. L. 106-554], to which such amendment
relates, see section 412(e) of Pub. L. 107-147, set out as a note
under section 151 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 309(d)], Dec. 21,
2000, 114 Stat. 2763, 2763A-638, provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 357 of this title] shall apply to
assumptions of liability after October 18, 1999.
"(2) Rules. - The rules prescribed under subsection (c) [see
Application of Comparable Rules to Partnerships and S Corporations
note below] shall apply to assumptions of liability after October
18, 1999, or such later date as may be prescribed in such rules."
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-36 applicable to transfers after Oct.
18, 1998, see section 3001(e) of Pub. L. 106-36, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable, with certain exceptions,
to distributions after Apr. 16, 1997, pursuant to a plan (or series
of related transactions) which involves an acquisition described in
section 355(e)(2)(A)(ii) of this title occurring after such date,
see section 1012(d) of Pub. L. 105-34, set out as a note under
section 351 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to transfers occurring on
or after Nov. 6, 1978, see section 365(c) of Pub. L. 95-600, set
out as a note under section 357 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-253 applicable to taxable years ending
after Mar. 31, 1976, see section 2 of Pub. L. 94-253, set out as a
note under section 354 of this title.
EFFECTIVE DATE OF 1968 AMENDMENT
Section 2(c) of Pub. L. 90-621 provided that: "The amendments
made by subsections (a) and (b) [amending this section and section
362 of this title] shall apply only in respect of plans of
reorganization adopted after the date of the enactment of this Act
[Oct. 22, 1968]."
EFFECTIVE DATE OF 1958 AMENDMENT
Section 21(b) of Pub. L. 85-866, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subsection (a) [amending this section] shall
apply as provided in section 393 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] as if the clause (iii) added by such
amendment had been included in such Code at the time of its
enactment [Aug. 16, 1954]."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-TRANS-
ABOLITION OF UNITED STATES RAILWAY ASSOCIATION AND TRANSFER OF
FUNCTIONS
United States Railway Association abolished effective Apr. 1,
1987, all powers, duties, rights, and obligations of Association
relating to Consolidated Rail Corporation under Regional Rail
Reorganization Act of 1973 (45 U.S.C. 701 et seq.) transferred to
Secretary of Transportation on Jan. 1, 1987, and any securities of
Corporation held by Association transferred to Secretary of
Transportation on Oct. 21, 1986, see section 1341 of Title 45,
Railroads.
-MISC2-
APPLICATION OF COMPARABLE RULES TO PARTNERSHIPS AND S CORPORATIONS
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 309(c)], Dec. 21,
2000, 114 Stat. 2763, 2763A-638, provided that: "The Secretary of
the Treasury or his delegate -
"(1) shall prescribe rules which provide appropriate
adjustments under subchapter K of chapter 1 of the Internal
Revenue Code of 1986 to prevent the acceleration or duplication
of losses through the assumption of (or transfer of assets
subject to) liabilities described in section 358(h)(3) of such
Code (as added by subsection (a)) in transactions involving
partnerships, and
"(2) may prescribe rules which provide appropriate adjustments
under subchapter S of chapter 1 of such Code in transactions
described in paragraph (1) involving S corporations rather than
partnerships."
-End-
-CITE-
26 USC Subpart C - Effects on Corporation 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart C - Effects on Corporation
-HEAD-
SUBPART C - EFFECTS ON CORPORATION
-MISC1-
Sec.
361. Nonrecognition of gain or loss to corporations;
treatment of distributions.
362. Basis to corporations.
[363. Repealed.]
AMENDMENTS
1988 - Pub. L. 100-647, title I, Sec. 1018(d)(5)(F), Nov. 10,
1988, 102 Stat. 3580, substituted "corporations; treatment of
distributions." for "transferor corporation; other treatment of
transferor corporation; etc." in item 361.
1986 - Pub. L. 99-514, title XVIII, Sec. 1804(g)(3), Oct. 22,
1986, 100 Stat. 2806, substituted "to transferor corporation; other
treatment of transferor corporation; etc." for "corporations" in
item 361.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(13), Oct. 4, 1976,
90 Stat. 1795, struck out item 363 "Effect on earnings and
profits".
-End-
-CITE-
26 USC Sec. 361 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart C - Effects on Corporation
-HEAD-
Sec. 361. Nonrecognition of gain or loss to corporations; treatment
of distributions
-STATUTE-
(a) General rule
No gain or loss shall be recognized to a corporation if such
corporation is a party to a reorganization and exchanges property,
in pursuance of the plan of reorganization, solely for stock or
securities in another corporation a party to the reorganization.
(b) Exchanges not solely in kind
(1) Gain
If subsection (a) would apply to an exchange but for the fact
that the property received in exchange consists not only of stock
or securities permitted by subsection (a) to be received without
the recognition of gain, but also of other property or money,
then -
(A) Property distributed
If the corporation receiving such other property or money
distributes it in pursuance of the plan of reorganization, no
gain to the corporation shall be recognized from the exchange,
but
(B) Property not distributed
If the corporation receiving such other property or money
does not distribute it in pursuance of the plan of
reorganization, the gain, if any, to the corporation shall be
recognized.
The amount of gain recognized under subparagraph (B) shall not
exceed the sum of the money and the fair market value of the
other property so received which is not so distributed.
(2) Loss
If subsection (a) would apply to an exchange but for the fact
that the property received in exchange consists not only of
property permitted by subsection (a) to be received without the
recognition of gain or loss, but also of other property or money,
then no loss from the exchange shall be recognized.
(3) Treatment of transfers to creditors
For purposes of paragraph (1), any transfer of the other
property or money received in the exchange by the corporation to
its creditors in connection with the reorganization shall be
treated as a distribution in pursuance of the plan of
reorganization. The Secretary may prescribe such regulations as
may be necessary to prevent avoidance of tax through abuse of the
preceding sentence or subsection (c)(3). In the case of a
reorganization described in section 368(a)(1)(D) with respect to
which stock or securities of the corporation to which the assets
are transferred are distributed in a transaction which qualifies
under section 355, this paragraph shall apply only to the extent
that the sum of the money and the fair market value of other
property transferred to such creditors does not exceed the
adjusted bases of such assets transferred (reduced by the amount
of the liabilities assumed (within the meaning of section
357(c))).
(c) Treatment of distributions
(1) In general
Except as provided in paragraph (2), no gain or loss shall be
recognized to a corporation a party to a reorganization on the
distribution to its shareholders of property in pursuance of the
plan of reorganization.
(2) Distributions of appreciated property
(A) In general
If -
(i) in a distribution referred to in paragraph (1), the
corporation distributes property other than qualified
property, and
(ii) the fair market value of such property exceeds its
adjusted basis (in the hands of the distributing
corporation),
then gain shall be recognized to the distributing corporation
as if such property were sold to the distributee at its fair
market value.
(B) Qualified property
For purposes of this subsection, the term "qualified
property" means -
(i) any stock in (or right to acquire stock in) the
distributing corporation or obligation of the distributing
corporation, or
(ii) any stock in (or right to acquire stock in) another
corporation which is a party to the reorganization or
obligation of another corporation which is such a party if
such stock (or right) or obligation is received by the
distributing corporation in the exchange.
(C) Treatment of liabilities
If any property distributed in the distribution referred to
in paragraph (1) is subject to a liability or the shareholder
assumes a liability of the distributing corporation in
connection with the distribution, then, for purposes of
subparagraph (A), the fair market value of such property shall
be treated as not less than the amount of such liability.
(3) Treatment of certain transfers to creditors
For purposes of this subsection, any transfer of qualified
property by the corporation to its creditors in connection with
the reorganization shall be treated as a distribution to its
shareholders pursuant to the plan of reorganization.
(4) Coordination with other provisions
Section 311 and subpart B of part II of this subchapter shall
not apply to any distribution referred to in paragraph (1).
(5) Cross reference
For provision providing for recognition of gain in certain
distributions, see section 355(d).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 118; Pub. L. 99-514, title
XVIII, Sec. 1804(g)(1), Oct. 22, 1986, 100 Stat. 2805; Pub. L. 100-
647, title I, Sec. 1018(d)(5)(A), Nov. 10, 1988, 102 Stat. 3578;
Pub. L. 101-508, title XI, Sec. 11321(b), Nov. 5, 1990, 104 Stat.
1388-463; Pub. L. 108-357, title VIII, Sec. 898(a), Oct. 22, 2004,
118 Stat. 1649; Pub. L. 109-135, title IV, Sec. 403(jj)(1), Dec.
21, 2005, 119 Stat. 2632.)
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(3). Pub. L. 109-135 inserted before period at
end "(reduced by the amount of the liabilities assumed (within the
meaning of section 357(c)))".
2004 - Subsec. (b)(3). Pub. L. 108-357 inserted at end "In the
case of a reorganization described in section 368(a)(1)(D) with
respect to which stock or securities of the corporation to which
the assets are transferred are distributed in a transaction which
qualifies under section 355, this paragraph shall apply only to the
extent that the sum of the money and the fair market value of other
property transferred to such creditors does not exceed the adjusted
bases of such assets transferred."
1990 - Subsec. (c)(5). Pub. L. 101-508 added par. (5).
1988 - Pub. L. 100-647 substituted "corporations; treatment of
distributions" for "transferor corporations; other treatment of
transferor corporation; etc." in section catchline and amended text
generally, revising content and structure of section.
1986 - Pub. L. 99-514 amended section generally. Prior to
amendment, section related to whether gain or loss was recognized
if corporation which was party to reorganization exchanged
property, pursuant to plan of reorganization, for stock or
securities in another corporation which was party to the
reorganization or for other property or money.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to transfers of money or
other property, or liabilities assumed, in connection with a
reorganization occurring on or after Oct. 22, 2004, see section
898(c) of Pub. L. 108-357, set out as a note under section 357 of
this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to distributions after
Oct. 9, 1990, but not applicable to any distribution pursuant to a
written binding contract in effect on Oct. 9, 1990, and at all
times thereafter before such distribution, see section 11321(c) of
Pub. L. 101-508, set out as a note under section 355 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1804(g)(4) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section and
section 368 of this title] shall apply to plans of reorganizations
adopted after the date of the enactment of this Act [Oct. 22,
1986]."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 362 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart C - Effects on Corporation
-HEAD-
Sec. 362. Basis to corporations
-STATUTE-
(a) Property acquired by issuance of stock or as paid-in surplus
If property was acquired on or after June 22, 1954, by a
corporation -
(1) in connection with a transaction to which section 351
(relating to transfer of property to corporation controlled by
transferor) applies, or
(2) as paid-in surplus or as a contribution to capital,
then the basis shall be the same as it would be in the hands of the
transferor, increased in the amount of gain recognized to the
transferor on such transfer.
(b) Transfers to corporations
If property was acquired by a corporation in connection with a
reorganization to which this part applies, then the basis shall be
the same as it would be in the hands of the transferor, increased
in the amount of gain recognized to the transferor on such
transfer. This subsection shall not apply if the property acquired
consists of stock or securities in a corporation a party to the
reorganization, unless acquired by the exchange of stock or
securities of the transferee (or of a corporation which is in
control of the transferee) as the consideration in whole or in part
for the transfer.
(c) Special rule for certain contributions to capital
(1) Property other than money
Notwithstanding subsection (a)(2), if property other than money
-
(A) is acquired by a corporation, on or after June 22, 1954,
as a contribution to capital, and
(B) is not contributed by a shareholder as such,
then the basis of such property shall be zero.
(2) Money
Notwithstanding subsection (a)(2), if money -
(A) is received by a corporation, on or after June 22, 1954,
as a contribution to capital, and
(B) is not contributed by a shareholder as such,
then the basis of any property acquired with such money during
the 12-month period beginning on the day the contribution is
received shall be reduced by the amount of such contribution. The
excess (if any) of the amount of such contribution over the
amount of the reduction under the preceding sentence shall be
applied to the reduction (as of the last day of the period
specified in the preceding sentence) of the basis of any other
property held by the taxpayer. The particular properties to which
the reductions required by this paragraph shall be allocated
shall be determined under regulations prescribed by the
Secretary.
(d) Limitation on basis increase attributable to assumption of
liability
(1) In general
In no event shall the basis of any property be increased under
subsection (a) or (b) above the fair market value of such
property (determined without regard to section 7701(g)) by reason
of any gain recognized to the transferor as a result of the
assumption of a liability.
(2) Treatment of gain not subject to tax
Except as provided in regulations, if -
(A) gain is recognized to the transferor as a result of an
assumption of a nonrecourse liability by a transferee which is
also secured by assets not transferred to such transferee; and
(B) no person is subject to tax under this title on such
gain,
then, for purposes of determining basis under subsections (a) and
(b), the amount of gain recognized by the transferor as a result
of the assumption of the liability shall be determined as if the
liability assumed by the transferee equaled such transferee's
ratable portion of such liability determined on the basis of the
relative fair market values (determined without regard to section
7701(g)) of all of the assets subject to such liability.
(e) Limitations on built-in losses
(1) Limitation on importation of built-in losses
(A) In general
If in any transaction described in subsection (a) or (b)
there would (but for this subsection) be an importation of a
net built-in loss, the basis of each property described in
subparagraph (B) which is acquired in such transaction shall
(notwithstanding subsections (a) and (b)) be its fair market
value immediately after such transaction.
(B) Property described
For purposes of subparagraph (A), property is described in
this subparagraph if -
(i) gain or loss with respect to such property is not
subject to tax under this subtitle in the hands of the
transferor immediately before the transfer, and
(ii) gain or loss with respect to such property is subject
to such tax in the hands of the transferee immediately after
such transfer.
In any case in which the transferor is a partnership, the
preceding sentence shall be applied by treating each partner in
such partnership as holding such partner's proportionate share
of the property of such partnership.
(C) Importation of net built-in loss
For purposes of subparagraph (A), there is an importation of
a net built-in loss in a transaction if the transferee's
aggregate adjusted bases of property described in subparagraph
(B) which is transferred in such transaction would (but for
this paragraph) exceed the fair market value of such property
immediately after such transaction.
(2) Limitation on transfer of built-in losses in section 351
transactions
(A) In general
If -
(i) property is transferred by a transferor in any
transaction which is described in subsection (a) and which is
not described in paragraph (1) of this subsection, and
(ii) the transferee's aggregate adjusted bases of such
property so transferred would (but for this paragraph) exceed
the fair market value of such property immediately after such
transaction,
then, notwithstanding subsection (a), the transferee's
aggregate adjusted bases of the property so transferred shall
not exceed the fair market value of such property immediately
after such transaction.
(B) Allocation of basis reduction
The aggregate reduction in basis by reason of subparagraph
(A) shall be allocated among the property so transferred in
proportion to their respective built-in losses immediately
before the transaction.
(C) Election to apply limitation to transferor's stock basis
(i) In general
If the transferor and transferee of a transaction described
in subparagraph (A) both elect the application of this
subparagraph -
(I) subparagraph (A) shall not apply, and
(II) the transferor's basis in the stock received for
property to which subparagraph (A) does not apply by reason
of the election shall not exceed its fair market value
immediately after the transfer.
(ii) Election
Any election under clause (i) shall be made at such time
and in such form and manner as the Secretary may prescribe,
and, once made, shall be irrevocable.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 118; Pub. L. 90-621, Sec. 2(b),
Oct. 22, 1968, 82 Stat. 1311; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), title XXI, Sec. 2120(b), Oct. 4, 1976, 90 Stat.
1834, 1913; Pub. L. 99-514, title VIII, Sec. 824(b), Oct. 22, 1986,
100 Stat. 2374; Pub. L. 106-36, title III, Sec. 3001(b)(2), June
25, 1999, 113 Stat. 182; Pub. L. 108-357, title VIII, Sec. 836(a),
Oct. 22, 2004, 118 Stat. 1594; Pub. L. 109-135, title IV, Sec.
403(dd)(2), Dec. 21, 2005, 119 Stat. 2631.)
-MISC1-
AMENDMENTS
2005 - Subsec. (e)(2)(C)(ii). Pub. L. 109-135 reenacted heading
without change and amended text generally. Prior to amendment, text
read as follows: "An election under clause (i) shall be included
with the return of tax for the taxable year in which the
transaction occurred, shall be in such form and manner as the
Secretary may prescribe, and, once made, shall be irrevocable."
2004 - Subsec. (e). Pub. L. 108-357 added subsec. (e).
1999 - Subsec. (d). Pub. L. 106-36 added subsec. (d).
1986 - Subsec. (c)(3). Pub. L. 99-514 struck out par. (3)
relating to exceptions for contributions in aid of construction.
1976 - Subsec. (c)(2)(B). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c)(3). Pub. L. 94-455, Sec. 2120(b), added par. (3).
1968 - Subsec. (b). Pub. L. 90-621 substituted the exchange of
stock or securities of the transferee (or of a corporation which is
in control of the transferee) for the issuance of stock or
securities of the transferee as the transaction rendering the
subsection applicable.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 836(c)(1), Oct. 22, 2004, 118
Stat. 1596, provided that: "The amendment made by subsection (a)
[amending this section] shall apply to transactions after the date
of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-36 applicable to transfers after Oct.
18, 1998, see section 3001(e) of Pub. L. 106-36, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to amounts received after
Dec. 31, 1986, in taxable years ending after such date, with
certain exceptions and qualifications, see section 824(c) of Pub.
L. 99-514, set out as a note under section 118 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 2120(b) of Pub. L. 94-455 applicable to
contributions made after Jan. 31, 1976, see section 2120(c) of Pub.
L. 94-455, set out as a note under section 118 of this title.
EFFECTIVE DATE OF 1968 AMENDMENT
Amendment by Pub. L. 90-621 applicable only in respect of plans
of reorganization adopted after Oct. 22, 1968, see section 2(c) of
Pub. L. 90-621, set out as a note under section 358 of this title.
-End-
-CITE-
26 USC Sec. 363 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart C - Effects on Corporation
-HEAD-
[Sec. 363. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(49),
Oct. 4, 1976, 90 Stat. 1773]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 119, related to
cross reference for rules relating to effect on earnings and
profits of transactions to which this part applies.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
-CITE-
26 USC Subpart D - Special Rule; Definitions 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart D - Special Rule; Definitions
-HEAD-
SUBPART D - SPECIAL RULE; DEFINITIONS
-MISC1-
Sec.
367. Foreign corporations.
368. Definitions relating to corporate reorganizations.
-End-
-CITE-
26 USC Sec. 367 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart D - Special Rule; Definitions
-HEAD-
Sec. 367. Foreign corporations
-STATUTE-
(a) Transfers of property from the United States
(1) General rule
If, in connection with any exchange described in section 332,
351, 354, 356, or 361, a United States person transfers property
to a foreign corporation, such foreign corporation shall not, for
purposes of determining the extent to which gain shall be
recognized on such transfer, be considered to be a corporation.
(2) Exception for certain stock or securities
Except to the extent provided in regulations, paragraph (1)
shall not apply to the transfer of stock or securities of a
foreign corporation which is a party to the exchange or a party
to the reorganization.
(3) Exception for transfers of certain property used in the
active conduct of a trade or business
(A) In general
Except as provided in regulations prescribed by the
Secretary, paragraph (1) shall not apply to any property
transferred to a foreign corporation for use by such foreign
corporation in the active conduct of a trade or business
outside of the United States.
(B) Paragraph not to apply to certain property
Except as provided in regulations prescribed by the
Secretary, subparagraph (A) shall not apply to any -
(i) property described in paragraph (1) or (3) of section
1221(a) (relating to inventory and copyrights, etc.),
(ii) installment obligations, accounts receivable, or
similar property,
(iii) foreign currency or other property denominated in
foreign currency,
(iv) intangible property (within the meaning of section
936(h)(3)(B)), or
(v) property with respect to which the transferor is a
lessor at the time of the transfer, except that this clause
shall not apply if the transferee was the lessee.
(C) Transfer of foreign branch with previously deducted losses
Except as provided in regulations prescribed by the
Secretary, subparagraph (A) shall not apply to gain realized on
the transfer of the assets of a foreign branch of a United
States person to a foreign corporation in an exchange described
in paragraph (1) to the extent that -
(i) the sum of losses -
(I) which were incurred by the foreign branch before the
transfer, and
(II) with respect to which a deduction was allowed to the
taxpayer, exceeds
(ii) the sum of -
(I) any taxable income of such branch for a taxable year
after the taxable year in which the loss was incurred and
through the close of the taxable year of the transfer, and
(II) the amount which is recognized under section
904(f)(3) on account of the transfer.
Any gain recognized by reason of the preceding sentence shall
be treated for purposes of this chapter as income from sources
outside the United States having the same character as such
losses had.
(4) Special rule for transfer of partnership interests
Except as provided in regulations prescribed by the Secretary,
a transfer by a United States person of an interest in a
partnership to a foreign corporation in an exchange described in
paragraph (1) shall, for purposes of this subsection, be treated
as a transfer to such corporation of such person's pro rata share
of the assets of the partnership.
(5) Paragraphs (2) and (3) not to apply to certain section 361
transactions
Paragraphs (2) and (3) shall not apply in the case of an
exchange described in subsection (a) or (b) of section 361.
Subject to such basis adjustments and such other conditions as
shall be provided in regulations, the preceding sentence shall
not apply if the transferor corporation is controlled (within the
meaning of section 368(c)) by 5 or fewer domestic corporations.
For purposes of the preceding sentence, all members of the same
affiliated group (within the meaning of section 1504) shall be
treated as 1 corporation.
(6) Secretary may exempt certain transactions from application of
this subsection
Paragraph (1) shall not apply to the transfer of any property
which the Secretary, in order to carry out the purposes of this
subsection, designates by regulation.
(b) Other transfers
(1) Effect of section to be determined under regulations
In the case of any exchange described in section 332, 351, 354,
355, 356, or 361 in connection with which there is no transfer of
property described in subsection (a)(1), a foreign corporation
shall be considered to be a corporation except to the extent
provided in regulations prescribed by the Secretary which are
necessary or appropriate to prevent the avoidance of Federal
income taxes.
(2) Regulations relating to sale or exchange of stock in foreign
corporations
The regulations prescribed pursuant to paragraph (1) shall
include (but shall not be limited to) regulations dealing with
the sale or exchange of stock or securities in a foreign
corporation by a United States person, including regulations
providing -
(A) the circumstances under which -
(i) gain shall be recognized currently, or amounts included
in gross income currently as a dividend, or both, or
(ii) gain or other amounts may be deferred for inclusion in
the gross income of a shareholder (or his successor in
interest) at a later date, and
(B) the extent to which adjustments shall be made to earnings
and profits, basis of stock or securities, and basis of assets.
(c) Transactions to be treated as exchanges
(1) Section 355 distribution
For purposes of this section, any distribution described in
section 355 (or so much of section 356 as relates to section 355)
shall be treated as an exchange whether or not it is an exchange.
(2) Contribution of capital to controlled corporations
For purposes of this chapter, any transfer of property to a
foreign corporation as a contribution to the capital of such
corporation by one or more persons who, immediately after the
transfer, own (within the meaning of section 318) stock
possessing at least 80 percent of the total combined voting power
of all classes of stock of such corporation entitled to vote
shall be treated as an exchange of such property for stock of the
foreign corporation equal in value to the fair market value of
the property transferred.
(d) Special rules relating to transfers of intangibles
(1) In general
Except as provided in regulations prescribed by the Secretary,
if a United States person transfers any intangible property
(within the meaning of section 936(h)(3)(B)) to a foreign
corporation in an exchange described in section 351 or 361 -
(A) subsection (a) shall not apply to the transfer of such
property, and
(B) the provisions of this subsection shall apply to such
transfer.
(2) Transfer of intangibles treated as transfer pursuant to sale
of contingent payments
(A) In general
If paragraph (1) applies to any transfer, the United States
person transferring such property shall be treated as -
(i) having sold such property in exchange for payments
which are contingent upon the productivity, use, or
disposition of such property, and
(ii) receiving amounts which reasonably reflect the amounts
which would have been received -
(I) annually in the form of such payments over the useful
life of such property, or
(II) in the case of a disposition following such transfer
(whether direct or indirect), at the time of the
disposition.
The amounts taken into account under clause (ii) shall be
commensurate with the income attributable to the intangible.
(B) Effect on earnings and profits
For purposes of this chapter, the earnings and profits of a
foreign corporation to which the intangible property was
transferred shall be reduced by the amount required to be
included in the income of the transferor of the intangible
property under subparagraph (A)(ii).
(C) Amounts received treated as ordinary income
For purposes of this chapter, any amount included in gross
income by reason of this subsection shall be treated as
ordinary income. For purposes of applying section 904(d), any
such amount shall be treated in the same manner as if such
amount were a royalty.
(3) Regulations relating to transfers of intangibles to
partnerships
The Secretary may provide by regulations that the rules of
paragraph (2) also apply to the transfer of intangible property
by a United States person to a partnership in circumstances
consistent with the purposes of this subsection.
(e) Treatment of distributions described in section 355 or
liquidations under section 332
(1) Distributions described in section 355
In the case of any distribution described in section 355 (or so
much of section 356 as relates to section 355) by a domestic
corporation to a person who is not a United States person, to the
extent provided in regulations, gain shall be recognized under
principles similar to the principles of this section.
(2) Liquidations under section 332
In the case of any liquidation to which section 332 applies,
except as provided in regulations, subsections (a) and (b)(1) of
section 337 shall not apply where the 80-percent distributee (as
defined in section 337(c)) is a foreign corporation.
(f) Other transfers
To the extent provided in regulations, if a United States person
transfers property to a foreign corporation as paid-in surplus or
as a contribution to capital (in a transaction not otherwise
described in this section), such transfer shall be treated as a
sale or exchange for an amount equal to the fair market value of
the property transferred, and the transferor shall recognize as
gain the excess of -
(1) the fair market value of the property so transferred, over
(2) the adjusted basis (for purposes of determining gain) of
such property in the hands of the transferor.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 119; Pub. L. 91-681, Sec. 1(a),
Jan. 12, 1971, 84 Stat. 2065; Pub. L. 94-455, title X, Sec.
1042(a), Oct. 4, 1976, 90 Stat. 1634; Pub. L. 97-248, title II,
Sec. 213(d), Sept. 3, 1982, 96 Stat. 465; Pub. L. 98-369, div. A,
title I, Sec. 131(a)-(c), July 18, 1984, 98 Stat. 662-664; Pub. L.
99-514, title VI, Sec. 631(d)(1), title XII, Sec. 1231(e)(2), title
XVIII, Sec. 1810(g)(1), (4), Oct. 22, 1986, 100 Stat. 2272, 2563,
2828, 2829; Pub. L. 100-647, title I, Sec. 1006(e)(13)(A), Nov. 10,
1988, 102 Stat. 3402; Pub. L. 101-508, title XI, Sec. 11702(a)(1),
Nov. 5, 1990, 104 Stat. 1388-514; Pub. L. 105-34, title XI, Sec.
1131(b)(2), (4), (5)(A), Aug. 5, 1997, 111 Stat. 979, 980; Pub. L.
106-170, title V, Sec. 532(c)(1)(C), Dec. 17, 1999, 113 Stat. 1930;
Pub. L. 108-357, title IV, Sec. 406(a), Oct. 22, 2004, 118 Stat.
1498.)
-COD-
CODIFICATION
Another section 1131(b) of Pub. L. 105-34 enacted section 684 of
this title.
-MISC1-
AMENDMENTS
2004 - Subsec. (d)(2)(C). Pub. L. 108-357 inserted at end "For
purposes of applying section 904(d), any such amount shall be
treated in the same manner as if such amount were a royalty."
1999 - Subsec. (a)(3)(B)(i). Pub. L. 106-170 substituted "section
1221(a)" for "section 1221".
1997 - Subsec. (d)(2)(C). Pub. L. 105-34, Sec. 1131(b)(4),
amended heading and text of subpar. (C) generally. Prior to
amendment, text read as follows: "For purposes of this chapter, any
amount included in gross income by reason of this subsection shall
be treated as ordinary income from sources within the United
States."
Subsec. (d)(3). Pub. L. 105-34, Sec. 1131(b)(5)(A), added par.
(3).
Subsec. (f). Pub. L. 105-34, Sec. 1131(b)(2), added subsec. (f).
1990 - Subsec. (a)(5). Pub. L. 101-508 substituted "subsection
(a) or (b) of section 361" for "section 361".
1988 - Subsec. (a)(5), (6). Pub. L. 100-647 added par. (5) and
redesignated former par. (5) as (6).
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1810(g)(4)(A), struck
out "355," after "354,".
Subsec. (d)(2)(A). Pub. L. 99-514, Sec. 1231(e)(2), inserted at
end "The amounts taken into account under clause (ii) shall be
commensurate with the income attributable to the intangible."
Subsec. (e). Pub. L. 99-514, Sec. 631(d)(1), amended subsec. (e)
generally. Prior to amendment, subsec. (e), treatment of
distributions described in section 336 or 355, read as follows: "In
the case of any distribution described in section 336 or 355 (or so
much of section 356 as relates to section 355) by a domestic
corporation which is made to a person who is not a United States
person, to the extent provided in regulations, gain shall be
recognized under principles similar to the principles of this
section."
Subsec. (f). Pub. L. 99-514, Sec. 1810(g)(1), struck out subsec.
(f) which related to transitional rules in the case of any
exchanges beginning before Jan. 1, 1978.
Pub. L. 99-514, Sec. 1810(g)(4)(B), in heading substituted
"distributions described in section 336 or 355" for "liquidations
under section 336", and in text inserted "or 355 (or so much of
section 356 as relates to section 355)".
1984 - Subsec. (a). Pub. L. 98-369, Sec. 131(a), amended subsec.
(a) generally, revising provisions of pars. (1) and (2), and adding
pars. (3) to (5).
Subsec. (d). Pub. L. 98-369, Sec. 131(b), amended subsec. (d)
generally, substituting provision providing special rules relating
to transfers of intangibles for provision providing special rules
relating to transfers of intangibles by possession corporation.
Subsecs. (e), (f). Pub. L. 98-369, Sec. 131(c), added subsec. (e)
and redesignated former subsec. (e) as (f).
1982 - Subsecs. (d), (e). Pub. L. 97-248 added subsec. (d) and
redesignated former subsec. (d) as (e).
1976 - Pub. L. 94-455, among other changes, inserted provisions
permitting nonrecognition of gain if a request for a ruling that
tax avoidance is not present is filed within 183 days after
beginning of an exchange, relating to an organization,
reorganization, and liquidation of a foreign corporation, in the
case of outbound transfers, however, for all other transfers,
regulations are to provide the extent that earnings are to be taken
into account as dividends and provisions relating to Tax Court
review of the tax avoidance rulings.
1971 - Subsec. (a). Pub. L. 91-681 designated existing provisions
as subsec. (a), and, as so designated, inserted provisions relating
to instances of an exchange, described in subsec. (b). Provisions
relating to distributions described in section 355 (or so much of
section 356 as relates to section 355) were stricken and were
transferred to subsec. (c).
Subsec. (b). Pub. L. 91-681 added subsec. (b).
Subsec. (c). Pub. L. 91-681 designated as subsec. (c) provisions
relating to distribution described in section 355 (or so much of
section 356 as relates to section 355).
Subsec. (d). Pub. L. 91-681 added subsec. (d).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title IV, Sec. 406(b), Oct. 22, 2004, 118 Stat.
1498, provided that: "The amendment made by this section [amending
this section] shall apply to amounts treated as received pursuant
to section 367(d)(2) of the Internal Revenue Code of 1986 on or
after August 5, 1997."
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1131(d) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting section 684 of this title, amending
this section and sections 721, 814, 1035, and 6422 of this title,
and repealing sections 1057, 1491, 1492, and 1494 of this title]
shall take effect on the date of the enactment of this Act [Aug. 5,
1997]."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section
11702(j) of Pub. L. 101-508, set out as a note under section 59 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(e)(13)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to exchanges on or after June 21, 1988, except that such
amendment shall not apply to any exchange pursuant to any
reorganization for which a plan of reorganization was adopted
before June 21, 1988."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(d)(1) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 1231(e)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, but only with respect
to transfers after Nov. 16, 1985, or licenses granted after such
date, or before such date with respect to property not in existence
or owned by taxpayer on such date, except that for purposes of
section 936(h)(5)(C) of this title, such amendment applicable to
taxable years beginning after Dec. 31, 1986, without regard to when
the transfer or license was made, see section 1231(g)(2) of Pub. L.
99-514, set out as a note under section 936 of this title.
Amendment by section 1810(g)(1), (4) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 131(g) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [enacting
section 6038B of this title, amending this section and sections
1492, 1494, 6501, and 7482 of this title, and repealing section
7477 of this title] shall apply to transfers or exchanges after
December 31, 1984, in taxable years ending after such date.
"(2) Special rule for certain transfers of intangibles. -
"(A) In general. - If, after June 6, 1984, and before January
1, 1985, a United States person transfers any intangible property
(within the meaning of section 936(h)(3)(B) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954]) to a foreign
corporation or in a transfer described in section 1491, such
transfer shall be treated for purposes of sections 367(a),
1492(2), and 1494(b) of such Code as pursuant to a plan having as
1 of its principal purposes the avoidance of Federal income tax.
"(B) Waiver. - Subject to such terms and conditions as the
Secretary of the Treasury or his delegate may prescribe, the
Secretary may waive the application of subparagraph (A) with
respect to any transfer.
"(3) Ruling request before march 1, 1984. - The amendments made
by this section (and the provisions of paragraph (2) of this
subsection) shall not apply to any transfer or exchange of property
described in a request filed before March 1, 1984, under section
367(a), 1492(2), or 1494(b) of the Internal Revenue Code of 1986
(as in effect before such amendments)."
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years ending
after Aug. 14, 1982, see section 213(e)(3) of Pub. L. 97-248, set
out as a note under section 936 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1042(e) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) The amendments made by this section (other than by
subsection (d)) [amending this section and sections 751 and 1248 of
this title] shall apply to transfers beginning after October 9,
1975, and to sales, exchanges, and distributions taking place after
such date. The amendments made by subsection (d) [enacting section
7477 of this title and amending sections 7476 and 7482 of this
title] shall apply with respect to pleadings filed with the Tax
Court after the date of the enactment of this Act [Oct. 4, 1976]
but only with respect to transfers beginning after October 9, 1975.
"(2) In the case of any exchange described in section 367 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect
on December 31, 1974) in any taxable year beginning after December
31, 1962, and before the date of the enactment of this Act [Oct. 4,
1976], which does not involve the transfer of property to or from a
United States person, a taxpayer shall have for purposes of such
section until 183 days after the date of the enactment of this Act
[Oct. 4, 1976] to file a request with the Secretary of the Treasury
or his delegate seeking to establish to the satisfaction of the
Secretary of the Treasury or his delegate that such exchange was
not in pursuance of a plan having as one of its principal purposes
the avoidance of Federal income taxes and that for purposes of such
section a foreign corporation is to be treated as a foreign
corporation."
EFFECTIVE DATE OF 1971 AMENDMENT
Section 1(c) of Pub. L. 91-681, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and section
1492 of this title] shall apply to transfers made after December
31, 1967; except that sections 367(d) and 1492 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by this
section) shall apply only with respect to transfers made after
December 31, 1970."
APPLICABILITY OF SUBSECTION (E)(2)
Section 1006(e)(13)(C) of Pub. L. 100-647 provided that: "Section
367(e)(2) of the 1986 Code (as amended by the Reform Act [Pub. L.
99-514]) shall not apply in the case of any corporation completely
liquidated before June 10, 1987, into a corporation organized in a
country which has an income tax treaty with the United States."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 368 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart D - Special Rule; Definitions
-HEAD-
Sec. 368. Definitions relating to corporate reorganizations
-STATUTE-
(a) Reorganization
(1) In general
For purposes of parts I and II and this part, the term
"reorganization" means -
(A) a statutory merger or consolidation;
(B) the acquisition by one corporation, in exchange solely
for all or a part of its voting stock (or in exchange solely
for all or a part of the voting stock of a corporation which is
in control of the acquiring corporation), of stock of another
corporation if, immediately after the acquisition, the
acquiring corporation has control of such other corporation
(whether or not such acquiring corporation had control
immediately before the acquisition);
(C) the acquisition by one corporation, in exchange solely
for all or a part of its voting stock (or in exchange solely
for all or a part of the voting stock of a corporation which is
in control of the acquiring corporation), of substantially all
of the properties of another corporation, but in determining
whether the exchange is solely for stock the assumption by the
acquiring corporation of a liability of the other shall be
disregarded;
(D) a transfer by a corporation of all or a part of its
assets to another corporation if immediately after the transfer
the transferor, or one or more of its shareholders (including
persons who were shareholders immediately before the transfer),
or any combination thereof, is in control of the corporation to
which the assets are transferred; but only if, in pursuance of
the plan, stock or securities of the corporation to which the
assets are transferred are distributed in a transaction which
qualifies under section 354, 355, or 356;
(E) a recapitalization;
(F) a mere change in identity, form, or place of organization
of one corporation, however effected; or
(G) a transfer by a corporation of all or part of its assets
to another corporation in a title 11 or similar case; but only
if, in pursuance of the plan, stock or securities of the
corporation to which the assets are transferred are distributed
in a transaction which qualifies under section 354, 355, or
356.
(2) Special rules relating to paragraph (1)
(A) Reorganizations described in both paragraph (1)(C) and
paragraph (1)(D)
If a transaction is described in both paragraph (1)(C) and
paragraph (1)(D), then, for purposes of this subchapter (other
than for purposes of subparagraph (C)), such transaction shall
be treated as described only in paragraph (1)(D).
(B) Additional consideration in certain paragraph (1)(C) cases
If -
(i) one corporation acquires substantially all of the
properties of another corporation,
(ii) the acquisition would qualify under paragraph (1)(C)
but for the fact that the acquiring corporation exchanges
money or other property in addition to voting stock, and
(iii) the acquiring corporation acquires, solely for voting
stock described in paragraph (1)(C), property of the other
corporation having a fair market value which is at least 80
percent of the fair market value of all of the property of
the other corporation,
then such acquisition shall (subject to subparagraph (A) of
this paragraph) be treated as qualifying under paragraph
(1)(C). Solely for the purpose of determining whether clause
(iii) of the preceding sentence applies, the amount of any
liability assumed by the acquiring corporation shall be treated
as money paid for the property.
(C) Transfers of assets or stock to subsidiaries in certain
paragraph (1)(A), (1)(B), (1)(C), and (1)(G) cases
A transaction otherwise qualifying under paragraph (1)(A),
(1)(B), or (1)(C) shall not be disqualified by reason of the
fact that part or all of the assets or stock which were
acquired in the transaction are transferred to a corporation
controlled by the corporation acquiring such assets or stock. A
similar rule shall apply to a transaction otherwise qualifying
under paragraph (1)(G) where the requirements of subparagraphs
(A) and (B) of section 354(b)(1) are met with respect to the
acquisition of the assets.
(D) Use of stock of controlling corporation in paragraph (1)(A)
and (1)(G) cases
The acquisition by one corporation, in exchange for stock of
a corporation (referred to in this subparagraph as "controlling
corporation") which is in control of the acquiring corporation,
of substantially all of the properties of another corporation
shall not disqualify a transaction under paragraph (1)(A) or
(1)(G) if -
(i) no stock of the acquiring corporation is used in the
transaction, and
(ii) in the case of a transaction under paragraph (1)(A),
such transaction would have qualified under paragraph (1)(A)
had the merger been into the controlling corporation.
(E) Statutory merger using voting stock of corporation
controlling merged corporation
A transaction otherwise qualifying under paragraph (1)(A)
shall not be disqualified by reason of the fact that stock of a
corporation (referred to in this subparagraph as the
"controlling corporation") which before the merger was in
control of the merged corporation is used in the transaction,
if -
(i) after the transaction, the corporation surviving the
merger holds substantially all of its properties and of the
properties of the merged corporation (other than stock of the
controlling corporation distributed in the transaction); and
(ii) in the transaction, former shareholders of the
surviving corporation exchanged, for an amount of voting
stock of the controlling corporation, an amount of stock in
the surviving corporation which constitutes control of such
corporation.
(F) Certain transactions involving 2 or more investment
companies
(i) If immediately before a transaction described in
paragraph (1) (other than subparagraph (E) thereof), 2 or
more parties to the transaction were investment companies,
then the transaction shall not be considered to be a
reorganization with respect to any such investment company
(and its shareholders and security holders) unless it was a
regulated investment company, a real estate investment trust,
or a corporation which meets the requirements of clause (ii).
(ii) A corporation meets the requirements of this clause if
not more than 25 percent of the value of its total assets is
invested in the stock and securities of any one issuer, and
not more than 50 percent of the value of its total assets is
invested in the stock and securities of 5 or fewer issuers.
For purposes of this clause, all members of a controlled
group of corporations (within the meaning of section 1563(a))
shall be treated as one issuer. For purposes of this clause,
a person holding stock in a regulated investment company, a
real estate investment trust, or an investment company which
meets the requirements of this clause shall, except as
provided in regulations, be treated as holding its
proportionate share of the assets held by such company or
trust.
(iii) For purposes of this subparagraph the term
"investment company" means a regulated investment company, a
real estate investment trust, or a corporation 50 percent or
more of the value of whose total assets are stock and
securities and 80 percent or more of the value of whose total
assets are assets held for investment. In making the 50-
percent and 80-percent determinations under the preceding
sentence, stock and securities in any subsidiary corporation
shall be disregarded and the parent corporation shall be
deemed to own its ratable share of the subsidiary's assets,
and a corporation shall be considered a subsidiary if the
parent owns 50 percent or more of the combined voting power
of all classes of stock entitled to vote, or 50 percent or
more of the total value of shares of all classes of stock
outstanding.
(iv) For purposes of this subparagraph, in determining
total assets there shall be excluded cash and cash items
(including receivables). Government securities, and, under
regulations prescribed by the Secretary, assets acquired
(through incurring indebtedness or otherwise) for purposes of
meeting the requirements of clause (ii) or ceasing to be an
investment company.
(v) This subparagraph shall not apply if the stock of each
investment company is owned substantially by the same persons
in the same proportions.
(vi) If an investment company which does not meet the
requirements of clause (ii) acquires assets of another
corporation, clause (i) shall be applied to such investment
company and its shareholders and security holders as though
its assets had been acquired by such other corporation. If
such investment company acquires stock of another corporation
in a reorganization described in section 368(a)(1)(B), clause
(i) shall be applied to the shareholders of such investment
company as though they had exchanged with such other
corporation all of their stock in such company for stock
having a fair market value equal to the fair market value of
their stock of such investment company immediately after the
exchange. For purposes of section 1001, the deemed
acquisition or exchange referred to in the two preceding
sentences shall be treated as a sale or exchange of property
by the corporation and by the shareholders and security
holders to which clause (i) is applied.
(vii) For purposes of clauses (ii) and (iii), the term
"securities" includes obligations of State and local
governments, commodity futures contracts, shares of regulated
investment companies and real estate investment trusts, and
other investments constituting a security within the meaning
of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(36)).(!1)
[(viii) Repealed. Pub. L. 98-369, div. A, title I, Sec.
174(b)(5)(D), July 18, 1984, 98 Stat. 707]
(G) Distribution requirement for paragraph (1)(C)
(i) In general
A transaction shall fail to meet the requirements of
paragraph (1)(C) unless the acquired corporation distributes
the stock, securities, and other properties it receives, as
well as its other properties, in pursuance of the plan of
reorganization. For purposes of the preceding sentence, if
the acquired corporation is liquidated pursuant to the plan
of reorganization, any distribution to its creditors in
connection with such liquidation shall be treated as pursuant
to the plan of reorganization.
(ii) Exception
The Secretary may waive the application of clause (i) to
any transaction subject to any conditions the Secretary may
prescribe.
(H) Special rules for determining whether certain transactions
are qualified under paragraph (1)(D)
For purposes of determining whether a transaction qualifies
under paragraph (1)(D) -
(i) in the case of a transaction with respect to which the
requirements of subparagraphs (A) and (B) of section
354(b)(1) are met, the term "control" has the meaning given
such term by section 304(c), and
(ii) in the case of a transaction with respect to which the
requirements of section 355 (or so much of section 356 as
relates to section 355) are met, the fact that the
shareholders of the distributing corporation dispose of part
or all of the distributed stock, or the fact that the
corporation whose stock was distributed issues additional
stock, shall not be taken into account.
(3) Additional rules relating to title 11 and similar cases
(A) Title 11 or similar case defined
For purposes of this part, the term "title 11 or similar
case" means -
(i) a case under title 11 of the United States Code, or
(ii) a receivership, foreclosure, or similar proceeding in
a Federal or State court.
(B) Transfer of assets in a title 11 or similar case
In applying paragraph (1)(G), a transfer of the assets of a
corporation shall be treated as made in a title 11 or similar
case if and only if -
(i) any party to the reorganization is under the
jurisdiction of the court in such case, and
(ii) the transfer is pursuant to a plan of reorganization
approved by the court.
(C) Reorganizations qualifying under paragraph (1)(G) and
another provision
If a transaction would (but for this subparagraph) qualify
both -
(i) under subparagraph (G) of paragraph (1), and
(ii) under any other subparagraph of paragraph (1) or under
section 332 or 351,
then, for purposes of this subchapter (other than section
357(c)(1)), such transaction shall be treated as qualifying
only under subparagraph (G) of paragraph (1).
(D) Agency receivership proceedings which involve financial
institutions
For purposes of subparagraphs (A) and (B), in the case of a
receivership, foreclosure, or similar proceeding before a
Federal or State agency involving a financial institution
referred to in section 581 or 591, the agency shall be treated
as a court.
(E) Application of paragraph (2)(E)(ii)
In the case of a title 11 or similar case, the requirement of
clause (ii) of paragraph (2)(E) shall be treated as met if -
(i) no former shareholder of the surviving corporation
received any consideration for his stock, and
(ii) the former creditors of the surviving corporation
exchanged, for an amount of voting stock of the controlling
corporation, debt of the surviving corporation which had a
fair market value equal to 80 percent or more of the total
fair market value of the debt of the surviving corporation.
(b) Party to a reorganization
For purposes of this part, the term "a party to a reorganization"
includes -
(1) a corporation resulting from a reorganization, and
(2) both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or
properties of another.
In the case of a reorganization qualifying under paragraph (1)(B)
or (1)(C) of subsection (a), if the stock exchanged for the stock
or properties is stock of a corporation which is in control of the
acquiring corporation, the term "a party to a reorganization"
includes the corporation so controlling the acquiring corporation.
In the case of a reorganization qualifying under paragraph (1)(A),
(1)(B), or (1)(C), or (1)(G) of subsection (a) by reason of
paragraph (2)(C) of subsection (a), the term "a party to a
reorganization" includes the corporation controlling the
corporation to which the acquired assets or stock are transferred.
In the case of a reorganization qualifying under paragraph (1)(A)
or (1)(G) of subsection (a) by reason of paragraph (2)(D) of that
subsection, the term "a party to a reorganization" includes the
controlling corporation referred to in such paragraph (2)(D). In
the case of a reorganization qualifying under subsection (a)(1)(A)
by reason of subsection (a)(2)(E), the term "party to a
reorganization" includes the controlling corporation referred to in
subsection (a)(2)(E).
(c) Control defined
For purposes of part I (other than section 304), part II, this
part, and part V, the term "control" means the ownership of stock
possessing at least 80 percent of the total combined voting power
of all classes of stock entitled to vote and at least 80 percent of
the total number of shares of all other classes of stock of the
corporation.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 120; Pub. L. 88-272, title II,
Sec. 218(a), (b), Feb. 26, 1964, 78 Stat. 57; Pub. L. 90-621, Sec.
1(a), (b), Oct. 22, 1968, 82 Stat. 1310, 1311; Pub. L. 91-693, Sec.
1(a), (b), Jan. 12, 1971, 84 Stat. 2077; Pub. L. 94-455, title
VIII, Sec. 806(f)(1), title XXI, Sec. 2131(a), Oct. 4, 1976, 90
Stat. 1605, 1922; Pub. L. 95-600, title VII, Sec. 701(j)(1), Nov.
6, 1978, 92 Stat. 2905; Pub. L. 96-589, Sec. 4(a)-(d), (h)(3), (4),
Dec. 24, 1980, 94 Stat. 3401-3403, 3405; Pub. L. 97-34, title II,
Sec. 241, Aug. 13, 1981, 95 Stat. 254; Pub. L. 97-248, title II,
Sec. 225(a), Sept. 3, 1982, 96 Stat. 490; Pub. L. 97-448, title
III, Sec. 304(b), (c), Jan. 12, 1983, 96 Stat. 2398; Pub. L. 98-
369, div. A, title I, Secs. 63(a), 64(a), 174(b)(5)(D), July 18,
1984, 98 Stat. 583, 584, 707; Pub. L. 99-514, title VI, Sec.
621(e)(1), title IX, Sec. 904(a), title XVIII, Secs. 1804(g)(2),
(h), 1879(l)(1), Oct. 22, 1986, 100 Stat. 2266, 2385, 2806, 2909;
Pub. L. 100-647, title I, Sec. 1018(q)(5), title IV, Sec.
4012(b)(1)(A), Nov. 10, 1988, 102 Stat. 3586, 3656; Pub. L. 101-73,
title XIV, Sec. 1401(a)(1), (b)(1), Aug. 9, 1989, 103 Stat. 548,
549; Pub. L. 105-34, title X, Sec. 1012(c)(2), Aug. 5, 1997, 111
Stat. 917; Pub. L. 105-206, title VI, Sec. 6010(c)(3)(B), July 22,
1998, 112 Stat. 813; Pub. L. 105-277, div. J, title IV, Sec.
4003(f)(2), Oct. 21, 1998, 112 Stat. 2681-910; Pub. L. 106-36,
title III, Sec. 3001(a)(3), June 25, 1999, 113 Stat. 182.)
-REFTEXT-
REFERENCES IN TEXT
The Investment Company Act of 1940, referred to in subsec.
(a)(2)(F)(vii), is title I of act Aug. 22, 1940, ch. 686, 54 Stat.
789, as amended, which is classified generally to subchapter I
(Sec. 80a-1 et seq.) of chapter 2D of Title 15, Commerce and Trade.
For complete classification of this Act to the Code, see section
80a-51 of Title 15 and Tables.
-MISC1-
AMENDMENTS
1999 - Subsec. (a)(1)(C). Pub. L. 106-36, Sec. 3001(a)(3)(A),
struck out ", or the fact that property acquired is subject to a
liability," before "shall be disregarded".
Subsec. (a)(2)(B). Pub. L. 106-36, Sec. 3001(a)(3)(B), which
directed amendment of concluding provisions by striking out ", and
the amount of any liability to which any property acquired from the
acquiring corporation is subject,", was executed by striking out ",
and the amount of any liability to which any property acquired by
the acquiring corporation is subject," after "acquiring
corporation", to reflect the probable intent of Congress.
1998 - Subsec. (a)(2)(H)(ii). Pub. L. 105-277 inserted ", or the
fact that the corporation whose stock was distributed issues
additional stock," after "dispose of part or all of the distributed
stock".
Pub. L. 105-206 amended cl. (ii) generally. Prior to amendment,
cl. (ii) read as follows: "in the case of a transaction with
respect to which the requirements of section 355 are met, the
shareholders described in paragraph (1)(D) shall be treated as
having control of the corporation to which the assets are
transferred if such shareholders own (immediately after the
distribution) stock possessing -
"(I) more than 50 percent of the total combined voting power of
all classes of stock of such corporation entitled to vote, and
"(II) more than 50 percent of the total value of shares of all
classes of stock of such corporation."
1997 - Subsec. (a)(2)(H). Pub. L. 105-34 amended heading and text
of subpar. (H) generally. Prior to amendment, text read as follows:
"In the case of any transaction with respect to which the
requirements of subparagraphs (A) and (B) of section 354(b)(1) are
met, for purposes of determining whether such transaction qualifies
under subparagraph (D) of paragraph (1), the term 'control' has the
meaning given to such term by section 304(c)."
1989 - Subsec. (a)(3)(D). Pub. L. 101-73, Sec. 1401(b)(1),
repealed amendment made by Pub. L. 99-514, Sec. 904(a), see 1986
Amendment note below.
Pub. L. 101-73, Sec. 1401(a)(1), inserted "receivership" in
heading and amended text generally, changing the structure of the
subparagraph from one consisting of five clauses designated (i) to
(v) to one consisting of a single undesignated subparagraph.
1988 - Subsec. (a)(2)(F)(ii). Pub. L. 100-647, Sec. 1018(q)(5),
struck out "(other than stock in a regulated investment company, a
real estate investment trust, or an investment company which meets
the requirements of this clause (ii))" after "any one issuer" and
after "or fewer issuers" and inserted at end "For purposes of this
clause, a person holding stock in a regulated investment company, a
real estate investment trust, or an investment company which meets
the requirements of this clause shall, except as provided in
regulations, be treated as holding its proportionate share of the
assets held by such company or trust."
Subsec. (a)(3)(D)(iv), (v). Pub. L. 100-647, Sec. 4012(b)(1)(A),
amended subpar. (D), as in effect before the amendment made by
section 904(a) of Pub. L. 99-514, by adding cls. (iv) and (v).
1986 - Subsec. (a)(2)(A). Pub. L. 99-514, Sec. 1804(h)(3),
inserted "(other than for purposes of subparagraph (C))" after
"subchapter".
Subsec. (a)(2)(F)(ii). Pub. L. 99-514, Sec. 1879(l)(1), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"A corporation meets the requirements of this clause if not more
than 25 percent of the value of its total assets is invested in the
stock and securities of any one issuer, and not more than 50
percent of the value of its total assets is invested in the stock
and securities of 5 or fewer issuers. For purposes of this clause,
all members of a controlled group of corporations (within the
meaning of section 1563(a)) shall be treated as one issuer."
Subsec. (a)(2)(G)(i). Pub. L. 99-514, Sec. 1804(g)(2), inserted
"For purposes of the preceding sentence, if the acquired
corporation is liquidated pursuant to the plan of reorganization,
any distribution to its creditors in connection with such
liquidation shall be treated as pursuant to the plan of
reorganization."
Subsec. (a)(2)(H). Pub. L. 99-514, Sec. 1804(h)(2), added subpar.
(H).
Subsec. (a)(3)(D). Pub. L. 99-514, Sec. 904(a), (c)(1), as
amended by Pub. L. 100-647, Sec. 4012(a)(1), which (applicable to
acquisitions after Dec. 31, 1989, in taxable years ending after
such date) directed amendment of subpar. (D) to read as follows:
"(D) Agency receivership proceedings which involve financial
institutions. - For purposes of subparagraphs (A) and (B), in the
case of a receivership, foreclosure, or similar proceeding before a
Federal or State agency involving a financial institution referred
to in section 581 or 591, the agency shall be treated as a court."
was repealed by Pub. L. 101-73, Sec. 1401(b)(1), (c)(4), eff. Oct.
22, 1986, and I.R.C. of 1986 applicable as if the amendments made
by such section had not been enacted.
Subsec. (c). Pub. L. 99-514, Sec. 1804(h)(1), in amending subsec.
(c) generally, struck out par. (1) designation and struck out par.
(2) defining term "control" as having meaning given to such term by
section 304(c) in case of any transaction with respect to which
requirements of subpars. (A) and (B) of section 354(b)(1) are met,
for purposes of determining whether such transaction is described
in subpar. (D) of subsec. (a)(1).
Pub. L. 99-514, Sec. 621(e)(1), repealed amendment by Pub. L. 94-
455, Sec. 806(f)(1). See 1976 Amendment note below.
1984 - Subsec. (a)(2)(F)(viii). Pub. L. 98-369, Sec.
174(b)(5)(D), struck out cl. (viii) which provided that in applying
paragraph (3) of section 267(b) in respect of any transaction to
which this subparagraph applies, the reference to a personal
holding company in such paragraph (3) be treated as including a
reference to an investment company and the determination of whether
a corporation is an investment company be made as of the time
immediately before the transaction instead of with respect to the
taxable year referred to in such paragraph (3).
Subsec. (a)(2)(G). Pub. L. 98-369, Sec. 63(a), added subpar. (G).
Subsec. (c). Pub. L. 98-369, Sec. 64(a), designated existing
provisions as par. (1) and added par. (2).
1983 - Subsec. (a)(2)(C). Pub. L. 97-448, Sec. 304(b), struck out
"or stock" after "acquisition of the assets".
Subsec. (a)(3)(B)(i). Pub. L. 97-448, Sec. 304(c), substituted
"any party to the reorganization" for "such corporation".
1982 - Subsec. (a)(1)(F). Pub. L. 97-248 inserted "of one
corporation" after "place of organization".
1981 - Subsec. (a)(3)(D). Pub. L. 97-34 substituted "Agency
proceedings" for "Agency receivership proceedings" in heading,
incorporated existing provisions in text designated cl. (i),
inserted in cl. (i)(II) definition for term "title 11 or similar
case", and added cls. (ii) and (iii).
1980 - Subsec. (a)(1)(G). Pub. L. 96-589, Sec. 4(a), (h)(3),
added subpar. (G).
Subsec. (a)(2)(C). Pub. L. 96-589, Sec. 4(c), inserted provision
that a similar rule would apply to a transaction otherwise
qualifying under par. (1)(G), where the requirements of subpars.
(A) and (B) of section 354(b)(1) are met with respect to the
acquisition of the assets or stock.
Subsec. (a)(2)(D). Pub. L. 96-589, Sec. 4(d), among other
changes, inserted reference to par. (1)(G).
Subsec. (a)(3). Pub. L. 96-589, Sec. 4(b), added par. (3).
Subsec. (b). Pub. L. 96-589, Sec. 4(h)(4), substituted "paragraph
(1)(A), (1)(B), (1)(C), or (1)(G) of subsection (a) by reason of
paragraph (2)(C)" and "paragraph (1)(A) or (1)(G) of subsection (a)
by reason of paragraph (2)(D)" for "paragraph (1)(A), (1)(B), or
(1)(C) of subsection (a) by reason of paragraph (2)(C)" and
"paragraph (1)(A) of subsection (a) by reason of paragraph (2)(D)",
respectively.
1978 - Subsec. (a)(2)(F). Pub. L. 95-600 substituted in cl.
(iii), first sentence, "50 percent or more" and "80 percent or
more" for "more than 50 percent" and "more than 80 percent";
substituted in cl. (vi), first sentence, "does not meet the
requirements" for "is not diversified within the meaning"; struck
from cl. (vi), second sentence, "(hereafter referred to as the
('actual acquisition')" after "section 368(a)(1)(B)" and "and
security holders" after "the shareholders" and substituted "stock
in such company for stock having a fair market value equal to the
fair market value of their stock of such investment company
immediately after the exchange" for "stock in such investment
company for a percentage of the value of the total outstanding
stock of the other corporation equal to the percentage of the value
of the total outstanding stock of such investment company which
such shareholders own immediately after the actual acquisition";
and added cls. (vii) and (viii).
1976 - Subsec. (a)(2)(F). Pub. L. 94-455, Sec. 2131(a), added
subpar. (F).
Subsec. (c). Pub. L. 94-455, Sec. 806(f)(1), which substituted
"this part, and Part V," for "and this part," was repealed by Pub.
L. 99-514, Sec. 621(e)(1). See Effective Date of 1986 and 1976
Amendment notes below.
1971 - Subsec. (a)(2)(E). Pub. L. 91-693, Sec. 1(a), added
subpar. (E).
Subsec. (b). Pub. L. 91-693, Sec. 1(b), defined "party to a
reorganization" in the case of a reorganization qualifying under
subsection (a)(1)(A) by reason of subsection (a)(2)(E).
1968 - Subsec. (a)(2)(D). Pub. L. 90-621, Sec. 1(a), added
subpar. (D).
Subsec. (b). Pub. L. 90-621, Sec. 1(b), inserted reference to the
inclusion of the controlling corporation in term "a party to a
reorganization" in reorganizations qualifying under paragraph
(1)(A) of subsection (a) by reason of paragraph (2)(D) of
subsection (a).
1964 - Subsec. (a). Pub. L. 88-272, Sec. 218(a), (b)(1), inserted
"(or in exchange solely for all or a part of the voting stock of a
corporation which is in control of the acquiring corporation)" in
par. (1)(B), and in par. (2)(C), inserted references to par.
(1)(B), and substituted "assets or stock" for "assets" wherever
appearing.
Subsec. (b). Pub. L. 88-272, Sec. 218(b)(2), inserted references
to par. (1)(B) wherever appearing.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-36 applicable to transfers after Oct.
18, 1998, see section 3001(e) of Pub. L. 106-36, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L. 105-
277, set out as a note under section 86 of this title.
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable, with certain exceptions,
to transfers after Aug. 5, 1997, see section 1012(d) of Pub. L. 105-
34, set out as a note under section 351 of this title.
EFFECTIVE DATE OF 1989 AMENDMENTS
Repeal of amendment by section 904(a) of Pub. L. 99-514 effective
Oct. 22, 1986, and I.R.C. of 1986 applicable as if the amendment
had not been enacted, see section 1401(b)(1) of Pub. L. 101-73, set
out as a Repeal of Provisions Relating to Repeal of Special
Reorganization Rules for Financial Institutions note set out under
section 597 of this title, and section 1401(c)(4) of Pub. L. 101-
73, set out as Effective Date of 1989 Amendment note under section
597 of this title.
Section 1401(c)(1) of Pub. L. 101-73 provided that: "The
amendment made by subsection (a)(1) [amending this section] shall
apply to acquisitions on or after May 10, 1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1018(q)(5) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 4012(b)(1)(C)(i) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to acquisitions after the date of the enactment of this Act
[Nov. 10, 1988] and before January 1, 1990."
EFFECTIVE DATE OF 1986 AMENDMENT
Repeal of amendment by section 806(f)(1) of Pub. L. 94-455
effective Jan. 1, 1986, with certain exceptions, see section
621(f)(2) of Pub. L. 99-514, set out as a note under section 382 of
this title.
Section 904(c)(1) of Pub. L. 99-514, as amended by Pub. L. 100-
647, title IV, Sec. 4012(a)(1), Nov. 10, 1988, 102 Stat. 3656,
which provided that the amendments made by subsection (a), amending
this section, were to apply to acquisitions after Dec. 31, 1989, in
taxable years ending after such date, was repealed by Pub. L. 101-
73, title XIV, Sec. 1401(b)(1), Aug. 9, 1989, 103 Stat. 549.
Amendment by section 1804(g)(2) of Pub. L. 99-514 applicable to
plans of reorganizations adopted after Oct. 22, 1986, see section
1804(g)(4) of Pub. L. 99-514, set out as a note under section 361
of this title.
Amendment by section 1804(h) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
Section 1879(l)(2) of Pub. L. 99-514 provided that: "The
amendment made by this subsection [amending this section] shall
apply as if included in section 2131 of the Tax Reform Act of 1976
[Pub. L. 94-455]."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 63(a) of Pub. L. 98-369 applicable to
transactions pursuant to plans adopted after July 18, 1984, see
section 63(c) of Pub. L. 98-369, set out as a note under section
312 of this title.
Section 64(b) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to
transactions pursuant to plans adopted after the date of the
enactment of this Act [July 18, 1984]."
Amendment by section 174(b)(5)(D) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1983, in taxable years ending after
that date, see section 174(c)(2)(A) of Pub. L. 98-369, set out as a
note under section 267 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 311(b)(2) of Pub. L. 97-448 provided that: "The amendment
made by subsection (b) of section 304 [amending this section] shall
take effect as if included in the amendments made by section 4 of
such Act [Pub. L. 96-589, the Bankruptcy Tax Act of 1980, see 1980
Amendment notes above]."
EFFECTIVE DATE OF 1982 AMENDMENT
Section 225(b) of Pub. L. 97-248 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply with respect to transactions occurring after August 31, 1982.
"(2) Plans adopted on or before august 31, 1982. - The amendment
made by subsection (a) shall not apply with respect to plans of
reorganization adopted on or before August 31, 1982, but only if
the transaction occurs before January 1, 1983."
EFFECTIVE DATE OF 1981 AMENDMENT
Section 246(a) of Pub. L. 97-34 provided that: "The amendment
made by sections 241 and 242 [amending this section and section 382
of this title] shall apply to any transfer made on or after January
1, 1981."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to bankruptcy cases or
similar judicial proceedings commencing after Dec. 31, 1980, with
exception permitting the debtor to make the amendment applicable to
such cases or proceedings commencing after Sept. 30, 1979, see
section 7(c)(1), (f) of Pub. L. 96-589, set out as a note under
section 108 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 701(j)(2) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) Except as provided in subparagraphs (B) and (C), the
amendments made by paragraph (1) [amending this section] shall
apply as if included in section 368(a)(2)(F) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] as added by section
2131(a) of the Tax Reform Act of 1976 [Pub. L. 94-455, title XX,
Sec. 2131(a), Oct. 4, 1976, 90 Stat. 1922].
"(B) Clause (viii) of section 368(a)(2)(F) of the Internal
Revenue Code of 1986 (as added by paragraph (1)) shall apply only
with respect to losses sustained after September 26, 1977.
"(C) Clause (vii) of section 368(a)(2)(F) of the Internal Revenue
Code of 1986 (as added by paragraph (1)) shall apply only with
respect to transfers made after September 26, 1977."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2131(f)(1), (2) of Pub. L. 94-455, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Except as provided in paragraph (2), the amendment made by
subsection (a) [amending this section] shall apply to transfers
made after February 17, 1976, in taxable years ending after such
date.
"(2) The amendment made by subsection (a) shall not apply to
transfers made in accordance with a ruling issued by the Internal
Revenue Service before February 18, 1976, holding that a proposed
transaction would be a reorganization described in paragraph (1) of
section 368(a) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]."
For effective date of amendment by section 806(f)(1) of Pub. L.
94-455, see section 806(g)(2), (3) of Pub. L. 94-455, formerly set
out as a note under section 382 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 1(c) of Pub. L. 91-693 provided that: "The amendments
made by this section [amending this section] shall apply to
statutory mergers occurring after December 31, 1970."
EFFECTIVE DATE OF 1968 AMENDMENT
Section 1(c) of Pub. L. 90-621 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to statutory mergers occurring after the date of the enactment of
this Act [Oct. 22, 1968]."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 218(c) of Pub. L. 88-272 provided that: "The amendments
made by this section [amending this section] shall apply with
respect to transactions after December 31, 1963, in taxable years
ending after such date."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original. A reference to 15 U.S.C. 80a-2(a)(36) was
probably intended.
-End-
-CITE-
26 USC [PART IV - REPEALED] 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART IV - REPEALED]
-HEAD-
[PART IV - REPEALED]
-End-
-CITE-
26 USC Secs. 370 to 372 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART IV - REPEALED]
-HEAD-
[Secs. 370 to 372. Repealed. Pub. L. 101-508, title XI, Sec.
11801(a)(19), Nov. 5, 1990, 104 Stat. 1388-521]
-MISC1-
Section 370, added Pub. L. 96-589, Sec. 4(f), Dec. 24, 1980, 94
Stat. 3404, related to termination of part.
Section 371, acts Aug. 16, 1954, ch. 736, 68A Stat. 121; Oct. 4,
1976, Pub. L. 94-455, title XIX, Sec. 1901(a)(50), 90 Stat. 1773,
related to reorganization in certain receivership and bankruptcy
proceedings.
Section 372, acts Aug. 16, 1954, ch. 736, 68A Stat. 122; Sept. 2,
1958, Pub. L. 85-866, title I, Sec. 95(a), 72 Stat. 1671; Oct. 4,
1976, Pub. L. 94-455, title XIX, Secs. 1901(a)(51), (b)(14)(A),
1906(b)(13)(A), 90 Stat. 1773, 1795, 1834, related to basis in
connection with certain receivership and bankruptcy proceedings.
SAVINGS PROVISION
For provisions that nothing in repeal by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 373 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART IV - REPEALED]
-HEAD-
[Sec. 373. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(52),
Oct. 4, 1976, 90 Stat. 1773]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 123; June 29,
1956, ch. 463, Sec. 3, 70 Stat. 403, related to loss not recognized
in certain railroad reorganizations.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
-CITE-
26 USC Sec. 374 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART IV - REPEALED]
-HEAD-
[Sec. 374. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(19),
Nov. 5, 1990, 104 Stat. 1388-521]
-MISC1-
Section, added June 29, 1956, ch. 463, Sec. 1, 70 Stat. 402;
amended Mar. 31, 1976, Pub. L. 94-253, Sec. 1(a), (d), 90 Stat.
295, 296; Oct. 4, 1976, Pub. L. 94-455, title XIX, Sec.
1901(a)(53), (b)(10)(A), (14)(B), (C), 90 Stat. 1773, 1795, 1796;
Nov. 6, 1978, Pub. L. 95-600, title III, Sec. 369(a), 92 Stat.
2857; Apr. 1, 1980, Pub. L. 96-222, title I, Sec. 103(a)(14), 94
Stat. 214; Oct. 22, 1986, Pub. L. 99-514, title XVIII, Sec.
1899A(9), 100 Stat. 2958, related to nonrecognition of gain or loss
in certain railroad reorganizations.
SAVINGS PROVISION
For provisions that nothing in repeal by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC PART V - CARRYOVERS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART V - CARRYOVERS
-HEAD-
PART V - CARRYOVERS
-MISC1-
Sec.
381. Carryovers in certain corporate acquisitions.
382. Limitation on net operating loss carryforwards and
certain built-in losses following ownership change.
383. Special limitations on certain excess credits, etc.
384. Limitation on use of preacquisition losses to offset
built-in gains.
AMENDMENTS
1987 - Pub. L. 100-203, title X, Sec. 10226(b), Dec. 22, 1987,
101 Stat. 1330-415, added item 384.
1986 - Pub. L. 99-514, title VI, Sec. 621(c)(2), Oct. 22, 1986,
100 Stat. 2266, substituted "Limitation on net operating loss
carryforwards and certain built-in losses following ownership
change" for "Special limitations on net operating loss carryovers"
in item 382 and "Special limitations on certain excess credits,
etc." for "Special limitations on unused business credits, research
credits, foreign taxes, and capital losses" in item 383.
1984 - Pub. L. 98-369, div. A, title IV, Sec. 474(r)(12)(C), July
18, 1984, 98 Stat. 842, substituted "unused business credits,
research credits, foreign taxes, and capital losses" for
"carryovers of unused investment credits, work incentive program
credits, new employee credits, alcohol fuel credits, research
credits, employee stock ownership credits, foreign taxes, and
capital losses" in item 383.
1981 - Pub. L. 97-34, title II, Sec. 221(b)(1)(E), title III,
Sec. 331(d)(1)(E), Aug. 13, 1981, 95 Stat. 246, 295, inserted
references to alcohol fuel credits, research credits, and employee
stock ownership credits in item 383. For applicability of amendment
by section 221(b)(1)(E) to amounts paid or incurred after June 30,
1981, and before Jan. 1, 1986, see section 221(d) of Pub. L. 97-34,
set out as an Effective Date note under section 30 of this title.
1977 - Pub. L. 95-30, title II, Sec. 202(d)(3)(D), May 23, 1977,
91 Stat. 148, inserted "new employee credits," after "work
incentive program credits," in item 383.
1971 - Pub. L. 92-178, title III, Sec. 302(b), Dec. 10, 1971, 85
Stat. 521, added item 383.
-End-
-CITE-
26 USC Sec. 381 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART V - CARRYOVERS
-HEAD-
Sec. 381. Carryovers in certain corporate acquisitions
-STATUTE-
(a) General rule
In the case of the acquisition of assets of a corporation by
another corporation -
(1) in a distribution to such other corporation to which
section 332 (relating to liquidations of subsidiaries) applies;
or
(2) in a transfer to which section 361 (relating to
nonrecognition of gain or loss to corporations) applies, but only
if the transfer is in connection with a reorganization described
in subparagraph (A), (C), (D), (F), or (G) of section 368(a)(1),
the acquiring corporation shall succeed to and take into account,
as of the close of the day of distribution or transfer, the items
described in subsection (c) of the distributor or transferor
corporation, subject to the conditions and limitations specified in
subsections (b) and (c). For purposes of the preceding sentence, a
reorganization shall be treated as meeting the requirements of
subparagraph (D) or (G) of section 368(a)(1) only if the
requirements of subparagraphs (A) and (B) of section 354(b)(1) are
met.
(b) Operating rules
Except in the case of an acquisition in connection with a
reorganization described in subparagraph (F) of section 368(a)(1) -
(1) The taxable year of the distributor or transferor
corporation shall end on the date of distribution or transfer.
(2) For purposes of this section, the date of distribution or
transfer shall be the day on which the distribution or transfer
is completed; except that, under regulations prescribed by the
Secretary, the date when substantially all of the property has
been distributed or transferred may be used if the distributor or
transferor corporation ceases all operations, other than
liquidating activities, after such date.
(3) The corporation acquiring property in a distribution or
transfer described in subsection (a) shall not be entitled to
carry back a net operating loss or a net capital loss for a
taxable year ending after the date of distribution or transfer to
a taxable year of the distributor or transferor corporation.
(c) Items of the distributor or transferor corporation
The items referred to in subsection (a) are:
(1) Net operating loss carryovers
The net operating loss carryovers determined under section 172,
subject to the following conditions and limitations:
(A) the taxable year of the acquiring corporation to which
the net operating loss carryovers of the distributor or
transferor corporation are first carried shall be the first
taxable year ending after the date of distribution or transfer.
(B) In determining the net operating loss deduction, the
portion of such deduction attributable to the net operating
loss carryovers of the distributor or transferor corporation to
the first taxable year of the acquiring corporation ending
after the date of distribution or transfer shall be limited to
an amount which bears the same ratio to the taxable income
(determined without regard to a net operating loss deduction)
of the acquiring corporation in such taxable year as the number
of days in the taxable year after the date of distribution or
transfer bears to the total number of days in the taxable year.
(C) For the purpose of determining the amount of the net
operating loss carryovers under section 172(b)(2), a net
operating loss for a taxable year (hereinafter in this
subparagraph referred to as the "loss year") of a distributor
or transferor corporation which ends on or before the end of a
loss year of the acquiring corporation shall be considered to
be a net operating loss for a year prior to such loss year of
the acquiring corporation. For the same purpose, the taxable
income for a "prior taxable year" (as the term is used in
section 172(b)(2)) shall be computed as provided in such
section; except that, if the date of distribution or transfer
is on a day other than the last day of a taxable year of the
acquiring corporation -
(i) such taxable year shall (for the purpose of this
subparagraph only) be considered to be 2 taxable years
(hereinafter in this subparagraph referred to as the "pre-
acquisition part year" and the "post-acquisition part
year");
(ii) the pre-acquisition part year shall begin on the same
day as such taxable year begins and shall end on the date of
distribution or transfer;
(iii) the post-acquisition part year shall begin on the day
following the date of distribution or transfer and shall end
on the same day as the end of such taxable year;
(iv) the taxable income for such taxable year (computed
with the modifications specified in section 172(b)(2)(A) but
without a net operating loss deduction) shall be divided
between the pre-acquisition part year and the post-
acquisition part year in proportion to the number of days in
each;
(v) the net operating loss deduction for the pre-
acquisition part year shall be determined as provided in
section 172(b)(2)(B), but without regard to a net operating
loss year of the distributor or transferor corporation; and
(vi) the net operating loss deduction for the post-
acquisition part year shall be determined as provided in
section 172(b)(2)(B).
(2) Earnings and profits
In the case of a distribution or transfer described in
subsection (a) -
(A) the earnings and profits or deficit in earnings and
profits, as the case may be, of the distributor or transferor
corporation shall, subject to subparagraph (B), be deemed to
have been received or incurred by the acquiring corporation as
of the close of the date of the distribution or transfer; and
(B) a deficit in earnings and profits of the distributor,
transferor, or acquiring corporation shall be used only to
offset earnings and profits accumulated after the date of
transfer. For this purpose, the earnings and profits for the
taxable year of the acquiring corporation in which the
distribution or transfer occurs shall be deemed to have been
accumulated after such distribution or transfer in an amount
which bears the same ratio to the undistributed earnings and
profits of the acquiring corporation for such taxable year
(computed without regard to any earnings and profits received
from the distributor or transferor corporation, as described in
subparagraph (A) of this paragraph) as the number of days in
the taxable year after the date of distribution or transfer
bears to the total number of days in the taxable year.
(3) Capital loss carryover
The capital loss carryover determined under section 1212,
subject to the following conditions and limitations:
(A) The taxable year of the acquiring corporation to which
the capital loss carryover of the distributor or transferor
corporation is first carried shall be the first taxable year
ending after the date of distribution or transfer.
(B) The capital loss carryover shall be a short-term capital
loss in the taxable year determined under subparagraph (A) but
shall be limited to an amount which bears the same ratio to the
capital gain net income (determined without regard to a short-
term capital loss attributable to capital loss carryover), if
any, of the acquiring corporation in such taxable year as the
number of days in the taxable year after the date of
distribution or transfer bears to the total number of days in
the taxable year.
(C) For purposes of determining the amount of such capital
loss carryover to taxable years following the taxable year
determined under subparagraph (A), the capital gain net income
in the taxable year determined under subparagraph (A) shall be
considered to be an amount equal to the amount determined under
subparagraph (B).
(4) Method of accounting
The acquiring corporation shall use the method of accounting
used by the distributor or transferor corporation on the date of
distribution or transfer unless different methods were used by
several distributor or transferor corporations or by a
distributor or transferor corporation and the acquiring
corporation. If different methods were used, the acquiring
corporation shall use the method or combination of methods of
computing taxable income adopted pursuant to regulations
prescribed by the Secretary.
(5) Inventories
In any case in which inventories are received by the acquiring
corporation, such inventories shall be taken by such corporation
(in determining its income) on the same basis on which such
inventories were taken by the distributor or transferor
corporation, unless different methods were used by several
distributor or transferor corporations or by a distributor or
transferor corporation and the acquiring corporation. If
different methods were used, the acquiring corporation shall use
the method or combination of methods of taking inventory adopted
pursuant to regulations prescribed by the Secretary.
(6) Method of computing depreciation allowance
The acquiring corporation shall be treated as the distributor
or transferor corporation for purposes of computing the
depreciation allowance under sections 167 and 168 on property
acquired in a distribution or transfer with respect to so much of
the basis in the hands of the acquiring corporation as does not
exceed the adjusted basis in the hands of the distributor or
transferor corporation.
[(7) Repealed. June 15, 1955, ch. 143, Sec. 2(1), 69 Stat. 134]
(8) Installment method
If the acquiring corporation acquires installment obligations
(the income from which the distributor or transferor corporation
reports on the installment basis under section 453) the acquiring
corporation shall, for purposes of section 453, be treated as if
it were the distributor or transferor corporation.
(9) Amortization of bond discount or premium
If the acquiring corporation assumes liability for bonds of the
distributor or transferor corporation issued at a discount or
premium, the acquiring corporation shall be treated as the
distributor or transferor corporation after the date of
distribution or transfer for purposes of determining the amount
of amortization allowable or includible with respect to such
discount or premium.
(10) Treatment of certain mining development and exploration
expenses of distributor of transferor corporation
The acquiring corporation shall be entitled to deduct, if it
were the distributor or transferor corporation, expenses deferred
under section 616 (relating to certain development expenditures)
if the distributor or transferor corporation has so elected.
(11) Contributions to pension plans, employees' annuity plans,
and stock bonus and profit-sharing plans
The acquiring corporation shall be considered to be the
distributor or transferor corporation after the date of
distribution or transfer for the purpose of determining the
amounts deductible under section 404 with respect to pension
plans, employees' annuity plans, and stock bonus and profit-
sharing plans.
(12) Recovery of tax benefit items
If the acquiring corporation is entitled to the recovery of any
amounts previously deducted by (or allowable as credits to) the
distributor or transferor corporation, the acquiring corporation
shall succeed to the treatment under section 111 which would
apply to such amounts in the hands of the distributor or
transferor corporation.
(13) Involuntary conversions under section 1033
The acquiring corporation shall be treated as the distributor
or transferor corporation after the date of distribution or
transfer for purposes of applying section 1033.
(14) Dividend carryover to personal holding company
The dividend carryover (described in section 564) to taxable
years ending after the date of distribution or transfer.
[(15) Repealed. Pub. L. 101-508, title XI, Sec. 11801(c)(10)(A),
Nov. 5, 1990, 104 Stat. 1388-526]
(16) Certain obligations of distributor or transferor corporation
If the acquiring corporation -
(A) assumes an obligation of the distributor or transferor
corporation which, after the date of the distribution or
transfer, gives rise to a liability, and
(B) such liability, if paid or accrued by the distributor or
transferor corporation, would have been deductible in computing
its taxable income,
the acquiring corporation shall be entitled to deduct such items
when paid or accrued, as the case may be, as if such corporation
were the distributor or transferor corporation. A corporation
which would have been an acquiring corporation under this section
if the date of distribution or transfer had occurred on or after
the effective date of the provisions of this subchapter
applicable to a liquidation or reorganization, as the case may
be, shall be entitled, even though the date of distribution or
transfer occurred before such effective date, to apply this
paragraph with respect to amounts paid or accrued in taxable
years beginning after December 31, 1953, on account of such
obligations of the distributor or transferor corporation. This
paragraph shall not apply if such obligations are reflected in
the amount of stock, securities, or property transferred by the
acquiring corporation to the transferor corporation for the
property of the transferor corporation.
(17) Deficiency dividend of personal holding company
If the acquiring corporation pays a deficiency dividend (as
defined in section 547(d)) with respect to the distributor or
transferor corporation, such distributor or transferor
corporation shall, with respect to such payments, be entitled to
the deficiency dividend deduction provided in section 547.
(18) Percentage depletion on extraction of ores or minerals from
the waste or residue of prior mining
The acquiring corporation shall be considered to be the
distributor or transferor corporation for the purpose of
determining the applicability of section 613(c)(3) (relating to
extraction of ores or minerals from the ground).
(19) Charitable contributions in excess of prior years'
limitation
Contributions made in the taxable year ending on the date of
distribution or transfer and the 4 prior taxable years by the
distributor or transferor corporation in excess of the amount
deductible under section 170(b)(2) for such taxable years shall
be deductible by the acquiring corporation for its taxable years
which begin after the date of distribution or transfer, subject
to the limitations imposed in section 170(b)(2). In applying the
preceding sentence, each taxable year of the distributor or
transferor corporation beginning on or before the date of
distribution or transfer shall be treated as a prior taxable year
with reference to the acquiring corporation's taxable years
beginning after such date.
[(20), (21) Repealed. Pub. L. 94-455, title XIX, Sec.
1901(a)(54), (b)(16), Oct. 4, 1976, 90 Stat. 1773, 1796]
(22) Successor insurance company
If the acquiring corporation is an insurance company taxable
under subchapter L, there shall be taken into account (to the
extent proper to carry out the purposes of this section and of
subchapter L, and under such regulations as may be prescribed by
the Secretary) the items required to be taken into account for
purposes of subchapter L in respect of the distributor or
transferor corporation.
(23) Deficiency dividend of regulated investment company or real
estate investment trust
If the acquiring corporation pays a deficiency dividend (as
defined in section 860(f)) with respect to the distributor or
transferor corporation, such distributor or transferor
corporation shall, with respect to such payments, be entitled to
the deficiency dividend deduction provided in section 860.
(24) Credit under section 38
The acquiring corporation shall take into account (to the
extent proper to carry out the purposes of this section and
section 38, and under such regulations as may be prescribed by
the Secretary) the items required to be taken into account for
purposes of section 38 in respect of the distributor or
transferor corporation.
(25) Credit under section 53
The acquiring corporation shall take into account (to the
extent proper to carry out the purposes of this section and
section 53, and under such regulations as may be prescribed by
the Secretary) the items required to be taken into account for
purposes of section 53 in respect of the distributor or
transferor corporation.
(26) Enterprise zone provisions
The acquiring corporation shall take into account (to the
extent proper to carry out the purposes of this section and
subchapter U, and under such regulations as may be prescribed by
the Secretary) the items required to be taken into account for
purposes of subchapter U in respect of the distributor or
transferor corporation.
(d) Operations loss carrybacks and carryovers of life insurance
companies
For application of this part to operations loss carrybacks
and carryovers of life insurance companies, see section 810.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 124; June 15, 1955, ch. 143,
Sec. 2(1), 69 Stat. 134; Jan. 28, 1956, ch. 15, Sec. 1, 70 Stat. 7;
Pub. L. 85-866, title I, Sec. 29(c), Sept. 2, 1958, 72 Stat. 1628;
Pub. L. 86-69, Sec. 3(c), June 25, 1959, 73 Stat. 139; Pub. L. 87-
834, Sec. 2(d), Oct. 16, 1962, 76 Stat. 971; Pub. L. 88-272, title
II, Secs. 209(d)(2), 225(i)(3), Feb. 26, 1964, 78 Stat. 46, 92;
Pub. L. 90-240, Sec. 5(d), Jan. 2, 1968, 81 Stat. 778; Pub. L. 91-
172, title V, Secs. 504(c)(2), 512(c), 521(f), Dec. 30, 1969, 83
Stat. 633, 639, 654; Pub. L. 92-178, title VI, Sec. 601(c)(3), Dec.
10, 1971, 85 Stat. 557; Pub. L. 94-455, title XVI, Sec. 1601(e),
title XIX, Secs. 1901(a)(54), (b)(16), (17), (21)(B), (33)(N),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1746, 1773, 1796, 1797,
1802, 1834; Pub. L. 95-30, title II, Sec. 202(d)(3)(A), May 23,
1977, 91 Stat. 148; Pub. L. 95-600, title III, Sec. 362(d)(2), Nov.
6, 1978, 92 Stat. 2851; Pub. L. 96-223, title II, Sec.
232(b)(2)(B), Apr. 2, 1980, 94 Stat. 276; Pub. L. 96-471, Sec.
2(b)(2), Oct. 19, 1980, 94 Stat. 2253; Pub. L. 96-589, Sec. 4(g),
Dec. 24, 1980, 94 Stat. 3404; Pub. L. 97-34, title II, Secs. 208,
221(b)(1)(B), title III, Sec. 331(d)(1)(B), Aug. 13, 1981, 95 Stat.
226, 246, 294; Pub. L. 97-248, title II, Sec. 224(c)(7), Sept. 3,
1982, 96 Stat. 489; Pub. L. 97-448, title I, Secs. 102(h)(3),
103(g)(2)(F), Jan. 12, 1983, 96 Stat. 2372, 2379; Pub. L. 98-369,
div. A, title II, Sec. 211(b)(4), title IV, Sec. 474(r)(11), July
18, 1984, 98 Stat. 754, 841; Pub. L. 99-514, title II, Sec.
231(d)(3)(F), title IV, Sec. 411(b)(2)(C)(iii), title VII, Sec.
701(e)(1), title XVIII, Sec. 1812(a)(3), Oct. 22, 1986, 100 Stat.
2179, 2227, 2342, 2833; Pub. L. 100-203, title X, Sec. 10202(c)(3),
Dec. 22, 1987, 101 Stat. 1330-392; Pub. L. 100-647, title I, Sec.
1002(a)(13), Nov. 10, 1988, 102 Stat. 3355; Pub. L. 101-239, title
VII, Sec. 7841(d)(10), Dec. 19, 1989, 103 Stat. 2428; Pub. L. 101-
508, title XI, Secs. 11801(c)(10)(A), 11812(b)(6), Nov. 5, 1990,
104 Stat. 1388-526, 1388-535; Pub. L. 103-66, title XIII, Sec.
13302(e), Aug. 10, 1993, 107 Stat. 556; Pub. L. 104-188, title I,
Sec. 1704(t)(26), Aug. 20, 1996, 110 Stat. 1888.)
-MISC1-
AMENDMENTS
1996 - Subsec. (c)(26), (27). Pub. L. 104-188 amended directory
language of Pub. L. 101-239. See 1989 Amendment note below.
1993 - Subsec. (c)(26). Pub. L. 103-66 added par. (26).
1990 - Subsec. (c)(6). Pub. L. 101-508, Sec. 11812(b)(6)(A),
substituted "sections 167 and 168" for "subsections (b), (j), and
(k) of section 167".
Subsec. (c)(15). Pub. L. 101-508, Sec. 11801(c)(10)(A), struck
out par. (15) "Indebtedness of certain personal holding companies"
which read as follows: "The acquiring corporation shall be
considered to be the distributor or transferor corporation for the
purpose of determining the applicability of subsection (c) of
section 545, relating to deduction with respect to payment of
certain indebtedness."
Subsec. (c)(24) to (26). Pub. L. 101-508, Sec. 11812(b)(6)(B),
redesignated pars. (25) and (26) as (24) and (25), respectively,
and struck out former par. (24) "Method of computing depreciation
deduction" which read as follows: "The acquiring corporation shall
be treated as the distributor or transferor corporation for
purposes of computing the deduction allowable under section 168(a)
on property acquired in a distribution or transfer with respect to
so much of the basis in the hands of the acquiring corporation as
does not exceed the adjusted basis in the hands of the distributor
or transferor corporation."
1989 - Subsec. (c)(26), (27). Pub. L. 101-239, as amended by Pub.
L. 104-188, redesignated par. (27) as (26).
1988 - Subsec. (c)(24). Pub. L. 100-647 substituted "depreciation
deduction" for "recovery allowance for recovery property" in
heading.
1987 - Subsec. (c)(8). Pub. L. 100-203 struck out "or 453A" after
"section 453" in two places.
1986 - Subsec. (c)(10). Pub. L. 99-514, Sec. 411(b)(2)(C)(iii),
struck out last sentence which read: "For the purpose of applying
the limitation provided in section 617(h), if, for any taxable
year, the distributor or transferor corporation was allowed a
deduction under section 617(a), the acquiring corporation shall be
deemed to have been allowed such deduction."
Subsec. (c)(12). Pub. L. 99-514, Sec. 1812(a)(3), amended par.
(12) generally. Prior to amendment, par. (12), recovery of bad
debts, prior taxes, or delinquency amounts, read as follows: "If
the acquiring corporation is entitled to the recovery of bad debts,
prior taxes, or delinquency amounts previously deducted or credited
by the distributor or transferor corporation, the acquiring
corporation shall include in its income such amounts as would have
been includible by the distributor or transferor corporation in
accordance with section 111 (relating to the recovery of bad debts,
prior taxes, and delinquency amounts)."
Subsec. (c)(25), (26). Pub. L. 99-514, Sec. 231(d)(3)(F),
redesignated par. (26) as (25). Former par. (25), relating to
credit under section 30, was struck out.
Subsec. (c)(27). Pub. L. 99-514, Sec. 701(e)(1), added par. (27).
1984 - Subsec. (c)(23). Pub. L. 98-369, Sec. 474(r)(11)(B),
redesignated par. (25) as (23). Former par. (23), relating to
credit under section 38 for investment in certain depreciable
property, was struck out.
Subsec. (c)(24). Pub. L. 98-369, Sec. 474(r)(11)(B), redesignated
par. (28) as (24). Former par. (24), relating to credit under
section 40 for work incentive program expenses, was struck out.
Subsec. (c)(25). Pub. L. 98-369, Sec. 474(r)(11)(B), (C),
redesignated par. (29) as (25), and substituted "30" for "44F"
wherever appearing in heading and text. Former par. (25)
redesignated (23).
Subsec. (c)(26). Pub. L. 98-369, Sec. 474(r)(11)(D), added par.
(26). Former par. (26), relating to credit under section 44B for
employment of certain new employees, was struck out.
Subsec. (c)(27). Pub. L. 98-369, Sec. 474(r)(11)(A), struck out
par. (27) relating to credit under section 44E for alcohol used as
fuel.
Subsec. (c)(28), (29). Pub. L. 98-369, Sec. 474(r)(11)(B),
redesignated pars. (28) and (29) as (24) and (25), respectively.
Subsec. (c)(30). Pub. L. 98-369, Sec. 474(r)(11)(A), struck out
par. (30) relating to credit under section 44G.
Subsec. (d). Pub. L. 98-369, Sec. 211(b)(4), substituted "section
810" for "section 812(f)".
1983 - Subsec. (c)(28), (29). Pub. L. 97-448, Sec. 102(h)(3),
redesignated par. (28), relating to credit under section 44F, as
(29). Former par. (29) redesignated (30).
Subsec. (c)(30). Pub. L. 97-448, Sec. 103(g)(2)(F), redesignated
former par. (29), relating to credit under section 44G, as (30).
1982 - Subsec. (a)(1). Pub. L. 97-248 struck out ", except in a
case in which the basis of the assets distributed is determined
under section 334(b)(2)" after "applies".
1981 - Subsec. (c)(28). Pub. L. 97-34, Sec. 208, added par. (28)
relating to recovery allowance for recovery property.
Pub. L. 97-34, Sec. 221(b)(1)(B), added par. (28) relating to
credit under section 44F.
Subsec. (c)(29). Pub. L. 97-34, Sec. 331(d)(1)(B), added par.
(29).
1980 - Subsec. (a). Pub. L. 96-589, Sec. 4(g)(2), inserted
provisions that a reorganization shall be treated as meeting the
requirements of subparagraph (D) or (G) of section 368(a)(1) only
if the requirements of subparagraphs (A) and (B) of section
354(b)(1) are met.
Subsec. (a)(2). Pub. L. 96-589, Sec. 4(g)(1), substituted
"subparagraph (A), (C), (D), (F), or (G) of section 368(a)(1)" for
"subparagraph (A), (C), (D) (but only if the requirements of
subparagraphs (A) and (B) of section 354(b)(1) are met), or (F) of
section 368(a)(1)".
Subsec. (c)(8). Pub. L. 96-471 substituted "reports on the
installment basis under section 453 or 453A" for "has elected,
under section 453, to report on the installment basis" and "for
purposes of section 453 or 453A" for "for purposes of section 453."
Subsec. (c)(27). Pub. L. 96-223 added par. (27).
1978 - Subsec. (c)(25). Pub. L. 95-600 substituted "regulated
investment company or real estate investment trust" for "real
estate investment trust" in heading, and in text "section 860(f)"
for "section 859(d)" and "section 860" for "section 859".
1977 - Subsec. (c)(26). Pub. L. 95-30 added par. (26).
1976 - Subsec. (b)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c)(3). Pub. L. 94-455, Sec. 1901(b)(33)(N), substituted
in subpars. (B) and (C) "capital gain net income" for "net capital
gain".
Subsec. (c)(4), (5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (c)(10). Pub. L. 94-455, Sec. 1901(b)(21(B), among other
changes, substituted reference to section 616 (relating to certain
development expenditures) if the distributor or transferor
corporation has so elected for reference to sections 615 and 616
(relating to pre-1970 exploration expenditures and development
expenditures, respectively) if the distributor or transferor
corporation has so elected and struck out provisions that if, for
any taxable year, the distributor of transferor corporation was
allowed or made the election of the deduction under section 615 of
this title, the acquiring corporation shall be deemed to have been
allowed or to have made such election of the deduction under
section 615 of this title.
Subsec. (c)(15). Pub. L. 94-455, Sec. 1901(b)(17), substituted
"subsection (c)" for "subsections (b)(7) and (c)".
Subsec. (c)(20). Pub. L. 94-455, Sec. 1901(a)(54), struck out
par. (20) which related to carry-over of unused pension trust
deductions in certain cases.
Subsec. (c)(21). Pub. L. 94-455, Sec. 1901(b)(16), struck out
par. (21) which related to pre-1954 adjustments resulting from
change in method of accounting.
Subsec. (c)(22) to (24). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c)(25). Pub. L. 94-455, Sec. 1601(e), added par. (25).
1971 - Subsec. (c)(24). Pub. L. 92-178 added par. (24).
1969 - Subsec. (b)(3). Pub. L. 91-172, Sec. 512(c), substituted
"a net operating loss or a net capital loss" for "a net operating
loss".
Subsec. (c)(6). Pub. L. 91-172, Sec. 521(f), substituted
"subsections (b), (j) and (k) of section 167" for "paragraphs (2),
(3) and (4) of section 167(b)" and inserted reference to adjusted
basis in the hand of the distributor or transferor corporation.
Subsec. (c)(10). Pub. L. 91-172, Sec. 504(c)(2), substituted
"Treatment of certain mining exploration and development expenses
of distributor or transferor corporation" for "Treatment of certain
expenses deferred by the election of distributor or transferor
corporation" in heading, limited deduction of expenses deferred
under sections 615 and 616 of this title by the acquiring
corporation as if it were the distributor or transferor corporation
to pre-1970 exploration and development expenditures, and inserted
provision that if distributor or transferor corporation, for any
taxable year, was allowed the deduction in sections 615(a) or
617(a) of this title or made the election provided in section
615(b) of this title, acquiring corporation shall be deemed to have
been allowed such deduction or deductions or to have made such
election, as the case may be, for the purpose of applying the
limitation provided in section 617 of this title.
1968 - Subsec. (c)(22). Pub. L. 90-240 substituted successor
insurance companies for successor life insurance companies as the
business enterprise covered, substituted reference to insurance
companies taxable under subchapter L for reference to life
insurance companies as defined in section 801(a), and substituted
reference to the purposes of this section and of subchapter L for
reference to the purposes of this section and part I of subchapter
L.
1964 - Subsec. (c)(15). Pub. L. 88-272, Sec. 225(i)(3),
substituted "subsections (b)(7) and (c) of section 545, relating to
deductions with respect to payment of certain indebtedness" for
"section 545(b)(7), relating to a deduction for payment of certain
indebtedness incurred before Jan. 1, 1934".
Subsec. (c)(19). Pub. L. 88-272, Sec. 209(d)(2), permitted
deductions for contributions made in the taxable year and in 4
prior taxable years, instead of one prior taxable year, and
provided that each taxable year beginning on or before the
distribution or transfer date shall be treated as a prior taxable
year with reference to the acquiring corporation's taxable years
beginning after such date.
1962 - Subsec. (c)(23). Pub. L. 87-834 added par. (23).
1959 - Subsec. (c)(22). Pub. L. 86-69, Sec. 3(c)(1), added par.
(22).
Subsec. (d). Pub. L. 86-69, Sec. 3(c)(2), added subsec. (d).
1958 - Subsec. (c)(21). Pub. L. 85-866 added par. (21).
1956 - Subsec. (c)(20). Act Jan. 28, 1956 added par. (20).
1955 - Subsec. (c)(7). Act June 15, 1955, repealed par. (7) which
related to carryover of prepaid income.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11812(b)(6) of Pub. L. 101-508 applicable to
property placed in service after Nov. 5, 1990, but not applicable
to any property to which section 168 of this title does not apply
by reason of subsec. (f)(5) of section 168, and not applicable to
rehabilitation expenditures described in section 252(f)(5) of Pub.
L. 99-514, see section 11812(c) of Pub. L. 101-508, set out as a
note under section 42 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dispositions in
taxable years beginning after Dec. 31, 1987, with special rules for
nondealers and coordination with Tax Reform Act of 1986, see
section 10202(e)(1), (3), (5) of Pub. L. 100-203, set out as a note
under section 453 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 231(d)(3)(F) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1985, see section 231(g) of
Pub. L. 99-514, set out as a note under section 41 of this title.
Amendment by section 411(b)(2)(C)(iii) of Pub. L. 99-514
applicable, except as otherwise provided, to costs paid or incurred
after Dec. 31, 1986, in taxable years ending after such date, see
section 411(c) of Pub. L. 99-514, set out as a note under section
263 of this title.
Amendment by section 701(e)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L. 99-
514, set out as an Effective Date note under section 55 of this
title.
Amendment by section 1812(a)(3) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 211(b)(4) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 215 of
Pub. L. 98-369, set out as an Effective Date note under section 801
of this title.
Amendment by section 474(r)(11) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to any target corporation
with respect to which the acquisition date occurs after Aug. 31,
1982, with special rules for certain acquisitions before Sept. 1,
1982, and certain acquisitions of financial institutions in which
there was a binding contract on July 22, 1982, to acquire control,
see section 224(d) of Pub. L. 97-248, set out as an Effective Date
note under section 338 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 208 of Pub. L. 97-34 applicable to property
placed in service after Dec. 31, 1980, in taxable years ending
after that date, see section 209(a) of Pub. L. 97-34, set out as an
Effective Date note under section 168 of this title.
Amendment by section 221(b)(1)(B) of Pub. L. 97-34 applicable to
amounts paid or incurred after June 30, 1981, see section 221(d) of
Pub. L. 97-34, as amended, set out as an Effective Date note under
section 41 of this title.
Amendment by section 331(d)(1)(B) of Pub. L. 97-34 applicable to
taxable years beginning after Dec. 31, 1981, see section 339 of
Pub. L. 97-34, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-589 applicable to bankruptcy cases or
similar judicial proceeding commencing after Dec. 31, 1980, with
exception permitting the debtor to make the amendment applicable to
such cases or proceeding commencing after Sept. 30, 1979, see
section 7(c)(1), (f) of Pub. L. 96-589, set out as a note under
section 108 of this title.
For effective date of amendment by Pub. L. 96-471, see section
6(a)(1) of Pub. L. 96-471, set out as an Effective Date note under
section 453 of this title.
Amendment by Pub. L. 96-223 applicable to sales or uses after
Sept. 30, 1980, in taxable years ending after such date, see
section 232(h)(1) of Pub. L. 96-223, set out as an Effective Date
note under section 40 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable with respect to
determinations (as defined in section 860(e) of this title) after
Nov. 6, 1978, see section 362(e) of Pub. L. 95-600, set out as an
Effective Date note under section 860 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, and to credit carrybacks from such years, see
section 202(e) of Pub. L. 95-30, set out as an Effective Date note
under section 51 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1601(e) of Pub. L. 94-
455, see section 1608(a) of Pub. L. 94-455, set out as a note
under section 857 of this title.
Amendment by section 1901(a)(54), (b)(16), (17), (21)(B), (33)(N)
of Pub. L. 94-455 effective for taxable years beginning after Dec.
31, 1976, see section 1901(d) of Pub. L. 94-455, set out as a note
under section 2 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 601(f) of Pub. L. 92-178 provided that: "The amendments
made by this section [enacting sections 40, 50A, and 50B of this
title and amending this section and sections 56, 6411, 6501, 6511,
6601, and 6611 of this title] shall apply to taxable years
beginning after December 31, 1971."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 504(c)(2) of Pub. L. 91-172 applicable with
respect to exploration expenditures paid or incurred after Dec. 31,
1969, see section 504(d)(1) of Pub. L. 91-172, set out as a note
under section 243 of this title.
Amendment by section 512(c) of Pub. L. 91-172 applicable with
respect to net capital losses sustained in taxable years beginning
after Dec. 31, 1969, see section 512(g) of Pub. L. 91-172, set out
as a note under section 1212 of this title.
Amendment by section 521(f) of Pub. L. 91-172 applicable with
respect to taxable years ending after July 24, 1969, see section
521(g) of Pub. L. 91-172, set out as a note under section 167 of
this title.
EFFECTIVE DATE OF 1968 AMENDMENT
Amendment by Pub. L. 90-240 applicable to taxable years beginning
after Dec. 31, 1966, see section 5(e) of Pub. L. 90-240, set out as
a note under section 832 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 225(i)(3) of Pub. L. 88-272 applicable to
taxable years beginning after Dec. 31, 1963, see section 225(l) of
Pub. L. 88-272 set out as a note under section 316 of this title.
Amendment by section 209(d)(2) of Pub. L. 88-272 applicable to
taxable years beginning after Dec. 31, 1963, with respect to
contributions paid or treated as paid under section 170(a)(2) of
this title, in taxable years beginning after Dec. 31, 1961, see
section 209(f)(2) of Pub. L. 88-272, set out as a note under
section 170 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years ending after Dec. 31, 1961, see section 2(h) of Pub. L. 87-
834, set out as an Effective Date note under section 46 of this
title.
EFFECTIVE DATE OF 1959 AMENDMENT
Section 4 of Pub. L. 86-69 provided that: "Except as otherwise
provided in this Act, the amendments made by this Act [amending
this section, part I (Sec. 801 et seq.) of subchapter L, and
sections 841, 842, 891, 1016, 1201, 1232, 1504, 4371, and 6501 of
this title] shall apply only with respect to taxable years
beginning after December 31, 1957."
EFFECTIVE DATE OF 1958 AMENDMENT
For effective date of amendment by Pub. L. 85-866, see section
29(d) of Pub. L. 85-866, set out as a note under section 481 of
this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Section 2 of act Jan. 28, 1956, provided that: "The amendments
made by the first section of this Act [amending this section] shall
reply with respect to taxable years beginning after December 31,
1953, and ending after August 16, 1954."
EFFECTIVE DATE OF 1955 AMENDMENT
Section 3 of act June 15, 1955, provided that: "The amendments
made by this Act [amending this section and repealing sections 452
and 462 of this title] shall apply with respect to taxable years
beginning after December 31, 1953, and ending after August 16,
1954."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
Section 4 of act June 15, 1955, as amended by act Oct. 22, 1986,
Pub. L. 99-514, Sec. 2, 100 Stat. 2095, provided:
"(a) Filing of Statement. - If -
"(1) the amount of any tax required to be paid for any taxable
year ending on or before the date of the enactment of this Act
[June 15, 1955] is increased by reason of the enactment of this
Act [amending this section and repealing sections 452 and 462],
and
"(2) the last date prescribed for payment of such tax (or any
installment thereof) is before December 15, 1955, then the
taxpayer shall, on or before December 15, 1955, file a statement
which shows the increase in the amount of such tax required to be
paid by reason of the enactment of this Act.
"(b) Form and Effect of Statement. -
"(1) Form of statement, etc. - The statement required by
subsection (a) shall be filed at the place fixed for filing the
return. Such statement shall be in such form, and shall include
such information necessary or appropriate to show the increase in
the amount of the tax required to be paid for the taxable year by
reason of the enactment of this Act, as the Secretary of the
Treasury or his delegate shall by regulations prescribe.
"(2) Treatment as amount shown on return. - The amount shown on
a statement filed under subsection (a) as the increase in the
amount of the tax required to be paid for the taxable year by
reason of the enactment of this Act shall, for all purposes of
the internal revenue laws, be treated as tax shown on the return.
Notwithstanding the preceding sentence, that portion of the
amount of increase in tax for any taxable year which is
attributable to a decrease (by reason of the enactment of this
Act) in the net operating loss for a succeeding taxable year
shall not be treated as tax shown on the return.
"(3) Waiver of interest in case of payment on or before
december 15, 1955. - If the taxpayer, on or before December 15,
1955, files the statement referred to in subsection (a) and pays
in full that portion of the amount shown thereon for which the
last date prescribed for payment is before December 15, 1955,
then for purposes of computing interest (other than interest on
overpayments) such portion shall be treated as having been paid
on the last date prescribed for payment. This paragraph shall not
apply if the amount shown on the statement as the increase in the
amount of the tax required to be paid for the taxable year by
reason of the enactment of this Act is greater than the actual
increase unless the taxpayer establishes, to the satisfaction of
the Secretary of the Treasury or his delegate, that his
computation of the greater amount was based upon a reasonable
interpretation and application of sections 452 and 462 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] [sections
452 and 462 of this title], as those sections existed before the
enactment of this Act.
"(c) Special Rules. -
"(1) Interest for period before enactment. - Interest shall not
be imposed on the amount of any increase in tax resulting from
the enactment of this Act for any period before the day after the
date of the enactment of this Act [June 15, 1955].
"(2) Estimated tax. - Any addition to the tax under section
294(d) of the Internal Revenue Code of 1939 [section 294(d) of
former Title 26, Internal Revenue Code], shall be computed as if
this Act had not been enacted. In the case of any installment for
which the last date prescribed for payment is before December 15,
1955, any addition to the tax under section 6654 of the Internal
Revenue Code of 1986 [section 6654 of this title], shall be
computed as if this Act had not been enacted.
"(3) Treatment of certain payments which taxpayer is required
to make. - If -
"(A) the taxpayer is required to make a payment (or an
additional payment) to another person by reason of the
enactment of this Act, and
"(B) the Internal Revenue Code of 1986 [this title]
prescribes a period, which expires after the close of the
taxable year, within which the taxpayer must make such payment
(or additional payment) if the amount thereof is to be taken
into account (as a deduction or otherwise) in computing taxable
income for such taxable year,
then, subject to such regulations as the Secretary of the
Treasury or his delegate may prescribe, if such payment (or
additional payment) is made on or before December 15, 1955, it
shall be treated as having been made within the period prescribed
by such Code.
"(4) Treatment of certain dividends. - Subject to such
regulations as the Secretary of the Treasury or his delegate may
prescribe, for purposes of section 561(a)(1) of the Internal
Revenue Code of 1986 [section 561(a)(1) of this title], dividends
paid after the 15th day of the third month following the close of
the taxable year and on or before December 15, 1955, may be
treated as having been paid on the last day of the taxable year,
but only to the extent (A) that such dividends are attributable
to an increase in taxable income for the taxable year resulting
from the enactment of this Act, and (B) elected by the taxpayer.
"(5) Determination of date prescribed. - For purposes of this
section, the determination of the last date prescribed for
payment or for filing a return shall be made without regard to
any extension of time therefor and without regard to any
provision of this section.
"(6) Regulations. - For requirement that the Secretary of the
Treasury or his delegate shall prescribe all rules and
regulations as may be necessary by reason of the enactment of
this Act, see section 7805(a) of the Internal Revenue Code of
1986 [section 7805(a) of this title]."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(1) of Pub. L. 99-
514 notwithstanding any treaty obligation of the United States in
effect on Oct. 22, 1986, with provision that for such purposes any
amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 382 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART V - CARRYOVERS
-HEAD-
Sec. 382. Limitation on net operating loss carryforwards and
certain built-in losses following ownership change
-STATUTE-
(a) General rule
The amount of the taxable income of any new loss corporation for
any post-change year which may be offset by pre-change losses shall
not exceed the section 382 limitation for such year.
(b) Section 382 limitation
For purposes of this section -
(1) In general
Except as otherwise provided in this section, the section 382
limitation for any post-change year is an amount equal to -
(A) the value of the old loss corporation, multiplied by
(B) the long-term tax-exempt rate.
(2) Carryforward of unused limitation
If the section 382 limitation for any post-change year exceeds
the taxable income of the new loss corporation for such year
which was offset by pre-change losses, the section 382 limitation
for the next post-change year shall be increased by the amount of
such excess.
(3) Special rule for post-change year which includes change date
In the case of any post-change year which includes the change
date -
(A) Limitation does not apply to taxable income before change
Subsection (a) shall not apply to the portion of the taxable
income for such year which is allocable to the period in such
year on or before the change date. Except as provided in
subsection (h)(5) and in regulations, taxable income shall be
allocated ratably to each day in the year.
(B) Limitation for period after change
For purposes of applying the limitation of subsection (a) to
the remainder of the taxable income for such year, the section
382 limitation shall be an amount which bears the same ratio to
such limitation (determined without regard to this paragraph)
as -
(i) the number of days in such year after the change date,
bears to
(ii) the total number of days in such year.
(c) Carryforwards disallowed if continuity of business requirements
not met
(1) In general
Except as provided in paragraph (2), if the new loss
corporation does not continue the business enterprise of the old
loss corporation at all times during the 2-year period beginning
on the change date, the section 382 limitation for any post-
change year shall be zero.
(2) Exception for certain gains
The section 382 limitation for any post-change year shall not
be less than the sum of -
(A) any increase in such limitation under -
(i) subsection (h)(1)(A) for recognized built-in gains for
such year, and
(ii) subsection (h)(1)(C) for gain recognized by reason of
an election under section 338, plus
(B) any increase in such limitation under subsection (b)(2)
for amounts described in subparagraph (A) which are carried
forward to such year.
(d) Pre-change loss and post-change year
For purposes of this section -
(1) Pre-change loss
The term "pre-change loss" means -
(A) any net operating loss carryforward of the old loss
corporation to the taxable year ending with the ownership
change or in which the change date occurs, and
(B) the net operating loss of the old loss corporation for
the taxable year in which the ownership change occurs to the
extent such loss is allocable to the period in such year on or
before the change date.
Except as provided in subsection (h)(5) and in regulations, the
net operating loss shall, for purposes of subparagraph (B), be
allocated ratably to each day in the year.
(2) Post-change year
The term "post-change year" means any taxable year ending after
the change date.
(e) Value of old loss corporation
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, the value of
the old loss corporation is the value of the stock of such
corporation (including any stock described in section 1504(a)(4))
immediately before the ownership change.
(2) Special rule in the case of redemption or other corporate
contraction
If a redemption or other corporate contraction occurs in
connection with an ownership change, the value under paragraph
(1) shall be determined after taking such redemption or other
corporate contraction into account.
(3) Treatment of foreign corporations
Except as otherwise provided in regulations, in determining the
value of any old loss corporation which is a foreign corporation,
there shall be taken into account only items treated as connected
with the conduct of a trade or business in the United States.
(f) Long-term tax-exempt rate
For purposes of this section -
(1) In general
The long-term tax-exempt rate shall be the highest of the
adjusted Federal long-term rates in effect for any month in the 3-
calendar-month period ending with the calendar month in which
the change date occurs.
(2) Adjusted Federal long-term rate
For purposes of paragraph (1), the term "adjusted Federal long-
term rate" means the Federal long-term rate determined under
section 1274(d), except that -
(A) paragraphs (2) and (3) thereof shall not apply, and
(B) such rate shall be properly adjusted for differences
between rates on long-term taxable and tax-exempt obligations.
(g) Ownership change
For purposes of this section -
(1) In general
There is an ownership change if, immediately after any owner
shift involving a 5-percent shareholder or any equity structure
shift -
(A) the percentage of the stock of the loss corporation owned
by 1 or more 5-percent shareholders has increased by more than
50 percentage points, over
(B) the lowest percentage of stock of the loss corporation
(or any predecessor corporation) owned by such shareholders at
any time during the testing period.
(2) Owner shift involving 5-percent shareholder
There is an owner shift involving a 5-percent shareholder if -
(A) there is any change in the respective ownership of stock
of a corporation, and
(B) such change affects the percentage of stock of such
corporation owned by any person who is a 5-percent shareholder
before or after such change.
(3) Equity structure shift defined
(A) In general
The term "equity structure shift" means any reorganization
(within the meaning of section 368). Such term shall not
include -
(i) any reorganization described in subparagraph (D) or (G)
of section 368(a)(1) unless the requirements of section
354(b)(1) are met, and
(ii) any reorganization described in subparagraph (F) of
section 368(a)(1).
(B) Taxable reorganization-type transactions, etc.
To the extent provided in regulations, the term "equity
structure shift" includes taxable reorganization-type
transactions, public offerings, and similar transactions.
(4) Special rules for application of subsection
(A) Treatment of less than 5-percent shareholders
Except as provided in subparagraphs (B)(i) and (C), in
determining whether an ownership change has occurred, all stock
owned by shareholders of a corporation who are not 5-percent
shareholders of such corporation shall be treated as stock
owned by 1 5-percent shareholder of such corporation.
(B) Coordination with equity structure shifts
For purposes of determining whether an equity structure shift
(or subsequent transaction) is an ownership change -
(i) Less than 5-percent shareholders
Subparagraph (A) shall be applied separately with respect
to each group of shareholders (immediately before such equity
structure shift) of each corporation which was a party to the
reorganization involved in such equity structure shift.
(ii) Acquisitions of stock
Unless a different proportion is established, acquisitions
of stock after such equity structure shift shall be treated
as being made proportionately from all shareholders
immediately before such acquisition.
(C) Coordination with other owner shifts
Except as provided in regulations, rules similar to the rules
of subparagraph (B) shall apply in determining whether there
has been an owner shift involving a 5-percent shareholder and
whether such shift (or subsequent transaction) results in an
ownership change.
(D) Treatment of worthless stock
If any stock held by a 50-percent shareholder is treated by
such shareholder as becoming worthless during any taxable year
of such shareholder and such stock is held by such shareholder
as of the close of such taxable year, for purposes of
determining whether an ownership change occurs after the close
of such taxable year, such shareholder -
(i) shall be treated as having acquired such stock on the
1st day of his 1st succeeding taxable year, and
(ii) shall not be treated as having owned such stock during
any prior period.
For purposes of the preceding sentence, the term "50-percent
shareholder" means any person owning 50 percent or more of the
stock of the corporation at any time during the 3-year period
ending on the last day of the taxable year with respect to
which the stock was so treated.
(h) Special rules for built-in gains and losses and section 338
gains
For purposes of this section -
(1) In general
(A) Net unrealized built-in gain
(i) In general
If the old loss corporation has a net unrealized built-in
gain, the section 382 limitation for any recognition period
taxable year shall be increased by the recognized built-in
gains for such taxable year.
(ii) Limitation
The increase under clause (i) for any recognition period
taxable year shall not exceed -
(I) the net unrealized built-in gain, reduced by
(II) recognized built-in gains for prior years ending in
the recognition period.
(B) Net unrealized built-in loss
(i) In general
If the old loss corporation has a net unrealized built-in
loss, the recognized built-in loss for any recognition period
taxable year shall be subject to limitation under this
section in the same manner as if such loss were a pre-change
loss.
(ii) Limitation
Clause (i) shall apply to recognized built-in losses for
any recognition period taxable year only to the extent such
losses do not exceed -
(I) the net unrealized built-in loss, reduced by
(II) recognized built-in losses for prior taxable years
ending in the recognition period.
(C) Special rules for certain section 338 gains
If an election under section 338 is made in connection with
an ownership change and the net unrealized built-in gain is
zero by reason of paragraph (3)(B), then, with respect to such
change, the section 382 limitation for the post-change year in
which gain is recognized by reason of such election shall be
increased by the lesser of -
(i) the recognized built-in gains by reason of such
election, or
(ii) the net unrealized built-in gain (determined without
regard to paragraph (3)(B)).
(2) Recognized built-in gain and loss
(A) Recognized built-in gain
The term "recognized built-in gain" means any gain recognized
during the recognition period on the disposition of any asset
to the extent the new loss corporation establishes that -
(i) such asset was held by the old loss corporation
immediately before the change date, and
(ii) such gain does not exceed the excess of -
(I) the fair market value of such asset on the change
date, over
(II) the adjusted basis of such asset on such date.
(B) Recognized built-in loss
The term "recognized built-in loss" means any loss recognized
during the recognition period on the disposition of any asset
except to the extent the new loss corporation establishes that -
(i) such asset was not held by the old loss corporation
immediately before the change date, or
(ii) such loss exceeds the excess of -
(I) the adjusted basis of such asset on the change date,
over
(II) the fair market value of such asset on such date.
Such term includes any amount allowable as depreciation,
amortization, or depletion for any period within the
recognition period except to the extent the new loss
corporation establishes that the amount so allowable is not
attributable to the excess described in clause (ii).
(3) Net unrealized built-in gain and loss defined
(A) Net unrealized built-in gain and loss
(i) In general
The terms "net unrealized built-in gain" and "net
unrealized built-in loss" mean, with respect to any old loss
corporation, the amount by which -
(I) the fair market value of the assets of such
corporation immediately before an ownership change is more
or less, respectively, than
(II) the aggregate adjusted basis of such assets at such
time.
(ii) Special rule for redemptions or other corporate
contractions
If a redemption or other corporate contraction occurs in
connection with an ownership change, to the extent provided
in regulations, determinations under clause (i) shall be made
after taking such redemption or other corporate contraction
into account.
(B) Threshold requirement
(i) In general
If the amount of the net unrealized built-in gain or net
unrealized built-in loss (determined without regard to this
subparagraph) of any old loss corporation is not greater than
the lesser of -
(I) 15 percent of the amount determined for purposes of
subparagraph (A)(i)(I), or
(II) $10,000,000,
the net unrealized built-in gain or net unrealized built-in
loss shall be zero.
(ii) Cash and cash items not taken into account
In computing any net unrealized built-in gain or net
unrealized built-in loss under clause (i), except as provided
in regulations, there shall not be taken into account -
(I) any cash or cash item, or
(II) any marketable security which has a value which does
not substantially differ from adjusted basis.
(4) Disallowed loss allowed as a carryforward
If a deduction for any portion of a recognized built-in loss is
disallowed for any post-change year, such portion -
(A) shall be carried forward to subsequent taxable years
under rules similar to the rules for the carrying forward of
net operating losses (or to the extent the amount so disallowed
is attributable to capital losses, under rules similar to the
rules for the carrying forward of net capital losses), but
(B) shall be subject to limitation under this section in the
same manner as a pre-change loss.
(5) Special rules for post-change year which includes change date
For purposes of subsection (b)(3) -
(A) in applying subparagraph (A) thereof, taxable income
shall be computed without regard to recognized built-in gains
to the extent such gains increased the section 382 limitation
for the year (or recognized built-in losses to the extent such
losses are treated as pre-change losses), and gain described in
paragraph (1)(C), for the year, and
(B) in applying subparagraph (B) thereof, the section 382
limitation shall be computed without regard to recognized built-
in gains, and gain described in paragraph (1)(C), for the
year.
(6) Treatment of certain built-in items
(A) Income items
Any item of income which is properly taken into account
during the recognition period but which is attributable to
periods before the change date shall be treated as a recognized
built-in gain for the taxable year in which it is properly
taken into account.
(B) Deduction items
Any amount which is allowable as a deduction during the
recognition period (determined without regard to any carryover)
but which is attributable to periods before the change date
shall be treated as a recognized built-in loss for the taxable
year for which it is allowable as a deduction.
(C) Adjustments
The amount of the net unrealized built-in gain or loss shall
be properly adjusted for amounts which would be treated as
recognized built-in gains or losses under this paragraph if
such amounts were properly taken into account (or allowable as
a deduction) during the recognition period.
(7) Recognition period, etc.
(A) Recognition period
The term "recognition period" means, with respect to any
ownership change, the 5-year period beginning on the change
date.
(B) Recognition period taxable year
The term "recognition period taxable year" means any taxable
year any portion of which is in the recognition period.
(8) Determination of fair market value in certain cases
If 80 percent or more in value of the stock of a corporation is
acquired in 1 transaction (or in a series of related transactions
during any 12-month period), for purposes of determining the net
unrealized built-in loss, the fair market value of the assets of
such corporation shall not exceed the grossed up amount paid for
such stock properly adjusted for indebtedness of the corporation
and other relevant items.
(9) Tax-free exchanges or transfers
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection where
property held on the change date was acquired (or is subsequently
transferred) in a transaction where gain or loss is not
recognized (in whole or in part).
(i) Testing period
For purposes of this section -
(1) 3-year period
Except as otherwise provided in this section, the testing
period is the 3-year period ending on the day of any owner shift
involving a 5-percent shareholder or equity structure shift.
(2) Shorter period where there has been recent ownership change
If there has been an ownership change under this section, the
testing period for determining whether a 2nd ownership change has
occurred shall not begin before the 1st day following the change
date for such earlier ownership change.
(3) Shorter period where all losses arise after 3-year period
begins
The testing period shall not begin before the earlier of the
1st day of the 1st taxable year from which there is a
carryforward of a loss or of an excess credit to the 1st post-
change year or the taxable year in which the transaction being
tested occurs. Except as provided in regulations, this paragraph
shall not apply to any loss corporation which has a net
unrealized built-in loss (determined after application of
subsection (h)(3)(B)).
(j) Change date
For purposes of this section, the change date is -
(1) in the case where the last component of an ownership change
is an owner shift involving a 5-percent shareholder, the date on
which such shift occurs, and
(2) in the case where the last component of an ownership change
is an equity structure shift, the date of the reorganization.
(k) Definitions and special rules
For purposes of this section -
(1) Loss corporation
The term "loss corporation" means a corporation entitled to use
a net operating loss carryover or having a net operating loss for
the taxable year in which the ownership change occurs. Except to
the extent provided in regulations, such term includes any
corporation with a net unrealized built-in loss.
(2) Old loss corporation
The term "old loss corporation" means any corporation -
(A) with respect to which there is an ownership change, and
(B) which (before the ownership change) was a loss
corporation.
(3) New loss corporation
The term "new loss corporation" means a corporation which
(after an ownership change) is a loss corporation. Nothing in
this section shall be treated as implying that the same
corporation may not be both the old loss corporation and the new
loss corporation.
(4) Taxable income
Taxable income shall be computed with the modifications set
forth in section 172(d).
(5) Value
The term "value" means fair market value.
(6) Rules relating to stock
(A) Preferred stock
Except as provided in regulations and subsection (e), the
term "stock" means stock other than stock described in section
1504(a)(4).
(B) Treatment of certain rights, etc.
The Secretary shall prescribe such regulations as may be
necessary -
(i) to treat warrants, options, contracts to acquire stock,
convertible debt interests, and other similar interests as
stock, and
(ii) to treat stock as not stock.
(C) Determinations on basis of value
Determinations of the percentage of stock of any corporation
held by any person shall be made on the basis of value.
(7) 5-percent shareholder
The term "5-percent shareholder" means any person holding 5
percent or more of the stock of the corporation at any time
during the testing period.
(l) Certain additional operating rules
For purposes of this section -
(1) Certain capital contributions not taken into account
(A) In general
Any capital contribution received by an old loss corporation
as part of a plan a principal purpose of which is to avoid or
increase any limitation under this section shall not be taken
into account for purposes of this section.
(B) Certain contributions treated as part of plan
For purposes of subparagraph (A), any capital contribution
made during the 2-year period ending on the change date shall,
except as provided in regulations, be treated as part of a plan
described in subparagraph (A).
(2) Ordering rules for application of section
(A) Coordination with section 172(b) carryover rules
In the case of any pre-change loss for any taxable year
(hereinafter in this subparagraph referred to as the "loss
year") subject to limitation under this section, for purposes
of determining under the 2nd sentence of section 172(b)(2) the
amount of such loss which may be carried to any taxable year,
taxable income for any taxable year shall be treated as not
greater than -
(i) the section 382 limitation for such taxable year,
reduced by
(ii) the unused pre-change losses for taxable years
preceding the loss year.
Similar rules shall apply in the case of any credit or loss
subject to limitation under section 383.
(B) Ordering rule for losses carried from same taxable year
In any case in which -
(i) a pre-change loss of a loss corporation for any taxable
year is subject to a section 382 limitation, and
(ii) a net operating loss of such corporation from such
taxable year is not subject to such limitation,
taxable income shall be treated as having been offset first by
the loss subject to such limitation.
(3) Operating rules relating to ownership of stock
(A) Constructive ownership
Section 318 (relating to constructive ownership of stock)
shall apply in determining ownership of stock, except that -
(i) paragraphs (1) and (5)(B) of section 318(a) shall not
apply and an individual and all members of his family
described in paragraph (1) of section 318(a) shall be treated
as 1 individual for purposes of applying this section,
(ii) paragraph (2) of section 318(a) shall be applied -
(I) without regard to the 50-percent limitation contained
in subparagraph (C) thereof, and
(II) except as provided in regulations, by treating stock
attributed thereunder as no longer being held by the entity
from which attributed,
(iii) paragraph (3) of section 318(a) shall be applied only
to the extent provided in regulations,
(iv) except to the extent provided in regulations, an
option to acquire stock shall be treated as exercised if such
exercise results in an ownership change, and
(v) in attributing stock from an entity under paragraph (2)
of section 318(a), there shall not be taken into account -
(I) in the case of attribution from a corporation, stock
which is not treated as stock for purposes of this section,
or
(II) in the case of attribution from another entity, an
interest in such entity similar to stock described in
subclause (I).
A rule similar to the rule of clause (iv) shall apply in the
case of any contingent purchase, warrant, convertible debt,
put, stock subject to a risk of forfeiture, contract to acquire
stock, or similar interests.
(B) Stock acquired by reason of death, gift, divorce,
separation, etc.
If -
(i) the basis of any stock in the hands of any person is
determined -
(I) under section 1014 (relating to property acquired
from a decedent),
(II) section 1015 (relating to property acquired by a
gift or transfer in trust), or
(III) section 1041(b)(2) (relating to transfers of
property between spouses or incident to divorce),
(ii) stock is received by any person in satisfaction of a
right to receive a pecuniary bequest, or
(iii) stock is acquired by a person pursuant to any divorce
or separation instrument (within the meaning of section
71(b)(2)),
such person shall be treated as owning such stock during the
period such stock was owned by the person from whom it was
acquired.
(C) Certain changes in percentage ownership which are
attributable to fluctuations in value not taken into account
Except as provided in regulations, any change in
proportionate ownership which is attributable solely to
fluctuations in the relative fair market values of different
classes of stock shall not be taken into account.
(4) Reduction in value where substantial nonbusiness assets
(A) In general
If, immediately after an ownership change, the new loss
corporation has substantial nonbusiness assets, the value of
the old loss corporation shall be reduced by the excess (if
any) of -
(i) the fair market value of the nonbusiness assets of the
old loss corporation, over
(ii) the nonbusiness asset share of indebtedness for which
such corporation is liable.
(B) Corporation having substantial nonbusiness assets
For purposes of subparagraph (A) -
(i) In general
The old loss corporation shall be treated as having
substantial nonbusiness assets if at least 1/3 of the value
of the total assets of such corporation consists of
nonbusiness assets.
(ii) Exception for certain investment entities
A regulated investment company to which part I of
subchapter M applies, a real estate investment trust to which
part II of subchapter M applies, or a REMIC to which part IV
of subchapter M applies, shall not be treated as a new loss
corporation having substantial nonbusiness assets.
(C) Nonbusiness assets
For purposes of this paragraph, the term "nonbusiness assets"
means assets held for investment.
(D) Nonbusiness asset share
For purposes of this paragraph, the nonbusiness asset share
of the indebtedness of the corporation is an amount which bears
the same ratio to such indebtedness as -
(i) the fair market value of the nonbusiness assets of the
corporation, bears to
(ii) the fair market value of all assets of such
corporation.
(E) Treatment of subsidiaries
For purposes of this paragraph, stock and securities in any
subsidiary corporation shall be disregarded and the parent
corporation shall be deemed to own its ratable share of the
subsidiary's assets. For purposes of the preceding sentence, a
corporation shall be treated as a subsidiary if the parent owns
50 percent or more of the combined voting power of all classes
of stock entitled to vote, and 50 percent or more of the total
value of shares of all classes of stock.
(5) Title 11 or similar case
(A) In general
Subsection (a) shall not apply to any ownership change if -
(i) the old loss corporation is (immediately before such
ownership change) under the jurisdiction of the court in a
title 11 or similar case, and
(ii) the shareholders and creditors of the old loss
corporation (determined immediately before such ownership
change) own (after such ownership change and as a result of
being shareholders or creditors immediately before such
change) stock of the new loss corporation (or stock of a
controlling corporation if also in bankruptcy) which meets
the requirements of section 1504(a)(2) (determined by
substituting "50 percent" for "80 percent" each place it
appears).
(B) Reduction for interest payments to creditors becoming
shareholders
In any case to which subparagraph (A) applies, the pre-change
losses and excess credits (within the meaning of section
383(a)(2)) which may be carried to a post-change year shall be
computed as if no deduction was allowable under this chapter
for the interest paid or accrued by the old loss corporation on
indebtedness which was converted into stock pursuant to title
11 or similar case during -
(i) any taxable year ending during the 3-year period
preceding the taxable year in which the ownership change
occurs, and
(ii) the period of the taxable year in which the ownership
change occurs on or before the change date.
(C) Coordination with section 108
In applying section 108(e)(8) to any case to which
subparagraph (A) applies, there shall not be taken into account
any indebtedness for interest described in subparagraph (B).
(D) Section 382 limitation zero if another change within 2
years
If, during the 2-year period immediately following an
ownership change to which this paragraph applies, an ownership
change of the new loss corporation occurs, this paragraph shall
not apply and the section 382 limitation with respect to the
2nd ownership change for any post-change year ending after the
change date of the 2nd ownership change shall be zero.
(E) Only certain stock taken into account
For purposes of subparagraph (A)(ii), stock transferred to a
creditor shall be taken into account only to the extent such
stock is transferred in satisfaction of indebtedness and only
if such indebtedness -
(i) was held by the creditor at least 18 months before the
date of the filing of the title 11 or similar case, or
(ii) arose in the ordinary course of the trade or business
of the old loss corporation and is held by the person who at
all times held the beneficial interest in such indebtedness.
(F) Special rule for certain financial institutions
(i) In general
In the case of any ownership change to which this
subparagraph applies, this paragraph shall be applied -
(I) by substituting "1504(a)(2)(B)" for "1504(a)(2)" and
"20 percent" for "50 percent" in subparagraph (A)(ii), and
(II) without regard to subparagraphs (B) and (C).
(ii) Special rule for depositors
For purposes of applying this paragraph to an ownership
change to which this subparagraph applies -
(I) a depositor in the old loss corporation shall be
treated as a stockholder in such loss corporation
immediately before the change,
(II) deposits which, after the change, become deposits of
the new loss corporation shall be treated as stock of the
new loss corporation, and
(III) the fair market value of the outstanding stock of
the new loss corporation shall include the amount of
deposits in the new loss corporation immediately after the
change.
(iii) Changes to which subparagraph applies
This subparagraph shall apply to -
(I) an equity structure shift which is a reorganization
described in section 368(a)(3)(D)(ii) (!1) (as modified by
section 368(a)(3)(D)(iv)),(!1) or
(II) any other equity structure shift (or transaction to
which section 351 applies) which occurs as an integral part
of a transaction involving a change to which subclause (I)
applies.
This subparagraph shall not apply to any equity structure
shift or transaction occurring on or after May 10, 1989.
(G) Title 11 or similar case
For purposes of this paragraph, the term "title 11 or similar
case" has the meaning given such term by section 368(a)(3)(A).
(H) Election not to have paragraph apply
A new loss corporation may elect, subject to such terms and
conditions as the Secretary may prescribe, not to have the
provisions of this paragraph apply.
(6) Special rule for insolvency transactions
If paragraph (5) does not apply to any reorganization described
in subparagraph (G) of section 368(a)(1) or any exchange of debt
for stock in a title 11 or similar case (as defined in section
368(a)(3)(A)), the value under subsection (e) shall reflect the
increase (if any) in value of the old loss corporation resulting
from any surrender or cancellation of creditors' claims in the
transaction.
(7) Coordination with alternative minimum tax
The Secretary shall by regulation provide for the application
of this section to the alternative tax net operating loss
deduction under section 56(d).
(8) Predecessor and successor entities
Except as provided in regulations, any entity and any
predecessor or successor entities of such entity shall be treated
as 1 entity.
(m) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section
and section 383, including (but not limited to) regulations -
(1) providing for the application of this section and section
383 where an ownership change with respect to the old loss
corporation is followed by an ownership change with respect to
the new loss corporation, and
(2) providing for the application of this section and section
383 in the case of a short taxable year,
(3) providing for such adjustments to the application of this
section and section 383 as is necessary to prevent the avoidance
of the purposes of this section and section 383, including the
avoidance of such purposes through the use of related persons,
pass-thru entities, or other intermediaries,
(4) providing for the application of subsection (g)(4) where
there is only 1 corporation involved, and
(5) providing, in the case of any group of corporations
described in section 1563(a) (determined by substituting "50
percent" for "80 percent" each place it appears and determined
without regard to paragraph (4) thereof), appropriate adjustments
to value, built-in gain or loss, and other items so that items
are not omitted or taken into account more than once.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 129; Pub. L. 88-554, Sec.
4(b)(3), Aug. 31, 1964, 78 Stat. 763; Pub. L. 94-455, title VIII,
Sec. 806(e), Oct. 4, 1976, 90 Stat. 1599; Pub. L. 96-589, Sec.
2(d), Dec. 24, 1980, 94 Stat. 3396; Pub. L. 97-34, title II, Sec.
242, Aug. 13, 1981, 95 Stat. 255; Pub. L. 98-369, div. A, title I,
Sec. 62(b)(1), July 18, 1984, 98 Stat. 583; Pub. L. 99-514, title
VI, Sec. 621(a), (e)(1), Oct. 22, 1986, 100 Stat. 2254, 2266; Pub.
L. 100-203, title X, Sec. 10225(a), (b), Dec. 22, 1987, 101 Stat.
1330-413; Pub. L. 100-647, title I, Sec. 1006(d)(1)(A)-(C), (2)-
(10), (17)(A), (18)-(28)(A), (29), (t)(22)(A), title IV, Sec.
4012(a)(3), (b)(1)(B), title V, Sec. 5077(a), Nov. 10, 1988, 102
Stat. 3395-3400, 3426, 3656, 3657, 3683; Pub. L. 101-73, title XIV,
Sec. 1401(a)(2), Aug. 9, 1989, 103 Stat. 548; Pub. L. 101-239,
title VII, Secs. 7205(a), 7304(d)(1), 7811(c)(5)(A), 7815(h),
7841(d)(11), Dec. 19, 1989, 103 Stat. 2335, 2354, 2407, 2420, 2428;
Pub. L. 103-66, title XIII, Sec. 13226(a)(2)(A), Aug. 10, 1993, 107
Stat. 487; Pub. L. 104-188, title I, Sec. 1621(b)(3), Aug. 20,
1996, 110 Stat. 1867; Pub. L. 108-357, title VIII, Sec. 835(b)(2),
Oct. 22, 2004, 118 Stat. 1593.)
-REFTEXT-
REFERENCES IN TEXT
Section 368(a)(3)(D), referred to in subsec. (l)(5)(F)(iii)(I),
was amended generally by Pub. L. 99-514, title IX, Sec. 904(a),
Oct. 22, 1986, 100 Stat. 2385, and, as so amended, does not contain
a cl. (ii) or (iv).
-MISC1-
AMENDMENTS
2004 - Subsec. (l)(4)(B)(ii). Pub. L. 108-357 substituted "or a
REMIC to which part IV of subchapter M applies," for "a REMIC to
which part IV of subchapter M applies, or a FASIT to which part V
of subchapter M applies,".
1996 - Subsec. (l)(4)(B)(ii). Pub. L. 104-188 substituted "a
REMIC to which part IV of subchapter M applies, or a FASIT to which
part V of subchapter M applies" for "or a REMIC to which part IV of
subchapter M applies".
1993 - Subsec. (l)(5)(C). Pub. L. 103-66 amended heading and text
of subpar. (C) generally. Prior to amendment, text read as follows:
"(i) In general. - In any case to which subparagraph (A) applies,
50 percent of the amount which, but for the application of section
108(e)(10)(B), would have been applied to reduce tax attributes
under section 108(b) shall be so applied.
"(ii) Clarification with subparagraph (b). - In applying clause
(i), there shall not be taken into account any indebtedness for
interest described in subparagraph (B)."
1989 - Subsec. (h)(3)(B)(i). Pub. L. 101-239, Sec. 7205(a),
amended cl. (i) generally. Prior to amendment, cl. (i) read as
follows: "If the amount of the net unrealized built-in gain or net
unrealized built-in loss (determined without regard to this
subparagraph) of any old loss corporation is not greater than 25
percent of the amount determined for purposes of subparagraph
(A)(i)(I), the net unrealized built-in gain or net unrealized built-
in loss shall be zero."
Subsec. (h)(6)(B). Pub. L. 101-239, Sec. 7811(c)(5)(A)(i),
inserted "(determined without regard to any carryover)" after
"during the recognition period".
Subsec. (h)(6)(C). Pub. L. 101-239, Sec. 7811(c)(5)(A)(ii),
substituted "which would be treated as recognized built-in gains or
losses under this paragraph if such amounts were properly taken
into account (or allowable as a deduction) during the recognition
period" for "treated as recognized built-in gains or losses under
this paragraph".
Subsec. (l)(3)(B)(i)(III). Pub. L. 101-239, Sec. 7841(d)(11),
substituted "incident to divorce)," for "incident to divorce,".
Subsec. (l)(3)(C). Pub. L. 101-239, Sec. 7304(d)(1), redesignated
subpar. (D) as (C) and struck out former subpar. (C) which related
to special rule for employee stock ownership plans.
Subsec. (l)(3)(C)(ii). Pub. L. 101-239, Sec. 7815(h), substituted
"For purposes of subclause (III)," for "for purposes of subclause
(III)," in concluding provisions.
Subsec. (l)(3)(D). Pub. L. 101-239, Sec. 7304(d)(1), redesignated
subpar. (D) as (C).
Subsec. (l)(5)(F). Pub. L. 101-73 substituted "on or after May
10, 1989" for "after December 31, 1989" in last sentence.
1988 - Subsec. (e)(2). Pub. L. 100-647, Sec. 1006(d)(1)(A),
inserted "or other corporate contraction" after "redemption" in
heading and in two places in text.
Subsec. (e)(3). Pub. L. 100-647, Sec. 1006(d)(17)(A), added par.
(3).
Subsec. (g)(1)(A). Pub. L. 100-647, Sec. 1006(d)(21)(A), struck
out "new" after "stock of the".
Subsec. (g)(1)(B). Pub. L. 100-647, Sec. 1006(d)(21)(B), struck
out "old" after "stock of the".
Subsec. (g)(4)(C). Pub. L. 100-647, Sec. 1006(d)(2), inserted
"rules similar to" after "provided in regulations,".
Subsec. (h)(1)(C). Pub. L. 100-647, Sec. 1006(d)(3)(A),
substituted "Special rules for certain section 338 gains" for
"Section 338 gain" in heading and amended text generally. Prior to
amendment, text read as follows: "The section 382 limitation for
any taxable year in which gain is recognized by reason of an
election under section 338 shall be increased by the excess of -
"(i) the amount of such gain, over
"(ii) the portion of such gain taken into account in computing
recognized built-in gains for such taxable year."
Subsec. (h)(3)(A)(ii). Pub. L. 100-647, Sec. 1006(d)(28)(A),
inserted "to the extent provided in regulations," after "an
ownership change,".
Pub. L. 100-647, Sec. 1006(d)(1)(B), inserted "or other corporate
contractions" after "redemptions" in heading and "or other
corporate contraction" after "redemption" in two places in text.
Subsec. (h)(3)(B)(ii). Pub. L. 100-647, Sec. 1006(d)(26),
inserted "except as provided in regulations," after "under clause
(i),".
Subsec. (h)(4). Pub. L. 100-647, Sec. 1006(d)(20), substituted
"allowed as a carryforward" for "treated as a net operating loss"
in heading and inserted "(or to the extent the amount so disallowed
is attributable to capital losses, under rules similar to the rules
for the carrying forward of net capital losses)" after "net
operating losses" in subpar. (A).
Subsec. (h)(5)(A). Pub. L. 100-647, Sec. 1006(d)(3)(B),
substituted "recognized built-in gains to the extent such gains
increased the section 382 limitation for the year (or recognized
built-in losses to the extent such losses are treated as pre-change
losses)" for "recognized built-in gains and losses".
Subsec. (h)(6). Pub. L. 100-647, Sec. 1006(d)(22), substituted
"Treatment of certain built-in items" for "Secretary may treat
certain deductions as built-in losses" in heading and amended text
generally. Prior to amendment, text read as follows: "The Secretary
may by regulation treat amounts which accrue on or before the
change date but which are allowable as a deduction after such date
as recognized built-in losses."
Subsec. (h)(9). Pub. L. 100-647, Sec. 1006(d)(23), substituted
"was acquired (or is subsequently transferred)" for "is
transferred".
Subsec. (i)(3). Pub. L. 100-647, Sec. 1006(d)(4), inserted "the
earlier of" after "not begin before" and "or the taxable year in
which the transaction being tested occurs" after "1st post-change
year".
Subsec. (k)(1). Pub. L. 100-647, Sec. 1006(d)(5)(A), inserted "or
having a net operating loss for the taxable year in which the
ownership change occurs" after "operating loss carryover".
Subsec. (k)(2). Pub. L. 100-647, Sec. 1006(d)(5)(B), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "The
term 'old loss corporation' means any corporation with respect to
which there is an ownership change -
"(A) which (before the ownership change) was a loss
corporation, or
"(B) with respect to which there is a pre-change loss described
in subsection (d)(1)(B)."
Subsec. (l)(3)(A)(iv), (v). Pub. L. 100-647, Sec. 1006(d)(6),
added cls. (iv) and (v) and struck out former cl. (iv) which read
as follows: "except to the extent provided in regulations,
paragraph (4) of section 318(a) shall apply to an option if such
application results in an ownership change."
Subsec. (l)(3)(C)(ii). Pub. L. 100-647, Sec. 5077(a), added
subcl. (III) and concluding provisions.
Subsec. (l)(4)(B)(ii). Pub. L. 100-647, Sec. 1006(t)(22)(A),
substituted "REMIC" for "real estate mortgage pool".
Subsec. (l)(5)(A)(ii). Pub. L. 100-647, Sec. 1006(d)(25),
substituted "stock of a controlling corporation" for "stock of
controlling corporation".
Pub. L. 100-647, Sec. 1006(d)(7), substituted "after such
ownership change and as a result of being shareholders or creditors
immediately before such change" for "immediately after such
ownership change".
Subsec. (l)(5)(B). Pub. L. 100-647, Sec. 1006(d)(27), substituted
"the pre-change losses and excess credits (within the meaning of
section 383(a)(2)) which may be carried to a post-change year shall
be computed" for "the net operating loss deduction under section
172(a) for any post-change year shall be determined".
Subsec. (l)(5)(C). Pub. L. 100-647, Sec. 1006(d)(18), substituted
"tax attributes" for "carryforwards" in heading and amended text
generally. Prior to amendment, text read as follows: "In any case
to which subparagraph (A) applies, the pre-change losses and excess
credits (within the meaning of section 383(a)(2)) which may be
carried to a post-change year shall be computed as if 50 percent of
the amount which, but for the application of section 108(e)(10)(B),
would have been includible in gross income for any taxable year had
been so included."
Subsec. (l)(5)(E). Pub. L. 100-647, Sec. 1006(d)(19), substituted
"taken into account" for "of creditors taken into account" in
heading and amended introductory provisions generally. Prior to
amendment, introductory provisions read as follows: "For purposes
of subparagraph (A)(ii), stock transferred to a creditor in
satisfaction of indebtedness shall be taken into account only if
such indebtedness - ".
Subsec. (l)(5)(F). Pub. L. 100-647, Sec. 4012(a)(3), substituted
"1989" for "1988" in last sentence.
Subsec. (l)(5)(F)(i)(I). Pub. L. 100-647, Sec. 1006(d)(8)(A),
inserted " '1504(a)(2)(B)' for '1504(a)(2)' and" after "by
substituting".
Subsec. (l)(5)(F)(ii)(III). Pub. L. 100-647, Sec. 1006(d)(8)(B),
substituted "the amount of deposits in the new loss corporation
immediately after the change" for "deposits described in subclause
(II)".
Subsec. (l)(5)(F)(iii)(I). Pub. L. 100-647, Sec. 4012(b)(1)(B),
inserted "(as modified by section 368(a)(3)(D)(iv))" after "section
368(a)(3)(D)(ii)".
Pub. L. 100-647, Sec. 1006(d)(29), which directed amendment of
subcl. (I) by substituting "section 368(a)(3)(D)(ii)" for "section
368(a)(D)(ii)", could not be executed because "section
368(a)(3)(D)(ii)" appeared and "section 368(a)(D)(ii)" did not
appear.
Subsec. (l)(6). Pub. L. 100-647, Sec. 1006(d)(9), substituted
"shall reflect the increase (if any) in value of the old loss
corporation resulting from any surrender or cancellation of
creditors' claims in the transaction" for "shall be the value of
the new loss corporation immediately after the ownership change".
Subsec. (l)(8). Pub. L. 100-647, Sec. 1006(d)(10), added par.
(8).
Subsec. (m)(4). Pub. L. 100-647, Sec. 1006(d)(1)(C), redesignated
par. (5) as (4) and struck out former par. (4) which read as
follows: "providing for the treatment of corporate contractions as
redemptions for purposes of subsections (e)(2) and (h)(3)(A), and".
Subsec. (m)(5). Pub. L. 100-647, Sec. 1006(d)(24), added par.
(5).
Pub. L. 100-647, Sec. 1006(d)(1)(C), redesignated former par. (5)
as (4).
1987 - Subsec. (g)(4)(D). Pub. L. 100-203, Sec. 10225(a), added
subpar. (D).
Subsec. (h)(2)(B). Pub. L. 100-203, Sec. 10225(b), inserted at
end "Such term includes any amount allowable as depreciation,
amortization, or depletion for any period within the recognition
period except to the extent the new loss corporation establishes
that the amount so allowable is not attributable to the excess
described in clause (ii)."
1986 - Pub. L. 99-514, Sec. 621(a), in amending section
generally, in subsec. (a), substituted provisions setting forth
general rule that amount of taxable income of any new loss
corporation for any post-change year which may be offset by pre-
change losses shall not exceed section 382 limitation for such
year for provisions relating to change in ownership of corporation
and change in its business, description of persons owning
corporation, attribution of ownership, and definition of
"purchase", in subsec. (b), substituted provisions relating to
section 382 limitation for provisions relating to change in
ownership as result of reorganization, in subsec. (c), substituted
provisions relating to disallowance of carryforwards if continuity
of business requirements are not met for provisions defining stock
as all shares except nonvoting stock which is limited and preferred
as to dividends, and added subsecs. (d) to (m).
Pub. L. 99-514, Sec. 621(e)(1), repealed amendment by Pub. L. 94-
455, Sec. 806(e). See 1976 Amendment note below.
1984 - Subsec. (b)(1). Pub. L. 98-369, in section as amended by
Pub. L. 94-455, substituted "subparagraph (A), (B), (C), or (F) of
section 368(a)(1) or subparagraph (D) or (G) of section 368(a)(1)
(but only if the requirements of section 354(b)(1) are met)" for
"section 368(a)(1)(A), (B), (C), (D) (but only if the requirements
of section 354(b)(1) are met, or (F)".
1981 - Subsec. (b)(7). Pub. L. 97-34 designated existing
provisions as subpar. (A) and added subpar. (B).
1980 - Subsec. (b)(7). Pub. L. 96-589 added par. (7).
1976 - Pub. L. 94-455, Sec. 806(e), which amended section
generally, substituting provisions relating to special limitations
on net operating loss carryovers based on continuity of trade or
business conducted, for provisions relating to special limitations
on net operating loss carryovers based on continuity of ownership,
was repealed by Pub. L. 99-514, Sec. 621(e)(1). See Effective Date
of 1986 and 1976 Amendment notes below.
1964 - Subsec. (a)(3). Pub. L. 88-554 inserted reference to
section 318(a)(3)(C) of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 effective Jan. 1, 2005, with
exception for any FASIT in existence on Oct. 22, 2004, to the
extent that regular interests issued by the FASIT before such date
continue to remain outstanding in accordance with the original
terms of issuance, see section 835(c) of Pub. L. 108-357, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective Sept. 1, 1997, see section
1621(d) of Pub. L. 104-188, set out as a note under section 26 of
this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to stock transferred after
Dec. 31, 1994, in satisfaction of any indebtedness, except that
such amendment inapplicable to stock transferred in satisfaction of
any indebtedness if such transfer is in a title 11 or similar case
filed on or before Dec. 31, 1993, see section 13226(a)(3) of Pub.
L. 103-66, set out as a note under section 108 of this title.
EFFECTIVE DATE OF 1989 AMENDMENTS
Amendment by section 7205(a) of Pub. L. 101-239 applicable,
except as otherwise provided, to ownership changes and acquisitions
after Oct. 2, 1989, in taxable years ending after such date, see
section 7205(c) of Pub. L. 101-239, set out as a note under section
56 of this title.
Section 7304(d)(2) of Pub. L. 101-239 provided that: "The
amendments made by this subsection [amending this section] shall
apply to acquisitions of employer securities after July 12, 1989,
except that such amendments shall not apply to acquisitions after
July 12, 1989, pursuant to a written binding contract in effect on
July 12, 1989, and at all times thereafter before such
acquisition."
Amendment by sections 7811(c)(5)(A) and 7815(h) of Pub. L. 101-
239 effective, except as otherwise provided, as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section 7817
of Pub. L. 101-239, set out as a note under section 1 of this
title.
Section 1401(c)(2) of Pub. L. 101-73 provided that: "The
amendment made by subsection (a)(2) [amending this section] shall
apply to transactions on or after May 10, 1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(d)(1)(D) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section] shall
apply with respect to ownership changes after June 10, 1987."
Section 1006(d)(17)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to any ownership change after June 10, 1987. For purposes of
the preceding sentence, any equity structure shift pursuant to a
plan of reorganization adopted on or before June 10, 1987, shall be
treated as occurring when such plan was adopted."
Section 1006(d)(28)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply in the case of ownership changes on or after June 21, 1988."
Amendment by section 1006(d)(2)-(10), (18)-(27), (29), (t)(22)(A)
of Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L. 99-
514, to which such amendment relates, see section 1019(a) of Pub.
L. 100-647, set out as a note under section 1 of this title.
Section 4012(b)(1)(C)(ii) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (B) [amending this section] shall
apply to any ownership change occurring after the date of the
enactment of this Act [Nov. 10, 1988] and before January 1, 1990."
Section 5077(b) of Pub. L. 100-647 provided that:
"(1) In General. - The amendment made by subsection (a) [amending
this section] shall apply to acquisition after December 31, 1988.
"(2) Exception. - The amendment made by subsection (a) shall not
apply to acquisitions after December 31, 1988, pursuant to a
binding written contract entered into on or before October 21,
1988."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10225(c) of Pub. L. 100-203 provided that:
"(1) Subsection (a). - The amendment made by subsection (a)
[amending this section] shall apply in the case of stock treated as
becoming worthless in taxable years beginning after December 31,
1987.
"(2) Subsection (b). - The amendment made by subsection (b)
[amending this section] shall apply in the case of ownership
changes (as defined in section 382 of the Internal Revenue Code of
1986 as amended by subsection (a)) after December 15, 1987; except
that such amendment shall not apply in the case of any ownership
change pursuant to a binding written contract which was in effect
on December 15, 1987, and at all times thereafter before such
ownership change."
EFFECTIVE DATE OF 1986 AMENDMENT; SAVINGS PROVISIONS
Section 621(f) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1006(d)(11)-(16), title VI, Sec. 6277(a), (b), Nov.
10, 1988, 102 Stat. 3397, 3398, 3753, 3754, provided that:
"(1) Amendments made by subsections (a), (b), and (c). -
"(A) In general. -
"(i) Changes after 1986. - The amendments made by subsections
(a), (b), and (c) [amending this section and sections 318 and
383 of this title] shall apply to any ownership change after
December 31, 1986.
"(ii) Plans of reorganization adopted before 1987. - For
purposes of clause (i), any equity structure shift pursuant to
a plan of reorganization adopted before January 1, 1987, shall
be treated as occurring when such plan was adopted.
"(B) Termination of old section 382. - Except in a case
described in any of the following paragraphs -
"(i) section 382(a) of the Internal Revenue Code of 1954 (as
in effect before the amendment made by subsection (a) and the
amendments made by section 806 of the Tax Reform Act of 1976
[section 806 of Pub. L. 94-455]) shall not apply to any
increase in percentage points occurring after December 31,
1988, and
"(ii) section 382(b) of such Code (as so in effect) shall not
apply to any reorganization occurring pursuant to a plan of
reorganization adopted after December 31, 1986.
In no event shall sections 382(a) and (b) of such Code (as so in
effect) apply to any ownership change described in subparagraph
(A).
"(C) Coordination with section 382(i). - For purposes of
section 382(i) of the Internal Revenue Code of 1986 (as added by
this section), any equity structure shift pursuant to a plan of
reorganization adopted before January 1, 1987, shall be treated
as occurring when such plan was adopted.
"(2) For amendments to tax reform act of 1976. -
"(A) In general. - The repeals made by subsection (e)(1)
[repealing amendments by Pub. L. 94-455, Sec. 806(e), (f),
amending this section and sections 108, 368, and 383 of this
title] and the amendment made by subsection (e)(2) [repealing
section 806(g)(2), (3) of Pub. L. 94-455, formerly set out as an
Effective Date of 1976 Amendment note below] shall take effect on
January 1, 1986.
"(B) Election to have amendments apply. -
"(i) If a taxpayer described in clause (ii) elects to have
the provisions of this subparagraph apply, the amendments made
by subsections (e) and (f) of section 806 of the Tax Reform Act
of 1976 [amending this section and sections 108, 368, and 383
of this title] shall apply to the reorganization described in
clause (ii).
"(ii) A taxpayer is described in this clause if the taxpayer
filed a title 11 or similar case on December 8, 1981, filed a
plan of reorganization on February 5, 1986, filed an amended
plan on March 14, 1986, and received court approval for the
amended plan and disclosure statement on April 16, 1986.
"(C) Application of old rules to certain debt. - In the case of
debt of a corporation incorporated in Colorado on November 8,
1924, and reincorporated in Delaware in 1987, with headquarters
in Denver, Colorado -
"(i) the amendments made by subsections (a), (b), and (c)
shall not apply to any debt restructuring of such debt which
was approved by the debtor's Board of Directors and the lenders
in 1986, and
"(ii) the amendments made by subsections (e) and (f) of
section 806 of the Tax Reform Act of 1976 shall not apply to
such debt restructuring, except that the amendment treated as
part of such subsections under section 59(b) of the Tax Reform
Act of 1984 (relating to qualified workouts) shall apply to
such debt restructuring.
"(D) Special rule for oil and gas well drilling business. - In
the case of a Texas corporation incorporated on July 23, 1935, in
applying section 382 of the Internal Revenue Code of 1986 (as in
effect before and after the amendments made by subsections (a),
(b), and (c)) to a loan restructuring agreement during 1985,
section 382(a)(5)(C) of the Internal Revenue Code of 1954 (as
added by the amendments made by subsections (e) and (f) of
section 806 of the Tax Reform Act of 1976) shall be applied as if
it were in effect with respect to such restructuring. For
purposes of the preceding sentence, in applying section 382 (as
so in effect), if a person has a warrant to acquire stock, such
stock shall be considered as owned by such person.
"(3) Testing period. - For purposes of determining whether there
is an ownership change, the testing period shall not begin before
the later of -
"(A) May 6, 1986, or
"(B) in the case of an ownership change which occurs after May
5, 1986, and to which the amendments made by subsections (a),
(b), and (c) do not apply, the first day following the date on
which such ownership change occurs.
"(4) Special transition rules. - The amendments made by
subsections (a), (b), and (c) shall not apply to any -
"(A) stock-for-debt exchanges and stock sales made pursuant to
a plan of reorganization with respect to a petition for
reorganization filed by a corporation under chapter 11 of title
11, United States Code, on August 26, 1982, and which filed with
a United States district court a first amended and related plan
of reorganization before March 1, 1986, or
"(B) ownership change of a Delaware corporation incorporated in
August 1983, which may result from the exercise of put or call
option under an agreement entered into on September 14, 1983, but
only with respect to taxable years beginning after 1991
regardless of when such ownership change takes place.
Any regulations prescribed under section 382 of the Internal
Revenue Code of 1986 (as added by subsection (a)) which have the
effect of treating a group of shareholders as a separate 5-percent
shareholder by reason of a public offering shall not apply to any
public offering before January 1, 1989, for the benefit of
institutions described in section 591 of such Code. Unless the
corporation otherwise elects, an underwriter of any offering of
stock in a corporation before September 19, 1986 (January 1, 1989,
in the case of an offering for the benefit of an institution
described in the preceding sentence), shall not be treated as
acquiring any stock of such corporation by reason of a firm
commitment underwriting to the extent the stock is disposed of
pursuant to the offering (but in no event later than 60 days after
the initial offering).
"(5) Bankruptcy proceedings. - Unless the taxpayer elects not to
have the provisions of this paragraph apply, in the case of a
reorganization described in subparagraph (G) of section 368(a)(1)
of the Internal Revenue Code of 1986 or an exchange of debt for
stock in a title 11 or similar case, as defined in section
368(a)(3) of such Code, the amendments made by subsections (a),
(b), and (c) shall not apply to any ownership change resulting from
such a reorganization or proceeding if a petition in such case was
filed with the court before August 14, 1986. The determination as
to whether an ownership change has occurred during the period
beginning January 1, 1987, and ending on the final settlement of
any reorganization or proceeding described in the preceding
sentence shall be redetermined as of the time of such final
settlement.
"(6) Certain plans. - The amendments made by subsections (a),
(b), and (c) shall not apply to any ownership change with respect
to -
"(A) the acquisition of a corporation the stock of which is
acquired pursuant to a plan of divestiture which identified such
corporation and its assets, and was agreed to by the board of
directors of such corporation's parent corporation on May 17,
1985,
"(B) a merger which occurs pursuant to a merger agreement
(entered into before September 24, 1985) and an application for
approval by the Federal Home Loan Bank Board was filed on October
4, 1985,
"(C) a reorganization involving a party to a reorganization of
a group of corporations engaged in enhanced oil recovery
operations in California, merged in furtherance of a plan of
reorganization adopted by a board of directors vote on September
24, 1985, and a Delaware corporation whose principal oil and gas
producing fields are located in California, or
"(D) the conversion of a mutual savings and loan association
holding a Federal charter dated March 22, 1985, to a stock
savings and loan association pursuant to the rules and
regulations of the Federal Home Loan Bank Board.
"(7) Ownership change of regulated air carrier. - The amendments
made by subsections (a), (b), and (c) shall not apply to an
ownership change of a regulated air carrier if -
"(A) on July 16, 1986, at least 40 percent of the outstanding
common stock (excluding all preferred stock, whether or not
convertible) of such carrier had been acquired by a parent
corporation incorporated in March 1980 under the laws of
Delaware, and
"(B) the acquisition (by or for such parent corporation) or
retirement of the remaining common stock of such carrier is
completed before the later of March 31, 1987, or 90 days after
the requisite governmental approvals are finally granted,
but only if the ownership change occurs on or before the later of
March 31, 1987, or such 90th day. The aggregate reduction in tax
for any taxable year by reason of this paragraph shall not exceed
$10,000,000. The testing period for determining whether a
subsequent ownership change has occurred shall not begin before the
1st day following an ownership change to which this paragraph
applies.
"(8) The amendments made by subsections (a), (b), and (c) shall
not apply to any ownership change resulting from the conversion of
a Minnesota mutual savings bank holding a Federal charter dated
December 31, 1985, to a stock savings bank pursuant to the rules
and regulations of the Federal Home Loan Bank Board, and from the
issuance of stock pursuant to that conversion to a holding company
incorporated in Delaware on February 21, 1984. For purposes of
determining whether any ownership change occurs with respect to the
holding company or any subsidiary thereof (whether resulting from
the transaction described in the preceding sentence or otherwise),
any issuance of stock made by such holding company in connection
with the transaction described in the preceding sentence shall not
be taken into account.
"(9) Definitions. - Except as otherwise provided, terms used in
this subsection shall have the same meaning as when used in section
382 of the Internal Revenue Code of 1986 (as amended by this
section)."
[Section 6277(c) of Pub. L. 100-647 provided that: "The
amendments made by this section [amending section 621(f) of Pub. L.
99-514, set out above] shall take effect as if included in section
621(f)(5) of the Tax Reform Act of 1986 [Pub. L. 99-514]."]
EFFECTIVE DATE OF 1984 AMENDMENT
Section 62(b)(2) of Pub. L. 98-369 provided that: "The amendment
made by paragraph (1) [amending this section] shall take effect as
if included in the amendments made by section 4 of the Bankruptcy
Tax Act of 1980 [Pub. L. 96-589]."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to any transfer made on or
after Jan. 1, 1981, see section 246(a) of Pub. L. 97-34, set out as
a note under section 368 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Section 2(d) of Pub. L. 96-589 provided that the amendment made
by section 2(b) of Pub. L. 96-589 is to subsec. (b) as in effect
before its amendment by section 806 of the Tax Reform Act of 1976,
Pub. L. 94-455.
Amendment by Pub. L. 96-589 applicable to transactions which
occur after Dec. 31, 1980, other than transactions which occur in a
proceeding in a bankruptcy case or similar judicial proceeding or
in a proceeding under Title 11 commencing on or before Dec. 31,
1980, with an exception permitting the debtor to make the amendment
applicable to transactions occurring after Sept. 30, 1979, in a
specified manner, see section 7(a)(1), (f) of Pub. L. 96-589, set
out as a note under section 108 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 806(g)(2), (3) of Pub. L. 94-455, as amended by Pub. L.
95-600, title III, Sec. 368(a), Nov. 6, 1978, 92 Stat. 2857; Pub.
L. 95-615, Sec. 8, Nov. 8, 1978, 92 Stat. 3098; Pub. L. 96-167,
Sec. 9(e), Dec. 29, 1979, 93 Stat. 1279; Pub. L. 97-119, title I,
Sec. 111, Dec. 29, 1981, 95 Stat. 1640; Pub. L. 98-369, div. A,
title I, Sec. 62(a), July 18, 1984, 98 Stat. 583, which provided an
effective date for the amendments made by section 806(e), (f) of
Pub. L. 94-455 for purposes of applying sections 382(a) and 383 (as
it relates to section 382(a)) of this title, was repealed by Pub.
L. 99-514, title VI, Sec. 621(e)(2), (f)(2), Oct. 22, 1986, 100
Stat. 2266, eff. Jan. 1, 1986.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-554 effective Aug. 31, 1964, except that
for purposes of sections 302 and 304 of this title, such amendment
shall not apply to distributions in payment for stock acquisitions
or redemptions, if such acquisitions or redemptions occurred before
Aug. 31, 1964, see section 4(c) of Pub. L. 88-554, set out as a
note under section 318 of this title.
DELAY IN EFFECTIVE DATE OF 1976 AMENDMENT
Pub. L. 95-600, title III, Sec. 368, Nov. 6, 1978, 92 Stat. 2857,
provided for delaying the effective date established by section
806(g)(2), (3) of Pub. L. 94-455, formerly set out above, by
substituting "1980" for "1978", with certain elections.
REPORT ON DEPRECIATION AND BUILT-IN DEDUCTIONS; REPORT ON
BANKRUPTCY WORKOUTS
Section 621(d) of Pub. L. 99-514 directed Secretary of the
Treasury or his delegate to, not later than Jan. 1, 1989, conduct a
study and report to Committee on Ways and Means of House of
Representatives and Committee on Finance of Senate with respect to
treatment of depreciation, amortization, depletion, and other built-
in deductions for purposes of sections 382 and 383 of this title,
and, not later than Jan. 1, 1988, conduct a study and report to
committees referred to above with respect to treatment of informal
bankruptcy workouts for purposes of sections 108 and 382 of this
title, prior to repeal by Pub. L. 101-508, title XI, Sec. 11832(3),
Nov. 5, 1990, 104 Stat. 1388-559.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 383 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART V - CARRYOVERS
-HEAD-
Sec. 383. Special limitations on certain excess credits, etc.
-STATUTE-
(a) Excess credits
(1) In general
Under regulations, if an ownership change occurs with respect
to a corporation, the amount of any excess credit for any taxable
year which may be used in any post-change year shall be limited
to an amount determined on the basis of the tax liability which
is attributable to so much of the taxable income as does not
exceed the section 382 limitation for such post-change year to
the extent available after the application of section 382 and
subsections (b) and (c) of this section.
(2) Excess credit
For purposes of paragraph (1), the term "excess credit" means -
(A) any unused general business credit of the corporation
under section 39, and
(B) any unused minimum tax credit of the corporation under
section 53.
(b) Limitation on net capital loss
If an ownership change occurs with respect to a corporation, the
amount of any net capital loss under section 1212 for any taxable
year before the 1st post-change year which may be used in any post-
change year shall be limited under regulations which shall be
based on the principles applicable under section 382. Such
regulations shall provide that any such net capital loss used in a
post-change year shall reduce the section 382 limitation which is
applied to pre-change losses under section 382 for such year.
(c) Foreign tax credits
If an ownership change occurs with respect to a corporation, the
amount of any excess foreign taxes under section 904(c) for any
taxable year before the 1st post-change taxable year shall be
limited under regulations which shall be consistent with purposes
of this section and section 382.
(d) Pro ration rules for year which includes change
For purposes of this section, rules similar to the rules of
subsections (b)(3) and (d)(1)(B) of section 382 shall apply.
(e) Definitions
Terms used in this section shall have the same respective
meanings as when used in section 382, except that appropriate
adjustments shall be made to take into account that the limitations
of this section apply to credits and net capital losses.
-SOURCE-
(Added Pub. L. 92-178, title III, Sec. 302(a), Dec. 10, 1971, 85
Stat. 521; amended Pub. L. 94-455, title VIII, Sec. 806(f)(2),
title X, Sec. 1031(b)(5), title XIX, Sec. 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1605, 1623, 1834; Pub. L. 95-30, title II, Sec.
202(d)(3)(B), (C), May 23, 1977, 91 Stat. 148; Pub. L. 96-222,
title I, Sec. 103(a)(6)(G)(xiii), Apr. 1, 1980, 94 Stat. 211; Pub.
L. 96-223, title II, Sec. 232(b)(2)(C), (D), Apr. 2, 1980, 94 Stat.
276; Pub. L. 97-34, title II, Sec. 221(b)(1)(C), (D), title III,
Sec. 331(d)(1)(C), (D), Aug. 13, 1981, 95 Stat. 246, 294; Pub. L.
98-369, div. A, title IV, Sec. 474(r)(12)(A), (B), July 18, 1984,
98 Stat. 841; Pub. L. 99-514, title VI, Sec. 621(b), (e)(1), Oct.
22, 1986, 100 Stat. 2265, 2266.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514, Sec. 621(b), amended section generally.
Prior to amendment, section read as follows: "If -
"(1) the ownership and business of a corporation are changed in
the manner described in section 382(a)(1), or
"(2) in the case of a reorganization specified in paragraph (2)
of section 381(a), there is a change in ownership described in
section 382(b)(1)(B),
then the limitations provided in section 382 in such cases with
respect to the carryover of net operating losses shall apply in the
same manner, as provided under regulations prescribed by the
Secretary, with respect to any unused business credit of the
corporation which can otherwise be carried forward under section
39, to any unused credit of the corporation which could otherwise
be carried forward under section 30(g)(2), to any excess foreign
taxes of the corporation which could otherwise be carried forward
under section 904(c), and to any net capital loss of the
corporation which can otherwise be carried forward under section
1212."
Pub. L. 99-514, Sec. 621(e)(1), repealed amendment by Pub. L. 94-
455, Sec. 806(f)(2). See 1976 Amendment note below.
1984 - Pub. L. 98-369, Sec. 474(r)(12)(A)(ii), in catchline of
section 383, as in effect prior to amendment by Pub. L. 94-455,
Sec. 806(f)(2), as related to section 382(a) of this title,
substituted "Special limitations on unused business credits,
research credits, foreign taxes, and capital losses" for "Special
limitations on carryovers of unused investment credits, work
incentive program credits, new employee credits, alcohol fuel
credits, research credits, employee stock ownership credits,
foreign taxes, and capital losses".
Pub. L. 98-369, Sec. 474(r)(12)(B)(ii), in catchline of section
383, as amended by Pub. L. 94-455, Sec. 806(f)(2), as related to
section 382(b) of this title, substituted "business credits,
research credits" for "investment credits, work incentive program
credits".
Pub. L. 98-369, Sec. 474(r)(12)(B)(ii), in catchline of section
383, as amended by Pub. L. 94-455, Sec. 806(f)(2), as related to
section 382(a) of this title, substituted "business credits" for
"investment credits" and struck out references to work incentive
program credits, new employee credits, alcohol fuel credits, and
employee stock ownership credits.
Pub. L. 98-369, Sec. 474(r)(12)(A)(i), in section 383, as in
effect prior to amendment by Pub. L. 94-455, Sec. 806(f)(2), as
related to section 382(a) of this title, substituted "with respect
to any unused business credit of the corporation which can
otherwise be carried forward under section 39, to any unused credit
of the corporation which could otherwise be carried forward under
section 30(g)(2), to any excess foreign taxes of the corporation
which could otherwise be carried forward under section 904(c), and
to any net capital loss of the corporation which can otherwise be
carried forward under section 1212" for "with respect to any unused
investment credit of the corporation which can otherwise be carried
forward under section 46(b), to any unused work incentive program
credit of the corporation which can otherwise be carried forward
under section 50A(b), to any unused new employee credit of the
corporation which could otherwise be carried forward under section
53(b), to any unused credit of the corporation which could
otherwise be carried forward under section 44E(e)(2), to any unused
credit of the corporation which could otherwise be carried forward
under section 44F(g)(2), to any unused credit of the corporation
which could otherwise be carried forward under section 44G(b)(2),
to any excess foreign taxes of the corporation which can otherwise
be carried forward under section 904(c), and to any net capital
loss of the corporation which can otherwise be carried forward
under section 1212".
Pub. L. 98-369, Sec. 474(r)(12)(B)(i), in section 383, as amended
by Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(b) of
this title, substituted "with respect to any unused business credit
of the corporation under section 39, to any unused credit of the
corporation under section 30(g)(2), to any excess foreign taxes of
the corporation under section 904(c), and to any net capital loss
of the corporation under section 1212" for "with respect to any
unused investment credit of the corporation under section 46(b), to
any unused work incentive program credit of the corporation under
section 50A(b), to any excess foreign taxes of the corporation
under section 904(c), and to any net capital loss of the
corporation under section 1212".
Pub. L. 98-369, Sec. 474(r)(12)(B)(i), in section 383, as amended
by Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(a) of
this title, substituted "with respect to any unused business credit
of the corporation under section 39, to any unused credit of the
corporation under section 30(g)(2), to any excess foreign taxes of
the corporation under section 904(c), and to any net capital loss
of the corporation under section 1212" for "with respect to any
unused investment credit of the corporation under section 46(b), to
any unused work incentive program credit of the corporation under
section 50A(b), to any unused new employee credit of the
corporation under section 53(b), to any unused credit of the
corporation under section 44E(e)(2), to any unused credit of the
corporation under section 44F(g)(2), to any unused credit of the
corporation under section 44G(b)(2), to any excess foreign taxes of
the corporation under section 904(c), and to any net capital loss
of the corporation under section 1212".
1981 - Pub. L. 97-34, Sec. 331(d)(1)(C)(ii), (D)(ii), in
catchlines of sections 383, as related to section 382(a) of this
title, before and after amendment by Pub. L. 94-455, Sec.
806(f)(2), inserted reference to employee stock ownership credits.
Pub. L. 97-34, Sec. 331(d)(1)(D)(i), in section 383, as in effect
prior to amendment by Pub. L. 94-455, Sec. 806(f)(2), as related to
section 382(a) of this title, inserted "to any unused credit of the
corporation which could otherwise be carried forward under section
44G(b)(2),".
Pub. L. 97-34, Sec. 331(d)(1)(C)(i), in section 383, as amended
by Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(a) of
this title, inserted "to any unused credit of the corporation under
section 44G(b)(2),".
Pub. L. 97-34, Sec. 221(b)(1)(C)(ii), (D)(ii), in catchlines of
sections 383, as related to section 382(a) of this title, before
and after amendment by Pub. L. 94-455, Sec. 806(f)(2), inserted
reference to research credits.
Pub. L. 97-34, Sec. 221(b)(1)(D)(i), in section 383, as in effect
prior to amendment by Pub. L. 94-455, Sec. 806(f)(2), as related to
section 382(a) of this title, inserted "to any unused credit of the
corporation which could otherwise be carried forward under section
44F(g)(2)," after "section 44E(e)(2),".
Pub. L. 97-34, Sec. 221(b)(1)(C)(i), in section 383, as amended
by Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(a) of
this title, inserted "to any unused credit of the corporation under
section 44F(g)(2)," after "section 44E(e)(2),".
1980 - Pub. L. 96-223, Sec. 232(b)(2)(D), in section 383, as in
effect prior to amendment by Pub. L. 94-455, Sec. 806(f)(2), as
related to section 382(a) of this title, inserted reference to
unused alcohol fuel credits in section catchline and reference to
any unused credit of the corporation which could otherwise be
carried forward under section 44E(e)(2) in text.
Pub. L. 96-223, Sec. 232(b)(2)(C), in section 383, as amended by
Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(a) of
this title, inserted reference to unused alcohol fuel credits in
section catchline and reference to any unused credit of the
corporation under section 44E(e)(2) in text.
Pub. L. 96-222, in sections 383, as related to section 382(a) of
this title, before and after amendment by Pub. L. 94-455, Sec.
806(f)(2), substituted "section 53(b)" for "section 53(c)".
1977 - Pub. L. 95-30, Sec. 202(d)(3)(C), in section 383, as in
effect prior to amendment by Pub. L. 94-455, Sec. 806(f)(2), as
related to section 382(a) of this title, inserted "to any unused
new employee credit of the corporation which could otherwise be
carried forward under section 53(c)" in text and "new employee
credits," in catchline.
Pub. L. 95-30, Sec. 202(d)(3)(B), in section 383, as amended by
Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(a) of
this title, inserted "to any unused new employee credit of the
corporation under section 53(c)" in text and "new employee
credits," in section catchline.
1976 - Pub. L. 94-455, Secs. 1031(b)(5), 1906(b)(13)(A), struck
out "or his delegate" after "Secretary", and substituted "section
904(c)" for "section 904(d)", respectively, in section 383 set out
first.
Pub. L. 94-455, Sec. 806(f)(2), which substituted, in sections
383 as related to section 382(a) and (b) of this title, provisions
that the net operating loss limitations in section 382 shall apply
to unused investment credits under section 46(b), to unused work
incentive program credits under section 50A(b), to excess foreign
taxes under section 904(d) and to net capital losses under section
1212 for provisions that the net operating loss carryover
limitations in section 382 shall apply, in the case of ownership
changes described in section 382(a)(1) or reorganizations specified
in section 381(a)(2) resulting in ownership changes described in
section 382(b)(1)(B), to unused investment credits under section
46(b), to unused work incentive program credits under section
50A(B), to excess foreign taxes under section 904(c), and to net
capital losses under section 1212, was repealed by Pub. L. 99-514,
Sec. 621(e)(1). See Effective Date of 1986 and 1976 Amendment notes
below.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 621(b) of Pub. L. 99-514 applicable to any
ownership change after Dec. 31, 1986, except as otherwise provided,
see section 621(f) of Pub. L. 99-514, as amended, set out as a note
under section 382 of this title.
Repeal of amendment by section 806(f)(1) of Pub. L. 94-455
effective Jan. 1, 1986, with certain exceptions, see section
621(f)(2) of Pub. L. 99-514, set out as a note under section 382 of
this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 221(b)(1)(C), (D) of Pub. L. 97-34
applicable to amounts paid or incurred after June 30, 1981, see
section 221(d) of Pub. L. 97-34, as amended, set out as an
Effective Date note under section 41 of this title.
Amendment by section 331(d)(1)(C), (D) of Pub. L. 97-34
applicable to taxable years beginning after Dec. 31, 1981, see
section 339 of Pub. L. 97-34, set out as a note under section 401
of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-223 applicable to sales or uses after
Sept. 30, 1980, in taxable years ending after such date, see
section 232(h)(1) of Pub. L. 96-223, set out as an Effective Date
note under section 40 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, Nov. 6, 1978, 92 Stat. 2763,
to which such amendment relates, see section 201 of Pub. L. 96-222,
set out as a note under section 32 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1031(b)(5) of Pub. L.
94-455, see section 1031(c) of Pub. L. 94-455, set out as a note
under section 904 of this title.
For purposes of applying this section (as it relates to section
382(a) of this title) as amended by section 806(e), (f) of Pub. L.
94-455, the amendments made by section 806(e), (f) of Pub. L. 94-
455 effective for taxable years beginning after Dec. 31, 1985,
with specified provisions for determining the beginning of the
taxable years specified in section 382(a)(1)(B)(ii) of this title,
and this section (as it relates to section 382(b) of this title) as
amended by section 806(e), (f) of Pub. L. 94-455 to apply (and such
sections as in effect prior to such amendment not to apply) to
reorganizations pursuant to a plan of reorganization adopted by one
or more of the parties thereto on or after Jan. 1, 1986, see
section 806(g)(2), (3) of Pub. L. 94-455, as amended, formerly set
out as a note under section 382 of this title.
EFFECTIVE DATE
Section 302(c) of Pub. L. 92-178 provided that: "The amendments
made by this section [enacting this section] shall be applicable
only with respect to reorganizations and other changes in ownership
occurring after the date of enactment of this Act [Dec. 10, 1971]
pursuant to a plan of reorganization or contract entered into on or
after September 29, 1971."
DELAY IN EFFECTIVE DATE OF 1976 AMENDMENT
For election by taxpayer for application of prior law with
respect to any acquisition or reorganization occurring before the
end of the taxpayer's first taxable year beginning after June 30,
1978, see section 368 of Pub. L. 95-600, set out as a Delay in
Effective Date of 1976 Amendment note under section 382 of this
title.
-End-
-CITE-
26 USC Sec. 384 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART V - CARRYOVERS
-HEAD-
Sec. 384. Limitation on use of preacquisition losses to offset
built-in gains
-STATUTE-
(a) General rule
If -
(1)(A) a corporation acquires directly (or through 1 or more
other corporations) control of another corporation, or
(B) the assets of a corporation are acquired by another
corporation in a reorganization described in subparagraph (A),
(C), or (D) of section 368(a)(1), and
(2) either of such corporations is a gain corporation,
income for any recognition period taxable year (to the extent
attributable to recognized built-in gains) shall not be offset by
any preacquisition loss (other than a preacquisition loss of the
gain corporation).
(b) Exception where corporations under common control
(1) In general
Subsection (a) shall not apply to the preacquisition loss of
any corporation if such corporation and the gain corporation were
members of the same controlled group at all times during the 5-
year period ending on the acquisition date.
(2) Controlled group
For purposes of this subsection, the term "controlled group"
means a controlled group of corporations (as defined in section
1563(a)); except that -
(A) "more than 50 percent" shall be substituted for "at least
80 percent" each place it appears,
(B) the ownership requirements of section 1563(a) must be met
both with respect to voting power and value, and
(C) the determination shall be made without regard to
subsection (a)(4) of section 1563.
(3) Shorter period where corporations not in existence for 5
years
If either of the corporations referred to in paragraph (1) was
not in existence throughout the 5-year period referred to in
paragraph (1), the period during which such corporation was in
existence (or if both, the shorter of such periods) shall be
substituted for such 5-year period.
(c) Definitions
For purposes of this section -
(1) Recognized built-in gain
(A) In general
The term "recognized built-in gain" means any gain recognized
during the recognition period on the disposition of any asset
except to the extent the gain corporation (or, in any case
described in subsection (a)(1)(B), the acquiring corporation)
establishes that -
(i) such asset was not held by the gain corporation on the
acquisition date, or
(ii) such gain exceeds the excess (if any) of -
(I) the fair market value of such asset on the
acquisition date, over
(II) the adjusted basis of such asset on such date.
(B) Treatment of certain income items
Any item of income which is properly taken into account for
any recognition period taxable year but which is attributable
to periods before the acquisition date shall be treated as a
recognized built-in gain for the taxable year in which it is
properly taken into account and shall be taken into account in
determining the amount of the net unrealized built-in gain.
(C) Limitation
The amount of the recognized built-in gains for any
recognition period taxable year shall not exceed -
(i) the net unrealized built-in gain, reduced by
(ii) the recognized built-in gains for prior years ending
in the recognition period which (but for this section) would
have been offset by preacquisition losses.
(2) Acquisition date
The term "acquisition date" means -
(A) in any case described in subsection (a)(1)(A), the date
on which the acquisition of control occurs, or
(B) in any case described in subsection (a)(1)(B), the date
of the transfer in the reorganization.
(3) Preacquisition loss
(A) In general
The term "preacquisition loss" means -
(i) any net operating loss carryforward to the taxable year
in which the acquisition date occurs, and
(ii) any net operating loss for the taxable year in which
the acquisition date occurs to the extent such loss is
allocable to the period in such year on or before the
acquisition date.
Except as provided in regulations, the net operating loss
shall, for purposes of clause (ii), be allocated ratably to
each day in the year.
(B) Treatment of recognized built-in loss
In the case of a corporation with a net unrealized built-in
loss, the term "preacquisition loss" includes any recognized
built-in loss.
(4) Gain corporation
The term "gain corporation" means any corporation with a net
unrealized built-in gain.
(5) Control
The term "control" means ownership of stock in a corporation
which meets the requirements of section 1504(a)(2).
(6) Treatment of members of same group
Except as provided in regulations and except for purposes of
subsection (b), all corporations which are members of the same
affiliated group immediately before the acquisition date shall be
treated as 1 corporation. To the extent provided in regulations,
section 1504 shall be applied without regard to subsection (b)
thereof for purposes of the preceding sentence.
(7) Treatment of predecessors and successors
Any reference in this section to a corporation shall include a
reference to any predecessor or successor thereof.
(8) Other definitions
Except as provided in regulations, the terms "net unrealized
built-in gain", "net unrealized built-in loss", "recognized built-
in loss", "recognition period", and "recognition period taxable
year", have the same respective meanings as when used in section
382(h), except that the acquisition date shall be taken into
account in lieu of the change date.
(d) Limitation also to apply to excess credits or net capital
losses
Rules similar to the rules of subsection (a) shall also apply in
the case of any excess credit (as defined in section 383(a)(2)) or
net capital loss.
(e) Ordering rules for net operating losses, etc.
(1) Carryover rules
If any preacquisition loss may not offset a recognized built-in
gain by reason of this section, such gain shall not be taken into
account in determining under section 172(b)(2) the amount of such
loss which may be carried to other taxable years. A similar rule
shall apply in the case of any excess credit or net capital loss
limited by reason of subsection (d).
(2) Ordering rule for losses carried from same taxable year
In any case in which -
(A) a preacquisition loss for any taxable year is subject to
limitation under subsection (a), and
(B) a net operating loss from such taxable year is not
subject to such limitation,
taxable income shall be treated as having been offset 1st by the
loss subject to such limitation.
(f) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section, including
regulations to ensure that the purposes of this section may not be
circumvented through -
(1) the use of any provision of law or regulations (including
subchapter K of this chapter), or
(2) contributions of property to a corporation.
-SOURCE-
(Added Pub. L. 100-203, title X, Sec. 10226(a), Dec. 22, 1987, 101
Stat. 1330-414; amended Pub. L. 100-647, title II, Sec. 2004(m)(1)-
(4), Nov. 10, 1988, 102 Stat. 3606, 3607; Pub. L. 101-239, title
VII, Sec. 7812(c)(1), Dec. 19, 1989, 103 Stat. 2412.)
-MISC1-
AMENDMENTS
1989 - Subsec. (e)(1). Pub. L. 101-239 substituted "built-in
gain" for "build-in gain".
1988 - Subsec. (a). Pub. L. 100-647, Sec. 2004(m)(1)(A), amended
subsec. (a) generally, making changes in substance and structure.
Subsec. (b). Pub. L. 100-647, Sec. 2004(m)(3), substituted
"corporations under common control" for "50 percent of gain
corporation held" in heading and amended text generally. Prior to
amendment, text read as follows: "Subsection (a) shall not apply if
more than 50 percent of the stock (by vote and value) of the gain
corporation was held throughout the 5-year period ending on the
acquisition date -
"(1) in any case described in subsection (a)(1), by members of
the affiliated group referred to in subsection (a)(1), or
"(2) in any case described in subsection (a)(2), by the
acquiring corporation or members of such acquiring corporation's
affiliated group.
For purposes of the preceding sentence, stock described in section
1504(a)(4) shall not be taken into account."
Subsec. (c)(1)(A). Pub. L. 100-647, Sec. 2004(m)(1)(D),
substituted "subsection (a)(1)(B)" for "subsection (a)(2)".
Subsec. (c)(2). Pub. L. 100-647, Sec. 2004(m)(1)(C), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "The
term 'acquisition date' means the date on which the gain
corporation becomes a member of the affiliated group or, in any
case described in subsection (a)(2), the date of the distribution
or transfer in the liquidation or reorganization."
Subsec. (c)(4) to (8). Pub. L. 100-647, Sec. 2004(m)(1)(B),
redesignated par. (4) as (8) and added pars. (4) to (7).
Subsecs. (e), (f). Pub. L. 100-647, Sec. 2004(m)(2), (4),
substituted "a corporation" for "the gain corporation" in subsec.
(e)(2), redesignated subsec. (e) as (f), and added subsec. (e).
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE
Section 10226(c) of Pub. L. 100-203 provided that: "The
amendments made by this section [enacting this section] shall apply
in cases where the acquisition date (as defined in section
384(c)(2) of the Internal Revenue Code of 1986 as added by this
section) is after December 15, 1987; except that such amendments
shall not apply in the case of any transaction pursuant to -
"(1) a binding written contract in effect on or before December
15, 1987, or
"(2) a letter of intent or agreement of merger signed on or
before December 15, 1987."
ELECTION TO HAVE AMENDMENTS BY PUB. L. 100-647 NOT APPLY
Section 2004(m)(5) of Pub. L. 100-647 provided that: "In any case
where the acquisition date (as defined in section 384(c)(2) of the
1986 Code as amended by this subsection) is before March 31, 1988,
the acquiring corporation may elect to have the amendments made by
this subsection not apply. Such an election shall be made in such
manner as the Secretary of the Treasury or his delegate shall
prescribe and shall be made not later than the later of the due
date (including extensions) for filing the return for the taxable
year of the acquiring corporation in which the acquisition date
occurs or the date 120 days after the date of the enactment of this
Act [Nov. 10, 1989]. Such an election, once made, shall be
irrevocable."
-End-
-CITE-
26 USC PART VI - TREATMENT OF CERTAIN CORPORATE INTERESTS
AS STOCK OR INDEBTEDNESS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART VI - TREATMENT OF CERTAIN CORPORATE INTERESTS AS STOCK OR
INDEBTEDNESS
-HEAD-
PART VI - TREATMENT OF CERTAIN CORPORATE INTERESTS AS STOCK OR
INDEBTEDNESS
-MISC1-
Sec.
385. Treatment of certain interests in corporations as
stock or indebtedness.
AMENDMENTS
1969 - Pub. L. 91-172, title IV, Sec. 415(a), Dec. 30, 1969, 83
Stat. 613, added part heading and analysis of sections.
-End-
-CITE-
26 USC Sec. 385 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART VI - TREATMENT OF CERTAIN CORPORATE INTERESTS AS STOCK OR
INDEBTEDNESS
-HEAD-
Sec. 385. Treatment of certain interests in corporations as stock
or indebtedness
-STATUTE-
(a) Authority to prescribe regulations
The Secretary is authorized to prescribe such regulations as may
be necessary or appropriate to determine whether an interest in a
corporation is to be treated for purposes of this title as stock or
indebtedness (or as in part stock and in part indebtedness).
(b) Factors
The regulations prescribed under this section shall set forth
factors which are to be taken into account in determining with
respect to a particular factual situation whether a debtor-creditor
relationship exists or a corporation-shareholder relationship
exists. The factors so set forth in the regulations may include
among other factors:
(1) whether there is a written unconditional promise to pay on
demand or on a specified date a sum certain in money in return
for an adequate consideration in money or money's worth, and to
pay a fixed rate of interest,
(2) whether there is subordination to or preference over any
indebtedness of the corporation,
(3) the ratio of debt to equity of the corporation,
(4) whether there is convertibility into the stock of the
corporation, and
(5) the relationship between holdings of stock in the
corporation and holdings of the interest in question.
(c) Effect of classification by issuer
(1) In general
The characterization (as of the time of issuance) by the issuer
as to whether an interest in a corporation is stock or
indebtedness shall be binding on such issuer and on all holders
of such interest (but shall not be binding on the Secretary).
(2) Notification of inconsistent treatment
Except as provided in regulations, paragraph (1) shall not
apply to any holder of an interest if such holder on his return
discloses that he is treating such interest in a manner
inconsistent with the characterization referred to in paragraph
(1).
(3) Regulations
The Secretary is authorized to require such information as the
Secretary determines to be necessary to carry out the provisions
of this subsection.
-SOURCE-
(Added Pub. L. 91-172, title IV, Sec. 415(a), Dec. 30, 1969, 83
Stat. 613; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 101-239, title VII, Sec.
7208(a)(1), Dec. 19, 1989, 103 Stat. 2337; Pub. L. 102-486, title
XIX, Sec. 1936(a), Oct. 24, 1992, 106 Stat. 3032.)
-MISC1-
AMENDMENTS
1992 - Subsec. (c). Pub. L. 102-486 added subsec. (c).
1989 - Subsec. (a). Pub. L. 101-239 inserted "(or as in part
stock and in part indebtedness)" before period at end.
1976 - Subsec. (a). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1936(b) of Pub. L. 102-486 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
instruments issued after the date of the enactment of this Act
[Oct. 24, 1992]."
REGULATIONS NOT TO BE APPLIED RETROACTIVELY
Section 7208(a)(2) of Pub. L. 101-239 provided that: "Any
regulations issued pursuant to the authority granted by the
amendment made by paragraph (1) [amending this section] shall only
apply with respect to instruments issued after the date on which
the Secretary of the Treasury or his delegate provides public
guidance as to the characterization of such instruments whether by
regulation, ruling, or otherwise."
-End-
-CITE-
26 USC [PART VII - REPEALED] 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART VII - REPEALED]
-HEAD-
[PART VII - REPEALED]
-End-
-CITE-
26 USC Sec. 386 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART VII - REPEALED]
-HEAD-
[Sec. 386. Repealed. Pub. L. 100-647, title I, Sec. 1006(e)(8)(A),
Nov. 10, 1988, 102 Stat. 3401]
-MISC1-
Section, added Pub. L. 98-369, div. A, title I, Sec. 75(a), July
18, 1984, 98 Stat. 594; amended Pub. L. 99-514, title XVIII, Sec.
1805(c)(1), Oct. 22, 1986, 100 Stat. 2810, related to transfers of
partnership and trust interests by corporations.
EFFECTIVE DATE OF REPEAL
Repeal effective, except as otherwise provided, as if included in
the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L. 100-
647, set out as an Effective Date of 1988 Amendment note under
section 1 of this title.
-End-
-CITE-
26 USC Secs. 391 to 395 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART VII - REPEALED]
-HEAD-
[Secs. 391 to 395. Repealed. Pub. L. 94-455, title XIX, Sec.
1901(a)(55), Oct. 4, 1976, 90 Stat. 1773]
-MISC1-
Section 391, acts Aug. 16, 1954, ch. 736, 68A Stat. 131; Sept. 2,
1958, Pub. L. 85-866, title I, Sec. 22(a), 72 Stat. 1620, related
to effective date of section 301 et seq. of this title.
Section 392, act Aug. 16, 1954, ch. 736, 68A Stat. 131, related
to effective date of section 331 et seq. of this title.
Section 393, act Aug. 16, 1954, ch. 736, 68A Stat. 132, related
to effective date of section 351 et seq. of this title.
Section 394, act Aug. 16, 1954, ch. 736, 68A Stat. 133, related
to effective date of section 381 et seq. of this title.
Section 395, act Aug. 16, 1954, ch. 736, 68A Stat. 133, related
to special rules for application of this subchapter.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
-CITE-
26 USC Subchapter D - Deferred Compensation, Etc. 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
-HEAD-
SUBCHAPTER D - DEFERRED COMPENSATION, ETC.
-MISC1-
Part
I. Pension, profit-sharing, stock bonus plans, etc.
II. Certain stock options.
AMENDMENTS
1964 - Pub. L. 88-272, title II, Sec. 221(d)(1), Feb. 26, 1964,
78 Stat. 75, substituted "Certain stock options" for "Miscellaneous
provisions" in heading to part II.
-End-
-CITE-
26 USC PART I - PENSION, PROFIT-SHARING, STOCK BONUS
PLANS, ETC. 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
-HEAD-
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
-MISC1-
Subpart
A. General rule.
B. Special rules.
C. Special rules for multiemployer plans.
D. Treatment of welfare benefit funds.
E. Treatment of transfers to retiree health accounts.(!1)
AMENDMENTS
1984 - Pub. L. 98-369, div. A, title V, Sec. 511(d), July 18,
1984, 98 Stat. 862, added heading for subpart D.
1980 - Pub. L. 96-364, title II, Sec. 202(b), Sept. 26, 1980, 94
Stat. 1285, added heading for subpart C.
-FOOTNOTE-
(!1) Editorially supplied. Subpart E of part I added by Pub. L.
101-508 without corresponding amendment of part analysis.
-End-
-CITE-
26 USC Subpart A - General Rule 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
SUBPART A - GENERAL RULE
-MISC1-
Sec.
401. Qualified pension, profit-sharing, and stock bonus
plans.
402. Taxability of beneficiary of employees' trust.
402A. Optional treatment of elective deferrals as Roth
contributions.
403. Taxation of employee annuities.
404. Deduction for contributions of an employer to an
employees' trust or annuity plan and compensation
under a deferred-payment plan.
404A. Deduction for certain foreign deferred compensation
plans.
[405. Repealed.]
406. Employees of foreign affiliates covered by section
3121(l) agreements.
407. Certain employees of domestic subsidiaries engaged in
business outside the United States.
408. Individual retirement accounts.
408A. Roth IRAs.
409. Qualifications for tax credit employee stock ownership
plans.
409A. Inclusion in gross income of deferred compensation
under nonqualified deferred compensation plans.
AMENDMENTS
2004 - Pub. L. 108-357, title VIII, Sec. 885(c), Oct. 22, 2004,
118 Stat. 1640, added item 409A.
2001 - Pub. L. 107-16, title VI, Sec. 617(e)(2), June 7, 2001,
115 Stat. 106, added item 402A.
1997 - Pub. L. 105-34, title III, Sec. 302(e), Aug. 5, 1997, 111
Stat. 829, added item 408A.
1986 - Pub. L. 99-514, title XVIII, Sec. 1899A(70), Oct. 22,
1986, 100 Stat. 2963, substituted "Qualifications" for
"Qualification" in item 409.
1984 - Pub. L. 98-369, div. A, title IV, Sec. 491(d)(54),
(e)(10), July 18, 1984, 98 Stat. 852, 853, struck out items 405 and
409, which read "Qualified bond purchase plans" and "Retirement
bonds", respectively, and redesignated item 409A as 409.
1983 - Pub. L. 98-21, title III, Sec. 321(e)(2)(D)(ii), Apr. 20,
1983, 97 Stat. 120, substituted "Employees of foreign affiliates
covered by section 3121(l) agreements" for "Certain employees of
foreign subsidiaries" in item 406.
1980 - Pub. L. 96-603, Sec. 2(d)(1), Dec. 28, 1980, 94 Stat.
3510, added item 404A.
Pub. L. 96-222, title I, Sec. 101(a)(7)(L)(v)(VIII), Apr. 1,
1980, 94 Stat. 200, substituted "tax credit employee stock
ownership plans" for "ESOPS" in item 409A.
1978 - Pub. L. 95-600, title I, Sec. 141(f)(8), Nov. 6, 1978, 92
Stat. 2795, added item 409A.
1974 - Pub. L. 93-406, title II, Sec. 1016(b)(1), Sept. 2, 1974,
88 Stat. 932, inserted heading "Subpart A - General Rule" and added
analysis of subparts.
Pub. L. 93-406, title II, Sec. 2002(h)(2), Sept. 2, 1974, 88
Stat. 970, added items 408 and 409.
1964 - Pub. L. 88-272, title II, Sec. 220(c)(1), Feb. 26, 1964,
78 Stat. 62, added items 406 and 407.
1962 - Pub. L. 87-792, Sec. 5(b), Oct. 10, 1962, 76 Stat. 827,
added item 405.
-End-
-CITE-
26 USC Sec. 401 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 401. Qualified pension, profit-sharing, and stock bonus plans
-STATUTE-
(a) Requirements for qualification
A trust created or organized in the United States and forming
part of a stock bonus, pension, or profit-sharing plan of an
employer for the exclusive benefit of his employees or their
beneficiaries shall constitute a qualified trust under this section
-
(1) if contributions are made to the trust by such employer, or
employees, or both, or by another employer who is entitled to
deduct his contributions under section 404(a)(3)(B) (relating to
deduction for contributions to profit-sharing and stock bonus
plans), or by a charitable remainder trust pursuant to a
qualified gratuitous transfer (as defined in section 664(g)(1)),
for the purpose of distributing to such employees or their
beneficiaries the corpus and income of the fund accumulated by
the trust in accordance with such plan;
(2) if under the trust instrument it is impossible, at any time
prior to the satisfaction of all liabilities with respect to
employees and their beneficiaries under the trust, for any part
of the corpus or income to be (within the taxable year or
thereafter) used for, or diverted to, purposes other than for the
exclusive benefit of his employees or their beneficiaries (but
this paragraph shall not be construed, in the case of a
multiemployer plan, to prohibit the return of a contribution
within 6 months after the plan administrator determines that the
contribution was made by a mistake of fact or law (other than a
mistake relating to whether the plan is described in section
401(a) or the trust which is part of such plan is exempt from
taxation under section 501(a), or the return of any withdrawal
liability payment determined to be an overpayment within 6 months
of such determination).; (!1)
(3) if the plan of which such trust is a part satisfies the
requirements of section 410 (relating to minimum participation
standards); and
(4) if the contributions or benefits provided under the plan do
not discriminate in favor of highly compensated employees (within
the meaning of section 414(q)). For purposes of this paragraph,
there shall be excluded from consideration employees described in
section 410(b)(3)(A) and (C).
(5) Special rules relating to nondiscrimination requirements. -
(A) Salaried or clerical employees. - A classification shall
not be considered discriminatory within the meaning of
paragraph (4) or section 410(b)(2)(A)(i) merely because it is
limited to salaried or clerical employees.
(B) Contributions and benefits may bear uniform relationship
to compensation. - A plan shall not be considered
discriminatory within the meaning of paragraph (4) merely
because the contributions or benefits of, or on behalf of, the
employees under the plan bear a uniform relationship to the
compensation (within the meaning of section 414(s)) of such
employees.
(C) Certain disparity permitted. - A plan shall not be
considered discriminatory within the meaning of paragraph (4)
merely because the contributions or benefits of, or on behalf
of, the employees under the plan favor highly compensated
employees (as defined in section 414(q)) in the manner
permitted under subsection (l).
(D) Integrated defined benefit plan. -
(i) In general. - A defined benefit plan shall not be
considered discriminatory within the meaning of paragraph (4)
merely because the plan provides that the employer-derived
accrued retirement benefit for any participant under the plan
may not exceed the excess (if any) of -
(I) the participant's final pay with the employer, over
(II) the employer-derived retirement benefit created
under Federal law attributable to service by the
participant with the employer.
For purposes of this clause, the employer-derived retirement
benefit created under Federal law shall be treated as
accruing ratably over 35 years.
(ii) Final pay. - For purposes of this subparagraph, the
participant's final pay is the compensation (as defined in
section 414(q)(4)) paid to the participant by the employer
for any year -
(I) which ends during the 5-year period ending with the
year in which the participant separated from service for
the employer, and
(II) for which the participant's total compensation from
the employer was highest.
(E) 2 or more plans treated as single plan. - For purposes of
determining whether 2 or more plans of an employer satisfy the
requirements of paragraph (4) when considered as a single plan -
(i) Contributions. - If the amount of contributions on
behalf of the employees allowed as a deduction under section
404 for the taxable year with respect to such plans, taken
together, bears a uniform relationship to the compensation
(within the meaning of section 414(s)) of such employees, the
plans shall not be considered discriminatory merely because
the rights of employees to, or derived from, the employer
contributions under the separate plans do not become
nonforfeitable at the same rate.
(ii) Benefits. - If the employees' rights to benefits under
the separate plans do not become nonforfeitable at the same
rate, but the levels of benefits provided by the separate
plans satisfy the requirements of regulations prescribed by
the Secretary to take account of the differences in such
rates, the plans shall not be considered discriminatory
merely because of the difference in such rates.
(F) Social security retirement age. - For purposes of testing
for discrimination under paragraph (4) -
(i) the social security retirement age (as defined in
section 415(b)(8)) shall be treated as a uniform retirement
age, and
(ii) subsidized early retirement benefits and joint and
survivor annuities shall not be treated as being unavailable
to employees on the same terms merely because such benefits
or annuities are based in whole or in part on an employee's
social security retirement age (as so defined).
(G) State and local governmental plans. - Paragraphs (3) and
(4) shall not apply to a governmental plan (within the meaning
of section 414(d)) maintained by a State or local government or
political subdivision thereof (or agency or instrumentality
thereof).
(6) A plan shall be considered as meeting the requirements of
paragraph (3) during the whole of any taxable year of the plan if
on one day in each quarter it satisfied such requirements.
(7) A trust shall not constitute a qualified trust under this
section unless the plan of which such trust is a part satisfies
the requirements of section 411 (relating to minimum vesting
standards).
(8) A trust forming part of a defined benefit plan shall not
constitute a qualified trust under this section unless the plan
provides that forfeitures must not be applied to increase the
benefits any employee would otherwise receive under the plan.
(9) Required distributions. -
(A) In general. - A trust shall not constitute a qualified
trust under this subsection unless the plan provides that the
entire interest of each employee -
(i) will be distributed to such employee not later than the
required beginning date, or
(ii) will be distributed, beginning not later than the
required beginning date, in accordance with regulations, over
the life of such employee or over the lives of such employee
and a designated beneficiary (or over a period not extending
beyond the life expectancy of such employee or the life
expectancy of such employee and a designated beneficiary).
(B) Required distribution where employee dies before entire
interest is distributed. -
(i) Where distributions have begun under subparagraph
(A)(ii). - A trust shall not constitute a qualified trust
under this section unless the plan provides that if -
(I) the distribution of the employee's interest has begun
in accordance with subparagraph (A)(ii), and
(II) the employee dies before his entire interest has
been distributed to him,
the remaining portion of such interest will be distributed at
least as rapidly as under the method of distributions being
used under subparagraph (A)(ii) as of the date of his death.
(ii) 5-year rule for other cases. - A trust shall not
constitute a qualified trust under this section unless the
plan provides that, if an employee dies before the
distribution of the employee's interest has begun in
accordance with subparagraph (A)(ii), the entire interest of
the employee will be distributed within 5 years after the
death of such employee.
(iii) Exception to 5-year rule for certain amounts payable
over life of beneficiary. - If -
(I) any portion of the employee's interest is payable to
(or for the benefit of) a designated beneficiary,
(II) such portion will be distributed (in accordance with
regulations) over the life of such designated beneficiary
(or over a period not extending beyond the life expectancy
of such beneficiary), and
(III) such distributions begin not later than 1 year
after the date of the employee's death or such later date
as the Secretary may by regulations prescribe,
for purposes of clause (ii), the portion referred to in
subclause (I) shall be treated as distributed on the date on
which such distributions begin.
(iv) Special rule for surviving spouse of employee. - If
the designated beneficiary referred to in clause (iii)(I) is
the surviving spouse of the employee -
(I) the date on which the distributions are required to
begin under clause (iii)(III) shall not be earlier than the
date on which the employee would have attained age 70 1/2 ,
and
(II) if the surviving spouse dies before the
distributions to such spouse begin, this subparagraph shall
be applied as if the surviving spouse were the employee.
(C) Required beginning date. - For purposes of this paragraph
-
(i) In general. - The term "required beginning date" means
April 1 of the calendar year following the later of -
(I) the calendar year in which the employee attains age
70 1/2 , or
(II) the calendar year in which the employee retires.
(ii) Exception. - Subclause (II) of clause (i) shall not
apply -
(I) except as provided in section 409(d), in the case of
an employee who is a 5-percent owner (as defined in section
416) with respect to the plan year ending in the calendar
year in which the employee attains age 70 1/2 , or
(II) for purposes of section 408(a)(6) or (b)(3).
(iii) Actuarial adjustment. - In the case of an employee to
whom clause (i)(II) applies who retires in a calendar year
after the calendar year in which the employee attains age 70
1/2 , the employee's accrued benefit shall be actuarially
increased to take into account the period after age 70 1/2
in which the employee was not receiving any benefits under
the plan.
(iv) Exception for governmental and church plans. - Clauses
(ii) and (iii) shall not apply in the case of a governmental
plan or church plan. For purposes of this clause, the term
"church plan" means a plan maintained by a church for church
employees, and the term "church" means any church (as defined
in section 3121(w)(3)(A)) or qualified church-controlled
organization (as defined in section 3121(w)(3)(B)).
(D) Life expectancy. - For purposes of this paragraph, the
life expectancy of an employee and the employee's spouse (other
than in the case of a life annuity) may be redetermined but not
more frequently than annually.
(E) Designated beneficiary. - For purposes of this paragraph,
the term "designated beneficiary" means any individual
designated as a beneficiary by the employee.
(F) Treatment of payments to children. - Under regulations
prescribed by the Secretary, for purposes of this paragraph,
any amount paid to a child shall be treated as if it had been
paid to the surviving spouse if such amount will become payable
to the surviving spouse upon such child reaching majority (or
other designated event permitted under regulations).
(G) Treatment of incidental death benefit distributions. -
For purposes of this title, any distribution required under the
incidental death benefit requirements of this subsection shall
be treated as a distribution required under this paragraph.
(10) Other requirements. -
(A) Plans benefiting owner-employees. - In the case of any
plan which provides contributions or benefits for employees
some or all of whom are owner-employees (as defined in
subsection (c)(3)), a trust forming part of such plan shall
constitute a qualified trust under this section only if the
requirements of subsection (d) are also met.
(B) Top-heavy plans. -
(i) In general. - In the case of any top-heavy plan, a
trust forming part of such plan shall constitute a qualified
trust under this section only if the requirements of section
416 are met.
(ii) Plans which may become top-heavy. - Except to the
extent provided in regulations, a trust forming part of a
plan (whether or not a top-heavy plan) shall constitute a
qualified trust under this section only if such plan contains
provisions -
(I) which will take effect if such plan becomes a top-
heavy plan, and
(II) which meet the requirements of section 416.
(iii) Exemption for governmental plans. - This subparagraph
shall not apply to any governmental plan.
(11) Requirement of joint and survivor annuity and
preretirement survivor annuity. -
(A) In general. - In the case of any plan to which this
paragraph applies, except as provided in section 417, a trust
forming part of such plan shall not constitute a qualified
trust under this section unless -
(i) in the case of a vested participant who does not die
before the annuity starting date, the accrued benefit payable
to such participant is provided in the form of a qualified
joint and survivor annuity, and
(ii) in the case of a vested participant who dies before
the annuity starting date and who has a surviving spouse, a
qualified preretirement survivor annuity is provided to the
surviving spouse of such participant.
(B) Plans to which paragraph applies. - This paragraph shall
apply to -
(i) any defined benefit plan,
(ii) any defined contribution plan which is subject to the
funding standards of section 412, and
(iii) any participant under any other defined contribution
plan unless -
(I) such plan provides that the participant's
nonforfeitable accrued benefit (reduced by any security
interest held by the plan by reason of a loan outstanding
to such participant) is payable in full, on the death of
the participant, to the participant's surviving spouse (or,
if there is no surviving spouse or the surviving spouse
consents in the manner required under section 417(a)(2), to
a designated beneficiary),
(II) such participant does not elect a payment of
benefits in the form of a life annuity, and
(III) with respect to such participant, such plan is not
a direct or indirect transferee (in a transfer after
December 31, 1984) of a plan which is described in clause
(i) or (ii) or to which this clause applied with respect to
the participant.
Clause (iii)(III) shall apply only with respect to the
transferred assets (and income therefrom) if the plan
separately accounts for such assets and any income therefrom.
(C) Exception for certain ESOP benefits. -
(i) In general. - In the case of -
(I) a tax credit employee stock ownership plan (as
defined in section 409(a)), or
(II) an employee stock ownership plan (as defined in
section 4975(e)(7)),
subparagraph (A) shall not apply to that portion of the
employee's accrued benefit to which the requirements of
section 409(h) apply.
(ii) Nonforfeitable benefit must be paid in full, etc. - In
the case of any participant, clause (i) shall apply only if
the requirements of subclauses (I), (II), and (III) of
subparagraph (B)(iii) are met with respect to such
participant.
(D) Special rule where participant and spouse married less
than 1 year. - A plan shall not be treated as failing to meet
the requirements of subparagraphs (B)(iii) or (C) merely
because the plan provides that benefits will not be payable to
the surviving spouse of the participant unless the participant
and such spouse had been married throughout the 1-year period
ending on the earlier of the participant's annuity starting
date or the date of the participant's death.
(E) Exception for plans described in section 404(c). - This
paragraph shall not apply to a plan which the Secretary has
determined is a plan described in section 404(c) (or a
continuation thereof) in which participation is substantially
limited to individuals who, before January 1, 1976, ceased
employment covered by the plan.
(F) Cross reference. - For -
(i) provisions under which participants may elect to waive
the requirements of this paragraph, and
(ii) other definitions and special rules for purposes of
this paragraph,
see section 417.
(12) A trust shall not constitute a qualified trust under this
section unless the plan of which such trust is a part provides
that in the case of any merger or consolidation with, or transfer
of assets or liabilities to, any other plan after September 2,
1974, each participant in the plan would (if the plan then
terminated) receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately before
the merger, consolidation, or transfer (if the plan had then
terminated). The preceding sentence does not apply to any
multiemployer plan with respect to any transaction to the extent
that participants either before or after the transaction are
covered under a multiemployer plan to which title IV of the
Employee Retirement Income Security Act of 1974 applies.
(13) Assignment and alienation. -
(A) In general. - A trust shall not constitute a qualified
trust under this section unless the plan of which such trust is
a part provides that benefits provided under the plan may not
be assigned or alienated. For purposes of the preceding
sentence, there shall not be taken into account any voluntary
and revocable assignment of not to exceed 10 percent of any
benefit payment made by any participant who is receiving
benefits under the plan unless the assignment or alienation is
made for purposes of defraying plan administration costs. For
purposes of this paragraph a loan made to a participant or
beneficiary shall not be treated as an assignment or alienation
if such loan is secured by the participant's accrued
nonforfeitable benefit and is exempt from the tax imposed by
section 4975 (relating to tax on prohibited transactions) by
reason of section 4975(d)(1). This paragraph shall take effect
on January 1, 1976 and shall not apply to assignments which
were irrevocable on September 2, 1974.
(B) Special rules for domestic relations orders. -
Subparagraph (A) shall apply to the creation, assignment, or
recognition of a right to any benefit payable with respect to a
participant pursuant to a domestic relations order, except that
subparagraph (A) shall not apply if the order is determined to
be a qualified domestic relations order.
(C) Special rule for certain judgments and settlements. -
Subparagraph (A) shall not apply to any offset of a
participant's benefits provided under a plan against an amount
that the participant is ordered or required to pay to the plan
if -
(i) the order or requirement to pay arises -
(I) under a judgment of conviction for a crime involving
such plan,
(II) under a civil judgment (including a consent order or
decree) entered by a court in an action brought in
connection with a violation (or alleged violation) of part
4 of subtitle B of title I of the Employee Retirement
Income Security Act of 1974, or
(III) pursuant to a settlement agreement between the
Secretary of Labor and the participant, or a settlement
agreement between the Pension Benefit Guaranty Corporation
and the participant, in connection with a violation (or
alleged violation) of part 4 of such subtitle by a
fiduciary or any other person,
(ii) the judgment, order, decree, or settlement agreement
expressly provides for the offset of all or part of the
amount ordered or required to be paid to the plan against the
participant's benefits provided under the plan, and
(iii) in a case in which the survivor annuity requirements
of section 401(a)(11) apply with respect to distributions
from the plan to the participant, if the participant has a
spouse at the time at which the offset is to be made -
(I) either such spouse has consented in writing to such
offset and such consent is witnessed by a notary public or
representative of the plan (or it is established to the
satisfaction of a plan representative that such consent may
not be obtained by reason of circumstances described in
section 417(a)(2)(B)), or an election to waive the right of
the spouse to either a qualified joint and survivor annuity
or a qualified preretirement survivor annuity is in effect
in accordance with the requirements of section 417(a),
(II) such spouse is ordered or required in such judgment,
order, decree, or settlement to pay an amount to the plan
in connection with a violation of part 4 of such subtitle,
or
(III) in such judgment, order, decree, or settlement,
such spouse retains the right to receive the survivor
annuity under a qualified joint and survivor annuity
provided pursuant to section 401(a)(11)(A)(i) and under a
qualified preretirement survivor annuity provided pursuant
to section 401(a)(11)(A)(ii), determined in accordance with
subparagraph (D).
A plan shall not be treated as failing to meet the requirements
of this subsection, subsection (k), section 403(b), or section
409(d) solely by reason of an offset described in this
subparagraph.
(D) Survivor annuity. -
(i) In general. - The survivor annuity described in
subparagraph (C)(iii)(III) shall be determined as if -
(I) the participant terminated employment on the date of
the offset,
(II) there was no offset,
(III) the plan permitted commencement of benefits only on
or after normal retirement age,
(IV) the plan provided only the minimum-required
qualified joint and survivor annuity, and
(V) the amount of the qualified preretirement survivor
annuity under the plan is equal to the amount of the
survivor annuity payable under the minimum-required
qualified joint and survivor annuity.
(ii) Definition. - For purposes of this subparagraph, the
term "minimum-required qualified joint and survivor annuity"
means the qualified joint and survivor annuity which is the
actuarial equivalent of the participant's accrued benefit
(within the meaning of section 411(a)(7)) and under which the
survivor annuity is 50 percent of the amount of the annuity
which is payable during the joint lives of the participant
and the spouse.
(14) A trust shall not constitute a qualified trust under this
section unless the plan of which such trust is a part provides
that, unless the participant otherwise elects, the payment of
benefits under the plan to the participant will begin not later
than the 60th day after the latest of the close of the plan year
in which -
(A) the date on which the participant attains the earlier of
age 65 or the normal retirement age specified under the plan,
(B) occurs the 10th anniversary of the year in which the
participant commenced participation in the plan, or
(C) the participant terminates his service with the employer.
In the case of a plan which provides for the payment of an early
retirement benefit, a trust forming a part of such plan shall not
constitute a qualified trust under this section unless a
participant who satisfied the service requirements for such early
retirement benefit, but separated from the service (with any
nonforfeitable right to an accrued benefit) before satisfying the
age requirement for such early retirement benefit, is entitled
upon satisfaction of such age requirement to receive a benefit
not less than the benefit to which he would be entitled at the
normal retirement age, actuarially, reduced under regulations
prescribed by the Secretary.
(15) a (!2) trust shall not constitute a qualified trust under
this section unless under the plan of which such trust is a part -
(A) in the case of a participant or beneficiary who is
receiving benefits under such plan, or
(B) in the case of a participant who is separated from the
service and who has nonforfeitable rights to benefits,
such benefits are not decreased by reason of any increase in the
benefit levels payable under title II of the Social Security Act
or any increase in the wage base under such title II, if such
increase takes place after September 2, 1974, or (if later) the
earlier of the date of first receipt of such benefits or the date
of such separation, as the case may be.
(16) A trust shall not constitute a qualified trust under this
section if the plan of which such trust is a part provides for
benefits or contributions which exceed the limitations of section
415.
(17) Compensation limit. -
(A) In general. - A trust shall not constitute a qualified
trust under this section unless, under the plan of which such
trust is a part, the annual compensation of each employee taken
into account under the plan for any year does not exceed
$200,000.
(B) Cost-of-living adjustment. - The Secretary shall adjust
annually the $200,000 amount in subparagraph (A) for increases
in the cost-of-living at the same time and in the same manner
as adjustments under section 415(d); except that the base
period shall be the calendar quarter beginning July 1, 2001,
and any increase which is not a multiple of $5,000 shall be
rounded to the next lowest multiple of $5,000.
[(18) Repealed. Pub. L. 97-248, title II, Sec. 237(b), Sept. 3,
1982, 96 Stat. 511.]
(19) A trust shall not constitute a qualified trust under this
section if under the plan of which such trust is a part any part
of a participant's accrued benefit derived from employer
contributions (whether or not otherwise nonforfeitable), is
forfeitable solely because of withdrawal by such participant of
any amount attributable to the benefit derived from contributions
made by such participant. The preceding sentence shall not apply
to the accrued benefit of any participant unless, at the time of
such withdrawal, such participant has a nonforfeitable right to
at least 50 percent of such accrued benefit (as determined under
section 411). The first sentence of this paragraph shall not
apply to the extent that an accrued benefit is permitted to be
forfeited in accordance with section 411(a)(3)(D)(iii) (relating
to proportional forfeitures of benefits accrued before September
2, 1974, in the event of withdrawal of certain mandatory
contributions).
(20) A trust forming part of a pension plan shall not be
treated as failing to constitute a qualified trust under this
section merely because the pension plan of which such trust is a
part makes 1 or more distributions within 1 taxable year to a
distributee on account of a termination of the plan of which the
trust is a part, or in the case of a profit-sharing or stock
bonus plan, a complete discontinuance of contributions under such
plan. This paragraph shall not apply to a defined benefit plan
unless the employer maintaining such plan files a notice with the
Pension Benefit Guaranty Corporation (at the time and in the
manner prescribed by the Pension Benefit Guaranty Corporation)
notifying the Corporation of such payment or distribution and the
Corporation has approved such payment or distribution or, within
90 days after the date on which such notice was filed, has failed
to disapprove such payment or distribution. For purposes of this
paragraph, rules similar to the rules of section 402(a)(6)(B) (as
in effect before its repeal by section 521 of the Unemployment
Compensation Amendments of 1992) shall apply.
[(21) Repealed. Pub. L. 99-514, title XI, Sec. 1171(b)(5), Oct.
22, 1986, 100 Stat. 2513.]
(22) If a defined contribution plan (other than a profit-
sharing plan) -
(A) is established by an employer whose stock is not readily
tradable on an established market, and
(B) after acquiring securities of the employer, more than 10
percent of the total assets of the plan are securities of the
employer,
any trust forming part of such plan shall not constitute a
qualified trust under this section unless the plan meets the
requirements of subsection (e) of section 409. The requirements
of subsection (e) of section 409 shall not apply to any employees
of an employer who are participants in any defined contribution
plan established and maintained by such employer if the stock of
such employer is not readily tradable on an established market
and the trade or business of such employer consists of publishing
on a regular basis a newspaper for general circulation. For
purposes of the preceding sentence, subsections (b), (c), (m),
and (o) of section 414 shall not apply except for determining
whether stock of the employer is not readily tradable on an
established market.
(23) A stock bonus plan shall not be treated as meeting the
requirements of this section unless such plan meets the
requirements of subsections (h) and (o) of section 409, except
that in applying section 409(h) for purposes of this paragraph,
the term "employer securities" shall include any securities of
the employer held by the plan.
(24) Any group trust which otherwise meets the requirements of
this section shall not be treated as not meeting such
requirements on account of the participation or inclusion in such
trust of the moneys of any plan or governmental unit described in
section 818(a)(6).
(25) Requirement that actuarial assumptions be specified. - A
defined benefit plan shall not be treated as providing definitely
determinable benefits unless, whenever the amount of any benefit
is to be determined on the basis of actuarial assumptions, such
assumptions are specified in the plan in a way which precludes
employer discretion.
(26) Additional participation requirements. -
(A) In general. - In the case of a trust which is a part of a
defined benefit plan, such trust shall not constitute a
qualified trust under this subsection unless on each day of the
plan year such trust benefits at least the lesser of -
(i) 50 employees of the employer, or
(ii) the greater of -
(I) 40 percent of all employees of the employer, or
(II) 2 employees (or if there is only 1 employee, such
employee).
(B) Treatment of excludable employees. -
(i) In general. - A plan may exclude from consideration
under this paragraph employees described in paragraphs (3)
and (4)(A) of section 410(b).
(ii) Separate application for certain excludable employees.
- If employees described in section 410(b)(4)(B) are covered
under a plan which meets the requirements of subparagraph (A)
separately with respect to such employees, such employees may
be excluded from consideration in determining whether any
plan of the employer meets such requirements if -
(I) the benefits for such employees are provided under
the same plan as benefits for other employees,
(II) the benefits provided to such employees are not
greater than comparable benefits provided to other
employees under the plan, and
(III) no highly compensated employee (within the meaning
of section 414(q)) is included in the group of such
employees for more than 1 year.
(C) Special rule for collective bargaining units. - Except to
the extent provided in regulations, a plan covering only
employees described in section 410(b)(3)(A) may exclude from
consideration any employees who are not included in the unit or
units in which the covered employees are included.
(D) Paragraph not to apply to multiemployer plans. - Except
to the extent provided in regulations, this paragraph shall not
apply to employees in a multiemployer plan (within the meaning
of section 414(f)) who are covered by collective bargaining
agreements.
(E) Special rule for certain dispositions or acquisitions. -
Rules similar to the rules of section 410(b)(6)(C) shall apply
for purposes of this paragraph.
(F) Separate lines of business. - At the election of the
employer and with the consent of the Secretary, this paragraph
may be applied separately with respect to each separate line of
business of the employer. For purposes of this paragraph, the
term "separate line of business" has the meaning given such
term by section 414(r) (without regard to paragraph (2)(A) or
(7) thereof).
(G) Exception for state and local governmental plans. - This
paragraph shall not apply to a governmental plan (within the
meaning of section 414(d)) maintained by a State or local
government or political subdivision thereof (or agency or
instrumentality thereof).
(H) Regulations. - The Secretary may by regulation provide
that any separate benefit structure, any separate trust, or any
other separate arrangement is to be treated as a separate plan
for purposes of applying this paragraph.
(27) Determinations as to profit-sharing plans. -
(A) Contributions need not be based on profits. - The
determination of whether the plan under which any contributions
are made is a profit-sharing plan shall be made without regard
to current or accumulated profits of the employer and without
regard to whether the employer is a tax-exempt organization.
(B) Plan must designate type. - In the case of a plan which
is intended to be a money purchase pension plan or a profit-
sharing plan, a trust forming part of such plan shall not
constitute a qualified trust under this subsection unless the
plan designates such intent at such time and in such manner as
the Secretary may prescribe.
(28) Additional requirements relating to employee stock
ownership plans. -
(A) In general. - In the case of a trust which is part of an
employee stock ownership plan (within the meaning of section
4975(e)(7)) or a plan which meets the requirements of section
409(a), such trust shall not constitute a qualified trust under
this section unless such plan meets the requirements of
subparagraphs (B) and (C).
(B) Diversification of investments. -
(i) In general. - A plan meets the requirements of this
subparagraph if each qualified participant in the plan may
elect within 90 days after the close of each plan year in the
qualified election period to direct the plan as to the
investment of at least 25 percent of the participant's
account in the plan (to the extent such portion exceeds the
amount to which a prior election under this subparagraph
applies). In the case of the election year in which the
participant can make his last election, the preceding
sentence shall be applied by substituting "50 percent" for
"25 percent".
(ii) Method of meeting requirements. - A plan shall be
treated as meeting the requirements of clause (i) if -
(I) the portion of the participant's account covered by
the election under clause (i) is distributed within 90 days
after the period during which the election may be made, or
(II) the plan offers at least 3 investment options (not
inconsistent with regulations prescribed by the Secretary)
to each participant making an election under clause (i) and
within 90 days after the period during which the election
may be made, the plan invests the portion of the
participant's account covered by the election in accordance
with such election.
(iii) Qualified participant. - For purposes of this
subparagraph, the term "qualified participant" means any
employee who has completed at least 10 years of participation
under the plan and has attained age 55.
(iv) Qualified election period. - For purposes of this
subparagraph, the term "qualified election period" means the
6-plan-year period beginning with the later of -
(I) the 1st plan year in which the individual first
became a qualified participant, or
(II) the 1st plan year beginning after December 31, 1986.
For purposes of the preceding sentence, an employer may elect
to treat an individual first becoming a qualified participant
in the 1st plan year beginning in 1987 as having become a
participant in the 1st plan year beginning in 1988.
(C) Use of independent appraiser. - A plan meets the
requirements of this subparagraph if all valuations of employer
securities which are not readily tradable on an established
securities market with respect to activities carried on by the
plan are by an independent appraiser. For purposes of the
preceding sentence, the term "independent appraiser" means any
appraiser meeting requirements similar to the requirements of
the regulations prescribed under section 170(a)(1).
(29) Security required upon adoption of plan amendment
resulting in significant underfunding. -
(A) In general. - If -
(i) a defined benefit plan (other than a multiemployer
plan) to which the requirements of section 412 apply adopts
an amendment an effect of which is to increase current
liability under the plan for a plan year, and
(ii) the funded current liability percentage of the plan
for the plan year in which the amendment takes effect is less
than 60 percent, including the amount of the unfunded current
liability under the plan attributable to the plan amendment,
the trust of which such plan is a part shall not constitute a
qualified trust under this subsection unless such amendment
does not take effect until the contributing sponsor (or any
member of the controlled group of the contributing sponsor)
provides security to the plan.
(B) Form of security. - The security required under
subparagraph (A) shall consist of -
(i) a bond issued by a corporate surety company that is an
acceptable surety for purposes of section 412 of the Employee
Retirement Income Security Act of 1974,
(ii) cash, or United States obligations which mature in 3
years or less, held in escrow by a bank or similar financial
institution, or
(iii) such other form of security as is satisfactory to the
Secretary and the parties involved.
(C) Amount of security. - The security shall be in an amount
equal to the excess of -
(i) the lesser of -
(I) the amount of additional plan assets which would be
necessary to increase the funded current liability
percentage under the plan to 60 percent, including the
amount of the unfunded current liability under the plan
attributable to the plan amendment, or
(II) the amount of the increase in current liability
under the plan attributable to the plan amendment and any
other plan amendments adopted after December 22, 1987, and
before such plan amendment, over
(ii) $10,000,000.
(D) Release of security. - The security shall be released
(and any amounts thereunder shall be refunded together with any
interest accrued thereon) at the end of the first plan year
which ends after the provision of the security and for which
the funded current liability percentage under the plan is not
less than 60 percent. The Secretary may prescribe regulations
for partial releases of the security by reason of increases in
the funded current liability percentage.
(E) Definitions. - For purposes of this paragraph, the terms
"current liability", "funded current liability percentage", and
"unfunded current liability" shall have the meanings given such
terms by section 412(l), except that in computing unfunded
current liability there shall not be taken into account any
unamortized portion of the unfunded old liability amount as of
the close of the plan year.
(30) Limitations on elective deferrals. - In the case of a
trust which is part of a plan under which elective deferrals
(within the meaning of section 402(g)(3)) may be made with
respect to any individual during a calendar year, such trust
shall not constitute a qualified trust under this subsection
unless the plan provides that the amount of such deferrals under
such plan and all other plans, contracts, or arrangements of an
employer maintaining such plan may not exceed the amount of the
limitation in effect under section 402(g)(1)(A) for taxable years
beginning in such calendar year.
(31) Direct transfer of eligible rollover distributions. -
(A) In general. - A trust shall not constitute a qualified
trust under this section unless the plan of which such trust is
a part provides that if the distributee of any eligible
rollover distribution -
(i) elects to have such distribution paid directly to an
eligible retirement plan, and
(ii) specifies the eligible retirement plan to which such
distribution is to be paid (in such form and at such time as
the plan administrator may prescribe),
such distribution shall be made in the form of a direct trustee-
to-trustee transfer to the eligible retirement plan so
specified.
(B) Certain mandatory distributions. -
(i) In general. - In case of a trust which is part of an
eligible plan, such trust shall not constitute a qualified
trust under this section unless the plan of which such trust
is a part provides that if -
(I) a distribution described in clause (ii) in excess of
$1,000 is made, and
(II) the distributee does not make an election under
subparagraph (A) and does not elect to receive the
distribution directly,
the plan administrator shall make such transfer to an
individual retirement plan of a designated trustee or issuer
and shall notify the distributee in writing (either
separately or as part of the notice under section 402(f))
that the distribution may be transferred to another
individual retirement plan.
(ii) Eligible plan. - For purposes of clause (i), the term
"eligible plan" means a plan which provides that any
nonforfeitable accrued benefit for which the present value
(as determined under section 411(a)(11)) does not exceed
$5,000 shall be immediately distributed to the participant.
(C) Limitation. - Subparagraphs (A) and (B) shall apply only
to the extent that the eligible rollover distribution would be
includible in gross income if not transferred as provided in
subparagraph (A) (determined without regard to sections 402(c),
403(a)(4), 403(b)(8), and 457(e)(16)). The preceding sentence
shall not apply to such distribution if the plan to which such
distribution is transferred -
(i) is a qualified trust which is part of a plan which is a
defined contribution plan and agrees to separately account
for amounts so transferred, including separately accounting
for the portion of such distribution which is includible in
gross income and the portion of such distribution which is
not so includible, or
(ii) is an eligible retirement plan described in clause (i)
or (ii) of section 402(c)(8)(B).
(D) Eligible rollover distribution. - For purposes of this
paragraph, the term "eligible rollover distribution" has the
meaning given such term by section 402(f)(2)(A).
(E) Eligible retirement plan. - For purposes of this
paragraph, the term "eligible retirement plan" has the meaning
given such term by section 402(c)(8)(B), except that a
qualified trust shall be considered an eligible retirement plan
only if it is a defined contribution plan, the terms of which
permit the acceptance of rollover distributions.
(32) Treatment of failure to make certain payments if plan has
liquidity shortfall. -
(A) In general. - A trust forming part of a pension plan to
which section 412(m)(5) applies shall not be treated as failing
to constitute a qualified trust under this section merely
because such plan ceases to make any payment described in
subparagraph (B) during any period that such plan has a
liquidity shortfall (as defined in section 412(m)(5)).
(B) Payments described. - A payment is described in this
subparagraph if such payment is -
(i) any payment, in excess of the monthly amount paid under
a single life annuity (plus any social security supplements
described in the last sentence of section 411(a)(9)), to a
participant or beneficiary whose annuity starting date (as
defined in section 417(f)(2)) occurs during the period
referred to in subparagraph (A),
(ii) any payment for the purchase of an irrevocable
commitment from an insurer to pay benefits, and
(iii) any other payment specified by the Secretary by
regulations.
(C) Period of shortfall. - For purposes of this paragraph, a
plan has a liquidity shortfall during the period that there is
an underpayment of an installment under section 412(m) by
reason of paragraph (5)(A) thereof.
(33) Prohibition on benefit increases while sponsor is in
bankruptcy. -
(A) In general. - A trust which is part of a plan to which
this paragraph applies shall not constitute a qualified trust
under this section if an amendment to such plan is adopted
while the employer is a debtor in a case under title 11, United
States Code, or similar Federal or State law, if such amendment
increases liabilities of the plan by reason of -
(i) any increase in benefits,
(ii) any change in the accrual of benefits, or
(iii) any change in the rate at which benefits become
nonforfeitable under the plan,
with respect to employees of the debtor, and such amendment is
effective prior to the effective date of such employer's plan
of reorganization.
(B) Exceptions. - This paragraph shall not apply to any plan
amendment if -
(i) the plan, were such amendment to take effect, would
have a funded current liability percentage (as defined in
section 412(l)(8)) of 100 percent or more,
(ii) the Secretary determines that such amendment is
reasonable and provides for only de minimis increases in the
liabilities of the plan with respect to employees of the
debtor,
(iii) such amendment only repeals an amendment described in
subsection 412(c)(8), or
(iv) such amendment is required as a condition of
qualification under this part.
(C) Plans to which this paragraph applies. - This paragraph
shall apply only to plans (other than multiemployer plans)
covered under section 4021 of the Employee Retirement Income
Security Act of 1974.
(D) Employer. - For purposes of this paragraph, the term
"employer" means the employer referred to in section 412(c)(11)
(without regard to subparagraph (B) thereof).
(34) Benefits of missing participants on plan termination. - In
the case of a plan covered by title IV of the Employee Retirement
Income Security Act of 1974, a trust forming part of such plan
shall not be treated as failing to constitute a qualified trust
under this section merely because the pension plan of which such
trust is a part, upon its termination, transfers benefits of
missing participants to the Pension Benefit Guaranty Corporation
in accordance with section 4050 of such Act.
Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall apply
only in the case of a plan to which section 411 (relating to
minimum vesting standards) applies without regard to subsection
(e)(2) of such section.
(b) Certain retroactive changes in plan
A stock bonus, pension, profit-sharing, or annuity plan shall be
considered as satisfying the requirements of subsection (a) for the
period beginning with the date on which it was put into effect, or
for the period beginning with the earlier of the date on which
there was adopted or put into effect any amendment which caused the
plan to fail to satisfy such requirements, and ending with the time
prescribed by law for filing the return of the employer for his
taxable year in which such plan or amendment was adopted (including
extensions thereof) or such later time as the Secretary may
designate, if all provisions of the plan which are necessary to
satisfy such requirements are in effect by the end of such period
and have been made effective for all purposes for the whole of such
period.
(c) Definitions and rules relating to self-employed individuals and
owner-employees
For purposes of this section -
(1) Self-employed individual treated as employee
(A) In general
The term "employee" includes, for any taxable year, an
individual who is a self-employed individual for such taxable
year.
(B) Self-employed individual
The term "self-employed individual" means, with respect to
any taxable year, an individual who has earned income (as
defined in paragraph (2)) for such taxable year. To the extent
provided in regulations prescribed by the Secretary, such term
also includes, for any taxable year -
(i) an individual who would be a self-employed individual
within the meaning of the preceding sentence but for the fact
that the trade or business carried on by such individual did
not have net profits for the taxable year, and
(ii) an individual who has been a self-employed individual
within the meaning of the preceding sentence for any prior
taxable year.
(2) Earned income
(A) In general
The term "earned income" means the net earnings from self-
employment (as defined in section 1402(a)), but such net
earnings shall be determined -
(i) only with respect to a trade or business in which
personal services of the taxpayer are a material income-
producing factor,
(ii) without regard to paragraphs (4) and (5) of section
1402(c),
(iii) in the case of any individual who is treated as an
employee under sections (!3) 3121(d)(3)(A), (C), or (D),
without regard to paragraph (2) of section 1402(c),
(iv) without regard to items which are not included in
gross income for purposes of this chapter, and the deductions
properly allocable to or chargeable against such items,
(v) with regard to the deductions allowed by section 404 to
the taxpayer, and
(vi) with regard to the deduction allowed to the taxpayer
by section 164(f).
For purposes of this subparagraph, section 1402, as in effect
for a taxable year ending on December 31, 1962, shall be
treated as having been in effect for all taxable years ending
before such date. For purposes of this part only (other than
sections 419 and 419A), this subparagraph shall be applied as
if the term "trade or business" for purposes of section 1402
included service described in section 1402(c)(6).
[(B) Repealed]
(C) Income from disposition of certain property
For purposes of this section, the term "earned income"
includes gains (other than any gain which is treated under any
provision of this chapter as gain from the sale or exchange of
a capital asset) and net earnings derived from the sale or
other disposition of, the transfer of any interest in, or the
licensing of the use of property (other than good will) by an
individual whose personal efforts created such property.
(3) Owner-employee
The term "owner-employee" means an employee who -
(A) owns the entire interest in an unincorporated trade or
business, or
(B) in the case of a partnership, is a partner who owns more
than 10 percent of either the capital interest or the profits
interest in such partnership.
To the extent provided in regulations prescribed by the
Secretary, such term also means an individual who has been an
owner-employee within the meaning of the preceding sentence.
(4) Employer
An individual who owns the entire interest in an unincorporated
trade or business shall be treated as his own employer. A
partnership shall be treated as the employer of each partner who
is an employee within the meaning of paragraph (1).
(5) Contributions on behalf of owner-employees
The term "contribution on behalf of an owner-employee"
includes, except as the context otherwise requires, a
contribution under a plan -
(A) by the employer for an owner-employee, and
(B) by an owner-employee as an employee.
(6) Special rule for certain fishermen
For purposes of this subsection, the term "self-employed
individual" includes an individual described in section
3121(b)(20) (relating to certain fishermen).
(d) Contribution limit on owner-employees
A trust forming part of a pension or profit-sharing plan which
provides contributions or benefits for employees some or all of
whom are owner-employees shall constitute a qualified trust under
this section only if, in addition to meeting the requirements of
subsection (a), the plan provides that contributions on behalf of
any owner-employee may be made only with respect to the earned
income of such owner-employee which is derived from the trade or
business with respect to which such plan is established.
[(e) Repealed. Pub. L. 98-369, div. A, title VII, Sec. 713(d)(3),
July 18, 1984, 98 Stat. 958]
(f) Certain custodial accounts and contracts
For purposes of this title, a custodial account, an annuity
contract, or a contract (other than a life, health or accident,
property, casualty, or liability insurance contract) issued by an
insurance company qualified to do business in a State shall be
treated as a qualified trust under this section if -
(1) the custodial account or contract would, except for the
fact that it is not a trust, constitute a qualified trust under
this section, and
(2) in the case of a custodial account the assets thereof are
held by a bank (as defined in section 408(n)) or another person
who demonstrates, to the satisfaction of the Secretary, that the
manner in which he will hold the assets will be consistent with
the requirements of this section.
For purposes of this title, in the case of a custodial account or
contract treated as a qualified trust under this section by reason
of this subsection, the person holding the assets of such account
or holding such contract shall be treated as the trustee thereof.
(g) Annuity defined
For purposes of this section and sections 402, 403, and 404, the
term "annuity" includes a face-amount certificate, as defined in
section 2(a)(15) of the Investment Company Act of 1940 (15 U.S.C.,
sec. 80a-2); but does not include any contract or certificate
issued after December 31, 1962, which is transferable, if any
person other than the trustee of a trust described in section
401(a) which is exempt from tax under section 501(a) is the owner
of such contract or certificate.
(h) Medical, etc., benefits for retired employees and their spouses
and dependents
Under regulations prescribed by the Secretary, and subject to the
provisions of section 420, a pension or annuity plan may provide
for the payment of benefits for sickness, accident,
hospitalization, and medical expenses of retired employees, their
spouses and their dependents, but only if -
(1) such benefits are subordinate to the retirement benefits
provided by the plan,
(2) a separate account is established and maintained for such
benefits,
(3) the employer's contributions to such separate account are
reasonable and ascertainable,
(4) it is impossible, at any time prior to the satisfaction of
all liabilities under the plan to provide such benefits, for any
part of the corpus or income of such separate account to be
(within the taxable year or thereafter) used for, or diverted to,
any purpose other than the providing of such benefits,
(5) notwithstanding the provisions of subsection (a)(2), upon
the satisfaction of all liabilities under the plan to provide
such benefits, any amount remaining in such separate account
must, under the terms of the plan, be returned to the employer,
and
(6) in the case of an employee who is a key employee, a
separate account is established and maintained for such benefits
payable to such employee (and his spouse and dependents) and such
benefits (to the extent attributable to plan years beginning
after March 31, 1984, for which the employee is a key employee)
are only payable to such employee (and his spouse and dependents)
from such separate account.
For purposes of paragraph (6), the term "key employee" means any
employee, who at any time during the plan year or any preceding
plan year during which contributions were made on behalf of such
employee, is or was a key employee as defined in section 416(i). In
no event shall the requirements of paragraph (1) be treated as met
if the aggregate actual contributions for medical benefits, when
added to actual contributions for life insurance protection under
the plan, exceed 25 percent of the total actual contributions to
the plan (other than contributions to fund past service credits)
after the date on which the account is established.
(i) Certain union-negotiated pension plans
In the case of a trust forming part of a pension plan which has
been determined by the Secretary to constitute a qualified trust
under subsection (a) and to be exempt from taxation under section
501(a) for a period beginning after contributions were first made
to or for such trust, if it is shown to the satisfaction of the
Secretary that -
(1) such trust was created pursuant to a collective bargaining
agreement between employee representatives and one or more
employers,
(2) any disbursements of contributions, made to or for such
trust before the time as of which the Secretary or his delegate
determined that the trust constituted a qualified trust,
substantially complied with the terms of the trust, and the plan
of which the trust is a part, as subsequently qualified, and
(3) before the time as of which the Secretary determined that
the trust constitutes a qualified trust, the contributions to or
for such trust were not used in a manner which would jeopardize
the interests of its beneficiaries,
then such trust shall be considered as having constituted a
qualified trust under subsection (a) and as having been exempt from
taxation under section 501(a) for the period beginning on the date
on which contributions were first made to or for such trust and
ending on the date such trust first constituted (without regard to
this subsection) a qualified trust under subsection (a).
[(j) Repealed. Pub. L. 97-248, title II, Sec. 238(b), Sept. 3,
1982, 96 Stat. 512]
(k) Cash or deferred arrangements
(1) General rule
A profit-sharing or stock bonus plan, a pre-ERISA money
purchase plan, or a rural cooperative plan shall not be
considered as not satisfying the requirements of subsection (a)
merely because the plan includes a qualified cash or deferred
arrangement.
(2) Qualified cash or deferred arrangement
A qualified cash or deferred arrangement is any arrangement
which is part of a profit-sharing or stock bonus plan, a pre-
ERISA money purchase plan, or a rural cooperative plan which
meets the requirements of subsection (a) -
(A) under which a covered employee may elect to have the
employer make payments as contributions to a trust under the
plan on behalf of the employee, or to the employee directly in
cash;
(B) under which amounts held by the trust which are
attributable to employer contributions made pursuant to the
employee's election -
(i) may not be distributable to participants or other
beneficiaries earlier than -
(I) severance from employment, death, or disability,
(II) an event described in paragraph (10),
(III) in the case of a profit-sharing or stock bonus
plan, the attainment of age 59 1/2 , or
(IV) in the case of contributions to a profit-sharing or
stock bonus plan to which section 402(e)(3) applies, upon
hardship of the employee, and
(ii) will not be distributable merely by reason of the
completion of a stated period of participation or the lapse
of a fixed number of years;
(C) which provides that an employee's right to his accrued
benefit derived from employer contributions made to the trust
pursuant to his election is nonforfeitable, and
(D) which does not require, as a condition of participation
in the arrangement, that an employee complete a period of
service with the employer (or employers) maintaining the plan
extending beyond the period permitted under section 410(a)(1)
(determined without regard to subparagraph (B)(i) thereof).
(3) Application of participation and discrimination standards
(A) A cash or deferred arrangement shall not be treated as a
qualified cash or deferred arrangement unless -
(i) those employees eligible to benefit under the
arrangement satisfy the provisions of section 410(b)(1), and
(ii) the actual deferral percentage for eligible highly
compensated employees (as defined in paragraph (5)) for the
plan year bears a relationship to the actual deferral
percentage for all other eligible employees for the preceding
plan year which meets either of the following tests:
(I) The actual deferral percentage for the group of
eligible highly compensated employees is not more than the
actual deferral percentage of all other eligible employees
multiplied by 1.25.
(II) The excess of the actual deferral percentage for the
group of eligible highly compensated employees over that of
all other eligible employees is not more than 2 percentage
points, and the actual deferral percentage for the group of
eligible highly compensated employees is not more than the
actual deferral percentage of all other eligible employees
multiplied by 2.
If 2 or more plans which include cash or deferred
arrangements are considered as 1 plan for purposes of section
401(a)(4) or 410(b), the cash or deferred arrangements
included in such plans shall be treated as 1 arrangement for
purposes of this subparagraph.
If any highly compensated employee is a participant under 2 or
more cash or deferred arrangements of the employer, for
purposes of determining the deferral percentage with respect to
such employee, all such cash or deferred arrangements shall be
treated as 1 cash or deferred arrangement. An arrangement may
apply clause (ii) by using the plan year rather than the
preceding plan year if the employer so elects, except that if
such an election is made, it may not be changed except as
provided by the Secretary.
(B) For purposes of subparagraph (A), the actual deferral
percentage for a specified group of employees for a plan year
shall be the average of the ratios (calculated separately for
each employee in such group) of -
(i) the amount of employer contributions actually paid over
to the trust on behalf of each such employee for such plan
year, to
(ii) the employee's compensation for such plan year.
(C) A cash or deferred arrangement shall be treated as
meeting the requirements of subsection (a)(4) with respect to
contributions if the requirements of subparagraph (A)(ii) are
met.
(D) For purposes of subparagraph (B), the employer
contributions on behalf of any employee -
(i) shall include any employer contributions made pursuant
to the employee's election under paragraph (2), and
(ii) under such rules as the Secretary may prescribe, may,
at the election of the employer, include -
(I) matching contributions (as defined in 401(m)(4)(A))
which meet the requirements of paragraph (2)(B) and (C),
and
(II) qualified nonelective contributions (within the
meaning of section 401(m)(4)(C)).
(E) For purposes of this paragraph, in the case of the first
plan year of any plan (other than a successor plan), the amount
taken into account as the actual deferral percentage of
nonhighly compensated employees for the preceding plan year
shall be -
(i) 3 percent, or
(ii) if the employer makes an election under this
subclause, the actual deferral percentage of nonhighly
compensated employees determined for such first plan year.
(F) Special rule for early participation. - If an employer
elects to apply section 410(b)(4)(B) in determining whether a
cash or deferred arrangement meets the requirements of
subparagraph (A)(i), the employer may, in determining whether
the arrangement meets the requirements of subparagraph (A)(ii),
exclude from consideration all eligible employees (other than
highly compensated employees) who have not met the minimum age
and service requirements of section 410(a)(1)(A).
(G) A governmental plan (within the meaning of section
414(d)) maintained by a State or local government or political
subdivision thereof (or agency or instrumentality thereof)
shall be treated as meeting the requirements of this paragraph.
(4) Other requirements
(A) Benefits (other than matching contributions) must not be
contingent on election to defer
A cash or deferred arrangement of any employer shall not be
treated as a qualified cash or deferred arrangement if any
other benefit is conditioned (directly or indirectly) on the
employee electing to have the employer make or not make
contributions under the arrangement in lieu of receiving cash.
The preceding sentence shall not apply to any matching
contribution (as defined in section 401(m)) made by reason of
such an election.
(B) Eligibility of State and local governments and tax-exempt
organizations
(i) Tax-exempts eligible
Except as provided in clause (ii), any organization exempt
from tax under this subtitle may include a qualified cash or
deferred arrangement as part of a plan maintained by it.
(ii) Governments ineligible
A cash or deferred arrangement shall not be treated as a
qualified cash or deferred arrangement if it is part of a
plan maintained by a State or local government or political
subdivision thereof, or any agency or instrumentality
thereof. This clause shall not apply to a rural cooperative
plan or to a plan of an employer described in clause (iii).
(iii) Treatment of Indian tribal governments
An employer which is an Indian tribal government (as
defined in section 7701(a)(40)), a subdivision of an Indian
tribal government (determined in accordance with section
7871(d)), an agency or instrumentality of an Indian tribal
government or subdivision thereof, or a corporation chartered
under Federal, State, or tribal law which is owned in whole
or in part by any of the foregoing may include a qualified
cash or deferred arrangement as part of a plan maintained by
the employer.
(C) Coordination with other plans
Except as provided in section 401(m), any employer
contribution made pursuant to an employee's election under a
qualified cash or deferred arrangement shall not be taken into
account for purposes of determining whether any other plan
meets the requirements of section 401(a) or 410(b). This
subparagraph shall not apply for purposes of determining
whether a plan meets the average benefit requirement of section
410(b)(2)(A)(ii).
(5) Highly compensated employee
For purposes of this subsection, the term "highly compensated
employee" has the meaning given such term by section 414(q).
(6) Pre-ERISA money purchase plan
For purposes of this subsection, the term "pre-ERISA money
purchase plan" means a pension plan -
(A) which is a defined contribution plan (as defined in
section 414(i)),
(B) which was in existence on June 27, 1974, and which, on
such date, included a salary reduction arrangement, and
(C) under which neither the employee contributions nor the
employer contributions may exceed the levels provided for by
the contribution formula in effect under the plan on such date.
(7) Rural cooperative plan
For purposes of this subsection -
(A) In general
The term "rural cooperative plan" means any pension plan -
(i) which is a defined contribution plan (as defined in
section 414(i)), and
(ii) which is established and maintained by a rural
cooperative.
(B) Rural cooperative defined
For purposes of subparagraph (A), the term "rural
cooperative" means -
(i) any organization which -
(I) is engaged primarily in providing electric service on
a mutual or cooperative basis, or
(II) is engaged primarily in providing electric service
to the public in its area of service and which is exempt
from tax under this subtitle or which is a State or local
government (or an agency or instrumentality thereof), other
than a municipality (or an agency or instrumentality
thereof),
(ii) any organization described in paragraph (4) or (6) of
section 501(c) and at least 80 percent of the members of
which are organizations described in clause (i),
(iii) a cooperative telephone company described in section
501(c)(12),
(iv) any organization which -
(I) is a mutual irrigation or ditch company described in
section 501(c)(12) (without regard to the 85 percent
requirement thereof), or
(II) is a district organized under the laws of a State as
a municipal corporation for the purpose of irrigation,
water conservation, or drainage, and
(v) an organization which is a national association of
organizations described in clause (i), (ii),,(!4) (iii), or
(iv).
(C) Special rule for certain distributions
A rural cooperative plan which includes a qualified cash or
deferred arrangement shall not be treated as violating the
requirements of section 401(a) or of paragraph (2) merely by
reason of a hardship distribution or a distribution to a
participant after attainment of age 59 1/2 . For purposes of
this section, the term "hardship distribution" means a
distribution described in paragraph (2)(B)(i)(IV) (without
regard to the limitation of its application to profit-sharing
or stock bonus plans).
(8) Arrangement not disqualified if excess contributions
distributed
(A) In general
A cash or deferred arrangement shall not be treated as
failing to meet the requirements of clause (ii) of paragraph
(3)(A) for any plan year if, before the close of the following
plan year -
(i) the amount of the excess contributions for such plan
year (and any income allocable to such contributions) is
distributed, or
(ii) to the extent provided in regulations, the employee
elects to treat the amount of the excess contributions as an
amount distributed to the employee and then contributed by
the employee to the plan.
Any distribution of excess contributions (and income) may be
made without regard to any other provision of law.
(B) Excess contributions
For purposes of subparagraph (A), the term "excess
contributions" means, with respect to any plan year, the excess
of -
(i) the aggregate amount of employer contributions actually
paid over to the trust on behalf of highly compensated
employees for such plan year, over
(ii) the maximum amount of such contributions permitted
under the limitations of clause (ii) of paragraph (3)(A)
(determined by reducing contributions made on behalf of
highly compensated employees in order of the actual deferral
percentages beginning with the highest of such percentages).
(C) Method of distributing excess contributions
Any distribution of the excess contributions for any plan
year shall be made to highly compensated employees on the basis
of the amount of contributions by, or on behalf of, each of
such employees.
(D) Additional tax under section 72(t) not to apply
No tax shall be imposed under section 72(t) on any amount
required to be distributed under this paragraph.
(E) Treatment of matching contributions forfeited by reason of
excess deferral or contribution
For purposes of paragraph (2)(C), a matching contribution
(within the meaning of subsection (m)) shall not be treated as
forfeitable merely because such contribution is forfeitable if
the contribution to which the matching contribution relates is
treated as an excess contribution under subparagraph (B), an
excess deferral under section 402(g)(2)(A), or an excess
aggregate contribution under section 401(m)(6)(B).
(F) Cross reference
For excise tax on certain excess contributions, see section
4979.
(9) Compensation
For purposes of this subsection, the term "compensation" has
the meaning given such term by section 414(s).
(10) Distributions upon termination of plan
(A) In general
An event described in this subparagraph is the termination of
the plan without establishment or maintenance of another
defined contribution plan (other than an employee stock
ownership plan as defined in section 4975(e)(7)).
(B) Distributions must be lump sum distributions
(i) In general
A termination shall not be treated as described in
subparagraph (A) with respect to any employee unless the
employee receives a lump sum distribution by reason of the
termination.
(ii) Lump-sum distribution
For purposes of this subparagraph, the term "lump-sum
distribution" has the meaning given such term by section
402(e)(4)(D) (without regard to subclauses (I), (II), (III),
and (IV) of clause (i) thereof). Such term includes a
distribution of an annuity contract from -
(I) a trust which forms a part of a plan described in
section 401(a) and which is exempt from tax under section
501(a), or
(II) an annuity plan described in section 403(a).
(11) Adoption of simple plan to meet nondiscrimination tests
(A) In general
A cash or deferred arrangement maintained by an eligible
employer shall be treated as meeting the requirements of
paragraph (3)(A)(ii) if such arrangement meets -
(i) the contribution requirements of subparagraph (B),
(ii) the exclusive plan requirements of subparagraph (C),
and
(iii) the vesting requirements of section 408(p)(3).
(B) Contribution requirements
(i) In general
The requirements of this subparagraph are met if, under the
arrangement -
(I) an employee may elect to have the employer make
elective contributions for the year on behalf of the
employee to a trust under the plan in an amount which is
expressed as a percentage of compensation of the employee
but which in no event exceeds the amount in effect under
section 408(p)(2)(A)(ii),
(II) the employer is required to make a matching
contribution to the trust for the year in an amount equal
to so much of the amount the employee elects under
subclause (I) as does not exceed 3 percent of compensation
for the year, and
(III) no other contributions may be made other than
contributions described in subclause (I) or (II).
(ii) Employer may elect 2-percent nonelective contribution
An employer shall be treated as meeting the requirements of
clause (i)(II) for any year if, in lieu of the contributions
described in such clause, the employer elects (pursuant to
the terms of the arrangement) to make nonelective
contributions of 2 percent of compensation for each employee
who is eligible to participate in the arrangement and who has
at least $5,000 of compensation from the employer for the
year. If an employer makes an election under this
subparagraph for any year, the employer shall notify
employees of such election within a reasonable period of time
before the 60th day before the beginning of such year.
(iii) Administrative requirements
(I) In general
Rules similar to the rules of subparagraphs (B) and (C)
of section 408(p)(5) shall apply for purposes of this
subparagraph.
(II) Notice of election period
The requirements of this subparagraph shall not be
treated as met with respect to any year unless the employer
notifies each employee eligible to participate, within a
reasonable period of time before the 60th day before the
beginning of such year (and, for the first year the
employee is so eligible, the 60th day before the first day
such employee is so eligible), of the rules similar to the
rules of section 408(p)(5)(C) which apply by reason of
subclause (I).
(C) Exclusive plan requirement
The requirements of this subparagraph are met for any year to
which this paragraph applies if no contributions were made, or
benefits were accrued, for services during such year under any
qualified plan of the employer on behalf of any employee
eligible to participate in the cash or deferred arrangement,
other than contributions described in subparagraph (B).
(D) Definitions and special rule
(i) Definitions
For purposes of this paragraph, any term used in this
paragraph which is also used in section 408(p) shall have the
meaning given such term by such section.
(ii) Coordination with top-heavy rules
A plan meeting the requirements of this paragraph for any
year shall not be treated as a top-heavy plan under section
416 for such year if such plan allows only contributions
required under this paragraph.
(12) Alternative methods of meeting nondiscrimination
requirements
(A) In general
A cash or deferred arrangement shall be treated as meeting
the requirements of paragraph (3)(A)(ii) if such arrangement -
(i) meets the contribution requirements of subparagraph (B)
or (C), and
(ii) meets the notice requirements of subparagraph (D).
(B) Matching contributions
(i) In general
The requirements of this subparagraph are met if, under the
arrangement, the employer makes matching contributions on
behalf of each employee who is not a highly compensated
employee in an amount equal to -
(I) 100 percent of the elective contributions of the
employee to the extent such elective contributions do not
exceed 3 percent of the employee's compensation, and
(II) 50 percent of the elective contributions of the
employee to the extent that such elective contributions
exceed 3 percent but do not exceed 5 percent of the
employee's compensation.
(ii) Rate for highly compensated employees
The requirements of this subparagraph are not met if, under
the arrangement, the rate of matching contribution with
respect to any elective contribution of a highly compensated
employee at any rate of elective contribution is greater than
that with respect to an employee who is not a highly
compensated employee.
(iii) Alternative plan designs
If the rate of any matching contribution with respect to
any rate of elective contribution is not equal to the
percentage required under clause (i), an arrangement shall
not be treated as failing to meet the requirements of clause
(i) if -
(I) the rate of an employer's matching contribution does
not increase as an employee's rate of elective
contributions increase, and
(II) the aggregate amount of matching contributions at
such rate of elective contribution is at least equal to the
aggregate amount of matching contributions which would be
made if matching contributions were made on the basis of
the percentages described in clause (i).
(C) Nonelective contributions
The requirements of this subparagraph are met if, under the
arrangement, the employer is required, without regard to
whether the employee makes an elective contribution or employee
contribution, to make a contribution to a defined contribution
plan on behalf of each employee who is not a highly compensated
employee and who is eligible to participate in the arrangement
in an amount equal to at least 3 percent of the employee's
compensation.
(D) Notice requirement
An arrangement meets the requirements of this paragraph if,
under the arrangement, each employee eligible to participate
is, within a reasonable period before any year, given written
notice of the employee's rights and obligations under the
arrangement which -
(i) is sufficiently accurate and comprehensive to apprise
the employee of such rights and obligations, and
(ii) is written in a manner calculated to be understood by
the average employee eligible to participate.
(E) Other requirements
(i) Withdrawal and vesting restrictions
An arrangement shall not be treated as meeting the
requirements of subparagraph (B) or (C) of this paragraph
unless the requirements of subparagraphs (B) and (C) of
paragraph (2) are met with respect to all employer
contributions (including matching contributions) taken into
account in determining whether the requirements of
subparagraphs (B) and (C) of this paragraph are met.
(ii) Social security and similar contributions not taken into
account
An arrangement shall not be treated as meeting the
requirements of subparagraph (B) or (C) unless such
requirements are met without regard to subsection (l), and,
for purposes of subsection (l), employer contributions under
subparagraph (B) or (C) shall not be taken into account.
(F) Other plans
An arrangement shall be treated as meeting the requirements
under subparagraph (A)(i) if any other plan maintained by the
employer meets such requirements with respect to employees
eligible under the arrangement.
(l) Permitted disparity in plan contributions or benefits
(1) In general
The requirements of this subsection are met with respect to a
plan if -
(A) in the case of a defined contribution plan, the
requirements of paragraph (2) are met, and
(B) in the case of a defined benefit plan, the requirements
of paragraph (3) are met.
(2) Defined contribution plan
(A) In general
A defined contribution plan meets the requirements of this
paragraph if the excess contribution percentage does not exceed
the base contribution percentage by more than the lesser of -
(i) the base contribution percentage, or
(ii) the greater of -
(I) 5.7 percentage points, or
(II) the percentage equal to the portion of the rate of
tax under section 3111(a) (in effect as of the beginning of
the year) which is attributable to old-age insurance.
(B) Contribution percentages
For purposes of this paragraph -
(i) Excess contribution percentage
The term "excess contribution percentage" means the
percentage of compensation which is contributed by the
employer under the plan with respect to that portion of each
participant's compensation in excess of the integration
level.
(ii) Base contribution percentage
The term "base contribution percentage" means the
percentage of compensation contributed by the employer under
the plan with respect to that portion of each participant's
compensation not in excess of the integration level.
(3) Defined benefit plan
A defined benefit plan meets the requirements of this paragraph
if -
(A) Excess plans
(i) In general
In the case of a plan other than an offset plan -
(I) the excess benefit percentage does not exceed the
base benefit percentage by more than the maximum excess
allowance,
(II) any optional form of benefit, preretirement benefit,
actuarial factor, or other benefit or feature provided with
respect to compensation in excess of the integration level
is provided with respect to compensation not in excess of
such level, and
(III) benefits are based on average annual compensation.
(ii) Benefit percentages
For purposes of this subparagraph, the excess and base
benefit percentages shall be computed in the same manner as
the excess and base contribution percentages under paragraph
(2)(B), except that such determination shall be made on the
basis of benefits attributable to employer contributions
rather than contributions.
(B) Offset plans
In the case of an offset plan, the plan provides that -
(i) a participant's accrued benefit attributable to
employer contributions (within the meaning of section
411(c)(1)) may not be reduced (by reason of the offset) by
more than the maximum offset allowance, and
(ii) benefits are based on average annual compensation.
(4) Definitions relating to paragraph (3)
For purposes of paragraph (3) -
(A) Maximum excess allowance
The maximum excess allowance is equal to -
(i) in the case of benefits attributable to any year of
service with the employer taken into account under the plan,
3/4 of a percentage point, and
(ii) in the case of total benefits, 3/4 of a percentage
point, multiplied by the participant's years of service (not
in excess of 35) with the employer taken into account under
the plan.
In no event shall the maximum excess allowance exceed the base
benefit percentage.
(B) Maximum offset allowance
The maximum offset allowance is equal to -
(i) in the case of benefits attributable to any year of
service with the employer taken into account under the plan,
3/4 percent of the participant's final average compensation,
and
(ii) in the case of total benefits, 3/4 percent of the
participant's final average compensation, multiplied by the
participant's years of service (not in excess of 35) with the
employer taken into account under the plan.
In no event shall the maximum offset allowance exceed 50
percent of the benefit which would have accrued without regard
to the offset reduction.
(C) Reductions
(i) In general
The Secretary shall prescribe regulations requiring the
reduction of the 3/4 percentage factor under subparagraph
(A) or (B) -
(I) in the case of a plan other than an offset plan which
has an integration level in excess of covered compensation,
or
(II) with respect to any participant in an offset plan
who has final average compensation in excess of covered
compensation.
(ii) Basis of reductions
Any reductions under clause (i) shall be based on the
percentages of compensation replaced by the employer-derived
portions of primary insurance amounts under the Social
Security Act for participants with compensation in excess of
covered compensation.
(D) Offset plan
The term "offset plan" means any plan with respect to which
the benefit attributable to employer contributions for each
participant is reduced by an amount specified in the plan.
(5) Other definitions and special rules
For purposes of this subsection -
(A) Integration level
(i) In general
The term "integration level" means the amount of
compensation specified under the plan (by dollar amount or
formula) at or below which the rate at which contributions or
benefits are provided (expressed as a percentage) is less
than such rate above such amount.
(ii) Limitation
The integration level for any year may not exceed the
contribution and benefit base in effect under section 230 of
the Social Security Act for such year.
(iii) Level to apply to all participants
A plan's integration level shall apply with respect to all
participants in the plan.
(iv) Multiple integration levels
Under rules prescribed by the Secretary, a defined benefit
plan may specify multiple integration levels.
(B) Compensation
The term "compensation" has the meaning given such term by
section 414(s).
(C) Average annual compensation
The term "average annual compensation" means the
participant's highest average annual compensation for -
(i) any period of at least 3 consecutive years, or
(ii) if shorter, the participant's full period of service.
(D) Final average compensation
(i) In general
The term "final average compensation" means the
participant's average annual compensation for -
(I) the 3-consecutive year period ending with the current
year, or
(II) if shorter, the participant's full period of
service.
(ii) Limitation
A participant's final average compensation shall be
determined by not taking into account in any year
compensation in excess of the contribution and benefit base
in effect under section 230 of the Social Security Act for
such year.
(E) Covered compensation
(i) In general
The term "covered compensation" means, with respect to an
employee, the average of the contribution and benefit bases
in effect under section 230 of the Social Security Act for
each year in the 35-year period ending with the year in which
the employee attains the social security retirement age.
(ii) Computation for any year
For purposes of clause (i), the determination for any year
preceding the year in which the employee attains the social
security retirement age shall be made by assuming that there
is no increase in the bases described in clause (i) after the
determination year and before the employee attains the social
security retirement age.
(iii) Social security retirement age
For purposes of this subparagraph, the term "social
security retirement age" has the meaning given such term by
section 415(b)(8).
(F) Regulations
The Secretary shall prescribe such regulations as are
necessary or appropriate to carry out the purposes of this
subsection, including -
(i) in the case of a defined benefit plan which provides
for unreduced benefits commencing before the social security
retirement age (as defined in section 415(b)(8)), rules
providing for the reduction of the maximum excess allowance
and the maximum offset allowance, and
(ii) in the case of an employee covered by 2 or more plans
of the employer which fail to meet the requirements of
subsection (a)(4) (without regard to this subsection), rules
preventing the multiple use of the disparity permitted under
this subsection with respect to any employee.
For purposes of clause (i), unreduced benefits shall not
include benefits for disability (within the meaning of section
223(d) of the Social Security Act).
(6) Special rule for plan maintained by railroads
In determining whether a plan which includes employees of a
railroad employer who are entitled to benefits under the Railroad
Retirement Act of 1974 meets the requirements of this subsection,
rules similar to the rules set forth in this subsection shall
apply. Such rules shall take into account the employer-derived
portion of the employees' tier 2 railroad retirement benefits and
any supplemental annuity under the Railroad Retirement Act of
1974.
(m) Nondiscrimination test for matching contributions and employee
contributions
(1) In general
A defined contribution plan shall be treated as meeting the
requirements of subsection (a)(4) with respect to the amount of
any matching contribution or employee contribution for any plan
year only if the contribution percentage requirement of paragraph
(2) of this subsection is met for such plan year.
(2) Requirements
(A) Contribution percentage requirement
A plan meets the contribution percentage requirement of this
paragraph for any plan year only if the contribution percentage
for eligible highly compensated employees for such plan year
does not exceed the greater of -
(i) 125 percent of such percentage for all other eligible
employees for the preceding plan year, or
(ii) the lesser of 200 percent of such percentage for all
other eligible employees for the preceding plan year, or such
percentage for all other eligible employees for the preceding
plan year plus 2 percentage points.
This subparagraph may be applied by using the plan year rather
than the preceding plan year if the employer so elects, except
that if such an election is made, it may not be changed except
as provided by the Secretary.
(B) Multiple plans treated as a single plan
If two or more plans of an employer to which matching
contributions, employee contributions, or elective deferrals
are made are treated as one plan for purposes of section
410(b), such plans shall be treated as one plan for purposes of
this subsection. If a highly compensated employee participates
in two or more plans of an employer to which contributions to
which this subsection applies are made, all such contributions
shall be aggregated for purposes of this subsection.
(3) Contribution percentage
For purposes of paragraph (2), the contribution percentage for
a specified group of employees for a plan year shall be the
average of the ratios (calculated separately for each employee in
such group) of -
(A) the sum of the matching contributions and employee
contributions paid under the plan on behalf of each such
employee for such plan year, to
(B) the employee's compensation (within the meaning of
section 414(s)) for such plan year.
Under regulations, an employer may elect to take into account (in
computing the contribution percentage) elective deferrals and
qualified nonelective contributions under the plan or any other
plan of the employer. If matching contributions are taken into
account for purposes of subsection (k)(3)(A)(ii) for any plan
year, such contributions shall not be taken into account under
subparagraph (A) for such year. Rules similar to the rules of
subsection (k)(3)(E) shall apply for purposes of this subsection.
(4) Definitions
For purposes of this subsection -
(A) Matching contribution
The term "matching contribution" means -
(i) any employer contribution made to a defined
contribution plan on behalf of an employee on account of an
employee contribution made by such employee, and
(ii) any employer contribution made to a defined
contribution plan on behalf of an employee on account of an
employee's elective deferral.
(B) Elective deferral
The term "elective deferral" means any employer contribution
described in section 402(g)(3).
(C) Qualified nonelective contributions
The term "qualified nonelective contribution" means any
employer contribution (other than a matching contribution) with
respect to which -
(i) the employee may not elect to have the contribution
paid to the employee in cash instead of being contributed to
the plan, and
(ii) the requirements of subparagraphs (B) and (C) of
subsection (k)(2) are met.
(5) Employees taken into consideration
(A) In general
Any employee who is eligible to make an employee contribution
(or, if the employer takes elective contributions into account,
elective contributions) or to receive a matching contribution
under the plan being tested under paragraph (1) shall be
considered an eligible employee for purposes of this
subsection.
(B) Certain nonparticipants
If an employee contribution is required as a condition of
participation in the plan, any employee who would be a
participant in the plan if such employee made such a
contribution shall be treated as an eligible employee on behalf
of whom no employer contributions are made.
(C) Special rule for early participation
If an employer elects to apply section 410(b)(4)(B) in
determining whether a plan meets the requirements of section
410(b), the employer may, in determining whether the plan meets
the requirements of paragraph (2), exclude from consideration
all eligible employees (other than highly compensated
employees) who have not met the minimum age and service
requirements of section 410(a)(1)(A).
(6) Plan not disqualified if excess aggregate contributions
distributed before end of following plan year
(A) In general
A plan shall not be treated as failing to meet the
requirements of paragraph (1) for any plan year if, before the
close of the following plan year, the amount of the excess
aggregate contributions for such plan year (and any income
allocable to such contributions) is distributed (or, if
forfeitable, is forfeited). Such contributions (and such
income) may be distributed without regard to any other
provision of law.
(B) Excess aggregate contributions
For purposes of subparagraph (A), the term "excess aggregate
contributions" means, with respect to any plan year, the excess
of -
(i) the aggregate amount of the matching contributions and
employee contributions (and any qualified nonelective
contribution or elective contribution taken into account in
computing the contribution percentage) actually made on
behalf of highly compensated employees for such plan year,
over
(ii) the maximum amount of such contributions permitted
under the limitations of paragraph (2)(A) (determined by
reducing contributions made on behalf of highly compensated
employees in order of their contribution percentages
beginning with the highest of such percentages).
(C) Method of distributing excess aggregate contributions
Any distribution of the excess aggregate contributions for
any plan year shall be made to highly compensated employees on
the basis of the amount of contributions on behalf of, or by,
each such employee. Forfeitures of excess aggregate
contributions may not be allocated to participants whose
contributions are reduced under this paragraph.
(D) Coordination with subsection (k) and 402(g)
The determination of the amount of excess aggregate
contributions with respect to a plan shall be made after -
(i) first determining the excess deferrals (within the
meaning of section 402(g)), and
(ii) then determining the excess contributions under
subsection (k).
(7) Treatment of distributions
(A) Additional tax of section 72(t) not applicable
No tax shall be imposed under section 72(t) on any amount
required to be distributed under paragraph (6).
(B) Exclusion of employee contributions
Any distribution attributable to employee contributions shall
not be included in gross income except to the extent
attributable to income on such contributions.
(8) Highly compensated employee
For purposes of this subsection, the term "highly compensated
employee" has the meaning given to such term by section 414(q).
(9) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection and
subsection (k), including regulations permitting appropriate
aggregation of plans and contributions.
(10) Alternative method of satisfying tests
A defined contribution plan shall be treated as meeting the
requirements of paragraph (2) with respect to matching
contributions if the plan -
(A) meets the contribution requirements of subparagraph (B)
of subsection (k)(11),
(B) meets the exclusive plan requirements of subsection
(k)(11)(C), and
(C) meets the vesting requirements of section 408(p)(3).
(11) Additional alternative method of satisfying tests
(A) In general
A defined contribution plan shall be treated as meeting the
requirements of paragraph (2) with respect to matching
contributions if the plan -
(i) meets the contribution requirements of subparagraph (B)
or (C) of subsection (k)(12),
(ii) meets the notice requirements of subsection
(k)(12)(D), and
(iii) meets the requirements of subparagraph (B).
(B) Limitation on matching contributions
The requirements of this subparagraph are met if -
(i) matching contributions on behalf of any employee may
not be made with respect to an employee's contributions or
elective deferrals in excess of 6 percent of the employee's
compensation,
(ii) the rate of an employer's matching contribution does
not increase as the rate of an employee's contributions or
elective deferrals increase, and
(iii) the matching contribution with respect to any highly
compensated employee at any rate of an employee contribution
or rate of elective deferral is not greater than that with
respect to an employee who is not a highly compensated
employee.
(12) Cross reference
For excise tax on certain excess contributions, see section
4979.
(n) Coordination with qualified domestic relations orders
The Secretary shall prescribe such rules or regulations as may be
necessary to coordinate the requirements of subsection (a)(13)(B)
and section 414(p) (and the regulations issued by the Secretary of
Labor thereunder) with the other provisions of this chapter.
(o) Cross reference
For exemption from tax of a trust qualified under this
section, see section 501(a).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 134; Pub. L. 87-792, Sec. 2,
Oct. 10, 1962, 76 Stat. 809; Pub. L. 87-863, Sec. 2(a), Oct. 23,
1962, 76 Stat. 1141; Pub. L. 88-272, title II, Sec. 219(a), Feb.
26, 1964, 78 Stat. 57; Pub. L. 89-97, title I, Sec. 106(d)(4), July
30, 1965, 79 Stat. 337; Pub. L. 89-809, title II, Secs. 204(b)(1),
(c), 205(a), Nov. 13, 1966, 80 Stat. 1577, 1578; Pub. L. 91-691,
Sec. 1(a), Jan. 12, 1971, 84 Stat. 2074; Pub. L. 93-406, title II,
Secs. 1012(b), 1016(a)(2), 1021, 1022(a)-(d), (f), 1023, 2001(c)-
(e)(4), (h)(1), 2004(a)(1), Sept. 2, 1974, 88 Stat. 913, 929, 935,
938-940, 943, 952-955, 957, 979; Pub. L. 94-267, Sec. 1(c)(1), (2),
Apr. 15, 1976, 90 Stat. 367; Pub. L. 94-455, title VIII, Sec.
803(b)(2), title XV, Sec. 1505(b), title XIX, Secs. 1901(a)(56),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1584, 1738, 1773, 1834; Pub.
L. 95-600, title I, Secs. 135(a), 141(f)(3), 143(a), 152(e), Nov.
6, 1978, 92 Stat. 2785, 2795, 2796, 2799; Pub. L. 96-222, title I,
Sec. 101(a)(7)(L)(i)(V), (9), (14)(E)(iii), Apr. 1, 1980, 94 Stat.
199, 201, 205; Pub. L. 96-364, title II, Sec. 208(a), (e), title
IV, Sec. 410(b), Sept. 26, 1980, 94 Stat. 1289, 1290, 1308; Pub. L.
96-605, title II, Secs. 221(a), 225(b)(1), (2), Dec. 28, 1980, 94
Stat. 3528, 3529; Pub. L. 97-34, title III, Secs. 312(b)(1), (c)(2)-
(4), (e)(2), 314(a)(1), 335, 338(a), Aug. 13, 1981, 95 Stat. 283-
286, 297, 298; Pub. L. 97-248, title II, Secs. 237(a), (b),
(e)(1), 238(b), (d)(1), (2), 240(b), 242(a), 249(a), 254(a), Sept.
3, 1982, 96 Stat. 511-513, 520, 521, 527, 533; Pub. L. 97-448,
title I, Sec. 103(c)(10)(A), (d)(2), (g)(2)(A), title III, Sec.
306(a)(12), Jan. 12, 1983, 96 Stat. 2377-2379, 2405; Pub. L. 98-21,
title I, Sec. 124(c)(4)(A), Apr. 20, 1983, 97 Stat. 91; Pub. L. 98-
369, div. A, title II, Sec. 211(b)(5), title IV, Secs. 474(r)(13),
491(e)(4), (5), title V, Secs. 521(a), 524(d)(1), 527(a), (b),
528(b), title VII, Sec. 713(c)(2)(A), (d)(3), July 18, 1984, 98
Stat. 754, 842, 853, 865, 872, 875-877, 957, 958; Pub. L. 98-397,
title II, Secs. 203(a), 204(a), title III, Sec. 301(b), Aug. 23,
1984, 98 Stat. 1440, 1445, 1451; Pub. L. 99-514, title XI, Secs.
1106(d)(1), 1111(a), (b), 1112(b), (d)(1), 1114(b)(7), 1116(a)-(e),
1117(a), 1119(a), 1121(b), 1136(a), 1143(a), 1145(a), 1171(b)(5),
1174(c)(2)(A), 1175(a)(1), 1176(a), title XVIII, Secs. 1848(b),
1852(a)(4)(A), (6), (b)(8), (g), (h)(1), 1879(g)(1), (2),
1898(b)(2)(A), (3)(A), (7)(A), (13)(A), (14)(A), (c)(3), 1899A(10),
Oct. 22, 1986, 100 Stat. 2435, 2439, 2444, 2445, 2451, 2454-2456,
2459, 2463, 2465, 2485, 2490, 2513, 2518, 2519, 2857, 2865-2869,
2906, 2907, 2945, 2948, 2950, 2953, 2958; Pub. L. 100-203, title
IX, Sec. 9341(a), Dec. 22, 1987, 101 Stat. 1330-369; Pub. L. 100-
647, title I, Secs. 1011(c)(7)(A), (d)(4), (e)(3), (g)(1)-(3),
(h)(3), (k)(1)(A), (B), s2)-(7), (9), (l)(1)-(5)(A), (6), (7),
1011A(j), (l), 1011B(j)(1), (2), (6), (k)(1), (2), title VI, Secs.
6053(a), 6055(a), 6071(a), (b), Nov. 10, 1988, 102 Stat. 3458-3460,
3463, 3464, 3468-3470, 3483, 3492, 3493, 3696, 3697, 3705; Pub. L.
101-140, title II, Sec. 203(a)(5), Nov. 8, 1989, 103 Stat. 830;
Pub. L. 101-239, title VII, Secs. 7311(a), 7811(g)(1), (h)(3),
7816(l), 7881(i)(1)(A), (4)(A), Dec. 19, 1989, 103 Stat. 2354,
2409, 2421, 2442; Pub. L. 101-508, title XII, Sec. 12011(b), Nov.
5, 1990, 104 Stat. 1388-571; Pub. L. 102-318, title V, Secs.
521(b)(5)-(8), 522(a)(1), July 3, 1992, 106 Stat. 310, 313; Pub. L.
103-66, title XIII, Sec. 13212(a), Aug. 10, 1993, 107 Stat. 471;
Pub. L. 103-465, title VII, Secs. 732(a), 751(a)(9)(C), 766(b),
776(d), Dec. 8, 1994, 108 Stat. 5004, 5021, 5037, 5048; Pub. L. 104-
188, title I, Secs. 1401(b)(5), (6), 1404(a), 1422(a), (b),
1426(a), 1431(b)(2), (c)(1)(B), 1432(a), (b), 1433(a)-(e), 1441(a),
1443(a), (b), 1445(a), 1459(a), (b), 1704(a), (t)(67), Aug. 20,
1996, 110 Stat. 1789, 1791, 1800, 1801, 1803-1809, 1811, 1820,
1878, 1890; Pub. L. 105-34, title XV, Secs. 1502(b), 1505(a)(1),
(2), (b), 1525(a), 1530(c)(1), title XVI, Sec. 1601(d)(2)(A), (B),
(D), (3), Aug. 5, 1997, 111 Stat. 1059, 1063, 1072, 1078, 1088,
1089; Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 316(c)], Dec.
21, 2000, 114 Stat. 2763, 2763A-644; Pub. L. 107-16, title VI,
Secs. 611(c), (f)(3), (g)(1), 641(e)(3), 643(b), 646(a)(1), 657(a),
666(a), June 7, 2001, 115 Stat. 97, 99, 120, 122, 126, 135, 143;
Pub. L. 107-147, title IV, Sec. 411(o)(2), (q)(1), Mar. 9, 2002,
116 Stat. 48, 51; Pub. L. 108-311, title IV, Sec. 407(b), Oct. 4,
2004, 118 Stat. 1190.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The Employee Retirement Income Security Act of 1974, referred to
in subsec. (a)(12), (13)(C)(i)(II), (III), (iii)(II), (29)(B)(i),
(33)(C), (34), is Pub. L. 93-406, Sept. 2, 1974, 88 Stat. 829, as
amended. Part 4 of subtitle B of title I of the Act is classified
generally to part 4 (Sec. 1101 et seq.) of subtitle B of subchapter
I of chapter 18 of Title 29, Labor. Title IV of the Act is
classified generally to subchapter III (Sec. 1301 et seq.) of
chapter 18 of Title 29. Sections 412, 4021, and 4050 of the Act are
classified to sections 1112, 1321, and 1350, respectively, of Title
29. For complete classification of this Act to the Code, see Short
Title note set out under section 1001 of Title 29 and Tables.
The Social Security Act, referred to in subsecs. (a)(15),
(l)(4)(C)(ii), (5)(A)(ii), (D)(ii), (E)(i), (F), is act Aug. 14,
1935, ch. 531, 49 Stat. 620, as amended, which is classified
generally to chapter 7 (Sec. 301 et seq.) of Title 42, The Public
Health and Welfare. Title II of the Social Security Act is
classified generally to subchapter II (Sec. 401 et seq.) of Title
42. Sections 223(d) and 230 of the Social Security Act are
classified to sections 423(d) and 430, respectively, of Title 42.
For complete classification of this Act to the Code, see section
1305 of Title 42 and Tables.
Section 521 of the Unemployment Compensation Amendments of 1992,
referred to in subsec. (a)(20), is section 521 of Pub. L. 102-318,
which amended section 402(a) to (f) of this title generally, and,
as so amended, subsec. (a) of section 402 does not contain a par.
(6)(B).
The Railroad Retirement Act of 1974, referred to in subsec.
(l)(6), is act Aug. 29, 1935, ch. 812, as amended generally by Pub.
L. 93-445, title I, Sec. 101, Oct. 16, 1974, 88 Stat. 1305, which
is classified generally to subchapter IV (Sec. 231 et seq.) of
chapter 9 of Title 45, Railroads. For further details and complete
classification of this Act to the Code, see Codification note set
out preceding section 231 of Title 45, section 231t of Title 45,
and Tables.
-MISC1-
AMENDMENTS
2004 - Subsec. (a)(26)(C) to (I). Pub. L. 108-311 redesignated
subpars. (D) to (I) as (C) to (H), respectively, and struck out
heading and text of former subpar. (C). Text read as follows: "In
the case of contributions under section 401(k) or 401(m), employees
who are eligible to contribute (or may elect to have contributions
made on their behalf) shall be treated as benefiting under the
plan."
2002 - Subsec. (a)(30). Pub. L. 107-147, Sec. 411(o)(2),
substituted "402(g)(1)(A)" for "402(g)(1)".
Subsec. (a)(31)(C)(i). Pub. L. 107-147, Sec. 411(q)(1), inserted
"is a qualified trust which is part of a plan which is a defined
contribution plan and" before "agrees".
2001 - Subsec. (a)(17). Pub. L. 107-16, Secs. 611(c)(1), 901,
temporarily substituted "$200,000" for "$150,000" in two places.
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (a)(17)(B). Pub. L. 107-16, Secs. 611(c)(2), 901,
temporarily substituted "July 1, 2001" for "October 1, 1993" and
temporarily substituted "$5,000" for "$10,000" in two places. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (a)(31). Pub. L. 107-16, Secs. 657(a)(2)(A), 901,
temporarily substituted "Direct" for "Optional direct" in heading.
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (a)(31)(B). Pub. L. 107-16, Secs. 657(a)(1), 901,
temporarily added subpar. (B). Former subpar. (B) redesignated (C).
See Effective and Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 643(b), 901, temporarily inserted at end
"The preceding sentence shall not apply to such distribution if the
plan to which such distribution is transferred -
"(i) agrees to separately account for amounts so transferred,
including separately accounting for the portion of such
distribution which is includible in gross income and the portion
of such distribution which is not so includible, or
"(ii) is an eligible retirement plan described in clause (i) or
(ii) of section 402(c)(8)(B)."
See Effective and Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 641(e)(3), 901, temporarily substituted ",
403(a)(4), 403(b)(8), and 457(e)(16)" for "and 403(a)(4)". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (a)(31)(C). Pub. L. 107-16, Secs. 657(a)(2)(B), 901,
temporarily substituted "Subparagraphs (A) and (B)" for
"Subparagraph (A)". See Effective and Termination Dates of 2001
Amendment note below.
Pub. L. 107-16, Secs. 657(a)(1), 901, temporarily redesignated
subpar. (B) as (C). Former subpar. (C) redesignated (D). See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (a)(31)(D), (E). Pub. L. 107-16, Secs. 657(a)(1), 901,
temporarily redesignated subpars. (C) and (D) as (D) and (E),
respectively. See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (c)(2)(A). Pub. L. 107-16, Secs. 611(g)(1), 901,
temporarily inserted at end "For purposes of this part only (other
than sections 419 and 419A), this subparagraph shall be applied as
if the term 'trade or business' for purposes of section 1402
included service described in section 1402(c)(6)." See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (k)(2)(B)(i)(I). Pub. L. 107-16, Secs. 646(a)(1)(A), 901,
temporarily substituted "severance from employment" for "separation
from service". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (k)(10). Pub. L. 107-16, Secs. 646(a)(1)(C)(iii), 901,
temporarily struck out "or disposition of assets or subsidiary"
after "plan" in heading. See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (k)(10)(A). Pub. L. 107-16, Secs. 646(a)(1)(B), 901,
temporarily reenacted heading without change and amended text
generally, substituting present provisions for provisions including
termination of plan, disposition of assets, and disposition of
subsidiary as events described in this paragraph. See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (k)(10)(B)(i). Pub. L. 107-16, Secs. 646(a)(1)(C)(i),
901, temporarily substituted "A termination" for "An event" and
"the termination" for "the event". See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (k)(10)(C). Pub. L. 107-16, Secs. 646(a)(1)(C)(ii), 901,
temporarily struck out heading and text of subpar. (C). Text read
as follows: "An event shall not be treated as described in clause
(ii) or (iii) of subparagraph (A) unless the transferor corporation
continues to maintain the plan after the disposition." See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (k)(11)(B)(i)(I). Pub. L. 107-16, Secs. 611(f)(3)(A),
901, temporarily substituted "the amount in effect under section
408(p)(2)(A)(ii)" for "$6,000". See Effective and Termination Dates
of 2001 Amendment note below.
Subsec. (k)(11)(E). Pub. L. 107-16, Secs. 611(f)(3)(B), 901,
temporarily struck out heading and text of subpar. (E). Text read
as follows: "The Secretary shall adjust the $6,000 amount under
subparagraph (B)(i)(I) at the same time and in the same manner as
under section 408(p)(2)(E)." See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (m)(9). Pub. L. 107-16, Secs. 666(a), 901, temporarily
reenacted heading without change and amended text generally. Prior
to amendment, text read as follows: "The Secretary shall prescribe
such regulations as may be necessary to carry out the purposes of
this subsection and subsection (k) including -
"(A) such regulations as may be necessary to prevent the
multiple use of the alternative limitation with respect to any
highly compensated employee, and
"(B) regulations permitting appropriate aggregation of plans
and contributions.
For purposes of the preceding sentence, the term 'alternative
limitation' means the limitation of section 401(k)(3)(A)(ii)(II)
and the limitation of paragraph (2)(A)(ii) of this subsection."
See Effective and Termination Dates of 2001 Amendment note below.
2000 - Subsec. (k)(10)(B)(ii). Pub. L. 106-554 inserted at end
"Such term includes a distribution of an annuity contract from -
"(I) a trust which forms a part of a plan described in section
401(a) and which is exempt from tax under section 501(a), or
"(II) an annuity plan described in section 403(a)."
1997 - Subsec. (a)(1). Pub. L. 105-34, Sec. 1530(c)(1), inserted
"or by a charitable remainder trust pursuant to a qualified
gratuitous transfer (as defined in section 664(g)(1))," after
"stock bonus plans),".
Subsec. (a)(5)(G). Pub. L. 105-34, Sec. 1505(a)(1), added subpar.
(G).
Subsec. (a)(13)(C), (D). Pub. L. 105-34, Sec. 1502(b), added
subpars. (C) and (D).
Subsec. (a)(26)(H). Pub. L. 105-34, Sec. 1505(a)(2), amended
heading and text of subpar. (H) generally. Prior to amendment, text
read as follows:
"(i) In general. - An employer may elect to have this paragraph
applied separately with respect to any classification of qualified
public safety employees for whom a separate plan is maintained.
"(ii) Qualified public safety employee. - For purposes of this
subparagraph, the term 'qualified public safety employee' means any
employee of any police department or fire department organized and
operated by a State or political subdivision if the employee
provides police protection, firefighting services, or emergency
medical services for any area within the jurisdiction of such State
or political subdivision."
Subsec. (k)(3)(G). Pub. L. 105-34, Sec. 1505(b), added subpar.
(G).
Subsec. (k)(7)(B)(iii) to (v). Pub. L. 105-34, Sec. 1525(a),
struck out "and" at end of cl. (iii), added cl. (iv), redesignated
former cl. (iv) as (v), and in cl. (v), substituted ", (iii), or
(iv)" for "or (iii)".
Subsec. (k)(11)(B)(iii). Pub. L. 105-34, Sec. 1601(d)(2)(D),
added cl. (iii).
Subsec. (k)(11)(D)(ii). Pub. L. 105-34, Sec. 1601(d)(2)(A),
inserted "if such plan allows only contributions required under
this paragraph" before period at end.
Subsec. (k)(11)(E). Pub. L. 105-34, Sec. 1601(d)(2)(B), added
subpar. (E).
Subsec. (m)(11). Pub. L. 105-34, Sec. 1601(d)(3), substituted
"Additional alternative" for "Alternative" in heading.
1996 - Subsec. (a)(5)(D)(ii). Pub. L. 104-188, Sec.
1431(c)(1)(B), substituted "section 414(q)(4)" for "section
414(q)(7)" in introductory provisions.
Subsec. (a)(5)(F). Pub. L. 104-188, Sec. 1445(a), added subpar.
(F).
Subsec. (a)(9)(C). Pub. L. 104-188, Sec. 1404(a), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "For purposes of this paragraph,
the term 'required beginning date' means April 1 of the calendar
year following the calendar year in which the employee attains age
70 1/2 . In the case of a governmental plan or church plan, the
required beginning date shall be the later of the date determined
under the preceding sentence or April 1 of the calendar year
following the calendar year in which the employee retires. For
purposes of this subparagraph, the term 'church plan' means a plan
maintained by a church for church employees, and the term 'church'
means any church (as defined in section 3121(w)(3)(A)) or qualified
church-controlled organization (as defined in section
3121(w)(3)(B))."
Subsec. (a)(17)(A). Pub. L. 104-188, Sec. 1431(b)(2), struck out
at end "In determining the compensation of an employee, the rules
of section 414(q)(6) shall apply, except that in applying such
rules, the term 'family' shall include only the spouse of the
employee and any lineal descendants of the employee who have not
attained age 19 before the close of the year."
Subsec. (a)(20). Pub. L. 104-188, Sec. 1704(t)(67), substituted
"section 521" for "section 211" in last sentence.
Subsec. (a)(26)(A). Pub. L. 104-188, Sec. 1432(a), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "A trust shall not constitute a
qualified trust under this subsection unless such trust is part of
a plan which on each day of the plan year benefits the lesser of -
"(i) 50 employees of the employer, or
"(ii) 40 percent or more of all employees of the employer."
Subsec. (a)(26)(G). Pub. L. 104-188, Sec. 1432(b), substituted
"paragraph (2)(A) or (7)" for "paragraph (7)".
Subsec. (a)(28)(B)(v). Pub. L. 104-188, Sec. 1401(b)(5), struck
out cl. (v) which read as follows:
"(v) Coordination with distribution rules. - Any distribution
required by this subparagraph shall not be taken into account in
determining whether a subsequent distribution is a lump sum
distribution under section 402(d)(4)(A) or in determining whether
section 402(c)(10) applies."
Subsec. (d). Pub. L. 104-188, Sec. 1441(a), amended subsec. (d)
generally, substituting provisions relating to contribution limit
on owner-employees for former provisions relating to additional
requirements for qualification of trusts and plans benefiting owner-
employees.
Subsec. (h). Pub. L. 104-188, Sec. 1704(a), provided that, except
as otherwise expressly provided, whenever in title XII of Pub. L.
101-508 an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the
reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986. Section 12011(b) of
title XII of Pub. L. 101-508 directed the amendment of this section
without specifying that the amendment was to the Internal Revenue
Code of 1986. See 1990 Amendment note below.
Subsec. (k)(3)(A). Pub. L. 104-188, Sec. 1433(c)(1), in
introductory provisions of cl. (ii) substituted "the plan year" for
"such year" and "for the preceding plan year" for "for such plan
year" and inserted at end of closing provisions of subpar. (A) "An
arrangement may apply clause (ii) by using the plan year rather
than the preceding plan year if the employer so elects, except that
if such an election is made, it may not be changed except as
provided by the Secretary."
Subsec. (k)(3)(E). Pub. L. 104-188, Sec. 1433(d)(1), added
subpar. (E).
Subsec. (k)(3)(F). Pub. L. 104-188, Sec. 1459(a), added subpar.
(F).
Subsec. (k)(4)(B). Pub. L. 104-188, Sec. 1426(a), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
"(B) State and local governments and tax-exempt organizations not
eligible. - A cash or deferred arrangement shall not be treated as
a qualified cash or deferred arrangement if it is part of a plan
maintained by -
"(i) a State or local government or political subdivision
thereof, or any agency or instrumentality thereof, or
"(ii) any organization exempt from tax under this subtitle.
This subparagraph shall not apply to a rural cooperative plan."
Subsec. (k)(7)(B)(i). Pub. L. 104-188, Sec. 1443(b), amended cl.
(i) generally. Prior to amendment, cl. (i) read as follows: "any
organization which -
"(I) is exempt from tax under this subtitle or which is a State
or local government or political subdivision thereof (or agency
or instrumentality thereof), and
"(II) is engaged primarily in providing electric service on a
mutual or cooperative basis,".
Subsec. (k)(7)(C). Pub. L. 104-188, Sec. 1443(a), added subpar.
(C).
Subsec. (k)(8)(C). Pub. L. 104-188, Sec. 1433(e)(1), substituted
"on the basis of the amount of contributions by, or on behalf of,
each of such employees" for "on the basis of the respective
portions of the excess contributions attributable to each of such
employees".
Subsec. (k)(10)(B)(ii). Pub. L. 104-188, Sec. 1401(b)(6), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"(ii) Lump sum distribution. - For purposes of this subparagraph,
the term 'lump sum distribution' has the meaning given such term by
section 402(d)(4), without regard to clauses (i), (ii), (iii), and
(iv) of subparagraph (A), subparagraph (B), or subparagraph (F)
thereof."
Subsec. (k)(11). Pub. L. 104-188, Sec. 1422(a), added par. (11).
Subsec. (k)(12). Pub. L. 104-188, Sec. 1433(a), added par. (12).
Subsec. (m)(2)(A). Pub. L. 104-188, Sec. 1433(c)(2), inserted
"for such plan year" after "highly compensated employees" in
introductory provisions, inserted "for the preceding plan year"
after "eligible employees" wherever appearing in cls. (i) and (ii),
and inserted at end "This subparagraph may be applied by using the
plan year rather than the preceding plan year if the employer so
elects, except that if such an election is made, it may not be
changed except as provided by the Secretary."
Subsec. (m)(3). Pub. L. 104-188, Sec. 1433(d)(2), inserted at end
of closing provisions "Rules similar to the rules of subsection
(k)(3)(E) shall apply for purposes of this subsection."
Subsec. (m)(5)(C). Pub. L. 104-188, Sec. 1459(b), added subpar.
(C).
Subsec. (m)(6)(C). Pub. L. 104-188, Sec. 1433(e)(2), substituted
"on the basis of the amount of contributions on behalf of, or by,
each such employee" for "on the basis of the respective portions of
such amounts attributable to each of such employees".
Subsec. (m)(10). Pub. L. 104-188, Sec. 1422(b), added par. (10).
Former par. (10) redesignated (11).
Subsec. (m)(11). Pub. L. 104-188, Sec. 1433(b), added par. (11).
Former par. (11) redesignated (12).
Pub. L. 104-188, Sec. 1422(b), redesignated par. (10) as (11).
Subsec. (m)(12). Pub. L. 104-188, Sec. 1433(b), redesignated par.
(11) as (12).
1994 - Subsec. (a)(17)(B). Pub. L. 103-465, Sec. 732(a),
reenacted subpar. (B) heading without change and amended text
generally. Prior to amendment, text read as follows:
"(i) In general. - If, for any calendar year after 1994, the
excess (if any) of -
"(I) $150,000, increased by the cost-of-living adjustment for
the calendar year, over
"(II) the dollar amount in effect under subparagraph (A) for
taxable years beginning in the calendar year,
is equal to or greater than $10,000, then the $150,000 amount under
subparagraph (A) (as previously adjusted under this subparagraph)
for any taxable year beginning in any subsequent calendar year
shall be increased by the amount of such excess, rounded to the
next lowest multiple of $10,000.
"(ii) Cost-of-living adjustment. - The cost-of-living adjustment
for any calendar year shall be the adjustment made under section
415(d) for such calendar year, except that the base period for
purposes of section 415(d)(1)(A) shall be the calendar quarter
beginning October 1, 1993."
Subsec. (a)(32). Pub. L. 103-465, Sec. 751(a)(9)(C), which
directed amendment of subsec. (a) by adding par. (32) at end, was
executed by adding par. (32) after par. (31) to reflect the
probable intent of Congress.
Subsec. (a)(33). Pub. L. 103-465, Sec. 766(b), which directed
amendment of subsec. (a) by adding par. (33) at end, was executed
by adding par. (33) after par. (32) to reflect the probable intent
of Congress.
Subsec. (a)(34). Pub. L. 103-465, Sec. 776(d), added par. (34).
1993 - Subsec. (a)(17). Pub. L. 103-66 inserted par. heading,
designated existing provisions as subpar. (A), inserted subpar.
heading, substituted "$150,000" for "$200,000" in first sentence,
struck out after first sentence "The Secretary shall adjust the
$200,000 amount at the same time and in the same manner as under
section 415(d).", and added subpar. (B).
1992 - Subsec. (a)(20). Pub. L. 102-318, Sec. 521(b)(5),
substituted "1 or more distributions within 1 taxable year to a
distributee on account of a termination of the plan of which the
trust is a part, or in the case of a profit-sharing or stock bonus
plan, a complete discontinuance of contributions under such plan"
for "a qualified total distribution described in section
402(a)(5)(E)(i)(I)" and inserted at end "For purposes of this
paragraph, rules similar to the rules of section 402(a)(6)(B) (as
in effect before its repeal by section 211 of the Unemployment
Compensation Amendments of 1992) shall apply."
Subsec. (a)(28)(B)(v). Pub. L. 102-318, Sec. 521(b)(6), amended
cl. (v) generally. Prior to amendment, cl. (v) read as follows:
"Any distribution required by this subparagraph shall not be taken
into account in determining whether -
"(I) a subsequent distribution is a lump-sum distribution under
section 402(e)(4)(A), or
"(II) section 402(a)(5)(D)(iii) applies to a subsequent
distribution."
Subsec. (a)(31). Pub. L. 102-318, Sec. 522(a)(1), added par.
(31).
Subsec. (k)(2)(B)(i)(IV). Pub. L. 102-318, Sec. 521(b)(7),
substituted "402(e)(3)" for "402(a)(8)".
Subsec. (k)(10)(B)(ii). Pub. L. 102-318, Sec. 521(b)(8),
substituted "402(d)(4)" for "402(e)(4)" and "subparagraph (F)" for
"subparagraph (H)".
1990 - Subsec. (h). Pub. L. 101-508, which directed that "section
401(h) is amended by inserting ', and subject to the provisions of
section 420' " without specifying that amendment was to the
Internal Revenue Code of 1986, was executed by making the insertion
in subsec. (h) of this section. See 1996 Amendment note above.
1989 - Subsec. (a)(9)(C). Pub. L. 101-140 struck out "(as defined
in section 89(i)(4))" after "governmental or church plan" and
inserted at end "For purposes of this subparagraph, the term
'church plan' means a plan maintained by a church for church
employees, and the term 'church' means any church (as defined in
section 3121(w)(3)(A)) or qualified church-controlled organization
(as defined in section 3121(w)(3)(B))."
Subsec. (a)(28)(B)(ii)(II). Pub. L. 101-239, Sec. 7811(h)(3),
made technical correction to directory language of Pub. L. 100-647,
Sec. 1011B(j)(1), see 1988 Amendment note below.
Subsec. (a)(29)(A)(i). Pub. L. 101-239, Sec. 7881(i)(4)(A),
substituted "multiemployer plan) to which the requirements of
section 412 apply" for "multiemployer plan)".
Subsec. (a)(29)(C)(i)(II). Pub. L. 101-239, Sec. 7881(i)(1)(A),
substituted "plan amendment and any other plan amendments adopted
after December 22, 1987, and before such plan amendment" for "plan
amendment".
Subsec. (a)(30). Pub. L. 101-239, Sec. 7811(g)(1), moved par.
(30) from a position after the undesignated closing par. to a
position immediately after par. (29).
Subsec. (h). Pub. L. 101-239, Sec. 7311(a), inserted at end "In
no event shall the requirements of paragraph (1) be treated as met
if the aggregate actual contributions for medical benefits, when
added to actual contributions for life insurance protection under
the plan, exceed 25 percent of the total actual contributions to
the plan (other than contributions to fund past service credits)
after the date on which the account is established."
Subsec. (k)(4)(B). Pub. L. 101-239, Sec. 7816(l), amended Pub. L.
100-647, Sec. 6071(b)(2), see 1988 Amendment note below.
1988 - Subsec. (a)(9)(C). Pub. L. 100-647, Sec. 6053(a), inserted
at end "In the case of a governmental plan or church plan (as
defined in section 89(i)(4)), the required beginning date shall be
the later of the date determined under the preceding sentence or
April 1 of the calendar year following the calendar year in which
the employee retires."
Subsec. (a)(11)(E), (F). Pub. L. 100-647, Sec. 1011A(l),
redesignated subpar. (E), relating to cross reference, as (F).
Subsec. (a)(17). Pub. L. 100-647, Sec. 1011(d)(4), inserted at
end "In determining the compensation of an employee, the rules of
section 414(q)(6) shall apply, except that in applying such rules,
the term 'family' shall include only the spouse of the employee and
any lineal descendants of the employee who have not attained age 19
before the close of the year."
Subsec. (a)(22). Pub. L. 100-647, Sec. 1011B(k)(1), (2),
substituted "is not readily tradable on an established market" for
"is not publicly traded" in subpar. (A) and in last sentence, and
inserted at end "For purposes of the preceding sentence,
subsections (b), (c), (m), and (o) of section 414 shall not apply
except for determining whether stock of the employer is not readily
tradable on an established market."
Subsec. (a)(26)(F), (G). Pub. L. 100-647, Sec. 1011(h)(3), added
subpars. (F) and (G). Former subpar. (F) redesignated (H).
Subsec. (a)(26)(H). Pub. L. 100-647, Sec. 6055(a), added subpar.
(H). Former subpar. (H) redesignated (I).
Pub. L. 100-647, Sec. 1011(h)(3), redesignated former subpar. (F)
as (H).
Subsec. (a)(26)(I). Pub. L. 100-647, Sec. 6055(a), redesignated
former subpar. (H) as (I).
Subsec. (a)(27). Pub. L. 100-647, Sec. 1011A(j), inserted par.
heading, designated existing provisions as subpar. (A), inserted
subpar. (A) heading, and added subpar. (B).
Subsec. (a)(28)(B)(ii)(II). Pub. L. 100-647, Sec. 1011B(j)(1), as
amended by Pub. L. 101-239, Sec. 7811(h)(3), inserted "and within
90 days after the period during which the election may be made, the
plan invests the portion of the participant's account covered by
the election in accordance with such election" after "clause (i)".
Subsec. (a)(28)(B)(iv). Pub. L. 100-647, Sec. 1011B(d)(2),
amended cl. (iv) generally. Prior to amendment, cl. (iv) read as
follows: "For purposes of this subparagraph, the term 'qualified
election period' means the 5-plan-year period beginning with the
plan year after the plan year in which the participant attains age
55 (or, if later, beginning with the plan year after the 1st plan
year in which the individual 1st became a qualified participant)."
Subsec. (a)(28)(B)(v). Pub. L. 100-647, Sec. 1011B(j)(6), added
cl. (v).
Subsec. (a)(30). Pub. L. 100-647, Sec. 1011(c)(7)(A), added par.
(30) at end.
Subsec. (k)(1), (2). Pub. L. 100-647, Sec. 6071(a), struck out
"electric" after "or a rural".
Subsec. (k)(2)(B). Pub. L. 100-647, Sec. 1011(k)(2)(A), inserted
"amounts held by the trust which are attributable to employer
contributions made pursuant to the employee's election" after
"under which".
Subsec. (k)(2)(B)(i). Pub. L. 100-647, Sec. 1011(k)(2)(B), struck
out "amounts held by the trust which are attributable to employer
contributions made pursuant to the employee's election" before "may
not be".
Pub. L. 100-647, Sec. 1011(k)(1)(A), added subcl. (II),
redesignated former subcls. (V) and (VI) as (III) and (IV),
respectively, and struck out former subcls. (II) to (IV) which read
as follows:
"(II) termination of the plan without establishment of a
successor plan,
"(III) the date of the sale by a corporation of substantially all
of the assets (within the meaning of section 409(d)(2)) used by
such corporation in a trade or business of such corporation with
respect to an employee who continues employment with the
corporation acquiring such assets,
"(IV) the date of the sale by a corporation of such corporation's
interest in a subsidiary (within the meaning of section 409(d)(3))
with respect to an employee who continues employment with such
subsidiary,".
Subsec. (k)(2)(B)(ii). Pub. L. 100-647, Sec. 1011(k)(2)(C),
struck out "amounts" before "will not be".
Subsec. (k)(3)(A). Pub. L. 100-647, Sec. 1011(k)(3)(B), made
technical correction to Pub. L. 99-514, Sec. 1116(b)(4). See 1986
Amendment note below.
Subsec. (k)(3)(A)(ii). Pub. L. 100-647, Sec. 1011(k)(3)(A),
inserted "eligible" before "highly compensated employees" in
introductory text, in subcl. (I), and in two places in subcl. (II).
Subsec. (k)(3)(C), (D). Pub. L. 100-647, Sec. 1011(k)(4), (5),
redesignated subpar. (C), relating to employer contributions, as
(D), and substituted "meet" for "meets" in cl. (ii)(I).
Subsec. (k)(4)(A). Pub. L. 100-647, Sec. 1011(k)(6), struck out
"provided by such employer" after "any other benefit".
Subsec. (k)(4)(B). Pub. L. 100-647, Sec. 6071(b)(2), as amended
by Pub. L. 101-239, Sec. 7816(l), substituted "rural cooperative
plan" for "rural electric cooperative plan" in last sentence.
Pub. L. 100-647, Sec. 1011(k)(9), inserted at end "This
subparagraph shall not apply to a rural electric cooperative plan."
Subsec. (k)(7). Pub. L. 100-647, Sec. 6071(b)(1), substituted
"Rural cooperative plan" for "Rural electric cooperative plan" in
heading and amended text generally. Prior to amendment, text read
as follows: "For purposes of this subsection -
"(A) In general. - The term 'rural cooperative plan' means any
pension plan -
"(i) which is a defined contribution plan (as defined in
section 414(i)), and
"(ii) which is established and maintained by a rural
cooperative.
"(B) Rural cooperative defined. - For purposes of subparagraph
(A), the term 'rural cooperative' means -
"(i) any organization which -
"(I) is exempt from tax under this subtitle or which is a
State or local government or political subdivision thereof
(or agency or instrumentality thereof), and
"(II) is engaged primarily in providing electric service on
a mutual or cooperative basis,
"(ii) any organization described in paragraph (4) or (6) of
section 501(c) and at least 80 percent of the members of which
are organizations described in clause (i), and
"(iii) an organization which is a national association of
organizations described in clause (i) or (ii)."
Pub. L. 100-647, Sec. 1011(e)(3), amended par. (7) generally.
Prior to amendment, par. (7) read as follows: "For purposes of this
subsection, the term 'rural electric cooperative plan' means any
pension plan -
"(A) which is a defined contribution plan (as defined in
section 414(i)), and
"(B) which is established and maintained by a rural electric
cooperative (as defined in section 457(d)(9)(B)) or a national
association of such rural electric cooperatives."
Subsec. (k)(8)(E), (F). Pub. L. 100-647, Sec. 1011(k)(7), added
subpar. (E) and redesignated former subpar. (E) as (F).
Subsec. (k)(10). Pub. L. 100-647, Sec. 1011(k)(1)(B), added par.
(10).
Subsec. (l)(2)(B)(i), (ii). Pub. L. 100-647, Sec. 1011(g)(1)(A),
substituted "contributed by the employer under" for "contributed
under".
Subsec. (l)(3)(A)(ii). Pub. L. 100-647, Sec. 1011(g)(1)(B),
inserted "attributable to employer contributions" after "basis of
benefits".
Subsec. (l)(5)(C). Pub. L. 100-647, Sec. 1011(g)(2), amended
subpar. (C) generally. Prior to amendment, subpar. (C) read as
follows: "The term 'average annual compensation' means the greater
of -
"(i) the participant's final average compensation (determined
without regard to subparagraph (D)(ii)), or
"(ii) the participant's highest average annual compensation for
any other period of at least 3 consecutive years."
Subsec. (l)(5)(E). Pub. L. 100-647, Sec. 1011(g)(3), substituted
"the social security retirement age" for "age 65" in cl. (i) and in
two places in cl. (ii), and added cl. (iii).
Subsec. (m)(1). Pub. L. 100-647, Sec. 1011(l)(1), substituted "A
defined contribution plan" for "A plan".
Subsec. (m)(2)(B). Pub. L. 100-647, Sec. 1011(l)(3), substituted
"contributions to which this subsection applies are made" for "such
contributions are made".
Subsec. (m)(3). Pub. L. 100-647, Sec. 1011(l)(2), inserted at end
"If matching contributions are taken into account for purposes of
subsection (k)(3)(A)(ii) for any plan year, such contributions
shall not be taken into account under subparagraph (A) for such
year."
Subsec. (m)(4)(A)(i), (ii). Pub. L. 100-647, Sec. 1011(l)(4),
substituted "a defined contribution plan" for "the plan".
Subsec. (m)(4)(B). Pub. L. 100-647, Sec. 1011(l)(5)(A),
substituted "section 402(g)(3)" for "section 402(g)(3)(A)".
Subsec. (m)(6)(C). Pub. L. 100-647, Sec. 1011(l)(6), substituted
"excess aggregate contributions" for "excess contributions" in
heading.
Subsec. (m)(7)(A). Pub. L. 100-647, Sec. 1011(l)(7), substituted
"paragraph (6)" for "paragraph (8)".
1987 - Subsec. (a)(29). Pub. L. 100-203 added par. (29).
1986 - Subsec. (a)(4). Pub. L. 99-514, Sec. 1114(b)(7), amended
par. (4) generally. Prior to amendment, par. (4) read as follows:
"if the contributions or the benefits provided under the plan do
not discriminate in favor of employees who are -
"(A) officers,
"(B) shareholders, or
"(C) highly compensated.
For purposes of this paragraph, there shall be excluded from
consideration employees described in section 410(b)(3)(A) and (C)."
Subsec. (a)(5). Pub. L. 99-514, Sec. 1111(b), amended par. (5)
generally. Prior to amendment, par. (5) related to conditions which
taken alone would not require a classification to be considered
discriminatory and means of determining the basic or regular rate
of compensation of an employee and whether two or more plans of an
employer satisfy requirements of par. (4) when considered as a
single plan.
Subsec. (a)(8). Pub. L. 99-514, Sec. 1119(a), substituted
"defined benefit plan" for "pension plan".
Subsec. (a)(9)(C). Pub. L. 99-514, Sec. 1121(b), amended subpar.
(C) generally. Prior to amendment, subpar. (C) read as follows:
"For purposes of this paragraph, the term 'required beginning date'
means April 1 of the calendar year following the later of -
"(i) the calendar year in which the employee attains age 70 1/2
, or
"(ii) the calendar year in which the employee retires.
Clause (ii) shall not apply in the case of an employee who is a 5-
percent owner (as defined in section 416(i)(1)(B)) at any time
during the 5-plan-year period ending in the calendar year in which
the employee attains age 70 1/2 . If the employee becomes a 5-
percent owner during any subsequent plan year, the required
beginning date shall be April 1 of the calendar year following the
calendar year in which such subsequent plan year ends."
Pub. L. 99-514, Sec. 1852(a)(4)(A), substituted last 2 sentences
for "Except as provided in section 409(d), clause (ii) shall not
apply in the case of an employee who is a 5-percent owner (as
defined in section 416) with respect to the plan year ending in the
calendar year in which the employee attains 70 1/2 ."
Subsec. (a)(9)(G). Pub. L. 99-514, Sec. 1852(a)(6), added subpar.
(G).
Subsec. (a)(11)(A)(i). Pub. L. 99-514, Sec. 1898(b)(3)(A),
substituted "who does not die before the annuity starting date" for
"who retires under the plan".
Subsec. (a)(11)(B). Pub. L. 99-514, Sec. 1898(b)(2)(A)(ii),
inserted at end "Clause (iii)(III) shall apply only with respect to
the transferred assets (and income therefrom) if the plan
separately accounts for such assets and any income therefrom."
Subsec. (a)(11)(B)(iii)(I). Pub. L. 99-514, Sec. 1898(b)(7)(A),
inserted "(reduced by any security interest held by the plan by
reason of a loan outstanding to such participant)".
Pub. L. 99-514, Sec. 1898(b)(13)(A), substituted "section
417(a)(2)" for "section 417(a)(2)(A)".
Subsec. (a)(11)(B)(iii)(III). Pub. L. 99-514, Sec.
1898(b)(2)(A)(i), inserted "(in a transfer after December 31,
1984)".
Subsec. (a)(11)(D), (E). Pub. L. 99-514, Sec. 1145(a), added
subpar. (E) relating to exception for plans described in section
404(c) and redesignated former subpar. (D), relating to cross
references, as (E).
Pub. L. 99-514, Sec. 1898(b)(14)(A), added subpar. (D) and
redesignated former subpar. (D), relating to cross references, as
(E).
Subsec. (a)(17). Pub. L. 99-514, Sec. 1106(d)(1), added par.
(17).
Subsec. (a)(20). Pub. L. 99-514, Sec. 1852(b)(8), substituted
"qualified total distribution described in section
402(a)(5)(E)(i)(I)" for "qualifying rollover distribution
(determined as if section 402(a)(5)(D)(i) did not contain subclause
(II) thereof) described in section 402(a)(5)(A)(i) or
403(a)(4)(A)(i)".
Subsec. (a)(21). Pub. L. 99-514, Sec. 1171(b)(5), struck out par.
(21) which read as follows: "A trust forming part of a tax credit
employee stock ownership plan shall not fail to be considered a
permanent program merely because employer contributions under the
plan are determined solely by reference to the amount of credit
which would be allowable under section 41 if the employer made the
transfer described in section 41(c)(1)(B)".
Subsec. (a)(22). Pub. L. 99-514, Sec. 1899A(10), substituted "If"
for "if".
Pub. L. 99-514, Sec. 1176(a), inserted at end "The requirements
of subsection (e) of section 409 shall not apply to any employees
of an employer who are participants in any defined contribution
plan established and maintained by such employer if the stock of
such employer is not publicly traded and the trade or business of
such employer consists of publishing on a regular basis a newspaper
for general circulation."
Subsec. (a)(23). Pub. L. 99-514, Sec. 1174(c)(2)(A), amended par.
(23) generally. Prior to amendment, par. (23) read as follows: "A
stock bonus plan which otherwise meets the requirements of this
section shall not be considered to fail to meet the requirements of
this section because it provides a cash distribution option to
participants if that option meets the requirements of section
409(h), except that in applying section 409(h) for purposes of this
paragraph, the term 'employer securities' shall include any
securities of the employer held by the plan."
Subsec. (a)(26). Pub. L. 99-514, Sec. 1112(b), added par. (26).
Subsec. (a)(27). Pub. L. 99-514, Sec. 1136(a), added par. (27).
Subsec. (a)(28). Pub. L. 99-514, Sec. 1175(a)(1), added par.
(28).
Subsec. (c)(2)(A)(v). Pub. L. 99-514, Sec. 1848(b), substituted
"section 404" for "sections 404 and 405(c)".
Subsec. (c)(6). Pub. L. 99-514, Sec. 1143(a), added par. (6).
Subsec. (h). Pub. L. 99-514, Sec. 1852(h)(1), substituted "key
employee" for "5-percent owner" in two places in par. (6) and
amended last sentence generally, substituting " 'key employee'
means any employee, who" for " '5-percent owner' means any employee
who," and "key employee as defined in section 416(i)" for "5-
percent owner (as defined in section 416(i)(1)(B))".
Subsec. (k)(1), (2). Pub. L. 99-514, Sec. 1879(g)(1), substituted
", a pre-ERISA money purchase plan, or a rural electric cooperative
plan" for "(or a pre-ERISA money purchase plan)".
Subsec. (k)(2)(B). Pub. L. 99-514, Sec. 1116(b)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "under which amounts held by the trust which are
attributable to employer contributions made pursuant to the
employee's election may not be distributable to participants or
other beneficiaries earlier than upon retirement, death,
disability, or separation from service (or in the case of a profit
sharing or stock bonus plan, hardship or the attainment of age 59
1/2 ) and will not be distributable merely by reason of the
completion of a stated period of participation or the lapse of a
fixed number of years; and".
Subsec. (k)(2)(C). Pub. L. 99-514, Sec. 1852(g)(3), substituted
"is nonforfeitable" for "are nonforfeitable".
Subsec. (k)(2)(D). Pub. L. 99-514, Sec. 1116(b)(2), added subpar.
(D).
Subsec. (k)(3). Pub. L. 99-514, Sec. 1116(d)(3), which directed
that the last sentence of subpar. (B) be struck out was executed by
striking out the last sentence of par. (3) as the probable intent
of Congress because subpar. (B) is composed of only one sentence.
Prior to being stricken, such last sentence read as follows: "For
purposes of the preceding sentence, the compensation of any
employee for a plan year shall be the amount of his compensation
which is taken into account under the plan in calculating the
contribution which may be made on his behalf for such plan year."
Subsec. (k)(3)(A). Pub. L. 99-514, Sec. 1116(b)(4), as amended by
Pub. L. 100-647, Sec. 1011(k)(3)(B), substituted "any highly
compensated employee" for "an employee" in concluding provisions.
Pub. L. 99-514, Sec. 1852(g)(2), substituted "If an employee is a
participant under 2 or more cash or deferred arrangements of the
employer, for purposes of determining the deferral percentage with
respect to such employee, all such cash or deferred arrangements
shall be treated as 1 cash or deferred arrangement" for "The
deferral percentage taken into account under this subparagraph for
any employee who is a participant under 2 or more cash or deferred
arrangements of the employer shall be the sum of the deferral
percentages for such employee under each of such arrangements".
Subsec. (k)(3)(A)(i). Pub. L. 99-514, Sec. 1112(d)(1), struck out
"subparagraph (A) or (B) of" before "section 410(b)(1)".
Subsec. (k)(3)(A)(ii). Pub. L. 99-514, Sec. 1116(c)(2),
substituted "paragraph (5)" for "paragraph (4)".
Pub. L. 99-514, Sec. 1116(a), substituted "1.25" for "1.5" in
subcl. (I), and "2 percentage points" for "3 percentage points" and
"2" for "2.5" in subcl. (II).
Subsec. (k)(3)(C). Pub. L. 99-514, Sec. 1852(g)(1), added subpar.
(C) relating to treatment of cash or deferred arrangements.
Pub. L. 99-514, Sec. 1116(e), added subpar. (C) relating to
employer contributions.
Subsec. (k)(4). Pub. L. 99-514, Sec. 1116(b)(3), added par. (4).
Former par. (4) redesignated (5).
Subsec. (k)(5). Pub. L. 99-514, Sec. 1116(b)(3), (d)(1),
redesignated former par. (4) as (5) and substituted "the term
'highly compensated employee' has the meaning given such term by
section 414(q)" for "the term 'highly compensated employee' means
any employee who is more highly compensated than two-thirds of all
eligible employees, taking into account only compensation which is
considered in applying paragraph (3)". Former par. (5) redesignated
(6).
Subsec. (k)(6). Pub. L. 99-514, Sec. 1116(b)(3), redesignated
former par. (5) as (6). Former par. (6) redesignated (7).
Pub. L. 99-514, Sec. 1879(g)(2), added par. (6).
Subsec. (k)(7). Pub. L. 99-514, Sec. 1116(b)(3), redesignated
former par. (6) as (7).
Subsec. (k)(8). Pub. L. 99-514, Sec. 1116(c)(1), added par. (8).
Subsec. (k)(9). Pub. L. 99-514, Sec. 1116(d)(2), added par. (9).
Subsec. (l). Pub. L. 99-514, Sec. 1111(a), amended subsec. (l)
generally, substituting provisions relating to permitted disparity
in plan contributions or benefits for provisions relating to
nondiscriminatory coordination of defined contribution plans with
OASDI.
Subsec. (m). Pub. L. 99-514, Sec. 1117(a), added subsec. (m) and
redesignated former subsec. (m) as (n).
Pub. L. 99-514, Sec. 1898(c)(3), added subsec. (m).
Subsec. (n). Pub. L. 99-514, Sec. 1117(a), redesignated former
subsec. (m) as (n). Former subsec. (n) redesignated (o).
Pub. L. 99-514, Sec. 1898(c)(3), redesignated subsec. (o) as (n).
Subsec. (o). Pub. L. 99-514, Sec. 1117(a), redesignated former
subsec. (n) as (o).
Pub. L. 99-514, Sec. 1898(c)(3), redesignated subsec. (o) as (n).
1984 - Subsec. (a)(9). Pub. L. 98-369, Sec. 521(a)(1), amended
par. (9) generally, redesignating existing provisions as subpar.
(A) and in subpar. (A) as so redesignated struck out "In the case
of a plan which provides contributions or benefits for employees
some or all of whom are employees within the meaning of subsection
(c)(1)" before "a trust forming part of such plan", substituted
"the plan provides that the entire interest of each employee - "
for ", under the plan, the entire interest of each employee - ",
redesignated subpars. (A) and (B) as cls. (i) and (ii)
respectively, in cl. (i) as so redesignated substituted provisions
stating that a qualified plan provides that the entire interest
will be distributed to the employee not later than the beginning
date for former provisions which provided alternative dates for
providing interest, in cl. (ii) as so redesignated substituted
alternate distribution dates to be set in accordance with
regulations for former provisions stating that a qualified plan
shall be distributed not later than the taxable year in which the
taxpayer attains age 70 1/2 , and struck out the par. following cl.
(ii) which provided "A trust shall not be disqualified under this
paragraph by reason of distributions under a designation, prior to
the date of the enactment of this paragraph, by any employee under
the plan of which such trust is a part, of a method of distribution
which does not meet the terms of the preceding sentence.", and
added subpars. (B) to (F).
Pub. L. 98-369, Sec. 521(a)(2), repealed amendment made by Pub.
L. 97-248, Sec. 242(a). See 1982 Amendment note below.
Subsec. (a)(10)(B)(iii). Pub. L. 98-369, Sec. 524(d)(1), added
cl. (iii).
Subsec. (a)(11). Pub. L. 98-397, Sec. 203(a), amended par. (11)
generally, inserting provisions relating to preretirement survivor
annuities, and substituting present four subpars. for former eight
subpars.
Subsec. (a)(13). Pub. L. 98-397, Sec. 204(a), designated existing
provisions as subpar. (A), corrected the margin of subpar. (A), and
added subpar. (B).
Subsec. (a)(21). Pub. L. 98-369, Sec. 474(r)(13), substituted
provisions relating to the amount of the credit which would be
allowable under section 41 if the employer made the transfer
described in section 41(c)(1)(B) for former provisions which had
related to the amount of credit which would be allowable under
section 46(a) if the employer made the transfer described in
section 48(n)(1) or under section 44G if the employer made the
transfer described in section 44G(c)(1)(B).
Subsec. (a)(22). Pub. L. 98-369, Sec. 491(e)(4), substituted
"section 409" for "section 409A".
Subsec. (a)(23). Pub. L. 98-369, Sec. 491(e)(5), substituted
"section 409(h)" for "section 409A(h)" in two places.
Subsec. (a)(24). Pub. L. 98-369, Sec. 211(b)(5), substituted
"section 818(a)(6)" for "section 805(d)(6)".
Subsec. (a)(25). Pub. L. 98-397, Sec. 301(b), added par. (25).
Subsec. (e). Pub. L. 98-369, Sec. 713(d)(3), repealed subsec. (e)
which related to contributions for premiums on annuity, etc.,
contracts.
Subsec. (f)(2). Pub. L. 98-369, Sec. 713(c)(2)(A), substituted
"(as defined in section 408(n))" for "(as defined in subsection
(d)(1))".
Subsec. (h)(6). Pub. L. 98-369, Sec. 528(b), added par. (6).
Subsec. (k)(1), (2). Pub. L. 98-369, Sec. 527(b)(1), inserted
"(or a pre-ERISA money purchase plan)".
Subsec. (k)(2)(B). Pub. L. 98-369, Sec. 527(b)(3), substituted
"(or in the case of a profit sharing or stock bonus plan, hardship
or the attainment of age 59 1/2 )" for ", hardship or the
attainment of age 59 1/2 ,".
Subsec. (k)(3)(A). Pub. L. 98-369, Sec. 527(a), struck out
"qualified" before "cash or deferred arrangement", substituted
"shall not be treated as a qualified cash or deferred arrangement
unless" for "shall be considered to satisfy the requirements of
subsection (a)(4), with respect to the amount of contributions, and
of subparagraph (B) of section 410(b)(1) for a plan year if",
designated provisions beginning "those employees" and ending
"section 401(b)(1)" as cl. (i) and text following as cl. (ii),
redesignated former cls. (i) and (ii) as subcls. (I) and (II) and
inserted text following subcl. (II).
Subsec. (k)(5). Pub. L. 98-369, Sec. 527(b)(2), added par. (5).
1983 - Subsec. (a)(21). Pub. L. 97-448, Sec. 103(g)(2)(A),
designated part of existing provisions as subpar. (A) and added
subpar. (B).
Subsec. (c)(2)(A)(vi). Pub. L. 98-21 added cl. (vi).
Subsec. (d)(2). Pub. L. 97-448, Sec. 306(a)(12), substituted
"paragraph (1)(B)" for "paragraph (9)(B)".
Subsec. (d)(5). Pub. L. 97-448, Sec. 103(c)(10)(A), substituted
"Subparagraphs (A) and (B) shall not apply to contributions
described in subsection (e), and shall not apply to any deductible
employee contribution (as defined in section 72(o)(5))" for
"Subparagraphs (A) and (B) do not apply to contributions described
in subsection (e)" in second sentence.
Subsec. (j)(3). Pub. L. 97-448, Sec. 103(d)(2), substituted
"under subparagraph (A) of paragraph (2) shall be treated as
beginning a new period of plan participation with respect only to
such change" for "under subparagraph (A) of subsection (j)(2) shall
be treated as beginning a new period of plan participation" in last
sentence.
1982 - Subsec. (a)(9). Pub. L. 97-248, Sec. 242(a), which was
repealed by Pub. L. 98-369, Sec. 521(a)(2), had amended par. (9)
generally, redesignating existing provisions as subpar. (A), in
subpar. (A), as so redesignated, struck out preliminary provision
which limited the application of this paragraph to plans providing
contributions or benefits for employees some or all of whom were
employees within the meaning of subsec. (c)(1), redesignated former
subpars. (A) and (B) as cls. (i) and (ii) of subpar. (A), in cl.
(i), as so redesignated, substituted reference to a key employee
who is a participant in a top-heavy plan for former reference to
owner-employees (within the meaning of subsec. (c)(3)),
redesignated former cls. (i) and (ii) of subpar. (B) as subcls. (I)
and (II) of cl. (ii), struck out former provision that a trust
would not be disqualified under this paragraph by reason of
distributions under a designation, prior to the date of the
enactment of this paragraph, by any employee under the plan of
which such trust was a part, of a method of distribution which did
not meet the terms of this paragraph, and adding subpar. (B).
Subsec. (a)(10). Pub. L. 97-248, Sec. 237(e)(1), amended par.
(10) generally, redesignating subpar. (B) as (A) and striking out
former subpar. (A) relating to qualified trust as a trust forming
part of such plan, for provisions relating to discriminatory plans
with respect to nonapplicability of paragraph (3), the first and
second sentences of paragraph (5) and section 410 of this title.
Subsec. (a)(10)(B). Pub. L. 97-248, Sec. 240(b), added subpar.
(B).
Subsec. (a)(17), (18). Pub. L. 97-248, Sec. 237(b), struck out
pars. (17) and (18) which related, respectively, to a plan which
provides contributions or benefits for employees some or all of
whom are employees within the meaning of subsection (c)(1), or are
shareholder-employees within the meaning of section 1379(d), and a
trust which is part of a plan providing a defined benefit for
employees some or all of whom are employees within the meaning of
subsection (c)(1), or are shareholder-employees within the meaning
of section 1379(d).
Subsec. (a)(24). Pub. L. 97-248 added par. (24).
Subsec. (c)(1). Pub. L. 97-248, Sec. 238(d)(1), amended par. (1)
generally, substituting in heading "Self-employed individual
treated as employee" for "Employee", adding subparagraph headings,
and substituting provisions defining "employee" and "self-employed
individual", for provisions defining "employee".
Subsec. (c)(2)(A). Pub. L. 97-248, Sec. 238(d)(2), added cl. (v).
Subsec. (d). Pub. L. 97-248, Sec. 237(a), redesignated pars. (9)
to (11) as (1) to (3), respectively. Former pars. (1) to (7), which
related to trusts created or organized before or after October 10,
1962, contributions under the plan, benefits under the plan for
employees, contributions or benefits under the plan, limitations
pursuant to the plan, applicability of requirements of subsec.
(a)(4) of this section, and distributions under the plan,
respectively, were struck out.
Subsec. (j). Pub. L. 97-248, Sec. 238(b), struck out subsec. (j)
which related to general requirements, regulation guidelines,
applicable percentage, certain contributions and benefits not taken
into account, definitions, and special rules with respect to
defined benefit plans providing benefits for self-employed
individuals and shareholder-employees.
Subsecs. (l), (o). Pub. L. 97-248, Sec. 249(a), added subsec. (l)
and redesignated former subsec. (l) as (o).
1981 - Subsec. (a)(17). Pub. L. 97-34, Sec. 312(b)(1), designated
provision relating to the annual compensation of each employee as
subpar. (A), and in subpar. (A) as so designated, substituted
"$200,000" for "$100,000", and added subpar. (B).
Subsec. (a)(22). Pub. L. 97-34, Sec. 338(a), inserted "(other
than a profit-sharing plan)" and substituted "if" for "If" and
"such plan" for "said plan".
Subsec. (a)(23). Pub. L. 97-34, Sec. 335, substituted "409A(h),
except that in applying section 409A(h) for purposes of this
paragraph, the term 'employer securities' shall include any
securities of the employer held by the plan" for "409A(h)(2)".
Subsec. (d)(4). Pub. L. 97-34, Sec. 312(e)(2), inserted provision
making subpar. (B) inapplicable to any distribution to which
section 72(m)(9) applies.
Subsec. (d)(5). Pub. L. 97-34, Sec. 314(a)(1), inserted provision
making subpar. (C) inapplicable to a distribution on account of the
termination of the plan.
Subsec. (e). Pub. L. 97-34, Sec. 312(c)(2), substituted "for such
taxable year exceeds $15,000" for "for all such years exceeds
$7,500".
Subsec. (j). Pub. L. 97-34, Sec. 312(c)(3), (4), substituted in
par. (2)(A) "$100,000" for "$50,000" and in par. (3) inserted
provision that for purposes of this paragraph, a change in the
annual compensation taken into account under subpar. (A) of subsec.
(j)(2) be treated as beginning a new period of plan participation.
1980 - Subsec. (a)(2). Pub. L. 96-364, Secs. 208(e), 410(b),
inserted provisions relating to applicability to multiemployer
plans and return of contributions made by a mistake of law or fact,
or return of withdrawal liability payment.
Subsec. (a)(4). Pub. L. 96-605, Sec. 225(b)(1), substituted
"section 410(b)(3)(A)" for "section 410(b)(2)(A)".
Subsec. (a)(12). Pub. L. 96-364, Sec. 208(a), substituted
provisions relating to applicability to multiemployer plans subject
to title IV of the Employee Retirement Income Security Act of 1974
of provisions of preceding sentence, for provisions relating to
applicability of paragraph to multiemployer plans to extent
determined by Corporation.
Subsec. (a)(20). Pub. L. 96-222, Sec. 101(a)(14)(E)(iii),
substituted "makes a qualifying rollover distribution (determined
as if section 402(a)(5)(D)(i) did not contain subclause (II)
thereof) described in section 402(a)(5)(A)(i) or 403(a)(4)(A)(i)"
for "makes a payment or distribution described in section
402(a)(5)(i) or 403(a)(4)(i)".
Subsec. (a)(21). Pub. L. 96-222, Sec. 101(a)(7)(L)(i)(V),
substituted "a tax credit employee stock ownership plan" for "an
ESOP".
Subsec. (a)(22)(B). Pub. L. 96-222, Sec. 101(a)(9), substituted
"are securities" for "as securities".
Subsec. (a)(23). Pub. L. 96-605, Sec. 221(a), added par. (23).
Subsec. (d)(3)(B). Pub. L. 96-605, Sec. 225(b)(2), substituted in
cl. (i) "section 410(b)(3)(A)" for "section 410(b)(2)(A)" and in
cl. (ii) "section 410(b)(3)(C)" for "section 410(b)(2)(C)".
1978 - Subsec. (a)(5). Pub. L. 95-600, Sec. 152(e), inserted
provision that for purposes of determining whether one or more
plans of the employer satisfy the requirements of section
410(b)(4), an employer may take into account all simplified
employee pensions to which only the employer contributes.
Subsec. (a)(21). Pub. L. 95-600, Sec. 141(f)(3), substituted
"ESOP" for "employee stock option plan which satisfies the
requirements of section 301(d) of the Tax Reduction Act of 1975"
and "section 48(n)(1)" for "subsection (d)(6) or (e)(3) of section
301 of the Tax Reduction Act of 1975".
Subsec. (a)(22). Pub. L. 95-600, Sec. 143(a), added par. (22).
Subsecs. (k), (l). Pub. L. 95-600, Sec. 135(a), added subsec. (k)
and redesignated former subsec. (k) as (l).
1976 - Subsec. (a). Pub. L. 94-455, Secs. 803(b)(2), 1901(a)(56),
1906(b)(13)(A), struck out "or his delegate" after "Secretary" in
pars. (5), (11), and (14), substituted references to Sept. 2, 1974,
for references to the enactment of the Employee Retirement Income
Security Act of 1974 in pars. (12), (13), (15), and (19), added
par. (21), and inserted reference to par. (20) in provisions
following par. (21), such addition of reference to par. (20)
duplicating amendment by Pub. L. 94-267, Sec. 1(c)(2).
Pub. L. 94-267, Sec. 1(c)(2), substituted "(19), and (20)" for
"and (19)".
Subsec. (a)(20). Pub. L. 94-267, Sec. 1(c)(1), added par. (20).
Subsecs. (b), (c), (d). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (f). Pub. L. 94-455, Sec. 1505(b), inserted reference to
contracts (other than life, health, or accident, property,
casualty, or liability insurance contracts) issued by an insurance
company qualified to do a business in a State and struck out "or
his delegate" after "Secretary".
Subsecs. (h), (i), (j). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
1974 - Subsec. (a). Pub. L. 93-406, Sec. 1021(a)(2), inserted
provision that paragraphs (11), (12), (13), (14), (15), and (19)
shall apply only in the case of a plan to which section 411
(relating to minimum vesting standards) applies without regard to
subsection (e)(2) of this section.
Subsec. (a)(3). Pub. L. 93-406, Sec. 1016(a)(2)(A), substituted
provisions referring simply to a plan of which the trust is a part
and the satisfaction by that plan of the requirements of section
410 (relating to minimum participation standards) for provisions
referring to a trust, trusts, or trust or trusts and annuity plan
or plans designated by the employer as constituting parts of a plan
intended to qualify under subsec. (a) and spelling out the
requisite coverage of the plan.
Subsec. (a)(4). Pub. L. 93-406, Sec. 1022(a), struck out
provisions referring to persons whose principal duties consist in
supervising the work of other employees and inserted provisions
directing the exclusion from consideration of employees described
in section 410(b)(2) (A) and (C).
Subsec. (a)(5). Pub. L. 93-406, Secs. 1012(b), 1016(a)(2)(B),
inserted provisions covering the determination of whether two or
more plans of an employer satisfy the requirements of par. (4) when
considered as a single plan and substituted "shall not be
considered discriminatory within the meaning of paragraph (4) of
section 410(b) (without regard to paragraph (1)(A) thereof)" for
"shall not be considered discriminatory within the meaning of
paragraph (3)(B) or (4)".
Subsec. (a)(7). Pub. L. 93-406, Sec. 1016(a)(2)(C), substituted
provisions referring simply to the satisfaction by the plan of
which a trust is a part of the requirements of section 411
(relating to minimum vesting standards) for provisions spelling out
in detail the conditions which the plan had to satisfy in order
that the trust forming part of that plan constitute a qualified
trust under this section.
Subsec. (a)(10)(A). Pub. L. 93-406, Secs. 1022(b)(1), 2001(e)(4),
inserted reference to section 410 in provisions preceding cl. (i)
and substituted "subsection (e)" for "subsection (e)(3)(A)" in cl.
(ii).
Subsec. (a)(11). Pub. L. 93-406, Sec. 1021(a)(1), added par.
(11).
Subsec. (a)(12). Pub. L. 93-406, Sec. 1021(b), added par. (12).
Subsec. (a)(13). Pub. L. 93-406, Sec. 1021(c), added par. (13).
Subsec. (a)(14). Pub. L. 93-406, Sec. 1021(d), added par. (14).
Subsec. (a)(15). Pub. L. 93-406, Sec. 1021(e), added par. (15).
Subsec. (a)(16). Pub. L. 93-406, Sec. 2004(a)(1), added par.
(16).
Subsec. (a)(17). Pub. L. 93-406, Sec. 2001(c), added par. (17).
Subsec. (a)(18). Pub. L. 93-406, Sec. 2001(d)(1), added par.
(18).
Subsec. (a)(19). Pub. L. 93-406, Sec. 1021(f), added par. (19).
Subsec. (b). Pub. L. 93-406, Sec. 1023, substituted reference to
the requirements of subsection (a) for the period beginning with
the date on which a stock bonus, pension, profit-sharing, or
annuity plan was put into effect, or for the period beginning with
the earlier of the date on which there was adopted or put into
effect any amendment which caused the plan to fail to satisfy such
requirements, and ending with the time prescribed by law for filing
the return of the employer for his taxable year in which such plan
or amendment was adopted (including extensions thereof) or such
later time as the Secretary or his delegate may designate for
reference to the requirements of paragraphs (3), (4), (5), and (6)
of subsection (a) for the period beginning with the date on which a
stock bonus, pension, profit-sharing, or annuity plan was put into
effect and ending with the 15th day of the third month following
the close of the taxable year of the employer in which the plan was
put in effect.
Subsec. (d)(1). Pub. L. 93-406, Sec. 1022(c), (f), substituted
"October 10, 1962" for "the date of the enactment of this
subsection" and "assets thereof are held by a bank or other person
who demonstrates to the satisfaction of the Secretary or his
delegate that the manner in which he will administer the trust will
be consistent with the requirements of this section. A trust shall
not be disqualified under this paragraph merely because a person
(including the employer) other than the trustee or custodian so
administering the trust" for "trustee is a bank, but a person
(including the employer) other than a bank" and inserted reference
to an insured credit union (within the meaning of section 101(6) of
the Federal Credit Union Act) in definition of "bank".
Subsec. (d)(3). Pub. L. 93-406, Sec. 1022(b)(2), inserted
reference to the section 410(a)(3) definition of "years of service"
and substituted reference to employees included in a unit of
employees covered by a collective-bargaining agreement described in
section 410(b)(2)(A) and employees who are nonresident aliens
described in section 410(b)(2)(C) for reference to employees whose
customary employment was for not more than 20 hours in any one week
or was for not more than 5 months in any calendar year.
Subsec. (d)(4)(B). Pub. L. 93-406, Sec. 2001(h)(1), inserted "in
excess of contributions made by an owner-employee as an employee"
after "benefits".
Subsec. (d)(5). Pub. L. 93-406, Sec. 2001(e)(1), substituted
"Subparagraphs (A) and (B) do not apply to contributions described
in subsection (e)" for "Subparagraphs (A) and (B) shall not apply
to any contribution which is not considered to be an excess
contribution (as defined in subsection (e)(1)) by reason of the
application of subsection (e)(3)".
Subsec. (d)(8). Pub. L. 93-406, Sec. 2001(e)(2), struck out par.
(8) covering excess contributions.
Subsec. (e). Pub. L. 93-406, Sec. 2001(e)(3), struck out pars.
(1) and (2) which defined and described the effect of excess
contributions, redesignated par. (3) as the entire subsec. (e) and
in provisions as thus carried forward as the entire subsec. (e)
substituted "$7,500" for "$2,500" and inserted references to
section 4972(b).
Subsec. (f). Pub. L. 93-406, Sec. 1022(d), expanded provisions to
cover annuity contracts.
Subsecs. (j), (k). Pub. L. 93-406, Sec. 2001(d)(2), added subsec.
(j) and redesignated former subsec. (j) as (k).
1971 - Subsec. (i). Pub. L. 91-691 struck out "multi-employer"
before "pension plans" in heading, and substituted "one or more
employers" for "two or more employers who are not related
(determined under regulations prescribed by the Secretary or his
delegate)" in par. (1).
1966 - Subsec. (a)(10)(A)(ii). Pub. L. 89-809, Sec. 204(b)(1)(A),
struck out "(determined without regard to section 404(a)(10))"
after "deducted under section 404".
Subsec. (c)(2)(A). Pub. L. 89-809, Sec. 204(c), struck out "to
the extent that such net earnings constitute earned income (as
defined in section 911(b) but determined with the application of
subparagraph (B))" after "The term 'earned income' means the net
earnings from self-employment (as defined in section 1402(a))",
added cl. (i) and redesignated former cls. (i) to (ii) as (ii) to
(iv) respectively, and struck out references to section 911(b) and
subparagraph (B), as in effect for a taxable year beginning on
January 1, 1963, in text following cl. (iv).
Subsec. (c)(2)(B). Pub. L. 89-809, Sec. 204(c), struck out
subpar. (B) relating to earned income when both personal services
and capital are material income-producing factors. See subsec.
(c)(2)(A)(i).
Subsec. (c)(2)(C). Pub. L. 89-809, Sec. 205(a), added subpar.
(C).
Subsecs. (d)(5)(A), (B), (d)(6)(A), (e)(1)(A), (B)(i), (3). Pub.
L. 89-809, Sec. 204(b)(1)(B) to (E), struck out "(determined
without regard to section 404(a)(10))" wherever appearing.
1965 - Subsec. (d)(4)(B). Pub. L. 89-97 substituted "section
72(m)(7)" for "section 213(g)(3)".
1964 - Subsecs. (i), (j). Pub. L. 88-272 added subsec. (i) and
redesignated former subsec. (i) as (j).
1962 - Subsec. (a)(5). Pub. L. 87-792, Sec. 2(1), inserted
provisions defining total compensation for purposes of par. (5) and
par. (10) of this subsection.
Subsec. (a)(7) to (10). Pub. L. 87-792, Sec. 2(2), added pars.
(7) to (10).
Subsecs. (c) to (g). Pub. L. 87-792, Sec. 2(3), added subsecs.
(c) to (g). Former subsec. (c) redesignated (h).
Subsec. (h). Pub. L. 87-863 added subsec. (h). Former subsec. (h)
redesignated (i).
Pub. L. 87-792, Sec. 2(3), redesignated former subsec. (c) as
(h).
Subsec. (i). Pub. L. 87-863 redesignated former subsec. (h) as
(i).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-311, title IV, Sec. 407(c), Oct. 4, 2004, 118 Stat.
1190, provided that: "The amendments made by this section [amending
this section and section 1377 of this title] shall take effect as
if included in the provisions of the Small Business Job Protection
Act of 1996 [Pub. L. 104-188] to which they relate."
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 611(c), (f)(3), (g)(1) of Pub. L. 107-16
applicable to years beginning after Dec. 31, 2001, see section
611(i)(1) of Pub. L. 107-16, set out as a note under section 415 of
this title.
Amendment by section 641(e)(3) of Pub. L. 107-16 applicable to
distributions after Dec. 31, 2001, see section 641(f)(1) of Pub. L.
107-16, set out as a note under section 402 of this title.
Pub. L. 107-16, title VI, Sec. 643(d), June 7, 2001, 115 Stat.
123, provided that: "The amendments made by this section [amending
this section and sections 402 and 408 of this title] shall apply to
distributions made after December 31, 2001."
Pub. L. 107-16, title VI, Sec. 646(b), June 7, 2001, 115 Stat.
126, provided that: "The amendments made by this section [amending
this section and sections 403 and 457 of this title] shall apply to
distributions after December 31, 2001."
Pub. L. 107-16, title VI, Sec. 657(d), June 7, 2001, 115 Stat.
137, provided that: "The amendments made by this section [amending
this section, section 402 of this title, and section 1104 of Title
29, Labor] shall apply to distributions made after final
regulations implementing subsection (c)(2)(A) [set out as a note
below] are prescribed [Final regulations implementing subsec.
(c)(2)(A) became effective Mar. 28, 2005. See 69 F.R. 58017.]."
Pub. L. 107-16, title VI, Sec. 666(b), June 7, 2001, 115 Stat.
144, provided that: "The amendment made by this section [amending
this section] shall apply to years beginning after December 31,
2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 effective as if included in the
provisions of the Small Business Job Protection Act of 1996, Pub.
L. 104-188, to which such amendment relates, see section 1(a)(7)
[title III, Sec. 316(e)] of Pub. L. 106-554, set out as a note
under section 51 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1502(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and section 1056 of
Title 29, Labor] shall apply to judgments, orders, and decrees
issued, and settlement agreements entered into, on or after the
date of the enactment of this Act [Aug. 5, 1997]."
Section 1505(d) of Pub. L. 105-34, as amended by Pub. L. 105-206,
title VI, Sec. 6015(b), July 22, 1998, 112 Stat. 820, provided
that:
"(1) In general. - The amendments made by this section [amending
this section and sections 403 and 410 of this title] apply to
taxable years beginning on or after the date of enactment of this
Act [Aug. 5, 1997].
"(2) Treatment for years beginning before date of enactment. - A
governmental plan (within the meaning of section 414(d) of the
Internal Revenue Code of 1986) maintained by a State or local
government or political subdivision thereof (or agency or
instrumentality thereof) shall be treated as satisfying the
requirements of sections 401(a)(3), 401(a)(4), 401(a)(26), 401(k),
401(m), 403(b)(1)(D) and (b)(12)(A)(i), and 410 of such Code for
all taxable years beginning before the date of enactment of this
Act."
Section 1525(b) of Pub. L. 105-34 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to years
beginning after December 31, 1997."
Section 1530(d) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and sections 404, 415,
664, 674, 2055, 2056, 4947, 4975, 4978, and 4979A of this title]
shall apply to transfers made by trusts to, or for the use of, an
employee stock ownership plan after the date of the enactment of
this Act [Aug. 5, 1997]."
Amendment by section 1601(d)(2)(A), (B), (3) of Pub. L. 105-34
effective as if included in the provisions of the Small Business
Job Protection Act of 1996, Pub. L. 104-188, to which it relates,
and amendment by section 1601(d)(2)(D) of Pub. L. 105-34 applicable
to calendar years beginning after Aug. 5, 1997, see section 1601(j)
of Pub. L. 105-34, set out as a note under section 23 of this
title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1401(b)(5), (6) of Pub. L. 104-188
applicable to taxable years beginning after Dec. 31, 1999, with
retention of certain transition rules, see section 1401(c) of Pub.
L. 104-188, set out as a note under section 402 of this title.
Section 1404(b) of Pub. L. 104-188 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to years
beginning after December 31, 1996."
Section 1422(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to plan
years beginning after December 31, 1996."
Section 1426(b) of Pub. L. 104-188 provided that: "The amendment
made by this section [amending this section] shall apply to plan
years beginning after December 31, 1996, but shall not apply to any
cash or deferred arrangement to which clause (i) of section
1116(f)(2)(B) of the Tax Reform Act of 1986 applies [Pub. L. 99-
514, set out below]."
Amendment by section 1431(b)(2) of Pub. L. 104-188 applicable to
years beginning after Dec. 31, 1996, and amendment by section
1431(c)(1)(B) of Pub. L. 104-188 applicable to years beginning
after Dec. 31, 1996, except that in determining whether an employee
is a highly compensated employee for years beginning in 1997,
amendment by section 1431(c)(1)(B) to be treated as having been in
effect for years beginning in 1996, see section 1431(d) of Pub. L.
104-188, set out as a note under section 414 of this title.
Section 1432(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to years
beginning after December 31, 1996."
Section 1433(f) of Pub. L. 104-188 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to years beginning after December 31,
1998.
"(2) Exceptions. - The amendments made by subsections (c), (d),
and (e) [amending this section] shall apply to years beginning
after December 31, 1996."
Section 1441(b) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to years
beginning after December 31, 1996."
Section 1443(c) of Pub. L. 104-188 provided that:
"(1) Distributions. - The amendments made by subsection (a)
[amending this section] shall apply to distributions after the date
of the enactment of this Act [Aug. 20, 1996].
"(2) Public utility districts. - The amendments made by
subsection (b) [amending this section] shall apply to plan years
beginning after December 31, 1996."
Section 1445(b) of Pub. L. 104-188 provided that: "The amendment
made by this section [amending this section] shall apply to years
beginning after December 31, 1996."
Section 1459(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to plan
years beginning after December 31, 1998."
EFFECTIVE DATE OF 1994 AMENDMENT
Section 732(e) of Pub. L. 103-465 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
402, 408, and 415 of this title] shall apply to years beginning
after December 31, 1994.
"(2) Rounding not to result in decreases. - The amendments made
by this section providing for the rounding of indexed amounts shall
not apply to any year to the extent the rounding would require the
indexed amount to be reduced below the amount in effect for years
beginning in 1994."
Section 751(b) of Pub. L. 103-465 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
404, 412, and 4971 of this title] shall apply to plan years
beginning after December 31, 1994.
"(2) Reference. - The amendment made by subsection (a)(11)
[amending section 404 of this title] shall take effect on the date
of the enactment of this Act [Dec. 8, 1994]."
Section 766(d) of Pub. L. 103-465 provided that: "The amendments
made by this section [amending this section and sections 1054 and
1322 of Title 29, Labor] shall apply to plan amendments adopted on
or after the date of enactment of this Act [Dec. 8, 1994]."
Amendment by section 776(d) of Pub. L. 103-465 effective with
respect to distributions that occur in plan years commencing on or
after Jan. 1, 1996, see section 776(e) of Pub. L. 103-465, set out
as a note under section 1056 of Title 29, Labor.
Section 781 of title VII of Pub. L. 103-465 provided that:
"Except as otherwise provided in this subtitle [subtitle F (Secs.
750-781) of title VII of Pub. L. 103-465, enacting sections 1310,
1311, and 1350 of Title 29, Labor, amending this section, sections
404, 411, 412, 415, 417, 4971, and 4972 of this title, and sections
1053 to 1056, 1082, 1132, 1301, 1303, 1305, 1306, 1322, 1341, 1342,
and 1343 of Title 29, and enacting provisions set out as notes
under this section, sections 1, 411, 412, and 4972 of this title,
and sections 1056, 1082, 1303, 1306, 1310, 1311, 1322, 1341, and
1342 of Title 29], the amendments made by this subtitle shall be
effective on the date of enactment of this Act [Dec. 8, 1994]."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13212(d) of Pub. L. 103-66, provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and sections
404, 408, and 505 of this title] shall apply to benefits accruing
in plan years beginning after December 31, 1993.
"(2) Collectively bargained plans. - In the case of a plan
maintained pursuant to 1 or more collective bargaining agreements
between employee representatives and 1 or more employers ratified
before the date of the enactment of this Act [Aug. 10, 1993], the
amendments made by this section shall not apply to contributions or
benefits pursuant to such agreements for plan years beginning
before the earlier of -
"(A) the latest of -
"(i) January 1, 1994,
"(ii) the date on which the last of such collective
bargaining agreements terminates (without regard to any
extension, amendment, or modification of such agreements on or
after such date of enactment), or
"(iii) in the case of a plan maintained pursuant to
collective bargaining under the Railway Labor Act [45 U.S.C.
151 et seq.], the date of execution of an extension or
replacement of the last of such collective bargaining
agreements in effect on such date of enactment, or
"(B) January 1, 1997.
"(3) Transition rule for state and local plans. -
"(A) In general. - In the case of an eligible participant in a
governmental plan (within the meaning of section 414(d) of the
Internal Revenue Code of 1986), the dollar limitation under
section 401(a)(17) of such Code shall not apply to the extent the
amount of compensation which is allowed to be taken into account
under the plan would be reduced below the amount which was
allowed to be taken into account under the plan as in effect on
July 1, 1993.
"(B) Eligible participant. - For purposes of subparagraph (A),
an eligible participant is an individual who first became a
participant in the plan during a plan year beginning before the
1st plan year beginning after the earlier of -
"(i) the plan year in which the plan is amended to reflect
the amendments made by this section, or
"(ii) December 31, 1995.
"(C) Plan must be amended to incorporate limits. - This
paragraph shall not apply to any eligible participant of a plan
unless the plan is amended so that the plan incorporates by
reference the dollar limitation under section 401(a)(17) of the
Internal Revenue Code of 1986, effective with respect to
noneligible participants for plan years beginning after December
31, 1995 (or earlier if the plan amendment so provides)."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by section 521(b)(5)-(8) of Pub. L. 102-318 applicable
to distributions after Dec. 31, 1992, see section 521(e) of Pub. L.
102-318, set out as a note under section 402 of this title.
Section 522(d) of Pub. L. 102-318 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
402 to 404, 3402, 3405, 6047, and 6652 of this title] shall apply
to distributions after December 31, 1992.
"(2) Transition rule for certain annuity contracts. - If, as of
July 1, 1992, a State law prohibits a direct trustee-to-trustee
transfer from an annuity contract described in section 403(b) of
the Internal Revenue Code of 1986 which was purchased for an
employee by an employer which is a State or a political subdivision
thereof (or an agency or instrumentality of any 1 or more of
either), the amendments made by this section shall not apply to
distributions before the earlier of -
"(A) 90 days after the first day after July 1, 1992, on which
such transfer is allowed under State law, or
"(B) January 1, 1994."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to transfers in taxable
years beginning after Dec. 31, 1990, see section 12011(c)(1) of
Pub. L. 101-508, set out as an Effective Date note under section
420 of this title.
EFFECTIVE DATE OF 1989 AMENDMENTS
Section 7311(b) of Pub. L. 101-239 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to contributions after October 3, 1989.
"(2) Transition. - The amendment made by this section shall not
apply to contributions made before January 1, 1990, if -
"(A) the employer requested before October 3, 1989, a private
letter ruling or determination letter with respect to the
qualification of the plan maintaining the account under section
401(h) of the Internal Revenue Code of 1986,
"(B) the request sets forth a method under which the amount of
contributions to the account are to be determined on the basis of
cost,
"(C) such method is permissible under section 401(h) of such
Code under the provisions of General Counsel Memorandum 39785,
and
"(D) the Internal Revenue Service issued before October 4,
1989, a private letter ruling, determination letter, or other
letter providing that the specific plan involved qualifies under
section 401(a) of such Code when such method is used, that
contributions to the account are deductible, or acknowledging
that the account would not adversely affect the qualified status
of the plan (contingent on all phases of the particular plan
being approved)."
Amendment by sections 7811(g)(1), (h)(3) and 7816(l) of Pub. L.
101-239 effective, except as otherwise provided, as if included in
the provision of the Technical and Miscellaneous Revenue Act of
1988, Pub. L. 100-647, to which such amendment relates, see section
7817 of Pub. L. 101-239, set out as a note under section 1 of this
title.
Section 7882 of Pub. L. 101-239 provided that: "Except as
otherwise provided in this subpart [subpart C (Secs. 7881, 7882) of
part V of title VII of Pub. L. 101-239, amending this section and
sections 411 and 412 of this title, and sections 1002, 1021, 1023,
1054, 1082, 1083, 1085b, 1103, 1107, 1108, 1113, 1132, 1306, 1322,
1341, 1342, 1344, 1362, 1364, 1368, 1370, and 1371 of Title 29,
Labor, enacting provisions set out as a note under section 1054 of
Title 29, and amending provisions set out as notes under sections
404 and 412 of this title and sections 1021, 1301, 1322, and 1344
of Title 29], any amendment made by this subpart shall take effect
as if included in the provision of the Pension Protection Act [Pub.
L. 100-203, title IX, subtitle D, part II, Secs. 9302-9346] to
which such amendment relates."
Amendment by Pub. L. 101-140 effective as if included in section
1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set
out as a note under section 79 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1011(c)(7)(E) of Pub. L. 100-647 provided that:
"(i) Except as provided in clause (ii), the amendments made by
this paragraph [amending this section and sections 403, 408, and
501 of this title] shall apply to plan years beginning after
December 31, 1987.
"(ii) In the case of a plan described in section 1105(c)(2) of
the Reform Act [section 1105(c)(2) of Pub. L. 99-514, set out as an
Effective Date of 1986 Amendment note under section 402 of this
title], the amendments made by this paragraph shall not apply to
contributions made pursuant to an agreement described in such
section for plan years beginning before the earlier of -
"(I) the later of January 1, 1988, or the date on which the
last of such agreements terminates (determined without regard to
any extension thereof after February 28, 1986), or
"(II) January 1, 1989."
Section 1011(k)(1)(C) of Pub. L. 100-647 provided that:
"(i) Subparagraph (A)(i) of section 401(k)(10) of the 1986 Code
(as added by subparagraph (B)) shall apply to distributions after
October 16, 1987.
"(ii) Subparagraph (B) of section 401(k)(10) of the 1986 Code (as
added by subparagraph (B)) shall apply to distributions after March
31, 1988."
Section 1011(l)(5)(B) of Pub. L. 100-647 provided that: "The
amendment made by this paragraph [amending this section] shall take
effect as if included in the amendments made by section 1120 of the
Reform Act [Pub. L. 99-514]."
Amendment by sections 1011(d)(4), (e)(3), (g)(1)-(3), (h)(3),
(k)(1)(A), (B), (2)-(7), (9), (l)(1)-(4), (6), (7), 1011A(j), (l),
and 1011B(j)(1), (2), (6), (k)(1), (2) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 6053(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall take effect as
if included in the amendments made by section 1121 of the Reform
Act [Pub. L. 99-514]."
Section 6055(b) of Pub. L. 100-647 provided that: "The amendment
made by this section [amending this section] shall take effect as
if included in the amendments made by section 1112(b) of the Reform
Act [Pub. L. 99-514]."
Section 6071(d) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending this section and section 457 of this
title] shall apply to taxable years beginning after the date of the
enactment of this Act [Nov. 10, 1988]."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 9341(c) of Pub. L. 100-203, as amended by Pub. L. 101-
239, title VII, Sec. 7881(i)(5), Dec. 19, 1989, 103 Stat. 2442,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [enacting section 1085b of Title
29, Labor, and amending this section] shall apply to plan
amendments adopted after the date of the enactment of this Act
[Dec. 22, 1987].
"(2) Collective bargaining agreements. - In the case of a plan
maintained pursuant to 1 or more collective bargaining agreements
between employee representatives and 1 or more employers ratified
before the date of the enactment of this Act, the amendments made
by this section shall not apply to plan amendments adopted pursuant
to collective bargaining agreements ratified before the date of
enactment (without regard to any extension, amendment, or
modification of such agreements on or after such date of
enactment)."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1106(d)(1) of Pub. L. 99-514 applicable to
benefits accruing in years beginning after Dec. 31, 1988, except as
otherwise provided, see section 1106(i)(5) of Pub. L. 99-514, set
out as a note under section 415 of this title.
Section 1111(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011(g)(4), Nov. 10, 1988, 102 Stat. 3464, provided
that:
"(1) Subsection (a). - The amendments made by subsection (a)
[amending this section] shall apply to benefits attributable to
plan years beginning after December 31, 1988.
"(2) Subsection (b). - The amendments made by subsection (b)
[amending this section] shall apply to years beginning after
December 31, 1988.
"(3) Special rule for collective bargaining agreements. - In the
case of a plan maintained pursuant to 1 or more collective
bargaining agreements between employee representatives and 1 or
more employers ratified before March 1, 1986, the amendments made
by this section shall not apply to plan years beginning before the
earlier of -
"(A) the later of -
"(i) January 1, 1989, or
"(ii) the date on which the last of such collective
bargaining agreements terminates (determined without regard to
any extension thereof after February 28, 1986), or
"(B) January 1, 1991."
Section 1112(e) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011(h)(6)-(9), Nov. 10, 1988, 102 Stat. 3465,
provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 402, 404, 406, 407, 410, and 818 of this
title] shall apply to plan years beginning after December 31, 1988.
"(2) Special rule for collective bargaining agreements. - In the
case of a plan maintained pursuant to 1 or more collective
bargaining agreements between employee representatives and 1 or
more employers ratified before March 1, 1986, the amendments made
by this section shall not apply to plan years beginning before the
earlier of -
"(A) the later of -
"(i) January 1, 1989, or
"(ii) the date on which the last of such collective
bargaining agreement terminates (determined without regard to
any extension thereof after February 28, 1986), or
"(B) January 1, 1991.
"(3) Waiver of excise tax on reversions. -
"(A) In general. - If -
"(i) a plan is in existence on August 16, 1986,
"(ii) such plan would fail to meet the requirements of
section 401(a)(26) of the Internal Revenue Code of 1986 (as
added by subsection (b)) if such section were in effect for the
plan year including August 16, 1986, and
"(iii) there is no transfer of assets to or liabilities from
the plan or spinoff or merger involving such plan after August
16, 1986,
then no tax shall be imposed under section 4980 of such Code on
any employer reversion by reason of the termination or merger of
such plan before the 1st year to which the amendment made by
subsection (b) applies.
"(B) Interest rate for determining accrued benefit of highly
compensated employees for certain purposes. - In the case of a
termination, transfer, or distribution of assets of a plan
described in subparagraph (A)(ii) before the 1st year to which
the amendment made by subsection (b) applies -
"(i) Amount eligible for rollover, income averaging, or tax-
free transfer. - For purposes of determining any eligible
amount, the present value of the accrued benefit of any highly
compensated employee shall be determined by using an interest
rate not less than the highest of -
"(I) the applicable rate under the plan's method in effect
under the plan on August 16, 1986,
"(II) the highest rate (as of the date of the termination,
transfer, or distribution) determined under any of the
methods applicable under the plan at any time after August
15, 1986, and before the termination, transfer, or
distribution in calculating the present value of the accrued
benefit of an employee who is not a highly compensated
employee under the plan (or any other plan used in
determining whether the plan meets the requirements of
section 401 of the Internal Revenue Code of 1986), or
"(III) 5 percent.
"(ii) Eligible amount. - For purposes of clause (i), the term
'eligible amount' means any amount with respect to a highly
compensated employee which -
"(I) may be rolled over under section 402(a)(5) of such
Code,
"(II) is eligible for income averaging under section
402(e)(1) of such Code, or capital gains treatment under
section 402(a)(2) or 403(a)(2) of such Code (as in effect
before this Act), or
"(III) may be transferred to another plan without inclusion
in gross income.
"(iii) Amounts subject to early withdrawal or excess
distribution tax. - For purposes of sections 72(t) and 4980A of
such Code, there shall not be taken into account the excess (if
any) of -
"(I) the amount distributed to a highly compensated
employee by reason of such termination or distribution, over
"(II) the amount determined by using the interest rate
applicable under clause (i).
"(iv) Distributions of annuity contracts. - If an annuity
contract purchased after August 16, 1986, is distributed to a
highly compensated employee in connection with such termination
or distribution, there shall be included in gross income for
the taxable year of such distribution an amount equal to the
excess of -
"(I) the purchase price of such contract, over
"(II) the present value of the benefits payable under such
contract determined by using the interest rate applicable
under clause (i).
Such excess shall not be taken into account for purposes of
sections 72(t) and 4980A of such Code.
"(v) Highly compensated employee. - For purposes of this
subparagraph, the term 'highly compensated employee' has the
meaning given such term by section 414(q) of such Code.
"(4) Special rule for plans which may not terminate. - To the
extent provided in regulations prescribed by the Secretary of the
Treasury or his delegate, if a plan is prohibited from terminating
under title IV of the Employee Retirement Income Security Act of
1974 [29 U.S.C. 1301 et seq.] before the 1st year to which the
amendment made by subsection (b) would apply, the amendment made by
subsection (b) shall only apply to years after the 1st year in
which the plan is able to terminate."
Amendment by section 1114(b)(7) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1988, see section 1114(c)(3) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Section 1116(f) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011(k)(8), (10), Nov. 10, 1988, 102 Stat. 3470,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section] shall apply
to years beginning after December 31, 1988.
"(2) Nondiscrimination rules. -
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by subsections (a), (b)(4), and (d) [amending
this section], and the provisions of section 401(k)(4)(B) of the
Internal Revenue Code of 1986 (as added by this section), shall
apply to years beginning after December 31, 1986.
"(B) Transition rules for certain governmental and tax-exempt
plans. - Subparagraph (B) of section 401(k)(4) of the Internal
Revenue Code of 1986 (relating to governments and tax-exempt
organizations not eligible for cash or deferred arrangements), as
added by this section, shall not apply to any cash or deferred
arrangement adopted by -
"(i) a State or local government or political subdivision
thereof, or any agency or instrumentality thereof, before May
6, 1986, or
"(ii) a tax-exempt organization before July 2, 1986.
In the case of an arrangement described in clause (i), the
amendments made by subsections (a), (b)(4), and (d) shall apply
to years beginning after December 31, 1988. If clause (i) or (ii)
applies to any arrangement adopted by a governmental unit, then
any cash or deferred arrangement adopted by such unit on or after
the date referred to in the applicable clause shall be treated as
adopted before such date.
"(3) Aggregation and excess contributions. - The amendments made
by subsections (c) and (e) [amending this section] shall apply to
years beginning after December 31, 1986.
"(4) Collective bargaining agreements. -
"(A) In general. - In the case of a plan maintained pursuant to
1 or more collective bargaining agreements between employee
representatives and 1 or more employers ratified before March 1,
1986, the amendments made by this section shall not apply to
years beginning before the earlier of -
"(i) the later of -
"(I) January 1, 1989, or
"(II) the date on which the last of such collective
bargaining agreements terminates (determined without regard
to any extension thereof after February 28, 1986), or
"(ii) January 1, 1991.
"(B) Special rule for nondiscrimination rules. - In the case of
a plan described in subparagraph (A), the amendments and
provisions described in paragraph (2) shall not apply to years
beginning before the earlier of -
"(i) the date determined under subparagraph (A)(i)(II), or
"(ii) January 1, 1989.
"(5) Special rule for qualified offset arrangements. -
"(A) In general. - A cash or deferred arrangement shall not be
treated as failing to meet the requirements of section 401(k)(4)
of the Internal Revenue Code of 1986 (as added by this section)
to the extent such arrangement is part of a qualified offset
arrangement consisting of such cash or deferred arrangement and a
defined benefit plan.
"(B) Qualified offset arrangement. - For purposes of
subparagraph (A), a cash or deferred arrangement is part of a
qualified offset arrangement with a defined benefit plan to the
extent such offset arrangement satisfies each of the following
conditions with respect to the employer maintaining the
arrangement on April 16, 1986, and at all times thereafter:
"(i) The benefit under the defined benefit plan is directly
and uniformly conditioned on the initial elective deferrals (up
to 4 percent of compensation).
"(ii) The benefit provided under the defined benefit plan
(before the offset) is at least 60 percent of an employee's
cumulative elective deferrals (up to 4 percent of
compensation).
"(iii) The benefit under the defined benefit plan is reduced
by the benefit attributable to the employee's elective
deferrals under the plan (up to 4 percent of compensation) and
the income allocable thereto. The interest rate used to
calculate the reduction shall not exceed the greater of the
rate under section 411(a)(11)(B)(ii) of such Code or the
interest rate applicable under section 411(c)(2)(C)(iii) of
such Code, taking into account section 411(c)(2)(D) of such
Code.
For purposes of applying section 401(k)(3) of such Code to the
cash or deferred arrangement, the benefits under the defined
benefit plan conditioned on initial elective deferrals may be
treated as matching contributions under such rules as the
Secretary of the Treasury or his delegate may prescribe. The
Secretary shall provide rules for the application of this
paragraph in the case of successor plans.
"(C) Definition of employer. - For purposes of this paragraph,
the term 'employer' includes any research and development center
which is federally funded and engaged in cancer research, but
only with respect to employees of contractor-operators whose
salaries are reimbursed as direct costs against the operator's
contract to perform work at such center.
"(6) Withdrawals on sale of assets. - Subclauses (II), (III), and
(IV) of section 401(k)(2)(B)(i) of the Internal Revenue Code of
1986 (as added by subsection (b)(1)) shall apply to distributions
after December 31, 1984.
"(7) Distributions before plan amendment. -
"(A) In general. - If a plan amendment is required to allow a
plan to make any distribution described in section 401(k)(8) of
the Internal Revenue Code of 1986, any such distribution which is
made before the close of the 1st plan year for which such
amendment is required to be in effect under section 1140 [set out
as a note below], shall be treated as made in accordance with the
provisions of such plan.
"(B) Distributions pursuant to model amendment. -
"(i) Secretary to prescribe amendment. - The Secretary of the
Treasury or his delegate shall prescribe an amendment which
allows a plan to make any distribution described in section
401(k)(8) of such Code.
"(ii) Adoption by plan. - If a plan adopts the amendment
prescribed under clause (i) and makes a distribution in
accordance with such amendment, such distribution shall be
treated as made in accordance with the provisions of the plan."
Section 1117(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011(l)(12), Nov. 10, 1988, 102 Stat. 3471, provided
that:
"(1) In general. - The amendments made by this section [enacting
section 4979 of this title and amending this section and section
414 of this title] shall apply to plan years beginning after
December 31, 1986.
"(2) Collective bargaining agreements. - In the case of a plan
maintained pursuant to 1 or more collective bargaining agreements
between employee representatives and 1 or more employers ratified
before March 1, 1986, the amendments made by this section shall not
apply to plan years beginning before the earlier of -
"(A) January 1, 1989, or
"(B) the date on which the last of such collective bargaining
agreements terminates (determined without regard to any extension
thereof after February 28, 1986).
"(3) Annuity contracts. - In the case of an annuity contract
under section 403(b) of the Internal Revenue Code of 1986 -
"(A) the amendments made by this section shall apply to plan
years beginning after December 31, 1988, and
"(B) in the case of a collective bargaining agreement described
in paragraph (2), the amendments made by this section shall not
apply to years beginning before the earlier of -
"(i) the later of -
"(I) January 1, 1989, or
"(II) the date determined under paragraph (2)(B), or
"(ii) January 1, 1991.
"(4) Distributions before plan amendment. -
"(A) In general. - If a plan amendment is required to allow a
plan to make any distribution described in section 401(m)(6) of
the Internal Revenue Code of 1986, any such distribution which is
made before the close of the 1st plan year for which such
amendment is required to be in effect under section 1140 [set out
as a note below] shall be treated as made in accordance with the
provisions of the plan.
"(B) Distributions pursuant to model amendment. -
"(i) Secretary to prescribe amendment. - The Secretary of the
Treasury or his delegate shall prescribe an amendment which
allows a plan to make any distribution described in section
401(m)(6) of the Internal Revenue Code of 1986.
"(ii) Adoption by plan. - If a plan adopts the amendment
prescribed under clause (i) and makes a distribution in
accordance with such amendment, such distribution shall be
treated as made in accordance with the provisions of the plan."
Section 1119(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to plan
years beginning after December 31, 1985."
Section 1121(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011A(a)(3), (4), Nov. 10, 1988, 102 Stat. 3472,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and sections
402, 408, and 4974 of this title] shall apply to years beginning
after December 31, 1988.
"(2) Subsection (c). - The amendments made by subsection (c)
[amending sections 402 and 408 of this title] shall apply to years
beginning after December 31, 1986.
"(3) Collective bargaining agreements. - In the case of a plan
maintained pursuant to 1 or more collective bargaining agreements
between employee representatives and 1 or more employers ratified
before March 1, 1986, the amendments made by this section shall not
apply to distributions to individuals covered by such agreements in
years beginning before the earlier of -
"(A) the later of -
"(i) the date on which the last of such collective bargaining
agreements terminates (determined without regard to any
extension thereof after February 28, 1986), or
"(ii) January 1, 1989, or
"(B) January 1, 1991.
"(4) Transition rules. -
"(A) The amendments made by subsections (a) and (b) [amending
this section and section 4974 of this title] shall not apply with
respect to any benefits with respect to which a designation is in
effect under section 242(b)(2) of the Tax Equity and Fiscal
Responsibility Act of 1982 [section 242(b)(2) of Pub. L. 97-248,
formerly set out as a note below].
"(B)(i) Except as provided in clause (ii), the amendment made
by subsection (b) [amending this section] shall not apply in the
case of any individual who has attained age 70 1/2 before
January 1, 1988.
"(ii) Clause (i) shall not apply to any individual who is a 5-
percent owner (as defined in section 416(i) of the Internal
Revenue Code of 1986), at any time during -
"(I) the plan year ending with or within the calendar year in
which such owner attains age 66 1/2 , and
"(II) any subsequent plan year.
"(5) Plans may incorporate section 401(a)(9) requirements by
reference. - Notwithstanding any other provision of law, except as
provided in regulations prescribed by the Secretary of the Treasury
or his delegate, a plan may incorporate by reference the
requirements of section 401(a)(9) of the Internal Revenue Code of
1986."
Section 1136(c) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to years
beginning after December 31, 1985."
Section 1143(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1986."
Section 1145(d) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section, section 1055 of Title
29, Labor, and provisions set out as a note under section 1001 of
Title 29] shall apply as if included in the amendments made by the
Retirement Equity Act of 1984 [Pub. L. 98-397]."
Amendment by section 1171(b)(5) of Pub. L. 99-514 applicable to
compensation paid or accrued after Dec. 31, 1986, in taxable years
ending after such date, except as otherwise provided, see section
1171(c) of Pub. L. 99-514, set out as a note under section 38 of
this title.
Section 1174(c)(2)(B) of Pub. L. 99-514 provided that: "The
amendment made by this paragraph [amending this section] shall
apply to distributions attributable to stock acquired after
December 31, 1986."
Section 1175(a)(2) of Pub. L. 99-514 provided that: "The
amendment made by this subsection [amending this section] shall
apply to stock acquired after December 31, 1986."
Section 1176(c) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall be effective
December 31, 1986. The amendment made by subsection (b) [amending
section 409 of this title] shall apply to acquisitions of
securities after December 31, 1986."
Section 1852(h)(1) of Pub. L. 99-514, as amended by Pub. L. 100-
647, title I, Sec. 1018(t)(3)(C), Nov. 10, 1988, 102 Stat. 3588,
provided that the amendment made by that section is effective for
years beginning after Dec. 31, 1985.
Section 1879(g)(3) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section] shall
apply to plan years beginning after December 31, 1984."
Amendment by sections 1848(b) and 1852(a)(4)(A), (6), (b)(8),
(g), (h)(1) of Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
Section 1898(j) of Pub. L. 99-514 provided that: "Except as
otherwise provided in this section, any amendment made by this
section [amending this section, sections 402, 411, 414, 415, 417,
and 2503 of this title, and sections 1053 to 1056 of Title 29,
Labor, and provisions set out as notes under section 1001 of Title
29] shall take effect as if included in the provision of the
Retirement Equity Act of 1984 [Pub. L. 98-397] to which such
amendment relates."
EFFECTIVE DATE OF 1984 AMENDMENTS
Amendment by section 203(a) of Pub. L. 98-397 applicable to plan
years beginning after Dec. 31, 1984, amendment by section 204(a) of
Pub. L. 98-397 effective Jan. 1, 1985, and amendment by section
301(b) of Pub. L. 98-397 applicable to plan amendments made after
July 30, 1984, but not applicable to the termination of a certain
defined benefit plan, except as otherwise provided, see sections
302 and 303 of Pub. L. 98-397, set out as a note under section 1001
of Title 29, Labor.
Nothing in amendment by section 203(a) of Pub. L. 98-397 to
prevent any distribution required by reason of a failure to comply
with the terms of a loan made on or before Aug. 18, 1985, and
secured by a portion of the participant's accrued benefit, see
section 1898(b)(4)(C)(ii) of Pub. L. 99-514, set out as an
Effective Date of 1986 Amendment note under section 417 of this
title.
Amendment by section 211(b)(5) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 215 of
Pub. L. 98-369, set out as an Effective Date note under section 801
of this title.
Amendment by section 474(r)(13) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Section 491(f)(3) of Pub. L. 98-369 provided that: "The
amendments made by subsection (e) [redesignating section 409A as
section 409 of this title and amending this section and sections
41, 415, 4975, and 6699 of this title] shall take effect on January
1, 1984."
Section 521(e) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 72, 403, and 408 of this title and
repealing provisions set out as a note under this section] shall
apply to years beginning after December 31, 1984.
"(2) Repeal of section 242 of tefra. - The amendment made by
subsection (a)(2) [repealing section 242 of Pub. L. 97-248, which
amended this section and enacted provisions formerly set out below]
shall take effect as if included in the Tax Equity and Fiscal
Responsibility Act of 1982 [Pub. L. 97-248].
"(3) Transition rule. - A trust forming part of a plan shall not
be disqualified under paragraph (9) of section 401(a) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954], as amended by
subsection (a)(1), by reason of distributions under a designation
(before January 1, 1984) by any employee in accordance with a
designation described in section 242(b)(2) of the Tax Equity and
Fiscal Responsibility Act of 1982 (as in efffect [sic] before the
amendments made by this Act) [formerly set out as an Effective Date
of 1982 Amendment note below].
"(4) Special rule for governmental plans. - In the case of a
governmental plan (within the meaning of section 414(d) of the
Internal Revenue Code of 1986), paragraph (1) shall be applied by
substituting '1986' for '1984'.
"(5) Special rule for collective bargaining agreements. - In the
case of a plan maintained pursuant to one or more collective
bargaining agreements ratified on or before the date of the
enactment of this Act [July 18, 1984] between employee
representatives and one or more employers, the amendments made by
this section shall not apply to years beginning before the earlier
of -
"(A) the date on which the last of the collective bargaining
agreements relating to the plan terminates (determined without
regard to any extension thereof agreed to after the date of the
enactment of this Act), or
"(B) January 1, 1988.
For purposes of subparagraph (A), any plan amendment made pursuant
to a collective bargaining agreement relating to the plan which
amends the plan solely to conform to any requirement added by this
section shall not be treated as a termination of such collective
bargaining agreement."
Section 524(d)(2) of Pub. L. 98-369 provided that: "The amendment
made by this subsection [amending this section] shall apply to plan
years beginning after December 31, 1983."
Section 527(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Subsection (a). -
"(A) In general. - Except as provided in subparagraph (B), the
amendment made by subsection (a) [amending this section] shall
apply to plan years beginning after December 31, 1984.
"(B) Exception for certain existing plans. - The amendment made
by subsection (a) shall not apply to any plan -
"(i) which was maintained by a State on June 8, 1984, and
"(ii) with respect to which a determination letter had been
issued by the Secretary on December 6, 1982.
"(2) Subsection (b). -
"(A) In general. - The amendments made by this section
[amending this section] shall apply with respect to plan years
beginning after the date of the enactment of this Act [July 18,
1984].
"(B) Transitional rule. - Rules similar to the rules under
section 135(c)(2) of the Revenue Act of 1978 [section 135(c)(2)
of Pub. L. 95-600, set out below] shall apply with respect to any
pre-ERISA money purchase plan (as defined in section 401(k)(5) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) for
plan years beginning after December 31, 1979, and on or before
the date of the enactment of this Act."
Section 528(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and section 415 of this
title] shall apply to years beginning after March 31, 1984."
Amendment by section 713 of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1983 AMENDMENTS
Amendment by Pub. L. 98-21 applicable to taxable years beginning
after Dec. 31, 1989, see section 124(d)(2) of Pub. L. 98-21, set
out as a note under section 1401 of this title.
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 242(b) of Pub. L. 97-248, which prescribed the effective
date for amendment by section 242(a) of Pub. L. 97-248, was
repealed by Pub. L. 98-369, div. A, title V, Sec. 521(a)(2), July
18, 1984, 98 Stat. 867.
Section 249(b) of Pub. L. 97-248 provided that: "The amendments
made by this section [amending this section] shall apply to plan
years beginning after December 31, 1983."
Section 254(b) of Pub. L. 97-248 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to taxable years beginning after December 31, 1981."
Amendment by sections 237, 238, and 240 of Pub. L. 97-248
applicable to years beginning after Dec. 31, 1983, see section 241
of Pub. L. 97-248, set out as an Effective Date note under section
416 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 312(b)(1), (c)(2)-(4), (e)(2) of Pub. L. 97-
34 applicable to plans which include employees within the meaning
of subsec. (c)(1) of this section with respect to taxable years
beginning after Dec. 31, 1981, see section 312(f)(1) of Pub. L. 97-
34, set out as a note under section 72 of this title.
Section 314(a)(2) of Pub. L. 97-34 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply to
distributions after December 31, 1980, in taxable years beginning
after such date."
Section 338(b) of Pub. L. 97-34 provided that: "The amendment
made by this section [amending this section] shall apply to
acquisitions of securities after December 31, 1979."
Section 339 of Pub. L. 97-34 provided that: "Except as otherwise
provided, the amendments made by this subtitle [subtitle D (Secs.
331-339) of title III of Pub. L. 97-34, enacting section 44G of
this title and amending this section and sections 46, 48, 55, 56,
381, 383, 404, 409A, 415, 6096, 6411, 6511, and 6699 of this title]
shall apply to taxable years beginning after December 31, 1981."
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 221(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to plan years beginning after December 31, 1980."
Section 225(c) of Pub. L. 96-605 provided that: "The amendments
made by this section [amending this section and sections 408 and
410 of this title] shall apply with respect to plan years beginning
after December 31, 1980."
Section 410(c) of Pub. L. 96-364 provided that: "The amendment
made by this section [amending this section and section 1103 of
Title 29, Labor] shall take effect on January 1, 1975, except that
in the case of contributions received by a collectively bargained
plan maintained by more than one employer before the date of
enactment of this Act, [Sept. 26, 1980], any determination by the
plan administrator that any such contribution was made by mistake
of fact or law before such date shall be deemed to have been made
on such date of enactment."
Amendment by section 208(a), (e) of Pub. L. 96-364 effective
Sept. 26, 1980, see section 210(a) of Pub. L. 96-364, set out as an
Effective Date note under section 418 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 135(c)(1) of Pub. L. 95-600 provided that: "The
amendments made by this section [amending this section and section
402 of this title] shall apply to plan years beginning after
December 31, 1979."
Amendment by section 141(f)(3) of Pub. L. 95-600 effective with
respect to qualified investment for taxable years beginning after
Dec. 31, 1978, see section 141(g)(1) of Pub. L. 95-600, set out as
an Effective Date note under section 409 of this title.
Section 143(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
acquisitions of securities after December 31, 1979."
Amendment by section 152(e) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 152(h) of
Pub. L. 95-600, set out as a note under section 408 of this title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Amendment by section 803(b)(2) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1974, see section 803(j) of
Pub. L. 94-455, set out as a note under section 46 of this title.
Section 1505(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and section 801 of this
title] apply for taxable years beginning after December 31, 1975."
Amendment by section 1901(a)(56) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Section 1(e) of Pub. L. 94-267 provided that: "The amendments
made by this Act [amending this section and sections 402 to 404 and
805 of this title, and enacting provisions set out as a note under
section 402 of this title] shall apply with respect to payments
made to an employee on or after July 4, 1974."
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by sections 1012(b) and 1016(a)(2) of Pub. L. 93-406
applicable, except as otherwise provided in section 1017(c) through
(i) of Pub. L. 93-406, for plan years beginning after Sept. 2,
1974, but, in the case of plans in existence on Jan. 1, 1974,
amendment by sections 1012(b) and 196(a)(2) of Pub. L. 93-406
applicable for plan years beginning after Dec. 31, 1975, see
section 1017 of Pub. L. 93-406, set out as an Effective Date;
Transitional Rules note under section 410 of this title.
Section 1021(a)(1), (b) of Pub. L. 93-406 provided that the
amendment made by that section is effective with respect to plan
years beginning after Dec. 31, 1975.
Section 1022(d) of Pub. L. 93-406 provided that the amendment
made by that section is effective as of Jan. 1, 1974.
Section 1022(f) of Pub. L. 93-406 provided that the amendment
made by that section is effective as of Jan. 1, 1974.
Section 1024 of Pub. L. 93-406 provided that: "Except as
otherwise provided in section 1021, the amendments made by section
1021 [amending this section] shall apply to plan years to which
part I applies. [For description of plan years to which part I
applies, see section 1017 of Pub. L. 93-406, set out as an
Effective Date; Transitional Rules note under section 410 of this
title.] Except as otherwise provided in section 1022, the
amendments made by section 1022 [amending this section and section
6051 of this title] shall apply to plan years to which part I
applies. Section 1023 [amending this section] shall take effect on
the date of the enactment of this Act [Sept. 2, 1974]."
Section 2001(i)(2)-(4) of Pub. L. 93-406 provided that:
"(2) The amendments made by subsection (c) [amending this
section] apply to
"(A) taxable years beginning after December 31, 1975, and
"(B) any other taxable years beginning after December 31,
1973, for which contributions were made under the plan in
excess of the amounts permitted to be made under sections
404(e) and 1379(b) [of this title] as in effect on the day
before the date of the enactment of this Act [Sept. 2, 1974].
"(3) The amendments made by subsection (d) [amending this
section] apply to taxable years beginning after December 31,
1975.
"(4) The amendments made by subsections (e) and (f) [enacting
section 4972 of this title and amending this section and section
72 of this title] apply to contributions made in taxable years
beginning after December 31, 1975."
Amendment by section 2001(h)(1) of Pub. L. 93-406 applicable to
taxable years ending after Sept. 2, 1974, see section 2001(i)(6) of
Pub. L. 93-406, set out as a note under section 72 of this title.
Amendment by section 2004(a)(1) of Pub. L. 93-406 applicable to
years beginning after Dec. 31, 1975, see section 2004(d) of Pub. L.
93-406, set out as an Effective Date; Transitional Provisions note
under section 415 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 1(b) of Pub. L. 91-691 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1953, and ending after
August 16, 1954, but only with respect to contributions made after
December 31, 1954."
EFFECTIVE DATE OF 1966 AMENDMENT
Section 204(d) of Pub. L. 89-809, as amended by Pub. L. 90-607,
Oct. 21, 1968, 82 Stat. 1189; Pub. L. 99-514, Sec. 2, Oct. 22,
1986, 100 Stat. 2095, provided that: "The amendments made by
subsections (a) and (b) [amending this section and section 404 of
this title] shall apply with respect to taxable years beginning
after December 31, 1967. The amendment made by subsection (c)
[amending this section] shall apply with respect to taxable years
beginning after December 31, 1967, and in the case of a taxpayer
who applies the averaging provisions of section 401(e)(3) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] for a taxable
year beginning after December 31, 1967, the computation of the
amount deductible under section 404 of such Code for any prior
taxable year which began before January 1, 1968, shall be made, for
purposes of such averaging provisions, as if the amendment made by
subsection (c) were applicable to such prior taxable year."
Section 205(b) of Pub. L. 89-809 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after the date of the enactment of this Act
[Nov. 13, 1966]."
EFFECTIVE DATE OF 1965 AMENDMENT
Amendment by Pub. L. 89-97 applicable to taxable years beginning
after Dec. 31, 1966, see section 106(e) of Pub. L. 89-97, set out
as a note under section 213 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 219(b) of Pub. L. 88-272 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to taxable years beginning after December 31, 1953, and
ending after August 16, 1954, but only with respect to
contributions made after December 31, 1954."
EFFECTIVE DATE OF 1962 AMENDMENTS
Section 2(c) of Pub. L. 87-863 provided that: "The amendments
made by subsections (a) and (b) [amending this section and section
404 of this title] shall apply to taxable years beginning after the
date of the enactment of this Act [Oct. 23, 1962]."
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a
note under section 22 of this title.
SHORT TITLE OF 1962 AMENDMENT
Section 1 of Pub. L. 87-792 provided: "That this Act [enacting
sections 405 and 6047 of this title and amending this section and
sections 37, 62, 72, 101, 104, 105, 172, 402 to 404, 503, 805,
1361, 2039, 2517, 3306, 3401, and 7207 of this title] may be cited
as the 'Self-Employed Individuals Tax Retirement Act of 1962'."
REGULATIONS
Pub. L. 107-16, title VI, Sec. 657(c)(2), June 7, 2001, 115 Stat.
136, provided that:
"(A) Automatic rollover safe harbor. - Not later than 3 years
after the date of enactment of this Act [June 7, 2001], the
Secretary of Labor shall prescribe regulations providing for safe
harbors under which the designation of an institution and
investment of funds in accordance with section 401(a)(31)(B) of the
Internal Revenue Code of 1986 is deemed to satisfy the fiduciary
requirements of section 404(a) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1104(a)).
"(B) Use of low-cost individual retirement plans. - The Secretary
of the Treasury and the Secretary of Labor may provide, and shall
give consideration to providing, special relief with respect to the
use of low-cost individual retirement plans for purposes of
transfers under section 401(a)(31)(B) of the Internal Revenue Code
of 1986 and for other uses that promote the preservation of assets
for retirement income purposes."
Section 1141 of Pub. L. 99-514 provided that: "The Secretary of
the Treasury or his delegate shall issue before February 1, 1988,
such final regulations as may be necessary to carry out the
amendments made by -
"(1) section 1111 [amending this section], relating to
application of nondiscrimination rules to integrated plans,
"(2) section 1112 [amending this section and sections 402, 404,
406, 407, 410, and 818 of this title], relating to coverage
requirements for qualified plans,
"(3) section 1113 [amending sections 410 and 411 of this title
and sections 1052 to 1054 of Title 29, Labor], relating to
minimum vesting standards,
"(4) section 1114 [amending this section, sections 106, 117,
120, 127, 129, 132, 274, 404A, 406, 407, 411, 414, 415, 423, 501,
505, and 4975 of this title, and section 1108 of Title 29],
relating to the definition of highly compensated employee,
"(5) section 1115 [amending section 414 of this title],
relating to separate lines of business and the definition of
compensation,
"(6) section 1116 [amending this section], relating to rules
for section 401(k) plans,
"(7) section 1117 [enacting section 4979 of this title and
amending this section and section 414 of this title], relating to
nondiscrimination requirements for employer matching and employer
contribution,
"(8) section 1120 [amending section 403 of this title],
relating to nondiscrimination requirements for tax sheltered
annuities, and
"(9) section 1133 [enacting section 4981A [now 4980A] of this
title], relating to tax on excess distributions."
NEW TECHNOLOGIES IN RETIREMENT PLANS
Section 1510 of Pub. L. 105-34 provided that:
"(a) In General. - Not later than December 31, 1998, the
Secretary of the Treasury and the Secretary of Labor shall each
issue guidance which is designed to -
"(1) interpret the notice, election, consent, disclosure, and
time requirements (and related recordkeeping requirements) under
the Internal Revenue Code of 1986 and the Employee Retirement
Income Security Act of 1974 [29 U.S.C. 1001 et seq.] relating to
retirement plans as applied to the use of new technologies by
plan sponsors and administrators while maintaining the protection
of the rights of participants and beneficiaries, and
"(2) clarify the extent to which writing requirements under the
Internal Revenue Code of 1986 relating to retirement plans shall
be interpreted to permit paperless transactions.
"(b) Applicability of Final Regulations. - Final regulations
applicable to the guidance regarding new technologies described in
subsection (a) shall not be effective until the first plan year
beginning at least 6 months after the issuance of such final
regulations."
TREATMENT OF QUALIFIED FOOTBALL COACHES PLAN
Section 1704(k) of Pub. L. 104-188 provided that:
"(1) In general. - For purposes of the Internal Revenue Code of
1986, a qualified football coaches plan -
"(A) shall be treated as a multiemployer collectively bargained
plan, and
"(B) notwithstanding section 401(k)(4)(B) of such Code, may
include a qualified cash and deferred arrangement under section
401(k) of such Code.
"(2) Qualified football coaches plan. - For purposes of this
subsection, the term 'qualified football coaches plan' means any
defined contribution plan which is established and maintained by an
organization -
"(A) which is described in section 501(c) of such Code,
"(B) the membership of which consists entirely of individuals
who primarily coach football as full-time employees of 4-year
colleges or universities described in section 170(b)(1)(A)(ii) of
such Code, and
"(C) which was in existence on September 18, 1986.
"(3) Effective date. - This subsection shall apply to years
beginning after December 22, 1987."
APPLICABILITY OF SUBSECTION (A)(26)
Section 6065 of Pub. L. 100-647 provided that: "In the case of
plan years beginning before January 1, 1993, section 401(a)(26) of
the 1986 Code shall not apply to any governmental plan (within the
meaning of section 414(d) of such Code) with respect to employees
who were participants in such plan on July 14, 1988."
COORDINATION OF INTERNAL REVENUE CODE OF 1986 WITH EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974
Section 9343(a) of Pub. L. 100-203 provided that: "Except to the
extent specifically provided in the Internal Revenue Code of 1986
or as determined by the Secretary of the Treasury, titles I and IV
of the Employee Retirement Income Security Act of 1974 [29 U.S.C.
1001 et seq., 1301 et seq.] are not applicable in interpreting such
Code."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
Section 1465 of title I of Pub. L. 104-188 provided that: "If any
amendment made by this subtitle [subtitle D (Secs. 1401-1465) of
title I of Pub. L. 104-188, see Tables for classification] requires
an amendment to any plan or annuity contract, such amendment shall
not be required to be made before the first day of the first plan
year beginning on or after January 1, 1998, if -
"(1) during the period after such amendment takes effect and
before such first plan year, the plan or contract is operated in
accordance with the requirements of such amendment, and
"(2) such amendment applies retroactively to such period.
In the case of a governmental plan (as defined in section 414(d) of
the Internal Revenue Code of 1986), this section shall be applied
by substituting '2000' for '1998'."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
Section 523 of title V of Pub. L. 102-318 provided that: "If any
amendment made by this subtitle [subtitle B (Secs. 521-523) of
title V of Pub. L. 102-318, amending this section and sections 55,
62, 72, 219, 402 to 404, 406 to 408, 411, 414, 415, 457, 691, 871,
877, 1441, 3121, 3306, 3402, 3405, 4973, 4980A, 6047, 6652, and
7701 of this title] requires an amendment to any plan, such plan
amendment shall not be required to be made before the first plan
year beginning on or after January 1, 1994, if -
"(1) during the period after such amendment takes effect and
before such first plan year, the plan is operated in accordance
with the requirements of such amendment, and
"(2) such plan amendment applies retroactively to such period."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
Section 1140 of title XI of Pub. L. 99-514, as amended by Pub. L.
101-239, title VII, Sec. 7861(c), Dec. 19, 1989, 103 Stat. 2431;
Pub. L. 104-188, title I, Sec. 1704(t)(27), Aug. 20, 1996, 110
Stat. 1888, provided that:
"(a) In General. - If any amendment made by this subtitle,
subtitle C [subtitles A (Secs. 1101-1147) and C (Secs. 1171-1177)
of title XI of Pub. L. 99-514, enacting sections 2057, 4972, 4979,
4980, 4981A, and 6659A of this title, amending this section,
sections 38, 56, 72, 106, 108, 117, 120, 127, 129, 132, 133, 219,
274, 402 to 404A, 406 to 411, 414 to 417, 423, 457, 501, 505, 818,
852, 3121, 3306, 3405, 4973 to 4975, 4979A, 6051, 6693, and 7701 of
this title, and sections 1052 to 1055 and 1108 of Title 29, Labor,
repealing sections 41 and 6699 of this title, and amending
provisions set out as a note under section 1001 of Title 29], or
title XVIII of this Act [see Tables for classification] requires an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after January 1,
1989, if -
"(1) during the period after such amendment takes effect and
before such first plan year, the plan is operated in accordance
with the requirements of such amendment or in accordance with an
amendment prescribed by the Secretary and adopted by the plan,
and
"(2) such plan amendment applies retroactively to the period
after such amendment takes effect and such first plan year.
A pension plan shall not be treated as failing to provide
definitely determinable benefits or contributions, or to be
operated in accordance with the provisions of the plan, merely
because it operates in accordance with this provision.
"(b) Model Amendment. -
"(1) Secretary to prescribe amendment. - The Secretary of the
Treasury or his delegate shall prescribe an amendment or
amendments which allow a plan to meet the requirements of any
amendment made by this subtitle or subtitle C -
"(A) which requires an amendment to such plan, and
"(B) is effective before the first plan year beginning after
December 31, 1988.
"(2) Adoption by plan. - If a plan adopts the amendment or
amendments prescribed under paragraph (1) and operates in
accordance with such amendment or amendments, such plan shall not
be treated as failing to provide definitely determinable benefits
or contributions or to be operated in accordance with the
provisions of the plan.
"(c) Special Rule for Collectively Bargained Plans. - In the case
of a plan maintained pursuant to 1 or more collective bargaining
agreements between employee representatives and 1 or more employers
ratified before March 1, 1986, subsection (a) shall be applied by
substituting for the first plan year beginning on or after January
1, 1989, the first plan year beginning after the later of -
"(1) December 31, 1988, or
"(2) the earlier of -
"(A) December 31, 1990, or
"(B) the date on which the last of such collective bargaining
agreements terminate (without regard to any extension after
February 28, 1986).
For purposes of paragraph (1)(B) [(2)(B)] and any other provision
of this title [see Tables for classification], an agreement shall
not be treated as terminated merely because the plan is amended
pursuant to such agreement to meet the requirements of any
amendment made by this title or title XVIII of this Act."
SECRETARY TO ACCEPT APPLICATIONS WITH RESPECT TO SECTION 401(K)
PLANS
Section 1142 of Pub. L. 99-514 provided that: "The Secretary of
the Treasury or his delegate shall, not later than May 1, 1987,
begin accepting applications for opinion letters with respect to
master and prototype plans for qualified cash or deferred
arrangements under section 401(k) of the Internal Revenue Code of
1986."
TREATMENT OF INDIVIDUALS HAVING BEGINNING DATE AFFECTED BY PUB. L.
99-514
Section 1852(a)(4)(C) of Pub. L. 99-514, as added by Pub. L. 100-
647, title I, Sec. 1018(t)(3)(A), Nov. 10, 1988, 102 Stat. 3588,
provided that: "An individual whose required beginning date would,
but for the amendment made by subparagraph (A) [amending this
section], occur after December 31, 1986, but whose required
beginning date after such amendment occurs before January 1, 1987,
shall be treated as if such individual had become a 5-percent owner
during the plan year ending in 1986."
DISTRIBUTION REQUIREMENTS FOR ACCOUNTS AND ANNUITIES OF AN INSURER
IN A REHABILITATION PROCEEDING
Section 553 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) In General. - For purposes of sections 401(a)(9), 408(a)(6)
and (7), and 408(b)(3) and (4) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] -
"(1) a trust, custodial account, or annuity or other contract
forming part of a pension or profit-sharing plan, or a retirement
annuity, or
"(2) a grantor of an individual retirement account or an
individual retirement annuity,
shall not be treated as failing to meet the requirements of such
sections if such account, annuity, or contract was issued by an
insurance company which, on March 15, 1984, was a party to a
rehabilitation proceeding under the applicable State insurance law.
"(b) Limitation. - Subsection (a) shall apply only during the
period during which -
"(1) the insurance company continues to be a party to the
proceeding described in subsection (a), and
"(2) distributions under the trust, custodial account, or
annuity or other contract may not be made by reason of such
proceeding."
QUALIFICATION REQUIREMENTS MODIFIED IF REGULATIONS NOT ISSUED
Section 524(e) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - If the Secretary of the Treasury or his
delegate does not publish final regulations under section 416 of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in
effect on the day before the date of the enactment of this Act
[July 18, 1984]) before January 1, 1985, the Secretary shall
publish before such date plan amendment provisions which may be
incorporated in a plan to meet the requirements of section
401(a)(10)(B)(ii) of such Code.
"(2) Effect of incorporation. - If a plan is amended to
incorporate the plan amendment provisions described in paragraph
(1), such plan shall be treated as meeting the requirements of
section 401(a)(10)(B)(ii) of the Internal Revenue Code of 1986
during the period such amendment is in effect but not later than 6
months after the final regulations described in paragraph (1) are
published.
"(3) Failure by secretary to publish. - If the Secretary of the
Treasury or his delegate does not publish plan amendment provisions
described in paragraph (1), the plan shall be treated as meeting
the requirements of section 401(a)(10)(B) of the Internal Revenue
Code of 1986 if -
"(A) such plan is amended to incorporate such requirements by
reference, except that
"(B) in the case of any optional requirement under section 416
of such Code, if such amendment does not specify the manner in
which such requirement will be met, the employer shall be treated
as having elected the requirement with respect to each employee
which provides the maximum vested accrued benefit for such
employee."
TRANSITIONAL RULE
Section 135(c)(2) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the
case of cash or deferred arrangements in existence on June 27, 1974
-
"(A) the qualification of the plan and the trust under section
401 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954];
"(B) the exemption of the trust under section 501(a) of such
Code;
"(C) the taxable year of inclusion in gross income of the
employee of any amount so contributed by the employer to the
trust; and
"(D) the excludability of the interest of the employee in the
trust under sections 2039 and 2517 of such Code,
shall be determined for plan years beginning before January 1, 1980
in a manner consistent with Revenue Ruling 56-497 (1956-2 C.B.
284), Revenue Ruling 63-180 (1963-2 C.B. 189), and Revenue Ruling
68-89 (1968-1 C.B. 402)."
SALARY REDUCTION REGULATIONS
Section 2006 of Pub. L. 93-406, as amended by Pub. L. 94-455,
title XV, Sec. 1506, Oct. 4, 1976, 90 Stat. 1739; Pub. L. 95-615,
Sec. 5, Nov. 8, 1978, 92 Stat. 3097; Pub. L. 99-514, Sec. 2, Oct.
22, 1986, 100 Stat. 2095, provided that:
"(a) Inclusion of Certain Contributions in Income. - Except in
the case of plans or arrangements in existence on June 27, 1974, a
contribution made before January 1, 1980, to an employees' trust
described in section 401(a), 403(a) or 405(a) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] which is exempt from
tax under section 501(a) of such Code, or under an arrangement
which, but for the fact that it was not in existence on June 27,
1974, would be an arrangement described in subsection (b)(2) of
this section, shall be treated as a contribution made by an
employee if the contribution is made under an arrangement under
which the contribution will be made only if the employee elects to
receive a reduction in his compensation or to forego an increase in
his compensation.
"(b) Administration in the Case of Certain Qualified Pension or
Profit-Sharing Plans, Etc., in Existence on June 27, 1974. - No
salary reduction regulations may be issued by the Secretary of the
Treasury in final form before January 1, 1980, with respect to an
arrangement which was in existence on June 27, 1974, and which, on
that date -
"(1) provided for contributions to an employee's trust
described in section 401(a), 403(a), or 405(a) of the Internal
Revenue Code of 1986 [subsec. (a) of this section, section 403(a)
of this title, or section 405(a) of this title] which is exempt
from tax under section 501(a) of such Code [section 501(a) of
this title], or
"(2) was maintained as part of an arrangement under which an
employee was permitted to elect to receive part of his
compensation in one or more alternative forms if one of such
forms results in the inclusion of amounts in income under the
Internal Revenue Code of 1986 [this title].
"(c) Administration of Law With Respect to Certain Plans. -
"(1) Administration in the case of plans described in
subsection (b). - Until salary reduction regulations have been
issued in final form, the law with respect to plans or
arrangements described in subsection (b) shall be administered -
"(A) without regard to the proposed salary reduction
regulations (37 FR 25938) and without regard to any other
proposed salary reduction regulations, and
"(B) in the manner in which such law was administered before
January 1, 1972.
"(2) Administration in the case of qualified profit-sharing
plans. - In the case of plans or arrangements described in
subsection (b), in applying this section to the tax treatment of
contributions to qualified profit-sharing plans where the
contributed amounts are distributable only after a period of
deferral, the law shall be administered in a manner consistent
with -
"(A) Revenue Ruling 56-497 (1956 - 2 C.B. 284),
"(B) Revenue Ruling 63-180 (1963 - 2 C.B. 189), and
"(C) Revenue Ruling 68-89 (1968 - 1 C.B. 402).
"(d) Limitation on Retroactivity of Final Regulations. - In the
case of any salary reduction regulations which become final after
December 31, 1979 -
"(1) for purposes of chapter 1 of the Internal Revenue Code of
1986 (relating to normal taxes and surtaxes), such regulations
shall not apply before January 1, 1980; and
"(2) for purposes of chapter 21 of such Code (relating to
Federal Insurance Contributions Act) and for purposes of chapter
24 of such Code (relating to collection of income tax at source
on wages), such regulations shall not apply before the day on
which such regulations are issued in final form.
"(e) Salary Reduction Regulations Defined. - For purpose of this
section, the term 'salary reduction regulations' means regulations
dealing with the includibility in gross income (at the time of
contribution) of amounts contributed to a plan which includes a
trust that qualifies under section 401(a) [subsec. (a) of this
section], or a plan described in section 403(a) or 405(a),
including plans or arrangements described in subsection (b)(2), if
the contribution is made under an arrangement under which the
contribution will be made only if the employee elects to receive a
reduction in his compensation or to forego an increase in his
compensation, or under an arrangement under which the employee is
permitted to elect to receive part of his compensation in one or
more alternative forms (if one of such forms results in the
inclusion of amounts in income under the Internal Revenue Code of
1986)."
Pub. L. 95-615, Sec. 210(b), Nov. 8, 1978, 92 Stat. 3109,
provided that: "Section 5 of this Act [amending this note] shall
not apply with respect to any type of plan for any period for which
rules for that type of plan are provided by the Revenue Act of 1978
[see Short Title note set out under section 1 of this title]."
-FOOTNOTE-
(!1) So in original. Period before semicolon probably should be
a closing parenthesis.
(!2) So in original. Probably should be capitalized.
(!3) So in original. Probably should be "section".
(!4) So in original.
-End-
-CITE-
26 USC Sec. 402 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 402. Taxability of beneficiary of employees' trust
-STATUTE-
(a) Taxability of beneficiary of exempt trust
Except as otherwise provided in this section, any amount actually
distributed to any distributee by any employees' trust described in
section 401(a) which is exempt from tax under section 501(a) shall
be taxable to the distributee, in the taxable year of the
distributee in which distributed, under section 72 (relating to
annuities).
(b) Taxability of beneficiary of nonexempt trust
(1) Contributions
Contributions to an employees' trust made by an employer during
a taxable year of the employer which ends with or within a
taxable year of the trust for which the trust is not exempt from
tax under section 501(a) shall be included in the gross income of
the employee in accordance with section 83 (relating to property
transferred in connection with performance of services), except
that the value of the employee's interest in the trust shall be
substituted for the fair market value of the property for
purposes of applying such section.
(2) Distributions
The amount actually distributed or made available to any
distributee by any trust described in paragraph (1) shall be
taxable to the distributee, in the taxable year in which so
distributed or made available, under section 72 (relating to
annuities), except that distributions of income of such trust
before the annuity starting date (as defined in section 72(c)(4))
shall be included in the gross income of the employee without
regard to section 72(e)(5) (relating to amounts not received as
annuities).
(3) Grantor trusts
A beneficiary of any trust described in paragraph (1) shall not
be considered the owner of any portion of such trust under
subpart E of part I of subchapter J (relating to grantors and
others treated as substantial owners).
(4) Failure to meet requirements of section 410(b)
(A) Highly compensated employees
If 1 of the reasons a trust is not exempt from tax under
section 501(a) is the failure of the plan of which it is a part
to meet the requirements of section 401(a)(26) or 410(b), then
a highly compensated employee shall, in lieu of the amount
determined under paragraph (1) or (2) include in gross income
for the taxable year with or within which the taxable year of
the trust ends an amount equal to the vested accrued benefit of
such employee (other than the employee's investment in the
contract) as of the close of such taxable year of the trust.
(B) Failure to meet coverage tests
If a trust is not exempt from tax under section 501(a) for
any taxable year solely because such trust is part of a plan
which fails to meet the requirements of section 401(a)(26) or
410(b), paragraphs (1) and (2) shall not apply by reason of
such failure to any employee who was not a highly compensated
employee during -
(i) such taxable year, or
(ii) any preceding period for which service was creditable
to such employee under the plan.
(C) Highly compensated employee
For purposes of this paragraph, the term "highly compensated
employee" has the meaning given such term by section 414(q).
(c) Rules applicable to rollovers from exempt trusts
(1) Exclusion from income
If -
(A) any portion of the balance to the credit of an employee
in a qualified trust is paid to the employee in an eligible
rollover distribution,
(B) the distributee transfers any portion of the property
received in such distribution to an eligible retirement plan,
and
(C) in the case of a distribution of property other than
money, the amount so transferred consists of the property
distributed,
then such distribution (to the extent so transferred) shall not
be includible in gross income for the taxable year in which paid.
(2) Maximum amount which may be rolled over
In the case of any eligible rollover distribution, the maximum
amount transferred to which paragraph (1) applies shall not
exceed the portion of such distribution which is includible in
gross income (determined without regard to paragraph (1)). The
preceding sentence shall not apply to such distribution to the
extent -
(A) such portion is transferred in a direct trustee-to-
trustee transfer to a qualified trust which is part of a plan
which is a defined contribution plan and which agrees to
separately account for amounts so transferred, including
separately accounting for the portion of such distribution
which is includible in gross income and the portion of such
distribution which is not so includible, or
(B) such portion is transferred to an eligible retirement
plan described in clause (i) or (ii) of paragraph (8)(B).
In the case of a transfer described in subparagraph (A) or (B),
the amount transferred shall be treated as consisting first of
the portion of such distribution that is includible in gross
income (determined without regard to paragraph (1)).
(3) Transfer must be made within 60 days of receipt
(A) In general
Except as provided in subparagraph (B), paragraph (1) shall
not apply to any transfer of a distribution made after the 60th
day following the day on which the distributee received the
property distributed.
(B) Hardship exception
The Secretary may waive the 60-day requirement under
subparagraph (A) where the failure to waive such requirement
would be against equity or good conscience, including casualty,
disaster, or other events beyond the reasonable control of the
individual subject to such requirement.
(4) Eligible rollover distribution
For purposes of this subsection, the term "eligible rollover
distribution" means any distribution to an employee of all or any
portion of the balance to the credit of the employee in a
qualified trust; except that such term shall not include -
(A) any distribution which is one of a series of
substantially equal periodic payments (not less frequently than
annually) made -
(i) for the life (or life expectancy) of the employee or
the joint lives (or joint life expectancies) of the employee
and the employee's designated beneficiary, or
(ii) for a specified period of 10 years or more,
(B) any distribution to the extent such distribution is
required under section 401(a)(9), and
(C) any distribution which is made upon hardship of the
employee.
(5) Transfer treated as rollover contribution under section 408
For purposes of this title, a transfer to an eligible
retirement plan described in clause (i) or (ii) of paragraph
(8)(B) resulting in any portion of a distribution being excluded
from gross income under paragraph (1) shall be treated as a
rollover contribution described in section 408(d)(3).
(6) Sales of distributed property
For purposes of this subsection -
(A) Transfer of proceeds from sale of distributed property
treated as transfer of distributed property
The transfer of an amount equal to any portion of the
proceeds from the sale of property received in the distribution
shall be treated as the transfer of property received in the
distribution.
(B) Proceeds attributable to increase in value
The excess of fair market value of property on sale over its
fair market value on distribution shall be treated as property
received in the distribution.
(C) Designation where amount of distribution exceeds rollover
contribution
In any case where part or all of the distribution consists of
property other than money -
(i) the portion of the money or other property which is to
be treated as attributable to amounts not included in gross
income, and
(ii) the portion of the money or other property which is to
be treated as included in the rollover contribution,
shall be determined on a ratable basis unless the taxpayer
designates otherwise. Any designation under this subparagraph
for a taxable year shall be made not later than the time
prescribed by law for filing the return for such taxable year
(including extensions thereof). Any such designation, once
made, shall be irrevocable.
(D) Nonrecognition of gain or loss
No gain or loss shall be recognized on any sale described in
subparagraph (A) to the extent that an amount equal to the
proceeds is transferred pursuant to paragraph (1).
(7) Special rule for frozen deposits
(A) In general
The 60-day period described in paragraph (3) shall not -
(i) include any period during which the amount transferred
to the employee is a frozen deposit, or
(ii) end earlier than 10 days after such amount ceases to
be a frozen deposit.
(B) Frozen deposits
For purposes of this subparagraph, the term "frozen deposit"
means any deposit which may not be withdrawn because of -
(i) the bankruptcy or insolvency of any financial
institution, or
(ii) any requirement imposed by the State in which such
institution is located by reason of the bankruptcy or
insolvency (or threat thereof) of 1 or more financial
institutions in such State.
A deposit shall not be treated as a frozen deposit unless on at
least 1 day during the 60-day period described in paragraph (3)
(without regard to this paragraph) such deposit is described in
the preceding sentence.
(8) Definitions
For purposes of this subsection -
(A) Qualified trust
The term "qualified trust" means an employees' trust
described in section 401(a) which is exempt from tax under
section 501(a).
(B) Eligible retirement plan
The term "eligible retirement plan" means -
(i) an individual retirement account described in section
408(a),
(ii) an individual retirement annuity described in section
408(b) (other than an endowment contract),
(iii) a qualified trust,
(iv) an annuity plan described in section 403(a),
(v) an eligible deferred compensation plan described in
section 457(b) which is maintained by an eligible employer
described in section 457(e)(1)(A), and
(vi) an annuity contract described in section 403(b).
If any portion of an eligible rollover distribution is
attributable to payments or distributions from a designated
Roth account (as defined in section 402A), an eligible
retirement plan with respect to such portion shall include only
another designated Roth account and a Roth IRA.
(9) Rollover where spouse receives distribution after death of
employee
If any distribution attributable to an employee is paid to the
spouse of the employee after the employee's death, the preceding
provisions of this subsection shall apply to such distribution in
the same manner as if the spouse were the employee.
(10) Separate accounting
Unless a plan described in clause (v) of paragraph (8)(B)
agrees to separately account for amounts rolled into such plan
from eligible retirement plans not described in such clause, the
plan described in such clause may not accept transfers or
rollovers from such retirement plans.
(d) Taxability of beneficiary of certain foreign situs trusts
For purposes of subsections (a), (b), and (c), a stock bonus,
pension, or profit-sharing trust which would qualify for exemption
from tax under section 501(a) except for the fact that it is a
trust created or organized outside the United States shall be
treated as if it were a trust exempt from tax under section 501(a).
(e) Other rules applicable to exempt trusts
(1) Alternate payees
(A) Alternate payee treated as distributee
For purposes of subsection (a) and section 72, an alternate
payee who is the spouse or former spouse of the participant
shall be treated as the distributee of any distribution or
payment made to the alternate payee under a qualified domestic
relations order (as defined in section 414(p)).
(B) Rollovers
If any amount is paid or distributed to an alternate payee
who is the spouse or former spouse of the participant by reason
of any qualified domestic relations order (within the meaning
of section 414(p)), subsection (c) shall apply to such
distribution in the same manner as if such alternate payee were
the employee.
(2) Distributions by United States to nonresident aliens
The amount includible under subsection (a) in the gross income
of a nonresident alien with respect to a distribution made by the
United States in respect of services performed by an employee of
the United States shall not exceed an amount which bears the same
ratio to the amount includible in gross income without regard to
this paragraph as -
(A) the aggregate basic pay paid by the United States to such
employee for such services, reduced by the amount of such basic
pay which was not includible in gross income by reason of being
from sources without the United States, bears to
(B) the aggregate basic pay paid by the United States to such
employee for such services.
In the case of distributions under the civil service retirement
laws, the term "basic pay" shall have the meaning provided in
section 8331(3) of title 5, United States Code.
(3) Cash or deferred arrangements
For purposes of this title, contributions made by an employer
on behalf of an employee to a trust which is a part of a
qualified cash or deferred arrangement (as defined in section
401(k)(2)) or which is part of a salary reduction agreement under
section 403(b) shall not be treated as distributed or made
available to the employee nor as contributions made to the trust
by the employee merely because the arrangement includes
provisions under which the employee has an election whether the
contribution will be made to the trust or received by the
employee in cash.
(4) Net unrealized appreciation
(A) Amounts attributable to employee contributions
For purposes of subsection (a) and section 72, in the case of
a distribution other than a lump sum distribution, the amount
actually distributed to any distributee from a trust described
in subsection (a) shall not include any net unrealized
appreciation in securities of the employer corporation
attributable to amounts contributed by the employee (other than
deductible employee contributions within the meaning of section
72(o)(5)). This subparagraph shall not apply to a distribution
to which subsection (c) applies.
(B) Amounts attributable to employer contributions
For purposes of subsection (a) and section 72, in the case of
any lump sum distribution which includes securities of the
employer corporation, there shall be excluded from gross income
the net unrealized appreciation attributable to that part of
the distribution which consists of securities of the employer
corporation. In accordance with rules prescribed by the
Secretary, a taxpayer may elect, on the return of tax on which
a lump sum distribution is required to be included, not to have
this subparagraph apply to such distribution.
(C) Determination of amounts and adjustments
For purposes of subparagraphs (A) and (B), net unrealized
appreciation and the resulting adjustments to basis shall be
determined in accordance with regulations prescribed by the
Secretary.
(D) Lump-sum distribution
For purposes of this paragraph -
(i) In general
The term "lump-sum distribution" means the distribution or
payment within one taxable year of the recipient of the
balance to the credit of an employee which becomes payable to
the recipient -
(I) on account of the employee's death,
(II) after the employee attains age 59 1/2 ,
(III) on account of the employee's separation from
service, or
(IV) after the employee has become disabled (within the
meaning of section 72(m)(7)),
from a trust which forms a part of a plan described in section
401(a) and which is exempt from tax under section 501 or from
a plan described in section 403(a). Subclause (III) of this
clause shall be applied only with respect to an individual
who is an employee without regard to section 401(c)(1), and
subclause (IV) shall be applied only with respect to an
employee within the meaning of section 401(c)(1). For
purposes of this clause, a distribution to two or more trusts
shall be treated as a distribution to one recipient. For
purposes of this paragraph, the balance to the credit of the
employee does not include the accumulated deductible employee
contributions under the plan (within the meaning of section
72(o)(5)).
(ii) Aggregation of certain trusts and plans
For purposes of determining the balance to the credit of an
employee under clause (i) -
(I) all trusts which are part of a plan shall be treated
as a single trust, all pension plans maintained by the
employer shall be treated as a single plan, all profit-
sharing plans maintained by the employer shall be treated
as a single plan, and all stock bonus plans maintained by
the employer shall be treated as a single plan, and
(II) trusts which are not qualified trusts under section
401(a) and annuity contracts which do not satisfy the
requirements of section 404(a)(2) shall not be taken into
account.
(iii) Community property laws
The provisions of this paragraph shall be applied without
regard to community property laws.
(iv) Amounts subject to penalty
This paragraph shall not apply to amounts described in
subparagraph (A) of section 72(m)(5) to the extent that
section 72(m)(5) applies to such amounts.
(v) Balance to credit of employee not to include amounts
payable under qualified domestic relations order
For purposes of this paragraph, the balance to the credit
of an employee shall not include any amount payable to an
alternate payee under a qualified domestic relations order
(within the meaning of section 414(p)).
(vi) Transfers to cost-of-living arrangement not treated as
distribution
For purposes of this paragraph, the balance to the credit
of an employee under a defined contribution plan shall not
include any amount transferred from such defined contribution
plan to a qualified cost-of-living arrangement (within the
meaning of section 415(k)(2)) under a defined benefit plan.
(vii) Lump-sum distributions of alternate payees
If any distribution or payment of the balance to the credit
of an employee would be treated as a lump-sum distribution,
then, for purposes of this paragraph, the payment under a
qualified domestic relations order (within the meaning of
section 414(p)) of the balance to the credit of an alternate
payee who is the spouse or former spouse of the employee
shall be treated as a lump-sum distribution. For purposes of
this clause, the balance to the credit of the alternate payee
shall not include any amount payable to the employee.
(E) Definitions relating to securities
For purposes of this paragraph -
(i) Securities
The term "securities" means only shares of stock and bonds
or debentures issued by a corporation with interest coupons
or in registered form.
(ii) Securities of the employer
The term "securities of the employer corporation" includes
securities of a parent or subsidiary corporation (as defined
in subsections (e) and (f) of section 424) of the employer
corporation.
[(5) Repealed. Pub. L. 104-188, title I, Sec. 1401(b)(13), Aug.
20, 1996, 110 Stat. 1789]
(6) Direct trustee-to-trustee transfers
Any amount transferred in a direct trustee-to-trustee transfer
in accordance with section 401(a)(31) shall not be includible in
gross income for the taxable year of such transfer.
(f) Written explanation to recipients of distributions eligible for
rollover treatment
(1) In general
The plan administrator of any plan shall, within a reasonable
period of time before making an eligible rollover distribution,
provide a written explanation to the recipient -
(A) of the provisions under which the recipient may have the
distribution directly transferred to an eligible retirement
plan and that the automatic distribution by direct transfer
applies to certain distributions in accordance with section
401(a)(31)(B),
(B) of the provision which requires the withholding of tax on
the distribution if it is not directly transferred to an
eligible retirement plan,
(C) of the provisions under which the distribution will not
be subject to tax if transferred to an eligible retirement plan
within 60 days after the date on which the recipient received
the distribution,
(D) if applicable, of the provisions of subsections (d) and
(e) of this section, and
(E) of the provisions under which distributions from the
eligible retirement plan receiving the distribution may be
subject to restrictions and tax consequences which are
different from those applicable to distributions from the plan
making such distribution.
(2) Definitions
For purposes of this subsection -
(A) Eligible rollover distribution
The term "eligible rollover distribution" has the same
meaning as when used in subsection (c) of this section,
paragraph (4) of section 403(a), subparagraph (A) of section
403(b)(8), or subparagraph (A) of section 457(e)(16).
(B) Eligible retirement plan
The term "eligible retirement plan" has the meaning given
such term by subsection (c)(8)(B).
(g) Limitation on exclusion for elective deferrals
(1) In general
(A) Limitation
Notwithstanding subsections (e)(3) and (h)(1)(B), the
elective deferrals of any individual for any taxable year shall
be included in such individual's gross income to the extent the
amount of such deferrals for the taxable year exceeds the
applicable dollar amount. The preceding sentence shall not
apply to the portion of such excess as does not exceed the
designated Roth contributions of the individual for the taxable
year.
(B) Applicable dollar amount
For purposes of subparagraph (A), the applicable dollar
amount shall be the amount determined in accordance with the
following table:
For taxable years The applicable
beginning in dollar amount:
calendar year:
2002 $11,000
2003 $12,000
2004 $13,000
2005 $14,000
2006 or thereafter $15,000.
(C) Catch-up contributions
In addition to subparagraph (A), in the case of an eligible
participant (as defined in section 414(v)), gross income shall
not include elective deferrals in excess of the applicable
dollar amount under subparagraph (B) to the extent that the
amount of such elective deferrals does not exceed the
applicable dollar amount under section 414(v)(2)(B)(i) for the
taxable year (without regard to the treatment of the elective
deferrals by an applicable employer plan under section 414(v)).
(2) Distribution of excess deferrals
(A) In general
If any amount (hereinafter in this paragraph referred to as
"excess deferrals") is included in the gross income of an
individual under paragraph (1) (or would be included but for
the last sentence thereof) for any taxable year -
(i) not later than the 1st March 1 following the close of
the taxable year, the individual may allocate the amount of
such excess deferrals among the plans under which the
deferrals were made and may notify each such plan of the
portion allocated to it, and
(ii) not later than the 1st April 15 following the close of
the taxable year, each such plan may distribute to the
individual the amount allocated to it under clause (i) (and
any income allocable to such amount).
The distribution described in clause (ii) may be made
notwithstanding any other provision of law.
(B) Treatment of distribution under section 401(k)
Except to the extent provided under rules prescribed by the
Secretary, notwithstanding the distribution of any portion of
an excess deferral from a plan under subparagraph (A)(ii), such
portion shall, for purposes of applying section
401(k)(3)(A)(ii), be treated as an employer contribution.
(C) Taxation of distribution
In the case of a distribution to which subparagraph (A)
applies -
(i) except as provided in clause (ii), such distribution
shall not be included in gross income, and
(ii) any income on the excess deferral shall, for purposes
of this chapter, be treated as earned and received in the
taxable year in which such income is distributed.
No tax shall be imposed under section 72(t) on any distribution
described in the preceding sentence.
(D) Partial distributions
If a plan distributes only a portion of any excess deferral
and income allocable thereto, such portion shall be treated as
having been distributed ratably from the excess deferral and
the income.
(3) Elective deferrals
For purposes of this subsection, the term "elective deferrals"
means, with respect to any taxable year, the sum of -
(A) any employer contribution under a qualified cash or
deferred arrangement (as defined in section 401(k)) to the
extent not includible in gross income for the taxable year
under subsection (e)(3) (determined without regard to this
subsection),
(B) any employer contribution to the extent not includible in
gross income for the taxable year under subsection (h)(1)(B)
(determined without regard to this subsection),
(C) any employer contribution to purchase an annuity contract
under section 403(b) under a salary reduction agreement (within
the meaning of section 3121(a)(5)(D)), and
(D) any elective employer contribution under section
408(p)(2)(A)(i).
An employer contribution shall not be treated as an elective
deferral described in subparagraph (C) if under the salary
reduction agreement such contribution is made pursuant to a one-
time irrevocable election made by the employee at the time of
initial eligibility to participate in the agreement or is made
pursuant to a similar arrangement involving a one-time
irrevocable election specified in regulations.
(4) Cost-of-living adjustment
In the case of taxable years beginning after December 31, 2006,
the Secretary shall adjust the $15,000 amount under paragraph
(1)(B) at the same time and in the same manner as under section
415(d), except that the base period shall be the calendar quarter
beginning July 1, 2005, and any increase under this paragraph
which is not a multiple of $500 shall be rounded to the next
lowest multiple of $500.
(5) Disregard of community property laws
This subsection shall be applied without regard to community
property laws.
(6) Coordination with section 72
For purposes of applying section 72, any amount includible in
gross income for any taxable year under this subsection but which
is not distributed from the plan during such taxable year shall
not be treated as investment in the contract.
(7) Special rule for certain organizations
(A) In general
In the case of a qualified employee of a qualified
organization, with respect to employer contributions described
in paragraph (3)(C) made by such organization, the limitation
of paragraph (1) for any taxable year shall be increased by
whichever of the following is the least:
(i) $3,000,
(ii) $15,000 reduced by the sum of -
(I) the amounts not included in gross income for prior
taxable years by reason of this paragraph, plus
(II) the aggregate amount of designated Roth
contributions (as defined in section 402A(c)) for prior
taxable years, or
(iii) the excess of $5,000 multiplied by the number of
years of service of the employee with the qualified
organization over the employer contributions described in
paragraph (3) made by the organization on behalf of such
employee for prior taxable years (determined in the manner
prescribed by the Secretary).
(B) Qualified organization
For purposes of this paragraph, the term "qualified
organization" means any educational organization, hospital,
home health service agency, health and welfare service agency,
church, or convention or association of churches. Such term
includes any organization described in section
414(e)(3)(B)(ii). Terms used in this subparagraph shall have
the same meaning as when used in section 415(c)(4) (as in
effect before the enactment of the Economic Growth and Tax
Relief Reconciliation Act of 2001).
(C) Qualified employee
For purposes of this paragraph, the term "qualified employee"
means any employee who has completed 15 years of service with
the qualified organization.
(D) Years of service
For purposes of this paragraph, the term "years of service"
has the meaning given such term by section 403(b).
(8) Matching contributions on behalf of self-employed individuals
not treated as elective employer contributions
Except as provided in section 401(k)(3)(D)(ii), any matching
contribution described in section 401(m)(4)(A) which is made on
behalf of a self-employed individual (as defined in section
401(c)) shall not be treated as an elective employer contribution
under a qualified cash or deferred arrangement (as defined in
section 401(k)) for purposes of this title.
(h) Special rules for simplified employee pensions
For purposes of this chapter -
(1) In general
Except as provided in paragraph (2), contributions made by an
employer on behalf of an employee to an individual retirement
plan pursuant to a simplified employee pension (as defined in
section 408(k)) -
(A) shall not be treated as distributed or made available to
the employee or as contributions made by the employee, and
(B) if such contributions are made pursuant to an arrangement
under section 408(k)(6) under which an employee may elect to
have the employer make contributions to the simplified employee
pension on behalf of the employee, shall not be treated as
distributed or made available or as contributions made by the
employee merely because the simplified employee pension
includes provisions for such election.
(2) Limitations on employer contributions
Contributions made by an employer to a simplified employee
pension with respect to an employee for any year shall be treated
as distributed or made available to such employee and as
contributions made by the employee to the extent such
contributions exceed the lesser of -
(A) 25 percent of the compensation (within the meaning of
section 414(s)) from such employer includible in the employee's
gross income for the year (determined without regard to the
employer contributions to the simplified employee pension), or
(B) the limitation in effect under section 415(c)(1)(A),
reduced in the case of any highly compensated employee (within
the meaning of section 414(q)) by the amount taken into account
with respect to such employee under section 408(k)(3)(D).
(3) Distributions
Any amount paid or distributed out of an individual retirement
plan pursuant to a simplified employee pension shall be included
in gross income by the payee or distributee, as the case may be,
in accordance with the provisions of section 408(d).
(i) Treatment of self-employed individuals
For purposes of this section, except as otherwise provided in
subparagraph (A) of subsection (d)(4),(!1) the term "employee"
includes a self-employed individual (as defined in section
401(c)(1)(B)) and the employer of such individual shall be the
person treated as his employer under section 401(c)(4).
(j) Effect of disposition of stock by plan on net unrealized
appreciation
(1) In general
For purposes of subsection (e)(4), in the case of any
transaction to which this subsection applies, the determination
of net unrealized appreciation shall be made without regard to
such transaction.
(2) Transaction to which subsection applies
This subsection shall apply to any transaction in which -
(A) the plan trustee exchanges the plan's securities of the
employer corporation for other such securities, or
(B) the plan trustee disposes of securities of the employer
corporation and uses the proceeds of such disposition to
acquire securities of the employer corporation within 90 days
(or such longer period as the Secretary may prescribe), except
that this subparagraph shall not apply to any employee with
respect to whom a distribution of money was made during the
period after such disposition and before such acquisition.
(k) Treatment of simple retirement accounts
Rules similar to the rules of paragraphs (1) and (3) of
subsection (h) shall apply to contributions and distributions with
respect to a simple retirement account under section 408(p).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 135; Pub. L. 86-437, Secs. 1,
2(a), Apr. 22, 1960, 74 Stat. 79; Pub. L. 87-792, Sec. 4(c), Oct.
10, 1962, 76 Stat. 825; Pub. L. 88-272, title II, Secs. 221(c)(1),
232(e)(1)-(3), Feb. 26, 1964, 78 Stat. 75, 111; Pub. L. 91-172,
title III, Sec. 321(b)(1), title V, Sec. 515(a)(1), Dec. 30, 1969,
83 Stat. 590, 643; Pub. L. 93-406, title II, Secs. 2002(g)(5),
2005(a), (b)(1), (c)(1), (2), Sept. 2, 1974, 88 Stat. 968, 987,
990, 991: Pub. L. 94-267, Sec. 1(a), Apr. 15, 1976, 90 Stat. 365;
Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(C), (2), title XV, Sec.
1512(a), title XIX, Secs. 1901(a)(57)(A)-(C)(i), 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1731, 1732, 1742, 1773, 1774, 1834; Pub. L.
95-30, title I, Sec. 102(b)(4), May 23, 1977, 91 Stat. 137; Pub. L.
95-458, Sec. 4(a), (c), Oct. 14, 1978, 92 Stat. 1257, 1259; Pub. L.
95-600, title I, Secs. 101(d)(1), 135(b), 157(f)(1), (g)(1),
(h)(1), Nov. 6, 1978, 92 Stat. 2770, 2787, 2806-2808; Pub. L. 96-
222, title I, Sec. 101(a)(14)(C), (E)(i), Apr. 1, 1980, 94 Stat.
204, 205; Pub. L. 96-608, Sec. 2(a), Dec. 28, 1980, 94 Stat. 3551;
Pub. L. 97-34, title III, Secs. 311(b)(2), (3)(A), (c), 314(c)(1),
Aug. 13, 1981, 95 Stat. 280, 286; Pub. L. 97-448, title I, Secs.
101(b), 103(c)(7), (8)(A), (12)(D), Jan. 12, 1983, 96 Stat. 2366,
2376, 2377; Pub. L. 98-369, div. A, title IV, Sec. 491(c)(2),
(d)(9)-(11), title V, Sec. 522(a)(1), (b)-(d)(8), title VII, Sec.
713(c)(3), title X, Sec. 1001(b)(3), (e), July 18, 1984, 98 Stat.
848, 849, 868-870, 957, 1011, 1012; Pub. L. 98-397, title II, Secs.
204(c)(1), (3), (4), 207(a), Aug. 23, 1984, 98 Stat. 1448, 1449;
Pub. L. 99-272, title XI, Sec. 11012(c), Apr. 7, 1986, 100 Stat.
260; Pub. L. 99-514, title I, Sec. 104(b)(5), title XI, Secs.
1105(a), 1106(c)(2), 1108(b), 1112(c), 1121(c)(1), 1122(a),
(b)(1)(A), (2), (e)(1), (2)(A), (g), title XVIII, Secs.
1852(a)(5)(A), (b)(1)-(7), (c)(5), 1854(f)(2), 1875(c)(1)(A),
1898(a)(2), (3), (c)(1)(A), (7)(A)(i), (e), Oct. 22, 1986, 100
Stat. 2105, 2417, 2423, 2432, 2444, 2465, 2466, 2469, 2470, 2865-
2867, 2881, 2894, 2942, 2943, 2951, 2954, 2955; Pub. L. 100-647,
title I, Secs. 1011(c)(1)-(6)(B), (11), (h)(4), 1011A(a)(1),
(b)(4)(A)-(D), (5)-(8), (10), (c)(9), 1018(t)(8)(A), (C), (u)(1),
(6), (7), title VI, Sec. 6068(a), Nov. 10, 1988, 102 Stat. 3457-
3459, 3464, 3472-3474, 3476, 3589, 3590, 3703; Pub. L. 101-239,
title VII, Sec. 7811(g)(2), (i)(13), Dec. 19, 1989, 103 Stat. 2409,
2411; Pub. L. 101-508, title XI, Sec. 11801(c)(9)(I), Nov. 5, 1990,
104 Stat. 1388-526; Pub. L. 102-318, title V, Secs. 521(a), (b)(9)-
(11), 522(c)(1), July 3, 1992, 106 Stat. 300, 310, 311, 315; Pub.
L. 103-465, title VII, Sec. 732(c), Dec. 8, 1994, 108 Stat. 5005;
Pub. L. 104-188, title I, Secs. 1401(a)-(b)(2), (13),
1421(b)(3)(A), (9)(B), 1450(a)(2), 1704(t)(68), Aug. 20, 1996, 110
Stat. 1787-1789, 1796, 1798, 1814, 1891; Pub. L. 105-34, title XV,
Sec. 1501(a), Aug. 5, 1997, 111 Stat. 1058; Pub. L. 105-206, title
VI, Sec. 6005(c)(2)(A), July 22, 1998, 112 Stat. 800; Pub. L. 107-
16, title VI, Secs. 611(d)(1)-(3)(A), 617(b), (c), 632(a)(3)(G),
636(b)(1), 641(a)(2)(A), (B), (b)(2)-(d), (e)(4)-(6), 643(a),
644(a), 657(b), June 7, 2001, 115 Stat. 97, 98, 105, 114, 117, 119-
123, 136; Pub. L. 107-147, title IV, Sec. 411(l)(3), (o)(1),
(p)(6), (q)(2), Mar. 9, 2002, 116 Stat. 47, 48, 51; Pub. L. 109-
135, title IV, Sec. 407(a), Dec. 21, 2005, 119 Stat. 2635.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The civil service retirement laws, referred to in subsec. (e)(2),
are classified generally to subchapter III (Sec. 8331 et seq.) of
chapter 83 of Title 5, Government Organization and Employees.
Section 415(c)(4) (as in effect before the enactment of the
Economic Growth and Tax Relief Reconciliation Act of 2001),
referred to in subsec. (g)(7)(B), means section 415(c)(4) of this
title prior to its repeal by Pub. L. 107-16, title VI, Sec.
632(a)(3)(E), June 7, 2001, 115 Stat. 114.
Subsection (d), referred to in subsec. (i), was amended generally
by Pub. L. 104-188, title I, Sec. 1401(a), Aug. 20, 1996, 110 Stat.
1787, and as so amended, no longer contains a par. (4).
-MISC1-
AMENDMENTS
2005 - Subsec. (g)(1)(A). Pub. L. 109-135, Sec. 407(a)(2),
inserted "to" after "shall not apply".
Subsec. (g)(7)(A)(ii). Pub. L. 109-135, Sec. 407(a)(1), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"$15,000 reduced by amounts not included in gross income for prior
taxable years by reason of this paragraph, or".
2002 - Subsec. (c)(2). Pub. L. 107-147, Sec. 411(q)(2), inserted
at end: "In the case of a transfer described in subparagraph (A) or
(B), the amount transferred shall be treated as consisting first of
the portion of such distribution that is includible in gross income
(determined without regard to paragraph (1))."
Subsec. (g)(1)(C). Pub. L. 107-147, Sec. 411(o)(1), added subpar.
(C).
Subsec. (g)(7)(B). Pub. L. 107-147, Sec. 411(p)(6), substituted
"2001)." for "2001."
Subsec. (h)(2)(A). Pub. L. 107-147, Sec. 411(l)(3), substituted
"25 percent" for "15 percent".
2001 - Subsec. (c)(2). Pub. L. 107-16, Secs. 643(a), 901,
temporarily inserted at end "The preceding sentence shall not apply
to such distribution to the extent -
"(A) such portion is transferred in a direct trustee-to-trustee
transfer to a qualified trust which is part of a plan which is a
defined contribution plan and which agrees to separately account
for amounts so transferred, including separately accounting for
the portion of such distribution which is includible in gross
income and the portion of such distribution which is not so
includible, or
"(B) such portion is transferred to an eligible retirement plan
described in clause (i) or (ii) of paragraph (8)(B)."
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (c)(3). Pub. L. 107-16, Secs. 644(a), 901, temporarily
reenacted heading without change and amended text generally. Prior
to amendment, text read as follows: "Paragraph (1) shall not apply
to any transfer of a distribution made after the 60th day following
the day on which the distributee received the property
distributed." See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (c)(4)(C). Pub. L. 107-16, Secs. 636(b)(1), 901,
temporarily amended subpar. (C) generally. Prior to amendment,
subpar. (C) read as follows: "any hardship distribution described
in section 401(k)(2)(B)(i)(IV)." See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (c)(8)(B). Pub. L. 107-16, Secs. 617(c), 901, temporarily
inserted concluding provisions. See Effective and Termination Dates
of 2001 Amendment note below.
Subsec. (c)(8)(B)(v). Pub. L. 107-16, Secs. 641(a)(2)(A), 901,
temporarily added cl. (v). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (c)(8)(B)(vi). Pub. L. 107-16, Secs. 641(b)(2), 901,
temporarily added cl. (vi). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (c)(9). Pub. L. 107-16, Secs. 641(d), 901, temporarily
struck out before period at end "; except that a trust or plan
described in clause (iii) or (iv) of paragraph (8)(B) shall not be
treated as an eligible retirement plan with respect to such
distribution". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(10). Pub. L. 107-16, Secs. 641(a)(2)(B), 901,
temporarily added par. (10). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (f)(1). Pub. L. 107-16, Secs. 641(e)(5), 901, temporarily
struck out "from an eligible retirement plan" after "rollover
distribution" in introductory provisions. See Effective and
Termination Dates note below.
Subsec. (f)(1)(A). Pub. L. 107-16, Secs. 657(b), 901, temporarily
inserted before comma at end "and that the automatic distribution
by direct transfer applies to certain distributions in accordance
with section 401(a)(31)(B)". See Effective and Termination Dates of
2001 Amendment note below.
Pub. L. 107-16, Secs. 641(e)(6), 901, temporarily substituted "an
eligible retirement plan" for "another eligible retirement plan".
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (f)(1)(B). Pub. L. 107-16, Secs. 641(e)(6), 901,
temporarily substituted "an eligible retirement plan" for "another
eligible retirement plan". See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (f)(1)(E). Pub. L. 107-16, Secs. 641(c), 901, temporarily
added subpar. (E). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (f)(2)(A). Pub. L. 107-16, Secs. 641(e)(4), 901,
temporarily substituted ", paragraph (4) of section 403(a),
subparagraph (A) of section 403(b)(8), or subparagraph (A) of
section 457(e)(16)" for "or paragraph (4) of section 403(a)". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (g)(1). Pub. L. 107-16, Secs. 611(d)(1), 901, temporarily
reenacted heading without change and amended text generally. Prior
to amendment, text read as follows: "Notwithstanding subsections
(e)(3) and (h)(1)(B), the elective deferrals of any individual for
any taxable year shall be included in such individual's gross
income to the extent the amount of such deferrals for the taxable
year exceeds $7,000." See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (g)(1)(A). Pub. L. 107-16, title VI, Secs. 617(b)(1),
901, temporarily inserted at end "The preceding sentence shall not
apply the portion of such excess as does not exceed the designated
Roth contributions of the individual for the taxable year." See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (g)(2)(A). Pub. L. 107-16, title VI, Secs. 617(b)(2),
901, temporarily inserted "(or would be included but for the last
sentence thereof)" after "paragraph (1)". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (g)(4). Pub. L. 107-16, Secs. 611(d)(3)(A), 901,
temporarily redesignated par. (5) as (4) and struck out heading and
text of former par. (4). Text read as follows: "The limitation
under paragraph (1) shall be increased (but not to an amount in
excess of $9,500) by the amount of any employer contributions for
the taxable year described in paragraph (3)(C)." See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (g)(5). Pub. L. 107-16, Secs. 611(d)(3)(A), 901,
temporarily redesignated par. (6) as (5). Former par. (5)
redesignated (4). See Effective and Termination Dates of 2001
Amendment note below.
Pub. L. 107-16, Secs. 611(d)(2), 901, temporarily reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The Secretary shall adjust the
$7,000 amount under paragraph (1) at the same time and in the same
manner as under section 415(d); except that any increase under this
paragraph which is not a multiple of $500 shall be rounded to the
next lowest multiple of $500." See Effective and Termination Dates
of 2001 Amendment note below.
Subsec. (g)(6). Pub. L. 107-16, Secs. 611(d)(3)(A), 901,
temporarily redesignated par. (7) as (6). Former par. (6)
redesignated (5). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (g)(7). Pub. L. 107-16, Secs. 611(d)(3)(A), 901,
temporarily redesignated par. (8) as (7). See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (g)(7)(B). Pub. L. 107-16, Secs. 632(a)(3)(G), 901,
temporarily inserted "(as in effect before the enactment of the
Economic Growth and Tax Relief Reconciliation Act of 2001" before
period at end. See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (g)(8), (9). Pub. L. 107-16, Secs. 611(d)(3)(A), 901,
temporarily redesignated par. (9) as (8). Former par. (8)
redesignated (7). See Effective and Termination Dates of 2001
Amendment note below.
1998 - Subsec. (c)(4)(C). Pub. L. 105-206 added subpar. (C).
1997 - Subsec. (g)(9). Pub. L. 105-34 added par. (9).
1996 - Subsec. (c)(10). Pub. L. 104-188, Sec. 1401(b)(2), struck
out par. (10) which read as follows:
"(10) Denial of averaging for subsequent distributions. - If
paragraph (1) applies to any distribution paid to any employee,
paragraphs (1) and (3) of subsection (d) shall not apply to any
distribution (paid after such distribution) of the balance to the
credit of the employee under the plan under which the preceding
distribution was made (or under any other plan which, under
subsection (d)(4)(C), would be aggregated with such plan)."
Subsec. (d). Pub. L. 104-188, Sec. 1401(a), amended subsec. (d)
generally, substituting provisions relating to taxability of
beneficiary of certain foreign situs trusts for former provisions
relating to tax on lump sum distributions.
Subsec. (e)(3). Pub. L. 104-188, Sec. 1450(a)(2), inserted "or
which is part of a salary reduction agreement under section 403(b)"
after "section 401(k)(2))".
Subsec. (e)(4)(D). Pub. L. 104-188, Sec. 1401(b)(1), amended
subpar. (D) generally. Prior to amendment, subpar. (D) read as
follows:
"(D) Lump sum distribution. - For purposes of this paragraph, the
term 'lump sum distribution' has the meaning given such term by
subsection (d)(4)(A) (without regard to subsection (d)(4)(F))."
Subsec. (e)(5). Pub. L. 104-188, Sec. 1401(b)(13), struck out
par. (5) which read as follows:
"(5) Taxability of beneficiary of certain foreign situs trusts. -
For purposes of subsections (a), (b), and (c), a stock bonus,
pension, or profit-sharing trust which would qualify for exemption
from tax under section 501(a) except for the fact that it is a
trust created or organized outside the United States shall be
treated as if it were a trust exempt from tax under section
501(a)."
Subsec. (g)(3)(A). Pub. L. 104-188, Sec. 1704(t)(68), substituted
"subsection (e)(3)" for "subsection (a)(8)".
Subsec. (g)(3)(D). Pub. L. 104-188, Sec. 1421(b)(9)(B), added
subpar. (D).
Subsec. (k). Pub. L. 104-188, Sec. 1421(b)(3)(A), added subsec.
(k).
1994 - Subsec. (g)(5). Pub. L. 103-465 inserted before period at
end "; except that any increase under this paragraph which is not a
multiple of $500 shall be rounded to the next lowest multiple of
$500".
1992 - Subsecs. (a) to (d). Pub. L. 102-318, Sec. 521(a), amended
subsecs. (a) to (d) generally, substituting present provisions for
former provisions which in subsec. (a) related to taxability of
beneficiaries of exempt trusts, in subsec. (b) related to
taxability of beneficiaries of nonexempt trusts, in subsec. (c)
related to taxability of beneficiaries of certain foreign situs
trusts, and subsec. (d) which had been previously repealed.
Subsec. (e). Pub. L. 102-318, Sec. 521, amended subsec. (e)
generally, substituting provisions relating to other rules
applicable to exempt trusts for provisions relating to tax on lump
sum distributions.
Subsec. (e)(6). Pub. L. 102-318, Sec. 522(c)(1), added par. (6).
Subsec. (f). Pub. L. 102-318, Sec. 521(a), amended subsec. (f)
generally, substituting present provisions for provisions requiring
a different time when explanation was to be provided and a
different content of explanation to be given and using different
definitions for "eligible rollover distribution" and "eligible
retirement plan".
Subsec. (g)(1). Pub. L. 102-318, Sec. 521(b)(9), substituted
"subsections (e)(3)" for "subsections (a)(8)".
Subsec. (i). Pub. L. 102-318, Sec. 521(b)(10), substituted
"subsection (d)(4)" for "subsection (e)(4)".
Subsec. (j)(1). Pub. L. 102-318, Sec. 521(b)(11), substituted
"(e)(4)" for "(a)(1) or (e)(4)(J)".
1990 - Subsec. (a)(3)(B). Pub. L. 101-508, Sec.
11801(c)(9)(I)(i), substituted "section 424" for "section 425".
Subsec. (a)(6)(B)(i). Pub. L. 101-508, Sec. 11801(c)(9)(I)(ii),
substituted "section 424(f)" for "section 425(f)".
1989 - Subsec. (e)(7). Pub. L. 101-239, Sec. 7811(i)(13), added
par. (7).
Subsec. (g)(3). Pub. L. 101-239, Sec. 7811(g)(2), inserted
"involving a one-time irrevocable election" after "similar
arrangement" in last sentence.
1988 - Subsec. (a)(1). Pub. L. 100-647, Sec. 1011A(b)(8)(A),
substituted "paragraph (4)" for "paragraphs (2) and (4)".
Subsec. (a)(4). Pub. L. 100-647, Sec. 1011A(b)(8)(B), struck out
"or (2)" after "under paragraph (1)".
Subsec. (a)(5)(D)(i). Pub. L. 100-647, Sec. 1011A(b)(4)(C),
inserted at end "Any distribution described in section
401(a)(28)(B)(ii) shall be treated as meeting the requirements of
subclauses (I) and (II)."
Pub. L. 100-647, Sec. 1011A(b)(4)(A), repealed amendment by Pub.
L. 99-514, Sec. 1122(e)(1), which had amended cl. (i) generally,
and provided that the Internal Revenue Code of 1986 shall be
applied and administered as if such amendment had not been enacted.
See 1986 Amendment note and Effective Date of 1988 Amendment note
below.
Subsec. (a)(5)(D)(i)(I). Pub. L. 100-647, Sec. 1011A(b)(4)(B),
inserted "is payable as provided in clause (i), (iii), or (iv) of
subsection (e)(4)(A) (without regard to the second sentence
thereof) and" after "(I) such distribution".
Subsec. (a)(5)(D)(iii). Pub. L. 100-647, Sec. 1011A(b)(4)(D),
struck out "10-year" after "Denial of" in heading.
Subsec. (a)(5)(F). Pub. L. 100-647, Sec. 1011A(a)(1), substituted
"resulting in any portion of a distribution being excluded from
gross income under subparagraph (A)" for "described in subparagraph
(A)".
Subsec. (a)(6)(C). Pub. L. 100-647, Sec. 1011A(b)(8)(C), struck
out "paragraph (2) of subsection (a), and" after "paragraph (5)(A)
applies,".
Subsec. (a)(6)(E)(ii). Pub. L. 100-647, Sec. 1011A(b)(8)(D),
substituted "then paragraphs (1) and (3) of subsection (e) shall"
for "then paragraph (2) of subsection (a), and paragraphs (1) and
(3) of subsection (e), shall".
Subsec. (a)(6)(G). Pub. L. 100-647, Sec. 1018(t)(8)(A),
redesignated subpar. (G), relating to treatment of potential future
vesting, as (I).
Subsec. (a)(6)(H)(ii). Pub. L. 100-647, Sec. 1011A(b)(5),
inserted at end "A deposit shall not be treated as a frozen deposit
unless on at least 1 day during the 60-day period described in
paragraph (5)(C) (without regard to this subparagraph) such deposit
is described in the preceding sentence."
Subsec. (a)(6)(I). Pub. L. 100-647, Sec. 1018(t)(8)(A),
redesignated subpar. (G), relating to treatment of potential future
vesting, as (I).
Subsec. (b)(2)(A). Pub. L. 100-647, Sec. 1011(h)(4), added
subpar. (A) and struck out former subpar. (A) which related to
trust which is not exempt from tax under section 501(a) because
plan fails to meet requirements of section 410(b).
Subsec. (b)(2)(B). Pub. L. 100-647, Sec. 1011(h)(4), added
subpar. (B) and struck out former subpar. (B) which related to
failure of plan to meet requirements of section 410(b) for more
than 1 taxable year.
Subsec. (e)(1)(A). Pub. L. 100-647, Sec. 1011A(b)(8)(E), struck
out "ordinary income portion of a" after "subparagraph (B)) on
the".
Subsec. (e)(1)(B). Pub. L. 100-647, Sec. 1011A(b)(10), inserted
at end "For purposes of the preceding sentence, in determining the
amount of tax under section 1(c), section 1(g) shall be applied
without regard to paragraph (2)(B) thereof."
Pub. L. 100-647, Sec. 1018(u)(1), made technical correction to
directory language of Pub. L. 99-514, Sec. 104(b)(5). See 1986
Amendment note below.
Pub. L. 100-647, Sec. 1018(u)(6), related to execution of
amendment by Pub. L. 99-514, Sec. 1122(b)(2)(B), see 1986 Amendment
note below.
Subsec. (e)(3). Pub. L. 100-647, Sec. 1018(u)(7), related to
execution of amendment by Pub. L. 99-514, Sec. 1122(b)(2)(C), see
1986 Amendment note below.
Subsec. (e)(4)(A). Pub. L. 100-647, Sec. 1011A(b)(8)(F), in
concluding provisions, substituted "A" for "Except for purposes of
subsection (a)(2) and section 403(a)(2), a", and struck out
"subsection (a)(2) of this section, and subsection (a)(2) of
section 403," before "the balance to".
Subsec. (e)(4)(B)(i). Pub. L. 100-647, Sec. 1011A(b)(6),
substituted "employee" for "taxpayer".
Subsec. (e)(4)(I). Pub. L. 100-647, Sec. 1011A(c)(9), struck out
"clause (ii) of" after "amounts described in".
Subsec. (e)(4)(J). Pub. L. 100-647, Sec. 1011A(b)(7), amended
last sentence generally. Prior to amendment, last sentence read as
follows: "To the extent provided by the Secretary, a taxpayer may
elect before any distribution not to have this paragraph apply with
respect to such distribution."
Subsec. (e)(4)(L). Pub. L. 100-647, Sec. 1011A(b)(8)(G), struck
out subpar. (L) which related to election to treat pre-1974
participation as post-1973 participation.
Subsec. (e)(4)(M). Pub. L. 100-647, Sec. 1011A(b)(8)(H), struck
out ", subsection (a)(2) of this section, and section 403(a)(2)"
after "of this subsection".
Subsec. (e)(4)(O). Pub. L. 100-647, Sec. 6068(a), added subpar.
(O).
Subsec. (e)(5). Pub. L. 100-647, Sec. 1011A(b)(8)(I), struck out
"and paragraph (2) of subsection (a)" after "of this subsection".
Subsec. (e)(6)(C). Pub. L. 100-647, Sec. 1011A(b)(8)(J), amended
subpar. (C) generally. Prior to amendment, subpar. (C) read as
follows: "For purposes of this paragraph, special lump sum
treatment applies to any distribution if any portion of such
distribution -
"(i) is taxed under this subsection by reason of an election
under paragraph (4)(B), or
"(ii) is treated as long-term capital gain under subsection
(a)(2) of this section or section 403(a)(2)."
Subsec. (f)(1). Pub. L. 100-647, Sec. 1018(t)(8)(C), substituted
"an eligible" for "a eligible".
Subsec. (g). Pub. L. 100-647, Sec. 1011(c)(6)(B), redesignated
subsec. (g), relating to effect of disposition of stock by plan on
net unrealized appreciation, as (j).
Pub. L. 100-647, Sec. 1011(c)(6)(A), redesignated subsec. (g),
relating to treatment of self-employed individuals, as (i).
Subsec. (g)(2). Pub. L. 100-647, Sec. 1011(c)(2), substituted
"Distribution" for "Required distribution" in heading.
Subsec. (g)(2)(C). Pub. L. 100-647, Sec. 1011(c)(1), struck out
"(and no tax shall be imposed under section 72(t))" after "in gross
income", in cl. (i), substituted "such income is distributed" for
"such excess deferral is made" in cl. (ii), and inserted at end "No
tax shall be imposed under section 72(t) on any distribution
described in the preceding sentence."
Subsec. (g)(2)(D). Pub. L. 100-647, Sec. 1011(c)(3), added
subpar. (D).
Subsec. (g)(3). Pub. L. 100-647, Sec. 1011(c)(4), substituted
"this subsection" for "this paragraph".
Pub. L. 100-647, Sec. 1011(c)(11), inserted at end "An employer
contribution shall not be treated as an elective deferral described
in subparagraph (C) if under the salary reduction agreement such
contribution is made pursuant to a one-time irrevocable election
made by the employee at the time of initial eligibility to
participate in the agreement or is made pursuant to a similar
arrangement specified in regulations."
Subsec. (g)(8)(A)(iii). Pub. L. 100-647, Sec. 1011(c)(5)(A),
inserted "(determined in the manner prescribed by the Secretary)"
after "prior taxable years".
Subsec. (g)(8)(D). Pub. L. 100-647, Sec. 1011(c)(5)(B), added
subpar. (D).
Subsec. (i). Pub. L. 100-647, Sec. 1011(c)(6)(A), redesignated
subsec. (g), relating to treatment of self-employed individuals, as
(i).
Subsec. (j). Pub. L. 100-647, Sec. 1011(c)(6)(B), redesignated
subsec. (g), relating to effect of disposition of stock by plan on
net unrealized appreciation, as (j).
1986 - Subsec. (a)(2). Pub. L. 99-514, Sec. 1122(b)(1)(A), struck
out par. (2) relating to capital gains treatment for portion of
lump sum distribution.
Subsec. (a)(5)(D)(i). Pub. L. 99-514, Sec. 1122(e)(1), amended
cl. (i) generally, to read as follows: "Subparagraph (A) shall
apply to a partial distribution only if the employee elects to have
subparagraph (A) apply to such distribution and such distribution
would be a lump sum distribution if subsection (e)(4)(A) were
applied -
"(I) by substituting '50 percent of the balance to the credit
of an employee' for 'the balance to the credit of an employee',
"(II) without regard to clause (ii) thereof, the second
sentence thereof, and subparagraph (B) of subsection (e)(4).
Any distribution described in section 401(a)(28)(B)(ii) shall be
treated as meeting the requirements of this clause." This amendment
was repealed by Pub. L. 100-647, Sec. 1011A(b)(4)(A). See 1988
Amendment note above.
Pub. L. 99-514, Sec. 1852(b)(2), inserted at end "For purposes of
subclause (I), the balance to the credit of the employee shall not
include any accumulated deductible employee contributions (within
the meaning of section 72(o)(5))."
Subsec. (a)(5)(D)(ii). Pub. L. 99-514, Sec. 1852(b)(5),
substituted "a trust or plan described in subclause (III) or (IV)"
for "a plan described in subclause (IV) or (V)".
Subsec. (a)(5)(D)(iii). Pub. L. 99-514, Sec. 1122(b)(2)(A),
struck out "and capital gains treatment" in heading and amended
text generally. Prior to amendment, cl. (iii) read as follows: "If
an election under clause (i) is made with respect to any partial
distribution paid to any employee -
"(I) paragraph (2) of this subsection,
"(II) paragraphs (1) and (3) of subsection (e), and
"(III) paragraph (2) of section 403(a),
shall not apply to any distribution (paid after such partial
distribution) of the balance to the credit of such employee under
the plan under which such partial distribution was made (or under
any other plan which, under subsection (e)(4)(C), would be
aggregated with such plan)."
Subsec. (a)(5)(E)(v). Pub. L. 99-514, Sec. 1852(b)(1),
substituted "of all or any portion of" for "of any portion of".
Subsec. (a)(5)(F). Pub. L. 99-514, Sec. 1121(c)(1), amended
subpar. (F) generally. Prior to amendment, subpar. (F) heading read
"Special rules" and text read as follows:
"(i) Transfer treated as rollover contribution under section 408
"For purposes of this title, a transfer resulting in any portion
of a distribution being excluded from gross income under
subparagraph (A) to an eligible retirement plan described in
subclause (I) or (II) of subparagraph (E)(iv) shall be treated as a
rollover contribution described in section 408(d)(3).
"(ii) 5-percent owners
"An eligible retirement plan described in subclause (III) or (IV)
of subparagraph (E)(iv) shall not be treated as an eligible
retirement plan for the transfer of a distribution if the employee
is a 5-percent owner at the time such distribution is made. For
purposes of the preceding sentence, the term '5-percent owner'
means any individual who is a 5-percent owner (as defined in
section 416(i)(1)(B)) at any time during the 5 plan years preceding
the plan year in which the distribution is made."
Pub. L. 99-514, Sec. 1852(b)(6), in cl. (i) substituted "a
transfer resulting in any portion of a distribution being excluded
from gross income under subparagraph (A)" for "a transfer described
in subparagraph (A)".
Pub. L. 99-514, Sec. 1875(c)(1)(A), amended cl. (ii) generally.
Prior to amendment, cl. (ii), key employees, read as follows: "An
eligible retirement plan described in subclause (III) or (IV) of
subparagraph (E)(iv) shall not be treated as an eligible retirement
plan for the transfer of a distribution if any part of the
distribution is attributable to contributions made on behalf of the
employee while he was a key employee in a top-heavy plan. For
purposes of the preceding sentence, the terms 'key employee' and
'top-heavy plan' have the same respective meanings as when used in
section 416."
Subsec. (a)(5)(G). Pub. L. 99-514, Sec. 1852(a)(5)(A), added
subpar. (G).
Subsec. (a)(6)(D)(v). Pub. L. 99-514, Sec. 1852(b)(7),
substituted "(7)" for "(7)(B)".
Subsec. (a)(6)(F). Pub. L. 99-514, Sec. 1898(c)(7)(A)(i),
substituted "paragraph (5)" for "paragraph (5)(A)".
Subsec. (a)(6)(G). Pub. L. 99-514, Sec. 1898(a)(3), added subpar.
(G) relating to treatment of potential future vesting.
Pub. L. 99-272 added subpar. (G) relating to payments from
certain pension plan termination trusts.
Subsec. (a)(6)(H). Pub. L. 99-514, Sec. 1122(e)(2)(A), added
subpar. (H).
Subsec. (a)(7). Pub. L. 99-514, Sec. 1852(b)(4), inserted ";
except that a trust or plan described in subclause (III) or (IV) of
paragraph (5)(E)(iv) shall not be treated as an eligible retirement
plan with respect to such distribution" after "the spouse were the
employee".
Subsec. (a)(9). Pub. L. 99-514, Sec. 1898(c)(1)(A), substituted
"any alternate payee who is the spouse or former spouse of the
participant shall be treated" for "the alternate payee shall be
treated".
Subsec. (b). Pub. L. 99-514, Sec. 1112(c), designated existing
provisions as par. (1), inserted par. (1) heading, and added par.
(2).
Pub. L. 99-514, Sec. 1852(c)(5), substituted "section 72(e)(5)"
for "section 72(e)(1)".
Subsec. (e)(1)(B). Pub. L. 99-514, Sec. 1122(b)(2)(B), and Pub.
L. 100-647, Sec. 1018(u)(6), redesignated subpar. (C) as (B),
substituted "Amount of tax" for "Initial separate tax" in heading
and "The amount of tax imposed by subparagraph (A)" for "The
initial separate tax", and struck out former subpar. (B) which
related to computation of tax on lump sum distributions.
Pub. L. 99-514, Sec. 104(b)(5), as amended by Pub. L. 100-647,
Sec. 1018(u)(1), struck out "the zero bracket amount applicable to
such individual for the taxable year plus" after "amount equal to".
Pub. L. 99-514, Sec. 1122(a)(2)(A), (B), substituted "5" for "10"
and " 1/5 " for "one-tenth".
Subsec. (e)(1)(C) to (E). Pub. L. 99-514, Sec. 1122(b)(2)(B)(i),
redesignated subpars. (C) to (E) as (B) to (D), respectively.
Subsec. (e)(3). Pub. L. 99-514, Sec. 1122(b)(2)(C), and Pub. L.
100-647, Sec. 1018(u)(7), substituted "total taxable amount" for
"ordinary income portion".
Subsec. (e)(4)(B). Pub. L. 99-514, Sec. 1122(a)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "For purposes of this section and section 403, no amount
which is not an annuity contract may be treated as a lump sum
distribution under subparagraph (A) unless the taxpayer elects for
the taxable year to have all such amounts received during such year
so treated at the time and in the manner provided under regulations
prescribed by the Secretary. Not more than one election may be made
under this subparagraph with respect to any individual after such
individual has attained age 59 1/2 . No election may be made under
this subparagraph by any taxpayer other than an individual, an
estate, or a trust. In the case of a lump sum distribution made
with respect to an employee to two or more trusts, the election
under this subparagraph shall be made by the personal
representative of the employee."
Subsec. (e)(4)(E). Pub. L. 99-514, Sec. 1122(b)(2)(D), struck out
subpar. (E) defining "ordinary income portion" with respect to a
lump sum distribution.
Subsec. (e)(4)(F). Pub. L. 99-514, Sec. 1852(b)(3)(B), struck out
subpar. (F) defining "employee". See subsec. (g) of this section
relating to treatment of self-employed individuals.
Subsec. (e)(4)(H). Pub. L. 99-514, Sec. 1122(b)(2)(E), struck out
"(but not for purposes of subsection (a)(2) or section
403(a)(2)(A))" after "For purposes of this subsection".
Subsec. (e)(4)(J). Pub. L. 99-514, Sec. 1122(g), inserted at end
"To the extent provided by the Secretary, a taxpayer may elect
before any distribution not to have this paragraph apply with
respect to such distribution."
Subsec. (e)(4)(N). Pub. L. 99-514, Sec. 1106(c)(2), added subpar.
(N).
Subsec. (e)(6). Pub. L. 99-514, Sec. 1898(a)(2), added par. (6).
Subsec. (f)(1). Pub. L. 99-514, Sec. 1898(e)(1), substituted
"eligible rollover distribution" for "qualifying rollover
distribution".
Subsec. (f)(2). Pub. L. 99-514, Sec. 1898(e)(2), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "For
purposes of this subsection, the terms 'qualifying rollover
distribution' and 'eligible retirement plan' have the respective
meanings given such terms by subsection (a)(5)(E)."
Subsec. (g). Pub. L. 99-514, Sec. 1854(f)(2), added subsec. (g)
relating to effect of disposition of stock by plan on net
unrealized appreciation.
Pub. L. 99-514, Sec. 1852(b)(3)(A), added subsec. (g) relating to
treatment of self-employed individuals.
Pub. L. 99-514, Sec. 1105(a), added subsec. (g) relating to
limitation on exclusion for elective deferrals.
Subsec. (h). Pub. L. 99-514, Sec. 1108(b), added subsec. (h).
1984 - Subsec. (a)(2). Pub. L. 98-369, Sec. 1001(b)(3),
substituted "6 months" for "1 year".
Subsec. (a)(5)(A)(i). Pub. L. 98-369, Sec. 522(a)(1), substituted
"any portion of the balance to the credit of an employee in a
qualified trust is paid to him" for "the balance to the credit of
an employee in a qualified trust is paid to him in a qualifying
rollover distribution".
Subsec. (a)(5)(B). Pub. L. 98-369, Sec. 522(d)(1)(A), (2),
substituted "qualified total distribution" for "qualifying rollover
distribution", and inserted "In the case of any partial
distribution, the maximum amount transferred to which subparagraph
(A) applies shall not exceed the portion of such distribution which
is includible in gross income (determined without regard to
subparagraph (A))."
Subsec. (a)(5)(D). Pub. L. 98-369, Sec. 522(b), added subpar.
(D). Former subpar. (D) redesignated (E).
Subsec. (a)(5)(D)(iv)(III)-(V). Pub. L. 98-369, Sec. 491(d)(9),
struck out subcl. (III), which included a retirement bond described
in section 409 within term "eligible retirement plan" and
redesignated former subcls. (IV) and (V) and (III) and (IV),
respectively.
Subsec. (a)(5)(E). Pub. L. 98-369, Sec. 522(b), redesignated
subpar. (D) as (E). Former subpar. (E) redesignated (F).
Subsec. (a)(5)(E)(i). Pub. L. 98-369, Sec. 522(d)(1)(B),
substituted "qualified total distribution" for "qualifying rollover
distribution" in heading and text.
Subsec. (a)(5)(E)(ii)(II). Pub. L. 98-369, Sec. 522(d)(3),
substituted "gross income (determined without regard to this
paragraph)" for "gross income".
Subsec. (a)(5)(E)(v). Pub. L. 98-369, Sec. 522(d)(4), substituted
provision dealing with partial distribution for provision dealing
with rollover of partial distributions of deductible employee
contributions permitted.
Subsec. (a)(5)(F). Pub. L. 98-369, Sec. 522(b), redesignated
subpar. (E) as (F).
Subsec. (a)(5)(F)(i). Pub. L. 98-369, Sec. 522(d)(5), substituted
"subparagraph (E)(iv)" for "subparagraph (D)(iv)".
Pub. L. 98-369, Sec. 491(d)(10), substituted "or (II)" for ",
(II), or (III)".
Subsec. (a)(5)(F)(ii). Pub. L. 98-369, Sec. 522(d)(5),
substituted "subparagraph (E)(iv)" for "subparagraph (D)(iv)".
Pub. L. 98-369, Sec. 491(d)(11), substituted "(III) or (IV)" for
"(IV) and (V)".
Pub. L. 98-369, Sec. 713(c)(3), substituted "Key employees" for
"Self-employed individuals and owner-employees" in heading and
"attributable to contributions made on behalf of the employee while
he was a key employee in a top-heavy plan" for "attributable to a
trust forming part of a plan under which the employee was an
employee within the meaning of section 401(c)(1) at the time
contributions were made on his behalf under the plan" in text, and
inserted sentence adopting the meaning of "key employee" and "top-
heavy plan" used in section 416.
Subsec. (a)(6)(A), (B). Pub. L. 98-369, Sec. 522(d)(6),
substituted "paragraph (5)(E)(i)" for "paragraph (5)(D)(i)".
Subsec. (a)(6)(D)(iii), (iv). Pub. L. 98-369, Sec. 522(d)(7),
substituted "employee contributions (or, in the case of a partial
distribution, the amount not includible in gross income)" for
"employee contributions".
Subsec. (a)(6)(E)(i). Pub. L. 98-369, Sec. 522(d)(1)(C), (8),
substituted "qualified total distribution" for "qualifying rollover
distribution", and "paragraph (5)(D) or (5)(E)(i)(II)" for
"paragraph (5)(D)(i)(II)".
Subsec. (a)(6)(F). Pub. L. 98-397, Sec. 204(c)(3), added subpar.
(F).
Subsec. (a)(7). Pub. L. 98-369, Sec. 522(c), substituted
provisions relating to rollover where spouse receives distributions
after death of employee for provisions dealing with rollover where
spouse receives lump-sum distribution at death of employee.
Subsec. (a)(9). Pub. L. 98-397, Sec. 204(c)(1), added par. (9).
Subsec. (e)(4)(L). Pub. L. 98-369, Sec. 1001(b)(3), substituted
"6 months" for "1 year", applicable to property acquired after June
22, 1984, and before Jan. 1, 1988. See Effective Date of 1984
Amendment note below.
Subsec. (e)(4)(M). Pub. L. 98-397, Sec. 204(c)(4), added subpar.
(M).
Subsec. (e)(5). Pub. L. 98-369, Sec. 491(c)(2), added par. (5).
Subsec. (f). Pub. L. 98-397, Sec. 207(a), added subsec. (f).
1983 - Subsec. (a)(5)(D)(v). Pub. L. 97-448, Sec. 103(c)(8)(A),
added cl. (v).
Subsec. (e)(1)(C). Pub. L. 97-448, Sec. 101(b), substituted "the
zero bracket amount applicable to such an individual for the
taxable year" for "$2,300".
Subsec. (e)(4)(A). Pub. L. 97-448, Sec. 103(c)(7), substituted
"this subsection, subsection (a)(2) of this section, and subsection
(a)(2) of section 403" for "this section and section 403" in last
sentence.
Subsec. (e)(4)(J). Pub. L. 97-448, Sec. 103(c)(12)(D), amended
Pub. L. 97-34, Sec. 311(c)(2) [see 1981 Amendment note below], by
substituting "section 72(o)(5)" for "section 77(o)(5)" in last
sentence of subpar. (j).
1981 - Subsec. (a)(1). Pub. L. 97-34, Sec. 311(c)(1), inserted
"(other than deductible employee contributions within the meaning
of section 72(o)(5))".
Pub. L. 97-34, Sec. 314(c)(1), struck out "or made available"
after "distributed" in three places.
Subsec. (a)(5). Pub. L. 97-34, Sec. 311(b)(3)(A), inserted
"(other than accumulated deductible employee contributions within
the meaning of section 72(o)(5))" after "contributions" in subpar.
(B) and added subcl. (III) in subpar. (D).
Subsec. (e)(4). Pub. L. 97-34, Sec. 311(b)(2), (c)(2), added to
subpar. (A) provision that for purposes of sections 402 and 403,
the balance to the credit of the employee does not include the
accumulated deductible employee contributions under the plan
(within the meaning of section 72(o)(5)), and added subpar. (J)
provision making subpar. (J) inapplicable to distributions of
accumulated deductible employee contributions (within the meaning
of section 77(o)(5)). See 1983 Amendment note above.
1980 - Subsec. (a)(6)(D)(iii). Pub. L. 96-222, Sec.
101(a)(14)(E)(i), substituted "may designate" for "many designate".
Subsec. (a)(6)(E). Pub. L. 96-608 added subpar. (E).
Subsec. (a)(7)(A)(i). Pub. L. 96-222, Sec. 101(a)(14)(C),
substituted "qualifying rollover distribution attributable to an
employee is paid to the spouse of the employee after" for "lump-sum
distribution from a qualified trust is paid to the spouse of the
employee on account of".
1978 - Subsec. (a)(5). Pub. L. 95-458, Sec. 4(a), among other
changes, substituted provision permitting tax-free treatment for
any portion of a lump sum distribution from a qualified retirement
plan which is deposited in an individual retirement account or
another qualifying plan for provision which required transfer of
all such property received.
Subsec. (a)(5)(D)(i)(II). Pub. L. 95-600, Sec. 157(h)(1),
substituted "subparagraphs (B) and (H) of subsection (e)(4)" for
"subsection (e)(4)(B)".
Subsec. (a)(6). Pub. L. 95-458, Sec. 4(c), in provision preceding
subpar. (A) struck out "For purposes of paragraph (5)(A)(i)", in
subpar. (A) substituted "For purposes of paragraph (5)(D)(i), a
complete" for "A complete", in subpar. (B) inserted "For purposes
of paragraph (5)(D)(i) - " after "assets. - " in provision
preceding cl. (i), and added subpar. (C).
Subsec. (a)(6)(D). Pub. L. 95-600, Sec. 157(f)(1), added subpar.
(D).
Subsec. (a)(7). Pub. L. 95-600, Sec. 157(g)(1), added par. (7).
Subsec. (a)(8). Pub. L. 95-600, Sec. 135(b), added par. (8).
Subsec. (e)(1)(C). Pub. L. 95-600, Sec. 101(d)(1), substituted
"$2,300" for "$2,200".
1977 - Subsec. (e)(1)(C). Pub. L. 95-30 substituted "amount equal
to $2,200 plus one-tenth of the excess of" for "amount equal to one-
tenth of the excess of" in provisions preceding cl. (i).
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (a)(2). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Secs. 1402(b)(1)(C), 1906(b)(13)(A), provided
that "6 months" would be changed to "9 months" for taxable years
beginning in 1977 and struck out "or his delegate" after
"Secretary".
Subsec. (a)(4). Pub. L. 94-455, Sec. 1901(a)(57)(A), substituted
"basic pay" for "basic salary", "civil service retirement laws" for
"Civil Service Retirement Act (5 U.S.C. 2251)", and "section
8331(3) of title 5, United States Code" for "section 1(d) of such
Act".
Subsec. (a)(5). Pub. L. 94-267, Sec. 1(a)(2), substituted "a
payment" for "the lump-sum distribution".
Subsec. (a)(5)(A). Pub. L. 94-267, Sec. 1(a)(1), restructured
provision by adding cl. (i) and designating existing provision as
cl. (ii).
Subsec. (a)(6). Pub. L. 94-267, Sec. 1(a)(3), added par. (6).
Subsec. (a)(6)(A). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (d). Pub. L. 94-455, Sec. 1901(a)(57)(B), struck out
subsec. (d) which related to certain trust agreements made before
Oct. 21, 1942.
Subsec. (e)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (e)(4)(A). Pub. L. 94-455, Sec. 1901(a)(57)(C)(i),
substituted "Except for purposes of subsection (a)(2) and section
403(a)(2)" for "For purposes of this subparagraph".
Subsec. (e)(4)(B), (J). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (e)(4)(L). Pub. L. 94-455, Sec. 1402(b)(2), substituted
"1 year" for "9 months".
Pub. L. 94-455, Secs. 1402(b)(1)(C), 1512(a), added subsec.
(e)(4)(L) to be applicable to distributions and payments after Dec.
31, 1975, in taxable years beginning after Dec. 31, 1975, and
provided that "6 months" would be changed to "9 months" for taxable
years beginning in 1977.
1974 - Subsec. (a)(2). Pub. L. 93-406, Sec. 2005(b)(1),
substituted provisions covering capital gains treatment of portions
of lump sum distributions determined through the application of a
fraction formula susceptible of producing a phaseout of capital
gains treatment for provisions covering capital gains treatment of
portions of lump sum distributions determined on a fixed formula.
Subsec. (a)(3)(C). Pub. L. 93-406, Sec. 2005(c)(1), struck out
subsec. (a)(3)(C) which defined "total distribution payable".
Subsec. (a)(5). Pub. L. 93-406, Secs. 2002(g)(5), 2005(c)(2),
substituted provisions covering rollover amounts for provisions
covering limitation on capital gains treatment.
Subsec. (e). Pub. L. 93-406, Sec. 2005(a), substituted provisions
covering tax on lump sum distributions for provisions covering plan
termination distributions made after Dec. 31, 1953, and before Jan.
1, 1955.
1969 - Subsec. (a)(5). Pub. L. 91-172, Sec. 515(a)(1), added par.
(5).
Subsec. (b). Pub. L. 91-172, Sec. 321(b)(1), substituted
provision for inclusion of contributions made by an employer to a
nonexempt trust in the "gross income of the employee in accordance
with section 83 (relating to property transferred in connection
with performance of services), except that the value of the
employee's interest in the trust shall be substituted for the fair
market value of the property for purposes of applying such section"
for prior provision for inclusion in the "gross income of an
employee for the taxable year in which the contribution is made to
the trust in the case of an employee whose beneficial interest in
such contribution is nonforfeitable at the time the contribution is
made", and provided that distributions of income of such trust
before the annuity starting date (as defined in section 72(c)(4))
shall be included in the gross income of the employee without
regard to section 72(e)(1) (relating to amount not received as
annuities) and that a beneficiary of any such trust shall not be
considered the owner of any portion of such trust under subpart E
of part I of subch. J (relating to grantors and others treated as
substantial owners).
1964 - Subsec. (a)(1). Pub. L. 88-272, Sec. 232(e)(1), struck out
"except that section 72(e)(3) shall not apply" after "(relating to
annuities)".
Subsec. (a)(3)(B). Pub. L. 88-272, Sec. 221(c)(1), substituted
"subsections (e) and (f) of section 425" for "section 421(d)(2) and
(3)".
Subsecs. (b), (d). Pub. L. 88-272, Sec. 232(e)(2), (3), struck
out "except that section 72(e)(3) shall not apply" after "(relating
to annuities)".
1962 - Subsec. (a)(2). Pub. L. 87-792 inserted sentence providing
that this paragraph shall not apply to distributions paid to any
distributee to the extent such distributions are attributable to
contributions made on behalf of the employee while he was an
employee within the meaning of section 401(c)(1).
1960 - Subsec. (a)(1). Pub. L. 86-437, Sec. 2(a), substituted
"paragraphs (2) and (4)" for "paragraph (2)".
Subsec. (a)(4). Pub. L. 86-437, Sec. 1, added par. (4).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-135, title IV, Sec. 407(c), Dec. 21, 2005, 119 Stat.
2635, provided that: "The amendments made by this section [amending
this section and section 415 of this title] shall take effect as if
included in the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001 [Pub. L. 107-16] to which they relate."
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 611(d)(1)-(3)(A) of Pub. L. 107-16
applicable to years beginning after Dec. 31, 2001, see section
611(i)(1) of Pub. L. 107-16, set out as a note under section 415 of
this title.
Pub. L. 107-16, title VI, Sec. 617(f), June 7, 2001, 115 Stat.
106, provided that: "The amendments made by this section [enacting
section 402A of this title and amending this section and sections
408A, 6047, and 6051 of this title] shall apply to taxable years
beginning after December 31, 2005."
Amendment by section 632(a)(3)(G) of Pub. L. 107-16 applicable to
years beginning after Dec. 31, 2001, see section 632(a)(4) of Pub.
L. 107-16, set out as a note under section 72 of this title.
Pub. L. 107-16, title VI, Sec. 636(b)(2), June 7, 2001, 115 Stat.
117, provided that: "The amendment made by this subsection
[amending this section] shall apply to distributions made after
December 31, 2001."
Pub. L. 107-16, title VI, Sec. 641(f), June 7, 2001, 115 Stat.
121, provided that:
"(1) Effective date. - The amendments made by this section
[amending this section and sections 72, 219, 401, 403, 408, 415,
457, 3401, 3405, and 4973 of this title] shall apply to
distributions after December 31, 2001.
"(2) Reasonable notice. - No penalty shall be imposed on a plan
for the failure to provide the information required by the
amendment made by subsection (c) [amending this section] with
respect to any distribution made before the date that is 90 days
after the date on which the Secretary of the Treasury issues a safe
harbor rollover notice after the date of the enactment of this Act
[June 7, 2001], if the administrator of such plan makes a
reasonable attempt to comply with such requirement.
"(3) Special rule. - Notwithstanding any other provision of law,
subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act
of 1986 [Pub. L. 99-514, set out as a note below] shall not apply
to any distribution from an eligible retirement plan (as defined in
clause (iii) or (iv) of section 402(c)(8)(B) of the Internal
Revenue Code of 1986) on behalf of an individual if there was a
rollover to such plan on behalf of such individual which is
permitted solely by reason of any amendment made by this section."
Amendment by section 643(a) of Pub. L. 107-16 applicable to
distributions made after Dec. 31, 2001, see section 643(d) of Pub.
L. 107-16, set out as a note under section 401 of this title.
Pub. L. 107-16, title VI, Sec. 644(c), June 7, 2001, 115 Stat.
123, provided that: "The amendments made by this section [amending
this section and section 408 of this title] shall apply to
distributions after December 31, 2001."
Amendment by section 657(b) of Pub. L. 107-16 applicable to
distributions made after Mar. 28, 2005, see section 657(d) of Pub.
L. 107-16, set out as a note under section 401 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-206, title VI, Sec. 6005(c)(2)(C), July 22, 1998, 112
Stat. 800, provided that: "The amendments made by this paragraph
[amending this section and section 403 of this title] shall apply
to distributions after December 31, 1998."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1501(c)(1) of Pub. L. 105-34 provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to years beginning after December 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1401(c) of Pub. L. 104-188 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 55, 62, 401, 406, 407, 691, 871, 877, and
4980A of this title] shall apply to taxable years beginning after
December 31, 1999.
"(2) Retention of certain transition rules. - The amendments made
by this section shall not apply to any distribution for which the
taxpayer is eligible to elect the benefits of section 1122(h)(3) or
(5) of the Tax Reform Act of 1986 [Pub. L. 99-514, set out below].
Notwithstanding the preceding sentence, individuals who elect such
benefits after December 31, 1999, shall not be eligible for 5-year
averaging under section 402(d) of the Internal Revenue Code of 1986
(as in effect immediately before such amendments)."
Amendment by section 1421(b)(3)(A), (9)(B) of Pub. L. 104-188
applicable to taxable years beginning after Dec. 31, 1996, see
section 1421(e) of Pub. L. 104-188, set out as a note under section
72 of this title.
Amendment by section 1450(a)(2) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1995, see section 1450(a)(3)
of Pub. L. 104-188, set out in a Modifications of Subsection (b) of
This Section note under section 403 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-465 applicable to years beginning after
Dec. 31, 1994, and, to the extent of providing for the rounding of
indexed amounts, not applicable to any year to the extent the
rounding would require the indexed amount to be reduced below the
amount in effect for years beginning in 1994, see section 732(e) of
Pub. L. 103-465, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Section 521(e) of Pub. L. 102-318 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 55, 62, 72, 219, 401, 403, 406 to 408,
411, 414, 415, 457, 691, 871, 877, 1441, 3121, 3306, 3405, 4973,
4980A, and 7701 of this title] shall apply to distributions after
December 31, 1992.
"(2) Special rule for partial distributions. - For purposes of
section 402(a)(5)(D)(i)(II) of the Internal Revenue Code of 1986
(as in effect before the amendments made by this section), a
distribution before January 1, 1993, which is made before or at the
same time as a series of periodic payments shall not be treated as
one of such series if it is not substantially equal in amount to
other payments in such series."
Amendment by section 522(c)(1) of Pub. L. 102-318 applicable,
except as otherwise provided, to distributions after Dec. 31, 1992,
see section 522(d) of Pub. L. 102-318, set out as a note under
section 401 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7811(i)(13) of Pub. L. 101-239 provided that the
amendment made by that section is effective with respect to taxable
years ending after Dec. 19, 1989 (or, at the election of the
taxpayer, beginning after Dec. 31, 1986).
Amendment by section 7811(g)(2) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, to which such amendment relates, see section 7817 of Pub. L.
101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1011(c)(1)-(6)(B), (11), (h)(4),
1011A(a)(1), (b)(4)(A)-(D), (5)-(8), (10), (c)(9), and
1018(t)(8)(A), (C), (u)(1), (6), (7) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6068(b) of Pub. L. 100-647 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years ending after December 31, 1984."
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 104(b)(5) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Section 1105(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011(c)(8), (9), Nov. 10, 1988, 102 Stat. 3458,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendment made by subsection (a) [amending this section] shall
apply to taxable years beginning after December 31, 1986.
"(2) Deferrals under collective bargaining agreements. - In the
case of a plan maintained pursuant to 1 or more collective
bargaining agreements between employee representatives and 1 or
more employers ratified before March 1, 1986, the amendment made by
subsection (a) shall not apply to contributions made pursuant to
such an agreement for taxable years beginning before the earlier of
-
"(A) the date on which such agreement terminates (determined
without regard to any extension thereof after February 28, 1986),
or
"(B) January 1, 1989.
Such contributions shall be taken into account for purposes of
applying the amendment made by this section to other plans.
"(3) Distributions made before plan amendment. -
"(A) In general. - If a plan amendment is required to allow the
plan to make any distribution described in section
402(g)(2)(A)(ii) of the Internal Revenue Code of 1986, any such
distribution which is made before the close of the 1st plan year
for which such amendment is required to be in effect under
section 1140 [set out as a note under section 401 of this title]
shall be treated as made in accordance with the provisions of
such plan.
"(B) Distributions pursuant to model amendment. -
"(i) Secretary to prescribe amendment. - The Secretary of the
Treasury or his delegate shall prescribe an amendment which
allows a plan to make any distribution described in section
402(g)(2)(A)(ii) of such Code.
"(ii) Adoption by plan. - If a plan adopts the amendment
prescribed under clause (i) and makes a distribution in
accordance with such amendment, such distribution shall be
treated as made in accordance with the provisions of the plan.
"(4) Special rule for taxable years of partnerships which include
january 1, 1987. - In the case of the taxable year of any
partnership which begins before January 1, 1987, and ends after
January 1, 1987, elective deferrals (within the meaning of section
402(g)(3) of the Internal Revenue Code of 1986) made on behalf of a
partner for such taxable year shall, for purposes of section
402(g)(3) of such Code, be treated as having been made ratably
during such taxable year.
"(5) Cash or deferred arrangements. - The amendments made by this
section [amending this section and section 6051 of this title]
shall not apply to employer contributions made during 1987 and
attributable to services performed during 1986 under a qualified
cash or deferred arrangement (as defined in section 401(k) of the
Internal Revenue Code of 1986) if, under the terms of such
arrangement as in effect on August 16, 1986 -
"(A) the employee makes an election with respect to such
contribution before January 1, 1987, and
"(B) the employer identifies the amount of such contribution
before January 1, 1987.
"(6) Reporting requirements. - The amendments made by subsection
(b) [amending section 6051 of this title] shall apply to calendar
years beginning after December 31, 1986."
Amendment by section 1106(c)(2) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1986, see section 1106(i) of Pub. L.
99-514, set out as a note under section 415 of this title.
Amendment by section 1108(b) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1986, see section 1108(h) of Pub. L.
99-514, set out as a note under section 219 of this title.
Amendment by section 1112(c) of Pub. L. 99-514 applicable to plan
years beginning after Dec. 31, 1988, with special rule regarding
collective bargaining agreements ratified before Mar. 1, 1986, and
with provision for waiver of excise tax on reversions, see section
1112(e) of Pub. L. 99-514, set out as a note under section 401 of
this title.
Amendment by section 1121(c)(1) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1986, with special provisions for
plans maintained pursuant to collective bargaining agreements
ratified before Mar. 1, 1986, and transition rules, see section
1121(d) of Pub. L. 99-514, set out as a note under section 401 of
this title.
Section 1122(h) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011A(b)(11)-(15), Nov. 10, 1988, 102 Stat. 3474,
3475, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 72, 403, and 408 of this title] shall apply to
amounts distributed after December 31, 1986, in taxable years
ending after such date.
"(2) Subsection (c). -
"(A) Subsection (c)(1). - The amendment made by subsection
(c)(1) [amending section 72 of this title] shall apply to
individuals whose annuity starting date is after July 1, 1986.
"(B) Subsection (c)(2). - The amendment made by subsection
(c)(2) [amending section 72 of this title] shall apply to
individuals whose annuity starting date is after December 31,
1986, except that section 72(b)(3) of the Internal Revenue Code
of 1986 (as added by such subsection) shall apply to individuals
whose annuity starting date is after July 1, 1986.
"(C) Special rule for amounts not received as annuities. - In
the case of any plan not described in section 72(e)(8)(D) of the
Internal Revenue Code of 1986 (as added by subsection (c)(3)),
the amendments made by subsection (c)(3) [amending section 72 of
this title] shall apply to amounts received after July 1, 1986.
"(3) Special rule for individuals who attained age 50 before
january 1, 1986. -
"(A) In general. - In the case of a lump sum distribution to
which this paragraph applies -
"(i) the existing capital gains provisions shall continue to
apply, and
"(ii) the requirement of subparagraph (B) of section
402(e)(4) of the Internal Revenue Code of 1986 (as amended by
subsection (a)) that the distribution be received after
attaining age 59 1/2 shall not apply.
"(B) Computation of tax. - If subparagraph (A) applies to any
lump sum distribution of any taxpayer for any taxable year, the
tax imposed by section 1 of the Internal Revenue Code of 1986 on
such taxpayer for such taxable year shall be equal to the sum of -
"(i) the tax imposed by such section 1 on the taxable income
of the taxpayer (reduced by the portion of such lump sum
distribution to which clause (ii) applies), plus
"(ii) 20 percent of the portion of such lump sum distribution
to which the existing capital gains provisions continue to
apply by reason of this paragraph.
"(C) Lump sum distributions to which paragraph applies. - This
paragraph shall apply to any lump sum distribution if -
"(i) such lump sum distribution is received by an employee
who has attained age 50 before January 1, 1986 or by an
individual, estate, or trust with respect to such an employee,
and
"(ii) the taxpayer makes an election under this paragraph.
Not more than 1 election may be made under this paragraph with
respect to an employee. An election under this subparagraph shall
be treated as an election under section 402(e)(4)(B) of such Code
for purposes of such Code.
"(4) 5-year phase-out of capital gains treatment. -
"(A) Notwithstanding the amendment made by subsection (b)
[amending this section and section 403 of this title], if the
taxpayer elects the application of this paragraph with respect to
any distribution after December 31, 1986, and before January 1,
1992, the phase-out percentage of the amount which would have
been treated, without regard to this subparagraph, as long-term
capital gain under the existing capital gains provisions shall be
treated as long-term capital gain.
"(B) For purposes of this paragraph -
"In the case of distributions 2The phase-out
during calendar year: percentage is:
--------------------------------------------------------------------
1987 100
1988 95
1989 75
1990 50
1991 25.
--------------------------------------------------------------------
"(C) No more than 1 election may be made under this paragraph
with respect to an employee. An election under this paragraph
shall be treated as an election under section 402(e)(4)(B) of the
Internal Revenue Code of 1986 for purposes of such Code.
"(5) Election of 10-year averaging. - An employee who has
attained age 50 before January 1, 1986, and elects the application
of paragraph (3) or section 402(e)(1) of the Internal Revenue Code
of 1986 (as amended by this Act) may elect to have such section
applied by substituting '10 times' for '5 times' and ' 1/10 ' for '
1/5 ' in subparagraph (B) thereof. For purposes of the preceding
sentence, section 402(e)(1) of such Code shall be applied by using
the rate of tax in effect under section 1 of the Internal Revenue
Code of 1954 for taxable years beginning during 1986 and by
including in gross income the zero bracket amount in effect under
section 63(d) of such Code for such years. This paragraph shall
also apply to an individual, estate, or trust which receives a
distribution with respect to an employee described in this
paragraph.
"(6) Existing capital gain provisions. - For purposes of
paragraphs (3) and (4), the term 'existing capital gains
provisions' means the provisions of paragraph (2) of section 402(a)
of the Internal Revenue Code of 1954 (as in effect on the day
before the date of the enactment of this Act [Oct. 22, 1986]) and
paragraph (2) of section 403(a) of such Code (as so in effect).
"(7) Subsection (d). - The amendments made by subsection (d)
[amending section 403 of this title] shall apply to taxable years
beginning after December 31, 1985.
"(8) Frozen deposits. - The amendments made by subsection (e)(2)
[amending this section and section 408 of this title] shall apply
to amounts transferred to an employee before, on, or after the date
of the enactment of this Act [Oct. 22, 1986], except that in the
case of an amount transferred on or before such date, the 60-day
period referred to in section 402(a)(5)(C) of the Internal Revenue
Code of 1986 shall not expire before the 60th day after the date of
the enactment of this Act.
"(9) Special rule for state plans. - In the case of a plan
maintained by a State which on May 5, 1986, permitted withdrawal by
the employee of employee contributions (other than as an annuity),
section 72(e) of the Internal Revenue Code of 1986 shall be applied
-
"(A) without regard to the phrase 'before separation from
service' in paragraph (8)(D), and
"(B) by treating any amount received (other than as an annuity)
before or with the 1st annuity payment as having been received
before the annuity starting date."
Amendment by section 1852(a)(5)(A), (b)(1)-(7), (c)(5) of Pub. L.
99-514 effective, except as otherwise provided, as if included in
the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div.
A, to which such amendment relates, see section 1881 of Pub. L. 99-
514, set out as a note under section 48 of this title.
Section 1854(f)(4)(C) of Pub. L. 99-514, as amended by Pub. L.
100-647, title I, Sec. 1011(c)(6)(C), Nov. 10, 1988, 102 Stat.
3458, provided that: "The amendments made by paragraph (2)
[amending this section] shall apply to any transaction occurring
after December 31, 1984, except that in the case of any transaction
occurring before the date of the enactment of this Act [Oct. 22,
1986], the period under which proceeds are required to be invested
under section 402(j) of the Internal Revenue Code of 1954 [now
1986] (as added by paragraph (2)) shall not end before the earlier
of 1 year after the date of such transaction or 180 days after the
date of the enactment of this Act."
Section 1875(c)(1)(B) of Pub. L. 99-514 provided that: "The
amendments made by subparagraph (A) [amending this section] shall
apply to distributions after the date of the enactment of this Act
[Oct. 22, 1986]. Such amendments shall apply also to distributions
after 1983 and on or before the date of the enactment of this Act
to individuals who are not 5-percent owners (as defined in section
402(a)(5)(F)(ii) of the Internal Revenue Code of 1954 [now 1986]
(as amended by this paragraph))."
Amendment by section 1898(a)(2), (3), (c)(7)(A)(i), (e) of Pub.
L. 99-514 effective as if included in the provision of the
Retirement Equity Act of 1984, Pub. L. 98-397, to which such
amendment relates, except as otherwise provided, see section
1898(j) of Pub. L. 99-514, set out as a note under section 401 of
this title.
Amendment by section 1898(c)(1)(A) of Pub. L. 99-514 applicable
to payments made after Oct. 22, 1986, see section 1898(c)(1)(C) of
Pub. L. 99-514, set out as a note under section 72 of this title.
Amendment by Pub. L. 99-272 effective Jan. 1, 1986, with certain
exceptions, see section 11019 of Pub. L. 99-272, set out as a note
under section 1341 of Title 29, Labor.
EFFECTIVE DATE OF 1984 AMENDMENTS
Amendment by section 204 of Pub. L. 98-397 effective Jan. 1,
1985, and amendment by section 207 of Pub. L. 98-397 applicable to
plan years beginning after Dec. 31, 1984, except as otherwise
provided, see sections 302 and 303 of Pub. L. 98-397, set out as a
note under section 1001 of Title 29, Labor.
Amendment by section 491(d)(9)-(11) of Pub. L. 98-369 applicable
to obligations issued after Dec. 31, 1983, see section 491(f)(1) of
Pub. L. 98-369, set out as a note under section 62 of this title.
Section 491(f)(2) of Pub. L. 98-369 provided that: "The amendment
made by subsection (c) [amending this section and section 405 of
this title] shall apply to redemptions after the date of the
enactment of this Act [July 18, 1984] in taxable years ending after
such date."
Section 522(e) of Pub. L. 98-369, as amended by Pub. L. 99-514,
title XVIII, Sec. 1852(b)(9), Oct. 22, 1986, 100 Stat. 2867,
provided that: "The amendments made by this section [amending this
section and sections 403, 408, and 409 of this title] shall apply
to distributions made after the date of the enactment of this Act
[July 18, 1984], in taxable years ending after such date.
Section 713(c)(4) of Pub. L. 98-369, as added by Pub. L. 99-514,
title XVIII, Sec. 1875(c)(2), Oct. 22, 1986, 100 Stat. 2894,
provided that: "The amendment made by paragraph (3) [amending this
section] shall apply to distributions after July 18, 1984."
Amendment by section 1001(b)(3) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 311(b)(2), (3)(A), (c) of Pub. L. 97-34,
applicable to taxable years beginning after Dec. 31, 1981, see
section 311(i)(1) of Pub. L. 97-34, set out as a note under section
219 of this title.
Section 314(c)(2) of Pub. L. 97-34 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply to
taxable years beginning after December 31, 1981."
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 2(b) of Pub. L. 96-608, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to payments made in taxable years
beginning after December 31, 1978.
"(2) Transitional rule. - In the case of any payment made before
January 1, 1982, in a taxable year beginning after December 31,
1978, which is treated as a qualifying rollover distribution (as
defined in section 402(a)(5)(D)(i) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954]) by reason of the amendment made by
subsection (a), the applicable period specified in section
402(a)(5)(C) of such Code shall not expire before the close of
December 31, 1981."
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 101(d) of Pub. L. 95-600 effective with
respect to taxable years beginning after Dec. 31, 1978, see section
101(f)(1) of Pub. L. 95-600, set out as a note under section 1 of
this title.
Amendment by section 135(b) of Pub. L. 95-600 applicable to plan
years beginning after December 31, 1979, see section 135(c)(1) of
Pub. L. 95-600, set out as a note under section 401 of this title.
Section 157(h)(3)(A) of Pub. L. 95-600, as amended by Pub. L. 96-
222, title I, Sec. 101(a)(14)(A), Apr. 1, 1980, 94 Stat. 204,
provided that: "The amendments made by this subsection [amending
this section and section 408 of this title] shall apply to payments
made in taxable years beginning after December 31, 1977."
Section 157(f)(2) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to qualifying rollover distributions (as defined in section
402(a)(5)(D)(i) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]) completed after December 31, 1978, in taxable years
ending after such date."
Section 157(g)(4) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section and
sections 403 and 408 of this title] shall apply to lump-sum
distributions completed after December 31, 1978, in taxable years
ending after such date."
EFFECTIVE DATE OF 1978 AMENDMENT; CERTAIN ROLLOVERS VALIDATED
Section 4(d) of Pub. L. 95-458, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by subsections (a), (b),
and (c) [amending this section and section 403 of this title] shall
apply with respect to taxable years beginning after December 31,
1974.
"(2) Validation of certain attempted rollovers. - If the taxpayer
-
"(A) attempted to comply with the requirements of section
402(a)(5) or 403(a)(4) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] for a taxable year beginning before the
date of the enactment of this Act, [Oct. 14, 1978], and
"(B) failed to meet the requirements of such section that all
property received in the distribution be transferred,
such section (as amended by this section) shall be applied by
treating any transfer of property made on or before December 31,
1978, as if it were made on or before the 60th day after the day on
which the taxpayer received such property. For purposes of the
preceding sentence, a transfer of money shall be treated as a
transfer of property received in a distribution to the extent that
the amount of the money transferred does not exceed the highest
fair market value of the property distributed during the 60-day
period beginning on the date on which the taxpayer received such
property."
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Section 1512(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] shall apply to
distributions and payments made after December 31, 1975, in taxable
years beginning after such date."
Section 1901(a)(57)(C)(ii) of Pub. L. 94-455 provided that: "The
amendment made by clause (i) [amending this section] shall apply
with respect to distributions or payments made after December 31,
1973, in taxable years beginning after such date."
Amendment by Pub. L. 94-267 applicable with respect to payments
made to an employee on or after July 4, 1974, see section 1(e) of
Pub. L. 94-267, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Section 2002(i)(3) of Pub. L. 93-406, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by subsection (g)(5) and (6) [amending this section
and section 403 of this title] shall apply on and after the date of
enactment of this Act [Sept. 2, 1974] with respect to contributions
to an employees' trust described in section 401(a) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] which is exempt from
tax under section 501(a) of such Code or an annuity plan described
in section 403(a) of such Code."
Section 2005(d) of Pub. L. 93-406 provided that: "The amendments
made by this section [amending this section and sections 46, 50A,
56, 62, 72, 101, 122, 403, 405, 406, 407, 871, 877, 901, 1304, and
1348 of this title] shall apply only with respect to distributions
or payments made after December 31, 1973, in taxable years
beginning after such date."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 321(b)(1) of Pub. L. 91-172 applicable with
respect to contributions made and premiums paid after Aug. 1, 1969,
see section 321(d) of Pub. L. 91-172, set out as an Effective Date
note under section 83 of this title.
Section 515(d) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and sections 72, 403,
405, 406, 407 and 1304 of this title] shall apply to taxable years
ending after December 31, 1969."
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 221(c)(1) of Pub. L. 88-272 applicable to
taxable years ending after Dec. 31, 1963, see section 221(e) of
Pub. L. 88-272, set out as a note under section 421 of this title.
Amendment by section 232(e)(1)-(3) of Pub. L. 88-272 applicable
to taxable years beginning after Dec. 31, 1963, see section 232(g)
of Pub. L. 88-272, set out as a note under section 5 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a
note under section 22 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Section 3 of Pub. L. 86-437 provided that: "The amendments made
by this Act [amending this section and section 871 of this title]
shall apply only with respect to taxable years beginning after
December 31, 1959."
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1112 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
CLARIFICATION OF DISQUALIFICATION RULES RELATING TO ACCEPTANCE OF
ROLLOVER CONTRIBUTIONS
Section 1509 of Pub. L. 105-34 provided that: "The Secretary of
the Treasury or his delegate shall clarify that, under the Internal
Revenue Service regulations protecting pension plans from
disqualification by reason of the receipt of invalid rollover
contributions under section 402(c) of the Internal Revenue Code of
1986, in order for the administrator of the plan receiving any such
contribution to reasonably conclude that the contribution is a
valid rollover contribution it is not necessary for the
distributing plan to have a determination letter with respect to
its status as a qualified plan under section 401 of such Code."
MODEL EXPLANATION
Section 521(d) of Pub. L. 102-318 provided that: "The Secretary
of the Treasury or his delegate shall develop a model explanation
which a plan administrator may provide to a recipient in order to
meet the requirements of section 402(f) of the Internal Revenue
Code of 1986."
INCORPORATION BY REFERENCE OF SUBSECTION (G) LIMITATIONS
Section 1011(c)(10) of Pub. L. 100-647 provided that:
"Notwithstanding any other provision of law, a plan may incorporate
by reference the dollar limitations under section 402(g) of the
Internal Revenue Code of 1986."
APPLICABILITY OF SUBSECTION (A)(5)(F)(II)
Section 1011A(a)(5) of Pub. L. 100-647 provided that: "Section
402(a)(5)(F)(ii) of the Internal Revenue Code of 1954 shall not
apply to distributions after October 22, 1986, and before the 1st
taxable year beginning after 1986 which are attributable to
benefits which accrued before January 1, 1985."
APPLICABILITY OF SUBSECTION (A)(5)(D)(I)(II)
Section 1011A(b)(4)(E) of Pub. L. 100-647 provided that: "Section
402(a)(5)(D)(i)(II) of the 1986 Code (as in effect after the
amendment made by subparagraph (A)) shall not apply to
distributions after December 31, 1986, and before March 31, 1988."
ELECTION TO TREAT CERTAIN LUMP SUM DISTRIBUTIONS RECEIVED DURING
1987 AS RECEIVED DURING 1986
Section 1124 of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011A(d), Nov. 10, 1988, 102 Stat. 3476, provided
that:
"(a) In General. - If an employee dies, separates from service,
or becomes disabled before 1987 and an individual, trust, or estate
receives a lump-sum distribution with respect to such employee
after December 31, 1986, and before March 16, 1987, on account of
such death, separation from service, or disability, then, for
purposes of the Internal Revenue Code of 1986, such individual,
estate, or trust may treat such distribution as if it were received
in 1986.
"(b) Special Rule for Terminated Plan. - In the case of an
individual, estate, or trust who receives with respect to an
employee a distribution from a terminated plan which was maintained
by a corporation organized under the laws of the State of Nevada,
the principal place of business of which is Denver, Colorado, and
which filed for relief from creditors under the United States
Bankruptcy Code on August 28, 1986, the individual, estate, or
trust may treat a lump sum distribution received from such plan
before June 30, 1987, as if it were received in 1986.
"(c) Lump Sum Distribution. - For purposes of this section, the
term 'lump sum distribution' has the meaning given such term by
section 402(e)(4)(A) of the Internal Revenue Code of 1986, without
regard to subparagraph (B) or (H) of section 402(e)(4) of such
Code."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TREATMENT OF CERTAIN DISTRIBUTIONS FROM QUALIFIED TERMINATED PLAN
Section 551 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) In General. - For purposes of the Internal Revenue Code [of]
1986 [formerly I.R.C. 1954], if -
"(1) a distribution was made from a qualified terminated plan
to an employee on December 16, 1976, and on January 6, 1977, such
employee transferred all of the property received in such
distribution to an individual retirement account (within the
meaning of section 408(a) of such Code) established for the
benefit of such employee, and
"(2) the remaining balance to the credit of such employee in
such qualified terminated plan was distributed to such employee
on January 21, 1977, and all the property received by such
employee in such distribution was transferred by such employee to
such individual retirement account on January 21, 1977,
then such distributions shall be treated as qualifying rollover
distributions (within the meaning of section 402(a)(5) of such
Code) and shall not be includible in the gross income of such
employee for the taxable year in which paid.
"(b) Qualified Terminated Plan. - For purposes of this section,
the term 'qualified terminated plan' means a pension plan -
"(1) with respect to which a notice of sufficiency was issued
by the Pension Benefit Guaranty Corporation on December 2, 1976,
and
"(2) which was terminated by corporate action on February 20,
1976.
"(c) Refund or Credit of Overpayment Barred by Statute of
Limitations. - Notwithstanding section 6511(a) of the Internal
Revenue Code of 1986 or any other period of limitation or lapse of
time, a claim for credit or refund of overpayment of the tax
imposed by such Code which arises by reason of this section may be
filed by any person at any time within the 1-year period beginning
on the date of enactment of this Act [July 18, 1984]. Sections
6511(b) and 6514 of such Code shall not apply to any claim for
credit or refund filed under this subsection within such 1-year
period."
TRANSITIONAL RULE IN CASE OF ROLLOVER CONTRIBUTIONS TO EMPLOYEE
TRUSTS OR ANNUITIES
Section 157(h)(3)(B) of Pub. L. 95-600, as amended by Pub. L. 96-
222, title I, Sec. 101(a)(14)(A), (D), Apr. 1, 1980, 94 Stat. 204,
205; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that: "In the case of any payment made during 1978 which
is described in section 402(a)(5)(A) or 403(a)(4)(A) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] by reason of
the amendments made by this subsection [amending sections 402 and
408 of this title], the applicable period specified in section
402(a)(5)(C) of such Code (or in the case of an individual
retirement annuity, such section as made applicable by section
403(a)(4)(B) of such code) shall not expire before the close of
December 31, 1980."
TRANSITIONAL RULES RELATING TO PERIOD FOR ROLLOVER CONTRIBUTION
Section 1(d) of Pub. L. 94-267, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. -
"(A) Period for rollover contribution. - In the case of a
payment described in section 402(a)(5)(A) (other than a payment
described in section 402(a)(5)(A) as in effect on the day
before the date of the enactment of this Act) [Apr. 15, 1976]
or section 403(a)(4)(A) (other than a payment described in
section 403(a)(4)(A) as in effect on the day before the date of
the enactment of this Act [Apr. 15, 1976] of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (relating to
distributions of the balance to the credit of the employee)
which is contributed by an employee after the date of the
enactment of this Act [Apr. 15, 1976] to a trust, plan,
account, annuity, or bond described in section 402(a)(5)(B) or
403(a)(4)(B) of such Code, the applicable period specified in
section 402(a)(5)(B) or 403(a)(4)(B) of such Code (relating to
rollover distributions to another plan or retirement account)
shall not expire before December 31, 1976.
"(B) Time of contribution. -
(i) General rule. - If the initial portion of a payment the
applicable period for which is determined under subparagraph
(A) is contributed before December 31, 1976, by an individual
to a trust, plan, account, annuity, or bond described in
subparagraph (A) and the remaining portion of such payment is
contributed by such individual to such a trust, plan,
account, annuity, or bond not later than 30 days after the
date a credit or refund is allowed by the Secretary of the
Treasury or his delegate under section 6402 of the Internal
Revenue Code of 1986 with respect to the contribution, then,
for purposes of subparagraph (A) and sections 402(a)(5) and
403(a)(4) of such Code, at the election of the individual
(made in accordance with regulations prescribed by the
Secretary or his delegate), such remaining portion shall be
considered to have been contributed on the date the initial
portion of the payment was contributed. For purposes of this
subparagraph, the initial portion of a payment is the amount
by which such payment exceeds the amount of the tax imposed
on such payment by chapter 1 of such Code (determined without
regard to this subparagraph). [chapter 1 of this title]
"(ii) Regulations. - For purposes of this subparagraph, the
tax imposed on a payment by chapter 1 of the Internal Revenue
Code of 1986, and the date a credit or refund is allowed by
the Secretary of the Treasury or his delegate under section
6402 with respect to a contribution, shall be determined
under regulations prescribed by the Secretary of the Treasury
or his delegate.
"(C) Period of limitations. - If an individual has made the
election provided by subparagraph (B), then -
"(i) the period provided by the Internal Revenue Code of
1986 for the assessment of any deficiency for the taxable
year in which the payment described in subparagraph (A) was
made and each subsequent taxable year for which tax is
determined by reference to the treatment of such payment
under such Code or the status under such Code of any trust,
plan, account, annuity, or bond described in subparagraph (A)
shall, to the extent attributable to such treatment, not
expire before the expiration of 3 years from the date the
Secretary of the Treasury or his delegate is notified by the
individual (in such manner as the Secretary of the Treasury
or his delegate may prescribe) that such individual has made
(or failed to make) the contribution of the remaining portion
of the payment within the period specified in subparagraph
(B)(i), and
"(ii) such deficiency may be assessed before the expiration
of such 3-year period notwithstanding the provisions of
section 6212(c) of such Code or the provisions of any other
law or rule of law which would otherwise prevent such
assessment.
"(2) Rollover contribution for certain property sold. -
Sections 402(a)(5)(C) and 403(a)(4)(C) of the Internal Revenue
Code of 1986 (relating to the requirement that rollover amount
must consist of property received in a distribution) shall not
apply with respect to that portion of the property received in a
payment described in section 402(a)(5)(A) (other than a payment
described in section 402(a)(5)(A) as in effect on the day before
the date of the enactment of this Act [Apr. 15, 1976] or
403(a)(4)(A) (other than a payment described in section
403(a)(4)(A) as in effect on the day before the date of the
enactment of this Act) [Apr. 15, 1976] of such Code which is sold
or exchanged by the employee on or before the date of the
enactment of this Act, [Apr. 15, 1976], if the employee transfers
an amount of cash equal to the proceeds received from the sale or
exchange of such property in excess of the amount considered
contributed by the employee (within the meaning of section
402(a)(4)(D)(i) of such Code).
"(3) Nonrecognition of gain or loss. - For purposes of the
Internal Revenue Code of 1986 [this title] no gain or loss shall
be recognized with respect to the sale or exchange of property
described in paragraph (2) if the proceeds of such sale or
exchange are transferred by an employee in accordance with this
subsection and the applicable provisions of section 402(a)(5) or
403(a)(4) of such Code."
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 402A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 402A. Optional treatment of elective deferrals as Roth
contributions
-STATUTE-
(a) General rule
If an applicable retirement plan includes a qualified Roth
contribution program -
(1) any designated Roth contribution made by an employee
pursuant to the program shall be treated as an elective deferral
for purposes of this chapter, except that such contribution shall
not be excludable from gross income, and
(2) such plan (and any arrangement which is part of such plan)
shall not be treated as failing to meet any requirement of this
chapter solely by reason of including such program.
(b) Qualified Roth contribution program
For purposes of this section -
(1) In general
The term "qualified Roth contribution program" means a program
under which an employee may elect to make designated Roth
contributions in lieu of all or a portion of elective deferrals
the employee is otherwise eligible to make under the applicable
retirement plan.
(2) Separate accounting required
A program shall not be treated as a qualified Roth contribution
program unless the applicable retirement plan -
(A) establishes separate accounts ("designated Roth
accounts") for the designated Roth contributions of each
employee and any earnings properly allocable to the
contributions, and
(B) maintains separate recordkeeping with respect to each
account.
(c) Definitions and rules relating to designated Roth contributions
For purposes of this section -
(1) Designated Roth contribution
The term "designated Roth contribution" means any elective
deferral which -
(A) is excludable from gross income of an employee without
regard to this section, and
(B) the employee designates (at such time and in such manner
as the Secretary may prescribe) as not being so excludable.
(2) Designation limits
The amount of elective deferrals which an employee may
designate under paragraph (1) shall not exceed the excess (if
any) of -
(A) the maximum amount of elective deferrals excludable from
gross income of the employee for the taxable year (without
regard to this section), over
(B) the aggregate amount of elective deferrals of the
employee for the taxable year which the employee does not
designate under paragraph (1).
(3) Rollover contributions
(A) In general
A rollover contribution of any payment or distribution from a
designated Roth account which is otherwise allowable under this
chapter may be made only if the contribution is to -
(i) another designated Roth account of the individual from
whose account the payment or distribution was made, or
(ii) a Roth IRA of such individual.
(B) Coordination with limit
Any rollover contribution to a designated Roth account under
subparagraph (A) shall not be taken into account for purposes
of paragraph (1).
(d) Distribution rules
For purposes of this title -
(1) Exclusion
Any qualified distribution from a designated Roth account shall
not be includible in gross income.
(2) Qualified distribution
For purposes of this subsection -
(A) In general
The term "qualified distribution" has the meaning given such
term by section 408A(d)(2)(A) (without regard to clause (iv)
thereof).
(B) Distributions within nonexclusion period
A payment or distribution from a designated Roth account
shall not be treated as a qualified distribution if such
payment or distribution is made within the 5-taxable-year
period beginning with the earlier of -
(i) the first taxable year for which the individual made a
designated Roth contribution to any designated Roth account
established for such individual under the same applicable
retirement plan, or
(ii) if a rollover contribution was made to such designated
Roth account from a designated Roth account previously
established for such individual under another applicable
retirement plan, the first taxable year for which the
individual made a designated Roth contribution to such
previously established account.
(C) Distributions of excess deferrals and contributions and
earnings thereon
The term "qualified distribution" shall not include any
distribution of any excess deferral under section 402(g)(2) or
any excess contribution under section 401(k)(8), and any income
on the excess deferral or contribution.
(3) Treatment of distributions of certain excess deferrals
Notwithstanding section 72, if any excess deferral under
section 402(g)(2) attributable to a designated Roth contribution
is not distributed on or before the 1st April 15 following the
close of the taxable year in which such excess deferral is made,
the amount of such excess deferral shall -
(A) not be treated as investment in the contract, and
(B) be included in gross income for the taxable year in which
such excess is distributed.
(4) Aggregation rules
Section 72 shall be applied separately with respect to
distributions and payments from a designated Roth account and
other distributions and payments from the plan.
(e) Other definitions
For purposes of this section -
(1) Applicable retirement plan
The term "applicable retirement plan" means -
(A) an employees' trust described in section 401(a) which is
exempt from tax under section 501(a), and
(B) a plan under which amounts are contributed by an
individual's employer for an annuity contract described in
section 403(b).
(2) Elective deferral
The term "elective deferral" means any elective deferral
described in subparagraph (A) or (C) of section 402(g)(3).
-SOURCE-
(Added Pub. L. 107-16, title VI, Sec. 617(a), June 7, 2001, 115
Stat. 103.)
-STATAMEND-
TERMINATION OF SECTION
For termination of section by section 901 of Pub. L. 107-16, see
Effective and Termination Dates note below.
-MISC1-
EFFECTIVE AND TERMINATION DATES
Section applicable to taxable years beginning after Dec. 31,
2005, see section 617(f) of Pub. L. 107-16, set out as an Effective
and Termination Dates of 2001 Amendment note under section 402 of
this title.
Section inapplicable to taxable, plan, or limitation years
beginning after Dec. 31, 2010, and the Internal Revenue Code of
1986 to be applied and administered to such years as if it had
never been enacted, see section 901 of Pub. L. 107-16, set out as
an Effective and Termination Dates of 2001 Amendment note under
section 1 of this title.
-End-
-CITE-
26 USC Sec. 403 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 403. Taxation of employee annuities
-STATUTE-
(a) Taxability of beneficiary under a qualified annuity plan
(1) Distributee taxable under section 72
If an annuity contract is purchased by an employer for an
employee under a plan which meets the requirements of section
404(a)(2) (whether or not the employer deducts the amounts paid
for the contract under such section), the amount actually
distributed to any distributee under the contract shall be
taxable to the distributee (in the year in which so distributed)
under section 72 (relating to annuities).
[(2) Repealed. Pub. L. 99-514, title XI, Sec. 1122(b)(1)(B), Oct.
22, 1986, 100 Stat. 2466]
(3) Self-employed individuals
For purposes of this subsection, the term "employee" includes
an individual who is an employee within the meaning of section
401(c)(1), and the employer of such individual is the person
treated as his employer under section 401(c)(4).
(4) Rollover amounts
(A) General rule
If -
(i) any portion of the balance to the credit of an employee
in an employee annuity described in paragraph (1) is paid to
him in an eligible rollover distribution (within the meaning
of section 402(c)(4)),
(ii) the employee transfers any portion of the property he
receives in such distribution to an eligible retirement plan,
and
(iii) in the case of a distribution of property other than
money, the amount so transferred consists of the property
distributed,
then such distribution (to the extent so transferred) shall not
be includible in gross income for the taxable year in which
paid.
(B) Certain rules made applicable
The rules of paragraphs (2) through (7) and (9) of section
402(c) and section 402(f) shall apply for purposes of
subparagraph (A).
(5) Direct trustee-to-trustee transfer
Any amount transferred in a direct trustee-to-trustee transfer
in accordance with section 401(a)(31) shall not be includible in
gross income for the taxable year of such transfer.
(b) Taxability of beneficiary under annuity purchased by section
501(c)(3) organization or public school
(1) General rule
If -
(A) an annuity contract is purchased -
(i) for an employee by an employer described in section
501(c)(3) which is exempt from tax under section 501(a),
(ii) for an employee (other than an employee described in
clause (i)), who performs services for an educational
organization described in section 170(b)(1) (A)(ii), by an
employer which is a State, a political subdivision of a
State, or an agency or instrumentality of any one or more of
the foregoing, or
(iii) for the minister described in section 414(e)(5)(A) by
the minister or by an employer,
(B) such annuity contract is not subject to subsection (a),
(C) the employee's rights under the contract are
nonforfeitable, except for failure to pay future premiums,
(D) except in the case of a contract purchased by a church,
such contract is purchased under a plan which meets the
nondiscrimination requirements of paragraph (12), and
(E) in the case of a contract purchased under a salary
reduction agreement, the contract meets the requirements of
section 401(a)(30),
then contributions and other additions by such employer for such
annuity contract shall be excluded from the gross income of the
employee for the taxable year to the extent that the aggregate of
such contributions and additions (when expressed as an annual
addition (within the meaning of section 415(c)(2))) does not
exceed the applicable limit under section 415. The amount
actually distributed to any distributee under such contract shall
be taxable to the distributee (in the year in which so
distributed) under section 72 (relating to annuities). For
purposes of applying the rules of this subsection to
contributions and other additions by an employer for a taxable
year, amounts transferred to a contract described in this
paragraph by reason of a rollover contribution described in
paragraph (8) of this subsection or section 408(d)(3)(A)(ii)
shall not be considered contributed by such employer.
[(2) Repealed. Pub. L. 107-16, title VI, Sec. 632(a)(2)(B), June
7, 2001, 115 Stat. 113]
(3) Includible compensation
For purposes of this subsection, the term "includible
compensation" means, in the case of any employee, the amount of
compensation which is received from the employer described in
paragraph (1)(A), and which is includible in gross income
(computed without regard to section 911) for the most recent
period (ending not later than the close of the taxable year)
which under paragraph (4) may be counted as one year of service,
and which precedes the taxable year by no more than five years.
Such term does not include any amount contributed by the employer
for any annuity contract to which this subsection applies. Such
term includes -
(A) any elective deferral (as defined in section 402(g)(3)),
and
(B) any amount which is contributed or deferred by the
employer at the election of the employee and which is not
includible in the gross income of the employee by reason of
section 125, 132(f)(4), or 457.
(4) Years of service
In determining the number of years of service for purposes of
this subsection, there shall be included -
(A) one year for each full year during which the individual
was a full-time employee of the organization purchasing the
annuity for him, and
(B) a fraction of a year (determined in accordance with
regulations prescribed by the Secretary) for each full year
during which such individual was a part-time employee of such
organization and for each part of a year during which such
individual was a full-time or part-time employee of such
organization.
In no case shall the number of years of service be less than one.
(5) Application to more than one annuity contract
If for any taxable year of the employee this subsection applies
to 2 or more annuity contracts purchased by the employer, such
contracts shall be treated as one contract.
[(6) Repealed. Pub. L. 107-147, title IV, Sec. 411(p)(2), Mar. 9,
2002, 116 Stat. 50]
(7) Custodial accounts for regulated investment company stock
(A) Amounts paid treated as contributions
For purposes of this title, amounts paid by an employer
described in paragraph (1)(A) to a custodial account which
satisfies the requirements of section 401(f)(2) shall be
treated as amounts contributed by him for an annuity contract
for his employee if -
(i) the amounts are to be invested in regulated investment
company stock to be held in that custodial account, and
(ii) under the custodial account no such amounts may be
paid or made available to any distributee before the employee
dies, attains age 59 1/2 , has a severance from employment,
becomes disabled (within the meaning of section 72(m)(7)), or
in the case of contributions made pursuant to a salary
reduction agreement (within the meaning of section
3121(a)(5)(D)), encounters financial hardship.
(B) Account treated as plan
For purposes of this title, a custodial account which
satisfies the requirements of section 401(f)(2) shall be
treated as an organization described in section 401(a) solely
for purposes of subchapter F and subtitle F with respect to
amounts received by it (and income from investment thereof).
(C) Regulated investment company
For purposes of this paragraph, the term "regulated
investment company" means a domestic corporation which is a
regulated investment company within the meaning of section
851(a).
(8) Rollover amounts
(A) General rule
If -
(i) any portion of the balance to the credit of an employee
in an annuity contract described in paragraph (1) is paid to
him in an eligible rollover distribution (within the meaning
of section 402(c)(4)),
(ii) the employee transfers any portion of the property he
receives in such distribution to an eligible retirement plan
described in section 402(c)(8)(B), and
(iii) in the case of a distribution of property other than
money, the property so transferred consists of the property
distributed,
then such distribution (to the extent so transferred) shall not
be includible in gross income for the taxable year in which
paid.
(B) Certain rules made applicable
The rules of paragraphs (2) through (7) and (9) of section
402(c) and section 402(f) shall apply for purposes of
subparagraph (A), except that section 402(f) shall be applied
to the payor in lieu of the plan administrator.
(9) Retirement income accounts provided by churches, etc.
(A) Amounts paid treated as contributions
For purposes of this title -
(i) a retirement income account shall be treated as an
annuity contract described in this subsection, and
(ii) amounts paid by an employer described in paragraph
(1)(A) to a retirement income account shall be treated as
amounts contributed by the employer for an annuity contract
for the employee on whose behalf such account is maintained.
(B) Retirement income account
For purposes of this paragraph, the term "retirement income
account" means a defined contribution program established or
maintained by a church, or a convention or association of
churches, including an organization described in section
414(e)(3)(A), to provide benefits under section 403(b) for an
employee described in paragraph (1) or his beneficiaries.
(10) Distribution requirements
Under regulations prescribed by the Secretary, this subsection
shall not apply to any annuity contract (or to any custodial
account described in paragraph (7) or retirement income account
described in paragraph (9)) unless requirements similar to the
requirements of sections 401(a)(9) and 401(a)(31) are met (and
requirements similar to the incidental death benefit requirements
of section 401(a) are met) with respect to such annuity contract
(or custodial account or retirement income account). Any amount
transferred in a direct trustee-to-trustee transfer in accordance
with section 401(a)(31) shall not be includible in gross income
for the taxable year of the transfer.
(11) Requirement that distributions not begin before age 59 1/2 ,
severance from employment, death, or disability
This subsection shall not apply to any annuity contract unless
under such contract distributions attributable to contributions
made pursuant to a salary reduction agreement (within the meaning
of section 402(g)(3)(C)) may be paid only -
(A) when the employee attains age 59 1/2 , has a severance
from employment, dies, or becomes disabled (within the meaning
of section 72(m)(7)), or
(B) in the case of hardship.
Such contract may not provide for the distribution of any income
attributable to such contributions in the case of hardship.
(12) Nondiscrimination requirements
(A) In general
For purposes of paragraph (1)(D), a plan meets the
nondiscrimination requirements of this paragraph if -
(i) with respect to contributions not made pursuant to a
salary reduction agreement, such plan meets the requirements
of paragraphs (4), (5), (17), and (26) of section 401(a),
section 401(m), and section 410(b) in the same manner as if
such plan were described in section 401(a), and
(ii) all employees of the organization may elect to have
the employer make contributions of more than $200 pursuant to
a salary reduction agreement if any employee of the
organization may elect to have the organization make
contributions for such contracts pursuant to such agreement.
For purposes of clause (i), a contribution shall be treated as
not made pursuant to a salary reduction agreement if under the
agreement it is made pursuant to a 1-time irrevocable election
made by the employee at the time of initial eligibility to
participate in the agreement or is made pursuant to a similar
arrangement involving a one-time irrevocable election specified
in regulations. For purposes of clause (ii), there may be
excluded any employee who is a participant in an eligible
deferred compensation plan (within the meaning of section 457)
or a qualified cash or deferred arrangement of the organization
or another annuity contract described in this subsection. Any
nonresident alien described in section 410(b)(3)(C) may also be
excluded. Subject to the conditions applicable under section
410(b)(4), there may be excluded for purposes of this
subparagraph employees who are students performing services
described in section 3121(b)(10) and employees who normally
work less than 20 hours per week.
(B) Church
For purposes of paragraph (1)(D), the term "church" has the
meaning given to such term by section 3121(w)(3)(A). Such term
shall include any qualified church-controlled organization (as
defined in section 3121(w)(3)(B)).
(C) State and local governmental plans
For purposes of paragraph (1)(D), the requirements of
subparagraph (A)(i) (other than those relating to section
401(a)(17)) shall not apply to a governmental plan (within the
meaning of section 414(d)) maintained by a State or local
government or political subdivision thereof (or agency or
instrumentality thereof).
(13) Trustee-to-trustee transfers to purchase permissive service
credit
No amount shall be includible in gross income by reason of a
direct trustee-to-trustee transfer to a defined benefit
governmental plan (as defined in section 414(d)) if such transfer
is -
(A) for the purchase of permissive service credit (as defined
in section 415(n)(3)(A)) under such plan, or
(B) a repayment to which section 415 does not apply by reason
of subsection (k)(3) thereof.
(c) Taxability of beneficiary under nonqualified annuities or under
annuities purchased by exempt organizations
Premiums paid by an employer for an annuity contract which is not
subject to subsection (a) shall be included in the gross income of
the employee in accordance with section 83 (relating to property
transferred in connection with performance of services), except
that the value of such contract shall be substituted for the fair
market value of the property for purposes of applying such section.
The preceding sentence shall not apply to that portion of the
premiums paid which is excluded from gross income under subsection
(b). In the case of any portion of any contract which is
attributable to premiums to which this subsection applies, the
amount actually paid or made available under such contract to any
beneficiary which is attributable to such premiums shall be taxable
to the beneficiary (in the year in which so paid or made available)
under section 72 (relating to annuities).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 137; Pub. L. 85-866, title I,
Sec. 23(a)-(c), Sept. 2, 1958, 72 Stat. 1620-1622; Pub. L. 87-370,
Sec. 3(a), Oct. 4, 1961, 75 Stat. 801; Pub. L. 87-792, Sec. 4(d),
Oct. 10, 1962, 76 Stat. 825; Pub. L. 88-272, title II, Sec.
232(e)(4)-(6), Feb. 26, 1964, 78 Stat. 111; Pub. L. 91-172, title
III, Sec. 321(b)(2), title V, Sec. 515(a)(2), Dec. 30, 1969, 83
Stat. 591, 644; Pub. L. 93-406, title II, Secs. 1022(e),
2002(g)(6), 2004(c)(4), 2005(b)(2), Sept. 2, 1974, 88 Stat. 940,
969, 986, 991; Pub. L. 94-267, Sec. 1(b), Apr. 15, 1976, 90 Stat.
366; Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(D), (2), title XV,
Sec. 1504(a), title XIX, Secs. 1901(a)(58), (b)(8)(A),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1731, 1732, 1738, 1774,
1794, 1834; Pub. L. 95-458, Sec. 4(b), Oct. 14, 1978, 92 Stat.
1259; Pub. L. 95-600, title I, Secs. 154(a), 156(a), (b),
157(g)(2), Nov. 6, 1978, 92 Stat. 2801, 2802, 2808; Pub. L. 96-222,
title I, Sec. 101(a)(12), (13)(C), Apr. 1, 1980, 94 Stat. 204; Pub.
L. 97-34, title III, Sec. 311(b)(3)(B), Aug. 13, 1981, 95 Stat.
280; Pub. L. 97-248, title II, Sec. 251(a), (b), (c)(3), Sept. 3,
1982, 96 Stat. 529-531; Pub. L. 97-448, title I, Sec. 103(c)(8)(B),
Jan. 12, 1983, 96 Stat. 2377; Pub. L. 98-21, title I, Sec.
122(c)(4), Apr. 20, 1983, 97 Stat. 87; Pub. L. 98-369, div. A,
title IV, Sec. 491(d)(12), title V, Secs. 521(c), 522(a)(2), (3),
(d)(9)-(11), title X, Sec. 1001(b)(4), (e), July 18, 1984, 98 Stat.
849, 867, 869-871, 1011, 1012; Pub. L. 99-514, title XI, Secs.
1120(a), (b), 1122(b)(1)(B), (d), 1123(c), title XVIII, Sec.
1852(a)(3)(A), (B), (5)(B), (b)(10), Oct. 22, 1986, 100 Stat. 2463,
2466, 2469, 2474, 2865, 2867; Pub. L. 100-647, title I, Sec.
1011(c)(7)(B), (12), (m)(1), (2), title VI, Sec. 6052(a)(1), Nov.
10, 1988, 102 Stat. 3458, 3459, 3471, 3696; Pub. L. 101-508, title
XI, Sec. 11701(k), Nov. 5, 1990, 104 Stat. 1388-513; Pub. L. 102-
318, title V, Secs. 521(b)(12), (13), 522(a)(3), (c)(2), (3), July
3, 1992, 106 Stat. 311, 314, 315; Pub. L. 104-188, title I, Secs.
1450(c)(1), 1704(t)(69), Aug. 20, 1996, 110 Stat. 1815, 1891; Pub.
L. 105-34, title XV, Secs. 1504(a)(1), 1505(c), title XVI, Sec.
1601(d)(6)(B), Aug. 5, 1997, 111 Stat. 1063, 1064, 1090; Pub. L.
105-206, title VI, Sec. 6005(c)(2)(B), July 22, 1998, 112 Stat.
800; Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 314(e)(1)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-643; Pub. L. 107-16, title VI,
Secs. 632(a)(2), 641(b)(1), (e)(7), 642(b)(1), 646(a)(2), 647(a),
June 7, 2001, 115 Stat. 113, 120, 121, 126, 127; Pub. L. 107-147,
title IV, Sec. 411(p)(1)-(3), Mar. 9, 2002, 116 Stat. 49, 50; Pub.
L. 108-311, title IV, Secs. 404(e), 408(a)(11), Oct. 4, 2004, 118
Stat. 1188, 1191; Pub. L. 109-135, title IV, Sec. 412(w), Dec. 21,
2005, 119 Stat. 2638.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(9)(B). Pub. L. 109-135 inserted "or" before "a
convention".
2004 - Subsec. (a)(4)(B). Pub. L. 108-311, Sec. 404(e), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "Rules similar to the rules of
paragraphs (2) through (7) of section 402(c) shall apply for
purposes of subparagraph (A)."
Subsec. (b)(7)(A)(ii). Pub. L. 108-311, Sec. 408(a)(11),
substituted "3121(a)(5)(D)" for "3121(a)(1)(D)".
2002 - Subsec. (b)(1). Pub. L. 107-147, Sec. 411(p)(1), inserted
concluding provisions and struck out former concluding provisions
which read as follows: "then amounts contributed by such employer
for such annuity contract on or after such rights become
nonforfeitable shall be excluded from the gross income of the
employee for the taxable year to the extent that the aggregate of
such amounts does not exceed the applicable limit under section
415. The amount actually distributed to any distributee under such
contract shall be taxable to the distributee (in the year in which
so distributed) under section 72 (relating to annuities). For
purposes of applying the rules of this subsection to amounts
contributed by an employer for a taxable year, amounts transferred
to a contract described in this paragraph by reason of a rollover
contribution described in paragraph (8) of this subsection or
section 408(d)(3)(A)(ii) shall not be considered contributed by
such employer."
Subsec. (b)(3). Pub. L. 107-147, Sec. 411(p)(3), in first
sentence, inserted ", and which precedes the taxable year by no
more than five years" before period at end and, in second sentence,
struck out "or any amount received by a former employee after the
fifth taxable year following the taxable year in which such
employee was terminated" after "this subsection applies".
Subsec. (b)(6). Pub. L. 107-147, Sec. 411(p)(2), struck out
heading and text of par. (6). Text read as follows: "For purposes
of this subsection and section 72(f) (relating to special rules for
computing employees' contributions to annuity contracts), if rights
of the employee under an annuity contract described in
subparagraphs (A) and (B) of paragraph (1) change from forfeitable
to nonforfeitable rights, then the amount (determined without
regard to this subsection) includible in gross income by reason of
such change shall be treated as an amount contributed by the
employer for such annuity contract as of the time such rights
become nonforfeitable."
2001 - Subsec. (b)(1). Pub. L. 107-16, Secs. 642(b)(1), 901,
temporarily substituted "section 408(d)(3)(A)(ii)" for "section
408(d)(3)(A)(iii)" in concluding provisions. See Effective and
Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 632(a)(2)(A), 901, temporarily substituted
"the applicable limit under section 415" for "the exclusion
allowance for such taxable year" in concluding provisions. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (b)(2). Pub. L. 107-16, Secs. 632(a)(2)(B), 901,
temporarily struck out par. (2), which described exclusion
allowance for purposes of subsec. (b) providing general criteria,
determination under section 415 rules, number of years of service
for duly ordained, commissioned, or licensed ministers or lay
employees, and alternative exclusion allowance for such ministers
or lay employees. See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (b)(3). Pub. L. 107-16, Secs. 632(a)(2)(C), 901,
temporarily inserted "or any amount received by a former employee
after the fifth taxable year following the taxable year in which
such employee was terminated" before period at end of second
sentence. See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (b)(7)(A)(ii). Pub. L. 107-16, Secs. 646(a)(2)(A), 901,
temporarily substituted "has a severance from employment" for
"separates from service". See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (b)(8)(A)(ii). Pub. L. 107-16, Secs. 641(b)(1), 901,
temporarily substituted "such distribution to an eligible
retirement plan described in section 402(c)(8)(B), and" for "such
distribution to an individual retirement plan or to an annuity
contract described in paragraph (1), and". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (b)(8)(B). Pub. L. 107-16, Secs. 641(e)(7), 901,
temporarily reenacted heading without change and amended text
generally. Prior to amendment, text read as follows: "Rules similar
to the rules of paragraphs (2) through (7) of section 402(c)
(including paragraph (4)(C) thereof) shall apply for purposes of
subparagraph (A)." See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (b)(11). Pub. L. 107-16, Secs. 646(a)(2)(B), 901,
temporarily substituted "severance from employment" for "separation
from service" in heading. See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (b)(11)(A). Pub. L. 107-16, Secs. 646(a)(2)(A), 901,
temporarily substituted "has a severance from employment" for
"separates from service". See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (b)(13). Pub. L. 107-16, Secs. 647(a), 901, temporarily
added par. (13). See Effective and Termination Dates of 2001
Amendment note below.
2000 - Subsec. (b)(3)(B). Pub. L. 106-554 substituted "section
125, 132(f)(4), or" for "section 125 or".
1998 - Subsec. (b)(8)(B). Pub. L. 105-206 inserted "(including
paragraph (4)(C) thereof)" after "section 402(c)".
1997 - Subsec. (b)(1)(A)(iii). Pub. L. 105-34, Sec.
1601(d)(6)(B), added cl. (iii).
Subsec. (b)(3). Pub. L. 105-34, Sec. 1504(a)(1), inserted at end
"Such term includes - " and subpars. (A) and (B).
Subsec. (b)(12)(C). Pub. L. 105-34, Sec. 1505(c), added subpar.
(C).
1996 - Subsec. (b)(1)(E). Pub. L. 104-188, Sec. 1450(c)(1),
amended subpar. (E) generally. Prior to amendment, subpar. (E) read
as follows: "in the case of a contract purchased under a plan which
provides a salary reduction agreement, the plan meets the
requirements of section 401(a)(30),".
Subsec. (b)(10). Pub. L. 104-188, Sec. 1704(t)(69), substituted
"a direct" for "an direct" in last sentence.
1992 - Subsec. (a)(4)(A)(i). Pub. L. 102-318, Sec. 521(b)(12)(A),
inserted before comma at end "in an eligible rollover distribution
(within the meaning of section 402(c)(4))".
Subsec. (a)(4)(B). Pub. L. 102-318, Sec. 521(b)(12)(B), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "Rules similar to the rules of subparagraphs (B) through
(G) of section 402(a)(5) and of paragraphs (6) and (7) of section
402(a) shall apply for purposes of subparagraph (A)."
Subsec. (a)(5). Pub. L. 102-318, Sec. 522(c)(2), added par. (5).
Subsec. (b)(8)(A)(i). Pub. L. 102-318, Sec. 521(b)(13)(A),
inserted before comma at end "in an eligible rollover distribution
(within the meaning of section 402(c)(4))".
Subsec. (b)(8)(B) to (D). Pub. L. 102-318, Sec. 521(b)(13)(B),
added subpar. (B) and struck out former subpars. (B) to (D), which
related to special rules for partial distributions, applicability
of certain similar rules, and eligibility for rollover treatment of
required distributions.
Subsec. (b)(10). Pub. L. 102-318, Sec. 522(a)(3), (c)(3),
substituted "sections 401(a)(9) and 401(a)(31)" for "section
401(a)(9)" and inserted at end "Any amount transferred in an direct
trustee-to-trustee transfer in accordance with section 401(a)(31)
shall not be includible in gross income for the taxable year of the
transfer."
1990 - Subsec. (b)(12)(A). Pub. L. 101-508 inserted "involving a
one-time irrevocable election" after "similar arrangement" in
second sentence.
1988 - Subsec. (b)(1)(D). Pub. L. 100-647, Sec. 1011(m)(1)(B),
substituted "paragraph (12)" for "paragraph (10)".
Subsec. (b)(1)(E). Pub. L. 100-647, Sec. 1011(c)(7)(B), added
subpar. (E).
Subsec. (b)(10). Pub. L. 100-647, Sec. 1011(m)(1)(A),
redesignated par. (10), relating to nondiscrimination requirements,
as (12).
Subsec. (b)(12). Pub. L. 100-647, Sec. 1011(m)(1)(A),
redesignated par. (10), relating to nondiscrimination requirements,
as (12).
Subsec. (b)(12)(A). Pub. L. 100-647, Sec. 1011(m)(2), inserted
"(17)," after "paragraphs (4), (5)," and ", section 401(m)," after
"of section 401(a)" in cl. (i).
Pub. L. 100-647, Sec. 1011(c)(12), inserted after cl. (ii) "For
purposes of clause (i), a contribution shall be treated as not made
pursuant to a salary reduction agreement if under the agreement it
is made pursuant to a 1-time irrevocable election made by the
employee at the time of initial eligibility to participate in the
agreement or is made pursuant to a similar arrangement specified in
regulations."
Pub. L. 100-647, Sec. 6052(a)(1), amended last sentence
generally. Prior to amendment, last sentence read as follows: "For
purposes of this subparagraph, students who normally work less than
20 hours per week may (subject to the conditions applicable under
section 410(b)(4)) be excluded."
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1122(d)(1),
substituted "Distributee taxable under section 72" for "General
rule" in heading and amended par. (1) generally. Prior to
amendment, par. (1) read as follows: "Except as provided in
paragraph (2), if an annuity contract is purchased by an employer
for an employee under a plan which meets the requirements of
section 404(a)(2) (whether or not the employer deducts the amounts
paid for the contract under such section), the employee shall
include in his gross income the amounts received under such
contract for the year received as provided in section 72 (relating
to annuities)."
Subsec. (a)(2). Pub. L. 99-514, Sec. 1122(b)(1)(B), struck out
par. (2) which read as follows:
"(A) General rule
"If -
"(i) an annuity contract is purchased by an employer for an
employee under a plan described in paragraph (1);
"(ii) such plan requires that refunds of contributions with
respect to annuity contracts purchased under such plan be used to
reduce subsequent premiums on the contracts under the plan; and
"(iii) a lump sum distribution (as defined in section
402(e)(4)(A)) is paid to the recipient,
so much of the total taxable amount (as defined in section
402(e)(4)(D)) of such distribution as is equal to the product of
such total taxable amount multiplied by the fraction described in
section 402(a)(2) shall be treated as a gain from the sale or
exchange of a capital asset held for more than 6 months. For
purposes of this paragraph, in the case of an individual who is an
employee without regard to section 401(c)(1), determination of
whether or not any distribution is a lump sum distribution shall be
made without regard to the requirement that an election be made
under subsection (e)(4)(B) of section 402, but no distribution to
any taxpayer other than an individual, estate, or trust may be
treated as a lump sum distribution under this paragraph.
"(B) Cross reference
"For imposition of separate tax on ordinary income portion of
lump sum distribution, see section 402(e)."
Subsec. (a)(4)(B). Pub. L. 99-514, Sec. 1852(a)(5)(B)(i),
substituted "through (G)" for "through (F)".
Subsec. (b)(1). Pub. L. 99-514, Sec. 1122(d)(2), amended second
sentence generally. Prior to amendment, second sentence read as
follows: "The employee shall include in his gross income the
amounts received under such contract for the year received as
provided in section 72 (relating to annuities)".
Subsec. (b)(1)(D). Pub. L. 99-514, Sec. 1120(a), added subpar.
(D).
Subsec. (b)(7)(A)(ii). Pub. L. 99-514, Sec. 1123(c)(2), inserted
"in the case of contributions made pursuant to a salary reduction
agreement (within the meaning of section 3121(a)(1)(D))," after
"section 72(m)(7)), or".
Subsec. (b)(7)(D). Pub. L. 99-514, Sec. 1852(a)(3)(B), struck out
subpar. (D) "Distribution requirements" which read as follows: "For
purposes of determining when the interest of an employee in a
custodial account must be distributed, such account shall be
treated in the same manner as an annuity contract."
Subsec. (b)(8)(C). Pub. L. 99-514, Sec. 1852(b)(10), inserted
"and" before "(F)(i)".
Subsec. (b)(8)(D). Pub. L. 99-514, Sec. 1852(a)(5)(B)(ii), added
subpar. (D).
Subsec. (b)(10). Pub. L. 99-514, Sec. 1120(b), added par. (10)
relating to nondiscrimination requirements.
Pub. L. 99-514, Sec. 1852(a)(3)(A), added par. (10) relating to
distribution requirements.
Subsec. (b)(11). Pub. L. 99-514, Sec. 1123(c)(1), added par.
(11).
Subsec. (c). Pub. L. 99-514, Sec. 1122(d)(3), amended last
sentence generally. Prior to amendment, last sentence read as
follows: "The amount actually paid or made available to any
beneficiary under such contract shall be taxable to him in the year
in which so paid or made available under section 72 (relating to
annuities)."
1984 - Subsec. (a)(2)(A). Pub. L. 98-369, Sec. 1001(b)(4),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Subsec. (a)(4)(A)(i). Pub. L. 98-369, Sec. 522(a)(2), substituted
"any portion of the balance to the credit of an employee in an
employee annuity described in paragraph (1) is paid to him," for
"the balance to the credit of an employee in an employee annuity
described in paragraph (1) is paid to him in a qualifying rollover
distribution."
Subsec. (a)(4)(B). Pub. L. 98-369, Sec. 522(d)(9), substituted
"(B) through (F)" for "(B) through (E)".
Subsec. (b)(1). Pub. L. 98-369, Sec. 491(d)(12), struck out "or
409(b)(3)(C)" after "408(d)(3)(A)(iii)".
Subsec. (b)(7)(D). Pub. L. 98-369, Sec. 521(c), added subpar.
(D).
Subsec. (b)(8)(A)(i). Pub. L. 98-369, Sec. 522(a)(3), substituted
"any portion of the balance to the credit of an employee in an
annuity contract described in paragraph (1) is paid to him" for
"the balance to the credit of an employee is paid to him in a
qualifying distribution".
Subsec. (b)(8)(B). Pub. L. 98-369, Sec. 522(d)(10), substituted
provisions relating to special rules for partial distributions for
provisions relating to definition of qualifying distributions.
Subsec. (b)(8)(C). Pub. L. 98-369, Sec. 522(d)(11), substituted
"(F)(i)" for "(D)(v), and (E)(i)".
1983 - Subsec. (b)(3). Pub. L. 98-21 substituted "section 911"
for "sections 105(d) and 911".
Subsec. (b)(8)(C). Pub. L. 97-448 substituted "subparagraphs (B),
(C), (D)(v), and (E)(i) of section 402(a)(5)" for "subparagraphs
(B), (C), and (E)(i) of section 402(a)(5)".
1982 - Subsec. (b)(2)(B). Pub. L. 97-248, Sec. 251(a)(1), (c)(3),
substituted "home health service agencies, and certain churches,
etc." for "and home health service agencies", and "(under section
415 without regard to section 415(c)(8))" for "(under section
415)".
Subsec. (b)(2)(C), (D). Pub. L. 97-248, Sec. 251(a)(2), added
subpars. (C) and (D).
Subsec. (b)(9). Pub. L. 97-248, Sec. 251(b), added par. (9).
1981 - Subsec. (b)(8)(B)(i). Pub. L. 97-34 inserted ", or 1 or
more distributions of accumulated deductible employee contributions
(within the meaning of section 72(o)(5))" after "subsection (a)".
1980 - Subsec. (b). Pub. L. 96-222 substituted in par. (1)
"409(b)(3)(C)" for "409(d)(3)(C)", and in par. (7)(A) "which
satisfies" for "which satisfied".
1978 - Subsec. (a)(4). Pub. L. 95-600, Sec. 157(g)(2), in subpar.
(B) substituted "paragraphs (6) and (7)" for "paragraph (6)".
Pub. L. 95-458, among other changes, substituted provision
permitting tax free treatment for any portion of a lump sum
distribution from a qualified retirement plan which is deposited in
an individual retirement account or another qualifying plan for
provision which required transfer of all such property received.
Subsec. (a)(5). Pub. L. 95-458 struck out par. (5) which related
to special rules concerning time of termination of a profit-sharing
plan and the treatment of the sale of a corporate subsidiary or
assets as payment or distribution on account of termination of a
plan of which an annuity trust was a part.
Subsec. (b)(1). Pub. L. 95-600, Sec. 156(b), inserted provision
relating to application of rules of this subsection to amounts
contributed by an employer for a taxable year.
Subsec. (b)(7)(A). Pub. L. 95-600, Sec. 154(a), struck out "the
amounts are paid to provide a retirement benefit for that employee
and are to be invested in regulated investment company stock to be
held in that custodial account" after "contract for his employee
if", and added cls. (i) and (ii).
Subsec. (b)(8). Pub. L. 95-600, Sec. 156(a), added par. (8).
1976 - Subsec. (a)(2)(A). Pub. L. 94-455, Sec. 1402(b)(2),
provided that "9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b) (1)(D), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (a)(4). Pub. L. 94-455, Sec. 1901(a)(58), reenacted
provisions following subpar. (C) without substantive change.
Pub. L. 94-267, Sec. 1(b)(2), substituted "a payment" for "the
lump-sum distribution".
Subsec. (a)(4)(A). Pub. L. 94-267, Sec. 1(b)(1), restructured
provisions by adding cl. (i) and designating existing provision as
cl. (ii).
Subsec. (a)(5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary" wherever appearing.
Pub. L. 94-267, Sec. 1(b)(3), added par. (5).
Subsec. (b)(1)(A)(ii). Pub. L. 94-455, Sec. 1901(b)(8)(A),
substituted "educational organization described in section
170(b)(1)(A)(ii)" for "educational institution (as defined in
section 151(e)(4))".
Subsec. (b)(4)(B). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (b)(7)(C). Pub. L. 94-455, Sec. 1504(a), struck out ",
and which issues only redeemable stock" after "regulated investment
company within the meaning of section 851(a)".
1974 - Subsec. (a)(2). Pub. L. 93-406, Sec. 2005(b)(2),
substituted "a lump sum distribution (as defined in section
4002(e)(4)(A)) is paid to the recipient" for "the total amounts
payable by reason of an employee's death or other separation from
the service, or by reason of the death of an employee after the
employee's separation from the service, are paid to the payee
within one taxable year of the payee" as cl. (iii) of subpar. (A),
substituted "so much of the total taxable amount (as defined in
section 402(e)(4)(D)) of such distribution as is equal to the
product of such total taxable amount multiplied by the fraction
described in section 402(a)(2) shall be treated as a gain from the
sale or exchange of a capital asset held for more than 6 months.
For purposes of this paragraph, in the case of an individual who is
an employee without regard to section 401(c)(1), determination of
whether or not any distribution is a lump sum distribution shall be
made without regard to the requirement that an election be made
under subsection (e)(4)(B) of section 402, but no distribution to
any taxpayer other than an individual, estate, or trust may be
treated as a lump sum distribution under this paragraph" for "then
the amount of such payments, to the extent exceeding the amount
contributed by the employee (determined by applying section 72(f)),
which employee contributions shall be reduced by any amounts
theretofore paid to him which were not includible in gross income,
shall be considered a gain from the sale or exchange of a capital
asset held for more than 6 months. This subparagraph shall not
apply to amounts paid to any payee to the extent such amounts are
attributable to contributions made on behalf of the employee while
he was an employee within the meaning of section 401(c)(1)"
following cl. (iii) of subpar. (A), substituted provisions setting
out a cross reference to section 402(e) for provisions defining
"total amounts" as subpar. (B), and struck out subpar. (C) setting
out limitations on capital gains treatment.
Subsec. (a)(4). Pub. L. 93-406, Sec. 2002(g)(6), added par. (4).
Subsec. (b)(2). Pub. L. 93-406, Sec. 2004(c)(4), designated
existing provisions as subpar. (A) and added subpar. (B).
Subsec. (b)(7). Pub. L. 93-406, Sec. 1022(e), added par. (7).
1969 - Subsec. (a)(2)(C). Pub. L. 91-172, Sec. 515(a)(2), added
subpar. (C).
Subsec. (c). Pub. L. 91-172, Sec. 321(b)(2), consolidated
provisions of subsec. (c) providing for taxability of beneficiary
under a nonqualified annuity, the employees gross income to include
amount contributed by employer for annuity contract in the year in
which amount is contributed, the amount to be included as provided
in section 72 of this title and of subsec. (d) providing for
taxability of beneficiary under certain forfeitable contracts
purchased by exempt organizations, including farmers' cooperatives,
the gross income to include amount contributed by employer after
Dec. 31, 1957, in the year of change from forfeitable to
nonforfeitable rights, the new provisions including premiums paid
by an employer in accordance with section 83, except that value of
the contract shall be substituted for fair market value of the
property for purposes of applying such section 83, such provision
not to be applicable to that portion of premiums paid which is
excluded from gross income under subsec. (b) of this section.
Subsec. (d). Pub. L. 91-172, Sec. 321(b)(2), struck out subsec.
(d) providing for taxability of beneficiary under certain
forfeitable contracts purchased by exempt organizations, including
farmers' cooperatives, gross income of the employee to include
(amount contributed by employer after Dec. 31, 1957), in year of
change from forfeitable to nonforfeitable rights. See subsec. (c)
of this section.
1964 - Subsecs. (a)(1), (b)(1), (c). Pub. L. 88-272, Sec.
232(e)(4)-(6), struck out "except that section 72(e)(3) shall not
apply" after "(relating to annuities)".
1962 - Subsec. (a)(2)(A). Pub. L. 87-792, Sec. 4(d)(1), (2),
substituted "described in paragraph (1)" for "which meets the
requirements of section 401(a)(3), (4), (5), and (6)" in cl. (i),
and inserted sentence at end thereof providing that this
subparagraph shall not apply to amounts paid to any payee to the
extent such amounts are attributable to contributions made on
behalf of the employee while he was an employee within the meaning
of section 401(c)(1).
Subsec. (a)(3). Pub. L. 87-792, Sec. 4(d)(3), added par. (3).
1961 - Subsec. (b). Pub. L. 87-370, Sec. 3(a)(3), inserted "or
public school" in heading.
Subsec. (b)(1)(A). Pub. L. 87-370, Sec. 3(a)(1), included annuity
contracts purchased for an employee, other than one described in
clause (i) of this subpar., who performs services for an
educational institution, as defined in section 151(e)(4) of this
title, by an employer which is a State, a political subdivision of
a State, or an agency or instrumentality of either.
Subsec. (b)(3). Pub. L. 87-370, Sec. (3)(a)(2), substituted "the
employer described in paragraph (1)(A)" for "the employer described
in section 501(c)(3) and exempt from tax under section 501(a)".
1958 - Subsec. (a)(1). Pub. L. 85-866, Sec. 23(b), substituted
"which meets the requirements of section 404(a)(2) (whether or not
the employer deducts the amounts paid for the contract under such
section)," for "with respect to which the employer's contribution
is deductible under section 404(a)(2), or if an annuity contract is
purchased for an employee by an employer described in section
501(c)(3) which is exempt from tax under section 501(a),".
Subsecs. (b) to (d). Pub. L. 85-866, Sec. 23(a), added subsec.
(b), redesignated former subsec. (b) as (c), and added subsec. (d).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 404(e) of Pub. L. 108-311 effective as if
included in the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment
relates, see section 404(f) of Pub. L. 108-311, set out as a note
under section 45A of this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 632(a)(2) of Pub. L. 107-16 applicable to
years beginning after Dec. 31, 2001, see section 632(a)(4) of Pub.
L. 107-16, set out as a note under section 72 of this title.
Amendment by section 641(b)(1), (e)(7) of Pub. L. 107-16
applicable to distributions after Dec. 31, 2001, see section
641(f)(1) of Pub. L. 107-16, set out as a note under section 402 of
this title.
Amendment by section 642(b)(1) of Pub. L. 107-16 applicable to
distributions after Dec. 31, 2001, see section 642(c) of Pub. L.
107-16, set out as a note under section 408 of this title.
Amendment by section 646(a)(2) of Pub. L. 107-16 applicable to
distributions after Dec. 31, 2001, see section 646(b) of Pub. L.
107-16, set out as a note under section 401 of this title.
Pub. L. 107-16, title VI, Sec. 647(c), June 7, 2001, 115 Stat.
127, provided that: "The amendments made by this section [amending
this section and section 457 of this title] shall apply to trustee-
to-trustee transfers after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 effective as if included in the
provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 1(a)(7) [title III, Sec.
314(g)] of Pub. L. 106-554, set out as a note under section 56 of
this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by section 6005 of Pub. L. 105-206 applicable to
distributions after Dec. 31, 1998, see section 6005(c)(2)(C) of
Pub. L. 105-206, set out as a note under section 402 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1504(a)(2) of Pub. L. 105-34 provided that: "The
amendment made by this subsection [amending this section] shall
apply to years beginning after December 31, 1997."
Amendment by section 1505(c) of Pub. L. 105-34 applicable to
taxable years beginning on or after Aug. 5, 1997, with certain
governmental plans treated as satisfying requirements for all
taxable years beginning before Aug. 5, 1997, see section 1505(d) of
Pub. L. 105-34, set out as a note under section 401 of this title.
Amendment by section 1601(d)(6)(B) of Pub. L. 105-34 effective as
if included in the provisions of the Small Business Job Protection
Act of 1996, Pub. L. 104-188, to which it relates, see section
1601(j) of Pub. L. 105-34, set out as a note under section 23 of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1450(c)(2) of Pub. L. 104-188 provided that: "The
amendment made by this subsection [amending this section] shall
apply to years beginning after December 31, 1995, except a contract
shall not be required to meet any change in any requirement by
reason of such amendment before the 90th day after the date of the
enactment of this Act [Aug. 20, 1996]."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by section 521(b)(12), (13) of Pub. L. 102-318
applicable to distributions after Dec. 31, 1992, see section 521(e)
of Pub. L. 102-318, set out as a note under section 402 of this
title.
Amendment by section 522(a)(3), (c)(2), (3) of Pub. L. 102-318
applicable, except as otherwise provided, to distributions after
Dec. 31, 1992, see section 522(d) of Pub. L. 102-318, set out as a
note under section 401 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective, except as otherwise
provided, as if included in the provision of the Revenue
Reconciliation Act of 1989, Pub. L. 101-239, title VII, to which
such amendment relates, see section 11701(n) of Pub. L. 101-508,
set out as a note under section 42 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1011(c)(7)(B) of Pub. L. 100-647 applicable
to plan years beginning after Dec. 31, 1987, with exception in case
of a plan described in section 1105(c)(2) of Pub. L. 99-514, see
section 1011(c)(7)(E) of Pub. L. 100-647, set out as a note under
section 401 of this title.
Amendment by section 1011(c)(12), (m)(1), (2) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 6052(a)(2) of Pub. L. 100-647 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in the amendment made by section 1120(b) of
the Reform Act [Pub. L. 99-514]."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1120(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011(m)(3), Nov. 10, 1988, 102 Stat. 3471, provided
that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to years beginning after December 31, 1988.
"(2) Collective bargaining agreements. - In the case of a plan
maintained pursuant to 1 or more collective bargaining agreements
between employee representatives and 1 or more employers ratified
before March 1, 1986, the amendments made by this section shall not
apply to plan years beginning before the earlier of -
"(A) January 1, 1991, or
"(B) the later of -
"(i) January 1, 1989, or
"(ii) the date on which the last of such collective
bargaining agreements terminates (determined without regard to
any extension thereof after February 28, 1986)."
Amendment by section 1122(b)(1)(B), (d) of Pub. L. 99-514
applicable, except as otherwise provided, to amounts distributed
after Dec. 31, 1986, in taxable years ending after such date, see
section 1122(h) of Pub. L. 99-514, set out as a note under section
402 of this title.
Amendment by section 1123(c) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1988, but only with respect to
distributions from contracts described in subsec. (b) of this
section which are attributable to assets other than assets held as
of the close of the last year beginning before Jan. 1, 1989, with
certain exceptions and transition rule, see section 1123(e) of Pub.
L. 99-514, as amended, set out as a note under section 72 of this
title.
Section 1852(a)(3)(C) of Pub. L. 99-514 provided that: "The
amendments made by this paragraph [amending this section] shall
apply to benefits accruing after December 31, 1986, in taxable
years ending after such date."
Amendment by section 1852(a)(5)(B), (b)(10) of Pub. L. 99-514
effective, except as otherwise provided, as if included in the
provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,
to which such amendment relates, see section 1881 of Pub. L. 99-
514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 491(d)(12) of Pub. L. 98-369 applicable to
obligations issued after Dec. 31, 1983, see section 491(f)(1) of
Pub. L. 98-369, set out as a note under section 62 of this title.
Amendment by section 521(c) of Pub. L. 98-369 applicable to years
beginning after Dec. 31, 1984, see section 521(e) of Pub. L. 98-
369, set out as a note under section 401 of this title.
Amendment by section 522 of Pub. L. 98-369 applicable to
distributions made after July 18, 1984, in taxable years ending
after that date, see section 522(e) of Pub. L. 98-369, set out as a
note under section 402 of this title.
Amendment by section 1001(b)(4) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1983 AMENDMENTS
Amendment by Pub. L. 98-21 applicable to taxable years beginning
after Dec. 31, 1983, except that if an individual's annuity
starting date was deferred under section 105(d)(6) of this title as
in effect on the day before Apr. 20, 1983, such deferral shall end
on the first day of such individual's first taxable year beginning
after Dec. 31, 1983, see section 122(d) of Pub. L. 98-21, set out
as a note under section 22 of this title.
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 251(e) of Pub. L. 97-248, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and section
415 of this title, and enacting a provision set out as a note
below] shall apply to taxable years beginning after December 31,
1981.
"(2) Retirement income accounts. - The amendments made by
subsection (b) [amending this section] shall apply to taxable years
beginning after December 31, 1974.
"(3) Section 415 amendments. - The amendments made by subsection
(c) [amending section 415 of this title] shall apply to years
beginning after December 31, 1981.
"(4) Correction period. - The amendment made by subsection (d)
[enacting provisions set out below] shall take effect on July 1,
1982.
"(5) Special rule for existing defined benefit arrangements. -
Any defined benefit arrangement which is established by a church or
a convention or association of churches (including an organization
described in section 414(e)(3)(B)(ii) of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954]) and which is in effect on the date
of the enactment of this Act [Sept. 3, 1982] shall not be treated
as failing to meet the requirements of section 403(b)(2) of such
Code merely because it is a defined benefit arrangement."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1981, see section 311(i)(1) of Pub. L. 97-34, set
out as a note under section 219 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENTS
Section 154(b) of Pub. L. 95-600 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1978."
Section 156(d) of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 101(a)(13)(A), Apr. 1, 1980, 94 Stat. 204, provided
that: "The amendments made by this section [amending this section
and sections 219, 220, 408, 409, 2039, and 4973] shall apply to
distributions or transfers made after December 31, 1977, in taxable
years beginning after such date."
Amendment by section 157(g)(2) of Pub. L. 95-600 applicable to
lump-sum distributions completed after Dec. 31, 1978, in taxable
years ending after such date, see section 157(g)(4) of Pub. L. 95-
600, set out as a note under section 402 of this title.
Amendment by Pub. L. 95-458 applicable with respect to taxable
years beginning after Dec. 31, 1974, see section 4(d) of Pub. L. 95-
458, set out as a note under section 402 of this title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Section 1504(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1975."
Amendment by section 1901(a)(58), (b)(8)(A) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
Amendment by Pub. L. 94-267 applicable with respect to payments
made to an employee on or after July 4, 1974, see section 1(e) of
Pub. L. 94-267, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Section 1022(e) of Pub. L. 93-406 provided that the amendment
made by that section is effective Jan. 1, 1974.
Amendment by section 2002(g)(6) of Pub. L. 93-406 applicable on
and after Sept. 2, 1974, with respect to contributions to an
employees' trust described in section 401(a) which is exempt from
tax under section 501(a) or an annuity plan described in section
403(a), see section 2002(i)(3) of Pub. L. 93-406, set out as a note
under section 402 of this title.
Amendment by section 2004(c)(4) of Pub. L. 93-406 applicable to
years beginning after Dec. 31, 1975, see section 2004(d) of Pub. L.
93-406, set out as an Effective Date; Transition Provisions note
under section 415 of this title.
Amendment by section 2005(b)(2) of Pub. L. 93-406 applicable only
with respect to distributions or payments made after Dec. 31, 1973,
in taxable years beginning after Dec. 31, 1973, see section 2005(d)
of Pub. L. 93-406, set out as a note under section 402 of this
title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 321(b)(2) of Pub. L. 91-172 applicable with
respect to contributions made and premiums paid after Aug. 1, 1969,
see section 321(d) of Pub. L. 91-172, set out as an Effective Date
note under section 83 of this title.
Amendment by section 515(a)(2) of Pub. L. 91-172 applicable to
taxable years ending after Dec. 31, 1969, see section 515(d) of
Pub. L. 91-172, set out as a note under section 402 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 232(g) of Pub. L. 88-272, set out
as a note under section 5 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a
note under section 22 of this title.
EFFECTIVE DATE OF 1961 AMENDMENT
Section 3(b) of Pub. L. 87-370 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to taxable years beginning after December 31, 1957."
EFFECTIVE DATES OF 1958 AMENDMENT
Section 23(g) of Pub. L. 85-866 provided that: "The amendments
made by subsections (a), (b), (c), and (d) [amending this section
and section 101 of this title] shall apply with respect to taxable
years beginning after December 31, 1957. The amendments made by
subsection (e) [amending section 2039 of this title] shall apply
with respect to estates of decedents dying after December 31, 1957.
The amendments made by subsection (f) [amending section 2517 of
this title] shall apply with respect to calendar years after 1957."
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1120 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
ELECTION TO MODIFY SECTION 403(B) EXCLUSION ALLOWANCE TO CONFORM TO
SECTION 415 MODIFICATION
Pub. L. 107-16, title VI, Sec. 632(b)(3), June 7, 2001, 115 Stat.
115, provided that: "In the case of taxable years beginning after
December 31, 1999, and before January 1, 2002, a plan may disregard
the requirement in the regulations regarding the exclusion
allowance under section 403(b)(2) of the Internal Revenue Code of
1986 that contributions to a defined benefit pension plan be
treated as previously excluded amounts for purposes of the
exclusion allowance."
MODIFICATIONS OF SUBSECTION (B) OF THIS SECTION
Section 1601(d)(4) of Pub. L. 105-34, as amended by Pub. L. 105-
206, title VI, Sec. 6016(a)(2), July 22, 1998, 112 Stat. 822,
provided that:
"(A) Paragraphs (7)(A)(ii) and (11) of section 403(b) of the
Internal Revenue Code of 1986 shall not apply with respect to a
distribution from a contract described in section 1450(b)(1) of
such Act [Pub. L. 104-188, set out below] to the extent that such
distribution is not includible in income by reason of -
"(i) in the case of distributions before January 1, 1998,
section 403(b)(8) or (b)(10) of such Code (determined after the
application of section 1450(b)(2) of such Act [Pub. L. 104-188,
set out below]), and
"(ii) in the case of distributions on and after such date, such
section 403(b)(10).
"(B) This paragraph shall apply as if included in section 1450 of
the Small Business Job Protection Act of 1996 [Pub. L. 104-188, set
out below]."
Section 1450(a), (b) of Pub. L. 104-188 provided that:
"(a) Multiple Salary Reduction Agreements Permitted. -
"(1) General rule. - For purposes of section 403(b) of the
Internal Revenue Code of 1986, the frequency that an employee is
permitted to enter into a salary reduction agreement, the salary
to which such an agreement may apply, and the ability to revoke
such an agreement shall be determined under the rules applicable
to cash or deferred elections under section 401(k) of such Code.
"(2) Constructive receipt. - [Amended section 402 of this
title.]
"(3) Effective date. - This subsection shall apply to taxable
years beginning after December 31, 1995.
"(b) Treatment of Indian Tribal Governments. -
"(1) In general. - In the case of any contract purchased in a
plan year beginning before January 1, 1995, section 403(b) of the
Internal Revenue Code of 1986 shall be applied as if any
reference to an employer described in section 501(c)(3) of the
Internal Revenue Code of 1986 which is exempt from tax under
section 501 of such Code included a reference to an employer
which is an Indian tribal government (as defined by section
7701(a)(40) of such Code), a subdivision of an Indian tribal
government (determined in accordance with section 7871(d) of such
Code), an agency or instrumentality of an Indian tribal
government or subdivision thereof, or a corporation chartered
under Federal, State, or tribal law which is owned in whole or in
part by any of the foregoing.
"(2) Rollovers. - Solely for purposes of applying section
403(b)(8) of such Code to a contract to which paragraph (1)
applies, a qualified cash or deferred arrangement under section
401(k) of such Code shall be treated as if it were a plan or
contract described in clause (ii) of section 403(b)(8)(A) of such
Code."
SAMPLING TO DETERMINE WHETHER PLAN MEETS SUBSECTION (B)(12)
REQUIREMENTS
Section 6052(b) of Pub. L. 100-647 provided that: "In the case of
plan years beginning in 1989, 1990, or 1991, determinations as to
whether a plan meets the requirements of section 403(b)(12) of the
1986 Code may be made on the basis of a statistically valid random
sample. The preceding sentence shall apply only if -
"(1) the sampling is conducted by an independent person in a
manner not inconsistent with regulations prescribed by the
Secretary, and
"(2) the statistical method and sample size result in a 95
percent probability that the results will have a margin of error
not greater than 3 percent."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
CORRECTION PERIOD FOR CHURCH PLANS
Section 251(d) of Pub. L. 97-248, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "A church
plan (within the meaning of section 414(e) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954]) shall not be treated as not
meeting the requirements of section 401 or 403 of such Code if -
"(1) by reason of any change in any law, regulation, ruling, or
otherwise such plan is required to be amended to meet such
requirements, and
"(2) such plan is so amended at the next earliest church
convention or such other time as the Secretary of the Treasury or
his delegate may prescribe."
TRANSITIONAL RULE FOR MAKING SECTION 403(B)(8) ROLLOVER IN THE CASE
OF PAYMENTS DURING 1978
Section 101(a)(13)(B) of Pub. L. 96-222, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the
case of any payment made during 1978 in a qualifying distribution
described in section 403(b)(8) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], the applicable period specified in section
402(a)(5)(C) of such Code shall not expire before the close of
December 31, 1980."
TRANSITIONAL RULE IN CASE OF ROLLOVER CONTRIBUTIONS TO EMPLOYEE
TRUSTS OR ANNUITIES
Applicable period specified in section 402(a)(5)(C) of this title
shall not expire before close of Dec. 31, 1980 in case of any
payment described in subsec. (a)(4)(A) of this section or section
402(a)(5)(A) of this title, see section 157(h)(3)(B) of Pub. L. 95-
600, set out as a note under section 402 of this title.
-End-
-CITE-
26 USC Sec. 404 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 404. Deduction for contributions of an employer to an
employees' trust or annuity plan and compensation under a
deferred-payment plan
-STATUTE-
(a) General rule
If contributions are paid by an employer to or under a stock
bonus, pension, profit-sharing, or annuity plan, or if compensation
is paid or accrued on account of any employee under a plan
deferring the receipt of such compensation, such contributions or
compensation shall not be deductible under this chapter; but, if
they would otherwise be deductible, they shall be deductible under
this section, subject, however, to the following limitations as to
the amounts deductible in any year:
(1) Pension trusts
(A) In general
In the taxable year when paid, if the contributions are paid
into a pension trust (other than a trust to which paragraph (3)
applies), and if such taxable year ends within or with a
taxable year of the trust for which the trust is exempt under
section 501(a), in an amount determined as follows:
(i) the amount necessary to satisfy the minimum funding
standard provided by section 412(a) for plan years ending
within or with such taxable year (or for any prior plan
year), if such amount is greater than the amount determined
under clause (ii) or (iii) (whichever is applicable with
respect to the plan),
(ii) the amount necessary to provide with respect to all of
the employees under the trust the remaining unfunded cost of
their past and current service credits distributed as a level
amount, or a level percentage of compensation, over the
remaining future service of each such employee, as determined
under regulations prescribed by the Secretary, but if such
remaining unfunded cost with respect to any 3 individuals is
more than 50 percent of such remaining unfunded cost, the
amount of such unfunded cost attributable to such individuals
shall be distributed over a period of at least 5 taxable
years,
(iii) an amount equal to the normal cost of the plan, as
determined under regulations prescribed by the Secretary,
plus, if past service or other supplementary pension or
annuity credits are provided by the plan, an amount necessary
to amortize the unfunded costs attributable to such credits
in equal annual payments (until fully amortized) over 10
years, as determined under regulations prescribed by the
Secretary.
In determining the amount deductible in such year under the
foregoing limitations the funding method and the actuarial
assumptions used shall be those used for such year under
section 412, and the maximum amount deductible for such year
shall be an amount equal to the full funding limitation for
such year determined under section 412.
(B) Special rule in case of certain amendments
In the case of a plan which the Secretary of Labor finds to
be collectively bargained which makes an election under this
subparagraph (in such manner and at such time as may be
provided under regulations prescribed by the Secretary), if the
full funding limitation determined under section 412(c)(7) for
such year is zero, if as a result of any plan amendment
applying to such plan year, the amount determined under section
412(c)(7)(B) exceeds the amount determined under section
412(c)(7)(A), and if the funding method and the actuarial
assumptions used are those used for such year under section
412, the maximum amount deductible in such year under the
limitations of this paragraph shall be an amount equal to the
lesser of -
(i) the full funding limitation for such year determined by
applying section 412(c)(7) but increasing the amount referred
to in subparagraph (A) thereof by the decrease in the present
value of all unamortized liabilities resulting from such
amendment, or
(ii) the normal cost under the plan reduced by the amount
necessary to amortize in equal annual installments over 10
years (until fully amortized) the decrease described in
clause (i).
In the case of any election under this subparagraph, the amount
deductible under the limitations of this paragraph with respect
to any of the plan years following the plan year for which such
election was made shall be determined as provided under such
regulations as may be prescribed by the Secretary to carry out
the purposes of this subparagraph.
(C) Certain collectively-bargained plans
In the case of a plan which the Secretary of Labor finds to
be collectively bargained, established or maintained by an
employer doing business in not less than 40 States and engaged
in the trade or business of furnishing or selling services
described in section 168(i)(10)(C), with respect to which the
rates have been established or approved by a State or political
subdivision thereof, by any agency or instrumentality of the
United States, or by a public service or public utility
commission or other similar body of any State or political
subdivision thereof, and in the case of any employer which is a
member of a controlled group with such employer, subparagraph
(B) shall be applied by substituting for the words "plan
amendment" the words "plan amendment or increase in benefits
payable under title II of the Social Security Act". For the
purposes of this subparagraph, the term "controlled group" has
the meaning provided by section 1563(a), determined without
regard to section 1563(a)(4) and (e)(3)(C).
(D) Special rule in case of certain plans
(i) In general
In the case of any defined benefit plan, except as provided
in regulations, the maximum amount deductible under the
limitations of this paragraph shall not be less than the
unfunded current liability determined under section 412(l).
(ii) Plans with 100 or less participants
For purposes of this subparagraph, in the case of a plan
which has 100 or less participants for the plan year,
unfunded current liability shall not include the liability
attributable to benefit increases for highly compensated
employees (as defined in section 414(q)) resulting from a
plan amendment which is made or becomes effective, whichever
is later, within the last 2 years.
(iii) Rule for determining number of participants
For purposes of determining the number of plan
participants, all defined benefit plans maintained by the
same employer (or any member of such employer's controlled
group (within the meaning of section 412(l)(8)(C))) shall be
treated as one plan, but only employees of such member or
employer shall be taken into account.
(iv) Special rule for terminating plans
In the case of a plan which, subject to section 4041 of the
Employee Retirement Income Security Act of 1974, terminates
during the plan year, clause (i) shall be applied by
substituting for unfunded current liability the amount
required to make the plan sufficient for benefit liabilities
(within the meaning of section 4041(d) of such Act).
(E) Carryover
Any amount paid in a taxable year in excess of the amount
deductible in such year under the foregoing limitations shall
be deductible in the succeeding taxable years in order of time
to the extent of the difference between the amount paid and
deductible in each such succeeding year and the maximum amount
deductible for such year under the foregoing limitations.
(F) Election to disregard modified interest rate
An employer may elect to disregard subsections
(b)(5)(B)(ii)(II) and (l)(7)(C)(i)(IV) of section 412 solely
for purposes of determining the interest rate used in
calculating the maximum amount of the deduction allowable under
this paragraph.
(2) Employees' annuities
In the taxable year when paid, in an amount determined in
accordance with paragraph (1), if the contributions are paid
toward the purchase of retirement annuities, or retirement
annuities and medical benefits as described in section 401(h),
and such purchase is part of a plan which meets the requirements
of section 401(a)(3), (4), (5), (6), (7), (8), (9), (11), (12),
(13), (14), (15), (16), (17),(!1) (19), (20), (22), (26), (27),
and (31) and, if applicable, the requirements of section
401(a)(10) and of section 401(d), and if refunds of premiums, if
any, are applied within the current taxable year or next
succeeding taxable year toward the purchase of such retirement
annuities, or such retirement annuities and medical benefits.
(3) Stock bonus and profit-sharing trusts
(A) Limits on deductible contributions
(i) In general
In the taxable year when paid, if the contributions are
paid into a stock bonus or profit-sharing trust, and if such
taxable year ends within or with a taxable year of the trust
with respect to which the trust is exempt under section
501(a), in an amount not in excess of the greater of -
(I) 25 percent of the compensation otherwise paid or
accrued during the taxable year to the beneficiaries under
the stock bonus or profit-sharing plan, or
(II) the amount such employer is required to contribute
to such trust under section 401(k)(11) for such year.
(ii) Carryover of excess contributions
Any amount paid into the trust in any taxable year in
excess of the limitation of clause (i) (or the corresponding
provision of prior law) shall be deductible in the succeeding
taxable years in order of time, but the amount so deductible
under this clause in any 1 such succeeding taxable year
together with the amount allowable under clause (i) shall not
exceed the amount described in subclause (I) or (II) of
clause (i), whichever is greater, with respect to such
taxable year.
(iii) Certain retirement plans excluded
For purposes of this subparagraph, the term "stock bonus or
profit-sharing trust" shall not include any trust designed to
provide benefits upon retirement and covering a period of
years, if under the plan the amounts to be contributed by the
employer can be determined actuarially as provided in
paragraph (1).
(iv) 2 or more trusts treated as 1 trust
If the contributions are made to 2 or more stock bonus or
profit-sharing trusts, such trusts shall be considered a
single trust for purposes of applying the limitations in this
subparagraph.
(v) Defined contribution plans subject to the funding
standards
Except as provided by the Secretary, a defined contribution
plan which is subject to the funding standards of section 412
shall be treated in the same manner as a stock bonus or
profit-sharing plan for purposes of this subparagraph.
(B) Profit-sharing plan of affiliated group
In the case of a profit-sharing plan, or a stock bonus plan
in which contributions are determined with reference to
profits, of a group of corporations which is an affiliated
group within the meaning of section 1504, if any member of such
affiliated group is prevented from making a contribution which
it would otherwise have made under the plan, by reason of
having no current or accumulated earnings or profits or because
such earnings or profits are less than the contributions which
it would otherwise have made, then so much of the contribution
which such member was so prevented from making may be made, for
the benefit of the employees of such member, by the other
members of the group, to the extent of current or accumulated
earnings or profits, except that such contribution by each such
other member shall be limited, where the group does not file a
consolidated return, to that proportion of its total current
and accumulated earnings or profits remaining after adjustment
for its contribution deductible without regard to this
subparagraph which the total prevented contribution bears to
the total current and accumulated earnings or profits of all
the members of the group remaining after adjustment for all
contributions deductible without regard to this subparagraph.
Contributions made under the preceding sentence shall be
deductible under subparagraph (A) of this paragraph by the
employer making such contribution, and, for the purpose of
determining amounts which may be carried forward and deducted
under the second sentence of subparagraph (A) of this paragraph
in succeeding taxable years, shall be deemed to have been made
by the employer on behalf of whose employees such contributions
were made.
(4) Trusts created or organized outside the United States
If a stock bonus, pension, or profit-sharing trust would
qualify for exemption under section 501(a) except for the fact
that it is a trust created or organized outside the United
States, contributions to such a trust by an employer which is a
resident, or corporation, or other entity of the United States,
shall be deductible under the preceding paragraphs.
(5) Other plans
If the plan is not one included in paragraph (1), (2), or (3),
in the taxable year in which an amount attributable to the
contribution is includible in the gross income of employees
participating in the plan, but, in the case of a plan in which
more than one employee participates only if separate accounts are
maintained for each employee. For purposes of this section, any
vacation pay which is treated as deferred compensation shall be
deductible for the taxable year of the employer in which paid to
the employee.
(6) Time when contributions deemed made
For purposes of paragraphs (1), (2), and (3), a taxpayer shall
be deemed to have made a payment on the last day of the preceding
taxable year if the payment is on account of such taxable year
and is made not later than the time prescribed by law for filing
the return for such taxable year (including extensions thereof).
(7) Limitation on deductions where combination of defined
contribution plan and defined benefit plan
(A) In general
If amounts are deductible under the foregoing paragraphs of
this subsection (other than paragraph (5)) in connection with 1
or more defined contribution plans and 1 or more defined
benefit plans or in connection with trusts or plans described
in 2 or more of such paragraphs, the total amount deductible in
a taxable year under such plans shall not exceed the greater of
-
(i) 25 percent of the compensation otherwise paid or
accrued during the taxable year to the beneficiaries under
such plans, or
(ii) the amount of contributions made to or under the
defined benefit plans to the extent such contributions do not
exceed the amount of employer contributions necessary to
satisfy the minimum funding standard provided by section 412
with respect to any such defined benefit plans for the plan
year which ends with or within such taxable year (or for any
prior plan year).
A defined contribution plan which is a pension plan shall not
be treated as failing to provide definitely determinable
benefits merely by limiting employer contributions to amounts
deductible under this section. For purposes of clause (ii), if
paragraph (1)(D) applies to a defined benefit plan for any plan
year, the amount necessary to satisfy the minimum funding
standard provided by section 412 with respect to such plan for
such plan year shall not be less than the unfunded current
liability of such plan under section 412(l).
(B) Carryover of contributions in excess of the deductible
limit
Any amount paid under the plans in any taxable year in excess
of the limitation of subparagraph (A) shall be deductible in
the succeeding taxable years in order of time, but the amount
so deductible under this subparagraph in any 1 such succeeding
taxable year together with the amount allowable under
subparagraph (A) shall not exceed 25 percent of the
compensation otherwise paid or accrued during such taxable year
to the beneficiaries under the plans.
(C) Paragraph not to apply in certain cases
(i) Beneficiary test
This paragraph shall not have the effect of reducing the
amount otherwise deductible under paragraphs (1), (2), and
(3), if no employee is a beneficiary under more than 1 trust
or under a trust and an annuity plan.
(ii) Elective deferrals
If, in connection with 1 or more defined contribution plans
and 1 or more defined benefit plans, no amounts (other than
elective deferrals (as defined in section 402(g)(3))) are
contributed to any of the defined contribution plans for the
taxable year, then subparagraph (A) shall not apply with
respect to any of such defined contribution plans and defined
benefit plans.
(D) Section 412(i) plans
For purposes of this paragraph, any plan described in section
412(i) shall be treated as a defined benefit plan.
(8) Self-employed individuals
In the case of a plan included in paragraph (1), (2), or (3)
which provides contributions or benefits for employees some or
all of whom are employees within the meaning of section
401(c)(1), for purposes of this section -
(A) the term "employee" includes an individual who is an
employee within the meaning of section 401(c)(1), and the
employer of such individual is the person treated as his
employer under section 401(c)(4);
(B) the term "earned income" has the meaning assigned to it
by section 401(c)(2);
(C) the contributions to such plan on behalf of an individual
who is an employee within the meaning of section 401(c)(1)
shall be considered to satisfy the conditions of section 162 or
212 to the extent that such contributions do not exceed the
earned income of such individual (determined without regard to
the deductions allowed by this section) derived from the trade
or business with respect to which such plan is established, and
to the extent that such contributions are not allocable
(determined in accordance with regulations prescribed by the
Secretary) to the purchase of life, accident, health, or other
insurance; and
(D) any reference to compensation shall, in the case of an
individual who is an employee within the meaning of section
401(c)(1), be considered to be a reference to the earned income
of such individual derived from the trade or business with
respect to which the plan is established.
(9) Certain contributions to employee stock ownership plans
(A) Principal payments
Notwithstanding the provisions of paragraphs (3) and (7), if
contributions are paid into a trust which forms a part of an
employee stock ownership plan (as described in section
4975(e)(7)), and such contributions are, on or before the time
prescribed in paragraph (6), applied by the plan to the
repayment of the principal of a loan incurred for the purpose
of acquiring qualifying employer securities (as described in
section 4975(e)(8)), such contributions shall be deductible
under this paragraph for the taxable year determined under
paragraph (6). The amount deductible under this paragraph shall
not, however, exceed 25 percent of the compensation otherwise
paid or accrued during the taxable year to the employees under
such employee stock ownership plan. Any amount paid into such
trust in any taxable year in excess of the amount deductible
under this paragraph shall be deductible in the succeeding
taxable years in order of time to the extent of the difference
between the amount paid and deductible in each such succeeding
year and the maximum amount deductible for such year under the
preceding sentence.
(B) Interest payment
Notwithstanding the provisions of paragraphs (3) and (7), if
contributions are made to an employee stock ownership plan
(described in subparagraph (A)) and such contributions are
applied by the plan to the repayment of interest on a loan
incurred for the purpose of acquiring qualifying employer
securities (as described in subparagraph (A)), such
contributions shall be deductible for the taxable year with
respect to which such contributions are made as determined
under paragraph (6).
(C) S corporations
This paragraph shall not apply to an S corporation.
(D) Qualified gratuitous transfers
A qualified gratuitous transfer (as defined in section
664(g)(1)) shall have no effect on the amount or amounts
otherwise deductible under paragraph (3) or (7) or under this
paragraph.
(10) Contributions by certain ministers to retirement income
accounts
In the case of contributions made by a minister described in
section 414(e)(5) to a retirement income account described in
section 403(b)(9) and not by a person other than such minister,
such contributions -
(A) shall be treated as made to a trust which is exempt from
tax under section 501(a) and which is part of a plan which is
described in section 401(a), and
(B) shall be deductible under this subsection to the extent
such contributions do not exceed the limit on elective
deferrals under section 402(g) or the limit on annual additions
under section 415.
For purposes of this paragraph, all plans in which the minister
is a participant shall be treated as one plan.
(11) Determinations relating to deferred compensation
For purposes of determining under this section -
(A) whether compensation of an employee is deferred
compensation; and
(B) when deferred compensation is paid,
no amount shall be treated as received by the employee, or paid,
until it is actually received by the employee.
(12) Definition of compensation
For purposes of paragraphs (3), (7), (8), and (9) and
subsection (h)(1)(C), the term "compensation" shall include
amounts treated as "participant's compensation" under
subparagraph (C) or (D) of section 415(c)(3).
(b) Method of contributions, etc., having the effect of a plan;
certain deferred benefits
(1) Method of contributions, etc., having the effect of a plan
If -
(A) there is no plan, but
(B) there is a method or arrangement of employer
contributions or compensation which has the effect of a stock
bonus, pension, profit-sharing, or annuity plan, or other plan
deferring the receipt of compensation (including a plan
described in paragraph (2)),
subsection (a) shall apply as if there were such a plan.
(2) Plans providing certain deferred benefits
(A) In general
For purposes of this section, any plan providing for deferred
benefits (other than compensation) for employees, their
spouses, or their dependents shall be treated as a plan
deferring the receipt of compensation. In the case of such a
plan, for purposes of this section, the determination of when
an amount is includible in gross income shall be made without
regard to any provisions of this chapter excluding such
benefits from gross income.
(B) Exception
Subparagraph (A) shall not apply to any benefit provided
through a welfare benefit fund (as defined in section 419(e)).
(c) Certain negotiated plans
If contributions are paid by an employer -
(1) under a plan under which such contributions are held in
trust for the purpose of paying (either from principal or income
or both) for the benefit of employees and their families and
dependents at least medical or hospital care, or pensions on
retirement or death of employees; and
(2) such plan was established prior to January 1, 1954, as a
result of an agreement between employee representatives and the
Government of the United States during a period of Government
operation, under seizure powers, of a major part of the
productive facilities of the industry in which such employer is
engaged,
such contributions shall not be deductible under this section nor
be made nondeductible by this section, but the deductibility
thereof shall be governed solely by section 162 (relating to trade
or business expenses). For purposes of this chapter and subtitle B,
in the case of any individual who before July 1, 1974, was a
participant in a plan described in the preceding sentence -
(A) such individual, if he is or was an employee within the
meaning of section 401(c)(1), shall be treated (with respect to
service covered by the plan) as being an employee other than an
employee within the meaning of section 401(c)(1) and as being an
employee of a participating employer under the plan,
(B) earnings derived from service covered by the plan shall be
treated as not being earned income within the meaning of section
401(c)(2), and
(C) such individual shall be treated as an employee of a
participating employer under the plan with respect to service
before July 1, 1975, covered by the plan.
Section 277 (relating to deductions incurred by certain membership
organizations in transactions with members) does not apply to any
trust described in this subsection. The first and third sentences
of this subsection shall have no application with respect to
amounts contributed to a trust on or after any date on which such
trust is qualified for exemption from tax under section 501(a).
(d) Deductibility of payments of deferred compensation, etc., to
independent contractors
If a plan would be described in so much of subsection (a) as
precedes paragraph (1) thereof (as modified by subsection (b)) but
for the fact that there is no employer-employee relationship, the
contributions or compensation -
(1) shall not be deductible by the payor thereof under this
chapter, but
(2) shall (if they would be deductible under this chapter but
for paragraph (1)) be deductible under this subsection for the
taxable year in which an amount attributable to the contribution
or compensation is includible in the gross income of the persons
participating in the plan.
(e) Contributions allocable to life insurance protection for self-
employed individuals
In the case of a self-employed individual described in section
401(c)(1), contributions which are allocable (determined under
regulations prescribed by the Secretary) to the purchase of life,
accident, health, or other insurance shall not be taken into
account under paragraph (1), (2), or (3) of subsection (a).
[(f) Repealed. Pub. L. 98-369, div. A, title VII, Sec. 713(b)(3),
July 18, 1984, 98 Stat. 957]
(g) Certain employer liability payments considered as contributions
(1) In general
For purposes of this section, any amount paid by an employer
under section 4041(b), 4062, 4063, or 4064, or part 1 of subtitle
E of title IV of the Employee Retirement Income Security Act of
1974 shall be treated as a contribution to which this section
applies by such employer to or under a stock bonus, pension,
profit-sharing, or annuity plan.
(2) Controlled group deductions
In the case of a payment described in paragraph (1) made by an
entity which is liable because it is a member of a commonly
controlled group of corporations, trades, or businesses, within
the meaning of subsection (b) or (c) of section 414, the fact
that the entity did not directly employ participants of the plan
with respect to which the liability payment was made shall not
affect the deductibility of a payment which otherwise satisfies
the conditions of section 162 (relating to trade or business
expenses) or section 212 (relating to expenses for the production
of income).
(3) Timing of deduction of contributions
(A) In general
Except as otherwise provided in this paragraph, any payment
described in paragraph (1) shall (subject to the last sentence
of subsection (a)(1)(A)) be deductible under this section when
paid.
(B) Contributions under standard terminations
Subparagraph (A) shall not apply (and subsection (a)(1)(A)
shall apply) to any payments described in paragraph (1) which
are paid to terminate a plan under section 4041(b) of the
Employee Retirement Income Security Act of 1974 to the extent
such payments result in the assets of the plan being in excess
of the total amount of benefits under such plan which are
guaranteed by the Pension Benefit Guaranty Corporation under
section 4022 of such Act.
(C) Contributions to certain trusts
Subparagraph (A) shall not apply to any payment described in
paragraph (1) which is made under section 4062(c) of such Act
and such payment shall be deductible at such time as may be
prescribed in regulations which are based on principles similar
to the principles of subsection (a)(1)(A).
(4) References to Employee Retirement Income Security Act of 1974
For purposes of this subsection, any reference to a section of
the Employee Retirement Income Security Act of 1974 shall be
treated as a reference to such section as in effect on the date
of the enactment of the Retirement Protection Act of 1994.
(h) Special rules for simplified employee pensions
(1) In general
Employer contributions to a simplified employee pension shall
be treated as if they are made to a plan subject to the
requirements of this section. Employer contributions to a
simplified employee pension are subject to the following
limitations:
(A) Contributions made for a year are deductible -
(i) in the case of a simplified employee pension maintained
on a calendar year basis, for the taxable year with or within
which the calendar year ends, or
(ii) in the case of a simplified employee pension which is
maintained on the basis of the taxable year of the employer,
for such taxable year.
(B) Contributions shall be treated for purposes of this
subsection as if they were made for a taxable year if such
contributions are made on account of such taxable year and are
made not later than the time prescribed by law for filing the
return for such taxable year (including extensions thereof).
(C) The amount deductible in a taxable year for a simplified
employee pension shall not exceed 25 percent of the
compensation paid to the employees during the calendar year
ending with or within the taxable year (or during the taxable
year in the case of a taxable year described in subparagraph
(A)(ii)). The excess of the amount contributed over the amount
deductible for a taxable year shall be deductible in the
succeeding taxable years in order of time, subject to the 25
percent limit of the preceding sentence.
(2) Effect on certain trusts
For any taxable year for which the employer has a deduction
under paragraph (1), the otherwise applicable limitations in
subsection (a)(3)(A) shall be reduced by the amount of the
allowable deductions under paragraph (1) with respect to
participants in the trust subject to subsection (a)(3)(A).
(3) Coordination with subsection (a)(7)
For purposes of subsection (a)(7), a simplified employee
pension shall be treated as if it were a separate stock bonus or
profit-sharing trust.
[(i) Repealed. Pub. L. 99-514, title XI, Sec. 1171(b)(6), Oct. 22,
1986, 100 Stat. 2513]
(j) Special rules relating to application with section 415
(1) No deduction in excess of section 415 limitation
In computing the amount of any deduction allowable under
paragraph (1), (2), (3), (4), (7), or (9) of subsection (a) for
any year -
(A) in the case of a defined benefit plan, there shall not be
taken into account any benefits for any year in excess of any
limitation on such benefits under section 415 for such year, or
(B) in the case of a defined contribution plan, the amount of
any contributions otherwise taken into account shall be reduced
by any annual additions in excess of the limitation under
section 415 for such year.
(2) No advance funding of cost-of-living adjustments
For purposes of clause (i), (ii) or (iii) of subsection
(a)(1)(A), and in computing the full funding limitation, there
shall not be taken into account any adjustments under section
415(d)(1) for any year before the year for which such adjustment
first takes effect.
(k) Deduction for dividends paid on certain employer securities
(1) General rule
In the case of a C corporation, there shall be allowed as a
deduction for a taxable year the amount of any applicable
dividend paid in cash by such corporation with respect to
applicable employer securities. Such deduction shall be in
addition to the deductions allowed under subsection (a).
(2) Applicable dividend
For purposes of this subsection -
(A) In general
The term "applicable dividend" means any dividend which, in
accordance with the plan provisions -
(i) is paid in cash to the participants in the plan or
their beneficiaries,
(ii) is paid to the plan and is distributed in cash to
participants in the plan or their beneficiaries not later
than 90 days after the close of the plan year in which paid,
(iii) is, at the election of such participants or their
beneficiaries -
(I) payable as provided in clause (i) or (ii), or
(II) paid to the plan and reinvested in qualifying
employer securities, or
(iv) is used to make payments on a loan described in
subsection (a)(9) the proceeds of which were used to acquire
the employer securities (whether or not allocated to
participants) with respect to which the dividend is paid.
(B) Limitation on certain dividends
A dividend described in subparagraph (A)(iv) which is paid
with respect to any employer security which is allocated to a
participant shall not be treated as an applicable dividend
unless the plan provides that employer securities with a fair
market value of not less than the amount of such dividend are
allocated to such participant for the year which (but for
subparagraph (A)) such dividend would have been allocated to
such participant.
(3) Applicable employer securities
For purposes of this subsection, the term "applicable employer
securities" means, with respect to any dividend, employer
securities which are held on the record date for such dividend by
an employee stock ownership plan which is maintained by -
(A) the corporation paying such dividend, or
(B) any other corporation which is a member of a controlled
group of corporations (within the meaning of section 409(l)(4))
which includes such corporation.
(4) Time for deduction
(A) In general
The deduction under paragraph (1) shall be allowable in the
taxable year of the corporation in which the dividend is paid
or distributed to a participant or his beneficiary.
(B) Reinvestment dividends
For purposes of subparagraph (A), an applicable dividend
reinvested pursuant to clause (iii)(II) of paragraph (2)(A)
shall be treated as paid in the taxable year of the corporation
in which such dividend is reinvested in qualifying employer
securities or in which the election under clause (iii) of
paragraph (2)(A) is made, whichever is later.
(C) Repayment of loans
In the case of an applicable dividend described in clause
(iv) of paragraph (2)(A), the deduction under paragraph (1)
shall be allowable in the taxable year of the corporation in
which such dividend is used to repay the loan described in such
clause.
(5) Other rules
For purposes of this subsection -
(A) Disallowance of deduction
The Secretary may disallow the deduction under paragraph (1)
for any dividend if the Secretary determines that such dividend
constitutes, in substance, an avoidance or evasion of taxation.
(B) Plan qualification
A plan shall not be treated as violating the requirements of
section 401, 409, or 4975(e)(7), or as engaging in a prohibited
transaction for purposes of section 4975(d)(3), merely by
reason of any payment or distribution described in paragraph
(2)(A).
(6) Definitions
For purposes of this subsection -
(A) Employer securities
The term "employer securities" has the meaning given such
term by section 409(l).
(B) Employee stock ownership plan
The term "employee stock ownership plan" has the meaning
given such term by section 4975(e)(7). Such term includes a tax
credit employee stock ownership plan (as defined in section
409).
(7) Full vesting
In accordance with section 411, an applicable dividend
described in clause (iii)(II) of paragraph (2)(A) shall be
subject to the requirements of section 411(a)(1).
(l) Limitation on amount of annual compensation taken into account
For purposes of applying the limitations of this section, the
amount of annual compensation of each employee taken into account
under the plan for any year shall not exceed $200,000. The
Secretary shall adjust the $200,000 amount at the same time, and by
the same amount, as any adjustment under section 401(a)(17)(B). For
purposes of clause (i), (ii), or (iii) of subsection (a)(1)(A), and
in computing the full funding limitation, any adjustment under the
preceding sentence shall not be taken into account for any year
before the year for which such adjustment first takes effect.
(m) Special rules for simple retirement accounts
(1) In general
Employer contributions to a simple retirement account shall be
treated as if they are made to a plan subject to the requirements
of this section.
(2) Timing
(A) Deduction
Contributions described in paragraph (1) shall be deductible
in the taxable year of the employer with or within which the
calendar year for which the contributions were made ends.
(B) Contributions after end of year
For purposes of this subsection, contributions shall be
treated as made for a taxable year if they are made on account
of the taxable year and are made not later than the time
prescribed by law for filing the return for the taxable year
(including extensions thereof).
(n) Elective deferrals not taken into account for purposes of
deduction limits
Elective deferrals (as defined in section 402(g)(3)) shall not be
subject to any limitation contained in paragraph (3), (7), or (9)
of subsection (a) or paragraph (1)(C) of subsection (h) and such
elective deferrals shall not be taken into account in applying any
such limitation to any other contributions.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 138; Pub. L. 85-866, title I,
Sec. 24, Sept. 2, 1958, 72 Stat. 1623; Pub. L. 87-792, Sec. 3, Oct.
10, 1962, 76 Stat. 819; Pub. L. 87-863, Sec. 2(b), Oct. 23, 1962,
76 Stat. 1141; Pub. L. 89-809, title II, Sec. 204(a), (b)(2), (3),
Nov. 13, 1966, 80 Stat. 1577; Pub. L. 91-172, title III, Sec.
321(b)(3), Dec. 30, 1969, 83 Stat. 591; Pub. L. 93-406, title II,
Secs. 1013(c), 1016(a)(3), 2001(a), (g)(2)(E), (F), 2004(b),
(c)(1), 2007(a), (b), title IV, Sec. 4401(a), formerly Sec.
4081(a), Sept. 2, 1974, 88 Stat. 921, 929, 952, 957, 986, 993, 994,
1033, renumbered Sec. 4401(a), Pub. L. 96-364, title I, Sec.
108(a), Sept. 26, 1980, 94 Stat. 1267; Pub. L. 94-267, Sec.
1(c)(3), Apr. 15, 1976, 90 Stat. 367; Pub. L. 94-455, title XV,
Sec. 1502(a)(2), title XIX, Secs. 1901(a)(59), 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1737, 1774, 1834; Pub. L. 95-600, title I, Secs.
133(a), (b), 141(f)(9), 152(f), Nov. 6, 1978, 92 Stat. 2783, 2795,
2799; Pub. L. 96-222, title I, Sec. 101(a)(10)(E), (J)(ii), Apr. 1,
1980, 94 Stat. 202, 204; Pub. L. 96-364, title II, Sec. 205, Sept.
26, 1980, 94 Stat. 1287; Pub. L. 97-34, title III, Secs. 312(a),
331(b), 333(a), Aug. 13, 1981, 95 Stat. 283, 293, 296; Pub. L. 97-
248, title II, Secs. 235(f), 237(e)(2), 238(a), 253(b), Sept. 3,
1982, 96 Stat. 507, 512, 533; Pub. L. 98-369, div. A, title IV,
Sec. 474(r)(14), title V, Secs. 512(a), 542(a), title VII, Sec.
713(b)(3), (d)(4)(A), (5), (6), (9), July 18, 1984, 98 Stat. 842,
862, 890, 957, 958; Pub. L. 99-272, title XI, Sec. 11011(c)(1),
(2), Apr. 7, 1986, 100 Stat. 257, 258; Pub. L. 99-514, title XI,
Secs. 1106(d)(2), 1108(c), 1112(d)(2), 1131(a), (b), 1136(b),
1171(b)(6), 1173(a), title XVIII, Secs. 1848(c), 1851(b)(2)(A)-
(C)(ii), 1854(b)(2)-(5), 1875(c)(7), Oct. 22, 1986, 100 Stat.
2424, 2433, 2445, 2476, 2477, 2486, 2513, 2515, 2857, 2863, 2878,
2895; Pub. L. 100-203, title IX, Sec. 9307(c), (d), title X, Sec.
10201(b)(2), (3), Dec. 22, 1987, 101 Stat. 1330-357, 1330-387; Pub.
L. 100-647, title I, Secs. 1011(d)(1), (4), (f)(6), 1011A(e)(4),
1011B(h)(3), (6), 1018(t)(4)(A), (5), title II, Sec. 2005(b), Nov.
10, 1988, 102 Stat. 3459, 3463, 3478, 3491, 3492, 3588, 3589, 3610;
Pub. L. 101-239, title VII, Secs. 7302(a), 7841(b)(1), Dec. 19,
1989, 103 Stat. 2351, 2428; Pub. L. 101-508, title XI, Sec.
11812(b)(7), Nov. 5, 1990, 104 Stat. 1388-535; Pub. L. 102-318,
title V, Sec. 522(a)(2), July 3, 1992, 106 Stat. 314; Pub. L. 103-
66, title XIII, Sec. 13212(c)(1), Aug. 10, 1993, 107 Stat. 472;
Pub. L. 103-465, title VII, Sec. 751(a)(11), Dec. 8, 1994, 108
Stat. 5022; Pub. L. 104-188, title I, Secs. 1316(d)(1), (2),
1421(b)(2), 1431(b)(3), 1461(b), 1704(q)(1), (t)(76), Aug. 20,
1996, 110 Stat. 1786, 1795, 1803, 1823, 1887, 1891; Pub. L. 105-34,
title XV, Sec. 1530(c)(2), title XVI, Sec. 1601(d)(2)(C), Aug. 5,
1997, 111 Stat. 1078, 1088; Pub. L. 105-206, title VI, Sec.
6015(d), title VII, Sec. 7001(a), July 22, 1998, 112 Stat. 821,
827; Pub. L. 107-16, title VI, Secs. 611(c)(1), 614(a), 616(a)-
(b)(2)(A), 632(a)(3)(B), 652(a), 662(a), (b), June 7, 2001, 115
Stat. 97, 102, 103, 114, 129, 142; Pub. L. 107-147, title IV, Sec.
411(l)(1), (2), (4), (s), (w), Mar. 9, 2002, 116 Stat. 47, 51, 52;
Pub. L. 108-218, title I, Sec. 101(b)(5), Apr. 10, 2004, 118 Stat.
598.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The Social Security Act, referred to in subsec. (a)(1)(C), is act
Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Title II of the
Social Security Act is classified generally to subchapter II (Sec.
401 et seq.) of Title 42, The Public Health and Welfare. For
complete classification of this Act to the Code, see section 1305
of Title 42 and Tables.
Section 401(a)(17), referred to in subsec. (a)(2), was repealed
by Pub. L. 97-248, title II, Sec. 237(b), Sept. 3, 1982, 96 Stat.
511. A new section 401(a)(17) was added by Pub. L. 99-514, title
XI, Sec. 1106(d)(1), Oct. 22, 1986, 100 Stat. 2423.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (a)(3)(A)(v)(II), is the date of enactment of Pub. L.
99-514, which was approved Oct. 22, 1986.
The Employee Retirement Income Security Act of 1974, referred to
in subsecs. (a)(1)(D)(iv), (g)(1), (3)(B), (C), (4), is Pub. L. 93-
406, Sept. 2, 1974, 88 Stat. 829, as amended, which is classified
principally to chapter 18 (Sec. 1001 et seq.) of Title 29, Labor.
Part 1 of subtitle E of title IV of the Employee Retirement Income
Security Act of 1974 is classified generally to part 1 (Sec. 1381
et seq.) of subtitle E of subchapter III of chapter 18 of Title 29.
Sections 4022, 4041, 4062, 4063, and 4064 of the Employee
Retirement Income Security Act of 1974 are classified to sections
1322, 1341, 1362, 1363, and 1364, respectively, of Title 29. For
complete classification of this Act to the Code, see Short Title
note set out under section 1001 of Title 29 and Tables.
The date of the enactment of the Retirement Protection Act of
1994, referred to in subsec. (g)(4), is the date of enactment of
subtitle F (Secs. 750-781) of title VII of Pub. L. 103-465, which
was approved Dec. 8, 1994.
-MISC1-
AMENDMENTS
2004 - Subsec. (a)(1)(F). Pub. L. 108-218 added subpar. (F).
2002 - Subsec. (a)(1)(D)(iv). Pub. L. 107-147, Sec. 411(s),
substituted "Special rule for terminating plans" for "Plans
maintained by professional service employers" in heading.
Subsec. (a)(7)(C). Pub. L. 107-147, Sec. 411(l)(4), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "This paragraph shall not have the
effect of reducing the amount otherwise deductible under paragraphs
(1), (2), and (3), if no employee is a beneficiary under more than
1 trust or under a trust and an annuity plan."
Subsec. (a)(12). Pub. L. 107-147, Sec. 411(l)(1), substituted
"(9) and subsection (h)(1)(C)," for "(9),".
Subsec. (k)(1). Pub. L. 107-147, Sec. 411(w)(1)(A), struck out
"during the taxable year" after "such corporation".
Subsec. (k)(2)(B). Pub. L. 107-147, Sec. 411(w)(1)(B),
substituted "(A)(iv)" for "(A)(iii)".
Subsec. (k)(4)(B), (C). Pub. L. 107-147, Sec. 411(w)(1)(C), (D),
substituted "clause (iv)" for "clause (iii)" in subpar. (B), added
a new subpar. (B), and redesignated former subpar. (B) as (C).
Subsec. (k)(7). Pub. L. 107-147, Sec. 411(w)(2), added par. (7).
Subsec. (n). Pub. L. 107-147, Sec. 411(l)(2), substituted
"subsection (a) or paragraph (1)(C) of subsection (h)" for
"subsection (a),".
2001 - Subsec. (a)(1)(A). Pub. L. 107-16, Secs. 616(a)(2)(B)(i),
901, temporarily inserted "(other than a trust to which paragraph
(3) applies)" after "pension trust" in introductory provisions. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (a)(1)(D). Pub. L. 107-16, Secs. 652(a), 901, temporarily
reenacted heading without change and amended text generally. Prior
to amendment, text read as follows: "In the case of any defined
benefit plan (other than a multiemployer plan) which has more than
100 participants for the plan year, except as provided in
regulations, the maximum amount deductible under the limitations of
this paragraph shall not be less than the unfunded current
liability determined under section 412(l). For purposes of
determining whether a plan has more than 100 participants, all
defined benefit plans maintained by the same employer (or any
member of such employer's controlled group (within the meaning of
section 412(l)(8)(C))) shall be treated as 1 plan, but only
employees of such member or employer shall be taken into account."
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (a)(3)(A)(i)(I). Pub. L. 107-16, Secs. 616(a)(1)(A), 901,
temporarily substituted "25 percent" for "15 percent". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (a)(3)(A)(v). Pub. L. 107-16, Secs. 616(a)(2)(A), 901,
temporarily amended cl. (v) generally, substituting present
provisions for provisions which directed that the limitation of cl.
(i) for any taxable year would be increased by the unused pre-87
limitation carryforwards and defined "unused pre-87 limitation
carryforwards". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (a)(3)(B). Pub. L. 107-16, Secs. 616(b)(2)(A), 901,
temporarily struck out at end "The term 'compensation otherwise
paid or accrued during the taxable year to all employees' shall
include any amount with respect to which an election under section
415(c)(3)(C) is in effect, but only to the extent that any
contribution with respect to such amount is nonforfeitable." See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (a)(10)(B). Pub. L. 107-16, Secs. 632(a)(3)(B), 901,
temporarily struck out ", the exclusion allowance under section
403(b)(2)," after "deferrals under section 402(g)". See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (a)(12). Pub. L. 107-16, Secs. 616(b)(1), 901,
temporarily added par. (12). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (h)(1)(C). Pub. L. 107-16, Secs. 616(a)(1)(B), 901,
temporarily substituted "25 percent" for "15 percent" in two
places. See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (h)(2). Pub. L. 107-16, Secs. 616(a)(2)(B)(ii), (iii),
901, temporarily substituted "certain trusts" for "stock bonus and
profit-sharing trust" in heading and "trust subject to subsection
(a)(3)(A)" for "stock bonus or profit-sharing trust" in text. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (k)(2)(A)(iii), (iv). Pub. L. 107-16, Secs. 662(a), 901,
temporarily added cl. (iii) and redesignated former cl. (iii) as
(iv). See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (k)(5)(A). Pub. L. 107-16, Secs. 662(b), 901, temporarily
inserted "avoidance or" before "evasion". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (l). Pub. L. 107-16, Secs. 611(c)(1), 901, temporarily
substituted "$200,000" for "$150,000" in two places. See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (n). Pub. L. 107-16, Secs. 614(a), 901, temporarily added
subsec. (n). See Effective and Termination Dates of 2001 Amendment
note below.
1998 - Subsec. (a)(9)(C), (D). Pub. L. 105-206, Sec. 6015(d),
redesignated subpar. (C), relating to qualified gratuitous
transfers, as (D) and inserted heading.
Subsec. (a)(11). Pub. L. 105-206, Sec. 7001(a), added par. (11).
1997 - Subsec. (a)(3)(A)(i). Pub. L. 105-34, Sec.
1601(d)(2)(C)(i), substituted "not in excess of the greater of - "
and subcls. (I) and (II) for "not in excess of 15 percent of the
compensation otherwise paid or accrued during the taxable year to
the beneficiaries under the stock bonus or profit-sharing plan."
Subsec. (a)(3)(A)(ii). Pub. L. 105-34, Sec. 1601(d)(2)(C)(ii),
substituted "the amount described in subclause (I) or (II) of
clause (i), whichever is greater, with respect to such taxable
year." for "15 percent of the compensation otherwise paid or
accrued during such taxable year to the beneficiaries under the
plan."
Subsec. (a)(9)(C). Pub. L. 105-34, Sec. 1530(c)(2), added subpar.
(C) relating to qualified gratuitous transfers.
1996 - Subsec. (a)(2). Pub. L. 104-188, Sec. 1704(t)(76), struck
out "(18)," after "(17),".
Subsec. (a)(9)(C). Pub. L. 104-188, Sec. 1316(d)(1), added
subpar. (C) relating to S corporations.
Subsec. (a)(10). Pub. L. 104-188, Sec. 1461(b), added par. (10).
Subsec. (j)(1). Pub. L. 104-188, Sec. 1704(q)(1), substituted
"(9)" for "(10)" in introductory provisions.
Subsec. (k)(1). Pub. L. 104-188, Sec. 1316(d)(2), substituted "a
C corporation" for "a corporation".
Subsec. (l). Pub. L. 104-188, Sec. 1431(b)(3), struck out at end
"In determining the compensation of an employee, the rules of
section 414(q)(6) shall apply, except that in applying such rules,
the term 'family' shall include only the spouse of the employee and
any lineal descendants of the employee who have not attained age 19
before the close of the year."
Subsec. (m). Pub. L. 104-188, Sec. 1421(b)(2), added subsec. (m).
1994 - Subsec. (g)(4). Pub. L. 103-465 substituted "the
Retirement Protection Act of 1994" for "the Single-Employer Pension
Plan Amendments Act of 1986".
1993 - Subsec. (l). Pub. L. 103-66 substituted "$150,000" for
"$200,000" in first sentence and "The Secretary shall adjust the
$150,000 amount at the same time, and by the same amount, as any
adjustment under section 401(a)(17)(B)." for "The Secretary shall
adjust the $200,000 amount at the same time and in the same manner
as under section 415(d)."
1992 - Subsec. (a)(2). Pub. L. 102-318 substituted "(27), and
(31)" for "and (27)".
1990 - Subsec. (a)(1)(C). Pub. L. 101-508 substituted "section
168(i)(10)(C)" for "section 167(l)(3)(A)(iii)".
1989 - Subsec. (g)(1). Pub. L. 101-239, Sec. 7841(b)(1), inserted
"4041(b)," after "under section".
Subsec. (k). Pub. L. 101-239, Sec. 7302(a), amended subsec. (k)
generally, substituting "Deduction for dividends paid on certain
employer securities" for "Dividends paid deductions" in heading and
pars. (1) to (6) for former pars. (1) and (2) and concluding
provisions.
1988 - Subsec. (a)(1)(D). Pub. L. 100-647, Sec. 2005(b)(3),
struck out "(without regard to any reduction by the credit balance
in the funding standard account)" after "under section 412(l)".
Pub. L. 100-647, Sec. 2005(b)(1), substituted "For purposes of
determining whether a plan has more than 100 participants" for "For
purposes of this subparagraph".
Subsec. (a)(7)(A). Pub. L. 100-647, Sec. 2005(b)(2), inserted at
end "For purposes of clause (ii), if paragraph (1)(D) applies to a
defined benefit plan for any plan year, the amount necessary to
satisfy the minimum funding standard provided by section 412 with
respect to such plan for such plan year shall not be less than the
unfunded current liability of such plan under section 412(l)."
Pub. L. 100-647, Sec. 1011A(e)(4)(A), in introductory provisions,
substituted "foregoing paragraphs" for "foregoing provisions" and
inserted "or in connection with trusts or plans described in 2 or
more of such paragraphs" after "defined benefit plans".
Subsec. (a)(8)(D). Pub. L. 100-647, Sec. 1018(t)(5), made
technical correction to Pub. L. 99-514, Sec. 1875(c)(7)(B), see
1986 Amendment note below.
Subsec. (h)(1)(C). Pub. L. 100-647, Sec. 1011(f)(6), inserted
"(or during the taxable year in the case of a taxable year
described in subparagraph (A)(ii))" after "within the taxable
year".
Subsec. (h)(3). Pub. L. 100-647, Sec. 1011A(e)(4)(B), substituted
"Coordination with subsection (a)(7)" for "Effect on limit on
deductions" in heading and amended text generally. Prior to
amendment, text read as follows: "For any taxable year for which
the employer has a deduction under paragraph (1), the otherwise
applicable 25 percent limitations in subsection (a)(7) shall be
reduced by the amount of the allowable deductions under paragraph
(1) with respect to participants in the stock bonus or profit-
sharing trust."
Subsec. (k). Pub. L. 100-647, Sec. 1011B(h)(3)(A), inserted
"(whether or not allocated to participants)" after "to employer
securities" in par. (2)(C).
Pub. L. 100-647, Sec. 1011B(h)(6), substituted "or as engaging in
a prohibited transaction for purposes of section 4975(d)(3) merely
by reason of any distribution or payment" for "merely by reason of
any distribution" in third sentence.
Pub. L. 100-647, Sec. 1018(t)(4)(A), substituted "evasion of
taxation" for "avoidance of taxation" in fourth sentence.
Pub. L. 100-647, Sec. 1011B(h)(3)(B), inserted at end "Paragraph
(2)(C) shall not apply to dividends from employer securities which
are allocated to any participant unless the plan provides that
employer securities with a fair market value not less than the
amount of such dividends are allocated to such participant for the
year which (but for paragraph (2)(C)) such dividends would have
been allocated to such participant."
Subsec. (l). Pub. L. 100-647, Sec. 1011(d)(4), inserted at end
"In determining the compensation of an employee, the rules of
section 414(q)(6) shall apply, except that in applying such rules,
the term 'family' shall include only the spouse of the employee and
any lineal descendants of the employee who have not attained age 19
before the close of the year."
Pub. L. 100-647, Sec. 1011(d)(1), inserted at end "For purposes
of clause (i), (ii), or (iii) of subsection (a)(1)(A), and in
computing the full funding limitation, any adjustment under the
preceding sentence shall not be taken into account for any year
before the year for which such adjustment first takes effect."
1987 - Subsec. (a)(1)(A)(iii). Pub. L. 100-203, Sec. 9307(d),
inserted "the unfunded costs attributable to" after "to amortize".
Subsec. (a)(1)(D), (E). Pub. L. 100-203, Sec. 9307(c), added
subpar. (D) and redesignated former subpar. (D) as (E).
Subsec. (a)(5). Pub. L. 100-203, Sec. 10201(b)(3), inserted at
end "For purposes of this section, any vacation pay which is
treated as deferred compensation shall be deductible for the
taxable year of the employer in which paid to the employee."
Subsec. (b)(2)(B). Pub. L. 100-203, Sec. 10201(b)(2), substituted
"Exception" for "Exception for certain benefits" in heading and
amended text generally. Prior to amendment, text read as follows:
"Subparagraph (A) shall not apply to -
"(i) any benefit provided through a welfare benefit fund (as
defined in section 419(e)), or
"(ii) any benefit with respect to which an election under
section 463 applies."
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1851(b)(2)(C)(i),
substituted "this chapter; but, if they would otherwise be
deductible" for "section 162 (relating to trade or business
expenses) or section 212 (relating to expenses for the production
of income); but, if they satisfy the conditions of either of such
sections".
Subsec. (a)(2). Pub. L. 99-514, Sec. 1136(b), substituted "(26),
and (27)" for "and (26)".
Pub. L. 99-514, Sec. 1112(d)(2), substituted "(22), and (26)" for
"and (22)".
Subsec. (a)(3)(A). Pub. L. 99-514, Sec. 1131(a), amended subpar.
(A) generally, revising and restating as cls. (i) to (v) provisions
formerly contained in single paragraph.
Subsec. (a)(7). Pub. L. 99-514, Sec. 1131(b), amended par. (7)
generally, revising and restating as subpars. (A) to (C) provisions
formerly contained in single paragraph, and adding subpar. (D).
Subsec. (a)(8)(C). Pub. L. 99-514, Sec. 1875(c)(7)(A), inserted
"(determined without regard to the deductions allowed by this
section)".
Subsec. (a)(8)(D). Pub. L. 99-514, Sec. 1875(c)(7)(B), as amended
by Pub. L. 100-647, Sec. 1018(t)(5), struck out "(determined
without regard to the deductions allowed by this section)" after
"earned income of such individual".
Pub. L. 99-514, Sec. 1848(c), substituted "the deduction allowed
by this section" for "the deductions allowed by this section and
section 405(c)".
Subsec. (b). Pub. L. 99-514, Sec. 1851(b)(2)(B)(i), substituted
"certain" for "unfunded" in heading.
Subsec. (b)(2). Pub. L. 99-514, Sec. 1851(b)(2)(A), (B)(ii),
substituted "certain" for "unfunded" in heading, and in subpar.
(B)(ii), substituted "any benefit" for "to any benefit".
Subsec. (d). Pub. L. 99-514, Sec. 1851(b)(2)(C)(ii), substituted
"under this chapter" for "under section 162 or 212" in pars. (1)
and (2).
Subsec. (g)(3). Pub. L. 99-272, Sec. 11011(c)(1), amended par.
(3) generally. Prior to the amendment, par. (3), coordination with
subsection (a), read as follows: "Any payment described in
paragraph (1) shall (subject to the last sentence of subsection
(a)(1)(A)) be deductible under this section when paid."
Subsec. (g)(4). Pub. L. 99-272, Sec. 11011(c)(2), added par. (4).
Subsec. (h)(1)(A), (B). Pub. L. 99-514, Sec. 1108(c), amended
subpars. (A) and (B) generally. Prior to amendment, subpars. (A)
and (B) read as follows:
"(A) Contributions made for a calendar year are deductible for
the taxable year with which or within which the calendar year ends.
"(B) Contributions made within 3 1/2 months after the close of a
calendar year are treated as if they were made on the last day of
such calendar year if they are made on account of such calendar
year."
Subsec. (i). Pub. L. 99-514, Sec. 1171(b)(6), struck out subsec.
(i) relating to the deductibility of unused portions of employee
stock ownership credit.
Subsec. (k). Pub. L. 99-514, Sec. 1854(b)(2)(B), struck out
"during the taxable year" after "cash by such corporation" in
introductory provisions.
Pub. L. 99-514, Sec. 1854(b)(4), inserted "The Secretary may
disallow the deduction under this subsection for any dividend if
the Secretary determines that such dividend constitutes, in
substance, an avoidance of taxation."
Pub. L. 99-514, Sec. 1854(b)(3), inserted "A plan to which this
subsection applies shall not be treated as violating the
requirements of section 401, 409, or 4975(e)(7) merely by reason of
any distribution described in paragraph (2)."
Pub. L. 99-514, Sec. 1854(b)(2)(A), inserted "Any deduction under
subparagraph (A) or (B) of paragraph (2) shall be allowed in the
taxable year of the corporation in which the dividend is paid or
distributed to the participant under paragraph (2)."
Pub. L. 99-514, Sec. 1173(a)(2), inserted "Any deduction under
paragraph (2)(C) shall be allowable in the taxable year of the
corporation in which the dividend is used to repay the loan
described in such paragraph."
Subsec. (k)(2)(A), (B). Pub. L. 99-514, Sec. 1854(b)(5), inserted
"or their beneficiaries".
Subsec. (k)(2)(C). Pub. L. 99-514, Sec. 1173(a)(1), added subpar.
(C).
Subsec. (l). Pub. L. 99-514, Sec. 1106(d)(2), added subsec. (l).
1984 - Subsec. (a)(8)(D). Pub. L. 98-369, Sec. 713(d)(6),
inserted "(determined without regard to the deductions allowed by
this section and section 405(c))".
Subsec. (a)(9), (10). Pub. L. 98-369, Sec. 713(d)(4)(A), struck
out par. (9) relating to plans benefiting self-employed individuals
and redesignated par. (10) as (9).
Subsec. (b). Pub. L. 98-369, Sec. 512(a), amended subsec. (b)
generally, inserting heading, redesignating former heading as par.
(1) heading, designating existing provisions as par. (1), and in
par. (1) as so designated, inserted "(including a plan described in
paragraph (2))" after "compensation" and adding par. (2).
Subsec. (e). Pub. L. 98-369, Sec. 713(d)(9), substituted "under
paragraph (1), (2), or (3) of subsection (a)" for "under this
section".
Subsec. (f). Pub. L. 98-369, Sec. 713(b)(3), repealed subsec. (f)
which related to certain loan repayments considered as
contributions.
Subsec. (h)(4). Pub. L. 98-369, Sec. 713(d)(5), repealed par. (4)
which related to effect on self-employed individuals or shareholder-
employees.
Subsec. (i). Pub. L. 98-369, Sec. 474(r)(14), in par. (1),
substituted "If any portion of the employee stock ownership credit
determined under section 41 for any taxable year has not, after the
application of section 38(c), been allowed under section 38 for any
taxable year, such portion shall be allowed as a deduction (without
regard to any limitations provided under this section) for the last
taxable year to which such portion could have been allowed as a
credit under section 39" for "There shall be allowed as a deduction
(without regard to any limitations provided under this section) for
the last taxable year to which an unused employee stock ownership
credit carryover (within the meaning of section 44G(b)(2)(A)) may
be carried, an amount equal to the portion of such unused credit
carryover which expires at the close of such taxable year", and in
par. (2), substituted references to section 41 and 41(c)(3) for
references to section 44G and 44G(c)(3), respectively.
Subsec. (k). Pub. L. 98-369, Sec. 542(a), added subsec. (k).
1982 - Subsec. (a)(2). Pub. L. 97-248, Sec. 237(e)(2),
substituted "(8), (9)" for "(8)", and "401(a)(10) and of section
401(d)" for "401(a)(9), (10), (17), and (18) and of section 401(d)
(other than paragraph (1))".
Subsec. (a)(3)(B). Pub. L. 97-248, Sec. 253(b), inserted
provision that "compensation otherwise paid or accrued during the
taxable year to all employees" shall include any amount with
respect to which an election under section 415(c)(3)(C) is in
effect, but only to the extent that any contribution with respect
to such amount is nonforfeitable.
Subsec. (e). Pub. L. 97-248, Sec. 238(a), amended subsec. (e)
generally, substituting provisions relating to contributions
allocable to life insurance protection for self-employed
individuals, for provisions relating to general requirements,
contributions made under more than one plan, contributions
allocable to insurance protection, and limitations of not lower
than $750 or 100 percent of earned income with respect to special
limitations for self-employed individuals.
Subsec. (j). Pub. L. 97-248, Sec. 235(f), added subsec. (j).
1981 - Subsec. (a)(10). Pub. L. 97-34, Sec. 333(a), added par.
(10).
Subsec. (e). Pub. L. 97-34, Sec. 312(a), substituted in pars. (1)
and (2)(A) "$15,000" for "$7,500".
Subsec. (i). Pub. L. 97-34, Sec. 331(b), added subsec. (i).
1980 - Subsec. (g). Pub. L. 96-364 redesignated existing
provisions as par. (1), inserted applicability to part 1 of
subtitle E of title IV of Employee Retirement Income Security Act
of 1974, and added pars. (2) and (3).
Subsec. (h). Pub. L. 96-222 inserted "or shareholder employees"
after "individuals" in heading, and in par. (4) "or described in
section 1379(b)(1)" after "of subsection (e)" and "or a shareholder-
employee (as defined in section 1379(d))" after "section
401(c)(1)" and substituted in pars. (2) to (4) "paragraph (1)" for
"subparagraph (1)".
1978 - Subsec. (a)(2). Pub. L. 95-600, Sec. 141(f)(9),
substituted "(20), and (22)" for "and (20)".
Subsec. (b). Pub. L. 95-600, Sec. 133(b), substituted "other
plan" for "similar plan".
Subsec. (d). Pub. L. 95-600, Sec. 133(a), added subsec. (d).
Subsec. (h). Pub. L. 95-600, Sec. 152(f), added subsec. (h).
1976 - Subsecs. (a)(1)(B), (8)(C). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (a)(2). Pub. L. 94-267 substituted "(19), and (20)" for
"and (19)".
Subsec. (d). Pub. L. 94-455, Sec. 1901(a)(59), struck out subsec.
(d) which related to the taxability of the beneficiary under
certain forfeitable contracts purchased by exempt organizations.
Subsecs. (e)(2)(B), (3). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (e)(4). Pub. L. 94-455, Sec. 1502(a)(2), inserted
provisions following subpar. (B).
1974 - Subsec. (a)(1). Pub. L. 93-406, Sec. 1013(c)(1), expanded
subpars. (A), (B), and (C) to accommodate the increased minimum
funding standards required by section 412.
Subsec. (a)(2). Pub. L. 93-406, Secs. 1016(a)(3), 2001(g)(2)(E),
2004(c)(1), inserted references to the requirements of section
401(a)(11), (12), (13), (14), (15), (16), (17), (18), and (19),
and, if applicable, the requirements of section 401(a)(17) and
(18).
Subsec. (a)(3)(A). Pub. L. 93-406, Sec. 2004(b), inserted ", but
the amount so deductible under this sentence in any one succeeding
taxable year together with the amount so deductible under the first
sentence of this subparagraph shall not exceed 25 percent of the
compensation otherwise paid or accrued during such taxable year to
the beneficiaries under the plan" after "If in any taxable year
there is paid into the trust, or a similar trust then in effect,
amounts less than the amounts deductible under the preceding
sentence, the excess, or if no amount is paid, the amounts
deductible, shall be carried forward and be deductible when paid in
the succeeding taxable years in order of time, but the amount so
deductible under this sentence in any such succeeding taxable year
shall not exceed 15 percent of the compensation otherwise paid or
accrued during such succeeding taxable year to the beneficiaries
under the plan".
Subsec. (a)(6). Pub. L. 93-406, Sec. 1013(c)(2), substituted
provisions covering only taxpayers operating on the accrual basis
for provisions covering the time when contributions shall be deemed
made.
Subsec. (a)(7). Pub. L. 93-406, Sec. 1013(c)(3), inserted
reference to the amount of contributions made to or under the
trusts or plans to the extent such contributions do not exceed the
amount of employer contributions necessary to satisfy the minimum
funding standards provided by section 412 for the plan year which
ends with or within such taxable year (or for any prior plan year)
and substituted "25 percent" for "30 percent" in provision covering
amounts paid into trusts or under an annuity plan in any taxable
year in excess of the amount allowable with respect to such year.
Subsec. (a)(9)(B)(ii). Pub. L. 93-406, Sec. 2001(g)(2)(F),
substituted "the second sentence of paragraph (3)" for "paragraph
(1)(D), the second and third sentences of paragraph (3), and the
second sentence of paragraph (7)".
Subsec. (c). Pub. L. 93-406, Sec. 2008(a), (b), substituted "or
pensions" for "and pensions" in par. (1), substituted "The first
and third sentences of this subsection" for "This subsection" in
provisions covering amounts contributed to a trust on or after any
date on which such trust is qualified for exemption from tax under
section 501(a), inserted provisions setting out specified treatment
to be accorded individuals who before July 1, 1974, were
participants in plans described in the subsections, and inserted
provision that section 277 (relating to deductions incurred by
certain membership organizations in transactions with members) does
not apply to any trust described in the subsection.
Subsec. (e)(1). Pub. L. 93-406, Sec. 2001(a)(1), substituted
"subject to paragraphs (2) and (4), not exceed $7,500, or 15
percent" for "subject to the provisions of paragraph (2), not
exceed $2,500, or 10 percent".
Subsec. (e)(2)(A). Pub. L. 93-406, Sec. 2001(a)(2), substituted
"shall (subject to paragraph (4)) not exceed $7,500, or 15 percent"
for "shall not exceed $2,500 or 10 percent".
Subsec. (e)(4). Pub. L. 93-406, Sec. 2001(a)(3), added par. (4).
Subsec. (g). Pub. L. 93-406, Sec. 4081(a), added subsec. (g).
1969 - Subsec. (a)(5). Pub. L. 91-172 substituted "If the plan is
not one included in paragraph (1), (2), or (3), in the taxable year
in which an amount attributable to the contribution is includible
in the gross income of employees participating in the plan, but, in
the case of a plan in which more than one employee participates
only if separate accounts are maintained for each employee" for "In
the taxable year when paid, if the plan is not one included in
paragraph (1), (2), or (3), if the employees' rights to or derived
from such employer's contribution or such compensation are
nonforfeitable at the time the contribution or compensation is
paid".
1966 - Subsec. (a). Pub. L. 89-809, Sec. 204(a), repealed par.
(10) which provided for a special limitation on the amount allowed
as a deduction for self-employed individuals.
Subsec. (e). Pub. L. 89-809, Sec. 204(b)(2), (3), struck out
references to par. (10) of subsec. (a) wherever appearing.
1962 - Subsec. (a)(2). Pub. L. 87-863 inserted ", or retirement
annuities and medical benefits as described in section 401(h),"
after "purchase of retirement annuities", and ", or such retirement
annuities and medical benefits" after "such retirement annuities."
Pub. L. 87-792, Sec. 3(a)(1), substituted "(5), (6), (7), and
(8), and, if applicable, the requirements of section 401(a)(9) and
(10) and of section 401(d) (other than paragraph (1))," for "(5),
and (6),".
Subsecs. (a)(8) to (10). Pub. L. 87-792, Sec. 3(a)(2), added
pars. (8) to (10).
Subsecs. (e), (f). Pub. L. 87-792, Sec. 3(b), added subsecs. (e)
and (f).
1958 - Subsec. (a). Pub. L. 85-866 substituted "income); but, if"
for "income) but if" preceding par. (1).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-218, title I, Sec. 101(d), Apr. 10, 2004, 118 Stat.
599, provided that:
"(1) In general. - Except as provided in paragraphs (2) and (3),
the amendments made by this section [amending this section,
sections 412 and 415 of this title, and sections 1082 and 1306 of
Title 29, Labor] shall apply to plan years beginning after December
31, 2003.
"(2) Lookback rules. - For purposes of applying subsections
(d)(9)(B)(ii) and (e)(1) of section 302 of the Employee Retirement
Income Security Act of 1974 [29 U.S.C. 1082(d)(9)(B)(ii), (e)(1)]
and subsections (l)(9)(B)(ii) and (m)(1) of section 412 of the
Internal Revenue Code of 1986 to plan years beginning after
December 31, 2003, the amendments made by this section may be
applied as if such amendments had been in effect for all prior plan
years. The Secretary of the Treasury may prescribe simplified
assumptions which may be used in applying the amendments made by
this section to such prior plan years.
"(3) Transition rule for section 415 limitation. - In the case of
any participant or beneficiary receiving a distribution after
December 31, 2003[,] and before January 1, 2005, the amount payable
under any form of benefit subject to section 417(e)(3) of the
Internal Revenue Code of 1986 and subject to adjustment under
section 415(b)(2)(B) of such Code shall not, solely by reason of
the amendment made by subsection (b)(4) [amending section 415 of
this title], be less than the amount that would have been so
payable had the amount payable been determined using the applicable
interest rate in effect as of the last day of the last plan year
beginning before January 1, 2004."
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 611(c)(1) of Pub. L. 107-16 applicable to
years beginning after Dec. 31, 2001, see section 611(i)(1) of Pub.
L. 107-16, set out as a note under section 415 of this title.
Pub. L. 107-16, title VI, Sec. 614(b), June 7, 2001, 115 Stat.
102, provided that: "The amendment made by this section [amending
this section] shall apply to years beginning after December 31,
2001."
Pub. L. 107-16, title VI, Sec. 616(c), June 7, 2001, 115 Stat.
103, provided that: "The amendments made by this section [amending
this section and section 4972 of this title] shall apply to years
beginning after December 31, 2001."
Amendment by section 632(a)(3)(B) of Pub. L. 107-16 applicable to
years beginning after Dec. 31, 2001, see section 632(a)(4) of Pub.
L. 107-16, set out as a note under section 72 of this title.
Pub. L. 107-16, title VI, Sec. 652(c), June 7, 2001, 115 Stat.
130, provided that: "The amendments made by this section [amending
this section and section 4972 of this title] shall apply to plan
years beginning after December 31, 2001."
Pub. L. 107-16, title VI, Sec. 662(c), June 7, 2001, 115 Stat.
142, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by section 6015(d) of Pub. L. 105-206 effective, except
as otherwise provided, as if included in the provisions of the
Taxpayer Relief Act of 1997, Pub. L. 105-34, to which such
amendment relates, see section 6024 of Pub. L. 105-206, set out as
a note under section 1 of this title.
Pub. L. 105-206, title VII, Sec. 7001(b), July 22, 1998, 112
Stat. 827, provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to taxable years ending after the date of
the enactment of this Act [July 22, 1998].
"(2) Change in method of accounting. - In the case of any
taxpayer required by the amendment made by subsection (a) [amending
this section] to change its method of accounting for its first
taxable year ending after the date of the enactment of this Act
[July 22, 1998] -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as made with the consent of
the Secretary of the Treasury; and
"(C) the net amount of the adjustments required to be taken
into account by the taxpayer under section 481 of the Internal
Revenue Code of 1986 shall be taken into account ratably over the
3-taxable year period beginning with such first taxable year."
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 1530(c)(2) of Pub. L. 105-34 applicable to
transfers made by trusts to, or for the use of, an employee stock
ownership plan after Aug. 5, 1997, see section 1530(d) of Pub. L.
105-34, set out as a note under section 401 of this title.
Amendment by section 1601(d)(2)(C) of Pub. L. 105-34 effective as
if included in the provisions of the Small Business Job Protection
Act of 1996, Pub. L. 104-188, to which it relates, see section
1601(j) of Pub. L. 105-34, set out as a note under section 23 of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1316(d)(1), (2) of Pub. L. 104-188
applicable to taxable years beginning after Dec. 31, 1997, see
section 1316(f) of Pub. L. 104-188, set out as a note under section
170 of this title.
Amendment by section 1421(b)(2) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1996, see section 1421(e) of
Pub. L. 104-188, set out as a note under section 72 of this title.
Amendment by section 1431(b)(3) of Pub. L. 104-188 applicable to
years beginning after Dec. 31, 1996, see section 1431(d)(2) of Pub.
L. 104-188, set out as a note under section 414 of this title.
Section 1461(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and section 1414 of
this title] shall apply to years beginning after December 31,
1996."
Section 1704(q)(2) of Pub. L. 104-188 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section
713(d)(4)(A) of the Deficit Reduction Act of 1984 [Pub. L. 98-
369]."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable, except as otherwise
provided, to benefits accruing in plan years beginning after Dec.
31, 1993, see section 13212(d) of Pub. L. 103-66, set out as a note
under section 401 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable, except as otherwise
provided, to distributions after Dec. 31, 1992, see section 522(d)
of Pub. L. 102-318, set out as a note under section 401 of this
title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Nov. 5, 1990, but not applicable to any property to
which section 168 of this title does not apply by reason of subsec.
(f)(5) of section 168, and not applicable to rehabilitation
expenditures described in section 252(f)(5) of Pub. L. 99-514, see
section 11812(c) of Pub. L. 101-508, set out as a note under
section 42 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7302(b) of Pub. L. 101-239 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to employer securities acquired after
August 4, 1989.
"(2) Securities acquired with certain loans. - The amendment made
by this section shall not apply to employer securities acquired
after August 4, 1989, which are acquired -
"(A) with the proceeds of any loan which was made pursuant to a
binding written commitment in effect on August 4, 1989, and at
all times thereafter before such loan is made, and
"(B) pursuant to a written binding contract (or tender offer
registered with the Securities and Exchange Commission) in effect
on August 4, 1989, and at all times thereafter before such
securities are acquired."
Section 7841(b)(2) of Pub. L. 101-239 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to payments made after January 1, 1986, in taxable years ending
after such date."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1011(d)(1), (4), (f)(6), 1011A(e)(4),
1011B(h)(3), (6), and 1018(t)(4)(A), (5) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 2005(e) of Pub. L. 100-647, as amended by Pub. L. 101-
239, title VII, Sec. 7812(d), Dec. 19, 1989, 103 Stat. 2412,
provided that: "The amendments made by this section [amending this
section and sections 412, 414, and 4972 of this title and section
1082 of Title 29, Labor] shall take effect as if included in the
amendments made by the provisions of the Omnibus Budget
Reconciliation Act of 1987 [Pub. L. 100-203] to which it relates,
except that the amendment made by subsection (a)(1) [amending
section 4972 of this title] shall take effect as if included in the
amendment made by section 1131(c) of the Tax Reform Act of 1986
[Pub. L. 99-514]."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 9307(f) of Pub. L. 100-203, as amended by Pub. L. 101-
239, title VII, Sec. 7881(d)(3), Dec. 19, 1989, 103 Stat. 2439,
provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
412 of this title and section 1082 of Title 29, Labor] shall apply
to years beginning after December 31, 1987.
"(2) Amortization of gains and losses. - Sections
412(b)(2)(B)(iv) and 412(b)(3)(B)(ii) of the Internal Revenue Code
of 1986 and sections 302(b)(2)(B)(iv) and 302(b)(3)(B)(ii) of the
Employee Retirement Income Security Act of 1974 [29 U.S.C.
1082(b)(2)(B)(iv), (3)(B)(ii)] (as amended by paragraphs (1)(A) and
(2)(A) of subsection (a)) shall apply to gains and losses
established in years beginning after December 31, 1987. For
purposes of the preceding sentence, any gain or loss determined by
a valuation occurring as of January 1, 1988, shall be treated as
established in years beginning before 1988, or at the election of
the employer, shall be amortized in accordance with Internal
Revenue Service Notice 89-52."
Section 10201(c)(1) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section and sections
419 and 461 of this title, and repealing sections 81 and 463 of
this title] shall apply to taxable years beginning after December
31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 1106(d)(2) of Pub. L. 99-514 applicable to
benefits accruing in years beginning after Dec. 31, 1988, except as
otherwise provided, see section 1106(i)(5) of Pub. L. 99-514, set
out as a note under section 415 of this title.
Amendment by section 1108(c) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1986, see section 1108(h) of Pub. L.
99-514, set out as a note under section 219 of this title.
Amendment by section 1112(d)(2) of Pub. L. 99-514 applicable to
plan years beginning after Dec. 31, 1988, with special rule
regarding collective bargaining agreements ratified before Mar. 1,
1986, and with provision for waiver of excise tax on reversions,
see section 1112(e) of Pub. L. 99-514, set out as a note under
section 401 of this title.
Section 1131(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011A(e)(3), Nov. 10, 1988, 102 Stat. 3478, provided
that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting section 4972 of this
title and amending this section] shall apply to taxable years
beginning after December 31, 1986.
"(2) Special rules for collective bargaining agreements. - In the
case of a plan maintained pursuant to 1 or more collective
bargaining agreements between employee representatives and 1 or
more employers ratified before March 1, 1986, the amendments made
by this section shall not apply to contributions pursuant to any
such agreement for taxable years beginning before the earlier of -
"(A) January 1, 1989, or
"(B) the date on which the last of such collective bargaining
agreements terminates (determined without regard to any extension
thereof after February 28, 1986)."
Amendment by section 1171(b)(6) of Pub. L. 99-514 applicable to
compensation paid or accrued after Dec. 31, 1986, in taxable years
ending after such date, but this section 404(i) of this title to
continue to apply with respect to credits under section 41 of this
title attributable to compensation paid or accrued before Jan. 1,
1987 (or under section 38 of this title with respect to qualified
investment before Jan. 1, 1983), see section 1171(c) of Pub. L. 99-
514, set out as a note under section 38 of this title.
Section 1173(c)(1) of Pub. L. 99-514 provided that: "The
amendments made by subsection (a) [amending this section] shall
apply to dividends paid in taxable years beginning after the date
of the enactment of this Act [Oct. 22, 1986]."
Amendment by sections 1848(c), 1851(b)(2)(A)-(C)(ii), and
1854(b)(3)-(5) of Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
Amendment by section 1854(b)(2) of Pub. L. 99-514 not applicable
to dividends paid before Jan. 1, 1986, if the taxpayer treated such
dividends in a manner inconsistent with such amendment on a return
filed with the Secretary before Oct. 22, 1986, see section
1854(b)(6) of Pub. L. 99-514, set out as a note under section 72 of
this title.
Section 1875(c)(7)(B) of Pub. L. 99-514 provided that the
amendment made by that section is effective with respect to taxable
years beginning after Dec. 31, 1984.
Section 11011(c)(3) of Pub. L. 99-272 provided that: "The
amendments made by this subsection [amending this section] shall
apply to payments made after January 1, 1986, in taxable years
ending after such date."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(r)(14) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Section 512(c) of Pub. L. 98-369 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
162 of this title] shall apply to amounts paid or incurred after
the date of the enactment of this Act [July 18, 1984] in taxable
years ending after such date.
"(2) Exception for certain extended vacation pay plans. - In the
case of any extended vacation pay plan maintained pursuant to a
collective bargaining agreement -
"(A) between employee representatives and 1 or more employers,
and
"(B) in effect on June 22, 1984,
the amendments made by this section shall not apply before the date
on which such collective bargaining agreement terminates
(determined without regard to any extension thereof agreed to after
June 22, 1984). For purposes of the preceding sentence, any plan
amendment made pursuant to a collective bargaining agreement
relating to the plan which amends the plan solely to conform to any
requirement added by this section shall not be treated as a
termination of such collective bargaining agreement."
Section 542(d) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and sections 116 and
3405 of this title] shall apply to taxable years beginning after
the date of enactment of this Act [July 18, 1984]."
Amendment by section 713 of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 253(c) of Pub. L. 97-248 provided that: "The amendments
made by this section [amending this section and section 415 of this
title] shall apply to taxable years beginning after December 31,
1981."
Amendment by section 235(f) of Pub. L. 97-248, in the case of any
plan which is not in existence on July 1, 1982, applicable to years
ending after July 1, 1982, and in the case of any plan which is in
existence on July 1, 1982, applicable to years beginning after Dec.
31, 1982, see section 235(g)(1) of Pub. L. 97-248, set out as a
note under section 415 of this title.
Amendment by sections 237 and 238 of Pub. L. 97-248 applicable to
years beginning after Dec. 31, 1983, see section 241 of Pub. L. 97-
248, set out as an Effective Date note under section 416 of this
title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 312(a) of Pub. L. 97-34 applicable to plans
which include employees within the meaning of section 401(c)(1) of
this title with respect to taxable years beginning after Dec. 31,
1981, see section 312(f)(1) of Pub. L. 97-34, set out as a note
under section 72 of this title.
Section 331(f)(2) of Pub. L. 97-34 provided that: "The amendments
made by subsections (b) and (c) [amending this section and sections
56, 409A, and 6699 of this title] shall apply to taxable years
ending after December 31, 1982."
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-364 effective Sept. 26, 1980, see section
210(a) of Pub. L. 96-364, set out as an Effective Date note under
section 418 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 133(c) of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 101(a)(5), Apr. 1, 1980, 94 Stat. 196; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to deductions for taxable years beginning after December 31, 1978.
"(2) Special rule for certain title insurance companies. -
"(A) In general. - In the case of a qualified title insurance
company plan, the amendment made by subsection (a) [amending this
section] shall apply to deductions for taxable years beginning
after December 31, 1979.
"(B) Qualified title insurance company plan. - For purposes of
subparagraph (A), the term 'qualified title insurance company
plan' means a plan of a qualified title insurance company -
"(i) which defers the payment of amounts credited by such
company to separate accounts for members of such company in
consideration of their issuance of policies of title insurance,
and
"(ii) under which no part of such amounts is payable to or
withdrawable by the members until after the period for the
adverse possession of real property under applicable State law.
"(C) Qualified title insurance company. - For purposes of
subparagraph (B), the term 'qualified title insurance company'
means an unincorporated title insurance company organized as a
business trust -
"(i) which is engaged in the business of providing title
insurance coverage on interests in and liens upon real property
obtained by clients of the members of such company, and
"(ii) which is subject to tax under section 831 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]."
Amendment by section 141(f)(9) of Pub. L. 95-600 effective with
respect to qualified investment for taxable years beginning after
Dec. 31, 1978, see section 141(g)(1) of Pub. L. 95-600, set out as
an Effective Date note under section 409 of this title.
Amendment by section 152(f) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 152(h) of
Pub. L. 95-600, set out as a note under section 408 of this title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Amendment by section 1502(a)(2) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1975, see section 1502(b) of
Pub. L. 94-455, set out as a note under section 415 of this title.
Amendment by section 1901(a)(59) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Amendment by Pub. L. 94-267 applicable with respect to payments
made to an employee on or after July 4, 1974, see section 1(e) of
Pub. L. 94-267, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by sections 1013(c) and 1016(a)(3) of Pub. L. 93-406
applicable, except as otherwise provided in section 1017(c) through
(i) of Pub. L. 93-406, for plan years beginning after Sept. 2,
1974, but, in the case of plans in existence on Jan. 1, 1974,
amendment by sections 1013(c) and 1016(a)(3) of Pub. L. 93-406
applicable for plan years beginning after Dec. 31, 1975, see
section 1017 of Pub. L. 93-406, set out as an Effective Date;
Transitional Rules note under section 410 of this title.
Section 2001(i)(1) of Pub. L. 93-406 provided that: "The
amendments made by subsections (a) [amending this section] and (b)
[amending section 1379 of this title] apply to taxable years
beginning after December 31, 1973."
Amendment by section 2001(g)(2)(E), (F) of Pub. L. 93-406
applicable to distributions made in taxable years beginning after
Dec. 31, 1975, see section 2001(i)(5) of Pub. L. 93-406, set out as
a note under section 72 of this title.
Section 2008(c) of Pub. L. 93-406 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years ending on or after June 30, 1972."
Amendment by section 2004(b), (c)(1) of Pub. L. 93-406 applicable
to years beginning after Dec. 31, 1975, see section 2004(d) of Pub.
L. 93-406, set out as an Effective Date; Transition Provisions note
under section 415 of this title.
Amendment by section 4081(a) of Pub. L. 93-406 effective on Sept.
2, 1974, with exceptions specified in section 1461(b), (c) of Title
29, Labor, see section 1461(a) of Title 29.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to
contributions made and premiums paid after Aug. 1, 1969, see
section 321(d) of Pub. L. 91-172, set out as an Effective Date note
under section 83 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1967, see section 204(d) of Pub. L.
89-809, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Amendment by Pub. L. 87-863 applicable to taxable years beginning
after Oct. 23, 1962, see section 2(c) of Pub. L. 87-863, set out as
a note under section 401 of this title.
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a
note under section 22 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1112 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
CLARIFICATION OF TREATMENT OF CONTRIBUTIONS TO MULTIEMPLOYER PLAN
Pub. L. 107-16, title VI, Sec. 658, June 7, 2001, 115 Stat. 137,
provided that:
"(a) Not Considered Method of Accounting. - For purposes of
section 446 of the Internal Revenue Code of 1986, a determination
under section 404(a)(6) of such Code regarding the taxable year
with respect to which a contribution to a multiemployer pension
plan is deemed made shall not be treated as a method of accounting
of the taxpayer. No deduction shall be allowed for any taxable year
for any contribution to a multiemployer pension plan with respect
to which a deduction was previously allowed.
"(b) Regulations. - The Secretary of the Treasury shall
promulgate such regulations as necessary to clarify that a taxpayer
shall not be allowed an aggregate amount of deductions for
contributions to a multiemployer pension plan which exceeds the
amount of such contributions made or deemed made under section
404(a)(6) of the Internal Revenue Code of 1986 to such plan.
"(c) Effective Date. - Subsection (a), and any regulations
promulgated under subsection (b), shall be effective for years
ending after the date of the enactment of this Act [June 7, 2001]."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
COORDINATION OF REPEALS OF CERTAIN SECTIONS
Section 713(d)(8) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"Sections 404(e) and 1379(b) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as in effect on the day before the date of
the enactment of the Tax Equity and Fiscal Responsibility Act of
1982 [Sept. 3, 1982]) shall not apply to any plan to which section
401(j) of such Code applies (or would apply but for its repeal)."
DEDUCTIBILITY OF PAYMENTS TO PLAN BY CORPORATION OPERATING PUBLIC
TRANSPORTATION SYSTEM ACQUIRED BY STATE
Section 408 of Pub. L. 96-364, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) For purposes of subsection (g) of section 404 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to
certain employer liability payments considered as contributions),
as amended by section 205 of this Act, any payment made to a plan
covering employees of a corporation operating a public
transportation system shall be treated as a payment described in
paragraph (1) of such subsection if -
"(1) such payment is made to fund accrued benefits under the
plan in conjunction with an acquisition by a State (or agency or
instrumentality thereof) of the stock or assets of such
corporation, and
"(2) such acquisition is pursuant to a State public
transportation law enacted after June 30, 1979, and before
January 1, 1980.
"(b) The provisions of this section shall apply to payments made
after June 29, 1980."
YEAR OF DEDUCTION FOR CERTAIN EMPLOYER CONTRIBUTIONS FOR SEVERANCE
PAYMENTS REQUIRED BY FOREIGN LAW
Section 1022(j) of Pub. L. 93-406, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Effective
for taxable years beginning after December 31, 1973, if -
"(1) an employer is engaged in a trade or business in a foreign
country,
"(2) such employer is required by the laws of that country to
make payments, based on periods of service, to its employees or
their beneficiaries after the employees' retirement, death, or
other separation from the service, and
"(3) such employer establishes a trust (whether organized
within or outside the United States) for the purpose of funding
the payments required by such law,
then, in determining for purposes of paragraph (5) of section
404(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
the taxable year in which any contribution to or under the plan is
includible in the gross income of the nonresident alien employees
of such employer, such paragraph (5) shall be treated as not
requiring that separate accounts be maintained for such nonresident
alien employees."
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 404A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 404A. Deduction for certain foreign deferred compensation
plans
-STATUTE-
(a) General rule
Amounts paid or accrued by an employer under a qualified foreign
plan -
(1) shall not be allowable as a deduction under this chapter,
but
(2) if they would otherwise be deductible, shall be allowed as
a deduction under this section for the taxable year for which
such amounts are properly taken into account under this section.
(b) Rules for qualified funded plans
For purposes of this section -
(1) In general
Except as otherwise provided in this section, in the case of a
qualified funded plan contributions are properly taken into
account for the taxable year in which paid.
(2) Payment after close of taxable year
For purposes of paragraph (1), a payment made after the close
of a taxable year shall be treated as made on the last day of
such year if the payment is made -
(A) on account of such year, and
(B) not later than the time prescribed by law for filing the
return for such year (including extensions thereof).
(3) Limitations
In the case of a qualified funded plan, the amount allowable as
a deduction for the taxable year shall be subject to -
(A) in the case of -
(i) a plan under which the benefits are fixed or
determinable, limitations similar to those contained in
clauses (ii) and (iii) of subparagraph (A) of section
404(a)(1) (determined without regard to the last sentence of
such subparagraph (A)), or
(ii) any other plan, limitations similar to the limitations
contained in paragraph (3) of section 404(a), and
(B) limitations similar to those contained in paragraph (7)
of section 404(a).
(4) Carryover
If -
(A) the aggregate of the contributions paid during the
taxable year reduced by any contributions not allowable as a
deduction under paragraphs (1) and (2) of subsection (g),
exceeds
(B) the amount allowable as a deduction under subsection (a)
(determined without regard to subsection (d)),
such excess shall be treated as an amount paid in the succeeding
taxable year.
(5) Amounts must be paid to qualified trust, etc.
In the case of a qualified funded plan, a contribution shall be
taken into account only if it is paid -
(A) to a trust (or the equivalent of a trust) which meets the
requirements of section 401(a)(2),
(B) for a retirement annuity, or
(C) to a participant or beneficiary.
(c) Rules relating to qualified reserve plans
For purposes of this section -
(1) In general
In the case of a qualified reserve plan, the amount properly
taken into account for the taxable year is the reasonable
addition for such year to a reserve for the taxpayer's liability
under the plan. Unless otherwise required or permitted in
regulations prescribed by the Secretary, the reserve for the
taxpayer's liability shall be determined under the unit credit
method modified to reflect the requirements of paragraphs (3) and
(4). All benefits paid under the plan shall be charged to the
reserve.
(2) Income item
In the case of a plan which is or has been a qualified reserve
plan, an amount equal to that portion of any decrease for the
taxable year in the reserve which is not attributable to the
payment of benefits shall be included in gross income.
(3) Rights must be nonforfeitable, etc.
In the case of a qualified reserve plan, an item shall be taken
into account for a taxable year only if -
(A) there is no substantial risk that the rights of the
employee will be forfeited, and
(B) such item meets such additional requirements as the
Secretary may by regulations prescribe as necessary or
appropriate to ensure that the liability will be satisfied.
(4) Spreading of certain increases and decreases in reserves
There shall be amortized over a 10-year period any increase or
decrease to the reserve on account of -
(A) the adoption of the plan or a plan amendment,
(B) experience gains and losses, and (!1)
(C) any change in actuarial assumptions,
(D) changes in the interest rate under subsection (g)(3)(B),
and
(E) such other factors as may be prescribed by regulations.
(d) Amounts taken into account must be consistent with amounts
allowed under foreign law
(1) General rule
In the case of any plan, the amount allowed as a deduction
under subsection (a) for any taxable year shall equal -
(A) the lesser of -
(i) the cumulative United States amount, or
(ii) the cumulative foreign amount, reduced by
(B) the aggregate amount determined under this section for
all prior taxable years.
(2) Cumulative amounts defined
For purposes of paragraph (1) -
(A) Cumulative United States amount
The term "cumulative United States amount" means the
aggregate amount determined with respect to the plan under this
section for the taxable year and for all prior taxable years to
which this section applies. Such determination shall be made
for each taxable year without regard to the application of
paragraph (1).
(B) Cumulative foreign amount
The term "cumulative foreign amount" means the aggregate
amount allowed as a deduction under the appropriate foreign tax
laws for the taxable year and all prior taxable years to which
this section applies.
(3) Effect on earnings and profits, etc.
In determining the earnings and profits and accumulated profits
of any foreign corporation with respect to a qualified foreign
plan, except as provided in regulations, the amount determined
under paragraph (1) with respect to any plan for any taxable year
shall in no event exceed the amount allowed as a deduction under
the appropriate foreign tax laws for such taxable year.
(e) Qualified foreign plan
For purposes of this section, the term "qualified foreign plan"
means any written plan of an employer for deferring the receipt of
compensation but only if -
(1) such plan is for the exclusive benefit of the employer's
employees or their beneficiaries,
(2) 90 percent or more of the amounts taken into account for
the taxable year under the plan are attributable to services -
(A) performed by nonresident aliens, and
(B) the compensation for which is not subject to tax under
this chapter, and
(3) the employer elects (at such time and in such manner as the
Secretary shall by regulations prescribe) to have this section
apply to such plan.
(f) Funded and reserve plans
For purposes of this section -
(1) Qualified funded plan
The term "qualified funded plan" means a qualified foreign plan
which is not a qualified reserve plan.
(2) Qualified reserve plan
The term "qualified reserve plan" means a qualified foreign
plan with respect to which an election made by the taxpayer is in
effect for the taxable year. An election under the preceding
sentence shall be made in such manner and form as the Secretary
may by regulations prescribe and, once made, may be revoked only
with the consent of the Secretary.
(g) Other special rules
(1) No deduction for certain amounts
Except as provided in section 404(a)(5), no deduction shall be
allowed under this section for any item to the extent such item
is attributable to services -
(A) performed by a citizen or resident of the United States
who is a highly compensated employee (within the meaning of
section 414(q)), or
(B) performed in the United States the compensation for which
is subject to tax under this chapter.
(2) Taxpayer must furnish information
(A) In general
No deduction shall be allowed under this section with respect
to any plan for any taxable year unless the taxpayer furnishes
to the Secretary with respect to such plan (at such time as the
Secretary may by regulations prescribe) -
(i) a statement from the foreign tax authorities specifying
the amount of the deduction allowed in computing taxable
income under foreign law for such year with respect to such
plan,
(ii) if the return under foreign tax law shows the
deduction for plan contributions or reserves as a separate,
identifiable item, a copy of the foreign tax return for the
taxable year, or
(iii) such other statement, return, or other evidence as
the Secretary prescribes by regulation as being sufficient to
establish the amount of the deduction under foreign law.
(B) Redetermination where foreign tax deduction is adjusted
If the deduction under foreign tax law is adjusted, the
taxpayer shall notify the Secretary of such adjustment on or
before the date prescribed by regulations, and the Secretary
shall redetermine the amount of the tax for the year or years
affected. In any case described in the preceding sentence,
rules similar to the rules of subsection (c) of section 905
shall apply.
(3) Actuarial assumptions must be reasonable; full funding
(A) In general
Except as provided in subparagraph (B), principles similar to
those set forth in paragraphs (3) and (7) of section 412(c)
shall apply for purposes of this section.
(B) Interest rate for reserve plan
(i) In general
In the case of a qualified reserve plan, in lieu of taking
rates of interest into account under subparagraph (A), the
rate of interest for the plan shall be the rate selected by
the taxpayer which is within the permissible range.
(ii) Rate remains in effect so long as it falls within
permissible range
Any rate selected by the taxpayer for the plan under this
subparagraph shall remain in effect for such plan until the
first taxable year for which such rate is no longer within
the permissible range. At such time, the taxpayer shall
select a new rate of interest which is within the permissible
range applicable at such time.
(iii) Permissible range
For purposes of this subparagraph, the term "permissible
range" means a rate of interest which is not more than 20
percent above, and not more than 20 percent below, the
average rate of interest for long-term corporate bonds in the
appropriate country for the 15-year period ending on the last
day before the beginning of the taxable year.
(4) Accounting method
Any change in the method (but not the actuarial assumptions)
used to determine the amount allowed as a deduction under
subsection (a) shall be treated as a change in accounting method
under section 446(e).
(5) Section 481 applies to election
For purposes of section 481, any election under this section
shall be treated as a change in the taxpayer's method of
accounting. In applying section 481 with respect to any such
election, the period for taking into account any increase or
decrease in accumulated profits, earnings and profits or taxable
income resulting from the application of section 481(a)(2) shall
be the year for which the election is made and the fourteen
succeeding years.
(h) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section (including
regulations providing for the coordination of the provisions of
this section with section 404 in the case of a plan which has been
subject to both of such sections).
-SOURCE-
(Added Pub. L. 96-603, Sec. 2(a), Dec. 28, 1980, 94 Stat. 3505;
amended Pub. L. 99-514, title XI, Sec. 1114(b)(8), title XVIII,
Sec. 1851(b)(2)(C)(iii), Oct. 22, 1986, 100 Stat. 2451, 2863; Pub.
L. 100-647, title I, Sec. 1012(b)(4), Nov. 10, 1988, 102 Stat.
3496.)
-MISC1-
AMENDMENTS
1988 - Subsec. (d)(3). Pub. L. 100-647 inserted "except as
provided in regulations," after "qualified foreign plan,".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1851(b)(2)(C)(iii),
substituted "under this chapter" for "under section 162, 212, or
404" in par. (1) and "they would otherwise be deductible" for "they
satisfy the conditions of section 162" in par. (2).
Subsec. (g)(1)(A). Pub. L. 99-514, Sec. 1114(b)(8), substituted
"a highly compensated employee (within the meaning of section
414(q))" for "an officer, shareholder, or highly compensated".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1114(b)(8) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1988, see section 1114(c)(3) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Amendment by section 1851(b)(2)(C)(iii) of Pub. L. 99-514
effective, except as otherwise provided, as if included in the
provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,
to which such amendment relates, see section 1881 of Pub. L. 99-
514, set out as a note under section 48 of this title.
EFFECTIVE DATE
Section 2(e) of Pub. L. 96-603, as amended by Pub. L. 97-448,
title III, Sec. 305(a), Jan. 12, 1983, 96 Stat. 2399; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [enacting
this section and section 6689 of this title and amending sections
679 and 905 of this title] shall apply with respect to employer
contributions or accruals for taxable years beginning after
December 31, 1979.
"(2) Election to apply amendments retroactively with respect to
foreign subsidiaries. -
"(A) In general. - The taxpayer may elect to have the
amendments made by this section [enacting this section and
section 6689 of this title and amending sections 679 and 905 of
this title] apply retroactively with respect to its foreign
subsidiaries.
"(B) Scope of retroactive application. - Any election made
under this paragraph shall apply with respect to all foreign
subsidiaries of the taxpayer for the taxpayer's open period.
"(C) Distributions by foreign subsidiary must be out of post-
1971 earnings and profits. - The election under this paragraph
shall apply to distributions made by a foreign subsidiary only if
made out of accumulated profits (or earnings and profits) earned
after December 31, 1970.
"(D) Revocation only with consent. - An election under this
paragraph may be revoked only with the consent of the Secretary
of the Treasury or his delegate.
"(E) Open period. - For purposes of this subsection, the term
'open period' means, with respect to any taxpayer, all taxable
years which begin before January 1, 1980, and which begin after
December 31, 1971, and for which, on December 31, 1980, the
making of a refund, or the assessment of a deficiency, was not
barred by any law or rule of law.
"(3) Allowance of prior deductions in case of certain funded
branch plans. -
"(A) In general. - If -
"(i) the taxpayer elects to have this paragraph apply, and
"(ii) the taxpayer agrees to the assessment of all
deficiencies (including interest thereon) arising from all
erroneous deductions,
then an amount equal to 1/15 th of the aggregate of the prior
deductions which would have been allowable if the amendments made
by this section [enacting this section and section 6689 of this
title and amending sections 679 and 905 of this title] applied to
taxable years beginning before January 1, 1980, shall be allowed
as a deduction for the taxpayer's first taxable year beginning in
1980, and an equal amount shall be allowed for each of the
succeeding 14 taxable years.
"(B) Prior deduction. - For purposes of subparagraph (A), the
term 'prior deduction' means a deduction with respect to a
qualified funded plan (within the meaning of section 404A(f)(1)
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) of
the taxpayer -
"(i) which the taxpayer claimed for a taxable year (or could
have claimed if the amendments made by this section [enacting
this section and section 6689 of this title and amending
sections 679 and 905 of this title] applied to taxable years
beginning before January 1, 1980) beginning before January 1,
1980,
"(ii) which was not allowable, and
"(iii) with respect to which, on December 1, 1980, the
assessment of a deficiency was not barred by any law or rule of
law.
"(4) Time and manner for making elections. -
"(A) Time. - An election under paragraph (2) or (3) may be made
only on or before the due date (including extensions) for filing
the taxpayer's return of tax under chapter 1 of the Internal
Revenue Code of 1986 [section 1 et seq. of this title] for its
first taxable year ending on or after December 31, 1980.
"(B) Manner. - An election under paragraph (2) may be made only
by a statement attached to the taxpayer's return for its first
taxable year ending on or after December 31, 1980. An election
under paragraph (3) may be made only if the taxpayer, on or
before the last day for making the election, files with the
Secretary of the Treasury or his delegate such amended return and
such other information as the Secretary of the Treasury or his
delegate may require, and agrees to the assessment of a
deficiency for any closed year falling within the open period, to
the extent such deficiency is attributable to the operation of
such election."
[Pub. L. 97-448, title III, Sec. 311(c)(1), Jan. 12, 1983, 96
Stat. 2411, provided that: "The amendment made by subsection (a) of
section 305 [amending par. (2)(E) of this note] shall take effect
on December 28, 1980."]
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original. The word "and" probably should not appear.
-End-
-CITE-
26 USC Sec. 405 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
[Sec. 405. Repealed. Pub. L. 98-369, div. A, title IV, Sec. 491(a),
July 18, 1984, 98 Stat. 848]
-MISC1-
Section, added Pub. L. 87-792, Sec. 5(a), Oct. 10, 1962, 76 Stat.
826; amended Pub. L. 89-97, title I, Sec. 106(d)(5), July 30, 1965,
79 Stat. 337; Pub. L. 91-172, title V, Sec. 515(c)(1), Dec. 30,
1969, 83 Stat. 645; Pub. L. 93-406, title II, Secs. 2004(c)(2),
2005(c)(11), Sept. 2, 1974, 88 Stat. 986, 992; Pub. L. 94-455,
title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub.
L. 97-34, title III, Sec. 313(a), (b)(1), Aug. 13, 1981, 95 Stat.
285, 286; Pub. L. 97-452, Sec. 2(c)(1), Jan. 12, 1983, 96 Stat.
2478; Pub. L. 98-369, div. A, title I, Sec. 42(a)(6), July 18,
1984, 98 Stat. 557, related to qualified bond purchase plans.
EFFECTIVE DATE OF REPEAL
Repeal applicable to obligations issued after Dec. 31, 1983, see
section 491(f)(1) of Pub. L. 98-369, set out as an Effective Date
of 1984 Amendment note under section 62 of this title.
ROLLOVER OF EXISTING BONDS INTO QUALIFIED EMPLOYER PLANS
Pub. L. 98-369, div. A, title IV, Sec. 491(c)(1), (f)(2), July
18, 1984, 98 Stat. 848, 853, provided that, applicable to
redemptions after July 18, 1984, in taxable years ending after such
date, subsec. (d)(3)(A) of this section, as in effect before its
repeal, is amended to read as follows:
"(A) In general. - If -
"(i) any qualified bond is redeemed,
"(ii) any portion of the excess of the proceeds from such
redemption over the basis of such bond is transferred to an
individual retirement plan which is maintained for the benefit of
the individual redeeming such bond, or to a qualified trust (as
defined in section 402(a)(5)(D)(iii)) for the benefit of such
individual, and
"(iii) such transfer is made on or before the 60th day after
the individual received the proceeds of such redemption,
then gross income shall not include the proceeds to the extent so
transferred and the transfer shall be treated as a rollover
contribution described in section 408(d)(3)."
BONDS UNDER QUALIFIED BOND PURCHASE PLANS REDEEMABLE AT ANY TIME
AFTER JULY 18, 1984
Section 491(f)(4) of Pub. L. 98-369 provided that:
"Notwithstanding -
"(A) subparagraph (D) of section 405(b)(1) of the Internal
Revenue Code of 1954 (as in effect before its repeal by this
section) [see above], and
"(B) the terms of any bond described in subsection (b) of such
section 405,
such a bond may be redeemed at any time after the date of the
enactment of this Act [July 18, 1984] in the same manner as if the
individual redeeming the bond had attained age 59 1/2 ."
-End-
-CITE-
26 USC Sec. 406 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 406. Employees of foreign affiliates covered by section
3121(l) agreements
-STATUTE-
(a) Treatment as employees of American employer
For purposes of applying this part with respect to a pension,
profit-sharing, or stock bonus plan described in section 401(a) or
an annuity plan described in section 403(a), of an American
employer (as defined in section 3121(h)), an individual who is a
citizen or resident of the United States and who is an employee of
a foreign affiliate (as defined in section 3121(l)(6)) of such
American employer shall be treated as an employee of such American
employer, if -
(1) such American employer has entered into an agreement under
section 3121(l) which applies to the foreign affiliate of which
such individual is an employee;
(2) the plan of such American employer expressly provides for
contributions or benefits for individuals who are citizens or
residents of the United States and who are employees of its
foreign affiliates to which an agreement entered into by such
American employer under section 3121(l) applies; and
(3) contributions under a funded plan of deferred compensation
(whether or not a plan described in section 401(a) or 403(a)) are
not provided by any other person with respect to the remuneration
paid to such individual by the foreign affiliate.
(b) Special rules for application of section 401(a)
(1) Nondiscrimination requirements
For purposes of applying section 401(a)(4) and section 410(b)
with respect to an individual who is treated as an employee of an
American employer under subsection (a) -
(A) if such individual is a highly compensated employee
(within the meaning of section 414(q)), he shall be treated as
having such capacity with respect to such American employer;
and
(B) the determination of whether such individual is a highly
compensated employee (as so defined) shall be made by treating
such individual's total compensation (determined with the
application of paragraph (2) of this subsection) as
compensation paid by such American employer and by determining
such individual's status with regard to such American employer.
(2) Determination of compensation
For purposes of applying paragraph (5) of section 401(a) with
respect to an individual who is treated as an employee of an
American employer under subsection (a) -
(A) the total compensation of such individual shall be the
remuneration paid to such individual by the foreign affiliate
which would constitute his total compensation if his services
had been performed for such American employer, and the basic or
regular rate of compensation of such individual shall be
determined under regulations prescribed by the Secretary; and
(B) such individual shall be treated as having paid the
amount paid by such American employer which is equivalent to
the tax imposed by section 3101.
[(c) Repealed. Pub. L. 104-188, title I, Sec. 1401(b)(7), Aug. 20,
1996, 110 Stat. 1789]
(d) Deductibility of contributions
For purposes of applying section 404 with respect to
contributions made to or under a pension, profit-sharing, stock
bonus, or annuity plan by an American employer, or by another
taxpayer which is entitled to deduct its contributions under
section 404(a)(3)(B), on behalf of an individual who is treated as
an employee of such American employer under subsection (a) -
(1) except as provided in paragraph (2), no deduction shall be
allowed to such American employer or to any other taxpayer which
is entitled to deduct its contributions under such sections,
(2) there shall be allowed as a deduction to the foreign
affiliate of which such individual is an employee an amount equal
to the amount which (but for paragraph (1)) would be deductible
under section 404 by the American employer if he were an employee
of the American employer, and
(3) any reference to compensation shall be considered to be a
reference to the total compensation of such individual
(determined with the application of subsection (b)(2)).
Any amount deductible by a foreign affiliate under this subsection
shall be deductible for its taxable year with or within which the
taxable year of such American employer ends.
(e) Treatment as employee under related provisions
An individual who is treated as an employee of an American
employer under subsection (a) shall also be treated as an employee
of such American employer, with respect to the plan described in
subsection (a)(2), for purposes of applying the following
provisions of this title:
(1) Section 72(f) (relating to special rules for computing
employees' contributions).
(2) Section 2039 (relating to annuities).
-SOURCE-
(Added Pub. L. 88-272, title II, Sec. 220(a), Feb. 26, 1964, 78
Stat. 58; amended Pub. L. 91-172, title V, Sec. 515(c)(2), Dec. 30,
1969, 83 Stat. 645; Pub. L. 93-406, title II, Secs. 1016(a)(4),
2005(c)(12), Sept. 2, 1974, 88 Stat. 929, 992; Pub. L. 94-455,
title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub.
L. 98-21, title III, Sec. 321(c), (e)(2)(A)-(D)(i), Apr. 20, 1983,
97 Stat. 119, 120; Pub. L. 98-369, div. A, title IV, Sec.
491(d)(13)-(15), July 18, 1984, 98 Stat. 849; Pub. L. 99-514, title
XI, Secs. 1112(d)(3), 1114(b)(9)(A), (C), title XVIII, Sec.
1852(e)(2)(C), Oct. 22, 1986, 100 Stat. 2445, 2451, 2868; Pub. L.
100-647, title I, Sec. 1011A(b)(1)(C), (16), Nov. 10, 1988, 102
Stat. 3472, 3475; Pub. L. 101-239, title VII, Secs. 7811(g)(3),
7831(f), title X, Sec. 10201(b)(1), (2), Dec. 19, 1989, 103 Stat.
2409, 2427, 2472; Pub. L. 102-318, title V, Sec. 521(b)(14), July
3, 1992, 106 Stat. 311; Pub. L. 104-188, title I, Secs. 1401(b)(7),
1402(b)(2), Aug. 20, 1996, 110 Stat. 1789, 1790.)
-MISC1-
AMENDMENTS
1996 - Subsec. (c). Pub. L. 104-188, Sec. 1401(b)(7), struck out
subsec. (c) which related to treatment of termination of status as
deemed employee.
Subsec. (e)(2), (3). Pub. L. 104-188, Sec. 1402(b)(2),
redesignated par. (3) as (2) and struck out former par. (2) which
read as follows: "Section 101(b) (relating to employees' death
benefits)."
1992 - Subsec. (c). Pub. L. 102-318 substituted "402(d)" for
"402(e)".
1989 - Subsec. (a). Pub. L. 101-239, Sec. 10201(b)(1),
substituted "3121(l)(6)" for "3121(l)(8)".
Subsec. (b)(1)(A). Pub. L. 101-239, Sec. 7831(f), made technical
correction to Pub. L. 99-514, Sec. 1114(b)(9)(A), see 1986
Amendment note below.
Subsec. (c). Pub. L. 101-239, Sec. 7811(g)(3), substituted
"purposes of limitation" for "purposes limitation" in heading.
Subsec. (c)(3). Pub. L. 101-239, Sec. 10201(b)(2), substituted
"3121(l)(6)(B)" for "3121(l)(8)(B)".
1988 - Subsec. (c). Pub. L. 100-647, Sec. 1011A(b)(16), struck
out "of capital gain provisions and" after "service for purposes"
in heading and substituted "applying section 402(e)" for "applying
subsections (a)(2) and (e) of section 402, and section 403(a)(2)"
in text.
Subsec. (e). Pub. L. 100-647, Sec. 1011A(b)(1)(C), redesignated
pars. (2) to (4) as (1) to (3), respectively, and struck out former
par. (1) which read as follows: "Section 72(d) (relating to
employees' annuities)."
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1112(d)(3), struck
out "(without regard to paragraph (1)(A) thereof)" after "section
410(b)" in introductory text.
Subsec. (b)(1)(A). Pub. L. 99-514, Sec. 1114(b)(9)(A), as amended
by Pub. L. 101-239, Sec. 7831(f), substituted "a highly compensated
employee (within the meaning of section 414(q))" for "an officer,
shareholder, or person whose principal duties consist in
supervising the work of other employees of a foreign affiliate of
such American employer".
Subsec. (b)(1)(B). Pub. L. 99-514, Sec. 1114(b)(9)(C), inserted
"(as so defined)" after "employee".
Subsec. (e)(5). Pub. L. 99-514, Sec. 1852(e)(2)(C), struck out
par. (5) which read as follows: "Section 2517 (relating to certain
annuities under qualified plans)."
1984 - Subsec. (a). Pub. L. 98-369, Sec. 491(d)(13), substituted
in introductory provision "or an annuity plan described in section
403(a)" for ", an annuity plan described in section 403(a), or a
bond purchase plan described in section 405(a)".
Subsec. (a)(3). Pub. L. 98-369, Sec. 491(d)(14), substituted "or
403(a)" for ", 403(a), or 405(a)".
Subsec. (d). Pub. L. 98-369, Sec. 491(d)(15)(A), (B), substituted
in introductory provision "section 404" for "sections 404 and
405(c)", and "or annuity" for "annuity, or bond purchase".
Subsec. (d)(2). Pub. L. 98-369, Sec. 491(d)(15)(C), struck out
"(or section 405(c))" after "section 404".
1983 - Pub. L. 98-21, Sec. 321(e)(2)(D)(i), substituted
"Employees of foreign affiliates covered by section 3121(l)
agreements" for "Certain employees of foreign subsidiaries" in
section catchline.
Subsec. (a). Pub. L. 98-21, Sec. 321(c), amended subsec. (a)
generally, substituting "American employer" for "domestic
corporation" in heading and in text wherever appearing, inserting
reference to section 3121(h) of this title, inserting "or resident"
after "citizen" wherever appearing, substituting "foreign
affiliate" for "foreign subsidiary" wherever appearing, and
"foreign affiliates" for "foreign subsidiaries".
Subsec. (b). Pub. L. 98-21, Sec. 321(e)(2)(A), substituted
reference to an American employer for reference to a domestic
corporation, and reference to an affiliate for reference to a
subsidiary, wherever appearing.
Subsec. (c). Pub. L. 98-21, Sec. 321(e)(2)(A), substituted
reference to an American employer for reference to a domestic
corporation, and reference to an affiliate for reference to a
subsidiary, wherever appearing in provisions preceding par. (1) and
in pars. (1) and (2).
Subsec. (c)(3). Pub. L. 98-21, Sec. 321(e)(2)(A), (B),
substituted "foreign affiliate by reason of which he is treated as
an employee of such American employer, if he becomes an employee of
another entity in which such American employer has not less than a
10-percent interest (within the meaning of section 3121(l)(8)(B)"
for "foreign subsidiary by reason of which he is treated as an
employee of such domestic corporation, if he becomes an employee of
another corporation controlled by such domestic corporation".
Subsec. (d). Pub. L. 98-21, Sec. 321(e)(2)(A), (C), substituted
references to an American employer for references to a domestic
corporation and reference to an affiliate for a reference to a
subsidiary wherever appearing, substituted "another taxpayer" for
"another corporation" in provisions preceding par. (1), and
substituted "any other taxpayer" for "any other corporation" in
par. (1).
Subsec. (e). Pub. L. 98-21, Sec. 321(e)(2)(A), substituted
reference to an American employer for reference to a domestic
corporation wherever appearing in provisions preceding par. (1).
1976 - Subsec. (b)(2)(A). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1974 - Subsec. (b)(1). Pub. L. 93-406, Sec. 1016(a)(4),
substituted "section 401(a)(4) and section 410(b) (without regard
to paragraph (1)(A) thereof)" for "paragraphs (3)(B) and (4) of
section 401(a)".
Subsec. (c). Pub. L. 93-406, Sec. 2005(c)(12), substituted
"subsections (a)(2) and (e) of section 402" for "section 72(n),
section 402(a)(2)".
1969 - Subsec. (c). Pub. L. 91-172 substituted "provisions and
limitation of tax" for "provisions" in heading, and substituted
"section 72(n), section 402(a)(2)," for "section 402(a)(2)" in
text.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1401(b)(7) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1999, with retention of
certain transition rules, see section 1401(c) of Pub. L. 104-188,
set out as a note under section 402 of this title.
Amendment by section 1402(b)(2) of Pub. L. 104-188 applicable
with respect to decedents dying after Aug. 20, 1996, see section
1402(c) of Pub. L. 104-188, set out as a note under section 101 of
this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7811(g)(3) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, to which such amendment relates, see section 7817 of Pub. L.
101-239, set out as a note under section 1 of this title.
Amendment by section 7831(f) of Pub. L. 101-239 effective as if
included in the provision of the Tax Reform Act of 1986, Pub. L. 99-
514, to which such amendment relates, see section 7831(g) of Pub.
L. 101-239, set out as a note under section 1 of this title.
Section 10201(c) of Pub. L. 101-239 provided that: "The
amendments made by this section [amending this section, section
3121 of this title, and section 410 of Title 42, The Public Health
and Welfare] shall apply with respect to any agreement in effect
under section 3121(l) of the Internal Revenue Code of 1986 on or
after June 15, 1989, with respect to which no notice of termination
is in effect on such date."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1112(d)(3) of Pub. L. 99-514 applicable to
plan years beginning after Dec. 31, 1988, with special rule
regarding collective bargaining agreements ratified before Mar. 1,
1986, and with provision for waiver of excise tax on reversions,
see section 1112(e) of Pub. L. 99-514, set out as a note under
section 401 of this title.
Amendment by section 1114(b)(9)(A), (C) of Pub. L. 99-514
applicable to years beginning after Dec. 31, 1988, see section
1114(c)(3) of Pub. L. 99-514, set out as a note under section 414
of this title.
Section 1852(e)(2)(E) of Pub. L. 99-514 provided that: "The
amendments made by this paragraph [amending this section and
section 407 of this title and repealing section 2517 of this title]
shall apply to transfers after the date of the enactment of this
Act [Oct. 22, 1986]."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to obligations issued
after Dec. 31, 1983, see section 491(f)(1) of Pub. L. 98-369, set
out as a note under section 62 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 321(f) of Pub. L. 98-21 provided that:
"(1)(A) The amendments made by this section [amending this
section and sections 407, 1402, 3121, and 6413 of this title and
section 410 of Title 42, The Public Health and Welfare] (other than
subsection (d) [amending section 407 of this title]) shall apply to
agreements entered into after the date of the enactment of this Act
[Apr. 20, 1983].
"(B) At the election of any American employer, the amendments
made by this section (other than subsection (d)) shall also apply
to any agreement entered into on or before the date of the
enactment of this Act. Any such election shall be made at such time
and in such manner as the Secretary may by regulations prescribe.
"(2)(A) The amendments made by subsection (d) [amending section
407 of this title] shall apply to plans established after the date
of the enactment of this Act [Apr. 20, 1983].
"(B) At the election of any domestic parent corporation the
amendments made by subsection (d) shall also apply to any plan
established on or before the date of the enactment of this Act. Any
such election shall be made at such time and in such manner as the
Secretary may by regulations prescribe."
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by section 1016(a)(4) of Pub. L. 93-406 applicable,
except as otherwise provided in section 1017(c) through (i) of Pub.
L. 93-406, for plan years beginning after Sept. 2, 1974, but, in
the case of plans in existence on Jan. 1, 1974, amendment by Pub.
L. 93-406 applicable for plan years beginning after Dec. 31, 1975,
see section 1017 of Pub. L. 93-406, set out as an Effective Date;
Transition of Rules note under section 410 of this title.
Amendment by section 2005(c)(12) of Pub. L. 93-406 applicable
only with respect to distributions or payments made after Dec. 31,
1973, in taxable years beginning after Dec. 31, 1973, see section
2005(d) of Pub. L. 93-406, set out as a note under section 402 of
this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years ending
after Dec. 31, 1969, see section 515(d) of Pub. L. 91-172, set out
as a note under section 402 of this title.
EFFECTIVE DATE
Section 220(d) of Pub. L. 88-272 provided that: "The amendments
made by subsections (a) [enacting this section], (b) [enacting
section 407 of this title], and (c)(1) [amending the analysis
preceding section 401 of this title] shall apply to taxable years
ending after December 31, 1963. The amendments made by subsections
(c)(2) [amending section 3121 of this title] and (3) [amending
section 409 of Title 42, The Public Health and Welfare] shall apply
to remuneration paid after December 31, 1962."
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by sections
1112 and 1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-
514, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 407 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 407. Certain employees of domestic subsidiaries engaged in
business outside the United States
-STATUTE-
(a) Treatment as employees of domestic parent corporation
(1) In general
For purposes of applying this part with respect to a pension,
profit-sharing, or stock bonus plan described in section 401(a)
or an annuity plan described in section 403(a), of a domestic
parent corporation, an individual who is a citizen or resident of
the United States and who is an employee of a domestic subsidiary
(within the meaning of paragraph (2)) of such domestic parent
corporation shall be treated as an employee of such domestic
parent corporation, if -
(A) the plan of such domestic parent corporation expressly
provides for contributions or benefits for individuals who are
citizens or residents of the United States and who are
employees of its domestic subsidiaries; and
(B) contributions under a funded plan of deferred
compensation (whether or not a plan described in section 401(a)
or 403(a)) are not provided by any other person with respect to
the remuneration paid to such individual by the domestic
subsidiary.
(2) Definitions
For purposes of this section -
(A) Domestic subsidiary
A corporation shall be treated as a domestic subsidiary for
any taxable year only if -
(i) such corporation is a domestic corporation 80 percent
or more of the outstanding voting stock of which is owned by
another domestic corporation;
(ii) 95 percent or more of its gross income for the three-
year period immediately preceding the close of its taxable
year which ends on or before the close of the taxable year of
such other domestic corporation (or for such part of such
period during which the corporation was in existence), was
derived from sources without the United States; and
(iii) 90 percent or more of its gross income for such
period (or such part) was derived from the active conduct of
a trade or business.
If for the period (or part thereof) referred to in clauses (ii)
and (iii) such corporation has no gross income, the provisions
of clauses (ii) and (iii) shall be treated as satisfied if it
is reasonable to anticipate that, with respect to the first
taxable year thereafter for which such corporation has gross
income, the provisions of such clauses will be satisfied.
(B) Domestic parent corporation
The domestic parent corporation of any domestic subsidiary is
the domestic corporation which owns 80 percent or more of the
outstanding voting stock of such domestic subsidiary.
(b) Special rules for application of section 401(a)
(1) Nondiscrimination requirements
For purposes of applying section 401(a)(4) and section 410(b)
with respect to an individual who is treated as an employee of a
domestic parent corporation under subsection (a) -
(A) if such individual is a highly compensated employee
(within the meaning of section 414(q)), he shall be treated as
having such capacity with respect to such domestic parent
corporation; and
(B) the determination of whether such individual is a highly
compensated employee (as so defined) shall be made by treating
such individual's total compensation (determined with the
application of paragraph (2) of this subsection) as
compensation paid by such domestic parent corporation and by
determining such individual's status with regard to such
domestic parent corporation.
(2) Determination of compensation
For purposes of applying paragraph (5) of section 401(a) with
respect to an individual who is treated as an employee of a
domestic parent corporation under subsection (a), the total
compensation of such individual shall be the remuneration paid to
such individual by the domestic subsidiary which would constitute
his total compensation if his services had been performed for
such domestic parent corporation, and the basic or regular rate
of compensation of such individual shall be determined under
regulations prescribed by the Secretary.
[(c) Repealed. Pub. L. 104-188, title I, Sec. 1401(b)(8), Aug. 20,
1996, 110 Stat. 1789]
(d) Deductibility of contributions
For purposes of applying section 404 with respect to
contributions made to or under a pension, profit-sharing, stock
bonus, or annuity plan by a domestic parent corporation, or by
another corporation which is entitled to deduct its contributions
under section 404(a)(3)(B), on behalf of an individual who is
treated as an employee of such domestic corporation under
subsection (a) -
(1) except as provided in paragraph (2), no deduction shall be
allowed to such domestic parent corporation or to any other
corporation which is entitled to deduct its contributions under
such sections,
(2) there shall be allowed as a deduction to the domestic
subsidiary of which such individual is an employee an amount
equal to the amount which (but for paragraph (1)) would be
deductible under section 404 by the domestic parent corporation
if he were an employee of the domestic parent corporation, and
(3) any reference to compensation shall be considered to be a
reference to the total compensation of such individual
(determined with the application of subsection (b)(2)).
Any amount deductible by a domestic subsidiary under this
subsection shall be deductible for its taxable year with or within
which the taxable year of such domestic parent corporation ends.
(e) Treatment as employee under related provisions
An individual who is treated as an employee of a domestic parent
corporation under subsection (a) shall also be treated as an
employee of such domestic parent corporation, with respect to the
plan described in subsection (a)(1)(A), for purposes of applying
the following provisions of this title:
(1) Section 72(f) (relating to special rules for computing
employees' contributions).
(2) Section 2039 (relating to annuities).
-SOURCE-
(Added Pub. L. 88-272, title II, Sec. 220(b), Feb. 26, 1964, 78
Stat. 60; amended Pub. L. 91-172, title V, Sec. 515(c)(3), Dec. 30,
1969, 83 Stat. 646; Pub. L. 93-406, title II, Secs. 1016(a)(5),
2005(c)(13), Sept. 2, 1974, 88 Stat. 929, 992; Pub. L. 94-455,
title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub.
L. 98-21, title III, Sec. 321(d), Apr. 20, 1983, 97 Stat. 119; Pub.
L. 98-369, div. A, title IV, Sec. 491(d)(16)-(18), July 18, 1984,
98 Stat. 850; Pub. L. 99-514, title XI, Secs. 1112(d)(3),
1114(b)(9)(B), (C), title XVIII, Sec. 1852(e)(2)(D), Oct. 22, 1986,
100 Stat. 2445, 2451, 2868; Pub. L. 100-647, title I, Sec.
1011A(b)(1)(C), (16), Nov. 10, 1988, 102 Stat. 3472, 3475; Pub. L.
101-239, title VII, Secs. 7811(g)(3), 7831(f), Dec. 19, 1989, 103
Stat. 2409, 2427; Pub. L. 102-318, title V, Sec. 521(b)(15), July
3, 1992, 106 Stat. 311; Pub. L. 104-188, title I, Secs. 1401(b)(8),
1402(b)(2), Aug. 20, 1996, 110 Stat. 1789, 1790.)
-MISC1-
AMENDMENTS
1996 - Subsec. (c). Pub. L. 104-188, Sec. 1401(b)(8), struck out
subsec. (c) which related to treatment of termination of status as
deemed employee.
Subsec. (e)(2), (3). Pub. L. 104-188, Sec. 1402(b)(2),
redesignated par. (3) as (2) and struck out former par. (2) which
read as follows: "Section 101(b) (relating to employees' death
benefits)."
1992 - Subsec. (c). Pub. L. 102-318 substituted "402(d)" for
"402(e)".
1989 - Subsec. (b)(1)(A). Pub. L. 101-239, Sec. 7831(f), made
technical correction to Pub. L. 99-514, Sec. 1114(b)(9)(B), see
1986 Amendment note below.
Subsec. (c). Pub. L. 101-239, Sec. 7811(g)(3), substituted
"purposes of limitation" for "purposes limitation" in heading.
1988 - Subsec. (c). Pub. L. 100-647, Sec. 1011A(b)(16), struck
out "of capital gain provisions and" after "service for purposes"
in heading and substituted "applying section 402(e)" for "applying
subsections (a)(2) and (e) of section 402, and section 403(a)(2)"
in text.
Subsec. (e). Pub. L. 100-647, Sec. 1011A(b)(1)(C), redesignated
pars. (2) to (4) as (1) to (3), respectively, and struck out former
par. (1) which read as follows: "Section 72(d) (relating to
employees' annuities)."
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1112(d)(3), struck
out "(without regard to paragraph (1)(A) thereof)" after "section
410(b)" in introductory text.
Subsec. (b)(1)(A). Pub. L. 99-514, Sec. 1114(b)(9)(B), as amended
by Pub. L. 101-239, Sec. 7831(f), substituted "a highly compensated
employee (within the meaning of section 414(q))" for "an officer,
shareholder, or person whose principal duties consist in
supervising the work of other employees of a domestic subsidiary".
Subsec. (b)(1)(B). Pub. L. 99-514, Sec. 1114(b)(9)(C), inserted
"(as so defined)" after "employee".
Subsec. (e)(5). Pub. L. 99-514, Sec. 1852(e)(2)(D), struck out
par. (5) which read as follows: "Section 2517 (relating to certain
annuities under qualified plans)."
1984 - Subsec. (a)(1). Pub. L. 98-369, Sec. 491(d)(16),
substituted "or an annuity plan described in section 403(a)" for ",
an annuity plan described in section 403(a), or a bond purchase
plan described in section 405(a)".
Subsec. (a)(1)(B). Pub. L. 98-369, Sec. 491(d)(17), substituted
"or 403(a)" for ", 403(a), or 405(a)".
Subsec. (d). Pub. L. 98-369, Sec. 491(d)(18)(A), (B), substituted
in introductory provision "section 404" for "sections 404 and
405(a)", and "or annuity" for "annuity, or bond purchase".
Subsec. (d)(2). Pub. L. 98-369, Sec. 491(d)(18)(C), struck out
"(or section 405(c))" after "section 404".
1983 - Subsec. (a)(1). Pub. L. 98-21 inserted "or resident" after
"citizen", and inserted "or residents" after "citizens" in subpar.
(A).
1976 - Subsec. (b)(2). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1974 - Subsec. (b)(1). Pub. L. 93-406, Sec. 1016(a)(5),
substituted "section 401(a)(4) and section 410(b) (without regard
to paragraph (1)(A) thereof)" for "paragraphs (3)(B) and (4) of
section 401(a)".
Subsec. (c). Pub. L. 93-406, Sec. 2005(c)(13), substituted
"subsections (a)(2) and (e) of section 402" for "section 72(n),
section 402(a)(2)".
1969 - Subsec. (c). Pub. L. 91-172 substituted "provisions and
limitation of tax" for "provisions" in heading, and substituted
"section 72(n), section 402(a)(2)," for "section 402(a)(2)" in
text.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1401(b)(8) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1999, with retention of
certain transition rules, see section 1401(c) of Pub. L. 104-188,
set out as a note under section 402 of this title.
Amendment by section 1402(b)(2) of Pub. L. 104-188 applicable
with respect to decedents dying after Aug. 20, 1996, see section
1402(c) of Pub. L. 104-188, set out as a note under section 101 of
this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7811(g)(3) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, to which such amendment relates, see section 7817 of Pub. L.
101-239, set out as a note under section 1 of this title.
Amendment by section 7831(f) of Pub. L. 101-239 effective as if
included in the provision of the Tax Reform Act of 1986, Pub. L. 99-
514, to which such amendment relates, see section 7831(g) of Pub.
L. 101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1112(d)(3) of Pub. L. 99-514 applicable to
plan years beginning after Dec. 31, 1988, with special rule
regarding collective bargaining agreements ratified before Mar. 1,
1986, and with provision for waiver of excise tax on reversions,
see section 1112(e) of Pub. L. 99-514, set out as a note under
section 401 of this title.
Amendment by section 1114(b)(9)(B), (C) of Pub. L. 99-514
applicable to years beginning after Dec. 31, 1988, see section
1114(c)(3) of Pub. L. 99-514, set out as a note under section 414
of this title.
Amendment by section 1852(e)(2)(D) of Pub. L. 99-514 applicable
to transfers after Oct. 22, 1986, see section 1852(e)(2)(E) of Pub.
L. 99-514, set out as a note under section 406 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to obligations issued
after Dec. 31, 1983, see section 491(f)(1) of Pub. L. 98-369, set
out as a note under section 62 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 98-21 applicable to plans established after
Apr. 20, 1983, except that at the election of any domestic parent
corporation such amendment shall also apply to any plan established
on or before Apr. 20, 1983, see section 321(f) of Pub. L. 98-21 set
out as a note under section 406 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by section 1016(a)(5) of Pub. L. 93-406 applicable,
except as otherwise provided in section 1017(c) through (i) of Pub.
L. 93-406, for plan years beginning after Sept. 2, 1974, but, in
the case of plans in existence on Jan. 1, 1974, amendment by Pub.
L. 93-406 applicable for plan years beginning after Dec. 31, 1975,
see section 1017 of Pub. L. 93-406, set out as an Effective Date;
Transitional Rules note under section 410 of this title.
Amendment by section 2005(c)(13) of Pub. L. 93-406 applicable
only with respect to distributions or payments made after Dec. 31,
1973, in taxable years beginning after Dec. 31, 1973, see section
2005(d) of Pub. L. 93-406, set out as a note under section 402 of
this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years ending
after Dec. 31, 1969, see section 515(d) of Pub. L. 91-172, set out
as a note under section 402 of this title.
EFFECTIVE DATE
Section applicable to taxable years ending after Dec. 31, 1963,
see section 220(d) of Pub. L. 88-272, set out as a note under
section 406 of this title.
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by sections
1112 and 1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-
514, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 408 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 408. Individual retirement accounts
-STATUTE-
(a) Individual retirement account
For purposes of this section, the term "individual retirement
account" means a trust created or organized in the United States
for the exclusive benefit of an individual or his beneficiaries,
but only if the written governing instrument creating the trust
meets the following requirements:
(1) Except in the case of a rollover contribution described in
subsection (d)(3) in (!1) section 402(c), 403(a)(4), 403(b)(8),
or 457(e)(16), no contribution will be accepted unless it is in
cash, and contributions will not be accepted for the taxable year
on behalf of any individual in excess of the amount in effect for
such taxable year under section 219(b)(1)(A).
(2) The trustee is a bank (as defined in subsection (n)) or
such other person who demonstrates to the satisfaction of the
Secretary that the manner in which such other person will
administer the trust will be consistent with the requirements of
this section.
(3) No part of the trust funds will be invested in life
insurance contracts.
(4) The interest of an individual in the balance in his account
is nonforfeitable.
(5) The assets of the trust will not be commingled with other
property except in a common trust fund or common investment fund.
(6) Under regulations prescribed by the Secretary, rules
similar to the rules of section 401(a)(9) and the incidental
death benefit requirements of section 401(a) shall apply to the
distribution of the entire interest of an individual for whose
benefit the trust is maintained.
(b) Individual retirement annuity
For purposes of this section, the term "individual retirement
annuity" means an annuity contract, or an endowment contract (as
determined under regulations prescribed by the Secretary), issued
by an insurance company which meets the following requirements:
(1) The contract is not transferable by the owner.
(2) Under the contract -
(A) the premiums are not fixed,
(B) the annual premium on behalf of any individual will not
exceed the dollar amount in effect under section 219(b)(1)(A),
and
(C) any refund of premiums will be applied before the close
of the calendar year following the year of the refund toward
the payment of future premiums or the purchase of additional
benefits.
(3) Under regulations prescribed by the Secretary, rules
similar to the rules of section 401(a)(9) and the incidental
death benefit requirements of section 401(a) shall apply to the
distribution of the entire interest of the owner.
(4) The entire interest of the owner is nonforfeitable.
Such term does not include such an annuity contract for any taxable
year of the owner in which it is disqualified on the application of
subsection (e) or for any subsequent taxable year. For purposes of
this subsection, no contract shall be treated as an endowment
contract if it matures later than the taxable year in which the
individual in whose name such contract is purchased attains age 70
1/2 ; if it is not for the exclusive benefit of the individual in
whose name it is purchased or his beneficiaries; or if the
aggregate annual premiums under all such contracts purchased in the
name of such individual for any taxable year exceed the dollar
amount in effect under section 219(b)(1)(A).
(c) Accounts established by employers and certain associations of
employees
A trust created or organized in the United States by an employer
for the exclusive benefit of his employees or their beneficiaries,
or by an association of employees (which may include employees
within the meaning of section 401(c)(1)) for the exclusive benefit
of its members or their beneficiaries, shall be treated as an
individual retirement account (described in subsection (a)), but
only if the written governing instrument creating the trust meets
the following requirements:
(1) The trust satisfies the requirements of paragraphs (1)
through (6) of subsection (a).
(2) There is a separate accounting for the interest of each
employee or member (or spouse of an employee or member).
The assets of the trust may be held in a common fund for the
account of all individuals who have an interest in the trust.
(d) Tax treatment of distributions
(1) In general
Except as otherwise provided in this subsection, any amount
paid or distributed out of an individual retirement plan shall be
included in gross income by the payee or distributee, as the case
may be, in the manner provided under section 72.
(2) Special rules for applying section 72
For purposes of applying section 72 to any amount described in
paragraph (1) -
(A) all individual retirement plans shall be treated as 1
contract,
(B) all distributions during any taxable year shall be
treated as 1 distribution, and
(C) the value of the contract, income on the contract, and
investment in the contract shall be computed as of the close of
the calendar year in which the taxable year begins.
For purposes of subparagraph (C), the value of the contract shall
be increased by the amount of any distributions during the
calendar year.
(3) Rollover contribution
An amount is described in this paragraph as a rollover
contribution if it meets the requirements of subparagraphs (A)
and (B).
(A) In general
Paragraph (1) does not apply to any amount paid or
distributed out of an individual retirement account or
individual retirement annuity to the individual for whose
benefit the account or annuity is maintained if -
(i) the entire amount received (including money and any
other property) is paid into an individual retirement account
or individual retirement annuity (other than an endowment
contract) for the benefit of such individual not later than
the 60th day after the day on which he receives the payment
or distribution; or
(ii) the entire amount received (including money and any
other property) is paid into an eligible retirement plan for
the benefit of such individual not later than the 60th day
after the date on which the payment or distribution is
received, except that the maximum amount which may be paid
into such plan may not exceed the portion of the amount
received which is includible in gross income (determined
without regard to this paragraph).
For purposes of clause (ii), the term "eligible retirement
plan" means an eligible retirement plan described in clause
(iii), (iv), (v), or (vi) of section 402(c)(8)(B).
(B) Limitation
This paragraph does not apply to any amount described in
subparagraph (A)(i) received by an individual from an
individual retirement account or individual retirement annuity
if at any time during the 1-year period ending on the day of
such receipt such individual received any other amount
described in that subparagraph from an individual retirement
account or an individual retirement annuity which was not
includible in his gross income because of the application of
this paragraph.
(C) Denial of rollover treatment for inherited accounts, etc.
(i) In general
In the case of an inherited individual retirement account
or individual retirement annuity -
(I) this paragraph shall not apply to any amount received
by an individual from such an account or annuity (and no
amount transferred from such account or annuity to another
individual retirement account or annuity shall be excluded
from gross income by reason of such transfer), and
(II) such inherited account or annuity shall not be
treated as an individual retirement account or annuity for
purposes of determining whether any other amount is a
rollover contribution.
(ii) Inherited individual retirement account or annuity
An individual retirement account or individual retirement
annuity shall be treated as inherited if -
(I) the individual for whose benefit the account or
annuity is maintained acquired such account by reason of
the death of another individual, and
(II) such individual was not the surviving spouse of such
other individual.
(D) Partial rollovers permitted
(i) In general
If any amount paid or distributed out of an individual
retirement account or individual retirement annuity would
meet the requirements of subparagraph (A) but for the fact
that the entire amount was not paid into an eligible plan as
required by clause (i) or (ii) of subparagraph (A), such
amount shall be treated as meeting the requirements of
subparagraph (A) to the extent it is paid into an eligible
plan referred to in such clause not later than the 60th day
referred to in such clause.
(ii) Eligible plan
For purposes of clause (i), the term "eligible plan" means
any account, annuity, contract, or plan referred to in
subparagraph (A).
(E) Denial of rollover treatment for required distributions
This paragraph shall not apply to any amount to the extent
such amount is required to be distributed under subsection
(a)(6) or (b)(3).
(F) Frozen deposits
For purposes of this paragraph, rules similar to the rules of
section 402(c)(7) (relating to frozen deposits) shall apply.
(G) Simple retirement accounts
In the case of any payment or distribution out of a simple
retirement account (as defined in subsection (p)) to which
section 72(t)(6) applies, this paragraph shall not apply unless
such payment or distribution is paid into another simple
retirement account.
(H) Application of section 72
(i) In general
If -
(I) a distribution is made from an individual retirement
plan, and
(II) a rollover contribution is made to an eligible
retirement plan described in section 402(c)(8)(B)(iii),
(iv), (v), or (vi) with respect to all or part of such
distribution,
then, notwithstanding paragraph (2), the rules of clause (ii)
shall apply for purposes of applying section 72.
(ii) Applicable rules
In the case of a distribution described in clause (i) -
(I) section 72 shall be applied separately to such
distribution,
(II) notwithstanding the pro rata allocation of income
on, and investment in, the contract to distributions under
section 72, the portion of such distribution rolled over to
an eligible retirement plan described in clause (i) shall
be treated as from income on the contract (to the extent of
the aggregate income on the contract from all individual
retirement plans of the distributee), and
(III) appropriate adjustments shall be made in applying
section 72 to other distributions in such taxable year and
subsequent taxable years.
(I) Waiver of 60-day requirement
The Secretary may waive the 60-day requirement under
subparagraphs (A) and (D) where the failure to waive such
requirement would be against equity or good conscience,
including casualty, disaster, or other events beyond the
reasonable control of the individual subject to such
requirement.
(4) Contributions returned before due date of return
Paragraph (1) does not apply to the distribution of any
contribution paid during a taxable year to an individual
retirement account or for an individual retirement annuity if -
(A) such distribution is received on or before the day
prescribed by law (including extensions of time) for filing
such individual's return for such taxable year,
(B) no deduction is allowed under section 219 with respect to
such contribution, and
(C) such distribution is accompanied by the amount of net
income attributable to such contribution.
In the case of such a distribution, for purposes of section 61,
any net income described in subparagraph (C) shall be deemed to
have been earned and receivable in the taxable year in which such
contribution is made.
(5) Distributions of excess contributions after due date for
taxable year and certain excess rollover contributions
(A) In general
In the case of any individual, if the aggregate contributions
(other than rollover contributions) paid for any taxable year
to an individual retirement account or for an individual
retirement annuity do not exceed the dollar amount in effect
under section 219(b)(1)(A), paragraph (1) shall not apply to
the distribution of any such contribution to the extent that
such contribution exceeds the amount allowable as a deduction
under section 219 for the taxable year for which the
contribution was paid -
(i) if such distribution is received after the date
described in paragraph (4),
(ii) but only to the extent that no deduction has been
allowed under section 219 with respect to such excess
contribution.
If employer contributions on behalf of the individual are paid
for the taxable year to a simplified employee pension, the
dollar limitation of the preceding sentence shall be increased
by the lesser of the amount of such contributions or the dollar
limitation in effect under section 415(c)(1)(A) for such
taxable year.
(B) Excess rollover contributions attributable to erroneous
information
If -
(i) the taxpayer reasonably relies on information supplied
pursuant to subtitle F for determining the amount of a
rollover contribution, but
(ii) the information was erroneous,
subparagraph (A) shall be applied by increasing the dollar
limit set forth therein by that portion of the excess
contribution which was attributable to such information.
For purposes of this paragraph, the amount allowable as a
deduction under section 219 shall be computed without regard to
section 219(g).
(6) Transfer of account incident to divorce
The transfer of an individual's interest in an individual
retirement account or an individual retirement annuity to his
spouse or former spouse under a divorce or separation instrument
described in subparagraph (A) of section 71(b)(2) is not to be
considered a taxable transfer made by such individual
notwithstanding any other provision of this subtitle, and such
interest at the time of the transfer is to be treated as an
individual retirement account of such spouse, and not of such
individual. Thereafter such account or annuity for purposes of
this subtitle is to be treated as maintained for the benefit of
such spouse.
(7) Special rules for simplified employee pensions or simple
retirement accounts
(A) Transfer or rollover of contributions prohibited until
deferral test met
Notwithstanding any other provision of this subsection or
section 72(t), paragraph (1) and section 72(t)(1) shall apply
to the transfer or distribution from a simplified employee
pension of any contribution under a salary reduction
arrangement described in subsection (k)(6) (or any income
allocable thereto) before a determination as to whether the
requirements of subsection (k)(6)(A)(iii) are met with respect
to such contribution.
(B) Certain exclusions treated as deductions
For purposes of paragraphs (4) and (5) and section 4973, any
amount excludable or excluded from gross income under section
402(h) or 402(k) shall be treated as an amount allowable or
allowed as a deduction under section 219.
(e) Tax treatment of accounts and annuities
(1) Exemption from tax
Any individual retirement account is exempt from taxation under
this subtitle unless such account has ceased to be an individual
retirement account by reason of paragraph (2) or (3).
Notwithstanding the preceding sentence, any such account is
subject to the taxes imposed by section 511 (relating to
imposition of tax on unrelated business income of charitable,
etc. organizations).
(2) Loss of exemption of account where employee engages in
prohibited transaction
(A) In general
If, during any taxable year of the individual for whose
benefit any individual retirement account is established, that
individual or his beneficiary engages in any transaction
prohibited by section 4975 with respect to such account, such
account ceases to be an individual retirement account as of the
first day of such taxable year. For purposes of this paragraph -
(i) the individual for whose benefit any account was
established is treated as the creator of such account, and
(ii) the separate account for any individual within an
individual retirement account maintained by an employer or
association of employees is treated as a separate individual
retirement account.
(B) Account treated as distributing all its assets
In any case in which any account ceases to be an individual
retirement account by reason of subparagraph (A) as of the
first day of any taxable year, paragraph (1) of subsection (d)
applies as if there were a distribution on such first day in an
amount equal to the fair market value (on such first day) of
all assets in the account (on such first day).
(3) Effect of borrowing on annuity contract
If during any taxable year the owner of an individual
retirement annuity borrows any money under or by use of such
contract, the contract ceases to be an individual retirement
annuity as of the first day of such taxable year. Such owner
shall include in gross income for such year an amount equal to
the fair market value of such contract as of such first day.
(4) Effect of pledging account as security
If, during any taxable year of the individual for whose benefit
an individual retirement account is established, that individual
uses the account or any portion thereof as security for a loan,
the portion so used is treated as distributed to that individual.
(5) Purchase of endowment contract by individual retirement
account
If the assets of an individual retirement account or any part
of such assets are used to purchase an endowment contract for the
benefit of the individual for whose benefit the account is
established -
(A) to the extent that the amount of the assets involved in
the purchase are not attributable to the purchase of life
insurance, the purchase is treated as a rollover contribution
described in subsection (d)(3), and
(B) to the extent that the amount of the assets involved in
the purchase are attributable to the purchase of life, health,
accident, or other insurance, such amounts are treated as
distributed to that individual (but the provisions of
subsection (f) do not apply).
(6) Commingling individual retirement account amounts in certain
common trust funds and common investment funds
Any common trust fund or common investment fund of individual
retirement account assets which is exempt from taxation under
this subtitle does not cease to be exempt on account of the
participation or inclusion of assets of a trust exempt from
taxation under section 501(a) which is described in section
401(a).
[(f) Repealed. Pub. L. 99-514, title XI, Sec. 1123(d)(2), Oct. 22,
1986, 100 Stat. 2475]
(g) Community property laws
This section shall be applied without regard to any community
property laws.
(h) Custodial accounts
For purposes of this section, a custodial account shall be
treated as a trust if the assets of such account are held by a bank
(as defined in subsection (n)) or another person who demonstrates,
to the satisfaction of the Secretary, that the manner in which he
will administer the account will be consistent with the
requirements of this section, and if the custodial account would,
except for the fact that it is not a trust, constitute an
individual retirement account described in subsection (a). For
purposes of this title, in the case of a custodial account treated
as a trust by reason of the preceding sentence, the custodian of
such account shall be treated as the trustee thereof.
(i) Reports
The trustee of an individual retirement account and the issuer of
an endowment contract described in subsection (b) or an individual
retirement annuity shall make such reports regarding such account,
contract, or annuity to the Secretary and to the individuals for
whom the account, contract, or annuity is, or is to be, maintained
with respect to contributions (and the years to which they relate),
distributions aggregating $10 or more in any calendar year, and
such other matters as the Secretary may require. The reports
required by this subsection -
(1) shall be filed at such time and in such manner as the
Secretary prescribes, and
(2) shall be furnished to individuals -
(A) not later than January 31 of the calendar year following
the calendar year to which such reports relate, and
(B) in such manner as the Secretary prescribes.
In the case of a simple retirement account under subsection (p),
only one report under this subsection shall be required to be
submitted each calendar year to the Secretary (at the time provided
under paragraph (2)) but, in addition to the report under this
subsection, there shall be furnished, within 31 days after each
calendar year, to the individual on whose behalf the account is
maintained a statement with respect to the account balance as of
the close of, and the account activity during, such calendar year.
(j) Increase in maximum limitations for simplified employee
pensions
In the case of any simplified employee pension, subsections
(a)(1) and (b)(2) of this section shall be applied by increasing
the amounts contained therein by the amount of the limitation in
effect under section 415(c)(1)(A).
(k) Simplified employee pension defined
(1) In general
For purposes of this title, the term "simplified employee
pension" means an individual retirement account or individual
retirement annuity -
(A) with respect to which the requirements of paragraphs (2),
(3), (4), and (5) of this subsection are met, and
(B) if such account or annuity is part of a top-heavy plan
(as defined in section 416), with respect to which the
requirements of section 416(c)(2) are met.
(2) Participation requirements
This paragraph is satisfied with respect to a simplified
employee pension for a year only if for such year the employer
contributes to the simplified employee pension of each employee
who -
(A) has attained age 21,
(B) has performed service for the employer during at least 3
of the immediately preceding 5 years, and
(C) received at least $450 in compensation (within the
meaning of section 414(q)(4)) from the employer for the year.
For purposes of this paragraph, there shall be excluded from
consideration employees described in subparagraph (A) or (C) of
section 410(b)(3). For purposes of any arrangement described in
subsection (k)(6), any employee who is eligible to have employer
contributions made on the employee's behalf under such
arrangement shall be treated as if such a contribution was made.
(3) Contributions may not discriminate in favor of the highly
compensated, etc.
(A) In general
The requirements of this paragraph are met with respect to a
simplified employee pension for a year if for such year the
contributions made by the employer to simplified employee
pensions for his employees do not discriminate in favor of any
highly compensated employee (within the meaning of section
414(q)).
(B) Special rules
For purposes of subparagraph (A), there shall be excluded
from consideration employees described in subparagraph (A) or
(C) of section 410(b)(3).
(C) Contributions must bear uniform relationship to total
compensation
For purposes of subparagraph (A), and except as provided in
subparagraph (D), employer contributions to simplified employee
pensions (other than contributions under an arrangement
described in paragraph (6)) shall be considered discriminatory
unless contributions thereto bear a uniform relationship to the
compensation (not in excess of the first $200,000) of each
employee maintaining a simplified employee pension.
(D) Permitted disparity
For purposes of subparagraph (C), the rules of section
401(l)(2) shall apply to contributions to simplified employee
pensions (other than contributions under an arrangement
described in paragraph (6)).
(4) Withdrawals must be permitted
A simplified employee pension meets the requirements of this
paragraph only if -
(A) employer contributions thereto are not conditioned on the
retention in such pension of any portion of the amount
contributed, and
(B) there is no prohibition imposed by the employer on
withdrawals from the simplified employee pension.
(5) Contributions must be made under written allocation formula
The requirements of this paragraph are met with respect to a
simplified employee pension only if employer contributions to
such pension are determined under a definite written allocation
formula which specifies -
(A) the requirements which an employee must satisfy to share
in an allocation, and
(B) the manner in which the amount allocated is computed.
(6) Employee may elect salary reduction arrangement
(A) Arrangements which qualify
(i) In general
A simplified employee pension shall not fail to meet the
requirements of this subsection for a year merely because,
under the terms of the pension, an employee may elect to have
the employer make payments -
(I) as elective employer contributions to the simplified
employee pension on behalf of the employee, or
(II) to the employee directly in cash.
(ii) 50 percent of eligible employees must elect
Clause (i) shall not apply to a simplified employee pension
unless an election described in clause (i)(I) is made or is
in effect with respect to not less than 50 percent of the
employees of the employer eligible to participate.
(iii) Requirements relating to deferral percentage
Clause (i) shall not apply to a simplified employee pension
for any year unless the deferral percentage for such year of
each highly compensated employee eligible to participate is
not more than the product of -
(I) the average of the deferral percentages for such year
of all employees (other than highly compensated employees)
eligible to participate, multiplied by
(II) 1.25.
(iv) Limitations on elective deferrals
Clause (i) shall not apply to a simplified employee pension
unless the requirements of section 401(a)(30) are met.
(B) Exception where more than 25 employees
This paragraph shall not apply with respect to any year in
the case of a simplified employee pension maintained by an
employer with more than 25 employees who were eligible to
participate (or would have been required to be eligible to
participate if a pension was maintained) at any time during the
preceding year.
(C) Distributions of excess contributions
(i) In general
Rules similar to the rules of section 401(k)(8) shall apply
to any excess contribution under this paragraph. Any excess
contribution under a simplified employee pension shall be
treated as an excess contribution for purposes of section
4979.
(ii) Excess contribution
For purposes of clause (i), the term "excess contribution"
means, with respect to a highly compensated employee, the
excess of elective employer contributions under this
paragraph over the maximum amount of such contributions
allowable under subparagraph (A)(iii).
(D) Deferral percentage
For purposes of this paragraph, the deferral percentage for
an employee for a year shall be the ratio of -
(i) the amount of elective employer contributions actually
paid over to the simplified employee pension on behalf of the
employee for the year, to
(ii) the employee's compensation (not in excess of the
first $200,000) for the year.
(E) Exception for State and local and tax-exempt pensions
This paragraph shall not apply to a simplified employee
pension maintained by -
(i) a State or local government or political subdivision
thereof, or any agency or instrumentality thereof, or
(ii) an organization exempt from tax under this title.
(F) Exception where pension does not meet requirements
necessary to insure distribution of excess contributions
This paragraph shall not apply with respect to any year for
which the simplified employee pension does not meet such
requirements as the Secretary may prescribe as are necessary to
insure that excess contributions are distributed in accordance
with subparagraph (C), including -
(i) reporting requirements, and
(ii) requirements which, notwithstanding paragraph (4),
provide that contributions (and any income allocable thereto)
may not be withdrawn from a simplified employee pension until
a determination has been made that the requirements of
subparagraph (A)(iii) have been met with respect to such
contributions.
(G) Highly compensated employee
For purposes of this paragraph, the term "highly compensated
employee" has the meaning given such term by section 414(q).
(H) Termination
This paragraph shall not apply to years beginning after
December 31, 1996. The preceding sentence shall not apply to a
simplified employee pension of an employer if the terms of
simplified employee pensions of such employer, as in effect on
December 31, 1996, provide that an employee may make the
election described in subparagraph (A).
(7) Definitions
For purposes of this subsection and subsection (l) -
(A) Employee, employer, or owner-employee
The terms "employee", "employer", and "owner-employee" shall
have the respective meanings given such terms by section
401(c).
(B) Compensation
Except as provided in paragraph (2)(C), the term
"compensation" has the meaning given such term by section
414(s).
(C) Year
The term "year" means -
(i) the calendar year, or
(ii) if the employer elects, subject to such terms and
conditions as the Secretary may prescribe, to maintain the
simplified employee pension on the basis of the employer's
taxable year.
(8) Cost-of-living adjustment
The Secretary shall adjust the $450 amount in paragraph (2)(C)
at the same time and in the same manner as under section 415(d)
and shall adjust the $200,000 amount in paragraphs (3)(C) and
(6)(D)(ii) at the same time, and by the same amount, as any
adjustment under section 401(a)(17)(B); except that any increase
in the $450 amount which is not a multiple of $50 shall be
rounded to the next lowest multiple of $50.
(9) Cross reference
For excise tax on certain excess contributions, see section
4979.
(l) Simplified employer reports
(1) In general
An employer who makes a contribution on behalf of an employee
to a simplified employee pension shall provide such simplified
reports with respect to such contributions as the Secretary may
require by regulations. The reports required by this subsection
shall be filed at such time and in such manner, and information
with respect to such contributions shall be furnished to the
employee at such time and in such manner, as may be required by
regulations.
(2) Simple retirement accounts
(A) No employer reports
Except as provided in this paragraph, no report shall be
required under this section by an employer maintaining a
qualified salary reduction arrangement under subsection (p).
(B) Summary description
The trustee of any simple retirement account established
pursuant to a qualified salary reduction arrangement under
subsection (p) and the issuer of an annuity established under
such an arrangement shall provide to the employer maintaining
the arrangement, each year a description containing the
following information:
(i) The name and address of the employer and the trustee or
issuer.
(ii) The requirements for eligibility for participation.
(iii) The benefits provided with respect to the
arrangement.
(iv) The time and method of making elections with respect
to the arrangement.
(v) The procedures for, and effects of, withdrawals
(including rollovers) from the arrangement.
(C) Employee notification
The employer shall notify each employee immediately before
the period for which an election described in subsection
(p)(5)(C) may be made of the employee's opportunity to make
such election. Such notice shall include a copy of the
description described in subparagraph (B).
(m) Investment in collectibles treated as distributions
(1) In general
The acquisition by an individual retirement account or by an
individually-directed account under a plan described in section
401(a) of any collectible shall be treated (for purposes of this
section and section 402) as a distribution from such account in
an amount equal to the cost to such account of such collectible.
(2) Collectible defined
For purposes of this subsection, the term "collectible" means -
(A) any work of art,
(B) any rug or antique,
(C) any metal or gem,
(D) any stamp or coin,
(E) any alcoholic beverage, or
(F) any other tangible personal property specified by the
Secretary for purposes of this subsection.
(3) Exception for certain coins and bullion
For purposes of this subsection, the term "collectible" shall
not include -
(A) any coin which is -
(i) a gold coin described in paragraph (7), (8), (9), or
(10) of section 5112(a) of title 31, United States Code,
(ii) a silver coin described in section 5112(e) of title
31, United States Code,
(iii) a platinum coin described in section 5112(k) of title
31, United States Code, or
(iv) a coin issued under the laws of any State, or
(B) any gold, silver, platinum, or palladium bullion of a
fineness equal to or exceeding the minimum fineness that a
contract market (as described in section 7 of the Commodity
Exchange Act, 7 U.S.C. 7) (!2) requires for metals which may be
delivered in satisfaction of a regulated futures contract,
if such bullion is in the physical possession of a trustee
described under subsection (a) of this section.
(n) Bank
For purposes of subsection (a)(2), the term "bank" means -
(1) any bank (as defined in section 581),
(2) an insured credit union (within the meaning of paragraph
(6) or (7) of section 101 of the Federal Credit Union Act), and
(3) a corporation which, under the laws of the State of its
incorporation, is subject to supervision and examination by the
Commissioner of Banking or other officer of such State in charge
of the administration of the banking laws of such State.
(o) Definitions and rules relating to nondeductible contributions
to individual retirement plans
(1) In general
Subject to the provisions of this subsection, designated
nondeductible contributions may be made on behalf of an
individual to an individual retirement plan.
(2) Limits on amounts which may be contributed
(A) In general
The amount of the designated nondeductible contributions made
on behalf of any individual for any taxable year shall not
exceed the nondeductible limit for such taxable year.
(B) Nondeductible limit
For purposes of this paragraph -
(i) In general
The term "nondeductible limit" means the excess of -
(I) the amount allowable as a deduction under section 219
(determined without regard to section 219(g)), over
(II) the amount allowable as a deduction under section
219 (determined with regard to section 219(g)).
(ii) Taxpayer may elect to treat deductible contributions as
nondeductible
If a taxpayer elects not to deduct an amount which (without
regard to this clause) is allowable as a deduction under
section 219 for any taxable year, the nondeductible limit for
such taxable year shall be increased by such amount.
(C) Designated nondeductible contributions
(i) In general
For purposes of this paragraph, the term "designated
nondeductible contribution" means any contribution to an
individual retirement plan for the taxable year which is
designated (in such manner as the Secretary may prescribe) as
a contribution for which a deduction is not allowable under
section 219.
(ii) Designation
Any designation under clause (i) shall be made on the
return of tax imposed by chapter 1 for the taxable year.
(3) Time when contributions made
In determining for which taxable year a designated
nondeductible contribution is made, the rule of section 219(f)(3)
shall apply.
(4) Individual required to report amount of designated
nondeductible contributions
(A) In general
Any individual who -
(i) makes a designated nondeductible contribution to any
individual retirement plan for any taxable year, or
(ii) receives any amount from any individual retirement
plan for any taxable year,
shall include on his return of the tax imposed by chapter 1 for
such taxable year and any succeeding taxable year (or on such
other form as the Secretary may prescribe for any such taxable
year) information described in subparagraph (B).
(B) Information required to be supplied
The following information is described in this subparagraph:
(i) The amount of designated nondeductible contributions
for the taxable year.
(ii) The amount of distributions from individual retirement
plans for the taxable year.
(iii) The excess (if any) of -
(I) the aggregate amount of designated nondeductible
contributions for all preceding taxable years, over
(II) the aggregate amount of distributions from
individual retirement plans which was excludable from gross
income for such taxable years.
(iv) The aggregate balance of all individual retirement
plans of the individual as of the close of the calendar year
in which the taxable year begins.
(v) Such other information as the Secretary may prescribe.
(C) Penalty for reporting contributions not made
For penalty where individual reports designated nondeductible
contributions not made, see section 6693(b).
(p) Simple retirement accounts
(1) In general
For purposes of this title, the term "simple retirement
account" means an individual retirement plan (as defined in
section 7701(a)(37)) -
(A) with respect to which the requirements of paragraphs (3),
(4), and (5) are met; and
(B) with respect to which the only contributions allowed are
contributions under a qualified salary reduction arrangement.
(2) Qualified salary reduction arrangement
(A) In general
For purposes of this subsection, the term "qualified salary
reduction arrangement" means a written arrangement of an
eligible employer under which -
(i) an employee eligible to participate in the arrangement
may elect to have the employer make payments -
(I) as elective employer contributions to a simple
retirement account on behalf of the employee, or
(II) to the employee directly in cash,
(ii) the amount which an employee may elect under clause
(i) for any year is required to be expressed as a percentage
of compensation and may not exceed a total of the applicable
dollar amount for any year,
(iii) the employer is required to make a matching
contribution to the simple retirement account for any year in
an amount equal to so much of the amount the employee elects
under clause (i)(I) as does not exceed the applicable
percentage of compensation for the year, and
(iv) no contributions may be made other than contributions
described in clause (i) or (iii).
(B) Employer may elect 2-percent nonelective contribution
(i) In general
An employer shall be treated as meeting the requirements of
subparagraph (A)(iii) for any year if, in lieu of the
contributions described in such clause, the employer elects
to make nonelective contributions of 2 percent of
compensation for each employee who is eligible to participate
in the arrangement and who has at least $5,000 of
compensation from the employer for the year. If an employer
makes an election under this subparagraph for any year, the
employer shall notify employees of such election within a
reasonable period of time before the 60-day period for such
year under paragraph (5)(C).
(ii) Compensation limitation
The compensation taken into account under clause (i) for
any year shall not exceed the limitation in effect for such
year under section 401(a)(17).
(C) Definitions
For purposes of this subsection -
(i) Eligible employer
(I) In general
The term "eligible employer" means, with respect to any
year, an employer which had no more than 100 employees who
received at least $5,000 of compensation from the employer
for the preceding year.
(II) 2-year grace period
An eligible employer who establishes and maintains a plan
under this subsection for 1 or more years and who fails to
be an eligible employer for any subsequent year shall be
treated as an eligible employer for the 2 years following
the last year the employer was an eligible employer. If
such failure is due to any acquisition, disposition, or
similar transaction involving an eligible employer, the
preceding sentence shall not apply.
(ii) Applicable percentage
(I) In general
The term "applicable percentage" means 3 percent.
(II) Election of lower percentage
An employer may elect to apply a lower percentage (not
less than 1 percent) for any year for all employees
eligible to participate in the plan for such year if the
employer notifies the employees of such lower percentage
within a reasonable period of time before the 60-day
election period for such year under paragraph (5)(C). An
employer may not elect a lower percentage under this
subclause for any year if that election would result in the
applicable percentage being lower than 3 percent in more
than 2 of the years in the 5-year period ending with such
year.
(III) Special rule for years arrangement not in effect
If any year in the 5-year period described in subclause
(II) is a year prior to the first year for which any
qualified salary reduction arrangement is in effect with
respect to the employer (or any predecessor), the employer
shall be treated as if the level of the employer matching
contribution was at 3 percent of compensation for such
prior year.
(D) Arrangement may be only plan of employer
(i) In general
An arrangement shall not be treated as a qualified salary
reduction arrangement for any year if the employer (or any
predecessor employer) maintained a qualified plan with
respect to which contributions were made, or benefits were
accrued, for service in any year in the period beginning with
the year such arrangement became effective and ending with
the year for which the determination is being made. If only
individuals other than employees described in subparagraph
(A) of section 410(b)(3) are eligible to participate in such
arrangement, then the preceding sentence shall be applied
without regard to any qualified plan in which only employees
so described are eligible to participate.
(ii) Qualified plan
For purposes of this subparagraph, the term "qualified
plan" means a plan, contract, pension, or trust described in
subparagraph (A) or (B) of section 219(g)(5).
(E) Applicable dollar amount; cost-of-living adjustment
(i) In general
For purposes of subparagraph (A)(ii), the applicable dollar
amount shall be the amount determined in accordance with the
following table:
For years The applicable
beginning in dollar amount:
calendar year:
2002 $7,000
2003 $8,000
2004 $9,000
2005 or thereafter $10,000.
(ii) Cost-of-living adjustment
In the case of a year beginning after December 31, 2005,
the Secretary shall adjust the $10,000 amount under clause
(i) at the same time and in the same manner as under section
415(d), except that the base period taken into account shall
be the calendar quarter beginning July 1, 2004, and any
increase under this subparagraph which is not a multiple of
$500 shall be rounded to the next lower multiple of $500.
(3) Vesting requirements
The requirements of this paragraph are met with respect to a
simple retirement account if the employee's rights to any
contribution to the simple retirement account are nonforfeitable.
For purposes of this paragraph, rules similar to the rules of
subsection (k)(4) shall apply.
(4) Participation requirements
(A) In general
The requirements of this paragraph are met with respect to
any simple retirement account for a year only if, under the
qualified salary reduction arrangement, all employees of the
employer who -
(i) received at least $5,000 in compensation from the
employer during any 2 preceding years, and
(ii) are reasonably expected to receive at least $5,000 in
compensation during the year,
are eligible to make the election under paragraph (2)(A)(i) or
receive the nonelective contribution described in paragraph
(2)(B).
(B) Excludable employees
An employer may elect to exclude from the requirement under
subparagraph (A) employees described in section 410(b)(3).
(5) Administrative requirements
The requirements of this paragraph are met with respect to any
simple retirement account if, under the qualified salary
reduction arrangement -
(A) an employer must -
(i) make the elective employer contributions under
paragraph (2)(A)(i) not later than the close of the 30-day
period following the last day of the month with respect to
which the contributions are to be made, and
(ii) make the matching contributions under paragraph
(2)(A)(iii) or the nonelective contributions under paragraph
(2)(B) not later than the date described in section
404(m)(2)(B),
(B) an employee may elect to terminate participation in such
arrangement at any time during the year, except that if an
employee so terminates, the arrangement may provide that the
employee may not elect to resume participation until the
beginning of the next year, and
(C) each employee eligible to participate may elect, during
the 60-day period before the beginning of any year (and the 60-
day period before the first day such employee is eligible to
participate), to participate in the arrangement, or to modify
the amounts subject to such arrangement, for such year.
(6) Definitions
For purposes of this subsection -
(A) Compensation
(i) In general
The term "compensation" means amounts described in
paragraphs (3) and (8) of section 6051(a). For purposes of
the preceding sentence, amounts described in section
6051(a)(3) shall be determined without regard to section
3401(a)(3).
(ii) Self-employed
In the case of an employee described in subparagraph (B),
the term "compensation" means net earnings from self-
employment determined under section 1402(a) without regard
to any contribution under this subsection. The preceding
sentence shall be applied as if the term "trade or business"
for purposes of section 1402 included service described in
section 1402(c)(6).
(B) Employee
The term "employee" includes an employee as defined in
section 401(c)(1).
(C) Year
The term "year" means the calendar year.
(7) Use of designated financial institution
A plan shall not be treated as failing to satisfy the
requirements of this subsection or any other provision of this
title merely because the employer makes all contributions to the
individual retirement accounts or annuities of a designated
trustee or issuer. The preceding sentence shall not apply unless
each plan participant is notified in writing (either separately
or as part of the notice under subsection (l)(2)(C)) that the
participant's balance may be transferred without cost or penalty
to another individual account or annuity in accordance with
subsection (d)(3)(G).
(8) Coordination with maximum limitation under subsection (a)
In the case of any simple retirement account, subsections
(a)(1) and (b)(2) shall be applied by substituting "the sum of
the dollar amount in effect under paragraph (2)(A)(ii) of this
subsection and the employer contribution required under
subparagraph (A)(iii) or (B)(i) of paragraph (2) of this
subsection, whichever is applicable" for "the dollar amount in
effect under section 219(b)(1)(A)".
(9) Matching contributions on behalf of self-employed individuals
not treated as elective employer contributions
Any matching contribution described in paragraph (2)(A)(iii)
which is made on behalf of a self-employed individual (as defined
in section 401(c)) shall not be treated as an elective employer
contribution to a simple retirement account for purposes of this
title.
(10) Special rules for acquisitions, dispositions, and similar
transactions
(A) In general
An employer which fails to meet any applicable requirement by
reason of an acquisition, disposition, or similar transaction
shall not be treated as failing to meet such requirement during
the transition period if -
(i) the employer satisfies requirements similar to the
requirements of section 410(b)(6)(C)(i)(II); and
(ii) the qualified salary reduction arrangement maintained
by the employer would satisfy the requirements of this
subsection after the transaction if the employer which
maintained the arrangement before the transaction had
remained a separate employer.
(B) Applicable requirement
For purposes of this paragraph, the term "applicable
requirement" means -
(i) the requirement under paragraph (2)(A)(i) that an
employer be an eligible employer;
(ii) the requirement under paragraph (2)(D) that an
arrangement be the only plan of an employer; and
(iii) the participation requirements under paragraph (4).
(C) Transition period
For purposes of this paragraph, the term "transition period"
means the period beginning on the date of any transaction
described in subparagraph (A) and ending on the last day of the
second calendar year following the calendar year in which such
transaction occurs.
(q) Deemed IRAs under qualified employer plans
(1) General rule
If -
(A) a qualified employer plan elects to allow employees to
make voluntary employee contributions to a separate account or
annuity established under the plan, and
(B) under the terms of the qualified employer plan, such
account or annuity meets the applicable requirements of this
section or section 408A for an individual retirement account or
annuity,
then such account or annuity shall be treated for purposes of
this title in the same manner as an individual retirement plan
and not as a qualified employer plan (and contributions to such
account or annuity as contributions to an individual retirement
plan and not to the qualified employer plan). For purposes of
subparagraph (B), the requirements of subsection (a)(5) shall not
apply.
(2) Special rules for qualified employer plans
For purposes of this title, a qualified employer plan shall not
fail to meet any requirement of this title solely by reason of
establishing and maintaining a program described in paragraph
(1).
(3) Definitions
For purposes of this subsection -
(A) Qualified employer plan
The term "qualified employer plan" has the meaning given such
term by section 72(p)(4)(A)(i); except that such term shall
also include an eligible deferred compensation plan (as defined
in section 457(b)) of an eligible employer described in section
457(e)(1)(A).
(B) Voluntary employee contribution
The term "voluntary employee contribution" means any
contribution (other than a mandatory contribution within the
meaning of section 411(c)(2)(C)) -
(i) which is made by an individual as an employee under a
qualified employer plan which allows employees to elect to
make contributions described in paragraph (1), and
(ii) with respect to which the individual has designated
the contribution as a contribution to which this subsection
applies.
(r) Cross references
(1) For tax on excess contributions in individual retirement
accounts or annuities, see section 4963.
(2) For tax on certain accumulations in individual retirement
accounts or annuities, see section 4974.
-SOURCE-
(Added Pub. L. 93-406, title II, Sec. 2002(b), Sept. 2, 1974, 88
Stat. 959; amended Pub. L. 94-455, title XV, Sec. 1501(b)(2), (5),
(10), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1735-
1737, 1834; Pub. L. 95-600, title I, Secs. 152(a), (b), 156(c)(1),
(3), 157(c)(1), (d)(1), (e)(1)(A), (g)(3), (h)(2), title VII, Sec.
703(c)(4), Nov. 6, 1978, 92 Stat. 2797, 2802, 2803, 2805, 2806,
2808, 2939; Pub. L. 96-222, title I, Sec. 101(a)(10)(A), (C), (F),
(G), (J)(i), (14)(B), (E)(ii), Apr. 1, 1980, 94 Stat. 201-205; Pub.
L. 96-605, title II, Sec. 225(b)(3), (4), Dec. 28, 1980, 94 Stat.
3529; Pub. L. 97-34, title III, Secs. 311(g)(1)(A)-(C), (2),
(h)(2), 312(b)(2), (c)(5), 313(b)(2), 314(b)(1), Aug. 13, 1981, 95
Stat. 281-284, 286; Pub. L. 97-248, title II, Secs. 237(e)(3),
238(d)(3), (4), 243(a), (b)(1)(A), title III, Sec. 335(a)(1), Sept.
3, 1982, 96 Stat. 512, 513, 521, 522, 628; Pub. L. 97-448, title I,
Sec. 103(d)(1), (e), Jan. 12, 1983, 96 Stat. 2378; Pub. L. 98-369,
div. A, title I, Sec. 147(a), title IV, Sec. 491(d)(19)-(24), title
V, Secs. 521(b), 522(d)(12), title VII, Sec. 713(c)(2)(B), (f)(2),
(5)(B), (g)(2), (j), July 18, 1984, 98 Stat. 687, 850, 867, 871,
957, 959, 960; Pub. L. 99-514, title XI, Secs. 1102(a), (b)(2),
(c), (e)(2), 1108(a), (d)-(g)(1), (4), (6), 1121(c)(2),
1122(e)(2)(B), 1123(d)(2), 1144(a), title XVIII, Secs. 1852(a)(1),
(5)(C), (7)(A), 1875(c)(6)(A), (8), 1898(a)(5), Oct. 22, 1986, 100
Stat. 2414-2416, 2431, 2433, 2434, 2465, 2470, 2475, 2490, 2864-
2866, 2895, 2944; Pub. L. 100-647, title I, Secs. 1011(b)(1)-(3),
(c)(7)(C), (f)(1)-(5), (10), (i)(5), 1011A(a)(2)(A), 1018(t)(3)(D),
title VI, Sec. 6057(a), Nov. 10, 1988, 102 Stat. 3456, 3458, 3461-
3463, 3468, 3472, 3588, 3698; Pub. L. 101-239, title VII, Secs.
7811(m)(7), 7841(a)(1), Dec. 19, 1989, 103 Stat. 2412, 2427; Pub.
L. 102-318, title V, Sec. 521(b)(16)-(19), July 3, 1992, 106 Stat.
311; Pub. L. 103-66, title XIII, Sec. 13212(b), Aug. 10, 1993, 107
Stat. 472; Pub. L. 103-465, title VII, Sec. 732(d), Dec. 8, 1994,
108 Stat. 5005; Pub. L. 104-188, title I, Secs. 1421(a), (b)(3)(B),
(5), (6), (c), 1427(b)(3), 1431(c)(1)(B), 1455(b)(1), Aug. 20,
1996, 110 Stat. 1792, 1796-1798, 1802, 1803, 1817; Pub. L. 105-34,
title III, Secs. 302(d), 304(a), title XV, Sec. 1501(b), title XVI,
Sec. 1601(d)(1)(A)-(C)(i), (D)-(G), Aug. 5, 1997, 111 Stat. 829,
831, 1058, 1087, 1088; Pub. L. 105-206, title VI, Secs. 6015(a),
6016(a)(1), 6018(b), July 22, 1998, 112 Stat. 820-822; Pub. L. 106-
554, Sec. 1(a)(7) [title III, Sec. 319(3)], Dec. 21, 2000, 114
Stat. 2763, 2763A-646; Pub. L. 107-16, title VI, Secs. 601(b),
602(a), 611(c)(1), (f)(1), (2), (g)(2), 641(e)(8), 642(a), (b)(2),
(3), 643(c), 644(b), June 7, 2001, 115 Stat. 95, 97, 99, 121-123;
Pub. L. 107-147, title IV, Sec. 411(i)(1), (j)(1), Mar. 9, 2002,
116 Stat. 46, 47; Pub. L. 108-311, title IV, Secs. 404(d),
408(a)(12), (13), Oct. 4, 2004, 118 Stat. 1188, 1191.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Section 7 of the Commodity Exchange Act, referred to in subsec.
(m)(3)(B), is classified to section 11 of Title 7, Agriculture, and
relates to vacation on request of designation as "contract market".
Section 5 of the Commodity Exchange Act, which is classified to
section 7 of Title 7, relates to designation of boards of trade as
"contract markets".
Paragraph (6) or (7) of section 101 of the Federal Credit Union
Act, referred to in subsec. (n)(2), is classified to section
1752(6), (7) of Title 12, Banks and Banking.
-MISC1-
AMENDMENTS
2004 - Subsec. (a)(1). Pub. L. 108-311, Sec. 408(a)(12),
substituted "457(e)(16)," for "457(e)(16)".
Subsec. (n)(2). Pub. L. 108-311, Sec. 408(a)(13), substituted
"paragraph (6) or (7) of section 101" for "section 101(6)".
Subsec. (p)(6)(A)(i). Pub. L. 108-311, Sec. 404(d), inserted at
end "For purposes of the preceding sentence, amounts described in
section 6051(a)(3) shall be determined without regard to section
3401(a)(3)."
2002 - Subsec. (k)(2)(C). Pub. L. 107-147, Sec. 411(j)(1)(A),
substituted "$450" for "$300".
Subsec. (k)(8). Pub. L. 107-147, Sec. 411(j)(1)(B), substituted
"$450" for "$300" in two places.
Subsec. (q)(3)(A). Pub. L. 107-147, Sec. 411(i)(1), reenacted
heading without change and amended text of subpar. (A) generally.
Prior to amendment, text read as follows: "The term 'qualified
employer plan' has the meaning given such term by section 72(p)(4);
except such term shall not include a government plan which is not a
qualified plan unless the plan is an eligible deferred compensation
plan (as defined in section 457(b))."
2001 - Subsec. (a)(1). Pub. L. 107-16, Secs. 641(e)(8), 901,
temporarily substituted "403(b)(8), or 457(e)(16)" for "or
403(b)(8),". See Effective and Termination Dates of 2001 Amendment
note below.
Pub. L. 107-16, Secs. 601(b)(1), 901, temporarily substituted "on
behalf of any individual in excess of the amount in effect for such
taxable year under section 219(b)(1)(A)" for "in excess of $2,000
on behalf of any individual". See Effective and Termination Dates
of 2001 Amendment note below.
Subsec. (b). Pub. L. 107-16, Secs. 601(b)(3), 901, temporarily
substituted "the dollar amount in effect under section
219(b)(1)(A)" for "$2,000" in concluding provisions. See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (b)(2)(B). Pub. L. 107-16, Secs. 601(b)(2), 901,
temporarily substituted "the dollar amount in effect under section
219(b)(1)(A)" for "$2,000". See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (d)(3)(A). Pub. L. 107-16, Secs. 642(a), 901, temporarily
inserted "or" at end of cl. (i), added cl. (ii) and concluding
provisions, and struck out former cls. (ii) and (iii) which read as
follows:
"(ii) no amount in the account and no part of the value of the
annuity is attributable to any source other than a rollover
contribution (as defined in section 402) from an employee's trust
described in section 401(a) which is exempt from tax under section
501(a) or from an annuity plan described in section 403(a) (and any
earnings on such contribution), and the entire amount received
(including property and other money) is paid (for the benefit of
such individual) into another such trust or annuity plan not later
than the 60th day on which the individual receives the payment or
the distribution; or
"(iii)(I) the entire amount received (including money and other
property) represents the entire interest in the account or the
entire value of the annuity,
"(II) no amount in the account and no part of the value of the
annuity is attributable to any source other than a rollover
contribution from an annuity contract described in section 403(b)
and any earnings on such rollover, and
"(III) the entire amount thereof is paid into another annuity
contract described in section 403(b) (for the benefit of such
individual) not later than the 60th day after he receives the
payment or distribution."
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(3)(D)(i). Pub. L. 107-16, Secs. 642(b)(2), 901,
temporarily substituted "(i) or (ii)" for "(i), (ii), or (iii)".
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(3)(G). Pub. L. 107-16, Secs. 642(b)(3), 901,
temporarily reenacted heading without change and amended text of
subpar. (G) generally. Prior to amendment, text read as follows:
"This paragraph shall not apply to any amount paid or distributed
out of a simple retirement account (as defined in subsection (p))
unless -
"(i) it is paid into another simple retirement account, or
"(ii) in the case of any payment or distribution to which
section 72(t)(6) does not apply, it is paid into an individual
retirement plan."
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(3)(H). Pub. L. 107-16, Secs. 643(c), 901, temporarily
added subpar. (H). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (d)(3)(I). Pub. L. 107-16, Secs. 644(b), 901, temporarily
added subpar. (I). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (j). Pub. L. 107-16, Secs. 601(b)(4), 901, temporarily
struck out "$2,000" before "amounts". See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (k)(3)(C), (6)(D)(ii), (8). Pub. L. 107-16, Secs.
611(c)(1), 901, temporarily substituted "$200,000" for "$150,000".
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (p)(2)(A)(ii). Pub. L. 107-16, Secs. 611(f)(1), 901,
temporarily substituted "the applicable dollar amount" for
"$6,000". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (p)(2)(E). Pub. L. 107-16, Secs. 611(f)(2), 901,
temporarily amended heading and text of subpar. (E) generally.
Prior to amendment, text read as follows: "The Secretary shall
adjust the $6,000 amount under subparagraph (A)(ii) at the same
time and in the same manner as under section 415(d), except that
the base period taken into account shall be the calendar quarter
ending September 30, 1996, and any increase under this subparagraph
which is not a multiple of $500 shall be rounded to the next lower
multiple of $500." See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (p)(6)(A)(ii). Pub. L. 107-16, Secs. 611(g)(2), 901,
temporarily inserted at end "The preceding sentence shall be
applied as if the term 'trade or business' for purposes of section
1402 included service described in section 1402(c)(6)." See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (p)(8). Pub. L. 107-16, Secs. 601(b)(5), 901, temporarily
substituted "the dollar amount in effect under section
219(b)(1)(A)" for "$2,000". See Effective and Termination Dates of
2001 Amendment note below.
Subsecs. (q), (r). Pub. L. 107-16, Secs. 602(a), 901, temporarily
added subsec. (q) and redesignated former subsec. (q) as (r). See
Effective and Termination Dates of 2001 Amendment note below.
2000 - Subsec. (d)(5). Pub. L. 106-554 amended heading generally.
Prior to amendment, heading read as follows: "Certain distributions
of excess contributions after due date for taxable year".
1998 - Subsec. (d)(7). Pub. L. 105-206, Sec. 6018(b)(2), inserted
"or simple retirement accounts" after "pensions" in heading.
Subsec. (d)(7)(B). Pub. L. 105-206, Sec. 6018(b)(1), inserted "or
402(k)" after "section 402(h)".
Subsec. (p)(2)(C)(i)(II). Pub. L. 105-206, Sec. 6016(a)(1)(C)(i),
substituted "the preceding sentence shall not apply" for "the
preceding sentence shall apply only in accordance with rules
similar to the rules of section 410(b)(6)(C)(i)" in last sentence.
Subsec. (p)(2)(D)(i). Pub. L. 105-206, Sec. 6016(a)(1)(A), struck
out "or (B)" after "(A)" in last sentence.
Subsec. (p)(2)(D)(iii). Pub. L. 105-206, Sec. 6016(a)(1)(C)(ii),
struck out heading and text of cl. (iii). Text read as follows: "In
the case of an employer who establishes and maintains a plan under
this subsection for 1 or more years and who fails to meet any
requirement of this subsection for any subsequent year due to any
acquisition, disposition, or similar transaction involving another
such employer, rules similar to the rules of section 410(b)(6)(C)
shall apply for purposes of this subsection."
Subsec. (p)(8), (9). Pub. L. 105-206, Sec. 6015(a), redesignated
par. (8), relating to matching contributions on behalf of self-
employed individuals not treated as elective employer
contributions, as (9).
Subsec. (p)(10). Pub. L. 105-206, Sec. 6016(a)(1)(B), added par.
(10).
1997 - Subsec. (i). Pub. L. 105-34, Sec. 1601(d)(1)(A),
substituted "31 days" for "30 days" in concluding provisions.
Pub. L. 105-34, Sec. 302(d), struck out "under regulations" after
"may require" in introductory provisions and struck out "in such
regulations" after "prescribes" in pars. (1) and (2)(B).
Subsec. (k)(6)(H). Pub. L. 105-34, Sec. 1601(d)(1)(B),
substituted "of an employer if the terms of simplified employee
pensions of such employer" for "if the terms of such pension".
Subsec. (l)(2)(B). Pub. L. 105-34, Sec. 1601(d)(1)(C)(i),
inserted "and the issuer of an annuity established under such an
arrangement" after "under subsection (p)" in introductory
provisions and "or issuer" after "trustee" in cl. (i).
Subsec. (m)(3). Pub. L. 105-34, Sec. 304(a), amended heading and
text of par. (3) generally. Prior to amendment, text read as
follows: "In the case of an individual retirement account,
paragraph (2) shall not apply to -
"(A) any gold coin described in paragraph (7), (8), (9), or
(10) of section 5112(a) of title 31,
"(B) any silver coin described in section 5112(e) of title 31,
or
"(C) any coin issued under the laws of any State."
Subsec. (p)(2)(D)(i). Pub. L. 105-34, Sec. 1601(d)(1)(E),
inserted at end "If only individuals other than employees described
in subparagraph (A) or (B) of section 410(b)(3) are eligible to
participate in such arrangement, then the preceding sentence shall
be applied without regard to any qualified plan in which only
employees so described are eligible to participate."
Subsec. (p)(2)(D)(iii). Pub. L. 105-34, Sec. 1601(d)(1)(F), added
cl. (iii).
Subsec. (p)(5). Pub. L. 105-34, Sec. 1601(d)(1)(G), substituted
"simple" for "simplified" in introductory provisions.
Subsec. (p)(8). Pub. L. 105-34, Sec. 1601(d)(1)(D), added par.
(8) relating to coordination with maximum limitation under
subsection (a).
Pub. L. 105-34, Sec. 1501(b), added par. (8) relating to matching
contributions on behalf of self-employed individuals not treated as
elective employer contributions.
1996 - Subsec. (d)(3)(G). Pub. L. 104-188, Sec. 1421(b)(3)(B),
added subpar. (G).
Subsec. (d)(5)(A). Pub. L. 104-188, Sec. 1427(b)(3), substituted
"the dollar amount in effect under section 219(b)(1)(A)" for
"$2,250" in introductory provisions.
Subsec. (i). Pub. L. 104-188, Sec. 1455(b)(1), inserted
"aggregating $10 or more in any calendar year" after
"distributions" in introductory provisions.
Pub. L. 104-188, Sec. 1421(b)(6), inserted at end "In the case of
a simple retirement account under subsection (p), only one report
under this subsection shall be required to be submitted each
calendar year to the Secretary (at the time provided under
paragraph (2)) but, in addition to the report under this
subsection, there shall be furnished, within 30 days after each
calendar year, to the individual on whose behalf the account is
maintained a statement with respect to the account balance as of
the close of, and the account activity during, such calendar year."
Subsec. (k)(2)(C). Pub. L. 104-188, Sec. 1431(c)(1)(B),
substituted "section 414(q)(4)" for "section 414(q)(7)".
Subsec. (k)(6)(H). Pub. L. 104-188, Sec. 1421(c), added subpar.
(H).
Subsec. (l). Pub. L. 104-188, Sec. 1421(b)(5), designated
existing provisions as par. (1), inserted heading, and added par.
(2).
Subsecs. (p), (q). Pub. L. 104-188, Sec. 1421(a), added subsec.
(p) and redesignated former subsec. (p) as (q).
1994 - Subsec. (k)(8). Pub. L. 103-465 inserted before period at
end "; except that any increase in the $300 amount which is not a
multiple of $50 shall be rounded to the next lowest multiple of
$50".
1993 - Subsec. (k)(3)(C), (6)(D)(ii). Pub. L. 103-66, Sec.
13212(b)(1), substituted "$150,000" for "$200,000".
Subsec. (k)(8). Pub. L. 103-66, Sec. 13212(b)(2), amended heading
and text of par. (8) generally. Prior to amendment, text read as
follows: "The Secretary shall adjust the $300 amount in paragraph
(2)(C) and the $200,000 amount in paragraphs (3)(C) and (6)(D)(ii)
at the same time and in the same manner as under section 415(d),
except that in the case of years beginning after 1988, the $200,000
amount (as so adjusted) shall not exceed the amount in effect under
section 401(a)(17)."
1992 - Subsec. (a)(1). Pub. L. 102-318, Sec. 521(b)(16),
substituted "402(c)" for "402(a)(5), 402(a)(7)".
Subsec. (d)(3)(A)(ii). Pub. L. 102-318, Sec. 521(b)(17), amended
clause (ii) generally. Prior to amendment, clause (ii) read as
follows: "the entire amount received (including money and any other
property) represents the entire amount in the account or the entire
value of the annuity and no amount in the account and no part of
the value of the annuity is attributable to any source other than a
rollover contribution of a qualified total distribution (as defined
in section 402(a)(5)(E)(i)) from an employee's trust described in
section 401(a) which is exempt from tax under section 501(a), or an
annuity plan described in section 403(a) and any earnings on such
sums and the entire amount thereof is paid into another such trust
(for the benefit of such individual) or annuity plan not later than
the 60th day on which he receives the payment or distribution; or".
Subsec. (d)(3)(B). Pub. L. 102-318, Sec. 521(b)(18), struck out
at end "Clause (ii) of subparagraph (A) shall not apply to any
amount paid or distributed out of an individual retirement account
or an individual retirement annuity to which an amount was
contributed which was treated as a rollover contribution by section
402(a)(7) (or in the case of an individual retirement annuity, such
section as made applicable by section 403(a)(4)(B))."
Subsec. (d)(3)(F). Pub. L. 102-318, Sec. 521(b)(19), substituted
"402(c)(7)" for "402(a)(6)(H)".
1989 - Subsecs. (a)(6), (b)(3). Pub. L. 101-239, Sec. 7811(m)(7),
struck out "(without regard to subparagraph (C)(ii) thereof)" after
"section 401(a)(9)".
Subsec. (d)(6). Pub. L. 101-239, Sec. 7841(a)(1), substituted
"his spouse or former spouse under a divorce or separation
instrument described in subparagraph (A) of section 71(b)(2)" for
"his former spouse under a divorce decree or under a written
instrument incident to such divorce".
1988 - Subsec. (d)(2)(C). Pub. L. 100-647, Sec. 1011(b)(1),
substituted "in which the taxable year begins" for "with or within
which the taxable year ends".
Subsec. (d)(3)(A). Pub. L. 100-647, Sec. 1011A(a)(2)(A), struck
out at end "Clause (ii) shall not apply during the 5-year period
beginning on the date of the qualified total distribution referred
to in such clause if the individual was treated as a 5-percent
owner with respect to such distribution under section
402(a)(5)(F)(ii)."
Subsec. (d)(3)(E). Pub. L. 100-647, Sec. 1018(t)(3)(D),
substituted "paragraph" for "subparagraph".
Subsec. (d)(4). Pub. L. 100-647, Sec. 1011(b)(2), substituted
"Contributions" for "Excess contributions" in heading, struck out
"to the extent that such contribution exceeds the amount allowable
as a deduction under section 219" after "individual retirement
annuity" in introductory provisions, and substituted "such
contribution" for "such excess contribution" in subpars. (B) and
(C) and in last sentence.
Subsec. (d)(5). Pub. L. 100-647, Sec. 1011(b)(3), substituted
"shall be computed without regard to section 219(g)" for "(after
application of section 408(o)(2)(B)(ii)) shall be increased by the
nondeductible limit under section 408(o)(2)(B)" in last sentence.
Subsec. (d)(7). Pub. L. 100-647, Sec. 1011(f)(5), added par. (7).
Subsec. (k)(3)(B). Pub. L. 100-647, Sec. 1011(i)(5), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "For purposes of subparagraph (A) -
"(i) there shall be excluded from consideration employees
described in subparagraph (A) or (C) of section 410(b)(3), and
"(ii) an individual shall be considered a shareholder if he
owns (with the application of section 318) more than 10 percent
of the value of the stock of the employer."
Subsec. (k)(3)(C). Pub. L. 100-647, Sec. 1011(f)(3)(C), struck
out "total" before "compensation".
Subsec. (k)(6)(A). Pub. L. 100-647, Sec. 1011(f)(1), substituted
"Arrangements which qualify" for "In general" in heading and
amended text generally. Prior to amendment, text read as follows:
"A simplified employee pension shall not fail to meet the
requirements of this subsection for a year merely because, under
the terms of the pension -
"(i) an employee may elect to have the employer make payments -
"(I) as elective employer contributions to the simplified
employee pension on behalf of the employee, or
"(II) to the employee directly in cash,
"(ii) an election described in clause (i)(I) is made or is in
effect with respect to not less than 50 percent of the employees
of the employer, and
"(iii) the deferral percentage for such year of each highly
compensated employee eligible to participate is not more than the
product derived by multiplying the average of the deferral
percentages for such year of all employees (other than highly
compensated employees) eligible to participate by 1.25."
Subsec. (k)(6)(A)(iv). Pub. L. 100-647, Sec. 1011(c)(7)(C), added
cl. (iv).
Subsec. (k)(6)(B). Pub. L. 100-647, Sec. 1011(f)(2), inserted
"who were eligible to participate (or would have been required to
be eligible to participate if a pension was maintained)" after
"than 25 employees".
Subsec. (k)(6)(D)(ii). Pub. L. 100-647, Sec. 1011(f)(3)(A),
substituted "(not in excess of the first $200,000)" for "(within
the meaning of section 414(s))".
Subsec. (k)(6)(F), (G). Pub. L. 100-647, Sec. 1011(f)(4), added
subpar. (f) and redesignated former subpar. (F) as (G).
Subsec. (k)(7)(B). Pub. L. 100-647, Sec. 1011(f)(3)(B), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "The term 'compensation' means, in the case of an employee
within the meaning of section 401(c)(1), earned income within the
meaning of section 401(c)(2)."
Subsec. (k)(8). Pub. L. 100-647, Sec. 1011(f)(3)(D), (10),
substituted "paragraphs (3)(C) and (6)(D)(ii)" for "paragraph
(3)(C)" and inserted ", except that in the case of years beginning
after 1988, the $200,000 amount (as so adjusted) shall not exceed
the amount in effect under section 401(a)(17)" after "under section
415(d)".
Subsec. (m)(3). Pub. L. 100-647, Sec. 6057(a), amended par. (3)
generally. Prior to amendment, par. (3) read as follows: "In the
case of an individual retirement account, paragraph (2) shall not
apply to any gold coin described in paragraph (7), (8), (9), or
(10) of section 5112(a) of title 31 or any silver coin described in
section 5112(e) of title 31."
Subsec. (o)(4)(B)(iv). Pub. L. 100-647, Sec. 1011(b)(1),
substituted "in which the taxable year begins" for "with or within
which the taxable year ends".
1986 - Subsecs. (a)(6), (b)(3). Pub. L. 99-514, Sec. 1852(a)(1),
substituted "(without regard to subparagraph (C)(ii) thereof) and
the incidental death benefit requirements of section 401(a)" for
"(relating to required distributions)".
Subsec. (c)(1). Pub. L. 99-514, Sec. 1852(a)(7)(A), substituted
"paragraphs (1) through (6)" for "paragraphs (1) through (7)".
Subsec. (d)(1). Pub. L. 99-514, Sec. 1102(c), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "Except as
otherwise provided in this subsection, any amount paid or
distributed out of an individual retirement account or under an
individual retirement annuity shall be included in gross income by
the payee or distributee, as the case may be, for the taxable year
in which the payment or distribution is received. Notwithstanding
any other provision of this title (including chapters 11 and 12),
the basis any person in such an account or annuity is zero."
Subsec. (d)(2). Pub. L. 99-514, Sec. 1102(c), substituted
"Special rules for applying section 72" for "Distributions of
annuity contracts" in heading and amended par. generally. Prior to
amendment, par. (2) read as follows: "Paragraph (1) does not apply
to any annuity contract which meets the requirements of paragraphs
(1), (3), (4), and (5) of subsection (b) and which is distributed
from an individual retirement account. Section 72 applies to any
such annuity contract, and for purposes of section 72 the
investment in such contract is zero."
Subsec. (d)(3)(A). Pub. L. 99-514, Sec. 1875(c)(8)(C), inserted
at end "Clause (ii) shall not apply during the 5-year period
beginning on the date of the qualified total distribution referred
to in such clause if the individual was treated as a 5-percent
owner with respect to such distribution under section
402(a)(5)(F)(ii)."
Subsec. (d)(3)(A)(ii). Pub. L. 99-514, Sec. 1875(c)(8)(A), (B),
struck out "(other than a trust forming part of a plan under which
the individual was an employee within the meaning of section
401(c)(1) at the time contributions were made on his behalf under
the plan)" after "section 501(a)" and struck out "(other than a
plan under which the individual was an employee within the meaning
of section 401(c)(1) at the time contributions were made on his
behalf under the plan)" after "section 403(a)".
Pub. L. 99-514, Sec. 1121(c)(2), made amendment identical to Pub.
L. 99-514, Sec. 1875(c)(8)(A), (B), see above.
Subsec. (d)(3)(E). Pub. L. 99-514, Sec. 1852(a)(5)(C), added
subpar. (E).
Subsec. (d)(3)(F). Pub. L. 99-514, Sec. 1122(e)(2)(B), added
subpar. (F).
Subsec. (d)(5). Pub. L. 99-514, Sec. 1102(b)(2), inserted at end
"For purposes of this paragraph, the amount allowable as a
deduction under section 219 (after application of section
408(o)(2)(B)(ii)) shall be increased by the nondeductible limit
under section 408(o)(2)(B)."
Subsec. (d)(5)(A). Pub. L. 99-514, Sec. 1875(c)(6)(A),
substituted "the dollar limitation in effect under section
415(c)(1)(A) for such taxable year" for "$15,000".
Subsec. (f). Pub. L. 99-514, Sec. 1123(d)(2), struck out subsec.
(f) which related to additional tax on certain amounts included in
gross income before age 59 1/2 .
Subsec. (i). Pub. L. 99-514, Sec. 1102(e)(2), amended last
sentence generally. Prior to amendment, last sentence read as
follows: "The reports required by this subsection shall be filed at
such time and in such manner and furnished to such individuals at
such time and in such manner as may be required by those
regulations."
Subsec. (k)(2). Pub. L. 99-514, Sec. 1108(d), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "This
paragraph is satisfied with respect to a simplified employee
pension for a calendar year only if for such year the employer
contributes to the simplified employee pension of each employee who
-
"(A) has attained age 21, and
"(B) has performed service for the employer during at least 3
of the immediately preceding 5 calendar years.
For purposes of this paragraph, there shall be excluded from
consideration employees described in subparagraph (A) or (C) of
section 410(b)(3)."
Subsec. (k)(2)(A). Pub. L. 99-514, Sec. 1898(a)(5), substituted
"age 21" for "age 25".
Subsec. (k)(3)(A). Pub. L. 99-514, Sec. 1108(g)(4), substituted
"year" for "calendar year".
Pub. L. 99-514, Sec. 1108(g)(1)(A), substituted "any highly
compensated employee (within the meaning of section 414(q))" for
"any employee who is -
"(i) an officer,
"(ii) a shareholder,
"(iii) a self-employed individual, or
"(iv) highly compensated".
Subsec. (k)(3)(C). Pub. L. 99-514, Sec. 1108(g)(1)(B), inserted
"and except as provided in subparagraph (D)," and "(other than
contributions under an arrangement described in paragraph (6))",
and struck out end sentence which read as follows: "The Secretary
shall annually adjust the $200,000 amount contained in the
preceding sentence at the same time and in the same manner as he
adjusts the dollar amount contained in section 415(c)(1)(A)."
Subsec. (k)(3)(D), (E). Pub. L. 99-514, Sec. 1108(g)(1)(C), added
subpar. (D) and struck out former subpar. (D), treatment of certain
contributions and taxes, which read "Except as provided in this
subparagraph, employer contributions do not meet the requirements
of this paragraph unless such contributions meet the requirements
of this paragraph without taking into account contributions or
benefits under chapter 2 (relating to tax on self-employment
income), chapter 21 (relating to Federal Insurance Contribution
Act), title II of the Social Security Act, or any other Federal or
State law. If the employer does not maintain an integrated plan at
any time during the taxable year, OASDI contributions (as defined
in section 401(l)(2)) may, for purposes of this paragraph, be taken
into account as contributions by the employer to the employee's
simplified employee pension, but only if such contributions are so
taken into account with respect to each employee maintaining a
simplified employee pension.", and former subpar. (E), integrated
plan defined, which read "For purposes of subparagraph (D), the
term 'integrated plan' means a plan which meets the requirements of
section 401(a) or 403(a) but would not meet such requirements if
contributions or benefits under chapter 2 (relating to tax on self-
employment income), chapter 21 (relating to Federal Insurance
Contributions Act), title II of the Social Security Act, or any
other Federal or State law were not taken into account."
Subsec. (k)(6). Pub. L. 99-514, Sec. 1108(a), added par. (6).
Subsec. (k)(7)(C). Pub. L. 99-514, Sec. 1108(f), added subpar.
(C).
Subsec. (k)(8). Pub. L. 99-514, Sec. 1108(e), added par. (8).
Subsec. (k)(9). Pub. L. 99-514, Sec. 1108(g)(6), added par. (9).
Subsec. (m)(3). Pub. L. 99-514, Sec. 1144(a), added par. (3).
Subsecs. (o), (p). Pub. L. 99-514, Sec. 1102(a), added subsec.
(o) and redesignated former subsec. (o) as (p).
1984 - Subsec. (a)(1). Pub. L. 98-369, Sec. 491(d)(19),
substituted "or 403(b)(8)" for "403(b)(8), 405(d)(3), or
409(b)(3)(C)".
Subsec. (a)(6). Pub. L. 98-369, Sec. 521(b)(1), added par. (6)
and struck out former par. (6) which provided that the entire
interest of an individual for whose benefit the trust is maintained
will be distributed to him not later than the close of his taxable
year in which he attains age 70 1/2 , or will be distributed,
commencing before the close of such taxable year, in accordance
with regulations prescribed by the Secretary, over (A) the life of
such individual or the lives of such individual and his spouse, or
(B) a period not extending beyond the life expectancy of such
individual or the life expectancy of such individual and his
spouse.
Subsec. (a)(7). Pub. L. 98-369, Sec. 521(b)(1), struck out par.
(7) which provided that if (A) an individual for whose benefit the
trust is maintained dies before his entire interest has been
distributed to him, or (B) distribution has been commenced as
provided in paragraph (6) to his surviving spouse and such
surviving spouse dies before the entire interest has been
distributed to such spouse, the entire interest (or the remaining
part of such interest if distribution thereof has commenced) will
be distributed within 5 years after his death (or the death of the
surviving spouse). The preceding sentence shall not apply if
distributions over a term certain commenced before the death of the
individual for whose benefit the trust was maintained and the term
certain is for a period permitted under paragraph (6).
Subsec. (b)(3). Pub. L. 98-369, Sec. 521(b)(2), added par. (3)
and struck out former par. (3) which provided that the entire
interest of the owner will be distributed to him not later than the
close of his taxable year in which he attains age 70 1/2 , or will
be distributed, in accordance with regulations prescribed by the
Secretary, over (A) the life of such owner or the lives of such
owner and his spouse, or (B) a period not extending beyond the life
expectancy of such owner or the life expectancy of such owner and
his spouse.
Subsec. (b)(4), (5). Pub. L. 98-369, Sec. 521(b)(2), redesignated
par. (5) as (4) and struck out former par. (4) which provided that
if (A) the owner dies before his entire interest has been
distributed to him, or (B) distribution has been commenced as
provided in paragraph (3) to his surviving spouse and such
surviving spouse dies before the entire interest has been
distributed to such spouse, the entire interest (or the remaining
part of such interest if distribution thereof has commenced) will
be distributed within 5 years after his death (or the death of the
surviving spouse). The preceding sentence shall not apply if
distributions over a term certain commenced before the death of the
owner and the term certain is for a period permitted under
paragraph (3).
Subsec. (d)(3)(A)(i). Pub. L. 98-369, Sec. 491(d)(20), struck out
"or retirement bond" before "for the benefit".
Subsec. (d)(3)(A)(ii). Pub. L. 98-369, Sec. 522(d)(12),
substituted "rollover contribution of a qualified total
distribution (as defined in section 402(a)(5)(E)(i)) from an
employee's trust" for "rollover contribution from an employee's
trust".
Subsec. (d)(3)(B). Pub. L. 98-369, Sec. 491(d)(21), substituted
"or an individual retirement annuity" for ", individual retirement
annuity, or a retirement bond".
Subsec. (d)(3)(C), (D). Pub. L. 98-369, Sec. 713(g)(2),
designated the subpar. (C), as added by section 335(a)(1) of Pub.
L. 97-248, relating to permitting partial rollovers, as subpar.
(D).
Subsec. (d)(3)(D)(ii). Pub. L. 98-369, Sec. 491(d)(22), struck
out "bond," after "annuity,".
Subsec. (d)(6). Pub. L. 98-369, Sec. 491(d)(23), substituted "or
an individual retirement annuity" for ", individual retirement
annuity, or retirement bond", and "or annuity" for ", annuity, or
bond".
Subsec. (h). Pub. L. 98-369, Sec. 713(c)(2)(B), substituted "(as
defined in subsection (n))" for "(as defined in section
401(d)(1))".
Subsec. (i). Pub. L. 98-369, Sec. 147(a), inserted "(and the
years to which they relate)".
Subsec. (k)(1). Pub. L. 98-369, Sec. 713(f)(2), amended par. (1)
generally, designating existing provisions as subpar. (A) and
adding subpar. (B).
Subsec. (k)(3)(C). Pub. L. 98-369, Sec. 713(f)(5)(B), inserted
provision which required annual adjustment of the $200,000 amount
concurrently with the dollar amount adjustment in section
415(c)(1)(A).
Subsec. (k)(3)(D). Pub. L. 98-369, Sec. 713(j), substituted in
penultimate sentence "OASDI contributions (as defined in section
401(l)(2)" for "taxes paid under section 3111 (relating to tax on
employers) with respect to an employee" and "as contributions by
the employer to the employee's simplified employee pension, but
only if such contributions are so taken into account with respect
to each employee maintaining a simplified employee pension" for "as
a contribution by the employer to an employee's simplified pension"
and struck out third sentence which provided "If contributions are
made to the simplified employee pension of an owner-employee, the
preceding sentence shall not apply unless taxes paid by all such
owner-employees under chapter 2, and the taxes which would be
payable under chapter 2 by such owner-employees but for paragraphs
(4) and (5) of section 1402(c), are taken into account as
contributions by the employer on behalf of such owner-employees."
Subsec. (k)(3)(E). Pub. L. 98-369, Sec. 491(d)(24), substituted
"or 403(a)" for ", 403(a), or 405(a)".
1983 - Subsec. (j). Pub. L. 97-448, Sec. 103(d)(1)(B),
substituted "$17,000" for "$15,000" in provisions preceding par.
(1).
Subsec. (k)(3)(C)(ii). Pub. L. 97-448, Sec. 103(d)(1)(A),
inserted "(other than an employee within the meaning of section
401(c)(1))" after "a simplified employee pension on behalf of each
employee".
Subsecs. (m), (n). Pub. L. 97-448, Sec. 103(e)(1), amended
directory language of Pub. L. 97-34, Sec. 314(b)(1), thereby
correcting subsec. designations. See 1981 Amendment note below for
subsecs. (m) and (n).
1982 - Subsec. (a)(2). Pub. L. 97-248, Sec. 237(e)(3)(A),
substituted reference to subsection (n) of this section, for
reference to section 401(d)(1).
Subsec. (a)(7). Pub. L. 97-248, Sec. 243(a)(1), amended par. (7)
generally, designating existing provisions as subpars. (A) and (B),
in subpar. (B), as so designated, striking out "if" before
"distribution", in provisions following subpar. (B) substituting
"will be distributed within 5 years after his death (or the death
of the surviving spouse)" for "will, within 5 years after his death
(or the death of the surviving spouse), be distributed, or applied
to the purchase of an immediate annuity for his beneficiary or
beneficiaries (or the beneficiary or beneficiaries of his surviving
spouse) which will be payable for the life of such beneficiary or
beneficiaries (or for a term certain not extending beyond the life
expectancy of such beneficiary or beneficiaries) and which annuity
will be immediately distributed to such beneficiary or
beneficiaries", and substituting "shall not apply" for "does not
apply".
Subsec. (b)(4). Pub. L. 97-248, Sec. 243(a)(2), amended par. (4)
generally, designating existing provisions, as subpars. (A) and
(B), in subpar. (B), as so redesignated, striking out "if" before
"distribution", in provisions following subpar. (B) substituting
"will be distributed within 5 years after his death (or the death
of the surviving spouse)" for "will, within 5 years after his death
(or the death of the surviving spouse), be distributed, or applied
to the purchase of an immediate annuity for his beneficiary or
beneficiaries (or the beneficiary or beneficiaries of his surviving
spouse) which will be payable for the life of such beneficiary or
beneficiaries (or for a term certain not extending beyond the life
expectancy of such beneficiary or beneficiaries) and which annuity
will be immediately distributed to such beneficiary or
beneficiaries", and substituting "shall not apply" for "shall have
no application".
Subsec. (d)(3)(C). Pub. L. 97-248, Sec. 243(b)(1)(A), added
subpar. (C) relating to denial of rollover treatment for inherited
accounts.
Pub. L. 97-248, Sec. 335(a)(1), added subpar. (C) relating to
permitting partial rollovers.
Subsec. (j). Pub. L. 97-248, Sec. 238(d)(3), amended subsec. (j)
generally, substituting provisions increasing amount by the amount
of the limitation in effect under section 415(c)(1)(A), for
provisions increasing amount by substituting "$15,000" for
"$2,000".
Subsec. (k)(1). Pub. L. 97-248, Sec. 238(d)(4)(B), struck out
reference to par. (6) of this subsection.
Subsec. (k)(3)(C). Pub. L. 97-248, Sec. 238(d)(4)(C), amended
subpar. (C) generally, striking out cl. "(i)" designation and cl.
(ii) which related to taking into account compensation in excess of
$100,000 with respect to a simplified employee pension.
Subsec. (k)(6). Pub. L. 97-248, Sec. 238(d)(4)(A), struck out
par. (6) which related to prohibition on employer maintaining plan
to which section 401(j) applies.
Subsecs. (n), (o). Pub. L. 97-248, Sec. 237(e)(3)(B), added
subsec. (n) and redesignated former subsec. (n) as (o).
1981 - Subsec. (a)(1). Pub. L. 97-34, Sec. 313(b)(2), inserted
reference to section 405(d)(3).
Pub. L. 97-34, Sec. 311(g)(1)(A), substituted "$2,000" for
"$1,500".
Subsec. (b). Pub. L. 97-34, Sec. 311(g)(1)(B), substituted in
par. (2)(B) and provision following par. (5) "$2,000" for "$1,500".
Subsec. (d)(4). Pub. L. 97-34, Sec. 311(h)(2), substituted
section "219" for "219 or 220" in provision preceding subpar. (A)
and in subpar. (B).
Subsec. (d)(5)(A). Pub. L. 97-34, Sec. 312(c)(5), substituted
"$15,000" for "$7,500".
Pub. L. 97-34, Sec. 311(g)(2), (h)(2), substituted "$2,250" for
"$1,750" and "219" for "219 or 220" in two places.
Subsec. (j). Pub. L. 97-34, Sec. 312(c)(5), substituted "$15,000"
for "$7,500".
Pub. L. 97-34, Sec. 311(g)(1)(C), substituted "$2,000" for
"$1,500".
Subsec. (k)(3)(C). Pub. L. 97-34, Sec. 312(b)(2), designated
provision relating to compensation bearing a uniform relationship
to total compensation as cl. (i), and in cl. (i) as so designated,
substituted "$200,000" for "$100,000", and added cl. (ii).
Subsecs. (m), (n). Pub. L. 97-34, Sec. 314(b)(1), as amended by
Pub. L. 97-448, Sec. 103(e)(1), added subsec. (m) and redesignated
former subsec. (m) as (n).
1980 - Subsec. (a)(1). Pub. L. 96-222, Sec. 101(a)(14)(B),
inserted reference to section 402(a)(7).
Subsec. (d)(5). Pub. L. 96-222, Sec. 101(a)(10)(C), (14)(E)(ii),
in subpar. (A) inserted provisions requiring that if employer
contributions on behalf of the individual are paid for the taxable
year to a simplified employee pension, the dollar amount of the
preceding sentence be increased by the lessor of the amount of such
contributions or $7,500 and restructured subpar. (B).
Subsec. (j)(3). Pub. L. 96-222, Sec. 101(a)(10)(J)(i), struck out
par. (3) which made reference to paragraph (5) of subsection (b).
Subsec. (k). Pub. L. 96-222, Sec. 101(a)(10)(A), (F), (G),
substituted in par. (1) "(5), and (6)" for "and (5)" and in par.
(3)(D) "If the employer does not maintain an integrated plan at any
time during the taxable year, taxes paid" for "Taxes paid",
inserted in par. (2) provisions requiring that for purposes of this
paragraph there be excluded from consideration employees described
in subparagraph (A) or (C) of section 410(b)(2) and pars. (3)(E)
and (6), and redesignated former par. (6) as (7).
Subsec. (k)(2), (3)(B)(i). Pub. L. 96-605, Sec. 225(b)(3), (4),
substituted "section 410(b)(3)" for "section 410(b)(2)".
1978 - Subsec. (a)(1). Pub. L. 95-600, Sec. 156(c)(3), inserted
reference to section 403(b)(8).
Subsec. (b)(2). Pub. L. 95-600, Sec. 157(d)(1), (e)(1)(A),
designated existing provisions as subpars. (B) and (C) and added
subpar. (A), and in subpar. (B) as so designated, inserted "on
behalf of any individual" after "annual premium", respectively.
Subsec. (d)(3)(A)(iii). Pub. L. 95-600, Sec. 156(c)(1), added cl.
(iii).
Subsec. (d)(3)(B). Pub. L. 95-600, Sec. 157(g)(3), (h)(2),
inserted provision relating to the applicability of clause (ii) of
subparagraph (A) to any amount paid or distributed out of an
individual retirement account or annuity to which an amount was
contributed which was treated as a rollover contribution by section
402(a)(7) and substituted "1-year period" for "3-year period".
Subsec. (d)(4). Pub. L. 95-600, Sec. 703(c)(4), amended Pub. L.
94-455, Sec. 1501(b)(5). See 1976 Amendment note below.
Subsec. (d)(5), (6). Pub. L. 95-600, Sec. 157(c)(1), added par.
(5) and redesignated former par. (5) as (6).
Subsecs. (j) to (m). Pub. L. 95-600, Sec. 152(a), added subsecs.
(j) to (l) and redesignated former subsec. (j) as (m).
1976 - Subsecs. (a)(2), (6), (b). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (c)(2). Pub. L. 94-455, Sec. 1501(b)(2), substituted
"member (or spouse of an employee or member)" for "member".
Subsec. (d)(1). Pub. L. 94-455, Sec. 1501(b)(10), substituted
"Notwithstanding any other provision of this title (including
chapters 11 and 12), the basis" for "The basis".
Subsec. (d)(4). Pub. L. 94-455, Sec. 1501(b)(5), as amended by
Pub. L. 95-600, Sec. 703(c)(4), inserted reference to section 220
and substituted "In the case of such a distribution, for purposes
of section 61, any net income described in subparagraph (C) shall
be deemed to have been earned and receivable in the taxable year in
which such excess contribution is made" for "Any net income
described in subparagraph (C) shall be included in the gross income
of the individual for the taxable year in which received".
Subsecs. (h), (i). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 404(d) of Pub. L. 108-311 effective as if
included in the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment
relates, see section 404(f) of Pub. L. 108-311, set out as a note
under section 45A of this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 601(b) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 601(c) of
Pub. L. 107-16, set out as a note under section 219 of this title.
Pub. L. 107-16, title VI, Sec. 602(c), June 7, 2001, 115 Stat.
96, provided that: "The amendments made by this section [amending
this section and section 1003 of Title 29, Labor] shall apply to
plan years beginning after December 31, 2002."
Amendment by section 611(c)(1), (f)(1), (2), (g)(2) of Pub. L.
107-16 applicable to years beginning after Dec. 31, 2001, see
section 611(i)(1) of Pub. L. 107-16, set out as a note under
section 415 of this title.
Amendment by section 641(e)(8) of Pub. L. 107-16 applicable to
distributions after Dec. 31, 2001, see section 641(f)(1) of Pub. L.
107-16, set out as a note under section 402 of this title.
Pub. L. 107-16, title VI, Sec. 642(c), June 7, 2001, 115 Stat.
122, provided that:
"(1) Effective date. - The amendments made by this section
[amending this section and section 403 of this title] shall apply
to distributions after December 31, 2001.
"(2) Special rule. - Notwithstanding any other provision of law,
subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act
of 1986 [Pub. L. 99-514, set out as a note under section 402 of
this title] shall not apply to any distribution from an eligible
retirement plan (as defined in clause (iii) or (iv) of section
402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an
individual if there was a rollover to such plan on behalf of such
individual which is permitted solely by reason of the amendments
made by this section."
Amendment by section 643(c) of Pub. L. 107-16 applicable to
distributions made after Dec. 31, 2001, see section 643(d) of Pub.
L. 107-16, set out as a note under section 401 of this title.
Amendment by section 644(b) of Pub. L. 107-16 applicable to
distributions after Dec. 31, 2001, see section 644(c) of Pub. L.
107-16, set out as a note under section 402 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by section 6018(b) of Pub. L. 105-206 effective as if
included in the provisions of the Small Business Job Protection Act
of 1996, Pub. L. 104-188, to which such amendment relates, see
section 6018(h) of Pub. L. 105-206, set out as a note under section
23 of this title.
Amendment by sections 6015(a) and 6016(a)(1) of Pub. L. 105-206
effective, except as otherwise provided, as if included in the
provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 6024 of Pub. L. 105-206,
set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 302(d) of Pub. L. 105-34 applicable to
taxable years beginning after Dec. 31, 1997, see section 302(f) of
Pub. L. 105-34, set out as a note under section 219 of this title.
Section 304(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997."
Section 1501(c)(2) of Pub. L. 105-34 provided that: "The
amendment made by subsection (b) [amending this section] shall
apply to years beginning after December 31, 1996."
Amendment by section 1601(d)(1)(A)-(C)(i), (D)-(G) of Pub. L. 105-
34 effective as if included in the provisions of the Small
Business Job Protection Act of 1996, Pub. L. 104-188, to which it
relates, see section 1601(j) of Pub. L. 105-34, set out as a note
under section 23 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1421(a), (b)(3)(B), (5), (6), (c) of Pub. L.
104-188 applicable to taxable years beginning after Dec. 31, 1996,
see section 1421(e) of Pub. L. 104-188, set out as a note under
section 72 of this title.
Amendment by section 1427(b)(3) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1996, see section 1427(c) of
Pub. L. 104-188, set out as a note under section 219 of this title.
Amendment by section 1431(c)(1)(B) of Pub. L. 104-188 applicable
to years beginning after Dec. 31, 1996, except that in determining
whether an employee is a highly compensated employee for years
beginning in 1997, such amendment to be treated as having been in
effect for years beginning in 1996, see section 1431(d)(1) of Pub.
L. 104-188, set out as a note under section 414 of this title.
Section 1455(e) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and sections 6047,
6652, 6693, and 6724 of this title] shall apply to returns,
reports, and other statements the due date for which (determined
without regard to extensions) is after December 31, 1996."
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-465 applicable to years beginning after
Dec. 31, 1994, and, to the extent of providing for the rounding of
indexed amounts, not applicable to any year to the extent the
rounding would require the indexed amount to be reduced below the
amount in effect for years beginning in 1994, see section 732(e) of
Pub. L. 103-465, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable, except as otherwise
provided, to benefits accruing in plan years beginning after Dec.
31, 1993, see section 13212(d) of Pub. L. 103-66, set out as a note
under section 401 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7811(m)(7) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, to which such amendment relates, see section 7817 of Pub. L.
101-239, set out as a note under section 1 of this title.
Section 7841(a)(3) of Pub. L. 101-239 provided that: "The
amendments made by this subsection [amending this section and
section 414 of this title] shall apply to transfers after the date
of the enactment of this Act [Dec. 19, 1989] in taxable years
ending after such date."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1011(c)(7)(C) of Pub. L. 100-647 applicable
to plan years beginning after Dec. 31, 1987, with exception in case
of a plan described in section 1105(c)(2) of Pub. L. 99-514, see
section 1011(c)(7)(E) of Pub. L. 100-647, set out as a note under
section 401 of this title.
Section 1011A(a)(2)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to rollover contributions made in taxable years beginning
after December 31, 1986."
Amendment by sections 1011(b)(1)-(3), (f)(1)-(5), (10), (i)(5)
and 1018(t)(3)(D) of Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
Section 6057(b) of Pub. L. 100-647 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
acquisitions after the date of the enactment of this Act [Nov. 10,
1988]."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1102(a), (b)(2), (c), (e)(2) of Pub. L. 99-
514 applicable to contributions and distributions for taxable
years beginning after Dec. 31, 1986, see section 1102(g) of Pub. L.
99-514, set out as a note under section 219 of this title.
Amendment by section 1108(a), (d)-(g)(1), (4), (6) of Pub. L. 99-
514 applicable to years beginning after Dec. 31, 1986, except that
section 408(k)(3)(D) and (E) of the Internal Revenue Code of 1954
(as in effect before the amendments made by section 1108 of Pub. L.
99-514) shall continue to apply for years beginning after Dec. 31,
1986, and before Jan. 1, 1989, except that employer contributions
under an arrangement under section 408(k)(6) of the Internal
Revenue Code of 1986 (as added by section 1108 of Pub. L. 99-514)
may not be integrated under section 408(k)(3)(D) and (E) of the
Internal Revenue Code of 1954, see section 1108(h) of Pub. L. 99-
514, as amended, set out as a note under section 219 of this
title.
Amendment by section 1121(c)(2) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1986, with special provisions for
plans maintained pursuant to collective bargaining agreements
ratified before Mar. 1, 1986, and transition rules, see section
1121(d) of Pub. L. 99-514, set out as a note under section 401 of
this title.
Amendment by section 1122(e)(2)(B) of Pub. L. 99-514 applicable,
except as otherwise provided, to amounts distributed after Dec. 31,
1986, in taxable years ending after such date, see section 1122(h)
of Pub. L. 99-514, set out as a note under section 402 of this
title.
Amendment by section 1123(d)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1123(e) of Pub. L. 99-514, set out as a note
under section 72 of this title.
Section 1144(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to
acquisitions after December 31, 1986."
Amendment by sections 1852(a)(1), (5)(C), (7)(A) and 1875(c)(8)
of Pub. L. 99-514 effective, except as otherwise provided, as if
included in the provisions of the Tax Reform Act of 1984, Pub. L.
98-369, div. A, to which such amendment relates, see section 1881
of Pub. L. 99-514, set out as a note under section 48 of this
title.
Amendment by section 1875(c)(6)(A) of Pub. L. 99-514 effective as
if included in the amendments made by section 238 of Pub. L. 97-
248, see section 1875(c)(12) of Pub. L. 99-514, set out as a note
under section 62 of this title.
Section 1898(a)(5) of Pub. L. 99-514 provided that the amendment
made by that section is effective with respect to plan years
beginning after Oct. 22, 1986.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 147(a) of Pub. L. 98-369 applicable to
contributions made after Dec. 31, 1984, see section 147(d)(1) of
Pub. L. 98-369, set out as a note under section 219 of this title.
Amendment by section 491(d)(19)-(24) of Pub. L. 98-369 applicable
to obligations issued after Dec. 31, 1983, see section 491(f)(1) of
Pub. L. 98-369, set out as a note under section 62 of this title.
Amendment by section 521(b) of Pub. L. 98-369 applicable to years
beginning after Dec. 31, 1984, see section 521(e) of Pub. L. 98-
369, set out as a note under section 401 of this title.
Amendment by section 522(d)(12) of Pub. L. 98-369 applicable to
distributions made after July 18, 1984, in taxable years ending
after that date, see section 522(e) of Pub. L. 98-369, set out as a
note under section 402 of this title.
Amendment by section 713 of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by sections 237 and 238 of Pub. L. 97-248 applicable to
years beginning after Dec. 31, 1983, see section 241 of Pub. L. 97-
248, set out as an Effective Date note under section 416 of this
title.
Section 243(c) of Pub. L. 97-248, as amended by Pub. L. 98-369,
div. A, title VII, Sec. 713(g)(1), July 18, 1984, 98 Stat. 960,
provided that: "The amendments made by this section [amending this
section and sections 219 and 409 of this title] shall apply with
respect to individuals dying after December 31, 1983."
Section 335(b) of Pub. L. 97-248 provided that: "The amendments
made by subsection (a) [amending this section and section 409 of
this title] shall apply to distributions made after December 31,
1982, in taxable years ending after such date."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 311(g)(1)(A)-(C), (2), (h)(2) of Pub. L. 97-
34 applicable to taxable years beginning after Dec. 31, 1981, see
section 311(i) of Pub. L. 97-34, set out as a note under section
219 of this title.
Amendment by section 312(b)(2), (c)(5) of Pub. L. 97-34
applicable to plans which include employees within the meaning of
section 401(c)(1) with respect to taxable years beginning after
Dec. 31, 1981, see section 312(f) of Pub. L. 97-34, set out as a
note under section 72 of this title.
Amendment by section 313(b)(2) of Pub. L. 97-34 applicable to
redemptions after Aug. 13, 1981, in taxable years ending after such
date, see section 313(c) of Pub. L. 97-34, set out as a note under
section 219 of this title.
Section 314(b)(2) of Pub. L. 97-34 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply to
property acquired after December 31, 1981, in taxable years ending
after such date."
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-605 applicable with respect to plan years
beginning after Dec. 31, 1980, see section 225(c) of Pub. L. 96-
605, set out as a note under section 401 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 152(h) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section and sections 219, 401,
404, 414, and 415 of this title] shall apply to taxable years
beginning after December 31, 1978."
Amendment by section 156(c)(1), (3) of Pub. L. 95-600 applicable
to distributions or transfers made after Dec. 31, 1977, in taxable
years beginning after such date, see section 156(d) of Pub. L. 95-
600, set out as a note under section 403 of this title.
Section 157(c)(2)(A) of Pub. L. 95-600 provided that: "The
amendments made by paragraph (1) [amending this section] shall
apply to distributions in taxable years beginning after December
31, 1975."
Section 157(d)(2) of Pub. L. 95-600 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply to
contracts issued after the date of the enactment of this Act [Nov.
6, 1978]."
Amendment by section 157(h)(2) of Pub. L. 95-600 applicable to
payments made in taxable years beginning after Dec. 31, 1977, see
section 157(h)(3)(A) of Pub. L. 95-600, set out as a note under
section 402 of this title.
Section 157(e)(2) of Pub. L. 95-600 provided that: "The
amendments made by paragraph (1) [amending this section and section
409 of this title] shall apply to taxable years beginning after
December 31, 1976."
Amendment by section 157(g)(3) of Pub. L. 95-600 applicable to
lump-sum distributions completed after Dec. 31, 1978, in taxable
years ending after such date, see section 157(g)(4) of Pub. L. 95-
600, set out as a note under section 402 of this title.
Amendment by section 703(c)(4) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1976, see section 703(c)(5)
of Pub. L. 95-600, set out as a note under section 219 of this
title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1501(b)(2), (5), (10) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1501(d) of Pub. L. 94-455, set out as a note under section
62 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1974, see section 2002(i)(1) of Pub. L. 93-406, set out as a note
under section 219 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TRANSITIONAL RULE FOR CONTRIBUTIONS FOR TAXABLE YEARS BEGINNING
BEFORE JANUARY 1, 1978
Section 157(c)(2)(B) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the
case of contributions for taxable years beginning before January 1,
1978, paragraph (5) of section 408(d) of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954] shall be applied as if such
paragraph did not contain any dollar limitation."
EXCHANGE OF FIXED PREMIUM ANNUITY OR ENDOWMENT CONTRACT ISSUED ON
OR BEFORE NOV. 6, 1978, FOR INDIVIDUAL RETIREMENT ANNUITY
Section 157(d)(3) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the
case of any annuity or endowment contract issued on or before the
date of the enactment of this Act [Nov. 6, 1978] which would be an
individual retirement annuity within the meaning of section 408(b)
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as
amended by paragraph (1) [amending subsec. (b)(2) of this section])
but for the fact that the premiums under the contract are fixed, at
the election of the taxpayer an exchange before January 1, 1981, of
that contract for an individual retirement annuity within the
meaning of such section 408(b) (as amended by paragraph (1)) shall
be treated as a nontaxable exchange which does not constitute a
distribution."
-FOOTNOTE-
(!1) So in original.
(!2) See References in Text note below.
-End-
-CITE-
26 USC Sec. 408A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 408A. Roth IRAs
-STATUTE-
(a) General rule
Except as provided in this section, a Roth IRA shall be treated
for purposes of this title in the same manner as an individual
retirement plan.
(b) Roth IRA
For purposes of this title, the term "Roth IRA" means an
individual retirement plan (as defined in section 7701(a)(37))
which is designated (in such manner as the Secretary may prescribe)
at the time of establishment of the plan as a Roth IRA. Such
designation shall be made in such manner as the Secretary may
prescribe.
(c) Treatment of contributions
(1) No deduction allowed
No deduction shall be allowed under section 219 for a
contribution to a Roth IRA.
(2) Contribution limit
The aggregate amount of contributions for any taxable year to
all Roth IRAs maintained for the benefit of an individual shall
not exceed the excess (if any) of -
(A) the maximum amount allowable as a deduction under section
219 with respect to such individual for such taxable year
(computed without regard to subsection (d)(1) or (g) of such
section), over
(B) the aggregate amount of contributions for such taxable
year to all other individual retirement plans (other than Roth
IRAs) maintained for the benefit of the individual.
(3) Limits based on modified adjusted gross income
(A) Dollar limit
The amount determined under paragraph (2) for any taxable
year shall not exceed an amount equal to the amount determined
under paragraph (2)(A) for such taxable year, reduced (but not
below zero) by the amount which bears the same ratio to such
amount as -
(i) the excess of -
(I) the taxpayer's adjusted gross income for such taxable
year, over
(II) the applicable dollar amount, bears to
(ii) $15,000 ($10,000 in the case of a joint return or a
married individual filing a separate return).
The rules of subparagraphs (B) and (C) of section 219(g)(2)
shall apply to any reduction under this subparagraph.
(B) Rollover from IRA
A taxpayer shall not be allowed to make a qualified rollover
contribution to a Roth IRA from an individual retirement plan
other than a Roth IRA during any taxable year if, for the
taxable year of the distribution to which such contribution
relates -
(i) the taxpayer's adjusted gross income exceeds $100,000,
or
(ii) the taxpayer is a married individual filing a separate
return.
(C) Definitions
For purposes of this paragraph -
(i) adjusted gross income shall be determined in the same
manner as under section 219(g)(3), except that -
(I) any amount included in gross income under subsection
(d)(3) shall not be taken into account; and
(II) any amount included in gross income by reason of a
required distribution under a provision described in
paragraph (5) shall not be taken into account for purposes
of subparagraph (B)(i), and
(ii) the applicable dollar amount is -
(I) in the case of a taxpayer filing a joint return,
$150,000,
(II) in the case of any other taxpayer (other than a
married individual filing a separate return), $95,000, and
(III) in the case of a married individual filing a
separate return, zero.
(D) Marital status
Section 219(g)(4) shall apply for purposes of this paragraph.
(4) Contributions permitted after age 70 1/2
Contributions to a Roth IRA may be made even after the
individual for whom the account is maintained has attained age 70
1/2 .
(5) Mandatory distribution rules not to apply before death
Notwithstanding subsections (a)(6) and (b)(3) of section 408
(relating to required distributions), the following provisions
shall not apply to any Roth IRA:
(A) Section 401(a)(9)(A).
(B) The incidental death benefit requirements of section
401(a).
(6) Rollover contributions
(A) In general
No rollover contribution may be made to a Roth IRA unless it
is a qualified rollover contribution.
(B) Coordination with limit
A qualified rollover contribution shall not be taken into
account for purposes of paragraph (2).
(7) Time when contributions made
For purposes of this section, the rule of section 219(f)(3)
shall apply.
(d) Distribution rules
For purposes of this title -
(1) Exclusion
Any qualified distribution from a Roth IRA shall not be
includible in gross income.
(2) Qualified distribution
For purposes of this subsection -
(A) In general
The term "qualified distribution" means any payment or
distribution -
(i) made on or after the date on which the individual
attains age 59 1/2 ,
(ii) made to a beneficiary (or to the estate of the
individual) on or after the death of the individual,
(iii) attributable to the individual's being disabled
(within the meaning of section 72(m)(7)), or
(iv) which is a qualified special purpose distribution.
(B) Distributions within nonexclusion period
A payment or distribution from a Roth IRA shall not be
treated as a qualified distribution under subparagraph (A) if
such payment or distribution is made within the 5-taxable year
period beginning with the first taxable year for which the
individual made a contribution to a Roth IRA (or such
individual's spouse made a contribution to a Roth IRA)
established for such individual.
(C) Distributions of excess contributions and earnings
The term "qualified distribution" shall not include any
distribution of any contribution described in section 408(d)(4)
and any net income allocable to the contribution.
(3) Rollovers from an IRA other than a Roth IRA
(A) In general
Notwithstanding section 408(d)(3), in the case of any
distribution to which this paragraph applies -
(i) there shall be included in gross income any amount
which would be includible were it not part of a qualified
rollover contribution,
(ii) section 72(t) shall not apply, and
(iii) unless the taxpayer elects not to have this clause
apply for any taxable year, any amount required to be
included in gross income for such taxable year by reason of
this paragraph for any distribution before January 1, 1999,
shall be so included ratably over the 4-taxable year period
beginning with such taxable year.
Any election under clause (iii) for any distributions during a
taxable year may not be changed after the due date for such
taxable year.
(B) Distributions to which paragraph applies
This paragraph shall apply to a distribution from an
individual retirement plan (other than a Roth IRA) maintained
for the benefit of an individual which is contributed to a Roth
IRA maintained for the benefit of such individual in a
qualified rollover contribution.
(C) Conversions
The conversion of an individual retirement plan (other than a
Roth IRA) to a Roth IRA shall be treated for purposes of this
paragraph as a distribution to which this paragraph applies.
(D) Additional reporting requirements
Trustees of Roth IRAs, trustees of individual retirement
plans, or both, whichever is appropriate, shall include such
additional information in reports required under section 408(i)
as the Secretary may require to ensure that amounts required to
be included in gross income under subparagraph (A) are so
included.
(E) Special rules for contributions to which 4-year averaging
applies
In the case of a qualified rollover contribution to a Roth
IRA of a distribution to which subparagraph (A)(iii) applied,
the following rules shall apply:
(i) Acceleration of inclusion
(I) In general
The amount required to be included in gross income for
each of the first 3 taxable years in the 4-year period
under subparagraph (A)(iii) shall be increased by the
aggregate distributions from Roth IRAs for such taxable
year which are allocable under paragraph (4) to the portion
of such qualified rollover contribution required to be
included in gross income under subparagraph (A)(i).
(II) Limitation on aggregate amount included
The amount required to be included in gross income for
any taxable year under subparagraph (A)(iii) shall not
exceed the aggregate amount required to be included in
gross income under subparagraph (A)(iii) for all taxable
years in the 4-year period (without regard to subclause
(I)) reduced by amounts included for all preceding taxable
years.
(ii) Death of distributee
(I) In general
If the individual required to include amounts in gross
income under such subparagraph dies before all of such
amounts are included, all remaining amounts shall be
included in gross income for the taxable year which
includes the date of death.
(II) Special rule for surviving spouse
If the spouse of the individual described in subclause
(I) acquires the individual's entire interest in any Roth
IRA to which such qualified rollover contribution is
properly allocable, the spouse may elect to treat the
remaining amounts described in subclause (I) as includible
in the spouse's gross income in the taxable years of the
spouse ending with or within the taxable years of such
individual in which such amounts would otherwise have been
includible. Any such election may not be made or changed
after the due date for the spouse's taxable year which
includes the date of death.
(F) Special rule for applying section 72
(i) In general
If -
(I) any portion of a distribution from a Roth IRA is
properly allocable to a qualified rollover contribution
described in this paragraph; and
(II) such distribution is made within the 5-taxable year
period beginning with the taxable year in which such
contribution was made,
then section 72(t) shall be applied as if such portion were
includible in gross income.
(ii) Limitation
Clause (i) shall apply only to the extent of the amount of
the qualified rollover contribution includible in gross
income under subparagraph (A)(i).
(4) Aggregation and ordering rules
(A) Aggregation rules
Section 408(d)(2) shall be applied separately with respect to
Roth IRAs and other individual retirement plans.
(B) Ordering rules
For purposes of applying this section and section 72 to any
distribution from a Roth IRA, such distribution shall be
treated as made -
(i) from contributions to the extent that the amount of
such distribution, when added to all previous distributions
from the Roth IRA, does not exceed the aggregate
contributions to the Roth IRA; and
(ii) from such contributions in the following order:
(I) Contributions other than qualified rollover
contributions to which paragraph (3) applies.
(II) Qualified rollover contributions to which paragraph
(3) applies on a first-in, first-out basis.
Any distribution allocated to a qualified rollover contribution
under clause (ii)(II) shall be allocated first to the portion
of such contribution required to be included in gross income.
(5) Qualified special purpose distribution
For purposes of this section, the term "qualified special
purpose distribution" means any distribution to which
subparagraph (F) of section 72(t)(2) applies.
(6) Taxpayer may make adjustments before due date
(A) In general
Except as provided by the Secretary, if, on or before the due
date for any taxable year, a taxpayer transfers in a trustee-to-
trustee transfer any contribution to an individual retirement
plan made during such taxable year from such plan to any other
individual retirement plan, then, for purposes of this chapter,
such contribution shall be treated as having been made to the
transferee plan (and not the transferor plan).
(B) Special rules
(i) Transfer of earnings
Subparagraph (A) shall not apply to the transfer of any
contribution unless such transfer is accompanied by any net
income allocable to such contribution.
(ii) No deduction
Subparagraph (A) shall apply to the transfer of any
contribution only to the extent no deduction was allowed with
respect to the contribution to the transferor plan.
(7) Due date
For purposes of this subsection, the due date for any taxable
year is the date prescribed by law (including extensions of time)
for filing the taxpayer's return for such taxable year.
(e) Qualified rollover contribution
For purposes of this section, the term "qualified rollover
contribution" means a rollover contribution to a Roth IRA from
another such account, or from an individual retirement plan, but
only if such rollover contribution meets the requirements of
section 408(d)(3). Such term includes a rollover contribution
described in section 402A(c)(3)(A). For purposes of section
408(d)(3)(B), there shall be disregarded any qualified rollover
contribution from an individual retirement plan (other than a Roth
IRA) to a Roth IRA.
(f) Individual retirement plan
For purposes of this section -
(1) a simplified employee pension or a simple retirement
account may not be designated as a Roth IRA; and
(2) contributions to any such pension or account shall not be
taken into account for purposes of subsection (c)(2)(B).
-SOURCE-
(Added Pub. L. 105-34, title III, Sec. 302(a), Aug. 5, 1997, 111
Stat. 825; amended Pub. L. 105-206, title VI, Sec. 6005(b)(1)-(7),
(9), title VII, Sec. 7004(a), July 22, 1998, 112 Stat. 796-800,
833; Pub. L. 105-277, div. J, title IV, Sec. 4002(j), Oct. 21,
1998, 112 Stat. 2681-908; Pub. L. 107-16, title VI, Sec. 617(e)(1),
June 7, 2001, 115 Stat. 106.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2001 - Subsec. (e). Pub. L. 107-16, Secs. 617(e)(1), 901,
temporarily inserted "Such term includes a rollover contribution
described in section 402A(c)(3)(A)." after first sentence. See
Effective and Termination Dates of 2001 Amendment note below.
1998 - Subsec. (c)(3)(A). Pub. L. 105-206, Sec. 6005(b)(1),
substituted "shall not exceed an amount equal to the amount
determined under paragraph (2)(A) for such taxable year, reduced"
for "shall be reduced" in introductory provisions.
Subsec. (c)(3)(A)(ii). Pub. L. 105-206, Sec. 6005(b)(2)(A),
inserted "or a married individual filing a separate return" after
"joint return".
Subsec. (c)(3)(B). Pub. L. 105-206, Sec. 6005(b)(2)(B)(i),
inserted ", for the taxable year of the distribution to which such
contribution relates" after "if" in introductory provisions.
Subsec. (c)(3)(B)(i). Pub. L. 105-206, Sec. 6005(b)(2)(B)(ii),
struck out "for such taxable year" after "gross income".
Subsec. (c)(3)(C)(i). Pub. L. 105-206, Sec. 7004(a), amended cl.
(i) generally. Prior to amendment, cl. (i) read as follows:
"adjusted gross income shall be determined in the same manner as
under section 219(g)(3), except that any amount included in gross
income under subsection (d)(3) shall not be taken into account,
and".
Pub. L. 105-206, Sec. 6005(b)(2)(C), struck out "and the
deduction under section 219 shall be taken into account" after
"taken into account".
Subsec. (c)(3)(C)(i)(II). Pub. L. 105-277 substituted ", and" for
period at end.
Subsec. (d)(1). Pub. L. 105-206, Sec. 6005(b)(5)(B), substituted
"Exclusion" for "General rules" in heading and amended text
generally. Prior to amendment, text read as follows:
"(A) Exclusions from gross income. - Any qualified distribution
from a Roth IRA shall not be includible in gross income.
"(B) Nonqualified distributions. - In applying section 72 to any
distribution from a Roth IRA which is not a qualified distribution,
such distribution shall be treated as made from contributions to
the Roth IRA to the extent that such distribution, when added to
all previous distributions from the Roth IRA, does not exceed the
aggregate amount of contributions to the Roth IRA."
Subsec. (d)(2)(B). Pub. L. 105-206, Sec. 6005(b)(3)(A), added
subpar. (B) and struck out heading and text of former subpar. (B).
Text read as follows: "A payment or distribution shall not be
treated as a qualified distribution under subparagraph (A) if -
"(i) it is made within the 5-taxable year period beginning with
the 1st taxable year for which the individual made a contribution
to a Roth IRA (or such individual's spouse made a contribution to
a Roth IRA) established for such individual, or
"(ii) in the case of a payment or distribution properly
allocable (as determined in the manner prescribed by the
Secretary) to a qualified rollover contribution from an
individual retirement plan other than a Roth IRA (or income
allocable thereto), it is made within the 5-taxable year period
beginning with the taxable year in which the rollover
contribution was made."
Subsec. (d)(2)(C). Pub. L. 105-206, Sec. 6005(b)(3)(B), added
subpar. (C).
Subsec. (d)(3)(A). Pub. L. 105-206, Sec. 6005(b)(4)(A), added cl.
(iii) and concluding provisions and struck out former cl. (iii)
which read as follows: "in the case of a distribution before
January 1, 1999, any amount required to be included in gross income
by reason of this paragraph shall be so included ratably over the 4-
taxable year period beginning with the taxable year in which the
payment or distribution is made."
Subsec. (d)(3)(D). Pub. L. 105-206, Sec. 6005(b)(6)(B),
redesignated subpar. (E) as (D) and struck out heading and text of
former subpar. (D). Text read as follows: "If, no later than the
due date for filing the return of tax for any taxable year (without
regard to extensions), an individual transfers, from an individual
retirement plan (other than a Roth IRA), contributions for such
taxable year (and any earnings allocable thereto) to a Roth IRA, no
such amount shall be includible in gross income to the extent no
deduction was allowed with respect to such amount."
Subsec. (d)(3)(E). Pub. L. 105-206, Sec. 6005(b)(6)(B),
redesignated subpar. (F) as (E). Former subpar. (E) redesignated
(D).
Subsec. (d)(3)(F). Pub. L. 105-206, Sec. 6005(b)(6)(B),
redesignated subpar. (G) as (F). Former subpar. (F) redesignated
(E).
Pub. L. 105-206, Sec. 6005(b)(4)(B), added subpar. (F).
Subsec. (d)(3)(G). Pub. L. 105-206, Sec. 6005(b)(6)(B),
redesignated subpar. (G) as (F).
Pub. L. 105-206, Sec. 6005(b)(4)(B), added subpar. (G).
Subsec. (d)(4). Pub. L. 105-206, Sec. 6005(b)(5)(A), substituted
"Aggregation and ordering rules" for "Coordination with individual
retirement accounts" in heading and amended text generally. Prior
to amendment, text read as follows: "Section 408(d)(2) shall be
applied separately with respect to Roth IRAs and other individual
retirement plans."
Subsec. (d)(6). Pub. L. 105-206, Sec. 6005(b)(6)(A), added par.
(6).
Subsec. (d)(7). Pub. L. 105-206, Sec. 6005(b)(7), added par. (7).
Subsec. (f). Pub. L. 105-206, Sec. 6005(b)(9), added subsec. (f).
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to taxable years beginning
after Dec. 31, 2005, see section 617(f) of Pub. L. 107-16, set out
as a note under section 402 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Internal Revenue Service Restructuring and Reform
Act of 1998, Pub. L. 105-206, to which such amendment relates, see
section 4002(k) of Pub. L. 105-277, set out as a note under section
1 of this title.
Amendment by section 6005(b)(1)-(7), (9) of Pub. L. 105-206
effective, except as otherwise provided, as if included in the
provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 6024 of Pub. L. 105-206,
set out as a note under section 1 of this title.
Pub. L. 105-206, title VII, Sec. 7004(b), July 22, 1998, 112
Stat. 833, provided that: "The amendment made by this section
[amending this section] shall apply to taxable years beginning
after December 31, 2004."
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1997, see section 302(f) of Pub. L. 105-34, set out as an Effective
Date of 1997 Amendment note under section 219 of this title.
-End-
-CITE-
26 USC Sec. 409 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 409. Qualifications for tax credit employee stock ownership
plans
-STATUTE-
(a) Tax credit employee stock ownership plan defined
Except as otherwise provided in this title, for purposes of this
title, the term "tax credit employee stock ownership plan" means a
defined contribution plan which -
(1) meets the requirements of section 401(a),
(2) is designed to invest primarily in employer securities, and
(3) meets the requirements of subsections (b), (c), (d), (e),
(f), (g), (h), and (o) of this section.
(b) Required allocation of employer securities
(1) In general
A plan meets the requirements of this subsection if -
(A) the plan provides for the allocation for the plan year of
all employer securities transferred to it or purchased by it
(because of the requirements of section 41(c)(1)(B)) (!1) to
the accounts of all participants who are entitled to share in
such allocation, and
(B) for the plan year the allocation to each participant so
entitled is an amount which bears substantially the same
proportion to the amount of all such securities allocated to
all such participants in the plan for that year as the amount
of compensation paid to such participant during that year bears
to the compensation paid to all such participants during that
year.
(2) Compensation in excess of $100,000 disregarded
For purposes of paragraph (1), compensation of any participant
in excess of the first $100,000 per year shall be disregarded.
(3) Determination of compensation
For purposes of this subsection, the amount of compensation
paid to a participant for any period is the amount of such
participant's compensation (within the meaning of section
415(c)(3)) for such period.
(4) Suspension of allocation in certain cases
Notwithstanding paragraph (1), the allocation to the account of
any participant which is attributable to the basic employee plan
credit or the credit allowed under section 41 (!1) (relating to
the employee stock ownership credit) may be extended over
whatever period may be necessary to comply with the requirements
of section 415.
(c) Participants must have nonforfeitable rights
A plan meets the requirements of this subsection only if it
provides that each participant has a nonforfeitable right to any
employer security allocated to his account.
(d) Employer securities must stay in the plan
A plan meets the requirements of this subsection only if it
provides that no employer security allocated to a participant's
account under subsection (b) (or allocated to a participant's
account in connection with matched employer and employee
contributions) may be distributed from that account before the end
of the 84th month beginning after the month in which the security
is allocated to the account. To the extent provided in the plan,
the preceding sentence shall not apply in the case of -
(1) death, disability, separation from service, or termination
of the plan;
(2) a transfer of a participant to the employment of an
acquiring employer from the employment of the selling corporation
in the case of a sale to the acquiring corporation of
substantially all of the assets used by the selling corporation
in a trade or business conducted by the selling corporation, or
(3) with respect to the stock of a selling corporation, a
disposition of such selling corporation's interest in a
subsidiary when the participant continues employment with such
subsidiary.
This subsection shall not apply to any distribution required under
section 401(a)(9) or to any distribution or reinvestment required
under section 401(a)(28).
(e) Voting rights
(1) In general
A plan meets the requirements of this subsection if it meets
the requirements of paragraph (2) or (3), whichever is
applicable.
(2) Requirements where employer has a registration-type class of
securities
If the employer has a registration-type class of securities,
the plan meets the requirements of this paragraph only if each
participant or beneficiary in the plan is entitled to direct the
plan as to the manner in which securities of the employer which
are entitled to vote and are allocated to the account of such
participant or beneficiary are to be voted.
(3) Requirement for other employers
If the employer does not have a registration-type class of
securities, the plan meets the requirements of this paragraph
only if each participant or beneficiary in the plan is entitled
to direct the plan as to the manner in which voting rights under
securities of the employer which are allocated to the account of
such participant or beneficiary are to be exercised with respect
to any corporate matter which involves the voting of such shares
with respect to the approval or disapproval of any corporate
merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all assets of a
trade or business, or such similar transaction as the Secretary
may prescribe in regulations.
(4) Registration-type class of securities defined
For purposes of this subsection, the term, "registration-type
class of securities" means -
(A) a class of securities required to be registered under
section 12 of the Securities Exchange Act of 1934, and
(B) a class of securities which would be required to be so
registered except for the exemption from registration provided
in subsection (g)(2)(H) of such section 12.
(5) 1 vote per participant
A plan meets the requirements of paragraph (3) with respect to
an issue if -
(A) the plan permits each participant 1 vote with respect to
such issue, and
(B) the trustee votes the shares held by the plan in the
proportion determined after application of subparagraph (A).
(f) Plan must be established before employer's due date
(1) In general
A plan meets the requirements of this subsection only if it is
established on or before the due date (including any extension of
such date) for the filing of the employer's tax return for the
first taxable year of the employer for which an employee plan
credit is claimed by the employer with respect to the plan.
(2) Special rule for first year
A plan which otherwise meets the requirements of this section
shall not be considered to have failed to meet the requirements
of section 401(a) merely because it was not established by the
close of the first taxable year of the employer for which an
employee plan credit is claimed by the employer with respect to
the plan.
(g) Transferred amounts must stay in plan even though investment
credit is redetermined or recaptured
A plan meets the requirement of this subsection only if it
provides that amounts which are transferred to the plan (because of
the requirements of section 48(n)(1) or 41(c)(1)(B)) (!2) shall
remain in the plan (and, if allocated under the plan, shall remain
so allocated) even though part or all of the employee plan credit
or the credit allowed under section 41 (!2) (relating to employee
stock ownership credit) is recaptured or redetermined. For purposes
of the preceding sentence, the references to section 48(n)(1) (!2)
and the employee plan credit shall refer to such section and credit
as in effect before the enactment of the Tax Reform Act of 1984.
(h) Right to demand employer securities; put option
(1) In general
A plan meets the requirements of this subsection if a
participant who is entitled to a distribution from the plan -
(A) has a right to demand that his benefits be distributed in
the form of employer securities, and
(B) if the employer securities are not readily tradable on an
established market, has a right to require that the employer
repurchase employer securities under a fair valuation formula.
(2) Plan may distribute cash in certain cases
(A) In general
A plan which otherwise meets the requirements of this
subsection or of section 4975(e)(7) shall not be considered to
have failed to meet the requirements of section 401(a) merely
because under the plan the benefits may be distributed in cash
or in the form of employer securities.
(B) Exception for certain plans restricted from distributing
securities
(i) In general
A plan to which this subparagraph applies shall not be
treated as failing to meet the requirements of this
subsection or section 401(a) merely because it does not
permit a participant to exercise the right described in
paragraph (1)(A) if such plan provides that the participant
entitled to a distribution has a right to receive the
distribution in cash, except that such plan may distribute
employer securities subject to a requirement that such
securities may be resold to the employer under terms which
meet the requirements of paragraph (1)(B).
(ii) Applicable plans
This subparagraph shall apply to a plan which otherwise
meets the requirements of this subsection or section
4975(e)(7) and which is established and maintained by -
(I) an employer whose charter or bylaws restrict the
ownership of substantially all outstanding employer
securities to employees or to a trust described in section
401(a), or
(II) an S corporation.
(3) Special rule for banks
In the case of a plan established and maintained by a bank (as
defined in section 581) which is prohibited by law from redeeming
or purchasing its own securities, the requirements of paragraph
(1)(B) shall not apply if the plan provides that participants
entitled to a distribution from the plan shall have a right to
receive a distribution in cash.
(4) Put option period
An employer shall be deemed to satisfy the requirements of
paragraph (1)(B) if it provides a put option for a period of at
least 60 days following the date of distribution of stock of the
employer and, if the put option is not exercised within such 60-
day period, for an additional period of at least 60 days in the
following plan year (as provided in regulations promulgated by
the Secretary).
(5) Payment requirement for total distribution
If an employer is required to repurchase employer securities
which are distributed to the employee as part of a total
distribution, the requirements of paragraph (1)(B) shall be
treated as met if -
(A) the amount to be paid for the employer securities is paid
in substantially equal periodic payments (not less frequently
than annually) over a period beginning not later than 30 days
after the exercise of the put option described in paragraph (4)
and not exceeding 5 years, and
(B) there is adequate security provided and reasonable
interest paid on the unpaid amounts referred to in subparagraph
(A).
For purposes of this paragraph, the term "total distribution"
means the distribution within 1 taxable year to the recipient of
the balance to the credit of the recipient's account.
(6) Payment requirement for installment distributions
If an employer is required to repurchase employer securities as
part of an installment distribution, the requirements of
paragraph (1)(B) shall be treated as met if the amount to be paid
for the employer securities is paid not later than 30 days after
the exercise of the put option described in paragraph (4).
(7) Exception where employee elected diversification
Paragraph (1)(A) shall not apply with respect to the portion of
the participant's account which the employee elected to have
reinvested under section 401(a)(28)(B).
(i) Reimbursement for expenses of establishing and administering
plan
A plan which otherwise meets the requirements of this section
shall not be treated as failing to meet such requirements merely
because it provides that -
(1) Expenses of establishing plan
As reimbursement for the expenses of establishing the plan, the
employer may withhold from amounts due the plan for the taxable
year for which the plan is established (or the plan may pay) so
much of the amounts paid or incurred in connection with the
establishment of the plan as does not exceed the sum of -
(A) 10 percent of the first $100,000 which the employer is
required to transfer to the plan for that taxable year under
section 41(c)(1)(B),(!3) and
(B) 5 percent of any amount so required to be transferred in
excess of the first $100,000; and
(2) Administrative expenses
As reimbursement for the expenses of administering the plan,
the employer may withhold from amounts due the plan (or the plan
may pay) so much of the amounts paid or incurred during the
taxable year as expenses of administering the plan as does not
exceed the lesser of -
(A) the sum of -
(i) 10 percent of the first $100,000 of the dividends paid
to the plan with respect to stock of the employer during the
plan year ending with or within the employer's taxable year,
and
(ii) 5 percent of the amount of such dividends in excess of
$100,000 or
(B) $100,000.
(j) Conditional contributions to the plan
A plan which otherwise meets the requirements of this section
shall not be treated as failing to satisfy such requirements (or as
failing to satisfy the requirements of section 401(a) of this title
or of section 403(c)(1) of the Employee Retirement Income Security
Act of 1974) merely because of the return of a contribution (or a
provision permitting such a return) if -
(1) the contribution to the plan is conditioned on a
determination by the Secretary that such plan meets the
requirements of this section,
(2) the application for a determination described in paragraph
(1) is filed with the Secretary not later than 90 days after the
date on which an employee plan credit is claimed, and
(3) the contribution is returned within 1 year after the date
on which the Secretary issues notice to the employer that such
plan does not satisfy the requirements of this section.
(k) Requirements relating to certain withdrawals
Notwithstanding any other law or rule of law -
(1) the withdrawal from a plan which otherwise meets the
requirements of this section by the employer of an amount
contributed for purposes of the matching employee plan credit
shall not be considered to make the benefits forfeitable, and
(2) the plan shall not, by reason of such withdrawal, fail to
be for the exclusive benefit of participants or their
beneficiaries,
if the withdrawn amounts were not matched by employee contributions
or were in excess of the limitations of section 415. Any withdrawal
described in the preceding sentence shall not be considered to
violate the provisions of section 403(c)(1) of the Employee
Retirement Income Security Act of 1974. For purposes of this
subsection, the reference to the matching employee plan credit
shall refer to such credit as in effect before the enactment of the
Tax Reform Act of 1984.
(l) Employer securities defined
For purposes of this section -
(1) In general
The term "employer securities" means common stock issued by the
employer (or by a corporation which is a member of the same
controlled group) which is readily tradable on an established
securities market.
(2) Special rule where there is no readily tradable common stock
If there is no common stock which meets the requirements of
paragraph (1), the term "employer securities" means common stock
issued by the employer (or by a corporation which is a member of
the same controlled group) having a combination of voting power
and dividend rights equal to or in excess of -
(A) that class of common stock of the employer (or of any
other such corporation) having the greatest voting power, and
(B) that class of common stock of the employer (or of any
other such corporation) having the greatest dividend rights.
(3) Preferred stock may be issued in certain cases
Noncallable preferred stock shall be treated as employer
securities if such stock is convertible at any time into stock
which meets the requirements of paragraph (1) or (2) (whichever
is applicable) and if such conversion is at a conversion price
which (as of the date of the acquisition by the tax credit
employee stock ownership plan) is reasonable. For purposes of the
preceding sentence, under regulations prescribed by the
Secretary, preferred stock shall be treated as noncallable if
after the call there will be a reasonable opportunity for a
conversion which meets the requirements of the preceding
sentence.
(4) Application to controlled group of corporations
(A) In general
For purposes of this subsection, the term "controlled group
of corporations" has the meaning given to such term by section
1563(a) (determined without regard to subsections (a)(4) and
(e)(3)(C) of section 1563).
(B) Where common parent owns at least 50 percent of first tier
subsidiary
For purposes of subparagraph (A), if the common parent owns
directly stock possessing at least 50 percent of the voting
power of all classes of stock and at least 50 percent of each
class of nonvoting stock in a first tier subsidiary, such
subsidiary (and all other corporations below it in the chain
which would meet the 80 percent test of section 1563(a) if the
first tier subsidiary were the common parent) shall be treated
as includible corporations.
(C) Where common parent owns 100 percent of first tier
subsidiary
For purposes of subparagraph (A), if the common parent owns
directly stock possessing all of the voting power of all
classes of stock and all of the nonvoting stock, in a first
tier subsidiary, and if the first tier subsidiary owns directly
stock possessing at least 50 percent of the voting power of all
classes of stock, and at least 50 percent of each class of
nonvoting stock, in a second tier subsidiary of the common
parent, such second tier subsidiary (and all other corporations
below it in the chain which would meet the 80 percent test of
section 1563(a) if the second tier subsidiary were the common
parent) shall be treated as includible corporations.
(5) Nonvoting common stock may be acquired in certain cases
Nonvoting common stock of an employer described in the second
sentence of section 401(a)(22) shall be treated as employer
securities if an employer has a class of nonvoting common stock
outstanding and the specific shares that the plan acquires have
been issued and outstanding for at least 24 months.
(m) Nonrecognition of gain or loss on contribution of employer
securities to tax credit employee stock ownership plan
No gain or loss shall be recognized to the taxpayer with respect
to the transfer of employer securities to a tax credit employee
stock ownership plan maintained by the taxpayer to the extent that
such transfer is required under section 41(c)(1)(B),(!4) or
subparagraph (A) or (B) of section 48(n)(1).(!4)
(n) Securities received in certain transactions
(1) In general
A plan to which section 1042 applies and an eligible worker-
owned cooperative (within the meaning of section 1042(c)) shall
provide that no portion of the assets of the plan or cooperative
attributable to (or allocable in lieu of) employer securities
acquired by the plan or cooperative in a sale to which section
1042 applies may accrue (or be allocated directly or indirectly
under any plan of the employer meeting the requirements of
section 401(a)) -
(A) during the nonallocation period, for the benefit of -
(i) any taxpayer who makes an election under section
1042(a) with respect to employer securities,,,(!5)
(ii) any individual who is related to the taxpayer (within
the meaning of section 267(b)), or
(B) for the benefit of any other person who owns (after
application of section 318(a)) more than 25 percent of -
(i) any class of outstanding stock of the corporation which
issued such employer securities or of any corporation which
is a member of the same controlled group of corporations
(within the meaning of subsection (l)(4)) as such
corporation, or
(ii) the total value of any class of outstanding stock of
any such corporation.
For purposes of subparagraph (B), section 318(a) shall be applied
without regard to the employee trust exception in paragraph
(2)(B)(i).
(2) Failure to meet requirements
If a plan fails to meet the requirements of paragraph (1) -
(A) the plan shall be treated as having distributed to the
person described in paragraph (1) the amount allocated to the
account of such person in violation of paragraph (1) at the
time of such allocation,
(B) the provisions of section 4979A shall apply, and
(C) the statutory period for the assessment of any tax
imposed by section 4979A shall not expire before the date which
is 3 years from the later of -
(i) the 1st allocation of employer securities in connection
with a sale to the plan to which section 1042 applies, or
(ii) the date on which the Secretary is notified of such
failure.
(3) Definitions and special rules
For purposes of this subsection -
(A) Lineal descendants
Paragraph (1)(A)(ii) shall not apply to any individual if -
(i) such individual is a lineal descendant of the taxpayer,
and
(ii) the aggregate amount allocated to the benefit of all
such lineal descendants during the nonallocation period does
not exceed more than 5 percent of the employer securities (or
amounts allocated in lieu thereof) held by the plan which are
attributable to a sale to the plan by any person related to
such descendants (within the meaning of section 267(c)(4)) in
a transaction to which section 1042 applied.
(B) 25-percent shareholders
A person shall be treated as failing to meet the stock
ownership limitation under paragraph (1)(B) if such person
fails such limitation -
(i) at any time during the 1-year period ending on the date
of sale of qualified securities to the plan or cooperative,
or
(ii) on the date as of which qualified securities are
allocated to participants in the plan or cooperative.
(C) Nonallocation period
The term "nonallocation period" means the period beginning on
the date of the sale of the qualified securities and ending on
the later of -
(i) the date which is 10 years after the date of sale, or
(ii) the date of the plan allocation attributable to the
final payment of acquisition indebtedness incurred in
connection with such sale.
(o) Distribution and payment requirements
A plan meets the requirements of this subsection if -
(1) Distribution requirement
(A) In general
The plan provides that, if the participant and, if applicable
pursuant to sections 401(a)(11) and 417, with the consent of
the participant's spouse elects, the distribution of the
participant's account balance in the plan will commence not
later than 1 year after the close of the plan year -
(i) in which the participant separates from service by
reason of the attainment of normal retirement age under the
plan, disability, or death, or
(ii) which is the 5th plan year following the plan year in
which the participant otherwise separates from service,
except that this clause shall not apply if the participant is
reemployed by the employer before distribution is required to
begin under this clause.
(B) Exception for certain financed securities
For purposes of this subsection, the account balance of a
participant shall not include any employer securities acquired
with the proceeds of the loan described in section 404(a)(9)
until the close of the plan year in which such loan is repaid
in full.
(C) Limited distribution period
The plan provides that, unless the participant elects
otherwise, the distribution of the participant's account
balance will be in substantially equal periodic payments (not
less frequently than annually) over a period not longer than
the greater of -
(i) 5 years, or
(ii) in the case of a participant with an account balance
in excess of $800,000, 5 years plus 1 additional year (but
not more than 5 additional years) for each $160,000 or
fraction thereof by which such balance exceeds $800,000.
(2) Cost-of-living adjustment
The Secretary shall adjust the dollar amounts under paragraph
(1)(C) at the same time and in the same manner as under section
415(d).
(p) Prohibited allocations of securities in an S corporation
(1) In general
An employee stock ownership plan holding employer securities
consisting of stock in an S corporation shall provide that no
portion of the assets of the plan attributable to (or allocable
in lieu of) such employer securities may, during a nonallocation
year, accrue (or be allocated directly or indirectly under any
plan of the employer meeting the requirements of section 401(a))
for the benefit of any disqualified person.
(2) Failure to meet requirements
(A) In general
If a plan fails to meet the requirements of paragraph (1),
the plan shall be treated as having distributed to any
disqualified person the amount allocated to the account of such
person in violation of paragraph (1) at the time of such
allocation.
(B) Cross reference
For excise tax relating to violations of paragraph (1) and
ownership of synthetic equity, see section 4979A.
(3) Nonallocation year
For purposes of this subsection -
(A) In general
The term "nonallocation year" means any plan year of an
employee stock ownership plan if, at any time during such plan
year -
(i) such plan holds employer securities consisting of stock
in an S corporation, and
(ii) disqualified persons own at least 50 percent of the
number of shares of stock in the S corporation.
(B) Attribution rules
For purposes of subparagraph (A) -
(i) In general
The rules of section 318(a) shall apply for purposes of
determining ownership, except that -
(I) in applying paragraph (1) thereof, the members of an
individual's family shall include members of the family
described in paragraph (4)(D), and
(II) paragraph (4) thereof shall not apply.
(ii) Deemed-owned shares
Notwithstanding the employee trust exception in section
318(a)(2)(B)(i), an individual shall be treated as owning
deemed-owned shares of the individual.
Solely for purposes of applying paragraph (5), this
subparagraph shall be applied after the attribution rules of
paragraph (5) have been applied.
(4) Disqualified person
For purposes of this subsection -
(A) In general
The term "disqualified person" means any person if -
(i) the aggregate number of deemed-owned shares of such
person and the members of such person's family is at least 20
percent of the number of deemed-owned shares of stock in the
S corporation, or
(ii) in the case of a person not described in clause (i),
the number of deemed-owned shares of such person is at least
10 percent of the number of deemed-owned shares of stock in
such corporation.
(B) Treatment of family members
In the case of a disqualified person described in
subparagraph (A)(i), any member of such person's family with
deemed-owned shares shall be treated as a disqualified person
if not otherwise treated as a disqualified person under
subparagraph (A).
(C) Deemed-owned shares
(i) In general
The term "deemed-owned shares" means, with respect to any
person -
(I) the stock in the S corporation constituting employer
securities of an employee stock ownership plan which is
allocated to such person under the plan, and
(II) such person's share of the stock in such corporation
which is held by such plan but which is not allocated under
the plan to participants.
(ii) Person's share of unallocated stock
For purposes of clause (i)(II), a person's share of
unallocated S corporation stock held by such plan is the
amount of the unallocated stock which would be allocated to
such person if the unallocated stock were allocated to all
participants in the same proportions as the most recent stock
allocation under the plan.
(D) Member of family
For purposes of this paragraph, the term "member of the
family" means, with respect to any individual -
(i) the spouse of the individual,
(ii) an ancestor or lineal descendant of the individual or
the individual's spouse,
(iii) a brother or sister of the individual or the
individual's spouse and any lineal descendant of the brother
or sister, and
(iv) the spouse of any individual described in clause (ii)
or (iii).
A spouse of an individual who is legally separated from such
individual under a decree of divorce or separate maintenance
shall not be treated as such individual's spouse for purposes
of this subparagraph.
(5) Treatment of synthetic equity
For purposes of paragraphs (3) and (4), in the case of a person
who owns synthetic equity in the S corporation, except to the
extent provided in regulations, the shares of stock in such
corporation on which such synthetic equity is based shall be
treated as outstanding stock in such corporation and deemed-owned
shares of such person if such treatment of synthetic equity of 1
or more such persons results in -
(A) the treatment of any person as a disqualified person, or
(B) the treatment of any year as a nonallocation year.
For purposes of this paragraph, synthetic equity shall be treated
as owned by a person in the same manner as stock is treated as
owned by a person under the rules of paragraphs (2) and (3) of
section 318(a). If, without regard to this paragraph, a person is
treated as a disqualified person or a year is treated as a
nonallocation year, this paragraph shall not be construed to
result in the person or year not being so treated.
(6) Definitions
For purposes of this subsection -
(A) Employee stock ownership plan
The term "employee stock ownership plan" has the meaning
given such term by section 4975(e)(7).
(B) Employer securities
The term "employer security" has the meaning given such term
by section 409(l).
(C) Synthetic equity
The term "synthetic equity" means any stock option, warrant,
restricted stock, deferred issuance stock right, or similar
interest or right that gives the holder the right to acquire or
receive stock of the S corporation in the future. Except to the
extent provided in regulations, synthetic equity also includes
a stock appreciation right, phantom stock unit, or similar
right to a future cash payment based on the value of such stock
or appreciation in such value.
(7) Regulations and guidance
(A) In general
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection.
(B) Avoidance or evasion
The Secretary may, by regulation or other guidance of general
applicability, provide that a nonallocation year occurs in any
case in which the principal purpose of the ownership structure
of an S corporation constitutes an avoidance or evasion of this
subsection.
(q) Cross references
(1) For requirements for allowance of employee plan credit,
see section 48(n).(!6)
(2) For assessable penalties for failure to meet requirements
of this section, or for failure to make contributions required
with respect to the allowance of an employee plan credit or
employee stock ownership credit, see section 6699.(!6)
(3) For requirements for allowance of an employee stock
ownership credit, see section 41.(!6)
-SOURCE-
(Added Pub. L. 95-600, title I, Sec. 141(a), Nov. 6, 1978, 92 Stat.
2787, Sec. 409A; amended Pub. L. 96-222, title I, Sec. 101(a)(7)(D)-
(F), (I), (J), (L)(i)(VI), (ii)(I), (II), (iii)(V), (v)(VI),
(VII), Apr. 1, 1980, 94 Stat. 198-200; Pub. L. 96-605, title II,
Sec. 224(a), Dec. 28, 1980, 94 Stat. 3528; Pub. L. 97-34, title
III, Secs. 331(c)(1), 334, 336, 337(a), Aug. 13, 1981, 95 Stat.
293, 297, 298; Pub. L. 97-448, title I, Sec. 103(h), (i), Jan. 12,
1983, 96 Stat. 2379; renumbered Sec. 409 and amended Pub. L. 98-
369, div. A, title IV, Secs. 474(r)(15), 491(e)(1), July 18, 1984,
98 Stat. 843, 852; Pub. L. 99-514, title XI, Secs. 1172(b)(1),
1174(a)(1), (b)(1), (2), (c)(1)(A), 1176(b), title XVIII, Secs.
1852(a)(4)(B), 1854(a)(3)(A), (f)(1), (3)(C), 1899A(11), Oct. 22,
1986, 100 Stat. 2514, 2516, 2517, 2520, 2865, 2873, 2881, 2882,
2958; Pub. L. 100-647, title I, Secs. 1011B(g)(1), (2), (i)(1),
(3), (j)(3), (5), (k)(3), 1018(t)(4)(B), (C), (H), Nov. 10, 1988,
102 Stat. 3490, 3492, 3493, 3588, 3589; Pub. L. 101-239, title VII,
Secs. 7304(a)(2)(A), (B), 7811(h)(1), Dec. 19, 1989, 103 Stat.
2352, 2353, 2409; Pub. L. 105-34, title XV, Sec. 1506(a), Aug. 5,
1997, 111 Stat. 1064; Pub. L. 107-16, title VI, Sec. 656(a), June
7, 2001, 115 Stat. 131; Pub. L. 107-147, title IV, Sec. 411(j)(2),
Mar. 9, 2002, 116 Stat. 47.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Section 41, referred to in subsecs. (b)(1)(A), (4), (g),
(i)(1)(A), (m), and (p), which related to employee stock ownership
credit, was repealed by Pub. L. 99-514, title XI, Sec. 1171(a),
Oct. 22, 1986, 100 Stat. 2513. Section 30 of this title, relating
to credit for increasing research activities, was renumbered
section 41.
Section 12 of the Securities Exchange Act of 1934, referred to in
subsec. (e)(4), is classified to section 78l of Title 15, Commerce
and Trade.
Section 403(c)(1) of the Employee Retirement Income Security Act
of 1974, referred to in subsecs. (j) and (k), is classified to
section 1103(c)(1) of Title 29, Labor.
The enactment of the Tax Reform Act of 1984, referred to in
subsecs. (g) and (k), means the enactment of div. A of Pub. L. 98-
369, which was approved July 18, 1984.
Subsec. (n) of section 48, referred to in subsecs. (g), (m), and
(p)(1), was repealed by section 474(o)(15) of Pub. L. 98-369.
Section 6699, referred to in subsec. (p)(2), was repealed by Pub.
L. 99-514, title XI, Sec. 1171(b)(7)(A), Oct. 22, 1986, 100 Stat.
2513.
-MISC1-
PRIOR PROVISIONS
A prior section 409, added Pub. L. 93-406, title II, Sec.
2002(c), Sept. 2, 1974, 88 Stat. 964; amended Pub. L. 94-455, title
XV, Sec. 1501(b)(6), title XIX, Secs. 1901(a)(60), 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1736, 1774, 1834; Pub. L. 95-600, title I,
Secs. 156(c)(2), (3), 157(e)(1)(B), Nov. 6, 1978, 92 Stat. 2803,
2806; Pub. L. 96-222, title I, Sec. 101(a)(14)(B), Apr. 1, 1980, 94
Stat. 204; Pub. L. 97-34, title III, Sec. 311(g)(1)(D), (3), Aug.
13, 1981, 95 Stat. 281; Pub. L. 97-248, title II, Sec.
243(b)(1)(B), title III, Sec. 335(a)(2), Sept. 3, 1982, 96 Stat.
523, 628; Pub. L. 97-452, Sec. 2(c)(1), Jan. 12, 1983, 96 Stat.
2478; Pub. L. 98-369, div. A, title I, Sec. 42(a)(7), title V, Sec.
522(d)(13), July 18, 1984, 98 Stat. 557, 871, related to retirement
bonds, prior to repeal by Pub. L. 98-369, div. A, title IV, Sec.
491(b), (f)(1), July 18, 1984, 98 Stat. 848, 853, applicable to
obligations issued after Dec. 31, 1983.
AMENDMENTS
2002 - Subsec. (o)(1)(C)(ii). Pub. L. 107-147 substituted
"$800,000" for "$500,000" in two places and "$160,000" for
"$100,000".
2001 - Subsecs. (p), (q). Pub. L. 107-16, Secs. 656(a), 901,
temporarily added subsec. (p) and redesignated former subsec. (p)
as (q). See Effective and Termination Dates of 2001 Amendment note
below.
1997 - Subsec. (h)(2). Pub. L. 105-34 designated existing
provisions as subpar. (A), inserted subpar. heading, struck out "In
the case of an employer whose charter or bylaws restrict the
ownership of substantially all outstanding employer securities to
employees or to a trust described in section 401(a), a plan which
otherwise meets the requirements of this subsection or section
4975(e)(7) shall not be considered to have failed to meet the
requirements of this subsection or of section 401(a) merely because
it does not permit a participant to exercise the right described in
paragraph (1)(A) if such plan provides that participants entitled
to a distribution from the plan shall have a right to receive such
distribution in cash, except that such plan may distribute employer
securities subject to a requirement that such securities may be
resold to the employer under terms which meet the requirements of
paragraph (1)(B)." after "employer securities.", and added subpar.
(B).
1989 - Subsec. (l)(5). Pub. L. 101-239, Sec. 7811(h)(1),
substituted "the second sentence" for "the last sentence".
Subsec. (n)(1). Pub. L. 101-239, Sec. 7304(a)(2)(A)(i), struck
out "or section 2057" after "section 1042" in two places in
introductory provisions.
Subsec. (n)(1)(A)(i). Pub. L. 101-239, Sec. 7304(a)(2)(A)(ii),
struck out "or any decedent if the executor of the estate of such
decedent makes a qualified sale to which section 2057 applies"
after "employer securities,".
Subsec. (n)(1)(A)(ii). Pub. L. 101-239, Sec. 7304(a)(2)(A)(iii),
struck out "or the decedent" after "the taxpayer".
Subsec. (n)(2)(C)(i), (3)(A)(ii). Pub. L. 101-239, Sec.
7304(a)(2)(B), struck out "or section 2057" after "section 1042".
1988 - Subsec. (d). Pub. L. 100-647, Sec. 1011B(j)(3), inserted
"or to any distribution or reinvestment required under section
401(a)(28)" after "under section 401(a)(9)".
Subsec. (e)(5). Pub. L. 100-647, Sec. 1018(t)(4)(H), substituted
"paragraph (3)" for "paragraph (2) or (3)".
Subsec. (h)(2). Pub. L. 100-647, Sec. 1018(t)(4)(B), substituted
"paragraph (1)(B)" for "section 409(o)".
Subsec. (h)(7). Pub. L. 100-647, Sec. 1011B(j)(5), added par.
(7).
Subsec. (l)(4), (5). Pub. L. 100-647, Sec. 1011B(k)(3),
redesignated par. (4), relating to nonvoting common stock may be
acquired in certain cases, as (5).
Subsec. (n)(1). Pub. L. 100-647, Sec. 1011B(g)(1), made technical
amendment to directory language of Pub. L. 99-514, Sec. 1172(b)(1).
See 1986 Amendment note below.
Subsec. (n)(2)(C)(i), (3)(A)(ii). Pub. L. 100-647, Sec.
1011B(g)(2), inserted "or section 2057" after "which section 1042".
Subsec. (n)(3)(C). Pub. L. 100-647, Sec. 1018(t)(4)(C), amended
subpar. (C) generally. Prior to amendment, subpar. (C) read as
follows: "The term 'nonallocation period' means the 10-year period
beginning on the later of -
"(i) the date of the sale of the qualified securities, or
"(ii) the date of the plan allocation attributable to the final
payment of acquisition indebtedness incurred in connection with
such sale."
Subsec. (o)(1)(A). Pub. L. 100-647, Sec. 1011B(i)(3), substituted
"if the participant and, if applicable pursuant to sections
401(a)(11) and 417, with the consent of the participant's spouse
elects" for "unless the participant otherwise elects".
Subsec. (o)(1)(A)(ii). Pub. L. 100-647, Sec. 1011B(i)(1),
substituted "distribution is required to begin under this clause"
for "such year".
1986 - Subsec. (a)(3). Pub. L. 99-514, Sec. 1174(b)(2), inserted
reference to subsec. (o).
Subsec. (d). Pub. L. 99-514, Sec. 1899A(11), substituted
"participant's" for "participants's".
Pub. L. 99-514, Sec. 1852(a)(4)(B), inserted at end "This
subsection shall not apply to any distribution required under
section 401(a)(9)."
Subsec. (d)(1). Pub. L. 99-514, Sec. 1174(a)(1), substituted
"separation from service, or termination of the plan" for "or
separation from service".
Subsec. (e)(2). Pub. L. 99-514, Sec. 1854(f)(1)(C), (D), inserted
"or beneficiary" after "participant" in two places and substituted
"securities of the employer" for "employer securities".
Subsec. (e)(3). Pub. L. 99-514, Sec. 1854(f)(1)(B)-(D), inserted
"or beneficiary" after "participant" in two places and substituted
"securities of the employer" for "employer securities" and "any
corporate matter which involves the voting of such shares with
respect to the approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification, liquidation,
dissolution, sale of substantially all assets of a trade or
business, or such similar transaction as the Secretary may
prescribe in regulations" for "a corporate matter which (by law or
charter) must be decided by more than a majority vote of
outstanding common shares voted".
Subsec. (e)(5). Pub. L. 99-514, Sec. 1854(f)(1)(A), added par.
(5).
Subsec. (h)(2). Pub. L. 99-514, Sec. 1854(f)(3)(C), inserted ",
except that such plan may distribute employer securities subject to
a requirement that such securities may be resold to the employer
under terms which meet the requirements of section 409(o)".
Subsec. (h)(5), (6). Pub. L. 99-514, Sec. 1174(c)(1)(A), added
pars. (5) and (6).
Subsec. (l)(4). Pub. L. 99-514, Sec. 1176(b), added par. (4)
relating to acquisition of nonvoting common stock.
Subsec. (n). Pub. L. 99-514, Sec. 1854(a)(3)(A), added subsec.
(n). Former subsec. (n) redesignated (o).
Subsec. (n)(1). Pub. L. 99-514, Sec. 1172(b)(1), as amended by
Pub. L. 100-647, Sec. 1011B(g)(1), inserted "or section 2057" in
two places in introductory provisions, "or any decedent if the
executor of the estate of such decedent makes a qualified sale to
which section 2057 applies," in subpar. (A)(i), and "or the
decedent" in subpar. (A)(ii).
Subsec. (o). Pub. L. 99-514, Sec. 1174(b)(1), added subsec. (o).
Former subsec. (o) redesignated (p).
Pub. L. 99-514, Sec. 1854(a)(3)(A), redesignated former subsec.
(n) as (o).
Subsec. (p). Pub. L. 99-514, Sec. 1174(b)(1), redesignated former
subsec. (o) as (p).
1984 - Subsec. (b)(1)(A). Pub. L. 98-369, Sec. 474(r)(15)(A),
(B), substituted "41" for "44G" and struck out "48(n)(1)(A) or"
after "requirements of section".
Subsec. (b)(4). Pub. L. 98-369, Sec. 474(r)(15)(A), substituted
"41" for "44G".
Subsec. (g). Pub. L. 98-369, Sec. 474(r)(15)(A), (C), substituted
"41" for "44G" in two places, and inserted provision directing
that, for purposes of the preceding sentence, the references to
section 48(n)(1) and the employee plan credit shall refer to such
section and credit as in effect before the enactment of the Tax
Reform Act of 1984.
Subsec. (i)(1)(A). Pub. L. 98-369, Sec. 474(r)(15)(A), (D),
substituted "41" for "44G", and struck out "48(n)(1) or" after
"taxable year under section".
Subsec. (k). Pub. L. 98-369, Sec. 474(r)(15)(E), inserted
provision requiring that, for purposes of this subsection, the
reference to the matching employee plan credit refer to such credit
as in effect before the enactment of the Tax Reform Act of 1984.
Subsec. (m). Pub. L. 98-369, Sec. 474(r)(15)(A), substituted "41"
for "44G".
Subsec. (n)(3). Pub. L. 98-369, Sec. 474(r)(15)(A), substituted
"41" for "44G".
1983 - Subsec. (d)(2). Pub. L. 97-448, Sec. 103(i), struck out
provisions covering the sale of substantially all of the stock of a
subsidiary of the employer.
Subsec. (h)(2). Pub. L. 97-448, Sec. 103(h), substituted "the
requirements of this subsection or of section 401(a)" for "the
requirements of section 401(a)".
1981 - Subsec. (b). Pub. L. 97-34, Sec. 331(c)(1)(A), (B),
inserted in par. (1)(A) reference to section 44G(c)(1)(B), and
inserted in par. (4) "or the credit allowed under section 44G
(relating to the employee stock ownership credit)" after "basic
employee plan credit".
Subsec. (d). Pub. L. 97-34, Sec. 337, designated provision
relating to death, disability, or separation from service as par.
(1) and added pars. (2) and (3).
Subsec. (g). Pub. L. 97-34, Sec. 331(c)(1)(C), (D), inserted
reference to section 44G(c)(1)(B) and inserted "or the credit
allowed under section 44G (relating to employee stock ownership
credit)" after "employee plan credit".
Subsec. (h)(2). Pub. L. 97-34, Sec. 334, substituted "this
subsection" for "this section" and inserted provision respecting
receipt of distributions in cash where employer's charter or bylaws
restrict ownership of substantially all outstanding employer
securities to employees or to a section 401(a) trust where a
participant is not permitted to exercise the right described in
par. (1)(A).
Subsec. (h)(3), (4). Pub. L. 97-34, Sec. 336, added pars. (3) and
(4).
Subsec. (i)(1)(A). Pub. L. 97-34, Sec. 331(c)(1)(E), inserted
reference to section 44G(c)(1)(B).
Subsec. (m). Pub. L. 97-34, Sec. 331(c)(1)(F), inserted reference
to section 44G(c)(1)(B).
Subsec. (n)(2), (3). Pub. L. 97-34, Sec. 331(c)(1)(G), (H),
inserted "or employee stock ownership credit" after "employee plan
credit" in par. (2) and added par. (3).
1980 - Pub. L. 96-222, Sec. 101(a)(7)(L)(v)(VII), substituted
"tax credit employee stock ownership plans" for "ESOPS" in section
catchline.
Subsec. (a). Pub. L. 96-222, Sec. 101(a)(7)(L)(ii)(I), (v)(VI),
substituted in heading and in text "tax credit employee stock
ownership plan" for "ESOP".
Subsec. (b)(4). Pub. L. 96-222, Sec. 101(a)(7)(L)(iii)(V),
substituted "employee plan credit" for "ESOP credit".
Subsec. (d). Pub. L. 96-222, Sec. 101(a)(7)(F), inserted "(or
allocated to a participant's account in connection with matched
employer and employee contributions)" after "under subsection (b)".
Subsec. (f)(1). Pub. L. 96-222, Sec. 101(a)(7)(I)(i), substituted
"only if it is established on or before the due date (including any
extension of such date) for the filing of the employer's tax return
for the first taxable year of the employer for which an employee
plan credit is claimed by the employer with respect to the plan"
for "for a plan year only if it is established on or before the due
date for the filing of the employer's tax return for the taxable
year (including any extension of such date) in which or with which
the plan year ends".
Subsec. (f)(2). Pub. L. 96-222, Sec. 101(a)(7)(I)(ii),
(L)(v)(VII), substituted "employee plan" for "ESOP" and inserted
"with respect to the plan" after "by the employer".
Subsec. (g). Pub. L. 96-222, Sec. 101(a)(7)(L)(iii)(V),
substituted "employee plan credit" for "ESOP credit".
Subsec. (h)(2). Pub. L. 96-222, Sec. 101(a)(7)(E), inserted "or
of section 4975(e)(7)" after "the requirements of this section".
Subsecs. (j)(2), (k)(1). Pub. L. 96-222, Sec.
101(a)(7)(L)(iii)(V), substituted "employee plan credit" for "ESOP
credit".
Subsec. (l)(2)(B). Pub. L. 96-222, Sec. 101(a)(7)(J)(i),
substituted "class of common stock" for "class of stock".
Subsec. (l)(3). Pub. L. 96-222, Sec. 101(a)(7)(J)(ii),
(L)(ii)(II), substituted "as employer securities" for "as meeting
the requirements of paragraph (1)", "paragraph (1) or (2)" for
"paragraph (2)", and "tax credit employee stock ownership plan" for
"ESOP" and inserted provisions requiring preferred stock to be
treated as noncallable if after the call there will be a reasonable
opportunity for a conversion which meets the requirements of the
preceding sentence.
Subsec. (l)(4). Pub. L. 96-605 substituted in heading
"Application to controlled group of corporations" for "Controlled
group of corporations defined" and in subpar. (B) heading "Where
common parent owns at least" for "Common parent may own only" and
added subpar. (C).
Subsec. (m). Pub. L. 96-222, Sec. 101(a)(7)(D), (L)(i),
substituted provisions relating to nonrecognition of gain or loss
on contribution of employer securities to a tax credit employee
stock ownership plan for provisions relating to contributions of
stock of a controlling corporation.
Subsec. (n). Pub. L. 96-222, Sec. 101(a)(7)(L)(iii)(V),
substituted "employee plan credit" for "ESOP credit" in pars. (1)
and (2).
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title VI, Sec. 656(d), June 7, 2001, 115 Stat.
135, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 4975 and 4979A of this title] shall apply
to plan years beginning after December 31, 2004.
"(2) Exception for certain plans. - In the case of any -
"(A) employee stock ownership plan established after March 14,
2001, or
"(B) employee stock ownership plan established on or before
such date if employer securities held by the plan consist of
stock in a corporation with respect to which an election under
section 1362(a) of the Internal Revenue Code of 1986 is not in
effect on such date,
the amendments made by this section shall apply to plan years
ending after March 14, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1506(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section, section 4975 of this
title, and section 1108 of Title 29, Labor] shall apply to taxable
years beginning after December 31, 1997."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7304(a)(3) of Pub. L. 101-239 provided that: "The
amendments made by this subsection [amending this section and
sections 4978 and 4979A of this title and repealing sections 2057
and 4978A of this title] shall apply to the estates of decedents
dying after the date of the enactment of this Act [Dec. 19, 1989]."
Amendment by section 7811(h)(1) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, to which such amendment relates, see section 7817 of Pub. L.
101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1172(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [enacting section 2057 of this title and
amending this section and section 4979A of this title] shall apply
to sales after the date of the enactment of this Act [Oct. 22,
1986] with respect to which an election is made by the executor of
an estate who is required to file the return of the tax imposed by
the Internal Revenue Code of 1986 on a date (including extensions)
after the date of the enactment of this Act."
Section 1174(a)(2) of Pub. L. 99-514, as amended by Pub. L. 100-
647, title I, Sec. 1011B(i)(2), Nov. 10, 1988, 102 Stat. 3492,
provided that: "The amendment made by this subsection [amending
this section] shall apply to distributions after December 31,
1984."
Section 1174(b)(3) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section] shall
apply to distributions attributable to stock acquired after
December 31, 1986."
Section 1174(c)(1)(B) of Pub. L. 99-514 provided that: "The
amendment made by this paragraph [amending this section] shall
apply to distributions attributable to stock acquired after
December 31, 1986, except that a plan may elect to have such
amendment apply to all distributions after the date of the
enactment of this Act [Oct. 22, 1986]."
Amendment by section 1176(b) of Pub. L. 99-514 applicable to
acquisitions of securities after Dec. 31, 1986, see section 1176(c)
of Pub. L. 99-514, set out as a note under section 401 of this
title.
Amendment by section 1852(a)(4)(B) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
Section 1854(a)(3)(C) of Pub. L. 99-514, as amended by Pub. L.
100-647, title I, Sec. 1018(t)(4)(G), Nov. 10, 1988, 102 Stat.
3588, provided that:
"(i) Except as provided in clause (ii), the amendments made by
this paragraph [amending this section and section 1042 of this
title] shall apply to sales of securities after the date of the
enactment of this Act [Oct. 22, 1986].
"(ii) A taxpayer or executor may elect to have section 1042(b)(3)
of the Internal Revenue Code of 1954 (as in effect before the
amendment made by subparagraph (B)) apply to sales before the date
of the enactment of this Act as if such section included the last
sentence of section 409(n)(1) of the Internal Revenue Code of 1986
(as added by subparagraph (A))."
Section 1854(f)(4)(A), (B) of Pub. L. 99-514 provided that:
"(A) The amendments made by paragraph (1)(A) and (3) [amending
this section and sections 1042 and 4975 of this title] shall take
effect on the date of the enactment of this Act [Oct. 22, 1986]."
"(B) The amendments made by subparagraphs (B), (C), and (D) of
paragraph (1) [amending this section] shall apply after December
31, 1986, to stock acquired after December 31, 1979."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(r)(15) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Redesignation of section 409A as 409 by section 491(e)(1) of Pub.
L. 98-369 effective Jan. 1, 1984, see section 491(f)(3) of Pub. L.
98-369, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 331(c)(1) of Pub. L. 97-34 applicable to
taxable years ending after Dec. 31, 1982, see section 331(f)(2) of
Pub. L. 97-34, set out as a note under section 404 of this title.
Section 337(b) of Pub. L. 97-34, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section] shall apply
to distributions described in section 409A(d) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (or any corresponding
provision of prior law) made after March 29, 1975."
Amendment by sections 334 and 336 of Pub. L. 97-34 applicable to
taxable years beginning after Dec. 31, 1981, see section 339 of
Pub. L. 97-34, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 224(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to qualified investment for taxable years beginning after
December 31, 1978."
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE
Section 141(g) of Pub. L. 95-600, as added by Pub. L. 96-222,
title I, Sec. 101(a)(7)(B), Apr. 1, 1980, 94 Stat. 197; amended by
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(1) In general. - Except as otherwise provided in this
subsection and subsection (h) [set out as an Effective Date of 1978
Amendment note under section 4975 of this title], the amendments
made by this section [enacting sections 409A [now 409] and 6699 of
this title and amending sections 46, 48, 56, 401, 404, 415, 805,
1504, and 4975 of this title] shall apply with respect to qualified
investment for taxable years beginning after December 31, 1978.
"(2) Election to have amendments apply during 1978. - At the
election of the taxpayer, paragraph (1) shall be applied by
substituting 'December 31, 1977' for 'December 31, 1978'; except
that in the case of a plan in existence before December 31, 1978,
any such election shall not affect the required allocation of
employer securities attributable to qualified investment for
taxable years beginning before January 1, 1979. An election under
the preceding sentence shall be made at such time and in such
manner as the Secretary of the Treasury or his delegate shall
prescribe. Such an election, once made, shall be irrevocable.
"(3) Voting right provisions. - Section 409A(e) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as added by subsection
(a)) [now section 409] shall apply to plans to which section 409A
of such Code applies, beginning with the first day of such
application.
"(4) Right to demand employer securities, etc. - Paragraphs
(1)(A) and (2) of section 409A(h) of the Internal Revenue Code of
1986 (as added by subsection (a)) [now section 409] shall apply to
distributions after December 31, 1978, made by a plan to which
section 409A of such Code applies.
"(5) Subsection (f)(7). - The amendment made by subsection (f)(7)
[amending section 415 of this title] shall apply to years beginning
after December 31, 1978.
"(6) Retroactive application of amendment made by subsection (d).
- In determining the regular tax deduction under section 56(c) of
the Internal Revenue Code of 1986 for any taxable year beginning
before January 1, 1979, the amount of the credit allowable under
section 38 of such Code shall be determined without regard to
section 46(a)(2)(B) of such Code (as in effect before the enactment
of the Energy Tax Act of 1978 [Nov. 9, 1978])."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
(!2) See References in Text note below.
(!3) See References in Text note below.
(!4) See References in Text note below.
(!5) So in original.
(!6) See References in Text note below.
-End-
-CITE-
26 USC Sec. 409A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart A - General Rule
-HEAD-
Sec. 409A. Inclusion in gross income of deferred compensation under
nonqualified deferred compensation plans
-STATUTE-
(a) Rules relating to constructive receipt
(1) Plan failures
(A) Gross income inclusion
(i) In general
If at any time during a taxable year a nonqualified
deferred compensation plan -
(I) fails to meet the requirements of paragraphs (2),
(3), and (4), or
(II) is not operated in accordance with such
requirements,
all compensation deferred under the plan for the taxable year
and all preceding taxable years shall be includible in gross
income for the taxable year to the extent not subject to a
substantial risk of forfeiture and not previously included in
gross income.
(ii) Application only to affected participants
Clause (i) shall only apply with respect to all
compensation deferred under the plan for participants with
respect to whom the failure relates.
(B) Interest and additional tax payable with respect to
previously deferred compensation
(i) In general
If compensation is required to be included in gross income
under subparagraph (A) for a taxable year, the tax imposed by
this chapter for the taxable year shall be increased by the
sum of -
(I) the amount of interest determined under clause (ii),
and
(II) an amount equal to 20 percent of the compensation
which is required to be included in gross income.
(ii) Interest
For purposes of clause (i), the interest determined under
this clause for any taxable year is the amount of interest at
the underpayment rate plus 1 percentage point on the
underpayments that would have occurred had the deferred
compensation been includible in gross income for the taxable
year in which first deferred or, if later, the first taxable
year in which such deferred compensation is not subject to a
substantial risk of forfeiture.
(2) Distributions
(A) In general
The requirements of this paragraph are met if the plan
provides that compensation deferred under the plan may not be
distributed earlier than -
(i) separation from service as determined by the Secretary
(except as provided in subparagraph (B)(i)),
(ii) the date the participant becomes disabled (within the
meaning of subparagraph (C)),
(iii) death,
(iv) a specified time (or pursuant to a fixed schedule)
specified under the plan at the date of the deferral of such
compensation,
(v) to the extent provided by the Secretary, a change in
the ownership or effective control of the corporation, or in
the ownership of a substantial portion of the assets of the
corporation, or
(vi) the occurrence of an unforeseeable emergency.
(B) Special rules
(i) Specified employees
In the case of any specified employee, the requirement of
subparagraph (A)(i) is met only if distributions may not be
made before the date which is 6 months after the date of
separation from service (or, if earlier, the date of death of
the employee). For purposes of the preceding sentence, a
specified employee is a key employee (as defined in section
416(i) without regard to paragraph (5) thereof) of a
corporation any stock in which is publicly traded on an
established securities market or otherwise.
(ii) Unforeseeable emergency
For purposes of subparagraph (A)(vi) -
(I) In general
The term "unforeseeable emergency" means a severe
financial hardship to the participant resulting from an
illness or accident of the participant, the participant's
spouse, or a dependent (as defined in section 152(a)) of
the participant, loss of the participant's property due to
casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the
control of the participant.
(II) Limitation on distributions
The requirement of subparagraph (A)(vi) is met only if,
as determined under regulations of the Secretary, the
amounts distributed with respect to an emergency do not
exceed the amounts necessary to satisfy such emergency plus
amounts necessary to pay taxes reasonably anticipated as a
result of the distribution, after taking into account the
extent to which such hardship is or may be relieved through
reimbursement or compensation by insurance or otherwise or
by liquidation of the participant's assets (to the extent
the liquidation of such assets would not itself cause
severe financial hardship).
(C) Disabled
For purposes of subparagraph (A)(ii), a participant shall be
considered disabled if the participant -
(i) is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12
months, or
(ii) is, by reason of any medically determinable physical
or mental impairment which can be expected to result in death
or can be expected to last for a continuous period of not
less than 12 months, receiving income replacement benefits
for a period of not less than 3 months under an accident and
health plan covering employees of the participant's employer.
(3) Acceleration of benefits
The requirements of this paragraph are met if the plan does not
permit the acceleration of the time or schedule of any payment
under the plan, except as provided in regulations by the
Secretary.
(4) Elections
(A) In general
The requirements of this paragraph are met if the
requirements of subparagraphs (B) and (C) are met.
(B) Initial deferral decision
(i) In general
The requirements of this subparagraph are met if the plan
provides that compensation for services performed during a
taxable year may be deferred at the participant's election
only if the election to defer such compensation is made not
later than the close of the preceding taxable year or at such
other time as provided in regulations.
(ii) First year of eligibility
In the case of the first year in which a participant
becomes eligible to participate in the plan, such election
may be made with respect to services to be performed
subsequent to the election within 30 days after the date the
participant becomes eligible to participate in such plan.
(iii) Performance-based compensation
In the case of any performance-based compensation based on
services performed over a period of at least 12 months, such
election may be made no later than 6 months before the end of
the period.
(C) Changes in time and form of distribution
The requirements of this subparagraph are met if, in the case
of a plan which permits under a subsequent election a delay in
a payment or a change in the form of payment -
(i) the plan requires that such election may not take
effect until at least 12 months after the date on which the
election is made,
(ii) in the case of an election related to a payment not
described in clause (ii), (iii), or (vi) of paragraph (2)(A),
the plan requires that the payment with respect to which such
election is made be deferred for a period of not less than 5
years from the date such payment would otherwise have been
made, and
(iii) the plan requires that any election related to a
payment described in paragraph (2)(A)(iv) may not be made
less than 12 months prior to the date of the first scheduled
payment under such paragraph.
(b) Rules relating to funding
(1) Offshore property in a trust
In the case of assets set aside (directly or indirectly) in a
trust (or other arrangement determined by the Secretary) for
purposes of paying deferred compensation under a nonqualified
deferred compensation plan, for purposes of section 83 such
assets shall be treated as property transferred in connection
with the performance of services whether or not such assets are
available to satisfy claims of general creditors -
(A) at the time set aside if such assets (or such trust or
other arrangement) are located outside of the United States, or
(B) at the time transferred if such assets (or such trust or
other arrangement) are subsequently transferred outside of the
United States.
This paragraph shall not apply to assets located in a foreign
jurisdiction if substantially all of the services to which the
nonqualified deferred compensation relates are performed in such
jurisdiction.
(2) Employer's financial health
In the case of compensation deferred under a nonqualified
deferred compensation plan, there is a transfer of property
within the meaning of section 83 with respect to such
compensation as of the earlier of -
(A) the date on which the plan first provides that assets
will become restricted to the provision of benefits under the
plan in connection with a change in the employer's financial
health, or
(B) the date on which assets are so restricted,
whether or not such assets are available to satisfy claims of
general creditors.
(3) Income inclusion for offshore trusts and employer's financial
health
For each taxable year that assets treated as transferred under
this subsection remain set aside in a trust or other arrangement
subject to paragraph (1) or (2), any increase in value in, or
earnings with respect to, such assets shall be treated as an
additional transfer of property under this subsection (to the
extent not previously included in income).
(4) Interest on tax liability payable with respect to transferred
property
(A) In general
If amounts are required to be included in gross income by
reason of paragraph (1) or (2) for a taxable year, the tax
imposed by this chapter for such taxable year shall be
increased by the sum of -
(i) the amount of interest determined under subparagraph
(B), and
(ii) an amount equal to 20 percent of the amounts required
to be included in gross income.
(B) Interest
For purposes of subparagraph (A), the interest determined
under this subparagraph for any taxable year is the amount of
interest at the underpayment rate plus 1 percentage point on
the underpayments that would have occurred had the amounts so
required to be included in gross income by paragraph (1) or (2)
been includible in gross income for the taxable year in which
first deferred or, if later, the first taxable year in which
such amounts are not subject to a substantial risk of
forfeiture.
(c) No inference on earlier income inclusion or requirement of
later inclusion
Nothing in this section shall be construed to prevent the
inclusion of amounts in gross income under any other provision of
this chapter or any other rule of law earlier than the time
provided in this section. Any amount included in gross income under
this section shall not be required to be included in gross income
under any other provision of this chapter or any other rule of law
later than the time provided in this section.
(d) Other definitions and special rules
For purposes of this section:
(1) Nonqualified deferred compensation plan
The term "nonqualified deferred compensation plan" means any
plan that provides for the deferral of compensation, other than -
(A) a qualified employer plan, and
(B) any bona fide vacation leave, sick leave, compensatory
time, disability pay, or death benefit plan.
(2) Qualified employer plan
The term "qualified employer plan" means -
(A) any plan, contract, pension, account, or trust described
in subparagraph (A) or (B) of section 219(g)(5) (without regard
to subparagraph (A)(iii)),
(B) any eligible deferred compensation plan (within the
meaning of section 457(b)), and
(C) any plan described in section 415(m).
(3) Plan includes arrangements, etc.
The term "plan" includes any agreement or arrangement,
including an agreement or arrangement that includes one person.
(4) Substantial risk of forfeiture
The rights of a person to compensation are subject to a
substantial risk of forfeiture if such person's rights to such
compensation are conditioned upon the future performance of
substantial services by any individual.
(5) Treatment of earnings
References to deferred compensation shall be treated as
including references to income (whether actual or notional)
attributable to such compensation or such income.
(6) Aggregation rules
Except as provided by the Secretary, rules similar to the rules
of subsections (b) and (c) of section 414 shall apply.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations -
(1) providing for the determination of amounts of deferral in
the case of a nonqualified deferred compensation plan which is a
defined benefit plan,
(2) relating to changes in the ownership and control of a
corporation or assets of a corporation for purposes of subsection
(a)(2)(A)(v),
(3) exempting arrangements from the application of subsection
(b) if such arrangements will not result in an improper deferral
of United States tax and will not result in assets being
effectively beyond the reach of creditors,
(4) defining financial health for purposes of subsection
(b)(2), and
(5) disregarding a substantial risk of forfeiture in cases
where necessary to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 108-357, title VIII, Sec. 885(a), Oct. 22, 2004, 118
Stat. 1634; amended Pub. L. 109-135, title IV, Sec. 403(hh)(2),
Dec. 21, 2005, 119 Stat. 2631.)
-MISC1-
PRIOR PROVISIONS
A prior section 409A was renumbered section 409 of this title.
AMENDMENTS
2005 - Subsec. (a)(4)(C)(ii). Pub. L. 109-135 struck out "first"
after "requires that the".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE
Pub. L. 109-135, title IV, Sec. 403(hh)(3)(A), Dec. 21, 2005, 119
Stat. 2631, provided that: "Notwithstanding section 885(d)(1) of
the American Jobs Creation Act of 2004 [Pub. L. 108-357, set out
below], subsection (b) of section 409A of the Internal Revenue Code
of 1986 shall take effect on January 1, 2005."
Pub. L. 108-357, title VIII, Sec. 885(d), Oct. 22, 2004, 118
Stat. 1640, provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending sections 3401, 6041, and 6051 of this
title] shall apply to amounts deferred after December 31, 2004.
"(2) Special rules. -
"(A) Earnings. - The amendments made by this section shall
apply to earnings on deferred compensation only to the extent
that such amendments apply to such compensation.
"(B) Material modifications. - For purposes of this subsection,
amounts deferred in taxable years beginning before January 1,
2005, shall be treated as amounts deferred in a taxable year
beginning on or after such date if the plan under which the
deferral is made is materially modified after October 3, 2004,
unless such modification is pursuant to the guidance issued under
subsection (f) [set out as a note below].
"(3) Exception for nonelective deferred compensation. - The
amendments made by this section shall not apply to any nonelective
deferred compensation to which section 457 of the Internal Revenue
Code of 1986 does not apply by reason of section 457(e)(12) of such
Code, but only if such compensation is provided under a
nonqualified deferred compensation plan -
"(A) which was in existence on May 1, 2004,
"(B) which was providing nonelective deferred compensation
described in such section 457(e)(12) on such date, and
"(C) which is established or maintained by an organization
incorporated on July 2, 1974.
If, after May 1, 2004, a plan described in the preceding sentence
adopts a plan amendment which provides a material change in the
classes of individuals eligible to participate in the plan, this
paragraph shall not apply to any nonelective deferred compensation
provided under the plan on or after the date of the adoption of the
amendment."
GUIDANCE RELATING TO CONFORMANCE WITH FUNDING RULES
Pub. L. 109-135, title IV, Sec. 403(hh)(3)(B), Dec. 21, 2005, 119
Stat. 2631, provided that: "Not later than 90 days after the date
of the enactment of this Act [Dec. 21, 2005], the Secretary of the
Treasury shall issue guidance under which a nonqualified deferred
compensation plan which is in violation of the requirements of
section 409A(b) of such Code shall be treated as not having
violated such requirements if such plan comes into conformance with
such requirements during such limited period as the Secretary may
specify in such guidance."
GUIDANCE RELATING TO CHANGE OF OWNERSHIP OR CONTROL
Pub. L. 108-357, title VIII, Sec. 885(e), Oct. 22, 2004, 118
Stat. 1640, provided that: "Not later than 90 days after the date
of the enactment of this Act [Oct. 22, 2004], the Secretary of the
Treasury shall issue guidance on what constitutes a change in
ownership or effective control for purposes of section 409A of the
Internal Revenue Code of 1986, as added by this section."
GUIDANCE RELATING TO TERMINATION OF CERTAIN EXISTING ARRANGEMENTS
Pub. L. 108-357, title VIII, Sec. 885(f), Oct. 22, 2004, 118
Stat. 1641, as amended by Pub. L. 109-135, title IV, Sec.
403(hh)(4), Dec. 21, 2005, 119 Stat. 2632, provided that: "Not
later than 60 days after the date of the enactment of this Act
[Oct. 22, 2004], the Secretary of the Treasury shall issue guidance
providing a limited period during which a nonqualified deferred
compensation plan adopted before January 1, 2005, may, without
violating the requirements of paragraphs (2), (3), and (4) of
section 409A(a) of the Internal Revenue Code of 1986 (as added by
this section), be amended -
"(1) to provide that a participant may terminate participation
in the plan, or cancel an outstanding deferral election with
regard to amounts deferred after December 31, 2004, but only if
amounts subject to the termination or cancellation are includible
in income of the participant as earned (or, if later, when no
longer subject to substantial risk of forfeiture), and
"(2) to conform to the requirements of such section 409A with
regard to amounts deferred after December 31, 2004."
-End-
-CITE-
26 USC Subpart B - Special Rules 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart B - Special Rules
-HEAD-
SUBPART B - SPECIAL RULES
-MISC1-
Sec.
410. Minimum participation standards.
411. Minimum vesting standards.
412. Minimum funding standards.
413. Collectively bargained plans.(!1)
414. Definitions and special rules.
415. Limitations on benefits and contribution under
qualified plans.
416. Special rules for top-heavy plans.
417. Definitions and special rules for purposes of minimum
survivor annuity requirements.
AMENDMENTS
1984 - Pub. L. 98-397, title II, Sec. 203(c), Aug. 23, 1984, 98
Stat. 1445, added item 417.
1982 - Pub. L. 97-248, title II, Sec. 240(d), Sept. 3, 1982, 96
Stat. 520, added item 416.
1974 - Pub. L. 93-406, title II, Sec. 1011, Sept. 2, 1974, 88
Stat. 898, added subpart heading and analysis of sections.
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 410 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart B - Special Rules
-HEAD-
Sec. 410. Minimum participation standards
-STATUTE-
(a) Participation
(1) Minimum age and service conditions
(A) General rule
A trust shall not constitute a qualified trust under section
401(a) if the plan of which it is a part requires, as a
condition of participation in the plan, that an employee
complete a period of service with the employer or employers
maintaining the plan extending beyond the later of the
following dates -
(i) the date on which the employee attains the age of 21;
or
(ii) the date on which he completes 1 year of service.
(B) Special rules for certain plans
(i) In the case of any plan which provides that after not
more than 2 years of service each participant has a right to
100 percent of his accrued benefit under the plan which is
nonforfeitable (within the meaning of section 411) at the
time such benefit accrues, clause (ii) of subparagraph (A)
shall be applied by substituting "2 years of service" for "1
year of service".
(ii) In the case of any plan maintained exclusively for
employees of an educational institution (as defined in
section 170(b)(1)(A)(ii) by an employer which is exempt from
tax under section 501(a) which provides that each participant
having at least 1 year of service has a right to 100 percent
of his accrued benefit under the plan which is nonforfeitable
(within the meaning of section 411) at the time such benefit
accrues, clause (i) of subparagraph (A) shall be applied by
substituting "26" for "21". This clause shall not apply to
any plan to which clause (i) applies.
(2) Maximum age conditions
A trust shall not constitute a qualified trust under section
401(a) if the plan of which it is a part excludes from
participation (on the basis of age) employees who have attained a
specified age.
(3) Definition of year of service
(A) General rule
For purposes of this subsection, the term "year of service"
means a 12-month period during which the employee has not less
than 1,000 hours of service. For purposes of this paragraph,
computation of any 12-month period shall be made with reference
to the date on which the employee's employment commenced,
except that, under regulations prescribed by the Secretary of
Labor, such computation may be made by reference to the first
day of a plan year in the case of an employee who does not
complete 1,000 hours of service during the 12-month period
beginning on the date his employment commenced.
(B) Seasonal industries
In the case of any seasonal industry where the customary
period of employment is less than 1,000 hours during a calendar
year, the term "year of service" shall be such period as may be
determined under regulations prescribed by the Secretary of
Labor.
(C) Hours of service
For purposes of this subsection, the term "hour of service"
means a time of service determined under regulations prescribed
by the Secretary of Labor.
(D) Maritime industries
For purposes of this subsection, in the case of any maritime
industry, 125 days of service shall be treated as 1,000 hours
of service. The Secretary of Labor may prescribe regulations to
carry out this subparagraph.
(4) Time of participation
A plan shall be treated as not meeting the requirements of
paragraph (1) unless it provides that any employee who has
satisfied the minimum age and service requirements specified in
such paragraph, and who is otherwise entitled to participate in
the plan, commences participation in the plan no later than the
earlier of -
(A) the first day of the first plan year beginning after the
date on which such employee satisfied such requirements, or
(B) the date 6 months after the date on which he satisfied
such requirements,
unless such employee was separated from the service before the
date referred to in subparagraph (A) or (B), whichever is
applicable.
(5) Breaks in service
(A) General rule
Except as otherwise provided in subparagraphs (B), (C), and
(D), all years of service with the employer or employers
maintaining the plan shall be taken into account in computing
the period of service for purposes of paragraph (1).
(B) Employees under 2-year 100 percent vesting
In the case of any employee who has any 1-year break in
service (as defined in section 411(a)(6)(A)) under a plan to
which the service requirements of clause (i) of paragraph
(1)(B) apply, if such employee has not satisfied such
requirements, service before such break shall not be required
to be taken into account.
(C) 1-year break in service
In computing an employee's period of service for purposes of
paragraph (1) in the case of any participant who has any 1-year
break in service (as defined in section 411(a)(6)(A)), service
before such break shall not be required to be taken into
account under the plan until he has completed a year of service
(as defined in paragraph (3)) after his return.
(D) Nonvested participants
(i) In general
For purposes of paragraph (1), in the case of a nonvested
participant, years of service with the employer or employers
maintaining the plan before any period of consecutive 1-year
breaks in service shall not be required to be taken into
account in computing the period of service if the number of
consecutive 1-year breaks in service within such period
equals or exceeds the greater of -
(I) 5, or
(II) the aggregate number of years of service before such
period.
(ii) Years of service not taken into account
If any years of service are not required to be taken into
account by reason of a period of breaks in service to which
clause (i) applies, such years of service shall not be taken
into account in applying clause (i) to a subsequent period of
breaks in service.
(iii) Nonvested participant defined
For purposes of clause (i), the term "nonvested
participant" means a participant who does not have any
nonforfeitable right under the plan to an accrued benefit
derived from employer contributions.
(E) Special rule for maternity or paternity absences
(i) General rule
In the case of each individual who is absent from work for
any period -
(I) by reason of the pregnancy of the individual,
(II) by reason of the birth of a child of the individual,
(III) by reason of the placement of a child with the
individual in connection with the adoption of such child by
such individual, or
(IV) for purposes of caring for such child for a period
beginning immediately following such birth or placement,
the plan shall treat as hours of service, solely for purposes
of determining under this paragraph whether a 1-year break in
service (as defined in section 411(a)(6)(A)) has occurred,
the hours described in clause (ii).
(ii) Hours treated as hours of service
The hours described in this clause are -
(I) the hours of service which otherwise would normally
have been credited to such individual but for such absence,
or
(II) in any case in which the plan is unable to determine
the hours described in subclause (I), 8 hours of service
per day of such absence,
except that the total number of hours treated as hours of
service under this clause by reason of any such pregnancy or
placement shall not exceed 501 hours.
(iii) Year to which hours are credited
The hours described in clause (ii) shall be treated as
hours of service as provided in this subparagraph -
(I) only in the year in which the absence from work
begins, if a participant would be prevented from incurring
a 1-year break in service in such year solely because the
period of absence is treated as hours of service as
provided in clause (i); or
(II) in any other case, in the immediately following
year.
(iv) Year defined
For purposes of this subparagraph, the term "year" means
the period used in computations pursuant to paragraph (3).
(v) Information required to be filed
A plan shall not fail to satisfy the requirements of this
subparagraph solely because it provides that no credit will
be given pursuant to this subparagraph unless the individual
furnishes to the plan administrator such timely information
as the plan may reasonably require to establish -
(I) that the absence from work is for reasons referred to
in clause (i), and
(II) the number of days for which there was such an
absence.
(b) Minimum coverage requirements
(1) In general
A trust shall not constitute a qualified trust under section
401(a) unless such trust is designated by the employer as part of
a plan which meets 1 of the following requirements:
(A) The plan benefits at least 70 percent of employees who
are not highly compensated employees.
(B) The plan benefits -
(i) a percentage of employees who are not highly
compensated employees which is at least 70 percent of
(ii) the percentage of highly compensated employees
benefiting under the plan.
(C) The plan meets the requirements of paragraph (2).
(2) Average benefit percentage test
(A) In general
A plan shall be treated as meeting the requirements of this
paragraph if -
(i) the plan benefits such employees as qualify under a
classification set up by the employer and found by the
Secretary not to be discriminatory in favor of highly
compensated employees, and
(ii) the average benefit percentage for employees who are
not highly compensated employees is at least 70 percent of
the average benefit percentage for highly compensated
employees.
(B) Average benefit percentage
For purposes of this paragraph, the term "average benefit
percentage" means, with respect to any group, the average of
the benefit percentages calculated separately with respect to
each employee in such group (whether or not a participant in
any plan).
(C) Benefit percentage
For purposes of this paragraph -
(i) In general
The term "benefit percentage" means the employer-provided
contribution or benefit of an employee under all qualified
plans maintained by the employer, expressed as a percentage
of such employee's compensation (within the meaning of
section 414(s)).
(ii) Period for computing percentage
At the election of an employer, the benefit percentage for
any plan year shall be computed on the basis of contributions
or benefits for -
(I) such plan year, or
(II) any consecutive plan year period (not greater than 3
years) which ends with such plan year and which is
specified in such election.
An election under this clause, once made, may be revoked or
modified only with the consent of the Secretary.
(D) Employees taken into account
For purposes of determining who is an employee for purposes
of determining the average benefit percentage under
subparagraph (B) -
(i) except as provided in clause (ii), paragraph (4)(A)
shall not apply, or
(ii) if the employer elects, paragraph (4)(A) shall be
applied by using the lowest age and service requirements of
all qualified plans maintained by the employer.
(E) Qualified plan
For purposes of this paragraph, the term "qualified plan"
means any plan which (without regard to this subsection) meets
the requirements of section 401(a).
(3) Exclusion of certain employees
For purposes of this subsection, there shall be excluded from
consideration -
(A) employees who are included in a unit of employees covered
by an agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee
representatives and one or more employers, if there is evidence
that retirement benefits were the subject of good faith
bargaining between such employee representatives and such
employer or employers,
(B) in the case of a trust established or maintained pursuant
to an agreement which the Secretary of Labor finds to be a
collective bargaining agreement between air pilots represented
in accordance with title II of the Railway Labor Act and one or
more employers, all employees not covered by such agreement,
and
(C) employees who are nonresident aliens and who receive no
earned income (within the meaning of section 911(d)(2)) from
the employer which constitutes income from sources within the
United States (within the meaning of section 861(a)(3)).
Subparagraph (A) shall not apply with respect to coverage of
employees under a plan pursuant to an agreement under such
subparagraph. Subparagraph (B) shall not apply in the case of a
plan which provides contributions or benefits for employees whose
principal duties are not customarily performed aboard aircraft in
flight.
(4) Exclusion of employees not meeting age and service
requirements
(A) In general
If a plan -
(i) prescribes minimum age and service requirements as a
condition of participation, and
(ii) excludes all employees not meeting such requirements
from participation,
then such employees shall be excluded from consideration for
purposes of this subsection.
(B) Requirements may be met separately with respect to excluded
group
If employees not meeting the minimum age or service
requirements of subsection (a)(1) (without regard to
subparagraph (B) thereof) are covered under a plan of the
employer which meets the requirements of paragraph (1)
separately with respect to such employees, such employees may
be excluded from consideration in determining whether any plan
of the employer meets the requirements of paragraph (1).
(C) Requirements not treated as being met before entry date
An employee shall not be treated as meeting the age and
service requirements described in this paragraph until the
first date on which, under the plan, any employee with the same
age and service would be eligible to commence participation in
the plan.
(5) Line of business exception
(A) In general
If, under section 414(r), an employer is treated as operating
separate lines of business for a year, the employer may apply
the requirements of this subsection for such year separately
with respect to employees in each separate line of business.
(B) Plan must be nondiscriminatory
Subparagraph (A) shall not apply with respect to any plan
maintained by an employer unless such plan benefits such
employees as qualify under a classification set up by the
employer and found by the Secretary not to be discriminatory in
favor of highly compensated employees.
(6) Definitions and special rules
For purposes of this subsection -
(A) Highly compensated employee
The term "highly compensated employee" has the meaning given
such term by section 414(q).
(B) Aggregation rules
An employer may elect to designate -
(i) 2 or more trusts,
(ii) 1 or more trusts and 1 or more annuity plans, or
(iii) 2 or more annuity plans,
as part of 1 plan intended to qualify under section 401(a) to
determine whether the requirements of this subsection are met
with respect to such trusts or annuity plans. If an employer
elects to treat any trusts or annuity plans as 1 plan under
this subparagraph, such trusts or annuity plans shall be
treated as 1 plan for purposes of section 401(a)(4).
(C) Special rules for certain dispositions or acquisitions
(i) In general
If a person becomes, or ceases to be, a member of a group
described in subsection (b), (c), (m), or (o) of section 414,
then the requirements of this subsection shall be treated as
having been met during the transition period with respect to
any plan covering employees of such person or any other
member of such group if -
(I) such requirements were met immediately before each
such change, and
(II) the coverage under such plan is not significantly
changed during the transition period (other than by reason
of the change in members of a group) or such plan meets
such other requirements as the Secretary may prescribe by
regulation.
(ii) Transition period
For purposes of clause (i), the term "transition period"
means the period -
(I) beginning on the date of the change in members of a
group, and
(II) ending on the last day of the 1st plan year
beginning after the date of such change.
(D) Special rule for certain employee stock ownership plans
A trust which is part of a tax credit employee stock
ownership plan which is the only plan of an employer intended
to qualify under section 401(a) shall not be treated as not a
qualified trust under section 401(a) solely because it fails to
meet the requirements of this subsection if -
(i) such plan benefits 50 percent or more of all the
employees who are eligible under a nondiscriminatory
classification under the plan, and
(ii) the sum of the amounts allocated to each participant's
account for the year does not exceed 2 percent of the
compensation of that participant for the year.
(E) Eligibility to contribute
In the case of contributions which are subject to section
401(k) or 401(m), employees who are eligible to contribute (or
elect to have contributions made on their behalf) shall be
treated as benefiting under the plan (other than for purposes
of paragraph (2)(A)(ii)).
(F) Employers with only highly compensated employees
A plan maintained by an employer which has no employees other
than highly compensated employees for any year shall be treated
as meeting the requirements of this subsection for such year.
(G) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection.
(c) Application of participation standards to certain plans
(1) The provisions of this section (other than paragraph (2) of
this subsection) shall not apply to -
(A) a governmental plan (within the meaning of section
414(d)),
(B) a church plan (within the meaning of section 414(e)) with
respect to which the election provided by subsection (d) of
this section has not been made,
(C) a plan which has not at any time after September 2, 1974,
provided for employer contributions, and
(D) a plan established and maintained by a society, order, or
association described in section 501(c)(8) or (9) if no part of
the contributions to or under such plan are made by employers
of participants in such plan.
(2) A plan described in paragraph (1) shall be treated as
meeting the requirements of this section for purposes of section
401(a), except that in the case of a plan described in
subparagraph (B), (C), or (D) of paragraph (1), this paragraph
shall apply only if such plan meets the requirements of section
401(a)(3) (as in effect on September 1, 1974).
(d) Election by church to have participation, vesting, funding,
etc., provisions apply
(1) In general
If the church or convention or association of churches which
maintains any church plan makes an election under this subsection
(in such form and manner as the Secretary may by regulations
prescribe), then the provisions of this title relating to
participation, vesting, funding, etc. (as in effect from time to
time) shall apply to such church plan as if such provisions did
not contain an exclusion for church plans.
(2) Election irrevocable
An election under this subsection with respect to any church
plan shall be binding with respect to such plan, and, once made,
shall be irrevocable.
-SOURCE-
(Added Pub. L. 93-406, title II, Sec. 1011, Sept. 2, 1974, 88 Stat.
898; amended Pub. L. 94-455, title XIX, Secs. 1901(a)(61),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1774, 1834; Pub. L. 96-605,
title II, Sec. 225(a), Dec. 28, 1980, 94 Stat. 3529; Pub. L. 97-34,
title I, Sec. 111(b)(4), Aug. 13, 1981, 95 Stat. 194; Pub. L. 98-
397, title II, Sec. 202(a), (d)(1), (e)(1), Aug. 23, 1984, 98
Stat. 1436-1438; Pub. L. 99-509, title IX, Sec. 9203(a)(2), Oct.
21, 1986, 100 Stat. 1979; Pub. L. 99-514, title XI, Secs. 1112(a),
1113(c), (d)(A), Oct. 22, 1986, 100 Stat. 2440, 2447; Pub. L. 100-
647, title I, Sec. 1011(h)(1), (2), (11), title III, Sec.
3021(a)(13)(B), Nov. 10, 1988, 102 Stat. 3464, 3467, 3631; Pub. L.
101-239, title VII, Sec. 7841(d)(6), Dec. 19, 1989, 103 Stat. 2428;
Pub. L. 105-34, title XV, Sec. 1505(a)(3), Aug. 5, 1997, 111 Stat.
1063.)
-REFTEXT-
REFERENCES IN TEXT
The Railway Labor Act, referred to in subsec. (b)(3)(B), is act
May 20, 1926, ch. 347, 44 Stat. 577, as amended. Title II of the
Railway Labor Act was added by act Apr. 10, 1936, ch. 166, 49 Stat.
1189, and is classified generally to subchapter II (Sec. 181 et
seq.) of Title 45, Railroads. For complete classification of this
Act to the Code, see section 151 of Title 45 and Tables.
-MISC1-
AMENDMENTS
1997 - Subsec. (c)(2). Pub. L. 105-34 amended par. (2) generally.
Prior to amendment, par. (2) read as follows: "A plan described in
paragraph (1) shall be treated as meeting the requirements of this
section, for purposes of section 401(a), if such plan meets the
requirements of section 401(a)(3) as in effect on September 1,
1974."
1989 - Subsec. (a)(2). Pub. L. 101-239 struck out comma before
period at end.
1988 - Subsec. (b)(4)(B). Pub. L. 100-647, Sec. 1011(h)(1),
substituted "not meeting" for "do not meet" and struck out "and"
before "are covered".
Subsec. (b)(4)(C). Pub. L. 100-647, Sec. 1011(h)(11), added
subpar. (C).
Subsec. (b)(6)(C)(i)(II). Pub. L. 100-647, Sec. 3021(a)(13)(B),
inserted "or such plan meets such other requirements as the
Secretary may prescribe by regulation" after "of a group)".
Subsec. (b)(6)(F), (G). Pub. L. 100-647, Sec. 1011(h)(2), added
subpar. (F) and redesignated former subpar. (F) as (G).
1986 - Subsec. (a)(1)(B)(i). Pub. L. 99-514, Sec. 1113(c),
substituted "2 years of service" for "3 years of service" in two
places.
Subsec. (a)(2). Pub. L. 99-509 substituted a period for "unless -
"(A) the plan is a -
"(i) defined benefit plan, or
"(ii) target benefit plan (as defined under regulations
prescribed by the Secretary), and
"(B) such employees begin employment with the employer after
they have attained a specified age which is not more than 5 years
before the normal retirement age under the plan."
Subsec. (a)(5)(B). Pub. L. 99-514, Sec. 1113(d)(A), substituted
"2-year" for "3-year" in heading.
Subsec. (b). Pub. L. 99-514, Sec. 1112(a), substituted "Minimum
coverage requirements" for "Eligibility" as subsec. (b) heading and
amended subsec. generally, revising and restating as pars. (1) to
(6) provisions formerly contained in pars. (1) to (3).
1984 - Subsec. (a)(1)(A)(i). Pub. L. 98-397, Sec. 202(a)(1),
substituted "21" for "25".
Subsec. (a)(1)(B)(ii). Pub. L. 98-397, Sec. 202(a)(2),
substituted " '26' for '21' " for " '30' for '25' ".
Subsec. (a)(5)(D). Pub. L. 98-397, Sec. 202(d)(1), amended
subpar. (D) generally.
Subsec. (a)(5)(E). Pub. L. 98-397, Sec. 202(e)(1), added subpar.
(E).
1981 - Subsec. (b)(3)(C). Pub. L. 97-34 substituted "section
911(d)(2)" for "section 911(b)".
1980 - Subsec. (b)(2), (3). Pub. L. 96-605 added par. (2),
redesignated former par. (2) as (3) and substituted "paragraphs (1)
and (2)" for "paragraph (1)".
1976 - Subsec. (a)(2)(A)(ii). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (a)(5)(C), (D). Pub. L. 94-455, Sec. 1901(a)(61)(A),
substituted "purposes of paragraph (1)" for "purposes of subsection
(a)(1)".
Subsec. (b)(1)(B). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (c)(1)(C). Pub. L. 94-455, Sec. 1901(a)(61)(B),
substituted "September 2, 1974," for "the date of the enactment of
the Employee Retirement Income Security Act of 1974".
Subsec. (c)(2). Pub. L. 94-455, Sec. 1901(a)(61)(C), substituted
"September 1, 1974" for "the day before the date of the enactment
of this section".
Subsec. (d)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years beginning
on or after Aug. 5, 1997, with certain governmental plans treated
as satisfying requirements for all taxable years beginning before
Aug. 5, 1997, see section 1505(d) of Pub. L. 105-34, set out as a
note under section 401 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1011(h)(1), (2), (11) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 3021(a)(13)(B) of Pub. L. 100-647 effective
as if included in the amendments by section 1151 of Pub. L. 99-514,
see section 3021(d)(1) of Pub. L. 100-647, set out as a note under
section 129 of this title.
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 1112(a) of Pub. L. 99-514 applicable to plan
years beginning after Dec. 31, 1988, with special rule regarding
collective bargaining agreements ratified before Mar. 1, 1986, and
with provision for waiver of excise tax on reversions, see section
1112(e) of Pub. L. 99-514, set out as a note under section 401 of
this title.
Amendment by section 1113(c), (d)(A) of Pub. L. 99-514 applicable
to plan years beginning after Dec. 31, 1988, with special rule for
plans maintained pursuant to collective bargaining agreements
ratified before Mar. 1, 1986, and not applicable to employees who
do not have 1 hour of service in any plan year to which the
amendment applies, see section 1113(f) of Pub. L. 99-514, as
amended, set out as a note under section 411 of this title.
Amendment by Pub. L. 99-509 applicable only with respect to plan
years beginning on or after January 1, 1988, and only with respect
to service performed on or after such date, see section 9204(b) of
Pub. L. 99-509, set out as an Effective and Termination Dates of
1986 Amendments note under section 623 of Title 29, Labor.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-397 applicable to plan years beginning
after Dec. 31, 1984, except as otherwise provided, see sections 302
and 303 of Pub. L. 98-397, set out as a note under section 1001 of
Title 29, Labor.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable with respect to taxable
years beginning after Dec. 31, 1981, see section 115 of Pub. L. 97-
34, set out as a note under section 911 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-605 applicable with respect to plan years
beginning after December 31, 1980, see section 225(c) of Pub. L. 96-
605, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(61) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE; TRANSITIONAL RULES
Section 1017 of Pub. L. 93-406, as amended by Pub. L. 94-12,
title IV, Sec. 402, Mar. 29, 1975, 89 Stat. 47; Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this part [part 1 (Secs. 1011-1017)
of subtitle A of title II of Pub. L. 93-406, enacting this section
and sections 411, 412, 413, 414, and 4971 of this title, amending
sections 275, 401, 404, 406, 407, 805, 6161, 6201, 6204, 6211,
6212, 6213, 6214, 6344, 6501, 6503, 6512, 6601, 6653, 6659 [now
6662], 6676, 6677, 6679, 6682, 6688, 6861, 6862, and 7422 of this
title and enacting provisions set out as notes under this section
and sections 411 and 412 of this title] shall apply for plan years
beginning after the date of the enactment of this Act [Sept. 2,
1974].
"(b) Existing Plans. - Except as otherwise provided in
subsections (c) through (i), in the case of a plan in existence on
January 1, 1974, the amendments made by this part shall apply for
plan years beginning after December 31, 1975.
"(c) Existing Plans Under Collective Bargaining Agreements. -
"(1) Application of vesting rules to certain plan provisions. -
"(A) Waiver of application. - In the case of a plan
maintained on January 1, 1974, pursuant to one or more
agreements which the Secretary of Labor finds to be collective
bargaining agreements between employee representatives and one
or more employers, during the special temporary waiver period
the plan shall not be treated as not meeting the requirements
of section 411(b)(1) or (2) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] solely by reason of a supplementary
or special plan provision (within the meaning of subparagraph
(D)).
"(B) Special temporary waiver period. - For purposes of this
paragraph, the term 'special temporary waiver period' means
plan years beginning after December 31, 1975, and before the
earlier of -
"(i) the date on which the last of the collective
bargaining agreements relating to the plan terminates
(determined without regard to any extension thereof agreed to
after the date of the enactment of this Act [Sept. 2, 1974]),
or
"(ii) January 1, 1981.
For purposes of clause (i), any plan amendment made pursuant to a
collective bargaining agreement relating to the plan which amends
the plan solely to conform to any requirement contained in this
Act [see Short Title note set out under section 1001 of Title 29,
Labor] shall not be treated as a termination of such collective
bargaining agreement.
"(C) Determination by secretary of labor required. -
Subparagraph (A) shall not apply unless the Secretary of Labor
determines that the participation and vesting rules in effect
on the date of the enactment of this Act [Sept. 2, 1974] are
not less favorable to the employees, in the aggregate than the
rules provided under sections 410 and 411 of the Internal
Revenue Code of 1986.
"(D) Supplementary or special plan provisions. - For purposes
of this paragraph, the term 'supplementary or special plan
provision' means any plan provision which -
"(i) provides supplementary benefits, not in excess of one-
third of the basic benefit, in the form of an annuity for
the life of the participant, or
"(ii) provides that, under a contractual agreement based on
medical evidence as to the effects of working in an adverse
environment for an extended period of time, a participant
having 25 years of service is to be treated as having 30
years of service.
"(2) Application of funding rules. -
"(A) In general. - In the case of a plan maintained on
January 1, 1974, pursuant to one or more agreements which the
Secretary of Labor finds to be collective bargaining agreements
between employee representatives and one or more employers,
section 412 of the Internal Revenue Code of 1986, and other
amendments made by this part to the extent such amendments
relate to such section 412, shall not apply during the special
temporary waiver period (as defined in paragraph (1)(B)).
"(B) Waiver of underfunding. - In the case of a plan
maintained on January 1, 1974, pursuant to one or more
agreements which the Secretary of Labor finds to be collective
bargaining agreements between employee representatives and one
or more employers, if by reason of subparagraph (A) the
requirements of section 401(a)(7) of the Internal Revenue Code
of 1986 apply without regard to the amendment of such section
401(a)(7) by section 1016(a)(2)(C) of this Act [Pub. L. 93-
406], the plan shall not be treated as not meeting such
requirements solely by reason of the application of the
amendments made by sections 1011 and 1012 of this Act [enacting
this section and section 411 of this title] or related
amendments made by this part.
"(C) Labor organization conventions. - In the case of a plan
maintained by a labor organization, which is exempt from tax
under section 501(c)(5) of the Internal Revenue Code of 1986
exclusively for the benefit of its employees and their
beneficiaries, section 412 of such Code and other amendments
made by this part to the extent such amendments relate to such
section 412, shall be applied by substituting for the term
'December 31, 1975' in subsection (b), the earlier of -
"(i) the date on which the second convention of such labor
organization held after the date of the enactment of this Act
[Sept. 2, 1974] ends, or
"(ii) December 31, 1980,
but in no event shall a date earlier than the later of December
31, 1975, or the date determined under subparagraph (A) or (B) be
substituted.
"(d) Existing Plans May Elect New Provisions. - In the case of a
plan in existence on January 1, 1974, the provisions of the
Internal Revenue Code of 1986 relating to participation, vesting,
funding, and form of benefit (as in effect from time to time) shall
apply in the case of the plan year (which begins after the date of
the enactment of this Act [Sept. 2, 1974] but before the applicable
effective date determined under subsection (b) or (c)) selected by
the plan administrator and to all subsequent plan years, if the
plan administrator elects (in such manner and at such time as the
Secretary of the Treasury or his delegate shall by regulations
prescribe) to have such provisions so apply. Any election made
under this subsection, once made, shall be irrevocable.
"(e) Certain Definitions and Special Rules. - Section 414 of the
Internal Revenue Code of 1986 (other than subsections (b) and (c)
of such section 414), as added by section 1015(a) of this Act [Pub.
L. 93-406], shall take effect on the date of the enactment of this
Act [Sept. 2, 1974].
"(f) Transitional Rules With Respect to Breaks in Service. -
"(1) Participation. - In the case of a plan to which section
410 of the Internal Revenue Code of 1986 [this section] applies,
if any plan amendment with respect to breaks in service (which
amendment is made or becomes effective after January 1, 1974, and
before the date on which such section 410 first becomes effective
with respect to such plan) provides that any employee's
participation in the plan would commence at any date later than
the later of -
"(A) the date on which his participation would commence under
the break in service rules of section 410(a)(5) of such Code,
or
"(B) the date on which his participation would commence under
the plan as in effect on January 1, 1974,
such plan shall not constitute a plan described in section 403(a)
or 405(a) of such Code and a trust forming a part of such plan
shall not constitute a qualified trust under section 401(a) of
such Code.
"(2) Vesting. - In the case of a plan to which section 411 of
the Internal Revenue Code of 1986 applies, if any plan amendment
with respect to breaks in service (which amendment is made or
becomes effective after January 1, 1974, and before the date on
which such section 411 first becomes effective with respect to
such plan) provides that the nonforfeitable benefit derived from
employer contributions to which any employee would be entitled is
less than the lesser of the nonforfeitable benefit derived from
employer contributions to which he would be entitled under -
"(A) the break in service rules of section 411(a)(6) of such
Code, or
"(B) the plan as in effect on January 1, 1974,
such plan shall not constitute a plan described in section 403(a)
or 405(a) of such Code and a trust forming a part of such plan
shall not constitute a qualified trust under section 401(a) of
such Code. Subparagraph (B) shall not apply if the break in
service rules under the plan would have been in violation of any
law or rule of law in effect on January 1, 1974.
"(g) 3-Year Delay for Certain Provisions. - Subparagraphs (B) and
(C) of section 404(a)(1) shall apply only in the case of plan years
beginning on or after 3 years after the date of the enactment of
this Act [Sept. 2, 1974].
"(h)(1) Except as provided in paragraph (2), section 413 of the
Internal Revenue Code of 1986 shall apply to plan years beginning
after December 31, 1953.
"(2)(A) For plan years beginning before the applicable effective
date of section 410 of such Code, the provisions of paragraphs (1)
and (8) of subsection (b) of such section 413 shall be applied by
substituting '401(a)(3)' for '410'.
"(B) For plan years beginning before the applicable effective
date of section 411 of such Code, the provisions of subsection
(b)(2) of such section 413 shall be applied by substituting
'401(a)(7)' for '411(d)(3)'.
"(C)(i) The provisions of subsection (b)(4) of such section 413
shall not apply to plan years beginning before the applicable
effective date of section 411 of such Code.
"(ii) The provisions of subsection (b)(5) (other than the second
sentence thereof) of such section 413 shall not apply to plan years
beginning before the applicable effective date of section 412 of
such Code.
"(i) Contributions to H.R. 10 Plans. - Notwithstanding
subsections (b) and (c)(2), in the case of a plan in existence on
January 1, 1974, the amendment made by section 1013(c)(2) of this
Act [amending section 404(a)(6) of this title] shall apply, with
respect to a plan which provides contributions or benefits for
employees some or all of whom are employees within the meaning of
section 401(c)(1) of the Internal Revenue Code of 1986, for plan
years beginning after December 31, 1974, but only if the employer
(within the meaning of section 401(c)(4) of such Code) elects in
such manner and at such time as the Secretary of the Treasury or
his delegate shall by regulations prescribe, to have such amendment
so apply. Any election made under this subsection, once made, shall
be irrevocable."
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by sections
1112 and 1113 of Pub. L. 99-514, see section 1141 of Pub. L. 99-
514, set out as a note under section 401 of this title.
Secretary of Labor, Secretary of the Treasury, and Equal
Employment Opportunity Commission shall each issue before Feb. 1,
1988, final regulations to carry out amendments made by section
9203 of Pub. L. 99-509, see section 9204 of Pub. L. 99-509, set out
as a note under section 623 of Title 29, Labor.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
For provisions directing that if any amendments made by section
9203(a)(2) of Pub. L. 99-509 require an amendment to any plan, such
plan amendment shall not be required to be made before the first
plan year beginning on or after Jan. 1, 1989, see section 9204 of
Pub. L. 99-509, set out as a note under section 623 of Title 29,
Labor.
-End-
-CITE-
26 USC Sec. 411 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart B - Special Rules
-HEAD-
Sec. 411. Minimum vesting standards
-STATUTE-
(a) General rule
A trust shall not constitute a qualified trust under section
401(a) unless the plan of which such trust is a part provides that
an employee's right to his normal retirement benefit is
nonforfeitable upon the attainment of normal retirement age (as
defined in paragraph (8)) and in addition satisfies the
requirements of paragraphs (1), (2), and (11) of this subsection
and the requirements of subsection (b)(3), and also satisfies, in
the case of a defined benefit plan, the requirements of subsection
(b)(1) and, in the case of a defined contribution plan, the
requirements of subsection (b)(2).
(1) Employee contributions
A plan satisfies the requirements of this paragraph if an
employee's rights in his accrued benefit derived from his own
contributions are nonforfeitable.
(2) Employer contributions
Except as provided in paragraph (12), a plan satisfies the
requirements of this paragraph if it satisfies the requirements
of subparagraph (A) or (B).
(A) 5-year vesting
A plan satisfies the requirements of this subparagraph if an
employee who has completed at least 5 years of service has a
nonforfeitable right to 100 percent of the employee's accrued
benefit derived from employer contributions.
(B) 3 to 7 year vesting
A plan satisfies the requirements of this subparagraph if an
employee has a nonforfeitable right to a percentage of the
employee's accrued benefit derived from employer contributions
determined under the following table:
Years of service: 2The nonforfeitable
percentage is:
--------------------------------------------------------------------
3 20
4 40
5 60
6 80
7 or more 100.
--------------------------------------------------------------------
(3) Certain permitted forfeitures, suspensions, etc.
For purposes of this subsection -
(A) Forfeiture on account of death
A right to an accrued benefit derived from employer
contributions shall not be treated as forfeitable solely
because the plan provides that it is not payable if the
participant dies (except in the case of a survivor annuity
which is payable as provided in section 401(a)(11)).
(B) Suspension of benefits upon reemployment of retiree
A right to an accrued benefit derived from employer
contributions shall not be treated as forfeitable solely
because the plan provides that the payment of benefits is
suspended for such period as the employee is employed,
subsequent to the commencement of payment of such benefits -
(i) in the case of a plan other than a multi-employer plan,
by the employer who maintains the plan under which such
benefits were being paid; and
(ii) in the case of a multiemployer plan, in the same
industry, the same trade or craft, and the same geographic
area covered by the plan as when such benefits commenced.
The Secretary of Labor shall prescribe such regulations as may
be necessary to carry out the purposes of this subparagraph,
including regulations with respect to the meaning of the term
"employed".
(C) Effect of retroactive plan amendments
A right to an accrued benefit derived from employer
contributions shall not be treated as forfeitable solely
because plan amendments may be given retroactive application as
provided in section 412(c)(8).
(D) Withdrawal of mandatory contribution
(i) A right to an accrued benefit derived from employer
contributions shall not be treated as forfeitable solely
because the plan provides that, in the case of a participant
who does not have a nonforfeitable right to at least 50
percent of his accrued benefit derived from employer
contributions, such accrued benefit may be forfeited on
account of the withdrawal by the participant of any amount
attributable to the benefit derived from mandatory
contributions (as defined in subsection (c)(2)(C)) made by
such participant.
(ii) Clause (i) shall not apply to a plan unless the plan
provides that any accrued benefit forfeited under a plan
provision described in such clause shall be restored upon
repayment by the participant of the full amount of the
withdrawal described in such clause plus, in the case of a
defined benefit plan, interest. Such interest shall be
computed on such amount at the rate determined for purposes
of subsection (c)(2)(C) on the date of such repayment
(computed annually from the date of such withdrawal). The
plan provision required under this clause may provide that
such repayment must be made (I) in the case of a withdrawal
on account of separation from service, before the earlier of
5 years after the first date on which the participant is
subsequently re-employed by the employer, or the close of the
first period of 5 consecutive 1-year breaks in service
commencing after the withdrawal; or (II) in the case of any
other withdrawal, 5 years after the date of the withdrawal.
(iii) In the case of accrued benefits derived from employer
contributions which accrued before September 2, 1974, a right
to such accrued benefit derived from employer contributions
shall not be treated as forfeitable solely because the plan
provides that an amount of such accrued benefit may be
forfeited on account of the withdrawal by the participant of
an amount attributable to the benefit derived from mandatory
contributions (as defined in subsection (c)(2)(C)) made by
such participant before September 2, 1974 if such amount
forfeited is proportional to such amount withdrawn. This
clause shall not apply to any plan to which any mandatory
contribution is made after September 2, 1974. The Secretary
shall prescribe such regulations as may be necessary to carry
out the purposes of this clause.
(iv) For purposes of this subparagraph, in the case of any
class-year plan, a withdrawal of employee contributions shall
be treated as a withdrawal of such contributions on a plan
year by plan year basis in succeeding order of time.
(v) For nonforfeitability where the employee has a
nonforfeitable right to at least 50 percent of his accrued
benefit, see section 401(a)(19).
(E) Cessation of contributions under a multiemployer plan
A right to an accrued benefit derived from employer
contributions under a multiemployer plan shall not be treated
as forfeitable solely because the plan provides that benefits
accrued as a result of service with the participant's employer
before the employer had an obligation to contribute under the
plan may not be payable if the employer ceases contributions to
the multiemployer plan.
(F) Reduction and suspension of benefits by a multiemployer
plan
A participant's right to an accrued benefit derived from
employer contributions under a multiemployer plan shall not be
treated as forfeitable solely because -
(i) the plan is amended to reduce benefits under section
418D or under section 4281 of the Employee Retirement Income
Security Act of 1974, or
(ii) benefit payments under the plan may be suspended under
section 418E or under section 4281 of the Employee Retirement
Income Security Act of 1974.
(G) Treatment of matching contributions forfeited by reason of
excess deferral or contribution
A matching contribution (within the meaning of section
401(m)) shall not be treated as forfeitable merely because such
contribution is forfeitable if the contribution to which the
matching contribution relates is treated as an excess
contribution under section 401(k)(8)(B), an excess deferral
under section 402(g)(2)(A), or an excess aggregate contribution
under section 401(m)(6)(B).
(4) Service included in determination of nonforfeitable
percentage
In computing the period of service under the plan for purposes
of determining the nonforfeitable percentage under paragraph (2),
all of an employee's years of service with the employer or
employers maintaining the plan shall be taken into account,
except that the following may be disregarded:
(A) years of service before age 18,(!1)
(B) years of service during a period for which the employee
declined to contribute to a plan requiring employee
contributions;
(C) years of service with an employer during any period for
which the employer did not maintain the plan or a predecessor
plan (as defined under regulations prescribed by the Secretary;
(D) service not required to be taken into account under
paragraph (6);
(E) years of service before January 1, 1971, unless the
employee has had at least 3 years of service after December 31,
1970;
(F) years of service before the first plan year to which this
section applies, if such service would have been disregarded
under the rules of the plan with regard to breaks in service as
in effect on the applicable date; and
(G) in the case of a multiemployer plan, years of service -
(i) with an employer after -
(I) a complete withdrawal of that employer from the plan
(within the meaning of section 4203 of the Employee
Retirement Income Security Act of 1974), or
(II) to the extent permitted in regulations prescribed by
the Secretary, a partial withdrawal described in section
4205(b)(2)(A)(i) of such Act in conjunction with the
decertification of the collective bargaining
representative, and
(ii) with any employer under the plan after the termination
date of the plan under section 4048 of such Act.
(5) Year of service
(A) General rule
For purposes of this subsection, except as provided in
subparagraph (C), the term "year of service" means a calendar
year, plan year, or other 12-consecutive month period
designated by the plan (and not prohibited under regulations
prescribed by the Secretary of Labor) during which the
participant has completed 1,000 hours of service.
(B) Hours of service
For purposes of this subsection, the term "hours of service"
has the meaning provided by section 410(a)(3)(C).
(C) Seasonal industries
In the case of any seasonal industry where the customary
period of employment is less than 1,000 hours during a calendar
year, the term "year of service" shall be such period as may be
determined under regulations prescribed by the Secretary of
Labor.
(D) Maritime industries
For purposes of this subsection, in the case of any maritime
industry, 125 days of service shall be treated as 1,000 hours
of service. The Secretary of Labor may prescribe regulations to
carry out the purposes of this subparagraph.
(6) Breaks in service
(A) Definition of 1-year break in service
For purposes of this paragraph, the term "1-year break in
service" means a calendar year, plan year, or other 12-
consecutive-month period designated by the plan (and not
prohibited under regulations prescribed by the Secretary of
Labor) during which the participant has not completed more than
500 hours of service.
(B) 1 year of service after 1-year break in service
For purposes of paragraph (4), in the case of any employee
who has any 1-year break in service, years of service before
such break shall not be required to be taken into account until
he has completed a year of service after his return.
(C) 5 consecutive 1-year breaks in service under defined
contribution plan
For purposes of paragraph (4), in the case of any participant
in a defined contribution plan, or an insured defined benefit
plan which satisfies the requirements of subsection (b)(1)(F),
who has 5 consecutive 1-year breaks in service, years of
service after such 5-year period shall not be required to be
taken into account for purposes of determining the
nonforfeitable percentage of his accrued benefit derived from
employer contributions which accrued before such 5-year period.
(D) Nonvested participants
(i) In general
For purposes of paragraph (4), in the case of a nonvested
participant, years of service with the employer or employers
maintaining the plan before any period of consecutive 1-year
breaks in service shall not be required to be taken into
account if the number of consecutive 1-year breaks in service
within such period equals or exceeds the greater of -
(I) 5, or
(II) the aggregate number of years of service before such
period.
(ii) Years of service not taken into account
If any years of service are not required to be taken into
account by reason of a period of breaks in service to which
clause (i) applies, such years of service shall not be taken
into account in applying clause (i) to a subsequent period of
breaks in service.
(iii) Nonvested participant defined
For purposes of clause (i), the term "nonvested
participant" means a participant who does not have any
nonforfeitable right under the plan to an accrued benefit
derived from employer contributions.
(E) Special rule for maternity or paternity absences
(i) General rule
In the case of each individual who is absent from work for
any period -
(I) by reason of the pregnancy of the individual,
(II) by reason of the birth of a child of the individual,
(III) by reason of the placement of a child with the
individual in connection with the adoption of such child by
such individual, or
(IV) for purposes of caring for such child for a period
beginning immediately following such birth or placement,
the plan shall treat as hours of service, solely for purposes
of determining under this paragraph whether a 1-year break in
service has occurred, the hours described in clause (ii).
(ii) Hours treated as hours of service
The hours described in this clause are -
(I) the hours of service which otherwise would normally
have been credited to such individual but for such absence,
or
(II) in any case in which the plan is unable to determine
the hours described in subclause (I), 8 hours of service
per day of absence,
except that the total number of hours treated as hours of
service under this clause by reason of any such pregnancy or
placement shall not exceed 501 hours.
(iii) Year to which hours are credited
The hours described in clause (ii) shall be treated as
hours of service as provided in this subparagraph -
(I) only in the year in which the absence from work
begins, if a participant would be prevented from incurring
a 1-year break in service in such year solely because the
period of absence is treated as hours of service as
provided in clause (i); or
(II) in any other case, in the immediately following
year.
(iv) Year defined
For purposes of this subparagraph, the term "year" means
the period used in computations pursuant to paragraph (5).
(v) Information required to be filed
A plan shall not fail to satisfy the requirements of this
subparagraph solely because it provides that no credit will
be given pursuant to this subparagraph unless the individual
furnishes to the plan administrator such timely information
as the plan may reasonably require to establish -
(I) that the absence from work is for reasons referred to
in clause (i), and
(II) the number of days for which there was such an
absence.
(7) Accrued benefit
(A) In general
For purposes of this section, the term "accrued benefit"
means -
(i) in the case of a defined benefit plan, the employee's
accrued benefit determined under the plan and, except as
provided in subsection (c)(3), expressed in the form of an
annual benefit commencing at normal retirement age, or
(ii) in the case of a plan which is not a defined benefit
plan, the balance of the employee's account.
(B) Effect of certain distributions
Notwithstanding paragraph (4), for purposes of determining
the employee's accrued benefit under the plan, the plan may
disregard service performed by the employee with respect to
which he has received -
(i) a distribution of the present value of his entire
nonforfeitable benefit if such distribution was in an amount
(not more than the dollar limit under section 411(a)(11)(A))
permitted under regulations prescribed by the Secretary, or
(ii) a distribution of the present value of his
nonforfeitable benefit attributable to such service which he
elected to receive.
Clause (i) of this subparagraph shall apply only if such
distribution was made on termination of the employee's
participation in the plan. Clause (ii) of this subparagraph
shall apply only if such distribution was made on termination
of the employee's participation in the plan or under such other
circumstances as may be provided under regulations prescribed
by the Secretary.
(C) Repayment of subparagraph (B) distributions
For purposes of determining the employee's accrued benefit
under a plan, the plan may not disregard service as provided in
subparagraph (B) unless the plan provides an opportunity for
the participant to repay the full amount of the distribution
described in such subparagraph (B) with, in the case of a
defined benefit plan, interest at the rate determined for
purposes of subsection (c)(2)(C) and provides that upon such
repayment the employee's accrued benefit shall be recomputed by
taking into account service so disregarded. This subparagraph
shall apply only in the case of a participant who -
(i) received such a distribution in any plan year to which
this section applies, which distribution was less than the
present value of his accrued benefit,
(ii) resumes employment covered under the plan, and
(iii) repays the full amount of such distribution with, in
the case of a defined benefit plan, interest at the rate
determined for purposes of subsection (c)(2)(C).
The plan provision required under this subparagraph may provide
that such repayment must be made (I) in the case of a
withdrawal on account of separation from service, before the
earlier of 5 years after the first date on which the
participant is subsequently re-employed by the employer, or the
close of the first period of 5 consecutive 1-year breaks in
service commencing after the withdrawal; or (II) in the case of
any other withdrawal, 5 years after the date of the withdrawal.
(D) Accrued benefit attributable to employee contributions
The accrued benefit of an employee shall not be less than the
amount determined under subsection (c)(2)(B) with respect to
the employee's accumulated contributions.
(8) Normal retirement age
For purposes of this section, the term "normal retirement age"
means the earlier of -
(A) the time a plan participant attains normal retirement age
under the plan, or
(B) the later of -
(i) the time a plan participant attains age 65, or
(ii) the 5th anniversary of the time a plan participant
commenced participation in the plan.
(9) Normal retirement benefit
For purposes of this section, the term "normal retirement
benefit" means the greater of the early retirement benefit under
the plan, or the benefit under the plan commencing at normal
retirement age. The normal retirement benefit shall be determined
without regard to -
(A) medical benefits, and
(B) disability benefits not in excess of the qualified
disability benefit.
For purposes of this paragraph, a qualified disability benefit is
a disability benefit provided by a plan which does not exceed the
benefit which would be provided for the participant if he
separated from the service at normal retirement age. For purposes
of this paragraph, the early retirement benefit under a plan
shall be determined without regard to any benefits commencing
before benefits payable under title II of the Social Security Act
become payable which -
(i) do not exceed such social security benefits, and
(ii) terminate when such social security benefits commence.
(10) Changes in vesting schedule
(A) General rule
A plan amendment changing any vesting schedule under the plan
shall be treated as not satisfying the requirements of
paragraph (2) if the nonforfeitable percentage of the accrued
benefit derived from employer contributions (determined as of
the later of the date such amendment is adopted, or the date
such amendment becomes effective) of any employee who is a
participant in the plan is less than such nonforfeitable
percentage computed under the plan without regard to such
amendment.
(B) Election of former schedule
A plan amendment changing any vesting schedule under the plan
shall be treated as not satisfying the requirements of
paragraph (2) unless each participant having not less than 3
years of service is permitted to elect, within a reasonable
period after the adoption of such amendment, to have his
nonforfeitable percentage computed under the plan without
regard to such amendment.
(11) Restrictions on certain mandatory distributions
(A) In general
If the present value of any nonforfeitable accrued benefit
exceeds $5,000, a plan meets the requirements of this paragraph
only if such plan provides that such benefit may not be
immediately distributed without the consent of the participant.
(B) Determination of present value
For purposes of subparagraph (A), the present value shall be
calculated in accordance with section 417(e)(3).
(C) Dividend distributions of ESOPS arrangement
This paragraph shall not apply to any distribution of
dividends to which section 404(k) applies.
(D) Special rule for rollover contributions
A plan shall not fail to meet the requirements of this
paragraph if, under the terms of the plan, the present value of
the nonforfeitable accrued benefit is determined without regard
to that portion of such benefit which is attributable to
rollover contributions (and earnings allocable thereto). For
purposes of this subparagraph, the term "rollover
contributions" means any rollover contribution under sections
402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).
(12) Faster vesting for matching contributions
In the case of matching contributions (as defined in section
401(m)(4)(A)), paragraph (2) shall be applied -
(A) by substituting "3 years" for "5 years" in subparagraph
(A), and
(B) by substituting the following table for the table
contained in subparagraph (B):
The
nonforfeitable
Years of service: percentage is:
2 20
3 40
4 60
5 80
6 or more 100.
(b) Accrued benefit requirements
(1) Defined benefit plans
(A) 3-percent method
A defined benefit plan satisfies the requirements of this
paragraph if the accrued benefit to which each participant is
entitled upon his separation from the service is not less than -
(i) 3 percent of the normal retirement benefit to which he
would be entitled if he commenced participation at the
earliest possible entry age under the plan and served
continuously until the earlier of age 65 or the normal
retirement age specified under the plan, multiplied by
(ii) the number of years (not in excess of 33 1/3 ) of his
participation in the plan.
In the case of a plan providing retirement benefits based on
compensation during any period, the normal retirement benefit
to which a participant would be entitled shall be determined as
if he continued to earn annually the average rate of
compensation which he earned during consecutive years of
service, not in excess of 10, for which his compensation was
the highest. For purposes of this subparagraph, social security
benefits and all other relevant factors used to compute
benefits shall be treated as remaining constant as of the
current year for all years after such current year.
(B) 133 1/3 percent rule
A defined benefit plan satisfies the requirements of this
paragraph for a particular plan year if under the plan the
accrued benefit payable at the normal retirement age is equal
to the normal retirement benefit and the annual rate at which
any individual who is or could be a participant can accrue the
retirement benefits payable at normal retirement age under the
plan for any later plan year is not more than 133 1/3 percent
of the annual rate at which he can accrue benefits for any plan
year beginning on or after such particular plan year and before
such later plan year. For purposes of this subparagraph -
(i) any amendment to the plan which is in effect for the
current year shall be treated as in effect for all other plan
years;
(ii) any change in an accrual rate which does not apply to
any individual who is or could be a participant in the
current year shall be disregarded;
(iii) the fact that benefits under the plan may be payable
to certain employees before normal retirement age shall be
disregarded; and
(iv) social security benefits and all other relevant
factors used to compute benefits shall be treated as
remaining constant as of the current year for all years after
the current year.
(C) Fractional rule
A defined benefits plan satisfies the requirements of this
paragraph if the accrued benefit to which any participant is
entitled upon his separation from the service is not less than
a fraction of the annual benefit commencing at normal
retirement age to which he would be entitled under the plan as
in effect on the date of his separation if he continued to earn
annually until normal retirement age the same rate of
compensation upon which his normal retirement benefit would be
computed under the plan, determined as if he had attained
normal retirement age on the date on which any such
determination is made (but taking into account no more than the
10 years of service immediately preceding his separation from
service). Such fraction shall be a fraction, not exceeding 1,
the numerator of which is the total number of his years of
participation in the plan (as of the date of his separation
from the service) and the denominator of which is the total
number of years he would have participated in the plan if he
separated from the service at the normal retirement age. For
purposes of this subparagraph, social security benefits and all
other relevant factors used to compute benefits shall be
treated as remaining constant as of the current year for all
years after such current year.
(D) Accrual for service before effective date
Subparagraphs (A), (B), and (C) shall not apply with respect
to years of participation before the first plan year to which
this section applies, but a defined benefit plan satisfies the
requirements of this subparagraph with respect to such years of
participation only if the accrued benefit of any participant
with respect to such years of participation is not less than
the greater of -
(i) his accrued benefit determined under the plan, as in
effect from time to time prior to September 2, 1974, or
(ii) an accrued benefit which is not less than one-half of
the accrued benefit to which such participant would have been
entitled if subparagraph (A), (B), or (C) applied with
respect to such years of participation.
(E) First two years of service
Notwithstanding subparagraphs (A), (B), and (C) of this
paragraph, a plan shall not be treated as not satisfying the
requirements of this paragraph solely because the accrual of
benefits under the plan does not become effective until the
employee has two continuous years of service. For purposes of
this subparagraph, the term "years of service" has the meaning
provided by section 410(a)(3)(A).
(F) Certain insured defined benefit plans
Notwithstanding subparagraphs (A), (B), and (C), a defined
benefit plan satisfies the requirements of this paragraph if
such plan -
(i) is funded exclusively by the purchase of insurance
contracts, and
(ii) satisfies the requirements of paragraphs (2) and (3)
of section 412(i) (relating to certain insurance contract
plans),
but only if an employee's accrued benefit as of any applicable
date is not less than the cash surrender value his insurance
contracts would have on such applicable date if the
requirements of paragraphs (4), (5), and (6) of section 412(i)
were satisfied.
(G) Accrued benefit may not decrease on account of increasing
age or service
Notwithstanding the preceding subparagraphs, a defined
benefit plan shall be treated as not satisfying the
requirements of this paragraph if the participant's accrued
benefit is reduced on account of any increase in his age or
service. The preceding sentence shall not apply to benefits
under the plan commencing before entitlement to benefits
payable under title II of the Social Security Act which
benefits under the plan -
(i) do not exceed such social security benefits, and
(ii) terminate when such social security benefits commence.
(H) Continued accrual beyond normal retirement age
(i) In general
Notwithstanding the preceding subparagraphs, a defined
benefit plan shall be treated as not satisfying the
requirements of this paragraph if, under the plan, an
employee's benefit accrual is ceased, or the rate of an
employee's benefit accrual is reduced, because of the
attainment of any age.
(ii) Certain limitations permitted
A plan shall not be treated as failing to meet the
requirements of this subparagraph solely because the plan
imposes (without regard to age) a limitation on the amount of
benefits that the plan provides or a limitation on the number
of years of service or years of participation which are taken
into account for purposes of determining benefit accrual
under the plan.
(iii) Adjustments under plan for delayed retirement taken
into account
In the case of any employee who, as of the end of any plan
year under a defined benefit plan, has attained normal
retirement age under such plan -
(I) if distribution of benefits under such plan with
respect to such employee has commenced as of the end of
such plan year, then any requirement of this subparagraph
for continued accrual of benefits under such plan with
respect to such employee during such plan year shall be
treated as satisfied to the extent of the actuarial
equivalent of inservice distribution of benefits, and
(II) if distribution of benefits under such plan with
respect to such employee has not commenced as of the end of
such year in accordance with section 401(a)(14)(C), and the
payment of benefits under such plan with respect to such
employee is not suspended during such plan year pursuant to
subsection (a)(3)(B), then any requirement of this
subparagraph for continued accrual of benefits under such
plan with respect to such employee during such plan year
shall be treated as satisfied to the extent of any
adjustment in the benefit payable under the plan during
such plan year attributable to the delay in the
distribution of benefits after the attainment of normal
retirement age.
The preceding provisions of this clause shall apply in
accordance with regulations of the Secretary. Such
regulations may provide for the application of the preceding
provisions of this clause, in the case of any such employee,
with respect to any period of time within a plan year.
(iv) Disregard of subsidized portion of early retirement
benefit
A plan shall not be treated as failing to meet the
requirements of clause (i) solely because the subsidized
portion of any early retirement benefit is disregarded in
determining benefit accruals.
(v) Coordination with other requirements
The Secretary shall provide by regulation for the
coordination of the requirements of this subparagraph with
the requirements of subsection (a), sections 404, 410, and
415, and the provisions of this subchapter precluding
discrimination in favor of highly compensated employees.
(2) Defined contribution plans
(A) In general
A defined contribution plan satisfies the requirements of
this paragraph if, under the plan, allocations to the
employee's account are not ceased, and the rate at which
amounts are allocated to the employee's account is not reduced,
because of the attainment of any age.
(B) Application to target benefit plans
The Secretary shall provide by regulation for the application
of the requirements of this paragraph to target benefit plans.
(C) Coordination with other requirements
The Secretary may provide by regulation for the coordination
of the requirements of this paragraph with the requirements of
subsection (a), sections 404, 410, and 415, and the provisions
of this subchapter precluding discrimination in favor of highly
compensated employees.
(3) Separate accounting required in certain cases
A plan satisfies the requirements of this paragraph if -
(A) in the case of the defined benefit plan, the plan
requires separate accounting for the portion of each employee's
accrued benefit derived from any voluntary employee
contributions permitted under the plan; and
(B) in the case of any plan which is not a defined benefit
plan, the plan requires separate accounting for each employee's
accrued benefit.
(4) Year of participation
(A) Definition
For purposes of determining an employee's accrued benefit,
the term "year of participation" means a period of service
(beginning at the earliest date on which the employee is a
participant in the plan and which is included in a period of
service required to be taken into account under section
410(a)(5), determined without regard to section 410(a)(5)(E))
as determined under regulations prescribed by the Secretary of
Labor which provide for the calculation of such period on any
reasonable and consistent basis.
(B) Less than full time service
For purposes of this paragraph, except as provided in
subparagraph (C), in the case of any employee whose customary
employment is less than full time, the calculation of such
employee's service on any basis which provides less than a
ratable portion of the accrued benefit to which he would be
entitled under the plan if his customary employment were full
time shall not be treated as made on a reasonable and
consistent basis.
(C) Less than 1,000 hours of service during year
For purposes of this paragraph, in the case of any employee
whose service is less than 1,000 hours during any calendar
year, plan year or other 12-consecutive month period designated
by the plan (and not prohibited under regulations prescribed by
the Secretary of Labor) the calculation of his period of
service shall not be treated as not made on a reasonable and
consistent basis solely because such service is not taken into
account.
(D) Seasonal industries
In the case of any seasonal industry where the customary
period of employment is less than 1,000 hours during a calendar
year, the term "year of participation" shall be such period as
determined under regulations prescribed by the Secretary of
Labor.
(E) Maritime industries
For purposes of this subsection, in the case of any maritime
industry, 125 days of service shall be treated as a year of
participation. The Secretary of Labor may prescribe regulations
to carry out the purposes of this subparagraph.
(c) Allocation of accrued benefits between employer and employee
contributions
(1) Accrued benefit derived from employer contributions
For purposes of this section, an employee's accrued benefit
derived from employer contributions as of any applicable date is
the excess, if any, of the accrued benefit for such employee as
of such applicable date over the accrued benefit derived from
contributions made by such employee as of such date.
(2) Accrued benefit derived from employee contributions
(A) Plans other than defined benefit plans
In the case of a plan other than a defined benefit plan, the
accrued benefit derived from contributions made by an employee
as of any applicable date is -
(i) except as provided in clause (ii), the balance of the
employee's separate account consisting only of his
contributions and the income, expenses, gains, and losses
attributable thereto, or
(ii) if a separate account is not maintained with respect
to an employee's contributions under such a plan, the amount
which bears the same ratio to his total accrued benefit as
the total amount of the employee's contributions (less
withdrawals) bears to the sum of such contributions and the
contributions made on his behalf by the employer (less
withdrawals).
(B) Defined benefit plans
In the case of a defined benefit plan, the accrued benefit
derived from contributions made by an employee as of any
applicable date is the amount equal to the employee's
accumulated contributions expressed as an annual benefit
commencing at normal retirement age, using an interest rate
which would be used under the plan under section 417(e)(3) (as
of the determination date).
(C) Definition of accumulated contributions
For purposes of this subsection, the term "accumulated
contribution" means the total of -
(i) all mandatory contributions made by the employee,
(ii) interest (if any) under the plan to the end of the
last plan year to which subsection (a)(2) does not apply (by
reason of the applicable effective date), and
(iii) interest on the sum of the amounts determined under
clauses (i) and (ii) compounded annually -
(I) at the rate of 120 percent of the Federal mid-term
rate (as in effect under section 1274 for the 1st month of
a plan year) for the period beginning with the 1st plan
year to which subsection (a)(2) applies (by reason of the
applicable effective date) and ending with the date on
which the determination is being made, and
(II) at the interest rate which would be used under the
plan under section 417(e)(3) (as of the determination date)
for the period beginning with the determination date and
ending on the date on which the employee attains normal
retirement age.
For purposes of this subparagraph, the term "mandatory
contributions" means amounts contributed to the plan by the
employee which are required as a condition of employment, as a
condition of participation in such plan, or as a condition of
obtaining benefits under the plan attributable to employer
contributions.
(D) Adjustments
The Secretary is authorized to adjust by regulation the
conversion factor described in subparagraph (B) from time to
time as he may deem necessary. No such adjustment shall be
effective for a plan year beginning before the expiration of 1
year after such adjustment is determined and published.
(3) Actuarial adjustment
For purposes of this section, in the case of any defined
benefit plan, if an employee's accrued benefit is to be
determined as an amount other than an annual benefit commencing
at normal retirement age, or if the accrued benefit derived from
contributions made by an employee is to be determined with
respect to a benefit other than an annual benefit in the form of
a single life annuity (without ancillary benefits) commencing at
normal retirement age, the employee's accrued benefit, or the
accrued benefits derived from contributions made by an employee,
as the case may be, shall be the actuarial equivalent of such
benefit or amount determined under paragraph (1) or (2).
(d) Special rules
(1) Coordination with section 401(a)(4)
A plan which satisfies the requirements of this section shall
be treated as satisfying any vesting requirements resulting from
the application of section 401(a)(4) unless -
(A) there has been a pattern of abuse under the plan (such as
a dismissal of employees before their accrued benefits become
nonforfeitable) tending to discriminate in favor of employees
who are highly compensated employees (within the meaning of
section 414(q)), or
(B) there have been, or there is reason to believe there will
be, an accrual of benefits or forfeitures tending to
discriminate in favor of employees who are highly compensated
employees (within the meaning of section 414(q)).
(2) Prohibited discrimination
Subsection (a) shall not apply to benefits which may not be
provided for designated employees in the event of early
termination of the plan under provisions of the plan adopted
pursuant to regulations prescribed by the Secretary to preclude
the discrimination prohibited by section 401(a)(4).
(3) Termination or partial termination; discontinuance of
contributions
Notwithstanding the provisions of subsection (a), a trust shall
not constitute a qualified trust under section 401(a) unless the
plan of which such trust is a part provides that -
(A) upon its termination or partial termination, or
(B) in the case of a plan to which section 412 does not
apply, upon complete discontinuance of contributions under the
plan,
the rights of all affected employees to benefits accrued to the
date of such termination, partial termination, or discontinuance,
to the extent funded as of such date, or the amounts credited to
the employees' accounts, are nonforfeitable. This paragraph shall
not apply to benefits or contributions which, under provisions of
the plan adopted pursuant to regulations prescribed by the
Secretary to preclude the discrimination prohibited by section
401(a)(4), may not be used for designated employees in the event
of early termination of the plan. For purposes of this paragraph,
in the case of the complete discontinuance of contributions under
a profit-sharing or stock bonus plan, such plan shall be treated
as having terminated on the day on which the plan administrator
notifies the Secretary (in accordance with regulations) of the
discontinuance.
[(4) Repealed. Pub. L. 99-514, title XI, Sec. 1113(b), Oct. 22,
1986, 100 Stat. 2447]
(5) Treatment of voluntary employee contributions
In the case of a defined benefit plan which permits voluntary
employee contributions, the portion of an employee's accrued
benefit derived from such contributions shall be treated as an
accrued benefit derived from employee contributions under a plan
other than a defined benefit plan.
(6) Accrued benefit not to be decreased by amendment
(A) In general
A plan shall be treated as not satisfying the requirements of
this section if the accrued benefit of a participant is
decreased by an amendment of the plan, other than an amendment
described in section 412(c)(8), or section 4281 of the Employee
Retirement Income Security Act of 1974.
(B) Treatment of certain plan amendments
For purposes of subparagraph (A), a plan amendment which has
the effect of -
(i) eliminating or reducing an early retirement benefit or
a retirement-type subsidy (as defined in regulations), or
(ii) eliminating an optional form of benefit,
with respect to benefits attributable to service before the
amendment shall be treated as reducing accrued benefits. In the
case of a retirement-type subsidy, the preceding sentence shall
apply only with respect to a participant who satisfies (either
before or after the amendment) the preamendment conditions for
the subsidy. The Secretary shall by regulations provide that
this subparagraph shall not apply to any plan amendment which
reduces or eliminates benefits or subsidies which create
significant burdens or complexities for the plan and plan
participants, unless such amendment adversely affects the
rights of any participant in a more than de minimis manner. The
Secretary may by regulations provide that this subparagraph
shall not apply to a plan amendment described in clause (ii)
(other than a plan amendment having an effect described in
clause (i)).
(C) Special rule for ESOPS
For purposes of this paragraph, any -
(i) tax credit employee stock ownership plan (as defined in
section 409(a)), or
(ii) employee stock ownership plan (as defined in section
4975(e)(7)),
shall not be treated as failing to meet the requirements of
this paragraph merely because it modifies distribution options
in a nondiscriminatory manner.
(D) Plan transfers
(i) In general
A defined contribution plan (in this subparagraph referred
to as the "transferee plan") shall not be treated as failing
to meet the requirements of this subsection merely because
the transferee plan does not provide some or all of the forms
of distribution previously available under another defined
contribution plan (in this subparagraph referred to as the
"transferor plan") to the extent that -
(I) the forms of distribution previously available under
the transferor plan applied to the account of a participant
or beneficiary under the transferor plan that was
transferred from the transferor plan to the transferee plan
pursuant to a direct transfer rather than pursuant to a
distribution from the transferor plan,
(II) the terms of both the transferor plan and the
transferee plan authorize the transfer described in
subclause (I),
(III) the transfer described in subclause (I) was made
pursuant to a voluntary election by the participant or
beneficiary whose account was transferred to the transferee
plan,
(IV) the election described in subclause (III) was made
after the participant or beneficiary received a notice
describing the consequences of making the election, and
(V) the transferee plan allows the participant or
beneficiary described in subclause (III) to receive any
distribution to which the participant or beneficiary is
entitled under the transferee plan in the form of a single
sum distribution.
(ii) Special rule for mergers, etc.
Clause (i) shall apply to plan mergers and other
transactions having the effect of a direct transfer,
including consolidations of benefits attributable to
different employers within a multiple employer plan.
(E) Elimination of form of distribution
Except to the extent provided in regulations, a defined
contribution plan shall not be treated as failing to meet the
requirements of this section merely because of the elimination
of a form of distribution previously available thereunder. This
subparagraph shall not apply to the elimination of a form of
distribution with respect to any participant unless -
(i) a single sum payment is available to such participant
at the same time or times as the form of distribution being
eliminated, and
(ii) such single sum payment is based on the same or
greater portion of the participant's account as the form of
distribution being eliminated.
(e) Application of vesting standards to certain plans
(1) The provisions of this section (other than paragraph (2))
shall not apply to -
(A) a governmental plan (within the meaning of section 414(d)),
(B) a church plan (within the meaning of section 414(e)) with
respect to which the election provided by section 410(d) has not
been made,
(C) a plan which has not, at any time after September 2, 1974,
provided for employer contributions, and
(D) a plan established and maintained by a society, order, or
association described in section 501(c)(8) or (9), if no part of
the contributions to or under such plan are made by employers of
participants in such plan.
(2) A plan described in paragraph (1) shall be treated as meeting
the requirements of this section, for purposes of section 401(a),
if such plan meets the vesting requirements resulting from the
application of sections 401(a)(4) and 401(a)(7) as in effect on
September 1, 1974.
-SOURCE-
(Added Pub. L. 93-406, title II, Sec. 1012(a), Sept. 2, 1974, 88
Stat. 901; amended Pub. L. 94-455, title XIX, Secs. 1901(a)(62),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1774, 1834; Pub. L. 96-364,
title II, Sec. 206, Sept. 26, 1980, 94 Stat. 1287; Pub. L. 98-397,
title II, Sec. 202(b), (c), (d)(2), (e)(2), (3), (f), 205, title
III, Sec. 301(a)(1), Aug. 23, 1984, 98 Stat. 1437, 1439, 1440,
1449, 1450; Pub. L. 99-509, title IX, Secs. 9202(b), 9203(b)(2),
Oct. 21, 1986, 100 Stat. 1977, 1979; Pub. L. 99-514, title XI,
Secs. 1113(a), (b), (d)(B), 1114(b)(10), 1139(a), title XVIII, Sec.
1898(a)(1)(A), (4)(A), (d)(1)(A), (2)(A), (f)(1)(A), Oct. 22, 1986,
100 Stat. 2446, 2447, 2451, 2487, 2941, 2943, 2955, 2956; Pub. L.
100-203, title IX, Sec. 9346(b), Dec. 22, 1987, 101 Stat. 1330-374;
Pub. L. 100-647, title I, Sec. 1018(t)(8)(B), Nov. 10, 1988, 102
Stat. 3589; Pub. L. 101-239, title VII, Secs. 7861(a)(5)(A),
(6)(A), 7871(a)(1), (2), (b)(1), 7881(m)(1), Dec. 19, 1989, 103
Stat. 2430, 2435, 2443; Pub. L. 102-318, title V, Sec. 521(b)(44),
July 3, 1992, 106 Stat. 313; Pub. L. 103-465, title VII, Sec.
767(a)(1), Dec. 8, 1994, 108 Stat. 5037; Pub. L. 104-188, title I,
Sec. 1442(a), Aug. 20, 1996, 110 Stat. 1808; Pub. L. 105-34, title
X, Sec. 1071(a)(1), (2)(A), Aug. 5, 1997, 111 Stat. 948; Pub. L.
107-16, title VI, Secs. 633(a), 645(a)(1), (b)(1), 648(a)(1), June
7, 2001, 115 Stat. 115, 123, 125, 127; Pub. L. 108-311, title IV,
Sec. 408(a)(14), Oct. 4, 2004, 118 Stat. 1192.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Section 4281 of the Employee Retirement Income Security Act of
1974, referred to in subsecs. (a)(3)(F)(i), (ii) and (d)(6)(A), is
classified to section 1441 of Title 29, Labor.
Section 4203 of the Employee Retirement Income Security Act of
1974, referred to in subsec. (a)(4)(G)(i)(I), is classified to
section 1383 of Title 29.
Section 4205(b)(2)(A)(i) of such Act, referred to in subsec.
(a)(4)(G)(i)(II), is classified to section 1385(b)(2)(A)(i) of
Title 29.
Section 4048 of such Act, referred to in subsec. (a)(4)(G)(ii),
is classified to section 1348 of Title 29.
The Social Security Act, referred to in subsecs. (a)(9) and
(b)(1)(G), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended.
Title II of the Social Security Act is classified generally to
subchapter II (Sec. 401 et seq.) of Title 42, The Public Health and
Welfare. For complete classification of this Act to the Code, see
section 1305 of Title 42 and Tables.
-MISC1-
AMENDMENTS
2004 - Subsec. (a)(12)(B). Pub. L. 108-311 substituted "6 or
more" for "6" in table.
2001 - Subsec. (a)(2). Pub. L. 107-16, Secs. 633(a)(1), 901,
temporarily substituted "Except as provided in paragraph (12), a
plan" for "A plan" in introductory provisions. See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (a)(11)(D). Pub. L. 107-16, Secs. 648(a)(1), 901,
temporarily added subpar. (D). See Effective and Termination Dates
of 2001 Amendment note below.
Subsec. (a)(12). Pub. L. 107-16, Secs. 633(a)(2), 901,
temporarily added par. (12). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (d)(6)(B). Pub. L. 107-16, Secs. 645(b)(1), 901,
temporarily inserted after second sentence "The Secretary shall by
regulations provide that this subparagraph shall not apply to any
plan amendment which reduces or eliminates benefits or subsidies
which create significant burdens or complexities for the plan and
plan participants, unless such amendment adversely affects the
rights of any participant in a more than de minimis manner." See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(6)(D), (E). Pub. L. 107-16, Secs. 645(a)(1), 901,
temporarily added subpars. (D) and (E). See Effective and
Termination Dates of 2001 Amendment note below.
1997 - Subsec. (a)(7)(B)(i). Pub. L. 105-34, Sec. 1071(a)(2)(A),
substituted "the dollar limit under section 411(a)(11)(A)" for
"$3,500".
Subsec. (a)(11)(A). Pub. L. 105-34, Sec. 1071(a)(1), substituted
"$5,000" for "$3,500".
1996 - Subsec. (a)(2). Pub. L. 104-188 substituted "subparagraph
(A) or (B)" for "subparagraph (A), (B), or (C)" in introductory
provisions and struck out subpar. (C) which read as follows:
"Multiemployer plans. - A plan satisfies the requirements of this
subparagraph if -
"(i) the plan is a multiemployer plan (within the meaning of
section 414(f)), and
"(ii) under the plan -
"(I) an employee who is covered pursuant to a collective
bargaining agreement described in section 414(f)(1)(B) and who
has completed at least 10 years of service has a nonforfeitable
right to 100 percent of the employee's accrued benefit derived
from employer contributions, and
"(II) the requirements of subparagraph (A) or (B) are met
with respect to employees not described in subclause (I)."
1994 - Subsec. (a)(11)(B). Pub. L. 103-465 reenacted subpar. (B)
heading without change and amended text generally. Prior to
amendment, text read as follows:
"(i) In general. - For purposes of subparagraph (A), the present
value shall be calculated -
"(I) by using an interest rate no greater than the applicable
interest rate if the vested accrued benefit (using such rate) is
not in excess of $25,000, and
"(II) by using an interest rate no greater than 120 percent of
the applicable interest rate if the vested accrued benefit
exceeds $25,000 (as determined under subclause (I)).
In no event shall the present value determined under subclause (II)
be less than $25,000.
"(ii) Applicable interest rate. - For purposes of clause (i), the
term 'applicable interest rate' means the interest rate which would
be used (as of the date of the distribution) by the Pension Benefit
Guaranty Corporation for purposes of determining the present value
of a lump sum distribution on plan termination."
1992 - Subsec. (d)(3). Pub. L. 102-318 inserted at end "For
purposes of this paragraph, in the case of the complete
discontinuance of contributions under a profit-sharing or stock
bonus plan, such plan shall be treated as having terminated on the
day on which the plan administrator notifies the Secretary (in
accordance with regulations) of the discontinuance."
1989 - Subsec. (a)(3)(G). Pub. L. 101-239, Sec. 7861(a)(5)(A),
added subpar. (G).
Subsec. (a)(4)(A). Pub. L. 101-239, Sec. 7861(a)(6)(A), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "years of service before age 18, except that in the case
of a plan which does not satisfy subparagraph (A) or (B) of
paragraph (2), the plan may not disregard any such year of service
during which the employee was a participant;".
Subsec. (a)(7)(D). Pub. L. 101-239, Sec. 7881(m)(1)(D), added
subpar. (D).
Subsec. (a)(8)(B). Pub. L. 101-239, Sec. 7871(b)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "the latest of -
"(i) the time a plan participant attains age 65,
"(ii) in the case of a plan participant who commences
participation in the plan within 5 years before attaining normal
retirement age under the plan, the 5th anniversary of the time
the plan participant commences participation in the plan, or
"(iii) in the case of a plan participant not described in
clause (ii), the 10th anniversary of the time the plan
participant commences participation in the plan."
Subsec. (b)(2)(B). Pub. L. 101-239, Sec. 7871(a)(1), redesignated
subpar. (C) as (B) and struck out former subpar. (B) which read as
follows: "Disregard of subsidized portion of early retirement
benefit. - A plan shall not be treated as failing to meet the
requirements of subparagraph (A) solely because the subsidized
portion of any early retirement benefit is disregarded in
determining benefit accruals."
Subsec. (b)(2)(C), (D). Pub. L. 101-239, Sec. 7871(a)(1), (2),
redesignated subpar. (D) as (C) and substituted "this paragraph"
for "this subparagraph". Former subpar. (C) redesignated (B).
Subsec. (c)(2)(B). Pub. L. 101-239, Sec. 7881(m)(1)(B), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows:
"(i) In general. - In the case of a defined benefit plan
providing an annual benefit in the form of a single life annuity
(without ancillary benefits) commencing at normal retirement age,
the accrued benefit derived from contributions made by an employee
as of any applicable date is the annual benefit equal to the
employee's accumulated contributions multiplied by the appropriate
conversion factor.
"(ii) Appropriate conversion factor. - For purposes of clause
(i), the term 'appropriate conversion factor' means the factor
necessary to convert an amount equal to the accumulated
contributions to a single life annuity (without ancillary benefits)
commencing at normal retirement age and shall be 10 percent for a
normal retirement age of 65 years. For other normal retirement ages
the conversion factor shall be determined in accordance with
regulations prescribed by the Secretary."
Subsec. (c)(2)(C)(iii). Pub. L. 101-239, Sec. 7881(m)(1)(A),
amended cl. (iii) generally. Prior to amendment, cl. (iii) read as
follows: "interest on the sum of the amounts determined under
clauses (i) and (ii) compounded annually at the rate of 120 percent
of the Federal mid-term rate (as in effect under section 1274 for
the 1st month of a plan year) from the beginning of the first plan
year to which subsection (a)(2) applies (by reason of the
applicable effective date) to the date upon which the employee
would attain normal retirement age."
Subsec. (c)(2)(E). Pub. L. 101-239, Sec. 7881(m)(1)(C), struck
out subpar. (E) which read as follows: "Limitation. - The accrued
benefit derived from employee contributions shall not exceed the
greater of -
"(i) the employee's accrued benefit under the plan, or
"(ii) the accrued benefit derived from employee contributions
determined as though the amounts calculated under clauses (ii)
and (iii) of subparagraph (C) were zero."
1988 - Subsec. (a)(11)(A). Pub. L. 100-647 substituted
"nonforfeitable" for "vested".
1987 - Subsec. (c)(2)(C)(iii). Pub. L. 100-203, Sec. 9346(b)(1),
substituted "120 percent of the Federal mid-term rate (as in effect
under section 1274 for the 1st month of a plan year)" for "5
percent per annum".
Subsec. (c)(2)(D). Pub. L. 100-203, Sec. 9346(b)(2), struck out
", the rate of interest described in clause (iii) of subparagraph
(C), or both" before "from time to time" in first sentence and
struck out second sentence which read as follows: "The rate of
interest described in clause (iii) of subparagraph (C), or both,
from time to time as he may deem necessary. The rate of interest
shall bear the relationship to 5 percent which the Secretary
determines to be comparable to the relationship which the long-term
money rates and investment yields for the last period of 10
calendar years ending at least 12 months before the beginning of
the plan year bear to the long-term money rates and investment
yields for the 10-calendar year period 1964 through 1973."
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1898(d)(1)(A)(ii),
inserted reference to par. (11) in introductory text.
Pub. L. 99-509, Sec. 9202(b)(3), substituted "subsection (b)(3),
and also satisfies, in the case of a defined benefit plan, the
requirements of subsection (b)(1) and, in the case of a defined
contribution plan, the requirements of subsection (b)(2)" for
"paragraph (2) of subsection (b), and in the case of a defined
benefit plan, also satisfies the requirements of paragraph (1) of
subsection (b)" in first sentence.
Subsec. (a)(2). Pub. L. 99-514, Sec. 1113(a), amended par. (2)
generally, substituting provisions covering 5-year vesting, 3 to 7
year vesting, and multiemployer plans, for former provisions which
had covered 10-year vesting, 5- to 15-year vesting, and the "rule
of 45".
Subsec. (a)(3)(D)(ii). Pub. L. 99-514, Sec. 1898(a)(4)(A)(i),
substituted last sentence for former last sentence which read as
follows: "In the case of a defined contribution plan, the plan
provision required under this clause may provide that such
repayment must be made before the participant has any one-year
break in service commencing after the withdrawal."
Subsec. (a)(7)(C). Pub. L. 99-514, Sec. 1898(a)(4)(A)(ii),
substituted last sentence for former last sentence which read as
follows: "In the case of a defined contribution plan, the plan
provision required under this subparagraph may provide that such
repayment must be made before the participant has 5 consecutive 1-
year breaks in service commencing after such withdrawal."
Subsec. (a)(8)(B). Pub. L. 99-509, Sec. 9203(b)(2), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "the latter of -
"(i) the time a plan participant attains age 65, or
"(ii) the 10th anniversary of the time a plan participant
commenced participation in the plan."
Subsec. (a)(10)(B). Pub. L. 99-514, Sec. 1113(d)(B), substituted
"3 years" for "5 years".
Subsec. (a)(11)(A). Pub. L. 99-514, Sec. 1898(d)(1)(A)(i),
amended subpar. (A) generally. Prior to amendment, subpar. (A) read
as follows: "If the present value of any accrued benefit exceeds
$3,500, such benefit shall not be treated as nonforfeitable if the
plan provides that the present value of such benefit could be
immediately distributed without the consent of the participant."
Subsec. (a)(11)(B). Pub. L. 99-514, Sec. 1139(a), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
"For purposes of subparagraph (A), the present value shall be
calculated by using an interest rate not greater than the interest
rate which would be used (as of the date of the distribution) by
the Pension Benefit Guaranty Corporation for purposes of
determining the present value of a lump sum distribution on plan
termination."
Subsec. (a)(11)(C). Pub. L. 99-514, Sec. 1898(d)(2)(A), added
subpar. (C).
Subsec. (b)(1). Pub. L. 99-509, Sec. 9202(b)(1), substituted
"Defined benefit plans" for "General rules" in heading and added
subpar. (H).
Subsec. (b)(2) to (4). Pub. L. 99-509, Sec. 9202(b)(2), added
par. (2) and redesignated former pars. (2) and (3) as (3) and (4),
respectively.
Subsec. (d)(1)(A), (B). Pub. L. 99-514, Sec. 1114(b)(10),
substituted "highly compensated employees (within the meaning of
section 414(q))" for "officers, shareholders, or highly
compensated".
Subsec. (d)(4). Pub. L. 99-514, Sec. 1113(b), repealed par. (4)
which provided that a class year plan satisfied the requirements of
subsec. (a)(2) if it provided that 100 percent of each employee's
right to or derived from the contributions of the employer on his
behalf with respect to any plan year were nonforfeitable not later
than the end of the 5th plan year following the plan year for which
such contributions were made.
Pub. L. 99-514, Sec. 1898(a)(1)(A), substituted "Class-year" for
"Class year" in heading and amended par. (4) generally. Prior to
amendment, par. (4) read as follows: "The requirements of
subsection (a)(2) shall be deemed to be satisfied in the case of a
class year plan if such plan provides that 100 percent of each
employee's right to or derived from the contributions of the
employer on his behalf with respect to any plan year are
nonforfeitable not later than the end of the 5th plan year
following the plan year for which such contributions were made. For
purposes of this section, the term 'class year plan' means a profit-
sharing, stock bonus, or money purchase plan which provides for
the separate nonforfeitability of employees' rights to or derived
from the contributions for each plan year."
Subsec. (d)(6)(C). Pub. L. 99-514, Sec. 1898(f)(1)(A), added
subpar. (C).
1984 - Subsec. (a)(4)(A). Pub. L. 98-397, Sec. 202(b),
substituted "18" for "22".
Subsec. (a)(6)(C). Pub. L. 98-397, Sec. 202(c), substituted "5
consecutive 1-year breaks" for "1-year break", in heading, and in
text substituted "5 consecutive 1-year breaks in service" for "any
1-year break in service" and "such 5-year period" for "such break"
in two places.
Subsec. (a)(6)(D). Pub. L. 98-397, Sec. 202(d)(2), amended
subpar. (D) generally.
Subsec. (a)(6)(E). Pub. L. 98-397, Sec. 202(e)(2), added subpar.
(E).
Subsec. (a)(7)(B)(i). Pub. L. 98-397, Sec. 205(b), substituted
"$3,500" for "$1,750".
Subsec. (a)(7)(C). Pub. L. 98-397, Sec. 202(f), substituted "5
consecutive 1-year breaks in service" for "any one-year break in
service".
Subsec. (a)(11). Pub. L. 98-397, Sec. 205(a), added par. (11).
Subsec. (b)(3)(A). Pub. L. 98-397, Sec. 202(e)(3), inserted ",
determined without regard to section 410(a)(5)(E)".
Subsec. (d)(6). Pub. L. 98-397, Sec. 301(a)(1), designated
existing provisions as subpar. (A) and added subpar. (B).
1980 - Subsec. (a). Pub. L. 96-364, Sec. 206(1)-(4), in par. (3)
added subpars. (E) and (F), and in par. (4) added subpar. (G).
Subsec. (d)(6). Pub. L. 96-364, Sec. 206(5), inserted reference
to section 4281 of the Employee Retirement Income Security Act of
1974.
1976 - Subsec. (a). Pub. L. 94-455, Secs. 1901(a)(62)(A)-(C),
1906(b)(13)(A), substituted "paragraph (8)" for "subsection (a)(8)"
in provisions preceding par. (1), substituted references to Sept.
2, 1974, for references to the date of enactment of the Employee
Retirement Income Security Act of 1974 in par. (3)(D)(iii), struck
out "or his delegate" after "Secretary" in pars. (4)(C) and (7)(B),
and substituted "(B)" for "(b)" in heading of par. (7)(C).
Subsec. (b)(1)(D)(i). Pub. L. 94-455, Sec. 1901(a)(62)(D),
substituted reference to Sept. 2, 1974, for reference to the date
of enactment of the Employee Retirement Income Security Act of
1974.
Subsecs. (c)(2)(B)(ii), (D), (d)(2), (3). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (e)(1)(C). Pub. L. 94-455, Sec. 1901(a)(62)(D),
substituted reference to Sept. 2, 1974, for reference to the date
of enactment of the Employee Retirement Income Security Act of
1974.
Subsec. (e)(2). Pub. L. 94-455, Sec. 1901(a)(62)(E), substituted
reference to Sept. 1, 1974, for reference to the date before the
date of enactment of the Employee Retirement Income Security Act of
1974.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title VI, Sec. 633(c), June 7, 2001, 115 Stat.
116, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
1053 of Title 29, Labor] shall apply to contributions for plan
years beginning after December 31, 2001.
"(2) Collective bargaining agreements. - In the case of a plan
maintained pursuant to one or more collective bargaining agreements
between employee representatives and one or more employers ratified
by the date of the enactment of this Act [June 7, 2001], the
amendments made by this section shall not apply to contributions on
behalf of employees covered by any such agreement for plan years
beginning before the earlier of -
"(A) the later of -
"(i) the date on which the last of such collective bargaining
agreements terminates (determined without regard to any
extension thereof on or after such date of the enactment); or
"(ii) January 1, 2002; or
"(B) January 1, 2006.
"(3) Service required. - With respect to any plan, the amendments
made by this section shall not apply to any employee before the
date that such employee has 1 hour of service under such plan in
any plan year to which the amendments made by this section apply."
Pub. L. 107-16, title VI, Sec. 645(a)(3), June 7, 2001, 115 Stat.
125, provided that: "The amendments made by this subsection
[amending this section and section 1054 of Title 29, Labor] shall
apply to years beginning after December 31, 2001."
Pub. L. 107-16, title VI, Sec. 648(c), June 7, 2001, 115 Stat.
128, provided that: "The amendments made by this section [amending
this section, section 457 of this title, and section 1053 of Title
29, Labor] shall apply to distributions after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1071(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section, sections 417 and 457
of this title, and sections 1053 to 1055 of Title 29, Labor] shall
apply to plan years beginning after the date of the enactment of
this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1442(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and section 1053 of
Title 29, Labor] shall apply to plan years beginning on or after
the earlier of -
"(1) the later of -
"(A) January 1, 1997, or
"(B) the date on which the last of the collective bargaining
agreements pursuant to which the plan is maintained terminates
(determined without regard to any extension thereof after the
date of the enactment of this Act [Aug. 20, 1996]), or
"(2) January 1, 1999.
Such amendments shall not apply to any individual who does not have
more than 1 hour of service under the plan on or after the 1st day
of the 1st plan year to which such amendments apply."
EFFECTIVE DATE OF 1994 AMENDMENT
Section 767(d) of Pub. L. 103-465, as amended by Pub. L. 104-188,
title I, Sec. 1449(a), Aug. 20, 1996, 110 Stat. 1813; Pub. L. 105-
34, title XVI, Sec. 1604(b)(3), Aug. 5, 1997, 111 Stat. 1097,
provided that:
"(1) In general. - The amendments made by this section [amending
this section, sections 415 and 417 of this title, and sections 1053
and 1055 of Title 29, Labor] shall apply to plan years and
limitation years beginning after December 31, 1994; except that an
employer may elect to treat the amendments made by this section as
being effective on or after the date of the enactment of this Act
[Dec. 8, 1994].
"(2) No reduction in accrued benefits. - A participant's accrued
benefit shall not be considered to be reduced in violation of
section 411(d)(6) of the Internal Revenue Code of 1986 or section
204(g) of the Employee Retirement Income Security Act of 1974 [29
U.S.C. 1054(g)] merely because (A) the benefit is determined in
accordance with section 417(e)(3)(A) of such Code, as amended by
this Act, or section 205(g)(3) of the Employee Retirement Income
Security Act of 1974 [29 U.S.C. 1055(g)(3)], as amended by this
Act, or (B) the plan applies section 415(b)(2)(E) of such Code, as
amended by this Act.
"(3) Section 415. -
"(A) Exception. - A plan that was adopted and in effect before
December 8, 1994, shall not be required to apply the amendments
made by subsection (b) [amending section 415 of this title] with
respect to benefits accrued before the earlier of -
"(i) the later of the date a plan amendment applying the
amendments made by subsection (b) is adopted or made effective,
or
"(ii) the first day of the first limitation year beginning
after December 31, 1999.
Determinations under section 415(b)(2)(E) of the Internal Revenue
Code of 1986 before such earlier date shall be made with respect
to such benefits on the basis of such section as in effect on
December 7, 1994, and the provisions of the plan as in effect on
December 7, 1994, but only if such provisions of the plan meet
the requirements of such section (as so in effect).
"(B) Timing of plan amendment. - A plan that operates in
accordance with the amendments made by subsection (b) shall not
be treated as failing to satisfy section 401(a) of the Internal
Revenue Code of 1986 or as not being operated in accordance with
the provisions of the plan until such date as the Secretary of
the Treasury provides merely because the plan has not been
amended to include the amendments made by subsection (b)."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7861(a)(5)(A), (6)(A) of Pub. L. 101-239
effective as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
7863 of Pub. L. 101-239, set out as a note under section 106 of
this title.
Section 7871(a)(4) of Pub. L. 101-239 provided that: "The
amendments made by this subsection [amending this section and
section 1054 of Title 29, Labor] shall take effect as if included
in the amendments made by section 9202 of the Omnibus Budget
Reconciliation Act of 1986 [Pub. L. 99-509]."
Section 7871(b)(3) of Pub. L. 101-239 provided that: "The
amendments made by this subsection [amending this section and
section 1002 of Title 29, Labor] shall take effect as if included
in the amendments made by section 9203 of the Omnibus Budget
Reconciliation Act of 1986 [Pub. L. 99-509]."
Amendment by section 7881(m)(1) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Pension Protection Act, Pub. L. 100-203, Secs. 9302-9346, to
which such amendment relates, see section 7882 of Pub. L. 101-239,
set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to plan years beginning
after Dec. 31, 1987, with plan amendments not required to be made
before first plan year beginning on or after Jan. 1, 1989, if
certain conditions are met, see section 9346(c) of Pub. L. 100-203,
set out as a note under section 1054 of Title 29, Labor.
EFFECTIVE DATE OF 1986 AMENDMENTS
Section 1113(f), formerly Sec. 1113(e), of Pub. L. 99-514, as
redesignated and amended by Pub. L. 101-239, title VII, Sec.
7861(a)(3), (4), Dec. 19, 1989, 103 Stat. 2430, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
410 of this title and sections 1052 to 1054 of Title 29, Labor]
shall apply to plan years beginning after December 31, 1988.
"(2) Special rule for collective bargaining agreements. - In the
case of a plan maintained pursuant to 1 or more collective
bargaining agreements between employee representatives and 1 or
more employers ratified before March 1, 1986, the amendments made
by this section shall not apply to employees covered by any such
agreement in plan years beginning before the earlier of -
"(A) the later of -
"(i) January 1, 1989, or
"(ii) the date on which the last of such collective
bargaining agreements terminates (determined without regard to
any extension thereof after February 28, 1986), or
"(B) January 1, 1991.
"(3) Participation required. - The amendments made by this
section shall not apply to any employee who does not have 1 hour of
service in any plan year to which the amendments made by this
section apply.
"(4) Repeal of class year vesting. - If a plan amendment
repealing class year vesting is adopted after October 22, 1986,
such amendment shall not apply to any employee for the 1st plan
year to which the amendments made by subsections (b) and (e)(2)
[amending this section and section 1053 of Title 29] apply (and any
subsequent plan year) if -
"(A) such plan amendment would reduce the nonforfeitable right
of such employee for such year, and
"(B) such employee has at least 1 hour of service before the
adoption of such plan amendment and after the beginning of such
1st plan year.
This paragraph shall not apply to an employee who has 5 consecutive
1-year breaks in service (as defined in section 411(a)(6)(A) of the
Internal Revenue Code of 1986) which include the 1st day of the 1st
plan year to which the amendments made by subsection (b) and (e)(2)
apply. A plan shall not be treated as failing to meet the
requirements of section 401(a)(26) of such Code by reason of
complying with the provisions of this paragraph."
Amendment by section 1114(b)(10) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1988, see section 1114(c)(3) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Section 1139(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011A(k), Nov. 10, 1988, 102 Stat. 3483, provided
that:
"(1) In general. - The amendments made by this section [amending
this section and section 417 of this title and sections 1053 and
1055 of Title 29, Labor] shall apply to distributions in plan years
beginning after December 31, 1984, except that such amendments
shall not apply to any distributions in plan years beginning after
December 31, 1984, and before January 1, 1987, if such
distributions were made in accordance with the requirements of the
regulations issued under the Retirement Equity Act of 1984 [Pub. L.
98-397, see Short Title of 1984 Amendment note set out under
section 1001 of Title 29].
"(2) Reduction in accrued benefits. -
"(A) In general. - If a plan -
"(i) adopts a plan amendment before the close of the first
plan year beginning on or after January 1, 1989, which provides
for the calculation of the present value of the accrued
benefits in the manner provided by the amendments made by this
section, and
"(ii) the plan reduces the accrued benefits for any plan year
to which such plan amendment applies in accordance with such
plan amendment,
such reduction shall not be treated as a violation of section
411(d)(6) of the Internal Revenue Code of 1986 or section 204(g)
of the Employee Retirement Income Security Act of 1974 (29 U.S.C.
1054(g)).
"(B) Special rule. - In the case of a plan maintained by a
corporation incorporated on April 11, 1934, which is
headquartered in Tarrant County, Texas -
"(i) such plan may be amended to remove the option of an
employee to receive a lump sum distribution (within the meaning
of section 402(e)(5) of such Code) if such amendment -
"(I) is adopted within 1 year of the date of the enactment
of this Act [Oct. 22, 1986], and
"(II) is not effective until 2 years after the employees
are notified of such amendment, and
"(ii) the present value of any vested accrued benefit of such
plan determined during the 3-year period beginning on the date
of the enactment of this Act shall be determined under the
applicable interest rate (within the meaning of section
411(a)(11)(B)(ii) of such Code), except that if such value (as
so determined) exceeds $50,000, then the value of any excess
over $50,000 shall be determined by using the interest rate
specified in the plan as of August 16, 1986."
Section 1898(a)(1)(C) of Pub. L. 99-514 provided that: "The
amendments made by this paragraph [amending this section and
section 1053 of Title 29, Labor] shall apply to contributions made
for plan years beginning after the date of the enactment of this
Act [Oct. 22, 1986]; except that, in the case of a plan described
in section 302(b) of the Retirement Equity Act of 1984 [section
302(b) of Pub. L. 98-397, set out as a note under section 1001 of
Title 29], such amendments shall not apply to any plan year to
which the amendments made by such Act [see Short Title of 1984
Amendment note set out under section 1001 of Title 29] do not apply
by reason of such section 302(b)."
Amendment by section 1898(a)(4)(A), (d)(1)(A), (2)(A), (f)(1)(A)
of Pub. L. 99-514 effective as if included in the provision of the
Retirement Equity Act of 1984, Pub. L. 98-397, to which such
amendment relates, except as otherwise provided, see section
1898(j) of Pub. L. 99-514, set out as a note under section 401 of
this title.
Amendment by section 9202(b) of Pub. L. 99-509 applicable only
with respect to plan years beginning on or after Jan. 1, 1988, and
only to employees who have 1 hour of service in any plan year to
which amendment applies, with special rule for collectively
bargained plans, and amendment by section 9203(b)(2) of Pub. L. 99-
509 applicable only with respect to plan years beginning on or
after Jan. 1, 1988, and only with respect to service performed on
or after such date, see section 9204(a), (b) of Pub. L. 99-509, set
out as an Effective and Termination Dates of 1986 Amendments note
under section 623 of Title 29, Labor.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-397 applicable to plan years beginning
after Dec. 31, 1984, except as otherwise provided, see sections 302
and 303 of Pub. L. 98-397, set out as a note under section 1001 of
Title 29, Labor.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-364 effective Sept. 26, 1980, see section
210(a) of Pub. L. 96-364, set out as an Effective Date note under
section 418 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(62) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE
Section applicable, except as otherwise provided in section
1017(c) through (i) of Pub. L. 93-406, for plan years beginning
after Sept. 2, 1974, and, in the case of plans in existence on Jan.
1, 1974, for plan years beginning after Dec. 31, 1975, see section
1017 of Pub. L. 93-406, set out as an Effective Date; Transitional
Rules note under section 410 of this title.
REGULATIONS
Pub. L. 107-16, title VI, Sec. 645(b)(3), June 7, 2001, 115 Stat.
126, provided that: "Not later than December 31, 2003, the
Secretary of the Treasury is directed to issue regulations under
section 411(d)(6) of the Internal Revenue Code of 1986 and section
204(g) of the Employee Retirement Income Security Act of 1974 [29
U.S.C. 1054(g)], including the regulations required by the
amendment made by this subsection [amending this section and
section 1054 of Title 29, Labor]. Such regulations shall apply to
plan years beginning after December 31, 2003, or such earlier date
as is specified by the Secretary of the Treasury."
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by sections
1113 and 1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-
514, set out as a note under section 401 of this title.
Secretary of Labor, Secretary of the Treasury, and Equal
Employment Opportunity Commission shall each issue before Feb. 1,
1988, final regulations to carry out amendments made by sections
9202 and 9203 of Pub. L. 99-509, see section 9204 of Pub. L. 99-
509, set out as a note under section 623 of Title 29, Labor.
PROVISIONS RELATING TO PLAN AMENDMENTS
Pub. L. 108-218, title I, Sec. 101(c), Apr. 10, 2004, 118 Stat.
598, provided that:
"(1) In general. - If this subsection applies to any plan or
annuity contract amendment -
"(A) such plan or contract shall be treated as being operated
in accordance with the terms of the plan or contract during the
period described in paragraph (2)(B)(i), and
"(B) except as provided by the Secretary of the Treasury, such
plan shall not fail to meet the requirements of section 411(d)(6)
of the Internal Revenue Code of 1986 and section 204(g) of the
Employee Retirement Income Security Act of 1974 [29 U.S.C.
1054(g)] by reason of such amendment.
"(2) Amendments to which section applies. -
"(A) In general. - This subsection shall apply to any amendment
to any plan or annuity contract which is made -
"(i) pursuant to any amendment made by this section [amending
sections 404, 412, and 415 of this title and sections 1082 and
1306 of Title 29, Labor], and
"(ii) on or before the last day of the first plan year
beginning on or after January 1, 2006.
"(B) Conditions. - This subsection shall not apply to any plan
or annuity contract amendment unless -
"(i) during the period beginning on the date the amendment
described in subparagraph (A)(i) takes effect and ending on the
date described in subparagraph (A)(ii) (or, if earlier, the
date the plan or contract amendment is adopted), the plan or
contract is operated as if such plan or contract amendment were
in effect; and
"(ii) such plan or contract amendment applies retroactively
for such period."
Section 1541 of title XV of Pub. L. 105-34 provided that:
"(a) In General. - If this section applies to any plan or
contract amendment -
"(1) such plan or contract shall be treated as being operated
in accordance with the terms of the plan during the period
described in subsection (b)(2)(A), and
"(2) such plan shall not fail to meet the requirements of
section 411(d)(6) of the Internal Revenue Code of 1986 or section
204(g) of the Employee Retirement Income Security Act of 1974 [29
U.S.C. 1054(g)] by reason of such amendment.
"(b) Amendments to Which Section Applies. -
"(1) In general. - This section shall apply to any amendment to
any plan or annuity contract which is made -
"(A) pursuant to any amendment made by this title [enacting
sections 9811 and 9812 of this title, amending sections 101,
401 to 404, 408, 409, 410, 412, 414, 415, 512, 664, 674, 2055,
2056, 4947, 4972, 4975, 4978, 4979A, 4980D, 9801, 9802, and
9831 of this title, sections 1021, 1022, 1024, 1026 to 1028,
1056, 1082, 1107, 1108, and 1132 of Title 29, Labor, and
section 1320b-14 of Title 42, The Public Health and Welfare,
renumbering sections 9804 to 9806 of this title as sections
9831 to 9833, respectively, of this title, and amending
provisions set out as a note under section 412 of this title]
or subtitle H of title X [Secs. 1071-1075, amending this
section, sections 72, 132, 417, 457, 691, 2013, 2053, 4975, and
6018 of this title, and sections 1053 to 1055 of Title 29 and
repealing section 4980A of this title], and
"(B) before the first day of the first plan year beginning on
or after January 1, 1999.
In the case of a governmental plan (as defined in section 414(d)
of the Internal Revenue Code of 1986), this paragraph shall be
applied by substituting '2001' for '1999'.
"(2) Conditions. - This section shall not apply to any
amendment unless -
"(A) during the period -
"(i) beginning on the date the legislative amendment
described in paragraph (1)(A) takes effect (or in the case of
a plan or contract amendment not required by such legislative
amendment, the effective date specified by the plan), and
"(ii) ending on the date described in paragraph (1)(B) (or,
if earlier, the date the plan or contract amendment is
adopted),
the plan or contract is operated as if such plan or contract
amendment were in effect, and
"(B) such plan or contract amendment applies retroactively
for such period."
TRANSITIONAL RULE: CERTAIN PLAN AMENDMENTS ADOPTED OR EFFECTIVE ON
OR BEFORE AUGUST 20, 1996
Section 1449(d) of Pub. L. 104-188 provided that: "In the case of
a plan that was adopted and in effect before December 8, 1994, if -
"(1) a plan amendment was adopted or made effective on or
before the date of the enactment of this Act [Aug. 20, 1996]
applying the amendments made by section 767 of the Uruguay Round
Agreements Act [Pub. L. 103-465, see Effective Date of 1994
Amendment note set out above], and
"(2) within 1 year after the date of the enactment of this Act
[Aug. 20, 1996], a plan amendment is adopted which repeals the
amendment referred to in paragraph (1),
the amendment referred to in paragraph (1) shall not be taken into
account in applying section 767(d)(3)(A) of the Uruguay Round
Agreements Act, as amended by subsection (a)."
PLAN AMENDMENTS REFLECTING AMENDMENTS BY SECTION 7881(M) OF PUB. L.
101-239 NOT TREATED AS REDUCING ACCRUED BENEFITS
For provisions directing that if during the period beginning Dec.
22, 1987, and ending June 21, 1988, a plan was amended to reflect
the amendments by section 9346 of Pub. L. 100-203 and such plan is
amended to reflect the amendments by section 7881(m) of Pub. L. 101-
239, any plan amendments made to reflect the amendments by section
7881(m) of Pub. L. 101-239 shall not be treated as reducing accrued
benefits for purposes of subsection (d)(6) of this section or
section 1054(g) of Title 29, Labor, see section 7881(m)(3) of Pub.
L. 101-239, set out as a note under section 1054 of Title 29.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
For provisions directing that if any amendments made by sections
9202(b) and 9203(b)(2) of Pub. L. 99-509 require an amendment to
any plan, such plan amendment shall not be required to be made
before the first plan year beginning on or after Jan. 1, 1989, see
section 9204 of Pub. L. 99-509, set out as a note under section 623
of Title 29, Labor.
ALTERNATE METHODS OF SATISFYING REQUIREMENTS FOR VESTING AND
ACCRUED BENEFITS
Section 1012(c) of Pub. L. 93-406, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the case
of any plan maintained on January 1, 1974, if, not later than 2
years after the date of the enactment of this Act [Sept. 2, 1974],
the plan administrator petitions the Secretary of Labor, the
Secretary of Labor may prescribe an alternate method which shall be
treated as satisfying the requirements of subsection (a)(2) of
section 411 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954], or of subsection (b)(1) (other than subparagraph (D)
thereof) of such section 411, or of both such provisions for a
period of not more than 4 years. The Secretary may prescribe such
alternate method only when he finds that -
"(1) the application of such requirements would increase the
costs of the plan to such an extent that there would result a
substantial risk to the voluntary continuation of the plan or a
substantial curtailment of benefit levels or the levels of
employees' compensation,
"(2) the application of such requirements or discontinuance of
the plan would be adverse to the interests of plan participants
in the aggregate, and
"(3) a waiver or extension of time granted under section 412(d)
or (e) would be inadequate.
In the case of any plan with respect to which an alternate method
has been prescribed under the preceding provisions of this
subsection for a period of not more than 4 years, if, not later
than 1 year before the expiration of such period, the plan
administrator petitions the Secretary of Labor for an extension of
such alternate method, and the Secretary makes the findings
required by the preceding sentence, such alternate method may be
extended for not more than 3 years."
-FOOTNOTE-
(!1) So in original. The comma probably should be a semicolon.
-End-
-CITE-
26 USC Sec. 412 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart B - Special Rules
-HEAD-
Sec. 412. Minimum funding standards
-STATUTE-
(a) General rule
Except as provided in subsection (h), this section applies to a
plan if, for any plan year beginning on or after the effective date
of this section for such plan -
(1) such plan included a trust which qualified (or was
determined by the Secretary to have qualified) under section
401(a), or
(2) such plan satisfied (or was determined by the Secretary to
have satisfied) the requirements of section 403(a).
A plan to which this section applies shall have satisfied the
minimum funding standard for such plan for a plan year if as of the
end of such plan year, the plan does not have an accumulated
funding deficiency. For purposes of this section and section 4971,
the term "accumulated funding deficiency" means for any plan the
excess of the total charges to the funding standard account for all
plan years (beginning with the first plan year to which this
section applies) over the total credits to such account for such
years or, if less, the excess of the total charges to the
alternative minimum funding standard account for such plan years
over the total credits to such account for such years. In any plan
year in which a multiemployer plan is in reorganization, the
accumulated funding deficiency of the plan shall be determined
under section 418B.
(b) Funding standard account
(1) Account required
Each plan to which this section applies shall establish and
maintain a funding standard account. Such account shall be
credited and charged solely as provided in this section.
(2) Charges to account
For a plan year, the funding standard account shall be charged
with the sum of -
(A) the normal cost of the plan for the plan year,
(B) the amounts necessary to amortize in equal annual
installments (until fully amortized) -
(i) in the case of a plan in existence on January 1, 1974,
the unfunded past service liability under the plan on the
first day of the first plan year to which this section
applies, over a period of 40 plan years,
(ii) in the case of a plan which comes into existence after
January 1, 1974, the unfunded past service liability under
the plan on the first day of the first plan year to which
this section applies, over a period of 30 plan years,
(iii) separately, with respect to each plan year, the net
increase (if any) in unfunded past service liability under
the plan arising from plan amendments adopted in such year,
over a period of 30 plan years,
(iv) separately, with respect to each plan year, the net
experience loss (if any) under the plan, over a period of 5
plan years (15 plan years in the case of a multiemployer
plan), and
(v) separately, with respect to each plan year, the net
loss (if any) resulting from changes in actuarial assumptions
used under the plan, over a period of 10 plan years (30 plan
years in the case of a multiemployer plan),
(C) the amount necessary to amortize each waived funding
deficiency (within the meaning of subsection (d)(3)) for each
prior plan year in equal annual installments (until fully
amortized) over a period of 5 plan years (15 plan years in the
case of a multiemployer plan),
(D) the amount necessary to amortize in equal annual
installments (until fully amortized) over a period of 5 plan
years any amount credited to the funding standard account under
paragraph (3)(D), and
(E) the amount necessary to amortize in equal annual
installments (until fully amortized) over a period of 20 years
the contributions which would be required to be made under the
plan but for the provisions of subsection (c)(7)(A)(i)(I).
For additional requirements in the case of plans other than
multiemployer plans, see subsection (l).
(3) Credits to account
For a plan year, the funding standard account shall be credited
with the sum of -
(A) the amount considered contributed by the employer to or
under the plan for the plan year,
(B) the amount necessary to amortize in equal annual
installments (until fully amortized) -
(i) separately, with respect to each plan year, the net
decrease (if any) in unfunded past service liability under
the plan arising from plan amendments adopted in such year,
over a period of 30 plan years,
(ii) separately, with respect to each plan year, the net
experience gain (if any) under the plan, over a period of 5
plan years (15 plan years in the case of a multiemployer
plan), and
(iii) separately, with respect to each plan year, the net
gain (if any) resulting from changes in actuarial assumptions
used under the plan, over a period of 10 plan years (30 plan
years in the case of a multiemployer plan),
(C) the amount of the waived funding deficiency (within the
meaning of subsection (d)(3) (!1) for the plan year, and
(D) in the case of a plan year for which the accumulated
funding deficiency is determined under the funding standard
account if such plan year follows a plan year for which such
deficiency was determined under the alternative minimum funding
standards, the excess (if any) of any debit balance in the
funding standard account (determined without regard to this
subparagraph) over any debit balance in the alternative minimum
funding standard account.
(4) Combining and offsetting amounts to be amortized
Under regulations prescribed by the Secretary, amounts required
to be amortized under paragraph (2) or paragraph (3), as the case
may be -
(A) may be combined into one amount under such paragraph to
be amortized over a period determined on the basis of the
remaining amortization period for all items entering into such
combined amount, and
(B) may be offset against amounts required to be amortized
under the other such paragraph, with the resulting amount to be
amortized over a period determined on the basis of the
remaining amortization periods for all items entering into
whichever of the two amounts being offset is the greater.
(5) Interest
(A) In general
The funding standard account (and items therein) shall be
charged or credited (as determined under regulations prescribed
by the Secretary) with interest at the appropriate rate
consistent with the rate or rates of interest used under the
plan to determine costs.
(B) Required change of interest rate
For purposes of determining a plan's current liability and
for purposes of determining a plan's required contribution
under section 412(l) for any plan year -
(i) In general
If any rate of interest used under the plan to determine
cost is not within the permissible range, the plan shall
establish a new rate of interest within the permissible
range.
(ii) Permissible range
For purposes of this subparagraph -
(I) In general
Except as provided in subclause (II) or (III), the term
"permissible range" means a rate of interest which is not
more than 10 percent above, and not more than 10 percent
below, the weighted average of the rates of interest on 30-
year Treasury securities during the 4-year period ending
on the last day before the beginning of the plan year.
(II) Special rule for years 2004 and 2005
In the case of plan years beginning after December 31,
2003, and before January 1, 2006, the term "permissible
range" means a rate of interest which is not above, and not
more than 10 percent below, the weighted average of the
rates of interest on amounts invested conservatively in
long-term investment grade corporate bonds during the 4-
year period ending on the last day before the beginning of
the plan year. Such rates shall be determined by the
Secretary on the basis of 2 or more indices that are
selected periodically by the Secretary and that are in the
top 3 quality levels available. The Secretary shall make
the permissible range, and the indices and methodology used
to determine the average rate, publicly available.
(III) Secretarial authority
If the Secretary finds that the lowest rate of interest
permissible under subclause (I) or (II) is unreasonably
high, the Secretary may prescribe a lower rate of interest,
except that such rate may not be less than 80 percent of
the average rate determined under such subclause.
(iii) Assumptions
Notwithstanding subsection (c)(3)(A)(i), the interest rate
used under the plan shall be -
(I) determined without taking into account the experience
of the plan and reasonable expectations, but
(II) consistent with the assumptions which reflect the
purchase rates which would be used by insurance companies
to satisfy the liabilities under the plan.
(6) Certain amortization charges and credits
In the case of a plan which, immediately before the date of the
enactment of the Multiemployer Pension Plan Amendments Act of
1980, was a multiemployer plan (within the meaning of section
414(f) as in effect immediately before such date) -
(A) any amount described in paragraph (2)(B)(ii),
(2)(B)(iii), or (3)(B)(i) of this subsection which arose in a
plan year beginning before such date shall be amortized in
equal annual installments (until fully amortized) over 40 plan
years, beginning with the plan year in which the amount arose;
(B) any amount described in paragraph (2)(B)(iv) or
(3)(B)(ii) of this subsection which arose in a plan year
beginning before such date shall be amortized in equal annual
installments (until fully amortized) over 20 plan years,
beginning with the plan year in which the amount arose;
(C) any change in past service liability which arises during
the period of 3 plan years beginning on or after such date, and
results from a plan amendment adopted before such date, shall
be amortized in equal annual installments (until fully
amortized) over 40 plan years, beginning with the plan year in
which the change arises; and
(D) any change in past service liability which arises during
the period of 2 plan years beginning on or after such date, and
results from the changing of a group of participants from one
benefit level to another benefit level under a schedule of plan
benefits which -
(i) was adopted before such date, and
(ii) was effective for any plan participant before the
beginning of the first plan year beginning on or after such
date,
shall be amortized in equal annual installments (until fully
amortized) over 40 plan years, beginning with the plan year in
which the change arises.
(7) Special rules for multiemployer plans
For purposes of this section -
(A) Withdrawal liability
Any amount received by a multiemployer plan in payment of all
or part of an employer's withdrawal liability under part 1 of
subtitle E of title IV of the Employee Retirement Income
Security Act of 1974 shall be considered an amount contributed
by the employer to or under the plan. The Secretary may
prescribe by regulation additional charges and credits to a
multiemployer plan's funding standard account to the extent
necessary to prevent withdrawal liability payments from being
unduly reflected as advance funding for plan liabilities.
(B) Adjustments when a multiemployer plan leaves reorganization
If a multiemployer plan is not in reorganization in the plan
year but was in reorganization in the immediately preceding
plan year, any balance in the funding standard account at the
close of such immediately preceding plan year -
(i) shall be eliminated by an offsetting credit or charge
(as the case may be), but
(ii) shall be taken into account in subsequent plan years
by being amortized in equal annual installments (until fully
amortized) over 30 plan years.
The preceding sentence shall not apply to the extent of any
accumulated funding deficiency under section 418B(a) as of the
end of the last plan year that the plan was in reorganization.
(C) Plan payments to supplemental program or withdrawal
liability payment fund
Any amount paid by a plan during a plan year to the Pension
Benefit Guaranty Corporation pursuant to section 4222 of such
Act or to a fund exempt under section 501(c)(22) pursuant to
section 4223 of such Act shall reduce the amount of
contributions considered received by the plan for the plan
year.
(D) Interim withdrawal liability payments
Any amount paid by an employer pending a final determination
of the employer's withdrawal liability under part 1 of subtitle
E of title IV of such Act and subsequently refunded to the
employer by the plan shall be charged to the funding standard
account in accordance with regulations prescribed by the
Secretary.
(E) For purposes of the full funding limitation under
subsection (c)(7), unless otherwise provided by the plan, the
accrued liability under a multiemployer plan shall not include
benefits which are not nonforfeitable under the plan after the
termination of the plan (taking into consideration section
411(d)(3)).
(F) Election for deferral of charge for portion of net
experience loss
(i) In general
With respect to the net experience loss of an eligible
multiemployer plan for the first plan year beginning after
December 31, 2001, the plan sponsor may elect to defer up to
80 percent of the amount otherwise required to be charged
under paragraph (2)(B)(iv) for any plan year beginning after
June 30, 2003, and before July 1, 2005, to any plan year
selected by the plan from either of the 2 immediately
succeeding plan years.
(ii) Interest
For the plan year to which a charge is deferred pursuant to
an election under clause (i), the funding standard account
shall be charged with interest on the deferred charge for the
period of deferral at the rate determined under subsection
(d) for multiemployer plans.
(iii) Restrictions on benefit increases
No amendment which increases the liabilities of the plan by
reason of any increase in benefits, any change in the accrual
of benefits, or any change in the rate at which benefits
become nonforfeitable under the plan shall be adopted during
any period for which a charge is deferred pursuant to an
election under clause (i), unless -
(I) the plan's enrolled actuary certifies (in such form
and manner prescribed by the Secretary) that the amendment
provides for an increase in annual contributions which will
exceed the increase in annual charges to the funding
standard account attributable to such amendment, or
(II) the amendment is required by a collective bargaining
agreement which is in effect on the date of enactment of
this subparagraph.
If a plan is amended during any such plan year in violation
of the preceding sentence, any election under this paragraph
shall not apply to any such plan year ending on or after the
date on which such amendment is adopted.
(iv) Eligible multiemployer plan
For purposes of this subparagraph, the term "eligible
multiemployer plan" means a multiemployer plan -
(I) which had a net investment loss for the first plan
year beginning after December 31, 2001, of at least 10
percent of the average fair market value of the plan assets
during the plan year, and
(II) with respect to which the plan's enrolled actuary
certifies (not taking into account the application of this
subparagraph), on the basis of the acutuarial (!2)
assumptions used for the last plan year ending before the
date of the enactment of this subparagraph, that the plan
is projected to have an accumulated funding deficiency
(within the meaning of subsection (a)) for any plan year
beginning after June 30, 2003, and before July 1, 2006.
For purposes of subclause (I), a plan's net investment loss
shall be determined on the basis of the actual loss and not
under any actuarial method used under subsection (c)(2).
(v) Exception to treatment of eligible multiemployer plan
In no event shall a plan be treated as an eligible
multiemployer plan under clause (iv) if -
(I) for any taxable year beginning during the 10-year
period preceding the first plan year for which an election
is made under clause (i), any employer required to
contribute to the plan failed to timely pay any excise tax
imposed under section 4971 with respect to the plan,
(II) for any plan year beginning after June 30, 1993, and
before the first plan year for which an election is made
under clause (i), the average contribution required to be
made by all employers to the plan does not exceed 10 cents
per hour or no employer is required to make contributions
to the plan, or
(III) with respect to any of the plan years beginning
after June 30, 1993, and before the first plan year for
which an election is made under clause (i), a waiver was
granted under section 412(d) or section 303 of the Employee
Retirement Income Security Act of 1974 with respect to the
plan or an extension of an amortization period was granted
under subsection (e) or section 304 of such Act with
respect to the plan.
(vi) Election
An election under this subparagraph shall be made at such
time and in such manner as the Secretary may prescribe.
(c) Special rules
(1) Determinations to be made under funding method
For purposes of this section, normal costs, accrued liability,
past service liabilities, and experience gains and losses shall
be determined under the funding method used to determine costs
under the plan.
(2) Valuation of assets
(A) In general
For purposes of this section, the value of the plan's assets
shall be determined on the basis of any reasonable actuarial
method of valuation which takes into account fair market value
and which is permitted under regulations prescribed by the
Secretary.
(B) Election with respect to bonds
The value of a bond or other evidence of indebtedness which
is not in default as to principal or interest may, at the
election of the plan administrator, be determined on an
amortized basis running from initial cost at purchase to par
value at maturity or earliest call date. Any election under
this subparagraph shall be made at such time and in such manner
as the Secretary shall by regulations provide, shall apply to
all such evidences of indebtedness, and may be revoked only
with the consent of the Secretary. In the case of a plan other
than a multiemployer plan, this subparagraph shall not apply,
but the Secretary may by regulations provide that the value of
any dedicated bond portfolio of such plan shall be determined
by using the interest rate under subsection (b)(5).
(3) Actuarial assumptions must be reasonable
For purposes of this section, all costs, liabilities, rates of
interest, and other factors under the plan shall be determined on
the basis of actuarial assumptions and methods -
(A) in the case of -
(i) a plan other than a multiemployer plan, each of which
is reasonable (taking into account the experience of the plan
and reasonable expectations) or which, in the aggregate,
result in a total contribution equivalent to that which would
be determined if each such assumption and method were
reasonable, or
(ii) a multiemployer plan, which, in the aggregate, are
reasonable (taking into account the experiences of the plan
and reasonable expectations), and
(B) which, in combination, offer the actuary's best estimate
of anticipated experience under the plan.
(4) Treatment of certain changes as experience gain or loss
For purposes of this section, if -
(A) a change in benefits under the Social Security Act or in
other retirement benefits created under Federal or State law,
or
(B) a change in the definition of the term "wages" under
section 3121, or a change in the amount of such wages taken
into account under regulations prescribed for purposes of
section 401(a)(5),
results in an increase or decrease in accrued liability under a
plan, such increase or decrease shall be treated as an experience
loss or gain.
(5) Change in funding method or in plan year requires approval
(A) In general
If the funding method for a plan is changed, the new funding
method shall become the funding method used to determine costs
and liabilities under the plan only if the change is approved
by the Secretary. If the plan year for a plan is changed, the
new plan year shall become the plan year for the plan only if
the change is approved by the Secretary.
(B) Approval required for certain changes in assumptions by
certain single-employer plans subject to additional funding
requirement
(i) In general
No actuarial assumption (other than the assumptions
described in subsection (l)(7)(C)) used to determine the
current liability for a plan to which this subparagraph
applies may be changed without the approval of the Secretary.
(ii) Plans to which subparagraph applies
This subparagraph shall apply to a plan only if -
(I) the plan is a defined benefit plan (other than a
multiemployer plan) to which title IV of the Employee
Retirement Income Security Act of 1974 applies;
(II) the aggregate unfunded vested benefits as of the
close of the preceding plan year (as determined under
section 4006(a)(3)(E)(iii) of the Employee Retirement
Income Security Act of 1974) of such plan and all other
plans maintained by the contributing sponsors (as defined
in section 4001(a)(13) of such Act) and members of such
sponsors' controlled groups (as defined in section
4001(a)(14) of such Act) which are covered by title IV of
such Act (disregarding plans with no unfunded vested
benefits) exceed $50,000,000; and
(III) the change in assumptions (determined after taking
into account any changes in interest rate and mortality
table) results in a decrease in the unfunded current
liability of the plan for the current plan year that
exceeds $50,000,000, or that exceeds $5,000,000 and that is
5 percent or more of the current liability of the plan
before such change.
(6) Full funding
If, as of the close of a plan year, a plan would (without
regard to this paragraph) have an accumulated funding deficiency
(determined without regard to the alternative minimum funding
standard account permitted under subsection (g)) in excess of the
full funding limitation -
(A) the funding standard account shall be credited with the
amount of such excess, and
(B) all amounts described in paragraphs (2)(B), (C), and (D)
and (3)(B) of subsection (b) which are required to be amortized
shall be considered fully amortized for purposes of such
paragraphs.
(7) Full-funding limitation
(A) In general
For purposes of paragraph (6), the term "full-funding
limitation" means the excess (if any) of -
(i) the lesser of (I) in the case of plan years beginning
before January 1, 2004, the applicable percentage of current
liability (including the expected increase in current
liability due to benefits accruing during the plan year), or
(II) the accrued liability (including normal cost) under the
plan (determined under the entry age normal funding method if
such accrued liability cannot be directly calculated under
the funding method used for the plan), over
(ii) the lesser of -
(I) the fair market value of the plan's assets, or
(II) the value of such assets determined under paragraph
(2).
(B) Current liability
For purposes of subparagraph (D) and subclause (I) of
subparagraph (A)(i), the term "current liability" has the
meaning given such term by subsection (l)(7) (without regard to
subparagraphs (C) and (D) thereof) and using the rate of
interest used under subsection (b)(5)(B).
(C) Special rule for paragraph (6)(B)
For purposes of paragraph (6)(B), subparagraph (A)(i) shall
be applied without regard to subclause (I) thereof.
(D) Regulatory authority
The Secretary may by regulations provide -
(i) for adjustments to the percentage contained in
subparagraph (A)(i) to take into account the respective ages
or lengths of service of the participants, and
(ii) alternative methods based on factors other than
current liability for the determination of the amount taken
into account under subparagraph (A)(i).
(E) Minimum amount
(i) In general
In no event shall the full-funding limitation determined
under subparagraph (A) be less than the excess (if any) of -
(I) 90 percent of the current liability of the plan
(including the expected increase in current liability due
to benefits accruing during the plan year), over
(II) the value of the plan's assets determined under
paragraph (2).
(ii) Current liability; assets
For purposes of clause (i) -
(I) the term "current liability" has the meaning given
such term by subsection (l)(7) (without regard to
subparagraph (D) thereof), and
(II) assets shall not be reduced by any credit balance in
the funding standard account.
(F) Applicable percentage
For purposes of subparagraph (A)(i)(I), the applicable
percentage shall be determined in accordance with the following
table:
In the case of any plan year The applicable
beginning in - percentage is -
2002 165
2003 170.
(8) Certain retroactive plan amendments
For purposes of this section, any amendment applying to a plan
year which -
(A) is adopted after the close of such plan year but no later
than 2 and one-half months after the close of the plan year
(or, in the case of a multiemployer plan, no later than 2 years
after the close of such plan year),
(B) does not reduce the accrued benefit of any participant
determined as of the beginning of the first plan year to which
the amendment applies, and
(C) does not reduce the accrued benefit of any participant
determined as of the time of adoption except to the extent
required by the circumstances,
shall, at the election of the plan administrator, be deemed to
have been made on the first day of such plan year. No amendment
described in this paragraph which reduces the accrued benefits of
any participant shall take effect unless the plan administrator
files a notice with the Secretary of Labor notifying him of such
amendment and the Secretary of Labor has approved such amendment,
or within 90 days after the date on which such notice was filed,
failed to disapprove such amendment. No amendment described in
this subsection shall be approved by the Secretary of Labor
unless he determines that such amendment is necessary because of
a substantial business hardship (as determined under subsection
(d)(2)) and that a waiver under subsection (d)(1) is unavailable
or inadequate.
(9) Annual valuation
(A) In general
For purposes of this section, a determination of experience
gains and losses and a valuation of the plan's liability shall
be made not less frequently than once every year, except that
such determination shall be made more frequently to the extent
required in particular cases under regulations prescribed by
the Secretary.
(B) Valuation date
(i) Current year
Except as provided in clause (ii), the valuation referred
to in subparagraph (A) shall be made as of a date within the
plan year to which the valuation refers or within one month
prior to the beginning of such year.
(ii) Use of prior year valuation
The valuation referred to in subparagraph (A) may be made
as of a date within the plan year prior to the year to which
the valuation refers if, as of such date, the value of the
assets of the plan are not less than 100 percent of the
plan's current liability (as defined in paragraph (7)(B)).
(iii) Adjustments
Information under clause (ii) shall, in accordance with
regulations, be actuarially adjusted to reflect significant
differences in participants.
(iv) Limitation
A change in funding method to use a prior year valuation,
as provided in clause (ii), may not be made unless as of the
valuation date within the prior plan year, the value of the
assets of the plan are not less than 125 percent of the
plan's current liability (as defined in paragraph (7)(B)).
(10) Time when certain contributions deemed made
For purposes of this section -
(A) Defined benefit plans other than multiemployer plans
In the case of a defined benefit plan other than a
multiemployer plan, any contributions for a plan year made by
an employer during the period -
(i) beginning on the day after the last day of such plan
year, and
(ii) ending on the day which is 8 1/2 months after the
close of the plan year,
shall be deemed to have been made on such last day.
(B) Other plans
In the case of a plan not described in subparagraph (A), any
contributions for a plan year made by an employer after the
last day of such plan year, but not later than two and one-half
months after such day, shall be deemed to have been made on
such last day. For purposes of this subparagraph, such two and
one-half month period may be extended for not more than six
months under regulations prescribed by the Secretary.
(11) Liability for contributions
(A) In general
Except as provided in subparagraph (B), the amount of any
contribution required by this section and any required
installments under subsection (m) shall be paid by the employer
responsible for contributing to or under the plan the amount
described in subsection (b)(3)(A).
(B) Joint and several liability where employer member of
controlled group
(i) In general
In the case of a plan other than a multiemployer plan, if
the employer referred to in subparagraph (A) is a member of a
controlled group, each member of such group shall be jointly
and severally liable for payment of such contribution or
required installment.
(ii) Controlled group
For purposes of clause (i), the term "controlled group"
means any group treated as a single employer under subsection
(b), (c), (m), or (o) of section 414.
(12) Anticipation of benefit increases effective in the future
In determining projected benefits, the funding method of a
collectively bargained plan described in section 413(a) (other
than a multiemployer plan) shall anticipate benefit increases
scheduled to take effect during the term of the collective
bargaining agreement applicable to the plan.
(d) Variance from minimum funding standard
(1) Waiver in case of business hardship
If an employer or in the case of a multiemployer plan, 10
percent or more of the number of employers contributing to or
under the plan, are unable to satisfy the minimum funding
standard for a plan year without temporary substantial business
hardship (substantial business hardship in the case of a
multiemployer plan) and if application of the standard would be
adverse to the interests of plan participants in the aggregate,
the Secretary may waive the requirements of subsection (a) for
such year with respect to all or any portion of the minimum
funding standard other than the portion thereof determined under
subsection (b)(2)(C). The Secretary shall not waive the minimum
funding standard with respect to a plan for more than 3 of any 15
(5 of any 15 in the case of a multiemployer plan) consecutive
plan years. The interest rate used for purposes of computing the
amortization charge described in subsection (b)(2)(C) for any
plan year shall be -
(A) in the case of a plan other than a multiemployer plan,
the greater of (i) 150 percent of the Federal mid-term rate (as
in effect under section 1274 for the 1st month of such plan
year), or (ii) the rate of interest used under the plan in
determining costs (including adjustments under subsection
(b)(5)(B)), and
(B) in the case of a multiemployer plan, the rate determined
under section 6621(b).
(2) Determination of business hardship
For purposes of this section, the factors taken into account in
determining temporary substantial business hardship (substantial
business hardship in the case of a multiemployer plan) shall
include (but shall not be limited to) whether or not -
(A) the employer is operating at an economic loss,
(B) there is substantial unemployment or underemployment in
the trade or business and in the industry concerned,
(C) the sales and profits of the industry concerned are
depressed or declining, and
(D) it is reasonable to expect that the plan will be
continued only if the waiver is granted.
(3) Waived funding deficiency
For purposes of this section, the term "waived funding
deficiency" means the portion of the minimum funding standard
(determined without regard to subsection (b)(3)(C)) for a plan
year waived by the Secretary and not satisfied by employer
contributions.
(4) Application must be submitted before date 2 1/2 months after
close of year
In the case of a plan other than a multiemployer plan, no
waiver may be granted under this subsection with respect to any
plan for any plan year unless an application therefor is
submitted to the Secretary not later than the 15th day of the 3rd
month beginning after the close of such plan year.
(5) Special rule if employer is member of controlled group
(A) In general
In the case of a plan other than a multiemployer plan, if an
employer is a member of a controlled group, the temporary
substantial business hardship requirements of paragraph (1)
shall be treated as met only if such requirements are met -
(i) with respect to such employer, and
(ii) with respect to the controlled group of which such
employer is a member (determined by treating all members of
such group as a single employer).
The Secretary may provide that an analysis of a trade or
business or industry of a member need not be conducted if the
Secretary determines such analysis is not necessary because the
taking into account of such member would not significantly
affect the determination under this subsection.
(B) Controlled group
For purposes of subparagraph (A), the term "controlled group"
means any group treated as a single employer under subsection
(b), (c), (m), or (o) of section 414.
(e) Extension of amortization periods
The period of years required to amortize any unfunded liability
(described in any clause of subsection (b)(2)(B)) of any plan may
be extended by the Secretary of Labor for a period of time (not in
excess of 10 years) if he determines that such extension would
carry out the purposes of the Employee Retirement Income Security
Act of 1974 and would provide adequate protection for participants
under the plan and their beneficiaries and if he determines that
the failure to permit such extension would -
(1) result in -
(A) a substantial risk to the voluntary continuation of the
plan, or
(B) a substantial curtailment of pension benefit levels or
employee compensation, and
(2) be adverse to the interests of plan participants in the
aggregate.
In the case of a plan other than a multiemployer plan, the interest
rate applicable for any plan year under any arrangement entered
into by the Secretary in connection with an extension granted under
this subsection shall be the greater of (A) 150 percent of the
Federal mid-term rate (as in effect under section 1274 for the 1st
month of such plan year), or (B) the rate of interest used under
the plan in determining costs. In the case of a multiemployer plan,
such rate shall be the rate determined under section 6621(b).
(f) Requirements relating to waivers and extensions
(1) Benefits may not be increased during waiver or extension
period
No amendment of the plan which increases the liabilities of the
plan by reason of any increase in benefits, any change in the
accrual of benefits, or any change in the rate at which benefits
become nonforfeitable under the plan shall be adopted if a waiver
under subsection (d)(1) or an extension of time under subsection
(e) is in effect with respect to the plan, or if a plan amendment
described in subsection (c)(8) has been made at any time in the
preceding 12 months (24 months for multiemployer plans). If a
plan is amended in violation of the preceding sentence, any such
waiver or extension of time shall not apply to any plan year
ending on or after the date on which such amendment is adopted.
(2) Exception
Paragraph (1) shall not apply to any plan amendment which -
(A) the Secretary of Labor determines to be reasonable and
which provides for only de minimis increases in the liabilities
of the plan.
(B) only repeals an amendment described in subsection (c)(8),
or
(C) is required as a condition of qualification under this
part.
(3) Security for waivers and extensions; consultations
(A) Security may be required
(i) In general
Except as provided in subparagraph (C), the Secretary may
require an employer maintaining a defined benefit plan which
is a single-employer plan (within the meaning of section
4001(a)(15) of the Employee Retirement Income Security Act of
1974) to provide security to such plan as a condition for
granting or modifying a waiver under subsection (d) or an
extension under subsection (e).
(ii) Special rules
Any security provided under clause (i) may be perfected and
enforced only by the Pension Benefit Guaranty Corporation, or
at the direction of the Corporation, by a contributing
sponsor (within the meaning of section 4001(a)(13) of such
Act), or a member of such sponsor's controlled group (within
the meaning of section 4001(a)(14) of such Act).
(B) Consultation with the pension benefit guaranty corporation
Except as provided in subparagraph (C), the Secretary shall,
before granting or modifying a waiver under subsection (d) or
an extension under subsection (e) with respect to a plan
described in subparagraph (A)(i) -
(i) provide the Pension Benefit Guaranty Corporation with -
(I) notice of the completed application for any waiver,
extension, or modification, and
(II) an opportunity to comment on such application within
30 days after receipt of such notice, and
(ii) consider -
(I) any comments of the Corporation under clause (i)(II),
and
(II) any views of any employee organization (within the
meaning of section 3(4) of the Employee Retirement Income
Security Act of 1974) representing participants in the plan
which are submitted in writing to the Secretary in
connection with such application.
Information provided to the corporation under this subparagraph
shall be considered tax return information and subject to the
safeguarding and reporting requirements of section 6103(p).
(C) Exception for certain waivers and extensions
(i) In general
The preceding provisions of this paragraph shall not apply
to any plan with respect to which the sum of -
(I) the outstanding balance of the accumulated funding
deficiencies (within the meaning of subsection (a) and
section 302(a) of such Act) of the plan,
(II) the outstanding balance of the amount of waived
funding deficiencies of the plan waived under subsection
(d) or section 303 of such Act, and
(III) the outstanding balance of the amount of decreases
in the minimum funding standard allowed under subsection
(e) or section 304 of such Act,
is less than $1,000,000.
(ii) Accumulated funding deficiencies
For purposes of clause (i)(I), accumulated funding
deficiencies shall include any increase in such amount which
would result if all applications for waivers of the minimum
funding standard under subsection (d) or section 303 of such
Act and for extensions of the amortization period under
subsection (e) or section 304 of such Act which are pending
with respect to such plan were denied.
(4) Additional requirements
(A) Advance notice
The Secretary shall, before granting a waiver under
subsection (d) or an extension under subsection (e), require
each applicant to provide evidence satisfactory to the
Secretary that the applicant has provided notice of the filing
of the application for such waiver or extension to each
employee organization representing employees covered by the
affected plan, and each participant, beneficiary, and alternate
payee (within the meaning of section 414(p)(8)). Such notice
shall include a description of the extent to which the plan is
funded for benefits which are guaranteed under title IV of such
Act and for benefit liabilities.
(B) Consideration of relevant information
The Secretary shall consider any relevant information
provided by a person to whom notice was given under
subparagraph (A).
(g) Alternative minimum funding standard
(1) In general
A plan which uses a funding method that requires contributions
in all years not less than those required under the entry age
normal funding method may maintain an alternative minimum funding
standard account for any plan year. Such account shall be
credited and charged solely as provided in this subsection.
(2) Charges and credits to account
For a plan year the alternative minimum funding standard
account shall be -
(A) charged with the sum of -
(i) the lesser of normal cost under the funding method used
under the plan or normal cost determined under the unit
credit method,
(ii) the excess, if any, of the present value of accrued
benefits under the plan over the fair market value of the
assets, and
(iii) an amount equal to the excess (if any) of credits to
the alternative minimum standard account for all prior plan
years over charges to such account for all such years, and
(B) credited with the amount considered contributed by the
employer to or under the plan for the plan year.
(3) Special rules
The alternative minimum funding standard account (and items
therein) shall be charged or credited with interest in the manner
provided under subsection (b)(5) with respect to the funding
standard account.
(h) Exceptions
This section shall not apply to -
(1) any profit-sharing or stock bonus plan,
(2) any insurance contract plan described in subsection (i),
(3) any governmental plan (within the meaning of section
414(d)),
(4) any church plan (within the meaning of section 414(e)) with
respect to which the election provided by section 410(d) has not
been made,
(5) any plan which has not, at any time after September 2,
1974, provided for employer contributions, or
(6) any plan established and maintained by a society, order, or
association described in section 501(c)(8) or (9), if no part of
the contributions to or under such plan are made by employers of
participants in such plan.
No plan described in paragraph (3), (4), or (6) shall be treated as
a qualified plan for purposes of section 401(a) unless such plan
meets the requirements of section 401(a)(7) as in effect on
September 1, 1974.
(i) Certain insurance contract plans
A plan is described in this subsection if -
(1) the plan is funded exclusively by the purchase of
individual insurance contracts.
(2) such contracts provide for level annual premium payments to
be paid extending not later than the retirement age for each
individual participating in the plan, and commencing with the
date the individual became a participant in the plan (or, in the
case of an increase in benefits, commencing at the time such
increase becomes effective),
(3) benefits provided by the plan are equal to the benefits
provided under each contract at normal retirement age under the
plan and are guaranteed by an insurance carrier (licensed under
the laws of a State to do business with the plan) to the extent
premiums have been paid,
(4) premiums payable for the plan year, and all prior plan
years, under such contracts have been paid before lapse or there
is reinstatement of the policy,
(5) no rights under such contracts have been subject to a
security interest at any time during the plan year, and
(6) no policy loans are outstanding at any time during the plan
year.
A plan funded exclusively by the purchase of group insurance
contracts which is determined under regulations prescribed by the
Secretary to have the same characteristics as contracts described
in the preceding sentence shall be treated as a plan described in
this subsection.
(j) Certain terminated multiemployer plans
This section applies with respect to a terminated multiemployer
plan to which section 4021 of the Employee Retirement Income
Security Act of 1974 applies, until the last day of the plan year
in which the plan terminates, within the meaning of section
4041A(a)(2) of that Act.
(k) Financial assistance
Any amount of any financial assistance from the Pension Benefit
Guaranty Corporation to any plan, and any repayment of such amount,
shall be taken into account under this section in such manner as
determined by the Secretary.
(l) Additional funding requirements for plans which are not
multiemployer plans
(1) In general
In the case of a defined benefit plan (other than a
multiemployer plan) to which this subsection applies under
paragraph (9) for any plan year, the amount charged to the
funding standard account for such plan year shall be increased by
the sum of -
(A) the excess (if any) of -
(i) the deficit reduction contribution determined under
paragraph (2) for such plan year, over
(ii) the sum of the charges for such plan year under
subsection (b)(2), reduced by the sum of the credits for such
plan year under subparagraph (B) of subsection (b)(3), plus
(B) the unpredictable contingent event amount (if any) for
such plan year.
Such increase shall not exceed the amount which, after taking
into account charges (other than the additional charge under this
subsection) and credits under subsection (b), is necessary to
increase the funded current liability percentage (taking into
account the expected increase in current liability due to
benefits accruing during the plan year) to 100 percent.
(2) Deficit reduction contribution
For purposes of paragraph (1), the deficit reduction
contribution determined under this paragraph for any plan year is
the sum of -
(A) the unfunded old liability amount,
(B) the unfunded new liability amount,
(C) the expected increase in current liability due to
benefits accruing during the plan year, and
(D) the aggregate of the unfunded mortality increase amounts.
(3) Unfunded old liability amount
For purposes of this subsection -
(A) In general
The unfunded old liability amount with respect to any plan
for any plan year is the amount necessary to amortize the
unfunded old liability under the plan in equal annual
installments over a period of 18 plan years (beginning with the
1st plan year beginning after December 31, 1988).
(B) Unfunded old liability
The term "unfunded old liability" means the unfunded current
liability of the plan as of the beginning of the 1st plan year
beginning after December 31, 1987 (determined without regard to
any plan amendment increasing liabilities adopted after October
16, 1987).
(C) Special rules for benefit increases under existing
collective bargaining agreements
(i) In general
In the case of a plan maintained pursuant to 1 or more
collective bargaining agreements between employee
representatives and the employer ratified before October 29,
1987, the unfunded old liability amount with respect to such
plan for any plan year shall be increased by the amount
necessary to amortize the unfunded existing benefit increase
liability in equal annual installments over a period of 18
plan years beginning with -
(I) the plan year in which the benefit increase with
respect to such liability occurs, or
(II) if the taxpayer elects, the 1st plan year beginning
after December 31, 1988.
(ii) Unfunded existing benefit increase liabilities
For purposes of clause (i), the unfunded existing benefit
increase liability means, with respect to any benefit
increase under the agreements described in clause (i) which
takes effect during or after the 1st plan year beginning
after December 31, 1987, the unfunded current liability
determined -
(I) by taking into account only liabilities attributable
to such benefit increase, and
(II) by reducing (but not below zero) the amount
determined under paragraph (8)(A)(ii) by the current
liability determined without regard to such benefit
increase.
(iii) Extensions, modifications, etc. not taken into account
For purposes of this subparagraph, any extension,
amendment, or other modification of an agreement after
October 28, 1987, shall not be taken into account.
(D) Special rule for required changes in actuarial assumptions
(i) In general
The unfunded old liability amount with respect to any plan
for any plan year shall be increased by the amount necessary
to amortize the amount of additional unfunded old liability
under the plan in equal annual installments over a period of
12 plan years (beginning with the first plan year beginning
after December 31, 1994).
(ii) Additional unfunded old liability
For purposes of clause (i), the term "additional unfunded
old liability" means the amount (if any) by which -
(I) the current liability of the plan as of the beginning
of the first plan year beginning after December 31, 1994,
valued using the assumptions required by paragraph (7)(C)
as in effect for plan years beginning after December 31,
1994, exceeds
(II) the current liability of the plan as of the
beginning of such first plan year, valued using the same
assumptions used under subclause (I) (other than the
assumptions required by paragraph (7)(C)), using the prior
interest rate, and using such mortality assumptions as were
used to determine current liability for the first plan year
beginning after December 31, 1992.
(iii) Prior interest rate
For purposes of clause (ii), the term "prior interest rate"
means the rate of interest that is the same percentage of the
weighted average under subsection (b)(5)(B)(ii)(I) for the
first plan year beginning after December 31, 1994, as the
rate of interest used by the plan to determine current
liability for the first plan year beginning after December
31, 1992, is of the weighted average under subsection
(b)(5)(B)(ii)(I) for such first plan year beginning after
December 31, 1992.
(E) Optional rule for additional unfunded old liability
(i) In general
If an employer makes an election under clause (ii), the
additional unfunded old liability for purposes of
subparagraph (D) shall be the amount (if any) by which -
(I) the unfunded current liability of the plan as of the
beginning of the first plan year beginning after December
31, 1994, valued using the assumptions required by
paragraph (7)(C) as in effect for plan years beginning
after December 31, 1994, exceeds
(II) the unamortized portion of the unfunded old
liability under the plan as of the beginning of the first
plan year beginning after December 31, 1994.
(ii) Election
(I) An employer may irrevocably elect to apply the
provisions of this subparagraph as of the beginning of the
first plan year beginning after December 31, 1994.
(II) If an election is made under this clause, the increase
under paragraph (1) for any plan year beginning after
December 31, 1994, and before January 1, 2002, to which this
subsection applies (without regard to this subclause) shall
not be less than the increase that would be required under
paragraph (1) if the provisions of this title as in effect
for the last plan year beginning before January 1, 1995, had
remained in effect.
(4) Unfunded new liability amount
For purposes of this subsection -
(A) In general
The unfunded new liability amount with respect to any plan
for any plan year is the applicable percentage of the unfunded
new liability.
(B) Unfunded new liability
The term "unfunded new liability" means the unfunded current
liability of the plan for the plan year determined without
regard to -
(i) the unamortized portion of the unfunded old liability,
the unamortized portion of the additional unfunded old
liability, the unamortized portion of each unfunded mortality
increase, and the unamortized portion of the unfunded
existing benefit increase liability, and
(ii) the liability with respect to any unpredictable
contingent event benefits (without regard to whether the
event has occurred).
(C) Applicable percentage
The term "applicable percentage" means, with respect to any
plan year, 30 percent, reduced by the product of -
(i) .40 multiplied by
(ii) the number of percentage points (if any) by which the
funded current liability percentage exceeds 60 percent.
(5) Unpredictable contingent event amount
(A) In general
The unpredictable contingent event amount with respect to a
plan for any plan year is an amount equal to the greatest of -
(i) the applicable percentage of the product of -
(I) 100 percent, reduced (but not below zero) by the
funded current liability percentage for the plan year,
multiplied by
(II) the amount of unpredictable contingent event
benefits paid during the plan year, including (except as
provided by the Secretary) any payment for the purchase of
an annuity contract for a participant or beneficiary with
respect to such benefits,
(ii) the amount which would be determined for the plan year
if the unpredictable contingent event benefit liabilities
were amortized in equal annual installments over 7 plan years
(beginning with the plan year in which such event occurs), or
(iii) the additional amount that would be determined under
paragraph (4)(A) if the unpredictable contingent event
benefit liabilities were included in unfunded new liability
notwithstanding paragraph (4)(B)(ii).
(B) Applicable percentage
In the case of plan The applicable
years beginning in: percentage is:
1989 and 1990 5
1991 10
1992 15
1993 20
1994 30
1995 40
1996 50
1997 60
1998 70
1999 80
2000 90
2001 and thereafter 100.
(C) Paragraph not to apply to existing benefits
This paragraph shall not apply to unpredictable contingent
event benefits (and liabilities attributable thereto) for which
the event occurred before the first plan year beginning after
December 31, 1988.
(D) Special rule for first year of amortization
Unless the employer elects otherwise, the amount determined
under subparagraph (A) for the plan year in which the event
occurs shall be equal to 150 percent of the amount determined
under subparagraph (A)(i). The amount under subparagraph
(A)(ii) for subsequent plan years in the amortization period
shall be adjusted in the manner provided by the Secretary to
reflect the application of this subparagraph.
(E) Limitation
The present value of the amounts described in subparagraph
(A) with respect to any one event shall not exceed the
unpredictable contingent event benefit liabilities attributable
to that event.
(6) Special rules for small plans
(A) Plans with 100 or fewer participants
This subsection shall not apply to any plan for any plan year
if on each day during the preceding plan year such plan had no
more than 100 participants.
(B) Plans with more than 100 but not more than 150 participants
In the case of a plan to which subparagraph (A) does not
apply and which on each day during the preceding plan year had
no more than 150 participants, the amount of the increase under
paragraph (1) for such plan year shall be equal to the product
of -
(i) such increase determined without regard to this
subparagraph, multiplied by
(ii) 2 percent for the highest number of participants in
excess of 100 on any such day.
(C) Aggregation of plans
For purposes of this paragraph, all defined benefit plans
maintained by the same employer (or any member of such
employer's controlled group) shall be treated as 1 plan, but
only employees of such employer or member shall be taken into
account.
(7) Current liability
For purposes of this subsection -
(A) In general
The term "current liability" means all liabilities to
employees and their beneficiaries under the plan.
(B) Treatment of unpredictable contingent event benefits
(i) In general
For purposes of subparagraph (A), any unpredictable
contingent event benefit shall not be taken into account
until the event on which the benefit is contingent occurs.
(ii) Unpredictable contingent event benefit
The term "unpredictable contingent event benefit" means any
benefit contingent on an event other than -
(I) age, service, compensation, death, or disability, or
(II) an event which is reasonably and reliably
predictable (as determined by the Secretary).
(C) Interest rate and mortality assumptions used
Effective for plan years beginning after December 31, 1994 -
(i) Interest rate
(I) In general
The rate of interest used to determine current liability
under this subsection shall be the rate of interest used
under subsection (b)(5), except that the highest rate in
the permissible range under subparagraph (B)(ii) thereof
shall not exceed the specified percentage under subclause
(II) of the weighted average referred to in such
subparagraph.
(II) Specified percentage
For purposes of subclause (I), the specified percentage
shall be determined as follows:
In the case of
plan years beginning The specified
in calendar year: percentage is:
1995 109
1996 108
1997 107
1998 106
1999 and thereafter 105.
(III) Special rule for 2002 and 2003
For a plan year beginning in 2002 or 2003,
notwithstanding subclause (I), in the case that the rate of
interest used under subsection (b)(5) exceeds the highest
rate permitted under subclause (I), the rate of interest
used to determine current liability under this subsection
may exceed the rate of interest otherwise permitted under
subclause (I); except that such rate of interest shall not
exceed 120 percent of the weighted average referred to in
subsection (b)(5)(B)(ii).
(IV) Special rule for 2004 and 2005
For plan years beginning in 2004 or 2005, notwithstanding
subclause (I), the rate of interest used to determine
current liability under this subsection shall be the rate
of interest under subsection (b)(5).
(ii) Mortality tables
(I) Commissioners' standard table
In the case of plan years beginning before the first plan
year to which the first tables prescribed under subclause
(II) apply, the mortality table used in determining current
liability under this subsection shall be the table
prescribed by the Secretary which is based on the
prevailing commissioners' standard table (described in
section 807(d)(5)(A)) used to determine reserves for group
annuity contracts issued on January 1, 1993.
(II) Secretarial authority
The Secretary may by regulation prescribe for plan years
beginning after December 31, 1999, mortality tables to be
used in determining current liability under this
subsection. Such tables shall be based upon the actual
experience of pension plans and projected trends in such
experience. In prescribing such tables, the Secretary shall
take into account results of available independent studies
of mortality of individuals covered by pension plans.
(III) Periodic review
The Secretary shall periodically (at least every 5 years)
review any tables in effect under this subsection and
shall, to the extent the Secretary determines necessary, by
regulation update the tables to reflect the actual
experience of pension plans and projected trends in such
experience.
(iii) Separate mortality tables for the disabled
Notwithstanding clause (ii) -
(I) In general
In the case of plan years beginning after December 31,
1995, the Secretary shall establish mortality tables which
may be used (in lieu of the tables under clause (ii)) to
determine current liability under this subsection for
individuals who are entitled to benefits under the plan on
account of disability. The Secretary shall establish
separate tables for individuals whose disabilities occur in
plan years beginning before January 1, 1995, and for
individuals whose disabilities occur in plan years
beginning on or after such date.
(II) Special rule for disabilities occurring after 1994
In the case of disabilities occurring in plan years
beginning after December 31, 1994, the tables under
subclause (I) shall apply only with respect to individuals
described in such subclause who are disabled within the
meaning of title II of the Social Security Act and the
regulations thereunder.
(III) Plan years beginning in 1995
In the case of any plan year beginning in 1995, a plan
may use its own mortality assumptions for individuals who
are entitled to benefits under the plan on account of
disability.
(D) Certain service disregarded
(i) In general
In the case of a participant to whom this subparagraph
applies, only the applicable percentage of the years of
service before such individual became a participant shall be
taken into account in computing the current liability of the
plan.
(ii) Applicable percentage
For purposes of this subparagraph, the applicable
percentage shall be determined as follows:
If the years of The applicable
participation are: percentage is:
1 20
2 40
3 60
4 80
5 or more 100.
(iii) Participants to whom subparagraph applies
This subparagraph shall apply to any participant who, at
the time of becoming a participant -
(I) has not accrued any other benefit under any defined
benefit plan (whether or not terminated) maintained by the
employer or a member of the same controlled group of which
the employer is a member,
(II) who first becomes a participant under the plan in a
plan year beginning after December 31, 1987, and
(III) has years of service greater than the minimum years
of service necessary for eligibility to participate in the
plan.
(iv) Election
An employer may elect not to have this subparagraph apply.
Such an election, once made, may be revoked only with the
consent of the Secretary.
(8) Other definitions
For purposes of this subsection -
(A) Unfunded current liability
The term "unfunded current liability" means, with respect to
any plan year, the excess (if any) of -
(i) the current liability under the plan, over
(ii) value of the plan's assets determined under subsection
(c)(2).
(B) Funded current liability percentage
The term "funded current liability percentage" means, with
respect to any plan year, the percentage which -
(i) the amount determined under subparagraph (A)(ii), is of
(ii) the current liability under the plan.
(C) Controlled group
The term "controlled group" means any group treated as a
single employer under subsections (b), (c), (m), and (o) of
section 414.
(D) Adjustments to prevent omissions and duplications
The Secretary shall provide such adjustments in the unfunded
old liability amount, the unfunded new liability amount, the
unpredictable contingent event amount, the current payment
amount, and any other charges or credits under this section as
are necessary to avoid duplication or omission of any factors
in the determination of such amounts, charges, or credits.
(E) Deduction for credit balances
For purposes of this subsection, the amount determined under
subparagraph (A)(ii) shall be reduced by any credit balance in
the funding standard account. The Secretary may provide for
such reduction for purposes of any other provision which
references this subsection.
(9) Applicability of subsection
(A) In general
Except as provided in paragraph (6)(A), this subsection shall
apply to a plan for any plan year if its funded current
liability percentage for such year is less than 90 percent.
(B) Exception for certain plans at least 80 percent funded
Subparagraph (A) shall not apply to a plan for a plan year if
-
(i) the funded current liability percentage for the plan
year is at least 80 percent, and
(ii) such percentage for each of the 2 immediately
preceding plan years (or each of the 2d and 3d immediately
preceding plan years) is at least 90 percent.
(C) Funded current liability percentage
For purposes of subparagraphs (A) and (B), the term "funded
current liability percentage" has the meaning given such term
by paragraph (8)(B), except that such percentage shall be
determined for any plan year -
(i) without regard to paragraph (8)(E), and
(ii) by using the rate of interest which is the highest
rate allowable for the plan year under paragraph (7)(C).
(D) Transition rules
For purposes of this paragraph:
(i) Funded percentage for years before 1995
The funded current liability percentage for any plan year
beginning before January 1, 1995, shall be treated as not
less than 90 percent only if for such plan year the plan met
one of the following requirements (as in effect for such
year):
(I) The full-funding limitation under subsection (c)(7)
for the plan was zero.
(II) The plan had no additional funding requirement under
this subsection (or would have had no such requirement if
its funded current liability percentage had been determined
under subparagraph (C)).
(III) The plan's additional funding requirement under
this subsection did not exceed the lesser of 0.5 percent of
current liability or $5,000,000.
(ii) Special rule for 1995 and 1996
For purposes of determining whether subparagraph (B)
applies to any plan year beginning in 1995 or 1996, a plan
shall be treated as meeting the requirements of subparagraph
(B)(ii) if the plan met the requirements of clause (i) of
this subparagraph for any two of the plan years beginning in
1992, 1993, and 1994 (whether or not consecutive).
(10) Unfunded mortality increase amount
(A) In general
The unfunded mortality increase amount with respect to each
unfunded mortality increase is the amount necessary to amortize
such increase in equal annual installments over a period of 10
plan years (beginning with the first plan year for which a plan
uses any new mortality table issued under paragraph
(7)(C)(ii)(II) or (III)).
(B) Unfunded mortality increase
For purposes of subparagraph (A), the term "unfunded
mortality increase" means an amount equal to the excess of -
(i) the current liability of the plan for the first plan
year for which a plan uses any new mortality table issued
under paragraph (7)(C)(ii)(II) or (III), over
(ii) the current liability of the plan for such plan year
which would have been determined if the mortality table in
effect for the preceding plan year had been used.
(11) Phase-in of increases in funding required by Retirement
Protection Act of 1994
(A) In general
For any applicable plan year, at the election of the
employer, the increase under paragraph (1) shall not exceed the
greater of -
(i) the increase that would be required under paragraph (1)
if the provisions of this title as in effect for plan years
beginning before January 1, 1995, had remained in effect, or
(ii) the amount which, after taking into account charges
(other than the additional charge under this subsection) and
credits under subsection (b), is necessary to increase the
funded current liability percentage (taking into account the
expected increase in current liability due to benefits
accruing during the plan year) for the applicable plan year
to a percentage equal to the sum of the initial funded
current liability percentage of the plan plus the applicable
number of percentage points for such applicable plan year.
(B) Applicable number of percentage points
(i) Initial funded current liability percentage of 75 percent
or less
Except as provided in clause (ii), for plans with an
initial funded current liability percentage of 75 percent or
less, the applicable number of percentage points for the
applicable plan year is:
In the case The applicable
of applicable number of
plan years percentage
beginning in: points is:
1995 3
1996 6
1997 9
1998 12
1999 15
2000 19
2001 24.
(ii) Other cases
In the case of a plan to which this clause applies, the
applicable number of percentage points for any such
applicable plan year is the sum of -
(I) 2 percentage points;
(II) the applicable number of percentage points (if any)
under this clause for the preceding applicable plan year;
(III) the product of .10 multiplied by the excess (if
any) of (a) 85 percentage points over (b) the sum of the
initial funded current liability percentage and the number
determined under subclause (II);
(IV) for applicable plan years beginning in 2000, 1
percentage point; and
(V) for applicable plan years beginning in 2001, 2
percentage points.
(iii) Plans to which clause (ii) applies
(I) In general
Clause (ii) shall apply to a plan for an applicable plan
year if the initial funded current liability percentage of
such plan is more than 75 percent.
(II) Plans initially under clause (i)
In the case of a plan which (but for this subclause) has
an initial funded current liability percentage of 75
percent or less, clause (ii) (and not clause (i)) shall
apply to such plan with respect to applicable plan years
beginning after the first applicable plan year for which
the sum of the initial funded current liability percentage
and the applicable number of percentage points (determined
under clause (i)) exceeds 75 percent. For purposes of
applying clause (ii) to such a plan, the initial funded
current liability percentage of such plan shall be treated
as being the sum referred to in the preceding sentence.
(C) Definitions
For purposes of this paragraph:
(i) The term "applicable plan year" means a plan year
beginning after December 31, 1994, and before January 1,
2002.
(ii) The term "initial funded current liability percentage"
means the funded current liability percentage as of the first
day of the first plan year beginning after December 31, 1994.
(12) Election for certain plans
(A) In general
In the case of a defined benefit plan established and
maintained by an applicable employer, if this subsection did
not apply to the plan for the plan year beginning in 2000
(determined without regard to paragraph (6)), then, at the
election of the employer, the increased amount under paragraph
(1) for any applicable plan year shall be the greater of -
(i) 20 percent of the increased amount under paragraph (1)
determined without regard to this paragraph, or
(ii) the increased amount which would be determined under
paragraph (1) if the deficit reduction contribution under
paragraph (2) for the applicable plan year were determined
without regard to subparagraphs (A), (B), and (D) of
paragraph (2).
(B) Restrictions on benefit increases
No amendment which increases the liabilities of the plan by
reason of any increase in benefits, any change in the accrual
of benefits, or any change in the rate at which benefits become
nonforfeitable under the plan shall be adopted during any
applicable plan year, unless -
(i) the plan's enrolled actuary certifies (in such form and
manner prescribed by the Secretary) that the amendment
provides for an increase in annual contributions which will
exceed the increase in annual charges to the funding standard
account attributable to such amendment, or
(ii) the amendment is required by a collective bargaining
agreement which is in effect on the date of enactment of this
subparagraph.
If a plan is amended during any applicable plan year in
violation of the preceding sentence, any election under this
paragraph shall not apply to any applicable plan year ending on
or after the date on which such amendment is adopted.
(C) Applicable employer
For purposes of this paragraph, the term "applicable
employer" means an employer which is -
(i) a commercial passenger airline,
(ii) primarily engaged in the production or manufacture of
a steel mill product or the processing of iron ore pellets,
or
(iii) an organization described in section 501(c)(5) and
which established the plan to which this paragraph applies on
June 30, 1955.
(D) Applicable plan year
For purposes of this paragraph -
(i) In general
The term "applicable plan year" means any plan year
beginning after December 27, 2003, and before December 28,
2005, for which the employer elects the application of this
paragraph.
(ii) Limitation on number of years which may be elected
An election may not be made under this paragraph with
respect to more than 2 plan years.
(E) Election
An election under this paragraph shall be made at such time
and in such manner as the Secretary may prescribe.
(m) Quarterly contributions required
(1) In general
If a defined benefit plan (other than a multiemployer plan)
which has a funded current liability percentage (as defined in
subsection (l)(8)) for the preceding plan year of less than 100
percent fails to pay the full amount of a required installment
for the plan year, then the rate of interest charged to the
funding standard account under subsection (b)(5) with respect to
the amount of the underpayment for the period of the underpayment
shall be equal to the greater of -
(A) 175 percent of the Federal mid-term rate (as in effect
under section 1274 for the 1st month of such plan year), or
(B) the rate of interest used under the plan in determining
costs (including adjustments under subsection (b)(5)(B)).
(2) Amount of underpayment, period of underpayment
For purposes of paragraph (1) -
(A) Amount
The amount of the underpayment shall be the excess of -
(i) the required installment, over
(ii) the amount (if any) of the installment contributed to
or under the plan on or before the due date for the
installment.
(B) Period of underpayment
The period for which interest is charged under this
subsection with regard to any portion of the underpayment shall
run from the due date for the installment to the date on which
such portion is contributed to or under the plan (determined
without regard to subsection (c)(10)).
(C) Order of crediting contributions
For purposes of subparagraph (A)(ii), contributions shall be
credited against unpaid required installments in the order in
which such installments are required to be paid.
(3) Number of required installments; due dates
For purposes of this subsection -
(A) Payable in 4 installments
There shall be 4 required installments for each plan year.
(B) Time for payment of installments
In the case of the following The due date is:
required installments:
--------------------------------------------------------------------
1st April 15
2nd July 15
3rd October 15
4th January 15 of
the following
year.
--------------------------------------------------------------------
(4) Amount of required installment
For purposes of this subsection -
(A) In general
The amount of any required installment shall be the
applicable percentage of the required annual payment.
(B) Required annual payment
For purposes of subparagraph (A), the term "required annual
payment" means the lesser of -
(i) 90 percent of the amount required to be contributed to
or under the plan by the employer for the plan year under
section 412 (without regard to any waiver under subsection
(d) thereof), or
(ii) 100 percent of the amount so required for the
preceding plan year.
Clause (ii) shall not apply if the preceding plan year was not
a year of 12 months.
(C) Applicable percentage
For purposes of subparagraph (A), the applicable percentage
shall be determined in accordance with the following table:
For plan years The applicable
beginning in: percentage is:
1989 6.25
1990 12.5
1991 18.75
1992 and thereafter 25.
(D) Special rules for unpredictable contingent event benefits
In the case of a plan to which subsection (1) (!3) applies
for any calendar year and which has any unpredictable
contingent event benefit liabilities -
(i) Liabilities not taken into account
Such liabilities shall not be taken into account in
computing the required annual payment under subparagraph (B).
(ii) Increase in installments
Each required installment shall be increased by the
greatest of -
(I) the unfunded percentage of the amount of benefits
described in subsection (l)(5)(A)(i) paid during the 3-
month period preceding the month in which the due date for
such installment occurs,
(II) 25 percent of the amount determined under subsection
(l)(5)(A)(ii) for the plan year, or
(III) 25 percent of the amount determined under
subsection (l)(5)(A)(iii) for the plan year.
(iii) Unfunded percentage
For purposes of clause (ii)(I), the term "unfunded
percentage" means the percentage determined under subsection
(l)(5)(A)(i)(I) for the plan year.
(iv) Limitation on increase
In no event shall the increases under clause (ii) exceed
the amount necessary to increase the funded current liability
percentage (within the meaning of subsection (l)(8)(B)) for
the plan year to 100 percent.
(5) Liquidity requirement
(A) In general
A plan to which this paragraph applies shall be treated as
failing to pay the full amount of any required installment to
the extent that the value of the liquid assets paid in such
installment is less than the liquidity shortfall (whether or
not such liquidity shortfall exceeds the amount of such
installment required to be paid but for this paragraph).
(B) Plans to which paragraph applies
This paragraph shall apply to a defined benefit plan (other
than a multiemployer plan or a plan described in subsection
(l)(6)(A)) which -
(i) is required to pay installments under this subsection
for a plan year, and
(ii) has a liquidity shortfall for any quarter during such
plan year.
(C) Period of underpayment
For purposes of paragraph (1), any portion of an installment
that is treated as not paid under subparagraph (A) shall
continue to be treated as unpaid until the close of the quarter
in which the due date for such installment occurs.
(D) Limitation on increase
If the amount of any required installment is increased by
reason of subparagraph (A), in no event shall such increase
exceed the amount which, when added to prior installments for
the plan year, is necessary to increase the funded current
liability percentage (taking into account the expected increase
in current liability due to benefits accruing during the plan
year) to 100 percent.
(E) Definitions
For purposes of this paragraph:
(i) Liquidity shortfall
The term "liquidity shortfall" means, with respect to any
required installment, an amount equal to the excess (as of
the last day of the quarter for which such installment is
made) of the base amount with respect to such quarter over
the value (as of such last day) of the plan's liquid assets.
(ii) Base amount
(I) In general
The term "base amount" means, with respect to any
quarter, an amount equal to 3 times the sum of the adjusted
disbursements from the plan for the 12 months ending on the
last day of such quarter.
(II) Special rule
If the amount determined under subclause (I) exceeds an
amount equal to 2 times the sum of the adjusted
disbursements from the plan for the 36 months ending on the
last day of the quarter and an enrolled actuary certifies
to the satisfaction of the Secretary that such excess is
the result of nonrecurring circumstances, the base amount
with respect to such quarter shall be determined without
regard to amounts related to those nonrecurring
circumstances.
(iii) Disbursements from the plan
The term "disbursements from the plan" means all
disbursements from the trust, including purchases of
annuities, payments of single sums and other benefits, and
administrative expenses.
(iv) Adjusted disbursements
The term "adjusted disbursements" means disbursements from
the plan reduced by the product of -
(I) the plan's funded current liability percentage (as
defined in subsection (l)(8)) for the plan year, and
(II) the sum of the purchases of annuities, payments of
single sums, and such other disbursements as the Secretary
shall provide in regulations.
(v) Liquid assets
The term "liquid assets" means cash, marketable securities
and such other assets as specified by the Secretary in
regulations.
(vi) Quarter
The term "quarter" means, with respect to any required
installment, the 3-month period preceding the month in which
the due date for such installment occurs.
(F) Regulations
The Secretary may prescribe such regulations as are necessary
to carry out this paragraph.
(6) Fiscal years and short years
(A) Fiscal years
In applying this subsection to a plan year beginning on any
date other than January 1, there shall be substituted for the
months specified in this subsection, the months which
correspond thereto.
(B) Short plan year
This subsection shall be applied to plan years of less than
12 months in accordance with regulations prescribed by the
Secretary.
(7) Special rule for 2002
In any case in which the interest rate used to determine
current liability is determined under subsection
(l)(7)(C)(i)(III), for purposes of applying paragraphs (1) and
(4)(B)(ii) for plan years beginning in 2002, the current
liability for the preceding plan year shall be redetermined using
120 percent as the specified percentage determined under
subsection (l)(7)(C)(i)(II).
(n) Imposition of lien where failure to make required contributions
(1) In general
In the case of a plan to which this section applies, if -
(A) any person fails to make a required installment under
subsection (m) or any other payment required under this section
before the due date for such installment or other payment, and
(B) the unpaid balance of such installment or other payment
(including interest), when added to the aggregate unpaid
balance of all preceding such installments or other payments
for which payment was not made before the due date (including
interest), exceeds $1,000,000,
then there shall be a lien in favor of the plan in the amount
determined under paragraph (3) upon all property and rights to
property, whether real or personal, belonging to such person and
any other person who is a member of the same controlled group of
which such person is a member.
(2) Plans to which subsection applies
This subsection shall apply to a defined benefit plan (other
than a multiemployer plan) for any plan year for which the funded
current liability percentage (within the meaning of subsection
(l)(8)(B)) of such plan is less than 100 percent. This subsection
shall not apply to any plan to which section 4021 of the Employee
Retirement Income Security Act of 1974 does not apply (as such
section is in effect on the date of the enactment of the
Retirement Protection Act of 1994).
(3) Amount of lien
For purposes of paragraph (1), the amount of the lien shall be
equal to the aggregate unpaid balance of required installments
and other payments required under this section (including
interest) -
(A) for plan years beginning after 1987, and
(B) for which payment has not been made before the due date.
(4) Notice of failure; lien
(A) Notice of failure
A person committing a failure described in paragraph (1)
shall notify the Pension Benefit Guaranty Corporation of such
failure within 10 days of the due date for the required
installment or other payment.
(B) Period of lien
The lien imposed by paragraph (1) shall arise on the due date
for the required installment or other payment and shall
continue until the last day of the first plan year in which the
plan ceases to be described in paragraph (1)(B). Such lien
shall continue to run without regard to whether such plan
continues to be described in paragraph (2) during the period
referred to in the preceding sentence.
(C) Certain rules to apply
Any amount with respect to which a lien is imposed under
paragraph (1) shall be treated as taxes due and owing the
United States and rules similar to the rules of subsections
(c), (d), and (e) of section 4068 of the Employee Retirement
Income Security Act of 1974 shall apply with respect to a lien
imposed by subsection (a) and the amount with respect to such
lien.
(5) Enforcement
Any lien created under paragraph (1) may be perfected and
enforced only by the Pension Benefit Guaranty Corporation, or at
the direction of the Pension Benefit Guaranty Corporation, by the
contributing sponsor (or any member of the controlled group of
the contributing sponsor).
(6) Definitions
For purposes of this subsection -
(A) Due date; required installment
The terms "due date" and "required installment" have the
meanings given such terms by subsection (m), except that in the
case of a payment other than a required installment, the due
date shall be the date such payment is required to be made
under this section.
(B) Controlled group
The term "controlled group" means any group treated as a
single employer under subsections (b), (c), (m), and (o) of
section 414.
-SOURCE-
(Added Pub. L. 93-406, title II, Sec. 1013(a), Sept. 2, 1974, 88
Stat. 914; amended Pub. L. 94-455, title XIX, Secs. 1901(a)(63),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1775, 1834; Pub. L. 96-364,
title II, Secs. 203, 208(c), Sept. 26, 1980, 94 Stat. 1285, 1289;
Pub. L. 98-369, div. A, title IV, Sec. 491(d)(25), July 18, 1984,
98 Stat. 850; Pub. L. 99-272, title XI, Secs. 11015(a)(2), (b)(2),
11016(c)(4), Apr. 7, 1986, 100 Stat. 265, 267, 273; Pub. L. 100-
203, title IX, Secs. 9301(a), 9303(a), (d)(1), 9304(a)(1), (b)(1),
(e)(1), 9305(b)(1), 9306(a)(1), (b)(1), (c)(1), (d)(1), (e)(1),
9307(a)(1), (b)(1), (e)(1), Dec. 22, 1987, 101 Stat. 1330-331, 1330-
333, 1330-342 to 1330-344, 1330-348, 1330-351, 1330-352, 1330-354
to 1330-357; Pub. L. 100-647, title II, Sec. 2005(a)(2)(A), (d)(1),
Nov. 10, 1988, 102 Stat. 3610, 3612; Pub. L. 101-239, title VII,
Sec. 7881(a)(1)(A), (2)(A), (3)(A), (4)(A), (5)(A), (6)(A),
(b)(1)(A), (2)(A), (3)(A), (4)(A), (6)(A), (c)(1), (d)(1)(A), Dec.
19, 1989, 103 Stat. 2435-2439; Pub. L. 103-465, title VII, Secs.
751(a)(1)-(9)(A), (10), 752(a), 753(a), 754(a), 768(a), Dec. 8,
1994, 108 Stat. 5012-5019, 5021-5023, 5040; Pub. L. 105-34, title
XV, Sec. 1521(a), (c)(1), (3)(A), title XVI, Sec. 1604(b)(2)(A),
Aug. 5, 1997, 111 Stat. 1069, 1070, 1097; Pub. L. 107-16, title VI,
Secs. 651(a), 661(a), June 7, 2001, 115 Stat. 129, 141; Pub. L. 107-
147, title IV, Secs. 405(a), 411(v)(1), Mar. 9, 2002, 116 Stat.
42, 52; Pub. L. 108-218, title I, Secs. 101(b)(1)-(3), 102(b),
104(b), Apr. 10, 2004, 118 Stat. 597, 598, 601, 606; Pub. L. 109-
135, title IV, Sec. 412(x)(1), Dec. 21, 2005, 119 Stat. 2638.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Multiemployer Pension Plan
Amendments Act of 1980, referred to in subsec. (b)(6), means the
date of the enactment of Pub. L. 96-364, which was approved Sept.
26, 1980.
The Employee Retirement Income Security Act of 1974, referred to
in subsecs. (b)(7)(A), (C), (D), (F)(v)(III), (c)(5)(B)(ii), (e),
(f)(3), (4)(A), (j), and (n)(2), (4)(C), is Pub. L. 93-406, Sept.
2, 1974, 88 Stat. 829, as amended. Title IV of the Act is
classified generally to subchapter III (Sec. 1301 et seq.) of
chapter 18 of Title 29, Labor. Part 1 of subtitle E of title IV of
the Act is classified generally to part 1 (Sec. 1381 et seq.) of
subtitle E of subchapter III of chapter 18 of Title 29. Sections 3,
302, 303, 304, 4001, 4006, 4021, 4041A, 4068, 4222, and 4223 of the
Act are classified to sections 1002, 1082, 1083, 1084, 1301, 1306,
1321, 1341a, 1368, 1402, and 1403 of Title 29, respectively. For
complete classification of this Act to the Code, see Short Title
note set out under section 1001 of Title 29 and Tables.
The date of the enactment of this subparagraph, referred to in
subsecs. (b)(7)(F)(iii)(II), (iv)(II) and (l)(12)(B)(ii), is the
date of enactment of Pub. L. 108-218, which was approved Apr. 10,
2004.
The Social Security Act, referred to in subsecs. (c)(4)(A) and
(l)(7)(C)(iii)(II), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as
amended, which is classified generally to chapter 7 (Sec. 301 et
seq.) of Title 42, The Public Health and Welfare. Title II of the
Act is classified generally to subchapter II (Sec. 401 et seq.) of
chapter 7 of Title 42. For complete classification of this Act to
the Code, see section 1305 of Title 42 and Tables.
The Retirement Protection Act of 1994, referred to in subsec.
(l)(11), is subtitle F (Secs. 750-781) of title VII of Pub. L. 103-
465, Dec. 8, 1994, 108 Stat. 5012. For complete classification of
this Act to the Code, see Short Title of 1994 Amendment note set
out under section 1 of this title and Tables.
The date of the enactment of the Retirement Protection Act of
1994, referred to in subsec. (n)(2), is the date of enactment of
subtitle F (Secs. 750-781) of title VII of Pub. L. 103-465, which
was approved Dec. 8, 1994.
-MISC1-
AMENDMENTS
2005 - Subsec. (m)(4)(B)(i). Pub. L. 109-135 substituted
"subsection (d)" for "subsection (c)".
2004 - Subsec. (b)(5)(B)(ii)(I). Pub. L. 108-218, Sec.
101(b)(1)(C), inserted "or (III)" after "subclause (II)".
Subsec. (b)(5)(B)(ii)(II), (III). Pub. L. 108-218, Sec.
101(b)(1)(A), (B), added subcl. (II), redesignated former subcl.
(II) as (III), and, in subcl. (III), inserted "or (II)" after
"permissible under subclause (I)" and substituted "such subclause"
for "subclause (I)" before period at end.
Subsec. (b)(7)(F). Pub. L. 108-218, Sec. 104(b), added subpar.
(F).
Subsec. (l)(7)(C)(i)(IV). Pub. L. 108-218, Sec. 101(b)(2), added
subcl. (IV).
Subsec. (l)(12). Pub. L. 108-218, Sec. 102(b), added par. (12).
Subsec. (m)(7). Pub. L. 108-218, Sec. 101(b)(3), amended heading
and text of par. (7) generally, substituting provisions relating to
special rule for 2002 for provisions relating to special rules for
2002 and 2004.
2002 - Subsec. (c)(9)(B)(ii). Pub. L. 107-147, Sec. 411(v)(1)(A),
substituted "100 percent" for "125 percent".
Subsec. (c)(9)(B)(iv). Pub. L. 107-147, Sec. 411(v)(1)(B), added
cl. (iv).
Subsec. (l)(7)(C)(i)(III). Pub. L. 107-147, Sec. 405(a)(1), added
subcl. (III).
Subsec. (m)(7). Pub. L. 107-147, Sec. 405(a)(2), added par. (7).
2001 - Subsec. (c)(7)(A)(i)(I). Pub. L. 107-16, Secs. 651(a)(1),
901, temporarily substituted "in the case of plan years beginning
before January 1, 2004, the applicable percentage" for "the
applicable percentage". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(7)(F). Pub. L. 107-16, Secs. 651(a)(2), 901,
temporarily reenacted heading and introductory provisions without
change and amended table generally, substituting present provisions
for provisions which had set out applicable percentage of 155 in
the case of any plan year beginning in 1999 or 2000, 160 in the
case of any plan year beginning in 2001 or 2002, 165 in the case of
any plan year beginning in 2003 or 2004, and 170 in the case of any
plan year beginning in 2005 and succeeding years. See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (c)(9). Pub. L. 107-16, Secs. 661(a), 901, temporarily
reenacted heading without change and amended text of par. (9)
generally. Prior to amendment, text read as follows: "For purposes
of this section, a determination of experience gains and losses and
a valuation of the plan's liability shall be made not less
frequently than once every year, except that such determination
shall be made more frequently to the extent required in particular
cases under regulations prescribed by the Secretary." See Effective
and Termination Dates of 2001 Amendment note below.
1997 - Subsec. (b)(2)(E). Pub. L. 105-34, Sec. 1521(c)(1), added
subpar. (E).
Subsec. (c)(7)(A)(i)(I). Pub. L. 105-34, Sec. 1521(a)(A),
substituted "the applicable percentage" for "150 percent".
Subsec. (c)(7)(D). Pub. L. 105-34, Sec. 1521(c)(3)(A), inserted
"and" at end of cl. (i), substituted a period for ", and" at end of
cl. (ii), and struck out cl. (iii) which read as follows: "for the
treatment under this section of contributions which would be
required to be made under the plan but for the provisions of
subparagraph (A)(i)(I)."
Subsec. (c)(7)(F). Pub. L. 105-34, Sec. 1521(a)(B), added subpar.
(F).
Subsec. (m)(5)(E)(ii)(II). Pub. L. 105-34, Sec. 1604(b)(2)(A),
substituted "subclause (I)" for "clause (i)".
1994 - Subsec. (c)(5). Pub. L. 103-465, Sec. 752(a), designated
existing provisions as subpar. (A), inserted subpar. heading, and
added subpar. (B).
Subsec. (c)(7)(A)(i)(I). Pub. L. 103-465, Sec. 751(a)(10)(A),
inserted "(including the expected increase in current liability due
to benefits accruing during the plan year)" after "current
liability".
Subsec. (c)(7)(B). Pub. L. 103-465, Sec. 751(a)(10)(C), reenacted
subpar. (B) heading without change and amended text generally.
Prior to amendment, text read as follows: "For purposes of
subparagraphs (A) and (D), the term 'current liability' has the
meaning given such term by subsection (l)(7) (without regard to
subparagraph (D) thereof)."
Subsec. (c)(7)(E). Pub. L. 103-465, Sec. 751(a)(10)(B), added
subpar. (E).
Subsec. (c)(12). Pub. L. 103-465, Sec. 753(a), added par. (12).
Subsec. (l)(1). Pub. L. 103-465, Sec. 751(a)(1)(A), (2)(B), in
introductory provisions, substituted "to which this subsection
applies under paragraph (9)" for "which has an unfunded current
liability", and amended concluding provisions generally. Prior to
amendment, concluding provisions read as follows: "Such increase
shall not exceed the amount necessary to increase the funded
current liability percentage to 100 percent."
Subsec. (l)(1)(A)(ii). Pub. L. 103-465, Sec. 751(a)(2)(A),
amended cl. (ii) generally. Prior to amendment, cl. (ii) read as
follows: "the sum of the charges for such plan year under
subparagraphs (B) (other than clauses (iv) and (v) thereof), (C),
and (D) of subsection (b)(2), reduced by the sum of the credits for
such plan year under subparagraph (B)(i) of subsection (b)(3),
plus".
Subsec. (l)(2)(C). Pub. L. 103-465, Sec. 751(a)(3), added subpar.
(C).
Subsec. (l)(2)(D). Pub. L. 103-465, Sec. 751(a)(7)(B)(i), added
subpar. (D).
Subsec. (l)(3)(D), (E). Pub. L. 103-465, Sec. 751(a)(4)(A), added
subpars. (D) and (E).
Subsec. (l)(4)(B)(i). Pub. L. 103-465, Sec. 751(a)(4)(B),
(7)(B)(iii), inserted ", the unamortized portion of the additional
unfunded old liability, the unamortized portion of each unfunded
mortality increase," after "old liability".
Subsec. (l)(4)(C). Pub. L. 103-465, Sec. 751(a)(5), substituted
".40" for ".25" in cl. (i) and "60" for "35" in cl. (ii).
Subsec. (l)(5)(A). Pub. L. 103-465, Sec. 751(a)(6)(A)(i),
substituted "greatest of" for "greater of" in introductory
provisions.
Subsec. (l)(5)(A)(iii). Pub. L. 103-465, Sec. 751(a)(6)(A)(ii)-
(iv), added cl. (iii).
Subsec. (l)(5)(E). Pub. L. 103-465, Sec. 751(a)(6)(B), added
subpar. (E).
Subsec. (l)(7)(C). Pub. L. 103-465, Sec. 751(a)(7)(A), amended
subpar. (C) generally. Prior to amendment, subpar. (C) read as
follows: "(C) Interest rates used. - The rate of interest used to
determine current liability shall be the rate of interest used
under subsection (b)(5)."
Subsec. (l)(9). Pub. L. 103-465, Sec. 751(a)(1)(B), added par.
(9).
Subsec. (l)(10). Pub. L. 103-465, Sec. 751(a)(7)(B)(ii), added
par. (10).
Subsec. (l)(11). Pub. L. 103-465, Sec. 751(a)(8), added par.
(11).
Subsec. (m)(1). Pub. L. 103-465, Sec. 754(a), in introductory
provisions, inserted "which has a funded current liability
percentage (as defined in subsection (l)(8)) for the preceding plan
year of less than 100 percent" before "fails" and substituted "the
plan year" for "any plan year".
Subsec. (m)(4)(D)(ii). Pub. L. 103-465, Sec. 751(a)(6)(C)(i),
substituted "greatest of" for "greater of" in introductory
provisions.
Subsec. (m)(4)(D)(ii)(III). Pub. L. 103-465, Sec.
751(a)(6)(C)(ii)-(iv), added subcl. (III).
Subsec. (m)(5), (6). Pub. L. 103-465, Sec. 751(a)(9)(A), added
par. (5) and redesignated former par. (5) as (6).
Subsec. (n)(2). Pub. L. 103-465, Sec. 768(a)(1), inserted at end
"This subsection shall not apply to any plan to which section 4021
of the Employee Retirement Income Security Act of 1974 does not
apply (as such section is in effect on the date of the enactment of
the Retirement Protection Act of 1994)."
Subsec. (n)(3). Pub. L. 103-465, Sec. 768(a)(2), reenacted par.
(3) heading without change and amended text generally. Prior to
amendment, text read as follows: "For purposes of paragraph (1),
the amount of the lien shall be equal to the lesser of -
"(A) the amount by which the unpaid balances described in
paragraph (1)(B) (including interest) exceed $1,000,000, or
"(B) the aggregate unpaid balance of required installments and
other payments required under this section (including interest) -
"(i) for plan years beginning after 1987, and
"(ii) for which payment has not been made before the due
date."
Subsec. (n)(4)(B). Pub. L. 103-465, Sec. 768(a)(3), struck out
"60th day following the" before "due date".
1989 - Subsec. (b)(5)(B)(iii). Pub. L. 101-239, Sec.
7881(d)(1)(A), struck out "for purposes of this section and for
purposes of determining current liability," before "the interest
rate" in introductory provisions.
Subsec. (c)(9). Pub. L. 101-239, Sec. 7881(a)(6)(A), substituted
"Annual" for "3-year" in heading and "every year" for "every 3
years" in text.
Subsec. (c)(10)(A). Pub. L. 101-239, Sec. 7881(b)(1)(A),
substituted "Defined benefit plans" for "Plans" in heading and
"defined benefit plan other" for "plan other" in introductory
provisions.
Subsec. (c)(10)(B). Pub. L. 101-239, Sec. 7881(b)(2)(A),
substituted "Other" for "Multiemployer" in heading and "plan not
described in subparagraph (A)" for "multiemployer plan" in text.
Subsec. (d)(1)(A)(ii). Pub. L. 101-239, Sec. 7881(b)(6)(A)(ii),
substituted "costs (including adjustments under subsection
(b)(5)(B))" for "costs".
Subsec. (f)(4)(A). Pub. L. 101-239, Sec. 7881(c)(1), substituted
"for benefit liabilities" for "the benefit liabilities".
Subsec. (l)(3)(C)(ii)(II). Pub. L. 101-239, Sec. 7881(a)(1)(A),
substituted "reducing (but not below zero)" for "reducing".
Subsec. (l)(4)(B)(i). Pub. L. 101-239, Sec. 7881(a)(2)(A),
substituted "liability and the unamortized portion of the unfunded
existing benefit increase liability" for "liability".
Subsec. (l)(5)(C). Pub. L. 101-239, Sec. 7881(a)(3)(A),
substituted "the first plan year beginning after December 31, 1988"
for "October 17, 1987".
Subsec. (l)(7)(D)(iii)(III). Pub. L. 101-239, Sec.
7881(a)(4)(A)(i), added subcl. (III).
Subsec. (l)(7)(D)(iv). Pub. L. 101-239, Sec. 7881(a)(4)(A)(ii),
added cl. (iv).
Subsec. (l)(8)(A)(ii). Pub. L. 101-239, Sec. 7881(a)(5)(A)(i),
struck out "reduced by any credit balance in the funding standard
account" after "under subsection (c)(2)".
Subsec. (l)(8)(E). Pub. L. 101-239, Sec. 7881(a)(5)(A)(ii), added
subpar. (E).
Subsec. (m)(1). Pub. L. 101-239, Sec. 7881(b)(3)(A), substituted
"defined benefit plan (other than" for "plan (other than" in
introductory provisions.
Subsec. (m)(1)(B). Pub. L. 101-239, Sec. 7881(b)(6)(A)(i),
amended subpar. (B) generally. Prior to amendment, subpar. (B) read
as follows: "the rate under subsection (b)(5)."
Subsec. (m)(4)(D). Pub. L. 101-239, Sec. 7881(b)(4)(A), amended
subpar. (D) generally. Prior to amendment, subpar. (D) read as
follows: "In the case of a plan with any unpredictable contingent
event benefit liabilities -
"(i) such liabilities shall not be taken into account in
computing the required annual payment under subparagraph (B), and
"(ii) each required installment shall be increased by the
greater of -
"(I) the amount of benefits described in subsection
(l)(5)(A)(i) paid during the 3-month period preceding the month
in which the due date for such installment occurs, or
"(II) 25 percent of the amount determined under subsection
(l)(5)(A)(ii) for the plan year."
1988 - Subsec. (l)(3)(C)(i), (iii). Pub. L. 100-647, Sec.
2005(a)(2)(A), (d)(1), amended cl. (i) identically, substituting
"October 29" for "October 17" and amended cl. (iii) identically,
substituting "October 28" for "October 16".
1987 - Subsec. (b)(2). Pub. L. 100-203, Sec. 9303(a)(2), inserted
at end "For additional requirements in the case of plans other than
multiemployer plans, see subsection (l)."
Subsec. (b)(2)(B)(iv). Pub. L. 100-203, Sec. 9307(a)(1)(A),
substituted "5 plan years (15 plan years in the case of a
multiemployer plan)" for "15 plan years".
Subsec. (b)(2)(B)(v). Pub. L. 100-203, Sec. 9307(a)(1)(B),
substituted "10 plan years (30 plan years in the case of a
multiemployer plan)" for "30 plan years".
Subsec. (b)(2)(C), (3)(B)(ii). Pub. L. 100-203, Sec.
9307(a)(1)(A), substituted "5 plan years (15 plan years in the case
of a multiemployer plan)" for "15 plan years".
Subsec. (b)(3)(B)(iii). Pub. L. 100-203, Sec. 9307(a)(1)(B),
substituted "10 plan years (30 plan years in the case of a
multiemployer plan)" for "30 plan years".
Subsec. (b)(5). Pub. L. 100-203, Sec. 9307(e)(1), amended par.
(5) generally. Prior to amendment, par. (5) read as follows: "The
funding standard account (and items therein) shall be charged or
credited (as determined under regulations prescribed by the
Secretary) with interest at the appropriate rate consistent with
the rate or rates of interest used under the plan to determine
costs."
Subsec. (c)(2)(B). Pub. L. 100-203, Sec. 9303(d)(1), inserted at
end "In the case of a plan other than a multiemployer plan, this
subparagraph shall not apply, but the Secretary may by regulations
provide that the value of any dedicated bond portfolio of such plan
shall be determined by using the interest rate under subsection
(b)(5)."
Subsec. (c)(3). Pub. L. 100-203, Sec. 9307(b)(1), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "For
purposes of this section, all costs, liabilities, rates of
interest, and other factors under the plan shall be determined on
the basis of actuarial assumptions and methods which, in the
aggregate, are reasonable (taking into account the experience of
the plan and reasonable expectations) and which, in combination,
offer the actuary's best estimate of anticipated experience under
the plan."
Subsec. (c)(7). Pub. L. 100-203, Sec. 9301(a), substituted "Full-
funding" for "Full funding" in heading and amended text generally.
Prior to amendment, text read as follows: "For purposes of
paragraph (6), the term full funding limitation means the excess
(if any) of -
"(A) the accrued liability (including normal cost) under the
plan (determined under the entry age normal funding method if
such accrued liability cannot be directly calculated under the
funding method used for the plan), over
"(B) the lesser of the fair market value of the plan's assets
or the value of such assets determined under paragraph (2)."
Subsec. (c)(10). Pub. L. 100-203, Sec. 9304(a)(1), amended par.
(10) generally. Prior to amendment, par. (10) read as follows: "For
purposes of this section, any contributions for a plan year made by
an employer after the last day of such plan year, but not later
than two and one-half months after such day, shall be deemed to
have been made on such last day. For purposes of this paragraph,
such two and one-half month period may be extended for not more
than six months under regulations prescribed by the Secretary."
Subsec. (c)(11). Pub. L. 100-203, Sec. 9305(b)(1), added par.
(11).
Subsec. (d)(1). Pub. L. 100-203, Sec. 9306(a)(1)(B), struck out
"substantial" after "in case of" in heading, and substituted
"temporary substantial business hardship (substantial business
hardship in the case of a multiemployer plan)" for "substantial
business hardship" in text.
Pub. L. 100-203, Sec. 9306(b)(1), substituted "more than 3 of any
15 (5 of any 15 in the case of a multiemployer plan)" for "more
than 5 of any 15".
Pub. L. 100-203, Sec. 9306(c)(1)(A), substituted "The interest
rate used for purposes of computing the amortization charge
described in subsection (b)(2)(C) for any plan year shall be - "
and subpars. (A) and (B) for "The interest rate used for purposes
of computing the amortization charge described in section
412(b)(2)(C) for a variance granted under this subsection shall be
the rate determined under section 6621(b)."
Subsec. (d)(2). Pub. L. 100-203, Sec. 9306(a)(1)(B), struck out
"substantial" after "Determination of" in heading, and substituted
"temporary substantial business hardship (substantial business
hardship in the case of a multiemployer plan)" for "substantial
business hardship" in introductory provisions.
Subsec. (d)(4). Pub. L. 100-203, Sec. 9306(a)(1)(A), added par.
(4).
Subsec. (d)(5). Pub. L. 100-203, Sec. 9306(a)(1)(C), added par.
(5).
Subsec. (e). Pub. L. 100-203, Sec. 9306(c)(1)(B), substituted
last two sentences for "The interest rate applicable under any
arrangement entered into by the Secretary in connection with an
extension granted under this subsection shall be the rate
determined under section 6621(b)."
Subsec. (f)(3)(C)(i). Pub. L. 100-203, Sec. 9306(e)(1),
substituted "$1,000,000" for "$2,000,000" at end.
Subsec. (f)(4)(A). Pub. L. 100-203, Sec. 9306(d)(1), substituted
"plan, and each participant, beneficiary, and alternate payee
(within the meaning of section 414(p)(8)). Such notice shall
include a description of the extent to which the plan is funded for
benefits which are guaranteed under title IV of such Act and the
benefit liabilities." for "plan."
Subsec. (l). Pub. L. 100-203, Sec. 9303(a)(1), added subsec. (l).
Subsec. (m). Pub. L. 100-203, Sec. 9304(b)(1), added subsec. (m).
Subsec. (n). Pub. L. 100-203, Sec. 9304(e)(1), added subsec. (n).
1986 - Subsec. (d)(1). Pub. L. 99-272, Sec. 11015(b)(2)(A),
inserted provision that the interest rate used for purposes of
computing the amortization charge described in section 412(b)(2)(C)
for a variance granted under this subsection be the rate determined
under section 6621(b).
Subsec. (e). Pub. L. 99-272, Sec. 11015(b)(2)(B), inserted
provision that the interest rate applicable under any arrangement
entered into by the Secretary in connection with an extension
granted under this subsection be the rate determined under section
6621(b).
Subsec. (f). Pub. L. 99-272, Sec. 11015(a)(2), substituted in
heading "Requirements relating to waivers and extensions" for
"Benefits may not be increased during waiver or extension period"
and in par. (1) heading "Benefits may not be increased during
waiver or extension period" for "In general", and added par. (3).
Pub. L. 99-272, Sec. 11016(c)(4), added par. (4).
1984 - Subsec. (a)(2). Pub. L. 98-369 struck out "or 405(a)"
after "section 403(a)".
1980 - Subsec. (a). Pub. L. 96-364, Sec. 208(c), inserted
provisions relating to plan years where multiemployer plan is in
reorganization.
Subsec. (b). Pub. L. 96-364, Sec. 203(1), (2), struck out in
pars. (2)(B)(ii), (iii), and (3)(B)(i) provisions respecting
applicability of multiemployer plans with 40 plan years and in
pars. (2)(B)(iv) and (3)(B)(ii) provisions respecting applicability
of multiemployer plans with 20 year plans and added pars. (6) and
(7).
Subsecs. (j), (k). Pub. L. 96-364, Sec. 203(3), added subsecs.
(j) and (k).
1976 - Subsecs. (a) to (d). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (h). Pub. L. 94-455, Sec. 1901(a)(63), substituted
reference to Sept. 2, 1974, for reference to the date of enactment
of the Employee Retirement Income Security Act of 1974 in par. (5)
and substituted reference to Sept. 1, 1974, for reference to the
day before the date of enactment of the Employee Retirement Income
Security Act of 1974 in the provisions following par. (6).
Subsec. (i). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 101(b)(1)-(3) of Pub. L. 108-218 applicable,
except as otherwise provided, to plan years beginning after Dec.
31, 2003, see section 101(d) of Pub. L. 108-218, set out as a note
under section 404 of this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by section 411(v)(1) of Pub. L. 107-147 effective as if
included in the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment
relates, see section 411(x) of Pub. L. 107-147, set out as a note
under section 25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title VI, Sec. 651(c), June 7, 2001, 115 Stat.
129, provided that: "The amendments made by this section [amending
this section and section 1082 of Title 29, Labor] shall apply to
plan years beginning after December 31, 2001."
Pub. L. 107-16, title VI, Sec. 661(c), June 7, 2001, 115 Stat.
142, provided that: "The amendments made by this section [amending
this section and section 1082 of Title 29, Labor] shall apply to
plan years beginning after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1521(d)(1) of Pub. L. 105-34 provided that: "The
amendments made by this section [amending this section and section
1082 of Title 29, Labor] shall apply to plan years beginning after
December 31, 1998."
Section 1604(b)(4) of Pub. L. 105-34 provided that: "The
amendments made by this subsection [amending this section, section
6621 of this title, section 1082 of Title 29, Labor, and provisions
set out as a note under section 411 of this title] shall take
effect as if included in the sections of the Uruguay Round
Agreements Act [Pub. L. 103-465] to which they relate."
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by section 751(a)(1)-(9)(A), (10) of Pub. L. 103-465
applicable to plan years beginning after Dec. 31, 1994, see section
751(b)(1) of Pub. L. 103-465, set out as a note under section 401
of this title.
Section 752(b) of Pub. L. 103-465 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to changes in assumptions for plan years
beginning after October 28, 1993.
"(2) Certain changes cease to be effective. - In the case of
changes in assumptions for plan years beginning after December 31,
1992, and on or before October 28, 1993, such changes shall cease
to be effective for plan years beginning after December 31, 1994,
if -
"(A) such change would have required the approval of the
Secretary of the Treasury had such amendment applied to such
change, and
"(B) such change is not so approved."
Section 753(b) of Pub. L. 103-465 provided that: "The amendment
made by this section [amending this section] shall apply to plan
years beginning after December 31, 1994, with respect to collective
bargaining agreements in effect on or after January 1, 1995."
Section 754(b) of Pub. L. 103-465 provided that: "The amendment
made by this section [amending this section] shall apply to plan
years beginning after the date of enactment of this Act [Dec. 8,
1994]."
Section 768(c) of Pub. L. 103-465 provided that: "The amendments
made by this section [amending this section and section 1082 of
Title 29, Labor] shall be effective for installments and other
payments required under section 412 of the Internal Revenue Code of
1986 or under part 3 of subtitle B [of title I] of the Employee
Retirement Income Security Act of 1974 [29 U.S.C. 1081 et seq.]
that become due on or after the date of enactment [Dec. 8, 1994]."
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Pension Protection
Act, Pub. L. 100-203, Secs. 9302-9346, to which such amendment
relates, see section 7882 of Pub. L. 101-239, set out as a note
under section 401 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective as if included in the
amendments made by the provisions of the Omnibus Budget
Reconciliation Act of 1987, Pub. L. 100-203, to which it relates,
see section 2005(e) of Pub. L. 100-647, as amended, set out as a
note under section 404 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 9301(c)(1), (2) of Pub. L. 100-203 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 1082 of Title 29, Labor] shall apply to
years beginning after December 31, 1987.
"(2) Regulations. - The Secretary of the Treasury or his delegate
shall prescribe such regulations as are necessary to carry out the
amendments made by this section no later than August 15, 1988."
Section 9303(e) of Pub. L. 100-203, as amended by Pub. L. 101-
239, title VII, Sec. 7881(a)(7), Dec. 19, 1989, 103 Stat. 2436,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and section
1082 of Title 29, Labor] shall apply with respect to plan years
beginning after December 31, 1988.
"(2) Subsections (c) and (d). - The amendments made by
subsections (c) [set out below] and (d) [amending this section and
section 1082 of Title 29] shall apply with respect to years
beginning after December 31, 1987.
"(3) Special rule for steel companies. -
"(A) In general. - For any plan year beginning before January
1, 1994, any increase in the funding standard account under
section 412(l) of the 1986 Code or section 302(d) of ERISA (as
added by this section) [29 U.S.C. 1082(d)] with respect to any
steel employee plan shall not exceed the sum of -
"(i) the required percentage of the current liability under
such plan, plus
"(ii) the amount determined under subparagraph (C)(i) for
such plan year.
"(B) Required percentage. - For purposes of subparagraph (A),
the term 'required percentage' means, with respect to any plan
year, the excess (if any) of -
"(i) the sum of -
"(I) the funded current liability percentage as of the
beginning of the 1st plan year beginning after December 31,
1988 (determined without regard to any plan amendment adopted
after June 30, 1987), plus
"(II) 1 percentage point for the plan year for which the
determination under this paragraph is being made and for each
prior plan year beginning after December 31, 1988, over
"(ii) the funded current liability percentage as of the
beginning of the plan year for which such determination is
being made.
"(C) Special rules for contingent events. - In the case of any
unpredictable contingent event benefit with respect to which the
event on which such benefits are contingent occurs after December
17, 1987 -
"(i) Amortization amount. - For purposes of subparagraph
(A)(ii), the amount determined under this clause for any plan
year is the amount which would be determined if the
unpredictable contingent event benefit liability were amortized
in equal annual installments over 10 plan years (beginning with
the plan year in which such event occurs).
"(ii) Benefit and contributions not taken into account. - For
purposes of subparagraph (B), in determining the funded current
liability percentage for any plan year, there shall not be
taken into account -
"(I) the unpredictable contingent event benefit liability,
or
"(II) any amount contributed to the plan which is
attributable to clause (i) (and any income allocable to such
amount).
"(D) Steel employee plan. - For purposes of this paragraph, the
term 'steel employee plan' means any plan if -
"(i) such plan is maintained by a steel company, and
"(ii) substantially all of the employees covered by such plan
are employees of such company.
"(E) Other definitions. - For purposes of this paragraph -
"(i) Steel company. - The term 'steel company' means any
corporation described in section 806(b) of the Steel Import
Stabilization Act [section 806(b) of Pub. L. 98-573, 19 U.S.C.
2253 note].
"(ii) Other definitions. - The terms 'current liability',
'funded current liability percentage', and 'unpredictable
contingent event benefit' have the meanings given such terms by
section 412(l) of the 1986 Code (as added by this section).
"(F) Special rule. - The provisions of this paragraph shall
apply in the case of a company which was originally incorporated
on April 25, 1927, in Michigan and reincorporated on June 3,
1968, in Delaware in the same manner as if such company were a
steel company."
Section 9304(a)(3) of Pub. L. 100-203 provided that: "The
amendments made by this subsection [amending this section and
section 1082 of Title 29, Labor] shall apply to plan years
beginning after December 31, 1987."
Section 9304(b)(3) of Pub. L. 100-203 provided that: "The
amendments made by this subsection [amending this section and
section 1082 of Title 29] shall apply with respect to plan years
beginning after 1988."
Section 9304(e)(3) of Pub. L. 100-203 provided that: "The
amendments made by this subsection [amending this section and
section 1082 of Title 29] shall apply to plan years beginning after
December 31, 1987."
Section 9305(d) of Pub. L. 100-203 provided that: "The amendments
made by this section [amending this section and sections 414 and
4971 of this title and section 1082 of Title 29] shall apply with
respect to plan years beginning after December 31, 1987."
Section 9306(f) of Pub. L. 100-203, as amended by Pub. L. 101-
239, title VII, Sec. 7881(c)(3), Dec. 19, 1989, 103 Stat. 2439,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and sections
1083, 1084, and 1085a of Title 29, Labor] shall apply in the case
of -
"(A) any application submitted after December 17, 1987, and
"(B) any waiver granted pursuant to such an application.
"(2) Special rule for application requirement. -
"(A) In general. - The amendments made by subsections (a)(1)(A)
and (a)(2)(A) [amending this section and section 1083 of Title
29] shall apply to plan years beginning after December 31, 1987.
"(B) Transitional rule for years beginning in 1988. - In the
case of any plan year beginning during calendar 1988, section
412(d)(4) of the 1986 Code and section 303(d)(1) of ERISA [29
U.S.C. 1083(d)(1)] (as added by subsection (a)(1) [and (2)])
shall be applied by substituting '6th month' for '3rd month'.
"(3) Subsection (b). - The amendments made by subsection (b)
[amending this section and section 1083 of Title 29] shall apply to
waivers for plan years beginning after December 31, 1987. For
purposes of applying such amendments, the number of waivers which
may be granted for plan years after December 31, 1987, shall be
determined without regard to any waivers granted for plan years
beginning before January 1, 1988.
"(4) Subsection (d). - The amendments made by subsection (d)
[amending this section and section 1083 of Title 29] shall apply to
applications submitted more than 90 days after the date of the
enactment of this Act [Dec. 22, 1987]."
Amendment by section 9307(a)(1), (b)(1), (e)(1) of Pub. L. 100-
203 applicable to years beginning after Dec. 31, 1987, except that
subsec. (b)(2)(B)(iv) and (3)(B)(ii) of this section (as amended by
section 9307(a)(1)(A) of Pub. L. 100-203) is applicable to gains
and losses established in years beginning after Dec. 31, 1987, see
section 9307(f) of Pub. L. 100-203, as amended, set out as a note
under section 404 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 11015(a)(2) of Pub. L. 99-272 applicable
with respect to applications for waivers, extensions, and
modifications filed on or after Apr. 7, 1986, see section
11015(a)(3) of Pub. L. 99-272, set out as an Effective Date note
under section 1085a of Title 29, Labor.
Amendment by sections 11015(b)(2) and 11016(c)(4) of Pub. L. 99-
272 effective Jan. 1, 1986, with certain exceptions, see section
11019 of Pub. L. 99-272, set out as a note under section 1341 of
Title 29.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to obligations issued
after Dec. 31, 1983, see section 491(f)(1) of Pub. L. 98-369, set
out as a note under section 62 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-364 effective Sept. 26, 1980, see section
210(a) of Pub. L. 96-364, set out as an Effective Date note under
section 418 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(63) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE
Section applicable, except as otherwise provided in section
1017(c) through (i) of Pub. L. 93-406, for plan years beginning
after Sept. 2, 1974, and, in the case of plans in existence on Jan.
1, 1974, for plan years beginning after Dec. 31, 1975, see section
1017 of Pub. L. 93-406, set out as an Effective Date; Transitional
Rules note under section 410 of this title.
REGULATIONS
Pub. L. 103-465, title VII, Sec. 769, Dec. 8, 1994, 108 Stat.
5041, as amended by Pub. L. 105-34, title XV, Sec. 1508(a), Aug. 5,
1997, 111 Stat. 1067; Pub. L. 108-218, title II, Sec. 201(a), Apr.
10, 2004, 118 Stat. 608, provided that:
"(a) Funding Rules Not To Apply to Certain Plans. - Any changes
made by this Act [Pub. L. 103-465] to section 412 of the Internal
Revenue Code of 1986 or to part 3 of subtitle B of title I of the
Employee Retirement Income Security Act of 1974 [29 U.S.C. 1081 et
seq.] shall not apply to -
"(1) a plan which is, on the date of enactment of this Act
[Dec. 8, 1994], subject to a restoration payment schedule order
issued by the Pension Benefit Guaranty Corporation that meets the
requirements of section 1.412(c)(1)-3 of the Treasury
Regulations, or
"(2) a plan established by an affected air carrier (as defined
under section 4001(a)(14)(C)(ii)(I) of such Act [29 U.S.C.
1301(a)(14)(C)(ii)(I)]) and assumed by a new plan sponsor
pursuant to the terms of a written agreement with the Pension
Benefit Guaranty Corporation dated January 5, 1993, and approved
by the United States Bankruptcy Court for the District of
Delaware on December 30, 1992.
"(b) Change in Actuarial Method. - Any amortization installments
for bases established under section 412(b) of the Internal Revenue
Code of 1986 and section 302(b) of the Employee Retirement Income
Security Act of 1974 [29 U.S.C. 1082(b)] for plan years beginning
after December 31, 1987, and before January 1, 1993, by reason of
nonelective changes under the frozen entry age actuarial cost
method shall not be included in the calculation of offsets under
section 412(l)(1)(A)(ii) of such Code and section 302(d)(1)(A)(ii)
of such Act for the 1st 5 plan years beginning after December 31,
1994.
"(c) Transition Rules for Certain Plans. -
"(1) In general. - In the case of a plan that -
"(A) was not required to pay a variable rate premium for the
plan year beginning in 1996;
"(B) has not, in any plan year beginning after 1995 and
before 2009, merged with another plan (other than a plan
sponsored by an employer that was in 1996 within the controlled
group of the plan sponsor); and
"(C) is sponsored by a company that is engaged primarily in
the interurban or interstate passenger bus service,
except as provided in paragraph (3), the transition rules
described in paragraph (2) shall apply for any plan year
beginning after 1996 and before 2010.
"(2) Transition rules. - The transition rules described in this
paragraph are as follows:
"(A) For purposes of section 412(l)(9)(A) of the Internal
Revenue Code of 1986 and section 302(d)(9)(A) of the Employee
Retirement Income Security Act of 1974 -
"(i) the funded current liability percentage for any plan
year beginning after 1996 and before 2005 shall be treated as
not less than 90 percent if for such plan year the funded
current liability percentage is at least 85 percent, and
"(ii) the funded current liability percentage for any plan
year beginning after 2004 and before 2010 shall be treated as
not less than 90 percent if for such plan year the funded
current liability percentage satisfies the minimum percentage
determined according to the following table:
"In the case of a plan The minimum per-
year beginning in: centage is:
2005 86 percent
2006 87 percent
2007 88 percent
2008 89 percent
2009 and thereafter 90 percent.
"(B) Sections 412(c)(7)(E)(i)(I) of such Code and
302(c)(7)(E)(i)(I) of such Act shall be applied -
"(i) by substituting '85 percent' for '90 percent' for plan
years beginning after 1996 and before 2005, and
"(ii) by substituting the minimum percentage specified in
the table contained in subparagraph (A)(ii) for '90 percent'
for plan years beginning after 2004 and before 2010.
"(C) In the event the funded current liability percentage of
a plan is less than 85 percent for any plan year beginning
after 1996 and before 2005, the transition rules under
subparagraphs (A) and (B) shall continue to apply to the plan
if contributions for such a plan year are made to the plan in
an amount equal to the lesser of -
"(i) the amount necessary to result in a funded current
liability percentage of 85 percent, or
"(ii) the greater of -
"(I) 2 percent of the plan's current liability as of the
beginning of such plan year, or
"(II) the amount necessary to result in a funded current
liability percentage of 80 percent as of the end of such plan
year.
For the plan year beginning in 2005 and for each of the 3
succeeding plan years, the transition rules under subparagraphs
(A) and (B) shall continue to apply to the plan for such plan
year only if contributions to the plan for such plan year equal
at least the expected increase in current liability due to
benefits accruing during such plan year.
"(3) Special rules. - In the case of plan years beginning in
2004 and 2005, the following transition rules shall apply in lieu
of the transition rules described in paragraph (2):
"(A) For purposes of section 412(l)(9)(A) of the Internal
Revenue Code of 1986 and section 302(d)(9)(A) of the Employee
Retirement Income Security Act of 1974, the funded current
liability percentage for any plan year shall be treated as not
less than 90 percent.
"(B) For purposes of section 412(m) of the Internal Revenue
Code of 1986 and section 302(e) of the Employee Retirement
Income Security Act of 1974, the funded current liability
percentage for any plan year shall be treated as not less than
100 percent.
"(C) For purposes of determining unfunded vested benefits
under section 4006(a)(3)(E)(iii) of the Employee Retirement
Income Security Act of 1974 [29 U.S.C. 1306(a)(3)(E)(iii)], the
mortality table shall be the mortality table used by the plan."
[Pub. L. 108-218, title II, Sec. 201(b), Apr. 10, 2004, 118 Stat.
608, provided that: "The amendments made by this section [amending
section 769 of Pub. L. 103-465, set out above] shall apply to plan
years beginning after December 31, 2003."]
[Section 1508(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending section 769 of Pub. L. 103-465, set
out above] shall apply to plan years beginning after December 31,
1996."]
Section 9303(c) of Pub. L. 100-203 provided that: "Effective with
respect to plan years beginning after December 31, 1987, the
provisions of the regulations prescribed under section 412(c)(2) of
the 1986 Code which permit asset valuations to be based on a range
between 85 percent and 115 percent of average value shall have no
force and effect with respect to plans other than multiemployer
plans (as defined in section 414(f) of the 1986 Code). The
Secretary of the Treasury or his delegate shall amend such
regulations to carry out the purposes of the preceding sentence."
EFFECT OF ELECTION
Pub. L. 108-218, title I, Sec. 102(c), Apr. 10, 2004, 118 Stat.
602, provided that: "An election under section 302(d)(12) of the
Employee Retirement Income Security Act of 1974 [29 U.S.C.
1082(d)(12)] or section 412(l)(12) of the Internal Revenue Code of
1986 (as added by this section) with respect to a plan shall not
invalidate any obligation (pursuant to a collective bargaining
agreement in effect on the date of the election) to provide
benefits, to change the accrual of benefits, or to change the rate
at which benefits become nonforfeitable under the plan."
SPECIAL RULE FOR UNAMORTIZED BALANCES UNDER EXISTING LAW
Section 1521(d)(2) of Pub. L. 105-34 provided that: "The
unamortized balance (as of the close of the plan year preceding the
plan's first year beginning in 1999) of any amortization base
established under section 412(c)(7)(D)(iii) of such Code [26 U.S.C.
412(c)(7)(D)(iii)] and section 302(c)(7)(D)(iii) of such Act [29
U.S.C. 1082(c)(7)(D)(iii)] (as repealed by subsection (c)(3)) for
any plan year beginning before 1999 shall be amortized in equal
annual installments (until fully amortized) over a period of years
equal to the excess of -
"(A) 20 years, over
"(B) the number of years since the amortization base was
established."
ALTERNATIVE AMORTIZATION METHOD FOR CERTAIN MULTIEMPLOYER PLANS
Section 1013(d) of Pub. L. 93-406, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) General rule. - In the case of any multiemployer plan (as
defined in section 414(f) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]) to which section 412 of such Code
applies, if -
"(A) on January 1, 1974, the contributions under the plan
were based on a percentage of pay,
"(B) the actuarial assumptions with respect to pay are
reasonably related to past and projected experience, and
"(C) the rates of interest under the plan are determined on
the basis of reasonable actuarial assumptions,
the plan may elect (in such manner and at such time as may be
provided under regulations prescribed by the Secretary of the
Treasury or his delegate) to fund the unfunded past service
liability under the plan existing as of the date 12 months
following the first date on which such section 412 first applies
to the plan by charging the funding standard account with an
equal annual percentage of the aggregate pay of all participants
in the plan in lieu of the level dollar charges to such account
required under clauses (i), (ii), and (iii) of section
412(b)(2)(B) of such Code and section 302(b)(2)(B)(i), (ii), and
(iii) of this Act [section 1082(b)(2)(B)(i), (ii), and (iii) of
Title 29, Labor].
"(2) Limitation. - In the case of a plan which makes an
election under paragraph (1), the aggregate of the charges
required under such paragraph for a plan year shall not be less
than the interest on the unfunded past service liabilities
described in clauses (i), (ii), and (iii) of section 412(b)(2)(B)
of the Internal Revenue Code of 1986."
-FOOTNOTE-
(!1) So in original. Probably should be followed by a closing
parenthesis.
(!2) So in original. Probably should be "actuarial".
(!3) So in original. Probably should be subsection "(l)".
-End-
-CITE-
26 USC Sec. 413 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart B - Special Rules
-HEAD-
Sec. 413. Collectively bargained plans, etc.
-STATUTE-
(a) Application of subsection (b)
Subsection (b) applies to -
(1) a plan maintained pursuant to an agreement which the
Secretary of Labor finds to be a collective-bargaining agreement
between employee representatives and one or more employers, and
(2) each trust which is a part of such plan.
(b) General rule
If this subsection applies to a plan, notwithstanding any other
provision of this title -
(1) Participation
Section 410 shall be applied as if all employees of each of the
employers who are parties to the collective-bargaining agreement
and who are subject to the same benefit computation formula under
the plan were employed by a single employer.
(2) Discrimination, etc.
Sections 401(a)(4) and 411(d)(3) shall be applied as if all
participants who are subject to the same benefit computation
formula and who are employed by employers who are parties to the
collective bargaining agreement were employed by a single
employer.
(3) Exclusive benefit
For purposes of section 401(a), in determining whether the plan
of an employer is for the exclusive benefit of his employees and
their beneficiaries, all plan participants shall be considered to
be his employees.
(4) Vesting
Section 411 (other than subsection (d)(3)) shall be applied as
if all employers who have been parties to the collective-
bargaining agreement constituted a single employer, except that
the application of any rules with respect to breaks in service
shall be made under regulations prescribed by the Secretary of
Labor.
(5) Funding
The minimum funding standard provided by section 412 shall be
determined as if all participants in the plan were employed by a
single employer.
(6) Liability for funding tax
For a plan year the liability under section 4971 of each
employer who is a party to the collective bargaining agreement
shall be determined in a reasonable manner not inconsistent with
regulations prescribed by the Secretary -
(A) first on the basis of their respective delinquencies in
meeting required employer contributions under the plan, and
(B) then on the basis of their respective liabilities for
contributions under the plan.
For purposes of this subsection and the last sentence of section
4971(a), an employer's withdrawal liability under part 1 of
subtitle E of title IV of the Employee Retirement Income Security
Act of 1974 shall not be treated as a liability for contributions
under the plan.
(7) Deduction limitations
Each applicable limitation provided by section 404(a) shall be
determined as if all participants in the plan were employed by a
single employer. The amounts contributed to or under the plan by
each employer who is a party to the agreement, for the portion of
his taxable year which is included within such a plan year, shall
be considered not to exceed such a limitation if the anticipated
employer contributions for such plan year (determined in a manner
consistent with the manner in which actual employer contributions
for such plan year are determined) do not exceed such limitation.
If such anticipated contributions exceed such a limitation, the
portion of each such employer's contributions which is not
deductible under section 404 shall be determined in accordance
with regulations prescribed by the Secretary.
(8) Employees of labor unions
For purposes of this subsection, employees or employee
representatives shall be treated as employees of an employer
described in subsection (a)(1) if such representatives meet the
requirements of sections 401(a)(4) and 410 with respect to such
employees.
(9) Plans covering a professional employee
Notwithstanding subsection (a), in the case of a plan (and
trust forming part thereof) which covers any professional
employee, paragraph (1) shall be applied by substituting "section
410(a)" for "section 410", and paragraph (2) shall not apply.
(c) Plans maintained by more than one employer
In the case of a plan maintained by more than one employer -
(1) Participation
Section 410(a) shall be applied as if all employees of each of
the employers who maintain the plan were employed by a single
employer.
(2) Exclusive benefit
For purposes of section 401(a), in determining whether the plan
of an employer is for the exclusive benefit of his employees and
their beneficiaries all plan participants shall be considered to
be his employees.
(3) Vesting
Section 411 shall be applied as if all employers who maintain
the plan constituted a single employer, except that the
application of any rules with respect to breaks in service shall
be made under regulations prescribed by the Secretary of Labor.
(4) Funding
(A) In general
In the case of a plan established after December 31, 1988,
each employer shall be treated as maintaining a separate plan
for purposes of section 412 unless such plan uses a method for
determining required contributions which provides that any
employer contributes not less than the amount which would be
required if such employer maintained a separate plan.
(B) Other plans
In the case of a plan not described in subparagraph (A), the
requirements of section 412 shall be determined as if all
participants in the plan were employed by a single employer
unless the plan administrator elects not later than the close
of the first plan year of the plan beginning after the date of
enactment of the Technical and Miscellaneous Revenue Act of
1988 to have the provisions of subparagraph (A) apply. An
election under the preceding sentence shall take effect for the
plan year in which made and, once made, may be revoked only
with the consent of the Secretary.
(5) Liability for funding tax
For a plan year the liability under section 4971 of each
employer who maintains the plan shall be determined in a
reasonable manner not inconsistent with regulations prescribed by
the Secretary -
(A) first on the basis of their respective delinquencies in
meeting required employer contributions under the plan, and
(B) then on the basis of their respective liabilities for
contributions under the plan.
(6) Deduction limitations
(A) In general
In the case of a plan established after December 31, 1988,
each applicable limitation provided by section 404(a) shall be
determined as if each employer were maintaining a separate
plan.
(B) Other plans
(i) In general
In the case of a plan not described in subparagraph (A),
each applicable limitation provided by section 404(a) shall
be determined as if all participants in the plan were
employed by a single employer, except that if an election is
made under paragraph (4)(B), subparagraph (A) shall apply to
such plan.
(ii) Special rule
If this subparagraph applies, the amounts contributed to or
under the plan by each employer who maintains the plan (for
the portion of the taxable year included within a plan year)
shall be considered not to exceed any such limitation if the
anticipated employer contributions for such plan year
(determined in a reasonable manner not inconsistent with
regulations prescribed by the Secretary) do not exceed such
limitation. If such anticipated contributions exceed such a
limitation, the portion of each such employer's contributions
which is not deductible under section 404 shall be determined
in accordance with regulations prescribed by the Secretary.
(7) Allocations
(A) In general
Except as provided in subparagraph (B), allocations of
amounts under paragraphs (4), (5), and (6) among the employers
maintaining the plan shall not be inconsistent with regulations
prescribed for this purpose by the Secretary.
(B) Assets and liabilities of plan
For purposes of applying paragraphs (4)(A) and (6)(A), the
assets and liabilities of each plan shall be treated as the
assets and liabilities which would be allocated to a plan
maintained by the employer if the employer withdrew from the
multiple employer plan.
-SOURCE-
(Added Pub. L. 93-406, title II, Sec. 1014, Sept. 2, 1974, 88 Stat.
924; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1834; Pub. L. 96-364, title II, Sec. 208(d),
Sept. 26, 1980, 94 Stat. 1290; Pub. L. 100-647, title I, Sec.
1011(h)(10), title VI, Sec. 6058(a)-(c), Nov. 10, 1988, 102 Stat.
3466, 3698, 3699; Pub. L. 101-508, title XI, Sec. 11704(a)(4), Nov.
5, 1990, 104 Stat. 1388-518.)
-REFTEXT-
REFERENCES IN TEXT
The Employee Retirement Income Security Act of 1974, referred to
in subsec. (b)(6), is Pub. L. 93-406, Sept. 2, 1974, 88 Stat. 829,
as amended. Part 1 of subtitle E of title IV of the Employee
Retirement Income Security Act of 1974 is classified generally to
part 1 (Sec. 1381 et seq.) of subtitle E of subchapter III of
chapter 18 of Title 29, Labor. For complete classification of this
Act to the Code, see Short Title note set out under section 1001 of
Title 29 and Tables.
The date of enactment of the Technical and Miscellaneous Revenue
Act of 1988, referred to in subsec. (c)(4)(B), is the date of
enactment of Pub. L. 100-647, which was approved Nov. 10, 1988.
-MISC1-
AMENDMENTS
1990 - Subsec. (c)(7)(B). Pub. L. 101-508 substituted "Assets"
for "Asset" in heading.
1988 - Subsec. (b)(9). Pub. L. 100-647, Sec. 1011(h)(10), added
par. (9).
Subsec. (c). Pub. L. 100-647, Sec. 6058(c), struck out at end
"Allocations of amounts under paragraphs (4), (5), and (6), among
the employers maintaining the plan, shall not be inconsistent with
regulations prescribed for this purpose by the Secretary."
Subsec. (c)(4). Pub. L. 100-647, Sec. 6058(a), amended par. (4)
generally. Prior to amendment, par. (4) read as follows: "The
minimum funding standard provided by section 412 shall be
determined as if all participants in the plan were employed by a
single employer."
Subsec. (c)(6). Pub. L. 100-647, Sec. 6058(b), amended par. (6)
generally. Prior to amendment, par. (6) read as follows: "Each
applicable limitation provided by section 404(a) shall be
determined as if all participants in the plan were employed by a
single employer. The amounts contributed to or under the plan by
each employer who maintains the plan, for the portion of this
taxable year which is included within such a plan year, shall be
considered not to exceed such a limitation if the anticipated
employer contributions for such plan year (determined in a
reasonable manner not inconsistent with regulations prescribed by
the Secretary) do not exceed such limitation. If such anticipated
contributions exceed such a limitation, the portion of each such
employer's contributions which is not deductible under section 404
shall be determined in accordance with regulations prescribed by
the Secretary."
Subsec. (c)(7). Pub. L. 100-647, Sec. 6058(c), added par. (7).
1980 - Subsec. (b)(6). Pub. L. 96-364 inserted provisions
relating to withdrawal liability of employer.
1976 - Subsecs. (b), (c). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1011(h)(10) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6058(d) of Pub. L. 100-647 provided that: "Except as
provided in paragraph (2), the amendments made by this section
[amending this section] shall apply to plan years beginning after
the date of the enactment of this Act [Nov. 10, 1988]."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-364 effective Sept. 26, 1980, see section
210(a) of Pub. L. 96-364, set out as an Effective Date note under
section 418 of this title.
EFFECTIVE DATE
Section applicable, except as otherwise provided in section
1017(c) through (i) of Pub. L. 93-406, for plan years beginning
after Sept. 2, 1974, and, in the case of plans in existence on Jan.
1, 1974, for plan years beginning after Dec. 31, 1975, see section
1017 of Pub. L. 93-406, set out as an Effective Date; Transitional
Rules note under section 410 of this title.
-End-
-CITE-
26 USC Sec. 414 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart B - Special Rules
-HEAD-
Sec. 414. Definitions and special rules
-STATUTE-
(a) Service for predecessor employer
For purposes of this part -
(1) in any case in which the employer maintains a plan of a
predecessor employer, service for such predecessor shall be
treated as service for the employer, and
(2) in any case in which the employer maintains a plan which is
not the plan maintained by a predecessor employer, service for
such predecessor shall, to the extent provided in regulations
prescribed by the Secretary, be treated as service for the
employer.
(b) Employees of controlled group of corporations
For purposes of sections 401, 408(k), 408(p), 410, 411, 415, and
416, all employees of all corporations which are members of a
controlled group of corporations (within the meaning of section
1563(a), determined without regard to section 1563(a)(4) and
(e)(3)(C)) shall be treated as employed by a single employer. With
respect to a plan adopted by more than one such corporation, the
applicable limitations provided by section 404(a) shall be
determined as if all such employers were a single employer, and
allocated to each employer in accordance with regulations
prescribed by the Secretary.
(c) Employees of partnerships, proprietorships, etc., which are
under common control
For purposes of sections 401, 408(k), 408(p), 410, 411, 415, and
416, under regulations prescribed by the Secretary, all employees
of trades or businesses (whether or not incorporated) which are
under common control shall be treated as employed by a single
employer. The regulations prescribed under this subsection shall be
based on principles similar to the principles which apply in the
case of subsection (b).
(d) Governmental plan
For purposes of this part, the term "governmental plan" means a
plan established and maintained for its employees by the Government
of the United States, by the government of any State or political
subdivision thereof, or by any agency or instrumentality of any of
the foregoing. The term "governmental plan" also includes any plan
to which the Railroad Retirement Act of 1935 or 1937 applies and
which is financed by contributions required under that Act and any
plan of an international organization which is exempt from taxation
by reason of the International Organizations Immunities Act (59
Stat. 669).
(e) Church plan
(1) In general
For purposes of this part, the term "church plan" means a plan
established and maintained (to the extent required in paragraph
(2)(B)) for its employees (or their beneficiaries) by a church or
by a convention or association of churches which is exempt from
tax under section 501.
(2) Certain plans excluded
The term "church plan" does not include a plan -
(A) which is established and maintained primarily for the
benefit of employees (or their beneficiaries) of such church or
convention or association of churches who are employed in
connection with one or more unrelated trades or businesses
(within the meaning of section 513); or
(B) if less than substantially all of the individuals
included in the plan are individuals described in paragraph (1)
or (3)(B) (or their beneficiaries).
(3) Definitions and other provisions
For purposes of this subsection -
(A) Treatment as church plan
A plan established and maintained for its employees (or their
beneficiaries) by a church or by a convention or association of
churches includes a plan maintained by an organization, whether
a civil law corporation or otherwise, the principal purpose or
function of which is the administration or funding of a plan or
program for the provision of retirement benefits or welfare
benefits, or both, for the employees of a church or a
convention or association of churches, if such organization is
controlled by or associated with a church or a convention or
association of churches.
(B) Employee defined
The term employee of a church or a convention or association
of churches shall include -
(i) a duly ordained, commissioned, or licensed minister of
a church in the exercise of his ministry, regardless of the
source of his compensation;
(ii) an employee of an organization, whether a civil law
corporation or otherwise, which is exempt from tax under
section 501 and which is controlled by or associated with a
church or a convention or association of churches; and
(iii) an individual described in subparagraph (E).
(C) Church treated as employer
A church or a convention or association of churches which is
exempt from tax under section 501 shall be deemed the employer
of any individual included as an employee under subparagraph
(B).
(D) Association with church
An organization, whether a civil law corporation or
otherwise, is associated with a church or a convention or
association of churches if it shares common religious bonds and
convictions with that church or convention or association of
churches.
(E) Special rule in case of separation from plan
If an employee who is included in a church plan separates
from the service of a church or a convention or association of
churches or an organization described in clause (ii) of
paragraph (3)(B), the church plan shall not fail to meet the
requirements of this subsection merely because the plan -
(i) retains the employee's accrued benefit or account for
the payment of benefits to the employee or his beneficiaries
pursuant to the terms of the plan; or
(ii) receives contributions on the employee's behalf after
the employee's separation from such service, but only for a
period of 5 years after such separation, unless the employee
is disabled (within the meaning of the disability provisions
of the church plan or, if there are no such provisions in the
church plan, within the meaning of section 72(m)(7)) at the
time of such separation from service.
(4) Correction of failure to meet church plan requirements
(A) In general
If a plan established and maintained for its employees (or
their beneficiaries) by a church or by a convention or
association of churches which is exempt from tax under section
501 fails to meet one or more of the requirements of this
subsection and corrects its failure to meet such requirements
within the correction period, the plan shall be deemed to meet
the requirements of this subsection for the year in which the
correction was made and for all prior years.
(B) Failure to correct
If a correction is not made within the correction period, the
plan shall be deemed not to meet the requirements of this
subsection beginning with the date on which the earliest
failure to meet one or more of such requirements occurred.
(C) Correction period defined
The term "correction period" means -
(i) the period, ending 270 days after the date of mailing
by the Secretary of a notice of default with respect to the
plan's failure to meet one or more of the requirements of
this subsection;
(ii) any period set by a court of competent jurisdiction
after a final determination that the plan fails to meet such
requirements, or, if the court does not specify such period,
any reasonable period determined by the Secretary on the
basis of all the facts and circumstances, but in any event
not less than 270 days after the determination has become
final; or
(iii) any additional period which the Secretary determines
is reasonable or necessary for the correction of the default,
whichever has the latest ending date.
(5) Special rules for chaplains and self-employed ministers
(A) Certain ministers may participate
For purposes of this part -
(i) In general
A duly ordained, commissioned, or licensed minister of a
church is described in paragraph (3)(B) if, in connection
with the exercise of their ministry, the minister -
(I) is a self-employed individual (within the meaning of
section 401(c)(1)(B), or
(II) is employed by an organization other than an
organization which is described in section 501(c)(3) and
with respect to which the minister shares common religious
bonds.
(ii) Treatment as employer and employee
For purposes of sections 403(b)(1)(A) and 404(a)(10), a
minister described in clause (i)(I) shall be treated as
employed by the minister's own employer which is an
organization described in section 501(c)(3) and exempt from
tax under section 501(a).
(B) Special rules for applying section 403(b) to self-employed
ministers
In the case of a minister described in subparagraph (A)(i)(I)
-
(i) the minister's includible compensation under section
403(b)(3) shall be determined by reference to the minister's
earned income (within the meaning of section 401(c)(2)) from
such ministry rather than the amount of compensation which is
received from an employer, and
(ii) the years (and portions of years) in which such
minister was a self-employed individual (within the meaning
of section 401(c)(1)(B)) with respect to such ministry shall
be included for purposes of section 403(b)(4).
(C) Effect on non-denominational plans
If a duly ordained, commissioned, or licensed minister of a
church in the exercise of his or her ministry participates in a
church plan (within the meaning of this section) and in the
exercise of such ministry is employed by an employer not
otherwise participating in such church plan, then such employer
may exclude such minister from being treated as an employee of
such employer for purposes of applying sections 401(a)(3),
401(a)(4), and 401(a)(5), as in effect on September 1, 1974,
and sections 401(a)(4), 401(a)(5), 401(a)(26), 401(k)(3),
401(m), 403(b)(1)(D) (including section 403(b)(12)), and 410 to
any stock bonus, pension, profit-sharing, or annuity plan
(including an annuity described in section 403(b) or a
retirement income account described in section 403(b)(9)). The
Secretary shall prescribe such regulations as may be necessary
or appropriate to carry out the purpose of, and prevent the
abuse of, this subparagraph.
(D) Compensation taken into account only once
If any compensation is taken into account in determining the
amount of any contributions made to, or benefits to be provided
under, any church plan, such compensation shall not also be
taken into account in determining the amount of any
contributions made to, or benefits to be provided under, any
other stock bonus, pension, profit-sharing, or annuity plan
which is not a church plan.
(E) Exclusion
In the case of a contribution to a church plan made on behalf
of a minister described in subparagraph (A)(i)(II), such
contribution shall not be included in the gross income of the
minister to the extent that such contribution would not be so
included if the minister was an employee of a church.
(f) Multiemployer plan
(1) Definition
For purposes of this part, the term "multiemployer plan" means
a plan -
(A) to which more than one employer is required to
contribute,
(B) which is maintained pursuant to one or more collective
bargaining agreements between one or more employee
organizations and more than one employer, and
(C) which satisfies such other requirements as the Secretary
of Labor may prescribe by regulation.
(2) Cases of common control
For purposes of this subsection, all trades or businesses
(whether or not incorporated) which are under common control
within the meaning of subsection (c) are considered a single
employer.
(3) Continuation of status after termination
Notwithstanding paragraph (1), a plan is a multiemployer plan
on and after its termination date under title IV of the Employee
Retirement Income Security Act of 1974 if the plan was a
multiemployer plan under this subsection for the plan year
preceding its termination date.
(4) Transitional rule
For any plan year which began before the date of the enactment
of the Multiemployer Pension Plan Amendments Act of 1980, the
term "multiemployer plan" means a plan described in this
subsection as in effect immediately before that date.
(5) Special election
Within one year after the date of the enactment of the
Multiemployer Pension Plan Amendments Act of 1980, a
multiemployer plan may irrevocably elect, pursuant to procedures
established by the Pension Benefit Guaranty Corporation and
subject to the provisions of section 4403(b) and (c) of the
Employee Retirement Income Security Act of 1974, that the plan
shall not be treated as a multiemployer plan for any purpose
under such Act or this title, if for each of the last 3 plan
years ending prior to the effective date of the Multiemployer
Pension Plan Amendments Act of 1980 -
(A) the plan was not a multiemployer plan because the plan
was not a plan described in section 3(37)(A)(iii) of the
Employee Retirement Income Security Act of 1974 and section
414(f)(1)(C) (as such provisions were in effect on the day
before the date of the enactment of the Multiemployer Pension
Plan Amendments Act of 1980); and
(B) the plan had been identified as a plan that was not a
multiemployer plan in substantially all its filings with the
Pension Benefit Guaranty Corporation, the Secretary of Labor
and the Secretary.
(g) Plan administrator
For purposes of this part, the term "plan administrator" means -
(1) the person specifically so designated by the terms of the
instrument under which the plan is operated;
(2) in the absence of a designation referred to in paragraph
(1) -
(A) in the case of a plan maintained by a single employer,
such employer,
(B) in the case of a plan maintained by two or more employers
or jointly by one or more employers and one or more employee
organizations, the association, committee, joint board of
trustees, or other similar group of representatives of the
parties who maintained the plan, or
(C) in any case to which subparagraph (A) or (B) does not
apply, such other person as the Secretary may by regulation,
prescribe.
(h) Tax treatment of certain contributions
(1) In general
Effective with respect to taxable years beginning after
December 31, 1973, for purposes of this title, any amount
contributed -
(A) to an employees' trust described in section 401(a), or
(B) under a plan described in section 403(a), shall not be
treated as having been made by the employer if it is designated
as an employee contribution.
(2) Designation by units of government
For purposes of paragraph (1), in the case of any plan
established by the government of any State or political
subdivision thereof, or by any agency or instrumentality of any
of the foregoing, where the contributions of employing units are
designated as employee contributions but where any employing unit
picks up the contributions, the contributions so picked up shall
be treated as employer contributions.
(i) Defined contribution plan
For purposes of this part, the term "defined contribution plan"
means a plan which provides for an individual account for each
participant and for benefits based solely on the amount contributed
to the participant's account, and any income, expenses, gains and
losses, and any forfeitures of accounts of other participants which
may be allocated to such participant's account.
(j) Defined benefit plan
For purposes of this part, the term "defined benefit plan" means
any plan which is not a defined contribution plan.
(k) Certain plans
A defined benefit plan which provides a benefit derived from
employer contributions which is based partly on the balance of the
separate account of a participant shall -
(1) for purposes of section 410 (relating to minimum
participation standards), be treated as a defined contribution
plan.
(2) for purposes of sections 72(d) (relating to treatment of
employee contributions as separate contract), 411(a)(7)(A)
(relating to minimum vesting standards), 415 (relating to
limitations on benefits and contributions under qualified plans),
and 401(m) (relating to nondiscrimination tests for matching
requirements and employee contributions), be treated as
consisting of a defined contribution plan to the extent benefits
are based on the separate account of a participant and as a
defined benefit plan with respect to the remaining portion of
benefits under the plan, and
(3) for purposes of section 4975 (relating to tax on prohibited
transactions), be treated as a defined benefit plan.
(l) Merger and consolidations of plans or transfers of plan assets
(1) In general
A trust which forms a part of a plan shall not constitute a
qualified trust under section 401 and a plan shall be treated as
not described in section 403(a) unless in the case of any merger
or consolidation of the plan with, or in the case of any transfer
of assets or liabilities of such plan to, any other trust plan
after September 2, 1974, each participant in the plan would (if
the plan then terminated) receive a benefit immediately after the
merger, consolidation, or transfer which is equal to or greater
than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the
plan had then terminated). The preceding sentence does not apply
to any multiemployer plan with respect to any transaction to the
extent that participants either before or after the transaction
are covered under a multiemployer plan to which Title IV of the
Employee Retirement Income Security Act of 1974 applies.
(2) Allocation of assets in plan spin-offs, etc.
(A) In general
In the case of a plan spin-off of a defined benefit plan, a
trust which forms part of -
(i) the original plan, or
(ii) any plan spun off from such plan,
shall not constitute a qualified trust under this section
unless the applicable percentage of excess assets are allocated
to each of such plans.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable
percentage" means, with respect to each of the plans described
in clauses (i) and (ii) of subparagraph (A), the percentage
determined by dividing -
(i) the excess (if any) of -
(I) the amount determined under section 412(c)(7)(A)(i)
with respect to the plan, over
(II) the amount of the assets required to be allocated to
the plan after the spin-off (without regard to this
paragraph), by
(ii) the sum of the excess amounts determined separately
under clause (i) for all such plans.
(C) Excess assets
For purposes of subparagraph (A), the term "excess assets"
means an amount equal to the excess (if any) of -
(i) the fair market value of the assets of the original
plan immediately before the spin-off, over
(ii) the amount of assets required to be allocated after
the spin-off to all plans (determined without regard to this
paragraph).
(D) Certain spun-off plans not taken into account
(i) In general
A plan involved in a spin-off which is described in clause
(ii), (iii), or (iv) shall not be taken into account for
purposes of this paragraph, except that the amount determined
under subparagraph (C)(ii) shall be increased by the amount
of assets allocated to such plan.
(ii) Plans transferred out of controlled groups
A plan is described in this clause if, after such spin-off,
such plan is maintained by an employer who is not a member of
the same controlled group as the employer maintaining the
original plan.
(iii) Plans transferred out of multiple employer plans
A plan as described in this clause if, after the spin-off,
any employer maintaining such plan (and any member of the
same controlled group as such employer) does not maintain any
other plan remaining after the spin-off which is also
maintained by another employer (or member of the same
controlled group as such other employer) which maintained the
plan in existence before the spin-off.
(iv) Terminated plans
A plan is described in this clause if, pursuant to the
transaction involving the spin-off, the plan is terminated.
(v) Controlled group
For purposes of this subparagraph, the term "controlled
group" means any group treated as a single employer under
subsection (b), (c), (m), or (o).
(E) Paragraph not to apply to multiemployer plans
This paragraph does not apply to any multiemployer plan with
respect to any spin-off to the extent that participants either
before or after the spin-off are covered under a multiemployer
plan to which title IV of the Employee Retirement Income
Security Act of 1974 applies.
(F) Application to similar transaction
Except as provided by the Secretary, rules similar to the
rules of this paragraph shall apply to transactions similar to
spin-offs.
(G) Special rules for bridge banks
For purposes of this paragraph, in the case of a bridge bank
established under section 11(i) of the Federal Deposit
Insurance Act (12 U.S.C. 1821(i)) -
(i) such bank shall be treated as a member of any
controlled group which includes any insured bank (as defined
in section 3(h) of such Act (12 U.S.C. 1813(h))) -
(I) which maintains a defined benefit plan,
(II) which is closed by the appropriate bank regulatory
authorities, and
(III) any asset and liabilities of which are received by
the bridge bank, and
(ii) the requirements of this paragraph shall not be
treated as met with respect to such plan unless during the
180-day period beginning on the date such insured bank is
closed -
(I) the bridge bank has the right to require the plan to
transfer (subject to the provisions of this paragraph) not
more than 50 percent of the excess assets (as defined in
subparagraph (C)) to a defined benefit plan maintained by
the bridge bank with respect to participants or former
participants (including retirees and beneficiaries) in the
original plan employed by the bridge bank or formerly
employed by the closed bank, and
(II) no other merger, spin-off, termination, or similar
transaction involving the portion of the excess assets
described in subclause (I) may occur without the prior
written consent of the bridge bank.
(m) Employees of an affiliated service group
(1) In general
For purposes of the employee benefit requirements listed in
paragraph (4), except to the extent otherwise provided in
regulations, all employees of the members of an affiliated
service group shall be treated as employed by a single employer.
(2) Affiliated service group
For purposes of this subsection, the term "affiliated service
group" means a group consisting of a service organization
(hereinafter in this paragraph referred to as the "first
organization") and one or more of the following:
(A) any service organization which -
(i) is a shareholder or partner in the first organization,
and
(ii) regularly performs services for the first organization
or is regularly associated with the first organization in
performing services for third persons, and
(B) any other organization if -
(i) a significant portion of the business of such
organization is the performance of services (for the first
organization, for organizations described in subparagraph
(A), or for both) of a type historically performed in such
service field by employees, and
(ii) 10 percent or more of the interests in such
organization is held by persons who are highly compensated
employees (within the meaning of section 414(q)) of the first
organization or an organization described in subparagraph
(A).
(3) Service organizations
For purposes of this subsection, the term "service
organization" means an organization the principal business of
which is the performance of services.
(4) Employee benefit requirements
For purposes of this subsection, the employee benefit
requirements listed in this paragraph are -
(A) paragraphs (3), (4), (7), (16), (17), and (26) of section
401(a), and
(B) sections 408(k), 408(p), 410, 411, 415, and 416.
(5) Certain organizations performing management functions
For purposes of this subsection, the term "affiliated service
group" also includes a group consisting of -
(A) an organization the principal business of which is
performing, on a regular and continuing basis, management
functions for 1 organization (or for 1 organization and other
organizations related to such 1 organization), and
(B) the organization (and related organizations) for which
such functions are so performed by the organization described
in subparagraph (A).
For purposes of this paragraph, the term "related organizations"
has the same meaning as the term "related persons" when used in
section 144(a)(3).
(6) Other definitions
For purposes of this subsection -
(A) Organization defined
The term "organization" means a corporation, partnership, or
other organization.
(B) Ownership
In determining ownership, the principles of section 318(a)
shall apply.
(n) Employee leasing
(1) In general
For purposes of the requirements listed in paragraph (3), with
respect to any person (hereinafter in this subsection referred to
as the "recipient") for whom a leased employee performs services -
(A) the leased employee shall be treated as an employee of
the recipient, but
(B) contributions or benefits provided by the leasing
organization which are attributable to services performed for
the recipient shall be treated as provided by the recipient.
(2) Leased employee
For purposes of paragraph (1), the term "leased employee" means
any person who is not an employee of the recipient and who
provides services to the recipient if -
(A) such services are provided pursuant to an agreement
between the recipient and any other person (in this subsection
referred to as the "leasing organization"),
(B) such person has performed such services for the recipient
(or for the recipient and related persons) on a substantially
full-time basis for a period of at least 1 year, and
(C) such services are performed under primary direction or
control by the recipient.
(3) Requirements
For purposes of this subsection, the requirements listed in
this paragraph are -
(A) paragraphs (3), (4), (7), (16), (17), and (26) of section
401(a),
(B) sections 408(k), 408(p), 410, 411, 415, and 416, and
(C) sections 79, 106, 117(d), 120, 125, 127, 129, 132, 137,
274(j), 505, and 4980B.
(4) Time when first considered as employee
(A) In general
In the case of any leased employee, paragraph (1) shall apply
only for purposes of determining whether the requirements
listed in paragraph (3) are met for periods after the close of
the period referred to in paragraph (2)(B).
(B) Years of service
In the case of a person who is an employee of the recipient
(whether by reason of this subsection or otherwise), for
purposes of the requirements listed in paragraph (3), years of
service for the recipient shall be determined by taking into
account any period for which such employee would have been a
leased employee but for the requirements of paragraph (2)(B).
(5) Safe harbor
(A) In general
In the case of requirements described in subparagraphs (A)
and (B) of paragraph (3), this subsection shall not apply to
any leased employee with respect to services performed for a
recipient if -
(i) such employee is covered by a plan which is maintained
by the leasing organization and meets the requirements of
subparagraph (B), and
(ii) leased employees (determined without regard to this
paragraph) do not constitute more than 20 percent of the
recipient's nonhighly compensated work force.
(B) Plan requirements
A plan meets the requirements of this subparagraph if -
(i) such plan is a money purchase pension plan with a
nonintegrated employer contribution rate for each participant
of at least 10 percent of compensation,
(ii) such plan provides for full and immediate vesting, and
(iii) each employee of the leasing organization (other than
employees who perform substantially all of their services for
the leasing organization) immediately participates in such
plan.
Clause (iii) shall not apply to any individual whose
compensation from the leasing organization in each plan year
during the 4-year period ending with the plan year is less than
$1,000.
(C) Definitions
For purposes of this paragraph -
(i) Highly compensated employee
The term "highly compensated employee" has the meaning
given such term by section 414(q).
(ii) Nonhighly compensated work force
The term "nonhighly compensated work force" means the
aggregate number of individuals (other than highly
compensated employees) -
(I) who are employees of the recipient (without regard to
this subsection) and have performed services for the
recipient (or for the recipient and related persons) on a
substantially full-time basis for a period of at least 1
year, or
(II) who are leased employees with respect to the
recipient (determined without regard to this paragraph).
(iii) Compensation
The term "compensation" has the same meaning as when used
in section 415; except that such term shall include -
(I) any employer contribution under a qualified cash or
deferred arrangement to the extent not included in gross
income under section 402(e)(3) or 402(h)(1)(B),
(II) any amount which the employee would have received in
cash but for an election under a cafeteria plan (within the
meaning of section 125), and
(III) any amount contributed to an annuity contract
described in section 403(b) pursuant to a salary reduction
agreement (within the meaning of section 3121(a)(5)(D)).
(6) Other rules
For purposes of this subsection -
(A) Related persons
The term "related persons" has the same meaning as when used
in section 144(a)(3).
(B) Employees of entities under common control
The rules of subsections (b), (c), (m), and (o) shall apply.
(o) Regulations
The Secretary shall prescribe such regulations (which may provide
rules in addition to the rules contained in subsections (m) and
(n)) as may be necessary to prevent the avoidance of any employee
benefit requirement listed in subsection (m)(4) or (n)(3) or any
requirement under section 457 through the use of -
(1) separate organizations,
(2) employee leasing, or
(3) other arrangements.
The regulations prescribed under subsection (n) shall include
provisions to minimize the recordkeeping requirements of subsection
(n) in the case of an employer which has no top-heavy plans (within
the meaning of section 416(g)) and which uses the services of
persons (other than employees) for an insignificant percentage of
the employer's total workload.
(p) Qualified domestic relations order defined
For purposes of this subsection and section 401(a)(13) -
(1) In general
(A) Qualified domestic relations order
The term "qualified domestic relations order" means a
domestic relations order -
(i) which creates or recognizes the existence of an
alternate payee's right to, or assigns to an alternate payee
the right to, receive all or a portion of the benefits
payable with respect to a participant under a plan, and
(ii) with respect to which the requirements of paragraphs
(2) and (3) are met.
(B) Domestic relations order
The term "domestic relations order" means any judgment,
decree, or order (including approval of a property settlement
agreement) which -
(i) relates to the provision of child support, alimony
payments, or marital property rights to a spouse, former
spouse, child, or other dependent of a participant, and
(ii) is made pursuant to a State domestic relations law
(including a community property law).
(2) Order must clearly specify certain facts
A domestic relations order meets the requirements of this
paragraph only if such order clearly specifies -
(A) the name and the last known mailing address (if any) of
the participant and the name and mailing address of each
alternate payee covered by the order,
(B) the amount or percentage of the participant's benefits to
be paid by the plan to each such alternate payee, or the manner
in which such amount or percentage is to be determined,
(C) the number of payments or period to which such order
applies, and
(D) each plan to which such order applies.
(3) Order may not alter amount, form, etc., of benefits
A domestic relations order meets the requirements of this
paragraph only if such order -
(A) does not require a plan to provide any type or form of
benefit, or any option, not otherwise provided under the plan,
(B) does not require the plan to provide increased benefits
(determined on the basis of actuarial value), and
(C) does not require the payment of benefits to an alternate
payee which are required to be paid to another alternate payee
under another order previously determined to be a qualified
domestic relations order.
(4) Exception for certain payments made after earliest retirement
age
(A) In general
A domestic relations order shall not be treated as failing to
meet the requirements of subparagraph (A) of paragraph (3)
solely because such order requires that payment of benefits be
made to an alternate payee -
(i) in the case of any payment before a participant has
separated from service, on or after the date on which the
participant attains (or would have attained) the earliest
retirement age,
(ii) as if the participant had retired on the date on which
such payment is to begin under such order (but taking into
account only the present value of the benefits actually
accrued and not taking into account the present value of any
employer subsidy for early retirement), and
(iii) in any form in which such benefits may be paid under
the plan to the participant (other than in the form of a
joint and survivor annuity with respect to the alternate
payee and his or her subsequent spouse).
For purposes of clause (ii), the interest rate assumption used
in determining the present value shall be the interest rate
specified in the plan or, if no rate is specified, 5 percent.
(B) Earliest retirement age
For purposes of this paragraph, the term "earliest retirement
age" means the earlier of -
(i) the date on which the participant is entitled to a
distribution under the plan, or
(ii) the later of -
(I) the date the participant attains age 50, or
(II) the earliest date on which the participant could
begin receiving benefits under the plan if the participant
separated from service.
(5) Treatment of former spouse as surviving spouse for purposes
of determining survivor benefits
To the extent provided in any qualified domestic relations
order -
(A) the former spouse of a participant shall be treated as a
surviving spouse of such participant for purposes of sections
401(a)(11) and 417 (and any spouse of the participant shall not
be treated as a spouse of the participant for such purposes),
and
(B) if married for at least 1 year, the surviving former
spouse shall be treated as meeting the requirements of section
417(d).
(6) Plan procedures with respect to orders
(A) Notice and determination by administrator
In the case of any domestic relations order received by a
plan -
(i) the plan administrator shall promptly notify the
participant and each alternate payee of the receipt of such
order and the plan's procedures for determining the qualified
status of domestic relations orders, and
(ii) within a reasonable period after receipt of such
order, the plan administrator shall determine whether such
order is a qualified domestic relations order and notify the
participant and each alternate payee of such determination.
(B) Plan to establish reasonable procedures
Each plan shall establish reasonable procedures to determine
the qualified status of domestic relations orders and to
administer distributions under such qualified orders.
(7) Procedures for period during which determination is being
made
(A) In general
During any period in which the issue of whether a domestic
relations order is a qualified domestic relations order is
being determined (by the plan administrator, by a court of
competent jurisdiction, or otherwise), the plan administrator
shall separately account for the amounts (hereinafter in this
paragraph referred to as the "segregated amounts") which would
have been payable to the alternate payee during such period if
the order had been determined to be a qualified domestic
relations order.
(B) Payment to alternate payee if order determined to be
qualified domestic relations order
If within the 18-month period described in subparagraph (E)
the order (or modification thereof) is determined to be a
qualified domestic relations order, the plan administrator
shall pay the segregated amounts (including any interest
thereon) to the person or persons entitled thereto.
(C) Payment to plan participant in certain cases
If within the 18-month period described in subparagraph (E) -
(i) it is determined that the order is not a qualified
domestic relations order, or
(ii) the issue as to whether such order is a qualified
domestic relations order is not resolved,
then the plan administrator shall pay the segregated amounts
(including any interest thereon) to the person or persons who
would have been entitled to such amounts if there had been no
order.
(D) Subsequent determination or order to be applied
prospectively only
Any determination that an order is a qualified domestic
relations order which is made after the close of the 18-month
period described in subparagraph (E) shall be applied
prospectively only.
(E) Determination of 18-month period
For purposes of this paragraph, the 18-month period described
in this subparagraph is the 18-month period beginning with the
date on which the first payment would be required to be made
under the domestic relations order.
(8) Alternate payee defined
The term "alternate payee" means any spouse, former spouse,
child or other dependent of a participant who is recognized by a
domestic relations order as having a right to receive all, or a
portion of, the benefits payable under a plan with respect to
such participant.
(9) Subsection not to apply to plans to which section 401(a)(13)
does not apply
This subsection shall not apply to any plan to which section
401(a)(13) does not apply. For purposes of this title, except as
provided in regulations, any distribution from an annuity
contract under section 403(b) pursuant to a qualified domestic
relations order shall be treated in the same manner as a
distribution from a plan to which section 401(a)(13) applies.
(10) Waiver of certain distribution requirements
With respect to the requirements of subsections (a) and (k) of
section 401, section 403(b), section 409(d), and section 457(d),
a plan shall not be treated as failing to meet such requirements
solely by reason of payments to an alternative payee pursuant to
a qualified domestic relations order.
(11) Application of rules to certain other plans
For purposes of this title, a distribution or payment from a
governmental plan (as defined in subsection (d)) or a church plan
(as described in subsection (e)) or an eligible deferred
compensation plan (within the meaning of section 457(b)) shall be
treated as made pursuant to a qualified domestic relations order
if it is made pursuant to a domestic relations order which meets
the requirement of clause (i) of paragraph (1)(A).
(12) Tax treatment of payments from a section 457 plan
If a distribution or payment from an eligible deferred
compensation plan described in section 457(b) is made pursuant to
a qualified domestic relations order, rules similar to the rules
of section 402(e)(1)(A) shall apply to such distribution or
payment.
(13) Consultation with the Secretary
In prescribing regulations under this subsection and section
401(a)(13), the Secretary of Labor shall consult with the
Secretary.
(q) Highly compensated employee
(1) In general
The term "highly compensated employee" means any employee who -
(A) was a 5-percent owner at any time during the year or the
preceding year, or
(B) for the preceding year -
(i) had compensation from the employer in excess of
$80,000, and
(ii) if the employer elects the application of this clause
for such preceding year, was in the top-paid group of
employees for such preceding year.
The Secretary shall adjust the $80,000 amount under subparagraph
(B) at the same time and in the same manner as under section
415(d), except that the base period shall be the calendar quarter
ending September 30, 1996.
(2) 5-percent owner
An employee shall be treated as a 5-percent owner for any year
if at any time during such year such employee was a 5-percent
owner (as defined in section 416(i)(1)) of the employer.
(3) Top-paid group
An employee is in the top-paid group of employees for any year
if such employee is in the group consisting of the top 20 percent
of the employees when ranked on the basis of compensation paid
during such year.
(4) Compensation
For purposes of this subsection, the term "compensation" has
the meaning given such term by section 415(c)(3).
(5) Excluded employees
For purposes of subsection (r) and for purposes of determining
the number of employees in the top-paid group, the following
employees shall be excluded -
(A) employees who have not completed 6 months of service,
(B) employees who normally work less than 17 1/2 hours per
week,
(C) employees who normally work during not more than 6 months
during any year,
(D) employees who have not attained age 21, and
(E) except to the extent provided in regulations, employees
who are included in a unit of employees covered by an agreement
which the Secretary of Labor finds to be a collective
bargaining agreement between employee representatives and the
employer.
Except as provided by the Secretary, the employer may elect to
apply subparagraph (A), (B), (C), or (D) by substituting a
shorter period of service, smaller number of hours or months, or
lower age for the period of service, number of hours or months,
or age (as the case may be) than that specified in such
subparagraph.
(6) Former employees
A former employee shall be treated as a highly compensated
employee if -
(A) such employee was a highly compensated employee when such
employee separated from service, or
(B) such employee was a highly compensated employee at any
time after attaining age 55.
(7) Coordination with other provisions
Subsections (b), (c), (m), (n), and (o) shall be applied before
the application of this subsection.
(8) Special rule for nonresident aliens
For purposes of this subsection and subsection (r), employees
who are nonresident aliens and who receive no earned income
(within the meaning of section 911(d)(2)) from the employer which
constitutes income from sources within the United States (within
the meaning of section 861(a)(3)) shall not be treated as
employees.
(9) Certain employees not considered highly compensated and
excluded employees under pre-ERISA rules for church plans
In the case of a church plan (as defined in subsection (e)), no
employee shall be considered an officer, a person whose principal
duties consist of supervising the work of other employees, or a
highly compensated employee for any year unless such employee is
a highly compensated employee under paragraph (1) for such year.
(r) Special rules for separate line of business
(1) In general
For purposes of sections 129(d)(8) and 410(b), an employer
shall be treated as operating separate lines of business during
any year if the employer for bona fide business reasons operates
separate lines of business.
(2) Line of business must have 50 employees, etc.
A line of business shall not be treated as separate under
paragraph (1) unless -
(A) such line of business has at least 50 employees who are
not excluded under subsection (q)(5),
(B) the employer notifies the Secretary that such line of
business is being treated as separate for purposes of paragraph
(1), and
(C) such line of business meets guidelines prescribed by the
Secretary or the employer receives a determination from the
Secretary that such line of business may be treated as separate
for purposes of paragraph (1).
(3) Safe harbor rule
(A) In general
The requirements of subparagraph (C) of paragraph (2) shall
not apply to any line of business if the highly compensated
employee percentage with respect to such line of business is -
(i) not less than one-half, and
(ii) not more than twice,
the percentage which highly compensated employees are of all
employees of the employer. An employer shall be treated as
meeting the requirements of clause (i) if at least 10 percent
of all highly compensated employees of the employer perform
services solely for such line of business.
(B) Determination may be based on preceding year
The requirements of subparagraph (A) shall be treated as met
with respect to any line of business if such requirements were
met with respect to such line of business for the preceding
year and if -
(i) no more than a de minimis number of employees were
shifted to or from the line of business after the close of
the preceding year, or
(ii) the employees shifted to or from the line of business
after the close of the preceding year contained a
substantially proportional number of highly compensated
employees.
(4) Highly compensated employee percentage defined
For purposes of this subsection, the term "highly compensated
employee percentage" means the percentage which highly
compensated employees performing services for the line of
business are of all employees performing services for the line of
business.
(5) Allocation of benefits to line of business
For purposes of this subsection, benefits which are
attributable to services provided to a line of business shall be
treated as provided by such line of business.
(6) Headquarters personnel, etc.
The Secretary shall prescribe rules providing for -
(A) the allocation of headquarters personnel among the lines
of business of the employer, and
(B) the treatment of other employees providing services for
more than 1 line of business of the employer or not in lines of
business meeting the requirements of paragraph (2).
(7) Separate operating units
For purposes of this subsection, the term "separate line of
business" includes an operating unit in a separate geographic
area separately operated for a bona fide business reason.
(8) Affiliated service groups
This subsection shall not apply in the case of any affiliated
service group (within the meaning of section 414(m)).
(s) Compensation
For purposes of any applicable provision -
(1) In general
Except as provided in this subsection, the term "compensation"
has the meaning given such term by section 415(c)(3).
(2) Employer may elect not to treat certain deferrals as
compensation
An employer may elect not to include as compensation any amount
which is contributed by the employer pursuant to a salary
reduction agreement and which is not includible in the gross
income of an employee under section 125, 132(f)(4), 402(e)(3),
402(h), or 403(b).
(3) Alternative determination of compensation
The Secretary shall by regulation provide for alternative
methods of determining compensation which may be used by an
employer, except that such regulations shall provide that an
employer may not use an alternative method if the use of such
method discriminates in favor of highly compensated employees
(within the meaning of subsection (q)).
(4) Applicable provision
For purposes of this subsection, the term "applicable
provision" means any provision which specifically refers to this
subsection.
(t) Application of controlled group rules to certain employee
benefits
(1) In general
All employees who are treated as employed by a single employer
under subsection (b), (c), or (m) shall be treated as employed by
a single employer for purposes of an applicable section. The
provisions of subsection (o) shall apply with respect to the
requirements of an applicable section.
(2) Applicable section
For purposes of this subsection, the term "applicable section"
means section 79, 106, 117(d), 120, 125, 127, 129, 132, 137,
274(j), 505, or 4980B.
(u) Special rules relating to veterans' reemployment rights under
USERRA
(1) Treatment of certain contributions made pursuant to veterans'
reemployment rights
If any contribution is made by an employer or an employee under
an individual account plan with respect to an employee, or by an
employee to a defined benefit plan that provides for employee
contributions, and such contribution is required by reason of
such employee's rights under chapter 43 of title 38, United
States Code, resulting from qualified military service, then -
(A) such contribution shall not be subject to any otherwise
applicable limitation contained in section 402(g), 402(h),
403(b), 404(a), 404(h), 408, 415, or 457, and shall not be
taken into account in applying such limitations to other
contributions or benefits under such plan or any other plan,
with respect to the year in which the contribution is made,
(B) such contribution shall be subject to the limitations
referred to in subparagraph (A) with respect to the year to
which the contribution relates (in accordance with rules
prescribed by the Secretary), and
(C) such plan shall not be treated as failing to meet the
requirements of section 401(a)(4), 401(a)(26), 401(k)(3),
401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k)(3),
408(k)(6), 408(p), 410(b), or 416 by reason of the making of
(or the right to make) such contribution.
For purposes of the preceding sentence, any elective deferral or
employee contribution made under paragraph (2) shall be treated
as required by reason of the employee's rights under such chapter
43.
(2) Reemployment rights under USERRA with respect to elective
deferrals
(A) In general
For purposes of this subchapter and section 457, if an
employee is entitled to the benefits of chapter 43 of title 38,
United States Code, with respect to any plan which provides for
elective deferrals, the employer sponsoring the plan shall be
treated as meeting the requirements of such chapter 43 with
respect to such elective deferrals only if such employer -
(i) permits such employee to make additional elective
deferrals under such plan (in the amount determined under
subparagraph (B) or such lesser amount as is elected by the
employee) during the period which begins on the date of the
reemployment of such employee with such employer and has the
same length as the lesser of -
(I) the product of 3 and the period of qualified military
service which resulted in such rights, and
(II) 5 years, and
(ii) makes a matching contribution with respect to any
additional elective deferral made pursuant to clause (i)
which would have been required had such deferral actually
been made during the period of such qualified military
service.
(B) Amount of makeup required
The amount determined under this subparagraph with respect to
any plan is the maximum amount of the elective deferrals that
the individual would have been permitted to make under the plan
in accordance with the limitations referred to in paragraph
(1)(A) during the period of qualified military service if the
individual had continued to be employed by the employer during
such period and received compensation as determined under
paragraph (7). Proper adjustment shall be made to the amount
determined under the preceding sentence for any elective
deferrals actually made during the period of such qualified
military service.
(C) Elective deferral
For purposes of this paragraph, the term "elective deferral"
has the meaning given such term by section 402(g)(3); except
that such term shall include any deferral of compensation under
an eligible deferred compensation plan (as defined in section
457(b)).
(D) After-tax employee contributions
References in subparagraphs (A) and (B) to elective deferrals
shall be treated as including references to employee
contributions.
(3) Certain retroactive adjustments not required
For purposes of this subchapter and subchapter E, no provision
of chapter 43 of title 38, United States Code, shall be construed
as requiring -
(A) any crediting of earnings to an employee with respect to
any contribution before such contribution is actually made, or
(B) any allocation of any forfeiture with respect to the
period of qualified military service.
(4) Loan repayment suspensions permitted
If any plan suspends the obligation to repay any loan made to
an employee from such plan for any part of any period during
which such employee is performing service in the uniformed
services (as defined in chapter 43 of title 38, United States
Code), whether or not qualified military service, such suspension
shall not be taken into account for purposes of section 72(p),
401(a), or 4975(d)(1).
(5) Qualified military service
For purposes of this subsection, the term "qualified military
service" means any service in the uniformed services (as defined
in chapter 43 of title 38, United States Code) by any individual
if such individual is entitled to reemployment rights under such
chapter with respect to such service.
(6) Individual account plan
For purposes of this subsection, the term "individual account
plan" means any defined contribution plan (!1) (including any tax-
sheltered annuity plan under section 403(b), any simplified
employee pension under section 408(k), any qualified salary
reduction arrangement under section 408(p), and any eligible
deferred compensation plan (as defined in section 457(b)).
(7) Compensation
For purposes of sections 403(b)(3), 415(c)(3), and 457(e)(5),
an employee who is in qualified military service shall be treated
as receiving compensation from the employer during such period of
qualified military service equal to -
(A) the compensation the employee would have received during
such period if the employee were not in qualified military
service, determined based on the rate of pay the employee would
have received from the employer but for absence during the
period of qualified military service, or
(B) if the compensation the employee would have received
during such period was not reasonably certain, the employee's
average compensation from the employer during the 12-month
period immediately preceding the qualified military service
(or, if shorter, the period of employment immediately preceding
the qualified military service).
(8) USERRA requirements for qualified retirement plans
For purposes of this subchapter and section 457, an employer
sponsoring a retirement plan shall be treated as meeting the
requirements of chapter 43 of title 38, United States Code, only
if each of the following requirements is met:
(A) An individual reemployed under such chapter is treated
with respect to such plan as not having incurred a break in
service with the employer maintaining the plan by reason of
such individual's period of qualified military service.
(B) Each period of qualified military service served by an
individual is, upon reemployment under such chapter, deemed
with respect to such plan to constitute service with the
employer maintaining the plan for the purpose of determining
the nonforfeitability of the individual's accrued benefits
under such plan and for the purpose of determining the accrual
of benefits under such plan.
(C) An individual reemployed under such chapter is entitled
to accrued benefits that are contingent on the making of, or
derived from, employee contributions or elective deferrals only
to the extent the individual makes payment to the plan with
respect to such contributions or deferrals. No such payment may
exceed the amount the individual would have been permitted or
required to contribute had the individual remained continuously
employed by the employer throughout the period of qualified
military service. Any payment to such plan shall be made during
the period beginning with the date of reemployment and whose
duration is 3 times the period of the qualified military
service (but not greater than 5 years).
(9) Plans not subject to title 38
This subsection shall not apply to any retirement plan to which
chapter 43 of title 38, United States Code, does not apply.
(10) References
For purposes of this section, any reference to chapter 43 of
title 38, United States Code, shall be treated as a reference to
such chapter as in effect on December 12, 1994 (without regard to
any subsequent amendment).
(v) Catch-up contributions for individuals age 50 or over
(1) In general
An applicable employer plan shall not be treated as failing to
meet any requirement of this title solely because the plan
permits an eligible participant to make additional elective
deferrals in any plan year.
(2) Limitation on amount of additional deferrals
(A) In general
A plan shall not permit additional elective deferrals under
paragraph (1) for any year in an amount greater than the lesser
of -
(i) the applicable dollar amount, or
(ii) the excess (if any) of -
(I) the participant's compensation (as defined in section
415(c)(3)) for the year, over
(II) any other elective deferrals of the participant for
such year which are made without regard to this subsection.
(B) Applicable dollar amount
For purposes of this paragraph -
(i) In the case of an applicable employer plan other than a
plan described in section 401(k)(11) or 408(p), the
applicable dollar amount shall be determined in accordance
with the following table:
For taxable years The applicable
beginning in: dollar amount is:
2002 $1,000
2003 $2,000
2004 $3,000
2005 $4,000
2006 and thereafter $5,000.
(ii) In the case of an applicable employer plan described
in section 401(k)(11) or 408(p), the applicable dollar amount
shall be determined in accordance with the following table:
For taxable years The applicable
beginning in: dollar amount is:
2002 $500
2003 $1,000
2004 $1,500
2005 $2,000
2006 and thereafter $2,500.
(C) Cost-of-living adjustment
In the case of a year beginning after December 31, 2006, the
Secretary shall adjust annually the $5,000 amount in
subparagraph (B)(i) and the $2,500 amount in subparagraph
(B)(ii) for increases in the cost-of-living at the same time
and in the same manner as adjustments under section 415(d);
except that the base period taken into account shall be the
calendar quarter beginning July 1, 2005, and any increase under
this subparagraph which is not a multiple of $500 shall be
rounded to the next lower multiple of $500.
(D) Aggregation of plans
For purposes of this paragraph, plans described in clauses
(i), (ii), and (iv) of paragraph (6)(A) that are maintained by
the same employer (as determined under subsection (b), (c), (m)
or (o)) shall be treated as a single plan, and plans described
in clause (iii) of paragraph (6)(A) that are maintained by the
same employer shall be treated as a single plan.
(3) Treatment of contributions
In the case of any contribution to a plan under paragraph (1) -
(A) such contribution shall not, with respect to the year in
which the contribution is made -
(i) be subject to any otherwise applicable limitation
contained in sections 401(a)(30), 402(h), 403(b), 408,
415(c), and 457(b)(2) (determined without regard to section
457(b)(3)), or
(ii) be taken into account in applying such limitations to
other contributions or benefits under such plan or any other
such plan, and
(B) except as provided in paragraph (4), such plan shall not
be treated as failing to meet the requirements of section
401(a)(4), 401(k)(3), 401(k)(11), 403(b)(12), 408(k), 410(b),
or 416 by reason of the making of (or the right to make) such
contribution.
(4) Application of nondiscrimination rules
(A) In general
An applicable employer plan shall be treated as failing to
meet the nondiscrimination requirements under section 401(a)(4)
with respect to benefits, rights, and features unless the plan
allows all eligible participants to make the same election with
respect to the additional elective deferrals under this
subsection.
(B) Aggregation
For purposes of subparagraph (A), all plans maintained by
employers who are treated as a single employer under subsection
(b), (c), (m), or (o) of section 414 shall be treated as 1
plan, except that a plan described in clause (i) of section
410(b)(6)(C) shall not be treated as a plan of the employer
until the expiration of the transition period with respect to
such plan (as determined under clause (ii) of such section).
(5) Eligible participant
For purposes of this subsection, the term "eligible
participant" means a participant in a plan -
(A) who would attain age 50 by the end of the taxable year,
(B) with respect to whom no other elective deferrals may
(without regard to this subsection) be made to the plan for the
plan (or other applicable) year by reason of the application of
any limitation or other restriction described in paragraph (3)
or comparable limitation or restriction contained in the terms
of the plan.
(6) Other definitions and rules
For purposes of this subsection -
(A) Applicable employer plan
The term "applicable employer plan" means -
(i) an employees' trust described in section 401(a) which
is exempt from tax under section 501(a),
(ii) a plan under which amounts are contributed by an
individual's employer for an annuity contract described in
section 403(b),
(iii) an eligible deferred compensation plan under section
457 of an eligible employer described in section
457(e)(1)(A), and
(iv) an arrangement meeting the requirements of section
408(k) or (p).
(B) Elective deferral
The term "elective deferral" has the meaning given such term
by subsection (u)(2)(C).
(C) Exception for section 457 plans
This subsection shall not apply to a participant for any year
for which a higher limitation applies to the participant under
section 457(b)(3).
-SOURCE-
(Added Pub. L. 93-406, title II, Sec. 1015, Sept. 2, 1974, 88 Stat.
925; amended Pub. L. 94-455, title XIX, Secs. 1901(a)(64),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1775, 1834; Pub. L. 95-600,
title I, Sec. 152(d), Nov. 6, 1978, 92 Stat. 2799; Pub. L. 96-364,
title II, Secs. 207, 208(a), title IV, Sec. 407(b), Sept. 26, 1980,
94 Stat. 1288, 1289, 1305; Pub. L. 96-605, title II, Sec. 201(a),
Dec. 28, 1980, 94 Stat. 3526; Pub. L. 96-613, Sec. 5(a), Dec. 28,
1980, 94 Stat. 3580; Pub. L. 97-248, title II, Secs. 240(c),
246(a), 248(a), Sept. 3, 1982, 96 Stat. 520, 525, 526; Pub. L. 98-
369, div. A, title IV, Sec. 491(d)(26), (27), title V, Sec.
526(a)(1), (b)(1), (d)(1), (2), title VII, Sec. 713(i), July 18,
1984, 98 Stat. 850, 874, 875, 960; Pub. L. 98-397, title II, Sec.
204(b), Aug. 23, 1984, 98 Stat. 1445; Pub. L. 99-514, title XI,
Secs. 1114(a), (b)(11), 1115(a), 1117(c), 1146(a), (b), 1151(e)(1),
(i), title XIII, Sec. 1301(j)(4), title XVIII, Secs. 1852(f),
1898(c)(2)(A), (4)(A), (6)(A), (7)(A)(ii)-(vii), 1899A(12), Oct.
22, 1986, 100 Stat. 2448, 2451, 2452, 2462, 2491, 2506, 2507, 2657,
2868, 2951, 2953, 2954, 2958; Pub. L. 100-203, title IX, Sec.
9305(c), Dec. 22, 1987, 101 Stat. 1330-352; Pub. L. 100-647, title
I, Secs. 1011(d)(8), (e)(4), (h)(5), (i)(1)-(4)(A), (j)(1), (2),
1011A(b)(3), 1011B(a)(16), (17), (19), (20), 1018(t)(8)(E)-(G),
title II, Sec. 2005(c)(1), (2), title III, Secs. 3011(b)(4), (5),
3021(b)(1), (2)(A), title VI, Sec. 6067(a), Nov. 10, 1988, 102
Stat. 3460, 3461, 3465, 3467, 3468, 3473, 3485, 3589, 3611, 3612,
3625, 3631, 3632, 3703; Pub. L. 101-140, title II, Secs. 203(a)(6),
204(b)(2), Nov. 8, 1989, 103 Stat. 831, 833; Pub. L. 101-239, title
VII, Secs. 7811(m)(5), 7813(b), 7841(a)(2), Dec. 19, 1989, 103
Stat. 2412, 2413, 2427; Pub. L. 101-508, title XI, Sec.
11703(b)(1), Nov. 5, 1990, 104 Stat. 1388-517; Pub. L. 102-318,
title V, Sec. 521(b)(20)-(22), July 3, 1992, 106 Stat. 311; (As
amended Pub. L. 104-188, title I, Secs. 1421(b)(9)(C), 1431(a),
(b)(1), (c)(1)(A), (D), (E), 1434(b), 1454(a), 1461(a), 1462(a),
1704(n)(1), Aug. 20, 1996, 110 Stat. 1798, 1802, 1803, 1807, 1817,
1822, 1824, 1883; Pub. L. 105-34, title XV, Sec. 1522(a), title
XVI, Sec. 1601(d)(6)(A), (7), (h)(2)(D)(i), (ii), Aug. 5, 1997, 111
Stat. 1070, 1089, 1090, 1092; Pub. L. 105-206, title VI, Sec.
6018(c), July 22, 1998, 112 Stat. 822; Pub. L. 106-554, Sec.
1(a)(7) [title III, Sec. 314(e)(2)], Dec. 21, 2000, 114 Stat. 2763,
2763A-643; Pub. L. 107-16, title VI, Secs. 631(a), 635(a)-(c), June
7, 2001, 115 Stat. 111, 117; Pub. L. 107-147, title IV, Sec.
411(o)(3)-(8), Mar. 9, 2002, 116 Stat. 48, 49; Pub. L. 108-311,
title IV, Sec. 408(a)(15), Oct. 4, 2004, 118 Stat. 1192.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The Railroad Retirement Act of 1935 or 1937, referred to in
subsec. (d), means act Aug. 29, 1935, ch. 812, 49 Stat. 867, known
as the Railroad Retirement Act of 1935. The Railroad Retirement Act
of 1935 was amended generally by act June 24, 1937, ch. 382, part
I, 50 Stat. 307, and was known as the Railroad Retirement Act of
1937. The Railroad Retirement Act of 1937 was amended generally and
redesignated the Railroad Retirement Act of 1974 by Pub. L. 93-444,
title I, Oct. 16, 1974, 88 Stat. 1305 and is classified generally
to subchapter IV (Sec. 231 et seq.) of chapter 9 of Title 45,
Railroads. For complete classification of this Act to the Code, see
Tables.
The International Organizations Immunities Act (59 Stat. 669),
referred to in subsec. (d), is act Dec. 29, 1945, ch. 652, title I,
59 Stat. 669, as amended, which is classified principally to
subchapter XVIII (Sec. 288 et seq.) of chapter 7 of Title 22,
Foreign Relations and Intercourse. The Act also amended several
other laws including the Internal Revenue Code of 1939. For
exemption from taxation of income of international organizations
and of the compensation of employees thereof, see sections 892 and
893 of this title. For complete classification of this Act to the
Code, see Short Title note set out under section 288 of Title 22
and Tables.
The Employee Retirement Income Security Act of 1974, referred to
in subsecs. (f) (3), (5) and (l)(1), (2)(E), is Pub. L. 93-406,
Sept. 2, 1974, 88 Stat. 829, as amended. Title IV of the Employee
Retirement Income Security Act of 1974 is classified principally to
subchapter III (Sec. 1301 et seq.) of chapter 18 of Title 29,
Labor. Section 3(37)(A)(iii) of the Employee Retirement Income
Security Act of 1974 is classified to section 1002(37)(A)(iii) of
Title 29. Section 4403(b) and (c) of the Employee Retirement Income
Security Act of 1974 probably means section 4303(b) and (c) of such
Act which is classified to section 1453(b) and (c) of Title 29. For
complete classification of this Act to the Code, see Short Title
note set out under section 1001 of Title 29 and Tables.
The date of the enactment of the Multiemployer Pension Plan
Amendments Act of 1980, referred to in subsec. (f)(4), (5), means
the date of the enactment of Pub. L. 96-364, which was approved
Sept. 26, 1980.
Effective date of the Multiemployer Pension Plan Amendments Act
of 1980, referred to in subsec. (f)(5), probably means the date of
enactment of the Multiemployer Pension Plan Amendments Act of 1980,
which was approved Sept. 26, 1980.
-MISC1-
AMENDMENTS
2004 - Subsec. (q)(7). Pub. L. 108-311 substituted "subsection"
for "section".
2002 - Subsec. (v)(2)(D). Pub. L. 107-147, Sec. 411(o)(3), added
subpar. (D).
Subsec. (v)(3)(A)(i). Pub. L. 107-147, Sec. 411(o)(4),
substituted "sections 401(a)(30), 402(h), 403(b), 408, 415(c), and
457(b)(2) (determined without regard to section 457(b)(3))" for
"section 402(g), 402(h), 403(b), 404(a), 404(h), 408(k), 408(p),
415, or 457".
Subsec. (v)(3)(B). Pub. L. 107-147, Sec. 411(o)(5), substituted
"section 401(a)(4), 401(k)(3), 401(k)(11), 403(b)(12), 408(k),
410(b), or 416" for "section 401(a)(4), 401(a)(26), 401(k)(3),
401(k)(11), 401(k)(12), 403(b)(12), 408(k), 408(p), 408B, 410(b),
or 416".
Subsec. (v)(4)(B). Pub. L. 107-147, Sec. 411(o)(6), inserted
before period at end ", except that a plan described in clause (i)
of section 410(b)(6)(C) shall not be treated as a plan of the
employer until the expiration of the transition period with respect
to such plan (as determined under clause (ii) of such section)".
Subsec. (v)(5). Pub. L. 107-147, Sec. 411(o)(7)(A), struck out ",
with respect to any plan year," before "a participant" in
introductory provisions.
Subsec. (v)(5)(A). Pub. L. 107-147, Sec. 411(o)(7)(B), amended
subpar. (A) generally. Prior to amendment, subpar (A) read as
follows: "who has attained the age of 50 before the close of the
plan year, and".
Subsec. (v)(5)(B). Pub. L. 107-147, Sec. 411(o)(7)(C),
substituted "plan (or other applicable) year" for "plan year".
Subsec. (v)(6)(C). Pub. L. 107-147, Sec. 411(o)(8), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "This subsection shall not apply
to an applicable employer plan described in subparagraph (A)(iii)
for any year to which section 457(b)(3) applies."
2001 - Subsec. (p)(10). Pub. L. 107-16, Secs. 635(b), 901,
temporarily substituted "section 409(d), and section 457(d)" for
"and section 409(d)". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (p)(11). Pub. L. 107-16, Secs. 635(a), 901, in heading
temporarily substituted "certain other plans" for "governmental and
church plans" and in text temporarily inserted "or an eligible
deferred compensation plan (within the meaning of section 457(b))"
after "subsection (e))". See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (p)(12), (13). Pub. L. 107-16, Secs. 635(c), 901,
temporarily added par. (12) and redesignated former par. (12) as
(13). See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (v). Pub. L. 107-16, Secs. 631(a), 901, temporarily added
subsec. (v). See Effective and Termination Dates of 2001 Amendment
note below.
2000 - Subsec. (s)(2). Pub. L. 106-554 substituted "section 125,
132(f)(4), 402(e)(3)" for "section 125, 402(e)(3)".
1998 - Subsec. (q)(5). Pub. L. 105-206 made technical amendment
to Pub. L. 104-188, Sec. 1434(c)(1)(E). See 1996 Amendment note
below.
1997 - Subsec. (e)(5)(A). Pub. L. 105-34, Sec. 1601(d)(6)(A),
amended heading and text of subpar. (A) generally. Prior to
amendment, text read as follows: "For purposes of this part -
"(i) In general. - An employee of a church or a convention or
association of churches shall include a duly ordained,
commissioned, or licensed minister of a church who, in connection
with the exercise of his or her ministry -
"(I) is a self-employed individual (within the meaning of
section 401(c)(1)(B)), or
"(II) is employed by an organization other than an
organization described in section 501(c)(3).
"(ii) Treatment as employer and employee. -
"(I) Self-employed. - A minister described in clause (i)(I)
shall be treated as his or her own employer which is an
organization described in section 501(c)(3) and which is exempt
from tax under section 501(a).
"(II) Others. - A minister described in clause (i)(II) shall
be treated as employed by an organization described in section
501(c)(3) and exempt from tax under section 501(a)."
Subsec. (e)(5)(C). Pub. L. 105-34, Sec. 1522(a)(1), substituted
"not otherwise participating" for "not eligible to participate".
Subsec. (e)(5)(E). Pub. L. 105-34, Sec. 1522(a)(2), added subpar.
(E).
Subsec. (n)(3)(C). Pub. L. 105-34, Sec. 1601(h)(2)(D)(i),
inserted "137," after "132,".
Subsec. (q)(7), (9). Pub. L. 105-34, Sec. 1601(d)(7),
redesignated par. (7), relating to certain employees not considered
highly compensated and excluded employees under pre-ERISA rules for
church plans, as (9).
Subsec. (t)(2). Pub. L. 105-34, Sec. 1601(h)(2)(D)(ii), inserted
"137," after "132,".
1996 - Subsecs. (b), (c). Pub. L. 104-188, Sec. 1421(b)(9)(C),
inserted "408(p)," after "408(k),".
Subsec. (e)(5). Pub. L. 104-188, Sec. 1461(a), added par. (5).
Subsec. (m)(4)(B). Pub. L. 104-188, Sec. 1421(b)(9)(C), inserted
"408(p)," after "408(k),".
Subsec. (n)(2)(C). Pub. L. 104-188, Sec. 1454(a), amended subpar.
(C) generally. Prior to amendment, subpar. (C) read as follows:
"such services are of a type historically performed, in the
business field of the recipient, by employees."
Subsec. (n)(3)(B). Pub. L. 104-188, Sec. 1421(b)(9)(C), inserted
"408(p)," after "408(k),".
Subsec. (q)(1). Pub. L. 104-188, Sec. 1431(a), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "In
general. - The term 'highly compensated employee' means any
employee who, during the year or the preceding year -
"(A) was at any time a 5-percent owner,
"(B) received compensation from the employer in excess of
$75,000,
"(C) received compensation from the employer in excess of
$50,000 and was in the top-paid group of employees for such year,
or
"(D) was at any time an officer and received compensation
greater than 50 percent of the amount in effect under section
415(b)(1)(A) for such year.
The Secretary shall adjust the $75,000 and $50,000 amounts under
this paragraph at the same time and in the same manner as under
section 415(d)."
Subsec. (q)(2), (3). Pub. L. 104-188, Sec. 1431(c)(1)(A),
redesignated pars. (3) and (4) as (2) and (3), respectively, and
struck out former par. (2) which read as follows: "Special rule for
current year. - In the case of the year for which the relevant
determination is being made, an employee not described in
subparagraph (B), (C), or (D) of paragraph (1) for the preceding
year (without regard to this paragraph) shall not be treated as
described in subparagraph (B), (C), or (D) of paragraph (1) unless
such employee is a member of the group consisting of the 100
employees paid the greatest compensation during the year for which
such determination is being made."
Subsec. (q)(4). Pub. L. 104-188, Sec. 1434(b)(1), amended heading
and text of par. (4) generally. Prior to amendment, text read as
follows: "For purposes of this subsection -
"(A) In general. - The term 'compensation' means compensation
within the meaning of section 415(c)(3).
"(B) Certain provisions not taken into account. - The
determination under subparagraph (A) shall be made -
"(i) without regard to sections 125, 402(e)(3), and
402(h)(1)(B), and
"(ii) in the case of employer contributions made pursuant to
a salary reduction agreement, without regard to section
403(b)."
Pub. L. 104-188, Sec. 1431(c)(1)(A), redesignated par. (7) as
(4).
Subsec. (q)(5). Pub. L. 104-188, Sec. 1434(c)(1)(E), as amended
by Pub. L. 105-206, Sec. 6018(c), struck out "under paragraph (4)
or the number of officers taken into account under paragraph (5)"
after "top-paid group" in introductory provisions.
Pub. L. 104-188, Sec. 1431(c)(1)(A), redesignated par. (8) as (5)
and struck out former par. (5) which read as follows: "Special
rules for treatment of officers. -
"(A) Not more than 50 officers taken into account. - For
purposes of paragraph (1)(D), no more than 50 employees (or, if
lesser, the greater of 3 employees or 10 percent of the
employees) shall be treated as officers.
"(B) At least 1 officer taken into account. - If for any year
no officer of the employer is described in paragraph (1)(D), the
highest paid officer of the employer for such year shall be
treated as described in such paragraph."
Subsec. (q)(6). Pub. L. 104-188, Sec. 1431(b)(1), (c)(1)(A),
redesignated par. (9) as (6) and struck out former par. (6) which
related to treatment of families of 5-percent owners or of highly
compensated employees.
Subsec. (q)(7). Pub. L. 104-188, Sec. 1462(a), added par. (7)
relating to certain employees not considered highly compensated and
excluded employees under pre-ERISA rules for church plans.
Pub. L. 104-188, Sec. 1431(c)(1)(A), redesignated par. (10),
relating to coordination with other provisions, as (7). Former par.
(7) redesignated (4).
Subsec. (q)(8) to (12). Pub. L. 104-188, Sec. 1431(c)(1)(A),
redesignated pars. (8) to (11) as (5) to (8), respectively, and
struck out par. (12) which related to simplified method for
determining highly compensated employees.
Subsec. (r)(2)(A). Pub. L. 104-188, Sec. 1431(c)(1)(D),
substituted "subsection (q)(5)" for "subsection (q)(8)".
Subsec. (s)(2). Pub. L. 104-188, Sec. 1434(b)(2), inserted "not"
after "elect" in heading and in text.
Subsec. (u). Pub. L. 104-188, Sec. 1704(n)(1), added subsec. (u).
1992 - Subsec. (n)(5)(C)(iii)(I). Pub. L. 102-318, Sec.
521(b)(20), substituted "402(e)(3)" for "402(a)(8)".
Subsec. (q)(7)(B)(i). Pub. L. 102-318, Sec. 521(b)(21),
substituted "402(e)(3)" for "402(a)(8)".
Subsec. (s)(2). Pub. L. 102-318, Sec. 521(b)(22), substituted
"402(e)(3)" for "402(a)(8)".
1990 - Subsec. (n)(2)(B). Pub. L. 101-508 struck out "(6 months
in the case of core health benefits)" after "1 year".
1989 - Subsec. (n)(3)(C). Pub. L. 101-239, Sec. 7813(b), amended
directory language of Pub. L. 100-647, Sec. 3011(b)(4), see 1988
Amendment note below.
Pub. L. 101-140, Sec. 203(a)(6)(A), struck out "89," after "79,".
Subsec. (p)(10). Pub. L. 101-239, Sec. 7811(m)(5), inserted
"section" before "403(b)".
Subsec. (p)(11). Pub. L. 101-239, Sec. 7841(a)(2), added par.
(11) and redesignated former par. (11) as (12).
Subsec. (r)(1). Pub. L. 101-140, Sec. 204(b)(2), substituted
"sections 129(d)(8) and 410(b)" for "section 410(b)".
Pub. L. 101-140, Sec. 203(a)(6)(B), substituted "section 410(b)"
for "sections 89 and 410(b)".
Subsec. (t)(2). Pub. L. 101-239, Sec. 7813(b), amended directory
language of Pub. L. 100-647, Sec. 3011(b)(5), see 1988 Amendment
note below.
Pub. L. 101-140, Sec. 203(a)(6)(C), struck out "89," after "79,".
1988 - Subsec. (k)(2). Pub. L. 100-647, Sec. 1011A(b)(3),
inserted "72(d) (relating to treatment of employee contributions as
separate contract)," after "purposes of sections".
Subsec. (l). Pub. L. 100-647, Sec. 2005(c)(1), (2), substituted
"Merger" for "Mergers" in heading, designated existing provision as
par. (1), inserted par. (1) heading, and added par. (2).
Subsec. (l)(2)(G). Pub. L. 100-647, Sec. 6067(a), added subpar.
(G).
Subsec. (m)(4)(A). Pub. L. 100-647, Sec. 1011(h)(5), substituted
"(16), (17), and (26)" for "and (16)".
Subsec. (m)(4)(C), (D). Pub. L. 100-647, Sec. 1011B(a)(16),
struck out subpars. (C) and (D) which read as follows:
"(C) section 105(h), and
"(D) section 125."
Subsec. (n)(3)(A). Pub. L. 100-647, Sec. 1011(h)(5), substituted
"(16), (17), and (26)" for "and (16)".
Subsec. (n)(3)(C). Pub. L. 100-647, Sec. 3011(b)(4), as amended
by Pub. L. 101-239, Sec. 7813(b), struck out "162(i)(2), 162(k),"
after "132," and substituted "505, and 4980B" for "and 505".
Pub. L. 100-647, Sec. 1011B(a)(19), inserted "162(i)(2), 162(k),"
after "132,".
Subsec. (o). Pub. L. 100-647, Sec. 1011(e)(4), inserted "or any
requirement under section 457" after "or (n)(3)".
Subsec. (p)(4)(B). Pub. L. 100-647, Sec. 1018(t)(8)(E),
substituted "means the earlier of" for "means earlier of" and
struck out "in" at beginning of cls. (i) and (ii).
Subsec. (p)(9). Pub. L. 100-647, Sec. 1018(t)(8)(G), inserted at
end "For purposes of this title, except as provided in regulations,
any distribution from an annuity contract under section 403(b)
pursuant to a qualified domestic relations order shall be treated
in the same manner as a distribution from a plan to which section
401(a)(13) applies."
Subsec. (p)(10). Pub. L. 100-647, Sec. 1018(t)(8)(F), inserted ",
403(b)," after "section 401".
Subsec. (q)(1). Pub. L. 100-647, Sec. 1011(i)(1), inserted at end
"The Secretary shall adjust the $75,000 and $50,000 amounts under
this paragraph at the same time and in the same manner as under
section 415(d)."
Subsec. (q)(1)(D). Pub. L. 100-647, Sec. 1011(d)(8), substituted
"50" for "150" and "415(b)(1)(A)" for "415(c)(1)(A)".
Subsec. (q)(6)(C). Pub. L. 100-647, Sec. 1011(i)(2), added
subpar. (C).
Subsec. (q)(8). Pub. L. 100-647, Sec. 1011(i)(4)(A), inserted "or
the number of officers taken into account under paragraph (5)"
after "under paragraph (4)".
Pub. L. 100-647, Sec. 1011(i)(3)(A)(ii), substituted "Except as
provided by the Secretary, the employer" for "The employer" in last
sentence.
Subsec. (q)(8)(F). Pub. L. 100-647, Sec. 1011(i)(3)(A)(i), struck
out subpar. (F) which read as follows: "employees who are
nonresident aliens and who receive no earned income (within the
meaning of section 911(d)(2)) from the employer which constitutes
income from sources within the United States (within the meaning of
section 861(a)(3))."
Subsec. (q)(11). Pub. L. 100-647, Sec. 1011(i)(3)(B), added par.
(11).
Subsec. (q)(12). Pub. L. 100-647, Sec. 3021(b)(1), added par.
(12).
Subsec. (r)(3). Pub. L. 100-647, Sec. 3021(b)(2)(A), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "The
requirements of subparagraph (C) of paragraph (2) shall not apply
to any line of business if the highly compensated employee
percentage with respect to such line of business is -
"(A) not less than one-half, and
"(B) not more than twice,
the percentage which highly compensated employees are of all
employees of the employer. An employer shall be treated as meeting
the requirements of subparagraph (A) if at least 10 percent of all
highly compensated employees of the employer perform services
solely for such line of business."
Subsec. (s). Pub. L. 100-647, Sec. 1011(j)(1), substituted "any
applicable provision" for "this part" in introductory provisions.
Subsec. (s)(1). Pub. L. 100-647, Sec. 1011(j)(1), amended par.
(1) generally. Prior to amendment, par. (1) read as follows: "The
term 'compensation' means compensation for service performed for an
employer which (taking into account the provisions of this chapter)
is currently includible in gross income."
Subsec. (s)(2) to (4). Pub. L. 100-647, Sec. 1011(j)(2), added
par. (4), redesignated former pars. (3) and (4) as (2) and (3),
respectively, and struck out former par. (2) which read as follows:
"The Secretary shall prescribe regulations for the determination of
the compensation of an employee who is a self-employed individual
(within the meaning of section 401(c)(1)) which are based on the
principles of paragraph (1)."
Subsec. (t)(1). Pub. L. 100-647, Sec. 1011B(a)(20), struck out
"of section 414" before "shall be treated" and "shall apply with".
Subsec. (t)(2). Pub. L. 100-647, Sec. 3011(b)(5), as amended by
Pub. L. 101-239, Sec. 7813(b), struck out "162(i)(2), 162(k),"
after "132," and substituted "505, or 4980B" for "or 505".
Pub. L. 100-647, Sec. 1011B(a)(17), inserted "162(i)(2), 162(k),"
after "132,".
1987 - Subsec. (b). Pub. L. 100-203 struck out "the minimum
funding standard of section 412, the tax imposed by section 4971,
and" after "one such corporation,".
1986 - Subsec. (k)(2). Pub. L. 99-514, Sec. 1117(c), inserted
reference to section 401(m) (relating to nondiscrimination tests
for matching requirements and employee contributions).
Subsec. (m)(2)(B)(ii). Pub. L. 99-514, Sec. 1114(b)(11),
substituted "highly compensated employees (within the meaning of
section 414(q))" for "officers, highly compensated employees, or
owners".
Subsec. (m)(5). Pub. L. 99-514, Sec. 1301(j)(4), substituted
"section 144(a)(3)" for "section 103(b)(6)(C)".
Subsec. (m)(7). Pub. L. 99-514, Sec. 1852(f), amended directory
language of Pub. L. 98-369, Sec. 526(d)(2), to correct an error,
and did not involve any change in text. See 1984 Amendment note
below.
Subsec. (n)(1). Pub. L. 99-514, Sec. 1151(i)(1), substituted
"requirements" for "pension requirements".
Pub. L. 99-514, Sec. 1146(b)(2), struck out "except to the extent
otherwise provided in regulations," after "listed in paragraph
(3),".
Subsec. (n)(2)(B). Pub. L. 99-514, Sec. 1151(i)(2), inserted "(6
months in the case of core health benefits)" after "1 year".
Subsec. (n)(3). Pub. L. 99-514, Sec. 1151(i)(3), substituted
"Requirements" for "Pension requirements" in heading, substituted
"requirements" for "pension requirements" in text, and added
subpar. (C).
Subsec. (n)(4). Pub. L. 99-514, Sec. 1146(a)(2), substituted
"Time when first considered as employee" for "Time when leased
employee is first considered as employee" in heading and amended
text generally. Prior to amendment, text read as follows: "In the
case of any leased employee, paragraph (1) shall apply only for
purposes of determining whether the pension requirements listed in
paragraph (3) are met for periods after the close of the 1-year
period referred to in paragraph (2); except that years of service
for the recipient shall be determined by taking into account the
entire period for which the leased employee performed services for
the recipient (or related persons)."
Subsec. (n)(5). Pub. L. 99-514, Sec. 1146(a)(1), amended par. (5)
generally. Prior to amendment, par. (5) read as follows: "This
subsection shall not apply to any leased employee if such employee
is covered by a plan which is maintained by the leasing
organization if, with respect to such employee, such plan -
"(A) is a money purchase pension plan with a nonintegrated
employer contribution rate of at least 7 1/2 percent, and
"(B) provides for immediate participation and for full and
immediate vesting."
Subsec. (n)(6). Pub. L. 99-514, Sec. 1301(j)(4), substituted
"section 144(a)(3)" for "section 103(b)(6)(C)" in subpar. (A).
Pub. L. 99-514, Sec. 1146(a)(3), substituted "Other rules" for
"Related persons" in heading and amended text generally. Prior to
amendment, text read as follows: "For purposes of this subsection,
the term 'related persons' has the same meaning as when used in
section 103(b)(6)(C)."
Subsec. (o). Pub. L. 99-514, Sec. 1146(b)(1), inserted provision
relating to regulations to minimize recordkeeping requirements in
case of employer which has no top-heavy plans and uses the services
of persons other than employees for an insignificant percentage of
the employer's total workload.
Subsec. (p)(1)(B)(i). Pub. L. 99-514, Sec. 1898(c)(7)(A)(ii),
inserted "former spouse,".
Subsec. (p)(3)(B). Pub. L. 99-514, Sec. 1899A(12), struck out the
comma after "benefits".
Subsec. (p)(4)(A). Pub. L. 99-514, Sec. 1898(c)(7)(A)(vi),
substituted "A" for "In the case of any payment before a
participant has separated from service, a" in introductory
provisions and inserted "in the case of any payment before a
participant has separated from service," in cl. (i).
Subsec. (p)(4)(B). Pub. L. 99-514, Sec. 1898(c)(7)(A)(vii),
amended subpar. (B) generally. Prior to amendment, subpar. (B) read
as follows: "For purposes of this paragraph, the term 'earliest
retirement age' has the meaning given such term by section
417(f)(3), except that in the case of any defined contribution
plan, the earliest retirement age shall be the date which is 10
years before the normal retirement age (within the meaning of
section 411(a)(8))."
Subsec. (p)(5). Pub. L. 99-514, Sec. 1898(c)(7)(A)(v), struck out
last sentence which read as follows: "A plan shall not be treated
as failing to meet the requirements of subsection (a) or (k) of
section 401 which prohibit payment of benefits before termination
of employment solely by reason of payments to an alternate payee
pursuant to a qualified domestic relations order."
Subsec. (p)(5)(A). Pub. L. 99-514, Sec. 1898(c)(6)(A), inserted
"(and any spouse of the participant shall not be treated as a
spouse of the participant for such purposes)".
Subsec. (p)(5)(B). Pub. L. 99-514, Sec. 1898(c)(7)(A)(iv),
substituted "the surviving former spouse" for "the surviving
spouse".
Subsec. (p)(6)(A)(i). Pub. L. 99-514, Sec. 1898(c)(7)(A)(iii),
substituted "each alternate payee" for "any other alternate payee".
Subsec. (p)(7)(A). Pub. L. 99-514, Sec. 1898(c)(2)(A)(i),
substituted "shall separately account for the amounts (hereinafter
in this paragraph referred to as the 'segregated amounts')" for
"shall segregate in a separate account in the plan or in an escrow
account the amounts".
Subsec. (p)(7)(B). Pub. L. 99-514, Sec. 1898(c)(2)(A)(ii),
substituted "the 18-month period described in subparagraph (E)" for
"18 months" and "including any interest" for "plus any interest".
Subsec. (p)(7)(C). Pub. L. 99-514, Sec. 1898(c)(2)(A)(iii),
substituted "the 18-month period described in subparagraph (E)" for
"18 months" and "including any interest" for "plus any interest".
Subsec. (p)(7)(D). Pub. L. 99-514, Sec. 1898(c)(2)(A)(iv),
inserted "described in subparagraph (E)".
Subsec. (p)(7)(E). Pub. L. 99-514, Sec. 1898(c)(2)(A)(v), added
subpar. (E).
Subsec. (p)(9). Pub. L. 99-514, Sec. 1898(c)(4)(A), added par.
(9). Former par. (9) redesignated (11).
Subsec. (p)(10). Pub. L. 99-514, Sec. 1898(c)(7)(A)(v), added
par. (10).
Subsec. (p)(11). Pub. L. 99-514, Sec. 1898(c)(4)(A), redesignated
former par. (9) as (11).
Subsec. (q). Pub. L. 99-514, Sec. 1114(a), added subsec. (q).
Subsecs. (r), (s). Pub. L. 99-514, Sec. 1115(a), added subsecs.
(r) and (s).
Subsec. (t). Pub. L. 99-514, Sec. 1151(e)(1), added subsec. (t).
1984 - Subsec. (h)(1)(B). Pub. L. 98-369, Sec. 491(d)(26), struck
out "or 405(a)" after "section 403(a)".
Subsec. (l). Pub. L. 98-369, Sec. 491(d)(27), struck out "or 405"
after "section 403(a)".
Subsec. (m)(6)(B). Pub. L. 98-369, Sec. 526(a)(1), substituted
"section 318(a)" for "section 267(c)".
Subsec. (m)(7). Pub. L. 98-369, Sec. 526(d)(2), as amended by
Pub. L. 99-514, Sec. 1852(f), struck out par. (7) relating to
regulations. See subsec. (o) of this section.
Subsec. (n)(2). Pub. L. 98-369, Secs. 526(b)(1), 713(i), made
identical amendments, substituting "any person who is not an
employee of the recipient and" for "any person" in text preceding
subpar. (A).
Subsec. (o). Pub. L. 98-369, Sec. 526(d)(1), added subsec. (o).
Subsec. (p). Pub. L. 98-397 added subsec. (p).
1982 - Subsecs. (b), (c). Pub. L. 97-248, Sec. 240(c)(1),
inserted reference to section 416.
Subsec. (m)(4)(B). Pub. L. 97-248, Sec. 240(c)(2), inserted
reference to section 416.
Subsec. (m)(5) to (7). Pub. L. 97-248, Sec. 246(a), added par.
(5) and redesignated former pars. (5) and (6) as (6) and (7),
respectively.
Subsec. (n). Pub. L. 97-248, Sec. 248(a), added subsec. (n).
1980 - Subsec. (e). Pub. L. 96-364, Sec. 407(b), substituted
provisions defining "church plan" with respect to general
requirements, exclusion of certain plans, definitions and other
provisions, and correction of failures to meet church plan
requirements, for provisions defining "church plan" with respect to
general requirements, certain unrelated business or multiemployer
plans, and special temporary rules for certain church agencies
under church plan.
Subsec. (f). Pub. L. 96-364, Sec. 207, substituted provisions
setting forth definition, cases of common control, continuation of
status after termination, transitional rule, and special election
with respect to a multiemployer plan, for provisions setting forth
definition and special rules with respect to a multiemployer plan.
Subsec. (l). Pub. L. 96-364, Sec. 208(a), substituted provisions
relating to applicability to multiemployer plans subject to title
IV of the Employee Retirement Income Security Act of 1974 of
provisions of preceding sentence, for provisions relating to
applicability of paragraph to multiemployer plans to extent
determined by Corporation.
Subsec. (m). Pub. L. 96-605 and Pub. L. 96-613 added an identical
subsec. (m).
1978 - Subsecs. (b), (c). Pub. L. 95-600 inserted "408(k)," after
"sections 401," wherever appearing.
1976 - Subsecs. (a) to (c). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (f). Pub. L. 94-455, Sec. 1901(a)(64)(A), substituted
"Plan" for "plan" in heading.
Subsec. (g)(2)(C). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (l). Pub. L. 94-455, Sec. 1901(a)(64)(B), substituted
reference to Sept. 2, 1974, for reference to the date of enactment
of the Employee Retirement Income Security Act of 1974.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title VI, Sec. 631(b), June 7, 2001, 115 Stat.
113, provided that: "The amendment made by this section [amending
this section] shall apply to contributions in taxable years
beginning after December 31, 2001."
Pub. L. 107-16, title VI, Sec. 635(d), June 7, 2001, 115 Stat.
117, provided that: "The amendment made by this section [amending
this section] shall apply to transfers, distributions, and payments
made after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 effective as if included in the
provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 1(a)(7) [title III, Sec.
314(g)] of Pub. L. 106-554, set out as a note under section 56 of
this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by section 6018 of Pub. L. 105-206 effective as if
included in the provisions of the Small Business Job Protection Act
of 1996, Pub. L. 104-188, to which such amendment relates, see
section 6018(h) of Pub. L. 105-206, set out as a note under section
23 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1522(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to years
beginning after December 31, 1997."
Amendment by section 1601(d)(6)(A), (7), (h)(2)(D)(i), (ii) of
Pub. L. 105-34 effective as if included in the provisions of the
Small Business Job Protection Act of 1996, Pub. L. 104-188, to
which it relates, see section 1601(j) of Pub. L. 105-34, set out as
a note under section 23 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1421(b)(9)(C) of Pub. L. 104-188 applicable
to taxable years beginning after Dec. 31, 1996, see section 1421(e)
of Pub. L. 104-188, set out as a note under section 72 of this
title.
Section 1431(d) of Pub. L. 104-188 provided that:
"(1) In general. - The amendments made by this section [amending
this section, sections 129, 401, 404, 408, and 416 of this title,
and provisions set out as a note below] shall apply to years
beginning after December 31, 1996, except that in determining
whether an employee is a highly compensated employee for years
beginning in 1997, such amendments shall be treated as having been
in effect for years beginning in 1996.
"(2) Family aggregation. - The amendments made by subsection (b)
[amending this section and sections 401 and 404 of this title]
shall apply to years beginning after December 31, 1996."
Section 1434(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and section 415 of this
title] shall apply to years beginning after December 31, 1997."
Section 1454(b) of Pub. L. 104-188 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to years
beginning after December 31, 1996, but shall not apply to any
relationship determined under an Internal Revenue Service ruling
issued before the date of the enactment of this Act [Aug. 20, 1996]
pursuant to section 414(n)(2)(C) of the Internal Revenue Code of
1986 (as in effect on the day before such date) not to involve a
leased employee."
Amendment by section 1461(a) of Pub. L. 104-188 applicable to
years beginning after Dec. 31, 1996, see section 1461(c) of Pub. L.
104-188, set out as a note under section 404 of this title.
Section 1462(c) of Pub. L. 104-188 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to years
beginning after December 31, 1996."
Section 1704(n)(3) of Pub. L. 104-188 provided that: "The
amendments made by this subsection [amending this section and
section 1108 of Title 29, Labor] shall be effective as of December
12, 1994."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11703(b)(2) of Pub. L. 101-508 provided that: "The
amendment made by subsection (a) [probably means par. (1), which
amended this section] shall take effect as if included in the
amendments made by section 1151 of the Tax Reform Act of 1986 [Pub.
L. 99-514]."
EFFECTIVE DATE OF 1989 AMENDMENTS
Amendment by sections 7811(m)(5) and 7813(b) of Pub. L. 101-239
effective, except as otherwise provided, as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section 7817
of Pub. L. 101-239, set out as a note under section 1 of this
title.
Amendment by section 7841(a)(2) of Pub. L. 101-239 applicable to
transfers after Dec. 19, 1989, in taxable years ending after such
date, see section 7841(a)(3) of Pub. L. 101-239, set out as a note
under section 408 of this title.
Amendment by section 203(a)(6) of Pub. L. 101-140 effective as if
included in section 1151 of Pub. L. 99-514, see section 203(c) of
Pub. L. 101-140, set out as a note under section 79 of this title.
Amendment by section 204(b)(2) of Pub. L. 101-140 applicable to
years beginning after Dec. 31, 1988, see section 204(d)(1) of Pub.
L. 101-140, set out as a note under section 129 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1011(d)(8), (e)(4), (h)(5), (i)(1)-(4)(A),
(j)(1), (2), 1011A(b)(3), 1011B(a)(16), (17), (19), (20), and
1018(t)(8)(E)-(G) of Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
Section 2005(c)(3) of Pub. L. 100-647 provided that:
"(A) Except as provided in subparagraph (B), the amendments made
by this subsection [amending this section] shall apply with respect
to transactions occurring after July 26, 1988.
"(B) The amendments made by this subsection shall not apply to
any transaction occurring after July 26, 1988, if on or before such
date the board of directors of the employer, approves such
transaction or the employer took similar binding action."
Amendment by section 3011(b)(4), (5) of Pub. L. 100-647
applicable to taxable years beginning after Dec. 31, 1988, but not
applicable to any plan for any plan year to which section 162(k) of
this title (as in effect on the day before Nov. 10, 1988) did not
apply by reason of section 10001(e)(2) of Pub. L. 99-272, see
section 3011(d) of Pub. L. 100-647, set out as a note under section
162 of this title.
Amendment by section 3021(b)(1), (2)(A) of Pub. L. 100-647
applicable to years beginning after Dec. 31, 1986, see section
3021(d)(2) of Pub. L. 100-647, set out as a note under section 129
of this title.
Section 6067(c) of Pub. L. 100-647, as amended by Pub. L. 101-
239, title VII, Sec. 7816(k), Dec. 19, 1989, 103 Stat. 2421,
provided that: "The amendment made by this section [amending this
section] shall take effect as if included in the amendments made by
section 2005(c) of this Act [amending this section]."
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable with respect to plan
years beginning after Dec. 31, 1987, see section 9305(d) of Pub. L.
100-203, set out as a note under section 412 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1114(c) of Pub. L. 99-514, as amended by Pub. L. 104-188,
title I, Sec. 1431(c)(2), Aug. 20, 1996, 110 Stat. 1803; Pub. L.
107-16, title VI, Sec. 663(a), June 7, 2001, 115 Stat. 142,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendment made by this section [amending this section and sections
106, 274, 423, and 501 of this title] shall apply to years
beginning after December 31, 1986.
"(2) Conforming amendments to employee benefit provisions. - The
amendments made by paragraphs (2), (3), (4), (5), and (16) of
subsection (b) [amending sections 117, 120, 127, 129, 132, and 505
of this title] shall apply to years beginning after December 31,
1987.
"(3) Conforming amendments to pension provisions. - The
amendments made by paragraphs (7), (8), (9), (10), (11), (12), and
(15) of subsection (b) [amending this section and sections 401,
404A, 406, 407, 411, 415, and 4975 of this title and section 1108
of Title 29, Labor] shall apply to years beginning after December
31, 1988."
[Pub. L. 107-16, title VI, Sec. 663(b), June 7, 2001, 115 Stat.
143, provided that: "The repeal made by subsection (a) [repealing
par. (4) of section 1114(c) of Pub. L. 99-514, set out above] shall
apply to plan years beginning after December 31, 2001."]
Section 1115(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to years
beginning after December 31, 1986."
Amendment by section 1117(c) of Pub. L. 99-514 applicable to plan
years beginning after Dec. 31, 1986, with special provisions for
plans maintained pursuant to collective bargaining agreements
ratified before Mar. 1, 1986, and for annuity contracts under
section 403(b) of this title, see section 1117(d) of Pub. L. 99-
514, set out as a note under section 401 of this title.
Section 1146(c) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1983.
"(2) Subsection (a)(1). - The amendment made by subsection (a)(1)
shall apply to services performed after December 31, 1986.
"(3) Recordkeeping requirements. - In the case of years beginning
before the date of the enactment of this Act [Oct. 22, 1986], the
last sentence of section 414(o) shall be applied without regard to
the requirement that an insignificant percentage of the workload be
performed by persons other than employees."
Amendment by section 1151(e)(1), (i) of Pub. L. 99-514
applicable, with certain qualifications and exceptions, to years
beginning after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-
514, as amended, set out as a note under section 79 of this title.
Amendment by section 1301(j)(4) of Pub. L. 99-514 applicable to
bonds issued after Aug. 15, 1986, except as otherwise provided, see
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective
Date; Transitional Rules note under section 141 of this title.
Amendment by section 1852(f) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
Amendment by section 1898(c)(2)(A), (4)(A), (6)(A), (7)(A)(ii)-
(vii) of Pub. L. 99-514 effective as if included in the provision
of the Retirement Equity Act of 1984, Pub. L. 98-397, to which such
amendment relates, except as otherwise provided, see section
1898(j) of Pub. L. 99-514, set out as a note under section 401 of
this title.
EFFECTIVE DATE OF 1984 AMENDMENTS
Amendment by Pub. L. 98-397 effective Jan. 1, 1985, except as
otherwise provided, see section 303(d) of Pub. L. 98-397, set out
as a note under section 1001 of Title 29, Labor.
Amendment by section 491(d)(26), (27) of Pub. L. 98-369
applicable to obligations issued after Dec. 31, 1983, see section
491(f)(1) of Pub. L. 98-369, set out as a note under section 62 of
this title.
Section 526(a)(2) of Pub. L. 98-369 provided that: "The amendment
made by this subsection [amending this section] shall apply to
taxable years beginning after December 31, 1984."
Section 526(b)(2) of Pub. L. 98-369 provided that: "The amendment
made by this subsection [amending this section] shall apply to
taxable years beginning after December 31, 1983."
Section 526(d)(3) of Pub. L. 98-369 provided that: "The
amendments made by this subsection [amending this section] shall
take effect on the date of the enactment of this Act [July 18,
1984]."
Amendment by section 713(i) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by section 240(c) of Pub. L. 97-248, applicable to
years beginning after Dec. 31, 1983, see section 241(a) of Pub. L.
97-248, set out as a note under section 416 of this title.
Section 246(b) of Pub. L. 97-248 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1983."
Section 248(b) of Pub. L. 97-248 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1983."
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 201(c) of Pub. L. 96-605 and section 5(c) of Pub. L. 96-
613, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
105 and 125 of this title] shall apply to plan years ending after
November 30, 1980.
"(2) Plans in existence on november 30, 1980. - In the case of a
plan in existence on November 30, 1980, the amendments made by this
section [amending this section and sections 105 and 125 of this
title] shall apply to plan years beginning after November 30,
1980."
Section 407(c) of Pub. L. 96-364 provided that: "The amendments
made by this section [amending this section and section 1002 of
Title 29, Labor] shall be effective as of January 1, 1974."
Amendment by sections 207 and 208(a) of Pub. L. 96-364 effective
Sept. 26, 1980, see section 210(a) of Pub. L. 96-364, set out as an
Effective Date note under section 418 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 152(h) of Pub. L. 95-600, set out
as a note under section 408 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(64) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE
Section applicable, except as otherwise provided in section
1017(c) through (i) of Pub. L. 93-406, for plan years beginning
after Sept. 2, 1974, and, in the case of plans in existence on Jan.
1, 1974, for plan years beginning after Dec. 31, 1975, see section
1017 of Pub. L. 93-406, set out as an Effective Date; Transitional
Rules note under section 410 of this title.
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by sections
1114, 1115, and 1117 of Pub. L. 99-514, see section 1141 of Pub. L.
99-514, set out as a note under section 401 of this title.
SAMPLE LANGUAGE FOR SPOUSAL CONSENT AND QUALIFIED DOMESTIC
RELATIONS FORMS
Section 1457 of Pub. L. 104-188 provided that:
"(a) Development of Sample Language. - Not later than January 1,
1997, the Secretary of the Treasury shall develop -
"(1) sample language for inclusion in a form for the spousal
consent required under section 417(a)(2) of the Internal Revenue
Code of 1986 and section 205(c)(2) of the Employee Retirement
Income Security Act of 1974 [29 U.S.C. 1055(c)(2)] which -
"(A) is written in a manner calculated to be understood by
the average person, and
"(B) discloses in plain form -
"(i) whether the waiver to which the spouse consents is
irrevocable, and
"(ii) whether such waiver may be revoked by a qualified
domestic relations order, and
"(2) sample language for inclusion in a form for a qualified
domestic relations order described in section 414(p)(1)(A) of
such Code and section 206(d)(3)(B)(i) of such Act [29 U.S.C.
1056(d)(3)(B)(i)] which -
"(A) meets the requirements contained in such sections, and
"(B) the provisions of which focus attention on the need to
consider the treatment of any lump sum payment, qualified joint
and survivor annuity, or qualified preretirement survivor
annuity.
"(b) Publicity. - The Secretary of the Treasury shall include
publicity for the sample language developed under subsection (a) in
the pension outreach efforts undertaken by the Secretary."
SAFEHARBOR AUTHORITY
Section 1462(b) of Pub. L. 104-188 provided that: "The Secretary
of the Treasury may design nondiscrimination and coverage safe
harbors for church plans."
APPLICATION OF LINE OF BUSINESS TEST FOR PERIOD BEFORE GUIDELINES
ISSUED
Section 204(b)(1) of Pub. L. 101-140 provided that: "In the case
of any plan year beginning on or before the date the Secretary of
the Treasury or his delegate issues guidelines and begins issuing
determinations under section 414(r)(2)(C) of the Internal Revenue
Code of 1986, an employer shall be treated as operating separate
lines of business if the employer reasonably determines that it
meets the requirements of section 414(r) (other than paragraph
(2)(C) thereof) of such Code."
[Section 204(d)(3) of Pub. L. 101-140 provided that: "The
provisions of subsection (b)(1) [set out above] shall apply to
years beginning after December 31, 1986."]
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514
FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement
or enforce section 1151 of Pub. L. 99-514 or the amendments made by
such section, see section 528 of Pub. L. 101-136, set out as a note
under section 89 of this title.
STUDY REFLECTING ALLOCATION OF ASSETS
Section 6067(b) of Pub. L. 100-647 directed Secretary of the
Treasury or his delegate, in consultation with Federal Deposit
Insurance Corporation, to conduct a study with respect to proper
method of allocating assets in case of a transaction to which the
amendment made by such section and, not later than Jan. 1, 1990
(due date extended to Jan. 1, 1992, by Pub. L. 101-508, title XI,
Sec. 11831(b), Nov. 5, 1990, 104 Stat. 1388-559) to report results
of such study to Committee on Ways and Means of House of
Representatives and to Committee on Finance of Senate.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original. There is no closing parenthesis.
-End-
-CITE-
26 USC Sec. 415 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart B - Special Rules
-HEAD-
Sec. 415. Limitations on benefits and contribution under qualified
plans
-STATUTE-
(a) General rule
(1) Trusts
A trust which is a part of a pension, profitsharing, or stock
bonus plan shall not constitute a qualified trust under section
401(a) if -
(A) in the case of a defined benefit plan, the plan provides
for the payment of benefits with respect to a participant which
exceed the limitation of subsection (b), or
(B) in the case of a defined contribution plan, contributions
and other additions under the plan with respect to any
participant for any taxable year exceed the limitation of
subsection (c).
(2) Section applies to certain annuities and accounts
In the case of -
(A) an employee annuity plan described in section 403(a),
(B) an annuity contract described in section 403(b), or
(C) a simplified employee pension described in section
408(k),
such a contract, plan, or pension shall not be considered to be
described in section 403(a), 403(b), or 408(k), as the case may
be, unless it satisfies the requirements of subparagraph (A) or
subparagraph (B) of paragraph (1), whichever is appropriate, and
has not been disqualified under subsection (g). In the case of an
annuity contract described in section 403(b), the preceding
sentence shall apply only to the portion of the annuity contract
which exceeds the limitation of subsection (b) or the limitation
of subsection (c), whichever is appropriate.
(b) Limitation for defined benefit plans
(1) In general
Benefits with respect to a participant exceed the limitation of
this subsection if, when expressed as an annual benefit (within
the meaning of paragraph (2)), such annual benefit is greater
than the lesser of -
(A) $160,000, or
(B) 100 percent of the participant's average compensation for
his high 3 years.
(2) Annual benefit
(A) In general
For purposes of paragraph (1), the term "annual benefit"
means a benefit payable annually in the form of a straight life
annuity (with no ancillary benefits) under a plan to which
employees do not contribute and under which no rollover
contributions (as defined in sections 402(c), 403(a)(4),
403(b)(8), 408(d)(3), and 457(e)(16)) are made.
(B) Adjustment for certain other forms of benefit
If the benefit under the plan is payable in any form other
than the form described in subparagraph (A), or if the
employees contribute to the plan or make rollover contributions
(as defined in sections 402(c), 403(a)(4), 403(b)(8),
408(d)(3), and 457(e)(16)), the determinations as to whether
the limitation described in paragraph (1) has been satisfied
shall be made, in accordance with regulations prescribed by the
Secretary by adjusting such benefit so that it is equivalent to
the benefit described in subparagraph (A). For purposes of this
subparagraph, any ancillary benefit which is not directly
related to retirement income benefits shall not be taken into
account; and that portion of any joint and survivor annuity
which constitutes a qualified joint and survivor annuity (as
defined in section 417) shall not be taken into account.
(C) Adjustment to $160,000 limit where benefit begins before
age 62
If the retirement income benefit under the plan begins before
age 62, the determination as to whether the $160,000 limitation
set forth in paragraph (1)(A) has been satisfied shall be made,
in accordance with regulations prescribed by the Secretary, by
reducing the limitation of paragraph (1)(A) so that such
limitation (as so reduced) equals an annual benefit (beginning
when such retirement income benefit begins) which is equivalent
to a $160,000 annual benefit beginning at age 62.
(D) Adjustment to $160,000 limit where benefit begins after age
65
If the retirement income benefit under the plan begins after
age 65, the determination as to whether the $160,000 limitation
set forth in paragraph (1)(A) has been satisfied shall be made,
in accordance with regulations prescribed by the Secretary, by
increasing the limitation of paragraph (1)(A) so that such
limitation (as so increased) equals an annual benefit
(beginning when such retirement income benefit begins) which is
equivalent to a $160,000 annual benefit beginning at age 65.
(E) Limitation on certain assumptions
(i) For purposes of adjusting any limitation under
subparagraph (C) and, except as provided in clause (ii), for
purposes of adjusting any benefit under subparagraph (B), the
interest rate assumption shall not be less than the greater of
5 percent or the rate specified in the plan.
(ii) For purposes of adjusting any benefit under subparagraph
(B) for any form of benefit subject to section 417(e)(3), the
applicable interest rate (as defined in section 417(e)(3))
shall be substituted for "5 percent" in clause (i), except that
in the case of plan years beginning in 2004 or 2005, "5.5
percent" shall be substituted for "5 percent" in clause (i).
(iii) For purposes of adjusting any limitation under
subparagraph (D), the interest rate assumption shall not be
greater than the lesser of 5 percent or the rate specified in
the plan.
(iv) For purposes of this subsection, no adjustments under
subsection (d)(1) shall be taken into account before the year
for which such adjustment first takes effect.
(v) For purposes of adjusting any benefit or limitation under
subparagraph (B), (C), or (D), the mortality table used shall
be the table prescribed by the Secretary. Such table shall be
based on the prevailing commissioners' standard table
(described in section 807(d)(5)(A)) used to determine reserves
for group annuity contracts issued on the date the adjustment
is being made (without regard to any other subparagraph of
section 807(d)(5)).
[(F) Repealed. Pub. L. 107-16, title VI, Sec. 611(a)(5)(A),
June 7, 2001, 115 Stat. 97]
(G) Special limitation for qualified police or firefighters
In the case of a qualified participant, subparagraph (C) of
this paragraph shall not apply.
(H) Qualified participant defined
For purposes of subparagraph (G), the term "qualified
participant" means a participant -
(i) in a defined benefit plan which is maintained by a
State or political subdivision thereof,
(ii) with respect to whom the period of service taken into
account in determining the amount of the benefit under such
defined benefit plan includes at least 15 years of service of
the participant -
(I) as a full-time employee of any police department or
fire department which is organized and operated by the
State or political subdivision maintaining such defined
benefit plan to provide police protection, firefighting
services, or emergency medical services for any area within
the jurisdiction of such State or political subdivision, or
(II) as a member of the Armed Forces of the United
States.
(I) Exemption for survivor and disability benefits provided
under governmental plans
Subparagraph (C) of this paragraph and paragraph (5) shall
not apply to -
(i) income received from a governmental plan (as defined in
section 414(d)) as a pension, annuity, or similar allowance
as the result of the recipient becoming disabled by reason of
personal injuries or sickness, or
(ii) amounts received from a governmental plan by the
beneficiaries, survivors, or the estate of an employee as the
result of the death of the employee.
(3) Average compensation for high 3 years
For purposes of paragraph (1), a participant's high 3 years
shall be the period of consecutive calendar years (not more than
3) during which the participant both was an active participant in
the plan and had the greatest aggregate compensation from the
employer. In the case of an employee within the meaning of
section 401(c)(1), the preceding sentence shall be applied by
substituting for "compensation from the employer" the following:
"the participant's earned income (within the meaning of section
401(c)(2) but determined without regard to any exclusion under
section 911)".
(4) Total annual benefits not in excess of $10,000
Notwithstanding the preceding provisions of this subsection,
the benefits payable with respect to a participant under any
defined benefit plan shall be deemed not to exceed the limitation
of this subsection if -
(A) the retirement benefits payable with respect to such
participant under such plan and under all other defined benefit
plans of the employer do not exceed $10,000 for the plan year,
or for any prior plan year, and
(B) the employer has not at any time maintained a defined
contribution plan in which the participant participated.
(5) Reduction for participation or service of less than 10 years
(A) Dollar limitation
In the case of an employee who has less than 10 years of
participation in a defined benefit plan, the limitation
referred to in paragraph (1)(A) shall be the limitation
determined under such paragraph (without regard to this
paragraph) multiplied by a fraction -
(i) the numerator of which is the number of years (or part
thereof) of participation in the defined benefit plan of the
employer, and
(ii) the denominator of which is 10.
(B) Compensation and benefits limitations
The provisions of subparagraph (A) shall apply to the
limitations under paragraphs (1)(B) and (4), except that such
subparagraph shall be applied with respect to years of service
with an employer rather than years of participation in a plan.
(C) Limitation on reduction
In no event shall subparagraph (A) or (B) reduce the
limitations referred to in paragraphs (1) and (4) to an amount
less than 1/10 of such limitation (determined without regard
to this paragraph).
(D) Application to changes in benefit structure
To the extent provided in regulations, subparagraph (A) shall
be applied separately with respect to each change in the
benefit structure of a plan.
(6) Computation of benefits and contributions
The computation of -
(A) benefits under a defined contribution plan, for purposes
of section 401(a)(4),
(B) contributions made on behalf of a participant in a
defined benefit plan, for purposes of section 401(a)(4), and
(C) contributions and benefits provided for a participant in
a plan described in section 414(k), for purposes of this
section
shall not be made on a basis inconsistent with regulations
prescribed by the Secretary.
(7) Benefits under certain collectively bargained plans
For a year, the limitation referred to in paragraph (1)(B)
shall not apply to benefits with respect to a participant under a
defined benefit plan (other than a multiemployer plan) -
(A) which is maintained for such year pursuant to a
collective bargaining agreement between employee
representatives and one or more employers,
(B) which, at all times during such year, has at least 100
participants,
(C) under which benefits are determined solely by reference
to length of service, the particular years during which service
was rendered, age at retirement, and date of retirement,
(D) which provides that an employee who has at least 4 years
of service has a nonforfeitable right to 100 percent of his
accrued benefit derived from employer contributions, and
(E) which requires, as a condition of participation in the
plan, that an employee complete a period of not more than 60
consecutive days of service with the employer or employers
maintaining the plan.
This paragraph shall not apply to a participant whose
compensation for any 3 years during the 10-year period
immediately preceding the year in which he separates from service
exceeded the average compensation for such 3 years of all
participants in such plan. This paragraph shall not apply to a
participant for any period for which he is a participant under
another plan to which this section applies which is maintained by
an employer maintaining this plan. For any year for which the
paragraph applies to benefits with respect to a participant,
paragraph (1)(A) and subsection (d)(1)(A) shall be applied with
respect to such participant by substituting one-half the amount
otherwise applicable for such year under paragraph (1)(A) for
"$160,000".
(8) Social security retirement age defined
For purposes of this subsection, the term "social security
retirement age" means the age used as the retirement age under
section 216(l) of the Social Security Act, except that such
section shall be applied -
(A) without regard to the age increase factor, and
(B) as if the early retirement age under section 216(l)(2) of
such Act were 62.
(9) Special rule for commercial airline pilots
(A) In general
Except as provided in subparagraph (B), in the case of any
participant who is a commercial airline pilot, if, as of the
time of the participant's retirement, regulations prescribed by
the Federal Aviation Administration require an individual to
separate from service as a commercial airline pilot after
attaining any age occurring on or after age 60 and before age
62, paragraph (2)(C) shall be applied by substituting such age
for age 62.
(B) Individuals who separate from service before age 60
If a participant described in subparagraph (A) separates from
service before age 60, the rules of paragraph (2)(C) shall
apply.
(10) Special rule for State and local government plans
(A) Limitation to equal accrued benefit
In the case of a plan maintained for its employees by any
State or political subdivision thereof, or by any agency or
instrumentality of the foregoing, the limitation with respect
to a qualified participant under this subsection shall not be
less than the accrued benefit of the participant under the plan
(determined without regard to any amendment of the plan made
after October 14, 1987).
(B) Qualified participant
For purposes of this paragraph, the term "qualified
participant" means a participant who first became a participant
in the plan maintained by the employer before January 1, 1990.
(C) Election
(i) In general
This paragraph shall not apply to any plan unless each
employer maintaining the plan elects before the close of the
1st plan year beginning after December 31, 1989, to have this
subsection (other than paragraph (2)(G)).
(ii) Revocation of election
An election under clause (i) may be revoked not later than
the last day of the third plan year beginning after the date
of the enactment of this clause. The revocation shall apply
to all plan years to which the election applied and to all
subsequent plan years. Any amount paid by a plan in a taxable
year ending after the revocation shall be includible in
income in such taxable year under the rules of this chapter
in effect for such taxable year, except that, for purposes of
applying the limitations imposed by this section, any portion
of such amount which is attributable to any taxable year
during which the election was in effect shall be treated as
received in such taxable year.
(11) Special limitation rule for governmental and multiemployer
plans
In the case of a governmental plan (as defined in section
414(d)) or a multiemployer plan (as defined in section 414(f)),
subparagraph (B) of paragraph (1) shall not apply.
(c) Limitation for defined contribution plans
(1) In general
Contributions and other additions with respect to a participant
exceed the limitation of this subsection if, when expressed as an
annual addition (within the meaning of paragraph (2)) to the
participant's account, such annual addition is greater than the
lesser of -
(A) $40,000, or
(B) 100 percent of the participant's compensation.
(2) Annual addition
For purposes of paragraph (1), the term "annual addition" means
the sum of any year of -
(A) employer contributions,
(B) the employee contributions, and
(C) forfeitures.
For the purposes of this paragraph, employee contributions under
subparagraph (B) are determined without regard to any rollover
contributions (as defined in sections 402(c), 403(a)(4),
403(b)(8), 408(d)(3), and 457(e)(16)) without regard to employee
contributions to a simplified employee pension which are
excludable from gross income under section 408(k)(6).
Subparagraph (B) of paragraph (1) shall not apply to any
contribution for medical benefits (within the meaning of section
419A(f)(2)) after separation from service which is treated as an
annual addition.
(3) Participant's compensation
For purposes of paragraph (1) -
(A) In general
The term "participant's compensation" means the compensation
of the participant from the employer for the year.
(B) Special rule for self-employed individuals
In the case of an employee within the meaning of section
401(c)(1), subparagraph (A) shall be applied by substituting
"the participant's earned income (within the meaning of section
401(c)(2) but determined without regard to any exclusion under
section 911)" for "compensation of the participant from the
employer".
(C) Special rules for permanent and total disability
In the case of a participant in any defined contribution plan
-
(i) who is permanently and totally disabled (as defined in
section 22(e)(3)),
(ii) who is not a highly compensated employee (within the
meaning of section 414(q)), and
(iii) with respect to whom the employer elects, at such
time and in such manner as the Secretary may prescribe, to
have this subparagraph apply,
the term "participant's compensation" means the compensation
the participant would have received for the year if the
participant was paid at the rate of compensation paid
immediately before becoming permanently and totally disabled.
This subparagraph shall apply only if contributions made with
respect to amounts treated as compensation under this
subparagraph are nonforfeitable when made. If a defined
contribution plan provides for the continuation of
contributions on behalf of all participants described in clause
(i) for a fixed or determinable period, this subparagraph shall
be applied without regard to clauses (ii) and (iii).
(D) Certain deferrals included
The term "participant's compensation" shall include -
(i) any elective deferral (as defined in section
402(g)(3)), and
(ii) any amount which is contributed or deferred by the
employer at the election of the employee and which is not
includible in the gross income of the employee by reason of
section 125, 132(f)(4), or 457.
(E) Annuity contracts
In the case of an annuity contract described in section
403(b), the term "participant's compensation" means the
participant's includible compensation determined under section
403(b)(3).
[(4) Repealed. Pub. L. 107-16, title VI, Sec. 632(a)(3)(E), June
7, 2001, 115 Stat. 114]
[(5) Repealed. Pub. L. 97-248, title II, Sec. 238(d)(5), Sept. 3,
1982, 96 Stat. 513]
(6) Special rule for employee stock ownership plans
If no more than one-third of the employer contributions to an
employee stock ownership plan (as described in section
4975(e)(7)) for a year which are deductible under paragraph (9)
of section 404(a) are allocated to highly compensated employees
(within the meaning of section 414(q)), the limitations imposed
by this section shall not apply to -
(A) forfeitures of employer securities (within the meaning of
section 409) under such an employee stock ownership plan if
such securities were acquired with the proceeds of a loan (as
described in section 404(a)(9)(A)), or
(B) employer contributions to such an employee stock
ownership plan which are deductible under section 404(a)(9)(B)
and charged against the participant's account.
The amount of any qualified gratuitous transfer (as defined in
section 664(g)(1)) allocated to a participant for any limitation
year shall not exceed the limitations imposed by this section,
but such amount shall not be taken into account in determining
whether any other amount exceeds the limitations imposed by this
section.
(7) Special rules relating to church plans
(A) Alternative contribution limitation
(i) In general
Notwithstanding any other provision of this subsection, at
the election of a participant who is an employee of a church
or a convention or association of churches, including an
organization described in section 414(e)(3)(B)(ii),
contributions and other additions for an annuity contract or
retirement income account described in section 403(b) with
respect to such participant, when expressed as an annual
addition to such participant's account, shall be treated as
not exceeding the limitation of paragraph (1) if such annual
addition is not in excess of $10,000.
(ii) $40,000 aggregate limitation
The total amount of additions with respect to any
participant which may be taken into account for purposes of
this subparagraph for all years may not exceed $40,000.
(B) Number of years of service for duly ordained, commissioned,
or licensed ministers or lay employees
For purposes of this paragraph -
(i) all years of service by -
(I) a duly ordained, commissioned, or licensed minister
of a church, or
(II) a lay person,
as an employee of a church, a convention or association of
churches, including an organization described in section
414(e)(3)(B)(ii), shall be considered as years of service for
1 employer, and
(ii) all amounts contributed for annuity contracts by each
such church (or convention or association of churches) or
such organization during such years for such minister or lay
person shall be considered to have been contributed by 1
employer.
(C) Foreign missionaries
In the case of any individual described in subparagraph (B)
performing services outside the United States, contributions
and other additions for an annuity contract or retirement
income account described in section 403(b) with respect to such
employee, when expressed as an annual addition to such
employee's account, shall not be treated as exceeding the
limitation of paragraph (1) if such annual addition is not in
excess of $3,000. This subparagraph shall not apply with
respect to any taxable year to any individual whose adjusted
gross income for such taxable year (determined separately and
without regard to community property laws) exceeds $17,000.
(D) Annual addition
For purposes of this paragraph, the term "annual addition"
has the meaning given such term by paragraph (2).
(E) Church, convention or association of churches
For purposes of this paragraph, the terms "church" and
"convention or association of churches" have the same meaning
as when used in section 414(e).
(d) Cost-of-living adjustments
(1) In general
The Secretary shall adjust annually -
(A) the $160,000 amount in subsection (b)(1)(A),
(B) in the case of a participant who is separated from
service, the amount taken into account under subsection
(b)(1)(B), and
(C) the $40,000 amount in subsection (c)(1)(A),
for increases in the cost-of-living in accordance with
regulations prescribed by the Secretary.
(2) Method
The regulations prescribed under paragraph (1) shall provide
for -
(A) an adjustment with respect to any calendar year based on
the increase in the applicable index for the calendar quarter
ending September 30 of the preceding calendar year over such
index for the base period, and
(B) adjustment procedures which are similar to the procedures
used to adjust benefit amounts under section 215(i)(2)(A) of
the Social Security Act.
(3) Base period
For purposes of paragraph (2) -
(A) $160,000 amount
The base period taken into account for purposes of paragraph
(1)(A) is the calendar quarter beginning July 1, 2001.
(B) Separations after December 31, 1994
The base period taken into account for purposes of paragraph
(1)(B) with respect to individuals separating from service with
the employer after December 31, 1994, is the calendar quarter
beginning July 1 of the calendar year preceding the calendar
year in which such separation occurs.
(C) Separations before January 1, 1995
The base period taken into account for purposes of paragraph
(1)(B) with respect to individuals separating from service with
the employer before January 1, 1995, is the calendar quarter
beginning October 1 of the calendar year preceding the calendar
year in which such separation occurs.
(D) $40,000 amount
The base period taken into account for purposes of paragraph
(1)(C) is the calendar quarter beginning July 1, 2001.
(4) Rounding
(A) $160,000 amount
Any increase under subparagraph (A) of paragraph (1) which is
not a multiple of $5,000 shall be rounded to the next lowest
multiple of $5,000. This subparagraph shall also apply for
purposes of any provision of this title that provides for
adjustments in accordance with the method contained in this
subsection, except to the extent provided in such provision.
(B) $40,000 amount
Any increase under subparagraph (C) of paragraph (1) which is
not a multiple of $1,000 shall be rounded to the next lowest
multiple of $1,000.
[(e) Repealed. Pub. L. 104-188, title I, Sec. 1452(a), Aug. 20,
1996, 110 Stat. 1816]
(f) Combining of plans
(1) In general
For purposes of applying the limitations of subsections (b) and
(c) -
(A) all defined benefit plans (whether or not terminated) of
an employer are to be treated as one defined benefit plan, and
(B) all defined contribution plans (whether or not
terminated) of an employer are to be treated as one defined
contribution plan.
(2) Annual compensation taken into account for defined benefit
plans
If the employer has more than one defined benefit plan -
(A) subsection (b)(1)(B) shall be applied separately with
respect to each such plan, but
(B) in applying subsection (b)(1)(B) to the aggregate of such
defined benefit plans for purposes of this subsection, the high
3 years of compensation taken into account shall be the period
of consecutive calendar years (not more than 3) during which
the individual had the greatest aggregate compensation from the
employer.
(3) Exception for multiemployer plans
Notwithstanding paragraph (1) and subsection (g), a
multiemployer plan (as defined in section 414(f)) shall not be
combined or aggregated -
(A) with any other plan which is not a multiemployer plan for
purposes of applying subsection (b)(1)(B) to such other plan,
or
(B) with any other multiemployer plan for purposes of
applying the limitations established in this section.
(g) Aggregation of plans
Except as provided in subsection (f)(3), the Secretary, in
applying the provisions of this section to benefits or
contributions under more than one plan maintained by the same
employer, and to any trusts, contracts, accounts, or bonds referred
to in subsection (a)(2), with respect to which the participant has
the control required under section 414(b) or (c), as modified by
subsection (h), shall, under regulations prescribed by the
Secretary, disqualify one or more trusts, plans, contracts,
accounts, or bonds, or any combination thereof until such benefits
or contributions do not exceed the limitations contained in this
section. In addition to taking into account such other factors as
may be necessary to carry out the purposes of subsection (f), the
regulations prescribed under this paragraph shall provide that no
plan which has been terminated shall be disqualified until all
other trusts, plans, contracts, accounts, or bonds have been
disqualified.
(h) 50 percent control
For purposes of applying subsections (b) and (c) of section 414
to this section, the phrase "more than 50 percent" shall be
substituted for the phrase "at least 80 percent" each place it
appears in section 1563(a)(1).
(i) Records not available for past periods
Where for the period before January 1, 1976, or (if later) the
first day of the first plan year of the plan, the records necessary
for the application of this section are not available, the
Secretary may by regulations prescribe alternate methods for
determining the amounts to be taken into account for such period.
(j) Regulations; definition of year
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section, including, but
not limited to, regulations defining the term "year" for purposes
of any provision of this section.
(k) Special rules
(1) Defined benefit plan and defined contribution plan
For purposes of this title, the term "defined contribution
plan" or "defined benefit plan" means a defined contribution plan
(within the meaning of section 414(i)) or a defined benefit plan
(within the meaning of section 414(j)), whichever applies, which
is -
(A) a plan described in section 401(a) which includes a trust
which is exempt from tax under section 501(a),
(B) an annuity plan described in section 403(a),
(C) an annuity contract described in section 403(b), or
(D) a simplified employee pension.
(2) Contributions to provide cost-of-living protection under
defined benefit plans
(A) In general
In the case of a defined benefit plan which maintains a
qualified cost-of-living arrangement -
(i) any contribution made directly by an employee under
such an arrangement shall not be treated as an annual
addition for purposes of subsection (c), and
(ii) any benefit under such arrangement which is allocable
to an employer contribution which was transferred from a
defined contribution plan and to which the requirements of
subsection (c) were applied shall, for purposes of subsection
(b), be treated as a benefit derived from an employee
contribution (and subsection (c) shall not again apply to
such contribution by reason of such transfer).
(B) Qualified cost-of-living arrangement defined
For purposes of this paragraph, the term "qualified cost-of-
living arrangement" means an arrangement under a defined
benefit plan which -
(i) provides a cost-of-living adjustment to a benefit
provided under such plan or a separate plan subject to the
requirements of section 412, and
(ii) meets the requirements of subparagraphs (C), (D), (E),
and (F) and such other requirements as the Secretary may
prescribe.
(C) Determination of amount of benefit
An arrangement meets the requirement of this subparagraph
only if the cost-of-living adjustment of participants is based -
(i) on increases in the cost-of-living after the annuity
starting date, and
(ii) on average cost-of-living increases determined by
reference to 1 or more indexes prescribed by the Secretary,
except that the arrangement may provide that the increase for
any year will not be less than 3 percent of the retirement
benefit (determined without regard to such increase).
(D) Arrangement elective; time for election
An arrangement meets the requirements of this subparagraph
only if it is elective, it is available under the same terms to
all participants, and it provides that such election may at
least be made in the year in which the participant -
(i) attains the earliest retirement age under the defined
benefit plan (determined without regard to any requirement of
separation from service), or
(ii) separates from service.
(E) Nondiscrimination requirements
An arrangement shall not meet the requirements of this
subparagraph if the Secretary finds that a pattern of
discrimination exists with respect to participation.
(F) Special rules for key employees
(i) In general
An arrangement shall not meet the requirements of this
paragraph if any key employee is eligible to participate.
(ii) Key employee
For purposes of this subparagraph, the term "key employee"
has the meaning given such term by section 416(i)(1), except
that in the case of a plan other than a top-heavy plan
(within the meaning of section 416(g)), such term shall not
include an individual who is a key employee solely by reason
of section 416(i)(1)(A)(i).
(3) Repayments of cashouts under governmental plans
In the case of any repayment of contributions (including
interest thereon) to the governmental plan with respect to an
amount previously refunded upon a forfeiture of service credit
under the plan or under another governmental plan maintained by a
State or local government employer within the same State, any
such repayment shall not be taken into account for purposes of
this section.
(4) Special rules for sections 403(b) and 408
For purposes of this section, any annuity contract described in
section 403(b) for the benefit of a participant shall be treated
as a defined contribution plan maintained by each employer with
respect to which the participant has the control required under
subsection (b) or (c) of section 414 (as modified by subsection
(h)). For purposes of this section, any contribution by an
employer to a simplified employee pension plan for an individual
for a taxable year shall be treated as an employer contribution
to a defined contribution plan for such individual for such year.
(l) Treatment of certain medical benefits
(1) In general
For purposes of this section, contributions allocated to any
individual medical benefit account which is part of a pension or
annuity plan shall be treated as an annual addition to a defined
contribution plan for purposes of subsection (c). Subparagraph
(B) of subsection (c)(1) shall not apply to any amount treated as
an annual addition under the preceding sentence.
(2) Individual medical benefit account
For purposes of paragraph (1), the term "individual medical
benefit account" means any separate account -
(A) which is established for a participant under a pension or
annuity plan, and
(B) from which benefits described in section 401(h) are
payable solely to such participant, his spouse, or his
dependents.
(m) Treatment of qualified governmental excess benefit arrangements
(1) Governmental plan not affected
In determining whether a governmental plan (as defined in
section 414(d)) meets the requirements of this section, benefits
provided under a qualified governmental excess benefit
arrangement shall not be taken into account. Income accruing to a
governmental plan (or to a trust that is maintained solely for
the purpose of providing benefits under a qualified governmental
excess benefit arrangement) in respect of a qualified
governmental excess benefit arrangement shall constitute income
derived from the exercise of an essential governmental function
upon which such governmental plan (or trust) shall be exempt from
tax under section 115.
(2) Taxation of participant
For purposes of this chapter -
(A) the taxable year or years for which amounts in respect of
a qualified governmental excess benefit arrangement are
includible in gross income by a participant, and
(B) the treatment of such amounts when so includible by the
participant,
shall be determined as if such qualified governmental excess
benefit arrangement were treated as a plan for the deferral of
compensation which is maintained by a corporation not exempt from
tax under this chapter and which does not meet the requirements
for qualification under section 401.
(3) Qualified governmental excess benefit arrangement
For purposes of this subsection, the term "qualified
governmental excess benefit arrangement" means a portion of a
governmental plan if -
(A) such portion is maintained solely for the purpose of
providing to participants in the plan that part of the
participant's annual benefit otherwise payable under the terms
of the plan that exceeds the limitations on benefits imposed by
this section,
(B) under such portion no election is provided at any time to
the participant (directly or indirectly) to defer compensation,
and
(C) benefits described in subparagraph (A) are not paid from
a trust forming a part of such governmental plan unless such
trust is maintained solely for the purpose of providing such
benefits.
(n) Special rules relating to purchase of permissive service credit
(1) In general
If an employee makes 1 or more contributions to a defined
benefit governmental plan (within the meaning of section 414(d))
to purchase permissive service credit under such plan, then the
requirements of this section shall be treated as met only if -
(A) the requirements of subsection (b) are met, determined by
treating the accrued benefit derived from all such
contributions as an annual benefit for purposes of subsection
(b), or
(B) the requirements of subsection (c) are met, determined by
treating all such contributions as annual additions for
purposes of subsection (c).
(2) Application of limit
For purposes of -
(A) applying paragraph (1)(A), the plan shall not fail to
meet the reduced limit under subsection (b)(2)(C) solely by
reason of this subsection, and
(B) applying paragraph (1)(B), the plan shall not fail to
meet the percentage limitation under subsection (c)(1)(B)
solely by reason of this subsection.
(3) Permissive service credit
For purposes of this subsection -
(A) In general
The term "permissive service credit" means service credit -
(i) recognized by the governmental plan for purposes of
calculating a participant's benefit under the plan,
(ii) which such participant has not received under such
governmental plan, and
(iii) which such participant may receive only by making a
voluntary additional contribution, in an amount determined
under such governmental plan, which does not exceed the
amount necessary to fund the benefit attributable to such
service credit.
(B) Limitation on nonqualified service credit
A plan shall fail to meet the requirements of this section if
-
(i) more than 5 years of permissive service credit
attributable to nonqualified service are taken into account
for purposes of this subsection, or
(ii) any permissive service credit attributable to
nonqualified service is taken into account under this
subsection before the employee has at least 5 years of
participation under the plan.
(C) Nonqualified service
For purposes of subparagraph (B), the term "nonqualified
service" means service for which permissive service credit is
allowed other than -
(i) service (including parental, medical, sabbatical, and
similar leave) as an employee of the Government of the United
States, any State or political subdivision thereof, or any
agency or instrumentality of any of the foregoing (other than
military service or service for credit which was obtained as
a result of a repayment described in subsection (k)(3)),
(ii) service (including parental, medical, sabbatical, and
similar leave) as an employee (other than as an employee
described in clause (i)) of an educational organization
described in section 170(b)(1)(A)(ii) which is a public,
private, or sectarian school which provides elementary or
secondary education (through grade 12), as determined under
State law,
(iii) service as an employee of an association of employees
who are described in clause (i), or
(iv) military service (other than qualified military
service under section 414(u)) recognized by such governmental
plan.
In the case of service described in clause (i), (ii), or (iii),
such service will be nonqualified service if recognition of
such service would cause a participant to receive a retirement
benefit for the same service under more than one plan.
-SOURCE-
(Added Pub. L. 93-406, title II, Sec. 2004(a)(2), Sept. 2, 1974, 88
Stat. 979; amended Pub. L. 94-455, title VIII, Sec. 803(b)(4), (f),
title XV, Secs. 1501(b)(3), 1502(a)(1), 1511(a), title XIX, Secs.
1901(a)(65), (b)(8)(D), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1584, 1589, 1735-1737, 1741, 1775, 1794, 1834; Pub. L. 95-600,
title I, Secs. 141(f)(7), 152(g), 153(a), Nov. 6, 1978, 92 Stat.
2795, 2800; Pub. L. 96-222, title I, Sec. 101(a)(7)(L)(i)(VII),
(iv)(I), (10)(I), (J)(iii), (11), Apr. 1, 1980, 94 Stat. 199, 200,
203, 204; Pub. L. 96-605, title II, Sec. 222(a), Dec. 28, 1980, 94
Stat. 3528; Pub. L. 97-34, title III, Secs. 311(g)(4), (h)(3),
333(b)(1), Aug. 13, 1981, 95 Stat. 281, 282, 297; Pub. L. 97-248,
title II, Secs. 235(a)-(e), 238(d)(5), 251(c)(1), (2), 253(a),
Sept. 3, 1982, 96 Stat. 505-507, 513, 530, 532; Pub. L. 98-21,
title I, Sec. 122(c)(5), Apr. 20, 1983, 97 Stat. 87; Pub. L. 98-
369, div. A, title I, Sec. 15, title IV, Sec. 491(d)(28)-(32),
(e)(6), title (V), Sec. 528(a), title VII, Sec. 713(a)(1), (3),
(d)(4)(B), (7), (k), July 18, 1984, 98 Stat. 505, 850, 853, 876,
955, 956, 958, 960; Pub. L. 99-514, title XI, Secs. 1106(a)-(c)(1),
(e)-(g), 1108(g)(5), 1114(b)(12), 1174(d)(1), (2), title XVIII,
Secs. 1847(b)(4), 1852(h)(2), (3), 1875(c)(9), (11),
1898(b)(15)(C), 1899A(13), Oct. 22, 1986, 100 Stat. 2420, 2422,
2424, 2425, 2434, 2451, 2518, 2856, 2869, 2895, 2951, 2958; Pub. L.
100-647, title I, Secs. 1011(d)(2), (3), (6), (7), 1018(t)(3)(B),
(8)(D), title VI, Secs. 6054(a), 6059(a), Nov. 10, 1988, 102 Stat.
3459, 3460, 3588, 3589, 3696, 3699; Pub. L. 101-239, title VII,
Sec. 7304(c)(1), Dec. 19, 1989, 103 Stat. 2353; Pub. L. 102-318,
title V, Sec. 521(b)(23)-(25), July 3, 1992, 106 Stat. 311, 312;
Pub. L. 103-465, title VII, Secs. 732(b), 767(b), Dec. 8, 1994, 108
Stat. 5004, 5038; Pub. L. 104-188, title I, Secs. 1434(a), 1444(a),
(b)(1), (c), (d), 1446(a), 1449(b), 1452(a), (c)(1)-(6),
1704(t)(75), Aug. 20, 1996, 110 Stat. 1807, 1809-1811, 1814, 1816,
1891; Pub. L. 105-34, title XV, Secs. 1526(a), (b), 1527(a),
1530(c)(3), (4), Aug. 5, 1997, 111 Stat. 1072-1074, 1078; Pub. L.
106-554, Sec. 1(a)(7) [title III, Sec. 314(e)(1)], Dec. 21, 2000,
114 Stat. 2763, 2763A-643; Pub. L. 107-16, title VI, Secs. 611(a),
(b), (h), 632(a)(1), (3)(C)-(F), (b)(1), 641(e)(9), (10), 654(a),
(b), June 7, 2001, 115 Stat. 96, 97, 100, 113-115, 121, 130, 131;
Pub. L. 107-147, title IV, Sec. 411(p)(4), Mar. 9, 2002, 116 Stat.
50; Pub. L. 108-218, title I, Sec. 101(b)(4), Apr. 10, 2004, 118
Stat. 598; Pub. L. 108-311, title IV, Secs. 404(b)(2), 408(a)(17),
Oct. 4, 2004, 118 Stat. 1188, 1192; Pub. L. 109-135, title IV,
Secs. 407(b), 412(y), (z), Dec. 21, 2005, 119 Stat. 2635, 2638.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The Social Security Act, referred to in subsecs. (b)(8) and
(d)(2)(B), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended,
which is classified generally to chapter 7 (Sec. 301 et seq.) of
Title 42, The Public Health and Welfare. Sections 215(i)(2)(A) and
216(l) of the Act enacted sections 415(i)(2)(A) and 416(l) of Title
42, respectively. For complete classification of this Act to the
Code, see Tables.
The date of the enactment of this clause, referred to in subsec.
(b)(10)(C)(ii), is the date of enactment of Pub. L. 104-188, which
was approved Aug. 20, 1996.
-MISC1-
AMENDMENTS
2005 - Subsec. (c)(7)(C). Pub. L. 109-135, Sec. 407(b),
substituted "$3,000. This subparagraph shall not apply with respect
to any taxable year to any individual whose adjusted gross income
for such taxable year (determined separately and without regard to
community property laws) exceeds $17,000" for "the greater of
$3,000 or the employee's includible compensation determined under
section 403(b)(3)".
Subsec. (l)(1). Pub. L. 109-135, Sec. 412(y), substituted
"individual medical benefit account" for "individual medical
account".
Subsec. (n)(3)(C). Pub. L. 109-135, Sec. 412(z), substituted
"clause" for "clauses" in concluding provisions.
2004 - Subsec. (b)(2)(E)(ii). Pub. L. 108-218 inserted before
period at end ", except that in the case of plan years beginning in
2004 or 2005, '5.5 percent' shall be substituted for '5 percent' in
clause (i)".
Subsec. (c)(7)(C). Pub. L. 108-311, Sec. 408(a)(17), substituted
"subparagraph (B)" for "subparagraph (D)".
Subsec. (d)(4)(A). Pub. L. 108-311, Sec. 404(b)(2), inserted at
end "This subparagraph shall also apply for purposes of any
provision of this title that provides for adjustments in accordance
with the method contained in this subsection, except to the extent
provided in such provision."
2002 - Subsec. (c)(7). Pub. L. 107-147 amended heading and text
of par. (7) generally, substituting provisions relating to special
rules relating to church plans for provisions relating to certain
contributions by church plans not treated as exceeding limit and
adding provisions relating to foreign missionaries and definitions
of "church" and "convention or association of churches".
2001 - Subsec. (a)(2). Pub. L. 107-16, Secs. 632(a)(3)(C), 901,
temporarily struck out ", and the amount of the contribution for
such portion shall reduce the exclusion allowance as provided in
section 403(b)(2)" before period at end. See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (b)(1)(A). Pub. L. 107-16, Secs. 611(a)(1)(A), 901,
temporarily substituted "$160,000" for "$90,000". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (b)(2)(A), (B). Pub. L. 107-16, Secs. 641(e)(9), 901,
temporarily substituted "403(b)(8), 408(d)(3), and 457(e)(16)" for
"and 408(d)(3)". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (b)(2)(C). Pub. L. 107-16, Secs. 611(a)(1)(B), (2), 901,
in heading temporarily substituted "$160,000" for "$90,000" and
"age 62" for "the social security retirement age" and in text
temporarily substituted "age 62" for "the social security
retirement age" in two places, "$160,000" for "$90,000" in two
places, and struck out at end "The reduction under this
subparagraph shall be made in such manner as the Secretary may
prescribe which is consistent with the reduction for old-age
insurance benefits commencing before the social security retirement
age under the Social Security Act." See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (b)(2)(D). Pub. L. 107-16, Secs. 611(a)(1)(B), (3), 901,
in heading temporarily substituted "$160,000" for "$90,000" and
"age 65" for "the social security retirement age" and in text
temporarily substituted "age 65" for "the social security
retirement age" in two places and "$160,000" for "$90,000" in two
places. See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (b)(2)(F). Pub. L. 107-16, Secs. 611(a)(5)(A), 901,
temporarily struck out subpar. (F), which related to the
application of subpars. (C) and (D) in the case of a governmental
plan, a plan maintained by a tax-exempt organization, or a
qualified merchant marine plan and defined "qualified merchant
marine plan". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (b)(7). Pub. L. 107-16, Secs. 654(a)(2), 901, temporarily
inserted "(other than a multiemployer plan)" after "defined benefit
plan" in introductory provisions. See Effective and Termination
Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 611(a)(1)(C), 901, temporarily substituted
"one-half the amount otherwise applicable for such year under
paragraph (1)(A) for '$160,000' " for "the greater of $68,212 or
one-half the amount otherwise applicable for such year under
paragraph (1)(A) for '$90,000' " in concluding provisions. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (b)(9). Pub. L. 107-16, Secs. 611(a)(5)(B), 901,
temporarily amended par. (9) generally, substituting present
provisions for provisions which provided that, in the case of any
participant who was a commercial airline pilot, the rule of par.
(2)(F)(i)(II) would apply, and if, as of the time of the
participant's retirement, regulations prescribed by the Federal
Aviation Administration required an individual to separate from
service as a commercial airline pilot after attaining any age
occurring on or after age 60 and before the social security
retirement age, par. (2)(C) would be applied by substituting such
age for the social security retirement age, and provisions which
provided that if a participant separated from service before age
60, the rules of par. (2)(F) would apply. See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (b)(10)(C)(i). Pub. L. 107-16, Secs. 611(a)(5)(C), 901,
temporarily struck out "applied without regard to paragraph (2)(F)"
before period at end. See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (b)(11). Pub. L. 107-16, Secs. 654(a)(1), 901,
temporarily amended heading and text of par. (11) generally. Prior
to amendment, text read as follows: "In the case of a governmental
plan (as defined in section 414(d)), subparagraph (B) of paragraph
(1) shall not apply." See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(1)(A). Pub. L. 107-16, Secs. 611(b)(1), 901,
temporarily substituted "$40,000" for "$30,000". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (c)(1)(B). Pub. L. 107-16, Secs. 632(a)(1), 901,
temporarily substituted "100 percent" for "25 percent". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (c)(2). Pub. L. 107-16, Secs. 641(e)(10), 901,
temporarily substituted "408(d)(3), and 457(e)(16)" for "and
408(d)(3)" in concluding provisions. See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (c)(3)(E). Pub. L. 107-16, Secs. 632(a)(3)(D), 901,
temporarily added subpar. (E). See Effective and Termination Dates
of 2001 Amendment note below.
Subsec. (c)(4). Pub. L. 107-16, Secs. 632(a)(3)(E), 901,
temporarily struck out par. (4), which related to special election
for section 403(b) contracts purchased by educational
organizations, hospitals, home health service agencies, certain
churches, and other organizations.
Subsec. (c)(7). Pub. L. 107-16, Secs. 632(a)(3)(F), 901,
temporarily amended par. (7) generally, redesignating cls. (i) and
(ii) of subpar. (B) as subpars. (A) and (B), respectively,
reenacting subpar. (C) without change, striking out former subpar.
(A), which directed that any contribution or addition with respect
to any participant, when expressed as an annual addition, which was
allocable to the application of section 403(b)(2)(D) to such
participant for such year, would be treated as not exceeding the
limitations of par. (1), and striking out former subpar. (B), cl.
(iii), which prohibited making of election under this subpar. for
any year if an election had been made under former par. (4)(A) for
such year. See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (d)(1)(A). Pub. L. 107-16, Secs. 611(a)(4)(A), 901,
temporarily substituted "$160,000" for "$90,000". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (d)(1)(C). Pub. L. 107-16, Secs. 611(b)(2)(A), 901,
temporarily substituted "$40,000" for "$30,000". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (d)(3)(A). Pub. L. 107-16, Secs. 611(a)(4)(B), 901, in
heading temporarily substituted "$160,000" for "$90,000" and in
text temporarily substituted "July 1, 2001" for "October 1, 1986".
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(3)(D). Pub. L. 107-16, Secs. 611(b)(2)(B), 901, in
heading temporarily substituted "$40,000" for "$30,000" and in text
temporarily substituted "July 1, 2001" for "October 1, 1993". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(4). Pub. L. 107-16, Secs. 611(h), 901, temporarily
reenacted heading without change and amended text of par. (4)
generally. Prior to amendment, text read as follows: "Any increase
under subparagraph (A) or (C) of paragraph (1) which is not a
multiple of $5,000 shall be rounded to the next lowest multiple of
$5,000." See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (f)(3). Pub. L. 107-16, Secs. 654(b)(1), 901, temporarily
added par. (3). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (g). Pub. L. 107-16, Secs. 654(b)(2), 901, temporarily
substituted "Except as provided in subsection (f)(3), the
Secretary" for "The Secretary". See Effective and Termination Dates
of 2001 Amendment note below.
Subsec. (k)(4). Pub. L. 107-16, Secs. 632(b)(1), 901, temporarily
added par. (4). See Effective and Termination Dates of 2001
Amendment note below.
2000 - Subsec. (c)(3)(D)(ii). Pub. L. 106-554 substituted
"section 125, 132(f)(4), or" for "section 125 or".
1997 - Subsec. (b)(2)(G). Pub. L. 105-34, Sec. 1527(a),
substituted "participant, subparagraph (C) of this paragraph shall
not apply." for "participant -
"(i) subparagraph (C) shall not reduce the limitation of
paragraph (1)(A) to an amount less than $50,000, and
"(ii) the rules of subparagraph (F) shall apply.
The Secretary shall adjust the $50,000 amount in clause (i) at the
same time and in the same manner as under section 415(d)."
Subsec. (c)(6). Pub. L. 105-34, Sec. 1530(c)(3), inserted
concluding provisions "The amount of any qualified gratuitous
transfer (as defined in section 664(g)(1)) allocated to a
participant for any limitation year shall not exceed the
limitations imposed by this section, but such amount shall not be
taken into account in determining whether any other amount exceeds
the limitations imposed by this section."
Subsec. (e)(6), (7). Pub. L. 105-34, Sec. 1530(c)(4), added par.
(6) and redesignated former par. (6) as (7).
Subsec. (k)(3). Pub. L. 105-34, Sec. 1526(b), added par. (3).
Subsec. (n). Pub. L. 105-34, Sec. 1526(a), added subsec. (n).
1996 - Subsec. (a)(1). Pub. L. 104-188, Sec. 1452(c)(1), inserted
"or" at end of subpar. (A), struck out ", or" at end of subpar.
(B), and struck out subpar. (C) which read as follows: "in any case
in which an individual is a participant in both a defined benefit
plan and a defined contribution plan maintained by the employer,
the trust has been disqualified under subsection (g)."
Subsec. (b)(2)(E)(i). Pub. L. 104-188, Sec. 1449(b)(1),
substituted "For purposes of adjusting any limitation under
subparagraph (C) and, except as provided in clause (ii), for
purposes of adjusting any benefit under subparagraph (B)," for
"Except as provided in clause (ii), for purposes of adjusting any
benefit or limitation under subparagraph (B) or (C),".
Subsec. (b)(2)(E)(ii). Pub. L. 104-188, Sec. 1449(b)(2),
substituted "For purposes of adjusting any benefit under
subparagraph (B) for any form of benefit subject to section
417(e)(3)," for "For purposes of adjusting the benefit or
limitation of any form of benefit subject to section 417(e)(3),".
Subsec. (b)(2)(I). Pub. L. 104-188, Sec. 1444(c), added subpar.
(I).
Subsec. (b)(5)(B). Pub. L. 104-188, Sec. 1452(c)(2), struck out
"and subsection (e)" after "and (4)".
Subsec. (b)(10)(C). Pub. L. 104-188, Sec. 1444(d), designated
existing provisions as cl. (i), inserted heading, and added cl.
(ii).
Subsec. (b)(11). Pub. L. 104-188, Sec. 1444(a), added par. (11).
Subsec. (c)(3)(C). Pub. L. 104-188, Sec. 1446(a), inserted at end
"If a defined contribution plan provides for the continuation of
contributions on behalf of all participants described in clause (i)
for a fixed or determinable period, this subparagraph shall be
applied without regard to clauses (ii) and (iii)."
Subsec. (c)(3)(D). Pub. L. 104-188, Sec. 1434(a), added subpar.
(D).
Subsec. (e). Pub. L. 104-188, Sec. 1452(a), struck out subsec.
(e) which related to limitation in case of a defined benefit plan
and a defined contribution plan for same employee.
Subsec. (f)(1). Pub. L. 104-188, Sec. 1452(c)(3), in introductory
provisions, substituted "subsections (b) and (c)" for "subsections
(b), (c), and (e)".
Subsec. (g). Pub. L. 104-188, Sec. 1452(c)(4), in last sentence,
substituted "subsection (f)" for "subsections (e) and (f)".
Subsec. (k)(1)(C) to (F). Pub. L. 104-188, Sec. 1704(t)(75),
inserted "or" at end of subpar. (C), redesignated subpar. (F) as
(D), and struck out former subpars. (D) and (E) which read as
follows:
"(D) an individual retirement account described in section
408(a),
"(E) an individual retirement annuity described in section
408(b), or".
Subsec. (k)(2)(A)(i). Pub. L. 104-188, Sec. 1452(c)(5), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
"any contribution made directly by an employee under such
arrangement -
"(I) shall not be treated as an annual addition for purposes of
subsection (c), but
"(II) shall be so treated for purposes of subsection (e), and".
Subsec. (k)(2)(A)(ii). Pub. L. 104-188, Sec. 1452(c)(6),
substituted "subsection (c)" for "subsections (c) and (e)" before
"shall not again".
Subsec. (m). Pub. L. 104-188, Sec. 1444(b)(1), added subsec. (m).
1994 - Subsec. (b)(2)(E). Pub. L. 103-465, Sec. 767(b), added
cls. (i), (ii), and (v), redesignated former cls. (ii) and (iii) as
(iii) and (iv), respectively, and struck out former cl. (i) which
read as follows: "For purposes of adjusting any benefit or
limitation under subparagraph (B) or (C), the interest rate
assumption shall not be less than the greater of 5 percent or the
rate specified in the plan."
Subsec. (c)(1)(A). Pub. L. 103-465, Sec. 732(b)(2), struck out
"(or, if greater, 1/4 of the dollar limitation in effect under
subsection (b)(1)(A))" after "$30,000".
Subsec. (d). Pub. L. 103-465, Sec. 732(b)(1), amended subsec. (d)
generally, substituting present provisions for provisions
authorizing annual cost-of-living adjustments, outlining base
periods, and providing for a freeze on adjustment to defined
contribution and benefit limits.
1992 - Subsecs. (b)(2)(A), (B), (c)(2). Pub. L. 102-318
substituted "402(c)" for "402(a)(5)".
1989 - Subsec. (c)(6). Pub. L. 101-239 substituted "Special rule
for employee stock ownership plans" for "Special limitation for
employee stock ownership plan" in heading and amended text
generally, substituting introductory provisions and subpars. (A)
and (B) for former subpars. (A) to (C).
1988 - Subsec. (b)(2)(H)(ii). Pub. L. 100-647, Sec. 6059(a),
substituted "15" for "20".
Subsec. (b)(5)(B). Pub. L. 100-647, Sec. 1011(d)(6), inserted
"and subsection (e)" after "paragraphs (1)(B) and (4)".
Subsec. (b)(5)(D). Pub. L. 100-647, Sec. 1011(d)(2), substituted
"subparagraph (A)" for "this paragraph".
Subsec. (b)(10). Pub. L. 100-647, Sec. 6054(a), added par. (10).
Subsec. (c)(6)(A). Pub. L. 100-647, Sec. 1011(d)(7), substituted
"paragraph (1)(A)" for "paragraph (c)(1)(A) (as adjusted for such
year pursuant to subsection (d)(1))" and for "paragraph (c)(1)(A)
(as so adjusted)".
Subsec. (k). Pub. L. 100-647, Sec. 1018(t)(8)(D), repealed Pub.
L. 99-514, Sec. 1899A(13), see 1986 Amendment note below.
Subsec. (k)(2)(C)(ii). Pub. L. 100-647, Sec. 1011(d)(3)(A),
substituted "to such increase" for "to the arrangement".
Subsec. (k)(2)(D). Pub. L. 100-647, Sec. 1011(d)(3)(B), added
subpar. (D) and struck out former subpar. (D) which read as
follows: "An arrangement meets the requirements of this
subparagraph only if it is elective, it is available under the same
terms to all participants, and it provides that such election may
be made in -
"(i) the year in which the participant -
"(I) attains the earliest retirement age under the defined
benefit plan (determined without regard to any requirement of
separation from service), or
"(II) separates from service, or
"(ii) both such years."
Subsec. (l)(1). Pub. L. 100-647, Sec. 1018(t)(3)(B), made
technical correction to directory language of Pub. L. 99-514, Sec.
1852(h)(2). See 1986 Amendment note below.
1986 - Subsec. (b)(2)(B). Pub. L. 99-514, Sec. 1898(b)(15)(C),
substituted reference to section 417 for reference to section
401(a)(11)(G)(iii).
Subsec. (b)(2)(C). Pub. L. 99-514, Sec. 1106(b)(1)(A),
substituted in heading and in two places in text "the social
security retirement age" for "age 62" and substituted new last
sentence for "The reduction under this subparagraph shall not
reduce the limitation of paragraph (1)(A) below -
"(i) if the benefit begins at or after age 55, $75,000, or
"(ii) if the benefit begins before age 55, the amount which is
the equivalent of the $75,000 limitation for age 55."
Subsec. (b)(2)(D). Pub. L. 99-514, Sec. 1106(b)(1)(A)(i),
substituted in heading and in two places in text "the social
security retirement age" for "age 65".
Subsec. (b)(2)(E)(iii). Pub. L. 99-514, Sec. 1875(c)(9),
substituted "this subsection" for "adjusting any benefit or
limitation under subparagraph (B), (C), or (D)".
Subsec. (b)(2)(F) to (H). Pub. L. 99-514, Sec. 1106(b)(2), added
subpars. (F) to (H).
Subsec. (b)(5). Pub. L. 99-514, Sec. 1106(f), substituted
"Reduction for participation or service of less than 10 years" for
"Reduction for service less than 10 years" in heading and amended
text generally. Prior to amendment, text read as follows: "In the
case of an employee who has less than 10 years of service with the
employer, the limitation referred to in paragraph (1), and the
limitation referred to in paragraph (4), shall be the limitation
determined under such paragraph (without regard to this paragraph),
multiplied by a fraction, the numerator of which is the number of
years (or part thereof) of service with the employer and the
denominator of which is 10."
Subsec. (b)(8). Pub. L. 99-514, Sec. 1106(b)(1)(B), added par.
(8).
Subsec. (b)(9). Pub. L. 99-514, Sec. 1106(b)(3), added par. (9).
Subsec. (c)(1)(A). Pub. L. 99-514, Sec. 1106(a), amended subpar.
(A) generally, inserting "(or, if greater, 1/4 of the dollar
limitation in effect under subsection (b)(1)(A))".
Subsec. (c)(2). Pub. L. 99-514, Sec. 1108(g)(5), substituted
"which are excludable from gross income under section 408(k)(6)"
for "allowable as a deduction under section 219(a), and without
regard to deductible employee contributions within the meaning of
section 72(o)(5)" in last sentence.
Pub. L. 99-514, Sec. 1106(e)(2), inserted at end "Subparagraph
(B) of paragraph (1) shall not apply to any contribution for
medical benefits (within the meaning of section 419A(f)(2)) after
separation from service which is treated as an annual addition."
Subsec. (c)(2)(B). Pub. L. 99-514, Sec. 1106(e)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "the lesser of -
"(i) the amount of the employee contributions in excess of 6
percent of his compensation, or
"(ii) one-half of the employee contributions, and".
Subsec. (c)(3)(C). Pub. L. 99-514, Sec. 1875(c)(11), substituted
"any defined contribution plan" for "a profit-sharing or stock
bonus plan".
Subsec. (c)(3)(C)(i). Pub. L. 99-514, Sec. 1847(b)(4),
substituted "section 22(e)(3)" for "section 37(e)(3)".
Subsec. (c)(3)(C)(ii). Pub. L. 99-514, Sec. 1114(b)(12),
substituted "a highly compensated employee (within the meaning of
section 414(q))" for "an officer, owner, or highly compensated".
Subsec. (c)(4)(A) to (C). Pub. L. 99-514, Sec. 1106(b)(4),
inserted "a health and welfare service agency," after "a home
health service agency,".
Subsec. (c)(6)(A). Pub. L. 99-514, Sec. 1174(d)(1), substituted
"highly compensated employees (within the meaning of section
414(q))" for "the group of employees consisting of officers,
shareholders owning more than 10 percent of the employer's stock
(determined under subparagraph (B)(iv)), or employees described in
subparagraph (B)(iii)".
Subsec. (c)(6)(B)(iii), (iv). Pub. L. 99-514, Sec. 1174(d)(2)(A),
struck out cls. (iii) and (iv) which read as follows:
"(iii) an employee described in this clause is any participant
whose compensation for a year exceeds an amount equal to twice
the amount described in paragraph (1)(A) for such year (as
adjusted for such year pursuant to subsection (d)(1)), determined
without regard to subparagraph (A) of this paragraph, and
"(iv) an individual shall be considered to own more than 10
percent of the employer's stock if, without regard to stock held
under the employee stock ownership plan, he owns (after
application of section 1563(e)) more than 10 percent of the total
combined voting power of all classes of stock entitled to vote or
more than 10 percent of the total value of shares of all classes
of stock."
Subsec. (c)(6)(C). Pub. L. 99-514, Sec. 1174(d)(2)(B),
substituted "highly compensated employees (within the meaning of
section 414(q))" for "the group of employees consisting of
officers, shareholders owning more than 10 percent of the
employer's stock (determined under subparagraph (B)(iv)), or
employees described in subparagraph (B)(iii)".
Subsec. (d)(1)(B), (C). Pub. L. 99-514, Sec. 1106(g)(1),
redesignated subpar. (C) as (B) and struck out former subpar. (B),
which related to the $30,000 amount in subsection (c)(1)(A).
Subsec. (d)(2)(A). Pub. L. 99-514, Sec. 1106(g)(2)(A),
substituted "subparagraph (A)" for "subparagraphs (A) and (B)".
Subsec. (d)(2)(B). Pub. L. 99-514, Sec. 1106(g)(2)(B),
substituted "subparagraph (B)" for "subparagraph (C)".
Subsec. (d)(3). Pub. L. 99-514, Sec. 1106(g)(3), substituted
"subparagraph (A)" for "subparagraph (A) or (B)".
Subsec. (k). Pub. L. 99-514, Sec. 1899A(13), which directed the
general amendment of subsec. (k) by striking out par. (1)
designation and redesignating subpars. (A) to (F) as pars. (1) to
(6), respectively, was repealed by Pub. L. 100-647, Sec.
1018(t)(8)(D).
Subsec. (k)(2). Pub. L. 99-514, Sec. 1106(c)(1), added par. (2)
relating to contributions to provide cost-of-living protection
under defined benefit plans.
Subsec. (l). Pub. L. 99-514, Sec. 1852(h)(3), substituted "a
pension or annuity plan" for "a defined benefit plan" in pars. (1)
and (2)(A).
Pub. L. 99-514, Sec. 1852(h)(2), as amended by Pub. L. 100-647,
Sec. 1018(t)(3)(B), inserted at end of par. (1) "Subparagraph (B)
of subsection (c)(1) shall not apply to any amount treated as an
annual addition under the preceding sentence."
1984 - Subsec. (a)(2). Pub. L. 98-369, Sec. 491(d)(28), struck
out subpar. (D) which related to application of this section to a
plan described in section 405(a), and in provision following
subpar. (C) struck out "405(a)," after "403(b),".
Subsec. (b)(2)(A), (B). Pub. L. 98-369, Sec. 491(d)(29), (30),
substituted "and 408(d)(3)" for "408(d)(3) and 409(b)(3)(C)".
Subsec. (b)(2)(C). Pub. L. 98-369, Sec. 713(a)(1)(A), substituted
provision respecting determination as to whether $90,000 limitation
has been satisfied by reducing the limitation of par. (1)(A) so
that such limitation (as so reduced) equals an annual benefit
(beginning when such retirement income benefit begins) which is
equivalent to a $90,000 annual benefit beginning at age 62 for
provision for such determination by adjusting the benefit so that
it is equivalent to such a benefit beginning at age 62.
Subsec. (b)(2)(D). Pub. L. 98-369, Sec. 713(a)(1)(B), substituted
"limit" for "limitation" in heading, and in text substituted
provision respecting determination as to whether $90,000 limitation
has been satisfied by increasing the limitation of par. (1)(A) so
that such limitation (as so increased) equals an annual benefit
(beginning when such retirement income benefit begins) which is
equivalent to a $90,000 annual benefit beginning at age 65 for
provision for such determination by adjusting the benefit so that
it is equivalent to such a benefit beginning at age 65.
Subsec. (b)(2)(E). Pub. L. 98-369, Sec. 713(a)(1)(C), provided in
cls. (i) and (iii) for adjustment of any limitation and substituted
in cl. (ii) "any limitation" for "any benefit".
Subsec. (c)(2). Pub. L. 98-369, Sec. 491(d)(31), substituted "and
408(d)(3)" for "405(d)(3), 408(d)(3), and 409(b)(3)(C)".
Subsec. (c)(3)(C). Pub. L. 98-369, Sec. 713(k), inserted in
introductory text "in a profit-sharing or stock bonus plan", and
substituted in last sentence "if contributions made with respect to
amounts treated as compensation under this subparagraph" for "if
contributions made with respect to such participant".
Subsec. (c)(6)(B)(ii). Pub. L. 98-369, Sec. 491(e)(6),
substituted "section 409" for "section 409A".
Subsec. (c)(6)(C). Pub. L. 98-369, Sec. 713(d)(4)(B)(i)-(iii),
substituted "paragraph (9)" for "paragraph (10)" of section 404(a),
section "404(a)(9)(A)" for "404(a)(10)(A)", and section
"404(a)(9)(B)" for "404(a)(10)(B)".
Subsec. (c)(7), (8). Pub. L. 98-369, Sec. 713(d)(7)(A),
redesignated par. (8) as (7), and struck out former par. (7)
relating to certain level premium annuity contracts under plans
benefiting owner-employees.
Subsec. (d)(2)(A). Pub. L. 98-369, Sec. 15(b), substituted "1986"
for "1984".
Subsec. (d)(3). Pub. L. 98-369, Sec. 15(a), substituted "January
1, 1988" for "January 1, 1986".
Subsec. (e)(3)(B)(ii)(II). Pub. L. 98-369, Sec. 713(d)(7)(B),
struck out reference to subsec. (c)(8).
Subsec. (e)(6)(C). Pub. L. 98-369, Sec. 713(a)(3), added subpar.
(C).
Subsec. (k)(1). Pub. L. 98-369, Sec. 491(d)(32), struck out
subpars. (C) and (H), which included a qualified bond purchase plan
described in section 405(a) and an individual retirement bond
described in section 409 within the term "defined contribution
plan" or "defined benefit plan", respectively, and redesignated
subpars. (D) to (G) as (C) to (F), respectively.
Subsec. (l). Pub. L. 98-369, Sec. 528(a), added subsec. (l).
1983 - Subsec. (c)(3)(C)(i). Pub. L. 98-21 substituted "section
37(e)(3)" for "section 105(d)(4)".
1982 - Subsec. (b)(1)(A). Pub. L. 97-248, Sec. 235(a)(1),
substituted "$90,000" for "$75,000".
Subsec. (b)(2)(C). Pub. L. 97-248, Sec. 235(a)(3)(A), (e)(1),
(2), inserted provisions relating to reduction under this
subparagraph, and substituted "$90,000" for "$75,000" and "62" for
"55", wherever appearing.
Subsec. (b)(2)(D), (E). Pub. L. 97-248, Sec. 235(e)(3), (4),
added subpars. (D) and (E).
Subsec. (b)(7). Pub. L. 97-248, Sec. 235(a)(3)(B), substituted
"the greater of $68,212 or one-half the amount otherwise applicable
for such year under paragraph (1)(A) for '$90,000' " for " '37,500'
for '75,000' ".
Subsec. (c)(1)(A). Pub. L. 97-248, Sec. 235(a)(2), substituted
"$30,000" for "$25,000".
Subsec. (c)(3). Pub. L. 97-248, Sec. 253(a), designated existing
provisions as subpars. (A) and (B) and added subpar. (C).
Subsec. (c)(4). Pub. L. 97-248, Sec. 251(c)(1), substituted ",
home health service agencies, and certain churches, etc." for "and
home health service agencies" in heading, in subpar. (A) inserted
"(as determined for purposes of section 403(b)(2))" after "by
taking into account his service for the employer", substituted "a
home health service agency, or a church, convention or association
of churches, or an organization described in section
414(e)(3)(B)(ii)" for "or a home health service agency" in subpars.
(A), (B) and (C), respectively, and, in subpar. (D), added cl.
(iv).
Subsec. (c)(5). Pub. L. 97-248, Sec. 238(d)(5), struck out par.
(5) relating to application with section 404(e)(4).
Subsec. (c)(8). Pub. L. 97-248, Sec. 251(c)(2), added par. (8).
Subsec. (d)(1). Pub. L. 97-248, Sec. 235(b)(1), substituted
"benefit amounts" for "primary insurance amounts" in provision
following subpar. (C).
Pub. L. 97-248, Sec. 235(b)(3), substituted "$90,000" for
"$75,000" in subpar. (A), and in subpar. (B) substituted "$30,000"
for "$25,000".
Subsec. (d)(2)(A). Pub. L. 97-248, Sec. 235(b)(2)(B), substituted
"1984" for "1974".
Subsec. (d)(3). Pub. L. 97-248, Sec. 235(b)(2)(A), added par.
(3).
Subsec. (e)(1). Pub. L. 97-248, Sec. 235(c)(1), substituted "1.0"
for "1.4".
Subsec. (e)(2)(B). Pub. L. 97-248, Sec. 235(c)(2)(A), substituted
provisions that for purposes of this subsection, the defined
benefit plan fraction for any year has a denominator which is the
lesser of the product of 1.25 multiplied by the dollar limitation
in effect under subsec. (b)(1)(A) for such year, or the product of
1.4 multiplied by the amount which may be taken into account under
subsec. (b)(1)(B) with respect to such individual under the plan
for such year, for provisions that such benefit plan fraction had a
denominator which was the projected annual benefit of the
participant under the plan (determined as of the close of the year)
if the plan provided the maximum benefit allowable under subsec.
(b).
Subsec. (e)(3)(B). Pub. L. 97-248, Sec. 235(c)(2)(B), substituted
provision that the defined contribution plan fraction for any year
has a denominator which, determined for such year and for each
prior year of service with the employer, is the lesser of either
the product of 1.25 multiplied by the dollar limitation in effect
under subsec. (c)(1)(A) for such year (determined without regard to
subsec. (c)(6)), or the product of 1.4 multiplied by the amount
which may be taken into account under subsec. (c)(1)(B) (or subsec.
(c)(7) or (8), if applicable) with respect to such individual under
such plan for such year, for provision that the denominator of such
fraction was the sum of the maximum amount of annual additions to
the participant's account which could have been made under subsec.
(c) for such year and for each prior year of service with the
employer (determined without regard to subsec. (c)(6)).
Subsec. (e)(6). Pub. L. 97-248, Sec. 235(d), added par. (6).
1981 - Subsec. (a)(2). Pub. L. 97-34, Sec. 311(g)(4)(A), struck
out in provision preceding subpar. (A) "Except as provided in
paragraph (3)", redesignated former subpar. (E) as (C), and in
subpar. (C) as so designated, inserted "described in section
408(k), or", redesignated former subpar. (F) as (D), struck out
former subpars. (C), relating to an individual retirement account
described under section 408(a), (D), relating to an individual
retirement annuity described in section 408(b), and (G), relating
to a retirement bond described in section 409, and in provision
following subpar. (D), substituted "such a contract, plan, or
pension," for "such contract, annuity plan, account, annuity, plan,
or bond" and "408(k)" for "408(a), 408(b), or 409".
Subsec. (a)(3). Pub. L. 97-34, Sec. 311(h)(3), struck out par.
(3) which provided that par. (2) not apply to an account, annuity,
or bond described in section 408(a), 408(b), or 409, established
for the benefit of the spouse of the individual contributing to
such account, or for such annuity or bond, if a deduction is
allowed under section 220 to such individual with respect to such
contribution for such year.
Subsec. (c)(2). Pub. L. 97-34, Sec. 311(g)(4)(B), included in
provision following subpar. (C) references to sections 403(b)(8)
and 405(d)(3) and inserted "without regard to employee
contributions to a simplified employee pension allowable as a
deduction under section 219(a), and without regard to deductible
employee contributions within the meaning of section 72(o)(5)".
Subsec. (c)(6)(C). Pub. L. 97-34, Sec. 333(b)(1), added subpar.
(C).
Subsec. (e)(5). Pub. L. 97-34, Sec. 311(g)(4)(C), struck out ",
any individual retirement account described in section 408(a), any
individual retirement annuity described in section 408(b), and any
retirement bond described in section 409," before "for the
benefit".
1980 - Subsec. (b)(7). Pub. L. 96-222, Sec. 101(a)(11),
substituted in subpar. (C) "under which benefits are determined
solely by reference to length of service, the particular years
during which service was rendered, age at retirement, and date of
retirement" for "benefits under which are determined by multiplying
a specified amount (which is the same amount for each participant)
by the number of the participant's years of service" and inserted
in text following subpar. (E) provisions requiring that this
paragraph not apply to a participant for any period for which he is
a participant under another plan to which this section applies
which is maintained by an employer maintaining this plan.
Subsec. (c)(6)(A). Pub. L. 96-605 inserted ", or purchased with
cash contributed," after "securities contributed".
Subsec. (c)(6)(B)(i). Pub. L. 96-222, Sec. 101(a)(7)(L)(i)(VII),
(iv)(I), substituted "a tax credit employee stock ownership plan"
for "an ESOP" and struck out "leveraged" before "employee".
Subsec. (e)(5). Pub. L. 96-222, Sec. 101(a)(10)(I), inserted
provisions requiring that for purposes of this section, any
contribution by an employer to a simplified employee pension for an
individual for a taxable year be treated as an employer
contribution to a defined contribution plan for such individual for
such year.
1978 - Subsec. (a)(2). Pub. L. 95-600, Sec. 152(g)(1), (2), as
amended by Pub. L. 96-222, Sec. 101(a)(10)(J)(iii), added subpar.
(E), redesignated former subpars. (E) and (F) as (F) and (G),
respectively, and in provision following subpar. (G) as so
redesignated, inserted "408(k)," after "408(b),".
Subsec. (b)(7). Pub. L. 95-600, Sec. 153(a), added par. (7).
Subsec. (c)(6)(B)(i). Pub. L. 95-600, Sec. 141(f)(7), substituted
"leveraged employee stock ownership plan (within the meaning of
section 4975(e)(7)) or an ESOP" for "a plan which meets the
requirements of section 4975(e)(7) or section 301(d) of the Tax
Reduction Act of 1975".
Subsec. (c)(6)(B)(ii). Pub. L. 95-600, Sec. 141(f)(7),
substituted "has the meaning given to such term by section 409A"
for "means, in the case of an employee stock ownership plan within
the meaning of section 4975(e)(7), qualifying employer securities
within the meaning of section 4975(e)(8), but only if they are
described in section 301(d)(9)(A) of the Tax Reduction Act of 1975,
or, in the case of an employee stock ownership plan described in
section 301(d)(2) of the Tax Reduction Act of 1975, employer
securities within the meaning of section 301(d)(9)(A) of such Act".
Subsec. (e)(5). Pub. L. 95-600, Sec. 152(g)(3), inserted "any
simplified employee pension," after "section 408(b),".
Subsec. (k)(1)(G), (H). Pub. L. 95-600, Sec. 152(g)(4), added
subpar. (G) and redesignated former subpar. (G) as (H).
1976 - Subsec. (a)(2). Pub. L. 94-455, Sec. 1501(b)(3)(A),
substituted "Except as provided in paragraph (3), in the case" for
"In the case".
Subsec. (a)(3). Pub. L. 94-455, Sec. 1501(b)(3)(B), added par.
(3).
Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 1901(a)(65)(A), inserted
closing parenthesis after "409(b)(3)(C)".
Subsec. (b)(2)(B). Pub. L. 94-455, Secs. 1901(a)(65)(B),
1906(b)(13)(A), struck out "or his delegate" after "Secretary" and
substituted "section 401(a)(11)(G)(iii)" for "section
401(a)(11)(H)(iii)".
Subsec. (b)(2)(C), (6). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c)(4). Pub. L. 94-455, Secs. 1901(b)(8)(D),
1906(b)(13)(A), substituted "educational organizations" for
"educational institutions" in the heading and "educational
organization" for "educational institution" in subpars. (A), (B),
and (C), struck out "or his delegate" after "Secretary" in subpar.
(D)(i), and substituted "For purposes of this paragraph the term
'educational organization' means an educational organization
described in section 170(b)(1)(A)(ii)" for "For purposes of this
paragraph the term 'educational institution' means an educational
institution as defined in section 151(e)(4)" in subpar. (D)(ii).
Subsec. (c)(5). Pub. L. 94-455, Sec. 1502(a)(1), added par. (5).
Subsec. (c)(6). Pub. L. 94-455, Sec. 803(f)(1), added par. (6).
Subsec. (c)(7). Pub. L. 94-455, Sec. 1511(a), added par. (7).
Subsec. (d)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (e)(3)(B). Pub. L. 94-455, Sec. 803(f)(2), substituted
"with the employer determined without regard to paragraph (6) of
such subsection)" for "with the employer".
Subsec. (e)(5). Pub. L. 94-455, Sec. 803(b)(4), substituted "For
purposes of this section" for "For purposes of this subsection".
Subsecs. (g), (i), (j). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
-CHANGE-
CHANGE OF NAME
Secretary of Health, Education, and Welfare redesignated
Secretary of Health and Human Services by section 3508(b) of Title
20, Education.
-MISC2-
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by section 407(b) of Pub. L. 109-135 effective as if
included in the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment
relates, see section 407(c) of Pub. L. 109-135, set out as a note
under section 402 of this title.
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendment by section 404(b)(2) of Pub. L. 108-311 effective as if
included in the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment
relates, see section 404(f) of Pub. L. 108-311, set out as a note
under section 45A of this title.
Amendment by Pub. L. 108-218 applicable, except as otherwise
provided, to plan years beginning after Dec. 31, 2003, see section
101(d) of Pub. L. 108-218, set out as a note under section 404 of
this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title VI, Sec. 611(i), June 7, 2001, 115 Stat.
100, as amended by Pub. L. 107-147, title IV, Sec. 411(j)(3), Mar.
9, 2002, 116 Stat. 47, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 401, 402, 404, 408, 457, 501, and 505 of
this title] shall apply to years beginning after December 31, 2001.
"(2) Defined benefit plans. - The amendments made by subsection
(a) [amending this section] shall apply to years ending after
December 31, 2001."
"(3) Special rule. - In the case of plan that, on June 7, 2001,
incorporated by reference the limitation of section 415(b)(1)(A) of
the Internal Revenue Code of 1986, section 411(d)(6) of such Code
and section 204(g)(1) of the Employee Retirement Income Security
Act of 1974 [29 U.S.C. 1054(g)(1)] do not apply to a plan amendment
that -
"(A) is adopted on or before June 30, 2002,
"(B) reduces benefits to the level that would have applied
without regard to the amendments made by subsection (a) of this
section, and
"(C) is effective no earlier than the years described in
paragraph (2)."
Amendment by section 632(a)(1), (3)(C)-(F) of Pub. L. 107-16
applicable to years beginning after Dec. 31, 2001, see section
632(a)(4) of Pub. L. 107-16, set out as a note under section 72 of
this title.
Pub. L. 107-16, title VI, Sec. 632(b)(2), June 7, 2001, 115 Stat.
115, provided that:
"(A) In general. - The amendment made by paragraph (1) [amending
this section] shall apply to limitation years beginning after
December 31, 1999.
"(B) Exclusion allowance. - Effective for limitation years
beginning in 2000, in the case of any annuity contract described in
section 403(b) of the Internal Revenue Code of 1986, the amount of
the contribution disqualified by reason of section 415(g) of such
Code shall reduce the exclusion allowance as provided in section
403(b)(2) of such Code."
Amendment by section 641(e)(9), (10) of Pub. L. 107-16 applicable
to distributions after Dec. 31, 2001, see section 641(f)(1) of Pub.
L. 107-16, set out as a note under section 402 of this title.
Pub. L. 107-16, title VI, Sec. 654(c), June 7, 2001, 115 Stat.
131, provided that: "The amendments made by this section [amending
this section] shall apply to years beginning after December 31,
2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 effective as if included in the
provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 1(a)(7) [title III, Sec.
314(g)] of Pub. L. 106-554, set out as a note under section 56 of
this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1526(c) of Pub. L. 105-34 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to permissive service credit
contributions made in years beginning after December 31, 1997.
"(2) Transition rule. -
"(A) In general. - In the case of an eligible participant in a
governmental plan (within the meaning of section 414(d) of the
Internal Revenue Code of 1986), the limitations of section
415(c)(1) of such Code shall not be applied to reduce the amount
of permissive service credit which may be purchased to an amount
less than the amount which was allowed to be purchased under the
terms of the plan as in effect on the date of the enactment of
this Act [Aug. 5, 1997].
"(B) Eligible participant. - For purposes of subparagraph (A),
an eligible participant is an individual who first became a
participant in the plan before the first plan year beginning
after the last day of the calendar year in which the next regular
session (following the date of the enactment of this Act) of the
governing body with authority to amend the plan ends."
Section 1527(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to years
beginning after December 31, 1996."
Amendment by section 1530(c)(3), (4) of Pub. L. 105-34 applicable
to transfers made by trusts to, or for the use of, an employee
stock ownership plan after Aug. 5, 1997, see section 1530(d) of
Pub. L. 105-34, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1434(a) of Pub. L. 104-188 applicable to
years beginning after Dec. 31, 1997, see section 1434(c) of Pub. L.
104-188, set out as a note under section 414 of this title.
Section 1444(e) of Pub. L. 104-188 provided that:
"(1) In general. - The amendments made by subsections (a), (b),
and (c) [amending this section and section 457 of this title] shall
apply to years beginning after December 31, 1994. The amendments
made by subsection (d) [amending this section] shall apply with
respect to revocations adopted after the date of the enactment of
this Act [Aug. 20, 1997].
"(2) Treatment for years beginning before january 1, 1995. -
Nothing in the amendments made by this section shall be construed
to imply that a governmental plan (as defined in section 414(d) of
the Internal Revenue Code of 1986) fails to satisfy the
requirements of section 415 of such Code for any taxable year
beginning before January 1, 1995."
Section 1446(b) of Pub. L. 104-188 provided that: "The amendment
made by this section [amending this section] shall apply to years
beginning after December 31, 1996."
Section 1449(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and provisions set out
as a note under section 411 of this title] shall take effect as if
included in the provisions of section 767 of the Uruguay Round
Agreements Act [Pub. L. 103-465]."
Section 1452(d) of Pub. L. 104-188 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
416 and 4980A of this title] shall apply to limitation years
beginning after December 31, 1999.
"(2) Excess distributions. - The amendment made by subsection (b)
[amending section 4980A of this title] shall apply to years
beginning after December 31, 1996."
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by section 732(b) of Pub. L. 103-465 applicable to
years beginning after Dec. 31, 1994, and, to the extent of
providing for the rounding of indexed amounts, not applicable to
any year to the extent the rounding would require the indexed
amount to be reduced below the amount in effect for years beginning
in 1994, see section 732(e) of Pub. L. 103-465, set out as a note
under section 401 of this title.
Amendment by section 767(b) of Pub. L. 103-465 applicable to plan
years and limitation years beginning after Dec. 31, 1994, except
that employer may elect to treat such amendment as effective on or
after Dec. 8, 1994, with provisions relating to reduction of
accrued benefits, exception, and timing of plan amendment, see
section 767(d) of Pub. L. 103-465, as amended, set out as a note
under section 411 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7304(c)(2) of Pub. L. 101-239 provided that: "The
amendment made by this subsection [amending this section] shall
apply to years beginning after July 12, 1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1011(d)(2), (3), (6), (7) and
1018(t)(3)(B), (8)(D) of Pub. L. 100-647 effective, except as
otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6054(b) of Pub. L. 100-647, as amended by Pub. L. 101-
239, title VII, Sec. 7816(h), Dec. 19, 1989, 103 Stat. 2421,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendment made by this section [amending this section] shall apply
to years beginning after December 31, 1982.
"(2) Election. - Section 415(b)(10)(C) of the 1986 Code (as added
by subsection (a)) shall not apply to any year beginning before
January 1, 1990."
Section 6059(b) of Pub. L. 100-647 provided that: "The amendment
made by this section [amending this section] shall apply as if
included in the amendments made by section 1106(b)(2) of the Reform
Act [Pub. L. 99-514]."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1106(i) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011(d)(5), title VI, Sec. 6062(a), Nov. 10, 1988,
102 Stat. 3460, 3700, provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and sections
401, 402, 404, 416, and 818 of this title] shall apply to years
beginning after December 31, 1986.
"(2) Collective bargaining agreements. - In the case of a plan in
effect before March 1, 1986, pursuant to 1 or more collective
bargaining agreements between employee representatives and 1 or
more employers, the amendments made by this section (other than
subsection (d)) shall not apply to contributions or benefits
pursuant to such agreement in years beginning before October 1,
1991.
"(3) Right to higher accrued defined benefit preserved. -
"(A) In general. - In the case of an individual who is a
participant (as of the 1st day of the 1st year to which the
amendments made by this section apply) in a defined benefit plan
which is in existence on May 6, 1986, and with respect to which
the requirements of section 415 of the Internal Revenue Code of
1986 have been met for all plan years, if such individual's
current accrued benefit under the plan exceeds the limitation of
subsection (b) of section 415 of such Code (as amended by this
section), then (in the case of such plan), for purposes of
subsections (b) and (e) of such section, the limitation of such
subsection (b)(1)(A) with respect to such individual shall be
equal to such current accrued benefit.
"(B) Current accrued benefit defined. -
"(i) In general. - For purposes of this paragraph, the term
'current accrued benefit' means the individual's accrued
benefit (at the close of the last year to which the amendments
made by this section do not apply) when expressed as an annual
benefit (within the meaning of section 415(b)(2) of such Code).
"(ii) Special rule. - For purposes of determining the amount
of any individual's current accrued benefit -
"(I) no change in the terms and conditions of the plan
after May 5, 1986, and
"(II) no cost-of-living adjustment occurring after May 5,
1986,
shall be taken into account. For purposes of subclause (I), any
change in the terms and conditions of the plan pursuant to a
collective bargaining agreement ratified before May 6, 1986,
shall be treated as a change made before May 6, 1986.
"(4) Transition rule where the sum of defined contribution and
defined benefit plan fractions exceeds 1.0. - In the case of a plan
which satisfied the requirements of section 415 of the Internal
Revenue Code of 1986 for its last year beginning before January 1,
1987, the Secretary of the Treasury or his delegate shall prescribe
regulations under which an amount is subtracted from the numerator
of the defined contribution plan fraction (not exceeding such
numerator) so that the sum of the defined benefit plan fraction and
the defined contribution plan fraction computed under section
415(e)(1) of such Code does not exceed 1.0 for such year
(determined as if the amendments made by this section were in
effect for such year).
"(5) Effective date for subsection (d). -
"(A) In general. - Except as provided in subparagraph (B), the
amendment made by subsection (d) [amending sections 401, 404,
416, and 818 of this title] shall apply to benefits accruing in
years beginning after December 31, 1988.
"(B) Collective bargaining agreements. - In the case of a plan
described in paragraph (2), the amendments made by subsection (d)
shall apply to benefits accruing in years beginning on or after
the earlier of -
"(i) the later of -
"(I) the date determined under paragraph (2)(A), or
"(II) January 1, 1989, or
"(ii) January 1, 1991.
"(6) Special rule for amendment made by subsection (e). - The
amendment made by subsection (e) [amending this section] shall not
require the recomputation, for purposes of section 415(e) of the
Internal Revenue Code of 1986, of the annual addition for any year
beginning before 1987."
[Section 6062(b) of Pub. L. 100-647 provided that: "The amendment
made by this section [amending section 1106(i) of Pub. L. 99-514,
set out above] shall take effect as if included in the provisions
of section 1106 of the Reform Act [Pub. L. 99-514]."]
Amendment by section 1108(g)(5) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1986, see section 1108(h) of Pub. L.
99-514, set out as a note under section 219 of this title.
Amendment by section 1114(b)(12) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1988, see section 1114(c)(3) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Section 1174(d)(3) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section] shall
apply to years beginning after December 31, 1986."
Amendment by sections 1847(b)(4), 1852(h)(2), (3), and
1875(c)(9), (11) of Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
Amendment by section 1898(b)(15)(C) of Pub. L. 99-514 effective
as if included in the provision of the Retirement Equity Act of
1984, Pub. L. 98-397, to which such amendment relates, except as
otherwise provided, see section 1898(j) of Pub. L. 99-514, set out
as a note under section 401 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 15 of Pub. L. 98-369 applicable to taxable
years ending after Dec. 31, 1983, see section 18(a) of Pub. L. 98-
369, set out as a note under section 48 of this title.
Amendment by section 491(d)(28)-(32) of Pub. L. 98-369 applicable
to obligations issued after Dec. 31, 1983, see section 491(f)(1) of
Pub. L. 98-369, set out as a note under section 62 of this title.
Amendment by section 491(e)(6) of Pub. L. 98-369 effective Jan.
1, 1984, see section 491(f)(3) of Pub. L. 98-369, set out as a note
under section 401 of this title.
Amendment by section 528(a) of Pub. L. 98-369 applicable to years
beginning after Mar. 31, 1984, see section 528(c) of Pub. L. 98-
369, set out as a note under section 401 of this title.
Amendment by section 713 of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 98-21 applicable to taxable years beginning
after Dec. 31, 1983, except that if an individual's annuity
starting date was deferred under section 105(d)(6) of this title as
in effect on the day before Apr. 20, 1983, such deferral shall end
on the first day of such individual's first taxable year beginning
after Dec. 31, 1983, see section 122(d) of Pub. L. 98-21, set out
as a note under section 22 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 235(g) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(a)(10), Jan. 12, 1983, 96 Stat. 2404; Pub. L.
98-369, div. A, title VII, Sec. 713(a)(2), (4), (f)(3), July 18,
1984, 98 Stat. 956, 959; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100
Stat. 2095, provided that:
"(1) In general. -
"(A) New plans. - In the case of any plan which is not in
existence on July 1, 1982, the amendments made by this section
[amending this section and section 404 of this title] shall apply
to years ending after July 1, 1982.
"(B) Existing plans. -
"(i) In the case of any plan which is in existence on July 1,
1982, the amendments made by this section [amending this
section and section 404 of this title] shall apply to years
beginning after December 31, 1982.
"(ii) Plan requirements. - A plan shall not be treated as
failing to meet the requirements of section 401(a)(16) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] for any
year beginning before January 1, 1984, merely because such plan
provides for benefit or contribution limits which are in excess
of the limitations under section 415 of such Code, as amended
by this section. The preceding sentence shall not apply to any
plan which provides such limits in excess of the limitation
under section 415 of such Code before such amendments.
"(2) Amendments related to cost-of-living adjustments. -
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by subsection (b) [amending this section] shall
apply to adjustments for years beginning after December 31, 1982.
"(B) Adjustment procedures. - The amendments made by
subsections (b)(1) and (b)(2)(B) [amending this section] shall
apply to adjustments for years beginning after December 31, 1985.
"(3) Transition rule where the sum of defined contribution and
defined benefit plan fractions exceeds 1.0. - In the case of a plan
which satisfied the requirements of section 415 of the Internal
Revenue Code of 1986 for the last year beginning before January 1,
1983, the Secretary of the Treasury or his delegate shall prescribe
regulations under which an amount is subtracted from the numerator
of the defined contribution plan fraction (not exceeding such
numerator) so that the sum of the defined benefit plan fraction and
the defined contribution plan fraction computed under section
415(e)(1) of the Internal Revenue Code of 1986 (as amended by the
Tax Equity and Fiscal Responsibility Act of 1982) does not exceed
1.0 for such year. A similar rule shall apply with respect to the
last plan year beginning before January 1, 1984, for purposes of
applying section 416(h) of the Internal Revenue Code of 1986.
"(4) Right to higher accrued defined benefit preserved. -
"(A) In general. - In the case of an individual who is a
participant before January 1, 1983, in a defined benefit plan
which is in existence on July 1, 1982, and with respect to which
the requirements of section 415 of such Code have been met for
all years, if such individual's current accrued benefit under
such plan exceeds the limitation of subsection (b) of section 415
of the Internal Revenue Code of 1986 (as amended by this
section), then (in the case of such plan) for purposes of
subsections (b) and (e) of such section, the limitation of such
subsection (b) with respect to such individual shall be equal to
such current accrued benefit.
"(B) Current accrued benefit defined. -
"(i) In general. - For purposes of this paragraph, the term
'current accrued benefit' means the individual's accrued
benefit (at the close of the last year beginning before January
1, 1983) when expressed as an annual benefit (within the
meaning of section 415(b)(2) of such Code as in effect before
the amendments made by this Act). In the case of any plan
described in the first sentence of paragraph (5), the preceding
sentence shall be applied by substituting for 'January 1, 1983'
the applicable date determined under paragraph (5).
"(ii) Special rule. - For purposes of determining the amount
of any individual's current accrued benefit -
"(I) no change in the terms and conditions of the plan
after July 1, 1982, and
"(II) no cost-of-living adjustment occurring after July 1,
1982,
shall be taken into account. For purposes of subclause (I), any
change in the terms and conditions of the plan pursuant to a
collective bargaining agreement entered into before July 1, 1982,
and ratified before September 3, 1982, shall be treated as a
change made before July 1, 1982.
"(5) Special rule for collective bargaining agreements. - In the
case of a plan maintained on the date of the enactment of this Act
[Sept. 3, 1982] pursuant to 1 or more collective bargaining
agreements between employee representatives and 1 or more
employers, the amendments made by this section [amending this
section and section 404 of this title] and section 242 [amending
section 401 of this title and enacting a provision set out as a
note under section 401 of this title] (relating to age 70 1/2 )
shall not apply to years beginning before the earlier of -
"(A) the date on which the last of the collective bargaining
agreements relating to the plan terminates (determined without
regard to any extension thereof agreed to after the date of the
enactment of this Act [Sept. 3, 1982]), or
"(B) January 1, 1986.
For purposes of subparagraph (A), any plan amendment made pursuant
to a collective bargaining agreement relating to the plan which
amends the plan solely to conform to any requirement added by this
section and section 242 shall not be treated as a termination of
such collective bargaining agreement."
Amendment by section 238(d)(5) of Pub. L. 97-248 applicable to
years beginning after Dec. 31, 1983, see section 241 of Pub. L. 97-
248, set out as an Effective Date note under section 416 of this
title.
Amendment by section 251(c)(1), (2) of Pub. L. 97-248 applicable
to years beginning after Dec. 31, 1981, see section 251(e)(3) of
Pub. L. 97-248, set out as a note under section 403 of this title.
Amendment by section 253(a) of Pub. L. 97-248 applicable to
taxable years beginning after Dec. 31, 1981, see section 253(c) of
Pub. L. 97-248, set out as a note under section 404 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 311(g)(4), (h)(3) of Pub. L. 97-34
applicable to years beginning after Dec. 31, 1981, see section
311(i)(4) of Pub. L. 97-34, set out as a note under section 219 of
this title.
Section 333(b)(2) of Pub. L. 97-34 provided that: "The amendment
made by this subsection [amending this section] shall apply to
years beginning after December 31, 1981."
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 222(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to years beginning after December 31, 1980."
Section 101(b)(1)(G) of Pub. L. 96-222 provided that: "The
amendment made by subparagraph (I) of subsection (a)(10) [amending
this section] shall apply to taxable years beginning after the date
of the enactment of this Act [Apr. 1, 1980]."
Amendment by section 101(a)(7)(L)(i)(VII), (iv)(i), (10)(J)(iii),
(11) of Pub. L. 96-222 effective, except as otherwise provided, as
if it had been included in the provisions of the Revenue Act of
1978, Pub. L. 95-600, to which such amendment relates, see section
201 of Pub. L. 96-222, set out as a note under section 32 of this
title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 141(f)(7) of Pub. L. 95-600 effective for
years beginning after Dec. 31, 1978, and with respect to qualified
investment for taxable years beginning after Dec. 31, 1978, see
section 141(g)(1) of Pub. L. 95-600, set out as an Effective Date
note under section 409 of this title.
Section 141(g)(5) of Pub. L. 95-600, as added by Pub. L. 96-222,
title I, Sec. 101(a)(7)(B), Apr. 1, 1980, 94 Stat. 197, provided
that: "The amendment made by subsection (f)(7) [amending this
section] shall apply to years beginning after December 31, 1978."
Amendment by section 152(g) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 152(h) of
Pub. L. 95-600, set out as a note under section 408 of this title.
Section 153(b) of Pub. L. 95-600 provided that: "The amendment
made by this section [amending this section] shall apply to years
beginning after December 31, 1978."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 803(b)(4), (f) of Pub. L. 94-455 effective
for years beginning after Dec. 31, 1975, see section 803(j) of Pub.
L. 94-455, set out as a note under section 46 of this title.
Amendment by section 1501(b)(3) of Pub. L. 94-455 effective for
years beginning after Dec. 31, 1976, see section 1501(d) of Pub. L.
94-455, set out as a note under section 62 of this title.
Section 1502(b) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a)(1) [amending this section] shall apply to
years beginning after December 31, 1975. The amendment made by
subsection (a)(2) [amending section 404 of this title] shall apply
to taxable years beginning after December 31, 1975."
Section 1511(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] shall apply for years
beginning after December 31, 1975."
Amendment by section 1901(a)(65), (b)(8)(D) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE; TRANSITION PROVISIONS
Section 2004(d) of Pub. L. 93-406, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) General rule. - The amendments made by this section
[enacting this section, amending sections 401, 403, 404, 405, and
805 of this title, and enacting provisions set out as notes under
this section] shall apply to years beginning after December 31,
1975. The Secretary of the Treasury shall prescribe such
regulations as may be necessary to carry out the provisions of
this paragraph.
"(2) Transition rule for defined benefit plans. - In the case
of an individual who was an active participant in a defined
benefit plan before October 3, 1973, if -
"(A) the annual benefit (within the meaning of section
415(b)(2) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954]) payable to such participant on retirement does not
exceed 100 percent of his annual rate of compensation on the
earlier of (i) October 2, 1973, or (ii) the date on which he
separated from the service of the employer,
"(B) such annual benefit is no greater than the annual
benefit which would have been payable to such participant on
retirement if (i) all the terms and conditions of such plan in
existence on such date had remained in existence until such
retirement, and (ii) his compensation taken into account for
any period after October 2, 1973, had not exceeded his annual
rate of compensation on such date, and
"(C) in the case of a participant who separated from the
service of the employer prior to October 2, 1973, such annual
benefit is no greater than his vested accrued benefit as of the
date he separated from the service,
then such annual benefit shall be treated as not exceeding the
limitation of subsection (b) of section 415 of the Internal
Revenue Code of 1986."
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
PLANS MAY INCORPORATE SECTION 415 LIMITATIONS BY REFERENCE
Section 1106(h) of Pub. L. 99-514 provided that: "Notwithstanding
any other provision of law, except as provided in regulations
prescribed by the Secretary of the Treasury or his delegate, a plan
may incorporate by reference the limitations under section 415 of
the Internal Revenue Code of 1986."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
SPECIAL RULE FOR CERTAIN PLANS IN EFFECT ON SEPTEMBER 2, 1974
Section 2004(a)(3) of Pub. L. 93-406, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In any
case in which, on the date of enactment of this Act [Sept. 2,
1974], an individual is a participant in both a defined benefit
plan and a defined contribution plan maintained by the same
employer, and the sum of the defined benefit plan fraction and the
defined contribution plan fraction for the year during which such
date occurs exceeds 1.4, the sum of such fractions may continue to
exceed 1.4 if -
"(A) the defined benefit plan fraction is not increased, by
amendment of the plan or otherwise, after
"(B) no contributions are made under the defined contribution
plan after such date.
A trust which is part of a pension, profit-sharing, or stock bonus
plan described in the preceding sentence shall not be treated as
not constituting a qualified trust under section 401(a) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] on account of
the provisions of section 415(e) of such Code, as long as it is
described in the preceding sentence of this subsection."
-End-
-CITE-
26 USC Sec. 416 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart B - Special Rules
-HEAD-
Sec. 416. Special rules for top-heavy plans
-STATUTE-
(a) General rule
A trust shall not constitute a qualified trust under section
401(a) for any plan year if the plan of which it is a part is a top-
heavy plan for such plan year unless such plan meets -
(1) the vesting requirements of subsection (b), and
(2) the minimum benefit requirements of subsection (c).
(b) Vesting requirements
(1) In general
A plan satisfies the requirements of this subsection if it
satisfies the requirements of either of the following
subparagraphs:
(A) 3-year vesting
A plan satisfies the requirements of this subparagraph if an
employee who has completed at least 3 years of service with the
employer or employers maintaining the plan has a nonforfeitable
right to 100 percent of his accrued benefit derived from
employer contributions.
(B) 6-year graded vesting
A plan satisfies the requirements of this subparagraph if an
employee has a nonforfeitable right to a percentage of his
accrued benefit derived from employer contributions determined
under the following table:
The
nonforfeitable
Years of service percentage is:
2 20
3 40
4 60
5 80
6 or more 100
(2) Certain rules made applicable
Except to the extent inconsistent with the provisions of this
subsection, the rules of section 411 shall apply for purposes of
this subsection.
(c) Plan must provide minimum benefits
(1) Defined benefit plans
(A) In general
A defined benefit plan meets the requirements of this
subsection if the accrued benefit derived from employer
contributions of each participant who is a non-key employee,
when expressed as an annual retirement benefit, is not less
than the applicable percentage of the participant's average
compensation for years in the testing period.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable
percentage" means the lesser of -
(i) 2 percent multiplied by the number of years of service
with the employer, or
(ii) 20 percent.
(C) Years of service
For purposes of this paragraph -
(i) In general
Except as provided in clause (ii) or (iii), years of
service shall be determined under the rules of paragraphs
(4), (5), and (6) of section 411(a).
(ii) Exception for years during which plan was not top-heavy
A year of service with the employer shall not be taken into
account under this paragraph if -
(I) the plan was not a top-heavy plan for any plan year
ending during such year of service, or
(II) such year of service was completed in a plan year
beginning before January 1, 1984.
(iii) Exception for plan under which no key employee (or
former key employee) benefits for plan year
For purposes of determining an employee's years of service
with the employer, any service with the employer shall be
disregarded to the extent that such service occurs during a
plan year when the plan benefits (within the meaning of
section 410(b)) no key employee or former key employee.
(D) Average compensation for high 5 years
For purposes of this paragraph -
(i) In general
A participant's testing period shall be the period of
consecutive years (not exceeding 5) during which the
participant had the greatest aggregate compensation from the
employer.
(ii) Year must be included in year of service
The years taken into account under clause (i) shall be
properly adjusted for years not included in a year of
service.
(iii) Certain years not taken into account
Except to the extent provided in the plan, a year shall not
be taken into account under clause (i) if -
(I) such year ends in a plan year beginning before
January 1, 1984, or
(II) such year begins after the close of the last year in
which the plan was a top-heavy plan.
(E) Annual retirement benefit
For purposes of this paragraph, the term "annual retirement
benefit" means a benefit payable annually in the form of a
single life annuity (with no ancillary benefits) beginning at
the normal retirement age under the plan.
(2) Defined contribution plans
(A) In general
A defined contribution plan meets the requirements of the
subsection if the employer contribution for the year for each
participant who is a non-key employee is not less than 3
percent of such participant's compensation (within the meaning
of section 415). Employer matching contributions (as defined in
section 401(m)(4)(A)) shall be taken into account for purposes
of this subparagraph (and any reduction under this sentence
shall not be taken into account in determining whether section
401(k)(4)(A) applies).
(B) Special rule where maximum contribution less than 3 percent
(i) In general
The percentage referred to in subparagraph (A) for any year
shall not exceed the percentage at which contributions are
made (or required to be made) under the plan for the year for
the key employee for whom such percentage is the highest for
the year.
(ii) Treatment of aggregation groups
(I) For purposes of this subparagraph, all defined
contribution plans required to be included in an aggregation
group under subsection (g)(2)(A)(i) shall be treated as one
plan.
(II) This subparagraph shall not apply to any plan required
to be included in an aggregation group if such plan enables a
defined benefit plan required to be included in such group to
meet the requirements of section 401(a)(4) or 410.
[(d) Repealed. Pub. L. 99-514, title XI, Sec. 1106(d)(3)(B)(i),
Oct. 22, 1986, 100 Stat. 2424]
(e) Plan must meet requirements without taking into account social
security and similar contributions and benefits
A top-heavy plan shall not be treated as meeting the requirement
of subsection (b) or (c) unless such plan meets such requirement
without taking into account contributions or benefits under chapter
2 (relating to tax on self-employment income), chapter 21 (relating
to Federal Insurance Contributions Act), title II of the Social
Security Act, or any other Federal or State law.
(f) Coordination where employer has 2 or more plans
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section
where the employer has 2 or more plans including (but not limited
to) regulations to prevent inappropriate omissions or required
duplication of minimum benefits or contributions.
(g) Top-heavy plan defined
For purposes of this section -
(1) In general
(A) Plans not required to be aggregated
Except as provided in subparagraph (B), the term "top-heavy
plan" means, with respect to any plan year -
(i) any defined benefit plan if, as of the determination
date, the present value of the cumulative accrued benefits
under the plan for key employees exceeds 60 percent of the
present value of the cumulative accrued benefits under the
plan for all employees, and
(ii) any defined contribution plan if, as of the
determination date, the aggregate of the accounts of key
employees under the plan exceeds 60 percent of the aggregate
of the accounts of all employees under such plan.
(B) Aggregated plans
Each plan of an employer required to be included in an
aggregation group shall be treated as a top-heavy plan if such
group is a top-heavy group.
(2) Aggregation
For purposes of this subsection -
(A) Aggregation group
(i) Required aggregation
The term "aggregation group" means -
(I) each plan of the employer in which a key employee is
a participant, and
(II) each other plan of the employer which enables any
plan described in subclause (I) to meet the requirements of
section 401(a)(4) or 410.
(ii) Permissive aggregation
The employer may treat any plan not required to be included
in an aggregation group under clause (i) as being part of
such group if such group would continue to meet the
requirements of sections 401(a)(4) and 410 with such plan
being taken into account.
(B) Top-heavy group
The term "top-heavy group" means any aggregation group if -
(i) the sum (as of the determination date) of -
(I) the present value of the cumulative accrued benefits
for key employees under all defined benefit plans included
in such group, and
(II) the aggregate of the accounts of key employees under
all defined contribution plans included in such group,
(ii) exceeds 60 percent of a similar sum determined for all
employees.
(3) Distributions during last year before determination date
taken into account
(A) In general
For purposes of determining -
(i) the present value of the cumulative accrued benefit for
any employee, or
(ii) the amount of the account of any employee,
such present value or amount shall be increased by the
aggregate distributions made with respect to such employee
under the plan during the 1-year period ending on the
determination date. The preceding sentence shall also apply to
distributions under a terminated plan which if it had not been
terminated would have been required to be included in an
aggregation group.
(B) 5-year period in case of in-service distribution
In the case of any distribution made for a reason other than
severance from employment, death, or disability, subparagraph
(A) shall be applied by substituting "5-year period" for "1-
year period".
(4) Other special rules
For purposes of this subsection -
(A) Rollover contributions to plan not taken into account
Except to the extent provided in regulations, any rollover
contribution (or similar transfer) initiated by the employee
and made after December 31, 1983, to a plan shall not be taken
into account with respect to the transferee plan for purposes
of determining whether such plan is a top-heavy plan (or
whether any aggregation group which includes such plan is a top-
heavy group).
(B) Benefits not taken into account if employee ceases to be
key employee
If any individual is a non-key employee with respect to any
plan for any plan year, but such individual was a key employee
with respect to such plan for any prior plan year, any accrued
benefit for such employee (and the account of such employee)
shall not be taken into account.
(C) Determination date
The term "determination date" means, with respect to any plan
year -
(i) the last day of the preceding plan year, or
(ii) in the case of the first plan year of any plan, the
last day of such plan year.
(D) Years
To the extent provided in regulations, this section shall be
applied on the basis of any year specified in such regulations
in lieu of plan years.
(E) Benefits not taken into account if employee not employed
for last year before determination date
If any individual has not performed services for the employer
maintaining the plan at any time during the 1-year period
ending on the determination date, any accrued benefit for such
individual (and the account of such individual) shall not be
taken into account.
(F) Accrued benefits treated as accruing ratably
The accrued benefit of any employee (other than a key
employee) shall be determined -
(i) under the method which is used for accrual purposes for
all plans of the employer, or
(ii) if there is no method described in clause (i), as if
such benefit accrued not more rapidly than the slowest
accrual rate permitted under section 411(b)(1)(C).
(G) Simple retirement accounts
The term "top-heavy plan" shall not include a simple
retirement account under section 408(p).
(H) Cash or deferred arrangements using alternative methods of
meeting nondiscrimination requirements
The term "top-heavy plan" shall not include a plan which
consists solely of -
(i) a cash or deferred arrangement which meets the
requirements of section 401(k)(12), and
(ii) matching contributions with respect to which the
requirements of section 401(m)(11) are met.
If, but for this subparagraph, a plan would be treated as a top-
heavy plan because it is a member of an aggregation group
which is a top-heavy group, contributions under the plan may be
taken into account in determining whether any other plan in the
group meets the requirements of subsection (c)(2).
[(h) Repealed. Pub. L. 104-188, title I, Sec. 1452(c)(7), Aug. 20,
1996, 110 Stat. 1816]
(i) Definitions
For purposes of this section -
(1) Key employee
(A) In general
The term "key employee" means an employee who, at any time
during the plan year, is -
(i) an officer of the employer having an annual
compensation greater than $130,000,
(ii) a 5-percent owner of the employer, or
(iii) a 1-percent owner of the employer having an annual
compensation from the employer of more than $150,000.
For purposes of clause (i), no more than 50 employees (or, if
lesser, the greater of 3 or 10 percent of the employees) shall
be treated as officers. In the case of plan years beginning
after December 31, 2002, the $130,000 amount in clause (i)
shall be adjusted at the same time and in the same manner as
under section 415(d), except that the base period shall be the
calendar quarter beginning July 1, 2001, and any increase under
this sentence which is not a multiple of $5,000 shall be
rounded to the next lower multiple of $5,000. Such term shall
not include any officer or employee of an entity referred to in
section 414(d) (relating to governmental plans). For purposes
of determining the number of officers taken into account under
clause (i), employees described in section 414(q)(5) shall be
excluded.
(B) Percentage owners
(i) 5-percent owner
For purposes of this paragraph, the term "5-percent owner"
means -
(I) if the employer is a corporation, any person who owns
(or is considered as owning within the meaning of section
318) more than 5 percent of the outstanding stock of the
corporation or stock possessing more than 5 percent of the
total combined voting power of all stock of the
corporation, or
(II) if the employer is not a corporation, any person who
owns more than 5 percent of the capital or profits interest
in the employer.
(ii) 1-percent owner
For purposes of this paragraph, the term "1-percent owner"
means any person who would be described in clause (i) if "1
percent" were substituted for "5 percent" each place it
appears in clause (i).
(iii) Constructive ownership rules
For purposes of this subparagraph -
(I) subparagraph (C) of section 318(a)(2) shall be
applied by substituting "5 percent" for "50 percent", and
(II) in the case of any employer which is not a
corporation, ownership in such employer shall be determined
in accordance with regulations prescribed by the Secretary
which shall be based on principles similar to the
principles of section 318 (as modified by subclause (I)).
(C) Aggregation rules do not apply for purposes of determining
ownership in the employer
The rules of subsections (b), (c), and (m) of section 414
shall not apply for purposes of determining ownership in the
employer.
(D) Compensation
For purposes of this paragraph, the term "compensation" has
the meaning given such term by section 414(q)(4).
(2) Non-key employee
The term "non-key employee" means any employee who is not a key
employee.
(3) Self-employed individuals
In the case of a self-employed individual described in section
401(c)(1) -
(A) such individual shall be treated as an employee, and
(B) such individual's earned income (within the meaning of
section 401(c)(2)) shall be treated as compensation.
(4) Treatment of employees covered by collective bargaining
agreements
The requirements of subsections (b), (c), and (d) shall not
apply with respect to any employee included in a unit of
employees covered by an agreement which the Secretary of Labor
finds to be a collective bargaining agreement between employee
representatives and 1 or more employers if there is evidence that
retirement benefits were the subject of good faith bargaining
between such employee representatives and such employer or
employers.
(5) Treatment of beneficiaries
The terms "employee"' and "key employee" include their
beneficiaries.
(6) Treatment of simplified employee pensions
(A) Treatment as defined contribution plans
A simplified employee pension shall be treated as a defined
contribution plan.
(B) Election to have determinations based on employer
contributions
In the case of a simplified employee pension, at the election
of the employer, paragraphs (1)(A)(ii) and (2)(B) of subsection
(g) shall be applied by taking into account aggregate employer
contributions in lieu of the aggregate of the accounts of
employees.
-SOURCE-
(Added Pub. L. 97-248, title II, Sec. 240(a), Sept. 3, 1982, 96
Stat. 514; amended Pub. L. 98-369, div. A, title V, Sec. 524(a)(1),
(b)(1), (c)(1), title VII, Sec. 713(f)(1), (4), (5)(A), (6), July
18, 1984, 98 Stat. 872, 958-960; Pub. L. 99-514, title XI, Secs.
1106(d)(3)(A), (B), 1118(a), title XVIII, Sec. 1852(d), Oct. 22,
1986, 100 Stat. 2424, 2463, 2867; Pub. L. 100-647, title I, Sec.
1011(d)(8), (i)(4)(B), (j)(3)(A), Nov. 10, 1988, 102 Stat. 3460,
3467, 3468; Pub. L. 104-188, title I, Secs. 1421(b)(7),
1431(c)(1)(B), (C), 1452(c)(7), Aug. 20, 1996, 110 Stat. 1797,
1803, 1816; Pub. L. 107-16, title VI, Sec. 613(a)-(e), June 7,
2001, 115 Stat. 100-102; Pub. L. 107-147, title IV, Sec. 411(k),
Mar. 9, 2002, 116 Stat. 47; Pub. L. 108-311, title IV, Sec.
408(a)(16), Oct. 4, 2004, 118 Stat. 1192.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The Federal Insurance Contributions Act, referred to in subsec.
(e), is act Aug. 16, 1954, ch. 736, Secs. 3101, 3102, 3111, 3112,
3121 to 3128, 68A Stat. 415, as amended, which is classified
generally to chapter 21 (Sec. 3101 et seq.) of this title. For
complete classification of this Act to the Code, see section 3128
of this title and Tables.
The Social Security Act, referred to in subsec. (e), is act Aug.
14, 1935, ch. 531, 49 Stat. 620, as amended. Title II of the Social
Security Act is classified generally to subchapter II (Sec. 401 et
seq.) of chapter 7 of Title 42, The Public Health and Welfare. For
complete classification of this Act to the Code, see section 1305
of Title 42 and Tables.
-MISC1-
AMENDMENTS
2004 - Subsec. (i)(1)(A). Pub. L. 108-311 substituted "In the
case of plan years" for "in the case of plan years" in concluding
provisions.
2002 - Subsec. (c)(1)(C)(iii). Pub. L. 107-147, Sec. 411(k)(1),
substituted "Exception for plan under which no key employee (or
former key employee) benefits for plan year" for "Exception for
frozen plan" in heading.
Subsec. (g)(3)(B). Pub. L. 107-147, Sec. 411(k)(2), substituted
"severance from employment" for "separation from service".
2001 - Subsec. (c)(1)(C)(i). Pub. L. 107-16, Secs. 613(e)(A),
901, temporarily substituted "clause (ii) or (iii)" for "clause
(ii)". See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (c)(1)(C)(iii). Pub. L. 107-16, Secs. 613(e)(B), 901,
temporarily added cl. (iii). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (c)(2)(A). Pub. L. 107-16, Secs. 613(b), 901, temporarily
inserted at end "Employer matching contributions (as defined in
section 401(m)(4)(A)) shall be taken into account for purposes of
this subparagraph (and any reduction under this sentence shall not
be taken into account in determining whether section 401(k)(4)(A)
applies)." See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (g)(3). Pub. L. 107-16, Secs. 613(c)(1), 901, temporarily
amended heading and text of par. (3) generally. Prior to amendment,
text read as follows: "For purposes of determining -
"(A) the present value of the cumulative accrued benefit for
any employee, or
"(B) the amount of the account of any employee,
such present value or amount shall be increased by the aggregate
distributions made with respect to such employee under the plan
during the 5-year period ending on the determination date. The
preceding sentence shall also apply to distributions under a
terminated plan which if it had not been terminated would have been
required to be included in an aggregation group."
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (g)(4)(E). Pub. L. 107-16, Secs. 613(c)(2), 901, in
heading temporarily substituted "last year before determination
date" for "last 5 years" and in text temporarily substituted "1-
year period" for "5-year period". See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (g)(4)(H). Pub. L. 107-16, Secs. 613(d), 901, temporarily
added subpar. (H). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (i)(1)(A). Pub. L. 107-16, Secs. 613(a)(1)(D), 901, in
concluding provisions, temporarily substituted "in the case of plan
years beginning after December 31, 2002, the $130,000 amount in
clause (i) shall be adjusted at the same time and in the same
manner as under section 415(d), except that the base period shall
be the calendar quarter beginning July 1, 2001, and any increase
under this sentence which is not a multiple of $5,000 shall be
rounded to the next lower multiple of $5,000." for "For purposes of
clause (ii), if 2 employees have the same interest in the employer,
the employee having greater annual compensation from the employer
shall be treated as having a larger interest." See Effective and
Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 613(a)(1)(A), 901, temporarily struck out
"or any of the 4 preceding plan years" after "plan year" in
introductory provisions. See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (i)(1)(A)(i). Pub. L. 107-16, Secs. 613(a)(1)(B), 901,
temporarily added cl. (i) and struck out former cl. (i) which read
as follows: "an officer of the employer having an annual
compensation greater than 50 percent of the amount in effect under
section 415(b)(1)(A) for any such plan year,". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (i)(1)(A)(ii)-(iv). Pub. L. 107-16, Secs. 613(a)(1)(C),
901, temporarily redesignated cls. (iii) and (iv) as (ii) and
(iii), respectively, and struck out former cl. (ii) which read as
follows: "1 of the 10 employees having annual compensation from the
employer of more than the limitation in effect under section
415(c)(1)(A) and owning (or considered as owning within the meaning
of section 318) the largest interests in the employer,". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (i)(1)(B)(iii). Pub. L. 107-16, Secs. 613(a)(2), 901,
temporarily struck out "and subparagraph (A)(ii)" after "this
subparagraph" in introductory provisions. See Effective and
Termination Dates of 2001 Amendment note below.
1996 - Subsec. (g)(4)(G). Pub. L. 104-188, Sec. 1421(b)(7), added
subpar. (G).
Subsec. (h). Pub. L. 104-188, Sec. 1452(c)(7), struck out subsec.
(h) which related to adjustments in section 415 limits for top-
heavy plans.
Subsec. (i)(1)(A). Pub. L. 104-188, Sec. 1431(c)(1)(C),
substituted "section 414(q)(5)" for "section 414(q)(8)" in closing
provisions.
Subsec. (i)(1)(D). Pub. L. 104-188, Sec. 1431(c)(1)(B),
substituted "section 414(q)(4)" for "section 414(q)(7)".
1988 - Subsec. (i)(1)(A). Pub. L. 100-647, Sec. 1011(i)(4)(B),
inserted at end "For purposes of determining the number of officers
taken into account under clause (i), employees described in section
414(q)(8) shall be excluded."
Subsec. (i)(1)(A)(i). Pub. L. 100-647, Sec. 1011(d)(8),
substituted "50" for "150" and "415(b)(1)(A)" for "415(c)(1)(A)".
Subsec. (i)(1)(D). Pub. L. 100-647, Sec. 1011(j)(3)(A), added
subpar. (D).
1986 - Subsec. (a)(3). Pub. L. 99-514, Sec. 1106(d)(3)(A), struck
out par. (3) which read as follows: "the limitation on compensation
requirement of subsection (d)."
Subsec. (c)(2)(B)(ii), (iii). Pub. L. 99-514, Sec.
1106(d)(3)(B)(ii), redesignated cl. (iii) as (ii) and struck out
former cl. (ii) which read as follows: "Determination of
percentage. - The determination referred to in clause (i) shall be
determined for each key employee by dividing the contributions for
such employee by so much of his total compensation for the year as
does not exceed $200,000."
Subsec. (d). Pub. L. 99-514, Sec. 1106(d)(3)(B)(i), repealed
subsec. (d) which provided for a $200,000 limitation on the amount
of annual compensation of each employee taken into account.
Subsec. (g)(4)(E). Pub. L. 99-514, Sec. 1852(d)(2), amended
subpar. (E) generally. Prior to amendment, subpar. (E) read as
follows: "If any individual has not received any compensation from
any employer maintaining the plan (other than benefits under the
plan) at any time during the 5-year period ending on the
determination date, any accrued benefit for such individual (and
the account of such individual) shall not be taken into account."
Subsec. (g)(4)(F). Pub. L. 99-514, Sec. 1118(a), added subpar.
(F).
Subsec. (i)(1)(A). Pub. L. 99-514, Sec. 1852(d)(1), inserted at
end "Such term shall not include any officer or employee of an
entity referred to in section 414(d) (relating to governmental
plans)."
1984 - Subsec. (c)(2)(C). Pub. L. 98-369, Sec. 524(c)(1), struck
out subpar. (C) which provided that for purposes of this paragraph,
any employer contribution attributable to a salary reduction or
similar arrangement shall not be taken into account.
Subsec. (d)(2). Pub. L. 98-369, Sec. 713(f)(5)(A), inserted "at
the same time and".
Subsec. (f). Pub. L. 98-369, Sec. 713(f)(6)(A), substituted
"required" for "require".
Subsec. (g)(3). Pub. L. 98-369, Sec. 713(f)(4), inserted at end
"The preceding sentence shall also apply to distributions under a
terminated plan which if it had not been terminated would have been
required to be included in an aggregation group."
Subsec. (g)(4)(E). Pub. L. 98-369, Sec. 524(b)(1), added subpar.
(E).
Subsec. (i)(1)(A). Pub. L. 98-369, Sec. 713(f)(1)(A), (C),
substituted in provisions preceding cl. (i) "an employee" for "any
participant in an employer plan" and inserted at end thereof
provision for treatment of an employee with the greater annual
compensation as having a larger interest in the employer where, for
purposes of cl. (ii), 2 employees have the same interest in the
employer.
Subsec. (i)(1)(A)(i). Pub. L. 98-369, Sec. 524(a)(1), inserted
"having an annual compensation greater than 150 percent of the
amount in effect under section 415(c)(1)(A) for any plan year".
Subsec. (i)(1)(A)(ii). Pub. L. 98-369, Sec. 713(f)(1)(B),
required a key employee to have annual compensation from the
employer of more than the limitation in effect under section
415(c)(1)(A).
Subsec. (i)(1)(B)(iii). Pub. L. 98-369, Sec. 713(f)(6)(B),
substituted subparagraph "(A)(ii)" for "(A)(ii)(II)".
Subsec. (i)(1)(C). Pub. L. 98-369, Sec. 713(f)(1)(A), substituted
in heading "ownership in the employer" for "5-percent or 1-percent
owners".
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title VI, Sec. 613(f), June 7, 2001, 115 Stat.
102, provided that: "The amendments made by this section [amending
this section] shall apply to years beginning after December 31,
2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1421(b)(7) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1996, see section 1421(e) of
Pub. L. 104-188, set out as a note under section 72 of this title.
Amendment by section 1431(c)(1)(B), (C) of Pub. L. 104-188
applicable to years beginning after Dec. 31, 1996, except that in
determining whether an employee is a highly compensated employee
for years beginning in 1997, such amendment to be treated as having
been in effect for years beginning in 1996, see section 1431(d)(1)
of Pub. L. 104-188, set out as a note under section 414 of this
title.
Amendment by section 1452(c)(7) of Pub. L. 104-188 applicable to
limitation years beginning after Dec. 31, 1999, see section 1452(d)
of Pub. L. 104-188, set out as a note under section 415 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1011(j)(3)(B) of Pub. L. 100-647 provided that: "The
amendment made by this paragraph [amending this section] shall
apply to years beginning after December 31, 1988."
Amendment by section 1011(d)(8), (i)(4)(B) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1106(d)(3)(A), (B) of Pub. L. 99-514
applicable to benefits accruing in years beginning after Dec. 31,
1988, except as otherwise provided, see section 1106(i)(5) of Pub.
L. 99-514, set out as a note under section 415 of this title.
Section 1118(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to plan
years beginning after December 31, 1986."
Amendment by section 1852(d) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 524(a)(2) of Pub. L. 98-369 provided that: "The amendment
made by this subsection [amending this section] shall apply to plan
years beginning after December 31, 1983."
Section 524(b)(2) of Pub. L. 98-369 provided that: "The amendment
made by this subsection [amending this section] shall apply to plan
years beginning after December 31, 1984."
Section 524(c)(2) of Pub. L. 98-369 provided that: "The amendment
made by this subsection [amending this section] shall apply to plan
years beginning after December 31, 1984."
Amendment by section 713 of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE
Section 241 of Pub. L. 97-248 provided that:
"(a) General Rule. - Except as provided in subsection (b), the
amendments made by this part [part II (Secs. 237-241) of subtitle C
of title II of Pub. L. 97-248, enacting this section, amending
sections 72, 401, 404, 408, 414, 415, and 1379 of this title, and
repealing section 4972 of this title] shall apply to years
beginning after December 31, 1983.
"(b) Allowance of Exclusion of Death Benefit for Self-Employed
Individuals. - The amendment made by section 239 [amending section
101 of this title] shall apply with respect to decedents dying
after December 31, 1983."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 417 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart B - Special Rules
-HEAD-
Sec. 417. Definitions and special rules for purposes of minimum
survivor annuity requirements
-STATUTE-
(a) Election to waive qualified joint and survivor annuity or
qualified preretirement survivor annuity
(1) In general
A plan meets the requirements of section 401(a)(11) only if -
(A) under the plan, each participant -
(i) may elect at any time during the applicable election
period to waive the qualified joint and survivor annuity form
of benefit or the qualified preretirement survivor annuity
form of benefit (or both), and
(ii) may revoke any such election at any time during the
applicable election period, and
(B) the plan meets the requirements of paragraphs (2), (3),
and (4) of this subsection.
(2) Spouse must consent to election
Each plan shall provide that an election under paragraph
(1)(A)(i) shall not take effect unless -
(A)(i) the spouse of the participant consents in writing to
such election, (ii) such election designates a beneficiary (or
a form of benefits) which may not be changed without spousal
consent (or the consent of the spouse expressly permits
designations by the participant without any requirement of
further consent by the spouse), and (iii) the spouse's consent
acknowledges the effect of such election and is witnessed by a
plan representative or a notary public, or
(B) it is established to the satisfaction of a plan
representative that the consent required under subparagraph (A)
may not be obtained because there is no spouse, because the
spouse cannot be located, or because of such other
circumstances as the Secretary may by regulations prescribe.
Any consent by a spouse (or establishment that the consent of a
spouse may not be obtained) under the preceding sentence shall be
effective only with respect to such spouse.
(3) Plan to provide written explanations
(A) Explanation of joint and survivor annuity
Each plan shall provide to each participant, within a
reasonable period of time before the annuity starting date (and
consistent with such regulations as the Secretary may
prescribe), a written explanation of -
(i) the terms and conditions of the qualified joint and
survivor annuity,
(ii) the participant's right to make, and the effect of, an
election under paragraph (1) to waive the joint and survivor
annuity form of benefit,
(iii) the rights of the participant's spouse under
paragraph (2), and
(iv) the right to make, and the effect of, a revocation of
an election under paragraph (1).
(B) Explanation of qualified preretirement survivor annuity
(i) In general
Each plan shall provide to each participant, within the
applicable period with respect to such participant (and
consistent with such regulations as the Secretary may
prescribe), a written explanation with respect to the
qualified preretirement survivor annuity comparable to that
required under subparagraph (A).
(ii) Applicable period
For purposes of clause (i), the term "applicable period"
means, with respect to a participant, whichever of the
following periods ends last:
(I) The period beginning with the first day of the plan
year in which the participant attains age 32 and ending
with the close of the plan year preceding the plan year in
which the participant attains age 35.
(II) A reasonable period after the individual becomes a
participant.
(III) A reasonable period ending after paragraph (5)
ceases to apply to the participant.
(IV) A reasonable period ending after section 401(a)(11)
applies to the participant.
In the case of a participant who separates from service
before attaining age 35, the applicable period shall be a
reasonable period after separation.
(4) Requirement of spousal consent for using plan assets as
security for loans
Each plan shall provide that, if section 401(a)(11) applies to
a participant when part or all of the participant's accrued
benefit is to be used as security for a loan, no portion of the
participant's accrued benefit may be used as security for such
loan unless -
(A) the spouse of the participant (if any) consents in
writing to such use during the 90-day period ending on the date
on which the loan is to be so secured, and
(B) requirements comparable to the requirements of paragraph
(2) are met with respect to such consent.
(5) Special rules where plan fully subsidizes costs
(A) In general
The requirements of this subsection shall not apply with
respect to the qualified joint and survivor annuity form of
benefit or the qualified preretirement survivor annuity form of
benefit, as the case may be, if such benefit may not be waived
(or another beneficiary selected) and if the plan fully
subsidizes the costs of such benefit.
(B) Definition
For purposes of subparagraph (A), a plan fully subsidizes the
costs of a benefit if under the plan the failure to waive such
benefit by a participant would not result in a decrease in any
plan benefits with respect to such participant and would not
result in increased contributions from such participant.
(6) Applicable election period defined
For purposes of this subsection, the term "applicable election
period" means -
(A) in the case of an election to waive the qualified joint
and survivor annuity form of benefit, the 90-day period ending
on the annuity starting date, or
(B) in the case of an election to waive the qualified
preretirement survivor annuity, the period which begins on the
first day of the plan year in which the participant attains age
35 and ends on the date of the participant's death.
In the case of a participant who is separated from service, the
applicable election period under subparagraph (B) with respect to
benefits accrued before the date of such separation from service
shall not begin later than such date.
(7) Special rules relating to time for written explanation
Notwithstanding any other provision of this subsection -
(A) Explanation may be provided after annuity starting date
(i) In general
A plan may provide the written explanation described in
paragraph (3)(A) after the annuity starting date. In any case
to which this subparagraph applies, the applicable election
period under paragraph (6) shall not end before the 30th day
after the date on which such explanation is provided.
(ii) Regulatory authority
The Secretary may by regulations limit the application of
clause (i), except that such regulations may not limit the
period of time by which the annuity starting date precedes
the provision of the written explanation other than by
providing that the annuity starting date may not be earlier
than termination of employment.
(B) Waiver of 30-day period
A plan may permit a participant to elect (with any applicable
spousal consent) to waive any requirement that the written
explanation be provided at least 30 days before the annuity
starting date (or to waive the 30-day requirement under
subparagraph (A)) if the distribution commences more than 7
days after such explanation is provided.
(b) Definition of qualified joint and survivor annuity
For purposes of this section and section 401(a)(11), the term
"qualified joint and survivor annuity" means an annuity -
(1) for the life of the participant with a survivor annuity for
the life of the spouse which is not less than 50 percent of (and
is not greater than 100 percent of) the amount of the annuity
which is payable during the joint lives of the participant and
the spouse, and
(2) which is the actuarial equivalent of a single annuity for
the life of the participant.
Such term also includes any annuity in a form having the effect of
an annuity described in the preceding sentence.
(c) Definition of qualified preretirement survivor annuity
For purposes of this section and section 401(a)(11) -
(1) In general
Except as provided in paragraph (2), the term "qualified
preretirement survivor annuity" means a survivor annuity for the
life of the surviving spouse of the participant if -
(A) the payments to the surviving spouse under such annuity
are not less than the amounts which would be payable as a
survivor annuity under the qualified joint and survivor annuity
under the plan (or the actuarial equivalent thereof) if -
(i) in the case of a participant who dies after the date on
which the participant attained the earliest retirement age,
such participant had retired with an immediate qualified
joint and survivor annuity on the day before the
participant's date of death, or
(ii) in the case of a participant who dies on or before the
date on which the participant would have attained the
earliest retirement age, such participant had -
(I) separated from service on the date of death,
(II) survived to the earliest retirement age,
(III) retired with an immediate qualified joint and
survivor annuity at the earliest retirement age, and
(IV) died on the day after the day on which such
participant would have attained the earliest retirement
age, and
(B) under the plan, the earliest period for which the
surviving spouse may receive a payment under such annuity is
not later than the month in which the participant would have
attained the earliest retirement age under the plan.
In the case of an individual who separated from service before
the date of such individual's death, subparagraph (A)(ii)(I)
shall not apply.
(2) Special rule for defined contribution plans
In the case of any defined contribution plan or participant
described in clause (ii) or (iii) of section 401(a)(11)(B), the
term "qualified preretirement survivor annuity" means an annuity
for the life of the surviving spouse the actuarial equivalent of
which is not less than 50 percent of the portion of the account
balance of the participant (as of the date of death) to which the
participant had a nonforfeitable right (within the meaning of
section 411(a)).
(3) Security interests taken into account
For purposes of paragraphs (1) and (2), any security interest
held by the plan by reason of a loan outstanding to the
participant shall be taken into account in determining the amount
of the qualified preretirement survivor annuity.
(d) Survivor annuities need not be provided if participant and
spouse married less than 1 year
(1) In general
Except as provided in paragraph (2), a plan shall not be
treated as failing to meet the requirements of section 401(a)(11)
merely because the plan provides that a qualified joint and
survivor annuity (or a qualified preretirement survivor annuity)
will not be provided unless the participant and spouse had been
married throughout the 1-year period ending on the earlier of -
(A) the participant's annuity starting date, or
(B) the date of the participant's death.
(2) Treatment of certain marriages within 1 year of annuity
starting date for purposes of qualified joint and survivor
annuities
For purposes of paragraph (1), if -
(A) a participant marries within 1 year before the annuity
starting date, and
(B) the participant and the participant's spouse in such
marriage have been married for at least a 1-year period ending
on or before the date of the participant's death,
such participant and such spouse shall be treated as having been
married throughout the 1-year period ending on the participant's
annuity starting date.
(e) Restrictions on cash-outs
(1) Plan may require distribution if present value not in excess
of dollar limit
A plan may provide that the present value of a qualified joint
and survivor annuity or a qualified preretirement survivor
annuity will be immediately distributed if such value does not
exceed the amount that can be distributed without the
participant's consent under section 411(a)(11). No distribution
may be made under the preceding sentence after the annuity
starting date unless the participant and the spouse of the
participant (or where the participant has died, the surviving
spouse) consents in writing to such distribution.
(2) Plan may distribute benefit in excess of dollar limit only
with consent
If -
(A) the present value of the qualified joint and survivor
annuity or the qualified preretirement survivor annuity exceeds
the amount that can be distributed without the participant's
consent under section 411(a)(11), and
(B) the participant and the spouse of the participant (or
where the participant has died, the surviving spouse) consent
in writing to the distribution,
the plan may immediately distribute the present value of such
annuity.
(3) Determination of present value
(A) In general
(i) Present value
Except as provided in subparagraph (B), for purposes of
paragraphs (1) and (2), the present value shall not be less
than the present value calculated by using the applicable
mortality table and the applicable interest rate.
(ii) Definitions
For purposes of clause (i) -
(I) Applicable mortality table
The term "applicable mortality table" means the table
prescribed by the Secretary. Such table shall be based on
the prevailing commissioners' standard table (described in
section 807(d)(5)(A)) used to determine reserves for group
annuity contracts issued on the date as of which present
value is being determined (without regard to any other
subparagraph of section 807(d)(5)).
(II) Applicable interest rate
The term "applicable interest rate" means the annual rate
of interest on 30-year Treasury securities for the month
before the date of distribution or such other time as the
Secretary may by regulations prescribe.
(B) Exception
In the case of a distribution from a plan that was adopted
and in effect before the date of the enactment of the
Retirement Protection Act of 1994, the present value of any
distribution made before the earlier of -
(i) the later of the date a plan amendment applying
subparagraph (A) is adopted or made effective, or
(ii) the first day of the first plan year beginning after
December 31, 1999,
shall be calculated, for purposes of paragraphs (1) and (2),
using the interest rate determined under the regulations of the
Pension Benefit Guaranty Corporation for determining the
present value of a lump sum distribution on plan termination
that were in effect on September 1, 1993, and using the
provisions of the plan as in effect on the day before such date
of enactment; but only if such provisions of the plan met the
requirements of section 417(e)(3) as in effect on the day
before such date of enactment.
(f) Other definitions and special rules
For purposes of this section and section 401(a)(11) -
(1) Vested participant
The term "vested participant" means any participant who has a
nonforfeitable right (within the meaning of section 411(a)) to
any portion of such participant's accrued benefit.
(2) Annuity starting date
(A) In general
The term "annuity starting date" means -
(i) the first day of the first period for which an amount
is payable as an annuity, or
(ii) in the case of a benefit not payable in the form of an
annuity, the first day on which all events have occurred
which entitle the participant to such benefit.
(B) Special rule for disability benefits
For purposes of subparagraph (A), the first day of the first
period for which a benefit is to be received by reason of
disability shall be treated as the annuity starting date only
if such benefit is not an auxiliary benefit.
(3) Earliest retirement age
The term "earliest retirement age" means the earliest date on
which, under the plan, the participant could elect to receive
retirement benefits.
(4) Plan may take into account increased costs
A plan may take into account in any equitable manner (as
determined by the Secretary) any increased costs resulting from
providing a qualified joint or survivor annuity or a qualified
preretirement survivor annuity.
(5) Distributions by reason of security interests
If the use of any participant's accrued benefit (or any portion
thereof) as security for a loan meets the requirements of
subsection (a)(4), nothing in this section or section 411(a)(11)
shall prevent any distribution required by reason of a failure to
comply with the terms of such loan.
(6) Requirements for certain spousal consents
No consent of a spouse shall be effective for purposes of
subsection (e)(1) or (e)(2) (as the case may be) unless
requirements comparable to the requirements for spousal consent
to an election under subsection (a)(1)(A) are met.
(7) Consultation with the Secretary of Labor
In prescribing regulations under this section and section
401(a)(11), the Secretary shall consult with the Secretary of
Labor.
-SOURCE-
(Added Pub. L. 98-397, title II, Sec. 203(b), Aug. 23, 1984, 98
Stat. 1441; amended Pub. L. 99-514, title XI, Sec. 1139(b), title
XVIII, Sec. 1898(b)(1)(A), (4)(A), (5)(A), (6)(A), (8)(A), (9)(A),
(10)(A), (11)(A), (12)(A), (15)(A), (B), Oct. 22, 1986, 100 Stat.
2487, 2944, 2945, 2947-2951; Pub. L. 100-647, title I, Sec.
1018(u)(9), Nov. 10, 1988, 102 Stat. 3590; Pub. L. 101-239, title
VII, Sec. 7862(d)(1)(A), Dec. 19, 1989, 103 Stat. 2433; Pub. L. 103-
465, title VII, Sec. 767(a)(2), Dec. 8, 1994, 108 Stat. 5038; Pub.
L. 104-188, title I, Sec. 1451(a), Aug. 20, 1996, 110 Stat. 1815;
Pub. L. 105-34, title X, Sec. 1071(a)(2), Aug. 5, 1997, 111 Stat.
948; Pub. L. 107-147, title IV, Sec. 411(r)(1), Mar. 9, 2002, 116
Stat. 51.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Retirement Protection Act of
1994, referred to in subsec. (e)(3)(B), is the date of enactment of
subtitle F (Secs. 750-781) of title VII of Pub. L. 103-465, which
was approved Dec. 8, 1994.
-MISC1-
AMENDMENTS
2002 - Subsec. (e)(1). Pub. L. 107-147, Sec. 411(r)(1)(A),
substituted "exceed the amount that can be distributed without the
participant's consent under section 411(a)(11)" for "exceed the
dollar limit under section 411(a)(11)(A)".
Subsec. (e)(2)(A). Pub. L. 107-147, Sec. 411(r)(1)(B),
substituted "exceeds the amount that can be distributed without the
participant's consent under section 411(a)(11)" for "exceeds the
dollar limit under section 411(a)(11)(A)".
1997 - Subsec. (e)(1), (2). Pub. L. 105-34 substituted "dollar
limit" for "$3,500" in headings of pars. (1) and (2) and "the
dollar limit under section 411(a)(11)(A)" for "$3,500" in text of
pars. (1) and (2)(A).
1996 - Subsec. (a)(7). Pub. L. 104-188 added par. (7).
1994 - Subsec. (e)(3). Pub. L. 103-465 amended par. (3)
generally, substituting present provisions for provisions directing
that present value be calculated by using a rate no greater than
the applicable interest rate or 120 percent of such rate, depending
upon amount of vested accrued benefit, and defining "applicable
interest rate".
1989 - Subsec. (a)(3)(B)(ii). Pub. L. 101-239 added sentence at
end and struck out former subcl. (V) which read as follows: "A
reasonable period after separation from service in case of a
participant who separates before attaining age 35."
1988 - Subsec. (e)(3)(A). Pub. L. 100-647 substituted "clause
(ii)" for "subclause (II)" in last sentence.
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1898(b)(15)(A),
substituted "section 401(a)(11)" for "section 401(a)(ii)".
Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 1898(b)(4)(A)(i),
substituted "paragraphs (2), (3), and (4)" for "paragraphs (2) and
(3)".
Subsec. (a)(2)(A). Pub. L. 99-514, Sec. 1898(b)(6)(A), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "the spouse of the participant consents in writing to such
election, and the spouse's consent acknowledges the effect of such
election and is witnessed by a plan representative or a notary
public, or".
Subsec. (a)(3)(B). Pub. L. 99-514, Sec. 1898(b)(5)(A), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "Each plan shall provide to each participant, within the
period beginning with the first day of the plan year in which the
participant attains age 32 and ending with the close of the plan
year preceding the plan year in which the participant attains age
35 (and consistent with such regulations as the Secretary may
prescribe), a written explanation with respect to the qualified
preretirement survivor annuity comparable to that required under
subparagraph (A)."
Subsec. (a)(4). Pub. L. 99-514, Sec. 1898(b)(4)(A)(ii), added
par. (4). Former par. (4) redesignated (5).
Subsec. (a)(5), (6). Pub. L. 99-514, Sec. 1898(b)(4)(A)(ii),
(11)(A), redesignated former par. (4) as (5) and inserted in
subpar. (A) "if such benefit may not be waived (or another
beneficiary selected) and" before "if the plan". Former par. (5)
redesignated (6).
Subsec. (c)(1). Pub. L. 99-514, Sec. 1898(b)(15)(B), substituted
"survivor annuity for the life of" for "survivor annuity or the
life of".
Pub. L. 99-514, Sec. 1898(b)(1)(A), inserted "In the case of an
individual who separated from service before the date of such
individual's death, subparagraph (A)(ii)(I) shall not apply."
Subsec. (c)(2). Pub. L. 99-514, Sec. 1898(b)(9)(A)(i),
substituted "the portion of the account balance of the participant
(as of the date of death) to which the participant had a
nonforfeitable right (within the meaning of section 411(a))" for
"the account balance of the participant as of the date of death".
Subsec. (c)(3). Pub. L. 99-514, Sec. 1898(b)(9)(A)(ii), added
par. (3).
Subsec. (e)(3). Pub. L. 99-514, Sec. 1139(b), amended par. (3)
generally. Prior to amendment, par. (3) read as follows: "For
purposes of paragraphs (1) and (2), the present value of a
qualified joint and survivor annuity or a qualified preretirement
survivor annuity shall be determined as of the date of the
distribution and by using an interest rate not greater than the
interest rate which would be used (as of the date of the
distribution) by the Pension Benefit Guaranty Corporation for
purposes of determining the present value of a lump sum
distribution on plan termination."
Subsec. (f)(1). Pub. L. 99-514, Sec. 1898(b)(8)(A), substituted
"such participant's accrued benefit" for "the accrued benefit
derived from employer contributions".
Subsec. (f)(2). Pub. L. 99-514, Sec. 1898(b)(12)(A), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "The
term 'annuity starting date' means the first day of the first
period for which an amount is received as an annuity (whether by
reason of retirement or disability)."
Subsec. (f)(5). Pub. L. 99-514, Sec. 1898(b)(4)(A)(iii), added
par. (5) and redesignated former par. (5) as (6).
Subsec. (f)(6), (7). Pub. L. 99-514, Sec. 1898(b)(10)(A), added
par. (6) and redesignated former par. (6) as (7).
Pub. L. 99-514, Sec. 1898(b)(4)(A)(iii), redesignated former par.
(5) as (6).
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to plan years beginning
after Aug. 5, 1997, see section 1071(c) of Pub. L. 105-34, set out
as a note under section 411 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1451(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and section 1055 of
Title 29, Labor] shall apply to plan years beginning after December
31, 1996."
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-465 applicable to plan years and
limitation years beginning after Dec. 31, 1994, except that
employer may elect to treat such amendment as effective on or after
Dec. 8, 1994, with provisions relating to reduction of accrued
benefits, exception, and timing of plan amendment, see section
767(d) of Pub. L. 103-465, as amended, set out as a note under
section 411 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 7863 of Pub. L. 101-239, set
out as a note under section 106 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1139(b) of Pub. L. 99-514 applicable to
distributions in plan years beginning after Dec. 31, 1984, except
that such amendments shall not apply to any distributions in plan
years beginning after Dec. 31, 1984, and before Jan. 1, 1987, if
such distributions were made in accordance with the requirements of
the regulations issued under the Retirement Equity Act of 1984,
Pub. L. 98-397, with additional provisions relating to reductions
in accrued benefits, see section 1139(d) of Pub. L. 99-514, set out
as a note under section 411 of this title.
Section 1898(b)(4)(C) of Pub. L. 99-514 provided that:
"(i) The amendments made by this paragraph [amending this section
and section 1055 of Title 29, Labor] shall apply with respect to
loans made after August 18, 1985.
"(ii) In the case of any loan which was made on or before August
18, 1985, and which is secured by a portion of the participant's
accrued benefit, nothing in the amendments made by sections 103 and
203 of the Retirement Equity Act of 1984 [sections 103 and 203 of
Pub. L. 98-397, enacting this section and amending section 401 of
this title and section 1055 of Title 29] shall prevent any
distribution required by reason of a failure to comply with the
terms of such loan.
"(iii) For purposes of this subparagraph, any loan which is
revised, extended, renewed, or renegotiated after August 18, 1985,
shall be treated as made after August 18, 1985.
Section 1898(b)(6)(C) of Pub. L. 99-514 provided that: "The
amendments made by this paragraph [amending this section and
section 1055 of Title 29, Labor] shall apply to plan years
beginning after the date of the enactment of this Act [Oct. 22,
1986]."
Section 1898(b)(8)(C) of Pub. L. 99-514, as added by Pub. L. 101-
239, title VII, Sec. 7862(d)(2), Dec. 19, 1989, 103 Stat. 2434,
provided that: "The amendments made by this paragraph [amending
this section and section 1055 of Title 29, Labor] shall apply to
distributions after the date of the enactment of this Act [Oct. 22,
1986]."
Amendment by section 1898(b)(1)(A), (5)(A), (9)(A), (10)(A),
(11)(A), (12)(A), (15)(A), (B) of Pub. L. 99-514 effective as if
included in the provision of the Retirement Equity Act of 1984,
Pub. L. 98-397, to which such amendment relates, except as
otherwise provided, see section 1898(j) of Pub. L. 99-514, set out
as a note under section 401 of this title.
EFFECTIVE DATE
Section applicable to plan years beginning after Dec. 31, 1984,
except as otherwise provided, see sections 302 and 303 of Pub. L.
98-397, set out as an Effective Date of 1984 Amendment note under
section 1001 of Title 29, Labor.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Subpart C - Special Rules for Multiemployer Plans 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart C - Special Rules for Multiemployer Plans
-HEAD-
SUBPART C - SPECIAL RULES FOR MULTIEMPLOYER PLANS
-MISC1-
Sec.
418. Reorganization status.
418A. Notice of reorganization and funding requirements.
418B. Minimum contribution requirement.
418C. Overburden credit against minimum contribution
requirement.
418D. Adjustments in accrued benefits.
418E. Insolvent plans.
AMENDMENTS
1980 - Pub. L. 96-364, title II, Sec. 202(a), Sept. 26, 1980, 94
Stat. 1271, added subpart C heading "Special Rules for
Multiemployer Plans" and items 418 to 418E.
-End-
-CITE-
26 USC Sec. 418 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart C - Special Rules for Multiemployer Plans
-HEAD-
Sec. 418. Reorganization status
-STATUTE-
(a) General rule
A multiemployer plan is in reorganization for a plan year if the
plan's reorganization index for that year is greater than zero.
(b) Reorganization index
For purposes of this subpart -
(1) In general
A plan's reorganization index for any plan year is the excess
of -
(A) the vested benefits charge for such year, over
(B) the net charge to the funding standard account for such
year.
(2) Net charge to funding standard account
The net charge to the funding standard account for any plan
year is the excess (if any) of -
(A) the charges to the funding standard account for such year
under section 412(b)(2), over
(B) the credits to the funding standard account under section
412(b)(3)(B).
(3) Vested benefits charge
The vested benefits charge for any plan year is the amount
which would be necessary to amortize the plan's unfunded vested
benefits as of the end of the base plan year in equal annual
installments -
(A) over 10 years, to the extent such benefits are
attributable to persons in pay status, and
(B) over 25 years, to the extent such benefits are
attributable to other participants.
(4) Determination of vested benefits charge
(A) In general
The vested benefits charge for a plan year shall be based on
an actuarial valuation of the plan as of the end of the base
plan year, adjusted to reflect -
(i) any -
(I) decrease of 5 percent or more in the value of plan
assets, or increase of 5 percent or more in the number of
persons in pay status, during the period beginning on the
first day of the plan year following the base plan year and
ending on the adjustment date, or
(II) at the election of the plan sponsor, actuarial
valuation of the plan as of the adjustment date or any
later date not later than the last day of the plan year for
which the determination is being made,
(ii) any change in benefits under the plan which is not
otherwise taken into account under this subparagraph and
which is pursuant to any amendment -
(I) adopted before the end of the plan year for which the
determination is being made, and
(II) effective after the end of the base plan year and on
or before the end of the plan year referred to in subclause
(I), and
(iii) any other event (including an event described in
subparagraph (B)(i)(I)) which, as determined in accordance
with regulations prescribed by the Secretary, would
substantially increase the plan's vested benefit charge.
(B) Certain changes in benefit levels
(i) In general
In determining the vested benefits charge for a plan year
following a plan year in which the plan was not in
reorganization, any change in benefits which -
(I) results from the changing of a group of participants
from one benefit level to another benefit level under a
schedule of plan benefits as a result of changes in a
collective bargaining agreement, or
(II) results from any other change in a collective
bargaining agreement,
shall not be taken into account except to the extent provided
in regulations prescribed by the Secretary.
(ii) Plan in reorganization
Except as otherwise determined by the Secretary, in
determining the vested benefits charge for any plan year
following any plan year in which the plan was in
reorganization, any change in benefits -
(I) described in clause (i)(I), or
(II) described in clause (i)(II) as determined under
regulations prescribed by the Secretary,
shall, for purposes of subparagraph (A)(ii), be treated as a
change in benefits pursuant to an amendment to a plan.
(5) Base plan year
(A) In general
The base plan year for any plan year is -
(i) if there is a relevant collective bargaining agreement,
the last plan year ending at least 6 months before the
relevant effective date, or
(ii) if there is no relevant collective bargaining
agreement, the last plan year ending at least 12 months
before the beginning of the plan year.
(B) Relevant collective bargaining agreement
A relevant collective bargaining agreement is a collective
bargaining agreement -
(i) which is in effect for at least 6 months during the
plan year, and
(ii) which has not been in effect for more than 36 months
as of the end of the plan year.
(C) Relevant effective date
The relevant effective date is the earliest of the effective
dates for the relevant collective bargaining agreements.
(D) Adjustment date
The adjustment date is the date which is -
(i) 90 days before the relevant effective date, or
(ii) if there is no relevant effective date, 90 days before
the beginning of the plan year.
(6) Person in pay status
The term "person in pay status" means -
(A) a participant or beneficiary on the last day of the base
plan year who, at any time during such year, was paid an early,
late, normal, or disability retirement benefit (or a death
benefit related to a retirement benefit), and
(B) to the extent provided in regulations prescribed by the
Secretary, any other person who is entitled to such a benefit
under the plan.
(7) Other definitions and special rules
(A) Unfunded vested benefits
The term "unfunded vested benefits" means, in connection with
a plan, an amount (determined in accordance with regulations
prescribed by the Secretary) equal to -
(i) the value of vested benefits under the plan, less
(ii) the value of the assets of the plan.
(B) Vested benefits
The term "vested benefits" means any nonforfeitable benefit
(within the meaning of section 4001(a)(8) of the Employee
Retirement Income Security Act of 1974).
(C) Allocation of assets
In determining the plan's unfunded vested benefits, plan
assets shall first be allocated to the vested benefits
attributable to persons in pay status.
(D) Treatment of certain benefit reductions
The vested benefits charge shall be determined without regard
to reductions in accrued benefits under section 418D which are
first effective in the plan year.
(E) Withdrawal liability
For purposes of this part, any outstanding claim for
withdrawal liability shall not be considered a plan asset,
except as otherwise provided in regulations prescribed by the
Secretary.
(c) Prohibition of nonannuity payments
Except as provided in regulations prescribed by the Pension
Benefit Guaranty Corporation, while a plan is in reorganization a
benefit with respect to a participant (other than a death benefit)
which is attributable to employer contributions and which has a
value of more than $1,750 may not be paid in a form other than an
annuity which (by itself or in combination with social security,
railroad retirement, or workers' compensation benefits) provides
substantially level payments over the life of the participant.
(d) Terminated plans
Any multiemployer plan which terminates under section 4041A(a)(2)
of the Employee Retirement Income Security Act of 1974 shall not be
considered in reorganization after the last day of the plan year in
which the plan is treated as having terminated.
-SOURCE-
(Added Pub. L. 96-364, title II, Sec. 202(a), Sept. 26, 1980, 94
Stat. 1271.)
-REFTEXT-
REFERENCES IN TEXT
Section 4001(a)(8) of the Employee Retirement Income Security Act
of 1974, referred to in subsec. (b)(7)(B), is classified to section
1301(a)(8) of Title 29, Labor.
Section 4041A(a)(2) of the Employee Retirement Income Security
Act of 1974, referred to in subsec. (d), is classified to section
1341a(a)(2) of Title 29.
-MISC1-
EFFECTIVE DATE
Section 210 of title II of Pub. L. 96-364 provided that:
"(a) Except as otherwise provided in this section, the amendments
made by this title [amending sections 401, 404, 411 to 414, 4971,
and 4975 of this title] shall take effect on the date of the
enactment of this Act [Sept. 26, 1980].
"(b) Subpart C of part I of subchapter D of chapter 1 of such
Code (as added by this Act) [sections 418 to 418E of this title]
shall take effect, with respect to each plan, on the first day of
the first plan year beginning on or after the earlier of -
"(1) the date on which the last collective-bargaining agreement
providing for employer contributions under the plan, which was in
effect on the date of the enactment of this Act [Sept. 26, 1980],
expires, without regard to extensions agreed to after such date
of enactment, or
"(2) 3 years after the date of the enactment of this Act [Sept.
26, 1980].
"(c) The amendments made by section 209 [enacting section 194 of
this title, and amending sections 501 and 4975 of this title] shall
apply to taxable years ending after the date of the enactment of
this Act [Sept. 26, 1980]."
-End-
-CITE-
26 USC Sec. 418A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart C - Special Rules for Multiemployer Plans
-HEAD-
Sec. 418A. Notice of reorganization and funding requirements
-STATUTE-
(a) Notice requirement
(1) In general
If -
(A) a multiemployer plan is in reorganization for a plan
year, and
(B) section 418B would require an increase in contributions
for such plan year,
the plan sponsor shall notify the persons described in paragraph
(2) that the plan is in reorganization and that, if contributions
to the plan are not increased, accrued benefits under the plan
may be reduced or an excise tax may be imposed (or both such
reduction and imposition may occur).
(2) Persons to whom notice is to be given
The persons described in this paragraph are -
(A) each employer who has an obligation to contribute under
the plan (within the meaning of section 4212(a) of the Employee
Retirement Income Security Act of 1974), and
(B) each employee organization which, for purposes of
collective bargaining, represents plan participants employed by
such an employer.
(3) Overburden credit not taken into account
The determination under paragraph (1)(B) shall be made without
regard to the overburden credit provided by section 418C.
(b) Additional requirements
The Pension Benefit Guaranty Corporation may prescribe additional
or alternative requirements for assuring, in the case of a plan
with respect to which notice is required by subsection (a)(1), that
the persons described in subsection (a)(2) -
(1) receive appropriate notice that the plan is in
reorganization,
(2) are adequately informed of the implications of
reorganization status, and
(3) have reasonable access to information relevant to the
plan's reorganization status.
-SOURCE-
(Added Pub. L. 96-364, title II, Sec. 202(a), Sept. 26, 1980, 94
Stat. 1274.)
-REFTEXT-
REFERENCES IN TEXT
Section 4212(a) of the Employee Retirement Income Security Act of
1974, referred to in subsec. (a)(2)(A), is classified to section
1392(a) of Title 29, Labor.
-End-
-CITE-
26 USC Sec. 418B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart C - Special Rules for Multiemployer Plans
-HEAD-
Sec. 418B. Minimum contribution requirement
-STATUTE-
(a) Accumulated funding deficiency in reorganization
(1) In general
For any plan year in which a multiemployer plan is in
reorganization -
(A) the plan shall continue to maintain its funding standard
account, and
(B) the plan's accumulated funding deficiency under section
412(a) for such plan year shall be equal to the excess (if any)
of -
(i) the sum of the minimum contribution requirement for
such plan year (taking into account any overburden credit
under section 418C(a)) plus the plan's accumulated funding
deficiency for the preceding plan year (determined under this
section if the plan was in reorganization during such plan
year or under section 412(a) if the plan was not in
reorganization), over
(ii) amounts considered contributed by employers to or
under the plan for the plan year (increased by any amount
waived under subsection (f) for the plan year).
(2) Treatment of withdrawal liability payments
For purposes of paragraph (1), withdrawal liability payments
(whether or not received) which are due with respect to
withdrawals before the end of the base plan year shall be
considered amounts contributed by the employer to or under the
plan if, as of the adjustment date, it was reasonable for the
plan sponsor to anticipate that such payments would be made
during the plan year.
(b) Minimum contribution requirement
(1) In general
Except as otherwise provided in this section for purposes of
this subpart the minimum contribution requirement for a plan year
in which a plan is in reorganization is an amount equal to the
excess of -
(A) the sum of -
(i) the plan's vested benefits charge for the plan year;
and
(ii) the increase in normal cost for the plan year
determined under the entry age normal funding method which is
attributable to plan amendments adopted while the plan was in
reorganization, over
(B) the amount of the overburden credit (if any) determined
under section 418C for the plan year.
(2) Adjustment for reductions in contribution base units
If the plan's current contribution base for the plan year is
less than the plan's valuation contribution base for the plan
year, the minimum contribution requirement for such plan year
shall be equal to the product of the amount determined under
paragraph (1) (after any adjustment required by this subpart
other than this paragraph) multiplied by a fraction -
(A) the numerator of which is the plan's current contribution
base for the plan year, and
(B) the denominator of which is the plan's valuation
contribution base for the plan year.
(3) Special rule where cash-flow amount exceeds vested benefits
charge
(A) In general
If the vested benefits charge for a plan year of a plan in
reorganization is less than the plan's cash-flow amount for the
plan year, the plan's minimum contribution requirement for the
plan year is the amount determined under paragraph (1)
(determined before the application of paragraph (2)) after
substituting the term "cash-flow amount" for the term "vested
benefits charge" in paragraph (1)(A).
(B) Cash-flow amount
For purposes of subparagraph (A), a plan's cash-flow amount
for a plan year is an amount equal to -
(i) the amount of the benefits payable under the plan for
the base plan year, plus the amount of the plan's
administrative expenses for the base plan year, reduced by
(ii) the value of the available plan assets for the base
plan year determined under regulations prescribed by the
Secretary,
adjusted in a manner consistent with section 418(b)(4).
(c) Current contribution base; valuation contribution base
(1) Current contribution base
For purposes of this subpart, a plan's current contribution
base for a plan year is the number of contribution base units
with respect to which contributions are required to be made under
the plan for that plan year, determined in accordance with
regulations prescribed by the Secretary.
(2) Valuation contribution base
(A) In general
Except as provided in subparagraph (B), for purposes of this
subpart a plan's valuation contribution base is the number of
contribution base units for which contributions were received
for the base plan year -
(i) adjusted to reflect declines in the contribution base
which have occurred (or could reasonably be anticipated) as
of the adjustment date for the plan year referred to in
paragraph (1),
(ii) adjusted upward (in accordance with regulations
prescribed by the Secretary) for any contribution base
reduction in the base plan year caused by a strike or lockout
or by unusual events, such as fire, earthquake, or severe
weather conditions, and
(iii) adjusted (in accordance with regulations prescribed
by the Secretary) for reductions in the contribution base
resulting from transfers of liabilities.
(B) Insolvent plans
For any plan year -
(i) in which the plan is insolvent (within the meaning of
section 418E(b)(1)), and
(ii) beginning with the first plan year beginning after the
expiration of all relevant collective bargaining agreements
which were in effect in the plan year in which the plan
became insolvent,
the plan's valuation contribution base is the greater of the
number of contribution base units for which contributions were
received for the first or second plan year preceding the first
plan year in which the plan is insolvent, adjusted as provided
in clause (ii) or (iii) of subparagraph (A).
(3) Contribution base unit
For purposes of this subpart, the term "contribution base unit"
means a unit with respect to which an employer has an obligation
to contribute under a multiemployer plan (as defined in
regulations prescribed by the Secretary).
(d) Limitation on required increases in rate of employer
contributions
(1) In general
Under regulations prescribed by the Secretary, the minimum
contribution requirement applicable to any plan for any plan year
which is determined under subsection (b) (without regard to
subsection (b)(2)) shall not exceed an amount which is equal to
the sum of -
(A) the greater of -
(i) the funding standard requirement for such plan year, or
(ii) 107 percent of -
(I) if the plan was not in reorganization in the
preceding plan year, the funding standard requirement for
such preceding plan year, or
(II) if the plan was in reorganization in the preceding
plan year, the sum of the amount determined under this
subparagraph for the preceding plan year and the amount (if
any) determined under subparagraph (B) for the preceding
plan year, plus
(B) if for the plan year a change in benefits is first
required to be considered in computing the charges under
section 412(b)(2)(A) or (B), the sum of -
(i) the increase in normal cost for a plan year determined
under the entry age normal funding method due to increases in
benefits described in section 418(b)(4)(A)(ii) (determined
without regard to section 418(b)(4)(B)(ii)), and
(ii) the amount necessary to amortize in equal annual
installments the increase in the value of vested benefits
under the plan due to increases in benefits described in
clause (i) over -
(I) 10 years, to the extent such increase in value is
attributable to persons in pay status, or
(II) 25 years, to the extent such increase in value is
attributable to other participants.
(2) Funding standard requirement
For purposes of paragraph (1), the funding standard requirement
for any plan year is an amount equal to the net charge to the
funding standard account for such plan year (as defined in
section 418(b)(2)).
(3) Special rule for certain plans
(A) In general
In the case of a plan described in section 4216(b) of the
Employee Retirement Income Security Act of 1974, if a plan
amendment which increases benefits is adopted after January 1,
1980 -
(i) paragraph (1) shall apply only if the plan is a plan
described in subparagraph (B), and
(ii) the amount under paragraph (1) shall be determined
without regard to subparagraph (1)(B).
(B) Eligible plans
A plan is described in this subparagraph if -
(i) the rate of employer contributions under the plan for
the first plan year beginning on or after the date on which
an amendment increasing benefits is adopted, multiplied by
the valuation contribution base for that plan year, equals or
exceeds the sum of -
(I) the amount that would be necessary to amortize fully,
in equal annual installments, by July 1, 1986, the unfunded
vested benefits attributable to plan provisions in effect
on July 1, 1977 (determined as of the last day of the base
plan year); and
(II) the amount that would be necessary to amortize
fully, in equal annual installments, over the period
described in subparagraph (C), beginning with the first day
of the first plan year beginning on or after the date on
which the amendment is adopted, the unfunded vested
benefits (determined as of the last day of the base plan
year) attributable to each plan amendment after July 1,
1977; and
(ii) the rate of employer contributions for each subsequent
plan year is not less than the lesser of -
(I) the rate which when multiplied by the valuation
contribution base for that subsequent plan year produces
the annual amount that would be necessary to complete the
amortization schedule described in clause (i), or
(II) the rate for the plan year immediately preceding
such subsequent plan year, plus 5 percent of such rate.
(C) Period
The period determined under this subparagraph is the lesser
of -
(i) 12 years, or
(ii) a period equal in length to the average of the
remaining expected lives of all persons receiving benefits
under the plan.
(4) Exception in case of certain benefit increases
Paragraph (1) shall not apply with respect to a plan, other
than a plan described in paragraph (3), for the period of
consecutive plan years in each of which the plan is in
reorganization, beginning with a plan year in which occurs the
earlier of the date of the adoption or the effective date of any
amendment of the plan which increases benefits with respect to
service performed before the plan year in which the adoption of
the amendment occurred.
(e) Certain retroactive plan amendments
In determining the minimum contribution requirement with respect
to a plan for a plan year under subsection (b), the vested benefits
charge may be adjusted to reflect a plan amendment reducing
benefits under section 412(c)(8).
(f) Waiver of accumulated funding deficiency
(1) In general
The Secretary may waive any accumulated funding deficiency
under this section in accordance with the provisions of section
412(d)(1).
(2) Treatment of waiver
Any waiver under paragraph (1) shall not be treated as a waived
funding deficiency (within the meaning of section 412(d)(3)).
(g) Actuarial assumptions must be reasonable
For purposes of making any determination under this subpart, the
requirements of section 412(c)(3) shall apply.
-SOURCE-
(Added Pub. L. 96-364, title II, Sec. 202(a), Sept. 26, 1980, 94
Stat. 1274.)
-REFTEXT-
REFERENCES IN TEXT
Section 4216(b) of the Employee Retirement Income Security Act of
1974, referred to in subsec. (d)(3)(A), is classified to section
1396(b) of Title 29, Labor.
-End-
-CITE-
26 USC Sec. 418C 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart C - Special Rules for Multiemployer Plans
-HEAD-
Sec. 418C. Overburden credit against minimum contribution
requirement
-STATUTE-
(a) General rule
For purposes of determining the contribution under section 418B
(before the application of section 418B(b)(2) or (d)), the plan
sponsor of a plan which is overburdened for the plan year shall
apply an overburden credit against the plan's minimum contribution
requirement for the plan year (determined without regard to section
418B(b)(2) or (d) and without regard to this section).
(b) Definition of overburdened plan
A plan is overburdened for a plan year if -
(1) the average number of pay status participants under the
plan in the base plan year exceeds the average of the number of
active participants in the base plan year and the 2 plan years
preceding the base plan year, and
(2) the rate of employer contributions under the plan equals or
exceeds the greater of -
(A) such rate for the preceding plan year, or
(B) such rate for the plan year preceding the first year in
which the plan is in reorganization.
(c) Amount of overburden credit
The amount of the overburden credit for a plan year is the
product of -
(1) one-half of the average guaranteed benefit paid for the
base plan year, and
(2) the overburden factor for the plan year.
The amount of the overburden credit for a plan year shall not
exceed the amount of the minimum contribution requirement for such
year (determined without regard to this section).
(d) Overburden factor
For purposes of this section, the overburden factor of a plan for
the plan year is an amount equal to -
(1) the average number of pay status participants for the base
plan year, reduced by
(2) the average of the number of active participants for the
base plan year and for each of the 2 plan years preceding the
base plan year.
(e) Definitions
For purposes of this section -
(1) Pay status participant
The term "pay status participant" means, with respect to a
plan, a participant receiving retirement benefits under the plan.
(2) Number of active participants
The number of active participants for a plan year shall be the
sum of -
(A) the number of active employees who are participants in
the plan and on whose behalf contributions are required to be
made during the plan year;
(B) the number of active employees who are not participants
in the plan but who are in an employment unit covered by a
collective bargaining agreement which requires the employees'
employer to contribute to the plan unless service in such
employment unit was never covered under the plan or a
predecessor thereof, and
(C) the total number of active employees attributed to
employers who made payments to the plan for the plan year of
withdrawal liability pursuant to part 1 of subtitle E of title
IV of the Employee Retirement Income Security Act of 1974,
determined by dividing -
(i) the total amount of such payments, by
(ii) the amount equal to the total contributions received
by the plan during the plan year divided by the average
number of active employees who were participants in the plan
during the plan year.
The Secretary shall by regulations provide alternative methods of
determining active participants where (by reason of irregular
employment, contributions on a unit basis, or otherwise) this
paragraph does not yield a representative basis for determining
the credit.
(3) Average number
The term "average number" means, with respect to pay status
participants for a plan year, a number equal to one-half the sum
of -
(A) the number with respect to the plan as of the beginning
of the plan year, and
(B) the number with respect to the plan as of the end of the
plan year.
(4) Average guaranteed benefit
The average guaranteed benefit paid is 12 times the average
monthly pension payment guaranteed under section 4022A(c)(1) of
the Employee Retirement Income Security Act of 1974 determined
under the provisions of the plan in effect at the beginning of
the first plan year in which the plan is in reorganization and
without regard to section 4022A(c)(2).
(5) First year in reorganization
The first year in which the plan is in reorganization is the
first of a period of 1 or more consecutive plan years in which
the plan has been in reorganization not taking into account any
plan years the plan was in reorganization prior to any period of
3 or more consecutive plan years in which the plan was not in
reorganization.
(f) No overburden credit in case of certain reductions in
contributions
(1) In general
Notwithstanding any other provision of this section, a plan is
not eligible for an overburden credit for a plan year if the
Secretary finds that the plan's current contribution base for any
plan year was reduced, without a corresponding reduction in the
plan's unfunded vested benefits attributable to pay status
participants, as a result of a change in an agreement providing
for employer contributions under the plan.
(2) Treatment of certain withdrawals
For purposes of paragraph (1), a complete or partial withdrawal
of an employer (within the meaning of part 1 of subtitle E of
title IV of the Employee Retirement Income Security Act of 1974)
does not impair a plan's eligibility for an overburden credit,
unless the Secretary finds that a contribution base reduction
described in paragraph (1) resulted from a transfer of
liabilities to another plan in connection with the withdrawal.
(g) Mergers
Notwithstanding any other provision of this section, if 2 or more
multiemployer plans merge, the amount of the overburden credit
which may be applied under this section with respect to the plan
resulting from the merger for any of the 3 plan years ending after
the effective date of the merger shall not exceed the sum of the
used overburden credit for each of the merging plans for its last
plan year ending before the effective date of the merger. For
purposes of the preceding sentence, the used overburden credit is
that portion of the credit which does not exceed the excess of the
minimum contribution requirement determined without regard to any
overburden credit under this section over the employer
contributions required under the plan.
-SOURCE-
(Added Pub. L. 96-364, title II, Sec. 202(a), Sept. 26, 1980, 94
Stat. 1278.)
-REFTEXT-
REFERENCES IN TEXT
The Employee Retirement Income Security Act of 1974, referred to
in subsecs. (e)(2)(C), (4), and (f)(2), is Pub. L. 93-406, Sept. 2,
1974, 88 Stat. 829, as amended. Part 1 of subtitle E of title IV of
the Employee Retirement Income Security Act of 1974 is classified
generally to part 1 (Sec. 1381 et seq.) of subtitle E of subchapter
III of chapter 18 of Title 29, Labor. Section 4022A of the Employee
Retirement Income Security Act of 1974 is classified to section
1322a of Title 29. For complete classification of this Act to the
Code, see Short Title note set out under section 1001 of Title 29
and Tables.
-End-
-CITE-
26 USC Sec. 418D 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart C - Special Rules for Multiemployer Plans
-HEAD-
Sec. 418D. Adjustments in accrued benefits
-STATUTE-
(a) Adjustments in accrued benefits
(1) In general
Notwithstanding section 411, a multiemployer plan in
reorganization may be amended, in accordance with this section,
to reduce or eliminate accrued benefits attributable to employer
contributions which, under section 4022A(b) of the Employee
Retirement Income Security Act of 1974, are not eligible for the
Pension Benefit Guaranty Corporation's guarantee. The preceding
sentence shall only apply to accrued benefits under plan
amendments (or plans) adopted after March 26, 1980, or under
collective bargaining agreement entered into after March 26,
1980.
(2) Adjustment of vested benefits charge
In determining the minimum contribution requirement with
respect to a plan for a plan year under section 418B(b), the
vested benefits charge may be adjusted to reflect a plan
amendment reducing benefits under this section or section
412(c)(8), but only if the amendment is adopted and effective no
later than 2 1/2 months after the end of the plan year, or
within such extended period as the Secretary may prescribe by
regulations under section 412(c)(10).
(b) Limitation on reduction
(1) In general
Accrued benefits may not be reduced under this section unless -
(A) notice has been given, at least 6 months before the first
day of the plan year in which the amendment reducing benefits
is adopted, to -
(i) plan participants and beneficiaries,
(ii) each employer who has an obligation to contribute
(within the meaning of section 4212(a) of the Employee
Retirement Income Security Act of 1974) under the plan, and
(iii) each employee organization which, for purposes of
collective bargaining, represents plan participants employed
by such an employer,
that the plan is in reorganization and that, if contributions
under the plan are not increased, accrued benefits under the
plan will be reduced or an excise tax will be imposed on
employers;
(B) in accordance with regulations prescribed by the
Secretary -
(i) any category of accrued benefits is not reduced with
respect to inactive participants to a greater extent
proportionally that such category of accrued benefits is
reduced with respect to active participants,
(ii) benefits attributable to employer contributions other
than accrued benefits and the rate of future benefit accruals
are reduced at least to an extent equal to the reduction in
accrued benefits of inactive participants, and
(iii) in any case in which the accrued benefit of a
participant or beneficiary is reduced by changing the benefit
form or the requirements which the participant or beneficiary
must satisfy to be entitled to the benefit, such reduction is
not applicable to -
(I) any participant or beneficiary in pay status on the
effective date of the amendment, or the beneficiary of such
a participant, or
(II) any participant who has attained normal retirement
age, or who is within 5 years of attaining normal
retirement age, on the effective date of the amendment, or
the beneficiary of any such participant; and
(C) the rate of employer contributions for the plan year in
which the amendment becomes effective and for all succeeding
plan years in which the plan is in reorganization equals or
exceeds the greater of -
(i) the rate of employer contributions, calculated without
regard to the amendment, for the plan year in which the
amendment becomes effective, or
(ii) the rate of employer contributions for the plan year
preceding the plan year in which the amendment becomes
effective.
(2) Information required to be included in notice
The plan sponsors shall include in any notice required to be
sent to plan participants and beneficiaries under paragraph (1)
information as to the rights and remedies of plan participants
and beneficiaries as well as how to contact the Department of
Labor for further information and assistance where appropriate.
(c) No recoupment
A plan may not recoup a benefit payment which is in excess of the
amount payable under the plan because of an amendment retroactively
reducing accrued benefits under this section.
(d) Benefit increases under multiemployer plan in reorganization
(1) Restoration of previously reduced benefits
(A) In general
A plan which has been amended to reduce accrued benefits
under this section may be amended to increase or restore
accrued benefits, or the rate of future benefit accruals, only
if the plan is amended to restore levels of previously reduced
accrued benefits of inactive participants and of participants
who are within 5 years of attaining normal retirement age to at
least the same extent as any such increase in accrued benefits
or in the rate of future benefit accruals.
(B) Benefit increases and benefit restorations
For purposes of this subsection, in the case of a plan which
has been amended under this section to reduce accrued benefits -
(i) an increase in a benefit, or in the rate of future
benefit accruals, shall be considered a benefit increase to
the extent that the benefit, or the accrual rate, is thereby
increased above the highest benefit level, or accrual rate,
which was in effect under the terms of the plan before the
effective date of the amendment reducing accrued benefits,
and
(ii) an increase in a benefit, or in the rate of future
benefit accruals, shall be considered a benefit restoration
to the extent that the benefit, or the accrual rate, is not
thereby increased above the highest benefit level, or accrual
rate, which was in effect under the terms of the plan
immediately before the effective date of the amendment
reducing accrued benefits.
(2) Uniformity in benefit restoration
If a plan is amended to partially restore previously reduced
accrued benefit levels, or the rate of future benefit accruals,
the benefits of inactive participants shall be restored in at
least the same proportions as other accrued benefits which are
restored.
(3) No benefit increases in year of benefit reduction
No benefit increase under a plan may take effect in a plan year
in which an amendment reducing accrued benefits under the plan,
in accordance with this section, is adopted or first becomes
effective.
(4) Retroactive payments
A plan is not required to make retroactive benefit payments
with respect to that portion of an accrued benefit which was
reduced and subsequently restored under this section.
(e) Inactive participant
For purposes of this section, the term "inactive participant"
means a person not in covered service under the plan who is in pay
status under the plan or who has a nonforfeitable benefit under the
plan.
(f) Regulations
The Secretary may prescribe rules under which, notwithstanding
any other provision of this section, accrued benefit reductions or
benefit increases for different participant groups may be varied
equitably to reflect variations in contribution rates and other
relevant factors reflecting differences in negotiated levels of
financial support for plan benefit obligations.
-SOURCE-
(Added Pub. L. 96-364, title II, Sec. 202(a), Sept. 26, 1980, 94
Stat. 1280.)
-REFTEXT-
REFERENCES IN TEXT
Section 4022A(b) of the Employee Retirement Income Security Act
of 1974, referred to in subsec. (a)(1), is classified to section
1322a(b) of Title 29, Labor.
Section 4212(a) of the Employee Retirement Income Security Act of
1974, referred to in subsec. (b)(1)(A)(ii), is classified to
section 1392(a) of Title 29.
-End-
-CITE-
26 USC Sec. 418E 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart C - Special Rules for Multiemployer Plans
-HEAD-
Sec. 418E. Insolvent plans
-STATUTE-
(a) Suspension of certain benefit payments
Notwithstanding section 411, in any case in which benefit
payments under an insolvent multiemployer plan exceed the resource
benefit level, any such payments of benefits which are not basic
benefits shall be suspended, in accordance with this section, to
the extent necessary to reduce the sum of such payments and the
payments of such basic benefits to the greater of the resource
benefit level or the level of basic benefits, unless an alternative
procedure is prescribed by the Pension Benefit Guaranty Corporation
under section 4022A(g)(5) of the Employee Retirement Income
Security Act of 1974.
(b) Definitions
For purposes of this section, for a plan year -
(1) Insolvency
A multiemployer plan is insolvent if the plan's available
resources are not sufficient to pay benefits under the plan when
due for the plan year, or if the plan is determined to be
insolvent under subsection (d).
(2) Resource benefit level
The term "resource benefit level" means the level of monthly
benefits determined under subsections (c)(1) and (3) and (d)(3)
to be the highest level which can be paid out of the plan's
available resources.
(3) Available resources
The term "available resources" means the plan's cash,
marketable assets, contributions, withdrawal liability payments,
and earnings, less reasonable administrative expenses and amounts
owed for such plan year to the Pension Benefit Guaranty
Corporation under section 4261(b)(2) of the Employee Retirement
Income Security Act of 1974.
(4) Insolvency year
The term "insolvency year" means a plan year in which a plan is
insolvent.
(c) Benefit payments under insolvent plans
(1) Determination of resource benefit level
The plan sponsor of a plan in reorganization shall determine in
writing the plan's resource benefit level for each insolvency
year, based on the plan sponsor's reasonable projection of the
plan's available resources and the benefits payable under the
plan.
(2) Uniformity of the benefit suspension
The suspension of benefit payments under this section shall, in
accordance with regulations prescribed by the Secretary, apply in
substantially uniform proportions to the benefits of all persons
in pay status (within the meaning of section 418(b)(6)) under the
plan, except that the Secretary may prescribe rules under which
benefit suspensions for different participant groups may be
varied equitably to reflect variations in contribution rates and
other relevant factors including differences in negotiated levels
of financial support for plan benefit obligations.
(3) Resource benefit level below level of basic benefits
Notwithstanding paragraph (2), if a plan sponsor determines in
writing a resource benefit level for a plan year which is below
the level of basic benefits, the payment of all benefits other
than basic benefits shall be suspended for that plan year.
(4) Excess resources
(A) In general
If, by the end of an insolvency year, the plan sponsor
determines in writing that the plan's available resources in
that insolvency year could have supported benefit payments
above the resource benefit level for that insolvency year, the
plan sponsor shall distribute the excess resources to the
participants and beneficiaries who received benefit payments
from the plan in that insolvency year, in accordance with
regulations prescribed by the Secretary.
(B) Excess resources
For purposes of this paragraph, the term "excess resources"
means available resources above the amount necessary to support
the resource benefit level, but no greater than the amount
necessary to pay benefits for the plan year at the benefit
levels under the plan.
(5) Unpaid benefits
If, by the end of an insolvency year, any benefit has not been
paid at the resource benefit level, amounts up to the resource
benefit level which were unpaid shall be distributed to the
participants and beneficiaries, in accordance with regulations
prescribed by the Secretary, to the extent possible taking into
account the plan's total available resources in that insolvency
year.
(6) Retroactive payments
Except as provided in paragraph (4) or (5), a plan is not
required to make retroactive benefit payments with respect to
that portion of a benefit which was suspended under this section.
(d) Plan sponsor determination
(1) Triennial test
As of the end of the first plan year in which a plan is in
reorganization, and at least every 3 plan years thereafter
(unless the plan is no longer in reorganization), the plan
sponsor shall compare the value of plan assets (determined in
accordance with section 418B(b)(3)(B)(ii)) for that plan year
with the total amount of benefit payments made under the plan for
that plan year. Unless the plan sponsor determines that the value
of plan assets exceeds 3 times the total amount of benefit
payments, the plan sponsor shall determine whether the plan will
be insolvent in any of the next 3 plan years.
(2) Determination of insolvency
If, at any time, the plan sponsor of a plan in reorganization
reasonably determines, taking into account the plan's recent and
anticipated financial experience, that the plan's available
resources are not sufficient to pay benefits under the plan when
due for the next plan year, the plan sponsor shall make such
determination available to interested parties.
(3) Determination of resource benefit level
The plan sponsor of a plan in reorganization shall determine in
writing for each insolvency year the resource benefit level and
the level of basic benefits no later than 3 months before the
insolvency year.
(e) Notice requirements
(1) Impending insolvency
If the plan sponsor of a plan in reorganization determines
under subsection (d)(1) or (2) that the plan may become insolvent
(within the meaning of subsection (b)(1)), the plan sponsor shall
-
(A) notify the Secretary, the Pension Benefit Guaranty
Corporation, the parties described in section 418A(a)(2), and
the plan participants and beneficiaries of that determination,
and
(B) inform the parties described in section 418A(a)(2) and
the plan participants and beneficiaries that if insolvency
occurs certain benefit payments will be suspended, but that
basic benefits will continue to be paid.
(2) Resource benefit level
No later than 2 months before the first day of each insolvency
year, the plan sponsor of a plan in reorganization shall notify
the Secretary, the Pension Benefit Guaranty Corporation, the
parties described in section 418A(a)(2), and the plan
participants and beneficiaries of the resource benefit level
determined in writing for that insolvency year.
(3) Potential need for financial assistance
In any case in which the plan sponsor anticipates that the
resource benefit level for an insolvency year may not exceed the
level of basic benefits, the plan sponsor shall notify the
Pension Benefit Guaranty Corporation.
(4) Regulations
Notice required by this subsection shall be given in accordance
with regulations prescribed by the Pension Benefit Guaranty
Corporation, except that notice to the Secretary shall be given
in accordance with regulations prescribed by the Secretary.
(5) Corporation may prescribe time
The Pension Benefit Guaranty Corporation may prescribe a time
other than the time prescribed by this section for the making of
a determination or the filing of a notice under this section.
(f) Financial assistance
(1) Permissive application
If the plan sponsor of an insolvent plan for which the resource
benefit level is above the level of basic benefits anticipates
that, for any month in an insolvency year, the plan will not have
funds sufficient to pay basic benefits, the plan sponsor may
apply for financial assistance from the Pension Benefit Guaranty
Corporation under section 4261 of the Employee Retirement Income
Security Act of 1974.
(2) Mandatory application
A plan sponsor who has determined a resource benefit level for
an insolvency year which is below the level of basic benefits
shall apply for financial assistance from the Pension Benefit
Guaranty Corporation under section 4261 of the Employee
Retirement Income Security Act of 1974.
(g) Financial assistance
Any amount of any financial assistance from the Pension Benefit
Guaranty Corporation to any plan, and any repayment of such amount,
shall be taken into account under this subpart in such manner as
determined by the Secretary.
-SOURCE-
(Added Pub. L. 96-364, title II, Sec. 202(a), Sept. 26, 1980, 94
Stat. 1282.)
-REFTEXT-
REFERENCES IN TEXT
Section 4022A(g)(5) of the Employee Retirement Income Security
Act of 1974, referred to in subsec. (a), is classified to section
1322a(g)(5) of Title 29, Labor.
Section 4261 of the Employee Retirement Income Security Act of
1974, referred to in subsecs. (b)(3) and (f), is classified to
section 1431 of Title 29.
-End-
-CITE-
26 USC Subpart D - Treatment of Welfare Benefit Funds 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart D - Treatment of Welfare Benefit Funds
-HEAD-
SUBPART D - TREATMENT OF WELFARE BENEFIT FUNDS
-MISC1-
Sec.
419. Treatment of funded welfare benefit plans.
419A. Qualified asset account; limitation on additions to
account.
-End-
-CITE-
26 USC Sec. 419 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart D - Treatment of Welfare Benefit Funds
-HEAD-
Sec. 419. Treatment of funded welfare benefit plans
-STATUTE-
(a) General rule
Contributions paid or accrued by an employer to a welfare benefit
fund -
(1) shall not be deductible under this chapter, but
(2) if they would otherwise be deductible, shall (subject to
the limitation of subsection (b)) be deductible under this
section for the taxable year in which paid.
(b) Limitation
The amount of the deduction allowable under subsection (a)(2) for
any taxable year shall not exceed the welfare benefit fund's
qualified cost for the taxable year.
(c) Qualified cost
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, the term
"qualified cost" means, with respect to any taxable year, the sum
of -
(A) the qualified direct cost for such taxable year, and
(B) subject to the limitation of section 419A(b), any
addition to a qualified asset account for the taxable year.
(2) Reduction for funds after-tax income
In the case of any welfare benefit fund, the qualified cost for
any taxable year shall be reduced by such fund's after-tax income
for such taxable year.
(3) Qualified direct cost
(A) In general
The term "qualified direct cost" means, with respect to any
taxable year, the aggregate amount (including administrative
expenses) which would have been allowable as a deduction to the
employer with respect to the benefits provided during the
taxable year, if -
(i) such benefits were provided directly by the employer,
and
(ii) the employer used the cash receipts and disbursements
method of accounting.
(B) Time when benefits provided
For purposes of subparagraph (A), a benefit shall be treated
as provided when such benefit would be includible in the gross
income of the employee if provided directly by the employer (or
would be so includible but for any provision of this chapter
excluding such benefit from gross income).
(C) 60-month amortization of child care facilities
(i) In general
In determining qualified direct costs with respect to any
child care facility for purposes of subparagraph (A), in lieu
of depreciation the adjusted basis of such facility shall be
allowable as a deduction ratably over a period of 60 months
beginning with the month in which the facility is placed in
service.
(ii) Child care facility
The term "child care facility" means any tangible property
which qualifies under regulations prescribed by the Secretary
as a child care center primarily for children of employees of
the employer; except that such term shall not include any
property -
(I) not of a character subject to depreciation; or
(II) located outside the United States.
(4) After-tax income
(A) In general
The term "after-tax income" means, with respect to any
taxable year, the gross income of the welfare benefit fund
reduced by the sum of -
(i) the deductions allowed by this chapter which are
directly connected with the production of such gross income,
and
(ii) the tax imposed by this chapter on the fund for the
taxable year.
(B) Treatment of certain amounts
In determining the gross income of any welfare benefit fund -
(i) contributions and other amounts received from employees
shall be taken into account, but
(ii) contributions from the employer shall not be taken
into account.
(5) Item only taken into account once
No item may be taken into account more than once in determining
the qualified cost of any welfare benefit fund.
(d) Carryover of excess contributions
If -
(1) the amount of the contributions paid (or deemed paid under
this subsection) by the employer during any taxable year to a
welfare benefit fund, exceeds
(2) the limitation of subsection (b),
such excess shall be treated as an amount paid by the employer to
such fund during the succeeding taxable year.
(e) Welfare benefit fund
For purposes of this section -
(1) In general
The term "welfare benefit fund" means any fund -
(A) which is part of a plan of an employer, and
(B) through which the employer provides welfare benefits to
employees or their beneficiaries.
(2) Welfare benefit
The term "welfare benefit" means any benefit other than a
benefit with respect to which -
(A) section 83(h) applies,
(B) section 404 applies (determined without regard to section
404(b)(2)), or
(C) section 404A applies.
(3) Fund
The term "fund" means -
(A) any organization described in paragraph (7), (9), (17),
or (20) of section 501(c),
(B) any trust, corporation, or other organization not exempt
from the tax imposed by this chapter, and
(C) to the extent provided in regulations, any account held
for an employer by any person.
(4) Treatment of amounts held pursuant to certain insurance
contracts
(A) In general
Notwithstanding paragraph (3)(C), the term "fund" shall not
include amounts held by an insurance company pursuant to an
insurance contract if -
(i) such contract is a life insurance contract described in
section 264(a)(1), or
(ii) such contract is a qualified nonguaranteed contract.
(B) Qualified nonguaranteed contract
(i) In general
For purposes of this paragraph, the term "qualified
nonguaranteed contract" means any insurance contract
(including a reasonable premium stabilization reserve held
thereunder) if -
(I) there is no guarantee of a renewal of such contract,
and
(II) other than insurance protection, the only payments
to which the employer or employees are entitled are
experience rated refunds or policy dividends which are not
guaranteed and which are determined by factors other than
the amount of welfare benefits paid to (or on behalf of)
the employees of the employer or their beneficiaries.
(ii) Limitation
In the case of any qualified nonguaranteed contract,
subparagraph (A) shall not apply unless the amount of any
experience rated refund or policy dividend payable to an
employer with respect to a policy year is treated by the
employer as received or accrued in the taxable year in which
the policy year ends.
(f) Method of contributions, etc., having the effect of a plan
If -
(1) there is no plan, but
(2) there is a method or arrangement of employer contributions
or benefits which has the effect of a plan,
this section shall apply as if there were a plan.
(g) Extension to plans for independent contractors
If any fund would be a welfare benefit fund (as modified by
subsection (f)) but for the fact that there is no employee-employer
relationship -
(1) this section shall apply as if there were such a
relationship, and
(2) any reference in this section to the employer shall be
treated as a reference to the person for whom services are
provided, and any reference in this section to an employee shall
be treated as a reference to the person providing the services.
-SOURCE-
(Added Pub. L. 98-369, div. A, title V, Sec. 511(a), July 18, 1984,
98 Stat. 854; amended Pub. L. 99-514, title XVIII, Sec. 1851(a)(1),
(8)(A), (b)(2)(C)(iv), Oct. 22, 1986, 100 Stat. 2858, 2860, 2863;
Pub. L. 100-203, title IX, Sec. 10201(b)(4), Dec. 22, 1987, 101
Stat. 1330-387; Pub. L. 100-647, title I, Sec. 1018(t)(2)(C), Nov.
10, 1988, 102 Stat. 3587.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a)(1). Pub. L. 100-647 substituted "chapter" for
"subchapter".
1987 - Subsec. (e)(2)(D). Pub. L. 100-203 struck out subpar. (D)
which related to a benefit with respect to which an election under
section 463 applies.
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1851(b)(2)(C)(iv)(I),
substituted "under this subchapter" for "under section 162 or 212".
Subsec. (a)(2). Pub. L. 99-514, Sec. 1851(b)(2)(C)(iv)(II),
substituted "they would otherwise be deductible" for "they satisfy
the requirements of either of such sections".
Subsec. (e)(4). Pub. L. 99-514, Sec. 1851(a)(8)(A), added par.
(4).
Subsec. (g)(1). Pub. L. 99-514, Sec. 1851(a)(1), substituted
"such a relationship" for "such a plan".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 31, 1987, see section 10201(c)(1) of Pub. L.
100-203, set out as a note under section 404 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section 511(e) of Pub. L. 98-369, as amended by Pub. L. 99-514,
title XVIII, Sec. 1851(a)(12), (14), Oct. 22, 1986, 100 Stat. 2862,
provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting this
subpart] shall apply to contributions paid or accrued after
December 31, 1985, in taxable years ending after such date.
"(2) Special rule for collective bargaining agreements. - In the
case of plan maintained pursuant to 1 or more collective bargaining
agreements -
"(A) between employee representatives and 1 or more employers,
and
"(B) in effect on July 1, 1985 (or ratified on or before such
date),
the amendments made by this section shall not apply to years
beginning before the date on which the last of the collective
bargaining agreements relating to the plan terminates (determined
without regard to any extension thereof agreed to after July 1,
1985).
"(3) Special rule for paragraph (2). - For purposes of paragraph
(2), any plan amendment made pursuant to a collective bargaining
agreement relating to the plan which amends the plan solely to
conform to any requirement added by this section shall not be
treated as a termination of such collective bargaining agreement.
"(4) Special effective date for contributions of facilities. -
Notwithstanding paragraphs (1) and (2), the amendments made by this
section shall apply in the case of -
"(A) any contribution after June 22, 1984, of a facility to a
welfare benefit fund, and
"(B) any other contribution after June 22, 1984, to a welfare
benefit fund to be used to acquire or improve a facility.
"(5) Binding contract exceptions to paragraph (4). - Paragraph
(4) shall not apply to any facility placed in service before
January 1, 1987 -
"(A) which is acquired or improved by the fund (or contributed
to the fund) pursuant to a binding contract in effect on June 22,
1984, and at all times thereafter, or
"(B) the construction of which by or for the fund began before
June 22, 1984.
"(6) Amendments related to tax on unrelated business income. -
The amendments made by subsection (b) [amending section 512 of this
title] shall apply with respect to taxable years ending after
December 31, 1985. For purposes of section 15 of the Internal
Revenue Code of 1954 [now 1986], such amendments shall be treated
as a change in the rate of a tax imposed by chapter 1 of such Code.
"(7) Amendments related to excise taxes on certain welfare
benefit plans. - The amendments made by subsection (c) [enacting
section 4976 of this title] shall apply to benefits provided after
December 31, 1985."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
EFFECTIVE DATE OF REGULATIONS
Section 1851(a)(8)(B) of Pub. L. 99-514 provided that: "Except in
the case of a reserve for post-retirement medical or life insurance
benefits and any other arrangement between an insurance company and
an employer under which the employer has a contractual right to a
refund or dividend based solely on the experience of such employer,
any account held for an employer by any person and defined as a
fund in regulations issued pursuant to section 419(e)(3)(C) of the
Internal Revenue Code of 1954 [now 1986] shall be considered a
'fund' no earlier than 6 months following the date such regulations
are published in final form."
-End-
-CITE-
26 USC Sec. 419A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart D - Treatment of Welfare Benefit Funds
-HEAD-
Sec. 419A. Qualified asset account; limitation on additions to
account
-STATUTE-
(a) General rule
For purposes of this subpart and section 512, the term "qualified
asset account" means any account consisting of assets set aside to
provide for the payment of -
(1) disability benefits,
(2) medical benefits,
(3) SUB or severance pay benefits, or
(4) life insurance benefits.
(b) Limitation on additions to account
No addition to any qualified asset account may be taken into
account under section 419(c)(1)(B) to the extent such addition
results in the amount in such account exceeding the account limit.
(c) Account limit
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, the account
limit for any qualified asset account for any taxable year is the
amount reasonably and actuarially necessary to fund -
(A) claims incurred but unpaid (as of the close of such
taxable year) for benefits referred to in subsection (a), and
(B) administrative costs with respect to such claims.
(2) Additional reserve for post-retirement medical and life
insurance benefits
The account limit for any taxable year may include a reserve
funded over the working lives of the covered employees and
actuarially determined on a level basis (using assumptions that
are reasonable in the aggregate) as necessary for -
(A) post-retirement medical benefits to be provided to
covered employees (determined on the basis of current medical
costs), or
(B) post-retirement life insurance benefits to be provided to
covered employees.
(3) Amount taken into account for SUB or severance pay benefits
(A) In general
The account limit for any taxable year with respect to SUB or
severance pay benefits is 75 percent of the average annual
qualified direct costs for SUB or severance pay benefits for
any 2 of the immediately preceding 7 taxable years (as selected
by the fund).
(B) Special rule for certain new plans
In the case of any new plan for which SUB or severance pay
benefits are not available to any key employee, the Secretary
shall, by regulations, provide for an interim amount to be
taken into account under paragraph (1).
(4) Limitation on amounts to be taken into account
(A) Disability benefits
For purposes of paragraph (1), disability benefits payable to
any individual shall not be taken into account to the extent
such benefits are payable at an annual rate in excess of the
lower of -
(i) 75 percent of such individual's average compensation
for his high 3 years (within the meaning of section
415(b)(3)), or
(ii) the limitation in effect under section 415(b)(1)(A).
(B) Limitation on SUB or severance pay benefits
For purposes of paragraph (3), any SUB or severance pay
benefit payable to any individual shall not be taken into
account to the extent such benefit is payable at an annual rate
in excess of 150 percent of the limitation in effect under
section 415(c)(1)(A).
(5) Special limitation where no actuarial certification
(A) In general
Unless there is an actuarial certification of the account
limit determined under this subsection for any taxable year,
the account limit for such taxable year shall not exceed the
sum of the safe harbor limits for such taxable year.
(B) Safe harbor limits
(i) Short-term disability benefits
In the case of short-term disability benefits, the safe
harbor limit for any taxable year is 17.5 percent of the
qualified direct costs (other than insurance premiums) for
the immediately preceding taxable year with respect to such
benefits.
(ii) Medical benefits
In the case of medical benefits, the safe harbor limit for
any taxable year is 35 percent of the qualified direct costs
(other than insurance premiums) for the immediately preceding
taxable year with respect to medical benefits.
(iii) SUB or severance pay benefits
In the case of SUB or severance pay benefits, the safe
harbor limit for any taxable year is the amount determined
under paragraph (3).
(iv) Long-term disability or life insurance benefits
In the case of any long-term disability benefit or life
insurance benefit, the safe harbor limit for any taxable year
shall be the amount prescribed by regulations.
(d) Requirement of separate accounts for post-retirement medical or
life insurance benefits provided to key employees
(1) In general
In the case of any employee who is a key employee -
(A) a separate account shall be established for any medical
benefits or life insurance benefits provided with respect to
such employee after retirement, and
(B) medical benefits and life insurance benefits provided
with respect to such employee after retirement may only be paid
from such separate account.
The requirements of this paragraph shall apply to the first
taxable year for which a reserve is taken into account under
subsection (c)(2) and to all subsequent taxable years.
(2) Coordination with section 415
For purposes of section 415, any amount attributable to medical
benefits allocated to an account established under paragraph (1)
shall be treated as an annual addition to a defined contribution
plan for purposes of section 415(c). Subparagraph (B) of section
415(c)(1) shall not apply to any amount treated as an annual
addition under the preceding sentence.
(3) Key employee
For purposes of this section, the term "key employee" means any
employee who, at any time during the plan year or any preceding
plan year, is or was a key employee as defined in section 416(i).
(e) Special limitations on reserves for medical benefits or life
insurance benefits provided to retired employees
(1) Reserve must be nondiscriminatory
No reserve may be taken into account under subsection (c)(2)
for post-retirement medical benefits or life insurance benefits
to be provided to covered employees unless the plan meets the
requirements of section 505(b) with respect to such benefits
(whether or not such requirements apply to such plan). The
preceding sentence shall not apply to any plan maintained
pursuant to an agreement between employee representatives and 1
or more employers if the Secretary finds that such agreement is a
collective bargaining agreement and that post-retirement medical
benefits or life insurance benefits were the subject of good
faith bargaining between such employee representatives and such
employer or employers.
(2) Limitation on amount of life insurance benefits
Life insurance benefits shall not be taken into account under
subsection (c)(2) to the extent the aggregate amount of such
benefits to be provided with respect to the employee exceeds
$50,000.
(f) Definitions and other special rules
For purposes of this section -
(1) SUB or severance pay benefit
The term "SUB or severance pay benefit" means -
(A) any supplemental unemployment compensation benefit (as
defined in section 501(c)(17)(D)), and
(B) any severance pay benefit.
(2) Medical benefit
The term "medical benefit" means a benefit which consists of
the providing (directly or through insurance) of medical care (as
defined in section 213(d)).
(3) Life insurance benefit
The term "life insurance benefit" includes any other death
benefit.
(4) Valuation
For purposes of this section, the amount of the qualified asset
account shall be the value of the assets in such account (as
determined under regulations).
(5) Special rule for collective bargained and employee pay-all
plans
No account limits shall apply in the case of any qualified
asset account under a separate welfare benefit fund -
(A) under a collective bargaining agreement, or
(B) an employee pay-all plan under section 501(c)(9) if -
(i) such plan has at least 50 employees (determined without
regard to subsection (h)(1)), and
(ii) no employee is entitled to a refund with respect to
amounts in the fund, other than a refund based on the
experience of the entire fund.
(6) Exception for 10-or-more employer plans
(A) In general
This subpart shall not apply in the case of any welfare
benefit fund which is part of a 10 or more employer plan. The
preceding sentence shall not apply to any plan which maintains
experience-rating arrangements with respect to individual
employers.
(B) 10 or more employer plan
For purposes of subparagraph (A), the term "10 or more
employer plan" means a plan -
(i) to which more than 1 employer contributes, and
(ii) to which no employer normally contributes more than 10
percent of the total contributions contributed under the plan
by all employers.
(7) Adjustments for existing excess reserves
(A) Increase in account limit
The account limit for any of the first 4 taxable years to
which this section applies shall be increased by the applicable
percentage of any existing excess reserves.
(B) Applicable percentage
For purposes of subparagraph (A) -
The applicable
In the case of: percentage is:
The first taxable year to which this section
applies 80
The second taxable year to which this section
applies 60
The third taxable year to which this section
applies 40
The fourth taxable year to which this section
applies 20.
(C) Existing excess reserve
For purposes of computing the increase under subparagraph (A)
for any taxable year, the term "existing excess reserve" means
the excess (if any) of -
(i) the amount of assets set aside at the close of the
first taxable year ending after July 18, 1984, for purposes
described in subsection (a), over
(ii) the account limit determined under this section
(without regard to this paragraph) for the taxable year for
which such increase is being computed.
(D) Funds to which paragraph applies
This paragraph shall apply only to a welfare benefit fund
which, as of July 18, 1984, had assets set aside for purposes
described in subsection (a).
(g) Employer taxed on income of welfare benefit fund in certain
cases
(1) In general
In the case of any welfare benefit fund which is not an
organization described in paragraph (7), (9), (17), or (20) of
section 501(c), the employer shall include in gross income for
any taxable year an amount equal to such fund's deemed unrelated
income for the fund's taxable year ending within the employer's
taxable year.
(2) Deemed unrelated income
For purposes of paragraph (1), the deemed unrelated income of
any welfare benefit fund shall be the amount which would have
been its unrelated business taxable income under section
512(a)(3) if such fund were an organization described in
paragraph (7), (9), (17), or (20) of section 501(c).
(3) Coordination with section 419
If any amount is included in the gross income of an employer
for any taxable year under paragraph (1) with respect to any
welfare benefit fund -
(A) the amount of the tax imposed by this chapter which is
attributable to the amount so included shall be treated as a
contribution paid to such welfare benefit fund on the last day
of such taxable year, and
(B) the tax so attributable shall be treated as imposed on
the fund for purposes of section 419(c)(4)(A).
(h) Aggregation rules
For purposes of this subpart -
(1) Aggregation of funds
(A) Mandatory aggregation
For purposes of subsections (c)(4), (d)(2), and (e)(2), all
welfare benefit funds of an employer shall be treated as 1
fund.
(B) Permissive aggregation for purposes not specified in
subparagraph (A)
For purposes of this section (other than the provisions
specified in subparagraph (A)), at the election of the
employer, 2 or more welfare benefit funds of such employer may
(to the extent not inconsistent with the purposes of this
subpart and section 512) be treated as 1 fund.
(2) Treatment of related employers
Rules similar to the rules of subsections (b), (c), (m), and
(n) of section 414 shall apply.
(i) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this subpart. Such
regulations may provide that the plan administrator of any welfare
benefit fund which is part of a plan to which more than 1 employer
contributes shall submit such information to the employers
contributing to the fund as may be necessary to enable the
employers to comply with the provisions of this section.
-SOURCE-
(Added Pub. L. 98-369, div. A, title V, Sec. 511(a), July 18, 1984,
98 Stat. 856; amended Pub. L. 99-514, title XVIII, Sec. 1851(a)(2),
(3)(A), (4)-(7), (9), (13), Oct. 22, 1986, 100 Stat. 2858-2860,
2862; Pub. L. 100-647, title I, Sec. 1018(t)(1)(C), (2)(A),
(u)(12), Nov. 10, 1988, 102 Stat. 3587, 3590; Pub. L. 104-188,
title I, Sec. 1704(t)(60), Aug. 20, 1996, 110 Stat. 1890.)
-MISC1-
AMENDMENTS
1996 - Subsec. (c)(3). Pub. L. 104-188 substituted "severance"
for "severence" in heading.
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1018(u)(12), made
technical amendment to directory language of Pub. L. 99-514, Sec.
1851(a)(6)(B). See 1986 Amendment note below.
Subsec. (f)(5). Pub. L. 100-647, Sec. 1018(t)(2)(A), repealed
Pub. L. 99-514, Sec. 1851(a)(4). See 1986 Amendment note below.
Pub. L. 100-647, Sec. 1018(t)(1)(C), substituted "account" for
"accounts".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1851(a)(6)(B), as
amended by Pub. L. 100-647, Sec. 1018(u)(12), inserted "and section
512" after "this subpart".
Subsec. (c)(5)(A). Pub. L. 99-514, Sec. 1851(a)(5), substituted
"under this subsection" for "under paragraph (1)".
Subsec. (d)(1). Pub. L. 99-514, Sec. 1851(a)(2)(B), inserted "The
requirements of this paragraph shall apply to the first taxable
year for which a reserve is taken into account under subsection
(c)(2) and to all subsequent taxable years."
Subsec. (d)(2). Pub. L. 99-514, Sec. 1851(a)(2)(A), inserted
"Subparagraph (B) of section 415(c)(1) shall not apply to any
amount treated as an annual addition under the preceding sentence."
Subsec. (e). Pub. L. 99-514, Sec. 1851(a)(3)(A), amended subsec.
(e) generally. Prior to amendment, par. (1), benefits must be
nondiscriminatory, read as follows: "No reserve may be taken into
account under subsection (c)(2) for post-retirement medical
benefits or life insurance benefits to be provided to covered
employees unless the plan meets the requirements of section
505(b)(1) with respect to such benefits.", and par. (2), taxable
life insurance benefits not taken into account, read as follows:
"No life insurance benefit may be taken into account under
subsection (c)(2) to the extent -
"(A) such benefit is includible in gross income under section
79, or
"(B) such benefit would be includible in gross income under
section 101(b) (determined by substituting '$50,000' for
'$5,000')."
Subsec. (f)(5). Pub. L. 99-514, Sec. 1851(a)(13), amended par.
(5) generally. Prior to amendment, par. (5) read as follows:
"Higher limit in case of collectively bargained plans. - Not later
than July 1, 1985, the Secretary shall by regulations provide for
special account limits in the case of any qualified asset account
under a welfare benefit fund established under a collective
bargaining agreement."
Pub. L. 99-514, Sec. 1851(a)(4), which directed amendment of par.
(5) by substituting "welfare benefit fund maintained pursuant to"
for "welfare benefit fund established under", was repealed by Pub.
L. 100-647, Sec. 1018(t)(2)(A).
Subsec. (f)(7)(C), (D). Pub. L. 99-514, Sec. 1851(a)(7), added
subpars. (C) and (D) and struck out former subpar. (C) which read
as follows: "For purposes of this paragraph, the term 'existing
excess reserve' means the excess (if any) of -
"(i) the amount of assets set aside for purposes described in
subsection (a) as of the close of the first taxable year ending
after the date of the enactment of the Tax Reform Act of 1984,
over
"(ii) the account limit which would have applied under this
section to such taxable year if this section had applied to such
taxable year."
Subsec. (g)(3). Pub. L. 99-514, Sec. 1851(a)(9), added par. (3).
Subsec. (h)(1). Pub. L. 99-514, Sec. 1851(a)(6)(A), amended par.
(1) generally. Prior to amendment, par. (1) read as follows: "At
the election of the employer, 2 or more welfare benefit funds of
such employer may be treated as 1 fund."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
APPLICATION OF SECTION 419A(E) TO GROUP-TERM LIFE INSURANCE
Section 1851(a)(3)(B) of Pub. L. 99-514, as amended by Pub. L.
100-647, title I, Sec. 1018(t)(2)(D), Nov. 10, 1988, 102 Stat.
3587, provided that: "Subsection (e) of section 419A, section 505,
and section 4976(b)(1)(B) of the Internal Revenue Code of 1954 [now
1986] (as amended by subparagraph (A)) shall not apply to any group-
term life insurance to the extent that the amendments made by
section 223(a) of the Tax Reform Act of 1984 [section 223(a) of
Pub. L. 98-369, amending section 79 of this title] do not apply to
such insurance by reason of paragraph (2) of section 223(d) of such
Act [set out as a note under section 79 of this title]."
-End-
-CITE-
26 USC Subpart E - Treatment of Transfers to Retiree
Health Accounts 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart E - Treatment of Transfers to Retiree Health Accounts
-HEAD-
SUBPART E - TREATMENT OF TRANSFERS TO RETIREE HEALTH ACCOUNTS
-MISC1-
Sec.
420. Transfers of excess pension assets to retiree health
accounts.
-End-
-CITE-
26 USC Sec. 420 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
Subpart E - Treatment of Transfers to Retiree Health Accounts
-HEAD-
Sec. 420. Transfers of excess pension assets to retiree health
accounts
-STATUTE-
(a) General rule
If there is a qualified transfer of any excess pension assets of
a defined benefit plan (other than a multiemployer plan) to a
health benefits account which is part of such plan -
(1) a trust which is part of such plan shall not be treated as
failing to meet the requirements of subsection (a) or (h) of
section 401 solely by reason of such transfer (or any other
action authorized under this section),
(2) no amount shall be includible in the gross income of the
employer maintaining the plan solely by reason of such transfer,
(3) such transfer shall not be treated -
(A) as an employer reversion for purposes of section 4980, or
(B) as a prohibited transaction for purposes of section 4975,
and
(4) the limitations of subsection (d) shall apply to such
employer.
(b) Qualified transfer
For purposes of this section -
(1) In general
The term "qualified transfer" means a transfer -
(A) of excess pension assets of a defined benefit plan to a
health benefits account which is part of such plan in a taxable
year beginning after December 31, 1990,
(B) which does not contravene any other provision of law, and
(C) with respect to which the following requirements are met
in connection with the plan -
(i) the use requirements of subsection (c)(1),
(ii) the vesting requirements of subsection (c)(2), and
(iii) the minimum cost requirements of subsection (c)(3).
(2) Only 1 transfer per year
(A) In general
No more than 1 transfer with respect to any plan during a
taxable year may be treated as a qualified transfer for
purposes of this section.
(B) Exception
A transfer described in paragraph (4) shall not be taken into
account for purposes of subparagraph (A).
(3) Limitation on amount transferred
The amount of excess pension assets which may be transferred in
a qualified transfer shall not exceed the amount which is
reasonably estimated to be the amount the employer maintaining
the plan will pay (whether directly or through reimbursement) out
of such account during the taxable year of the transfer for
qualified current retiree health liabilities.
(4) Special rule for 1990
(A) In general
Subject to the provisions of subsection (c), a transfer shall
be treated as a qualified transfer if such transfer -
(i) is made after the close of the taxable year preceding
the employer's first taxable year beginning after December
31, 1990, and before the earlier of -
(I) the due date (including extensions) for the filing of
the return of tax for such preceding taxable year, or
(II) the date such return is filed, and
(ii) does not exceed the expenditures of the employer for
qualified current retiree health liabilities for such
preceding taxable year.
(B) Deduction reduced
The amount of the deductions otherwise allowable under this
chapter to an employer for the taxable year preceding the
employer's first taxable year beginning after December 31,
1990, shall be reduced by the amount of any qualified transfer
to which this paragraph applies.
(C) Coordination with reduction rule
Subsection (e)(1)(B) shall not apply to a transfer described
in subparagraph (A).
(5) Expiration
No transfer made after December 31, 2013, shall be treated as a
qualified transfer.
(c) Requirements of plans transferring assets
(1) Use of transferred assets
(A) In general
Any assets transferred to a health benefits account in a
qualified transfer (and any income allocable thereto) shall be
used only to pay qualified current retiree health liabilities
(other than liabilities of key employees not taken into account
under subsection (e)(1)(D)) for the taxable year of the
transfer (whether directly or through reimbursement).
(B) Amounts not used to pay for health benefits
(i) In general
Any assets transferred to a health benefits account in a
qualified transfer (and any income allocable thereto) which
are not used as provided in subparagraph (A) shall be
transferred out of the account to the transferor plan.
(ii) Tax treatment of amounts
Any amount transferred out of an account under clause (i) -
(I) shall not be includible in the gross income of the
employer for such taxable year, but
(II) shall be treated as an employer reversion for
purposes of section 4980 (without regard to subsection (d)
thereof).
(C) Ordering rule
For purposes of this section, any amount paid out of a health
benefits account shall be treated as paid first out of the
assets and income described in subparagraph (A).
(2) Requirements relating to pension benefits accruing before
transfer
(A) In general
The requirements of this paragraph are met if the plan
provides that the accrued pension benefits of any participant
or beneficiary under the plan become nonforfeitable in the same
manner which would be required if the plan had terminated
immediately before the qualified transfer (or in the case of a
participant who separated during the 1-year period ending on
the date of the transfer, immediately before such separation).
(B) Special rule for 1990
In the case of a qualified transfer described in subsection
(b)(4), the requirements of this paragraph are met with respect
to any participant who separated from service during the
taxable year to which such transfer relates by recomputing such
participant's benefits as if subparagraph (A) had applied
immediately before such separation.
(3) Minimum cost requirements
(A) In general
The requirements of this paragraph are met if each group
health plan or arrangement under which applicable health
benefits are provided provides that the applicable employer
cost for each taxable year during the cost maintenance period
shall not be less than the higher of the applicable employer
costs for each of the 2 taxable years immediately preceding the
taxable year of the qualified transfer.
(B) Applicable employer cost
For purposes of this paragraph, the term "applicable employer
cost" means, with respect to any taxable year, the amount
determined by dividing -
(i) the qualified current retiree health liabilities of the
employer for such taxable year determined -
(I) without regard to any reduction under subsection
(e)(1)(B), and
(II) in the case of a taxable year in which there was no
qualified transfer, in the same manner as if there had been
such a transfer at the end of the taxable year, by
(ii) the number of individuals to whom coverage for
applicable health benefits was provided during such taxable
year.
(C) Election to compute cost separately
An employer may elect to have this paragraph applied
separately with respect to individuals eligible for benefits
under title XVIII of the Social Security Act at any time during
the taxable year and with respect to individuals not so
eligible.
(D) Cost maintenance period
For purposes of this paragraph, the term "cost maintenance
period" means the period of 5 taxable years beginning with the
taxable year in which the qualified transfer occurs. If a
taxable year is in two or more overlapping cost maintenance
periods, this paragraph shall be applied by taking into account
the highest applicable employer cost required to be provided
under subparagraph (A) for such taxable year.
(E) Regulations
(i) In general
The Secretary shall prescribe such regulations as may be
necessary to prevent an employer who significantly reduces
retiree health coverage during the cost maintenance period
from being treated as satisfying the minimum cost requirement
of this subsection.
(ii) Insignificant cost reductions permitted
(I) In general
An eligible employer shall not be treated as failing to
meet the requirements of this paragraph for any taxable
year if, in lieu of any reduction of retiree health
coverage permitted under the regulations prescribed under
clause (i), the employer reduces applicable employer cost
by an amount not in excess of the reduction in costs which
would have occurred if the employer had made the maximum
permissible reduction in retiree health coverage under such
regulations. In applying such regulations to any subsequent
taxable year, any reduction in applicable employer cost
under this clause shall be treated as if it were an
equivalent reduction in retiree health coverage.
(II) Eligible employer
For purposes of subclause (I), an employer shall be
treated as an eligible employer for any taxable year if,
for the preceding taxable year, the qualified current
retiree health liabilities of the employer were at least 5
percent of the gross receipts of the employer. For purposes
of this subclause, the rules of paragraphs (2), (3)(B), and
(3)(C) of section 448(c) shall apply in determining the
amount of an employer's gross receipts.
(d) Limitations on employer
For purposes of this title -
(1) Deduction limitations
No deduction shall be allowed -
(A) for the transfer of any amount to a health benefits
account in a qualified transfer (or any retransfer to the plan
under subsection (c)(1)(B)),
(B) for qualified current retiree health liabilities paid out
of the assets (and income) described in subsection (c)(1), or
(C) for any amounts to which subparagraph (B) does not apply
and which are paid for qualified current retiree health
liabilities for the taxable year to the extent such amounts are
not greater than the excess (if any) of -
(i) the amount determined under subparagraph (A) (and
income allocable thereto), over
(ii) the amount determined under subparagraph (B).
(2) No contributions allowed
An employer may not contribute after December 31, 1990, any
amount to a health benefits account or welfare benefit fund (as
defined in section 419(e)(1)) with respect to qualified current
retiree health liabilities for which transferred assets are
required to be used under subsection (c)(1).
(e) Definition and special rules
For purposes of this section -
(1) Qualified current retiree health liabilities
For purposes of this section -
(A) In general
The term "qualified current retiree health liabilities"
means, with respect to any taxable year, the aggregate amounts
(including administrative expenses) which would have been
allowable as a deduction to the employer for such taxable year
with respect to applicable health benefits provided during such
taxable year if -
(i) such benefits were provided directly by the employer,
and
(ii) the employer used the cash receipts and disbursements
method of accounting.
For purposes of the preceding sentence, the rule of section
419(c)(3)(B) shall apply.
(B) Reductions for amounts previously set aside
The amount determined under subparagraph (A) shall be reduced
by the amount which bears the same ratio to such amount as -
(i) the value (as of the close of the plan year preceding
the year of the qualified transfer) of the assets in all
health benefits accounts or welfare benefit funds (as defined
in section 419(e)(1)) set aside to pay for the qualified
current retiree health liability, bears to
(ii) the present value of the qualified current retiree
health liabilities for all plan years (determined without
regard to this subparagraph).
(C) Applicable health benefits
The term "applicable health benefits" means health benefits
or coverage which are provided to -
(i) retired employees who, immediately before the qualified
transfer, are entitled to receive such benefits upon
retirement and who are entitled to pension benefits under the
plan, and
(ii) their spouses and dependents.
(D) Key employees excluded
If an employee is a key employee (within the meaning of
section 416(i)(1)) with respect to any plan year ending in a
taxable year, such employee shall not be taken into account in
computing qualified current retiree health liabilities for such
taxable year or in calculating applicable employer cost under
subsection (c)(3)(B).
(2) Excess pension assets
The term "excess pension assets" means the excess (if any) of -
(A) the amount determined under section 412(c)(7)(A)(ii),
over
(B) the greater of -
(i) the amount determined under section 412(c)(7)(A)(i), or
(ii) 125 percent of current liability (as defined in
section 412(c)(7)(B)).
The determination under this paragraph shall be made as of the
most recent valuation date of the plan preceding the qualified
transfer.
(3) Health benefits account
The term "health benefits account" means an account established
and maintained under section 401(h).
(4) Coordination with section 412
In the case of a qualified transfer to a health benefits
account -
(A) any assets transferred in a plan year on or before the
valuation date for such year (and any income allocable thereto)
shall, for purposes of section 412, be treated as assets in the
plan as of the valuation date for such year, and
(B) the plan shall be treated as having a net experience loss
under section 412(b)(2)(B)(iv) in an amount equal to the amount
of such transfer (reduced by any amounts transferred back to
the pension plan under subsection (c)(1)(B)) and for which
amortization charges begin for the first plan year after the
plan year in which such transfer occurs, except that such
section shall be applied to such amount by substituting "10
plan years" for "5 plan years".
-SOURCE-
(Added Pub. L. 101-508, title XII, Sec. 12011(a), Nov. 5, 1990, 104
Stat. 1388-567; amended Pub. L. 103-465, title VII, Sec. 731(a)-
(c)(3), Dec. 8, 1994, 108 Stat. 5003, 5004; Pub. L. 104-188, title
I, Sec. 1704(a), (t)(32), Aug. 20, 1996, 110 Stat. 1878, 1889; Pub.
L. 106-170, title V, Sec. 535(a)(1), (b), Dec. 17, 1999, 113 Stat.
1934; Pub. L. 108-218, title II, Sec. 204(a), Apr. 10, 2004, 118
Stat. 609; Pub. L. 108-357, title VII, Sec. 709(b)(1), (2), Oct.
22, 2004, 118 Stat. 1551, 1552.)
-REFTEXT-
REFERENCES IN TEXT
The Social Security Act, referred to in subsec. (c)(3)(C), is act
Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Title XVIII of
the Act is classified generally to subchapter XVIII (Sec. 1395 et
seq.) of chapter 7 of Title 42, The Public Health and Welfare. For
complete classification of this Act to the Code, see section 1305
of Title 42 and Tables.
-MISC1-
AMENDMENTS
2004 - Subsec. (b)(5). Pub. L. 108-218 substituted "2013" for
"2005".
Subsec. (c)(3)(E). Pub. L. 108-357 designated existing provisions
as cl. (i), inserted heading, and added cl. (ii).
1999 - Subsec. (b)(1)(C)(iii). Pub. L. 106-170, Sec.
535(b)(2)(A), substituted "cost" for "benefits".
Subsec. (b)(5). Pub. L. 106-170, Sec. 535(a)(1), substituted
"made after December 31, 2005" for "in any taxable year beginning
after December 31, 2000".
Subsec. (c)(3). Pub. L. 106-170, Sec. 535(b)(1), amended heading
and text of par. (3) generally, substituting present provisions for
provisions relating to maintenance of benefit requirements.
Subsec. (e)(1)(D). Pub. L. 106-170, Sec. 535(b)(2)(B),
substituted "or in calculating applicable employer cost under
subsection (c)(3)(B)" for "and shall not be subject to the minimum
benefit requirements of subsection (c)(3)".
1996 - Pub. L. 104-188, Sec. 1704(a), provided that, except as
otherwise expressly provided, whenever in title XII of Pub. L. 101-
508 an amendment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference shall
be considered to be made to a section or other provision of the
Internal Revenue Code of 1986. Section 12011(a) of title XII of
Pub. L. 101-508 directed the amendment of part I of subchapter D of
chapter 1 by adding this subpart, including this section, without
specifying that amendment was to the Internal Revenue Code of 1986.
Subsec. (e)(1)(C). Pub. L. 104-188, Sec. 1704(t)(32), substituted
"means" for "mean".
1994 - Subsec. (b)(1)(C)(iii). Pub. L. 103-465, Sec. 731(c)(1),
substituted "benefits" for "cost".
Subsec. (b)(5). Pub. L. 103-465, Sec. 731(a), substituted "2000"
for "1995".
Subsec. (c)(3). Pub. L. 103-465, Sec. 731(b), amended par. (3)
generally, substituting present provisions for provisions outlining
minimum cost requirements for plans, providing for elections to
compute costs separately, and defining "applicable employer cost"
and "cost maintenance period".
Subsec. (e)(1)(B). Pub. L. 103-465, Sec. 731(c)(2), reenacted
subpar. (B) heading without change and amended text generally.
Prior to amendment, text read as follows: "The amount determined
under subparagraph (A) shall be reduced by any amount previously
contributed to a health benefits account or welfare benefit fund
(as defined in section 419(e)(1)) to pay for the qualified current
retiree health liabilities. The portion of any reserves remaining
as of the close of December 31, 1990, shall be allocated on a pro
rata basis to qualified current retiree health liabilities."
Subsec. (e)(1)(D). Pub. L. 103-465, Sec. 731(c)(3), substituted
"and shall not be subject to the minimum benefit requirements of
subsection (c)(3)" for "or in calculating applicable employer cost
under subsection (c)(3)(B)".
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VII, Sec. 709(b)(3), Oct. 22, 2004, 118
Stat. 1552, provided that: "The amendments made by this subsection
[amending this section] shall apply to taxable years ending after
the date of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 535(c), Dec. 17, 1999, 113 Stat.
1935, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 1021, 1103, and 1108 of Title 29, Labor]
shall apply to qualified transfers occurring after the date of the
enactment of this Act [Dec. 17, 1999].
"(2) Transition rule. - If the cost maintenance period for any
qualified transfer after the date of the enactment of this Act
[Dec. 17, 1999] includes any portion of a benefit maintenance
period for any qualified transfer on or before such date, the
amendments made by subsection (b) [amending this section] shall not
apply to such portion of the cost maintenance period (and such
portion shall be treated as a benefit maintenance period)."
EFFECTIVE DATE OF 1994 AMENDMENT
Section 731(d) of Pub. L. 103-465 provided that:
"(1) Extension. - The amendments made by subsections (a) and
(c)(3) [amending this section] shall apply to taxable years
beginning after December 31, 1995.
"(2) Benefits. - The amendments made by subsections (b) and
(c)(1) and (2) [amending this section] shall apply to qualified
transfers occurring after the date of the enactment of this Act
[Dec. 8, 1994]."
EFFECTIVE DATE
Section 12011(c) of Pub. L. 101-508 provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending section 401 of this title] shall apply to
transfers in taxable years beginning after December 31, 1990.
"(2) Waiver of estimated tax penalties. - No addition to tax
shall be made under section 6654 or section 6655 of the Internal
Revenue Code of 1986 for the taxable year preceding the taxpayer's
1st taxable year beginning after December 31, 1990, with respect to
any underpayment to the extent such underpayment was created or
increased by reason of section 420(b)(4)(B) of such Code (as added
by subsection (a))."
-End-
-CITE-
26 USC PART II - CERTAIN STOCK OPTIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART II - CERTAIN STOCK OPTIONS
-HEAD-
PART II - CERTAIN STOCK OPTIONS
-MISC1-
Sec.
421. General rules.
422. Incentive stock options.
[422A. Renumbered.]
423. Employee stock purchase plans.
424. Definitions and special rules.
[425. Renumbered.]
AMENDMENTS
1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(6),
(c)(9)(A)(ii), Nov. 5, 1990, 104 Stat. 1388-522, 1388-524, struck
out items 422 "Qualified stock options" and 424 "Restricted stock
options" and redesignated items 422A and 425 as 422 and 424,
respectively.
1981 - Pub. L. 97-34, title II, Sec. 251(b)(6), Aug. 13, 1981, 95
Stat. 259, added item 422A.
1964 - Pub. L. 88-272, title II, Sec. 221(a), Feb. 26, 1964, 78
Stat. 63, substituted "CERTAIN STOCK OPTIONS" for "MISCELLANEOUS
PROVISIONS" in part II heading, and "General rules" for "Employee
stock options" in item 421, and added items 422-425.
-End-
-CITE-
26 USC Sec. 421 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART II - CERTAIN STOCK OPTIONS
-HEAD-
Sec. 421. General rules
-STATUTE-
(a) Effect of qualifying transfer
If a share of stock is transferred to an individual in a transfer
in respect of which the requirements of section 422(a) or 423(a)
are met -
(1) no income shall result at the time of the transfer of such
share to the individual upon his exercise of the option with
respect to such share;
(2) no deduction under section 162 (relating to trade or
business expenses) shall be allowable at any time to the employer
corporation, a parent or subsidiary corporation of such
corporation, or a corporation issuing or assuming a stock option
in a transaction to which section 424(a) applies, with respect to
the share so transferred; and
(3) no amount other than the price paid under the option shall
be considered as received by any of such corporations for the
share so transferred.
(b) Effect of disqualifying disposition
If the transfer of a share of stock to an individual pursuant to
his exercise of an option would otherwise meet the requirements of
section 422(a) or 423(a) except that there is a failure to meet any
of the holding period requirements of section 422(a)(1) or
423(a)(1), then any increase in the income of such individual or
deduction from the income of his employer corporation for the
taxable year in which such exercise occurred attributable to such
disposition, shall be treated as an increase in income or a
deduction from income in the taxable year of such individual or of
such employer corporation in which such disposition occurred. No
amount shall be required to be deducted and withheld under chapter
24 with respect to any increase in income attributable to a
disposition described in the preceding sentence.
(c) Exercise by estate
(1) In general
If an option to which this part applies is exercised after the
death of the employee by the estate of the decedent, or by a
person who acquired the right to exercise such option by bequest
or inheritance or by reason of the death of the decedent, the
provisions of subsection (a) shall apply to the same extent as if
the option had been exercised by the decedent, except that -
(A) the holding period and employment requirements of
sections 422(a) and 423(a) shall not apply, and
(B) any transfer by the estate of stock acquired shall be
considered a disposition of such stock for purposes of section
423(c).
(2) Deduction for estate tax
If an amount is required to be included under section 423(c) in
gross income of the estate of the deceased employee or of a
person described in paragraph (1), there shall be allowed to the
estate or such person a deduction with respect to the estate tax
attributable to the inclusion in the taxable estate of the
deceased employee of the net value for estate tax purposes of the
option. For this purpose, the deduction shall be determined under
section 691(c) as if the option acquired from the deceased
employee were an item of gross income in respect of the decedent
under section 691 and as if the amount includible in gross income
under section 423(c) were an amount included in gross income
under section 691 in respect of such item of gross income.
(3) Basis of shares acquired
In the case of a share of stock acquired by the exercise of an
option to which paragraph (1) applies -
(A) the basis of such share shall include so much of the
basis of the option as is attributable to such share; except
that the basis of such share shall be reduced by the excess (if
any) of (i) the amount which would have been includible in
gross income under section 423(c) if the employee had exercised
the option on the date of his death and had held the share
acquired pursuant to such exercise at the time of his death,
over (ii) the amount which is includible in gross income under
such section; and
(B) the last sentence of section 423(c) shall apply only to
the extent that the amount includible in gross income under
such section exceeds so much of the basis of the option as is
attributable to such share.
(d) Certain sales to comply with conflict-of-interest requirements
If -
(1) a share of stock is transferred to an eligible person (as
defined in section 1043(b)(1)) pursuant to such person's exercise
of an option to which this part applies, and
(2) such share is disposed of by such person pursuant to a
certificate of divestiture (as defined in section 1043(b)(2)),
such disposition shall be treated as meeting the requirements of
section 422(a)(1) or 423(a)(1), whichever is applicable.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 142; Pub. L. 85-320, Sec. 1,
Feb. 11, 1958, 72 Stat. 4; Pub. L. 85-866, title I, Secs. 25,
26(a), Sept. 2, 1958, 72 Stat. 1623, 1624; Pub. L. 88-272, title
II, Sec. 221(a), Feb. 26, 1964, 78 Stat. 63; Pub. L. 97-34, title
II, Sec. 251(b)(1), Aug. 13, 1981, 95 Stat. 259; Pub. L. 101-508,
title XI, Sec. 11801(c)(9)(B), Nov. 5, 1990, 104 Stat. 1388-524;
Pub. L. 108-357, title II, Sec. 251(b), title VIII, Sec. 905(a),
Oct. 22, 2004, 118 Stat. 1458, 1653.)
-MISC1-
AMENDMENTS
2004 - Subsec. (b). Pub. L. 108-357, Sec. 251(b), inserted at end
"No amount shall be required to be deducted and withheld under
chapter 24 with respect to any increase in income attributable to a
disposition described in the preceding sentence."
Subsec. (d). Pub. L. 108-357, Sec. 905(a), added subsec. (d).
1990 - Subsec. (a). Pub. L. 101-508, Sec. 11801(c)(9)(B)(i)(I),
substituted "422(a) or 423(a)" for "422(a), 422A(a), 423(a), or
424(a)" in introductory provisions.
Subsec. (a)(1). Pub. L. 101-508, Sec. 11801(c)(9)(B)(i)(II),
struck out "except as provided in section 422(c)(1)," before "no
income".
Subsec. (a)(2). Pub. L. 101-508, Sec. 11801(c)(9)(B)(i)(III),
substituted "424(a)" for "425(a)".
Subsec. (b). Pub. L. 101-508, Sec. 11801(c)(9)(B)(ii),
substituted "422(a) or 423(a)" for "422(a), 422A(a), 423(a), or
424(a)" and "422(a)(1) or 423(a)(1)," for "422(a)(1), 422A(a)(1),
423(a)(1), or 424(a)(1),".
Subsec. (c)(1)(A). Pub. L. 101-508, Sec. 11801(c)(9)(B)(iii)(I),
substituted "422(a) and 423(a)" for "422(a), 422A(a), 423(a), and
424(a)".
Subsec. (c)(1)(B). Pub. L. 101-508, Sec. 11801(c)(9)(B)(iii)(II),
substituted "section 423(c)" for "sections 423(c) and 424(c)(1)".
Subsec. (c)(2), (3)(A). Pub. L. 101-508, Sec.
11801(c)(9)(B)(iii)(III), substituted "423(c)" for "422(c)(1),
423(c), or 424(c)(1)" wherever appearing.
Subsec. (c)(3)(B). Pub. L. 101-508, Sec. 11801(c)(9)(B)(iii)(IV),
(V), substituted "section 423(c)" for "sections 422(c)(1), 423(c),
and 424(c)(1)" and "such section" for "such sections".
1981 - Subsecs. (a), (b), (c)(1)(A). Pub. L. 97-34 inserted
references to section 422A(a) in subsecs. (a), (b), and (c)(1)(A)
and to section 422A(a)(1) in subsec. (b).
1964 - Pub. L. 88-272 amended section generally, and among other
changes, inserted provisions relating to the effect of a qualifying
transfer, and to the basis of shares acquired when an option is
exercised by an estate, and omitted provisions relating to
treatment of restricted stock options, a special rule where option
price was between 85 percent and 95 percent of value of stock,
acquisition of new stock, definitions, modification, extension, or
renewal of option, and corporate reorganizations, liquidations,
etc. See sections 421 to 425 of this title.
1958 - Subsec. (a). Pub. L. 85-866, Sec. 25, inserted sentence
authorizing substitution of "grantor corporation" or "corporation
issuing or assuming a stock option in a transaction to which
subsection (g) is applicable" for "employer corporation".
Subsec. (d)(6)(C). Pub. L. 85-320 added subpar. (C).
Subsec. (d)(1)(A)(ii). Pub. L. 85-866, Sec. 26(a)(1), substituted
"in the case of a variable price option" for "in case the purchase
price of the stock under the option is fixed or determinable under
a formula in which the only variable is the value of the stock at
any time during a period of 6 months which includes the time the
option is exercised" and inserted "fair" before "market value".
Subsec. (d)(7). Pub. L. 85-866, Sec. 26(a)(2), added par. (7).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title II, Sec. 251(d), Oct. 22, 2004, 118 Stat.
1459, provided that: "The amendments made by this section [amending
this section, sections 423, 3121, 3231, and 3306 of this title, and
section 409 of Title 42, The Public Health and Welfare] shall apply
to stock acquired pursuant to options exercised after the date of
the enactment of this Act [Oct. 22, 2004]."
Pub. L. 108-357, title VIII, Sec. 905(b), Oct. 22, 2004, 118
Stat. 1653, provided that: "The amendment made by this section
[amending this section] shall apply to sales after the date of the
enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable with respect to options
granted on or after Jan. 1, 1976, and exercised on or after Jan. 1,
1981, or outstanding on Jan. 1, 1981, or granted on or after Jan.
1, 1976, and outstanding Aug. 13, 1981, see section 251(c) of Pub.
L. 97-34, set out as an Effective Date note under section 422 of
this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 221(e) of Pub. L. 88-272, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Except as provided in paragraphs (2) and (3), the amendments
made by this section [enacting sections 422 to 425 and 6039,
amending this section, sections 402, 691, 6652, 6678, and the
analysis preceding sections 401 and 6031, and renumbering section
3039 as 3040 of this title] shall apply to taxable years ending
after December 31, 1963.
"(2) The amendments made by paragraphs (1) and (3) of subsection
(b) [enacting section 3039, renumbering former section 3039 as
3040, and amending section 6678 of this title] and paragraph (2) of
section 6652(a) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as amended by paragraph (2) of subsection (b)), shall
apply to stock transferred pursuant to options exercised on or
after January 1, 1964.
"(3) In the case of an option granted after December 31, 1963,
and before January 1, 1965 -
"(A) paragraphs (1) and (2) of section 422(b) of the Internal
Revenue Code of 1986 (as added by subsection (a)), shall not
apply, and
"(B) paragraph (1) of section 425(h) of such Code (as added by
subsection (a)), shall not apply to any change in the terms of
such option made before January 1, 1965, to permit such option to
qualify under paragraphs (3), (4), and (5) of such section
422(b)."
EFFECTIVE DATE OF 1958 AMENDMENTS
Amendment by section 25 of Pub. L. 85-866 applicable to taxable
years beginning after Dec. 31, 1953, and ending after Aug. 16,
1954, see section 1(c)(1) of Pub. L. 85-866, set out as a note
under section 165 of this title.
Section 26(b) of Pub. L. 85-866 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to taxable years ending after September 30, 1958."
Section 3 of Pub. L. 85-320 provided that: "The amendments made
by this Act [amending this section and section 1014 of this title]
shall apply with respect to taxable years ending after December 31,
1956, but only in the case of employees dying after such date."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 422 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART II - CERTAIN STOCK OPTIONS
-HEAD-
Sec. 422. Incentive stock options
-STATUTE-
(a) In general
Section 421(a) shall apply with respect to the transfer of a
share of stock to an individual pursuant to his exercise of an
incentive stock option if -
(1) no disposition of such share is made by him within 2 years
from the date of the granting of the option nor within 1 year
after the transfer of such share to him, and
(2) at all times during the period beginning on the date of the
granting of the option and ending on the day 3 months before the
date of such exercise, such individual was an employee of either
the corporation granting such option, a parent or subsidiary
corporation of such corporation, or a corporation or a parent or
subsidiary corporation of such corporation issuing or assuming a
stock option in a transaction to which section 424(a) applies.
(b) Incentive stock option
For purposes of this part, the term "incentive stock option"
means an option granted to an individual for any reason connected
with his employment by a corporation, if granted by the employer
corporation or its parent or subsidiary corporation, to purchase
stock of any of such corporations, but only if -
(1) the option is granted pursuant to a plan which includes the
aggregate number of shares which may be issued under options and
the employees (or class of employees) eligible to receive
options, and which is approved by the stockholders of the
granting corporation within 12 months before or after the date
such plan is adopted;
(2) such option is granted within 10 years from the date such
plan is adopted, or the date such plan is approved by the
stockholders, whichever is earlier;
(3) such option by its terms is not exercisable after the
expiration of 10 years from the date such option is granted;
(4) the option price is not less than the fair market value of
the stock at the time such option is granted;
(5) such option by its terms is not transferable by such
individual otherwise than by will or the laws of descent and
distribution, and is exercisable, during his lifetime, only by
him; and
(6) such individual, at the time the option is granted, does
not own stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the employer
corporation or of its parent or subsidiary corporation.
Such term shall not include any option if (as of the time the
option is granted) the terms of such option provide that it will
not be treated as an incentive stock option.
(c) Special rules
(1) Good faith efforts to value of stock
If a share of stock is transferred pursuant to the exercise by
an individual of an option which would fail to qualify as an
incentive stock option under subsection (b) because there was a
failure in an attempt, made in good faith, to meet the
requirement of subsection (b)(4), the requirement of subsection
(b)(4) shall be considered to have been met. To the extent
provided in regulations by the Secretary, a similar rule shall
apply for purposes of subsection (d).
(2) Certain disqualifying dispositions where amount realized is
less than value at exercise
If -
(A) an individual who has acquired a share of stock by the
exercise of an incentive stock option makes a disposition of
such share within either of the periods described in subsection
(a)(1), and
(B) such disposition is a sale or exchange with respect to
which a loss (if sustained) would be recognized to such
individual,
then the amount which is includible in the gross income of such
individual, and the amount which is deductible from the income of
his employer corporation, as compensation attributable to the
exercise of such option shall not exceed the excess (if any) of
the amount realized on such sale or exchange over the adjusted
basis of such share.
(3) Certain transfers by insolvent individuals
If an insolvent individual holds a share of stock acquired
pursuant to his exercise of an incentive stock option, and if
such share is transferred to a trustee, receiver, or other
similar fiduciary in any proceeding under title 11 or any other
similar insolvency proceeding, neither such transfer, nor any
other transfer of such share for the benefit of his creditors in
such proceeding, shall constitute a disposition of such share for
purposes of subsection (a)(1).
(4) Permissible provisions
An option which meets the requirements of subsection (b) shall
be treated as an incentive stock option even if -
(A) the employee may pay for the stock with stock of the
corporation granting the option,
(B) the employee has a right to receive property at the time
of exercise of the option, or
(C) the option is subject to any condition not inconsistent
with the provisions of subsection (b).
Subparagraph (B) shall apply to a transfer of property (other
than cash) only if section 83 applies to the property so
transferred.
(5) 10-percent shareholder rule
Subsection (b)(6) shall not apply if at the time such option is
granted the option price is at least 110 percent of the fair
market value of the stock subject to the option and such option
by its terms is not exercisable after the expiration of 5 years
from the date such option is granted.
(6) Special rule when disabled
For purposes of subsection (a)(2), in the case of an employee
who is disabled (within the meaning of section 22(e)(3)), the 3-
month period of subsection (a)(2) shall be 1 year.
(7) Fair market value
For purposes of this section, the fair market value of stock
shall be determined without regard to any restriction other than
a restriction which, by its terms, will never lapse.
(d) $100,000 per year limitation
(1) In general
To the extent that the aggregate fair market value of stock
with respect to which incentive stock options (determined without
regard to this subsection) are exercisable for the 1st time by
any individual during any calendar year (under all plans of the
individual's employer corporation and its parent and subsidiary
corporations) exceeds $100,000, such options shall be treated as
options which are not incentive stock options.
(2) Ordering rule
Paragraph (1) shall be applied by taking options into account
in the order in which they were granted.
(3) Determination of fair market value
For purposes of paragraph (1), the fair market value of any
stock shall be determined as of the time the option with respect
to such stock is granted.
-SOURCE-
(Added Pub. L. 97-34, title II, Sec. 251(a), Aug. 13, 1981, 95
Stat. 256, Sec. 422A; amended Pub. L. 97-448, title I, Sec.
102(j)(1)-(4), Jan. 12, 1983, 96 Stat. 2373; Pub. L. 98-369, div.
A, title V, Sec. 555(a)(1), div. B, title VI, Sec. 2662(f)(1), July
18, 1984, 98 Stat. 897, 1159; Pub. L. 99-514, title III, Sec.
321(a), (b), title XVIII, Sec. 1847(b)(5), Oct. 22, 1986, 100 Stat.
2220, 2856; Pub. L. 100-647, title I, Sec. 1003(d)(1)(A), (2), Nov.
10, 1988, 102 Stat. 3384; renumbered Sec. 422 and amended Pub. L.
101-508, title XI, Sec. 11801(c)(9)(A)(i), (C), Nov. 5, 1990, 104
Stat. 1388-524, 1388-525.)
-MISC1-
PRIOR PROVISIONS
A prior section 422, added Pub. L. 88-272, title II, Sec. 221(a),
Feb. 26, 1964, 78 Stat. 64; amended Pub. L. 94-455, title VI, Sec.
603(a), (b), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1574, 1834; Pub. L. 96-589, Sec. 6(i)(3), Dec. 24, 1980, 94 Stat.
3410, related to qualified stock options, prior to repeal by Pub.
L. 101-508, title XI, Sec. 11801(a)(20), Nov. 5, 1990, 104 Stat.
1388-521. For savings provision, see section 11821(b) of Pub. L.
101-508, set out as a note under section 45K of this title.
AMENDMENTS
1990 - Pub. L. 101-508, Sec. 11801(c)(9)(A)(i), renumbered
section 422A of this title as this section.
Subsec. (a)(2). Pub. L. 101-508, Sec. 11801(c)(9)(C)(i),
substituted "424(a)" for "425(a)".
Subsec. (c)(5) to (8). Pub. L. 101-508, Sec. 11801(c)(9)(C)(ii),
redesignated pars. (6) to (8) as (5) to (7), respectively, and
struck out former par. (5) "Coordination with sections 422 and 424"
which read as follows: "Sections 422 and 424 shall not apply to an
incentive stock option."
1988 - Subsec. (b). Pub. L. 100-647, Sec. 1003(d)(1)(A), inserted
at end "Such term shall not include any option if (as of the time
the option is granted) the terms of such option provide that it
will not be treated as an incentive stock option."
Subsec. (b)(7). Pub. L. 100-647, Sec. 1003(d)(2)(B), struck out
par. (7) which read as follows: "under the terms of the plan, the
aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options
are exercisable for the 1st time by such individual during any
calendar year (under all such plans of the individual's employer
corporation and its parent and subsidiary corporations) shall not
exceed $100,000."
Subsec. (c)(1). Pub. L. 100-647, Sec. 1003(d)(2)(C), substituted
"subsection (d)" for "paragraph (7) of subsection (b)".
Subsec. (d). Pub. L. 100-647, Sec. 1003(d)(2)(A), added subsec.
(d).
1986 - Subsec. (b)(7). Pub. L. 99-514, Sec. 321(a), added par.
(7) and struck out former par. (7) which read as follows: "such
option by its terms is not exercisable while there is outstanding
(within the meaning of subsection (c)(7)) any incentive stock
option which was granted, before the granting of such option, to
such individual to purchase stock in his employer corporation or in
a corporation which (at the time of the granting of such option) is
a parent or subsidiary corporation of the employer corporation, or
in a predecessor corporation of any of such corporations; and".
Subsec. (b)(8). Pub. L. 99-514, Sec. 321(a), struck out par. (8)
which read as follows: "in the case of an option granted after
December 31, 1980, under the terms of the plan the aggregate fair
market value (determined as of the time the option is granted) of
the stock for which any employee may be granted incentive stock
options in any calendar year (under all such plans of his employer
corporation and its parent and subsidiary corporation) shall not
exceed $100,000 plus any unused limit carryover to such year."
Subsec. (c)(1). Pub. L. 99-514, Sec. 321(b)(2), substituted
"paragraph (7) of subsection (b)" for "paragraph (8) of subsection
(b) and paragraph (4) of this subsection".
Subsec. (c)(4). Pub. L. 99-514, Sec. 321(b)(1), redesignated par.
(5) as (4) and struck out former par. (4) relating to carryover of
unused limit.
Subsec. (c)(5), (6). Pub. L. 99-514, Sec. 321(b)(1)(B),
redesignated pars. (6) and (8) as (5) and (6), respectively. Former
par. (5) redesignated (4).
Subsec. (c)(7). Pub. L. 99-514, Sec. 321(b)(1), redesignated par.
(9) as (7) and struck out former par. (7) which provided that for
purposes of subsec. (b)(7) any incentive stock option be treated as
outstanding until such option was exercised in full or expired by
reason of lapse of time.
Subsec. (c)(8). Pub. L. 99-514, Sec. 321(b)(1)(B), redesignated
par. (10) as (8). Former par. (8) redesignated (6).
Subsec. (c)(9). Pub. L. 99-514, Sec. 321(b)(1)(B), redesignated
par. (9) as (7).
Pub. L. 99-514, Sec. 1847(b)(5), substituted "section 22(e)(3)"
for "section 37(e)(3)".
Subsec. (c)(10). Pub. L. 99-514, Sec. 321(b)(1)(B), redesignated
par. (10) as (8).
1984 - Subsec. (c)(9). Pub. L. 98-369, Sec. 2662(f)(1),
substituted "section 37(e)(3)" for "section 105(d)(4)".
Subsec. (c)(10). Pub. L. 98-369, Sec. 555(a)(1), added par. (10).
1983 - Subsec. (b)(8). Pub. L. 97-448, Sec. 102(j)(1),
substituted "granted incentive stock options" for "granted
options".
Subsec. (c)(1). Pub. L. 97-448, Sec. 102(j)(2), substituted "Good
faith efforts to value stock" for "Exercise of option when price is
less than value of stock" as par. (1) heading and inserted sentence
providing that, to the extent provided in regulations by the
Secretary, a rule similar to that already enunciated in the
paragraph applies for purposes of par. (8) of subsec. (b) and par.
(4) of subsec. (c).
Subsec. (c)(2)(A). Pub. L. 97-448, Sec. 102(j)(3), substituted
"either of the periods" for "the 2-year period".
Subsec. (c)(4)(A)(ii). Pub. L. 97-448, Sec. 102(j)(4),
substituted "granted incentive stock options" for "granted
options".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 321(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to options
granted after December 31, 1986."
Amendment by section 1847(b)(5) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 555(c)(1) of Pub. L. 98-369, as amended by Pub. L. 99-
514, title XVIII, Sec. 1855(a)(1), Oct. 22, 1986, 100 Stat. 2882,
provided that: "The amendment made by subsection (a)(1) [amending
this section] shall apply to options granted after March 20, 1984,
except that such subsection shall not apply to any incentive stock
option granted before September 20, 1984, pursuant to a plan
adopted or corporate action taken by the board of directors of the
grantor corporation before May 15, 1984."
Amendment by section 2662 of Pub. L. 98-369 effective as though
included in the enactment of the Social Security Amendments of
1983, Pub. L. 98-21, see section 2664(a) of Pub. L. 98-369, set out
as a note under section 401 of Title 42, The Public Health and
Welfare.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE
Section 251(c) of Pub. L. 97-34, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Options to which section applies. -
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by this section [enacting this section and
amending sections 421, 425 [now 424], and 6039 of this title]
shall apply with respect to options granted on or after January
1, 1976, and exercised on or after January 1, 1981, or
outstanding on such date.
"(B) Election and designation of options. - In the case of an
option granted before January 1, 1981, the amendments made by
this section shall apply only if the corporation granting such
option elects (in the manner and at the time prescribed by the
Secretary of the Treasury or his delegate) to have the amendments
made by this section apply to such option. The aggregate fair
market value (determined at the time the option is granted) of
the stock for which any employee was granted options (under all
plans of his employer corporation and its parent and subsidiary
corporations) to which the amendments made by this section apply
by reason of this subparagraph shall not exceed $50,000 per
calendar year ans shall not exceed $200,000 in the aggregate.
"(2) Changes in terms of options. - In the case of an option
granted on or after January 1, 1976, and outstanding on the date of
the enactment of this Act [Aug. 13, 1981], paragraph (1) of section
425(h) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
shall not apply to any change in the terms of such option (or the
terms of the plan under which granted, including shareholder
approval) made within 1 year after such date of enactment to permit
such option to qualify as a incentive stock option."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
TREATMENT OF OPTIONS AS INCENTIVE STOCK OPTIONS
Section 1003(d)(1)(B) of Pub. L. 100-647 provided that: "In the
case of an option granted after December 31, 1986, and on or before
the date of the enactment of this Act [Nov. 10, 1988], such option
shall not be treated as an incentive stock option if the terms of
such option are amended before the date 90 days after such date of
enactment to provide that such option will not be treated as an
incentive stock option."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 422A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART II - CERTAIN STOCK OPTIONS
-HEAD-
[Sec. 422A. Renumbered Sec. 422]
-STATUTE-
-End-
-CITE-
26 USC Sec. 423 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART II - CERTAIN STOCK OPTIONS
-HEAD-
Sec. 423. Employee stock purchase plans
-STATUTE-
(a) General rule
Section 421(a) shall apply with respect to the transfer of a
share of stock to an individual pursuant to his exercise of an
option granted after December 31, 1963, under an employee stock
purchase plan (as defined in subsection (b)) if -
(1) no disposition of such share is made by him within 2 years
after the date of the granting of the option nor within 1 year
after the transfer of such share to him; and
(2) at all times during the period beginning with the date of
the granting of the option and ending on the day 3 months before
the date of such exercise, he is an employee of the corporation
granting such option, a parent or subsidiary corporation of such
corporation, or a corporation or a parent or subsidiary
corporation of such corporation issuing or assuming a stock
option in a transaction to which section 424(a) applies.
(b) Employee stock purchase plan
For purposes of this part, the term "employee stock purchase
plan" means a plan which meets the following requirements:
(1) the plan provides that options are to be granted only to
employees of the employer corporation or of its parent or
subsidiary corporation to purchase stock in any such corporation;
(2) such plan is approved by the stockholders of the granting
corporation within 12 months before or after the date such plan
is adopted;
(3) under the terms of the plan, no employee can be granted an
option if such employee, immediately after the option is granted,
owns stock possessing 5 percent or more of the total combined
voting power or value of all classes of stock of the employer
corporation or of its parent or subsidiary corporation. For
purposes of this paragraph, the rules of section 424(d) shall
apply in determining the stock ownership of an individual, and
stock which the employee may purchase under outstanding options
shall be treated as stock owned by the employee;
(4) under the terms of the plan, options are to be granted to
all employees of any corporation whose employees are granted any
of such options by reason of their employment by such
corporation, except that there may be excluded -
(A) employees who have been employed less than 2 years,
(B) employees whose customary employment is 20 hours or less
per week,
(C) employees whose customary employment is for not more than
5 months in any calendar year, and
(D) highly compensated employees (within the meaning of
section 414(q));
(5) under the terms of the plan, all employees granted such
options shall have the same rights and privileges, except that
the amount of stock which may be purchased by any employee under
such option may bear a uniform relationship to the total
compensation, or the basic or regular rate of compensation, of
employees, and the plan may provide that no employee may purchase
more than a maximum amount of stock fixed under the plan;
(6) under the terms of the plan, the option price is not less
than the lesser of -
(A) an amount equal to 85 percent of the fair market value of
the stock at the time such option is granted, or
(B) an amount which under the terms of the option may not be
less than 85 percent of the fair market value of the stock at
the time such option is exercised;
(7) under the terms of the plan, such option cannot be
exercised after the expiration of -
(A) 5 years from the date such option is granted if, under
the terms of such plan, the option price is to be not less than
85 percent of the fair market value of such stock at the time
of the exercise of the option, or
(B) 27 months from the date such option is granted, if the
option price is not determinable in the manner described in
subparagraph (A)
(8) under the terms of the plan, no employee may be granted an
option which permits his rights to purchase stock under all such
plans of his employer corporation and its parent and subsidiary
corporations to accrue at a rate which exceeds $25,000 of fair
market value of such stock (determined at the time such option is
granted) for each calendar year in which such option is
outstanding at any time. For purposes of this paragraph -
(A) the right to purchase stock under an option accrues when
the option (or any portion thereof) first becomes exercisable
during the calendar year;
(B) the right to purchase stock under an option accrues at
the rate provided in the option, but in no case may such rate
exceed $25,000 of fair market value of such stock (determined
at the time such option is granted) for any one calendar year;
and
(C) a right to purchase stock which has accrued under one
option granted pursuant to the plan may not be carried over to
any other option; and
(9) under the terms of the plan, such option is not
transferable by such individual otherwise than by will or the
laws of descent and distribution, and is exercisable, during his
lifetime, only by him.
For purposes of paragraphs (3) to (9), inclusive, where additional
terms are contained in an offering made under a plan, such
additional terms shall, with respect to options exercised under
such offering, be treated as a part of the terms of such plan.
(c) Special rule where option price is between 85 percent and 100
percent of value of stock
If the option price of a share of stock acquired by an individual
pursuant to a transfer to which subsection (a) applies was less
than 100 percent of the fair market value of such share at the time
such option was granted, then, in the event of any disposition of
such share by him which meets the holding period requirements of
subsection (a), or in the event of his death (whenever occurring)
while owning such share, there shall be included as compensation
(and not as gain upon the sale or exchange of a capital asset) in
his gross income, for the taxable year in which falls the date of
such disposition or for the taxable year closing with his death,
whichever applies, an amount equal to the lesser of -
(1) the excess of the fair market value of the share at the
time of such disposition or death over the amount paid for the
share under the option, or
(2) the excess of the fair market value of the share at the
time the option was granted over the option price.
If the option price is not fixed or determinable at the time the
option is granted, then for purposes of this subsection, the option
price shall be determined as if the option were exercised at such
time. In the case of the disposition of such share by the
individual, the basis of the share in his hands at the time of such
disposition shall be increased by an amount equal to the amount so
includible in his gross income. No amount shall be required to be
deducted and withheld under chapter 24 with respect to any amount
treated as compensation under this subsection.
-SOURCE-
(Added Pub. L. 88-272, title II, Sec. 221(a), Feb. 26, 1964, 78
Stat. 67; amended Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(E),
(2), Oct. 4, 1976, 90 Stat. 1732; Pub. L. 98-369, div. A, title X,
Sec. 1001(b)(5), (e), July 18, 1984, 98 Stat. 1011, 1012; Pub. L.
99-514, title XI, Sec. 1114(b)(13), Oct. 22, 1986, 100 Stat. 2451;
Pub. L. 101-508, title XI, Sec. 11801(c)(9)(D), (E), Nov. 5, 1990,
104 Stat. 1388-525; Pub. L. 108-357, title II, Sec. 251(c), Oct.
22, 2004, 118 Stat. 1459.)
-MISC1-
AMENDMENTS
2004 - Subsec. (c). Pub. L. 108-357 inserted at end of concluding
provisions "No amount shall be required to be deducted and withheld
under chapter 24 with respect to any amount treated as compensation
under this subsection."
1990 - Subsec. (a). Pub. L. 101-508, Sec. 11801(c)(9)(D)(i),
struck out "(other than a restricted stock option granted pursuant
to a plan described in section 424(c)(3)(B))" after "December 31,
1963".
Subsec. (a)(2). Pub. L. 101-508, Sec. 11801(c)(9)(D)(ii),
substituted "424(a)" for "425(a)".
Subsec. (b)(3). Pub. L. 101-508, Sec. 11801(c)(9)(E), substituted
"424(d)" for "425(d)".
1986 - Subsec. (b)(4)(D). Pub. L. 99-514 substituted "highly
compensated employees (within the meaning of section 414(q))" for
"officers, persons whose principal duties consist of supervising
the work of other employees, or highly compensated employees".
1984 - Subsec. (a)(1). Pub. L. 98-369 substituted "6 months" for
"1 year", applicable to property acquired after June 22, 1984, and
before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1402(b)(2), provided
that "9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(E), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to stock acquired
pursuant to options exercised after Oct. 22, 2004, see section
251(d) of Pub. L. 108-357, set out as a note under section 421 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to years beginning after
Dec. 31, 1986, see section 1114(c)(1) of Pub. L. 99-514, set out as
a note under section 414 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
EFFECTIVE DATE
Section applicable to taxable years ending after Dec. 31, 1963,
see section 221(e) of Pub. L. 88-272, set out as an Effective Date
of 1964 Amendment note under section 421 of this title.
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 424 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART II - CERTAIN STOCK OPTIONS
-HEAD-
Sec. 424. Definitions and special rules
-STATUTE-
(a) Corporate reorganizations, liquidations, etc.
For purposes of this part, the term "issuing or assuming a stock
option in a transaction to which section 424(a) applies" means a
substitution of a new option for the old option, or an assumption
of the old option, by an employer corporation, or a parent or
subsidiary of such corporation, by reason of a corporate merger,
consolidation, acquisition of property or stock, separation,
reorganization, or liquidation, if -
(1) the excess of the aggregate fair market value of the shares
subject to the option immediately after the substitution or
assumption over the aggregate option price of such shares is not
more than the excess of the aggregate fair market value of all
shares subject to the option immediately before such substitution
or assumption over the aggregate option price of such shares, and
(2) the new option or the assumption of the old option does not
give the employee additional benefits which he did not have under
the old option.
For purposes of this subsection, the parent-subsidiary relationship
shall be determined at the time of any such transaction under this
subsection.
(b) Acquisition of new stock
For purposes of this part, if stock is received by an individual
in a distribution to which section 305, 354, 355, 356, or 1036 (or
so much of section 1031 as relates to section 1036) applies, and
such distribution was made with respect to stock transferred to him
upon his exercise of the option, such stock shall be considered as
having been transferred to him on his exercise of such option. A
similar rule shall be applied in the case of a series of such
distributions.
(c) Disposition
(1) In general
Except as provided in paragraphs (2), (3), and (4), for
purposes of this part, the term "disposition" includes a sale,
exchange, gift, or a transfer of legal title, but does not
include -
(A) a transfer from a decedent to an estate or a transfer by
request or inheritance;
(B) an exchange to which section 354, 355, 356, or 1036 (or
so much of section 1031 as relates to section 1036) applies; or
(C) a mere pledge or hypothecation.
(2) Joint tenancy
The acquisition of a share of stock in the name of the employee
and another jointly with the right of survivorship or a
subsequent transfer of a share of stock into such joint ownership
shall not be deemed a disposition, but a termination of such
joint tenancy (except to the extent such employee acquires
ownership of such stock) shall be treated as a disposition by him
occurring at the time such joint tenancy is terminated.
(3) Special rule where incentive stock is acquired through use of
other statutory option stock
(A) Nonrecognition sections not to apply
If -
(i) there is a transfer of statutory option stock in
connection with the exercise of any incentive stock option,
and
(ii) the applicable holding period requirements (under
section 422(a)(1) or 423(a)(1)) are not met before such
transfer,
then no section referred to in subparagraph (B) of paragraph
(1) shall apply to such transfer.
(B) Statutory option stock
For purpose of subparagraph (A), the term "statutory option
stock" means any stock acquired through the exercise of an
incentive stock option or an option granted under an employee
stock purchase plan.
(4) Transfers between spouses or incident to divorce
In the case of any transfer described in subsection (a) of
section 1041 -
(A) such transfer shall not be treated as a disposition for
purposes of this part, and
(B) the same tax treatment under this part with respect to
the transferred property shall apply to the transferee as would
have applied to the transferor.
(d) Attribution of stock ownership
For purposes of this part, in applying the percentage limitations
of sections 422(b)(6) and 423(b)(3) -
(1) the individual with respect to whom such limitation is
being determined shall be considered as owning the stock owned,
directly or indirectly, by or for his brothers and sisters
(whether by the whole or half blood), spouse, ancestors, and
lineal descendants; and
(2) stock owned, directly or indirectly, by or for a
corporation, partnership, estate, or trust, shall be considered
as being owned proportionately by or for its shareholders,
partners, or beneficiaries.
(e) Parent corporation
For purposes of this part, the term "parent corporation" means
any corporation (other than the employer corporation) in an
unbroken chain of corporations ending with the employer corporation
if, at the time of the granting of the option, each of the
corporations other than the employer corporation owns stock
possessing 50 percent or more of the total combined voting power of
all classes of stock in one of the other corporations in such
chain.
(f) Subsidiary corporation
For purposes of this part, the term "subsidiary corporation"
means any corporation (other than the employer corporation) in an
unbroken chain of corporations beginning with the employer
corporation if, at the time of the granting of the option, each of
the corporations other than the last corporation in the unbroken
chain owns stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
(g) Special rule for applying subsections (e) and (f)
In applying subsections (e) and (f) for purposes of section (!1)
422(a)(2) and 423(a)(2), there shall be substituted for the term
"employer corporation" wherever it appears in subsection (e) and
(f) the term "grantor corporation" or the term "corporation issuing
or assuming a stock option in a transaction to which section 424(a)
applies" as the case may be.
(h) Modification, extension, or renewal of option
(1) In general
For purposes of this part, if the terms of any option to
purchase stock are modified, extended, or renewed, such
modification, extension, or renewal shall be considered as the
granting of a new option.
(2) Special rule for section 423 options
In the case of the transfer of stock pursuant to the exercise
of an option to which section 423 applies and which has been so
modified, extended, or renewed, the fair market value of such
stock at the time of the granting of the option shall be
considered as whichever of the following is the highest -
(A) the fair market value of such stock on the date of the
original granting of the option,
(B) the fair market value of such stock on the date of the
making of such modification, extension, or renewal, or
(C) the fair market value of such stock at the time of the
making of any intervening modification, extension, or renewal.
(3) Definition of modification
The term "modification" means any change in the terms of the
option which gives the employee additional benefits under the
option, but such term shall not include a change in the terms of
the option -
(A) attributable to the issuance or assumption of an option
under subsection (a);
(B) to permit the option to qualify under section 423(b)(9);
or
(C) in the case of an option not immediately exercisable in
full, to accelerate the time at which the option may be
exercised.
(i) Stockholder approval
For purposes of this part, if the grant of an option is subject
to approval by stockholders, the date of grant of the option shall
be determined as if the option had not been subject to such
approval.
(j) Cross references
For provisions requiring the reporting of certain acts with
respect to a qualified stock option, an incentive stock option,
options granted under employer stock purchase plans, or a
restricted stock option, see section 6039.
-SOURCE-
(Added Pub. L. 88-272, title II, Sec. 221(a), Feb. 26, 1964, 78
Stat. 71, Sec. 425; amended Pub. L. 97-34, title II, Sec. 251(b)(2)-
(4), Aug. 13, 1981, 95 Stat. 259; Pub. L. 97-448, title I, Sec.
102(j)(5), (6), Jan. 12, 1983, 96 Stat. 2373; Pub. L. 98-369, div.
A, title V, Sec. 555(b), July 18, 1984, 98 Stat. 898; Pub. L. 100-
647, title I, Sec. 1018(l)(1), (2), Nov. 10, 1988, 102 Stat. 3584;
Pub. L. 101-239, title VII, Sec. 7811(m)(6), Dec. 19, 1989, 103
Stat. 2412; renumbered Sec. 424 and amended Pub. L. 101-508, title
XI, Sec. 11801(c)(9)(A)(i), (F), Nov. 5, 1990, 104 Stat. 1388-524,
1388-525; Pub. L. 104-188, title I, Sec. 1702(h)(13), Aug. 20,
1996, 110 Stat. 1874.)
-MISC1-
PRIOR PROVISIONS
A prior section 424, added Pub. L. 88-272, title II, Sec. 221(a),
Feb. 26, 1964, 78 Stat. 69; amended Pub. L. 94-455, title VI, Sec.
603(c), title XIV, Sec. 1402(b)(1)(F), (2), Oct. 4, 1976, 90 Stat.
1574, 1732, related to restricted stock options, prior to repeal by
Pub. L. 101-508, title XI, Sec. 11801(a)(21), Nov. 5, 1990, 104
Stat. 1388-521. For savings provisions, see section 11821(b) of
Pub. L. 101-508, set out as a note under section 45K of this title.
AMENDMENTS
1996 - Subsec. (c)(3)(B). Pub. L. 104-188 substituted "an
incentive stock option or an option granted under an employee stock
purchase plan" for "a qualified stock option, an incentive stock
option, an option granted under an employee stock purchase plan, or
a restricted stock option".
1990 - Pub. L. 101-508, Sec. 11801(c)(9)(A)(i), renumbered
section 425 of this title as this section.
Subsec. (a). Pub. L. 101-508, Sec. 11801(c)(9)(F)(i), substituted
"424(a)" for "425(a)".
Subsec. (c)(3)(A)(ii). Pub. L. 101-508, Sec. 11801(c)(9)(F)(ii),
substituted "422(a)(1) or 423(a)(1)" for "422(a)(1), 422A(a)(1),
423(a)(1), or 424(a)(1)".
Subsec. (d). Pub. L. 101-508, Sec. 11801(c)(9)(F)(iii),
substituted "422(b)(6) and 423(b)(3)" for "422(b)(7), 422A(b)(6),
423(b)(3), and 424(b)(3)".
Subsec. (g). Pub. L. 101-508, Sec. 11801(c)(9)(F)(iv),
substituted "422(a)(2) and 423(a)(2)" for "422(a)(2), 422A(a)(2),
423(a)(2), and 424(a)(2)" and "424(a)" for "425(a)".
Subsec. (h)(2). Pub. L. 101-508, Sec. 11801(c)(9)(F)(v)(I), added
par. (2) and struck out former par. (2) which related to special
rules for sections 423 and 424 options and to an exception that
such rules would not apply with respect to a modification,
extension or renewal of a restricted stock option before Jan. 1,
1964, if the aggregate of the monthly fair market value for 12
consecutive months before date of modification, etc., divided by 12
is an amount less than 80% of the fair market value of such stock
on the date of original granting or the date of modification, etc.,
whichever is higher.
Subsec. (h)(3). Pub. L. 101-508, Sec. 11801(c)(9)(F)(v)(III),
struck out at end "If a restricted stock option is exercisable
after the expiration of 10 years from the date such option is
granted, subparagraph (B) shall not apply unless the terms of the
option are also changed to make it not exercisable after the
expiration of such period."
Subsec. (h)(3)(B). Pub. L. 101-508, Sec. 11801(c)(9)(F)(v)(II),
substituted "section 423(b)(9)" for "sections 422(b)(6), 423(b)(9),
and 424(b)(2)".
1989 - Subsec. (c)(1). Pub. L. 101-239 made technical correction
to Pub. L. 100-647, Sec. 1018(l)(2), see 1988 Amendment note below.
1988 - Subsec. (c)(1). Pub. L. 100-647, Sec. 1018(l)(2), as
amended by Pub. L. 101-239, substituted "paragraphs (2), (3), and
(4)" for "paragraphs (2) and (3)".
Subsec. (c)(4). Pub. L. 100-647, Sec. 1018(l)(1), added par. (4).
1984 - Subsec. (h)(3)(B). Pub. L. 98-369 struck out reference to
section 422A(b)(5).
1983 - Subsec. (c)(1). Pub. L. 97-448, Sec. 102(j)(6)(B),
substituted "paragraphs (2) and (3)" for "paragraph (2)".
Subsec. (c)(3). Pub. L. 97-448, Sec. 102(j)(6)(A), added par.
(3).
Subsec. (j). Pub. L. 97-448, Sec. 102(j)(5), inserted reference
to an incentive stock option.
1981 - Subsec. (d). Pub. L. 97-34, Sec. 251(b)(2), inserted
reference to section 422A(b)(6).
Subsec. (g). Pub. L. 97-34, Sec. 251(b)(3), inserted reference to
section 422A(a)(2).
Subsec. (h)(3)(B). Pub. L. 97-34, Sec. 251(b)(4), inserted
reference to section 422A(b)(5).
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 555(c)(3) of Pub. L. 98-369, as amended by Pub. L. 99-
514, title XVIII, Sec. 1855(a)(4), Oct. 22, 1986, 100 Stat. 2882,
provided that: "The amendment made by subsection (b) [amending this
section] shall apply with respect to modifications of options after
March 20, 1984."
EFFECTIVE DATE OF 1983 AMENDMENT
Section 102(j)(6) of Pub. L. 97-448 provided that the amendment
made by that section is effective only with respect to transfers
after March 15, 1982.
Amendment by section 102(j)(5) of title I of Pub. L. 97-448
effective, except as otherwise provided, as if it had been included
in the provision of the Economic Recovery Tax Act of 1981, Pub. L.
97-34, to which such amendment relates, see section 109 of Pub. L.
97-448, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable with respect to options
granted on or after Jan. 1, 1976, and exercised on or after Jan. 1,
1981, or outstanding on Jan. 1, 1981, or granted on or after Jan.
1, 1976, and outstanding Aug. 13, 1981, see section 251(c) of Pub.
L. 97-34, set out as an Effective Date note under section 422 of
this title.
EFFECTIVE DATE
Section applicable to taxable years ending after Dec. 31, 1963,
except in cases of options granted after Dec. 31, 1963, and before
Jan. 1, 1965, in which case par. (1) of subsec. (h) shall not apply
to any change in the terms of such option made before Jan. 1, 1965,
to permit such option to qualify under pars. (3), (4), and (5) of
section 422(b), see section 221(e) of Pub. L. 88-272, set out as an
Effective Date of 1964 Amendment note under section 421 of this
title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-FOOTNOTE-
(!1) So in original. Probably should be "sections".
-End-
-CITE-
26 USC Sec. 425 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter D - Deferred Compensation, Etc.
PART II - CERTAIN STOCK OPTIONS
-HEAD-
[Sec. 425. Renumbered Sec. 424]
-STATUTE-
-End-
-CITE-
26 USC Subchapter E - Accounting Periods and Methods of
Accounting 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
-HEAD-
SUBCHAPTER E - ACCOUNTING PERIODS AND METHODS OF ACCOUNTING
-MISC1-
Part
I. Accounting periods.
II. Methods of accounting.
III. Adjustments.
-End-
-CITE-
26 USC PART I - ACCOUNTING PERIODS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
PART I - ACCOUNTING PERIODS
-MISC1-
Sec.
441. Period for computation of taxable income.
442. Change of annual accounting period.
443. Returns for a period of less than 12 months.
444. Election of taxable year other than required taxable
year.
AMENDMENTS
1987 - Pub. L. 100-203, title X, Sec. 10206(a)(2), Dec. 22, 1987,
101 Stat. 1330-398, added item 444.
-End-
-CITE-
26 USC Sec. 441 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 441. Period for computation of taxable income
-STATUTE-
(a) Computation of taxable income
Taxable income shall be computed on the basis of the taxpayer's
taxable year.
(b) Taxable year
For purposes of this subtitle, the term "taxable year" means -
(1) the taxpayer's annual accounting period, if it is a
calendar year or a fiscal year;
(2) the calendar year, if subsection (g) applies;
(3) the period for which the return is made, if a return is
made for a period of less than 12 months; or
(4) in the case of a FSC or DISC filing a return for a period
of at least 12 months, the period determined under subsection
(h).
(c) Annual accounting period
For purposes of this subtitle, the term "annual accounting
period" means the annual period on the basis of which the taxpayer
regularly computes his income in keeping his books.
(d) Calendar year
For purposes of this subtitle, the term "calendar year" means a
period of 12 months ending on December 31.
(e) Fiscal year
For purposes of this subtitle, the term "fiscal year" means a
period of 12 months ending on the last day of any month other than
December. In the case of any taxpayer who has made the election
provided by subsection (f) the term means the annual period
(varying from 52 to 53 weeks) so elected.
(f) Election of year consisting of 52-53 weeks
(1) General rule
A taxpayer who, in keeping his books, regularly computes his
income on the basis of an annual period which varies from 52 to
53 weeks and ends always on the same day of the week and ends
always -
(A) on whatever date such same day of the week last occurs in
a calendar month, or
(B) on whatever date such same day of the week falls which is
nearest to the last day of a calendar month,
may (in accordance with the regulations prescribed under
paragraph (3)) elect to compute his taxable income for purposes
of this subtitle on the basis of such annual period. This
paragraph shall apply to taxable years ending after the date of
the enactment of this title.
(2) Special rules for 52-53-week year
(A) Effective dates
In any case in which the effective date or the applicability
of any provision of this title is expressed in terms of taxable
years beginning, including, or ending with reference to a
specified date which is the first or last day of a month, a
taxable year described in paragraph (1) shall (except for
purposes of the computation under section 15) be treated -
(i) as beginning with the first day of the calendar month
beginning nearest to the first day of such taxable year, or
(ii) as ending with the last day of the calendar month
ending nearest to the last day of such taxable year,
as the case may be.
(B) Change in accounting period
In the case of a change from or to a taxable year described
in paragraph (1) -
(i) if such change results in a short period (within the
meaning of section 443) of 359 days or more, or of less than
7 days, section 443(b) (relating to alternative tax
computation) shall not apply;
(ii) if such change results in a short period of less than
7 days, such short period shall, for purposes of this
subtitle, be added to and deemed a part of the following
taxable year; and
(iii) if such change results in a short period to which
subsection (b) of section 443 applies, the taxable income for
such short period shall be placed on an annual basis for
purposes of such subsection by multiplying the gross income
for such short period (minus the deductions allowed by this
chapter for the short period, but only the adjusted amount of
the deductions for personal exemptions as described in
section 443(c)) by 365, by dividing the result by the number
of days in the short period, and the tax shall be the same
part of the tax computed on the annual basis as the number of
days in the short period is of 365 days.
(3) Special rule for partnerships, S corporations, and personal
service corporations
The Secretary may by regulation provide terms and conditions
for the application of this subsection to a partnership, S
corporation, or personal service corporation (within the meaning
of section 441(i)(2)).
(4) Regulations
The Secretary shall prescribe such regulations as he deems
necessary for the application of this subsection.
(g) No books kept; no accounting period
Except as provided in section 443 (relating to returns for
periods of less than 12 months), the taxpayer's taxable year shall
be the calendar year if -
(1) the taxpayer keeps no books;
(2) the taxpayer does not have an annual accounting period; or
(3) the taxpayer has an annual accounting period, but such
period does not qualify as a fiscal year.
(h) Taxable year of FSC's and DISC's
(1) In general
For purposes of this subtitle, the taxable year of any FSC or
DISC shall be the taxable year of that shareholder (or group of
shareholders with the same 12-month taxable year) who has the
highest percentage of voting power.
(2) Special rule where more than one shareholder (or group) has
highest percentage
If 2 or more shareholders (or groups) have the highest
percentage of voting power under paragraph (1), the taxable year
of the FSC or DISC shall be the same 12-month period as that of
any such shareholder (or group).
(3) Subsequent changes of ownership
The Secretary shall prescribe regulations under which
paragraphs (1) and (2) shall apply to a change of ownership of a
corporation after the taxable year of the corporation has been
determined under paragraph (1) or (2) only if such change is a
substantial change of ownership.
(4) Voting power determined
For purposes of this subsection, voting power shall be
determined on the basis of total combined voting power of all
classes of stock of the corporation entitled to vote.
(i) Taxable year of personal service corporations
(1) In general
For purposes of this subtitle, the taxable year of any personal
service corporation shall be the calendar year unless the
corporation establishes, to the satisfaction of the Secretary, a
business purpose for having a different period for its taxable
year. For purposes of this paragraph, any deferral of income to
shareholders shall not be treated as a business purpose.
(2) Personal service corporation
For purposes of this subsection, the term "personal service
corporation" has the meaning given such term by section
269A(b)(1), except that section 269A(b)(2) shall be applied -
(A) by substituting "any" for "more than 10 percent", and
(B) by substituting "any" for "50 percent or more in value"
in section 318(a)(2)(C).
A corporation shall not be treated as a personal service
corporation unless more than 10 percent of the stock (by value)
in such corporation is held by employee-owners (within the
meaning of section 269A(b)(2), as modified by the preceding
sentence). If a corporation is a member of an affiliated group
filing a consolidated return, all members of such group shall be
taken into account in determining whether such corporation is a
personal service corporation.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 148; Pub. L. 88-272, title II,
Sec. 235(c)(3), Feb. 26, 1964, 78 Stat. 127; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-
30, title I, Sec. 102(b)(5), May 23, 1977, 91 Stat. 137; Pub. L.
98-369, div. A, title IV, Sec. 474(b)(2), title VIII, Sec. 803,
July 18, 1984, 98 Stat. 830, 1000; Pub. L. 99-514, title I, Sec.
104(b)(6), title VIII, Sec. 806(c)(1), (d), Oct. 22, 1986, 100
Stat. 2105, 2364; Pub. L. 100-647, title I, Sec. 1008(e)(4), Nov.
10, 1988, 102 Stat. 3440.)
-MISC1-
AMENDMENTS
1988 - Subsec. (i)(2). Pub. L. 100-647 inserted at end "A
corporation shall not be treated as a personal service corporation
unless more than 10 percent of the stock (by value) in such
corporation is held by employee-owners (within the meaning of
section 269A(b)(2), as modified by the preceding sentence). If a
corporation is a member of an affiliated group filing a
consolidated return, all members of such group shall be taken into
account in determining whether such corporation is a personal
service corporation."
1986 - Subsec. (f)(2)(B)(iii). Pub. L. 99-514, Sec. 104(b)(6),
struck out "and by adding the zero bracket amount," after "in the
short period,".
Subsec. (f)(3), (4). Pub. L. 99-514, Sec. 806(d), added par. (3)
and redesignated former par. (3) as (4).
Subsec. (i). Pub. L. 99-514, Sec. 806(c)(1), added subsec. (i).
1984 - Subsec. (b)(4). Pub. L. 98-369, Sec. 803(a), added par.
(4).
Subsec. (f)(2)(A). Pub. L. 98-369, Sec. 474(b)(2), substituted
"section 15" for "section 21" in provisions preceding cl. (i).
Subsec. (h). Pub. L. 98-369, Sec. 803(b), added subsec. (h).
1977 - Subsec. (f)(2)(B)(iii). Pub. L. 95-30 substituted
"multiplying the gross income for such short period (minus the
deductions allowed by this chapter for the short period, but only
the adjusted amount of the deductions for personal exemptions as
described in section 443(c)) by 365, by dividing the result by the
number of days in the short period, and by adding the zero bracket
amount" for "multiplying such income by 365 and dividing the result
by the number of days in the short period".
1976 - Subsec. (f)(3). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1964 - Subsec. (f)(2)(A). Pub. L. 88-272 inserted ", including,"
before "or ending with reference to".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 806(c)(1), (d) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, with special
provisions applicable to taxpayers who are required to change their
accounting periods, see section 806(e) of Pub. L. 99-514, set out
as a note under section 1378 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(b)(2) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 803 of Pub. L. 98-369 applicable to taxable
years beginning after Dec. 31, 1984, see section 805(a)(4) of Pub.
L. 98-369, as amended, set out as a note under section 245 of this
title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years ending
after Dec. 31, 1963, see section 235(d) of Pub. L. 88-272, set out
as a note under section 1551 of this title.
CONSTRUCTION OF SECTION 806 OF PUB. L. 99-514
Nothing in section 806 of Pub. L. 99-514 or in any legislative
history relating thereto to be construed as requiring the Secretary
of the Treasury or his delegate to permit an automatic change of a
taxable year, see section 1008(e)(9) of Pub. L. 100-647, set out as
a note under section 1378 of this title.
-End-
-CITE-
26 USC Sec. 442 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 442. Change of annual accounting period
-STATUTE-
If a taxpayer changes his annual accounting period, the new
accounting period shall become the taxpayer's taxable year only if
the change is approved by the Secretary. For purposes of this
subtitle, if a taxpayer to whom section 441(g) applies adopts an
annual accounting period (as defined in section 441(c)) other than
a calendar year, the taxpayer shall be treated as having changed
his annual accounting period.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 149; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 struck out "or his delegate" after
"Secretary".
-End-
-CITE-
26 USC Sec. 443 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 443. Returns for a period of less than 12 months
-STATUTE-
(a) Returns for short period
A return for a period of less than 12 months (referred to in this
section as "short period") shall be made under any of the following
circumstances:
(1) Change of annual accounting period
When the taxpayer, with the approval of the Secretary, changes
his annual accounting period. In such a case, the return shall be
made for the short period beginning on the day after the close of
the former taxable year and ending at the close of the day before
the day designated as the first day of the new taxable year.
(2) Taxpayer not in existence for entire taxable year
When the taxpayer is in existence during only part of what
would otherwise be his taxable year.
(b) Computation of tax on change of annual accounting period
(1) General rule
If a return is made under paragraph (1) of subsection (a), the
taxable income for the short period shall be placed on an annual
basis by multiplying the modified taxable income for such short
period by 12, dividing the result by the number of months in the
short period. The tax shall be the same part of the tax computed
on the annual basis as the number of months in the short period
is of 12 months.
(2) Exception
(A) Computation based on 12-month period
If the taxpayer applies for the benefits of this paragraph
and establishes the amount of this taxable income for the 12-
month period described in subparagraph (B), computed as if
that period were a taxable year and under the law applicable to
that year, then the tax for the short period, computed under
paragraph (1), shall be reduced to the greater of the
following:
(i) an amount which bears the same ratio to the tax
computed on the taxable income for the 12-month period as the
modified taxable income computed on the basis of the short
period bears to the modified taxable income for the 12-month
period; or
(ii) the tax computed on the modified taxable income for
the short period.
The taxpayer (other than a taxpayer to whom subparagraph
(B)(ii) applies) shall compute the tax and file his return
without the application of this paragraph.
(B) 12-month period
The 12-month period referred to in subparagraph (A) shall be -
(i) the period of 12 months beginning on the first day of
the short period, or
(ii) the period of 12 months ending at the close of the
last day of the short period, if at the end of the 12 months
referred to in clause (i) the taxpayer is not in existence or
(if a corporation) has theretofore disposed of substantially
all of its assets.
(C) Application for benefits
Application for the benefits of this paragraph shall be made
in such manner and at such time as the regulations prescribed
under subparagraph (D) may require; except that the time so
prescribed shall not be later than the time (including
extensions) for filing the return for the first taxable year
which ends on or after the day which is 12 months after the
first day of the short period. Such application, in case the
return was filed without regard to this paragraph, shall be
considered a claim for credit or refund with respect to the
amount by which the tax is reduced under this paragraph.
(D) Regulations
The Secretary shall prescribe such regulations as he deems
necessary for the application of this paragraph.
(3) Modified taxable income defined
For purposes of this subsection the term "modified taxable
income" means, with respect to any period, the gross income for
such period minus the deductions allowed by this chapter for such
period (but, in the case of a short period, only the adjusted
amount of the deductions for personal exemptions).
(c) Adjustment in deduction for personal exemption
In the case of a taxpayer other than a corporation, if a return
is made for a short period by reason of subsection (a)(1) and if
the tax is not computed under subsection (b)(2), then the
exemptions allowed as a deduction under section 151 (and any
deduction in lieu thereof) shall be reduced to amounts which bear
the same ratio to the full exemptions as the number of months in
the short period bears to 12.
(d) Adjustment in computing minimum tax and tax preferences
If a return is made for a short period by reason of subsection
(a) -
(1) the alternative minimum taxable income for the short period
shall be placed on an annual basis by multiplying such amount by
12 and dividing the result by the number of months in the short
period, and
(2) the amount computed under paragraph (1) of section 55(a)
shall bear the same relation to the tax computed on the annual
basis as the number of months in the short period bears to 12.
(e) Cross references
For inapplicability of subsection (b) in computing -
(1) Accumulated earnings tax, see section 536.
(2) Personal holding company tax, see section 546.
(3) The taxable income of a regulated investment company, see
section 852(b)(2)(E).
(4) The taxable income of a real estate investment trust, see
section 857(b)(2)(C).
For returns for a period of less than 12 months in the case of
a debtor's election to terminate a taxable year, see section
1398(d)(2)(E).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 149; Pub. L. 86-779, Sec. 10(i),
Sept. 14, 1960, 74 Stat. 1009; Pub. L. 91-172, title III, Sec.
301(b)(6), Dec. 30, 1969, 83 Stat. 585; Pub. L. 94-455, title III,
Sec. 301(e), title XII, Sec. 1204(c)(2), title XVI, Sec.
1607(b)(1)(C), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1553, 1697, 1757, 1834; Pub. L. 95-30, title I, Sec.
102(b)(6), May 23, 1977, 91 Stat. 137; Pub. L. 95-600, title IV,
Sec. 421(e)(2), title VII, Sec. 703(o)(1)-(3), Nov. 6, 1978, 92
Stat. 2876, 2943; Pub. L. 96-222, title I, Sec. 104(a)(4)(H)(iii),
Apr. 1, 1980, 94 Stat. 217; Pub. L. 96-589, Sec. 3(d), Dec. 24,
1980, 94 Stat. 3401; Pub. L. 97-448, title III, Sec. 304(a), Jan.
12, 1983, 96 Stat. 2398; Pub. L. 99-514, title I, Sec. 104(b)(7),
title VII, Sec. 701(e)(3), Oct. 22, 1986, 100 Stat. 2105, 2342;
Pub. L. 108-357, title IV, Sec. 413(c)(6), Oct. 22, 2004, 118 Stat.
1507.)
-MISC1-
AMENDMENTS
2004 - Subsec. (e)(3) to (5). Pub. L. 108-357 redesignated pars.
(4) and (5) as (3) and (4), respectively, and struck out former
par. (3) which read as follows: "Undistributed foreign personal
holding company income, see section 557."
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 104(b)(7)(A), struck
out ", and adding the zero bracket amount" after "by the number of
months in the short period".
Subsec. (b)(2)(A)(ii). Pub. L. 99-514, Sec. 104(b)(7)(B), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"the tax computed on the sum of the modified taxable income for the
short period plus the zero bracket amount."
Subsec. (d). Pub. L. 99-514, Sec. 701(e)(3), substituted "and tax
preferences" for "for tax preferences" in heading and amended text
generally. Prior to amendment, subsec. (d) read as follows: "If a
return is made for a short period by reason of subsection (a), then
-
"(1) in the case of a taxpayer other than a corporation, the
alternative minimum taxable income for the short period shall be
placed on an annual basis by multiplying that amount by 12 and
dividing the result by the number of months in the short period,
and the amount computed under paragraph (1) of section 55(a)
shall be the same part of the tax computed on the annual basis as
the number of months in the short period is of 12 months; and
"(2) the $10,000 amount specified in section 56 (relating to
minimum tax for tax preferences), modified as provided by section
58, shall be reduced to the amount which bears the same ratio to
such specified amount as the number of days in the short period
bears to 365."
1983 - Subsec. (e). Pub. L. 97-448 substituted "section
1398(d)(2)(E)" for "section 1398(d)(3)(E)".
1980 - Subsec. (d)(2). Pub. L. 96-222 struck out "in the case of
a corporation," before "the $10,000 amount".
Subsec. (e). Pub. L. 96-589 inserted cross reference to section
1398(d)(3)(E) for returns for a period of less than 12 months in
the case of a debtor's election to terminate a taxable year.
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 703(o)(2),
substituted "modified taxable income for such short period" for
"gross income for such short period (minus the deductions allowed
by this chapter for the short period, but only the adjusted amount
of the deductions for personal exemptions)".
Subsec. (b)(2). Pub. L. 95-600, Sec. 703(o)(1), substituted in
cl. (i) "modified taxable income" for "taxable income" in two
places and in cl. (ii) "the sum of the modified taxable income" for
"the taxable income" and "plus the zero bracket amount" for
"without placing the taxable income on an annual basis".
Subsec. (b)(3). Pub. L. 95-600, Sec. 703(o)(3), added par. (3).
Subsec. (d). Pub. L. 95-600, Sec. 421(e)(2), substituted
"Adjustment in computing minimum tax for tax preferences" for
"Adjustment in exclusion for computing minimum tax for tax
preferences" in heading, redesignated existing provisions as par.
(2) and as so redesignated applied par. (2) to corporations, and
added par. (1).
1977 - Subsec. (b)(1). Pub. L. 95-30 substituted "multiplying the
gross income for such short period (minus the deductions allowed by
this chapter for the short period, but only the adjusted amount of
the deductions for personal exemptions) by 12, dividing the result
by the number of months in the short period, and adding the zero
bracket amount" for "multiplying such income by 12, and dividing
the result by the number of months in the short period".
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (a)(3). Pub. L. 94-455, Sec. 1204(c)(2), struck out par.
(3) which made termination of taxpayer's taxable year under section
6851 as one of the circumstances under which a tax return for a
period of less than 12 months shall be made.
Subsec. (b)(2)(D). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (d). Pub. L. 94-455, Sec. 301(e), substituted "$10,000"
for "$30,000".
Subsec. (e)(5). Pub. L. 94-455, Sec. 1607(b)(1)(C), substituted
"section 857(b)(2)(C)" for "section 857(b)(2)(D)".
1969 - Subsecs. (d), (e). Pub. L. 91-172 added subsec. (d) and
redesignated former subsec. (d) as (e).
1960 - Subsec. (d)(5). Pub. L. 86-779 added par. (5).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years of
foreign corporations beginning after Dec. 31, 2004, and to taxable
years of United States shareholders with or within which such
taxable years of foreign corporations end, see section 413(d)(1) of
Pub. L. 108-357, set out as an Effective and Termination Dates of
2004 Amendments note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(7) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 701(e)(3) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L. 99-
514, set out as an Effective Date note under section 55 of this
title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 311(b)(1) of Pub. L. 97-448 provided that: "The amendment
made by subsection (a) of section 304 [amending this section] shall
take effect as if included in the amendments made by section 3 of
the Bankruptcy Tax Act of 1980 [section 3 of Pub. L. 96-589, which
amended this section and sections 6012 and 6103 of this title]."
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-589 applicable to bankruptcy cases
commencing more than 90 days after Dec. 24, 1980, see section 7(b)
of Pub. L. 96-589, set out as a note under section 108 of this
title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 703(o)(4) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section] shall
apply to taxable years beginning after December 31, 1976."
Amendment by section 421(e)(2) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 421(g) of
Pub. L. 95-600, set out as a note under section 5 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 301(g)(1) of Pub. L. 94-455 provided that the amendment
made by section 301(e) of Pub. L. 94-455 is effective for items of
tax preferences for taxable years beginning after Dec. 31, 1975,
with certain exceptions.
Amendment by section 1204(c)(2) of Pub. L. 94-455 effective with
respect to action taken under section 6851, 6861, or 6862 of this
title where the notice and demand takes place after Feb. 28, 1977,
see section 1204(d) of Pub. L. 94-455, as amended, set out as a
note under section 6851 of this title.
For effective date of amendment by section 1607(b)(1)(C) of Pub.
L. 94-455, see section 1608(c) of Pub. L. 94-455, set out as a note
under section 857 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years ending
after Dec. 31, 1969, see section 301(c) of Pub. L. 91-172, set out
as a note under section 5 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable with respect to taxable
years of real estate investment trusts beginning after Dec. 31,
1960, see section 10(k) of Pub. L. 86-779, set out as an Effective
Date note under section 856 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(3) of Pub. L. 99-
514 notwithstanding any treaty obligation of the United States in
effect on Oct. 22, 1986, see section 1012(aa)(2) of Pub. L. 100-
647, set out as a note under section 861 of this title.
-End-
-CITE-
26 USC Sec. 444 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 444. Election of taxable year other than required taxable year
-STATUTE-
(a) General rule
Except as otherwise provided in this section, a partnership, S
corporation, or personal service corporation may elect to have a
taxable year other than the required taxable year.
(b) Limitations on taxable years which may be elected
(1) In general
Except as provided in paragraphs (2) and (3), an election may
be made under subsection (a) only if the deferral period of the
taxable year elected is not longer than 3 months.
(2) Changes in taxable year
Except as provided in paragraph (3), in the case of an entity
changing a taxable year, an election may be made under subsection
(a) only if the deferral period of the taxable year elected is
not longer than the shorter of -
(A) 3 months, or
(B) the deferral period of the taxable year which is being
changed.
(3) Special rule for entities retaining 1986 taxable years
In the case of an entity's 1st taxable year beginning after
December 31, 1986, an entity may elect a taxable year under
subsection (a) which is the same as the entity's last taxable
year beginning in 1986.
(4) Deferral period
For purposes of this subsection, except as provided in
regulations, the term "deferral period" means, with respect to
any taxable year of the entity, the months between -
(A) the beginning of such year, and
(B) the close of the 1st required taxable year ending within
such year.
(c) Effect of election
If an entity makes an election under subsection (a), then -
(1) in the case of a partnership or S corporation, such entity
shall make the payments required by section 7519, and
(2) in the case of a personal service corporation, such
corporation shall be subject to the deduction limitations of
section 280H.
(d) Elections
(1) Person making election
An election under subsection (a) shall be made by the
partnership, S corporation, or personal service corporation.
(2) Period of election
(A) In general
Any election under subsection (a) shall remain in effect
until the partnership, S corporation, or personal service
corporation changes its taxable year or otherwise terminates
such election. Any change to a required taxable year may be
made without the consent of the Secretary.
(B) No further election
If an election is terminated under subparagraph (A) or
paragraph (3)(A), the partnership, S corporation, or personal
service corporation may not make another election under
subsection (a).
(3) Tiered structures, etc.
(A) In general
Except as otherwise provided in this paragraph -
(i) no election may be under subsection (a) with respect to
any entity which is part of a tiered structure, and
(ii) an election under subsection (a) with respect to any
entity shall be terminated if such entity becomes part of a
tiered structure.
(B) Exceptions for structures consisting of certain entities
with same taxable year
Subparagraph (A) shall not apply to any tiered structure
which consists only of partnerships or S corporations (or both)
all of which have the same taxable year.
(e) Required taxable year
For purposes of this section, the term "required taxable year"
means the taxable year determined under section 706(b), 1378, or
441(i) without taking into account any taxable year which is
allowable by reason of business purposes. Solely for purposes of
the preceding sentence, sections 706(b), 1378, and 441(i) shall be
treated as in effect for taxable years beginning before January 1,
1987.
(f) Personal service corporation
For purposes of this section, the term "personal service
corporation" has the meaning given to such term by section
441(i)(2).
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the provisions of this section, including
regulations to prevent the avoidance of subsection (b)(2)(B) or
(d)(2)(B) through the change in form of an entity.
-SOURCE-
(Added Pub. L. 100-203, title X, Sec. 10206(a)(1), Dec. 22, 1987,
101 Stat. 1330-397; amended Pub. L. 100-647, title II, Sec.
2004(e)(1), (2)(A), (12), (13), Nov. 10, 1988, 102 Stat. 3600,
3602.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647, Sec. 2004(e)(1)(A),
substituted "as otherwise provided in this section" for "as
provided in subsections (b) and (c)".
Subsec. (b)(4). Pub. L. 100-647, Sec. 2004(e)(13), inserted
"except as provided in regulations," before "the term".
Subsec. (d)(2)(A). Pub. L. 100-647, Sec. 2004(e)(12), inserted
"or otherwise terminates such election" after "its taxable year".
Subsec. (d)(2)(B). Pub. L. 100-647, Sec. 2004(e)(1)(C), inserted
"or paragraph (3)(A)" after "under subparagraph (A)".
Subsec. (d)(3). Pub. L. 100-647, Sec. 2004(e)(1)(B), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "No
election may be made under subsection (a) with respect to an entity
which is part of a tiered structure other than a tiered structure
comprised of 1 or more partnerships or S corporations all of which
have the same taxable year."
Subsecs. (f), (g). Pub. L. 100-647, Sec. 2004(e)(2)(A), added
subsec. (f) and redesignated former subsec. (f) as (g).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE
Section 10206(d) of Pub. L. 100-203, as amended by Pub. L. 100-
647, title II, Sec. 2004(e)(11), Nov. 10, 1988, 102 Stat. 3602,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [enacting this section and sections
280H and 7519 of this title] shall apply to taxable years beginning
after December 31, 1986.
"(2) Required payments. - The amendments made by subsection (b)
[enacting section 7519 of this title] shall apply to applicable
election years beginning after December 31, 1986.
"(3) Elections. - Any election under section 444 of the Internal
Revenue Code of 1986 (as added by subsection (a)) for an entity's
1st taxable year beginning after December 31, 1986, shall not be
required to be made before the 90th day after the date of the
enactment of this Act [Dec. 22, 1987].
"(4) Special rule for existing entities electing s corporation
status. - If a C corporation (within the meaning of section
1361(a)(2) of the Internal Revenue Code of 1986) with a taxable
year other than the calendar year -
"(A) made an election after September 18, 1986, and before
January 1, 1988, under section 1362 of such Code to be treated as
an S corporation, and
"(B) elected to have the calendar year as the taxable year of
the S corporation,
then section 444(b)(2)(B) of such Code shall be applied by taking
into account the deferral period of the last taxable year of the C
corporation rather than the deferral period of the taxable year
being changed. The preceding sentence shall apply only in the case
of an election under section 444 of such Code made for a taxable
year beginning before 1989."
-End-
-CITE-
26 USC PART II - METHODS OF ACCOUNTING 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
-HEAD-
PART II - METHODS OF ACCOUNTING
-MISC1-
Subpart
A. Methods of accounting in general.
B. Taxable year for which items of gross income included.
C. Taxable year for which deductions taken.
D. Inventories.
-End-
-CITE-
26 USC Subpart A - Methods of Accounting in General 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
SUBPART A - METHODS OF ACCOUNTING IN GENERAL
-MISC1-
Sec.
446. General rule for methods of accounting.
447. Method of accounting for corporations engaged in
farming.
448. Limitation on use of cash method of accounting.
AMENDMENTS
1986 - Pub. L. 99-514, title VIII, Sec. 801(c), Oct. 22, 1986,
100 Stat. 2348, added item 448.
1976 - Pub. L. 94-455, title II, Sec. 207(c)(1)(B), Oct. 4, 1976,
90 Stat. 1541, added item 447.
-End-
-CITE-
26 USC Sec. 446 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
Sec. 446. General rule for methods of accounting
-STATUTE-
(a) General rule
Taxable income shall be computed under the method of accounting
on the basis of which the taxpayer regularly computes his income in
keeping his books.
(b) Exceptions
If no method of accounting has been regularly used by the
taxpayer, or if the method used does not clearly reflect income,
the computation of taxable income shall be made under such method
as, in the opinion of the Secretary, does clearly reflect income.
(c) Permissible methods
Subject to the provisions of subsections (a) and (b), a taxpayer
may compute taxable income under any of the following methods of
accounting -
(1) the cash receipts and disbursements method;
(2) an accrual method;
(3) any other method permitted by this chapter; or
(4) any combination of the foregoing methods permitted under
regulations prescribed by the Secretary.
(d) Taxpayer engaged in more than one business
A taxpayer engaged in more than one trade or business may, in
computing taxable income, use a different method of accounting for
each trade or business.
(e) Requirement respecting change of accounting method
Except as otherwise expressly provided in this chapter, a
taxpayer who changes the method of accounting on the basis of which
he regularly computes his income in keeping his books shall, before
computing his taxable income under the new method, secure the
consent of the Secretary.
(f) Failure to request change of method of accounting
If the taxpayer does not file with the Secretary a request to
change the method of accounting, the absence of the consent of the
Secretary to a change in the method of accounting shall not be
taken into account -
(1) to prevent the imposition of any penalty, or the addition
of any amount to tax, under this title, or
(2) to diminish the amount of such penalty or addition to tax.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 151; Pub. L. 94-455, title XIX,
Sec. 1906 (b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369,
div. A, title I, Sec. 161(a), July 18, 1984, 98 Stat. 696.)
-MISC1-
AMENDMENTS
1984 - Subsec. (f). Pub. L. 98-369 added subsec. (f).
1976 - Subsecs. (b), (c), (e). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 161(b) of Pub. L. 98-369 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [July
18, 1984]."
-End-
-CITE-
26 USC Sec. 447 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
Sec. 447. Method of accounting for corporations engaged in farming
-STATUTE-
(a) General rule
Except as otherwise provided by law, the taxable income from
farming of -
(1) a corporation engaged in the trade or business of farming,
or
(2) a partnership engaged in the trade or business of farming,
if a corporation is a partner in such partnership,
shall be computed on an accrual method of accounting. This section
shall not apply to the trade or business of operating a nursery or
sod farm or to the raising or harvesting of trees (other than fruit
and nut trees).
(b) Preproductive period expenses
For rules requiring capitalization of certain preproductive
period expenses, see section 263A.
(c) Exception for certain corporations
For purposes of subsection (a), a corporation shall be treated as
not being a corporation if it is -
(1) an S corporation, or
(2) a corporation the gross receipts of which meet the
requirements of subsection (d).
(d) Gross receipts requirements
(1) In general
A corporation meets the requirements of this subsection if, for
each prior taxable year beginning after December 31, 1975, such
corporation (and any predecessor corporation) did not have gross
receipts exceeding $1,000,000. For purposes of the preceding
sentence, all corporations which are members of the same
controlled group of corporations (within the meaning of section
1563(a)) shall be treated as 1 corporation.
(2) Special rules for family corporations
(A) In general
In the case of a family corporation, paragraph (1) shall be
applied -
(i) by substituting "December 31, 1985," for "December 31,
1975,"; and
(ii) by substituting "$25,000,000" for "$1,000,000".
(B) Gross receipts test
(i) Controlled groups
Notwithstanding the last sentence of paragraph (1), in the
case of a family corporation -
(I) except as provided by the Secretary, only the
applicable percentage of gross receipts of any other member
of any controlled group of corporations of which such
corporation is a member shall be taken into account, and
(II) under regulations, gross receipts of such
corporation or of another member of such group shall not be
taken into account by such corporation more than once.
(ii) Pass-thru entities
For purposes of paragraph (1), if a family corporation
holds directly or indirectly any interest in a partnership,
estate, trust or other pass-thru entity, such corporation
shall take into account its proportionate share of the gross
receipts of such entity.
(iii) Applicable percentage
For purposes of clause (i), the term "applicable
percentage" means the percentage equal to a fraction -
(I) the numerator of which is the fair market value of
the stock of another corporation held directly or
indirectly as of the close of the taxable year by the
family corporation, and
(II) the denominator of which is the fair market value of
all stock of such corporation as of such time.
For purposes of this clause, the term "stock" does not
include stock described in section 1563(c)(1).
(C) Family corporation
For purposes of this section, the term "family corporation"
means -
(i) any corporation if at least 50 percent of the total
combined voting power of all classes of stock entitled to
vote, and at least 50 percent of all other classes of stock
of the corporation, are owned by members of the same family,
and
(ii) any corporation described in subsection (h).
(e) Members of the same family
For purposes of subsection (d) -
(1) the members of the same family are an individual, such
individual's brothers and sisters, the brothers and sisters of
such individual's parents and grandparents, the ancestors and
lineal descendants or any of the foregoing, a spouse of any of
the foregoing, and the estate of any of the foregoing,
(2) stock owned, directly or indirectly, by or for a
partnership or trust shall be treated as owned proportionately by
its partners or beneficiaries, and
(3) if 50 percent or more in value of the stock in a
corporation (hereinafter in this paragraph referred to as "first
corporation") is owned, directly or through paragraph (2), by or
for members of the same family, such members shall be considered
as owning each class of stock in a second corporation (or a
wholly owned subsidiary of such second corporation) owned,
directly or indirectly, by or for the first corporation, in that
proportion which the value of the stock in the first corporation
which such members so own bears to the value of all the stock in
the first corporation.
For purposes of paragraph (1), individuals related by the half
blood or by legal adoption shall be treated as if they were related
by the whole blood.
(f) Coordination with section 481
In the case of any taxpayer required by this section to change
its method of accounting for any taxable year -
(1) such change shall be treated as having been made with the
consent of the Secretary,
(2) for purposes of section 481(a)(2), such change shall be
treated as a change not initiated by the taxpayer, and
(3) under regulations prescribed by the Secretary, the net
amount of adjustments required by section 481(a) to be taken into
account by the taxpayer in computing taxable income shall be
taken into account in each of the 10 taxable years (or the
remaining taxable years where there is a stated future life of
less than 10 taxable years) beginning with the year of change.
(g) Certain annual accrual accounting methods
(1) In general
Notwithstanding subsection (a) or section 263A, if -
(A) for its 10 taxable years ending with its first taxable
year beginning after December 31, 1975, a corporation or
qualified partnership used an annual accrual method of
accounting with respect to its trade or business of farming,
(B) such corporation or qualified partnership raises crops
which are harvested not less than 12 months after planting, and
(C) such corporation or qualified partnership has used such
method of accounting for all taxable years intervening between
its first taxable year beginning after December 31, 1975, and
the taxable year,
such corporation or qualified partnership may continue to employ
such method of accounting for the taxable year with respect to
its qualified farming trade or business.
(2) Annual accrual method of accounting defined
For purposes of paragraph (1), the term "annual accrual method
of accounting" means a method under which revenues, costs, and
expenses are computed on an accrual method of accounting and the
preproductive period expenses incurred during the taxable year
are charged to harvested crops or deducted in determining the
taxable income for such years.
(3) Certain nonrecognition transfers
For purposes of this subsection, if -
(A) a corporation acquired substantially all the assets of a
qualified farming trade or business from another corporation in
a transaction in which no gain or loss was recognized to the
transferor or transferee corporation, or
(B) a qualified partnership acquired substantially all the
assets of a qualified farming trade or business from one of its
partners in a transaction to which section 721 applies,
the transferee corporation or qualified partnership shall be
deemed to have computed its taxable income on an annual accrual
method of accounting during the period for which the transferor
corporation or partnership computed its taxable income from such
trade or business on an annual accrual method.
(4) Qualified partnership defined
For purposes of this subsection -
(A) Qualified partnership
The term "qualified partnership" means a partnership which is
engaged in a qualified farming trade or business and each of
the partners of which is a corporation other than -
(i) an S corporation, or
(ii) a personal holding company (within the meaning of
section 542(a)).
(B) Qualified farming trade or business
(i) In general
The term "qualified farming trade or business" means the
trade or business of farming -
(I) sugar cane,
(II) any plant with a preproductive period (as defined in
section 263A(e)(3)) of 2 years or less, and
(III) any other plant (other than any citrus or almond
tree) if an election by the corporation under this
subparagraph is in effect.
In the case of a partnership and for purposes of paragraph
(3)(A), subclauses (II) and (III) shall not apply.
(ii) Effect of election
For purposes of paragraphs (1) and (2) of section 263A(e),
any election under this subparagraph shall be treated as if
it were an election under subsection (d)(3) of section 263A.
(iii) Election
Unless the Secretary otherwise consents, an election under
this subparagraph may be made only for the corporation's 1st
taxable year which begins after December 31, 1986, and during
which the corporation engages in a farming business. Any such
election, once made, may be revoked only with the consent of
the Secretary.
(h) Exception for certain closely held corporations
(1) In general
A corporation is described in this subsection if, on October 4,
1976, and at all times thereafter -
(A) members of 2 families (within the meaning of subsection
(e)(1)) have owned (directly or through the application of
subsection (e)) at least 65 percent of the total combined
voting power of all classes of stock of such corporation
entitled to vote, and at least 65 percent of the total number
of shares of all other classes of stock of such corporation; or
(B)(i) members of 3 families (within the meaning of
subsection (e)(1)) have owned (directly or through the
application of subsection (e)) at least 50 percent of the total
combined voting power of all classes of stock of such
corporation entitled to vote, and at least 50 percent of the
total number of shares of all other classes of stock of such
corporation; and
(ii) substantially all of the stock of such corporation which
is not so owned (directly or through the application of
subsection (e)) by members of such 3 families is owned directly
-
(I) by employees of the corporation or members of their
families (within the meaning of section 267(c)(4)), or
(II) by a trust for the benefit of the employees of such
corporation which is described in section 401(a) and which is
exempt from taxation under section 501(a).
(2) Stock held by employees, etc.
For purposes of this subsection, stock which -
(A) is owned directly by employes (!1) of the corporation or
members of their families (within the meaning of section
267(c)(4)) or by a trust described in paragraph (1)(B)(ii)(II),
and
(B) was acquired on or after October 4, 1976, from the
corporation or from a member of a family which, on October 4,
1976, was described in subparagraph (A) or (B)(i) of paragraph
(1).
shall be treated as owned by a member of a family which, on
October 4, 1976, was described in subparagraph (A) or (B)(i) of
paragraph (1).
(3) Corporation must be engaged in farming
This subsection shall apply only in the case of a corporation
which was, on October 4, 1976, and at all times thereafter,
engaged in the trade or business of farming.
(i) Suspense account for family corporations
(1) In general
If any family corporation is required by this section to change
its method of accounting for any taxable year (hereinafter in
this subsection referred to as the "year of the change"),
notwithstanding subsection (f), such corporation shall establish
a suspense account under this subsection in lieu of taking into
account adjustments under section 481(a) with respect to amounts
included in the suspense account.
(2) Initial opening balance
The initial opening balance of the account described in
paragraph (1) shall be the lesser of -
(A) the net adjustments which would have been required to be
taken into account under section 481 but for this subsection,
or
(B) the amount of such net adjustments determined as of the
beginning of the taxable year preceding the year of change.
If the amount referred to in subparagraph (A) exceeds the amount
referred to in subparagraph (B), notwithstanding paragraph (1),
such excess shall be included in gross income in the year of the
change.
(3) Inclusion where corporation ceases to be a family corporation
(A) In general
If the corporation ceases to be a family corporation during
any taxable year, the amount in the suspense account (after
taking into account prior reductions) shall be included in
gross income for such taxable year.
(B) Special rule for certain transfers
For purposes of subparagraph (A), any transfer in a
corporation after December 15, 1987, shall be treated as a
transfer to a person whose ownership could not qualify such
corporation as a family corporation unless it is a transfer -
(i) to a member of the family of the transferor, or
(ii) in the case of a corporation described in subsection
(h), to a member of a family which on December 15, 1987, held
stock in such corporation which qualified the corporation
under subsection (h).
(4) Subchapter C transactions
The application of this subsection with respect to a taxpayer
which is a party to any transaction with respect to which there
is nonrecognition of gain or loss to any party by reason of
subchapter C shall be determined under regulations prescribed by
the Secretary.
(5) Termination
(A) In general
No suspense account may be established under this subsection
by any corporation required by this section to change its
method of accounting for any taxable year ending after June 8,
1997.
(B) Phaseout of existing suspense accounts
(i) In general
Each suspense account under this subsection shall be
reduced (but not below zero) for each taxable year beginning
after June 8, 1997, by an amount equal to the lesser of -
(I) the applicable portion of such account, or
(II) 50 percent of the taxable income of the corporation
for the taxable year, or, if the corporation has no taxable
income for such year, the amount of any net operating loss
(as defined in section 172(c)) for such taxable year.
For purposes of the preceding sentence, the amount of taxable
income and net operating loss shall be determined without
regard to this paragraph.
(ii) Coordination with other reductions
The amount of the applicable portion for any taxable year
shall be reduced (but not below zero) by the amount of any
reduction required for such taxable year under any other
provision of this subsection.
(iv) (!2) Inclusion in income
Any reduction in a suspense account under this paragraph
shall be included in gross income for the taxable year of the
reduction.
(C) Applicable portion
For purposes of subparagraph (B), the term "applicable
portion" means, for any taxable year, the amount which would
ratably reduce the amount in the account (after taking into
account prior reductions) to zero over the period consisting of
such taxable year and the remaining taxable years in such first
20 taxable years.
(D) Amounts after 20th year
Any amount in the account as of the close of the 20th year
referred to in subparagraph (C) shall be treated as the
applicable portion for each succeeding year thereafter to the
extent not reduced under this paragraph for any prior taxable
year after such 20th year.
-SOURCE-
(Added Pub. L. 94-455, title II, Sec. 207(c)(1)(A), Oct. 4, 1976,
90 Stat. 1538; amended Pub. L. 95-600, title III, Secs. 351(a),
353(a), title VII, Secs. 701(l)(1), 703(d), Nov. 6, 1978, 92 Stat.
2846, 2847, 2906, 2939; Pub. L. 97-248, title II, Sec. 230(a),
Sept. 3, 1982, 96 Stat. 495; Pub. L. 97-354, Sec. 5(a)(28), (29),
Oct. 19, 1982, 96 Stat. 1695; Pub. L. 99-514, title VIII, Sec.
803(b)(7), Oct. 22, 1986, 100 Stat. 2356; Pub. L. 100-203, title X,
Sec. 10205(a)-(c), Dec. 22, 1987, 101 Stat. 1330-395 to 1330-397;
Pub. L. 100-647, title I, Sec. 1008(b)(5), (6), Nov. 10, 1988, 102
Stat. 3438; Pub. L. 101-508, title XI, Sec. 11702(b), Nov. 5, 1990,
104 Stat. 1388-514; Pub. L. 105-34, title X, Sec. 1081(a), Aug. 5,
1997, 111 Stat. 949.)
-MISC1-
AMENDMENTS
1997 - Subsec. (i)(3). Pub. L. 105-34 redesignated par. (5) as
(3) and struck out heading and text of former par. (3). Text read
as follows: "If -
"(A) the gross receipts of the corporation from the trade or
business of farming for the year of the change or any subsequent
taxable year, is less than
"(B) such gross receipts for the taxpayer's last taxable year
beginning before the year of the change (or for the most recent
taxable year for which a reduction in the suspense account was
made under this paragraph),
the amount in the suspense account (after taking into account prior
reductions) shall be reduced by the percentage by which the amount
described in subparagraph (A) is less than the amount described in
subparagraph (B)."
Subsec. (i)(4). Pub. L. 105-34 redesignated par. (6) as (4) and
struck out heading and text of former par. (4). Text read as
follows: "Any reduction in the suspense account under paragraph (3)
shall be included in gross income for the taxable year of the
reduction."
Subsec. (i)(5), (6). Pub. L. 105-34 added par. (5) and
redesignated former pars. (5) and (6) as (3) and (4), respectively.
1990 - Subsec. (g)(1)(A). Pub. L. 101-508, Sec. 11702(b)(2),
substituted "trade or business of farming" for "qualified farming
trade or business".
Subsec. (g)(4)(B). Pub. L. 101-508, Sec. 11702(b)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "The term 'qualified farming trade or business' means the
trade or business of farming sugar cane."
1988 - Subsec. (b). Pub. L. 100-647, Sec. 1008(b)(5), substituted
"period expenses" for "period of expenses" in heading and in text.
Subsec. (g)(1). Pub. L. 100-647, Sec. 1008(b)(6), substituted
"qualified farming trade or business" for "trade or business of
farming" in subpar. (A) and in concluding provisions.
1987 - Subsec. (c). Pub. L. 100-203, Sec. 10205(a), added subsec.
(c), substituting "certain corporations" for "small business and
family corporations" in heading and striking out former text which
read as follows: "For purposes of subsection (a), a corporation
shall be treated as not being a corporation if it is -
"(1) an S corporation,
"(2) a corporation of which at least 50 percent of the total
combined voting power of all classes of stock entitled to vote,
and at least 50 percent of the total number of shares of all
other classes of stock of the corporation, are owned by members
of the same family, or
"(3) a corporation the gross receipts of which meet the
requirements of subsection (e)."
Subsec. (d). Pub. L. 100-203, Sec. 10205(a), added subsec. (d).
Former subsec. (d) redesignated (e).
Subsec. (e). Pub. L. 100-203, Sec. 10205(c)(1), substituted
"subsection (d)" for "subsection (c)(2)".
Pub. L. 100-203, Sec. 10205(a), redesignated former subsec. (d)
as (e) and struck out former subsec. (e), "Corporation having gross
receipts of $1,000,000 or less", which read as follows: "A
corporation meets the requirements of this subsection if, for each
prior taxable year beginning after December 31, 1975, such
corporation (and any predecessor corporation) did not have gross
receipts exceeding $1,000,000. For purposes of the preceding
sentence, all corporations which are members of a controlled group
of corporations (within the meaning of section 1563(a)) shall be
treated as one corporation."
Subsec. (h)(1). Pub. L. 100-203, Sec. 10205(c)(2)(A), substituted
"A corporation is described in this subsection" for "This section
shall not apply to any corporation".
Subsec. (h)(1)(A), (B). Pub. L. 100-203, Sec. 10205(c)(2)(B),
(C), substituted "subsection (e)" for "subsection (d)" and
"subsection (e)(1)" for "subsection (d)(1)" wherever appearing.
Subsec. (i). Pub. L. 100-203, Sec. 10205(b), added subsec. (i).
1986 - Subsec. (a). Pub. L. 99-514, Sec. 803(b)(7)(B), which
directed that subsec. (a) be amended by striking out "and with the
capitalization of preproductive period of expenses described in
subsection (b)", was executed by striking out "and with the
capitalization of preproductive period expenses described in
subsection (b)" after "accrual method of accounting", as the
probable intent of Congress.
Subsec. (b). Pub. L. 99-514, Sec. 803(b)(7)(A), in amending
subsec. (b) generally, substituted in heading "period of expenses"
for "period expenses" and in text the cross reference to section
263A for former par. (1) defining "preproductive period expenses",
par. (2) relating to exceptions, and par. (3) defining
"preproductive period".
Subsec. (g)(1). Pub. L. 99-514, Sec. 803(b)(7)(C), substituted
"Notwithstanding subsection (a) or section 263A, if" for "If".
1982 - Subsec. (c)(1). Pub. L. 97-354, Sec. 5(a)(28), substituted
"an S corporation" for "an electing small business corporation
(within the meaning of section 1371(b))".
Subsec. (g)(1). Pub. L. 97-248, Sec. 230(a)(1), inserted "or
qualified partnership" after "corporation" wherever appearing.
Subsec. (g)(3). Pub. L. 97-248, Sec. 230(a)(2), designated
existing provisions from "a corporation acquired" through
"transferee corporation", as subpar. (A), inserted "qualified"
before "farming trade", and added subpar. (B).
Subsec. (g)(4). Pub. L. 97-354, Sec. 5(a)(29), substituted in
subpar. (A)(i) "an S corporation" for "an electing small business
corporation (within the meaning of section 1371(b))".
Pub. L. 97-248, Sec. 230(a)(3), added par. (4).
1978 - Subsec. (a). Pub. L. 95-600, Secs. 353(a), 703(d),
substituted in provisions following par. (2) "preproductive period
expenses" for "preproductive expenses" and "nursery or sod farm"
for "nursery".
Subsec. (f)(3). Pub. L. 95-600, Sec. 701(l)(1), struck out
"(except as otherwise provided in such regulations)" before "be
taken" and inserted "(or the remaining taxable years where there is
a stated future life of less than 10 taxable years)" after "10
taxable years".
Subsec. (g)(2). Pub. L. 95-600, Sec. 703(d), substituted
"preproductive period expenses" for "preproductive expenses".
Subsec. (h). Pub. L. 95-600, Sec. 351(a), added subsec. (h).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1081(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years ending after June 8, 1997."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section
11702(j) of Pub. L. 101-508, set out as a note under section 59 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10205(d) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the amendment
by Pub. L. 99-514 is applicable to such interest costs only to the
extent such interest costs are attributable to costs which were
required to be capitalized under section 263 of the Internal
Revenue Code of 1954 and which would have been taken into account
in applying section 189 of the Internal Revenue Code of 1954 (as in
effect before its repeal by section 803 of Pub. L. 99-514) or, if
applicable, section 266 of such Code, see section 7831(d)(2) of
Pub. L. 101-239, set out as an Effective Date note under section
263A of this title.
Amendment by Pub. L. 99-514 applicable to costs incurred after
Dec. 31, 1986, in taxable years ending after such date, except as
otherwise provided, see section 803(d) of Pub. L. 99-514, set out
as an Effective Date note under section 263A of this title.
EFFECTIVE DATE OF 1982 AMENDMENTS
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
Section 230(b) of Pub. L. 97-248 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1981."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 351(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1977."
Section 353(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1976."
Section 701(l)(4) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by paragraphs (1) [amending this section] and (3)
[amending section 464 of this title] shall take effect as if
included in section 447 or 464 (as the case may be) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] at the time of the
enactment of such sections [Oct. 4, 1976]."
Amendment by section 703(d) of Pub. L. 95-600 effective on Oct.
4, 1976, see section 703(r) of Pub. L. 95-600, set out as a note
under section 46 of this title.
EFFECTIVE DATE
Section 207(c)(2) of Pub. L. 94-455, as amended by Pub. L. 95-30,
title IV, Sec. 404, May 23, 1977, 91 Stat. 155; Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by paragraph (1) [enacting this section] shall
apply to taxable years beginning after December 31, 1976.
"(B) Special rule for certain corporations. - In the case of a
corporation engaged in the trade or business of farming and with
respect to which -
"(i) members of two families (within the meaning of paragraph
(1) of section 447(d) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], as added by paragraph (1)) owned, on
October 4, 1976 (directly or through the application of such
section 447(d)), at least 65 percent of the total combined voting
power of all classes of stock of such corporation entitled to
vote, and at least 65 percent of the total number of shares of
all other classes of stock of such corporation; or
"(ii) members of three families (within the meaning of
paragraph (1) of such section 447(d)) owned, on October 4, 1976
(directly or through the application of such section 447(d)), at
least 50 percent of the total combined voting power of all
classes of stock of such corporation entitled to vote, and at
least 50 percent of the total number of shares of all other
classes of stock of such corporation; and substantially all of
the stock of such corporation which was not so owned (directly or
through the application of such section 447(d)), by members of
such three families was owned, on October 4, 1976, directly -
"(I) by employees of the corporation or members of the
families (within the meaning of section 267(c)(4) of such Code)
of such employees, or
"(II) by a trust for the benefit of the employees of such
corporation which is described in section 401(a) of such Code
and which is exempt from taxation under section 501(a) of such
Code,
the amendments made by paragraph (1) shall apply to taxable years
beginning after December 31, 1977."
ACCOUNTING FOR GROWING CROPS
Section 352 of Pub. L. 95-600 provided that:
"(a) Application of Section. - This section shall apply to a
taxpayer who -
"(1) is a farmer, nurseryman, or florist,
"(2) is on an accrual method of accounting, and
"(3) is not required by section 447 of the Internal Revenue
Code of 1954 to capitalize preproductive period expenses.
"(b) Taxpayer May Not Be Required To Inventory Growing Crops. - A
taxpayer to whom this section applies may not be required to
inventory growing crops for any taxable year beginning after
December 31, 1977.
"(c) Taxpayer May Elect To Change To Cash Method. - A taxpayer to
whom this section applies may, for any taxable year beginning after
December 31, 1977 and before January 1, 1981, change to the cash
receipts and disbursements method of accounting with respect to any
trade or business in which the principal activity is growing crops.
"(d) Section 481 Of Code To Apply. - Any change in the way in
which a taxpayer accounts for the costs of growing crops resulting
from the application of subsection (b) or (c) -
"(1) shall not require the consent of the Secretary of the
Treasury or his delegate, and
"(2) shall be treated, for purposes of section 481 of the
Internal Revenue Code of 1954 as a change in the method of
accounting initiated by the taxpayer.
"(e) Growing Crops. - For purposes of this section, the term
'Growing crops' does not include trees grown for lumber, pulp, or
other nonlife purposes."
AUTOMATIC TEN-YEAR ADJUSTMENT FOR FARMING SYNDICATES CHANGING TO
ACCRUAL ACCOUNTING
Section 701(l)(2) of Pub. L. 95-600 provided that: "If -
"(A) a farming syndicate (within the meaning of section 464(c)
of the Internal Revenue Code of 1954) was in existence on
December 31, 1975, and
"(B) such syndicate elects an accrual method of accounting
(including the capitalization of preproductive period expenses
described in section 447(b) of such Code) for a taxable year
beginning before January 1, 1979,
then such election shall be treated as having been made with the
consent of the Secretary of the Treasury or his delegate and, under
regulations prescribed by the Secretary of the Treasury or his
delegate, the net amount of the adjustments required by section
481(a) of such Code to be taken into account by the taxpayer in
computing taxable income shall be taken into account in each of the
10 taxable years (or the remaining taxable years where there is a
stated future life of less than 10 taxable years) beginning with
the year of change."
ELECTION TO CHANGE FROM STATIC VALUE METHOD TO ACCRUAL METHOD OF
ACCOUNTING
Section 207(c)(3) of Pub. L. 94-455, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - If -
"(i) a corporation has computed its taxable income on an
annual accrual method of accounting together with a static
value method of accounting for deferred costs of growing crops
for the 10 taxable years ending with its first taxable year
beginning after December 31, 1975,
"(ii) such corporation raises crops which are harvested not
less than 12 months after planting, and
"(iii) such corporation elects, within one year after the
date of the enactment of this Act [Oct. 4, 1976] and in such
manner as the Secretary of the Treasury or his delegate
prescribes, to change to the annual accrual method of
accounting (within the meaning of section 447(g)(2) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]) for
taxable years beginning after December 31, 1976,
such change shall be treated as having been made with the consent
of the Secretary of the Treasury, and, under regulations
prescribed by the Secretary of the Treasury or his delegate, the
net amount of the adjustments required by section 481(a) of the
Internal Revenue Code of 1986 to be taken into account by the
taxpayer in computing taxable income shall (except as otherwise
provided in such regulations) be taken into account in each of
the 10 taxable years beginning with the year of change.
"(B) Coordination with section 447 of the code. - A corporation
which elects under subparagraph (A) to change to the annual
accrual method of accounting shall, for purposes of section
447(g) of the Internal Revenue Code of 1986, be deemed to be a
corporation which has computed its taxable income on an annual
accrual method of accounting for its 10 taxable years ending with
its first taxable year beginning after December 31, 1975.
"(C) Certain corporate reorganizations. - For purposes of this
paragraph, if a corporation acquired substantially all the assets
of a farming trade or business from another corporation in a
transaction in which no gain or loss was recognized to the
transferor or transferee corporation, the transferee corporation
shall be deemed to have computed its taxable income on an annual
accrual method of accounting together with a static value method
of accounting for deferred costs of growing crops during the
period for which the transferor corporation computed its taxable
income from such trade or business on such accrual and static
value method."
-FOOTNOTE-
(!1) So in original.
(!2) So in original. Probably should be "(iii)".
-End-
-CITE-
26 USC Sec. 448 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
Sec. 448. Limitation on use of cash method of accounting
-STATUTE-
(a) General rule
Except as otherwise provided in this section, in the case of a -
(1) C corporation,
(2) partnership which has a C corporation as a partner, or
(3) tax shelter,
taxable income shall not be computed under the cash receipts and
disbursements method of accounting.
(b) Exceptions
(1) Farming business
Paragraphs (1) and (2) of subsection (a) shall not apply to any
farming business.
(2) Qualified personal service corporations
Paragraphs (1) and (2) of subsection (a) shall not apply to a
qualified personal service corporation, and such a corporation
shall be treated as an individual for purposes of determining
whether paragraph (2) of subsection (a) applies to any
partnership.
(3) Entities with gross receipts of not more than $5,000,000
Paragraphs (1) and (2) of subsection (a) shall not apply to any
corporation or partnership for any taxable year if, for all prior
taxable years beginning after December 31, 1985, such entity (or
any predecessor) met the $5,000,000 gross receipts test of
subsection (c).
(c) $5,000,000 gross receipts test
For purposes of this section -
(1) In general
A corporation or partnership meets the $5,000,000 gross
receipts test of this subsection for any prior taxable year if
the average annual gross receipts of such entity for the 3-
taxable-year period ending with such prior taxable year does not
exceed $5,000,000.
(2) Aggregation rules
All persons treated as a single employer under subsection (a)
or (b) of section 52 or subsection (m) or (o) of section 414
shall be treated as one person for purposes of paragraph (1).
(3) Special rules
For purposes of this subsection -
(A) Not in existence for entire 3-year period
If the entity was not in existence for the entire 3-year
period referred to in paragraph (1), such paragraph shall be
applied on the basis of the period during which such entity (or
trade or business) was in existence.
(B) Short taxable years
Gross receipts for any taxable year of less than 12 months
shall be annualized by multiplying the gross receipts for the
short period by 12 and dividing the result by the number of
months in the short period.
(C) Gross receipts
Gross receipts for any taxable year shall be reduced by
returns and allowances made during such year.
(D) Treatment of predecessors
Any reference in this subsection to an entity shall include a
reference to any predecessor of such entity.
(d) Definitions and special rules
For purposes of this section -
(1) Farming business
(A) In general
The term "farming business" means the trade or business of
farming (within the meaning of section 263A(e)(4)).
(B) Timber and ornamental trees
The term "farming business" includes the raising, harvesting,
or growing of trees to which section 263A(c)(5) applies.
(2) Qualified personal service corporation
The term "qualified personal service corporation" means any
corporation -
(A) substantially all of the activities of which involve the
performance of services in the fields of health, law,
engineering, architecture, accounting, actuarial science,
performing arts, or consulting, and
(B) substantially all of the stock of which (by value) is
held directly (or indirectly through 1 or more partnerships, S
corporations, or qualified personal service corporations not
described in paragraph (2) or (3) of subsection (a)) by -
(i) employees performing services for such corporation in
connection with the activities involving a field referred to
in subparagraph (A),
(ii) retired employees who had performed such services for
such corporation,
(iii) the estate of any individual described in clause (i)
or (ii), or
(iv) any other person who acquired such stock by reason of
the death of an individual described in clause (i) or (ii)
(but only for the 2-year period beginning on the date of the
death of such individual).
To the extent provided in regulations which shall be prescribed
by the Secretary, indirect holdings through a trust shall be
taken into account under subparagraph (B).
(3) Tax shelter defined
The term "tax shelter" has the meaning given such term by
section 461(i)(3) (determined after application of paragraph (4)
thereof). An S corporation shall not be treated as a tax shelter
for purposes of this section merely by reason of being required
to file a notice of exemption from registration with a State
agency described in section 461(i)(3)(A), but only if there is a
requirement applicable to all corporations offering securities
for sale in the State that to be exempt from such registration
the corporation must file such a notice.
(4) Special rules for application of paragraph (2)
For purposes of paragraph (2) -
(A) community property laws shall be disregarded,
(B) stock held by a plan described in section 401(a) which is
exempt from tax under section 501(a) shall be treated as held
by an employee described in paragraph (2)(B)(i), and
(C) at the election of the common parent of an affiliated
group (within the meaning of section 1504(a)), all members of
such group may be treated as 1 taxpayer for purposes of
paragraph (2)(B) if 90 percent or more of the activities of
such group involve the performance of services in the same
field described in paragraph (2)(A).
(5) Special rule for certain services
(A) In general
In the case of any person using an accrual method of
accounting with respect to amounts to be received for the
performance of services by such person, such person shall not
be required to accrue any portion of such amounts which (on the
basis of such person's experience) will not be collected if -
(i) such services are in fields referred to in paragraph
(2)(A), or
(ii) such person meets the gross receipts test of
subsection (c) for all prior taxable years.
(B) Exception
This paragraph shall not apply to any amount if interest is
required to be paid on such amount or there is any penalty for
failure to timely pay such amount.
(C) Regulations
The Secretary shall prescribe regulations to permit taxpayers
to determine amounts referred to in subparagraph (A) using
computations or formulas which, based on experience, accurately
reflect the amount of income that will not be collected by such
person. A taxpayer may adopt, or request consent of the
Secretary to change to, a computation or formula that clearly
reflects the taxpayer's experience. A request under the
preceding sentence shall be approved if such computation or
formula clearly reflects the taxpayer's experience.
(6) Treatment of certain trusts subject to tax on unrelated
business income
For purposes of this section, a trust subject to tax under
section 511(b) shall be treated as a C corporation with respect
to its activities constituting an unrelated trade or business.
(7) Coordination with section 481
In the case of any taxpayer required by this section to change
its method of accounting for any taxable year -
(A) such change shall be treated as initiated by the
taxpayer,
(B) such change shall be treated as made with the consent of
the Secretary, and
(C) the period for taking into account the adjustments under
section 481 by reason of such change -
(i) except as provided in clause (ii), shall not exceed 4
years, and
(ii) in the case of a hospital, shall be 10 years.
(8) Use of related parties, etc.
The Secretary shall prescribe such regulations as may be
necessary to prevent the use of related parties, pass-thru
entities, or intermediaries to avoid the application of this
section.
-SOURCE-
(Added Pub. L. 99-514, title VIII, Sec. 801(a), Oct. 22, 1986, 100
Stat. 2345; amended Pub. L. 100-647, title I, Sec. 1008(a)(1), (2),
(7)-(9), title VI, Sec. 6032(a), Nov. 10, 1988, 102 Stat. 3436,
3437, 3695; Pub. L. 107-147, title IV, Sec. 403(a), Mar. 9, 2002,
116 Stat. 40.)
-MISC1-
AMENDMENTS
2002 - Subsec. (d)(5). Pub. L. 107-147 amended heading and text
of par. (5) generally. Prior to amendment, text read as follows:
"In the case of any person using an accrual method of accounting
with respect to amounts to be received for the performance of
services by such person, such person shall not be required to
accrue any portion of such amounts which (on the basis of
experience) will not be collected. This paragraph shall not apply
to any amount if interest is required to be paid on such amount or
there is any penalty for failure to timely pay such amount."
1988 - Subsec. (c)(3)(D). Pub. L. 100-647, Sec. 1008(a)(9), added
subpar. (D).
Subsec. (d)(2). Pub. L. 100-647, Sec. 6032(a), inserted at end
"To the extent provided in regulations which shall be prescribed by
the Secretary, indirect holdings through a trust shall be taken
into account under subparagraph (B)."
Subsec. (d)(2)(B). Pub. L. 100-647, Sec. 1008(a)(1)(A),
substituted "(or indirectly through 1 or more partnerships, S
corporations, or qualified personal service corporations not
described in paragraph (2) or (3) of subsection (a))" for "or
indirectly".
Subsec. (d)(3). Pub. L. 100-647, Sec. 1008(a)(7), inserted
sentence at end relating to treatment of S corporation as tax
shelter.
Subsec. (d)(4)(C). Pub. L. 100-647, Sec. 1008(a)(8), substituted
"90 percent or more of" for "substantially all of".
Pub. L. 100-647, Sec. 1008(a)(2), substituted "such group" for
"all such members".
Subsec. (d)(8). Pub. L. 100-647, Sec. 1008(a)(1)(B), added par.
(8).
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 403(b), Mar. 9, 2002, 116 Stat.
41, provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years ending after the date of
the enactment of this Act [Mar. 9, 2002].
"(2) Change in method of accounting. - In the case of any
taxpayer required by the amendments made by this section to change
its method of accounting for its first taxable year ending after
the date of the enactment of this Act -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as made with the consent of
the Secretary of the Treasury, and
"(C) the net amount of the adjustments required to be taken
into account by the taxpayer under section 481 of the Internal
Revenue Code of 1986 shall be taken into account over a period of
4 years (or if less, the number of taxable years that the
taxpayer used the method permitted under section 448(d)(5) of
such Code as in effect before the date of the enactment of this
Act) beginning with such first taxable year."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1008(a)(1), (2), (7)-(9) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 6032(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1986."
EFFECTIVE DATE
Section 801(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(a)(5), (6), Nov. 10, 1988, 102 Stat. 3437,
provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting this section and amending
section 461 of this title] shall apply to taxable years beginning
after December 31, 1986.
"(2) Election to retain cash method for certain transactions. - A
taxpayer may elect not to have the amendments made by this section
apply to any loan or lease, or any transaction with a related party
(within the meaning of section 267(b) of the Internal Revenue Code
of 1954, as in effect before the enactment of this Act), entered
into on or before September 25, 1985. Any election under the
preceding sentence may be made separately with respect to each
transaction.
"(3) Certain contracts. - The amendments made by this section
shall not apply to -
"(A) contracts for the acquisition or transfer of real
property, and
"(B) contracts for services related to the acquisition or
development of real property,
but only if such contracts were entered into before September 25,
1985, and the sole element of the contract which has not been
performed as of September 25, 1985, is payment for such property or
services.
"(4) Treatment of affiliated group providing engineering
services. - Each member of an affiliated group of corporations
(within the meaning of section 1504(a) of the Internal Revenue Code
of 1986) shall be allowed to use the cash receipts and
disbursements method of accounting for any trade or business of
providing engineering services with respect to taxable years ending
after December 31, 1986, if the common parent of such group -
"(A) was incorporated in the State of Delaware in 1970,
"(B) was the successor to a corporation that was incorporated
in the State of Illinois in 1949, and
"(C) used a method of accounting for long-term contracts of
accounting [sic] for a substantial part of its income from the
performance of engineering services.
"(5) Special rule for paragraphs (2) and (3). - If any loan,
lease, contract, or evidence of any transaction to which paragraph
(2) or (3) applies is transferred after June 10, 1987, to a person
other than a related party (within the meaning of paragraph (2)),
paragraph (2) or (3) shall cease to apply on and after the date of
such transfer."
-End-
-CITE-
26 USC Subpart B - Taxable Year for Which Items of Gross
Income Included 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
SUBPART B - TAXABLE YEAR FOR WHICH ITEMS OF GROSS INCOME INCLUDED
-MISC1-
Sec.
451. General rule for taxable year of inclusion.
[452. Repealed.]
453. Installment method.
453A. Special rules for nondealers.
453B. Gain or loss on disposition of installment
obligations.(!1)
[453C. Repealed.]
454. Obligations issued at discount.
455. Prepaid subscription income.
456. Prepaid dues income of certain membership
organizations.
457. Deferred compensation plans of State and local
governments and tax-exempt organizations.
458. Magazines, paperbacks, and records returned after the
close of the taxable year.
460. Special rules for long-term contracts.
AMENDMENTS
1988 - Pub. L. 100-647, title V, Sec. 5076(b)(2), Nov. 10, 1988,
102 Stat. 3683, struck out "of real property" after "rules for
nondealers" in item 453A.
1987 - Pub. L. 100-203, title X, Sec. 10202(a)(2), (c)(2), Dec.
22, 1987, 101 Stat. 1330-388, 1330-392, substituted "Special rules
for nondealers of real property" for "Installment method for
dealers in personal property" in item 453A, and struck out item
453C "Certain indebtedness treated as payments on installment
obligations".
1986 - Pub. L. 99-514, title XI, Sec. 1107(b), (c), Oct. 22,
1986, 101 Stat. 2430, added item 457, applicable to taxable years
beginning after Dec. 31, 1988, with certain exceptions, and struck
out former item 457 "Deferred compensation plans with respect to
service for State and local governments".
Pub. L. 99-514, title VIII, Secs. 804(c), 811(b), Oct. 22, 1986,
100 Stat. 2361, 2368, added items 453C and 460.
1980 - Pub. L. 96-471, Sec. 2(d), Oct. 19, 1980, 94 Stat. 2254,
added items 453 to 453B and struck out former item 453 "Installment
method".
1978 - Pub. L. 95-600, title I, Sec. 131(b), title III, Sec.
372(b), Nov. 6, 1978, 92 Stat. 2782, 2862, added items 457 and 458.
1961 - Pub. L. 87-109, Sec. 1(b), July 26, 1961, 75 Stat. 224,
added item 456.
1958 - Pub. L. 85-866, title I, Sec. 28(b), Sept. 2, 1958, 72
Stat. 1626, added item 455, effective with respect to taxable years
beginning after Dec. 31, 1957. See section 28(c) of Pub. L. 85-866
set out as an Effective Date note under section 455 of this title.
1955 - Act June 15, 1955, ch. 143, Sec. 2(2), 69 Stat. 135,
struck out item 452 "Adjustment in case of position inconsistent
with prior income tax liability".
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 451 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 451. General rule for taxable year of inclusion
-STATUTE-
(a) General rule
The amount of any item of gross income shall be included in the
gross income for the taxable year in which received by the
taxpayer, unless, under the method of accounting used in computing
taxable income, such amount is to be properly accounted for as of a
different period.
(b) Special rule in case of death
In the case of the death of a taxpayer whose taxable income is
computed under an accrual method of accounting, any amount accrued
only by reason of the death of the taxpayer shall not be included
in computing taxable income for the period in which falls the date
of the taxpayer's death.
(c) Special rule for employee tips
For purposes of subsection (a), tips included in a written
statement furnished an employer by an employee pursuant to section
6053(a) shall be deemed to be received at the time the written
statement including such tips is furnished to the employer.
(d) Special rule for crop insurance proceeds or disaster payments
In the case of insurance proceeds received as a result of
destruction or damage to crops, a taxpayer reporting on the cash
receipts and disbursements method of accounting may elect to
include such proceeds in income for the taxable year following the
taxable year of destruction or damage, if he establishes that,
under his practice, income from such crops would have been reported
in a following taxable year. For purposes of the preceding
sentence, payments received under the Agricultural Act of 1949, as
amended, or title II of the Disaster Assistance Act of 1988, as a
result of (1) destruction or damage to crops caused by drought,
flood, or any other natural disaster, or (2) the inability to plant
crops because of such a natural disaster shall be treated as
insurance proceeds received as a result of destruction or damage to
crops. An election under this subsection for any taxable year shall
be made at such time and in such manner as the Secretary
prescribes.
(e) Special rule for proceeds from livestock sold on account of
drought, flood, or other weather-related conditions
(1) In general
In the case of income derived from the sale or exchange of
livestock in excess of the number the taxpayer would sell if he
followed his usual business practices, a taxpayer reporting on
the cash receipts and disbursements method of accounting may
elect to include such income for the taxable year following the
taxable year in which such sale or exchange occurs if he
establishes that, under his usual business practices, the sale or
exchange would not have occurred in the taxable year in which it
occurred if it were not for drought, flood, or other weather-
related conditions, and that such conditions had resulted in the
area being designated as eligible for assistance by the Federal
Government.
(2) Limitation
Paragraph (1) shall apply only to a taxpayer whose principal
trade or business is farming (within the meaning of section
6420(c)(3)).
(3) Special election rules
If section 1033(e)(2) applies to a sale or exchange of
livestock described in paragraph (1), the election under
paragraph (1) shall be deemed valid if made during the
replacement period described in such section.
(f) Special rule for utility services
(1) In general
In the case of a taxpayer the taxable income of which is
computed under an accrual method of accounting, any income
attributable to the sale or furnishing of utility services to
customers shall be included in gross income not later than the
taxable year in which such services are provided to such
customers.
(2) Definition and special rule
For purposes of this subsection -
(A) Utility services
The term "utility services" includes -
(i) the providing of electrical energy, water, or sewage
disposal,
(ii) the furnishing of gas or steam through a local
distribution system,
(iii) telephone or other communication services, and
(iv) the transporting of gas or steam by pipeline.
(B) Year in which services provided
The taxable year in which services are treated as provided to
customers shall not, in any manner, be determined by reference
to -
(i) the period in which the customers' meters are read, or
(ii) the period in which the taxpayer bills (or may bill)
the customers for such service.
(g) Treatment of interest on frozen deposits in certain financial
institutions
(1) In general
In the case of interest credited during any calendar year on a
frozen deposit in a qualified financial institution, the amount
of such interest includible in the gross income of a qualified
individual shall not exceed the sum of -
(A) the net amount withdrawn by such individual from such
deposit during such calendar year, and
(B) the amount of such deposit which is withdrawable as of
the close of the taxable year (determined without regard to any
penalty for premature withdrawals of a time deposit).
(2) Interest tested each year
Any interest not included in gross income by reason of
paragraph (1) shall be treated as credited in the next calendar
year.
(3) Deferral of interest deduction
No deduction shall be allowed to any qualified financial
institution for interest not includible in gross income under
paragraph (1) until such interest is includible in gross income.
(4) Frozen deposit
For purposes of this subsection, the term "frozen deposit"
means any deposit if, as of the close of the calendar year, any
portion of such deposit may not be withdrawn because of -
(A) the bankruptcy or insolvency of the qualified financial
institution (or threat thereof), or
(B) any requirement imposed by the State in which such
institution is located by reason of the bankruptcy or
insolvency (or threat thereof) of 1 or more financial
institutions in the State.
(5) Other definitions
For purposes of this subsection, the terms "qualified
individual", "qualified financial institution", and "deposit"
have the same respective meanings as when used in section 165(l).
(h) Special rule for cash options for receipt of qualified prizes
(1) In general
For purposes of this title, in the case of an individual on the
cash receipts and disbursements method of accounting, a qualified
prize option shall be disregarded in determining the taxable year
for which any portion of the qualified prize is properly
includible in gross income of the taxpayer.
(2) Qualified prize option; qualified prize
For purposes of this subsection -
(A) In general
The term "qualified prize option" means an option which -
(i) entitles an individual to receive a single cash payment
in lieu of receiving a qualified prize (or remaining portion
thereof), and
(ii) is exercisable not later than 60 days after such
individual becomes entitled to the qualified prize.
(B) Qualified prize
The term "qualified prize" means any prize or award which -
(i) is awarded as a part of a contest, lottery, jackpot,
game, or other similar arrangement,
(ii) does not relate to any past services performed by the
recipient and does not require the recipient to perform any
substantial future service, and
(iii) is payable over a period of at least 10 years.
(3) Partnership, etc.
The Secretary shall provide for the application of this
subsection in the case of a partnership or other pass-through
entity consisting entirely of individuals described in paragraph
(1).
(i) Special rule for sales or dispositions to implement Federal
Energy Regulatory Commission or State electric restructuring
policy
(1) In general
In the case of any qualifying electric transmission transaction
for which the taxpayer elects the application of this section,
qualified gain from such transaction shall be recognized -
(A) in the taxable year which includes the date of such
transaction to the extent the amount realized from such
transaction exceeds -
(i) the cost of exempt utility property which is purchased
by the taxpayer during the 4-year period beginning on such
date, reduced (but not below zero) by
(ii) any portion of such cost previously taken into account
under this subsection, and
(B) ratably over the 8-taxable year period beginning with the
taxable year which includes the date of such transaction, in
the case of any such gain not recognized under subparagraph
(A).
(2) Qualified gain
For purposes of this subsection, the term "qualified gain"
means, with respect to any qualifying electric transmission
transaction in any taxable year -
(A) any ordinary income derived from such transaction which
would be required to be recognized under section 1245 or 1250
for such taxable year (determined without regard to this
subsection), and
(B) any income derived from such transaction in excess of the
amount described in subparagraph (A) which is required to be
included in gross income for such taxable year (determined
without regard to this subsection).
(3) Qualifying electric transmission transaction
For purposes of this subsection, the term "qualifying electric
transmission transaction" means any sale or other disposition
before January 1, 2008, of -
(A) property used in the trade or business of providing
electric transmission services, or
(B) any stock or partnership interest in a corporation or
partnership, as the case may be, whose principal trade or
business consists of providing electric transmission services,
but only if such sale or disposition is to an independent
transmission company.
(4) Independent transmission company
For purposes of this subsection, the term "independent
transmission company" means -
(A) an independent transmission provider approved by the
Federal Energy Regulatory Commission,
(B) a person -
(i) who the Federal Energy Regulatory Commission determines
in its authorization of the transaction under section 203 of
the Federal Power Act (16 U.S.C. 824b) or by declaratory
order is not a market participant within the meaning of such
Commission's rules applicable to independent transmission
providers, and
(ii) whose transmission facilities to which the election
under this subsection applies are under the operational
control of a Federal Energy Regulatory Commission-approved
independent transmission provider before the close of the
period specified in such authorization, but not later than
December 31, 2007, or
(C) in the case of facilities subject to the jurisdiction of
the Public Utility Commission of Texas -
(i) a person which is approved by that Commission as
consistent with Texas State law regarding an independent
transmission provider, or
(ii) a political subdivision or affiliate thereof whose
transmission facilities are under the operational control of
a person described in clause (i).
(5) Exempt utility property
For purposes of this subsection:
(A) In general
The term "exempt utility property" means property used in the
trade or business of -
(i) generating, transmitting, distributing, or selling
electricity, or
(ii) producing, transmitting, distributing, or selling
natural gas.
(B) Nonrecognition of gain by reason of acquisition of stock
Acquisition of control of a corporation shall be taken into
account under this subsection with respect to a qualifying
electric transmission transaction only if the principal trade
or business of such corporation is a trade or business referred
to in subparagraph (A).
(6) Special rule for consolidated groups
In the case of a corporation which is a member of an affiliated
group filing a consolidated return, any exempt utility property
purchased by another member of such group shall be treated as
purchased by such corporation for purposes of applying paragraph
(1)(A).
(7) Time for assessment of deficiencies
If the taxpayer has made the election under paragraph (1) and
any gain is recognized by such taxpayer as provided in paragraph
(1)(B), then -
(A) the statutory period for the assessment of any
deficiency, for any taxable year in which any part of the gain
on the transaction is realized, attributable to such gain shall
not expire prior to the expiration of 3 years from the date the
Secretary is notified by the taxpayer (in such manner as the
Secretary may by regulations prescribe) of the purchase of
exempt utility property or of an intention not to purchase such
property, and
(B) such deficiency may be assessed before the expiration of
such 3-year period notwithstanding any law or rule of law which
would otherwise prevent such assessment.
(8) Purchase
For purposes of this subsection, the taxpayer shall be
considered to have purchased any property if the unadjusted basis
of such property is its cost within the meaning of section 1012.
(9) Election
An election under paragraph (1) shall be made at such time and
in such manner as the Secretary may require and, once made, shall
be irrevocable.
(10) Nonapplication of installment sales treatment
Section 453 shall not apply to any qualifying electric
transmission transaction with respect to which an election to
apply this subsection is made.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 152; Pub. L. 89-97, title III,
Sec. 313(b), July 30, 1965, 79 Stat. 382; Pub. L. 91-172, title II,
Sec. 215(a), Dec. 30, 1969, 83 Stat. 573; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), title XXI, Secs. 2102(a), (b), 2141(a),
Oct. 4, 1976, 90 Stat. 1834, 1900, 1933; Pub. L. 99-514, title
VIII, Sec. 821(a), title IX, Sec. 905(b), Oct. 22, 1986, 100 Stat.
2372, 2386; Pub. L. 100-647, title I, Sec. 1009(d)(3), title VI,
Secs. 6030(a), 6033(a), Nov. 10, 1988, 102 Stat. 3450, 3694, 3695;
Pub. L. 105-34, title IX, Sec. 913(a), Aug. 5, 1997, 111 Stat. 878;
Pub. L. 105-277, div. J, title V, Sec. 5301(a), Oct. 21, 1998, 112
Stat. 2681-918; Pub. L. 108-357, title III, Sec. 311(c), title
VIII, Sec. 909(a), Oct. 22, 2004, 118 Stat. 1467, 1657; Pub. L. 109-
58, title XIII, Sec. 1305(a), (b), Aug. 8, 2005, 119 Stat. 997.)
-REFTEXT-
REFERENCES IN TEXT
The Agricultural Act of 1949, as amended, referred to in subsec.
(d), is act Oct. 31, 1949, ch. 792, 63 Stat. 1051, as amended,
which is classified principally to chapter 35A (Sec. 1421 et seq.)
of Title 7, Agriculture. For complete classification of this Act to
the Code, see Short Title note set out under section 1421 of Title
7 and Tables.
The Disaster Assistance Act of 1988, referred to in subsec. (d),
is Pub. L. 100-387, Aug. 11, 1988, 102 Stat. 924. Title II of the
Disaster Assistance Act of 1988 is set out as a note under section
1421 of Title 7. For complete classification of this Act to the
Code, see Tables.
-MISC1-
AMENDMENTS
2005 - Subsec. (i)(3). Pub. L. 109-58, Sec. 1305(a), substituted
"2008" for "2007" in introductory provisions.
Subsec. (i)(4)(B)(ii). Pub. L. 109-58, Sec. 1305(b), substituted
"December 31, 2007" for "the close of the period applicable under
subsection (a)(2)(B) as extended under paragraph (2)".
2004 - Subsec. (e)(3). Pub. L. 108-357, Sec. 311(c), added par.
(3).
Subsec. (i). Pub. L. 108-357, Sec. 909(a), added subsec. (i).
1998 - Subsec. (h). Pub. L. 105-277 added subsec. (h).
1997 - Subsec. (e). Pub. L. 105-34 inserted ", flood, or other
weather-related conditions" after "drought" in heading and
substituted "drought, flood, or other weather-related conditions,
and that such conditions" for "drought conditions, and that these
drought conditions" in par. (1).
1988 - Subsec. (d). Pub. L. 100-647, Sec. 6033(a), inserted "or
title II of the Disaster Assistance Act of 1988," after "the
Agricultural Act of 1949, as amended,".
Subsec. (e)(1). Pub. L. 100-647, Sec. 6030(a), struck out "(other
than livestock described in section 1231(b)(3))" after "exchange of
livestock".
Subsecs. (f), (g). Pub. L. 100-647, Sec. 1009(d)(3), redesignated
subsec. (f), relating to treatment of interest on frozen deposits
in certain financial institutions, as (g).
1986 - Subsec. (f). Pub. L. 99-514, Sec. 905(b), added subsec.
(f) relating to treatment of interest on frozen deposits in certain
financial institutions.
Pub. L. 99-514, Sec. 821(a), added subsec. (f) relating to
special rule for utility services.
1976 - Subsec. (d). Pub. L. 94-455, Secs. 1906(b)(13)(A),
2102(a), (b), inserted reference to disaster payments in heading,
provided that payments received under the Agricultural Act of 1949,
as amended, be treated as insurance proceeds received as a result
of destruction or damage to crops if the payments are received as
the result of destruction or damage from drought, flood, or other
natural disaster, or as the result of inability to plant crops
because of drought, flood, or other natural disaster, and struck
out "or his delegate" after "Secretary".
Subsec. (e). Pub. L. 94-455, Sec. 2141(a), added subsec. (e).
1969 - Subsec. (d). Pub. L. 91-172 added subsec. (d).
1965 - Subsec. (c). Pub. L. 89-97 added subsec. (c).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-58, title XIII, Sec. 1305(c), Aug. 8, 2005, 119 Stat.
997, provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to transactions occurring after the date
of the enactment of this Act [Aug. 8, 2005].
"(2) Technical amendment. - The amendment made by subsection (b)
[amending this section] shall take effect as if included in the
amendments made by section 909 of the American Jobs Creation Act of
2004 [Pub. L. 108-357, amending this section]."
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title III, Sec. 311(d), Oct. 22, 2004, 118 Stat.
1467, provided that: "The amendments made by this section [amending
this section and section 1033 of this title] shall apply to any
taxable year with respect to which the due date (without regard to
extensions) for the return is after December 31, 2002."
Pub. L. 108-357, title VIII, Sec. 909(b), Oct. 22, 2004, 118
Stat. 1659, provided that: "The amendments made by this section
[amending this section] shall apply to transactions occurring after
the date of the enactment of this Act [Oct. 22, 2004], in taxable
years ending after such date."
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title V, Sec. 5301(b), Oct. 21, 1998,
112 Stat. 2681-918, provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to any prize to which a person first
becomes entitled after the date of enactment of this Act [Oct. 21,
1998].
"(2) Transition rule. - The amendment made by this section shall
apply to any prize to which a person first becomes entitled on or
before the date of enactment of this Act, except that in
determining whether an option is a qualified prize option as
defined in section 451(h)(2)(A) of the Internal Revenue Code of
1986 (as added by such amendment) -
"(A) clause (ii) of such section 451(h)(2)(A) shall not apply,
and
"(B) such option shall be treated as a qualified prize option
if it is exercisable only during all or part of the 18-month
period beginning on July 1, 1999."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 913(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and section 1033 of
this title] shall apply to sales and exchanges after December 31,
1996."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1009(d)(3) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6030(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to sales
or exchanges occurring after December 31, 1987."
Section 6033(b) of Pub. L. 100-647, as amended by Pub. L. 101-
239, title VII, Sec. 7816(g), Dec. 19, 1989, 103 Stat. 2421,
provided that: "The amendment made by subsection (a) [amending this
section] shall apply to payments received before, on, or after the
date of enactment of this Act [Nov. 10, 1988]."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 821(b) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(h), Nov. 10, 1988, 102 Stat. 3444, provided
that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1986.
"(2) Change in method of accounting. - If a taxpayer is required
by the amendments made by this section to change its method of
accounting for any taxable year -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as having been made with the
consent of the Secretary, and
"(C) the adjustments under section 481 of the Internal Revenue
Code of 1954 [now 1986] by reason of such change shall be taken
into account ratably over a period no longer than the first 4
taxable years beginning after December 31, 1986.
"(3) Special rule for certain cycle billing. - If a taxpayer for
any taxable year beginning before August 16, 1986, for purposes of
chapter 1 of the Internal Revenue Code of 1986 took into account
income from services described in section 451(f) of such Code (as
added by subsection (a)) on the basis of the period in which the
customers' meters were read, then such treatment for such year
shall be deemed to be proper. The preceding sentence shall also
apply to any taxable year beginning after August 16, 1986, and
before January 1, 1987, if the taxpayer treated such income in the
same manner for the taxable year preceding such taxable year."
Section 905(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1009(d)(2), Nov. 10, 1988, 102 Stat. 3450, provided
that:
"(1) In general. - The amendment made by subsection (a) [amending
section 165 of this title] shall apply to taxable years beginning
after December 31, 1981, and, except as provided in paragraph (2),
the amendment made by subsection (b) [amending this section] shall
apply to taxable years beginning after December 31, 1982.
"(2) Special rules for subsection (b). -
"(A) The amendment made by subsection (b) [amending this
section] shall apply to taxable years beginning after December
31, 1982, and before January 1, 1987, only if the qualified
individual elects to have such amendment apply for all such
taxable years.
"(B) In the case of interest attributable to the period
beginning January 1, 1983, and ending December 31, 1987, the
interest deduction of financial institutions shall be determined
without regard to paragraph (3) of section 451(f) of the Internal
Revenue Code of 1986 (as added by subsection (b))."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2102(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section] shall apply to
payments received after December 31, 1973, in taxable years ending
after such date."
Section 2141(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] applies to taxable
years beginning after December 31, 1975."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 215(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after the date of the enactment of this Act
[Dec. 30, 1969]."
EFFECTIVE DATE OF 1965 AMENDMENT
Amendment by Pub. L. 89-97 applicable only with respect to tips
received by employees after 1965, see section 313(f) of Pub. L. 89-
97, set out as an Effective Date note under section 6053 of this
title.
TAX TREATMENT OF INCENTIVE PAYMENT
Voluntary separation incentives paid to members of Armed Forces
under 10 U.S.C. 1175 as includable in gross income only for taxable
year in which incentive is paid, see section 662(b) of Pub. L. 102-
190, set out as a note under section 1175 of Title 10, Armed
Forces.
OVERPAYMENTS OR UNDERPAYMENTS OF TAX ATTRIBUTABLE TO CERTAIN
AMENDMENTS BY PUB. L. 99-514 OR PUB. L. 100-647
For provisions relating to credit or refund of overpayments of
tax, and assessment of underpayments of tax, due to amendments by
section 905 of Pub. L. 99-514 or section 1009(d) of Pub. L. 100-
647, see section 1009(d)(4) of Pub. L. 100-647, set out as a note
under section 165 of this title.
MODIFICATION OF REGULATIONS ON THE COMPLETED CONTRACT METHOD OF
ACCOUNTING
Pub. L. 97-248, title II, Sec. 229, Sept. 3, 1982, 96 Stat. 493,
as amended by Pub. L. 98-369, div. A, title VII, Sec. 712(m), July
18, 1984, 98 Stat. 955, provided that:
"(a) In General. - The Secretary of the Treasury shall modify the
income tax regulations relating to accounting for long-term
contracts to -
"(1) clarify the time at which a contract is to be considered
completed,
"(2) clarify when -
"(A) one agreement will be treated as more than one contract,
and
"(B) two or more agreements will be treated as one contract,
and
"(3) properly allocate all costs which directly benefit, or are
incurred by reason of, the extended period long-term contract
activities of the taxpayer.
"(b) Extended Period Long-Term Contracts Defined. - For purposes
of this section -
"(1) In general. - The term 'extended period long-term
contract' means any long-term contract which the taxpayer
estimates (at the time such contract is entered into) will not be
completed within the 2-year period beginning on the contract
commencement date of such contract.
"(2) Certain construction contracts. -
"(A) In general. - The term 'extended period long-term
contract' does not include any construction contract entered
into by a taxpayer -
"(i) who estimates (at the time such contract is entered
into) that such contract will be completed within the 3-year
period beginning on the contract commencement date of such
contract, or
"(ii) whose average annual gross receipts over the 3
taxable years preceding the taxable year in which such
contract is entered into do not exceed $25,000,000.
"(B) Determination of taxpayer's gross receipts. - For
purposes of subparagraph (A), the gross receipts of -
"(i) all trades or businesses (whether or not incorporated)
which are under common control with the taxpayer (within the
meaning of section 52(b)), and
"(ii) all members of any controlled group of corporations
of which the taxpayer is a member,
for the 3 taxable years of such persons preceding the taxable
year in which the contract described in subparagraph (A) is
entered into shall be included in the gross receipts of the
taxpayer for the period described in subparagraph (A). The
Secretary shall prescribe regulations which provide attribution
rules that take into account, in addition to the persons and
entities described in the preceding sentence, taxpayers who
engage in construction contracts through partnerships, joint
ventures, and corporations.
"(C) Controlled group of corporations. - The term 'controlled
group of corporations' has the meaning given to such term by
section 1563(a), except that -
"(i) 'more than 50 percent' shall be substituted for 'at
least 80 percent' each place it appears in section
1563(a)(1), and
"(ii) the determination shall be made without regard to
subsections (a)(4) and (e)(3)(C) of section 1563.
"(3) Construction contract. - The term 'construction contract'
means any contract for the building, construction,
reconstruction, or rehabilitation of, or the installation of any
integral component to, improvements to real property.
"(4) Contract commencement date. - The term 'contract
commencement date' means, with respect to any contract, the first
date on which any costs (other than costs such as bidding
expenses or expenses incurred in connection with negotiating the
contract) allocable to such contract are incurred.
"(c) Effective Dates; Special Rules. -
"(1) In general. - The modifications to regulations which are
required to be made under paragraphs (1) and (2) of subsection
(a) shall apply with respect to taxable years ending after
December 31, 1982.
"(2) Cost allocation. -
"(A) In general. - Any modification to Income Tax Regulation
1.451-3 made under subsection (a)(3) which requires additional
costs to be allocated to a contract shall apply only to the
applicable percentage of such additional costs incurred in
taxable years beginning after December 31, 1982, with respect
to contracts entered into after such date.
"(B) Applicable percentage. - For purposes of subparagraph
(A), the applicable percentage shall be determined in
accordance with the following table:
"If the taxable year begins The applicable
in calendar year: percentage is:
1983 33 1/3
1984 66 2/3
1985 or thereafter 100.
"(3) Special rules. -
"(A) Time of completion. - Any contract of a taxpayer which
would (but for this paragraph) be treated as having been
completed prior to the first taxable year of such taxpayer
ending after December 31, 1982, solely by reason of any
modification to regulations made under subsection (a)(1), shall
be treated as having been completed on the first day of such
taxable year.
"(B) Aggregation and severance. - Any contract of a taxpayer
which would (but for this paragraph) be treated as having been
completed prior to the first taxable year of such taxpayer
ending after December 31, 1982 -
"(i) solely by reason of any modification to regulations
made under subsection (a)(2), or
"(ii) solely by reason of any modifications to regulations
made under both paragraphs (1) and (2) of subsection (a),
shall be treated as having been completed on the first day after
December 31, 1982, on which any contract which was severed from
such contract (by reason of the modifications made by subsection
(a)(2)) is completed (determined after the application of any
modifications to regulations made under subsection (a)(1)).
"(4) Underpayments of estimated tax for 1982. - To the extent
provided in regulations, no addition to tax shall be made under
section 6654 or 6655 of the Internal Revenue Code of 1954 for the
taxpayer's first taxable year ending after December 31, 1982, by
reason of a long-term contract, but only with respect to
installments required to be paid before April 13, 1983."
PRIVATE DEFERRED COMPENSATION PLANS; TAXABLE YEARS ENDING ON OR
AFTER FEBRUARY 1, 1978
Pub. L. 95-600, title I, Sec. 132, Nov. 6, 1978, 92 Stat. 2782,
as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat.
2095, provided that:
"(a) General Rule. - The taxable year of inclusion in gross
income of any amount covered by a private deferred compensation
plan shall be determined in accordance with the principles set
forth in regulations, rulings, and judicial decisions relating to
deferred compensation which were in effect on February 1, 1978.
"(b) Private Deferred Compensation Plan Defined. -
"(1) In general. - For purposes of this section, the term
'private deferred compensation plan' means a plan, agreement, or
arrangement -
"(A) where the person for whom the service is performed is
not a State (within the meaning of paragraph (1) of section
457(d) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954]) and not an organization which is exempt from tax under
section 501 of such Code, and
"(B) under which the payment or otherwise making available of
compensation is deferred.
"(2) Certain plans excluded. - Paragraph (1) shall not apply to
-
"(A) a plan described in section 401(a) of the Internal
Revenue Code of 1986 which includes a trust, exempt from tax
under section 501(a) of such Code,
"(B) an annuity plan or contract described in section 403 of
such Code,
"(C) a qualified bond purchase plan described in section
405(a) of such Code,
"(D) that portion of any plan which consists of a transfer of
property described in section 83 (determined without regard to
subsection (e) thereof of such Code, and
"(E) that portion of any plan which consists of a trust to
which section 402(b) of such Code applies.
"(c) Effective Date. - This section shall apply to taxable years
ending on or after February 1, 1978."
YEAR OF INCLUSION FOR DISASTER OR DEFICIENCY PAYMENTS RECEIVED IN
1978; ELECTION
Pub. L. 95-258, Sec. 1, Apr. 7, 1978, 92 Stat. 195, provided
that:
"(a) In General. - In the case of a taxpayer reporting on the
cash receipts and disbursements method of accounting, if -
"(1)(A) the taxpayer receives in his first taxable year
beginning in 1978 payments under the Agricultural Act of 1949, as
amended, [see Short Title note set out under section 1421 of
Title 7, Agriculture], as a result of -
"(i) the destruction or damage to crops caused by drought,
flood, or any other natural disaster, or
"(ii) the inability to plant crops because of such a natural
disaster, and
"(B) the taxpayer establishes that, under his practice, income
from such crops could have been reported for his last taxable
year beginning in 1977, or
"(2)(A) the taxpayer receives in his first taxable year
beginning in 1978 deficiency (or 'target price') payments under
the Agricultural Act of 1949, as amended, for any 1977 crop, and
"(B) the fifth month of such crop's marketing year ends before
December 1, 1977,
then the taxpayer may elect to include such proceeds in income for
his last taxable year beginning in 1977.
"(b) Making and Effect of Election - An election under this
section for any taxable year shall be made at such time and in such
manner as the Secretary of the Treasury may by regulations
prescribe and shall apply with respect to all proceeds described in
subsection (a) which were received by the taxpayer."
-End-
-CITE-
26 USC Sec. 452 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
[Sec. 452. Repealed. June 15, 1955, ch. 143, Sec. 1(a), 69 Stat.
134]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 152, related to
prepaid income.
EFFECTIVE DATE OF REPEAL
Repeal effective with respect to taxable years beginning after
Dec. 31, 1953, and ending after Aug. 16, 1954, see section 3 of act
June 15, 1955, set out as an Effective Date of 1955 Amendment note
under section 381 of this title.
SAVINGS PROVISION
For provisions concerning increase in tax in any taxable year
ending on or before June 15, 1955 by reason of enactment of act
June 15, 1955, see section 4 of act June 15, 1955, set out as a
note under section 381 of this title.
-End-
-CITE-
26 USC Sec. 453 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 453. Installment method
-STATUTE-
(a) General rule
Except as otherwise provided in this section, income from an
installment sale shall be taken into account for purposes of this
title under the installment method.
(b) Installment sale defined
For purposes of this section -
(1) In general
The term "installment sale" means a disposition of property
where at least 1 payment is to be received after the close of the
taxable year in which the disposition occurs.
(2) Exceptions
The term "installment sale" does not include -
(A) Dealer dispositions
Any dealer disposition (as defined in subsection (l)).
(B) Inventories of personal property
A disposition of personal property of a kind which is
required to be included in the inventory of the taxpayer if on
hand at the close of the taxable year.
(c) Installment method defined
For purposes of this section, the term "installment method" means
a method under which the income recognized for any taxable year
from a disposition is that proportion of the payments received in
that year which the gross profit (realized or to be realized when
payment is completed) bears to the total contract price.
(d) Election out
(1) In general
Subsection (a) shall not apply to any disposition if the
taxpayer elects to have subsection (a) not apply to such
disposition.
(2) Time and manner for making election
Except as otherwise provided by regulations, an election under
paragraph (1) with respect to a disposition may be made only on
or before the due date prescribed by law (including extensions)
for filing the taxpayer's return of the tax imposed by this
chapter for the taxable year in which the disposition occurs.
Such an election shall be made in the manner prescribed by
regulations.
(3) Election revocable only with consent
An election under paragraph (1) with respect to any disposition
may be revoked only with the consent of the Secretary.
(e) Second dispositions by related persons
(1) In general
If -
(A) any person disposes of property to a related person
(hereinafter in this subsection referred to as the "first
disposition"), and
(B) before the person making the first disposition receives
all payments with respect to such disposition, the related
person disposes of the property (hereinafter in this subsection
referred to as the "second disposition"),
then, for purposes of this section, the amount realized with
respect to such second disposition shall be treated as received
at the time of the second disposition by the person making the
first disposition.
(2) 2-Year cutoff for property other than marketable securities
(A) In general
Except in the case of marketable securities, paragraph (1)
shall apply only if the date of the second disposition is not
more than 2 years after the date of the first disposition.
(B) Substantial diminishing of risk of ownership
The running of the 2-year period set forth in subparagraph
(A) shall be suspended with respect to any property for any
period during which the related person's risk of loss with
respect to the property is substantially diminished by -
(i) the holding of a put with respect to such property (or
similar property),
(ii) the holding by another person of a right to acquire
the property, or
(iii) a short sale or any other transaction.
(3) Limitation on amount treated as received
The amount treated for any taxable year as received by the
person making the first disposition by reason of paragraph (1)
shall not exceed the excess of -
(A) the lesser of -
(i) the total amount realized with respect to any second
disposition of the property occurring before the close of the
taxable year, or
(ii) the total contract price for the first disposition,
over
(B) the sum of -
(i) the aggregate amount of payments received with respect
to the first disposition before the close of such year, plus
(ii) the aggregate amount treated as received with respect
to the first disposition for prior taxable years by reason of
this subsection.
(4) Fair market value where disposition is not sale or exchange
For purposes of this subsection, if the second disposition is
not a sale or exchange, an amount equal to the fair market value
of the property disposed of shall be substituted for the amount
realized.
(5) Later payments treated as receipt of tax paid amounts
If paragraph (1) applies for any taxable year, payments
received in subsequent taxable years by the person making the
first disposition shall not be treated as the receipt of payments
with respect to the first disposition to the extent that the
aggregate of such payments does not exceed the amount treated as
received by reason of paragraph (1).
(6) Exception for certain dispositions
For purposes of this subsection -
(A) Reacquisitions of stock by issuing corporation not treated
as first dispositions
Any sale or exchange of stock to the issuing corporation
shall not be treated as a first disposition.
(B) Involuntary conversions not treated as second dispositions
A compulsory or involuntary conversion (within the meaning of
section 1033) and any transfer thereafter shall not be treated
as a second disposition if the first disposition occurred
before the threat or imminence of the conversion.
(C) Dispositions after death
Any transfer after the earlier of -
(i) the death of the person making the first disposition,
or
(ii) the death of the person acquiring the property in the
first disposition,
and any transfer thereafter shall not be treated as a second
disposition.
(7) Exception where tax avoidance not a principal purpose
This subsection shall not apply to a second disposition (and
any transfer thereafter) if it is established to the satisfaction
of the Secretary that neither the first disposition nor the
second disposition had as one of its principal purposes the
avoidance of Federal income tax.
(8) Extension of statute of limitations
The period for assessing a deficiency with respect to a first
disposition (to the extent such deficiency is attributable to the
application of this subsection) shall not expire before the day
which is 2 years after the date on which the person making the
first disposition furnishes (in such manner as the Secretary may
by regulations prescribe) a notice that there was a second
disposition of the property to which this subsection may have
applied. Such deficiency may be assessed notwithstanding the
provisions of any law or rule of law which would otherwise
prevent such assessment.
(f) Definitions and special rules
For purposes of this section -
(1) Related person
Except for purposes of subsections (g) and (h), the term
"related person" means -
(A) a person whose stock would be attributed under section
318(a) (other than paragraph (4) thereof) to the person first
disposing of the property, or
(B) a person who bears a relationship described in section
267(b) to the person first disposing of the property.
(2) Marketable securities
The term "marketable securities" means any security for which,
as of the date of the disposition, there was a market on an
established securities market or otherwise.
(3) Payment
Except as provided in paragraph (4), the term "payment" does
not include the receipt of evidences of indebtedness of the
person acquiring the property (whether or not payment of such
indebtedness is guaranteed by another person).
(4) Purchaser evidences of indebtedness payable on demand or
readily tradable
Receipt of a bond or other evidence of indebtedness which -
(A) is payable on demand, or
(B) is readily tradable,
shall be treated as receipt of payment.
(5) Readily tradable defined
For purposes of paragraph (4), the term "readily tradable"
means a bond or other evidence of indebtedness which is issued -
(A) with interest coupons attached or in registered form
(other than one in registered form which the taxpayer
establishes will not be readily tradable in an established
securities market), or
(B) in any other form designed to render such bond or other
evidence of indebtedness readily tradable in an established
securities market.
(6) Like-kind exchanges
In the case of any exchange described in section 1031(b) -
(A) the total contract price shall be reduced to take into
account the amount of any property permitted to be received in
such exchange without recognition of gain,
(B) the gross profit from such exchange shall be reduced to
take into account any amount not recognized by reason of
section 1031(b), and
(C) the term "payment", when used in any provision of this
section other than subsection (b)(1), shall not include any
property permitted to be received in such exchange without
recognition of gain.
Similar rules shall apply in the case of an exchange which is
described in section 356(a) and is not treated as a dividend.
(7) Depreciable property
The term "depreciable property" means property of a character
which (in the hands of the transferee) is subject to the
allowance for depreciation provided in section 167.
(8) Payments to be received defined
The term "payments to be received" includes -
(A) the aggregate amount of all payments which are not
contingent as to amount, and
(B) the fair market value of any payments which are
contingent as to amount.
(g) Sale of depreciable property to controlled entity
(1) In general
In the case of an installment sale of depreciable property
between related persons -
(A) subsection (a) shall not apply,
(B) for purposes of this title -
(i) except as provided in clause (ii), all payments to be
received shall be treated as received in the year of the
disposition, and
(ii) in the case of any payments which are contingent as to
the amount but with respect to which the fair market value
may not be reasonably ascertained, the basis shall be
recovered ratably, and
(C) the purchaser may not increase the basis of any property
acquired in such sale by any amount before the time such amount
is includible in the gross income of the seller.
(2) Exception where tax avoidance not a principal purpose
Paragraph (1) shall not apply if it is established to the
satisfaction of the Secretary that the disposition did not have
as one of its principal purposes the avoidance of Federal income
tax.
(3) Related persons
For purposes of this subsection, the term "related persons" has
the meaning given to such term by section 1239(b), except that
such term shall include 2 or more partnerships having a
relationship to each other described in section 707(b)(1)(B).
(h) Use of installment method by shareholders in certain
liquidations
(1) Receipt of obligations not treated as receipt of payment
(A) In general
If, in a liquidation to which section 331 applies, the
shareholder receives (in exchange for the shareholder's stock)
an installment obligation acquired in respect of a sale or
exchange by the corporation during the 12-month period
beginning on the date a plan of complete liquidation is adopted
and the liquidation is completed during such 12-month period,
then, for purposes of this section, the receipt of payments
under such obligation (but not the receipt of such obligation)
by the shareholder shall be treated as the receipt of payment
for the stock.
(B) Obligations attributable to sale of inventory must result
from bulk sale
Subparagraph (A) shall not apply to an installment obligation
acquired in respect of a sale or exchange of -
(i) stock in trade of the corporation,
(ii) other property of a kind which would properly be
included in the inventory of the corporation if on hand at
the close of the taxable year, and
(iii) property held by the corporation primarily for sale
to customers in the ordinary course of its trade or business,
unless such sale or exchange is to 1 person in 1 transaction
and involves substantially all of such property attributable to
a trade or business of the corporation.
(C) Special rule where obligor and shareholder are related
persons
If the obligor of any installment obligation and the
shareholder are married to each other or are related persons
(within the meaning of section 1239(b)), to the extent such
installment obligation is attributable to the disposition by
the corporation of depreciable property -
(i) subparagraph (A) shall not apply to such obligation,
and
(ii) for purposes of this title, all payments to be
received by the shareholder shall be deemed received in the
year the shareholder receives the obligation.
(D) Coordination with subsection (e)(1)(A)
For purposes of subsection (e)(1)(A), disposition of property
by the corporation shall be treated also as disposition of such
property by the shareholder.
(E) Sales by liquidating subsidiaries
For purposes of subparagraph (A), in the case of a
controlling corporate shareholder (within the meaning of
section 368(c)) of a selling corporation, an obligation
acquired in respect of a sale or exchange by the selling
corporation shall be treated as so acquired by such controlling
corporate shareholder. The preceding sentence shall be applied
successively to each controlling corporate shareholder above
such controlling corporate shareholder.
(2) Distributions received in more than 1 taxable year of
shareholder
If -
(A) paragraph (1) applies with respect to any installment
obligation received by a shareholder from a corporation, and
(B) by reason of the liquidation such shareholder receives
property in more than 1 taxable year,
then, on completion of the liquidation, basis previously
allocated to property so received shall be reallocated for all
such taxable years so that the shareholder's basis in the stock
of the corporation is properly allocated among all property
received by such shareholder in such liquidation.
(i) Recognition of recapture income in year of disposition
(1) In general
In the case of any installment sale of property to which
subsection (a) applies -
(A) notwithstanding subsection (a), any recapture income
shall be recognized in the year of the disposition, and
(B) any gain in excess of the recapture income shall be taken
into account under the installment method.
(2) Recapture income
For purposes of paragraph (1), the term "recapture income"
means, with respect to any installment sale, the aggregate amount
which would be treated as ordinary income under (or so much of
section 751 as relates to section 1245 or 1250) for the taxable
year of the disposition if all payments to be received were
received in the taxable year of disposition.
(j) Regulations
(1) In general
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the provisions of this
section.
(2) Selling price not readily ascertainable
The regulations prescribed under paragraph (1) shall include
regulations providing for ratable basis recovery in transactions
where the gross profit or the total contract price (or both)
cannot be readily ascertained.
(k) Current inclusion in case of revolving credit plans, etc.
In the case of -
(1) any disposition of personal property under a revolving
credit plan, or
(2) any installment obligation arising out of a sale of -
(A) stock or securities which are traded on an established
securities market, or
(B) to the extent provided in regulations, property (other
than stock or securities) of a kind regularly traded on an
established market,
subsection (a) shall not apply, and, for purposes of this title,
all payments to be received shall be treated as received in the
year of disposition. The Secretary may provide for the application
of this subsection in whole or in part for transactions in which
the rules of this subsection otherwise would be avoided through the
use of related parties, pass-thru entities, or intermediaries.
(l) Dealer dispositions
For purposes of subsection (b)(2)(A) -
(1) In general
The term "dealer disposition" means any of the following
dispositions:
(A) Personal property
Any disposition of personal property by a person who
regularly sells or otherwise disposes of personal property of
the same type on the installment plan.
(B) Real property
Any disposition of real property which is held by the
taxpayer for sale to customers in the ordinary course of the
taxpayer's trade or business.
(2) Exceptions
The term "dealer disposition" does not include -
(A) Farm property
The disposition on the installment plan of any property used
or produced in the trade or business of farming (within the
meaning of section 2032A(e)(4) or (5)).
(B) Timeshares and residential lots
(i) In general
Any dispositions described in clause (ii) on the
installment plan if the taxpayer elects to have paragraph (3)
apply to any installment obligations which arise from such
dispositions. An election under this paragraph shall not
apply with respect to an installment obligation which is
guaranteed by any person other than an individual.
(ii) Dispositions to which subparagraph applies
A disposition is described in this clause if it is a
disposition in the ordinary course of the taxpayer's trade or
business to an individual of -
(I) a timeshare right to use or a timeshare ownership
interest in residential real property for not more than 6
weeks per year, or a right to use specified campgrounds for
recreational purposes, or
(II) any residential lot, but only if the taxpayer (or
any related person) is not to make any improvements with
respect to such lot.
For purposes of subclause (I), a timeshare right to use (or
timeshare ownership interest in) property held by the spouse,
children, grandchildren, or parents of an individual shall be
treated as held by such individual.
(C) Carrying charges or interest
Any carrying charges or interest with respect to a
disposition described in subparagraph (A) or (B) which are
added on the books of account of the seller to the established
cash selling price of the property shall be included in the
total contract price of the property and, if such charges or
interest are not so included, any payments received shall be
treated as applying first against such carrying charges or
interest.
(3) Payment of interest on timeshares and residential lots
(A) In general
In the case of any installment obligation to which paragraph
(2)(B) applies, the tax imposed by this chapter for any taxable
year for which payment is received on such obligation shall be
increased by the amount of interest determined in the manner
provided under subparagraph (B).
(B) Computation of interest
(i) In general
The amount of interest referred to in subparagraph (A) for
any taxable year shall be determined -
(I) on the amount of the tax for such taxable year which
is attributable to the payments received during such
taxable year on installment obligations to which this
subsection applies,
(II) for the period beginning on the date of sale, and
ending on the date such payment is received, and
(III) by using the applicable Federal rate under section
1274 (without regard to subsection (d)(2) thereof) in
effect at the time of the sale compounded semiannually.
(ii) Interest not taken into account
For purposes of clause (i), the portion of any tax
attributable to the receipt of any payment shall be
determined without regard to any interest imposed under
subparagraph (A).
(iii) Taxable year of sale
No interest shall be determined for any payment received in
the taxable year of the disposition from which the
installment obligation arises.
(C) Treatment as interest
Any amount payable under this paragraph shall be taken into
account in computing the amount of any deduction allowable to
the taxpayer for interest paid or accrued during such taxable
year.
-SOURCE-
(Added Pub. L. 96-471, Sec. 2(a), Oct. 19, 1980, 94 Stat. 2247;
amended Pub. L. 97-34, title II, Sec. 202(c), Aug. 13, 1981, 95
Stat. 221; Pub. L. 97-448, title III, Sec. 303, Jan. 12, 1983, 96
Stat. 2398; Pub. L. 98-369, div. A, title I, Sec. 112(a), title IV,
Sec. 421(b)(6)(B), (C), July 18, 1984, 98 Stat. 635, 794; Pub. L.
99-514, title VI, Secs. 631(e)(8), 642(a)(1)(D), (3), (b), title
VIII, Sec. 812(a), title XVIII, Sec. 1809(c), Oct. 22, 1986, 100
Stat. 2274, 2284, 2371, 2821; Pub. L. 100-203, title X, Sec.
10202(b), Dec. 22, 1987, 101 Stat. 1330-388; Pub. L. 100-647, title
I, Secs. 1006(e)(7), (i)(1), (2), 1008(g)(1), 1018(u)(25), (26),
title II, Sec. 2004(d)(1), (5), Nov. 10, 1988, 102 Stat. 3401,
3410, 3442, 3591, 3599; Pub. L. 106-170, title V, Sec. 536(a), Dec.
17, 1999, 113 Stat. 1936; Pub. L. 106-573, Sec. 2(a), Dec. 28,
2000, 114 Stat. 3061; Pub. L. 108-357, title VIII, Sec. 897(a),
Oct. 22, 2004, 118 Stat. 1649.)
-MISC1-
PRIOR PROVISIONS
A prior section 453, acts Aug. 16, 1954, ch. 736, 68A Stat. 154;
Sept. 2, 1958, Pub. L. 85-866, title I, Sec. 27(a), 72 Stat. 1624;
Oct. 16, 1962, Pub. L. 87-834, Sec. 13(f)(5), 76 Stat. 1035; Feb.
26, 1964, Pub. L. 88-272, title II, Secs. 222(a), 231(b)(5), 78
Stat. 75, 105; Aug. 22, 1964, Pub. L. 88-484, Sec. 1(b)(2), 78
Stat. 597; Aug. 31, 1964, Pub. L. 88-539, Sec. 3(a), (b), 78 Stat.
746; Sept. 12, 1966, Pub. L. 89-570, Sec. 1(b)(5), 80 Stat. 762;
Nov. 13, 1966, Pub. L. 89-809, title II, Sec. 202(c), 80 Stat.
1576; Dec. 30, 1969, Pub. L. 91-172, title II, Sec. 211(b)(5),
title III, Sec. 301(b)(7), title IV, Sec. 412(a), title IX, Sec.
916(a), 83 Stat. 570, 585, 608, 723; Oct. 4, 1976, Pub. L. 94-455,
title II, Sec. 205(c)(1)(E), title XIX, Secs. 1901(a)(66),
1906(b)(13)(A), 1951(b)(7)(A), 90 Stat. 1535, 1775, 1834, 1838;
Nov. 6, 1978, Pub. L. 95-600, title VII, Sec. 703(j)(3), 92 Stat.
2941; Apr. 1, 1980, Pub. L. 96-222, title I, Sec. 104(a)(4)(H)(iv),
94 Stat. 217; Apr. 2, 1980, Pub. L. 96-223, title IV, Sec.
403(b)(2)(B), 94 Stat. 305; Oct. 19, 1980, Pub. L. 96-471, Sec.
2(c)(4), 94 Stat. 2254, related to installment method in general,
installment method for dealers in personal property, and gain or
loss dispositions of installment obligations, prior to repeal by
Pub. L. 96-471, Sec. 2(a), Oct. 19, 1980, 94 Stat. 2247. See
sections 453A and 453B of this title.
AMENDMENTS
2004 - Subsec. (f)(4)(B). Pub. L. 108-357 struck out "is issued
by a corporation or a government or political subdivision thereof
and" before "is readily tradable".
2000 - Subsecs. (a), (d)(1), (i)(1), (k). Pub. L. 106-573
repealed Pub. L. 106-170, Sec. 536(a). See 1999 Amendment notes
below.
1999 - Subsec. (a). Pub. L. 106-170, Sec. 536(a)(1), which
substituted "Use of installment method" for "General rule" in
subsec. heading, designated existing provisions as par. (1) and
inserted heading, and added heading and text of par. (2), text of
which read as follows: "(2) Accrual method taxpayer. - The
installment method shall not apply to income from an installment
sale if such income would be reported under an accrual method of
accounting without regard to this section. The preceding sentence
shall not apply to a disposition described in subparagraph (A) or
(B) of subsection (l)(2).", was repealed by Pub. L. 106-573, Sec.
2(a). See Effective Date and Construction of 2000 Amendment note
below.
Subsecs. (d)(1), (i)(1), (k). Pub. L. 106-170, Sec. 536(a)(2),
which substituted "(a)(1)" for "(a)" wherever appearing, was
repealed by Pub. L. 106-573. See Effective Date and Construction of
2000 Amendment note below.
1988 - Subsec. (f)(1). Pub. L. 100-647, Sec. 1018(u)(25),
substituted "subsections (g)" for "subsection (g)".
Subsec. (f)(8). Pub. L. 100-647, Sec. 1018(u)(26), substituted
"payments to be" for "payment to be".
Subsec. (g)(1). Pub. L. 100-647, Sec. 1006(i)(2)(B), struck out
"(within the meaning of section 1239(b))" after "between related
persons".
Pub. L. 100-647, Sec. 1006(i)(1), added subpars. (A) to (C) and
struck out former subpars. (A) and (B) which read as follows:
"(A) subsection (a) shall not apply, and
"(B) for purposes of this title -
"(i) except as provided in clause (ii), all payments to be
received shall be treated as received in the year of the
disposition, and
"(ii) in the case of any payments which are contingent as to
amount but with respect to which the fair market value may not be
reasonably ascertained -
"(I) the basis shall be recovered ratably, and
"(II) the purchaser may not increase the basis of any
property acquired in such sale by any amount before such time
as the seller includes such amount in income."
Subsec. (g)(3). Pub. L. 100-647, Sec. 1006(i)(2)(A), added par.
(3).
Subsec. (h)(1)(B). Pub. L. 100-647, Sec. 1006(e)(7)(A),
substituted "to 1 person in 1 transaction" for "to one person" in
concluding provisions.
Subsec. (h)(1)(E). Pub. L. 100-647, Sec. 1006(e)(7)(B),
substituted "section 368(c)" for "section 368(c)(1)".
Subsec. (j). Pub. L. 100-647, Sec. 1008(g)(1), redesignated
subsec. (j), relating to current inclusion in case of revolving
credit plans, etc., as (k).
Subsec. (k). Pub. L. 100-647, Sec. 2004(d)(5), struck out "and
section 453A" after "subsection (a)" in second sentence.
Pub. L. 100-647, Sec. 1008(g)(1), redesignated subsec. (j),
relating to current inclusion in case of revolving credit plans,
etc., as (k).
Subsec. (l)(1)(A). Pub. L. 100-647, Sec. 2004(d)(1), inserted "of
the same type" after "disposes of personal property".
1987 - Subsec. (b)(2)(A). Pub. L. 100-203, Sec. 10202(b)(1),
substituted "Dealer dispositions" for "Dealer disposition of
personal property" in heading and amended text generally. Prior to
amendment, text read as follows: "A disposition of personal
property on the installment plan by a person who regularly sells or
otherwise disposes of personal property on the installment plan."
Subsec. (l). Pub. L. 100-203, Sec. 10202(b)(2), added subsec.
(l).
1986 - Subsec. (f)(1). Pub. L. 99-514, Sec. 642(a)(3), amended
par. (1) generally. Prior to amendment, par. (1) read as follows:
"Except for purposes of subsections (g) and (h), the term 'related
person' means a person whose stock would be attributed under
section 318(a) (other than paragraph (4) thereof) to the person
first disposing of the property."
Subsec. (f)(8). Pub. L. 99-514, Sec. 642(b)(1), added par. (8).
Subsec. (g). Pub. L. 99-514, Sec. 642(a)(1)(D), substituted
"controlled entity" for "80-percent owned entity" in heading.
Subsec. (g)(1). Pub. L. 99-514, Sec. 642(b)(2), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "In the
case of an installment sale of depreciable property between related
persons within the meaning of section 1239(b), subsection (a) shall
not apply, and, for purposes of this title, all payments to be
received shall be deemed received in the year of the disposition."
Subsec. (h). Pub. L. 99-514, Sec. 631(e)(8)(C), substituted
"certain liquidations" for "section 337 liquidations" in heading.
Subsec. (h)(1)(A). Pub. L. 99-514, Sec. 631(e)(8)(A), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "If, in connection with a liquidation to which section 337
applies, in a transaction to which section 331 applies the
shareholder receives (in exchange for the shareholder's stock) an
installment obligation acquired in respect of a sale or exchange by
the corporation during the 12-month period set forth in section
337(a), then, for purposes of this section, the receipt of payments
under such obligation (but not the receipt of such obligation) by
the shareholder shall be treated as the receipt of payment for the
stock."
Subsec. (h)(1)(B). Pub. L. 99-514, Sec. 631(e)(8)(A), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "Subparagraph (A) shall not apply to an installment
obligation described in section 337(b)(1)(B) unless such obligation
is also described in section 337(b)(2)(B)."
Subsec. (h)(1)(E). Pub. L. 99-514, Sec. 631(e)(8)(B), substituted
"subsidiaries" for "subsidiary" in heading and amended text
generally. Prior to amendment, subpar. (E) read as follows: "For
purposes of subparagraph (A), in any case to which section
337(c)(3) applies, an obligation acquired in respect of a sale or
exchange by the selling corporation shall be treated as so acquired
by the corporation distributing the obligation to the shareholder."
Subsec. (i)(2). Pub. L. 99-514, Sec. 1809(c), substituted "(or so
much of section 751 as relates to section 1245 or 1250)" for
"section 1245 or 1250".
Subsec. (j). Pub. L. 99-514, Sec. 812(a), added subsec. (j)
relating to current inclusion in case of revolving credit plans,
etc.
1984 - Subsec. (g). Pub. L. 98-369, Sec. 421(b)(6)(C), struck out
"spouse or" after "property to" in heading.
Subsec. (h)(1)(C). Pub. L. 98-369, Sec. 421(b)(6)(B), inserted
"married to each other or are".
Subsec. (i). Pub. L. 98-369, Sec. 112(a), amended subsec. (i)
generally, substituting provisions relating to recognition of
recapture income in year of disposition for provisions relating to
application of subsec. (a) in the case of an installment sale of
section 179 property.
1983 - Subsec. (f)(6)(C). Pub. L. 97-448 inserted ", when used in
any provision of this section other than subsection (b)(1)," after
"the term 'payment' ".
1981 - Subsecs. (i), (j). Pub. L. 97-34 added subsec. (i) and
redesignated former subsec. (i) as (j).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 897(b), Oct. 22, 2004, 118
Stat. 1649, provided that: "The amendment made by this section
[amending this section] shall apply to sales occurring on or after
the date of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE AND CONSTRUCTION OF 2000 AMENDMENT
Pub. L. 106-573, Sec. 2, Dec. 28, 2000, 114 Stat. 3061, provided
that:
"(a) In General. - Subsection (a) of section 536 of the Ticket to
Work and Work Incentives Improvement Act of 1999 (relating to
modification of installment method and repeal of installment method
for accrual method taxpayers) [Pub. L. 106-170, amending this
section] is repealed effective with respect to sales and other
dispositions occurring on or after the date of the enactment of
such Act [Dec. 17, 1999].
"(b) Applicability. - The Internal Revenue Code of 1986 shall be
applied and administered as if that subsection (and the amendments
made by that subsection) had not been enacted."
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 536(c), Dec. 17, 1999, 113 Stat.
1936, provided that: "The amendments made by this section [amending
this section and section 453A of this title] shall apply to sales
or other dispositions occurring on or after the date of the
enactment of this Act [Dec. 17, 1999]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1006(e)(7), (i)(1), (2), 1008(g)(1), and
1018(u)(25), (26) of Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
Amendment by section 2004(d)(1), (5) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provisions of the Revenue Act of 1987, Pub. L. 100-203, title X, to
which such amendment relates, see section 2004(u) of Pub. L. 100-
647, set out as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10202(e) of Pub. L. 100-203, as amended by Pub. L. 100-
647, title II, Sec. 2004(d)(3), (4), (6), Nov. 10, 1988, 102 Stat.
3599, 3600, provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and sections
56, 381, 453A, and 691 of this title and repealing section 453C of
this title] shall apply to dispositions in taxable years beginning
after December 31, 1987.
"(2) Special rules for dealers. -
"(A) In general. - In the case of dealer dispositions (within
the meaning of section 453(l)(1) of the Internal Revenue Code of
1986 as added by this section), the amendments made by
subsections (a) and (b) [amending this section and repealing
section 453C of this title] shall apply to installment
obligations arising from dispositions after December 31, 1987.
"(B) Special rules for obligations arising from dealer
dispositions after february 28, 1986, and before january 1, 1988.
-
"(i) In general. - In the case of an applicable installment
obligation arising from a disposition described in subclause
(I) or (II) of section 453C(e)(1)(A)(i) of the Internal Revenue
Code of 1986 (as in effect before the amendments made by this
section) before January 1, 1988, the amendments made by
subsections (a) and (b) shall apply to taxable years beginning
after December 31, 1987.
"(ii) Change in method of accounting. - In the case of any
taxpayer who is required by clause (i) to change its method of
accounting for any taxable year with respect to obligations
described in clause (i) -
"(I) such change shall be treated as initiated by the
taxpayer,
"(II) such change shall be treated as made with the consent
of the Secretary of the Treasury or his delegate, and
"(III) the net amount of adjustments required by section
481 of the Internal Revenue Code of 1986 shall be taken into
account over a period not longer than 4 taxable years.
"(C) Certain rules made applicable. - For purposes of this
paragraph, rules similar to the rules of paragraphs (4) and (5)
of section 812(c) of the Tax Reform Act of 1986 [Pub. L. 99-514,
set out as an Effective Date of 1986 Amendment note below] (as
added by the Technical and Miscellaneous Revenue Act of 1988
[Pub. L. 100-647]) shall apply.
"(3) Special rule for nondealers. -
"(A) Election. - A taxpayer may elect, at such time and in such
manner as the Secretary of the Treasury or his delegate may
prescribe, to have the amendments made by subsections (a) and (c)
[amending sections 381, 453A, and 691 of this title and repealing
section 453C of this title] apply to taxable years ending after
December 31, 1986, with respect to dispositions and pledges
occurring after August 16, 1986.
"(B) Pledging rules. - Except as provided in subparagraph (A) -
"(i) In general. - Section 453A(d) of the Internal Revenue
Code of 1986 shall apply to any installment obligation which is
pledged to secure any secured indebtedness (within the meaning
of section 453A(d)(4) of such Code) after December 17, 1987, in
taxable years ending after such date.
"(ii) Coordination with section 453c. - For purposes of
section 453C of such Code (as in effect before its repeal), the
face amount of any obligation to which section 453A(d) of such
Code applies shall be reduced by the amount treated as payments
on such obligation under section 453A(d) of such Code and the
amount of any indebtedness secured by it shall not be taken
into account.
"(C) Certain dispositions deemed made on 1st day of taxable
year. - If the taxpayer makes an election under subparagraph (A),
in the case of the taxpayer's 1st taxable year ending after
December 31, 1986 -
"(i) dispositions after August 16, 1986, and before the 1st
day of such taxable year shall be treated as made on such 1st
day, and
"(ii) subsections (b)(2)(B) and (c)(4) of section 453A of
such Code shall be applied separately with respect to such
dispositions by substituting for '$5,000,000' the amount which
bears the same ratio to $5,000,000 as the number of days after
August 16, 1986, and before such 1st day bears to 365.
"(4) Minimum tax. - The amendment made by subsection (d)
[amending section 56 of this title] shall apply to dispositions in
taxable years beginning after December 31, 1986.
"(5) Coordination with tax reform act of 1986. - The amendments
made by this section shall not apply to any installment obligation
or to any taxpayer during any period to the extent the amendments
made by section 811 of the Tax Reform Act of 1986 [section 811 of
Pub. L. 99-514, amending former section 453C of this title and
enacting provisions set out as a note under former section 453C of
this title] do not apply to such obligation or during such period."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(e)(8) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 642(a)(1)(D), (3), (b) of Pub. L. 99-514
applicable to sales after Oct. 22, 1986, in taxable years ending
after such date, but not applicable to sales made after Aug. 14,
1986, which are made pursuant to a binding contract in effect on
Aug. 14, 1986, and at all times thereafter, see section 642(c) of
Pub. L. 99-514, set out as a note under section 1239 of this title.
Section 812(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(g)(3)-(6), Nov. 10, 1988, 102 Stat. 3443,
provided that:
"(1) In general. - Except as provided in paragraphs (2) and (3),
the amendment made by subsection (a) [amending this section] shall
apply to taxable years beginning after December 31, 1986.
"(2) Sales of stock, etc. - Section 453(k)(2) of the Internal
Revenue Code of 1986, as added by subsection (a), shall apply to
sales after December 31, 1986, in taxable years ending after such
date.
"(3) Change in method of accounting. - In the case of any
taxpayer who made sales under a revolving credit plan and was on
the installment method under section 453 or 453A of the Internal
Revenue Code of 1986 for such taxpayer's last taxable year
beginning before January 1, 1987, the amendments made by this
section [amending this section and section 453A of this title]
shall be treated as a change in method of accounting for its 1st
taxable year beginning after December 31, 1986, and -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as having been made with the
consent of the Secretary,
"(C) the period for taking into account adjustments under
section 481 of such Code by reason of such change shall be equal
to 4 years, and
"(D) except as provided in paragraph (4), the amount taken into
account in each of such 4 years shall be the applicable
percentage (determined in accordance with the following table) of
the net adjustment:
The applicable
"In the case of the: percentage is:
1st taxable year 15
2nd taxable year 25
3rd taxable year 30
4th taxable year 30.
If the taxpayer's last taxable year beginning before January 1,
1987, was the taxpayer's 1st taxable year in which sales were made
under a revolving credit plan, all adjustments under section 481 of
such Code shall be taken into account in the taxpayer's 1st taxable
year beginning after December 31, 1986.
"(4) Acceleration of adjustments where contraction in amount of
installment obligations. -
"(A) In general. - If the percentage determined under
subparagraph (B) for any taxable year in the adjustment period
exceeds the percentage which would otherwise apply under
paragraph (3)(D) for such taxable year (determined after the
application of this paragraph for prior taxable years in the
adjustment period) -
"(i) the percentage determined under subparagraph (B) shall
be substituted for the applicable percentage which would
otherwise apply under paragraph (3)(D), and
"(ii) any increase in the applicable percentage by reason of
clause (i) shall be applied to reduce the applicable percentage
determined under paragraph (3)(D) for subsequent taxable years
in the adjustment period (beginning with the 1st of such
subsequent taxable years).
"(B) Determination of percentage. - For purposes of
subparagraph (A), the percentage determined under this
subparagraph for any taxable year in the adjustment period is the
excess (if any) of -
"(i) the percentage determined by dividing the aggregate
contraction in revolving installment obligations by the
aggregate face amount of such obligations outstanding as of the
close of the taxpayer's last taxable year beginning before
January 1, 1987, over
"(ii) the sum of the applicable percentages under paragraph
(3)(D) (as modified by this paragraph) for prior taxable years
in the adjustment period.
"(C) Aggregate contraction in revolving installment
obligations. - For purposes of subparagraph (B), the aggregate
contraction in revolving installment obligations is the amount by
which -
"(i) the aggregate face amount of the revolving installment
obligations outstanding as of the close of the taxpayer's last
taxable year beginning before January 1, 1987, exceeds
"(ii) the aggregate face amount of the revolving installment
obligations outstanding as of the close of the taxable year
involved.
"(D) Revolving installment obligations. - For purposes of this
paragraph, the term 'revolving installment obligations' means
installment obligations arising under a revolving credit plan.
"(E) Treatment of certain obligations disposed of on or before
october 26, 1987. - For purposes of subparagraphs (B)(i) and
(C)(i), in determining the aggregate face amount of revolving
installment obligations outstanding as of the close of the
taxpayer's last taxable year beginning before January 1, 1987,
there shall not be taken into account any obligation -
"(i) which was disposed of to an unrelated person on or
before October 26, 1987, or
"(ii) was disposed of to an unrelated person on or after such
date pursuant to a binding written contract in effect on
October 26, 1987, and at all times thereafter before such
disposition.
For purposes of the preceding sentence, the term 'unrelated
person' means any person who is not a related person (as defined
in section 453(g) of the Internal Revenue Code of 1986).
"(5) Limitation on losses from sales of obligations under
revolving credit plans. - If 1 or more obligations arising under a
revolving credit plan and taken into account under paragraph (3)
are disposed of during the adjustment period, then, notwithstanding
any other provision of law -
"(A) no losses from such dispositions shall be recognized, and
"(B) the aggregate amount of the adjustment for taxable years
in the adjustment period (in reverse order of time) shall be
reduced by the amount of such losses.
"(6) Adjustment period. - For purposes of paragraphs (4) and (5),
the adjustment period is the 4-year period under paragraph (3)."
Amendment by section 1809(c) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 112(b) of Pub. L. 98-369 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section] shall apply with respect to dispositions made after June
6, 1984.
"(2) Exception. - The amendments made by this section shall not
apply with respect to any disposition conducted pursuant to a
contract which was binding on March 22, 1984, and at all times
thereafter.
"(3) Special rule for certain dispositions before october 1,
1984. - The amendments made by this section shall not apply to any
disposition before October 1, 1984, of all or substantially all of
the personal property of a cable television business pursuant to a
written offer delivered by the seller on June 20, 1984, but only if
the last payment under the installment contract is due no later
than October 1, 1989."
Amendment by section 421(b)(6)(B), (C) of Pub. L. 98-369
applicable to transfers after July 18, 1984, in taxable years
ending after such date, subject to election to have amendment apply
to transfers after 1983 or to transfers pursuant to existing
decrees, see section 421(d) of Pub. L. 98-369, set out as an
Effective Date note under section 1041 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 311(a) of Pub. L. 97-448 provided that: "The amendments
made by sections 301, 302, and 303 [amending this section and
sections 453B and 1239 of this title] shall apply to dispositions
made after October 19, 1980, in taxable years ending after such
date."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property placed in
service after Dec. 31, 1980, in taxable years ending after that
date, see section 209(a) of Pub. L. 97-34, set out as an Effective
Date note under section 168 of this title.
EFFECTIVE DATE; APPLICATION OF FORMER SECTION 453(B) TO CERTAIN
DISPOSITIONS
Section 6(a) of Pub. L. 96-471, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by sections 2 [enacting this
section and sections 453A and 453B of this title and amending
sections 311, 336, 337, 381, former section 453, and sections 453B,
481, 644, 691, and 1255 of this title] and 5 [amending section 1239
of this title] shall apply to dispositions made after the date of
the enactment of this Act [Oct. 19, 1980] in taxable years ending
after such date.
"(2) For section 453(e). - Section 453(e) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] (as amended by section 2) shall
apply to first dispositions made after May 14, 1980.
"(3) For section 453(h). - Paragraphs (1) and (2) of section
453(h) of such Code (as amended by section 2) shall apply in the
case of distributions of installment obligations after March 31,
1980.
"(4) For section 453a. - Section 453A of the Internal Revenue
Code of 1986 (as amended by section 2) shall apply to taxable years
ending after the date of enactment of this Act [Oct. 19, 1980].
"(5) For section 453b(f). - Section 453B(f) of the Internal
Revenue Code of 1986 (as amended by section 2) shall apply to
installment obligations becoming unenforceable after the date of
the enactment of this Act [Oct. 19, 1980].
"(6) For section 2(c). - The amendments made by section 2(c)
[amending sections 336, 337, 453B, and former section 453 of this
title] shall take effect as if included in the amendments made by
section 403(b) of the Crude Oil Windfall Profit Tax Act of 1980
[see section 403(b)(3) of Pub. L. 96-223, set out as an Effective
Date of 1980 Amendments note under section 337 of this title].
"(7) Special rule for application of former section 453 to
certain dispositions. - In the case of any disposition made on or
before the date of the enactment of this Act [Oct. 19, 1980] in any
taxable year ending after such date, the provisions of section
453(b) of the Internal Revenue Code of 1986 [see subsec. (b) of
former section 453 of this title, set out below] as in effect
before such date, shall be applied with respect to such disposition
without regard to -
"(A) paragraph (2) of such section 453(b), and
"(B) any requirement that more than 1 payment be received."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 453A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 453A. Special rules for nondealers
-STATUTE-
(a) General rule
In the case of an installment obligation to which this section
applies -
(1) interest shall be paid on the deferred tax liability with
respect to such obligation in the manner provided under
subsection (c), and
(2) the pledging rules under subsection (d) shall apply.
(b) Installment obligations to which section applies
(1) In general
This section shall apply to any obligation which arises from
the disposition of any property under the installment method, but
only if the sales price of such property exceeds $150,000.
(2) Special rule for interest payments
For purposes of subsection (a)(1), this section shall apply to
an obligation described in paragraph (1) arising during a taxable
year only if -
(A) such obligation is outstanding as of the close of such
taxable year, and
(B) the face amount of all such obligations held by the
taxpayer which arose during, and are outstanding as of the
close of, such taxable year exceeds $5,000,000.
Except as provided in regulations, all persons treated as a
single employer under subsection (a) or (b) of section 52 shall
be treated as one person for purposes of this paragraph and
subsection (c)(4).
(3) Exception for personal use and farm property
An installment obligation shall not be treated as described in
paragraph (1) if it arises from the disposition -
(A) by an individual of personal use property (within the
meaning of section 1275(b)(3)), or
(B) of any property used or produced in the trade or business
of farming (within the meaning of section 2032A(e)(4) or (5)).
(4) Special rule for timeshares and residential lots
An installment obligation shall not be treated as described in
paragraph (1) if it arises from a disposition described in
section 453(l)(2)(B), but the provisions of section 453(l)(3)
(relating to interest payments on timeshares and residential
lots) shall apply to such obligation.
(5) Sales price
For purposes of paragraph (1), all sales or exchanges which are
part of the same transaction (or a series of related
transactions) shall be treated as 1 sale or exchange.
(c) Interest on deferred tax liability
(1) In general
If an obligation to which this section applies is outstanding
as of the close of any taxable year, the tax imposed by this
chapter for such taxable year shall be increased by the amount of
interest determined in the manner provided under paragraph (2).
(2) Computation of interest
For purposes of paragraph (1), the interest for any taxable
year shall be an amount equal to the product of -
(A) the applicable percentage of the deferred tax liability
with respect to such obligation, multiplied by
(B) the underpayment rate in effect under section 6621(a)(2)
for the month with or within which the taxable year ends.
(3) Deferred tax liability
For purposes of this section, the term "deferred tax liability"
means, with respect to any taxable year, the product of -
(A) the amount of gain with respect to an obligation which
has not been recognized as of the close of such taxable year,
multiplied by
(B) the maximum rate of tax in effect under section 1 or 11,
whichever is appropriate, for such taxable year.
For purposes of applying the preceding sentence with respect to
so much of the gain which, when recognized, will be treated as
long-term capital gain, the maximum rate on net capital gain
under section 1(h) or 1201 (whichever is appropriate) shall be
taken into account.
(4) Applicable percentage
For purposes of this subsection, the term "applicable
percentage" means, with respect to obligations arising in any
taxable year, the percentage determined by dividing -
(A) the portion of the aggregate face amount of such
obligations outstanding as of the close of such taxable year in
excess of $5,000,000, by
(B) the aggregate face amount of such obligations outstanding
as of the close of such taxable year.
(5) Treatment as interest
Any amount payable under this subsection shall be taken into
account in computing the amount of any deduction allowable to the
taxpayer for interest paid or accrued during the taxable year.
(6) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the provisions of this subsection
including regulations providing for the application of this
subsection in the case of contingent payments, short taxable
years, and pass-thru entities.
(d) Pledges, etc., of installment obligations
(1) In general
For purposes of section 453, if any indebtedness (hereinafter
in this subsection referred to as "secured indebtedness") is
secured by an installment obligation to which this section
applies, the net proceeds of the secured indebtedness shall be
treated as a payment received on such installment obligation as
of the later of -
(A) the time the indebtedness becomes secured indebtedness,
or
(B) the time the proceeds of such indebtedness are received
by the taxpayer.
(2) Limitation based on total contract price
The amount treated as received under paragraph (1) by reason of
any secured indebtedness shall not exceed the excess (if any) of -
(A) the total contract price, over
(B) any portion of the total contract price received under
the contract before the later of the times referred to in
subparagraph (A) or (B) of paragraph (1) (including amounts
previously treated as received under paragraph (1) but not
including amounts not taken into account by reason of paragraph
(3)).
(3) Later payments treated as receipt of tax paid amounts
If any amount is treated as received under paragraph (1) with
respect to any installment obligation, subsequent payments
received on such obligation shall not be taken into account for
purposes of section 453 to the extent that the aggregate of such
subsequent payments does not exceed the aggregate amount treated
as received under paragraph (1).
(4) Secured indebtedness
For purposes of this subsection indebtedness is secured by an
installment obligation to the extent that payment of principal or
interest on such indebtedness is directly secured (under the
terms of the indebtedness or any underlying arrangements) by any
interest in such installment obligation. A payment shall be
treated as directly secured by an interest in an installment
obligation to the extent an arrangement allows the taxpayer to
satisfy all or a portion of the indebtedness with the installment
obligation.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section, including
regulations -
(1) disallowing the use of the installment method in whole or
in part for transactions in which the rules of this section
otherwise would be avoided through the use of related persons,
pass-thru entities, or intermediaries, and
(2) providing that the sale of an interest in a partnership or
other pass-thru entity will be treated as a sale of the
proportionate share of the assets of the partnership or other
entity.
-SOURCE-
(Added Pub. L. 96-471, Sec. 2(a), Oct. 19, 1980, 94 Stat. 2251;
amended Pub. L. 99-514, title VIII, Sec. 812(b), Oct. 22, 1986, 100
Stat. 2371; Pub. L. 100-203, title X, Sec. 10202(c)[(1)], Dec. 22,
1987, 101 Stat. 1330-390; Pub. L. 100-647, title I, Sec.
1008(g)(2), title II, Sec. 2004(d)(2), (7), (8), title V, Sec.
5076(a), (b)(1), Nov. 10, 1988, 102 Stat. 3442, 3599, 3600, 3682;
Pub. L. 101-239, title VII, Secs. 7812(c)(2), 7815(g), 7821(a)(1)-
(3), (4)(B), Dec. 19, 1989, 103 Stat. 2412, 2420, 2423, 2424; Pub.
L. 103-66, title XIII, Sec. 13201(b)(4), Aug. 10, 1993, 107 Stat.
459; Pub. L. 106-170, title V, Sec. 536(b), Dec. 17, 1999, 113
Stat. 1936.)
-MISC1-
PRIOR PROVISIONS
Provisions similar to those comprising this section were
contained in former section 453 of this title.
AMENDMENTS
1999 - Subsec. (d)(4). Pub. L. 106-170 inserted at end "A payment
shall be treated as directly secured by an interest in an
installment obligation to the extent an arrangement allows the
taxpayer to satisfy all or a portion of the indebtedness with the
installment obligation."
1993 - Subsec. (c)(3). Pub. L. 103-66 inserted at end "For
purposes of applying the preceding sentence with respect to so much
of the gain which, when recognized, will be treated as long-term
capital gain, the maximum rate on net capital gain under section
1(h) or 1201 (whichever is appropriate) shall be taken into
account."
1989 - Subsec. (b)(2)(B). Pub. L. 101-239, Sec. 7821(a)(1),
substituted "such obligations held by the taxpayer" for
"obligations of the taxpayer described in paragraph (1)".
Subsec. (b)(3). Pub. L. 101-239, Sec. 7815(g), substituted
"Exception for personal use and farm property" for "Exception for
farm property" in heading and amended text generally. Prior to
amendment, text read as follows: "An installment obligation shall
not be treated as described in paragraph (1) if it arises from the
disposition of any property used or produced in the trade or
business of farming (within the meaning of section 2032A(e)(4) or
(5)."
Pub. L. 101-239, Sec. 7812(c)(2), substituted "(5))." for "(5)."
Subsec. (c)(5), (6). Pub. L. 101-239, Sec. 7821(a)(4)(B), added
par. (5) and redesignated former par. (5) as (6).
Subsec. (d)(1)(B). Pub. L. 101-239, Sec. 7821(a)(3), substituted
"the time the proceeds" for "the proceeds".
Subsec. (d)(2)(B). Pub. L. 101-239, Sec. 7821(a)(2), substituted
"the later of the times referred to in subparagraph (A) or (B) of
paragraph (1)" for "such secured indebtedness was incurred".
1988 - Pub. L. 100-647, Sec. 5076(b)(1), struck out "of real
property" after "rules for nondealers" in section catchline.
Subsec. (b)(1). Pub. L. 100-647, Sec. 5076(a), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "This
section shall apply to any obligation which arises from the
disposition of real property under the installment method which is
property used in the taxpayer's trade or business or property held
for the production of rental income, but only if the sales price of
such property exceeds $150,000."
Subsec. (b)(2). Pub. L. 100-647, Sec. 2004(d)(7), inserted "and
subsection (c)(4)" after "of this paragraph" in last sentence.
Subsec. (b)(3). Pub. L. 100-647, Sec. 2004(d)(8), substituted
"farm property" for "personal use and farm property" in heading and
amended text generally. Prior to amendment, text read as follows:
"An installment obligation shall not be treated as described in
paragraph (1) if it arises from the disposition -
"(A) by an individual of personal use property (within the
meaning of section 1275(b)(3)), or
"(B) of any property used or produced in the trade or business
of farming (within the meaning of section 2032A(e)(4) or (5))."
Subsec. (c). Pub. L. 100-647, Sec. 1008(g)(2), substituted
"453(k)" for "453(j)" in subsec. (c) as in effect on date before
the date of enactment of Pub. L. 100-203 (Dec. 22, 1987).
Subsec. (e). Pub. L. 100-647, Sec. 2004(d)(2), added subsec. (e).
1987 - Pub. L. 100-203 substituted "Special rules for nondealers
of real property" for "Installment method for dealers in personal
property" in section catchline and amended text generally, revising
and restating as subsecs. (a) to (d) provisions of former subsecs.
(a) to (c).
1986 - Subsec. (a)(2). Pub. L. 99-514, Sec. 812(b)(1), struck out
last sentence which read as follows: "This paragraph shall not
apply with respect to sales of personal property under a revolving
credit type plan."
Subsec. (c). Pub. L. 99-514, Sec. 812(b)(2), added subsec. (c).
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to sales or other
dispositions occurring on or after Dec. 17, 1999, see section
536(c) of Pub. L. 106-170, set out as a note under section 453 of
this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1992, see section 13201(c) of Pub. L. 103-66, set
out as a note under section 1 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by sections 7812(c)(2) and 7815(g) of Pub. L. 101-239
effective, except as otherwise provided, as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section 7817
of Pub. L. 101-239, set out as a note under section 1 of this
title.
Amendment by section 7821(a)(1)-(3), (4)(B) of Pub. L. 101-239
effective as if included in the provision of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 7823 of Pub. L. 101-239, set out as a note under
section 26 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1008(g)(2) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by section 2004(d)(2), (7), (8) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provisions of the Revenue Act of 1987, Pub. L. 100-203, title X, to
which such amendment relates, see section 2004(u) of Pub. L. 100-
647, set out as a note under section 56 of this title.
Section 5076(c) of Pub. L. 100-647 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to sales after December 31, 1988.
"(2) Binding contract, etc. - The amendments made by this section
shall not apply to any sale on or before December 31, 1990, if -
"(A) such sale is pursuant to a written binding contract in
effect on October 21, 1988, and at all times thereafter before
such sale,
"(B) such sale is pursuant to a letter of intent in effect on
October 21, 1988, or
"(C) there is a board of directors or shareholder approval for
such sale on or before October 21, 1988."
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dispositions in
taxable years beginning after Dec. 31, 1987, with special rules for
non-dealers and coordination with Tax Reform Act of 1986, see
section 10202(e)(1), (3), (5) of Pub. L. 100-203, set out as a note
under section 453 of this title.
EFFECTIVE DATE
For effective date, see section 6(a)(4) of Pub. L. 96-471, set
out as a note under section 453 of this title.
CERTAIN REPLEDGES PERMITTED
Section 6031 of Pub. L. 100-647 provided that:
"(a) General Rule. - Section 453A(d) of the 1986 Code (relating
to pledges, etc., of installment obligations) shall not apply to
any pledge after December 17, 1987, of an installment obligation to
secure any indebtedness if such indebtedness is incurred to
refinance indebtedness which was outstanding on December 17, 1987,
and which was secured on such date and all times thereafter before
such refinancing by a pledge of such installment obligation.
"(b) Limitation. - Subsection (a) shall not apply to the extent
that the principal amount of the indebtedness resulting from the
refinancing exceeds the principal amount of the refinanced
indebtedness immediately before the refinancing.
"(c) Certain Refinancings Permitted. - For purposes of subsection
(a), if -
"(1) a refinancing is attributable to the calling of
indebtedness by the creditor, and
"(2) such refinancing is not with the creditor under the
refinanced indebtedness or a person related to such creditor,
such refinancing shall, to the extent the refinanced indebtedness
qualifies under subsections (a) and (b), be treated as a
continuation of such refinanced indebtedness."
AMENDMENT BY PUB. L. 99-514 TREATED AS CHANGE IN METHOD OF
ACCOUNTING
For provisions requiring change in accounting method in the case
of any taxpayer who made sales under revolving credit plan and was
on installment method under this section for such taxpayer's last
taxable year beginning before Jan. 1, 1987, see section 812(c)(2)
of Pub. L. 99-514, set out as an Effective Date of 1986 Amendment
note under section 453 of this title.
-End-
-CITE-
26 USC Sec. 453B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 453B. Gain or loss disposition of installment obligations
-STATUTE-
(a) General rule
If an installment obligation is satisfied at other than its face
value or distributed, transmitted, sold, or otherwise disposed of,
gain or loss shall result to the extent of the difference between
the basis of the obligation and -
(1) the amount realized, in the case of satisfaction at other
than face value or a sale or exchange, or
(2) the fair market value of the obligation at the time of
distribution, transmission, or disposition, in the case of the
distribution, transmission, or disposition otherwise than by sale
or exchange.
any gain or loss so resulting shall be considered as resulting from
the sale or exchange of the property in respect of which the
installment obligation was received.
(b) Basis of obligation
The basis of an installment obligation shall be the excess of the
face value of the obligation over an amount equal to the income
which would be returnable were the obligation satisfied in full.
(c) Special rule for transmission at death
Except as provided in section 691 (relating to recipients of
income in respect of decedents), this section shall not apply to
the transmission of installment obligations at death.
(d) Exception for distributions to which section 337(a) applies
Subsection (a) shall not apply to any distribution to which
section 337(a) applies.
(e) Life insurance companies
(1) In general
In the case of a disposition of an installment obligation by
any person other than a life insurance company (as defined in
section 816(a)) to such an insurance company or to a partnership
of which such an insurance company is a partner, no provision of
this subtitle providing for the nonrecognition of gain shall
apply with respect to any gain resulting under subsection (a). If
a corporation which is a life insurance company for the taxable
year was (for the preceding taxable year) a corporation which was
not a life insurance company, such corporation shall, for
purposes of this subsection and subsection (a), be treated as
having transferred to a life insurance company, on the last day
of the preceding taxable year, all installment obligations which
it held on such last day. A partnership of which a life insurance
company becomes a partner shall, for purposes of this subsection
and subsection (a), be treated as having transferred to a life
insurance company, on the last day of the preceding taxable year
of such partnership, all installment obligations which it holds
at the time such insurance company becomes a partner.
(2) Special rule where life insurance company elects to treat
income as not related to insurance business
Paragraph (1) shall not apply to any transfer or deemed
transfer of an installment obligation if the life insurance
company elects (at such time and in such manner as the Secretary
may by regulations prescribe) to determine its life insurance
company taxable income -
(A) by returning the income on such installment obligation
under the installment method prescribed in section 453, and
(B) as if such income were an item attributable to a
noninsurance business (as defined in section 806(b)(3)).
(f) Obligation becomes unenforceable
For purposes of this section, if any installment obligation is
canceled or otherwise becomes unenforceable -
(1) the obligation shall be treated as if it were disposed of
in a transaction other than a sale or exchange, and
(2) if the obligor and obligee are related persons (within the
meaning of section 453(f)(1)), the fair market value of the
obligation shall be treated as not less than its face amount.
(g) Transfers between spouses or incident to divorce
In the case of any transfer described in subsection (a) of
section 1041 (other than a transfer in trust) -
(1) subsection (a) of this section shall not apply, and
(2) the same tax treatment with respect to the transferred
installment obligation shall apply to the transferee as would
have applied to the transferor.
(h) Certain liquidating distributions by S corporations
If -
(1) an installment obligation is distributed by an S
corporation in a complete liquidation, and
(2) receipt of the obligation is not treated as payment for the
stock by reason of section 453(h)(1),
then, except for purposes of any tax imposed by subchapter S, no
gain or loss with respect to the distribution of the obligation
shall be recognized by the distributing corporation. Under
regulations prescribed by the Secretary, the character of the gain
or loss to the shareholder shall be determined in accordance with
the principles of section 1366(b).
-SOURCE-
(Added Pub. L. 96-471, Sec. 2(a), Oct. 19, 1980, 94 Stat. 2252;
amended Pub. L. 96-471, Sec. 2(c)(3), Oct. 19, 1980, 94 Stat. 2254;
Pub. L. 97-448, title III, Sec. 302, Jan. 12, 1983, 96 Stat. 2398;
Pub. L. 98-369, div. A, title I, Sec. 43(c)(2), title II, Sec.
211(b)(6), title IV, Secs. 421(b)(3), 492(b)(3), July 18, 1984, 98
Stat. 558, 754, 794, 854; Pub. L. 99-514, title VI, Sec. 631(e)(9),
title X, Sec. 1011(b)(1), title XVIII, Sec. 1842(c), Oct. 22, 1986,
100 Stat. 2274, 2389, 2853; Pub. L. 100-647, title I, Sec.
1006(e)(22), Nov. 10, 1988, 102 Stat. 3403; Pub. L. 101-508, title
XI, Sec. 11702(a)(2), Nov. 5, 1990, 104 Stat. 1388-514.)
-MISC1-
PRIOR PROVISIONS
Provisions similar to those comprising this section were
contained in former section 453 of this title.
AMENDMENTS
1990 - Subsec. (d). Pub. L. 101-508 substituted heading for one
which read: "Effect of distribution in liquidations to which
section 332 applies" and amended text generally. Prior to
amendment, text read as follows: "If -
"(1) an installment obligation is distributed in a liquidation
to which section 332 (relating to complete liquidations of
subsidiaries) applies, and
"(2) the basis of such obligation in the hands of the
distributee is determined under section 334(b)(1),
then no gain or loss with respect to the distribution of such
obligation shall be recognized by the distributing corporation."
1988 - Subsec. (h). Pub. L. 100-647 added subsec. (h).
1986 - Subsec. (d). Pub. L. 99-514, Sec. 631(e)(9), amended
subsec. (d) generally, substituting "liquidations to which section
332 applies" for "certain liquidations" in heading, striking out
par. (1) designation, redesignating subpars. (A) and (B) as pars.
(1) and (2), and striking out former par. (2) relating to
liquidations to which section 337 applies.
Subsec. (e)(2)(B). Pub. L. 99-514, Sec. 1011(b)(1), substituted
"section 806(b)(3)" for "section 806(c)(3)".
Subsec. (g). Pub. L. 99-514, Sec. 1842(c), inserted "(other than
a transfer in trust)".
1984 - Subsec. (d)(2). Pub. L. 98-369, Sec. 492(b)(3), struck out
"1251(c)," after "1250(a)," in provision following subpar. (B).
Pub. L. 98-369, Sec. 43(c)(2), substituted "1254(a), or 1276(a)"
for "or 1254(a)".
Subsec. (e)(1). Pub. L. 98-369, Sec. 211(b)(6)(A), substituted
"section 816(a)" for "section 801(a)".
Subsec. (e)(2). Pub. L. 98-369, Sec. 211(b)(6)(B), substituted
"as not related to insurance business" for "as investment income"
in heading, and in text substituted "as if such income were an item
attributable to a noninsurance business (as defined in section
806(c)(3))" for "if such income would not otherwise be returnable
as an item referred to in section 804(b) or as long-term capital
gain, as if the income on such obligations were income specified in
section 804(b)".
Subsec. (g). Pub. L. 98-369, Sec. 421(b)(3), added subsec. (g).
1983 - Subsec. (d)(2). Pub. L. 97-448 substituted "under
subsection (a)" for "under paragraph (1)" in second sentence.
1980 - Subsec. (d). Pub. L. 96-471, Sec. 2(c)(3), inserted last
sentence providing that in the case of any installment obligation
which would have met the requirements of subpars. (A) and (B) of
par. (2) but for sections 337(f), gain shall be recognized to such
corporation by reason of such distribution only to the extent gain
would have been recognized under sections 337(f) if such
corporation had sold or exchanged such installment obligation on
the date of such distribution.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section
11702(j) of Pub. L. 101-508, set out as a note under section 59 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(e)(9) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Section 1011(c)(1) of Pub. L. 99-514 provided that: "The
amendments made by this section [amending this section and sections
465, 801, 804 to 806, 813, and 815 of this title, enacting
provisions set out as a note under section 801 of this title, and
amending provisions set out as a note under section 806 of this
title] shall apply to taxable years beginning after December 31,
1986."
Amendment by section 1842(c) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 43(c)(2) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Amendment by section 211(b)(6) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 215 of
Pub. L. 98-369, set out as an Effective Date note under section 801
of this title.
Amendment by section 421(b)(3) of Pub. L. 98-369 applicable to
transfers after July 18, 1984, in taxable years ending after such
date, subject to election to have amendment apply to transfers
after 1983 or to transfers pursuant to existing decrees, see
section 421(d) of Pub. L. 98-369, set out as an Effective Date note
under section 1041 of this title.
Amendment by section 492(b)(3) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 492(d) of
Pub. L. 98-369, set out as a note under section 170 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 applicable to dispositions made after
Oct. 19, 1980, in taxable years ending after such date, see section
311(a) of Pub. L. 97-448, set out as a note under section 453 of
this title.
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-471, see section
6(a)(6) of Pub. L. 96-471, set out as an Effective Date note under
section 453 of this title.
EFFECTIVE DATE
For effective date, see section 6(a)(1), (5) of Pub. L. 96-471,
set out as a note under section 453 of this title.
REPEAL OF MODIFICATION OF INSTALLMENT METHOD
Pub. L. 106-573, Sec. 2, Dec. 28, 2000, 114 Stat. 3061, provided
that:
"(a) In General. - Subsection (a) of section 536 of the Ticket to
Work and Work Incentives Improvement Act of 1999 (relating to
modification of installment method and repeal of installment method
for accrual method taxpayers) [Pub. L. 106-170, amending this
section] is repealed effective with respect to sales and other
dispositions occurring on or after the date of the enactment of
such Act[Dec. 17, 1999].
"(b) Applicability. - The Internal Revenue Code of 1986 shall be
applied and administered as if that subsection (and the amendments
made by that subsection) had not been enacted."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TREATMENT OF ELECTIONS UNDER SECTION 453B(E)(2)
Section 217(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If an
election is made under section 453B(e)(2) before January 1, 1984,
with respect to any installment obligation, any income from such
obligation shall be treated as attributable to a noninsurance
business (as defined in section 806(c)(3) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954])."
-End-
-CITE-
26 USC Sec. 453C 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
[Sec. 453C. Repealed. Pub. L. 100-203, title X, Sec. 10202(a)(1),
Dec. 22, 1987, 101 Stat. 1330-388]
-MISC1-
Section, added Pub. L. 99-514, title VIII, Sec. 811(a), Oct. 22,
1986, 100 Stat. 2365; amended Pub. L. 100-647, title I, Sec.
1008(f)(1)-(5), Nov. 10, 1988, 102 Stat. 3441, 3442, related to
treatment of certain indebtedness as payment on installment
obligations.
EFFECTIVE DATE OF REPEAL
Repeal applicable to dispositions in taxable years beginning
after Dec. 31, 1987, with special rules for dealers and non-
dealers, and coordination with Tax Reform Act of 1986, see section
10202(e)(1)-(3), (5) of Pub. L. 100-203, set out as a note under
section 453 of this title.
APPLICABILITY OF AMENDMENTS BY PUB. L. 100-203 AND PUB. L. 100-647
Pub. L. 100-647, title I, Sec. 1008(f)(9), Nov. 10, 1988, 102
Stat. 3442, provided that: "For purposes of applying the amendments
made by this subsection [amending this section and provisions set
out below] and the amendments made by section 10202 of the Revenue
Act of 1987 [Pub. L. 100-203, amending sections 56, 381, 453, 453A,
and 691 of this title and repealing this section], the provisions
of this subsection shall be treated as having been enacted
immediately before the enactment of the Revenue Act of 1987 [Dec.
22, 1987]."
EFFECTIVE DATE; ALLOCATION OF INDEBTEDNESS AS PAYMENT ON
INSTALLMENT OBLIGATION
Section 811(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(f)(6)-(8), Nov. 10, 1988, 102 Stat. 3442; Pub.
L. 105-34, title X, Sec. 1088(a), Aug. 5, 1997, 111 Stat. 959,
provided that:
"(1) In general. - Except as otherwise provided in this section,
the amendments made by this section [enacting this section] shall
apply to taxable years ending after December 31, 1986, with respect
to dispositions after February 28, 1986.
"[(2) Repealed. Pub. L. 105-34, title X, Sec. 1088(a), Aug. 5,
1997, 111 Stat. 959.]
"(3) Exception for certain obligations. - In applying the
amendments made by this section to any installment obligation of a
corporation incorporated on January 13, 1928, the following
indebtedness shall not be taken into account in determining the
allocable installment indebtedness of such corporation under
section 453C of the Internal Revenue Code of 1986 (as added by this
section):
"(A) 12 5/8 percent subordinated debentures with a total face
amount of $175,000,000 issued pursuant to a trust indenture dated
as of September 1, 1985.
"(B) A revolving credit term loan in the maximum amount of
$130,000,000 made pursuant to a revolving credit and security
agreement dated as of September 6, 1985, payable in various
stages with final payment due on August 31, 1992.
This paragraph shall also apply to indebtedness which replaces
indebtedness described in this paragraph if such indebtedness does
not exceed the amount and maturity of the indebtedness it replaces.
"(4) Special rule for residential condominium project. - For
purposes of applying the amendments made by this section, the term
applicable installment obligation (within the meaning of section
453C(e)(1) of the Internal Revenue Code of 1986) shall not include
any obligation arising in connection with sales from a residential
condominium project -
"(A) for which a contract to purchase land for the project was
entered into at least 5 years before the date of the enactment of
this Act,
"(B) with respect to which land for the project was purchased
before September 26, 1985,
"(C) with respect to which building permits for the project
were obtained, and construction commenced, before September 26,
1985,
"(D) in conjunction with which not less than 80 units of low-
income housing are deeded to a tax-exempt organization
designated by a local government, and
"(E) with respect to which at least $1,000,000 of expenses were
incurred before September 26, 1985.
"(5) Special rule for qualified buyout. - The amendments made by
this section shall apply for taxable years ending after December
31, 1991, to a corporation if -
"(A) such corporation was incorporated on May 25, 1984, for the
purpose of acquiring all of the stock of another corporation,
"(B) such acquisition took place on October 23, 1984,
"(C) in connection with such acquisition, the corporation
incurred indebtedness of approximately $151,000,000, and
"(D) substantially all of the stock of the corporation is owned
directly or indirectly by employees of the corporation the stock
of which was acquired on October 23, 1984.
"(6) Special rule for sales of real property by dealers. - In the
case of installment obligations arising from the sale of real
property in the ordinary course of the trade or business of the
taxpayer, any gain attributable to allocable installment
indebtedness allocated to any such installment obligations which
arise (or are deemed to arise) -
"(A) in the 1st taxable year of the taxpayer ending after
December 31, 1986, shall be taken into account ratably over the 3
taxable years beginning with such 1st taxable year, and
"(B) in the 2nd taxable year of the taxpayer ending after
December 31, 1986, shall be taken into account ratably over the 2
taxable years beginning with such 2nd taxable year.
"(7) Special rule for sales of personal property by dealers. - In
the case of installment obligations arising from the sale of
personal property in the ordinary course of the trade or business
of the taxpayer, solely for purposes of determining the time for
payment of tax and interest payable with respect to such tax -
"(A) any increase in tax imposed by chapter 1 of the Internal
Revenue Code of 1986 for the 1st taxable year of the taxpayer
ending after December 31, 1986, by reason of the amendments made
by this section shall be treated as imposed ratably over the 3
taxable years beginning with such 1st taxable year, and
"(B) any increase in tax imposed by such chapter 1 for the 2nd
taxable year of the taxpayer ending after December 31, 1986
(determined without regard to subparagraph (A)), by reason of the
amendments made by this section shall be treated as imposed
ratably over the 2 taxable years beginning with such 2nd taxable
year.
"(8) Treatment of certain installment obligations. -
Notwithstanding the amendments made by subtitle B of title III
[section 311 of Pub. L. 99-514, amending sections 593, 631, 852,
1201, and 1445 of this title and enacting provisions set out as
notes under sections 631 and 1201 of this title], gain with respect
to installment payments received pursuant to notes issued in
accordance with a note agreement dated as of August 29, 1980, where
-
"(A) such note agreement was executed pursuant to an agreement
of purchase and sale dated April 25, 1980,
"(B) more than 1/2 of the installment payments of the
aggregate principal of such notes have been received by August
29, 1986, and
"(C) the last installment payment of the principal of such
notes is due August 29, 1989,
shall be taxed at a rate of 28 percent.
"(9) Special rules. - For purposes of section 453C of the 1986
Code (as added by subsection (a)) -
"(A) Revolving credit plans, etc. - The term 'applicable
installment obligation' shall not include any obligation arising
out of any disposition or sale described in paragraph (1) or (2)
of section 453(k) of such Code (as added by section 812(a)).
"(B) Certain dispositions deemed made on first day of taxable
year. - In the case of a taxpayer's 1st taxable year ending after
December 31, 1986, dispositions after February 28, 1986, and
before the 1st day of such taxable year shall be treated as made
on such 1st day."
[Pub. L. 105-34, title X, Sec. 1088(b), Aug. 5, 1997, 111 Stat.
959, as amended by Pub. L. 105-206, title VI, Sec. 6010(q), July
22, 1998, 112 Stat. 817, provided that:
["(1) In general. - The amendment made by this section [amending
section 811(c) of Pub. L. 99-514, set out above] shall apply to
taxable years beginning more than 1 year after the date of the
enactment of this Act [Aug. 5, 1997].
["(2) Coordination with section 481. - In the case of any
taxpayer required by this section to change its method of
accounting for any taxable year -
["(A) such changes shall be treated as initiated by the
taxpayer,
["(B) such changes shall be treated as made with the consent of
the Secretary of the Treasury, and
["(C) the net amount of the adjustments required to be taken
into account under section 481(a) of the Internal Revenue Code of
1986 shall be taken into account ratably over the 4 taxable year
period beginning with the first taxable year beginning more than
1 year after the date of the enactment of this Act."]
-End-
-CITE-
26 USC Sec. 454 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 454. Obligations issued at discount
-STATUTE-
(a) Non-interest-bearing obligations issued at a discount
If, in the case of a taxpayer owning any non-interest-bearing
obligation issued at a discount and redeemable for fixed amounts
increasing at stated intervals or owning an obligation described in
paragraph (2) of subsection (c), the increase in the redemption
price of such obligation occurring in the taxable year does not
(under the method of accounting used in computing his taxable
income) constitute income to him in such year, such taxpayer may,
at his election made in his return for any taxable year, treat such
increase as income received in such taxable year. If any such
election is made with respect to any such obligation, it shall
apply also to all such obligations owned by the taxpayer at the
beginning of the first taxable year to which it applies and to all
such obligations thereafter acquired by him and shall be binding
for all subsequent taxable years, unless on application by the
taxpayer the Secretary permits him, subject to such conditions as
the Secretary deems necessary, to change to a different method. In
the case of any such obligations owned by the taxpayer at the
beginning of the first taxable year to which his election applies,
the increase in the redemption price of such obligations occurring
between the date of acquisition (or, in the case of an obligation
described in paragraph (2) of subsection (c), the date of
acquisition of the series E bond involved) and the first day of
such taxable year shall also be treated as income received in such
taxable year.
(b) Short-term obligations issued on discount basis
In the case of any obligation -
(1) of the United States; or
(2) of a State or a possession of the United States, or any
political subdivision of any of the foregoing, or of the District
of Columbia,
which is issued on a discount basis and payable without interest at
a fixed maturity date not exceeding 1 year from the date of issue,
the amount of discount at which such obligation is originally sold
shall not be considered to accrue until the date on which such
obligation is paid at maturity, sold, or otherwise disposed of.
(c) Matured United States savings bonds
In the case of a taxpayer who -
(1) holds a series E United States savings bond at the date of
maturity, and
(2) pursuant to regulations prescribed under chapter 31 of
title 31 (A) retains his investment in such series E bond in an
obligation of the United States, other than a current income
obligation, or (B) exchanges such series E bond for another
nontransferable obligation of the United States in an exchange
upon which gain or loss is not recognized because of section 1037
(or so much of section 1031 as relates to section 1037),
the increase in redemption value (to the extent not previously
includible in gross income) in excess of the amount paid for such
series E bond shall be includible in gross income in the taxable
year in which the obligation is finally redeemed or in the taxable
year of final maturity, whichever is earlier. This subsection shall
not apply to a corporation, and shall not apply in the case of any
taxable year for which the taxpayer's taxable income is computed
under an accrual method of accounting or for which an election made
by the taxpayer under subsection (a) applies.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 156; Pub. L. 86-346, title I,
Sec. 102, Sept. 22, 1959, 73 Stat. 621; Pub. L. 94-455, title XIX,
Secs. 1901(c)(2), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1803,
1834; Pub. L. 97-452, Sec. 2(c)(2), Jan. 12, 1983, 96 Stat. 2478.)
-MISC1-
AMENDMENTS
1983 - Subsec. (c)(2). Pub. L. 97-452 substituted "chapter 31 of
title 31" for "the Second Liberty Bond Act".
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" in two places.
Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(c)(2), struck out ", a
Territory," after "a State".
1959 - Subsec. (c)(2). Pub. L. 86-346 designated existing
provisions as cl. (A), inserted "of the United States" after "an
obligation" and struck out "the maturity value of" before "such
series E bond" and "which matures not more than 10 years from the
date of maturity of such series E bond" after "income obligation"
in such cl. (A), and added cl. (B).
-End-
-CITE-
26 USC Sec. 455 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 455. Prepaid subscription income
-STATUTE-
(a) Year in which included
Prepaid subscription income to which this section applies shall
be included in gross income for the taxable years during which the
liability described in subsection (d)(2) exists.
(b) Where taxpayer's liability ceases
In the case of any prepaid subscription income to which this
section applies -
(1) If the liability described in subsection (d)(2) ends, then
so much of such income as was not includible in gross income
under subsection (a) for preceding taxable years shall be
included in gross income for the taxable year in which the
liability ends.
(2) If the taxpayer dies or ceases to exist, then so much of
such income as was not includible in gross income under
subsection (a) for preceding taxable years shall be included in
gross income for the taxable year in which such death, or such
cessation of existence, occurs.
(c) Prepaid subscription income to which this section applies
(1) Election of benefits
This section shall apply to prepaid subscription income if and
only if the taxpayer makes an election under this section with
respect to the trade or business in connection with which such
income is received. The election shall be made in such manner as
the Secretary may by regulations prescribe. No election may be
made with respect to a trade or business if in computing taxable
income the cash receipts and disbursements method of accounting
is used with respect to such trade or business.
(2) Scope of election
An election made under this section shall apply to all prepaid
subscription income received in connection with the trade or
business with respect to which the taxpayer has made the
election; except that the taxpayer may, to the extent permitted
under regulations prescribed by the Secretary, include in gross
income for the taxable year of receipt the entire amount of any
prepaid subscription income if the liability from which it arose
is to end within 12 months after the date of receipt. An election
made under this section shall not apply to any prepaid
subscription income received before the first taxable year for
which the election is made.
(3) When election may be made
(A) With consent
A taxpayer may, with the consent of the Secretary, make an
election under this section at any time.
(B) Without consent
A taxpayer may, without the consent of the Secretary, make an
election under this section for his first taxable year in which
he receives prepaid subscription income in the trade or
business. Such election shall be made not later than the time
prescribed by law for filing the return for the taxable year
(including extensions thereof) with respect to which such
election is made.
(4) Period to which election applies
An election under this section shall be effective for the
taxable year with respect to which it is first made and for all
subsequent taxable years, unless the taxpayer secures the consent
of the Secretary to the revocation of such election. For purposes
of this title, the computation of taxable income under an
election made under this section shall be treated as a method of
accounting.
(d) Definitions
For purposes of this section -
(1) Prepaid subscription income
The term "prepaid subscription income" means any amount
(includible in gross income) which is received in connection
with, and is directly attributable to, a liability which extends
beyond the close of the taxable year in which such amount is
received, and which is income from a subscription to a newspaper,
magazine, or other periodical.
(2) Liability
The term "liability" means a liability to furnish or deliver a
newspaper, magazine, or other periodical.
(3) Receipt of prepaid subscription income
Prepaid subscription income shall be treated as received during
the taxable year for which it is includible in gross income under
section 451 (without regard to this section).
(e) Deferral of income under established accounting procedures
Notwithstanding the provisions of this section, any taxpayer who
has, for taxable years prior to the first taxable year to which
this section applies, reported his income under an established and
consistent method or practice of accounting for prepaid
subscription income (to which this section would apply if an
election were made) may continue to report his income for taxable
years to which this title applies in accordance with such method or
practice.
-SOURCE-
(Added Pub. L. 85-866, title I, Sec. 28(a), Sept. 2, 1958, 72 Stat.
1625; amended Pub. L. 94-455, title XIX, Secs. 1901(a)(67),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1775, 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" wherever appearing.
Subsec. (c)(3)(B). Pub. L. 94-455, Sec. 1901(a)(67), substituted
"for his first taxable year in which he receives prepaid
subscription income in the trade or business" for "for his first
taxable year (i) which begins after December 31, 1957, and (ii) in
which he receives prepaid subscription income in the trade or
business".
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(67) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE
Section 28(c) of Pub. L. 85-866 provided that: "The amendments
made by subsections (a) and (b) [enacting this section] shall apply
with respect to taxable years beginning after December 31, 1957."
-End-
-CITE-
26 USC Sec. 456 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 456. Prepaid dues income of certain membership organizations
-STATUTE-
(a) Year in which included
Prepaid dues income to which this section applies shall be
included in gross income for the taxable years during which the
liability described in subsection (e)(2) exists.
(b) Where taxpayer's liability ceases
In the case of any prepaid dues income to which this section
applies -
(1) If the liability described in subsection (e)(2) ends, then
so much of such income as was not includible in gross income
under subsection (a) for preceding taxable years shall be
included in gross income for the taxable year in which the
liability ends.
(2) If the taxpayer ceases to exist, then so much of such
income as was not includible in gross income under subsection (a)
for preceding taxable years shall be included in gross income for
the taxable year in which such cessation of existence occurs.
(c) Prepaid dues income to which this section applies
(1) Election of benefits
This section shall apply to prepaid dues income if and only if
the taxpayer makes an election under this section with respect to
the trade or business in connection with which such income is
received. The election shall be made in such manner as the
Secretary may by regulations prescribe. No election may be made
with respect to a trade or business if in computing taxable
income the cash receipts and disbursements method of accounting
is used with respect to such trade or business.
(2) Scope of election
An election made under this section shall apply to all prepaid
dues income received in connection with the trade or business
with respect to which the taxpayer has made the election; except
that the taxpayer may, to the extent permitted under regulations
prescribed by the Secretary, include in gross income for the
taxable year of receipt the entire amount of any prepaid dues
income if the liability from which it arose is to end within 12
months after the date of receipt. Except as provided in
subsection (d), and election made under this section shall not
apply to any prepaid dues income received before the first
taxable year for which the election is made.
(3) When election may be made
(A) With consent
A taxpayer may, with the consent of the Secretary, make an
election under this section at any time.
(B) Without consent
A taxpayer may, without the consent of the Secretary, make an
election under this section for its first taxable year in which
it receives prepaid dues income in the trade or business. Such
election shall be made not later than the time prescribed by
law for filing the return for the taxable year (including
extensions thereof) with respect to which such election is
made.
(4) Period to which election applies
An election under this section shall be effective for the
taxable year with respect to which it is first made and for all
subsequent taxable years, unless the taxpayer secures the consent
of the Secretary to the revocation of such election. For purposes
of this title, the computation of taxable income under an
election made under this section shall be treated as a method of
accounting.
(d) Transitional rule
(1) Amount includible in gross income for election years
If a taxpayer makes an election under this section with respect
to prepaid dues income, such taxpayer shall include in gross
income, for each taxable year to which such election applies, not
only that portion of prepaid dues income received in such year
otherwise includible in gross income for such year under this
section, but shall also include in gross income for such year an
additional amount equal to the amount of prepaid dues income
received in the 3 taxable years preceding the first taxable year
to which such election applies which would have been included in
gross income in the taxable year had the election been effective
3 years earlier.
(2) Deductions of amounts included in income more than once
A taxpayer who makes an election with respect to prepaid dues
income, and who includes in gross income for any taxable year to
which the election applies an additional amount computed under
paragraph (1), shall be permitted to deduct, for such taxable
year and for each of the 4 succeeding taxable years, an amount
equal to one-fifth of such additional amount, but only to the
extent that such additional amount was also included in the
taxpayer's gross income during any of the 3 taxable years
preceding the first taxable year to which such election applies.
(e) Definitions
For purposes of this section -
(1) Prepaid dues income
The term "prepaid dues income" means any amount (includible in
gross income) which is received by a membership organization in
connection with, and is directly attributable to, a liability to
render services or make available membership privileges over a
period of time which extends beyond the close of the taxable year
in which such amount is received.
(2) Liability
The term "liability" means a liability to render services or
make available membership privileges over a period of time which
does not exceed 36 months, which liability shall be deemed to
exist ratably over the period of time that such services are
required to be rendered, or that such membership privileges are
required to be made available.
(3) Membership organization
The term "membership organization" means a corporation,
association, federation, or other organization -
(A) organized without capital stock of any kind, and
(B) no part of the net earnings of which is distributable to
any member.
(4) Receipt of prepaid dues income
Prepaid dues income shall be treated as received during the
taxable year for which it is includible in gross income under
section 451 (without regard to this section).
-SOURCE-
(Added Pub. L. 87-109, Sec. 1(a), July 26, 1961, 75 Stat. 222;
amended Pub. L. 94-455, title XIX, Secs. 1901(a)(68),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1775, 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" wherever appearing.
Subsec. (c)(3)(B). Pub. L. 94-455, Sec. 1901(a)(68), substituted
"for its first taxable year" for "for its first taxable year (i)
which begins after December 31, 1960, and (ii)".
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(68) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE
Section 2 of Pub. L. 87-109 provided that: "The amendments made
by this Act [enacting this section] shall apply with respect to
taxable years beginning after December 31, 1960."
-End-
-CITE-
26 USC Sec. 457 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 457. Deferred compensation plans of State and local
governments and tax-exempt organizations
-STATUTE-
(a) Year of inclusion in gross income
(1) In general
Any amount of compensation deferred under an eligible deferred
compensation plan, and any income attributable to the amounts so
deferred, shall be includible in gross income only for the
taxable year in which such compensation or other income -
(A) is paid to the participant or other beneficiary, in the
case of a plan of an eligible employer described in subsection
(e)(1)(A), and
(B) is paid or otherwise made available to the participant or
other beneficiary, in the case of a plan of an eligible
employer described in subsection (e)(1)(B).
(2) Special rule for rollover amounts
To the extent provided in section 72(t)(9), section 72(t) shall
apply to any amount includible in gross income under this
subsection.
(b) Eligible deferred compensation plan defined
For purposes of this section, the term "eligible deferred
compensation plan" means a plan established and maintained by an
eligible employer -
(1) in which only individuals who perform service for the
employer may be participants,
(2) which provides that (except as provided in paragraph (3))
the maximum amount which may be deferred under the plan for the
taxable year (other than rollover amounts) shall not exceed the
lesser of -
(A) the applicable dollar amount, or
(B) 100 percent of the participant's includible compensation,
(3) which may provide that, for 1 or more of the participant's
last 3 taxable years ending before he attains normal retirement
age under the plan, the ceiling set forth in paragraph (2) shall
be the lesser of -
(A) twice the dollar amount in effect under subsection
(b)(2)(A), or
(B) the sum of -
(i) the plan ceiling established for purposes of paragraph
(2) for the taxable year (determined without regard to this
paragraph), plus
(ii) so much of the plan ceiling established for purposes
of paragraph (2) for taxable years before the taxable year as
has not previously been used under paragraph (2) or this
paragraph,
(4) which provides that compensation will be deferred for any
calendar month only if an agreement providing for such deferral
has been entered into before the beginning of such month,
(5) which meets the distribution requirements of subsection
(d), and
(6) except as provided in subsection (g), which provides that -
(A) all amounts of compensation deferred under the plan,
(B) all property and rights purchased with such amounts, and
(C) all income attributable to such amounts, property, or
rights,
shall remain (until made available to the participant or other
beneficiary) solely the property and rights of the employer
(without being restricted to the provision of benefits under the
plan), subject only to the claims of the employer's general
creditors.
A plan which is established and maintained by an employer which is
described in subsection (e)(1)(A) and which is administered in a
manner which is inconsistent with the requirements of any of the
preceding paragraphs shall be treated as not meeting the
requirements of such paragraph as of the 1st plan year beginning
more than 180 days after the date of notification by the Secretary
of the inconsistency unless the employer corrects the inconsistency
before the 1st day of such plan year.
(c) Limitation
The maximum amount of the compensation of any one individual
which may be deferred under subsection (a) during any taxable year
shall not exceed the amount in effect under subsection (b)(2)(A)
(as modified by any adjustment provided under subsection (b)(3)).
(d) Distribution requirements
(1) In general
For purposes of subsection (b)(5), a plan meets the
distribution requirements of this subsection if -
(A) under the plan amounts will not be made available to
participants or beneficiaries earlier than -
(i) the calendar year in which the participant attains age
70 1/2 ,
(ii) when the participant has a severance from employment
with the employer, or
(iii) when the participant is faced with an unforeseeable
emergency (determined in the manner prescribed by the
Secretary in regulations),
(B) the plan meets the minimum distribution requirements of
paragraph (2), and
(C) in the case of a plan maintained by an employer described
in subsection (e)(1)(A), the plan meets requirements similar to
the requirements of section 401(a)(31).
Any amount transferred in a direct trustee-to-trustee transfer in
accordance with section 401(a)(31) shall not be includible in
gross income for the taxable year of transfer.
(2) Minimum distribution requirements
A plan meets the minimum distribution requirements of this
paragraph if such plan meets the requirements of section
401(a)(9).
(3) Special rule for government plan
An eligible deferred compensation plan of an employer described
in subsection (e)(1)(A) shall not be treated as failing to meet
the requirements of this subsection solely by reason of making a
distribution described in subsection (e)(9)(A).
(e) Other definitions and special rules
For purposes of this section -
(1) Eligible employer
The term "eligible employer" means -
(A) a State, political subdivision of a State, and any agency
or instrumentality of a State or political subdivision of a
State, and
(B) any other organization (other than a governmental unit)
exempt from tax under this subtitle.
(2) Performance of service
The performance of service includes performance of service as
an independent contractor and the person (or governmental unit)
for whom such services are performed shall be treated as the
employer.
(3) Participant
The term "participant" means an individual who is eligible to
defer compensation under the plan.
(4) Beneficiary
The term "beneficiary" means a beneficiary of the participant,
his estate, or any other person whose interest in the plan is
derived from the participant.
(5) Includible compensation
The term "includible compensation" has the meaning given to the
term "participant's compensation" by section 415(c)(3).
(6) Compensation taken into account at present value
Compensation shall be taken into account at its present value.
(7) Community property laws
The amount of includible compensation shall be determined
without regard to any community property laws.
(8) Income attributable
Gains from the disposition of property shall be treated as
income attributable to such property.
(9) Benefits of tax exempt organization plans not treated as made
available by reason of certain elections, etc.
In the case of an eligible deferred compensation plan of an
employer described in subsection (e)(1)(B) -
(A) Total amount payable is dollar limit or less
The total amount payable to a participant under the plan
shall not be treated as made available merely because the
participant may elect to receive such amount (or the plan may
distribute such amount without the participant's consent) if -
(i) the portion of such amount which is not attributable to
rollover contributions (as defined in section 411(a)(11)(D))
does not exceed the dollar limit under section 411(a)(11)(A),
and
(ii) such amount may be distributed only if -
(I) no amount has been deferred under the plan with
respect to such participant during the 2-year period ending
on the date of the distribution, and
(II) there has been no prior distribution under the plan
to such participant to which this subparagraph applied.
A plan shall not be treated as failing to meet the distribution
requirements of subsection (d) by reason of a distribution to
which this subparagraph applies.
(B) Election to defer commencement of distributions
The total amount payable to a participant under the plan
shall not be treated as made available merely because the
participant may elect to defer commencement of distributions
under the plan if -
(i) such election is made after amounts may be available
under the plan in accordance with subsection (d)(1)(A) and
before commencement of such distributions, and
(ii) the participant may make only 1 such election.
(10) Transfers between plans
A participant shall not be required to include in gross income
any portion of the entire amount payable to such participant
solely by reason of the transfer of such portion from 1 eligible
deferred compensation plan to another eligible deferred
compensation plan.
(11) Certain plans excluded
(A) In general
The following plans shall be treated as not providing for the
deferral of compensation:
(i) Any bona fide vacation leave, sick leave, compensatory
time, severance pay, disability pay, or death benefit plan.
(ii) Any plan paying solely length of service awards to
bona fide volunteers (or their beneficiaries) on account of
qualified services performed by such volunteers.
(B) Special rules applicable to length of service award plans
(i) Bona fide volunteer
An individual shall be treated as a bona fide volunteer for
purposes of subparagraph (A)(ii) if the only compensation
received by such individual for performing qualified services
is in the form of -
(I) reimbursement for (or a reasonable allowance for)
reasonable expenses incurred in the performance of such
services, or
(II) reasonable benefits (including length of service
awards), and nominal fees for such services, customarily
paid by eligible employers in connection with the
performance of such services by volunteers.
(ii) Limitation on accruals
A plan shall not be treated as described in subparagraph
(A)(ii) if the aggregate amount of length of service awards
accruing with respect to any year of service for any bona
fide volunteer exceeds $3,000.
(C) Qualified services
For purposes of this paragraph, the term "qualified services"
means fire fighting and prevention services, emergency medical
services, and ambulance services.
(12) Exception for nonelective deferred compensation of
nonemployees
(A) In general
This section shall not apply to nonelective deferred
compensation attributable to services not performed as an
employee.
(B) Nonelective deferred compensation
For purposes of subparagraph (A), deferred compensation shall
be treated as nonelective only if all individuals (other than
those who have not satisfied any applicable initial service
requirement) with the same relationship to the payor are
covered under the same plan with no individual variations or
options under the plan.
(13) Special rule for churches
The term "eligible employer" shall not include a church (as
defined in section 3121(w)(3)(A)) or qualified church-controlled
organization (as defined in section 3121(w)(3)(B)).
(14) Treatment of qualified governmental excess benefit
arrangements
Subsections (b)(2) and (c)(1) shall not apply to any qualified
governmental excess benefit arrangement (as defined in section
415(m)(3)), and benefits provided under such an arrangement shall
not be taken into account in determining whether any other plan
is an eligible deferred compensation plan.
(15) Applicable dollar amount
(A) In general
The applicable dollar amount shall be the amount determined
in accordance with the following table:
For taxable years The applicable
beginning in dollar amount:
calendar year:
2002 $11,000
2003 $12,000
2004 $13,000
2005 $14,000
2006 or thereafter $15,000.
(B) Cost-of-living adjustments
In the case of taxable years beginning after December 31,
2006, the Secretary shall adjust the $15,000 amount under
subparagraph (A) at the same time and in the same manner as
under section 415(d), except that the base period shall be the
calendar quarter beginning July 1, 2005, and any increase under
this paragraph which is not a multiple of $500 shall be rounded
to the next lowest multiple of $500.
(16) Rollover amounts
(A) General rule
In the case of an eligible deferred compensation plan
established and maintained by an employer described in
subsection (e)(1)(A), if -
(i) any portion of the balance to the credit of an employee
in such plan is paid to such employee in an eligible rollover
distribution (within the meaning of section 402(c)(4)),
(ii) the employee transfers any portion of the property
such employee receives in such distribution to an eligible
retirement plan described in section 402(c)(8)(B), and
(iii) in the case of a distribution of property other than
money, the amount so transferred consists of the property
distributed,
then such distribution (to the extent so transferred) shall not
be includible in gross income for the taxable year in which
paid.
(B) Certain rules made applicable
The rules of paragraphs (2) through (7) and (9) of section
402(c) and section 402(f) shall apply for purposes of
subparagraph (A).
(C) Reporting
Rollovers under this paragraph shall be reported to the
Secretary in the same manner as rollovers from qualified
retirement plans (as defined in section 4974(c)).
(17) Trustee-to-trustee transfers to purchase permissive service
credit
No amount shall be includible in gross income by reason of a
direct trustee-to-trustee transfer to a defined benefit
governmental plan (as defined in section 414(d)) if such transfer
is -
(A) for the purchase of permissive service credit (as defined
in section 415(n)(3)(A)) under such plan, or
(B) a repayment to which section 415 does not apply by reason
of subsection (k)(3) thereof.
(18) Coordination with catch-up contributions for individuals age
50 or older
In the case of an individual who is an eligible participant (as
defined by section 414(v)) and who is a participant in an
eligible deferred compensation plan of an employer described in
paragraph (1)(A), subsections (b)(3) and (c) shall be applied by
substituting for the amount otherwise determined under the
applicable subsection the greater of -
(A) the sum of -
(i) the plan ceiling established for purposes of subsection
(b)(2) (without regard to subsection (b)(3)), plus
(ii) the applicable dollar amount for the taxable year
determined under section 414(v)(2)(B)(i), or
(B) the amount determined under the applicable subsection
(without regard to this paragraph).
(f) Tax treatment of participants where plan or arrangement of
employer is not eligible
(1) In general
In the case of a plan of an eligible employer providing for a
deferral of compensation, if such plan is not an eligible
deferred compensation plan, then -
(A) the compensation shall be included in the gross income of
the participant or beneficiary for the 1st taxable year in
which there is no substantial risk of forfeiture of the rights
to such compensation, and
(B) the tax treatment of any amount made available under the
plan to a participant or beneficiary shall be determined under
section 72 (relating to annuities, etc.).
(2) Exceptions
Paragraph (1) shall not apply to -
(A) a plan described in section 401(a) which includes a trust
exempt from tax under section 501(a),
(B) an annuity plan or contract described in section 403,
(C) that portion of any plan which consists of a transfer of
property described in section 83,
(D) that portion of any plan which consists of a trust to
which section 402(b) applies, and
(E) a qualified governmental excess benefit arrangement
described in section 415(m).
(3) Definitions
For purposes of this subsection -
(A) Plan includes arrangements, etc.
The term "plan" includes any agreement or arrangement.
(B) Substantial risk of forfeiture
The rights of a person to compensation are subject to a
substantial risk of forfeiture if such person's rights to such
compensation are conditioned upon the future performance of
substantial services by any individual.
(g) Governmental plans must maintain set-asides for exclusive
benefit of participants
(1) In general
A plan maintained by an eligible employer described in
subsection (e)(1)(A) shall not be treated as an eligible deferred
compensation plan unless all assets and income of the plan
described in subsection (b)(6) are held in trust for the
exclusive benefit of participants and their beneficiaries.
(2) Taxability of trusts and participants
For purposes of this title -
(A) a trust described in paragraph (1) shall be treated as an
organization exempt from taxation under section 501(a), and
(B) notwithstanding any other provision of this title,
amounts in the trust shall be includible in the gross income of
participants and beneficiaries only to the extent, and at the
time, provided in this section.
(3) Custodial accounts and contracts
For purposes of this subsection, custodial accounts and
contracts described in section 401(f) shall be treated as trusts
under rules similar to the rules under section 401(f).
-SOURCE-
(Added Pub. L. 95-600, title I, Sec. 131(a), Nov. 6, 1978, 92 Stat.
2779; amended Pub. L. 96-222, title I, Sec. 101(a)(4), Apr. 1,
1980, 94 Stat. 196; Pub. L. 98-369, div. A, title IV, Sec.
491(d)(33), July 18, 1984, 98 Stat. 851; Pub. L. 99-514, title XI,
Sec. 1107(a), Oct. 22, 1986, 100 Stat. 2426; Pub. L. 100-647, title
I, Sec. 1011(e)(1), (2), (9), (10), title VI, Secs. 6064(a)-(c),
6071(c), Nov. 10, 1988, 102 Stat. 3460, 3461, 3700, 3701, 3705;
Pub. L. 101-239, title VII, Secs. 7811(g)(4), (5), 7816(j), Dec.
19, 1989, 103 Stat. 2409, 2421; Pub. L. 102-318, title V, Sec.
521(b)(26), July 3, 1992, 106 Stat. 312; Pub. L. 104-188, title I,
Secs. 1421(b)(3)(C), 1444(b)(2), (3), 1447(a), (b), 1448(a), (b),
1458(a), Aug. 20, 1996, 110 Stat. 1796, 1810, 1812, 1813, 1819;
Pub. L. 105-34, title X, Sec. 1071(a)(2), Aug. 5, 1997, 111 Stat.
948; Pub. L. 107-16, title VI, Secs. 611(d)(3)(B), (e), 615(a),
632(c)(1), 641(a)(1)(A)-(C), 646(a)(3), 647(b), 648(b), 649(a),
(b), June 7, 2001, 115 Stat. 98, 102, 115, 118, 119, 126-128; Pub.
L. 107-147, title IV, Sec. 411(o)(9), (p)(5), Mar. 9, 2002, 116
Stat. 49, 51.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2002 - Subsec. (e)(5). Pub. L. 107-147, Sec. 411(p)(5), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The term 'includible
compensation' means compensation for service performed for the
employer which (taking into account the provisions of this section
and other provisions of this chapter) is currently includible in
gross income."
Subsec. (e)(18). Pub. L. 107-147, Sec. 411(o)(9), added par.
(18).
2001 - Subsec. (a). Pub. L. 107-16, Secs. 649(b)(1), 901,
temporarily reenacted heading without change and amended text of
subsec. (a) generally. Prior to amendment, text read as follows:
"In the case of a participant in an eligible deferred compensation
plan, any amount of compensation deferred under the plan, and any
income attributable to the amounts so deferred, shall be includible
in gross income only for the taxable year in which such
compensation or other income is paid or otherwise made available to
the participant or other beneficiary." See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (b)(2). Pub. L. 107-16, Secs. 641(a)(1)(B), 901,
temporarily inserted "(other than rollover amounts)" after "taxable
year" in introductory provisions. See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (b)(2)(A). Pub. L. 107-16, Secs. 611(e)(1)(A), 901,
temporarily substituted "the applicable dollar amount" for
"$7,500". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (b)(2)(B). Pub. L. 107-16, Secs. 632(c)(1), 901,
temporarily substituted "100 percent" for "33 1/3 percent". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (b)(3)(A). Pub. L. 107-16, Secs. 611(e)(1)(B), 901,
temporarily substituted "twice the dollar amount in effect under
subsection (b)(2)(A)" for "$15,000". See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (c). Pub. L. 107-16, Secs. 615(a), 901, temporarily
amended heading and text of subsec. (c) generally, substituting
present provisions for provisions which stated that the maximum
amount of compensation that an individual could defer under subsec.
(a) during any taxable year could not exceed the applicable dollar
amount, as modified by any adjustment provided under subsec.
(b)(3), and provided for coordination with certain other deferrals.
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (c)(1). Pub. L. 107-16, Secs. 611(e)(1)(A), 901,
temporarily substituted "the applicable dollar amount" for
"$7,500". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (c)(2). Pub. L. 107-16, Secs. 611(d)(3)(B), 901,
temporarily substituted "402(g)(7)(A)(iii)" for "402(g)(8)(A)(iii)"
in concluding provisions. See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (d)(1). Pub. L. 107-16, Secs. 641(a)(1)(C), 901,
temporarily added subpar. (C) and concluding provisions. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(1)(A)(ii). Pub. L. 107-16, Secs. 646(a)(3), 901,
temporarily substituted "has a severance from employment" for "is
separated from service". See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (d)(2). Pub. L. 107-16, Secs. 649(a), 901, temporarily
reenacted heading without change and amended text of par. (2)
generally, substituting present provisions for provisions which
stated that a plan would meet the minimum distribution requirements
of this par. if plan met the requirements of section 401(a)(9), if
plan met additional distribution requirements in the case of a
deceased participant, and if any distribution payable over a period
of more than 1 year would only be made in substantially
nonincreasing amounts. See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (d)(3). Pub. L. 107-16, Secs. 649(b)(2)(B), 901,
temporarily added par. (3). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (e)(9). Pub. L. 107-16, Secs. 649(b)(2)(A), 901, in
heading temporarily substituted "Benefits of tax exempt
organization plans not treated as made available by reason of
certain elections, etc." for "Benefits not treated as made
available by reason of certain elections, etc." and temporarily
inserted introductory provisions. See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (e)(9)(A)(i). Pub. L. 107-16, Secs. 648(b), 901,
temporarily substituted "the portion of such amount which is not
attributable to rollover contributions (as defined in section
411(a)(11)(D))" for "such amount". See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (e)(15). Pub. L. 107-16, Secs. 611(e)(2), 901,
temporarily amended heading and text of par. (15) generally. Prior
to amendment, text read as follows: "The Secretary shall adjust the
$7,500 amount specified in subsections (b)(2) and (c)(1) at the
same time and in the same manner as under section 415(d), except
that the base period shall be the calendar quarter ending September
30, 1994, and any increase under this paragraph which is not a
multiple of $500 shall be rounded to the next lowest multiple of
$500." See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (e)(16). Pub. L. 107-16, Secs. 641(a)(1)(A), 901,
temporarily added par. (16). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (e)(17). Pub. L. 107-16, Secs. 647(b), 901, temporarily
added par. (17). See Effective and Termination Dates of 2001
Amendment note below.
1997 - Subsec. (e)(9)(A). Pub. L. 105-34 substituted "dollar
limit" for "$3,500" in heading and "the dollar limit under section
411(a)(11)(A)" for "$3,500" in cl. (i).
1996 - Subsec. (b)(6). Pub. L. 104-188, Sec. 1448(b), inserted
"except as provided in subsection (g)," before "which provides
that" in introductory provisions.
Subsec. (c)(2)(B)(i). Pub. L. 104-188, Sec. 1421(b)(3)(C),
substituted "section 402(h)(1)(B) or (k)" for "section
402(h)(1)(B)".
Subsec. (e)(9). Pub. L. 104-188, Sec. 1447(a), amended par. (9)
generally. Prior to amendment, par. (9) read as follows: "Benefits
not treated as made available by reason of certain elections. - If -
"(A) the total amount payable to a participant under the plan
does not exceed $3,500, and
"(B) no additional amounts may be deferred under the plan with
respect to the participant,
the amount payable to the participant under the plan shall not be
treated as made available merely because such participant may elect
to receive a lump sum payable after separation from service and
within 60 days of the election."
Subsec. (e)(11). Pub. L. 104-188, Sec. 1458(a), amended par. (11)
generally. Prior to amendment, par. (11) read as follows: "Certain
plans excepted. - Any bona fide vacation leave, sick leave,
compensatory time, severance pay, disability pay, or death benefit
plan shall be treated as a plan not providing for the deferral of
compensation."
Subsec. (e)(14). Pub. L. 104-188, Sec. 1444(b)(2), added par.
(14).
Subsec. (e)(15). Pub. L. 104-188, Sec. 1447(b), added par. (15).
Subsec. (f)(2)(E). Pub. L. 104-188, Sec. 1444(b)(3), added
subpar. (E).
Subsec. (g). Pub. L. 104-188, Sec. 1448(a), added subsec. (g).
1992 - Subsec. (c)(2)(B)(i). Pub. L. 102-318 substituted
"402(e)(3)" for "402(a)(8)".
1989 - Subsec. (d)(1)(A)(iii). Pub. L. 101-239, Sec. 7811(g)(4),
substituted ", and" for period at end.
Subsec. (d)(2)(B)(i)(I). Pub. L. 101-239, Sec. 7811(g)(5),
inserted "and" at end.
Subsec. (e)(13). Pub. L. 101-239, Sec. 7816(j), substituted
"Special rule for churches" for "Exception for church plans" in
heading and amended text generally. Prior to amendment, text read
as follows: "The term 'eligible deferred compensation plan' shall
not include a plan maintained by a church for church employees. For
purposes of this paragraph, the term 'church' has the meaning given
such term by section 3121(w)(3)(A), including a qualified church-
controlled organization (as defined in section 3121(w)(3)(B))."
1988 - Subsec. (c)(2). Pub. L. 100-647, Sec. 1011(e)(1), struck
out "and paragraphs (2) and (3) of subsection (b)" after "of this
subsection".
Pub. L. 100-647, Sec. 6071(c), substituted "rural cooperative
plan" for "rural electric cooperative plan" in last sentence.
Subsec. (d)(1)(A). Pub. L. 100-647, Sec. 1011(e)(2), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "the plan provides that amounts payable under the plan
will be made available to participants or other beneficiaries not
earlier than when the participant is separated from service with
the employer or is faced with an unforeseeable emergency
(determined in the manner prescribed by the Secretary by
regulation), and".
Subsec. (d)(2)(B)(i)(I). Pub. L. 100-647, Sec. 1011(e)(10),
amended subcl. (I) generally. Prior to amendment, subcl. (I) read
as follows: "at least 2/3 of the total amount payable with
respect to the participant will be paid during the life expectancy
of such participant (determined as of the commencement of the
distribution), and".
Subsec. (d)(10). Pub. L. 100-647, Sec. 6064(a)(2), amended
subsec. (d), as in effect on the day before the date of enactment
of Pub. L. 99-514 (Oct. 22, 1986), by adding par. (10) reading as
follows: "Certain plans excepted. - Any bona fide vacation leave,
sick leave, compensatory time, severance pay, disability pay, or
death benefit plan shall be treated as a plan not providing for the
deferral of compensation."
Subsec. (d)(11). Pub. L. 100-647, Sec. 6064(b)(2), amended
subsec. (d), as in effect on the day before the date of enactment
of Pub. L. 99-514 (Oct. 22, 1986), by adding par. (11) reading as
follows: "Exception for nonelective deferred compensation of
nonemployees. -
"(A) In general. - This section shall not apply to nonelective
deferred compensation attributable to services not performed as
an employee.
"(B) Nonelective deferred compensation. - For purposes of
subparagraph (a), deferred compensation shall be treated as
nonelective only if all individuals (other than those who have
not satisfied any applicable initial service requirement) with
the same relationship to the payor are covered under the same
plan with no individual variations or options under the plan."
Subsec. (e)(9). Pub. L. 100-647, Sec. 1011(e)(9), inserted "after
separation from service and" after "lump sum payable" in concluding
provisions.
Subsec. (e)(11). Pub. L. 100-647, Sec. 6064(a)(1), added par.
(11).
Subsec. (e)(12). Pub. L. 100-647, Sec. 6064(b)(1), added par.
(12).
Subsec. (e)(13). Pub. L. 100-647, Sec. 6064(c), added par. (13).
1986 - Pub. L. 99-514 amended section generally, substituting
"Deferred compensation plans of State and local governments and tax-
exempt organizations" for "Deferred compensation plans with
respect to service for State and local governments" as section
catchline and revising and restating as subsecs. (a) to (c), (e),
and (f) provisions formerly contained in subsecs. (a) to (e) and
adding provisions comprising subsec. (d).
1984 - Subsec. (e)(2). Pub. L. 98-369, Sec. 491(d)(33), struck
out subpar. (C) which provided that par. (1) of this subsection not
apply to a qualified bond purchase plan described in section
405(a), and redesignated subpars. (D) and (E) as (C) and (D),
respectively.
1980 - Subsec. (d)(9)(B). Pub. L. 96-222 in cl. (i) struck out
"described in section 501(c)(12)" after "any organization" and
substituted "electric service on a mutual or cooperative basis" for
"electric service" and in cl. (ii) substituted "paragraph (4) or
(6) of section 501(a)" for "section 501(c)(6)" and "at least 80
percent of the members" for "all the members".
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 611(d)(3)(B), (e) of Pub. L. 107-16
applicable to years beginning after Dec. 31, 2001, see section
611(i)(1) of Pub. L. 107-16, set out as a note under section 415 of
this title.
Pub. L. 107-16, title VI, Sec. 615(b), June 7, 2001, 115 Stat.
102, provided that: "The amendment made by subsection (a) [amending
this section] shall apply to years beginning after December 31,
2001."
Pub. L. 107-16, title VI, Sec. 632(c)(2), June 7, 2001, 115 Stat.
115, provided that: "The amendment made by this subsection
[amending this section] shall apply to years beginning after
December 31, 2001."
Amendment by section 641(a)(1)(A)-(C) of Pub. L. 107-16
applicable to distributions after Dec. 31, 2001, see section
641(f)(1) of Pub. L. 107-16, set out as a note under section 402 of
this title.
Amendment by section 646(a)(3) of Pub. L. 107-16 applicable to
distributions after Dec. 31, 2001, see section 646(b) of Pub. L.
107-16, set out as a note under section 401 of this title.
Amendment by section 647(b) of Pub. L. 107-16 applicable to
trustee-to-trustee transfers after Dec. 31, 2001, see section
647(c) of Pub. L. 107-16, set out as a note under section 403 of
this title.
Amendment by section 648(b) of Pub. L. 107-16 applicable to
distributions after Dec. 31, 2001, see section 648(c) of Pub. L.
107-16, set out as a note under section 411 of this title.
Pub. L. 107-16, title VI, Sec. 649(c), June 7, 2001, 115 Stat.
128, provided that: "The amendments made by subsections (a) and (b)
[amending this section] shall apply to distributions after December
31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to plan years beginning
after Aug. 5, 1997, see section 1071(c) of Pub. L. 105-34, set out
as a note under section 411 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1421(b)(3)(C) of Pub. L. 104-188 applicable
to taxable years beginning after Dec. 31, 1996, see section 1421(e)
of Pub. L. 104-188, set out as a note under section 72 of this
title.
Amendment by section 1444(b)(2), (3) of Pub. L. 104-188
applicable to years beginning after Dec. 31, 1994, see section
1444(e) of Pub. L. 104-188, set out as a note under section 415 of
this title.
Section 1447(c) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1996."
Section 1448(c) of Pub. L. 104-188 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to assets and income described in section 457(b)(6) of the Internal
Revenue Code of 1986 held by a plan on and after the date of the
enactment of this Act [Aug. 20, 1996].
"(2) Transition rule. - In the case of a plan in existence on the
date of the enactment of this Act, a trust need not be established
by reason of the amendments made by this section before January 1,
1999."
Section 1458(c)(1) of Pub. L. 104-188 provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to accruals of length of service awards after December 31,
1996."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1011(e)(9) of Pub. L. 100-647 provided that the amendment
made by that section is effective for years beginning after Dec.
31, 1988.
Amendment by section 1011(e)(1), (2), (10) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 6064(d) of Pub. L. 100-647 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1987.
"(2) Exception for certain collectively bargained plans. -
"(A) In general. - Section 457 of the 1986 Code (as in effect
before and after the amendments made by section 1107 of the
Reform Act [Pub. L. 99-514]) shall not apply to nonelective
deferred compensation provided under a plan in existence on
December 31, 1987, and maintained pursuant to a collective
bargaining agreement.
"(B) Nonelective plan. - For purposes of this paragraph, a
nonelective plan is a plan which covers a broad group of
employees and under which the covered employees earn nonelective
deferred compensation under a definite, fixed and uniform benefit
formula.
"(C) Termination. - This paragraph shall cease to apply to a
plan as of the effective date of the first material modification
of the plan agreed to after December 31, 1987.
"(3) Treatment of certain nonelective deferred compensation. -
Section 457 of the 1986 Code shall not apply to amounts deferred
under a nonelective deferred compensation plan maintained by an
eligible employer described in section 457(e)(1)(A) of the 1986
Code (as in effect after the Reform Act [Pub. L. 99-514]) -
"(A) if such amounts were deferred from periods before July 14,
1988, or
"(B) if -
"(i) such amounts are deferred from periods on or after such
date pursuant to an agreement which -
"(I) was in writing on such date, and
"(II) on such date provides for a deferral for each taxable
year covered by the agreement of a fixed amount or of an
amount determined pursuant to a fixed formula, and
"(ii) the individual with respect to whom the deferral is
made was covered under such agreement on such date.
Subparagraph (B) shall not apply to any taxable year ending after
the date on which any modification of the amount or formula
described in subparagraph (B)(i)(II) agreed to in writing before
January 1, 1989, is effective. The preceding sentence shall not
apply to a modification agreed to in writing before January 1,
1989, which does not increase any benefit of a participant. Amounts
described in the first sentence of this paragraph shall be taken
into account for purposes of applying section 457 of the 1986 Code
to other amounts deferred under any eligible deferred compensation
plan.
"(4) Study. - The Secretary of the Treasury or his delegate shall
conduct a study on the tax treatment of deferred compensation paid
by State and local governments and tax-exempt organizations
(including deferred compensation paid to independent contractors).
Not later than January 1, 1990, the Secretary shall submit to the
Committee on Ways and Means of the House of Representatives and the
Committee on Finance of the Senate a report on the study conducted
under this paragraph together with such recommendations as he may
deem advisable."
[The due date for the report on the study referred to in section
6064(d)(4) of Pub. L. 100-647, set out above, extended to Jan. 1,
1992, by Pub. L. 101-508, title XI, Sec. 11831(b), Nov. 5, 1990,
104 Stat. 1388-559.]
Amendment by section 6071(c) of Pub. L. 100-647 applicable to
taxable years beginning after Nov. 10, 1988, see section 6071(d) of
Pub. L. 100-647, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1107(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1011(e)(6), (7), Nov. 10, 1988, 102 Stat. 3461,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1988.
"(2) Transfers and cash-outs. - Paragraphs (9) and (10) of
section 457(e) of the Internal Revenue Code of 1986 (as amended by
this section) shall apply to taxable years beginning after December
31, 1986.
"(3) Application to tax-exempt organizations. -
"(A) In general. - Except as provided in subparagraph (B), the
application of section 457 of the Internal Revenue Code of 1986
by reason of the amendments made by this section to deferred
compensation plans established and maintained by organizations
exempt from tax shall apply to taxable years beginning after
December 31, 1986.
"(B) Existing deferrals and arrangements. - Section 457 of such
Code shall not apply to amounts deferred under a plan described
in subparagraph (A) which -
"(i) were deferred from taxable years beginning before
January 1, 1987, or
"(ii) are deferred from taxable years beginning after
December 31, 1986, pursuant to an agreement which -
"(I) was in writing on August 16, 1986,
"(II) on such date provides for a deferral for each taxable
year covered by the agreement of a fixed amount or of an
amount determined pursuant to a fixed formula.
Clause (ii) shall not apply to any taxable year ending after the
date on which any modification to the amount or formula described
in subclause (II) is effective. Amounts described in the first
sentence shall be taken into account for applying section 457 to
other amounts deferred under any deferred compensation plan. This
subparagraph shall only apply to individuals who were covered
under the plan and agreement on August 16, 1986.
"(4) Deferred compensation plans for state judges. - The
amendments made by this section shall not apply to any qualified
State judicial plan (as defined in section 131(c)(3)(B) of the
Revenue Act of 1978 [set out as a note below] as amended by section
252 of the Tax Equity and Fiscal Responsibility Act of 1982).
"(5) Special rule for certain deferred compensation plans. - The
amendments made by this section shall not apply -
"(A) to employees on August 16, 1986, of a nonprofit
corporation organized under the laws of the State of Alabama
maintaining a deferred compensation plan with respect to which
the Internal Revenue Service issued a ruling dated March 17,
1976, that the plan would not affect the tax-exempt status of the
corporation, or
"(B) to to [sic] individuals eligible to participate on August
16, 1986, in a deferred compensation plan with respect to which a
letter dated November 6, 1975, submitted the original plan to the
Internal Revenue Service, an amendment was submitted on November
19, 1975, and the Internal Revenue Service responded with a
letter dated December 24, 1975,
but only with respect to deferrals under such plan."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to obligations issued
after Dec. 31, 1983, see section 491(f)(1) of Pub. L. 98-369, set
out as a note under section 62 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE
Section 131(c)(1) of Pub. L. 95-600 provided that: "The
amendments made by this section [enacting this section] shall apply
to taxable years beginning after December 31, 1978."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1100-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TRANSITIONAL RULES
Section 131(c)(2) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - In the case of any taxable year beginning
after December 31, 1978, and before January 1, 1982 -
"(i) any amount of compensation deferred under a plan of a
State providing for a deferral of compensation (other than a plan
described in section 457(e)(2) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954]), and any income attributable to the
amounts so deferred, shall be includible in gross income only for
the taxable year in which such compensation or other income is
paid or otherwise made available to the participant or other
beneficiary, but
"(ii) the maximum amount of the compensation of any one
individual which may be excluded from gross income by reason of
clause (i) and by reason of section 457(a) of such Code during
any such taxable year shall not exceed the lesser of -
"(I) $7,500, or
"(II) 33 1/3 percent of the participant's includible
compensation.
"(B) Application of catch-up provisions in certain cases. - If,
in the case of any participant for any taxable year, all of the
plans are eligible State deferred compensation plans, then clause
(ii) of subparagraph (A) of this paragraph shall be applied with
the modification provided by paragraph (3) of section 457(b) of
such Code.
"(C) Applications of certain coordination provisions. - In
applying clause (ii) of subparagraph (A) of this paragraph and
section 403(b)(2)(A)(ii) of such Code, rules similar to the rules
of section 457(c)(2) of such Code shall apply.
"(D) Meaning of terms. - Except as otherwise provided in this
paragraph, terms used in this paragraph shall have the same meaning
as when used in section 457 of such Code."
DEFERRED COMPENSATION PLANS FOR STATE JUDGES
Section 131(c)(3) of Pub. L. 95-600, as added by Pub. L. 97-248,
title II, Sec. 252, Sept. 3, 1982, 96 Stat. 532, and amended by
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(A) In general. - The amendments made by this section [enacting
this section and provisions set out as notes under this section]
shall not apply to any qualified State judicial plan.
"(B) Qualified state judicial plan. - For purposes of
subparagraph (A), the term 'qualified State judicial plan' means
any retirement plan of a State for the exclusive benefit of judges
or their beneficiaries if -
"(i) such plan has been continuously in existence since
December 31, 1978,
"(ii) under such plan, all judges eligible to benefit under the
plan -
"(I) are required to participate, and
"(II) are required to contribute the same fixed percentage of
their basic or regular rate of compensation as judge,
"(iii) under such plan, no judge has an option as to
contributions or benefits the exercise of which would affect the
amount of includible compensation,
"(iv) the retirement payments of a judge under the plan are a
percentage of the compensation of judges of that State holding
similar positions, and
"(v) the plan during any year does not pay benefits with
respect to any participant which exceed the limitations of
section 415(b) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]."
-End-
-CITE-
26 USC Sec. 458 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 458. Magazines, paperbacks, and records returned after the
close of the taxable year
-STATUTE-
(a) Exclusion from gross income
A taxpayer who is on an accrual method of accounting may elect
not to include in the gross income for the taxable year the income
attributable to the qualified sale of any magazine, paperback, or
record which is returned to the taxpayer before the close of the
merchandise return period.
(b) Definitions and special rules
For purposes of this section -
(1) Magazine
The term "magazine" includes any other periodical.
(2) Paperback
The term "paperback" means any book which has a flexible outer
cover and the pages of which are affixed directly to such outer
cover. Such term does not include a magazine.
(3) Record
The term "record" means a disc, tape, or similar object on
which musical, spoken, or other sounds are recorded.
(4) Separate application with respect to magazines, paperbacks,
and records
If a taxpayer makes qualified sales of more than one category
of merchandise in connection with the same trade or business,
this section shall be applied as if the qualified sales of each
such category were made in connection with a separate trade or
business. For purposes of the preceding sentence, magazines,
paperbacks, and records shall each be treated as a separate
category of merchandise.
(5) Qualified sale
A sale of a magazine, paperback, or record is a qualified sale
if -
(A) at the time of sale, the taxpayer has a legal obligation
to adjust the sales price of such magazine, paperback, or
record if it is not resold, and
(B) the sales price of such magazine, paperback, or record is
adjusted by the taxpayer because of a failure to resell it.
(6) Amount excluded
The amount excluded under this section with respect to any
qualified sale shall be the lesser of -
(A) the amount covered by the legal obligation described in
paragraph (5)(A), or
(B) the amount of the adjustment agreed to by the taxpayer
before the close of the merchandise return period.
(7) Merchandise return period
(A) Except as provided in subparagraph (B), the term
"merchandise return period" means, with respect to any taxable
year -
(i) in the case of magazines, the period of 2 months and 15
days first occurring after the close of taxable year, or
(ii) in the case of paperbacks and records, the period of 4
months and 15 days first occurring after the close of the
taxable year.
(B) The taxpayer may select a shorter period than the
applicable period set forth in subparagraph (A).
(C) Any change in the merchandise return period shall be
treated as a change in the method of accounting.
(8) Certain evidence may be substituted for physical return of
merchandise
Under regulations prescribed by the Secretary, the taxpayer may
substitute, for the physical return of magazines, paperbacks, or
records required by subsection (a), certification or other
evidence that the magazine, paperback, or record has not been
resold and will not be resold if such evidence -
(A) is in the possession of the taxpayer at the close of the
merchandise return period, and
(B) is satisfactory to the Secretary.
(9) Repurchased (!1) by the taxpayer not treated as resale
A repurchase by the taxpayer shall be treated as an adjustment
of the sales price rather than as a resale.
(c) Qualified sales to which section applies
(1) Election of benefits
This section shall apply to qualified sales of magazines,
paperbacks, or records, as the case may be, if and only if the
taxpayer makes an election under this section with respect to the
trade or business in connection with which such sales are made.
An election under this section may be made without the consent of
the Secretary. The election shall be made in such manner as the
Secretary may by regulations prescribed (!2) and shall be made
for any taxable year not later than the time prescribed by law
for filing the return for such taxable year (including extensions
thereof).
(2) Scope of election
An election made under this section shall apply to all
qualified sales of magazines, paperbacks, or records, as the case
may be, made in connection with the trade or business with
respect to which the taxpayer has made the election.
(3) Period to which election applies
An election under this section shall be effective for the
taxable year for which it is made and for all subsequent taxable
years, unless the taxpayer secures the consent of the Secretary
to the revocation of such election.
(4) Treatment as method of accounting
Except to the extent inconsistent with the provisions of this
section, for purposes of this subtitle, the computation of
taxable income under an election made under this section shall be
treated as a method of accounting.
(d) 5-year spread of transitional adjustments for magazines
In applying section 481(c) with respect to any election under
this section which applies to magazines, the period for taking into
account any decrease in taxable income resulting from the
application of section 481(a)(2) shall be the taxable year for
which the election is made and the 4 succeeding taxable years.
(e) Suspense account for paperbacks and records
(1) In general
In the case of any election under this section which applies to
paperbacks or records, in lieu of applying section 481, the
taxpayer shall establish a suspense account for the trade or
business for the taxable year for which the election is made.
(2) Initial opening balance
The opening balance of the account described in paragraph (1)
for the first taxable year to which the election applies shall be
the largest dollar amount of returned merchandise which would
have been taken into account under this section for any of the 3
immediately preceding taxable years if this section had applied
to such preceding 3 taxable years. This paragraph and paragraph
(3) shall be applied by taking into account only amounts
attributable to the trade or business for which such account is
established.
(3) Adjustments in suspense account
At the close of each taxable year the suspense account shall be
-
(A) reduced the excess (if any) of -
(i) the opening balance of the suspense account for the
taxable year, over
(ii) the amount excluded from gross income for the taxable
year under subsection (a), or
(B) increased (but not in excess of the initial opening
balance) by the excess (if any) of -
(i) the amount excluded from gross income for the taxable
year under subsection (a), over
(ii) the opening balance of the account for the taxable
year.
(4) Gross income adjustments
(A) Reductions excluded from gross income
In the case of any reduction under paragraph (3)(A) in the
account for the taxable year, an amount equal to such reduction
shall be excluded from gross income for such taxable year.
(B) Increases added to gross income
In the case of any increase under paragraph (3)(B) in the
account for the taxable year, an amount equal to such increase
shall be included in gross income for such taxable year.
If the initial opening balance exceeds the dollar amount of
returned merchandise which would have been taken into account
under subsection (a) for the taxable year preceding the first
taxable year for which the election is effective if this section
had applied to such preceding taxable year, then an amount equal
to the amount of such excess shall be included in gross income
for such first taxable year.
(5) Subchapter C transactions
The application of this subsection with respect to a taxpayer
which is a party to any transaction with respect to which there
is nonrecognition of gain or loss to any party to the transaction
by reason of subchapter C shall be determined under regulations
prescribed by the Secretary.
-SOURCE-
(Added Pub. L. 95-600, title III, Sec. 372(a), Nov. 6, 1978, 92
Stat. 2860.)
-MISC1-
EFFECTIVE DATE
Section 372(c) of Pub. L. 95-600 provided that: "The amendments
made by this section [enacting this section] shall apply to taxable
years beginning after September 30, 1979."
-FOOTNOTE-
(!1) So in original. Probably should be "Repurchase".
(!2) So in original. Probably should be "prescribe".
-End-
-CITE-
26 USC Sec. 460 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 460. Special rules for long-term contracts
-STATUTE-
(a) Requirement that percentage of completion method be used
In the case of any long-term contract, the taxable income from
such contract shall be determined under the percentage of
completion method (as modified by subsection (b)).
(b) Percentage of completion method
(1) Requirements of percentage of completion method
Except as provided in paragraph (3), in the case of any long-
term contract with respect to which the percentage of completion
method is used -
(A) the percentage of completion shall be determined by
comparing costs allocated to the contract under subsection (c)
and incurred before the close of the taxable year with the
estimated total contract costs, and
(B) upon completion of the contract (or, with respect to any
amount properly taken into account after completion of the
contract, when such amount is so properly taken into account),
the taxpayer shall pay (or shall be entitled to receive)
interest computed under the look-back method of paragraph (2).
In the case of any long-term contract with respect to which the
percentage of completion method is used, except for purposes of
applying the look-back method of paragraph (2), any income under
the contract (to the extent not previously includible in gross
income) shall be included in gross income for the taxable year
following the taxable year in which the contract was completed.
For purposes of subtitle F (other than sections 6654 and 6655),
any interest required to be paid by the taxpayer under
subparagraph (B) shall be treated as an increase in the tax
imposed by this chapter for the taxable year in which the
contract is completed (or, in the case of interest payable with
respect to any amount properly taken into account after
completion of the contract, for the taxable year in which the
amount is so properly taken into account).
(2) Look-back method
The interest computed under the look-back method of this
paragraph shall be determined by -
(A) first (!1) allocating income under the contract among
taxable years before the year in which the contract is
completed on the basis of the actual contract price and costs
instead of the estimated contract price and costs,
(B) second, determining (solely for purposes of computing
such interest) the overpayment or underpayment of tax for each
taxable year referred to in subparagraph (A) which would result
solely from the application of subparagraph (A), and
(C) then using the adjusted overpayment rate (as defined in
paragraph (7)), compounded daily, on the overpayment or
underpayment determined under subparagraph (B).
For purposes of the preceding sentence, any amount properly taken
into account after completion of the contract shall be taken into
account by discounting (using the Federal mid-term rate
determined under section 1274(d) as of the time such amount was
properly taken into account) such amount to its value as of the
completion of the contract. The taxpayer may elect with respect
to any contract to have the preceding sentence not apply to such
contract.
(3) Special rules
(A) Simplified method of cost allocation
In the case of any long-term contract, the Secretary may
prescribe a simplified procedure for allocation of costs to
such contract in lieu of the method of allocation under
subsection (c).
(B) Look-back method not to apply to certain contracts
Paragraph (1)(B) shall not apply to any contract -
(i) the gross price of which (as of the completion of the
contract) does not exceed the lesser of -
(I) $1,000,000, or
(II) 1 percent of the average annual gross receipts of
the taxpayer for the 3 taxable years preceding the taxable
year in which the contract was completed, and
(ii) which is completed within 2 years of the contract
commencement date.
For purposes of this subparagraph, rules similar to the rules
of subsections (e)(2) and (f)(3) shall apply.
(4) Simplified look-back method for pass-thru entities
(A) In general
In the case of a pass-thru entity -
(i) the look-back method of paragraph (2) shall be applied
at the entity level,
(ii) in determining overpayments and underpayments for
purposes of applying paragraph (2)(B) -
(I) any increase in the income under the contract for any
taxable year by reason of the allocation under paragraph
(2)(A) shall be treated as giving rise to an underpayment
determined by applying the highest rate for such year to
such increase, and
(II) any decrease in such income for any taxable year by
reason of such allocation shall be treated as giving rise
to an overpayment determined by applying the highest rate
for such year to such decrease, and
(iii) any interest required to be paid by the taxpayer
under paragraph (2) shall be paid by such entity (and any
interest entitled to be received by the taxpayer under
paragraph (2) shall be paid to such entity).
(B) Exceptions
(i) Closely held pass-thru entities
This paragraph shall not apply to any closely held pass-
thru entity.
(ii) Foreign contracts
This paragraph shall not apply to any contract unless
substantially all of the income from such contract is from
sources in the United States.
(C) Other definitions
For purposes of this paragraph -
(i) Highest rate
The term "highest rate" means -
(I) the highest rate of tax specified in section 11, or
(II) if at all times during the year involved more than
50 percent of the interests in the entity are held by
individuals directly or through 1 or more other pass-thru
entities, the highest rate of tax specified in section 1.
(ii) Pass-thru entity
The term "pass-thru entity" means any -
(I) partnership,
(II) S corporation, or
(III) trust.
(iii) Closely held pass-thru entity
The term "closely held pass-thru entity" means any pass-
thru entity if, at any time during any taxable year for
which there is income under the contract, 50 percent or more
(by value) of the beneficial interests in such entity are
held (directly or indirectly) by or for 5 or fewer persons.
For purposes of the preceding sentence, rules similar to the
constructive ownership rules of section 1563(e) shall apply.
(5) Election to use 10-percent method
(A) General rule
In the case of any long-term contract with respect to which
an election under this paragraph is in effect, the 10-percent
method shall apply in determining the taxable income from such
contract.
(B) 10-percent method
For purposes of this paragraph -
(i) In general
The 10-percent method is the percentage of completion
method, modified so that any item which would otherwise be
taken into account in computing taxable income with respect
to a contract for any taxable year before the 10-percent year
is taken into account in the 10-percent year.
(ii) 10-percent year
The term "10-percent year" means the 1st taxable year as of
the close of which at least 10 percent of the estimated total
contract costs have been incurred.
(C) Election
An election under this paragraph shall apply to all long-term
contracts of the taxpayer which are entered into during the
taxable year in which the election is made or any subsequent
taxable year.
(D) Coordination with other provisions
(i) Simplified method of cost allocation
This paragraph shall not apply to any taxpayer which uses a
simplified procedure for allocation of costs under paragraph
(3)(A).
(ii) Look-back method
The 10-percent method shall be taken into account for
purposes of applying the look-back method of paragraph (2) to
any taxpayer making an election under this paragraph.
(6) Election to have look-back method not apply in de minimis
cases
(A) Amounts taken into account after completion of contract
Paragraph (1)(B) shall not apply with respect to any taxable
year (beginning after the taxable year in which the contract is
completed) if -
(i) the cumulative taxable income (or loss) under the
contract as of the close of such taxable year, is within
(ii) 10 percent of the cumulative look-back taxable income
(or loss) under the contract as of the close of the most
recent taxable year to which paragraph (1)(B) applied (or
would have applied but for subparagraph (B)).
(B) De minimis discrepancies
Paragraph (1)(B) shall not apply in any case to which it
would otherwise apply if -
(i) the cumulative taxable income (or loss) under the
contract as of the close of each prior contract year, is
within
(ii) 10 percent of the cumulative look-back income (or
loss) under the contract as of the close of such prior
contract year.
(C) Definitions
For purposes of this paragraph -
(i) Contract year
The term "contract year" means any taxable year for which
income is taken into account under the contract.
(ii) Look-back income or loss
The look-back income (or loss) is the amount which would be
the taxable income (or loss) under the contract if the
allocation method set forth in paragraph (2)(A) were used in
determining taxable income.
(iii) Discounting not applicable
The amounts taken into account after the completion of the
contract shall be determined without regard to any
discounting under the 2nd sentence of paragraph (2).
(D) Contracts to which paragraph applies
This paragraph shall only apply if the taxpayer makes an
election under this subparagraph. Unless revoked with the
consent of the Secretary, such an election shall apply to all
long-term contracts completed during the taxable year for which
election is made or during any subsequent taxable year.
(7) Adjusted overpayment rate
(A) In general
The adjusted overpayment rate for any interest accrual period
is the overpayment rate in effect under section 6621 for the
calendar quarter in which such interest accrual period begins.
(B) Interest accrual period
For purposes of subparagraph (A), the term "interest accrual
period" means the period -
(i) beginning on the day after the return due date for any
taxable year of the taxpayer, and
(ii) ending on the return due date for the following
taxable year.
For purposes of the preceding sentence, the term "return due
date" means the date prescribed for filing the return of the
tax imposed by this chapter (determined without regard to
extensions).
(c) Allocation of costs to contract
(1) Direct and certain indirect costs
In the case of a long-term contract, all costs (including
research and experimental costs) which directly benefit, or are
incurred by reason of, the long-term contract activities of the
taxpayer shall be allocated to such contract in the same manner
as costs are allocated to extended period long-term contracts
under section 451 and the regulations thereunder.
(2) Costs identified under cost-plus and certain Federal
contracts
In the case of a cost-plus long-term contract or a Federal long-
term contract, any cost not allocated to such contract under
paragraph (1) shall be allocated to such contract if such cost is
identified by the taxpayer (or a related person), pursuant to the
contract or Federal, State, or local law or regulation, as being
attributable to such contract.
(3) Allocation of production period interest to contract
(A) In general
Except as provided in subparagraphs (B) and (C), in the case
of a long-term contract, interest costs shall be allocated to
the contract in the same manner as interest costs are allocated
to property produced by the taxpayer under section 263A(f).
(B) Production period
In applying section 263A(f) for purposes of subparagraph (A),
the production period shall be the period -
(i) beginning on the later of -
(I) the contract commencement date, or
(II) in the case of a taxpayer who uses an accrual method
with respect to long-term contracts, the date by which at
least 5 percent of the total estimated costs (including
design and planning costs) under the contract have been
incurred, and
(ii) ending on the contract completion date.
(C) Application of de minimis rule
In applying section 263A(f) for purposes of subparagraph (A),
paragraph (1)(B)(iii) of such section shall be applied on a
contract-by-contract basis; except that, in the case of a
taxpayer described in subparagraph (B)(i)(II) of this
paragraph, paragraph (1)(B)(iii) of section 263A(f) shall be
applied on a property-by-property basis.
(4) Certain costs not included
This subsection shall not apply to any -
(A) independent research and development expenses,
(B) expenses for unsuccessful bids and proposals, and
(C) marketing, selling, and advertising expenses.
(5) Independent research and development expenses
For purposes of paragraph (4), the term "independent research
and development expenses" means any expenses incurred in the
performance of research or development, except that such term
shall not include -
(A) any expenses which are directly attributable to a long-
term contract in existence when such expenses are incurred, or
(B) any expenses under an agreement to perform research or
development.
(d) Federal long-term contract
For purposes of this section -
(1) In general
The term "Federal long-term contract" means any long-term
contract -
(A) to which the United States (or any agency or
instrumentality thereof) is a party, or
(B) which is a subcontract under a contract described in
subparagraph (A).
(2) Special rules for certain taxable entities
For purposes of paragraph (1), the rules of section
168(h)(2)(D) (relating to certain taxable entities not treated as
instrumentalities) shall apply.
(e) Exception for certain construction contracts
(1) In general
Subsections (a), (b), and (c)(1) and (2) shall not apply to -
(A) any home construction contract, or
(B) any other construction contract entered into by a
taxpayer -
(i) who estimates (at the time such contract is entered
into) that such contract will be completed within the 2-year
period beginning on the contract commencement date of such
contract, and
(ii) whose average annual gross receipts for the 3 taxable
years preceding the taxable year in which such contract is
entered into do not exceed $10,000,000.
In the case of a home construction contract with respect to which
the requirements of clauses (i) and (ii) of subparagraph (B) are
not met, section 263A shall apply notwithstanding subsection
(c)(4) thereof.
(2) Determination of taxpayer's gross receipts
For purposes of paragraph (1), the gross receipts of -
(A) all trades or businesses (whether or not incorporated)
which are under common control with the taxpayer (within the
meaning of section 52(b)),
(B) all members of any controlled group of corporations of
which the taxpayer is a member, and
(C) any predecessor of the taxpayer or a person described in
subparagraph (A) or (B),
for the 3 taxable years of such persons preceding the taxable
year in which the contract described in paragraph (1) is entered
into shall be included in the gross receipts of the taxpayer for
the period described in paragraph (1)(B). The Secretary shall
prescribe regulations which provide attribution rules that take
into account, in addition to the persons and entities described
in the preceding sentence, taxpayers who engage in construction
contracts through partnerships, joint ventures, and corporations.
(3) Controlled group of corporations
For purposes of this subsection, the term "controlled group of
corporations" has the meaning given to such term by section
1563(a), except that -
(A) "more than 50 percent" shall be substituted for "at least
80 percent" each place it appears in section 1563(a)(1), and
(B) the determination shall be made without regard to
subsections (a)(4) and (e)(3)(C) of section 1563.
(4) Construction contract
For purposes of this subsection, the term "construction
contract" means any contract for the building, construction,
reconstruction, or rehabilitation of, or the installation of any
integral component to, or improvements of, real property.
(5) Special rule for residential construction contracts which are
not home construction contracts
In the case of any residential construction contract which is
not a home construction contract, subsection (a) (as in effect on
the day before the date of the enactment of the Revenue
Reconciliation Act of 1989) shall apply except that such
subsection shall be applied -
(A) by substituting "70 percent" for "90 percent" each place
it appears, and
(B) by substituting "30 percent" for "10 percent".
(6) Definitions relating to residential construction contracts
For purposes of this subsection -
(A) Home construction contract
The term "home construction contract" means any construction
contract if 80 percent or more of the estimated total contract
costs (as of the close of the taxable year in which the
contract was entered into) are reasonably expected to be
attributable to activities referred to in paragraph (4) with
respect to -
(i) dwelling units (as defined in section 168(e)(2)(A)(ii))
contained in buildings containing 4 or fewer dwelling units
(as so defined), and
(ii) improvements to real property directly related to such
dwelling units and located on the site of such dwelling
units.
For purposes of clause (i), each townhouse or rowhouse shall be
treated as a separate building.
(B) Residential construction contract
The term "residential construction contract" means any
contract which would be described in subparagraph (A) if clause
(i) of such subparagraph reads as follows:
"(i) dwelling units (as defined in section
168(e)(2)(A)(ii)), and".
(f) Long-term contract
For purposes of this section -
(1) In general
The term "long-term contract" means any contract for the
manufacture, building, installation, or construction of property
if such contract is not completed within the taxable year in
which such contract is entered into.
(2) Special rule for manufacturing contracts
A contract for the manufacture of property shall not be treated
as a long-term contract unless such contract involves the
manufacture of -
(A) any unique item of a type which is not normally included
in the finished goods inventory of the taxpayer, or
(B) any item which normally requires more than 12 calendar
months to complete (without regard to the period of the
contract).
(3) Aggregation, etc.
For purposes of this subsection, under regulations prescribed
by the Secretary -
(A) 2 or more contracts which are interdependent (by reason
of pricing or otherwise) may be treated as 1 contract, and
(B) a contract which is properly treated as an aggregation of
separate contracts may be so treated.
(g) Contract commencement date
For purposes of this section, the term "contract commencement
date" means, with respect to any contract, the first date on which
any costs (other than bidding expenses or expenses incurred in
connection with negotiating the contract) allocable to such
contract are incurred.
(h) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations to prevent the use of related parties, pass-
thru entities, intermediaries, options, or other similar
arrangements to avoid the application of this section.
-SOURCE-
(Added Pub. L. 99-514, title VIII, Sec. 804(a), Oct. 22, 1986, 100
Stat. 2358; amended Pub. L. 100-203, title X, Sec. 10203(a), Dec.
22, 1987, 101 Stat. 1330-394; Pub. L. 100-647, title I, Sec.
1008(c)(1), (2), (4), title V, Sec. 5041(a)-(b)(3), (c), (d), Nov.
10, 1988, 102 Stat. 3438, 3439, 3673, 3674; Pub. L. 101-239, title
VII, Secs. 7621(a)-(c), 7811(e), 7815(e)(1), Dec. 19, 1989, 103
Stat. 2375, 2376, 2408, 2419; Pub. L. 101-508, title XI, Sec.
11812(b)(8), Nov. 5, 1990, 104 Stat. 1388-535; (As amended Pub. L.
104-188, title I, Secs. 1702(h)(15), 1704(t)(28), Aug. 20, 1996,
110 Stat. 1874, 1888; Pub. L. 105-34, title XII, Sec. 1211(a), (b),
Aug. 5, 1997, 111 Stat. 998, 999.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1989, referred to in subsec. (e)(5), is the date of enactment of
title VII of Pub. L. 101-239, which was approved Dec. 19, 1989.
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(2)(C). Pub. L. 105-34, Sec. 1211(b)(1),
substituted "the adjusted overpayment rate (as defined in paragraph
(7))" for "the overpayment rate established by section 6621".
Subsec. (b)(6). Pub. L. 105-34, Sec. 1211(a), added par. (6).
Subsec. (b)(7). Pub. L. 105-34, Sec. 1211(b)(2), added par. (7).
1996 - Subsec. (b)(1). Pub. L. 104-188, Sec. 1704(t)(28), which
directed that par. (1) be amended by substituting "the look-back
method of paragraph (2)" for "the look-back method of paragraph
(3)", could not be executed, because that phrase does not appear in
text. See 1989 Amendment note below.
Subsec. (e)(6)(B). Pub. L. 104-188, Sec. 1702(h)(15), substituted
"section 168(e)(2)(A)(ii)" for "section 167(k)".
1990 - Subsec. (e)(6)(A)(i). Pub. L. 101-508 substituted "section
168(e)(2)(A)(ii)" for "section 167(k)".
1989 - Subsec. (a). Pub. L. 101-239, Sec. 7621(a), substituted
"Requirement that percentage of completion method be used" for
"Percentage of completion-capitalized cost method" in heading and
amended text generally. Prior to amendment, text read as follows:
"(1) In general. - In the case of any long-term contract -
"(A) 90 percent of the items with respect to such contract
shall be taken into account under the percentage of completion
method (as modified by subsection (b)), and
"(B) 10 percent of the items with respect to such contract
shall be taken into account under the taxpayer's normal method of
accounting.
"(2) 90 percent look-back method to apply. - Upon completion of
any long-term contract (or, with respect to any amount properly
taken into account after completion of the contract, when such
amount is so properly taken into account), the taxpayer shall pay
(or shall be entitled to receive) interest determined by applying
the look-back method of subsection (b)(3) to 90 percent of the
items with respect to the contract."
Subsec. (a)(2). Pub. L. 101-239, Sec. 7811(e)(1), inserted "(or,
with respect to any amount properly taken into account after
completion of the contract, when such amount is so properly taken
into account)" after "any long-term contract".
Subsec. (b)(1). Pub. L. 101-239, Sec. 7621(c)(2)(A), substituted
"paragraph (3)" for "paragraph (4)".
Pub. L. 101-239, Sec. 7621(c)(2)(B), which directed the amendment
of par. (1) by substituting "paragraph (2)" for "paragraph (3)",
was executed by making the substitution in subpar. (B) and
concluding provisions to reflect the probable intent of Congress.
Pub. L. 101-239, Sec. 7621(c)(1), redesignated par. (2) as (1)
and struck out former par. (1) which read as follows: "Subsection
(a) not to apply where percentage of completion method used. -
Subsection (a) shall not apply to any long-term contract with
respect to which amounts includible in gross income are determined
under the percentage of completion method."
Subsec. (b)(2). Pub. L. 101-239, Sec. 7621(c)(1), redesignated
par. (3) as (2). Former par. (2) redesignated (1).
Pub. L. 101-239, Sec. 7811(e)(4), (6), inserted two sentences at
end.
Subsec. (b)(2)(B). Pub. L. 101-239, Sec. 7811(e)(2), substituted
"any amount properly taken into account" for "any amount received
or accrued" and "is so properly taken into account" for "is so
received or accrued".
Subsec. (b)(3). Pub. L. 101-239, Sec. 7621(c)(1), redesignated
par. (4) as (3). Former par. (3) redesignated (2).
Pub. L. 101-239, Sec. 7811(e)(3), in concluding provisions,
substituted "any amount properly taken into account" for "any
amount received or accrued" and "such amount was properly taken
into account" for "such amount was received or accrued".
Subsec. (b)(3)(B). Pub. L. 101-239, Sec. 7621(c)(3), substituted
"Paragraph (1)(B)" for "Paragraph (2)(B) and subsection (a)(2)" in
introductory provisions.
Subsec. (b)(4). Pub. L. 101-239, Sec. 7621(c)(1), redesignated
par. (5) as (4). Former par. (4) redesignated (3).
Subsec. (b)(4)(A)(i). Pub. L. 101-239, Sec. 7621(c)(4)(A),
substituted "paragraph (2)" for "paragraph (3)".
Subsec. (b)(4)(A)(ii). Pub. L. 101-239, Sec. 7621(c)(4)(B),
substituted "paragraph (2)(B)" for "paragraph (3)(B)" in
introductory provisions.
Subsec. (b)(4)(A)(ii)(I). Pub. L. 101-239, Sec. 7621(c)(4)(C),
substituted "paragraph (2)(A)" for "paragraph (3)(A)".
Subsec. (b)(4)(A)(iii). Pub. L. 101-239, Sec. 7621(c)(4)(A),
substituted "paragraph (2)" for "paragraph (3)" in two places.
Subsec. (b)(5). Pub. L. 101-239, Sec. 7621(b), added par. (5).
Pub. L. 101-239, Sec. 7621(c)(1), redesignated former par. (5) as
(4).
Subsec. (e)(2)(C). Pub. L. 101-239, Sec. 7811(e)(5), added
subpar. (C).
Subsec. (e)(5). Pub. L. 101-239, Sec. 7621(c)(5), inserted
introductory provisions and struck out former introductory
provisions which read as follows: "In the case of any residential
construction contract which is not a home construction contract,
subsection (a) shall be applied - ".
Subsec. (e)(6)(A). Pub. L. 101-239, Sec. 7815(e)(1)(A),
substituted "activities referred to in paragraph (4) with respect
to" for "the building, construction, reconstruction, or
rehabilitation of".
Subsec. (e)(6)(A)(i). Pub. L. 101-239, Sec. 7815(e)(1)(B), added
cl. (i) and struck out former cl. (i) which read as follows:
"dwelling units contained in buildings containing 4 or fewer
dwelling units, and".
1988 - Subsec. (a)(1)(A). Pub. L. 100-647, Sec. 5041(a)(1),
substituted "90" for "70".
Subsec. (a)(1)(B). Pub. L. 100-647, Sec. 5041(a)(2), substituted
"10" for "30".
Subsec. (a)(2). Pub. L. 100-647, Sec. 5041(a)(1), substituted
"90" for "70" in heading and in text.
Subsec. (b)(2). Pub. L. 100-647, Sec. 1008(c)(2)(B), substituted
"Except as provided in paragraph (4), in" for "In".
Subsec. (b)(2)(B). Pub. L. 100-647, Sec. 1008(c)(4)(B), inserted
"(or, with respect to any amount received or accrued after
completion of the contract, when such amount is so received or
accrued)" after "contract".
Subsec. (b)(3). Pub. L. 100-647, Sec. 1008(c)(4)(A), inserted at
end "For purposes of the preceding sentence, any amount received or
accrued after completion of the contract shall be taken into
account by discounting (using the Federal mid-term rate determined
under section 1274(d) as of the time such amount was received or
accrued) such amount to its value as of the completion of the
contract. The taxpayer may elect with respect to any contract to
have the preceding sentence not apply to such contract."
Pub. L. 100-647, Sec. 1008(c)(1)(A), substituted "paragraph" for
"subparagraph".
Subsec. (b)(3)(B). Pub. L. 100-647, Sec. 1008(c)(1)(B),
substituted "subparagraph (A)" for "paragraph (1)" in two places.
Subsec. (b)(3)(C). Pub. L. 100-647, Sec. 1008(c)(1)(C),
substituted "subparagraph (B)" for "paragraph (1)".
Subsec. (b)(4). Pub. L. 100-647, Sec. 1008(c)(2)(A), added par.
(4).
Subsec. (b)(5). Pub. L. 100-647, Sec. 5041(d), added par. (5).
Subsec. (e)(1). Pub. L. 100-647, Sec. 5041(b)(1), amended par.
(1) generally. Prior to amendment, par. (1) read as follows:
"Subsections (a), (b), and (c)(1) and (2) shall not apply to any
construction contract entered into by a taxpayer -
"(A) who estimates (at the time such contract is entered into)
that such contract will be completed within the 2-year period
beginning on the contract commencement date of such contract, and
"(B) whose average annual gross receipts for the 3 taxable
years preceding the taxable year in which such contract is
entered into do not exceed $10,000,000."
Subsec. (e)(5). Pub. L. 100-647, Sec. 5041(b)(2), added par. (5).
Subsec. (e)(6). Pub. L. 100-647, Sec. 5041(b)(3), added par. (6).
Subsec. (h). Pub. L. 100-647, Sec. 5041(c), added subsec. (h).
1987 - Subsec. (a). Pub. L. 100-203 substituted "70 percent" for
"40 percent" in par. (1)(A) and in heading and text of par. (2),
and "30 percent" for "60 percent" in par. (1)(B).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1211(c) of Pub. L. 105-34 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to contracts completed in taxable years ending after the date of
the enactment of this Act [Aug. 5, 1997].
"(2) Subsection (b). - The amendments made by subsection (b)
[amending this section] shall apply for purposes of section 167(g)
of the Internal Revenue Code of 1986 to property placed in service
after September 13, 1995."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1702(h)(15) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L. 101-
508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Nov. 5, 1990, but not applicable to any property to
which section 168 of this title does not apply by reason of subsec.
(f)(5) of section 168, and not applicable to rehabilitation
expenditures described in section 252(f)(5) of Pub. L. 99-514, see
section 11812(c) of Pub. L. 101-508, set out as a note under
section 42 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7621(d) of Pub. L. 101-239 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to contracts entered into on or after July 11, 1989.
"(2) Binding bids. - The amendments made by this section shall
not apply to any contract resulting from the acceptance of a bid
made before July 11, 1989. The preceding sentence shall apply only
if the bid could not have been revoked or altered at any time on or
after July 11, 1989.
"(3) Special rule for certain ship contracts. - The amendments
made by this section shall not apply in the case of a qualified
ship contract (as defined in section 10203(b)(2)(B) of the Revenue
Act of 1987 [Pub. L. 100-203, set out below])."
Amendment by sections 7811(e) and 7815(e)(1) of Pub. L. 101-239
effective, except as otherwise provided, as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section 7817
of Pub. L. 101-239, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1008(c)(1), (2), (4) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 5041(e) of Pub. L. 100-647, as amended by Pub. L. 101-
239, title VII, Sec. 7815(e)(3), Dec. 19, 1989, 103 Stat. 2419,
provided that:
"(1) Subsections (a), (b), and (c). -
"(A) In general. - Except as otherwise provided in this
paragraph, the amendments made by subsections (a), (b), and (c)
[amending this section and section 56 of this title] shall apply
to contracts entered into on or after June 21, 1988.
"(B) Binding bids. - The amendments made by subsections (a),
(b), and (c) shall not apply to any contract resulting from the
acceptance of a bid made before June 21, 1988. The preceding
sentence shall apply only if the bid could not have been revoked
or altered at any time on or after June 21, 1988.
"(C) Special rule for certain ship contracts. - The amendments
made by subsections (a) and (b) [amending this section and
section 56 of this title] shall not apply in the case of a
qualified ship contract (as defined in section 10203(b)(2)(B) of
the Revenue Act of 1987 [Pub. L. 100-203, set out below]).
"(2) Subsection (d). - The amendment made by subsection (d)
[amending this section] shall apply as if included in the
amendments made by section 804 of the Reform Act [Pub. L. 99-514];
except that such amendment shall not apply to any contract
completed in a taxable year ending before the date of the enactment
of this Act [Nov. 10, 1988], if the due date (determined with
regard to extensions) for the return for such year is before such
date of enactment."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10203(b) of Pub. L. 100-203 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to contracts entered into after October 13, 1987.
"(2) Special rule for certain ship contracts. -
"(A) In general. - The amendments made by this section shall
not apply in the case of a qualified ship contract.
"(B) Qualified ship contract. - For purposes of subparagraph
(A), the term 'qualified ship contract' means any contract for
the construction in the United States of not more than 5 ships if
-
"(i) such ships will not be constructed (directly or
indirectly) for the Federal Government, and
"(ii) the taxpayer reasonably expects to complete such
contract within 5 years of the contract commencement date (as
defined in section 460(g) of the Internal Revenue Code of
1986)."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 804(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(c)(3), Nov. 10, 1988, 102 Stat. 3439, provided
that:
"(1) In general. - The amendments made by this section [enacting
this section] shall apply to any contract entered into after
February 28, 1986.
"(2) Clarification of treatment of independent research and
development expenses. -
"(A) In general. - For periods before, on, or after the date of
enactment of this Act [Oct. 22, 1986] -
"(i) any independent research and development expenses taken
into account in determining the total contract price shall not
be severable from the contract, and
"(ii) any independent research and development expenses shall
not be treated as amounts chargeable to capital account.
"(B) Independent research and development expenses. - For
purposes of subparagraph (A), the term 'independent research and
development expenses' has the meaning given to such term by
section 460(c)(5) of the Internal Revenue Code of 1986, as added
by this section."
REGULATIONS
Section 804(b) of Pub. L. 99-514 provided that: "The Secretary of
the Treasury or his delegate shall modify the income tax
regulations relating to accounting for long-term contracts to carry
out the provisions of section 460 of the Internal Revenue Code of
1986 (as added by subsection (a))."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
METHOD OF ACCOUNTING FOR NAVAL SHIPBUILDERS
Pub. L. 108-357, title VII, Sec. 708, Oct. 22, 2004, 118 Stat.
1550, as amended by Pub. L. 109-135, title IV, Sec. 403(s), Dec.
21, 2005, 119 Stat. 2628, provided that:
"(a) In General. - In the case of a qualified naval ship
contract, the taxable income of such contract during the 5-taxable
year period beginning with the taxable year in which the
construction commencement date occurs shall be determined under a
method identical to the method used in the case of a qualified ship
contract (as defined in section 10203(b)(2)(B) of the Revenue Act
of 1987 [Pub. L. 100-203, set out as an Effective Date of 1987
Amendment note above]).
"(b) Recapture of Tax Benefit. - In the case of a qualified naval
ship contract to which subsection (a) applies, the taxpayer's tax
imposed by chapter 1 of the Internal Revenue Code of 1986 for the
first taxable year following the 5-taxable year period described in
subsection (a) shall be increased by the excess (if any) of -
"(1) the amount of tax which would have been imposed during
such period if this section had not been enacted, over
"(2) the amount of tax so imposed during such period.
"(c) Qualified Naval Ship Contract. - For purposes of this
section:
"(1) In general. - The term 'qualified naval ship contract'
means any contract or portion thereof that is for the
construction in the United States of 1 ship or submarine for the
Federal Government if the taxpayer reasonably expects the
acceptance date will occur no later than 9 years after the
construction commencement date.
"(2) Acceptance date. - The term 'acceptance date' means the
date 1 year after the date on which the Federal Government issues
a letter of acceptance or other similar document for the ship or
submarine.
"(3) Construction commencement date. - The term 'construction
commencement date' means the date on which the physical
fabrication of any section or component of the ship or submarine
begins in the taxpayer's shipyard.
"(d) Certain Adjustments Not to Apply. - Section 481 of the
Internal Revenue Code of 1986 shall not apply with respect to any
change in the method of accounting which is required by this
section.
"(e) Effective Date. - This section shall apply to contracts for
ships or submarines with respect to which the construction
commencement date occurs after the date of the enactment of this
Act [Oct. 22, 2004]."
AMORTIZATION OF PAST SERVICE PENSION COSTS
Allocable costs (within the meaning of subsec. (c) of this
section) with respect to any property to include contributions paid
to or under a pension or annuity plan whether or not such
contributions represent past service costs, see section 10204 of
Pub. L. 100-203, set out as a note under section 263A of this
title.
-FOOTNOTE-
(!1) So in original. Probably should be followed by a comma.
-End-
-CITE-
26 USC Subpart C - Taxable Year for Which Deductions
Taken 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
SUBPART C - TAXABLE YEAR FOR WHICH DEDUCTIONS TAKEN
-MISC1-
Sec.
461. General rule for taxable year of deduction.
[462, 463. Repealed.]
464. Limitations on deductions for certain farming
expenses.(!1)
465. Deductions limited to amount at risk.
[466. Repealed.]
467. Certain payments for the use of property or services.
468. Special rules for mining and solid waste reclamation
and closing costs.
468A. Special rules for nuclear decommissioning costs.
468B. Special rules for designated settlement funds.
469. Passive activity losses and credits limited.
470. Limitation on deductions allocable to property used by
governments or other tax-exempt entities.
AMENDMENTS
2004 - Pub. L. 108-357, title VIII, Sec. 848(b), Oct. 22, 2004,
118 Stat. 1606, added item 470.
1987 - Pub. L. 100-203, title X, Sec. 10201(b)(7), Dec. 22, 1987,
101 Stat. 1330-387, struck out item 463 "Accrual of vacation pay".
1986 - Pub. L. 99-514, title IV, Sec. 404(b)(2), title V, Sec.
501(b), title VIII, Sec. 823(b)(2), title XVIII, Secs.
1807(a)(7)(B), 1899A(71), Oct. 22, 1986, 100 Stat. 2224, 2241,
2374, 2815, 2963, substituted "for certain farming expenses" for
"in case of farming syndicates" in item 464, struck out item 466
"Qualified discount coupons redeemed after close of taxable year",
inserted "the" before "use" in item 467, and added items 468B and
469.
1984 - Pub. L. 98-369, div. A, title I, Secs. 91(b)(2), (c)(2),
92(b), July 18, 1984, 98 Stat. 604, 606, 612, added items 467, 468,
and 468A.
1978 - Pub. L. 95-600, title II, Sec. 201(c)(2), title III, Sec.
373(b), Nov. 6, 1978, 92 Stat. 2816, 2865, struck out "in case of
certain activities" after "amount at risk" in item 465 and added
item 466.
1976 - Pub. L. 94-455, title II, Secs. 204(b), 207(a)(2), Oct. 4,
1976, 90 Stat. 1532, 1537, added items 464 and 465.
1975 - Pub. L. 93-625, Sec. 4(b), Jan. 3, 1975, 88 Stat. 2111,
added item 463.
1955 - Act June 15, 1955, ch. 143, Sec. 2(3), 69 Stat. 135,
struck out item 462 "Reserves for estimated expenses, etc."
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 461 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 461. General rule for taxable year of deduction
-STATUTE-
(a) General rule
The amount of any deduction or credit allowed by this subtitle
shall be taken for the taxable year which is the proper taxable
year under the method of accounting used in computing taxable
income.
(b) Special rule in case of death
In the case of the death of a taxpayer whose taxable income is
computed under an accrual method of accounting, any amount accrued
as a deduction or credit only by reason of the death of the
taxpayer shall not be allowed in computing taxable income for the
period in which falls the date of the taxpayer's death.
(c) Accrual of real property taxes
(1) In general
If the taxable income is computed under an accrual method of
accounting, then, at the election of the taxpayer, any real
property tax which is related to a definite period of time shall
be accrued ratably over that period.
(2) When election may be made
(A) Without consent
A taxpayer may, without the consent of the Secretary, make an
election under this subsection for his first taxable year in
which he incurs real property taxes. Such an election shall be
made not later than the time prescribed by law for filing the
return for such year (including extensions thereof).
(B) With consent
A taxpayer may, with the consent of the Secretary, make an
election under this subsection at any time.
(d) Limitation on acceleration of accrual of taxes
(1) General rule
In the case of a taxpayer whose taxable income is computed
under an accrual method of accounting, to the extent that the
time for accruing taxes is earlier than it would be but for any
action of any taxing jurisdiction taken after December 31, 1960,
then, under regulations prescribed by the Secretary, such taxes
shall be treated as accruing at the time they would have accrued
but for such action by such taxing jurisdiction.
(2) Limitation
Under regulations prescribed by the Secretary, paragraph (1)
shall be inapplicable to any item of tax to the extent that its
application would (but for this paragraph) prevent all persons
(including successors in interest) from ever taking such item
into account.
(e) Dividends or interest paid on certain deposits or withdrawable
accounts
Except as provided in regulations prescribed by the Secretary,
amounts paid to, or credited to the accounts of, depositors or
holders of accounts as dividends or interest on their deposits or
withdrawable accounts (if such amounts paid or credited are
withdrawable on demand subject only to customary notice to
withdraw) by a mutual savings bank not having capital stock
represented by shares, a domestic building and loan association, or
a cooperative bank shall not be allowed as a deduction for the
taxable year to the extent such amounts are paid or credited for
periods representing more than 12 months. Any such amount not
allowed as a deduction as the result of the application of the
preceding sentence shall be allowed as a deduction for such other
taxable year as the Secretary determines to be consistent with the
preceding sentence.
(f) Contested liabilities
If -
(1) the taxpayer contests an asserted liability,
(2) the taxpayer transfers money or other property to provide
for the satisfaction of the asserted liability,
(3) the contest with respect to the asserted liability exists
after the time of the transfer, and
(4) but for the fact that the asserted liability is contested,
a deduction would be allowed for the taxable year of the transfer
(or for an earlier taxable year) determined after application of
subsection (h),
then the deduction shall be allowed for the taxable year of the
transfer. This subsection shall not apply in respect of the
deduction for income, war profits, and excess profits taxes imposed
by the authority of any foreign country or possession of the United
States.
(g) Prepaid interest
(1) In general
If the taxable income of the taxpayer is computed under the
cash receipts and disbursements method of accounting, interest
paid by the taxpayer which, under regulations prescribed by the
Secretary, is properly allocable to any period -
(A) with respect to which the interest represents a charge
for the use or forbearance of money, and
(B) which is after the close of the taxable year in which
paid,
shall be charged to capital account and shall be treated as paid
in the period to which so allocable.
(2) Exception
This subsection shall not apply to points paid in respect of
any indebtedness incurred in connection with the purchase or
improvement of, and secured by, the principal residence of the
taxpayer to the extent that, under regulations prescribed by the
Secretary, such payment of points is an established business
practice in the area in which such indebtedness is incurred, and
the amount of such payment does not exceed the amount generally
charged in such area.
(h) Certain liabilities not incurred before economic performance
(1) In general
For purposes of this title, in determining whether an amount
has been incurred with respect to any item during any taxable
year, the all events test shall not be treated as met any earlier
than when economic performance with respect to such item occurs.
(2) Time when economic performance occurs
Except as provided in regulations prescribed by the Secretary,
the time when economic performance occurs shall be determined
under the following principles:
(A) Services and property provided to the taxpayer
If the liability of the taxpayer arises out of -
(i) the providing of services to the taxpayer by another
person, economic performance occurs as such person provides
such services,
(ii) the providing of property to the taxpayer by another
person, economic performance occurs as the person provides
such property, or
(iii) the use of property by the taxpayer, economic
performance occurs as the taxpayer uses such property.
(B) Services and property provided by the taxpayer
If the liability of the taxpayer requires the taxpayer to
provide property or services, economic performance occurs as
the taxpayer provides such property or services.
(C) Workers compensation and tort liabilities of the taxpayer
If the liability of the taxpayer requires a payment to
another person and -
(i) arises under any workers compensation act, or
(ii) arises out of any tort,
economic performance occurs as the payments to such person are
made. Subparagraphs (A) and (B) shall not apply to any
liability described in the preceding sentence.
(D) Other items
In the case of any other liability of the taxpayer, economic
performance occurs at the time determined under regulations
prescribed by the Secretary.
(3) Exception for certain recurring items
(A) In general
Notwithstanding paragraph (1) an item shall be treated as
incurred during any taxable year if -
(i) the all events test with respect to such item is met
during such taxable year (determined without regard to
paragraph (1)),
(ii) economic performance with respect to such item occurs
within the shorter of -
(I) a reasonable period after the close of such taxable
year, or
(II) 8 1/2 months after the close of such taxable year,
(iii) such item is recurring in nature and the taxpayer
consistently treats items of such kind as incurred in the
taxable year in which the requirements of clause (i) are met,
and
(iv) either -
(I) such item is not a material item, or
(II) the accrual of such item in the taxable year in
which the requirements of clause (i) are met results in a
more proper match against income than accruing such item in
the taxable year in which economic performance occurs.
(B) Financial statements considered under subparagraph (A)(iv)
In making a determination under subparagraph (A)(iv), the
treatment of such item on financial statements shall be taken
into account.
(C) Paragraph not to apply to workers compensation and tort
liabilities
This paragraph shall not apply to any item described in
subparagraph (C) of paragraph (2).
(4) All events test
For purposes of this subsection, the all events test is met
with respect to any item if all events have occurred which
determine the fact of liability and the amount of such liability
can be determined with reasonable accuracy.
(5) Subsection not to apply to certain items
This subsection shall not apply to any item for which a
deduction is allowable under a provision of this title which
specifically provides for a deduction for a reserve for estimated
expenses.
(i) Special rules for tax shelters
(1) Recurring item exception not to apply
In the case of a tax shelter, economic performance shall be
determined without regard to paragraph (3) of subsection (h).
(2) Special rule for spudding of oil or gas wells
(A) In general
In the case of a tax shelter, economic performance with
respect to amounts paid during the taxable year for drilling an
oil or gas well shall be treated as having occurred within a
taxable year if drilling of the well commences before the close
of the 90th day after the close of the taxable year.
(B) Deduction limited to cash basis
(i) Tax shelter partnerships
In the case of a tax shelter which is a partnership, in
applying section 704(d) to a deduction or loss for any
taxable year attributable to an item which is deductible by
reason of subparagraph (A), the term "cash basis" shall be
substituted for the term "adjusted basis".
(ii) Other tax shelters
Under regulations prescribed by the Secretary, in the case
of a tax shelter other than a partnership, the aggregate
amount of the deductions allowable by reason of subparagraph
(A) for any taxable year shall be limited in a manner similar
to the limitation under clause (i).
(C) Cash basis defined
For purposes of subparagraph (B), a partner's cash basis in a
partnership shall be equal to the adjusted basis of such
partner's interest in the partnership, determined without
regard to -
(i) any liability of the partnership, and
(ii) any amount borrowed by the partner with respect to
such partnership which -
(I) was arranged by the partnership or by any person who
participated in the organization, sale, or management of
the partnership (or any person related to such person
within the meaning of section 465(b)(3)(C)), or
(II) was secured by any asset of the partnership.
(3) Tax shelter defined
For purposes of this subsection, the term "tax shelter" means -
(A) any enterprise (other than a C corporation) if at any
time interests in such enterprise have been offered for sale in
any offering required to be registered with any Federal or
State agency having the authority to regulate the offering of
securities for sale,
(B) any syndicate (within the meaning of section
1256(e)(3)(B)), and
(C) any tax shelter (as defined in section
6662(d)(2)(C)(ii)).
(4) Special rules for farming
In the case of the trade or business of farming (as defined in
section 464(e)), in determining whether an entity is a tax
shelter, the definition of farming syndicate in section 464(c)
shall be substituted for subparagraphs (A) and (B) of paragraph
(3).
(5) Economic performance
For purposes of this subsection, the term "economic
performance" has the meaning given such term by subsection (h).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 157; Pub. L. 86-781, Sec. 6(a),
Sept. 14, 1960, 74 Stat. 1020; Pub. L. 87-876, Sec. 3(a), Oct. 24,
1962, 76 Stat. 1199; Pub. L. 88-272, title II, Sec. 223(a)(1), Feb.
26, 1964, 78 Stat. 76; Pub. L. 94-455, title II, Sec. 208(a), title
XIX, Secs. 1901(a)(69), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1541, 1775, 1834; Pub. L. 98-369, div. A, title I, Sec. 91(a), (e),
July 18, 1984,98 Stat. 598, 607; Pub. L. 99-514, title VIII, Secs.
801(b), 805(c)(5), 823(b)(1), title XVIII, Sec. 1807(a)(1), (2),
Oct. 22, 1986, 100 Stat. 2347, 2362, 2374, 2811; Pub. L. 100-203,
title X, Sec. 10201(b)(5), Dec. 22, 1987, 101 Stat. 1330-387; Pub.
L. 100-647, title I, Secs. 1008(a)(3), 1018(u)(5), Nov. 10, 1988,
102 Stat. 3436, 3590; Pub. L. 101-239, title VII, Sec. 7721(c)(10),
Dec. 19, 1989, 103 Stat. 2400; Pub. L. 101-508, title XI, Sec.
11704(a)(5), Nov. 5, 1990, 104 Stat. 1388-518; Pub. L. 104-188,
title I, Sec. 1704(t)(24), (78), Aug. 20, 1996, 110 Stat. 1888,
1891; Pub. L. 109-135, title IV, Sec. 412(aa), Dec. 21, 2005, 119
Stat. 2638.)
-MISC1-
AMENDMENTS
2005 - Subsec. (i)(3)(C). Pub. L. 109-135 substituted "section
6662(d)(2)(C)(ii)" for "section 6662(d)(2)(C)(iii)".
1996 - Subsec. (i)(3)(C). Pub. L. 104-188, Sec. 1704(t)(78),
substituted "section 6662(d)(2)(C)(iii)" for "section
6662(d)(2)(C)(ii)".
Pub. L. 104-188, Sec. 1704(t)(24), amended directory language of
Pub. L. 101-239. See 1989 Amendment note below.
1990 - Subsec. (i)(3)(C). Pub. L. 101-508 amended subpar. (C)
generally. Prior to amendment, subpar. (C) read as follows: "any
tax shelter (within the meaning of section 6662(d)(2)(C)(ii))."
1989 - Subsec. (i)(3)(C). Pub. L. 101-239, as amended by Pub. L.
104-188, Sec. 1704(t)(24), substituted "section 6662(d)(2)(C)(ii)"
for "section 6661(b)(2)(C)(ii)".
1988 - Subsec. (h)(5)(B), (C). Pub. L. 100-647, Sec. 1018(u)(5),
amended Pub. L. 99-514, Sec. 823(b)(1). See 1986 Amendment note
below.
Subsec. (i)(2). Pub. L. 100-647, Sec. 1008(a)(3), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "In
the case of a tax shelter, economic performance with respect to the
act of drilling an oil or gas well shall be treated as having
occurred within a taxable year if drilling of the well commences
before the close of the 90th day after the close of the taxable
year."
1987 - Subsec. (h)(5). Pub. L. 100-203 substituted "items" for
"cases to which other provisions of this title specifically apply"
in heading and amended text generally. Prior to amendment, text
read as follows: "This subsection shall not apply to any item to
which any of the following provisions apply:
"(A) Section 463 (relating to vacation pay).
"(B) Any other provisions of this title which specifically
provides for a deduction for a reserve for estimated expenses."
1986 - Subsec. (h)(5)(A). Pub. L. 99-514, Sec. 805(c)(5),
redesignated subpar. (B) as (A) and struck out former subpar. (A)
which referred to subsec. (c) or (f) of section 166.
Subsec. (h)(5)(B). Pub. L. 99-514, Sec. 823(b)(1), as amended by
Pub. L. 100-647, Sec. 1018(u)(5), redesignated subpar. (C) as (B)
and struck out former subpar. (B) which read as follows: "Section
466 (relating to discount coupons)."
Pub. L. 99-514, Sec. 805(c)(5), redesignated subpar. (C) as (B).
Former subpar. (B) redesignated (A).
Subsec. (h)(5)(C). Pub. L. 99-514, Sec. 823(b)(1), as amended by
Pub. L. 100-647, Sec. 1018(u)(5), redesignated subpar. (C) as (B).
Pub. L. 99-514, Sec. 805(c)(5), redesignated subpar. (D) as (C).
Former subpar. (C) redesignated (B).
Subsec. (h)(5)(D). Pub. L. 99-514, Sec. 805(c)(5), redesignated
subpar. (D) as (C).
Subsec. (i). Pub. L. 99-514, Sec. 801(b)(1), substituted "Special
rules for tax shelters" for "Tax shelters may not deduct items
earlier than when economic performance occurs" in heading.
Subsec. (i)(1). Pub. L. 99-514, Sec. 801(b)(1), substituted
"Recurring item exception not to apply" for "In general" in heading
and amended par. (1) generally. Prior to amendment, par. (1) read
as follows: "In the case of a tax shelter computing taxable income
under the cash receipts and disbursements method of accounting,
such tax shelter shall not be allowed a deduction under this
chapter with respect to any item any earlier than the time when
such item would be treated as incurred under subsection (h)
(determined without regard to paragraph (3) thereof)."
Subsec. (i)(2). Pub. L. 99-514, Sec. 801(b)(1), amended par. (2)
generally, substituting provisions relating to special rule for
spudding of oil or gas wells for former provisions consisting of
subpars. (A) to (D) which related to deduction of items when
economic performance occurs on or before 90th day after close of
the taxable year to the extent of cash basis.
Pub. L. 99-514, Sec. 1807(a)(1), substituted "on or before the
90th day" for "within 90 days" in heading and substituted "before
the close of the 90th day after the close of the taxable year" for
"within 90 days after the close of the taxable year" in subpar.
(A).
Subsec. (i)(4). Pub. L. 99-514, Sec. 801(b)(2), amended par. (4)
generally. Prior to amendment, par. (4) read as follows: "In the
case of the trade or business of farming (as defined in section
464(e)) -
"(A) any tax shelter described in paragraph (3)(C) shall be
treated as a farming syndicate for purposes of section 464;
except that this subparagraph shall not apply for purposes of
determining the income of an individual meeting the requirements
of section 464(c)(2),
"(B) section 464 shall be applied before this subsection, and
"(C) in determining whether an entity is a tax shelter, the
definition of farming syndicate in section 464(c) shall be
substituted for subparagraphs (A) and (B) of paragraph (3)."
Subsec. (i)(4)(A). Pub. L. 99-514, Sec. 1807(a)(2), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "section 464 shall be applied to any tax shelter described
in paragraph (3)(C),".
1984 - Subsec. (f)(4). Pub. L. 98-369, Sec. 91(e), inserted
"determined after application of subsection (h)".
Subsecs. (h), (i). Pub. L. 98-369, Sec. 91(a), added subsecs. (h)
and (i).
1976 - Subsec. (c)(2), (3). Pub. L. 94-455, Secs. 1901(a)(69)(A),
(B), 1906(b)(13)(A), redesignated par. (3) as (2), substituted "in
which he" for "which begins after December 31, 1953, and ends after
the date of the enactment of this title in which the taxpayer", and
struck out "or his delegate" after "Secretary" wherever appearing.
Former par. (2), which related to special limitations on the
applicability of par. (1), was struck out.
Subsecs. (d), (e). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" wherever appearing.
Subsec. (g). Pub. L. 94-455, Sec. 208(a), added subsec. (g).
1964 - Subsec. (f). Pub. L. 88-272 added subsec. (f).
1962 - Subsec. (e). Pub. L. 87-876 added subsec. (e).
1960 - Subsec. (d). Pub. L. 86-781 added subsec. (d).
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7721(d) of Pub. L. 101-239 provided that: "The amendments
made by this section [enacting sections 6662 to 6665 of this title,
amending this section and sections 1274, 5684, 5761, 6013, 6222,
6601, 6621, 6653, 6672, and 7519 of this title, and repealing
sections 6659, 6659A, 6660, 6661, and former section 6662 of this
title] shall apply to returns the due date for which (determined
without regard to extensions) is after December 31, 1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 31, 1987, see section 10201(c)(1) of Pub. L.
100-203, set out as a note under section 404 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 801(b) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 801(d) of Pub. L. 99-
514, set out as an Effective Date note under section 448 of this
title.
Amendment by section 805(c)(5) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain changes
required in method of accounting, see section 805(d) of Pub. L. 99-
514, set out as a note under section 166 of this title.
Amendment by section 823 of Pub. L. 99-514 applicable to taxable
years beginning after Dec. 31, 1986, with changes required in the
method of accounting, see section 823(c) of Pub. L. 99-514, set out
as an Effective Date of Repeal note under section 466 of this
title.
Amendment by section 1807(a)(1), (2) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 91(g)-(i) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, title XVIII, Sec. 1807(a)(3)(B), (4)(F), (5), (6),
Oct. 22, 1986, 100 Stat. 2095, 2811, 2813, 2814, provided that:
"(g) Effective Dates. -
"(1) In general. - Except as provided in this subsection and
subsections (h) and (i), the amendments made by this section
[enacting sections 88, 468, and 468A of this title and amending
this section and section 172 of this title] shall apply to
amounts with respect to which a deduction would be allowable
under chapter 1 of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (determined without regard to such amendments) after
-
"(A) in the case of amounts to which section 461(h) of such
Code (as added by such amendments) applies, the date of the
enactment of this Act [July 18, 1984], and
"(B) in the case of amounts to which section 461(i) of such
Code (as so added) applies, after March 31, 1984.
"(2) Taxpayer may elect earlier application. -
"(A) In general. - In the case of amounts described in
paragraph (1)(A), a taxpayer may elect to have the amendments
made by this section apply to amounts which -
"(i) are incurred on or before the date of the enactment of
this Act [July 18, 1984] (determined without regard to such
amendments), and
"(ii) are incurred after the date of the enactment of this
Act (determined with regard to such amendments).
The Secretary of the Treasury or his delegate may by regulations
provide that (in lieu of an election under the preceding
sentence) a taxpayer may (subject to such conditions as such
regulations may provide) elect to have subsection (h) of section
461 of such Code apply to the taxpayer's entire taxable year in
which occurs July 19, 1984.
"(B) Election treated as change in the method of accounting. -
For purposes of section 481 of the Internal Revenue Code of
1986, if an election is made under subparagraph (A) with
respect to any amount, the application of the amendments made
by this section shall be treated as a change in method of
accounting -
"(i) initiated by the taxpayer,
"(ii) made with the consent of the Secretary of the
Treasury, and
"(iii) with respect to which section 481 of such Code shall
be applied by substituting a 3-year adjustment period for a
10-year adjustment period.
"(3) Section 461(h) to apply in certain cases. -
Notwithstanding paragraph (1), section 461(h) of the Internal
Revenue Code of 1986 (as added by this section) shall be treated
as being in effect to the extent necessary to carry out any
amendments made by this section which take effect before section
461(h).
"(4) Effective date for treatment of mining and solid waste
reclamation and closing costs. - Except as otherwise provided in
subsection (h), the amendments made by subsection (b) [enacting
section 468 of this title] shall take effect on the date of the
enactment of this Act [July 18, 1984] with respect to taxable
years ending after such date.
"(5) Rules for nuclear decommissioning costs. - The amendments
made by subsections (c) and (f) [enacting sections 88 and 468A of
this title] shall take effect on the date of the enactment of
this Act [July 18, 1984] with respect to taxable years ending
after such date.
"(6) Modification of net operating loss carryback period. - The
amendments made by subsection (d) [amending section 172 of this
title] shall apply to losses for taxable years beginning after
December 31, 1983.
"(h) Exception for Certain Existing Activities and Contracts. -
If -
"(1) Existing accounting practices. - If, on March 1, 1984, any
taxpayer was regularly computing his deduction for mining
reclamation activities under a current cost method of accounting
(as determined by the Secretary of the Treasury or his delegate),
the liability for reclamation activities -
"(A) for land disturbed before the date of the enactment of
this Act [July 18, 1984], or
"(B) to which paragraph (2) applies,
shall be treated as having been incurred when the land was
disturbed.
"(2) Fixed price supply contract. -
"(A) In general. - In the case of any fixed price supply
contract entered into before March 1, 1984, the amendments made
by subsection (b) [enacting section 468 of this title] shall
not apply to any minerals extracted from such property which
are sold pursuant to such contract.
"(B) No extension or renegotiation. - Subparagraph (A) shall
not apply -
"(i) to any extension of any contract beyond the period
such contract was in effect on March 1, 1984, or
"(ii) to any renegotiation of, or other change in, the
terms and conditions of such contract in effect on March 1,
1984.
"(i) Transitional Rule for Accrued Vacation Pay. -
"(1) In general. - In the case of any taxpayer -
"(A) with respect to whom a deduction was allowable (other
than under section 463 of the Internal Revenue Code of 1986)
for vested accrued vacation pay for the last taxable year
ending before the date of the enactment of this Act [July 18,
1984], and
"(B) who elects the application of section 463 of such Code
for the first taxable year ending after the date of the
enactment of this Act,
then, for purposes of section 463(b) of such Code, the opening
balance of the taxpayer with respect to any vested accrued
vacation pay shall be determined under section 463(b)(1) of such
Code.
"(2) Vested accrued vacation pay. - For purposes of this
subsection, the term 'vested accrued vacation pay' means any
amount allowable under section 162(a) of such Code with respect
to vacation pay of employees of the taxpayer (determined without
regard to section 463 of such Code)."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(69) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Section 208(b) of Pub. L. 94-455 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply to amounts paid after December 31, 1975, in taxable years
ending after such date.
"(2) Certain amounts paid before 1977. - The amendment made by
subsection (a) [amending this section] shall not apply to amounts
paid before January 1, 1977, pursuant to a binding contract or
written loan commitment which existed on September 16, 1975 (and
at all times thereafter), and which required prepayment of such
amounts by the taxpayer."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 223(b) of Pub. L. 88-272 provided that: "Except as
provided in subsections (c) and (d) [set out below] -
"(1) the amendment made by subsection (a)(1) [amending this
section] shall apply to taxable years beginning after December
31, 1953, and ending after August 16, 1954, and
"(2) the amendment made by subsection (a)(2) [amending section
43 of the Internal Revenue Code of 1939] shall apply to taxable
years to which the Internal Revenue Code of 1939 applies."
EFFECTIVE DATE OF 1962 AMENDMENT
Section 3(b) of Pub. L. 87-876 provided that: "The amendment made
by subsection (a) [amending this section] shall apply only with
respect to taxable years ending after December 31, 1962."
EFFECTIVE DATE OF 1960 AMENDMENT
Section 6(b) of Pub. L. 86-781 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years ending after December 31, 1960."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TRANSITIONAL RULE FOR CERTAIN AMOUNTS
Section 1807(a)(8) of Pub. L. 99-514 provided that: "For purposes
of section 461(h) of the Internal Revenue Code of 1954 [now 1986],
economic performance shall be treated as occurring on the date of a
payment to an insurance company if -
"(A) such payment was made before November 23, 1985, for
indemnification against a tort liability relating to personal
injury or death caused by inhalation or ingestion of dust from
asbestos-containing insulation products,
"(B) such insurance company is unrelated to taxpayer,
"(C) such payment is not refundable, and
"(D) the taxpayer is not engaged in the mining of asbestos nor
is any member of any affiliated group which includes the taxpayer
so engaged."
TRANSITION RULE
Section 1807(c) of Pub. L. 99-514 provided that: "A taxpayer
shall be allowed to use the cash receipts and disbursements method
of accounting for taxable years ending after January 1, 1982, if
such taxpayer -
"(1) is a partnership which was founded in 1936,
"(2) has over 1,000 professional employees,
"(3) used a long-term contract method of accounting for a
substantial part of its income from the performance of
architectural and engineering services, and
"(4) is headquartered in Chicago, Illinois."
ELECTION AS TO TRANSFERS IN TAXABLE YEARS BEGINNING BEFORE JAN. 1,
1964
Section 223(c) of Pub. L. 88-272 provided that:
"(1) The amendments made by subsection (a) [amending this section
and section 43 of the Internal Revenue Code of 1939] shall not
apply to any transfer of money or other property described in
subsection (a) made in a taxable year beginning before January 1,
1964, if the taxpayer elects, in the manner provided by regulations
prescribed by the Secretary of the Treasury or his delegate, to
have this paragraph apply. Such an election -
"(A) must be made within one year after the date of the
enactment of this Act [Feb. 26, 1964],
"(B) may not be revoked after the expiration of such one-year
period, and
"(C) shall apply to all transfers described in the first
sentence of this paragraph (other than transfers described in
paragraph (2)).
In the case of any transfer to which this paragraph applies, the
deduction shall be allowed only for the taxable year in which the
contest with respect to such transfer is settled.
"(2) Paragraph (1) shall not apply to any transfer if the
assessment of any deficiency which would result from the
application of the election in respect of such transfer is, on the
date of the election under paragraph (1), prevented by the
operation of any law or rule of law.
"(3) If the taxpayer makes an election under paragraph (1), and
if, on the date of such election, the assessment of any deficiency
which results from the application of the election in respect of
any transfer is not prevented by the operation of any law or rule
of law, the period within which assessment of such deficiency may
be made shall not expire earlier than 2 years after the date of the
enactment of this Act [Feb. 26, 1964]."
CERTAIN OTHER TRANSFERS IN TAXABLE YEARS BEGINNING BEFORE JAN. 1,
1964
Section 223(d) of Pub. L. 88-272 provided that: "The amendments
made by subsection (a) [amending this section and section 43 of the
Internal Revenue Code of 1939] shall not apply to any transfer of
money or other property described in subsection (a) made in a
taxable year beginning before January 1, 1964, if -
"(1) no deduction has been allowed in respect of such transfer
for any taxable year before the taxable year in which the contest
with respect to such transfer is settled, and
"(2) refund or credit of any overpayment which would result
from the application of such amendments to such transfer is
prevented by the operation of any law or rule of law.
In the case of any transfer to which this subsection applies, the
deduction shall be allowed for the taxable year in which the
contest with respect to such transfer is settled."
-End-
-CITE-
26 USC Sec. 462 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
[Sec. 462. Repealed. June 15, 1955, ch. 143, Sec. 1(b), 69 Stat.
134]
-MISC1-
Section, act Aug. 16, 1954, ch. 736 68A Stat. 158, related to
reserves for estimated expenses.
EFFECTIVE DATE OF REPEAL
Repeal effective with respect to taxable years beginning after
Dec. 31, 1953, and ending after Aug. 16, 1954, see section 3 of Act
June 15, 1955, set out as an Effective Date of 1955 Amendment note
under section 381 of this title.
SAVINGS PROVISION
For provisions concerning increase in tax in any taxable year
ending on or before June 15, 1955 by reason of enactment of act
June 15, 1955, see section 4 of act June 15, 1955, set out as a
note under section 381 of this title.
-End-
-CITE-
26 USC Sec. 463 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
[Sec. 463. Repealed. Pub. L. 100-203, title X, Sec. 10201(a), Dec.
22, 1987, 101 Stat. 1330-387]
-MISC1-
Section, added Pub. L. 93-625, Sec. 4(a), Jan. 3, 1974, 88 Stat.
2109; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1834; Pub. L. 98-369, div. A, title V, Sec.
561(a), July 18, 1984, 98 Stat. 901; Pub. L. 99-514, title XI, Sec.
1165(a), Oct. 22, 1986, 100 Stat. 2511, related to deduction
allowable for accrual basis taxpayers under section 162(a) of this
title with respect to vacation pay.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1987,
see section 10201(c)(1) of Pub. L. 100-203, set out as an Effective
Date of 1987 Amendment note under section 404 of this title.
CHANGE IN METHOD OF ACCOUNTING REQUIRED BY PUB. L. 100-203
Pub. L. 100-203, title X, Sec. 10201(c)(2), Dec. 22, 1987, 101
Stat. 1330-388, provided that: "In the case of any taxpayer who
elected to have section 463 of the Internal Revenue Code of 1986
apply for such taxpayer's last taxable year beginning before
January 1, 1988, and who is required to change his method of
accounting by reason of the amendments made by this section
[amending sections 404, 419, and 461 of this title, repealing
sections 81 and 463 of this title, and enacting provisions set out
as a note under section 404 of this title] -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as having been made with the
consent of the Secretary, and
"(C) the net amount of adjustments required by section 481 of
such Code to be taken into account by the taxpayer -
"(i) shall be reduced by the balance in the suspense account
under section 463(c) of such Code as of the close of such last
taxable year, and
"(ii) shall be taken into account over the 4-taxable year
period beginning with the taxable year following such last
taxable year as follows:
The percentage
taken
"In the case of the: into account is:
1st year 25
2nd year 5
3rd year 35
4th year 35.
Notwithstanding subparagraph (C)(ii), if the period the
adjustments are required to be taken into account under section
481 of such Code is less than 4 years, such adjustments shall be
taken into account ratably over such shorter period."
-End-
-CITE-
26 USC Sec. 464 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 464. Limitations on deductions for certain farming
-STATUTE-
(a) General rule
In the case of any farming syndicate (as defined in subsection
(c)), a deduction (otherwise allowable under this chapter) for
amounts paid for feed, seed, fertilizer, or other similar farm
supplies shall only be allowed for the taxable year in which such
feed, seed, fertilizer, or other supplies are actually used or
consumed, or, if later, for the taxable year for which allowable as
a deduction (determined without regard to this section).
(b) Certain poultry expenses
In the case of any farming syndicate (as defined in subsection
(c)) -
(1) the cost of poultry (including egg-laying hens and baby
chicks) purchased for use in a trade or business (or both for use
in a trade or business and for sale) shall be capitalized and
deducted ratably over the lesser of 12 months or their useful
life in the trade or business, and
(2) the cost of poultry purchased for sale shall be deducted
for the taxable year in which the poultry is sold or otherwise
disposed of.
(c) Farming syndicate defined
(1) In general
For purposes of this section, the term "farming syndicate"
means -
(A) a partnership or any other enterprise other than a
corporation which is not an S corporation engaged in the trade
or business of farming, if at any time interests in such
partnership or enterprise have been offered for sale in any
offering required to be registered with any Federal or State
agency having authority to regulate the offering of securities
for sale, or
(B) a partnership or any other enterprise other than a
corporation which is not an S corporation engaged in the trade
or business of farming, if more than 35 percent of the losses
during any period are allocable to limited partners or limited
entrepreneurs.
(2) Holdings attributable to active management
For purposes of paragraph (1)(B), the following shall be
treated as an interest which is not held by a limited partner or
a limited entrepreneur:
(A) in the case of any individual who has actively
participated (for a period of not less than 5 years) in the
management of any trade or business of farming, any interest in
a partnership or other enterprise which is attributable to such
active participation,
(B) in the case of any individual whose principal residence
is on a farm, any partnership or other enterprise engaged in
the trade or business of farming such farm,
(C) in the case of any individual who is actively
participating in the management of any trade or business of
farming or who is an individual who is described in
subparagraph (A) or (B), any participation in the further
processing of livestock which was raised in such trade or
business (or in the trade or business referred to in
subparagraph (A) or (B)),
(D) in the case of an individual whose principal business
activity involves active participation in the management of a
trade or business of farming, any interest in any other trade
or business of farming, and,
(E) any interest held by a member of the family (or a spouse
of any such member) or a grandparent of an individual described
in subparagraph (A), (B), (C), or (D) if the interest in the
partnership or the enterprise is attributable to the active
participation of the individual described in subparagraph (A),
(B), (C), or (D).
For purposes of subparagraph (A), where one farm is substituted
for or added to another farm, both farms shall be treated as one
farm. For purposes of subparagraph (E), the term "family" has the
meaning given to such term by section 267(c)(4).
(d) Exception
Subsection (a) shall not apply to any amount paid for supplies
which are on hand at the close of the taxable year on account of
fire, storm, or other casualty, or on account of disease or
drought.
(e) Definitions
For purposes of this section -
(1) Farming
The term "farming" means the cultivation of land or the raising
or harvesting of any agricultural or horticultural commodity
including the raising, shearing, feeding, caring for, training,
and management of animals. For purposes of the preceding
sentence, trees (other than trees bearing fruit or nuts) shall
not be treated as an agricultural or horticultural commodity.
(2) Limited entrepreneur
The term "limited entrepreneur" means a person who -
(A) has an interest in an enterprise other than as a limited
partner, and
(B) does not actively participate in the management of such
enterprise.
(f) Subsections (a) and (b) to apply to certain persons prepaying
50 percent or more of certain farming expenses
(1) In general
In the case of a taxpayer to whom this subsection applies,
subsections (a) and (b) shall apply to the excess prepaid farm
supplies of such taxpayer in the same manner as if such taxpayer
were a farming syndicate.
(2) Taxpayer to whom subsection applies
This subsection applies to any taxpayer for any taxable year if
such taxpayer -
(A) does not use an accrual method of accounting,
(B) has excess prepaid farm supplies for the taxable year,
and
(C) is not a qualified farm-related taxpayer.
(3) Qualified farm-related taxpayer
(A) In general
For purposes of this subsection, the term "qualified farm-
related taxpayer" means any farm-related taxpayer if -
(i)(I) the aggregate prepaid farm supplies for the 3
taxable years preceding the taxable year are less than 50
percent of,
(II) the aggregate deductible farming expenses (other than
prepaid farm supplies) for such 3 taxable years, or
(ii) the taxpayer has excess prepaid farm supplies for the
taxable year by reason of any change in business operation
directly attributable to extraordinary circumstances.
(B) Farm-related taxpayer
For purposes of this paragraph, the term "farm-related
taxpayer" means any taxpayer -
(i) whose principal residence (within the meaning of
section 121) is on a farm,
(ii) who has a principal occupation of farming, or
(iii) who is a member of the family (within the meaning of
subsection (c)(2)(E)) of a taxpayer described in clause (i)
or (ii).
(4) Definitions
For purposes of this subsection -
(A) Excess prepaid farm supplies
The term "excess prepaid farm supplies" means the prepaid
farm supplies for the taxable year to the extent the amount of
such supplies exceeds 50 percent of the deductible farming
expenses for the taxable year (other than prepaid farm
supplies).
(B) Prepaid farm supplies
The term "prepaid farm supplies" means any amounts which are
described in subsection (a) or (b) and would be allowable for a
subsequent taxable year under the rules of subsections (a) and
(b).
(C) Deductible farming expenses
The term "deductible farming expenses" means any amount
allowable as a deduction under this chapter (including any
amount allowable as a deduction for depreciation or
amortization) which is properly allocable to the trade or
business of farming.
(g) Termination
Except as provided in subsection (f), subsections (a) and (b)
shall not apply to any taxable year beginning after December 31,
1986.
-SOURCE-
(Added Pub. L. 94-455, title II, Sec. 207(a)(1), Oct. 4, 1976, 90
Stat. 1536; amended Pub. L. 95-600, title VII, Sec. 701(l)(3), Nov.
6, 1978, 92 Stat. 2907; Pub. L. 97-354, Sec. 5(a)(30), Oct. 19,
1982, 96 Stat. 1695; Pub. L. 99-514, title IV, Sec. 404(a), (b)(1),
title VIII, Sec. 803(b)(8), Oct. 22, 1986, 100 Stat. 2223, 2224,
2356; Pub. L. 100-647, title I, Sec. 1008(a)(4), Nov. 10, 1988, 102
Stat. 3437; Pub. L. 105-34, title III, Sec. 312(d)(1), Aug. 5,
1997, 111 Stat. 839.)
-MISC1-
AMENDMENTS
1997 - Subsec. (f)(3)(B)(i). Pub. L. 105-34 substituted "section
121" for "section 1034".
1988 - Subsec. (g). Pub. L. 100-647 added subsec. (g).
1986 - Pub. L. 99-514, Sec. 404(b)(1), substituted "for certain
farming" for "in case of farming syndicates" in section catchline.
Subsec. (d). Pub. L. 99-514, Sec. 803(b)(8), substituted
"Exception" for "Exceptions" as heading and amended text generally.
Prior to amendment, text read as follows: "Subsection (a) shall not
apply to -
"(1) any amount paid for supplies which are on hand at the
close of the taxable year on account of fire, storm, flood, or
other casualty or on account of disease or drought, or
"(2) any amount required to be charged to capital account under
section 278."
Subsec. (f). Pub. L. 99-514, Sec. 404(a), added subsec. (f).
1982 - Subsec. (c)(1)(A), (B). Pub. L. 97-354 substituted "an S
corporation" for "an electing small business corporation (as
defined in section 1371(b))".
1978 - Subsec. (c)(2). Pub. L. 95-600 substituted in subpar. (E)
"(or a spouse of any such member)" for "(within the meaning of
section 267(c)(4))" and provided that for purposes of subpar. (E)
the term "family" has the meaning given to such term by section
267(c)(4).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to sales and exchanges
after May 6, 1997, with certain exceptions, see section 312(d) of
Pub. L. 105-34, set out as a note under section 121 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the amendment
by section 803(b)(8) of Pub. L. 99-514 is applicable to such
interest costs only to the extent such interest costs are
attributable to costs which were required to be capitalized under
section 263 of the Internal Revenue Code of 1954 and which would
have been taken into account in applying section 189 of the
Internal Revenue Code of 1954 (as in effect before its repeal by
section 803 of Pub. L. 99-514) or, if applicable, section 266 of
such Code, see section 7831(d)(2) of Pub. L. 101-239, set out as an
Effective Date note under section 263A of this title.
Section 404(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to amounts
paid or incurred after March 1, 1986, in taxable years beginning
after such date."
Amendment by section 803(b)(8) of Pub. L. 99-514 applicable to
costs incurred after Dec. 31, 1986, in taxable years ending after
such date, except as otherwise provided, see section 803(d) of Pub.
L. 99-514, set out as an Effective Date note under section 263A of
this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 effective as if included in this
section or section 447 of this title at the time of their
enactment, Oct. 4, 1976, see section 701(l)(4) of Pub. L. 95-600,
set out as a note under section 447 of this title.
EFFECTIVE DATE
Section 207(a)(3) of Pub. L. 94-455 provided that:
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by this subsection [enacting this section] shall
apply to taxable years beginning after December 31, 1975.
"(B) Transitional rule. - In the case of a farming syndicate in
existence on December 31, 1975, and for which there was no change
of membership throughout its taxable year beginning in 1976, the
amendments made by this subsection shall apply to taxable years
beginning after December 31, 1976."
-End-
-CITE-
26 USC Sec. 465 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 465. Deductions limited to amount at risk
-STATUTE-
(a) Limitation to amount at risk
(1) In general
In the case of -
(A) an individual, and
(B) a C corporation with respect to which the stock ownership
requirement of paragraph (2) of section 542(a) is met,
engaged in an activity to which this section applies, any loss
from such activity for the taxable year shall be allowed only to
the extent of the aggregate amount with respect to which the
taxpayer is at risk (within the meaning of subsection (b)) for
such activity at the close of the taxable year.
(2) Deduction in succeeding year
Any loss from an activity to which this section applies not
allowed under this section for the taxable year shall be treated
as a deduction allocable to such activity in the first succeeding
taxable year.
(3) Special rules for applying paragraph (1)(B)
For purposes of paragraph (1)(B) -
(A) section 544(a)(2) shall be applied as if such section did
not contain the phrase "or by or for his partner"; and
(B) sections 544(a)(4)(A) and 544(b)(1) shall be applied by
substituting "the corporation meet the stock ownership
requirements of section 542(a)(2)" for "the corporation a
personal holding company".
(b) Amounts considered at risk
(1) In general
For purposes of this section, a taxpayer shall be considered at
risk for an activity with respect to amounts including -
(A) the amount of money and the adjusted basis of other
property contributed by the taxpayer to the activity, and
(B) amounts borrowed with respect to such activity (as
determined under paragraph (2)).
(2) Borrowed amounts
For purposes of this section, a taxpayer shall be considered at
risk with respect to amounts borrowed for use in an activity to
the extent that he -
(A) is personally liable for the repayment of such amounts,
or
(B) has pledged property, other than property used in such
activity, as security for such borrowed amount (to the extent
of the net fair market value of the taxpayer's interest in such
property).
No property shall be taken into account as security if such
property is directly or indirectly financed by indebtedness which
is secured by property described in paragraph (1).
(3) Certain borrowed amounts excluded
(A) In general
Except to the extent provided in regulations, for purposes of
paragraph (1)(B), amounts borrowed shall not be considered to
be at risk with respect to an activity if such amounts are
borrowed from any person who has an interest in such activity
or from a related person to a person (other than the taxpayer)
having such an interest.
(B) Exceptions
(i) Interest as creditor
Subparagraph (A) shall not apply to an interest as a
creditor in the activity.
(ii) Interest as shareholder with respect to amounts borrowed
by corporation
In the case of amounts borrowed by a corporation from a
shareholder, subparagraph (A) shall not apply to an interest
as a shareholder.
(C) Related person
For purposes of this subsection, a person (hereinafter in
this paragraph referred to as the "related person") is related
to any person if -
(i) the related person bears a relationship to such person
specified in section 267(b) or section 707(b)(1), or
(ii) the related person and such person are engaged in
trades or business under common control (within the meaning
of subsections (a) and (b) of section 52).
For purposes of clause (i), in applying section 267(b) or
707(b)(1), "10 percent" shall be substituted for "50 percent".
(4) Exception
Notwithstanding any other provision of this section, a taxpayer
shall not be considered at risk with respect to amounts protected
against loss through nonrecourse financing, guarantees, stop loss
agreements, or other similar arrangements.
(5) Amounts at risk in subsequent years
If in any taxable year the taxpayer has a loss from an activity
to which subsection (a) applies, the amount with respect to which
a taxpayer is considered to be at risk (within the meaning of
subsection (b)) in subsequent taxable years with respect to that
activity shall be reduced by that portion of the loss which
(after the application of subsection (a)) is allowable as a
deduction.
(6) Qualified nonrecourse financing treated as amount at risk
For purposes of this section -
(A) In general
Notwithstanding any other provision of this subsection, in
the case of an activity of holding real property, a taxpayer
shall be considered at risk with respect to the taxpayer's
share of any qualified nonrecourse financing which is secured
by real property used in such activity.
(B) Qualified nonrecourse financing
For purposes of this paragraph, the term "qualified
nonrecourse financing" means any financing -
(i) which is borrowed by the taxpayer with respect to the
activity of holding real property,
(ii) which is borrowed by the taxpayer from a qualified
person or represents a loan from any Federal, State, or local
government or instrumentality thereof, or is guaranteed by
any Federal, State, or local government,
(iii) except to the extent provided in regulations, with
respect to which no person is personally liable for
repayment, and
(iv) which is not convertible debt.
(C) Special rule for partnerships
In the case of a partnership, a partner's share of any
qualified nonrecourse financing of such partnership shall be
determined on the basis of the partner's share of liabilities
of such partnership incurred in connection with such financing
(within the meaning of section 752).
(D) Qualified person defined
For purposes of this paragraph -
(i) In general
The term "qualified person" has the meaning given such term
by section 49(a)(1)(D)(iv).
(ii) Certain commercially reasonable financing from related
persons
For purposes of clause (i), section 49(a)(1)(D)(iv) shall
be applied without regard to subclause (I) thereof (relating
to financing from related persons) if the financing from the
related person is commercially reasonable and on
substantially the same terms as loans involving unrelated
persons.
(E) Activity of holding real property
For purposes of this paragraph -
(i) Incidental personal property and services
The activity of holding real property includes the holding
of personal property and the providing of services which are
incidental to making real property available as living
accommodations.
(ii) Mineral property
The activity of holding real property shall not include the
holding of mineral property.
(c) Activities to which section applies
(1) Types of activities
This section applies to any taxpayer engaged in the activity of
-
(A) holding, producing, or distributing motion picture films
or video tapes,
(B) farming (as defined in section 464(e)),
(C) leasing any section 1245 property (as defined in section
1245(a)(3)),
(D) exploring for, or exploiting, oil and gas resources as a
trade or business or for the production of income, or
(E) exploring for, or exploiting, geothermal deposits (as
defined in section 613(e)(2)).
(2) Separate activities
For purposes of this section -
(A) In general
Except as provided in subparagraph (B), a taxpayer's activity
with respect to each -
(i) film or video tape,
(ii) section 1245 property which is leased or held for
leasing,
(iii) farm,
(iv) oil and gas property (as defined under section 614),
or
(v) geothermal property (as defined under section 614),
shall be treated as a separate activity.
(B) Aggregation rules
(i) Special rule for leases of section 1245 property by
partnerships or S corporations
In the case of any partnership or S corporation, all
activities with respect to section 1245 properties which -
(I) are leased or held for lease, and
(II) are placed in service in any taxable year of the
partnership or S corporation,
shall be treated as a single activity.
(ii) Other aggregation rules
Rules similar to the rules of subparagraphs (B) and (C) of
paragraph (3) shall apply for purposes of this paragraph.
(3) Extension to other activities
(A) In general
In the case of taxable years beginning after December 31,
1978, this section also applies to each activity -
(i) engaged in by the taxpayer in carrying on a trade or
business or for the production of income, and
(ii) which is not described in paragraph (1).
(B) Aggregation of activities where taxpayer actively
participates in management of trade or business
Except as provided in subparagraph (C), for purposes of this
section, activities described in subparagraph (A) which
constitute a trade or business shall be treated as one activity
if -
(i) the taxpayer actively participates in the management of
such trade or business, or
(ii) such trade or business is carried on by a partnership
or an S corporation and 65 percent or more of the losses for
the taxable year is allocable to persons who actively
participate in the management of the trade or business.
(C) Aggregation or separation of activities under regulations
The Secretary shall prescribe regulations under which
activities described in subparagraph (A) shall be aggregated or
treated as separate activities.
(D) Application of subsection (b)(3)
In the case of an activity described in subparagraph (A),
subsection (b)(3) shall apply only to the extent provided in
regulations prescribed by the Secretary.
(4) Exclusion for certain equipment leasing by closely-held
corporations
(A) In general
In the case of a corporation described in subsection
(a)(1)(B) actively engaged in equipment leasing -
(i) the activity of equipment leasing shall be treated as a
separate activity, and
(ii) subsection (a) shall not apply to losses from such
activity.
(B) 50-percent gross receipts test
For purposes of subparagraph (A), a corporation shall not be
considered to be actively engaged in equipment leasing unless
50 percent or more of the gross receipts of the corporation for
the taxable year is attributable, under regulations prescribed
by the Secretary, to equipment leasing.
(C) Component members of controlled group treated as a single
corporation
For purposes of subparagraph (A), the component members of a
controlled group of corporations shall be treated as a single
corporation.
(5) Waiver of controlled group rule where there is substantial
leasing activity
(A) In general
In the case of the component members of a qualified leasing
group, paragraph (4) shall be applied -
(i) by substituting "80 percent" for "50 percent" in
subparagraph (B) thereof, and
(ii) as if paragraph (4) did not include subparagraph (C)
thereof.
(B) Qualified leasing group
For purposes of this paragraph, the term "qualified leasing
group" means a controlled group of corporations which, for the
taxable year and each of the 2 immediately preceding taxable
years, satisfied each of the following 3 requirements:
(i) At least 3 employees
During the entire year, the group had at least 3 full-time
employees substantially all of the services of whom were
services directly related to the equipment leasing activity
of the qualified leasing members.
(ii) At least 5 separate leasing transactions
During the year, the qualified leasing members in the
aggregate entered into at least 5 separate equipment leasing
transactions.
(iii) At least $1,000,000 equipment leasing receipts
During the year, the qualified leasing members in the
aggregate had at least $1,000,000 in gross receipts from
equipment leasing.
The term "qualified leasing group" does not include any
controlled group of corporations to which, without regard to
this paragraph, paragraph (4) applies.
(C) Qualified leasing member
For purposes of this paragraph, a corporation shall be
treated as a qualified leasing member for the taxable year only
if for each of the taxable years referred to in subparagraph
(B) -
(i) it is a component member of the controlled group of
corporations, and
(ii) it meets the requirements of paragraph (4)(B) (as
modified by subparagraph (A)(i) of this paragraph).
(6) Definitions relating to paragraphs (4) and (5)
For purposes of paragraphs (4) and (5) -
(A) Equipment leasing
The term "equipment leasing" means -
(i) the leasing of equipment which is section 1245
property, and
(ii) the purchasing, servicing, and selling of such
equipment.
(B) Leasing of master sound recordings, etc., excluded
The term "equipment leasing" does not include the leasing of
master sound recordings, and other similar contractual
arrangements with respect to tangible or intangible assets
associated with literary, artistic, or musical properties.
(C) Controlled group of corporations; component member
The terms "controlled group of corporations" and "component
members" have the same meanings as when used in section 1563.
The determination of the taxable years taken into account with
respect to any controlled group of corporations shall be made
in a manner consistent with the manner set forth in section
1563.
(7) Exclusion of active businesses of qualified C corporations
(A) In general
In the case of a taxpayer which is a qualified C corporation -
(i) each qualifying business carried on by such taxpayer
shall be treated as a separate activity, and
(ii) subsection (a) shall not apply to losses from such
business.
(B) Qualified C corporation
For purposes of subparagraph (A), the term "qualified C
corporation" means any corporation described in subparagraph
(B) of subsection (a)(1) which is not -
(i) a personal holding company (as defined in section
542(a)), or
(ii) a personal service corporation (as defined in section
269A(b) but determined by substituting "5 percent" for "10
percent" in section 269A(b)(2)).
(C) Qualifying business
For purposes of this paragraph, the term "qualifying
business" means any active business if -
(i) during the entire 12-month period ending on the last
day of the taxable year, such corporation had at least 1 full-
time employee substantially all the services of whom were in
the active management of such business,
(ii) during the entire 12-month period ending on the last
day of the taxable year, such corporation had at least 3 full-
time, nonowner employees substantially all of the services
of whom were services directly related to such business,
(iii) the amount of the deductions attributable to such
business which are allowable to the taxpayer solely by reason
of sections 162 and 404 for the taxable year exceeds 15
percent of the gross income from such business for such year,
and
(iv) such business is not an excluded business.
(D) Special rules for application of subparagraph (C)
(i) Partnerships in which taxpayer is a qualified corporate
partner
In the case of an active business of a partnership, if -
(I) the taxpayer is a qualified corporate partner in the
partnership, and
(II) during the entire 12-month period ending on the last
day of the partnership's taxable year, there was at least 1
full-time employee of the partnership (or of a qualified
corporate partner) substantially all the services of whom
were in the active management of such business,
then the taxpayer's proportionate share (determined on the
basis of its profits interest) of the activities of the
partnership in such business shall be treated as activities
of the taxpayer (and clause (i) of subparagraph (C) shall not
apply in determining whether such business is a qualifying
business of the taxpayer).
(ii) Qualified corporate partner
For purposes of clause (i), the term "qualified corporate
partner" means any corporation if -
(I) such corporation is a general partner in the
partnership,
(II) such corporation has an interest of 10 percent or
more in the profits and losses of the partnership, and
(III) such corporation has contributed property to the
partnership in an amount not less than the lesser of
$500,000 or 10 percent of the net worth of the corporation.
For purposes of subclause (III), any contribution of property
other than money shall be taken into account at its fair
market value.
(iii) Deduction for owner employee compensation not taken
into account
For purposes of clause (iii) of subparagraph (C), there
shall not be taken into account any deduction in respect of
compensation for personal services rendered by any employee
(other than a non-owner employee) of the taxpayer or any
member of such employee's family (within the meaning of
section 318(a)(1)).
(iv) Special rule for banks
For purposes of clause (iii) of subparagraph (C), in the
case of a bank (as defined in section 581) or a financial
institution to which section 591 applies -
(I) gross income shall be determined without regard to
the exclusion of interest from gross income under section
103, and
(II) in addition to the deductions described in such
clause, there shall also be taken into account the amount
of the deductions which are allowable for amounts paid or
credited to the accounts of depositors or holders of
accounts as dividends or interest on their deposits or
withdrawable accounts under section 163 or 591.
(v) Special rule for life insurance companies
(I) In general
Clause (iii) of subparagraph (C) shall not apply to any
insurance business of a qualified life insurance company.
(II) Insurance business
For purposes of subclause (I), the term "insurance
business" means any business which is not a noninsurance
business (within the meaning of section 806(b)(3)).
(III) Qualified life insurance company
For purposes of subclause (I), the term "qualified life
insurance company" means any company which would be a life
insurance company as defined in section 816 if unearned
premiums were not taken into account under subsections
(a)(2) and (c)(2) of section 816.
(E) Definitions
For purposes of this paragraph -
(i) Non-owner employee
The term "non-owner employee" means any employee who does
not own, at any time during the taxable year, more than 5
percent in value of the outstanding stock of the taxpayer.
For purposes of the preceding sentence, section 318 shall
apply, except that "5 percent" shall be substituted for "50
percent" in section 318(a)(2)(C).
(ii) Excluded business
The term "excluded business" means -
(I) equipment leasing (as defined in paragraph (6)), and
(II) any business involving the use, exploitation, sale,
lease, or other disposition of master sound recordings,
motion picture films, video tapes, or tangible or
intangible assets associated with literary, artistic,
musical, or similar properties.
(iii) Special rules relating to communications industry, etc.
(I) Business not excluded where taxpayer not completely at
risk
A business involving the use, exploitation, sale, lease,
or other disposition of property described in subclause
(II) of clause (ii) shall not constitute an excluded
business by reason of such subclause if the taxpayer is at
risk with respect to all amounts paid or incurred (or
chargeable to capital account) in such business.
(II) Certain licensed businesses not excluded
For purposes of subclause (II) of clause (ii), the
provision of radio, television, cable television, or
similar services pursuant to a license or franchise granted
by the Federal Communications Commission or any other
Federal, State, or local authority shall not constitute an
excluded business by reason of such subclause.
(F) Affiliated group treated as 1 taxpayer
For purposes of this paragraph -
(i) In general
Except as provided in subparagraph (G), the component
members of an affiliated group of corporations shall be
treated as a single taxpayer.
(ii) Affiliated group of corporations
The term "affiliated group of corporations" means an
affiliated group (as defined in section 1504(a)) which files
or is required to file consolidated income tax returns.
(iii) Component member
The term "component member" means an includible corporation
(as defined in section 1504) which is a member of the
affiliated group.
(G) Loss of 1 member of affiliated group may not offset income
of personal holding company or personal service corporation
Nothing in this paragraph shall permit any loss of a member
of an affiliated group to be used as an offset against the
income of any other member of such group which is a personal
holding company (as defined in section 542(a)) or a personal
service corporation (as defined in section 269A(b) but
determined by substituting "5 percent" for "10 percent" in
section 269A(b)(2)).
(d) Definition of loss
For purposes of this section, the term "loss" means the excess of
the deductions allowable under this chapter for the taxable year
(determined without regard to the first sentence of subsection (a))
and allocable to an activity to which this section applies over the
income received or accrued by the taxpayer during the taxable year
from such activity (determined without regard to subsection
(e)(1)(A)).
(e) Recapture of losses where amount at risk is less than zero
(1) In general
If zero exceeds the amount for which the taxpayer is at risk in
any activity at the close of any taxable year -
(A) the taxpayer shall include in his gross income for such
taxable year (as income from such activity) an amount equal to
such excess, and
(B) an amount equal to the amount so included in gross income
shall be treated as a deduction allocable to such activity for
the first succeeding taxable year.
(2) Limitation
The excess referred to in paragraph (1) shall not exceed -
(A) the aggregate amount of the reductions required by
subsection (b)(5) with respect to the activity by reason of
losses for all prior taxable years beginning after December 31,
1978, reduced by
(B) the amounts previously included in gross income with
respect to such activity under this subsection.
-SOURCE-
(Added Pub. L. 94-455, title II, Sec. 204(a), Oct. 4, 1976, 90
Stat. 1531; amended Pub. L. 95-600, title II, Secs. 201(a), (c)(1),
202, 203, title VII, Sec. 701(k)(2), Nov. 6, 1978, 92 Stat. 2814,
2816, 2906; Pub. L. 95-618, title IV, Sec. 402(d), Nov. 9, 1978, 92
Stat. 3202; Pub. L. 96-222, title I, Sec. 102(a)(1)(A)-(D), Apr. 1,
1980, 94 Stat. 206; Pub. L. 97-354, Sec. 5(a)(31), Oct. 19, 1982,
96 Stat. 1695; Pub. L. 98-369, div. A, title IV, Sec. 432(a)-(c),
title VII, Sec. 721(x)(2), July 18, 1984, 98 Stat. 811-814, 971;
Pub. L. 99-514, title II, Sec. 201(d)(7)(A), title V, Sec. 503(a),
(b), title X, Sec. 1011(b)(1), Oct. 22, 1986, 100 Stat. 2141, 2243,
2389; Pub. L. 101-508, title XI, Secs. 11813(b)(15), 11815(b)(3),
Nov. 5, 1990, 104 Stat. 1388-555, 1388-558; Pub. L. 108-357, title
IV, Sec. 413(c)(7), Oct. 22, 2004, 118 Stat. 1507.)
-MISC1-
AMENDMENTS
2004 - Subsec. (c)(7)(B). Pub. L. 108-357 inserted "or" at end of
cl. (i), redesignated cl. (iii) as (ii), and struck out former cl.
(ii) which read as follows: "a foreign personal holding company (as
defined in section 552(a)), or".
1990 - Subsec. (b)(6)(D). Pub. L. 101-508, Sec. 11813(b)(15),
substituted "49(a)(1)(D)(iv)" for "46(c)(8)(D)(iv)" wherever
appearing.
Subsec. (c)(1)(E). Pub. L. 101-508, Sec. 11815(b)(3), substituted
"section 613(e)(2)" for "section 613(e)(3)".
1986 - Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 201(d)(7)(A),
struck out "defined" after "person" in heading and amended text
generally. Prior to amendment, text read as follows: "For purposes
of subparagraph (A), the term 'related person' has the meaning
given such term by section 168(e)(4)."
Subsec. (b)(6). Pub. L. 99-514, Sec. 503(b), added par. (6).
Subsec. (c)(3)(D), (E). Pub. L. 99-514, Sec. 503(a), redesignated
subpar. (E) as (D) and struck out former subpar. (D) which read as
follows: "In the case of activities described in subparagraph (A),
the holding of real property (other than mineral property) shall be
treated as a separate activity, and subsection (a) shall not apply
to losses from such activity. For purposes of the preceding
sentence, personal property and services which are incidental to
making real property available as living accommodations shall be
treated as part of the activity of holding such real property."
Subsec. (c)(7)(D)(v)(II). Pub. L. 99-514, Sec. 1011(b)(1),
substituted "section 806(b)(3)" for "section 806(c)(3)".
1984 - Subsec. (a)(1)(B). Pub. L. 98-369, Sec. 721(x)(2),
substituted "a C corporation" for "a corporation".
Subsec. (b)(3). Pub. L. 98-369, Sec. 432(c), designated existing
provisions as subpar. (A), in subpar. (A) as so designated struck
out subpar. designations "(A)" and "(B)" and substituted provisions
that, except as provided by regulation, amounts borrowed shall not
be considered to be at risk if such amounts are borrowed from any
person who has an interest in the activity or from a related person
to a person (other than the taxpayer) having such an interest for
provision that such amounts would not be considered to be at risk
if borrowed from a person who had an interest (other than as a
creditor) in such activity or who had a relationship to the
taxpayer specified in section 267(b) of this title, and added
subpars. (B) and (C).
Subsec. (c)(2). Pub. L. 98-369, Sec. 432(b), designated existing
provisions as subpar. (A), in subpar. (A) as so designated,
redesignated former subpars. (A) to (E) as cls. (i) to (v),
respectively, struck out provision that a partner's interest in a
partnership or a shareholder's interest in an S corporation had to
be treated as a single activity to the extent that the partnership
or the S corporation was engaged in activities described in any
subparagraph of this paragraph, and added subpar. (B).
Subsec. (c)(7). Pub. L. 98-369, Sec. 432(a), added par. (7).
1982 - Subsec. (a)(1). Pub. L. 97-354, Sec. 5(a)(31)(A),
redesignated subpar. (C) as (B). Former subpar. (B), relating to an
electing small business corporation, was struck out.
Subsec. (a)(3). Pub. L. 97-354, Sec. 5(a)(31)(B), substituted
"paragraph (1)(B)" for "paragraph (1)(C)" in heading and text.
Subsec. (c)(2). Pub. L. 97-354, Sec. 5(a)(31)(C), substituted "an
S corporation" for "an electing small business corporation" the
first place appearing and "the S corporation" for "an electing
small business corporation" the second place appearing.
Subsec. (c)(3)(B)(ii). Pub. L. 97-354, Sec. 5(a)(31)(D),
substituted "an S corporation" for "electing small business
corporation (as defined in section 1371(b))".
Subsec. (c)(4)(A). Pub. L. 97-354, Sec. 5(a)(31)(E), substituted
"subsection (a)(1)(B)" for "subsection (a)(1)(C)".
1980 - Subsec. (a)(1)(C), (3). Pub. L. 96-222, Sec. 102(a)(1)(A),
struck out in par. (1)(C) "(determined by reference to the rules
contained in section 318 rather than under section 544)" after "of
section 542(a)" and added par. (3).
Subsec. (b)(5). Pub. L. 96-222, Sec. 102(a)(1)(D)(iii),
substituted "to which subsection (a) applies" for "to which this
section applies".
Subsec. (c)(3)(D). Pub. L. 96-222, Sec. 102(a)(1)(D)(ii), struck
out provisions relating to equipment leasing by closely-held
corporations.
Subsec. (c)(4) to (6). Pub. L. 96-222, Sec. 102(a)(1)(D)(i),
added pars. (4) to (6).
Subsec. (d). Pub. L. 96-222, Sec. 102(a)(1)(B), inserted
"(determined without regard to subsection (e)(1)(A)" after "from
such activity".
Subsec. (e)(2)(A). Pub. L. 96-222, Sec. 102(a)(1)(C), inserted
"by reason of losses" after "with respect to the activity".
1978 - Pub. L. 95-600, Sec. 201(c)(1), substituted "Deductions
limited to amount at risk" for "Deductions limited to amount at
risk in case of certain activities" in section catchline.
Subsec. (a). Pub. L. 95-600, Sec. 202, redesignated existing
provisions as par. (1), substituted provisions relating to
limitations with respect to an individual, an electing small
business corporation defined under section 1371(b) of this title,
and a corporation meeting the stock ownership requirements of
section 542(a)(2) of this title and the rules of section 318 of
this title, for provisions relating to limitations with respect to
a taxpayer other than a corporation which is neither an electing
small business corporation defined under section 1371(b) of this
title, nor a personal holding company defined under section 542 of
this title, and added par. (2).
Subsec. (c)(1)(E). Pub. L. 95-618, Sec. 402(d)(1), added subpar.
(E).
Subsec. (c)(2)(E). Pub. L. 95-618, Sec. 402(d)(2), added subpar.
(E).
Subsec. (c)(3). Pub. L. 95-600, Sec. 201(a), added par. (3).
Subsec. (d). Pub. L. 95-600, Sec. 701(k)(2), substituted
"(determined without regard to the first sentence of subsection
(a))" for "(determined without regard to this section)".
Subsec. (e). Pub. L. 95-600, Sec. 203, added subsec. (e).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years of
foreign corporations beginning after Dec. 31, 2004, and to taxable
years of United States shareholders with or within which such
taxable years of foreign corporations end, see section 413(d)(1) of
Pub. L. 108-357, set out as an Effective and Termination Dates of
2004 Amendments note under section 1 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(b)(15) of Pub. L. 101-508 applicable
to property placed in service after Dec. 31, 1990, but not
applicable to any transition property (as defined in section 49(e)
of this title), any property with respect to which qualified
progress expenditures were previously taken into account under
section 46(d) of this title, and any property described in section
46(b)(2)(C) of this title, as such sections were in effect on Nov.
4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
under section 45K of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(7)(A) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(7)(A) of Pub. L. 99-514 not
applicable to any property placed in service before Jan. 1, 1994,
if such property placed in service as part of specified
rehabilitations, and not applicable to certain additional
rehabilitations, see section 251(d)(2), (3) of Pub. L. 99-514, set
out as a note under section 46 of this title.
Section 503(c) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section] shall apply
to losses incurred after December 31, 1986, with respect to
property placed in service by the taxpayer after December 31, 1986.
"(2) Special rule for losses of s corporation, partnership, or
pass-thru entity. - In the case of an interest in an S corporation,
a partnership, or other pass-thru entity acquired after December
31, 1986, the amendments made by this section shall apply to losses
after December 31, 1986, which are attributable to property placed
in service by the S corporation, partnership, or pass-thru entity
on, before, or after January 1, 1986.
"(3) Special rule for athletic stadium. - The amendments made by
this section shall not apply to any losses incurred by a taxpayer
with respect to the holding of a multi-use athletic stadium in
Pittsburgh, Pennsylvania, which the taxpayer acquired in a sale for
which a letter of understanding was entered into before April 16,
1986."
Amendment by section 1011(b)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1011(c)(1)
of Pub. L. 99-514, set out as a note under section 453B of this
title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 432(d) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1983; except that any
loss from an activity described in section 465(c)(7)(A) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by
this section) which (but for the amendments made by this section)
would have been treated as a deduction for the taxpayer's first
taxable year beginning after December 31, 1983, under section
465(a)(2) of such Code shall be allowed as a deduction for such
first taxable year notwithstanding such amendments."
Amendment by section 721(x)(2) of Pub. L. 98-369 effective as if
included in the Subchapter S Revision Act of 1982, Pub. L. 97-354,
see section 721(y)(1) of Pub. L. 98-369, set out as a note under
section 1361 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENTS
Amendment by Pub. L. 95-618 applicable with respect to wells
commenced on or after Oct. 1, 1978, in taxable years ending on or
after such date, see section 402(e) of Pub. L. 95-618, set out as a
note under section 263 of this title.
Section 204(a) of Pub. L. 95-600 provided that: "The amendments
made by this subtitle [amending this section and section 704 of
this title and enacting provisions set out as notes under this
section and section 704 of this title] shall apply to taxable years
beginning after December 31, 1978."
Section 701(k)(3) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section and
provisions set out below] shall take effect on October 4, 1976."
EFFECTIVE DATE AND TRANSITIONAL RULES
Section 204(c) of Pub. L. 94-455, as amended by Pub. L. 95-600,
title VII, Sec. 701(k)(1), Nov. 6, 1978, 92 Stat. 2906; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraphs (2) and
(3), the amendments made by this section [enacting this section]
shall apply to losses attributable to amounts paid or incurred in
taxable years beginning after December 31, 1975. For purposes of
this subsection, any amount allowed or allowable for depreciation
or amortization for any period shall be treated as an amount paid
or incurred in such period.
"(2) Special transitional rules for movies and video tapes. -
"(A) In general. - In the case of any activity described in
section 465(c)(1)(A) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], the amendments made by this section
shall not apply to -
"(i) deductions for depreciation or amortization with
respect to property the principal production of which began
before September 11, 1975, and for the purchase of which
there was on September 11, 1975, and at all times thereafter
a binding contract, and
"(ii) deductions attributable to producing or distributing
property the principal production of which began before
September 11, 1975.
"(B) Exception for certain agreements where principal
photography begin before 1976. - In the case of any activity
described in section 465(c)(1)(A) of the Internal Revenue Code
of 1986, the amendments made by this section shall not apply to
deductions attributable to the producing of a film the
principal photography of which began on or before December 31,
1975, if -
"(i) on September 10, 1975, there was an agreement with the
director or a principal motion picture star, or on or before
September 10, 1975, there had been expended (or committed to
the production) an amount not less than the lower of $100,000
or 10 percent of the estimated costs of producing the film,
and
"(ii) the production takes place in the United States.
Subparagraph (A) shall apply only to taxpayers who held their
interests on September 10, 1975. Subparagraph (B) shall apply
only to taxpayers who held their interests on December 31, 1975.
"(3) Special transitional rules for leasing activities. -
"(A) Rule for leases other than operating leases. - In the
case of any activity described in section 465(c)(1)(C) of the
Internal Revenue Code of 1986, the amendments made by this
section shall not apply with respect to -
"(i) leases entered into before January 1, 1976, and
"(ii) leases where the property was ordered by the lessor
or lessee before January 1, 1976.
"(B) Holding of interests for purposes of subparagraph (a). -
Subparagraph (A) shall apply only to taxpayers who held their
interests in the property on December 31, 1975.
"(C) Special rule for operating leases. - In the case of a
lease described in section 46(e)(3)(B) of the Internal Revenue
Code of 1986 -
"(i) subparagraph (A) shall be applied by substituting 'May
1, 1976' for 'January 1, 1976' each place it appears therein,
and
"(ii) subparagraph (B) shall be applied by substituting
'April 30, 1976' for 'December 31, 1975'."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
TRANSITIONAL RULES FOR RECAPTURE PROVISIONS AND LEASING ACTIVITIES
Section 204(b) of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 102(a)(1)(E), Apr. 1, 1980, 94 Stat. 208; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Recapture provisions. - If the amount for which the taxpayer
is at risk in any activity as of the close of the taxpayer's last
taxable year beginning before January 1, 1979, is less than zero,
section 465(e)(1) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as added by section 203 of this Act) shall be applied
with respect to such activity of the taxpayer by substituting such
negative amount for zero.
"(2) Special transitional rules for leasing activities. -
"(A) Rule for leases. - In the case of any activity described
in section 465(c)(1)(C) of such Code in which a corporation
described in section 465(a)(1)(C) of such Code is engaged, the
amendments made by this subtitle [amending sections 465 and 704
of this title and enacting provisions set out as notes under
sections 465 and 704 of this title] shall not apply with respect
to -
"(i) leases entered into before November 1, 1978, and
"(ii) leases where the property was ordered by the lessor or
lessee before November 1, 1978.
"(B) Holding of interests for purposes of subparagraph (a). -
Subparagraph (A) shall apply only to taxpayers who held their
interests in the property on October 31, 1978."
-End-
-CITE-
26 USC Sec. 466 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
[Sec. 466. Repealed. Pub. L. 99-514, title VIII, Sec. 823(a), Oct.
22, 1986, 100 Stat. 2373]
-MISC1-
Section, added Pub. L. 95-600, title III, Sec. 373(a), Nov. 6,
1978, 92 Stat. 2863; amended Pub. L. 96-222, title I, Sec.
103(a)(16), Apr. 1, 1980, 94 Stat. 214, related to qualified
discount coupons redeemed after close of taxable year.
EFFECTIVE DATE OF REPEAL
Section 823(c) of Pub. L. 99-514 provided:
"(1) In general. - The amendments made by this section [amending
section 461 of this title and repealing this section] shall apply
to taxable years beginning after December 31, 1986.
"(2) Change in method of accounting. - In the case of any
taxpayer who elected to have section 466 of the Internal Revenue
Code of 1954 [now 1986] apply for such taxpayer's last taxable year
beginning before January 1, 1987, and is required to change its
method of accounting by reason of the amendments made by this
section for any taxable year -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as having been made with the
consent of the Secretary, and
"(C) the net amount of adjustments required by section 481 of
the Internal Revenue Code of 1986 to be taken into account by the
taxpayer shall -
"(i) be reduced by the balance in the suspense account under
section 466(e) of such Code as of the close of such last
taxable year, and
"(ii) be taken into account over a period not longer than 4
years."
-End-
-CITE-
26 USC Sec. 467 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 467. Certain payments for the use of property or services
-STATUTE-
(a) Accrual method on present value basis
In the case of the lessor or lessee under any section 467 rental
agreement, there shall be taken into account for purposes of this
title for any taxable year the sum of -
(1) the amount of the rent which accrues during such taxable
year as determined under subsection (b), and
(2) interest for the year on the amounts which were taken into
account under this subsection for prior taxable years and which
are unpaid.
(b) Accrual of rental payments
(1) Allocation follows agreement
Except as provided in paragraph (2), the determination of the
amount of the rent under any section 467 rental agreement which
accrues during any taxable year shall be made -
(A) by allocating rents in accordance with the agreement, and
(B) by taking into account any rent to be paid after the
close of the period in an amount determined under regulations
which shall be based on present value concepts.
(2) Constant rental accrual in case of certain tax avoidance
transactions, etc.
In the case of any section 467 rental agreement to which this
paragraph applies, the portion of the rent which accrues during
any taxable year shall be that portion of the constant rental
amount with respect to such agreement which is allocable to such
taxable year.
(3) Agreements to which paragraph (2) applies
Paragraph (2) applies to any rental payment agreement if -
(A) such agreement is a disqualified leaseback or long-term
agreement, or
(B) such agreement does not provide for the allocation
referred to in paragraph (1)(A).
(4) Disqualified leaseback or long-term agreement
For purposes of this subsection, the term "disqualified
leaseback or long-term agreement" means any section 467 rental
agreement if -
(A) such agreement is part of a leaseback transaction or such
agreement is for a term in excess of 75 percent of the
statutory recovery period for the property, and
(B) a principal purpose for providing increasing rents under
the agreement is the avoidance of tax imposed by this subtitle.
(5) Exceptions to disqualification in certain cases
The Secretary shall prescribe regulations setting forth
circumstances under which agreements will not be treated as
disqualified leaseback or long-term agreements, including
circumstances relating to -
(A) changes in amounts paid determined by reference to price
indices,
(B) rents based on a fixed percentage of lessee receipts or
similar amounts,
(C) reasonable rent holidays, or
(D) changes in amounts paid to unrelated 3rd parties.
(c) Recapture of prior understated inclusions under leaseback or
long-term agreements
(1) In general
If -
(A) the lessor under any section 467 rental agreement
disposes of any property subject to such agreement during the
term of such agreement, and
(B) such agreement is a leaseback or long-term agreement to
which paragraph (2) of subsection (b) did not apply,
the recapture amount shall be treated as ordinary income. Such
gain shall be recognized notwithstanding any other provision of
this subtitle.
(2) Recapture amount
For purposes of paragraph (1), the term "recapture amount"
means the lesser of -
(A) the prior understated inclusions, or
(B) the excess of the amount realized (or in the case of a
disposition other than a sale, exchange, or involuntary
conversion, the fair market value of the property) over the
adjusted basis of such property.
The amount determined under subparagraph (B) shall be reduced by
the amount of any gain treated as ordinary income on the
disposition under any other provision of this subtitle.
(3) Prior understated inclusions
For purposes of this subsection, the term "prior understated
inclusion" means the excess (if any) of -
(A) the amount which would have been taken into account by
the lessor under subsection (a) for periods before the
disposition if subsection (b)(2) had applied to the agreement,
over
(B) the amount taken into account under subsection (a) by the
lessor for periods before the disposition.
(4) Leaseback or long-term agreement
For purposes of this subsection, the term "leaseback or long-
term agreement" means any agreement described in subsection
(b)(4)(A).
(5) Special rules
Under regulations prescribed by the Secretary -
(A) exceptions similar to the exceptions applicable under
section 1245 or 1250 (whichever is appropriate) shall apply for
purposes of this subsection,
(B) any transferee in a disposition excepted by reason of
subparagraph (A) who has a transferred basis in the property
shall be treated in the same manner as the transferor, and
(C) for purposes of sections 170(e) and 751(c), amounts
treated as ordinary income under this section shall be treated
in the same manner as amounts treated as ordinary income under
section 1245 or 1250.
(d) Section 467 rental agreements
(1) In general
Except as otherwise provided in this subsection, the term
"section 467 rental agreements" means any rental agreement for
the use of tangible property under which -
(A) there is at least one amount allocable to the use of
property during a calendar year which is to be paid after the
close of the calendar year following the calendar year in which
such use occurs, or
(B) there are increases in the amount to be paid as rent
under the agreement.
(2) Section not to apply to agreements involving payments of
$250,000 or less
This section shall not apply to any amount to be paid for the
use of property if the sum of the following amounts does not
exceed $250,000 -
(A) the aggregate amount of payments received as
consideration for such use of property, and
(B) the aggregate value of any other consideration to be
received for such use of property.
For purposes of the preceding sentence, rules similar to the
rules of clauses (ii) and (iii) of section 1274(c)(4)(C) shall
apply.
(e) Definitions
For purposes of this section -
(1) Constant rental amount
The term "constant rental amount" means, with respect to any
section 467 rental agreement, the amount which, if paid as of the
close of each lease period under the agreement, would result in
an aggregate present value equal to the present value of the
aggregate payments required under the agreement.
(2) Leaseback transaction
A transaction is a leaseback transaction if it involves a
leaseback to any person who had an interest in such property at
any time within 2 years before such leaseback (or to a related
person).
(3) Statutory recovery period
(A) In general
The statutory
In the case of: recovery period
is:
3-year property 3 years
5-year property 5 years
7-year property 7 years
10-year property 10 years
15-year and 20-year property 15 years
Residential rental property and nonresi-
dential real property 19 years
Any railroad grading or tunnel bore 50 years.
(B) Special rule for property not depreciable under section 168
In the case of property to which section 168 does not apply,
subparagraph (A) shall be applied as if section 168 applies to
such property.
(4) Discount and interest rate
For purposes of computing present value and interest under
subsection (a)(2), the rate used shall be equal to 110 percent of
the applicable Federal rate determined under section 1274(d)
(compounded semiannually) which is in effect at the time the
agreement is entered into with respect to debt instruments having
a maturity equal to the term of the agreement.
(5) Related person
The term "related person" has the meaning given to such term by
section 465(b)(3)(C).
(6) Certain options of lessee to renew not taken into account
Except as provided in regulations prescribed by the Secretary,
there shall not be taken into account in computing the term of
any agreement for purposes of this section any extension which is
solely at the option of the lessee.
(f) Comparable rules where agreement for decreasing payments
Under regulations prescribed by the Secretary, rules comparable
to the rules of this section shall also apply in the case of any
agreement where the amount paid under the agreement for the use of
property decreases during the term of the agreement.
(g) Comparable rules for services
Under regulations prescribed by the Secretary, rules comparable
to the rules of subsection (a)(2) shall also apply in the case of
payments for services which meet requirements comparable to the
requirements of subsection (d). The preceding sentence shall not
apply to any amount to which section 404 or 404A (or any other
provision specified in regulations) applies.
(h) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this section, including
regulations providing for the application of this section in the
case of contingent payments.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 92(a), July 18, 1984,
98 Stat. 609; amended Pub. L. 99-514, title II, Sec. 201(d)(8),
title V, Sec. 511(d)(2)(A), title VI, Sec. 631(e)(10), title XVIII,
Secs. 1807(b), 1879(f)(1), Oct. 22, 1986, 100 Stat. 2141, 2248,
2274, 2816, 2906; Pub. L. 100-647, title I, Secs. 1002(i)(2)(H),
1005(c)(10), Nov. 10, 1988, 102 Stat. 3371, 3392; Pub. L. 108-27,
title III, Sec. 302(e)(4)(B)(ii), May 28, 2003, 117 Stat. 764.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Subsec. (c)(5)(C). Pub. L. 108-27, Secs. 302(e)(4)(B)(ii),
303, temporarily struck out ", 341(e)(12)," after "170(e)". See
Effective and Termination Dates of 2003 Amendment note below.
1988 - Subsec. (c)(5)(C). Pub. L. 100-647, Sec. 1005(c)(10), made
technical correction to directory language of Pub. L. 99-514, Sec.
511(d)(2)(A). See 1986 Amendment note below.
Subsec. (e)(3)(A). Pub. L. 100-647, Sec. 1002(i)(2)(H), at end of
table inserted item relating to any railroad grading or tunnel
bore.
1986 - Subsec. (b)(4)(A). Pub. L. 99-514, Sec. 1807(b)(2)(A),
substituted "statutory recovery period" for "statutory recover
period".
Subsec. (c)(4). Pub. L. 99-514, Sec. 1807(b)(2)(B), substituted
"subsection (b)(4)(A)" for "subsection (b)(3)(A)".
Subsec. (c)(5)(C). Pub. L. 99-514, Sec. 631(e)(10), struck out
"453B(d)(2)," after "341(e)(12),".
Pub. L. 99-514, Sec. 511(d)(2)(A), as amended by Pub. L. 100-647,
Sec. 1005(c)(10), struck out "163(d)," after "sections".
Subsec. (d)(2). Pub. L. 99-514, Sec. 1807(b)(2)(C), substituted
"section 1274(c)(4)(C)" for "section 1274(c)(2)(C)".
Subsec. (e)(3)(A). Pub. L. 99-514, Sec. 201(d)(8)(A), in amending
subpar. (A) generally, included in table 7-year property, 15-year
and 20-year property, and residential rental property and
nonresidential real property having recovery periods of 7, 15, and
19 years, respectively, and struck out from table low-income
housing, 15-year public utility property, and 19-year real property
having recovery periods of 15, 15, and 19 years, respectively.
Pub. L. 99-514, Sec. 1879(f)(1), substituted "19-year real
property" and "19 years" for "18-year real property" and "18
years", respectively.
Subsec. (e)(3)(B). Pub. L. 99-514, Sec. 201(d)(8)(A), in amending
subpar. (B) generally, substituted in heading "not depreciable
under section 168" for "which is not recovery property" and in text
"In the case of property to which section 168 does not apply,
subparagraph (A) shall be applied as if section 168 applies to such
property." for "In the case of any property, which is not recovery
property, subparagraph (A) shall be applied as if such property
were recovery property."
Subsec. (e)(5). Pub. L. 99-514, Sec. 201(d)(8)(B), substituted
"section 465(b)(3)(C)" for "section 168(e)(4)(D)".
Pub. L. 99-514, Sec. 1807(b)(2)(D), substituted "section
168(e)(4)(D)" for "section 168(d)(4)(D)".
Subsec. (g). Pub. L. 99-514, Sec. 1807(b)(1), inserted at end
"The preceding sentence shall not apply to any amount to which
section 404 or 404A (or any other provision specified in
regulations) applies."
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(8) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(8) of Pub. L. 99-514 not applicable
to any property placed in service before Jan. 1, 1994, if such
property placed in service as part of specified rehabilitations,
and not applicable to certain additional rehabilitations, see
section 251(d)(2), (3) of Pub. L. 99-514, set out as a note under
section 46 of this title.
Amendment by section 511(d)(2)(A) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 511(e) of
Pub. L. 99-514, set out as a note under section 163 of this title.
Amendment by section 631(e)(10) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 1807(b) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
Section 1879(f)(2) of Pub. L. 99-514 provided that: "The
amendments made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section 103 of
Public Law 99-121."
EFFECTIVE DATE
Section 92(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting this
section] shall apply with respect to agreements entered into after
June 8, 1984.
"(2) Exceptions. - The amendments made by this section shall not
apply -
"(A) to any agreement entered into pursuant to a written
agreement which was binding on June 8, 1984, and at all times
thereafter,
"(B) subject to the provisions of paragraph (3), to any
agreement to lease property if -
"(i) there was in effect a firm plan, evidenced by a board of
directors' resolution, memorandum of agreement, or letter of
intent on March 15, 1984, to enter into such an agreement, and
"(ii) construction of the property was commenced (but such
property was not placed in service) on or before March 15,
1984, and
"(C) to any agreement to lease property if -
"(i) the lessee of such property adopted a firm plan to lease
the property, evidenced by a resolution of the Finance
Committee of the Board of Directors of such lessee, on February
10, 1984,
"(ii) the sum of the present values of the rents payable by
the lessee under the lease at the inception thereof equals at
least $91,223,034, assuming for purposes of this clause -
"(I) the annual discount rate is 12.6 percent,
"(II) the initial payment of rent occurs 12 months after
the commencement of the lease, and
"(III) subsequent payments of rents occur on the
anniversary date of the initial payment, and
"(iii) during -
"(I) the first 5 years of the lease, at least 9 percent of
the rents payable by the lessee under the agreement are paid,
and
"(II) the second 5 years of the lease, at least 16.25
percent of the rents payable by the lessee under the
agreement are paid.
Paragraph (3)(B)(ii)(II) shall apply for purposes of clauses (ii)
and (iii) of subparagraph (C), as if, as of the beginning of the
last stage, the separate agreements were treated as 1 single
agreement relating to all property covered by the agreements,
including any property placed in service before the property to
which the agreement for the last stage relates. If the lessor
under the agreement described in subparagraph (C) leases the
property from another person, this exception shall also apply to
any agreement between the lessor and such person which is
integrally related to, and entered into at the same time as, such
agreement, and which calls for comparable payments of rent over
the primary term of the agreement.
"(3) Schedule of deemed rental payments. -
"(A) In general. - In any case to which paragraph (2)(B)
applies, for purposes of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], the lessor shall be treated as having
received or accrued (and the lessee shall be treated as having
paid or incurred) rents equal to the greater of -
"(i) the amount of rents actually paid under the agreement
during the taxable year, or
"(ii) the amount of rents determined in accordance with the
schedule under subparagraph (B) for such taxable year.
"(B) Schedule. -
"(i) In general. - The schedule under this subparagraph is as
follows:
Cumulative
percentage
of total rent
"Portion of lease term: deemed paid:
1st 1/5 10
2nd 1/5 25
3rd 1/5 45
4th 1/5 70
Last 1/5 100.
"(ii) Operating rules. - For purposes of this schedule -
"(I) the rent allocable to each taxable year within any
portion of a lease term described in such schedule shall be a
level pro rata amount properly allocable to such taxable
year, and
"(II) any agreement relating to property which is to be
placed in service in 2 or more stages shall be treated as 2
or more separate agreements.
"(C) Paragraph not to apply. - This paragraph shall not apply
to any agreement if the sum of the present values of all payments
under the agreement is greater than the sum of the present value
of all the payments deemed to be paid or received under the
schedule under subparagraph (B). For purposes of computing any
present value under this subparagraph, the annual discount rate
shall be equal to 12 percent, compounded semiannually."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 468 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 468. Special rules for mining and solid waste reclamation and
closing costs
-STATUTE-
(a) Establishment of reserves for reclamation and closing costs
(1) Allowance of deduction
If a taxpayer elects the application of this section with
respect to any mining or solid waste disposal property, the
amount of any deduction for qualified reclamation or closing
costs for any taxable year to which such election applies shall
be equal to the current reclamation or closing costs allocable to
-
(A) in the case of qualified reclamation costs, the portion
of the reserve property which was disturbed during such taxable
year, and
(B) in the case of qualified closing costs, the production
from the reserve property during such taxable year.
(2) Opening balance and adjustments to reserve
(A) Opening balance
The opening balance of any reserve for its first taxable year
shall be zero.
(B) Increase for interest
A reserve shall be increased each taxable year by an amount
equal to the amount of interest which would have been earned
during such taxable year on the opening balance of such reserve
for such taxable year if such interest were computed -
(i) at the Federal short-term rate or rates (determined
under section 1274) in effect, and
(ii) by compounding semiannually.
(C) Reserve to be charged for amounts paid
Any amount paid by the taxpayer during any taxable year for
qualified reclamation or closing costs allocable to portions of
the reserve property for which the election under paragraph (1)
was in effect shall be charged to the appropriate reserve as of
the close of the taxable year.
(D) Reserve increased by amount deducted
A reserve shall be increased each taxable year by the amount
allowable as a deduction under paragraph (1) for such taxable
year which is allocable to such reserve.
(3) Allowance of deduction for excess amounts paid
There shall be allowed as a deduction for any taxable year the
excess of -
(A) the amounts described in paragraph (2)(C) paid during
such taxable year, over
(B) the closing balance of the reserve for such taxable year
(determined without regard to paragraph (2)(C)).
(4) Limitation on balance as of the close of any taxable year
(A) Reclamation reserves
In the case of any reserve for qualified reclamation costs,
there shall be included in gross income for any taxable year an
amount equal to the excess of -
(i) the closing balance of the reserve for such taxable
year, over
(ii) the current reclamation costs of the taxpayer for all
portions of the reserve property disturbed during any taxable
year to which the election under paragraph (1) applies.
(B) Closing costs reserves
In the case of any reserve for qualified closing costs, there
shall be included in gross income for any taxable year an
amount equal to the excess of -
(i) the closing balance of the reserve for such taxable
year, over
(ii) the current closing cost of the taxpayer with respect
to the reserve property, determined as if all production with
respect to the reserve property for any taxable year to which
the election under paragraph (1) applies had occurred in such
taxable year.
(C) Order of application
This paragraph shall be applied after all adjustments to the
reserve have been made for the taxable year.
(5) Income inclusions on completion or disposition
Proper inclusion in income shall be made upon -
(A) the revocation of an election under paragraph (1), or
(B) completion of the closing, or disposition of any portion,
of a reserve property.
(b) Allocation for property where election not in effect for all
taxable years
If the election under subsection (a)(1) is not in effect for 1 or
more taxable years in which the reserved property is disturbed (or
production occurs), items with respect to the reserve property
shall be allocated to the reserve in such manner as the Secretary
may prescribe by regulations.
(c) Revocation of election; separate reserves
(1) Revocation of election
(A) In general
The taxpayer may revoke an election under subsection (a)(1)
with respect to any property. Such revocation, once made, shall
be irrevocable.
(B) Time and manner of revocation
Any revocation under subparagraph (A) shall be made at such
time and in such manner as the Secretary may prescribe.
(2) Separate reserves required
If a taxpayer makes an election under subsection (a)(1), the
taxpayer shall establish with respect to the property for which
the election was made -
(A) a separate reserve for qualified reclamation costs, and
(B) a separate reserve for qualified closing costs.
(d) Definitions and special rules relating to reclamation and
closing costs
For purposes of this section -
(1) Current reclamation and closing costs
(A) Current reclamation costs
The term "current reclamation costs" means the amount which
the taxpayer would be required to pay for qualified reclamation
costs if the reclamation activities were performed currently.
(B) Current closing costs
(i) In general
The term "current closing costs" means the amount which the
taxpayer would be required to pay for qualified closing costs
if the closing activities were performed currently.
(ii) Costs computed on unit-of-production or capacity method
Estimated closing costs shall -
(I) in the case of the closing of any mine site, be
computed on the unit-of-production method of accounting,
and
(II) in the case of the closing of any solid waste
disposal site, be computed on the unit-of-capacity method.
(2) Qualified reclamation or closing costs
The term "qualified reclamation or closing costs" means any of
the following expenses:
(A) Mining reclamation and closing costs
Any expenses incurred for any land reclamation or closing
activity which is conducted in accordance with a reclamation
plan (including an amendment or modification thereof) -
(i) which -
(I) is submitted pursuant to the provisions of section
511 or 528 of the Surface Mining Control and Reclamation
Act of 1977 (as in effect on January 1, 1984), and
(II) is part of a surface mining and reclamation permit
granted under the provisions of title V of such Act (as so
in effect), or
(ii) which is submitted pursuant to any other Federal or
State law which imposes surface mining reclamation and permit
requirements substantially similar to the requirements
imposed by title V of such Act (as so in effect).
(B) Solid waste disposal and closing costs
(i) In general
Any expenses incurred for any land reclamation or closing
activity in connection with any solid waste disposal site
which is conducted in accordance with any permit issued
pursuant to -
(I) any provision of the Solid Waste Disposal Act (as in
effect on January 1, 1984) requiring such activity, or
(II) any other Federal, State, or local law which imposes
requirements substantially similar to the requirements
imposed by the Solid Waste Disposal Act (as so in effect).
(ii) Exception for certain hazardous waste sites
Clause (i) shall not apply to that portion of any property
which is disturbed after the property is listed in the
national contingency plan established under section 105 of
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980.
(3) Property
The term "property" has the meaning given such term by section
614.
(4) Reserve property
The term "reserve property" means any property with respect to
which a reserve is established under subsection (a)(1).
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 91(b)(1), July 18,
1984, 98 Stat. 601; amended Pub. L. 99-514, title XVIII, Secs.
1807(a)(3)(A), (C), 1899A(14), Oct. 22, 1986, 100 Stat. 2811, 2959;
Pub. L. 101-508, title XI, Sec. 11802(c), Nov. 5, 1990, 104 Stat.
1388-529.)
-REFTEXT-
REFERENCES IN TEXT
The Surface Mining Control and Reclamation Act of 1977, referred
to in subsec. (d)(2)(A), is Pub. L. 95-87, Aug. 3, 1977, 91 Stat.
445, as amended. Title V of that Act is classified generally to
subchapter V (Sec. 1251 et seq.) of chapter 25 of Title 30, Mineral
Lands and Mining. Sections 511 and 528 of that Act are classified
to sections 1261 and 1278, respectively, of Title 30. For complete
classification of this Act to the Code, see Short Title note set
out under section 1201 of Title 30 and Tables.
The Solid Waste Disposal Act, referred to in subsec.
(d)(2)(B)(i), is title II of Pub. L. 89-272, Oct. 20, 1965, 79
Stat. 997, as amended generally by Pub. L. 94-580, Sec. 2, Oct. 21,
1976, 90 Stat. 2795, which is classified generally to chapter 82
(Sec. 6901 et seq.) of Title 42, The Public Health and Welfare. For
complete classification of this Act to the Code, see Short Title
note set out under section 6901 of Title 42 and Tables.
Section 105 of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, referred to in subsec.
(d)(2)(B)(ii), is classified to section 9605 of Title 42.
-MISC1-
AMENDMENTS
1990 - Subsec. (a)(2)(B). Pub. L. 101-508 amended subpar. (B)
generally, substituting present provisions for provisions providing
for increase for interest and a phase-in of interest rates for
taxable years ending before 1987.
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1807(a)(3)(C),
substituted "this section" for "this subsection".
Subsec. (a)(2)(D). Pub. L. 99-514, Sec. 1807(a)(3)(A), added
subpar. (D).
Subsec. (d)(2)(B)(ii). Pub. L. 99-514, Sec. 1899A(14),
substituted "Comprehensive Environmental Response, Compensation,
and Liability Act of 1980" for "Comprehensive Environmental,
Compensation, and Liability Act of 1980".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1807(a)(3)(A), (C) of Pub. L. 99-514
effective, except as otherwise provided, as if included in the
provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,
to which such amendment relates, see section 1881 of Pub. L. 99-
514, set out as a note under section 48 of this title.
EFFECTIVE DATE
Section effective July 18, 1984, with respect to taxable years
ending after such date, except as otherwise provided, see section
91(g)(4) of Pub. L. 98-369, as amended, set out as an Effective
Date of 1984 Amendment note under section 461 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 468A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 468A. Special rules for nuclear decommissioning costs
-STATUTE-
(a) In general
If the taxpayer elects the application of this section, there
shall be allowed as a deduction for any taxable year the amount of
payments made by the taxpayer to a Nuclear Decommissioning Reserve
Fund (hereinafter referred to as the "Fund") during such taxable
year.
(b) Limitation on amounts paid into Fund
The amount which a taxpayer may pay into the Fund for any taxable
year shall not exceed the ruling amount applicable to such taxable
year.
(c) Income and deductions of the taxpayer
(1) Inclusion of amounts distributed
There shall be includible in the gross income of the taxpayer
for any taxable year -
(A) any amount distributed from the Fund during such taxable
year, other than any amount distributed to pay costs described
in subsection (e)(4)(B), and
(B) except to the extent provided in regulations, amounts
properly includible in gross income in the case of any deemed
distribution under subsection (e)(6), any termination under
subsection (e)(7), or the disposition of any interest in the
nuclear powerplant.
(2) Deduction when economic performance occurs
In addition to any deduction under subsection (a), there shall
be allowable as a deduction for any taxable year the amount of
the nuclear decommissioning costs with respect to which economic
performance (within the meaning of section 461(h)(2)) occurs
during such taxable year.
(d) Ruling amount
For purposes of this section -
(1) Request required
No deduction shall be allowed for any payment to the Fund
unless the taxpayer requests, and receives, from the Secretary a
schedule of ruling amounts. For purposes of the preceding
sentence, the taxpayer shall request a schedule of ruling amounts
upon each renewal of the operating license of the nuclear
powerplant.
(2) Ruling amount
The term "ruling amount" means, with respect to any taxable
year, the amount which the Secretary determines under paragraph
(1) to be necessary to -
(A) fund the total nuclear decommissioning costs with respect
to such power plant over the estimated useful life of such
power plant, and
(B) prevent any excessive funding of such costs or the
funding of such costs at a rate more rapid than level funding,
taking into account such discount rates as the Secretary deems
appropriate.
(3) Review of amount
The Secretary shall at least once during the useful life of the
nuclear powerplant (or, more frequently, upon the request of the
taxpayer) review, and revise if necessary, the schedule of ruling
amounts determined under paragraph (1).
(e) Nuclear Decommissioning Reserve Fund
(1) In general
Each taxpayer who elects the application of this section shall
establish a Nuclear Decommissioning Reserve Fund with respect to
each nuclear powerplant to which such election applies.
(2) Taxation of Fund
(A) In general
There is hereby imposed on the gross income of the Fund for
any taxable year a tax at the rate of 20 percent, except that -
(i) there shall not be included in the gross income of the
Fund any payment to the Fund with respect to which a
deduction is allowable under subsection (a), and
(ii) there shall be allowed as a deduction to the Fund any
amount paid by the Fund which is described in paragraph
(4)(B) (other than an amount paid to the taxpayer) and which
would be deductible under this chapter for purposes of
determining the taxable income of a corporation.
(B) Tax in lieu of other taxation
The tax imposed by subparagraph (A) shall be in lieu of any
other taxation under this subtitle of the income from assets in
the Fund.
(C) Fund treated as corporation
For purposes of subtitle F -
(i) the Fund shall be treated as if it were a corporation,
and
(ii) any tax imposed by this paragraph shall be treated as
a tax imposed by section 11.
(3) Contributions to Fund
Except as provided in subsection (f), the Fund shall not accept
any payments (or other amounts) other than payments with respect
to which a deduction is allowable under subsection (a).
(4) Use of Fund
The Fund shall be used exclusively for -
(A) satisfying, in whole or in part, any liability of any
person contributing to the Fund for the decommissioning of a
nuclear powerplant (or unit thereof),
(B) to pay administrative costs (including taxes) and other
incidental expenses of the Fund (including legal, accounting,
actuarial, and trustee expenses) in connection with the
operation of the Fund, and
(C) to the extent that a portion of the Fund is not currently
needed for purposes described in subparagraph (A) or (B),
making investments.
(5) Prohibitions against self-dealing
Under regulations prescribed by the Secretary, for purposes of
section 4951 (and so much of this title as relates to such
section), the Fund shall be treated in the same manner as a trust
described in section 501(c)(21).
(6) Disqualification of Fund
In any case in which the Fund violates any provision of this
section or section 4951, the Secretary may disqualify such Fund
from the application of this section. In any case to which this
paragraph applies, the Fund shall be treated as having
distributed all of its funds on the date such determination takes
effect.
(7) Termination upon completion
Upon substantial completion of the nuclear decommissioning of
the nuclear powerplant with respect to which a Fund relates, the
taxpayer shall terminate such Fund.
(f) Transfers into qualified funds
(1) In general
Notwithstanding subsection (b), any taxpayer maintaining a Fund
to which this section applies with respect to a nuclear power
plant may transfer into such Fund not more than an amount equal
to the present value of the portion of the total nuclear
decommissioning costs with respect to such nuclear power plant
previously excluded for such nuclear power plant under subsection
(d)(2)(A) as in effect immediately before the date of the
enactment of this subsection.
(2) Deduction for amounts transferred
(A) In general
Except as provided in subparagraph (C), the deduction allowed
by subsection (a) for any transfer permitted by this subsection
shall be allowed ratably over the remaining estimated useful
life (within the meaning of subsection (d)(2)(A)) of the
nuclear power plant beginning with the taxable year during
which the transfer is made.
(B) Denial of deduction for previously deducted amounts
No deduction shall be allowed for any transfer under this
subsection of an amount for which a deduction was previously
allowed to the taxpayer (or a predecessor) or a corresponding
amount was not included in gross income of the taxpayer (or a
predecessor). For purposes of the preceding sentence, a ratable
portion of each transfer shall be treated as being from
previously deducted or excluded amounts to the extent thereof.
(C) Transfers of qualified funds
If -
(i) any transfer permitted by this subsection is made to
any Fund to which this section applies, and
(ii) such Fund is transferred thereafter,
any deduction under this subsection for taxable years ending
after the date that such Fund is transferred shall be allowed
to the transferor for the taxable year which includes such
date.
(D) Special rules
(i) Gain or loss not recognized on transfers to Fund
No gain or loss shall be recognized on any transfer
described in paragraph (1).
(ii) Transfers of appreciated property to Fund
If appreciated property is transferred in a transfer
described in paragraph (1), the amount of the deduction shall
not exceed the adjusted basis of such property.
(3) New ruling amount required
Paragraph (1) shall not apply to any transfer unless the
taxpayer requests from the Secretary a new schedule of ruling
amounts in connection with such transfer.
(4) No basis in qualified funds
Notwithstanding any other provision of law, the taxpayer's
basis in any Fund to which this section applies shall not be
increased by reason of any transfer permitted by this subsection.
(g) Nuclear powerplant
For purposes of this section, the term "nuclear powerplant"
includes any unit thereof.
(h) Time when payments deemed made
For purposes of this section, a taxpayer shall be deemed to have
made a payment to the Fund on the last day of a taxable year if
such payment is made on account of such taxable year and is made
within 2 1/2 months after the close of such taxable year.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 91(c)(1), July 18,
1984, 98 Stat. 604; amended Pub. L. 99-514, title XVIII, Sec.
1807(a)(4)(A)(i), (B)-(E)(vi), Oct. 22, 1986, 100 Stat. 2812, 2813;
Pub. L. 102-486, title XIX, Sec. 1917(a), (b), Oct. 24, 1992, 106
Stat. 3024, 3025; Pub. L. 104-188, title I, Sec. 1704(j)(6), Aug.
20, 1996, 110 Stat. 1882; Pub. L. 109-58, title XIII, Sec. 1310(a)-
(e), Aug. 8, 2005, 119 Stat. 1007-1009.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this subsection, referred to in
subsec. (f)(1), is the date of enactment of Pub. L. 109-58, which
was approved Aug. 8, 2005.
-MISC1-
AMENDMENTS
2005 - Subsec. (b). Pub. L. 109-58, Sec. 1310(a), reenacted
heading without change and amended text of subsec. (b) generally.
Prior to amendment, text read as follows: "The amount which a
taxpayer may pay into the Fund for any taxable year shall not
exceed the lesser of -
"(1) the amount of nuclear decommissioning costs allocable to
the Fund which is included in the taxpayer's cost of service for
ratemaking purposes for such taxable year, or
"(2) the ruling amount applicable to such taxable year."
Subsec. (d)(1). Pub. L. 109-58, Sec. 1310(c), inserted at end
"For purposes of the preceding sentence, the taxpayer shall request
a schedule of ruling amounts upon each renewal of the operating
license of the nuclear powerplant."
Subsec. (d)(2)(A). Pub. L. 109-58, Sec. 1310(b)(2), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "fund that portion of the nuclear decommissioning costs of
the taxpayer with respect to the nuclear powerplant which bears the
same ratio to the total nuclear decommissioning costs with respect
to such nuclear powerplant as the period for which the Fund is in
effect bears to the estimated useful life of such nuclear
powerplant, and".
Subsec. (e)(2)(A). Pub. L. 109-58, Sec. 1310(e)(1), substituted
"rate of 20 percent" for "rate set forth in subparagraph (B)" in
introductory provisions.
Subsec. (e)(2)(B) to (D). Pub. L. 109-58, Sec. 1310(e)(2), (3),
redesignated subpars. (C) and (D) as (B) and (C), respectively, and
struck out heading and text of former subpar. (B). Text read as
follows: "For purposes of subparagraph (A), the rate set forth in
this subparagraph is -
"(i) 22 percent in the case of taxable years beginning in
calendar year 1994 or 1995, and
"(ii) 20 percent in the case of taxable years beginning after
December 31, 1995."
Subsec. (e)(3). Pub. L. 109-58, Sec. 1310(d), substituted "Except
as provided in subsection (f), the Fund" for "The Fund".
Subsecs. (f) to (h). Pub. L. 109-58, Sec. 1310(b)(1), added
subsec. (f) and redesignated former subsecs. (f) and (g) as (g) and
(h), respectively.
1996 - Subsec. (e)(2)(A). Pub. L. 104-188 provided that the
amendment made by section 1917(b)(1) of Pub. L. 102-486 shall be
applied as if "at a rate" appeared instead of "at the rate" in the
material proposed to be stricken. See 1992 Amendment note below.
1992 - Subsec. (e)(2)(A). Pub. L. 102-486, Sec. 1917(b)(1), which
directed that subpar. (A) be amended by striking "at the rate equal
to the highest rate of tax specified in section 11(b)" and
inserting "at the rate set forth in subparagraph (B)", was executed
by making the substitution for "at a rate equal to the highest rate
of tax specified in section 11(b)". See 1996 Amendment note above.
Subsec. (e)(2)(B) to (D). Pub. L. 102-486, Sec. 1917(b)(2), added
subpar. (B) and redesignated former subpars. (B) and (C) as (C) and
(D), respectively.
Subsec. (e)(4)(C). Pub. L. 102-486, Sec. 1917(a), struck out
before period at end "described in section 501(c)(21)(B)(ii)".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1807(a)(4)(E)(i),
substituted "this section" for "this subsection".
Subsec. (c)(1)(A). Pub. L. 99-514, Sec. 1807(a)(4)(B),
substituted "subsection (e)(4)(B)" for "subsection (e)(2)(B)".
Subsec. (d). Pub. L. 99-514, Sec. 1807(a)(4)(E)(ii), substituted
"this section" for "this subsection" in introductory text.
Subsec. (e). Pub. L. 99-514, Sec. 1807(a)(4)(E)(iii), substituted
"Reserve Fund" for "Trust Fund" in heading.
Subsec. (e)(1). Pub. L. 99-514, Sec. 1807(a)(4)(E)(iv),
substituted "this section" for "this subsection" and "Reserve Fund"
for "Trust Fund".
Subsec. (e)(2). Pub. L. 99-514, Sec. 1807(a)(4)(C), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "There
is imposed on the gross income of the Fund for any taxable year a
tax at a rate equal to the maximum rate in effect under section
11(b), except that -
"(A) there shall not be included in the gross income of the
Fund any payment to the Fund with respect to which a deduction is
allowable under subsection (a), and
"(B) there shall be allowed as a deduction any amount paid by
the Fund described in paragraph (4)(B) (other than to the
taxpayer)."
Subsec. (e)(4)(C). Pub. L. 99-514, Sec. 1807(a)(4)(D), added
subpar. (C).
Subsec. (e)(6). Pub. L. 99-514, Sec. 1807(a)(4)(E)(v),
substituted "this section" for "this subsection" in two places and
"this paragraph" for "this subparagraph".
Subsec. (f). Pub. L. 99-514, Sec. 1807(a)(4)(E)(vi), substituted
"For purposes of this section, the" for "The".
Subsec. (g). Pub. L. 99-514, Sec. 1807(a)(4)(A)(i), added subsec.
(g).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-58, title XIII, Sec. 1310(f), Aug. 8, 2005, 119 Stat.
1009, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2005."
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1917(c) of Pub. L. 102-486 provided that:
"(1) Subsection (a). - The amendment made by subsection (a)
[amending this section] shall apply to taxable years beginning
after December 31, 1992.
"(2) Subsection (b). - The amendments made by subsection (b)
[amending this section] shall apply to taxable years beginning
after December 31, 1993. Section 15 of the Internal Revenue Code of
1986 shall not apply to any change in rate resulting from the
amendment made by subsection (b)."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section effective July 18, 1984, with respect to taxable years
ending after such date, see section 91(g)(5) of Pub. L. 98-369, as
amended, set out as an Effective Date of 1984 Amendment note under
section 461 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TRANSITIONAL RULE
Section 1807(a)(4)(A)(ii) of Pub. L. 99-514 provided that: "To
the extent provided in regulations prescribed by the Secretary of
the Treasury or his delegate, subsection (g) of section 468A of the
Internal Revenue Code of 1954 [now 1986] (as added by clause (i))
shall be applied with respect to any payment on account of a
taxable year beginning before January 1, 1987, as if it did not
contain the requirement that the payment be made within 2 1/2
months after the close of the taxable year. Such regulations may
provide that, to the extent such payment to the Fund is made more
than 2 1/2 months after the close of the taxable year, any
adjustment to the tax attributable to such payment shall not affect
the amount of interest payable with respect to periods before the
payment is made. Such regulations may provide appropriate
adjustments to the deduction allowed under such section 468A for
any such taxable year to take into account the fact that the
payment to the Fund is made more than 2 1/2 months after the close
of the taxable year."
-End-
-CITE-
26 USC Sec. 468B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 468B. Special rules for designated settlement funds
-STATUTE-
(a) In general
For purposes of section 461(h), economic performance shall be
deemed to occur as qualified payments are made by the taxpayer to a
designated settlement fund.
(b) Taxation of designated settlement fund
(1) In general
There is imposed on the gross income of any designated
settlement fund for any taxable year a tax at a rate equal to the
maximum rate in effect for such taxable year under section 1(e).
(2) Certain expenses allowed
For purposes of paragraph (1), gross income for any taxable
year shall be reduced by the amount of any administrative costs
(including State and local taxes) and other incidental expenses
of the designated settlement fund (including legal, accounting,
and actuarial expenses) -
(A) which are incurred in connection with the operation of
the fund, and
(B) which would be deductible under this chapter for purposes
of determining the taxable income of a corporation.
No other deduction shall be allowed to the fund.
(3) Transfers to the fund
In the case of any qualified payment made to the fund -
(A) the amount of such payment shall not be treated as income
of the designated settlement fund,
(B) the basis of the fund in any property which constitutes a
qualified payment shall be equal to the fair market value of
such property at the time of payment, and
(C) the fund shall be treated as the owner of the property in
the fund (and any earnings thereon).
(4) Tax in lieu of other taxation
The tax imposed by paragraph (1) shall be in lieu of any other
taxation under this subtitle of income from assets in the
designated settlement fund.
(5) Coordination with subtitle F
For purposes of subtitle F -
(A) a designated settlement fund shall be treated as a
corporation, and
(B) any tax imposed by this subsection shall be treated as a
tax imposed by section 11.
(c) Deductions not allowed for transfer of insurance amounts
No deduction shall be allowable for any qualified payment by the
taxpayer of any amounts received from the settlement of any
insurance claim to the extent such amounts are excluded from the
gross income of the taxpayer.
(d) Definitions
For purposes of this section -
(1) Qualified payment
The term "qualified payment" means any money or property which
is transferred to any designated settlement fund pursuant to a
court order, other than -
(A) any amount which may be transferred from the fund to the
taxpayer (or any related person), or
(B) the transfer of any stock or indebtedness of the taxpayer
(or any related person).
(2) Designated settlement fund
The term "designated settlement fund" means any fund -
(A) which is established pursuant to a court order and which
extinguishes completely the taxpayer's tort liability with
respect to claims described in subparagraph (D),
(B) with respect to which no amounts may be transferred other
than in the form of qualified payments,
(C) which is administered by persons a majority of whom are
independent of the taxpayer,
(D) which is established for the principal purpose of
resolving and satisfying present and future claims against the
taxpayer (or any related person or formerly related person)
arising out of personal injury, death, or property damage,
(E) under the terms of which the taxpayer (or any related
person) may not hold any beneficial interest in the income or
corpus of the fund, and
(F) with respect to which an election is made under this
section by the taxpayer.
An election under this section shall be made at such time and in
such manner as the Secretary shall by regulation prescribe. Such
an election, once made, may be revoked only with the consent of
the Secretary.
(3) Related person
The term "related person" means a person related to the
taxpayer within the meaning of section 267(b).
(e) Nonapplicability of section
This section (other than subsection (g)) shall not apply with
respect to any liability of the taxpayer arising under any workers'
compensation Act or any contested liability of the taxpayer within
the meaning of section 461(f).
(f) Other funds
Except as provided in regulations, any payment in respect of a
liability described in subsection (d)(2)(D) (and not described in
subsection (e)) to a trust fund or escrow fund which is not a
designated settlement fund shall not be treated as constituting
economic performance.
(g) Clarification of taxation of certain funds
Nothing in any provision of law shall be construed as providing
that an escrow account, settlement fund, or similar fund is not
subject to current income tax. The Secretary shall prescribe
regulations providing for the taxation of any such account or fund
whether as a grantor trust or otherwise.
-SOURCE-
(Added Pub. L. 99-514, title XVIII, Sec. 1807(a)(7)(A), Oct. 22,
1986, 100 Stat. 2814; amended Pub. L. 100-647, title I, Sec.
1018(f)(1), (2), (4), (5)(A), Nov. 10, 1988, 102 Stat. 3582; Pub.
L. 101-508, title XI, Sec. 11702(e)(1), Nov. 5, 1990, 104 Stat.
1388-515.)
-MISC1-
AMENDMENTS
1990 - Subsec. (e). Pub. L. 101-508 substituted "This section
(other than subsection (g))" for "This section".
1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 1018(f)(4)(B),
substituted "No other" for "no other" in concluding provisions.
Subsec. (b)(2)(B). Pub. L. 100-647, Sec. 1018(f)(4)(A),
substituted "a corporation." for "the corporation,".
Subsec. (d)(1)(A). Pub. L. 100-647, Sec. 1018(f)(1), inserted
"(or any related person)" after "taxpayer".
Subsec. (d)(2)(A). Pub. L. 100-647, Sec. 1018(f)(2), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "which is established pursuant to a court order,".
Subsec. (d)(2)(E). Pub. L. 100-647, Sec. 1018(f)(1), inserted
"(or any related person)" after "taxpayer".
Subsec. (g). Pub. L. 100-647, Sec. 1018(f)(5)(A), added subsec.
(g).
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section
11702(j) of Pub. L. 101-508, set out as a note under section 59 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section effective, except as otherwise provided, as if included
in the provisions of the Tax Reform Act of 1984, Pub. L. 98-369,
div. A, to which such amendment relates, see section 1881 of Pub.
L. 99-514, set out as an Effective Date of 1986 Amendment note
under section 48 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
SPECIAL RULE FOR TAXPAYER IN BANKRUPTCY REORGANIZATION
Section 1807(a)(7)(C) of Pub. L. 99-514, as amended by Pub. L.
100-647, title I, Sec. 1018(f)(3), Nov. 10, 1988, 102 Stat. 3582,
provided that: "In the case of any settlement fund which is
established for claimants against a corporation which filed a
petition for reorganization under chapter 11 of title 11, United
States Code, on August 26, 1982, and which filed with a United
States district court a first amended and restated plan of
reorganization before March 1, 1986 -
"(i) any portion of such fund which is established pursuant to
a court order and with qualified payments, which meets the
requirements of subparagraphs (C) and (D) of section 468B(d)(2)
of the Internal Revenue Code of 1954 [now 1986] (as added by this
paragraph), and with respect to which an election is made under
subparagraph (F) thereof, shall be treated as a designated
settlement fund for purposes of section 468B of such Code,
"(ii) such corporation (or any successor thereof) shall be
liable for the tax imposed by section 468B of such Code on such
portion of the fund (and the fund shall not be liable for such
tax), such tax shall be deductible by the corporation, and the
rate of tax under section 468B of such Code for any taxable year
shall be equal to 15 percent, and
"(iii) any transaction by any portion of the fund not described
in clause (i) shall be treated as a transaction made by the
corporation."
CLARIFICATION OF LAW WITH RESPECT TO CERTAIN FUNDS
Section 1807(a)(7)(D) of Pub. L. 99-514 provided that nothing in
any provision of law be construed as providing that an escrow
account, settlement fund, or similar fund established after Aug.
16, 1986, not be subject to current income tax and that if
contributions to such account or fund are not deductible then the
account or fund be taxed as a grantor trust, prior to repeal by
Pub. L. 100-647, title I, Sec. 1018(f)(5)(B), Nov. 10, 1988, 102
Stat. 3582.
-End-
-CITE-
26 USC Sec. 469 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 469. Passive activity losses and credits limited
-STATUTE-
(a) Disallowance
(1) In general
If for any taxable year the taxpayer is described in paragraph
(2), neither -
(A) the passive activity loss, nor
(B) the passive activity credit,
for the taxable year shall be allowed.
(2) Persons described
The following are described in this paragraph:
(A) any individual, estate, or trust,
(B) any closely held C corporation, and
(C) any personal service corporation.
(b) Disallowed loss or credit carried to next year
Except as otherwise provided in this section, any loss or credit
from an activity which is disallowed under subsection (a) shall be
treated as a deduction or credit allocable to such activity in the
next taxable year.
(c) Passive activity defined
For purposes of this section -
(1) In general
The term "passive activity" means any activity -
(A) which involves the conduct of any trade or business, and
(B) in which the taxpayer does not materially participate.
(2) Passive activity includes any rental activity
Except as provided in paragraph (7), the term "passive
activity" includes any rental activity.
(3) Working interests in oil and gas property
(A) In general
The term "passive activity" shall not include any working
interest in any oil or gas property which the taxpayer holds
directly or through an entity which does not limit the
liability of the taxpayer with respect to such interest.
(B) Income in subsequent years
If any taxpayer has any loss for any taxable year from a
working interest in any oil or gas property which is treated as
a loss which is not from a passive activity, then any net
income from such property (or any property the basis of which
is determined in whole or in part by reference to the basis of
such property) for any succeeding taxable year shall be treated
as income of the taxpayer which is not from a passive activity.
If the preceding sentence applies to the net income from any
property for any taxable year, any credits allowable under
subpart B (other than section 27(a)) or D of part IV of
subchapter A for such taxable year which are attributable to
such property shall be treated as credits not from a passive
activity to the extent the amount of such credits does not
exceed the regular tax liability of the taxpayer for the
taxable year which is allocable to such net income.
(4) Material participation not required for paragraphs (2) and
(3)
Paragraphs (2) and (3) shall be applied without regard to
whether or not the taxpayer materially participates in the
activity.
(5) Trade or business includes research and experimentation
activity
For purposes of paragraph (1)(A), the term "trade or business"
includes any activity involving research or experimentation
(within the meaning of section 174).
(6) Activity in connection with trade or business or production
of income
To the extent provided in regulations, for purposes of
paragraph (1)(A), the term "trade or business" includes -
(A) any activity in connection with a trade or business, or
(B) any activity with respect to which expenses are allowable
as a deduction under section 212.
(7) Special rules for taxpayers in real property business
(A) In general
If this paragraph applies to any taxpayer for a taxable year -
(i) paragraph (2) shall not apply to any rental real estate
activity of such taxpayer for such taxable year, and
(ii) this section shall be applied as if each interest of
the taxpayer in rental real estate were a separate activity.
Notwithstanding clause (ii), a taxpayer may elect to treat all
interests in rental real estate as one activity. Nothing in the
preceding provisions of this subparagraph shall be construed as
affecting the determination of whether the taxpayer materially
participates with respect to any interest in a limited
partnership as a limited partner.
(B) Taxpayers to whom paragraph applies
This paragraph shall apply to a taxpayer for a taxable year
if -
(i) more than one-half of the personal services performed
in trades or businesses by the taxpayer during such taxable
year are performed in real property trades or businesses in
which the taxpayer materially participates, and
(ii) such taxpayer performs more than 750 hours of services
during the taxable year in real property trades or businesses
in which the taxpayer materially participates.
In the case of a joint return, the requirements of the
preceding sentence are satisfied if and only if either spouse
separately satisfies such requirements. For purposes of the
preceding sentence, activities in which a spouse materially
participates shall be determined under subsection (h).
(C) Real property trade or business
For purposes of this paragraph, the term "real property trade
or business" means any real property development,
redevelopment, construction, reconstruction, acquisition,
conversion, rental, operation, management, leasing, or
brokerage trade or business.
(D) Special rules for subparagraph (B)
(i) Closely held C corporations
In the case of a closely held C corporation, the
requirements of subparagraph (B) shall be treated as met for
any taxable year if more than 50 percent of the gross
receipts of such corporation for such taxable year are
derived from real property trades or businesses in which the
corporation materially participates.
(ii) Personal services as an employee
For purposes of subparagraph (B), personal services
performed as an employee shall not be treated as performed in
real property trades or businesses. The preceding sentence
shall not apply if such employee is a 5-percent owner (as
defined in section 416(i)(1)(B)) in the employer.
(d) Passive activity loss and credit defined
For purposes of this section -
(1) Passive activity loss
The term "passive activity loss" means the amount (if any) by
which -
(A) the aggregate losses from all passive activities for the
taxable year, exceed
(B) the aggregate income from all passive activities for such
year.
(2) Passive activity credit
The term "passive activity credit" means the amount (if any) by
which -
(A) the sum of the credits from all passive activities
allowable for the taxable year under -
(i) subpart D of part IV of subchapter A, or
(ii) subpart B (other than section 27(a)) of such part IV,
exceeds
(B) the regular tax liability of the taxpayer for the taxable
year allocable to all passive activities.
(e) Special rules for determining income or loss from a passive
activity
For purposes of this section -
(1) Certain income not treated as income from passive activity
In determining the income or loss from any activity -
(A) In general
There shall not be taken into account -
(i) any -
(I) gross income from interest, dividends, annuities, or
royalties not derived in the ordinary course of a trade or
business,
(II) expenses (other than interest) which are clearly and
directly allocable to such gross income, and
(III) interest expense properly allocable to such gross
income, and
(ii) gain or loss not derived in the ordinary course of a
trade or business which is attributable to the disposition of
property -
(I) producing income of a type described in clause (i),
or
(II) held for investment.
For purposes of clause (ii), any interest in a passive activity
shall not be treated as property held for investment.
(B) Return on working capital
For purposes of subparagraph (A), any income, gain, or loss
which is attributable to an investment of working capital shall
be treated as not derived in the ordinary course of a trade or
business.
(2) Passive losses of certain closely held corporations may
offset active income
(A) In general
If a closely held C corporation (other than a personal
service corporation) has net active income for any taxable
year, the passive activity loss of such taxpayer for such
taxable year (determined without regard to this paragraph) -
(i) shall be allowable as a deduction against net active
income, and
(ii) shall not be taken into account under subsection (a)
to the extent so allowable as a deduction.
A similar rule shall apply in the case of any passive activity
credit of the taxpayer.
(B) Net active income
For purposes of this paragraph, the term "net active income"
means the taxable income of the taxpayer for the taxable year
determined without regard to -
(i) any income or loss from a passive activity, and
(ii) any item of gross income, expense, gain, or loss
described in paragraph (1)(A).
(3) Compensation for personal services
Earned income (within the meaning of section 911(d)(2)(A))
shall not be taken into account in computing the income or loss
from a passive activity for any taxable year.
(4) Dividends reduced by dividends received deduction
For purposes of paragraphs (1) and (2), income from dividends
shall be reduced by the amount of any dividends received
deduction under section 243, 244, or 245.
(f) Treatment of former passive activities
For purposes of this section -
(1) In general
If an activity is a former passive activity for any taxable
year -
(A) any unused deduction allocable to such activity under
subsection (b) shall be offset against the income from such
activity for the taxable year,
(B) any unused credit allocable to such activity under
subsection (b) shall be offset against the regular tax
liability (computed after the application of paragraph (1))
allocable to such activity for the taxable year, and
(C) any such deduction or credit remaining after the
application of subparagraphs (A) and (B) shall continue to be
treated as arising from a passive activity.
(2) Change in status of closely held C corporation or personal
service corporation
If a taxpayer ceases for any taxable year to be a closely held
C corporation or personal service corporation, this section shall
continue to apply to losses and credits to which this section
applied for any preceding taxable year in the same manner as if
such taxpayer continued to be a closely held C corporation or
personal service corporation, whichever is applicable.
(3) Former passive activity
The term "former passive activity" means any activity which,
with respect to the taxpayer -
(A) is not a passive activity for the taxable year, but
(B) was a passive activity for any prior taxable year.
(g) Dispositions of entire interest in passive activity
If during the taxable year a taxpayer disposes of his entire
interest in any passive activity (or former passive activity), the
following rules shall apply:
(1) Fully taxable transaction
(A) In general
If all gain or loss realized on such disposition is
recognized, the excess of -
(i) any loss from such activity for such taxable year
(determined after the application of subsection (b)), over
(ii) any net income or gain for such taxable year from all
other passive activities (determined after the application of
subsection (b)),
shall be treated as a loss which is not from a passive
activity.
(B) Subparagraph (A) not to apply to disposition involving
related party
If the taxpayer and the person acquiring the interest bear a
relationship to each other described in section 267(b) or
section 707(b)(1), then subparagraph (A) shall not apply to any
loss of the taxpayer until the taxable year in which such
interest is acquired (in a transaction described in
subparagraph (A)) by another person who does not bear such a
relationship to the taxpayer.
(C) Income from prior years
To the extent provided in regulations, income or gain from
the activity for preceding taxable years shall be taken into
account under subparagraph (A)(ii) for the taxable year to the
extent necessary to prevent the avoidance of this section.
(2) Disposition by death
If an interest in the activity is transferred by reason of the
death of the taxpayer -
(A) paragraph (1)(A) shall apply to losses described in
paragraph (1)(A) to the extent such losses are greater than the
excess (if any) of -
(i) the basis of such property in the hands of the
transferee, over
(ii) the adjusted basis of such property immediately before
the death of the taxpayer, and
(B) any losses to the extent of the excess described in
subparagraph (A) shall not be allowed as a deduction for any
taxable year.
(3) Installment sale of entire interest
In the case of an installment sale of an entire interest in an
activity to which section 453 applies, paragraph (1) shall apply
to the portion of such losses for each taxable year which bears
the same ratio to all such losses as the gain recognized on such
sale during such taxable year bears to the gross profit from such
sale (realized or to be realized when payment is completed).
(h) Material participation defined
For purposes of this section -
(1) In general
A taxpayer shall be treated as materially participating in an
activity only if the taxpayer is involved in the operations of
the activity on a basis which is -
(A) regular,
(B) continuous, and
(C) substantial.
(2) Interests in limited partnerships
Except as provided in regulations, no interest in a limited
partnership as a limited partner shall be treated as an interest
with respect to which a taxpayer materially participates.
(3) Treatment of certain retired individuals and surviving
spouses
A taxpayer shall be treated as materially participating in any
farming activity for a taxable year if paragraph (4) or (5) of
section 2032A(b) would cause the requirements of section
2032A(b)(1)(C)(ii) to be met with respect to real property used
in such activity if such taxpayer had died during the taxable
year.
(4) Certain closely held C corporations and personal service
corporations
A closely held C corporation or personal service corporation
shall be treated as materially participating in an activity only
if -
(A) 1 or more shareholders holding stock representing more
than 50 percent (by value) of the outstanding stock of such
corporation materially participate in such activity, or
(B) in the case of a closely held C corporation (other than a
personal service corporation), the requirements of section
465(c)(7)(C) (without regard to clause (iv)) are met with
respect to such activity.
(5) Participation by spouse
In determining whether a taxpayer materially participates, the
participation of the spouse of the taxpayer shall be taken into
account.
(i) $25,000 offset for rental real estate activities
(1) In general
In the case of any natural person, subsection (a) shall not
apply to that portion of the passive activity loss or the
deduction equivalent (within the meaning of subsection (j)(5)) of
the passive activity credit for any taxable year which is
attributable to all rental real estate activities with respect to
which such individual actively participated in such taxable year
(and if any portion of such loss or credit arose in another
taxable year, in such other taxable year).
(2) Dollar limitation
The aggregate amount to which paragraph (1) applies for any
taxable year shall not exceed $25,000.
(3) Phase-out of exemption
(A) In general
In the case of any taxpayer, the $25,000 amount under
paragraph (2) shall be reduced (but not below zero) by 50
percent of the amount by which the adjusted gross income of the
taxpayer for the taxable year exceeds $100,000.
(B) Special phase-out of rehabilitation credit
In the case of any portion of the passive activity credit for
any taxable year which is attributable to the rehabilitation
credit determined under section 47, subparagraph (A) shall be
applied by substituting "$200,000" for "$100,000".
(C) Exception for commercial revitalization deduction
Subparagraph (A) shall not apply to any portion of the
passive activity loss for any taxable year which is
attributable to the commercial revitalization deduction under
section 1400I.
(D) Exception for low-income housing credit
Subparagraph (A) shall not apply to any portion of the
passive activity credit for any taxable year which is
attributable to any credit determined under section 42.
(E) Ordering rules to reflect exceptions and separate phase-
outs
If subparagraph (B), (C), or (D) applies for a taxable year,
paragraph (1) shall be applied -
(i) first to the portion of the passive activity loss to
which subparagraph (C) does not apply,
(ii) second to the portion of such loss to which
subparagraph (C) applies,
(iii) third to the portion of the passive activity credit
to which subparagraph (B) or (D) does not apply,
(iv) fourth to the portion of such credit to which
subparagraph (B) applies, and
(v) then to the portion of such credit to which
subparagraph (D) applies.
(F) Adjusted gross income
For purposes of this paragraph, adjusted gross income shall
be determined without regard to -
(i) any amount includible in gross income under section 86,
(ii) the amounts excludable from gross income under
sections 135 and 137,
(iii) the amounts allowable as a deduction under sections
199, 219, 221, and 222, and
(iv) any passive activity loss or any loss allowable by
reason of subsection (c)(7).
(4) Special rule for estates
(A) In general
In the case of taxable years of an estate ending less than 2
years after the date of the death of the decedent, this
subsection shall apply to all rental real estate activities
with respect to which such decedent actively participated
before his death.
(B) Reduction for surviving spouse's exemption
For purposes of subparagraph (A), the $25,000 amount under
paragraph (2) shall be reduced by the amount of the exemption
under paragraph (1) (without regard to paragraph (3)) allowable
to the surviving spouse of the decedent for the taxable year
ending with or within the taxable year of the estate.
(5) Married individuals filing separately
(A) In general
Except as provided in subparagraph (B), in the case of any
married individual filing a separate return, this subsection
shall be applied by substituting -
(i) "$12,500" for "$25,000" each place it appears,
(ii) "$50,000" for "$100,000" in paragraph (3)(A), and
(iii) "$100,000" for "$200,000" in paragraph (3)(B).
(B) Taxpayers not living apart
This subsection shall not apply to a taxpayer who -
(i) is a married individual filing a separate return for
any taxable year, and
(ii) does not live apart from his spouse at all times
during such taxable year.
(6) Active participation
(A) In general
An individual shall not be treated as actively participating
with respect to any interest in any rental real estate activity
for any period if, at any time during such period, such
interest (including any interest of the spouse of the
individual) is less than 10 percent (by value) of all interests
in such activity.
(B) No participation requirement for low-income housing,
rehabilitation credit, or commercial revitalization deduction
Paragraphs (1) and (4)(A) shall be applied without regard to
the active participation requirement in the case of -
(i) any credit determined under section 42 for any taxable
year,
(ii) any rehabilitation credit determined under section 47,
or
(iii) any deduction under section 1400I (relating to
commercial revitalization deduction).
(C) Interest as a limited partner
Except as provided in regulations, no interest as a limited
partner in a limited partnership shall be treated as an
interest with respect to which the taxpayer actively
participates.
(D) Participation by spouse
In determining whether a taxpayer actively participates, the
participation of the spouse of the taxpayer shall be taken into
account.
(j) Other definitions and special rules
For purposes of this section -
(1) Closely held C corporation
The term "closely held C corporation" means any C corporation
described in section 465(a)(1)(B).
(2) Personal service corporation
The term "personal service corporation" has the meaning given
such term by section 269A(b)(1), except that section 269A(b)(2)
shall be applied -
(A) by substituting "any" for "more than 10 percent", and
(B) by substituting "any" for "50 percent or more in value"
in section 318(a)(2)(C).
A corporation shall not be treated as a personal service
corporation unless more than 10 percent of the stock (by value)
in such corporation is held by employee-owners (within the
meaning of section 269A(b)(2), as modified by the preceding
sentence).
(3) Regular tax liability
The term "regular tax liability" has the meaning given such
term by section 26(b).
(4) Allocation of passive activity loss and credit
The passive activity loss and the passive activity credit (and
the $25,000 amount under subsection (i)) shall be allocated to
activities, and within activities, on a pro rata basis in such
manner as the Secretary may prescribe.
(5) Deduction equivalent
The deduction equivalent of credits from a passive activity for
any taxable year is the amount which (if allowed as a deduction)
would reduce the regular tax liability for such taxable year by
an amount equal to such credits.
(6) Special rule for gifts
In the case of a disposition of any interest in a passive
activity by gift -
(A) the basis of such interest immediately before the
transfer shall be increased by the amount of any passive
activity losses allocable to such interest with respect to
which a deduction has not been allowed by reason of subsection
(a), and
(B) such losses shall not be allowable as a deduction for any
taxable year.
(7) Qualified residence interest
The passive activity loss of a taxpayer shall be computed
without regard to qualified residence interest (within the
meaning of section 163(h)(3)).
(8) Rental activity
The term "rental activity" means any activity where payments
are principally for the use of tangible property.
(9) Election to increase basis of property by amount of
disallowed credit
For purposes of determining gain or loss from a disposition of
any property to which subsection (g)(1) applies, the transferor
may elect to increase the basis of such property immediately
before the transfer by an amount equal to the portion of any
unused credit allowable under this chapter which reduced the
basis of such property for the taxable year in which such credit
arose. If the taxpayer elects the application of this paragraph,
such portion of the passive activity credit of such taxpayer
shall not be allowed for any taxable year.
(10) Coordination with section 280A
If a passive activity involves the use of a dwelling unit to
which section 280A(c)(5) applies for any taxable year, any
income, deduction, gain, or loss allocable to such use shall not
be taken into account for purposes of this section for such
taxable year.
(11) Aggregation of members of affiliated groups
Except as provided in regulations, all members of an affiliated
group which files a consolidated return shall be treated as 1
corporation.
(12) Special rule for distributions by estates or trusts
If any interest in a passive activity is distributed by an
estate or trust -
(A) the basis of such interest immediately before such
distribution shall be increased by the amount of any passive
activity losses allocable to such interest, and
(B) such losses shall not be allowable as a deduction for any
taxable year.
(k) Separate application of section in case of publicly traded
partnerships
(1) In general
This section shall be applied separately with respect to items
attributable to each publicly traded partnership (and subsection
(i) shall not apply with respect to items attributable to any
such partnership). The preceding sentence shall not apply to any
credit determined under section 42, or any rehabilitation credit
determined under section 47, attributable to a publicly traded
partnership to the extent the amount of any such credits exceeds
the regular tax liability attributable to income from such
partnership.
(2) Publicly traded partnership
For purposes of this section, the term "publicly traded
partnership" means any partnership if -
(A) interests in such partnership are traded on an
established securities market, or
(B) interests in such partnership are readily tradable on a
secondary market (or the substantial equivalent thereof).
(3) Coordination with subsection (g)
For purposes of subsection (g), a taxpayer shall not be treated
as having disposed of his entire interest in an activity of a
publicly traded partnership until he disposes of his entire
interest in such partnership.
(4) Application to regulated investment companies
For purposes of this section, a regulated investment company
(as defined in section 851) holding an interest in a qualified
publicly traded partnership (as defined in section 851(h)) shall
be treated as a taxpayer described in subsection (a)(2) with
respect to items attributable to such interest.
(l) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out provisions of this section,
including regulations -
(1) which specify what constitutes an activity, material
participation, or active participation for purposes of this
section,
(2) which provide that certain items of gross income will not
be taken into account in determining income or loss from any
activity (and the treatment of expenses allocable to such
income),
(3) requiring net income or gain from a limited partnership or
other passive activity to be treated as not from a passive
activity,
(4) which provide for the determination of the allocation of
interest expense for purposes of this section, and
(5) which deal with changes in marital status and changes
between joint returns and separate returns.
(m) Phase-in of disallowance of losses and credits for interest
held before date of enactment
(1) In general
In the case of any passive activity loss or passive activity
credit for any taxable year beginning in calendar years 1987
through 1990, subsection (a) shall not apply to the applicable
percentage of that portion of such loss (or such credit) which is
attributable to pre-enactment interests.
(2) Applicable percentage
For purposes of this subsection, the applicable percentage
shall be determined in accordance with the following table:
In the case of taxable 2The applicable
years beginning in: percentage is:
--------------------------------------------------------------------
1987 65
1988 40
1989 20
1990 10.
--------------------------------------------------------------------
(3) Portion of loss or credit attributable to pre-enactment
interests
For purposes of this subsection -
(A) In general
The portion of the passive activity loss (or passive activity
credit) for any taxable year which is attributable to pre-
enactment interests is the lesser of -
(i) the amount of the passive activity loss (or passive
activity credit) which is disallowed for the taxable year
under subsection (a) (without regard to this subsection), or
(ii) the amount of the passive activity loss (or passive
activity credit) which would be disallowed for the taxable
year (without regard to this subsection and without regard to
any amount allocable to an activity for the taxable year
under subsection (b)) taking into account only pre-enactment
interests.
(B) Pre-enactment interest
(i) In general
The term "pre-enactment interest" means any interest in a
passive activity held by a taxpayer on the date of the
enactment of the Tax Reform Act of 1986, and at all times
thereafter.
(ii) Binding contract exception
For purposes of clause (i), any interest acquired after
such date of enactment pursuant to a written binding contract
in effect on such date, and at all times thereafter, shall be
treated as held on such date.
(iii) Interest in activities
The term "pre-enactment interest" shall not include an
interest in a passive activity unless such activity was being
conducted on such date of enactment. The preceding sentence
shall not apply to an activity commencing after such date if -
(I) the property used in such activity is acquired
pursuant to a written binding contract in effect on August
16, 1986, and at all times thereafter, or
(II) construction of property used in such activity began
on or before August 16, 1986.
-SOURCE-
(Added Pub. L. 99-514, title V, Sec. 501(a), Oct. 22, 1986, 100
Stat. 2233; amended Pub. L. 100-203, title X, Sec. 10212(a), Dec.
22, 1987, 101 Stat. 1330-405; Pub. L. 100-647, title I, Sec.
1005(a)(1)-(9), (11), (12), title II, Sec. 2004(g), title VI, Sec.
6009(c)(3), Nov. 10, 1988, 102 Stat. 3387-3389, 3603, 3690; Pub. L.
101-239, title VII, Sec. 7109(a), Dec. 19, 1989, 103 Stat. 2322;
Pub. L. 101-508, title XI, Secs. 11704(a)(6), 11813(b)(16), Nov. 5,
1990, 104 Stat. 1388-518, 1388-555; Pub. L. 103-66, title XIII,
Sec. 13143(a), (b), Aug. 10, 1993, 107 Stat. 440, 441; Pub. L. 104-
188, title I, Secs. 1704(d)(1), (e)(1), 1807(c)(4), Aug. 20, 1996,
110 Stat. 1878, 1902; Pub. L. 105-277, div. J, title IV, Sec.
4003(a)(2)(D), Oct. 21, 1998, 112 Stat. 2681-908; Pub. L. 106-554,
Sec. 1(a)(7) [title I, Sec. 101(b)], Dec. 21, 2000, 114 Stat. 2763,
2763A-599; Pub. L. 107-16, title IV, Sec. 431(c)(3), June 7, 2001,
115 Stat. 68; Pub. L. 107-147, title IV, Sec. 412(a), Mar. 9, 2002,
116 Stat. 53; Pub. L. 108-357, title I, Sec. 102(d)(5), title III,
Sec. 331(g), Oct. 22, 2004, 118 Stat. 1429, 1477.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (m)(3)(B), is the date of enactment of Pub. L. 99-
514, which was approved Oct. 22, 1986.
-MISC1-
AMENDMENTS
2004 - Subsec. (i)(3)(F)(iii). Pub. L. 108-357, Sec. 102(d)(5),
inserted "199," before "219,".
Subsec. (k)(4). Pub. L. 108-357, Sec. 331(g), added par. (4).
2002 - Subsec. (i)(3)(E)(ii) to (iv). Pub. L. 107-147 added cls.
(ii) to (iv) and struck out former cls. (ii) to (iv) which read as
follows:
"(ii) second to the portion of the passive activity credit to
which subparagraph (B) or (D) does not apply,
"(iii) third to the portion of such credit to which subparagraph
(B) applies,
"(iv) fourth to the portion of such loss to which subparagraph
(C) applies, and".
2001 - Subsec. (i)(3)(F)(iii). Pub. L. 107-16, Secs. 431(c)(3),
901, temporarily substituted ", 221, and 222" for "and 221". See
Effective and Termination Dates of 2001 Amendment note below.
2000 - Subsec. (i)(3)(C) to (F). Pub. L. 106-554, Sec. 1(a)(7)
[title I, Sec. 101(b)(1), (2)], added subpar. (C), redesignated
former subpars. (C) to (E) as (D) to (F), respectively, and
generally amended heading and text of subpar. (E), as redesignated.
Prior to amendment, text read as follows: "If subparagraph (B) or
(C) applies for any taxable year, paragraph (1) shall be applied -
"(i) first to the passive activity loss,
"(ii) second to the portion of the passive activity credit to
which subparagraph (B) or (C) does not apply,
"(iii) third to the portion of such credit to which
subparagraph (B) applies, and
"(iv) then to the portion of such credit to which subparagraph
(C) applies."
Subsec. (i)(6)(B). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
101(b)(3)(B)], substituted ", rehabilitation credit, or commercial
revitalization deduction" for "or rehabilitation credit" in
heading.
Subsec. (i)(6)(B)(iii). Pub. L. 106-554, Sec. 1(a)(7) [title I,
Sec. 101(b)(3)(A)], added cl. (iii).
1998 - Subsec. (i)(3)(E)(iii). Pub. L. 105-277 amended cl. (iii)
generally. Prior to amendment, cl. (iii) read as follows: "any
amount allowable as a deduction under section 219, and".
1996 - Subsec. (c)(3)(B). Pub. L. 104-188, Sec. 1704(d)(1),
inserted at end "If the preceding sentence applies to the net
income from any property for any taxable year, any credits
allowable under subpart B (other than section 27(a)) or D of part
IV of subchapter A for such taxable year which are attributable to
such property shall be treated as credits not from a passive
activity to the extent the amount of such credits does not exceed
the regular tax liability of the taxpayer for the taxable year
which is allocable to such net income."
Subsec. (g)(1)(A). Pub. L. 104-188, Sec. 1704(e)(1), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "If all gain or loss realized on
such disposition is recognized, the excess of -
"(i) the sum of -
"(I) any loss from such activity for such taxable year
(determined after application of subsection (b)), plus
"(II) any loss realized on such disposition, over
"(ii) net income or gain for such taxable year from all passive
activities (determined without regard to losses described in
clause (i)),
shall be treated as a loss which is not from a passive activity."
Subsec. (i)(3)(E)(ii). Pub. L. 104-188, Sec. 1807(c)(4), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"the amount excludable from gross income under section 135,".
1993 - Subsec. (c)(2). Pub. L. 103-66, Sec. 13143(b)(1),
substituted "Except as provided in paragraph (7), the" for "The".
Subsec. (c)(7). Pub. L. 103-66, Sec. 13143(a), added par. (7).
Subsec. (i)(3)(E)(iv). Pub. L. 103-66, Sec. 13143(b)(2), inserted
"or any loss allowable by reason of subsection (c)(7)" after
"loss".
1990 - Subsec. (i)(3)(B), (6)(B)(ii). Pub. L. 101-508, Sec.
11813(b)(16)(A), substituted "rehabilitation credit determined
under section 47" for "rehabilitation investment credit (within the
meaning of section 48(o))".
Subsec. (k)(1). Pub. L. 101-508, Sec. 11813(b)(16)(B),
substituted "rehabilitation credit determined under section 47" for
"rehabilitation investment credit (within the meaning of section
48(o))".
Subsec. (m)(3)(A). Pub. L. 101-508, Sec. 11704(a)(6), substituted
"pre-enactment" for "preenactment".
1989 - Subsec. (i)(3)(B), (C). Pub. L. 101-239 added subpars. (B)
and (C) and struck out former subpars. (B) and (C) which read as
follows:
"(B) Special phase-out of low-income housing and rehabilitation
credits. - In the case of any portion of the passive activity
credit for any taxable year which is attributable to any credit to
which paragraph (6)(B) applies, subparagraph (A) shall be applied
by substituting '$200,000' for '$100,000'.
"(C) Ordering rule to reflect separate phase-outs. - If
subparagraph (B) applies for any taxable year, paragraph (1) shall
be applied -
"(i) first to the passive activity loss,
"(ii) second to the portion of the passive activity credit to
which subparagraph (B) does not apply, and
"(iii) then to the portion of such credit to which subparagraph
(B) applies."
Subsec. (i)(3)(D), (E). Pub. L. 101-239 added subpar. (D) and
redesignated former subpar. (D) as (E).
1988 - Subsec. (e)(1)(A)(ii). Pub. L. 100-647, Sec. 1005(a)(1),
inserted "not derived in the ordinary course of a trade or business
which is" after "gain or loss".
Subsec. (g)(1)(A). Pub. L. 100-647, Sec. 1005(a)(2)(A), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "If all gain or loss realized on such disposition is
recognized, any loss from such activity which has not previously
been allowed as a deduction (and in the case of a passive activity
for the taxable year, any loss realized on such disposition) shall
not be treated as a passive activity loss and shall be allowable as
a deduction against income in the following order:
"(i) Income or gain from the passive activity for the taxable
year (including any gain recognized on the disposition).
"(ii) Net income or gain for the taxable year from all passive
activities.
"(iii) Any other income or gain."
Subsec. (g)(1)(C). Pub. L. 100-647, Sec. 1005(a)(2)(B),
substituted "Income from prior years" for "Coordination with
section 1211" in heading and amended text generally. Prior to
amendment, text read as follows: "In the case of any loss realized
on the disposition of an interest in a passive activity, section
1211 shall be applied before subparagraph (A) is applied."
Subsec. (g)(2)(A). Pub. L. 100-647, Sec. 1005(a)(3), substituted
"paragraph (1)(A)" for "paragraph (1)" and "to losses described in
paragraph (1)(A)" for "to such losses".
Subsec. (g)(3). Pub. L. 100-647, Sec. 1005(a)(4), substituted
"(realized or to be realized" for "realized (or to be realized)"
and "is completed)" for "is completed".
Subsec. (h)(4). Pub. L. 100-647, Sec. 1005(a)(5), inserted "only"
before "if".
Subsec. (i)(1). Pub. L. 100-647, Sec. 1005(a)(6), substituted "in
such taxable year (and if any portion of such loss or credit arose
in another taxable year, in such other taxable year)" for "in the
taxable year in which such portion of such loss or credit arose".
Subsec. (i)(3)(D). Pub. L. 100-647, Sec. 6009(c)(3), added cl.
(ii) and redesignated former cls. (ii) and (iii) as (iii) and (iv),
respectively.
Subsec. (i)(6)(C). Pub. L. 100-647, Sec. 1005(a)(7), substituted
"Except as provided in regulations, no" for "No".
Subsec. (j)(6)(A). Pub. L. 100-647, Sec. 1005(a)(8), inserted
"with respect to which a deduction has not been allowed by reason
of subsection (a)" after "to such interest".
Subsec. (j)(10), (11). Pub. L. 100-647, Sec. 1005(a)(9), added
pars. (10) and (11).
Subsec. (j)(12). Pub. L. 100-647, Sec. 1005(a)(11), added par.
(12).
Subsec. (k)(3). Pub. L. 100-647, Sec. 2004(g), added par. (3).
Subsec. (m). Pub. L. 100-647, Sec. 1005(a)(12), substituted
"interest" for "interests" in heading.
Subsec. (m)(1). Pub. L. 100-647, Sec. 1005(a)(12), added par. (1)
and struck out former par. (1) which read as follows: "In the case
of any passive activity loss or credit for any taxable year
beginning in calendar years 1987 through 1990 which -
"(A) is attributable to a pre-enactment interest, but
"(B) is not attributable to a carryforward to such taxable year
of any loss or credit which was disallowed under this section for
a preceding taxable year,
there shall be disallowed under subsection (a) only the applicable
percentage of the amount which (but for this subsection) would have
been disallowed under subsection (a) for such taxable year."
Subsec. (m)(2). Pub. L. 100-647, Sec. 1005(a)(12), added par. (2)
and struck out former par. (2) which resulted in substituting "65",
"40", "20", and "10" for "35", "60", "80", and "90" respectively,
in second column.
Subsec. (m)(3)(A). Pub. L. 100-647, Sec. 1005(a)(12), added
subpar. (A) and struck out former subpar. (A) which read as
follows: "The portion of the passive activity loss for any taxable
year which is attributable to pre-enactment interests shall be
equal to the lesser of -
"(i) the passive activity loss for such taxable year, or
"(ii) the passive activity loss for such taxable year
determined by taking into account only pre-enactment interests.
For purposes of this subparagraph, the deduction equivalent (within
the meaning of subsection (j)(5)) of a passive activity credit
shall be taken into account."
1987 - Subsecs. (k) to (m). Pub. L. 100-203 added subsec. (k) and
redesignated former subsecs. (k) and (l) as (l) and (m),
respectively.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 102(d)(5) of Pub. L. 108-357 applicable to
taxable years beginning after Dec. 31, 2004, see section 102(e) of
Pub. L. 108-357, set out as a note under section 56 of this title.
Pub. L. 108-357, title III, Sec. 331(h), Oct. 22, 2004, 118 Stat.
1477, provided that: "The amendments made by this section [amending
this section and sections 851 and 7704 of this title] shall apply
to taxable years beginning after the date of the enactment of this
Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Community Renewal Tax Relief Act of 2000 [H.R.
5662, as enacted by Pub. L. 106-554], to which such amendment
relates, see section 412(e) of Pub. L. 107-147, set out as a note
under section 151 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to payments made in
taxable years beginning after Dec. 31, 2001, see section 431(d) of
Pub. L. 107-16, set out as a note under section 62 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L. 105-
277, set out as a note under section 86 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1704(d)(2) of Pub. L. 104-188 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years beginning after December 31, 1986."
Section 1704(e)(2) of Pub. L. 104-188 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years beginning after December 31, 1986."
Amendment by section 1807(c)(4) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1996, see section 1807(e) of
Pub. L. 104-188, set out as an Effective Date note under section 23
of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13143(c) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1993."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(b)(16) of Pub. L. 101-508 applicable
to property placed in service after Dec. 31, 1990, but not
applicable to any transition property (as defined in section 49(e)
of this title), any property with respect to which qualified
progress expenditures were previously taken into account under
section 46(d) of this title, and any property described in section
46(b)(2)(C) of this title, as such sections were in effect on Nov.
4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
under section 45K of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7109(b) of Pub. L. 101-239 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to property placed in service after December 31, 1989, in taxable
years ending after such date.
"(2) Special rule where interest held in pass-thru entity. - In
the case of a taxpayer who holds an indirect interest in property
described in paragraph (1), the amendments made by this section
shall apply only if such interest is acquired after December 31,
1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1005(a)(1)-(9), (11), (12) of Pub. L. 100-
647 effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 2004(g) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provisions of the
Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
Amendment by section 6009(c)(3) of Pub. L. 100-647 applicable to
taxable years beginning after Dec. 31, 1989, see section 6009(d) of
Pub. L. 100-647, set out as a note under section 86 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 effective as if included in the
amendments made by section 501 of the Tax Reform Act of 1986, Pub.
L. 99-514, see section 10212(c) of Pub. L. 100-203, set out as a
note under section 58 of this title.
EFFECTIVE DATE
Section 501(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1005(a)(10), title IV, Sec. 4003(b)(2), Nov. 10,
1988, 102 Stat. 3388, 3644, provided that:
"(1) In general. - The amendments made by this section [enacting
this section] shall apply to taxable years beginning after December
31, 1986.
"(2) Special rule for carryovers. - The amendments made by this
section shall not apply to any loss, deduction, or credit carried
to a taxable year beginning after December 31, 1986, from a taxable
year beginning before January 1, 1987.
"[(3) Repealed. Pub. L. 100-647, title IV, Sec. 4003(b)(2), Nov.
10, 1988, 102 Stat. 3644.]
"(4) Income from sales of passive activities in taxable years
beginning before january 1, 1987. - If -
"(A) gain is recognized in a taxable year beginning after
December 31, 1986, from a sale or exchange of an interest in an
activity in a taxable year beginning before January 1, 1987, and
"(B) such gain would have been treated as gain from a passive
activity had section 469 of the Internal Revenue Code of 1986 (as
added by this section) been in effect for the taxable year in
which the sale or exchange occurred and for all succeeding
taxable years,
then such gain shall be treated as gain from a passive activity for
purposes of such section."
SAVINGS PROVISION
For provisions that nothing in amendment by section 11813(b)(16)
of Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
AMOUNTS ATTRIBUTABLE TO ACTIVITIES SUBJECT TO LIMITATIONS UNDER
SECTION 469 TREATED AS DEDUCTION ALLOCABLE TO SUCH ACTIVITY
Section 1005(c)(11) of Pub. L. 100-647 provided that: "If -
"(A) any amount was disallowed as a deduction under section
163(d) of the Internal Revenue Code of 1954 [now 1986] (as in
effect on the day before the date of the enactment of the Reform
Act [Oct. 22, 1986]),
"(B) such amount would (but for this paragraph) be treated as
investment interest paid or accrued by the taxpayer in the
taxpayer's first taxable year beginning after December 31, 1986,
and
"(C) the taxpayer makes an election under this paragraph at
such time and in such manner as the Secretary of the Treasury or
his delegate shall prescribe,
to the extent such amount is attributable to an activity subject to
the limitations of section 469 of the 1986 Code, such amount shall
not be treated as investment interest but shall be treated as a
deduction allocable to such activity for such first taxable year.
Subsection (m) of section 469 of the 1986 Code and section
501(c)(2) of the Reform Act [Pub. L. 99-514, set out as an
Effective Date note above] shall not apply to any amount so
treated."
TRANSITIONAL RULE FOR LOW-INCOME HOUSING
Section 502 of Pub. L. 99-514, as amended by Pub. L. 99-509,
title VIII, Sec. 8073(a), Oct. 21, 1986, 100 Stat. 1965; Pub. L.
100-647, title I, Sec. 1005(b), Nov. 10, 1988, 102 Stat. 3389,
provided that:
"(a) General Rule. - Any loss sustained by a qualified investor
with respect to an interest in a qualified low-income housing
project for any taxable year in the relief period shall not be
treated as a loss from a passive activity for purposes of section
469 of the Internal Revenue Code of 1986.
"(b) Relief Period. - For purposes of subsection (a), the term
'relief period' means the period beginning with the taxable year in
which the investor made his initial investment in the qualified low-
income housing project and ending with whichever of the following
is the earliest -
"(1) the 6th taxable year after the taxable year in which the
investor made his initial investment,
"(2) the 1st taxable year after the taxable year in which the
investor is obligated to make his last investment, or
"(3) the taxable year preceding the 1st taxable year for which
such project ceased to be a qualified low-income housing project.
"(c) Qualified Low-Income Housing Project. - For purposes of this
section, the term 'qualified low-income housing project' means any
project if -
"(1) such project meets the requirements of clause (i), (ii),
(iii), or (iv) of section 1250(a)(1)(B) [of the Internal Revenue
Code of 1986] as of the date placed in service and for each
taxable year thereafter which begins after 1986 and for which a
passive loss may be allowable with respect to such project,
"(2) the operator certifies to the Secretary of the Treasury or
his delegate that such project met the requirements of paragraph
(1) on the date of the enactment of this Act [Oct. 22, 1986] (or,
if later, when placed in service) and annually thereafter,
"(3) such project is constructed or acquired pursuant to a
binding written contract entered into on or before August 16,
1986, and
"(4) such project is placed in service before January 1, 1989.
"(d) Qualified Investor. - For purposes of this section -
"(1) In general. - The term 'qualified investor' means any
natural person who holds (directly or through 1 or more entities)
an interest in a qualified low-income housing project -
"(A) if -
"(i) in the case of a project placed in service on or
before August 16, 1986, such person held an interest in such
project on August 16, 1986, and such person made his initial
investment after December 31, 1983, or
"(ii) in the case of a project placed in service after
August 16, 1986, such person made his initial investment
after December 31, 1983, and such person held an interest in
such project on December 31, 1986, and
"(B) if such investor is required to make payments after
December 31, 1986, of 50 percent or more of the total original
obligated investment for such interest.
For purposes of subparagraph (A), a person shall be treated as
holding an interest on August 16, 1986, or December 31, 1986, if
on such date such person had a binding contract to acquire such
interest.
"(2) Treatment of estates. - The estate of a decedent shall
succeed to the treatment under this section of the decedent but
only with respect to the 1st 2 taxable years of such estate
ending after the date of the decedent's death.
"(3) Special rule for certain partnerships. - In the case of
any property which is held by a partnership -
"(A) which placed such property in service on or after
December 31, 1985, and before August 17, 1986, and continuously
held such property through the close of the taxable year for
which the determination is being made, and
"(B) which was not treated as a new partnership or as
terminated at any time on or after the date on which such
property was placed in service and through the close of the
taxable year for which the determination is being made,
paragraph (1)(A)(i) shall be applied by substituting 'December
31, 1988' for 'August 16, 1986' the 2nd place it appears.
"(4) Special rule for certain rural housing. - In the case of
any interest in a qualified low-income housing project which -
"(A) is assisted under section 515 of the Housing Act of 1949
[42 U.S.C. 1485] (relating to the Farmers' Home Administration
Program), and
"(B) is located in a town with a population of less than
10,000 and which is not part of a metropolitan statistical
area,
paragraph (1)(B) shall be applied by substituting '35 percent'
for '50 percent' and subsection (b)(1) shall be applied by
substituting '5th taxable year' for '6th taxable year'. The
preceding sentence shall not apply to any interest unless, on
December 31, 1986, at least one-half of the number of payments
required with respect to such interest remain to be paid.
"(e) Special Rules. -
"(1) Where more than 1 building in project. - If there is more
than 1 building in any project, the determination of when such
project is placed in service shall be based on when the 1st
building in such project is placed in service.
"(2) Only cash and other property taken into account. - In
determining the amount any person invests in (or is obligated to
invest in) any interest, only cash and other property shall be
taken into account.
"(3) Coordination with credit. - No low-income housing credit
shall be determined under section 42 of the Internal Revenue Code
of 1986 with respect to any project with respect to which any
person has been allowed any benefit under this section."
[Section 8073(b) of Pub. L. 99-509 provided that: "The amendment
made by subsection (a) [amending section 502 of Pub. L. 99-514, set
out above] shall take effect as if included in section 502 of the
Tax Reform Act of 1986 on the date of its enactment [Oct. 22,
1986]."]
-End-
-CITE-
26 USC Sec. 470 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart C - Taxable Year for Which Deductions Taken
-HEAD-
Sec. 470. Limitation on deductions allocable to property used by
governments or other tax-exempt entities
-STATUTE-
(a) Limitation on losses
Except as otherwise provided in this section, a tax-exempt use
loss for any taxable year shall not be allowed.
(b) Disallowed loss carried to next year
Any tax-exempt use loss with respect to any tax-exempt use
property which is disallowed under subsection (a) for any taxable
year shall be treated as a deduction with respect to such property
in the next taxable year.
(c) Definitions
For purposes of this section -
(1) Tax-exempt use loss
The term "tax-exempt use loss" means, with respect to any
taxable year, the amount (if any) by which -
(A) the sum of -
(i) the aggregate deductions (other than interest) directly
allocable to a tax-exempt use property, plus
(ii) the aggregate deductions for interest properly
allocable to such property, exceed
(B) the aggregate income from such property.
(2) Tax-exempt use property
The term "tax-exempt use property" has the meaning given to
such term by section 168(h), except that such section shall be
applied -
(A) without regard to paragraphs (1)(C) and (3) thereof, and
(B) as if property described in -
(i) section 167(f)(1)(B),
(ii) section 167(f)(2), and
(iii) section 197 intangible,
were tangible property.
Such term shall not include property which would (but for this
sentence) be tax-exempt use property solely by reason of section
168(h)(6) if any credit is allowable under section 42 or 47 with
respect to such property.
(d) Exception for certain leases
This section shall not apply to any lease of property which meets
the requirements of all of the following paragraphs:
(1) Availability of funds
(A) In general
A lease of property meets the requirements of this paragraph
if (at any time during the lease term) not more than an
allowable amount of funds are -
(i) subject to any arrangement referred to in subparagraph
(B), or
(ii) set aside or expected to be set aside,
to or for the benefit of the lessor or any lender, or to or for
the benefit of the lessee to satisfy the lessee's obligations
or options under the lease. For purposes of clause (ii), funds
shall be treated as set aside or expected to be set aside only
if a reasonable person would conclude, based on the facts and
circumstances, that such funds are set aside or expected to be
set aside.
(B) Arrangements
The arrangements referred to in this subparagraph include a
defeasance arrangement, a loan by the lessee to the lessor or
any lender, a deposit arrangement, a letter of credit
collateralized with cash or cash equivalents, a payment
undertaking agreement, prepaid rent (within the meaning of the
regulations under section 467), a sinking fund arrangement, a
guaranteed investment contract, financial guaranty insurance,
and any similar arrangement (whether or not such arrangement
provides credit support).
(C) Allowable amount
(i) In general
Except as otherwise provided in this subparagraph, the term
"allowable amount" means an amount equal to 20 percent of the
lessor's adjusted basis in the property at the time the lease
is entered into.
(ii) Higher amount permitted in certain cases
To the extent provided in regulations, a higher percentage
shall be permitted under clause (i) where necessary because
of the credit-worthiness of the lessee. In no event may such
regulations permit a percentage of more than 50 percent.
(iii) Option to purchase
If under the lease the lessee has the option to purchase
the property for a fixed price or for other than the fair
market value of the property (determined at the time of
exercise), the allowable amount at the time such option may
be exercised may not exceed 50 percent of the price at which
such option may be exercised.
(iv) No allowable amount for certain arrangements
The allowable amount shall be zero with respect to any
arrangement which involves -
(I) a loan from the lessee to the lessor or a lender,
(II) any deposit received, letter of credit issued, or
payment undertaking agreement entered into by a lender
otherwise involved in the transaction, or
(III) in the case of a transaction which involves a
lender, any credit support made available to the lessor in
which any such lender does not have a claim that is senior
to the lessor.
For purposes of subclause (I), the term "loan" shall not
include any amount treated as a loan under section 467 with
respect to a section 467 rental agreement.
(2) Lessor must make substantial equity investment
(A) In general
A lease of property meets the requirements of this paragraph
if -
(i) the lessor -
(I) has at the time the lease is entered into an
unconditional at-risk equity investment (as determined by
the Secretary) in the property of at least 20 percent of
the lessor's adjusted basis in the property as of that
time, and
(II) maintains such investment throughout the term of the
lease, and
(ii) the fair market value of the property at the end of
the lease term is reasonably expected to be equal to at least
20 percent of such basis.
(B) Risk of loss
For purposes of clause (ii),(!1) the fair market value at the
end of the lease term shall be reduced to the extent that a
person other than the lessor bears a risk of loss in the value
of the property.
(C) Paragraph not to apply to short-term leases
This paragraph shall not apply to any lease with a lease term
of 5 years or less.
(3) Lessee may not bear more than minimal risk of loss
(A) In general
A lease of property meets the requirements of this paragraph
if there is no arrangement under which the lessee bears -
(i) any portion of the loss that would occur if the fair
market value of the leased property were 25 percent less than
its reasonably expected fair market value at the time the
lease is terminated, or
(ii) more than 50 percent of the loss that would occur if
the fair market value of the leased property at the time the
lease is terminated were zero.
(B) Exception
The Secretary may by regulations provide that the
requirements of this paragraph are not met where the lessee
bears more than a minimal risk of loss.
(C) Paragraph not to apply to short-term leases
This paragraph shall not apply to any lease with a lease term
of 5 years or less.
(4) Property with more than 7-year class life
In the case of a lease -
(A) of property with a class life (as defined in section
168(i)(1)) of more than 7 years, other than fixed-wing aircraft
and vessels, and
(B) under which the lessee has the option to purchase the
property,
the lease meets the requirements of this paragraph only if the
purchase price under the option equals the fair market value of
the property (determined at the time of exercise).
(e) Special rules
(1) Treatment of former tax-exempt use property
(A) In general
In the case of any former tax-exempt use property -
(i) any deduction allowable under subsection (b) with
respect to such property for any taxable year shall be
allowed only to the extent of any net income (without regard
to such deduction) from such property for such taxable year,
and
(ii) any portion of such unused deduction remaining after
application of clause (i) shall be treated as a deduction
allowable under subsection (b) with respect to such property
in the next taxable year.
(B) Former tax-exempt use property
For purposes of this subsection, the term "former tax-exempt
use property" means any property which -
(i) is not tax-exempt use property for the taxable year,
but
(ii) was tax-exempt use property for any prior taxable
year.
(2) Disposition of entire interest in property
If during the taxable year a taxpayer disposes of the
taxpayer's entire interest in tax-exempt use property (or former
tax-exempt use property), rules similar to the rules of section
469(g) shall apply for purposes of this section.
(3) Coordination with section 469
This section shall be applied before the application of section
469.
(4) Coordination with sections 1031 and 1033
(A) In general
Sections 1031(a) and 1033(a) shall not apply if -
(i) the exchanged or converted property is tax-exempt use
property subject to a lease which was entered into before
March 13, 2004, and which would not have met the requirements
of subsection (d) had such requirements been in effect when
the lease was entered into, or
(ii) the replacement property is tax-exempt use property
subject to a lease which does not meet the requirements of
subsection (d).
(B) Adjusted basis
In the case of property acquired by the lessor in a
transaction to which section 1031 or 1033 applies, the adjusted
basis of such property for purposes of this section shall be
equal to the lesser of -
(i) the fair market value of the property as of the
beginning of the lease term, or
(ii) the amount which would be the lessor's adjusted basis
if such sections did not apply to such transaction.
(f) Other definitions
For purposes of this section -
(1) Related parties
The terms "lessor", "lessee", and "lender" each include any
related party (within the meaning of section 197(f)(9)(C)(i)).
(2) Lease term
The term "lease term" has the meaning given to such term by
section 168(i)(3).
(3) Lender
The term "lender" means, with respect to any lease, a person
that makes a loan to the lessor which is secured (or economically
similar to being secured) by the lease or the leased property.
(4) Loan
The term "loan" includes any similar arrangement.
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations which -
(1) allow in appropriate cases the aggregation of property
subject to the same lease, and
(2) provide for the determination of the allocation of interest
expense for purposes of this section.
-SOURCE-
(Added Pub. L. 108-357, title VIII, Sec. 848(a), Oct. 22, 2004, 118
Stat. 1602.)
-MISC1-
EFFECTIVE DATE
Pub. L. 108-357, title VIII, Sec. 849, Oct. 22, 2004, 118 Stat.
1606, as amended by Pub. L. 109-135, title IV, Sec. 403(ff), Dec.
21, 2005, 119 Stat. 2631, provided that:
"(a) In General. - Except as provided in this section, the
amendments made by this part [part III (Secs. 847-849) of subtitle
B of title VIII of Pub. L. 108-357, enacting this section and
amending sections 167, 168, and 197 of this title] shall apply to
leases entered into after March 12, 2004, and in the case of
property treated as tax-exempt use property other than by reason of
a lease, to property acquired after March 12, 2004.
"(b) Exception. -
"(1) In general. - The amendments made by this part shall not
apply to qualified transportation property.
"(2) Qualified transportation property. - For purposes of
paragraph (1), the term 'qualified transportation property' means
domestic property subject to a lease with respect to which a
formal application -
"(A) was submitted for approval to the Federal Transit
Administration (an agency of the Department of Transportation)
after June 30, 2003, and before March 13, 2004,
"(B) is approved by the Federal Transit Administration before
January 1, 2006, and
"(C) includes a description of such property and the value of
such property.
"(3) Exchanges and conversion of tax-exempt use property. -
Section 470(e)(4) of the Internal Revenue Code of 1986, as added
by section 848, shall apply to property exchanged or converted
after the date of the enactment of this Act [Oct. 22, 2004].
"(4) Intangibles and indian tribal governments. - The
amendments made subsections (b)(2), (b)(3), and (e) of section
847 [amending sections 167, 168, and 197 of this title], and the
treatment of property described in clauses (ii) and (iii) of
section 470(c)(2)(B) of the Internal Revenue Code of 1986 (as
added by section 848) as tangible property, shall apply to leases
entered into after October 3, 2004."
-FOOTNOTE-
(!1) So in original. Probably should be "subparagraph (A)(ii)".
-End-
-CITE-
26 USC Subpart D - Inventories 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart D - Inventories
-HEAD-
SUBPART D - INVENTORIES
-MISC1-
Sec.
471. General rule for inventories.
472. Last-in, first-out inventories.
473. Qualified liquidations of LIFO inventories.
474. Simplified dollar-value LIFO method for certain small
businesses.
475. Mark to market accounting method for dealers in
securities.
AMENDMENTS
1993 - Pub. L. 103-66, title XIII, Sec. 13223(b)(2), Aug. 10,
1993, 107 Stat. 484, added item 475.
1986 - Pub. L. 99-514, title VIII, Sec. 802(b), Oct. 22, 1986,
100 Stat. 2350, substituted "Simplified dollar-value LIFO method
for certain small businesses" for "Election by certain small
businesses to use one inventory pool" in item 474.
1981 - Pub. L. 97-34, title II, Sec. 237(b), Aug. 13, 1981, 95
Stat. 253, added item 474.
1980 - Pub. L. 96-223, title IV, Sec. 403(a)(2), Apr. 2, 1980, 94
Stat. 304, added item 473.
-End-
-CITE-
26 USC Sec. 471 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart D - Inventories
-HEAD-
Sec. 471. General rule for inventories
-STATUTE-
(a) General rule
Whenever in the opinion of the Secretary the use of inventories
is necessary in order clearly to determine the income of any
taxpayer, inventories shall be taken by such taxpayer on such basis
as the Secretary may prescribe as conforming as nearly as may be to
the best accounting practice in the trade or business and as most
clearly reflecting the income.
(b) Estimates of inventory shrinkage permitted
A method of determining inventories shall not be treated as
failing to clearly reflect income solely because it utilizes
estimates of inventory shrinkage that are confirmed by a physical
count only after the last day of the taxable year if -
(1) the taxpayer normally does a physical count of inventories
at each location on a regular and consistent basis, and
(2) the taxpayer makes proper adjustments to such inventories
and to its estimating methods to the extent such estimates are
greater than or less than the actual shrinkage.
(c) Cross reference
For rules relating to capitalization of direct and indirect
costs of property, see section 263A.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 159; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99-514,
title VIII, Sec. 803(b)(4), Oct. 22, 1986, 100 Stat. 2356; Pub. L.
105-34, title IX, Sec. 961(a), Aug. 5, 1997, 111 Stat. 891.)
-MISC1-
AMENDMENTS
1997 - Subsecs. (b), (c). Pub. L. 105-34 added subsec. (b) and
redesignated former subsec. (b) as (c).
1986 - Pub. L. 99-514 designated existing provisions as subsec.
(a) and added subsec. (b).
1976 - Pub. L. 94-455 struck out "or his delegate" after
"Secretary" wherever appearing.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 961(b)(1) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years ending after the date of the enactment of this Act [Aug. 5,
1997]."
EFFECTIVE DATE OF 1986 AMENDMENT
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the amendment
by Pub. L. 99-514 is applicable to such interest costs only to the
extent such interest costs are attributable to costs which were
required to be capitalized under section 263 of the Internal
Revenue Code of 1954 and which would have been taken into account
in applying section 189 of the Internal Revenue Code of 1954 (as in
effect before its repeal by section 803 of Pub. L. 99-514) or, if
applicable, section 266 of such Code, see section 7831(d)(2) of
Pub. L. 101-239, set out as an Effective Date note under section
263A of this title.
Amendment by Pub. L. 99-514 applicable to costs incurred after
Dec. 31, 1986, in taxable years ending after such date, except as
otherwise provided, see section 803(d) of Pub. L. 99-514, set out
as an Effective Date note under section 263A of this title.
COORDINATION WITH SECTION 481
Section 961(b)(2) of Pub. L. 105-34 provided that: "In the case
of any taxpayer permitted by this section [amending this section
and enacting provisions set out as a note above] to change its
method of accounting to a permissible method for any taxable year -
"(A) such changes shall be treated as initiated by the
taxpayer,
"(B) such changes shall be treated as made with the consent of
the Secretary of the Treasury, and
"(C) the period for taking into account the adjustments under
section 481 [26 U.S.C. 481] by reason of such change shall be 4
years."
STUDY OF ACCOUNTING METHODS FOR INVENTORY; REPORT NOT LATER THAN
DECEMBER 31, 1982
Pub. L. 97-34, title II, Sec. 238, Aug. 13, 1981, 95 Stat. 254,
directed Secretary of the Treasury to conduct a study of methods of
tax accounting for inventory with a view towards development of
simplified methods and to report to Congress, not later than Dec.
31, 1982, prior to repeal by Pub. L. 100-647, title VI, Sec.
6252(a)(2), Nov. 10, 1988, 102 Stat. 3752.
-End-
-CITE-
26 USC Sec. 472 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart D - Inventories
-HEAD-
Sec. 472. Last-in, first-out inventories
-STATUTE-
(a) Authorization
A taxpayer may use the method provided in subsection (b) (whether
or not such method has been prescribed under section 471) in
inventorying goods specified in an application to use such method
filed at such time and in such manner as the Secretary may
prescribe. The change to, and the use of, such method shall be in
accordance with such regulations as the Secretary may prescribe as
necessary in order that the use of such method may clearly reflect
income.
(b) Method applicable
In inventorying goods specified in the application described in
subsection (a), the taxpayer shall:
(1) Treat those remaining on hand at the close of the taxable
year as being: First, those included in the opening inventory of
the taxable year (in the order of acquisition) to the extent
thereof; and second, those acquired in the taxable year;
(2) Inventory them at cost; and
(3) Treat those included in the opening inventory of the
taxable year in which such method is first used as having been
acquired at the same time and determine their cost by the average
cost method.
(c) Condition
Subsection (a) shall apply only if the taxpayer establishes to
the satisfaction of the Secretary that the taxpayer has used no
procedure other than that specified in paragraphs (1) and (3) of
subsection (b) in inventorying such goods to ascertain the income,
profit, or loss of the first taxable year for which the method
described in subsection (b) is to be used, for the purpose of a
report or statement covering such taxable year -
(1) to shareholders, partners, or other proprietors, or to
beneficiaries, or
(2) for credit purposes.
(d) 3-year averaging for increases in inventory value
The beginning inventory for the first taxable year for which the
method described in subsection (b) is used shall be valued at cost.
Any change in the inventory amount resulting from the application
of the preceding sentence shall be taken into account ratably in
each of the 3 taxable years beginning with the first taxable year
for which the method described in subsection (b) is first used.
(e) Subsequent inventories
If a taxpayer, having complied with subsection (a), uses the
method described in subsection (b) for any taxable year, then such
method shall be used in all subsequent taxable years unless -
(1) with the approval of the Secretary a change to a different
method is authorized; or,
(2) the Secretary determines that the taxpayer has used for any
such subsequent taxable year some procedure other than that
specified in paragraph (1) of subsection (b) in inventorying the
goods specified in the application to ascertain the income,
profit, or loss of such subsequent taxable year for the purpose
of a report or statement covering such taxable year (A) to
shareholders, partners, or other proprietors, or beneficiaries,
or (B) for credit purposes; and requires a change to a method
different from that prescribed in subsection (b) beginning with
such subsequent taxable year or any taxable year thereafter.
If paragraph (1) or (2) of this subsection applies, the change to,
and the use of, the different method shall be in accordance with
such regulations as the Secretary may prescribe as necessary in
order that the use of such method may clearly reflect income.
(f) Use of government price indexes in pricing inventory
The Secretary shall prescribe regulations permitting the use of
suitable published governmental indexes in such manner and
circumstances as determined by the Secretary for purposes of the
method described in subsection (b).
(g) Conformity rules applied on controlled group basis
(1) In general
Except as otherwise provided in regulations, all members of the
same group of financially related corporations shall be treated
as 1 taxpayer for purposes of subsections (c) and (e)(2).
(2) Group of financially related corporations
For purposes of paragraph (1), the term "group of financially
related corporations" means -
(A) any affiliated group as defined in section 1504
determined by substituting "50 percent" for "80 percent" each
place it appears in section 1504(a) and without regard to
section 1504(b), and
(B) any other group of corporations which consolidate or
combine for purposes of financial statements.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 159; Pub. L. 94-455, title XIX,
Secs. 1901(b)(36)(A), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1802,
1834; Pub. L. 97-34, title II, Secs. 235, 236(a), Aug. 13, 1981, 95
Stat. 252; Pub. L. 98-369, div. A, title I, Sec. 95(a), July 18,
1984, 98 Stat. 616.)
-MISC1-
AMENDMENTS
1984 - Subsec. (g). Pub. L. 98-369 added subsec. (g).
1981 - Subsec. (d). Pub. L. 97-34, Sec. 236(a), substituted "3-
year averaging for increases in inventory value" for "Preceding
closing inventory" in heading, substituted first sentence reading
"The beginning inventory for the first taxable year for which the
method described in subsection (b) is used shall be valued at
cost." for "In determining income for the taxable year preceding
the taxable year for which the method described in subsection (b)
is first used, the closing inventory of such preceding year of the
goods specified in the application referred to in subsection (a)
shall be at cost." and inserted "Any change in the inventory amount
resulting from the application of the preceding sentence shall be
taken into account ratably in each of the 3 taxable years beginning
with the first taxable year for which the method described in
subsection (b) is first used."
Subsec. (f). Pub. L. 97-34, Sec. 235, added subsec. (f).
1976 - Subsecs. (a), (c), (e). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary"
wherever appearing.
Subsec. (f). Pub. L. 94-455, Sec. 1901(b)(36)(A), struck out
subsec. (f) which provided for a cross reference relating to
involuntary liquidation and replacement of LIFO inventories.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 95(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[July 18, 1984]."
EFFECTIVE DATE OF 1981 AMENDMENT
Section 236(b) of Pub. L. 97-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1981."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(36)(A) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
-End-
-CITE-
26 USC Sec. 473 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart D - Inventories
-HEAD-
Sec. 473. Qualified liquidations of LIFO inventories
-STATUTE-
(a) General rule
If, for any liquidation year -
(1) there is a qualified liquidation of goods which the
taxpayer inventories under the LIFO method, and
(2) the taxpayer elects to have the provisions of this section
apply with respect to such liquidation,
then the gross income of the taxpayer for such taxable year shall
be adjusted as provided in subsection (b).
(b) Adjustment for replacements
If the liquidated goods are replaced (in whole or in part) during
any replacement year and such replacement is reflected in the
closing inventory for such year, then the gross income for the
liquidation year shall be -
(1) decreased by an amount equal to the excess of -
(A) the aggregate replacement cost of the liquidated goods so
replaced during such year, over
(B) the aggregate cost of such goods reflected in the opening
inventory of the liquidation year, or
(2) increased by an amount equal to the excess of -
(A) the aggregate cost reflected in such opening inventory of
the liquidated goods so replaced during such year, over
(B) such aggregate replacement cost.
(c) Qualified liquidation defined
For purposes of this section -
(1) In general
The term "qualified liquidation" means -
(A) a decrease in the closing inventory of the liquidation
year from the opening inventory of such year, but only if
(B) the taxpayer establishes to the satisfaction of the
Secretary that such decrease is directly and primarily
attributable to a qualified inventory interruption.
(2) Qualified inventory interruption defined
(A) In general
The term "qualified inventory interruption" means a
regulation, request, or interruption described in subparagraph
(B) but only to the extent provided in the notice published
pursuant to subparagraph (B).
(B) Determination by Secretary
Whenever the Secretary, after consultation with the
appropriate Federal officers, determines -
(i) that -
(I) any Department of Energy regulation or request with
respect to energy supplies, or
(II) any embargo, international boycott, or other major
foreign trade interruption,
has made difficult or impossible the replacement during the
liquidation year of any class of goods for any class of
taxpayers, and
(ii) that the application of this section to that class of
goods and taxpayers is necessary to carry out the purposes of
this section,
he shall publish a notice of such determinations in the Federal
Register, together with the period to be affected by such
notice.
(d) Other definitions and special rules
For purposes of this section -
(1) Liquidation year
The term "liquidation year" means the taxable year in which
occurs the qualified liquidation to which this section applies.
(2) Replacement year
The term "replacement year" means any taxable year in the
replacement period; except that such term shall not include any
taxable year after the taxable year in which replacement of the
liquidated goods is completed.
(3) Replacement period
The term "replacement period" means the shorter of -
(A) the period of the 3 taxable years following the
liquidation year, or
(B) the period specified by the Secretary in a notice
published in the Federal Register with respect to that
qualified inventory interruption.
Any period specified by the Secretary under subparagraph (B) may
be modified by the Secretary in a subsequent notice published in
the Federal Register.
(4) LIFO method
The term "LIFO method" means the method of inventorying goods
described in section 472.
(5) Election
(A) In general
An election under subsection (a) shall be made subject to
such conditions, and in such manner and form and at such time,
as the Secretary may prescribe by regulation.
(B) Irrevocable election
An election under this section shall be irrevocable and shall
be binding for the liquidation year and for all determinations
for prior and subsequent taxable years insofar as such
determinations are affected by the adjustments under this
section.
(e) Replacement; inventory basis
For purposes of this chapter -
(1) Replacements
If the closing inventory of the taxpayer for any replacement
year reflects an increase over the opening inventory of such
goods for such year, the goods reflecting such increase shall be
considered, in the order of their acquisition, as having been
acquired in replacement of the goods most recently liquidated
(whether or not in a qualified liquidation) and not previously
replaced.
(2) Amount at which replacement goods taken into account
In the case of any qualified liquidation, any goods considered
under paragraph (1) as having been acquired in replacement of the
goods liquidated in such liquidation shall be taken into
purchases and included in the closing inventory of the taxpayer
for the replacement year at the inventory cost basis of the goods
replaced.
(f) Special rules for application of adjustments
(1) Period of limitations
If -
(A) an adjustment is required under this section for any
taxable year by reason of the replacement of liquidated goods
during any replacement year, and
(B) the assessment of a deficiency, or the allowance of a
credit or refund of an overpayment of tax attributable to such
adjustment, for any taxable year, is otherwise prevented by the
operation of any law or rule of law (other than section 7122,
relating to compromises),
then such deficiency may be assessed, or credit or refund
allowed, within the period prescribed for assessing a deficiency
or allowing a credit or refund for the replacement year if a
notice for deficiency is mailed, or claim for refund is filed,
within such period.
(2) Interest
Solely for purposes of determining interest on any overpayment
or underpayment attributable to an adjustment made under this
section, such overpayment or underpayment shall be treated as an
overpayment or underpayment (as the case may be) for the
replacement year.
(g) Coordination with section 472
The Secretary shall prescribe such regulations as may be
necessary to coordinate the provisions of this section with the
provisions of section 472.
-SOURCE-
(Added Pub. L. 96-223, title IV, Sec. 403(a)(1), Apr. 2, 1980, 94
Stat. 302.)
-MISC1-
EFFECTIVE DATE
Section 403(a)(3) of Pub. L. 96-223, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by paragraphs (1) and (2) [enacting this section]
shall apply to qualified liquidations (within the meaning of
section 473(c) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]) in taxable years ending after October 31, 1979."
-End-
-CITE-
26 USC Sec. 474 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart D - Inventories
-HEAD-
Sec. 474. Simplified dollar-value LIFO method for certain small
businesses
-STATUTE-
(a) General rule
An eligible small business may elect to use the simplified dollar-
value method of pricing inventories for purposes of the LIFO
method.
(b) Simplified dollar-value method of pricing inventories
For purposes of this section -
(1) In general
The simplified dollar-value method of pricing inventories is a
dollar-value method of pricing inventories under which -
(A) the taxpayer maintains a separate inventory pool for
items in each major category in the applicable Government price
index, and
(B) the adjustment for each such separate pool is based on
the change from the preceding taxable year in the component of
such index for the major category.
(2) Applicable Government price index
The term "applicable Government price index" means -
(A) except as provided in subparagraph (B), the Producer
Price Index published by the Bureau of Labor Statistics, or
(B) in the case of a retailer using the retail method, the
Consumer Price Index published by the Bureau of Labor
Statistics.
(3) Major category
The term "major category" means -
(A) in the case of the Producer Price Index, any of the 2-
digit standard industrial classifications in the Producer
Prices Data Report, or
(B) in the case of the Consumer Price Index, any of the
general expenditure categories in the Consumer Price Index
Detailed Report.
(c) Eligible small business
For purposes of this section, a taxpayer is an eligible small
business for any taxable year if the average annual gross receipts
of the taxpayer for the 3 preceding taxable years do not exceed
$5,000,000. For purposes of the preceding sentence, rules similar
to the rules of section 448(c)(3) shall apply.
(d) Special rules
For purposes of this section -
(1) Controlled groups
(A) In general
In the case of a taxpayer which is a member of a controlled
group, all persons which are component members of such group
shall be treated as 1 taxpayer for purposes of determining the
gross receipts of the taxpayer.
(B) Controlled group defined
For purposes of subparagraph (A), persons shall be treated as
being component members of a controlled group if such persons
would be treated as a single employer under section 52.
(2) Election
(A) In general
The election under this section may be made without the
consent of the Secretary.
(B) Period to which election applies
The election under this section shall apply -
(i) to the taxable year for which it is made, and
(ii) to all subsequent taxable years for which the taxpayer
is an eligible small business,
unless the taxpayer secures the consent of the Secretary to the
revocation of such election.
(3) LIFO method
The term "LIFO method" means the method provided by section
472(b).
(4) Transitional rules
(A) In general
In the case of a year of change under this section -
(i) the inventory pools shall -
(I) in the case of the 1st taxable year to which such an
election applies, be established in accordance with the
major categories in the applicable Government price index,
or
(II) in the case of the 1st taxable year after such
election ceases to apply, be established in the manner
provided by regulations under section 472;
(ii) the aggregate dollar amount of the taxpayer's
inventory as of the beginning of the year of change shall be
the same as the aggregate dollar value as of the close of the
taxable year preceding the year of change, and
(iii) the year of change shall be treated as a new base
year in accordance with procedures provided by regulations
under section 472.
(B) Year of change
For purposes of this paragraph, the year of change under this
section is -
(i) the 1st taxable year to which an election under this
section applies, or
(ii) in the case of a cessation of such an election, the
1st taxable year after such election ceases to apply.
-SOURCE-
(Added Pub. L. 97-34, title II, Sec. 237(a), Aug. 13, 1981, 95
Stat. 252; amended Pub. L. 99-514, title VIII, Sec. 802(a), Oct.
22, 1986, 100 Stat. 2348.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514 amended section generally, substituting
provisions relating to election by eligible small business to use
simplified dollar-value method of pricing inventories for purposes
of LIFO method for provisions relating to election by eligible
small business which uses dollar-value method of pricing
inventories under method provided by section 472(b) of this title
to use one inventory pool for any trade or business of such
eligible small business.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 802(c) of Pub. L. 99-514 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1986.
"(2) Treatment of taxpayers who made elections under existing
section 474. - The amendments made by this section shall not apply
to any taxpayer who made an election under section 474 of the
Internal Revenue Code of 1954 (as in effect on the day before the
date of the enactment of this Act [Oct. 22, 1986]) for any period
during which such election is in effect. Notwithstanding any
provision of such section 474 (as so in effect), an election under
such section may be revoked without the consent of the Secretary."
EFFECTIVE DATE
Section 237(c) of Pub. L. 97-34 provided that: "The amendments
made by this section [enacting this section] shall apply to taxable
years beginning after December 31, 1981."
-End-
-CITE-
26 USC Sec. 475 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart D - Inventories
-HEAD-
Sec. 475. Mark to market accounting method for dealers in
securities
-STATUTE-
(a) General rule
Notwithstanding any other provision of this subpart, the
following rules shall apply to securities held by a dealer in
securities:
(1) Any security which is inventory in the hands of the dealer
shall be included in inventory at its fair market value.
(2) In the case of any security which is not inventory in the
hands of the dealer and which is held at the close of any taxable
year -
(A) the dealer shall recognize gain or loss as if such
security were sold for its fair market value on the last
business day of such taxable year, and
(B) any gain or loss shall be taken into account for such
taxable year.
Proper adjustment shall be made in the amount of any gain or loss
subsequently realized for gain or loss taken into account under
the preceding sentence. The Secretary may provide by regulations
for the application of this paragraph at times other than the
times provided in this paragraph.
(b) Exceptions
(1) In general
Subsection (a) shall not apply to -
(A) any security held for investment,
(B)(i) any security described in subsection (c)(2)(C) which
is acquired (including originated) by the taxpayer in the
ordinary course of a trade or business of the taxpayer and
which is not held for sale, and (ii) any obligation to acquire
a security described in clause (i) if such obligation is
entered into in the ordinary course of such trade or business
and is not held for sale, and
(C) any security which is a hedge with respect to -
(i) a security to which subsection (a) does not apply, or
(ii) a position, right to income, or a liability which is
not a security in the hands of the taxpayer.
To the extent provided in regulations, subparagraph (C) shall not
apply to any security held by a person in its capacity as a
dealer in securities.
(2) Identification required
A security shall not be treated as described in subparagraph
(A), (B), or (C) of paragraph (1), as the case may be, unless
such security is clearly identified in the dealer's records as
being described in such subparagraph before the close of the day
on which it was acquired, originated, or entered into (or such
other time as the Secretary may by regulations prescribe).
(3) Securities subsequently not exempt
If a security ceases to be described in paragraph (1) at any
time after it was identified as such under paragraph (2),
subsection (a) shall apply to any changes in value of the
security occurring after the cessation.
(4) Special rule for property held for investment
To the extent provided in regulations, subparagraph (A) of
paragraph (1) shall not apply to any security described in
subparagraph (D) or (E) of subsection (c)(2) which is held by a
dealer in such securities.
(c) Definitions
For purposes of this section -
(1) Dealer in securities defined
The term "dealer in securities" means a taxpayer who -
(A) regularly purchases securities from or sells securities
to customers in the ordinary course of a trade or business; or
(B) regularly offers to enter into, assume, offset, assign or
otherwise terminate positions in securities with customers in
the ordinary course of a trade or business.
(2) Security defined
The term "security" means any -
(A) share of stock in a corporation;
(B) partnership or beneficial ownership interest in a widely
held or publicly traded partnership or trust;
(C) note, bond, debenture, or other evidence of indebtedness;
(D) interest rate, currency, or equity notional principal
contract;
(E) evidence of an interest in, or a derivative financial
instrument in, any security described in subparagraph (A), (B),
(C), or (D), or any currency, including any option, forward
contract, short position, and any similar financial instrument
in such a security or currency; and
(F) position which -
(i) is not a security described in subparagraph (A), (B),
(C), (D), or (E),
(ii) is a hedge with respect to such a security, and
(iii) is clearly identified in the dealer's records as
being described in this subparagraph before the close of the
day on which it was acquired or entered into (or such other
time as the Secretary may by regulations prescribe).
Subparagraph (E) shall not include any contract to which section
1256(a) applies.
(3) Hedge
The term "hedge" means any position which manages the dealer's
risk of interest rate or price changes or currency fluctuations,
including any position which is reasonably expected to become a
hedge within 60 days after the acquisition of the position.
(4) Special rules for certain receivables
(A) In general
Paragraph (2)(C) shall not include any nonfinancial customer
paper.
(B) Nonfinancial customer paper
For purposes of subparagraph (A), the term "nonfinancial
customer paper" means any receivable which -
(i) is a note, bond, debenture, or other evidence of
indebtedness;
(ii) arises out of the sale of nonfinancial goods or
services by a person the principal activity of which is the
selling or providing of nonfinancial goods or services; and
(iii) is held by such person (or a person who bears a
relationship to such person described in section 267(b) or
707(b)) at all times since issue.
(d) Special rules
For purposes of this section -
(1) Coordination with certain rules
The rules of sections 263(g), 263A, and 1256(a) shall not apply
to securities to which subsection (a) applies, and section 1091
shall not apply (and section 1092 shall apply) to any loss
recognized under subsection (a).
(2) Improper identification
If a taxpayer -
(A) identifies any security under subsection (b)(2) as being
described in subsection (b)(1) and such security is not so
described, or
(B) fails under subsection (c)(2)(F)(iii) to identify any
position which is described in subsection (c)(2)(F) (without
regard to clause (iii) thereof) at the time such identification
is required,
the provisions of subsection (a) shall apply to such security or
position, except that any loss under this section prior to the
disposition of the security or position shall be recognized only
to the extent of gain previously recognized under this section
(and not previously taken into account under this paragraph) with
respect to such security or position.
(3) Character of gain or loss
(A) In general
Except as provided in subparagraph (B) or section 1236(b) -
(i) In general
Any gain or loss with respect to a security under
subsection (a)(2) shall be treated as ordinary income or
loss.
(ii) Special rule for dispositions
If -
(I) gain or loss is recognized with respect to a security
before the close of the taxable year, and
(II) subsection (a)(2) would have applied if the security
were held as of the close of the taxable year,
such gain or loss shall be treated as ordinary income or
loss.
(B) Exception
Subparagraph (A) shall not apply to any gain or loss which is
allocable to a period during which -
(i) the security is described in subsection (b)(1)(C)
(without regard to subsection (b)(2)),
(ii) the security is held by a person other than in
connection with its activities as a dealer in securities, or
(iii) the security is improperly identified (within the
meaning of subparagraph (A) or (B) of paragraph (2)).
(e) Election of mark to market for dealers in commodities
(1) In general
In the case of a dealer in commodities who elects the
application of this subsection, this section shall apply to
commodities held by such dealer in the same manner as this
section applies to securities held by a dealer in securities.
(2) Commodity
For purposes of this subsection and subsection (f), the term
"commodity" means -
(A) any commodity which is actively traded (within the
meaning of section 1092(d)(1));
(B) any notional principal contract with respect to any
commodity described in subparagraph (A);
(C) any evidence of an interest in, or a derivative
instrument in, any commodity described in subparagraph (A) or
(B), including any option, forward contract, futures contract,
short position, and any similar instrument in such a commodity;
and
(D) any position which -
(i) is not a commodity described in subparagraph (A), (B),
or (C),
(ii) is a hedge with respect to such a commodity, and
(iii) is clearly identified in the taxpayer's records as
being described in this subparagraph before the close of the
day on which it was acquired or entered into (or such other
time as the Secretary may by regulations prescribe).
(3) Election
An election under this subsection may be made without the
consent of the Secretary. Such an election, once made, shall
apply to the taxable year for which made and all subsequent
taxable years unless revoked with the consent of the Secretary.
(f) Election of mark to market for traders in securities or
commodities
(1) Traders in securities
(A) In general
In the case of a person who is engaged in a trade or business
as a trader in securities and who elects to have this paragraph
apply to such trade or business -
(i) such person shall recognize gain or loss on any
security held in connection with such trade or business at
the close of any taxable year as if such security were sold
for its fair market value on the last business day of such
taxable year, and
(ii) any gain or loss shall be taken into account for such
taxable year.
Proper adjustment shall be made in the amount of any gain or
loss subsequently realized for gain or loss taken into account
under the preceding sentence. The Secretary may provide by
regulations for the application of this subparagraph at times
other than the times provided in this subparagraph.
(B) Exception
Subparagraph (A) shall not apply to any security -
(i) which is established to the satisfaction of the
Secretary as having no connection to the activities of such
person as a trader, and
(ii) which is clearly identified in such person's records
as being described in clause (i) before the close of the day
on which it was acquired, originated, or entered into (or
such other time as the Secretary may by regulations
prescribe).
If a security ceases to be described in clause (i) at any time
after it was identified as such under clause (ii), subparagraph
(A) shall apply to any changes in value of the security
occurring after the cessation.
(C) Coordination with section 1259
Any security to which subparagraph (A) applies and which was
acquired in the normal course of the taxpayer's activities as a
trader in securities shall not be taken into account in
applying section 1259 to any position to which subparagraph (A)
does not apply.
(D) Other rules to apply
Rules similar to the rules of subsections (b)(4) and (d)
shall apply to securities held by a person in any trade or
business with respect to which an election under this paragraph
is in effect. Subsection (d)(3) shall not apply under the
preceding sentence for purposes of applying sections 1402 and
7704.
(2) Traders in commodities
In the case of a person who is engaged in a trade or business
as a trader in commodities and who elects to have this paragraph
apply to such trade or business, paragraph (1) shall apply to
commodities held by such trader in connection with such trade or
business in the same manner as paragraph (1) applies to
securities held by a trader in securities.
(3) Election
The elections under paragraphs (1) and (2) may be made
separately for each trade or business and without the consent of
the Secretary. Such an election, once made, shall apply to the
taxable year for which made and all subsequent taxable years
unless revoked with the consent of the Secretary.
(g) Regulatory authority
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including rules -
(1) to prevent the use of year-end transfers, related parties,
or other arrangements to avoid the provisions of this section,
(2) to provide for the application of this section to any
security which is a hedge which cannot be identified with a
specific security, position, right to income, or liability, and
(3) to prevent the use by taxpayers of subsection (c)(4) to
avoid the application of this section to a receivable that is
inventory in the hands of the taxpayer (or a person who bears a
relationship to the taxpayer described in section 267(b) or
707(b)).
-SOURCE-
(Added Pub. L. 103-66, title XIII, Sec. 13223(a), Aug. 10, 1993,
107 Stat. 481; amended Pub. L. 105-34, title X, Sec. 1001(b), Aug.
5, 1997, 111 Stat. 906; Pub. L. 105-206, title VI, Sec. 6010(a)(3),
title VII, Sec. 7003(a), (b), July 22, 1998, 112 Stat. 813, 832;
Pub. L. 106-170, title V, Sec. 532(b)(1), Dec. 17, 1999, 113 Stat.
1930; Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 319(4)], Dec.
21, 2000, 114 Stat. 2763, 2763A-646; Pub. L. 107-147, title IV,
Sec. 417(10), Mar. 9, 2002, 116 Stat. 56.)
-MISC1-
AMENDMENTS
2002 - Subsec. (g)(3). Pub. L. 107-147 substituted "described in
section" for "described in sections".
2000 - Subsec. (g)(3). Pub. L. 106-554 substituted "267(b) or"
for "267(b) of".
1999 - Subsec. (c)(3). Pub. L. 106-170 substituted "manages" for
"reduces".
1998 - Subsec. (c)(4). Pub. L. 105-206, Sec. 7003(a), added par.
(4).
Subsec. (f)(1)(D). Pub. L. 105-206, Sec. 6010(a)(3), inserted at
end "Subsection (d)(3) shall not apply under the preceding sentence
for purposes of applying sections 1402 and 7704."
Subsec. (g)(3). Pub. L. 105-206, Sec. 7003(b), added par. (3).
1997 - Subsecs. (e) to (g). Pub. L. 105-34 added subsecs. (e) and
(f) and redesignated former subsec. (e) as (g).
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by section 6010(a)(3) of Pub. L. 105-206 effective,
except as otherwise provided, as if included in the provisions of
the Taxpayer Relief Act of 1997, Pub. L. 105-34, to which such
amendment relates, see section 6024 of Pub. L. 105-206, set out as
a note under section 1 of this title.
Pub. L. 105-206, title VII, Sec. 7003(c), July 22, 1998, 112
Stat. 833, provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years ending after the date of
the enactment of this Act [July 22, 1998].
"(2) Change in method of accounting. - In the case of any
taxpayer required by the amendments made by this section to change
its method of accounting for its first taxable year ending after
the date of the enactment of this Act -
"(A) such change shall be treated as initiated by the taxpayer;
"(B) such change shall be treated as made with the consent of
the Secretary of the Treasury; and
"(C) the net amount of the adjustments required to be taken
into account by the taxpayer under section 481 of the Internal
Revenue Code of 1986 shall be taken into account ratably over the
4-taxable-year period beginning with such first taxable year."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1001(d) of Pub. L. 105-34, as amended by Pub. L. 105-206,
title VI, Sec. 6010(a)(4), July 22, 1998, 112 Stat. 813, provided
that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting section
1259 of this title and amending this section] shall apply to any
constructive sale after June 8, 1997.
"(2) Exception for sales of positions, etc. held before june 9,
1997. - If -
"(A) before June 9, 1997, the taxpayer entered into any
transaction which is a constructive sale of any appreciated
financial position, and
"(B) before the close of the 30-day period beginning on the
date of the enactment of this Act [Aug. 5, 1997] or before such
later date as may be specified by the Secretary of the Treasury,
such transaction and position are clearly identified in the
taxpayer's records as offsetting,
such transaction and position shall not be taken into account in
determining whether any other constructive sale after June 8, 1997,
has occurred. The preceding sentence shall cease to apply as of the
date such transaction is closed or the taxpayer ceases to hold such
position.
"(3) Special rule. - In the case of a decedent dying after June
8, 1997, if -
"(A) there was a constructive sale on or before such date of
any appreciated financial position,
"(B) the transaction resulting in such constructive sale of
such position remains open (with respect to the decedent or any
related person) -
"(i) for not less than 2 years after the date of such
transaction (whether such period is before or after June 8,
1997), and
"(ii) at any time during the 3-year period ending on the date
of the decedent's death, and
"(C) such transaction is not closed before the close of the
30th day after the date of the enactment of this Act,
then, for purposes of such Code [probably means the Internal
Revenue Code of 1986], such position (and the transaction resulting
in such constructive sale) shall be treated as property
constituting rights to receive an item of income in respect of a
decedent under section 691 of such Code. Section 1014(c) of such
Code shall not apply to so much of such position's or property's
value (as included in the decedent's estate for purposes of chapter
11 of such Code) as exceeds its fair market value as of the date
such transaction is closed.
"(4) Election of mark to market by securities traders and traders
and dealers in commodities. -
"(A) In general. - The amendments made by subsection (b)
[amending this section] shall apply to taxable years ending after
the date of the enactment of this Act.
"(B) 4-year spread of adjustments. - In the case of a taxpayer
who elects under subsection (e) or (f) of section 475 of the
Internal Revenue Code of 1986 (as added by this section) to
change its method of accounting for the taxable year which
includes the date of the enactment of this Act -
"(i) any identification required under such subsection with
respect to securities and commodities held on the date of the
enactment of this Act shall be treated as timely made if made
on or before the 30th day after such date of enactment, and
"(ii) the net amount of the adjustments required to be taken
into account by the taxpayer under section 481 of such Code
shall be taken into account ratably over the 4-taxable year
period beginning with such first taxable year."
EFFECTIVE DATE
Section 13223(c) of Pub. L. 103-66 provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending section 988 of this title] shall apply to
all taxable years ending on or after December 31, 1993.
"(2) Change in method of accounting. - In the case of any
taxpayer required by this section to change its method of
accounting for any taxable year -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as made with the consent of
the Secretary, and
"(C) except as provided in paragraph (3), the net amount of the
adjustments required to be taken into account by the taxpayer
under section 481 of the Internal Revenue Code of 1986 shall be
taken into account ratably over the 5-taxable year period
beginning with the first taxable year ending on or after December
31, 1993.
"(3) Special rule for floor specialists and market makers. -
"(A) In general. - If -
"(i) a taxpayer (or any predecessor) used the last-in first-
out (LIFO) method of accounting with respect to any qualified
securities for the 5-taxable year period ending with its last
taxable year ending before December 31, 1993, and
"(ii) any portion of the net amount described in paragraph
(2)(C) is attributable to the use of such method of accounting,
then paragraph (2)(C) shall be applied by taking such portion
into account ratably over the 15-taxable year period beginning
with the first taxable year ending on or after December 31, 1993.
"(B) Qualified security. - For purposes of this paragraph, the
term 'qualified security' means any security acquired -
"(i) by a floor specialist (as defined in section 1236(d)(2)
of the Internal Revenue Code of 1986) in connection with the
specialist's duties as a specialist on an exchange, but only if
the security is one in which the specialist is registered with
the exchange, or
"(ii) by a taxpayer who is a market maker in connection with
the taxpayer's duties as a market maker, but only if -
"(I) the security is included on the National Association
of Security Dealers Automated Quotation System,
"(II) the taxpayer is registered as a market maker in such
security with the National Association of Security Dealers,
and
"(III) as of the last day of the taxable year preceding the
taxpayer's first taxable year ending on or after December 31,
1993, the taxpayer (or any predecessor) has been actively and
regularly engaged as a market maker in such security for the
2-year period ending on such date (or, if shorter, the period
beginning 61 days after the security was listed in such
quotation system and ending on such date)."
-End-
-CITE-
26 USC PART III - ADJUSTMENTS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART III - ADJUSTMENTS
-HEAD-
PART III - ADJUSTMENTS
-MISC1-
Sec.
481. Adjustments required by changes in method of
accounting.
482. Allocation of income and deductions among taxpayers.
483. Interest on certain deferred payments.
AMENDMENTS
1964 - Pub. L. 88-272, title II, Sec. 224(b), Feb. 26, 1964, 78
Stat. 79, added item 483.
-End-
-CITE-
26 USC Sec. 481 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART III - ADJUSTMENTS
-HEAD-
Sec. 481. Adjustments required by changes in method of accounting
-STATUTE-
(a) General rule
In computing the taxpayer's taxable income for any taxable year
(referred to in this section as the "year of the change") -
(1) if such computation is under a method of accounting
different from the method under which the taxpayer's taxable
income for the preceding taxable year was computed, then
(2) there shall be taken into account those adjustments which
are determined to be necessary solely by reason of the change in
order to prevent amounts from being duplicated or omitted, except
there shall not be taken into account any adjustment in respect
of any taxable year to which this section does not apply unless
the adjustment is attributable to a change in the method of
accounting initiated by the taxpayer.
(b) Limitation on tax where adjustments are substantial
(1) Three year allocation
If -
(A) the method of accounting from which the change is made
was used by the taxpayer in computing his taxable income for
the 2 taxable years preceding the year of the change, and
(B) the increase in taxable income for the year of the change
which results solely by reason of the adjustments required by
subsection (a)(2) exceeds $3,000,
then the tax under this chapter attributable to such increase in
taxable income shall not be greater than the aggregate increase
in the taxes under this chapter (or under the corresponding
provisions of prior revenue laws) which would result if one-third
of such increase in taxable income were included in taxable
income for the year of the change and one-third of such increase
were included for each of the 2 preceding taxable years.
(2) Allocation under new method of accounting
If -
(A) the increase in taxable income for the year of the change
which results solely by reason of the adjustments required by
subsection (a)(2) exceeds $3,000, and
(B) the taxpayer establishes his taxable income (under the
new method of accounting) for one or more taxable years
consecutively preceding the taxable year of the change for
which the taxpayer in computing taxable income used the method
of accounting from which the change is made,
then the tax under this chapter attributable to such increase in
taxable income shall not be greater than the net increase in the
taxes under this chapter (or under the corresponding provisions
of prior revenue laws) which would result if the adjustments
required by subsection (a)(2) were allocated to the taxable year
or years specified in subparagraph (B) to which they are properly
allocable under the new method of accounting and the balance of
the adjustments required by subsection (a)(2) was allocated to
the taxable year of the change.
(3) Special rules for computations under paragraphs (1) and (2)
For purposes of this subsection -
(A) There shall be taken into account the increase or
decrease in tax for any taxable year preceding the year of the
change to which no adjustment is allocated under paragraph (1)
or (2) but which is affected by a net operating loss (as
defined in section 172) or by a capital loss carryback or
carryover (as defined in section 1212), determined with
reference to taxable years with respect to which adjustments
under paragraph (1) or (2) are allocated.
(B) The increase or decrease in the tax for any taxable year
for which an assessment of any deficiency, or a credit or
refund of any overpayment, is prevented by any law or rule of
law, shall be determined by reference to the tax previously
determined (within the meaning of section 1314(a)) for such
year.
(C) In applying section 7807(b)(1), the provisions of chapter
1 (other than subchapter E, relating to self-employment income)
and chapter 2 of the Internal Revenue Code of 1939 shall be
treated as the corresponding provisions of the Internal Revenue
Code of 1939.
(c) Adjustments under regulations
In the case of any change described in subsection (a), the
taxpayer may, in such manner and subject to such conditions as the
Secretary may by regulations prescribe, take the adjustments
required by subsection (a)(2) into account in computing the tax
imposed by this chapter for the taxable year or years permitted
under such regulations.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 160; Pub. L. 85-866, title I,
Sec. 29(a), (b), Sept. 2, 1958, 72 Stat. 1626-1628; Pub. L. 91-172,
title V, Sec. 512(f)(4), Dec. 30, 1969, 83 Stat. 641; Pub. L. 94-
455, title XIX, Secs. 1901(a)(70), 1906(b)(13)(A), Oct. 4, 1976,
90 Stat. 1776, 1834; Pub. L. 96-471, Sec. 2(b)(3), Oct. 19, 1980,
94 Stat. 2254.)
-REFTEXT-
REFERENCES IN TEXT
The Internal Revenue Code of 1939, referred to in subsec.
(b)(3)(C), is act Feb. 10, 1939, ch. 2, 53 Stat. 1, as amended.
Prior to the enactment of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], the 1939 Code was classified to former
Title 26, Internal Revenue Code. Chapters 1 and 2 of the Internal
Revenue Code of 1939 were comprised of sections 1 to 482 and 500 to
784, respectively, of former Title 26. Chapters 1 (except sections
143 and 144) and 2 were repealed by section 7851(a)(1) of this
title. For table of comparisons of the 1939 Code to the 1986 Code,
see Table I preceding section 1 of this title. See, also, section
7851(e) of this title for provision that references in the 1986
Code to a provision of the 1939 Code, not then applicable, shall be
deemed a reference to the corresponding provision of the 1986 Code,
which is then applicable.
-MISC1-
AMENDMENTS
1980 - Subsec. (d). Pub. L. 96-471 struck out subsec. (d) which
provided that this section was not to apply to a change to which
section 453 of this title, relating to change to installment
method, applied.
1976 - Subsecs. (b)(1), (2). Pub. L. 94-455, Sec. 1901(a)(70)(B),
struck out ", other than the amount of such adjustments to which
paragraph (4) or (5) applies," after "required by subsection
(a)(2)".
Subsec. (b)(4), (5), (6). Pub. L. 94-455, Sec. 1901(a)(70)(A),
struck out par. (4) which related to special rule for pre-1954
general adjustments, par. (5) which related to special rule for pre-
1954 adjustments in case of certain decedents, and par. (6) which
related to the application of the special rule for pre-1954 general
adjustments.
Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
1969 - Subsec. (b)(3)(A). Pub. L. 91-172 substituted "loss
carryback or carryover" for "loss carryover".
1958 - Subsec. (a)(2). Pub. L. 85-866, Sec. 29(a)(1), inserted
"unless the adjustment is attributable to a change in the method of
accounting initiated by the taxpayer", after "does not apply".
Subsec. (b)(1). Pub. L. 85-866, Sec. 29(b)(1)-(3), inserted ",
other than the amount of such adjustments to which paragraph (4) or
(5) applies," after "subsection (a)(2)" and substituted "the
aggregate increase in the taxes" for "the aggregate of the taxes"
and "which would result if one-third of such increase in taxable
income" for "which would result if one-third of such increase".
Subsec. (b)(2). Pub. L. 85-866, Sec. 29(b)(1), (4), inserted
"other than the amount of such adjustments to which paragraph (4)
or (5) applies," after "subsection (a)(2)", wherever appearing and
"(or under the corresponding provisions of prior revenue laws)"
after "the net increase in the taxes under this Chapter".
Subsec. (b)(3)(A). Pub. L. 85-866, Sec. 29(b)(5), substituted
"paragraph (1) or (2)" for "paragraph (2)", wherever appearing.
Subsec. (b)(4) to (6). Pub. L. 85-866, Sec. 29(a)(2), added pars.
(4) to (6).
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-471, see section
6(a)(1) of Pub. L. 96-471, set out as an Effective Date note under
section 453 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(70) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to net
capital losses sustained in taxable years beginning after Dec. 31,
1969, see section 512(g) of Pub. L. 91-172, set out as a note under
section 1212 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 29(d) of Pub. L. 85-866, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 381 of this title] shall apply with
respect to any change in a method of accounting where the year of
the change (within the meaning of section 481 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954]) is a taxable year
beginning after December 31, 1953, and ending after August 16,
1954.
"(2) Exception for certain agreements. - The amendments made by
subsections (a), (b)(I), and (c) [amending this section and section
381 of this title] shall not apply if before the date of the
enactment of this Act [Sept. 2, 1958] -
"(A) the taxpayer applied for a change in the method of
accounting in the manner provided by regulations prescribed by
the Secretary of the Treasury or his delegate, and
"(B) the taxpayer and the Secretary of the Treasury or his
delegate agreed to the terms and conditions for making the
change."
CHANGES IN TREATMENT OF POLICYHOLDER DIVIDENDS BY QUALIFIED GROUP
SELF-INSURERS' FUNDS
Pub. L. 101-239, title VII, Sec. 7816(m), Dec. 19, 1989, 103
Stat. 2421, provided that: "If, for the 1st taxable year beginning
on or after January 1, 1987, a qualified group self-insurers' fund
changes its treatment of policyholder dividends to take into
account such dividends no earlier than the date that the State
regulatory authority determines the amount of the policyholder
dividend that may be paid, then such change shall be treated as a
change in a method of accounting and no adjustment under section
481(a) of the Internal Revenue Code of 1986 shall be made with
respect to such change in method of accounting."
TRANSITIONAL PROVISIONS FOR INCOME TAX TREATMENT OF DEALER RESERVE
INCOME
Pub. L. 86-459, May 13, 1960, 74 Stat. 124, authorized any person
who computed taxable income under the accrual method of accounting
for his most recent taxable year ending on or before June 22, 1959,
and who treated dealer reserve income for such taxable year as
accruable for a subsequent taxable year, to elect before Sept. 1,
1960, to have section 481 of this title apply to the treatment for
income tax purposes of dealer reserve income.
ELECTION TO RETURN TO FORMER METHOD OF ACCOUNTING
Section 29(e) of Pub. L. 85-866 authorized an election by certain
taxpayers, who, for any taxable years beginning after Dec. 31,
1953, and ending after Aug. 16, 1954, and before Sept. 2, 1958,
computed their taxable incomes using different accounting methods
in succeeding taxable years, to return to their first method of
accounting, where the election was made within six months after
Sept. 2, 1958. Claims for refunds of overpayments of tax resulting
from the election were to be filed within one year after the date
of the election. Such an election was to be considered a consent to
an assessment of a deficiency resulting from the election, where
the assessment is made within one year after the date of the
election.
-End-
-CITE-
26 USC Sec. 482 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART III - ADJUSTMENTS
-HEAD-
Sec. 482. Allocation of income and deductions among taxpayers
-STATUTE-
In any case of two or more organizations, trades, or businesses
(whether or not incorporated, whether or not organized in the
United States, and whether or not affiliated) owned or controlled
directly or indirectly by the same interests, the Secretary may
distribute, apportion, or allocate gross income, deductions,
credits, or allowances between or among such organizations, trades,
or businesses, if he determines that such distribution,
apportionment, or allocation is necessary in order to prevent
evasion of taxes or clearly to reflect the income of any of such
organizations, trades, or businesses. In the case of any transfer
(or license) of intangible property (within the meaning of section
936(h)(3)(B)), the income with respect to such transfer or license
shall be commensurate with the income attributable to the
intangible.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 162; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99-514,
title XII, Sec. 1231(e)(1), Oct. 22, 1986, 100 Stat. 2562.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514 inserted at end "In the case of any
transfer (or license) of intangible property (within the meaning of
section 936(h)(3)(B)), the income with respect to such transfer or
license shall be commensurate with the income attributable to the
intangible."
1976 - Pub. L. 94-455 struck out "or his delegate" after
"Secretary".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, but only with respect to transfers after Nov.
16, 1985, or licenses granted after such date, or before such date
with respect to property not in existence or owned by the taxpayer
on such date, except that for purposes of section 936(h)(5)(C) of
this title, such amendment applicable to taxable years beginning
after Dec. 31, 1986, without regard to when the transfer or license
was made, see section 1231(g)(2) of Pub. L. 99-514, set out as a
note under section 936 of this title.
REGULATIONS
For requirement that, not later than 180 days after July 18,
1984, the Secretary of the Treasury modify the safe harbor interest
rates applicable under the regulations prescribed under this
section so that such rates are consistent with the rates applicable
under section 483 of this title by reason of the amendments made by
Pub. L. 98-369, see section 44(b)(2) of Pub. L. 98-369, set out as
an Effective Date note under section 1271 of this title.
STUDY OF APPLICATION AND ADMINISTRATION OF THIS SECTION
Pub. L. 101-508, title XI, Sec. 11316, Nov. 5, 1990, 104 Stat.
1388-458, directed Secretary of the Treasury or his delegate to
conduct a study of the application and administration of section
482 of the Internal Revenue Code of 1986 and not later than Mar. 1,
1992, submit to Committee on Ways and Means of House of
Representatives and Committee on Finance of Senate a report on the
study, together with such recommendations as he deemed advisable.
-End-
-CITE-
26 USC Sec. 483 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART III - ADJUSTMENTS
-HEAD-
Sec. 483. Interest on certain deferred payments
-STATUTE-
(a) Amount constituting interest
For purposes of this title, in the case of any payment -
(1) under any contract for the sale or exchange of any
property, and
(2) to which this section applies,
there shall be treated as interest that portion of the total
unstated interest under such contract which, as determined in a
manner consistent with the method of computing interest under
section 1272(a), is properly allocable to such payment.
(b) Total unstated interest
For purposes of this section, the term "total unstated interest"
means, with respect to a contract for the sale or exchange of
property, an amount equal to the excess of -
(1) the sum of the payments to which this section applies which
are due under the contract, over
(2) the sum of the present values of such payments and the
present values of any interest payments due under the contract.
For purposes of the preceding sentence, the present value of a
payment shall be determined under the rules of section 1274(b)(2)
using a discount rate equal to the applicable Federal rate
determined under section 1274(d).
(c) Payments to which subsection (a) applies
(1) In general
Except as provided in subsection (d), this section shall apply
to any payment on account of the sale or exchange of property
which constitutes part or all of the sales price and which is due
more than 6 months after the date of such sale or exchange under
a contract -
(A) under which some or all of the payments are due more than
1 year after the date of such sale or exchange, and
(B) under which there is total unstated interest.
(2) Treatment of other debt instruments
For purposes of this section, a debt instrument of the
purchaser which is given in consideration for the sale or
exchange of property shall not be treated as a payment, and any
payment due under such debt instrument shall be treated as due
under the contract for the sale or exchange.
(3) Debt instrument defined
For purposes of this subsection, the term "debt instrument" has
the meaning given such term by section 1275(a)(1).
(d) Exceptions and limitations
(1) Coordination with original issue discount rules
This section shall not apply to any debt instrument for which
an issue price is determined under section 1273(b) (other than
paragraph (4) thereof) or section 1274.
(2) Sales prices of $3,000 or less
This section shall not apply to any payment on account of the
sale or exchange of property if it can be determined at the time
of such sale or exchange that the sales price cannot exceed
$3,000.
(3) Carrying charges
In the case of the purchaser, the tax treatment of amounts paid
on account of the sale or exchange of property shall be made
without regard to this section if any such amounts are treated
under section 163(b) as if they included interest.
(4) Certain sales of patents
In the case of any transfer described in section 1235(a)
(relating to sale or exchange of patents), this section shall not
apply to any amount contingent on the productivity, use, or
disposition of the property transferred.
(e) Maximum rate of interest on certain transfers of land between
related parties
(1) In general
In the case of any qualified sale, the discount rate used in
determining the total unstated interest rate under subsection (b)
shall not exceed 6 percent, compounded semiannually.
(2) Qualified sale
For purposes of this subsection, the term "qualified sale"
means any sale or exchange of land by an individual to a member
of such individual's family (within the meaning of section
267(c)(4)).
(3) $500,000 limitation
Paragraph (1) shall not apply to any qualified sale between
individuals made during any calendar year to the extent that the
sales price for such sale (when added to the aggregate sales
price for prior qualified sales between such individuals during
the calendar year) exceeds $500,000.
(4) Nonresident alien individuals
Paragraph (1) shall not apply to any sale or exchange if any
party to such sale or exchange is a nonresident alien individual.
(f) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section
including regulations providing for the application of this section
in the case of -
(1) any contract for the sale or exchange of property under
which the liability for, or the amount or due date of, a payment
cannot be determined at the time of the sale or exchange, or
(2) any change in the liability for, or the amount or due date
of, any payment (including interest) under a contract for the
sale or exchange of property.
(g) Cross references
(1) For treatment of assumptions, see section l274(c)(4).
(2) For special rules for certain transactions where stated
principal amount does not exceed $2,800,000, see section 1274A.
(3) For special rules in case of the borrower under certain
loans for personal use, see section 1275(b).
-SOURCE-
(Added Pub. L. 88-272, title II, Sec. 224(a), Feb. 26, 1964, 78
Stat. 77; amended Pub. L. 94-455, title XIX, Secs. 1901(b)(3)(B),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1792, 1834; Pub. L. 97-34,
title I, Sec. 126(a), Aug. 13, 1981, 95 Stat. 202; Pub. L. 97-448,
title I, Sec. 101(g), Jan. 12, 1983, 96 Stat. 2367; Pub. L. 98-369,
div. A, title I, Sec. 41(b), July 18, 1984, 98 Stat. 553; Pub. L.
99-121, title I, Secs. 101(a)(2), 102(c)(1)-(3), Oct. 11, 1985, 99
Stat. 505, 508; Pub. L. 99-514, title XVIII, Sec. 1803(a)(14)(B),
Oct. 22, 1986, 100 Stat. 2797.)
-MISC1-
AMENDMENTS
1986 - Subsec. (d)(3). Pub. L. 99-514 substituted "for which an
issue price is determined under section 1273(b) (other than
paragraph (4) thereof) or section 1274" for "to which section 1272
applies".
1985 - Subsec. (b). Pub. L. 99-121, Sec. 101(a)(2)(A), struck out
"120 percent of" after "discount rate equal to" in closing
provisions.
Subsec. (c)(1)(B). Pub. L. 99-121, Sec. 101(a)(2)(B), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "under which, using a discount rate equal to 110 percent
of the applicable Federal rate determined under section 1274(d),
there is total unstated interest."
Subsec. (e). Pub. L. 99-121, Sec. 102(c)(1), (2), redesignated
subsec. (f) as (e), and as so redesignated substituted "6 percent"
for "7 percent" in par. (1). Former subsec. (e), which related to
the interest rates in the case of the sales of principal residences
or farm lands, was struck out.
Subsec. (f). Pub. L. 99-121, Sec. 102(c)(1), redesignated subsec.
(g) as (f). Former subsec. (f) redesignated (e).
Subsecs. (g), (h). Pub. L. 99-121, Sec. 102(c)(1), (3),
redesignated subsec. (h) as (g) and amended it generally,
designating existing undesignated cross reference as par. (3), and
adding pars. (1) and (2). Former subsec. (g) redesignated (f).
1984 - Subsec. (a). Pub. L. 98-369 amended subsec. (a) generally,
substituting "For purposes of this title, in the case of any
payment (1) under any contract for the sale or exchange of any
property, and (2) to which this section applies, there shall be
treated as interest that portion of the total unstated interest
under such contract which, as determined in a manner consistent
with the method of computing interest under section 1272(a), is
properly allocable to such payment" for "For purposes of this
title, in the case of any contract for the sale or exchange of
property there shall be treated as interest that part of a payment
to which this section applies which bears the same ratio to the
amount of such payment as the total unstated interest under such
contract bears to the total of the payments to which this section
applies which are due under such contract".
Subsec. (b). Pub. L. 98-369 amended subsec. (b) generally,
substituting provisions directing that the present value of a
payment be determined under the rules of section 1274(b)(2) using a
discount rate equal to 120 percent of the applicable Federal rate
determined under section 1274(d) for provisions which had directed
that the present value of a payment be determined, as of the date
of the sale or exchange, by discounting such payment at the rate,
and in the manner, provided in regulations prescribed by the
Secretary and that such regulations provide for discounting on the
basis of 6-month brackets and provide that the present value of any
interest payment due not more than 6 months after the date of the
sale or exchange was to have been an amount equal to 100 percent of
such payment.
Subsec. (c). Pub. L. 98-369 substituted "subsection (a) applies"
for "section applies" in heading.
Subsec. (c)(1). Pub. L. 98-369 substituted "under which, using a
discount rate equal to 110 percent of the applicable Federal rate
determined under section 1274(d), there is total unstated interest"
for "under which, using a rate provided by regulations prescribed
by the Secretary for purposes of this subparagraph, there is total
unstated interest", in subpar. (B), and struck out provision
formerly set out following subpar. (B) which had directed that any
rate prescribed for determining whether there was total unstated
interest for purposes of subpar. (B) be at least one percentage
point lower than the rate prescribed for purposes of subsec.
(b)(2).
Subsec. (c)(2). Pub. L. 98-369 substituted "Treatment of other
debt instruments" for "Treatment of other evidence of indebtedness"
in heading and, in text, substituted "a debt instrument of the
purchaser which is given in consideration for the sale or exchange
of property shall not be treated as a payment, and any payment due
under such debt instrument" for "an evidence of indebtedness of the
purchaser given in consideration for the sale or exchange of
property shall not be considered a payment, and any payment due
under such evidence of indebtedness".
Subsec. (c)(3). Pub. L. 98-369 added par. (3).
Subsec. (d). Pub. L. 98-369 amended subsec. (d) generally,
substituting provisions relating to exceptions and limitations for
provisions which related to payments indefinite as to time,
liability, or amount.
Subsec. (e). Pub. L. 98-369 amended subsec. (e) generally,
substituting provisions relating to interest rates in case of sale
of principal residence or farm land for provision relating to
changes in terms of contract.
Subsec. (f). Pub. L. 98-369 amended subsec. (f) generally,
substituting provisions relating to maximum rate of interest on
certain transfers of land between related parties for provisions
which related to exceptions and limitations now covered in subsec.
(d) of this section.
Subsec. (g). Pub. L. 98-369 amended subsec. (g) generally,
substituting provisions which related to calling for the
promulgation of regulations by the Secretary for provisions which
related to the maximum rate of interest on certain transfers of
land between related parties now covered in subsec. (f) of this
section.
Subsec. (h). Pub. L. 98-369 added subsec. (h).
1983 - Subsec. (g)(4). Pub. L. 97-448 substituted "Paragraph (1)"
for "This section".
1981 - Subsec. (g). Pub. L. 97-34 added subsec. (g).
1976 - Subsecs. (b), (c)(1)(B), (e). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (f)(3). Pub. L. 94-455, Sec. 1901(b)(3)(B), substituted
"all of the gain, if any, on such" for "no part of any gain on
such" and "ordinary income" for gain from the sale or exchange of
property other than a capital asset".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1985 AMENDMENT
Amendment by Pub. L. 99-121 applicable to sales and exchanges
after June 30, 1985, in taxable years ending after such date, see
section 105(a)(1) of Pub. L. 99-121, set out as a note under
section 1274 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years ending
after July 18, 1984, and applicable to sales or exchanges after
Dec. 31, 1984, but not applicable to any sale or exchange pursuant
to a written contract which was binding on Mar. 1, 1984, and at all
times thereafter before the sale or exchange, see section 44 of
Pub. L. 98-369, set out as an Effective Date note under section
1271 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 126(b) of Pub. L. 97-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
payments made after June 30, 1981, pursuant to sales or exchanges
after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(3)(B) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
EFFECTIVE DATE
Section applicable to payments made after Dec. 31, 1963, on
account of sales or exchanges of property after June 30, 1963,
other than a sale or exchange pursuant to written contract,
including an irrevocable written option, entered into before July
1, 1963, see section 224(d) of Pub. L. 88-272, set out as an
Effective Date of 1964 Amendment note under section 163 of this
title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TREATMENT OF TRANSFERS OF LAND BETWEEN RELATED PARTIES
Section 1803(a)(9) of Pub. L. 99-514 provided that: "In the case
of any sale or exchange before July 1, 1985, to which section
483(f) of the Internal Revenue Code of 1954 [now 1986] (as in
effect on the day before the date of the enactment of Public Law 99-
121 [Oct. 11, 1985]) applies, such section shall be treated as
providing that the discount rate to be used for purposes of section
483(c)(1) of such Code shall be 6 percent, compounded
semiannually."
TRANSITIONAL RULE FOR PURPOSES OF IMPUTED INTEREST RULES
Provisions, respecting treatment of debt instruments received in
exchange for property, relating to special rules for sales after
Dec. 31, 1984, and before July 1, 1985, general rule for
assumptions of loans, exception for assumptions of loans made on or
before Oct. 15, 1984, and exception for assumptions of loans with
respect to certain property, see section 44(b)(4)-(7) of Pub. L. 98-
369, as amended, set out as an Effective Date note under section
1271 of this title.
-End-
-CITE-
26 USC Subchapter F - Exempt Organizations 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
-HEAD-
SUBCHAPTER F - EXEMPT ORGANIZATIONS
-MISC1-
Part
I. General rule.
II. Private foundations.
III. Taxation of business income of certain exempt
organizations.
IV. Farmers' cooperatives.
V. Shipowners' protection and indemnity associations.
VI. Political organizations.
VII. Certain homeowners associations.
VIII. Higher education savings entities.
AMENDMENTS
1997 - Pub. L. 105-34, title II, Sec. 211(e)(1)(B), Aug. 5, 1997,
111 Stat. 812, substituted "Higher education savings entities" for
"Qualified State tuition programs" in part VIII heading.
1996 - Pub. L. 104-188, title I, Sec. 1806(b)(2), Aug. 20, 1996,
110 Stat. 1898, added part VIII heading.
1976 - Pub. L. 94-455, title XXI, Sec. 2101(d), Oct. 4, 1976, 90
Stat. 1899, added part VII heading.
1975 - Pub. L. 93-625, Sec. 10(d), Jan. 3, 1975, 88 Stat. 2119,
added part VI heading.
1969 - Pub. L. 91-172, title I, Sec. 101(j)(58), Dec. 30, 1969,
83 Stat. 532, added part II heading, and redesignated former parts
II, III and IV as parts III, IV and V, respectively.
-End-
-CITE-
26 USC PART I - GENERAL RULE 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART I - GENERAL RULE
-HEAD-
PART I - GENERAL RULE
-MISC1-
Sec.
501. Exemption from tax on corporations, certain trusts,
etc.
502. Feeder organizations.
503. Requirements for exemption.
504. Status after organization ceases to qualify for
exemption under section 501(c)(3) because of
substantial lobbying or because of political
activities.
505. Additional requirements for organizations described in
paragraph (9), (17), or (20) of section 501(c).
AMENDMENTS
1987 - Pub. L. 100-203, title X, Sec. 10711(b)(2)(B), Dec. 22,
1987, 101 Stat. 1330-464, substituted "substantial lobbying or
because of political activities" for "substantial lobbying" in item
504.
1984 - Pub. L. 98-369, div. A, title V, Sec. 513(b), July 18,
1984, 98 Stat. 865, added item 505.
1976 - Pub. L. 94-455, title XIII, Sec. 1307(d)(3)(B), Oct. 4,
1976, 90 Stat. 1728, added item 504.
1969 - Pub. L. 91-172, title I, Sec. 101(j)(61), Dec. 30, 1969,
83 Stat. 532, struck out item 504 "Denial of exemption".
-End-
-CITE-
26 USC Sec. 501 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART I - GENERAL RULE
-HEAD-
Sec. 501. Exemption from tax on corporations, certain trusts, etc.
-STATUTE-
(a) Exemption from taxation
An organization described in subsection (c) or (d) or section
401(a) shall be exempt from taxation under this subtitle unless
such exemption is denied under section 502 or 503.
(b) Tax on unrelated business income and certain other activities
An organization exempt from taxation under subsection (a) shall
be subject to tax to the extent provided in parts II, III, and VI
of this subchapter, but (notwithstanding parts II, III, and VI of
this subchapter) shall be considered an organization exempt from
income taxes for the purpose of any law which refers to
organizations exempt from income taxes.
(c) List of exempt organizations
The following organizations are referred to in subsection (a):
(1) Any corporation organized under Act of Congress which is an
instrumentality of the United States but only if such corporation
-
(A) is exempt from Federal income taxes -
(i) under such Act as amended and supplemented before July
18, 1984, or
(ii) under this title without regard to any provision of
law which is not contained in this title and which is not
contained in a revenue Act, or
(B) is described in subsection (l).
(2) Corporations organized for the exclusive purpose of holding
title to property, collecting income therefrom, and turning over
the entire amount thereof, less expenses, to an organization
which itself is exempt under this section. Rules similar to the
rules of subparagraph (G) of paragraph (25) shall apply for
purposes of this paragraph.
(3) Corporations, and any community chest, fund, or foundation,
organized and operated exclusively for religious, charitable,
scientific, testing for public safety, literary, or educational
purposes, or to foster national or international amateur sports
competition (but only if no part of its activities involve the
provision of athletic facilities or equipment), or for the
prevention of cruelty to children or animals, no part of the net
earnings of which inures to the benefit of any private
shareholder or individual, no substantial part of the activities
of which is carrying on propaganda, or otherwise attempting, to
influence legislation (except as otherwise provided in subsection
(h)), and which does not participate in, or intervene in
(including the publishing or distributing of statements), any
political campaign on behalf of (or in opposition to) any
candidate for public office.
(4)(A) Civic leagues or organizations not organized for profit
but operated exclusively for the promotion of social welfare, or
local associations of employees, the membership of which is
limited to the employees of a designated person or persons in a
particular municipality, and the net earnings of which are
devoted exclusively to charitable, educational, or recreational
purposes.
(B) Subparagraph (A) shall not apply to an entity unless no
part of the net earnings of such entity inures to the benefit of
any private shareholder or individual.
(5) Labor, agricultural, or horticultural organizations.
(6) Business leagues, chambers of commerce, real-estate boards,
boards of trade, or professional football leagues (whether or not
administering a pension fund for football players), not organized
for profit and no part of the net earnings of which inures to the
benefit of any private shareholder or individual.
(7) Clubs organized for pleasure, recreation, and other
nonprofitable purposes, substantially all of the activities of
which are for such purposes and no part of the net earnings of
which inures to the benefit of any private shareholder.
(8) Fraternal beneficiary societies, orders, or associations -
(A) operating under the lodge system or for the exclusive
benefit of the members of a fraternity itself operating under
the lodge system, and
(B) providing for the payment of life, sick, accident, or
other benefits to the members of such society, order, or
association or their dependents.
(9) Voluntary employees' beneficiary associations providing for
the payment of life, sick, accident, or other benefits to the
members of such association or their dependents or designated
beneficiaries, if no part of the net earnings of such association
inures (other than through such payments) to the benefit of any
private shareholder or individual.
(10) Domestic fraternal societies, orders, or associations,
operating under the lodge system -
(A) the net earnings of which are devoted exclusively to
religious, charitable, scientific, literary, educational, and
fraternal purposes, and
(B) which do not provide for the payment of life, sick,
accident, or other benefits.
(11) Teachers' retirement fund associations of a purely local
character, if -
(A) no part of their net earnings inures (other than through
payment of retirement benefits) to the benefit of any private
shareholder or individual, and
(B) the income consists solely of amounts received from
public taxation, amounts received from assessments on the
teaching salaries of members, and income in respect of
investments.
(12)(A) Benevolent life insurance associations of a purely
local character, mutual ditch or irrigation companies, mutual or
cooperative telephone companies, or like organizations; but only
if 85 percent or more of the income consists of amounts collected
from members for the sole purpose of meeting losses and expenses.
(B) In the case of a mutual or cooperative telephone company,
subparagraph (A) shall be applied without taking into account any
income received or accrued -
(i) from a nonmember telephone company for the performance of
communication services which involve members of the mutual or
cooperative telephone company,
(ii) from qualified pole rentals,
(iii) from the sale of display listings in a directory
furnished to the members of the mutual or cooperative telephone
company, or
(iv) from the prepayment of a loan under section 306A, 306B,
or 311 (!1) of the Rural Electrification Act of 1936 (as in
effect on January 1, 1987).
(C) In the case of a mutual or cooperative electric company,
subparagraph (A) shall be applied without taking into account any
income received or accrued -
(i) from qualified pole rentals, or
(ii) from any provision or sale of electric energy
transmission services or ancillary services if such services
are provided on a nondiscriminatory open access basis under an
open access transmission tariff approved or accepted by FERC or
under an independent transmission provider agreement approved
or accepted by FERC (other than income received or accrued
directly or indirectly from a member),
(iii) from the provision or sale of electric energy
distribution services or ancillary services if such services
are provided on a nondiscriminatory open access basis to
distribute electric energy not owned by the mutual or electric
cooperative company -
(I) to end-users who are served by distribution facilities
not owned by such company or any of its members (other than
income received or accrued directly or indirectly from a
member), or
(II) generated by a generation facility not owned or leased
by such company or any of its members and which is directly
connected to distribution facilities owned by such company or
any of its members (other than income received or accrued
directly or indirectly from a member),
(iv) from any nuclear decommissioning transaction, or
(v) from any asset exchange or conversion transaction.
(D) For purposes of this paragraph, the term "qualified pole
rental" means any rental of a pole (or other structure used to
support wires) if such pole (or other structure) -
(i) is used by the telephone or electric company to support
one or more wires which are used by such company in providing
telephone or electric services to its members, and
(ii) is used pursuant to the rental to support one or more
wires (in addition to the wires described in clause (i)) for
use in connection with the transmission by wire of electricity
or of telephone or other communications.
For purposes of the preceding sentence, the term "rental"
includes any sale of the right to use the pole (or other
structure).
(E) For purposes of subparagraph (C)(ii), the term "FERC" means
the Federal Energy Regulatory Commission and references to such
term shall be treated as including the Public Utility Commission
of Texas with respect to any ERCOT utility (as defined in section
212(k)(2)(B) of the Federal Power Act (16 U.S.C. 824k(k)(2)(B))).
(F) For purposes of subparagraph (C)(iv), the term "nuclear
decommissioning transaction" means -
(i) any transfer into a trust, fund, or instrument
established to pay any nuclear decommissioning costs if the
transfer is in connection with the transfer of the mutual or
cooperative electric company's interest in a nuclear power
plant or nuclear power plant unit,
(ii) any distribution from any trust, fund, or instrument
established to pay any nuclear decommissioning costs, or
(iii) any earnings from any trust, fund, or instrument
established to pay any nuclear decommissioning costs.
(G) For purposes of subparagraph (C)(v), the term "asset
exchange or conversion transaction" means any voluntary exchange
or involuntary conversion of any property related to generating,
transmitting, distributing, or selling electric energy by a
mutual or cooperative electric company, the gain from which
qualifies for deferred recognition under section 1031 or 1033,
but only if the replacement property acquired by such company
pursuant to such section constitutes property which is used, or
to be used, for -
(i) generating, transmitting, distributing, or selling
electric energy, or
(ii) producing, transmitting, distributing, or selling
natural gas.
(H)(i) In the case of a mutual or cooperative electric company
described in this paragraph or an organization described in
section 1381(a)(2)(C), income received or accrued from a load
loss transaction shall be treated as an amount collected from
members for the sole purpose of meeting losses and expenses.
(ii) For purposes of clause (i), the term "load loss
transaction" means any wholesale or retail sale of electric
energy (other than to members) to the extent that the aggregate
sales during the recovery period do not exceed the load loss
mitigation sales limit for such period.
(iii) For purposes of clause (ii), the load loss mitigation
sales limit for the recovery period is the sum of the annual load
losses for each year of such period.
(iv) For purposes of clause (iii), a mutual or cooperative
electric company's annual load loss for each year of the recovery
period is the amount (if any) by which -
(I) the megawatt hours of electric energy sold during such
year to members of such electric company are less than
(II) the megawatt hours of electric energy sold during the
base year to such members.
(v) For purposes of clause (iv)(II), the term "base year" means
-
(I) the calendar year preceding the start-up year, or
(II) at the election of the mutual or cooperative electric
company, the second or third calendar years preceding the start-
up year.
(vi) For purposes of this subparagraph, the recovery period is
the 7-year period beginning with the start-up year.
(vii) For purposes of this subparagraph, the start-up year is
the first year that the mutual or cooperative electric company
offers nondiscriminatory open access or the calendar year which
includes the date of the enactment of this subparagraph, if
later, at the election of such company.
(viii) A company shall not fail to be treated as a mutual or
cooperative electric company for purposes of this paragraph or as
a corporation operating on a cooperative basis for purposes of
section 1381(a)(2)(C) by reason of the treatment under clause
(i).
(ix) For purposes of subparagraph (A), in the case of a mutual
or cooperative electric company, income received, or accrued,
indirectly from a member shall be treated as an amount collected
from members for the sole purpose of meeting losses and expenses.
(13) Cemetery companies owned and operated exclusively for the
benefit of their members or which are not operated for profit;
and any corporation chartered solely for the purpose of the
disposal of bodies by burial or cremation which is not permitted
by its charter to engage in any business not necessarily incident
to that purpose and no part of the net earnings of which inures
to the benefit of any private shareholder or individual.
(14)(A) Credit unions without capital stock organized and
operated for mutual purposes and without profit.
(B) Corporations or associations without capital stock
organized before September 1, 1957, and operated for mutual
purposes and without profit for the purpose of providing reserve
funds for, and insurance of shares or deposits in -
(i) domestic building and loan associations,
(ii) cooperative banks without capital stock organized and
operated for mutual purposes and without profit,
(iii) mutual savings banks not having capital stock
represented by shares, or
(iv) mutual savings banks described in section 591(b) (!2)
(C) Corporations or associations organized before September 1,
1957, and operated for mutual purposes and without profit for the
purpose of providing reserve funds for associations or banks
described in clause (i), (ii), or (iii) of subparagraph (B); but
only if 85 percent or more of the income is attributable to
providing such reserve funds and to investments. This
subparagraph shall not apply to any corporation or association
entitled to exemption under subparagraph (B).
(15)(A) Insurance companies (as defined in section 816(a))
other than life (including interinsurers and reciprocal
underwriters) if -
(i)(I) the gross receipts for the taxable year do not exceed
$600,000, and
(II) more than 50 percent of such gross receipts consist of
premiums, or
(ii) in the case of a mutual insurance company -
(I) the gross receipts of which for the taxable year do not
exceed $150,000, and
(II) more than 35 percent of such gross receipts consist of
premiums.
Clause (ii) shall not apply to a company if any employee of the
company, or a member of the employee's family (as defined in
section 2032A(e)(2)), is an employee of another company exempt
from taxation by reason of this paragraph (or would be so exempt
but for this sentence).
(B) For purposes of subparagraph (A), in determining whether
any company or association is described in subparagraph (A), such
company or association shall be treated as receiving during the
taxable year amounts described in subparagraph (A) which are
received during such year by all other companies or associations
which are members of the same controlled group as the insurance
company or association for which the determination is being made.
(C) For purposes of subparagraph (B), the term "controlled
group" has the meaning given such term by section
831(b)(2)(B)(ii), except that in applying section
831(b)(2)(B)(ii) for purposes of this subparagraph, subparagraphs
(B) and (C) of section 1563(b)(2) shall be disregarded.
(16) Corporations organized by an association subject to part
IV of this subchapter or members thereof, for the purpose of
financing the ordinary crop operations of such members or other
producers, and operated in conjunction with such association.
Exemption shall not be denied any such corporation because it has
capital stock, if the dividend rate of such stock is fixed at not
to exceed the legal rate of interest in the State of
incorporation or 8 percent per annum, whichever is greater, on
the value of the consideration for which the stock was issued,
and if substantially all such stock (other than nonvoting
preferred stock, the owners of which are not entitled or
permitted to participate, directly or indirectly, in the profits
of the corporation, on dissolution or otherwise, beyond the fixed
dividends) is owned by such association, or members thereof; nor
shall exemption be denied any such corporation because there is
accumulated and maintained by it a reserve required by State law
or a reasonable reserve for any necessary purpose.
(17)(A) A trust or trusts forming part of a plan providing for
the payment of supplemental unemployment compensation benefits,
if -
(i) under the plan, it is impossible, at any time prior to
the satisfaction of all liabilities, with respect to employees
under the plan, for any part of the corpus or income to be
(within the taxable year or thereafter) used for, or diverted
to, any purpose other than the providing of supplemental
unemployment compensation benefits,
(ii) such benefits are payable to employees under a
classification which is set forth in the plan and which is
found by the Secretary not to be discriminatory in favor of
employees who are highly compensated employees (within the
meaning of section 414(q)), and
(iii) such benefits do not discriminate in favor of employees
who are highly compensated employees (within the meaning of
section 414(q)). A plan shall not be considered discriminatory
within the meaning of this clause merely because the benefits
received under the plan bear a uniform relationship to the
total compensation, or the basic or regular rate of
compensation, of the employees covered by the plan.
(B) In determining whether a plan meets the requirements of
subparagraph (A), any benefits provided under any other plan
shall not be taken into consideration, except that a plan shall
not be considered discriminatory -
(i) merely because the benefits under the plan which are
first determined in a nondiscriminatory manner within the
meaning of subparagraph (A) are then reduced by any sick,
accident, or unemployment compensation benefits received under
State or Federal law (or reduced by a portion of such benefits
if determined in a nondiscriminatory manner), or
(ii) merely because the plan provides only for employees who
are not eligible to receive sick, accident, or unemployment
compensation benefits under State or Federal law the same
benefits (or a portion of such benefits if determined in a
nondiscriminatory manner) which such employees would receive
under such laws if such employees were eligible for such
benefits, or
(iii) merely because the plan provides only for employees who
are not eligible under another plan (which meets the
requirements of subparagraph (A)) of supplemental unemployment
compensation benefits provided wholly by the employer the same
benefits (or a portion of such benefits if determined in a
nondiscriminatory manner) which such employees would receive
under such other plan if such employees were eligible under
such other plan, but only if the employees eligible under both
plans would make a classification which would be
nondiscriminatory within the meaning of subparagraph (A).
(C) A plan shall be considered to meet the requirements of
subparagraph (A) during the whole of any year of the plan if on
one day in each quarter it satisfies such requirements.
(D) The term "supplemental unemployment compensation benefits"
means only -
(i) benefits which are paid to an employee because of his
involuntary separation from the employment of the employer
(whether or not such separation is temporary) resulting
directly from a reduction in force, the discontinuance of a
plant or operation, or other similar conditions, and
(ii) sick and accident benefits subordinate to the benefits
described in clause (i).
(E) Exemption shall not be denied under subsection (a) to any
organization entitled to such exemption as an association
described in paragraph (9) of this subsection merely because such
organization provides for the payment of supplemental
unemployment benefits (as defined in subparagraph (D)(i)).
(18) A trust or trusts created before June 25, 1959, forming
part of a plan providing for the payment of benefits under a
pension plan funded only by contributions of employees, if -
(A) under the plan, it is impossible, at any time prior to
the satisfaction of all liabilities with respect to employees
under the plan, for any part of the corpus or income to be
(within the taxable year or thereafter) used for, or diverted
to, any purpose other than the providing of benefits under the
plan,
(B) such benefits are payable to employees under a
classification which is set forth in the plan and which is
found by the Secretary not to be discriminatory in favor of
employees who are highly compensated employees (within the
meaning of section 414(q)),
(C) such benefits do not discriminate in favor of employees
who are highly compensated employees (within the meaning of
section 414(q)). A plan shall not be considered discriminatory
within the meaning of this subparagraph merely because the
benefits received under the plan bear a uniform relationship to
the total compensation, or the basic or regular rate of
compensation, of the employees covered by the plan, and
(D) in the case of a plan under which an employee may
designate certain contributions as deductible -
(i) such contributions do not exceed the amount with
respect to which a deduction is allowable under section
219(b)(3),
(ii) requirements similar to the requirements of section
401(k)(3)(A)(ii) are met with respect to such elective
contributions,
(iii) such contributions are treated as elective deferrals
for purposes of section 402(g), and
(iv) the requirements of section 401(a)(30) are met.
For purposes of subparagraph (D)(ii), rules similar to the rules
of section 401(k)(8) shall apply. For purposes of section 4979,
any excess contribution under clause (ii) shall be treated as an
excess contribution under a cash or deferred arrangement.
(19) A post or organization of past or present members of the
Armed Forces of the United States, or an auxiliary unit or
society of, or a trust or foundation for, any such post or
organization -
(A) organized in the United States or any of its possessions,
(B) at least 75 percent of the members of which are past or
present members of the Armed Forces of the United States and
substantially all of the other members of which are individuals
who are cadets or are spouses, widows,,(!3) widowers,
ancestors, or lineal descendants of past or present members of
the Armed Forces of the United States or of cadets, and
(C) no part of the net earnings of which inures to the
benefit of any private shareholder or individual.
(20) an (!4) organization or trust created or organized in the
United States, the exclusive function of which is to form part of
a qualified group legal services plan or plans, within the
meaning of section 120. An organization or trust which receives
contributions because of section 120(c)(5)(C) shall not be
prevented from qualifying as an organization described in this
paragraph merely because it provides legal services or
indemnification against the cost of legal services unassociated
with a qualified group legal services plan.
(21)(A) A trust or trusts established in writing, created or
organized in the United States, and contributed to by any person
(except an insurance company) if -
(i) the purpose of such trust or trusts is exclusively -
(I) to satisfy, in whole or in part, the liability of such
person for, or with respect to, claims for compensation for
disability or death due to pneumoconiosis under Black Lung
Acts,
(II) to pay premiums for insurance exclusively covering
such liability,
(III) to pay administrative and other incidental expenses
of such trust in connection with the operation of the trust
and the processing of claims against such person under Black
Lung Acts, and
(IV) to pay accident or health benefits for retired miners
and their spouses and dependents (including administrative
and other incidental expenses of such trust in connection
therewith) or premiums for insurance exclusively covering
such benefits; and
(ii) no part of the assets of the trust may be used for, or
diverted to, any purpose other than -
(I) the purposes described in clause (i),
(II) investment (but only to the extent that the trustee
determines that a portion of the assets is not currently
needed for the purposes described in clause (i)) in qualified
investments, or
(III) payment into the Black Lung Disability Trust Fund
established under section 9501, or into the general fund of
the United States Treasury (other than in satisfaction of any
tax or other civil or criminal liability of the person who
established or contributed to the trust).
(B) No deduction shall be allowed under this chapter for any
payment described in subparagraph (A)(i)(IV) from such trust.
(C) Payments described in subparagraph (A)(i)(IV) may be made
from such trust during a taxable year only to the extent that the
aggregate amount of such payments during such taxable year does
not exceed the lesser of -
(i) the excess (if any) (as of the close of the preceding
taxable year) of -
(I) the fair market value of the assets of the trust, over
(II) 110 percent of the present value of the liability
described in subparagraph (A)(i)(I) of such person, or
(ii) the excess (if any) of -
(I) the sum of a similar excess determined as of the close
of the last taxable year ending before the date of the
enactment of this subparagraph plus earnings thereon as of
the close of the taxable year preceding the taxable year
involved, over
(II) the aggregate payments described in subparagraph
(A)(i)(IV) made from the trust during all taxable years
beginning after the date of the enactment of this
subparagraph.
The determinations under the preceding sentence shall be made by
an independent actuary using actuarial methods and assumptions
(not inconsistent with the regulations prescribed under section
192(c)(1)(A)) each of which is reasonable and which are
reasonable in the aggregate.
(D) For purposes of this paragraph:
(i) The term "Black Lung Acts" means part C of title IV of
the Federal Mine Safety and Health Act of 1977, and any State
law providing compensation for disability or death due to that
pneumoconiosis.
(ii) The term "qualified investments" means -
(I) public debt securities of the United States,
(II) obligations of a State or local government which are
not in default as to principal or interest, and
(III) time or demand deposits in a bank (as defined in
section 581) or an insured credit union (within the meaning
of section 101(7) of the Federal Credit Union Act, 12 U.S.C.
1752(7)) located in the United States.
(iii) The term "miner" has the same meaning as such term has
when used in section 402(d) of the Black Lung Benefits Act (30
U.S.C. 902(d)).
(iv) The term "incidental expenses" includes legal,
accounting, actuarial, and trustee expenses.
(22) A trust created or organized in the United States and
established in writing by the plan sponsors of multiemployer
plans if -
(A) the purpose of such trust is exclusively -
(i) to pay any amount described in section 4223(c) or (h)
of the Employee Retirement Income Security Act of 1974, and
(ii) to pay reasonable and necessary administrative
expenses in connection with the establishment and operation
of the trust and the processing of claims against the trust,
(B) no part of the assets of the trust may be used for, or
diverted to, any purpose other than -
(i) the purposes described in subparagraph (A), or
(ii) the investment in securities, obligations, or time or
demand deposits described in clause (ii) of paragraph
(21)(D),
(C) such trust meets the requirements of paragraphs (2), (3),
and (4) of section 4223(b), 4223(h), or, if applicable, section
4223(c) of the Employee Retirement Income Security Act of 1974,
and
(D) the trust instrument provides that, on dissolution of the
trust, assets of the trust may not be paid other than to plans
which have participated in the plan or, in the case of a trust
established under section 4223(h) of such Act, to plans with
respect to which employers have participated in the fund.
(23) Any association organized before 1880 more than 75 percent
of the members of which are present or past members of the Armed
Forces and a principal purpose of which is to provide insurance
and other benefits to veterans or their dependents.
(24) A trust described in section 4049 of the Employee
Retirement Income Security Act of 1974 (as in effect on the date
of the enactment of the Single-Employer Pension Plan Amendments
Act of 1986).
(25)(A) Any corporation or trust which -
(i) has no more than 35 shareholders or beneficiaries,
(ii) has only 1 class of stock or beneficial interest, and
(iii) is organized for the exclusive purposes of -
(I) acquiring real property and holding title to, and
collecting income from, such property, and
(II) remitting the entire amount of income from such
property (less expenses) to 1 or more organizations described
in subparagraph (C) which are shareholders of such
corporation or beneficiaries of such trust.
For purposes of clause (iii), the term "real property" shall not
include any interest as a tenant in common (or similar interest)
and shall not include any indirect interest.
(B) A corporation or trust shall be described in subparagraph
(A) without regard to whether the corporation or trust is
organized by 1 or more organizations described in subparagraph
(C).
(C) An organization is described in this subparagraph if such
organization is -
(i) a qualified pension, profit sharing, or stock bonus plan
that meets the requirements of section 401(a),
(ii) a governmental plan (within the meaning of section
414(d)),
(iii) the United States, any State or political subdivision
thereof, or any agency or instrumentality of any of the
foregoing, or
(iv) any organization described in paragraph (3).
(D) A corporation or trust shall in no event be treated as
described in subparagraph (A) unless such corporation or trust
permits its shareholders or beneficiaries -
(i) to dismiss the corporation's or trust's investment
adviser, following reasonable notice, upon a vote of the
shareholders or beneficiaries holding a majority of interest in
the corporation or trust, and
(ii) to terminate their interest in the corporation or trust
by either, or both, of the following alternatives, as
determined by the corporation or trust:
(I) by selling or exchanging their stock in the corporation
or interest in the trust (subject to any Federal or State
securities law) to any organization described in subparagraph
(C) so long as the sale or exchange does not increase the
number of shareholders or beneficiaries in such corporation
or trust above 35, or
(II) by having their stock or interest redeemed by the
corporation or trust after the shareholder or beneficiary has
provided 90 days notice to such corporation or trust.
(E)(i) For purposes of this title -
(I) a corporation which is a qualified subsidiary shall not
be treated as a separate corporation, and
(II) all assets, liabilities, and items of income, deduction,
and credit of a qualified subsidiary shall be treated as
assets, liabilities, and such items (as the case may be) of the
corporation or trust described in subparagraph (A).
(ii) For purposes of this subparagraph, the term "qualified
subsidiary" means any corporation if, at all times during the
period such corporation was in existence, 100 percent of the
stock of such corporation is held by the corporation or trust
described in subparagraph (A).
(iii) For purposes of this subtitle, if any corporation which
was a qualified subsidiary ceases to meet the requirements of
clause (ii), such corporation shall be treated as a new
corporation acquiring all of its assets (and assuming all of its
liabilities) immediately before such cessation from the
corporation or trust described in subparagraph (A) in exchange
for its stock.
(F) For purposes of subparagraph (A), the term "real property"
includes any personal property which is leased under, or in
connection with, a lease of real property, but only if the rent
attributable to such personal property (determined under the
rules of section 856(d)(1)) for the taxable year does not exceed
15 percent of the total rent for the taxable year attributable to
both the real and personal property leased under, or in
connection with, such lease.
(G)(i) An organization shall not be treated as failing to be
described in this paragraph merely by reason of the receipt of
any otherwise disqualifying income which is incidentally derived
from the holding of real property.
(ii) Clause (i) shall not apply if the amount of gross income
described in such clause exceeds 10 percent of the organization's
gross income for the taxable year unless the organization
establishes to the satisfaction of the Secretary that the receipt
of gross income described in clause (i) in excess of such
limitation was inadvertent and reasonable steps are being taken
to correct the circumstances giving rise to such income.
(26) Any membership organization if -
(A) such organization is established by a State exclusively
to provide coverage for medical care (as defined in section
213(d)) on a not-for-profit basis to individuals described in
subparagraph (B) through -
(i) insurance issued by the organization, or
(ii) a health maintenance organization under an arrangement
with the organization,
(B) the only individuals receiving such coverage through the
organization are individuals -
(i) who are residents of such State, and
(ii) who, by reason of the existence or history of a
medical condition -
(I) are unable to acquire medical care coverage for such
condition through insurance or from a health maintenance
organization, or
(II) are able to acquire such coverage only at a rate
which is substantially in excess of the rate for such
coverage through the membership organization,
(C) the composition of the membership in such organization is
specified by such State, and
(D) no part of the net earnings of the organization inures to
the benefit of any private shareholder or individual.
A spouse and any qualifying child (as defined in section 24(c))
of an individual described in subparagraph (B) (without regard to
this sentence) shall be treated as described in subparagraph (B).
(27)(A) Any membership organization if -
(i) such organization is established before June 1, 1996, by
a State exclusively to reimburse its members for losses arising
under workmen's compensation acts,
(ii) such State requires that the membership of such
organization consist of -
(I) all persons who issue insurance covering workmen's
compensation losses in such State, and
(II) all persons and governmental entities who self-insure
against such losses, and
(iii) such organization operates as a non-profit organization
by -
(I) returning surplus income to its members or workmen's
compensation policyholders on a periodic basis, and
(II) reducing initial premiums in anticipation of
investment income.
(B) Any organization (including a mutual insurance company) if -
(i) such organization is created by State law and is
organized and operated under State law exclusively to -
(I) provide workmen's compensation insurance which is
required by State law or with respect to which State law
provides significant disincentives if such insurance is not
purchased by an employer, and
(II) provide related coverage which is incidental to
workmen's compensation insurance,
(ii) such organization must provide workmen's compensation
insurance to any employer in the State (for employees in the
State or temporarily assigned out-of-State) which seeks such
insurance and meets other reasonable requirements relating
thereto,
(iii)(I) the State makes a financial commitment with respect
to such organization either by extending the full faith and
credit of the State to the initial debt of such organization or
by providing the initial operating capital of such
organization, and (II) in the case of periods after the date of
enactment of this subparagraph, the assets of such organization
revert to the State upon dissolution or State law does not
permit the dissolution of such organization, and
(iv) the majority of the board of directors or oversight body
of such organization are appointed by the chief executive
officer or other executive branch official of the State, by the
State legislature, or by both.
(28) The National Railroad Retirement Investment Trust
established under section 15(j) of the Railroad Retirement Act of
1974.
(d) Religious and apostolic organizations
The following organizations are referred to in subsection (a):
Religious or apostolic associations or corporations, if such
associations or corporations have a common treasury or community
treasury, even if such associations or corporations engage in
business for the common benefit of the members, but only if the
members thereof include (at the time of filing their returns) in
their gross income their entire pro rata shares, whether
distributed or not, of the taxable income of the association or
corporation for such year. Any amount so included in the gross
income of a member shall be treated as a dividend received.
(e) Cooperative hospital service organizations
For purposes of this title, an organization shall be treated as
an organization organized and operated exclusively for charitable
purposes, if -
(1) such organization is organized and operated solely -
(A) to perform, on a centralized basis, one or more of the
following services which, if performed on its own behalf by a
hospital which is an organization described in subsection
(c)(3) and exempt from taxation under subsection (a), would
constitute activities in exercising or performing the purpose
or function constituting the basis for its exemption: data
processing, purchasing (including the purchasing of insurance
on a group basis), warehousing, billing and collection
(including the purchase of patron accounts receivable on a
recourse basis), food, clinical, industrial engineering,
laboratory, printing, communications, record center, and
personnel (including selection, testing, training, and
education of personnel) services; and
(B) to perform such services solely for two or more hospitals
each of which is -
(i) an organization described in subsection (c)(3) which is
exempt from taxation under subsection (a),
(ii) a constituent part of an organization described in
subsection (c)(3) which is exempt from taxation under
subsection (a) and which, if organized and operated as a
separate entity, would constitute an organization described
in subsection (c)(3), or
(iii) owned and operated by the United States, a State, the
District of Columbia, or a possession of the United States,
or a political subdivision or an agency or instrumentality of
any of the foregoing;
(2) such organization is organized and operated on a
cooperative basis and allocates or pays, within 8 1/2 months
after the close of its taxable year, all net earnings to patrons
on the basis of services performed for them; and
(3) if such organization has capital stock, all of such stock
outstanding is owned by its patrons.
For purposes of this title, any organization which, by reason of
the preceding sentence, is an organization described in subsection
(c)(3) and exempt from taxation under subsection (a), shall be
treated as a hospital and as an organization referred to in section
170(b)(1)(A)(iii).
(f) Cooperative service organizations of operating educational
organizations
For purposes of this title, if an organization is -
(1) organized and operated solely to hold, commingle, and
collectively invest and reinvest (including arranging for and
supervising the performance by independent contractors of
investment services related thereto) in stocks and securities,
the moneys contributed thereto by each of the members of such
organization, and to collect income therefrom and turn over the
entire amount thereof, less expenses, to such members,
(2) organized and controlled by one or more such members, and
(3) comprised solely of members that are organizations
described in clause (ii) or (iv) of section 170(b)(1)(A) -
(A) which are exempt from taxation under subsection (a), or
(B) the income of which is excluded from taxation under
section 115(a),
then such organization shall be treated as an organization
organized and operated exclusively for charitable purposes.
(g) Definition of agricultural
For purposes of subsection (c)(5), the term "agricultural"
includes the art or science of cultivating land, harvesting crops
or aquatic resources, or raising livestock.
(h) Expenditures by public charities to influence legislation
(1) General rule
In the case of an organization to which this subsection
applies, exemption from taxation under subsection (a) shall be
denied because a substantial part of the activities of such
organization consists of carrying on propaganda, or otherwise
attempting, to influence legislation, but only if such
organization normally -
(A) makes lobbying expenditures in excess of the lobbying
ceiling amount for such organization for each taxable year, or
(B) makes grass roots expenditures in excess of the grass
roots ceiling amount for such organization for each taxable
year.
(2) Definitions
For purposes of this subsection -
(A) Lobbying expenditures
The term "lobbying expenditures" means expenditures for the
purpose of influencing legislation (as defined in section
4911(d)).
(B) Lobbying ceiling amount
The lobbying ceiling amount for any organization for any
taxable year is 150 percent of the lobbying nontaxable amount
for such organization for such taxable year, determined under
section 4911.
(C) Grass roots expenditures
The term "grass roots expenditures" means expenditures for
the purpose of influencing legislation (as defined in section
4911(d) without regard to paragraph (1)(B) thereof).
(D) Grass roots ceiling amount
The grass roots ceiling amount for any organization for any
taxable year is 150 percent of the grass roots nontaxable
amount for such organization for such taxable year, determined
under section 4911.
(3) Organizations to which this subsection applies
This subsection shall apply to any organization which has
elected (in such manner and at such time as the Secretary may
prescribe) to have the provisions of this subsection apply to
such organization and which, for the taxable year which includes
the date the election is made, is described in subsection (c)(3)
and -
(A) is described in paragraph (4), and
(B) is not a disqualified organization under paragraph (5).
(4) Organizations permitted to elect to have this subsection
apply
An organization is described in this paragraph if it is
described in -
(A) section 170(b)(1)(A)(ii) (relating to educational
institutions),
(B) section 170(b)(1)(A)(iii) (relating to hospitals and
medical research organizations),
(C) section 170(b)(1)(A)(iv) (relating to organizations
supporting government schools),
(D) section 170(b)(1)(A)(vi) (relating to organizations
publicly supported by charitable contributions),
(E) section 509(a)(2) (relating to organizations publicly
supported by admissions, sales, etc.), or
(F) section 509(a)(3) (relating to organizations supporting
certain types of public charities) except that for purposes of
this subparagraph, section 509(a)(3) shall be applied without
regard to the last sentence of section 509(a).
(5) Disqualified organizations
For purposes of paragraph (3) an organization is a disqualified
organization if it is -
(A) described in section 170(b)(1)(A)(i) (relating to
churches),
(B) an integrated auxiliary of a church or of a convention or
association of churches, or
(C) a member of an affiliated group of organizations (within
the meaning of section 4911(f)(2)) if one or more members of
such group is described in subparagraph (A) or (B).
(6) Years for which election is effective
An election by an organization under this subsection shall be
effective for all taxable years of such organization which -
(A) end after the date the election is made, and
(B) begin before the date the election is revoked by such
organization (under regulations prescribed by the Secretary).
(7) No effect on certain organizations
With respect to any organization for a taxable year for which -
(A) such organization is a disqualified organization (within
the meaning of paragraph (5)), or
(B) an election under this subsection is not in effect for
such organization,
nothing in this subsection or in section 4911 shall be construed
to affect the interpretation of the phrase, "no substantial part
of the activities of which is carrying on propaganda, or
otherwise attempting, to influence legislation," under subsection
(c)(3).
(8) Affiliated organizations
For rules regarding affiliated organizations, see section
4911(f).
(i) Prohibition of discrimination by certain social clubs
Notwithstanding subsection (a), an organization which is
described in subsection (c)(7) shall not be exempt from taxation
under subsection (a) for any taxable year if, at any time during
such taxable year, the charter, bylaws, or other governing
instrument, of such organization or any written policy statement of
such organization contains a provision which provides for
discrimination against any person on the basis of race, color, or
religion. The preceding sentence to the extent it relates to
discrimination on the basis of religion shall not apply to -
(1) an auxiliary of a fraternal beneficiary society if such
society -
(A) is described in subsection (c)(8) and exempt from tax
under subsection (a), and
(B) limits its membership to the members of a particular
religion, or
(2) a club which in good faith limits its membership to the
members of a particular religion in order to further the
teachings or principles of that religion, and not to exclude
individuals of a particular race or color.
(j) Special rules for certain amateur sports organizations
(1) In general
In the case of a qualified amateur sports organization -
(A) the requirement of subsection (c)(3) that no part of its
activities involve the provision of athletic facilities or
equipment shall not apply, and
(B) such organization shall not fail to meet the requirements
of subsection (c)(3) merely because its membership is local or
regional in nature.
(2) Qualified amateur sports organization defined
For purposes of this subsection, the term "qualified amateur
sports organization" means any organization organized and
operated exclusively to foster national or international amateur
sports competition if such organization is also organized and
operated primarily to conduct national or international
competition in sports or to support and develop amateur athletes
for national or international competition in sports.
(k) Treatment of certain organizations providing child care
For purposes of subsection (c)(3) of this section and sections
170(c)(2), 2055(a)(2), and 2522(a)(2), the term "educational
purposes" includes the providing of care of children away from
their homes if -
(1) substantially all of the care provided by the organization
is for purposes of enabling individuals to be gainfully employed,
and
(2) the services provided by the organization are available to
the general public.
(l) Government corporations exempt under subsection (c)(1)
For purposes of subsection (c)(1), the following organizations
are described in this subsection:
(1) The Central Liquidity Facility established under title III
of the Federal Credit Union Act (12 U.S.C. 1795 et seq.).
(2) The Resolution Trust Corporation established under section
21A of the Federal Home Loan Bank Act.
(3) The Resolution Funding Corporation established under
section 21B of the Federal Home Loan Bank Act.
(m) Certain organizations providing commercial-type insurance not
exempt from tax
(1) Denial of tax exemption where providing commercial-type
insurance is substantial part of activities
An organization described in paragraph (3) or (4) of subsection
(c) shall be exempt from tax under subsection (a) only if no
substantial part of its activities consists of providing
commercial-type insurance.
(2) Other organizations taxed as insurance companies on insurance
business
In the case of an organization described in paragraph (3) or
(4) of subsection (c) which is exempt from tax under subsection
(a) after the application of paragraph (1) of this subsection -
(A) the activity of providing commercial-type insurance shall
be treated as an unrelated trade or business (as defined in
section 513), and
(B) in lieu of the tax imposed by section 511 with respect to
such activity, such organization shall be treated as an
insurance company for purposes of applying subchapter L with
respect to such activity.
(3) Commercial-type insurance
For purposes of this subsection, the term "commercial-type
insurance" shall not include -
(A) insurance provided at substantially below cost to a class
of charitable recipients,
(B) incidental health insurance provided by a health
maintenance organization of a kind customarily provided by such
organizations,
(C) property or casualty insurance provided (directly or
through an organization described in section 414(e)(3)(B)(ii))
by a church or convention or association of churches for such
church or convention or association of churches,
(D) providing retirement or welfare benefits (or both) by a
church or a convention or association of churches (directly or
through an organization described in section 414(e)(3)(A) or
414(e)(3)(B)(ii)) for the employees (including employees
described in section 414(e)(3)(B)) of such church or convention
or association of churches or the beneficiaries of such
employees, and
(E) charitable gift annuities.
(4) Insurance includes annuities
For purposes of this subsection, the issuance of annuity
contracts shall be treated as providing insurance.
(5) Charitable gift annuity
For purposes of paragraph (3)(E), the term "charitable gift
annuity" means an annuity if -
(A) a portion of the amount paid in connection with the
issuance of the annuity is allowable as a deduction under
section 170 or 2055, and
(B) the annuity is described in section 514(c)(5) (determined
as if any amount paid in cash in connection with such issuance
were property).
(n) Charitable risk pools
(1) In general
For purposes of this title -
(A) a qualified charitable risk pool shall be treated as an
organization organized and operated exclusively for charitable
purposes, and
(B) subsection (m) shall not apply to a qualified charitable
risk pool.
(2) Qualified charitable risk pool
For purposes of this subsection, the term "qualified charitable
risk pool" means any organization -
(A) which is organized and operated solely to pool insurable
risks of its members (other than risks related to medical
malpractice) and to provide information to its members with
respect to loss control and risk management,
(B) which is comprised solely of members that are
organizations described in subsection (c)(3) and exempt from
tax under subsection (a), and
(C) which meets the organizational requirements of paragraph
(3).
(3) Organizational requirements
An organization (hereinafter in this subsection referred to as
the "risk pool") meets the organizational requirements of this
paragraph if -
(A) such risk pool is organized as a nonprofit organization
under State law provisions authorizing risk pooling
arrangements for charitable organizations,
(B) such risk pool is exempt from any income tax imposed by
the State (or will be so exempt after such pool qualifies as an
organization exempt from tax under this title),
(C) such risk pool has obtained at least $1,000,000 in
startup capital from nonmember charitable organizations,
(D) such risk pool is controlled by a board of directors
elected by its members, and
(E) the organizational documents of such risk pool require
that -
(i) each member of such pool shall at all times be an
organization described in subsection (c)(3) and exempt from
tax under subsection (a),
(ii) any member which receives a final determination that
it no longer qualifies as an organization described in
subsection (c)(3) shall immediately notify the pool of such
determination and the effective date of such determination,
and
(iii) each policy of insurance issued by the risk pool
shall provide that such policy will not cover the insured
with respect to events occurring after the date such final
determination was issued to the insured.
An organization shall not cease to qualify as a qualified
charitable risk pool solely by reason of the failure of any of
its members to continue to be an organization described in
subsection (c)(3) if, within a reasonable period of time after
such pool is notified as required under subparagraph (E)(ii),
such pool takes such action as may be reasonably necessary to
remove such member from such pool.
(4) Other definitions
For purposes of this subsection -
(A) Startup capital
The term "startup capital" means any capital contributed to,
and any program-related investments (within the meaning of
section 4944(c)) made in, the risk pool before such pool
commences operations.
(B) Nonmember charitable organization
The term "nonmember charitable organization" means any
organization which is described in subsection (c)(3) and exempt
from tax under subsection (a) and which is not a member of the
risk pool and does not benefit (directly or indirectly) from
the insurance coverage provided by the pool to its members.
(o) Treatment of hospitals participating in provider-sponsored
organizations
An organization shall not fail to be treated as organized and
operated exclusively for a charitable purpose for purposes of
subsection (c)(3) solely because a hospital which is owned and
operated by such organization participates in a provider-sponsored
organization (as defined in section 1855(d) of the Social Security
Act), whether or not the provider-sponsored organization is exempt
from tax. For purposes of subsection (c)(3), any person with a
material financial interest in such a provider-sponsored
organization shall be treated as a private shareholder or
individual with respect to the hospital.
(p) Suspension of tax-exempt status of terrorist organizations
(1) In general
The exemption from tax under subsection (a) with respect to any
organization described in paragraph (2), and the eligibility of
any organization described in paragraph (2) to apply for
recognition of exemption under subsection (a), shall be suspended
during the period described in paragraph (3).
(2) Terrorist organizations
An organization is described in this paragraph if such
organization is designated or otherwise individually identified -
(A) under section 212(a)(3)(B)(vi)(II) or 219 of the
Immigration and Nationality Act as a terrorist organization or
foreign terrorist organization,
(B) in or pursuant to an Executive order which is related to
terrorism and issued under the authority of the International
Emergency Economic Powers Act or section 5 of the United
Nations Participation Act of 1945 for the purpose of imposing
on such organization an economic or other sanction, or
(C) in or pursuant to an Executive order issued under the
authority of any Federal law if -
(i) the organization is designated or otherwise
individually identified in or pursuant to such Executive
order as supporting or engaging in terrorist activity (as
defined in section 212(a)(3)(B) of the Immigration and
Nationality Act) or supporting terrorism (as defined in
section 140(d)(2) of the Foreign Relations Authorization Act,
Fiscal Years 1988 and 1989); and
(ii) such Executive order refers to this subsection.
(3) Period of suspension
With respect to any organization described in paragraph (2),
the period of suspension -
(A) begins on the later of -
(i) the date of the first publication of a designation or
identification described in paragraph (2) with respect to
such organization, or
(ii) the date of the enactment of this subsection, and
(B) ends on the first date that all designations and
identifications described in paragraph (2) with respect to such
organization are rescinded pursuant to the law or Executive
order under which such designation or identification was made.
(4) Denial of deduction
No deduction shall be allowed under any provision of this
title, including sections 170, 545(b)(2), 556(b)(2),(!5) 642(c),
2055, 2106(a)(2), and 2522, with respect to any contribution to
an organization described in paragraph (2) during the period
described in paragraph (3).
(5) Denial of administrative or judicial challenge of suspension
or denial of deduction
Notwithstanding section 7428 or any other provision of law, no
organization or other person may challenge a suspension under
paragraph (1), a designation or identification described in
paragraph (2), the period of suspension described in paragraph
(3), or a denial of a deduction under paragraph (4) in any
administrative or judicial proceeding relating to the Federal tax
liability of such organization or other person.
(6) Erroneous designation
(A) In general
If -
(i) the tax exemption of any organization described in
paragraph (2) is suspended under paragraph (1),
(ii) each designation and identification described in
paragraph (2) which has been made with respect to such
organization is determined to be erroneous pursuant to the
law or Executive order under which such designation or
identification was made, and
(iii) the erroneous designations and identifications result
in an overpayment of income tax for any taxable year by such
organization,
credit or refund (with interest) with respect to such
overpayment shall be made.
(B) Waiver of limitations
If the credit or refund of any overpayment of tax described
in subparagraph (A)(iii) is prevented at any time by the
operation of any law or rule of law (including res judicata),
such credit or refund may nevertheless be allowed or made if
the claim therefor is filed before the close of the 1-year
period beginning on the date of the last determination
described in subparagraph (A)(ii).
(7) Notice of suspensions
If the tax exemption of any organization is suspended under
this subsection, the Internal Revenue Service shall update the
listings of tax-exempt organizations and shall publish
appropriate notice to taxpayers of such suspension and of the
fact that contributions to such organization are not deductible
during the period of such suspension.
(q) Cross reference
For nonexemption of Communist-controlled organizations, see
section 11(b) of the Internal Security Act of 1950 (64 Stat.
997; 50 U.S.C. 790(b)).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 163; Mar. 13, 1956, ch. 83, Sec.
5(2), 70 Stat. 49; Pub. L. 86-428, Sec. 1, Apr. 22, 1960, 74 Stat.
54; Pub. L. 86-667, Sec. 1, July 14, 1960, 74 Stat. 534; Pub. L. 87-
834, Sec. 8(d), Oct. 16, 1962, 76 Stat. 997; Pub. L. 89-352, Sec.
1, Feb. 2, 1966, 80 Stat. 4; Pub. L. 89-800, Sec. 6(a), Nov. 8,
1966, 80 Stat. 1515; Pub. L. 90-364, title I, Sec. 109(a), June 28,
1968, 82 Stat. 269; Pub. L. 91-172, title I, Secs. 101(j)(3)-(6),
121(b)(5)(A), (6)(A), Dec. 30, 1969, 83 Stat. 526, 527, 541; Pub.
L. 91-618, Sec. 1, Dec. 31, 1970, 84 Stat. 1855; Pub. L. 92-418,
Sec. 1(a), Aug. 29, 1972, 86 Stat. 656; Pub. L. 93-310, Sec. 3(a),
June 8, 1974, 88 Stat. 235; Pub. L. 93-625, Sec. 10(c), Jan. 3,
1975, 88 Stat. 2119; Pub. L. 94-455, title XIII, Secs. 1307(a)(1),
(d)(1)(A), 1312(a), 1313(a), title XIX, Sec. 1906(b)(13)(A), title
XXI, Secs. 2113(a), 2134(b), Oct. 4, 1976, 90 Stat. 1720, 1727,
1730, 1834, 1907, 1927; Pub. L. 94-568, Secs. 1(a), 2(a), Oct. 20,
1976, 90 Stat. 2697; Pub. L. 95-227, Sec. 4(a), Feb. 10, 1978, 92
Stat. 15; Pub. L. 95-345, Sec. 1(a), Aug. 15, 1978, 92 Stat. 481;
Pub. L. 95-600, title VII, Sec. 703(b)(2), (g)(2)(A), (B), Nov. 6,
1978, 92 Stat. 2939, 2940; Pub. L. 96-222, title I, Sec.
108(b)(2)(B), Apr. 1, 1980, 94 Stat. 226; Pub. L. 96-364, title II,
Sec. 209(a), Sept. 26, 1980, 94 Stat. 1290; Pub. L. 96-601, Sec.
3(a), Dec. 24, 1980, 94 Stat. 3496; Pub. L. 96-605, title I, Sec.
106(a), Dec. 28, 1980, 94 Stat. 3523; Pub. L. 97-119, title I, Sec.
103(c)(1), Dec. 29, 1981, 95 Stat. 1638; Pub. L. 97-248, title II,
Sec. 286(a), title III, Sec. 354(a), (b), Sept. 3, 1982, 96 Stat.
569, 640, 641; Pub. L. 97-448, title III, Sec. 306(b)(5), Jan. 12,
1983, 96 Stat. 2406; Pub. L. 98-369, div. A, title X, Secs.
1032(a), 1079, div. B, title VIII, Sec. 2813(b), July 18, 1984, 98
Stat. 1033, 1056, 1206; Pub. L. 99-272, title XI, Sec. 11012(b),
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1012(a), 1024(b), title XI, Secs. 1109(a), 1114(b)(14), title XVI,
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1986, 100 Stat. 2390, 2406, 2435, 2451, 2768, 2909, 2959; Pub. L.
100-203, title X, Sec. 10711(a)(2), Dec. 22, 1987, 101 Stat. 1330-
464; Pub. L. 100-647, title I, Secs. 1010(b)(4), 1011(c)(7)(D),
1016(a)(1)(A), (2)-(4), 1018(u)(14), (15), (34), title II, Sec.
2003(a)(1), (2), title VI, Sec. 6202(a), Nov. 10, 1988, 102 Stat.
3451, 3458, 3573, 3574, 3590, 3592, 3597, 3598, 3730; Pub. L. 101-
73, title XIV, Sec. 1402(a), Aug. 9, 1989, 103 Stat. 550; Pub. L.
102-486, title XIX, Sec. 1940(a), Oct. 24, 1992, 106 Stat. 3034;
Pub. L. 103-66, title XIII, Sec. 13146(a), (b), Aug. 10, 1993, 107
Stat. 443; Pub. L. 104-168, title XIII, Sec. 1311(b)(1), July 30,
1996, 110 Stat. 1477; Pub. L. 104-188, title I, Secs. 1114(a),
1704(j)(5), Aug. 20, 1996, 110 Stat. 1759, 1882; Pub. L. 104-191,
title III, Secs. 341(a), 342(a), Aug. 21, 1996, 110 Stat. 2070;
Pub. L. 105-33, title IV, Sec. 4041(a), Aug. 5, 1997, 111 Stat.
360; Pub. L. 105-34, title I, Sec. 101(c), title IX, Secs. 963(a),
(b), 974(a), Aug. 5, 1997, 111 Stat. 799, 892, 898; Pub. L. 105-
206, title VI, Sec. 6023(6), (7), July 22, 1998, 112 Stat. 825;
Pub. L. 107-16, title VI, Sec. 611(d)(3)(C), June 7, 2001, 115
Stat. 98; Pub. L. 107-90, title II, Sec. 202, Dec. 21, 2001, 115
Stat. 890; Pub. L. 108-121, title I, Secs. 105(a), 108(a), Nov. 11,
2003, 117 Stat. 1338, 1339; Pub. L. 108-218, title II, Sec. 206(a),
(b), Apr. 10, 2004, 118 Stat. 610, 611; Pub. L. 108-357, title III,
Sec. 319(a), (b), Oct. 22, 2004, 118 Stat. 1470, 1471; Pub. L. 109-
58, title XIII, Sec. 1304(a), (b), Aug. 8, 2005, 119 Stat. 997;
Pub. L. 109-135, title IV, Sec. 412(bb), (cc), Dec. 21, 2005, 119
Stat. 2639.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendments note below.
-REFTEXT-
REFERENCES IN TEXT
Sections 306A and 306B of the Rural Electrification Act of 1936,
referred to in subsec. (c)(12)(B)(iv), are classified to sections
936a and 936b, respectively, of Title 7, Agriculture. Section 311
of the Act was classified to section 940a of Title 7 prior to
repeal by Pub. L. 104-127, title VII, Sec. 780, Apr. 4, 1996, 110
Stat. 1151.
The date of the enactment of this subparagraph, referred to in
subsec. (c)(12)(H)(vii), is the date of enactment of Pub. L. 108-
357, which was approved Oct. 22, 2004.
The date of the enactment of this subparagraph, referred to in
subsec. (c)(21)(C)(ii), is the date of enactment of Pub. L. 102-
486, which was approved Oct. 24, 1992.
The Federal Mine Safety and Health Act of 1977, referred to in
subsec. (c)(21)(D)(i), is Pub. L. 91-173, Dec. 30, 1969, 83 Stat.
742, as amended by Pub. L. 95-164, Nov. 9, 1977, 91 Stat. 1290.
Part C of title IV of the Act is classified generally to part C
(Sec. 931 et seq.) of subchapter IV of chapter 22 of Title 30,
Mineral Lands and Mining. For complete classification of this Act
to the Code, see Short Title note set out under section 801 of
Title 30 and Tables.
Section 4223 of the Employee Retirement Income Security Act of
1974, referred to in subsec. (c)(22)(A)(i), (C), (D), is classified
to section 1403 of Title 29, Labor.
Section 4049 of the Employee Retirement Income Security Act of
1974, referred to in subsec. (c)(24), was classified to section
1349 of Title 29, prior to its repeal by Pub. L. 100-203, title IX,
Sec. 9312(a), Dec. 22, 1987, 101 Stat. 1330-361.
The date of the enactment of the Single-Employer Pension Plan
Amendments Act of 1986, referred to in subsec. (c)(24), is the date
of enactment of title XI of Pub. L. 99-272, which was approved Apr.
7, 1986.
The date of enactment of this subparagraph, referred to in
subsec. (c)(27)(B)(iii)(I), is the date of enactment of Pub. L. 105-
34, which was approved Aug. 5, 1997.
Section 15(j) of the Railroad Retirement Act of 1974, referred to
in subsec. (c)(28), is classified to section 231n(j) of Title 45,
Railroads.
The provisions of subsec. (a) of section 115, referred to in
subsec. (f)(3)(B), now comprise section 115 in its entirety,
following the deletion therefrom of the subsec. (a) designation by
section 1901(a)(19) of Pub. L. 94-455.
The Federal Credit Union Act, referred to in subsec. (l)(1), is
act June 26, 1934, ch. 750, 48 Stat. 1216, as amended. Title III of
the Federal Credit Union Act is classified generally to subchapter
III (Sec. 1795 et seq.) of chapter 14 of Title 12, Banks and
Banking. For complete classification of this Act to the Code, see
section 1751 of Title 12 and Tables.
Sections 21A and 21B of the Federal Home Loan Bank Act, referred
to in subsec. (l)(2), (3), are classified to sections 1441a and
1441b, respectively, of Title 12.
Section 1855(d) of the Social Security Act, referred to in
subsec. (o), is classified to section 1395w-25(d) of Title 42, The
Public Health and Welfare.
Sections 212(a)(3)(B) and 219 of the Immigration and Nationality
Act, referred to in subsec. (p)(2)(A), (C)(i), are classified to
sections 1182(a)(3)(B) and 1189, respectively, of Title 8, Aliens
and Nationality.
The International Emergency Economic Powers Act, referred to in
subsec. (p)(2)(B), is title II of Pub. L. 95-223, Dec. 28, 1977, 91
Stat. 1626, as amended, which is classified generally to chapter 35
(Sec. 1701 et seq.) of Title 50, War and National Defense. For
complete classification of this Act to the Code, see Short Title
note set out under section 1701 of Title 50 and Tables.
Section 5 of the United Nations Participation Act of 1945,
referred to in subsec. (p)(2)(B), is classified to section 287c of
Title 22, Foreign Relations and Intercourse.
Section 140(d)(2) of the Foreign Relations Authorization Act,
Fiscal Years 1988 and 1989, referred to in subsec. (p)(2)(C)(i), is
classified to section 2656f(d)(2) of Title 22, Foreign Relations
and Intercourse.
The date of the enactment of this subsection, referred to in
subsec. (p)(3)(A)(ii), is the date of enactment of Pub. L. 108-121,
which was approved Nov. 11, 2003.
Section 556(b)(2), referred to in subsec. (p)(4), was repealed by
Pub. L. 108-357, title IV, Sec. 413(a)(1), Oct. 22, 2004, 118 Stat.
1506.
Section 11(b) of the Internal Security Act of 1950 (64 Stat. 997;
50 U.S.C. 790(b)), referred to in subsec. (q), was repealed by Pub.
L. 103-199, title VIII, Sec. 803(1), Dec. 17, 1993, 107 Stat. 2329.
-MISC1-
AMENDMENTS
2005 - Subsec. (c)(12)(C). Pub. L. 109-58, Sec. 1304(a), struck
out concluding provisions which read as follows: "Clauses (ii)
through (v) shall not apply to taxable years beginning after
December 31, 2006."
Subsec. (c)(12)(F). Pub. L. 109-135, Sec. 412(bb)(1), substituted
"subparagraph (C)(iv)" for "subparagraph (C)(iii)".
Subsec. (c)(12)(G). Pub. L. 109-135, Sec. 412(bb)(2), substituted
"subparagraph (C)(v)" for "subparagraph (C)(iv)".
Subsec. (c)(12)(H)(x). Pub. L. 109-58, Sec. 1304(b), struck out
cl. (x) which read as follows: "This subparagraph shall not apply
to taxable years beginning after December 31, 2006."
Subsec. (c)(22)(B)(ii). Pub. L. 109-135, Sec. 412(cc),
substituted "clause (ii) of paragraph (21)(D)" for "clause (ii) of
paragraph (21)(B)".
2004 - Subsec. (c)(12)(C). Pub. L. 108-357, Sec. 319(a)(1), added
cls. (ii) to (v) and concluding provisions and struck out former
cl. (ii) which read as follows: "from the prepayment of a loan
under section 306A, 306B, or 311 of the Rural Electrification Act
of 1936 (as in effect on January 1, 1987)."
Subsec. (c)(12)(E) to (G). Pub. L. 108-357, Sec. 319(a)(2), added
subpars. (E) to (G).
Subsec. (c)(12)(H). Pub. L. 108-357, Sec. 319(b), added subpar.
(H).
Subsec. (c)(15)(A). Pub. L. 108-218, Sec. 206(a), amended subpar.
(A) generally. Prior to amendment, subpar. (A) read as follows:
"Insurance companies or associations other than life (including
interinsurers and reciprocal underwriters) if the net written
premiums (or, if greater, direct written premiums) for the taxable
year do not exceed $350,000."
Subsec. (c)(15)(C). Pub. L. 108-218, Sec. 206(b), inserted before
period at end ", except that in applying section 831(b)(2)(B)(ii)
for purposes of this subparagraph, subparagraphs (B) and (C) of
section 1563(b)(2) shall be disregarded".
2003 - Subsec. (c)(19)(B). Pub. L. 108-121, Sec. 105(a),
substituted ", widowers, ancestors, or lineal descendants" for "or
widowers".
Subsecs. (p), (q). Pub. L. 108-121, Sec. 108(a), added subsec.
(p) and redesignated former subsec. (p) as (q).
2001 - Subsec. (c)(18)(D)(iii). Pub. L. 107-16, Secs.
611(d)(3)(C), 901, temporarily struck out "(other than paragraph
(4) thereof)" after "section 402(g)". See Effective and Termination
Dates of 2001 Amendment note below.
Subsec. (c)(28). Pub. L. 107-90 added par. (28).
1998 - Subsec. (n)(3). Pub. L. 105-206, Sec. 6023(6), substituted
"subparagraph (E)(ii)" for "subparagraph (C)(ii)" in concluding
provisions.
Subsec. (o). Pub. L. 105-206, Sec. 6023(7), substituted "section
1855(d)" for "section 1853(e)".
1997 - Subsec. (c)(26). Pub. L. 105-34, Sec. 101(c), inserted
concluding provisions "A spouse and any qualifying child (as
defined in section 24(c)) of an individual described in
subparagraph (B) (without regard to this sentence) shall be treated
as described in subparagraph (B)."
Subsec. (c)(27). Pub. L. 105-34, Sec. 963(a), (b), designated
existing provisions as subpar. (A), redesignated former subpar. (A)
as cl. (i), redesignated subpar. (B) as cl. (ii) and former cls.
(i) and (ii) of subpar. (B) as subcls. (I) and (II), respectively,
of cl. (ii), redesignated subpar. (C) as cl. (iii) and former cls.
(i) and (ii) of subpar. (C) as subcls. (I) and (II), respectively,
of cl. (iii), and added subpar. (B).
Subsec. (e)(1)(A). Pub. L. 105-34, Sec. 974(a), inserted
"(including the purchase of patron accounts receivable on a
recourse basis)" after "billing and collection".
Subsecs. (o), (p). Pub. L. 105-33 added subsec. (o) and
redesignated former subsec. (o) as (p).
1996 - Subsec. (c)(4). Pub. L. 104-168 designated existing
provisions as subpar. (A) and added subpar. (B).
Subsec. (c)(21)(D)(ii)(III). Pub. L. 104-188, Sec. 1704(j)(5),
substituted "section 101(7)" for "section 101(6)" and "1752(7)" for
"1752(6)".
Subsec. (c)(26). Pub. L. 104-191, Sec. 341(a), added par. (26).
Subsec. (c)(27). Pub. L. 104-191, Sec. 342(a), added par. (27).
Subsecs. (n), (o). Pub. L. 104-188, Sec. 1114(a), added subsec.
(n) and redesignated former subsec. (n) as (o).
1993 - Subsec. (c)(2). Pub. L. 103-66, Sec. 13146(b), inserted at
end "Rules similar to the rules of subparagraph (G) of paragraph
(25) shall apply for purposes of this paragraph."
Subsec. (c)(25)(G). Pub. L. 103-66, Sec. 13146(a), added subpar.
(G).
1992 - Subsec. (c)(21). Pub. L. 102-486 amended par. (21)
generally, substituting present provisions consisting of subpars.
(A) to (D) for former provisions consisting of subpars. (A) and
(B).
1989 - Subsec. (l). Pub. L. 101-73 amended subsec. (l) generally.
Prior to amendment, subsec. (l) read as follows: "The organization
described in this subsection is the Central Liquidity Facility
established under title III of the Federal Credit Union Act (12
U.S.C. 1795 et seq.)."
1988 - Subsec. (c)(1). Pub. L. 100-647, Sec. 1018(u)(15),
substituted "Any" for "any".
Subsec. (c)(12)(B)(iv). Pub. L. 100-647, Sec. 2003(a)(1), added
cl. (iv).
Subsec. (c)(12)(C). Pub. L. 100-647, Sec. 2003(a)(2), amended
subpar. (C) generally. Prior to amendment, subpar. (C) read as
follows: "In the case of a mutual or cooperative electric company,
subparagraph (A) shall be applied without taking into account any
income received or accrued from qualified pole rentals."
Subsec. (c)(17)(A)(ii), (iii), (18)(B), (C). Pub. L. 100-647,
Sec. 1018(u)(34), made technical amendments to Pub. L. 99-154, Sec.
1114(b)(14). See 1986 Amendment note below.
Subsec. (c)(18)(D)(iv). Pub. L. 100-647, Sec. 1011(c)(7)(D),
added cl. (iv).
Subsec. (c)(23). Pub. L. 100-647, Sec. 1018(u)(14), substituted
"Any" for "any".
Subsec. (c)(25)(A). Pub. L. 100-647, Sec. 1016(a)(1)(A), inserted
at end "For purposes of clause (iii), the term 'real property'
shall not include any interest as a tenant in common (or similar
interest) and shall not include any indirect interest."
Subsec. (c)(25)(C)(v). Pub. L. 100-647, Sec. 1016(a)(3)(B),
struck out cl. (v) which read as follows: "any organization
described in this paragraph."
Subsec. (c)(25)(D). Pub. L. 100-647, Sec. 1016(a)(2), substituted
"A corporation or trust shall in no event be treated as described
in subparagraph (A) unless such corporation or trust permits its
shareholders or beneficiaries" for "A corporation or trust
described in this paragraph must permit its shareholders or
beneficiaries" in introductory text.
Subsec. (c)(25)(E), (F). Pub. L. 100-647, Sec. 1016(a)(3)(A),
(4), added subpars. (E) and (F).
Subsec. (e)(1)(A). Pub. L. 100-647, Sec. 6202(a), inserted
"(including the purchasing of insurance on a group basis)" after
"purchasing".
Subsec. (m)(3)(E). Pub. L. 100-647, Sec. 1010(b)(4)(A), added
subpar. (E).
Subsec. (m)(5). Pub. L. 100-647, Sec. 1010(b)(4)(B), added par.
(5).
1987 - Subsec. (c)(3). Pub. L. 100-203 inserted "(or in
opposition to)" after "in behalf of".
1986 - Subsec. (c)(1)(A)(i). Pub. L. 99-514, Sec. 1899A(15),
substituted "July 18, 1984" for "the date of the enactment of the
Tax Reform Act of 1984".
Subsec. (c)(14)(B)(iv). Pub. L. 99-514, Sec. 1879(k)(1), added
cl. (iv).
Subsec. (c)(15). Pub. L. 99-514, Sec. 1024(b), amended par. (15)
generally. Prior to amendment, par. (15) read as follows: "Mutual
insurance companies or associations other than life or marine
(including inter-insurers and reciprocal underwriters) if the gross
amount received during the taxable year from the items described in
section 822(b) (other than paragraph (1)(D) thereof) and premiums
(including deposits and assessments) does not exceed $150,000."
Subsec. (c)(17)(A)(ii), (iii), (18)(B), (C). Pub. L. 99-514, Sec.
1114(b)(14), as amended by Pub. L. 100-647, Sec. 1018(u)(34),
substituted "highly compensated employees (within the meaning of
section 414(q))" for "officers, shareholders, persons whose
principal duties consist of supervising the work of other
employees, or highly compensated employees".
Subsec. (c)(18)(D). Pub. L. 99-514, Sec. 1109(a), added subpar.
(D).
Subsec. (c)(24). Pub. L. 99-272 added par. (24).
Subsec. (c)(25). Pub. L. 99-514, Sec. 1603(a), added par. (25).
Subsecs. (m), (n). Pub. L. 99-514, Sec. 1012(a), added subsec.
(m) and redesignated former subsec. (m) as (n).
1984 - Subsec. (c)(1). Pub. L. 98-369, Sec. 2813(b)(2),
designated existing provisions as subpar. (A) and added subpar.
(B).
Subsec. (c)(1)(A). Pub. L. 98-369, Sec. 1079, substituted
provisions referring to corporations exempt from Federal income
taxes under any Act of Congress as amended and supplemented before
July 18, 1984, or under this title without regard to any provision
of law not contained in this title and not contained in a revenue
Act for provisions referring to corporations exempt from Federal
income taxes under any Act of Congress as amended and supplemented.
Subsec. (k). Pub. L. 98-369, Sec. 1032(a), added subsec. (k).
Former subsec. (k) redesignated (l).
Subsec. (l). Pub. L. 98-369, Sec. 2813(b)(1), added subsec. (l).
Former subsec. (l) redesignated (m).
Pub. L. 98-369, Sec. 1032(a), redesignated former subsec. (k) as
(l).
Subsec. (m). Pub. L. 98-369, Sec. 2813(b)(1), redesignated former
subsec. (l) as (m).
1983 - Subsec. (c)(23). Pub. L. 97-448 substituted "75 percent"
for "25 percent".
1982 - Subsec. (c)(19). Pub. L. 97-248, Sec. 354(a)(1),
substituted "past or present members of the Armed Forces of the
United States" for "war veterans" after "A post or organization
of".
Subsec. (c)(19)(B). Pub. L. 97-248, Sec. 354(a)(2), substituted
"past or present members of the Armed Forces of the United States"
for "war veterans" wherever appearing, struck out "veterans (but
not war veterans), or are" after "individuals who are", and
substituted "or of cadets" for "or such individuals" before ",
and".
Subsec. (c)(23). Pub. L. 97-248, Sec. 354(b), added par. (23).
Subsecs. (j), (k). Pub. L. 97-248, Sec. 286(a), added subsec. (j)
and redesignated former subsec. (j) as (k).
1981 - Subsec. (c)(21)(B)(iii). Pub. L. 97-119 substituted
"established under section 9501" for "established under section 3
of the Black Lung Benefits Revenue Act of 1977".
1980 - Subsec. (c)(12). Pub. L. 96-605 designated existing
provision as subpar. (A), struck out provision that, in the case of
any mutual or cooperative telephone company, the 85 per cent or
more income requirement be applied without taking into account any
income received or accrued from a nonmember telephone company for
the performance of communication services which involve members of
such mutual or cooperative telephone company, and added subpars.
(B) to (D).
Subsec. (c)(21). Pub. L. 96-222 substituted "Federal Mine Safety
and Health Act of 1977" for "Federal Coal Mine Health and Safety
Act of 1969".
Subsec. (c)(22). Pub. L. 96-364 added par. (22).
Subsec. (i). Pub. L. 96-601 inserted provision that the
restriction on religious discrimination not apply to an auxiliary
of a fraternal beneficiary society if the society is described in
subsec. (c)(8) of this section, is exempt from income tax under
subsec. (a) of this section, and limits its membership to the
members of a particular religion or to a club which in good faith
limits its membership to the members of a particular religion in
order to further the teachings or principles of that religion, and
not to exclude individuals of a particular race or color.
1978 - Subsec. (c)(12). Pub. L. 95-345 inserted provision
relating to applicability of statutory provisions to mutual or
cooperative telephone company of income received or accrued from a
nonmember telephone company.
Subsec. (c)(20). Pub. L. 95-600, Sec. 703(b)(2), substituted
"this paragraph" for "section 501(c)(20)".
Subsec. (c)(21). Pub. L. 95-227 added par. (21).
Subsecs. (g), (i). Pub. L. 95-600, Sec. 703(g)(2)(B),
redesignated subsec. (g), which was added by section 2(a) of Pub.
L. 94-568, as subsec. (i). Former subsec. (i), relating to cross
reference, redesignated (j).
Subsecs. (i), (j). Pub. L. 95-600, Sec. 703(g)(2)(A), amended
Pub. L. 95-600, Sec. 2(a). See 1976 Amendment note below.
1976 - Subsec. (c)(3). Pub. L. 94-455, Secs. 1313(a),
1307(d)(1)(A), inserted "or to foster national or international
amateur sports competition (but only if no part of its activities
involve the provision of athletic facilities or equipment)" after
"educational purposes" and inserted "(except as otherwise provided
in subsection (h))" after "influence legislation".
Subsec. (c)(7). Pub. L. 94-568, Sec. 1(a), struck out requirement
that clubs be "operated exclusively" for specified purposes but
required that substantially all of club activities be for specified
purposes.
Subsec. (c)(17), (18). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c)(20). Pub. L. 94-455, Sec. 2134(b), added par. (20).
Subsec. (e)(1)(A). Pub. L. 94-455, Sec. 1312(a), inserted
"clinical" after "food".
Subsec. (g). Pub. L. 94-568, Sec. 2(a), added subsec. (g)
relating to prohibition of discrimination by certain social clubs.
Pub. L. 94-455, Sec. 2113(a), added subsec. (g) defining
agricultural. Former subsec. (g) redesignated (h).
Subsec. (h). Pub. L. 94-455, Secs. 1307(a)(1), 2113(a), added
subsec. (h). Former subsec. (g), relating to cross reference,
redesignated (h) and further redesignated (i).
Subsec. (i). Pub. L. 94-568, Sec. 2(a), as amended by Pub. L. 95-
600, Sec. 703(g)(2)(A), added subsec. (i). Former subsec. (i)
redesignated (j).
Pub. L. 94-455, Sec. 1307(a)(1), redesignated subsec. (h),
relating to cross reference, as (i).
Subsec. (j). Pub. L. 94-568, Sec. 2(a), as amended by Pub. L. 95-
600, Sec. 703(g)(2)(A), redesignated subsec. (i), relating to
cross reference, as (j).
1975 - Subsec. (b). Pub. L. 93-625 inserted references to part VI
of this subchapter.
1974 - Subsecs. (f), (g). Pub. L. 93-310 added subsec. (f) and
redesignated former subsec. (f) as (g).
1972 - Subsec. (c)(19). Pub. L. 92-418 added par. (19).
1970 - Subsec. (c)(13). Pub. L., 91-618 substituted "corporation
chartered solely for the purpose of disposal of bodies by burial or
cremation which is not permitted" for "corporation chartered solely
for burial purposes as a cemetery corporation and is not
permitted".
1969 - Subsec. (a). Pub. L. 91-172, Sec. 101(j)(3), struck out
reference to section 504.
Subsec. (b). Pub. L. 91-172, Sec. 101(j)(4), inserted reference
to certain other activities in heading and to part III in text, and
struck out reference to tax on unrelated income.
Subsec. (c). Pub. L. 91-172, Secs. 101(j)(5), 121(b)(6)(A),
substituted "part IV" for "part III" after "Corporations organized
by an association subject to" and added par. 18.
Subsec. (c)(9). Pub. L. 91-172, Sec. 121(b)(5)(A), inserted
reference to designated beneficiaries and struck out reference to
85 percent or more income of voluntary employees' beneficiary
associations.
Subsec. (c)(10). Pub. L. 91-172, Sec. 121(b)(5)(A), substituted
provisions concerning domestic fraternal societies, orders, or
associations, operating under the lodge system, for provisions
covering voluntary employees' beneficiary associations which would
pay benefits to designated beneficiaries of members.
Subsec. (e). Pub. L. 91-172, Sec. 101(j)(6), substituted "section
170(b)(1)(A)(iii)" for "section 503(b)(5)" in last sentence.
1968 - Subsecs. (e), (f). Pub. L. 90-364 added subsec. (e) and
redesignated former subsec. (e) as (f).
1966 - Subsec. (c)(6). Pub. L. 89-800 inserted reference to
professional football leagues (whether or not administering a
pension fund for football players).
Subsec. (c)(14). Pub. L. 89-352 designated as subpar. (A)
provisions covering credit unions which were formerly set out
preceding subpar. (A), designated as subpar. (B) and clauses (i),
(ii), and (iii) thereunder provisions covering corporation or
associations without capital stock organized before Sept. 1, 1957,
which formerly were set out as provisions preceding subpar. (A) and
as subpars. (A), (B), and (C) respectively, and added subpar. (C).
1962 - Subsec. (c)(15). Pub. L. 87-834 substituted "$150,000" for
"$75,000".
1960 - Subsec. (c)(14). Pub. L. 86-428 substituted "September 1,
1957" for "September 1, 1951".
Subsec. (c)(17). Pub. L. 86-667 added par. (17).
1956 - Subsec. (c)(15). Act Mar. 13, 1956, substituted "the items
described in section 822(b) (other than paragraph (1)(D) thereof)"
for "interest, dividends, rents,".
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-58, title XIII, Sec. 1304(c), Aug. 8, 2005, 119 Stat.
997, provided that: "The amendments made by this section [amending
this section] shall take effect on the date of the enactment of
this Act [Aug. 8, 2005]."
EFFECTIVE DATE OF 2004 AMENDMENTS
Pub. L. 108-357, title III, Sec. 319(e), Oct. 22, 2004, 118 Stat.
1473, provided that: "The amendments made by this section [amending
this section and sections 512 and 1381 of this title] shall apply
to taxable years beginning after the date of the enactment of this
Act [Oct. 22, 2004]."
Pub. L. 108-218, title II, Sec. 206(e), Apr. 10, 2004, 118 Stat.
611, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
831 of this title] shall apply to taxable years beginning after
December 31, 2003.
"(2) Transition rule for companies in receivership or
liquidation. - In the case of a company or association which -
"(A) for the taxable year which includes April 1, 2004, meets
the requirements of section 501(c)(15)(A) of the Internal Revenue
Code of 1986, as in effect for the last taxable year beginning
before January 1, 2004, and
"(B) on April 1, 2004, is in a receivership, liquidation, or
similar proceeding under the supervision of a State court,
the amendments made by this section shall apply to taxable years
beginning after the earlier of the date such proceeding ends or
December 31, 2007."
EFFECTIVE DATE OF 2003 AMENDMENT
Pub. L. 108-121, title I, Sec. 105(b), Nov. 11, 2003, 117 Stat.
1338, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after the date
of the enactment of this Act [Nov. 11, 2003]."
Pub. L. 108-121, title I, Sec. 108(b), Nov. 11, 2003, 117 Stat.
1341, provided that: "The amendments made by this section [amending
this section] shall apply to designations made before, on, or after
the date of the enactment of this Act [Nov. 11, 2003]."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to years beginning after
Dec. 31, 2001, see section 611(i)(1) of Pub. L. 107-16, set out as
a note under section 415 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENTS
Amendment by section 101(c) of Pub. L. 105-34 applicable to
taxable years beginning after Dec. 31, 1997, see section 101(e) of
Pub. L. 105-34, set out as an Effective Date note under section 24
of this title.
Section 963(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997."
Section 974(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1996."
Section 4041(b) of Pub. L. 105-33 provided that: "The amendment
made by subsection (a) [amending this section] shall take effect on
the date of the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENTS
Section 341(b) of Pub. L. 104-191 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1996."
Section 342(b) of Pub. L. 104-191 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years ending after the date of the enactment of this Act [Aug. 21,
1996]."
Section 1114(b) of Pub. L. 104-188 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[Aug. 20, 1996]."
Section 1311(d)(3) of Pub. L. 104-168 provided that:
"(A) In general. - The amendment made by subsection (b) [amending
this section] shall apply to inurement occurring on or after
September 14, 1995.
"(B) Binding contracts. - The amendment made by subsection (b)
shall not apply to any inurement occurring before January 1, 1997,
pursuant to a written contract which was binding on September 13,
1995, and at all times thereafter before such inurement occurred."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13146(c) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning on or after January 1, 1994."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-486 applicable to taxable years
beginning after Dec. 31, 1991, see section 1940(d) of Pub. L. 102-
486, set out as a note under section 192 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 1402(b) of Pub. L. 101-73 provided that: "The amendment
made by subsection (a) [amending this section] shall take effect on
the date of the enactment of this Act [Aug. 9, 1989]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1011(c)(7)(D) of Pub. L. 100-647 applicable
to plan years beginning after Dec. 31, 1987, with exception in case
of a plan described in section 1105(c)(2) of Pub. L. 99-514, see
section 1011(c)(7)(E) of Pub. L. 100-647, set out as a note under
section 401 of this title.
Section 1016(a)(1)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply with respect to property acquired by the organization after
June 10, 1987, except that such amendment shall not apply to any
property acquired after June 10, 1987, pursuant to a binding
written contract in effect on June 10, 1987, and at all times
thereafter before such acquisition."
Amendment by sections 1010(b)(4), 1016(a)(2)-(4), and
1018(u)(14), (15), (34) of Pub. L. 100-647 effective, except as
otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 2003(a)(3) of Pub. L. 100-647 provided that: "The
amendments made by this subsection [amending this section] shall
apply to taxable years ending after the date of the enactment of
the Omnibus Budget Reconciliation Act of 1986 [Oct. 21, 1986]."
Section 6202(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
purchases before, on, or after the date of the enactment of this
Act [Nov. 10, 1988]."
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable with respect to
activities after Dec. 22, 1987, see section 10711(c) of Pub. L. 100-
203, set out as a note under section 170 of this title.
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 1012(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1012(c) of
Pub. L. 99-514, set out as an Effective Date note under section 833
of this title.
Amendment by section 1024(b) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1024(e) of
Pub. L. 99-514, set out as a note under section 831 of this title.
Amendment by section 1109(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1109(c) of
Pub. L. 99-514, set out as a note under section 219 of this title.
Amendment by section 1114(b)(14) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1986, see section 1114(c)(1) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Section 1603(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and section 514 of this
title] shall apply to taxable years beginning after December 31,
1986."
Section 1879(k)(2) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section] shall
apply to taxable years ending after August 13, 1981."
Amendment by Pub. L. 99-272 effective Jan. 1, 1986, with certain
exceptions, see section 11019 of Pub. L. 99-272, set out as a note
under section 1341 of Title 29, Labor.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 1032 of Pub. L. 98-369 applicable to taxable
years beginning after July 18, 1984, see section 1032(c) of Pub. L.
98-369, set out as a note under section 170 of this title.
Amendment by section 2813(b) of Pub. L. 98-369 effective Oct. 1,
1979, see section 2813(c) of Pub. L. 98-369, set out as an
Effective Date note under section 1795k of Title 12, Banks and
Banking.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective as if included in the
provisions of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 311(d)
of Pub. L. 97-448, set out as a note under section 31 of this
title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 286(c) of Pub. L. 97-248 provided that: "The amendments
made by this section [amending this section and sections 170, 2055,
and 2522 of this title] shall take effect on October 5, 1976."
Section 354(c) of Pub. L. 97-248 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to taxable years beginning after the date of the enactment of this
Act [Sept. 3, 1982]."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-119 effective Jan. 1, 1982, see section
103(d)(1) of Pub. L. 97-119, set out as an Effective Date note
under section 9501 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 106(c)(1) of Pub. L. 96-605, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by subsection (a) [amending this section] shall
apply to all taxable years to which the Internal Revenue Code of
1986 [formerly I.R.C. 1954] applies."
Section 3(b) of Pub. L. 96-601 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years beginning after October 20, 1976."
Amendment by Pub. L. 96-364 applicable to taxable years ending
after Sept. 26, 1980, see section 210(c) of Pub. L. 96-364, set out
as an Effective Date note under section 418 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as an Effective
Date of 1980 Amendment note under section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENTS
Amendment by section 703(b)(2), (g)(2)(B) of Pub. L. 95-600
effective on Oct. 4, 1976, see section 703(r) of Pub. L. 95-600,
set out as a note under section 46 of this title.
Section 703(g)(2)(C) of Pub. L. 95-600 provided that: "The
amendments made by this paragraph [amending this section] shall
take effect on October 20, 1976, as if included in Public Law 94-
568."
Section 1(b) of Pub. L. 95-345 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years beginning after December 31, 1974."
Amendment by Pub. L. 95-227 applicable with respect to
contributions, acts, and expenditures made after Dec. 31, 1977, in
and for taxable years beginning after such date, see section 4(f)
of Pub. L. 95-227, set out as a note under section 192 of this
title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Section 1(d) of Pub. L. 94-568 provided that: "The amendments
made by this section [amending this section and sections 277 and
512 of this title] shall apply to taxable years beginning after the
date of the enactment of this Act [Oct. 20, 1976]."
Section 2(b) of Pub. L. 94-568 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [Oct.
20, 1976]."
Section 1307(e) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and sections 170, 275,
2055, 2106, 2522, 6104, 6161, 6201, 6211, 6212, 6213, 6214, 6344,
6501, 6512, 6601, and 7422 of this title and enacting sections 504
and 4911 of this title] shall apply -
"(1) except as otherwise specified in paragraph (2), in the
case of amendments to subtitle A, to taxable years beginning
after December 31, 1976;
"(2) in the case of the amendments made by subsection (a)(2)
[enacting section 504 of this title], to activities occurring
after the date of the enactment of this Act [Oct. 4, 1976];
"(3) in the case of amendments to chapter 11, to the estates of
decedents dying after December 31, 1976;
"(4) in the case of amendments to chapter 12, to gifts in
calendar years beginning after December 31, 1976;
"(5) in the case of amendments to subtitle D, to taxable years
beginning after December 31, 1976; and
"(6) in the case of amendments to subtitle F, on and after the
date of the enactment of this Act [Oct. 4, 1976]."
Section 1312(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years ending after December 31, 1976."
Section 1313(d) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and sections 170, 2055,
and 2522 of this title] shall apply on the day following the date
of the enactment of this Act [Oct. 4, 1976]."
Section 2113(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] applies to taxable
years ending after December 31, 1975."
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 93-625 applicable to taxable years beginning
after Dec. 31, 1974, see section 10(e) of Pub. L. 93-625, set out
as an Effective Date note under section 527 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Section 3(b) of Pub. L. 93-310 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years ending after December 31, 1973."
EFFECTIVE DATE OF 1972 AMENDMENT
Section 1(c) of Pub. L. 92-418 provided that: "The amendments
made by this section [amending this section and section 512 of this
title] shall apply to taxable years beginning after December 31,
1969."
EFFECTIVE DATE OF 1970 AMENDMENT
Section 2 of Pub L. 91-618 provided that: "The amendment made by
the first section of this Act [amending this section] shall apply
to taxable years ending after the date of enactment of this Act
[Dec. 31, 1970]."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 101(j)(3) of Pub. L. 91-172 effective Jan.
1, 1970, except that amendment of subsec. (a) of this section
applicable to taxable years beginning after Dec. 31, 1969, see
section 101(k)(1), (2)(B) of Pub. L. 91-172, set out as an
Effective Date note under section 4940 of this title.
Amendment by section 121(b)(5)(A), (6)(A) of Pub. L. 91-172
applicable to taxable years beginning after Dec. 31, 1969, see
section 121(g) of Pub. L. 91-172, set out as a note under section
511 of this title.
EFFECTIVE DATE OF 1968 AMENDMENT
Section 109(b) of Pub. L. 90-364 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years ending after the date of the enactment of this Act
[June 28, 1968]."
EFFECTIVE DATE OF 1966 AMENDMENTS
Section 6(c) of Pub. L. 89-800 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years ending after the date of the enactment of this Act [Nov. 8,
1966]."
Section 3 of Pub. 89-352 provided in part that: "The amendment
made by the first section of this Act [amending this section] shall
apply to taxable years ending after the date of the enactment of
this Act [Feb. 2, 1966]."
EFFECTIVE DATE OF 1962 AMENDMENT
Section 8(h) of Pub. L. 87-834 provided that: "The amendments
made by this section [enacting sections 823 to 826 of this title,
amending this section and sections 821, 822, 832, 841, 1016, and
1201 of this title, and redesignating former section 823 as section
822(f) of this title] (other than by subsection (f) [amending
section 831 of this title]) shall apply with respect to taxable
years beginning after December 31, 1962."
EFFECTIVE DATE OF 1960 AMENDMENTS
Section 6 of Pub. L. 86-667 provided that:
"(a) Except as provided in subsection (b), the amendments made by
this Act [amending this section and sections 503, 511, 513, and 514
of this title] shall apply to taxable years beginning after
December 31, 1959.
"(b) In the case of loans, the amendments made by section 2 of
this Act [amending section 503 of this title] shall apply only to
loans made, renewed, or continued after December 31, 1959."
Section 2 of Pub. L. 86-428 provided that: "The amendment made by
this Act [amending this section] shall apply only with respect to
taxable years beginning after December 31, 1959."
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 316 of this title.
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
PAYMENTS BY CHARITABLE ORGANIZATIONS TREATED AS EXEMPT PAYMENTS
Pub. L. 107-134, title I, Sec. 104, Jan. 23, 2002, 115 Stat.
2431, provided that:
"(a) In General. - For purposes of the Internal Revenue Code of
1986 -
"(1) payments made by an organization described in section
501(c)(3) of such Code by reason of the death, injury, wounding,
or illness of an individual incurred as the result of the
terrorist attacks against the United States on September 11,
2001, or an attack involving anthrax occurring on or after
September 11, 2001, and before January 1, 2002, shall be treated
as related to the purpose or function constituting the basis for
such organization's exemption under section 501 of such Code if
such payments are made in good faith using a reasonable and
objective formula which is consistently applied; and
"(2) in the case of a private foundation (as defined in section
509 of such Code), any payment described in paragraph (1) shall
not be treated as made to a disqualified person for purposes of
section 4941 of such Code.
"(b) Effective Date. - This section shall apply to payments made
on or after September 11, 2001."
SPECIAL RULE FOR CERTAIN COOPERATIVES
Section 1311(b)(2) of Pub. L. 104-168 provided that: "In the case
of an organization operating on a cooperative basis which, before
the date of the enactment of this Act [July 30, 1996], was
determined by the Secretary of the Treasury or his delegate, to be
described in section 501(c)(4) of the Internal Revenue Code of 1986
and exempt from tax under section 501(a) of such Code, the
allocation or return of net margins or capital to the members of
such organization in accordance with its incorporating statute and
bylaws shall not be treated for purposes of such Code as the
inurement of the net earnings of such organization to the benefit
of any private shareholder or individual. The preceding sentence
shall apply only if such statute and bylaws are substantially as
such statute and bylaws were in existence on the date of the
enactment of this Act."
APPLICATION OF PUB. L. 100-647 TO SECTION 501(C)(3) BONDS
Section 1013(i) of Pub. L. 100-647 provided that: "In accordance
with section 1302 of the Reform Act [Pub. L. 99-514, set out as a
note below], each amendment and other provision of this Act [see
Tables for classification] which applies to private activity bonds
shall, unless otherwise expressly provided, apply to qualified
501(c)(3) bonds."
CANCELLATION OF CERTAIN DEBTS ORIGINATED BY OR GUARANTEED BY UNITED
STATES NOT TAKEN INTO ACCOUNT IN DETERMINING TAX EXEMPT STATUS OF
CERTAIN ORGANIZATIONS
Section 6203 of Pub. L. 100-647 provided that: "Subparagraph (A)
of section 501(c)(12) of the 1986 Code shall be applied without
taking into account any income attributable to the cancellation of
any loan originally made or guaranteed by the United States (or any
agency or instrumentality thereof) if such cancellation occurs
after 1986 and before 1990."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TREATMENT OF SECTION 501(C)(3) BONDS
Section 1302 of title XIII of Pub. L. 99-514 provided that:
"Nothing in the treatment of section 501(c)(3) bonds as private
activity bonds under the amendments made by this title [enacting
sections 141 to 150 and 7703 of this title, amending sections 2,
22, 25, 32, 86, 103, 105, 152, 153, 163, 172, 194, 269A, 414, 879,
1016, 1398, 3402, 4701, 4940, 4942, 4988, 6362, 6652, and 7871 of
this title, repealing sections 103A, 1391 to 1397, and 6039B of
this title, enacting provisions set out as notes under sections 141
and 148 of this title, and amending provisions set out as a note
under section 103A of this title] shall be construed as indicating
how section 501(c)(3) bonds will be treated in future legislation,
and any change in future legislation applicable to private activity
bonds shall apply to section 501(c)(3) bonds only if expressly
provided in such legislation."
TAX-EXEMPT STATUS FOR ORGANIZATION INTRODUCING INTO PUBLIC USE
TECHNOLOGY DEVELOPED BY QUALIFIED ORGANIZATIONS
Section 1605 of Pub. L. 99-514 provided that:
"(a) In General. - For purposes of the Internal Revenue Code of
1986, an organization shall be treated as an organization organized
and operated exclusively for charitable purposes if such
organization -
"(1) is organized and operated exclusively -
"(A) to provide for (directly or by arranging for and
supervising the performance by independent contractors) -
"(i) reviewing technology disclosures from qualified
organizations,
"(ii) obtaining protection for such technology through
patents, copyrights, or other means, and
"(iii) licensing, sale, or other exploitation of such
technology,
"(B) to distribute the income therefrom, to such qualified
organizations after paying expenses and other amounts as agreed
with the originating qualified organizations, and
"(C) to make research grants to such qualified organizations,
"(2) regularly provides the services and research grants
described in paragraph (1) exclusively to 1 or more qualified
organizations, except that research grants may be made to such
qualified organizations through an organization which is
controlled by 1 or more organizations each of which -
"(A) is an organization described in section 501(c)(3) of the
Internal Revenue Code of 1986 or the income of which is
excluded from taxation under section 115 of such Code, and
"(B) may be a recipient of the services or research grants
described in paragraph (1),
"(3) derives at least 80 percent of its gross revenues from
providing services to qualified organizations located in the same
State as the State in which such organization has its principal
office, and
"(4) was incorporated on July 20, 1981.
"(b) Qualified Organizations. - For purposes of this section, the
term 'qualified organization' has the same meaning given to such
term by subparagraphs (A) and (B) of section 41(e)(6) (as
redesignated by section 231(d)(2)) of the Internal Revenue Code of
1986.
"(c) Treatment of Investment in a Technology Transfer Service
Organization. -
"(1) In general. - A qualified investment made by a private
foundation in an organization described in subparagraph (C) shall
be treated as an investment described in section 4944(c) of the
Internal Revenue Code of 1986 and shall not result in imposition
of taxes under section 4941, 4943, 4944, 4945, or 507(c) of such
Code.
"(2) Definitions. - For purposes of this subsection -
"(A) Qualified investment. - The term 'qualified investment'
means a transfer by a private foundation of -
"(i) all of the patents, copyrights, know-how, and other
technology or rights thereto of the private foundation, and
"(ii) investment assets, net receivables, and cash not
exceeding $35,000,000,
to such organization in exchange for debt.
"(B) Private foundation. - The term 'private foundation'
means -
"(i) a nonprofit corporation which was incorporated before
1913 which is described in sections 501(c)(3) and 509(a) of
such Code, and which is exempt from taxation under section
501(a) of such Code, and
"(ii) the principal purposes of which are to support
research by and to provide technology transfer services to
organizations described in section 170(b)(1)(A) of such Code -
"(I) which are exempt from taxation under section 501(a) of
such Code, or
"(II) the income of which is excluded from taxation under
section 115 of such Code.
"(C) Technology transfer organization. - The term 'technology
transfer organization' means a corporation established after
the date of the enactment of this Act [Oct. 22, 1986] -
"(i) which is organized and operated to advance the public
welfare through the provision of technology transfer services
to research organizations,
"(ii) no part of the net earnings of which inures to the
benefit of, or is distributable to, any private shareholder,
individual, or entity, other than a private foundation or
research organization,
"(iii) which does not participate in, or intervene in
(including the publishing or distributing of statements) any
political campaign on behalf of any candidate for public
office,
"(iv) no substantial part of the activities of which is
carrying on propaganda, or otherwise attempting, to influence
legislation, and
"(v) upon liquidation or dissolution of which all of its
net assets can be distributed only to research organizations.
"(d) Effective Date. - This section shall take effect on the date
of the enactment of this Act [Oct. 22, 1986]."
APPLICABILITY OF 1976 AMENDMENT TO CERTAIN ORGANIZATIONS
Section 1313(c) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "An
organization which (without regard to the amendments made by this
section [amending this section and sections 170, 2055, and 2522 of
this title]) is an organization described in section 170(c)(2)(B),
501(c)(3), 2055(a)(2), or 2522(a)(2) of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954] shall not be treated as an
organization not so described as a result of the amendments made by
this section."
TAX EXEMPTION FOR CERTAIN PUERTO RICAN PENSION, ETC., PLANS
Section 1022(i) of Pub. L. 93-406, title II, Sept. 2, 1974, 88
Stat. 942, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100
Stat. 2095, provided that:
"(1) General rule. - Effective for taxable years beginning after
December 31, 1973, for purposes of section 501(a) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (relating to exemption
from tax), any trust forming part of a pension, profit-sharing, or
stock bonus plan all of the participants of which are residents of
the Commonwealth of Puerto Rico shall be treated as an organization
described in section 401(a) of such Code if such trust -
"(A) forms part of a pension, profit-sharing, or stock bonus
plan, and
"(B) is exempt from income tax under the laws of the
Commonwealth of Puerto Rico.
"(2) Election to have provisions of, and amendments made by,
title ii of this act apply. -
"(A) If the administrator of a pension, profit-sharing, or
stock bonus plan which is created or organized in Puerto Rico
elects, at such time and in such manner as the Secretary of the
Treasury may require, to have the provisions of this paragraph
apply, for plan years beginning after the date of election any
trust forming a part of such plan shall be treated as a trust
created or organized in the United States for purposes of section
401(a) of the Internal Revenue Code of 1986.
"(B) An election under subparagraph (A), once made, is
irrevocable.
"(C) This paragraph applies to plan years beginning after the
date of enactment of this Act [Sept. 2, 1974]
"(D) The source of any distributions made under a plan which
makes an election under this paragraph to participants and
beneficiaries residing outside of the United States shall be
determined, for purposes of subchapter N of chapter 1 of the
Internal Revenue Code of 1986 by the Secretary of the Treasury in
accordance with regulations prescribed by him. For purposes of
this subparagraph the United States means the United States as
defined in section 7701(a)(9) of the Internal Revenue Code of
1986."
EXCHANGES FOR SALE OF POULTRY
Pub. L. 89-44, title VIII, Sec. 811, June 21, 1965, 79 Stat. 169,
provided that certain corporations, associations, or organizations
organized and operated exclusively for the purpose of providing an
exchange for the sale of poultry growers of a particular locality
shall be treated for purposes of this title as an exempt
organization and that such exemption shall apply to taxable years
beginning after Dec. 31, 1953, and ending after Aug. 16, 1954,
which begin before Jan. 1, 1966.
-FOOTNOTE-
(!1) See References in Text note below.
(!2) So in original. Probably should be followed by a period.
(!3) So in original.
(!4) So in original. Probably should be capitalized.
(!5) See References in Text note below.
-End-
-CITE-
26 USC Sec. 502 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART I - GENERAL RULE
-HEAD-
Sec. 502. Feeder organizations
-STATUTE-
(a) General rule
An organization operated for the primary purpose of carrying on a
trade or business for profit shall not be exempt from taxation
under section 501 on the ground that all of its profits are payable
to one or more organizations exempt from taxation under section
501.
(b) Special rule
For purposes of this section, the term "trade or business" shall
not include -
(1) the deriving of rents which would be excluded under section
512(b)(3), if section 512 applied to the organization,
(2) any trade or business in which substantially all the work
in carrying on such trade or business is performed for the
organization without compensation, or
(3) any trade or business which is the selling of merchandise,
substantially all of which has been received by the organization
as gifts or contributions.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 166; Pub. L. 91-172, title I,
Sec. 121(b)(7), Dec. 30, 1969, 83 Stat. 542.)
-MISC1-
AMENDMENTS
1969 - Pub. L. 91-172 redesignated first sentence of existing
provisions as subsec. (a), and substantial portion of second
sentence as subsec. (b)(1), and, in subsec. (b)(1) as so
redesignated, inserted reference to section 512 of this title, and
added pars. (2) and (3).
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 121(g) of Pub. L. 91-172, set out
as a note under section 511 of this title.
-End-
-CITE-
26 USC Sec. 503 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART I - GENERAL RULE
-HEAD-
Sec. 503. Requirements for exemption
-STATUTE-
(a) Denial of exemption to organizations engaged in prohibited
transactions
(1) General rule
(A) An organization described in section 501(c)(17) shall not
be exempt from taxation under section 501(a) if it has engaged in
a prohibited transaction after December 31, 1959.
(B) An organization described in section 401(a) which is
referred to in section 4975(g) (2) or (3) shall not be exempt
from taxation under section 501(a) if it has engaged in a
prohibited transaction after March 1, 1954.
(C) An organization described in section 501(c)(18) shall not
be exempt from taxation under section 501(a) if it has engaged in
a prohibited transaction after December 31, 1969.
(2) Taxable years affected
An organization described in section 501(c) (17) or (18) or
paragraph (1)(B) shall be denied exemption from taxation under
section 501(a) by reason of paragraph (1) only for taxable years
after the taxable year during which it is notified by the
Secretary that it has engaged in a prohibited transaction, unless
such organization entered into such prohibited transaction with
the purpose of diverting corpus or income of the organization
from its exempt purposes, and such transaction involved a
substantial part of the corpus or income of such organization.
(b) Prohibited transactions
For purposes of this section, the term "prohibited transaction"
means any transaction in which an organization subject to the
provisions of this section -
(1) lends any part of its income or corpus, without the receipt
of adequate security and a reasonable rate of interest, to;
(2) pays any compensation, in excess of a reasonable allowance
for salaries or other compensation for personal services actually
rendered, to;
(3) makes any part of its services available on a preferential
basis to;
(4) makes any substantial purchase of securities or any other
property, for more than adequate consideration in money or
money's worth, from;
(5) sells any substantial part of its securities or other
property, for less than an adequate consideration in money or
money's worth, to; or
(6) engages in any other transaction which results in a
substantial diversion of its income or corpus to;
the creator of such organization (if a trust); a person who has
made a substantial contribution to such organization; a member of
the family (as defined in section 267(c)(4)) of an individual who
is the creator of such trust or who has made a substantial
contribution to such organization; or a corporation controlled by
such creator or person through the ownership, directly or
indirectly, of 50 percent or more of the total combined voting
power of all classes of stock entitled to vote or 50 percent or
more of the total value of shares of all classes of stock of the
corporation.
(c) Future status of organizations denied exemption
Any organization described in section 501(c) (17) or (18) or
subsection (a)(1)(B) which is denied exemption under section 501(a)
by reason of subsection (a) of this section, with respect to any
taxable year following the taxable year in which notice of denial
of exemption was received, may, under regulations prescribed by the
Secretary, file claim for exemption, and if the Secretary, pursuant
to such regulations, is satisfied that such organization will not
knowingly again engage in a prohibited transaction, such
organization shall be exempt with respect to taxable years after
the year in which such claim is filed.
[(d) Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(22), Nov.
5, 1990, 104 Stat. 1388-521]
(e) Special rules
For purposes of subsection (b)(1), a bond, debenture, note, or
certificate or other evidence of indebtedness (hereinafter in this
subsection referred to as "obligation") shall not be treated as a
loan made without the receipt of adequate security if -
(1) such obligation is acquired -
(A) on the market, either (i) at the price of the obligation
prevailing on a national securities exchange which is
registered with the Securities and Exchange Commission, or (ii)
if the obligation is not traded on such a national securities
exchange, at a price not less favorable to the trust than the
offering price for the obligation as established by current bid
and asked prices quoted by persons independent of the issuer;
(B) from an underwriter, at a price (i) not in excess of the
public offering price for the obligation as set forth in a
prospectus or offering circular filed with the Securities and
Exchange Commission, and (ii) at which a substantial portion of
the same issue is acquired by persons independent of the
issuer; or
(C) directly from the issuer, at a price not less favorable
to the trust than the price paid currently for a substantial
portion of the same issue by persons independent of the issuer;
(2) immediately following acquisition of such obligation -
(A) not more than 25 percent of the aggregate amount of
obligations issued in such issue and outstanding at the time of
acquisition is held by the trust, and
(B) at least 50 percent of the aggregate amount referred to
in subparagraph (A) is held by persons independent of the
issuer; and
(3) immediately following acquisition of the obligation, not
more than 25 percent of the assets of the trust is invested in
obligations of persons described in subsection (b).
(f) Loans with respect to which employers are prohibited from
pledging certain assets
Subsection (b)(1) shall not apply to a loan made by a trust
described in section 401(a) to the employer (or to a renewal of
such a loan or, if the loan is repayable upon demand, to a
continuation of such a loan) if the loan bears a reasonable rate of
interest, and if (in the case of a making or renewal) -
(1) the employer is prohibited (at the time of such making or
renewal) by any law of the United States or regulation thereunder
from directly or indirectly pledging, as security for such a
loan, a particular class or classes of his assets the value of
which (at such time) represents more than one-half of the value
of all his assets;
(2) the making or renewal, as the case may be, is approved in
writing as an investment which is consistent with the exempt
purposes of the trust by a trustee who is independent of the
employer, and no other such trustee had previously refused to
give such written approval; and
(3) immediately following the making or renewal, as the case
may be, the aggregate amount loaned by the trust to the employer,
without the receipt of adequate security, does not exceed 25
percent of the value of all the assets of the trust.
For purposes of paragraph (2), the term "trustee" means, with
respect to any trust for which there is more than one trustee who
is independent of the employer, a majority of such independent
trustees. For purposes of paragraph (3), the determination as to
whether any amount loaned by the trust to the employer is loaned
without the receipt of adequate security shall be made without
regard to subsection (e).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 166; Pub. L. 85-866, title I,
Sec. 30(a), (b), Sept. 2, 1958, 72 Stat. 1629, 1630; Pub. L. 86-
667, Sec. 2, July 14, 1960, 74 Stat. 535; Pub. L. 87-792, Sec. 6,
Oct. 10, 1962, 76 Stat. 827; Pub. L. 91-172, title I, Secs.
101(j)(7)-(14), 121(b)(6)(B), Dec. 30, 1969, 83 Stat. 527, 542;
Pub. L. 93-406, title II, Sec. 2003(b), Sept. 2, 1974, 88 Stat.
978; Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976,
90 Stat. 1834; Pub. L. 101-508, title XI, Sec. 11801(a)(22), Nov.
5, 1990, 104 Stat. 1388-521.)
-MISC1-
AMENDMENTS
1990 - Subsec. (d). Pub. L. 101-508 struck out subsec. (d)
"Special rule for loans" which read as follows: "For purposes of
the application of subsection (b)(1), in the case of a loan by a
trust described in section 401(a), the following rules shall apply
with respect to a loan made before March 1, 1954, which would
constitute a prohibited transaction if made on or after March 1,
1954:
"(1) If any part of the loan is repayable prior to December 31,
1955, the renewal of such part of the loan for a period not
extending beyond December 31, 1955, on the same terms, shall not
be considered a prohibited transaction.
"(2) If the loan is repayable on demand, the continuation of
the loan without the receipt of adequate security and a
reasonable rate of interest beyond December 31, 1955, shall be
considered a prohibited transaction."
1976 - Subsecs. (a)(2), (c). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1974 - Subsec. (a)(1)(A). Pub. L. 93-406, Sec. 2003(b)(1),
substituted "section 501(c)(17)" for "section 501(c)(17) or (18)".
Subsec. (a)(1)(B). Pub. L. 93-406, Sec. 2003(b)(2), inserted
"which is referred to in section 4975(g)(2) or (3)".
Subsec. (a)(2). Pub. L. 93-406, Sec. 2003(b)(3), substituted "or
paragraph (1)(B)" for "or section 401".
Subsec. (c). Pub. L. 93-406, Sec. 2003(b)(4), substituted "or
subsection (a)(1)(B)" for "or section 401".
Subsec. (g). Pub. L. 93-406, Sec. 2003(b)(5), struck out subsec.
(g) which covered trusts benefiting certain owner-employees.
1969 - Subsec. (a)(1)(A). Pub. L. 91-172, Secs. 101(j)(7),
121(b)(6)(B)(ii), redesignated subpar. (B) as (A) and inserted
reference to section 501(c)(18). Former subpar. (A), referring to
organizations described in section 501(c)(3) and to prohibited
transactions engaged in after July 1, 1950, was struck out.
Subsec. (a)(1)(B). Pub. L. 91-172, Sec. 101(j)(7), redesignated
subpar. (C) as (B). Former subpar. (B), referring to organizations
described in section 501(c)(17) was amended by addition of a
reference to section 501(c)(18), and redesignated as subpar. (A).
Subsec. (a)(1)(C). Pub. L. 91-172, Secs. 101(j)(7),
121(b)(6)(B)(i), added subpar. (C). Former subpar. (C), dealing
with organizations described in section 401(a) and with prohibited
transactions engaged in after Mar. 1, 1954, was redesignated as
subpar. (B).
Subsec. (a)(2). Pub. L. 91-172, Secs. 101(j)(8),
121(b)(6)(B)(ii), struck out reference to organizations described
in section 501(c)(3), and inserted references to organizations
described in section 501(c)(18).
Subsec. (b). Pub. L. 91-172, Sec. 101(j)(14), redesignated
subsec. (c) as (b). Former subsec. (b), setting out the
organizations to which section applied, was struck out.
Subsec. (c). Pub. L. 91-172, Secs. 101(j)(9), (14),
121(b)(6)(B)(ii), redesignated subsec. (d) as (c), struck out
reference to organizations described in section 501(c)(3), and
inserted reference to organizations described in section
501(c)(17). Former subsec. (c) redesignated (b).
Subsec. (d). Pub. L. 91-172, Sec. 101(j)(10), (14), redesignated
subsec. (g) as (d) and substituted "subsection (b)(1)" for
"subsection (c)(1)." Former subsec. (d) redesignated (c).
Subsec. (e). Pub. L. 91-172, Sec. 101(j)(11), (14), redesignated
subsec. (h) as (e), modified heading to read: "Special rules",
substituted "subsection (b)(1)" for "subsection (c)(1)" in text
preceding par. (1) and in par. (3), and in text preceding par. (1)
struck out "acquired by a trust described in section 401(a) or
section 501(c)(17)". Former subsec. (e), covering the disallowance
of certain charitable deductions, was struck out.
Subsec. (f). Pub. L. 91-172, Sec. 101(j)(12), (14), redesignated
subsec. (i) as (f) and substituted "Subsection (b)(1)" for
"Subsection (c)(1)" and "subsection (e)" for "subsection (h)".
Former subsec. (f), defining "gift or bequest", was struck out.
Subsec. (g). Pub. L. 91-172, Sec. 101(j)(13), (14), redesignated
subsec. (j) as (g) and substituted "subsection (b)" for "subsection
(c)" in par. (1). Former subsec. (g) redesignated (d).
Subsecs. (h) to (j). Pub. L. 91-172, Sec. 101(j)(14),
redesignated subsecs. (h), (i), and (j) as (e), (f), and (g),
respectively. Former subsecs. (e) and (f) were struck out and
former subsec. (g) was redesignated (d).
1962 - Subsec. (j). Pub. L. 87-792 added subsec. (j).
1960 - Subsec. (a)(1). Pub. L. 86-667, Sec. 2(a)(1), denied
exemption to an organization described in section 501(c)(17) if it
has engaged in a prohibited transaction after Dec. 31, 1959.
Subsecs. (a)(2), (b), (d). Pub. L. 86-667, Sec. 2(a)(2), (b),
(c), included organizations described in section 501(c)(17).
Subsec. (h). Pub. L. 86-667, Sec. 2(d), included trusts described
in section 501(c)(17).
1958 - Subsec. (h). Pub. L. 85-866, Sec. 30(a), added subsec.
(h).
Subsec. (i). Pub. L. 85-866, Sec. 30(b), added subsec. (i).
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by Pub. L. 93-406 effective Jan. 1, 1975, but with
provision for an election to be exercised by an organization so as
to constitute a savings clause with reference to the amendment, see
section 2003(c) of Pub. L. 93-406, set out as an Effective Date;
Savings Provisions note under section 4975 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 101(j)(7)-(14) of Pub. L. 91-172 effective
Jan. 1, 1970, see section 101(k)(1) of Pub. L. 91-172, set out as
an Effective Date note under section 4940 of this title.
Amendment by section 121(b)(6)(B) of Pub. L. 91-172 applicable to
taxable years beginning after Dec. 31, 1969, see section 121(g) of
Pub. L. 91-172, set out as a note under section 511 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a
note under section 22 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-667 applicable to taxable years beginning
after Dec. 31, 1959, and in the case of loans, the amendments to
this section made by Pub. L. 86-667 are applicable only to loans
made, renewed, or continued after Dec. 31, 1959, see section 6 of
Pub. L. 86-667, set out as a note under section 501 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 30(c) of Pub. L. 85-866, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply with respect to taxable years ending after March 15, 1956.
The amendment made by subsection (b) [amending this section] shall
apply with respect to taxable years ending after the date of the
enactment of this Act [Sept. 2, 1958], but only with respect to
periods after such date.
"(2) Exceptions. - Nothing in subsection (a) [amending this
section] shall be construed to make any transaction a prohibited
transaction which, under announcements of the Internal Revenue
Service made with respect to section 503(c)(1) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] before the date of the
enactment of this Act [Sept. 2, 1958], would not constitute a
prohibited transaction. In the case of any bond, debenture, note,
or certificate or other evidence of indebtedness acquired before
the date of the enactment of this Act [Sept. 2, 1958], by a trust
described in section 401(a) of such Code which is held on such
date, paragraphs (2) and (3) of section 503(h) of such Code shall
be treated as satisfied if such requirements would have been
satisfied if such obligation had been acquired on such date of
enactment [Sept. 2, 1958]."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 504 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART I - GENERAL RULE
-HEAD-
Sec. 504. Status after organization ceases to qualify for exemption
under section 501(c)(3) because of substantial lobbying or
because of political activities
-STATUTE-
(a) General rule
An organization which -
(1) was exempt (or was determined by the Secretary to be
exempt) from taxation under section 501(a) by reason of being an
organization described in section 501(c)(3), and
(2) is not an organization described in section 501(c)(3) -
(A) by reason of carrying on propaganda, or otherwise
attempting, to influence legislation, or
(B) by reason of participating in, or intervening in, any
political campaign on behalf of (or in opposition to) any
candidate for public office,
shall not at any time thereafter be treated as an organization
described in section 501(c)(4).
(b) Regulations to prevent avoidance
The Secretary shall prescribe such regulations as may be
necessary or appropriate to prevent the avoidance of subsection
(a), including regulations relating to a direct or indirect
transfer of all or part of the assets of an organization to an
organization controlled (directly or indirectly) by the same person
or persons who control the transferor organization.
(c) Churches, etc.
Subsection (a) shall not apply to any organization which is a
disqualified organization within the meaning of section 501(h)(5)
(relating to churches, etc.) for the taxable year immediately
preceding the first taxable year for which such organization is
described in paragraph (2) of subsection (a).
-SOURCE-
(Added Pub. L. 94-455, title XIII, Sec. 1307(a)(2), Oct. 4, 1976,
90 Stat. 1721; amended Pub. L. 100-203, title X, Sec. 10711(b)(1),
(2)(A), Dec. 22, 1987, 101 Stat. 1330-464.)
-MISC1-
PRIOR PROVISIONS
A prior section 504, acts Aug. 16, 1954, ch. 736, 68A Stat. 168;
Oct. 22, 1968, Pub. L. 90-630, Sec. 6(a), 82 Stat. 1330, related to
denial of exemption, prior to repeal by Pub. L. 91-172, title I,
Sec. 101(j)(15), Dec. 30, 1969, 83 Stat. 527. For effective date of
repeal, see section 101(k)(2)(B) of Pub. L. 91-172, set out as an
Effective Date note under section 4940 of this title.
AMENDMENTS
1987 - Pub. L. 100-203, Sec. 10711(b)(2)(A), substituted
"substantial lobbying or because of political activities" for
"substantial lobbying" in section catchline.
Subsec. (a)(2). Pub. L. 100-203, Sec. 10711(b)(1), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "is
not an organization described in section 501(c)(3) by reason of
carrying on propaganda, or otherwise attempting, to influence
legislation,".
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable with respect to
activities after Dec. 22, 1987, see section 10711(c) of Pub. L. 100-
203, set out as a note under section 170 of this title.
CONSTRUCTION OF AMENDMENT
Section 1307(a)(3) of Pub. L. 94-455 provided that: "It is the
intent of Congress that enactment of this section [amending section
501 and enacting section 504 of this title] is not to be regarded
in any way as an approval or disapproval of the decision of the
Court of Appeals for the Tenth Circuit in Christian Echoes National
Ministry, Inc. versus United States, 470 F.2d 849 (1972), or of the
reasoning in any of the opinions leading to that decision."
-End-
-CITE-
26 USC Sec. 505 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART I - GENERAL RULE
-HEAD-
Sec. 505. Additional requirements for organizations described in
paragraph (9), (17), or (20) of section 501(c)
-STATUTE-
(a) Certain requirements must be met in the case of organizations
described in paragraph (9) or (20) of section 501(c)
(1) Voluntary employees' beneficiary associations, etc.
An organization described in paragraph (9) or (20) of
subsection (c) of section 501 which is part of a plan shall not
be exempt from tax under section 501(a) unless such plan meets
the requirements of subsection (b) of this section.
(2) Exception for collective bargaining agreements
Paragraph (1) shall not apply to any organization which is part
of a plan maintained pursuant to an agreement between employee
representatives and 1 or more employers if the Secretary finds
that such agreement is a collective bargaining agreement and that
such plan was the subject of good faith bargaining between such
employee representatives and such employer or employers.
(b) Nondiscrimination requirements
(1) In general
Except as otherwise provided in this subsection, a plan meets
the requirements of this subsection only if -
(A) each class of benefits under the plan is provided under a
classification of employees which is set forth in the plan and
which is found by the Secretary not to be discriminatory in
favor of employees who are highly compensated individuals, and
(B) in the case of each class of benefits, such benefits do
not discriminate in favor of employees who are highly
compensated individuals.
A life insurance, disability, severance pay, or supplemental
unemployment compensation benefit shall not be considered to fail
to meet the requirements of subparagraph (B) merely because the
benefits available bear a uniform relationship to the total
compensation, or the basic or regular rate of compensation, of
employees covered by the plan.
(2) Exclusion of certain employees
For purposes of paragraph (1), there may be excluded from
consideration -
(A) employees who have not completed 3 years of service,
(B) employees who have not attained age 21,
(C) seasonal employees or less than half-time employees,
(D) employees not included in the plan who are included in a
unit of employees covered by an agreement between employee
representatives and 1 or more employers which the Secretary
finds to be a collective bargaining agreement if the class of
benefits involved was the subject of good faith bargaining
between such employee representatives and such employer or
employers, and
(E) employees who are nonresident aliens and who receive no
earned income (within the meaning of section 911(d)(2)) from
the employer which constitutes income from sources within the
United States (within the meaning of section 861(a)(3)).
(3) Application of subsection where other nondiscrimination rules
provided
In the case of any benefit for which a provision of this
chapter other than this subsection provides nondiscrimination
rules, paragraph (1) shall not apply but the requirements of this
subsection shall be met only if the nondiscrimination rules so
provided are satisfied with respect to such benefit.
(4) Aggregation rules
At the election of the employer, 2 or more plans of such
employer may be treated as 1 plan for purposes of this
subsection.
(5) Highly compensated individual
For purposes of this subsection, the determination as to
whether an individual is a highly compensated individual shall be
made under rules similar to the rules for determining whether an
individual is a highly compensated employee (within the meaning
of section 414(q)).
(6) Compensation
For purposes of this subsection, the term "compensation" has
the meaning given such term by section 414(s).
(7) Compensation limit
A plan shall not be treated as meeting the requirements of this
subsection unless under the plan the annual compensation of each
employee taken into account for any year does not exceed
$200,000. The Secretary shall adjust the $200,000 amount at the
same time, and by the same amount, as any adjustment under
section 401(a)(17)(B). This paragraph shall not apply in
determining whether the requirements of section 79(d) are met.
(c) Requirement that organization notify Secretary that it is
applying for tax-exempt status
(1) In general
An organization shall not be treated as an organization
described in paragraph (9), (17), or (20) of section 501(c) -
(A) unless it has given notice to the Secretary, in such
manner as the Secretary may by regulations prescribe, that it
is applying for recognition of such status, or
(B) for any period before the giving of such notice, if such
notice is given after the time prescribed by the Secretary by
regulations for giving notice under this subsection.
(2) Special rule for existing organizations
In the case of any organization in existence on July 18, 1984,
the time for giving notice under paragraph (1) shall not expire
before the date 1 year after such date of the enactment.
-SOURCE-
(Added Pub. L. 98-369, div. A, title V, Sec. 513(a), July 18, 1984,
98 Stat. 863; amended Pub. L. 99-514, title XI, Secs. 1114(b)(16),
1151(e)(2)(B), (g)(6), (j)(3), title XVIII, Secs. 1851(c),
1899A(16), Oct. 22, 1986, 100 Stat. 2452, 2506-2508, 2863, 2959;
Pub. L. 100-647, title I, Sec. 1011B(a)(27)(C), (31)(B), (32), Nov.
10, 1988, 102 Stat. 3487, 3488; Pub. L. 101-140, title II, Secs.
203(a)(1), (2), 204(c), Nov. 8, 1989, 103 Stat. 830, 833; Pub. L.
103-66, title XIII, Sec. 13212(c), Aug. 10, 1993, 107 Stat. 472;
Pub. L. 107-16, title VI, Sec. 611(c)(1), June 7, 2001, 115 Stat.
97.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2001 - Subsec. (b)(7). Pub. L. 107-16, Secs. 611(c)(1), 901,
temporarily substituted "$200,000" for "$150,000" in two places.
See Effective and Termination Dates of 2001 Amendment note below.
1993 - Subsec. (b)(7). Pub. L. 103-66 substituted "Compensation
limit" for "$200,000 compensation limit" in heading and "exceed
$150,000. The Secretary shall adjust the $150,000 amount at the
same time, and by the same amount, as any adjustment under section
401(a)(17)(B)." for "exceed $200,000. The Secretary shall adjust
the $200,000 amount at the same time and in the same manner as
under section 415(d)." in text.
1989 - Subsec. (a)(1). Pub. L. 101-140, Sec. 203(a)(2), amended
par. (1) to read as if amendments by Pub. L. 100-647, Sec.
1011B(a)(27)(C), had not been enacted, see 1988 Amendment note
below.
Subsec. (b)(2). Pub. L. 101-140, Sec. 203(a)(2), amended par. (2)
to read as if amendments by Pub. L. 100-647, Sec. 1011B(a)(31)(B),
had not been enacted, see 1988 Amendment note below.
Pub. L. 101-140, Sec. 203(a)(1), amended par. (2) to read as if
amendments by Pub. L. 99-514, Sec. 1151(g)(6), had not been
enacted, see 1986 Amendment note below.
Subsec. (b)(7). Pub. L. 101-140, Sec. 204(c), inserted at end
"This paragraph shall not apply in determining whether the
requirements of section 79(d) are met."
1988 - Subsec. (a)(1). Pub. L. 100-647, Sec. 1011B(a)(27)(C),
inserted at end "This paragraph shall not apply to any organization
by reason of a failure to meet the requirements of subsection (b)
with respect to a benefit to which section 89 applies."
Subsec. (b)(2). Pub. L. 100-647, Sec. 1011B(a)(31)(B),
substituted "there shall be" for "there may be" and "who are" for
"who may be".
Subsec. (b)(7). Pub. L. 100-647, Sec. 1011B(a)(32), added par.
(7).
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1851(c)(1), struck
out "of an employer" before "shall".
Subsec. (a)(2). Pub. L. 99-514, Sec. 1851(c)(4), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "Paragraph
(1) shall not apply to any organization which is part of a plan
maintained pursuant to 1 or more collective bargaining agreements
between 1 or more employee organizations and 1 or more employers."
Subsec. (b)(1). Pub. L. 99-514, Sec. 1851(c)(2), (3), substituted
"as otherwise provided in this subsection" for "as provided in
paragraph (2)" in introductory provision, and in subpar. (B)
substituted "highly compensated individuals" for "highly
compensated employees".
Subsec. (b)(2). Pub. L. 99-514, Sec. 1151(g)(6), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "For
purposes of paragraph (1), there may be excluded from consideration
-
"(A) employees who have not completed 3 years of service,
"(B) employees who have not attained age 21,
"(C) seasonal employees or less than half-time employees,
"(D) employees not included in the plan who are included in a
unit of employees covered by an agreement between employee
representatives and 1 or more employers which the Secretary finds
to be a collective bargaining agreement if the class of benefits
involved was the subject of good faith bargaining between such
employee representatives and such employer or employers, and
"(E) employees who are nonresident aliens and who receive no
earned income (within the meaning of section 911(d)(2)) from the
employer which constitutes income from sources within the United
States (within the meaning of section 861(a)(3))."
Subsec. (b)(4). Pub. L. 99-514, Sec. 1151(e)(2)(B), amended par.
(4) generally. Prior to amendment, par. (4) read as follows: "For
purposes of this subsection -
"(A) Aggregation of plans. - At the election of the employer, 2
or more plans of such employer may be treated as 1 plan.
"(B) Treatment of related employers. - Rules similar to the
rules of subsections (b), (c), (m), and (n) of section 414 shall
apply. For purposes of the preceding sentence, section 414(n)
shall be applied without regard to paragraph (5)."
Subsec. (b)(5). Pub. L. 99-514, Sec. 1114(b)(16), amended par.
(5) generally. Prior to amendment, par. (5) read as follows: "For
purposes of this subsection, the term 'highly compensated
individual' has the meaning given such term by section 105(h)(5).
For purposes of the preceding sentence, section 105(h)(5) shall be
applied by substituting '10 percent' for '25 percent'."
Subsec. (b)(6). Pub. L. 99-514, Sec. 1151(j)(3), added par. (6).
Subsec. (c)(2). Pub. L. 99-514, Sec. 1899A(16), substituted "July
18, 1984" for "the date of the enactment of the Tax Reform Act of
1984".
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to years beginning after
Dec. 31, 2001, see section 611(i)(1) of Pub. L. 107-16, set out as
a note under section 415 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable, except as otherwise
provided, to benefits accruing in plan years beginning after Dec.
31, 1993, see section 13212(d) of Pub. L. 103-66, set out as a note
under section 401 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 203(a)(1), (2) of Pub. L. 101-140 effective
as if included in section 1151 of Pub. L. 99-514, see section
203(c) of Pub. L. 101-140, set out as a note under section 79 of
this title.
Section 204(d)(4) of Pub. L. 101-140 provided that: "The
amendment made by subsection (c) [amending this section] shall take
effect as if included in the amendment made by section 1011B(a)(32)
of the Technical and Miscellaneous Revenue Act of 1988 [Pub. L. 100-
647]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1114(b)(16) of Pub. L. 99-514 applicable to
years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub.
L. 99-514, set out as a note under section 414 of this title.
Amendment by section 1151(e)(2)(B), (g)(6), (j)(3) of Pub. L. 99-
514 applicable, with certain qualifications and exceptions, to
years beginning after Dec. 31, 1988, see section 1151(k) of Pub. L.
99-514, as amended, set out as a note under section 79 of this
title.
Amendment by section 1851(c) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE
Section 513(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [enacting
this section] shall apply to years beginning after December 31,
1984.
"(2) Treatment of certain benefits in pay status as of january 1,
1985. - For purposes of determining whether a plan meets the
requirements of section 505(b) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as added by subsection (a)), there may (at
the election of the employer) be excluded from consideration all
disability or severance payments payable to individuals who are in
pay status as of January 1, 1985. The preceding sentence shall not
apply to any payment to the extent such payment is increased by any
plan amendment adopted after June 22, 1984."
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1114 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99-514
FOR FISCAL YEAR 1990
No monies appropriated by Pub. L. 101-136 to be used to implement
or enforce section 1151 of Pub. L. 99-514 or the amendments made by
such section, see section 528 of Pub. L. 101-136, set out as a note
under section 89 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC PART II - PRIVATE FOUNDATIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART II - PRIVATE FOUNDATIONS
-HEAD-
PART II - PRIVATE FOUNDATIONS
-MISC1-
Sec.
507. Termination of private foundation status.
508. Special rules with respect to section 501(c)(3)
organizations.
509. Private foundation defined.
AMENDMENTS
1969 - Pub. L. 91-172, title I, Sec. 101(a), Dec. 30, 1969, 83
Stat. 492, added part heading and analysis for part II.
-End-
-CITE-
26 USC Sec. 507 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART II - PRIVATE FOUNDATIONS
-HEAD-
Sec. 507. Termination of private foundation status
-STATUTE-
(a) General rule
Except as provided in subsection (b), the status of any
organization as a private foundation shall be terminated only if -
(1) such organization notifies the Secretary (at such time and
in such manner as the Secretary may by regulations prescribe) of
its intent to accomplish such termination, or
(2)(A) with respect to such organization, there have been
either willful repeated acts (or failures to act), or a willful
and flagrant act (or failure to act), giving rise to liability
for tax under chapter 42, and
(B) the Secretary notifies such organization that, by reason of
subparagraph (A), such organization is liable for the tax imposed
by subsection (c),
and either such organization pays the tax imposed by subsection (c)
(or any portion not abated under subsection (g)) or the entire
amount of such tax is abated under subsection (g).
(b) Special rules
(1) Transfer to, or operation as, public charity
The status as a private foundation of any organization, with
respect to which there have not been either willful repeated acts
(or failures to act) or a willful and flagrant act (or failure to
act) giving rise to liability for tax under chapter 42, shall be
terminated if -
(A) such organization distributes all of its net assets to
one or more organizations described in section 170(b)(1)(A)
(other than in clauses (vii) and (viii)) each of which has been
in existence and so described for a continuous period of at
least 60 calendar months immediately preceding such
distribution, or
(B)(i) such organization meets the requirements of paragraph
(1), (2), or (3) of section 509(a) by the end of the 12-month
period beginning with its first taxable year which begins after
December 31, 1969, or for a continuous period of 60 calendar
months beginning with the first day of any taxable year which
begins after December 31, 1969,
(ii) such organization notifies the Secretary (in such manner
as the Secretary may by regulations prescribe) before the
commencement of such 12-month or 60-month period (or before the
90th day after the day on which regulations first prescribed
under this subsection become final) that it is terminating its
private foundation status, and
(iii) such organization establishes to the satisfaction of
the Secretary (in such manner as the Secretary may by
regulations prescribe) immediately after the expiration of such
12-month or 60-month period that such organization has complied
with clause (i).
If an organization gives notice under subparagraph (B)(ii) of the
commencement of a 60-month period and such organization fails to
meet the requirements of paragraph (1), (2), or (3) of section
509(a) for the entire 60-month period, this part and chapter 42
shall not apply to such organization for any taxable year within
such 60-month period for which it does meet such requirements.
(2) Transferee foundations
For purposes of this part, in the case of a transfer of assets
of any private foundation to another private foundation pursuant
to any liquidation, merger, redemption, recapitalization, or
other adjustment, organization, or reorganization, the transferee
foundation shall not be treated as a newly created organization.
(c) Imposition of tax
There is hereby imposed on each organization which is referred to
in subsection (a) a tax equal to the lower of -
(1) the amount which the private foundation substantiates by
adequate records or other corroborating evidence as the aggregate
tax benefit resulting from the section 501(c)(3) status of such
foundation, or
(2) the value of the net assets of such foundation.
(d) Aggregate tax benefit
(1) In general
For purposes of subsection (c), the aggregate tax benefit
resulting from the section 501(c)(3) status of any private
foundation is the sum of -
(A) the aggregate increases in tax under chapters 1, 11, and
12 (or the corresponding provisions of prior law) which would
have been imposed with respect to all substantial contributors
to the foundation if deductions for all contributions made by
such contributors to the foundation after February 28, 1913,
had been disallowed, and
(B) the aggregate increases in tax under chapter 1 (or the
corresponding provisions of prior law) which would have been
imposed with respect to the income of the private foundation
for taxable years beginning after December 31, 1912, if (i) it
had not been exempt from tax under section 501(a) (or the
corresponding provisions of prior law), and (ii) in the case of
a trust, deductions under section 642(c) (or the corresponding
provisions of prior law) had been limited to 20 percent of the
taxable income of the trust (computed without the benefit of
section 642(c) but with the benefit of section 170(b)(1)(A)),
and
(C) interest on the increases in tax determined under
subparagraphs (A) and (B) from the first date on which each
such increase would have been due and payable to the date on
which the organization ceases to be a private foundation.
(2) Substantial contributor
(A) Definition
For purposes of paragraph (1), the term "substantial
contributor" means any person who contributed or bequeathed an
aggregate amount of more than $5,000 to the private foundation,
if such amount is more than 2 percent of the total
contributions and bequests received by the foundation before
the close of the taxable year of the foundation in which the
contribution or bequest is received by the foundation from such
person. In the case of a trust, the term "substantial
contributor" also means the creator of the trust.
(B) Special rules
For purposes of subparagraph (A) -
(i) each contribution or bequest shall be valued at fair
market value on the date it was received,
(ii) in the case of a foundation which is in existence on
October 9, 1969, all contributions and bequests received on
or before such date shall be treated (except for purposes of
clause (i)) as if received on such date,
(iii) an individual shall be treated as making all
contributions and bequests made by his spouse, and
(iv) any person who is a substantial contributor on any
date shall remain a substantial contributor for all
subsequent periods.
(C) Person ceases to be substantial contributor in certain
cases
(i) In general
A person shall cease to be treated as a substantial
contributor with respect to any private foundation as of the
close of any taxable year of such foundation if -
(I) during the 10-year period ending at the close of such
taxable year such person (and all related persons) have not
made any contribution to such private foundation,
(II) at no time during such 10-year period was such
person (or any related person) a foundation manager of such
private foundation, and
(III) the aggregate contributions made by such person
(and related persons) are determined by the Secretary to be
insignificant when compared to the aggregate amount of
contributions to such foundation by one other person.
For purposes of subclause (III), appreciation on
contributions while held by the foundation shall be taken
into account.
(ii) Related person
For purposes of clause (i), the term "related person"
means, with respect to any person, any other person who would
be a disqualified person (within the meaning of section 4946)
by reason of his relationship to such person. In the case of
a contributor which is a corporation, the term also includes
any officer or director of such corporation.
(3) Regulations
For purposes of this section, the determination as to whether
and to what extent there would have been any increase in tax
shall be made in accordance with regulations prescribed by the
Secretary.
(e) Value of assets
For purposes of subsection (c), the value of the net assets shall
be determined at whichever time such value is higher: (1) the first
day on which action is taken by the organization which culminates
in its ceasing to be a private foundation, or (2) the date on which
it ceases to be a private foundation.
(f) Liability in case of transfers of assets from private
foundation
For purposes of determining liability for the tax imposed by
subsection (c) in the case of assets transferred by the private
foundation, such tax shall be deemed to have been imposed on the
first day on which action is taken by the organization which
culminates in its ceasing to be a private foundation.
(g) Abatement of taxes
The Secretary may abate the unpaid portion of the assessment of
any tax imposed by subsection (c), or any liability in respect
thereof, if -
(1) the private foundation distributes all of its net assets to
one or more organizations described in section 170(b)(1)(A)
(other than in clauses (vii) and (viii)) each of which has been
in existence and so described for a continuous period of at least
60 calendar months, or
(2) following the notification prescribed in section 6104(c) to
the appropriate State officer, such State officer within one year
notifies the Secretary, in such manner as the Secretary may by
regulations prescribe, that corrective action has been initiated
pursuant to State law to insure that the assets of such private
foundation are preserved for such charitable or other purposes
specified in section 501(c)(3) as may be ordered or approved by a
court of competent jurisdiction, and upon completion of the
corrective action, the Secretary receives certification from the
appropriate State officer that such action has resulted in such
preservation of assets.
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(a), Dec. 30, 1969, 83
Stat. 492; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369, div. A, title III,
Sec. 313(a), July 18, 1984, 98 Stat. 786.)
-MISC1-
AMENDMENTS
1984 - Subsec. (d)(2)(C). Pub. L. 98-369 added subpar. (C).
1976 - Pub. L. 94-455 struck out "or his delegate" after
"Secretary" wherever appearing.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 313(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1984."
EFFECTIVE DATE
Section effective Jan. 1, 1970, see section 101(k)(1) of Pub. L.
91-172, set out as a note under section 4940 of this title.
APPLICABILITY TO DETERMINATION OF STATUS AS SUBSTANTIAL CONTRIBUTOR
FOR PURPOSES OF TAXES ON SELF-DEALING OF CONTRIBUTIONS MADE PRIOR
TO OCTOBER 9, 1969
Pub. L. 95-170, Sec. 3, Nov. 12, 1977, 91 Stat. 1352, as amended
by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that: "In determining whether a person is a substantial contributor
within the meaning of section 507(d)(2) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] for purposes of applying
section 4941 of such Code (relating to taxes on self-dealing),
contributions made before October 9, 1969, which -
"(1) were made on account of or in lieu of payments required
under a lease in effect before such date, and
"(2) were coincident with or by reason of the reduction in the
required payments under such lease,
shall not be taken into account. For purposes of applying section
507(d)(2)(B)(iv) of such Code, the preceding sentence shall be
treated as having taken effect on January 1, 1970."
-End-
-CITE-
26 USC Sec. 508 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART II - PRIVATE FOUNDATIONS
-HEAD-
Sec. 508. Special rules with respect to section 501(c)(3)
organizations
-STATUTE-
(a) New organizations must notify Secretary that they are applying
for recognition of section 501(c)(3) status
Except as provided in subsection (c), an organization organized
after October 9, 1969, shall not be treated as an organization
described in section 501(c)(3) -
(1) unless it has given notice to the Secretary in such manner
as the Secretary may by regulations prescribe, that it is
applying for recognition of such status, or
(2) for any period before the giving of such notice, if such
notice is given after the time prescribed by the Secretary by
regulations for giving notice under this subsection.
(b) Presumption that organizations are private foundations
Except as provided in subsection (c), any organization (including
an organization in existence on October 9, 1969) which is described
in section 501(c)(3) and which does not notify the Secretary, at
such time and in such manner as the Secretary may by regulations
prescribe, that it is not a private foundation shall be presumed to
be a private foundation.
(c) Exceptions
(1) Mandatory exceptions
Subsections (a) and (b) shall not apply to -
(A) churches, their integrated auxiliaries, and conventions
or associations of churches, or
(B) any organization which is not a private foundation (as
defined in section 509(a)) and the gross receipts of which in
each taxable year are normally not more than $5,000.
(2) Exceptions by regulations
The Secretary may by regulations exempt (to the extent and
subject to such conditions as may be prescribed in such
regulations) from the provisions of subsection (a) or (b) or both
-
(A) educational organizations described in section
170(b)(1)(A)(ii), and
(B) any other class of organizations with respect to which
the Secretary determines that full compliance with the
provisions of subsections (a) and (b) is not necessary to the
efficient administration of the provisions of this title
relating to private foundations.
(d) Disallowance of certain charitable, etc., deductions
(1) Gift or bequest to organizations subject to section 507(c)
tax
No gift or bequest made to an organization upon which the tax
provided by section 507(c) has been imposed shall be allowed as a
deduction under section 170, 545(b)(2), 642(c), 2055, 2106(a)(2),
or 2522, if such gift or bequest is made -
(A) by any person after notification is made under section
507(a), or
(B) by a substantial contributor (as defined in section
507(d)(2)) in his taxable year which includes the first day on
which action is taken by such organization which culminates in
the imposition of tax under section 507(c) and any subsequent
taxable year.
(2) Gift or bequest to taxable private foundation, section 4947
trust, etc.
No gift or bequest made to an organization shall be allowed as
a deduction under section 170, 545(b)(2), 642(c), 2055,
2106(a)(2), or 2522, if such gift or bequest is made -
(A) to a private foundation or a trust described in section
4947 in a taxable year for which it fails to meet the
requirements of subsection (e) (determined without regard to
subsection (e)(2)), or
(B) to any organization in a period for which it is not
treated as an organization described in section 501(c)(3) by
reason of subsection (a).
(3) Exception
Paragraph (1) shall not apply if the entire amount of the
unpaid portion of the tax imposed by section 507(c) is abated by
the Secretary under section 507(g).
(e) Governing instruments
(1) General rule
A private foundation shall not be exempt from taxation under
section 501(a) unless its governing instrument includes
provisions the effects of which are -
(A) to require its income for each taxable year to be
distributed at such time and in such manner as not to subject
the foundation to tax under section 4942, and
(B) to prohibit the foundation from engaging in any act of
self-dealing (as defined in section 4941(d)), from retaining
any excess business holdings (as defined in section 4943(c)),
from making any investments in such manner as to subject the
foundation to tax under section 4944, and from making any
taxable expenditures (as defined in section 4945(d)).
(2) Special rules for existing private foundations
In the case of any organization organized before January 1,
1970, paragraph (1) shall not apply -
(A) to any period after December 31, 1971, during the
pendency of any judicial proceeding begun before January 1,
1972, by the private foundation which is necessary to reform,
or to excuse such foundation from compliance with, its
governing instrument or any other instrument in order to meet
the requirements of paragraph (1), and
(B) to any period after the termination of any judicial
proceeding described in subparagraph (A) during which its
governing instrument or any other instrument does not permit it
to meet the requirements of paragraph (1).
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(a), Dec. 30, 1969, 83
Stat. 494; amended Pub. L. 94-455, title XIX, Secs. 1901(a)(71),
(b)(8)(E), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1776, 1794, 1834;
Pub. L. 108-357, title IV, Sec. 413(c)(30), Oct. 22, 2004, 118
Stat. 1509.)
-MISC1-
AMENDMENTS
2004 - Subsec. (d)(1), (2). Pub. L. 108-357 struck out
"556(b)(2)," after "545(b)(2),".
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(71)(A), struck
out last sentence providing that for purposes of paragraph (2), the
time prescribed for giving notice under this subsection shall not
expire before the 90th day after the day on which regulations first
prescribed under this subsection become final.
Subsec. (a)(1), (2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" in three places after "Secretary".
Subsec. (b). Pub. L. 94-455, Secs. 1901(a)(71)(A),
1906(b)(13)(A), struck out "or his delegate" in two places after
"Secretary" and "The time prescribed for giving notice under this
subsection shall not expire before the 90th day after the day on
which regulations first prescribed under this subsection become
final" after "a private foundation".
Subsec. (c)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (c)(2)(A). Pub. L. 94-455, Sec. 1901(b)(8)(E),
substituted "(A) educational organizations described in section
170(b)(1)(A)(ii), and" for "(A) educational organizations which
normally maintain a regular faculty and curriculum and normally
have a regularly enrolled body of pupils or students in attendance
at the place where their educational activities are regularly
carried on; and" after "(b) or both - ".
Subsec. (c)(2)(B). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (d)(2)(A). Pub. L. 94-455, Sec. 1901(a)(71)(C),
substituted "(e)(2)" for "(e)(2)(B) and (C)" after "regard to
subsection".
Subsec. (d)(3). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (e)(2)(A). Pub. L. 94-455, Sec. 1901(a)(71)(B), struck
out subpar. (A) relating to taxable years beginning before 1972,
and redesignated subpars. (B) and (C) as (A) and (B), respectively.
Subsec. (e)(2)(B). Pub. L. 94-455, Sec. 1901(a)(71)(B),
redesignated subpar. (C) as (B) and substituted "(A)" for "(B)"
after "described in subparagraph".
Subsec. (e)(2)(C). Pub. L. 94-455, Sec. 1901(a)(71)(B),
redesignated subpar. (C) as (B).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years of
foreign corporations beginning after Dec. 31, 2004, and to taxable
years of United States shareholders with or within which such
taxable years of foreign corporations end, see section 413(d)(1) of
Pub. L. 108-357, set out as an Effective and Termination Dates of
2004 Amendments note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(71)(A)-(C), (b)(8)(E) of Pub. L. 94-
455 applicable with respect to taxable years beginning after Dec.
31, 1976, see section 1901(d) of Pub. L. 94-455, set out as a note
under section 2 of this title.
EFFECTIVE DATE
Section effective Jan. 1, 1970, except that subsecs. (a), (b),
and (c) effective Oct. 9, 1969, see section 101(k)(1), (3) of Pub.
L. 91-172, set out as a note under section 4940 of this title.
SAVINGS PROVISION
Limits on inclusion of provisions inconsistent with subsec. (e)
of this section in governing instruments, see section 101(l)(6) of
Pub. L. 91-172, set out as a note under section 4940 of this title.
-End-
-CITE-
26 USC Sec. 509 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART II - PRIVATE FOUNDATIONS
-HEAD-
Sec. 509. Private foundation defined
-STATUTE-
(a) General rule
For purposes of this title, the term "private foundation" means a
domestic or foreign organization described in section 501(c)(3)
other than -
(1) an organization described in section 170(b)(1)(A) (other
than in clauses (vii) and (viii));
(2) an organization which -
(A) normally receives more than one-third of its support in
each taxable year from any combination of -
(i) gifts, grants, contributions, or membership fees, and
(ii) gross receipts from admissions, sales of merchandise,
performance of services, or furnishing of facilities, in an
activity which is not an unrelated trade or business (within
the meaning of section 513), not including such receipts from
any person, or from any bureau or similar agency of a
governmental unit (as described in section 170(c)(1)), in any
taxable year to the extent such receipts exceed the greater
of $5,000 or 1 percent of the organization's support in such
taxable year,
from persons other than disqualified persons (as defined in
section 4946) with respect to the organization, from
governmental units described in section 170(c)(1), or from
organizations described in section 170(b)(1)(A) (other than in
clauses (vii) and (viii)), and
(B) normally receives not more than one-third of its support
in each taxable year from the sum of -
(i) gross investment income (as defined in subsection (e))
and
(ii) the excess (if any) of the amount of the unrelated
business taxable income (as defined in section 512) over the
amount of the tax imposed by section 511;
(3) an organization which -
(A) is organized, and at all times thereafter is operated,
exclusively for the benefit of, to perform the functions of, or
to carry out the purposes of one or more specified
organizations described in paragraph (1) or (2),
(B) is operated, supervised, or controlled by or in
connection with one or more organizations described in
paragraph (1) or (2), and
(C) is not controlled directly or indirectly by one or more
disqualified persons (as defined in section 4946) other than
foundation managers and other than one or more organizations
described in paragraph (1) or (2); and
(4) an organization which is organized and operated exclusively
for testing for public safety.
For purposes of paragraph (3), an organization described in
paragraph (2) shall be deemed to include an organization described
in section 501(c)(4), (5), or (6) which would be described in
paragraph (2) if it were an organization described in section
501(c)(3).
(b) Continuation of private foundation status
For purposes of this title, if an organization is a private
foundation (within the meaning of subsection (a)) on October 9,
1969, or becomes a private foundation on any subsequent date, such
organization shall be treated as a private foundation for all
periods after October 9, 1969, or after such subsequent date,
unless its status as such is terminated under section 507.
(c) Status of organization after termination of private foundation
status
For purposes of this part, an organization the status of which as
a private foundation is terminated under section 507 shall (except
as provided in section 507(b)(2)) be treated as an organization
created on the day after the date of such termination.
(d) Definition of support
For purposes of this part and chapter 42, the term "support"
includes (but is not limited to) -
(1) gifts, grants, contributions, or membership fees,
(2) gross receipts from admissions, sales of merchandise,
performance of services, or furnishing of facilities in any
activity which is not an unrelated trade or business (within the
meaning of section 513),
(3) net income from unrelated business activities, whether or
not such activities are carried on regularly as a trade or
business,
(4) gross investment income (as defined in subsection (e)),
(5) tax revenues levied for the benefit of an organization and
either paid to or expended on behalf of such organization, and
(6) the value of services or facilities (exclusive of services
or facilities generally furnished to the public without charge)
furnished by a governmental unit referred to in section 170(c)(1)
to an organization without charge.
Such term does not include any gain from the sale or other
disposition of property which would be considered as gain from the
sale or exchange of a capital asset, or the value of exemption from
any Federal, State, or local tax or any similar benefit.
(e) Definition of gross investment income
For purposes of subsection (d), the term "gross investment
income" means the gross amount of income from interest, dividends,
payments with respect to securities loans (as defined in section
512(a)(5)), rents, and royalties, but not including any such income
to the extent included in computing the tax imposed by section 511.
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(a), Dec. 30, 1969, 83
Stat. 496; amended Pub. L. 94-81, Sec. 3(a), Aug. 9, 1975, 89 Stat.
418; Pub. L. 95-345, Sec. 2(a)(1), Aug. 15, 1978, 92 Stat. 481.)
-MISC1-
AMENDMENTS
1978 - Subsec. (e). Pub. L. 95-345 inserted provision relating to
payments with respect to securities loans.
1975 - Subsec. (a)(2)(B). Pub. L. 94-81 designated existing
provisions as cl. (i) and added cl. (ii).
EFFECTIVE DATE OF 1978 AMENDMENT
Section 2(e) of Pub. L. 95-345, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [enacting section 1058 of this
title and amending sections 509, 512, 514, 851, and 4940 of this
title] apply with respect to -
"(1) amounts received after December 31, 1976, as payments with
respect to securities loans (as defined in section 512(a)(5) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954]), and
"(2) transfers of securities, under agreements described in
section 1058 of such Code, occurring after such date."
EFFECTIVE DATE OF 1975 AMENDMENT
Section 3(b) of Pub. L. 94-81 provided that: "The amendment made
by this section [amending this section] shall apply to unrelated
business taxable income derived from trades and businesses which
are acquired by the organization after June 30, 1975."
EFFECTIVE DATE
Section effective Jan. 1, 1970, see section 101(k)(1) of Pub. L.
91-172, set out as a note under section 4940 of this title.
SAVINGS PROVISION
Applicability of subsec. (a) of this section to testamentary
trusts, see section 101(l)(7) of Pub. L. 91-172, set out as a note
under section 4940 of this title.
-End-
-CITE-
26 USC PART III - TAXATION OF BUSINESS INCOME OF CERTAIN
EXEMPT ORGANIZATIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART III - TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT
ORGANIZATIONS
-HEAD-
PART III - TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT
ORGANIZATIONS
-MISC1-
Sec.
511. Imposition of tax on unrelated business income of
charitable organizations, etc.(!1)
512. Unrelated business taxable income.
513. Unrelated trade or business.
514. Unrelated debt-financed income.
515. Taxes of foreign countries and possessions of the
United States.
AMENDMENTS
1969 - Pub. L. 91-172, title I, Secs. 101(a), 121(d)(3)(C), Dec.
30, 1969, 83 Stat. 492, 548, substituted "PART III" for "PART II"
as part designation and substituted "Unrelated debt-financed
income" for "Business leases" in item 514.
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 511 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART III - TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT
ORGANIZATIONS
-HEAD-
Sec. 511. Imposition of tax on unrelated business income of
charitable, etc., organizations
-STATUTE-
(a) Charitable, etc., organizations taxable at corporation rates
(1) Imposition of tax
There is hereby imposed for each taxable year on the unrelated
business taxable income (as defined in section 512) of every
organization described in paragraph (2) a tax computed as
provided in section 11. In making such computation for purposes
of this section, the term "taxable income" as used in section 11
shall be read as "unrelated business taxable income".
(2) Organizations subject to tax
(A) Organizations described in sections 401(a) and 501(c)
The tax imposed by paragraph (1) shall apply in the case of
any organization (other than a trust described in subsection
(b) or an organization described in section 501(c)(1)) which is
exempt, except as provided in this part or part II (relating to
private foundations), from taxation under this subtitle by
reason of section 501(a).
(B) State colleges and universities
The tax imposed by paragraph (1) shall apply in the case of
any college or university which is an agency or instrumentality
of any government or any political subdivision thereof, or
which is owned or operated by a government or any political
subdivision thereof, or by any agency or instrumentality of one
or more governments or political subdivisions. Such tax shall
also apply in the case of any corporation wholly owned by one
or more such colleges or universities.
(b) Tax on charitable, etc., trusts
(1) Imposition of tax
There is hereby imposed for each taxable year on the unrelated
business taxable income of every trust described in paragraph (2)
a tax computed as provided in section 1(e). In making such
computation for purposes of this section, the term "taxable
income" as used in section 1 shall be read as "unrelated business
taxable income" as defined in section 512.
(2) Charitable, etc., trusts subject to tax
The tax imposed by paragraph (1) shall apply in the case of any
trust which is exempt, except as provided in this part or part II
(relating to private foundations), from taxation under this
subtitle by reason of section 501(a) and which, if it were not
for such exemption, would be subject to subchapter J (sec. 641
and following, relating to estates, trusts, beneficiaries, and
decedents).
(c) Special rule for section 501(c)(2) corporations
If a corporation described in section 501(c)(2) -
(1) pays any amount of its net income for a taxable year to an
organization exempt from taxation under section 501(a) (or which
would pay such an amount but for the fact that the expenses of
collecting its income exceed its income), and
(2) such corporation and such organization file a consolidated
return for the taxable year,
such corporation shall be treated, for purposes of the tax imposed
by subsection (a), as being organized and operated for the same
purposes as such organization, in addition to the purposes
described in section 501(c)(2).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 169; Pub. L. 86-667, Sec. 3,
July 14, 1960, 74 Stat. 535; Pub. L. 89-352, Sec. 2, Feb. 2, 1966,
80 Stat. 4; Pub. L. 91-172, title I, Sec. 121(a)(1)-(3), title III,
Sec. 301(b)(8), title VIII, Sec. 803(d)(2), Dec. 30, 1969, 83 Stat.
536, 585, 684; Pub. L. 95-30, title I, Sec. 101(d)(6), May 23,
1977, 91 Stat. 133; Pub. L. 95-600, title III, Sec. 301(b)(5),
title IV, Sec. 421(e)(3), Nov. 6, 1978, 92 Stat. 2821, 2876; Pub.
L. 97-248, title II, Sec. 201(d)(5), formerly Sec. 201(c)(5), Sept.
3, 1982, 96 Stat. 419, renumbered Sec. 201(d)(5), Pub. L. 97-448,
title III, Sec. 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub.
L. 100-647, title I, Sec. 1007(g)(6), Nov. 10, 1988, 102 Stat.
3435.)
-MISC1-
AMENDMENTS
1988 - Subsec. (d). Pub. L. 100-647 struck out subsec. (d) which
read as follows: "Tax Preferences. -
"(1) Organizations taxable at corporate rates. - If an
organization is subject to tax on unrelated business taxable
income pursuant to subsection (a), the tax imposed by section 56
shall apply to such organizations with respect to items of tax
preference which enter into the computation of unrelated business
taxable income in the same manner as section 56 applies to
corporations.
"(2) Organizations taxable as trusts. - If an organization is
subject to tax on unrelated business taxable income pursuant to
subsection (b), the taxes imposed by section 55 shall apply to
such organization with respect to items of tax preference which
enter into the computation of unrelated business taxable income."
1982 - Subsec. (d)(2). Pub. L. 97-248 substituted "section 55"
for "section 55 and section 56 (as the case may be)".
1978 - Subsec. (a)(1). Pub. L. 95-600, Sec. 301(b)(5)(A),
substituted "a tax" for "a normal tax and a surtax".
Subsec. (a)(2). Pub. L. 95-600, Sec. 301(b)(5)(B), substituted
"tax" for "taxes" wherever appearing.
Subsec. (d). Pub. L. 95-600, Sec. 421(e)(3), substituted
provisions relating to organizations taxable at corporate rates and
organizations taxable as trusts, for provisions relating to
imposition of the tax imposed by section 56 of this title to an
organization subject to tax under this section for tax preferences
computed in unrelated business taxable income.
1977 - Subsec. (b)(1). Pub. L. 95-30 substituted "section 1(e)"
for "section 1(d)".
1969 - Subsec. (a)(2)(A). Pub. L. 91-172, Sec. 121(a)(1), removed
reference, in heading, to pars. (2), (3), (5), (6), (14)(B), (C),
and (17) of section 501(c) of this title, and, in text, struck out
exemptions to churches, conventions, or associations of churches,
from the imposition of tax on their unrelated business income, made
corporations organized under section 501(c)(1) of this title (i.e.
organized under Acts of Congress), exempt from such tax, but made
all such exemptions subservient to the exceptions in part II and
section 501(a) of this title.
Subsec. (b)(1). Pub. L. 91-172, Sec. 803(d)(2), substituted
section 1(d) for section 1 in reference to section under which the
computation of the tax dealing with the imposition of tax on the
unrelated business taxable income of trusts, is computed.
Subsec. (b)(2). Pub. L. 91-172, Sec. 121(a)(2), pluralized
"trust" in heading and in text made the imposition of tax on the
unrelated business income of exempt trusts subject to provisions of
part II, and, for purposes of determining trusts exempt from
taxation, substituted reference to section 501(a) for reference to
"section 501(c)(3) or (17) or section 401(a)".
Subsec. (c). Pub. L. 91-172, Sec. 121(a)(3), added subsec. (c).
Former subsec. (c), covering the effective date, was struck out.
Subsec. (d). Pub. L. 91-172, Sec. 301(b)(8), added subsec. (d).
1966 - Subsec. (a)(2)(A). Pub. L. 89-352 inserted "(14)(B) or
(C)," after "(6)," in heading and in text.
1960 - Subsec. (a)(2). Pub. L. 86-667, Sec. 3(a), included
organizations described in section 501(c)(17) within subpar. (A).
Subsec. (b). Pub. L. 86-667, Sec. 3(b), inserted a reference to
section 501(c)(17).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, see section 201(e)(1) of Pub. L. 97-248, set
out as a note under section 5 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 301(b)(5)(A), (B) of Pub. L. 95-600
applicable to taxable years beginning after Dec. 31, 1978, see
section 301(c) of Pub. L. 95-600, set out as a note under section
11 of this title.
Amendment by section 421(e)(3) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 421(g) of
Pub. L. 95-600, set out as a note under section 5 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 121(g) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and sections
48, 501, 502, 503, 512 to 514, 681, 801, 810, 1443, 1504, and 7605
of this title] (other than by subsections (b)(3) and (e) [enacting
sections 277 and 6050 of this title]) shall apply to taxable years
beginning after December 31, 1969. The amendments made by
subsection (b)(3) [enacting section 277 of this title] shall apply
to taxable years beginning after December 31, 1970. The amendments
made by subsection (e) [enacting section 6050 of this title] shall
apply with respect to transfers of property after December 31,
1969. Where an organization makes a bargain purchase of property
before October 9, 1969, which is subject to a mortgage which was
placed on the property more than 5 years before the purchase, and
the organization paid the seller a total amount no greater than the
amount of the seller's cost (including attorneys' fees) directly
related to the transfer of such property to the organization (but
in any event no more than 10 percent of the value of the seller's
equity in the property), the indebtedness secured by such mortgage
shall not be treated, notwithstanding the amendments made by
subsection (d)(1) [amending section 514 of this title], as
acquisition indebtedness for purposes of section 514(c)(1) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] during a
period of 10 years following the date of the transaction."
Amendment by section 301(b)(8) of Pub. L. 91-172 applicable to
taxable years ending after Dec. 31, 1969, see section 301(c) of
Pub. L. 91-172, set out as a note under section 5 of this title.
Amendment by section 803(d)(2) of Pub. L. 91-172 applicable to
taxable years beginning after Dec. 31, 1970, see section 803(f) of
Pub. L. 91-172, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 3 of Pub. L. 89-352 provided in part that: "The amendment
made by section 2 [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [Feb.
2, 1966]."
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-667 applicable to taxable years beginning
after Dec. 31, 1959, see section 6 of Pub. L. 86-667, set out as a
note under section 501 of this title.
-End-
-CITE-
26 USC Sec. 512 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART III - TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT
ORGANIZATIONS
-HEAD-
Sec. 512. Unrelated business taxable income
-STATUTE-
(a) Definition
For purposes of this title -
(1) General rule
Except as otherwise provided in this subsection, the term
"unrelated business taxable income" means the gross income
derived by any organization from any unrelated trade or business
(as defined in section 513) regularly carried on by it, less the
deductions allowed by this chapter which are directly connected
with the carrying on of such trade or business, both computed
with the modifications provided in subsection (b).
(2) Special rule for foreign organizations
In the case of an organization described in section 511 which
is a foreign organization, the unrelated business taxable income
shall be -
(A) its unrelated business taxable income which is derived
from sources within the United States and which is not
effectively connected with the conduct of a trade or business
within the United States, plus
(B) its unrelated business taxable income which is
effectively connected with the conduct of a trade or business
within the United States.
(3) Special rules applicable to organizations described in
paragraph (7), (9), (17), or (20) of section 501(c)
(A) General rule
In the case of an organization described in paragraph (7),
(9), (17), or (20) of section 501(c), the term "unrelated
business taxable income" means the gross income (excluding any
exempt function income), less the deductions allowed by this
chapter which are directly connected with the production of the
gross income (excluding exempt function income), both computed
with the modifications provided in paragraphs (6), (10), (11),
and (12) of subsection (b). For purposes of the preceding
sentence, the deductions provided by sections 243, 244, and 245
(relating to dividends received by corporations) shall be
treated as not directly connected with the production of gross
income.
(B) Exempt function income
For purposes of subparagraph (A), the term "exempt function
income" means the gross income from dues, fees, charges, or
similar amounts paid by members of the organization as
consideration for providing such members or their dependents or
guests goods, facilities, or services in furtherance of the
purposes constituting the basis for the exemption of the
organization to which such income is paid. Such term also means
all income (other than an amount equal to the gross income
derived from any unrelated trade or business regularly carried
on by such organization computed as if the organization were
subject to paragraph (1)), which is set aside -
(i) for a purpose specified in section 170(c)(4), or
(ii) in the case of an organization described in paragraph
(9), (17), or (20) of section 501(c), to provide for the
payment of life, sick, accident, or other benefits,
including reasonable costs of administration directly connected
with a purpose described in clause (i) or (ii). If during the
taxable year, an amount which is attributable to income so set
aside is used for a purpose other than that described in clause
(i) or (ii), such amount shall be included, under subparagraph
(A), in unrelated business taxable income for the taxable year.
(C) Applicability to certain corporations described in section
501(c)(2)
In the case of a corporation described in section 501(c)(2),
the income of which is payable to an organization described in
paragraph (7), (9), (17), or (20) of section 501(c),
subparagraph (A) shall apply as if such corporation were the
organization to which the income is payable. For purposes of
the preceding sentence, such corporation shall be treated as
having exempt function income for a taxable year only if it
files a consolidated return with such organization for such
year.
(D) Nonrecognition of gain
If property used directly in the performance of the exempt
function of an organization described in paragraph (7), (9),
(17), or (20) of section 501(c) is sold by such organization,
and within a period beginning 1 year before the date of such
sale, and ending 3 years after such date, other property is
purchased and used by such organization directly in the
performance of its exempt function, gain (if any) from such
sale shall be recognized only to the extent that such
organization's sales price of the old property exceeds the
organization's cost of purchasing the other property. For
purposes of this subparagraph, the destruction in whole or in
part, theft, seizure, requisition, or condemnation of property,
shall be treated as the sale of such property, and rules
similar to the rules provided by subsections (b), (c), (e), and
(j) of section 1034 (as in effect on the day before the date of
the enactment of the Taxpayer Relief Act of 1997) shall apply.
(E) Limitation on amount of setaside in the case of
organizations described in paragraph (9), (17), or (20) of
section 501(c)
(i) In general
In the case of any organization described in paragraph (9),
(17), or (20) of section 501(c), a set-aside for any purpose
specified in clause (ii) of subparagraph (B) may be taken
into account under subparagraph (B) only to the extent that
such set-aside does not result in an amount of assets set
aside for such purpose in excess of the account limit
determined under section 419A (without regard to subsection
(f)(6) thereof) for the taxable year (not taking into account
any reserve described in section 419A(c)(2)(A) for post-
retirement medical benefits).
(ii) Treatment of existing reserves for post-retirement
medical or life insurance benefits
(I) Clause (i) shall not apply to any income attributable
to an existing reserve for post-retirement medical or life
insurance benefits.
(II) For purposes of subclause (I), the term "reserve for
post-retirement medical or life insurance benefits" means
the greater of the amount of assets set aside for purposes
of post-retirement medical or life insurance benefits to be
provided to covered employees as of the close of the last
plan year ending before the date of the enactment of the
Tax Reform Act of 1984 or on July 18, 1984.
(III) All payments during plan years ending on or after
the date of the enactment of the Tax Reform Act of 1984 of
post-retirement medical benefits or life insurance benefits
shall be charged against the reserve referred to in
subclause (II). Except to the extent provided in
regulations prescribed by the Secretary, all plans of an
employer shall be treated as 1 plan for purposes of the
preceding sentence.
(iii) Treatment of tax exempt organizations
This subparagraph shall not apply to any organization if
substantially all of the contributions to such organization
are made by employers who were exempt from tax under this
chapter throughout the 5-taxable year period ending with the
taxable year in which the contributions are made.
(4) Special rule applicable to organizations described in section
501(c)(19)
In the case of an organization described in section 501(c)(19),
the term "unrelated business taxable income" does not include any
amount attributable to payments for life, sick, accident, or
health insurance with respect to members of such organizations or
their dependents which is set aside for the purpose of providing
for the payment of insurance benefits or for a purpose specified
in section 170(c)(4). If an amount set aside under the preceding
sentence is used during the taxable year for a purpose other than
a purpose described in the preceding sentence, such amount shall
be included, under paragraph (1), in unrelated business taxable
income for the taxable year.
(5) Definition of payments with respect to securities loans
(A) The term "payments with respect to securities loans"
includes all amounts received in respect of a security (as
defined in section 1236(c)) transferred by the owner to another
person in a transaction to which section 1058 applies (whether
or not title to the security remains in the name of the lender)
including -
(i) amounts in respect of dividends, interest, or other
distributions,
(ii) fees computed by reference to the period beginning
with the transfer of securities by the owner and ending with
the transfer of identical securities back to the transferor
by the transferee and the fair market value of the security
during such period,
(iii) income from collateral security for such loan, and
(iv) income from the investment of collateral security.
(B) Subparagraph (A) shall apply only with respect to
securities transferred pursuant to an agreement between the
transferor and the transferee which provides for -
(i) reasonable procedures to implement the obligation of
the transferee to furnish to the transferor, for each
business day during such period, collateral with a fair
market value not less than the fair market value of the
security at the close of business on the preceding business
day,
(ii) termination of the loan by the transferor upon notice
of not more than 5 business days, and
(iii) return to the transferor of securities identical to
the transferred securities upon termination of the loan.
(b) Modifications
The modifications referred to in subsection (a) are the
following:
(1) There shall be excluded all dividends, interest, payments
with respect to securities loans (as defined in subsection
(a)(5)), amounts received or accrued as consideration for
entering into agreements to make loans, and annuities, and all
deductions directly connected with such income.
(2) There shall be excluded all royalties (including overriding
royalties) whether measured by production or by gross or taxable
income from the property, and all deductions directly connected
with such income.
(3) In the case of rents -
(A) Except as provided in subparagraph (B), there shall be
excluded -
(i) all rents from real property (including property
described in section 1245(a)(3)(C)), and
(ii) all rents from personal property (including for
purposes of this paragraph as personal property any property
described in section 1245(a)(3)(B)) leased with such real
property, if the rents attributable to such personal property
are an incidental amount of the total rents received or
accrued under the lease, determined at the time the personal
property is placed in service.
(B) Subparagraph (A) shall not apply -
(i) if more than 50 percent of the total rent received or
accrued under the lease is attributable to personal property
described in subparagraph (A)(ii), or
(ii) if the determination of the amount of such rent
depends in whole or in part on the income or profits derived
by any person from the property leased (other than an amount
based on a fixed percentage or percentages of receipts or
sales).
(C) There shall be excluded all deductions directly connected
with rents excluded under subparagraph (A).
(4) Notwithstanding paragraph (1), (2), (3), or (5), in the
case of debt-financed property (as defined in section 514) there
shall be included, as an item of gross income derived from an
unrelated trade or business, the amount ascertained under section
514(a)(1), and there shall be allowed, as a deduction, the amount
ascertained under section 514(a)(2).
(5) There shall be excluded all gains or losses from the sale,
exchange, or other disposition of property other than -
(A) stock in trade or other property of a kind which would
properly be includible in inventory if on hand at the close of
the taxable year, or
(B) property held primarily for sale to customers in the
ordinary course of the trade or business.
There shall also be excluded all gains or losses recognized, in
connection with the organization's investment activities, from
the lapse or termination of options to buy or sell securities (as
defined in section 1236(c)) or real property and all gains or
losses from the forfeiture of good-faith deposits (that are
consistent with established business practice) for the purchase,
sale, or lease of real property in connection with the
organization's investment activities. This paragraph shall not
apply with respect to the cutting of timber which is considered,
on the application of section 631, as a sale or exchange of such
timber.
(6) The net operating loss deduction provided in section 172
shall be allowed, except that -
(A) the net operating loss for any taxable year, the amount
of the net operating loss carryback or carryover to any taxable
year, and the net operating loss deduction for any taxable year
shall be determined under section 172 without taking into
account any amount of income or deduction which is excluded
under this part in computing the unrelated business taxable
income; and
(B) the terms "preceding taxable year" and "preceding taxable
years" as used in section 172 shall not include any taxable
year for which the organization was not subject to the
provisions of this part.
(7) There shall be excluded all income derived from research
for (A) the United States, or any of its agencies or
instrumentalities, or (B) any State or political subdivision
thereof; and there shall be excluded all deductions directly
connected with such income.
(8) In the case of a college, university, or hospital, there
shall be excluded all income derived from research performed for
any person, and all deductions directly connected with such
income.
(9) In the case of an organization operated primarily for
purposes of carrying on fundamental research the results of which
are freely available to the general public, there shall be
excluded all income derived from research performed for any
person, and all deductions directly connected with such income.
(10) In the case of any organization described in section
511(a), the deduction allowed by section 170 (relating to
charitable etc. contributions and gifts) shall be allowed
(whether or not directly connected with the carrying on of the
trade or business), but shall not exceed 10 percent of the
unrelated business taxable income computed without the benefit of
this paragraph.
(11) In the case of any trust described in section 511(b), the
deduction allowed by section 170 (relating to charitable etc.
contributions and gifts) shall be allowed (whether or not
directly connected with the carrying on of the trade or
business), and for such purpose a distribution made by the trust
to a beneficiary described in section 170 shall be considered as
a gift or contribution. The deduction allowed by this paragraph
shall be allowed with the limitations prescribed in section
170(b)(1)(A) and (B) determined with reference to the unrelated
business taxable income computed without the benefit of this
paragraph (in lieu of with reference to adjusted gross income).
(12) Except for purposes of computing the net operating loss
under section 172 and paragraph (6), there shall be allowed a
specific deduction of $1,000. In the case of a diocese, province
of a religious order, or a convention or association of churches,
there shall also be allowed, with respect to each parish,
individual church, district, or other local unit, a specific
deduction equal to the lower of -
(A) $1,000, or
(B) the gross income derived from any unrelated trade or
business regularly carried on by such local unit.
(13) Special rules for certain amounts received from controlled
entities. -
(A) In general. - If an organization (in this paragraph
referred to as the "controlling organization") receives or
accrues (directly or indirectly) a specified payment from
another entity which it controls (in this paragraph referred to
as the "controlled entity"), notwithstanding paragraphs (1),
(2), and (3), the controlling organization shall include such
payment as an item of gross income derived from an unrelated
trade or business to the extent such payment reduces the net
unrelated income of the controlled entity (or increases any net
unrelated loss of the controlled entity). There shall be
allowed all deductions of the controlling organization directly
connected with amounts treated as derived from an unrelated
trade or business under the preceding sentence.
(B) Net unrelated income or loss. - For purposes of this
paragraph -
(i) Net unrelated income. - The term "net unrelated income"
means -
(I) in the case of a controlled entity which is not
exempt from tax under section 501(a), the portion of such
entity's taxable income which would be unrelated business
taxable income if such entity were exempt from tax under
section 501(a) and had the same exempt purposes as the
controlling organization, or
(II) in the case of a controlled entity which is exempt
from tax under section 501(a), the amount of the unrelated
business taxable income of the controlled entity.
(ii) Net unrelated loss. - The term "net unrelated loss"
means the net operating loss adjusted under rules similar to
the rules of clause (i).
(C) Specified payment. - For purposes of this paragraph, the
term "specified payment" means any interest, annuity, royalty,
or rent.
(D) Definition of control. - For purposes of this paragraph -
(i) Control. - The term "control" means -
(I) in the case of a corporation, ownership (by vote or
value) of more than 50 percent of the stock in such
corporation,
(II) in the case of a partnership, ownership of more than
50 percent of the profits interests or capital interests in
such partnership, or
(III) in any other case, ownership of more than 50
percent of the beneficial interests in the entity.
(ii) Constructive ownership. - Section 318 (relating to
constructive ownership of stock) shall apply for purposes of
determining ownership of stock in a corporation. Similar
principles shall apply for purposes of determining ownership
of interests in any other entity.
(E) Related persons. - The Secretary shall prescribe such
rules as may be necessary or appropriate to prevent avoidance
of the purposes of this paragraph through the use of related
persons.
[(14) Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(23),
Nov. 5, 1990, 104 Stat. 1388-521.]
(15) Except as provided in paragraph (4), in the case of a
trade or business -
(A) which consists of providing services under license issued
by a Federal regulatory agency,
(B) which is carried on by a religious order or by an
educational organization described in section 170(b)(1)(A)(ii)
maintained by such religious order, and which was so carried on
before May 27, 1959, and
(C) less than 10 percent of the net income of which for each
taxable year is used for activities which are not related to
the purpose constituting the basis for the religious order's
exemption,
there shall be excluded all gross income derived from such trade
or business and all deductions directly connected with the
carrying on of such trade or business, so long as it is
established to the satisfaction of the Secretary that the rates
or other charges for such services are competitive with rates or
other charges charged for similar services by persons not exempt
from taxation.
(16)(A) Notwithstanding paragraph (5)(B), there shall be
excluded all gains or losses from the sale, exchange, or other
disposition of any real property described in subparagraph (B) if
-
(i) such property was acquired by the organization from -
(I) a financial institution described in section 581 or
591(a) which is in conservatorship or receivership, or
(II) the conservator or receiver of such an institution (or
any government agency or corporation succeeding to the rights
or interests of the conservator or receiver),
(ii) such property is designated by the organization within
the 9-month period beginning on the date of its acquisition as
property held for sale, except that not more than one-half (by
value determined as of such date) of property acquired in a
single transaction may be so designated,
(iii) such sale, exchange, or disposition occurs before the
later of -
(I) the date which is 30 months after the date of the
acquisition of such property, or
(II) the date specified by the Secretary in order to assure
an orderly disposition of property held by persons described
in subparagraph (A), and
(iv) while such property was held by the organization, the
aggregate expenditures on improvements and development
activities included in the basis of the property are (or were)
not in excess of 20 percent of the net selling price of such
property.
(B) Property is described in this subparagraph if it is real
property which -
(i) was held by the financial institution at the time it
entered into conservatorship or receivership, or
(ii) was foreclosure property (as defined in section
514(c)(9)(H)(v)) which secured indebtedness held by the
financial institution at such time.
For purposes of this subparagraph, real property includes an
interest in a mortgage.
(17) Treatment of certain amounts derived from foreign
corporations. -
(A) In general. - Notwithstanding paragraph (1), any amount
included in gross income under section 951(a)(1)(A) shall be
included as an item of gross income derived from an unrelated
trade or business to the extent the amount so included is
attributable to insurance income (as defined in section 953)
which, if derived directly by the organization, would be
treated as gross income from an unrelated trade or business.
There shall be allowed all deductions directly connected with
amounts included in gross income under the preceding sentence.
(B) Exception. -
(i) In general. - Subparagraph (A) shall not apply to
income attributable to a policy of insurance or reinsurance
with respect to which the person (directly or indirectly)
insured is -
(I) such organization,
(II) an affiliate of such organization which is exempt
from tax under section 501(a), or
(III) a director or officer of, or an individual who
(directly or indirectly) performs services for, such
organization or affiliate but only if the insurance covers
primarily risks associated with the performance of services
in connection with such organization or affiliate.
(ii) Affiliate. - For purposes of this subparagraph -
(I) In general. - The determination as to whether an
entity is an affiliate of an organization shall be made
under rules similar to the rules of section 168(h)(4)(B).
(II) Special rule. - Two or more organizations (and any
affiliates of such organizations) shall be treated as
affiliates if such organizations are colleges or
universities described in section 170(b)(1)(A)(ii) or
organizations described in section 170(b)(1)(A)(iii) and
participate in an insurance arrangement that provides for
any profits from such arrangement to be returned to the
policyholders in their capacity as such.
(C) Regulations. - The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this paragraph, including regulations for the
application of this paragraph in the case of income paid
through 1 or more entities or between 2 or more chains of
entities.
(18) Treatment of mutual or cooperative electric companies. -
In the case of a mutual or cooperative electric company described
in section 501(c)(12), there shall be excluded income which is
treated as member income under subparagraph (H) thereof.
(19) Treatment of gain or loss on sale or exchange of certain
brownfield sites. -
(A) In general. - Notwithstanding paragraph (5)(B), there
shall be excluded any gain or loss from the qualified sale,
exchange, or other disposition of any qualifying brownfield
property by an eligible taxpayer.
(B) Eligible taxpayer. - For purposes of this paragraph -
(i) In general. - The term "eligible taxpayer" means, with
respect to a property, any organization exempt from tax under
section 501(a) which -
(I) acquires from an unrelated person a qualifying
brownfield property, and
(II) pays or incurs eligible remediation expenditures
with respect to such property in an amount which exceeds
the greater of $550,000 or 12 percent of the fair market
value of the property at the time such property was
acquired by the eligible taxpayer, determined as if there
was not a presence of a hazardous substance, pollutant, or
contaminant on the property which is complicating the
expansion, redevelopment, or reuse of the property.
(ii) Exception. - Such term shall not include any
organization which is -
(I) potentially liable under section 107 of the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 with respect to the qualifying
brownfield property,
(II) affiliated with any other person which is so
potentially liable through any direct or indirect familial
relationship or any contractual, corporate, or financial
relationship (other than a contractual, corporate, or
financial relationship which is created by the instruments
by which title to any qualifying brownfield property is
conveyed or financed or by a contract of sale of goods or
services), or
(III) the result of a reorganization of a business entity
which was so potentially liable.
(C) Qualifying brownfield property. - For purposes of this
paragraph -
(i) In general. - The term "qualifying brownfield property"
means any real property which is certified, before the
taxpayer incurs any eligible remediation expenditures (other
than to obtain a Phase I environmental site assessment), by
an appropriate State agency (within the meaning of section
198(c)(4)) in the State in which such property is located as
a brownfield site within the meaning of section 101(39) of
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (as in effect on the date of the
enactment of this paragraph).
(ii) Request for certification. - Any request by an
eligible taxpayer for a certification described in clause (i)
shall include a sworn statement by the eligible taxpayer and
supporting documentation of the presence of a hazardous
substance, pollutant, or contaminant on the property which is
complicating the expansion, redevelopment, or reuse of the
property given the property's reasonably anticipated future
land uses or capacity for uses of the property (including a
Phase I environmental site assessment and, if applicable,
evidence of the property's presence on a local, State, or
Federal list of brownfields or contaminated property) and
other environmental assessments prepared or obtained by the
taxpayer.
(D) Qualified sale, exchange, or other disposition. - For
purposes of this paragraph -
(i) In general. - A sale, exchange, or other disposition of
property shall be considered as qualified if -
(I) such property is transferred by the eligible taxpayer
to an unrelated person, and
(II) within 1 year of such transfer the eligible taxpayer
has received a certification from the Environmental
Protection Agency or an appropriate State agency (within
the meaning of section 198(c)(4)) in the State in which
such property is located that, as a result of the eligible
taxpayer's remediation actions, such property would not be
treated as a qualifying brownfield property in the hands of
the transferee.
For purposes of subclause (II), before issuing such
certification, the Environmental Protection Agency or
appropriate State agency shall respond to comments received
pursuant to clause (ii)(V) in the same form and manner as
required under section 117(b) of the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980 (as in effect on the date of the enactment of this
paragraph).
(ii) Request for certification. - Any request by an
eligible taxpayer for a certification described in clause (i)
shall be made not later than the date of the transfer and
shall include a sworn statement by the eligible taxpayer
certifying the following:
(I) Remedial actions which comply with all applicable or
relevant and appropriate requirements (consistent with
section 121(d) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980) have been
substantially completed, such that there are no hazardous
substances, pollutants, or contaminants which complicate
the expansion, redevelopment, or reuse of the property
given the property's reasonably anticipated future land
uses or capacity for uses of the property.
(II) The reasonably anticipated future land uses or
capacity for uses of the property are more economically
productive or environmentally beneficial than the uses of
the property in existence on the date of the certification
described in subparagraph (C)(i). For purposes of the
preceding sentence, use of property as a landfill or other
hazardous waste facility shall not be considered more
economically productive or environmentally beneficial.
(III) A remediation plan has been implemented to bring
the property into compliance with all applicable local,
State, and Federal environmental laws, regulations, and
standards and to ensure that the remediation protects human
health and the environment.
(IV) The remediation plan described in subclause (III),
including any physical improvements required to remediate
the property, is either complete or substantially complete,
and, if substantially complete, sufficient monitoring,
funding, institutional controls, and financial assurances
have been put in place to ensure the complete remediation
of the property in accordance with the remediation plan as
soon as is reasonably practicable after the sale, exchange,
or other disposition of such property.
(V) Public notice and the opportunity for comment on the
request for certification was completed before the date of
such request. Such notice and opportunity for comment shall
be in the same form and manner as required for public
participation required under section 117(a) of the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (as in effect on the date of the
enactment of this paragraph). For purposes of this
subclause, public notice shall include, at a minimum,
publication in a major local newspaper of general
circulation.
(iii) Attachment to tax returns. - A copy of each of the
requests for certification described in clause (ii) of
subparagraph (C) and this subparagraph shall be included in
the tax return of the eligible taxpayer (and, where
applicable, of the qualifying partnership) for the taxable
year during which the transfer occurs.
(iv) Substantial completion. - For purposes of this
subparagraph, a remedial action is substantially complete
when any necessary physical construction is complete, all
immediate threats have been eliminated, and all long-term
threats are under control.
(E) Eligible remediation expenditures. - For purposes of this
paragraph -
(i) In general. - The term "eligible remediation
expenditures" means, with respect to any qualifying
brownfield property, any amount paid or incurred by the
eligible taxpayer to an unrelated third person to obtain a
Phase I environmental site assessment of the property, and
any amount so paid or incurred after the date of the
certification described in subparagraph (C)(i) for goods and
services necessary to obtain a certification described in
subparagraph (D)(i) with respect to such property, including
expenditures -
(I) to manage, remove, control, contain, abate, or
otherwise remediate a hazardous substance, pollutant, or
contaminant on the property,
(II) to obtain a Phase II environmental site assessment
of the property, including any expenditure to monitor,
sample, study, assess, or otherwise evaluate the release,
threat of release, or presence of a hazardous substance,
pollutant, or contaminant on the property,
(III) to obtain environmental regulatory certifications
and approvals required to manage the remediation and
monitoring of the hazardous substance, pollutant, or
contaminant on the property, and
(IV) regardless of whether it is necessary to obtain a
certification described in subparagraph (D)(i)(II), to
obtain remediation cost-cap or stop-loss coverage, re-
opener or regulatory action coverage, or similar coverage
under environmental insurance policies, or financial
guarantees required to manage such remediation and
monitoring.
(ii) Exceptions. - Such term shall not include -
(I) any portion of the purchase price paid or incurred by
the eligible taxpayer to acquire the qualifying brownfield
property,
(II) environmental insurance costs paid or incurred to
obtain legal defense coverage, owner/operator liability
coverage, lender liability coverage, professional liability
coverage, or similar types of coverage,
(III) any amount paid or incurred to the extent such
amount is reimbursed, funded, or otherwise subsidized by
grants provided by the United States, a State, or a
political subdivision of a State for use in connection with
the property, proceeds of an issue of State or local
government obligations used to provide financing for the
property the interest of which is exempt from tax under
section 103, or subsidized financing provided (directly or
indirectly) under a Federal, State, or local program
provided in connection with the property, or
(IV) any expenditure paid or incurred before the date of
the enactment of this paragraph.
For purposes of subclause (III), the Secretary may issue
guidance regarding the treatment of government-provided funds
for purposes of determining eligible remediation
expenditures.
(F) Determination of gain or loss. - For purposes of this
paragraph, the determination of gain or loss shall not include
an amount treated as gain which is ordinary income with respect
to section 1245 or section 1250 property, including amounts
deducted as section 198 expenses which are subject to the
recapture rules of section 198(e), if the taxpayer had deducted
such amounts in the computation of its unrelated business
taxable income.
(G) Special rules for partnerships. -
(i) In general. - In the case of an eligible taxpayer which
is a partner of a qualifying partnership which acquires,
remediates, and sells, exchanges, or otherwise disposes of a
qualifying brownfield property, this paragraph shall apply to
the eligible taxpayer's distributive share of the qualifying
partnership's gain or loss from the sale, exchange, or other
disposition of such property.
(ii) Qualifying partnership. - The term "qualifying
partnership" means a partnership which -
(I) has a partnership agreement which satisfies the
requirements of section 514(c)(9)(B)(vi) at all times
beginning on the date of the first certification received
by the partnership under subparagraph (C)(i),
(II) satisfies the requirements of subparagraphs (B)(i),
(C), (D), and (E), if "qualified partnership" is
substituted for "eligible taxpayer" each place it appears
therein (except subparagraph (D)(iii)), and
(III) is not an organization which would be prevented
from constituting an eligible taxpayer by reason of
subparagraph (B)(ii).
(iii) Requirement that tax-exempt partner be a partner
since first certification. - This paragraph shall apply with
respect to any eligible taxpayer which is a partner of a
partnership which acquires, remediates, and sells, exchanges,
or otherwise disposes of a qualifying brownfield property
only if such eligible taxpayer was a partner of the
qualifying partnership at all times beginning on the date of
the first certification received by the partnership under
subparagraph (C)(i) and ending on the date of the sale,
exchange, or other disposition of the property by the
partnership.
(iv) Regulations. - The Secretary shall prescribe such
regulations as are necessary to prevent abuse of the
requirements of this subparagraph, including abuse through -
(I) the use of special allocations of gains or losses, or
(II) changes in ownership of partnership interests held
by eligible taxpayers.
(H) Special rules for multiple properties. -
(i) In general. - An eligible taxpayer or a qualifying
partnership of which the eligible taxpayer is a partner may
make a 1-time election to apply this paragraph to more than 1
qualifying brownfield property by averaging the eligible
remediation expenditures for all such properties acquired
during the election period. If the eligible taxpayer or
qualifying partnership makes such an election, the election
shall apply to all qualified sales, exchanges, or other
dispositions of qualifying brownfield properties the
acquisition and transfer of which occur during the period for
which the election remains in effect.
(ii) Election. - An election under clause (i) shall be made
with the eligible taxpayer's or qualifying partnership's
timely filed tax return (including extensions) for the first
taxable year for which the taxpayer or qualifying partnership
intends to have the election apply. An election under clause
(i) is effective for the period -
(I) beginning on the date which is the first day of the
taxable year of the return in which the election is
included or a later day in such taxable year selected by
the eligible taxpayer or qualifying partnership, and
(II) ending on the date which is the earliest of a date
of revocation selected by the eligible taxpayer or
qualifying partnership, the date which is 8 years after the
date described in subclause (I), or, in the case of an
election by a qualifying partnership of which the eligible
taxpayer is a partner, the date of the termination of the
qualifying partnership.
(iii) Revocation. - An eligible taxpayer or qualifying
partnership may revoke an election under clause (i)(II) (!1)
by filing a statement of revocation with a timely filed tax
return (including extensions). A revocation is effective as
of the first day of the taxable year of the return in which
the revocation is included or a later day in such taxable
year selected by the eligible taxpayer or qualifying
partnership. Once an eligible taxpayer or qualifying
partnership revokes the election, the eligible taxpayer or
qualifying partnership is ineligible to make another election
under clause (i) with respect to any qualifying brownfield
property subject to the revoked election.
(I) Recapture. - If an eligible taxpayer excludes gain or
loss from a sale, exchange, or other disposition of property to
which an election under subparagraph (H) applies, and such
property fails to satisfy the requirements of this paragraph,
the unrelated business taxable income of the eligible taxpayer
for the taxable year in which such failure occurs shall be
determined by including any previously excluded gain or loss
from such sale, exchange, or other disposition allocable to
such taxpayer, and interest shall be determined at the
overpayment rate established under section 6621 on any
resulting tax for the period beginning with the due date of the
return for the taxable year during which such sale, exchange,
or other disposition occurred, and ending on the date of
payment of the tax.
(J) Related persons. - For purposes of this paragraph, a
person shall be treated as related to another person if -
(i) such person bears a relationship to such other person
described in section 267(b) (determined without regard to
paragraph (9) thereof), or section 707(b)(1), determined by
substituting "25 percent" for "50 percent" each place it
appears therein, and
(ii) in the case such other person is a nonprofit
organization, if such person controls directly or indirectly
more than 25 percent of the governing body of such
organization.
(K) Termination. - Except for purposes of determining the
average eligible remediation expenditures for properties
acquired during the election period under subparagraph (H),
this paragraph shall not apply to any property acquired by the
eligible taxpayer or qualifying partnership after December 31,
2009.
(c) Special rules for partnerships
(1) In general
If a trade or business regularly carried on by a partnership of
which an organization is a member is an unrelated trade or
business with respect to such organization, such organization in
computing its unrelated business taxable income shall, subject to
the exceptions, additions, and limitations contained in
subsection (b), include its share (whether or not distributed) of
the gross income of the partnership from such unrelated trade or
business and its share of the partnership deductions directly
connected with such gross income.
(2) Special rule where partnership year is different from
organization's year
If the taxable year of the organization is different from that
of the partnership, the amounts to be included or deducted in
computing the unrelated business taxable income under paragraph
(1) shall be based upon the income and deductions of the
partnership for any taxable year of the partnership ending within
or with the taxable year of the organization.
(d) Treatment of dues of agricultural or horticultural
organizations
(1) In general
If -
(A) an agricultural or horticultural organization described
in section 501(c)(5) requires annual dues to be paid in order
to be a member of such organization, and
(B) the amount of such required annual dues does not exceed
$100,
in no event shall any portion of such dues be treated as derived
by such organization from an unrelated trade or business by
reason of any benefits or privileges to which members of such
organization are entitled.
(2) Indexation of $100 amount
In the case of any taxable year beginning in a calendar year
after 1995, the $100 amount in paragraph (1) shall be increased
by an amount equal to -
(A) $100, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
by substituting "calendar year 1994" for "calendar year 1992"
in subparagraph (B) thereof.
(3) Dues
For purposes of this subsection, the term "dues" means any
payment (whether or not designated as dues) which is required to
be made in order to be recognized by the organization as a member
of the organization.
(e) Special rules applicable to S corporations
(1) In general
If an organization described in section 1361(c)(2)(A)(vi) or
1361(c)(6) holds stock in an S corporation -
(A) such interest shall be treated as an interest in an
unrelated trade or business, and
(B) notwithstanding any other provision of this part -
(i) all items of income, loss, or deduction taken into
account under section 1366(a), and
(ii) any gain or loss on the disposition of the stock in
the S corporation,
shall be taken into account in computing the unrelated business
taxable income of such organization.
(2) Basis reduction
Except as provided in regulations, for purposes of paragraph
(1), the basis of any stock acquired by purchase (as defined in
section 1361(e)(1)(C)) shall be reduced by the amount of any
dividends received by the organization with respect to the stock.
(3) Exception for ESOPs
This subsection shall not apply to employer securities (within
the meaning of section 409(l)) held by an employee stock
ownership plan described in section 4975(e)(7).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 170; Pub. L. 85-367, Sec. 1(a),
Apr. 7, 1958, 72 Stat. 80; Pub. L. 88-380, Sec. 1, July 17, 1964,
78 Stat. 333; Pub. L. 89-809, title I, Sec. 104(g), Nov. 13, 1966,
80 Stat. 1559; Pub. L. 91-172, title I, Sec. 121(b)(1), (2), Dec.
30, 1969, 83 Stat. 537, 538; Pub. L. 92-418, Sec. 1(b), Aug. 29,
1972, 86 Stat. 656; Pub. L. 94-396, Sec. 1(a), Sept. 3, 1976, 90
Stat. 1201; Pub. L. 94-455, title XIX, Secs. 1901(b)(8)(F),
1906(b)(13)(A), 1951(b)(8)(A), Oct. 4, 1976, 90 Stat. 1794, 1834,
1839; Pub. L. 94-568, Sec. 1(b), Oct. 20, 1976, 90 Stat. 2697; Pub.
L. 95-345, Sec. 2(a)(2), (b), Aug. 15, 1978, 92 Stat. 481; Pub. L.
97-448, title I, Sec. 102(m)(3), Jan. 12, 1983, 96 Stat. 2374; Pub.
L. 98-369, div. A, title V, Sec. 511(b), July 18, 1984, 98 Stat.
860; Pub. L. 99-514, title XVIII, Sec. 1851(a)(10), Oct. 22, 1986,
100 Stat. 2861; Pub. L. 100-203, title X, Sec. 10213(a), Dec. 22,
1987, 101 Stat. 1330-406; Pub. L. 100-647, title I, Sec.
1018(t)(2)(B), Nov. 10, 1988, 102 Stat. 3587; Pub. L. 101-508,
title XI, Sec. 11801(a)(23), Nov. 5, 1990, 104 Stat. 1388-521; Pub.
L. 103-66, title XIII, Secs. 13145(a), 13147(a), 13148(a), (b),
Aug. 10, 1993, 107 Stat. 443, 444; Pub. L. 104-188, title I, Secs.
1115(a), 1316(c), 1603(a), Aug. 20, 1996, 110 Stat. 1761, 1786,
1835; Pub. L. 105-34, title III, Sec. 312(d)(5), title X, Sec.
1041(a), title XV, Sec. 1523(a), title XVI, Sec. 1601(c)(4)(A),
(D), Aug. 5, 1997, 111 Stat. 840, 938, 1070, 1087; Pub. L. 105-206,
title VI, Secs. 6010(j)(1), (2), 6023(8), July 22, 1998, 112 Stat.
815, 825; Pub. L. 108-357, title II, Sec. 233(d), title III, Sec.
319(c), title VII, Sec. 702(a), Oct. 22, 2004, 118 Stat. 1434,
1472, 1540; Pub. L. 109-135, title IV, Sec. 412(dd), (ee)(1), Dec.
21, 2005, 119 Stat. 2639.)
-STATAMEND-
ADJUSTMENT OF AMOUNT OF ANNUAL DUES THRESHOLD FOR TAXABLE YEARS
BEGINNING IN 2006
For adjustment of maximum amount of annual dues paid to
agricultural or horticultural organizations under subsection (d)(1)
of this section for taxable years beginning in 2006, see section
3.23 of Revenue Procedure 2005-70, set out as a note under section
1 of this title.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Taxpayer Relief Act of 1997,
referred to in subsec. (a)(3)(D), is the date of enactment of Pub.
L. 105-34, which was approved Aug. 5, 1997.
The date of the enactment of the Tax Reform Act of 1984, referred
to in subsec. (a)(3)(E)(ii)(II), (III), is the date of enactment of
division A of Pub. L. 98-369, which was approved July 18, 1984.
Sections 101(39), 107, 117(a), (b), and 121(d) of the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, referred to in subsec. (b)(19)(B)(ii)(I), (C)(i),
(D)(i), (ii)(I), (V), are classified to sections 9601(39), 9607,
9617(a), (b), and 9621(d), respectively, of Title 42, The Public
Health and Welfare.
The date of the enactment of this paragraph, referred to in
subsec. (b)(19)(C)(i), (D)(i), (ii)(V), (E)(ii)(IV), is the date of
enactment of Pub. L. 108-357, which was approved Oct. 22, 2004.
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(1). Pub. L. 109-135, Sec. 412(dd), substituted
"subsection (a)(5)" for "section 512(a)(5)".
Subsec. (b)(18), (19). Pub. L. 109-135, Sec. 412(ee)(1),
redesignated par. (18), relating to treatment of gain or loss on
sale or exchange of certain brownfield sites, as (19).
2004 - Subsec. (b)(18). Pub. L. 108-357, Sec. 702(a), added par.
(18) relating to treatment of gain or loss on sale or exchange of
certain brownfield sites.
Pub. L. 108-357, Sec. 319(c), added par. (18) relating to
treatment of mutual or cooperative electric companies.
Subsec. (e)(1). Pub. L. 108-357, Sec. 233(d), inserted
"1361(c)(2)(A)(vi) or" before "1361(c)(6)" in introductory
provisions.
1998 - Subsec. (b)(13)(A). Pub. L. 105-206, Sec. 6010(j)(1),
inserted "or accrues" after "receives" in first sentence.
Subsec. (b)(13)(B)(i)(I). Pub. L. 105-206, Sec. 6010(j)(2),
struck out "(as defined in section 513A(a)(5)(A))" after "exempt
purposes".
Subsec. (b)(17)(B)(ii)(II). Pub. L. 105-206, Sec. 6023(8),
substituted "rule" for "Rule" in subcl. heading.
1997 - Subsec. (a)(3)(D). Pub. L. 105-34, Sec. 312(d)(5),
inserted "(as in effect on the day before the date of the enactment
of the Taxpayer Relief Act of 1997)" after "1034".
Subsec. (b)(13). Pub. L. 105-34, Sec. 1041(a), amended par. (13)
generally. Prior to amendment, par. (13) related to inclusion in
gross income of controlling organization of amounts of interest,
annuities, royalties, and rents derived from a controlled
organization.
Subsec. (e)(1). Pub. L. 105-34, Sec. 1601(c)(4)(D), substituted
"section 1361(c)(6)" for "section 1361(c)(7)".
Subsec. (e)(2). Pub. L. 105-34, Sec. 1601(c)(4)(A), substituted
"as defined in section 1361(e)(1)(C)" for "within the meaning of
section 1012".
Subsec. (e)(3). Pub. L. 105-34, Sec. 1523(a), added par. (3).
1996 - Subsec. (b)(17). Pub. L. 104-188, Sec. 1603(a), added par.
(17).
Subsec. (d). Pub. L. 104-188, Sec. 1115(a), added subsec. (d).
Subsec. (e). Pub. L. 104-188, Sec. 1316(c), added subsec. (e).
1993 - Subsec. (b)(1). Pub. L. 103-66, Sec. 13148(a), inserted
"amounts received or accrued as consideration for entering into
agreements to make loans," before "and annuities".
Subsec. (b)(5). Pub. L. 103-66, Sec. 13148(b), in second
sentence, substituted "all gains or losses recognized, in
connection with the organization's investment activities, from" for
"all gains on", struck out ", written by the organization in
connection with its investment activities," after "termination of
options", and inserted before period at end "or real property and
all gains or losses from the forfeiture of good-faith deposits
(that are consistent with established business practice) for the
purchase, sale, or lease of real property in connection with the
organization's investment activities".
Subsec. (b)(16). Pub. L. 103-66, Sec. 13147(a), added par. (16).
Subsec. (c)(2), (3). Pub. L. 103-66, Sec. 13145(a), redesignated
par. (3) as (2), substituted "paragraph (1)" for "paragraph (1) or
(2)", and struck out heading and text of former par. (2). Text read
as follows: "Notwithstanding any other provision of this section -
"(A) any organization's share (whether or not distributed) of
the gross income of a publicly traded partnership (as defined in
section 469(k)(2)) shall be treated as gross income derived from
an unrelated trade or business, and
"(B) such organization's share of the partnership deductions
shall be allowed in computing unrelated business taxable income."
1990 - Subsec. (b)(14). Pub. L. 101-508 struck out par. (14)
which read as follows: "Except as provided in paragraph (4), in the
case of a church, or convention or association of churches, for
taxable years beginning before January 1, 1976, there shall be
excluded all gross income derived from a trade or business and all
deductions directly connected with the carrying on of such trade or
business if such trade or business was carried on by such
organization or its predecessor before May 27, 1969."
1988 - Subsec. (a)(3)(E)(ii)(II). Pub. L. 100-647 substituted
"subclause (I)" for "subclause (II)" and a period for comma at end.
1987 - Subsec. (c). Pub. L. 100-203 substituted "for
partnerships" for "applicable to partnerships" in heading and
amended text generally. Prior to amendment, text read as follows:
"If a trade or business regularly carried on by a partnership of
which an organization is a member is an unrelated trade or business
with respect to such organization, such organization in computing
its unrelated business taxable income shall, subject to the
exceptions, additions, and limitations contained in subsection (b),
include its share (whether or not distributed) of the gross income
of the partnership from such unrelated trade or business and its
share of the partnership deductions directly connected with such
gross income. If the taxable year of the organization is different
from that of the partnership, the amounts to be so included or
deducted in computing the unrelated business taxable income shall
be based upon the income and deductions of the partnership for any
taxable year of the partnership ending within or with the taxable
year of the organization."
1986 - Subsec. (a)(3)(E)(i). Pub. L. 99-514, Sec. 1851(a)(10)(A),
substituted "determined under section 419A (without regard to
subsection (f)(6) thereof)" for "determined under section 419A(c)".
Subsec. (a)(3)(E)(ii). Pub. L. 99-514, Sec. 1851(a)(10)(B), (C),
redesignated cl. (iii) as (ii), in subcl. I substituted "an
existing reserve" for "a existing reserve", and substituted new
subcl. (II) for former subcl. (II) which read as follows: "For
purposes of subclause (I), the term 'existing reserve or post-
retirement medical or life insurance benefit' means the amount of
assets set aside as of the close of the last plan year ending
before the date of the enactment of the Tax Reform Act of 1984 for
purposes of post-retirement medical benefits or life insurance
benefits to be provided to covered employees." Former cl. (ii),
which provided that no set aside for assets used in the provision
of benefits described in cl. (ii) of subpar. (B), could be taken
into account, was struck out.
Subsec. (a)(3)(E)(iii), (iv). Pub. L. 99-514, Sec.
1851(a)(10)(B), (D), redesignated former cl. (iv) as (iii) and
substituted "subparagraph shall not" for "paragraph shall not".
Former cl. (iii) redesignated (ii).
1984 - Subsec. (a)(3). Pub. L. 98-369, Sec. 511(b)(1)(A),
substituted "paragraph (7), (9), (17), or (20) of section 501(c)"
for "section 501(c)(7) or (9)" wherever appearing in heading and in
text.
Subsec. (a)(3)(B)(ii). Pub. L. 98-369, Sec. 511(b)(1)(B),
substituted "paragraph (9), (17), or (20) of section 501(c)" for
"section 501(c)(9)".
Subsec. (a)(3)(C), (D). Pub. L. 98-369, Sec. 511(b)(1)(A),
substituted in subpars. (C) and (D) "paragraph (7), (9), (17), or
(20) of section 501(c)" for "section 501(c)(7) or (9)" wherever
appearing.
Subsec. (a)(3)(E). Pub. L. 98-369, Sec. 511(b)(2), added subpar.
(E).
1983 - Subsec. (b)(10). Pub. L. 97-448 substituted "10 percent"
for "5 percent".
1978 - Subsec. (a)(5). Pub. L. 95-345, Sec. 2(b), added par. (5).
Subsec. (b)(1). Pub. L. 95-345, Sec. 2(a)(2), inserted provision
relating to payments with respect to securities loans.
1976 - Subsec. (a)(3)(A). Pub. L. 94-568 provided that for
purposes of the general rule, the deductions provided by sections
243, 244, and 245 (relating to dividends received by corporations)
shall be treated as not directly connected with the production of
gross income.
Subsec. (b). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
Subsec. (b)(5). Pub. L. 94-396 inserted provision relating to
exclusion of gains on the lapse or termination of options to buy or
sell securities.
Subsec. (b)(13), (14). Pub. L. 94-455, Sec. 1951(b)(8)(A),
redesignated pars. (15) and (16) as (13) and (14), respectively.
Former pars. (13) and (14), relating to exceptions, additions, and
limitations applicable in determining unrelated business taxable
income, were struck out.
Subsec. (b)(15). Pub. L. 94-455, Secs. 1901(b)(8)(F),
1906(b)(13)(A), 1951(b)(8)(A), redesignated par. (17) as (15) and
substituted in subpar. (B) "educational organization described in
section 170(b)(1)(A)(ii)" for "educational institution (as defined
in section 151(e)(4))" after "order or by an", and struck out "or
his delegate" after "Secretary". Former par. (15) redesignated
(13).
Subsec. (b)(16), (17). Pub. L. 94-455, Sec. 1951(b)(8)(A),
redesignated pars. (16) and (17) as (14) and (15), respectively.
1972 - Subsec. (a)(4). Pub. L. 92-418 added par. (4).
1969 - Subsec. (a). Pub. L. 91-172, Sec. 121(b)(1), designated
existing provisions as pars. (1) and (2)(B) and added pars. (2)(A)
and (3).
Subsec. (b). Pub. L. 91-172, Sec. 121(b)(2)(D), substituted
"Modifications" for "Exceptions, additions, and limitations", in
heading, and, in text preceding par. (1) substituted "The
modifications referred to in subsection (a)" for "The exceptions,
additions, and limitations applicable in determining unrelated
business taxable income".
Subsec. (b)(3)(A). Pub. L. 91-172, Sec. 121(b)(2)(A), inserted
reference to exceptions set out in subsec. (b)(3)(B) in text
preceding cl. (i), substituted "property described in section
1245(a)(3)(C)" for "personal property leased with the real
property" in parenthetical of cl. (i), and added cl. (ii).
Subsec. (b)(3)(B). Pub. L. 91-172, Sec. 121(b)(2)(A), added
subpar. (B).
Subsec. (b)(3)(C). Pub. L. 91-172, Sec. 121(b)(2)(A), substituted
"rents excluded under subparagraph (A)" for "such rents".
Subsec. (b)(4). Pub. L. 91-172, Sec. 121(b)(2)(A), inserted
reference to pars. (1), (3) and (5) of this subsec., and
substituted "debt financed property" for "a business lease".
Subsec. (b)(12). Pub. L. 91-172, Sec. 121(b)(2)(B), made the
allowance of the specific $1,000 deduction inapplicable for the
purposes of computing the net operating loss under section 172 of
this title and par. (6) of this subsec., and provided for the
allowance of specific deductions equal to the lower of $1,000 or
the gross income derived from any unrelated trade or business
carried on by a parish, individual church, district, or other local
unit.
Subsec. (b)(15) to (17). Pub. L. 91-172, Sec. 121(b)(2)(C), added
pars. (15) to (17).
1966 - Subsec. (a). Pub. L. 89-809 substituted ", the unrelated
business taxable income shall be its unrelated business taxable
income which is effectively connected with the conduct of a trade
or business within the United States" for ", the unrelated business
taxable income shall be its unrelated business taxable income
derived from sources within the United States determined under
subchapter N (sec. 861 and following), relating to tax based on
income from sources within or without the United States".
1964 - Subsec. (b)(14). Pub. L. 88-380 added par. (14).
1958 - Subsec. (b)(13). Pub. L. 85-367 added par. (13).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title II, Sec. 233(e), Oct. 22, 2004, 118 Stat.
1435, provided that: "The amendments made by this section [amending
this section and sections 1361 and 4975 of this title] shall take
effect on the date of the enactment of this Act [Oct. 22, 2004]."
Amendment by section 319(c) of Pub. L. 108-357 applicable to
taxable years beginning after Oct. 22, 2004, see section 319(e) of
Pub. L. 108-357, set out as a note under section 501 of this title.
Pub. L. 108-357, title VII, Sec. 702(d), Oct. 22, 2004, 118 Stat.
1546, provided that: "The amendments made by this section [amending
this section and section 514 of this title] shall apply to any gain
or loss on the sale, exchange, or other disposition of any property
acquired by the taxpayer after December 31, 2004."
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by section 6023(8) of Pub. L. 105-206 effective July
22, 1998, see section 6023(32) of Pub. L. 105-206, set out as a
note under section 34 of this title.
Amendment by section 6010(j)(1), (2) of Pub. L. 105-206
effective, except as otherwise provided, as if included in the
provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 6024 of Pub. L. 105-206,
set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 312(d)(5) of Pub. L. 105-34 applicable to
sales and exchanges after May 6, 1997, with certain exceptions, see
section 312(d)[(e)] of Pub. L. 105-34, set out as a note under
section 121 of this title.
Section 1041(b) of Pub. L. 105-34, as amended by Pub. L. 105-206,
title VI, Sec. 6010(j)(3), July 22, 1998, 112 Stat. 815, provided
that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply
to taxable years beginning after the date of the enactment of this
Act [Aug. 5, 1997].
"(2) Binding contracts. - The amendments made by this section
shall not apply to any amount received or accrued during the first
2 taxable years beginning on or after the date of the enactment of
this Act if such amount is received or accrued pursuant to a
written binding contract in effect on June 8, 1997, and at all
times thereafter before such amount is received or accrued. The
preceding sentence shall not apply to any amount which would (but
for the exercise of an option to accelerate payment of such amount)
be received or accrued after such 2 taxable years."
Section 1523(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997."
Amendment by section 1601(c)(4)(A), (D) of Pub. L. 105-34
effective as if included in the provisions of the Small Business
Job Protection Act of 1996, Pub. L. 104-188, to which it relates,
see section 1601(j) of Pub. L. 105-34, set out as a note under
section 23 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1115(b) of Pub. L. 104-188 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1986.
"(2) Transitional rule. - If -
"(A) for purposes of applying part III of subchapter F of
chapter 1 of the Internal Revenue Code of 1986 to any taxable
year beginning before January 1, 1987, an agricultural or
horticultural organization did not treat any portion of
membership dues received by it as income derived in an unrelated
trade or business, and
"(B) such organization had a reasonable basis for not treating
such dues as income derived in an unrelated trade or business,
then, for purposes of applying such part III to any such taxable
year, in no event shall any portion of such dues be treated as
derived in an unrelated trade or business.
"(3) Reasonable basis. - For purposes of paragraph (2), an
organization shall be treated as having a reasonable basis for not
treating membership dues as income derived in an unrelated trade or
business if the taxpayer's treatment of such dues was in reasonable
reliance on any of the following:
"(A) Judicial precedent, published rulings, technical advice
with respect to the organization, or a letter ruling to the
organization.
"(B) A past Internal Revenue Service audit of the organization
in which there was no assessment attributable to the
reclassification of membership dues for purposes of the tax on
unrelated business income.
"(C) Long-standing recognized practice of agricultural or
horticultural organizations."
Amendment by section 1316(c) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1997, see section 1316(f) of
Pub. L. 104-188, set out as a note under section 170 of this title.
Section 1603(b) of Pub. L. 104-188 provided that: "The amendment
made by this section [amending this section] shall apply to amounts
included in gross income in any taxable year beginning after
December 31, 1995."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13145(b) of Pub. L. 103-66 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
partnership years beginning on or after January 1, 1994."
Section 13147(b) of Pub. L. 103-66 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
property acquired on or after January 1, 1994."
Section 13148(c) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section] shall apply to amounts
received on or after January 1, 1994."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10213(b) of Pub. L. 100-203 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
partnership interests acquired after December 17, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years ending
after Dec. 31, 1985, with such amendments treated as a change in
the rate of tax imposed by chapter 1 of this title for purposes of
section 15 of this title, see section 511(e)(6) of Pub. L. 98-369,
set out as an Effective Date note under section 419 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-345 applicable with respect to amounts
received after Dec. 31, 1976, as payments with respect to
securities loans (as defined in subsec. (a)(5) of this section),
and transfers of securities, under agreements described in section
1058 of this title, occurring after such date, see section 2(e) of
Pub. L. 95-345, set out as a note under section 509 of this title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Amendment by Pub. L. 94-568 applicable to taxable years beginning
after Oct. 20, 1976, see section 1(d) of Pub. L. 94-568, set out as
a note under section 501 of this title.
Amendment by section 1901(b)(8)(F) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
Amendment by section 1951(b)(8)(A) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1951(d) of Pub. L. 94-455, set out as a note under section
72 of this title.
Section 1(b) of Pub. L. 94-396 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to gain from
options which lapse or terminate on or after January 1, 1976, in
taxable years ending on or after such date."
EFFECTIVE DATE OF 1972 AMENDMENT
Amendment by Pub. L. 92-418 applicable to taxable years beginning
after Dec. 31, 1969, see section 1(c) of Pub. L. 92-418, set out as
a note under section 501 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 121(g) of Pub. L. 91-172, set out
as a note under section 511 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 2 of Pub. L. 88-380 provided that: "The amendment made by
the first section of this Act [amending this section] shall apply
with respect to taxable years beginning after December 31, 1963."
EFFECTIVE DATE OF 1958 AMENDMENT
Section 1(b) of Pub. L. 85-367 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years of trusts beginning after December 31, 1955."
SAVINGS PROVISION
Pub. L. 108-357, title VII, Sec. 702(c), Oct. 22, 2004, 118 Stat.
1546, provided that: "Nothing in the amendments made by this
section [amending this section and section 514 of this title] shall
affect any duty, liability, or other requirement imposed under any
other Federal or State law. Notwithstanding section 128(b) of the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 [42 U.S.C. 9628(b)], a certification provided by the
Environmental Protection Agency or an appropriate State agency
(within the meaning of section 198(c)(4) of the Internal Revenue
Code of 1986) shall not affect the liability of any person under
section 107(a) of such Act [42 U.S.C. 9607(a)]."
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
Section 1951(b)(8)(B) of Pub. L. 94-455 provided that:
"Notwithstanding subparagraph (A) [amending this section], income
received in a taxable year beginning after December 31, 1975, shall
be excluded from gross income in determining unrelated business
taxable income, if such income would have been excluded by
paragraph (13) or (14) of section 512(b) if received in a taxable
year beginning before such date. Any deductions directly connected
with income excluded under the preceding sentence in determining
unrelated business taxable income shall also be excluded for such
purpose."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original.
-End-
-CITE-
26 USC Sec. 513 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART III - TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT
ORGANIZATIONS
-HEAD-
Sec. 513. Unrelated trade or business
-STATUTE-
(a) General rule
The term "unrelated trade or business" means, in the case of any
organization subject to the tax imposed by section 511, any trade
or business the conduct of which is not substantially related
(aside from the need of such organization for income or funds or
the use it makes of the profits derived) to the exercise or
performance by such organization of its charitable, educational, or
other purpose or function constituting the basis for its exemption
under section 501 (or, in the case of an organization described in
section 511(a)(2)(B), to the exercise or performance of any purpose
or function described in section 501(c)(3)), except that such term
does not include any trade or business -
(1) in which substantially all the work in carrying on such
trade or business is performed for the organization without
compensation; or
(2) which is carried on, in the case of an organization
described in section 501(c)(3) or in the case of a college or
university described in section 511(a)(2)(B), by the organization
primarily for the convenience of its members, students, patients,
officers, or employees, or, in the case of a local association of
employees described in section 501(c)(4) organized before May 27,
1969, which is the selling by the organization of items of work-
related clothes and equipment and items normally sold through
vending machines, through food dispensing facilities, or by snack
bars, for the convenience of its members at their usual places of
employment; or
(3) which is the selling of merchandise, substantially all of
which has been received by the organization as gifts or
contributions.
(b) Special rule for trusts
The term "unrelated trade or business" means, in the case of -
(1) a trust computing its unrelated business taxable income
under section 512 for purposes of section 681; or
(2) a trust described in section 401(a), or section 501(c)(17),
which is exempt from tax under section 501(a);
any trade or business regularly carried on by such trust or by a
partnership of which it is a member.
(c) Advertising, etc., activities
For purposes of this section, the term "trade or business"
includes any activity which is carried on for the production of
income from the sale of goods or the performance of services. For
purposes of the preceding sentence, an activity does not lose
identity as a trade or business merely because it is carried on
within a larger aggregate of similar activities or within a larger
complex of other endeavors which may, or may not, be related to the
exempt purposes of the organization. Where an activity carried on
for profit constitutes an unrelated trade or business, no part of
such trade or business shall be excluded from such classification
merely because it does not result in profit.
(d) Certain activities of trade shows, State fairs, etc.
(1) General rule
The term "unrelated trade or business" does not include
qualified public entertainment activities of an organization
described in paragraph (2)(C), or qualified convention and trade
show activities of an organization described in paragraph (3)(C).
(2) Qualified public entertainment activities
For purposes of this subsection -
(A) Public entertainment activity
The term "public entertainment activity" means any
entertainment or recreational activity of a kind traditionally
conducted at fairs or expositions promoting agricultural and
educational purposes, including, but not limited to, any
activity one of the purposes of which is to attract the public
to fairs or expositions or to promote the breeding of animals
or the development of products or equipment.
(B) Qualified public entertainment activity
The term "qualified public entertainment activity" means a
public entertainment activity which is conducted by a
qualifying organization described in subparagraph (C) in -
(i) conjunction with an international, national, State,
regional, or local fair or exposition,
(ii) accordance with the provisions of State law which
permit the activity to be operated or conducted solely by
such an organization, or by an agency, instrumentality, or
political subdivision of such State, or
(iii) accordance with the provisions of State law which
permit such an organization to be granted a license to
conduct not more than 20 days of such activity on payment to
the State of a lower percentage of the revenue from such
licensed activity than the State requires from organizations
not described in section 501(c)(3), (4), or (5).
(C) Qualifying organization
For purposes of this paragraph, the term "qualifying
organization" means an organization which is described in
section 501(c) (3), (4), or (5) which regularly conducts, as
one of its substantial exempt purposes, an agricultural and
educational fair or exposition.
(3) Qualified convention and trade show activities
(A) Convention and trade show activities
The term "convention and trade show activity" means any
activity of a kind traditionally conducted at conventions,
annual meetings, or trade shows, including, but not limited to,
any activity one of the purposes of which is to attract persons
in an industry generally (without regard to membership in the
sponsoring organization) as well as members of the public to
the show for the purpose of displaying industry products or to
stimulate interest in, and demand for, industry products or
services, or to educate persons engaged in the industry in the
development of new products and services or new rules and
regulations affecting the industry.
(B) Qualified convention and trade show activity
The term "qualified convention and trade show activity" means
a convention and trade show activity carried out by a
qualifying organization described in subparagraph (C) in
conjunction with an international, national, State, regional,
or local convention, annual meeting, or show conducted by an
organization described in subparagraph (C) if one of the
purposes of such organization in sponsoring the activity is the
promotion and stimulation of interest in, and demand for, the
products and services of that industry in general or to educate
persons in attendance regarding new developments or products
and services related to the exempt activities of the
organization, and the show is designed to achieve such purpose
through the character of the exhibits and the extent of the
industry products displayed.
(C) Qualifying organization
For purposes of this paragraph, the term "qualifying
organization" means an organization described in section
501(c)(3), (4), (5), or (6) which regularly conducts as one of
its substantial exempt purposes a show which stimulates
interest in, and demand for, the products of a particular
industry or segment of such industry or which educates persons
in attendance regarding new developments or products and
services related to the exempt activities of the organization.
(4) Such activities not to affect exempt status
An organization described in section 501(c) (3), (4), or (5)
shall not be considered as not entitled to the exemption allowed
under section 501(a) solely because of qualified public
entertainment activities conducted by it.
(e) Certain hospital services
In the case of a hospital described in section 170(b)(1)(A)(iii),
the term "unrelated trade or business" does not include the
furnishing of one or more of the services described in section
501(e)(1)(A) to one or more hospitals described in section
170(b)(1)(A)(iii) if -
(1) such services are furnished solely to such hospitals which
have facilities to serve not more than 100 inpatients;
(2) such services, if performed on its own behalf by the
recipient hospital, would constitute activities in exercising or
performing the purpose or function constituting the basis for its
exemption; and
(3) such services are provided at a fee or cost which does not
exceed the actual cost of providing such services, such cost
including straight line depreciation and a reasonable amount for
return on capital goods used to provide such services.
(f) Certain bingo games
(1) In general
The term "unrelated trade or business" does not include any
trade or business which consists of conducting bingo games.
(2) Bingo game defined
For purposes of paragraph (1), the term "bingo game" means any
game of bingo -
(A) of a type in which usually -
(i) the wagers are placed,
(ii) the winners are determined, and
(iii) the distribution of prizes or other property is made,
in the presence of all persons placing wagers in such game,
(B) the conducting of which is not an activity ordinarily
carried out on a commercial basis, and
(C) the conducting of which does not violate any State or
local law.
(g) Certain pole rentals
In the case of a mutual or cooperative telephone or electric
company, the term "unrelated trade or business" does not include
engaging in qualified pole rentals (as defined in section
501(c)(12)(D)).
(h) Certain distributions of low cost articles without obligation
to purchase and exchanges and rentals of member lists
(1) In general
In the case of an organization which is described in section
501 and contributions to which are deductible under paragraph (2)
or (3) of section 170(c), the term "unrelated trade or business"
does not include -
(A) activities relating to the distribution of low cost
articles if the distribution of such articles is incidental to
the solicitation of charitable contributions, or
(B) any trade or business which consists of -
(i) exchanging with another such organization names and
addresses of donors to (or members of) such organization, or
(ii) renting such names and addresses to another such
organization.
(2) Low cost article defined
For purposes of this subsection -
(A) In general
The term "low cost article" means any article which has a
cost not in excess of $5 to the organization which distributes
such item (or on whose behalf such item is distributed).
(B) Aggregation rule
If more than 1 item is distributed by or on behalf of an
organization to a single distributee in any calendar year, the
aggregate of the items so distributed in such calendar year to
such distributee shall be treated as 1 article for purposes of
subparagraph (A).
(C) Indexation of $5 amount
In the case of any taxable year beginning in a calendar year
after 1987, the $5 amount in subparagraph (A) shall be
increased by an amount equal to -
(i) $5, multiplied by
(ii) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year
begins, by substituting "calendar year 1987" for "calendar
year 1992" in subparagraph (B) thereof.
(3) Distribution which is incidental to the solicitation of
charitable contributions described
For purposes of this subsection, any distribution of low cost
articles by an organization shall be treated as a distribution
incidental to the solicitation of charitable contributions only
if -
(A) such distribution is not made at the request of the
distributee,
(B) such distribution is made without the express consent of
the distributee, and
(C) the articles so distributed are accompanied by -
(i) a request for a charitable contribution (as defined in
section 170(c)) by the distributee to such organization, and
(ii) a statement that the distributee may retain the low
cost article regardless of whether such distributee makes a
charitable contribution to such organization.
(i) Treatment of certain sponsorship payments
(1) In general
The term "unrelated trade or business" does not include the
activity of soliciting and receiving qualified sponsorship
payments.
(2) Qualified sponsorship payments
For purposes of this subsection -
(A) In general
The term "qualified sponsorship payment" means any payment
made by any person engaged in a trade or business with respect
to which there is no arrangement or expectation that such
person will receive any substantial return benefit other than
the use or acknowledgement of the name or logo (or product
lines) of such person's trade or business in connection with
the activities of the organization that receives such payment.
Such a use or acknowledgement does not include advertising such
person's products or services (including messages containing
qualitative or comparative language, price information, or
other indications of savings or value, an endorsement, or an
inducement to purchase, sell, or use such products or
services).
(B) Limitations
(i) Contingent payments
The term "qualified sponsorship payment" does not include
any payment if the amount of such payment is contingent upon
the level of attendance at one or more events, broadcast
ratings, or other factors indicating the degree of public
exposure to one or more events.
(ii) Safe harbor does not apply to periodicals and qualified
convention and trade show activities
The term "qualified sponsorship payment" does not include -
(I) any payment which entitles the payor to the use or
acknowledgement of the name or logo (or product lines) of
the payor's trade or business in regularly scheduled and
printed material published by or on behalf of the payee
organization that is not related to and primarily
distributed in connection with a specific event conducted
by the payee organization, or
(II) any payment made in connection with any qualified
convention or trade show activity (as defined in subsection
(d)(3)(B)).
(3) Allocation of portions of single payment
For purposes of this subsection, to the extent that a portion
of a payment would (if made as a separate payment) be a qualified
sponsorship payment, such portion of such payment and the other
portion of such payment shall be treated as separate payments.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 172; Pub. L. 86-667, Sec. 4,
July 14, 1960, 74 Stat. 536; Pub. L. 91-172, title I, Sec.
121(b)(4), (c), Dec. 30, 1969, 83 Stat. 541, 542; Pub. L. 94-455,
title XIII, Secs. 1305(a), 1311(a), Oct. 4, 1976, 90 Stat. 1716,
1729; Pub. L. 95-502, title III, Sec. 301(a), Oct. 21, 1978, 92
Stat. 1702; Pub. L. 96-605, title I, Sec. 106(b), Dec. 28, 1980, 94
Stat. 3524; Pub. L. 99-514, title XVI, Secs. 1601(a), 1602(a), (b),
Oct. 22, 1986, 100 Stat. 2766, 2767; Pub. L. 101-508, title XI,
Sec. 11101(d)(1)(G), Nov. 5, 1990, 104 Stat. 1388-405; Pub. L. 103-
66, title XIII, Sec. 13201(b)(3)(H), Aug. 10, 1993, 107 Stat. 459;
Pub. L. 105-34, title IX, Sec. 965(a), Aug. 5, 1997, 111 Stat.
893.)
-STATAMEND-
ADJUSTMENT OF LOW COST ARTICLE LIMITATION FOR TAXABLE YEARS
BEGINNING IN 2006
For adjustment of "low cost article" limitation under subsection
(h)(2) of this section for taxable years beginning in 2006, see
section 3.24(1) of Revenue Procedure 2005-70, set out as a note
under section 1 of this title.
-MISC1-
AMENDMENTS
1997 - Subsec. (i). Pub. L. 105-34 added subsec. (i).
1993 - Subsec. (h)(2)(C)(ii). Pub. L. 103-66 substituted
"calendar year 1992" for "calendar year 1989".
1990 - Subsec. (h)(2)(C)(ii). Pub. L. 101-508 inserted before
period at end ", by substituting 'calendar year 1987' for 'calendar
year 1989' in subparagraph (B) thereof".
1986 - Subsec. (d)(3)(B). Pub. L. 99-514, Sec. 1602(a), inserted
"or to educate persons in attendance regarding new developments or
products and services related to the exempt activities of the
organization".
Subsec. (d)(3)(C). Pub. L. 99-514, Sec. 1602(b), substituted
"section 501(c)(3), (4), (5), or (6)" for "section 501(c)(5) or
(6)" and inserted "or which educates persons in attendance
regarding new developments or products and services related to the
exempt activities of the organization".
Subsec. (h). Pub. L. 99-514, Sec. 1601(a), added subsec. (h).
1980 - Subsec. (g). Pub. L. 96-605 added subsec. (g).
1978 - Subsec. (f). Pub. L. 95-502 added subsec. (f).
1976 - Subsec. (d). Pub. L. 94-455, Sec. 1305(a), added subsec.
(d).
Subsec. (e). Pub. L. 94-455, Sec. 1311(a), added subsec. (e).
1969 - Subsec. (a)(2). Pub. L. 91-172, Sec. 121(b)(4), inserted
reference to local associations of employees described in section
501(c)(4) of this title and organized before May 27, 1969.
Subsec. (c). Pub. L. 91-172, Sec. 121(c), substituted
"Advertising, etc., activities" for "Special rule for certain
publishing businesses", in heading, and, in text, substituted
provisions extending definition of trade or business to include any
activity carried on for the production of income from the sale of
goods or the performance of services, for provisions referring to
publishing businesses carried on by an organization during a
taxable year beginning before Jan. 1, 1953.
1960 - Subsec. (b)(2). Pub. L. 86-667 included trusts described
in section 501(c)(17).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 965(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to
payments solicited or received after December 31, 1997."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1992, see section 13201(c) of Pub. L. 103-66, set
out as a note under section 1 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to taxable years
beginning after Dec. 31, 1990, see section 11101(e) of Pub. L. 101-
508, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1601(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to
distributions of low cost articles and exchanges and rentals of
member lists after the date of the enactment of this Act [Oct. 22,
1986]."
Section 1602(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to
activities in taxable years beginning after the date of the
enactment of this Act [Oct. 22, 1986]."
EFFECTIVE DATE OF 1980 AMENDMENT
Section 106(c)(2) of Pub. L. 96-605 provided that: "The amendment
made by subsection (b) [amending this section] shall apply to
taxable years beginning after December 31, 1969."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 301(b) of Pub. L. 95-502 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1969."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1305(b) of Pub. L. 94-455 provided that: "The amendments
made by subsection (a) [amending this section] apply to qualified
public entertainment activities in taxable years beginning after
December 31, 1962, and to qualified convention and trade show
activities in taxable years beginning after the date of enactment
of this Act [Oct. 4, 1976]."
Section 1311(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by this section [amending this section] shall apply
to all taxable years to which the Internal Revenue Code of 1986
[formerly I.R.C. 1954] [this title] applies."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 121(g) of Pub. L. 91-172, set out
as a note under section 511 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-667 applicable to taxable years beginning
after Dec. 31, 1959, see section 6 of Pub. L. 86-667, set out as a
note under section 501 of this title.
CONDUCTING OF CERTAIN GAMES OF CHANCE NOT TREATED AS UNRELATED
TRADE OR BUSINESS
Pub. L. 98-369, div. A, title III, Sec. 311, July 18, 1984, 98
Stat. 786, as amended by Pub. L. 99-514, Sec. 2, title XVIII, Sec.
1834, Oct. 22, 1986, 100 Stat. 2095, 2852, provided that:
"(a) General Rule. - For purposes of section 513 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (defining unrelated
trade or business), the term 'unrelated trade or business' does not
include any trade or business which consists of conducting any game
of chance if -
"(1) such game of chance is conducted by a nonprofit
organization,
"(2) the conducting of such game by such organization does not
violate any State or local law, and
"(3) as of October 5, 1983 -
"(A) there was a State law (originally enacted on April 22,
1977) in effect which permitted the conducting of such game of
chance by such nonprofit organization, but
"(B) the conducting of such game of chance by organizations
which were not nonprofit organizations would have violated such
law.
"(b) Effective Date. - Subsection (a) shall apply to games of
chance conducted after June 30, 1981, in taxable years ending after
such date."
[Section 1834 of Pub. L. 99-514, as amended by Pub. L. 100-647,
title VI, Sec. 6201, Nov. 10, 1988, 102 Stat. 3730, provided in
part that: "The amendment made by this section [amending section
311 of Pub. L. 98-369, set out above] shall apply to games of
chance conducted after October 22, 1986, in taxable years ending
after such date".]
-End-
-CITE-
26 USC Sec. 514 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART III - TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT
ORGANIZATIONS
-HEAD-
Sec. 514. Unrelated debt-financed income
-STATUTE-
(a) Unrelated debt-financed income and deductions
In computing under section 512 the unrelated business taxable
income for any taxable year -
(1) Percentage of income taken into account
There shall be included with respect to each debt-financed
property as an item of gross income derived from an unrelated
trade or business an amount which is the same percentage (but not
in excess of 100 percent) of the total gross income derived
during the taxable year from or on account of such property as
(A) the average acquisition indebtedness (as defined in
subsection (c)(7)) for the taxable year with respect to the
property is of (B) the average amount (determined under
regulations prescribed by the Secretary) of the adjusted basis of
such property during the period it is held by the organization
during such taxable year.
(2) Percentage of deductions taken into account
There shall be allowed as a deduction with respect to each debt-
financed property an amount determined by applying (except as
provided in the last sentence of this paragraph) the percentage
derived under paragraph (1) to the sum determined under paragraph
(3). The percentage derived under this paragraph shall not be
applied with respect to the deduction of any capital loss
resulting from the carryback or carryover of net capital losses
under section 1212.
(3) Deductions allowable
The sum referred to in paragraph (2) is the sum of the
deductions under this chapter which are directly connected with
the debt-financed property or the income therefrom, except that
if the debt-financed property is of a character which is subject
to the allowance for depreciation provided in section 167, the
allowance shall be computed only by use of the straight-line
method.
(b) Definition of debt-financed property
(1) In general
For purposes of this section, the term "debt-financed property"
means any property which is held to produce income and with
respect to which there is an acquisition indebtedness (as defined
in subsection (c)) at any time during the taxable year (or, if
the property was disposed of during the taxable year, with
respect to which there was an acquisition indebtedness at any
time during the 12-month period ending with the date of such
disposition), except that such term does not include -
(A)(i) any property substantially all the use of which is
substantially related (aside from the need of the organization
for income or funds) to the exercise or performance by such
organization of its charitable, educational, or other purpose
or function constituting the basis for its exemption under
section 501 (or, in the case of an organization described in
section 511(a)(2)(B), to the exercise or performance of any
purpose or function designated in section 501(c)(3)), or (ii)
any property to which clause (i) does not apply, to the extent
that its use is so substantially related;
(B) except in the case of income excluded under section
512(b)(5), any property to the extent that the income from such
property is taken into account in computing the gross income of
any unrelated trade or business;
(C) any property to the extent that the income from such
property is excluded by reason of the provisions of paragraph
(7), (8), or (9) of section 512(b) in computing the gross
income of any unrelated trade or business;
(D) any property to the extent that it is used in any trade
or business described in paragraph (1), (2), or (3) of section
513(a); or
(E) any property the gain or loss from the sale, exchange, or
other disposition of which would be excluded by reason of the
provisions of section 512(b)(19) in computing the gross income
of any unrelated trade or business.
For purposes of subparagraph (A), substantially all the use of a
property shall be considered to be substantially related to the
exercise or performance by an organization of its charitable,
educational, or other purpose or function constituting the basis
for its exemption under section 501 if such property is real
property subject to a lease to a medical clinic entered into
primarily for purposes which are substantially related (aside
from the need of such organization for income or funds or the use
it makes of the rents derived) to the exercise or performance by
such organization of its charitable, educational, or other
purpose or function constituting the basis for its exemption
under section 501.
(2) Special rule for related uses
For purposes of applying paragraphs (1) (A), (C), and (D), the
use of any property by an exempt organization which is related to
an organization shall be treated as use by such organization.
(3) Special rules when land is acquired for exempt use within 10
years
(A) Neighborhood land
If an organization acquires real property for the principal
purpose of using the land (commencing within 10 years of the
time of acquisition) in the manner described in paragraph
(1)(A) and at the time of acquisition the property is in the
neighborhood of other property owned by the organization which
is used in such manner, the real property acquired for such
future use shall not be treated as debt-financed property so
long as the organization does not abandon its intent to so use
the land within the 10-year period. The preceding sentence
shall not apply for any period after the expiration of the 10-
year period, and shall apply after the first 5 years of the 10-
year period only if the organization establishes to the
satisfaction of the Secretary that it is reasonably certain
that the land will be used in the described manner before the
expiration of the 10-year period.
(B) Other cases
If the first sentence of subparagraph (A) is inapplicable
only because -
(i) the acquired land is not in the neighborhood referred
to in subparagraph (A), or
(ii) the organization (for the period after the first 5
years of the 10-year period) is unable to establish to the
satisfaction of the Secretary that it is reasonably certain
that the land will be used in the manner described in
paragraph (1)(A) before the expiration of the 10-year period,
but the land is converted to such use by the organization
within the 10-year period, the real property (subject to the
provisions of subparagraph (D)) shall not be treated as debt-
financed property for any period before such conversion. For
purposes of this subparagraph, land shall not be treated as
used in the manner described in paragraph (1)(A) by reason of
the use made of any structure which was on the land when
acquired by the organization.
(C) Limitations
Subparagraphs (A) and (B) -
(i) shall apply with respect to any structure on the land
when acquired by the organization, or to the land occupied by
the structure, only if (and so long as) the intended future
use of the land in the manner described in paragraph (1)(A)
requires that the structure be demolished or removed in order
to use the land in such manner;
(ii) shall not apply to structures erected on the land
after the acquisition of the land; and
(iii) shall not apply to property subject to a lease which
is a business lease (as defined in this section immediately
before the enactment of the Tax Reform Act of 1976).
(D) Refund of taxes when subparagraph (B) applies
If an organization for any taxable year has not used land in
the manner to satisfy the actual use condition of subparagraph
(B) before the time prescribed by law (including extensions
thereof) for filing the return for such taxable year, the tax
for such year shall be computed without regard to the
application of subparagraph (B), but if and when such use
condition is satisfied, the provisions of subparagraph (B)
shall then be applied to such taxable year. If the actual use
condition of subparagraph (B) is satisfied for any taxable year
after such time for filing the return, and if credit or refund
of any overpayment for the taxable year resulting from the
satisfaction of such use condition is prevented at the close of
the taxable year in which the use condition is satisfied, by
the operation of any law or rule of law (other than chapter 74,
relating to closing agreements and compromises), credit or
refund of such overpayment may nevertheless be allowed or made
if claim therefor is filed before the expiration of 1 year
after the close of the taxable year in which the use condition
is satisfied.
(E) Special rule for churches
In applying this paragraph to a church or convention or
association of churches, in lieu of the 10-year period referred
to in subparagraphs (A) and (B) a 15-year period shall be
applied, and subparagraphs (A) and (B)(ii) shall apply whether
or not the acquired land meets the neighborhood test.
(c) Acquisition indebtedness
(1) General rule
For purposes of this section, the term "acquisition
indebtedness" means, with respect to any debt-financed property,
the unpaid amount of -
(A) the indebtedness incurred by the organization in
acquiring or improving such property;
(B) the indebtedness incurred before the acquisition or
improvement of such property if such indebtedness would not
have been incurred but for such acquisition or improvement; and
(C) the indebtedness incurred after the acquisition or
improvement of such property if such indebtedness would not
have been incurred but for such acquisition or improvement and
the incurrence of such indebtedness was reasonably foreseeable
at the time of such acquisition or improvement.
(2) Property acquired subject to mortgage, etc.
For purposes of this subsection -
(A) General rule
Where property (no matter how acquired) is acquired subject
to a mortgage or other similar lien, the amount of the
indebtedness secured by such mortgage or lien shall be
considered as an indebtedness of the organization incurred in
acquiring such property even though the organization did not
assume or agree to pay such indebtedness.
(B) Exceptions
Where property subject to a mortgage is acquired by an
organization by bequest or devise, the indebtedness secured by
the mortgage shall not be treated as acquisition indebtedness
during a period of 10 years following the date of the
acquisition. If an organization acquires property by gift
subject to a mortgage which was placed on the property more
than 5 years before the gift, which property was held by the
donor more than 5 years before the gift, the indebtedness
secured by such mortgage shall not be treated as acquisition
indebtedness during a period of 10 years following the date of
such gift. This subparagraph shall not apply if the
organization, in order to acquire the equity in the property by
bequest, devise, or gift, assumes and agrees to pay the
indebtedness secured by the mortgage, or if the organization
makes any payment for the equity in the property owned by the
decedent or the donor.
(C) Liens for taxes or assessments
Where State law provides that -
(i) a lien for taxes, or
(ii) a lien for assessments,
made by a State or a political subdivision thereof attaches to
property prior to the time when such taxes or assessments
become due and payable, then such lien shall be treated as
similar to a mortgage (within the meaning of subparagraph (A))
but only after such taxes or assessments become due and payable
and the organization has had an opportunity to pay such taxes
or assessments in accordance with State law.
(3) Extension of obligations
For purposes of this section, an extension, renewal, or
refinancing of an obligation evidencing a pre-existing
indebtedness shall not be treated as the creation of a new
indebtedness.
(4) Indebtedness incurred in performing exempt purpose
For purposes of this section, the term "acquisition
indebtedness" does not include indebtedness the incurrence of
which is inherent in the performance or exercise of the purpose
or function constituting the basis of the organization's
exemption, such as the indebtedness incurred by a credit union
described in section 501(c)(14) in accepting deposits from its
members.
(5) Annuities
For purposes of this section, the term "acquisition
indebtedness" does not include an obligation to pay an annuity
which -
(A) is the sole consideration (other than a mortgage to which
paragraph (2)(B) applies) issued in exchange for property if,
at the time of the exchange, the value of the annuity is less
than 90 percent of the value of the property received in the
exchange,
(B) is payable over the life of one individual in being at
the time the annuity is issued, or over the lives of two
individuals in being at such time, and
(C) is payable under a contract which -
(i) does not guarantee a minimum amount of payments or
specify a maximum amount of payments, and
(ii) does not provide for any adjustment of the amount of
the annuity payments by reference to the income received from
the transferred property or any other property.
(6) Certain Federal financing
(A) In general
For purposes of this section, the term "acquisition
indebtedness" does not include -
(i) an obligation, to the extent that it is insured by the
Federal Housing Administration, to finance the purchase,
rehabilitation, or construction of housing for low and
moderate income persons, or
(ii) indebtedness incurred by a small business investment
company licensed after the date of the enactment of the
American Jobs Creation Act of 2004 under the Small Business
Investment Act of 1958 if such indebtedness is evidenced by a
debenture -
(I) issued by such company under section 303(a) of such
Act, and
(II) held or guaranteed by the Small Business
Administration.
(B) Limitation
Subparagraph (A)(ii) shall not apply with respect to any
small business investment company during any period that -
(i) any organization which is exempt from tax under this
title (other than a governmental unit) owns more than 25
percent of the capital or profits interest in such company,
or
(ii) organizations which are exempt from tax under this
title (including governmental units other than any agency or
instrumentality of the United States) own, in the aggregate,
50 percent or more of the capital or profits interest in such
company.
(7) Average acquisition indebtedness
For purposes of this section, the term "average acquisition
indebtedness" for any taxable year with respect to a debt-
financed property means the average amount, determined under
regulations prescribed by the Secretary of the acquisition
indebtedness during the period the property is held by the
organization during the taxable year, except that for the purpose
of computing the percentage of any gain or loss to be taken into
account on a sale or other disposition of debt-financed property,
such term means the highest amount of the acquisition
indebtedness with respect to such property during the 12-month
period ending with the date of the sale or other disposition.
(8) Securities subject to loans
For purposes of this section -
(A) payments with respect to securities loans (as defined in
section 512(a)(5)) shall be deemed to be derived from the
securities loaned and not from collateral security or the
investment of collateral security from such loans,
(B) any deductions which are directly connected with
collateral security for such loan, or with the investment of
collateral security, shall be deemed to be deductions which are
directly connected with the securities loaned, and
(C) an obligation to return collateral security shall not be
treated as acquisition indebtedness (as defined in paragraph
(1)).
(9) Real property acquired by a qualified organization
(A) In general
Except as provided in subparagraph (B), the term "acquisition
indebtedness" does not, for purposes of this section, include
indebtedness incurred by a qualified organization in acquiring
or improving any real property. For purposes of this paragraph,
an interest in a mortgage shall in no event be treated as real
property.
(B) Exceptions
The provisions of subparagraph (A) shall not apply in any
case in which -
(i) the price for the acquisition or improvement is not a
fixed amount determined as of the date of the acquisition or
the completion of the improvement;
(ii) the amount of any indebtedness or any other amount
payable with respect to such indebtedness, or the time for
making any payment of any such amount, is dependent, in whole
or in part, upon any revenue, income, or profits derived from
such real property;
(iii) the real property is at any time after the
acquisition leased by the qualified organization to the
person selling such property to such organization or to any
person who bears a relationship described in section 267(b)
or 707(b) to such person;
(iv) the real property is acquired by a qualified trust
from, or is at any time after the acquisition leased by such
trust to, any person who -
(I) bears a relationship which is described in
subparagraph (C), (E), or (G) of section 4975(e)(2) to any
plan with respect to which such trust was formed, or
(II) bears a relationship which is described in
subparagraph (F) or (H) of section 4975(e)(2) to any person
described in subclause (I);
(v) any person described in clause (iii) or (iv) provides
the qualified organization with financing in connection with
the acquisition or improvement; or
(vi) the real property is held by a partnership unless the
partnership meets the requirements of clauses (i) through (v)
and unless -
(I) all of the partners of the partnership are qualified
organizations,
(II) each allocation to a partner of the partnership
which is a qualified organization is a qualified allocation
(within the meaning of section 168(h)(6)), or
(III) such partnership meets the requirements of
subparagraph (E).
For purposes of subclause (I) of clause (vi), an organization
shall not be treated as a qualified organization if any income
of such organization is unrelated business taxable income.
(C) Qualified organization
For purposes of this paragraph, the term "qualified
organization" means -
(i) an organization described in section 170(b)(1)(A)(ii)
and its affiliated support organizations described in section
509(a)(3);
(ii) any trust which constitutes a qualified trust under
section 401; or
(iii) an organization described in section 501(c)(25).
(D) Other pass-thru entities; tiered entities
Rules similar to the rules of subparagraph (B)(vi) shall also
apply in the case of any pass-thru entity other than a
partnership and in the case of tiered partnerships and other
entities.
(E) Certain allocations permitted
(i) In general
A partnership meets the requirements of this subparagraph
if -
(I) the allocation of items to any partner which is a
qualified organization cannot result in such partner having
a share of the overall partnership income for any taxable
year greater than such partner's share of the overall
partnership loss for the taxable year for which such
partner's loss share will be the smallest, and
(II) each allocation with respect to the partnership has
substantial economic effect within the meaning of section
704(b)(2).
For purposes of this clause, items allocated under section
704(c) shall not be taken into account.
(ii) Special rules
(I) Chargebacks
Except as provided in regulations, a partnership may
without violating the requirements of this subparagraph
provide for chargebacks with respect to disproportionate
losses previously allocated to qualified organizations and
disproportionate income previously allocated to other
partners. Any chargeback referred to in the preceding
sentence shall not be at a ratio in excess of the ratio
under which the loss or income (as the case may be) was
allocated.
(II) Preferred rates of return, etc.
To the extent provided in regulations, a partnership may
without violating the requirements of this subparagraph
provide for reasonable preferred returns or reasonable
guaranteed payments.
(iii) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subparagraph,
including regulations which may provide for exclusion or
segregation of items.
(F) Special rules for organizations described in section
501(c)(25)
(i) In general
In computing under section 512 the unrelated business
taxable income of a disqualified holder of an interest in an
organization described in section 501(c)(25), there shall be
taken into account -
(I) as gross income derived from an unrelated trade or
business, such holder's pro rata share of the items of
income described in clause (ii)(I) of such organization,
and
(II) as deductions allowable in computing unrelated
business taxable income, such holder's pro rata share of
the items of deduction described in clause (ii)(II) of such
organization.
Such amounts shall be taken into account for the taxable year
of the holder in which (or with which) the taxable year of
such organization ends.
(ii) Description of amounts
For purposes of clause (i) -
(I) gross income is described in this clause to the
extent such income would (but for this paragraph) be
treated under subsection (a) as derived from an unrelated
trade or business, and
(II) any deduction is described in this clause to the
extent it would (but for this paragraph) be allowable under
subsection (a)(2) in computing unrelated business taxable
income.
(iii) Disqualified holder
For purposes of this subparagraph, the term "disqualified
holder" means any shareholder (or beneficiary) which is not
described in clause (i) or (ii) of subparagraph (C).
(G) Special rules for purposes of the exceptions
Except as otherwise provided by regulations -
(i) Small leases disregarded
For purposes of clauses (iii) and (iv) of subparagraph (B),
a lease to a person described in such clause (iii) or (iv)
shall be disregarded if no more than 25 percent of the
leasable floor space in a building (or complex of buildings)
is covered by the lease and if the lease is on commercially
reasonable terms.
(ii) Commercially reasonable financing
Clause (v) of subparagraph (B) shall not apply if the
financing is on commercially reasonable terms.
(H) Qualifying sales by financial institutions
(i) In general
In the case of a qualifying sale by a financial
institution, except as provided in regulations, clauses (i)
and (ii) of subparagraph (B) shall not apply with respect to
financing provided by such institution for such sale.
(ii) Qualifying sale
For purposes of this clause, there is a qualifying sale by
a financial institution if -
(I) a qualified organization acquires property described
in clause (iii) from a financial institution and any gain
recognized by the financial institution with respect to the
property is ordinary income,
(II) the stated principal amount of the financing
provided by the financial institution does not exceed the
amount of the outstanding indebtedness (including accrued
but unpaid interest) of the financial institution with
respect to the property described in clause (iii)
immediately before the acquisition referred to in clause
(iii) or (v), whichever is applicable, and
(III) the present value (determined as of the time of the
sale and by using the applicable Federal rate determined
under section 1274(d)) of the maximum amount payable
pursuant to the financing that is determined by reference
to the revenue, income, or profits derived from the
property cannot exceed 30 percent of the total purchase
price of the property (including the contingent payments).
(iii) Property to which subparagraph applies
Property is described in this clause if such property is
foreclosure property, or is real property which -
(I) was acquired by the qualified organization from a
financial institution which is in conservatorship or
receivership, or from the conservator or receiver of such
an institution, and
(II) was held by the financial institution at the time it
entered into conservatorship or receivership.
(iv) Financial institution
For purposes of this subparagraph, the term "financial
institution" means -
(I) any financial institution described in section 581 or
591(a),
(II) any other corporation which is a direct or indirect
subsidiary of an institution referred to in subclause (I)
but only if, by virtue of being affiliated with such
institution, such other corporation is subject to
supervision and examination by a Federal or State agency
which regulates institutions referred to in subclause (I),
and
(III) any person acting as a conservator or receiver of
an entity referred to in subclause (I) or (II) (or any
government agency or corporation succeeding to the rights
or interest of such person).
(v) Foreclosure property
For purposes of this subparagraph, the term "foreclosure
property" means any real property acquired by the financial
institution as the result of having bid on such property at
foreclosure, or by operation of an agreement or process of
law, after there was a default (or a default was imminent) on
indebtedness which such property secured.
(d) Basis of debt-financed property acquired in corporate
liquidation
For purposes of this subtitle, if the property was acquired in a
complete or partial liquidation of a corporation in exchange for
its stock, the basis of the property shall be the same as it would
be in the hands of the transferor corporation, increased by the
amount of gain recognized to the transferor corporation upon such
distribution and by the amount of any gain to the organization
which was included, on account of such distribution, in unrelated
business taxable income under subsection (a).
(e) Allocation rules
Where debt-financed property is held for purposes described in
subsection (b)(1)(A), (B), (C), or (D) as well as for other
purposes, proper allocation shall be made with respect to basis,
indebtedness, and income and deductions. The allocations required
by this section shall be made in accordance with regulations
prescribed by the Secretary to the extent proper to carry out the
purposes of this section.
(f) Personal property leased with real property
For purposes of this section, the term "real property" includes
personal property of the lessor leased by it to a lessee of its
real estate if the lease of such personal property is made under,
or in connection with, the lease of such real estate.
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations to prevent the circumvention of any provision
of this section through the use of segregated asset accounts.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 172; Pub. L. 86-667, Sec. 5,
July 14, 1960, 74 Stat. 536; Pub. L. 91-172, title I, Sec.
121(d)(1), (3)(A), (B), Dec. 30, 1969, 83 Stat. 543, 548; Pub. L.
93-625, Sec. 7(b)(2), Jan. 3, 1975, 88 Stat. 2115; Pub. L. 94-455,
title XIII, Sec. 1308(a), title XIX, Secs. 1901(a)(72),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1729, 1776, 1834; Pub. L. 95-
345, Sec. 2(c), Aug. 15, 1978, 92 Stat. 482; Pub. L. 96-605, title
I, Sec. 110(a), Dec. 28, 1980, 94 Stat. 3525; Pub. L. 98-369, div.
A, title I, Sec. 174(b)(5)(B), title X, Sec. 1034(a), (b), July 18,
1984, 98 Stat. 707, 1039, 1040; Pub. L. 99-514, title II, Sec.
201(d)(9), title XVI, Sec. 1603(b), title XVIII, Sec. 1878(e), Oct.
22, 1986, 100 Stat. 2141, 2768, 2903; Pub. L. 100-203, title X,
Sec. 10214(a), (b), Dec. 22, 1987, 101 Stat. 1330-407; Pub. L. 100-
647, title I, Secs. 1016(a)(5)(A), (6), 1018(u)(13), title II,
Sec. 2004(h), Nov. 10, 1988, 102 Stat. 3574, 3575, 3590, 3603; Pub.
L. 101-239, title VII, Sec. 7811(l), Dec. 19, 1989, 103 Stat. 2412;
Pub. L. 103-66, title XIII, Sec. 13144(a), (b), Aug. 10, 1993, 107
Stat. 441, 442; Pub. L. 108-357, title II, Sec. 247(a), title VII,
Sec. 702(b), Oct. 22, 2004, 118 Stat. 1449, 1546; Pub. L. 109-135,
title IV, Sec. 412(ee)(2), Dec. 21, 2005, 119 Stat. 2639.)
-REFTEXT-
REFERENCES IN TEXT
The Tax Reform Act of 1976, referred to in subsec.
(b)(3)(C)(iii), is Pub. L. 94-455, Oct. 4, 1976, 90 Stat. 1520, as
amended, which was enacted Oct. 4, 1976. For complete
classification of this Act to the Code, see Tables.
The date of the enactment of the American Jobs Creation Act of
2004, referred to in subsec. (c)(6)(A)(ii), is the date of
enactment of Pub. L. 108-357, which was approved Oct. 22, 2004.
The Small Business Investment Act of 1958, referred to in subsec.
(c)(6)(A)(ii), is Pub. L. 85-699, Aug. 21, 1958, 72 Stat. 689, as
amended, which is classified principally to chapter 14B (Sec. 661
et seq.) of Title 15, Commerce and Trade. Section 303(a) of the Act
is classified to section 683(a) of Title 15. For complete
classification of this Act to the Code, see Short Title note set
out under section 661 of Title 15 and Tables.
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(1)(E). Pub. L. 109-135 substituted "section
512(b)(19)" for "section 512(b)(18)".
2004 - Subsec. (b)(1)(E). Pub. L. 108-357, Sec. 702(b), added
subpar. (E).
Subsec. (c)(6). Pub. L. 108-357, Sec. 247(a), reenacted heading
without change and amended text of par. (6) generally. Prior to
amendment, text read as follows: "For purposes of this section, the
term 'acquisition indebtedness' does not include an obligation, to
the extent that it is insured by the Federal Housing
Administration, to finance the purchase, rehabilitation, or
construction of housing for low and moderate income persons."
1993 - Subsec. (c)(9)(A). Pub. L. 103-66, Sec. 13144(b)(1),
inserted at end "For purposes of this paragraph, an interest in a
mortgage shall in no event be treated as real property."
Subsec. (c)(9)(B). Pub. L. 103-66, Sec. 13144(b)(2), struck out
at end "For purposes of this paragraph, an interest in a mortgage
shall in no event be treated as real property."
Subsec. (c)(9)(G), (H). Pub. L. 103-66, Sec. 13144(a), added
subpars. (G) and (H).
1989 - Subsec. (c)(9)(E), (F). Pub. L. 101-239 redesignated the
subpar. (E), relating to special rules for organizations described
in section 501(c)(25), as (F).
1988 - Subsec. (c)(9)(B). Pub. L. 100-647, Sec. 1016(a)(6),
substituted "this paragraph" for "clause (vi)" in last sentence.
Pub. L. 100-647, Sec. 1018(u)(13)(A), amended directory language
of Pub. L. 99-514, Sec. 1878(e)(1), (3), to clarify that general
amendment by section 1878(e)(3) included concluding provision as
well as cl. (vi) and that amendment by section 1878(e)(1) should
have been to the concluding provisions as amended by section
1878(e)(3).
Subsec. (c)(9)(E). Pub. L. 100-647, Sec. 1016(a)(5)(A), added
subpar. (E) relating to special rules for organizations described
in section 501(c)(25).
Subsec. (c)(9)(E)(i). Pub. L. 100-647, Sec. 2004(h)(2), in
subsec. (c)(9)(E), relating to certain allocations permitted,
redesignated subcls. (II) and (III) as (I) and (II), respectively,
and struck out former subcl. (I) which read as follows: "the
allocation of items to any partner other than a qualified
organization cannot result in such partner having a share of the
overall partnership loss for any taxable year greater than such
partner's share of the overall partnership income for the taxable
year for which such partner's income share will be the smallest,".
Subsec. (c)(9)(E)(iii). Pub. L. 100-647, Sec. 2004(h)(1), in
subsec. (c)(9)(E) relating to certain allocations permitted, added
cl. (iii).
1987 - Subsec. (c)(9)(B)(vi). Pub. L. 100-203, Sec. 10214(a),
amended cl. (vi) generally. Prior to amendment, cl. (vi) read as
follows: "the real property is held by a partnership (which does
not fail to meet the requirements of clauses (i) through (v)), and -
"(I) any partner of the partnership is not a qualified
organization, and
"(II) the principal purpose of any allocation to any partner of
the partnership which is a qualified organization which is not a
qualified allocation (within the meaning of section 168(h)(6)) is
the avoidance of income tax."
Subsec. (c)(9)(E). Pub. L. 100-203, Sec. 10214(b), added subpar.
(E).
1986 - Subsec. (c)(9)(B). Pub. L. 99-514, Sec. 1878(e)(1), as
amended by Pub. L. 100-647, Sec. 1018(u)(13)(A), which directed
amendment of penultimate sentence by substituting "is unrelated
business taxable income" for "would be unrelated business taxable
income (determined without regard to this paragraph)", was executed
by making the substitution for "would be unrelated business taxable
income (determined without regard to this paragraph", as the
probable intent of Congress.
Pub. L. 99-514, Sec. 1878(e)(3), as amended by Pub. L. 100-647,
Sec. 1018(u)(13)(B), amended concluding provisions generally. Prior
to amendment, concluding provisions read as follows: "For purposes
of clause (vi)(I), an organization shall not be treated as a
qualified organization if any income of such organization would be
unrelated business taxable income (determined without regard to
this paragraph)."
Subsec. (c)(9)(B)(vi). Pub. L. 99-514, Sec. 1878(e)(3), as
amended by Pub. L. 100-647, Sec. 1018(u)(13)(B), amended cl. (vi)
generally. Prior to amendment, cl. (vi) read as follows: "the real
property is held by a partnership unless the partnership meets the
requirements of clauses (i) through (v) and unless -
"(I) all of the partners of the partnership are qualified
organizations, or
"(II) each allocation to a partner of the partnership which is
a qualified organization is a qualified allocation (within the
meaning of section 168(j)(9))."
Subsec. (c)(9)(B)(vi)(II). Pub. L. 99-514, Sec. 201(d)(9),
substituted "section 168(h)(6)" for "section 168(j)(9)".
Subsec. (c)(9)(C)(i). Pub. L. 99-514, Sec. 1878(e)(2),
substituted "section 509(a)(3)" for "section 509(a)".
Subsec. (c)(9)(C)(iii). Pub. L. 99-514, Sec. 1603(b), added cl.
(iii).
1984 - Subsec. (c)(9). Pub. L. 98-369, Sec. 1034(a), amended par.
(9) generally, substituting provisions relating to real property
acquired by a qualified organization for provisions relating to
real property acquired by a qualified trust, with "qualified
organization" expanded to include trusts constituting qualified
trusts under section 401 of this title as well as organizations
described in section 170(b)(1)(A)(ii) of this title and their
affiliated support organizations described in section 509(a) of
this title.
Subsec. (c)(9)(B)(iii). Pub. L. 98-369, Sec. 174(b)(5)(B),
inserted reference to section 707(b).
Subsec. (g). Pub. L. 98-369, Sec. 1034(b), added subsec. (g).
1980 - Subsec. (c)(9). Pub. L. 96-605 added par. (9).
1978 - Subsec. (c)(8). Pub. L. 95-345 added par. (8).
1976 - Subsecs. (a)(1), (b)(3)(A), (B)(ii). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (b)(3)(C)(iii). Pub. L. 94-455, Sec. 1901(a)(72)(C),
substituted "(as defined in this section immediately before the
enactment of the Tax Reform Act of 1976)" for "as (defined in
subsection (f))" after "is a business lease".
Subsec. (c)(1). Pub. L. 94-455, Sec. 1901(a)(72)(A), struck out
exception following subpar. (C) that in any taxable year beginning
before January 1, 1972, any acquisition indebtedness incurred prior
to June 28, 1966, would not be taken into account except for
business lease indebtedness of certain organizations.
Subsec. (c)(2)(C). Pub. L. 94-455, Sec. 1308(a), added subpar.
(C).
Subsecs. (c)(7), (e). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (f). Pub. L. 94-455, Sec. 1901(a)(72(B), struck out
subsec. (f) relating to definition of business lease, special rules
applicable to such leases, and exceptions to the definition and
applicable rules, and redesignated subsec. (h) as (f).
Subsec. (g). Pub. L. 94-455, Sec. 1901(a)(72)(B), struck out
subsec. (g) relating to definition and special rules applicable to
business lease indebtedness.
Subsec. (h). Pub. L. 94-455, Sec. 1901(a)(72)(B), redesignated
subsec. (h) as (f).
1975 - Subsec. (b)(3)(D). Pub. L. 93-625 struck out last sentence
providing for allowance and payment of interest on any overpayment
for a taxable year resulting from application of subpar. (B) after
actual use condition was satisfied at rate of 4 in lieu of 6
percent per annum.
1969 - Subsec. (a). Pub. L. 91-172, Sec. 121(d)(1), substituted
"Unrelated debt-financed income" for "Business leases" in heading
and substituted in text material covering unrelated debt-financed
income and deductions for material covering business lease rents
and deductions.
Subsecs. (b) to (e). Pub. L. 91-172, Sec. 121(d)(1), (3)(A),
added subsecs. (b), (c), (d) and (e). Former subsecs. (b), (c), and
(d) redesignated (f), (g), and (h), respectively.
Subsec. (f). Pub. L. 91-172, Sec. 121(d)(3)(A), (B), redesignated
subsec. (b) as subsec. (f), and, in par. (1) of subsec. (f) as so
redesignated, substituted reference to subsec. (g) for reference to
subsec. (c).
Subsecs. (g), (h). Pub. L. 91-172, Sec. 121(d)(3)(A),
redesignated subsecs. (c) and (d) as (g) and (h), respectively.
1960 - Subsec. (c)(8). Pub. L. 86-667 added par. (8).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title II, Sec. 247(b), Oct. 22, 2004, 118 Stat.
1449, provided that: "The amendment made by this section [amending
this section] shall apply to indebtedness incurred after the date
of the enactment of this Act [Oct. 22, 2004] by a small business
investment company licensed after the date of the enactment of this
Act."
Amendment by section 702(b) of Pub. L. 108-357 applicable to any
gain or loss on the sale, exchange, or other disposition of any
property acquired by the taxpayer after Dec. 31, 2004, see section
702(d) of Pub. L. 108-357, set out as a note under section 512 of
this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13144(c) of Pub. L. 103-66 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to acquisitions on or after January 1,
1994.
"(2) Small leases. - The provisions of section 514(c)(9)(G)(i) of
the Internal Revenue Code of 1986 shall, in addition to any leases
to which the provisions apply by reason of paragraph (1), apply to
leases entered into on or after January 1, 1994."
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1016(a)(5)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply with respect to interests in the organization acquired after
June 10, 1987, except that such amendment shall not apply to any
such interest acquired after June 10, 1987, pursuant to a binding
written contract in effect on June 10, 1987, and at all times
thereafter before such acquisition."
Amendment by sections 1016(a)(6) and 1018(u)(13) of Pub. L. 100-
647 effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 2004(h) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provisions of the
Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10214(c) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section] shall apply
to -
"(1) property acquired by the partnership after October 13,
1987, and
"(2) partnership interests acquired after October 13, 1987,
except that such amendments shall not apply in the case of any
property (or partnership interest) acquired pursuant to a written
binding contract in effect on October 13, 1987, and at all times
thereafter before such property (or interest) is acquired."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(9) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(9) of Pub. L. 99-514 not applicable
to any property placed in service before Jan. 1, 1994, if such
property placed in service as part of specified rehabilitations,
and not applicable to certain additional rehabilitations, see
section 251(d)(2), (3) of Pub. L. 99-514, set out as a note under
section 46 of this title.
Amendment by section 1603(b) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1603(c) of
Pub. L. 99-514, set out as a note under section 501 of this title.
Amendment by section 1878(e) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 174(b)(5)(B) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1983, in taxable years ending after
that date, see section 174(c)(2)(A) of Pub. L. 98-369, set out as a
note under section 267 of this title.
Section 1034(c) of Pub. L. 98-369 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to indebtedness incurred after the date
of the enactment of this Act [July 18, 1984].
"(2) Exception for indebtedness on certain property acquired
before january 1, 1985. -
"(A) The amendment made by subsection (a) [amending this
section] shall not apply to any indebtedness incurred before
January 1, 1985, by a partnership described in subparagraph (B)
if such indebtedness is incurred with respect to property
acquired (directly or indirectly) by such partnership before such
date.
"(B) A partnership is described in this subparagraph if -
"(i) before October 21, 1983, the partnership was organized,
a request for exemption with respect to such partnership was
filed with the Department of Labor, and a private placement
memorandum stating the maximum number of units in the
partnership that would be offered had been circulated,
"(ii) the interest in the property to be acquired, directly
or indirectly (including through acquiring an interest in
another partnership) by such partnership was described in such
private placement memorandum, and
"(iii) the marketing of partnership interests in such
partnership is completed not later than 2 years after the later
of the date of enactment of this Act [July 18, 1984] or the
date of publication in the Federal Register of such exemption
by the Department of Labor and the aggregate number of units in
such partnership sold does not exceed the amount described in
clause (i).
"(3) Exception for indebtedness on certain property acquired
before january 1, 1986. -
"(A) The amendment made by subsection (a) [amending this
section] shall not apply to any indebtedness incurred before
January 1, 1986, by a partnership described in subparagraph (B)
if such indebtedness is incurred with respect to property
acquired (directly or indirectly) by such partnership before such
date.
"(B) A partnership is described in this paragraph if -
"(i) before March 6, 1984, the partnership was organized and
publicly announced, the maximum amount of interests which would
be sold in such partnership, and
"(ii) the marketing of partnership interests in such
partnership is completed not later than the 90th day after the
date of the enactment of this Act [July 18, 1984] and the
aggregate amount of interests in such partnership sold does not
exceed the maximum amount described in clause (i).
For purposes of clause (i), the maximum amount taken into account
shall be the greatest of the amounts shown in the registration
statement, prospectus, or partnership agreement.
"(C) Binding contracts. - For purposes of this paragraph,
property shall be deemed to have been acquired before January 1,
1986, if such property is acquired pursuant to a written contract
which, on January 1, 1986, and at all times thereafter, required
the acquisition of such property and such property is placed in
service not later than 6 months after the date such contract was
entered into."
EFFECTIVE DATE OF 1980 AMENDMENT
Section 110(c) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1980."
EXTENSION OF 1980 AMENDMENT OF THIS SECTION TO OTHER PERSONS
Section 110(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall not be
considered a precedent with respect to extending such amendment (or
similar rules) to any other person."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-345 applicable with respect to amounts
received after Dec. 31, 1976, as payments with respect to
securities loans (as defined in section 512(a)(5) of this title),
and transfers of securities, under agreements described in section
1058 of this title, occurring after such date, see section 2(e) of
Pub. L. 95-345, set out as a note under section 509 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1308(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years ending after December 31, 1969."
Amendment by section 1901(a)(72) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 93-625 effective July 1, 1975, and
applicable to amounts outstanding on such date or arising
thereafter, see section 7(e) of Pub. L. 93-625, set out as an
Effective Date note under section 6621 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, and to the manner of treatment to be accorded
indebtednesses secured by certain mortgages on properties bargain-
purchased before Oct. 9, 1969, see section 121(g) of Pub. L. 91-
172, set out as a note under section 511 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-667 applicable to taxable years beginning
after Dec. 31, 1959, see section 6 of Pub. L. 86-667, set out as a
note under section 501 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TRANSITION RULE FOR ACQUISITION INDEBTEDNESS WITH RESPECT TO
CERTAIN LAND
Section 1607 of Pub. L. 99-514 provided that: "For purposes of
applying section 514(c) of the Internal Revenue Code of 1986, with
respect to a disposition during calendar year 1986 or calendar year
1987 of land acquired during calendar year 1984, the term
'acquisition indebtedness' does not include indebtedness incurred
in connection with bonds issued after January 1, 1984, and before
July 19, 1984, on behalf of an organization which is a community
college and which is described in section 511(a)(2)(B) of such
Code."
-End-
-CITE-
26 USC Sec. 515 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART III - TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT
ORGANIZATIONS
-HEAD-
Sec. 515. Taxes of foreign countries and possessions of the United
States
-STATUTE-
The amount of taxes imposed by foreign countries and possessions
of the United States shall be allowed as a credit against the tax
of an organization subject to the tax imposed by section 511 to the
extent provided in section 901; and in the case of the tax imposed
by section 511, the term "taxable income" as used in section 901
shall be read as "unrelated business taxable income".
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 176.)
-End-
-CITE-
26 USC PART IV - FARMERS' COOPERATIVES 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART IV - FARMERS' COOPERATIVES
-HEAD-
PART IV - FARMERS' COOPERATIVES
-MISC1-
Sec.
521. Exemption of farmers' cooperatives from tax.
[522. Repealed.]
AMENDMENTS
1969 - Pub. L. 91-172, title I, Sec. 101(a), Dec. 30, 1969, 83
Stat. 492, substituted "PART IV" for "PART III" as part
designation.
1962 - Pub. L. 87-834, Sec. 17(b)(5), Oct. 16, 1962, 76 Stat.
1051, struck out item 522 "Tax on farmers' cooperatives".
-End-
-CITE-
26 USC Sec. 521 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART IV - FARMERS' COOPERATIVES
-HEAD-
Sec. 521. Exemption of farmers' cooperatives from tax
-STATUTE-
(a) Exemption from tax
A farmers' cooperative organization described in subsection
(b)(1) shall be exempt from taxation under this subtitle except as
otherwise provided in part I of subchapter T (sec. 1381 and
following). Notwithstanding part I of subchapter T (sec. 1381 and
following), such an organization shall be considered an
organization exempt from income taxes for purposes of any law which
refers to organizations exempt from income taxes.
(b) Applicable rules
(1) Exempt farmers' cooperatives
The farmers' cooperatives exempt from taxation to the extent
provided in subsection (a) are farmers', fruit growers', or like
associations organized and operated on a cooperative basis (A)
for the purpose of marketing the products of members or other
producers, and turning back to them the proceeds of sales, less
the necessary marketing expenses, on the basis of either the
quantity or the value of the products furnished by them, or (B)
for the purpose of purchasing supplies and equipment for the use
of members or other persons, and turning over such supplies and
equipment to them at actual cost, plus necessary expenses.
(2) Organizations having capital stock
Exemption shall not be denied any such association because it
has capital stock, if the dividend rate of such stock is fixed at
not to exceed the legal rate of interest in the State of
incorporation or 8 percent per annum, whichever is greater, on
the value of the consideration for which the stock was issued,
and if substantially all such stock (other than nonvoting
preferred stock, the owners of which are not entitled or
permitted to participate, directly or indirectly, in the profits
of the association, upon dissolution or otherwise, beyond the
fixed dividends) is owned by producers who market their products
or purchase their supplies and equipment through the association.
(3) Organizations maintaining reserve
Exemption shall not be denied any such association because
there is accumulated and maintained by it a reserve required by
State law or a reasonable reserve for any necessary purpose.
(4) Transactions with nonmembers
Exemption shall not be denied any such association which
markets the products of nonmembers in an amount the value of
which does not exceed the value of the products marketed for
members, or which purchases supplies and equipment for nonmembers
in an amount the value of which does not exceed the value of the
supplies and equipment purchased for members, provided the value
of the purchases made for persons who are neither members nor
producers does not exceed 15 percent of the value of all its
purchases.
(5) Business for the United States
Business done for the United States or any of its agencies
shall be disregarded in determining the right to exemption under
this section.
(6) Netting of losses
Exemption shall not be denied any such association because such
association computes its net earnings for purposes of determining
any amount available for distribution to patrons in the manner
described in paragraph (1) of section 1388(j).
(7) Cross reference
For treatment of value-added processing involving animals,
see section 1388(k).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 176; Pub. L. 87-834, Sec.
17(b)(1), Oct. 16, 1962, 76 Stat. 1051; Pub. L. 99-272, title XIII,
Sec. 13210(b), Apr. 7, 1986, 100 Stat. 324; Pub. L. 108-357, title
III, Sec. 316(b), Oct. 22, 2004, 118 Stat. 1469.)
-MISC1-
AMENDMENTS
2004 - Subsec. (b)(7). Pub. L. 108-357 added par. (7).
1986 - Subsec. (b)(6). Pub. L. 99-272 added par. (6).
1962 - Subsec. (a). Pub. L. 87-834 substituted "part I of
subchapter T (sec. 1381 and following)" for "section 522" in two
places.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title III, Sec. 316(c), Oct. 22, 2004, 118 Stat.
1469, provided that: "The amendments made by this section [amending
this section and section 1388 of this title] shall apply to taxable
years beginning after the date of the enactment of this Act [Oct.
22, 2004]."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-272 applicable to taxable years beginning
after Dec. 31, 1962, see section 13210(c) of Pub. L. 99-272, set
out as a note under section 1388 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable, except as otherwise
provided, to taxable years of organizations described in section
1381(a) of this title beginning after Dec. 31, 1962, see section
17(c) of Pub. L. 87-834, set out as an Effective Date note under
section 1381 of this title.
-End-
-CITE-
26 USC Sec. 522 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART IV - FARMERS' COOPERATIVES
-HEAD-
[Sec. 522. Repealed. Pub. L. 87-834, Sec. 17(b)(2), Oct. 16, 1962,
76 Stat. 1051]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 177, related to
tax on farmers' cooperatives.
EFFECTIVE DATE OF REPEAL
Repeal applicable, except as otherwise provided, to taxable years
of organizations described in section 1381(a) of this title
beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834,
set out as an Effective Date note under section 1381 of this title.
-End-
-CITE-
26 USC PART V - SHIPOWNERS' PROTECTION AND INDEMNITY
ASSOCIATIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART V - SHIPOWNERS' PROTECTION AND INDEMNITY ASSOCIATIONS
-HEAD-
PART V - SHIPOWNERS' PROTECTION AND INDEMNITY ASSOCIATIONS
-MISC1-
Sec.
526. Shipowners' protection and indemnity associations.
AMENDMENTS
1969 - Pub. L. 91-172, title I, Sec. 101(a), Dec. 30, 1969, 83
Stat. 492, substituted "PART V" for "PART IV" as part designation.
-End-
-CITE-
26 USC Sec. 526 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART V - SHIPOWNERS' PROTECTION AND INDEMNITY ASSOCIATIONS
-HEAD-
Sec. 526. Shipowners' protection and indemnity associations
-STATUTE-
There shall not be included in gross income the receipts of
shipowners' mutual protection and indemnity associations not
organized for profit, and no part of the net earnings of which
inures to the benefit of any private shareholder; but such
corporations shall be subject as other persons to the tax on their
taxable income from interest, dividends, and rents.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 178.)
-End-
-CITE-
26 USC PART VI - POLITICAL ORGANIZATIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART VI - POLITICAL ORGANIZATIONS
-HEAD-
PART VI - POLITICAL ORGANIZATIONS
-MISC1-
Sec.
527. Political organizations.
-End-
-CITE-
26 USC Sec. 527 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART VI - POLITICAL ORGANIZATIONS
-HEAD-
Sec. 527. Political organizations
-STATUTE-
(a) General rule
A political organization shall be subject to taxation under this
subtitle only to the extent provided in this section. A political
organization shall be considered an organization exempt from income
taxes for the purpose of any law which refers to organizations
exempt from income taxes.
(b) Tax imposed
(1) In general
A tax is hereby imposed for each taxable year on the political
organization taxable income of every political organization. Such
tax shall be computed by multiplying the political organization
taxable income by the highest rate of tax specified in section
11(b).
(2) Alternative tax in case of capital gains
If for any taxable year any political organization has a net
capital gain, then, in lieu of the tax imposed by paragraph (1),
there is hereby imposed a tax (if such a tax is less than the tax
imposed by paragraph (1)) which shall consist of the sum of -
(A) a partial tax, computed as provided by paragraph (1), on
the political organization taxable income determined by
reducing such income by the amount of such gain, and
(B) an amount determined as provided in section 1201(a) on
such gain.
(c) Political organization taxable income defined
(1) Taxable income defined
For purposes of this section, the political organization
taxable income of any organization for any taxable year is an
amount equal to the excess (if any) of -
(A) the gross income for the taxable year (excluding any
exempt function income), over
(B) the deductions allowed by this chapter which are directly
connected with the production of the gross income (excluding
exempt function income), computed with the modifications
provided in paragraph (2).
(2) Modifications
For purposes of this subsection -
(A) there shall be allowed a specific deduction of $100,
(B) no net operating loss deduction shall be allowed under
section 172, and
(C) no deduction shall be allowed under part VIII of
subchapter B (relating to special deductions for corporations).
(3) Exempt function income
For purposes of this subsection, the term "exempt function
income" means any amount received as -
(A) a contribution of money or other property,
(B) membership dues, a membership fee or assessment from a
member of the political organization,
(C) proceeds from a political fundraising or entertainment
event, or proceeds from the sale of political campaign
materials, which are not received in the ordinary course of any
trade or business, or
(D) proceeds from the conducting of any bingo game (as
defined in section 513(f)(2)),
to the extent such amount is segregated for use only for the
exempt function of the political organization.
(d) Certain uses not treated as income to candidate
For purposes of this title, if any political organization -
(1) contributes any amount to or for the use of any political
organization which is treated as exempt from tax under subsection
(a) of this section,
(2) contributes any amount to or for the use of any
organization described in paragraph (1) or (2) of section 509(a)
which is exempt from tax under section 501(a), or
(3) deposits any amount in the general fund of the Treasury or
in the general fund of any State or local government,
such amount shall be treated as an amount not diverted for the
personal use of the candidate or any other person. No deduction
shall be allowed under this title for the contribution or deposit
of any amount described in the preceding sentence.
(e) Other definitions
For purposes of this section -
(1) Political organization
The term "political organization" means a party, committee,
association, fund, or other organization (whether or not
incorporated) organized and operated primarily for the purpose of
directly or indirectly accepting contributions or making
expenditures, or both, for an exempt function.
(2) Exempt function
The term "exempt function" means the function of influencing or
attempting to influence the selection, nomination, election, or
appointment of any individual to any Federal, State, or local
public office or office in a political organization, or the
election of Presidential or Vice-Presidential electors, whether
or not such individual or electors are selected, nominated,
elected, or appointed. Such term includes the making of
expenditures relating to an office described in the preceding
sentence which, if incurred by the individual, would be allowable
as a deduction under section 162(a).
(3) Contributions
The term "contributions" has the meaning given to such term by
section 271(b)(2).
(4) Expenditures
The term "expenditures" has the meaning given to such term by
section 271(b)(3).
(5) Qualified State or local political organization
(A) In general
The term "qualified State or local political organization"
means a political organization -
(i) all the exempt functions of which are solely for the
purposes of influencing or attempting to influence the
selection, nomination, election, or appointment of any
individual to any State or local public office or office in a
State or local political organization,
(ii) which is subject to State law that requires the
organization to report (and it so reports) -
(I) information regarding each separate expenditure from
and contribution to such organization, and
(II) information regarding the person who makes such
contribution or receives such expenditure,
which would otherwise be required to be reported under this
section, and
(iii) with respect to which the reports referred to in
clause (ii) are (I) made public by the agency with which such
reports are filed, and (II) made publicly available for
inspection by the organization in the manner described in
section 6104(d).
(B) Certain State law differences disregarded
An organization shall not be treated as failing to meet the
requirements of subparagraph (A)(ii) solely by reason of 1 or
more of the following:
(i) The minimum amount of any expenditure or contribution
required to be reported under State law is not more than $300
greater than the minimum amount required to be reported under
subsection (j).
(ii) The State law does not require the organization to
identify 1 or more of the following:
(I) The employer of any person who makes contributions to
the organization.
(II) The occupation of any person who makes contributions
to the organization.
(III) The employer of any person who receives
expenditures from the organization.
(IV) The occupation of any person who receives
expenditures from the organization.
(V) The purpose of any expenditure of the organization.
(VI) The date any contribution was made to the
organization.
(VII) The date of any expenditure of the organization.
(C) De minimis errors
An organization shall not fail to be treated as a qualified
State or local political organization solely because such
organization makes de minimis errors in complying with the
State reporting requirements and the public inspection
requirements described in subparagraph (A) as long as the
organization corrects such errors within a reasonable period
after the organization becomes aware of such errors.
(D) Participation of Federal candidate or office holder
The term "qualified State or local political organization"
shall not include any organization otherwise described in
subparagraph (A) if a candidate for nomination or election to
Federal elective public office or an individual who holds such
office -
(i) controls or materially participates in the direction of
the organization,
(ii) solicits contributions to the organization (unless the
Secretary determines that such solicitations resulted in de
minimis contributions and were made without the prior
knowledge and consent, whether explicit or implicit, of the
organization or its officers, directors, agents, or
employees), or
(iii) directs, in whole or in part, disbursements by the
organization.
(f) Exempt organization, which is not political organization, must
include certain amounts in gross income
(1) In general
If an organization described in section 501(c) which is exempt
from tax under section 501(a) expends any amount during the
taxable year directly (or through another organization) for an
exempt function (within the meaning of subsection (e)(2)), then,
notwithstanding any other provision of law, there shall be
included in the gross income of such organization for the taxable
year, and shall be subject to tax under subsection (b) as if it
constituted political organization taxable income, an amount
equal to the lesser of -
(A) the net investment income of such organization for the
taxable year, or
(B) the aggregate amount so expended during the taxable year
for such an exempt function.
(2) Net investment income
For purposes of this subsection, the term "net investment
income" means the excess of -
(A) the gross amount of income from interest, dividends,
rents, and royalties, plus the excess (if any) of gains from
the sale or exchange of assets over the losses from the sale or
exchange of assets, over
(B) the deductions allowed by this chapter which are directly
connected with the production of the income referred to in
subparagraph (A).
For purposes of the preceding sentence, there shall not be taken
into account items taken into account for purposes of the tax
imposed by section 511 (relating to tax on unrelated business
income).
(3) Certain separate segregated funds
For purposes of this subsection and subsection (e)(1), a
separate segregated fund (within the meaning of section 610 of
title 18) or of any similar State statute, or within the meaning
of any State statute which permits the segregation of dues moneys
for exempt functions (within the meaning of subsection (e)(2))
which is maintained by an organization described in section
501(c) which is exempt from tax under section 501(a) shall be
treated as a separate organization.
(g) Treatment of newsletter funds
(1) In general
For purposes of this section, a fund established and maintained
by an individual who holds, has been elected to, or is a
candidate (within the meaning of paragraph (3)) for nomination or
election to, any Federal, State, or local elective public office,
for use by such individual exclusively for the preparation and
circulation of such individual's newsletter shall, except as
provided in paragraph (2), be treated as if such fund constituted
a political organization.
(2) Additional modifications
In the case of any fund described in paragraph (1) -
(A) the exempt function shall be only the preparation and
circulation of the newsletter, and
(B) the specific deduction provided by subsection (c)(2)(A)
shall not be allowed.
(3) Candidate
For purposes of paragraph (1), the term "candidate" means, with
respect to any Federal, State, or local elective public office,
an individual who -
(A) publicly announces that he is a candidate for nomination
or election to such office, and
(B) meets the qualifications prescribed by law to hold such
office.
(h) Special rule for principal campaign committees
(1) In general
In the case of a political organization, which is a principal
campaign committee, paragraph (1) of subsection (b) shall be
applied by substituting "the appropriate rates" for "the highest
rate".
(2) Principal campaign committee defined
(A) In general
For purposes of this subsection, the term "principal campaign
committee" means the political committee designated by a
candidate for Congress as his principal campaign committee for
purposes of -
(i) section 302(e) of the Federal Election Campaign Act of
1971 (2 U.S.C. 432(e)), and
(ii) this subsection.
(B) Designation
A candidate may have only 1 designation in effect under
subparagraph (A)(ii) at any time and such designation -
(i) shall be made at such time and in such manner as the
Secretary may prescribed by regulations, and
(ii) once made, may be revoked only with the consent of the
Secretary.
Nothing in this subsection shall be construed to require any
designation where there is only one political committee with
respect to a candidate.
(i) Organizations must notify Secretary that they are section 527
organizations
(1) In general
Except as provided in paragraph (5), an organization shall not
be treated as an organization described in this section -
(A) unless it has given notice to the Secretary
electronically that it is to be so treated, or
(B) if the notice is given after the time required under
paragraph (2), the organization shall not be so treated for any
period before such notice is given or, in the case of any
material change in the information required under paragraph
(3), for the period beginning on the date on which the material
change occurs and ending on the date on which such notice is
given.
(2) Time to give notice
The notice required under paragraph (1) shall be transmitted
not later than 24 hours after the date on which the organization
is established or, in the case of any material change in the
information required under paragraph (3), not later than 30 days
after such material change.
(3) Contents of notice
The notice required under paragraph (1) shall include
information regarding -
(A) the name and address of the organization (including any
business address, if different) and its electronic mailing
address,
(B) the purpose of the organization,
(C) the names and addresses of its officers, highly
compensated employees, contact person, custodian of records,
and members of its Board of Directors,
(D) the name and address of, and relationship to, any related
entities (within the meaning of section 168(h)(4)),
(E) whether the organization intends to claim an exemption
from the requirements of subsection (j) or section 6033, and
(F) such other information as the Secretary may require to
carry out the internal revenue laws.
(4) Effect of failure
In the case of an organization failing to meet the requirements
of paragraph (1) for any period, the taxable income of such
organization shall be computed by taking into account any exempt
function income (and any deductions directly connected with the
production of such income) or, in the case of a failure relating
to a material change, by taking into account such income and
deductions only during the period beginning on the date on which
the material change occurs and ending on the date on which notice
is given under this subsection. For purposes of the preceding
sentence, the term "exempt function income" means any amount
described in a subparagraph of subsection (c)(3), whether or not
segregated for use for an exempt function.
(5) Exceptions
This subsection shall not apply to any organization -
(A) to which this section applies solely by reason of
subsection (f)(1),
(B) which reasonably anticipates that it will not have gross
receipts of $25,000 or more for any taxable year, or
(C) which is a political committee of a State or local
candidate or which is a State or local committee of a political
party.
(6) Coordination with other requirements
This subsection shall not apply to any person required (without
regard to this subsection) to report under the Federal Election
Campaign Act of 1971 (2 U.S.C. 431 et seq.) as a political
committee.
(j) Required disclosure of expenditures and contributions
(1) Penalty for failure
In the case of -
(A) a failure to make the required disclosures under
paragraph (2) at the time and in the manner prescribed
therefor, or
(B) a failure to include any of the information required to
be shown by such disclosures or to show the correct
information,
there shall be paid by the organization an amount equal to the
rate of tax specified in subsection (b)(1) multiplied by the
amount to which the failure relates. For purposes of subtitle F,
the amount imposed by this paragraph shall be assessed and
collected in the same manner as penalties imposed by section
6652(c).
(2) Required disclosure
A political organization which accepts a contribution, or makes
an expenditure, for an exempt function during any calendar year
shall file with the Secretary either -
(A)(i) in the case of a calendar year in which a regularly
scheduled election is held -
(I) quarterly reports, beginning with the first quarter of
the calendar year in which a contribution is accepted or
expenditure is made, which shall be filed not later than the
fifteenth day after the last day of each calendar quarter,
except that the report for the quarter ending on December 31
of such calendar year shall be filed not later than January
31 of the following calendar year,
(II) a pre-election report, which shall be filed not later
than the twelfth day before (or posted by registered or
certified mail not later than the fifteenth day before) any
election with respect to which the organization makes a
contribution or expenditure, and which shall be complete as
of the twentieth day before the election, and
(III) a post-general election report, which shall be filed
not later than the thirtieth day after the general election
and which shall be complete as of the twentieth day after
such general election, and
(ii) in the case of any other calendar year, a report
covering the period beginning January 1 and ending June 30,
which shall be filed no later than July 31 and a report
covering the period beginning July 1 and ending December 31,
which shall be filed no later than January 31 of the following
calendar year, or
(B) monthly reports for the calendar year, beginning with the
first month of the calendar year in which a contribution is
accepted or expenditure is made, which shall be filed not later
than the twentieth day after the last day of the month and
shall be complete as if the last day of the month, except that,
in lieu of filing the reports otherwise due in November and
December of any year in which a regularly scheduled general
election is held, a pre-general election report shall be filed
in accordance with subparagraph (A)(i)(II), a post-general
election report shall be filed in accordance with subparagraph
(A)(i)(III), and a year end report shall be filed not later
than January 31 of the following calendar year.
(3) Contents of report
A report required under paragraph (2) shall contain the
following information:
(A) The amount, date, and purpose of each expenditure made to
a person if the aggregate amount of expenditures to such person
during the calendar year equals or exceeds $500 and the name
and address of the person (in the case of an individual,
including the occupation and name of employer of such
individual).
(B) The name and address (in the case of an individual,
including the occupation and name of employer of such
individual) of all contributors which contributed an aggregate
amount of $200 or more to the organization during the calendar
year and the amount and date of the contribution.
Any expenditure or contribution disclosed in a previous reporting
period is not required to be included in the current reporting
period.
(4) Contracts to spend or contribute
For purposes of this subsection, a person shall be treated as
having made an expenditure or contribution if the person has
contracted or is otherwise obligated to make the expenditure or
contribution.
(5) Coordination with other requirements
This subsection shall not apply -
(A) to any person required (without regard to this
subsection) to report under the Federal Election Campaign Act
of 1971 (2 U.S.C. 431 et seq.) as a political committee,
(B) to any State or local committee of a political party or
political committee of a State or local candidate,
(C) to any organization which is a qualified State or local
political organization,
(D) to any organization which reasonably anticipates that it
will not have gross receipts of $25,000 or more for any taxable
year,
(E) to any organization to which this section applies solely
by reason of subsection (f)(1), or
(F) with respect to any expenditure which is an independent
expenditure (as defined in section 301 of such Act).
(6) Election
For purposes of this subsection, the term "election" means -
(A) a general, special, primary, or runoff election for a
Federal office,
(B) a convention or caucus of a political party which has
authority to nominate a candidate for Federal office,
(C) a primary election held for the selection of delegates to
a national nominating convention of a political party, or
(D) a primary election held for the expression of a
preference for the nomination of individuals for election to
the office of President.
(7) Electronic filing
Any report required under paragraph (2) with respect to any
calendar year shall be filed in electronic form if the
organization has, or has reason to expect to have, contributions
exceeding $50,000 or expenditures exceeding $50,000 in such
calendar year.
(k) Public availability of notices and reports
(1) In general
The Secretary shall make any notice described in subsection
(i)(1) or report described in subsection (j)(7) available for
public inspection on the Internet not later than 48 hours after
such notice or report has been filed (in addition to such public
availability as may be made under section 6104(d)(7)).
(2) Access
The Secretary shall make the entire database of notices and
reports which are made available to the public under paragraph
(1) searchable by the following items (to the extent the items
are required to be included in the notices and reports):
(A) Names, States, zip codes, custodians of records,
directors, and general purposes of the organizations.
(B) Entities related to the organizations.
(C) Contributors to the organizations.
(D) Employers of such contributors.
(E) Recipients of expenditures by the organizations.
(F) Ranges of contributions and expenditures.
(G) Time periods of the notices and reports.
Such database shall be downloadable.
(l) Authority to waive
The Secretary may waive all or any portion of the -
(1) tax assessed on an organization by reason of the failure of
the organization to comply with the requirements of subsection
(i), or
(2) amount imposed under subsection (j) for a failure to comply
with the requirements thereof,
on a showing that such failure was due to reasonable cause and not
due to willful neglect.
-SOURCE-
(Added Pub. L. 93-625, Sec. 10(a), Jan. 3, 1975, 88 Stat. 2116;
amended Pub. L. 94-455, title XIX, Sec. 1901(b)(33)(C), Oct. 4,
1976, 90 Stat. 1801; Pub. L. 95-502, title III, Sec. 302(a), Oct.
21, 1978, 92 Stat. 1702; Pub. L. 95-600, title III, Sec. 301(b)(6),
Nov. 6, 1978, 92 Stat. 2821; Pub. L. 97-34, title I, Sec. 128(a),
Aug. 13, 1981, 95 Stat. 203; Pub. L. 98-369, div. A, title IV, Sec.
474(r)(16), title VII, Sec. 722(c), July 18, 1984, 98 Stat. 843,
973; Pub. L. 99-514, title I, Sec. 112(b)(1), Oct. 22, 1986, 100
Stat. 2108; Pub. L. 100-647, title I, Sec. 1001(b)(3)(B), Nov. 10,
1988, 102 Stat. 3349; Pub. L. 106-230, Secs. 1(a), 2(a), July 1,
2000, 114 Stat. 477, 479; Pub. L. 107-276, Secs. 1(a), 2(a), (b),
5(a), 6(a)-(c), (e)-(g), Nov. 2, 2002, 116 Stat. 1929, 1932-1934.)
-REFTEXT-
REFERENCES IN TEXT
Section 610 of title 18, referred to in subsec. (f)(3), was
repealed by Pub. L. 94-283, title II, Sec. 201(a), May 11, 1976, 90
Stat. 496. See section 441b of Title 2, The Congress.
The Federal Election Campaign Act of 1971, referred to in
subsecs. (i)(6) and (j)(5)(A), is Pub. L. 92-225, Feb. 7, 1972, 86
Stat. 3, as amended, which is classified principally to chapter 14
(Sec. 431 et seq.) of Title 2, The Congress. Section 301 of the Act
is classified to section 431 of Title 2. For complete
classification of this Act to the Code, see Short Title note set
out under section 431 of Title 2 and Tables.
-MISC1-
AMENDMENTS
2002 - Subsec. (e)(5). Pub. L. 107-276, Sec. 2(b), added par.
(5).
Subsec. (i)(1)(A). Pub. L. 107-276, Sec. 6(c), substituted
"electronically" for ", electronically and in writing,".
Subsec. (i)(1)(B). Pub. L. 107-276, Sec. 6(g)(1), which directed
the insertion of "or, in the case of any material change in the
information required under paragraph (3), for the period beginning
on the date on which the material change occurs and ending on the
date on which such notice is given" after "given", was executed by
making the insertion after "given" the second time appearing, to
reflect the probable intent of Congress.
Subsec. (i)(2). Pub. L. 107-276, Sec. 6(g)(2), inserted "or, in
the case of any material change in the information required under
paragraph (3), not later than 30 days after such material change"
after "established".
Subsec. (i)(3)(E), (F). Pub. L. 107-276, Sec. 6(f), added subpar.
(E) and redesignated former subpar. (E) as (F).
Subsec. (i)(4). Pub. L. 107-276, Sec. 6(g)(3), which directed the
insertion of "or, in the case of a failure relating to a material
change, by taking into account such income and deductions only
during the period beginning on the date on which the material
change occurs and ending on the date on which notice is given under
this subsection" before period at end, was executed by making the
insertion before period at end of first sentence, to reflect the
probable intent of Congress.
Pub. L. 107-276, Sec. 6(a), inserted at end "For purposes of the
preceding sentence, the term 'exempt function income' means any
amount described in a subparagraph of subsection (c)(3), whether or
not segregated for use for an exempt function."
Subsec. (i)(5)(C). Pub. L. 107-276, Sec. 1(a), added subpar. (C).
Subsec. (j)(1). Pub. L. 107-276, Sec. 6(b), inserted at end "For
purposes of subtitle F, the amount imposed by this paragraph shall
be assessed and collected in the same manner as penalties imposed
by section 6652(c)."
Subsec. (j)(3)(A). Pub. L. 107-276, Sec. 6(e)(1)(A), inserted ",
date, and purpose" after "The amount".
Subsec. (j)(3)(B). Pub. L. 107-276, Sec. 6(e)(1)(B), inserted
"and date" after "the amount".
Subsec. (j)(5)(C) to (F). Pub. L. 107-276, Sec. 2(a), added
subpar. (C) and redesignated former subpars. (C) to (E) as (D) to
(F), respectively.
Subsec. (j)(7). Pub. L. 107-276, Sec. 6(e)(2), added par. (7).
Subsec. (k). Pub. L. 107-276, Sec. 6(e)(3), added subsec. (k).
Former subsec. (k) redesignated (l).
Pub. L. 107-276, Sec. 5(a), added subsec. (k).
Subsec. (l). Pub. L. 107-276, Sec. 6(e)(3), redesignated subsec.
(k) as (l).
2000 - Subsec. (i). Pub. L. 106-230, Sec. 1(a), added subsec.
(i).
Subsec. (j). Pub. L. 106-230, Sec. 2(a), added subsec. (j).
1988 - Subsec. (e)(2). Pub. L. 100-647 inserted at end "Such term
includes the making of expenditures relating to an office described
in the preceding sentence which, if incurred by the individual,
would be allowable as a deduction under section 162(a)."
1986 - Subsec. (g)(1). Pub. L. 99-514, Sec. 112(b)(1)(A),
substituted "paragraph (3)" for "section 24(c)(2)".
Subsec. (g)(3). Pub. L. 99-514, Sec. 112(b)(1)(B), added par.
(3).
1984 - Subsec. (g)(1). Pub. L. 98-369, Sec. 474(r)(16),
substituted "section 24(c)(2)" for "section 41(c)(2)".
Subsec. (h)(2)(B). Pub. L. 98-369, Sec. 722(c), inserted "Nothing
in this subsection shall be construed to require any designation
where there is only one political committee with respect to a
candidate."
1981 - Subsec. (h). Pub. L. 97-34 added subsec. (h).
1978 - Subsec. (b)(1). Pub. L. 95-600 substituted "Such tax shall
be computed by multiplying the political organization taxable
income by the highest rate of tax specified in section 11(b)" for
"Such tax shall consist of a normal tax and a surtax computed as
provided in section 11 as though the political organization were a
corporation and as though the political organization taxable income
were the taxable income referred to in section 11" and struck out
provision that for purposes of this subsection, the surtax
exemption provided by section 11(d) not be allowed.
Subsec. (c)(3)(D). Pub. L. 95-502 added subpar. (D).
1976 - Subsec. (b)(2). Pub. L. 94-455 substituted "net capital
gain" for "net section 1201 gain" after "organization has a".
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-276, Sec. 1(b), Nov. 2, 2002, 116 Stat. 1929,
provided that: "The amendments made by subsection (a) [amending
this section] shall take effect as if included in the amendments
made by Public Law 106-230."
Pub. L. 107-276, Sec. 2(c), Nov. 2, 2002, 116 Stat. 1931,
provided that: "The amendments made by this section [amending this
section] shall take effect as if included in the amendments made by
Public Law 106-230."
Pub. L. 107-276, Sec. 5(b), Nov. 2, 2002, 116 Stat. 1932,
provided that: "The amendment made by subsection (a) [amending this
section] shall apply to any tax assessed or amount imposed after
June 30, 2000."
Pub. L. 107-276, Sec. 6(h)(1), (2), Nov. 2, 2002, 116 Stat. 1934,
provided that:
"(1) Subsections (a) and (b). - The amendments made by
subsections (a) and (b) [amending this section] shall apply to
failures occurring on or after the date of the enactment of this
Act [Nov. 2, 2002].
"(2) Subsection (c). - The amendments made by subsection (c)
[amending this section] shall take effect as if included in the
amendments made by Public Law 106-230."
Pub. L. 107-276, Sec. 6(h)(4)-(6), Nov. 2, 2002, 116 Stat. 1934,
provided that:
"(4) Subsections (e)(1) and (f). - The amendments made by
subsections (e)(1) and (f) [amending this section] shall apply to
reports and notices required to be filed more than 30 days after
the date of the enactment of this Act [Nov. 2, 2002].
"(5) Subsections (e)(2) and (e)(3). - The amendments made by
subsections (e)(2) and (e)(3) [amending this section] shall apply
to reports required to be filed on or after June 30, 2003.
"(6) Subsection (g). -
"(A) In general. - The amendments made by subsection (g)
[amending this section] shall apply to material changes on or
after the date of the enactment of this Act.
"(B) Transition rule. - In the case of a material change
occurring during the 30-day period beginning on the date of the
enactment of this Act, a notice under section 527(i) of the
Internal Revenue Code of 1986 (as amended by this Act) shall not
be required to be filed under such section before the later of -
"(i) 30 days after the date of such material change, or
"(ii) 45 days after the date of the enactment of this Act
[Nov. 2, 2002]."
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-230, Sec. 1(d), July 1, 2000, 114 Stat. 479, provided
that:
"(1) In general. - Except as provided in paragraphs (2) and (3),
the amendments made by this section [amending this section and
sections 6104 and 6652 of this title] shall take effect on the date
of the enactment of this section [July 1, 2000].
"(2) Organizations already in existence. - In the case of an
organization established before the date of the enactment of this
section, the time to file the notice under section 527(i)(2) of the
Internal Revenue Code of 1986, as added by this section, shall be
30 days after the date of the enactment of this section.
"(3) Information availability. - The amendment made by subsection
(b)(2) [amending section 6104 of this title] shall take effect on
the date that is 45 days after the date of the enactment of this
section."
Pub. L. 106-230, Sec. 2(d), July 1, 2000, 114 Stat. 482, provided
that: "The amendment made by subsection (a) [amending this section]
shall apply to expenditures made and contributions received after
the date of the enactment of this Act [July 1, 2000], except that
such amendment shall not apply to expenditures made, or
contributions received, after such date pursuant to a contract
entered into on or before such date."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(r)(16) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Section 722(c) of Pub. L. 98-369 provided that the amendment made
by that section is effective for taxable years beginning after Dec.
31, 1981.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 128(b) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1981."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 301(b)(6) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 301(c) of
Pub. L. 95-600, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT; ELECTION CAMPAIGN CONTRIBUTIONS;
COLLATERAL
Section 302(b) of Pub. L. 95-502, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) The amendment made by subsection (a) [amending this section]
shall apply to taxable years beginning after December 31, 1974,
except that notwithstanding any other provision of law to the
contrary, no amounts held at the date of enactment of this bill
[Oct. 21, 1978] by an organization described in section 527(e)(1)
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] in
escrow, in separate accounts for the payment of Federal taxes, or
in any other fund which are proceeds described in section
527(c)(3)(D) of such Code may be used, directly or indirectly, to
make a contribution or expenditure (as defined in section 301(e)
and (f) of the Federal Election Campaign Act of 1971; 2 U.S.C.
431(f)) in connection with any election held before January 1,
1979.
"(2) Such amounts as described in (1) above shall not be
considered as security or collateral for any loan by any State or
national bank or any other person or organization."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE
Section 10(e) of Pub. L. 93-625 provided that: "The amendments
made by subsections (a), (b), (c), and (d) [enacting this section
and amending sections 501 and 6012 of this title] shall apply to
taxable years beginning after December 31, 1974."
NOTIFICATION OF INTERACTION OF REPORTING REQUIREMENTS
Pub. L. 107-276, Sec. 4, Nov. 2, 2002, 116 Stat. 1932, provided
that:
"(a) In General. - The Secretary of the Treasury, in consultation
with the Federal Election Commission, shall publicize -
"(1) the effect of the amendments made by this Act [amending
this section and sections 6012, 6033, 6104, and 7207 of this
title], and
"(2) the interaction of requirements to file a notification or
report under section 527 of the Internal Revenue Code of 1986 and
reports under the Federal Election Campaign Act of 1971 [2 U.S.C.
431 et seq.].
"(b) Information. - Information provided under subsection (a)
shall be included in any appropriate form, instruction, notice, or
other guidance issued to the public by the Secretary of the
Treasury or the Federal Election Commission regarding reporting
requirements of political organizations (as defined in section 527
of the Internal Revenue Code of 1986) or reporting requirements
under the Federal Election Campaign Act of 1971 [2 U.S.C. 431 et
seq.]."
-End-
-CITE-
26 USC PART VII - CERTAIN HOMEOWNERS ASSOCIATIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART VII - CERTAIN HOMEOWNERS ASSOCIATIONS
-HEAD-
PART VII - CERTAIN HOMEOWNERS ASSOCIATIONS
-MISC1-
Sec.
528. Certain homeowners associations.
AMENDMENTS
1976 - Pub. L. 94-455, title XXI, Sec. 2101(a), Oct. 4, 1976, 90
Stat. 1897, added part heading and analysis for part VII.
-End-
-CITE-
26 USC Sec. 528 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART VII - CERTAIN HOMEOWNERS ASSOCIATIONS
-HEAD-
Sec. 528. Certain homeowners associations
-STATUTE-
(a) General rule
A homeowners association (as defined in subsection (c)) shall be
subject to taxation under this subtitle only to the extent provided
in this section. A homeowners association shall be considered an
organization exempt from income taxes for the purpose of any law
which refers to organizations exempt from income taxes.
(b) Tax imposed
A tax is hereby imposed for each taxable year on the homeowners
association taxable income of every homeowners association. Such
tax shall be equal to 30 percent of the homeowners association
taxable income (32 percent of such income in the case of a
timeshare association).
(c) Homeowners association defined
For purposes of this section -
(1) Homeowners association
The term "homeowners association" means an organization which
is a condominium management association, a residential real
estate management association, or a timeshare association if -
(A) such organization is organized and operated to provide
for the acquisition, construction, management, maintenance, and
care of association property,
(B) 60 percent or more of the gross income of such
organization for the taxable year consists solely of amounts
received as membership dues, fees, or assessments from -
(i) owners of residential units in the case of a
condominium management association,
(ii) owners of residences or residential lots in the case
of a residential real estate management association, or
(iii) owners of timeshare rights to use, or timeshare
ownership interests in, association property in the case of a
timeshare association,
(C) 90 percent or more of the expenditures of the
organization for the taxable year are expenditures for the
acquisition, construction, management, maintenance, and care of
association property and, in the case of a timeshare
association, for activities provided to or on behalf of members
of the association,
(D) no part of the net earnings of such organization inures
(other than by acquiring, constructing, or providing
management, maintenance, and care of association property, and
other than by a rebate of excess membership dues, fees, or
assessments) to the benefit of any private shareholder or
individual, and
(E) such organization elects (at such time and in such manner
as the Secretary by regulations prescribes) to have this
section apply for the taxable year.
(2) Condominium management association
The term "condominium management association" means any
organization meeting the requirement of subparagraph (A) of
paragraph (1) with respect to a condominium project substantially
all of the units of which are used by individuals for residences.
(3) Residential real estate management association
The term "residential real estate management association" means
any organization meeting the requirements of subparagraph (A) of
paragraph (1) with respect to a subdivision, development, or
similar area substantially all the lots or buildings of which may
only be used by individuals for residences.
(4) Timeshare association
The term "timeshare association" means any organization (other
than a condominium management association) meeting the
requirement of subparagraph (A) of paragraph (1) if any member
thereof holds a timeshare right to use, or a timeshare ownership
interest in, real property constituting association property.
(5) Association property
The term "association property" means -
(A) property held by the organization,
(B) property commonly held by the members of the
organization,
(C) property within the organization privately held by the
members of the organization, and
(D) property owned by a governmental unit and used for the
benefit of residents of such unit.
In the case of a timeshare association, such term includes
property in which the timeshare association, or members of the
association, have rights arising out of recorded easements,
covenants, or other recorded instruments to use property related
to the timeshare project.
(d) Homeowners association taxable income defined
(1) Taxable income defined
For purposes of this section, the homeowners association
taxable income of any organization for any taxable year is an
amount equal to the excess (if any) of -
(A) the gross income for the taxable year (excluding any
exempt function income), over
(B) the deductions allowed by this chapter which are directly
connected with the production of the gross income (excluding
exempt function income), computed with the modifications
provided in paragraph (2).
(2) Modifications
For purposes of this subsection -
(A) there shall be allowed a specific deduction of $100,
(B) no net operating loss deduction shall be allowed under
section 172, and
(C) no deduction shall be allowed under part VIII of
subchapter B (relating to special deductions for corporations).
(3) Exempt function income
For purposes of this subsection, the term "exempt function
income" means any amount received as membership dues, fees, or
assessments from -
(A) owners of condominium housing units in the case of a
condominium management association,
(B) owners of real property in the case of a residential real
estate management association, or
(C) owners of timeshare rights to use, or timeshare ownership
interests in, real property in the case of a timeshare
association.
-SOURCE-
(Added Pub. L. 94-455, title XXI, Sec. 2101(a), Oct. 4, 1976, 90
Stat. 1897; amended Pub. L. 95-600, title III, Sec. 301(b)(7),
title IV, Sec. 403(c)(2), title VII, Sec. 701(n)(1), Nov. 6, 1978,
92 Stat. 2821, 2868, 2907; Pub. L. 96-605, title I, Sec. 105(a),
Dec. 28, 1980, 94 Stat. 3523; Pub. L. 105-34, title IX, Sec. 966(a)-
(d), Aug. 5, 1997, 111 Stat. 894, 895.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b). Pub. L. 105-34, Sec. 966(d), which directed
amendment of subsec. (b) by inserting before the period "(32
percent of such income in the case of a timeshare association)",
was executed by making the insertion before the period at end to
reflect the probable intent of Congress.
Subsec. (c)(1). Pub. L. 105-34, Sec. 966(a)(1)(A), substituted ",
a residential real estate management association, or a timeshare
association" for "or a residential real estate management
association" in introductory provisions.
Subsec. (c)(1)(B)(iii). Pub. L. 105-34, Sec. 966(a)(1)(B), added
cl. (iii).
Subsec. (c)(1)(C). Pub. L. 105-34, Sec. 966(a)(1)(C), inserted
before comma at end "and, in the case of a timeshare association,
for activities provided to or on behalf of members of the
association".
Subsec. (c)(4). Pub. L. 105-34, Sec. 966(a)(2), added par. (4).
Former par. (4) redesignated (5).
Subsec. (c)(5). Pub. L. 105-34, Sec. 966(c), inserted concluding
provisions "In the case of a timeshare association, such term
includes property in which the timeshare association, or members of
the association, have rights arising out of recorded easements,
covenants, or other recorded instruments to use property related to
the timeshare project."
Pub. L. 105-34, Sec. 966(a)(2), redesignated par. (4) as (5).
Subsec. (d)(3)(C). Pub. L. 105-34, Sec. 966(b), added subpar.
(C).
1980 - Subsec. (b). Pub. L. 96-605 substituted provision that all
income of a homeowners association be taxed at a rate of 30 per
cent for provision that all income of a homeowners association be
taxed a sum computed by multiplying the homeowners association
taxable income by the highest rate of tax specified in section
11(b) of this title and struck out provision providing for
alternative tax in case of capital gains.
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 301(b)(7),
substituted "Such tax shall be computed by multiplying the
homeowners association taxable income by the highest rate of tax
specified in section 11(b)" for "Such tax shall consist of a normal
tax and a surtax computed as provided in section 11 as though the
homeowners association were a corporation and as though the
homeowners association taxable income were the taxable income
referred to in section 11" and struck out provision that for
purposes of this subsection, the surtax exemption provided by
section 11(d) not be allowed.
Subsec. (b)(2)(B). Pub. L. 95-600, Sec. 403(c)(2), substituted
provision related to amount being determined according to section
1201(a) for provision requiring an amount of 30 percent.
Subsec. (c)(2). Pub. L. 95-600, Sec. 701(n)(1), substituted "by
individuals for residences" for "as residences".
EFFECTIVE DATE OF 1997 AMENDMENT
Section 966(e) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1996."
EFFECTIVE DATE OF 1980 AMENDMENT
Section 105(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1980."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 301(b)(7) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 301(c) of
Pub. L. 95-600, set out as a note under section 11 of this title.
Section 403(d)(3) of Pub. L. 95-600 provided that: "The
amendments made by paragraphs (2), (3), and (4) of subsection (c)
[amending this section and sections 857 and 904 of this title]
shall take effect on the date of the enactment of this Act [Nov. 6,
1978]."
Section 701(n)(2) of Pub. L. 95-600 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply to
taxable years beginning after December 31, 1973."
EFFECTIVE DATE
Section 2101(e) of Pub. L. 94-455 provided that: "Except as
provided in subsection (f)(2) [set out as a note under section 216
of this title], the amendments made by this section [enacting this
section and amending sections 216 and 6012 of this title] shall
apply to taxable years beginning after December 31, 1973."
-End-
-CITE-
26 USC PART VIII - HIGHER EDUCATION SAVINGS ENTITIES 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART VIII - HIGHER EDUCATION SAVINGS ENTITIES
-HEAD-
PART VIII - HIGHER EDUCATION SAVINGS ENTITIES
-MISC1-
Sec.
529. Qualified tuition programs.
530. Coverdell education savings accounts.
AMENDMENTS
2004 - Pub. L. 108-311, title IV, Sec. 408(b)(2), Oct. 4, 2004,
118 Stat. 1192, amended directory language of Pub. L. 107-22, Sec.
1(a)(6). See 2001 Amendment note below.
2001 - Pub. L. 107-22, Sec. 1(a)(6), July 26, 2001, 115 Stat.
196, as amended by Pub. L. 108-311, title IV, Sec. 408(b)(2), Oct.
4, 2004, 118 Stat. 1192, substituted "Coverdell education savings
accounts" for "Education individual retirement accounts" in item
530.
Pub. L. 107-16, title IV, Sec. 402(a)(4)(E), June 7, 2001, 115
Stat. 61, struck out "State" before "tuition" in item 529.
1997 - Pub. L. 105-34, title II, Secs. 211(e)(1)(A), 213(e)(3),
Aug. 5, 1997, 111 Stat. 812, 817, substituted "HIGHER EDUCATION
SAVINGS ENTITIES" for "QUALIFIED STATE TUITION PROGRAMS" in heading
and added item 530.
-End-
-CITE-
26 USC Sec. 529 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART VIII - HIGHER EDUCATION SAVINGS ENTITIES
-HEAD-
Sec. 529. Qualified tuition programs
-STATUTE-
(a) General rule
A qualified tuition program shall be exempt from taxation under
this subtitle. Notwithstanding the preceding sentence, such program
shall be subject to the taxes imposed by section 511 (relating to
imposition of tax on unrelated business income of charitable
organizations).
(b) Qualified tuition program
For purposes of this section -
(1) In general
The term "qualified tuition program" means a program
established and maintained by a State or agency or
instrumentality thereof or by 1 or more eligible educational
institutions -
(A) under which a person -
(i) may purchase tuition credits or certificates on behalf
of a designated beneficiary which entitle the beneficiary to
the waiver or payment of qualified higher education expenses
of the beneficiary, or
(ii) in the case of a program established and maintained by
a State or agency or instrumentality thereof, may make
contributions to an account which is established for the
purpose of meeting the qualified higher education expenses of
the designated beneficiary of the account, and
(B) which meets the other requirements of this subsection.
Except to the extent provided in regulations, a program
established and maintained by 1 or more eligible educational
institutions shall not be treated as a qualified tuition program
unless such program provides that amounts are held in a qualified
trust and such program has received a ruling or determination
that such program meets the applicable requirements for a
qualified tuition program. For purposes of the preceding
sentence, the term "qualified trust" means a trust which is
created or organized in the United States for the exclusive
benefit of designated beneficiaries and with respect to which the
requirements of paragraphs (2) and (5) of section 408(a) are met.
(2) Cash contributions
A program shall not be treated as a qualified tuition program
unless it provides that purchases or contributions may only be
made in cash.
(3) Separate accounting
A program shall not be treated as a qualified tuition program
unless it provides separate accounting for each designated
beneficiary.
(4) No investment direction
A program shall not be treated as a qualified tuition program
unless it provides that any contributor to, or designated
beneficiary under, such program may not directly or indirectly
direct the investment of any contributions to the program (or any
earnings thereon).
(5) No pledging of interest as security
A program shall not be treated as a qualified tuition program
if it allows any interest in the program or any portion thereof
to be used as security for a loan.
(6) Prohibition on excess contributions
A program shall not be treated as a qualified tuition program
unless it provides adequate safeguards to prevent contributions
on behalf of a designated beneficiary in excess of those
necessary to provide for the qualified higher education expenses
of the beneficiary.
(c) Tax treatment of designated beneficiaries and contributors
(1) In general
Except as otherwise provided in this subsection, no amount
shall be includible in gross income of -
(A) a designated beneficiary under a qualified tuition
program, or
(B) a contributor to such program on behalf of a designated
beneficiary,
with respect to any distribution or earnings under such program.
(2) Gift tax treatment of contributions
For purposes of chapters 12 and 13 -
(A) In general
Any contribution to a qualified tuition program on behalf of
any designated beneficiary -
(i) shall be treated as a completed gift to such
beneficiary which is not a future interest in property, and
(ii) shall not be treated as a qualified transfer under
section 2503(e).
(B) Treatment of excess contributions
If the aggregate amount of contributions described in
subparagraph (A) during the calendar year by a donor exceeds
the limitation for such year under section 2503(b), such
aggregate amount shall, at the election of the donor, be taken
into account for purposes of such section ratably over the 5-
year period beginning with such calendar year.
(3) Distributions
(A) In general
Any distribution under a qualified tuition program shall be
includible in the gross income of the distributee in the manner
as provided under section 72 to the extent not excluded from
gross income under any other provision of this chapter.
(B) Distributions for qualified higher education expenses
For purposes of this paragraph -
(i) In-kind distributions
No amount shall be includible in gross income under
subparagraph (A) by reason of a distribution which consists
of providing a benefit to the distributee which, if paid for
by the distributee, would constitute payment of a qualified
higher education expense.
(ii) Cash distributions
In the case of distributions not described in clause (i),
if -
(I) such distributions do not exceed the qualified higher
education expenses (reduced by expenses described in clause
(i)), no amount shall be includible in gross income, and
(II) in any other case, the amount otherwise includible
in gross income shall be reduced by an amount which bears
the same ratio to such amount as such expenses bear to such
distributions.
(iii) Exception for institutional programs
In the case of any taxable year beginning before January 1,
2004, clauses (i) and (ii) shall not apply with respect to
any distribution during such taxable year under a qualified
tuition program established and maintained by 1 or more
eligible educational institutions.
(iv) Treatment as distributions
Any benefit furnished to a designated beneficiary under a
qualified tuition program shall be treated as a distribution
to the beneficiary for purposes of this paragraph.
(v) Coordination with Hope and Lifetime Learning credits
The total amount of qualified higher education expenses
with respect to an individual for the taxable year shall be
reduced -
(I) as provided in section 25A(g)(2), and
(II) by the amount of such expenses which were taken into
account in determining the credit allowed to the taxpayer
or any other person under section 25A.
(vi) Coordination with Coverdell education savings accounts
If, with respect to an individual for any taxable year -
(I) the aggregate distributions to which clauses (i) and
(ii) and section 530(d)(2)(A) apply, exceed
(II) the total amount of qualified higher education
expenses otherwise taken into account under clauses (i) and
(ii) (after the application of clause (v)) for such year,
the taxpayer shall allocate such expenses among such
distributions for purposes of determining the amount of the
exclusion under clauses (i) and (ii) and section
530(d)(2)(A).
(C) Change in beneficiaries or programs
(i) Rollovers
Subparagraph (A) shall not apply to that portion of any
distribution which, within 60 days of such distribution, is
transferred -
(I) to another qualified tuition program for the benefit
of the designated beneficiary, or
(II) to the credit of another designated beneficiary
under a qualified tuition program who is a member of the
family of the designated beneficiary with respect to which
the distribution was made.
(ii) Change in designated beneficiaries
Any change in the designated beneficiary of an interest in
a qualified tuition program shall not be treated as a
distribution for purposes of subparagraph (A) if the new
beneficiary is a member of the family of the old beneficiary.
(iii) Limitation on certain rollovers
Clause (i)(I) shall not apply to any transfer if such
transfer occurs within 12 months from the date of a previous
transfer to any qualified tuition program for the benefit of
the designated beneficiary.
(D) Operating rules
For purposes of applying section 72 -
(i) to the extent provided by the Secretary, all qualified
tuition programs of which an individual is a designated
beneficiary shall be treated as one program,
(ii) except to the extent provided by the Secretary, all
distributions during a taxable year shall be treated as one
distribution, and
(iii) except to the extent provided by the Secretary, the
value of the contract, income on the contract, and investment
in the contract shall be computed as of the close of the
calendar year in which the taxable year begins.
(4) Estate tax treatment
(A) In general
No amount shall be includible in the gross estate of any
individual for purposes of chapter 11 by reason of an interest
in a qualified tuition program.
(B) Amounts includible in estate of designated beneficiary in
certain cases
Subparagraph (A) shall not apply to amounts distributed on
account of the death of a beneficiary.
(C) Amounts includible in estate of donor making excess
contributions
In the case of a donor who makes the election described in
paragraph (2)(B) and who dies before the close of the 5-year
period referred to in such paragraph, notwithstanding
subparagraph (A), the gross estate of the donor shall include
the portion of such contributions properly allocable to periods
after the date of death of the donor.
(5) Other gift tax rules
For purposes of chapters 12 and 13 -
(A) Treatment of distributions
Except as provided in subparagraph (B), in no event shall a
distribution from a qualified tuition program be treated as a
taxable gift.
(B) Treatment of designation of new beneficiary
The taxes imposed by chapters 12 and 13 shall apply to a
transfer by reason of a change in the designated beneficiary
under the program (or a rollover to the account of a new
beneficiary) unless the new beneficiary is -
(i) assigned to the same generation as (or a higher
generation than) the old beneficiary (determined in
accordance with section 2651), and
(ii) a member of the family of the old beneficiary.
(6) Additional tax
The tax imposed by section 530(d)(4) shall apply to any payment
or distribution from a qualified tuition program in the same
manner as such tax applies to a payment or distribution from an
(!1) Coverdell education savings account. This paragraph shall
not apply to any payment or distribution in any taxable year
beginning before January 1, 2004, which is includible in gross
income but used for qualified higher education expenses of the
designated beneficiary.
(d) Reports
Each officer or employee having control of the qualified tuition
program or their designee shall make such reports regarding such
program to the Secretary and to designated beneficiaries with
respect to contributions, distributions, and such other matters as
the Secretary may require. The reports required by this subsection
shall be filed at such time and in such manner and furnished to
such individuals at such time and in such manner as may be required
by the Secretary.
(e) Other definitions and special rules
For purposes of this section -
(1) Designated beneficiary
The term "designated beneficiary" means -
(A) the individual designated at the commencement of
participation in the qualified tuition program as the
beneficiary of amounts paid (or to be paid) to the program,
(B) in the case of a change in beneficiaries described in
subsection (c)(3)(C), the individual who is the new
beneficiary, and
(C) in the case of an interest in a qualified tuition program
purchased by a State or local government (or agency or
instrumentality thereof) or an organization described in
section 501(c)(3) and exempt from taxation under section 501(a)
as part of a scholarship program operated by such government or
organization, the individual receiving such interest as a
scholarship.
(2) Member of family
The term "member of the family" means, with respect to any
designated beneficiary -
(A) the spouse of such beneficiary;
(B) an individual who bears a relationship to such
beneficiary which is described in subparagraphs (A) through (G)
of section 152(d)(2);
(C) the spouse of any individual described in subparagraph
(B); and
(D) any first cousin of such beneficiary.
(3) Qualified higher education expenses
(A) In general
The term "qualified higher education expenses" means -
(i) tuition, fees, books, supplies, and equipment required
for the enrollment or attendance of a designated beneficiary
at an eligible educational institution; and
(ii) expenses for special needs services in the case of a
special needs beneficiary which are incurred in connection
with such enrollment or attendance.
(B) Room and board included for students who are at least half-
time
(i) In general
In the case of an individual who is an eligible student (as
defined in section 25A(b)(3)) for any academic period, such
term shall also include reasonable costs for such period (as
determined under the qualified tuition program) incurred by
the designated beneficiary for room and board while attending
such institution. For purposes of subsection (b)(6), a
designated beneficiary shall be treated as meeting the
requirements of this clause.
(ii) Limitation
The amount treated as qualified higher education expenses
by reason of clause (i) shall not exceed -
(I) the allowance (applicable to the student) for room
and board included in the cost of attendance (as defined in
section 472 of the Higher Education Act of 1965 (20 U.S.C.
1087ll), as in effect on the date of the enactment of the
Economic Growth and Tax Relief Reconciliation Act of 2001)
as determined by the eligible educational institution for
such period, or
(II) if greater, the actual invoice amount the student
residing in housing owned or operated by the eligible
educational institution is charged by such institution for
room and board costs for such period.
(4) Application of section 514
An interest in a qualified tuition program shall not be treated
as debt for purposes of section 514.
(5) Eligible educational institution
The term "eligible educational institution" means an
institution -
(A) which is described in section 481 of the Higher Education
Act of 1965 (20 U.S.C. 1088), as in effect on the date of the
enactment of this paragraph, and
(B) which is eligible to participate in a program under title
IV of such Act.
-SOURCE-
(Added Pub. L. 104-188, title I, Sec. 1806(a), Aug. 20, 1996, 110
Stat. 1895; amended Pub. L. 105-34, title II, Sec. 211(a), (b),
(d), (e)(2)(A), title XVI, Sec. 1601(h)(1)(A), (B), Aug. 5, 1997,
111 Stat. 810, 812, 1092; Pub. L. 105-206, title VI, Sec.
6004(c)(2), (3), July 22, 1998, 112 Stat. 793; Pub. L. 106-554,
Sec. 1(a)(7) [title III, Sec. 319(5)], Dec. 21, 2000, 114 Stat.
2763, 2763A-646; Pub. L. 107-16, title IV, Sec. 402(a)(1)-(3),
(4)(A), (C), (D), (b)(1), (c)-(g), June 7, 2001, 115 Stat. 60-63;
Pub. L. 107-22, Sec. 1(b)(3)(C), July 26, 2001, 115 Stat. 197; Pub.
L. 107-147, title IV, Sec. 417(11), Mar. 9, 2002, 116 Stat. 56;
Pub. L. 108-311, title II, Sec. 207(21), title IV, Sec. 406(a),
Oct. 4, 2004, 118 Stat. 1178, 1189; Pub. L. 109-135, title IV, Sec.
412(ee)(3), Dec. 21, 2005, 119 Stat. 2639.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Economic Growth and Tax Relief
Reconciliation Act of 2001, referred to in subsec.
(e)(3)(B)(ii)(I), is the date of enactment of Pub. L. 107-16, which
was approved June 7, 2001.
The date of the enactment of this paragraph, referred to in
subsec. (e)(5)(A), probably means the date of enactment of Pub. L.
105-34, which enacted subsec. (e)(5) and which was approved Aug. 5,
1997.
The Higher Education Act of 1965, referred to in subsec. (e)(5),
is Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, as amended. Title
IV of the Act is classified generally to subchapter IV (Sec. 1070
et seq.) of chapter 28 of Title 20, Education, and part C (Sec.
2751 et seq.) of subchapter I of chapter 34 of Title 42, The Public
Health and Welfare. For complete classification of this Act to the
Code, see Short Title note set out under section 1001 of Title 20
and Tables.
-MISC1-
AMENDMENTS
2005 - Subsec. (c)(6). Pub. L. 109-135 substituted "Coverdell
education savings account" for "education individual retirement
account".
2004 - Subsec. (c)(5)(B). Pub. L. 108-311, Sec. 406(a), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The taxes imposed by chapters 12
and 13 shall apply to a transfer by reason of a change in the
designated beneficiary under the program (or a rollover to the
account of a new beneficiary) only if the new beneficiary is a
generation below the generation of the old beneficiary (determined
in accordance with section 2651)."
Subsec. (e)(2)(B). Pub. L. 108-311, Sec. 207(21), substituted
"subparagraphs (A) through (G) of section 152(d)(2)" for
"paragraphs (1) through (8) of section 152(a)".
2002 - Subsec. (e)(3)(B)(i). Pub. L. 107-147 substituted
"subsection (b)(6)" for "subsection (b)(7)".
2001 - Pub. L. 107-16, Secs. 402(a)(4)(D), 901, temporarily
struck out "State" before "tuition" in section catchline. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (a). Pub. L. 107-16, Secs. 402(a)(4)(A), 901, temporarily
substituted "qualified tuition" for "qualified State tuition". See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (b). Pub. L. 107-16, Secs. 402(a)(4)(C), 901, temporarily
substituted "Qualified tuition" for "Qualified State tuition" in
heading. See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (b)(1). Pub. L. 107-16, Secs. 402(a)(1), (4)(A), 901, in
introductory provisions, temporarily substituted "qualified
tuition" for "qualified State tuition" and inserted "or by 1 or
more eligible educational institutions" after "thereof", and
temporarily added concluding provisions. See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (b)(1)(A)(ii). Pub. L. 107-16, Secs. 402(a)(2), 901,
temporarily inserted "in the case of a program established and
maintained by a State or agency or instrumentality thereof," before
"may make". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (b)(2). Pub. L. 107-16, Secs. 402(a)(4)(A), 901,
temporarily substituted "qualified tuition" for "qualified State
tuition". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (b)(3) to (7). Pub. L. 107-16, Secs. 402(a)(3)(A),
(4)(A), 901, temporarily redesignated pars. (4) to (7) as (3) to
(6), respectively, substituted "qualified tuition" for "qualified
State tuition" wherever appearing, and struck out heading and text
of former par. (3). Text read as follows: "A program shall not be
treated as a qualified State tuition program unless it imposes a
more than de minimis penalty on any refund of earnings from the
account which are not -
"(A) used for qualified higher education expenses of the
designated beneficiary,
"(B) made on account of the death or disability of the
designated beneficiary, or
"(C) made on account of a scholarship (or allowance or payment
described in section 135(d)(1)(B) or (C)) received by the
designated beneficiary to the extent the amount of the refund
does not exceed the amount of the scholarship, allowance, or
payment."
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (c)(1)(A), (3)(A). Pub. L. 107-16, Secs. 402(a)(4)(A),
901, temporarily substituted "qualified tuition" for "qualified
State tuition". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(3)(B). Pub. L. 107-16, Secs. 402(b)(1), 901,
temporarily amended heading and text of subpar. (B) generally.
Prior to amendment, text read as follows: "Any benefit furnished to
a designated beneficiary under a qualified tuition program shall be
treated as a distribution to the beneficiary." See Effective and
Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 402(a)(4)(A), 901, temporarily substituted
"qualified tuition" for "qualified State tuition". See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (c)(3)(B)(vi). Pub. L. 107-22 substituted "Coverdell
education savings" for "education individual retirement" in
heading.
Subsec. (c)(3)(C). Pub. L. 107-16, Secs. 402(c)(3), 901,
temporarily inserted "or programs" after "beneficiaries" in
heading. See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (c)(3)(C)(i). Pub. L. 107-16, Secs. 402(c)(1), 901,
temporarily substituted "transferred - " for "transferred", added
subcl. (I), and designated existing provisions "to the credit" as
subcl. (II). See Effective and Termination Dates of 2001 Amendment
note below.
Pub. L. 107-16, Secs. 402(a)(4)(A), 901, temporarily substituted
"qualified tuition" for "qualified State tuition". See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (c)(3)(C)(ii). Pub. L. 107-16, Secs. 402(a)(4)(A), 901,
temporarily substituted "qualified tuition" for "qualified State
tuition". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (c)(3)(C)(iii). Pub. L. 107-16, Secs. 402(c)(2), 901,
temporarily added cl. (iii). See Effective and Termination Dates of
2001 Amendment note below.
Subsec. (c)(3)(D)(i). Pub. L. 107-16, Secs. 402(a)(4)(A), 901,
temporarily substituted "qualified tuition" for "qualified State
tuition". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (c)(3)(D)(ii). Pub. L. 107-16, Secs. 402(g)(1), 901,
temporarily inserted "except to the extent provided by the
Secretary," before "all distributions". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (c)(3)(D)(iii). Pub. L. 107-16, Secs. 402(g)(2), 901,
temporarily inserted "except to the extent provided by the
Secretary," before "the value". See Effective and Termination Dates
of 2001 Amendment note below.
Subsec. (c)(6). Pub. L. 107-16, Secs. 402(a)(3)(B), 901,
temporarily added par. (6). See Effective and Termination Dates of
2001 Amendment note below.
Subsecs. (d), (e)(1)(A), (C). Pub. L. 107-16, Secs. 402(a)(4)(A),
901, temporarily substituted "qualified tuition" for "qualified
State tuition". See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (e)(2)(D). Pub. L. 107-16, Secs. 402(d), 901, temporarily
added subpar. (D). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (e)(3)(A). Pub. L. 107-16, Secs. 402(f), 901, temporarily
reenacted heading without change and amended text of subpar. (A)
generally. Prior to amendment, text read as follows: "The term
'qualified higher education expenses' means tuition, fees, books,
supplies, and equipment required for the enrollment or attendance
of a designated beneficiary at an eligible educational
institution." See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (e)(3)(B)(i). Pub. L. 107-16, Secs. 402(a)(4)(A), 901,
temporarily substituted "qualified tuition" for "qualified State
tuition". See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (e)(3)(B)(ii). Pub. L. 107-16, Secs. 402(e), 901,
temporarily reenacted heading without change and amended text of
cl. (ii) generally. Prior to amendment, text read as follows: "The
amount treated as qualified higher education expenses by reason of
the preceding sentence shall not exceed the minimum amount
(applicable to the student) included for room and board for such
period in the cost of attendance (as defined in section 472 of the
Higher Education Act of 1965, 20 U.S.C. 1087ll, as in effect on the
date of the enactment of this paragraph) for the eligible
educational institution for such period." See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (e)(4). Pub. L. 107-16, Secs. 402(a)(4)(A), 901,
temporarily substituted "qualified tuition" for "qualified State
tuition". See Effective and Termination Dates of 2001 Amendment
note below.
2000 - Subsec. (e)(3)(B). Pub. L. 106-554 struck out "under
guaranteed plans" after "students" in heading.
1998 - Subsec. (c)(3)(A). Pub. L. 105-206, Sec. 6004(c)(2),
substituted "section 72" for "section 72(b)".
Subsec. (e)(2). Pub. L. 105-206, Sec. 6004(c)(3), reenacted
heading without change and amended text of par. (2) generally.
Prior to amendment, text read as follows: "The term 'member of the
family' means -
"(A) an individual who bears a relationship to another
individual which is a relationship described in paragraphs (1)
through (8) of section 152(a), and
"(B) the spouse of any individual described in subparagraph
(A)."
1997 - Subsec. (b)(5). Pub. L. 105-34, Sec. 211(b)(4), inserted
"directly or indirectly" after "may not".
Subsec. (c)(2). Pub. L. 105-34, Sec. 211(b)(3)(A)(i), amended
heading and text of par. (2) generally. Prior to amendment, text
read as follows: "In no event shall a contribution to a qualified
State tuition program on behalf of a designated beneficiary be
treated as a taxable gift for purposes of chapter 12."
Subsec. (c)(3)(A). Pub. L. 105-34, Sec. 211(d), substituted
"section 72(b)" for "section 72".
Subsec. (c)(4). Pub. L. 105-34, Sec. 211(b)(3)(B), amended
heading and text of par. (4) generally. Prior to amendment, text
read as follows: "The value of any interest in any qualified State
tuition program which is attributable to contributions made by an
individual to such program on behalf of any designated beneficiary
shall be includible in the gross estate of the contributor for
purposes of chapter 11."
Subsec. (c)(5). Pub. L. 105-34, Sec. 211(b)(3)(A)(ii), amended
heading and text of par. (5) generally. Prior to amendment, text
read as follows: "For purposes of section 2503(e), the waiver (or
payment to an educational institution) of qualified higher
education expenses of a designated beneficiary under a qualified
State tuition program shall be treated as a qualified transfer."
Subsec. (d). Pub. L. 105-34, Sec. 211(e)(2)(A), amended subsec.
(d) generally. Prior to amendment, subsec. (d) read as follows:
"(d) Reporting Requirements. -
"(1) In general. - If there is a distribution to any individual
with respect to an interest in a qualified State tuition program
during any calendar year, each officer or employee having control
of the qualified State tuition program or their designee shall
make such reports as the Secretary may require regarding such
distribution to the Secretary and to the designated beneficiary
or the individual to whom the distribution was made. Any such
report shall include such information as the Secretary may
prescribe.
"(2) Timing of reports. - Any report required by this
subsection -
"(A) shall be filed at such time and in such matter as the
Secretary prescribes, and
"(B) shall be furnished to individuals not later than January
31 of the calendar year following the calendar year to which
such report relates."
Subsec. (e)(1)(B). Pub. L. 105-34, Sec. 1601(h)(1)(A),
substituted "subsection (c)(3)(C)" for "subsection (c)(2)(C)".
Subsec. (e)(1)(C). Pub. L. 105-34, Sec. 1601(h)(1)(B), inserted
"(or agency or instrumentality thereof)" after "local government".
Subsec. (e)(2). Pub. L. 105-34, Sec. 211(b)(1), amended heading
and text of par. (2) generally. Prior to amendment, text read as
follows: "The term 'member of the family' has the same meaning
given such term as section 2032A(e)(2)."
Subsec. (e)(3). Pub. L. 105-34, Sec. 211(a), amended heading and
text of par. (3) generally. Prior to amendment, text read as
follows: "The term 'qualified higher education expenses' means
tuition, fees, books, supplies, and equipment required for the
enrollment or attendance of a designated beneficiary at an eligible
educational institution (as defined in section 135(c)(3))."
Subsec. (e)(5). Pub. L. 105-34, Sec. 211(b)(2), added par. (5).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 207(21) of Pub. L. 108-311 applicable to
taxable years beginning after Dec. 31, 2004, see section 208 of
Pub. L. 108-311, set out as a note under section 2 of this title.
Amendment by section 406(a) of Pub. L. 108-311 effective as if
included in the provisions of the Taxpayer Relief Act of 1997, Pub.
L. 105-34, to which such amendment relates, see section 406(h) of
Pub. L. 108-311, set out as a note under section 55 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENTS
Amendment by Pub. L. 107-22 effective July 26, 2001, see section
1(c) of Pub. L. 107-22, set out as a note under section 26 of this
title.
Amendment by Pub. L. 107-16 applicable to taxable years beginning
after Dec. 31, 2001, see section 402(h) of Pub. L. 107-16, set out
as a note under section 72 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 211(f) of Pub. L. 105-34 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 135 and 6693 of this title] shall take effect
on January 1, 1998.
"(2) Expenses to include room and board. - The amendment made by
subsection (a) shall take effect as if included in the amendments
made by section 1806 of the Small Business Job Protection Act of
1996 [Pub. L. 104-188].
"(3) Eligible educational institution. - The amendment made by
subsection (b)(2) [amending this section] shall apply to
distributions after December 31, 1997, with respect to expenses
paid after such date (in taxable years ending after such date), for
education furnished in academic periods beginning after such date.
"(4) Coordination with education savings bonds. - The amendment
made by subsection (c) [amending section 135 of this title] shall
apply to taxable years beginning after December 31, 1997.
"(5) Estate and gift tax changes. -
"(A) Gift tax changes. - Paragraphs (2) and (5) of section
529(c) of the Internal Revenue Code of 1986, as amended by this
section, shall apply to transfers (including designations of new
beneficiaries) made after the date of the enactment of this Act
[Aug. 5, 1997].
"(B) Estate tax changes. - Paragraph (4) of such section 529(c)
shall apply to estates of decedents dying after June 8, 1997.
"(6) Transition rule for pre-august 20, 1996 contracts. - In the
case of any contract issued prior to August 20, 1996, section
529(c)(3)(C) of the Internal Revenue Code of 1986 shall be applied
for taxable years ending after August 20, 1996, without regard to
the requirement that a distribution be transferred to a member of
the family or the requirement that a change in beneficiaries may be
made only to a member of the family."
Amendment by section 1601(h)(1)(A), (B) of Pub. L. 105-34
effective as if included in the provisions of the Small Business
Job Protection Act of 1996, Pub. L. 104-188, to which it relates,
see section 1601(j) of Pub. L. 105-34, set out as a note under
section 23 of this title.
EFFECTIVE DATE
Section 1806(c) of Pub. L. 104-188, as amended by Pub. L. 105-34,
title XVI, Sec. 1601(h)(1)(C), Aug. 5, 1997, 111 Stat. 1092,
provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending section 135 of this title] shall apply to
taxable years ending after the date of the enactment of this Act
[Aug. 20, 1996].
"(2) Transition rule. - If -
"(A) a State or agency or instrumentality thereof maintains, on
the date of the enactment of this Act, a program under which
persons may purchase tuition credits or certificates on behalf
of, or make contributions for education expenses of, a designated
beneficiary, and
"(B) such program meets the requirements of a qualified State
tuition program before the later of -
"(i) the date which is 1 year after such date of enactment,
or
"(ii) the first day of the first calendar quarter after the
close of the first regular session of the State legislature
that begins after such date of enactment,
then such program (as in effect on August 20, 1996) shall be
treated as a qualified State tuition program with respect to
contributions (and earnings allocable thereto) pursuant to
contracts entered into under such program before the first date
on which such program meets such requirements (determined without
regard to this paragraph) and the provisions of such program (as
so in effect) shall apply in lieu of section 529(b) of the
Internal Revenue Code of 1986 with respect to such contributions
and earnings.
For purposes of subparagraph (B)(ii), if a State has a 2-year
legislative session, each year of such session shall be deemed to
be a separate regular session of the State legislature."
-FOOTNOTE-
(!1) So in original. Probably should be "a".
-End-
-CITE-
26 USC Sec. 530 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART VIII - HIGHER EDUCATION SAVINGS ENTITIES
-HEAD-
Sec. 530. Coverdell education savings accounts
-STATUTE-
(a) General rule
A Coverdell education savings account shall be exempt from
taxation under this subtitle. Notwithstanding the preceding
sentence, the Coverdell education savings account shall be subject
to the taxes imposed by section 511 (relating to imposition of tax
on unrelated business income of charitable organizations).
(b) Definitions and special rules
For purposes of this section -
(1) Coverdell education savings account
The term "Coverdell education savings account" means a trust
created or organized in the United States exclusively for the
purpose of paying the qualified education expenses of an
individual who is the designated beneficiary of the trust (and
designated as a Coverdell education savings account at the time
created or organized), but only if the written governing
instrument creating the trust meets the following requirements:
(A) No contribution will be accepted -
(i) unless it is in cash,
(ii) after the date on which such beneficiary attains age
18, or
(iii) except in the case of rollover contributions, if such
contribution would result in aggregate contributions for the
taxable year exceeding $2,000.
(B) The trustee is a bank (as defined in section 408(n)) or
another person who demonstrates to the satisfaction of the
Secretary that the manner in which that person will administer
the trust will be consistent with the requirements of this
section or who has so demonstrated with respect to any
individual retirement plan.
(C) No part of the trust assets will be invested in life
insurance contracts.
(D) The assets of the trust shall not be commingled with
other property except in a common trust fund or common
investment fund.
(E) Except as provided in subsection (d)(7), any balance to
the credit of the designated beneficiary on the date on which
the beneficiary attains age 30 shall be distributed within 30
days after such date to the beneficiary or, if the beneficiary
dies before attaining age 30, shall be distributed within 30
days after the date of death of such beneficiary.
The age limitations in subparagraphs (A)(ii) and (E), and
paragraphs (5) and (6) of subsection (d), shall not apply to any
designated beneficiary with special needs (as determined under
regulations prescribed by the Secretary).
(2) Qualified education expenses
(A) In general
The term "qualified education expenses" means -
(i) qualified higher education expenses (as defined in
section 529(e)(3)), and
(ii) qualified elementary and secondary education expenses
(as defined in paragraph (3)).
(B) Qualified tuition programs
Such term shall include any contribution to a qualified
tuition program (as defined in section 529(b)) on behalf of the
designated beneficiary (as defined in section 529(e)(1)); but
there shall be no increase in the investment in the contract
for purposes of applying section 72 by reason of any portion of
such contribution which is not includible in gross income by
reason of subsection (d)(2).
(3) Qualified elementary and secondary education expenses
(A) In general
The term "qualified elementary and secondary education
expenses" means -
(i) expenses for tuition, fees, academic tutoring, special
needs services in the case of a special needs beneficiary,
books, supplies, and other equipment which are incurred in
connection with the enrollment or attendance of the
designated beneficiary of the trust as an elementary or
secondary school student at a public, private, or religious
school,
(ii) expenses for room and board, uniforms, transportation,
and supplementary items and services (including extended day
programs) which are required or provided by a public,
private, or religious school in connection with such
enrollment or attendance, and
(iii) expenses for the purchase of any computer technology
or equipment (as defined in section 170(e)(6)(F)(i)) or
Internet access and related services, if such technology,
equipment, or services are to be used by the beneficiary and
the beneficiary's family during any of the years the
beneficiary is in school.
Clause (iii) shall not include expenses for computer software
designed for sports, games, or hobbies unless the software is
predominantly educational in nature.
(B) School
The term "school" means any school which provides elementary
education or secondary education (kindergarten through grade
12), as determined under State law.
(4) Time when contributions deemed made
An individual shall be deemed to have made a contribution to an
education individual retirement account on the last day of the
preceding taxable year if the contribution is made on account of
such taxable year and is made not later than the time prescribed
by law for filing the return for such taxable year (not including
extensions thereof).
(c) Reduction in permitted contributions based on adjusted gross
income
(1) In general
In the case of a contributor who is an individual, the maximum
amount the contributor could otherwise make to an account under
this section shall be reduced by an amount which bears the same
ratio to such maximum amount as -
(A) the excess of -
(i) the contributor's modified adjusted gross income for
such taxable year, over
(ii) $95,000 ($190,000 in the case of a joint return),
bears to
(B) $15,000 ($30,000 in the case of a joint return).
(2) Modified adjusted gross income
For purposes of paragraph (1), the term "modified adjusted
gross income" means the adjusted gross income of the taxpayer for
the taxable year increased by any amount excluded from gross
income under section 911, 931, or 933.
(d) Tax treatment of distributions
(1) In general
Any distribution shall be includible in the gross income of the
distributee in the manner as provided in section 72.
(2) Distributions for qualified education expenses
(A) In general
No amount shall be includible in gross income under paragraph
(1) if the qualified education expenses of the designated
beneficiary during the taxable year are not less than the
aggregate distributions during the taxable year.
(B) Distributions in excess of expenses
If such aggregate distributions exceed such expenses during
the taxable year, the amount otherwise includible in gross
income under paragraph (1) shall be reduced by the amount which
bears the same ratio to the amount which would be includible in
gross income under paragraph (1) (without regard to this
subparagraph) as the qualified education expenses bear to such
aggregate distributions.
(C) Coordination with Hope and Lifetime Learning credits and
qualified tuition programs
For purposes of subparagraph (A) -
(i) Credit coordination
The total amount of qualified education expenses with
respect to an individual for the taxable year shall be
reduced -
(I) as provided in section 25A(g)(2), and
(II) by the amount of such expenses which were taken into
account in determining the credit allowed to the taxpayer
or any other person under section 25A.
(ii) Coordination with qualified tuition programs
If, with respect to an individual for any taxable year -
(I) the aggregate distributions during such year to which
subparagraph (A) and section 529(c)(3)(B) apply, exceed
(II) the total amount of qualified education expenses
(after the application of clause (i)) for such year,
the taxpayer shall allocate such expenses among such
distributions for purposes of determining the amount of the
exclusion under subparagraph (A) and section 529(c)(3)(B).
(D) Disallowance of excluded amounts as deduction, credit, or
exclusion
No deduction, credit, or exclusion shall be allowed to the
taxpayer under any other section of this chapter for any
qualified education expenses to the extent taken into account
in determining the amount of the exclusion under this
paragraph.
(3) Special rules for applying estate and gift taxes with respect
to account
Rules similar to the rules of paragraphs (2), (4), and (5) of
section 529(c) shall apply for purposes of this section.
(4) Additional tax for distributions not used for educational
expenses
(A) In general
The tax imposed by this chapter for any taxable year on any
taxpayer who receives a payment or distribution from a
Coverdell education savings account which is includible in
gross income shall be increased by 10 percent of the amount
which is so includible.
(B) Exceptions
Subparagraph (A) shall not apply if the payment or
distribution is -
(i) made to a beneficiary (or to the estate of the
designated beneficiary) on or after the death of the
designated beneficiary,
(ii) attributable to the designated beneficiary's being
disabled (within the meaning of section 72(m)(7)),
(iii) made on account of a scholarship, allowance, or
payment described in section 25A(g)(2) received by the
designated beneficiary to the extent the amount of the
payment or distribution does not exceed the amount of the
scholarship, allowance, or payment,
(iv) made on account of the attendance of the designated
beneficiary at the United States Military Academy, the United
States Naval Academy, the United States Air Force Academy,
the United States Coast Guard Academy, or the United States
Merchant Marine Academy, to the extent that the amount of the
payment or distribution does not exceed the costs of advanced
education (as defined by section 2005(e)(3) of title 10,
United States Code, as in effect on the date of the enactment
of this section) attributable to such attendance, or
(v) an amount which is includible in gross income solely by
application of paragraph (2)(C)(i)(II) for the taxable year.
(C) Contributions returned before certain date
Subparagraph (A) shall not apply to the distribution of any
contribution made during a taxable year on behalf of the
designated beneficiary if -
(i) such distribution is made before the first day of the
sixth month of the taxable year following the taxable year,
and
(ii) such distribution is accompanied by the amount of net
income attributable to such excess contribution.
Any net income described in clause (ii) shall be included in
gross income for the taxable year in which such excess
contribution was made.
(5) Rollover contributions
Paragraph (1) shall not apply to any amount paid or distributed
from a Coverdell education savings account to the extent that the
amount received is paid, not later than the 60th day after the
date of such payment or distribution, into another Coverdell
education savings account for the benefit of the same beneficiary
or a member of the family (within the meaning of section
529(e)(2)) of such beneficiary who has not attained age 30 as of
such date. The preceding sentence shall not apply to any payment
or distribution if it applied to any prior payment or
distribution during the 12-month period ending on the date of the
payment or distribution.
(6) Change in beneficiary
Any change in the beneficiary of a Coverdell education savings
account shall not be treated as a distribution for purposes of
paragraph (1) if the new beneficiary is a member of the family
(as so defined) of the old beneficiary and has not attained age
30 as of the date of such change.
(7) Special rules for death and divorce
Rules similar to the rules of paragraphs (7) and (8) of section
220(f) shall apply. In applying the preceding sentence, members
of the family (as so defined) of the designated beneficiary shall
be treated in the same manner as the spouse under such paragraph
(8).
(8) Deemed distribution on required distribution date
In any case in which a distribution is required under
subsection (b)(1)(E), any balance to the credit of a designated
beneficiary as of the close of the 30-day period referred to in
such subsection for making such distribution shall be deemed
distributed at the close of such period.
(e) Tax treatment of accounts
Rules similar to the rules of paragraphs (2) and (4) of section
408(e) shall apply to any Coverdell education savings account.
(f) Community property laws
This section shall be applied without regard to any community
property laws.
(g) Custodial accounts
For purposes of this section, a custodial account shall be
treated as a trust if the assets of such account are held by a bank
(as defined in section 408(n)) or another person who demonstrates,
to the satisfaction of the Secretary, that the manner in which he
will administer the account will be consistent with the
requirements of this section, and if the custodial account would,
except for the fact that it is not a trust, constitute an account
described in subsection (b)(1). For purposes of this title, in the
case of a custodial account treated as a trust by reason of the
preceding sentence, the custodian of such account shall be treated
as the trustee thereof.
(h) Reports
The trustee of a Coverdell education savings account shall make
such reports regarding such account to the Secretary and to the
beneficiary of the account with respect to contributions,
distributions, and such other matters as the Secretary may require.
The reports required by this subsection shall be filed at such time
and in such manner and furnished to such individuals at such time
and in such manner as may be required.
-SOURCE-
(Added Pub. L. 105-34, title II, Sec. 213(a), Aug. 5, 1997, 111
Stat. 813; amended Pub. L. 105-206, title VI, Sec. 6004(d)(1)-
(3)(A), (5)-(8), July 22, 1998, 112 Stat. 793, 794; Pub. L. 106-
554, Sec. 1(a)(7) [title III, Sec. 319(6)], Dec. 21, 2000, 114
Stat. 2763, 2763A-646; Pub. L. 107-16, title IV, Secs. 401(a)(1),
(b)-(g)(1), (2)(C), 402(a)(4)(A), (C), June 7, 2001, 115 Stat. 57-
61; Pub. L. 107-22, Sec. 1(a)(1)-(5), July 26, 2001, 115 Stat.
196; Pub. L. 107-147, title IV, Sec. 411(f), Mar. 9, 2002, 116
Stat. 46; Pub. L. 108-121, title I, Sec. 107(a), Nov. 11, 2003, 117
Stat. 1339; Pub. L. 108-311, title IV, Secs. 404(a), 406(b), Oct.
4, 2004, 118 Stat. 1188, 1189; Pub. L. 109-135, title IV, Sec.
412(ff), Dec. 21, 2005, 119 Stat. 2639.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section, referred to in subsec.
(d)(4)(B)(iv), is the date of enactment of Pub. L. 105-34, which
enacted this section and was approved Aug. 5, 1997.
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(2)(A)(ii). Pub. L. 109-135, Sec. 412(ff)(2),
substituted "paragraph (3)" for "paragraph (4)".
Subsec. (b)(3) to (5). Pub. L. 109-135, Sec. 412(ff)(1),
redesignated pars. (4) and (5) as (3) and (4), respectively, and
struck out former par. (3) which read as follows: "The term
'eligible educational institution' has the meaning given such term
by section 529(e)(5)."
2004 - Subsec. (d)(2)(C)(i). Pub. L. 108-311, Sec. 404(a), struck
out "higher" after "qualified" in introductory provisions.
Subsec. (d)(4)(B)(iii). Pub. L. 108-311, Sec. 406(b), substituted
"designated beneficiary" for "account holder".
2003 - Subsec. (d)(4)(B)(iv), (v). Pub. L. 108-121 added cl. (iv)
and redesignated former cl. (iv) as (v).
2002 - Subsec. (d)(4)(B)(iv). Pub. L. 107-147 substituted "by
application of paragraph (2)(C)(i)(II)" for "because the taxpayer
elected under paragraph (2)(C) to waive the application of
paragraph (2)".
2001 - Pub. L. 107-22, Sec. 1(a)(5), amended section catchline
generally, substituting "Coverdell education savings" for
"Education individual retirement".
Subsec. (a). Pub. L. 107-22, Sec. 1(a)(2), substituted "A
Coverdell education savings account" for "An education individual
retirement account" and "the Coverdell education savings account"
for "the education individual retirement account".
Subsec. (b)(1). Pub. L. 107-22, Sec. 1(a)(1), (3), in heading,
substituted "Coverdell education savings account" for "Education
individual retirement account" and, in introductory provisions,
substituted " 'Coverdell education savings account' " for "
'education individual retirement account' " and "designated as a
Coverdell education savings account" for "designated as an
education individual retirement account".
Pub. L. 107-16, Secs. 401(d), 901, temporarily inserted
concluding provisions. See Effective and Termination Dates of 2001
Amendment note below.
Pub. L. 107-16, Secs. 401(c)(3)(A), 901, temporarily struck out
"higher" before "education expenses" in introductory provisions.
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (b)(1)(A)(iii). Pub. L. 107-16, Secs. 401(a)(1), 901,
temporarily substituted "$2,000" for "$500". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (b)(2). Pub. L. 107-16, Secs. 401(c)(1), 901, temporarily
amended heading and text of par. (2) generally, substituting
present provisions for provisions which defined "qualified higher
education expenses" as having the meaning given such term by
section 529(e)(3), reduced as provided in section 25A(g)(2), and
including amounts paid or incurred to purchase tuition credits or
certificates, or to make contributions to an account, under a
qualified State tuition program for the benefit of the beneficiary
of the account. See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (b)(2)(B). Pub. L. 107-16, Secs. 402(a)(4)(A), (C), 901,
in heading, temporarily substituted "Qualified tuition" for
"Qualified State tuition" and in text, temporarily substituted
"qualified tuition" for "qualified State tuition". See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (b)(4). Pub. L. 107-16, Secs. 401(c)(2), 901, temporarily
added par. (4). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (b)(5). Pub. L. 107-16, Secs. 401(f)(1), 901, temporarily
added par. (5). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(1). Pub. L. 107-16, Secs. 401(e), 901, temporarily
substituted "In the case of a contributor who is an individual, the
maximum amount the contributor" for "The maximum amount which a
contributor" in introductory provisions. See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (c)(1)(A)(ii). Pub. L. 107-16, Secs. 401(b)(1), 901,
temporarily substituted "$190,000" for "$150,000". See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (c)(1)(B). Pub. L. 107-16, Secs. 401(b)(2), 901,
temporarily substituted "$30,000" for "$10,000". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (d)(2). Pub. L. 107-16, Secs. 401(c)(3)(B), 901,
temporarily struck out "higher" before "education" in heading. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(2)(A), (B). Pub. L. 107-16, Secs. 401(c)(3)(A), 901,
temporarily struck out "higher" before "education". See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (d)(2)(C). Pub. L. 107-16, Secs. 401(g)(1), 901,
temporarily amended heading and text of subpar. (C) generally.
Prior to amendment, text read as follows: "A taxpayer may elect to
waive the application of this paragraph for any taxable year." See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(2)(D). Pub. L. 107-16, Secs. 401(g)(2)(C), 901, in
heading, temporarily substituted "deduction, credit, or exclusion"
for "credit or deduction" and in text, temporarily substituted ",
credit, or exclusion" for "or credit". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (d)(4)(A). Pub. L. 107-22, Sec. 1(a)(1), substituted "a
Coverdell education savings account" for "an education individual
retirement account".
Subsec. (d)(4)(C). Pub. L. 107-16, Secs. 401(f)(2)(B), 901,
temporarily substituted "certain date" for "due date of return" in
heading. See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (d)(4)(C)(i). Pub. L. 107-16, Secs. 401(f)(2)(A), 901,
temporarily added cl. (i) and struck out former cl. (i) which read
as follows: "such distribution is made on or before the day
prescribed by law (including extensions of time) for filing the
beneficiary's return of tax for the taxable year or, if the
beneficiary is not required to file such a return, the 15th day of
the 4th month of the taxable year following the taxable year; and".
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(5). Pub. L. 107-22, Sec. 1(a)(1), (4), substituted
"distributed from a Coverdell education savings account" for
"distributed from an education individual retirement account" and
"another Coverdell education savings account" for "another
education individual retirement account".
Subsec. (d)(6). Pub. L. 107-22, Sec. 1(a)(1), substituted "a
Coverdell education savings account" for "an education individual
retirement account".
Subsec. (e). Pub. L. 107-22, Sec. 1(a)(4), substituted "Coverdell
education savings account" for "education individual retirement
account".
Subsec. (h). Pub. L. 107-22, Sec. 1(a)(1), substituted "a
Coverdell education savings account" for "an education individual
retirement account".
2000 - Subsec. (d)(4)(B)(iii). Pub. L. 106-554 substituted a
comma for a semicolon before "or" at end.
1998 - Subsec. (b)(1). Pub. L. 105-206, Sec. 6004(d)(1), inserted
"an individual who is" before "the designated beneficiary" in
introductory provisions.
Subsec. (b)(1)(E). Pub. L. 105-206, Sec. 6004(d)(2)(A), amended
subpar. (E) generally. Prior to amendment, subpar. (E) read as
follows: "Upon the death of the designated beneficiary, any balance
to the credit of the beneficiary shall be distributed within 30
days after the date of death to the estate of such beneficiary."
Subsec. (d)(1). Pub. L. 105-206, Sec. 6004(d)(3)(A), substituted
"section 72" for "section 72(b)".
Subsec. (d)(2)(D). Pub. L. 105-206, Sec. 6004(d)(5), added
subpar. (D).
Subsec. (d)(4)(B)(iv). Pub. L. 105-206, Sec. 6004(d)(6), added
cl. (iv).
Subsec. (d)(4)(C). Pub. L. 105-206, Sec. 6004(d)(7), substituted
"Contributions" for "Excess contributions" in heading and amended
text of introductory provisions and cl. (i) generally. Prior to
amendment, text read as follows: "Subparagraph (A) shall not apply
to the distribution of any contribution made during a taxable year
on behalf of a designated beneficiary to the extent that such
contribution exceeds $500 if -
"(i) such distribution is received on or before the day
prescribed by law (including extensions of time) for filing such
contributor's return for such taxable year, and".
Subsec. (d)(5). Pub. L. 105-206, Sec. 6004(d)(8)(A), added first
sentence and struck out former first sentence which read as
follows: "Paragraph (1) shall not apply to any amount paid or
distributed from an education individual retirement account to the
extent that the amount received is paid into another education
individual retirement account for the benefit of the same
beneficiary or a member of the family (within the meaning of
section 529(e)(2)) of such beneficiary not later than the 60th day
after the date of such payment or distribution."
Subsec. (d)(6). Pub. L. 105-206, Sec. 6004(d)(8)(B), inserted
before period at end "and has not attained age 30 as of the date of
such change".
Subsec. (d)(7). Pub. L. 105-206, Sec. 6004(d)(2)(B), inserted at
end "In applying the preceding sentence, members of the family (as
so defined) of the designated beneficiary shall be treated in the
same manner as the spouse under such paragraph (8)."
Subsec. (d)(8). Pub. L. 105-206, Sec. 6004(d)(2)(C), added par.
(8).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by section 404(a) of Pub. L. 108-311 effective as if
included in the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment
relates, see section 404(f) of Pub. L. 108-311, set out as a note
under section 45A of this title.
Amendment by section 406(b) of Pub. L. 108-311 effective as if
included in the provisions of the Taxpayer Relief Act of 1997, Pub.
L. 105-34, to which such amendment relates, see section 406(h) of
Pub. L. 108-311, set out as a note under section 55 of this title.
EFFECTIVE DATE OF 2003 AMENDMENT
Pub. L. 108-121, title I, Sec. 107(b), Nov. 11, 2003, 117 Stat.
1339, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2002."
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001, Pub. L. 107-16, to which such amendment relates, see
section 411(x) of Pub. L. 107-147, set out as a note under section
25B of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENTS
Amendment by Pub. L. 107-22 effective July 26, 2001, see section
1(c) of Pub. L. 107-22, set out as a note under section 26 of this
title.
Amendment by section 401(a)(1), (b)-(g)(1), (2)(C) of Pub. L. 107-
16 applicable to taxable years beginning after Dec. 31, 2001, see
section 401(h) of Pub. L. 107-16, set out as a note under section
25A of this title.
Amendment by section 402(a)(4)(A), (C) of Pub. L. 107-16
applicable to taxable years beginning after Dec. 31, 2001, see
section 402(h) of Pub. L. 107-16, set out as a note under section
72 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1997, see section 213(f) of Pub. L. 105-34, set out as an Effective
Date of 1997 Amendment note under section 26 of this title.
-End-
-CITE-
26 USC Subchapter G - Corporations Used to Avoid Income
Tax on Shareholders 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
-HEAD-
SUBCHAPTER G - CORPORATIONS USED TO AVOID INCOME TAX ON
SHAREHOLDERS
-MISC1-
Part
I. Corporations improperly accumulating surplus.
II. Personal holding companies.
[III. Repealed.]
IV. Deduction for dividends paid.
AMENDMENTS
2004 - Pub. L. 108-357, title IV, Sec. 413(c)(31), Oct. 22, 2004,
118 Stat. 1509, struck out item for part III "Foreign personal
holding companies".
-End-
-CITE-
26 USC PART I - CORPORATIONS IMPROPERLY ACCUMULATING
SURPLUS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-MISC1-
Sec.
531. Imposition of accumulated earnings tax.
532. Corporations subject to accumulated earnings tax.
533. Evidence of purpose to avoid income tax.
534. Burden of proof.
535. Accumulated taxable income.
536. Income not placed on annual basis.
537. Reasonable needs of the business.
-End-
-CITE-
26 USC Sec. 531 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 531. Imposition of accumulated earnings tax
-STATUTE-
In addition to other taxes imposed by this chapter, there is
hereby imposed for each taxable year on the accumulated taxable
income (as defined in section 535) of each corporation described in
section 532, an accumulated earnings tax equal to 15 percent of the
accumulated taxable income.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 179; Pub. L. 100-647, title I,
Sec. 1001(a)(2)(A), Nov. 10, 1988, 102 Stat. 3349; Pub. L. 103-66,
title XIII, Secs. 13201(b)(1), 13202(b), Aug. 10, 1993, 107 Stat.
459, 461; Pub. L. 107-16, title I, Sec. 101(c)(4), June 7, 2001,
115 Stat. 43; Pub. L. 108-27, title III, Sec. 302(e)(5), May 28,
2003, 117 Stat. 764.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Pub. L. 108-27, Secs. 302(e)(5), 303, temporarily
substituted "equal to 15 percent of the accumulated taxable
income." for "equal to the product of the highest rate of tax under
section 1(c) and the accumulated taxable income." See Effective and
Termination Dates of 2003 Amendment note below.
2001 - Pub. L. 107-16, Secs. 101(c)(4), 901, temporarily
substituted "equal to the product of the highest rate of tax under
section 1(c) and the accumulated taxable income." for "equal to
39.6 percent of the accumulated taxable income." See Effective and
Termination Dates of 2001 Amendment note below.
1993 - Pub. L. 103-66, Sec. 13202(b), substituted "39.6 percent"
for "36 percent".
Pub. L. 103-66, Sec. 13201(b)(1), substituted "36 percent" for
"28 percent".
1988 - Pub. L. 100-647 amended section generally. Prior to
amendment, section read as follows: "In addition to other taxes
imposed by this chapter, there is hereby imposed for each taxable
year on the accumulated taxable income (as defined in section 535)
of every corporation described in section 532, an accumulated
earnings tax equal to the sum of -
"(1) 27 1/2 percent of the accumulated taxable income not in
excess of $100,000, plus
"(2) 38 1/2 percent of the accumulated taxable income in
excess of $100,000."
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to taxable years beginning
after Dec. 31, 2000, see section 101(d)(1) of Pub. L. 107-16, set
out as a note under section 1 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1992, see sections 13201(c) and 13202(c) of Pub. L.
103-66, set out as notes under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1001(a)(2)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to taxable years beginning after December 31, 1987. Such
amendment shall not be treated as a change in a rate of tax for
purposes of section 15 of the 1986 Code."
-End-
-CITE-
26 USC Sec. 532 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 532. Corporations subject to accumulated earnings tax
-STATUTE-
(a) General rule
The accumulated earnings tax imposed by section 531 shall apply
to every corporation (other than those described in subsection (b))
formed or availed of for the purpose of avoiding the income tax
with respect to its shareholders or the shareholders of any other
corporation, by permitting earnings and profits to accumulate
instead of being divided or distributed.
(b) Exceptions
The accumulated earnings tax imposed by section 531 shall not
apply to -
(1) a personal holding company (as defined in section 542),
(2) a corporation exempt from tax under subchapter F (section
501 and following), or
(3) a passive foreign investment company (as defined in section
1297).
(c) Application determined without regard to number of shareholders
The application of this part to a corporation shall be determined
without regard to the number of shareholders of such corporation.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 179; Pub. L. 98-369, div. A,
title I, Sec. 58(a), July 18, 1984, 98 Stat. 574; Pub. L. 99-514,
title XII, Sec. 1235(f)(1), Oct. 22, 1986, 100 Stat. 2575; Pub. L.
105-34, title XI, Sec. 1122(d)(1), Aug. 5, 1997, 111 Stat. 977;
Pub. L. 109-135, title IV, Sec. 403(n)(1), Dec. 21, 2005, 119 Stat.
2626.)
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(2) to (4). Pub. L. 109-135 redesignated pars.
(3) and (4) as (2) and (3), respectively, and struck out former
par. (2) which read as follow: "a foreign personal holding company
(as defined in section 552),".
1997 - Subsec. (b)(4). Pub. L. 105-34 substituted "section 1297"
for "section 1296".
1986 - Subsec. (b)(4). Pub. L. 99-514 added par. (4).
1984 - Subsec. (c). Pub. L. 98-369 added subsec. (c).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1124 of Pub. L. 105-34 provided that: "The amendments
made by this subtitle [subtitle C (Secs. 1121-1124) of title XI of
Pub. L. 105-34, enacting section 1296 of this title, amending this
section and sections 542, 551, 852, 1291, 1293, 1296 to 1298, and
4982 of this title, redesignating subpart C of part VI of
subchapter P of this chapter as subpart D of part VI of subchapter
P of this chapter, and renumbering sections 1296 and 1297 of this
title as sections 1297 and 1298, respectively, of this title] shall
apply to -
"(1) taxable years of United States persons beginning after
December 31, 1997, and
"(2) taxable years of foreign corporations ending with or
within such taxable years of United States persons."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1986, see section
1235(h) of Pub. L. 99-514, set out as an Effective Date note under
section 1291 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 58(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and section 535 of this
title] shall apply to taxable years beginning after the date of the
enactment of this Act [July 18, 1984]."
-End-
-CITE-
26 USC Sec. 533 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 533. Evidence of purpose to avoid income tax
-STATUTE-
(a) Unreasonable accumulation determinative of purpose
For purposes of section 532, the fact that the earnings and
profits of a corporation are permitted to accumulate beyond the
reasonable needs of the business shall be determinative of the
purpose to avoid the income tax with respect to shareholders,
unless the corporation by the preponderance of the evidence shall
prove to the contrary.
(b) Holding or investment company
The fact that any corporation is a mere holding or investment
company shall be prima facie evidence of the purpose to avoid the
income tax with respect to shareholders.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 179.)
-End-
-CITE-
26 USC Sec. 534 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 534. Burden of proof
-STATUTE-
(a) General rule
In any proceeding before the Tax Court involving a notice of
deficiency based in whole or in part on the allegation that all or
any part of the earnings and profits have been permitted to
accumulate beyond the reasonable needs of the business, the burden
of proof with respect to such allegation shall -
(1) if notification has not been sent in accordance with
subsection (b), be on the Secretary, or
(2) if the taxpayer has submitted the statement described in
subsection (c), be on the Secretary with respect to the grounds
set forth in such statement in accordance with the provisions of
such subsection.
(b) Notification by Secretary
Before mailing the notice of deficiency referred to in subsection
(a), the Secretary may send by certified mail or registered mail a
notification informing the taxpayer that the proposed notice of
deficiency includes an amount with respect to the accumulated
earnings tax imposed by section 531.
(c) Statement by taxpayer
Within such time (but not less than 30 days) after the mailing of
the notification described in subsection (b) as the Secretary may
prescribe by regulations, the taxpayer may submit a statement on
the grounds (together with facts sufficient to show the basis
thereof) on which the taxpayer relies to establish that all or any
part of the earnings and profits have not been permitted to
accumulate beyond the reasonable needs of the business.
(d) Jeopardy assessment
If pursuant to section 6861(a) a jeopardy assessment is made
before the mailing of the notice of deficiency referred to in
subsection (a), for purposes of this section such notice of
deficiency shall, to the extent that it informs the taxpayer that
such deficiency includes the accumulated earnings tax imposed by
section 531, constitute the notification described in subsection
(b), and in that event the statement described in subsection (c)
may be included in the taxpayer's petition to the Tax Court.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 180; Aug. 11, 1955, ch. 805,
Secs. 4, 5, 69 Stat. 690, 691; Pub. L. 85-866, title I, Sec. 89(b),
Sept. 2, 1958, 72 Stat. 1665; Pub. L. 94-455, title XIX, Secs.
1901(a)(73), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1776, 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (a)(1), (2). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (b). Pub. L. 94-455, Secs. 1901(a)(73)(A),
1906(b)(13)(A), struck out "In the case of a notice of deficiency
to which subsection (e)(2) applies and which is mailed on or before
the 30th day after the date of enactment of this sentence, the
notification referred to in the preceding sentence may be mailed at
any time on or before such 30th day" after "section 531", and "or
his delegate" after "Secretary".
Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
Subsec. (e). Pub. L. 94-455, Sec. 1901(a)(73)(B), struck out
subsec. (e) relating to application of provisions of section.
1958 - Subsec. (b). Pub. L. 85-866 inserted "certified mail or"
before "registered mail".
1955 - Subsec. (b). Act Aug. 11, 1955, Sec. 5, inserted second
sentence relating to notice of deficiency to which subsec. (e)(2)
applies.
Subsec. (e). Act Aug. 11, 1955, Sec. 4, permitted, in certain
instances, application of this section to cases involving taxable
years to which prior revenue laws apply.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(73) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable only if mailing occurred
after Sept. 2, 1958, see section 89(d) of Pub. L. 85-866, set out
as a note under section 7502 of this title.
-End-
-CITE-
26 USC Sec. 535 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 535. Accumulated taxable income
-STATUTE-
(a) Definition
For purposes of this subtitle, the term "accumulated taxable
income" means the taxable income, adjusted in the manner provided
in subsection (b), minus the sum of the dividends paid deduction
(as defined in section 561) and the accumulated earnings credit (as
defined in subsection (c)).
(b) Adjustments to taxable income
For purposes of subsection (a), taxable income shall be adjusted
as follows:
(1) Taxes
There shall be allowed as a deduction Federal income and excess
profits taxes and income, war profits, and excess profits taxes
of foreign countries and possessions of the United States (to the
extent not allowable as a deduction under section 275(a)(4)),
accrued during the taxable year or deemed to be paid by a
domestic corporation under section 902(a) or 960(a)(1) for the
taxable year, but not including the accumulated earnings tax
imposed by section 531, the personal holding company tax imposed
by section 541, or the taxes imposed by corresponding sections of
a prior income tax law.
(2) Charitable contributions
The deduction for charitable contributions provided under
section 170 shall be allowed without regard to section 170(b)(2).
(3) Special deductions disallowed
The special deductions for corporations provided in part VIII
(except section 248) of subchapter B (section 241 and following,
relating to the deduction for dividends received by corporations,
etc.) shall not be allowed.
(4) Net operating loss
The net operating loss deduction provided in section 172 shall
not be allowed.
(5) Capital losses
(A) In general
Except as provided in subparagraph (B), there shall be
allowed as a deduction an amount equal to the net capital loss
for the taxable year (determined without regard to paragraph
(7)(A)).
(B) Recapture of previous deductions for capital gains
The aggregate amount allowable as a deduction under
subparagraph (A) for any taxable year shall be reduced by the
lesser of -
(i) the nonrecaptured capital gains deductions, or
(ii) the amount of the accumulated earnings and profits of
the corporation as of the close of the preceding taxable
year.
(C) Nonrecaptured capital gains deductions
For purposes of subparagraph (B), the term "nonrecaptured
capital gains deductions" means the excess of -
(i) the aggregate amount allowable as a deduction under
paragraph (6) for preceding taxable years beginning after
July 18, 1984, over
(ii) the aggregate of the reductions under subparagraph (B)
for preceding taxable years.
(6) Net capital gains
(A) In general
There shall be allowed as a deduction -
(i) the net capital gain for the taxable year (determined
with the application of paragraph (7)), reduced by
(ii) the taxes attributable to such net capital gain.
(B) Attributable taxes
For purposes of subparagraph (A), the taxes attributable to
the net capital gain shall be an amount equal to the difference
between -
(i) the taxes imposed by this subtitle (except the tax
imposed by this part) for the taxable year, and
(ii) such taxes computed for such year without including in
taxable income the net capital gain for the taxable year
(determined without the application of paragraph (7)).
(7) Capital loss carryovers
(A) Unlimited carryforward
The net capital loss for any taxable year shall be treated as
a short-term capital loss in the next taxable year.
(B) Section 1212 inapplicable
No allowance shall be made for the capital loss carryback or
carryforward provided in section 1212.
(8) Special rules for mere holding or investment companies
In the case of a mere holding or investment company -
(A) Capital loss deduction, etc., not allowed
Paragraphs (5) and (7)(A) shall not apply.
(B) Deduction for certain offsets
There shall be allowed as a deduction the net short-term
capital gain for the taxable year to the extent such gain does
not exceed the amount of any capital loss carryover to such
taxable year under section 1212 (determined without regard to
paragraph (7)(B)).
(C) Earnings and profits
For purposes of subchapter C, the accumulated earnings and
profits at any time shall not be less than they would be if
this subsection had applied to the computation of earnings and
profits for all taxable years beginning after July 18, 1984.
(9) Special rule for capital gains and losses of foreign
corporations
In the case of a foreign corporation, paragraph (6) shall be
applied by taking into account only gains and losses which are
effectively connected with the conduct of a trade or business
within the United States and are not exempt from tax under
treaty.
(10) Controlled foreign corporations
There shall be allowed as a deduction the amount of the
corporation's income for the taxable year which is included in
the gross income of a United States shareholder under section
951(a). In the case of any corporation the accumulated taxable
income of which would (but for this sentence) be determined
without allowance of any deductions, the deduction under this
paragraph shall be allowed and shall be appropriately adjusted to
take into account any deductions which reduced such inclusion.
(c) Accumulated earnings credit
(1) General rule
For purposes of subsection (a), in the case of a corporation
other than a mere holding or investment company the accumulated
earnings credit is (A) an amount equal to such part of the
earnings and profits for the taxable year as are retained for the
reasonable needs of the business, minus (B) the deduction allowed
by subsection (b)(6). For purposes of this paragraph, the amount
of the earnings and profits for the taxable year which are
retained is the amount by which the earnings and profits for the
taxable year exceed the dividends paid deduction (as defined in
section 561) for such year.
(2) Minimum credit
(A) In general
The credit allowable under paragraph (1) shall in no case be
less than the amount by which $250,000 exceeds the accumulated
earnings and profits of the corporation at the close of the
preceding taxable year.
(B) Certain service corporations
In the case of a corporation the principal function of which
is the performance of services in the field of health, law,
engineering, architecture, accounting, actuarial science,
performing arts, or consulting, subparagraph (A) shall be
applied by substituting "$150,000" for "$250,000".
(3) Holding and investment companies
In the case of a corporation which is a mere holding or
investment company, the accumulated earnings credit is the amount
(if any) by which $250,000 exceeds the accumulated earnings and
profits of the corporation at the close of the preceding taxable
year.
(4) Accumulated earnings and profits
For purposes of paragraphs (2) and (3), the accumulated
earnings and profits at the close of the preceding taxable year
shall be reduced by the dividends which under section 563(a)
(relating to dividends paid after the close of the taxable year)
are considered as paid during such taxable year.
(5) Cross reference
For denial of credit provided in paragraph (2) or (3) where
multiple corporations are formed to avoid tax, see section
1551, and for limitation on such credit in the case of certain
controlled corporations, see section 1561.
(d) Income distributed to United States-owned foreign corporation
retains United States connection
(1) In general
For purposes of this part, if 10 percent or more of the
earnings and profits of any foreign corporation for any taxable
year -
(A) is derived from sources within the United States, or
(B) is effectively connected with the conduct of a trade or
business within the United States,
any distribution out of such earnings and profits (and any
interest payment) received (directly or through 1 or more other
entities) by a United States-owned foreign corporation shall be
treated as derived by such corporation from sources within the
United States.
(2) United States-owned foreign corporation
The term "United States-owned foreign corporation" has the
meaning given to such term by section 904(g)(6).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 180; Pub. L. 85-866, title I,
Sec. 31, title II, Sec. 205(a), Sept. 2, 1958, 72 Stat. 1631, 1680;
Pub. L. 87-403, Sec. 3(b), Feb. 2, 1962, 76 Stat. 6; Pub. L. 87-
834, Sec. 9(d)(2), Oct. 16, 1962, 76 Stat. 1001; Pub. L. 88-272,
title II, Sec. 207(b)(4), Feb. 26, 1964, 78 Stat. 42; Pub. L. 91-
172, title IV, Sec. 401(b)(2)(C), title V, Sec. 512(f)(5), (6),
Dec. 30, 1969, 83 Stat. 602, 641; Pub. L. 94-12, title III, Sec.
304(a), Mar. 29, 1975, 89 Stat. 45; Pub. L. 94-455, title X, Sec.
1033(b)(3), title XIX, Secs. 1901(a)(74), (b)(20)(A), (32)(C),
(33)(D), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1628, 1777, 1797,
1800, 1801, 1834; Pub. L. 97-34, title II, Sec. 232(a), (b)(1),
Aug. 13, 1981, 95 Stat. 250; Pub. L. 98-369, div. A, title I, Secs.
58(b), 125(a), July 18, 1984, 98 Stat. 575, 647; Pub. L. 99-514,
title XII, Sec. 1225(a), title XVIII, Sec. 1899A(17), Oct. 22,
1986, 100 Stat. 2558, 2959; Pub. L. 101-508, title XI, Sec.
11801(c)(18), Nov. 5, 1990, 104 Stat. 1388-528; Pub. L. 108-357,
title IV, Sec. 402(b)(1), Oct. 22, 2004, 118 Stat. 1492; Pub. L.
109-135, title IV, Sec. 403(n)(2), Dec. 21, 2005, 119 Stat. 2626.)
-STATAMEND-
AMENDMENT OF SUBSECTION (D)(2)
Pub. L. 108-357, title IV, Sec. 402(b)(1), (c), Oct. 22, 2004,
118 Stat. 1492, provided that, applicable to losses for taxable
years beginning after Dec. 31, 2006, subsection (d)(2) of this
section is amended by substituting "section 904(h)(6)" for "section
904(g)(6)".
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(10). Pub. L. 109-135 added par. (10).
1990 - Subsec. (c)(5). Pub. L. 101-508 substituted "section 1561"
for "sections 1561 and 1564".
1986 - Subsec. (b)(5)(C)(i), (8)(C). Pub. L. 99-514, Sec.
1899A(17), substituted "July 18, 1984" for "the date of the
enactment of the Tax Reform Act of 1984".
Subsec. (b)(9). Pub. L. 99-514, Sec. 1225(a), added par. (9).
1984 - Subsec. (b)(5). Pub. L. 98-369, Sec. 58(b), designated
existing provisions as subpar. (A), substituted "Except as provided
in subparagraph (B), there shall be allowed as a deduction an
amount equal to the net capital loss for the taxable year
(determined without regard to paragraph (7)(A)" for "There shall be
allowed as deductions losses from sales or exchanges of capital
assets during the taxable year which are disallowed as deductions
under section 1211(a) in subpar. (A) as so redesignated, and added
subpars. (B) and (C).
Subsec. (b)(6). Pub. L. 98-369, Sec. 58(b), divided existing par.
(6) into subpars. (A) and (B) and substituted references to the
application of paragraph (7) for references to capital loss
carryback and carryover provided in section 1212.
Subsec. (b)(7). Pub. L. 98-369, Sec. 58(b), substituted "Capital
loss carryovers" for "Capital loss" in heading, redesignated
existing provisions as subpar. (B), and added subpar. (A).
Subsec. (b)(8). Pub. L. 98-369, Sec. 58(b), added par. (8).
Subsec. (d). Pub. L. 98-369, Sec. 125(a), added subsec. (d).
1981 - Subsec. (c)(2). Pub. L. 97-34, Sec. 232(a), designated
existing provisions as subpar. (A), substituted "$250,000" for
"$150,000", and added subpar. (B).
Subsec. (c)(3). Pub. L. 97-34, Sec. 232(b)(1), substituted
"$250,000" for "$150,000".
1976 - Subsec. (b)(1). Pub. L. 94-455, Secs. 1033(b)(3),
1901(a)(74), struck out "(other than the excess profits tax imposed
by subchapter E of chapter 2 of the Internal Revenue Code of 1939
for taxable years beginning after December 31, 1940)" after "income
and excess profits taxes", and substituted "section 902(a) or
960(a)(1)" for "section 902(a)(1) or 960(a)(1)(C)" after "domestic
corporation under".
Subsec. (b)(6). Pub. L. 94-455, Sec. 1901(b)(33)(D), substituted
"Net" for "Long-term" after "(6)".
Subsec. (b)(8). Pub. L. 94-455, Sec. 1901(b)(20)(A), struck out
par. (8) relating to allowance of deduction by bank affiliates.
Subsec. (b)(9), (10). Pub. L. 94-455, Sec. 1901(b)(32)(C), struck
out par. (9) relating to allowance of deduction for distributions
of divested stock, and struck out par. (10) relating to special
adjustment on disposition of antitrust stock received as a
dividend.
1975 - Subsec. (c)(2), (3). Pub. L. 94-12 substituted "$150,000"
for "$100,000".
1969 - Subsec. (b)(6). Pub. L. 91-172, Sec. 512(f)(5),
substituted "capital loss carryback or carryover" for "capital loss
carryover" and "capital loss carryback and carryover" for "capital
loss carryover" in subpar. (B).
Subsec. (b)(7). Pub. L. 91-172, Sec. 512(f)(6), substituted
"Capital loss" for "Capital loss carryover" in heading and "capital
loss carryback or carryover" for "capital loss carryover" in text.
Subsec. (c)(5). Pub. L. 91-172, Sec. 401(b)(2)(C), substituted
"section 1551, and for limitation on such credit in the case of
certain controlled corporations, see sections 1561 and 1564" for
"section 1551".
1964 - Subsec. (b)(1). Pub. L. 88-272 substituted "section
275(a)(4)" for "section 164(b)(6)".
1962 - Subsec. (b)(1). Pub. L. 87-834 substituted "accrued during
the taxable year or deemed to be paid by a domestic corporation
under section 902(a)(1) or 960(a)(1)(C) for the taxable year" for
"accrued during the taxable year".
Subsec. (b)(9), (10). Pub. L. 87-403 added pars. (9) and (10).
1958 - Subsec. (b)(2). Pub. L. 85-866, Sec. 31(a), struck out
"the limitation in" after "without regard to".
Subsec. (b)(6)(B). Pub. L. 85-866, Sec. 31(a), substituted "in
taxable income the excess of the net long-term capital gain for the
taxable year over the net short-term capital loss for such year
(determined without regard to the capital loss carryover provided
in section 1212)" for "such excess in taxable income".
Subsec. (c)(2), (3). Pub. L. 85-866, Sec. 205(a), substituted
"$100,000" for "$60,000".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title IV, Sec. 402(c), Oct. 22, 2004, 118 Stat.
1492, provided that: "The amendments made by this section [amending
this section and sections 904 and 936 of this title] shall apply to
losses for taxable years beginning after December 31, 2006."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1225(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(k), Nov. 10, 1988, 102 Stat. 3513, provided
that: "The amendments made by this section [amending this section
and section 545 of this title] shall apply to gains and losses
realized on or after January 1, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 58(b) of Pub. L. 98-369 applicable to
taxable years beginning after July 18, 1984, see section 58(c) of
Pub. L. 98-369, set out as a note under section 532 of this title.
Section 125(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply to distributions and interest payments received by a United
States-owned foreign corporation (within the meaning of section
535(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954])
on or after May 23, 1983, in taxable years ending on or after such
date.
"(2) Corporations in existence on may 23, 1983. - In the case of
a United States-owned foreign corporation (as so defined) in
existence on May 23, 1983, the amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1984."
EFFECTIVE DATE OF 1981 AMENDMENT
Section 232(c) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section and sections 243, 1551,
and 1561 of this title] shall apply to taxable years beginning
after December 31, 1981."
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1033(b)(3) of Pub. L.
94-455, see section 1033(c) of Pub. L. 94-455, set out as a note
under section 902 of this title.
Amendment by section 1901(a)(74), (b)(20)(A), (32)(C), (33)(D) of
Pub. L. 94-455 applicable with respect to taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Section 305(c) of Pub. L. 94-12 provided that: "The amendments
made by section 304 [amending this section and sections 243, 1551,
and 1561 of this title] apply to taxable years beginning after
December 31, 1974."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 401(b)(2)(C) of Pub. L. 91-172 applicable
with respect to taxable years beginning after Dec. 31, 1969, see
section 401(h)(2) of Pub. L. 91-172, set out as a note under
section 1561 of this title.
Amendment by section 512(f)(5), (6) of Pub. L. 91-172 applicable
with respect to net capital losses sustained in taxable years
beginning after Dec. 31, 1969, see section 512(g) of Pub. L. 91-
172, set out as a note under section 1212 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 207(c) of Pub. L. 88-272, set out
as a note under section 164 of this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Amendment by Pub. L. 87-834 applicable in respect of any
distribution received by a domestic corporation after Dec. 31,
1964, and in respect of any distribution received by a domestic
corporation before Jan. 1, 1965, in a taxable year of such
corporation beginning after Dec. 31, 1962, but only to the extent
that such distribution is made out of the accumulated profits of a
foreign corporation for a taxable year (of such foreign
corporation) beginning after Dec. 31, 1962, see section 9(e) of
Pub. L. 87-834, set out as a note under section 902 of this title.
Amendment by Pub. L. 87-403 applicable only with respect to
distributions made after Feb. 2, 1962, see section 3(g) of Pub. L.
87-403, set out as a note under section 312 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by section 31 of Pub. L. 85-866 applicable to taxable
years beginning after Dec. 31, 1953, and ending after Aug. 16,
1954, see section 1(c)(1) of Pub. L. 85-866, set out as a note
under section 165 of this title.
Section 205(b) of Pub. L. 85-866 provided that: "The amendments
made by subsection (a) [amending this section and section 1551 of
this title] shall apply with respect to taxable years beginning
after December 31, 1957."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 536 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 536. Income not placed on annual basis
-STATUTE-
Section 443(b) (relating to computation of tax on change of
annual accounting period) shall not apply in the computation of the
accumulated earnings tax imposed by section 531.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 182.)
-End-
-CITE-
26 USC Sec. 537 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART I - CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
-HEAD-
Sec. 537. Reasonable needs of the business
-STATUTE-
(a) General rule
For purposes of this part, the term "reasonable needs of the
business" includes -
(1) the reasonably anticipated needs of the business,
(2) the section 303 redemption needs of the business, and
(3) the excess business holdings redemption needs of the
business.
(b) Special rules
For purposes of subsection (a) -
(1) Section 303 redemption needs
The term "section 303 redemption needs" means, with respect to
the taxable year of the corporation in which a shareholder of the
corporation died or any taxable year thereafter, the amount
needed (or reasonably anticipated to be needed) to make a
redemption of stock included in the gross estate of the decedent
(but not in excess of the maximum amount of stock to which
section 303(a) may apply).
(2) Excess business holdings redemption needs
The term "excess business holdings redemption needs" means the
amount needed (or reasonably anticipated to be needed) to redeem
from a private foundation stock which -
(A) such foundation held on May 26, 1969 (or which was
received by such foundation pursuant to a will or irrevocable
trust to which section 4943(c)(5) applies), and
(B) constituted excess business holdings on May 26, 1969, or
would have constituted excess business holdings as of such date
if there were taken into account (i) stock received pursuant to
a will or trust described in subparagraph (A), and (ii) the
reduction in the total outstanding stock of the corporation
which would have resulted solely from the redemption of stock
held by the private foundation.
(3) Obligations incurred to make redemptions
In applying paragraphs (1) and (2), the discharge of any
obligation incurred to make a redemption described in such
paragraphs shall be treated as the making of such redemption.
(4) Product liability loss reserves
The accumulation of reasonable amounts for the payment of
reasonably anticipated product liability losses (as defined in
section 172(f)), as determined under regulations prescribed by
the Secretary, shall be treated as accumulated for the reasonably
anticipated needs of the business.
(5) No inference as to prior taxable years
The application of this part to any taxable year before the
first taxable year specified in paragraph (1) shall be made
without regard to the fact that distributions in redemption
coming within the terms of such paragraphs were subsequently
made.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 182; Pub. L. 91-172, title IX,
Sec. 906(a), Dec. 30, 1969, 83 Stat. 714; Pub. L. 94-455, title
XIX, Sec. 1901(a)(75), Oct. 4, 1976, 90 Stat. 1777; Pub. L. 95-600,
title III, Sec. 371(c), Nov. 6, 1978, 92 Stat. 2859; Pub. L. 104-
188, title I, Sec. 1704(t)(33), Aug. 20, 1996, 110 Stat. 1889.)
-MISC1-
AMENDMENTS
1996 - Subsec. (b)(4). Pub. L. 104-188 substituted "section
172(f)" for "section 172(i)".
1978 - Subsec. (b)(4), (5). Pub. L. 95-600 added par. (4) and
redesignated former par. (4) as (5).
1976 - Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(a)(75)(A),
struck out "with respect to taxable years of the corporation ending
after May 26, 1969" after " 'redemption needs' means".
Subsec. (b)(4). Pub. L. 94-455, Sec. 1901(a)(75)(B), struck out
"or (2)" after "paragraph (1)".
1969 - Pub. L. 91-172 designated existing provisions as subsec.
(a)(1) and added subsecs. (a)(2), (3) and (b).
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable with respect to taxable
years beginning after Sept. 30, 1979, see section 371(d) of Pub. L.
95-600, set out as a note under section 172 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 906(b) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to the tax imposed under section 531 of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] with respect to taxable years
ending after May 26, 1969."
-End-
-CITE-
26 USC PART II - PERSONAL HOLDING COMPANIES 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
PART II - PERSONAL HOLDING COMPANIES
-MISC1-
Sec.
541. Imposition of personal holding company tax.
542. Definition of personal holding company.
543. Personal holding company income.
544. Rules for determining stock ownership.
545. Undistributed personal holding company income.
546. Income not placed on annual basis.
547. Deduction for deficiency dividends.
-End-
-CITE-
26 USC Sec. 541 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 541. Imposition of personal holding company tax
-STATUTE-
In addition to other taxes imposed by this chapter, there is
hereby imposed for each taxable year on the undistributed personal
holding company income (as defined in section 545) of every
personal holding company (as defined in section 542) a personal
holding company tax equal to 15 percent of the undistributed
personal holding company income.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 182; Pub. L. 88-272, title II,
Sec. 225(a), Feb. 26, 1964, 78 Stat. 79; Pub. L. 97-34, title I,
Sec. 101(d)(2), Aug. 13, 1981, 95 Stat. 184; Pub. L. 99-514, title
I, Sec. 104(b)(8), Oct. 22, 1986, 100 Stat. 2105; Pub. L. 101-508,
title XI, Sec. 11802(f)(1), Nov. 5, 1990, 104 Stat. 1388-530; Pub.
L. 103-66, title XIII, Secs. 13201(b)(2), 13202(b), Aug. 10, 1993,
107 Stat. 459, 461; Pub. L. 107-16, title I, Sec. 101(c)(5), June
7, 2001, 115 Stat. 43; Pub. L. 108-27, title III, Sec. 302(e)(6),
May 28, 2003, 117 Stat. 764.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Pub. L. 108-27, Secs. 302(e)(6), 303, temporarily
substituted "equal to 15 percent of the undistributed personal
holding company income." for "equal to the product of the highest
rate of tax under section 1(c) and the undistributed personal
holding company income." See Effective and Termination Dates of
2003 Amendment note below.
2001 - Pub. L. 107-16, Secs. 101(c)(5), 901, temporarily
substituted "equal to the product of the highest rate of tax under
section 1(c) and the undistributed personal holding company
income." for "equal to 39.6 percent of the undistributed personal
holding company income." See Effective and Termination Dates of
2001 Amendment note below.
1993 - Pub. L. 103-66, Sec. 13202(b), substituted "39.6 percent"
for "36 percent".
Pub. L. 103-66, Sec. 13201(b)(2), substituted "36 percent" for
"28 percent".
1990 - Pub. L. 101-508 struck out "(38.5 percent in the case of
taxable years beginning in 1987)" after "28 percent".
1986 - Pub. L. 99-514 substituted "28 percent (38.5 percent in
the case of taxable years beginning in 1987)" for "50 percent".
1981 - Pub. L. 97-34 substituted "50 percent" for "70 percent".
1964 - Pub. L. 88-272 reduced the tax from 75 percent of
undistributed income not in excess of $2,000, and 85 percent when
in excess of $2,000, to 70 percent.
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to payments made in
taxable years beginning after Dec. 31, 2000, see section 431(d) of
Pub. L. 107-16, set out as a note under section 62 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1992, see sections 13201(c) and 13202(c) of Pub. L.
103-66, set out as notes under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1981, see section 101(f)(1) of Pub. L. 97-34, set
out as a note under section 1 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 225(l) of Pub. L. 88-272 set out
as a note under section 316 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 542 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 542. Definition of personal holding company
-STATUTE-
(a) General rule
For purposes of this subtitle, the term "personal holding
company" means any corporation (other than a corporation described
in subsection (c)) if -
(1) Adjusted ordinary gross income requirement
At least 60 percent of its adjusted ordinary gross income (as
defined in section 543(b)(2)) for the taxable year is personal
holding company income (as defined in section 543(a)), and
(2) Stock ownership requirement
At any time during the last half of the taxable year more than
50 percent in value of its outstanding stock is owned, directly
or indirectly, by or for not more than 5 individuals. For
purposes of this paragraph, an organization described in section
401(a), 501(c)(17), or 509(a) or a portion of a trust permanently
set aside or to be used exclusively for the purposes described in
section 642(c) or a corresponding provision of a prior income tax
law shall be considered an individual.
(b) Corporations filing consolidated returns
(1) General rule
In the case of an affiliated group of corporations filing or
required to file a consolidated return under section 1501 for any
taxable year, the adjusted ordinary gross income requirement of
subsection (a)(1) of this section shall, except as provided in
paragraphs (2) and (3), be applied for such year with respect to
the consolidated adjusted ordinary gross income and the
consolidated personal holding company income of the affiliated
group. No member of such an affiliated group shall be considered
to meet such adjusted ordinary gross income requirement unless
the affiliated group meets such requirement.
(2) Ineligible affiliated group
Paragraph (1) shall not apply to an affiliated group of
corporations if -
(A) any member of the affiliated group of corporations
(including the common parent corporation) derived 10 percent or
more of its adjusted ordinary gross income for the taxable year
from sources outside the affiliated group, and
(B) 80 percent or more of the amount described in
subparagraph (A) consists of personal holding company income
(as defined in section 543).
For purposes of this paragraph, section 543 shall be applied as
if the amount described in subparagraph (A) were the adjusted
ordinary gross income of the corporation.
(3) Excluded corporations
Paragraph (1) shall not apply to an affiliated group of
corporations if any member of the affiliated group (including the
common parent corporation) is a corporation excluded from the
definition of personal holding company under subsection (c).
(4) Certain dividend income received by a common parent
In applying paragraph (2) (A) and (B), personal holding company
income and adjusted ordinary gross income shall not include
dividends received by a common parent corporation from another
corporation if -
(A) the common parent corporation owns, directly or
indirectly, more than 50 percent of the outstanding voting
stock of such other corporation, and
(B) such other corporation is not a personal holding company
for the taxable year in which the dividends are paid.
(5) Certain dividend income received from a nonincludible life
insurance company
In the case of an affiliated group of corporations filing or
required to file a consolidated return under section 1501 for any
taxable year, there shall be excluded from consolidated personal
holding company income and consolidated adjusted ordinary gross
income for purposes of this part dividends received by a member
of the affiliated group from a life insurance company taxable
under section 801 that is not a member of the affiliated group
solely by reason of the application of paragraph (2) of
subsection (b) of section 1504.
(c) Exceptions
The term "personal holding company" as defined in subsection (a)
does not include -
(1) a corporation exempt from tax under subchapter F (sec. 501
and following);
(2) a bank as defined in section 581, or a domestic building
and loan association within the meaning of section 7701(a)(19);
(3) a life insurance company;
(4) a surety company;
(5) a foreign corporation,(!1)
(6) a lending or finance company if -
(A) 60 percent or more of its ordinary gross income (as
defined in section 543(b)(1)) is derived directly from the
active and regular conduct of a lending or finance business;
(B) the personal holding company income for the taxable year
(computed without regard to income described in subsection
(d)(3) and income derived directly from the active and regular
conduct of a lending or finance business, and computed by
including as personal holding company income the entire amount
of the gross income from rents, royalties, produced film rents,
and compensation for use of corporate property by shareholders)
is not more than 20 percent of the ordinary gross income;
(C) the sum of the deductions which are directly allocable to
the active and regular conduct of its lending or finance
business equals or exceeds the sum of -
(i) 15 percent of so much of the ordinary gross income
derived therefrom as does not exceed $500,000, plus
(ii) 5 percent of so much of the ordinary gross income
derived therefrom as exceeds $500,000; and
(D) the loans to a person who is a shareholder in such
company during the taxable year by or for whom 10 percent or
more in value of its outstanding stock is owned directly or
indirectly (including, in the case of an individual, stock
owned by members of his family as defined in section
544(a)(2)), outstanding at any time during such year do not
exceed $5,000 in principal amount;
(7) A (!2) small business investment company which is licensed
by the Small Business Administration and operating under the
Small Business Investment Act of 1958 (15 U.S.C. 661 and
following) and which is actively engaged in the business of
providing funds to small business concerns under that Act. This
paragraph shall not apply if any shareholder of the small
business investment company owns at any time during the taxable
year directly or indirectly (including, in the case of an
individual, ownership by the members of his family as defined in
section 544(a)(2)) a 5 per centum or more proprietary interest in
a small business concern to which funds are provided by the
investment company or 5 per centum or more in value of the
outstanding stock of such concern; and
(8) a corporation which is subject to the jurisdiction of the
court in a title 11 or similar case (within the meaning of
section 368(a)(3)(A)) unless a major purpose of instituting or
continuing such case is the avoidance of the tax imposed by
section 541.
(d) Special rules for applying subsection (c)(6)
(1) Lending or finance business defined
(A) In general
Except as provided in subparagraph (B), for purposes of
subsection (c)(6), the term "lending or finance business" means
a business of -
(i) making loans,
(ii) purchasing or discounting accounts receivable, notes,
or installment obligations,
(iii) rendering services or making facilities available in
connection with activities described in clauses (i) and (ii)
carried on by the corporation rendering services or making
facilities available, or
(iv) rendering services or making facilities available to
another corporation which is engaged in the lending or
finance business (within the meaning of this paragraph), if
such services or facilities are related to the lending or
finance business (within such meaning) of such other
corporation and such other corporation and the corporation
rendering services or making facilities available are members
of the same affiliated group (as defined in section 1504).
(B) Exceptions
For purposes of subparagraph (A), the term "lending or
finance business" does not include the business of -
(i) making loans, or purchasing or discounting accounts
receivable, notes, or installment obligations, if (at the
time of the loan, purchase, or discount) the remaining
maturity exceeds 144 months; unless -
(I) the loans, notes, or installment obligations are
evidenced or secured by contracts of conditional sale,
chattel mortgages, or chattel lease agreements arising out
of the sale of goods or services in the course of the
borrower's or transferor's trade or business, or
(II) the loans, notes, or installment obligations are
made or acquired by the taxpayer and meet the requirements
of subparagraph (C), or
(ii) making loans evidenced by, or purchasing, certificates
of indebtedness issued in a series, under a trust indenture,
and in registered form or with interest coupons attached.
For purposes of clause (i), the remaining maturity shall be
treated as including any period for which there may be a
renewal or extension under the terms of an option exercisable
by the borrower.
(C) Indefinite maturity credit transactions
For purposes of subparagraph (B)(i), a loan, note, or
installment obligation meets the requirements of this
subparagraph if it is made under an agreement -
(i) under which the creditor agrees to make loans or
advances (not in excess of an agreed upon maximum amount)
from time to time to or for the account of the debtor upon
request, and
(ii) under which the debtor may repay the loan or advance
in full or in installments.
(2) Business deductions
For purposes of subsection (c)(6)(C), the deductions which may
be taken into account shall include only -
(A) deductions which are allowable only by reason of section
162 or section 404, except there shall not be included any such
deduction in respect of compensation for personal services
rendered by shareholders (including members of the
shareholder's family as described in section 544(a)(2)), and
(B) deductions allowable under section 167, and deductions
allowable under section 164 for real property taxes, but in
either case only to the extent that the property with respect
to which such deductions are allowable is used directly in the
active and regular conduct of the lending or finance business.
(3) Income received from certain affiliated corporations
For purposes of subsection (c)(6)(B), in the case of a lending
or finance company which meets the requirements of subsection
(c)(6)(A), there shall not be treated as personal holding company
income the lawful income received from a corporation which meets
the requirements of subsection (c)(6) and which is a member of
the same affiliated group (as defined in section 1504) of which
such company is a member.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 182; ch. 871, Sec. 3, Aug. 12,
1955, 69 Stat. 718; Pub. L. 86-376, Sec. 3(a), Sept. 23, 1959, 73
Stat. 700; Pub. L. 87-768, Sec. 1, Oct. 9, 1962, 76 Stat. 766; Pub.
L. 88-272, title II, Sec. 225(b), (c), (k)(1), Feb. 26, 1964, 78
Stat. 79, 93; Pub. L. 89-809, title I, Sec. 104(h)(1), Nov. 13,
1966, 80 Stat. 1559; Pub. L. 91-172, title I, Sec. 101(j)(16), Dec.
30, 1969, 83 Stat. 528; Pub. L. 93-480, Sec. 3(a), Oct. 26, 1974,
88 Stat. 1454; Pub. L. 94-455, title XIX, Sec. 1901(a)(76), Oct. 4,
1976, 90 Stat. 1777; Pub. L. 96-589, Sec. 5(a), Dec. 24, 1980, 94
Stat. 3405; Pub. L. 97-248, title II, Sec. 293(a)-(c), Sept. 3,
1982, 96 Stat. 575; Pub. L. 98-369, div. A, title II, Sec.
211(b)(7), July 18, 1984, 98 Stat. 755; Pub. L. 99-514, title XII,
Sec. 1235(f)(2), Oct. 22, 1986, 100 Stat. 2575; Pub. L. 105-34,
title XI, Sec. 1122(d)(1), Aug. 5, 1997, 111 Stat. 977; Pub. L. 108-
357, title IV, Sec. 413(b)(1), Oct. 22, 2004, 118 Stat. 1506.)
-REFTEXT-
REFERENCES IN TEXT
The Small Business Investment Act of 1958, referred to in subsec.
(c)(7), is Pub. L. 85-699, Aug. 21, 1958, 72 Stat. 689, as amended,
which is classified principally to chapter 14B (Sec. 661 et seq.)
of Title 15, Commerce and Trade. For complete classification of
this Act to this Code, see Short Title note set out under section
661 of Title 15 and Tables.
-MISC1-
AMENDMENTS
2004 - Subsec. (c)(5). Pub. L. 108-357, Sec. 413(b)(1)(A),
amended par. (5) generally. Prior to amendment, par. (5) read as
follows: "a foreign personal holding company as defined in section
552;".
Subsec. (c)(7) to (10). Pub. L. 108-357, Sec. 413(b)(1)(B)-(D),
redesignated pars. (8) and (9) as (7) and (8), respectively,
inserted "and" at end of par. (7), substituted period for "; and"
at end of par. (8), and struck out former pars. (7) and (10)
relating to foreign corporations whose outstanding stock during the
last half of the taxable year is owned, directly or indirectly, by
nonresident aliens and passive foreign investment companies,
respectively.
1997 - Subsec. (c)(10). Pub. L. 105-34 substituted "section 1297"
for "section 1296".
1986 - Subsec. (c)(10). Pub. L. 99-514 added par. (10).
1984 - Subsec. (b)(5). Pub. L. 98-369 substituted "section 801"
for "section 802".
1982 - Subsec. (c)(6)(C)(ii). Pub. L. 97-248, Sec. 293(a), struck
out "but not $1,000,000" after "exceeds $500,000".
Subsec. (d)(1)(B)(i). Pub. L. 97-248, Sec. 293(b), substituted
"144 months" for "60 months" after "remaining maturity exceeds",
designated existing provisions from "the loans" through
"transferor's trade or business, or" as subcl. (I), and added
subcl. (II).
Subsec. (d)(1)(C). Pub. L. 97-248, Sec. 293(c), added subpar.
(C).
1980 - Subsec. (c)(9). Pub. L. 96-589, added par. (9).
1976 - Subsec. (a)(2). Pub. L. 94-455, Sec. 1901(a)(76)(A),
struck out last sentence providing that the preceding sentence
shall not apply in the case of an organization or trust organized
or created before July 1, 1950, if at all times on or after July 1,
1950, and before the close of the taxable year such organization or
trust has owned all of the common stock and at least 80 percent of
the total number of shares of all other classes of stock of the
corporation.
Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(a)(76)(B), struck out
"other than an affiliated group of railroad corporations the common
parent of which would be eligible to file a consolidated return
under section 141 of the Internal Revenue Act of 1942" after "group
of corporations".
Subsec. (c)(2). Pub. L. 94-455, Sec. 1901(a)(76)(C), struck out
"without regard to subparagraphs (D) and (E) thereof" after
"meaning of section 7701(a)(19)".
Subsec. (c)(8). Pub. L. 94-455, Sec. 1901(a)(76)(D), inserted
"(15 U.S.C. 661 and following)" after "Small Business Investment
Act of 1958".
1974 - Subsec. (b)(5). Pub. L. 93-480 added par. (5).
1969 - Subsec. (a)(2). Pub. L. 91-172 substituted "section
401(a), 501(c)(17), or 509(a)" for "section 503(b)" in the list of
sections that contain the description of organizations that may be
considered as individuals for the purpose of establishing stock
ownership, and struck out provisions which would have kept an
organization or trust created before July 1, 1950, from being so
designated if it had been denied exemption under section 504 or an
unlimited charitable deduction under section 681(c) of this title.
1966 - Subsec. (c)(7). Pub. L. 89-809 substituted requirement
that the foreign corporation be other than a corporation which has
income to which section 543(a)(7) applies for the taxable year for
requirement that the foreign corporation's gross income from
sources within the United States for the period specified in
section 861(a)(2)(B) be less than 50 percent of its total gross
income from all sources, and expanded the devices included in
methods of indirect ownership to encompass foreign estates, foreign
trusts, and foreign partnerships.
1964 - Subsec. (a)(1). Pub. L. 88-272, Sec. 225(b), substituted
"60 percent of its adjusted ordinary gross income (as defined in
section 543(b)(2)) for the taxable year is personal holding company
income (as defined in section 543(a))" for "80 percent of its gross
income for the taxable year is personal holding company income as
defined in section 543".
Subsec. (b). Pub. L. 88-272, Sec. 225(k)(1), substituted
"adjusted ordinary gross income" for "gross income", wherever
appearing.
Subsec. (c)(2), (6) to (11). Pub. L. 88-272, Sec. 225(c)(1), (2),
inserted among the exceptions, domestic building and loan
associations within section 7701(a)(19) without regard to subpars.
(D) and (E) thereof, added par. (6), redesignated former pars. (10)
and (11) as (7) and (8), respectively, and omitted former pars. (6)
to (9) which related to licensed personal finance companies,
lending companies, loan or investment corporations, and finance
companies, respectively.
Subsec. (d). Pub. L. 88-272, Sec. 225(c)(3), added subsec. (d).
1962 - Subsec. (c)(7). Pub. L. 87-768 substituted "authorized to
engage in and actively and regularly engaged in the small loan
business (consumer finance business)" for "authorized to engage in
the small loan business", inserted provisions excepting from the
definition of "personal holding company" a lending company that
received 80 percent or more of its gross income from lawful income
from domestic subsidiary corporations (of which stock possessing at
least 80 percent of the voting power of all classes of stock and of
which at least 80 percent of each class of the nonvoting stock is
owned directly by such lending company), which are themselves
excepted under pars. (6), (7), (8), or (9) of this subsection,
increased the maximum amount of the loan where no limit is
prescribed from $500 to $1,500, and eliminated provisions which
required loans to mature in not more than 36 months, and which
limited interest, discount and other charges to not more than an
amount equal to simple interest at 3 percent per month payable in
advance and computed only on unpaid balances.
1959 - Subsec. (c)(11). Pub. L. 86-376 added par. (11).
1955 - Subsec. (a)(2). Act Aug. 12, 1955, Sec. 3, inserted
sentence at end excepting from consideration as "individuals"
certain charitable foundations created before July 1, 1950.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years of
foreign corporations beginning after Dec. 31, 2004, and to taxable
years of United States shareholders with or within which such
taxable years of foreign corporations end, see section 413(d)(1) of
Pub. L. 108-357, set out as an Effective and Termination Dates of
2004 Amendments note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years of United
States persons beginning after Dec. 31, 1997, and to taxable years
of foreign corporations ending with or within such taxable years of
United States persons, see section 1124 of Pub. L. 105-34, set out
as a note under section 532 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1986, see section
1235(h) of Pub. L. 99-514, set out as an Effective Date note under
section 1291 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 293(d) of Pub. L. 97-248 provided that:
"(1) Subsection (a). - The amendment made by subsection (a)
[amending this section] shall apply to taxable years beginning
after December 31, 1981.
"(2) Subsections (b) and (c). - The amendments made by
subsections (b) and (c) [amending this section] shall apply to
taxable years beginning after December 31, 1980."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to bankruptcy cases or
similar judicial proceedings commenced after Dec. 31, 1980, with
exception permitting the debtor to make the amendment applicable to
such cases or judicial proceedings commenced after Sept. 30, 1979,
see section 7(d)(1), (f) of Pub. L. 96-589, set out as a note under
section 108 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Section 3(b) of Pub. L. 93-480 provided that: "The amendment made
by this section [amending this section] shall apply to taxable
years beginning after December 31, 1973."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 101(k)(2)(B) of Pub. L. 91-172,
set out as a note under section 4940 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 with respect to taxable years
beginning after Dec. 31, 1966, see section 104(n) of Pub. L. 89-
809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 225(b), (c)(2), (3), (k)(1) of Pub. L. 88-
272 applicable to taxable years beginning after Dec. 31, 1963, and
amendment by section 225(c)(1) of Pub. L. 88-272 applicable to
taxable years beginning after Oct. 16, 1962, see section 225(l) of
Pub. L. 88-272, set out as a note under section 316 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Section 2 of Pub. L. 87-768 provided that: "The amendment made by
the first section of this Act [amending this section] shall apply
with respect to taxable years beginning after December 31, 1961."
EFFECTIVE DATE OF 1959 AMENDMENT
Section 3(b) of Pub. L. 86-376 provided that: "The amendment made
by this section [amending this section] shall apply to taxable
years beginning after December 31, 1958."
EFFECTIVE DATE OF 1955 AMENDMENT
Section 4 of act Aug. 12, 1955, provided that: "The amendment
made by section 3 of this Act [amending this section] shall apply
only with respect to taxable years beginning after December 31,
1954."
STOCK OWNERSHIP REQUIREMENT; ORGANIZATION OR TRUST ORGANIZED OR
CREATED BEFORE JULY 1, 1950
Pub. L. 95-600, title VII, Sec. 701(o), Nov. 6, 1978, 92 Stat.
2907, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100
Stat. 2095, provided that:
"(1) In general. - The last sentence of section 542(a)(2) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to
stock ownership requirement) shall not apply in the case of an
organization or trust organized or created before July 1, 1950, if
at all times on or after July 1, 1950, and before the close of the
taxable year such organization or trust has owned all of the common
stock and at least 80 percent of the total number of shares of all
other classes of stock of the corporation.
"(2) Effective date. - The provisions of paragraph (1) shall
apply with respect to taxable years beginning after December 31,
1976."
-FOOTNOTE-
(!1) So in original. The comma probably should be a semicolon.
(!2) So in original. Probably should not be capitalized.
-End-
-CITE-
26 USC Sec. 543 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 543. Personal holding company income
-STATUTE-
(a) General rule
For purposes of this subtitle, the term "personal holding company
income" means the portion of the adjusted ordinary gross income
which consists of:
(1) Dividends, etc.
Dividends, interest, royalties (other than mineral, oil, or gas
royalties or copyright royalties), and annuities. This paragraph
shall not apply to -
(A) interest constituting rent (as defined in subsection
(b)(3)),
(B) interest on amounts set aside in a reserve fund under
section 511 or 607 of the Merchant Marine Act, 1936 (46 U.S.C.
App. 1161 or 1177),
(C) active business computer software royalties (within the
meaning of subsection (d)), and
(D) interest received by a broker or dealer (within the
meaning of section 3(a)(4) or (5) of the Securities and
Exchange Act of 1934) in connection with -
(i) any securities or money market instruments held as
property described in section 1221(a)(1),
(ii) margin accounts, or
(iii) any financing for a customer secured by securities or
money market instruments.
(2) Rents
The adjusted income from rents; except that such adjusted
income shall not be included if -
(A) such adjusted income constitutes 50 percent or more of
the adjusted ordinary gross income, and
(B) the sum of -
(i) the dividends paid during the taxable year (determined
under section 562),
(ii) the dividends considered as paid on the last day of
the taxable year under section 563(d) (!1) (as limited by the
second sentence of section 563(b)), and
(iii) the consent dividends for the taxable year
(determined under section 565),
equals or exceeds the amount, if any, by which the personal
holding company income for the taxable year (computed without
regard to this paragraph and paragraph (6), and computed by
including as personal holding company income copyright royalties
and the adjusted income from mineral, oil, and gas royalties)
exceeds 10 percent of the ordinary gross income.
(3) Mineral, oil, and gas royalties
The adjusted income from mineral, oil, and gas royalties;
except that such adjusted income shall not be included if -
(A) such adjusted income constitutes 50 percent or more of
the adjusted ordinary gross income,
(B) the personal holding company income for the taxable year
(computed without regard to this paragraph, and computed by
including as personal holding company income copyright
royalties and the adjusted income from rents) is not more than
10 percent of the ordinary gross income, and
(C) the sum of the deductions which are allowable under
section 162 (relating to trade or business expenses) other than
-
(i) deductions for compensation for personal services
rendered by the shareholders, and
(ii) deductions which are specifically allowable under
sections other than section 162,
equals or exceeds 15 percent of the adjusted ordinary gross
income.
(4) Copyright royalties
Copyright royalties; except that copyright royalties shall not
be included if -
(A) such royalties (exclusive of royalties received for the
use of, or right to use, copyrights or interests in copyrights
on works created in whole, or in part, by any shareholder)
constitute 50 percent or more of the ordinary gross income,
(B) the personal holding company income for the taxable year
computed -
(i) without regard to copyright royalties, other than
royalties received for the use of, or right to use,
copyrights or interests in copyrights in works created in
whole, or in part, by any shareholder owning more than 10
percent of the total outstanding capital stock of the
corporation,
(ii) without regard to dividends from any corporation in
which the taxpayer owns at least 50 percent of all classes of
stock entitled to vote and at least 50 percent of the total
value of all classes of stock and which corporation meets the
requirements of this subparagraph and subparagraphs (A) and
(C), and
(iii) by including as personal holding company income the
adjusted income from rents and the adjusted income from
mineral, oil, and gas royalties,
is not more than 10 percent of the ordinary gross income, and
(C) the sum of the deductions which are properly allocable to
such royalties and which are allowable under section 162, other
than -
(i) deductions for compensation for personal services
rendered by the shareholders,
(ii) deductions for royalties paid or accrued, and
(iii) deductions which are specifically allowable under
sections other than section 162,
equals or exceeds 25 percent of the amount by which the
ordinary gross income exceeds the sum of the royalties paid or
accrued and the amounts allowable as deductions under section
167 (relating to depreciation) with respect to copyright
royalties.
For purposes of this subsection, the term "copyright royalties"
means compensation, however designated, for the use of, or the
right to use, copyrights in works protected by copyright issued
under title 17 of the United States Code and to which copyright
protection is also extended by the laws of any country other than
the United States of America by virtue of any international
treaty, convention, or agreement, or interests in any such
copyrighted works, and includes payments from any person for
performing rights in any such copyrighted work and payments
(other than produced film rents as defined in paragraph (5)(B))
received for the use of, or right to use, films. For purposes of
this paragraph, the term "shareholder" shall include any person
who owns stock within the meaning of section 544. This paragraph
shall not apply to active business computer software royalties.
(5) Produced film rents
(A) Produced film rents; except that such rents shall not be
included if such rents constitute 50 percent or more of the
ordinary gross income.
(B) For purposes of this section, the term "produced film
rents" means payments received with respect to an interest in a
film for the use of, or right to use, such film, but only to
the extent that such interest was acquired before substantial
completion of production of such film. In the case of a
producer who actively participates in the production of the
film, such term includes an interest in the proceeds or profits
from the film, but only to the extent such interest is
attributable to such active participation.
(6) Use of corporate property by shareholder
(A) Amounts received as compensation (however designated and
from whomever received) for the use of, or the right to use,
tangible property of the corporation in any case where, at any
time during the taxable year, 25 percent or more in value of
the outstanding stock of the corporation is owned, directly or
indirectly, by or for an individual entitled to the use of the
property (whether such right is obtained directly from the
corporation or by means of a sublease or other arrangement).
(B) Subparagraph (A) shall apply only to a corporation which
has personal holding company income in excess of 10 percent of
its ordinary gross income.
(C) For purposes of the limitation in subparagraph (B),
personal holding company income shall be computed -
(i) without regard to subparagraph (A) or paragraph (2),
(ii) by excluding amounts received as compensation for the
use of (or right to use) intangible property (other than
mineral, oil, or gas royalties or copyright royalties) if a
substantial part of the tangible property used in connection
with such intangible property is owned by the corporation and
all such tangible and intangible property is used in the
active conduct of a trade or business by an individual or
individuals described in subparagraph (A), and
(iii) by including copyright royalties and adjusted income
from mineral, oil, and gas royalties.
(7) Personal service contracts
(A) Amounts received under a contract under which the
corporation is to furnish personal services; if some person
other than the corporation has the right to designate (by name
or by description) the individual who is to perform the
services, or if the individual who is to perform the services
is designated (by name or by description) in the contract; and
(B) amounts received from the sale or other disposition of
such a contract.
This paragraph shall apply with respect to amounts received for
services under a particular contract only if at some time during
the taxable year 25 percent or more in value of the outstanding
stock of the corporation is owned, directly or indirectly, by or
for the individual who has performed, is to perform, or may be
designated (by name or by description) as the one to perform,
such services.
(8) Estates and trusts
Amounts includible in computing the taxable income of the
corporation under part I of subchapter J (sec. 641 and following,
relating to estates, trusts, and beneficiaries).
(b) Definitions
For purposes of this part -
(1) Ordinary gross income
The term "ordinary gross income" means the gross income
determined by excluding -
(A) all gains from the sale or other disposition of capital
assets, and
(B) all gains (other than those referred to in subparagraph
(A)) from the sale or other disposition of property described
in section 1231(b).
(2) Adjusted ordinary gross income
The term "adjusted ordinary gross income" means the ordinary
gross income adjusted as follows:
(A) Rents
From the gross income from rents (as defined in the second
sentence of paragraph (3) of this subsection) subtract the
amount allowable as deductions for -
(i) exhaustion, wear and tear, obsolescence, and
amortization of property other than tangible personal
property which is not customarily retained by any one lessee
for more than three years,
(ii) property taxes,
(iii) interest, and
(iv) rent,
to the extent allocable, under regulations prescribed by the
Secretary, to such gross income from rents. The amount
subtracted under this subparagraph shall not exceed such gross
income from rents.
(B) Mineral royalties, etc.
From the gross income from mineral, oil, and gas royalties
described in paragraph (4), and from the gross income from
working interests in an oil or gas well, subtract the amount
allowable as deductions for -
(i) exhaustion, wear and tear, obsolescence, amortization,
and depletion,
(ii) property and severance taxes,
(iii) interest, and
(iv) rent,
to the extent allocable, under regulations prescribed by the
Secretary, to such gross income from royalties or such gross
income from working interests in oil or gas wells. The amount
subtracted under this subparagraph with respect to royalties
shall not exceed the gross income from such royalties, and the
amount subtracted under this subparagraph with respect to
working interests shall not exceed the gross income from such
working interests.
(C) Interest
There shall be excluded -
(i) interest received on a direct obligation of the United
States held for sale to customers in the ordinary course of
trade or business by a regular dealer who is making a primary
market in such obligations, and
(ii) interest on a condemnation award, a judgment, and a
tax refund.
(D) Certain excluded rents
From the gross income consisting of compensation described in
subparagraph (D) of paragraph (3) subtract the amount allowable
as deductions for the items described in clauses (i), (ii),
(iii), and (iv) of subparagraph (A) to the extent allocable,
under regulations prescribed by the Secretary, to such gross
income. The amount subtracted under this subparagraph shall not
exceed such gross income.
(3) Adjusted income from rents
The term "adjusted income from rents" means the gross income
from rents, reduced by the amount subtracted under paragraph
(2)(A) of this subsection. For purposes of the preceding
sentence, the term "rents" means compensation, however
designated, for the use of, or right to use, property, and the
interest on debts owed to the corporation, to the extent such
debts represent the price for which real property held primarily
for sale to customers in the ordinary course of its trade or
business was sold or exchanged by the corporation; but such term
does not include -
(A) amounts constituting personal holding company income
under subsection (a)(6),
(B) copyright royalties (as defined in subsection (a)(4)),
(C) produced film rents (as defined in subsection (a)(5)(B)),
(D) compensation, however designated, for the use of, or the
right to use, any tangible personal property manufactured or
produced by the taxpayer, if during the taxable year the
taxpayer is engaged in substantial manufacturing or production
of tangible personal property of the same type, or
(E) active business computer software royalties (as defined
in subsection (d)).
(4) Adjusted income from mineral, oil, and gas royalties
The term "adjusted income from mineral, oil, and gas royalties"
means the gross income from mineral, oil, and gas royalties
(including production payments and overriding royalties), reduced
by the amount subtracted under paragraph (2)(B) of this
subsection in respect of such royalties.
(c) Gross income of insurance companies other than life insurance
companies
In the case of an insurance company other than a life insurance
company, the term "gross income" as used in this part means the
gross income, as defined in section 832(b)(1), increased by the
amount of losses incurred, as defined in section 832(b)(5), and the
amount of expenses incurred, as defined in section 832(b)(6), and
decreased by the amount deductible under section 832(c)(7)
(relating to tax-free interest).
(d) Active business computer software royalties
(1) In general
For purposes of this section, the term "active business
computer software royalties" means any royalties -
(A) received by any corporation during the taxable year in
connection with the licensing of computer software, and
(B) with respect to which the requirements of paragraphs (2),
(3), (4), and (5) are met.
(2) Royalties must be received by corporation actively engaged in
computer software business
The requirements of this paragraph are met if the royalties
described in paragraph (1) -
(A) are received by a corporation engaged in the active
conduct of the trade or business of developing, manufacturing,
or producing computer software, and
(B) are attributable to computer software which -
(i) is developed, manufactured, or produced by such
corporation (or its predecessor) in connection with the trade
or business described in subparagraph (A), or
(ii) is directly related to such trade or business.
(3) Royalties must constitute at least 50 percent of income
The requirements of this paragraph are met if the royalties
described in paragraph (1) constitute at least 50 percent of the
ordinary gross income of the corporation for the taxable year.
(4) Deductions under sections 162 and 174 relating to royalties
must equal or exceed 25 percent of ordinary gross income
(A) In general
The requirements of this paragraph are met if -
(i) the sum of the deductions allowable to the corporation
under sections 162, 174, and 195 for the taxable year which
are properly allocable to the trade or business described in
paragraph (2) equals or exceeds 25 percent of the ordinary
gross income of such corporation for such taxable year, or
(ii) the average of such deductions for the 5-taxable year
period ending with such taxable year equals or exceeds 25
percent of the average ordinary gross income of such
corporation for such period.
If a corporation has not been in existence during the 5-taxable
year period described in clause (ii), then the period of
existence of such corporation shall be substituted for such 5-
taxable year period.
(B) Deductions allowable under section 162
For purposes of subparagraph (A), a deduction shall not be
treated as allowable under section 162 if it is specifically
allowable under another section.
(C) Limitation on allowable deductions
For purposes of subparagraph (A), no deduction shall be taken
into account with respect to compensation for personal services
rendered by the 5 individual shareholders holding the largest
percentage (by value) of the outstanding stock of the
corporation. For purposes of the preceding sentence -
(i) individuals holding less than 5 percent (by value) of
the stock of such corporation shall not be taken into
account, and
(ii) stock deemed to be owned by a shareholder solely by
attribution from a partner under section 544(a)(2) shall be
disregarded.
(5) Dividends must equal or exceed excess of personal holding
company income over 10 percent of ordinary gross income
(A) In general
The requirements of this paragraph are met if the sum of -
(i) the dividends paid during the taxable year (determined
under section 562),
(ii) the dividends considered as paid on the last day of
the taxable year under section 563(d) (!1) (as limited by the
second sentence of section 563(b)), and
(iii) the consent dividends for the taxable year
(determined under section 565),
equals or exceeds the amount, if any, by which the personal
holding company income for the taxable year exceeds 10 percent
of the ordinary gross income of such corporation for such
taxable year.
(B) Computation of personal holding company income
For purposes of this paragraph, personal holding company
income shall be computed -
(i) without regard to amounts described in subsection
(a)(1)(C),
(ii) without regard to interest income during any taxable
year -
(I) which is in the 5-taxable year period beginning with
the later of the 1st taxable year of the corporation or the
1st taxable year in which the corporation conducted the
trade or business described in paragraph (2)(A), and
(II) during which the corporation meets the requirements
of paragraphs (2), (3), and (4), and
(iii) by including adjusted income from rents and adjusted
income from mineral, oil, and gas royalties (within the
meaning of paragraphs (2) and (3) of subsection (a)).
(6) Special rules for affiliated group members
(A) In general
In any case in which -
(i) the taxpayer receives royalties in connection with the
licensing of computer software, and
(ii) another corporation which is a member of the same
affiliated group as the taxpayer meets the requirements of
paragraphs (2), (3), (4), and (5) with respect to such
computer software,
the taxpayer shall be treated as having met such requirements.
(B) Affiliated group
For purposes of this paragraph, the term "affiliated group"
has the meaning given such term by section 1504(a).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 186; Pub. L. 86-435, Sec. 1(a),
(b), Apr. 22, 1960, 74 Stat. 77; Pub. L. 87-403, Sec. 3(c), Feb. 2,
1962, 76 Stat. 6; Pub. L. 88-272, title II, Sec. 225(d), (k)(2),
Feb. 26, 1964, 78 Stat. 81, 93; Pub. L. 88-484, Sec. 3(a), Aug. 22,
1964, 78 Stat. 598; Pub. L. 89-809, title I, Sec. 104(h)(2), title
II, Sec. 206(a), (b), Nov. 13, 1966, 80 Stat. 1559, 1578, 1579;
Pub. L. 94-455, title II, Sec. 211(a), title XIX, Secs.
1901(b)(32)(D), 1906(b)(13)(A), title XXI, Sec. 2106(a), Oct. 4,
1976, 90 Stat. 1544, 1800, 1834, 1902; Pub. L. 94-553, Sec. 105(d),
Oct. 19, 1976, 90 Stat. 2599; Pub. L. 97-248, title II, Sec.
222(e)(6), Sept. 3, 1982, 96 Stat. 480; Pub. L. 98-369, div. A,
title VII, Sec. 712(i)(3), July 18, 1984, 98 Stat. 948; Pub. L. 99-
514, title VI, Sec. 645(a)(1), (2), (4), title XVIII, Sec.
1899A(18), Oct. 22, 1986, 100 Stat. 2289, 2291, 2959; Pub. L. 100-
647, title I, Sec. 1010(f)(5), title VI, Sec. 6279(a), Nov. 10,
1988, 102 Stat. 3454, 3754; Pub. L. 104-188, title I, Sec.
1704(t)(6), Aug. 20, 1996, 110 Stat. 1887; Pub. L. 105-206, title
VI, Sec. 6023(9), July 22, 1998, 112 Stat. 825; Pub. L. 106-170,
title V, Sec. 532(c)(2)(E), Dec. 17, 1999, 113 Stat. 1930; Pub. L.
108-357, title IV, Sec. 413(c)(8), Oct. 22, 2004, 118 Stat. 1507.)
-REFTEXT-
REFERENCES IN TEXT
Section 3(a)(4) and (5) of the Securities and Exchange Act of
1934, referred to in subsec. (a)(1)(D), is classified to section
78c(a)(4) and (5) of Title 15, Commerce and Trade.
Section 563(d), referred to in subsecs. (a)(2)(B)(ii) and
(d)(5)(A)(ii), was redesignated section 563(c) by Pub. L. 108-357,
title IV, Sec. 413(c)(10)(B), Oct. 22, 2004, 118 Stat. 1507.
-MISC1-
AMENDMENTS
2004 - Subsec. (b)(1). Pub. L. 108-357 inserted "and" at end of
subpar. (A), substituted a period for ", and" at end of subpar.
(B), and struck out subpar. (C) which read as follows: "in the case
of a foreign corporation all of the outstanding stock of which
during the last half of the taxable year is owned by nonresident
alien individuals (whether directly or indirectly through foreign
estates, foreign trusts, foreign partnerships, or other foreign
corporations), all items of income which would, but for this
subparagraph, constitute personal holding company income under any
paragraph of subsection (a) other than paragraph (7) thereof:".
1999 - Subsec. (a)(1)(D)(i). Pub. L. 106-170 substituted
"1221(a)(1)" for "1221(1)".
1998 - Subsec. (d)(5)(A)(ii). Pub. L. 105-206 substituted
"section 563(d)" for "section 563(c)".
1996 - Subsec. (a)(2)(B)(ii). Pub. L. 104-188 substituted
"563(d)" for "563(c)".
1988 - Subsec. (a)(1)(D). Pub. L. 100-647, Sec. 6279(a), added
subpar. (D).
Subsec. (c). Pub. L. 100-647, Sec. 1010(f)(5), substituted "other
than life insurance companies" for "other than life or mutual" in
heading and "other than a life insurance company" for "other than
life or mutual" in text.
1986 - Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 1899A(18),
substituted "46 U.S.C. App." for "46 U.S.C.".
Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 645(a)(1), added subpar.
(C).
Subsec. (a)(4). Pub. L. 99-514, Sec. 645(a)(4)(A), inserted "This
paragraph shall not apply to active business computer software
royalties."
Subsec. (b)(3)(E). Pub. L. 99-514, Sec. 645(a)(4)(B), added
subpar. (E).
Subsec. (d). Pub. L. 99-514, Sec. 645(a)(2), added subsec. (d).
1984 - Subsec. (a)(1)(C). Pub. L. 98-369 struck out subpar. (C)
providing for nonapplication of par. (1) to dividends to which
section 302(b)(4) would apply if the corporation were an
individual.
1982 - (a)(1)(C). Pub. L. 97-248 added subpar. (C).
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1901(b)(32)(D),
inserted in subpar. (B) "(46 U.S.C. 1161 or 1177)" after "Merchant
Marine Act, 1936", and struck out subpar. (C) relating to a
dividend distribution of divested stock.
Subsec. (a)(4). Pub. L. 94-553 struck out "(other than by reason
of section 2 or 6 thereof)" after "title 17 of the United States
Code".
Subsec. (a)(5)(B). Pub. L. 94-455, Sec. 211(a), inserted "In the
case of a producer who actually participates in the production of
the film, such term includes an interest in the proceeds or profits
from the film, but only to the extent such interest is attributable
to such active participation".
Subsec. (a)(6). Pub. L. 94-455, Sec. 2106(a), redesignated
existing provisions as subpars. (A), (B), and (C) and, as
redesignated, inserted in subpar. (A) "tangible" after "right to
use" and in subpar. (C) inserted exclusions from income embodied in
cl. (ii).
Subsec. (b)(2)(A), (B), (D). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
1966 - Subsec. (a)(2). Pub. L. 89-809, Sec. 206(b)(1), struck out
provision that royalties received for the use of, or for the
privilege of using, a patent, invention, model, or design, secret
formula, process, or other similar property right be treated as
rent if such property right is also used by the corporation
receiving such royalties in the manufacture or production of
tangible personal property held for lease to customers and if the
amount constituting rent from such leases to customers meets the
requirement of subparagraph (A).
Subsec. (b)(1)(C). Pub. L. 89-809, Sec. 104(h)(2), added subpar.
(C).
Subsec. (b)(2)(D). Pub. L. 89-809, Sec. 206(b)(2), added subpar.
(D).
Subsec. (b)(3). Pub. L. 89-809, Sec. 206(a), struck out "amounts
constituting personal holding company income under subsection
(a)(6), nor copyright royalties (as defined in subsection (a)(4)),
nor produced film rents (as defined in subsection (a)(5)(B))."
after "but does not include", and added subpars. (A) to (D).
1964 - Subsec. (a). Pub. L. 88-272, Sec. 225(d), amended subsec.
(a) generally, and among other changes, substituted "adjusted
ordinary gross income" for "gross income", provided, relative to
rental income, that in addition to the 50-percent test of par.
(2)(A), now applied on the basis of adjusted income from rents and
adjusted ordinary gross income, a second test for exclusion shall
be whether the sum on the dividends paid during the taxable year,
the dividends paid on the last day of the year, and the consent
dividends for the taxable year, equals or exceeds the amount by
which the personal holding company income for the year exceeds 10
percent of the ordinary gross income, relative to mineral, oil, and
gas royalties, that in addition to the 50-percent test of par.
(3)(A), now applied on the basis of adjusted ordinary gross income,
and the 15-percent test of par. (3)(C), from which test have been
excluded deductions "specifically allowable under sections other
than section 162" and is also now applied on the basis of adjusted
gross income, the royalties shall be excluded if the personal
holding company income for the taxable year is not more than 10
percent of the ordinary gross income, relative to copyright
royalties, retained the 50-percent test as in par. (4)(A), making
it applicable to ordinary gross income, included in the computation
of the income for the taxable year the adjusted income from rents
and the adjusted income from mineral, oil, and gas royalties,
excluded from the sum of deductions allocable to royalties,
deductions specifically allowable under sections other than 162,
and changed the requirement that deductions constitute 50 percent
or more of gross income to provide that they must equal 25 percent
of ordinary gross income reduced by royalties paid and by
depreciation deductions with respect to copyrights, relative to
produced film rents, that they be treated on their own basis and
not as rentals, and defined "produced film rents", relative to use
of corporation property by shareholders, that personal holding
company income includes copyright royalties and the adjusted income
from mineral, oil, and gas royalties, eliminated gains from the
sale or other disposition of any interest in an estate or trust,
from the sale or exchange of stock or securities, and from futures
transactions in any commodity, and also definition of "rents". See
subsec. (b)(3).
Subsec. (a)(2). Pub. L. 88-484 inserted sentence requiring
royalties received for the use of, or for the privilege of using, a
patent, invention, model, or design (whether or not patented),
secret formula or process, or any other similar property right to
be treated as rent, if such property right is also used by the
corporation receiving such royalties in the manufacture or
production of tangible personal property held for lease to
customers, and if the amount (computed without regard to this
sentence) constituting rent from such leases to customers meets the
requirements of subparagraph (A).
Subsec. (b). Pub. L. 88-272, Sec. 225(d), added subsec. (b).
Former subsec. (b), which provided that gross income and personal
holding company income determined with respect to transactions
relating to gains from stock and security transactions, and with
respect to transactions relating to gains from commodity
transactions, should include only the excess of gains over losses
from such transactions, was struck out.
Subsec. (d). Pub. L. 88-272, Sec. 225(k)(2), struck out subsec.
(d) which related to special adjustment on disposition of antitrust
stock received as a dividend.
1962 - Subsec. (a)(1). Pub. L. 87-403 prescribed conditions
making inapplicable the provisions of the paragraph to dividend
distribution of divested stock.
Subsec. (d). Pub. L. 87-403 added subsec. (d).
1960 - Subsec. (a)(1). Pub. L. 86-435, Sec. 1(b)(1), excluded
copyright royalties.
Subsec. (a)(6). Pub. L. 86-435, Sec. 1(b)(2), inserted sentence
providing that copyright royalties constitute personal holding
company income.
Subsec. (a)(9). Pub. L. 86-435, Sec. 1(a), added par. (9).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years of
foreign corporations beginning after Dec. 31, 2004, and to taxable
years of United States shareholders with or within which such
taxable years of foreign corporations end, see section 413(d)(1) of
Pub. L. 108-357, set out as an Effective and Termination Dates of
2004 Amendments note under section 1 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1010(f)(5) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6279(b) of Pub. L. 100-647 provided that: "The amendments
made by this section [amending this section] shall apply to
interest received after the date of the enactment of this Act [Nov.
10, 1988], in taxable years ending after such date."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 645(e) of Pub. L. 99-514 provided that: "The amendments
made by subsection (a) [amending this section and section 553 of
this title] shall apply to royalties received before, on, and after
December 31, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in the
provision of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 715 of
Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to distributions after
Aug. 31, 1982, with exceptions for certain partial liquidations,
see section 222(f) of Pub. L. 97-248, set out as a note under
section 302 of this title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Amendment by Pub. L. 94-553 effective Jan. 1, 1978, see section
102 of Pub. L. 94-553, set out as an Effective Date note preceding
section 101 of Title 17, Copyrights.
Section 211(b) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending on or after December 31, 1975."
Amendment by section 1901(b)(32)(D) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
Section 2106(b) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1976."
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by section 104(h)(2) of Pub. L. 89-809 applicable with
respect to taxable years beginning after Dec. 31, 1966, see section
104(n) of Pub. L. 89-809, set out as a note under section 11 of
this title.
Section 206(c) of Pub. L. 89-809 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to taxable years beginning after the date of the enactment of this
Act [Nov. 13, 1966]. Such amendments shall also apply, at the
election of the taxpayer (made at such time and in such manner as
the Secretary or his delegate may prescribe), to taxable years
beginning on or before such date and ending after December 31,
1965."
EFFECTIVE DATE OF 1964 AMENDMENTS
Section 3(b) of Pub. L. 88-484 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years beginning after December 31, 1963."
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 225(l) of Pub. L. 88-272, set out
as a note under section 316 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-403 applicable only with respect to
distributions made after Feb. 2, 1962, see section 3(g) of Pub. L.
87-403, set out as a note under section 312 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Section 2 of Pub. L. 86-435 provided that: "The amendments made
by the first section of this Act [amending this section and
sections 544 and 553 of this title] shall apply only with respect
to taxable years beginning after December 31, 1959."
TREATMENT OF CERTAIN BANK HOLDING COMPANIES
Section 6280 of Pub. L. 100-647 provided that:
"(a) General Rule. - For purposes of subtitle A of the 1986 Code,
the term 'personal holding company income' shall not include any
dividend received by a qualified bank holding company from a 25-
percent owned bank during any taxable year ending in 1989 or 1990.
"(b) $3,000,000 Limitation. - The aggregate amount excluded from
the personal holding company income of any qualified bank holding
company under subsection (a) for the taxable year shall not exceed
$3,000,000.
"(c) Qualified Bank Holding Company. - For purposes of this
section, the term 'qualified bank holding company' means any bank
holding company (as defined in section 2(a) of the Bank Holding
Company Act of 1956 [12 U.S.C. 1841(a)]) if 80 percent or more (by
value) of the assets of such company at all times during the
taxable year consist of stock in 1 or more 25-percent owned banks.
"(d) 25-Percent Owned Bank. - For purposes of this section, the
term '25-percent owned bank' means any bank (as defined in section
581 of the 1986 Code) if at least 25 percent of the stock of such
bank (by vote and value) is owned by the bank holding company."
SPECIAL RULES FOR BROKER-DEALERS, ROYALTIES RECEIVED BY QUALIFIED
TAXPAYER, AND TREATMENT OF ACTIVE BUSINESS COMPUTER ROYALTIES FOR S
CORPORATION PURPOSES
Section 645(b)-(d) of Pub. L. 99-514 provided that:
"(b) Special Rules for Broker-Dealers. - In the case of a broker-
dealer which is part of an affiliated group which files a
consolidated Federal income tax return, the common parent of which
was incorporated in Nevada on January 27, 1972, the personal
holding company income (within the meaning of section 543 of the
Internal Revenue Code of 1986) of such broker-dealer, shall not
include any interest received after the date of the enactment of
this Act [Oct. 22, 1986] with respect to -
"(1) any securities or money market instruments held as
inventory,
"(2) margin accounts, or
"(3) any financing for a customer secured by securities or
money market instruments.
"(c) Special Rule for Royalties Received by Qualified Taxpayer. -
"(1) In general. - Any qualified royalty received or accrued in
taxable years beginning after December 31, 1981, by a qualified
taxpayer shall be treated in the same manner as a royalty with
respect to software is treated under the amendments made by this
section [amending this section and section 553 of this title].
"(2) Qualified taxpayer. - For purposes of this subsection, a
qualified taxpayer is any taxpayer incorporated on September 7,
1978, which is engaged in the trade or business of manufacturing
dolls and accessories.
"(3) Qualified royalty. - For purposes of this subsection, the
term 'qualified royalty' means any royalty arising from an
agreement entered into in 1982 which permits the licensee to
manufacture and sell dolls and accessories.
"(d) Special Rule for Treatment of Active Business Computer
Royalties for S Corporation Purposes. - In the case of a taxpayer
which was incorporated on May 3, 1977, in California and which
elected to be taxed as an S corporation for its taxable year ending
on December 31, 1985, any active business computer royalties
(within the meaning of section 543(d) of the Internal Revenue Code
of 1986 as added by this Act) which are received by the taxpayer in
taxable years beginning after December 31, 1984, shall not be
treated as passive investment income (within the meaning of section
1362(d)(3)(D)) for purposes of subchapter S of chapter 1 of such
Code."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 544 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 544. Rules for determining stock ownership
-STATUTE-
(a) Constructive ownership
For purposes of determining whether a corporation is a personal
holding company, insofar as such determination is based on stock
ownership under section 542(a)(2), section 543(a)(7), section
543(a)(6), or section 543(a)(4) -
(1) Stock not owned by individual
Stock owned, directly or indirectly, by or for a corporation,
partnership, estate, or trust shall be considered as being owned
proportionately by its shareholders, partners, or beneficiaries.
(2) Family and partnership ownership
An individual shall be considered as owning the stock owned,
directly or indirectly, by or for his family or by or for his
partner. For purposes of this paragraph, the family of an
individual includes only his brothers and sisters (whether by the
whole or half blood), spouse, ancestors, and lineal descendants.
(3) Options
If any person has an option to acquire stock, such stock shall
be considered as owned by such person. For purposes of this
paragraph, an option to acquire such an option, and each one of a
series of such options, shall be considered as an option to
acquire such stock.
(4) Application of family-partnership and option rules
Paragraphs (2) and (3) shall be applied -
(A) for purposes of the stock ownership requirement provided
in section 542(a)(2), if, but only if, the effect is to make
the corporation a personal holding company;
(B) for purposes of section 543(a)(7) (relating to personal
service contracts), of section 543(a)(6) (relating to use of
property by shareholders), or of section 543(a)(4) (relating to
copyright royalties), if, but only if, the effect is to make
the amounts therein referred to includible under such paragraph
as personal holding company income.
(5) Constructive ownership as actual ownership
Stock constructively owned by a person by reason of the
application of paragraph (1) or (3), shall, for purposes of
applying paragraph (1) or (2), be treated as actually owned by
such person; but stock constructively owned by an individual by
reason of the application of paragraph (2) shall not be treated
as owned by him for purposes of again applying such paragraph in
order to make another the constructive owner of such stock.
(6) Option rule in lieu of family and partnership rule
If stock may be considered as owned by an individual under
either paragraph (2) or (3) it shall be considered as owned by
him under paragraph (3).
(b) Convertible securities
Outstanding securities convertible into stock (whether or not
convertible during the taxable year) shall be considered as
outstanding stock -
(1) for purposes of the stock ownership requirement provided in
section 542(a)(2), but only if the effect of the inclusion of all
such securities is to make the corporation a personal holding
company;
(2) for purposes of section 543(a)(7) (relating to personal
service contracts), but only if the effect of the inclusion of
all such securities is to make the amounts therein referred to
includible under such paragraph as personal holding company
income;
(3) for purposes of section 543(a)(6) (relating to the use of
property by shareholders), but only if the effect of the
inclusion of all such securities is to make the amounts therein
referred to includible under such paragraphs as personal holding
company income; and
(4) for purposes of section 543(a)(4) (relating to copyright
royalties), but only if the effect of the inclusion of all such
securities is to make the amounts therein referred to includible
under such paragraph as personal holding company income.
The requirement in paragraphs (1), (2), (3), and (4) that all
convertible securities must be included if any are to be included
shall be subject to the exception that, where some of the
outstanding securities are convertible only after a later date than
in the case of others, the class having the earlier conversion date
may be included although the others are not included, but no
convertible securities shall be included unless all outstanding
securities having a prior conversion date are also included.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 188; Pub. L. 86-435, Sec. 1(c),
(d), Apr. 22, 1960, 74 Stat. 78; Pub. L. 88-272, title II, Sec.
225(k)(3), Feb. 26, 1964, 78 Stat. 93.)
-MISC1-
AMENDMENTS
1964 - Pub. L. 88-272 substituted "section 543(a)(7)" for
"section 543(a)(5)", and "section 543(a)(4)" for "section
543(a)(9)," wherever appearing.
1960 - Subsec. (a). Pub. L. 86-435, Sec. 1(c)(1), inserted
reference to section 543(a)(9) in introductory provisions.
Subsec. (a)(4)(B). Pub. L. 86-435, Sec. 1(c)(2), included
reference to section 543(a)(9).
Subsec. (b). Pub. L. 86-435, Sec. 1(d), added par. (4), and
inserted reference to par. (4) in last sentence.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 225(l)(1) of Pub. L. 88-272 set
out as a note under section 316 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-435 applicable only with respect to
taxable years beginning after Dec. 31, 1959, see section 2 of Pub.
L. 86-435, set out as a note under section 543 of this title.
-End-
-CITE-
26 USC Sec. 545 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 545. Undistributed personal holding company income
-STATUTE-
(a) Definition
For purposes of this part, the term "undistributed personal
holding company income" means the taxable income of a personal
holding company adjusted in the manner provided in subsections (b),
(c), and (d), minus the dividends paid deduction as defined in
section 561. In the case of a personal holding company which is a
foreign corporation, not more than 10 percent in value of the
outstanding stock of which is owned (within the meaning of section
958(a)) during the last half of the taxable year by United States
persons, the term "undistributed personal holding company income"
means the amount determined by multiplying the undistributed
personal holding company income (determined without regard to this
sentence) by the percentage in value of its outstanding stock which
is the greatest percentage in value of its outstanding stock so
owned by United States persons on any one day during such period.
(b) Adjustments to taxable income
For the purposes of subsection (a), the taxable income shall be
adjusted as follows:
(1) Taxes
There shall be allowed as a deduction Federal income and excess
profits taxes and income, war profits and excess profits taxes of
foreign countries and possessions of the United States (to the
extent not allowable as a deduction under section 275(a)(4)),
accrued during the taxable year or deemed to be paid by a
domestic corporation under section 902(a) or 960(a)(1) for the
taxable year, but not including the accumulated earnings tax
imposed by section 531, the personal holding company tax imposed
by section 541, or the taxes imposed by corresponding sections of
a prior income tax law.
(2) Charitable contributions
The deduction for charitable contributions provided under
section 170 shall be allowed, but in computing such deduction the
limitations in section 170(b)(1)(A), (B), and (D) shall apply,
and section 170(b)(2) and (d)(1) shall not apply. For purposes of
this paragraph, the term "contribution base" when used in section
170(b)(1) means the taxable income computed with the adjustments
(other than the 10-percent limitation) provided in section
170(b)(2) and (d)(1) and without deduction of the amount
disallowed under paragraph (6) of this subsection.
(3) Special deductions disallowed
The special deductions for corporations provided in part VIII
(except section 248) of subchapter B (section 241 and following,
relating to the deduction for dividends received by corporations,
etc.) shall not be allowed.
(4) Net operating loss
The net operating loss deduction provided in section 172 shall
not be allowed, but there shall be allowed as a deduction the
amount of the net operating loss (as defined in section 172(c))
for the preceding taxable year computed without the deductions
provided in part VIII (except section 248) of subchapter B.
(5) Net capital gains
There shall be allowed as a deduction the net capital gain for
the taxable year, minus the taxes imposed by this subtitle
attributable to such net capital gain. The taxes attributable to
such net capital gain shall be an amount equal to the difference
between -
(A) the taxes imposed by this subtitle (except the tax
imposed by this part) for such year, and
(B) such taxes computed for such year without including such
excess in taxable income.
(6) Expenses and depreciation applicable to property of the
taxpayer
The aggregate of the deductions allowed under section 162
(relating to trade or business expenses) and section 167
(relating to depreciation), which are allocable to the operation
and maintenance of property owned or operated by the corporation,
shall be allowed only in an amount equal to the rent or other
compensation received for the use of, or the right to use, the
property, unless it is established (under regulations prescribed
by the Secretary) to the satisfaction of the Secretary -
(A) that the rent or other compensation received was the
highest obtainable, or, if none was received, that none was
obtainable;
(B) that the property was held in the course of a business
carried on bona fide for profit; and
(C) either that there was reasonable expectation that the
operation of the property would result in a profit, or that the
property was necessary to the conduct of the business.
(7) Special rule for capital gains and losses of foreign
corporations
In the case of a foreign corporation, paragraph (5) shall be
applied by taking into account only gains and losses which are
effectively connected with the conduct of a trade or business
within the United States and are not exempt from tax under
treaty.
(c) Certain foreign corporations
In the case of a foreign corporation all of the outstanding stock
of which during the last half of the taxable year is owned by
nonresident alien individuals (whether directly or indirectly
through foreign estates, foreign trusts, foreign partnerships, or
other foreign corporations), the taxable income for purposes of
subsection (a) shall be the income which constitutes personal
holding company income under section 543(a)(7), reduced by the
deductions attributable to such income, and adjusted, with respect
to such income, in the manner provided in subsection (b).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 189; Pub. L. 85-866, title I,
Sec. 32(a), (b), Sept. 2, 1958, 72 Stat. 1631; Pub. L. 87-403, Sec.
3(d), Feb. 2, 1962, 76 Stat. 7; Pub. L. 87-834, Sec. 9(d)(2), Oct.
16, 1962, 76 Stat. 1001; Pub. L. 88-272, title II, Secs. 207(b)(5),
209(c)(2), 225(i)(1), (2), Feb. 26, 1964, 78 Stat. 42, 46, 90; Pub.
L. 89-719, title I, Sec. 101(b)(2), Nov. 2, 1966, 80 Stat. 1132;
Pub. L. 89-809, title I, Sec. 104(h)(3), Nov. 13, 1966, 80 Stat.
1560; Pub. L. 91-172, title II, Sec. 201(a)(2)(B), Dec. 30, 1969,
83 Stat. 558; Pub. L. 94-455, title X, Sec. 1033(b)(4), title XIX,
Secs. 1901(a)(77), (b)(20)(B), (32)(E), (33)(D), 1906(b)(13)(A),
1951(b)(9)(A), Oct. 4, 1976, 90 Stat. 1628, 1777, 1797, 1800, 1801,
1834, 1839; Pub. L. 97-448, title I, Sec. 102(m)(2), Jan. 12, 1983,
96 Stat. 2374; Pub. L. 99-514, title XII, Sec. 1225(b), Oct. 22,
1986, 100 Stat. 2559; Pub. L. 101-508, title XI, Sec. 11801(a)(24),
(c)(10)(B), Nov. 5, 1990, 104 Stat. 1388-521, 1388-527.)
-MISC1-
AMENDMENTS
1990 - Subsecs. (c), (d). Pub. L. 101-508 redesignated subsec.
(d) as (c) and struck out former subsec. (c) which related to a
special adjustment to taxable income for amounts used or set aside
to pay or retire qualified indebtedness.
1986 - Subsec. (b)(7). Pub. L. 99-514 added par. (7).
1983 - Subsec. (b)(2). Pub. L. 97-448 substituted "10-percent"
for "5-percent".
1976 - Subsec. (b)(1). Pub. L. 94-455, Secs. 1033(b)(4),
1901(a)(77)(A), struck out "(other than excess profits tax imposed
by subchapter E of chapter 2 of the Internal Revenue Code of 1939
for taxable years beginning after December 31, 1940)" after
"Federal income and excess profits taxes"; substituted "902(a) or
960(a)(1)" for "902(a)(1) or 960(a)(1)(C)" after "corporation under
section"; and struck out provisions after "prior income tax law"
relating to election by taxpayer who paid Federal income and excess
profits taxes to deduct payments, when made, for purposes of
computing subchapter A net income or, for a taxable year ending
after June 30, 1954, to deduct such taxes when accrued, such
election being irrevocable and applied to taxable year for which
election was made and to all subsequent taxable years.
Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(b)(20)(B)(ii),
substituted "paragraph (6)" for "paragraph (8)" after "amount
disallowed under".
Subsec. (b)(5). Pub. L. 94-455, Sec. 1901(b)(33)(D), substituted
"Net" for "Long-term" after "(5)".
Subsec. (b)(6). Pub. L. 94-455, Secs. 1901(b)(20)(B)(i),
1906(b)(13)(A), struck out par. (6) relating to deduction allowed
to bank affiliates, redesignated former par. (8) as (6) and, as
redesignated, struck out "or his delegate" in two places after
"Secretary".
Subsec. (b)(7). Pub. L. 94-455, Sec. 1901(a)(77)(B), struck out
par. (7) relating to payment of indebtedness incurred prior to
January 1, 1934.
Subsec. (b)(8). Pub. L. 94-455, Sec. 1901(b)(20)(B)(i),
redesignated par. (8) as (6).
Subsec. (b)(9). Pub. L. 94-455, Sec. 1951(b)(9)(A), struck out
par. (9) relating to the deduction of the amount of a lien in favor
of the United States.
Subsec. (b)(10), (11). Pub. L. 94-455, Sec. 1901(b)(32)(E),
struck out par. (10) relating to deduction for distributions of
divested stock, and struck out par. (11) relating to special
adjustment on the disposition of antitrust stock received as a
dividend.
Subsec. (c)(2)(A). Pub. L. 94-455, Sec. 1901(a)(77)(C),
substituted "February 26, 1964" for "the date of enactment of this
subsection" after "years ending before".
Subsec. (c)(4). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (c)(5). Pub. L. 94-455, Sec. 1901(b)(20)(B)(iii),
substituted "subsection (b)(6)" for "subsection (b)(8)" after
"company income under".
1969 - Subsec. (b)(2). Pub. L. 91-172 substituted "section
170(b)(1)(A), (B), and (D)", "section 170(b)(2) and (d)(1)" for
"section 170(b)(1)(A) and (B)" and "section 170(b)(2) and (5)",
respectively, in provisions of first sentence setting out the
sections appropriate to the computation of the deduction, and in
provisions of second sentence describing applicability of terms for
purposes of this paragraph, substituted "contribution base" and
"section 170(b)(2) and (d)(1)" for "adjusted gross income" and "the
first sentence of section 170(b)(2) and (5)," respectively.
1966 - Subsec. (a). Pub. L. 89-809, Sec. 104(h)(3)(A),
substituted "in the manner provided in subsections (b), (c), and
(d)" for "in the manner provided in subsection (b) and (c)" and
inserted provisions governing the case of a personal holding
company which is a foreign corporation, not more than 10 percent in
value of the outstanding stock of which is owned (within the
meaning of section 958(a)) during the last half of the taxable year
by United States persons.
Subsec. (b)(9). Pub. L. 89-719 substituted "section 6323(f)" for
"section 6323(a)(1), (2), or (3)".
Subsec. (d). Pub. L. 89-809, Sec. 104(h)(3)(B), added subsec.
(d).
1964 - Subsec. (a). Pub. L. 88-272, Sec. 225(i)(1), inserted
reference to subsection (c).
Subsec. (b)(1), (2). Pub. L. 88-272, Secs. 207(b)(5), 209(c)(2),
substituted "section 275(a)(4)" for "section 164(b)(6)" in par.
(1), and inserted reference to section 170(b)(5) in par. (2).
Subsec. (c). Pub. L. 88-272, Sec. 225(i)(2), added subsec. (c).
1962 - Subsec. (b)(1). Pub. L. 87-834 substituted "accrued during
the taxable year or deemed to be paid by a domestic corporation
under section 902(a)(1) or 960(a)(1)(C) for the taxable year" for
"accrued during the taxable year".
Subsec. (b)(10), (11). Pub. L. 87-403 added pars. (10) and (11).
1958 - Subsec. (b)(2). Pub. L. 85-866, Sec. 32(a), substituted in
first sentence ", but in computing such deduction the limitations
in section 170(b)(1)(A) and (B) shall apply, and section 170(b)
shall not apply" for "but with the limitations in section
170(b)(1)(A) and (B) (in lieu of the limitation in section
170(b)(2)", and inserted in second sentence "(other than the 5-
percent limitation)" and "the first sentence" after "with the
adjustments" and "provided in", respectively.
Subsec. (b)(4). Pub. L. 85-866, Sec. 32(b), inserted "computed
without the deductions provided in part VIII (except section 248)
of subchapter B".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to gains and losses
realized on or after Jan. 1, 1986, see section 1225(c) of Pub. L.
99-514, as amended, set out as a note under section 535 of this
title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1033(b)(4) of Pub. L.
94-455, see section 1033(c) of Pub. L. 94-455, set out as a note
under section 902 of this title.
Amendment by section 1901(a)(77), (b)(20)(B), (32)(E), (33)(D) of
Pub. L. 94-455 applicable with respect to taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
Amendment by section 1951(b)(9)(A) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1951(d) of Pub. L. 94-455 set out as a note under section
72 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 201(g) of Pub. L. 91-172, set out
as a note under section 170 of this title.
EFFECTIVE DATE OF 1966 AMENDMENTS
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
Amendment by Pub. L. 89-719 applicable after Nov. 2, 1966,
regardless of when the title or lien of the United States arose or
when the lien or interest of another person was acquired, except in
a case in which a lien or title derived from enforcement of a lien
held by the United States has been enforced by a civil action or
suit which has become final by judgment, sale, or agreement before
Nov. 2, 1966, or in a case in which the amendment would impair a
priority held by any person other than the United States holding a
lien or interest prior to Nov. 2, 1966, operate to increase the
liability of such person, or shorten the time for bringing suit
with respect to transactions occurring before Nov. 2, 1966, see
section 114(a)-(e) of Pub. L. 89-719, set out as a note under
section 6323 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 207(b)(5) of Pub. L. 88-272 applicable to
taxable years beginning after Dec. 31, 1963, see section 207(c) of
Pub. L. 88-272, set out as a note under section 164 of this title.
Amendment by section 209(c)(2) of Pub. L. 88-272 applicable to
contributions paid in taxable years beginning after Dec. 31, 1963,
see section 209(f)(1) of Pub. L. 88-272, set out as a note under
section 170 of this title.
Amendment by section 225(i)(1), (2) of Pub. L. 88-272 applicable
to taxable years beginning after Dec. 31, 1963, see section
225(l)(1) of Pub. L. 88-272 set out as a note under section 316 of
this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Amendment by Pub. L. 87-834 applicable in respect of any
distribution received by a domestic corporation after Dec. 31,
1964, and in respect of any distribution received by a domestic
corporation before Jan. 1, 1965, in a taxable year of such
corporation beginning after Dec. 31, 1962, but only to the extent
that such distribution is made out of the accumulated profits of a
foreign corporation for a taxable year (of such foreign
corporation) beginning after Dec. 31, 1962, see section 9(e) of
Pub. L. 87-834, set out as a note under section 902 of this title.
Amendment by Pub. L. 87-403 applicable only with respect to
distributions made after Feb. 2, 1962, see section 3(g) of Pub. L.
87-403, set out as a note under section 312 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by section 32(a) of Pub. L. 85-866 applicable to
taxable years beginning after Dec. 31, 1953, and ending after Aug.
16, 1954, see section 1(c)(1) of Pub. L. 85-866, set out as a note
under section 165 of this title.
Section 32(c) of Pub. L. 85-866, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subsection (b) of this section [amending this
section] shall apply with respect to adjustments under section
545(b)(4) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] for taxable years beginning after December 31, 1957."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
Section 1951(b)(9)(B) of Pub. L. 94-455 provided that:
"Notwithstanding subparagraph (A) [amending this section], if any
amount was deducted under paragraph (9) of section 545(b) in a
taxable year beginning before January 1, 1977, on account of a lien
which is satisfied or released in a taxable year beginning on or
after such date, the amount so deducted shall be included in
income, for purposes of section 545, as provided in the second
sentence of such paragraph. Shareholders of any corporation which
has amounts included in its income by reason of the preceding
sentence may elect to compute the income tax on dividends
attributable to amounts so included as provided in the third
sentence of such paragraph."
-End-
-CITE-
26 USC Sec. 546 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 546. Income not placed on annual basis
-STATUTE-
Section 443(b) (relating to computation of tax on change of
annual accounting period) shall not apply in the computation of the
personal holding company tax imposed by section 541.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 191.)
-End-
-CITE-
26 USC Sec. 547 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART II - PERSONAL HOLDING COMPANIES
-HEAD-
Sec. 547. Deduction for deficiency dividends
-STATUTE-
(a) General rule
If a determination (as defined in subsection (c)) with respect to
a taxpayer establishes liability for personal holding company tax
imposed by section 541 (or by a corresponding provision of a prior
income tax law) for any taxable year, a deduction shall be allowed
to the taxpayer for the amount of deficiency dividends (as defined
in subsection (d)) for the purpose of determining the personal
holding company tax for such year, but not for the purpose of
determining interest, additional amounts, or assessable penalties
computed with respect to such personal holding company tax.
(b) Rules for application of section
(1) Allowance of deduction
The deficiency dividend deduction shall be allowed as of the
date the claim for the deficiency dividend deduction is filed.
(2) Credit or refund
If the allowance of a deficiency dividend deduction results in
an overpayment of personal holding company tax for any taxable
year, credit or refund with respect to such overpayment shall be
made as if on the date of the determination 2 years remained
before the expiration of the period of limitation on the filing
of claim for refund for the taxable year to which the overpayment
relates. No interest shall be allowed on a credit or refund
arising from the application of this section.
(c) Determination
For purposes of this section, the term "determination" means -
(1) a decision by the Tax Court or a judgment, decree, or other
order by any court of competent jurisdiction, which has become
final;
(2) a closing agreement made under section 7121; or
(3) under regulations prescribed by the Secretary, an agreement
signed by the Secretary and by, or on behalf of, the taxpayer
relating to the liability of such taxpayer for personal holding
company tax.
(d) Deficiency dividends
(1) Definition
For purposes of this section, the term "deficiency dividends"
means the amount of the dividends paid by the corporation on or
after the date of the determination and before filing claim under
subsection (e), which would have been includible in the
computation of the deduction for dividends paid under section 561
for the taxable year with respect to which the liability for
personal holding company tax exists, if distributed during such
taxable year. No dividends shall be considered as deficiency
dividends for purposes of subsection (a) unless distributed
within 90 days after the determination.
(2) Effect on dividends paid deduction
(A) For taxable year in which paid
Deficiency dividends paid in any taxable year (to the extent
of the portion thereof taken into account under subsection (a)
in determining personal holding company tax) shall not be
included in the amount of dividends paid for such year for
purposes of computing the dividends paid deduction for such
year and succeeding years.
(B) For prior taxable year
Deficiency dividends paid in any taxable year (to the extent
of the portion thereof taken into account under subsection (a)
in determining personal holding company tax) shall not be
allowed for purposes of section 563(b) in the computation of
the dividends paid deduction for the taxable year preceding the
taxable year in which paid.
(e) Claim required
No deficiency dividend deduction shall be allowed under
subsection (a) unless (under regulations prescribed by the
Secretary) claim therefor is filed within 120 days after the
determination.
(f) Suspension of statute of limitations and stay of collection
(1) Suspension of running of statute
If the corporation files a claim, as provided in subsection
(e), the running of the statute of limitations provided in
section 6501 on the making of assessments, and the bringing of
distraint or a proceeding in court for collection, in respect of
the deficiency and all interest, additional amounts, or
assessable penalties, shall be suspended for a period of 2 years
after the date of the determination.
(2) Stay of collection
In the case of any deficiency with respect to the tax imposed
by section 541 established by a determination under this section -
(A) the collection of the deficiency and all interest,
additional amounts, and assessable penalties shall, except in
cases of jeopardy, be stayed until the expiration of 120 days
after the date of the determination, and
(B) if claim for deficiency dividend deduction is filed under
subsection (e), the collection of such part of the deficiency
as is not reduced by the deduction for deficiency dividends
provided in subsection (a) shall be stayed until the date the
claim is disallowed (in whole or in part) and if disallowed in
part collection shall be made only with respect to the part
disallowed.
No distraint or proceeding in court shall be begun for the
collection of an amount the collection of which is stayed under
subparagraph (A) or (B) during the period for which the
collection of such amount is stayed.
(g) Deduction denied in case of fraud, etc.
No deficiency dividend deduction shall be allowed under
subsection (a) if the determination contains a finding that any
part of the deficiency is due to fraud with intent to evade tax, or
to wilful failure to file an income tax return within the time
prescribed by law or prescribed by the Secretary in pursuance of
law.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 191; Pub. L. 94-455, title XIX,
Secs. 1901(a)(78), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1777,
1834.)
-MISC1-
AMENDMENTS
1976 - Subsecs. (c)(3), (e), (g). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary"
wherever appearing.
Subsec. (h). Pub. L. 94-455, Sec. 1901(a)(78), struck out subsec.
(h) relating to the effective date of provisions concerning
deduction of deficiency dividends.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(78) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
-End-
-CITE-
26 USC [PART III - REPEALED] 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
[PART III - REPEALED]
-HEAD-
[PART III - REPEALED]
-End-
-CITE-
26 USC Secs. 551 to 558 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
[PART III - REPEALED]
-HEAD-
[Secs. 551 to 558. Repealed. Pub. L. 108-357, title IV, Sec.
413(a)(1), Oct. 22, 2004, 118 Stat. 1506]
-MISC1-
Section 551, acts Aug. 16, 1954, ch. 736, 68A Stat. 193; Pub. L.
88-272, title II, Sec. 225(f)(4), Feb. 26, 1964, 78 Stat. 88; Pub.
L. 94-455, title XIX, Sec. 1901(a)(79), (b)(1)(F)(i), (12)(A), Oct.
4, 1976, 90 Stat. 1777, 1790, 1795; Pub. L. 98-369, div. A, title
I, Sec. 132(b), July 18, 1984, 98 Stat. 666; Pub. L. 99-514, title
XII, Sec. 1235(e), title XVIII, Sec. 1810(h)(2), Oct. 22, 1986, 100
Stat. 2575, 2829; Pub. L. 100-647, title I, Sec. 1012(bb)(1)(A),
(B), Nov. 10, 1988, 102 Stat. 3533; Pub. L. 105-34, title XI, Sec.
1122(d)(2), Aug. 5, 1997, 111 Stat. 977, provided for taxation of
foreign personal holding company income to United States
shareholders.
Section 552, acts Aug. 16, 1954, ch. 736, 68A Stat. 195; Pub. L.
94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1834; Pub. L. 98-369, div. A, title I, Sec. 132(c)(2), July 18,
1984, 98 Stat. 666; Pub. L. 99-514, title XII, Sec. 1222(b), title
XVIII, Sec. 1810(h)(1), Oct. 22, 1986, 100 Stat. 2557, 2829; Pub.
L. 100-647, title I, Sec. 1012(bb)(1)(C), Nov. 10, 1988, 102 Stat.
3533, defined "foreign personal holding company".
Section 553, acts Aug. 16, 1954, ch. 736, 68A Stat. 195; Pub. L.
86-435, Sec. 1(e), Apr. 22, 1960, 74 Stat. 78; Pub. L. 88-272,
title II, Sec. 225(e), Feb. 26, 1964, 78 Stat. 85; Pub. L. 94-455,
title XIX, Sec. 1901(b)(32)(F), Oct. 4, 1976, 90 Stat. 1800; Pub.
L. 99-514, title VI, Sec. 645(a)(3), Oct. 22, 1986, 100 Stat. 2291,
related to determination of foreign personal holding company
income.
Section 554, acts Aug. 16, 1954, ch. 736, 68A Stat. 196; Pub. L.
88-272, title II, Sec. 225(e), Feb. 26, 1964, 78 Stat. 86; Pub. L.
98-369, div. A, title I, Sec. 132(a), July 18, 1984, 98 Stat. 665,
related to constructive ownership of stock and treatment of
convertible securities as outstanding stock.
Section 555, act Aug. 16, 1954, ch. 736, 68A Stat. 196, related
to determination of gross income of foreign personal holding
companies.
Section 556, acts Aug. 16, 1954, ch. 736, 68A Stat. 196; Pub. L.
85-866, title I, Sec. 33(a), (b)(1), (c)(1), Sept. 2, 1958, 72
Stat. 1632; Pub. L. 87-403, Sec. 3(e), Feb. 2, 1962, 76 Stat. 7;
Pub. L. 88-272, title II, Secs. 207(b)(6), 209(c)(2), Feb. 26,
1964, 78 Stat. 42, 46; Pub. L. 91-172, title II, Sec. 201(a)(2)(B),
Dec. 30, 1969, 83 Stat. 558; Pub. L. 94-455, title XIX, Secs.
1901(a)(80), (b)(32)(G), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1778, 1800, 1834; Pub. L. 97-448, title I, Sec. 102(m)(2), Jan. 12,
1983, 96 Stat. 2374; Pub. L. 101-508, title XI, Sec. 11802(d)(1),
Nov. 5, 1990, 104 Stat. 1388-529, related to undistributed foreign
personal holding company income.
Section 557, act Aug. 16, 1954, ch. 736, 68A Stat. 198, related
to inapplicability of section 443(b) of this title in the
computation of income.
Section 558, added Pub. L. 85-866, title I, Sec. 33(d)(1), Sept.
2, 1958, 72 Stat. 1632, related to returns of officers, directors,
and shareholders of foreign personal holding companies.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years of foreign corporations
beginning after Dec. 31, 2004, and to taxable years of United
States shareholders with or within which such taxable years of
foreign corporations end, see section 413(d)(1) of Pub. L. 108-357,
set out as an Effective and Termination Dates of 2004 Amendments
note under section 1 of this title.
-End-
-CITE-
26 USC PART IV - DEDUCTION FOR DIVIDENDS PAID 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
PART IV - DEDUCTION FOR DIVIDENDS PAID
-MISC1-
Sec.
561. Definition of deduction for dividends paid.
562. Rules applicable in determining dividends eligible for
dividends paid deduction.
563. Rules relating to dividends paid after close of
taxable year.
564. Dividend carryover.
565. Consent dividends.
-End-
-CITE-
26 USC Sec. 561 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
Sec. 561. Definition of deduction for dividends paid
-STATUTE-
(a) General rule
The deduction for dividends paid shall be the sum of -
(1) the dividends paid during the taxable year,
(2) the consent dividends for the taxable year (determined
under section 565), and
(3) in the case of a personal holding company, the dividend
carryover described in section 564.
(b) Special rules applicable
In determining the deduction for dividends paid, the rules
provided in section 562 (relating to rules applicable in
determining dividends eligible for dividends paid deduction) and
section 563 (relating to dividends paid after the close of the
taxable year) shall be applicable.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 198; Pub. L. 87-403, Sec. 3(f),
Feb. 2, 1962, 76 Stat. 8; Pub. L. 94-455, title XIX, Sec.
1901(b)(32)(H), Oct. 4, 1976, 90 Stat. 1800.)
-MISC1-
AMENDMENTS
1976 - Subsec. (b). Pub. L. 94-455 redesignated existing
provisions of par. (1) as subsec. (b) and struck out par. (2)
relating to special adjustment on disposition of antitrust stock as
a dividend.
1962 - Subsec. (b). Pub. L. 87-403 designated existing provisions
as par. (1) and added par. (2).
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-403 applicable only with respect to
distributions made after Feb. 2, 1962, see section 3(g) of Pub. L.
87-403, set out as a note under section 312 of this title.
-End-
-CITE-
26 USC Sec. 562 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
Sec. 562. Rules applicable in determining dividends eligible for
dividends paid deduction
-STATUTE-
(a) General rule
For purposes of this part, the term "dividend" shall, except as
otherwise provided in this section, include only dividends
described in section 316 (relating to definition of dividends for
purposes of corporate distributions).
(b) Distributions in liquidation
(1) Except in the case of a personal holding company described
in section 542 -
(A) in the case of amounts distributed in liquidation, the
part of such distribution which is properly chargeable to
earnings and profits accumulated after February 28, 1913, shall
be treated as a dividend for purposes of computing the
dividends paid deduction, and
(B) in the case of a complete liquidation occurring within 24
months after the adoption of a plan of liquidation, any
distribution within such period pursuant to such plan shall, to
the extent of the earnings and profits (computed without regard
to capital losses) of the corporation for the taxable year in
which such distribution is made, be treated as a dividend for
purposes of computing the dividends paid deduction.
For purposes of subparagraph (A), a liquidation includes a
redemption of stock to which section 302 applies. Except to the
extent provided in regulations, the preceding sentence shall not
apply in the case of any mere holding or investment company which
is not a regulated investment company.
(2) In the case of a complete liquidation of a personal holding
company, occurring within 24 months after the adoption of a plan
of liquidation, the amount of any distribution within such period
pursuant to such plan shall be treated as a dividend for purposes
of computing the dividends paid deduction, to the extent that
such amount is distributed to corporate distributees and
represents such corporate distributees' allocable share of the
undistributed personal holding company income for the taxable
year of such distribution computed without regard to this
paragraph and without regard to subparagraph (B) of section
316(b)(2).
(c) Preferential dividends
The amount of any distribution shall not be considered as a
dividend for purposes of computing the dividends paid deduction,
unless such distribution is pro rata, with no preference to any
share of stock as compared with other shares of the same class, and
with no preference to one class of stock as compared with another
class except to the extent that the former is entitled (without
reference to waivers of their rights by shareholders) to such
preference. In the case of a distribution by a regulated investment
company to a shareholder who made an initial investment of at least
$10,000,000 in such company, such distribution shall not be treated
as not being pro rata or as being preferential solely by reason of
an increase in the distribution by reason of reductions in
administrative expenses of the company.
(d) Distributions by a member of an affiliated group
In the case where a corporation which is a member of an
affiliated group of corporations filing or required to file a
consolidated return for a taxable year is required to file a
separate personal holding company schedule for such taxable year, a
distribution by such corporation to another member of the
affiliated group shall be considered as a dividend for purposes of
computing the dividends paid deduction if such distribution would
constitute a dividend under the other provisions of this section to
a recipient which is not a member of an affiliated group.
(e) Special rules for real estate investment trusts
In the case of a real estate investment trust, in determining the
amount of dividends under section 316 for purposes of computing the
dividends paid deduction, the earnings and profits of such trust
for any taxable year beginning after December 31, 1980, shall be
increased by the total amount of gain (if any) on the sale or
exchange of real property by such trust during such taxable year.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 198; Pub. L. 88-272, title II,
Sec. 225(f)(3), Feb. 26, 1964, 78 Stat. 88; Pub. L. 97-248, title
II, Sec. 222(e)(7), Sept. 3, 1982, 96 Stat. 480; Pub. L. 97-448,
title I, Sec. 102(c)(2), Jan. 12, 1983, 96 Stat. 2370; Pub. L. 99-
514, title VI, Sec. 657(a), title XVIII, Sec. 1804(d)(1), Oct. 22,
1986, 100 Stat. 2299, 2800; Pub. L. 108-357, title IV, Sec.
413(c)(9), Oct. 22, 2004, 118 Stat. 1507.)
-MISC1-
AMENDMENTS
2004 - Subsec. (b)(1). Pub. L. 108-357 struck out "or a foreign
personal holding company described in section 552" after "section
542" in introductory provisions.
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1804(d)(1), inserted
at end "Except to the extent provided in regulations, the preceding
sentence shall not apply in the case of any mere holding or
investment company which is not a regulated investment company."
Subsec. (c). Pub. L. 99-514, Sec. 657(a), inserted at end "In the
case of a distribution by a regulated investment company to a
shareholder who made an initial investment of at least $10,000,000
in such company, such distribution shall not be treated as not
being pro rata or as being preferential solely by reason of an
increase in the distribution by reason of reductions in
administrative expenses of the company."
1983 - Subsec. (e). Pub. L. 97-448 added subsec. (e).
1982 - Subsec. (b)(1). Pub. L. 97-248 inserted sentence at end
providing that, for purposes of subpar. (A), a liquidation includes
a redemption of stock to which section 302 applies.
1964 - Subsec. (b). Pub. L. 88-272 designated existing provisions
as subpars. (A) and (B) of par. (1), excepted personal holding
companies in section 542, and foreign personal holding companies in
section 552 therefrom, and added par. (2).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years of
foreign corporations beginning after Dec. 31, 2004, and to taxable
years of United States shareholders with or within which such
taxable years of foreign corporations end, see section 413(d)(1) of
Pub. L. 108-357, set out as an Effective and Termination Dates of
2004 Amendments note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 657(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
distributions after the date of the enactment of this Act [Oct. 22,
1986]."
Section 1804(d)(2) of Pub. L. 99-514 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to distributions after September 27, 1985."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to distributions after
Aug. 31, 1982, with exceptions for certain partial liquidations,
see section 222(f) of Pub. L. 97-248, set out as a note under
section 302 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment Pub. L. 88-272 applicable to distributions made in any
taxable year of the distributing corporation beginning after Dec.
31, 1963, see section 225(l) of Pub. L. 88-272, set out as a note
under section 316 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 563 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
Sec. 563. Rules relating to dividends paid after close of taxable
year
-STATUTE-
(a) Accumulated earnings tax
In the determination of the dividends paid deduction for purposes
of the accumulated earnings tax imposed by section 531, a dividend
paid after the close of any taxable year and on or before the 15th
day of the third month following the close of such taxable year
shall be considered as paid during such taxable year.
(b) Personal holding company tax
In the determination of the dividends paid deduction for purposes
of the personal holding company tax imposed by section 541, a
dividend paid after the close of any taxable year and on or before
the 15th day of the third month following the close of such taxable
year shall, to the extent the taxpayer elects in its return for the
taxable year, be considered as paid during such taxable year. The
amount allowed as a dividend by reason of the application of this
subsection with respect to any taxable year shall not exceed either
-
(1) The undistributed personal holding company income of the
corporation for the taxable year, computed without regard to this
subsection, or
(2) 20 percent of the sum of the dividends paid during the
taxable year, computed without regard to this subsection.
(c) Dividends considered as paid on last day of taxable year
For the purpose of applying section 562(a), with respect to
distributions under subsection (a) or (b) of this section, a
distribution made after the close of a taxable year and on or
before the 15th day of the third month following the close of the
taxable year shall be considered as made on the last day of such
taxable year.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 199; Pub. L. 91-172, title IX,
Sec. 914(a), Dec. 30, 1969, 83 Stat. 723; Pub. L. 101-239, title
VII, Sec. 7401(b), Dec. 19, 1989, 103 Stat. 2356; Pub. L. 108-357,
title IV, Sec. 413(c)(10), Oct. 22, 2004, 118 Stat. 1507.)
-MISC1-
AMENDMENTS
2004 - Subsecs. (c), (d). Pub. L. 108-357 redesignated subsec.
(d) as (c), substituted "subsection (a) or (b)" for "subsection
(a), (b), or (c)", and struck out former subsec. (c) which related
to foreign personal holding company tax.
1989 - Subsec. (c). Pub. L. 101-239, Sec. 7401(b)(1), added
subsec. (c). Former subsec. (c) redesignated (d).
Subsec. (d). Pub. L. 101-239, Sec. 7401(b)(2), substituted
"subsection (a), (b), or (c)" for "subsection (a) or (b)".
Pub. L. 101-239, Sec. 7401(b)(1), redesignated former subsec. (c)
as (d).
1969 - Subsec. (b)(2). Pub. L. 91-172 substituted "20 percent"
for "10 percent".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years of
foreign corporations beginning after Dec. 31, 2004, and to taxable
years of United States shareholders with or within which such
taxable years of foreign corporations end, see section 413(d)(1) of
Pub. L. 108-357, set out as an Effective and Termination Dates of
2004 Amendments note under section 1 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 applicable to taxable years of
foreign corporations beginning after July 10, 1989, with special
rules for any foreign corporation required by the amendments made
by section 7401 of Pub. L. 101-239 to change its taxable year for
its first taxable year beginning after July 10, 1989, see section
7401(d) of Pub. L. 101-239, set out as an Effective Date note under
section 898 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 914(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1969."
-End-
-CITE-
26 USC Sec. 564 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
Sec. 564. Dividend carryover
-STATUTE-
(a) General rule
For purposes of computing the dividends paid deduction under
section 561, in the case of a personal holding company the dividend
carryover for any taxable year shall be the dividend carryover to
such taxable year, computed as provided in subsection (b), from the
two preceding taxable years.
(b) Computation of dividend carryover
The dividend carryover to the taxable year shall be determined as
follows:
(1) For each of the 2 preceding taxable years there shall be
determined the taxable income computed with the adjustments
provided in section 545 (whether or not the taxpayer was a
personal holding company for either of such preceding taxable
years), and there shall also be determined for each such year the
deduction for dividends paid during such year as provided in
section 561 (but determined without regard to the dividend
carryover to such year).
(2) There shall be determined for each such taxable year
whether there is an excess of such taxable income over such
deduction for dividends paid or an excess of such deduction for
dividends paid over such taxable income, and the amount of each
such excess.
(3) If there is an excess of such deductions for dividends paid
over such taxable income for the first preceding taxable year,
such excess shall be allowed as a dividend carryover to the
taxable year.
(4) If there is an excess of such deduction for dividends paid
over such taxable income for the second preceding taxable year,
such excess shall be reduced by the amount determined in
paragraph (5), and the remainder of such excess shall be allowed
as a dividend carryover to the taxable year.
(5) The amount of the reduction specified in paragraph (4)
shall be the amount of the excess of the taxable income, if any,
for the first preceding taxable year over such deduction for
dividends paid, if any, for the first preceding taxable year.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 200; Pub. L. 94-455, title XIX,
Sec. 1901(a)(81), Oct. 4, 1976, 90 Stat. 1778.)
-MISC1-
AMENDMENTS
1976 - Subsec. (c). Pub. L. 94-455 struck out subsec. (c) which
related to the determination of dividend carryover from taxable
years to which this subtitle does not apply.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
-End-
-CITE-
26 USC Sec. 565 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter G - Corporations Used to Avoid Income Tax on Shareholders
PART IV - DEDUCTION FOR DIVIDENDS PAID
-HEAD-
Sec. 565. Consent dividends
-STATUTE-
(a) General rule
If any person owns consent stock (as defined in subsection
(f)(1)) in a corporation on the last day of the taxable year of
such corporation, and such person agrees, in a consent filed with
the return of such corporation in accordance with regulations
prescribed by the Secretary, to treat as a dividend the amount
specified in such consent, the amount so specified shall, except as
provided in subsection (b), constitute a consent dividend for
purposes of section 561 (relating to the deduction for dividends
paid).
(b) Limitations
A consent dividend shall not include -
(1) an amount specified in a consent which, if distributed in
money, would constitute, or be part of, a distribution which
would be disqualified for purposes of the dividends paid
deduction under section 562(c) (relating to preferential
dividends), or
(2) an amount specified in a consent which would not constitute
a dividend (as defined in section 316) if the total amounts
specified in consents filed by the corporation had been
distributed in money to shareholders on the last day of the
taxable year of such corporation.
(c) Effect of consent
The amount of a consent dividend shall be considered, for
purposes of this title -
(1) as distributed in money by the corporation to the
shareholder on the last day of the taxable year of the
corporation, and
(2) as contributed to the capital of the corporation by the
shareholder on such day.
(d) Consent dividends and other distributions
If a distribution by a corporation consists in part of consent
dividends and in part of money or other property, the entire amount
specified in the consents and the amount of such money or other
property shall be considered together for purposes of applying this
title.
(e) Nonresident aliens and foreign corporations
In the case of a consent dividend which, if paid in money would
be subject to the provisions of section 1441 (relating to
withholding of tax on nonresident aliens) or section 1442 (relating
to withholding of tax on foreign corporations), this section shall
not apply unless the consent is accompanied by money, or such other
medium of payment as the Secretary may by regulations authorize, in
an amount equal to the amount that would be required to be deducted
and withheld under sections 1441 or 1442 if the consent dividend
had been, on the last day of the taxable year of the corporation,
paid to the shareholder in money as a dividend. The amount
accompanying the consent shall be credited against the tax imposed
by this subtitle on the shareholder.
(f) Definitions
(1) Consent stock
Consent stock, for purposes of this section, means the class or
classes of stock entitled, after the payment of preferred
dividends, to a share in the distribution (other than in complete
or partial liquidation) within the taxable year of all the
remaining earnings and profits, which share constitutes the same
proportion of such distribution regardless of the amount of such
distribution.
(2) Preferred dividends
Preferred dividends, for purposes of this section, means a
distribution (other than in complete or partial liquidation),
limited in amount, which must be made on any class of stock
before a further distribution (other than in complete or partial
liquidation) of earnings and profits may be made within the
taxable year.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 200; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsecs. (a), (e). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
-End-
-CITE-
26 USC Subchapter H - Banking Institutions 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
-HEAD-
SUBCHAPTER H - BANKING INSTITUTIONS
-MISC1-
Part
I. Rules of general application to banking institutions.
II. Mutual savings banks, etc.
AMENDMENTS
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(20)(C), Oct. 4,
1976, 90 Stat. 1797, struck out item for part III "Bank
affiliates".
-End-
-CITE-
26 USC PART I - RULES OF GENERAL APPLICATION TO BANKING
INSTITUTIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART I - RULES OF GENERAL APPLICATION TO BANKING INSTITUTIONS
-HEAD-
PART I - RULES OF GENERAL APPLICATION TO BANKING INSTITUTIONS
-MISC1-
Sec.
581. Definition of bank.
582. Bad debts, losses, and gains with respect to
securities held by financial institutions.
[583. Repealed.]
584. Common trust funds.
585. Reserves for losses on loans of banks.
[586. Repealed.]
AMENDMENTS
1986 - Pub. L. 99-514, title IX, Sec. 901(d)(4)(H), Oct. 22,
1986, 100 Stat. 2380, struck out item 586 "Reserves for losses on
loans of small business investment companies, etc."
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(18), Oct. 4, 1976,
90 Stat. 1796, struck out item 583 "Deductions of dividends paid on
certain preferred stock".
1969 - Pub. L. 91-172, title IV, Sec. 431(c)(2), Dec. 30, 1969,
83 Stat. 620, substituted "Bad debts, losses, and gains with
respect to securities held by financial institutions", for "Bad
debt and loss deduction with respect to securities held by banks"
in item 582, and added items 585 and 586.
-End-
-CITE-
26 USC Sec. 581 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART I - RULES OF GENERAL APPLICATION TO BANKING INSTITUTIONS
-HEAD-
Sec. 581. Definition of bank
-STATUTE-
For purposes of sections 582 and 584, the term "bank" means a
bank or trust company incorporated and doing business under the
laws of the United States (including laws relating to the District
of Columbia) or of any State, a substantial part of the business of
which consists of receiving deposits and making loans and
discounts, or of exercising fiduciary powers similar to those
permitted to national banks under authority of the Comptroller of
the Currency, and which is subject by law to supervision and
examination by State, Territorial, or Federal authority having
supervision over banking institutions. Such term also means a
domestic building and loan association.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 202; Pub. L. 87-722, Sec. 5,
Sept. 28, 1962, 76 Stat. 670; Pub. L. 94-455, title XIX, Sec.
1901(c)(5), Oct. 4, 1976, 90 Stat. 1803.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 substituted "or of any State" for "of any
State, or of any Territory" after "District of Columbia)" and
struck out "Territorial" after "examination by State".
1962 - Pub. L. 87-722 substituted "authority of the Comptroller
of the Currency" for "section 11(k) of the Federal Reserve Act (38
Stat. 262; 12 U.S.C. 248(k))".
-End-
-CITE-
26 USC Sec. 582 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART I - RULES OF GENERAL APPLICATION TO BANKING INSTITUTIONS
-HEAD-
Sec. 582. Bad debts, losses, and gains with respect to securities
held by financial institutions
-STATUTE-
(a) Securities
Notwithstanding sections 165(g)(1) and 166(e), subsections (a)
and (b) of section 166 (relating to allowance of deduction for bad
debts) shall apply in the case of a bank to a debt which is
evidenced by a security as defined in section 165(g)(2)(C).
(b) Worthless stock in affiliated bank
For purposes of section 165(g)(1), where the taxpayer is a bank
and owns directly at least 80 percent of each class of stock of
another bank, stock in such other bank shall not be treated as a
capital asset.
(c) Bond, etc., losses and gains of financial institutions
(1) General rule
For purposes of this subtitle, in the case of a financial
institution referred to in paragraph (2), the sale or exchange of
a bond, debenture, note, or certificate or other evidence of
indebtedness shall not be considered a sale or exchange of a
capital asset. For purposes of the preceding sentence, any
regular or residual interest in a REMIC shall be treated as an
evidence of indebtedness.
(2) Financial institutions to which paragraph (1) applies
(A) In general
For purposes of paragraph (1), the financial institutions
referred to in this paragraph are -
(i) any bank (and any corporation which would be a bank
except for the fact it is a foreign corporation),
(ii) any financial institution referred to in section 591,
(iii) any small business investment company operating under
the Small Business Investment Act of 1958, and
(iv) any business development corporation.
(B) Business development corporation
For purposes of subparagraph (A), the term "business
development corporation" means a corporation which was created
by or pursuant to an act of a State legislature for purposes of
promoting, maintaining, and assisting the economy and industry
within such State on a regional or statewide basis by making
loans to be used in trades and businesses which would generally
not be made by banks within such region or State in the
ordinary course of their business (except on the basis of a
partial participation), and which is operated primarily for
such purposes.
(C) Limitations on foreign banks
In the case of a foreign corporation referred to in
subparagraph (A)(i), paragraph (1) shall only apply to gains
and losses which are effectively connected with the conduct of
a banking business in the United States.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 202; Pub. L. 85-866, title I,
Sec. 34, Sept. 2, 1958, 72 Stat. 1632; Pub. L. 91-172, title IV,
Sec. 433(a), (c), Dec. 30, 1969, 83 Stat. 623, 624; Pub. L. 94-455,
title X, Sec. 1044(a), title XIV, Sec. 1402(b)(1)(G), (2), Oct. 4,
1976, 90 Stat. 1642, 1732; Pub. L. 98-369, div. A, title X, Sec.
1001(b)(6), (e), July 18, 1984, 98 Stat. 1011, 1012; Pub. L. 99-
514, title VI, Sec. 671(b)(4), title IX, Sec. 901(d)(3), Oct. 22,
1986, 100 Stat. 2318, 2379; Pub. L. 100-647, title I, Sec.
1008(d)(3), Nov. 10, 1988, 102 Stat. 3439; Pub. L. 101-508, title
XI, Sec. 11801(a)(25), (c)(11), Nov. 5, 1990, 104 Stat. 1388-521,
1388-527; Pub. L. 104-188, title I, Sec. 1621(b)(4), Aug. 20, 1996,
110 Stat. 1867; Pub. L. 108-357, title VIII, Sec. 835(b)(3), Oct.
22, 2004, 118 Stat. 1593.)
-REFTEXT-
REFERENCES IN TEXT
The Small Business Investment Act of 1958, referred to in subsec.
(c)(2)(A)(iii), is Pub. L. 85-699, Aug. 21, 1958, 72 Stat. 689, as
amended, which is classified principally to chapter 14B (Sec. 661
et seq.) of Title 15, Commerce and Trade. For complete
classification of this Act to the Code, see Short Title note set
out under section 661 of Title 15 and Tables.
-MISC1-
AMENDMENTS
2004 - Subsec. (c)(1). Pub. L. 108-357 struck out ", and any
regular interest in a FASIT," before "shall be treated".
1996 - Subsec. (c)(1). Pub. L. 104-188 inserted ", and any
regular interest in a FASIT," after "REMIC".
1990 - Subsec. (c)(1). Pub. L. 101-508, Sec. 11801(c)(11)(A),
substituted "paragraph (2)" for "paragraph (5)".
Subsec. (c)(2). Pub. L. 101-508, Sec. 11801(a)(25), (c)(11)(B),
redesignated par. (5) as (2) and struck out former par. (2)
"Transitional rule for banks" which read as follows: "In the case
of a bank, if the net long-term capital gains of the taxable year
from sales or exchanges of qualifying securities exceed the net
short-term capital losses of the taxable year from such sales or
exchanges, such excess shall be considered as gain from the sale of
a capital asset held for more than 6 months to the extent it does
not exceed the net gain on sales and exchanges described in
paragraph (1)."
Subsec. (c)(3). Pub. L. 101-508, Sec. 11801(a)(25), struck out
par. (3) "Special rules" which read as follows: "For purposes of
this subsection -
"(A) The term 'qualifying security' means a bond, debenture,
note, or certificate or other evidence of indebtedness held by a
bank on July 11, 1969.
"(B) The amount treated as capital gain or loss from the sale
or exchange of a qualifying security shall be determined by
multiplying the amount of capital gain or loss from the sale or
exchange of such security (determined without regard to this
subsection) by a fraction, the numerator of which is the number
of days before July 12, 1969, that such security was held by the
bank, and the denominator of which is the number of days the
security was held by the bank."
Subsec. (c)(4). Pub. L. 101-508, Sec. 11801(a)(25), struck out
par. (4) "Transitional rule for banks" which read as follows: "In
the case of a corporation which would be a bank except for the fact
that it is a foreign corporation, the net gain, if any, for the
taxable year on sales and exchanges described in paragraph (1)
shall be considered as gain from the sale or exchange of a capital
asset to the extent such net gain does not exceed the portion of
any capital loss carryover to such taxable year which is
attributable to capital losses on sales or exchanges described in
paragraph (1) for a taxable year beginning before July 12, 1969.
For purposes of the preceding sentence, the portion of a net
capital loss for a taxable year which is attributable to capital
losses on sales or exchanges described in paragraph (1) is the
amount of the net capital loss on such sales or exchanges for such
taxable year (but not in excess of the net capital loss for such
taxable year)."
Subsec. (c)(5). Pub. L. 101-508, Sec. 11801(c)(11)(B),
redesignated par. (5) as (2).
1988 - Subsec. (a). Pub. L. 100-647 substituted "subsections (a)
and (b) of section 166" for "subsections (a), (b), and (c) of
section 166".
1986 - Subsec. (c)(1). Pub. L. 99-514, Sec. 901(d)(3)(A),
substituted "referred to in paragraph (5)" for "to which section
585, 586, or 593 applies".
Pub. L. 99-514, Sec. 671(b)(4), inserted "For purposes of the
preceding sentence, any regular or residual interest in a REMIC
shall be treated as an evidence of indebtedness."
Subsec. (c)(5). Pub. L. 99-514, Sec. 901(d)(3)(B), added par.
(5).
1984 - Subsec. (c)(2). Pub. L. 98-369 substituted "6 months" for
"1 year", applicable to property acquired after June 22, 1984, and
before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
1976 - Subsec. (c)(2). Pub. L. 94-455, Sec. 1402(b)(2), provided
that "9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(G), (2), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (c)(4). Pub. L. 94-455, Sec. 1044(a), added par. (4).
1969 - Pub. L. 91-172, Sec. 433(c), substituted "Bad debts,
losses, and gains with respect to securities held by financial
institutions" for "Bad debt and loss deduction with respect to
securities held by banks" in section catchline.
Subsec. (c). Pub. L. 91-172, Sec. 433(a), redesignated existing
provisions as par. (1), inserted reference to sections 585, 586 and
593, and added pars. (2) and (3).
1958 - Subsec. (c). Pub. L. 85-866 struck out "with interest
coupons or in registered form," before "exceed the gains".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 effective Jan. 1, 2005, with
exception for any FASIT in existence on Oct. 22, 2004, to the
extent that regular interests issued by the FASIT before such date
continue to remain outstanding in accordance with the original
terms of issuance, see section 835(c) of Pub. L. 108-357, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective Sept. 1, 1997, see section
1621(d) of Pub. L. 104-188, set out as a note under section 26 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 671(b)(4) of Pub. L. 99-514 effective Jan.
1, 1987, see section 675(a) of Pub. L. 99-514, as amended, set out
as an Effective Date note under section 860A of this title.
Amendment by section 901(d)(3) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 901(e) of
Pub. L. 99-514, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1044(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) The amendment made by subsection (a) [amending this section]
shall apply with respect to taxable years beginning after July 11,
1969.
"(2) If the refund or credit of any overpayment attributable to
the application of the amendment made by subsection (a) to any
taxable year is otherwise prevented by the operation of any law or
rule of law (other than section 7122 of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954], relating to compromises) on the day
which is one year after the date of the enactment of this Act [Oct.
4, 1976], such credit or refund shall be nevertheless allowed or
made if claim therefor is filed on or before such day."
Section 1402(b)(1) of Pub. L. 94-455 provided that amendment made
by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 433(d) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 1243 of this title] shall apply to taxable
years beginning after July 11, 1969.
"(2) Election for small business investment companies and
business development corporations. - Notwithstanding paragraph (1),
in the case of a financial institution described in section 586(a)
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], the
amendments made by this section [amending this section and section
1243 of this title] shall not apply for its taxable years beginning
after July 11, 1969, and before July 11, 1974, unless the taxpayer
so elects at such time and in such manner as shall be prescribed by
the Secretary of the Treasury or his delegate. Such election shall
be irrevocable and shall apply to all such taxable years."
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 583 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART I - RULES OF GENERAL APPLICATION TO BANKING INSTITUTIONS
-HEAD-
[Sec. 583. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(82),
Oct. 4, 1976, 90 Stat. 1778]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 202, related to
deductions by certain taxpayers of dividends paid to the United
States or any instrumentality thereof exempt from Federal income
taxes on the preferred stock of the corporation owned by the United
States or such instrumentality.
EFFECTIVE DATE OF REPEAL
Repeal effective with respect to taxable years beginning after
Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an
Effective Date of 1976 Amendment note under section 2 of this
title.
-End-
-CITE-
26 USC Sec. 584 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART I - RULES OF GENERAL APPLICATION TO BANKING INSTITUTIONS
-HEAD-
Sec. 584. Common trust funds
-STATUTE-
(a) Definitions
For purposes of this subtitle, the term "common trust fund" means
a fund maintained by a bank -
(1) exclusively for the collective investment and reinvestment
of moneys contributed thereto by the bank in its capacity -
(A) as a trustee, executor, administrator, or guardian, or
(B) as a custodian of accounts -
(i) which the Secretary determines are established pursuant
to a State law which is substantially similar to the Uniform
Gifts to Minors Act as published by the American Law
Institute, and
(ii) with respect to which the bank establishes, to the
satisfaction of the Secretary, that it has duties and
responsibilities similar to duties and responsibilities of a
trustee or guardian; and
(2) in conformity with the rules and regulations, prevailing
from time to time, of the Board of Governors of the Federal
Reserve System or the Comptroller of the Currency pertaining to
the collective investment of trust funds by national banks.
For purposes of this subsection, two or more banks which are
members of the same affiliated group (within the meaning of section
1504) shall be treated as one bank for the period of affiliation
with respect to any fund of which any of the member banks is
trustee or two or more of the member banks are cotrustees.
(b) Taxation of common trust funds
A common trust fund shall not be subject to taxation under this
chapter and for purposes of this chapter shall not be considered a
corporation.
(c) Income of participants in fund
Each participant in the common trust fund in computing its
taxable income shall include, whether or not distributed and
whether or not distributable -
(1) as part of its gains and losses from sales or exchanges of
capital assets held for not more than 1 year, its proportionate
share of the gains and losses of the common trust fund from sales
or exchanges of capital assets held for not more than 1 year,
(2) as part of its gains and losses from sales or exchanges of
capital assets held for more than 1 year, its proportionate share
of the gains and losses of the common trust fund from sales or
exchanges of capital assets held for more than 1 year, and
(3) its proportionate share of the ordinary taxable income or
the ordinary net loss of the common trust fund, computed as
provided in subsection (d).
The proportionate share of each participant in the amount of
dividends received by the common trust fund and to which section
1(h)(11) applies shall be considered for purposes of such paragraph
as having been received by such participant.
(d) Computation of common trust fund income
The taxable income of a common trust fund shall be computed in
the same manner and on the same basis as in the case of an
individual, except that -
(1) there shall be segregated the gains and losses from sales
or exchanges of capital assets;
(2) after excluding all items of gain and loss from sales or
exchanges of capital assets, there shall be computed -
(A) an ordinary taxable income which shall consist of the
excess of the gross income over deductions; or
(B) an ordinary net loss which shall consist of the excess of
the deductions over the gross income; and
(3) the deduction provided by section 170 (relating to
charitable, etc., contributions and gifts) shall not be allowed.
(e) Admission and withdrawal
No gain or loss shall be realized by the common trust fund by the
admission or withdrawal of a participant. The admission of a
participant shall be treated with respect to the participant as the
purchase of, or an exchange for, the participating interest. The
withdrawal of any participating interest by a participant shall be
treated as a sale or exchange of such interest by the participant.
(f) Different taxable years of common trust fund and participant
If the taxable year of the common trust fund is different from
that of a participant, the inclusions with respect to the taxable
income of the common trust fund, in computing the taxable income of
the participant for its taxable year, shall be based upon the
taxable income of the common trust fund for any taxable year of the
common trust fund ending within or with the taxable year of the
participant.
(g) Net operating loss deduction
The benefit of the deduction for net operating losses provided by
section 172 shall not be allowed to a common trust fund, but shall
be allowed to the participants in the common trust fund under
regulations prescribed by the Secretary.
(h) Nonrecognition treatment for certain transfers to regulated
investment companies
(1) In general
If -
(A) a common trust fund transfers substantially all of its
assets to one or more regulated investment companies in
exchange solely for stock in the company or companies to which
such assets are so transferred, and
(B) such stock is distributed by such common trust fund to
participants in such common trust fund in exchange solely for
their interests in such common trust fund,
no gain or loss shall be recognized by such common trust fund by
reason of such transfer or distribution, and no gain or loss
shall be recognized by any participant in such common trust fund
by reason of such exchange.
(2) Basis rules
(A) Regulated investment company
The basis of any asset received by a regulated investment
company in a transfer referred to in paragraph (1)(A) shall be
the same as it would be in the hands of the common trust fund.
(B) Participants
The basis of the stock which is received in an exchange
referred to in paragraph (1)(B) shall be the same as that of
the property exchanged. If stock in more than one regulated
investment company is received in such exchange, the basis
determined under the preceding sentence shall be allocated
among the stock in each such company on the basis of respective
fair market values.
(3) Treatment of assumptions of liability
(A) In general
In determining whether the transfer referred to in paragraph
(1)(A) is in exchange solely for stock in one or more regulated
investment companies, the assumption by any such company of a
liability of the common trust fund shall be disregarded.
(B) Special rule where assumed liabilities exceed basis
(i) In general
If, in any transfer referred to in paragraph (1)(A), the
assumed liabilities exceed the aggregate adjusted bases (in
the hands of the common trust fund) of the assets transferred
to the regulated investment company or companies -
(I) notwithstanding paragraph (1), gain shall be
recognized to the common trust fund on such transfer in an
amount equal to such excess,
(II) the basis of the assets received by the regulated
investment company or companies in such transfer shall be
increased by the amount so recognized, and
(III) any adjustment to the basis of a participant's
interest in the common trust fund as a result of the gain
so recognized shall be treated as occurring immediately
before the exchange referred to in paragraph (1)(B).
If the transfer referred to in paragraph (1)(A) is to two or
more regulated investment companies, the basis increase under
subclause (II) shall be allocated among such companies on the
basis of the respective fair market values of the assets
received by each of such companies.
(ii) Assumed liabilities
For purposes of clause (i), the term "assumed liabilities"
means any liability of the common trust fund assumed by any
regulated investment company in connection with the transfer
referred to in paragraph (1)(A).
(C) Assumption
For purposes of this paragraph, in determining the amount of
any liability assumed, the rules of section 357(d) shall apply.
(4) Common trust fund must meet diversification rules
This subsection shall not apply to any common trust fund which
would not meet the requirements of section 368(a)(2)(F)(ii) if it
were a corporation. For purposes of the preceding sentence,
Government securities shall not be treated as securities of an
issuer in applying the 25-percent and 50-percent test and such
securities shall not be excluded for purposes of determining
total assets under clause (iv) of section 368(a)(2)(F).
(i) Taxable year of common trust fund
For purposes of this subtitle, the taxable year of any common
trust fund shall be the calendar year.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 203; Pub. L. 87-722, Sec. 4,
Sept. 28, 1962, 76 Stat. 670; Pub. L. 88-272, title II, Sec.
201(d)(5), Feb. 26, 1964, 78 Stat. 32; Pub. L. 94-414, Sec. 1,
Sept. 17, 1976, 90 Stat. 1273; Pub. L. 94-455, title XIV, Sec.
1402(b)(1)(H), (2), title XIX, Secs. 1901(b)(1)(G), 1906(b)(13)(A),
title XXI, Secs. 2131(d), 2138, Oct. 4, 1976, 90 Stat. 1732, 1790,
1834, 1924, 1932; Pub. L. 95-30, title I, Sec. 101(d)(7), May 23,
1977, 91 Stat. 133; Pub. L. 96-223, title IV, Sec. 404(b)(3), Apr.
2, 1980, 94 Stat. 306; Pub. L. 97-34, title III, Sec. 301(b)(3),
(6)(A), Aug. 13, 1981, 95 Stat. 270; Pub. L. 97-448, title I, Sec.
103(a)(2), Jan. 12, 1983, 96 Stat. 2375; Pub. L. 98-369, div. A,
title X, Sec. 1001(b)(7), (e), July 18, 1984, 98 Stat. 1011, 1012;
Pub. L. 99-514, title VI, Sec. 612(b)(2), Oct. 22, 1986, 100 Stat.
2250; Pub. L. 100-647, title I, Sec. 1008(e)(5)(A), Nov. 10, 1988,
102 Stat. 3440; Pub. L. 104-188, title I, Sec. 1805(a), Aug. 20,
1996, 110 Stat. 1894; Pub. L. 106-36, title III, Sec. 3001(c)(1),
June 25, 1999, 113 Stat. 183; Pub. L. 108-27, title III, Sec.
302(e)(7), May 28, 2003, 117 Stat. 764.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Subsec. (c). Pub. L. 108-27, Secs. 302(e)(7), 303,
temporarily inserted concluding provisions. See Effective and
Termination Dates of 2003 Amendment note below.
1999 - Subsec. (h)(3)(A). Pub. L. 106-36, Sec. 3001(c)(1)(A),
struck out ", and the fact that any property transferred by the
common trust fund is subject to a liability," before "shall be
disregarded".
Subsec. (h)(3)(B)(ii). Pub. L. 106-36, Sec. 3001(c)(1)(B), added
cl. (ii) and struck out heading and text of former cl. (ii). Text
read as follows: "For purposes of clause (i), the term 'assumed
liabilities' means the aggregate of -
"(I) any liability of the common trust fund assumed by any
regulated investment company in connection with the transfer
referred to in paragraph (1)(A), and
"(II) any liability to which property so transferred is
subject."
Subsec. (h)(3)(C). Pub. L. 106-36, Sec. 3001(c)(1)(B), added
subpar. (C).
1996 - Subsecs. (h), (i). Pub. L. 104-188 added subsec. (h) and
redesignated former subsec. (h) as (i).
1988 - Subsec. (h). Pub. L. 100-647 added subsec. (h).
1986 - Subsec. (c). Pub. L. 99-514, Sec. 612(b)(2)(B),
substituted "1 year" for "6 months" wherever appearing in pars. (1)
and (2).
Pub. L. 99-514, Sec. 612(b)(2)(A), amended subsec. (c) generally,
restating subpars. (A) to (C) of former par. (1) as pars. (1) to
(3) and striking out former par. (2) which read as follows: "The
proportionate share of each participant in the amount of dividends
or interest received by the common trust fund and to which section
116 or 128 applies shall be considered for purposes of such section
as having been received by such participant."
1984 - Subsec. (c)(1)(A), (B). Pub. L. 98-369 substituted "6
months" for "1 year", wherever appearing, applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
1983 - Subsec. (c)(2). Pub. L. 97-448 reenacted par. (2) without
change.
1981 - Subsec. (c)(2). Pub. L. 97-34, Sec. 301(b)(6)(A), inserted
reference to "interest" in heading and text, which continued the
amendment made by Pub. L. 96-223.
Pub. L. 97-34, Sec. 301(b)(3), inserted "or 128" after "section
116".
1980 - Subsec. (c)(2). Pub. L. 96-223 inserted "or interest"
after "dividends" in heading and text.
1977 - Subsec. (d)(4). Pub. L. 95-30 struck out par. (4) relating
to standard deduction.
1976 - Subsec. (a). Pub. L. 94-414 inserted provision relating to
treatment of two or more bank members of same affiliated group.
Subsec. (a)(1). Pub. L. 94-455, Sec. 2138, designated existing
provisions relating to trustee, executor, administrator and
guardian as subpar. (A) and added subpar. (B).
Subsec. (c)(1)(A), (B). Pub. L. 94-455, Sec. 1402(b)(2), provided
that "9 months" would be changed to "1 year" wherever appearing.
Pub. L. 94-455, Sec. 1402(b)(1)(H), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (c)(2). Pub. L. 94-455, Sec. 1901(b)(1)(G), struck out
provisions relating to partially tax exempt interest and election
of a common trust fund to amortize premiums on bonds and other
obligations.
Subsec. (e). Pub. L. 94-455, Sec. 2131(d), inserted "The
admission of a participant shall be treated with respect to the
participant as the purchase of, or exchange for, the participating
interest".
Subsec. (g). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
1964 - Subsec. (c)(2). Pub. L. 88-272 struck out "section 34 or"
before "section 116 applies".
1962 - Subsec. (a)(2). Pub. L. 87-722 inserted "or the
Comptroller of the Currency" after "the Board of Governors of the
Federal Reserve System".
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-36 applicable to transfers after Oct.
18, 1998, see section 3001(e) of Pub. L. 106-36, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1805(b) of Pub. L. 104-188 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
transfers after December 31, 1995."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1008(e)(5)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
take effect as if included in the amendments made by section 806 of
the Reform Act [Pub. L. 99-514], except that section 806(e)(1) [set
out as a note under section 1378 of this title] shall be applied by
substituting 'December 31, 1987' for 'December 31, 1986'. For
purposes of section 806(e)(2) of the Reform Act [set out as a note
under section 1378 of this title] -
"(i) a participant in a common trust fund shall be treated in
the same manner as a partner, and
"(ii) subparagraph (C) thereof shall be applied by substituting
'December 31, 1987' for 'December 31, 1986' and as if it did not
contain the election to include all income in the short taxable
year."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 612(b)(2)(B) of Pub. L. 99-514 provided that: "If the
amendments made by section 1001 of the Tax Reform Act of 1984 [Pub.
L. 98-369, amending this section and sections 166, 341, 402, 403,
423, 582, 631, 642, 702, 818, 852, 856, 857, 1222, 1223, 1231,
1232, 1233, 1234, 1235, 1246, 1247, and 1248 of this title] cease
to apply [see Effective Date of 1984 Amendment note below],
effective with respect to property to which such amendments do not
apply, subsection (c) of section 584 is amended by striking out '6
months' each place it appears and inserting in lieu thereof '1
year'."
Amendment by section 612(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 612(c) of
Pub. L. 99-514, set out as a note under section 301 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 301(b)(3) of Pub. L. 97-34 applicable to
taxable years ending after Sept. 30, 1981, and amendment by section
301(b)(6)(A) of Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1981, see section 301(d) of Pub. L. 97-34, set out
as a note under section 265 of this title.
EFFECTIVE AND TERMINATION DATES OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 applicable with respect to taxable
years beginning after Dec. 31, 1980, and before Jan. 1, 1982, see
section 404(c) of Pub. L. 96-223, set out as a note under section
265 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Section 2131(f)(6) of Pub. L. 94-455 provided that: "The
amendments made by subsections (d) and (e) [amending this section
and section 683 of this title] shall take effect on April 8, 1976,
in taxable years ending on or after such date."
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(b)(1)(G) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as an Effective Date of
1976 Amendment note under section 2 of this title.
Section 2 of Pub. L. 94-414 provided that: "The amendment made by
the first section of this Act [amending this section] shall apply
to taxable years beginning after December 31, 1975."
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable with respect to dividends
received after Dec. 31, 1964, in taxable years ending after such
date, see section 201(e) of Pub. L. 88-272, set out as a note under
section 22 of this title.
-End-
-CITE-
26 USC Sec. 585 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART I - RULES OF GENERAL APPLICATION TO BANKING INSTITUTIONS
-HEAD-
Sec. 585. Reserves for losses on loans of banks
-STATUTE-
(a) Reserve for bad debts
(1) In general
Except as provided in subsection (c), a bank shall be allowed a
deduction for a reasonable addition to a reserve for bad debts.
Such deduction shall be in lieu of any deduction under section
166(a).
(2) Bank
For purposes of this section -
(A) In general
The term "bank" means any bank (as defined in section 581).
(B) Banking business of United States branch of foreign
corporation
The term "bank" also includes any corporation to which
subparagraph (A) would apply except for the fact that it is a
foreign corporation. In the case of any such foreign
corporation, this section shall apply only with respect to
loans outstanding the interest on which is effectively
connected with the conduct of a banking business within the
United States.
(b) Addition to reserves for bad debts
(1) General rule
For purposes of subsection (a), the reasonable addition to the
reserve for bad debts of any financial institution to which this
section applies shall be an amount determined by the taxpayer
which shall not exceed the addition to the reserve for losses on
loans determined under the experience method as provided in
paragraph (2).
(2) Experience method
The amount determined under this paragraph for a taxable year
shall be the amount necessary to increase the balance of the
reserve for losses on loans (at the close of the taxable year) to
the greater of -
(A) the amount which bears the same ratio to loans
outstanding at the close of the taxable year as (i) the total
bad debts sustained during the taxable year and the 5 preceding
taxable years (or, with the approval of the Secretary, a
shorter period), adjusted for recoveries of bad debts during
such period, bears to (ii) the sum of the loans outstanding at
the close of such 6 or fewer taxable years, or
(B) the lower of -
(i) the balance of the reserve at the close of the base
year, or
(ii) if the amount of loans outstanding at the close of the
taxable year is less than the amount of loans outstanding at
the close of the base year, the amount which bears the same
ratio to loans outstanding at the close of the taxable year
as the balance of the reserve at the close of the base year
bears to the amount of loans outstanding at the close of the
base year.
For purposes of this paragraph, the base year shall be the last
taxable year before the most recent adoption of the experience
method, except that for taxable years beginning after 1987 the
base year shall be the last taxable year beginning before 1988.
(3) Regulations; definition of loan
The Secretary shall define the term loan and prescribe such
regulations as may be necessary to carry out the purposes of this
section.
(c) Section not to apply to large banks
(1) In general
In the case of a large bank, this section shall not apply (and
no deduction shall be allowed under any other provision of this
subtitle for any addition to a reserve for bad debts).
(2) Large banks
For purposes of this subsection, a bank is a large bank if, for
the taxable year (or for any preceding taxable year beginning
after December 31, 1986) -
(A) the average adjusted bases of all assets of such bank
exceeded $500,000,000, or
(B) such bank was a member of a parent-subsidiary controlled
group and the average adjusted bases of all assets of such
group exceeded $500,000,000.
(3) 4-year spread of adjustments
(A) In general
Except as provided in paragraph (4), in the case of any bank
which for its last taxable year before the disqualification
year maintained a reserve for bad debts -
(i) the provisions of this subsection shall be treated as a
change in the method of accounting of such bank for the
disqualification year,
(ii) such change shall be treated as having been made with
the consent of the Secretary, and
(iii) the net amount of adjustments required by section
481(a) to be taken into account by the taxpayer shall be
taken into account in each of the 4 taxable years beginning
with the disqualification year with -
(I) the amount taken into account for the 1st of such
taxable years being the greater of 10 percent of such net
amount or such higher percentage of such net amount as the
taxpayer may elect, and
(II) the amount taken into account in each of the 3
succeeding taxable years being equal to the applicable
fraction (determined in accordance with the following table
for the taxable year involved) of the portion of such net
amount not taken into account under subclause (I).
The applicable
If the case of the - fraction is -
1st succeeding year (!2/9)
2nd succeeding year (!1/3)
3rd succeeding year 4/9 .
--------------------------------------------------------------------
(B) Suspension of recapture for taxable year for which bank is
financially troubled
(i) In general
In the case of a bank which is a financially troubled bank
for any taxable year -
(I) no adjustment shall be taken into account under
subparagraph (A) for such taxable year, and
(II) such taxable year shall be disregarded in
determining whether any other taxable year is a taxable
year for which an adjustment is required to be taken into
account under subparagraph (A) or the amount of such
adjustment.
(ii) Exception for elective recapture for 1st year
Clause (i) shall not apply to the 1st taxable year referred
to in subparagraph (A)(iii)(I) if the taxpayer elects a
higher percentage in accordance with such subparagraph.
(iii) Financially troubled bank
For purposes of clause (i), the term "financially troubled
bank" means any bank if, for the taxable year, the
nonperforming loan percentage of such bank exceeds 75
percent.
(iv) Nonperforming loan percentage
For purposes of clause (iii), the term "nonperforming loan
percentage" means the percentage determined by dividing -
(I) the sum of the outstanding balances of nonperforming
loans of the bank as of the close of each quarter of the
taxable year, by
(II) the sum of the amounts of equity of the bank as of
the close of each such quarter.
In the case of a bank which is a member of a parent-
subsidiary controlled group for the taxable year, the
preceding sentence shall be applied with respect to such
group.
(v) Other definitions
For purposes of this subparagraph -
(I) Nonperforming loans
The term "nonperforming loan" means any loan which is
considered to be nonperforming by the primary Federal
regulatory agency with respect to the bank.
(II) Equity
The term "equity" means the equity of the bank as
determined for Federal regulatory purposes.
(C) Coordination with estimated tax payments
For purposes of applying section 6655(e)(2)(A)(i) with
respect to any installment, the determination under
subparagraph (B) of whether an adjustment is required to be
taken into account under subparagraph (A) shall be made as of
the last day prescribed for payment of such installment.
(4) Elective cut-off method
If a bank makes an election under this paragraph for the
disqualification year -
(A) the provisions of this subsection shall not be treated as
a change in the method of accounting of the taxpayer for
purposes of section 481,
(B) the taxpayer shall continue to maintain its reserve for
loans held by the bank as of the 1st day of the
disqualification year and charge against such reserve any
losses resulting from loans held by the bank as of such 1st
day, and
(C) no deduction shall be allowed under this section (or any
other provision of this subtitle) for any addition to such
reserve for the disqualification year or any subsequent taxable
year.
If the amount of the reserve referred to in subparagraph (B) as
of the close of any taxable year exceeds the outstanding balance
(as of such time) of the loans referred to in subparagraph (B),
such excess shall be included in gross income for such taxable
year.
(5) Definitions
For purposes of this subsection -
(A) Parent-subsidiary controlled group
The term "parent-subsidiary controlled group" means any
controlled group of corporations described in section
1563(a)(1). In determining the average adjusted bases of assets
held by such a group, interests held by one member of such
group in another member of such group shall be disregarded.
(B) Disqualification year
The term "disqualification year" means, with respect to any
bank, the 1st taxable year beginning after December 31, 1986,
for which such bank was a large bank if such bank maintained a
reserve for bad debts for the preceding taxable year.
(C) Election made by each member
In the case of a parent-subsidiary controlled group, any
election under this section shall be made separately by each
member of such group.
-SOURCE-
(Added Pub. L. 91-172, title IV, Sec. 431(a), Dec. 30, 1969, 83
Stat. 616; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97-34, title II, Sec. 267(a),
Aug. 13, 1981, 95 Stat. 266; Pub. L. 99-514, title IX, Sec. 901(a),
(d)(1), Oct. 22, 1986, 100 Stat. 2375, 2378; Pub. L. 100-203, title
X, Sec. 10301(b)(2), Dec. 22, 1987, 101 Stat. 1330-429; Pub. L. 100-
647, title I, Sec. 1009(a)(2), (3), Nov. 10, 1988, 102 Stat. 3445;
Pub. L. 101-508, title XI, Sec. 11801(a)(26), (c)(12)(C)-(E), Nov.
5, 1990, 104 Stat. 1388-521, 1388-527; Pub. L. 104-188, title I,
Sec. 1616(b)(6), Aug. 20, 1996, 110 Stat. 1856.)
-MISC1-
AMENDMENTS
1996 - Subsec. (a)(2)(A). Pub. L. 104-188 struck out "other than
an organization to which section 593 applies" after "section 581)".
1990 - Subsec. (b)(1). Pub. L. 101-508, Sec. 11801(c)(12)(C),
substituted "shall not exceed the addition to the reserve for
losses on loans determined under the experience method as provided
in paragraph (2)." for "shall not exceed the greater of -
"(A) for taxable years beginning before 1988 the addition to
the reserve for losses on loans determined under the percentage
method as provided in paragraph (2), or
"(B) the addition to the reserve for losses on loans determined
under the experience method as provided in paragraph (3)."
Subsec. (b)(2). Pub. L. 101-508, Sec. 11801(a)(26), (c)(12)(D),
redesignated par. (3) as (2) and struck out former par. (2) which
related to use of percentage method for determining amount to add
to reserve for bad debts.
Subsec. (b)(3). Pub. L. 101-508, Sec. 11801(c)(12)(D), (E),
redesignated par. (4) as (3), substituted heading for one which
read: "Regulations; definition of eligible loan, etc.", and amended
text generally. Prior to amendment, text read as follows: "The
Secretary shall define the terms 'loan' and 'eligible loan' and
prescribe such regulations as may be necessary to carry out the
purposes of this section; except that the term 'eligible loan'
shall not include -
"(A) a loan to a bank (as defined in section 581),
"(B) a loan to a domestic branch of a foreign corporation to
which subsection (a)(2) applies,
"(C) a loan secured by a deposit (i) in the lending bank, or
(ii) in an institution described in subparagraph (A) or (B) if
the lending bank has control over withdrawal of such deposit,
"(D) a loan to or guaranteed by the United States, a possession
or instrumentality thereof, or a State or a political subdivision
thereof,
"(E) a loan evidenced by a security as defined in section
165(g)(2)(C),
"(F) a loan of Federal funds, and
"(G) commercial paper, including short-term promissory notes
which may be purchased on the open market." Former par. (3)
redesignated (2).
Subsec. (b)(4). Pub. L. 101-508, Sec. 11801(c)(12)(D),
redesignated par. (4) as (3).
1988 - Subsec. (c)(3)(A)(iii)(I). Pub. L. 100-647, Sec.
1009(a)(2)(B), substituted "such higher percentage of such net
amount as the taxpayer may elect" for "such greater amount as the
taxpayer may designate".
Subsec. (c)(3)(B)(ii). Pub. L. 100-647, Sec. 1009(a)(2)(C),
substituted "elects a higher percentage" for "designates an
amount".
Subsec. (c)(4). Pub. L. 100-647, Sec. 1009(a)(3), inserted at end
"If the amount of the reserve referred to in subparagraph (B) as of
the close of any taxable year exceeds the outstanding balance (as
of such time) of the loans referred to in subparagraph (B), such
excess shall be included in gross income for such taxable year."
Subsec. (c)(5)(C). Pub. L. 100-647, Sec. 1009(a)(2)(A), added
subpar. (C).
1987 - Subsec. (c)(3)(C). Pub. L. 100-203 substituted "section
6655(e)(2)(A)(i)" for "section 6655(d)(3)".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 901(a)(1), amended
subsec. (a) generally. Prior to amendment, subsec. (a) read as
follows: "This section shall apply to the following financial
institutions:
"(1) any bank (as defined in section 581) other than an
organization to which section 593 applies, and
"(2) any corporation to which paragraph (1) would apply except
for the fact that it is a foreign corporation, and in the case of
any such foreign corporation this section shall apply only with
respect to loans outstanding the interest on which is effectively
connected with the conduct of a banking business within the
United States."
Subsec. (b)(1). Pub. L. 99-514, Sec. 901(d)(1), substituted
"subsection (a)" for "section 166(c)".
Subsec. (c). Pub. L. 99-514, Sec. 901(a)(2), added subsec. (c).
1981 - Subsec. (b)(2). Pub. L. 97-34 defined "allowable
percentage" to mean 1.0 percent for taxable years beginning in 1982
and 0.6 percent for taxable years beginning after 1982, previously
so applicable for taxable years beginning after 1981 and redefined
"base year" by substituting the last taxable year beginning before
1976 for taxable years beginning after 1975 but before 1983, for
the last taxable year beginning before 1976 for taxable years after
1975 but before 1982; and the last taxable year beginning before
1983 for taxable years beginning after 1982, for the last taxable
year beginning before 1982 for taxable years beginning after 1981.
1976 - Subsec. (b)(3), (4). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1995, see section 1616(c) of Pub. L. 104-
188, set out as a note under section 593 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10301(c) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section and sections
6201, 6425, 6601, 6651, and 6655 of this title and repealing
section 6154 of this title] shall apply to taxable years beginning
after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 901(e) of Pub. L. 99-514, set out
as a note under section 166 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 267(b) of Pub. L. 97-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after 1981."
EFFECTIVE DATE
Section 431(d) of Pub. L. 91-172 provided that: "The amendments
made by subsections (a) [enacting this section and section 586 of
this title] and (c) [amending section 166 of this title] shall
apply to taxable years beginning after July 11, 1969."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 586 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART I - RULES OF GENERAL APPLICATION TO BANKING INSTITUTIONS
-HEAD-
[Sec. 586. Repealed. Pub. L. 99-514, title IX, Sec. 901(c), Oct.
22, 1986, 100 Stat. 2378]
-MISC1-
Section, added Pub. L. 91-172, title IV, Sec. 431(a), Dec. 30,
1969, 83 Stat. 618; amended Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to reserves
for losses on loans of small business investment companies, etc.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1986,
see section 901(e) of Pub. L. 99-514, set out as an Effective Date
of 1986 Amendment note under section 166 of this title.
-End-
-CITE-
26 USC PART II - MUTUAL SAVINGS BANKS, ETC. 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART II - MUTUAL SAVINGS BANKS, ETC.
-HEAD-
PART II - MUTUAL SAVINGS BANKS, ETC.
-MISC1-
Sec.
591. Deduction for dividends paid on deposits.
[592. Repealed.]
593. Reserves for losses on loans.
594. Alternative tax for mutual savings banks conducting
life insurance business.
[595, 596. Repealed.]
597. Treatment of transactions in which Federal financial
assistance provided.
AMENDMENTS
1996 - Pub. L. 104-188, title I, Sec. 1616(b)(16), Aug. 20, 1996,
110 Stat. 1857, struck out items 595 "Foreclosure on property
securing loans" and 596 "Limitation on dividends received
deduction".
1989 - Pub. L. 101-73, title XIV, Sec. 1401(b)(1), Aug. 9, 1989,
103 Stat. 549, repealed amendment made by Pub. L. 99-514, Sec.
904(b)(2), see 1986 Amendment note below.
Pub. L. 101-73, title XIV, Sec. 1401(a)(3)(C), Aug. 9, 1989, 103
Stat. 549, substituted "Treatment of transactions in which Federal
financial assistance provided" for "FSLIC or FDIC financial
assistance" in item 597.
1988 - Pub. L. 100-647, title IV, Sec. 4012(b)(2)(D)(ii), Nov.
10, 1988, 102 Stat. 3658, substituted "FSLIC or FDIC" for "FSLIC"
in item 597.
1986 - Pub. L. 99-514, title IX, Sec. 904(b)(2), (c)(2)(A), Oct.
22, 1986, 100 Stat. 2385, as amended by Pub. L. 100-647, title IV,
Sec. 4012(a)(2), Nov. 10, 1988, 102 Stat. 3656, which, applicable
to transfers after Dec. 31, 1989, in taxable years ending after
that date, directed amendment of analysis by striking out item 597,
was repealed by Pub. L. 101-73, title XIV, Sec. 1401(b)(1), (c)(4),
Aug. 9, 1989, 103 Stat. 549, 550, eff. Oct. 22, 1986, and
applicable as if the amendments made by such section had not been
enacted.
1981 - Pub. L. 97-34, title II, Sec. 244(b), Aug. 13, 1981, 95
Stat. 255, added item 597.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(19), Oct. 4, 1976,
90 Stat. 1796, struck out item 592 "Deduction for repayment of
certain loans".
1969 - Pub. L. 91-172, title IV, Sec. 434(b)(2), Dec. 30, 1969,
83 Stat. 625, added item 596.
1962 - Pub. L. 87-834, Sec. 6(d), Oct. 16, 1962, 76 Stat. 984,
substituted "Reserves for losses on loans" for "Additions to
reserve for bad debts" in item 593, and added item 595.
-End-
-CITE-
26 USC Sec. 591 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART II - MUTUAL SAVINGS BANKS, ETC.
-HEAD-
Sec. 591. Deduction for dividends paid on deposits
-STATUTE-
(a) In general
In the case of mutual savings banks, cooperative banks, and
domestic building and loan associations and other savings
institutions chartered and supervised as savings and loan or
similar associations under Federal or State law, there shall be
allowed as deductions in computing taxable income amounts paid to,
or credited to the accounts of, depositors or holders of accounts
as dividends or interest on their deposits or withdrawable
accounts, if such amounts paid or credited are withdrawable on
demand subject only to customary notice of intention to withdraw.
(b) Mutual savings bank to include certain banks with capital stock
For purposes of this part, the term "mutual savings bank"
includes any bank -
(1) which has capital stock represented by shares, and
(2) which is subject to, and operates under, Federal or State
laws relating to mutual savings bank.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 204; Pub. L. 87-834, Sec. 6(f),
Oct. 16, 1962, 76 Stat. 984; Pub. L. 97-34, title II, Sec. 245(a),
Aug. 13, 1981, 95 Stat. 255.)
-MISC1-
AMENDMENTS
1981 - Pub. L. 97-34 designated existing provisions as subsec.
(a), inserted heading "In general", and added subsec. (b).
1962 - Pub. L. 87-834 included other savings institutions
chartered and supervised as savings and loan or similar
associations under Federal or State law, and authorized amounts
paid as interest as a deduction.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 246(d) of Pub. L. 97-34 provided that: "The amendments
made by section 245 [amending this section and section 593 of this
title] shall apply with respect to taxable years ending after the
date of the enactment of this Act [Aug. 13, 1981]."
-End-
-CITE-
26 USC Sec. 592 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART II - MUTUAL SAVINGS BANKS, ETC.
-HEAD-
[Sec. 592. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(83),
Oct. 4, 1976, 90 Stat. 1778]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 205, authorized a
deduction by mutual savings banks for repayment of loans made
before Sept. 1, 1951, by the United States or any agency or
instrumentality thereof, or any mutual fund established under the
authority of the laws of any State.
EFFECTIVE DATE OF REPEAL
Repeal effective with respect to taxable years beginning after
Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an
Effective Date of 1976 Amendment note under section 2 of this
title.
-End-
-CITE-
26 USC Sec. 593 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART II - MUTUAL SAVINGS BANKS, ETC.
-HEAD-
Sec. 593. Reserves for losses on loans
-STATUTE-
(a) Reserve for bad debts
(1) In general
Except as provided in paragraph (2), in the case of -
(A) any domestic building and loan association,
(B) any mutual savings bank, or
(C) any cooperative bank without capital stock organized and
operated for mutual purposes and without profit,
there shall be allowed a deduction for a reasonable addition to a
reserve for bad debts. Such deduction shall be in lieu of any
deduction under section 166(a).
(2) Organization must meet 60-percent asset test of section
7701(a)(19)
This section shall apply to an association or bank referred to
in paragraph (1) only if it meets the requirements of section
7701(a)(19)(C).
(b) Addition to reserves for bad debts
(1) In general
For purposes of subsection (a), the reasonable addition for the
taxable year to the reserve for bad debts of any taxpayer
described in subsection (a) shall be an amount equal to the sum
of -
(A) the amount determined to be a reasonable addition to the
reserve for losses on nonqualifying loans, computed in the same
manner as is provided with respect to additions to the reserves
for losses on loans of banks under section 585(b)(2), plus
(B) the amount determined by the taxpayer to be a reasonable
addition to the reserve for losses on qualifying real property
loans, but such amount shall not exceed the amount determined
under paragraph (2) or (3), whichever is the larger, but the
amount determined under this subparagraph shall in no case be
greater than the larger of -
(i) the amount determined under paragraph (3), or
(ii) the amount which, when added to the amount determined
under subparagraph (A), equals the amount by which 12 percent
of the total deposits or withdrawable accounts of depositors
of the taxpayer at the close of such year exceeds the sum of
its surplus, undivided profits, and reserves at the beginning
of such year (taking into account any portion thereof
attributable to the period before the first taxable year
beginning after December 31, 1951).
(2) Percentage of taxable income method
(A) In general
Subject to subparagraphs (B) and (C), the amount determined
under this paragraph for the taxable year shall be an amount
equal to 8 percent of the taxable income for such year.
(B) Reduction for amounts referred to in paragraph (1)(A)
The amount determined under subparagraph (A) shall be reduced
(but not below 0) by the amount determined under paragraph
(1)(A).
(C) Overall limitation on paragraph
The amount determined under this paragraph shall not exceed
the amount necessary to increase the balance at the close of
the taxable year of the reserve for losses on qualifying real
property loans to 6 percent of such loans outstanding at such
time.
(D) Computation of taxable income
For purposes of this paragraph, taxable income shall be
computed -
(i) by excluding from gross income any amount included
therein by reason of subsection (e),
(ii) without regard to any deduction allowable for any
addition to the reserve for bad debts,
(iii) by excluding from gross income an amount equal to the
net gain for the taxable year arising from the sale or
exchange of stock of a corporation or of obligations the
interest on which is excludable from gross income under
section 103,
(iv) by excluding from gross income dividends with respect
to which a deduction is allowable by part VIII of subchapter
B, reduced by an amount equal to 8 percent of the dividends
received deduction (determined without regard to section 596)
(!1) for the taxable year, and
(v) if there is a capital gain rate differential (as
defined in section 904(b)(3)(D)) for the taxable year, by
excluding from gross income the rate differential portion
(within the meaning of section 904(b)(3)(E)) of the lesser of
-
(I) the net long-term capital gain for the taxable year,
or
(II) the net long-term capital gain for the taxable year
from the sale or exchange of property other than property
described in clause (iii).
(3) Experience method
The amount determined under this paragraph for the taxable year
shall be computed in the same manner as is provided with respect
to additions to the reserves for losses on loans of banks under
section 585(b)(2).
(c) Treatment of reserve for bad debts
(1) Establishment of reserves
Each taxpayer described in subsection (a) which uses the
reserve method of accounting for bad debts shall establish and
maintain a reserve for losses on qualifying real property loans,
a reserve for losses on nonqualifying loans, and a supplemental
reserve for losses on loans. For purposes of this title, such
reserves shall be treated as reserves for bad debts, but no
deduction shall be allowed for any addition to the supplemental
reserve for losses on loans.
(2) Certain pre-1963 reserves
Notwithstanding the second sentence of paragraph (1), any
amount allocated pursuant to paragraph (5) (as in effect
immediately before the enactment of the Tax Reform Act of 1976)
during a taxable year beginning before January 1, 1977, to the
reserve for losses on qualifying real property loans out of the
surplus, undivided profits, and bad debt reserves (determined as
of December 31, 1962) attributable to the period before the first
taxable year beginning after December 31, 1951, shall not be
treated as a reserve for bad debts for any purpose other than
determining the amount referred to in subsection (b)(1)(B), and
for such purpose such amount shall be treated as remaining in
such reserve.
(3) Charging of bad debts to reserves
Any debt becoming worthless or partially worthless in respect
of a qualifying real property loan shall be charged to the
reserve for losses on such loans, and any debt becoming worthless
or partially worthless in respect of a nonqualifying loan shall
be charged to the reserve for losses on nonqualifying loans;
except that any such debt may, at the election of the taxpayer,
be charged in whole or in part to the supplemental reserve for
losses on loans.
(d) Loans defined
For purposes of this section -
(1) Qualifying real property loans
The term "qualifying real property loan" means any loan secured
by an interest in improved real property or secured by an
interest in real property which is to be improved out of the
proceeds of the loan, but such term does not include -
(A) any loan evidenced by a security (as defined in section
165(g)(2)(C));
(B) any loan, whether or not evidenced by a security (as
defined in section 165(g)(2)(C)), the primary obligor on which
is -
(i) a government or political subdivision or
instrumentality thereof;
(ii) a bank (as defined in section 581); or
(iii) another member of the same affiliated group;
(C) any loan, to the extent secured by a deposit in or share
of the taxpayer; or
(D) any loan which, within a 60-day period beginning in one
taxable year of the creditor and ending in its next taxable
year, is made or acquired and then repaid or disposed of,
unless the transactions by which such loan was made or acquired
and then repaid or disposed of are established to be for bona
fide business purposes. For purposes of subparagraph (B)(iii),
the term "affiliated group" has the meaning assigned to such
term by section 1504(a); except that (i) the phrase "more than
50 percent" shall be substituted for the phrase "at least 80
percent" each place it appears in section 1504(a), and (ii) all
corporations shall be treated as includible corporations
(without any exclusion under section 1504(b)).
(2) Nonqualifying loans
The term "nonqualifying loan" means any loan which is not a
qualifying real property loan.
(3) Loan
The term "loan" means debt, as the term "debt" is used in
section 166.
(4) Treatment of interests in REMIC's
A regular or residual interest in a REMIC shall be treated as a
qualifying real property loan; except that, if less than 95
percent of the assets of such REMIC are qualifying real property
loans (determined as if the taxpayer held the assets of the
REMIC), such interest shall be so treated only in the proportion
which the assets of such REMIC consist of such loans. For
purposes of determining whether any interest in a REMIC qualifies
under the preceding sentence, any interest in another REMIC held
by such REMIC shall be treated as a qualifying real property loan
under principles similar to the principles of the preceding
sentence, except that if such REMIC's are part of a tiered
structure, they shall be treated as 1 REMIC for purposes of this
paragraph.
(e) Distributions to shareholders
(1) In general
For purposes of this chapter, any distribution of property (as
defined in section 317(a)) by a taxpayer having a balance
described in subsection (g)(2)(A)(ii) to a shareholder with
respect to its stock, if such distribution is not allowable as a
deduction under section 591, shall be treated as made -
(A) first out of its earnings and profits accumulated in
taxable years beginning after December 31, 1951, (and, in the
case of an S corporation, the accumulated adjustments account,
as defined in section 1368(e)(1)) to the extent thereof,
(B) then out of the balance taken into account under
subsection (g)(2)(A)(ii) (properly adjusted for amounts charged
against such reserves for taxable years beginning after
December 31, 1987),
(C) then out of the supplemental reserve for losses on loans,
to the extent thereof,
(D) then out of such other accounts as may be proper.
This paragraph shall apply in the case of any distribution in
redemption of stock or in partial or complete liquidation of a
taxpayer having a balance described in subsection (g)(2)(A)(ii),
except that any such distribution shall be treated as made first
out of the amount referred to in subparagraph (B), second out of
the amount referred to in subparagraph (C), third out of the
amount referred to in subparagraph (A), and then out of such
other accounts as may be proper. This paragraph shall not apply
to any transaction to which section 381 applies, or to any
distribution to the Federal Savings and Loan Insurance
Corporation (or any successor thereof) or the Federal Deposit
Insurance Corporation in redemption of an interest in a taxpayer
having a balance described in subsection (g)(2)(A)(ii), if such
interest was originally received by any such entity in exchange
for assistance provided under a provision of law referred to in
section 597(c). This paragraph shall not apply to any
distribution of all of the stock of a bank (as defined in section
581) to another corporation if, immediately after the
distribution, such bank and such other corporation are members of
the same affiliated group (as defined in section 1504) and the
provisions of section 5(e) of the Federal Deposit Insurance Act
(as in effect on December 31, 1995) or similar provisions are in
effect.
(2) Amounts charged to reserve accounts and included in gross
income
If any distribution is treated under paragraph (1) as having
been made out of the reserves described in subparagraphs (B) and
(C) of such paragraph, the amount charged against such reserve
shall be the amount which, when reduced by the amount of tax
imposed under this chapter and attributable to the inclusion of
such amount in gross income, is equal to the amount of such
distribution; and the amount so charged against such reserve
shall be included in gross income of the taxpayer.
(3) Special rules
(A) For purposes of paragraph (1)(B), additions to the reserve
for losses on qualifying real property loans for the taxable year
in which the distribution occurs shall be taken into account.
(B) For purposes of computing under this section the amount of
a reasonable addition to the reserve for losses on qualifying
real property loans for any taxable year, any amount charged
during any year to such reserve pursuant to the provisions of
paragraph (2) shall not be taken into account.
(f) Termination of reserve method
Subsections (a), (b), (c), and (d) shall not apply to any taxable
year beginning after December 31, 1995.
(g) 6-year spread of adjustments
(1) In general
In the case of any taxpayer who is required by reason of
subsection (f) to change its method of computing reserves for bad
debts -
(A) such change shall be treated as a change in a method of
accounting,
(B) such change shall be treated as initiated by the taxpayer
and as having been made with the consent of the Secretary, and
(C) the net amount of the adjustments required to be taken
into account by the taxpayer under section 481(a) -
(i) shall be determined by taking into account only
applicable excess reserves, and
(ii) as so determined, shall be taken into account ratably
over the 6-taxable year period beginning with the first
taxable year beginning after December 31, 1995.
(2) Applicable excess reserves
(A) In general
For purposes of paragraph (1), the term "applicable excess
reserves" means the excess (if any) of -
(i) the balance of the reserves described in subsection
(c)(1) (other than the supplemental reserve) as of the close
of the taxpayer's last taxable year beginning before January
1, 1996, over
(ii) the lesser of -
(I) the balance of such reserves as of the close of the
taxpayer's last taxable year beginning before January 1,
1988, or
(II) the balance of the reserves described in subclause
(I), reduced in the same manner as under section
585(b)(2)(B)(ii) on the basis of the taxable years
described in clause (i) and this clause.
(B) Special rule for thrifts which become small banks
In the case of a bank (as defined in section 581) which was
not a large bank (as defined in section 585(c)(2)) for its
first taxable year beginning after December 31, 1995 -
(i) the balance taken into account under subparagraph
(A)(ii) shall not be less than the amount which would be the
balance of such reserves as of the close of its last taxable
year beginning before such date if the additions to such
reserves for all taxable years had been determined under
section 585(b)(2)(A), and
(ii) the opening balance of the reserve for bad debts as of
the beginning of such first taxable year shall be the balance
taken into account under subparagraph (A)(ii) (determined
after the application of clause (i) of this subparagraph).
The preceding sentence shall not apply for purposes of
paragraphs (5) and (6) or subsection (e)(1).
(3) Recapture of pre-1988 reserves where taxpayer ceases to be
bank
If, during any taxable year beginning after December 31, 1995,
a taxpayer to which paragraph (1) applied is not a bank (as
defined in section 581), paragraph (1) shall apply to the
reserves described in paragraph (2)(A)(ii) and the supplemental
reserve; except that such reserves shall be taken into account
ratably over the 6-taxable year period beginning with such
taxable year.
(4) Suspension of recapture if residential loan requirement met
(A) In general
In the case of a bank which meets the residential loan
requirement of subparagraph (B) for the first taxable year
beginning after December 31, 1995, or for the following taxable
year -
(i) no adjustment shall be taken into account under
paragraph (1) for such taxable year, and
(ii) such taxable year shall be disregarded in determining -
(I) whether any other taxable year is a taxable year for
which an adjustment is required to be taken into account
under paragraph (1), and
(II) the amount of such adjustment.
(B) Residential loan requirement
A taxpayer meets the residential loan requirement of this
subparagraph for any taxable year if the principal amount of
the residential loans made by the taxpayer during such year is
not less than the base amount for such year.
(C) Residential loan
For purposes of this paragraph, the term "residential loan"
means any loan described in clause (v) of section
7701(a)(19)(C) but only if such loan is incurred in acquiring,
constructing, or improving the property described in such
clause.
(D) Base amount
For purposes of subparagraph (B), the base amount is the
average of the principal amounts of the residential loans made
by the taxpayer during the 6 most recent taxable years
beginning on or before December 31, 1995. At the election of
the taxpayer who made such loans during each of such 6 taxable
years, the preceding sentence shall be applied without regard
to the taxable year in which such principal amount was the
highest and the taxable year in such principal amount was the
lowest. Such an election may be made only for the first taxable
year beginning after such date, and, if made for such taxable
year, shall apply to the succeeding taxable year unless revoked
with the consent of the Secretary.
(E) Controlled groups
In the case of a taxpayer which is a member of any controlled
group of corporations described in section 1563(a)(1),
subparagraph (B) shall be applied with respect to such group.
(5) Continued application of fresh start under section 585
transitional rules
In the case of a taxpayer to which paragraph (1) applied and
which was not a large bank (as defined in section 585(c)(2)) for
its first taxable year beginning after December 31, 1995:
(A) In general
For purposes of determining the net amount of adjustments
referred to in section 585(c)(3)(A)(iii), there shall be taken
into account only the excess (if any) of the reserve for bad
debts as of the close of the last taxable year before the
disqualification year over the balance taken into account by
such taxpayer under paragraph (2)(A)(ii) of this subsection.
(B) Treatment under elective cut-off method
For purposes of applying section 585(c)(4) -
(i) the balance of the reserve taken into account under
subparagraph (B) thereof shall be reduced by the balance
taken into account by such taxpayer under paragraph
(2)(A)(ii) of this subsection, and
(ii) no amount shall be includible in gross income by
reason of such reduction.
(6) Suspended reserve included as section 381(c) items
The balance taken into account by a taxpayer under paragraph
(2)(A)(ii) of this subsection and the supplemental reserve shall
be treated as items described in section 381(c).
(7) Conversions to credit unions
In the case of a taxpayer to which paragraph (1) applied which
becomes a credit union described in section 501(c) and exempt
from taxation under section 501(a) -
(A) any amount required to be included in the gross income of
the credit union by reason of this subsection shall be treated
as derived from an unrelated trade or business (as defined in
section 513), and
(B) for purposes of paragraph (3), the credit union shall not
be treated as if it were a bank.
(8) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out this subsection and subsection (e),
including regulations providing for the application of such
subsections in the case of acquisitions, mergers, spin-offs, and
other reorganizations.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 205; Pub. L. 87-834, Sec. 6(a),
Oct. 16, 1962, 76 Stat. 977; Pub. L. 91-172, title IV, Sec. 432(a),
(b), Dec. 30, 1969, 83 Stat. 620, 622; Pub. L. 94-455, title XIX,
Sec. 1901(a)(84), Oct. 4, 1976, 90 Stat. 1778; Pub. L. 96-222,
title I, Sec. 104(a)(3)(C), Apr. 1, 1980, 94 Stat. 215; Pub. L. 97-
34, title II, Secs. 243, 245(b), (c), Aug. 13, 1981, 95 Stat. 255,
256; Pub. L. 99-514, title III, Sec. 311(b)(2), title VI, Sec.
671(b)(2), title IX, Sec. 901(b)(1)-(3), (d)(2), Oct. 22, 1986, 100
Stat. 2219, 2317, 2378; Pub. L. 100-647, title I, Secs. 1003(c)(3),
1006(t)(25)(B), Nov. 10, 1988, 102 Stat. 3384, 3426; Pub. L. 101-
73, title XIV, Sec. 1401(b)(3), Aug. 9, 1989, 103 Stat. 550; Pub.
L. 101-508, title XI, Sec. 11801(c)(12)(F), Nov. 5, 1990, 104 Stat.
1388-527; Pub. L. 104-188, title I, Secs. 1616(a), (b)(7),
1704(t)(51), Aug. 20, 1996, 110 Stat. 1854, 1857, 1890; Pub. L. 105-
34, title XVI, Sec. 1601(f)(5)(A), Aug. 5, 1997, 111 Stat. 1091.)
-REFTEXT-
REFERENCES IN TEXT
Section 596, referred to in subsec. (b)(2)(D)(iv), was repealed
by Pub. L. 104-188, title I, Sec. 1616(b)(9), Aug. 20, 1996, 110
Stat. 1857.
The Tax Reform Act of 1976, referred to in subsec. (c)(2), is
Pub. L. 94-455, Oct. 4, 1976, 90 Stat. 1520, as amended, which was
enacted Oct. 4, 1976. For complete classification of this Act to
the Code, see Tables.
Section 5(e) of the Federal Deposit Insurance Act, referred to in
subsec. (e)(1), is classified to section 1815(e) of Title 12, Banks
and Banking.
-MISC1-
AMENDMENTS
1997 - Subsec. (e)(1)(A). Pub. L. 105-34 inserted "(and, in the
case of an S corporation, the accumulated adjustments account, as
defined in section 1368(e)(1))" after "1951,".
1996 - Subsec. (b)(1)(A), (3). Pub. L. 104-188, Sec. 1704(t)(51),
provided that the amendment made by section 11801(c)(12)(F) of Pub.
L. 101-508 shall be applied as if "and (3)" appeared instead of
"and (E)". See 1990 Amendment note below.
Subsec. (e)(1). Pub. L. 104-188, Sec. 1616(b)(7)(A), substituted
"by a taxpayer having a balance described in subsection
(g)(2)(A)(ii)" for "by a domestic building and loan association or
an institution that is treated as a mutual savings bank under
section 591(b)" in introductory provisions.
Pub. L. 104-188, Sec. 1616(b)(7)(C)-(E), in closing provisions,
substituted "a taxpayer having a balance described in subsection
(g)(2)(A)(ii)" for "the association or an institution that is
treated as a mutual savings bank under section 591(b)" after
"complete liquidation of" and for "an association" after "an
interest in" and inserted at end "This paragraph shall not apply to
any distribution of all of the stock of a bank (as defined in
section 581) to another corporation if, immediately after the
distribution, such bank and such other corporation are members of
the same affiliated group (as defined in section 1504) and the
provisions of section 5(e) of the Federal Deposit Insurance Act (as
in effect on December 31, 1995) or similar provisions are in
effect."
Subsec. (e)(1)(B). Pub. L. 104-188, Sec. 1616(b)(7)(B), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "then out of the reserve for losses on qualifying real
property loans, to the extent additions to such reserve exceed the
additions which would have been allowed under subsection (b)(3),".
Subsecs. (f), (g). Pub. L. 104-188, Sec. 1616(a), added subsecs.
(f) and (g).
1990 - Subsec. (b). Pub. L. 101-508, Sec. 11801(c)(12)(F), which
directed the amendment of pars. (1)(A) and (E) by substituting
"section 585(b)(2)" for "section 585(b)(3)", was executed to pars.
(1)(A) and (3). See 1996 Amendment note above.
1989 - Subsec. (e)(1). Pub. L. 101-73 amended last sentence
generally. Prior to amendment, last sentence read as follows: "This
paragraph shall not apply to any transaction to which section 381
(relating to carryovers in certain corporate acquisitions) applies,
or to any distribution to the Federal Savings and Loan Insurance
Corporation in redemption of an interest in an association, if such
interest was originally received by the Federal Savings and Loan
Insurance Corporation in exchange for financial assistance pursuant
to section 406(f) of the National Housing Act (12 U.S.C. sec.
1729(f))."
1988 - Subsec. (b)(2)(D)(v). Pub. L. 100-647, Sec. 1003(c)(3),
added cl. (v).
Subsec. (d)(4). Pub. L. 100-647, Sec. 1006(t)(25)(B), inserted at
end "For purposes of determining whether any interest in a REMIC
qualifies under the preceding sentence, any interest in another
REMIC held by such REMIC shall be treated as a qualifying real
property loan under principles similar to the principles of the
preceding sentence, except that if such REMIC's are part of a
tiered structure, they shall be treated as 1 REMIC for purposes of
this paragraph."
1986 - Subsec. (a). Pub. L. 99-514, Sec. 901(b)(1), amended
subsec. (a) generally. Prior to amendment, subsec. (a) read as
follows: "This section shall apply to any mutual savings bank,
domestic building and loan association, or cooperative bank without
capital stock organized and operated for mutual purposes and
without profit."
Subsec. (b)(1). Pub. L. 99-514, Sec. 901(d)(2)(A), (B), in
introductory provisions, substituted "subsection (a)" for "section
166(c)" and in subpar. (B), substituted "paragraph (2) or (3),
whichever is the larger" for "paragraph (2), (3), or (4), whichever
amount is the largest" in introductory provisions and "paragraph
(3)" for "paragraph (4)" in cl. (i).
Subsec. (b)(2)(A). Pub. L. 99-514, Sec. 901(b)(2)(A), added
subpar. (A) and struck out former subpar. (A) which provided that
subject to subpars. (B), (C), and (D), the amount determined under
par. (2) was to be an amount equal to applicable percentage of
taxable income for such year determined under a table which fixed
specific percentages for taxable years 1976, 1977, 1978, and 1979
or thereafter.
Subpar. (b)(2)(B). Pub. L. 99-514, Sec. 901(b)(2)(A), added
subpar. (B), which incorporated provisions of former subpar. (C),
relating to reducing amounts referred to in par. (1)(A), and struck
out former subpar. (B) which provided for reduction of applicable
percentage in certain cases.
Subsec. (b)(2)(C). Pub. L. 99-514, Sec. 901(b)(2)(A), (B),
redesignated former subpar. (D) as (C) and struck out former
subpar. (C) which related to reduction for amounts referred to in
par. (1)(A). See par. (1)(B).
Subsec. (b)(2)(D). Pub. L. 99-514, Sec. 901(b)(2)(B), (d)(2)(B),
redesignated subpar. (E) as (D) and substituted in cl. (iv) "8
percent" for "the applicable percentage (determined under
subparagraphs (A) and (B))". Former subpar. (D) redesignated (C).
Subsec. (b)(2)(E). Pub. L. 99-514, Sec. 901(b)(2)(B),
redesignated subpar. (E) as (D).
Pub. L. 99-514, Sec. 311(b)(2), redesignated former cl. (v) as
(iv), and struck out former cl. (iv) which read as follows: "by
excluding from gross income an amount equal to the lesser of 18/46
of the net long-term capital gain for the taxable year or 18/46
of the net long-term capital gain for the taxable year from the
sale or exchange of property other than property described in
clause (iii), and".
Subsec. (b)(3), (4). Pub. L. 99-514, Sec. 901(b)(3), redesignated
par. (4) as (3) and struck out former par. (3) which read as
follows: "The amount determined under this paragraph to be a
reasonable addition to the reserve for losses on qualifying real
property loans shall be computed in the same manner as is provided
with respect to additions to the reserves for losses on loans of
banks under section 585(b)(2), reduced by the amount referred to in
paragraph (1)(A) for the taxable year."
Subsec. (b)(5). Pub. L. 99-514, Sec. 901(b)(3), struck out par.
(5) which read as follows: "For purposes of paragraph (3), the
amount deemed to be the balance of the reserve for losses on loans
at the beginning of the taxable year shall be the total of the
balances at such time of the reserve for losses on nonqualifying
loans, the reserve for losses on qualifying real property loans,
and the supplemental reserve for losses on loans."
Subsec. (d)(4). Pub. L. 99-514, Sec. 671(b)(2), added par. (4).
Subsec. (e)(1)(B). Pub. L. 99-514, Sec. 901(d)(2)(C), substituted
"subsection (b)(3)" for "subsection (B)(4)".
1981 - Subsec. (a). Pub. L. 97-34, Sec. 245(c)(1), struck out
"not having capital stock represented by shares" after "mutual
savings bank".
Subsec. (b)(2)(B). Pub. L. 97-34, Sec. 245(b)(1), inserted "which
is not described in section 591(b)" after "mutual savings bank" in
cls. (i) and (ii) and in last sentence.
Subsec. (b)(2)(C). Pub. L. 97-34, Sec. 245(b)(2), inserted "which
are not described in section 591(b)" after "mutual savings banks"
in cl. (i).
Subsec. (e)(1). Pub. L. 97-34, Sec. 245(c)(2), inserted "or an
institution that is treated as a mutual savings bank under section
591(b)" after "domestic building and loan association" and
"liquidation of the association".
Pub. L. 97-34, Sec. 243, inserted provisions making par. (1)
inapplicable to any distribution to the Federal Savings and Loan
Insurance Corporation in redemption of an interest in an
association, if such interest was originally received by the
Corporation in exchange for financial assistance pursuant to
section 1729(f) of title 12.
1980 - Subsec. (b)(2)(E)(iv). Pub. L. 96-222 substituted " 18/46
" for " 3/8 " in two places.
1976 - Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 1901(a)(84)(A),
struck from the percentage table the years 1969 to 1975, inclusive.
Subsec. (b)(2)(E)(i). Pub. L. 94-455, Sec. 1901(a)(84)(D),
substituted "subsection (e)" for "subsection (f)" after "by reason
of".
Subsec. (c)(2). Pub. L. 94-455, Sec. 1901(a)(84)(B), added par.
(2). Former par. (2), relating to allocation of pre-1963 reserves
for bad debts, was struck out.
Subsec. (c)(3). Pub. L. 94-455, Sec. 1901(a)(84)(B), redesignated
par. (6) as par. (3). Former par. (3), relating to the method of
allocation to reserves for bad debts, was struck out.
Subsec. (c)(4), (5). Pub. L. 94-455, Sec. 1901(a)(84)(B), struck
out par. (4) which defined "pre-1963 reserves", and struck out par.
(5) which related to certain pre-1952 surplus.
Subsec. (c)(6). Pub. L. 94-455, Sec. 1901(a)(84)(B), redesignated
par. (6) as (3).
Subsecs. (d) to (f). Pub. L. 94-455, Sec. 1901(a)(84)(C), struck
out subsec. (d) relating to the determination of taxable income for
taxpayer which uses the reserve method of accounting for bad debts
for taxable years beginning in 1962 and ending in 1963, and
redesignated subsecs. (e) and (f) as (d) and (e), respectively.
Subsecs. (e), (f). Pub. L. 94-455, Sec. 1901(a)(84)(C),
redesignated subsec. (f) as (e). Former subsec. (e) redesignated
(d).
1969 - Subsec. (b)(1)(A). Pub. L. 91-172, Sec. 432(a)(1),
inserted provisions for the method of computing the amount of the
reasonable addition to the reserve for losses on nonqualifying
loans.
Subsec. (b)(2). Pub. L. 91-172, Sec. 432(a)(2), substituted a
table of applicable percentages of the taxable income for each year
up to 1979 and thereafter for the amount in excess of 60 percent
over the amount referred to in former subsec. (b)(1)(A),
transferred the remaining provisions of former subsec. (b)(2) to
subpart (D), and added subpars. (B) to (E).
Subsec. (b)(3). Pub. L. 91-172, Sec. 432(a)(2), substantially
changed method of computation of the amount by conforming it to the
method of determining the additions to the reserves for losses on
loans of banks under section 585(b)(2).
Subsec. (b)(4). Pub. L. 91-172, Sec. 432(a)(2), changed method of
computation of the amount by conforming it to the method of
determining the additions to the reserves for losses on loans of
banks under section 585(b)(3).
Subsec. (b)(5). Pub. L. 91-172, Sec. 432(a)(2), substituted
provisions relating to determination of reserve for percentage
method for provisions relating to limitation in case of certain
domestic building and loan associations.
Subsec. (f). Pub. L. 91-172, Sec. 432(b), excepted the
application of par. (1) to any transaction to which section 381 of
this title applied.
1962 - Pub. L. 87-834 amended section generally. Prior to such
amendment, section read as follows:
"Sec. 593. Additions to reserve for bad debts
"In the case of a mutual savings bank not having capital stock
represented by shares, a domestic building and loan association,
and a cooperative bank without capital stock organized and operated
for mutual purposes and without profit, the reasonable addition to
a reserve for bad debts under section 166(c) shall be determined
with due regard to the amount of the taxpayer's surplus or bad debt
reserves existing at the close of December 31, 1951. In the case of
a taxpayer described in the preceding sentence, the reasonable
addition to a reserve for bad debts for any taxable year shall in
no case be less than the amount determined by the taxpayer as the
reasonable addition for such year; except that the amount
determined by the taxpayer under this sentence shall not be greater
than the lesser of -
"(1) the amount of its taxable income for the taxable year,
computed without regard to this section, or
"(2) the amount by which 12 percent of the total deposits or
withdrawable accounts of its depositors at the close of such year
exceeds the sum of its surplus, undivided profits, and reserves
at the beginning of the taxable year."
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
provisions of the Small Business Job Protection Act of 1996, Pub.
L. 104-188, to which it relates, see section 1601(j) of Pub. L. 105-
34, set out as a note under section 23 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1616(c) of Pub. L. 104-188 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 50, 52, 57, 246, 291, 585, 860E, 992, 1038,
1042, 1277, and 1361 of this title and repealing sections 595 and
596 of this title] shall apply to taxable years beginning after
December 31, 1995.
"(2) Subsection (b)(7)(B). - The amendments made by subsection
(b)(7)(B) [amending this section] shall not apply to any
distribution with respect to preferred stock if -
"(A) such stock is outstanding at all times after October 31,
1995, and before the distribution, and
"(B) such distribution is made before the date which is 1 year
after the date of the enactment of this Act [Aug. 20, 1996] (or,
in the case of stock which may be redeemed, if later, the date
which is 30 days after the earliest date that such stock may be
redeemed).
"(3) Subsection (b)(8). - The amendment made by subsection (b)(8)
[repealing section 595 of this title] shall apply to property
acquired in taxable years beginning after December 31, 1995.
"(4) Subsection (b)(10). - The amendments made by subsection
(b)(10) [amending section 860E of this title] shall not apply to
any residual interest held by a taxpayer if such interest has been
held by such taxpayer at all times after October 31, 1995."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 1401(c)(6) of Pub. L. 101-73 provided that: "The
amendment made by subsection (b)(3) [amending this section] shall
take effect on the date of the enactment of this Act [Aug. 9,
1989]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 311(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 311(c) of
Pub. L. 99-514, set out as a note under section 1201 of this title.
Amendment by section 671(b)(2) of Pub. L. 99-514 effective Jan.
1, 1987, see section 675(a) of Pub. L. 99-514, as amended, set out
as an Effective Date note under section 860A of this title.
Amendment by section 901(b)(1)-(3), (d)(2) of Pub. L. 99-514
applicable to taxable years beginning after Dec. 31, 1986, see
section 901(e) of Pub. L. 99-514, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 246(b) of Pub. L. 97-34 provided that: "The amendment
made by section 243 [amending this section] shall apply to any
distribution made on or after January 1, 1981."
Amendment by section 245(b), (c) of Pub. L. 97-34 applicable with
respect to taxable years ending after Aug. 13, 1981, see section
246(d) of Pub. L. 97-34, set out as a note under section 591 of
this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 432(e) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and section 7701 of
this title] shall be effective for taxable years beginning after
July 11, 1969."
EFFECTIVE DATE OF 1962 AMENDMENT
Section 6(g)(1) of Pub. L. 87-834, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to taxable years ending after December 31, 1962, except that
section 593(f) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] shall apply to distributions after December 31, 1962,
in taxable years ending after such date."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-TRANS-
TRANSFER OF FUNCTIONS
Federal Savings and Loan Insurance Corporation abolished and its
functions transferred, see sections 401 to 406 of Pub. L. 101-73,
set out as a note under section 1437 of Title 12, Banks and
Banking.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 594 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART II - MUTUAL SAVINGS BANKS, ETC.
-HEAD-
Sec. 594. Alternative tax for mutual savings banks conducting life
insurance business
-STATUTE-
(a) Alternative tax
In the case of a mutual savings bank not having capital stock
represented by shares, authorized under State law to engage in the
business of issuing life insurance contracts, and which conducts a
life insurance business in a separate department the accounts of
which are maintained separately from the other accounts of the
mutual savings bank, there shall be imposed in lieu of the taxes
imposed by section 11 or section 1201(a), a tax consisting of the
sum of the partial taxes determined under paragraphs (1) and (2):
(1) A partial tax computed on the taxable income determined
without regard to any items of gross income or deductions
properly allocable to the business of the life insurance
department, at the rates and in the manner as if this section had
not been enacted; and
(2) a partial tax computed on the income of the life insurance
department determined without regard to any items of gross income
or deductions not properly allocable to such department, at the
rates and in the manner provided in subchapter L (sec. 801 and
following) with respect to life insurance companies.
(b) Limitations of section
Subsection (a) shall apply only if the life insurance department
would, if it were treated as a separate corporation, qualify as a
life insurance company under section 816.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 205; Mar. 13, 1956, ch. 83, Sec.
5(3), 70 Stat. 49; Pub. L. 98-369, div. A, title II, Sec.
211(b)(8), July 18, 1984, 98 Stat. 755.)
-MISC1-
AMENDMENTS
1984 - Subsec. (b). Pub. L. 98-369 substituted "section 816" for
"section 801".
1956 - Subsec. (a)(2). Act Mar. 13, 1956, substituted "the
income" for "the taxable income (as defined in section 803)".
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 821 of this title.
-End-
-CITE-
26 USC Secs. 595, 596 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART II - MUTUAL SAVINGS BANKS, ETC.
-HEAD-
[Secs. 595, 596. Repealed. Pub. L. 104-188, title I, Sec.
1616(b)(8), (9), Aug. 20, 1996, 110 Stat. 1857]
-MISC1-
Section 595, added Pub. L. 87-834, Sec. 6(b), Oct. 16, 1962, 76
Stat. 982; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834, related to foreclosure on property
securing loans, including provisions relating to nonrecognition of
gain or loss as result of foreclosure, character of property,
basis, and regulatory authority.
Section 596, added Pub. L. 91-172, title IV, Sec. 434(a), Dec.
30, 1969, 83 Stat. 624; amended Pub. L. 99-514, title IX, Sec.
901(d)(4)(D), Oct. 22, 1986, 100 Stat. 2380, provided that in case
of organization to which section 593 of this title applied and
which computed additions to reserve for losses on loans for taxable
year under section 593(b)(2) of this title, total amount allowed
under sections 243, 244, and 245 of this title for taxable year as
deduction with respect to dividends received was to be reduced by
amount equal to 8 percent of such total amount.
EFFECTIVE DATE OF REPEAL
Repeal of section 595 applicable to property acquired in taxable
years beginning after Dec. 31, 1995, and repeal of section 596
applicable to taxable years beginning after Dec. 31, 1995, see
section 1616(c)(1), (3) of Pub. L. 104-188, set out as an Effective
Date of 1996 Amendment note under section 593 of this title.
-End-
-CITE-
26 USC Sec. 597 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART II - MUTUAL SAVINGS BANKS, ETC.
-HEAD-
Sec. 597. Treatment of transactions in which Federal financial
assistance provided
-STATUTE-
(a) General rule
The treatment for purposes of this chapter of any transaction in
which Federal financial assistance is provided with respect to a
bank or domestic building and loan association shall be determined
under regulations prescribed by the Secretary.
(b) Principles used in prescribing regulations
(1) Treatment of taxable asset acquisitions
In the case of any acquisition of assets to which section
381(a) does not apply, the regulations prescribed under
subsection (a) shall -
(A) provide that Federal financial assistance shall be
properly taken into account by the institution from which the
assets were acquired, and
(B) provide the proper method of allocating basis among the
assets so acquired (including rights to receive Federal
financial assistance).
(2) Other transactions
In the case of any transaction not described in paragraph (1),
the regulations prescribed under subsection (a) shall provide for
the proper treatment of Federal financial assistance and
appropriate adjustments to basis or other tax attributes in
connection with such assistance.
(3) Denial of double benefit
No regulations prescribed under this section shall permit the
utilization of any deduction (or other tax benefit) if such
amount was in effect reimbursed by nontaxable Federal financial
assistance.
(c) Federal financial assistance
For purposes of this section, the term "Federal financial
assistance" means -
(1) any money or other property provided with respect to a
domestic building and loan association by the Federal Savings and
Loan Insurance Corporation or the Resolution Trust Corporation
pursuant to section 406(f) of the National Housing Act or section
21A of the Federal Home Loan Bank Act (or under any other similar
provision of law), and
(2) any money or other property provided with respect to a bank
or domestic building and loan association by the Federal Deposit
Insurance Corporation pursuant to section 11(f) or 13(c) of the
Federal Deposit Insurance Act (or under any other similar
provision of law),
regardless of whether any note or other instrument is issued in
exchange therefor.
(d) Domestic building and loan association
For purposes of this section, the term "domestic building and
loan association" has the meaning given such term by section
7701(a)(19) without regard to subparagraph (C) thereof.
-SOURCE-
(Added Pub. L. 97-34, title II, Sec. 244(a), Aug. 13, 1981, 95
Stat. 255; amended Pub. L. 99-514, title IX, Sec. 904(b)(1), Oct.
22, 1986, 100 Stat. 2385; Pub. L. 100-647, title IV, Sec.
4012(b)(2)(A)-(D)(i), (c)(1), Nov. 10, 1988, 102 Stat. 3657, 3658;
Pub. L. 101-73, title XIV, Sec. 1401(a)(3)(A), (b)(1), Aug. 9,
1989, 103 Stat. 548, 549; Pub. L. 101-239, title VII, Sec.
7841(e)(1), Dec. 19, 1989, 103 Stat. 2429; Pub. L. 101-508, title
XI, Sec. 11704(a)(7), Nov. 5, 1990, 104 Stat. 1388-518.)
-REFTEXT-
REFERENCES IN TEXT
Section 406 of the National Housing Act, referred to in subsec.
(c)(1), which was classified to section 1729 of Title 12, Banks and
Banking, was repealed by Pub. L. 101-73, title IV, Sec. 407, Aug.
9, 1989, 103 Stat. 363.
Section 21A of the Federal Home Loan Bank Act, referred to in
subsec. (c)(1), is classified to section 1441a of Title 12.
Sections 11(f) and 13(c) of the Federal Deposit Insurance Act,
referred to in subsec. (c)(2), are classified to sections 1821(f)
and 1823(c), respectively, of Title 12.
-MISC1-
AMENDMENTS
1990 - Subsec. (c). Pub. L. 101-508 substituted "For purposes of"
for "The purposes of".
1989 - Pub. L. 101-73, Sec. 1401(b)(1), repealed amendment made
by Pub. L. 99-514, Sec. 904(b)(1), see 1986 Amendment note below.
Pub. L. 101-73, Sec. 1401(a)(3)(A), amended section generally,
substituting present provisions for former provisions which
contained section catchline that read "FSLIC or FDIC financial
assistance" and which provided: in subsec. (a) for an exclusion
from gross income; in subsec. (b) for no reduction in basis of
assets; in subsec. (c) for a reduction of tax attributes by 50
percent of amounts excludable under subsection (a); and in subsec.
(d) for a definition of "domestic building and loan association".
Subsec. (b)(2). Pub. L. 101-239 substituted "in connection with
such assistance" for "to reflect such treatment".
1988 - Pub. L. 100-647, Sec. 4012(b)(2)(D)(i), substituted "FSLIC
or FDIC" for "FSLIC" in section catchline.
Subsec. (a). Pub. L. 100-647, Sec. 4012(b)(2)(A), inserted at end
"Gross income of a bank does not include any amount of money or
other property received from the Federal Deposit Insurance
Corporation pursuant to sections 13(c), 15(c)(1), and 15(c)(2) of
the Federal Deposit Insurance Act (12 U.S.C. 1821(f) and 1823(c)(1)
and (c)(2)), regardless of whether any note or other instrument is
issued in exchange therefor."
Subsec. (b). Pub. L. 100-647, Sec. 4012(b)(2)(C), substituted
"association or bank" for "association".
Subsec. (c). Pub. L. 100-647, Sec. 4012(c)(1), added subsec. (c).
Subsec. (d). Pub. L. 100-647, Sec. 4012(b)(2)(B), which directed
amendment of section 597(b), as amended by section 4012(c)(1) of
Pub. L. 100-647, by adding at the end thereof subsec. (d), was
executed by adding subsec. (d) at the end of section 597, as
amended by section 4012(c)(1) of Pub. L. 100-647, as the probable
intent of Congress.
1986 - Pub. L. 99-514, Sec. 904(b)(1), (c)(2)(A), as amended by
Pub. L. 100-647, title IV, Sec. 4012(a)(2), which (applicable to
transfers after Dec. 31, 1989, in taxable years ending after such
date, with exceptions) directed repeal of this section, was
repealed by Pub. L. 101-73, Sec. 1401(b)(1), (c)(4), eff. Oct. 22,
1986, and I.R.C. of 1986 applicable as if the amendments made by
such section had not been enacted.
EFFECTIVE DATE OF 1989 AMENDMENTS
Section 7841(e)(2) of Pub. L. 101-239 provided that: "The
amendment made by this subsection [amending this section] shall
apply as if included in the amendments made by section 1401 of the
Financial Institutions Reform, Recovery, and Enforcement Act of
1989 [Pub. L. 101-73]."
Section 1401(c)(3)-(5) of Pub. L. 101-73 provided that:
"(3) Subsection (a)(3). -
"(A) In general. - The amendments made by subsection (a)(3)
[amending this section and repealing provisions set out below]
shall apply to any amount received or accrued by the financial
institution on or after May 10, 1989, except that such amendments
shall not apply to transfers on or after such date pursuant to an
acquisition to which the amendment made by subsection (a)(1)
[amending section 368 of this title] does not apply.
"(B) Interim rule. - In the case of any payment pursuant to a
transaction on or after May 10, 1989, and before the date on
which the Secretary of the Treasury (or his delegate) takes
action in exercise of his regulatory authority under section 597
of the Internal Revenue Code of 1986 (as amended by subsection
(a)(3)), the taxpayer may rely on the legislative history for the
amendments made by subsection (a)(3) in determining the proper
treatment of such payment.
"(4) Subsection (b)(1). - The provisions of subsection (b)(1)
[set out below] shall take effect on the date of the enactment of
the Tax Reform Act of 1986 [Oct. 22, 1986].
"(5) Subsection (b)(2). - The amendment made by subsection (b)(2)
[amending provisions set out below] shall take effect on the date
of the enactment of the Technical and Miscellaneous Revenue Act of
1988 [Nov. 10, 1988]."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 4012(b)(2)(E) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section] shall
apply to any transfer -
"(i) after the date of the enactment of this Act [Nov. 10,
1988], and before January 1, 1990, unless such transfer is
pursuant to an acquisition occurring on or before such date of
enactment, and
"(ii) after December 31, 1989, if such transfer is pursuant to
an acquisition occurring after such date of enactment and before
January 1, 1990."
Section 4012(c)(3) of Pub. L. 100-647, as amended by Pub. L. 101-
73, title XIV, Sec. 1401(b)(2), Aug. 9, 1989, 103 Stat. 549,
provided that: "The amendments made by this subsection [amending
this section and provisions set out below] shall apply to any
transfer -
"(A) after December 31, 1988, and before January 1, 1990,
unless such transfer is pursuant to an acquisition occurring
before January 1, 1989, and
"(B) after December 31, 1989, if such transfer is pursuant to
an acquisition occurring after December 31, 1988, and before
January 1, 1990.
In the case of any bank or any institution treated as a domestic
building and loan association for purposes of section 597 of the
1986 Code by reason of the amendment made by subsection (b)(2)(B),
the amendments made by this subsection shall also apply to any
transfer before January 1, 1989, to which the amendments made by
subsection (b)(2) [amending this section] apply."
EFFECTIVE DATE OF REPEAL
Pub. L. 99-514, title IX, Sec. 904(c)(2), Oct. 22, 1986, 100
Stat. 2385, as amended by Pub. L. 100-647, title IV, Sec.
4012(a)(2), (c)(2), Nov. 10, 1988, 102 Stat. 3656, 3660, which
provided that repeal of this section was to be applicable to
transfers after Dec. 31, 1989, in taxable years ending after such
date, with exceptions, and which related to clarification of
treatment of amounts excluded under this section, was repealed by
Pub. L. 101-73, title XIV, Sec. 1401(a)(3)(B), (b)(1), Aug. 9,
1989, 103 Stat. 549.
EFFECTIVE DATE
Section 246(c) of Pub. L. 97-34 provided that: "The amendment
made by section 244 [enacting this section] shall apply to any
payment made on or after January 1, 1981."
-TRANS-
TRANSFER OF FUNCTIONS
Federal Savings and Loan Insurance Corporation abolished and its
functions transferred, see sections 401 to 406 of Pub. L. 101-73,
set out as a note under section 1437 of Title 12, Banks and
Banking.
-MISC2-
REPEAL OF PROVISIONS RELATING TO REPEAL OF SPECIAL REORGANIZATION
RULES FOR FINANCIAL INSTITUTIONS
Section 1401(b)(1) of Pub. L. 101-73 provided that: "Section 904
of the Tax Reform Act of 1986 [Pub. L. 99-514, amending section 368
of this title, repealing this section and enacting provisions set
out as notes under sections 368 and 597 of this title] (other than
subsection (c)(2)(B) thereof [section 904(c)(2)(B) of Pub. L. 99-
514, formerly set out as a note above]) is hereby repealed and the
Internal Revenue Code of 1986 shall be applied as if the amendments
made by such section had not been enacted."
REFERENCES TO FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION
Section 1401(c)(7) of Pub. L. 101-73 provided that: "Any
reference to the Federal Savings and Loan Insurance Corporation in
section 597 of the Internal Revenue Code of 1986 (as in effect on
the day before the date of the enactment of this Act [Aug. 9,
1989]) shall be treated as including a reference to the Resolution
Trust Corporation and the FSLIC Resolution Fund."
ANNUAL REPORTS ON TRANSACTIONS IN WHICH FEDERAL FINANCIAL
ASSISTANCE PROVIDED
Pub. L. 101-73, title XIV, Sec. 1403, Aug. 9, 1989, 103 Stat.
551, which required the Secretary of the Treasury to submit annual
reports to the Senate and to the Committee on Ways and Means of the
House of Representatives on transactions with respect to which
Federal financial assistance subject to this section was provided,
terminated, effective May 15, 2000, pursuant to section 3003 of
Pub. L. 104-66, as amended, set out as a note under section 1113 of
Title 31, Money and Finance. See, also, page 142 of House Document
No. 103-7.
-End-
-CITE-
26 USC Sec. 601 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter H - Banking Institutions
PART II - MUTUAL SAVINGS BANKS, ETC.
-HEAD-
[Sec. 601. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(85),
Oct. 4, 1976, 90 Stat. 1778]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 206, related to a
special deduction for bank affiliates.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
-CITE-
26 USC Subchapter I - Natural Resources 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
-HEAD-
SUBCHAPTER I - NATURAL RESOURCES
-MISC1-
Part
I. Deductions.
[II. Repealed.]
III. Sales and exchanges.
IV. Mineral production payments.
V. Continental shelf areas.
-End-
-CITE-
26 USC PART I - DEDUCTIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
PART I - DEDUCTIONS
-MISC1-
Sec.
611. Allowance of deduction for depletion.
612. Basis for cost depletion.
613. Percentage depletion.
613A. Limitations on percentage depletion in case of oil and
gas wells.(!1)
614. Definition of property.
[615. Repealed.]
616. Development expenditures.
617. Deduction and recapture of certain mining exploration
expenditures.
AMENDMENTS
1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(7), Nov. 5, 1990,
104 Stat. 1388-522, struck out item for part II "Exclusions from
gross income".
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(21)(H), Oct. 4,
1976, 90 Stat. 1798, struck out item 615 "Exploration
expenditures".
1969 - Pub. L. 91-172, title V, Secs. 503(b), 505(c), Dec. 30,
1969, 83 Stat. 631, 634, added items for parts IV and V.
Pub. L. 91-172, title V, Sec. 504(c)(5), Dec. 30, 1969, 83 Stat.
633, substituted "Pre-1970 exploration expenditures" for
"Exploration expenditures" in item 615 and substituted "Deduction
and recapture of certain mining exploration expenditures" for
"Additional exploration expenditures in the case of domestic
mining" in item 617.
1966 - Pub. L. 89-570, Sec. 1(d), Sept. 12, 1966, 80 Stat. 762,
added item 617.
-FOOTNOTE-
(!1) Editorially supplied. Section 613A added by Pub. L. 94-12
without corresponding amendment of part analysis.
-End-
-CITE-
26 USC Sec. 611 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 611. Allowance of deduction for depletion
-STATUTE-
(a) General rule
In the case of mines, oil and gas wells, other natural deposits,
and timber, there shall be allowed as a deduction in computing
taxable income a reasonable allowance for depletion and for
depreciation of improvements, according to the peculiar conditions
in each case; such reasonable allowance in all cases to be made
under regulations prescribed by the Secretary. For purposes of this
part, the term "mines" includes deposits of waste or residue, the
extraction of ores or minerals from which is treated as mining
under section 613(c). In any case in which it is ascertained as a
result of operations or of development work that the recoverable
units are greater or less than the prior estimate thereof, then
such prior estimate (but not the basis for depletion) shall be
revised and the allowance under this section for subsequent taxable
years shall be based on such revised estimate.
(b) Special rules
(1) Leases
In the case of a lease, the deduction under this section shall
be equitably apportioned between the lessor and lessee.
(2) Life tenant and remainderman
In the case of property held by one person for life with
remainder to another person, the deduction under this section
shall be computed as if the life tenant were the absolute owner
of the property and shall be allowed to the life tenant.
(3) Property held in trust
In the case of property held in trust, the deduction under this
section shall be apportioned between the income beneficiaries and
the trustee in accordance with the pertinent provisions of the
instrument creating the trust, or, in the absence of such
provisions, on the basis of the trust income allocable to each.
(4) Property held by estate
In the case of an estate, the deduction under this section
shall be apportioned between the estate and the heirs, legatees,
and devisees on the basis of the income of the estate allocable
to each.
(c) Cross reference
For other rules applicable to depreciation of improvements,
see section 167.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 207; Pub. L. 85-866, title I,
Sec. 35, Sept. 2, 1958, 72 Stat. 1632; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (a). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
1958 - Subsec. (d)(4). Pub. L. 85-866 substituted "devisees" for
"devises".
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
-End-
-CITE-
26 USC Sec. 612 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 612. Basis for cost depletion
-STATUTE-
Except as otherwise provided in this subchapter, the basis on
which depletion is to be allowed in respect of any property shall
be the adjusted basis provided in section 1011 for the purpose of
determining the gain upon the sale or other disposition of such
property.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 208.)
-End-
-CITE-
26 USC Sec. 613 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 613. Percentage depletion
-STATUTE-
(a) General rule
In the case of the mines, wells, and other natural deposits
listed in subsection (b), the allowance for depletion under section
611 shall be the percentage, specified in subsection (b), of the
gross income from the property excluding from such gross income an
amount equal to any rents or royalties paid or incurred by the
taxpayer in respect of the property. Such allowance shall not
exceed 50 percent (100 percent in the case of oil and gas
properties) of the taxpayer's taxable income from the property
(computed without allowance for depletion and without the deduction
under section 199). For purposes of the preceding sentence, the
allowable deductions taken into account with respect to expenses of
mining in computing the taxable income from the property shall be
decreased by an amount equal to so much of any gain which (1) is
treated under section 1245 (relating to gain from disposition of
certain depreciable property) as ordinary income, and (2) is
properly allocable to the property. In no case shall the allowance
for depletion under section 611 be less than it would be if
computed without reference to this section.
(b) Percentage depletion rates
The mines, wells, and other natural deposits, and the
percentages, referred to in subsection (a) are as follows:
(1) 22 percent
(A) sulphur and uranium; and
(B) if from deposits in the United States - anorthosite, clay,
laterite, and nephelite syenite (to the extent that alumina and
aluminum compounds are extracted therefrom), asbestos, bauxite,
celestite, chromite, corundum, fluorspar, graphite, ilmenite,
kyanite, mica, olivine, quartz crystals (radio grade), rutile,
block steatite talc, and zircon, and ores of the following
metals: antimony, beryllium, bismuth, cadmium, cobalt, columbium,
lead, lithium, manganese, mercury, molybdenum, nickel, platinum
and platinum group metals, tantalum, thorium, tin, titanium,
tungsten, vanadium, and zinc.
(2) 15 percent
If from deposits in the United States -
(A) gold, silver, copper, and iron ore, and
(B) oil shale (except shale described in paragraph (5)).
(3) 14 percent
(A) metal mines (if paragraph (1)(B) or (2)(A) does not apply),
rock asphalt, and vermiculite; and
(B) if paragraph (1)(B), (5), or (6)(B) does not apply, ball
clay, bentonite, china clay, sagger clay, and clay used or sold
for use for purposes dependent on its refractory properties.
(4) 10 percent
Asbestos (if paragraph (1)(B) does not apply), brucite, coal,
lignite, perlite, sodium chloride, and wollastonite.
(5) 7 1/2 percent
Clay and shale used or sold for use in the manufacture of sewer
pipe or brick, and clay, shale, and slate used or sold for use as
sintered or burned lightweight aggregates.
(6) 5 percent
(A) gravel, peat, pumice, sand, scoria, shale (except shale
described in paragraph (2)(B) or (5)), and stone (except stone
described in paragraph (7));
(B) clay used, or sold for use, in the manufacture of drainage
and roofing tile, flower pots, and kindred products; and
(C) if from brine wells - bromine, calcium chloride, and
magnesium chloride.
(7) 14 percent
All other minerals, including, but not limited to, aplite,
barite, borax, calcium carbonates, diatomaceous earth, dolomite,
feldspar, fullers earth, garnet, gilsonite, granite, limestone,
magnesite, magnesium carbonates, marble, mollusk shells
(including clam shells and oyster shells), phosphate rock,
potash, quartzite, slate, soapstone, stone (used or sold for use
by the mine owner or operator as dimension stone or ornamental
stone), thenardite, tripoli, trona, and (if paragraph (1)(B) does
not apply) bauxite, flake graphite, fluorspar, lepidolite, mica,
spodumene, and talc (including pyrophyllite), except that, unless
sold on bid in direct competition with a bona fide bid to sell a
mineral listed in paragraph (3), the percentage shall be 5
percent for any such other mineral (other than slate to which
paragraph (5) applies) when used, or sold for use, by the mine
owner or operator as rip rap, ballast, road material, rubble,
concrete aggregates, or for similar purposes. For purposes of
this paragraph, the term "all other minerals" does not include -
(A) soil, sod, dirt, turf, water, or mosses;
(B) minerals from sea water, the air, or similar
inexhaustible sources; or
(C) oil and gas wells.
For the purposes of this subsection, minerals (other than sodium
chloride) extracted from brines pumped from a saline perennial lake
within the United States shall not be considered minerals from an
inexhaustible source.
(c) Definition of gross income from property
For purposes of this section -
(1) Gross income from the property
The term "gross income from the property" means, in the case of
a property other than an oil or gas well and other than a
geothermal deposit, the gross income from mining.
(2) Mining
The term "mining" includes not merely the extraction of the
ores or minerals from the ground but also the treatment processes
considered as mining described in paragraph (4) (and the
treatment processes necessary or incidental thereto), and so much
of the transportation of ores or minerals (whether or not by
common carrier) from the point of extraction from the ground to
the plants or mills in which such treatment processes are applied
thereto as is not in excess of 50 miles unless the Secretary
finds that the physical and other requirements are such that the
ore or mineral must be transported a greater distance to such
plants or mills.
(3) Extraction of the ores or minerals from the ground
The term "extraction of the ores or minerals from the ground"
includes the extraction by mine owners or operators of ores or
minerals from the waste or residue of prior mining. The preceding
sentence shall not apply to any such extraction of the mineral or
ore by a purchaser of such waste or residue or of the rights to
extract ores or minerals therefrom.
(4) Treatment processes considered as mining
The following treatment processes where applied by the mine
owner or operator shall be considered as mining to the extent
they are applied to the ore or mineral in respect of which he is
entitled to a deduction for depletion under section 611:
(A) In the case of coal - cleaning, breaking, sizing, dust
allaying, treating to prevent freezing, and loading for
shipment;
(B) in the case of sulfur recovered by the Frasch process -
cleaning, pumping to vats, cooling, breaking, and loading for
shipment;
(C) in the case of iron ore, bauxite, ball and sagger clay,
rock asphalt, and ores or minerals which are customarily sold
in the form of a crude mineral product - sorting,
concentrating, sintering, and substantially equivalent
processes to bring to shipping grade and form, and loading for
shipment;
(D) in the case of lead, zinc, copper, gold, silver, uranium,
or fluorspar ores, potash, and ores or minerals which are not
customarily sold in the form of the crude mineral product -
crushing, grinding, and beneficiation by concentration
(gravity, flotation, amalgamation, electrostatic, or magnetic),
cyanidation, leaching, crystallization, precipitation (but not
including electrolytic deposition, roasting, thermal or
electric smelting, or refining), or by substantially equivalent
processes or combination of processes used in the separation or
extraction of the product or products from the ore or the
mineral or minerals from other material from the mine or other
natural deposit;
(E) the pulverization of talc, the burning of magnesite, the
sintering and nodulizing of phosphate rock, the decarbonation
of trona, and the furnacing of quicksilver ores;
(F) in the case of calcium carbonates and other minerals when
used in making cement - all processes (other than preheating of
the kiln feed) applied prior to the introduction of the kiln
feed into the kiln, but not including any subsequent process;
(G) in the case of clay to which paragraph (5) or (6)(B) of
subsection (b) applies - crushing, grinding, and separating the
mineral from waste, but not including any subsequent process;
(H) in the case of oil shale - extraction from the ground,
crushing, loading into the retort, and retorting (including in
situ retorting), but not hydrogenation, refining, or any other
process subsequent to retorting; and
(I) any other treatment process provided for by regulations
prescribed by the Secretary which, with respect to the
particular ore or mineral, is not inconsistent with the
preceding provisions of this paragraph.
(5) Treatment processes not considered as mining
Unless such processes are otherwise provided for in paragraph
(4) (or are necessary or incidental to processes so provided
for), the following treatment processes shall not be considered
as "mining": electrolytic deposition, roasting, calcining,
thermal or electric smelting, refining, polishing, fine
pulverization, blending with other materials, treatment effecting
a chemical change, thermal action, and molding or shaping.
(d) Denial of percentage depletion in case of oil and gas wells
Except as provided in section 613A, in the case of any oil or gas
well, the allowance for depletion shall be computed without
reference to this section.
(e) Percentage depletion for geothermal deposits
(1) In general
In the case of geothermal deposits located in the United States
or in a possession of the United States, for purposes of
subsection (a) -
(A) such deposits shall be treated as listed in subsection
(b), and
(B) 15 percent shall be deemed to be the percentage specified
in subsection (b).
(2) Geothermal deposit defined
For purposes of paragraph (1), the term "geothermal deposit"
means a geothermal reservoir consisting of natural heat which is
stored in rocks or in an aqueous liquid or vapor (whether or not
under pressure). Such a deposit shall in no case be treated as a
gas well for purposes of this section or section 613A, and this
section shall not apply to a geothermal deposit which is located
outside the United States or its possessions.
(3) Percentage depletion not to include lease bonuses, etc.
In the case of any geothermal deposit, the term "gross income
from the property" shall, for purposes of this section, not
include any amount described in section 613A(d)(5).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 208; Pub. L. 85-866, title I,
Sec. 36(a), Sept. 2, 1958, 72 Stat. 1633; Pub. L. 86-564, title
III, Sec. 302(a), (b), June 30, 1960, 74 Stat. 291, 292; Pub. L. 87-
834, Sec. 13(e), Oct. 16, 1962, 76 Stat. 1034; Pub. L. 88-571,
Sec. 6(a), Sept. 2, 1964, 78 Stat. 860; Pub. L. 89-809, title II,
Secs. 207(a), 208(a), 209(a), (b), Nov. 13, 1966, 80 Stat. 1579,
1580; Pub. L. 91-172, title V, Secs. 501(a), 502(a), Dec. 30, 1969,
83 Stat. 629, 630; Pub. L. 93-499, Sec. 2(a), Oct. 29, 1974, 88
Stat. 1550; Pub. L. 94-12, title V, Sec. 501(b)(1), (2), Mar. 29,
1975, 89 Stat. 53; Pub. L. 94-455, title XIX, Secs. 1901(b)(3)(K),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1793, 1834; Pub. L. 95-618,
title IV, Sec. 403(a)(1), (2)(A), Nov. 9, 1978, 92 Stat. 3203; Pub.
L. 99-514, title IV, Sec. 412(a)(2), Oct. 22, 1986, 100 Stat. 2227;
Pub. L. 101-508, title XI, Secs. 11522(a), 11815(b)(1), (2), Nov.
5, 1990, 104 Stat. 1388-486, 1388-557, 1388-558; Pub. L. 104-188,
title I, Sec. 1704(t)(34), Aug. 20, 1996, 110 Stat. 1889; Pub. L.
108-357, title I, Sec. 102(d)(6), Oct. 22, 2004, 118 Stat. 1429;
Pub. L. 109-135, title IV, Sec. 412(gg), Dec. 21, 2005, 119 Stat.
2639.)
-MISC1-
AMENDMENTS
2005 - Subsec. (c)(4)(H). Pub. L. 109-135 inserted "(including in
situ retorting)" after "and retorting".
2004 - Subsec. (a). Pub. L. 108-357, which directed the insertion
of "and without the deduction under section 199" after "without
allowances for depletion", was executed by making the insertion
after "without allowance for depletion", to reflect the probable
intent of Congress.
1996 - Subsec. (e)(1)(B). Pub. L. 104-188 substituted "subsection
(b)." for "subsection (b),".
1990 - Subsec. (a). Pub. L. 101-508, Sec. 11522(a), inserted
"(100 percent in the case of oil and gas properties)" after "50
percent".
Subsec. (e)(1)(B). Pub. L. 101-508, Sec. 11815(b)(2), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "the applicable percentage (determined under the table
contained in paragraph (2)) shall be deemed to be the percentage
specified in subsection (b)."
Subsec. (e)(2) to (4). Pub. L. 101-508, Sec. 11815(b)(1),
redesignated pars. (3) and (4) as (2) and (3), respectively, and
struck out former par. (2) which related to the applicable
percentage depletion for geothermal deposits.
1986 - Subsec. (e)(4). Pub. L. 99-514 added par. (4).
1978 - Subsec. (c)(1). Pub. L. 95-618, Sec. 403(a)(2)(A),
inserted "and other than a geothermal deposit" after "oil or gas
well".
Subsec. (e). Pub. L. 95-618, Sec. 403(a)(1), added subsec. (e).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(b)(3)(K),
substituted "ordinary income" for "gain from the sale or exchange
of property which is neither a capital asset nor property described
in section 1231".
Subsec. (c)(2), (4)(I). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
1975 - Subsec. (b)(1). Pub. L. 94-12, Sec. 501(b)(2)(A), struck
out subpar. (A) "oil and gas wells" and redesignated former
subpars. (B) and (C) as (A) and (B), respectively.
Subsec. (b)(3), (4). Pub. L. 94-12, Sec. 501(b)(2)(B),
substituted "(1)(B)" for "(1)(C)" wherever appearing.
Subsec. (b)(7). Pub. L. 94-12, Sec. 501(b)(2) (B), (C),
substituted "(1)(B)" for "(1)(C)" in provisions preceding subpar.
(A) and added subpar. (C).
Subsec. (d). Pub. L. 94-12, Sec. 501(b)(1), substituted
provisions denying the percentage depletion allowance in the case
of oil and gas wells except as provided in section 613A for
provisions governing the application of percentage depletion rates
to certain taxable years ending in 1954.
1974 - Subsec. (c)(4)(E). Pub. L. 93-499 inserted reference to
decarbonation of trona.
1969 - Subsec. (b). Pub. L. 91-172, Sec. 501(a), reduced the
percentage depletion rate on oil and gas wells from 27 1/2 percent
to 22 percent, reduced to 22 percent other minerals formerly
receiving percentage depletion at a rate of 23 percent, added
molybdenum in the category of minerals subject to the 22 percent
depletion rate, reduced to 14 percent the rate on minerals formerly
receiving depletion at a 15 percent rate except in the case of
domestic gold, silver, oil shale, copper, and iron ore, and
inserted provision that for percentage depletion purposes, minerals
other than sodium chloride, extracted from brine pumped from a
saline perennial lake within the United States are not to be
considered minerals from an inexhaustible source.
Subsec. (c)(4)(H), (I). Pub. L. 91-172, Sec. 502(a), added
subpar. (H) and redesignated former subpar. (H) as (I).
1966 - Subsec. (b)(2)(B). Pub. L. 89-809, Sec. 207(a)(1),
inserted "clay, laterite, and nephelite syenite" after
"anorthosite".
Subsec. (b)(3)(B). Pub. L. 89-809, Secs. 207(a)(2), 209(a)(2),
substituted "if neither paragraph (2)(B), (5), or (6)(B) applies"
for "if paragraph (5)(B) does not apply".
Subsec. (b)(5). Pub. L. 89-809, Sec. 209(a)(1), added par. (5).
Former par. (5) redesignated (6).
Subsec. (b)(6). Pub. L. 89-809, Secs. 208(a)(1), 209(a)(1), (3),
(4), redesignated par. (5) as (6), struck out "mollusk shells
(including clam shells and oyster shells),", substituted "shale
(except shale described in paragraph (5)), and stone (except stone
described in paragraph (7))" for "shale, and stone, except stone
described in paragraph (6)" in subpar. (A), and struck out
"building or paving brick," and "sewer pipe," in subpar. (B).
Former par. (6) redesignated (7).
Subsec. (b)(7). Pub. L. 89-809, Secs. 208(a)(2), 209(a)(1), (5),
redesignated par. (6) as (7) and inserted "mollusk shells
(including clam shells and oyster shells)," after "marble," and
"(other than slate to which paragraph (5) applies)" after "any
other such mineral".
Subsec. (c)(4)(G). Pub. L. 89-809, Sec. 209(b), substituted
"paragraph (5) or (6)(B)" for "paragraph (5)(B)".
1964 - Subsec. (b)(2)(B), (6). Pub. L. 88-571 inserted
"beryllium" after "antimony" in par. (2)(B), and deleted "beryl"
after "bauxite" in pars. (2)(B) and (6).
1962 - Subsec. (a). Pub. L. 87-834 inserted provisions requiring
the allowable deductions taken into account with respect to
expenses of mining in computing the taxable income from the
property to be decreased by an amount equal to so much of any gain
which is treated under section 1245 as gain from the sale or
exchange of property which is neither a capital asset nor property
described in section 1231, and is properly allocable to the
property.
1960 - Subsec. (b)(3). Pub. L. 86-564, Sec. 302(a)(1), limited
the 15 percent allowance for ball clay, bentonite, china clay, and
sagger clay to cases where paragraph (5)(B) does not apply, and
authorized a 15 percent allowance, if paragraph (5)(B) does not
apply, for clay used or sold for use for purposes dependent on its
refractory properties.
Subsec. (b)(5). Pub. L. 86-564, Sec. 302(a)(2), substituted
provisions authorizing a 5 percent allowance for clay used, or sold
for use, in the manufacture of building or paving brick, drainage
and roofing tile, sewer pipe, flower pots, and kindred products for
provisions which authorized a 5 percent allowance for brick and
tile clay.
Subsec. (b)(6). Pub. L. 86-564, Sec. 302(a)(3), struck out
provisions which authorized a 15 percent allowance for refractory
and fire clay. See subsec. (b)(3) of this section.
Subsec. (c)(2). Pub. L. 86-564, Sec. 302(b)(1), substituted "the
treatment processes considered as mining described in paragraph (4)
(and the treatment processes necessary or incidental thereto)" for
"the ordinary treatment processes normally applied by mine owners
or operators in order to obtain the commercially marketable mineral
product or products", and "such treatment processes" for "the
ordinary treatment processes".
Subsec. (c)(4). Pub. L. 86-564, Sec. 302(b)(2), substituted "The
following treatment processes where applied by the mine owner or
operator shall be considered as mining to the extent they are
applied to the ore or mineral in respect of which he is entitled to
a deduction for depletion under section 611" for "The term
'ordinary treatment processes' includes the following" in opening
provisions, included cleaning in subpar. (B), substituted "ores or
minerals which" for "minerals which" and included substantially
equivalent processes in subpar. (C), included uranium and minerals
which are not customarily sold in the form of the crude mineral
product and substituted "from the ore or the mineral or minerals
from other material from the mine or other natural deposit" for
"from the ore, including the furnacing of quicksilver ores" in
subpar. (D), included the furnacing of quicksilver ores in subpar.
(E), and added subpars. (F) to (H).
Subsec. (c)(5). Pub. L. 86-564, Sec. 302(b)(2), added par. (5).
1958 - Subsec. (d). Pub. L. 85-866 added subsec. (d).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years
beginning after Dec. 31, 2004, see section 102(e) of Pub. L. 108-
357, set out as a note under section 56 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11522(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section and sections
613A and 614 of this title] shall apply to taxable years beginning
after December 31, 1990."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 412(a)(3) of Pub. L. 99-514 provided that: "The amendment
made by this subsection [amending this section and section 613A of
this title] shall apply to amounts received or accrued after August
16, 1986, in taxable years ending after such date."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 403(c) of Pub. L. 95-618 provided that: "The amendments
made by this section [amending this section and sections 613A and
614 of this title] shall take effect on October 1, 1978, and shall
apply to taxable years ending on or after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(3)(K) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 effective Jan. 1, 1975, applicable to
taxable years ending after Dec. 31, 1974, see section 501(c) of
Pub. L. 94-12, set out as an Effective Note under section 613A of
this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Section 2(b) of Pub. L. 93-499 provided that: "The amendment made
by this section [amending this section] shall apply to taxable
years beginning after December 31, 1970."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 501(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after October 9, 1969."
Section 502(b) of Pub. L. 91-172 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[Dec. 30, 1969]."
EFFECTIVE DATE OF 1966 AMENDMENT
Section 207(b) of Pub. L. 89-809 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[Nov. 13, 1966]."
Section 208(b) of Pub. L. 89-809 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[Nov. 13, 1966]."
Section 209(c) of Pub. L. 89-809 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to taxable years beginning after the date of the enactment of this
Act [Nov. 13, 1966]."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 6(b) of Pub. L. 88-571 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1963."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable to taxable years beginning
after Dec. 31, 1962, see section 13(g) of Pub. L. 87-834, set out
as an Effective Date note under section 1245 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Section 302(c) of Pub. L. 86-564, as amended by Pub. L. 86-781,
Sec. 4, Sept. 14, 1960, 74 Stat. 1018; Pub. L. 99-514, Sec. 2, Oct.
22, 1986, 100 Stat. 2095, provided that:
"(c) Effective Date. -
"(1) In general. - Except as provided in paragraph (2), the
amendments made by subsections (a) and (b) [amending this
section] shall be applicable only with respect to taxable years
beginning after December 31, 1960.
"(2) Calcium carbonates, etc. -
"(A) Election for past years. - In the case of calcium
carbonates or other minerals when used in making cement, if an
election is made by the taxpayer under subparagraph (C) -
"(i) the amendments made by subsection (b) [amending this
section] shall apply to taxable years with respect to which
such election is effective and
"(ii) provisions having the same effect as the amendments
made by subsection (b) [amending this section] shall be
deemed to be included in the Internal Revenue Code of 1939
and shall apply to taxable years with respect to which such
election is effective in lieu of the corresponding provisions
of such Code.
"(B) Years to which applicable. - An election made under
subparagraph (C) to have the provisions of this paragraph apply
shall be effective for all taxable years beginning before
January 1, 1961, in respect of which -
"(i) the assessment of a deficiency,
"(ii) the refund or credit of an overpayment, or
"(iii) the commencement of a suit for recovery of a refund
under section 7405 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] [section 7405 of this title],
is not prevented on the date of the enactment of this paragraph
[Sept. 14, 1960] by the operation of any law or rule of law. Such
election shall also be effective for any taxable year beginning
before January 1, 1961, in respect of which an assessment of a
deficiency has been made but not collected on or before the date
of the enactment of this paragraph.
"(C) Time and manner of election. - An election to have the
provisions of this paragraph apply shall be made by the
taxpayer on or before the 60th day after the date of
publication in the Federal Register of final regulations issued
under authority of subparagraph (F), and shall be made in such
form and manner as the Secretary of the Treasury or his
delegate shall prescribe by regulations. Such election, if
made, may not be revoked.
"(D) Statutes of limitation. - Notwithstanding any other law,
the period within which an assessment of a deficiency
attributable to the application of the amendments made by
subsection (b) [amending this section] may be made with respect
to any taxable year to which such amendments apply under an
election made under subparagraph (C), and the period within
which a claim for refund or credit of an overpayment
attributable to the application of such amendments may be made
with respect to any such taxable year, shall not expire prior
to one year after the last day for making an election under
subparagraph (C). An election by a taxpayer under subparagraph
(C) shall be considered as a consent to the application of the
provisions of this subparagraph.
"(E) Terms; applicability of other laws. - Except where
otherwise distinctly expressed or manifestly intended, terms
used in this paragraph shall have the same meaning as when used
in the Internal Revenue Code of 1986 [this title] (or
corresponding provisions of the Internal Revenue Code of 1939)
and all provisions of law shall apply with respect to this
paragraph as if this paragraph were a part of such Code (or
corresponding provisions of the Internal Revenue Code of 1939).
"(F) Regulations. - The Secretary of the Treasury or his
delegate shall prescribe such regulations as may be necessary
to carry out the provisions of this paragraph."
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
SAVINGS PROVISION
For provisions that nothing in amendment by section 11815(b)(1),
(2) of Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
ELECTION FOR CLAY AND SHALE USED IN MANUFACTURE OF CLAY PRODUCTS
Pub. L. 87-312, Sept. 26, 1961, 75 Stat. 674, provided for the
election of, and procedure for, a differing rate of depletion for
clay and shale used in the manufacture of clay products, such
election to be effective for all taxable years beginning before
Jan. 1, 1961, in respect of which the assessment of a deficiency, a
refund or credit of overpayment, or the commencement of a suit for
recovery is not prevented on Sept. 26, 1961, by operation of any
law or rule of law, and also effective for any taxable year
beginning before Jan. 1961, in respect of which an assessment of a
deficiency has been made but not collected on or before Sept. 26,
1961.
ELECTION FOR QUARTZITE AND CLAY USED IN PRODUCTION OF REFRACTORY
PRODUCTS
Pub. L. 87-321, Sec. 2, Sept. 26, 1961, 75 Stat. 683, provided
for an election of, and procedures for, a differing rate of
depletion for quartzite and clay used in production of refractory
products, such election to be effective on and after Jan. 1, 1951,
for all taxable years beginning before Jan. 1, 1961, in respect of
which the assessment of a deficiency, the refund or credit of an
overpayment, or the commencement of a suit for recovery is not
prevented on Sept. 26, 1961, by the operation of any law or rule of
law, and also effective on and after Jan. 1, 1951, for any taxable
year beginning before Jan. 1, 1961, in respect of which an
assessment of a deficiency has been made but not collected on or
before Sept. 26, 1961.
REFUND OR CREDIT OF OVERPAYMENTS; LIMITATIONS; INTEREST
Section 36(b) of Pub. L. 85-866 provided for the filing of a
claim within 6 months of Sept. 2, 1958, and for the refund or
credit of any overpayment, without interest, if such refund or
credit, resulting from the addition of subsec. (d) of this section,
was prevented on Sept. 2, 1958, or within 6 months thereof, by the
operation of any law or rule of law other than certain specified
sections of the Internal Revenue Codes of 1939 and 1954.
-End-
-CITE-
26 USC Sec. 613A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 613A. Limitations on percentage depletion in case of oil and
gas wells
-STATUTE-
(a) General rule
Except as otherwise provided in this section, the allowance for
depletion under section 611 with respect to any oil or gas well
shall be computed without regard to section 613.
(b) Exemption for certain domestic gas wells
(1) In general
The allowance for depletion under section 611 shall be computed
in accordance with section 613 with respect to -
(A) regulated natural gas, and
(B) natural gas sold under a fixed contract,
and 22 percent shall be deemed to be specified in subsection (b)
of section 613 for purposes of subsection (a) of that section.
(2) Natural gas from geopressured brine
The allowance for depletion under section 611 shall be computed
in accordance with section 613 with respect to any qualified
natural gas from geopressured brine, and 10 percent shall be
deemed to be specified in subsection (b) of section 613 for
purposes of subsection (a) of such section.
(3) Definitions
For purposes of this subsection -
(A) Natural gas sold under a fixed contract
The term "natural gas sold under a fixed contract" means
domestic natural gas sold by the producer under a contract, in
effect on February 1, 1975, and at all times thereafter before
such sale, under which the price for such gas cannot be
adjusted to reflect to any extent the increase in liabilities
of the seller for tax under this chapter by reason of the
repeal of percentage depletion for gas. Price increases after
February 1, 1975, shall be presumed to take increases in tax
liabilities into account unless the taxpayer demonstrates to
the contrary by clear and convincing evidence.
(B) Regulated natural gas
The term "regulated natural gas" means domestic natural gas
produced and sold by the producer, before July 1, 1976, subject
to the jurisdiction of the Federal Power Commission, the price
for which has not been adjusted to reflect to any extent the
increase in liability of the seller for tax under this chapter
by reason of the repeal of percentage depletion for gas. Price
increases after February 1, 1975, shall be presumed to take
increases in tax liabilities into account unless the taxpayer
demonstrates the contrary by clear and convincing evidence.
(C) Qualified natural gas from geopressured brine
The term "qualified natural gas from geopressured brine"
means any natural gas -
(i) which is determined in accordance with section 503 of
the Natural Gas Policy Act of 1978 to be produced from
geopressured brine, and
(ii) which is produced from any well the drilling of which
began after September 30, 1978, and before January 1, 1984.
(c) Exemption for independent producers and royalty owners
(1) In general
Except as provided in subsection (d), the allowance for
depletion under section 611 shall be computed in accordance with
section 613 with respect to -
(A) so much of the taxpayer's average daily production of
domestic crude oil as does not exceed the taxpayer's depletable
oil quantity; and
(B) so much of the taxpayer's average daily production of
domestic natural gas as does not exceed the taxpayer's
depletable natural gas quantity;
and 15 percent shall be deemed to be specified in subsection (b)
of section 613 for purposes of subsection (a) of that section.
(2) Average daily production
For purposes of paragraph (1) -
(A) the taxpayer's average daily production of domestic crude
oil or natural gas for any taxable year, shall be determined by
dividing his aggregate production of domestic crude oil or
natural gas, as the case may be, during the taxable year by the
number of days in such taxable year, and
(B) in the case of a taxpayer holding a partial interest in
the production from any property (including an interest held in
a partnership) such taxpayer's production shall be considered
to be that amount of such production determined by multiplying
the total production of such property by the taxpayer's
percentage participation in the revenues from such property.
(3) Depletable oil quantity
(A) In general
For purposes of paragraph (1), the taxpayer's depletable oil
quantity shall be equal to -
(i) the tentative quantity determined under subparagraph
(B), reduced (but not below zero) by
(ii) except in the case of a taxpayer making an election
under paragraph (6)(B), the taxpayer's average daily marginal
production for the taxable year.
(B) Tentative quantity
For purposes of subparagraph (A), the tentative quantity is
1,000 barrels.
(4) Daily depletable natural gas quantity
For purposes of paragraph (1), the depletable natural gas
quantity of any taxpayer for any taxable year shall be equal to
6,000 cubic feet multiplied by the number of barrels of the
taxpayer's depletable oil quantity to which the taxpayer elects
to have this paragraph apply. The taxpayer's depletable oil
quantity for any taxable year shall be reduced by the number of
barrels with respect to which an election under this paragraph
applies. Such election shall be made at such time and in such
manner as the Secretary shall by regulations prescribe.
[(5) Repealed. Pub. L. 101-508, title XI, Sec. 11815(a)(1)(C),
Nov. 5, 1990, 104 Stat. 1388-557]
(6) Oil and natural gas produced from marginal properties
(A) In general
Except as provided in subsection (d) and subparagraph (B),
the allowance for depletion under section 611 shall be computed
in accordance with section 613 with respect to -
(i) so much of the taxpayer's average daily marginal
production of domestic crude oil as does not exceed the
taxpayer's depletable oil quantity (determined without regard
to paragraph (3)(A)(ii)), and
(ii) so much of the taxpayer's average daily marginal
production of domestic natural gas as does not exceed the
taxpayer's depletable natural gas quantity (determined
without regard to paragraph (3)(A)(ii)),
and the applicable percentage shall be deemed to be specified
in subsection (b) of section 613 for purposes of subsection (a)
of that section.
(B) Election to have paragraph apply to pro rata portion of
marginal production
If the taxpayer elects to have this subparagraph apply for
any taxable year, the rules of subparagraph (A) shall apply to
the average daily marginal production of domestic crude oil or
domestic natural gas of the taxpayer to which paragraph (1)
would have applied without regard to this paragraph.
(C) Applicable percentage
For purposes of subparagraph (A), the term "applicable
percentage" means the percentage (not greater than 25 percent)
equal to the sum of -
(i) 15 percent, plus
(ii) 1 percentage point for each whole dollar by which $20
exceeds the reference price for crude oil for the calendar
year preceding the calendar year in which the taxable year
begins.
For purposes of this paragraph, the term "reference price"
means, with respect to any calendar year, the reference price
determined for such calendar year under section 45K(d)(2)(C).
(D) Marginal production
The term "marginal production" means domestic crude oil or
domestic natural gas which is produced during any taxable year
from a property which -
(i) is a stripper well property for the calendar year in
which the taxable year begins, or
(ii) is a property substantially all of the production of
which during such calendar year is heavy oil.
(E) Stripper well property
For purposes of this paragraph, the term "stripper well
property" means, with respect to any calendar year, any
property with respect to which the amount determined by
dividing -
(i) the average daily production of domestic crude oil and
domestic natural gas from producing wells on such property
for such calendar year, by
(ii) the number of such wells,
is 15 barrel equivalents or less.
(F) Heavy oil
For purposes of this paragraph, the term "heavy oil" means
domestic crude oil produced from any property if such crude oil
had a weighted average gravity of 20 degrees API or less
(corrected to 60 degrees Fahrenheit).
(G) Average daily marginal production
For purposes of this subsection -
(i) the taxpayer's average daily marginal production of
domestic crude oil or natural gas for any taxable year shall
be determined by dividing the taxpayer's aggregate marginal
production of domestic crude oil or natural gas, as the case
may be, during the taxable year by the number of days in such
taxable year, and
(ii) in the case of a taxpayer holding a partial interest
in the production from any property (including any interest
held in any partnership), such taxpayer's production shall be
considered to be that amount of such production determined by
multiplying the total production of such property by the
taxpayer's percentage participation in the revenues from such
property.
(H) Temporary suspension of taxable income limit with respect
to marginal production
The second sentence of subsection (a) of section 613 shall
not apply to so much of the allowance for depletion as is
determined under subparagraph (A) for any taxable year
beginning after December 31, 1997, and before January 1, 2006.
(7) Special rules
(A) Production of crude oil in excess of depletable oil
quantity
If the taxpayer's average daily production of domestic crude
oil exceeds his depletable oil quantity, the allowance under
paragraph (1)(A) with respect to oil produced during the
taxable year from each property in the United States shall be
that amount which bears the same ratio to the amount of
depletion which would have been allowable under section 613(a)
for all of the taxpayer's oil produced from such property
during the taxable year (computed as if section 613 applied to
all of such production at the rate specified in paragraph (1)
or (6), as the case may be) as his depletable oil quantity
bears to the aggregate number of barrels representing the
average daily production of domestic crude oil of the taxpayer
for such year.
(B) Production of natural gas in excess of depletable natural
gas quantity
If the taxpayer's average daily production of domestic
natural gas exceeds his depletable natural gas quantity, the
allowance under paragraph (1)(B) with respect to natural gas
produced during the taxable year from each property in the
United States shall be that amount which bears the same ratio
to the amount of depletion which would have been allowable
under section 613(a) for all of the taxpayers (!1) natural gas
produced from such property during the taxable year (computed
as if section 613 applied to all of such production at the rate
specified in paragraph (1) or (6), as the case may be) as the
amount of his depletable natural gas quantity in cubic feet
bears to the aggregate number of cubic feet representing the
average daily production of domestic natural gas of the
taxpayer for such year.
(C) Taxable income from the property
If both oil and gas are produced from the property during the
taxable year, for purposes of subparagraphs (A) and (B) the
taxable income from the property, in applying the taxable
income limitation in section 613(a), shall be allocated between
the oil production and the gas production in proportion to the
gross income during the taxable year from each.
(D) Partnerships
In the case of a partnership, the depletion allowance shall
be computed separately by the partners and not by the
partnership. The partnership shall allocate to each partner his
proportionate share of the adjusted basis of each partnership
oil or gas property. The allocation is to be made as of the
later of the date of acquisition of the oil or gas property by
the partnership, or January 1, 1975. A partner's proportionate
share of the adjusted basis of partnership property shall be
determined in accordance with his interest in partnership
capital or income and, in the case of property contributed to
the partnership by a partner, section 704(c) (relating to
contributed property) shall apply in determining such share.
Each partner shall separately keep records of his share of the
adjusted basis in each oil and gas property of the partnership,
adjust such share of the adjusted basis for any depletion taken
on such property, and use such adjusted basis each year in the
computation of his cost depletion or in the computation of his
gain or loss on the disposition of such property by the
partnership. For purposes of section 732 (relating to basis of
distributed property other than money), the partnership's
adjusted basis in mineral property shall be an amount equal to
the sum of the partners' adjusted basis in such property as
determined under this paragraph.
(8) Business under common control; members of the same family
(A) Component members of controlled group treated as one
taxpayer
For purposes of this subsection, persons who are members of
the same controlled group of corporations shall be treated as
one taxpayer.
(B) Aggregation of business entities under common control
If 50 percent or more of the beneficial interest in two or
more corporations, trusts, or estates is owned by the same or
related persons (taking into account only persons who own at
least 5 percent of such beneficial interest), the tentative
quantity determined under paragraph (3)(B) shall be allocated
among all such entities in proportion to the respective
production of domestic crude oil during the period in question
by such entities.
(C) Allocation among members of the same family
In the case of individuals who are members of the same
family, the tentative quantity determined under paragraph
(3)(B) shall be allocated among such individuals in proportion
to the respective production of domestic crude oil during the
period in question by such individuals.
(D) Definition and special rules
For purposes of this paragraph -
(i) the term "controlled group of corporations" has the
meaning given to such term by section 1563(a), except that
section 1563(b)(2) shall not apply and except that "more than
50 percent" shall be substituted for "at least 80 percent"
each place it appears in section 1563(a),
(ii) a person is a related person to another person if such
persons are members of the same controlled group of
corporations or if the relationship between such persons
would result in a disallowance of losses under section 267 or
707(b), except that for this purpose the family of an
individual includes only his spouse and minor children.
(iii) the family of an individual includes only his spouse
and minor children, and
(iv) each 6,000 cubic feet of domestic natural gas shall be
treated as 1 barrel of domestic crude oil.
(9) Special rule for fiscal year taxpayers
In applying this subsection to a taxable year which is not a
calendar year, each portion of such taxable year which occurs
during a single calendar year shall be treated as if it were a
short taxable year.
(10) Certain production not taken into account
In applying this subsection, there shall not be taken into
account the production of natural gas with respect to which
subsection (b) applies.
(11) Subchapter S corporations
(A) Computation of depletion allowance at shareholder level
In the case of an S corporation, the allowance for depletion
with respect to any oil or gas property shall be computed
separately by each shareholder.
(B) Allocation of basis
The S corporation shall allocate to each shareholder his pro
rata share of the adjusted basis of the S corporation in each
oil or gas property held by the S corporation. The allocation
shall be made as of the later of the date of acquisition of the
property by the S corporation, or the first day of the first
taxable year of the S corporation to which the Subchapter S
Revision Act of 1982 applies. Each shareholder shall separately
keep records of his share of the adjusted basis in each oil and
gas property of the S corporation, adjust such share of the
adjusted basis for any depletion taken on such property, and
use such adjusted basis each year in the computation of his
cost depletion or in the computation of his gain or loss on the
disposition of such property by the S corporation. In the case
of any distribution of oil or gas property to its shareholders
by the S corporation, the corporation's adjusted basis in the
property shall be an amount equal to the sum of the
shareholders' adjusted bases in such property, as determined
under this subparagraph.
(d) Limitations on application of subsection (c)
(1) Limitation based on taxable income
The deduction for the taxable year attributable to the
application of subsection (c) shall not exceed 65 percent of the
taxpayer's taxable income for the year computed without regard to
-
(A) any depletion on production from an oil or gas property
which is subject to the provisions of subsection (c),
(B) any deduction allowable under section 199,
(C) any net operating loss carryback to the taxable year
under section 172,
(D) any capital loss carryback to the taxable year under
section 1212, and
(E) in the case of a trust, any distributions to its
beneficiary, except in the case of any trust where any
beneficiary of such trust is a member of the family (as defined
in section 267(c)(4)) of a settlor who created inter vivos and
testamentary trusts for members of the family and such settlor
died within the last six days of the fifth month in 1970, and
the law in the jurisdiction in which such trust was created
requires all or a portion of the gross or net proceeds of any
royalty or other interest in oil, gas, or other mineral
representing any percentage depletion allowance to be allocated
to the principal of the trust.
If an amount is disallowed as a deduction for the taxable year by
reason of application of the preceding sentence, the disallowed
amount shall be treated as an amount allowable as a deduction
under subsection (c) for the following taxable year, subject to
the application of the preceding sentence to such taxable year.
For purposes of basis adjustments and determining whether cost
depletion exceeds percentage depletion with respect to the
production from a property, any amount disallowed as a deduction
on the application of this paragraph shall be allocated to the
respective properties from which the oil or gas was produced in
proportion to the percentage depletion otherwise allowable to
such properties under subsection (c).
(2) Retailers excluded
Subsection (c) shall not apply in the case of any taxpayer who
directly, or through a related person, sells oil or natural gas
(excluding bulk sales of such items to commercial or industrial
users), or any product derived from oil or natural gas (excluding
bulk sales of aviation fuels to the Department of Defense) -
(A) through any retail outlet operated by the taxpayer or a
related person, or
(B) to any person -
(i) obligated under an agreement or contract with the
taxpayer or a related person to use a trademark, trade name,
or service mark or name owned by such taxpayer or a related
person, in marketing or distributing oil or natural gas or
any product derived from oil or natural gas, or
(ii) given authority, pursuant to an agreement or contract
with the taxpayer or a related person, to occupy any retail
outlet owned, leased, or in any way controlled by the
taxpayer or a related person.
Notwithstanding the preceding sentence this paragraph shall not
apply in any case where the combined gross receipts from the sale
of such oil, natural gas, or any product derived therefrom, for
the taxable year of all retail outlets taken into account for
purposes of this paragraph do not exceed $5,000,000. For purposes
of this paragraph, sales of oil, natural gas, or any product
derived from oil or natural gas shall not include sales made of
such items outside the United States, if no domestic production
of the taxpayer or a related person is exported during the
taxable year or the immediately preceding taxable year.
(3) Related person
For purposes of this subsection, a person is a related person
with respect to the taxpayer if a significant ownership interest
in either the taxpayer or such person is held by the other, or if
a third person has a significant ownership interest in both the
taxpayer and such person. For purposes of the preceding sentence,
the term "significant ownership interest" means -
(A) with respect to any corporation, 5 percent or more in
value of the outstanding stock of such corporation,
(B) with respect to a partnership, 5 percent or more interest
in the profits or capital of such partnership, and
(C) with respect to an estate or trust, 5 percent or more of
the beneficial interests in such estate or trust.
For purposes of determining a significant ownership interest, an
interest owned by or for a corporation, partnership, trust, or
estate shall be considered as owned directly both by itself and
proportionately by its shareholders, partners, or beneficiaries,
as the case may be.
(4) Certain refiners excluded
If the taxpayer or one or more related persons engages in the
refining of crude oil, subsection (c) shall not apply to the
taxpayer for a taxable year if the average daily refinery runs of
the taxpayer and such persons for the taxable year exceed 75,000
barrels. For purposes of this paragraph, the average daily
refinery runs for any taxable year shall be determined by
dividing the aggregate refinery runs for the taxable year by the
number of days in the taxable year.
(5) Percentage depletion not allowed for lease bonuses, etc.
In the case of any oil or gas property to which subsection (c)
applies, for purposes of section 613, the term "gross income from
the property" shall not include any lease bonus, advance royalty,
or other amount payable without regard to production from
property.
(e) Definitions
For purposes of this section -
(1) Crude oil
The term "crude oil" includes a natural gas liquid recovered
from a gas well in lease separators or field facilities.
(2) Natural gas
The term "natural gas" means any product (other than crude oil)
of an oil or gas well if a deduction for depletion is allowable
under section 611 with respect to such product.
(3) Domestic
The term "domestic" refers to production from an oil or gas
well located in the United States or in a possession of the
United States.
(4) Barrel
The term "barrel" means 42 United States gallons.
-SOURCE-
(Added Pub. L. 94-12, title V, Sec. 501(a), Mar. 29, 1975, 89 Stat.
47; amended Pub. L. 94-455, title XIX, Secs. 1901(a)(86),
1906(b)(13)(A), title XXI, Sec. 2115(a)-(c)(1), (d), (e), Oct. 4,
1976, 90 Stat. 1779, 1834, 1907-1909; Pub. L. 95-30, title I, Sec.
102(b)(7), May 23, 1977, 91 Stat. 138; Pub. L. 95-618, title IV,
Sec. 403(a)(2)(B), (b), Nov. 9, 1978, 92 Stat. 3204; Pub. L. 96-
603, Sec. 3(a), Dec. 28, 1980, 94 Stat. 3511; Pub. L. 97-354, Sec.
3(a), Oct. 19, 1982, 96 Stat. 1687; Pub. L. 97-448, title II, Sec.
202(d), Jan. 12, 1983, 96 Stat. 2396; Pub. L. 98-369, div. A, title
I, Secs. 25(b), 71(b), July 18, 1984, 98 Stat. 506, 589; Pub. L. 99-
514, title I, Sec. 104(b)(9), title IV, Sec. 412(a)(1), Oct. 22,
1986, 100 Stat. 2105, 2227; Pub. L. 101-508, title XI, Secs.
11521(a), (b), 11522(b)(1), 11523(a), (b), 11815(a), Nov. 5, 1990,
104 Stat. 1388-485 to 1388-487, 1388-557; Pub. L. 104-188, title I,
Sec. 1702(e)(2), Aug. 20, 1996, 110 Stat. 1870; Pub. L. 105-34,
title IX, Sec. 972(a), Aug. 5, 1997, 111 Stat. 897; Pub. L. 106-
170, title V, Sec. 504(a), Dec. 17, 1999, 113 Stat. 1921; Pub. L.
107-147, title VI, Sec. 607(a), Mar. 9, 2002, 116 Stat. 60; Pub. L.
108-311, title III, Sec. 314(a), Oct. 4, 2004, 118 Stat. 1181; Pub.
L. 109-58, title XIII, Secs. 1322(a)(3)(B), 1328(a), Aug. 8, 2005,
119 Stat. 1011, 1019; Pub. L. 109-135, title IV, Sec. 403(a)(18),
Dec. 21, 2005, 119 Stat. 2619.)
-REFTEXT-
REFERENCES IN TEXT
Section 503 of the Natural Gas Policy Act of 1978, referred to in
subsec. (b)(3)(C)(i), which was classified to section 3413 of Title
15, Commerce and Trade, was repealed by Pub. L. 101-60, Sec.
3(b)(5), July 26, 1989, 103 Stat. 159, effective Jan. 1, 1993.
The Subchapter S Revision Act of 1982, referred to in subsec.
(c)(11)(B), is Pub. L. 97-354, Oct. 19, 1982, 96 Stat. 1669, which
is classified principally to subchapter S (Sec. 1361 et seq.) of
chapter 1 of this title. For complete classification of this Act to
the Code, see Short Title of 1982 Amendments note set out under
section 1 of this title and Tables.
-MISC1-
AMENDMENTS
2005 - Subsec. (c)(6)(C). Pub. L. 109-58, Sec. 1322(a)(3)(B),
substituted "section 45K(d)(2)(C)" for "section 29(d)(2)(C)" in
concluding provisions.
Subsec. (d)(1)(B) to (E). Pub. L. 109-135 added subpar. (B) and
redesignated former subpars. (B) to (D) as (C) to (E),
respectively.
Subsec. (d)(4). Pub. L. 109-58, Sec. 1328(a), reenacted heading
without change and amended text of par. (4) generally. Prior to
amendment, text read as follows: "If the taxpayer or a related
person engages in the refining of crude oil, subsection (c) shall
not apply to such taxpayer if on any day during the taxable year
the refinery runs of the taxpayer and such person exceed 50,000
barrels."
2004 - Subsec. (c)(6)(H). Pub. L. 108-311 substituted "2006" for
"2004".
2002 - Subsec. (c)(6)(H). Pub. L. 107-147 substituted "2004" for
"2002".
1999 - Subsec. (c)(6)(H). Pub. L. 106-170 substituted "January 1,
2002" for "January 1, 2000".
1997 - Subsec. (c)(6)(H). Pub. L. 105-34 added subpar. (H).
1996 - Subsec. (c)(3)(A)(i). Pub. L. 104-188 struck out "the
table contained in" before "subparagraph (B)".
1990 - Subsec. (c)(1). Pub. L. 101-508, Sec. 11815(a)(1)(A),
substituted "15 percent" for "the applicable percentage (determined
in accordance with the table contained in paragraph (5))" in
concluding provisions.
Subsec. (c)(3)(A). Pub. L. 101-508, Sec. 11523(b)(2), struck out
at end "Clause (ii) shall not apply after December 31, 1983."
Subsec. (c)(3)(A)(ii). Pub. L. 101-508, Sec. 11523(b)(1), added
cl. (ii) and struck out former cl. (ii) which read as follows: "the
taxpayer's average daily secondary or tertiary production for the
taxable year."
Subsec. (c)(3)(B). Pub. L. 101-508, Sec. 11815(a)(1)(B), amended
subpar. (B) generally, substituting present provisions for
provisions which set out a phase-out table for determining
tentative quantity in barrels.
Subsec. (c)(5). Pub. L. 101-508, Sec. 11815(a)(1)(C), struck out
par. (5) which provided table of applicable percentages for
purposes of par. (1).
Subsec. (c)(6). Pub. L. 101-508, Sec. 11523(a), amended par. (6)
generally, providing for an increase in percentage depletion
allowance for marginal production, and substituting provisions
relating to oil and gas produced from marginal properties for
former provisions which related to oil and gas resulting from
secondary or tertiary processes.
Subsec. (c)(7)(A), (B). Pub. L. 101-508, Sec. 11815(a)(2)(A),
substituted "specified in paragraph (1)" for "specified in
paragraph (5)".
Subsec. (c)(7)(C). Pub. L. 101-508, Sec. 11522(b)(1), substituted
"taxable income" for "50-percent" before "limitation".
Subsec. (c)(7)(E). Pub. L. 101-508, Sec. 11815(a)(1)(C), struck
out subpar. (E) which provided special rules relating to production
from secondary or tertiary recovery processes.
Subsec. (c)(8)(B), (C). Pub. L. 101-508, Sec. 11815(a)(2)(B),
which directed amendment of subpars. (B) and (C) by substituting
"determined under paragraph (3)(B)" for "determined under the table
contained in paragraph (3)(B)", was executed by making the
substitution for "determined under the table in paragraph (3)(B)"
as the probable intent of Congress.
Subsec. (c)(9). Pub. L. 101-508, Sec. 11815(a)(2)(B), which
directed amendment of par. (9) by substituting "determined under
paragraph (3)(B)" for "determined under the table contained in
paragraph (3)(B)", could not be executed because that phrase did
not appear after execution of amendment by Pub. L. 101-508, Sec.
11521(a). See below.
Pub. L. 101-508, Sec. 11521(a), redesignated par. (11) as (9) and
struck out former par. (9) which related to transfer of oil or gas
property.
Subsec. (c)(10). Pub. L. 101-508, Sec. 11521(a), redesignated
par. (12) as (10) and struck out former par. (10) which related to
transfers by individuals to corporations.
Subsec. (c)(11). Pub. L. 101-508, Sec. 11521(a), redesignated
par. (13) as (11). Former par. (11) redesignated (9).
Subsec. (c)(11)(C), (D). Pub. L. 101-508, Sec. 11521(b), struck
out subpars. (C) and (D) which related to coordination with the
transfer rules of former pars. (9) and (10).
Subsec. (c)(12), (13). Pub. L. 101-508, Sec. 11521(a),
redesignated pars. (12) and (13) as (10) and (11), respectively.
1986 - Subsec. (d)(1). Pub. L. 99-514, Sec. 104(b)(9), struck out
"(reduced in the case of an individual by the zero bracket amount)"
after "taxable income" in introductory provisions.
Subsec. (d)(5). Pub. L. 99-514, Sec. 412(a)(1), added par. (5).
1984 - Subsec. (c)(2). Pub. L. 98-369, Sec. 25(b)(1), struck out
last sentence providing that in applying this paragraph, there
shall not be taken into account any production of crude oil or
natural gas resulting from secondary or tertiary processes (as
defined in regulations prescribed by the Secretary).
Subsec. (c)(3)(A). Pub. L. 98-369, Sec. 25(b)(2), inserted at end
"Clause (ii) shall not apply after December 31, 1983."
Subsec. (c)(7)(D). Pub. L. 98-369, Sec. 71(b), substituted
"property contributed to the partnership by a partner, section
704(c) (relating to contributed property) shall apply in
determining such share" for "an agreement described in section
704(c)(2) (relating to effect of partnership agreement on
contributed property), such share shall be determined by taking
such agreement into account" in fourth sentence.
Subsec. (c)(7)(E). Pub. L. 98-369, Sec. 25(b)(3), inserted at end
"This subparagraph shall not apply after December 31, 1983."
Subsec. (c)(9)(A). Pub. L. 98-369, Sec. 25(b)(4), substituted
"this subsection" for "paragraph (1)".
1983 - Subsec. (c)(10)(E). Pub. L. 97-448, Sec. 202(d)(1),
inserted provision that "oil and gas property" includes, in the
case of any property, necessary production equipment for such
property which is in place when the property is transferred.
Subsec. (d)(2). Pub. L. 97-448, Sec. 202(d)(2), inserted
"(excluding bulk sales of aviation fuels to the Department of
Defense)" after "any product derived from oil or natural gas".
1982 - Subsec. (c)(13). Pub. L. 97-354 added par. (13).
1980 - Subsec. (c)(10) to (12). Pub. L. 96-603 added par. (10)
and redesignated former pars. (10) and (11) as (11) and (12),
respectively.
1978 - Subsec. (b)(1)(C). Pub. L. 95-618, Sec. 403(a)(2)(B),
struck out subpar. (C) which related to a computation in accordance
with section 613 with respect to any geothermal deposit in the
United States or in a possession of the United States which is
determined to be a gas well.
Subsec. (b)(2), (3). Pub. L. 95-618, Sec. 403(b)(1), (2), added
par. (2), redesignated former par. (2) as (3) and, as so
redesignated, added subpar. (C).
1977 - Subsec. (d)(1). Pub. L. 95-30 inserted "(reduced in the
case of an individual by the zero bracket amount)" after "the
taxpayer's taxable income" in introductory provisions.
1976 - Subsec. (b)(1)(C). Pub. L. 94-455, Sec. 1901(a)(86)(A),
struck out "within the meaning of section 613(b)(1)(A)" after
"determined to be a gas well".
Subsec. (c)(2), (4). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (c)(6)(A)(i). Pub. L. 94-455, Sec. 1901(a)(86)(B),
substituted "determined without" for "determined with".
Subsec. (c)(7)(D). Pub. L. 94-455, Sec. 2115(c)(1), inserted
provision relating to the method to be employed by the partners in
computing the depletion allowance.
Subsec. (c)(7)(E). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (c)(9)(B). Pub. L. 94-455, Sec. 2115(b)(1), (e), added
cls. (iii) to (vi) and provision following cl. (vi).
Subsec. (d)(1). Pub. L. 94-455, Sec. 2115(b)(2), substituted in
subpar. (A) reference to any depletion on production from an oil or
gas property which is subject to the provisions of subsection (c)
for reference to depletion with respect to production of oil and
gas subject to the provisions of subsection (c), and added subpar.
(D).
Subsec. (d)(2). Pub. L. 94-455, Sec. 2115(a), inserted
"(excluding bulk sales of such items to commercial or industrial
users)" before ", or any product derived" and inserted provisions
following subpar. (B) relating to the application of this paragraph
where combined gross receipts from the sale of oil, natural gas, or
any product derived therefrom, for the taxable year of all retail
outlets taken into account do not exceed $5,000,000 and relating to
the exclusion of sales made outside the United States.
Subsec. (d)(3). Pub. L. 94-455, Sec. 2115(d), inserted provision
following subpar. (C) relating to the determination of a
significant ownership interest of a corporation, partnership,
trust, or estate.
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
Amendment by section 1322(a)(3)(B) of Pub. L. 109-58 applicable
to credits determined under the Internal Revenue Code of 1986 for
taxable years ending after Dec. 31, 2005, see section 1322(c)(1) of
Pub. L. 109-58, set out as a note under section 45K of this title.
Pub. L. 109-58, title XIII, Sec. 1328(b), Aug. 8, 2005, 119 Stat.
1020, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years ending after the date of
the enactment of this Act [Aug. 8, 2005]."
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-311, title III, Sec. 314(b), Oct. 4, 2004, 118 Stat.
1181, provided that: "The amendment made by subsection (a)
[amending this section] shall apply to taxable years beginning
after December 31, 2003."
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title VI, Sec. 607(b), Mar. 9, 2002, 116 Stat.
60, provided that: "The amendment made by subsection (a) [amending
this section] shall apply to taxable years beginning after December
31, 2001."
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 504(b), Dec. 17, 1999, 113 Stat.
1921, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1999."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 972(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11521(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section] shall apply
to transfers after October 11, 1990."
Amendment by section 11522(b)(1) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1990, see section 11522(c)
of Pub. L. 101-508, set out as a note under section 613 of this
title.
Section 11523(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1990."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(9) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 412(a)(1) of Pub. L. 99-514 applicable to
amounts received or accrued after Aug. 16, 1986, in taxable years
ending after such date, see section 412(a)(3) of Pub. L. 99-514,
set out as a note under section 613 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 25(c)(2) of Pub. L. 98-369 provided that: "The amendments
made by subsection (b) [amending this section] shall take effect on
January 1, 1984."
Amendment by section 71(b) of Pub. L. 98-369 applicable with
respect to property contributed to the partnership after Mar. 31,
1984, in taxable years ending after such date, see section 71(c) of
Pub. L. 98-369, set out as a note under section 704 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by section 202(d)(1) of Pub. L. 97-448 applicable to
transfers in taxable years ending after Dec. 31, 1974, but only for
purposes of applying this section to periods after Dec. 31, 1979,
and amendment by section 202(d)(2) of Pub. L. 97-448 applicable to
bulk sales after Sept. 18, 1982, see section 203(b)(3) of Pub. L.
97-448, set out as a note under section 6652 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Section 3(b) of Pub. L. 96-603, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by subsection (a) [amending this section] shall
apply to transfers in taxable years ending after December 31, 1974,
but only for purposes of applying section 613A of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] to periods after
December 31, 1979."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-618 effective on Oct. 1, 1978, and
applicable to taxable years ending on or after such date, see
section 403(c) of Pub. L. 95-618, set out as a note under section
613 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(86) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Section 2115(f) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and sections 703 and
705 of this title] shall take effect on January 1, 1975, and shall
apply to taxable years ending after December 31, 1974."
EFFECTIVE DATE
Section 501(c) of Pub. L. 94-12 provided that: "The amendments
made by this section [enacting this section and amending sections
613 and 703 of this title] shall take effect on January 1, 1975,
and shall apply to taxable years ending after December 31, 1974."
SAVINGS PROVISION
For provisions that nothing in amendment by section 11815(a) of
Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 45K of this title.
-TRANS-
TRANSFER OF FUNCTIONS
Federal Power Commission terminated and its functions, personnel,
property, funds, etc., transferred to Secretary of Energy (except
for certain functions which were transferred to Federal Energy
Regulatory Commission) by sections 7151(b), 7171(a), 7172(a), 7291,
and 7293 of Title 42, The Public Health and Welfare.
-MISC2-
COORDINATION WITH OTHER PROVISION
Section 403(d) of Pub. L. 95-618 provided that: "Any allowance
for depletion allowed by reason of the amendments made by
subsection (b) [amending this section] shall not be treated as a
credit, exemption, deduction, or comparable adjustment applicable
to the computation of any Federal tax which is specifically
allowable with respect to any high-cost natural gas (or category
thereof) for purposes of section 107(d) of the Natural Gas Policy
Act of 1978 [section 3317(d) of Title 15, Commerce and Trade]."
-FOOTNOTE-
(!1) So in original. Probably should be "taxpayer's".
-End-
-CITE-
26 USC Sec. 614 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 614. Definition of property
-STATUTE-
(a) General rule
For the purpose of computing the depletion allowance in the case
of mines, wells, and other natural deposits, the term "property"
means each separate interest owned by the taxpayer in each mineral
deposit in each separate tract or parcel of land.
(b) Special rules as to operating mineral interests in oil and gas
wells or geothermal deposits
In the case of oil and gas wells or geothermal deposits -
(1) In general
Except as otherwise provided in this subsection -
(A) all of the taxpayer's operating mineral interests in a
separate tract or parcel of land shall be combined and treated
as one property, and
(B) the taxpayer may not combine an operating mineral
interest in one tract or parcel of land with an operating
mineral interest in another tract or parcel of land.
(2) Election to treat operating mineral interests as separate
properties
If the taxpayer has more than one operating mineral interest in
a single tract or parcel of land, he may elect to treat one or
more of such operating mineral interests as separate properties.
The taxpayer may not have more than one combination of operating
mineral interests in a single tract or parcel of land. If the
taxpayer makes the election provided in this paragraph with
respect to any interest in a tract or parcel of land, each
operating mineral interest which is discovered or acquired by the
taxpayer in such tract or parcel of land after the taxable year
for which the election is made shall be treated -
(A) if there is no combination of interests in such tract or
parcel, as a separate property unless the taxpayer elects to
combine it with another interest, or
(B) if there is a combination of interests in such tract or
parcel, as part of such combination unless the taxpayer elects
to treat it as a separate property.
(3) Certain unitization or pooling arrangements
(A) In general
Under regulations prescribed by the Secretary, if one or more
of the taxpayer's operating mineral interests participate,
under a voluntary or compulsory unitization or pooling
agreement, in a single cooperative or unit plan of operation,
then for the period of such participation -
(i) they shall be treated for all purposes of this subtitle
as one property, and
(ii) the application of paragraphs (1), (2), and (4) in
respect of such interests shall be suspended.
(B) Limitation
Subparagraph (A) shall apply to a voluntary agreement only if
all the operating mineral interests covered by such agreement -
(i) are in the same deposit, or are in 2 or more deposits
the joint development or production of which is logical from
the standpoint of geology, convenience, economy, or
conservation, and
(ii) are in tracts or parcels of land which are contiguous
or in close proximity.
(C) Special rule in the case of arrangements entered into a
taxable years beginning before January 1, 1964
If -
(i) two or more of the taxpayer's operating mineral
interests participate under a voluntary or compulsory
unitization or pooling agreement entered into in any taxable
year beginning before January 1, 1964, in a single
cooperative or unit plan of operation,
(ii) the taxpayer, for the last taxable year beginning
before January 1, 1964, treated such interests as two or more
separate properties, and
(iii) it is determined that such treatment was proper under
the law applicable to such taxable year,
such taxpayer may continue to treat such interests in a
consistent manner for the period of such participation.
(4) Manner, time, and scope of election
(A) Manner and time
Any election provided in paragraph (2) shall be made for each
operating mineral interest, in the manner prescribed by the
Secretary by regulations, not later than the time prescribed by
law for filing the return (including extensions thereof) for
whichever of the following taxable years is the later: The
first taxable year beginning after December 31, 1963, or the
first taxable year in which any expenditure for development or
operation in respect of such operating mineral interest is made
by the taxpayer after the acquisition of such interest.
(B) Scope
Any election under paragraph (2) shall be for all purposes of
this subtitle and shall be binding on the taxpayer for all
subsequent taxable years.
(5) Treatment of certain properties
If, on the day preceding the first day of the first taxable
year beginning after December 31, 1963, the taxpayer has any
operating mineral interests which he treats under subsection (d)
of this section (as in effect before the amendments made by the
Revenue Act of 1964), such treatment shall be continued and shall
be deemed to have been adopted pursuant to paragraphs (1) and (2)
of this subsection (as amended by such Act).
(c) Special rules as to operating mineral interests in mines
(1) Election to aggregate separate interests
Except in the case of oil and gas wells and geothermal
deposits, if a taxpayer owns two or more separate operating
mineral interests which constitute part or all of an operating
unit, he may elect (for all purposes of this subtitle) -
(A) to form an aggregation of, and to treat as one property,
all such interests owned by him which comprise any one mine or
any two or more mines; and
(B) to treat as a separate property each such interest which
is not included within an aggregation referred to in
subparagraph (A).
For purposes of this paragraph, separate operating mineral
interests which constitute part or all of an operating unit may
be aggregated whether or not they are included in a single tract
or parcel of land and whether or not they are included in
contiguous tracts or parcels. For purposes of this paragraph, a
taxpayer may elect to form more than one aggregation of operating
mineral interests within any one operating unit; but no
aggregation may include any operating mineral interest which is a
part of a mine without including all of the operating mineral
interests which are a part of such mine in the first taxable year
for which the election to aggregate is effective, and any
operating mineral interest which thereafter becomes a part of
such mine shall be included in such aggregation.
(2) Election to treat a single interest as more than one property
Except in the case of oil and gas wells and geothermal
deposits, if a single tract or parcel of land contains a mineral
deposit which is being extracted, or will be extracted by means
of two or more mines for which expenditures for development or
operation have been made by the taxpayer, then the taxpayer may
elect to allocate to such mines, under regulations prescribed by
the Secretary, all of the tract or parcel of land and of the
mineral deposit contained therein, and to treat as a separate
property that portion of the tract or parcel of land and of the
mineral deposit so allocated to each mine. A separate property
formed pursuant to an election under this paragraph shall be
treated as a separate property for all purposes of this subtitle
(including this paragraph). A separate property so formed may,
under regulations prescribed by the Secretary, be included as a
part of an aggregation in accordance with paragraphs (1) and (3).
The election provided by this paragraph may not be made with
respect to any property which is a part of an aggregation formed
by the taxpayer under paragraph (1) except with the consent of
the Secretary.
(3) Manner and scope of election
The elections provided by paragraphs (1) and (2) shall be made,
in accordance with regulations prescribed by the Secretary, not
later than the time prescribed for filing the return (including
extensions thereof) for the first taxable year -
(A) in which, in the case of an election under paragraph (1),
any expenditure for development or operation in respect of the
separate operating mineral interest is made by the taxpayer
after the acquisition of such interest, or
(B) in which, in the case of an election under paragraph (2),
expenditures for development or operation of more than one mine
in respect of a property are made by the taxpayer after the
acquisition of the property.
An election made under paragraph (1) or (2) for a taxable year
shall be binding upon the taxpayer for such year and all
subsequent taxable years, except that the Secretary may consent
to a different treatment of any interest with respect to which an
election has been made.
(d) Operating mineral interests defined
For purposes of this section, the term "operating mineral
interest" includes only an interest in respect of which the costs
of production of the mineral are required to be taken into account
by the taxpayer for purposes of computing the taxable income
limitation provided for in section 613, or would be so required if
the mine, well, or other natural deposit were in the production
stage.
(e) Special rule as to nonoperating mineral interests
(1) Aggregation of separate interests
If a taxpayer owns two or more separate nonoperating mineral
interests in a single tract or parcel of land or in two or more
adjacent tracts or parcels of land, the Secretary shall, on
showing by the taxpayer that a principal purpose is not the
avoidance of tax, permit the taxpayer to treat (for all purposes
of this subtitle) all such mineral interests in each separate
kind of mineral deposit as one property. If such permission is
granted for any taxable year, the taxpayer shall treat such
interests as one property for all subsequent taxable years unless
the Secretary consents to a different treatment.
(2) Nonoperating mineral interests defined
For purposes of this subsection, the term "nonoperating mineral
interests" includes only interests which are not operating
mineral interests.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 210; Pub. L. 85-866, title I,
Sec. 37(a)-(d), Sept. 2, 1958, 72 Stat. 1633-1637; Pub. L. 88-272,
title II, Sec. 226(a), (b), Feb. 26, 1964, 78 Stat. 94, 96; Pub. L.
94-455, title XIX, Secs. 1901(a)(87)(A)(i), (B), (C),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1779, 1834; Pub. L. 95-618,
title IV, Sec. 403(a)(2)(C), (D), Nov. 9, 1978, 92 Stat. 3204; Pub.
L. 101-508, title XI, Sec. 11522(b)(2), Nov. 5, 1990, 104 Stat.
1388-486.)
-REFTEXT-
REFERENCES IN TEXT
The Revenue Act of 1964, referred to in subsec. (b)(5), is Pub.
L. 88-272, Feb. 26, 1964, 78 Stat. 19. For complete classification
of this Act to the Code, see Short Title of 1964 Amendments note
set out under section 1 of this title and Tables.
-MISC1-
AMENDMENTS
1990 - Subsec. (d). Pub. L. 101-508 substituted "taxable income"
for "50 percent".
1978 - Subsec. (b). Pub. L. 95-618, Sec. 403(a)(2)(C), inserted
"or geothermal deposits" after "gas wells" in heading and
introductory provisions.
Subsec. (c). Pub. L. 95-618, Sec. 403(a)(2)(D), substituted "oil
and gas wells and geothermal deposits" for "oil and gas wells"
wherever appearing.
1976 - Subsecs. (b)(3)(A), (4)(A), (e). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (c)(2). Pub. L. 94-455, Secs. 1901(a)(87)(B),
1906(b)(13)(A), struck out "or his delegate" after "Secretary"
wherever appearing and ", but the provisions of paragraph (4) shall
not apply with respect to such separate property" after "in
accordance with paragraphs (1) and (3)".
Subsec. (c)(3). Pub. L. 94-455, Sec. 1901(a)(87)(C), among other
changes, struck out references to the first taxable year beginning
after Dec. 31, 1957, and provisions relating to elections for
taxable years beginning before Jan. 1, 1958, relating to election
after final regulations, and relating to statute of limitations.
Subsec. (c)(4). Pub. L. 94-455, Sec. 1901(a)(87)(A)(i), struck
out par. (4) which related to a special rule as to deductions under
section 615(a) of this title prior to aggregation.
1964 - Subsec. (b). Pub. L. 88-272, Sec. 226(a), amended subsec.
(b) generally, and among other changes, substituted provisions
stating that except as otherwise provided, all of the taxpayer's
operating mineral interests in a separate tract or parcel of land
will be combined and treated as one property, that the taxpayer may
not combine any operating mineral interest in one tract or parcel
of land with an operating mineral interest in another tract or
parcel of land, that if he has more than one operating mineral
interest in a single tract of land he may elect to treat one or
more of such interests as separate properties, limited, however, to
one combination of interests in a single tract of land, and
providing, in the event the election in par. (2) is made with
respect to any tract of land, for the treatment of interests
discovered or acquired by the taxpayer in such a tract after the
taxable year for which the election is made, for provisions which
permitted a taxpayer who owned two or more separate operating
mineral interests which constituted all or a part of an operating
unit, to elect to form one aggregation and treat as one property
any two or more of these interests, treating as separate properties
any interests which he did not include in the one aggregation, to
aggregate separate interests whether or not in a single tract of
land, or contiguous tracts of land, and which forbade him to form
more than one aggregation within a single operating unit, inserted
provisions in par. (3) relating to unitization or pooling
arrangements, and in par (5), providing that if the taxpayer has
operating mineral interests on the day preceding the first day of
the first taxable year beginning after Dec. 31, 1963, which he
treats under subsec. (d) of this section as in effect before
amendment by Pub. L. 88-272, he shall continue such treatment and
it shall be deemed adopted pursuant to pars. (1) and (2) of this
subsection, and struck out provisions defining "operating mineral
interests", and providing for termination of election with respect
to mines, excepting oil and gas wells. For definition of "operating
mineral interests", see subsec. (d) of this section.
Subsec. (c). Pub. L. 88-272, Sec. 226(b)(1), (2), struck out par.
(5) which defined operating mineral interests, and "1958" before
"Special rules" in heading.
Subsec. (d). Pub. L. 88-272, Sec. 226(b)(3), amended subsec. (d)
generally, substituting the definition of operating mineral
interests, for provisions relating to the 1939 Code treatment
respecting operating mineral interest in case of oil and gas wells.
Subsec. (e)(2). Pub. L. 88-272, Sec. 226(b)(4), struck out
"within the meaning of subsection (b)(3)" at end.
1958 - Subsec. (b)(4). Pub. L. 85-866, Sec. 37(a), added par.
(4).
Subsecs. (c) to (e). Pub. L. 85-866, Sec. 37(b)-(d), added
subsecs. (c) and (d), redesignated former subsec. (c) as (e), and
substituted in first sentence of par. (1) "or in two or more
adjacent tracts" for "or in two or more contiguous tracts" and
"shall, on showing by the taxpayer that a principal purpose is not
the avoidance of tax, permit the taxpayer to treat (for all
purposes of this subtitle) all such mineral interests in each
separate kind of mineral deposit as one property" for "may, on
showing of undue hardship, permit the taxpayer to treat (for all
purposes of this subtitle) all such mineral interests as one
property".
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to taxable years
beginning after Dec. 31, 1990, see section 11522(c) of Pub. L. 101-
508, set out as a note under section 613 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-618 effective Oct. 1, 1978, and
applicable to taxable years ending on or after such date, see
section 403(c) of Pub. L. 95-618, set out as a note under section
613 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1901(a)(87)(A)(ii) of Pub. L. 94-455, as amended by Pub.
L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"The amendment made by clause (i) [amending this section] shall
apply with respect to elections to form aggregations of operating
mineral interests made under section 614(c)(1) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] for taxable years
beginning after December 31, 1976."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 226(d) of Pub. L. 88-272 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to taxable years beginning after December 31, 1963."
EFFECTIVE DATE OF 1958 AMENDMENT
Section 37(e) of Pub. L. 85-866 provided that: "The amendments
made by subsections (a) and (c) [amending this section] shall apply
with respect to taxable years beginning after December 31, 1953,
and ending after August 16, 1954. The amendments made by subsection
(b) [amending this section] shall apply with respect to taxable
years beginning after December 31, 1957, except that such
amendments shall, at the election of the taxpayer made in
conformity with such amendments, apply with respect to taxable
years beginning after December 31, 1953, and ending after August
16, 1954. The amendment made by subsection (d) [amending this
section] shall apply with respect to taxable years beginning after
December 31, 1957, except that with respect to any taxpayer such
amendment shall, at the election of the taxpayer, apply with
respect to taxable years beginning after December 31, 1953, and
ending after August 16, 1954."
ALLOCATION OF BASIS IN CERTAIN CASES
Section 226(c) of Pub. L. 88-272, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "For purposes
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] -
"(1) Fair market value rule. - Except as provided in paragraph
(2), if a taxpayer has a section 614(b) aggregation, then the
adjusted basis (as of the first day of the first taxable year
beginning after December 31, 1963) of each property included in
such aggregation shall be determined by multiplying the adjusted
basis of the aggregation by a fraction -
"(A) the numerator of which is the fair market value of such
property, and
"(B) the denominator of which is the fair market value of
such aggregation.
For purposes of this paragraph, the adjusted basis and the fair
market value of the aggregation, and the fair market value of
each property included therein, shall be determined as of the day
preceding the first day of the first taxable year which begins
after December 31, 1963.
"(2) Allocation of adjustments, etc. - If the taxpayer makes an
election under this paragraph with respect to any section 614(b)
aggregation, then the adjusted basis (as of the first day of the
first taxable year beginning December 31, 1963) of each property
included in such aggregation shall be the adjusted basis of such
property at the time it was first included in the aggregation by
the taxpayer, adjusted for that portion of those adjustments to
the basis of the aggregation which are reasonably attributable to
such property. If, under the preceding sentence, the total of the
adjusted bases of the interests included in the aggregation
exceeds the adjusted basis of the aggregation (as of the day
preceding the first day of the first taxable year which begins
after December 31, 1963), the adjusted bases of the properties
which include such interests shall be adjusted, under regulations
prescribed by the Secretary of the Treasury or his delegate, so
that the total of the adjusted bases of such interests equals the
adjusted basis of the aggregation. An election under this
paragraph shall be made at such time and in such manner as the
Secretary of the Treasury or his delegate shall by regulations
prescribe.
"(3) Definitions. - For purposes of this subsection -
"(A) Section 614(b) aggregation. - The term 'section 614(b)
aggregation' means any aggregation to which section
614(b)(1)(A) of the Internal Revenue Code of 1986 (as in effect
before the amendments made by subsection (a) of this section)
applied for the day preceding the first day of the first
taxable year beginning after December 31, 1963.
"(B) Property. - The term 'property' has the same meaning as
is applicable, under section 614 of the Internal Revenue Code
of 1986, to the taxpayer for the first taxable year beginning
after December 31, 1963."
-End-
-CITE-
26 USC Sec. 615 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
[Sec. 615. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(88),
Oct. 4, 1976, 90 Stat. 1779]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 211; July 6,
1960, Pub. L. 86-594, Sec. 1, 74 Stat. 333; Sept. 12, 1966, Pub. L.
89-570, Sec. 2(a), 80 Stat. 763; Dec. 30, 1969, Pub. L. 91-172,
title V, Sec. 504(a), 83 Stat. 632, related to pre-1970 exploration
expenditures.
EFFECTIVE DATE OF REPEAL
Repeal effective with respect to taxable years beginning after
Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an
Effective Date of 1976 Amendment note under section 2 of this
title.
-End-
-CITE-
26 USC Sec. 616 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 616. Development expenditures
-STATUTE-
(a) In general
Except as provided in subsections (b) and (d), there shall be
allowed as a deduction in computing taxable income all expenditures
paid or incurred during the taxable year for the development of a
mine or other natural deposit (other than an oil or gas well) if
paid or incurred after the existence of ores or minerals in
commercially marketable quantities has been disclosed. This section
shall not apply to expenditures for the acquisition or improvement
of property of a character which is subject to the allowance for
depreciation provided in section 167, but allowances for
depreciation shall be considered, for purposes of this section, as
expenditures.
(b) Election of taxpayer
At the election of the taxpayer, made in accordance with
regulations prescribed by the Secretary, expenditures described in
subsection (a) paid or incurred during the taxable year shall be
treated as deferred expenses and shall be deductible on a ratable
basis as the units of produced ores or minerals benefited by such
expenditures are sold. In the case of such expenditures paid or
incurred during the development stage of the mine or deposit, the
election shall apply only with respect to the excess of such
expenditures during the taxable year over the net receipts during
the taxable year from the ores or minerals produced from such mine
or deposit. The election under this subsection, if made, must be
for the total amount of such expenditures, or the total amount of
such excess, as the case may be, with respect to the mine or
deposit, and shall be binding for such taxable year.
(c) Adjusted basis of mine or deposit
The amount of expenditures which are treated under subsection (b)
as deferred expenses shall be taken into account in computing the
adjusted basis of the mine or deposit, except that such amount, and
the adjustments to basis provided in section 1016(a)(9), shall be
disregarded in determining the adjusted basis of the property for
the purpose of computing a deduction for depletion under section
611.
(d) Special rules for foreign development
In the case of any expenditures paid or incurred with respect to
the development of a mine or other natural deposit (other than an
oil, gas, or geothermal well) located outside of the United States -
(1) subsections (a) and (b) shall not apply, and
(2) such expenditures shall -
(A) at the election of the taxpayer, be included in adjusted
basis for purposes of computing the amount of any deduction
allowable under section 611 (without regard to section 613), or
(B) if subparagraph (A) does not apply, be allowed as a
deduction ratably over the 10-taxable year period beginning
with the taxable year in which such expenditures were paid or
incurred.
(e) Cross reference
For election of 10-year amortization of expenditures
allowable as a deduction under subsection (a), see section
59(e).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 212; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97-248,
title II, Sec. 201(d)(9)(C), formerly Sec. 201(c)(9)(C), Sept. 3,
1982, 96 Stat. 420, renumbered Sec. 201(d)(9)(C), Pub. L. 97-448,
title III, Sec. 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub.
L. 99-514, title IV, Sec. 411(b)(2)(A), (C)(i), Oct. 22, 1986, 100
Stat. 2226; Pub. L. 100-647, title I, Sec. 1007(g)(7), Nov. 10,
1988, 102 Stat. 3435.)
-MISC1-
AMENDMENTS
1988 - Subsec. (e). Pub. L. 100-647 substituted "section 59(e)"
for "section 58(i)".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 411(b)(2)(C)(i),
inserted reference to subsec. (d).
Subsecs. (d), (e). Pub. L. 99-514, Sec. 411(b)(2)(A), added
subsec. (d) and redesignated former subsec. (d) as (e).
1982 - Subsec. (d). Pub. L. 97-248 added subsec. (d).
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to costs paid or incurred
after Dec. 31, 1986, in taxable years ending after such date, with
transition rule, see section 411(c) of Pub. L. 99-514 set out as a
note under section 263 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, see section 201(e)(1) of Pub. L. 97-248, set
out as a note under section 5 of this title.
-End-
-CITE-
26 USC Sec. 617 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 617. Deduction and recapture of certain mining exploration
expenditures
-STATUTE-
(a) Allowance of deduction
(1) General rule
At the election of the taxpayer, expenditures paid or incurred
during the taxable year for the purpose of ascertaining the
existence, location, extent, or quality of any deposit of ore or
other mineral, and paid or incurred before the beginning of the
development stage of the mine, shall be allowed as a deduction in
computing taxable income. This subsection shall apply only with
respect to the amount of such expenditures which, but for this
subsection, would not be allowable as a deduction for the taxable
year. This subsection shall not apply to expenditures for the
acquisition or improvement of property of a character which is
subject to the allowance for depreciation provided in section
167, but allowances for depreciation shall be considered, for
purposes of this subsection, as expenditures paid or incurred. In
no case shall this subsection apply with respect to amounts paid
or incurred for the purpose of ascertaining the existence,
location, extent, or quality of any deposit of oil or gas or of
any mineral with respect to which a deduction for percentage
depletion is not allowable under section 613.
(2) Elections
(A) Method
Any election under this subsection shall be made in such
manner as the Secretary may by regulations prescribe.
(B) Time and scope
The election provided by paragraph (1) for the taxable year
may be made at any time before the expiration of the period
prescribed for making a claim for credit or refund of the tax
imposed by this chapter for the taxable year. Such an election
for the taxable year shall apply to all expenditures described
in paragraph (1) paid or incurred by the taxpayer during the
taxable year or during any subsequent taxable year. Such an
election may not be revoked unless the Secretary consents to
such revocation.
(C) Deficiencies
The statutory period for the assessment of any deficiency for
any taxable year, to the extent such deficiency is attributable
to an election or revocation of an election under this
subsection, shall not expire before the last day of the 2-year
period beginning on the day after the date on which such
election or revocation of election is made; and such deficiency
may be assessed at any time before the expiration of such 2-
year period, notwithstanding any law or rule of law which
would otherwise prevent such assessment.
(b) Recapture on reaching producing stage
(1) Recapture
If, in any taxable year, any mine with respect to which
expenditures were deducted pursuant to subsection (a) reaches the
producing stage, then -
(A) If the taxpayer so elects with respect to all such mines
reaching the producing stage during the taxable year, he shall
include in gross income for the taxable year an amount equal to
the adjusted exploration expenditures with respect to such
mines, and the amount so included in income shall be treated
for purposes of this subtitle as expenditures which (i) are
paid or incurred on the respective dates on which the mines
reach the producing stage, and (ii) are properly chargeable to
capital account.
(B) If subparagraph (A) does not apply with respect to any
such mine, then the deduction for depletion under section 611
with respect to the property shall be disallowed until the
amount of depletion which would be allowable but for this
subparagraph equals the amount of the adjusted exploration
expenditures with respect to such mine.
(2) Elections
(A) Method
Any election under this subsection shall be made in such
manner as the Secretary may by regulations prescribe.
(B) Time and scope
The election provided by paragraph (1) for any taxable year
may be made or changed not later than the time prescribed by
law for filing the return (including extensions thereof) for
such taxable year.
(c) Recapture in case of bonus or royalty
If an election has been made under subsection (a) with respect to
expenditures relating to a mining property and the taxpayer
receives or accrues a bonus or a royalty with respect to such
property, then the deduction for depletion under section 611 with
respect to the bonus or royalty shall be disallowed until the
amount of depletion which would be allowable but for this
subsection equals the amount of the adjusted exploration
expenditures with respect to the property to which the bonus or
royalty relates.
(d) Gain from dispositions of certain mining property
(1) General rule
Except as otherwise provided in this subsection, if mining
property is disposed of the lower of -
(A) the adjusted exploration expenditures with respect to
such property, or
(B) the excess of -
(i) the amount realized (in the case of a sale, exchange,
or involuntary conversion), or the fair market value (in the
case of any other disposition), over
(ii) the adjusted basis of such property,
shall be treated as ordinary income. Such gain shall be
recognized notwithstanding any other provision of this subtitle.
(2) Disposition of portion of property
For purposes of paragraph (1) -
(A) In the case of the disposition of a portion of a mining
property (other than an undivided interest), the entire amount
of the adjusted exploration expenditures with respect to such
property shall be treated as attributable to such portion to
the extent of the amount of the gain to which paragraph (1)
applies.
(B) In the case of the disposition of an undivided interest
in a mining property (or a portion thereof), a proportionate
part of the adjusted exploration expenditures with respect to
such property shall be treated as attributable to such
undivided interest to the extent of the amount of the gain to
which paragraph (1) applies.
This paragraph shall not apply to any expenditure to the extent
the taxpayer establishes to the satisfaction of the Secretary
that such expenditure relates neither to the portion (or interest
therein) disposed of nor to any mine, in the property held by the
taxpayer before the disposition, which has reached the producing
stage.
(3) Exceptions and limitations
Paragraphs (1), (2), and (3) of section 1245(b) (relating to
exceptions and limitations with respect to gain from disposition
of certain depreciable property) shall apply in respect of this
subsection in the same manner and with the same effect as if
references in section 1245(b) to section 1245 or any provision
thereof were references to this subsection or the corresponding
provisions of this subsection and as if references to section
1245 property were references to mining property.
(4) Application of subsection
This subsection shall apply notwithstanding any other provision
of this subtitle.
(5) Coordination with section 1254
This subsection shall not apply to any disposition to which
section 1254 applies.
(e) Basis of property
(1) Basis
The basis of any property shall not be reduced by the amount of
any depletion which would be allowable but for the application of
this section.
(2) Adjustments
The Secretary shall prescribe such regulations as he may deem
necessary to provide for adjustments to the basis of property to
reflect gain recognized under subsection (d)(1).
(f) Definitions
For purposes of this section
(1) Adjusted exploration expenditures
The term "adjusted exploration expenditures" means, with
respect to any property or mine -
(A) the amount of the expenditures allowed for the taxable
year and all preceding taxable years as deductions under
subsection (a) to the taxpayer or any other person which are
properly chargeable to such property or mine and which (but for
the election under subsection (a)) would be reflected in the
adjusted basis of such property or mine, reduced by
(B) for the taxable year and for each preceding taxable year,
the amount (if any) by which (i) the amount which would have
been allowable for percentage depletion under section 613 but
for the deduction of such expenditures, exceeds (ii) the amount
allowable for depletion under section 611,
properly adjusted for any amounts included in gross income under
subsection (b) or (c) and for any amounts of gain to which
subsection (d) applied.
(2) Mining property
The term "mining property" means any property (within the
meaning of section 614 after the application of subsections (c)
and (e) thereof) with respect to which any expenditures allowed
as a deduction under subsection (a)(1) are properly chargeable.
(3) Disposal of coal or domestic iron ore with a retained
economic interest
A transaction which constitutes a disposal of coal or iron ore
under section 631(c) shall be treated as a disposition. In such a
case, the excess referred to in subsection (d)(1)(B) shall be
treated as equal to the gain (if any) referred to in section
631(c).
(g) Special rules relating to partnership property
(1) Property distributed to partner
In the case of any property or mine received by the taxpayer in
a distribution with respect to part or all of his interest in a
partnership, the adjusted exploration expenditures with respect
to such property or mine include the adjusted exploration
expenditures (not otherwise included under subsection (f)(1))
with respect to such property or mine immediately prior to such
distribution, but the adjusted exploration expenditures with
respect to any such property or mine shall be reduced by the
amount of gain to which section 751(b) applied realized by the
partnership (as constituted after the distribution) on the
distribution of such property or mine.
(2) Property retained by partnership
In the case of any property or mine held by a partnership after
a distribution to a partner to which section 751(b) applied, the
adjusted exploration expenditures with respect to such property
or mine shall, under regulations prescribed by the Secretary, be
reduced by the amount of gain to which section 751(b) applied
realized by such partner with respect to such distribution on
account of such property or mine.
(h) Special rules for foreign exploration
In the case of any expenditures paid or incurred before the
development stage for the purpose of ascertaining the existence,
location, extent, or quality of any deposit of ore or other mineral
(other than an oil, gas, or geothermal well) located outside the
United States -
(1) subsection (a) shall not apply, and
(2) such expenditures shall -
(A) at the election of the taxpayer, be included in adjusted
basis for purposes of computing the amount of any deduction
allowable under section 611 (without regard to section 613), or
(B) if subparagraph (A) does not apply, be allowed as a
deduction ratably over the 10-taxable year period beginning
with the taxable year in which such expenditures were paid or
incurred.
(i) Cross reference
For election of 10-year amortization of expenditures
allowable as a deduction under this section, see section 59(e).
-SOURCE-
(Added Pub. L. 89-570, Sec. 1(a), Sept. 12, 1966, 80 Stat. 759;
amended Pub. L. 91-172, title V, Sec. 504(b), Dec. 30, 1969, 83
Stat. 632; Pub. L. 94-455, title XIX, Secs. 1901(a)(89), (b)(3)(K),
(21)(C)-(E), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1779, 1793,
1797, 1834; Pub. L. 97-248, title II, Sec. 201(d)(9)(D), formerly
Sec. 201(c)(9)(D), Sec. 224(c)(8), Sept. 3, 1982, 96 Stat. 420,
489, renumbered Sec. 201(d)(9)(D), Pub. L. 97-448, title III, Sec.
306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 99-514,
title IV, Secs. 411(b)(2)(B), 413(b), Oct. 22, 1986, 100 Stat.
2226, 2228; Pub. L. 100-647, title I, Sec. 1007(g)(7), Nov. 10,
1988, 102 Stat. 3435; Pub. L. 101-508, title XI, Sec. 11801(a)(27),
(c)(13), Nov. 5, 1990, 104 Stat. 1388-521, 1388-527.)
-MISC1-
AMENDMENTS
1990 - Subsecs. (i), (j). Pub. L. 101-508 redesignated subsec.
(j) as (i) and struck out former subsec. (i) which related to
deduction of certain pre-1970 exploration expenditures.
1988 - Subsec. (j). Pub. L. 100-647 substituted "section 59(e)"
for "section 58(i)".
1986 - Subsec. (d)(5). Pub. L. 99-514, Sec. 413(b), added par.
(5).
Subsec. (h). Pub. L. 99-514, Sec. 411(b)(2)(B), amended subsec.
(h) generally, substituting provisions relating to special rules
for foreign exploration for provisions relating to limitations.
1982 - Subsec. (h)(3)(B). Pub. L. 97-248, Sec. 224(c)(8),
inserted "338," after "334(b),".
Subsec. (j). Pub. L. 97-248, Sec. 201(d)(9)(D), formerly Sec.
201(c)(9)(D), added subsec. (j).
1976 - Subsec. (a)(2)(A). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (a)(2)(B). Pub. L. 94-455, Secs. 1901(a)(89),
1906(b)(13)(A), substituted "may not be revoked unless" for "may
not be revoked after the last day of the third month following the
month in which the final regulations issued under the authority of
this subsection are published in the Federal Register, unless", and
struck out "or his delegate" after "Secretary".
Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (d)(1). Pub. L. 94-455, Sec. 1901(b)(3)(K), substituted
"ordinary income" for "gain from the sale or exchange of property
which is neither a capital asset nor property described in section
1231".
Subsecs. (d)(2), (e)(2), (g)(2). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (h)(1). Pub. L. 94-455, Sec. 1901(b)(21)(C), substituted
"and subsection (a) of section 615 (as in effect before the
enactment of the Tax Reform Act of 1976)" for "and section 615(a)
and the amounts which are or have been treated as deferred expenses
under section 615(b)".
Subsec. (h)(3). Pub. L. 94-455, Sec. 1901(b)(21)(D), struck out
"and all amounts treated as deferred expenses which were paid or
incurred" after "amounts deducted" in introductory provisions,
redesignated subpar. (C) as (B), and in subpar. (B) as so
redesignated, substituted "374(b)(1)" for "373(b)(1)". Former
subpar. (B), which related to the application of par. (2)(B) where
the taxpayer would be entitled under section 381(c)(10) to deduct
expenses deferred under section 615(b) had the distributor or
transferor corporation elected to defer such expenses, was struck
out.
Subsec. (i). Pub. L. 94-455, Sec. 1901(b)(21)(E), added subsec.
(i).
1969 - Pub. L. 91-172, Sec. 504(b)(1), substituted "Deduction and
recapture of certain mining exploration expenditures" for
"Additional exploration expenditures in the case of domestic
mining" in heading.
Subsec. (a)(1). Pub. L. 91-172, Sec. 504(b)(2), struck out
reference to United States, the Outer Continental Shelf and the
Outer Continental Shelf Lands Act from general rule dealing with
allowance of deductions for expenditures in ascertaining the
existence, location, extent, or quality of any deposit of ore or
other mineral.
Subsec. (h). Pub. L. 91-172, Sec. 504(b)(3), substituted
provisions imposing limitations on the operation of this section
for provision making cross reference to subsecs. (f) and (g) of
section 615.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 411(b)(2)(B) of Pub. L. 99-514 applicable to
costs paid or incurred after Dec. 31, 1986, in taxable years ending
after such date, with transition rule, see section 411(c) of Pub.
L. 99-514 set out as a note under section 263 of this title.
Amendment by section 413(b) of Pub. L. 99-514 applicable to any
disposition of property placed in service by taxpayer after Dec.
31, 1986, but inapplicable if such property was acquired pursuant
to written contract entered into before Sept. 26, 1985, and binding
at all times thereafter, see section 413(c) of Pub. L. 99-514, set
out as a note under section 1254 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by section 201(d)(9)(D) of Pub. L. 97-248 applicable to
taxable years beginning after Dec. 31, 1982, see section 201(e)(1)
of Pub. L. 97-248, set out as a note under section 5 of this title.
Amendment by section 224(c)(8) of Pub. L. 97-248 applicable to
any target corporation with respect to which the acquisition date
occurs after Aug. 31, 1982, with special rules for certain
acquisitions before Sept. 1, 1982, and certain acquisitions of
financial institutions in which there was a binding contract on
July 22, 1982, to acquire control, see section 224(d) of Pub. L. 97-
248, set out as an Effective Date note under section 338 of this
title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(89), (b)(3)(K), (21)(C)-(E) of Pub.
L. 94-455 effective for taxable years beginning after Dec. 31,
1976, see section 1901(d) of Pub. L. 94-455, set out as a note
under section 2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to
exploration expenditures paid or incurred after Dec. 31, 1969, and
for purposes of this section, elections under section 615(e) of
this title, effective with respect to exploration expenditures paid
or incurred before Jan. 1, 1970, to be treated as an election under
subsec. (a) of this section with respect to exploration
expenditures paid or incurred after Dec. 31, 1969, see section
504(d) of Pub. L. 91-172, set out as a note under section 243 of
this title.
EFFECTIVE DATE
Section 3 of Pub. L. 89-570 provided that: "The amendments made
by this Act [enacting this section and amending sections 170, 301,
312, 341, 453, 615, 703, and 751 of this title] shall apply to
taxable years ending after the date of the enactment of this Act
[Sept. 12, 1966] but only in respect of expenditures paid or
incurred after such date."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC [PART II - REPEALED] 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
[PART II - REPEALED]
-HEAD-
[PART II - REPEALED]
-End-
-CITE-
26 USC Sec. 621 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
[PART II - REPEALED]
-HEAD-
[Sec. 621. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(28),
Nov. 5, 1990, 104 Stat. 1388-521]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 212, related to
payments to encourage exploration, development, and mining for
defense purposes.
SAVINGS PROVISION
For provisions that nothing in repeal by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC PART III - SALES AND EXCHANGES 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART III - SALES AND EXCHANGES
-HEAD-
PART III - SALES AND EXCHANGES
-MISC1-
Sec.
631. Gain or loss in the case of timber, coal, or domestic
iron ore.
[632. Repealed.]
AMENDMENTS
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(22)(A), Oct. 4,
1976, 90 Stat. 1798, struck out item 632 "Sale of oil or gas
properties".
1964 - Pub. L. 88-272, title II, Sec. 227(b)(2), Feb. 26, 1964,
78 Stat. 98, inserted reference to domestic iron ore in item 631.
-End-
-CITE-
26 USC Sec. 631 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART III - SALES AND EXCHANGES
-HEAD-
Sec. 631. Gain or loss in the case of timber, coal, or domestic
iron ore
-STATUTE-
(a) Election to consider cutting as sale or exchange
If the taxpayer so elects on his return for a taxable year, the
cutting of timber (for sale or for use in the taxpayer's trade or
business) during such year by the taxpayer who owns, or has a
contract right to cut, such timber (providing he has owned such
timber or has held such contract right for a period of more than 1
year) shall be considered as a sale or exchange of such timber cut
during such year. If such election has been made, gain or loss to
the taxpayer shall be recognized in an amount equal to the
difference between the fair market value of such timber, and the
adjusted basis for depletion of such timber in the hands of the
taxpayer. Such fair market value shall be the fair market value as
of the first day of the taxable year in which such timber is cut,
and shall thereafter be considered as the cost of such cut timber
to the taxpayer for all purposes for which such cost is a necessary
factor. If a taxpayer makes an election under this subsection, such
election shall apply with respect to all timber which is owned by
the taxpayer or which the taxpayer has a contract right to cut and
shall be binding on the taxpayer for the taxable year for which the
election is made and for all subsequent years, unless the
Secretary, on showing of undue hardship, permits the taxpayer to
revoke his election; such revocation, however, shall preclude any
further elections under this subsection except with the consent of
the Secretary. For purposes of this subsection and subsection (b),
the term "timber" includes evergreen trees which are more than 6
years old at the time severed from the roots and are sold for
ornamental purposes.
(b) Disposal of timber
In the case of the disposal of timber held for more than 1 year
before such disposal, by the owner thereof under any form or type
of contract by virtue of which such owner either retains an
economic interest in such timber or makes an outright sale of such
timber, the difference between the amount realized from the
disposal of such timber and the adjusted depletion basis thereof,
shall be considered as though it were a gain or loss, as the case
may be, on the sale of such timber. In determining the gross
income, the adjusted gross income, or the taxable income of the
lessee, the deductions allowable with respect to rents and
royalties shall be determined without regard to the provisions of
this subsection. In the case of disposal of timber with a retained
economic interest, the date of disposal of such timber shall be
deemed to be the date such timber is cut, but if payment is made to
the owner under the contract before such timber is cut the owner
may elect to treat the date of such payment as the date of disposal
of such timber. For purposes of this subsection, the term "owner"
means any person who owns an interest in such timber, including a
sublessor and a holder of a contract to cut timber.
(c) Disposal of coal or domestic iron ore with a retained economic
interest
In the case of the disposal of coal (including lignite), or iron
ore mined in the United States, held for more than 1 year before
such disposal, by the owner thereof under any form of contract by
virtue of which such owner retains an economic interest in such
coal or iron ore, the difference between the amount realized from
the disposal of such coal or iron ore and the adjusted depletion
basis thereof plus the deductions disallowed for the taxable year
under section 272 shall be considered as though it were a gain or
loss, as the case may be, on the sale of such coal or iron ore. If
for the taxable year of such gain or loss the maximum rate of tax
imposed by this chapter on any net capital gain is less than such
maximum rate for ordinary income, such owner shall not be entitled
to the allowance for percentage depletion provided in section 613
with respect to such coal or iron ore. This subsection shall not
apply to income realized by any owner as a co-adventurer, partner,
or principal in the mining of such coal or iron ore, and the word
"owner" means any person who owns an economic interest in coal or
iron ore in place, including a sublessor. The date of disposal of
such coal or iron ore shall be deemed to be the date such coal or
iron ore is mined. In determining the gross income, the adjusted
gross income, or the taxable income of the lessee, the deductions
allowable with respect to rents and royalties shall be determined
without regard to the provisions of this subsection. This
subsection shall have no application, for purposes of applying
subchapter G, relating to corporations used to avoid income tax on
shareholders (including the determinations of the amount of the
deductions under section 535(b)(6) or section 545(b)(5)). This
subsection shall not apply to any disposal of iron ore or coal -
(1) to a person whose relationship to the person disposing of
such iron ore or coal would result in the disallowance of losses
under section 267 or 707(b), or
(2) to a person owned or controlled directly or indirectly by
the same interests which own or control the person disposing of
such iron ore or coal.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 213; Pub. L. 88-272, title II,
Sec. 227(a)(1), (b)(1), Feb. 26, 1964, 78 Stat. 97, 98; Pub. L. 94-
455, title XIV, Sec. 1402(b)(1)(I), (2), (3), title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1732, 1733, 1834; Pub. L. 98-
369, div. A, title I, Sec. 178(a), title X, Sec. 1001(c), (e),
July 18, 1984, 98 Stat. 712, 1012; Pub. L. 99-514, title III, Sec.
311(b)(3), Oct. 22, 1986, 100 Stat. 2219; Pub. L. 108-357, title
III, Sec. 315(a), (b), Oct. 22, 2004, 118 Stat. 1469.)
-MISC1-
AMENDMENTS
2004 - Subsec. (b). Pub. L. 108-357, in heading, struck out "with
a retained economic interest" after "timber", in first sentence,
substituted "either retains an economic interest in such timber or
makes an outright sale of such timber" for "retains an economic
interest in such timber", and, in third sentence, substituted "In
the case of disposal of timber with a retained economic interest,
the date of disposal" for "The date of disposal".
1986 - Subsec. (c). Pub. L. 99-514 substituted "If for the
taxable year of such gain or loss the maximum rate of tax imposed
by this chapter on any net capital gain is less than such maximum
rate for ordinary income, such owner" for "Such owner".
1984 - Subsec. (a). Pub. L. 98-369, Sec. 1001(c)(1), (e),
substituted "on the first day of such year and for a period of more
than 6 months before such cutting" for "for a period of more than 1
year", applicable to property acquired after June 22, 1984, and
before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
Subsecs. (b), (c). Pub. L. 98-369, Sec. 1001(c)(2), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Pub. L. 98-369, Sec. 178(a), inserted "or coal" after "iron ore"
wherever appearing in last sentence of subsec. (c).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1402(b)(2), provided
that "9 months" would be changed to "1 year".
Pub. L. 94-455, Secs. 1402(b)(1)(I), (3), 1906(b)(13)(A),
provided that "6 months" would be changed to "9 months" for taxable
years beginning in 1977 and struck out "before the beginning of
such year" before ") shall be considered as a sale" effective for
taxable years beginning after Dec. 31, 1976, and "or his delegate"
after "Secretary" wherever appearing.
Subsec. (b). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(I), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (c). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(I), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
1964 - Pub. L. 88-272, Sec. 227(b)(1), inserted reference to
domestic iron ore in heading.
Subsec. (c). Pub. L. 88-272, Sec. 227(a)(1), inserted "or
domestic iron ore" in heading, "or iron ore mined in the United
States" after "coal (including lignite)", "or iron ore" after
"coal" wherever appearing, and provided that the subsection shall
not apply to any disposal of iron ore to a person whose
relationship to the person disposing of such ore would result in
the disallowance of losses under section 267 of 717(b), or to a
person owned or controlled by the same interests which own or
control the person disposing of such iron ore.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title III, Sec. 315(c), Oct. 22, 2004, 118 Stat.
1469, provided that: "The amendments made by this section [amending
this section] shall apply to sales after December 31, 2004."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 311(c) of Pub. L. 99-514, set out
as a note under section 1201 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 178(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply to dispositions after September 30, 1985.
"(2) Special rule for fixed contracts. -
"(A) In general. - The amendment made by subsection (a) shall
not apply to any disposition of an interest in coal by a person
to a related person if such coal is subsequently sold before
January 1, 1990, by either such person -
"(i) to a person who is not a related person with respect to
either such person, and
"(ii) pursuant to a qualified fixed contract.
"(B) Allocation where more than 1 contract. - If, for any
taxable year, there is a disposition described in subparagraph
(A) which is not specifically allocable to a qualified fixed
contract or to a contract which is not a qualified fixed
contract, such disposition shall be treated as first allocable to
the qualified fixed contract.
"(C) Qualified fixed contract defined. - The term 'qualified
fixed contract' means any contract for the sale of coal which -
"(i) was entered into before June 12, 1984,
"(ii) is binding at all times thereafter, and
"(iii) cannot be adjusted to reflect to any extent the
increase in liabilities of the person disposing of the coal for
tax under chapter 1 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] by reason of the amendment made by
subsection (a).
"(D) Related person. - For purposes of this paragraph, the term
'related person' means a person who bears a relationship to
another person described in the last sentence of section 631(c).
"
Amendment by section 1001(c) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Section 1402(b)(3) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1976.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable with respect to amounts
received or accrued in taxable years beginning after Dec. 31, 1963,
attributable to iron ore mined in such years, see section 227(c) of
Pub. L. 88-272, set out as a note under section 272 of this title.
REVOCATION OF ELECTIONS UNDER SECTION 631(A)
Pub. L. 108-357, title I, Sec. 102(c), Oct. 22, 2004, 118 Stat.
1428, provided that: "Any election under section 631(a) of the
Internal Revenue Code of 1986 made for a taxable year ending on or
before the date of the enactment of this Act [Oct. 22, 2004] may be
revoked by the taxpayer for any taxable year ending after such
date. For purposes of determining whether such taxpayer may make a
further election under such section, such election (and any
revocation under this section) shall not be taken into account."
Section 311(d)(2) of Pub. L. 99-514 provided that: "Any election
under section 631(a) of the Internal Revenue Code of 1954 made
(whether by a corporation or a person other than a corporation) for
a taxable year beginning before January 1, 1987, may be revoked by
the taxpayer for any taxable year ending after December 31, 1986.
For purposes of determining whether the taxpayer may make a further
election under such section, such election (and any revocation
under this paragraph) shall not be taken into account."
-End-
-CITE-
26 USC Sec. 632 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART III - SALES AND EXCHANGES
-HEAD-
[Sec. 632. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(90),
Oct. 4, 1976, 90 Stat. 1779]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 214; Dec. 30,
1969, Pub. L. 91-172, title VIII, Sec. 803(d)(4), 83 Stat. 684,
related to tax in case of sale of oil and gas properties.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
-CITE-
26 USC PART IV - MINERAL PRODUCTION PAYMENTS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART IV - MINERAL PRODUCTION PAYMENTS
-HEAD-
PART IV - MINERAL PRODUCTION PAYMENTS
-MISC1-
Sec.
636. Income tax treatment of mineral production payments.
AMENDMENTS
1969 - Pub. L. 91-172, title V, Sec. 503(a), Dec. 30, 1969, 83
Stat. 630, added part heading and section analysis.
-End-
-CITE-
26 USC Sec. 636 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART IV - MINERAL PRODUCTION PAYMENTS
-HEAD-
Sec. 636. Income tax treatment of mineral production payments
-STATUTE-
(a) Carved-out production payments
A production payment carved out of mineral property shall be
treated, for purposes of this subtitle, as if it were a mortgage
loan on the property, and shall not qualify as an economic interest
in the mineral property. In the case of a production payment carved
out for exploration or development of a mineral property, the
preceding sentence shall apply only if and to the extent gross
income from the property (for purposes of section 613) would be
realized, in the absence of the application of such sentence, by
the person creating the production payment.
(b) Retained production payment on sale of mineral property
A production payment retained on the sale of a mineral property
shall be treated, for purposes of this subtitle, as if it were a
purchase money mortgage loan and shall not qualify as an economic
interest in the mineral property.
(c) Retained production payment on lease of mineral property
A production payment retained in a mineral property by the lessor
in a leasing transaction shall be treated, for purposes of this
subtitle, insofar as the lessee (or his successors in interest) is
concerned, as if it were a bonus granted by the lessee to the
lessor payable in installments. The treatment of the production
payment in the hands of the lessor shall be determined without
regard to the provisions of this subsection.
(d) Definition
As used in this section, the term "mineral property" has the
meaning assigned to the term "property" in section 614(a).
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 91-172, title V, Sec. 503(a), Dec. 30, 1969, 83
Stat. 630; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (e). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE
Section 503(c) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) General rule. - The amendments made by this section
[enacting this section] shall apply with respect to mineral
production payments created on or after August 7, 1969, other than
mineral production payments created before January 1, 1971,
pursuant to a binding contract entered into before August 7, 1969.
"(2) Election. - At the election of the taxpayer (made at such
time and in such manner as the Secretary of the Treasury or his
delegate prescribes by regulations), the amendments made by this
section shall apply with respect to all mineral production payments
which the taxpayer carved out of mineral properties after the
beginning of his last taxable year ending before August 7, 1969. No
interest shall be allowed on any refund or credit of any
overpayment resulting from such election for any taxable year
ending before August 7, 1969.
"(3) Special rule. - With respect to a taxpayer who does not
elect the treatment provided in paragraph (2) and who carves out
one or more mineral production payments on or after August 7, 1969,
during the taxable year which includes such date, the amendments
made by this section shall apply to such production payments only
to the extent the aggregate amount of such production payments
exceeds the lesser of -
"(A) the excess of
"(i) the aggregate amount of production payments carved out
and sold by the taxpayer during the 12-month period immediately
preceding his taxable year which includes August 7, 1969, over
"(ii) the aggregate amount of production payments carved out
before August 7, 1969, by the taxpayer during his taxable year
which includes such date, or
"(B) the amount necessary to increase the amount of the
taxpayer's gross income, within the meaning of chapter 1 of
subtitle A of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] [this title], for the taxable year which includes August 7,
1969, to an amount equal to the amount of deductions (other than
any deduction under section 172 of such Code) allowable for such
year under such chapter.
The preceding sentence shall not apply for purposes of determining
the amount of any deduction allowable under section 611 or the
amount of foreign tax credit allowable under section 904 of such
Code."
-End-
-CITE-
26 USC PART V - CONTINENTAL SHELF AREAS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART V - CONTINENTAL SHELF AREAS
-HEAD-
PART V - CONTINENTAL SHELF AREAS
-MISC1-
Sec.
638. Continental shelf areas.
AMENDMENTS
1969 - Pub. L. 91-172, title V, Sec. 505(a), Dec. 30, 1969, 83
Stat. 634, added part heading and section analysis.
-End-
-CITE-
26 USC Sec. 638 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART V - CONTINENTAL SHELF AREAS
-HEAD-
Sec. 638. Continental shelf areas
-STATUTE-
For purposes of applying the provisions of this chapter
(including sections 861(a)(3) and 862(a)(3) in the case of the
performance of personal services) with respect to mines, oil and
gas wells, and other natural deposits -
(1) the term "United States" when used in a geographical sense
includes the seabed and subsoil of those submarine areas which
are adjacent to the territorial waters of the United States and
over which the United States has exclusive rights, in accordance
with international law, with respect to the exploration and
exploitation of natural resources; and
(2) the terms "foreign country" and "possession of the United
States" when used in a geographical sense include the seabed and
subsoil of those submarine areas which are adjacent to the
territorial waters of the foreign country or such possession and
over which the foreign country (or the United States in case of
such possession) has exclusive rights, in accordance with
international law, with respect to the exploration and
exploitation of natural resources, but this paragraph shall apply
in the case of a foreign country only if it exercises, directly
or indirectly, taxing jurisdiction with respect to such
exploration or exploitation.
No foreign country shall, by reason of the application of this
section, be treated as a country contiguous to the United States.
-SOURCE-
(Added Pub. L. 91-172, title V, Sec. 505(a), Dec. 30, 1969, 83
Stat. 634.)
-End-
-CITE-
26 USC Subchapter J - Estates, Trusts, Beneficiaries, and
Decedents 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
-HEAD-
SUBCHAPTER J - ESTATES, TRUSTS, BENEFICIARIES, AND DECEDENTS
-MISC1-
Part
I. Estates, trusts, and beneficiaries.
II. Income in respect of decedents.
-End-
-CITE-
26 USC PART I - ESTATES, TRUSTS, AND BENEFICIARIES 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
-HEAD-
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
-MISC1-
Subpart
A. General rules for taxation of estates and trusts.
B. Trusts which distribute current income only.
C. Estates and trusts which may accumulate income or
which distribute corpus.
D. Treatment of excess distributions by trusts.
E. Grantors and others treated as substantial owners.
F. Miscellaneous.
-End-
-CITE-
26 USC Subpart A - General Rules for Taxation of Estates
and Trusts 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart A - General Rules for Taxation of Estates and Trusts
-HEAD-
SUBPART A - GENERAL RULES FOR TAXATION OF ESTATES AND TRUSTS
-MISC1-
Sec.
641. Imposition of tax.
642. Special rules for credits and deductions.
643. Definitions applicable to subparts A, B, C, and D.
644. Taxable year of trusts.
645. Certain revocable trusts treated as part of estate.
646. Tax treatment of electing Alaska Native Settlement
Trusts.
AMENDMENTS
2001 - Pub. L. 107-16, title VI, Sec. 671(c)(1), June 7, 2001,
115 Stat. 147, added item 646.
1998 - Pub. L. 105-206, title VI, Sec. 6013(a)(2), July 22, 1998,
112 Stat. 819, renumbered item 646 as 645.
1997 - Pub. L. 105-34, title V, Sec. 507(b)(3), title XIII, Sec.
1305(c), Aug. 5, 1997, 111 Stat. 857, 1041, added items 644 and 646
and struck out former items 644 "Special rule for gain on property
transferred to trust at less than fair market value" and 645
"Taxable year of trusts".
1986 - Pub. L. 99-514, title XIV, Sec. 1403(b), Oct. 22, 1986,
100 Stat. 2713, added item 645.
1976 - Pub. L. 94-455, title VII, Sec. 701(g)(2), Oct. 4, 1976,
90 Stat. 1580, added item 644.
-End-
-CITE-
26 USC Sec. 641 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart A - General Rules for Taxation of Estates and Trusts
-HEAD-
Sec. 641. Imposition of tax
-STATUTE-
(a) Application of tax
The tax imposed by section 1(e) shall apply to the taxable income
of estates or of any kind of property held in trust, including -
(1) income accumulated in trust for the benefit of unborn or
unascertained persons or persons with contingent interests, and
income accumulated or held for future distribution under the
terms of the will or trust;
(2) income which is to be distributed currently by the
fiduciary to the beneficiaries, and income collected by a
guardian of an infant which is to be held or distributed as the
court may direct;
(3) income received by estates of deceased persons during the
period of administration or settlement of the estate; and
(4) income which, in the discretion of the fiduciary, may be
either distributed to the beneficiaries or accumulated.
(b) Computation and payment
The taxable income of an estate or trust shall be computed in the
same manner as in the case of an individual, except as otherwise
provided in this part. The tax shall be computed on such taxable
income and shall be paid by the fiduciary. For purposes of this
subsection, a foreign trust or foreign estate shall be treated as a
nonresident alien individual who is not present in the United
States at any time.
(c) Special rules for taxation of electing small business trusts
(1) In general
For purposes of this chapter -
(A) the portion of any electing small business trust which
consists of stock in 1 or more S corporations shall be treated
as a separate trust, and
(B) the amount of the tax imposed by this chapter on such
separate trust shall be determined with the modifications of
paragraph (2).
(2) Modifications
For purposes of paragraph (1), the modifications of this
paragraph are the following:
(A) Except as provided in section 1(h), the amount of the tax
imposed by section 1(e) shall be determined by using the
highest rate of tax set forth in section 1(e).
(B) The exemption amount under section 55(d) shall be zero.
(C) The only items of income, loss, deduction, or credit to
be taken into account are the following:
(i) The items required to be taken into account under
section 1366.
(ii) Any gain or loss from the disposition of stock in an S
corporation.
(iii) To the extent provided in regulations, State or local
income taxes or administrative expenses to the extent
allocable to items described in clauses (i) and (ii).
No deduction or credit shall be allowed for any amount not
described in this paragraph, and no item described in this
paragraph shall be apportioned to any beneficiary.
(D) No amount shall be allowed under paragraph (1) or (2) of
section 1211(b).
(3) Treatment of remainder of trust and distributions
For purposes of determining -
(A) the amount of the tax imposed by this chapter on the
portion of any electing small business trust not treated as a
separate trust under paragraph (1), and
(B) the distributable net income of the entire trust,
the items referred to in paragraph (2)(C) shall be excluded.
Except as provided in the preceding sentence, this subsection
shall not affect the taxation of any distribution from the trust.
(4) Treatment of unused deductions where termination of separate
trust
If a portion of an electing small business trust ceases to be
treated as a separate trust under paragraph (1), any carryover or
excess deduction of the separate trust which is referred to in
section 642(h) shall be taken into account by the entire trust.
(5) Electing small business trust
For purposes of this subsection, the term "electing small
business trust" has the meaning given such term by section
1361(e)(1).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 215; Pub. L. 91-172, title VIII,
Sec. 803(d)(3), Dec. 30, 1969, 83 Stat. 684; Pub. L. 94-455, title
VII, Sec. 701(e)(2), Oct. 4, 1976, 90 Stat. 1579; Pub. L. 95-30,
title I, Sec. 101(d)(8), May 23, 1977, 91 Stat. 134; Pub. L. 104-
188, title I, Sec. 1302(d), Aug. 20, 1996, 110 Stat. 1778; Pub. L.
105-34, title XVI, Sec. 1601(i)(3)(B), Aug. 5, 1997, 111 Stat.
1093; Pub. L. 105-206, title VI, Sec. 6007(f)(2), July 22, 1998,
112 Stat. 810.)
-MISC1-
AMENDMENTS
1998 - Subsecs. (c), (d). Pub. L. 105-206 redesignated subsec.
(d) as (c) and struck out heading and text of former subsec. (c).
Text read as follows:
"(1) General rule. - For purposes of this part, the taxable
income of a trust does not include the amount of any includible
gain as defined in section 644(b) reduced by any deductions
properly allocable thereto.
"(2) Cross reference. -
"For the taxation of any includible gain, see section 644."
1997 - Subsec. (b). Pub. L. 105-34 inserted at end "For purposes
of this subsection, a foreign trust or foreign estate shall be
treated as a nonresident alien individual who is not present in the
United States at any time."
1996 - Subsec. (d). Pub. L. 104-188 added subsec. (d).
1977 - Subsec. (a). Pub. L. 95-30 substituted "section 1(e)" for
"section 1(d)" in introductory provisions.
1976 - Subsec. (c). Pub. L. 94-455 added subsec. (c).
1969 - Subsec. (a). Pub. L. 91-172 substituted "The tax imposed
by section 1(d)" for "The taxes imposed by this chapter on
individuals".
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
provisions of the Small Business Job Protection Act of 1996, Pub.
L. 104-188, to which it relates, see section 1601(j) of Pub. L. 105-
34, set out as a note under section 23 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1317(a) of title I of Pub. L. 104-188 provided that:
"Except as otherwise provided in this subtitle [subtitle C (Secs.
1301-1317) of title I of Pub. L. 104-188], the amendments made by
this subtitle [amending this section and sections 170, 404, 512,
1042, 1237, 1361, 1362, 1366 to 1368, 1371, 1375, 1377, 1504, 6037,
and 6233 of this title and repealing sections 6241 to 6245 of this
title] shall apply to taxable years beginning after December 31,
1996."
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable to transfers in trust made
after May 21, 1976, see section 701(h) of Pub. L. 94-455, set out
as a note under section 667 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1970, see section 803(f) of Pub. L. 91-172, set out
as a note under section 1 of this title.
-End-
-CITE-
26 USC Sec. 642 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart A - General Rules for Taxation of Estates and Trusts
-HEAD-
Sec. 642. Special rules for credits and deductions
-STATUTE-
(a) Foreign tax credit allowed
An estate or trust shall be allowed the credit against tax for
taxes imposed by foreign countries and possessions of the United
States, to the extent allowed by section 901, only in respect of so
much of the taxes described in such section as is not properly
allocable under such section to the beneficiaries.
(b) Deduction for personal exemption
(1) Estates
An estate shall be allowed a deduction of $600.
(2) Trusts
(A) In general
Except as otherwise provided in this paragraph, a trust shall
be allowed a deduction of $100.
(B) Trusts distributing income currently
A trust which, under its governing instrument, is required to
distribute all of its income currently shall be allowed a
deduction of $300.
(C) Disability trusts
(i) In general
A qualified disability trust shall be allowed a deduction
equal to the exemption amount under section 151(d),
determined -
(I) by treating such trust as an individual described in
section 151(d)(3)(C)(iii), and
(II) by applying section 67(e) (without the reference to
section 642(b)) for purposes of determining the adjusted
gross income of the trust.
(ii) Qualified disability trust
For purposes of clause (i), the term "qualified disability
trust" means any trust if -
(I) such trust is a disability trust described in
subsection (c)(2)(B)(iv) of section 1917 of the Social
Security Act (42 U.S.C. 1396p), and
(II) all of the beneficiaries of the trust as of the
close of the taxable year are determined by the
Commissioner of Social Security to have been disabled
(within the meaning of section 1614(a)(3) of the Social
Security Act, 42 U.S.C. 1382c(a)(3)) for some portion of
such year.
A trust shall not fail to meet the requirements of subclause
(II) merely because the corpus of the trust may revert to a
person who is not so disabled after the trust ceases to have
any beneficiary who is so disabled.
(3) Deductions in lieu of personal exemption
The deductions allowed by this subsection shall be in lieu of
the deductions allowed under section 151 (relating to deduction
for personal exemption).
(c) Deduction for amounts paid or permanently set aside for a
charitable purpose
(1) General rule
In the case of an estate or trust (other then (!1) a trust
meeting the specifications of subpart B), there shall be allowed
as a deduction in computing its taxable income (in lieu of the
deduction allowed by section 170(a), relating to deduction for
charitable, etc., contributions and gifts) any amount of the
gross income, without limitation, which pursuant to the terms of
the governing instrument is, during the taxable year, paid for a
purpose specified in section 170(c) (determined without regard to
section 170(c)(2)(A)). If a charitable contribution is paid after
the close of such taxable year and on or before the last day of
the year following the close of such taxable year, then the
trustee or administrator may elect to treat such contribution as
paid during such taxable year. The election shall be made at such
time and in such manner as the Secretary prescribes by
regulations.
(2) Amounts permanently set aside
In the case of an estate, and in the case of a trust (other
than a trust meeting the specifications of subpart B) required by
the terms of its governing instrument to set aside amounts which
was -
(A) created on or before October 9, 1969, if -
(i) an irrevocable remainder interest is transferred to or
for the use of an organization described in section 170(c),
or
(ii) the grantor is at all times after October 9, 1969,
under a mental disability to change the terms of the trust;
or
(B) established by a will executed on or before October 9,
1969, if -
(i) the testator dies before October 9, 1972, without
having republished the will after October 9, 1969, by codicil
or otherwise,
(ii) the testator at no time after October 9, 1969, had the
right to change the portions of the will which pertain to the
trust, or
(iii) the will is not republished by codicil or otherwise
before October 9, 1972, and the testator is on such date and
at all times thereafter under a mental disability to
republish the will by codicil or otherwise,
there shall also be allowed as a deduction in computing its
taxable income any amount of the gross income, without
limitation, which pursuant to the terms of the governing
instrument is, during the taxable year, permanently set aside for
a purpose specified in section 170(c), or is to be used
exclusively for religious, charitable, scientific, literary, or
educational purposes, or for the prevention of cruelty to
children or animals, or for the establishment, acquisition,
maintenance, or operation of a public cemetery not operated for
profit. In the case of a trust, the preceding sentence shall
apply only to gross income earned with respect to amounts
transferred to the trust before October 9, 1969, or transferred
under a will to which subparagraph (B) applies.
(3) Pooled income funds
In the case of a pooled income fund (as defined in paragraph
(5)), there shall also be allowed as a deduction in computing its
taxable income any amount of the gross income attributable to
gain from the sale of a capital asset held for more than 1 year,
without limitation, which pursuant to the terms of the governing
instrument is, during the taxable year, permanently set aside for
a purpose specified in section 170(c).
(4) Adjustments
To the extent that the amount otherwise allowable as a
deduction under this subsection consists of gain described in
section 1202(a), proper adjustment shall be made for any
exclusion allowable to the estate or trust under section 1202. In
the case of a trust, the deduction allowed by this subsection
shall be subject to section 681 (relating to unrelated business
income).
(5) Definition of pooled income fund
For purposes of paragraph (3), a pooled income fund is a trust -
(A) to which each donor transfers property, contributing an
irrevocable remainder interest in such property to or for the
use of an organization described in section 170(b)(1)(A) (other
than in clauses (vii) or (viii)), and retaining an income
interest for the life of one or more beneficiaries (living at
the time of such transfer),
(B) in which the property transferred by each donor is
commingled with property transferred by other donors who have
made or make similar transfers,
(C) which cannot have investments in securities which are
exempt from the taxes imposed by this subtitle,
(D) which includes only amounts received from transfers which
meet the requirements of this paragraph,
(E) which is maintained by the organization to which the
remainder interest is contributed and of which no donor or
beneficiary of an income interest is a trustee, and
(F) from which each beneficiary of an income interest
receives income, for each year for which he is entitled to
receive the income interest referred to in subparagraph (A),
determined by the rate of return earned by the trust for such
year.
For purposes of determining the amount of any charitable
contribution allowable by reason of a transfer of property to a
pooled fund, the value of the income interest shall be determined
on the basis of the highest rate of return earned by the fund for
any of the 3 taxable years immediately preceding the taxable year
of the fund in which the transfer is made. In the case of funds
in existence less than 3 taxable years preceding the taxable year
of the fund in which a transfer is made the rate of return shall
be deemed to be 6 percent per annum, except that the Secretary
may prescribe a different rate of return.
(6) Taxable private foundations
In the case of a private foundation which is not exempt from
taxation under section 501(a) for the taxable year, the
provisions of this subsection shall not apply and the provisions
of section 170 shall apply.
(d) Net operating loss deduction
The benefit of the deduction for net operating losses provided by
section 172 shall be allowed to estates and trusts under
regulations prescribed by the Secretary.
(e) Deduction for depreciation and depletion
An estate or trust shall be allowed the deduction for
depreciation and depletion only to the extent not allowable to
beneficiaries under section 167(d) and 611(b).
(f) Amortization deductions
The benefit of the deductions for amortization provided by
sections 169 and 197 shall be allowed to estates and trusts in the
same manner as in the case of an individual. The allowable
deduction shall be apportioned between the income beneficiaries and
the fiduciary under regulations prescribed by the Secretary.
(g) Disallowance of double deductions
Amounts allowable under section 2053 or 2054 as a deduction in
computing the taxable estate of a decedent shall not be allowed as
a deduction (or as an offset against the sales price of property in
determining gain or loss) in computing the taxable income of the
estate or of any other person, unless there is filed, within the
time and in the manner and form prescribed by the Secretary, a
statement that the amounts have not been allowed as deductions
under section 2053 or 2054 and a waiver of the right to have such
amounts allowed at any time as deductions under section 2053 or
2054. Rules similar to the rules of the preceding sentence shall
apply to amounts which may be taken into account under section
2621(a)(2) or 2622(b). This subsection shall not apply with respect
to deductions allowed under part II (relating to income in respect
of decedents).
(h) Unused loss carryovers and excess deductions on termination
available to beneficiaries
If on the termination of an estate or trust, the estate or trust
has -
(1) a net operating loss carryover under section 172 or a
capital loss carryover under section 1212, or
(2) for the last taxable year of the estate or trust deductions
(other than the deductions allowed under subsections (b) or (c))
in excess of gross income for such year,
then such carryover or such excess shall be allowed as a deduction,
in accordance with regulations prescribed by the Secretary, to the
beneficiaries succeeding to the property of the estate or trust.
(i) Certain distributions by cemetery perpetual care funds
In the case of a cemetery perpetual care fund which -
(1) was created pursuant to local law by a taxable cemetery
corporation for the care and maintenance of cemetery property,
and
(2) is treated for the taxable year as a trust for purposes of
this subchapter,
any amount distributed by such fund for the care and maintenance of
gravesites which have been purchased from the cemetery corporation
before the beginning of the taxable year of the trust and with
respect to which there is an obligation to furnish care and
maintenance shall be considered to be a distribution solely for
purposes of sections 651 and 661, but only to the extent that the
aggregate amount so distributed during the taxable year does not
exceed $5 multiplied by the aggregate number of such gravesites.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 215; Pub. L. 87-834, Sec.
13(c)(2)(A), Oct. 16, 1962, 76 Stat. 1034; Pub. L. 88-272, title
II, Sec. 201(d)(6)(A), (B), Feb. 26, 1964, 78 Stat. 32; Pub. L. 89-
621, Sec. 2(a), Oct. 4, 1966, 80 Stat. 872; Pub. L. 91-172, title
II, Sec. 201(b), title VII, Sec. 704(b)(2), Dec. 30, 1969, 83 Stat.
558, 669; Pub. L. 92-178, title III, Sec. 303(c)(4), title VII,
Secs. 701(b), 702(b), Dec. 10, 1971, 85 Stat. 522, 561, 562; Pub.
L. 94-455, title XIV, Sec. 1402(b)(1)(J), (2), title XIX, Secs.
1901(b)(1)(H)(i), 1906(b)(13)(A), 1951(c)(2)(B), title XX, Sec.
2009(d), title XXI, Sec. 2124(a)(3)(B), Oct. 4, 1976, 90 Stat.
1732, 1791, 1834, 1840, 1896, 1917; Pub. L. 94-528, Sec. 1(a), Oct.
17, 1976, 90 Stat. 2483; Pub. L. 95-30, title I, Sec. 101(d)(9),
May 23, 1977, 91 Stat. 134; Pub. L. 95-600, title I, Sec.
113(a)(2)(B), Nov. 6, 1978, 92 Stat. 2778; Pub. L. 97-34, title II,
Sec. 212(d)(2)(D), Aug. 13, 1981, 95 Stat. 239; Pub. L. 98-369,
div. A, title IV, Sec. 474(r)(17), title X, Sec. 1001(b)(8), (e),
July 18, 1984, 98 Stat. 843, 1011, 1012; Pub. L. 99-514, title I,
Sec. 112(b)(2), title III, Sec. 301(b)(6), title VI, Sec.
612(b)(3), Oct. 22, 1986, 100 Stat. 2108, 2217, 2250; Pub. L. 101-
239, title VII, Sec. 7811(j)(3), Dec. 19, 1989, 103 Stat. 2411;
Pub. L. 101-508, title XI, Secs. 11801(c)(6)(B), 11812(b)(9), Nov.
5, 1990, 104 Stat. 1388-524, 1388-535; Pub. L. 103-66, title XIII,
Secs. 13113(d)(2), 13261(f)(2), Aug. 10, 1993, 107 Stat. 429, 539;
Pub. L. 104-188, title I, Sec. 1704(t)(8), Aug. 20, 1996, 110 Stat.
1887; Pub. L. 107-134, title I, Sec. 116(a), Jan. 23, 2002, 115
Stat. 2439.)
-MISC1-
AMENDMENTS
2002 - Subsec. (b). Pub. L. 107-134 reenacted heading without
change and amended text of subsec. (b) generally. Prior to
amendment, text read as follows: "An estate shall be allowed a
deduction of $600. A trust which, under its governing instrument,
is required to distribute all of its income currently shall be
allowed a deduction of $300. All other trusts shall be allowed a
deduction of $100. The deductions allowed by this subsection shall
be in lieu of the deductions allowed under section 151 (relating to
deduction for personal exemption)."
1996 - Subsec. (g). Pub. L. 104-188 substituted "under section
2621(a)(2)" for "under 2621(a)(2)".
1993 - Subsec. (c)(4). Pub. L. 103-66, Sec. 13113(d)(2), amended
heading and text of par. (4) generally. Prior to amendment, text
read as follows: "In the case of a trust, the deduction allowed by
this subsection shall be subject to section 681 (relating to
unrelated business income)."
Subsec. (f). Pub. L. 103-66, Sec. 13261(f)(2), substituted
"sections 169 and 197" for "section 169".
1990 - Subsec. (e). Pub. L. 101-508, Sec. 11812(b)(9),
substituted "167(d)" for "167(h)".
Subsec. (f). Pub. L. 101-508, Sec. 11801(c)(6)(B), substituted
"section 169" for "sections 169, 184, 187, and 188".
1989 - Subsec. (g). Pub. L. 101-239 inserted after first sentence
"Rules similar to the rules of the preceding sentence shall apply
to amounts which may be taken into account under 2621(a)(2) or
2622(b)."
1986 - Subsec. (a). Pub. L. 99-514, Sec. 112(b)(2), amended
subsec. (a) generally, substituting "Foreign tax credit allowed"
for "Credits against tax" in heading, striking out designation and
heading for par. (1), and striking out par. (2) which read as
follows: "An estate or trust shall not be allowed the credit
against tax for political contributions provided by section 24."
Subsec. (c)(4). Pub. L. 99-514, Sec. 301(b)(6), in heading,
substituted "Coordination with section 681" for "Adjustments", and
in text struck out first sentence which read as follows: "To the
extent that the amount otherwise allowable as a deduction under
this subsection consists of gain from the sale or exchange of
capital assets held for more than 6 months, proper adjustment shall
be made for any deduction allowable to the estate or trust under
section 1202 (relating to deduction for excess of capital gains
over capital losses)."
Subsec. (j). Pub. L. 99-514, Sec. 612(b)(3), struck out subsec.
(j) which provided a cross reference to section 116(c)(3).
1984 - Subsec. (a)(2). Pub. L. 98-369, Sec. 474(r)(17),
substituted "section 24" for "section 41".
Subsec. (c)(3), (4). Pub. L. 98-369, Sec. 1001(b)(8), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
1981 - Subsec. (f). Pub. L. 97-34 substituted "and 188" for "188,
and 191".
1978 - Subsecs. (i) to (k). Pub. L. 95-600 redesignated subsecs.
(j) and (k) as (i) and (j), respectively. Former subsec. (i), which
did not allow estates or trusts the deduction for contributions to
candidates for public office provided by section 218, was struck
out.
1977 - Subsec. (k). Pub. L. 95-30 struck out par. (1) which made
a cross reference to section 142(b)(4) for disallowance of the
standard deduction in the case of estates and trusts and struck out
"(2)" at beginning of single remaining cross reference.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(b)(1)(H)(i),
redesignated former pars. (2) and (3) as (1) and (2), respectively.
Former par. (1), relating to the credit against tax for partially
tax-exempt interest, was struck out.
Subsec. (c)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (c)(3), (4). Pub. L. 94-455, Sec. 1402(b)(2), provided
that "9 months" would be changed to "1 year".
Subsec. (c)(3), (4). Pub. L. 94-455, Sec. 1402(b)(1)(J), provided
that "6 months" would be changed to "9 months" for taxable years
beginning in 1977.
Subsecs. (c)(5), (d). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (f). Pub. L. 94-455, Secs. 1906(b)(13)(A), 1951(c)(2)(B),
2124(a)(3)(B), substituted "sections 169, 184, 187, 188, and 191"
for "sections 168, 169, 184, 187, and 188", and struck out "or his
delegate" after "Secretary".
Subsec. (g). Pub. L. 94-455, Secs. 1906(b)(13)(A), 2009(d),
inserted "(or as an offset against the sales price of property in
determining gain or loss)" after "shall not be allowed as a
deduction", and struck out "or his delegate" after "Secretary".
Subsec. (h). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
Subsecs. (j), (k). Pub. L. 94-528 added subsec. (j) and
redesignated former subsec. (j) as (k).
1971 - Subsec. (a)(3). Pub. L. 92-178, Sec. 701(b), added par.
(3).
Subsec. (f). Pub. L. 92-178, Sec. 303(c)(4), inserted reference
to section 188.
Subsecs. (i), (j). Pub. L. 92-178, Sec. 702(b), added subsec. (i)
and redesignated former subsec. (i) as (j).
1969 - Subsec. (c). Pub. L. 91-172, Sec. 201(b), designated
existing provisions, with minor changes, as par. (1) and added
pars. (2) to (6).
Subsec. (f). Pub. L. 91-172, Sec. 704(b)(2), struck out reference
to emergency or grain storage facilities both in heading and in
text, and inserted reference to sections 184 and 187 in text.
1966 - Subsec. (g). Pub. L. 89-621 inserted "or of any other
person" after "shall not be allowed as a deduction in computing the
taxable income of the estate".
1964 - Subsec. (a)(3). Pub. L. 88-272, Sec. 201(d)(6)(A), struck
out par. (3) which related to dividends received by individuals.
Subsec. (i). Pub. L. 88-272, Sec. 201(d)(6)(B), designated
existing provisions as par. (1) and added par. (2).
1962 - Subsec. (e). Pub. L. 87-834 substituted a reference to
section 167(h) for a reference to section 167(g).
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-134, title I, Sec. 116(b), Jan. 23, 2002, 115 Stat.
2440, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years ending on or after
September 11, 2001."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13113(d)(2) of Pub. L. 103-66 applicable to
stock issued after Aug. 10, 1993, see section 13113(e) of Pub. L.
103-66, set out as a note under section 53 of this title.
Amendment by section 13261(f)(2) of Pub. L. 103-66 applicable,
except as otherwise provided, with respect to property acquired
after Aug. 10, 1993, see section 13261(g) of Pub. L. 103-66, set
out as an Effective Date note under section 197 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11812(b)(9) of Pub. L. 101-508 applicable to
property placed in service after Nov. 5, 1990, but not applicable
to any property to which section 168 of this title does not apply
by reason of subsec. (f)(5) of section 168, and not applicable to
rehabilitation expenditures described in section 252(f)(5) of Pub.
L. 99-514, see section 11812(c) of Pub. L. 101-508, set out as a
note under section 42 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 112(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 301(b)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 301(c) of
Pub. L. 99-514, set out as a note under section 62 of this title.
Amendment by section 612(b)(3) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 612(c) of
Pub. L. 99-514, set out as a note under section 301 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(r)(17) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 1001(b)(8) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to expenditures incurred
after Dec. 31, 1981, in taxable years ending after such date, see
section 212(e) of Pub. L. 97-34, set out as a note under section 46
of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 113(d) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section and section 24 of this
title and repealing section 218 of this title] shall apply with
respect to contributions the payment of which is made after
December 31, 1978, in taxable years beginning after such date."
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(b)(1)(H)(i) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
Amendment by section 1951(c)(2)(B) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1952(d) of Pub. L. 94-455, set out as a note under section 72 of
this title.
Section 2009(e)(4) of Pub. L. 94-455 provided that: "The
amendment made by subsection (d) [amending this section] shall
apply to taxable years ending after the date of the enactment of
this Act [Oct. 4, 1976]."
Section 2124(a)(4) of Pub. L. 94-455 provided that: "The
amendments made by this subsection [enacting section 191 of this
title and amending this section and sections 1082, 1245, and 1250
of this title] shall apply with respect to additions to capital
account made after June 14, 1976 and before June 15, 1981."
Section 1(b) of Pub. L. 94-528 provided that: "The amendments
made by subsection (a) [amending this section] shall take effect on
October 1, 1977, and shall apply to amounts distributed during
taxable years ending after December 31, 1963."
EFFECTIVE DATE OF 1971 AMENDMENT
Section 303(d) of Pub. L. 92-178 provided that: "The amendments
made by this section [enacting section 188 of this title and
amending this section and sections 57, 1082, 1245, and 1250 of this
title] shall apply to taxable years ending after December 31,
1971."
Section 703 of Pub. L. 92-178 provided that: "The amendments made
by this title [enacting sections 24 and 218 of this title and
amending this section] shall apply to taxable years ending after
December 31, 1971, but only with respect to political
contributions, payment of which is made after such date."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 201(b) of Pub. L. 91-172 applicable with
respect to amounts paid, permanently set aside, or to be used for a
charitable purpose in taxable years beginning after Dec. 31, 1969,
except that subsec. (c)(5) applicable to transfers in trust made
after July 31, 1969, see section 201(g) of Pub. L. 91-172, set out
as a note under section 170 of this title.
Amendment by section 704(b)(2) of Pub. L. 91-172 applicable to
taxable years ending after Dec. 31, 1968, see section 704(c) of
Pub. L. 91-172, set out as an Effective Date note under section 169
of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 2(b) of Pub. L. 89-621 provided that: "The amendment made
by subsection (a) [amending this section] shall apply to taxable
years ending after the date of the enactment of this Act [Oct. 4,
1966], but only with respect to amounts paid or incurred, and
losses sustained, after such date."
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to dividends received
after December 31, 1964, in taxable years ending after such date,
see section 201(e) of Pub. L. 88-272, set out as a note under
section 22 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable to taxable years beginning
after Dec. 31, 1961, and ending after Oct. 16, 1962, see section
13(g) of Pub. L. 87-834, set out as an Effective Date note under
section 1245 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-FOOTNOTE-
(!1) So in original. Probably should be "than".
-End-
-CITE-
26 USC Sec. 643 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart A - General Rules for Taxation of Estates and Trusts
-HEAD-
Sec. 643. Definitions applicable to subparts A, B, C, and D
-STATUTE-
(a) Distributable net income
For purposes of this part, the term "distributable net income"
means, with respect to any taxable year, the taxable income of the
estate or trust computed with the following modifications -
(1) Deduction for distributions
No deduction shall be taken under sections 651 and 661
(relating to additional deductions).
(2) Deduction for personal exemption
No deduction shall be taken under section 642(b) (relating to
deduction for personal exemptions).
(3) Capital gains and losses
Gains from the sale or exchange of capital assets shall be
excluded to the extent that such gains are allocated to corpus
and are not (A) paid, credited, or required to be distributed to
any beneficiary during the taxable year, or (B) paid, permanently
set aside, or to be used for the purposes specified in section
642(c). Losses from the sale or exchange of capital assets shall
be excluded, except to the extent such losses are taken into
account in determining the amount of gains from the sale or
exchange of capital assets which are paid, credited, or required
to be distributed to any beneficiary during the taxable year. The
exclusion under section 1202 shall not be taken into account.
(4) Extraordinary dividends and taxable stock dividends
For purposes only of subpart B (relating to trusts which
distribute current income only), there shall be excluded those
items of gross income constituting extraordinary dividends or
taxable stock dividends which the fiduciary, acting in good
faith, does not pay or credit to any beneficiary by reason of his
determination that such dividends are allocable to corpus under
the terms of the governing instrument and applicable local law.
(5) Tax-exempt interest
There shall be included any tax-exempt interest to which
section 103 applies, reduced by any amounts which would be
deductible in respect of disbursements allocable to such interest
but for the provisions of section 265 (relating to disallowance
of certain deductions).
(6) Income of foreign trust
In the case of a foreign trust -
(A) There shall be included the amounts of gross income from
sources without the United States, reduced by any amounts which
would be deductible in respect of disbursements allocable to
such income but for the provisions of section 265(a)(1)
(relating to disallowance of certain deductions).
(B) Gross income from sources within the United States shall
be determined without regard to section 894 (relating to income
exempt under treaty).
(C) Paragraph (3) shall not apply to a foreign trust. In the
case of such a trust, there shall be included gains from the
sale or exchange of capital assets, reduced by losses from such
sales or exchanges to the extent such losses do not exceed
gains from such sales or exchanges.
(7) Abusive transactions
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this part,
including regulations to prevent avoidance of such purposes.
If the estate or trust is allowed a deduction under section 642(c),
the amount of the modifications specified in paragraphs (5) and (6)
shall be reduced to the extent that the amount of income which is
paid, permanently set aside, or to be used for the purposes
specified in section 642(c) is deemed to consist of items specified
in those paragraphs. For this purpose, such amount shall (in the
absence of specific provisions in the governing instrument) be
deemed to consist of the same proportion of each class of items of
income of the estate or trust as the total of each class bears to
the total of all classes.
(b) Income
For purposes of this subpart and subparts B, C, and D, the term
"income", when not preceded by the words "taxable", "distributable
net", "undistributed net", or "gross", means the amount of income
of the estate or trust for the taxable year determined under the
terms of the governing instrument and applicable local law. Items
of gross income constituting extraordinary dividends or taxable
stock dividends which the fiduciary, acting in good faith,
determines to be allocable to corpus under the terms of the
governing instrument and applicable local law shall not be
considered income.
(c) Beneficiary
For purposes of this part, the term "beneficiary" includes heir,
legatee, devisee.
(d) Coordination with back-up withholding
Except to the extent otherwise provided in regulations, this
subchapter shall be applied with respect to payments subject to
withholding under section 3406 -
(1) by allocating between the estate or trust and its
beneficiaries any credit allowable under section 31(c) (on the
basis of their respective shares of any such payment taken into
account under this subchapter),
(2) by treating each beneficiary to whom such credit is
allocated as if an amount equal to such credit has been paid to
him by the estate or trust, and
(3) by allowing the estate or trust a deduction in an amount
equal to the credit so allocated to beneficiaries.
(e) Treatment of property distributed in kind
(1) Basis of beneficiary
The basis of any property received by a beneficiary in a
distribution from an estate or trust shall be -
(A) the adjusted basis of such property in the hands of the
estate or trust immediately before the distribution, adjusted
for
(B) any gain or loss recognized to the estate or trust on the
distribution.
(2) Amount of distribution
In the case of any distribution of property (other than cash),
the amount taken into account under sections 661(a)(2) and
662(a)(2) shall be the lesser of -
(A) the basis of such property in the hands of the
beneficiary (as determined under paragraph (1)), or
(B) the fair market value of such property.
(3) Election to recognize gain
(A) In general
In the case of any distribution of property (other than cash)
to which an election under this paragraph applies -
(i) paragraph (2) shall not apply,
(ii) gain or loss shall be recognized by the estate or
trust in the same manner as if such property had been sold to
the distributee at its fair market value, and
(iii) the amount taken into account under sections
661(a)(2) and 662(a)(2) shall be the fair market value of
such property.
(B) Election
Any election under this paragraph shall apply to all
distributions made by the estate or trust during a taxable year
and shall be made on the return of such estate or trust for
such taxable year.
Any such election, once made, may be revoked only with the
consent of the Secretary.
(4) Exception for distributions described in section 663(a)
This subsection shall not apply to any distribution described
in section 663(a).
(f) Treatment of multiple trusts
For purposes of this subchapter, under regulations prescribed by
the Secretary, 2 or more trusts shall be treated as 1 trust if -
(1) such trusts have substantially the same grantor or grantors
and substantially the same primary beneficiary or beneficiaries,
and
(2) a principal purpose of such trusts is the avoidance of the
tax imposed by this chapter.
For purposes of the preceding sentence, a husband and wife shall be
treated as 1 person.
(g) Certain payments of estimated tax treated as paid by
beneficiary
(1) In general
In the case of a trust -
(A) the trustee may elect to treat any portion of a payment
of estimated tax made by such trust for any taxable year of the
trust as a payment made by a beneficiary of such trust,
(B) any amount so treated shall be treated as paid or
credited to the beneficiary on the last day of such taxable
year, and
(C) for purposes of subtitle F, the amount so treated -
(i) shall not be treated as a payment of estimated tax made
by the trust, but
(ii) shall be treated as a payment of estimated tax made by
such beneficiary on January 15 following the taxable year.
(2) Time for making election
An election under paragraph (1) shall be made on or before the
65th day after the close of the taxable year of the trust and in
such manner as the Secretary may prescribe.
(3) Extension to last year of estate
In the case of a taxable year reasonably expected to be the
last taxable year of an estate -
(A) any reference in this subsection to a trust shall be
treated as including a reference to an estate, and
(B) the fiduciary of the estate shall be treated as the
trustee.
(h) Distributions by certain foreign trusts through nominees
For purposes of this part, any amount paid to a United States
person which is derived directly or indirectly from a foreign trust
of which the payor is not the grantor shall be deemed in the year
of payment to have been directly paid by the foreign trust to such
United States person.
(i) Loans from foreign trusts
For purposes of subparts B, C, and D -
(1) General rule
Except as provided in regulations, if a foreign trust makes a
loan of cash or marketable securities directly or indirectly to -
(A) any grantor or beneficiary of such trust who is a United
States person, or
(B) any United States person not described in subparagraph
(A) who is related to such grantor or beneficiary,
the amount of such loan shall be treated as a distribution by
such trust to such grantor or beneficiary (as the case may be).
(2) Definitions and special rules
For purposes of this subsection -
(A) Cash
The term "cash" includes foreign currencies and cash
equivalents.
(B) Related person
(i) In general
A person is related to another person if the relationship
between such persons would result in a disallowance of losses
under section 267 or 707(b). In applying section 267 for
purposes of the preceding sentence, section 267(c)(4) shall
be applied as if the family of an individual includes the
spouses of the members of the family.
(ii) Allocation
If any person described in paragraph (1)(B) is related to
more than one person, the grantor or beneficiary to whom the
treatment under this subsection applies shall be determined
under regulations prescribed by the Secretary.
(C) Exclusion of tax-exempts
The term "United States person" does not include any entity
exempt from tax under this chapter.
(D) Trust not treated as simple trust
Any trust which is treated under this subsection as making a
distribution shall be treated as not described in section 651.
(3) Subsequent transactions regarding loan principal
If any loan is taken into account under paragraph (1), any
subsequent transaction between the trust and the original
borrower regarding the principal of the loan (by way of complete
or partial repayment, satisfaction, cancellation, discharge, or
otherwise) shall be disregarded for purposes of this title.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 217; Pub. L. 87-834, Sec. 7(a),
Oct. 16, 1962, 76 Stat. 985; Pub. L. 94-455, title X, Sec. 1013(c),
(e)(2), Oct. 4, 1976, 90 Stat. 1615, 1616; Pub. L. 96-223, title
IV, Sec. 404(b)(4), Apr. 2, 1980, 94 Stat. 306; Pub. L. 97-34,
title III, Sec. 301(b)(4), (6)(B), Aug. 13, 1981, 95 Stat. 270;
Pub. L. 97-248, title III, Secs. 302(b)(1), 308(a), Sept. 3, 1982,
96 Stat. 586, 591; Pub. L. 97-448, title I, Sec. 103(a)(3), Jan.
12, 1983, 96 Stat. 2375; Pub. L. 98-67, title I, Sec. 102(a), Aug.
5, 1983, 97 Stat. 369; Pub. L. 98-369, div. A, title I, Secs.
81(a), 82(a), title VII, Sec. 722(h)(3), July 18, 1984, 98 Stat.
597, 598, 975; Pub. L. 99-514, title III, Sec. 301(b)(7), title VI,
Sec. 612(b)(4), title XIV, Sec. 1404(b), title XVIII, Sec. 1806(a),
(c), Oct. 22, 1986, 100 Stat. 2217, 2250, 2713, 2810, 2811; Pub. L.
100-647, title I, Sec. 1014(d)(3), (4), Nov. 10, 1988, 102 Stat.
3561; Pub. L. 101-239, title VII, Sec. 7811(b), (f)(1), Dec. 19,
1989, 103 Stat. 2406, 2409; Pub. L. 103-66, title XIII, Sec.
13113(d)(3), Aug. 10, 1993, 107 Stat. 430; Pub. L. 104-188, title
I, Secs. 1904(c)(1), 1906(b), (c)(1), Aug. 20, 1996, 110 Stat.
1912, 1915.)
-MISC1-
AMENDMENTS
1996 - Subsec. (a)(7). Pub. L. 104-188, Sec. 1906(b), added par.
(7).
Subsec. (h). Pub. L. 104-188, Sec. 1904(c)(1), added subsec. (h).
Subsec. (i). Pub. L. 104-188, Sec. 1906(c)(1), added subsec. (i).
1993 - Subsec. (a)(3). Pub. L. 103-66 inserted at end "The
exclusion under section 1202 shall not be taken into account."
1989 - Subsec. (a)(6)(A). Pub. L. 101-239, Sec. 7811(f)(1),
substituted "section 265(a)(1)" for "section 265(1)".
Subsec. (a)(6)(C). Pub. L. 101-239, Sec. 7811(b)(1), struck out
"(i)" after "such a trust," and ", and (ii) the deduction under
section 1202 (relating to deduction for excess of capital gains
over capital losses) shall not be taken into account" before period
at end.
Subsec. (a)(6)(D). Pub. L. 101-239, Sec. 7811(b)(2), struck out
subpar. (D) which read as follows: "Effective for distributions
made in taxable years beginning after December 31, 1975, the
undistributed net income of each foreign trust for each taxable
year beginning on or before December 31, 1975, remaining
undistributed at the close of the last taxable year beginning on or
before December 31, 1975, shall be redetermined by taking into
account the deduction allowed by section 1202."
1988 - Subsec. (g)(1). Pub. L. 100-647, Sec. 1014(d)(3)(A),
struck out at end "The preceding sentence shall apply only to the
extent the payments of estimated tax made by the trust for the
taxable year exceed the tax imposed by this chapter shown on its
return for the taxable year."
Subsec. (g)(2). Pub. L. 100-647, Sec. 1014(d)(3)(B), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "An
election under paragraph (1) may be made -
"(A) only on the trust's return of the tax imposed by this
chapter for the taxable year, and
"(B) only if such return is filed on or before the 65th day
after the close of the taxable year."
Subsec. (g)(3). Pub. L. 100-647, Sec. 1014(d)(4), added par. (3).
1986 - Subsec. (a)(3). Pub. L. 99-514, Sec. 301(b)(7), struck out
"The deduction under section 1202 (relating to deduction for excess
of capital gains over capital losses) shall not be taken into
account."
Subsec. (a)(7). Pub. L. 99-514, Sec. 612(b)(4), struck out par.
(7), dividends or interest, which read as follows: "There shall be
included the amount of any dividends or interest excluded from
gross income pursuant to section 116 (relating to partial exclusion
of dividends) or section 128 (relating to certain interest)."
Subsec. (d). Pub. L. 99-514, Sec. 1806(c)(1), redesignated
subsec. (d), relating to treatment of property distributed in kind,
as (e). Former subsec. (e) redesignated (f).
Subsec. (e). Pub. L. 99-514, Sec. 1806(a), (c)(1), redesignated
subsec. (d) relating to treatment of property distributed in kind
as (e) and amended par. (3)(B) generally, substituting "shall apply
to all distributions made by the estate or trust during a taxable
year and shall be made on the return of such estate or trust for
such taxable year" for "shall be made by the estate or trust on its
return for the taxable year for which the distribution was made".
Former subsec. (e) redesignated (f).
Subsec. (f). Pub. L. 99-514, Sec. 1806(c)(2), redesignated
subsec. (e) as (f).
Subsec. (g). Pub. L. 99-514, Sec. 1404(b), added subsec. (g).
1984 - Subsec. (d). Pub. L. 98-369, Sec. 81(a), added subsec. (d)
relating to treatment of property distributed in kind.
Pub. L. 98-369, Sec. 722(h)(3), added subsec. (d) relating to
coordination with back-up withholding.
Subsec. (e). Pub. L. 98-369, Sec. 82(a), added subsec. (e).
1983 - Subsec. (a)(7). Pub. L. 97-448 substituted "section 116
(relating to partial exclusion of dividends) or section 128
(relating to certain interest)" for "section 116 (relating to
partial exclusion of dividends or interest received) or section 128
(relating to interest on certain savings certificates)".
Subsec. (d). Pub. L. 98-67 repealed amendments made by Pub. L. 97-
248. See 1982 Amendment note below.
1982 - Subsec. (d). Pub. L. 97-248 provided that, applicable to
payments of interest, dividends, and patronage dividends paid or
credited after June 30, 1983, this section is amended by adding
subsec. (d) relating to coordination with withholding on interest
and dividends. Section 102(a), (b) of Pub. L. 98-67, title I, Aug.
5, 1983, 97 Stat. 369, repealed subtitle A (Secs. 301-308) of title
III of Pub. L. 97-248 as of the close of June 30, 1983, and
provided that the Internal Revenue Code of 1954 (this title) shall
be applied and administered (subject to certain exceptions) as if
such subtitle A (and the amendments made by such subtitle A) had
not been enacted.
1981 - Subsec. (a)(7). Pub. L. 97-34, Sec. 301(b)(6)(A), inserted
reference to "interest" in heading and text, which continued the
amendment made by Pub. L. 96-223.
Pub. L. 97-34, Sec. 301(b)(4), inserted "or section 128 (relating
to interest on certain savings certificates)" after "received)".
1980 - Subsec. (a)(7). Pub. L. 96-223 inserted "or interest"
after "dividends" in heading and text.
1976 - Subsec. (a)(6)(C). Pub. L. 94-455, Sec. 1013(c)(1), struck
out "created by a United States person" after "foreign trust".
Subsec. (a)(6)(D). Pub. L. 94-455, Sec. 1013(c)(2), added subpar.
(D).
Subsec. (d). Pub. L. 94-455, Sec. 1013(e)(2), struck out subsec.
(a) which defined a foreign trust created by a United States
person.
1962 - Subsec. (a)(6). Pub. L. 87-834, Sec. 7(a)(1), substituted
"Income of foreign trust" for "Foreign income" in heading,
designated existing provisions as subpar. (A), and added subpars.
(B) and (C).
Subsec. (d). Pub. L. 87-834, Sec. 7(a)(2), added subsec. (d).
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1904(d) of Pub. L. 104-188 provided that:
"(1) In general. - Except as provided by paragraph (2), the
amendments made by this section [amending this section and sections
665, 672, and 901 of this title] shall take effect on the date of
the enactment of this Act [Aug. 20, 1996].
"(2) Exception for certain trusts. - The amendments made by this
section shall not apply to any trust -
"(A) which is treated as owned by the grantor under section 676
or 677 (other than subsection (a)(3) thereof) of the Internal
Revenue Code of 1986, and
"(B) which is in existence on September 19, 1995.
The preceding sentence shall not apply to the portion of any such
trust attributable to any transfer to such trust after September
19, 1995."
Section 1906(d)(2), (3) of Pub. L. 104-188 provided that:
"(2) Abusive transactions. - The amendment made by subsection (b)
[amending this section] shall take effect on the date of the
enactment of this Act [Aug. 20, 1996].
"(3) Loans from trusts. - The amendment made by subsection (c)
[amending this section and section 7872 of this title] shall apply
to loans of cash or marketable securities made after September 19,
1995."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to stock issued after Aug.
10, 1993, see section 13113(e) of Pub. L. 103-66, set out as a note
under section 53 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 301(b)(7) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 301(c) of
Pub. L. 99-514, set out as a note under section 62 of this title.
Amendment by section 612(b)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 612(c) of
Pub. L. 99-514, set out as a note under section 301 of this title.
Section 1404(d) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 6215,
6601, and 6654 of this title and repealing section 6152 of this
title] shall apply to taxable years beginning after December 31,
1986."
Amendment by section 1806(a), (c) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 81(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to distributions after June 1, 1984, in
taxable years ending after such date.
"(2) Time for making election. - In the case of any distribution
before the date of the enactment of this Act [July 18, 1984] -
"(A) the time for making an election under section 643(d)(3) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as
added by this section) shall not expire before January 1, 1985,
and
"(B) the requirement that such election be made on the return
of the estate or trust shall not apply."
Section 82(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
title XVIII, Sec. 1806(b), Oct. 22, 1986, 100 Stat. 2811, provided
that: "The amendment made by subsection (a) [amending this section]
shall apply to taxable years beginning after March 1, 1984; except
that, in the case of a trust which was irrevocable on March 1,
1984, such amendment shall so apply only to that portion of the
trust which is attributable to contributions to corpus after March
1, 1984."
Section 722(h)(5) of Pub. L. 98-369 provided that:
"(A) Except as provided in this paragraph, the amendments made by
this subsection [amending this section and sections 3405, 3406, and
6041 of this title] shall apply as if included in the amendments
made by the Interest and Dividend Tax Compliance Act of 1983 [Pub.
L. 98-67].
"(B) The amendments made by paragraph (4) [amending sections 3405
and 6041 of this title] shall apply to payments or distributions
after December 31, 1984, unless the payor elects to have such
amendments apply to payments or distributions before January 1,
1985."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 301(b)(4) of Pub. L. 97-34 applicable to
taxable years ending after Sept. 30, 1981, and amendment by section
301(b)(6)(A) of Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1981, see section 301(d) of Pub. L. 97-34, set out
as a note under section 265 of this title.
EFFECTIVE AND TERMINATION DATES OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 applicable with respect to taxable
years beginning after Dec. 31, 1980, and before Jan. 1, 1982, see
section 404(c) of Pub. L. 96-223, set out as a note under section
265 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1013(e)(2) of Pub. L.
94-455, see section 1013(f)(1) of Pub. L. 94-455, set out as an
Effective Date note under section 679 of this title.
Section 1013(f)(2) of Pub. L. 94-455 provided that: "The
amendments made by subsection (c) [amending this section] shall
apply to taxable years beginning after December 31, 1975."
EFFECTIVE DATE OF 1962 AMENDMENT
Section 7(j) of Pub. L. 87-834 provided that: "The amendments
made by this section [amending this section and sections 665, 666,
and 668 of this title and enacting section 669 of this title]
(other than by subsections (f), (g) and (h) [enacting sections 6048
and 6677 of this title and amending section 7701 of this title]),
shall apply with respect to distributions made after December 31,
1962."
TREATMENT AS SINGLE TRUST
Section 1018(e) of Pub. L. 100-647 provided that: "If -
"(1) on a return for the 1st taxable year of the trusts
involved beginning after March 1, 1984, 2 or more trusts were
treated as a single trust for purposes of the tax imposed by
chapter 1 of the Internal Revenue Code of 1954 [now 1986],
"(2) such trusts would have been required to be so treated but
for the amendment made by section 1806(b) of the Reform Act [Pub.
L. 99-514, which amended provisions set out as an Effective Date
of 1984 Amendment note above], and
"(3) such trusts did not accumulate any income during such
taxable year and did not make any accumulation distributions
during such taxable year,
then, notwithstanding the amendment made by section 1806(b) of the
Reform Act, such trusts shall be treated as one trust for purposes
of such taxable year."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 644 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart A - General Rules for Taxation of Estates and Trusts
-HEAD-
Sec. 644. Taxable year of trusts
-STATUTE-
(a) In general
For purposes of this subtitle, the taxable year of any trust
shall be the calendar year.
(b) Exception for trusts exempt from tax and charitable trusts
Subsection (a) shall not apply to a trust exempt from taxation
under section 501(a) or to a trust described in section 4947(a)(1).
-SOURCE-
(Added Pub. L. 99-514, title XIV, Sec. 1403(a), Oct. 22, 1986, 100
Stat. 2713, Sec. 645; renumbered Sec. 644, Pub. L. 105-34, title V,
Sec. 507(b)(1), Aug. 5, 1997, 111 Stat. 856.)
-MISC1-
PRIOR PROVISIONS
A prior section 644, added Pub. L. 94-455, title VII, Sec.
701(e)(1), Oct. 4, 1976, 90 Stat. 1578; amended Pub. L. 95-600,
title VII, Sec. 701(p)(1)-(3), Nov. 6, 1978, 92 Stat. 2908; Pub. L.
96-471, Sec. 2(b)(4), Oct. 19, 1980, 94 Stat. 2254; Pub. L. 99-514,
title XV, Sec. 1511(c)(5), Oct. 22, 1986, 100 Stat. 2745, related
to special rule for gain on property transferred to trust at less
than fair market value, prior to repeal by Pub. L. 105-34, title V,
Sec. 507(b)(1), Aug. 5, 1997, 111 Stat. 856.
AMENDMENTS
1997 - Pub. L. 105-34 renumbered section 645 of this title as
this section.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 507(c)(2) of Pub. L. 105-34 provided that: "The
amendments made by subsection (b) [amending section 706 of this
title, repealing section 644 of this title, and renumbering section
645 of this title as this section] shall apply to sales or
exchanges after the date of the enactment of this Act [Aug. 5,
1997]."
EFFECTIVE DATE; TRANSITION RULE
Section 1403(c) of Pub. L. 99-514 provided that:
"(1) Effective date. - The amendments made by this section
[enacting this section] shall apply to taxable years beginning
after December 31, 1986.
"(2) Transition rule. - With respect to any trust beneficiary who
is required to include in gross income amounts under sections
652(a) or 662(a) of the Internal Revenue Code of 1986 in the 1st
taxable year of the beneficiary beginning after December 31, 1986,
by reason of any short taxable year of the trust required by the
amendments made by this section, such income shall be ratably
included in the income of the trust beneficiary over the 4-taxable
year period beginning with such taxable year."
APPLICATION OF TRANSITION RULES TO TRUST BENEFICIARIES TO WHICH
SECTION 664 APPLIES
Pub. L. 100-647, title I, Sec. 1014(c), Nov. 10, 1988, 102 Stat.
3559, provided that:
"(1) If a beneficiary of a trust to which section 664 of the 1986
Code applies elects (at such time and in such manner as the
Secretary of the Treasury or his delegate may prescribe) to have
this paragraph apply, such beneficiary shall be entitled to the
benefits of section 1403(c)(2) of the Reform Act [Pub. L. 99-514,
set out as an Effective Date; Transition Rule note above] with
respect to amounts included in gross income under section 664(b) of
the 1986 Code in the same manner as if such amounts were included
in gross income under section 652(a) of the 1986 Code.
"(2) Any trust beneficiary may elect (at such time and in such
manner as the Secretary of the Treasury or his delegate may
prescribe) to waive the benefits of section 1403(c)(2) of the
Reform Act.
"(3)(A) For purposes of determining the gross income of any pass-
thru entity, such pass-thru entity shall not be allowed the
benefits of section 806(e)(2)(C) [Pub. L. 99-514, set out as an
Effective Date of 1986 Amendment note under section 1378 of this
title] (other than with respect to income from a common trust fund)
or 1403(c)(2) of the Reform Act if such pass-thru entity is
required to change its taxable year by reason of the amendments
made by section 806 or 1403 of the Reform Act [Pub. L. 99-514,
which enacted this section and amended sections 267, 441, 706, and
1378 of this title].
"(B) For purposes of subparagraph (A), the term 'pass-thru
entity' means any trust, partnership, S corporation, or common
trust fund.
"(4) If any trust was required to change its taxable year by the
amendments made by section 1403 of the Reform Act [Pub. L. 99-514,
which enacted this section], such change shall be treated as
initiated by such trust and approved by the Secretary of the
Treasury or his delegate."
-End-
-CITE-
26 USC Sec. 645 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart A - General Rules for Taxation of Estates and Trusts
-HEAD-
Sec. 645. Certain revocable trusts treated as part of estate
-STATUTE-
(a) General rule
For purposes of this subtitle, if both the executor (if any) of
an estate and the trustee of a qualified revocable trust elect the
treatment provided in this section, such trust shall be treated and
taxed as part of such estate (and not as a separate trust) for all
taxable years of the estate ending after the date of the decedent's
death and before the applicable date.
(b) Definitions
For purposes of subsection (a) -
(1) Qualified revocable trust
The term "qualified revocable trust" means any trust (or
portion thereof) which was treated under section 676 as owned by
the decedent of the estate referred to in subsection (a) by
reason of a power in the grantor (determined without regard to
section 672(e)).
(2) Applicable date
The term "applicable date" means -
(A) if no return of tax imposed by chapter 11 is required to
be filed, the date which is 2 years after the date of the
decedent's death, and
(B) if such a return is required to be filed, the date which
is 6 months after the date of the final determination of the
liability for tax imposed by chapter 11.
(c) Election
The election under subsection (a) shall be made not later than
the time prescribed for filing the return of tax imposed by this
chapter for the first taxable year of the estate (determined with
regard to extensions) and, once made, shall be irrevocable.
-SOURCE-
(Added Pub. L. 105-34, title XIII, Sec. 1305(a), Aug. 5, 1997, 111
Stat. 1040, Sec. 646; renumbered Sec. 645, Pub. L. 105-206, title
VI, Sec. 6013(a)(1), July 22, 1998, 112 Stat. 819.)
-MISC1-
PRIOR PROVISIONS
A prior section 645 was renumbered section 644 of this title.
AMENDMENTS
1998 - Pub. L. 105-206 renumbered section 646 of this title as
this section.
EFFECTIVE DATE
Section 1305(d) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting this section and amending section
2652 of this title] shall apply with respect to estates of
decedents dying after the date of the enactment of this Act [Aug.
5, 1997]."
-End-
-CITE-
26 USC Sec. 646 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart A - General Rules for Taxation of Estates and Trusts
-HEAD-
Sec. 646. Tax treatment of electing Alaska Native Settlement Trusts
-STATUTE-
(a) In general
If an election under this section is in effect with respect to
any Settlement Trust, the provisions of this section shall apply in
determining the income tax treatment of the Settlement Trust and
its beneficiaries with respect to the Settlement Trust.
(b) Taxation of income of trust
Except as provided in subsection (f)(1)(B)(ii) -
(1) In general
There is hereby imposed on the taxable income of an electing
Settlement Trust, other than its net capital gain, a tax at the
lowest rate specified in section 1(c).
(2) Capital gain
In the case of an electing Settlement Trust with a net capital
gain for the taxable year, a tax is hereby imposed on such gain
at the rate of tax which would apply to such gain if the taxpayer
were subject to a tax on its other taxable income at only the
lowest rate specified in section 1(c).
Any such tax shall be in lieu of the income tax otherwise imposed
by this chapter on such income or gain.
(c) One-time election
(1) In general
A Settlement Trust may elect to have the provisions of this
section apply to the trust and its beneficiaries.
(2) Time and method of election
An election under paragraph (1) shall be made by the trustee of
such trust -
(A) on or before the due date (including extensions) for
filing the Settlement Trust's return of tax for the first
taxable year of such trust ending after the date of the
enactment of this section, and
(B) by attaching to such return of tax a statement
specifically providing for such election.
(3) Period election in effect
Except as provided in subsection (f), an election under this
subsection -
(A) shall apply to the first taxable year described in
paragraph (2)(A) and all subsequent taxable years, and
(B) may not be revoked once it is made.
(d) Contributions to trust
(1) Beneficiaries of electing trust not taxed on contributions
In the case of an electing Settlement Trust, no amount shall be
includible in the gross income of a beneficiary of such trust by
reason of a contribution to such trust.
(2) Earnings and profits
The earnings and profits of the sponsoring Native Corporation
shall not be reduced on account of any contribution to such
Settlement Trust.
(e) Tax treatment of distributions to beneficiaries
Amounts distributed by an electing Settlement Trust during any
taxable year shall be considered as having the following
characteristics in the hands of the recipient beneficiary:
(1) First, as amounts excludable from gross income for the
taxable year to the extent of the taxable income of such trust
for such taxable year (decreased by any income tax paid by the
trust with respect to the income) plus any amount excluded from
gross income of the trust under section 103.
(2) Second, as amounts excludable from gross income to the
extent of the amount described in paragraph (1) for all taxable
years for which an election is in effect under subsection (c)
with respect to the trust, and not previously taken into account
under paragraph (1).
(3) Third, as amounts distributed by the sponsoring Native
Corporation with respect to its stock (within the meaning of
section 301(a)) during such taxable year and taxable to the
recipient beneficiary as amounts described in section 301(c)(1),
to the extent of current or accumulated earnings and profits of
the sponsoring Native Corporation as of the close of such taxable
year after proper adjustment is made for all distributions made
by the sponsoring Native Corporation during such taxable year.
(4) Fourth, as amounts distributed by the trust in excess of
the distributable net income of such trust for such taxable year.
Amounts distributed to which paragraph (3) applies shall not be
treated as a corporate distribution subject to section 311(b), and
for purposes of determining the amount of a distribution for
purposes of paragraph (3) and the basis to the recipients, section
643(e) and not section 301(b) or (d) shall apply.
(f) Special rules where transfer restrictions modified
(1) Transfer of beneficial interests
If, at any time, a beneficial interest in an electing
Settlement Trust may be disposed of to a person in a manner which
would not be permitted by section 7(h) of the Alaska Native
Claims Settlement Act (43 U.S.C. 1606(h)) if such interest were
Settlement Common Stock -
(A) no election may be made under subsection (c) with respect
to such trust, and
(B) if such an election is in effect as of such time -
(i) such election shall cease to apply as of the first day
of the taxable year in which such disposition is first
permitted,
(ii) the provisions of this section shall not apply to such
trust for such taxable year and all taxable years thereafter,
and
(iii) the distributable net income of such trust shall be
increased by the current or accumulated earnings and profits
of the sponsoring Native Corporation as of the close of such
taxable year after proper adjustment is made for all
distributions made by the sponsoring Native Corporation
during such taxable year.
In no event shall the increase under clause (iii) exceed the fair
market value of the trust's assets as of the date the beneficial
interest of the trust first becomes so disposable. The earnings
and profits of the sponsoring Native Corporation shall be
adjusted as of the last day of such taxable year by the amount of
earnings and profits so included in the distributable net income
of the trust.
(2) Stock in corporation
If -
(A) stock in the sponsoring Native Corporation may be
disposed of to a person in a manner which would not be
permitted by section 7(h) of the Alaska Native Claims
Settlement Act (43 U.S.C. 1606(h)) if such stock were
Settlement Common Stock, and
(B) at any time after such disposition of stock is first
permitted, such corporation transfers assets to a Settlement
Trust,
paragraph (1)(B) shall be applied to such trust on and after the
date of the transfer in the same manner as if the trust permitted
dispositions of beneficial interests in the trust in a manner not
permitted by such section 7(h).
(3) Certain distributions
For purposes of this section, the surrender of an interest in a
Native Corporation or an electing Settlement Trust in order to
accomplish the whole or partial redemption of the interest of a
shareholder or beneficiary in such corporation or trust, or to
accomplish the whole or partial liquidation of such corporation
or trust, shall be deemed to be a transfer permitted by section
7(h) of the Alaska Native Claims Settlement Act.
(g) Taxable income
For purposes of this title, the taxable income of an electing
Settlement Trust shall be determined under section 641(b) without
regard to any deduction under section 651 or 661.
(h) Definitions
For purposes of this section -
(1) Electing Settlement Trust
The term "electing Settlement Trust" means a Settlement Trust
which has made the election, effective for a taxable year,
described in subsection (c).
(2) Native Corporation
The term "Native Corporation" has the meaning given such term
by section 3(m) of the Alaska Native Claims Settlement Act (43
U.S.C. 1602(m)).
(3) Settlement Common Stock
The term "Settlement Common Stock" has the meaning given such
term by section 3(p) of the Alaska Native Claims Settlement Act
(43 U.S.C. 1602(p)).
(4) Settlement Trust
The term "Settlement Trust" means a trust that constitutes a
settlement trust under section 3(t) of the Alaska Native Claims
Settlement Act (43 U.S.C. 1602(t)).
(5) Sponsoring Native Corporation
The term "sponsoring Native Corporation" means the Native
Corporation which transfers assets to an electing Settlement
Trust.
(i) Special loss disallowance rule
Any loss that would otherwise be recognized by a shareholder upon
a disposition of a share of stock of a sponsoring Native
Corporation shall be reduced (but not below zero) by the per share
loss adjustment factor. The per share loss adjustment factor shall
be the aggregate of all contributions to all electing Settlement
Trusts sponsored by such Native Corporation made on or after the
first day each trust is treated as an electing Settlement Trust
expressed on a per share basis and determined as of the day of each
such contribution.
(j) Cross reference
For information required with respect to electing Settlement
Trusts and sponsoring Native Corporations, see section 6039H.
-SOURCE-
(Added Pub. L. 107-16, title VI, Sec. 671(a), June 7, 2001, 115
Stat. 144.)
-STATAMEND-
TERMINATION OF SECTION
For termination of section by section 901 of Pub. L. 107-16, see
Effective and Termination Dates note below.
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this section, referred to in subsec.
(c)(2)(A), is the date of enactment of Pub. L. 107-16, which was
approved June 7, 2001.
-MISC1-
PRIOR PROVISIONS
A prior section 646 was renumbered section 645 of this title.
EFFECTIVE AND TERMINATION DATES
Pub. L. 107-16, title VI, Sec. 671(d), June 7, 2001, 115 Stat.
148, provided that: "The amendments made by this section [enacting
this section and section 6039H of this title] shall apply to
taxable years ending after the date of the enactment of this Act
[June 7, 2001] and to contributions made to electing Settlement
Trusts for such year or any subsequent year."
Section inapplicable to taxable, plan, or limitation years
beginning after Dec. 31, 2010, and the Internal Revenue Code of
1986 to be applied and administered to such years as if it had
never been enacted, see section 901 of Pub. L. 107-16, set out as
an Effective and Termination Dates of 2001 Amendment note under
section 1 of this title.
-End-
-CITE-
26 USC Subpart B - Trusts Which Distribute Current Income
Only 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart B - Trusts Which Distribute Current Income Only
-HEAD-
SUBPART B - TRUSTS WHICH DISTRIBUTE CURRENT INCOME ONLY
-MISC1-
Sec.
651. Deduction for trusts distributing current income only.
652. Inclusion of amounts in gross income of beneficiaries
of trusts distributing current income only.
-End-
-CITE-
26 USC Sec. 651 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart B - Trusts Which Distribute Current Income Only
-HEAD-
Sec. 651. Deduction for trusts distributing current income only
-STATUTE-
(a) Deduction
In the case of any trust the terms of which -
(1) provide that all of its income is required to be
distributed currently, and
(2) do not provide that any amounts are to be paid, permanently
set aside, or used for the purposes specified in section 642(c)
(relating to deduction for charitable, etc., purposes),
there shall be allowed as a deduction in computing the taxable
income of the trust the amount of the income for the taxable year
which is required to be distributed currently. This section shall
not apply in any taxable year in which the trust distributes
amounts other than amounts of income described in paragraph (1).
(b) Limitation on deduction
If the amount of income required to be distributed currently
exceeds the distributable net income of the trust for the taxable
year, the deduction shall be limited to the amount of the
distributable net income. For this purpose, the computation of
distributable net income shall not include items of income which
are not included in the gross income of the trust and the
deductions allocable thereto.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 219.)
-End-
-CITE-
26 USC Sec. 652 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart B - Trusts Which Distribute Current Income Only
-HEAD-
Sec. 652. Inclusion of amounts in gross income of beneficiaries of
trusts distributing current income only
-STATUTE-
(a) Inclusion
Subject to subsection (b), the amount of income for the taxable
year required to be distributed currently by a trust described in
section 651 shall be included in the gross income of the
beneficiaries to whom the income is required to be distributed,
whether distributed or not. If such amount exceeds the
distributable net income, there shall be included in the gross
income of each beneficiary an amount which bears the same ratio to
distributable net income as the amount of income required to be
distributed to such beneficiary bears to the amount of income
required to be distributed to all beneficiaries.
(b) Character of amounts
The amounts specified in subsection (a) shall have the same
character in the hands of the beneficiary as in the hands of the
trust. For this purpose, the amounts shall be treated as consisting
of the same proportion of each class of items entering into the
computation of distributable net income of the trust as the total
of each class bears to the total distributable net income of the
trust, unless the terms of the trust specifically allocate
different classes of income to different beneficiaries. In the
application of the preceding sentence, the items of deduction
entering into the computation of distributable net income shall be
allocated among the items of distributable net income in accordance
with regulations prescribed by the Secretary.
(c) Different taxable years
If the taxable year of a beneficiary is different from that of
the trust, the amount which the beneficiary is required to include
in gross income in accordance with the provisions of this section
shall be based upon the amount of income of the trust for any
taxable year or years of the trust ending within or with his
taxable year.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 219; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
-End-
-CITE-
26 USC Subpart C - Estates and Trusts Which May
Accumulate Income or Which Distribute Corpus 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart C - Estates and Trusts Which May Accumulate Income or Which
Distribute Corpus
-HEAD-
SUBPART C - ESTATES AND TRUSTS WHICH MAY ACCUMULATE INCOME OR WHICH
DISTRIBUTE CORPUS
-MISC1-
Sec.
661. Deductions for estates and trusts accumulating income
or distributing corpus.(!1)
662. Inclusion of amounts in gross income of beneficiaries
of estates and trusts accumulating income or
distributing corpus.
663. Special rules applicable to sections 661 and 662.
664. Charitable remainder trusts.
AMENDMENTS
1969 - Pub. L. 91-172, title II, Sec. 201(e)(2), Dec. 30, 1969,
83 Stat. 564, added item 664.
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 661 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart C - Estates and Trusts Which May Accumulate Income or Which
Distribute Corpus
-HEAD-
Sec. 661. Deduction for estates and trusts accumulating income or
distributing corpus
-STATUTE-
(a) Deduction
In any taxable year there shall be allowed as a deduction in
computing the taxable income of an estate or trust (other than a
trust to which subpart B applies), the sum of -
(1) any amount of income for such taxable year required to be
distributed currently (including any amount required to be
distributed which may be paid out of income or corpus to the
extent such amount is paid out of income for such taxable year);
and
(2) any other amounts properly paid or credited or required to
be distributed for such taxable year;
but such deduction shall not exceed the distributable net income of
the estate or trust.
(b) Character of amounts distributed
The amount determined under subsection (a) shall be treated as
consisting of the same proportion of each class of items entering
into the computation of distributable net income of the estate or
trust as the total of each class bears to the total distributable
net income of the estate or trust in the absence of the allocation
of different classes of income under the specific terms of the
governing instrument. In the application of the preceding sentence,
the items of deduction entering into the computation of
distributable net income (including the deduction allowed under
section 642(c)) shall be allocated among the items of distributable
net income in accordance with regulations prescribed by the
Secretary.
(c) Limitation on deduction
No deduction shall be allowed under subsection (a) in respect of
any portion of the amount allowed as a deduction under that
subsection (without regard to this subsection) which is treated
under subsection (b) as consisting of any item of distributable net
income which is not included in the gross income of the estate or
trust.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 220; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97-248,
title III, Secs. 302(b)(2), 308(a), Sept. 3, 1982, 96 Stat. 586,
591; Pub. L. 98-67, title I, Sec. 102(a), Aug. 5, 1983, 97 Stat.
369.)
-MISC1-
AMENDMENTS
1983 - Subsec. (a). Pub. L. 98-67 repealed amendments made by
Pub. L. 97-248. See 1982 Amendment note below.
1982 - Subsec. (a). Pub. L. 97-248 provided that, applicable to
payments of interest, dividends, and patronage dividends paid or
credited after June 30, 1983, subsec. (a) is amended by inserting
at end "For purposes of paragraph (1), the amount of distributable
net income shall be computed without the deduction allowed by
section 642(c).". Section 102(a), (b) of Pub. L. 98-67, title I,
Aug. 5, 1983, 97 Stat. 369, repealed subtitle A (Secs. 301-308) of
title III of Pub. L. 97-248 as of the close of June 30, 1983, and
provided that the Internal Revenue Code of 1954 (this title) shall
be applied and administered (subject to certain exceptions) as if
such subtitle A (and the amendments made by such subtitle A) had
not been enacted.
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
-End-
-CITE-
26 USC Sec. 662 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart C - Estates and Trusts Which May Accumulate Income or Which
Distribute Corpus
-HEAD-
Sec. 662. Inclusion of amounts in gross income of beneficiaries of
estates and trusts accumulating income or distributing corpus
-STATUTE-
(a) Inclusion
Subject to subsection (b), there shall be included in the gross
income of a beneficiary to whom an amount specified in section
661(a) is paid, credited, or required to be distributed (by an
estate or trust described in section 661), the sum of the following
amounts:
(1) Amounts required to be distributed currently
The amount of income for the taxable year required to be
distributed currently to such beneficiary, whether distributed or
not. If the amount of income required to be distributed currently
to all beneficiaries exceeds the distributable net income
(computed without the deduction allowed by section 642(c),
relating to deduction for charitable, etc., purposes) of the
estate or trust, then, in lieu of the amount provided in the
preceding sentence, there shall be included in the gross income
of the beneficiary an amount which bears the same ratio to
distributable net income (as so computed) as the amount of income
required to be distributed currently to such beneficiary bears to
the amount required to be distributed currently to all
beneficiaries. For purposes of this section, the phrase "the
amount of income for the taxable year required to be distributed
currently" includes any amount required to be paid out of income
or corpus to the extent such amount is paid out of income for
such taxable year.
(2) Other amounts distributed
All other amounts properly paid, credited, or required to be
distributed to such beneficiary for the taxable year. If the sum
of -
(A) the amount of income for the taxable year required to be
distributed currently to all beneficiaries, and
(B) all other amounts properly paid, credited, or required to
be distributed to all beneficiaries
exceeds the distributable net income of the estate or trust,
then, in lieu of the amount provided in the preceding sentence,
there shall be included in the gross income of the beneficiary an
amount which bears the same ratio to distributable net income
(reduced by the amounts specified in (A)) as the other amounts
properly paid, credited or required to be distributed to the
beneficiary bear to the other amounts properly paid, credited, or
required to be distributed to all beneficiaries.
(b) Character of amounts
The amounts determined under subsection (a) shall have the same
character in the hands of the beneficiary as in the hands of the
estate or trust. For this purpose, the amounts shall be treated as
consisting of the same proportion of each class of items entering
into the computation of distributable net income as the total of
each class bears to the total distributable net income of the
estate or trust unless the terms of the governing instrument
specifically allocate different classes of income to different
beneficiaries. In the application of the preceding sentence, the
items of deduction entering into the computation of distributable
net income (including the deduction allowed under section 642(c))
shall be allocated among the items of distributable net income in
accordance with regulations prescribed by the Secretary. In the
application of this subsection to the amount determined under
paragraph (1) of subsection (a), distributable net income shall be
computed without regard to any portion of the deduction under
section 642(c) which is not attributable to income of the taxable
year.
(c) Different taxable years
If the taxable year of a beneficiary is different from that of
the estate or trust, the amount to be included in the gross income
of the beneficiary shall be based on the distributable net income
of the estate or trust and the amounts properly paid, credited, or
required to be distributed to the beneficiary during any taxable
year or years of the estate or trust ending within or with his
taxable year.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 220; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
-End-
-CITE-
26 USC Sec. 663 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart C - Estates and Trusts Which May Accumulate Income or Which
Distribute Corpus
-HEAD-
Sec. 663. Special rules applicable to sections 661 and 662
-STATUTE-
(a) Exclusions
There shall not be included as amounts falling within section
661(a) or 662(a) -
(1) Gifts, bequests, etc.
Any amount which, under the terms of the governing instrument,
is properly paid or credited as a gift or bequest of a specific
sum of money or of specific property and which is paid or
credited all at once or in not more than 3 installments. For this
purpose an amount which can be paid or credited only from the
income of the estate or trust shall not be considered as a gift
or bequest of a specific sum of money.
(2) Charitable, etc., distributions
Any amount paid or permanently set aside or otherwise
qualifying for the deduction provided in section 642(c) (computed
without regard to sections 508(d), 681, and 4948(c)(4)).
(3) Denial of double deduction
Any amount paid, credited, or distributed in the taxable year,
if section 651 or section 661 applied to such amount for a
preceding taxable year of an estate or trust because credited or
required to be distributed in such preceding taxable year.
(b) Distributions in first sixty-five days of taxable year
(1) General rule
If within the first 65 days of any taxable year of an estate or
a trust, an amount is properly paid or credited, such amount
shall be considered paid or credited on the last day of the
preceding taxable year.
(2) Limitation
Paragraph (1) shall apply with respect to any taxable year of
an estate or a trust only if the executor of such estate or the
fiduciary of such trust (as the case may be) elects, in such
manner and at such time as the Secretary prescribes by
regulations, to have paragraph (1) apply for such taxable year.
(c) Separate shares treated as separate estates or trusts
For the sole purpose of determining the amount of distributable
net income in the application of sections 661 and 662, in the case
of a single trust having more than one beneficiary, substantially
separate and independent shares of different beneficiaries in the
trust shall be treated as separate trusts. Rules similar to the
rules of the preceding provisions of this subsection shall apply to
treat substantially separate and independent shares of different
beneficiaries in an estate having more than 1 beneficiary as
separate estates. The existence of such substantially separate and
independent shares and the manner of treatment as separate trusts
or estates, including the application of subpart D, shall be
determined in accordance with regulations prescribed by the
Secretary.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 222; Pub. L. 91-172, title I,
Sec. 101(j)(17), title III, Sec. 331(b), Dec. 30, 1969, 83 Stat.
528, 598; Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1834; Pub. L. 105-34, title XIII, Secs. 1306(a),
(b), 1307(a), (b), Aug. 5, 1997, 111 Stat. 1041.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b). Pub. L. 105-34, Sec. 1306(a), inserted "an
estate or" before "a trust" in pars. (1) and (2).
Subsec. (b)(2). Pub. L. 105-34, Sec. 1306(b), substituted "the
executor of such estate or the fiduciary of such trust (as the case
may be)" for "the fiduciary of such trust".
Subsec. (c). Pub. L. 105-34, Sec. 1307(a), (b), inserted "estates
or" before "trusts" in heading, "Rules similar to the rules of the
preceding provisions of this subsection shall apply to treat
substantially separate and independent shares of different
beneficiaries in an estate having more than 1 beneficiary as
separate estates." before last sentence, and "or estates" after
"trusts" in last sentence.
1976 - Subsecs. (b)(2), (c). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1969 - Subsec. (a)(2). Pub. L. 91-172, Sec. 101(j)(17),
substituted "sections 508(d), 681, and 4948(c)(4)" for "section
681".
Subsec. (b)(2). Pub. L. 91-172, Sec. 331(b), incorporated
existing provisions of subpar. (C) of former first sentence making
subsec. (b) applicable only to a trust where the fiduciary elected
to have the subsec. apply and part of former second sentence making
the election applicable in accordance with prescribed regulations;
substituted provisions for regulations to spell out manner and time
of election for part of former second sentence requiring the
election to be made not later than the time prescribed by law for
filing the return for the year, including any extension; and
omitted: subpars. (A) and (B) of former first sentence which had
provided for application of subsec. (b) only to a trust "(A) which
was in existence prior to January 1, 1954" and "(B) which, under
the terms of its governing instrument, may not distribute in any
taxable year amounts in excess of the income of the preceding
taxable year"; part of former second sentence which required the
election to be made for first taxable year to which this part is
applicable; and third sentence that "If such election is made with
respect to a taxable year, this subsection shall apply to all
amounts properly paid or credited within the first 65 days of all
subsequent taxable years of such trust."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1306(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [Aug.
5, 1997]."
Section 1307(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to estates
of decedents dying after the date of the enactment of this Act
[Aug. 5, 1997]."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 101(j)(17) of Pub. L. 91-172 effective Jan.
1, 1970, see section 101(k)(1) of Pub. L. 91-172, set out as an
Effective Date note under section 4940 of this title.
Amendment by section 331(b) of Pub. L. 91-172 applicable to
taxable years beginning before Jan. 1, 1970, see section 331(d) of
Pub. L. 91-172, set out as a note under section 665 of this title.
-End-
-CITE-
26 USC Sec. 664 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart C - Estates and Trusts Which May Accumulate Income or Which
Distribute Corpus
-HEAD-
Sec. 664. Charitable remainder trusts
-STATUTE-
(a) General rule
Notwithstanding any other provision of this subchapter, the
provisions of this section shall, in accordance with regulations
prescribed by the Secretary, apply in the case of a charitable
remainder annuity trust and a charitable remainder unitrust.
(b) Character of distributions
Amounts distributed by a charitable remainder annuity trust or by
a charitable remainder unitrust shall be considered as having the
following characteristics in the hands of a beneficiary to whom is
paid the annuity described in subsection (d)(1)(A) or the payment
described in subsection (d)(2)(A):
(1) First, as amounts of income (other than gains, and amounts
treated as gains, from the sale or other disposition of capital
assets) includible in gross income to the extent of such income
of the trust for the year and such undistributed income of the
trust for prior years;
(2) Second, as a capital gain to the extent of the capital gain
of the trust for the year and the undistributed capital gain of
the trust for prior years;
(3) Third, as other income to the extent of such income of the
trust for the year and such undistributed income of the trust for
prior years; and
(4) Fourth, as a distribution of trust corpus.
For purposes of this section, the trust shall determine the amount
of its undistributed capital gain on a cumulative net basis.
(c) Exemption from income taxes
A charitable remainder annuity trust and a charitable remainder
unitrust shall, for any taxable year, not be subject to any tax
imposed by this subtitle, unless such trust, for such year, has
unrelated business taxable income (within the meaning of section
512, determined as if part III of subchapter F applied to such
trust).
(d) Definitions
(1) Charitable remainder annuity trust
For purposes of this section, a charitable remainder annuity
trust is a trust -
(A) from which a sum certain (which is not less than 5
percent nor more than 50 percent of the initial net fair market
value of all property placed in trust) is to be paid, not less
often than annually, to one or more persons (at least one of
which is not an organization described in section 170(c) and,
in the case of individuals, only to an individual who is living
at the time of the creation of the trust) for a term of years
(not in excess of 20 years) or for the life or lives of such
individual or individuals,
(B) from which no amount other than the payments described in
subparagraph (A) and other than qualified gratuitous transfers
described in subparagraph (C) may be paid to or for the use of
any person other than an organization described in section
170(c),
(C) following the termination of the payments described in
subparagraph (A), the remainder interest in the trust is to be
transferred to, or for the use of, an organization described in
section 170(c) or is to be retained by the trust for such a use
or, to the extent the remainder interest is in qualified
employer securities (as defined in subsection (g)(4)), all or
part of such securities are to be transferred to an employee
stock ownership plan (as defined in section 4975(e)(7)) in a
qualified gratuitous transfer (as defined by subsection (g)),
and
(D) the value (determined under section 7520) of such
remainder interest is at least 10 percent of the initial net
fair market value of all property placed in the trust.
(2) Charitable remainder unitrust
For purposes of this section, a charitable remainder unitrust
is a trust -
(A) from which a fixed percentage (which is not less than 5
percent nor more than 50 percent) of the net fair market value
of its assets, valued annually, is to be paid, not less often
than annually, to one or more persons (at least one of which is
not an organization described in section 170(c) and, in the
case of individuals, only to an individual who is living at the
time of the creation of the trust) for a term of years (not in
excess of 20 years) or for the life or lives of such individual
or individuals,
(B) from which no amount other than the payments described in
subparagraph (A) and other than qualified gratuitous transfers
described in subparagraph (C) may be paid to or for the use of
any person other than an organization described in section
170(c),
(C) following the termination of the payments described in
subparagraph (A), the remainder interest in the trust is to be
transferred to, or for the use of, an organization described in
section 170(c) or is to be retained by the trust for such a use
or, to the extent the remainder interest is in qualified
employer securities (as defined in subsection (g)(4)), all or
part of such securities are to be transferred to an employee
stock ownership plan (as defined in section 4975(e)(7)) in a
qualified gratuitous transfer (as defined by subsection (g)),
and
(D) with respect to each contribution of property to the
trust, the value (determined under section 7520) of such
remainder interest in such property is at least 10 percent of
the net fair market value of such property as of the date such
property is contributed to the trust.
(3) Exception
Notwithstanding the provisions of paragraphs (2)(A) and (B),
the trust instrument may provide that the trustee shall pay the
income beneficiary for any year -
(A) the amount of the trust income, if such amount is less
than the amount required to be distributed under paragraph
(2)(A), and
(B) any amount of the trust income which is in excess of the
amount required to be distributed under paragraph (2)(A), to
the extent that (by reason of subparagraph (A)) the aggregate
of the amounts paid in prior years was less than the aggregate
of such required amounts.
(4) Severance of certain additional contributions
If -
(A) any contribution is made to a trust which before the
contribution is a charitable remainder unitrust, and
(B) such contribution would (but for this paragraph) result
in such trust ceasing to be a charitable unitrust by reason of
paragraph (2)(D),
such contribution shall be treated as a transfer to a separate
trust under regulations prescribed by the Secretary.
(e) Valuation for purposes of charitable contribution
For purposes of determining the amount of any charitable
contribution, the remainder interest of a charitable remainder
annuity trust or charitable remainder unitrust shall be computed on
the basis that an amount equal to 5 percent of the net fair market
value of its assets (or a greater amount, if required under the
terms of the trust instrument) is to be distributed each year.
(f) Certain contingencies permitted
(1) General rule
If a trust would, but for a qualified contingency, meet the
requirements of paragraph (1)(A) or (2)(A) of subsection (d),
such trust shall be treated as meeting such requirements.
(2) Value determined without regard to qualified contingency
For purposes of determining the amount of any charitable
contribution (or the actuarial value of any interest), a
qualified contingency shall not be taken into account.
(3) Qualified contingency
For purposes of this subsection, the term "qualified
contingency" means any provision of a trust which provides that,
upon the happening of a contingency, the payments described in
paragraph (1)(A) or (2)(A) of subsection (d) (as the case may be)
will terminate not later than such payments would otherwise
terminate under the trust.
(g) Qualified gratuitous transfer of qualified employer securities
(1) In general
For purposes of this section, the term "qualified gratuitous
transfer" means a transfer of qualified employer securities to an
employee stock ownership plan (as defined in section 4975(e)(7))
but only to the extent that -
(A) the securities transferred previously passed from a
decedent dying before January 1, 1999, to a trust described in
paragraph (1) or (2) of subsection (d),
(B) no deduction under section 404 is allowable with respect
to such transfer,
(C) such plan contains the provisions required by paragraph
(3),
(D) such plan treats such securities as being attributable to
employer contributions but without regard to the limitations
otherwise applicable to such contributions under section 404,
and
(E) the employer whose employees are covered by the plan
described in this paragraph files with the Secretary a verified
written statement consenting to the application of sections
4978 and 4979A with respect to such employer.
(2) Exception
The term "qualified gratuitous transfer" shall not include a
transfer of qualified employer securities to an employee stock
ownership plan unless -
(A) such plan was in existence on August 1, 1996,
(B) at the time of the transfer, the decedent and members of
the decedent's family (within the meaning of section
2032A(e)(2)) own (directly or through the application of
section 318(a)) no more than 10 percent of the value of the
stock of the corporation referred to in paragraph (4), and
(C) immediately after the transfer, such plan owns (after the
application of section 318(a)(4)) at least 60 percent of the
value of the outstanding stock of the corporation.
(3) Plan requirements
A plan contains the provisions required by this paragraph if
such plan provides that -
(A) the qualified employer securities so transferred are
allocated to plan participants in a manner consistent with
section 401(a)(4),
(B) plan participants are entitled to direct the plan as to
the manner in which such securities which are entitled to vote
and are allocated to the account of such participant are to be
voted,
(C) an independent trustee votes the securities so
transferred which are not allocated to plan participants,
(D) each participant who is entitled to a distribution from
the plan has the rights described in subparagraphs (A) and (B)
of section 409(h)(1),
(E) such securities are held in a suspense account under the
plan to be allocated each year, up to the applicable limitation
under paragraph (7), after first allocating all other annual
additions for the limitation year, up to the limitations under
sections 415(c) and (e),(!1) and
(F) on termination of the plan, all securities so transferred
which are not allocated to plan participants as of such
termination are to be transferred to, or for the use of, an
organization described in section 170(c).
For purposes of the preceding sentence, the term "independent
trustee" means any trustee who is not a member of the family
(within the meaning of section 2032A(e)(2)) of the decedent or a
5-percent shareholder. A plan shall not fail to be treated as
meeting the requirements of section 401(a) by reason of meeting
the requirements of this subsection.
(4) Qualified employer securities
For purposes of this section, the term "qualified employer
securities" means employer securities (as defined in section
409(l)) which are issued by a domestic corporation -
(A) which has no outstanding stock which is readily tradable
on an established securities market, and
(B) which has only 1 class of stock.
(5) Treatment of securities allocated by employee stock ownership
plan to persons related to decedent or 5-percent shareholders
(A) In general
If any portion of the assets of the plan attributable to
securities acquired by the plan in a qualified gratuitous
transfer are allocated to the account of -
(i) any person who is related to the decedent (within the
meaning of section 267(b)) or a member of the decedent's
family (within the meaning of section 2032A(e)(2)), or
(ii) any person who, at the time of such allocation or at
any time during the 1-year period ending on the date of the
acquisition of qualified employer securities by the plan, is
a 5-percent shareholder of the employer maintaining the plan,
the plan shall be treated as having distributed (at the time of
such allocation) to such person or shareholder the amount so
allocated.
(B) 5-percent shareholder
For purposes of subparagraph (A), the term "5-percent
shareholder" means any person who owns (directly or through the
application of section 318(a)) more than 5 percent of the
outstanding stock of the corporation which issued such
qualified employer securities or of any corporation which is a
member of the same controlled group of corporations (within the
meaning of section 409(l)(4)) as such corporation. For purposes
of the preceding sentence, section 318(a) shall be applied
without regard to the exception in paragraph (2)(B)(i) thereof.
(C) Cross reference
For excise tax on allocations described in subparagraph (A),
see section 4979A.
(6) Tax on failure to transfer unallocated securities to charity
on termination of plan
If the requirements of paragraph (3)(F) are not met with
respect to any securities, there is hereby imposed a tax on the
employer maintaining the plan in an amount equal to the sum of -
(A) the amount of the increase in the tax which would be
imposed by chapter 11 if such securities were not transferred
as described in paragraph (1), and
(B) interest on such amount at the underpayment rate under
section 6621 (and compounded daily) from the due date for
filing the return of the tax imposed by chapter 11.
(7) Applicable limitation
(A) In general
For purposes of paragraph (3)(E), the applicable limitation
under this paragraph with respect to a participant is an amount
equal to the lesser of -
(i) $30,000, or
(ii) 25 percent of the participant's compensation (as
defined in section 415(c)(3)).
(B) Cost-of-living adjustment
The Secretary shall adjust annually the $30,000 amount under
subparagraph (A)(i) at the same time and in the same manner as
under section 415(d), except that the base period shall be the
calendar quarter beginning October 1, 1993, and any increase
under this subparagraph which is not a multiple of $5,000 shall
be rounded to the next lowest multiple of $5,000.
-SOURCE-
(Added Pub. L. 91-172, title II, Sec. 201(e)(1), Dec. 30, 1969, 83
Stat. 562; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369, div. A, title X, Sec.
1022(d), July 18, 1984, 98 Stat. 1029; Pub. L. 105-34, title X,
Sec. 1089(a)(1), (b)(1), (2), (4), title XV, Sec. 1530(a), (b),
(c)(5), 111 Stat. 960, 1075, 1078; Pub. L. 105-206, title VI, Sec.
6010(r), July 22, 1998, 112 Stat. 817; Pub. L. 106-554, Sec.
1(a)(7) [title III, Sec. 319(7)], Dec. 21, 2000, 114 Stat. 2763,
2763A-646; Pub. L. 107-16, title VI, Sec. 632(a)(3)(H), June 7,
2001, 115 Stat. 114.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Section 415(e) of this title, referred to in subsec. (g)(3)(E),
was repealed by Pub. L. 104-188, title I, Sec. 1452(a), Aug. 20,
1996, 110 Stat. 1816.
-MISC1-
AMENDMENTS
2001 - Subsec. (g)(3)(E). Pub. L. 107-16, Secs. 632(a)(3)(H)(i),
901, temporarily substituted "applicable limitation under paragraph
(7)" for "limitations under section 415(c)". See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (g)(7). Pub. L. 107-16, Secs. 632(a)(3)(H)(ii), 901,
temporarily added par. (7). See Effective and Termination Dates of
2001 Amendment note below.
2000 - Subsec. (d)(1)(C), (2)(C). Pub. L. 106-554 struck out
period after "(as defined by subsection (g))". See 1997 Amendment
notes below.
1998 - Subsec. (d)(1)(C), (2)(C). Pub. L. 105-206 inserted ",
and" at end.
1997 - Subsec. (d)(1)(A). Pub. L. 105-34, Sec. 1089(a)(1),
inserted "nor more than 50 percent" after "not less than 5
percent".
Subsec. (d)(1)(B). Pub. L. 105-34, Sec. 1530(c)(5), inserted "and
other than qualified gratuitous transfers described in subparagraph
(C)" after "subparagraph (A)".
Pub. L. 105-34, Sec. 1089(b)(1), struck out "and" at end.
Subsec. (d)(1)(C). Pub. L. 105-34, Sec. 1530(a), which directed
amendment of subpar. (C) by striking period at end and inserting
"or, to the extent the remainder interest is in qualified employer
securities (as defined in subsection (g)(4)), all or part of such
securities are to be transferred to an employee stock ownership
plan (as defined in section 4975(e)(7)) in a qualified gratuitous
transfer (as defined by subsection (g)).", was executed by making
the insertion after "for such a use" to reflect the probable intent
of Congress. Subpar. (C) did not contain a period after amendment
by Pub. L. 105-34, Sec. 1089(b)(1). See below.
Pub. L. 105-34, Sec. 1089(b)(1), struck out period after "for
such a use".
Subsec. (d)(1)(D). Pub. L. 105-34, Sec. 1089(b)(1), added subpar.
(D).
Subsec. (d)(2)(A). Pub. L. 105-34, Sec. 1089(a)(1), inserted "nor
more than 50 percent" after "not less than 5 percent".
Subsec. (d)(2)(B). Pub. L. 105-34, Sec. 1530(c)(5), inserted "and
other than qualified gratuitous transfers described in subparagraph
(C)" after "subparagraph (A)".
Pub. L. 105-34, Sec. 1089(b)(2), struck out "and" at end.
Subsec. (d)(2)(C). Pub. L. 105-34, Sec. 1530(a), which directed
amendment of subpar. (C) by striking period at end and inserting
"or, to the extent the remainder interest is in qualified employer
securities (as defined in subsection (g)(4)), all or part of such
securities are to be transferred to an employee stock ownership
plan (as defined in section 4975(e)(7)) in a qualified gratuitous
transfer (as defined by subsection (g)).", was executed by making
the insertion after "for such a use" to reflect the probable intent
of Congress. Subpar. (C) did not contain a period after amendment
by Pub. L. 105-34, Sec. 1089(b)(2). See below.
Pub. L. 105-34, Sec. 1089(b)(2), struck out period after "for
such a use".
Subsec. (d)(2)(D). Pub. L. 105-34, Sec. 1089(b)(2), added subpar.
(D).
Subsec. (d)(4). Pub. L. 105-34, Sec. 1089(b)(4), added par. (4).
Subsec. (g). Pub. L. 105-34, Sec. 1530(b), added subsec. (g).
1984 - Subsec. (f). Pub. L. 98-369 added subsec. (f).
1976 - Subsec. (a). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to years beginning after
Dec. 31, 2001, see section 632(a)(4) of Pub. L. 107-16, set out as
a note under section 72 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1089(a)(2) of Pub. L. 105-34 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to transfers in trust after June 18, 1997."
Section 1089(b)(6) of Pub. L. 105-34 provided that:
"(A) In general. - Except as otherwise provided in this
paragraph, the amendments made by this subsection [amending this
section and section 2055 of this title] shall apply to transfers in
trust after July 28, 1997.
"(B) Special rule for certain decedents. - The amendments made by
this subsection shall not apply to transfers in trust under the
terms of a will (or other testamentary instrument) executed on or
before July 28, 1997, if the decedent -
"(i) dies before January 1, 1999, without having republished
the will (or amended such instrument) by codicil or otherwise, or
"(ii) was on July 28, 1997, under a mental disability to change
the disposition of his property and did not regain his competence
to dispose of such property before the date of his death."
Amendment by section 1530(a), (b), (c)(5) of Pub. L. 105-34
applicable to transfers made by trusts to, or for the use of, an
employee stock ownership plan after Aug. 5, 1997, see section
1530(d) of Pub. L. 105-34, set out as a note under section 401 of
this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369, applicable to transfers after Dec.
31, 1978, see section 1022(e)(2) of Pub. L. 98-369, set out as a
note under section 2055 of this title.
EFFECTIVE DATE
Section applicable to transfers in trust made after July 31,
1969, see section 201(g)(5), set out as an Effective Date of 1969
Amendment note under section 170 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Subpart D - Treatment of Excess Distributions by
Trusts 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart D - Treatment of Excess Distributions by Trusts
-HEAD-
SUBPART D - TREATMENT OF EXCESS DISTRIBUTIONS BY TRUSTS
-MISC1-
Sec.
665. Definitions applicable to subpart D.
666. Accumulation distribution allocated to preceding
years.
667. Treatment of amounts deemed distributed by trust in
preceding years.
668. Interest charge on accumulation distributions from
foreign trusts.
[669. Repealed.]
AMENDMENTS
1976 - Pub. L. 94-455, title VII, Sec. 701(g)(1), title X, Sec.
1014(c), Oct. 4, 1976, 90 Stat. 1580, 1617, substituted in item 667
"Treatment of amounts deemed distributed by trust in preceding
years" for "Denial of refund to trusts; authorization of credit to
beneficiaries", in item 668 "Interest charge on accumulation
distributions from foreign trusts" for "Treatment of amounts deemed
distributed in preceding years", and struck out item 669 "Treatment
of capital gain deemed distributed in preceding years".
1969 - Pub. L. 91-172, title III, Sec. 331(a), Dec. 30, 1969, 83
Stat. 592, struck out "5" after "allocated to" in item 666,
inserted "authorization of credit to beneficiaries" in item 667,
and substituted "Treatment of capital gain deemed distributed in
preceding years" for "Special rules applicable to certain foreign
trusts" in item 669.
1962 - Pub. L. 87-834, Sec. 7(i)(1), Oct. 16, 1962, 76 Stat. 988,
added item 669.
-End-
-CITE-
26 USC Sec. 665 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart D - Treatment of Excess Distributions by Trusts
-HEAD-
Sec. 665. Definitions applicable to subpart D
-STATUTE-
(a) Undistributed net income
For purposes of this subpart, the term "undistributed net income"
for any taxable year means the amount by which distributable net
income of the trust for such taxable year exceeds the sum of -
(1) the amounts for such taxable year specified in paragraphs
(1) and (2) of section 661(a), and
(2) the amount of taxes imposed on the trust attributable to
such distributable net income.
(b) Accumulation distribution
For purposes of this subpart, except as provided in subsection
(c), the term "accumulation distribution" means, for any taxable
year of the trust, the amount by which -
(1) the amounts specified in paragraph (2) of section 661(a)
for such taxable year, exceed
(2) distributable net income for such year reduced (but not
below zero) by the amounts specified in paragraph (1) of section
661(a).
For purposes of section 667 (other than subsection (c) thereof,
relating to multiple trusts), the amounts specified in paragraph
(2) of section 661(a) shall not include amounts properly paid,
credited, or required to be distributed to a beneficiary from a
trust (other than a foreign trust) as income accumulated before the
birth of such beneficiary or before such beneficiary attains the
age of 21. If the amounts properly paid, credited, or required to
be distributed by the trust for the taxable year do not exceed the
income of the trust for such year, there shall be no accumulation
distribution for such year.
(c) Exception for accumulation distributions from certain domestic
trusts
For purposes of this subpart -
(1) In general
In the case of a qualified trust, any distribution in any
taxable year beginning after the date of the enactment of this
subsection shall be computed without regard to any undistributed
net income.
(2) Qualified trust
For purposes of this subsection, the term "qualified trust"
means any trust other than -
(A) a foreign trust (or, except as provided in regulations, a
domestic trust which at any time was a foreign trust), or
(B) a trust created before March 1, 1984, unless it is
established that the trust would not be aggregated with other
trusts under section 643(f) if such section applied to such
trust.
(d) Taxes imposed on the trust
For purposes of this subpart -
(1) In general
The term "taxes imposed on the trust" means the amount of the
taxes which are imposed for any taxable year of the trust under
this chapter (without regard to this subpart or part IV of
subchapter A) and which, under regulations prescribed by the
Secretary, are properly allocable to the undistributed portions
of distributable net income and gains in excess of losses from
sales or exchanges of capital assets. The amount determined in
the preceding sentence shall be reduced by any amount of such
taxes deemed distributed under section 666(b) and (c) to any
beneficiary.
(2) Foreign trusts
In the case of any foreign trust, the term "taxes imposed on
the trust" includes the amount, reduced as provided in the last
sentence of paragraph (1), of any income, war profits, and excess
profits taxes imposed by any foreign country or possession of the
United States on such foreign trust which, as determined under
paragraph (1), are so properly allocable. Under rules or
regulations prescribed by the Secretary, in the case of any
foreign trust of which the settlor or another person would be
treated as owner of any portion of the trust under subpart E but
for section 672(f), the term "taxes imposed on the trust"
includes the allocable amount of any income, war profits, and
excess profits taxes imposed by any foreign country or possession
of the United States on the settlor or such other person in
respect of trust income.
(e) Preceding taxable year
For purposes of this subpart -
(1) In the case of a foreign trust created by a United States
person, the term "preceding taxable year" does not include any
taxable year of the trust to which this part does not apply.
(2) In the case of a preceding taxable year with respect to
which a trust qualified, without regard to this subpart, under
the provisions of subpart B, for purposes of the application of
this subpart to such trust for such taxable year, such trust
shall, in accordance with regulations prescribed by the
Secretary, be treated as a trust to which subpart C applies.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 223; Pub. L. 87-834, Sec. 7(b),
Oct. 16, 1962, 76 Stat. 985; Pub. L. 91-172, title III, Sec.
331(a), Dec. 30, 1969, 83 Stat. 592; Pub. L. 92-178, title III,
Sec. 306(a), Dec. 10, 1971, 85 Stat. 524; Pub. L. 94-455, title
VII, Secs. 701(b), (c), (d)(2), (3), title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1577, 1578, 1834; Pub. L. 95-
600, title VII, Sec. 701(q)(1)(A), Nov. 6, 1978, 92 Stat. 2909;
Pub. L. 99-514, title XVIII, Sec. 1847(b)(16), Oct. 22, 1986, 100
Stat. 2857; Pub. L. 101-508, title XI, Sec. 11802(f)(2), Nov. 5,
1990, 104 Stat. 1388-530; Pub. L. 104-188, title I, Sec.
1904(b)(1), (c)(2), Aug. 20, 1996, 110 Stat. 1912; Pub. L. 105-34,
title V, Sec. 507(a), title XVI, Sec. 1604(g)(2), Aug. 5, 1997, 111
Stat. 856, 1099.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this subsection, referred to in
subsec. (c)(1), is the date of enactment of Pub. L. 105-34, which
was approved Aug. 5, 1997.
-MISC1-
AMENDMENTS
1997 - Subsec. (b). Pub. L. 105-34, Sec. 507(a)(2), inserted
"except as provided in subsection (c)," after "subpart," in
introductory provisions.
Subsec. (c). Pub. L. 105-34, Sec. 507(a)(1), added subsec. (c).
Subsec. (d)(1). Pub. L. 105-34, Sec. 1604(g)(2), struck out "or
669(d) and (e)" after "666(b) and (c)".
1996 - Subsec. (c). Pub. L. 104-188, Sec. 1904(c)(2), struck out
subsec. (c) which read as follows: "Special Rule Applicable to
Distributions by Certain Foreign Trusts. - For purposes of this
subpart, any amount paid to a United States person which is from a
payor who is not a United States person and which is derived
directly or indirectly from a foreign trust created by a United
States person shall be deemed in the year of payment to have been
directly paid by the foreign trust."
Subsec. (d)(2). Pub. L. 104-188, Sec. 1904(b)(1), inserted at end
"Under rules or regulations prescribed by the Secretary, in the
case of any foreign trust of which the settlor or another person
would be treated as owner of any portion of the trust under subpart
E but for section 672(f), the term 'taxes imposed on the trust'
includes the allocable amount of any income, war profits, and
excess profits taxes imposed by any foreign country or possession
of the United States on the settlor or such other person in respect
of trust income."
1990 - Subsec. (e). Pub. L. 101-508 amended subsec. (e)
generally. Prior to amendment, subsec. (e) read as follows: "For
purposes of this subpart -
"(1) in the case of a trust (other than a foreign trust created
by a United States person), the term 'preceding taxable year'
does not include any taxable year of the trust -
"(A) which precedes by more than 5 years the taxable year of
the trust in which an accumulation distribution is made, if it
is made in a taxable year beginning before January 1, 1974, or
"(B) which begins before January 1, 1969, in the case of an
accumulation distribution made during a taxable year beginning
after December 31, 1973, and
"(2) in the case of a foreign trust created by a United States
person, such term does not include any taxable year of the trust
to which this part does not apply.
In the case of a preceding taxable year with respect to which a
trust qualifies (without regard to this subpart) under the
provisions of subpart B, for purposes of the application of this
subpart to such trust for such taxable year, such trust shall, in
accordance with regulations prescribed by the Secretary, be treated
as a trust to which subpart C applies."
1986 - Subsec. (d)(1). Pub. L. 99-514 substituted "part IV" for
"subpart A of part IV".
1978 - Subsec. (d). Pub. L. 95-600 designated existing provisions
as par. (1), defined "taxes imposed on the trust" to mean
imposition of taxes without regard to subpart A of part IV of
subchapter (A), and added par. (2).
1976 - Subsec. (b). Pub. L. 94-455, Sec. 701(b), (c), inserted
provisions that for purposes of sec. 667 the amounts specified in
par. (2) of sec. 661(a) not include amounts paid, credited, or
required to be distributed to a beneficiary from a trust as income
accumulated before the birth of such beneficiary or before such
beneficiary reaches 21, and that if the amounts paid, credited, or
required to be distributed by the trust for the taxable year do not
exceed the income of the trust for such year, there be no
accumulation distribution for such year.
Subsecs. (d), (e). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (e)(1). Pub. L. 94-455, Sec. 701(d)(2), struck out
provision that preceding taxable year does not include any taxable
year of the trust which begins before Jan. 1, 1969, in the case of
a capital gain distribution made during a taxable year beginning
after Dec. 31, 1968.
Subsecs. (f), (g). Pub. L. 94-455, Sec. 701(d)(3), struck out
subsec. (f) which related to undistributed capital gains, and
subsec. (g) which related to capital gain distribution.
1971 - Subsec. (g). Pub. L. 92-178 struck out "for such taxable
year" after "undistributed capital gain" in introductory text.
1969 - Subsec. (a)(2). Pub. L. 91-172 inserted "attributable to
such distributable net income" after "on the trust".
Subsec. (b). Pub. L. 91-172 substituted "Accumulation
distribution" for "Accumulation distributions of trusts other than
certain foreign trusts" in heading, combined existing provisions of
subsecs. (b) and (c) defining "accumulation distribution" in the
case of a trust (other than a foreign trust created by a United
States person) and of a foreign trust created by a United States
person, respectively, in provisions now designated as pars. (1) and
(2), deleting "the amount (if in excess of $2,000)" before "by
which" in introductory text and inserting "(but not below zero)" in
par. (2), and deleted second sentence providing that for purposes
of this subsection, the amount specified in par. (2) of section
661(a) shall be determined without regard to section 666 and
excepting from "accumulation distributions": accumulations before
birth or attainment of age 21; distributions for emergency needs;
distributions, where beneficiary attained specified age or ages and
there were not more than 4 distributions, at intervals of 4 or more
years; and final distribution of trust was made more than 9 years
after date of last transfer to the trust.
Subsec. (c). Pub. L. 91-172 substituted "Special rule applicable
to distributions by certain foreign trusts" for "Accumulation
distribution of certain foreign trusts" in heading, inserted
introductory phrase "For purposes of this subpart", reenacted
provisions of former third sentence as the subsection, struck out
first sentence which defined in the case of a foreign trust created
by a United States person the term "accumulation distribution",
(see subsec. (b) of this section), and deleted second sentence
which stated that "For purposes of this subsection, the amount
specified in paragraph (2) of section 661(a) shall be determined
without regard to section 666."
Subsec. (d). Pub. L. 91-172 substituted "taxable year of the
trust" for "taxable year on the trust", "allocable to the
undistributed portions of distributable net income and gains to
excess of losses from sales or exchanges of capital assets" for
"allocable to the undistributed portion of the distributable net
income", and "reduced by any amount of such taxes deemed
distributed under section 666(b) and (c) or 669(d) and (e) to any
beneficiary" for "reduced by any amount of such taxes allowed,
under sections 667 and 668, as a credit to any beneficiary on
account of any accumulation distribution determined for any taxable
year".
Subsec. (e). Pub. L. 91-172 substituted provisions of first
sentence contained in pars. 1(A) to (C) and (2) for prior first
sentence which read "For purposes of this subpart, the term
'preceding taxable year' does not include any taxable year of the
trust to which this part does not apply" and reenacted provisions
of second sentence.
Subsecs. (f), (g). Pub. L. 91-172 added subsecs. (f) and (g).
1962 - Subsec. (b). Pub. L. 87-834, Sec. 7(b)(1), substituted
"Accumulation distributions of trusts other than certain foreign
trusts" for "Accumulation distribution" in heading, and inserted
"in the case of a trust (other than a foreign trust created by a
United States person)," after "purposes of this subpart,".
Subsecs. (c) to (e). Pub. L. 87-834, Sec. 7(b)(2), added subsec.
(c) and redesignated former subsecs. (c) and (d) as (d) and (e),
respectively.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 507(c)(1) of Pub. L. 105-34 provided that: "The
amendments made by subsection (a) [amending this section] shall
apply to distributions in taxable years beginning after the date of
the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective Aug. 20, 1996, with
exception for certain trusts, see section 1904(d) of Pub. L. 104-
188, set out as a note under section 643 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 701(q)(3)(A) of Pub. L. 95-600 provided that: "The
amendments made by paragraph (1) [amending this section and section
667 of this title] shall apply to distributions made in taxable
years beginning after December 31, 1975."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 701(b), (c), (d)(2), (3) of Pub. L. 94-455
applicable to distributions made in taxable years beginning after
Dec. 31, 1975, see section 701(h), set out as a note under section
667 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 306(a) of Pub. L. 92-178 provided that the amendment made
by that section is effective with respect to taxable years
beginning after Dec. 31, 1968.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 331(d) of Pub. L. 91-172, as amended by Pub. L. 92-178,
title III, Sec. 306(b), Dec. 10, 1971, 85 Stat. 524; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) General rule. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 663, 666 to 669, and 6401 of this title] shall
apply to taxable years beginning after December 31, 1968.
"(2) Exceptions. -
"(A) Amounts paid, credited, or required to be distributed by a
trust (other than a foreign trust created by a United States
person) on or before the last day of a taxable year of the trust
beginning before January 1, 1974, shall not be deemed to be
accumulation distributions to the extent that such amounts were
accumulated by a trust in taxable years of such trust beginning
before January 1, 1969, and would have been excepted from the
definition of an accumulation distribution by reason of paragraph
(1), (2), (3), or (4) of section 665(b) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954], as in effect on December 31,
1968, if they had been distributed on the last day of the last
taxable year of the trust beginning before January 1, 1969.
"(B) For taxable years of a trust beginning before January 1,
1970, the first sentence of section 666(a) of the Internal
Revenue Code of 1986 (as amended by this section) shall not
apply, and the amount of the accumulation distribution of the
trust for such taxable years shall be deemed to be an amount
within the meaning of paragraph (2) of section 661(a) distributed
on the last day of each of the preceding taxable years to the
extent that such amount exceeds the total of any undistributed
net income for any taxable years intervening between the taxable
year with respect of which the accumulation distribution is
determined and such preceding taxable year.
"(C) In the case of a trust which was in existence on December
31, 1969, section 669 of the Internal Revenue Code of 1986, as
amended by this section, shall not apply to capital gain
distributions made to a beneficiary before January 1, 1973. If
the beneficiary receives capital gain distributions from more
than one such trust before January 1, 1973, the preceding
sentence shall apply to capital gain distributions from only one
such trust, such one to be designated by the taxpayer in
accordance with regulations prescribed by the Secretary or his
delegate. For purposes of the preceding sentence, capital gain
distributions received from a trust qualifying under section
2056(b)(5) of the Internal Revenue Code of 1986 by a surviving
spouse (who is the beneficiary of only one such trust) shall be
disregarded."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment of section by Pub. L. 87-834 applicable with respect to
distributions made after Dec. 31, 1962, see section 7(j) of Pub. L.
87-834, set out as a note under section 643 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 666 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart D - Treatment of Excess Distributions by Trusts
-HEAD-
Sec. 666. Accumulation distribution allocated to preceding years
-STATUTE-
(a) Amount allocated
In the case of a trust which is subject to subpart C, the amount
of the accumulation distribution of such trust for a taxable year
shall be deemed to be an amount within the meaning of paragraph (2)
of section 661(a) distributed on the last day of each of the
preceding taxable years, commencing with the earliest of such
years, to the extent that such amount exceeds the total of any
undistributed net income for all earlier preceding taxable years.
The amount deemed to be distributed in any such preceding taxable
year under the preceding sentence shall not exceed the
undistributed net income for such preceding taxable year. For
purposes of this subsection, undistributed net income for each of
such preceding taxable years shall be computed without regard to
such accumulation distribution and without regard to any
accumulation distribution determined for any succeeding taxable
year.
(b) Total taxes deemed distributed
If any portion of an accumulation distribution for any taxable
year is deemed under subsection (a) to be an amount within the
meaning of paragraph (2) of section 661(a) distributed on the last
day of any preceding taxable year, and such portion of such
distribution is not less than the undistributed net income for such
preceding taxable year, the trust shall be deemed to have
distributed on the last day of such preceding taxable year an
additional amount within the meaning of paragraph (2) of section
661(a). Such additional amount shall be equal to the taxes (other
than the tax imposed by section 55) imposed on the trust for such
preceding taxable year attributable to the undistributed net
income. For purposes of this subsection, the undistributed net
income and the taxes imposed on the trust for such preceding
taxable year attributable to such undistributed net income shall be
computed without regard to such accumulation distribution and
without regard to any accumulation distribution determined for any
succeeding taxable year.
(c) Pro rata portion of taxes deemed distributed
If any portion of an accumulation distribution for any taxable
year is deemed under subsection (a) to be an amount within the
meaning of paragraph (2) of section 661(a) distributed on the last
day of any preceding taxable year and such portion of the
accumulation distribution is less than the undistributed net income
for such preceding taxable year, the trust shall be deemed to have
distributed on the last day of such preceding taxable year an
additional amount within the meaning of paragraph (2) of section
661(a). Such additional amount shall be equal to the taxes (other
than the tax imposed by section 55) imposed on the trust for such
taxable year attributable to the undistributed net income
multiplied by the ratio of the portion of the accumulation
distribution to the undistributed net income of the trust for such
year. For purposes of this subsection, the undistributed net income
and the taxes imposed on the trust for such preceding taxable year
attributable to such undistributed net income shall be computed
without regard to the accumulation distribution and without regard
to any accumulation distribution determined for any succeeding
taxable year.
(d) Rule when information is not available
If adequate records are not available to determine the proper
application of this subpart to an amount distributed by a trust,
such amount shall be deemed to be an accumulation distribution
consisting of undistributed net income earned during the earliest
preceding taxable year of the trust in which it can be established
that the trust was in existence.
(e) Denial of refund to trusts and beneficiaries
No refund or credit shall be allowed to a trust or a beneficiary
of such trust for any preceding taxable year by reason of a
distribution deemed to have been made by such trust in such year
under this section.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 224; Pub. L. 87-834, Sec. 7(c),
Oct. 16, 1962, 76 Stat. 986; Pub. L. 91-172, title III, Sec.
331(a), Dec. 30, 1969, 83 Stat. 593; Pub. L. 94-455, title VII,
Sec. 701(a)(2), Oct. 4, 1976, 90 Stat. 1577; Pub. L. 95-600, title
IV, Sec. 421(d), Nov. 6, 1978, 92 Stat. 2875; Pub. L. 96-222, title
I, Sec. 104(a)(4)(H)(vi), Apr. 1, 1980, 94 Stat. 218.)
-MISC1-
AMENDMENTS
1980 - Subsec. (c). Pub. L. 96-222 inserted "(other than the tax
imposed by section 55)" after "equal to the taxes".
1978 - Subsec. (b). Pub. L. 95-600 inserted "(other than the tax
imposed by section 55)" after "equal to the taxes".
1976 - Subsec. (e). Pub. L. 94-455 added subsec. (e).
1969 - Subsec. (a). Pub. L. 91-172 substituted in first sentence
"In the case of a trust which is subject to subpart (C)" for "In
the case of a trust (other than a foreign trust created by a United
States person) which for a taxable year beginning after December
31, 1953, is subject to subpart (C)", "for a taxable year" for "for
such taxable year", and "undistributed net income for all earlier
preceding taxable years" for "undistributed net incomes for any
taxable years intervening between the taxable year with respect to
which the accumulation distribution is determined and such
preceding taxable year" and in second sentence "for such" for "of
such", inserted in first sentence ", commencing with the earliest
of such years," after "preceding taxable years", struck out "5"
before "preceding taxable years" in first and third sentences and
last sentence which read as follows: "In the case of a foreign
trust created by a United States person, this subsection shall
apply to the preceding taxable years of the trust without regard to
any provision of the preceding sentences which would (but for this
sentence) limit its application to the 5 preceding taxable years."
Subsec. (b). Pub. L. 91-172 inserted "attributable to the
undistributed net income" after "taxable year" in second sentence
and "attributable to such undistributed net income" before "shall
be computed" in third sentence.
Subsec. (c). Pub. L. 91-172 inserted "attributable to the
undistributed net income" before "multiplied by the ratio" in
second sentence and "attributable to such undistributed net income"
before "shall be computed" in third sentence.
Subsec. (d). Pub. L. 91-172 added subsec. (d).
1962 - Subsec. (a). Pub. L. 87-834 inserted "(other than a
foreign trust created by a United States person)" after "In the
case of a trust", and inserted sentence making this subsection
applicable, in the case of a foreign trust created by a United
States person, to the preceding taxable years of the trust without
regard to any provision of the preceding sentences of this
subsection which would (but for this sentence) limit its
application to the 5 preceding taxable years.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 421(g) of Pub. L. 95-600, set out
as a note under section 5 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable to distributions made in
taxable years beginning after Dec. 31, 1975, see section 701(h) of
Pub. L. 94-455, set out as a note under section 667 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1968, except that for taxable years of a trust
beginning before Jan. 1, 1970, first sentence of subsec. (a) not
applicable and amount of accumulation distribution stated, see
section 331(d)(1), (2)(B) of Pub. L. 91-172, set out as a note
under section 665 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to
distributions made after Dec. 31, 1962, see section 7(j) of Pub. L.
87-834, set out as a note under section 643 of this title.
-End-
-CITE-
26 USC Sec. 667 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart D - Treatment of Excess Distributions by Trusts
-HEAD-
Sec. 667. Treatment of amounts deemed distributed by trust in
preceding years
-STATUTE-
(a) General rule
The total of the amounts which are treated under section 666 as
having been distributed by a trust in a preceding taxable year
shall be included in the income of a beneficiary of the trust when
paid, credited, or required to be distributed to the extent that
such total would have been included in the income of such
beneficiary under section 662(a)(2) (and, with respect to any tax-
exempt interest to which section 103 applies, under section
662(b)) if such total had been paid to such beneficiary on the last
day of such preceding taxable year. The tax imposed by this
subtitle on a beneficiary for a taxable year in which any such
amount is included in his income shall be determined only as
provided in this section and shall consist of the sum of -
(1) a partial tax computed on the taxable income reduced by an
amount equal to the total of such amounts, at the rate and in the
manner as if this section had not been enacted,
(2) a partial tax determined as provided in subsection (b) of
this section, and
(3) in the case of a foreign trust, the interest charge
determined as provided in section 668.
(b) Tax on distribution
(1) In general
The partial tax imposed by subsection (a)(2) shall be
determined.
(A) by determining the number of preceding taxable years of
the trust on the last day of which an amount is deemed under
section 666(a) to have been distributed,
(B) by taking from the 5 taxable years immediately preceding
the year of the accumulation distribution the 1 taxable year
for which the beneficiary's taxable income was the highest and
the 1 taxable year for which his taxable income was the lowest,
(C) by adding to the beneficiary's taxable income for each of
the 3 taxable years remaining after the application of
subparagraph (B) an amount determined by dividing the amount
deemed distributed under section 666 and required to be
included in income under subsection (a) by the number of
preceding taxable years determined under subparagraph (A), and
(D) by determining the average increase in tax for the 3
taxable years referred to in subparagraph (C) resulting from
the application of such subparagraph.
The partial tax imposed by subsection (a)(2) shall be the excess
(if any) of the average increase in tax determined under
subparagraph (D), multiplied by the number of preceding taxable
years determined under subparagraph (A), over the amount of taxes
(other than the amount of taxes described in section 665(d)(2))
deemed distributed to the beneficiary under sections 666(b) and
(c).
(2) Treatment of loss years
For purposes of paragraph (1), the taxable income of the
beneficiary for any taxable year shall be deemed to be not less
than zero.
(3) Certain preceding taxable years not taken into account
For purposes of paragraph (1), if the amount of the
undistributed net income deemed distributed in any preceding
taxable year of the trust is less than 25 percent of the amount
of the accumulation distribution divided by the number of
preceding taxable years to which the accumulation distribution is
allocated under section 666(a), the number of preceding taxable
years of the trust with respect to which an amount is deemed
distributed to a beneficiary under section 666(a) shall be
determined without regard to such year.
(4) Effect of other accumulation distributions
In computing the partial tax under paragraph (1) for any
beneficiary, the income of such beneficiary for each of his prior
taxable years shall include amounts previously deemed distributed
to such beneficiary in such year under section 666 as a result of
prior accumulation distributions (whether from the same or
another trust).
(5) Multiple distributions in the same taxable year
In the case of accumulation distributions made from more than
one trust which are includible in the income of a beneficiary in
the same taxable year, the distributions shall be deemed to have
been made consecutively in whichever order the beneficiary shall
determine.
(6) Adjustment in partial tax for estate and generation-skipping
transfer taxes attributable to partial tax
(A) In general
The partial tax shall be reduced by an amount which is equal
to the pre-death portion of the partial tax multiplied by a
fraction -
(i) the numerator of which is that portion of the tax
imposed by chapter 11 or 13, as the case may be, which is
attributable (on a proportionate basis) to amounts included
in the accumulation distribution, and
(ii) the denominator of which is the amount of the
accumulation distribution which is subject to the tax imposed
by chapter 11 or 13, as the case may be.
(B) Partial tax determined without regard to this paragraph
For purposes of this paragraph, the term "partial tax" means
the partial tax imposed by subsection (a)(2) determined under
this subsection without regard to this paragraph.
(C) Pre-death portion
For purposes of this paragraph, the pre-death portion of the
partial tax shall be an amount which bears the same ratio to
the partial tax as the portion of the accumulation distribution
which is attributable to the period before the date of the
death of the decedent or the date of the generation-skipping
transfer bears to the total accumulation distribution.
(c) Special rule for multiple trusts
(1) In general
If, in the same prior taxable year of the beneficiary in which
any part of the accumulation distribution from a trust
(hereinafter in this paragraph referred to as "third trust") is
deemed under section 666(a) to have been distributed to such
beneficiary, some part of prior distributions by each of 2 or
more other trusts is deemed under section 666(a) to have been
distributed to such beneficiary, then subsections (b) and (c) of
section 666 shall not apply with respect to such part of the
accumulation distribution from such third trust.
(2) Accumulation distributions from trust not taken into account
unless they equal or exceed $1,000
For purposes of paragraph (1), an accumulation distribution
from a trust to a beneficiary shall be taken into account only if
such distribution, when added to any prior accumulation
distributions from such trust which are deemed under section
666(a) to have been distributed to such beneficiary for the same
prior taxable year of the beneficiary, equals or exceeds $1,000.
(d) Special rules for foreign trust
(1) Foreign tax deemed paid by beneficiary
(A) In general
In determining the increase in tax under subsection (b)(1)(D)
for any computation year, the taxes described in section
665(d)(2) which are deemed distributed under section 666(b) or
(c) and added under subsection (b)(1)(C) to the taxable income
of the beneficiary for any computation year shall, except as
provided in subparagraphs (B) and (C), be treated as a credit
against the increase in tax for such computation year under
subsection (b)(1)(D).
(B) Deduction in lieu of credit
If the beneficiary did not choose the benefits of subpart A
of part III of subchapter N with respect to the computation
year, the beneficiary may in lieu of treating the amounts
described in subparagraph (A) (without regard to subparagraph
(C)) as a credit may treat such amounts as a deduction in
computing the beneficiary's taxable income under subsection
(b)(1)(C) for the computation year.
(C) Limitation on credit; retention of character
(i) Limitation on credit
For purposes of determining under subparagraph (A) the
amount treated as a credit for any computation year, the
limitations under subpart A of part III of subchapter N shall
be applied separately with respect to amounts added under
subsection (b)(1)(C) to the taxable income of the beneficiary
for such computation year. For purposes of computing the
increase in tax under subsection (b)(1)(D) for any
computation year for which the beneficiary did not choose the
benefits of subpart A of part III of subchapter N, the
beneficiary shall be treated as having chosen such benefits
for such computation year.
(ii) Retention of character
The items of income, deduction, and credit of the Trust
shall retain their character (subject to the application of
section 904(f)(5)) to the extent necessary to apply this
paragraph.
(D) Computation year
For purposes of this paragraph, the term "computation year"
means any of the three taxable years remaining after
application of subsection (b)(1)(B).
(e) Retention of character of amounts distributed from accumulation
trust to nonresident aliens and foreign corporations
In the case of a distribution from a trust to a nonresident alien
individual or to a foreign corporation, the first sentence of
subsection (a) shall be applied as if the reference to the
determination of character under section 662(b) applied to all
amounts instead of just to tax-exempt interest.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 225; Pub. L. 91-172, title III,
Sec. 331(a), Dec. 30, 1969, 83 Stat. 594; Pub. L. 94-455, title
VII, Sec. 701(a)(1), title X, Sec. 1014(a), Oct. 4, 1976, 90 Stat.
1575, 1617; Pub. L. 95-30, title I, Sec. 102(b)(8), May 23, 1977,
91 Stat. 138; Pub. L. 95-600, title VII, Secs. 701(q)(1)(B), (C),
(r)(1), 702(o)(1), Nov. 6, 1978, 92 Stat. 2909, 2910, 2936; Pub. L.
99-514, title I, Sec. 104(b)(10), Oct. 22, 1986, 100 Stat. 2105.)
-MISC1-
AMENDMENTS
1986 - Subsec. (b)(2). Pub. L. 99-514 amended par. (2) generally.
Prior to amendment, par. (2) read as follows: "For purposes of
paragraph (1), the taxable income of the beneficiary for any
taxable year shall be deemed to be not less than -
"(A) in the case of a beneficiary who is an individual, the
zero bracket amount for such year, or
"(B) in the case of a beneficiary who is a corporation, zero."
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 701(q)(1)(C),
inserted in last sentence "(other than the amount of taxes
described in section 665(d)(2))" after "taxes".
Subsec. (b)(6). Pub. L. 95-600, Sec. 702(o)(1), added par. (6).
Subsec. (d). Pub. L. 95-600, Sec. 701(q)(1)(B), added subsec.
(d).
Subsec. (e). Pub. L. 95-600, Sec. 701(r)(1), added subsec. (e).
1977 - Subsec. (b)(2). Pub. L. 95-30 substituted "not less than
(A) in the case of a beneficiary who is an individual, the zero
bracket amount for such year, or (B) in the case of a beneficiary
who is a corporation, zero" for "not less than zero".
1976 - Pub. L. 94-455, Secs. 701(a)(1), 1014(a), substituted
provisions relating to the treatment of amounts deemed distributed
by trust in preceding years for provisions that no refund or credit
be allowed to a trust for any preceding taxable year by reason of a
distribution deemed to have been made by such trust in such year
under section 666 or 669 and that there be allowed as a credit
against the tax imposed by this subtitle on the beneficiary an
amount equal to the amount of the taxes deemed distributed to such
beneficiary by the trust under sections 666(b) and (c) and 669(d)
and (e) during preceding taxable years of the trust on the last day
of which the beneficiary was in being, reduced by the amount of the
taxes deemed distributed to such beneficiary for such preceding
taxable years to the extent that such taxes are taken into account
under sections 668(b)(1) and 669(b) in determining the amount of
the tax imposed by section 668. See section 666(e) of this title.
1969 - Subsec. (a). Pub. L. 91-172 incorporated existing
provisions of first sentence in provisions designated as subsec.
(a), included distributions made under section 669 of this title,
and struck out provisions for credit of taxes imposed on the trust
against tax of beneficiary. See subsec. (b) of this section.
Subsec. (b). Pub. L. 91-172 incorporated provision of first
sentence for credit of taxes imposed on the trust against tax of
beneficiary, and provided for interest free credit and method of
computation of its amount. The second sentence had provided that
the amount of taxes which may not be refunded or credited to the
trust shall be an amount equal to the excess of (1) the taxes
imposed on the trust for any preceding taxable year (computed
without regard to the accumulation distribution for the taxable
year) over (2) the amount of taxes for such preceding taxable year
imposed on the undistributed portion of distributable net income of
the trust for such preceding taxable year after the application of
this subpart on account of the accumulation distribution determined
for such taxable year.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 701(q)(1)(B), (C) of Pub. L. 95-600
applicable to distributions made in taxable years beginning after
Dec. 31, 1975, see section 701(q)(3)(A) of Pub. L. 95-600, set out
as a note under section 665 of this title.
Section 702(o)(2) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
-
"(A) in the case of the tax imposed by chapter 11 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954, section 2001
et seq. of this title], to the estates of decedents dying after
December 31, 1979, and
"(B) in the case of the tax imposed by chapter 13 [section 2601
et seq. of this title], to any generation-skipping transfer
(within the meaning of section 2611(a) of such Code) made after
June 11, 1976."
Section 701(r)(2) of Pub. L. 95-600 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply to
distributions made in taxable years beginning after December 31,
1975."
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 701(h) of Pub. L. 94-455 provided that: "The amendments
made by subsections (a), (b), (c), (d), and (f) of this section
[amending this section and sections 665, 666, 1302, and 6401 of
this title and repealing sections 668 and 669 of this title] shall
apply to distributions made in taxable years beginning after
December 31, 1975. The amendments made by subsection (e) of this
section [enacting section 644 of this title and amending section
641 of this title] shall apply to transfers in trust made after May
21, 1976."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1968, see section 331(d) of Pub. L. 91-172, set out
as a note under section 665 of this title.
-End-
-CITE-
26 USC Sec. 668 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart D - Treatment of Excess Distributions by Trusts
-HEAD-
Sec. 668. Interest charge on accumulation distributions from
foreign trusts
-STATUTE-
(a) General rule
For purposes of the tax determined under section 667(a) -
(1) Interest determined using underpayment rates
The interest charge determined under this section with respect
to any distribution is the amount of interest which would be
determined on the partial tax computed under section 667(b) for
the period described in paragraph (2) using the rates and the
method under section 6621 applicable to underpayments of tax.
(2) Period
For purposes of paragraph (1), the period described in this
paragraph is the period which begins on the date which is the
applicable number of years before the date of the distribution
and which ends on the date of the distribution.
(3) Applicable number of years
For purposes of paragraph (2) -
(A) In general
The applicable number of years with respect to a distribution
is the number determined by dividing -
(i) the sum of the products described in subparagraph (B)
with respect to each undistributed income year, by
(ii) the aggregate undistributed net income.
The quotient determined under the preceding sentence shall be
rounded under procedures prescribed by the Secretary.
(B) Product described
For purposes of subparagraph (A), the product described in
this subparagraph with respect to any undistributed income year
is the product of -
(i) the undistributed net income for such year, and
(ii) the sum of the number of taxable years between such
year and the taxable year of the distribution (counting in
each case the undistributed income year but not counting the
taxable year of the distribution).
(4) Undistributed income year
For purposes of this subsection, the term "undistributed income
year" means any prior taxable year of the trust for which there
is undistributed net income, other than a taxable year during all
of which the beneficiary receiving the distribution was not a
citizen or resident of the United States.
(5) Determination of undistributed net income
Notwithstanding section 666, for purposes of this subsection,
an accumulation distribution from the trust shall be treated as
reducing proportionately the undistributed net income for
undistributed income years.
(6) Periods before 1996
Interest for the portion of the period described in paragraph
(2) which occurs before January 1, 1996, shall be determined -
(A) by using an interest rate of 6 percent, and
(B) without compounding until January 1, 1996.
(b) Limitation
The total amount of the interest charge shall not, when added to
the total partial tax computed under section 667(b), exceed the
amount of the accumulation distribution (other than the amount of
tax deemed distributed by section 666(b) or (c)) in respect of
which such partial tax was determined.
(c) Interest charge not deductible
The interest charge determined under this section shall not be
allowed as a deduction for purposes of any tax imposed by this
title.
-SOURCE-
(Added Pub. L. 94-455, title X, Sec. 1014(b), Oct. 4, 1976, 90
Stat. 1617; amended Pub. L. 101-508, title XI, Sec. 11802(f)(3),
Nov. 5, 1990, 104 Stat. 1388-530; Pub. L. 104-188, title I, Sec.
1906(a), Aug. 20, 1996, 110 Stat. 1914.)
-MISC1-
PRIOR PROVISIONS
A prior section 668, acts Aug. 16, 1954, ch. 736, 68A Stat. 225;
Oct. 16, 1962, Pub. L. 87-834, Sec. 7(d), 76 Stat. 986; Dec. 30,
1969, Pub. L. 91-172, title III, Sec. 331(a), 83 Stat. 594, related
to treatment of amounts deemed distributed in preceding years,
prior to repeal by Pub. L. 94-455, title VII, Sec. 701(a)(3), Oct.
4, 1976, 90 Stat. 1577. See section 667 of this title.
AMENDMENTS
1996 - Subsec. (a). Pub. L. 104-188 reenacted heading without
change and amended text generally. Prior to amendment, text read as
follows: "For purposes of the tax determined under section 667(a),
the interest charge is an amount equal to 6 percent of the partial
tax computed under section 667(b) multiplied by a fraction -
"(1) the numerator of which is the sum of the number of taxable
years between each taxable year to which the distribution is
allocated under section 666(a) and the taxable year of the
distribution (counting in each case the taxable year to which the
distribution is allocated but not counting the taxable year of
the distribution), and
"(2) the denominator of which is the number of taxable years to
which the distribution is allocated under section 666(a)."
1990 - Subsec. (c). Pub. L. 101-508 substituted heading for one
which read "Special rules" and amended text generally, restating
provisions of former par. (1) as entire subsection and striking out
former par. (2) which provided that for purposes of this section,
undistributed net income existing in a trust as of January 1, 1977,
would be treated as allocated under section 666(a) to the first
taxable year beginning after December 31, 1976.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1906(d)(1) of Pub. L. 104-188 provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to distributions after the date of the enactment of this Act
[Nov. 20, 1996]."
EFFECTIVE DATE
Section 1014(d) of Pub. L. 94-455 provided that: "The amendments
made by this section [enacting this section and amending section
667 of this title] shall apply to taxable years beginning after
December 31, 1976."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
-End-
-CITE-
26 USC Sec. 669 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart D - Treatment of Excess Distributions by Trusts
-HEAD-
[Sec. 669. Repealed. Pub. L. 94-455, title VII, Sec. 701(d)(1),
Oct. 4, 1976, 90 Stat. 1578]
-MISC1-
Section, acts Oct. 16, 1962, Pub. L. 87-834, Sec. 7(e), 76 Stat.
986; Dec. 30, 1969, Pub. L. 91-172, title III, Sec. 331(a), 83
Stat. 596, related to the treatment of capital gain deemed
distributed in preceding years.
EFFECTIVE DATE OF REPEAL
Repeal applicable to distributions made in taxable years
beginning after Dec. 31, 1975, see section 701(h) of Pub. L. 94-
455, set out as an Effective Date of 1976 Amendment note under
section 667 of this title.
-End-
-CITE-
26 USC Subpart E - Grantors and Others Treated as
Substantial Owners 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart E - Grantors and Others Treated as Substantial Owners
-HEAD-
SUBPART E - GRANTORS AND OTHERS TREATED AS SUBSTANTIAL OWNERS
-MISC1-
Sec.
671. Trust income, deductions, and credits attributable to
grantors and others as substantial owners.
672. Definitions and rules.
673. Reversionary interests.
674. Power to control beneficial enjoyment.
675. Administrative powers.
676. Power to revoke.
677. Income for benefit of grantor.
678. Person other than grantor treated as substantial
owner.
679. Foreign trusts having one or more United States
beneficiaries.
AMENDMENTS
1976 - Pub. L. 94-455, title X, Sec. 1013(e)(1), Oct. 4, 1976, 90
Stat. 1616, added item 679.
-End-
-CITE-
26 USC Sec. 671 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart E - Grantors and Others Treated as Substantial Owners
-HEAD-
Sec. 671. Trust income, deductions, and credits attributable to
grantors and others as substantial owners
-STATUTE-
Where it is specified in this subpart that the grantor or another
person shall be treated as the owner of any portion of a trust,
there shall then be included in computing the taxable income and
credits of the grantor or the other person those items of income,
deductions, and credits against tax of the trust which are
attributable to that portion of the trust to the extent that such
items would be taken into account under this chapter in computing
taxable income or credits against the tax of an individual. Any
remaining portion of the trust shall be subject to subparts A
through D. No items of a trust shall be included in computing the
taxable income and credits of the grantor or of any other person
solely on the grounds of his dominion and control over the trust
under section 61 (relating to definition of gross income) or any
other provision of this title, except as specified in this subpart.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 226.)
-MISC1-
CERTAIN ENTITIES NOT TREATED AS CORPORATIONS
Pub. L. 99-514, title VI, Sec. 646, Oct. 22, 1986, 100 Stat.
2292, as amended by Pub. L. 100-647, title I, Sec. 1006(k), Nov.
10, 1988, 102 Stat. 3411, provided that:
"(a) General Rule. - For purposes of the Internal Revenue Code of
1986, if the entity described in subsection (b) makes an election
under subsection (c), such entity shall be treated as a trust to
which subpart E of part 1 of subchapter J of chapter 1 of such Code
applies.
"(b) Entity. - An entity is described in this subsection if -
"(1) such entity was created in 1906 as a common law trust and
is governed by the trust laws of the State of Minnesota,
"(2) such entity is exclusively engaged in the leasing of
mineral property and activities incidental thereto, and
"(3) income interests in such entity are publicly traded as of
October 22, 1986, on a national stock exchange.
"(c) Election. -
"(1) In general. - An election under this subsection to have
the provisions of this section apply -
"(A) shall be made by the board of trustees of the entity
before January 1, 1991, and
"(B) shall not be valid unless accompanied by an agreement
described in paragraph (2).
"(2) Agreement. -
"(A) In general. - The agreement described in this paragraph
is a written agreement signed by the board of trustees of the
entity which provides that the entity will not acquire any
additional property other than property described in
subparagraph (B).
"(B) Permissible acquisitions. - Property is described in
this paragraph if it is -
"(i) surface rights to property the acquisition of which -
"(I) is necessary to mine mineral rights held on October 22,
1986, and
"(II) is required by a written binding agreement between the
entity and an unrelated person entered into on or before
October 22, 1986,
"(ii) surface rights to property which are not described in
clause (i) and which -
"(I) are acquired in an exchange to which section 1031
[probably means section 1031 of this title] applies, and
"(II) are necessary to mine mineral rights held on October 22,
1986,
"(iii) tangible personal property incidental to the leasing
of mineral property and activities incidental thereto, or
"(iv) part of any required reserves of the entity.
"(3) Beginning of period for which election is in effect. - The
period during which an election is in effect under this
subsection shall begin on the 1st day of the 1st taxable year
beginning after the date of the enactment of this Act [Oct. 22,
1986] and following the taxable year in which the election is
made.
"(4) Manner of election. - Any election under this subsection
shall be made in such manner as the Secretary of the Treasury or
his delegate may prescribe.
"(d) Special Rules for Taxation of Trust. -
"(1) Election treated as a liquidation. - If an election is
made under subsection (c) with respect to any entity -
"(A) such entity shall be treated as having been liquidated
into a trust immediately before the period described in
subsection (c)(3) in a liquidation to which section 333 of the
Internal Revenue Code of 1954 (as in effect before the
amendments made by this Act) applies, and
"(B) for purposes of section 333 of such Code (as so in
effect) -
"(i) any person holding an income interest in such entity
as of such time shall be treated as a qualified electing
shareholder, and
"(ii) the earnings and profits, and the value of money or
stock or securities, of such entity shall be apportioned
ratably among persons described in clause (i).
The amendments made by subtitle D of this title [subtitle D
(Secs. 631-634) of title VI of Pub. L. 99-514, see Tables for
classification] and section 1804 of this Act [see Tables for
classification] shall not apply to any liquidation under this
paragraph.
"(2) Termination of election. - If an entity ceases to be
described in subsection (b) or violates any term of the agreement
described in subsection (c)(2), the entity shall, for purposes of
the Internal Revenue Code of 1986, be treated as a corporation
for the taxable year in which such cessation or violation occurs
and for all subsequent taxable years.
"(3) Trust ceasing to exist. - Paragraph (2) shall not apply if
the trust ceases to be described in subsection (b) or violates
the agreement in subsection (c)(2) because the trust ceases to
exist.
"(e) Special Rule for Persons Holding Income Interests. - In
applying subpart E of part I of subchapter J of chapter 1 of the
Internal Revenue Code of 1986 to any entity to which this section
applies -
"(1) a reversionary interest shall not be taken into account
until it comes into possession, and
"(2) all items of income, gain, loss, deduction, and credit
shall be allocated to persons holding income interests for the
period of the allocation."
-End-
-CITE-
26 USC Sec. 672 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart E - Grantors and Others Treated as Substantial Owners
-HEAD-
Sec. 672. Definitions and rules
-STATUTE-
(a) Adverse party
For purposes of this subpart, the term "adverse party" means any
person having a substantial beneficial interest in the trust which
would be adversely affected by the exercise or nonexercise of the
power which he possesses respecting the trust. A person having a
general power of appointment over the trust property shall be
deemed to have a beneficial interest in the trust.
(b) Nonadverse party
For purposes of this subpart, the term "nonadverse party" means
any person who is not an adverse party.
(c) Related or subordinate party
For purposes of this subpart, the term "related or subordinate
party" means any nonadverse party who is -
(1) the grantor's spouse if living with the grantor;
(2) any one of the following: The grantor's father, mother,
issue, brother or sister; an employee of the grantor; a
corporation or any employee of a corporation in which the stock
holdings of the grantor and the trust are significant from the
viewpoint of voting control; a subordinate employee of a
corporation in which the grantor is an executive.
For purposes of subsection (f) and sections 674 and 675, a related
or subordinate party shall be presumed to be subservient to the
grantor in respect of the exercise or nonexercise of the powers
conferred on him unless such party is shown not to be subservient
by a preponderance of the evidence.
(d) Rule where power is subject to condition precedent
A person shall be considered to have a power described in this
subpart even though the exercise of the power is subject to a
precedent giving of notice or takes effect only on the expiration
of a certain period after the exercise of the power.
(e) Grantor treated as holding any power or interest of grantor's
spouse
(1) In general
For purposes of this subpart, a grantor shall be treated as
holding any power or interest held by -
(A) any individual who was the spouse of the grantor at the
time of the creation of such power or interest, or
(B) any individual who became the spouse of the grantor after
the creation of such power or interest, but only with respect
to periods after such individual became the spouse of the
grantor.
(2) Marital status
For purposes of paragraph (1)(A), an individual legally
separated from his spouse under a decree of divorce or of
separate maintenance shall not be considered as married.
(f) Subpart not to result in foreign ownership
(1) In general
Notwithstanding any other provision of this subpart, this
subpart shall apply only to the extent such application results
in an amount (if any) being currently taken into account
(directly or through 1 or more entities) under this chapter in
computing the income of a citizen or resident of the United
States or a domestic corporation.
(2) Exceptions
(A) Certain revocable and irrevocable trusts
Paragraph (1) shall not apply to any portion of a trust if -
(i) the power to revest absolutely in the grantor title to
the trust property to which such portion is attributable is
exercisable solely by the grantor without the approval or
consent of any other person or with the consent of a related
or subordinate party who is subservient to the grantor, or
(ii) the only amounts distributable from such portion
(whether income or corpus) during the lifetime of the grantor
are amounts distributable to the grantor or the spouse of the
grantor.
(B) Compensatory trusts
Except as provided in regulations, paragraph (1) shall not
apply to any portion of a trust distributions from which are
taxable as compensation for services rendered.
(3) Special rules
Except as otherwise provided in regulations prescribed by the
Secretary -
(A) a controlled foreign corporation (as defined in section
957) shall be treated as a domestic corporation for purposes of
paragraph (1), and
(B) paragraph (1) shall not apply for purposes of applying
section 1297.
(4) Recharacterization of purported gifts
In the case of any transfer directly or indirectly from a
partnership or foreign corporation which the transferee treats as
a gift or bequest, the Secretary may recharacterize such transfer
in such circumstances as the Secretary determines to be
appropriate to prevent the avoidance of the purposes of this
subsection.
(5) Special rule where grantor is foreign person
If -
(A) but for this subsection, a foreign person would be
treated as the owner of any portion of a trust, and
(B) such trust has a beneficiary who is a United States
person,
such beneficiary shall be treated as the grantor of such portion
to the extent such beneficiary has made (directly or indirectly)
transfers of property (other than in a sale for full and adequate
consideration) to such foreign person. For purposes of the
preceding sentence, any gift shall not be taken into account to
the extent such gift would be excluded from taxable gifts under
section 2503(b).
(6) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection, including regulations providing that paragraph (1)
shall not apply in appropriate cases.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 226; Pub. L. 99-514, title XIV,
Sec. 1401(a), Oct. 22, 1986, 100 Stat. 2711; Pub. L. 100-647, title
I, Sec. 1014(a)(1), Nov. 10, 1988, 102 Stat. 3559; Pub. L. 101-508,
title XI, Sec. 11343(a), Nov. 5, 1990, 104 Stat. 1388-472; Pub. L.
104-188, title I, Sec. 1904(a), Aug. 20, 1996, 110 Stat. 1910; Pub.
L. 105-206, title VI, Sec. 6011(c)(1), July 22, 1998, 112 Stat.
818.)
-MISC1-
AMENDMENTS
1998 - Subsec. (f)(3)(B). Pub. L. 105-206 substituted "section
1297" for "section 1296".
1996 - Subsec. (c). Pub. L. 104-188, Sec. 1904(a)(2), inserted
"subsection (f) and" before "sections 674" in closing provisions.
Subsec. (f). Pub. L. 104-188, Sec. 1904(a)(1), amended subsec.
(f) generally. Prior to amendment, subsec. (f) read as follows:
"Special Rule Where Grantor is Foreign Person. -
"(1) In general. - If -
"(A) but for this subsection, a foreign person would be
treated as the owner of any portion of a trust, and
"(B) such trust has a beneficiary who is a United States
person,
such beneficiary shall be treated as the grantor of such portion
to the extent such beneficiary has made transfers of property by
gift (directly or indirectly) to such foreign person. For
purposes of the preceding sentence, any gift shall not be taken
into account to the extent such gift would be excluded from
taxable gifts under section 2503(b).
"(2) Regulations. - The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of this
subsection."
1990 - Subsec. (f). Pub. L. 101-508 added subsec. (f).
1988 - Subsec. (e). Pub. L. 100-647 amended subsec. (e)
generally. Prior to amendment, subsec. (e) read as follows: "For
purposes of this subpart, if a grantor's spouse is living with the
grantor at the time of the creation of any power or interest held
by such spouse, the grantor shall be treated as holding such power
or interest."
1986 - Subsec. (e). Pub. L. 99-514 added subsec. (e).
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective Aug. 20, 1996, with
exception for certain trusts, see section 1904(d) of Pub. L. 104-
188, set out as a note under section 643 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11343(b) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section] shall apply
to -
"(1) any trust created after the date of the enactment of this
Act [Nov. 5, 1990], and
"(2) any portion of a trust created on or before such date
which is attributable to amounts contributed to the trust after
such date."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1401(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply with
respect to transfers in trust made after March 1, 1986."
-End-
-CITE-
26 USC Sec. 673 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart E - Grantors and Others Treated as Substantial Owners
-HEAD-
Sec. 673. Reversionary interests
-STATUTE-
(a) General rule
The grantor shall be treated as the owner of any portion of a
trust in which he has a reversionary interest in either the corpus
or the income therefrom, if, as of the inception of that portion of
the trust, the value of such interest exceeds 5 percent of the
value of such portion.
(b) Reversionary interest taking effect at death of minor lineal
descendant beneficiary
In the case of any beneficiary who -
(1) is a lineal descendant of the grantor, and
(2) holds all of the present interests in any portion of a
trust,
the grantor shall not be treated under subsection (a) as the owner
of such portion solely by reason of a reversionary interest in such
portion which takes effect upon the death of such beneficiary
before such beneficiary attains age 21.
(c) Special rule for determining value of reversionary interest
For purposes of subsection (a), the value of the grantor's
reversionary interest shall be determined by assuming the maximum
exercise of discretion in favor of the grantor.
(d) Postponement of date specified for reacquisition
Any postponement of the date specified for the reacquisition of
possession or enjoyment of the reversionary interest shall be
treated as a new transfer in trust commencing with the date on
which the postponement is effective and terminating with the date
prescribed by the postponement. However, income for any period
shall not be included in the income of the grantor by reason of the
preceding sentence if such income would not be so includible in the
absence of such postponement.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 227; Pub. L. 91-172, title II,
Sec. 201(c), Dec. 30, 1969, 83 Stat. 560; Pub. L. 99-514, title
XIV, Sec. 1402(a), Oct. 22, 1986, 100 Stat. 2711; Pub. L. 100-647,
title I, Sec. 1014(b), Nov. 10, 1988, 102 Stat. 3559.)
-MISC1-
AMENDMENTS
1988 - Subsecs. (c), (d). Pub. L. 100-647 added subsecs. (c) and
(d).
1986 - Pub. L. 99-514 amended section generally, substituting
"the value of such interest exceeds 5 percent of the value of such
portion" for "the interest will or may reasonably be expected to
take effect in possession or enjoyment within 10 years commencing
with the date of the transfer of that portion of the trust" in
subsec. (a), adding subsec. (b), striking out subsec. (c) which
provided that the grantor not be treated under subsec. (a) as the
owner of any portion of a trust where his reversionary interest in
such portion was not to take effect in possession or enjoyment
until the death of the persons to whom the income therefrom was
payable, and subsec. (d) which provided that any postponement of
the date specified for the reacquisition of possession or enjoyment
of the reversionary interest be treated as a new transfer in trust
commencing with the date on which the postponement was effected and
terminating with the date prescribed by the postponement.
1969 - Subsec. (b). Pub. L. 91-172 struck out provisions relating
to trusts where the income was payable to a charitable beneficiary
for at least a two-year period.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1402(c) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
674, 676, and 677 of this title] shall apply with respect to
transfers in trust made after March 1, 1986.
"(2) Transfers pursuant to property settlement agreement. - The
amendments made by this section shall not apply to any transfer in
trust made after March 1, 1986, pursuant to a binding property
settlement agreement entered into on or before March 1, 1986, which
required the taxpayer to establish a grantor trust and for the
transfer of a specified sum of money or property to the trust by
the taxpayer. This paragraph shall apply only to the extent of the
amount required to be transferred under the agreement described in
the preceding sentence."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to transfers in trust made
after April 22, 1969, see section 201(g)(3) of Pub. L. 91-172, set
out as a note under section 170 of this title.
-End-
-CITE-
26 USC Sec. 674 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart E - Grantors and Others Treated as Substantial Owners
-HEAD-
Sec. 674. Power to control beneficial enjoyment
-STATUTE-
(a) General rule
The grantor shall be treated as the owner of any portion of a
trust in respect of which the beneficial enjoyment of the corpus or
the income therefrom is subject to a power of disposition,
exercisable by the grantor or a nonadverse party, or both, without
the approval or consent of any adverse party.
(b) Exceptions for certain powers
Subsection (a) shall not apply to the following powers regardless
of by whom held:
(1) Power to apply income to support of a dependent
A power described in section 677(b) to the extent that the
grantor would not be subject to tax under that section.
(2) Power affecting beneficial enjoyment only after occurrence of
event
A power, the exercise of which can only affect the beneficial
enjoyment of the income for a period commencing after the
occurrence of an event such that a grantor would not be treated
as the owner under section 673 if the power were a reversionary
interest; but the grantor may be treated as the owner after the
occurrence of the event unless the power is relinquished.
(3) Power exercisable only by will
A power exercisable only by will, other than a power in the
grantor to appoint by will the income of the trust where the
income is accumulated for such disposition by the grantor or may
be so accumulated in the discretion of the grantor or a
nonadverse party, or both, without the approval or consent of any
adverse party.
(4) Power to allocate among charitable beneficiaries
A power to determine the beneficial enjoyment of the corpus or
the income therefrom if the corpus or income is irrevocably
payable for a purpose specified in section 170(c) (relating to
definition of charitable contributions) or to an employee stock
ownership plan (as defined in section 4975(e)(7)) in a qualified
gratuitous transfer (as defined in section 664(g)(1)).
(5) Power to distribute corpus
A power to distribute corpus either -
(A) to or for a beneficiary or beneficiaries or to or for a
class of beneficiaries (whether or not income beneficiaries)
provided that the power is limited by a reasonably definite
standard which is set forth in the trust instrument; or
(B) to or for any current income beneficiary, provided that
the distribution of corpus must be chargeable against the
proportionate share of corpus held in trust for the payment of
income to the beneficiary as if the corpus constituted a
separate trust.
A power does not fall within the powers described in this
paragraph if any person has a power to add to the beneficiary or
beneficiaries or to a class of beneficiaries designated to
receive the income or corpus, except where such action is to
provide for after-born or after-adopted children.
(6) Power to withhold income temporarily
A power to distribute or apply income to or for any current
income beneficiary or to accumulate the income for him, provided
that any accumulated income must ultimately be payable -
(A) to the beneficiary from whom distribution or application
is withheld, to his estate, or to his appointees (or persons
named as alternate takers in default of appointment) provided
that such beneficiary possesses a power of appointment which
does not exclude from the class of possible appointees any
person other than the beneficiary, his estate, his creditors,
or the creditors of his estate, or
(B) on termination of the trust, or in conjunction with a
distribution of corpus which is augmented by such accumulated
income, to the current income beneficiaries in shares which
have been irrevocably specified in the trust instrument.
Accumulated income shall be considered so payable although it is
provided that if any beneficiary does not survive a date of
distribution which could reasonably have been expected to occur
within the beneficiary's lifetime, the share of the deceased
beneficiary is to be paid to his appointees or to one or more
designated alternate takers (other than the grantor or the
grantor's estate) whose shares have been irrevocably specified. A
power does not fall within the powers described in this paragraph
if any person has a power to add to the beneficiary or
beneficiaries or to a class of beneficiaries designated to
receive the income or corpus except where such action is to
provide for after-born or after-adopted children.
(7) Power to withhold income during disability of a beneficiary
A power exercisable only during -
(A) the existence of a legal disability of any current income
beneficiary, or
(B) the period during which any income beneficiary shall be
under the age of 21 years,
to distribute or apply income to or for such beneficiary or to
accumulate and add the income to corpus. A power does not fall
within the powers described in this paragraph if any person has a
power to add to the beneficiary or beneficiaries or to a class of
beneficiaries designated to receive the income or corpus, except
where such action is to provide for after-born or after-adopted
children.
(8) Power to allocate between corpus and income
A power to allocate receipts and disbursements as between
corpus and income, even though expressed in broad language.
(c) Exception for certain powers of independent trustees
Subsection (a) shall not apply to a power solely exercisable
(without the approval or consent of any other person) by a trustee
or trustees, none of whom is the grantor, and no more than half of
whom are related or subordinate parties who are subservient to the
wishes of the grantor -
(1) to distribute, apportion, or accumulate income to or for a
beneficiary or beneficiaries, or to, for, or within a class of
beneficiaries; or
(2) to pay out corpus to or for a beneficiary or beneficiaries
or to or for a class of beneficiaries (whether or not income
beneficiaries).
A power does not fall within the powers described in this
subsection if any person has a power to add to the beneficiary or
beneficiaries or to a class of beneficiaries designated to receive
the income or corpus, except where such action is to provide for
after-born or after-adopted children. For periods during which an
individual is the spouse of the grantor (within the meaning of
section 672(e)(2)), any reference in this subsection to the grantor
shall be treated as including a reference to such individual.
(d) Power to allocate income if limited by a standard
Subsection (a) shall not apply to a power solely exercisable
(without the approval or consent of any other person) by a trustee
or trustees, none of whom is the grantor or spouse living with the
grantor, to distribute, apportion, or accumulate income to or for a
beneficiary or beneficiaries, or to, for, or within a class of
beneficiaries, whether or not the conditions of paragraph (6) or
(7) of subsection (b) are satisfied, if such power is limited by a
reasonably definite external standard which is set forth in the
trust instrument. A power does not fall within the powers described
in this subsection if any person has a power to add to the
beneficiary or beneficiaries or to a class of beneficiaries
designated to receive the income or corpus except where such action
is to provide for after-born or after-adopted children.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 227; Pub. L. 99-514, title XIV,
Sec. 1402(b)(1), Oct. 22, 1986, 100 Stat. 2712; Pub. L. 100-647,
title I, Sec. 1014(a)(3), Nov. 10, 1988, 102 Stat. 3559; Pub. L.
105-34, title XV, Sec. 1530(c)(6), Aug. 5, 1997, 111 Stat. 1078.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(4). Pub. L. 105-34 inserted before period "or
to an employee stock ownership plan (as defined in section
4975(e)(7)) in a qualified gratuitous transfer (as defined in
section 664(g)(1))".
1988 - Subsec. (c). Pub. L. 100-647 inserted at end "For periods
during which an individual is the spouse of the grantor (within the
meaning of section 672(e)(2)), any reference in this subsection to
the grantor shall be treated as including a reference to such
individual."
1986 - Subsec. (b)(2). Pub. L. 99-514 substituted "occurrence of
event" for "expiration of 10-year period" in heading and in text
substituted "the occurrence of an event" for "the expiration of a
period" and "the occurrence of the event" for "the expiration of
the period".
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to transfers made by
trusts to, or for the use of, an employee stock ownership plan
after Aug. 5, 1997, see section 1530(d) of Pub. L. 105-34, set out
as a note under section 401 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable with respect to transfers
in trust made after Mar. 1, 1986, except for transfers pursuant to
a certain binding property settlement agreement, see section
1402(c) of Pub. L. 99-514, set out as a note under section 673 of
this title.
-End-
-CITE-
26 USC Sec. 675 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart E - Grantors and Others Treated as Substantial Owners
-HEAD-
Sec. 675. Administrative powers
-STATUTE-
The grantor shall be treated as the owner of any portion of a
trust in respect of which -
(1) Power to deal for less than adequate and full consideration
A power exercisable by the grantor or a nonadverse party, or
both, without the approval or consent of any adverse party
enables the grantor or any person to purchase, exchange, or
otherwise deal with or dispose of the corpus or the income
therefrom for less than an adequate consideration in money or
money's worth.
(2) Power to borrow without adequate interest or security
A power exercisable by the grantor or a nonadverse party, or
both, enables the grantor to borrow the corpus or income,
directly or indirectly, without adequate interest or without
adequate security except where a trustee (other than the grantor)
is authorized under a general lending power to make loans to any
person without regard to interest or security.
(3) Borrowing of the trust funds
The grantor has directly or indirectly borrowed the corpus or
income and has not completely repaid the loan, including any
interest, before the beginning of the taxable year. The preceding
sentence shall not apply to a loan which provides for adequate
interest and adequate security, if such loan is made by a trustee
other than the grantor and other than a related or subordinate
trustee subservient to the grantor. For periods during which an
individual is the spouse of the grantor (within the meaning of
section 672(e)(2)), any reference in this paragraph to the
grantor shall be treated as including a reference to such
individual.
(4) General powers of administration
A power of administration is exercisable in a nonfiduciary
capacity by any person without the approval or consent of any
person in a fiduciary capacity. For purposes of this paragraph,
the term "power of administration" means any one or more of the
following powers: (A) a power to vote or direct the voting of
stock or other securities of a corporation in which the holdings
of the grantor and the trust are significant from the viewpoint
of voting control; (B) a power to control the investment of the
trust funds either by directing investments or reinvestments, or
by vetoing proposed investments or reinvestments, to the extent
that the trust funds consist of stocks or securities of
corporations in which the holdings of the grantor and the trust
are significant from the viewpoint of voting control; or (C) a
power to reacquire the trust corpus by substituting other
property of an equivalent value.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 229; Pub. L. 100-647, title I,
Sec. 1014(a)(2), Nov. 10, 1988, 102 Stat. 3559.)
-MISC1-
AMENDMENTS
1988 - Par. (3). Pub. L. 100-647 inserted at end "For periods
during which an individual is the spouse of the grantor (within the
meaning of section 672(e)(2)), any reference in this paragraph to
the grantor shall be treated as including a reference to such
individual."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
-End-
-CITE-
26 USC Sec. 676 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart E - Grantors and Others Treated as Substantial Owners
-HEAD-
Sec. 676. Power to revoke
-STATUTE-
(a) General rule
The grantor shall be treated as the owner of any portion of a
trust, whether or not he is treated as such owner under any other
provision of this part, where at any time the power to revest in
the grantor title to such portion is exercisable by the grantor or
a non-adverse party, or both.
(b) Power affecting beneficial enjoyment only after occurrence of
event
Subsection (a) shall not apply to a power the exercise of which
can only affect the beneficial enjoyment of the income for a period
commencing after the occurrence of an event such that a grantor
would not be treated as the owner under section 673 if the power
were a reversionary interest. But the grantor may be treated as the
owner after the occurrence of such event unless the power is
relinquished.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 230; Pub. L. 99-514, title XIV,
Sec. 1402(b)(2), Oct. 22, 1986, 100 Stat. 2712.)
-MISC1-
AMENDMENTS
1986 - Subsec. (b)(2). Pub. L. 99-514 substituted "occurrence of
event" for "expiration of 10-year period" in heading and in text
substituted "the occurrence of an event" for "the expiration of a
period" and "the occurrence of such event" for "the expiration of
such period".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable with respect to transfers
in trust made after Mar. 1, 1986, except for transfers pursuant to
a certain binding property settlement agreement, see section
1402(c) of Pub. L. 99-514, set out as a note under section 673 of
this title.
-End-
-CITE-
26 USC Sec. 677 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart E - Grantors and Others Treated as Substantial Owners
-HEAD-
Sec. 677. Income for benefit of grantor
-STATUTE-
(a) General rule
The grantor shall be treated as the owner of any portion of a
trust, whether or not he is treated as such owner under section
674, whose income without the approval or consent of any adverse
party is, or, in the discretion of the grantor or a nonadverse
party, or both, may be -
(1) distributed to the grantor or the grantor's spouse;
(2) held or accumulated for future distribution to the grantor
or the grantor's spouse; or
(3) applied to the payment of premiums on policies of insurance
on the life of the grantor or the grantor's spouse (except
policies of insurance irrevocably payable for a purpose specified
in section 170(c) (relating to definition of charitable
contributions)).
This subsection shall not apply to a power the exercise of which
can only affect the beneficial enjoyment of the income for a period
commencing after the occurrence of an event such that the grantor
would not be treated as the owner under section 673 if the power
were a reversionary interest; but the grantor may be treated as the
owner after the occurrence of the event unless the power is
relinquished.
(b) Obligations of support
Income of a trust shall not be considered taxable to the grantor
under subsection (a) or any other provision of this chapter merely
because such income in the discretion of another person, the
trustee, or the grantor acting as trustee or co-trustee, may be
applied or distributed for the support or maintenance of a
beneficiary (other than the grantor's spouse) whom the grantor is
legally obligated to support or maintain, except to the extent that
such income is so applied or distributed. In cases where the
amounts so applied or distributed are paid out of corpus or out of
other than income for the taxable year, such amounts shall be
considered to be an amount paid or credited within the meaning of
paragraph (2) of section 661(a) and shall be taxed to the grantor
under section 662.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 230; Pub. L. 91-172, title III,
Sec. 332(a), Dec. 30, 1969, 83 Stat. 599; Pub. L. 99-514, title
XIV, Sec. 1402(b)(3), Oct. 22, 1986, 100 Stat. 2712.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-514 substituted "the occurrence of
an event" for "the expiration of a period" and "the occurrence of
the event" for "the expiration of the period" in last sentence.
1969 - Subsec. (a)(1) to (3). Pub. L. 91-172, Sec. 332(a)(1),
inserted "or the grantor's spouse" after "the grantor" in pars.
(1), (2), and (3).
Subsec. (b). Pub. L. 91-172, Sec. 332(a)(2), inserted "(other
than the grantor's spouse)" after "beneficiary".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable with respect to transfers
in trust made after Mar. 1, 1986, except for transfers pursuant to
a certain binding property settlement agreement, see section
1402(c) of Pub. L. 99-514, set out as a note under section 673 of
this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 332(b) of Pub. L. 91-172 provided that: "The amendments
made by subsection (a) [amending this section] shall apply in
respect of property transferred in trust after October 9, 1969."
-End-
-CITE-
26 USC Sec. 678 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart E - Grantors and Others Treated as Substantial Owners
-HEAD-
Sec. 678. Person other than grantor treated as substantial owner
-STATUTE-
(a) General rule
A person other than the grantor shall be treated as the owner of
any portion of a trust with respect to which:
(1) such person has a power exercisable solely by himself to
vest the corpus or the income therefrom in himself, or
(2) such person has previously partially released or otherwise
modified such a power and after the release or modification
retains such control as would, within the principles of sections
671 to 677, inclusive, subject to grantor of a trust to treatment
as the owner thereof.
(b) Exception where grantor is taxable
Subsection (a) shall not apply with respect to a power over
income, as originally granted or thereafter modified, if the
grantor of the trust or a transferor (to whom section 679 applies)
is otherwise treated as the owner under the provisions of this
subpart other than this section.
(c) Obligations of support
Subsection (a) shall not apply to a power which enables such
person, in the capacity of trustee or cotrustee, merely to apply
the income of the trust to the support or maintenance of a person
whom the holder of the power is obligated to support or maintain
except to the extent that such income is so applied. In cases where
the amounts so applied or distributed are paid out of corpus or out
of other than income of the taxable year, such amounts shall be
considered to be an amount paid or credited within the meaning of
paragraph (2) of section 661(a) and shall be taxed to the holder of
the power under section 662.
(d) Effect of renunciation or disclaimer
Subsection (a) shall not apply with respect to a power which has
been renounced or disclaimed within a reasonable time after the
holder of the power first became aware of its existence.
(e) Cross reference
For provision under which beneficiary of trust is treated as
owner of the portion of the trust which consists of stock in an
S corporation, see section 1361(d).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 231; Pub. L. 94-455, title X,
Sec. 1013(b), Oct. 4, 1976, 90 Stat. 1615; Pub. L. 97-448, title I,
Sec. 102(i)(2), Jan. 12, 1983, 96 Stat. 2373; Pub. L. 106-554, Sec.
1(a)(7) [title III, Sec. 319(8)(A)], Dec. 21, 2000, 114 Stat. 2763,
2763A-646.)
-MISC1-
AMENDMENTS
2000 - Subsec. (e). Pub. L. 106-554 substituted "an S
corporation" for "an electing small business corporation".
1983 - Subsec. (e). Pub. L. 97-448 added subsec. (e).
1976 - Subsec. (b). Pub. L. 94-455 substituted "if the grantor of
the trust or a transferor (to whom section 679 applies) is
otherwise treated as the owner under the provisions of this subpart
other than this section" for "if the grantor of the trust is
otherwise treated as the owner under sections 671 to 677,
inclusive".
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by Pub. L. 94-455, see section
1013(f)(1) of Pub. L. 94-455, set out as an Effective Date note
under section 679 of this title.
-End-
-CITE-
26 USC Sec. 679 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart E - Grantors and Others Treated as Substantial Owners
-HEAD-
Sec. 679. Foreign trusts having one or more United States
beneficiaries
-STATUTE-
(a) Transferor treated as owner
(1) In general
A United States person who directly or indirectly transfers
property to a foreign trust (other than a trust described in
section 6048(a)(3)(B)(ii)) shall be treated as the owner for his
taxable year of the portion of such trust attributable to such
property if for such year there is a United States beneficiary of
any portion of such trust.
(2) Exceptions
Paragraph (1) shall not apply -
(A) Transfers by reason of death
To any transfer by reason of the death of the transferor.
(B) Transfers at fair market value
To any transfer of property to a trust in exchange for
consideration of at least the fair market value of the
transferred property. For purposes of the preceding sentence,
consideration other than cash shall be taken into account at
its fair market value.
(3) Certain obligations not taken into account under fair market
value exception
(A) In general
In determining whether paragraph (2)(B) applies to any
transfer by a person described in clause (ii) or (iii) of
subparagraph (C), there shall not be taken into account -
(i) except as provided in regulations, any obligation of a
person described in subparagraph (C), and
(ii) to the extent provided in regulations, any obligation
which is guaranteed by a person described in subparagraph
(C).
(B) Treatment of principal payments on obligation
Principal payments by the trust on any obligation referred to
in subparagraph (A) shall be taken into account on and after
the date of the payment in determining the portion of the trust
attributable to the property transferred.
(C) Persons described
The persons described in this subparagraph are -
(i) the trust,
(ii) any grantor, owner, or beneficiary of the trust, and
(iii) any person who is related (within the meaning of
section 643(i)(2)(B)) to any grantor, owner, or beneficiary
of the trust.
(4) Special rules applicable to foreign grantor who later becomes
a United States person
(A) In general
If a nonresident alien individual has a residency starting
date within 5 years after directly or indirectly transferring
property to a foreign trust, this section and section 6048
shall be applied as if such individual transferred to such
trust on the residency starting date an amount equal to the
portion of such trust attributable to the property transferred
by such individual to such trust in such transfer.
(B) Treatment of undistributed income
For purposes of this section, undistributed net income for
periods before such individual's residency starting date shall
be taken into account in determining the portion of the trust
which is attributable to property transferred by such
individual to such trust but shall not otherwise be taken into
account.
(C) Residency starting date
For purposes of this paragraph, an individual's residency
starting date is the residency starting date determined under
section 7701(b)(2)(A).
(5) Outbound trust migrations
If -
(A) an individual who is a citizen or resident of the United
States transferred property to a trust which was not a foreign
trust, and
(B) such trust becomes a foreign trust while such individual
is alive,
then this section and section 6048 shall be applied as if such
individual transferred to such trust on the date such trust
becomes a foreign trust an amount equal to the portion of such
trust attributable to the property previously transferred by such
individual to such trust. A rule similar to the rule of paragraph
(4)(B) shall apply for purposes of this paragraph.
(b) Trusts acquiring United States beneficiaries
If -
(1) subsection (a) applies to a trust for the transferor's
taxable year, and
(2) subsection (a) would have applied to the trust for his
immediately preceding taxable year but for the fact that for such
preceding taxable year there was no United States beneficiary for
any portion of the trust,
then, for purposes of this subtitle, the transferor shall be
treated as having income for the taxable year (in addition to his
other income for such year) equal to the undistributed net income
(at the close of such immediately preceding taxable year)
attributable to the portion of the trust referred to in subsection
(a).
(c) Trusts treated as having a United States beneficiary
(1) In general
For purposes of this section, a trust shall be treated as
having a United States beneficiary for the taxable year unless -
(A) under the terms of the trust, no part of the income or
corpus of the trust may be paid or accumulated during the
taxable year to or for the benefit of a United States person,
and
(B) if the trust were terminated at any time during the
taxable year, no part of the income or corpus of such trust
could be paid to or for the benefit of a United States person.
(2) Attribution of ownership
For purposes of paragraph (1), an amount shall be treated as
paid or accumulated to or for the benefit of a United States
person if such amount is paid to or accumulated for a foreign
corporation, foreign partnership, or foreign trust or estate, and
-
(A) in the case of a foreign corporation, such corporation is
a controlled foreign corporation (as defined in section
957(a)),
(B) in the case of a foreign partnership, a United States
person is a partner of such partnership, or
(C) in the case of a foreign trust or estate, such trust or
estate has a United States beneficiary (within the meaning of
paragraph (1)).
(3) Certain United States beneficiaries disregarded
A beneficiary shall not be treated as a United States person in
applying this section with respect to any transfer of property to
foreign trust if such beneficiary first became a United States
person more than 5 years after the date of such transfer.
(d) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 94-455, title X, Sec. 1013(a), Oct. 4, 1976, 90
Stat. 1614; amended Pub. L. 96-603, Sec. 2(b), Dec. 28, 1980, 94
Stat. 3509; Pub. L. 104-188, title I, Sec. 1903(a)-(f), Aug. 20,
1996, 110 Stat. 1909, 1910; Pub. L. 105-34, title XVI, Sec.
1601(i)(2), Aug. 5, 1997, 111 Stat. 1093; Pub. L. 105-206, title
VI, Sec. 6018(g), July 22, 1998, 112 Stat. 823.)
-MISC1-
AMENDMENTS
1998 - Subsec. (a)(1). Pub. L. 105-206 provided that the
amendment made by section 1903(b) of Pub. L. 104-188 shall be
applied as if "or" in the material proposed to be stricken were
capitalized. See 1996 Amendment note below.
1997 - Subsec. (a)(3)(C)(ii), (iii). Pub. L. 105-34 inserted ",
owner," after "grantor".
1996 - Subsec. (a)(1). Pub. L. 104-188, Sec. 1903(b), which
directed that subsec. (a) of this section be amended by
substituting "section 6048(a)(3)(B)(ii)" for "section 404(a)(4) or
404A", was executed to par. (1) by making the substitution for
"section 404(a)(4) Or section 404A" to reflect the probable intent
of Congress. See 1998 Amendment note above.
Subsec. (a)(2)(B). Pub. L. 104-188, Sec. 1903(a)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "Transfers where gain is recognized to transferor. - To
any sale or exchange of the property at its fair market value in a
transaction in which all of the gain to the transferor is realized
at the time of the transfer and is recognized either at such time
or is returned as provided in section 453."
Subsec. (a)(3). Pub. L. 104-188, Sec. 1903(a)(2), added par. (3).
Subsec. (a)(4), (5). Pub. L. 104-188, Sec. 1903(c), added pars.
(4) and (5).
Subsec. (c)(2)(A). Pub. L. 104-188, Sec. 1903(e), amended subpar.
(A) generally. Prior to amendment, subpar. (A) read as follows: "in
the case of a foreign corporation, more than 50 percent of the
total combined voting power of all classes of stock entitled to
vote of such corporation is owned (within the meaning of section
958(a)) or is considered to be owned (within the meaning of section
958(b)) by United States shareholders (as defined in section
951(b)),".
Subsec. (c)(3). Pub. L. 104-188, Sec. 1903(d), added par. (3).
Subsec. (d). Pub. L. 104-188, Sec. 1903(f), added subsec. (d).
1980 - Subsec. (a)(1). Pub. L. 96-603 inserted "Or section 404A"
after "section 404(a)(4)".
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by section 6018 of Pub. L. 105-206 effective as if
included in the provisions of the Small Business Job Protection Act
of 1996, Pub. L. 104-188, to which such amendment relates, see
section 6018(h) of Pub. L. 105-206, set out as a note under section
23 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
provisions of the Small Business Job Protection Act of 1996, Pub.
L. 104-188, to which it relates, see section 1601(j) of Pub. L. 105-
34, set out as a note under section 23 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1903(g) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to
transfers of property after February 6, 1995."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-603 applicable with respect to employer
contributions or accruals for taxable years beginning after Dec.
31, 1979, election to apply amendments retroactively with respect
to foreign subsidiaries, allowance or prior deductions in case of
certain funded branch plans, and time and manner for making
elections, see section 2(e) of Pub. L. 96-603, set out as an
Effective Date note under section 404A of this title.
EFFECTIVE DATE
Section 1013(f)(1) of Pub. L. 94-455 provided that: "The
amendments made by this section (other than subsection (c))
[enacting this section and amending sections 643, 678, 6048, and
6678 of this title] shall apply to taxable years ending after
December 31, 1975, but only in the case of -
"(A) foreign trusts created after May 21, 1974, and
"(B) transfers of property to foreign trusts after May 21,
1974."
-End-
-CITE-
26 USC Subpart F - Miscellaneous 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart F - Miscellaneous
-HEAD-
SUBPART F - MISCELLANEOUS
-MISC1-
Sec.
681. Limitation on charitable deduction.
682. Income of an estate or trust in case of divorce, etc.
683. Use of trust as an exchange fund.
684. Recognition of gain on certain transfers to certain
foreign trusts and estates.
685. Treatment of funeral trusts.
-STATAMEND-
AMENDMENT OF ANALYSIS
Pub. L. 107-16, title V, Sec. 542(e)(1)(D), (f)(2), title IX,
Sec. 901, June 7, 2001, 115 Stat. 85, 86, 150, provided that,
applicable to transfers after Dec. 31, 2009, item 684 is
temporarily amended by inserting "and nonresident aliens" after
"estates".
-MISC2-
AMENDMENTS
1997 - Pub. L. 105-34, title XI, Sec. 1131(c)(6), title XIII,
Sec. 1309(b), Aug. 5, 1997, 111 Stat. 980, 1043, added items 684
and 685.
1976 - Pub. L. 94-455, title XXI, Sec. 2131(e)(2), Oct. 4, 1976,
90 Stat. 1924, substituted "Use of trust as an exchange fund" for
"Applicability of provisions" in item 683.
-End-
-CITE-
26 USC Sec. 681 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart F - Miscellaneous
-HEAD-
Sec. 681. Limitation on charitable deduction
-STATUTE-
(a) Trade or business income
In computing the deduction allowable under section 642(c) to a
trust, no amount otherwise allowable under section 642(c) as a
deduction shall be allowed as a deduction with respect to income of
the taxable year which is allocable to its unrelated business
income for such year. For purposes of the preceding sentence, the
term "unrelated business income" means an amount equal to the
amount which, if such trust were exempt from tax under section
501(a) by reason of section 501(c)(3), would be computed as its
unrelated business taxable income under section 512 (relating to
income derived from certain business activities and from certain
property acquired with borrowed funds).
(b) Cross reference
For disallowance of certain charitable, etc., deductions
otherwise allowable under section 642(c), see sections 508(d)
and 4948(c)(4).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 232; Pub. L. 90-630, Sec. 6(b),
Oct. 22, 1968, 82 Stat. 1330; Pub. L. 91-172, title I, Secs.
101(j)(18), (19), 121(d)(2)(B), Dec. 30, 1969, 83 Stat. 528, 547.)
-MISC1-
AMENDMENTS
1969 - Subsec. (a). Pub. L. 91-172, Sec. 121(d)(2)(B),
substituted reference to certain property acquired with borrowed
funds for reference to certain leases.
Subsec. (b). Pub. L. 91-172, Sec. 101(j)(18), (19), redesignated
subsec. (d) as (b) and substituted "sections 518(d) and 4948(c)(4)"
for "section 503(e)". Former subsec. (b), dealing generally with
the operation of trusts, was struck out.
Subsec. (c). Pub. L. 91-172, Sec. 101(j)(18), struck out subsec.
(c) dealing with accumulated income.
Subsec. (d). Pub. L. 91-172, Sec. 101(j)(19), redesignated
subsec. (d) as (b).
1968 - Subsec. (c). Pub. L. 90-630 inserted provision that par.
(1) does not apply to income attributable to property transferred
to a trust before January 1, 1951, by the creator thereof if the
trust was irrevocable on such date and if the income is required to
be accumulated pursuant to the mandatory terms of the instrument
creating the trust.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 101(j)(18), (19) of Pub. L. 91-172 effective
Jan. 1, 1970, see section 101(k)(1) of Pub. L. 91-172, set out as
an Effective Date note under section 4940 of this title.
Amendment by section 121(d)(2)(B) of Pub. L. 91-172 applicable to
taxable years beginning after Dec. 31, 1969, see section 121(g) of
Pub. L. 91-172, set out as a note under section 511 of this title.
EFFECTIVE DATE OF 1968 AMENDMENT
Section 6(c) of Pub. L. 90-630 provided that: "The amendments
made by subsection (a) [amending section 504 of this title] and (b)
[amending this section] shall apply with respect to taxable years
beginning after December 31, 1953, and ending after August 16,
1954. For purposes of sections 3814 and 162(g)(4) of the Internal
Revenue Code of 1939, provisions having the same effect as such
amendments shall be treated as included in such sections effective
with respect to taxable years beginning after December 31, 1950."
-End-
-CITE-
26 USC Sec. 682 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart F - Miscellaneous
-HEAD-
Sec. 682. Income of an estate or trust in case of divorce, etc.
-STATUTE-
(a) Inclusion in gross income of wife
There shall be included in the gross income of a wife who is
divorced or legally separated under a decree of divorce or of
separate maintenance (or who is separated from her husband under a
written separation agreement) the amount of the income of any trust
which such wife is entitled to receive and which, except for this
section, would be includible in the gross income of her husband,
and such amount shall not, despite any other provision of this
subtitle, be includible in the gross income of such husband. This
subsection shall not apply to that part of any such income of the
trust which the terms of the decree, written separation agreement,
or trust instrument fix, in terms of an amount of money or a
portion of such income, as a sum which is payable for the support
of minor children of such husband. In case such income is less than
the amount specified in the decree, agreement, or instrument, for
the purpose of applying the preceding sentence, such income, to the
extent of such sum payable for such support, shall be considered a
payment for such support.
(b) Wife considered a beneficiary
For purposes of computing the taxable income of the estate or
trust and the taxable income of a wife to whom subsection (a)
applies, such wife shall be considered as the beneficiary specified
in this part.
(c) Cross reference
For definitions of "husband" and "wife", as used in this
section, see section 7701(a)(17).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 234; Pub. L. 98-369, div. A,
title IV, Sec. 422(d)(2), July 18, 1984, 98 Stat. 798.)
-MISC1-
AMENDMENTS
1984 - Subsec. (b). Pub. L. 98-369 struck out "or section 71"
after "subsection (a)" and struck out provision that a periodic
payment under section 71 to any portion of which this part applied
shall be included in the gross income of the beneficiary in the
taxable year in which under this part such portion is required to
be included.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable with respect to divorce or
separation instruments executed after Dec. 31, 1984, or executed
before Jan. 1, 1985, but modified on or after Jan. 1, 1985, with
express provision for application of amendment to modification, see
section 422(e)(1), (2) of Pub. L. 98-369, set out as a note under
section 71 of this title.
-End-
-CITE-
26 USC Sec. 683 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart F - Miscellaneous
-HEAD-
Sec. 683. Use of trust as an exchange fund
-STATUTE-
(a) General rule
Except as provided in subsection (b), if property is transferred
to a trust in exchange for an interest in other trust property and
if the trust would be an investment company (within the meaning of
section 351) if it were a corporation, then gain shall be
recognized to the transferor.
(b) Exception for pooled income funds
Subsection (a) shall not apply to any transfer to a pooled income
fund (within the meaning of section 642(c)(5)).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 235; Pub. L. 94-455, title XXI,
Sec. 2131(e)(1), Oct. 4, 1976, 90 Stat. 1924.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 substituted provisions relating to use of
trust as an exchange fund for provisions setting forth rule that
this part applies only to taxable years beginning after Dec. 31,
1953, and ending after the date of the enactment of this title and
exceptions thereto.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment of section by Pub. L. 94-455 effective on Apr. 8, 1976,
in taxable years ending on or after such date, see section
2131(f)(6) of Pub. L. 94-455, set out as a note under section 584
of this title.
-End-
-CITE-
26 USC Sec. 684 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart F - Miscellaneous
-HEAD-
Sec. 684. Recognition of gain on certain transfers to certain
foreign trusts and estates
-STATUTE-
(a) In general
Except as provided in regulations, in the case of any transfer of
property by a United States person to a foreign estate or trust,
for purposes of this subtitle, such transfer shall be treated as a
sale or exchange for an amount equal to the fair market value of
the property transferred, and the transferor shall recognize as
gain the excess of -
(1) the fair market value of the property so transferred, over
(2) the adjusted basis (for purposes of determining gain) of
such property in the hands of the transferor.
(b) Exception
Subsection (a) shall not apply to a transfer to a trust by a
United States person to the extent that any person is treated as
the owner of such trust under section 671.
(c) Treatment of trusts which become foreign trusts
If a trust which is not a foreign trust becomes a foreign trust,
such trust shall be treated for purposes of this section as having
transferred, immediately before becoming a foreign trust, all of
its assets to a foreign trust.
-SOURCE-
(Added Pub. L. 105-34, title XI, Sec. 1131(b), Aug. 5, 1997, 111
Stat. 978; amended Pub. L. 107-16, title V, Sec. 542(e)(1)(A)-(C),
June 7, 2001, 115 Stat. 84, 85.)
-STATAMEND-
AMENDMENT OF SECTION
Pub. L. 107-16, title V, Sec. 542(e)(1)(A)-(C), (f)(2), title IX,
Sec. 901, June 7, 2001, 115 Stat. 84-86, 150, provided that,
applicable to transfers after Dec. 31, 2009, this section is
temporarily amended as follows:
(1) in section catchline, by inserting "and nonresident aliens"
after "estates";
(2) in subsection (a), by inserting "or to a nonresident alien"
after "or trust" in introductory provisions; and
(3) by amending subsection (b) to read as follows:
(b) Exceptions
(1) Transfers to certain trusts
Subsection (a) shall not apply to a transfer to a trust by a
United States person to the extent that any United States person
is treated as the owner of such trust under section 671.
(2) Lifetime transfers to nonresident aliens
Subsection (a) shall not apply to a lifetime transfer to a
nonresident alien.
See Effective and Termination Dates of 2001 Amendment note below.
-COD-
CODIFICATION
Another section 1131(b) of Pub. L. 105-34 amended sections 367,
721, and 1035 of this title.
-MISC1-
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to transfers after Dec.
31, 2009, see section 542(f)(2) of Pub. L. 107-16, set out as a
note under section 121 of this title.
Amendment by Pub. L. 107-16 inapplicable to estates of decedents
dying, gifts made, or generation skipping transfers, after Dec. 31,
2010, and the Internal Revenue Code of 1986 to be applied and
administered to such estates, gifts, and transfers as if such
amendment had never been enacted, see section 901 of Pub. L. 107-
16, set out as a note under section 1 of this title.
-End-
-CITE-
26 USC Sec. 685 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart F - Miscellaneous
-HEAD-
Sec. 685. Treatment of funeral trusts
-STATUTE-
(a) In general
In the case of a qualified funeral trust -
(1) subparts B, C, D, and E shall not apply, and
(2) no deduction shall be allowed by section 642(b).
(b) Qualified funeral trust
For purposes of this subsection, the term "qualified funeral
trust" means any trust (other than a foreign trust) if -
(1) the trust arises as a result of a contract with a person
engaged in the trade or business of providing funeral or burial
services or property necessary to provide such services,
(2) the sole purpose of the trust is to hold, invest, and
reinvest funds in the trust and to use such funds solely to make
payments for such services or property for the benefit of the
beneficiaries of the trust,
(3) the only beneficiaries of such trust are individuals with
respect to whom such services or property are to be provided at
their death under contracts described in paragraph (1),
(4) the only contributions to the trust are contributions by or
for the benefit of such beneficiaries,
(5) the trustee elects the application of this subsection, and
(6) the trust would (but for the election described in
paragraph (5)) be treated as owned under subpart E by the
purchasers of the contracts described in paragraph (1).
A trust shall not fail to be treated as meeting the requirement of
paragraph (6) by reason of the death of an individual but only
during the 60-day period beginning on the date of such death.
(c) Dollar limitation on contributions
(1) In general
The term "qualified funeral trust" shall not include any trust
which accepts aggregate contributions by or for the benefit of an
individual in excess of $7,000.
(2) Related trusts
For purposes of paragraph (1), all trusts having trustees which
are related persons shall be treated as 1 trust. For purposes of
the preceding sentence, persons are related if -
(A) the relationship between such persons is described in
section 267 or 707(b),
(B) such persons are treated as a single employer under
subsection (a) or (b) of section 52, or
(C) the Secretary determines that treating such persons as
related is necessary to prevent avoidance of the purposes of
this section.
(3) Inflation adjustment
In the case of any contract referred to in subsection (b)(1)
which is entered into during any calendar year after 1998, the
dollar amount referred to paragraph (1) shall be increased by an
amount equal to -
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for such calendar year, by substituting "calendar year
1997" for "calendar year 1992" in subparagraph (B) thereof.
If any dollar amount after being increased under the preceding
sentence is not a multiple of $100, such dollar amount shall be
rounded to the nearest multiple of $100.
(d) Application of rate schedule
Section 1(e) shall be applied to each qualified funeral trust by
treating each beneficiary's interest in each such trust as a
separate trust.
(e) Treatment of amounts refunded to purchaser on cancellation
No gain or loss shall be recognized to a purchaser of a contract
described in subsection (b)(1) by reason of any payment from such
trust to such purchaser by reason of cancellation of such contract.
If any payment referred to in the preceding sentence consists of
property other than money, the basis of such property in the hands
of such purchaser shall be the same as the trust's basis in such
property immediately before the payment.
(f) Simplified reporting
The Secretary may prescribe rules for simplified reporting of all
trusts having a single trustee and of trusts terminated during the
year.
-SOURCE-
(Added Pub. L. 105-34, title XIII, Sec. 1309(a), Aug. 5, 1997, 111
Stat. 1042; amended Pub. L. 105-206, title VI, Sec. 6013(b), July
22, 1998, 112 Stat. 820.)
-STATAMEND-
LIMITATION ON CONTRIBUTIONS RECEIVED BY TRUST DURING CALENDAR YEAR
2006
For limitation on aggregate contributions received by qualified
funeral trust by or for the benefit of an individual for contracts
entered into during calendar year 2006, see section 3.25 of Revenue
Procedure 2005-70, set out as a note under section 1 of this title.
-MISC1-
AMENDMENTS
1998 - Subsec. (b). Pub. L. 105-206, Sec. 6013(b)(1), inserted
concluding provisions.
Subsec. (f). Pub. L. 105-206, Sec. 6013(b)(2), inserted "and of
trusts terminated during the year" before period at end.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE
Section 1309(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting this section] shall apply to taxable
years ending after the date of the enactment of this Act [Aug. 5,
1997]."
-End-
-CITE-
26 USC PART II - INCOME IN RESPECT OF DECEDENTS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART II - INCOME IN RESPECT OF DECEDENTS
-HEAD-
PART II - INCOME IN RESPECT OF DECEDENTS
-MISC1-
Sec.
691. Recipients of income in respect of decedents.
692. Income taxes of members of Armed Forces, astronauts,
and victims of certain terrorist attacks on death.
AMENDMENTS
2003 - Pub. L. 108-121, title I, Sec. 110(a)(3)(B), Nov. 11,
2003, 117 Stat. 1342, inserted ", astronauts," after "Forces" in
item 692.
2002 - Pub. L. 107-134, title I, Sec. 101(c)(2), Jan. 23, 2002,
115 Stat. 2429, substituted "Income taxes of members of Armed
Forces and victims of certain terrorist attacks on death" for
"Income taxes of members of Armed Forces on death" in item 692.
-End-
-CITE-
26 USC Sec. 691 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART II - INCOME IN RESPECT OF DECEDENTS
-HEAD-
Sec. 691. Recipients of income in respect of decedents
-STATUTE-
(a) Inclusion in gross income
(1) General rule
The amount of all items of gross income in respect of a
decedent which are not properly includible in respect of the
taxable period in which falls the date of his death or a prior
period (including the amount of all items of gross income in
respect of a prior decedent, if the right to receive such amount
was acquired by reason of the death of the prior decedent or by
bequest, devise, or inheritance from the prior decedent) shall be
included in the gross income, for the taxable year when received,
of:
(A) the estate of the decedent, if the right to receive the
amount is acquired by the decedent's estate from the decedent;
(B) the person who, by reason of the death of the decedent,
acquires the right to receive the amount, if the right to
receive the amount is not acquired by the decedent's estate
from the decedent; or
(C) the person who acquires from the decedent the right to
receive the amount by bequest, devise, or inheritance, if the
amount is received after a distribution by the decedent's
estate of such right.
(2) Income in case of sale, etc.
If a right, described in paragraph (1), to receive an amount is
transferred by the estate of the decedent or a person who
received such right by reason of the death of the decedent or by
bequest, devise, or inheritance from the decedent, there shall be
included in the gross income of the estate or such person, as the
case may be, for the taxable period in which the transfer occurs,
the fair market value of such right at the time of such transfer
plus the amount by which any consideration for the transfer
exceeds such fair market value. For purposes of this paragraph,
the term "transfer" includes sale, exchange, or other
disposition, or the satisfaction of an installment obligation at
other than face value, but does not include transmission at death
to the estate of the decedent or a transfer to a person pursuant
to the right of such person to receive such amount by reason of
the death of the decedent or by bequest, devise, or inheritance
from the decedent.
(3) Character of income determined by reference to decedent
The right, described in paragraph (1), to receive an amount
shall be treated, in the hands of the estate of the decedent or
any person who acquired such right by reason of the death of the
decedent, or by bequest, devise, or inheritance from the
decedent, as if it had been acquired by the estate or such person
in the transaction in which the right to receive the income was
originally derived and the amount includible in gross income
under paragraph (1) or (2) shall be considered in the hands of
the estate or such person to have the character which it would
have had in the hands of the decedent if the decedent had lived
and received such amount.
(4) Installment obligations acquired from decedent
In the case of an installment obligation reportable by the
decedent on the installment method under section 453, if such
obligation is acquired by the decedent's estate from the decedent
or by any person by reason of the death of the decedent or by
bequest, devise, or inheritance from the decedent -
(A) an amount equal to the excess of the face amount of such
obligation over the basis of the obligation in the hands of the
decedent (determined under section 453B) shall, for the purpose
of paragraph (1), be considered as an item of gross income in
respect of the decedent; and
(B) such obligation shall, for purposes of paragraphs (2) and
(3), be considered a right to receive an item of gross income
in respect of the decedent, but the amount includible in gross
income under paragraph (2) shall be reduced by an amount equal
to the basis of the obligation in the hands of the decedent
(determined under section 453B).
(5) Other rules relating to installment obligations
(A) In general
In the case of an installment obligation reportable by the
decedent on the installment method under section 453, for
purposes of paragraph (2) -
(i) the second sentence of paragraph (2) shall be applied
by inserting "(other than the obligor)" after "or a transfer
to a person",
(ii) any cancellation of such an obligation shall be
treated as a transfer, and
(iii) any cancellation of such an obligation occurring at
the death of the decedent shall be treated as a transfer by
the estate of the decedent (or, if held by a person other
than the decedent before the death of the decedent, by such
person).
(B) Face amount treated as fair market value in certain cases
In any case to which the first sentence of paragraph (2)
applies by reason of subparagraph (A), if the decedent and the
obligor were related persons (within the meaning of section
453(f)(1)), the fair market value of the installment obligation
shall be treated as not less than its face amount.
(C) Cancellation includes becoming unenforceable
For purposes of subparagraph (A), an installment obligation
which becomes unenforceable shall be treated as if it were
canceled.
(b) Allowance of deductions and credit
The amount of any deduction specified in section 162, 163, 164,
212, or 611 (relating to deductions for expenses, interest, taxes,
and depletion) or credit specified in section 27 (relating to
foreign tax credit), in respect of a decedent which is not properly
allowable to the decedent in respect of the taxable period in which
falls the date of his death, or a prior period, shall be allowed:
(1) Expenses, interest, and taxes
In the case of a deduction specified in sections 162, 163, 164,
or 212 and a credit specified in section 27, in the taxable year
when paid -
(A) to the estate of the decedent; except that
(B) if the estate of the decedent is not liable to discharge
the obligation to which the deduction or credit relates, to the
person who, by reason of the death of the decedent or by
bequest, devise, or inheritance acquires, subject to such
obligation, from the decedent an interest in property of the
decedent.
(2) Depletion
In the case of the deduction specified in section 611, to the
person described in subsection (a)(1)(A), (B), or (C) who, in the
manner described therein, receives the income to which the
deduction relates, in the taxable year when such income is
received.
(c) Deduction for estate tax
(1) Allowance of deduction
(A) General rule
A person who includes an amount in gross income under
subsection (a) shall be allowed, for the same taxable year, as
a deduction an amount which bears the same ratio to the estate
tax attributable to the net value for estate tax purposes of
all the items described in subsection (a)(1) as the value for
estate tax purposes of the items of gross income or portions
thereof in respect of which such person included the amount in
gross income (or the amount included in gross income, whichever
is lower) bears to the value for estate tax purposes of all the
items described in subsection (a)(1).
(B) Estates and trusts
In the case of an estate or trust, the amount allowed as a
deduction under subparagraph (A) shall be computed by excluding
from the gross income of the estate or trust the portion (if
any) of the items described in subsection (a)(1) which is
properly paid, credited, or to be distributed to the
beneficiaries during the taxable year.
(2) Method of computing deduction
For purposes of paragraph (1) -
(A) The term "estate tax" means the tax imposed on the estate
of the decedent or any prior decedent under section 2001 or
2101, reduced by the credits against such tax.
(B) The net value for estate tax purposes of all the items
described in subsection (a)(1) shall be the excess of the value
for estate tax purposes of all the items described in
subsection (a)(1) over the deductions from the gross estate in
respect of claims which represent the deductions and credit
described in subsection (b). Such net value shall be determined
with respect to the provisions of section 421(c)(2), relating
to the deduction for estate tax with respect to stock options
to which part II of subchapter D applies.
(C) The estate tax attributable to such net value shall be an
amount equal to the excess of the estate tax over the estate
tax computed without including in the gross estate such net
value.
(3) Special rule for generation-skipping transfers
In the case of any tax imposed by chapter 13 on a taxable
termination or a direct skip occurring as a result of the death
of the transferor, there shall be allowed a deduction (under
principles similar to the principles of this subsection) for the
portion of such tax attributable to items of gross income of the
trust which were not properly includible in the gross income of
the trust for periods before the date of such termination.
(4) Coordination with capital gain provisions
For purposes of sections 1(h), 1201, 1202, and 1211, the amount
taken into account with respect to any item described in
subsection (a)(1) shall be reduced (but not below zero) by the
amount of the deduction allowable under paragraph (1) of this
subsection with respect to such item.
(d) Amounts received by surviving annuitant under joint and
survivor annuity contract
(1) Deduction for estate tax
For purposes of computing the deduction under subsection
(c)(1)(A), amounts received by a surviving annuitant -
(A) as an annuity under a joint and survivor annuity contract
where the decedent annuitant died after December 31, 1953, and
after the annuity starting date (as defined in section
72(c)(4)), and
(B) during the surviving annuitant's life expectancy period,
shall, to the extent included in gross income under section 72,
be considered as amounts included in gross income under
subsection (a).
(2) Net value for estate tax purposes
In determining the net value for estate tax purposes under
subsection (c)(2)(B) for purposes of this subsection, the value
for estate tax purposes of the items described in paragraph (1)
of this subsection shall be computed -
(A) by determining the excess of the value of the annuity at
the date of the death of the deceased annuitant over the total
amount excludable from the gross income of the surviving
annuitant under section 72 during the surviving annuitant's
life expectancy period, and
(B) by multiplying the figure so obtained by the ratio which
the value of the annuity for estate tax purposes bears to the
value of the annuity at the date of the death of the deceased.
(3) Definitions
For purposes of this subsection -
(A) The term "life expectancy period" means the period
beginning with the first day of the first period for which an
amount is received by the surviving annuitant under the
contract and ending with the close of the taxable year with or
in which falls the termination of the life expectancy of the
surviving annuitant. For purposes of this subparagraph, the
life expectancy of the surviving annuitant shall be determined,
as of the date of the death of the deceased annuitant, with
reference to actuarial tables prescribed by the Secretary.
(B) The surviving annuitant's expected return under the
contract shall be computed, as of the death of the deceased
annuitant, with reference to actuarial tables prescribed by the
Secretary.
(e) Cross reference
For application of this section to income in respect of a
deceased partner, see section 753.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 235; Pub. L. 88-272, title II,
Sec. 221(c)(2), Feb. 26, 1964, 78 Stat. 75; Pub. L. 88-570, Sec. 1,
Sept. 2, 1964, 78 Stat. 854; Pub. L. 94-455, title XIX, Secs.
1901(a)(91), 1906(b)(13)(A), 1951(b)(10)(A), title XX, Secs.
2005(a)(4), 2006(b)(3), Oct. 4, 1976, 90 Stat. 1779, 1834, 1839,
1876, 1889; Pub. L. 95-600, title VII, Sec. 702(b)(1), Nov. 6,
1978, 92 Stat. 2925; Pub. L. 96-222, title I, Sec. 101(a)(8)(A),
Apr. 1, 1980, 94 Stat. 201; Pub. L. 96-223, title IV, Sec. 401(a),
Apr. 2, 1980, 94 Stat. 299; Pub. L. 96-471, Secs. 2(b)(5), 3, Oct.
19, 1980, 94 Stat. 2254; Pub. L. 97-34, title IV, Sec.
403(a)(2)(C), Aug. 13, 1981, 95 Stat. 301; Pub. L. 98-369, div. A,
title IV, Sec. 474(r)(18), July 18, 1984, 98 Stat. 843; Pub. L. 99-
514, title III, Sec. 301(b)(8), title XIV, Sec. 1432(a)(3), Oct.
22, 1986, 100 Stat. 2217, 2729; Pub. L. 100-203, title X, Sec.
10202(c)(3), Dec. 22, 1987, 101 Stat. 1330-392; Pub. L. 100-647,
title I, Sec. 1011A(g)(10), Nov. 10, 1988, 102 Stat. 3482; Pub. L.
101-239, title VII, Sec. 7841(d)(3), Dec. 19, 1989, 103 Stat. 2428;
Pub. L. 101-508, title XI, Sec. 11101(d)(4), Nov. 5, 1990, 104
Stat. 1388-405; Pub. L. 102-318, title V, Sec. 521(b)(27), July 3,
1992, 106 Stat. 312; Pub. L. 103-66, title XIII, Sec. 13113(d)(4),
Aug. 10, 1993, 107 Stat. 430; Pub. L. 104-188, title I, Secs.
1401(b)(9), 1704(t)(73), Aug. 20, 1996, 110 Stat. 1789, 1891; Pub.
L. 105-34, title X, Sec. 1073(b)(1), Aug. 5, 1997, 111 Stat. 948;
Pub. L. 108-311, title IV, Sec. 402(a)(4), Oct. 4, 2004, 118 Stat.
1184.)
-MISC1-
AMENDMENTS
2004 - Subsec. (c)(4). Pub. L. 108-311 struck out "of any gain"
before "taken into account".
1997 - Subsec. (c)(1)(C). Pub. L. 105-34 struck out heading and
text of subpar. (C). Text read as follows: "For purposes of this
subsection, no deduction shall be allowed for the portion of the
estate tax attributable to the increase in such tax under section
4980A(d)."
1996 - Subsec. (c)(5). Pub. L. 104-188, Sec. 1704(t)(73),
provided that section 521(b)(27) of Pub. L. 102-318 shall be
applied as if "Section 691(c)(5)" appeared instead of "Section
691(c)". See 1992 Amendment note below.
Pub. L. 104-188, Sec. 1401(b)(9), struck out par. (5) which read
as follows:
"(5) Coordination with section 402(d). - For purposes of section
402(d) (other than paragraph (1)(C) thereof), the total taxable
amount of any lump sum distribution shall be reduced by the amount
of the deduction allowable under paragraph (1) of this subsection
which is attributable to the total taxable amount (determined
without regard to this paragraph)."
1993 - Subsec. (c)(4). Pub. L. 103-66 inserted "1202," after
"1201,".
1992 - Subsec. (c)(5). Pub. L. 102-318, which directed that
section 691(c) be amended "in the text and heading" by substituting
"402(d)" for "402(e)", was executed by making the substitution in
subsec. (c)(5). See 1996 Amendment note above.
1990 - Subsec. (c)(4). Pub. L. 101-508 substituted "1(h)" for
"1(j)".
1989 - Subsec. (c)(5). Pub. L. 101-239 substituted "paragraph
(1)(C)" for "paragraph (1)(D)".
1988 - Subsec. (c)(1)(C). Pub. L. 100-647 added subpar. (C).
1987 - Subsec. (a)(4), (5)(A). Pub. L. 100-203 struck out "or
453A" after "section 453".
1986 - Subsec. (c)(3). Pub. L. 99-514, Sec. 1432(a)(3), amended
par. (3) generally. Prior to amendment, par. (3) read as follows:
"For purposes of this section -
"(A) the tax imposed by section 2601 or any State inheritance
tax described in section 2602(c)(5)(B) on any generation-skipping
transfer shall be treated as a tax imposed by section 2001 on the
estate of the deemed transferor (as defined in section 2612(a));
"(B) any property transferred in such a transfer shall be
treated as if it were included in the gross estate of the deemed
transferor at the value of such property taken into account for
purposes of the tax imposed by section 2601; and
"(C) under regulations prescribed by the Secretary, any item of
gross income subject to the tax imposed under section 2601 shall
be treated as income described in subsection (a) if such item is
not properly includible in the gross income of the trust on or
before the date of the generation-skipping transfer (within the
meaning of section 2611(a)) and if such transfer occurs at or
after the death of the deemed transferor (as so defined)."
Subsec. (c)(4). Pub. L. 99-514, Sec. 301(b)(8), substituted
"capital gain provisions" for "capital gain deduction, etc." in
heading and in text substituted "1(j), 1201, and 1211" for "1201,
1202, and 1211, and for purposes of section 57(a)(9)".
1984 - Subsec. (b). Pub. L. 98-369 substituted "section 27" for
"section 33" in provisions preceding par. (1) and in provisions of
par. (1) preceding subpar. (A).
1981 - Subsec. (c)(3)(A). Pub. L. 97-34 substituted "section
2602(c)(5)(B)" for "section 2602(c)(5)(C)".
1980 - Subsec. (a)(4). Pub. L. 96-471, Sec. 2(b)(5), substituted
"reportable by the decedent on the installment method under section
453 or 453A" for "received by a decedent on the sale or other
disposition of property, the income from which was properly
reportable by the decedent on the installment basis under section
453" in text preceding subpar. (A) and "section 453B" for "section
453(d)" in subpars. (A) and (B).
Subsec. (a)(5). Pub. L. 96-471, Sec. 3, added par. (5).
Subsec. (c)(2)(A), (C). Pub. L. 96-223 repealed the amendments
made by Pub. L. 94-455, Sec. 2005(a)(4). See 1976 Amendment notes
below.
Subsec. (c)(5). Pub. L. 96-222 added par. (5).
1978 - Subsec. (c)(4). Pub. L. 95-600 added par. (4).
1976 - Subsec. (c)(1)(B). Pub. L. 94-455, Sec. 1901(a)(91),
struck out provision that this subparagraph applies to same taxable
years, and to same extent, as is provided in section 683 of this
title.
Subsec. (c)(2)(A). Pub. L. 94-455, Sec. 2005(a)(4)(A),
substituted "Federal and State estate taxes (within the meaning of
section 1023(f)(3))" for "the tax imposed on the estate of the
decedent or any prior decedent under section 2001 or 2101, reduced
by the credits against such tax". See Repeals note below.
Subsec. (c)(2)(C). Pub. L. 94-455, Sec. 2005(a)(4)(B),
substituted "which bears the same ratio to the estate tax as such
net value bears to the value of the gross estate" for "equal to the
excess of the estate tax over the estate tax computed without
including in the gross estate such net value". See Repeals note
below.
Subsec. (c)(3). Pub. L. 94-455, Sec. 2006(b)(3), added par. (3).
Subsec. (d)(3)(A), (B). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsecs. (e), (f). Pub. L. 94-455, Sec. 1951(b)(10)(A),
redesignated subsec. (f) as (e) and struck out former subsec. (e)
relating to certain installment obligations transmitted at death.
1964 - Subsec. (c)(2)(B). Pub. L. 88-272 substituted "421(c)(2),
relating to the deduction for estate tax with respect to stock
options to which part II of subchapter D applies" for
"421(d)(6)(B), relating to the deduction for estate tax with
respect to restricted stock options".
Subsecs. (e), (f). Pub. L. 88-570 added subsec. (e) and
redesignated former subsec. (e) as (f).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 effective as if included in section
302 of the Jobs and Growth Tax Relief Reconciliation Act of 2003,
Pub. L. 108-27, see section 402(b) of Pub. L. 108-311, set out a
note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to estates of decedents
dying after Dec. 31, 1996, see section 1073(c) of Pub. L. 105-34,
set out as an Effective Date of Repeal note under section 4980A of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1401(b)(9) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1999, with retention of
certain transition rules, see section 1401(c) of Pub. L. 104-188,
set out as a note under section 402 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to stock issued after Aug.
10, 1993, see section 13113(e) of Pub. L. 103-66, set out as a note
under section 53 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to taxable years
beginning after Dec. 31, 1990, see section 11101(e) of Pub. L. 101-
508, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dispositions in
taxable years beginning after Dec. 31, 1987, with special rules for
non-dealers and coordination with Tax Reform Act of 1986, see
section 10202(e)(1), (3), (5) of Pub. L. 100-203, set out as a note
under section 453 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 301(b)(8) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 301(c) of
Pub. L. 99-514, set out as a note under section 62 of this title.
Amendment by section 1432(a)(3) of Pub. L. 99-514 applicable to
generation-skipping transfers (within the meaning of section 2611
of this title) made after Oct. 22, 1986, except as otherwise
provided, see section 1433 of Pub. L. 99-514, set out as an
Effective Date note under section 2601 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to estates of decedents
dying after Dec. 31, 1981, but inapplicable under certain
conditions under will executed before date which is 30 days after
Aug. 13, 1981, or under trust created by such date, see section
403(e) of Pub. L. 97-34, set out as a note under section 2056 of
this title.
EFFECTIVE DATE OF 1980 AMENDMENTS AND REVIVAL OF PRIOR LAW
For effective date of amendment by section 2(b)(5) of Pub. L. 96-
471, see section 6(a)(1) of Pub. L. 96-471, set out as an
Effective Date note under section 453 of this title.
Section 6(b) of Pub. L. 96-471 provided: "The amendment made by
section 3 [amending this section] shall apply in the case of
decedents dying after the date of the enactment of this Act [Oct.
19, 1980]."
Amendment by Pub. L. 96-223 (repealing section 2005(a)(4) of Pub.
L. 94-455 and the amendments made thereby, which had amended this
section) applicable in respect of decedents dying after Dec. 31,
1976, and except for certain elections, this title to be applied
and administered as if those repealed provisions had not been
enacted, see section 401(b), (e) of Pub. L. 96-223, set out as a
note under section 1023 of this title.
Section 101(b)(1)(D) of Pub. L. 96-222 provided that: "The
amendment made by subsection (a)(7) [probably means subsection
(a)(8), which amended this section and section 2039 of this title]
shall apply with respect to the estates of decedents dying after
the date of the enactment of this Act [Apr. 1, 1980]."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 702(b)(2) of Pub. L. 95-600 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply with
respect to decedents dying after the date of the enactment of this
Act [Nov. 6, 1978]."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(91) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Amendment by section 1951(b)(10)(A) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1951(d) of Pub. L. 94-455, set out as a note under section 72 of
this title.
Amendment by section 2005(a)(4)(A), (B) of Pub. L. 94-455
applicable in respect of decedents dying after Dec. 31, 1979, see
section 2005(f)(1) of Pub. L. 94-455, set out as a note under
section 1015 of this title.
For effective date of amendment by section 2006(b)(3) of Pub. L.
94-455, see section 2006(c) of Pub. L. 94-455, set out as an
Effective Date note under section 2601 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years ending
after Dec. 31, 1963, see section 221(e) of Pub. L. 88-272, set out
as a note under section 421 of this title.
REPEALS
Pub. L. 94-455, Sec. 2005(a)(4), cited as a credit to this
section, and the amendments made thereby, were repealed by Pub. L.
96-223, title IV, Sec. 401(a), 94 Stat. 299, resulting in the text
of this section reading as it read prior to enactment of section
2005(a)(4). See Effective Date of 1980 Amendments and Revival of
Prior Law note above.
SAVINGS PROVISION
Section 1951(b)(10)(B) of Pub. L. 94-455 provided that:
"Notwithstanding subparagraph (A) [amending this section], any
election made under section 691(e) to have subsection (a)(4) of
such section apply in the case of an installment obligation shall
continue to be effective with respect to taxable years beginning
after December 31, 1976. Section 691(c) shall not apply in respect
of any amount included in gross income by reason of the preceding
sentence. The liability under bond filed under section 44(d) of the
Internal Revenue Code of 1939 (or corresponding provisions of prior
law) in respect of which such an election applies is hereby
released with respect to taxable years to which such election
applies."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104-
188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
-End-
-CITE-
26 USC Sec. 692 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART II - INCOME IN RESPECT OF DECEDENTS
-HEAD-
Sec. 692. Income taxes of members of Armed Forces, astronauts, and
victims of certain terrorist attacks on death
-STATUTE-
(a) General rule
In the case of any individual who dies while in active service as
a member of the Armed Forces of the United States, if such death
occurred while serving in a combat zone (as determined under
section 112) or as a result of wounds, disease, or injury incurred
while so serving -
(1) any tax imposed by this subtitle shall not apply with
respect to the taxable year in which falls the date of his death,
or with respect to any prior taxable year ending on or after the
first day he so served in a combat zone after June 24, 1950; and
(2) any tax under this subtitle and under the corresponding
provisions of prior revenue laws for taxable years preceding
those specified in paragraph (1) which is unpaid at the date of
his death (including interest, additions to the tax, and
additional amounts) shall not be assessed, and if assessed the
assessment shall be abated, and if collected shall be credited or
refunded as an overpayment.
(b) Individuals in missing status
For purposes of this section, in the case of an individual who
was in a missing status within the meaning of section
6013(f)(3)(A), the date of his death shall be treated as being not
earlier than the date on which a determination of his death is made
under section 556 of title 37 of the United States Code. Except in
the case of the combat zone designated for purposes of the Vietnam
conflict, the preceding sentence shall not cause subsection (a)(1)
to apply for any taxable year beginning more than 2 years after the
date designated under section 112 as the date of termination of
combatant activities in a combat zone.
(c) Certain military or civilian employees of the United States
dying as a result of injuries
(1) In general
In the case of any individual who dies while a military or
civilian employee of the United States, if such death occurs as a
result of wounds or injury which was incurred while the
individual was a military or civilian employee of the United
States and which was incurred in a terroristic or military
action, any tax imposed by this subtitle shall not apply -
(A) with respect to the taxable year in which falls the date
of his death, and
(B) with respect to any prior taxable year in the period
beginning with the last taxable year ending before the taxable
year in which the wounds or injury were incurred.
(2) Terroristic or military action
For purposes of paragraph (1), the term "terroristic or
military action" means -
(A) any terroristic activity which a preponderance of the
evidence indicates was directed against the United States or
any of its allies, and
(B) any military action involving the Armed Forces of the
United States and resulting from violence or aggression against
the United States or any of its allies (or threat thereof).
For purposes of the preceding sentence, the term "military
action" does not include training exercises.
(3) Treatment of multinational forces
For purposes of paragraph (2), any multinational force in which
the United States is participating shall be treated as an ally of
the United States.
(d) Individuals dying as a result of certain attacks
(1) In general
In the case of a specified terrorist victim, any tax imposed by
this chapter shall not apply -
(A) with respect to the taxable year in which falls the date
of death, and
(B) with respect to any prior taxable year in the period
beginning with the last taxable year ending before the taxable
year in which the wounds, injury, or illness referred to in
paragraph (3) were incurred.
(2) $10,000 minimum benefit
If, but for this paragraph, the amount of tax not imposed by
paragraph (1) with respect to a specified terrorist victim is
less than $10,000, then such victim shall be treated as having
made a payment against the tax imposed by this chapter for such
victim's last taxable year in an amount equal to the excess of
$10,000 over the amount of tax not so imposed.
(3) Taxation of certain benefits
Subject to such rules as the Secretary may prescribe, paragraph
(1) shall not apply to the amount of any tax imposed by this
chapter which would be computed by only taking into account the
items of income, gain, or other amounts attributable to -
(A) deferred compensation which would have been payable after
death if the individual had died other than as a specified
terrorist victim, or
(B) amounts payable in the taxable year which would not have
been payable in such taxable year but for an action taken after
September 11, 2001.
(4) Specified terrorist victim
For purposes of this subsection, the term "specified terrorist
victim" means any decedent -
(A) who dies as a result of wounds or injury incurred as a
result of the terrorist attacks against the United States on
April 19, 1995, or September 11, 2001, or
(B) who dies as a result of illness incurred as a result of
an attack involving anthrax occurring on or after September 11,
2001, and before January 1, 2002.
Such term shall not include any individual identified by the
Attorney General to have been a participant or conspirator in any
such attack or a representative of such an individual.
(5) Relief with respect to astronauts
The provisions of this subsection shall apply to any astronaut
whose death occurs in the line of duty, except that paragraph
(3)(B) shall be applied by using the date of the death of the
astronaut rather than September 11, 2001.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 238; Pub. L. 93-597, Sec. 4(a),
Jan. 2, 1975, 88 Stat. 1952; Pub. L. 94-455, title XIX, Sec.
1901(a)(92), Oct. 4, 1976, 90 Stat. 1780; Pub. L. 94-569, Sec.
3(c), Oct. 20, 1976, 90 Stat. 2699; Pub. L. 97-448, title III, Sec.
307(b), Jan. 12, 1983, 96 Stat. 2407; Pub. L. 98-259, Sec. 1(a),
Apr. 10, 1984, 98 Stat. 142; Pub. L. 98-369, div. A, title VII,
Sec. 722(g)(2), (3), July 18, 1984, 98 Stat. 974; Pub. L. 99-514,
title XVII, Sec. 1708(a)(2), Oct. 22, 1986, 100 Stat. 2782; Pub. L.
107-134, title I, Secs. 101(a), (c)(1), 113(b), Jan. 23, 2002, 115
Stat. 2428, 2435; Pub. L. 108-121, title I, Sec. 110(a)(1), (3)(A),
Nov. 11, 2003, 117 Stat. 1342.)
-MISC1-
AMENDMENTS
2003 - Pub. L. 108-121, Sec. 110(a)(3)(A), inserted ",
astronauts," after "Forces" in section catchline.
Subsec. (d)(5). Pub. L. 108-121, Sec. 110(a)(1), added par. (5).
2002 - Pub. L. 107-134, Sec. 101(c)(1), amended section catchline
generally. Prior to amendment, catchline read as follows: "Income
taxes on members of Armed Forces on death".
Subsec. (c). Pub. L. 107-134, Sec. 113(b)(2), struck out
"sustained overseas" after "injuries" in heading.
Subsec. (c)(1). Pub. L. 107-134, Sec. 113(b)(1), struck out
"outside the United States" before "in a terroristic or military
action" in introductory provisions.
Subsec. (d). Pub. L. 107-134, Sec. 101(a), added subsec. (d).
1986 - Subsec. (b). Pub. L. 99-514 amended last sentence
generally. Prior to amendment, sentence read as follows: "The
preceding sentence shall not cause subsection (a)(1) to apply for
any taxable year beginning -
"(1) after December 31, 1982, in the case of service in the
combat zone designated for purposes of the Vietnam conflict, or
"(2) more than 2 years after the date designated under section
112 as the date of termination of combatant activities in that
zone, in the case of any combat zone other than that referred to
in paragraph (1)."
1984 - Subsec. (c). Pub. L. 98-259 added subsec. (c).
Subsec. (c)(1). Pub. L. 98-369, Sec. 722(g)(2), which directed
amendment of par. (1) of this section by substituting "as a result
of wounds or injury which was incurred while the individual was a
military or civilian employee of the United States and which was
incurred" for "as a result of wounds or injury incurred" was
executed to par. (1) of subsec. (c) to reflect the probable intent
of Congress.
Subsec. (c)(2)(A). Pub. L. 98-369, Sec. 722(g)(3), inserted
"which a preponderance of the evidence indicates was".
1983 - Subsec. (b)(1). Pub. L. 97-448 substituted "December 31,
1982" for "January 2, 1978".
1976 - Subsec. (b). Pub. L. 94-569 substituted "to apply for any
taxable year beginning" for "to apply for any taxable year
beginning more than 2 years after" in provisions preceding par.
(1), substituted "after January 2, 1978" for "the date of enactment
of this subsection" in par. (1), and substituted "more than 2 years
after the date designated" for "the date designated" in par. (2).
Pub. L. 94-455 substituted "of members" for "on members" in
heading.
1975 - Subsec. (a). Pub. L. 93-597, Sec. 4(a)(1), (2), designated
existing provisions as subsec. (a), added heading, and in subsec.
(a) as so designated, struck out "during an induction period (as
defined in section 112(c)(5))", respectively.
Subsec. (b). Pub. L. 93-597, Sec. 4(a)(3), added subsec. (b).
EFFECTIVE DATE OF 2003 AMENDMENT
Amendment by Pub. L. 108-121 applicable with respect to any
astronaut whose death occurs after Dec. 31, 2002, see section
110(a)(4) of Pub. L. 108-121, set out as a note under section 5 of
this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-134, title I, Sec. 101(d), Jan. 23, 2002, 115 Stat.
2429, provided that:
"(1) Effective date. - The amendments made by this section
[amending this section and sections 5 and 6013 of this title] shall
apply to taxable years ending before, on, or after September 11,
2001.
"(2) Waiver of limitations. - If refund or credit of any
overpayment of tax resulting from the amendments made by this
section is prevented at any time before the close of the 1-year
period beginning on the date of the enactment of this Act [Jan. 23,
2002] by the operation of any law or rule of law (including res
judicata), such refund or credit may nevertheless be made or
allowed if claim therefor is filed before the close of such
period."
Amendment by section 113(b) of Pub. L. 107-134 applicable to
taxable years ending on or after Sept. 11, 2001, see section 113(c)
of Pub. L. 107-134, set out as a note under section 104 of this
title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1982, see section 1708(b) of Pub. L. 99-514, set out
as a note under section 2 of this title.
EFFECTIVE DATE OF 1984 AMENDMENTS
Section 722(g)(5) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - The amendments made by this subsection
[amending this section and enacting and amending provisions set out
below] shall take effect as if they were included in the amendments
made by section 1 of Public Law 98-259 [amending this section and
enacting provisions set out below].
"(B) Statute of limitations waived. - Notwithstanding section
6511 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954],
the time for filing a claim for credit or refund of any overpayment
of tax resulting from the amendments made by this subsection shall
not expire before the date 1 year after the date of the enactment
of this Act [July 18, 1984]."
Section 1(b) of Pub. L. 98-259 as amended by Pub. L. 98-369, div.
A, title VII, Sec. 722(g)(1), July 18, 1984, 98 Stat. 974; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply with respect to all taxable years
(whether beginning before, on, or after the date of enactment of
this Act [Apr. 10, 1984]) of individuals dying after November 17,
1978, as a result of wounds or injuries incurred after such date.
"(2) Statute of limitations waived. - Notwithstanding section
6511 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954],
the time for filing a claim for credit or refund of any overpayment
of tax resulting from the amendment made by subsection (a) shall
not expire before the date 1 year after the date of the enactment
of this Act."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 effective for taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Section 4(b) of Pub. L. 93-597 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years ending on or after February 28, 1961."
REFUNDS AND CREDITS OF OVERPAYMENTS FOR TAXABLE YEARS ENDING ON OR
AFTER FEBRUARY 28, 1961, RESULTING FROM APPLICATION OF PROVISIONS
Section 4(c) of Pub. L. 93-597, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If the
refund or credit of any overpayment for any taxable year ending on
or after February 28, 1961, resulting from the application of
section 692 of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] (as amended by subsection (a) of this section) is prevented
at any time before the expiration of one year after the date of the
enactment of this Act [Jan. 2, 1975] by the operation of any law or
rule of law, but would not have been so prevented if claim for
refund or credit therefor were made on the due date for the return
for the taxable year of his death (or any later year), refund or
credit of such overpayment may, nevertheless, be made or allowed if
claim therefor is filed before the expiration of such one-year
period."
TREATMENT OF DIRECTOR GENERAL OF MULTINATIONAL FORCE IN SINAI
Section 722(g)(4) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "For
purposes of section 692(c) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], the Director General of the Multinational
Force and Observers in the Sinai who died on February 15, 1984,
shall be treated as if he were a civilian employee of the United
States while he served as such Director General."
-End-
-CITE-
26 USC Subchapter K - Partners and Partnerships 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
-HEAD-
SUBCHAPTER K - PARTNERS AND PARTNERSHIPS
-MISC1-
Part
I. Determination of tax liability.
II. Contributions, distributions, and transfers.
III. Definitions.
IV. Special rules for electing large partnerships.
AMENDMENTS
1997 - Pub. L. 105-34, title XII, Sec. 1221(b), Aug. 5, 1997, 111
Stat. 1008, added item for part IV.
-End-
-CITE-
26 USC PART I - DETERMINATION OF TAX LIABILITY 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
PART I - DETERMINATION OF TAX LIABILITY
-MISC1-
Sec.
701. Partners, not partnership, subject to tax.
702. Income and credits of partner.
703. Partnership computations.
704. Partner's distributive share.
705. Determination of basis of partner's interest.
706. Taxable years of partner and partnership.
707. Transactions between partner and partnership.
708. Continuation of partnership.
709. Treatment of organization and syndication fees.
AMENDMENTS
1976 - Pub. L. 94-455, title II, Sec. 213(b)(2), title XIX, Sec.
1901(b)(23), Oct. 4, 1976, 90 Stat. 1547, 1798, struck out part IV
"Effective date for subchapter" in table of parts of subchapter K
of chapter 1 and added item 709.
-End-
-CITE-
26 USC Sec. 701 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 701. Partners, not partnership, subject to tax
-STATUTE-
A partnership as such shall not be subject to the income tax
imposed by this chapter. Persons carrying on business as partners
shall be liable for income tax only in their separate or individual
capacities.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 239.)
-End-
-CITE-
26 USC Sec. 702 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 702. Income and credits of partner
-STATUTE-
(a) General rule
In determining his income tax, each partner shall take into
account separately his distributive share of the partnership's -
(1) gains and losses from sales or exchanges of capital assets
held for not more than 1 year,
(2) gains and losses from sales or exchanges of capital assets
held for more than 1 year,
(3) gains and losses from sales or exchanges of property
described in section 1231 (relating to certain property used in a
trade or business and involuntary conversions),
(4) charitable contributions (as defined in section 170(c)),
(5) dividends with respect to which section 1(h)(11) or part
VIII of subchapter B applies,
(6) taxes, described in section 901, paid or accrued to foreign
countries and to possessions of the United States,
(7) other items of income, gain, loss, deduction, or credit, to
the extent provided by regulations prescribed by the Secretary,
and
(8) taxable income or loss, exclusive of items requiring
separate computation under other paragraphs of this subsection.
(b) Character of items constituting distributive share
The character of any item of income, gain, loss, deduction, or
credit included in a partner's distributive share under paragraphs
(1) through (7) of subsection (a) shall be determined as if such
item were realized directly from the source from which realized by
the partnership, or incurred in the same manner as incurred by the
partnership.
(c) Gross income of a partner
In any case where it is necessary to determine the gross income
of a partner for purposes of this title, such amount shall include
his distributive share of the gross income of the partnership.
(d) Cross reference
For rules relating to procedures for determining the tax
treatment of partnership items see subchapter C of chapter 63
(section 6221 and following).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 239; Pub. L. 88-272, title II,
Sec. 201(d)(7), Feb. 26, 1964, 78 Stat. 32; Pub. L. 94-455, title
XIV, Sec. 1402(b)(1)(L), (2), title XIX, Secs. 1901(b)(1)(I)(i),
(ii), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1732, 1791, 1834; Pub.
L. 96-223, title IV, Sec. 404(b)(5), Apr. 2, 1980, 94 Stat. 307;
Pub. L. 97-34, title III, Sec. 301(b)(5), (6)(C), Aug. 13, 1981, 95
Stat. 270; Pub. L. 97-248, title IV, Sec. 402(c)(1), Sept. 3, 1982,
96 Stat. 667; Pub. L. 97-448, title I, Sec. 103(a)(4), Jan. 12,
1983, 96 Stat. 2375; Pub. L. 98-369, div. A, title X, Sec.
1001(b)(9), (e), July 18, 1984, 98 Stat. 1011, 1012; Pub. L. 99-
514, title VI, Sec. 612(b)(5), Oct. 22, 1986, 100 Stat. 2250; Pub.
L. 108-27, title III, Sec. 302(e)(8), May 28, 2003, 117 Stat. 764.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Subsec. (a)(5). Pub. L. 108-27, Secs. 302(e)(8), 303,
temporarily amended par. (5) generally. Prior to amendment, par.
(5) read as follows: "dividends with respect to which there is a
deduction under part VIII of subchapter B,". See Effective and
Termination Dates of 2003 Amendment note below.
1986 - Subsec. (a)(5). Pub. L. 99-514 amended par. (5) generally.
Prior to amendment, par. (5) read as follows: "dividends or
interest with respect to which there is an exclusion under section
116 or 128, or a deduction under part VIII of subchapter B,".
1984 - Subsec. (a)(1), (2). Pub. L. 98-369 substituted "6 months"
for "1 year", applicable to property acquired after June 22, 1984,
and before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
1983 - Subsec. (a)(5). Pub. L. 97-448 substituted "an exclusion
under section 116 or 128," for "provided an exclusion under section
116 or 128".
1982 - Subsec. (d). Pub. L. 97-248 added subsec. (d).
1981 - Subsec. (a)(5). Pub. L. 97-34, Sec. 301(b)(6)(C), inserted
reference to "interest" in heading and text which continued the
amendment made by Pub. L. 96-223.
Pub. L. 97-34, Sec. 301(b)(5), inserted "or 128" after "section
116".
1980 - Subsec. (a)(5). Pub. L. 96-223 inserted "or interest"
after "dividends".
1976 - Subsec. (a)(1), (2). Pub. L. 94-455, Sec. 1402(b)(2),
provided that "9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(L), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (a)(7) to (9). Pub. L. 94-455, Secs. 1901(b)(1)(I)(i),
1906(b)(13)(A), redesignated pars. (8) and (9) as (7) and (8),
respectively, and in par. (7), as so redesignated, struck out "or
his delegate" after "Secretary". Former par. (7), which related
partially tax-exempt interest on obligations of the United States
or its instrumentalities, was struck out.
Subsec. (b). Pub. L. 94-455, Sec. 1901(b)(1)(I)(ii), substituted
"paragraphs (1) through (7)" for "paragraphs (1) through (8)".
1964 - Subsec. (a)(5). Pub. L. 88-272 struck out "a credit under
section 34," before "an exclusion".
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 612(c) of Pub. L. 99-514, set out
as a note under section 301 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to partnership taxable
years beginning after Sept. 3, 1982, with provision for the
applicability of the amendment to any partnership taxable year
ending after Sept. 3, 1982, if the partnership, each partner, and
each indirect partner requests such application and the Secretary
of the Treasury or his delegate consents to such application, see
section 407(a)(1), (3) of Pub. L. 97-248, set out as an Effective
Date note under section 6221 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 301(b)(5) of Pub. L. 97-34 applicable to
taxable years ending after Sept. 30, 1981, and amendment by section
301(b)(6)(C) of Pub. L. 97-34 applicable to taxable years beginning
after Dec. 31, 1981, see section 301(d) of Pub. L. 97-34, set out
as a note under section 265 of this title.
EFFECTIVE AND TERMINATION DATES OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 applicable with respect to taxable
years beginning after Dec. 31, 1980, and before Jan. 1, 1982, see
section 404(c) of Pub. L. 96-223, set out as a note under section
265 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(b)(1)(I)(i), (ii) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable with respect to dividends
received after Dec. 31, 1964, in taxable years ending after such
date, see section 201(e) of Pub. L. 88-272, set out as a note under
section 22 of this title.
-End-
-CITE-
26 USC Sec. 703 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 703. Partnership computations
-STATUTE-
(a) Income and deductions
The taxable income of a partnership shall be computed in the same
manner as in the case of an individual except that -
(1) the items described in section 702(a) shall be separately
stated, and
(2) the following deductions shall not be allowed to the
partnership:
(A) the deductions for personal exemptions provided in
section 151,
(B) the deduction for taxes provided in section 164(a) with
respect to taxes, described in section 901, paid or accrued to
foreign countries and to possessions of the United States,
(C) the deduction for charitable contributions provided in
section 170,
(D) the net operating loss deduction provided in section 172,
(E) the additional itemized deductions for individuals
provided in part VII of subchapter B (sec. 211 and following),
and
(F) the deduction for depletion under section 611 with
respect to oil and gas wells.
(b) Elections of the partnership
Any election affecting the computation of taxable income derived
from a partnership shall be made by the partnership, except that
any election under -
(1) subsection (b)(5) or (c)(3) of section 108 (relating to
income from discharge of indebtedness),
(2) section 617 (relating to deduction and recapture of certain
mining exploration expenditures), or
(3) section 901 (relating to taxes of foreign countries and
possessions of the United States),
shall be made by each partner separately.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 240; Pub. L. 89-570, Sec. 2(b),
Sept. 12, 1966, 80 Stat. 764; Pub. L. 91-172, title V, Sec.
504(c)(3), Dec. 30, 1969, 83 Stat. 633; Pub. L. 92-178, title III,
Sec. 304(c), Dec. 10, 1971, 85 Stat. 523; Pub. L. 94-12, title V,
Sec. 501(b)(3), Mar. 29, 1975, 89 Stat. 53; Pub. L. 94-455, title
XIX, Sec. 1901(b)(21)(F), title XXI, Sec. 2115(c)(2), Oct. 4, 1976,
90 Stat. 1798, 1909; Pub. L. 95-30, title I, Sec. 101(d)(10), May
23, 1977, 91 Stat. 134; Pub. L. 96-589, Sec. 2(e)(1), Dec. 24,
1980, 94 Stat. 3396; Pub. L. 99-514, title V, Sec. 511(d)(2)(B),
title VII, Sec. 701(e)(4)(E), Oct. 22, 1986, 100 Stat. 2249, 2343;
Pub. L. 100-647, title I, Sec. 1008(i), Nov. 10, 1988, 102 Stat.
3445; Pub. L. 103-66, title XIII, Sec. 13150(c)(9), Aug. 10, 1993,
107 Stat. 448.)
-MISC1-
AMENDMENTS
1993 - Subsec. (b)(1). Pub. L. 103-66 substituted "subsection
(b)(5) or (c)(3)" for "subsection (b)(5)".
1988 - Subsec. (b)(1). Pub. L. 100-647 substituted "subsection
(b)(5)" for "subsection (b)(5) or (d)(4)".
1986 - Subsec. (b). Pub. L. 99-514 struck out former pars. (1)
and (3) which related to elections under sections 57(c) and 163(d),
respectively, and redesignated former pars. (2), (4), and (5), as
pars. (1), (2), and (3), respectively.
1980 - Subsec. (b). Pub. L. 96-589 inserted reference to section
108(b)(5) and (d)(4).
1977 - Subsec. (a)(2). Pub. L. 95-30 struck out subpar. (A) which
made reference to the standard deduction provided in section 141,
and redesignated subpars. (B) to (G) as (A) to (F), respectively.
1976 - Subsec. (a)(2)(G). Pub. L. 94-455, Sec. 2115(c)(2),
substituted "wells" for "production subject to the provisions of
section 613A(c)".
Subsec. (b). Pub. L. 94-455, Sec. 1901(b)(21)(F), struck out
"under section 615 (relating to pre-1970 exploration
expenditures)," after "of the United States, and any election".
1975 - Subsec. (a)(2)(G). Pub. L. 94-12 added subpar. (G).
1971 - Subsec. (b). Pub. L. 92-178 substituted "," for "or" after
"(relating to pre-1970 exploration expenditures)" and inserted
"under section 57(c) (relating to definition of net lease), or
under section 163(d) (relating to limitation on interest on
investment indebtedness)" after "(relating to deduction and
recapture of certain mining exploration expenditures)".
1969 - Subsec. (b). Pub. L. 91-172 substituted "(relating to pre-
1970 exploration expenditures) or under section 617 (relating to
deduction and recapture of certain mining exploration
expenditures)" for "(relating to exploration expenditures) or under
section 617 (relating to additional exploration expenditures in the
case of domestic mining)".
1966 - Subsec. (b). Pub. L. 89-570 provided for election under
section 615 (relating to exploration expenditures) or under section
617 (relating to additional exploration expenditures in the case of
domestic mining).
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to discharges after Dec.
31, 1992, in taxable years ending after such date, see section
13150(d) of Pub. L. 103-66, set out as a note under section 108 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 511(d)(2)(B) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 511(e) of
Pub. L. 99-514, set out as a note under section 163 of this title.
Amendment by section 701(e)(4)(E) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L. 99-
514, set out as an Effective Date note under section 55 of this
title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to transactions which
occur after Dec. 31, 1980, other than transactions which occur in a
proceeding in a bankruptcy case or similar judicial proceeding or
in a proceeding under Title 11 commencing on or after Dec. 31,
1980, with an exception permitting the debtor to make the amendment
applicable to transactions occurring after Sept. 30, 1979; in a
specified manner, see section 7(a)(1), (f) of Pub. L. 96-589, set
out as a note under section 108 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(21)(F) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
Amendment by section 2115(c)(2) of Pub. L. 94-455 effective on
Jan. 1, 1975 and applicable to taxable years ending after Dec. 31,
1974, see section 2115(f) of Pub. L. 94-455, set out as a note
under section 613A of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 effective Jan. 1, 1975, to apply to
taxable years ending after Dec. 31, 1974, see section 501(c) of
Pub. L. 94-12, set out as an Effective Date note under section 613A
of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to
exploration expenditures paid or incurred after Dec. 31, 1969, see
section 504(d)(1) of Pub. L. 91-172, set out as an Effective Date
note under section 243 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-570 applicable to taxable years ending
after Sept. 12, 1966, but only in respect of expenditures paid or
incurred after such date, see section 3 of Pub. L. 89-570, set out
as an Effective Date note under section 617 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(4)(E) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, with provision that for such purposes
any amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
-End-
-CITE-
26 USC Sec. 704 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 704. Partner's distributive share
-STATUTE-
(a) Effect of partnership agreement
A partner's distributive share of income, gain, loss, deduction,
or credit shall, except as otherwise provided in this chapter, be
determined by the partnership agreement.
(b) Determination of distributive share
A partner's distributive share of income, gain, loss, deduction,
or credit (or item thereof) shall be determined in accordance with
the partner's interest in the partnership (determined by taking
into account all facts and circumstances), if -
(1) the partnership agreement does not provide as to the
partner's distributive share of income, gain, loss, deduction, or
credit (or item thereof), or
(2) the allocation to a partner under the agreement of income,
gain, loss, deduction, or credit (or item thereof) does not have
substantial economic effect.
(c) Contributed property
(1) In general
Under regulations prescribed by the Secretary -
(A) income, gain, loss, and deduction with respect to
property contributed to the partnership by a partner shall be
shared among the partners so as to take account of the
variation between the basis of the property to the partnership
and its fair market value at the time of contribution,
(B) if any property so contributed is distributed (directly
or indirectly) by the partnership (other than to the
contributing partner) within 7 years of being contributed -
(i) the contributing partner shall be treated as
recognizing gain or loss (as the case may be) from the sale
of such property in an amount equal to the gain or loss which
would have been allocated to such partner under subparagraph
(A) by reason of the variation described in subparagraph (A)
if the property had been sold at its fair market value at the
time of the distribution,
(ii) the character of such gain or loss shall be determined
by reference to the character of the gain or loss which would
have resulted if such property had been sold by the
partnership to the distributee, and
(iii) appropriate adjustments shall be made to the adjusted
basis of the contributing partner's interest in the
partnership and to the adjusted basis of the property
distributed to reflect any gain or loss recognized under this
subparagraph, and
(C) if any property so contributed has a built-in loss -
(i) such built-in loss shall be taken into account only in
determining the amount of items allocated to the contributing
partner, and
(ii) except as provided in regulations, in determining the
amount of items allocated to other partners, the basis of the
contributed property in the hands of the partnership shall be
treated as being equal to its fair market value at the time
of contribution.
For purposes of subparagraph (C), the term "built-in loss" means
the excess of the adjusted basis of the property (determined
without regard to subparagraph (C)(ii)) over its fair market
value at the time of contribution.
(2) Special rule for distributions where gain or loss would not
be recognized outside partnerships
Under regulations prescribed by the Secretary, if -
(A) property contributed by a partner (hereinafter referred
to as the "contributing partner") is distributed by the
partnership to another partner, and
(B) other property of a like kind (within the meaning of
section 1031) is distributed by the partnership to the
contributing partner not later than the earlier of -
(i) the 180th day after the date of the distribution
described in subparagraph (A), or
(ii) the due date (determined with regard to extensions)
for the contributing partner's return of the tax imposed by
this chapter for the taxable year in which the distribution
described in subparagraph (A) occurs,
then to the extent of the value of the property described in
subparagraph (B), paragraph (1)(B) shall be applied as if the
contributing partner had contributed to the partnership the
property described in subparagraph (B).
(3) Other rules
Under regulations prescribed by the Secretary, rules similar to
the rules of paragraph (1) shall apply to contributions by a
partner (using the cash receipts and disbursements method of
accounting) of accounts payable and other accrued but unpaid
items. Any reference in paragraph (1) or (2) to the contributing
partner shall be treated as including a reference to any
successor of such partner.
(d) Limitation on allowance of losses
A partner's distributive share of partnership loss (including
capital loss) shall be allowed only to the extent of the adjusted
basis of such partner's interest in the partnership at the end of
the partnership year in which such loss occurred. Any excess of
such loss over such basis shall be allowed as a deduction at the
end of the partnership year in which such excess is repaid to the
partnership.
(e) Family partnerships
(1) Recognition of interest created by purchase or gift
A person shall be recognized as a partner for purposes of this
subtitle if he owns a capital interest in a partnership in which
capital is a material income-producing factor, whether or not
such interest was derived by purchase or gift from any other
person.
(2) Distributive share of donee includible in gross income
In the case of any partnership interest created by gift, the
distributive share of the donee under the partnership agreement
shall be includible in his gross income, except to the extent
that such share is determined without allowance of reasonable
compensation for services rendered to the partnership by the
donor, and except to the extent that the portion of such share
attributable to donated capital is proportionately greater than
the share of the donor attributable to the donor's capital. The
distributive share of a partner in the earnings of the
partnership shall not be diminished because of absence due to
military service.
(3) Purchase of interest by member of family
For purposes of this section, an interest purchased by one
member of a family from another shall be considered to be created
by gift from the seller, and the fair market value of the
purchased interest shall be considered to be donated capital. The
"family" of any individual shall include only his spouse,
ancestors, and lineal descendants, and any trusts for the primary
benefit of such persons.
(f) Cross reference
For rules in the case of the sale, exchange, liquidation, or
reduction of a partner's interest, see section 706(c)(2).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 240; Pub. L. 94-455, title II,
Sec. 213(c)(2), (3)(A), (d), (e), title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1548, 1834; Pub. L. 95-600, title II, Sec.
201(b)(1), Nov. 6, 1978, 92 Stat. 2816; Pub. L. 98-369, div. A,
title I, Sec. 71(a), July 18, 1984, 98 Stat. 589; Pub. L. 101-239,
title VII, Sec. 7642(a), Dec. 19, 1989, 103 Stat. 2379; Pub. L. 102-
486, title XIX, Sec. 1937(b)(1), Oct. 24, 1992, 106 Stat. 3033;
Pub. L. 105-34, title X, Sec. 1063(a), Aug. 5, 1997, 111 Stat. 947;
Pub. L. 108-357, title VIII, Sec. 833(a), Oct. 22, 2004, 118 Stat.
1589.)
-MISC1-
AMENDMENTS
2004 - Subsec. (c)(1)(C). Pub. L. 108-357 added subpar. (C).
1997 - Subsec. (c)(1)(B). Pub. L. 105-34 substituted "7 years"
for "5 years" in introductory provisions.
1992 - Subsec. (c)(1)(B). Pub. L. 102-486 substituted "is
distributed (directly or indirectly)" for "is distributed".
1989 - Subsec. (c). Pub. L. 101-239 amended subsec. (c)
generally. Prior to amendment, subsec. (c) read as follows: "Under
regulations prescribed by the Secretary, income, gain, loss, and
deduction with respect to property contributed to the partnership
by a partner shall be shared among partners so as to take account
of the variation between the basis of the property to the
partnership and its fair market value at the time of contribution.
Under regulations prescribed by the Secretary, rules similar to the
rules of the preceding sentence shall apply to contributions by a
partner (using the cash receipts and disbursements method of
accounting) of accounts payable and other accrued but unpaid
items."
1984 - Subsec. (c). Pub. L. 98-369 amended subsec. (c) generally,
substituting provisions directing that, under regulations
prescribed by the Secretary, income, gain, loss, and deduction with
respect to property contributed to the partnership by a partner be
shared among partners so as to take account of the variation
between the basis of the property to the partnership and its fair
market value at the time of contribution, and that similar rules
apply to contributions by a partner (using the cash receipts and
disbursements method of accounting) of accounts payable and other
accrued but unpaid items for provisions which had directed that, if
the partnership agreement so provided, depreciation, depletion, or
gain or loss with respect to property contributed to the
partnership by a partner would under regulations prescribed by the
Secretary, be shared among the partners so as to take account of
the variation between the basis of the property to the partnership
and its fair market value at the time of contribution, and struck
out provisions which had directed that in determining a partner's
distributive share of items described in section 702(a),
depreciation, depletion, or gain or loss with respect to property
contributed to the partnership by a partner would, except to the
extent otherwise provided, be allocated among the partners in the
same manner as if such property had been purchased by the
partnership and that if the partnership agreement did not provide
otherwise, depreciation, depletion, or gain or loss with respect to
undivided interests in property contributed to a partnership would
be determined as though such undivided interests had not been
contributed to the partnership.
1978 - Subsec. (d). Pub. L. 95-600 struck out provisions relating
to adjusted basis of a partner's interest.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 213(c)(2), substituted
"except as otherwise provided in this chapter" for "except as
otherwise provided in this section".
Subsec. (b). Pub. L. 94-455, Sec. 213(d), among other changes,
substituted "Determination of distributive share" for "Distributive
share determined by income or loss ratio" in heading, in provisions
preceding par. (1) "the partner's interest in the partnership
(determined by taking into account all facts and circumstances)"
for "his distributive share of taxable income or loss of the
partnership, as described in section 702(a)(9), for the taxable
year", and in par. (2) provision relating to a lack of substantial
economic effect in a partnership agreement for provisions relating
to the partnership agreement's purpose being the avoidance or
evasion of taxes.
Subsec. (c)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (d). Pub. L. 94-455, Sec. 213(e), inserted provision
relating to the determination of the adjusted basis of a partner's
liability where there is no personal liability and the
applicability of such determination where section 465 of this title
applies or the principal activity of the partnership is real estate
investment.
Subsec. (f). Pub. L. 94-455, Sec. 213(c)(3)(A), added subsec.
(f).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 833(d)(1), Oct. 22, 2004, 118
Stat. 1592, provided that: "The amendment made by subsection (a)
[amending this section] shall apply to contributions made after the
date of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1063(b) of Pub. L. 105-34 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section and section 737 of this title] shall apply to property
contributed to a partnership after June 8, 1997.
"(2) Binding contracts. - The amendment made by subsection (a)
shall not apply to any property contributed pursuant to a written
binding contract in effect on June 8, 1997, and at all times
thereafter before such contribution if such contract provides for
the contribution of a fixed amount of property."
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1937(c) of Pub. L. 102-486 provided that: "The amendments
made by this section [enacting section 737 of this title and
amending this section and section 731 of this title] shall apply to
distributions on or after June 25, 1992."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7642(b) of Pub. L. 101-239 provided that: "The amendment
made by subsection (a) [amending this section] shall apply in the
case of property contributed to the partnership after October 3,
1989, in taxable years ending after such date."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 71(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and sections 613A and
743 of this title] shall apply with respect to property contributed
to the partnership after March 31, 1984, in taxable years ending
after such date."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 and enactment of provision set out as
a note under this section by section 201(b)(2) of Pub. L. 95-600
applicable to taxable years beginning after Dec. 31, 1978, see
section 204(a) of Pub. L. 95-600, set out as a note under section
465 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 213(c)(2), (c)(3)(A), (d) of Pub. L. 94-455
applicable in the case of partnership taxable years beginning after
Dec. 31, 1975, see section 213(f)(1) of Pub. L. 94-455, set out as
an Effective Date note under section 709 of this title.
Amendment by section 213(e) of Pub. L. 94-455 applicable to
liabilities incurred after Dec. 31, 1976, see section 213(f)(2) of
Pub. L. 94-455, set out as an Effective Date note under section 709
of this title.
TRANSITIONAL RULE FOR LIMITATION ON ALLOWANCE OF LOSSES
Section 201(b)(2) of Pub. L. 95-600, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "In the
case of a loss which was not allowed for any taxable year by reason
of the last 2 sentences of section 704(d) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] (as in effect before the date
of the enactment of this Act [Nov. 6, 1978]), such loss shall be
treated as a deduction (subject to section 465(a) of such Code) for
the first taxable year beginning after December 31, 1978. Section
465(a) of such Code (as amended by this section) shall not apply
with respect to partnership liabilities to which the last 2
sentences of section 704(d) of such Code (as in effect on the day
before the date of enactment of this Act) did not apply because of
the provisions of section 213(f)(2) of the Tax Reform Act of 1976
[set out as a note under section 709 of this title]."
-End-
-CITE-
26 USC Sec. 705 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 705. Determination of basis of partner's interest
-STATUTE-
(a) General rule
The adjusted basis of a partner's interest in a partnership
shall, except as provided in subsection (b), be the basis of such
interest determined under section 722 (relating to contributions to
a partnership) or section 742 (relating to transfers of partnership
interests) -
(1) increased by the sum of his distributive share for the
taxable year and prior taxable years of -
(A) taxable income of the partnership as determined under
section 703(a),
(B) income of the partnership exempt from tax under this
title, and
(C) the excess of the deductions for depletion over the basis
of the property subject to depletion;
(2) decreased (but not below zero) by distributions by the
partnership as provided in section 733 and by the sum of his
distributive share for the taxable year and prior taxable years
of -
(A) losses of the partnership, and
(B) expenditures of the partnership not deductible in
computing its taxable income and not properly chargeable to
capital account; and
(3) decreased (but not below zero) by the amount of the
partner's deduction for depletion for any partnership oil and gas
property to the extent such deduction does not exceed the
proportionate share of the adjusted basis of such property
allocated to such partner under section 613A(c)(7)(D).
(b) Alternative rule
The Secretary shall prescribe by regulations the circumstances
under which the adjusted basis of a partner's interest in a
partnership may be determined by reference to his proportionate
share of the adjusted basis of partnership property upon a
termination of the partnership.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 242; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), title XXI, Sec. 2115(c)(3), Oct. 4, 1976, 90
Stat. 1834, 1909; Pub. L. 98-369, div. A, title VII, Sec.
722(e)(1), July 18, 1984, 98 Stat. 974.)
-MISC1-
AMENDMENTS
1984 - Subsec. (a)(3). Pub. L. 98-369 substituted "for any
partnership oil and gas property to the extent such deduction does
not exceed the proportionate share of the adjusted basis of such
property allocated to such partner under section 613A(c)(7)(D)" for
"under section 611 with respect to oil and gas wells".
1976 - Subsec. (a)(3). Pub. L. 94-455, Sec. 2115(c)(3), added
par. (3).
Subsec. (b). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 722(e)(3)(A) of Pub. L. 98-369 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect on January 1, 1975."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 2115(c)(3) of Pub. L. 94-455 effective on
Jan. 1, 1975, and applicable to taxable years ending after Dec. 31,
1974, see section 2115(f) of Pub. L. 94-455, set out as a note
under section 613A of this title.
-End-
-CITE-
26 USC Sec. 706 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 706. Taxable years of partner and partnership
-STATUTE-
(a) Year in which partnership income is includible
In computing the taxable income of a partner for a taxable year,
the inclusions required by section 702 and section 707(c) with
respect to a partnership shall be based on the income, gain, loss,
deduction, or credit of the partnership for any taxable year of the
partnership ending within or with the taxable year of the partner.
(b) Taxable year
(1) Partnership's taxable year
(A) Partnership treated as taxpayer
The taxable year of a partnership shall be determined as
though the partnership were a taxpayer.
(B) Taxable year determined by reference to partners
Except as provided in subparagraph (C), a partnership shall
not have a taxable year other than -
(i) the majority interest taxable year (as defined in
paragraph (4)),
(ii) if there is no taxable year described in clause (i),
the taxable year of all the principal partners of the
partnership, or
(iii) if there is no taxable year described in clause (i)
or (ii), the calendar year unless the Secretary by
regulations prescribes another period.
(C) Business purpose
A partnership may have a taxable year not described in
subparagraph (B) if it establishes, to the satisfaction of the
Secretary, a business purpose therefor. For purposes of this
subparagraph, any deferral of income to partners shall not be
treated as a business purpose.
(2) Partner's taxable year
A partner may not change to a taxable year other than that of a
partnership in which he is a principal partner unless he
establishes, to the satisfaction of the Secretary, a business
purpose therefor.
(3) Principal partner
For the purpose of this subsection, a principal partner is a
partner having an interest of 5 percent or more in partnership
profits or capital.
(4) Majority interest taxable year; limitation on required
changes
(A) Majority interest taxable year defined
For purposes of paragraph (1)(B)(i) -
(i) In general
The term "majority interest taxable year" means the taxable
year (if any) which, on each testing day, constituted the
taxable year of 1 or more partners having (on such day) an
aggregate interest in partnership profits and capital of more
than 50 percent.
(ii) Testing days
The testing days shall be -
(I) the 1st day of the partnership taxable year
(determined without regard to clause (i)), or
(II) the days during such representative period as the
Secretary may prescribe.
(B) Further change not required for 3 years
Except as provided in regulations necessary to prevent the
avoidance of this section, if, by reason of paragraph
(1)(B)(i), the taxable year of a partnership is changed, such
partnership shall not be required to change to another taxable
year for either of the 2 taxable years following the year of
change.
(5) Application with other sections
Except as provided in regulations, for purposes of determining
the taxable year to which a partnership is required to change by
reason of this subsection, changes in taxable years of other
persons required by this subsection, section 441(i), section
584(h),(!1) section 644, or section 1378(a) shall be taken into
account.
(c) Closing of partnership year
(1) General rule
Except in the case of a termination of a partnership and except
as provided in paragraph (2) of this subsection, the taxable year
of a partnership shall not close as the result of the death of a
partner, the entry of a new partner, the liquidation of a
partner's interest in the partnership, or the sale or exchange of
a partner's interest in the partnership.
(2) Treatment of dispositions
(A) Disposition of entire interest
The taxable year of a partnership shall close with respect to
a partner whose entire interest in the partnership terminates
(whether by reason of death, liquidation, or otherwise).
(B) Disposition of less than entire interest
The taxable year of a partnership shall not close (other than
at the end of a partnership's taxable year as determined under
subsection (b)(1)) with respect to a partner who sells or
exchanges less than his entire interest in the partnership or
with respect to a partner whose interest is reduced (whether by
entry of a new partner, partial liquidation of a partner's
interest, gift, or otherwise).
(d) Determination of distributive share when partner's interest
changes
(1) In general
Except as provided in paragraphs (2) and (3), if during any
taxable year of the partnership there is a change in any
partner's interest in the partnership, each partner's
distributive share of any item of income, gain, loss, deduction,
or credit of the partnership for such taxable year shall be
determined by the use of any method prescribed by the Secretary
by regulations which takes into account the varying interests of
the partners in the partnership during such taxable year.
(2) Certain cash basis items prorated over period to which
attributable
(A) In general
If during any taxable year of the partnership there is a
change in any partner's interest in the partnership, then
(except to the extent provided in regulations) each partner's
distributive share of any allocable cash basis item shall be
determined -
(i) by assigning the appropriate portion of such item to
each day in the period to which it is attributable, and
(ii) by allocating the portion assigned to any such day
among the partners in proportion to their interests in the
partnership at the close of such day.
(B) Allocable cash basis item
For purposes of this paragraph, the term "allocable cash
basis item" means any of the following items with respect to
which the partnership uses the cash receipts and disbursements
method of accounting:
(i) Interest.
(ii) Taxes.
(iii) Payments for services or for the use of property.
(iv) Any other item of a kind specified in regulations
prescribed by the Secretary as being an item with respect to
which the application of this paragraph is appropriate to
avoid significant misstatements of the income of the
partners.
(C) Items attributable to periods not within taxable year
If any portion of any allocable cash basis item is
attributable to -
(i) any period before the beginning of the taxable year,
such portion shall be assigned under subparagraph (A)(i) to
the first day of the taxable year, or
(ii) any period after the close of the taxable year, such
portion shall be assigned under subparagraph (A)(i) to the
last day of the taxable year.
(D) Treatment of deductible items attributable to prior periods
If any portion of a deductible cash basis item is assigned
under subparagraph (C)(i) to the first day of any taxable year -
(i) such portion shall be allocated among persons who are
partners in the partnership during the period to which such
portion is attributable in accordance with their varying
interests in the partnership during such period, and
(ii) any amount allocated under clause (i) to a person who
is not a partner in the partnership on such first day shall
be capitalized by the partnership and treated in the manner
provided for in section 755.
(3) Items attributable to interest in lower tier partnership
prorated over entire taxable year
If -
(A) during any taxable year of the partnership there is a
change in any partner's interest in the partnership
(hereinafter in this paragraph referred to as the "upper tier
partnership"), and
(B) such partnership is a partner in another partnership
(hereinafter in this paragraph referred to as the "lower tier
partnership"),
then (except to the extent provided in regulations) each
partner's distributive share of any item of the upper tier
partnership attributable to the lower tier partnership shall be
determined by assigning the appropriate portion (determined by
applying principles similar to the principles of subparagraphs
(C) and (D) of paragraph (2)) of each such item to the
appropriate days during which the upper tier partnership is a
partner in the lower tier partnership and by allocating the
portion assigned to any such day among the partners in proportion
to their interests in the upper tier partnership at the close of
such day.
(4) Taxable year determined without regard to subsection
(c)(2)(A)
For purposes of this subsection, the taxable year of a
partnership shall be determined without regard to subsection
(c)(2)(A).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 242; Pub. L. 94-455, title II,
Sec. 213(c)(1), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1547, 1834; Pub. L. 98-369, div. A, title I, Sec. 72(a), (b),
July 18, 1984, 98 Stat. 589, 591; Pub. L. 99-514, title VIII, Sec.
806(a), title XVIII, Sec. 1805(a), Oct. 22, 1986, 100 Stat. 2362,
2810; Pub. L. 100-647, title I, Sec. 1008(e)(1)-(3), Nov. 10, 1988,
102 Stat. 3439, 3440; Pub. L. 105-34, title V, Sec. 507(b)(2),
title XII, Sec. 1246(a), (b), Aug. 5, 1997, 111 Stat. 857, 1030.)
-REFTEXT-
REFERENCES IN TEXT
Section 584(h), referred to in subsec. (b)(5), was redesignated
section 584(i) by Pub. L. 104-188, title I, Sec. 1805(a), 110 Stat.
1894.
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(5). Pub. L. 105-34, Sec. 507(b)(2),
substituted "section 644" for "section 645".
Subsec. (c)(2). Pub. L. 105-34, Sec. 1246(b), substituted
"Treatment of dispositions" for "Partner who retires or sells
interest in partnership" as heading.
Subsec. (c)(2)(A). Pub. L. 105-34, Sec. 1246(a), amended heading
and text of subpar. (A) generally. Prior to amendment, text read as
follows: "The taxable year of a partnership shall close -
"(i) with respect to a partner who sells or exchanges his
entire interest in a partnership, and
"(ii) with respect to a partner whose interest is liquidated,
except that the taxable year of a partnership with respect to a
partner who dies shall not close prior to the end of the
partnership's taxable year."
1988 - Subsec. (b)(1)(B)(i). Pub. L. 100-647, Sec. 1008(e)(1)(A),
amended cl. (i) generally. Prior to amendment, cl. (i) read as
follows: "the taxable year of 1 or more of its partners who have an
aggregate interest in partnership profits and capital of greater
than 50 percent,".
Subsec. (b)(1)(B)(iii). Pub. L. 100-647, Sec. 1008(e)(2),
substituted "unless the Secretary by regulations prescribes another
period" for "or such other period as the Secretary may prescribe in
regulations".
Subsec. (b)(4). Pub. L. 100-647, Sec. 1008(e)(1)(B), substituted
"Majority interest taxable year; limitation on required changes"
for "Application of majority interest rule" in heading and amended
text generally. Prior to amendment, text read as follows: "Clause
(i) of paragraph (1)(B) shall not apply to any taxable year of a
partnership unless the period which constitutes the taxable year of
1 or more of its partners who have an aggregate interest in
partnership profits and capital of greater than 50 percent has been
the same for -
"(A) the 3-taxable year period of such partner or partners
ending on or before the beginning of such taxable year of the
partnership, or
"(B) if the partnership has not been in existence during all of
such 3-taxable year period, the taxable years of such partner or
partners ending with or within the period of existence.
This paragraph shall apply without regard to whether the same
partners or interests are taken into account in determining the 50
percent interest during any period."
Subsec. (b)(5). Pub. L. 100-647, Sec. 1008(e)(3), added par. (5).
1986 - Subsec. (b). Pub. L. 99-514, Sec. 806(a)(3), struck out
"Adoption of" before "taxable year" in heading.
Subsec. (b)(1). Pub. L. 99-514, Sec. 806(a)(1), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "The
taxable year of a partnership shall be determined as though the
partnership were a taxpayer. A partnership may not change to, or
adopt, a taxable year other than that of all its principal partners
unless it establishes, to the satisfaction of the Secretary, a
business purpose therefor."
Subsec. (b)(4). Pub. L. 99-514, Sec. 806(a)(2), added par. (4).
Subsec. (d)(2)(A)(i). Pub. L. 99-514, Sec. 1805(a)(1)(A),
substituted "such item" for "each such item".
Subsec. (d)(2)(B). Pub. L. 99-514, Sec. 1805(a)(1)(B), in
introductory provisions, struck out "which are described in
paragraph (1) and" after "the following items".
Subsec. (d)(2)(C)(i). Pub. L. 99-514, Sec. 1805(a)(2),
substituted "the first day of the taxable year" for "the first day
of such taxable year".
1984 - Subsec. (c)(2)(A). Pub. L. 98-369, Sec. 72(b)(1), struck
out last sentence providing that such partner's distributive share
of item described in section 702(a) for such year shall be
determined, under regulations prescribed by the Secretary, for the
period ending with such sale, exchange, or liquidation.
Subsec. (c)(2)(B). Pub. L. 98-369, Sec. 72(b)(2), struck out ",
but such partner's distributive share of items described in section
702(a) shall be determined by taking into account his varying
interests in the partnership during the taxable year" after
"otherwise)".
Subsec. (d). Pub. L. 98-369, Sec. 72(a), added subsec. (d).
1976 - Subsec. (b)(1), (2). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c)(2). Pub. L. 94-455, Secs. 213(c)(1), 1906(b)(13)(A),
substituted "or with respect to a partner whose interest is reduced
(whether by entry of a new partner, partial liquidation of a
partner's interest, gift, or otherwise)" for "or with respect to a
partner whose interest is reduced", in par. (B), and struck out "or
his delegate" after "Secretary" in par. (A).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 507(b)(2) of Pub. L. 105-34 applicable to
sales or exchanges after Aug. 5, 1997, see section 507(c)(2) of
Pub. L. 105-34, set out as a note under section 644 of this title.
Section 1246(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to
partnership taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 806(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with special
provisions applicable to taxpayers who are required to change their
accounting periods, see section 806(e) of Pub. L. 99-514, set out
as a note under section 1378 of this title.
Amendment by section 1805(a) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 72(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section] shall apply
-
"(1) in the case of items described in section 706(d)(2) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by
subsection (a)), to amounts attributable to periods after March
31, 1984, and
"(2) in the case of items described in section 706(d)(3) of
such Code (as added by subsection (a)), to amounts paid or
accrued by the other partnership after March 31, 1984."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 213(c)(1) of Pub. L. 94-455 applicable in
the case of partnership taxable years beginning after Dec. 31,
1975, see section 213(f) of Pub. L. 94-455, set out as an Effective
Date note under section 709 of this title.
CONSTRUCTION OF SECTION 806 OF PUB. L. 99-514
Nothing in section 806 of Pub. L. 99-514 or in any legislative
history relating thereto to be construed as requiring the Secretary
of the Treasury or his delegate to permit an automatic change of a
taxable year, see section 1008(e)(9) of Pub. L. 100-647, set out as
a note under section 1378 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 707 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 707. Transactions between partner and partnership
-STATUTE-
(a) Partner not acting in capacity as partner
(1) In general
If a partner engages in a transaction with a partnership other
than in his capacity as a member of such partnership, the
transaction shall, except as otherwise provided in this section,
be considered as occurring between the partnership and one who is
not a partner.
(2) Treatment of payments to partners for property or services
Under regulations prescribed by the Secretary -
(A) Treatment of certain services and transfers of property
If -
(i) a partner performs services for a partnership or
transfers property to a partnership,
(ii) there is a related direct or indirect allocation and
distribution to such partner, and
(iii) the performance of such services (or such transfer)
and the allocation and distribution, when viewed together,
are properly characterized as a transaction occurring between
the partnership and a partner acting other than in his
capacity as a member of the partnership,
such allocation and distribution shall be treated as a
transaction described in paragraph (1).
(B) Treatment of certain property transfers
If -
(i) there is a direct or indirect transfer of money or
other property by a partner to a partnership,
(ii) there is a related direct or indirect transfer of
money or other property by the partnership to such partner
(or another partner), and
(iii) the transfers described in clauses (i) and (ii), when
viewed together, are properly characterized as a sale or
exchange of property,
such transfers shall be treated either as a transaction
described in paragraph (1) or as a transaction between 2 or
more partners acting other than in their capacity as members of
the partnership.
(b) Certain sales or exchanges of property with respect to
controlled partnerships
(1) Losses disallowed
No deduction shall be allowed in respect of losses from sales
or exchanges of property (other than an interest in the
partnership), directly or indirectly, between -
(A) a partnership and a person owning, directly or
indirectly, more than 50 percent of the capital interest, or
the profits interest, in such partnership, or
(B) two partnerships in which the same persons own, directly
or indirectly, more than 50 percent of the capital interests or
profits interests.
In the case of a subsequent sale or exchange by a transferee
described in this paragraph, section 267(d) shall be applicable
as if the loss were disallowed under section 267(a)(1). For
purposes of section 267(a)(2), partnerships described in
subparagraph (B) of this paragraph shall be treated as persons
specified in section 267(b).
(2) Gains treated as ordinary income
In the case of a sale or exchange, directly or indirectly, of
property, which in the hands of the transferee, is property other
than a capital asset as defined in section 1221 -
(A) between a partnership and a person owning, directly or
indirectly, more than 50 percent of the capital interest, or
profits interest, in such partnership, or
(B) between two partnerships in which the same persons own,
directly or indirectly, more than 50 percent of the capital
interest or profits interests,
any gain recognized shall be considered as ordinary income.
(3) Ownership of a capital or profits interest
For purposes of paragraphs (1) and (2) of this subsection, the
ownership of a capital or profits interest in a partnership shall
be determined in accordance with the rules for constructive
ownership of stock provided in section 267(c) other than
paragraph (3) of such section.
(c) Guaranteed payments
To the extent determined without regard to the income of the
partnership, payments to a partner for services or the use of
capital shall be considered as made to one who is not a member of
the partnership, but only for the purposes of section 61(a)
(relating to gross income) and, subject to section 263, for
purposes of section 162(a) (relating to trade or business
expenses).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 243; Pub. L. 94-455, title II,
Sec. 213(b)(3), title XIX, Sec. 1901(b)(3)(C), Oct. 4, 1976, 90
Stat. 1547, 1792; Pub. L. 98-369, div. A, title I, Sec. 73(a), July
18, 1984, 98 Stat. 591; Pub. L. 99-514, title VI, Sec. 642(a)(2),
title XVIII, Secs. 1805(b), 1812(c)(3)(A), (B), Oct. 22, 1986, 100
Stat. 2284, 2810, 2834.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a)(2)(B)(iii). Pub. L. 99-514, Sec. 1805(b),
substituted "sale or exchange of property" for "sale of property".
Subsec. (b)(1). Pub. L. 99-514, Sec. 1812(c)(3)(B), inserted at
end "For purposes of section 267(a)(2), partnerships described in
subparagraph (B) of this paragraph shall be treated as persons
specified in section 267(b)."
Subsec. (b)(1)(A). Pub. L. 99-514, Sec. 1812(c)(3)(A),
substituted "a person" for "a partner".
Subsec. (b)(2)(A). Pub. L. 99-514, Sec. 1812(c)(3)(A),
substituted "a person" for "a partner".
Pub. L. 99-514, Sec. 642(a)(2), substituted "50 percent" for "80
percent".
Subsec. (b)(2)(B). Pub. L. 99-514, Sec. 642(a)(2), substituted
"50 percent" for "80 percent".
1984 - Subsec. (a). Pub. L. 98-369 designated existing provisions
as par. (1) and added par. (2).
1976 - Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(b)(3)(C),
substituted "as ordinary income" for "as gain from the sale or
exchange of property other than a capital asset".
Subsec. (c). Pub. L. 94-455, Sec. 213(b)(3), substituted "and,
subject to section 263, for purposes of section 162(a)" for "and
section 162(a)".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 642(a)(2) of Pub. L. 99-514 applicable to
sales after Oct. 22, 1986, in taxable years ending after such date,
but not applicable to sales made after Aug. 14, 1986, which are
made pursuant to a binding contract in effect on Aug. 14, 1986, and
at all times thereafter, see section 642(c) of Pub. L. 99-514, set
out as a note under section 1239 of this title.
Amendment by sections 1805(b) and 1812(c)(3)(B) of Pub. L. 99-514
effective, except as otherwise provided, as if included in the
provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,
to which such amendment relates, see section 1881 of Pub. L. 99-
514, set out as a note under section 48 of this title.
Section 1812(c)(3)(A) of Pub. L. 99-514 provided that the
amendment made by that section is effective with respect to sales
or exchanges after Sept. 27, 1985.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 73(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply -
"(A) in the case of arrangements described in section
707(a)(2)(A) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as amended by subsection (a)), to services
performed or property transferred after February 29, 1984, and
"(B) in the case of transfers described in section 707(a)(2)(B)
of such Code (as so amended), to property transferred after March
31, 1984.
"(2) Binding contract exception. - The amendment made by
subsection (a) shall not apply to a transfer of property described
in section 707(a)(2)(B)(i) if such transfer is pursuant to a
binding contract in effect on March 31, 1984, and at all times
thereafter before the transfer.
"(3) Exception for certain transfers. - The amendment made by
subsection (a) shall not apply to a transfer of property described
in section 707(a)(2)(B)(i) that is made before December 31, 1984,
if -
"(A) such transfer was proposed in a written private offering
memorandum circulated before February 28, 1984;
"(B) the out-of-pocket costs incurred with respect to such
offering exceeded $250,000 as of February 28, 1984;
"(C) the encumbrances placed on such property in anticipation
of such transfer all constitute obligations for which neither the
partnership nor any partner is liable; and
"(D) the transferor of such property is the sole general
partner of the partnership."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 213(b)(3) of Pub. L. 94-455 applicable in
the case of partnership taxable years beginning after Dec. 31,
1975, see section 213(f)(1) of Pub. L. 94-455, set out as an
Effective Date note under section 709 of this title.
Amendment by section 1901(b)(3)(C) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 708 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 708. Continuation of partnership
-STATUTE-
(a) General rule
For purposes of this subchapter, an existing partnership shall be
considered as continuing if it is not terminated.
(b) Termination
(1) General rule
For purposes of subsection (a), a partnership shall be
considered as terminated only if -
(A) no part of any business, financial operation, or venture
of the partnership continues to be carried on by any of its
partners in a partnership, or
(B) within a 12-month period there is a sale or exchange of
50 percent or more of the total interest in partnership capital
and profits.
(2) Special rules
(A) Merger or consolidation
In the case of the merger or consolidation of two or more
partnerships, the resulting partnership shall, for purposes of
this section, be considered the continuation of any merging or
consolidating partnership whose members own an interest of more
than 50 percent in the capital and profits of the resulting
partnership.
(B) Division of a partnership
In the case of a division of a partnership into two or more
partnerships, the resulting partnerships (other than any
resulting partnership the members of which had an interest of
50 percent or less in the capital and profits of the prior
partnership) shall, for purposes of this section, be considered
a continuation of the prior partnership.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 244.)
-End-
-CITE-
26 USC Sec. 709 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART I - DETERMINATION OF TAX LIABILITY
-HEAD-
Sec. 709. Treatment of organization and syndication fees
-STATUTE-
(a) General rule
Except as provided in subsection (b), no deduction shall be
allowed under this chapter to the partnership or to any partner for
any amounts paid or incurred to organize a partnership or to
promote the sale of (or to sell) an interest in such partnership.
(b) Deduction of organization fees
(1) Allowance of deduction
If a partnership elects the application of this subsection (in
accordance with regulations prescribed by the Secretary) with
respect to any organizational expenses -
(A) the partnership shall be allowed a deduction for the
taxable year in which the partnership begins business in an
amount equal to the lesser of -
(i) the amount of organizational expenses with respect to
the partnership, or
(ii) $5,000, reduced (but not below zero) by the amount by
which such organizational expenses exceed $50,000, and
(B) the remainder of such organizational expenses shall be
allowed as a deduction ratably over the 180-month period
beginning with the month in which the partnership begins
business.
(2) Dispositions before close of amortization period
In any case in which a partnership is liquidated before the end
of the period to which paragraph (1)(B) applies, any deferred
expenses attributable to the partnership which were not allowed
as a deduction by reason of this section may be deducted to the
extent allowable under section 165.
(3) Organizational expenses defined
The organizational expenses to which paragraph (1) applies, are
expenditures which -
(A) are incident to the creation of the partnership;
(B) are chargeable to capital account; and
(C) are of a character which, if expended incident to the
creation of a partnership having an ascertainable life, would
be amortized over such life.
-SOURCE-
(Added Pub. L. 94-455, title II, Sec. 213(b)(1), Oct. 4, 1976, 90
Stat. 1547; amended Pub. L. 108-357, title VIII, Sec. 902(c), Oct.
22, 2004, 118 Stat. 1651; Pub. L. 109-135, title IV, Sec. 403(ll),
Dec. 21, 2005, 119 Stat. 2632.)
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(1). Pub. L. 109-135 substituted "partnership"
for "taxpayer" in introductory provisions and before "shall be
allowed" in subpar. (A).
2004 - Subsec. (b). Pub. L. 108-357 substituted "Deduction" for
"Amortization" in heading, added par. (2), redesignated former par.
(2) as (3), and amended heading and text of par. (1) generally.
Prior to amendment, text of par. (1) read as follows: "Amounts paid
or incurred to organize a partnership may, at the election of the
partnership (made in accordance with regulations prescribed by the
Secretary), be treated as deferred expenses. Such deferred expenses
shall be allowed as a deduction ratably over such period of not
less than 60 months as may be selected by the partnership
(beginning with the month in which the partnership begins
business), or if the partnership is liquidated before the end of
such 60-month period, such deferred expenses (to the extent not
deducted under this section) may be deducted to the extent provided
in section 165."
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to amounts paid or
incurred after Oct. 22, 2004, see section 902(d) of Pub. L. 108-
357, set out as a note under section 195 of this title.
EFFECTIVE DATE
Section 213(f) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [enacting this
section and amending sections 179, 704, 706, 707, and 761 of this
title] shall apply in the case of partnership taxable years
beginning after December 31, 1975.
"(2) Subsection (e). - The amendment made by subsection (e)
[amending section 704 of this title] shall apply to liabilities
incurred after December 31, 1976.
"(3) Section 709(b) of the code. - Section 709(b) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as added by the
amendment made by subsection (b)(1) of this section) shall apply in
the case of amounts paid or incurred in taxable years beginning
after December 31, 1976."
-End-
-CITE-
26 USC PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND
TRANSFERS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
-HEAD-
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
-MISC1-
Subpart
A. Contributions to a partnership.
B. Distributions by a partnership.
C. Transfers of interests in a partnership.
D. Provisions common to other subparts.
-End-
-CITE-
26 USC Subpart A - Contributions to a Partnership 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart A - Contributions to a Partnership
-HEAD-
SUBPART A - CONTRIBUTIONS TO A PARTNERSHIP
-MISC1-
Sec.
721. Nonrecognition of gain or loss on contribution.
722. Basis of contributing partner's interest.
723. Basis of property contributed to partnership.
724. Character of gain or loss on contributed unrealized
receivables, inventory items, and capital loss
property.
AMENDMENTS
1984 - Pub. L. 98-369, div. A, title I, Sec. 74(c), July 18,
1984, 98 Stat. 593, added item 724.
-End-
-CITE-
26 USC Sec. 721 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart A - Contributions to a Partnership
-HEAD-
Sec. 721. Nonrecognition of gain or loss on contribution
-STATUTE-
(a) General rule
No gain or loss shall be recognized to a partnership or to any of
its partners in the case of a contribution of property to the
partnership in exchange for an interest in the partnership.
(b) Special rule
Subsection (a) shall not apply to gain realized on a transfer of
property to a partnership which would be treated as an investment
company (within the meaning of section 351) if the partnership were
incorporated.
(c) Regulations relating to certain transfers to partnerships
The Secretary may provide by regulations that subsection (a)
shall not apply to gain realized on the transfer of property to a
partnership if such gain, when recognized, will be includible in
the gross income of a person other than a United States person.
(d) Transfers of intangibles
For regulatory authority to treat intangibles transferred to
a partnership as sold, see section 367(d)(3).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 94-455, title XXI,
Sec. 2131(b), Oct. 4, 1976, 90 Stat. 1924; Pub. L. 105-34, title
XI, Sec. 1131(b)(3), (5)(B), Aug. 5, 1997, 111 Stat. 979, 980.)
-COD-
CODIFICATION
Another section 1131(b) of Pub. L. 105-34 enacted section 684 of
this title.
-MISC1-
AMENDMENTS
1997 - Subsec. (c). Pub. L. 105-34, Sec. 1131(b)(3), added
subsec. (c).
Subsec. (d). Pub. L. 105-34, Sec. 1131(b)(5)(B), added subsec.
(d).
1976 - Pub. L. 94-455 designated existing provisions as subsec.
(a), added subsec. (a) heading "General rule", and added subsec.
(b).
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2131(f)(3)-(5) of Pub. L. 94-455 provided that:
"(3) Except as provided in paragraph (4), the amendments made by
subsections (b) and (c) [amending this section and sections 722 and
723 of this title] shall apply to transfers made after February 17,
1976, in taxable years ending after such date.
"(4) The amendments made by subsections (b) and (c) shall not
apply to transfers to a partnership made on or before the 90th day
after the date of the enactment of this Act [Oct. 4, 1976] if -
"(A) either -
"(i) a ruling request with respect to such transfers was
filed with the Internal Revenue Service before March 27, 1976,
or
"(ii) a registration statement with respect to such transfers
was filed with the Securities and Exchange Commission before
March 27, 1976,
"(B) the securities transferred were deposited on or before the
60th day after the date of the enactment of this Act [Oct. 4,
1976], and
"(C) either -
"(i) the aggregate value (determined as of the close of the
60th day referred to in subparagraph (B), or, if earlier, the
close of the deposit period) of the securities so transferred
does not exceed $100,000,000, or
"(ii) the securities transferred were all on deposit on
February 29, 1976, pursuant to a registration statement
referred to in subparagraph (A)(ii).
"(5) If no registration statement was required to be filed with
the Securities and Exchange Commission with respect to the transfer
of securities to any partnership, then paragraph (4) shall be
applied to such transfers -
"(A) as if paragraph (4) did not contain subparagraph (A)(ii)
thereof, and
"(B) by substituting '$25,000,000' for '$100,000,000' in
subparagraph (C)(i) thereof."
-End-
-CITE-
26 USC Sec. 722 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart A - Contributions to a Partnership
-HEAD-
Sec. 722. Basis of contributing partner's interest
-STATUTE-
The basis of an interest in a partnership acquired by a
contribution of property, including money, to the partnership shall
be the amount of such money and the adjusted basis of such property
to the contributing partner at the time of the contribution
increased by the amount (if any) of gain recognized under section
721(b) to the contributing partner at such time.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 94-455, title XXI,
Sec. 2131(c), Oct. 4, 1976, 90 Stat. 1924; Pub. L. 98-369, div. A,
title VII, Sec. 722(f)(1), July 18, 1984, 98 Stat. 974.)
-MISC1-
AMENDMENTS
1984 - Pub. L. 98-369 inserted "under section 721(b)" after "gain
recognized".
1976 - Pub. L. 94-455 inserted "increased by the amount (if any)
of gain recognized to the contributing partner at such time" after
"at the time of the contribution".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 722(f)(2) of Pub. L. 98-369 provided that: "The
amendments made by paragraph (1) [amending this section and section
723 of this title] shall take effect as if included in the
amendments made by section 2131 of the Tax Reform Act of 1976 [Pub.
L. 94-455]."
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment made by Pub. L. 94-455, see
section 2131(f)(3)-(5) of Pub. L. 94-455, set out as a note under
section 721 of this title.
-End-
-CITE-
26 USC Sec. 723 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart A - Contributions to a Partnership
-HEAD-
Sec. 723. Basis of property contributed to partnership
-STATUTE-
The basis of property contributed to a partnership by a partner
shall be the adjusted basis of such property to the contributing
partner at the time of the contribution increased by the amount (if
any) of gain recognized under section 721(b) to the contributing
partner at such time.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 94-455, title XXI,
Sec. 2131(c), Oct. 4, 1976, 90 Stat. 1924; Pub. L. 98-369, div. A,
title VII, Sec. 722(f)(1), July 18, 1984, 98 Stat. 974.)
-MISC1-
AMENDMENTS
1984 - Pub. L. 98-369 inserted "under section 721(b)" after "gain
recognized".
1976 - Pub. L. 94-455 inserted "increased by the amount (if any)
of gain recognized to the contributing partner at such time" after
"at the time of the contribution".
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in
amendments made by section 2131 of the Tax Reform Act of 1976, Pub.
L. 94-455, see section 722(f)(2) of Pub. L. 98-369, set out as a
note under section 722 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment made by Pub. L. 94-455, see
section 2131(f)(3)-(5) of Pub. L. 94-455, set out as a note under
section 721 of this title.
-End-
-CITE-
26 USC Sec. 724 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart A - Contributions to a Partnership
-HEAD-
Sec. 724. Character of gain or loss on contributed unrealized
receivables, inventory items, and capital loss property
-STATUTE-
(a) Contributions of unrealized receivables
In the case of any property which -
(1) was contributed to the partnership by a partner, and
(2) was an unrealized receivable in the hands of such partner
immediately before such contribution,
any gain or loss recognized by the partnership on the disposition
of such property shall be treated as ordinary income or ordinary
loss, as the case may be.
(b) Contributions of inventory items
In the case of any property which -
(1) was contributed to the partnership by a partner, and
(2) was an inventory item in the hands of such partner
immediately before such contribution,
any gain or loss recognized by the partnership on the disposition
of such property during the 5-year period beginning on the date of
such contribution shall be treated as ordinary income or ordinary
loss, as the case may be.
(c) Contributions of capital loss property
In the case of any property which -
(1) was contributed by a partner to the partnership, and
(2) was a capital asset in the hands of such partner
immediately before such contribution,
any loss recognized by the partnership on the disposition of such
property during the 5-year period beginning on the date of such
contribution shall be treated as a loss from the sale of a capital
asset to the extent that, immediately before such contribution, the
adjusted basis of such property in the hands of the partner
exceeded the fair market value of such property.
(d) Definitions
For purposes of this section -
(1) Unrealized receivable
The term "unrealized receivable" has the meaning given such
term by section 751(c) (determined by treating any reference to
the partnership as referring to the partner).
(2) Inventory item
The term "inventory item" has the meaning given such term by
section 751(d) (determined by treating any reference to the
partnership as referring to the partner and by applying section
1231 without regard to any holding period therein provided).
(3) Substituted basis property
(A) In general
If any property described in subsection (a), (b), or (c) is
disposed of in a nonrecognition transaction, the tax treatment
which applies to such property under such subsection shall also
apply to any substituted basis property resulting from such
transaction. A similar rule shall also apply in the case of a
series of non-recognition transactions.
(B) Exception for stock in C corporation
Subparagraph (A) shall not apply to any stock in a C
corporation received in an exchange described in section 351.
-SOURCE-
(Added Pub. L. 98-369, div. A, title I, Sec. 74(a), July 18, 1984,
98 Stat. 592; amended Pub. L. 104-188, title I, Sec. 1704(t)(63),
Aug. 20, 1996, 110 Stat. 1890; Pub. L. 105-34, title X, Sec.
1062(b)(3), Aug. 5, 1997, 111 Stat. 947.)
-MISC1-
AMENDMENTS
1997 - Subsec. (d)(2). Pub. L. 105-34 substituted "section
751(d)" for "section 751(d)(2)".
1996 - Subsec. (d)(3)(B). Pub. L. 104-188 substituted
"Subparagraph" for "Subparagaph".
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1062(c) of Pub. L. 105-34 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 731, 732, 735, and 751 of this title]
shall apply to sales, exchanges, and distributions after the date
of the enactment of this Act [Aug. 5, 1997].
"(2) Binding contracts. - The amendments made by this section
shall not apply to any sale or exchange pursuant to a written
binding contract in effect on June 8, 1997, and at all times
thereafter before such sale or exchange."
EFFECTIVE DATE
Section 74(d)(1) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [enacting this section] shall apply to
property contributed to a partnership after March 31, 1984, in
taxable years ending after such date."
-End-
-CITE-
26 USC Subpart B - Distributions by a Partnership 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart B - Distributions by a Partnership
-HEAD-
SUBPART B - DISTRIBUTIONS BY A PARTNERSHIP
-MISC1-
Sec.
731. Extent of recognition of gain or loss on distribution.
732. Basis of distributed property other than money.
733. Basis of distributee partner's interest.
734. Adjustment to basis of undistributed partnership
property where section 754 election or substantial
basis reduction.
735. Character of gain or loss on disposition of
distributed property.
736. Payments to a retiring partner or a deceased partner's
successor in interest.
737. Recognition of precontribution gain in case of certain
distributions to contributing partner.
AMENDMENTS
2004 - Pub. L. 108-357, title VIII, Sec. 833(c)(5)(B), Oct. 22,
2004, 118 Stat. 1592, substituted "Adjustment to basis of
undistributed partnership property where section 754 election or
substantial basis reduction" for "Optional adjustment to basis of
undistributed partnership property" in item 734.
1992 - Pub. L. 102-486, title XIX, Sec. 1937(b)(3), Oct. 24,
1992, 106 Stat. 3033, added item 737.
-End-
-CITE-
26 USC Sec. 731 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart B - Distributions by a Partnership
-HEAD-
Sec. 731. Extent of recognition of gain or loss on distribution
-STATUTE-
(a) Partners
In the case of a distribution by a partnership to a partner -
(1) gain shall not be recognized to such partner, except to the
extent that any money distributed exceeds the adjusted basis of
such partner's interest in the partnership immediately before the
distribution, and
(2) loss shall not be recognized to such partner, except that
upon a distribution in liquidation of a partner's interest in a
partnership where no property other than that described in
subparagraph (A) or (B) is distributed to such partner, loss
shall be recognized to the extent of the excess of the adjusted
basis of such partner's interest in the partnership over the sum
of -
(A) any money distributed, and
(B) the basis to the distributee, as determined under section
732, of any unrealized receivables (as defined in section
751(c)) and inventory (as defined in section 751(d)).
Any gain or loss recognized under this subsection shall be
considered as gain or loss from the sale or exchange of the
partnership interest of the distributee partner.
(b) Partnerships
No gain or loss shall be recognized to a partnership on a
distribution to a partner of property, including money.
(c) Treatment of marketable securities
(1) In general
For purposes of subsection (a)(1) and section 737 -
(A) the term "money" includes marketable securities, and
(B) such securities shall be taken into account at their fair
market value as of the date of the distribution.
(2) Marketable securities
For purposes of this subsection:
(A) In general
The term "marketable securities" means financial instruments
and foreign currencies which are, as of the date of the
distribution, actively traded (within the meaning of section
1092(d)(1)).
(B) Other property
Such term includes -
(i) any interest in -
(I) a common trust fund, or
(II) a regulated investment company which is offering for
sale or has outstanding any redeemable security (as defined
in section 2(a)(32) of the Investment Company Act of 1940)
of which it is the issuer,
(ii) any financial instrument which, pursuant to its terms
or any other arrangement, is readily convertible into, or
exchangeable for, money or marketable securities,
(iii) any financial instrument the value of which is
determined substantially by reference to marketable
securities,
(iv) except to the extent provided in regulations
prescribed by the Secretary, any interest in a precious metal
which, as of the date of the distribution, is actively traded
(within the meaning of section 1092(d)(1)) unless such metal
was produced, used, or held in the active conduct of a trade
or business by the partnership,
(v) except as otherwise provided in regulations prescribed
by the Secretary, interests in any entity if substantially
all of the assets of such entity consist (directly or
indirectly) of marketable securities, money, or both, and
(vi) to the extent provided in regulations prescribed by
the Secretary, any interest in an entity not described in
clause (v) but only to the extent of the value of such
interest which is attributable to marketable securities,
money, or both.
(C) Financial instrument
The term "financial instrument" includes stocks and other
equity interests, evidences of indebtedness, options, forward
or futures contracts, notional principal contracts, and
derivatives.
(3) Exceptions
(A) In general
Paragraph (1) shall not apply to the distribution from a
partnership of a marketable security to a partner if -
(i) the security was contributed to the partnership by such
partner, except to the extent that the value of the
distributed security is attributable to marketable securities
or money contributed (directly or indirectly) to the entity
to which the distributed security relates,
(ii) to the extent provided in regulations prescribed by
the Secretary, the property was not a marketable security
when acquired by such partnership, or
(iii) such partnership is an investment partnership and
such partner is an eligible partner thereof.
(B) Limitation on gain recognized
In the case of a distribution of marketable securities to a
partner, the amount taken into account under paragraph (1)
shall be reduced (but not below zero) by the excess (if any) of
-
(i) such partner's distributive share of the net gain which
would be recognized if all of the marketable securities of
the same class and issuer as the distributed securities held
by the partnership were sold (immediately before the
transaction to which the distribution relates) by the
partnership for fair market value, over
(ii) such partner's distributive share of the net gain
which is attributable to the marketable securities of the
same class and issuer as the distributed securities held by
the partnership immediately after the transaction, determined
by using the same fair market value as used under clause (i).
Under regulations prescribed by the Secretary, all marketable
securities held by the partnership may be treated as marketable
securities of the same class and issuer as the distributed
securities.
(C) Definitions relating to investment partnerships
For purposes of subparagraph (A)(iii):
(i) Investment partnership
The term "investment partnership" means any partnership
which has never been engaged in a trade or business and
substantially all of the assets (by value) of which have
always consisted of -
(I) money,
(II) stock in a corporation,
(III) notes, bonds, debentures, or other evidences of
indebtedness,
(IV) interest rate, currency, or equity notional
principal contracts,
(V) foreign currencies,
(VI) interests in or derivative financial instruments
(including options, forward or futures contracts, short
positions, and similar financial instruments) in any asset
described in any other subclause of this clause or in any
commodity traded on or subject to the rules of a board of
trade or commodity exchange,
(VII) other assets specified in regulations prescribed by
the Secretary, or
(VIII) any combination of the foregoing.
(ii) Exception for certain activities
A partnership shall not be treated as engaged in a trade or
business by reason of -
(I) any activity undertaken as an investor, trader, or
dealer in any asset described in clause (i), or
(II) any other activity specified in regulations
prescribed by the Secretary.
(iii) Eligible partner
(I) In general
The term "eligible partner" means any partner who, before
the date of the distribution, did not contribute to the
partnership any property other than assets described in
clause (i).
(II) Exception for certain nonrecognition transactions
The term "eligible partner" shall not include the
transferor or transferee in a nonrecognition transaction
involving a transfer of any portion of an interest in a
partnership with respect to which the transferor was not an
eligible partner.
(iv) Look-thru of partnership tiers
Except as otherwise provided in regulations prescribed by
the Secretary -
(I) a partnership shall be treated as engaged in any
trade or business engaged in by, and as holding (instead of
a partnership interest) a proportionate share of the assets
of, any other partnership in which the partnership holds a
partnership interest, and
(II) a partner who contributes to a partnership an
interest in another partnership shall be treated as
contributing a proportionate share of the assets of the
other partnership.
If the preceding sentence does not apply under such
regulations with respect to any interest held by a
partnership in another partnership, the interest in such
other partnership shall be treated as if it were specified in
a subclause of clause (i).
(4) Basis of securities distributed
(A) In general
The basis of marketable securities with respect to which gain
is recognized by reason of this subsection shall be -
(i) their basis determined under section 732, increased by
(ii) the amount of such gain.
(B) Allocation of basis increase
Any increase in basis attributable to the gain described in
subparagraph (A)(ii) shall be allocated to marketable
securities in proportion to their respective amounts of
unrealized appreciation before such increase.
(5) Subsection disregarded in determining basis of partner's
interest in partnership and of basis of partnership property
Sections 733 and 734 shall be applied as if no gain were
recognized, and no adjustment were made to the basis of property,
under this subsection.
(6) Character of gain recognized
In the case of a distribution of a marketable security which is
an unrealized receivable (as defined in section 751(c)) or an
inventory item (as defined in section 751(d)), any gain
recognized under this subsection shall be treated as ordinary
income to the extent of any increase in the basis of such
security attributable to the gain described in paragraph
(4)(A)(ii).
(7) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection, including regulations to prevent the avoidance of
such purposes.
(d) Exceptions
This section shall not apply to the extent otherwise provided by
section 736 (relating to payments to a retiring partner or a
deceased partner's successor in interest), section 751 (relating to
unrealized receivables and inventory items), and section 737
(relating to recognition of precontribution gain in case of certain
distributions).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 245; Pub. L. 102-486, title XIX,
Sec. 1937(b)(2), Oct. 24, 1992, 106 Stat. 3033; Pub. L. 103-465,
title VII, Sec. 741(a), Dec. 8, 1994, 108 Stat. 5006; Pub. L. 105-
34, title X, Sec. 1062(b)(3), Aug. 5, 1997, 111 Stat. 947.)
-REFTEXT-
REFERENCES IN TEXT
Section 2(a)(32) of the Investment Company Act of 1940, referred
to in subsec. (c)(2)(B)(i)(II), is classified to section 80a-
2(a)(32) of Title 15, Commerce and Trade.
-MISC1-
AMENDMENTS
1997 - Subsecs. (a)(2)(B), (c)(6). Pub. L. 105-34 substituted
"section 751(d)" for "section 751(d)(2)".
1994 - Subsecs. (c), (d). Pub. L. 103-465 added subsec. (c) and
redesignated former subsec. (c) as (d).
1992 - Subsec. (c). Pub. L. 102-486 substituted ", section 751"
for "and section 751" and inserted before period at end ", and
section 737 (relating to recognition of precontribution gain in
case of certain distributions)".
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to sales, exchanges, and
distributions after Aug. 5, 1997, but not applicable to any sale or
exchange pursuant to a written binding contract in effect on June
8, 1997, and at all times thereafter before such sale or exchange,
see section 1062(c) of Pub. L. 105-34, set out as a note under
section 724 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Section 741(c) of Pub. L. 103-465 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and section 737 of this title] shall apply to distributions
after the date of the enactment of this Act [Dec. 8, 1994].
"(2) Certain distributions before january 1, 1995. - The
amendments made by this section shall not apply to any marketable
security distributed before January 1, 1995, by the partnership
which held such security on July 27, 1994.
"(3) Distributions in liquidation of partner's interest. - The
amendments made by this section shall not apply to the distribution
of a marketable security in liquidation of a partner's interest in
a partnership if -
"(A) such liquidation is pursuant to a written contract which
was binding on July 15, 1994, and at all times thereafter before
the distribution, and
"(B) such contract provides for the purchase of such interest
not later than a date certain for -
"(i) a fixed value of marketable securities that are
specified in the contract, or
"(ii) other property.
The preceding sentence shall not apply if the partner has the right
to elect that such distribution be made other than in marketable
securities.
"(4) Distributions in complete liquidation of publicly traded
partnerships. -
"(A) In general. - The amendments made by this section shall
not apply to the distribution of a marketable security in a
qualified partnership liquidation if -
"(i) the marketable securities were received by the
partnership in a nonrecognition transaction in exchange for
substantially all of the assets of the partnership,
"(ii) the marketable securities are distributed by the
partnership within 90 days after their receipt by the
partnership, and
"(iii) the partnership is liquidated before the beginning of
the 1st taxable year of the partnership beginning after
December 31, 1997.
"(B) Qualified partnership liquidation. - For purposes of
subparagraph (A), the term 'qualified partnership liquidation'
means -
"(i) a complete liquidation of a publicly traded partnership
(as defined in section 7704(b) of the Internal Revenue Code of
1986) which is an existing partnership (as defined in section
10211(c)(2) of the Revenue Act of 1987 [Pub. L. 100-203, set
out as an Effective Date note under section 7704 of this
title]), and
"(ii) a complete liquidation of a partnership which is
related to a partnership described in clause (i) if such
liquidation is related to a complete liquidation of the
partnership described in clause (i).
"(5) Marketable securities. - For purposes of this subsection,
the term 'marketable securities' has the meaning given such term by
section 731(c) of the Internal Revenue Code of 1986, as added by
this section."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-486 applicable to distributions on or
after June 25, 1992, see section 1937(c) of Pub. L. 102-486, set
out as a note under section 704 of this title.
-End-
-CITE-
26 USC Sec. 732 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart B - Distributions by a Partnership
-HEAD-
Sec. 732. Basis of distributed property other than money
-STATUTE-
(a) Distributions other than in liquidation of a partner's interest
(1) General rule
The basis of property (other than money) distributed by a
partnership to a partner other than in liquidation of the
partner's interest shall, except as provided in paragraph (2), be
its adjusted basis to the partnership immediately before such
distribution.
(2) Limitation
The basis to the distributee partner of property to which
paragraph (1) is applicable shall not exceed the adjusted basis
of such partner's interest in the partnership reduced by any
money distributed in the same transaction.
(b) Distributions in liquidation
The basis of property (other than money) distributed by a
partnership to a partner in liquidation of the partner's interest
shall be an amount equal to the adjusted basis of such partner's
interest in the partnership reduced by any money distributed in the
same transaction.
(c) Allocation of basis
(1) In general
The basis of distributed properties to which subsection (a)(2)
or (b) is applicable shall be allocated -
(A)(i) first to any unrealized receivables (as defined in
section 751(c)) and inventory items (as defined in section
751(d)) in an amount equal to the adjusted basis of each such
property to the partnership, and
(ii) if the basis to be allocated is less than the sum of the
adjusted bases of such properties to the partnership, then, to
the extent any decrease is required in order to have the
adjusted bases of such properties equal the basis to be
allocated, in the manner provided in paragraph (3), and
(B) to the extent of any basis remaining after the allocation
under subparagraph (A), to other distributed properties -
(i) first by assigning to each such other property such
other property's adjusted basis to the partnership, and
(ii) then, to the extent any increase or decrease in basis
is required in order to have the adjusted bases of such other
distributed properties equal such remaining basis, in the
manner provided in paragraph (2) or (3), whichever is
appropriate.
(2) Method of allocating increase
Any increase required under paragraph (1)(B) shall be allocated
among the properties -
(A) first to properties with unrealized appreciation in
proportion to their respective amounts of unrealized
appreciation before such increase (but only to the extent of
each property's unrealized appreciation), and
(B) then, to the extent such increase is not allocated under
subparagraph (A), in proportion to their respective fair market
values.
(3) Method of allocating decrease
Any decrease required under paragraph (1)(A) or (1)(B) shall be
allocated -
(A) first to properties with unrealized depreciation in
proportion to their respective amounts of unrealized
depreciation before such decrease (but only to the extent of
each property's unrealized depreciation), and
(B) then, to the extent such decrease is not allocated under
subparagraph (A), in proportion to their respective adjusted
bases (as adjusted under subparagraph (A)).
(d) Special partnership basis to transferee
For purposes of subsections (a), (b), and (c), a partner who
acquired all or a part of his interest by a transfer with respect
to which the election provided in section 754 is not in effect, and
to whom a distribution of property (other than money) is made with
respect to the transferred interest within 2 years after such
transfer, may elect, under regulations prescribed by the Secretary,
to treat as the adjusted partnership basis of such property the
adjusted basis such property would have if the adjustment provided
in section 743(b) were in effect with respect to the partnership
property. The Secretary may by regulations require the application
of this subsection in the case of a distribution to a transferee
partner, whether or not made within 2 years after the transfer, if
at the time of the transfer the fair market value of the
partnership property (other than money) exceeded 110 percent of its
adjusted basis to the partnership.
(e) Exception
This section shall not apply to the extent that a distribution is
treated as a sale or exchange of property under section 751(b)
(relating to unrealized receivables and inventory items).
(f) Corresponding adjustment to basis of assets of a distributed
corporation controlled by a corporate partner
(1) In general
If -
(A) a corporation (hereafter in this subsection referred to
as the "corporate partner") receives a distribution from a
partnership of stock in another corporation (hereafter in this
subsection referred to as the "distributed corporation"),
(B) the corporate partner has control of the distributed
corporation immediately after the distribution or at any time
thereafter, and
(C) the partnership's adjusted basis in such stock
immediately before the distribution exceeded the corporate
partner's adjusted basis in such stock immediately after the
distribution,
then an amount equal to such excess shall be applied to reduce
(in accordance with subsection (c)) the basis of property held by
the distributed corporation at such time (or, if the corporate
partner does not control the distributed corporation at such
time, at the time the corporate partner first has such control).
(2) Exception for certain distributions before control acquired
Paragraph (1) shall not apply to any distribution of stock in
the distributed corporation if -
(A) the corporate partner does not have control of such
corporation immediately after such distribution, and
(B) the corporate partner establishes to the satisfaction of
the Secretary that such distribution was not part of a plan or
arrangement to acquire control of the distributed corporation.
(3) Limitations on basis reduction
(A) In general
The amount of the reduction under paragraph (1) shall not
exceed the amount by which the sum of the aggregate adjusted
bases of the property and the amount of money of the
distributed corporation exceeds the corporate partner's
adjusted basis in the stock of the distributed corporation.
(B) Reduction not to exceed adjusted basis of property
No reduction under paragraph (1) in the basis of any property
shall exceed the adjusted basis of such property (determined
without regard to such reduction).
(4) Gain recognition where reduction limited
If the amount of any reduction under paragraph (1) (determined
after the application of paragraph (3)(A)) exceeds the aggregate
adjusted bases of the property of the distributed corporation -
(A) such excess shall be recognized by the corporate partner
as long-term capital gain, and
(B) the corporate partner's adjusted basis in the stock of
the distributed corporation shall be increased by such excess.
(5) Control
For purposes of this subsection, the term "control" means
ownership of stock meeting the requirements of section
1504(a)(2).
(6) Indirect distributions
For purposes of paragraph (1), if a corporation acquires (other
than in a distribution from a partnership) stock the basis of
which is determined (by reason of being distributed from a
partnership) in whole or in part by reference to subsection
(a)(2) or (b), the corporation shall be treated as receiving a
distribution of such stock from a partnership.
(7) Special rule for stock in controlled corporation
If the property held by a distributed corporation is stock in a
corporation which the distributed corporation controls, this
subsection shall be applied to reduce the basis of the property
of such controlled corporation. This subsection shall be
reapplied to any property of any controlled corporation which is
stock in a corporation which it controls.
(8) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection, including
regulations to avoid double counting and to prevent the abuse of
such purposes.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 246; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 105-34,
title X, Secs. 1061(a), 1062(b)(3), Aug. 5, 1997, 111 Stat. 945,
947; Pub. L. 106-170, title V, Sec. 538(a), Dec. 17, 1999, 113
Stat. 1939.)
-MISC1-
AMENDMENTS
1999 - Subsec. (f). Pub. L. 106-170 added subsec. (f).
1997 - Subsec. (c). Pub. L. 105-34, Sec. 1061(a), amended heading
and text of subsec. (c) generally. Prior to amendment, text read as
follows: "The basis of distributed properties to which subsection
(a)(2) or subsection (b) is applicable shall be allocated -
"(1) first to any unrealized receivables (as defined in section
751(c)) and inventory items (as defined in section 751(d)(2)) in
an amount equal to the adjusted basis of each such property to
the partnership (or if the basis to be allocated is less than the
sum of the adjusted bases of such properties to the partnership,
in proportion to such bases), and
"(2) to the extent of any remaining basis, to any other
distributed properties in proportion to their adjusted bases to
the partnership."
Subsec. (c)(1)(A)(i). Pub. L. 105-34, Sec. 1062(b)(3),
substituted "section 751(d)" for "section 751(d)(2)".
1976 - Subsec. (d). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 538(b), Dec. 17, 1999, 113 Stat.
1940, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by this section [amending this section] shall apply
to distributions made after July 14, 1999.
"(2) Partnerships in existence on July 14, 1999. - In the case of
a corporation which is a partner in a partnership as of July 14,
1999, the amendment made by this section shall apply to any
distribution made (or treated as made) to such partner from such
partnership after June 30, 2001, except that this paragraph shall
not apply to any distribution after the date of the enactment of
this Act [Dec. 17, 1999] unless the partner makes an election to
have this paragraph apply to such distribution on the partner's
return of Federal income tax for the taxable year in which such
distribution occurs."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1061(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
distributions after the date of the enactment of this Act [Aug. 5,
1997]."
Amendment by section 1062(b)(3) of Pub. L. 105-34 applicable to
sales, exchanges, and distributions after Aug. 5, 1997, but not
applicable to any sale or exchange pursuant to a written binding
contract in effect on June 8, 1997, and at all times thereafter
before such sale or exchange, see section 1062(c) of Pub. L. 105-
34, set out as a note under section 724 of this title.
-End-
-CITE-
26 USC Sec. 733 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart B - Distributions by a Partnership
-HEAD-
Sec. 733. Basis of distributee partner's interest
-STATUTE-
In the case of a distribution by a partnership to a partner other
than in liquidation of a partner's interest, the adjusted basis to
such partner of his interest in the partnership shall be reduced
(but not below zero) by -
(1) the amount of any money distributed to such partner, and
(2) the amount of the basis to such partner of distributed
property other than money, as determined under section 732.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 247.)
-End-
-CITE-
26 USC Sec. 734 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart B - Distributions by a Partnership
-HEAD-
Sec. 734. Adjustment to basis of undistributed partnership property
where section 754 election or substantial basis reduction
-STATUTE-
(a) General rule
The basis of partnership property shall not be adjusted as the
result of a distribution of property to a partner unless the
election, provided in section 754 (relating to optional adjustment
to basis of partnership property), is in effect with respect to
such partnership or unless there is a substantial basis reduction
with respect to such distribution.
(b) Method of adjustment
In the case of a distribution of property to a partner by a
partnership with respect to which the election provided in section
754 is in effect or with respect to which there is a substantial
basis reduction, the partnership shall -
(1) increase the adjusted basis of partnership property by -
(A) the amount of any gain recognized to the distributee
partner with respect to such distribution under section
731(a)(1), and
(B) in the case of distributed property to which section
732(a)(2) or (b) applies, the excess of the adjusted basis of
the distributed property to the partnership immediately before
the distribution (as adjusted by section 732(d)) over the basis
of the distributed property to the distributee, as determined
under section 732, or
(2) decrease the adjusted basis of partnership property by -
(A) the amount of any loss recognized to the distributee
partner with respect to such distribution under section
731(a)(2), and
(B) in the case of distributed property to which section
732(b) applies, the excess of the basis of the distributed
property to the distributee, as determined under section 732,
over the adjusted basis of the distributed property to the
partnership immediately before such distribution (as adjusted
by section 732(d)).
Paragraph (1)(B) shall not apply to any distributed property which
is an interest in another partnership with respect to which the
election provided in section 754 is not in effect.
(c) Allocation of basis
The allocation of basis among partnership properties where
subsection (b) is applicable shall be made in accordance with the
rules provided in section 755.
(d) Substantial basis reduction
(1) In general
For purposes of this section, there is a substantial basis
reduction with respect to a distribution if the sum of the
amounts described in subparagraphs (A) and (B) of subsection
(b)(2) exceeds $250,000.
(2) Regulations
For regulations to carry out this subsection, see section
743(d)(2).
(e) Exception for securitization partnerships
For purposes of this section, a securitization partnership (as
defined in section 743(f)) shall not be treated as having a
substantial basis reduction with respect to any distribution of
property to a partner.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 247; Pub. L. 98-369, div. A,
title I, Sec. 78(a), July 18, 1984, 98 Stat. 597; Pub. L. 108-357,
title VIII, Sec. 833(c)(1)-(5)(A), Oct. 22, 2004, 118 Stat. 1591,
1592; Pub. L. 109-135, title IV, Sec. 403(bb), Dec. 21, 2005, 119
Stat. 2630.)
-MISC1-
AMENDMENTS
2005 - Subsec. (a). Pub. L. 109-135, Sec. 403(bb)(1), inserted
"with respect to such distribution" before period at end.
Subsec. (b). Pub. L. 109-135, Sec. 403(bb)(2), reenacted heading
without change and amended introductory provisions generally. Prior
to amendment, introductory provisions read as follows: "In the case
of a distribution of property to a partner, a partnership, with
respect to which the election provided in section 754 is in effect
or unless there is a substantial basis reduction, shall - ".
2004 - Pub. L. 108-357, Sec. 833(c)(5)(A), substituted
"Adjustment to basis of undistributed partnership property where
section 754 election or substantial basis reduction" for "Optional
adjustment to basis of undistributed partnership property" in
section catchline.
Subsec. (a). Pub. L. 108-357, Sec. 833(c)(1), inserted "or unless
there is a substantial basis reduction" before period at end.
Subsec. (b). Pub. L. 108-357, Sec. 833(c)(2), inserted "or unless
there is a substantial basis reduction" after "section 754 is in
effect" in introductory provisions.
Subsec. (d). Pub. L. 108-357, Sec. 833(c)(3), added subsec. (d).
Subsec. (e). Pub. L. 108-357, Sec. 833(c)(4), added subsec. (e).
1984 - Subsec. (b). Pub. L. 98-369 inserted at end "Paragraph
(1)(B) shall not apply to any distributed property which is an
interest in another partnership with respect to which the election
provided in section 754 is not in effect."
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 833(d)(3), Oct. 22, 2004, 118
Stat. 1592, provided that: "The amendments made by subsection (c)
[amending this section] shall apply to distributions after the date
of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 78(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
distributions after March 1, 1984, in taxable years ending after
such date."
-End-
-CITE-
26 USC Sec. 735 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart B - Distributions by a Partnership
-HEAD-
Sec. 735. Character of gain or loss on disposition of distributed
property
-STATUTE-
(a) Sale or exchange of certain distributed property
(1) Unrealized receivables
Gain or loss on the disposition by a distributee partner of
unrealized receivables (as defined in section 751(c)) distributed
by a partnership, shall be considered as ordinary income or as
ordinary loss, as the case may be.
(2) Inventory items
Gain or loss on the sale or exchange by a distributee partner
of inventory items (as defined in section 751(d)) distributed by
a partnership shall, if sold or exchanged within 5 years from the
date of the distribution, be considered as ordinary income or as
ordinary loss, as the case may be.
(b) Holding period for distributed property
In determining the period for which a partner has held property
received in a distribution from a partnership (other than for
purposes of subsection (a)(2)), there shall be included the holding
period of the partnership, as determined under section 1223, with
respect to such property.
(c) Special rules
(1) Waiver of holding periods contained in section 1231
For purposes of this section, section 751(d) (defining
inventory item) shall be applied without regard to any holding
period in section 1231(b).
(2) Substituted basis property
(A) In general
If any property described in subsection (a) is disposed of in
a nonrecognition transaction, the tax treatment which applies
to such property under such subsection shall also apply to any
substituted basis property resulting from such transaction. A
similar rule shall also apply in the case of a series of
nonrecognition transactions.
(B) Exception for stock in C corporation
Subparagraph (A) shall not apply to any stock in a C
corporation received in an exchange described in section 351.
-SOURCE-
(Aug. 16, 1954, ch. 763, 68A Stat. 247; Pub. L. 94-455, title XIX,
Sec. 1901(b)(3)(D), Oct. 4, 1976, 90 Stat. 1792; Pub. L. 98-369,
div. A, title I, Sec. 74(b), July 18, 1984, 98 Stat. 593; Pub. L.
105-34, title X, Sec. 1062(b)(3), Aug. 5, 1997, 111 Stat. 947.)
-MISC1-
AMENDMENTS
1997 - Subsecs. (a)(2), (c)(1). Pub. L. 105-34 substituted
"section 751(d)" for "section 751(d)(2)".
1984 - Subsec. (c). Pub. L. 98-369 added subsec. (c).
1976 - Subsec. (a)(1), (2). Pub. L. 94-455 substituted "as
ordinary income or as ordinary loss, as the case may be" for "gain
or loss from the sale or exchange of property other than a capital
asset".
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to sales, exchanges, and
distributions after Aug. 5, 1997, but not applicable to any sale or
exchange pursuant to a written binding contract in effect on June
8, 1997, and at all times thereafter before such sale or exchange,
see section 1062(c) of Pub. L. 105-34, set out as a note under
section 724 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 74(d)(2) of Pub. L. 98-369 provided that: "The amendment
made by subsection (b) [amending this section] shall apply to
property distributed after March 31, 1984, in taxable years ending
after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 effective for taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
-End-
-CITE-
26 USC Sec. 736 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart B - Distributions by a Partnership
-HEAD-
Sec. 736. Payments to a retiring partner or a deceased partner's
successor in interest
-STATUTE-
(a) Payments considered as distributive share or guaranteed payment
Payments made in liquidation of the interest of a retiring
partner or a deceased partner shall, except as provided in
subsection (b), be considered -
(1) as a distributive share to the recipient of partnership
income if the amount thereof is determined with regard to the
income of the partnership, or
(2) as a guaranteed payment described in section 707(c) if the
amount thereof is determined without regard to the income of the
partnership.
(b) Payments for interest in partnership
(1) General rule
Payments made in liquidation of the interest of a retiring
partner or a deceased partner shall, to the extent such payments
(other than payments described in paragraph (2)) are determined,
under regulations prescribed by the Secretary, to be made in
exchange for the interest of such partner in partnership
property, be considered as a distribution by the partnership and
not as a distributive share or guaranteed payment under
subsection (a).
(2) Special rules
For purposes of this subsection, payments in exchange for an
interest in partnership property shall not include amounts paid
for -
(A) unrealized receivables of the partnership (as defined in
section 751(c)), or
(B) good will of the partnership, except to the extent that
the partnership agreement provides for a payment with respect
to good will.
(3) Limitation on application of paragraph (2)
Paragraph (2) shall apply only if -
(A) capital is not a material income-producing factor for the
partnership, and
(B) the retiring or deceased partner was a general partner in
the partnership.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 248; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-600,
title VII, Sec. 701(u)(13)(B), Nov. 6, 1978, 92 Stat. 2918; Pub. L.
103-66, title XIII, Sec. 13262(a), (b)(2)(B), Aug. 10, 1993, 107
Stat. 541.)
-MISC1-
AMENDMENTS
1993 - Subsec. (b)(3). Pub. L. 103-66, Sec. 13262(a), added par.
(3).
Subsec. (c). Pub. L. 103-66, Sec. 13262(b)(2)(B), struck out
heading and text of subsec. (c). Text read as follows: "For
limitation on the tax attributable to certain gain connected with
section 1248 stock, see section 751(e)."
1978 - Subsec. (c). Pub. L. 95-600 added subsec. (c).
1976 - Subsec. (b)(1). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13262(c) of Pub. L. 103-66 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 751 of this title] shall apply in the case
of partners retiring or dying on or after January 5, 1993.
"(2) Binding contract exception. - The amendments made by this
section shall not apply to any partner retiring on or after January
5, 1993, if a written contract to purchase such partner's interest
in the partnership was binding on January 4, 1993, and at all times
thereafter before such purchase."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to transfers beginning
after Oct. 9, 1975, and to sales, exchanges, and distributions
taking place after Oct. 9, 1975, see section 701(u)(13)(C) of Pub.
L. 95-600, set out as a note under section 751 of this title.
-End-
-CITE-
26 USC Sec. 737 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart B - Distributions by a Partnership
-HEAD-
Sec. 737. Recognition of precontribution gain in case of certain
distributions to contributing partner
-STATUTE-
(a) General rule
In the case of any distribution by a partnership to a partner,
such partner shall be treated as recognizing gain in an amount
equal to the lesser of -
(1) the excess (if any) of (A) the fair market value of
property (other than money) received in the distribution over (B)
the adjusted basis of such partner's interest in the partnership
immediately before the distribution reduced (but not below zero)
by the amount of money received in the distribution, or
(2) the net precontribution gain of the partner.
Gain recognized under the preceding sentence shall be in addition
to any gain recognized under section 731. The character of such
gain shall be determined by reference to the proportionate
character of the net precontribution gain.
(b) Net precontribution gain
For purposes of this section, the term "net precontribution gain"
means the net gain (if any) which would have been recognized by the
distributee partner under section 704(c)(1)(B) if all property
which -
(1) had been contributed to the partnership by the distributee
partner within 7 years of the distribution, and
(2) is held by such partnership immediately before the
distribution,
had been distributed by such partnership to another partner.
(c) Basis rules
(1) Partner's interest
The adjusted basis of a partner's interest in a partnership
shall be increased by the amount of any gain recognized by such
partner under subsection (a). For purposes of determining the
basis of the distributed property (other than money), such
increase shall be treated as occurring immediately before the
distribution.
(2) Partnership's basis in contributed property
Appropriate adjustments shall be made to the adjusted basis of
the partnership in the contributed property referred to in
subsection (b) to reflect gain recognized under subsection (a).
(d) Exceptions
(1) Distributions of previously contributed property
If any portion of the property distributed consists of property
which had been contributed by the distributee partner to the
partnership, such property shall not be taken into account under
subsection (a)(1) and shall not be taken into account in
determining the amount of the net precontribution gain. If the
property distributed consists of an interest in an entity, the
preceding sentence shall not apply to the extent that the value
of such interest is attributable to property contributed to such
entity after such interest had been contributed to the
partnership.
(2) Coordination with section 751
This section shall not apply to the extent section 751(b)
applies to such distribution.
(e) Marketable securities treated as money
For treatment of marketable securities as money for purposes
of this section, see section 731(c).
-SOURCE-
(Added Pub. L. 102-486, title XIX, Sec. 1937(a), Oct. 24, 1992, 106
Stat. 3032; amended Pub. L. 103-465, title VII, Sec. 741(b), Dec.
8, 1994, 108 Stat. 5009; Pub. L. 104-188, title I, Sec. 1704(j)(8),
Aug. 20, 1996, 110 Stat. 1882; Pub. L. 105-34, title X, Sec.
1063(a), Aug. 5, 1997, 111 Stat. 947.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(1). Pub. L. 105-34 substituted "7 years" for
"5 years".
1996 - Pub. L. 104-188 provided that section 1937(a) of Pub. L.
102-486, shall be applied as if "Subpart B" appeared instead of
"Subpart C". Section 1937(a) of Pub. L. 102-486 directed amendment
of subpart C of this part by adding this section at the end
thereof.
1994 - Subsec. (c)(1). Pub. L. 103-465, Sec. 741(b)(1), amended
last sentence generally. Prior to amendment, last sentence read as
follows: "Except for purposes of determining the amount recognized
under subsection (a), such increase shall be treated as occurring
immediately before the distribution."
Subsec. (e). Pub. L. 103-465, Sec. 741(b)(2), added subsec. (e).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to property contributed to
a partnership after June 8, 1997, but not applicable to any
property contributed pursuant to a written binding contract in
effect on June 8, 1997, and at all times thereafter before such
contribution if such contract provides for the contribution of a
fixed amount of property, see section 1063(b) of Pub. L. 105-34,
set out as a note under section 704 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-465 applicable to distributions after
Dec. 8, 1994, and not applicable to certain distributions before
Jan. 1, 1995, distributions in liquidation of partner's interest,
or distributions in complete liquidation of publicly traded
partnerships, see section 741(c) of Pub. L. 103-465, set out as a
note under section 731 of this title.
EFFECTIVE DATE
Section applicable to distributions on or after June 25, 1992,
see section 1937(c) of Pub. L. 102-486, set out as an Effective
Date of 1992 Amendment note under section 704 of this title.
-End-
-CITE-
26 USC Subpart C - Transfers of Interests in a
Partnership 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart C - Transfers of Interests in a Partnership
-HEAD-
SUBPART C - TRANSFERS OF INTERESTS IN A PARTNERSHIP
-MISC1-
Sec.
741. Recognition and character of gain or loss on sale or
exchange.
742. Basis of transferee partner's interest.
743. Special rules where section 754 election or
substantial built-in loss.
AMENDMENTS
2004 - Pub. L. 108-357, title VIII, Sec. 833(b)(6)(B), Oct. 22,
2004, 118 Stat. 1591, substituted "Special rules where section 754
election or substantial built-in loss" for "Optional adjustment to
basis of partnership property" in item 743.
-End-
-CITE-
26 USC Sec. 741 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart C - Transfers of Interests in a Partnership
-HEAD-
Sec. 741. Recognition and character of gain or loss on sale or
exchange
-STATUTE-
In the case of a sale or exchange of an interest in a
partnership, gain or loss shall be recognized to the transferor
partner. Such gain or loss shall be considered as gain or loss from
the sale or exchange of a capital asset, except as otherwise
provided in section 751 (relating to unrealized receivables and
inventory items).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 248; Pub. L. 107-147, title IV,
Sec. 417(12), Mar. 9, 2002, 116 Stat. 56.)
-MISC1-
AMENDMENTS
2002 - Pub. L. 107-147 struck out "which have appreciated
substantially in value" after "inventory items".
-End-
-CITE-
26 USC Sec. 742 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart C - Transfers of Interests in a Partnership
-HEAD-
Sec. 742. Basis of transferee partner's interest
-STATUTE-
The basis of an interest in a partnership acquired other than by
contribution shall be determined under part II of subchapter O
(sec. 1011 and following).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 249.)
-End-
-CITE-
26 USC Sec. 743 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart C - Transfers of Interests in a Partnership
-HEAD-
Sec. 743. Special rules where section 754 election or substantial
built-in loss
-STATUTE-
(a) General rule
The basis of partnership property shall not be adjusted as the
result of a transfer of an interest in a partnership by sale or
exchange or on the death of a partner unless the election provided
by section 754 (relating to optional adjustment to basis of
partnership property) is in effect with respect to such partnership
or unless the partnership has a substantial built-in loss
immediately after such transfer.
(b) Adjustment to basis of partnership property
In the case of a transfer of an interest in a partnership by sale
or exchange or upon the death of a partner, a partnership with
respect to which the election provided in section 754 is in effect
or which has a substantial built-in loss immediately after such
transfer shall -
(1) increase the adjusted basis of the partnership property by
the excess of the basis to the transferee partner of his interest
in the partnership over his proportionate share of the adjusted
basis of the partnership property, or
(2) decrease the adjusted basis of the partnership property by
the excess of the transferee partner's proportionate share of the
adjusted basis of the partnership property over the basis of his
interest in the partnership.
Under regulations prescribed by the Secretary, such increase or
decrease shall constitute an adjustment to the basis of partnership
property with respect to the transferee partner only. A partner's
proportionate share of the adjusted basis of partnership property
shall be determined in accordance with his interest in partnership
capital and, in the case of property contributed to the partnership
by a partner, section 704(c) (relating to contributed property)
shall apply in determining such share. In the case of an adjustment
under this subsection to the basis of partnership property subject
to depletion, any depletion allowable shall be determined
separately for the transferee partner with respect to his interest
in such property.
(c) Allocation of basis
The allocation of basis among partnership properties where
subsection (b) is applicable shall be made in accordance with the
rules provided in section 755.
(d) Substantial built-in loss
(1) In general
For purposes of this section, a partnership has a substantial
built-in loss with respect to a transfer of an interest in a
partnership if the partnership's adjusted basis in the
partnership property exceeds by more than $250,000 the fair
market value of such property.
(2) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of paragraph (1) and
section 734(d), including regulations aggregating related
partnerships and disregarding property acquired by the
partnership in an attempt to avoid such purposes.
(e) Alternative rules for electing investment partnerships
(1) No adjustment of partnership basis
For purposes of this section, an electing investment
partnership shall not be treated as having a substantial built-in
loss with respect to any transfer occurring while the election
under paragraph (6)(A) is in effect.
(2) Loss deferral for transferee partner
In the case of a transfer of an interest in an electing
investment partnership, the transferee partner's distributive
share of losses (without regard to gains) from the sale or
exchange of partnership property shall not be allowed except to
the extent that it is established that such losses exceed the
loss (if any) recognized by the transferor (or any prior
transferor to the extent not fully offset by a prior disallowance
under this paragraph) on the transfer of the partnership
interest.
(3) No reduction in partnership basis
Losses disallowed under paragraph (2) shall not decrease the
transferee partner's basis in the partnership interest.
(4) Effect of termination of partnership
This subsection shall be applied without regard to any
termination of a partnership under section 708(b)(1)(B).
(5) Certain basis reductions treated as losses
In the case of a transferee partner whose basis in property
distributed by the partnership is reduced under section
732(a)(2), the amount of the loss recognized by the transferor on
the transfer of the partnership interest which is taken into
account under paragraph (2) shall be reduced by the amount of
such basis reduction.
(6) Electing investment partnership
For purposes of this subsection, the term "electing investment
partnership" means any partnership if -
(A) the partnership makes an election to have this subsection
apply,
(B) the partnership would be an investment company under
section 3(a)(1)(A) of the Investment Company Act of 1940 but
for an exemption under paragraph (1) or (7) of section 3(c) of
such Act,
(C) such partnership has never been engaged in a trade or
business,
(D) substantially all of the assets of such partnership are
held for investment,
(E) at least 95 percent of the assets contributed to such
partnership consist of money,
(F) no assets contributed to such partnership had an adjusted
basis in excess of fair market value at the time of
contribution,
(G) all partnership interests of such partnership are issued
by such partnership pursuant to a private offering before the
date which is 24 months after the date of the first capital
contribution to such partnership,
(H) the partnership agreement of such partnership has
substantive restrictions on each partner's ability to cause a
redemption of the partner's interest, and
(I) the partnership agreement of such partnership provides
for a term that is not in excess of 15 years.
The election described in subparagraph (A), once made, shall be
irrevocable except with the consent of the Secretary.
(7) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this subsection,
including regulations for applying this subsection to tiered
partnerships.
(f) Exception for securitization partnerships
(1) No adjustment of partnership basis
For purposes of this section, a securitization partnership
shall not be treated as having a substantial built-in loss with
respect to any transfer.
(2) Securitization partnership
For purposes of paragraph (1), the term "securitization
partnership" means any partnership the sole business activity of
which is to issue securities which provide for a fixed principal
(or similar) amount and which are primarily serviced by the cash
flows of a discrete pool (either fixed or revolving) of
receivables or other financial assets that by their terms convert
into cash in a finite period, but only if the sponsor of the pool
reasonably believes that the receivables and other financial
assets comprising the pool are not acquired so as to be disposed
of.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 249; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369,
div. A, title I, Sec. 71(b), July 18, 1984, 98 Stat. 589; Pub. L.
108-357, title VIII, Sec. 833(b)(1)-(4)(A), (5), (6)(A), Oct. 22,
2004, 118 Stat. 1589, 1591.)
-REFTEXT-
REFERENCES IN TEXT
Section 3(a)(1)(A), (c)(1), (7) of the Investment Company Act of
1940, referred to in subsec. (e)(6)(B), is classified to section
80a-3(a)(1)(A), (c)(1), (7) of Title 15, Commerce and Trade.
-MISC1-
AMENDMENTS
2004 - Pub. L. 108-357, Sec. 833(b)(6)(A), substituted "Special
rules where section 754 election or substantial built-in loss" for
"Optional adjustment to basis of partnership property" in section
catchline.
Subsec. (a). Pub. L. 108-357, Sec. 833(b)(1), inserted "or unless
the partnership has a substantial built-in loss immediately after
such transfer" before period at end.
Subsec. (b). Pub. L. 108-357, Sec. 833(b)(2), inserted "or which
has a substantial built-in loss immediately after such transfer"
after "section 754 is in effect" in introductory provisions.
Subsec. (d). Pub. L. 108-357, Sec. 833(b)(3), added subsec. (d).
Subsec. (e). Pub. L. 108-357, Sec. 833(b)(4)(A), added subsec.
(e).
Subsec. (f). Pub. L. 108-357, Sec. 833(b)(5), added subsec. (f).
1984 - Subsec. (b). Pub. L. 98-369 substituted "property
contributed to the partnership by a partner, section 704(c)
(relating to contributed property) shall apply in determining such
share" for "an agreement described in section 704(c)(2) (relating
to effect of partnership agreement on contributed property), such
share shall be determined by taking such agreement into account" in
penultimate sentence.
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 833(d)(2), Oct. 22, 2004, 118
Stat. 1592, provided that:
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by subsection (b) [amending this section and
section 6031 of this title] shall apply to transfers after the date
of the enactment of this Act [Oct. 22, 2004].
"(B) Transition rule. - In the case of an electing investment
partnership which is in existence on June 4, 2004, section
743(e)(6)(H) of the Internal Revenue Code of 1986, as added by this
section, shall not apply to such partnership and section
743(e)(6)(I) of such Code, as so added, shall be applied by
substituting '20 years' for '15 years'."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable with respect to property
contributed to the partnership after Mar. 31, 1984, in taxable
years ending after such date, see section 71(c) of Pub. L. 98-369,
set out as a note under section 704 of this title.
-End-
-CITE-
26 USC Subpart D - Provisions Common to Other Subparts 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart D - Provisions Common to Other Subparts
-HEAD-
SUBPART D - PROVISIONS COMMON TO OTHER SUBPARTS
-MISC1-
Sec.
751. Unrealized receivables and inventory items.
752. Treatment of certain liabilities.
753. Partner receiving income in respect of decedent.
754. Manner of electing optional adjustment to basis of
partnership property.
755. Rules for allocation of basis.
-End-
-CITE-
26 USC Sec. 751 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart D - Provisions Common to Other Subparts
-HEAD-
Sec. 751. Unrealized receivables and inventory items
-STATUTE-
(a) Sale or exchange of interest in partnership
The amount of any money, or the fair market value of any
property, received by a transferor partner in exchange for all or a
part of his interest in the partnership attributable to -
(1) unrealized receivables of the partnership, or
(2) inventory items of the partnership,
shall be considered as an amount realized from the sale or exchange
of property other than a capital asset.
(b) Certain distributions treated as sales or exchanges
(1) General rule
To the extent a partner receives in a distribution -
(A) partnership property which is -
(i) unrealized receivables, or
(ii) inventory items which have appreciated substantially
in value,
in exchange for all or a part of his interest in other
partnership property (including money), or
(B) partnership property (including money) other than
property described in subparagraph (A)(i) or (ii) in exchange
for all or a part of his interest in partnership property
described in subparagraph (A)(i) or (ii),
such transactions shall, under regulations prescribed by the
Secretary, be considered as a sale or exchange of such property
between the distributee and the partnership (as constituted after
the distribution).
(2) Exceptions
Paragraph (1) shall not apply to -
(A) a distribution of property which the distributee
contributed to the partnership, or
(B) payments, described in section 736(a), to a retiring
partner or successor in interest of a deceased partner.
(3) Substantial appreciation
For purposes of paragraph (1) -
(A) In general
Inventory items of the partnership shall be considered to
have appreciated substantially in value if their fair market
value exceeds 120 percent of the adjusted basis to the
partnership of such property.
(B) Certain property excluded
For purposes of subparagraph (A), there shall be excluded any
inventory property if a principal purpose for acquiring such
property was to avoid the provisions of this subsection
relating to inventory items.
(c) Unrealized receivables
For purposes of this subchapter, the term "unrealized
receivables" includes, to the extent not previously includible in
income under the method of accounting used by the partnership, any
rights (contractual or otherwise) to payment for -
(1) goods delivered, or to be delivered, to the extent the
proceeds therefrom would be treated as amounts received from the
sale or exchange of property other than a capital asset, or
(2) services rendered, or to be rendered.
For purposes of this section and,(!1) sections 731, 732, and 741
(but not for purposes of section 736), such term also includes
mining property (as defined in section 617(f)(2)), stock in a DISC
(as described in section 992(a)), section 1245 property (as defined
in section 1245(a)(3)), stock in certain foreign corporations (as
described in section 1248), section 1250 property (as defined in
section 1250(c)), farm land (as defined in section 1252(a)),
franchises, trademarks, or trade names (referred to in section
1253(a)), and an oil, gas, or geothermal property (described in
section 1254) but only to the extent of the amount which would be
treated as gain to which section 617(d)(1), 995(c), 1245(a),
1248(a), 1250(a), 1252(a), 1253(a), or 1254(a) would apply if (at
the time of the transaction described in this section or section
731, 732, or 741, as the case may be) such property had been sold
by the partnership at its fair market value. For purposes of this
section and,(!1) sections 731, 732, and 741 (but not for purposes
of section 736), such term also includes any market discount bond
(as defined in section 1278) and any short-term obligation (as
defined in section 1283) but only to the extent of the amount which
would be treated as ordinary income if (at the time of the
transaction described in this section or section 731, 732, or 741,
as the case may be) such property had been sold by the partnership.
(d) Inventory items
For purposes of this subchapter, the term "inventory items" means
-
(1) property of the partnership of the kind described in
section 1221(a)(1),
(2) any other property of the partnership which, on sale or
exchange by the partnership, would be considered property other
than a capital asset and other than property described in section
1231, and
(3) any other property held by the partnership which, if held
by the selling or distributee partner, would be considered
property of the type described in paragraph (1) or (2).
(e) Limitation on tax attributable to deemed sales of section 1248
stock
For purposes of applying this section and sections 731 and 741 to
any amount resulting from the reference to section 1248(a) in the
second sentence of subsection (c), in the case of an individual,
the tax attributable to such amount shall be limited in the manner
provided by subsection (b) of section 1248 (relating to gain from
certain sales or exchanges of stock in certain foreign
corporation).
(f) Special rules in the case of tiered partnerships, etc.
In determining whether property of a partnership is -
(1) an unrealized receivable, or
(2) an inventory item,
such partnership shall be treated as owning its proportionate share
of the property of any other partnership in which it is a partner.
Under regulations, rules similar to the rules of the preceding
sentence shall also apply in the case of interests in trusts.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 250; Pub. L. 87-834, Secs.
13(f)(1), 14(b)(2), Oct. 16, 1962, 76 Stat. 1035, 1041; Pub. L. 88-
272, title II, Sec. 231(b)(6), Feb. 26, 1964, 78 Stat. 105; Pub.
L. 89-570, Sec. 1(c), Sept. 12, 1966, 80 Stat. 762; Pub. L. 91-172,
title II, Sec. 211(b)(6), Dec. 30, 1969, 83 Stat. 570; Pub. L. 94-
455, title II, Sec. 205(b), title X, Sec. 1042(c)(2), title XI,
Sec. 1101(d)(2), title XIX, Secs. 1901(a)(93), 1906(b)(13)(A),
title XXI, Sec. 2110(a), Oct. 4, 1976, 90 Stat. 1535, 1637, 1658,
1780, 1834, 1905; Pub. L. 95-600, title VII, Sec. 701(u)(13)(A),
Nov. 6, 1978, 92 Stat. 2918; Pub. L. 95-618, title IV, Sec.
402(c)(5), Nov. 9, 1978, 92 Stat. 3202; Pub. L. 97-448, title I,
Sec. 102(a)(6), Jan. 12, 1983, 96 Stat. 2368; Pub. L. 98-369, div.
A, title I, Secs. 43(c)(3), 76(a), title IV, Sec. 492(b)(4), July
18, 1984, 98 Stat. 558, 595, 854; Pub. L. 99-514, title II, Sec.
201(d)(10), title XVIII, Sec. 1899A(19), Oct. 22, 1986, 100 Stat.
2141, 2959; Pub. L. 103-66, title XIII, Secs. 13206(e)(1),
13262(b)(1), (2)(A), Aug. 10, 1993, 107 Stat. 467, 541; Pub. L. 105-
34, title X, Sec. 1062(a)-(b)(2), Aug. 5, 1997, 111 Stat. 946,
947; Pub. L. 105-206, title VI, Sec. 6010(m), July 22, 1998, 112
Stat. 816; Pub. L. 106-170, title V, Sec. 532(c)(2)(F), Dec. 17,
1999, 113 Stat. 1930; Pub. L. 108-357, title IV, Sec. 413(c)(11),
Oct. 22, 2004, 118 Stat. 1507.)
-MISC1-
AMENDMENTS
2004 - Subsec. (d)(2) to (4). Pub. L. 108-357 inserted "and" at
end of par. (2), redesignated par. (4) as (3) and substituted
"paragraph (1) or (2)" for "paragraph (1), (2), or (3)", and struck
out former par. (3) which read as follows: "any other property of
the partnership which, if sold or exchanged by the partnership,
would result in a gain taxable under subsection (a) of section 1246
(relating to gain on foreign investment company stock), and".
1999 - Subsec. (d)(1). Pub. L. 106-170 substituted "section
1221(a)(1)" for "section 1221(1)".
1998 - Subsec. (c). Pub. L. 105-206 substituted "731, 732," for
"731" wherever appearing in concluding provisions.
1997 - Subsec. (a)(2). Pub. L. 105-34, Sec. 1062(a), amended par.
(2) generally. Prior to amendment, par. (2) read as follows:
"inventory items of the partnership which have appreciated
substantially in value,".
Subsec. (b)(1). Pub. L. 105-34, Sec. 1062(b)(1)(A), added
subpars. (A) and (B) and struck out former subpars. (A) and (B)
which read as follows:
"(A) partnership property described in subsection (a)(1) or (2)
in exchange for all or a part of his interest in other partnership
property (including money), or
"(B) partnership property (including money) other than property
described in subsection (a)(1) or (2) in exchange for all or a part
of his interest in partnership property described in subsection
(a)(1) or (2),".
Subsec. (b)(3). Pub. L. 105-34, Sec. 1062(b)(1)(B), added par.
(3).
Subsec. (d). Pub. L. 105-34, Sec. 1062(b)(2), amended heading and
text of subsec. (d) generally. Prior to amendment, subsec. (d)
consisted of pars. (1) and (2) relating to inventory items which
have appreciated substantially in value.
1993 - Subsec. (c). Pub. L. 103-66, Sec. 13262(b)(1), in
concluding provisions, substituted "section 731 or 741" for
"section 731, 736, or 741" in two places and ", sections 731 and
741 (but not for purposes of section 736)" for "sections 731, 736,
and 741" in two places.
Subsec. (d)(1). Pub. L. 103-66, Sec. 13206(e)(1), amended heading
and text of par. (1) generally. Prior to amendment, text read as
follows: "Inventory items of the partnership shall be considered to
have appreciated substantially in value if their fair market value
exceeds -
"(A) 120 percent of the adjusted basis to the partnership of
such property, and
"(B) 10 percent of the fair market value of all partnership
property, other than money."
Subsec. (e). Pub. L. 103-66, Sec. 13262(b)(2)(A), substituted
"sections 731 and 741" for "sections 731, 736, and 741".
1986 - Subsec. (c). Pub. L. 99-514, Sec. 1899A(19), substituted
"section 617(f)(2)), stock" for "section 617(f)(2), stock" in
second sentence.
Pub. L. 99-514, Sec. 201(d)(10), struck out "section 1245
recovery property (as defined in section 1245(a)(5))," before
"stock in certain foreign corporations" in second sentence.
1984 - Subsec. (c). Pub. L. 98-369, Sec. 492(b)(4), struck out
"farm recapture property (as defined in section 1251(e)(1)),"
before "farm land", and "1251(c)," after "1250(a)," in second
sentence.
Pub. L. 98-369, Sec. 43(c)(3), inserted last sentence.
Subsec. (f). Pub. L. 98-369, Sec. 76(a), added subsec. (f).
1983 - Subsec. (c). Pub. L. 97-448 inserted reference to section
1245 recovery property (as defined in section 1245(a)(5)) in second
sentence.
1978 - Subsec. (c). Pub. L. 95-618 substituted "oil, gas, or
geothermal property" for "oil or gas property" in second sentence.
Subsec. (e). Pub. L. 95-600 added subsec. (e).
1976 - Subsec. (b)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c). Pub. L. 94-455, Secs. 205(b), 1042(c)(2),
1101(d)(2), 1901(a)(93), 2110(a), in second sentence, inserted
reference to stock in a DISC (as described in section 992(a)),
reference to stock in certain foreign corporations (as described in
section 1248), and reference to farm land (as defined in section
1252(a)), franchises, trademarks or trade names (referred to in
section 1253(a)), and an oil or gas property (described in section
1254), substituted "1252(a), 1253(a), or 1254(a)" for "or 1252(a)",
and inserted "1248(a)," after "1245(a)," and "995(c)," after
"617(d)(1),".
1969 - Subsec. (c). Pub. L. 91-172, in second sentence,
substituted "section 1250 property (as defined in section 1250(c)),
farm recapture property (as defined in section 1251(e)(1)), and
farm land (as defined in section 1252(a))", and "1250(a), 1251(c),
or 1252(a)", for "and section 1250 property (as defined in section
1250(c))" and "1250(a)", respectively.
1966 - Subsec. (c). Pub. L. 89-570, in second sentence, inserted
reference to mining property (as defined in section 617(f)(2)) and
to section 617(d)(1).
1964 - Subsec. (c). Pub. L. 88-272, in second sentence, inserted
reference to section 1250.
1962 - Subsec. (c). Pub. L. 87-834, Sec. 13(f)(1), defined
"unrealized receivables" for purposes of this section and section
731, 736, and 741, as including section 1245 property, but only to
the extent of the amount which would be treated as gain to which
section 1245(a) would apply if (at the time of the transaction
described in this section or section 731, 736, or 741, as the case
may be) such property had been sold by the partnership at its fair
market value.
Subsec. (d)(2). Pub. L. 87-834, Sec. 14(b)(2), added subpar. (C),
redesignated former subpar. (C) as (D), and substituted
"subparagraph (A), (B), or (C)" for "subparagraph (A) or (B)".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years of
foreign corporations beginning after Dec. 31, 2004, and to taxable
years of United States shareholders with or within which such
taxable years of foreign corporations end, see section 413(d)(1) of
Pub. L. 108-357, set out as an Effective and Termination Dates of
2004 Amendments note under section 1 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to sales, exchanges, and
distributions after Aug. 5, 1997, but not applicable to any sale or
exchange pursuant to a written binding contract in effect on June
8, 1997, and at all times thereafter before such sale or exchange,
see section 1062(c) of Pub. L. 105-34, set out as a note under
section 724 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13206(e)(2) of Pub. L. 103-66 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to sales, exchanges, and distributions after April 30, 1993."
Amendment by section 13262(b)(1) and (2)(A) of Pub. L. 103-66
applicable in the case of partners retiring or dying on or after
Jan. 5, 1993, with a binding contract exception, see section
13262(c) of Pub. L. 103-66, set out as a note under section 736 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(10) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(d)(10) of Pub. L. 99-514 not applicable
to any property placed in service before Jan. 1, 1994, if such
property placed in service as part of specified rehabilitations,
and not applicable to certain additional rehabilitations, see
section 251(d)(2), (3) of Pub. L. 99-514, set out as a note under
section 46 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 43(c)(3) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Section 76(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
distributions, sales, and exchanges made after March 31, 1984, in
taxable years ending after such date."
Amendment by section 492(b)(4) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 492(d) of
Pub. L. 98-369, set out as a note under section 170 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1978 AMENDMENTS
Amendment by Pub. L. 95-618 applicable with respect to wells
commenced on or after Oct. 1, 1978, in taxable years ending on or
after such date, see section 402(e) of Pub. L. 95-618, set out as a
note under section 263 of this title.
Section 701(u)(13)(C) of Pub. L. 95-600 provided that: "The
amendments made by this paragraph [amending this section and
section 736 of this title] shall apply to transfers beginning after
October 9, 1975, and to sales, exchanges, and distributions taking
place after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 205(b) of Pub. L. 94-455 effective for
taxable years ending after Dec. 31, 1975, see section 205(e) of
Pub. L. 94-455, set out as an Effective Date note under section
1254 of this title.
Amendment by section 1042(c)(2) of Pub. L. 94-455 applicable to
transfers beginning after Oct. 9, 1975, and to sales, exchanges and
distributions taking place after that date, see section 1042(e)(1)
of Pub. L. 94-455, set out as a note under section 367 of this
title.
Amendment by section 1101(d)(2) of Pub. L. 94-455 applicable to
sales, exchanges, or other dispositions after Dec. 31, 1975, in
taxable years ending after such date, see section 1101(g)(4) of
Pub. L. 94-455, set out as a note under section 995 of this title.
Amendment by section 1901(a)(93) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Section 2110(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Subsection
(a) [amending this section] shall apply to transactions described
in sections 731, 736, 741, or 751 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] which occur after December 31, 1976, in
taxable years ending after that date."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 211(c) of Pub. L. 91-172, set out
as a note under section 301 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-570 applicable to taxable years ending
after Sept. 12, 1966, but only in respect of expenditures paid or
incurred after such date see section 3 of Pub. L. 89-570, set out
as an Effective Date note under section 617 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to dispositions after Dec.
31, 1963, in taxable years ending after such date, see section
231(c) of Pub. L. 88-272, set out as an Effective Date note under
section 1250 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by section 13(f)(1) of Pub. L. 87-834 applicable to
taxable years beginning after Dec. 31, 1962, see section 13(g) of
Pub. L. 87-834, set out as an Effective Date note under section
1245 of this title.
Amendment by section 14(b)(2) of Pub. L. 87-834 applicable with
respect to taxable years beginning after Dec. 31, 1962, see section
14(c) of Pub. L. 87-834, set out as a note under section 312 of
this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original. The comma probably should not appear.
-End-
-CITE-
26 USC Sec. 752 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart D - Provisions Common to Other Subparts
-HEAD-
Sec. 752. Treatment of certain liabilities
-STATUTE-
(a) Increase in partner's liabilities
Any increase in a partner's share of the liabilities of a
partnership, or any increase in a partner's individual liabilities
by reason of the assumption by such partner of partnership
liabilities, shall be considered as a contribution of money by such
partner to the partnership.
(b) Decrease in partner's liabilities
Any decrease in a partner's share of the liabilities of a
partnership, or any decrease in a partner's individual liabilities
by reason of the assumption by the partnership of such individual
liabilities, shall be considered as a distribution of money to the
partner by the partnership.
(c) Liability to which property is subject
For purposes of this section, a liability to which property is
subject shall, to the extent of the fair market value of such
property, be considered as a liability of the owner of the
property.
(d) Sale or exchange of an interest
In the case of a sale or exchange of an interest in a
partnership, liabilities shall be treated in the same manner as
liabilities in connection with the sale or exchange of property not
associated with partnerships.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 251.)
-MISC1-
OVERRULING OF RAPHAN CASE
Pub. L. 98-369, div. A, title I, Sec. 79, July 18, 1984, 98 Stat.
597, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat.
2095, provided that:
"(a) General Rule. - Section 752 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] (and the regulations prescribed
thereunder) shall be applied without regard to the result reached
in the case of Raphan vs the United States, 3 Cl. Ct. 457 (1983).
"(b) Regulations. - In amending the regulations prescribed under
section 752 of such Code to reflect subsection (a), the Secretary
of the Treasury or his delegate shall prescribe regulations
relating to liabilities, including the treatment of guarantees,
assumptions, indemnity agreements, and similar arrangements."
-End-
-CITE-
26 USC Sec. 753 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart D - Provisions Common to Other Subparts
-HEAD-
Sec. 753. Partner receiving income in respect of decedent
-STATUTE-
The amount includible in the gross income of a successor in
interest of a deceased partner under section 736(a) shall be
considered income in respect of a decedent under section 691.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 251.)
-End-
-CITE-
26 USC Sec. 754 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart D - Provisions Common to Other Subparts
-HEAD-
Sec. 754. Manner of electing optional adjustment to basis of
partnership property
-STATUTE-
If a partnership files an election, in accordance with
regulations prescribed by the Secretary, the basis of partnership
property shall be adjusted, in the case of a distribution of
property, in the manner provided in section 734 and, in the case of
a transfer of a partnership interest, in the manner provided in
section 743. Such an election shall apply with respect to all
distributions of property by the partnership and to all transfers
of interests in the partnership during the taxable year with
respect to which such election was filed and all subsequent taxable
years. Such election may be revoked by the partnership, subject to
such limitations as may be provided by regulations prescribed by
the Secretary.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 251; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 struck out "or his delegate" after
"Secretary" wherever appearing.
-End-
-CITE-
26 USC Sec. 755 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
Subpart D - Provisions Common to Other Subparts
-HEAD-
Sec. 755. Rules for allocation of basis
-STATUTE-
(a) General rule
Any increase or decrease in the adjusted basis of partnership
property under section 734(b) (relating to the optional adjustment
to the basis of undistributed partnership property) or section
743(b) (relating to the optional adjustment to the basis of
partnership property in the case of a transfer of an interest in a
partnership) shall, except as provided in subsection (b), be
allocated -
(1) in a manner which has the effect of reducing the difference
between the fair market value and the adjusted basis of
partnership properties, or
(2) in any other manner permitted by regulations prescribed by
the Secretary.
(b) Special rule
In applying the allocation rules provided in subsection (a),
increases or decreases in the adjusted basis of partnership
property arising from a distribution of, or a transfer of an
interest attributable to, property consisting of -
(1) capital assets and property described in section 1231(b),
or
(2) any other property of the partnership,
shall be allocated to partnership property of a like character
except that the basis of any such partnership property shall not be
reduced below zero. If, in the case of a distribution, the
adjustment to basis of property described in paragraph (1) or (2)
is prevented by the absence of such property or by insufficient
adjusted basis for such property, such adjustment shall be applied
to subsequently acquired property of a like character in accordance
with regulations prescribed by the Secretary.
(c) No allocation of basis decrease to stock of corporate partner
In making an allocation under subsection (a) of any decrease in
the adjusted basis of partnership property under section 734(b) -
(1) no allocation may be made to stock in a corporation (or any
person related (within the meaning of sections 267(b) and
707(b)(1)) to such corporation) which is a partner in the
partnership, and
(2) any amount not allocable to stock by reason of paragraph
(1) shall be allocated under subsection (a) to other partnership
property.
Gain shall be recognized to the partnership to the extent that the
amount required to be allocated under paragraph (2) to other
partnership property exceeds the aggregate adjusted basis of such
other property immediately before the allocation required by
paragraph (2).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 252; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 108-357,
title VIII, Sec. 834(a), Oct. 22, 2004, 118 Stat. 1592.)
-MISC1-
AMENDMENTS
2004 - Subsec. (c). Pub. L. 108-357 added subsec. (c).
1976 - Subsecs. (a), (b). Pub. L. 94-455 struck out "or his
delegate" after "Secretary" wherever appearing.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 834(b), Oct. 22, 2004, 118
Stat. 1592, provided that: "The amendment made by this section
[amending this section] shall apply to distributions after the date
of the enactment of this Act [Oct. 22, 2004]."
-End-
-CITE-
26 USC PART III - DEFINITIONS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART III - DEFINITIONS
-HEAD-
PART III - DEFINITIONS
-MISC1-
Sec.
761. Terms defined.
-End-
-CITE-
26 USC Sec. 761 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART III - DEFINITIONS
-HEAD-
Sec. 761. Terms defined
-STATUTE-
(a) Partnership
For purposes of this subtitle, the term "partnership" includes a
syndicate, group, pool, joint venture, or other unincorporated
organization through or by means of which any business, financial
operation, or venture is carried on, and which is not, within the
meaning of this title, a corporation or a trust or estate. Under
regulations the Secretary may, at the election of all the members
of an unincorporated organization, exclude such organization from
the application of all or part of this subchapter, if it is availed
of -
(1) for investment purposes only and not for the active conduct
of a business,
(2) for the joint production, extraction, or use of property,
but not for the purpose of selling services or property produced
or extracted, or
(3) by dealers in securities for a short period for the purpose
of underwriting, selling, or distributing a particular issue of
securities,
if the income of the members of the organization may be adequately
determined without the computation of partnership taxable income.
(b) Partner
For purposes of this subtitle, the term "partner" means a member
of a partnership.
(c) Partnership agreement
For purposes of this subchapter, a partnership agreement includes
any modifications of the partnership agreement made prior to, or
at, the time prescribed by law for the filing of the partnership
return for the taxable year (not including extensions) which are
agreed to by all the partners, or which are adopted in such other
manner as may be provided by the partnership agreement.
(d) Liquidation of a partner's interest
For purposes of this subchapter, the term "liquidation of a
partner's interest" means the termination of a partner's entire
interest in a partnership by means of a distribution, or a series
of distributions, to the partner by the partnership.
(e) Distributions of partnership interests treated as exchanges
Except as otherwise provided in regulations, for purposes of -
(1) section 708 (relating to continuation of partnership),
(2) section 743 (relating to optional adjustment to basis of
partnership property), and
(3) any other provision of this subchapter specified in
regulations prescribed by the Secretary,
any distribution of an interest in a partnership (not otherwise
treated as an exchange) shall be treated as an exchange.
(f) Cross reference
For rules in the case of the sale, exchange, liquidation, or
reduction of a partner's interest, see sections 704(b) and
706(c)(2).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 252; Pub. L. 94-455, title II,
Sec. 213(c)(3)(B), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1548, 1834; Pub. L. 96-222, title I, Sec. 102(a)(2)(C), Apr.
1, 1980, 94 Stat. 208; Pub. L. 98-369, div. A, title I, Sec. 75(b),
July 18, 1984, 98 Stat. 594; Pub. L. 99-514, title XVIII, Sec.
1805(c)(2), Oct. 22, 1986, 100 Stat. 2810.)
-MISC1-
AMENDMENTS
1986 - Subsec. (e). Pub. L. 99-514 substituted "Distributions of
partnership interests" for "Distributions" in heading, substituted
"Except as otherwise provided in regulations, for purposes of" for
"For purposes of" in introductory provision, and "any distribution
of an interest in a partnership" for "any distribution" in closing
provisions.
1984 - Subsecs. (e), (f). Pub. L. 98-369 added subsec. (e) and
redesignated former subsec. (e) as (f).
1980 - Subsec. (a)(3). Pub. L. 96-222 added par. (3).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (e). Pub. L. 94-455, Sec. 213(c)(3)(B), added subsec.
(e).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to distributions, sales,
and exchanges made after Mar. 31, 1984, in taxable years ending
after such date, see section 75(e) of Pub. L. 98-369, set out as an
Effective Date note under section 386 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 213(c)(3)(B) of Pub. L. 94-455 applicable in
the case of partnership taxable years beginning after Dec. 31,
1975, see section 213(f)(1) of Pub. L. 94-455, set out as a note
under section 709 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC PART IV - SPECIAL RULES FOR ELECTING LARGE
PARTNERSHIPS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-MISC1-
Sec.
771. Application of subchapter to electing large
partnerships.
772. Simplified flow-through.
773. Computations at partnership level.
774. Other modifications.
775. Electing large partnership defined.
776. Special rules for partnerships holding oil and gas
properties.
777. Regulations.
PRIOR PROVISIONS
A prior part IV, relating to effective date for subchapter,
consisted of section 771 of this title, prior to repeal by Pub. L.
94-455, title XIX, Sec. 1901(a)(94), Oct. 4, 1976, 90 Stat. 1780.
AMENDMENTS
1997 - Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1001, added part heading and section analysis.
-End-
-CITE-
26 USC Sec. 771 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 771. Application of subchapter to electing large partnerships
-STATUTE-
The preceding provisions of this subchapter to the extent
inconsistent with the provisions of this part shall not apply to an
electing large partnership and its partners.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1002.)
-MISC1-
PRIOR PROVISIONS
A prior section 771, act Aug. 16, 1954, ch. 736, 68A Stat. 253,
related to the effective date for this subchapter, prior to repeal
by Pub. L. 94-455, title XIX, Sec. 1901(a)(94), Oct. 4, 1976, 90
Stat. 1780.
EFFECTIVE DATE
Section 1221(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting this part] shall apply to
partnership taxable years beginning after December 31, 1997."
This part applicable to partnership taxable years beginning after
Dec. 31, 1997, see section 1226 of Pub. L. 105-34, as amended, set
out as an Effective Date of 1997 Amendment note under section 6011
of this title.
-End-
-CITE-
26 USC Sec. 772 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 772. Simplified flow-through
-STATUTE-
(a) General rule
In determining the income tax of a partner of an electing large
partnership, such partner shall take into account separately such
partner's distributive share of the partnership's -
(1) taxable income or loss from passive loss limitation
activities,
(2) taxable income or loss from other activities,
(3) net capital gain (or net capital loss) -
(A) to the extent allocable to passive loss limitation
activities, and
(B) to the extent allocable to other activities,
(4) tax-exempt interest,
(5) applicable net AMT adjustment separately computed for -
(A) passive loss limitation activities, and
(B) other activities,
(6) general credits,
(7) low-income housing credit determined under section 42,
(8) rehabilitation credit determined under section 47,
(9) foreign income taxes, and
(10) other items to the extent that the Secretary determines
that the separate treatment of such items is appropriate.
(b) Separate computations
In determining the amounts required under subsection (a) to be
separately taken into account by any partner, this section and
section 773 shall be applied separately with respect to such
partner by taking into account such partner's distributive share of
the items of income, gain, loss, deduction, or credit of the
partnership.
(c) Treatment at partner level
(1) In general
Except as provided in this subsection, rules similar to the
rules of section 702(b) shall apply to any partner's distributive
share of the amounts referred to in subsection (a).
(2) Income or loss from passive loss limitation activities
For purposes of this chapter, any partner's distributive share
of any income or loss described in subsection (a)(1) shall be
treated as an item of income or loss (as the case may be) from
the conduct of a trade or business which is a single passive
activity (as defined in section 469). A similar rule shall apply
to a partner's distributive share of amounts referred to in
paragraphs (3)(A) and (5)(A) of subsection (a).
(3) Income or loss from other activities
(A) In general
For purposes of this chapter, any partner's distributive
share of any income or loss described in subsection (a)(2)
shall be treated as an item of income or expense (as the case
may be) with respect to property held for investment.
(B) Deductions for loss not subject to section 67
The deduction under section 212 for any loss described in
subparagraph (A) shall not be treated as a miscellaneous
itemized deduction for purposes of section 67.
(4) Treatment of net capital gain or loss
For purposes of this chapter, any partner's distributive share
of any gain or loss described in subsection (a)(3) shall be
treated as a long-term capital gain or loss, as the case may be.
(5) Minimum tax treatment
In determining the alternative minimum taxable income of any
partner, such partner's distributive share of any applicable net
AMT adjustment shall be taken into account in lieu of making the
separate adjustments provided in sections 56, 57, and 58 with
respect to the items of the partnership. Except as provided in
regulations, the applicable net AMT adjustment shall be treated,
for purposes of section 53, as an adjustment or item of tax
preference not specified in section 53(d)(1)(B)(ii).
(6) General credits
A partner's distributive share of the amount referred to in
paragraph (6) of subsection (a) shall be taken into account as a
current year business credit.
(d) Operating rules
For purposes of this section -
(1) Passive loss limitation activity
The term "passive loss limitation activity" means -
(A) any activity which involves the conduct of a trade or
business, and
(B) any rental activity.
For purposes of the preceding sentence, the term "trade or
business" includes any activity treated as a trade or business
under paragraph (5) or (6) of section 469(c).
(2) Tax-exempt interest
The term "tax-exempt interest" means interest excludable from
gross income under section 103.
(3) Applicable net AMT adjustment
(A) In general
The applicable net AMT adjustment is -
(i) with respect to taxpayers other than corporations, the
net adjustment determined by using the adjustments applicable
to individuals, and
(ii) with respect to corporations, the net adjustment
determined by using the adjustments applicable to
corporations.
(B) Net adjustment
The term "net adjustment" means the net adjustment in the
items attributable to passive loss activities or other
activities (as the case may be) which would result if such
items were determined with the adjustments of sections 56, 57,
and 58.
(4) Treatment of certain separately stated items
(A) Exclusion for certain purposes
In determining the amounts referred to in paragraphs (1) and
(2) of subsection (a), any net capital gain or net capital loss
(as the case may be), and any item referred to in subsection
(a)(11), shall be excluded.
(B) Allocation rules
The net capital gain shall be treated -
(i) as allocable to passive loss limitation activities to
the extent the net capital gain does not exceed the net
capital gain determined by only taking into account gains and
losses from sales and exchanges of property used in
connection with such activities, and
(ii) as allocable to other activities to the extent such
gain exceeds the amount allocated under clause (i).
A similar rule shall apply for purposes of allocating any net
capital loss.
(C) Net capital loss
The term "net capital loss" means the excess of the losses
from sales or exchanges of capital assets over the gains from
sales or exchange of capital assets.
(5) General credits
The term "general credits" means any credit other than the low-
income housing credit, the rehabilitation credit, and the
foreign tax credit.
(6) Foreign income taxes
The term "foreign income taxes" means taxes described in
section 901 which are paid or accrued to foreign countries and to
possessions of the United States.
(e) Special rule for unrelated business tax
In the case of a partner which is an organization subject to tax
under section 511, such partner's distributive share of any items
shall be taken into account separately to the extent necessary to
comply with the provisions of section 512(c)(1).
(f) Special rules for applying passive loss limitations
If any person holds an interest in an electing large partnership
other than as a limited partner -
(1) paragraph (2) of subsection (c) shall not apply to such
partner, and
(2) such partner's distributive share of the partnership items
allocable to passive loss limitation activities shall be taken
into account separately to the extent necessary to comply with
the provisions of section 469.
The preceding sentence shall not apply to any items allocable to an
interest held as a limited partner.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1002; amended Pub. L. 109-58, title XIII, Sec. 1322(a)(3)(I),
(J), Aug. 8, 2005, 119 Stat. 1012.)
-MISC1-
AMENDMENTS
2005 - Subsec. (a)(9) to (11). Pub. L. 109-58, Sec.
1322(a)(3)(I), inserted "and" at end of par. (9), redesignated par.
(11) as (10), and struck out former par. (10) which read as
follows: "the credit allowable under section 29, and".
Subsec. (d)(5). Pub. L. 109-58, Sec. 1322(a)(3)(J), substituted
"and the foreign tax credit" for "the foreign tax credit, and the
credit allowable under section 29".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-58 applicable to credits determined
under the Internal Revenue Code of 1986 for taxable years ending
after Dec. 31, 2005, see section 1322(c)(1) of Pub. L. 109-58, set
out as a note under section 45K of this title.
-End-
-CITE-
26 USC Sec. 773 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 773. Computations at partnership level
-STATUTE-
(a) General rule
(1) Taxable income
The taxable income of an electing large partnership shall be
computed in the same manner as in the case of an individual
except that -
(A) the items described in section 772(a) shall be separately
stated, and
(B) the modifications of subsection (b) shall apply.
(2) Elections
All elections affecting the computation of the taxable income
of an electing large partnership or the computation of any credit
of an electing large partnership shall be made by the
partnership; except that the election under section 901, and any
election under section 108, shall be made by each partner
separately.
(3) Limitations, etc.
(A) In general
Except as provided in subparagraph (B), all limitations and
other provisions affecting the computation of the taxable
income of an electing large partnership or the computation of
any credit of an electing large partnership shall be applied at
the partnership level (and not at the partner level).
(B) Certain limitations applied at partner level
The following provisions shall be applied at the partner
level (and not at the partnership level):
(i) Section 68 (relating to overall limitation on itemized
deductions).
(ii) Sections 49 and 465 (relating to at risk limitations).
(iii) Section 469 (relating to limitation on passive
activity losses and credits).
(iv) Any other provision specified in regulations.
(4) Coordination with other provisions
Paragraphs (2) and (3) shall apply notwithstanding any other
provision of this chapter other than this part.
(b) Modifications to determination of taxable income
In determining the taxable income of an electing large
partnership -
(1) Certain deductions not allowed
The following deductions shall not be allowed:
(A) The deduction for personal exemptions provided in section
151.
(B) The net operating loss deduction provided in section 172.
(C) The additional itemized deductions for individuals
provided in part VII of subchapter B (other than section 212
thereof).
(2) Charitable deductions
In determining the amount allowable under section 170, the
limitation of section 170(b)(2) shall apply.
(3) Coordination with section 67
In lieu of applying section 67, 70 percent of the amount of the
miscellaneous itemized deductions shall be disallowed.
(c) Special rules for income from discharge of indebtedness
If an electing large partnership has income from the discharge of
any indebtedness -
(1) such income shall be excluded in determining the amounts
referred to in section 772(a), and
(2) in determining the income tax of any partner of such
partnership -
(A) such income shall be treated as an item required to be
separately taken into account under section 772(a), and
(B) the provisions of section 108 shall be applied without
regard to this part.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1004.)
-End-
-CITE-
26 USC Sec. 774 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 774. Other modifications
-STATUTE-
(a) Treatment of certain optional adjustments, etc.
In the case of an electing large partnership -
(1) computations under section 773 shall be made without regard
to any adjustment under section 743(b) or 108(b), but
(2) a partner's distributive share of any amount referred to in
section 772(a) shall be appropriately adjusted to take into
account any adjustment under section 743(b) or 108(b) with
respect to such partner.
(b) Credit recapture determined at partnership level
(1) In general
In the case of an electing large partnership -
(A) any credit recapture shall be taken into account by the
partnership, and
(B) the amount of such recapture shall be determined as if
the credit with respect to which the recapture is made had been
fully utilized to reduce tax.
(2) Method of taking recapture into account
An electing large partnership shall take into account a credit
recapture by reducing the amount of the appropriate current year
credit to the extent thereof, and if such recapture exceeds the
amount of such current year credit, the partnership shall be
liable to pay such excess.
(3) Dispositions not to trigger recapture
No credit recapture shall be required by reason of any transfer
of an interest in an electing large partnership.
(4) Credit recapture
For purposes of this subsection, the term "credit recapture"
means any increase in tax under section 42(j) or 50(a).
(c) Partnership not terminated by reason of change in ownership
Subparagraph (B) of section 708(b)(1) shall not apply to an
electing large partnership.
(d) Partnership entitled to certain credits
The following shall be allowed to an electing large partnership
and shall not be taken into account by the partners of such
partnership:
(1) The credit provided by section 34.
(2) Any credit or refund under section 852(b)(3)(D) or
857(b)(3)(D).
(e) Treatment of REMIC residuals
For purposes of applying section 860E(e)(6) to any electing large
partnership -
(1) all interests in such partnership shall be treated as held
by disqualified organizations,
(2) in lieu of applying subparagraph (C) of section 860E(e)(6),
the amount subject to tax under section 860E(e)(6) shall be
excluded from the gross income of such partnership, and
(3) subparagraph (D) of section 860E(e)(6) shall not apply.
(f) Special rules for applying certain installment sale rules
In the case of an electing large partnership -
(1) the provisions of sections 453(l)(3) and 453A shall be
applied at the partnership level, and
(2) in determining the amount of interest payable under such
sections, such partnership shall be treated as subject to tax
under this chapter at the highest rate of tax in effect under
section 1 or 11.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1005; amended Pub. L. 105-206, title VI, Sec. 6012(c), July
22, 1998, 112 Stat. 819.)
-MISC1-
AMENDMENTS
1998 - Subsec. (d)(2). Pub. L. 105-206 inserted "or 857(b)(3)(D)"
before period at end.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
-End-
-CITE-
26 USC Sec. 775 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 775. Electing large partnership defined
-STATUTE-
(a) General rule
For purposes of this part -
(1) In general
The term "electing large partnership" means, with respect to
any partnership taxable year, any partnership if -
(A) the number of persons who were partners in such
partnership in the preceding partnership taxable year equaled
or exceeded 100, and
(B) such partnership elects the application of this part.
To the extent provided in regulations, a partnership shall cease
to be treated as an electing large partnership for any
partnership taxable year if in such taxable year fewer than 100
persons were partners in such partnership.
(2) Election
The election under this subsection shall apply to the taxable
year for which made and all subsequent taxable years unless
revoked with the consent of the Secretary.
(b) Special rules for certain service partnerships
(1) Certain partners not counted
For purposes of this section, the term "partner" does not
include any individual performing substantial services in
connection with the activities of the partnership and holding an
interest in such partnership, or an individual who formerly
performed substantial services in connection with such activities
and who held an interest in such partnership at the time the
individual performed such services.
(2) Exclusion
For purposes of this part, an election under subsection (a)
shall not be effective with respect to any partnership if
substantially all the partners of such partnership -
(A) are individuals performing substantial services in
connection with the activities of such partnership or are
personal service corporations (as defined in section 269A(b))
the owner-employees (as defined in section 269A(b)) of which
perform such substantial services,
(B) are retired partners who had performed such substantial
services, or
(C) are spouses of partners who are performing (or had
previously performed) such substantial services.
(3) Special rule for lower tier partnerships
For purposes of this subsection, the activities of a
partnership shall include the activities of any other partnership
in which the partnership owns directly an interest in the capital
and profits of at least 80 percent.
(c) Exclusion of commodity pools
For purposes of this part, an election under subsection (a) shall
not be effective with respect to any partnership the principal
activity of which is the buying and selling of commodities (not
described in section 1221(a)(1)), or options, futures, or forwards
with respect to such commodities.
(d) Secretary may rely on treatment on return
If, on the partnership return of any partnership, such
partnership is treated as an electing large partnership, such
treatment shall be binding on such partnership and all partners of
such partnership but not on the Secretary.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1006; amended Pub. L. 106-170, title V, Sec. 532(c)(2)(G),
Dec. 17, 1999, 113 Stat. 1930.)
-MISC1-
AMENDMENTS
1999 - Subsec. (c). Pub. L. 106-170 substituted "section
1221(a)(1)" for "section 1221(1)".
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
-End-
-CITE-
26 USC Sec. 776 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 776. Special rules for partnerships holding oil and gas
properties
-STATUTE-
(a) Computation of percentage depletion
In the case of an electing large partnership, except as provided
in subsection (b) -
(1) the allowance for depletion under section 611 with respect
to any partnership oil or gas property shall be computed at the
partnership level without regard to any provision of section 613A
requiring such allowance to be computed separately by each
partner,
(2) such allowance shall be determined without regard to the
provisions of section 613A(c) limiting the amount of production
for which percentage depletion is allowable and without regard to
paragraph (1) of section 613A(d), and
(3) paragraph (3) of section 705(a) shall not apply.
(b) Treatment of certain partners
(1) In general
In the case of a disqualified person, the treatment under this
chapter of such person's distributive share of any item of
income, gain, loss, deduction, or credit attributable to any
partnership oil or gas property shall be determined without
regard to this part. Such person's distributive share of any such
items shall be excluded for purposes of making determinations
under sections 772 and 773.
(2) Disqualified person
For purposes of paragraph (1), the term "disqualified person"
means, with respect to any partnership taxable year -
(A) any person referred to in paragraph (2) or (4) of section
613A(d) for such person's taxable year in which such
partnership taxable year ends, and
(B) any other person if such person's average daily
production of domestic crude oil and natural gas for such
person's taxable year in which such partnership taxable year
ends exceeds 500 barrels.
(3) Average daily production
For purposes of paragraph (2), a person's average daily
production of domestic crude oil and natural gas for any taxable
year shall be computed as provided in section 613A(c)(2) -
(A) by taking into account all production of domestic crude
oil and natural gas (including such person's proportionate
share of any production of a partnership),
(B) by treating 6,000 cubic feet of natural gas as a barrel
of crude oil, and
(C) by treating as 1 person all persons treated as 1 taxpayer
under section 613A(c)(8) or among whom allocations are required
under such section.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1007.)
-End-
-CITE-
26 USC Sec. 777 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter K - Partners and Partnerships
PART IV - SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS
-HEAD-
Sec. 777. Regulations
-STATUTE-
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this part.
-SOURCE-
(Added Pub. L. 105-34, title XII, Sec. 1221(a), Aug. 5, 1997, 111
Stat. 1008.)
-End-
-CITE-
26 USC Subchapter L - Insurance Companies 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
-HEAD-
SUBCHAPTER L - INSURANCE COMPANIES
-MISC1-
Part
I. Life insurance companies.
II. Other insurance companies.
III. Provisions of general application.
AMENDMENTS
1988 - Pub. L. 100-647, title I, Sec. 1018(u)(32), Nov. 10, 1988,
102 Stat. 3592, redesignated parts III and IV as II and III,
respectively, and struck out former Part II "Mutual insurance
companies (other than life and certain marine insurance companies
and other than fire or flood insurance companies which operate on
basis of perpetual policies of premium deposits)."
1962 - Pub. L. 87-834, Sec. 8(g)(4)(A), Oct. 16, 1962, 76 Stat.
999, substituted "and certain marine insurance companies and other
than fire or flood insurance companies which operate on basis of
perpetual policies or premium deposits" for "or marine or fire
insurance companies issuing perpetual policies" in heading of part
II.
-End-
-CITE-
26 USC PART I - LIFE INSURANCE COMPANIES 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
-HEAD-
PART I - LIFE INSURANCE COMPANIES
-MISC1-
Subpart
A. Tax imposed.
B. Life insurance gross income.
C. Life insurance deductions.
D. Accounting, allocation, and foreign provisions.
E. Definitions and special rules.
-End-
-CITE-
26 USC Subpart A - Tax Imposed 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart A - Tax Imposed
-HEAD-
SUBPART A - TAX IMPOSED
-MISC1-
Sec.
801. Tax imposed.
-End-
-CITE-
26 USC Sec. 801 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart A - Tax Imposed
-HEAD-
Sec. 801. Tax imposed
-STATUTE-
(a) Tax imposed
(1) In general
A tax is hereby imposed for each taxable year on the life
insurance company taxable income of every life insurance company.
Such tax shall consist of a tax computed as provided in section
11 as though the life insurance company taxable income were the
taxable income referred to in section 11.
(2) Alternative tax in case of capital gains
(A) In general
If a life insurance company has a net capital gain for the
taxable year, then (in lieu of the tax imposed by paragraph
(1)), there is hereby imposed a tax (if such tax is less than
the tax imposed by paragraph (1)).
(B) Amount of tax
The amount of the tax imposed by this paragraph shall be the
sum of -
(i) a partial tax, computed as provided by paragraph (1),
on the life insurance company taxable income reduced by the
amount of the net capital gain, and
(ii) an amount determined as provided in section 1201(a) on
such net capital gain.
(C) Net capital gain not taken into account in determining
small life insurance company deduction
For purposes of subparagraph (B)(i), the amount allowable as
a deduction under paragraph (2) of section 804 shall be
determined by reducing the tentative LICTI by the amount of the
net capital gain (determined without regard to items
attributable to noninsurance businesses).
(b) Life insurance company taxable income
For purposes of this part, the term "life insurance company
taxable income" means -
(1) life insurance gross income, reduced by
(2) life insurance deductions.
(c) Taxation of distributions from pre-1984 policyholders surplus
account
For provision taxing distributions to shareholders from pre-
1984 policyholders surplus account, see section 815.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 720; amended Pub. L. 99-514, title X, Sec.
1011(b)(3), Oct. 22, 1986, 100 Stat. 2389.)
-MISC1-
PRIOR PROVISIONS
A prior section 801, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 112; amended Pub. L. 87-858, Sec. 3(a), Oct. 23,
1962, 76 Stat. 1134; Pub. L. 91-172, title I, Sec. 121(b)(5)(B),
Dec. 30, 1969, 83 Stat. 541; Pub. L. 93-406, title II, Sec.
2002(g)(11), Sept. 2, 1974, 88 Stat. 970; Pub. L. 94-455, title XV,
Sec. 1505(a), title XIX, Secs. 1901(c)(6), 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1738, 1803, 1834; Pub. L. 95-600, title VII, Sec.
703(j)(4), Nov. 6, 1978, 92 Stat. 2941, defined "life insurance
company" and related terms, prior to the general revision of this
part by Pub. L. 98-369, Sec. 211(a). See section 816 of this title.
Another prior section 801, acts Aug. 16, 1954, ch. 736, 68A Stat.
255; Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 36, contained
provisions similar to this section, prior to the the general
revision of this part by Pub. L. 86-69, Sec. 2(a).
A prior section 802, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 115; amended Pub. L. 87-858, Sec. 3(b)(1), Oct. 23,
1962, 76 Stat. 1136; Pub. L. 88-272, title II, Sec. 235(c)(1), Feb.
26, 1964, 78 Stat. 126; Pub. L. 91-172, title V, Sec. 511(c)(1),
Dec. 30, 1969, 83 Stat. 637; Pub. L. 94-455, title XIX, Sec.
1901(a)(95), (b)(33)(E), Oct. 4, 1976, 90 Stat. 1780, 1801; Pub. L.
95-600, title III, Sec. 301(b)(8), Nov. 6, 1978, 92 Stat. 2821,
contained provisions similar to this section, prior to the general
revision of this part by Pub. L. 98-369, Sec. 211(a).
Another prior section 802, acts Aug. 16, 1954, ch. 736, 68A Stat.
255; Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 38; July 24, 1956, ch.
696, Secs. 1, 2(b), 70 Stat. 633; Mar. 17, 1958, Pub. L. 85-345,
Secs. 1, 2(a), 72 Stat. 36, contained provision similar to this
section, prior to the general revision of this part by Pub. L. 86-
69, Sec. 2(a).
AMENDMENTS
1986 - Subsec. (a)(2)(C). Pub. L. 99-514 substituted "the amount
allowable as a deduction under paragraph (2)" for "the amounts
allowable as deductions under paragraphs (2) and (3)" in text and
struck from heading "special life insurance company deduction and"
before "small".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1011(c)(1) of Pub. L. 99-514, set
out as a note under section 453B of this title.
EFFECTIVE DATE
Section 215 of Pub. L. 98-369 provided that: "The amendments made
by this subtitle [subtitle A (Secs. 211-219) of title II of div. A
of Pub. L. 98-369, amending this part, enacting section 845 of this
title, amending sections 72, 80, 243, 381, 401, 453B, 542, 594,
832, 841, 844, 891, 953, 1016, 1035, 1201, 1232A, 1351, 1503, 1504,
1561, 1563, 4371, 6501, 6511, 6601, and 6611 of this title, and
enacting provisions set out as notes under this section and
sections 453B, 806, 807, 809, 814, 816, 845, and 6655 of this
title] shall apply to taxable years beginning after December 31,
1983."
TREATMENT OF CERTAIN WORKERS' COMPENSATION FUNDS
Pub. L. 100-647, title VI, Sec. 6076, Nov. 10, 1988, 102 Stat.
3706, provided that:
"(a) Treatment for Taxable Years Beginning Before 1987. - In the
case of any taxable year beginning before January 1, 1987, a
deficiency shall not be assessed against (and if assessed, shall
not be collected from) any qualified group self-insurers' fund to
the extent such deficiency is attributable to the timing of
policyholder dividend deductions.
"(b) Qualified Group Self-Insurers' Fund. - For purposes of this
section, the term 'qualified group self-insurers' fund' means any
group of 2 or more employers which has been in existence for not
less than 2 years, and who enter into agreements to pool their
liabilities under the State workers' disability compensation laws
for the purpose of qualifying as a self-insurer under such laws, if
-
"(1) the group has received a certificate of approval from, and
is subject to regulation by, the State board or agency that is
responsible for administering the State workers' disability
compensation laws,
"(2) each employer who is a member of the group, by written
agreement, is jointly and severally bound to assume and
discharge, by payment, any lawful judgment or award entered by a
court of competent jurisdiction or by the State agency
responsible for administering the State workers' disability
compensation laws against a member of the group,
"(3) the group is prohibited by State law or regulation from
using the monies collected for a purpose other than to pay, or to
reserve against, claims under the State workers' disability
compensation laws and expenses,
"(4) the group is prohibited by State law or regulation from
taking projected investment income into account in determining
members' premiums,
"(5) the group is required by State law or regulation to submit
to the State board or agency that is responsible for
administering the State workers' disability compensation laws an
audited financial statement,
"(6) the group's investments are limited by State law or
regulation to bonds, notes, or other evidences of indebtedness
issued, assumed or guaranteed by the United States of America, or
by an agency or instrumentality thereof, certificates of deposit
in a federally insured bank, shares or savings deposits in a
federally insured savings and loan association or credit union,
and certificates of deposit issued by a commercial bank duly
chartered under State law, and other investments which are
approved by the State board or agency that is responsible for
administering the State workers' disability compensation laws,
and
"(7) the group exclusively covers workers' compensation
liability, is not a commercial insurance carrier or company
licensed by the State board, agency, or commissioner responsible
for regulating and licensing insurance carriers and companies;
and is not subject to filing under the regulatory statements of
the National Association of Insurance Commissioners."
TREATMENT OF CERTAIN MARKET DISCOUNT BONDS
Section 1011(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1010(a)(2), (3), Nov. 10, 1988, 102 Stat. 3450, 3451,
provided that:
"(1) In general. - Notwithstanding the amendments made by
subtitle B of title III [amending sections 593, 631, 852, 1201, and
1445 of this title and enacting provisions set out as notes under
sections 631 and 1201 of this title], any gain recognized by a
qualified life insurance company on the redemption at maturity of
any market discount bond (as defined in section 1278 of the
Internal Revenue Code of 1986) which was issued before July 19,
1984, and acquired by such company on or before September 25, 1985,
shall be subject to tax at the rate of 31.6 percent. The preceding
sentence shall apply only if the tax determined under the preceding
sentence is less than the tax which would otherwise be imposed.
"(2) Qualified life insurance company. - For purposes of
paragraph (1), the term 'qualified life insurance company' means
any life insurance company subject to tax under part I of
subchapter L of chapter 1 of the Internal Revenue Code of 1986."
WAIVER OF INTEREST ON CERTAIN UNDERPAYMENTS OF TAX
Section 1829 of Pub. L. 99-514 provided that: "No interest shall
be payable for any period before July 19, 1984, on any underpayment
of a tax imposed by the Internal Revenue Code of 1954 [now 1986],
to the extent such underpayment was created or increased by any
provision of subtitle A of title II of the Tax Reform Act of 1984
[see Effective Date note above] (relating to taxation of life
insurance companies)."
SCOPE OF SECTION 255 OF THE TAX EQUITY AND FISCAL RESPONSIBILITY
ACT OF 1982
Section 1830 of Pub. L. 99-514 provided that: "In the case of any
taxable year beginning before January 1, 1982, in applying the
provisions of section 255(c)(2) of the Tax Equity and Fiscal
Responsibility Act of 1982 [section 255(c)(2) of Pub. L. 97-248, 96
Stat. 534, formerly set out as a note under section 809 of this
title], the Internal Revenue Service shall give full and complete
effect to the terms of any modified coinsurance contract. The terms
to be given effect within the meaning of this provision shall
include, but are not limited to, the effective date and investment
income rate as stated in such contract."
TREATMENT OF CERTAIN SELF-INSURED WORKERS' COMPENSATION FUNDS
Section 1879(q) of Pub. L. 99-514 provided that:
"(1) Moratorium on collection activities. - During the period
beginning on the date of the enactment of this Act [Oct. 22, 1986]
and ending on August 16, 1987, the Secretary of the Treasury or his
delegate -
"(A) shall suspend any pending audit of any self-insured
workers' compensation fund where the audit involves the issue of
whether such fund is a mutual insurance company,
"(B) shall not initiate any audit of any such fund involving
such issue, and
"(C) shall take no steps to collect from such fund any
underpayment, interest, or penalty involving such issue.
"(2) Suspension of running of interest. - No interest shall be
payable under chapter 67 of the Internal Revenue Code of 1986 on
any underpayment by a self-insured workers' compensation fund
involving such issue for the period beginning on August 16, 1986,
and ending on August 16, 1987.
"(3) Additional time to file tax court proceeding. - If the
period during which a petition involving such issue could have been
filed with the Tax Court by any self-insured workers' compensation
fund had not expired before August 16, 1986, such period shall not
expire before August 16, 1987.
"(4) Self-insured workers' compensation fund. - For purposes of
this subsection, the term 'self-insured workers' compensation fund'
means any self-insured workers' compensation fund established
pursuant to applicable State law regulating self-insured workers'
compensation funds."
RESERVES COMPUTED ON NEW BASIS; FRESH START
Pub. L. 98-369, title II, Sec. 216, July 18, 1984, 98 Stat. 758,
as amended by Pub. L. 99-514, Sec. 2, title XVIII, Sec. 1822, Oct.
22, 1986, 100 Stat. 2095, 2844; Pub. L. 100-647, title I, Sec.
1018(i), Nov. 10, 1988, 102 Stat. 3583, provided that:
"(a) Recomputation of Reserves. -
"(1) In general. - As of the beginning of the first taxable
year beginning after December 31, 1983, for purposes of
subchapter L of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (other than section 816 thereof), the reserve for
any contract shall be recomputed as if the amendments made by
this subtitle [see Effective Date note above] had applied to such
contract when it was issued.
"(2) Premiums earned. - For the first taxable year beginning
after December 31, 1983, in determining 'premiums earned on
insurance contracts during the taxable year' as provided in
section 832(b)(4) of the Internal Revenue Code of 1986, life
insurance reserves which are included in unearned premiums on
outstanding business at the end of the preceding taxable year
shall be determined as provided in section 807 of the Internal
Revenue Code of 1986, as amended by this subtitle, as though
section 807 was applicable to such reserves in such preceding
taxable year.
"(3) Issuance date for group contracts. - For purposes of this
subsection, the issuance date of any group contract shall be
determined under section 807(e)(2) of the Internal Revenue Code
of 1986 (as added by this subtitle), except that if such issuance
date cannot be determined, the issuance date shall be determined
on the basis prescribed by the Secretary of the Treasury or his
delegate for purposes of this subsection.
"(b) Fresh Start. -
"(1) In general. - Except as provided in paragraph (2), in the
case of any insurance company, any change in the method of
accounting (and any change in the method of computing reserves)
between such company's first taxable year beginning after
December 31, 1983, and the preceding taxable year which is
required solely by the amendments made by this subtitle [see
Effective Date note above] shall be treated as not being a change
in the method of accounting (or change in the method of computing
reserves) for purposes of the Internal Revenue Code of 1986. The
preceding sentence shall apply for purposes of computing the
earnings and profits of any insurance company for its 1st taxable
year beginning in 1984. The preceding sentence shall be applied
by substituting '1985' for '1984' in the case of an insurance
company which is a member of a controlled group (as defined in
section 806(d)(3)), the common parent of which is
"(A) a company having its principal place of business in
Alabama and incorporated in Delaware on November 29, 1979, or
"(B) a company having its principal place of business in
Houston, Texas, and incorporated in Delaware on June 9, 1947.
"(2) Treatment of adjustments from years before 1984. -
"(A) Adjustments attributable to decreases in reserves. - No
adjustment under section 810(d) of the Internal Revenue Code of
1986 (as in effect on the day before the date of the enactment
of this Act [July 18, 1984]) attributable to any decrease in
reserves as a result of a change in a taxable year beginning
before 1984 shall be taken into account in any taxable year
beginning after 1983.
"(B) Adjustments attributable to increases in reserves. -
"(i) In general. - Any adjustment under section 810(d) of
the Internal Revenue Code of 1986 (as so in effect)
attributable to an increase in reserves as a result of a
change in a taxable year beginning before 1984 shall be taken
into account in taxable years beginning after 1983 to the
extent that -
"(I) the amount of the adjustments which would be taken into
account under such section in taxable years beginning after
1983 without regard to this subparagraph, exceeds
"(II) the amount of any fresh start adjustment attributable to
contracts for which there was such an increase in reserves as
a result of such change.
"(ii) Fresh start adjustment. - For purposes of clause (i),
the fresh start adjustment with respect to any contract is
the excess (if any) of -
"(I) the reserve attributable to such contract as of the close
of the taxpayer's last taxable year beginning before January
1, 1984, over
"(II) the reserve for such contract as of the beginning of the
taxpayer's first taxable year beginning after 1983 as
recomputed under subsection (a) of this section.
"(C) Related income inclusions not taken into account to the
extent deduction disallowed under subparagraph (b). - No
premium shall be included in income to the extent such premium
is directly related to an increase in a reserve for which a
deduction is disallowed by subparagraph (B).
"(3) Reinsurance transactions, and reserve strengthening, after
september 27, 1983. -
"(A) In general. - Paragraph (1) shall not apply (and section
807(f) of the Internal Revenue Code of 1986 as amended by this
subtitle shall apply) -
"(i) to any reserve transferred pursuant to -
"(I) a reinsurance agreement entered into after September 27,
1983, and before January 1, 1984, or
"(II) a modification of a reinsurance agreement made after
September 27, 1983, and before January 1, 1984, and
"(ii) to any reserve strengthening reported for Federal
income tax purposes after September 27, 1983, for a taxable
year ending before January 1, 1984.
Clause (ii) shall not apply to the computation of reserves on any
contract issued if such computation employs the reserve practice
used for purposes of the most recent annual statement filed
before September 27, 1983, for the type of contract with respect
to which such reserves are set up. For purposes of this
subparagraph, if the reinsurer's taxable year is not a calendar
year, the first day of the reinsurer's first taxable year
beginning after December 31, 1983, shall be substituted for
'January 1, 1984' each place it appears.
"(B) Treatment of reserve attributable to section 818(c)
election. - In the case of any reserve described in
subparagraph (A), for purposes of section 807(f) of the
Internal Revenue Code of 1986, any change in the treatment of
any contract to which an election under section 818(c) of such
Code (as in effect on the day before the date of the enactment
of this Act) applied shall be treated as a change in the basis
for determining the amount of any reserve.
"(C) 10-year spread inapplicable where no 10-year spread
under prior law. - In the case of any item to which section
807(f) of such Code applies by reason of subparagraph (A) or
(B), such item shall be taken into account for the first
taxable year beginning after December 31, 1983 (in lieu of over
the 10-year period otherwise provided in such section) unless
the item would have been required to be taken into account over
a period of 10 taxable years under section 810(d) of such Code
(as in effect on the day before the date of the enactment of
this Act).
"(D) Disallowance of special life insurance company deduction
and small life insurance company deduction. - Any amount
included in income under section 807(f) of such Code by reason
of subparagraph (A) or (B) (and any income attributable to
expenses transferred in connection with the transfer of
reserves described in subparagraph (A)) shall not be taken into
account for purposes of determining the amount of special life
insurance company deduction and the small life insurance
company deduction.
"(E) Disallowance of deductions under [former] section
809(d). - No deduction shall be allowed under paragraph (5) or
(6) of [former] section 809(d) of such Code (as in effect
before the amendments made by this subtitle) with respect to
any amount described in either such paragraph which is
transferred in connection with the transfer of reserves
described in subparagraph (A).
"(4) Elections under section 818(c) after september 27, 1983,
not to take effect. -
"(A) In general. - Except as provided in subparagraph (B),
any election after September 27, 1983, under section 818(c) of
the Internal Revenue Code of 1986 (as in effect on the day
before the date of the enactment of this Act) shall not take
effect.
"(B) Exception for certain contracts issued under plan of
insurance first filed after march 1, 1982, and before september
28, 1983. - Paragraph (3) and subparagraph (A) of this
paragraph shall not apply to any election under such section
818(c) if more than 95 percent of the reserves computed in
accordance with such election are attributable to risks under
life insurance contracts issued by the taxpayer under a plan of
insurance first filed after March 1, 1982, and before September
28, 1983.
"(C) Section 818(c) elections made by certain acquired
companies. -
"(i) In general. - If the case of any corporation -
"(I) which made an election under such section 818(c) before
September 28, 1983, and
"(II) which was acquired in a qualified stock purchase (as
defined in section 338(c) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954]) before December 31, 1983,
the fact that such corporation is treated as a new corporation
under section 338 of such Code shall not result in the election
described in subclause (I) not applying to such new corporation.
"(ii) Time for making section 818(c) or 338 election. - In
the case of any corporation described in clause (i), the time
for making an election under section 818(c) of such Code
(with respect to the first taxable year of the corporation
beginning in 1983 and ending after September 28, 1983), or
making an election under section 338 of such Code with
respect to the qualified stock purchase described in clause
(i)(II), shall not expire before the close of the 60th day
after the date of the enactment of the Tax Reform Act of 1986
[Oct. 22, 1986].
"(iii) Statute of limitations. - In the case of any such
election under section 818(c) or 338 of such Code which would
not have been timely made but for clause (ii), the period for
assessing any deficiency attributable to such election (or
for filing claim for credit or refund of any overpayment
attributable to such election) shall not expire before the
date 2 years after the date of the enactment of this Act
[July 18, 1984].
"(5) Recapture of reinsurance after december 31, 1983. - If (A)
insurance or annuity contracts in force on December 31, 1983, are
subject to a conventional coinsurance agreement entered into
after December 31, 1981, and before January 1, 1984, and (B) such
contracts are recaptured by the reinsured in any taxable year
beginning after December 31, 1983, then -
"(i) if the amount of the reserves with respect to the
recaptured contracts, computed at the date of recapture, that
the reinsurer would have taken into account under section
810(c) of the Internal Revenue Code of 1986 (as in effect on
the day before the date of the enactment of this Act) exceeds
the amount of the reserves with respect to the recaptured
contracts, computed at the date of recapture, taken into
account by the reinsurer under section 807(c) of the Internal
Revenue Code of 1986 (as amended by this subtitle), such excess
(but not greater than the amount of such excess if computed on
January 1, 1984) shall be taken into account by the reinsurer
under the method described in section 807(f)(1)(B)(ii) of the
Internal Revenue Code of 1986 (as amended by this subtitle)
commencing with the taxable year of recapture, and
"(ii) the amount, if any, taken into account by the reinsurer
under clause (i) for purposes of part I of subchapter L of
chapter 1 of the Internal Revenue Code of 1986 shall be taken
into account by the reinsured under the method described in
section 807(f)(1)(B)(i) of the Internal Revenue Code of 1986
(as amended by this subtitle) commencing with the taxable year
of recapture.
The excess described in clause (i) shall be reduced by any
portion of such excess to which section 807(f) of the Internal
Revenue Code of 1986 applies by reason of paragraph (3) of this
subsection. For purposes of this paragraph, the term 'reinsurer'
refers to the taxpayer that held reserves with respect to the
recaptured contracts as of the end of the taxable year preceding
the first taxable year beginning after December 31, 1983, and the
term 'reinsured' refers to the taxpayer to which such reserves
are ultimately transferred upon termination.
"(c) Election Not To Have Reserves Recomputed. -
"(1) In general. - If a qualified life insurance company makes
an election under this paragraph -
"(A) subsection (a) shall not apply to such company, and
"(B) as of the beginning of the first taxable year beginning
after December 31, 1983, and thereafter, the reserve for any
contract issued before the first day of such taxable year by
such company shall be the statutory reserve for such contract
(within the meaning of [former] section 809(b)(4)(B)(i) of the
Internal Revenue Code of 1986).
"(2) Election with respect to contracts issued after 1983 and
before 1989. -
"(A) In general. - If -
"(i) a qualified life insurance company makes an election
under paragraph (1), and
"(ii) the tentative LICTI (within the meaning of section
806(c) of such Code) of such company for its first taxable
year beginning after December 31, 1983, does not exceed
$3,000,000 (determined with regard to this paragraph),
such company may elect under this paragraph to have the reserve
for any contract issued on or after the first day of such first
taxable year and before January 1, 1989, be equal to the greater
of the statutory reserve for such contract (adjusted as provided
in subparagraph (B)) or the net surrender value of such contract
(as defined in section 807(e)(1) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954]).
"(B) Adjustment to reserves. - If this paragraph applies to
any contract, the opening and closing statutory reserves for
such contract shall be adjusted as provided under the
principles of section 805(c)(1) of such Code (as in effect for
taxable years beginning in 1982 and 1983), except that section
805(c)(1)(B)(ii) of such Code (as so in effect) shall be
applied by substituting -
"(i) the prevailing State assumed interest rate (within the
meaning of section 807(c)(4) of such Code), for
"(ii) the adjusted reserves rate.
"(3) Qualified life insurance company. - For purposes of this
subsection, the term 'qualified life insurance company' means any
life insurance company which, as of December 31, 1983, had assets
of less than $100,000,000 (determined in the same manner as under
section 806(b)(3) of such Code).
"(4) Special rules for controlled groups. - For purposes of
applying the dollar limitations of paragraphs (2) and (3), rules
similar to the rules of section 806(d) of such Code shall apply.
"(5) Elections. - Any election under paragraph (1) or (2) -
"(A) shall be made at such time and in such manner as the
Secretary of the Treasury may prescribe, and
"(B) once made, shall be irrevocable."
TREATMENT OF CERTAIN COMPANIES OPERATING BOTH AS STOCK AND MUTUAL
COMPANY
Section 217(e) of Pub. L. 98-369 provided that: "If, during the
10-year period ending on December 31, 1983, a company has, as
authorized by the law of the State in which the company is
domiciled, been operating as a mutual life insurance company with
shareholders, such company shall be treated as a stock life
insurance company."
TREATMENT OF REINSURANCE AGREEMENTS REQUIRED BY NATIONAL
ASSOCIATION OF INSURANCE COMMISSIONERS
Section 217(g) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Effective
for taxable years beginning after December 31, 1981, and before
January 1, 1984, subsections (c)(1)(F) and (d)(12) of section 809
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in
effect on the day before the date of the enactment of this Act
[July 18, 1984]) shall not apply to dividends to policyholders
reimbursed to the taxpayer by a reinsurer in respect of accident
and health policies reinsured under a reinsurance agreement entered
into before June 30, 1955, pursuant to the direction of the
National Association of Insurance Commissioners and approved by the
State insurance commissioner of the taxpayer's State of domicile.
For purposes of subchapter L of chapter 1 of such Code (as in
effect on the day before the date of the enactment of this Act) any
such dividends shall be treated as dividends of the reinsurer and
not the taxpayer."
REPORTS TO CONGRESS ON REVENUE, SEGMENT BALANCE, ETC.
Section 231 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) Revenue Reports. - Not later than July 1, 1985, and July 1
of each calendar year thereafter, the Secretary of the Treasury
shall submit to the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate a report
on -
"(1) the aggregate amount of revenue received under part I of
subchapter L of chapter 1 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] for the most recent taxable years for
which data are available,
"(2) a comparison between the amount of such revenue and the
amount anticipated by reason of changes made by the Tax Equity
and Fiscal Responsibility Act of 1982 [Pub. L. 97-248] or the
Life Insurance Tax Act of 1984 [probably means title II of div. A
of Pub. L. 98-369], and
"(3) the reasons for any difference between such aggregate
revenues and anticipated revenues.
"(b) Report With Respect to Segment Balance, Etc. -
"(1) In general. - The Secretary of the Treasury (in
consultation with the Joint Committee on Taxation, the Committee
on Ways and Means of the House of Representatives, and the
Committee on Finance of the Senate) shall conduct a full and
complete study of the operation of part I of subchapter L of
chapter 1 of the Internal Revenue Code of 1986 during 1984, 1985,
and 1986. Such study shall also include an analysis of life
insurance products and the taxation thereof. Such study shall
also include an analysis of whether part I of such subchapter L
operates as a disincentive to growing companies.
"(2) Items to be included. - The study conducted under
paragraph (1) shall include -
"(A) an analysis of the portion of the taxes paid by mutual
life insurance companies and stock life insurance companies,
and
"(B) any other data considered relevant by either stock life
insurance companies or mutual life insurance companies in
determining appropriate segment balance, such as the respective
amounts of the following items held by each segment of the
industry -
"(i) equity,
"(ii) life insurance reserves,
"(iii) other types of reserves,
"(iv) dividends paid to policyholders and shareholders,
"(v) pension business,
"(vi) total assets, and
"(vii) gross receipts.
Such report shall also include an analysis of the extent to which
taxes paid by stockholders of life insurance companies shall be
included in analyzing segment balance.
"(3) Reports. -
"(A) Interim reports. - The Secretary of the Treasury shall
submit interim reports on the study conducted under this
subsection to the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate not
later than July 1, 1986, 1987, and 1988.
"(B) Final report. - Not later than January 1, 1989, the
Secretary of the Treasury shall submit a final report on the
study conducted under this subsection to the Committee on Ways
and Means of the House of Representatives and the Committee on
Finance of the Senate.
"(c) Authority To Require Data. - The Secretary of the Treasury
shall have authority to require reporting of such data with respect
to life insurance companies and their products as may be necessary
to carry out the purposes of this section."
-End-
-CITE-
26 USC Subpart B - Life Insurance Gross Income 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart B - Life Insurance Gross Income
-HEAD-
SUBPART B - LIFE INSURANCE GROSS INCOME
-MISC1-
Sec.
803. Life insurance gross income.
-End-
-CITE-
26 USC Sec. 803 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart B - Life Insurance Gross Income
-HEAD-
Sec. 803. Life insurance gross income
-STATUTE-
(a) In general
For purposes of this part, the term "life insurance gross income"
means the sum of the following amounts:
(1) Premiums
(A) The gross amount of premiums and other consideration on
insurance and annuity contracts, less
(B) return premiums, and premiums and other consideration
arising out of indemnity reinsurance.
(2) Decreases in certain reserves
Each net decrease in reserves which is required by section
807(a) to be taken into account under this paragraph.
(3) Other amounts
All amounts not includible under paragraph (1) or (2) which
under this subtitle are includible in gross income.
(b) Special rules for premiums
(1) Certain items included
For purposes of subsection (a)(1)(A), the term "gross amount of
premiums and other consideration" includes -
(A) advance premiums,
(B) deposits,
(C) fees,
(D) assessments,
(E) consideration in respect of assuming liabilities under
contracts not issued by the taxpayer, and
(F) the amount of policyholder dividends reimbursable to the
taxpayer by a reinsurer in respect of reinsured policies,
on insurance and annuity contracts.
(2) Policyholder dividends excluded from return premiums
For purposes of subsection (a)(1)(B) -
(A) In general
Except as provided in subparagraph (B), the term "return
premiums" does not include any policyholder dividends.
(B) Exception for indemnity reinsurance
Subparagraph (A) shall not apply to amounts of premiums or
other consideration returned to another life insurance company
in respect of indemnity reinsurance.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 721.)
-MISC1-
PRIOR PROVISIONS
A prior section 803, acts Aug. 16, 1954, ch. 736, 68A Stat. 256;
Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 39, related to income and
deductions in the case of life insurance companies, prior to the
general revision of this part by Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 112.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
-End-
-CITE-
26 USC Subpart C - Life Insurance Deductions 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
SUBPART C - LIFE INSURANCE DEDUCTIONS
-MISC1-
Sec.
804. Life insurance deductions.
805. General deductions.
806. Small life insurance company deduction.
807. Rules for certain reserves.
808. Policyholder dividends deduction.
[809. Repealed.]
810. Operations loss deduction.
AMENDMENTS
2004 - Pub. L. 108-218, title II, Sec. 205(b)(7), Apr. 10, 2004,
118 Stat. 610, struck out item 809 "Reduction in certain deductions
of mutual life insurance companies".
1986 - Pub. L. 99-514, title X, Sec. 1011(b)(11)(B), Oct. 22,
1986, 100 Stat. 2389, substituted "Small life insurance company
deduction" for "Special deductions" in item 806.
-End-
-CITE-
26 USC Sec. 804 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 804. Life insurance deductions
-STATUTE-
For purposes of this part, the term "life insurance deductions"
means -
(1) the general deductions provided in section 805, and
(2) the small life insurance company deduction (if any)
determined under section 806(a).
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 722; amended Pub. L. 99-514, title X, Sec.
1011(b)(2), Oct. 22, 1986, 100 Stat. 2389.)
-MISC1-
PRIOR PROVISIONS
A prior section 804, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 115; amended Pub. L. 87-858, Sec. 3(b)(2), Oct. 23,
1962, 76 Stat. 1137; Pub. L. 88-272, title II, Sec. 214(b)(3), Feb.
26, 1964, 78 Stat. 55; Pub. L. 91-172, title IV, Sec. 401(b)(2)(D),
Dec. 30, 1969, 83 Stat. 602; Pub. L. 94-455, title XIX, Sec.
1901(a)(96), (b)(1)(J)(i), (iii), (K), (M), (33)(F), Oct. 4, 1976,
90 Stat. 1780, 1791, 1801, defined the term "taxable investment
income" and provided for the computation of such income, prior to
the general revision of this part by Pub. L. 98-369, Sec. 211(a).
Another prior section 804, acts Aug. 16, 1954, ch. 736, 68A Stat.
258; Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 41, related to reserve
and other policy liability deductions, prior to the general
revision of this part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
1986 - Pars. (2), (3). Pub. L. 99-514 redesignated par. (3) as
(2), substituted "section 806(a)" for "section 806(b)", and struck
out former par. (2), which read as follows: "the special life
insurance company deduction determined under section 806(a), and".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1011(c)(1) of Pub. L. 99-514, set
out as a note under section 453B of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
-End-
-CITE-
26 USC Sec. 805 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 805. General deductions
-STATUTE-
(a) General rule
For purposes of this part, there shall be allowed the following
deductions:
(1) Death benefits, etc.
All claims and benefits accrued, and all losses incurred
(whether or not ascertained), during the taxable year on
insurance and annuity contracts.
(2) Increases in certain reserves
The net increase in reserves which is required by section
807(b) to be taken into account under this paragraph.
(3) Policyholder dividends
The deduction for policyholder dividends (determined under
section 808(c)).
(4) Dividends received by company
(A) In general
The deductions provided by sections 243, 244, and 245 (as
modified by subparagraph (B)) -
(i) for 100 percent dividends received, and
(ii) for the life insurance company's share of the
dividends (other than 100 percent dividends) received.
(B) Application of section 246(b)
In applying section 246(b) (relating to limitation on
aggregate amount of deductions for dividends received) for
purposes of subparagraph (A), the limit on the aggregate amount
of the deductions allowed by sections 243(a)(1), 244(a), and
245 shall be the percentage determined under section 246(b)(3)
of the life insurance company taxable income (and such
limitation shall be applied as provided in section 246(b)(3)),
computed without regard to -
(i) the small life insurance company deduction,
(ii) the operations loss deduction provided by section 810,
(iii) the deductions allowed by sections 243(a)(1), 244(a),
and 245, and
(iv) any capital loss carryback to the taxable year under
section 1212(a)(1),
but such limit shall not apply for any taxable year for which
there is a loss from operations.
(C) 100 percent dividend
For purposes of subparagraph (A) -
(i) In general
Except as provided in clause (ii), the term "100 percent
dividend" means any dividend if the percentage used for
purposes of determining the deduction allowable under section
243, 244, or 245(b) is 100 percent.
(ii) Treatment of dividends from noninsurance companies
The term "100 percent dividend" does not include any
distribution by a corporation which is not an insurance
company to the extent such distribution is out of tax-exempt
interest, or out of the increase for the taxable year in
policy cash values (within the meaning of subparagraph (F))
of life insurance policies and annuity and endowment
contracts to which section 264(f) applies, or out of
dividends which are not 100 percent dividends (determined
with the application of this clause as if it applies to
distributions by all corporations including insurance
companies).
(D) Special rules for certain dividends from insurance
companies
(i) In general
In the case of any 100 percent dividend paid to any life
insurance company out of the earnings and profits for any
taxable year beginning after December 31, 1983, of another
life insurance company if -
(I) the paying company's share determined under section
812 for such taxable year, exceeds
(II) the receiving company's share determined under
section 812 for its taxable year in which the dividend is
received or accrued,
the deduction allowed under section 243, 244, or 245(b) (as
the case may be) shall be reduced as provided in clause (ii).
(ii) Amount of reduction
The reduction under this clause for a dividend is an amount
equal to -
(I) the portion of such dividend attributable to prorated
amounts, multiplied by
(II) the percentage obtained by subtracting the share
described in subclause (II) of clause (i) from the share
described in subclause (I) of such clause.
(iii) Prorated amounts
For purposes of this subparagraph, the term "prorated
amounts" means tax-exempt interest, the increase for the
taxable year in policy cash values (within the meaning of
subparagraph (F)) of life insurance policies and annuity and
endowment contracts to which section 264(f) applies, and
dividends other than 100 percent dividends.
(iv) Portion of dividend attributable to prorated amounts
For purposes of this subparagraph, in determining the
portion of any dividend attributable to prorated amounts -
(I) any dividend by the paying corporation shall be
treated as paid first out of earnings and profits for
taxable years beginning after December 31, 1983,
attributable to prorated amounts (to the extent thereof),
and
(II) by determining the portion of earnings and profits
so attributable without any reduction for the tax imposed
by this chapter.
(v) Subparagraph to apply to dividends from other insurance
companies
Rules similar to the rules of this subsection shall apply
in the case of 100 percent dividends paid by an insurance
company which is not a life insurance company.
(E) Certain dividends received by foreign corporations
Subparagraph (A)(i) (and not subparagraph (A)(ii)) shall
apply to any dividend received by a foreign corporation from a
domestic corporation which would be a 100 percent dividend if
section 1504(b)(3) did not apply for purposes of applying
section 243(b)(2).
(F) Increase in policy cash values
For purposes of subparagraphs (C) and (D) -
(i) In general
The increase in the policy cash value for any taxable year
with respect to policy or contract is the amount of the
increase in the adjusted cash value during such taxable year
determined without regard to -
(I) gross premiums paid during such taxable year, and
(II) distributions (other than amounts includible in the
policyholder's gross income) during such taxable year to
which section 72(e) applies.
(ii) Adjusted cash value
For purposes of clause (i), the term "adjusted cash value"
means the cash surrender value of the policy or contract
increased by the sum of -
(I) commissions payable with respect to such policy or
contract for the taxable year, and
(II) asset management fees, surrender charges, mortality
and expense charges, and any other fees or charges
specified in regulations prescribed by the Secretary which
are imposed (or which would be imposed were the policy or
contract canceled) with respect to such policy or contract
for the taxable year.
(5) Operations loss deduction
The operations loss deduction (determined under section 810).
(6) Assumption by another person of liabilities under insurance,
etc., contracts
The consideration (other than consideration arising out of
indemnity reinsurance) in respect of the assumption by another
person of liabilities under insurance and annuity contracts.
(7) Reimbursable dividends
The amount of policyholder dividends which -
(A) are paid or accrued by another insurance company in
respect of policies the taxpayer has reinsured, and
(B) are reimbursable by the taxpayer under the terms of the
reinsurance contract.
(8) Other deductions
Subject to the modifications provided by subsection (b), all
other deductions allowed under this subtitle for purposes of
computing taxable income.
Except as provided in paragraph (3), no amount shall be allowed as
a deduction under this part in respect of policyholder dividends.
(b) Modifications
The modifications referred to in subsection (a)(8) are as
follows:
(1) Interest
In applying section 163 (relating to deduction for interest),
no deduction shall be allowed for interest in respect of items
described in section 807(c).
(2) Charitable, etc., contributions and gifts
In applying section 170 -
(A) the limit on the total deductions under such section
provided by section 170(b)(2) shall be 10 percent of the life
insurance company taxable income computed without regard to -
(i) the deduction provided by section 170,
(ii) the deductions provided by paragraphs (3) and (4) of
subsection (a),
(iii) the small life insurance company deduction,
(iv) any operations loss carryback to the taxable year
under section 810, and
(v) any capital loss carryback to the taxable year under
section 1212(a)(1), and
(B) under regulations prescribed by the Secretary, a rule
similar to the rule contained in section 170(d)(2)(B) (relating
to special rule for net operating loss carryovers) shall be
applied.
(3) Amortizable bond premium
(A) In general
Section 171 shall not apply.
(B) Cross reference
For rules relating to amortizable bond premium, see section
811(b).
(4) Net operating loss deduction
Except as provided by section 844, the deduction for net
operating losses provided in section 172 shall not be allowed.
(5) Dividends received deduction
Except as provided in subsection (a)(4), the deductions for
dividends received provided by sections 243, 244, and 245 shall
not be allowed.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 722; amended Pub. L. 99-514, title VI, Sec.
611(a)(5), title VIII, Sec. 805(c)(6), title X, Sec. 1011(b)(4),
title XVIII, Sec. 1821(p), Oct. 22, 1986, 100 Stat. 2249, 2362,
2389, 2842; Pub. L. 100-203, title X, Sec. 10221(c)(2), Dec. 22,
1987, 101 Stat. 1330-409; Pub. L. 104-188, title I, Sec.
1702(h)(3), Aug. 20, 1996, 110 Stat. 1873; Pub. L. 105-34, title X,
Sec. 1084(b)(1), Aug. 5, 1997, 111 Stat. 954.)
-COD-
CODIFICATION
Another section 1084(b) of Pub. L. 105-34 amended sections 101
and 264 of this title.
-MISC1-
PRIOR PROVISIONS
A prior section 805, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 118; amended Pub. L. 87-792, Sec. 7(g), Oct. 10,
1962, 76 Stat. 829; Pub. L. 88-571, Sec. 5(a), Sept. 2, 1964, 78
Stat. 860; Pub. L. 91-172, title IX, Sec. 907(a)(1), Dec. 30, 1969,
83 Stat. 715; Pub. L. 93-406, title II, Secs. 1016(a)(6),
2002(g)(9), 2004(c)(3), Sept. 2, 1974, 88 Stat. 929, 970, 986; Pub.
L. 94-267, Sec. (1)(c)(4), Apr. 15, 1976, 90 Stat. 367; Pub. L. 94-
455, title XIX, Sec. 1901(a)(97), Oct. 4, 1976, 90 Stat. 1780;
Pub. L. 95-600, title I, Secs. 141(f)(9), 155(a), Nov. 6, 1978, 92
Stat. 2795, 2801; Pub. L. 97-248, title II, Secs. 257(a), 260(b),
261, 264(a)-(c)(1), Sept. 3, 1982, 96 Stat. 537, 540, 543, 544,
related to policy and other contract liability requirements, prior
to general revision of this part by Pub. L. 98-369, Sec. 211(a).
Another prior section 805, acts Aug. 16, 1954, ch. 736, 68A Stat.
258; Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 43, authorized a
special interest deduction, prior to the general revision of this
part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
1997 - Subsec. (a)(4)(C)(ii). Pub. L. 105-34, Sec. 1084(b)(1)(A),
inserted ", or out of the increase for the taxable year in policy
cash values (within the meaning of subparagraph (F)) of life
insurance policies and annuity and endowment contracts to which
section 264(f) applies," after "tax-exempt interest".
Subsec. (a)(4)(D)(iii). Pub. L. 105-34, Sec. 1084(b)(1)(B),
substituted ", the increase for the taxable year in policy cash
values (within the meaning of subparagraph (F)) of life insurance
policies and annuity and endowment contracts to which section
264(f) applies, and" for "and".
Subsec. (a)(4)(F). Pub. L. 105-34, Sec. 1084(b)(1)(C), added
subpar. (F).
1996 - Subsec. (a)(4)(E). Pub. L. 104-188 substituted "243(b)(2)"
for "243(b)(5)".
1987 - Subsec. (a)(4)(B). Pub. L. 100-203 substituted "shall be
the percentage determined under section 246(b)(3) of the life
insurance company taxable income (and such limitation shall be
applied as provided in section 246(b)(3))" for "shall be 80 percent
of the life insurance company taxable income".
1986 - Subsec. (a)(4)(B). Pub. L. 99-514, Sec. 611(a)(5),
substituted "80 percent" for "85 percent" in introductory
provisions.
Subsec. (a)(4)(B)(i). Pub. L. 99-514, Sec. 1011(b)(4), struck out
"the special life insurance company deduction and" before "the
small life".
Subsec. (a)(4)(C) to (E). Pub. L. 99-514, Sec. 1821(p), added
subpars. (C) and (D), redesignated former subpar. (D) as (E), and
struck out former subpar. (C) which read as follows: "For purposes
of subparagraph (A), the term '100 percent dividend' means any
dividend if the percentage used for purposes of determining the
deduction allowable under section 243 or 244 is 100 percent. Such
term does not include any dividend to the extent it is a
distribution out of tax-exempt interest or out of dividends which
are not 100 percent dividends (determined with the application of
this sentence)."
Subsec. (b)(2). Pub. L. 99-514, Sec. 805(c)(6), redesignated par.
(3) as (2). Former par. (2), which provided that section 166(c)
(relating to reserve for bad debts) shall not apply, was struck
out.
Subsec. (b)(2)(A)(iii). Pub. L. 99-514, Sec. 1011(b)(4), which
directed that subsec. (b)(3)(A)(iii) be amended by striking out
"the special life insurance company deduction and" before "the
small life", was executed to subsec. (b)(2)(A)(iii) to reflect the
probable intent of Congress and the redesignation of subsec. (b)(3)
as (b)(2) by Pub. L. 99-514, Sec. 805(c)(6).
Subsec. (b)(3) to (6). Pub. L. 99-514, Sec. 805(c)(6),
redesignated pars. (3) to (6) as (2) to (5), respectively.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to contracts issued after
June 8, 1997, in taxable years ending after such date, with special
provisions relating to changes in contracts to be treated as new
contracts, see section 1084(d) of Pub. L. 105-34, set out as a note
under section 101 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 31, 1987, see section 10221(e)(2) of Pub. L.
100-203, as amended, set out as a note under section 243 of this
title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 611(a)(5) of Pub. L. 99-514 applicable to
dividends received or accrued after Dec. 31, 1986, in taxable years
ending after such date, see section 611(b)(1) of Pub. L. 99-514,
set out as a note under section 246 of this title.
Amendment by section 805(c)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain changes
required in method of accounting, see section 805(d) of Pub. L. 99-
514, set out as a note under section 166 of this title.
Amendment by section 1011(b)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1011(c)(1)
of Pub. L. 99-514, set out as a note under section 453B of this
title.
Amendment by section 1821(p) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 806 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 806. Small life insurance company deduction
-STATUTE-
(a) Small life insurance company deduction
(1) In general
For purposes of section 804, the small life insurance company
deduction for any taxable year is 60 percent of so much of the
tentative LICTI for such taxable year as does not exceed
$3,000,000.
(2) Phaseout between $3,000,000 and $15,000,000
The amount of the small life insurance company deduction
determined under paragraph (1) for any taxable year shall be
reduced (but not below zero) by 15 percent of so much of the
tentative LICTI for such taxable year as exceeds $3,000,000.
(3) Small life insurance company deduction not allowable to
company with assets of $500,000,000 or more
(A) In general
The small life insurance company deduction shall not be
allowed for any taxable year to any life insurance company
which, at the close of such taxable year, has assets equal to
or greater than $500,000,000.
(B) Assets
For purposes of this paragraph, the term "assets" means all
assets of the company.
(C) Valuation of assets
For purposes of this paragraph, the amount attributable to -
(i) real property and stock shall be the fair market value
thereof, and
(ii) any other asset shall be the adjusted basis of such
asset for purposes of determining gain on sale or other
disposition.
(D) Special rule for interests in partnerships and trusts
For purposes of this paragraph -
(i) an interest in a partnership or trust shall not be
treated as an asset of the company, but
(ii) the company shall be treated as actually owning its
proportionate share of the assets held by the partnership or
trust (as the case may be).
(b) Tentative LICTI
For purposes of this part -
(1) In general
The term "tentative LICTI" means life insurance company taxable
income determined without regard to the small life insurance
company deduction.
(2) Exclusion of items attributable to noninsurance businesses
The amount of the tentative LICTI for any taxable year shall be
determined without regard to all items attributable to
noninsurance businesses.
(3) Noninsurance business
(A) In general
The term "noninsurance business" means any activity which is
not an insurance business.
(B) Certain activities treated as insurance businesses
For purposes of subparagraph (A), any activity which is not
an insurance business shall be treated as an insurance business
if -
(i) it is of a type traditionally carried on by life
insurance companies for investment purposes, but only if the
carrying on of such activity (other than in the case of real
estate) does not constitute the active conduct of a trade or
business, or
(ii) it involves the performance of administrative services
in connection with plans providing life insurance, pension,
or accident and health benefits.
(C) Limitation on amount of loss from noninsurance business
which may offset income from insurance business
In computing the life insurance company taxable income of any
life insurance company, any loss from a noninsurance business
shall be limited under the principles of section 1503(c).
(c) Special rule for controlled groups
(1) Small life insurance company deduction determined on
controlled group basis
For purposes of subsection (a) -
(A) all life insurance companies which are members of the
same controlled group shall be treated as 1 life insurance
company, and
(B) any small life insurance company deduction determined
with respect to such group shall be allocated among the life
insurance companies which are members of such group in
proportion to their respective tentative LICTI's.
(2) Nonlife insurance members included for asset test
For purposes of subsection (a)(3), all members of the same
controlled group (whether or not life insurance companies) shall
be treated as 1 company.
(3) Controlled group
For purposes of this subsection, the term "controlled group"
means any controlled group of corporations (as defined in section
1563(a)); except that subsections (a)(4) and (b)(2)(D) of section
1563 shall not apply.
(4) Adjustments to prevent excess detriment or benefit
Under regulations prescribed by the Secretary, proper
adjustments shall be made in the application of this subsection
to prevent any excess detriment or benefit (whether from year-to-
year or otherwise) arising from the application of this
subsection.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 724; amended Pub. L. 99-514, title X, Sec. 1011(a),
(b)(5)-(8), (11)(A), Oct. 22, 1986, 100 Stat. 2388, 2389.)
-MISC1-
PRIOR PROVISIONS
A prior section 806, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 120; amended Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to certain
changes in reserves and assets, prior to the general revision of
this part by Pub. L. 98-369, Sec. 211(a).
Another prior section 806, act Aug. 16, 1954, ch. 736, 68A Stat.
258, related to adjustment for certain reserves, prior to the
general revision of this part by act Mar. 13, 1956, ch. 83, Sec. 2,
70 Stat. 36.
AMENDMENTS
1986 - Pub. L. 99-514, Sec. 1011(b)(11)(A), substituted "Small
life insurance company deduction" for "Special deductions" in
section catchline.
Subsec. (a). Pub. L. 99-514, Sec. 1011(a), redesignated subsec.
(b) as (a) and struck out former subsec. (a), special life
insurance company deduction, which read as follows: "For purposes
of section 804, the special life insurance company deduction for
any taxable year is 20 percent of the excess of the tentative LICTI
for such taxable year over the small life insurance company
deduction (if any)."
Subsec. (b). Pub. L. 99-514, Sec. 1011(a), (b)(5), redesignated
subsec. (c) as (b), and in par. (1), substituted "without regard to
the small life insurance company deduction" for "without regard to -
(A) the special life insurance company deduction, and (B) the
small life insurance company deduction". Former subsec. (b)
redesignated (a).
Subsecs. (c), (d). Pub. L. 99-514, Sec. 1011(a), (b)(6)-(8),
redesignated subsec. (d) as (c), in par. (1), in heading,
substituted "Small" for "Special life insurance company deduction
and small", in introductory provisions, substituted "subsection
(a)" for "subsections (a) and (b)", and in subpar. (B), struck out
"any special life insurance company deduction and", in par. (2),
substituted "subsection (a)(3)" for "subsection (b)(3)",
redesignated par. (5) as (4), and struck out former par. (4) which
provided for election with respect to loss from operations of
member of group. Former subsec. (c) redesignated (b).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1011(c)(1) of Pub. L. 99-514, set
out as a note under section 453B of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
DETERMINATION OF TENTATIVE LICTI WHERE CORPORATION MADE CERTAIN
ACQUISITIONS IN 1980, 1981, 1982, AND 1983
Section 217(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If -
"(1) a corporation domiciled or having its principal place of
business in Alabama, Arkansas, Oklahoma, or Texas acquired the
assets of 1 or more insurance companies after 1979 and before
April 1, 1983, and
"(2) the bases of such assets in the hands of the corporation
were determined under section 334(b)(2) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] or such corporation made an
election under section 338 of such Code with respect to such
assets,
then the tentative LICTI of the corporation holding such assets for
taxable years beginning after December 31, 1983, shall, for
purposes of determining the amount of the special deductions under
section 806 of such Code, be increased by the deduction allowable
under chapter 1 of such Code for the amortization of the cost of
insurance contracts acquired in such asset acquisition (and any
portion of any operations loss deduction attributable to such
amortization)."
DETERMINATION OF ASSETS OF CONTROLLED GROUP FOR PURPOSES OF SMALL
LIFE INSURANCE COMPANY DEDUCTION FOR 1984
Section 217(h) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - For purposes of applying paragraph (2) of
section 806(d) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (relating to nonlife insurance members included for
asset test) for the first taxable year beginning after December 31,
1983, the members of the controlled group referred to in such
paragraph shall be treated as including only those members of such
group which are described in paragraph (2) of this subsection if -
"(A) an election under section 1504(c)(2) of such Code is not
in effect for the controlled group for such taxable year,
"(B) during such taxable year, the controlled group does not
include a member which is taxable under part I of subchapter L of
chapter 1 of such Code and which became a member of such group
after September 27, 1983, and
"(C) the sum of the contributions to capital received by
members of the controlled group which are taxable under such part
I during such taxable year from the members of the controlled
group which are not taxable under such part does not exceed the
aggregate dividends paid during such taxable year by the members
of such group which are taxable under such part I.
"(2) Members of group taken into account. - For purposes of
paragraph (1), the members of the controlled group which are
described in this paragraph are -
"(A) any financial institution to which section 585 or 593 of
such Code applies,
"(B) any lending or finance business (as defined by section
542(d)),
"(C) any insurance company subject to tax imposed by subchapter
L of chapter 1 of such Code, and
"(D) any securities broker."
SPECIAL RULE FOR CERTAIN DEBT-FINANCED ACQUISITION OF STOCK
Section 217(k) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title X, Sec. 1011(c)(2), Oct. 22, 1986, 100 Stat. 2095,
2389, provided that: "If -
"(1) a life insurance company owns the stock of another
corporation through a partnership of which it is a partner,
"(2) the stock of the corporation was acquired on January 14,
1981, and
"(3) such stock was acquired by debt financing,
then, for purposes of determining the small life insurance company
deduction under section 806a of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as amended by this subtitle [subtitle A
(Secs. 211-219) of title II of div. A of Pub. L. 98-369, see Tables
for classifications]), the amount of tentative LICTI of such life
insurance company shall be computed without taking into account any
income, gain, loss, or deduction attributable to the ownership of
such stock. For purposes of determining taxable income, the amount
of any income, gain, loss, or deduction attributable to the
ownership of such stock shall be an amount equal to 46 times the
amount of such income, gain, loss, or deduction, divided by 36.8."
TREATMENT OF LOSSES FROM CERTAIN GUARANTEED INTEREST CONTRACTS
Section 217(l) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - For purposes of determining the amount of the
special deductions under section 806 of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954] (as amended by this subtitle
[subtitle A (Secs. 211-219) of title II of div. A of Pub. L. 98-
369, see Tables for classification]), for any taxable year
beginning before January 1, 1988, the amount of tentative LICTI of
any qualified life insurance company shall be computed without
taking into account any income, gain, loss, or deduction
attributable to a qualified GIC.
"(2) Qualified life insurance company. - For purposes of this
subsection, the term 'qualified life insurance company' means any
life insurance company if -
"(A) the accrual of discount less amortization of premium for
bonds and short-term investments (as shown in the first footnote
to Exhibit 3 of its 1983 annual statement for life insurance
companies approved by the National Association of Insurance
Commissioners (but excluding separate accounts) filed in its
State of domicile) exceeds $72,000,000 but does not exceed
$73,000,000, and
"(B) such life insurance company makes an election under this
subsection on its return for its first taxable year beginning
after December 31, 1983.
"(3) Qualified gic. - The term 'qualified GIC' means any group
contract -
"(A) which is issued before January 1, 1984,
"(B) which specifies the contract maturity or renewal date,
"(C) under which funds deposited by the contract holder plus
interest guaranteed at the inception of the contract for the term
of the contract and net of any specified expenses are paid as
directed by the contract holder, and
"(D) which is a pension plan contract (as defined in section
818(a) of the Internal Revenue Code of 1986).
"(4) Scope of election. - An election under this subsection shall
apply to all qualified GIC's of a qualified life insurance company.
Any such election, once made, shall be irrevocable.
"(5) Income on underlying assets taken into account. - In
determining the amount of any income attributable to a qualified
GIC, income on any asset attributable to such contract (as
determined in the manner provided by the Secretary of the Treasury
or his delegate) shall be taken into account.
"(6) Limitation on tax benefit. - The amount of any reduction in
tax for any taxable year by reason of this subsection for any
qualified life insurance company (or controlled group within the
meaning of section 806(d)(3) of the Internal Revenue Code of 1986)
shall not exceed the applicable amount set forth in the following
table:
"In the case of taxable The reduction
may
years beginning in: not exceed:
1984 $4,500,000
1985 $4,500,000
1986 $3,000,000
1987 $2,000,000"
SPECIAL RULE FOR CERTAIN INTERESTS IN OIL AND GAS PROPERTIES
Section 217(m) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - For purposes of section 806 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954], the ownership by a
qualified life insurance company of any undivided interest in
operating mineral interests with respect to any oil or gas
properties held on December 31, 1983, shall be treated as an
insurance business.
"(2) Qualified life insurance company. - For purposes of
paragraph (1), the term 'qualified life insurance company' means a
mutual life insurance company which -
"(A) was originally incorporated in March of 1857, and
"(B) has a cost to such company (as of December 31, 1983) in
the operating mineral interests described in paragraph (1) in
excess of $250,000,000."
-End-
-CITE-
26 USC Sec. 807 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 807. Rules for certain reserves
-STATUTE-
(a) Decrease treated as gross income
If for any taxable year -
(1) the opening balance for the items described in subsection
(c), exceeds
(2)(A) the closing balance for such items, reduced by
(B) the amount of the policyholders' share of tax-exempt
interest and the amount of the policyholder's share of the
increase for the taxable year in policy cash values (within the
meaning of section 805(a)(4)(F)) of life insurance policies and
annuity and endowment contracts to which section 264(f) applies,
such excess shall be included in gross income under section
803(a)(2).
(b) Increase treated as deduction
If for any taxable year -
(1)(A) the closing balance for the items described in
subsection (c), reduced by
(B) the amount of the policyholders' share of tax-exempt
interest and the amount of the policyholder's share of the
increase for the taxable year in policy cash values (within the
meaning of section 805(a)(4)(F)) of life insurance policies and
annuity and endowment contracts to which section 264(f) applies,
exceeds
(2) the opening balance for such items,
such excess shall be taken into account as a deduction under
section 805(a)(2).
(c) Items taken into account
The items referred to in subsections (a) and (b) are as follows:
(1) The life insurance reserves (as defined in section 816(b)).
(2) The unearned premiums and unpaid losses included in total
reserves under section 816(c)(2).
(3) The amounts (discounted at the appropriate rate of
interest) necessary to satisfy the obligations under insurance
and annuity contracts, but only if such obligations do not
involve (at the time with respect to which the computation is
made under this paragraph) life, accident, or health
contingencies.
(4) Dividend accumulations, and other amounts, held at interest
in connection with insurance and annuity contracts.
(5) Premiums received in advance, and liabilities for premium
deposit funds.
(6) Reasonable special contingency reserves under contracts of
group term life insurance or group accident and health insurance
which are established and maintained for the provision of
insurance on retired lives, for premium stabilization, or for a
combination thereof.
For purposes of paragraph (3), the appropriate rate of interest for
any obligation is whichever of the following rates is the highest
as of the time such obligation first did not involve life,
accident, or health contingencies: the applicable Federal interest
rate under subsection (d)(2)(B)(i), the prevailing State assumed
interest rate under subsection (d)(2)(B)(ii), or the rate of
interest assumed by the company in determining the guaranteed
benefit. In no case shall the amount determined under paragraph (3)
for any contract be less than the net surrender value of such
contract. For purposes of paragraph (2) and section 805(a)(1), the
amount of the unpaid losses (other than losses on life insurance
contracts) shall be the amount of the discounted unpaid losses as
defined in section 846.
(d) Method of computing reserves for purposes of determining income
(1) In general
For purposes of this part (other than section 816), the amount
of the life insurance reserves for any contract shall be the
greater of -
(A) the net surrender value of such contract, or
(B) the reserve determined under paragraph (2).
In no event shall the reserve determined under the preceding
sentence for any contract as of any time exceed the amount which
would be taken into account with respect to such contract as of
such time in determining statutory reserves (as defined in
paragraph (6)).
(2) Amount of reserve
The amount of the reserve determined under this paragraph with
respect to any contract shall be determined by using -
(A) the tax reserve method applicable to such contract,
(B) the greater of -
(i) the applicable Federal interest rate, or
(ii) the prevailing State assumed interest rate, and
(C) the prevailing commissioners' standard tables for
mortality and morbidity adjusted as appropriate to reflect the
risks (such as substandard risks) incurred under the contract
which are not otherwise taken into account.
(3) Tax reserve method
For purposes of this subsection -
(A) In general
The term "tax reserve method" means -
(i) Life insurance contracts
The CRVM in the case of a contract covered by the CRVM.
(ii) Annuity contracts
The CARVM in the case of a contract covered by the CARVM.
(iii) Noncancellable accident and health insurance contracts
In the case of any noncancellable accident and health
insurance contract (other than a qualified long-term care
insurance contract, as defined in section 7702B(b)), a 2-year
full preliminary term method.
(iv) Other contracts
In the case of any contract not described in clause (i),
(ii), or (iii) -
(I) the reserve method prescribed by the National
Association of Insurance Commissioners which covers such
contract (as of the date of issuance), or
(II) if no reserve method has been prescribed by the
National Association of Insurance Commissioners which
covers such contract, a reserve method which is consistent
with the reserve method required under clause (i), (ii), or
(iii) or under subclause (I) of this clause as of the date
of the issuance of such contract (whichever is most
appropriate).
(B) Definition of CRVM and CARVM
For purposes of this paragraph -
(i) CRVM
The term "CRVM" means the Commissioners' Reserve Valuation
Method prescribed by the National Association of Insurance
Commissioners which is in effect on the date of the issuance
of the contract.
(ii) CARVM
The term "CARVM" means the Commissioners' Annuities Reserve
Valuation Method prescribed by the National Association of
Insurance Commissioners which is in effect on the date of the
issuance of the contract.
(C) No additional reserve deduction allowed for deficiency
reserves
Nothing in any reserve method described under this paragraph
shall permit any increase in the reserve because the net
premium (computed on the basis of assumptions required under
this subsection) exceeds the actual premiums or other
consideration charged for the benefit.
(4) Applicable Federal interest rate; prevailing State assumed
interest rate
For purposes of this subsection -
(A) Applicable Federal interest rate
(i) In general
Except as provided in clause (ii), the term "applicable
Federal interest rate" means the annual rate determined by
the Secretary under section 846(c)(2) for the calendar year
in which the contract was issued.
(ii) Election to recompute Federal interest rate every 5
years
(I) In general
In computing the amount of the reserve with respect to
any contract to which an election under this clause applies
for periods during any recomputation period, the applicable
Federal interest rate shall be the annual rate determined
by the Secretary under section 846(c)(2) for the 1st year
of such period. No change in the applicable Federal
interest rate shall be made under the preceding sentence
unless such change would equal or exceed 1/2 of 1
percentage point.
(II) Recomputation period
For purposes of subclause (I), the term "recomputation
period" means, with respect to any contract, the 5 calendar
year period beginning with the 5th calendar year beginning
after the calendar year in which the contract was issued
(and each subsequent 5 calendar year period).
(III) Election
An election under this clause shall apply to all
contracts issued during the calendar year for which the
election was made or during any subsequent calendar year
unless such election is revoked with the consent of the
Secretary.
(IV) Spread not available
Subsection (f) shall not apply to any adjustment required
under this clause.
(B) Prevailing State assumed interest rate
(i) In general
The term "prevailing State assumed interest rate" means,
with respect to any contract, the highest assumed interest
rate permitted to be used in computing life insurance
reserves for insurance contracts or annuity contracts (as the
case may be) under the insurance laws of at least 26 States.
For purposes of the preceding sentence, the effect of
nonforfeiture laws of a State on interest rates for reserves
shall not be taken into account.
(ii) When rate determined
The prevailing State assumed interest rate with respect to
any contract shall be determined as of the beginning of the
calendar year in which the contract was issued.
(5) Prevailing commissioners' standard tables
For purposes of this subsection -
(A) In general
The term "prevailing commissioners' standard tables" means,
with respect to any contract, the most recent commissioners'
standard tables prescribed by the National Association of
Insurance Commissioners which are permitted to be used in
computing reserves for that type of contract under the
insurance laws of at least 26 States when the contract was
issued.
(B) Insurer may use old tables for 3 years when tables change
If the prevailing commissioners' standard tables as of the
beginning of any calendar year (hereinafter in this
subparagraph referred to as the "year of change") is different
from the prevailing commissioners' standard tables as of the
beginning of the preceding calendar year, the issuer may use
the prevailing commissioners' standard tables as of the
beginning of the preceding calendar year with respect to any
contract issued after the change and before the close of the 3-
year period beginning on the first day of the year of change.
(C) Special rule for contracts for which there are no
commissioners' standard tables
If there are no commissioners' standard tables applicable to
any contract when it is issued, the mortality and morbidity
tables used for purposes of paragraph (2)(C) shall be
determined under regulations prescribed by the Secretary. When
the Secretary by regulation changes the table applicable to a
type of contract, the new table shall be treated (for purposes
of subparagraph (B) and for purposes of determining the issue
dates of contracts for which it shall be used) as if it were a
new prevailing commissioner's standard table adopted by the
twenty-sixth State as of a date (no earlier than the date the
regulation is issued) specified by the Secretary.
(D) Special rule for contracts issued before 1948
If -
(i) a contract was issued before 1948, and
(ii) there were no commissioners' standard tables
applicable to such contract when it was issued,
the mortality and morbidity tables used in computing statutory
reserves for such contracts shall be used for purposes of
paragraph (2)(C).
(E) Special rule where more than 1 table or option applicable
If, with respect to any category of risks, there are 2 or
more tables (or options under 1 or more tables) which meet the
requirements of subparagraph (A) (or, where applicable,
subparagraph (B) or (C)), the table (and option thereunder)
which generally yields the lowest reserves shall be used for
purposes of paragraph (2)(C).
(6) Statutory reserves
The term "statutory reserves" means the aggregate amount set
forth in the annual statement with respect to items described in
section 807(c). Such term shall not include any reserve
attributable to a deferred and uncollected premium if the
establishment of such reserve is not permitted under section
811(c).
(e) Special rules for computing reserves
(1) Net surrender value
For purposes of this section -
(A) In general
The net surrender value of any contract shall be determined -
(i) with regard to any penalty or charge which would be
imposed on surrender, but
(ii) without regard to any market value adjustment on
surrender.
(B) Special rule for pension plan contracts
In the case of a pension plan contract, the balance in the
policyholder's fund shall be treated as the net surrender value
of such contract. For purposes of the preceding sentence, such
balance shall be determined with regard to any penalty or
forfeiture which would be imposed on surrender but without
regard to any market value adjustment.
(2) Issuance date in case of group contracts
For purposes of this section, in the case of a group contract,
the date on which such contract is issued shall be the date as of
which the master plan is issued (or, with respect to a benefit
guaranteed to a participant after such date, the date as of which
such benefit is guaranteed).
(3) Supplemental benefits
(A) Qualified supplemental benefits treated separately
For purposes of this part, the amount of the life insurance
reserve for any qualified supplemental benefit -
(i) shall be computed separately as though such benefit
were under a separate contract, and
(ii) shall, except to the extent otherwise provided in
regulations, be the reserve taken into account for purposes
of the annual statement approved by the National Association
of Insurance Commissioners.
(B) Supplemental benefits which are not qualified supplemental
benefits
In the case of any supplemental benefit described in
subparagraph (D) which is not a qualified supplemental benefit,
the amount of the reserve determined under paragraph (2) of
subsection (d) shall, except to the extent otherwise provided
in regulations, be the reserve taken into account for purposes
of the annual statement approved by the National Association of
Insurance Commissioners.
(C) Qualified supplemental benefit
For purposes of this paragraph, the term "qualified
supplemental benefit" means any supplemental benefit described
in subparagraph (D) if -
(i) there is a separately identified premium or charge for
such benefit, and
(ii) any net surrender value under the contract
attributable to any other benefit is not available to fund
such benefit.
(D) Supplemental benefits
For purposes of this paragraph, the supplemental benefits
described in this subparagraph are any -
(i) guaranteed insurability,
(ii) accidental death or disability benefit,
(iii) convertibility,
(iv) disability waiver benefit, or
(v) other benefit prescribed by regulations,
which is supplemental to a contract for which there is a
reserve described in subsection (c).
(4) Certain contracts issued by foreign branches of domestic life
insurance companies
(A) In general
In the case of any qualified foreign contract, the amount of
the reserve shall be not less than the minimum reserve required
by the laws, regulations, or administrative guidance of the
regulatory authority of the foreign country referred to in
subparagraph (B) (but not to exceed the net level reserves for
such contract).
(B) Qualified foreign contract
For purposes of subparagraph (A), the term "qualified foreign
contract" means any contract issued by a foreign life insurance
branch (which has its principal place of business in a foreign
country) of a domestic life insurance company if -
(i) such contract is issued on the life or health of a
resident of such country,
(ii) such domestic life insurance company was required by
such foreign country (as of the time it began operations in
such country) to operate in such country through a branch,
and
(iii) such foreign country is not contiguous to the United
States.
(5) Treatment of substandard risks
(A) Separate computation
Except to the extent provided in regulations, the amount of
the life insurance reserve for any qualified substandard risk
shall be computed separately under subsection (d)(1) from any
other reserve under the contract.
(B) Qualified substandard risk
For purposes of subparagraph (A), the term "qualified
substandard risk" means any substandard risk if -
(i) the insurance company maintains a separate reserve for
such risk,
(ii) there is a separately identified premium or charge for
such risk,
(iii) the amount of the net surrender value under the
contract is not increased or decreased by reason of such
risk, and
(iv) the net surrender value under the contract is not
regularly used to pay premium charges for such risk.
(C) Limitation on amount of life insurance reserve
The amount of the life insurance reserve determined for any
qualified substandard risk shall in no event exceed the sum of
the separately identified premiums charged for such risk plus
interest less mortality charges for such risk.
(D) Limitation on amount of contracts to which paragraph
applies
The aggregate amount of insurance in force under contracts to
which this paragraph applies shall not exceed 10 percent of the
insurance in force (other than term insurance) under life
insurance contracts of the company.
(6) Special rules for contracts issued before January 1, 1989,
under existing plans of insurance, with term insurance or
annuity benefits
For purposes of this part -
(A) In general
In the case of a life insurance contract issued before
January 1, 1989, under an existing plan of insurance, the life
insurance reserve for any benefit to which this paragraph
applies shall be computed separately under subsection (d)(1)
from any other reserve under the contract.
(B) Benefits to which this paragraph applies
This paragraph applies to any term insurance or annuity
benefit with respect to which the requirements of clauses (i)
and (ii) of paragraph (3)(C) are met.
(C) Existing plan of insurance
For purposes of this paragraph, the term "existing plan of
insurance" means, with respect to any contract, any plan of
insurance which was filed by the company using such contract in
one or more States before January 1, 1984, and is on file in
the appropriate State for such contract.
(7) Special rules for treatment of certain nonlife reserves
(A) In general
The amount taken into account for purposes of subsections (a)
and (b) as -
(i) the opening balance of the items referred to in
subparagraph (C), and
(ii) the closing balance of such items,
shall be 80 percent of the amount which (without regard to this
subparagraph) would have been taken into account as such
opening or closing balance, as the case may be.
(B) Transitional rule
(i) In general
In the case of any taxable year beginning on or after
September 30, 1990, and before September 30, 1996, there
shall be included in the gross income of any life insurance
company an amount equal to 3 1/3 percent of such company's
closing balance of the items referred to in subparagraph (C)
for its most recent taxable year beginning before September
30, 1990.
(ii) Termination as life insurance company
Except as provided in section 381(c)(22), if, for any
taxable year beginning on or before September 30, 1996, the
taxpayer ceases to be a life insurance company, the aggregate
inclusions which would have been made under clause (i) for
such taxable year and subsequent taxable years but for such
cessation shall be taken into account for the taxable year
preceding such cessation year.
(C) Description of items
For purposes of this paragraph, the items referred to in this
subparagraph are the items described in subsection (c) which
consist of unearned premiums and premiums received in advance
under insurance contracts not described in section
816(b)(1)(B).
(f) Adjustment for change in computing reserves
(1) 10-year spread
(A) In general
For purposes of this part, if the basis for determining any
item referred to in subsection (c) as of the close of any
taxable year differs from the basis for such determination as
of the close of the preceding taxable year, then so much of the
difference between -
(i) the amount of the item at the close of the taxable
year, computed on the new basis, and
(ii) the amount of the item at the close of the taxable
year, computed on the old basis,
as is attributable to contracts issued before the taxable year
shall be taken into account under the method provided in
subparagraph (B).
(B) Method
The method provided in this subparagraph is as follows:
(i) if the amount determined under subparagraph (A)(i)
exceeds the amount determined under subparagraph (A)(ii),
1/10 of such excess shall be taken into account, for each of
the succeeding 10 taxable years, as a deduction under section
805(a)(2); or
(ii) if the amount determined under subparagraph (A)(ii)
exceeds the amount determined under subparagraph (A)(i),
1/10 of such excess shall be included in gross income, for
each of the 10 succeeding taxable years, under section
803(a)(2).
(2) Termination as life insurance company
Except as provided in section 381(c)(22) (relating to
carryovers in certain corporate readjustments), if for any
taxable year the taxpayer is not a life insurance company, the
balance of any adjustments under this subsection shall be taken
into account for the preceding taxable year.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 726; amended Pub. L. 99-514, title X, Sec. 1023(b),
title XVIII, Sec. 1821(a), (s), Oct. 22, 1986, 100 Stat. 2399,
2837, 2843; Pub. L. 100-203, title X, Sec. 10241(a)-(b)(2)(A), Dec.
22, 1987, 101 Stat. 1330-419, 1330-420; Pub. L. 101-508, title XI,
Sec. 11302(a), Nov. 5, 1990, 104 Stat. 1388-449; Pub. L. 104-188,
title I, Sec. 1704(t)(61), Aug. 20, 1996, 110 Stat. 1890; Pub. L.
104-191, title III, Sec. 321(b), Aug. 21, 1996, 110 Stat. 2058;
Pub. L. 105-34, title X, Sec. 1084(b)(2), Aug. 5, 1997, 111 Stat.
954; Pub. L. 108-218, title II, Sec. 205(b)(1), (2), Apr. 10, 2004,
118 Stat. 610.)
-COD-
CODIFICATION
Another section 1084(b) of Pub. L. 105-34 amended sections 101
and 264 of this title.
-MISC1-
PRIOR PROVISIONS
A prior section 807, act Aug. 16, 1954, ch. 736, 68A Stat. 259,
related to adjustment for certain reserves, prior to the general
revision of this part by act Mar. 13, 1956, ch. 83, Sec. 2, 70
Stat. 36.
AMENDMENTS
2004 - Subsecs. (a)(2)(B), (b)(1)(B). Pub. L. 108-218, Sec.
205(b)(1), struck out "the sum of (i)" before "the amount" and
struck out "plus (ii) any excess described in section 809(a)(2) for
the taxable year," after "to which section 264(f) applies,".
Subsec. (d)(1). Pub. L. 108-218, Sec. 205(b)(2)(A), substituted
"paragraph (6)" for "section 809(b)(4)(B)" in concluding
provisions.
Subsec. (d)(6). Pub. L. 108-218, Sec. 205(b)(2)(B), added par.
(6).
1997 - Subsec. (a)(2)(B). Pub. L. 105-34, Sec. 1084(b)(2)(A),
substituted "interest and the amount of the policyholder's share of
the increase for the taxable year in policy cash values (within the
meaning of section 805(a)(4)(F)) of life insurance policies and
annuity and endowment contracts to which section 264(f) applies,"
for "interest,".
Subsec. (b)(1)(B). Pub. L. 105-34, Sec. 1084(b)(2)(B),
substituted "interest and the amount of the policyholder's share of
the increase for the taxable year in policy cash values (within the
meaning of section 805(a)(4)(F)) of life insurance policies and
annuity and endowment contracts to which section 264(f) applies,"
for "interest,".
1996 - Subsec. (d)(3)(A)(iii). Pub. L. 104-191 inserted "(other
than a qualified long-term care insurance contract, as defined in
section 7702B(b))" after "insurance contract".
Subsec. (d)(3)(B)(ii). Pub. L. 104-188 substituted
"Commissioners' Annuities" for "Commissoners' Annuities".
1990 - Subsec. (e)(7). Pub. L. 101-508 added par. (7).
1987 - Subsec. (c). Pub. L. 100-203, Sec. 10241(b)(2)(A),
substituted "whichever of the following rates is the highest as of
the time such obligation first did not involve life, accident, or
health contingencies: the applicable Federal interest rate under
subsection (d)(2)(B)(i), the prevailing State assumed interest rate
under subsection (d)(2)(B)(ii), or the rate of interest assumed by
the company in determining the guaranteed benefit." for "the higher
of the prevailing State assumed interest rate as of the time such
obligation first did not involve life, accident, or health
contingencies or the rate of interest assumed by the company (as of
such time) in determining the guaranteed benefit." in third to last
sentence.
Subsec. (d)(2)(B). Pub. L. 100-203, Sec. 10241(a), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "the prevailing State assumed interest rate, and".
Subsec. (d)(4). Pub. L. 100-203, Sec. 10241(b)(1), substituted
"Applicable Federal interest rate; prevailing State assumed
interest rate" for "Prevailing State assumed interest rate" in
heading and amended text generally, revising and restating as
subpars. (A) and (B) provisions of former subpars. (A) to (D).
1986 - Subsec. (c). Pub. L. 99-514, Sec. 1023(b), inserted at end
"For purposes of paragraph (2) and section 805(a)(1), the amount of
the unpaid losses (other than losses on life insurance contracts)
shall be the amount of the discounted unpaid losses as defined in
section 846."
Pub. L. 99-514, Sec. 1821(a), inserted at end "In no case shall
the amount determined under paragraph (3) for any contract be less
than the net surrender value of such contract."
Subsec. (d)(5)(C). Pub. L. 99-514, Sec. 1821(s), inserted at end
"When the Secretary by regulation changes the table applicable to a
type of contract, the new table shall be treated (for purposes of
subparagraph (B) and for purposes of determining the issue dates of
contracts for which it shall be used) as if it were a new
prevailing commissioner's standard table adopted by the twenty-
sixth State as of a date (no earlier than the date the regulation
is issued) specified by the Secretary."
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-218, title II, Sec. 205(c), Apr. 10, 2004, 118 Stat.
610, provided that: "The amendments made by this section [amending
this section and sections 808, 812, 817, and 842 of this title and
repealing section 809 of this title] shall apply to taxable years
beginning after December 31, 2004."
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to contracts issued after
June 8, 1997, in taxable years ending after such date, with special
provisions relating to changes in contracts to be treated as new
contracts, see section 1084(d) of Pub. L. 105-34, set out as a note
under section 101 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-191 applicable to contracts issued after
Dec. 31, 1997, see section 321(f) of Pub. L. 104-191, set out as an
Effective Date note under section 7702B of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11302(b) of Pub. L. 101-508 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning on or after September 30, 1990."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10241(c) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section and section
812 of this title] shall apply to contracts issued in taxable years
beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1023(b) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1023(e) of Pub. L. 99-514, set out as an
Effective Date note under section 846 of this title.
Amendment by section 1821(a), (s) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TREATMENT OF CERTAIN ASSESSMENT LIFE INSURANCE COMPANIES
Section 217(f) of subtitle A (Secs. 211-219) of title II of div.
A of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec. 2, Oct. 22,
1986, 100 Stat. 2095, provided that:
"(1) Mortality and morbidity tables. - In the case of a contract
issued by an assessment life insurance company, the mortality and
morbidity tables used in computing statutory reserves for such
contract shall be used for purposes of paragraph (2)(C) of section
807(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
(as amended by this subtitle) if such tables were -
"(A) in use since 1965, and
"(B) developed on the basis of the experience of assessment
life insurance companies in the State in which such assessment
life insurance company is domiciled.
"(2) Treatment of certain mutual assessment life insurance
companies. - In the case of any contract issued by a mutual
assessment life insurance company which -
"(A) has been in existence since 1965, and
"(B) operates under chapter 13 or 14 of the Texas Insurance
Code,
for purposes of part I of subchapter L of chapter 1 of the Internal
Revenue Code of 1986, the amount of the life insurance reserves for
such contract shall be equal to the amount taken into account with
respect to such contract in determining statutory reserves.
"(3) Statutory reserves. - For purposes of this subsection, the
term 'statutory reserves' has the meaning given to such term by
[former] section 809(b)(4)(B) of such Code."
SPECIAL RULE FOR COMPANIES USING NET LEVEL RESERVE METHOD FOR
NONCANCELLABLE ACCIDENT AND HEALTH INSURANCE CONTRACTS
Section 217(n) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1823, Oct. 22, 1986, 100 Stat. 2095,
2845, provided that: "A company shall be treated as meeting the
requirements of section 807(d)(3)(A)(iii) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954], as amended by this Act, with
respect to any directly-written noncancellable accident and health
insurance contract (whether under existing or new plans of
insurance) for any taxable year if -
"(1) such company -
"(A) was using the net level reserve method to compute at
least 99 percent of its statutory reserves on such contracts as
of December 31, 1982, and
"(B) received more than half its total direct premiums in
1982 from directly-written noncancellable accident and health
insurance,
"(2) after December 31, 1983, and through such taxable year,
such company has continuously used the net level reserve method
for computing at least 99 percent of its tax and statutory
reserves on such contracts, and
"(3) for any such contract for which the company does not use
the net level reserve method, such company uses the same method
for computing tax reserves as such company uses for computing its
statutory reserves."
-End-
-CITE-
26 USC Sec. 808 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 808. Policyholder dividends deduction
-STATUTE-
(a) Policyholder dividend defined
For purposes of this part, the term "policyholder dividend" means
any dividend or similar distribution to policyholders in their
capacity as such.
(b) Certain amounts included
For purposes of this part, the term "policyholder dividend"
includes -
(1) any amount paid or credited (including as an increase in
benefits) where the amount is not fixed in the contract but
depends on the experience of the company or the discretion of the
management,
(2) excess interest,
(3) premium adjustments, and
(4) experience-rated refunds.
(c) Amount of deduction
The deduction for policyholder dividends for any taxable year
shall be an amount equal to the policyholder dividends paid or
accrued during the taxable year.
(d) Definitions
For purposes of this section -
(1) Excess interest
The term "excess interest" means any amount in the nature of
interest -
(A) paid or credited to a policyholder in his capacity as
such, and
(B) in excess of interest determined at the prevailing State
assumed rate for such contract.
(2) Premium adjustment
The term "premium adjustment" means any reduction in the
premium under an insurance or annuity contract which (but for the
reduction) would have been required to be paid under the
contract.
(3) Experience-rated refund
The term "experience-rated refund" means any refund or credit
based on the experience of the contract or group involved.
(e) Treatment of policyholder dividends
For purposes of this part, any policyholder dividend which -
(1) increases the cash surrender value of the contract or other
benefits payable under the contract, or
(2) reduces the premium otherwise required to be paid,
shall be treated as paid to the policyholder and returned by the
policyholder to the company as a premium.
(f) Coordination of 1984 fresh-start adjustment with acceleration
of policyholder dividends deduction through change in business
practice
(1) In general
The amount determined under paragraph (1) of subsection (c) for
the year of change shall (before any reduction under paragraph
(2) of subsection (c)) be reduced by so much of the accelerated
policyholder dividends deduction for such year as does not exceed
the 1984 fresh-start adjustment for policyholder dividends (to
the extent such adjustment was not previously taken into account
under this subsection).
(2) Year of change
For purposes of this subsection, the term "year of change"
means the taxable year in which the change in business practices
which results in the accelerated policyholder dividends deduction
takes effect.
(3) Accelerated policyholder dividends deduction defined
For purposes of this subsection, the term "accelerated
policyholder dividends deduction" means the amount which (but for
this subsection) would be determined for the taxable year under
paragraph (1) of subsection (c) but which would have been
determined (under such paragraph) for a later taxable year under
the business practices of the taxpayer as in effect at the close
of the preceding taxable year.
(4) 1984 fresh-start adjustment for policyholder dividends
For purposes of this subsection, the term "1984 fresh-start
adjustment for policyholder dividends" means the amounts held as
of December 31, 1983, by the taxpayer as reserves for dividends
to policyholders under section 811(b) (as in effect on the day
before the date of the enactment of the Tax Reform Act of 1984)
other than for dividends which accrued before January 1, 1984.
Such amounts shall be properly reduced to reflect the amount of
previously nondeductible policyholder dividends (as determined
under section 809(f) as in effect on the day before the date of
the enactment of the Tax Reform Act of 1984).
(5) Separate application with respect to lines of business
This subsection shall be applied separately with respect to
each line of business of the taxpayer.
(6) Subsection not to apply to mere change in dividend amount
This subsection shall not apply to a mere change in the amount
of policyholder dividends.
(7) Subsection not to apply to policies issued after December 31,
1983
(A) In general
This subsection shall not apply to any policyholder dividend
paid or accrued with respect to a policy issued after December
31, 1983.
(B) Exchanges of substantially similar policies
For purposes of subparagraph (A), any policy issued after
December 31, 1983, in exchange for a substantially similar
policy issued on or before such date shall be treated as issued
before January 1, 1984. A similar rule shall apply in the case
of a series of exchanges.
(8) Subsection to apply to policies provided under employee
benefit plans
This subsection shall not apply to any policyholder dividend
paid or accrued with respect to a group policy issued in
connection with a plan to provide welfare benefits to employees
(within the meaning of section 419(e)(2)).
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 732; amended Pub. L. 99-514, title XVIII, Sec.
1821(b), (c), Oct. 22, 1986, 100 Stat. 2838; Pub. L. 108-218, title
II, Sec. 205(b)(3), Apr. 10, 2004, 118 Stat. 610.)
-REFTEXT-
REFERENCES IN TEXT
The date of enactment of the Tax Reform Act of 1984, referred to
in subsec. (f)(4), is the date of enactment of Pub. L. 98-369, div.
A, which was approved July 18, 1984.
-MISC1-
AMENDMENTS
2004 - Subsec. (c). Pub. L. 108-218 reenacted heading without
change and amended text generally. Prior to amendment, text read as
follows:
"(1) In general. - Except as limited by paragraph (2), the
deduction for policyholder dividends for any taxable year shall be
an amount equal to the policyholder dividends paid or accrued
during the taxable year.
"(2) Reduction in case of mutual companies. - In the case of a
mutual life insurance company, the deduction for policyholder
dividends for any taxable year shall be reduced by the amount
determined under section 809."
1986 - Subsec. (d)(1)(B). Pub. L. 99-514, Sec. 1821(b), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "determined at a rate in excess of the prevailing State
assumed interest rate for such contract."
Subsec. (f). Pub. L. 99-514, Sec. 1821(c), added subsec. (f).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-218 applicable to taxable years
beginning after Dec. 31, 2004, see section 205(c) of Pub. L. 108-
218, set out as a note under section 807 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 809 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
[Sec. 809. Repealed. Pub. L. 108-218, title II, Sec. 205(a), Apr.
10, 2004, 118 Stat. 610]
-MISC1-
Section, added Pub. L. 98-369, div. A, title II, Sec. 211(a),
July 18, 1984, 98 Stat. 733; amended Pub. L. 99-514, title XVIII,
Sec. 1821(d)-(h), (r), Oct. 22, 1986, 100 Stat. 2839, 2840, 2843;
Pub. L. 100-647, title I, Sec. 1018(u)(47), Nov. 10, 1988, 102
Stat. 3593; Pub. L. 107-147, title VI, Sec. 611(a), Mar. 9, 2002,
116 Stat. 61, related to reduction in certain deductions of mutual
life insurance companies.
A prior section 809, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 121; amended Pub. L. 87-59, Sec. 2(a), (b), June 27,
1961, 75 Stat. 120; Pub. L. 87-790, Sec. 3(a), Oct. 10, 1962, 76
Stat. 808; Pub. L. 87-858, Sec. 3(b)(3), (c), Oct. 23, 1962, 76
Stat. 1137; Pub. L. 88-272, title II, Secs. 214(b)(4), 228(a), Feb.
26, 1964, 78 Stat. 55, 98; Pub. L. 91-172, title II, Sec.
201(a)(2)(C), title IX, Sec. 907(c)(2)(B), Dec. 30, 1969, 83 Stat.
558, 717; Pub. L. 94-455, title XV, Sec. 1508(a), title XIX, Secs.
1901(a)(98), (b)(1)(J)(iv), (L)-(N), 33(G), 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1741, 1781, 1791, 1801, 1834; Pub. L. 97-248, title
II, Secs. 255(b)(2)-(4), 259(a), 264(c)(2), (3), Sept. 3, 1982, 96
Stat. 534, 538, 544; Pub. L. 97-448, title I, Sec. 102(m)(1), Jan.
12, 1983, 96 Stat. 2374, related to general provisions regarding
gain and loss from operations, prior to the general revision of
this part by Pub. L. 98-369, Sec. 211(a).
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 2004,
see section 205(c) of Pub. L. 108-218, set out as an Effective Date
of 2004 Amendment note under section 807 of this title.
-End-
-CITE-
26 USC Sec. 810 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 810. Operations loss deduction
-STATUTE-
(a) Deduction allowed
There shall be allowed as a deduction for the taxable year an
amount equal to the aggregate of -
(1) the operations loss carryovers to such year, plus
(2) the operations loss carrybacks to such year.
For purposes of this part, the term "operations loss deduction"
means the deduction allowed by this subsection.
(b) Operations loss carrybacks and carryovers
(1) Years to which loss may be carried
The loss from operations for any taxable year (hereinafter in
this section referred to as the "loss year") shall be -
(A) an operations loss carryback to each of the 3 taxable
years preceding the loss year,
(B) an operations loss carryover to each of the 15 taxable
years following the loss year, and
(C) if the life insurance company is a new company for the
loss year, an operations loss carryover to each of the 3
taxable years following the 15 taxable years described in
subparagraph (B).
(2) Amount of carrybacks and carryovers
The entire amount of the loss from operations for any loss year
shall be carried to the earliest of the taxable years to which
(by reason of paragraph (1)) such loss may be carried. The
portion of such loss which shall be carried to each of the other
taxable years shall be the excess (if any) of the amount of such
loss over the sum of the offsets (as defined in subsection (d))
for each of the prior taxable years to which such loss may be
carried.
(3) Election for operations loss carrybacks
In the case of a loss from operations for any taxable year, the
taxpayer may elect to relinquish the entire carryback period for
such loss. Such election shall be made by the due date (including
extensions of time) for filing the return for the taxable year of
the loss from operations for which the election is to be in
effect, and, once made for any taxable year, such election shall
be irrevocable for that taxable year.
(c) Computation of loss from operations
For purposes of this section -
(1) In general
The term "loss from operations" means the excess of the life
insurance deductions for any taxable year over the life insurance
gross income for such taxable year.
(2) Modifications
For purposes of paragraph (1) -
(A) the operations loss deduction shall not be allowed, and
(B) the deductions allowed by sections 243 (relating to
dividends received by corporations), 244 (relating to dividends
received on certain preferred stock of public utilities), and
245 (relating to dividends received from certain foreign
corporations) shall be computed without regard to section
246(b) as modified by section 805(a)(4).
(d) Offset defined
(1) In general
For purposes of subsection (b)(2), the term "offset" means,
with respect to any taxable year, an amount equal to that
increase in the operations loss deduction for the taxable year
which reduces the life insurance company taxable income (computed
without regard to paragraphs (2) and (3) of section 804) (!1) or
such year to zero.
(2) Operations loss deduction
For purposes of paragraph (1), the operations loss deduction
for any taxable year shall be computed without regard to the loss
from operations for the loss year or for any taxable year
thereafter.
(e) New company defined
For purposes of this part, a life insurance company is a new
company for any taxable year only if such taxable year begins not
more than 5 years after the first day on which it (or any
predecessor, if section 381(c)(22) applies) was authorized to do
business as an insurance company.
(f) Application of subtitles A and F in respect of operation losses
Except as provided in section 805(b)(5),(!1) subtitles A and F
shall apply in respect of operation loss carrybacks, operation loss
carryovers, and the operations loss deduction under this part, in
the same manner and to the same extent as such subtitles apply in
respect of net operating loss carrybacks, net operating loss
carryovers, and the net operating loss deduction.
(g) Transitional rule
For purposes of this section and section 812 (as in effect before
the enactment of the Life Insurance Tax Act of 1984), this section
shall be treated as a continuation of such section 812.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 738.)
-REFTEXT-
REFERENCES IN TEXT
Paragraphs (2) and (3) of section 804, referred to in subsec.
(d)(1), were repealed and a new paragraph (2) enacted by Pub. L. 99-
514, title X, Sec. 1011(b)(2), Oct. 22, 1986, 100 Stat. 2389.
Section 805(b)(5) of this title, referred to in subsec. (f), was
redesignated section 805(b)(4) of this title by Pub. L. 99-514,
title VIII, Sec. 805(c)(6), Oct. 22, 1986, 100 Stat. 2362.
The Life Insurance Tax Act of 1984, referred to in subsec. (g),
probably means title II of div. A of Pub. L. 98-369, which amended
this part generally and was approved July 18, 1984.
-MISC1-
PRIOR PROVISIONS
A prior section 810, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 125; amended Pub. L. 91-172, title I, Sec.
121(b)(5)(B), title IX, Sec. 907(a)(2), Dec. 30, 1969, 83 Stat.
541, 715, related to rules for certain reserves, prior to the
general revision of this part by Pub. L. 98-369, Sec. 211(a).
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Subpart D - Accounting, Allocation, and Foreign
Provisions 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
SUBPART D - ACCOUNTING, ALLOCATION, AND FOREIGN PROVISIONS
-MISC1-
Sec.
811. Accounting provisions.
812. Definition of company's share and policyholders'
share.
[813. Repealed.]
814. Contiguous country branches of domestic life insurance
companies.
815. Distributions to shareholders from pre-1984
policyholders surplus account.
AMENDMENTS
1987 - Pub. L. 100-203, title X, Sec. 10242(c)(4), Dec. 22, 1987,
101 Stat. 1330-423, struck out item 813 "Foreign life insurance
companies".
-End-
-CITE-
26 USC Sec. 811 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
Sec. 811. Accounting provisions
-STATUTE-
(a) Method of accounting
All computations entering into the determination of the taxes
imposed by this part shall be made -
(1) under an accrual method of accounting, or
(2) to the extent permitted under regulations prescribed by the
Secretary, under a combination of an accrual method of accounting
with any other method permitted by this chapter (other than the
cash receipts and disbursements method).
To the extent not inconsistent with the preceding sentence or any
other provision of this part, all such computations shall be made
in a manner consistent with the manner required for purposes of the
annual statement approved by the National Association of Insurance
Commissioners.
(b) Amortization of premium and accrual of discount
(1) In general
The appropriate items of income, deductions, and adjustments
under this part shall be adjusted to reflect the appropriate
amortization of premium and the appropriate accrual of discount
attributable to the taxable year on bonds, notes, debentures, or
other evidences of indebtedness held by a life insurance company.
Such amortization and accrual shall be determined -
(A) in accordance with the method regularly employed by such
company, if such method is reasonable, and
(B) in all other cases, in accordance with regulations
prescribed by the Secretary.
(2) Special rules
(A) Amortization of bond premium
In the case of any bond (as defined in section 171(d)), the
amount of bond premium, and the amortizable bond premium for
the taxable year, shall be determined under section 171(b) as
if the election set forth in section 171(c) had been made.
(B) Convertible evidence of indebtedness
In no case shall the amount of premium on a convertible
evidence of indebtedness include any amount attributable to the
conversion features of the evidence of indebtedness.
(3) Exception
No accrual of discount shall be required under paragraph (1) on
any bond (as defined in section 171(d)), except in the case of
discount which is -
(A) interest to which section 103 applies, or
(B) original issue discount (as defined in section 1273).
(c) No double counting
Nothing in this part shall permit -
(1) a reserve to be established for any item unless the gross
amount of premiums and other consideration attributable to such
item are required to be included in life insurance gross income,
(2) the same item to be counted more than once for reserve
purposes, or
(3) any item to be deducted (either directly or as an increase
in reserves) more than once.
(d) Method of computing reserves on contract where interest is
guaranteed beyond end of taxable year
For purposes of this part (other than section 816), amounts in
the nature of interest to be paid or credited under any contract
for any period which is computed at a rate which -
(1) exceeds the greater of the prevailing State assumed
interest rate or applicable Federal interest rate in effect under
section 807 for the contract for such period, and
(2) is guaranteed beyond the end of the taxable year on which
the reserves are being computed,
shall be taken into account in computing the reserves with respect
to such contract as if such interest were guaranteed only up to the
end of the taxable year.
(e) Short taxable years
If any return of a corporation made under this part is for a
period of less than the entire calendar year (referred to in this
subsection as "short period"), then section 443 shall not apply in
respect to such period, but life insurance company taxable income
shall be determined, under regulations prescribed by the Secretary,
on an annual basis by a ratable daily projection of the appropriate
figures for the short period.
-SOURCE-
(Added and amended Pub. L. 98-369, div. A, title I, Sec. 42(a)(8),
title II, Sec. 211(a), July 18, 1984, 98 Stat. 557, 740; Pub. L.
100-647, title II, Sec. 2004(p)(1), Nov. 10, 1988, 102 Stat. 3608.)
-MISC1-
PRIOR PROVISIONS
A prior section 811, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 126; amended Pub. L. 97-248, title II, Sec.
255(b)(1), Sept. 3, 1982, 96 Stat. 533; Pub. L. 98-369, div. A,
title VII, Sec. 714(a), July 18, 1984, 98 Stat. 960, related to
dividends to policyholders, prior to the general revision of this
part by Pub. L. 98-369, Sec. 211(a).
Another prior section 811, act Aug. 16, 1954, ch. 736, Sec. 811,
as added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 44; amended July
24, 1956, ch. 696, Sec. 2(c), 70 Stat. 633; Mar. 17, 1958, Pub. L.
85-345, Sec. 2(c), 72 Stat. 37, imposed a tax on the life insurance
company taxable income of all life insurance companies for taxable
years beginning after Dec. 31, 1957, prior to the general revision
of this part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
1988 - Subsec. (d)(1). Pub. L. 100-647 substituted "the greater
of the prevailing State assumed interest rate or applicable Federal
interest rate in effect under section 807 for the contract" for
"the prevailing State assumed interest rate for the contract".
1984 - Subsec. (b)(3). Pub. L. 98-369, Sec. 42(a)(8), substituted
"section 1273" for "section 1232(b)".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 42(a)(8) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
-End-
-CITE-
26 USC Sec. 812 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
Sec. 812. Definition of company's share and policyholders' share
-STATUTE-
(a) General rule
(1) Company's share
For purposes of section 805(a)(4), the term "company's share"
means, with respect to any taxable year, the percentage obtained
by dividing -
(A) the company's share of the net investment income for the
taxable year, by
(B) the net investment income for the taxable year.
(2) Policyholders' share
For purposes of section 807, the term "policyholders' share"
means, with respect to any taxable year, the excess of 100
percent over the percentage determined under paragraph (1).
(b) Company's share of net investment income
(1) In general
For purposes of this section, the company's share of net
investment income is the excess (if any) of -
(A) the net investment income for the taxable year, over
(B) the sum of -
(i) the policy interest, for the taxable year, plus
(ii) the gross investment income's proportionate share of
policyholder dividends for the taxable year.
(2) Policy interest
For purposes of this subsection, the term "policy interest"
means -
(A) required interest (at the greater of the prevailing State
assumed rate or the applicable Federal interest rate) on
reserves under section 807(c) (other than paragraph (2)
thereof),
(B) the deductible portion of excess interest,
(C) the deductible portion of any amount (whether or not a
policyholder dividend), and not taken into account under
subparagraph (A) or (B), credited to -
(i) a policyholder's fund under a pension plan contract for
employees (other than retired employees), or
(ii) a deferred annuity contract before the annuity
starting date, and
(D) interest on amounts left on deposit with the company.
In any case where neither the prevailing State assumed interest
rate nor the applicable Federal interest rate is used, another
appropriate rate shall be used for purposes of subparagraph (A).
(3) Gross investment income's proportionate share of policyholder
dividends
For purposes of paragraph (1), the gross investment income's
proportionate share of policyholder dividends is -
(A) the deduction for policyholders' dividends determined
under section 808 for the taxable year, but not including -
(i) the deductible portion of excess interest,
(ii) the deductible portion of policyholder dividends on
contracts referred to in clauses (i) and (ii) of paragraph
(2)(C), and
(iii) the deductible portion of the premium and mortality
charge adjustments with respect to contracts paying excess
interest for such year,
multiplied by
(B) the fraction -
(i) the numerator of which is gross investment income for
the taxable year (reduced by the policy interest for such
year), and
(ii) the denominator of which is life insurance gross
income reduced by the excess (if any) of the closing balance
for the items described in section 807(c) over the opening
balance for such items for the taxable year.
For purposes of subparagraph (B)(ii), life insurance gross
income shall be determined by including tax-exempt interest and
by applying section 807(a)(2)(B) as if it did not contain
clause (i) thereof.
(c) Net investment income
For purposes of this section, the term "net investment income"
means -
(1) except as provided in paragraph (2), 90 percent of gross
investment income; or
(2) in the case of gross investment income attributable to
assets held in segregated asset accounts under variable
contracts, 95 percent of gross investment income.
(d) Gross investment income
For purposes of this section, the term "gross investment income"
means the sum of the following:
(1) Interest, etc.
The gross amount of income from -
(A) interest (including tax-exempt interest), dividends,
rents, and royalties,
(B) the entering into of any lease, mortgage, or other
instrument or agreement from which the life insurance company
derives interest, rents, or royalties,
(C) the alteration or termination of any instrument or
agreement described in subparagraph (B), and
(D) the increase for any taxable year in the policy cash
values (within the meaning of section 805(a)(4)(F)) of life
insurance policies and annuity and endowment contracts to which
section 264(f) applies.
(2) Short-term capital gain
The amount (if any) by which the net short-term capital gain
exceeds the net long-term capital loss.
(3) Trade or business income
The gross income from any trade or business (other than an
insurance business) carried on by the life insurance company, or
by a partnership of which the life insurance company is a
partner. In computing gross income under this paragraph, there
shall be excluded any item described in paragraph (1).
Except as provided in paragraph (2), in computing gross investment
income under this subsection, there shall be excluded any gain from
the sale or exchange of a capital asset, and any gain considered as
gain from the sale or exchange of a capital asset.
(e) Dividends from certain subsidiaries not included in gross
investment income
(1) In general
For purposes of this section, the term "gross investment
income" shall not include any dividend received by the life
insurance company which is a 100 percent dividend.
(2) 100 percent dividend defined
(A) In general
Except as provided in subparagraphs (B) and (C), the term
"100 percent dividend" means any dividend if the percentage
used for purposes of determining the deduction allowable under
section 243, 244, or 245(b) is 100 percent.
(B) Certain dividends out of tax-exempt interest, etc.
The term "100 percent dividend" does not include any
distribution by a corporation to the extent such distribution
is out of tax-exempt interest or out of dividends which are not
100 percent dividends (determined with the application of this
subparagraph).
(C) Certain dividends received by foreign corporations
The term "100 percent dividends" does not include any
dividend described in section 805(a)(4)(E) (relating to certain
dividends in the case of foreign corporations).
(f) No double counting
Under regulations, proper adjustments shall be made in the
application of this section to prevent an item from being counted
more than once.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 741; amended Pub. L. 99-514, title XVIII, Sec.
1821(i), Oct. 22, 1986, 100 Stat. 2840; Pub. L. 100-203, title X,
Sec. 10241(b)(2)(B), Dec. 22, 1987, 101 Stat. 1330-420; Pub. L. 100-
647, title I, Sec. 1018(h)(1), title II, Sec. 2004(p)(2), Nov. 10,
1988, 102 Stat. 3583, 3608; Pub. L. 104-188, title I, Sec.
1602(b)(2), Aug. 20, 1996, 110 Stat. 1833; Pub. L. 105-34, title X,
Sec. 1084(b)(3), Aug. 5, 1997, 111 Stat. 955; Pub. L. 108-218,
title II, Sec. 205(b)(4), Apr. 10, 2004, 118 Stat. 610.)
-COD-
CODIFICATION
Another section 1084(b) of Pub. L. 105-34 amended sections 101
and 264 of this title.
-MISC1-
PRIOR PROVISIONS
A prior section 812, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 127; amended Pub. L. 87-858, Sec. 3(d)(1), Oct. 23,
1962, 76 Stat. 1137; Pub. L. 88-571, Sec. 1(a), Sept. 2, 1964, 78
Stat. 857; Pub. L. 94-455, title VIII, Sec. 806(d)(1), title XIX,
Sec. 1901(a)(99), Oct. 4, 1976, 90 Stat. 1598, 1781; Pub. L. 97-34,
title II, Sec. 207(b), Aug. 13, 1981, 95 Stat. 225, related to
operations loss deductions, prior to the general revision of this
part by Pub. L. 98-369, Sec. 211(a).
Another prior section 812, act Aug. 16, 1954, ch. 736, Sec. 812,
as added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 45, related to
reserve and other policy liability deduction, prior to the general
revision of this part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
2004 - Subsec. (b)(3)(A). Pub. L. 108-218 substituted "section
808" for "sections 808 and 809".
1997 - Subsec. (d)(1)(D). Pub. L. 105-34 added subpar. (D).
1996 - Subsec. (g). Pub. L. 104-188 struck out subsec. (g) which
read as follows: "Treatment of Interest Partially Tax-Exempt Under
Section 133. - For purposes of this section and subsections (a) and
(b) of section 807, the terms 'gross investment income' and 'tax-
exempt interest' shall not include any interest received with
respect to a securities acquisition loan (as defined in section
133(b)). Such interest shall not be included in life insurance
gross income for purposes of subsection (b)(3)."
1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 2004(p)(2),
substituted "In any case where neither the prevailing State assumed
interest rate nor the applicable Federal interest rate is used,
another appropriate rate shall be used for purposes of subparagraph
(A)." for "In any case where the prevailing State assumed rate is
not used, another appropriate rate shall be treated as the
prevailing State assumed rate for purposes of subparagraph (A)."
Subsec. (e). Pub. L. 100-647, Sec. 1018(h)(1), amended subsec.
(e) generally. Prior to amendment, subsec. (e) read as follows:
"For purposes of this section, the term 'gross investment income'
shall not include any dividend received by the life insurance
company which is a 100-percent dividend (as defined in section
805(a)(4)(C)). Such term also shall not include any dividend
described in section 805(a)(4)(D) (relating to certain dividends in
the case of foreign corporations)."
1987 - Subsec. (b)(2). Pub. L. 100-203 substituted "at the
greater of the prevailing State assumed rate or the applicable
Federal interest rate" for "at the prevailing State assumed rate
or, where such rate is not used, another appropriate rate" in
subpar. (A), and inserted provision at end that in any case where
the prevailing State assumed rate is not used, another appropriate
rate be treated as the prevailing State assumed rate for purposes
of subpar. (A).
1986 - Subsec. (b)(2). Pub. L. 99-514, Sec. 1821(i)(1), inserted
"or, where such rate is not used, another appropriate rate" after
"assumed rate", in subpar. (A) and added subpar. (D).
Subsec. (b)(3)(B). Pub. L. 99-514, Sec. 1821(i)(2), struck out
"(including tax-exempt interest)" after "insurance gross income" in
cl. (ii) and inserted at end "For purposes of subparagraph (B)(ii),
life insurance gross income shall be determined by including tax-
exempt interest and by applying section 807(a)(2)(B) as if it did
not contain clause (i) thereof."
Subsec. (c). Pub. L. 99-514, Sec. 1821(i)(3), amended subsec. (c)
generally. Prior to amendment, subsec. (c) read as follows: "For
purposes of this section, the term 'net investment income' means 90
percent of gross investment income."
Subsec. (g). Pub. L. 99-514, Sec. 1821(i)(4), added subsec. (g).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-218 applicable to taxable years
beginning after Dec. 31, 2004, see section 205(c) of Pub. L. 108-
218, set out as a note under section 807 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to contracts issued after
June 8, 1997, in taxable years ending after such date, with special
provisions relating to changes in contracts to be treated as new
contracts, see section 1084(d) of Pub. L. 105-34, set out as a note
under section 101 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1602(b)(1) of Pub. L. 104-188 applicable to
loans made after Aug. 20, 1996, with exception, and provisions
relating to certain refinancings, see section 1602(c) of Pub. L.
104-188, set out as an Effective Date of Repeal note under former
section 133 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1018(h)(2) of Pub. L. 100-647 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section 211 of the
Tax Reform Act of 1984 [Pub. L. 98-369]."
Amendment by section 2004(p)(2) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provisions of
the Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to contracts issued in
taxable years beginning after Dec. 31, 1987, see section 10241(c)
of Pub. L. 100-203, set out as a note under section 807 of this
title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 813 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
[Sec. 813. Repealed. Pub. L. 100-203, title X, Sec. 10242(c)(1),
Dec. 22, 1987, 101 Stat. 1330-423]
-MISC1-
Section, added Pub. L. 98-369, div. A, title II, Sec. 211(a),
July 18, 1984, 98 Stat. 743; amended Pub. L. 99-514, title X, Sec.
1011(b)(9), title XVIII, Sec. 1821(j), Oct. 22, 1986, 100 Stat.
2389, 2841; Pub. L. 100-647, title I, Sec. 1010(a)(1), Nov. 10,
1988, 102 Stat. 3450, related to foreign life insurance companies.
A prior section 813, act Aug. 16, 1954, ch. 736, Sec. 813, as
added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 46, related to
adjustment for certain reserves, prior to the general revision of
this part by Pub. L. 86-69, Sec. 2(a).
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1987,
see section 10242(d) of Pub. L. 100-203, set out as an Effective
Date of 1987 Amendment note under section 816 of this title.
-End-
-CITE-
26 USC Sec. 814 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
Sec. 814. Contiguous country branches of domestic life insurance
companies
-STATUTE-
(a) Exclusion of items
In the case of a domestic mutual insurance company which -
(1) is a life insurance company,
(2) has a contiguous country life insurance branch, and
(3) makes the election provided by subsection (g) with respect
to such branch,
there shall be excluded from each item involved in the
determination of life insurance company taxable income the items
separately accounted for in accordance with subsection (c).
(b) Contiguous country life insurance branch
For purposes of this section, the term contiguous country life
insurance branch means a branch which -
(1) issues insurance contracts insuring risks in connection
with the lives or health of residents of a country which is
contiguous to the United States,
(2) has its principal place of business in such contiguous
country, and
(3) would constitute a mutual life insurance company if such
branch were a separate domestic insurance company.
For purposes of this section, the term "insurance contract" means
any life, health, accident, or annuity contract or reinsurance
contract or any contract relating thereto.
(c) Separate accounting required
Any taxpayer which makes the election provided by subsection (g)
shall establish and maintain a separate account for the various
income, exclusion, deduction, asset, reserve, liability, and
surplus items properly attributable to the contracts described in
subsection (b). Such separate accounting shall be made -
(1) in accordance with the method regularly employed by such
company, if such method clearly reflects income derived from, and
the other items attributable to, the contracts described in
subsection (b), and
(2) in all other cases, in accordance with regulations
prescribed by the Secretary.
(d) Recognition of gain on assets in branch account
If the aggregate fair market value of all the invested assets and
tangible property which are separately accounted for by the
domestic life insurance company in the branch account established
pursuant to subsection (c) exceeds the aggregate adjusted basis of
such assets for purposes of determining gain, then the domestic
life insurance company shall be treated as having sold all such
assets on the first day of the first taxable year for which the
election is in effect at their fair market value on such first day.
Notwithstanding any other provision of this chapter, the net gain
shall be recognized to the domestic life insurance company on the
deemed sale described in the preceding sentence.
(e) Transactions between contiguous country branch and domestic
life insurance company
(1) Reimbursement for home office services, etc.
Any payment, transfer, reimbursement, credit, or allowance
which is made from a separate account established pursuant to
subsection (c) to one or more other accounts of a domestic life
insurance company as reimbursement for costs incurred for or with
respect to the insurance (or reinsurance) of risks accounted for
in such separate account shall be taken into account by the
domestic life insurance company in the same manner as if such
payment, transfer, reimbursement, credit, or allowance had been
received from a separate person.
(2) Repatriation of income
(A) In general
Except as provided in subparagraph (B), any amount directly
or indirectly transferred or credited from a branch account
established pursuant to subsection (c) to one or more other
accounts of such company shall, unless such transfer or credit
is a reimbursement to which paragraph (1) applies, be added to
the income of the domestic life insurance company.
(B) Limitation
The addition provided by subparagraph (A) for the taxable
year with respect to any contiguous country life insurance
branch shall not exceed the amount by which -
(i) the aggregate decrease in the tentative LICTI of the
domestic life insurance company for the taxable year and for
all prior taxable years resulting solely from the application
of subsection (a) of this section with respect to such
branch, exceeds
(ii) the amount of additions to tentative LICTI pursuant to
subparagraph (A) with respect to such contiguous country
branch for all prior taxable years.
(C) Transitional rule
For purposes of this paragraph, in the case of a prior
taxable year beginning before January 1, 1984, the term
"tentative LICTI" means life insurance company taxable income
determined under this part (as in effect for such year) without
regard to this paragraph.
(f) Other rules
(1) Treatment of foreign taxes
(A) In general
No income, war profits, or excess profits taxes paid or
accrued to any foreign country or possession of the United
States which is attributable to income excluded under
subsection (a) shall be taken into account for purposes of
subpart A of part III of subchapter N (relating to foreign tax
credit) or allowable as a deduction.
(B) Treatment of repatriated amounts
For purposes of sections 78 and 902, where any amount is
added to the life insurance company taxable income of the
domestic life insurance company by reason of subsection (e)(2),
the contiguous country life insurance branch shall be treated
as a foreign corporation. Any amount so added shall be treated
as a dividend paid by a foreign corporation, and the taxes paid
to any foreign country or possession of the United States with
respect to such amount shall be deemed to have been paid by
such branch.
(2) United States source income allocable to contiguous country
branch
For purposes of sections 881, 882, and 1442, each contiguous
country life insurance branch shall be treated as a foreign
corporation. Such sections shall be applied to each such branch
in the same manner as if such sections contained the provisions
of any treaty to which the United States and the contiguous
country are parties, to the same extent such provisions would
apply if such branch were incorporated in such contiguous
country.
(g) Election
A taxpayer may make the election provided by this subsection with
respect to any contiguous country for any taxable year. An election
made under this subsection for any taxable year shall remain in
effect for all subsequent taxable years, except that it may be
revoked with the consent of the Secretary. The election provided by
this subsection shall be made not later than the time prescribed by
law for filing the return for the taxable year (including
extensions thereof) with respect to which such election is made,
and such election and any approved revocation thereof shall be made
in the manner provided by the Secretary.
(h) Special rule for domestic stock life insurance companies
At the election of a domestic stock life insurance company which
has a contiguous country life insurance branch described in
subsection (b) (without regard to the mutual requirement in
subsection (b)(3)), the assets of such branch may be transferred to
a foreign corporation organized under the laws of the contiguous
country without the application of section 367. Subsection (a)
shall apply to the stock of such foreign corporation as if such
domestic company were a mutual company and as if the stock were an
item described in subsection (c). Subsection (e)(2) shall apply to
amounts transferred or credited to such domestic company as if such
domestic company and such foreign corporation constituted one
domestic mutual life insurance company. The insurance contracts
which may be transferred pursuant to this subsection shall include
only those which are similar to the types of insurance contracts
issued by a mutual life insurance company. Notwithstanding the
first sentence of this subsection, if the aggregate fair market
value of the invested assets and tangible property which are
separately accounted for by the domestic life insurance company in
the branch account exceeds the aggregate adjusted basis of such
assets for purposes of determining gain, the domestic life
insurance company shall be deemed to have sold all such assets on
the first day of the taxable year for which the election under this
subsection applies and the net gain shall be recognized to the
domestic life insurance company on the deemed sale, but not in
excess of the proportion of such net gain which equals the
proportion which the aggregate fair market value of such assets
which are transferred pursuant to this subsection is of the
aggregate fair market value of all such assets.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 744; amended Pub. L. 105-34, title XI, Sec.
1131(c)(1), Aug. 5, 1997, 111 Stat. 980.)
-MISC1-
AMENDMENTS
1997 - Subsec. (h). Pub. L. 105-34 struck out "or 1491" after
"section 367".
NEW SECTION 814 TREATED AS CONTINUATION OF SECTION 819A
Section 217(a) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "For purposes
of section 814 of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (relating to contiguous country branches of domestic
life insurance companies) -
"(1) any election under section 819A of such Code (as in effect
on the day before the date of the enactment of this Act [July 18,
1984]) shall be treated as an election under such section 814,
and
"(2) any reference to a provision of such section 814 shall be
treated as including a reference to the corresponding provision
of such section 819A."
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
-End-
-CITE-
26 USC Sec. 815 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
Sec. 815. Distributions to shareholders from pre-1984 policyholders
surplus account
-STATUTE-
(a) General rule
In the case of a stock life insurance company which has an
existing policyholders surplus account, the tax imposed by section
801 for any taxable year shall be the amount which would be imposed
by such section for such year on the sum of -
(1) life insurance company taxable income for such year (but
not less than zero), plus
(2) the amount of direct and indirect distributions during such
year to shareholders from such account.
For purposes of the preceding sentence, the term "indirect
distribution" shall not include any bona fide loan with arms-length
terms and conditions.
(b) Ordering rule
For purposes of this section, any distribution to shareholders
shall be treated as made -
(1) first out of the shareholders surplus account, to the
extent thereof,
(2) then out of the policyholders surplus account, to the
extent thereof, and
(3) finally, out of other accounts.
(c) Shareholders surplus account
(1) In general
Each stock life insurance company which has an existing
policyholders surplus account shall continue its shareholders
surplus account for purposes of this part.
(2) Additions to account
The amount added to the shareholders surplus account for any
taxable year beginning after December 31, 1983, shall be the
excess of -
(A) the sum of -
(i) the life insurance company's taxable income (but not
below zero),
(ii) the small life insurance company deduction provided by
section 806, and
(iii) the deductions for dividends received provided by
sections 243, 244, and 245 (as modified by section 805(a)(4))
and the amount of interest excluded from gross income under
section 103, over
(B) the taxes imposed for the taxable year by section 801
(determined without regard to this section).
If for any taxable year a tax is imposed by section 55, under
regulations proper adjustments shall be made for such year and
all subsequent taxable years in the amounts taken into account
under subparagraphs (A) and (B) of this paragraph and
subparagraph (B) of subsection (d)(3).
(3) Subtractions from account
There shall be subtracted from the shareholders surplus account
for any taxable year the amount which is treated under this
section as distributed out of such account.
(d) Policyholders surplus account
(1) In general
Each stock life insurance company which has an existing
policyholders surplus account shall continue such account.
(2) No additions to account
No amount shall be added to the policyholders surplus account
for any taxable year beginning after December 31, 1983.
(3) Subtractions from account
There shall be subtracted from the policyholders surplus
account for any taxable year an amount equal to the sum of -
(A) the amount which (without regard to subparagraph (B)) is
treated under this section as distributed out of the
policyholders surplus account, and
(B) the amount by which the tax imposed for the taxable year
by section 801 is increased by reason of this section.
(e) Existing policyholders surplus account
For purposes of this section, the term "existing policyholders
surplus account" means any policyholders surplus account which has
a balance as of the close of December 31, 1983.
(f) Other rules applicable to policyholders surplus account
continued
Except to the extent inconsistent with the provisions of this
part, the provisions of subsections (d), (e), (f), and (g) of
section 815 (and of sections 819(b), 6501(c)(6), 6501(k),
6511(d)(6), 6601(d)(3), and 6611(f)(4)) as in effect before the
enactment of the Tax Reform Act of 1984 are hereby made applicable
in respect of any policyholders surplus account for which there was
a balance as of December 31, 1983.
(g) Special rules applicable during 2005 and 2006
In the case of any taxable year of a stock life insurance company
beginning after December 31, 2004, and before January 1, 2007 -
(1) the amount under subsection (a)(2) for such taxable year
shall be treated as zero, and
(2) notwithstanding subsection (b), in determining any
subtractions from an account under subsections (c)(3) and (d)(3),
any distribution to shareholders during such taxable year shall
be treated as made first out of the policyholders surplus
account, then out of the shareholders surplus account, and
finally out of other accounts.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 747; amended Pub. L. 99-514, title X, Sec.
1011(b)(10), title XVIII, Sec. 1821(k)(1), (2), Oct. 22, 1986, 100
Stat. 2389, 2841; Pub. L. 100-647, title I, Sec. 1010(j)(1), Nov.
10, 1988, 102 Stat. 3456; Pub. L. 108-357, title VII, Sec. 705(a),
Oct. 22, 2004, 118 Stat. 1549.)
-REFTEXT-
REFERENCES IN TEXT
The enactment of the Tax Reform Act of 1984, referred to in
subsec. (f), means the enactment of division A of Pub. L. 98-369,
which was approved July 18, 1984.
-MISC1-
PRIOR PROVISIONS
A prior section 815, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 129; amended Pub. L. 87-790, Sec. 3(b), Oct. 10,
1962, 76 Stat. 808; Pub. L. 87-858, Sec. 3(b)(4), (e), Oct. 23,
1962, 76 Stat. 1137; Pub. L. 88-571, Secs. 2, 3(a), 4(a), Sept. 2,
1964, 78 Stat. 857, 859; Pub. L. 90-225, Sec. 4(a), (b), Dec. 27,
1967, 81 Stat. 733, 734; Pub. L. 91-172, title IX, Sec. 907(b),
Dec. 30, 1969, 83 Stat. 715; Pub. L. 94-331, Sec. 1(a), June 30,
1976, 90 Stat. 781; Pub. L. 94-455, title XIX, Secs. 1901(b)(1)(O),
(24), (33)(H), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1791, 1798,
1801, 1834, contained provisions similar to this section, prior to
the general revision of this part by Pub. L. 98-369, Sec. 211(a).
AMENDMENTS
2004 - Subsec. (g). Pub. L. 108-357 added subsec. (g).
1988 - Subsec. (c)(2). Pub. L. 100-647 inserted at end "If for
any taxable year a tax is imposed by section 55, under regulations
proper adjustments shall be made for such year and all subsequent
taxable years in the amounts taken into account under subparagraphs
(A) and (B) of this paragraph and subparagraph (B) of subsection
(d)(3)."
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1821(k)(2), inserted at
end "For purposes of the preceding sentence, the term 'indirect
distribution' shall not include any bona fide loan with arms-length
terms and conditions."
Subsec. (c)(2)(A)(ii). Pub. L. 99-514, Sec. 1011(b)(10),
substituted "small life insurance company deduction" for "special
deductions".
Subsec. (f). Pub. L. 99-514, Sec. 1821(k)(1), inserted reference
to section 819(b).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VII, Sec. 705(b), Oct. 22, 2004, 118 Stat.
1549, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2004."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1010(j)(2) of Pub. L. 100-647 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years beginning after December 31, 1986."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1011(b)(10) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1011(c)(1)
of Pub. L. 99-514, set out as a note under section 453B of this
title.
Amendment by section 1821(k)(1), (2) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
OPERATIONS LOSS DEDUCTION OF INSOLVENT COMPANIES MAY OFFSET
DISTRIBUTIONS FROM POLICYHOLDERS SURPLUS ACCOUNT
Section 1013 of Pub. L. 99-514 provided that:
"(a) In General. - If -
"(1) on November 15, 1985, a life insurance company was
insolvent,
"(2) pursuant to the order of any court of competent
jurisdiction in a title 11 or similar case (as defined in section
368(a)(3) of the Internal Revenue Code of 1954 [now 1986]), such
company is liquidated, and
"(3) as a result of such liquidation, the tax imposed by
section 801 of such Code for any taxable year (hereinafter in
this subsection referred to as the 'liquidation year') would (but
for this subsection) be increased under section 815(a) of such
Code,
then the amount described in section 815(a)(2) of such Code shall
be reduced by the loss from operations (if any) for the liquidation
year, and by the unused operations loss carryovers (if any) to the
liquidation year (determined after the application of section 810
of such Code for such year). No carryover of any loss from
operations of such company arising during the liquidation year (or
any prior taxable year) shall be allowable for any taxable year
succeeding the liquidation year.
"(b) Definitions. - For purposes of subsection (a) -
"(1) Insolvent. - The term 'insolvent' means the excess of
liabilities over the fair market value of assets.
"(2) Loss from operations. - The term 'loss from operations'
has the meaning given such term by section 810(c) of such Code.
"(c) Effective Date. - This section shall apply to liquidations
on or after November 15, 1985, in taxable years ending after such
date."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
AMOUNT OF INDIRECT DISTRIBUTION FOR LOANS BEFORE MARCH 1, 1986;
DETERMINATION; EXCEPTION
Section 1821(k)(3) of Pub. L. 99-514 provided that: "In the case
of any loan made before March 1, 1986 (other than a loan which is
renegotiated, extended, renewed, or revised after February 28,
1986), which does not meet the requirements of the last sentence of
section 815(a) of the Internal Revenue Code of 1954 [now 1986] (as
added by paragraph (2)), the amount of the indirect distribution
for purposes of such section 815(a) shall be the foregone interest
on the loan (determined by using the lowest rate which would have
met the arms-length requirements of such sentence for such a
loan)."
-End-
-CITE-
26 USC Subpart E - Definitions and Special Rules 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart E - Definitions and Special Rules
-HEAD-
SUBPART E - DEFINITIONS AND SPECIAL RULES
-MISC1-
Sec.
816. Life insurance company defined.
817. Treatment of variable contracts.
817A. Special rules for modified guaranteed contracts.
818. Other definitions and special rules.
AMENDMENTS
1996 - Pub. L. 104-188, title I, Sec. 1612(b), Aug. 20, 1996, 110
Stat. 1847, added item 817A.
-End-
-CITE-
26 USC Sec. 816 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart E - Definitions and Special Rules
-HEAD-
Sec. 816. Life insurance company defined
-STATUTE-
(a) Life insurance company defined
For purposes of this subtitle, the term "life insurance company"
means an insurance company which is engaged in the business of
issuing life insurance and annuity contracts (either separately or
combined with accident and health insurance), or noncancellable
contracts of health and accident insurance, if -
(1) its life insurance reserves (as defined in subsection (b)),
plus
(2) unearned premiums, and unpaid losses (whether or not
ascertained), on noncancellable life, accident, or health
policies not included in life insurance reserves,
comprise more than 50 percent of its total reserves (as defined in
subsection (c)). For purposes of the preceding sentence, the term
"insurance company" means any company more than half of the
business of which during the taxable year is the issuing of
insurance or annuity contracts or the reinsuring of risks
underwritten by insurance companies.
(b) Life insurance reserves defined
(1) In general
For purposes of this part, the term "life insurance reserves"
means amounts -
(A) which are computed or estimated on the basis of
recognized mortality or morbidity tables and assumed rates of
interest, and
(B) which are set aside to mature or liquidate, either by
payment or reinsurance, future unaccrued claims arising from
life insurance, annuity, and noncancellable accident and health
insurance contracts (including life insurance or annuity
contracts combined with noncancellable accident and health
insurance) involving, at the time with respect to which the
reserve is computed, life, accident, or health contingencies.
(2) Reserves must be required by law
Except -
(A) in the case of policies covering life, accident, and
health insurance combined in one policy issued on the weekly
premium payment plan, continuing for life and not subject to
cancellation, and
(B) as provided in paragraph (3),
in addition to the requirements set forth in paragraph (1), life
insurance reserves must be required by law.
(3) Assessment companies
In the case of an assessment life insurance company or
association, the term "life insurance reserves" includes -
(A) sums actually deposited by such company or association
with State officers pursuant to law as guaranty or reserve
funds, and
(B) any funds maintained, under the charter or articles of
incorporation or association (or bylaws approved by a State
insurance commissioner) of such company or association,
exclusively for the payment of claims arising under
certificates of membership or policies issued on the assessment
plan and not subject to any other use.
(4) Amount of reserves
For purposes of this subsection, subsection (a), and subsection
(c), the amount of any reserve (or portion thereof) for any
taxable year shall be the mean of such reserve (or portion
thereof) at the beginning and end of the taxable year.
(c) Total reserves defined
For purposes of subsection (a), the term "total reserves" means -
(1) life insurance reserves,
(2) unearned premiums, and unpaid losses (whether or not
ascertained), not included in life insurance reserves, and
(3) all other insurance reserves required by law.
(d) Adjustments in reserves for policy loans
For purposes only of determining under subsection (a) whether or
not an insurance company is a life insurance company, the life
insurance reserves, and the total reserves, shall each be reduced
by an amount equal to the mean of the aggregates, at the beginning
and end of the taxable year, of the policy loans outstanding with
respect to contracts for which life insurance reserves are
maintained.
(e) Guaranteed renewable contracts
For purposes of this part, guaranteed renewable life, accident,
and health insurance shall be treated in the same manner as
noncancellable life, accident, and health insurance.
(f) Amounts not involving life, accident, or health contingencies
For purposes only of determining under subsection (a) whether or
not an insurance company is a life insurance company, amounts set
aside and held at interest to satisfy obligations under contracts
which do not contain permanent guarantees with respect to life,
accident, or health contingencies shall not be included in reserves
described in paragraph (1) or (3) of subsection (c).
(g) Burial and funeral benefit insurance companies
A burial or funeral benefit insurance company engaged directly in
the manufacture of funeral supplies or the performance of funeral
services shall not be taxable under this part but shall be taxable
under section 831.
(h) Treatment of deficiency reserves
For purposes of this section and section 842(b)(2)(B)(i), the
terms "life insurance reserves" and "total reserves" shall not
include deficiency reserves.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 748; amended Pub. L. 99-514, title XVIII, Sec.
1821(l), Oct. 22, 1986, 100 Stat. 2841; Pub. L. 100-203, title X,
Sec. 10242(c)(2), Dec. 22, 1987, 101 Stat. 1330-423; Pub. L. 100-
647, title I, Sec. 1010(f)(6), title II, Sec. 2004(q)(1), Nov. 10,
1988, 102 Stat. 3454, 3608.)
-MISC1-
PRIOR PROVISIONS
A prior section 816, act Aug. 16, 1954, ch. 736, Sec. 816, as
added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 46, related to
taxation of foreign life insurance companies, prior to the general
revision of this part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
1988 - Subsec. (g). Pub. L. 100-647, Sec. 1010(f)(6), substituted
"section 831" for "section 821 or section 831".
Subsec. (h). Pub. L. 100-647, Sec. 2004(q)(1), substituted
"section 842(b)(2)(B)(i)" for "section 842(c)(1)(A)".
1987 - Subsec. (h). Pub. L. 100-203 substituted "section
842(c)(1)(A)" for "section 813(a)(4)(B)".
1986 - Subsec. (h). Pub. L. 99-514 added subsec. (h).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1010(f)(6) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by section 2004(q)(1) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provisions of
the Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10242(d) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section and sections
842, 864, and 4371 of this title and repealing section 813 of this
title] shall apply to taxable years beginning after December 31,
1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
SPECIAL ELECTION TO TREAT INDIVIDUAL NONCANCELLABLE ACCIDENT AND
HEALTH CONTRACTS AS CANCELLABLE
Section 217(i) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 100-647, title I,
Sec. 1010(h)(1), Nov. 10, 1988, 102 Stat. 3455, provided that:
"(1) In general. - A mutual life insurance company may elect to
treat all individual noncancellable (or guaranteed renewable)
accident and health insurance contracts as though they were
cancellable for purposes of section 816 of subchapter L of chapter
1 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954].
"(2) Effect of election on subsidiaries of electing parent. - For
purposes of determining the amount of the small life insurance
company deduction of any controlled group which includes a mutual
company which made an election under paragraph (1), the taxable
income of such electing company shall be taken into account under
section 806(b)(2) of the Internal Revenue Code of 1986 (relating to
phaseout of small life insurance company deduction).
"(3) Election. - An election under paragraph (1) shall apply to
the company's first taxable year beginning after December 31, 1983,
and all taxable years thereafter.
"(4) Time and manner. - An election under paragraph (1) shall be
made -
"(A) on the return of the taxpayer for its first taxable year
beginning after December 31, 1983, and
"(B) in such manner as the Secretary of the Treasury or his
delegate may prescribe."
[Section 1010(h)(2), (3) of Pub. L. 100-647 provided that:
["(2) Effective date. - The amendment made by this subsection
[amending section 217(i) of Pub. L. 98-369, set out above] shall
apply to taxable years beginning after December 31, 1986, and
before January 1, 1992.
["(3) Revenue loss limited. - The decrease in the amount of
Federal revenue by reason of the amendment made by this subsection
shall not exceed $300,000 per taxable year."]
-End-
-CITE-
26 USC Sec. 817 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart E - Definitions and Special Rules
-HEAD-
Sec. 817. Treatment of variable contracts
-STATUTE-
(a) Increases and decreases in reserves
For purposes of subsections (a) and (b) of section 807, the sum
of the items described in section 807(c) taken into account as of
the close of the taxable year with respect to any variable contract
shall, under regulations prescribed by the Secretary, be adjusted -
(1) by subtracting therefrom an amount equal to the sum of the
amounts added from time to time (for the taxable year) to the
reserves separately accounted for in accordance with subsection
(c) by reason of appreciation in value of assets (whether or not
the assets have been disposed of), and
(2) by adding thereto an amount equal to the sum of the amounts
subtracted from time to time (for the taxable year) from such
reserves by reason of depreciation in value of assets (whether or
not the assets have been disposed of).
The deduction allowable for items described in paragraphs (1) and
(6) of section 805(a) with respect to variable contracts shall be
reduced to the extent that the amount of such items is increased
for the taxable year by appreciation (or increased to the extent
that the amount of such items is decreased for the taxable year by
depreciation) not reflected in adjustments under the preceding
sentence.
(b) Adjustment to basis of assets held in segregated asset account
In the case of variable contracts, the basis of each asset in a
segregated asset account shall (in addition to all other
adjustments to basis) be -
(1) increased by the amount of any appreciation in value, and
(2) decreased by the amount of any depreciation in value,
to the extent such appreciation and depreciation are from time to
time reflected in the increases and decreases in reserves or other
items referred to in subsection (a) with respect to such contracts.
(c) Separate accounting
For purposes of this part, a life insurance company which issues
variable contracts shall separately account for the various income,
exclusion, deduction, asset, reserve, and other liability items
properly attributable to such variable contracts. For such items as
are not accounted for directly, separate accounting shall be made -
(1) in accordance with the method regularly employed by such
company, if such method is reasonable, and
(2) in all other cases, in accordance with regulations
prescribed by the Secretary.
(d) Variable contract defined
For purposes of this part, the term "variable contract" means a
contract -
(1) which provides for the allocation of all or part of the
amounts received under the contract to an account which, pursuant
to State law or regulation, is segregated from the general asset
accounts of the company,
(2) which -
(A) provides for the payment of annuities,
(B) is a life insurance contract, or
(C) provides for funding of insurance on retired lives as
described in section 807(c)(6), and
(3) under which -
(A) in the case of an annuity contract, the amounts paid in,
or the amount paid out, reflect the investment return and the
market value of the segregated asset account,
(B) in the case of a life insurance contract, the amount of
the death benefit (or the period of coverage) is adjusted on
the basis of the investment return and the market value of the
segregated asset account, or
(C) in the case of funds held under a contract described in
paragraph (2)(C), the amounts paid in, or the amounts paid out,
reflect the investment return and the market value of the
segregated asset account.
If a contract ceases to reflect current investment return and
current market value, such contract shall not be considered as
meeting the requirements of paragraph (3) after such cessation.
Paragraph (3) shall be applied without regard to whether there is a
guarantee, and obligations under such guarantee which exceed
obligations under the contract without regard to such guarantee
shall be accounted for as part of the company's general account.
(e) Pension plan contracts treated as paying annuity
A pension plan contract which is not a life, accident, or health,
property, casualty, or liability insurance contract shall be
treated as a contract which provides for the payments of annuities
for purposes of subsection (d).
(f) Other special rules
(1) Life insurance reserves
For purposes of subsection (b)(1)(A) of section 816, the
reflection of the investment return and the market value of the
segregated asset account shall be considered an assumed rate of
interest.
(2) Additional separate computations
Under regulations prescribed by the Secretary, such additional
separate computations shall be made, with respect to the items
separately accounted for in accordance with subsection (c), as
may be necessary to carry out the purposes of this section and
this part.
(g) Variable annuity contracts treated as annuity contracts
For purposes of this part, the term "annuity contract" includes a
contract which provides for the payment of a variable annuity
computed on the basis of -
(1) recognized mortality tables, and
(2)(A) the investment experience of a segregated asset account,
or
(B) the company-wide investment experience of the company.
Paragraph (2)(B) shall not apply to any company which issues
contracts which are not variable contracts.
(h) Treatment of certain nondiversified contracts
(1) In general
For purposes of subchapter L, section 72 (relating to
annuities), and section 7702(a) (relating to definition of life
insurance contract), a variable contract (other than a pension
plan contract) which is otherwise described in this section and
which is based on a segregated asset account shall not be treated
as an annuity, endowment, or life insurance contract for any
period (and any subsequent period) for which the investments made
by such account are not, in accordance with regulations
prescribed by the Secretary, adequately diversified.
(2) Safe harbor for diversification
A segregated asset account shall be treated as meeting the
requirements of paragraph (1) for any quarter of a taxable year
if as of the close of such quarter -
(A) it meets the requirements of section 851(b)(3), and
(B) no more than 55 percent of the value of the total assets
of the account are assets described in section 851(b)(3)(A)(i).
(3) Special rule for investments in United States obligations
To the extent that any segregated asset account with respect to
a variable life insurance contract is invested in securities
issued by the United States Treasury, the investments made by
such account shall be treated as adequately diversified for
purposes of paragraph (1).
(4) Look-through in certain cases
For purposes of this subsection, if all of the beneficial
interests in a regulated investment company or in a trust are
held by 1 or more -
(A) insurance companies (or affiliated companies) in their
general account or in segregated asset accounts, or
(B) fund managers (or affiliated companies) in connection
with the creation or management of the regulated investment
company or trust,
the diversification requirements of paragraph (1) shall be
applied by taking into account the assets held by such regulated
investment company or trust.
(5) Independent investment advisors permitted
Nothing in this subsection shall be construed as prohibiting
the use of independent investment advisors.
(6) Government securities funds
In determining whether a segregated asset account is adequately
diversified for purposes of paragraph (1), each United States
Government agency or instrumentality shall be treated as a
separate issuer.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 750; amended Pub. L. 99-514, title XVIII, Sec.
1821(m), (t)(1), Oct. 22, 1986, 100 Stat. 2841, 2844; Pub. L. 100-
647, title VI, Sec. 6080(a), Nov. 10, 1988, 102 Stat. 3710; Pub.
L. 104-188, title I, Sec. 1611(a), Aug. 20, 1996, 110 Stat. 1845;
Pub. L. 105-34, title XII, Sec. 1271(b)(8), Aug. 5, 1997, 111 Stat.
1037; Pub. L. 108-218, title II, Sec. 205(b)(5), Apr. 10, 2004, 118
Stat. 610.)
-MISC1-
PRIOR PROVISIONS
A prior section 817, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 132; amended Pub. L. 94-455, title XIV, Sec.
1402(b)(1)(M), (2), title XIX, Secs. 1901(a)(100), 1951(b)(11)(A),
Oct. 4, 1976, 90 Stat. 1732, 1781, 1839, related to rules regarding
certain gains and losses, prior to the general revision of this
part by Pub. L. 98-369, Sec. 211(a).
Another prior section 817, act Aug. 16, 1954, ch. 736, Sec. 817,
as added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 46, related to
denial of double deductions, prior to the general revision of this
part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
2004 - Subsec. (c). Pub. L. 108-218, in introductory provisions,
struck out "(other than section 809)" after "For purposes of this
part".
1997 - Subsec. (h)(2)(A). Pub. L. 105-34, Sec. 1271(b)(8)(A),
substituted "851(b)(3)" for "851(b)(4)".
Subsec. (h)(2)(B). Pub. L. 105-34, Sec. 1271(b)(8)(B),
substituted "851(b)(3)(A)(i)" for "851(b)(4)(A)(i)".
1996 - Subsec. (d)(2)(C). Pub. L. 104-188, Sec. 1611(a)(1), added
subpar. (C).
Subsec. (d)(3)(C). Pub. L. 104-188, Sec. 1611(a)(2), added
subpar. (C).
1988 - Subsec. (h)(6). Pub. L. 100-647 added par. (6).
1986 - Subsec. (d). Pub. L. 99-514, Sec. 1821(t)(1), inserted at
end "Paragraph (3) shall be applied without regard to whether there
is a guarantee, and obligations under such guarantee which exceed
obligations under the contract without regard to such guarantee
shall be accounted for as part of the company's general account."
Subsec. (h)(1). Pub. L. 99-514, Sec. 1821(m)(2), struck out last
sentence which read as follows: "For purposes of this paragraph and
paragraph (2), beneficial interests in a regulated investment
company or in a trust shall not be treated as 1 investment if all
of the beneficial interests in such company or trust are held by 1
or more segregated asset accounts of 1 or more insurance
companies."
Subsec. (h)(3) to (5). Pub. L. 99-514, Sec. 1821(m)(1), added
pars. (3) and (4), redesignated former par. (4) as (5), and struck
out former par. (3) which read as follows: "In the case of a
segregated asset account with respect to variable life insurance
contracts, paragraph (1) shall not apply in the case of securities
issued by the United States Treasury which are owned by a regulated
investment company or by a trust all the beneficial interests in
which are held by 1 or more segregated asset accounts of the
company issuing the contract."
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-218 applicable to taxable years
beginning after Dec. 31, 2004, see section 205(c) of Pub. L. 108-
218, set out as a note under section 807 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1271(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and sections 851 and
1092 of this title] shall apply to taxable years beginning after
the date of the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1611(b) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1995."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 6080(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1821(t)(2) of Pub. L. 99-514 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
-
"(A) to contracts issued after December 31, 1986, and
"(B) to contracts issued before January 1, 1987, if such
contract was treated as a variable contract on the taxpayer's
return."
Amendment by section 1821(m) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
DELAY IN EFFECTIVE DATE FOR DIVERSIFICATION REQUIREMENTS WITH
RESPECT TO ACCOUNTS FOR CERTAIN IMMEDIATE ANNUITIES
Section 1010(i) of Pub. L. 100-647 provided that: "Section 817(h)
of the 1986 Code shall not apply until January 1, 1989, with
respect to a variable contract (as defined in section 817(d) of the
1986 Code) if -
"(1) such contract provides for the payment of an immediate
annuity (as defined in section 72(u)(4) of the 1986 Code),
"(2) such contract was outstanding on September 12, 1986, and
"(3) the segregated asset account on which such contract is
based was, on September 12, 1986, wholly invested in deposits
insured by the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 817A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart E - Definitions and Special Rules
-HEAD-
Sec. 817A. Special rules for modified guaranteed contracts
-STATUTE-
(a) Computation of reserves
In the case of a modified guaranteed contract, clause (ii) of
section 807(e)(1)(A) shall not apply.
(b) Segregated assets under modified guaranteed contracts marked to
market
(1) In general
In the case of any life insurance company, for purposes of this
subtitle -
(A) Any gain or loss with respect to a segregated asset shall
be treated as ordinary income or loss, as the case may be.
(B) If any segregated asset is held by such company as of the
close of any taxable year -
(i) such company shall recognize gain or loss as if such
asset were sold for its fair market value on the last
business day of such taxable year, and
(ii) any such gain or loss shall be taken into account for
such taxable year.
Proper adjustment shall be made in the amount of any gain or
loss subsequently realized for gain or loss taken into account
under the preceding sentence. The Secretary may provide by
regulations for the application of this subparagraph at times
other than the times provided in this subparagraph.
(2) Segregated asset
For purposes of paragraph (1), the term "segregated asset"
means any asset held as part of a segregated account referred to
in subsection (d)(1) under a modified guaranteed contract.
(c) Special rule in computing life insurance reserves
For purposes of applying section 816(b)(1)(A) to any modified
guaranteed contract, an assumed rate of interest shall include a
rate of interest determined, from time to time, with reference to a
market rate of interest.
(d) Modified guaranteed contract defined
For purposes of this section, the term "modified guaranteed
contract" means a contract not described in section 817 -
(1) all or part of the amounts received under which are
allocated to an account which, pursuant to State law or
regulation, is segregated from the general asset accounts of the
company and is valued from time to time with reference to market
values,
(2) which -
(A) provides for the payment of annuities,
(B) is a life insurance contract, or
(C) is a pension plan contract which is not a life, accident,
or health, property, casualty, or liability contract,
(3) for which reserves are valued at market for annual
statement purposes, and
(4) which provides for a net surrender value or a
policyholder's fund (as defined in section 807(e)(1)).
If only a portion of a contract is not described in section 817,
such portion shall be treated for purposes of this section as a
separate contract.
(e) Regulations
The Secretary may prescribe regulations -
(1) to provide for the treatment of market value adjustments
under sections 72, 7702, 7702A, and 807(e)(1)(B),
(2) to determine the interest rates applicable under sections
807(c)(3), 807(d)(2)(B), and 812 with respect to a modified
guaranteed contract annually, in a manner appropriate for
modified guaranteed contracts and, to the extent appropriate for
such a contract, to modify or waive the applicability of section
811(d),
(3) to provide rules to limit ordinary gain or loss treatment
to assets constituting reserves for modified guaranteed contracts
(and not other assets) of the company,
(4) to provide appropriate treatment of transfers of assets to
and from the segregated account, and
(5) as may be necessary or appropriate to carry out the
purposes of this section.
-SOURCE-
(Added Pub. L. 104-188, title I, Sec. 1612(a), Aug. 20, 1996, 110
Stat. 1846.)
-MISC1-
EFFECTIVE DATE
Section 1612(c) of Pub. L. 104-188 provided that:
"(1) In general. - The amendments made by this section [enacting
this section] shall apply to taxable years beginning after December
31, 1995.
"(2) Treatment of net adjustments. - Except as provided in
paragraph (3), in the case of any taxpayer required by the
amendments made by this section to change its calculation of
reserves to take into account market value adjustments and to mark
segregated assets to market for any taxable year -
"(A) such changes shall be treated as a change in method of
accounting initiated by the taxpayer,
"(B) such changes shall be treated as made with the consent of
the Secretary, and
"(C) the adjustments required by reason of section 481 of the
Internal Revenue Code of 1986, shall be taken into account as
ordinary income by the taxpayer for the taxpayer's first taxable
year beginning after December 31, 1995.
"(3) Limitation on loss recognition and on deduction for reserve
increases. -
"(A) Limitation on loss recognition. -
"(i) In general. - The aggregate loss recognized by reason of
the application of section 481 of the Internal Revenue Code of
1986 with respect to section 817A(b) of such Code (as added by
this section) for the first taxable year of the taxpayer
beginning after December 31, 1995, shall not exceed the amount
included in the taxpayer's gross income for such year by reason
of the excess (if any) of -
"(I) the amount of life insurance reserves as of the close
of the prior taxable year, over
"(II) the amount of such reserves as of the beginning of
such first taxable year,
to the extent such excess is attributable to subsection (a) of
such section 817A. Notwithstanding the preceding sentence, the
adjusted basis of each segregated asset shall be determined as if
all such losses were recognized.
"(ii) Disallowed loss allowed over period. - The amount of
the loss which is not allowed under clause (i) shall be allowed
ratably over the period of 7 taxable years beginning with the
taxpayer's first taxable year beginning after December 31,
1995.
"(B) Limitation on deduction for increase in reserves. -
"(i) In general. - The deduction allowed for the first
taxable year of the taxpayer beginning after December 31, 1995,
by reason of the application of section 481 of such Code with
respect to section 817A(a) of such Code (as added by this
section) shall not exceed the aggregate built-in gain
recognized by reason of the application of such section 481
with respect to section 817A(b) of such Code (as added by this
section) for such first taxable year.
"(ii) Disallowed deduction allowed over period. - The amount
of the deduction which is disallowed under clause (i) shall be
allowed ratably over the period of 7 taxable years beginning
with the taxpayer's first taxable year beginning after December
31, 1995.
"(iii) Built-in gain. - For purposes of this subparagraph,
the built-in gain on an asset is the amount equal to the excess
of -
"(I) the fair market value of the asset as of the beginning
of the first taxable year of the taxpayer beginning after
December 31, 1995, over
"(II) the adjusted basis of such asset as of such time."
-End-
-CITE-
26 USC Sec. 818 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart E - Definitions and Special Rules
-HEAD-
Sec. 818. Other definitions and special rules
-STATUTE-
(a) Pension plan contracts
For purposes of this part, the term "pension plan contract" means
any contract -
(1) entered into with trusts which (as of the time the
contracts were entered into) were deemed to be trusts described
in section 401(a) and exempt from tax under section 501(a) (or
trusts exempt from tax under section 165 of the Internal Revenue
Code of 1939 or the corresponding provisions of prior revenue
laws);
(2) entered into under plans which (as of the time the
contracts were entered into) were deemed to be plans described in
section 403(a), or plans meeting the requirements of paragraphs
(3), (4), (5), and (6) of section 165(a) of the Internal Revenue
Code of 1939;
(3) provided for employees of the life insurance company under
a plan which, for the taxable year, meets the requirements of
paragraphs (3), (4), (5), (6), (7), (8), (11), (12), (13), (14),
(15), (16), (17), (19), (20), (22), (26), and (27) of section
401(a);
(4) purchased to provide retirement annuities for its employees
by an organization which (as of the time the contracts were
purchased) was an organization described in section 501(c)(3)
which was exempt from tax under section 501(a) (or was an
organization exempt from tax under section 101(6) of the Internal
Revenue Code of 1939 or the corresponding provisions of prior
revenue laws), or purchased to provide retirement annuities for
employees described in section 403(b)(1)(A)(ii) by an employer
which is a State, a political subdivision of a State, or an
agency or instrumentality of any one or more of the foregoing;
(5) entered into with trusts which (at the time the contracts
were entered into) were individual retirement accounts described
in section 408(a) or under contracts entered into with individual
retirement annuities described in section 408(b); or
(6) purchased by -
(A) a governmental plan (within the meaning of section
414(d)) or an eligible deferred compensation plan (within the
meaning of section 457(b)), or
(B) the Government of the United States, the government of
any State or political subdivision thereof, or by any agency or
instrumentality of the foregoing, or any organization (other
than a governmental unit) exempt from tax under this subtitle,
for use in satisfying an obligation of such government,
political subdivision, agency or instrumentality, or
organization to provide a benefit under a plan described in
subparagraph (A).
(b) Treatment of capital gains and losses, etc.
In the case of a life insurance company -
(1) in applying section 1231(a), the term "property used in the
trade or business" shall be treated as including only -
(A) property used in carrying on an insurance business, of a
character which is subject to the allowance for depreciation
provided in section 167, held for more than 1 year, and real
property used in carrying on an insurance business, held for
more than 1 year, which is not described in section
1231(b)(1)(A), (B), or (C), and
(B) property described in section 1231(b)(2), and
(2) in applying section 1221(a)(2), the reference to property
used in trade or business shall be treated as including only
property used in carrying on an insurance business.
(c) Gain on property held on December 31, 1958 and certain
substituted property acquired after 1958
(1) Property held on December 31, 1958
In the case of property held by the taxpayer on December 31,
1958, if -
(A) the fair market value of such property on such date
exceeds the adjusted basis for determining gain as of such
date, and
(B) the taxpayer has been a life insurance company at all
times on and after December 31, 1958,
the gain on the sale or other disposition of such property shall
be treated as an amount (not less than zero) equal to the amount
by which the gain (determined without regard to this subsection)
exceeds the difference between the fair market value on December
31, 1958, and the adjusted basis for determining gain as of such
date.
(2) Certain property acquired after December 31, 1958
In the case of property acquired after December 31, 1958, and
having a substituted basis (within the meaning of section
1016(b)) -
(A) for purposes of paragraph (1), such property shall be
deemed held continuously by the taxpayer since the beginning of
the holding period thereof, determined with reference to
section 1223,
(B) the fair market value and adjusted basis referred to in
paragraph (1) shall be that of that property for which the
holding period taken into account includes December 31, 1958,
(C) paragraph (1) shall apply only if the property or
properties the holding periods of which are taken into account
were held only by life insurance companies after December 31,
1958, during the holding periods so taken into account,
(D) the difference between the fair market value and adjusted
basis referred to in paragraph (1) shall be reduced (to not
less than zero) by the excess of (i) the gain that would have
been recognized but for this subsection on all prior sales or
dispositions after December 31, 1958, of properties referred to
in subparagraph (C), over (ii) the gain which was recognized on
such sales or other dispositions, and
(E) the basis of such property shall be determined as if the
gain which would have been recognized but for this subsection
were recognized gain.
(3) Property defined
For purposes of paragraphs (1) and (2), the term "property"
does not include insurance and annuity contracts and property
described in paragraph (1) of section 1221(a).
(d) Insurance or annuity contract includes contracts supplementary
thereto
For purposes of this part, the term "insurance or annuity
contract" includes any contract supplementary thereto.
(e) Special rules for consolidated returns
(1) Items of companies other than life insurance companies
If an election under section 1504(c)(2) is in effect with
respect to an affiliated group for the taxable year, all items of
the members of such group which are not life insurance companies
shall not be taken into account in determining the amount of the
tentative LICTI of members of such group which are life insurance
companies.
(2) Dividends within group
In the case of a life insurance company filing or required to
file a consolidated return under section 1501 with respect to any
affiliated group for any taxable year, any determination under
this part with respect to any dividend paid by one member of such
group to another member of such group shall be made as if such
group was not filing a consolidated return.
(f) Allocation of certain items for purposes of foreign tax credit,
etc.
(1) In general
Under regulations, in applying sections 861, 862, and 863 to a
life insurance company, the deduction for policyholder dividends
(determined under section 808(c)), reserve adjustments under
subsections (a) and (b) of section 807, and death benefits and
other amounts described in section 805(a)(1) shall be treated as
items which cannot definitely be allocated to an item or class of
gross income.
(2) Election of alternative allocation
(A) In general
On or before September 15, 1985, any life insurance company
may elect to treat items described in paragraph (1) as properly
apportioned or allocated among items of gross income to the
extent (and in the manner) prescribed in regulations.
(B) Election irrevocable
Any election under subparagraph (A), once made, may be
revoked only with the consent of the Secretary.
(3) Items described in section 807(c) treated as not interest for
source rules, etc.
For purposes of part I of subchapter N, items described in any
paragraph of section 807(c) shall be treated as amounts which are
not interest.
(g) Qualified accelerated death benefit riders treated as life
insurance
For purposes of this part -
(1) In general
Any reference to a life insurance contract shall be treated as
including a reference to a qualified accelerated death benefit
rider on such contract.
(2) Qualified accelerated death benefit riders
For purposes of this subsection, the term "qualified
accelerated death benefit rider" means any rider on a life
insurance contract if the only payments under the rider are
payments meeting the requirements of section 101(g).
(3) Exception for long-term care riders
Paragraph (1) shall not apply to any rider which is treated as
a long-term care insurance contract under section 7702B.
-SOURCE-
(Added and amended Pub. L. 98-369, div. A, title II, Sec. 211(a),
title X, Sec. 1001(b)(10), (e), July 18, 1984, 98 Stat. 752, 1011,
1012; Pub. L. 99-514, title XI, Secs. 1106(d)(3)(C), 1112(d)(4),
1136(b), title XVIII, Sec. 1821(n), (o), Oct. 22, 1986, 100 Stat.
2424, 2445, 2486, 2842; Pub. L. 100-647, title I, Secs. 1010(k),
1011(e)(5)(A), Nov. 10, 1988, 102 Stat. 3456, 3461; Pub. L. 104-
191, title III, Sec. 332(a), Aug. 21, 1996, 110 Stat. 2069; Pub.
L. 106-170, title V, Sec. 532(c)(1)(D), (3), Dec. 17, 1999, 113
Stat. 1930, 1931.)
-REFTEXT-
REFERENCES IN TEXT
Section 165 of the Internal Revenue Code of 1939, referred to in
subsec. (a)(1), (2), was classified to section 165 of former Title
26, Internal Revenue Code. Section 101 of the Internal Revenue Code
of 1939, referred to in subsec. (a)(4) was classified to section
101 of former Title 26, Internal Revenue Code. Sections 101 and 165
were repealed by section 7851(a)(1)(A) of this title. For table of
comparisons of the 1939 Code to the 1986 Code, see Table I
preceding section 1 of this title. See, also, section 7851(e) of
this title for provision that references in the 1986 Code to a
provision of the 1939 Code, not then applicable, shall be deemed a
reference to the corresponding provision of the 1986 Code, which is
then applicable.
-MISC1-
PRIOR PROVISIONS
A prior section 818, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 133; amended Pub. L. 88-272, title II, Sec.
228(b)(1), Feb. 26, 1964, 78 Stat. 98; Pub. L. 91-688, Sec. 1(a),
Jan. 12, 1971, 84 Stat. 2072; Pub. L. 94-455, title XIX, Secs.
1901(a)(101), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1781, 1834;
Pub. L. 97-248, title II, Secs. 258(a), 260(a), 262, 267(a), Sept.
3, 1982, 96 Stat. 538-540, 550, related to accounting provisions
generally, prior to the general revision of this part by Pub. L. 98-
369, Sec. 211(a).
Another prior section 818, act Aug. 16, 1954, ch. 736, Sec. 818,
as added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 46, related to
certain new insurance companies, prior to the general revision of
this part by Pub. L. 86-69, Sec. 2(a).
A prior section 819, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 136; amended Pub. L. 89-809, title I, Sec.
104(i)(3), Nov. 13, 1966, 80 Stat. 1561; Pub. L. 94-455, title XIX,
Secs. 1901(a)(102), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1781,
1834, related to foreign life insurance companies, prior to the
general revision of this part by Pub. L. 98-369, Sec. 211(a). See
section 813 of this title.
A prior section 819A, added Pub. L. 94-455, title X, Sec.
1043(a), Oct. 4, 1976, 90 Stat. 1639, related to contiguous country
branches of domestic life insurance companies, prior to the general
revision of this part by Pub. L. 98-369, Sec. 211(a). See section
814 of this title.
A prior section 820, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 137; amended Pub. L. 94-455, title XIX, Secs.
1901(a)(103), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1782, 1834,
related to optional treatment of policies reinsured under modified
coinsurance contracts, prior to repeal by Pub. L. 97-248, title II,
Sec. 255(a), (c), Sept. 3, 1982, 96 Stat. 533, 534, applicable to
taxable years beginning after Dec. 31, 1981, with exception.
A prior section 821, acts Aug. 16, 1954, ch. 736, 68A Stat. 260;
Mar. 30, 1955, ch. 18, Sec. 2, 69 Stat. 14; Mar. 13, 1956, ch. 83,
Sec. 3(a)(1), (2), 70 Stat. 47; Mar. 29, 1956, ch. 115, Sec. 2, 70
Stat. 66; Mar. 29, 1957, Pub. L. 85-12, Sec. 2, 71 Stat. 9; June
30, 1958, Pub. L. 85-475, Sec. 2, 72 Stat. 259; June 30, 1959, Pub.
L. 86-75, Sec. 2, 73 Stat. 157; June 30, 1960, Pub. L. 86-564,
title II, Sec. 201, 74 Stat. 290; June 30, 1961, Pub. L. 87-72,
Sec. 2, 75 Stat. 193; June 28, 1962, Pub. L. 87-508, Sec. 2, 76
Stat. 114; Oct. 16, 1962, Pub. L. 87-834, Sec. 8(a), 76 Stat. 989;
June 29, 1963 Pub. L. 88-52, Sec. 2, 77 Stat. 72; Feb. 26, 1964,
Pub. L. 88-272, title I, Sec. 123(a), 78 Stat. 29; Nov. 13, 1966,
Pub. L. 89-809, title I, Sec. 104(i)(4), 80 Stat. 1562; Oct. 4,
1976, Pub. L. 94-455, title IX, Sec. 901(b), title XV, Sec.
1507(b)(1), title XIX, Secs. 1901(a)(104), 1906(b)(13)(A), 90 Stat.
1607, 1739, 1782, 1834; May 23, 1977, Pub. L. 95-30, title II, Sec.
201(3), (4), 91 Stat. 141; Nov. 6, 1978, Pub. L. 95-600, title III,
Sec. 301(b)(9), 92 Stat. 2821; Aug. 13, 1981, Pub. L. 97-34, title
II, Sec. 231(b)(1), (2), 95 Stat. 249, related to tax on mutual
insurance companies to which former part II applied, prior to
repeal by Pub. L. 99-514, title X, Sec. 1024(a)(1), Oct. 22, 1986,
100 Stat. 2405, effective for taxable years beginning after Dec.
31, 1986.
A prior section 822 was renumbered section 834 of this title by
Pub. L. 99-514, title X, Sec. 1024(a)(3), Oct. 22, 1986, 100 Stat.
2405.
A prior section 823, added Pub. L. 87-834, Sec. 8(c), Oct. 16,
1962, 76 Stat. 992; amended Pub. L. 91-172, title IX, Sec.
907(c)(2)(B), Dec. 30, 1969, 83 Stat. 717, related to determination
of statutory underwriting income or loss, prior to repeal by Pub.
L. 99-514, title X, Sec. 1024(a)(1), Oct. 22, 1986, 100 Stat. 2405,
effective for taxable years beginning after Dec. 31, 1986.
Another prior section 823, act Aug. 16, 1954, ch. 736, 68A Stat.
263, which defined "net premiums" and "dividends to policyholders",
was redesignated section 822(f) of this title by section 8(b)(4) of
Pub. L. 87-834.
A prior section 824, added Pub. L. 87-834, Sec. 8(c), Oct. 16,
1962, 76 Stat. 993; amended Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to adjustments
to provide protection against losses, prior to repeal by Pub. L. 99-
514, title X, Sec. 1024(a)(1), Oct. 22, 1986, 100 Stat. 2405,
effective for taxable years beginning after Dec. 31, 1986.
A prior section 825, added Pub. L. 87-834, Sec. 8(c), Oct. 16,
1962, 76 Stat. 995; amended Pub. L. 91-172 title IX, Sec.
907(c)(2)(C), (D), Dec. 30, 1969, 83 Stat. 717; Pub. L. 94-455,
title VIII, Sec. 806(d)(2), title XIX, Sec. 1901(a)(106), Oct. 4,
1976, 90 Stat. 1599, 1782; Pub. L. 97-34, title II, Sec. 207(b),
Aug. 13, 1981, 95 Stat. 225, related to unused loss deduction,
prior to repeal by Pub. L. 99-514, title X, Sec. 1024(a)(1), Oct.
22, 1986, 100 Stat. 2405, effective for taxable years beginning
after Dec. 31, 1986.
A prior section 826 was renumbered section 835 of this title by
Pub. L. 99-514, title X, Sec. 1024(a)(3), Oct. 22, 1986, 100 Stat.
2405.
AMENDMENTS
1999 - Subsec. (b)(2). Pub. L. 106-170, Sec. 532(c)(3),
substituted "section 1221(a)(2)" for "section 1221(2)".
Subsec. (c)(3). Pub. L. 106-170, Sec. 532(c)(1)(D), substituted
"section 1221(a)" for "section 1221".
1996 - Subsec. (g). Pub. L. 104-191 added subsec. (g).
1988 - Subsec. (a)(6). Pub. L. 100-647, Sec. 1011(e)(5)(A), in
subpar. (A) substituted "eligible deferred compensation plan" for
"eligible State deferred compensation plan", and in subpar. (B),
inserted "or any organization (other than a governmental unit)
exempt from tax under this subtitle," after "foregoing," and
substituted "agency or instrumentality, or organization" for "or
agency or instrumentality".
Subsec. (f)(3). Pub. L. 100-647, Sec. 1010(k), added par. (3).
1986 - Subsec. (a)(3). Pub. L. 99-514, Sec. 1136(b), substituted
"(26), and (27)" for "and (26)".
Pub. L. 99-514, Sec. 1112(d)(4), substituted "(22), and (26)" for
"and (22)".
Pub. L. 99-514, Sec. 1106(d)(3)(C), inserted "(17)," after
"(16),".
Subsec. (a)(6)(A). Pub. L. 99-514, Sec. 1821(n), in amending
subpar. (A) generally, inserted "an eligible State deferred
compensation plan (within the meaning of section 457(b)), or".
Subsec. (e). Pub. L. 99-514, Sec. 1821(o), amended subsec. (e)
generally. Prior to amendment, subsec. (e) read as follows: "If an
election under section 1504(c)(2) is in effect with respect to an
affiliated group for the taxable year, all items of the members of
such group which are not life insurance companies shall not be
taken into account in determining the amount of the tentative LICTI
of members of such group which are life insurance companies."
1984 - Subsec. (b)(1)(A). Pub. L. 98-369, Sec. 1001(b)(10), (e),
substituted "6 months" for "1 year" in two places, applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 332(b) of Pub. L. 104-191 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall take effect on January 1, 1997.
"(2) Issuance of rider not treated as material change. - For
purposes of applying sections 101(f), 7702, and 7702A of the
Internal Revenue Code of 1986 to any contract -
"(A) the issuance of a qualified accelerated death benefit
rider (as defined in section 818(g) of such Code (as added by
this Act)), and
"(B) the addition of any provision required to conform an
accelerated death benefit rider to the requirements of such
section 818(g),
shall not be treated as a modification or material change of such
contract."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1011(e)(5)(B) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section] shall
apply to contracts issued after December 31, 1986."
Amendment by section 1010(k) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1106(d)(3)(C) of Pub. L. 99-514 applicable
to benefits accruing in years beginning after Dec. 31, 1988, except
as otherwise provided, see section 1106(i)(5) of Pub. L. 99-514 set
out as a note under section 415 of this title.
Amendment by section 1112(d)(4) of Pub. L. 99-514 applicable to
plan years beginning after Dec. 31, 1988, with special rule
regarding collective bargaining agreements ratified before Mar. 1,
1986, and with provision for waiver of the excise tax on
reversions, see section 1112(e) of Pub. L. 99-514, set out as a
note under section 401 of this title.
Amendment by section 1821(n), (o) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1112 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC PART II - OTHER INSURANCE COMPANIES 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
PART II - OTHER INSURANCE COMPANIES
-MISC1-
Sec.
831. Tax on insurance companies other than life insurance
companies.
832. Insurance company taxable income.
833. Treatment of Blue Cross and Blue Shield organizations,
etc.
834. Determination of taxable investment income.
835. Election by reciprocal.
PRIOR PROVISIONS
A prior part II (Secs. 821 to 826) related to mutual insurance
companies other than life and certain marine insurance companies
and other than fire and flood insurance companies which operated on
the basis of perpetual policies or premium deposits, consisted of
sections 821-826, prior to repeal (except for sections 822 and 826
which were renumbered sections 834 and 835, respectively, by Pub.
L. 99-514, title X, Sec. 1024(a)(1)-(3), Oct. 22, 1986, 100 Stat.
2405. See Prior Provisions note set out under section 818 of this
title.
AMENDMENTS
1988 - Pub. L. 100-647, title I, Sec. 1010(f)(7), Nov. 10, 1988,
102 Stat. 3454, substituted "Tax on insurance companies other than
life insurance companies" for "Tax on insurance companies (other
than life or mutual), mutual marine insurance companies, and
certain mutual fire or flood insurance companies" in item 831.
1986 - Pub. L. 99-514, title X, Secs. 1012(b)(2), 1024(a)(2),
(c)(18), Oct. 22, 1986, 100 Stat. 2393, 2405, 2408, redesignated
part III (Sec. 831 et seq.) as II and added items 833, 834, and
835. Former part II (Sec. 821 et seq.) was repealed.
1962 - Pub. L. 87-834, Sec. 8(g)(4)(C), Oct. 16, 1962, 76 Stat.
999, substituted "and certain mutual fire or flood insurance
companies" for "and mutual fire insurance companies issuing
perpetual policies" in item 831.
-End-
-CITE-
26 USC Sec. 831 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
Sec. 831. Tax on insurance companies other than life insurance
companies
-STATUTE-
(a) General rule
Taxes computed as provided in section 11 shall be imposed for
each taxable year on the taxable income of every insurance company
other than a life insurance company.
(b) Alternative tax for certain small companies
(1) In general
In lieu of the tax otherwise applicable under subsection (a),
there is hereby imposed for each taxable year on the income of
every insurance company to which this subsection applies a tax
computed by multiplying the taxable investment income of such
company for such taxable year by the rates provided in section
11(b).
(2) Companies to which this subsection applies
(A) In general
This subsection shall apply to every insurance company other
than life (including interinsurers and reciprocal underwriters)
if -
(i) the net written premiums (or, if greater, direct
written premiums) for the taxable year do not exceed
$1,200,000, and
(ii) such company elects the application of this subsection
for such taxable year.
The election under clause (ii) shall apply to the taxable year
for which made and for all subsequent taxable years for which
the requirements of clause (i) are met. Such an election, once
made, may be revoked only with the consent of the Secretary.
(B) Controlled group rules
(i) In general
For purposes of subparagraph (A), in determining whether
any company is described in clause (i) of subparagraph (A),
such company shall be treated as receiving during the taxable
year amounts described in such clause (i) which are received
during such year by all other companies which are members of
the same controlled group as the insurance company for which
the determination is being made.
(ii) Controlled group
For purposes of clause (i), the term "controlled group"
means any controlled group of corporations (as defined in
section 1563(a)); except that -
(I) "more than 50 percent" shall be substituted for "at
least 80 percent" each place it appears in section 1563(a),
and
(II) subsections (a)(4) and (b)(2)(D) of section 1563
shall not apply.
(3) Limitation on use of net operating losses
For purposes of this part, except as provided in section 844, a
net operating loss (as defined in section 172) shall not be
carried -
(A) to or from any taxable year for which the insurance
company is not subject to the tax imposed by subsection (a), or
(B) to any taxable year if, between the taxable year from
which such loss is being carried and such taxable year, there
is an intervening taxable year for which the insurance company
was not subject to the tax imposed by subsection (a).
(c) Insurance company defined
For purposes of this section, the term "insurance company" has
the meaning given to such term by section 816(a)).(!1)
(d) Cross references
(1) For alternative tax in case of capital gains, see section
1201(a).
(2) For taxation of foreign corporations carrying on an
insurance business within the United States, see section 842.
(3) For exemption from tax for certain insurance companies
other than life, see section 501(c)(15).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 264; Pub. L. 87-834, Sec.
8(e)(1), (f), (g)(4)(B), Oct. 16, 1962, 76 Stat. 997-999; Pub. L.
89-809, title I, Sec. 104(i)(6), Nov. 13, 1966, 80 Stat. 1562; Pub.
L. 94-455, title XIX, Secs. 1901(a)(107), 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1782, 1834; Pub. L. 99-514, title X, Sec.
1024(a)(4), Oct. 22, 1986, 100 Stat. 2405; Pub. L. 100-647, title
I, Sec. 1010(f)(1), (9), Nov. 10, 1988, 102 Stat. 3454, 3455; Pub.
L. 108-218, title II, Sec. 206(c), (d), Apr. 10, 2004, 118 Stat.
611.)
-MISC1-
AMENDMENTS
2004 - Subsec. (b)(2)(A)(i). Pub. L. 108-218, Sec. 206(d), struck
out "exceed $350,000 but" after "taxable year".
Subsecs. (c), (d). Pub. L. 108-218, Sec. 206(c), added subsec.
(c) and redesignated former subsec. (c) as (d).
1988 - Subsec. (b)(2)(A). Pub. L. 100-647, Sec. 1010(f)(1),
inserted at end "The election under clause (ii) shall apply to the
taxable year for which made and for all subsequent taxable years
for which the requirements of clause (i) are met. Such an election,
once made, may be revoked only with the consent of the Secretary."
Subsec. (b)(3). Pub. L. 100-647, Sec. 1010(f)(9), added par. (3).
1986 - Pub. L. 99-514 amended section generally, substituting
provisions imposing taxes on insurance companies other than life
insurance companies, with an alternative tax on certain small
companies, for provisions imposing taxes on insurance companies
(other than life or mutual), mutual marine insurance companies, and
certain mutual fire or flood insurance companies, with an election
for multiple line companies to be taxed on total income.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(107),
substituted "on the taxable income" for "or the taxable income".
Subsec. (b). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary" wherever appearing.
1966 - Subsec. (b). Pub. L. 89-809, Sec. 104(i)(6)(A),
redesignated subsec. (c) as (b). Former subsec. (b), which excepted
foreign insurance companies other than life or mutual insurance
companies, foreign mutual marine insurance companies, and foreign
mutual fire insurance companies not carrying on an insurance
business within the United States and provided that they would be
taxable as other foreign corporations, was struck out.
Subsecs. (c), (d). Pub. L. 89-809, Sec. 104(i)(6)(B),
redesignated subsec. (d) as (c) and added item (2). Former subsec.
(c) redesignated (b).
1962 - Pub. L. 87-834, Sec. 8(g)(4)(B), substituted "and certain
mutual fire or flood insurance companies" for "and mutual fire
insurance companies issuing perpetual policies" in section
catchline.
Subsec. (a). Pub. L. 87-834, Sec. 8(e)(1), included flood
insurance companies, and substituted provisions authorizing
imposition of the tax on those companies whose principal business
is the issuance of policies for which the premium deposits are the
same, regardless of the length of the term for which the policies
are written, if the unabsorbed portion of such premium deposits not
required for losses, expenses, or establishment of reserves is
returned or credited to the policyholder on cancellation or
expiration of the policy for provisions which authorized imposition
of tax on those companies which issued policies for which the sole
premium charged is a single deposit which (except for such
deduction of underwriting costs as may be provided) is refundable
on cancellation or expiration of the policy.
Subsecs. (c), (d). Pub. L. 87-834, Sec. 8(f), added subsec. (c)
and redesignated former subsec. (c) as (d).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-218 applicable to taxable years
beginning after Dec. 31, 2003, with exception for companies in
receivership or liquidation, see section 206(e) of Pub. L. 108-218,
set out as a note under section 501 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1024(e) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 501, 832,
834, 835, 841, 842, 844, 891, 1201, 1504, and 1563 of this title,
redesignating former sections 822 and 826 of this title as sections
834 and 835 of this title, respectively, and repealing sections
821, 823, 824, and 825 of this title] (and the provisions of
subsection (d) [set out below]) shall apply to taxable years
beginning after December 31, 1986."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(107) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years beginning after Dec. 31, 1962, see section 8(h) of Pub. L. 87-
834, set out as a note under section 501 of this title.
TRANSITIONAL RULES FOR 1984 AMENDMENT
Section 1024(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1010(f)(8), Nov. 10, 1988, 102 Stat. 3454, provided
that:
"(1) Treatment of amounts in protection against loss account. -
In the case of any insurance company which had a protection against
loss account for its last taxable year beginning before January 1,
1987, there shall be included in the gross income of such company
for any taxable year beginning after December 31, 1986, the amount
which would have been included in gross income for such taxable
year under section 824 of the Internal Revenue Code of 1954 [now
1986] (as in effect on the day before the date of the enactment of
this Act [Oct. 22, 1986]). For purposes of the preceding sentence,
no addition to such account shall be made for any taxable year
beginning after December 31, 1986. In the case of a company taxable
under section 831(b) of the Internal Revenue Code of 1986 (as
amended by subsection (a)), any amount included in gross income
under this paragraph shall be treated as gross investment income.
"(2) Transitional rule for unused loss carryover under section
825. - Any unused loss carryover under section 825 of the Internal
Revenue Code of 1954 (as in effect on the day before the date of
the enactment of this Act [Oct. 22, 1986]) which -
"(A) is from a taxable year beginning before January 1, 1987,
and
"(B) could have been carried under such section to a taxable
year beginning after December 31, 1986, but for the repeal made
by subsection (a)(1) [repealing sections 821 and 823 to 825 of
this title],
shall be included in the net operating loss deduction under section
832(c)(10) of such Code without regard to the limitations of
section 844(b) of such Code."
-FOOTNOTE-
(!1) So in original. Second closing parenthesis probably should
not appear.
-End-
-CITE-
26 USC Sec. 832 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
Sec. 832. Insurance company taxable income
-STATUTE-
(a) Definition of taxable income
In the case of an insurance company subject to the tax imposed by
section 831, the term "taxable income" means the gross income as
defined in subsection (b)(1) less the deductions allowed by
subsection (c).
(b) Definitions
In the case of an insurance company subject to the tax imposed by
section 831 -
(1) Gross income
The term "gross income" means the sum of -
(A) the combined gross amount earned during the taxable year,
from investment income and from underwriting income as provided
in this subsection, computed on the basis of the underwriting
and investment exhibit of the annual statement approved by the
National Association of Insurance Commissioners,
(B) gain during the taxable year from the sale or other
disposition of property, and
(C) all other items constituting gross income under
subchapter B, except that, in the case of a mutual fire
insurance company exclusively issuing perpetual policies, the
amount of single deposit premiums paid to such company shall
not be included in gross income,
(D) in the case of a mutual fire or flood insurance company
whose principal business is the issuance of policies -
(i) for which the premium deposits are the same (regardless
of the length of the term for which the policies are
written), and
(ii) under which the unabsorbed portion of such premium
deposits not required for losses, expenses, or establishment
of reserves is returned or credited to the policyholder on
cancellation or expiration of the policy,
an amount equal to 2 percent of the premiums earned on
insurance contracts during the taxable year with respect to
such policies after deduction of premium deposits returned or
credited during the same taxable year, and
(E) in the case of a company which writes mortgage guaranty
insurance, the amount required by subsection (e)(5) to be
subtracted from the mortgage guaranty account.
(2) Investment income
The term "investment income" means the gross amount of income
earned during the taxable year from interest, dividends, and
rents, computed as follows: To all interest, dividends, and rents
received during the taxable year, add interest, dividends, and
rents due and accrued at the end of the taxable year, and deduct
all interest, dividends, and rents due and accrued at the end of
the preceding taxable year.
(3) Underwriting income
The term "underwriting income" means the premiums earned on
insurance contracts during the taxable year less losses incurred
and expenses incurred.
(4) Premiums earned
The term "premiums earned on insurance contracts during the
taxable year" means an amount computed as follows:
(A) From the amount of gross premiums written on insurance
contracts during the taxable year, deduct return premiums and
premiums paid for reinsurance.
(B) To the result so obtained, add 80 percent of the unearned
premiums on outstanding business at the end of the preceding
taxable year and deduct 80 percent of the unearned premiums on
outstanding business at the end of the taxable year.
(C) To the result so obtained, in the case of a taxable year
beginning after December 31, 1986, and before January 1, 1993,
add an amount equal to 3 1/3 percent of unearned premiums on
outstanding business at the end of the most recent taxable year
beginning before January 1, 1987.
For purposes of this subsection, unearned premiums shall include
life insurance reserves, as defined in section 816(b) but
determined as provided in section 807. For purposes of this
subsection, unearned premiums of mutual fire or flood insurance
companies described in paragraph (1)(D) means (with respect to
the policies described in paragraph (1)(D)) the amount of
unabsorbed premium deposits which the company would be obligated
to return to its policyholders at the close of the taxable year
if all of its policies were terminated at such time; and the
determination of such amount shall be based on the schedule of
unabsorbed premium deposit returns for each such company then in
effect. Premiums paid by the subscriber of a mutual flood
insurance company described in paragraph (1)(D) or issuing
exclusively perpetual policies shall be treated, for purposes of
computing the taxable income of such subscriber, in the same
manner as premiums paid by a policyholder to a mutual fire
insurance company described in subparagraph (C) or (D) of
paragraph (1).
(5) Losses incurred
(A) In general
The term "losses incurred" means losses incurred during the
taxable year on insurance contracts computed as follows:
(i) To losses paid during the taxable year, deduct salvage
and reinsurance recovered during the taxable year.
(ii) To the result so obtained, add all unpaid losses on
life insurance contracts plus all discounted unpaid losses
(as defined in section 846) outstanding at the end of the
taxable year and deduct all unpaid losses on life insurance
contracts plus all discounted unpaid losses outstanding at
the end of the preceding taxable year.
(iii) To the results so obtained, add estimated salvage and
reinsurance recoverable as of the end of the preceding
taxable year and deduct estimated salvage and reinsurance
recoverable as of the end of the taxable year.
The amount of estimated salvage recoverable shall be determined
on a discounted basis in accordance with procedures established
by the Secretary.
(B) Reduction of deduction
The amount which would (but for this subparagraph) be taken
into account under subparagraph (A) shall be reduced by an
amount equal to 15 percent of the sum of -
(i) tax-exempt interest received or accrued during such
taxable year,
(ii) the aggregate amount of deductions provided by
sections 243, 244, and 245 for -
(I) dividends (other than 100 percent dividends) received
during the taxable year, and
(II) 100 percent dividends received during the taxable
year to the extent attributable (directly or indirectly) to
prorated amounts, and
(iii) the increase for the taxable year in policy cash
values (within the meaning of section 805(a)(4)(F)) of life
insurance policies and annuity and endowment contracts to
which section 264(f) applies.
In the case of a 100 percent dividend paid by an insurance
company, the portion attributable to prorated amounts shall be
determined under subparagraph (E)(ii).
(C) Exception for investments made before August 8, 1986
(i) In general
Except as provided in clause (ii), subparagraph (B) shall
not apply to any dividend or interest received or accrued on
any stock or obligation acquired before August 8, 1986.
(ii) Special rule for 100 percent dividends
For purposes of clause (i), the portion of any 100 percent
dividend which is attributable to prorated amounts shall be
treated as received with respect to stock acquired on the
later of -
(I) the date the payor acquired the stock or obligation
to which the prorated amounts are attributable, or
(II) the 1st day on which the payor and payee were
members of the same affiliated group (as defined in section
243(b)(2)).
(D) Definitions
For purposes of this paragraph -
(i) Prorated amounts
The term "prorated amounts" means tax-exempt interest and
dividends with respect to which a deduction is allowable
under section 243, 244, or 245 (other than 100 percent
dividends).
(ii) 100 percent dividend
(I) In general
The term "100 percent dividend" means any dividend if the
percentage used for purposes of determining the deduction
allowable under section 243, 244, or 245(b) is 100 percent.
(II) Certain dividends received by foreign corporations
A dividend received by a foreign corporation from a
domestic corporation which would be a 100 percent dividend
if section 1504(b)(3) did not apply for purposes of
applying section 243(b)(2) shall be treated as a 100
percent dividend.
(E) Special rules for dividends subject to proration at
subsidiary level
(i) In general
In the case of any 100 percent dividend paid to an
insurance company to which this part applies by any insurance
company, the amount of the decrease in the deductions of the
payee company by reason of the portion of such dividend
attributable to prorated amounts shall be reduced (but not
below zero) by the amount of the decrease in the deductions
(or increase in income) of the payor company attributable to
the application of this section or section 805(a)(4)(A) to
such amounts.
(ii) Portion of dividend attributable to prorated amounts
For purposes of this subparagraph, in determining the
portion of any dividend attributable to prorated amounts -
(I) any dividend by the paying corporation shall be
treated as paid first out of earnings and profits
attributable to prorated amounts (to the extent thereof),
and
(II) by determining the portion of earnings and profits
so attributable without any reduction for the tax imposed
by this chapter.
(6) Expenses incurred
The term "expenses incurred" means all expenses shown on the
annual statement approved by the National Association of
Insurance Commissioners, and shall be computed as follows: To all
expenses paid during the taxable year, add expenses unpaid at the
end of the taxable year and deduct expenses unpaid at the end of
the preceding taxable year. For purposes of this subchapter, the
term "expenses unpaid" shall not include any unpaid loss
adjustment expenses shown on the annual statement, but such
unpaid loss adjustment expenses shall be included in unpaid
losses. For the purpose of computing the taxable income subject
to the tax imposed by section 831, there shall be deducted from
expenses incurred (as defined in this paragraph) all expenses
incurred which are not allowed as deductions by subsection (c).
(7) Special rules for applying paragraph (4)
(A) Reduction not to apply to life insurance reserves
Subparagraph (B) of paragraph (4) shall be applied with
respect to insurance contracts described in section
816(b)(1)(B) by substituting "100 percent" for "80 percent"
each place it appears in such subparagraph (B), and
subparagraph (C) of paragraph (4) shall be applied by not
taking such contracts into account.
(B) Special treatment of premiums attributable to insuring
certain securities
In the case of premiums attributable to insurance against
default in the payment of principal or interest on securities
described in section 165(g)(2)(C) with maturities of more than
5 years -
(i) subparagraph (B) of paragraph (4) shall be applied by
substituting "90 percent" for "80 percent" each place it
appears, and
(ii) subparagraph (C) of paragraph (4) shall be applied by
substituting "1 2/3 percent" for "3 1/3 percent".
(C) Termination as insurance company taxable under section
831(a)
Except as provided in section 381(c)(22) (relating to
carryovers in certain corporate readjustments), if, for any
taxable year beginning before January 1, 1993, the taxpayer
ceases to be an insurance company taxable under section 831(a),
the aggregate adjustments which would be made under paragraph
(4)(C) for such taxable year and subsequent taxable years but
for such cessation shall be made for the taxable year preceding
such cessation year.
(D) Treatment of companies which become taxable under section
831(a)
(i) Exception to phase-in for companies which were not
taxable, etc., before 1987
Subparagraph (C) of paragraph (4) shall not apply to any
insurance company which, for each taxable year beginning
before January 1, 1987, was not subject to the tax imposed by
section 821(a) (!1) or 831(a) (as in effect on the day before
the date of the enactment of the Tax Reform Act of 1986) by
reason of being -
(I) subject to tax under section 821(c) (!1) (as so in
effect), or
(II) described in section 501(c) (as so in effect) and
exempt from tax under section 501(a).
(ii) Phase-in beginning at later date for companies not 1st
taxable under section 831(a) in 1987
In the case of an insurance company -
(I) which was not subject to the tax imposed by section
831(a) for its 1st taxable year beginning after December
31, 1986, by reason of being subject to tax under section
831(b), or described in section 501(c) and exempt from tax
under section 501(a), and
(II) which, for any taxable year beginning before January
1, 1987, was subject to the tax imposed by section 821(a)
(!1) or 831(a) (as in effect on the day before the date of
the enactment of the Tax Reform Act of 1986),
subparagraph (C) of paragraph (4) shall apply beginning with
the 1st taxable year beginning after December 31, 1986, for
which such company is subject to the tax imposed by section
831(a) and shall be applied by substituting the last day of
the preceding taxable year for "December 31, 1986" and the
1st day of the 7th succeeding taxable year for "January 1,
1993".
(E) Treatment of certain reciprocal insurers
In the case of a reciprocal (within the meaning of section
835(a)) which reports (as required by State law) on its annual
statement reserves on unearned premiums net of premium
acquisition expenses -
(i) subparagraph (B) of paragraph (4) shall be applied by
treating unearned premiums as including an amount equal to
such expenses, and
(ii) appropriate adjustments shall be made under
subparagraph (c) of paragraph (4) to reflect the amount by
which -
(I) such reserves at the close of the most recent taxable
year beginning before January 1, 1987, are greater or less
than,
(II) 80 percent of the sum of the amount under subclause
(I) plus such premium acquisition expenses,(!2)
(8) Special rules for applying paragraph (4) to title insurance
premiums
(A) In general
In the case of premiums attributable to title insurance -
(i) subparagraph (B) of paragraph (4) shall be applied by
substituting "the discounted unearned premiums" for "80
percent of the unearned premiums" each place it appears, and
(ii) subparagraph (C) of paragraph (4) shall not apply.
(B) Method of discounting
For purposes of subparagraph (A), the amount of the
discounted unearned premiums as of the end of any taxable year
shall be the present value of such premiums (as of such time
and separately with respect to premiums received in each
calendar year) determined by using -
(i) the amount of the undiscounted unearned premiums at
such time,
(ii) the applicable interest rate, and
(iii) the applicable statutory premium recognition pattern.
(C) Determination of applicable factors
In determining the amount of the discounted unearned premiums
as of the end of any taxable year -
(i) Undiscounted unearned premiums
The term "undiscounted unearned premiums" means the
unearned premiums shown in the yearly statement filed by the
taxpayer for the year ending with or within such taxable
year.
(ii) Applicable interest rate
The term "applicable interest rate" means the annual rate
determined under 846(c)(2) for the calendar year in which the
premiums are received.
(iii) Applicable statutory premium recognition pattern
The term "applicable statutory premium recognition pattern"
means the statutory premium recognition pattern -
(I) which is in effect for the calendar year in which the
premiums are received, and
(II) which is based on the statutory premium recognition
pattern which applies to premiums received by the taxpayer
in such calendar year.
For purposes of the preceding sentence, premiums received
during any calendar year shall be treated as received in the
middle of such year.
(c) Deductions allowed
In computing the taxable income of an insurance company subject
to the tax imposed by section 831, there shall be allowed as
deductions:
(1) all ordinary and necessary expenses incurred, as provided
in section 162 (relating to trade or business expenses);
(2) all interest, as provided in section 163;
(3) taxes, as provided in section 164;
(4) losses incurred, as defined in subsection (b)(5) of this
section;
(5) capital losses to the extent provided in subchapter P (sec.
1201 and following, relating to capital gains and losses) plus
losses from capital assets sold or exchanged in order to obtain
funds to meet abnormal insurance losses and to provide for the
payment of dividends and similar distributions to policyholders.
Capital assets shall be considered as sold or exchanged in order
to obtain funds to meet abnormal insurance losses and to provide
for the payment of dividends and similar distributions to
policyholders to the extent that the gross receipts from their
sale or exchange are not greater than the excess, if any, for the
taxable year of the sum of dividends and similar distributions
paid to policyholders in their capacity as such, losses paid, and
expenses paid over the sum of the items described in section
834(b) (other than paragraph (1)(D) thereof) and net premiums
received. In the application of section 1212 for purposes of this
section, the net capital loss for the taxable year shall be the
amount by which losses for such year from sales or exchanges of
capital assets exceeds the sum of the gains from such sales or
exchanges and whichever of the following amounts is the lesser:
(A) the taxable income (computed without regard to gains or
losses from sales or exchanges of capital assets; or
(B) losses from the sale or exchange of capital assets sold
or exchanged to obtain funds to meet abnormal insurance losses
and to provide for the payment of dividends and similar
distributions to policyholders;
(6) debts in the nature of agency balances and bills receivable
which become worthless within the taxable year;
(7) the amount of interest earned during the taxable year which
under section 103 is excluded from gross income;
(8) the depreciation deduction allowed by section 167 and the
deduction allowed by section 611 (relating to depletion);
(9) charitable, etc., contributions, as provided in section
170;
(10) deductions (other than those specified in this subsection)
as provided in part VI of subchapter B (sec. 161 and following,
relating to itemized deductions for individuals and corporations)
and in part I of subchapter D (sec. 401 and following, relating
to pension, profit-sharing, stock bonus plans, etc.);
(11) dividends and similar distributions paid or declared to
policyholders in their capacity as such, except in the case of a
mutual fire insurance company described in subsection (b)(1)(C).
For purposes of the preceding sentence, the term "dividends and
similar distributions" includes amounts returned or credited to
policyholders on cancellation or expiration of policies described
in subsection (b)(1)(D). For purposes of this paragraph, the term
"paid or declared" shall be construed according to the method of
accounting regularly employed in keeping the books of the
insurance company;
(12) the special deductions allowed by part VIII of subchapter
B (sec. 241 and following, relating to dividends received); and
(13) in the case of a company which writes mortgage guaranty
insurance, the deduction allowed by subsection (e).
(d) Double deductions
Nothing in this section shall permit the same item to be deducted
more than once.
(e) Special deduction and income account
In the case of taxable years beginning after December 31, 1966,
of a company which writes mortgage guaranty insurance -
(1) Additional deduction
There shall be allowed as a deduction for the taxable year, if
bonds are purchased as required by paragraph (2), the sum of -
(A) an amount representing the amount required by State law
or regulation to be set aside in a reserve for mortgage
guaranty insurance losses resulting from adverse economic
cycles; and
(B) an amount representing the aggregate of amounts so set
aside in such reserve for the 8 preceding taxable years to the
extent such amounts were not deducted under this paragraph in
such preceding taxable years,
except that the deduction allowable for the taxable year under
this paragraph shall not exceed the taxable income for the
taxable year computed without regard to this paragraph or to any
carryback of a net operating loss. For purposes of this
paragraph, the amount required by State law or regulation to be
so set aside in any taxable year shall not exceed 50 percent of
premiums earned on insurance contracts (as defined in subsection
(b)(4)) with respect to mortgage guaranty insurance for such
year. For purposes of this subsection, all amounts shall be taken
into account on a first-in-time basis. The computation and
deduction under this section of losses incurred (including losses
resulting from adverse economic cycles) shall not be affected by
the provisions of this subsection. For purposes of this
subsection, the terms "preceding taxable years" and "preceding
taxable year" shall not include taxable years which began before
January 1, 1967.
(2) Purchase of bonds
The deduction under paragraph (1) shall be allowed only to the
extent that tax and loss bonds are purchased in an amount equal
to the tax benefit attributable to such deduction, as determined
under regulations prescribed by the Secretary, on or before the
date that any taxes (determined without regard to this
subsection) due for the taxable year for which the deduction is
allowed are due to be paid. If a deduction would be allowed but
for the fact that tax and loss bonds were not timely purchased,
such deduction shall be allowed to the extent such purchases are
made within a reasonable time, as determined by the Secretary, if
all interest and penalties, computed as if this sentence did not
apply, are paid.
(3) Mortgage guaranty account
Each company which writes mortgage guaranty insurance shall,
for purposes of this part, establish and maintain a mortgage
guaranty account.
(4) Additions to account
There shall be added to the mortgage guaranty account for each
taxable year an amount equal to the amount allowed as a deduction
for the taxable year under paragraph (1).
(5) Subtractions from account and inclusion in gross income
After applying paragraph (4), there shall be subtracted for the
taxable year from the mortgage guaranty account and included in
gross income -
(A) the amount (if any) remaining which was added to the
account for the tenth preceding taxable year,
(B) the excess (if any) of the aggregate amount in the
mortgage guaranty account over the aggregate amount in the
reserve referred to in paragraph (1)(A). For purposes of
determining such excess, the aggregate amount in the mortgage
guaranty account shall be determined after applying
subparagraph (A), and the aggregate amount in the reserve
referred to in paragraph (1)(A) shall be determined by
disregarding any amounts remaining in such reserve added for
taxable years beginning before January 1, 1967,
(C) an amount (if any) equal to the net operating loss for
the taxable year computed without regard to this subparagraph,
and
(D) any amount improperly subtracted from the account under
subparagraph (A), (B), or (C) to the extent that tax and loss
bonds were redeemed with respect to such amount.
If a company liquidates or otherwise terminates its mortgage
guaranty insurance business and does not transfer or distribute
such business in an acquisition of assets referred to in section
381(a), the entire amount remaining in such account shall be
subtracted. Except in the case where a company transfers or
distributes its mortgage guaranty insurance in an acquisition of
assets referred to in section 381(a), if the company is not
subject to the tax imposed by section 831 for any taxable year,
the entire amount in the account at the close of the preceding
taxable year shall be subtracted from the account in such
preceding taxable year.
(6) Lease guaranty insurance; insurance of State and local
obligations
In the case of any taxable year beginning after December 31,
1970, the provisions of this subsection shall also apply in all
respects to a company which writes lease guaranty insurance or
insurance on obligations the interest on which is excludable from
gross income under section 103. In applying this subsection to
such a company, any reference to mortgage guaranty insurance
contained in this section shall be deemed to be a reference also
to lease guaranty insurance and to insurance on obligations the
interest on which is excludable from gross income under section
103; and in the case of insurance on obligations the interest on
which is excludable from gross income under section 103, the
references in paragraph (1) to "losses resulting from adverse
economic cycles" include losses from declining revenues related
to such obligations (as well as losses resulting from adverse
economic cycles), and the time specified in subparagraph (A) of
paragraph (5) shall be the twentieth preceding taxable year.
(f) Interinsurers
In the case of a mutual insurance company which is an
interinsurer or reciprocal underwriter -
(1) there shall be allowed as a deduction the increase for the
taxable year in savings credited to subscriber accounts, or
(2) there shall be included as an item of gross income the
decrease for the taxable year in savings credited to subscriber
accounts.
For purposes of the preceding sentence, the term "savings credited
to subscriber accounts" means such portion of the surplus as is
credited to the individual accounts of subscribers before the 16th
day of the 3rd month following the close of the taxable year, but
only if the company would be obligated to pay such amount promptly
to such subscriber if he terminated his contract at the close of
the company's taxable year. For purposes of determining his taxable
income, the subscriber shall treat any such savings credited to his
account as a dividend paid or declared.
(g) Dividends within group
In the case of an insurance company subject to tax under section
831(a) filing or required to file a consolidated return under
section 1501 with respect to any affiliated group for any taxable
year, any determination under this part with respect to any
dividend paid by one member of such group to another member of such
group shall be made as if such group were not filing a consolidated
return.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 264; Mar. 13, 1956, ch. 83, Sec.
3(b), 70 Stat. 48; Pub. L. 87-834, Sec. 8(e)(2)-(5), Oct. 16, 1962,
76 Stat. 997, 998; Pub. L. 88-272, title II, Sec. 228(c), Feb. 26,
1964, 78 Stat. 99; Pub. L. 89-809, title I, Sec. 104(i)(7), Nov.
13, 1966, 80 Stat. 1562; Pub. L. 90-240, Sec. 5(a)-(c), Jan. 2,
1968, 81 Stat. 776, 777; Pub. L. 93-483, Sec. 5, Oct. 26, 1974, 88
Stat. 1458; Pub. L. 94-455, title XIX, Secs. 1901(a)(108),
(b)(1)(T), (U), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1782, 1792,
1834; Pub. L. 97-248, title II, Sec. 234(b)(2)(A), Sept. 3, 1982,
96 Stat. 503; Pub. L. 98-369, div. A, title II, Sec. 211(b)(9),
July 18, 1984, 98 Stat. 755; Pub. L. 99-514, title X, Secs.
1021(a), (b), 1022(a), 1023(a), 1024(c)(1)-(6), Oct. 22, 1986, 100
Stat. 2395, 2397, 2399, 2406, 2407; Pub. L. 100-647, title I, Sec.
1010(c), (d)(1), (2), Nov. 10, 1988, 102 Stat. 3451-3453; Pub. L.
101-508, title XI, Secs. 11303(a), (b), 11305(a), Nov. 5, 1990, 104
Stat. 1388-450, 1388-451; Pub. L. 104-188, title I, Secs.
1702(h)(3), 1704(t)(45), Aug. 20, 1996, 110 Stat. 1873, 1889; Pub.
L. 105-34, title X, Sec. 1084(b)(4), Aug. 5, 1997, 111 Stat. 955.)
-REFTEXT-
REFERENCES IN TEXT
Section 821, referred to in subsec. (b)(7)(D), was repealed by
Pub. L. 99-514, title X, Sec. 1024(a)(1), Oct. 22, 1986, 100 Stat.
2405.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (b)(7)(D), is the date of enactment of Pub. L. 99-
514, which was approved Oct. 22, 1986.
-COD-
CODIFICATION
Another section 1084(b) of Pub. L. 105-34 amended sections 101
and 264 of this title.
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(5)(B)(iii). Pub. L. 105-34, which directed
amendment of subpar. (B) by adding cl. (iii) at the end, was
executed by adding cl. (iii) after cl. (ii) to reflect the probable
intent of Congress.
1996 - Subsec. (b)(5)(C)(ii)(II), (D)(ii)(II). Pub. L. 104-188,
Sec. 1702(h)(3), substituted "243(b)(2)" for "243(b)(5)".
Subsec. (b)(7)(A). Pub. L. 104-188, Sec. 1704(t)(45), provided
that section 11303(b)(1) of Pub. L. 101-508 shall be applied as if
"paragraph" appeared instead of "subparagraph" in the material
proposed to be stricken. See 1990 Amendment note below.
1990 - Subsec. (b)(4). Pub. L. 101-508, Sec. 11303(a),
substituted "section 807." for "section 807, pertaining to the
life, burial, or funeral insurance, or annuity business of an
insurance company subject to the tax imposed by section 831 and not
qualifying as a life insurance company under section 816." in first
sentence after subpar. (C).
Subsec. (b)(5)(A). Pub. L. 101-508, Sec. 11305(a), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "The term 'losses incurred' means losses incurred during
the taxable year on insurance contracts, computed as follows:
"(i) To losses paid during the taxable year, add salvage and
reinsurance recoverable outstanding at the end of the preceding
taxable year and deduct salvage and reinsurance recoverable
outstanding at the end of the taxable year.
"(ii) To the result so obtained, add all unpaid losses on life
insurance contracts plus all discounted unpaid losses (as defined
in section 846) outstanding at the end of the taxable year and
deduct unpaid losses on life insurance contracts plus all
discounted unpaid losses outstanding at the end of the preceding
taxable year."
Subsec. (b)(7)(A). Pub. L. 101-508, Sec. 11303(b)(2), substituted
"such contracts into account" for "such amounts into account".
Pub. L. 101-508, Sec. 11303(b)(1), which directed the
substitution of "insurance contracts described in section
816(b)(1)(B)" for "amounts included in unearned premiums under the
2nd sentence of such subparagraph", was executed by making the
substitution for "amounts included in unearned premiums under the
2nd sentence of such paragraph". See 1996 Amendment note above.
1988 - Subsec. (b)(5)(B)(ii)(II). Pub. L. 100-647, Sec.
1010(d)(2), inserted "(directly or indirectly)" after
"attributable".
Subsec. (b)(7)(C). Pub. L. 100-647, Sec. 1010(c)(1), substituted
"insurance company taxable under section 831(a)" for "nonlife
insurance company" in heading and "section 831(a)" for "this part"
in text.
Subsec. (b)(7)(D), (E). Pub. L. 100-647, Sec. 1010(c)(2), added
subpars. (D) and (E).
Subsec. (e)(5)(A). Pub. L. 100-647, Sec. 1010(c)(3), struck out
"and" after "preceding taxable year,".
Subsec. (e)(5)(B). Pub. L. 100-647, Sec. 1010(c)(3), which
directed amendment of subpar. (B) by substituting a comma for the
period at end, could not be executed because there was no period at
end of subpar. (B).
Subsec. (g). Pub. L. 100-647, Sec. 1010(d)(1), added subsec. (g).
1986 - Subsec. (b)(1)(C). Pub. L. 99-514, Sec. 1024(c)(1),
substituted "exclusively issuing perpetual policies" for "described
in section 831(a)(3)(A)".
Subsec. (b)(1)(D). Pub. L. 99-514, Sec. 1024(c)(2), amended
subpar. (D) generally. Prior to amendment, subpar. (D) read as
follows: "in the case of a mutual fire or flood insurance company
described in section 831(a)(3)(B), an amount equal to 2 percent of
the premiums earned on insurance contracts during the taxable year
with respect to policies described in section 831(a)(3)(B) after
deduction of premium deposits returned or credited during the same
taxable year, and".
Subsec. (b)(4). Pub. L. 99-514, Sec. 1024(c)(3), substituted
"paragraph (1)(D)" for "section 831(a)(3)(B)" in two places and
amended last sentence generally, substituting "described in
paragraph (1)(D) or issuing exclusively perpetual policies" for
"referred to in paragraph (3) of section 831(a)" and "described in
subparagraph (C) or (D) of paragraph (1)" for "referred to in such
paragraph (3)".
Subsec. (b)(4)(B), (C). Pub. L. 99-514, Sec. 1021(a), added
subpars. (B) and (C) and struck out former subpar. (B) which read
as follows: "To the result so obtained, add unearned premiums on
outstanding business at the end of the preceding taxable year and
deduct unearned premiums on outstanding business at the end of the
taxable year."
Subsec. (b)(5)(A). Pub. L. 99-514, Sec. 1022(a), in amending par.
(5) generally, designated existing provisions of par. (5) as
subpar. (A), inserted subpar. heading "In general", and
redesignated former subpars. (A) and (B) as cls. (i) and (ii).
Subsec. (b)(5)(A)(ii). Pub. L. 99-514, Sec. 1023(a)(1), amended
cl. (ii) generally, inserting "on life insurance contracts plus all
discounted unpaid losses (as defined in section 846)" and "on life
insurance contracts plus all discounted unpaid losses".
Subsec. (b)(5)(B) to (E). Pub. L. 99-514, Sec. 1022(a), in
amending par. (5) generally, added subpars. (B) to (E). Former
subpar. (B) redesignated (A)(ii).
Subsec. (b)(6). Pub. L. 99-514, Sec. 1023(a)(2), inserted second
sentence defining "expenses unpaid".
Subsec. (b)(7), (8). Pub. L. 99-514, Sec. 1021(b), added pars.
(7) and (8).
Subsec. (c)(5). Pub. L. 99-514, Sec. 1024(c)(4), substituted
"section 834(b)" for "section 822(b)".
Subsec. (c)(11). Pub. L. 99-514, Sec. 1024(c)(5), substituted
"subsection (b)(1)(C)" for "section 831(a)(3)(A)" and "subsection
(b)(1)(D)" for "section 831(a)(3)(B)".
Subsec. (f). Pub. L. 99-514, Sec. 1024(c)(6), added subsec. (f).
1984 - Subsec. (b)(4). Pub. L. 98-369, in provisions following
subpar. (B), substituted "section 816(b) but determined as provided
in section 807" and "section 816" for "section 801(b)" and "section
801", respectively.
1982 - Subsec. (e)(2). Pub. L. 97-248 struck out ", as if no
election to make installment payments under section 6152 is made"
after "due to be paid".
1976 - Subsec. (b)(1), (6). Pub. L. 94-455, Sec. 1901(a)(108),
substituted "Association" for "Convention".
Subsec. (c)(5)(A). Pub. L. 94-455, Sec. 1901(b)(1)(T), struck out
"or to the deductions provided in section 242 for partially tax-
exempt interest" after "exchanges of capital assets".
Subsec. (c)(12). Pub. L. 94-455, Sec. 1901(b)(1)(U), struck out
"partially tax-exempt interest and to" after "and following,
relating to".
Subsec. (e)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
1974 - Subsec. (e)(6). Pub. L. 93-483 added par. (6).
1968 - Subsec. (b)(1)(E). Pub. L. 90-240, Sec. 5(a), added
subpar. (E).
Subsec. (c)(13). Pub. L. 90-240, Sec. 5(b), added par. (13).
Subsec. (e). Pub. L. 90-240, Sec. 5(c), added subsec. (e).
1966 - Subsec. (d). Pub. L. 89-809 redesignated subsec. (e) as
(d). Former subsec. (d), having reference to the taxable income of
foreign insurance companies other than life or mutual and foreign
mutual marine, was struck out.
Subsec. (e). Pub. L. 89-809 redesignated subsec. (e) as (d).
1964 - Subsec. (c)(10). Pub. L. 88-272 inserted reference to part
I of subchapter D.
1962 - Subsec. (b)(1)(C). Pub. L. 87-834, Sec. 8(e)(3), (5),
substituted "section 831(a)(3)(A)" for "section 831(a)".
Subsec. (b)(1)(D). Pub. L. 87-834, Sec. 8(e)(5), added subpar.
(D).
Subsec. (b)(4). Pub. L. 87-834, Sec. 8(e)(2), inserted provisions
defining unearned premiums of mutual fire or flood insurance
companies, and which require premiums paid by the subscriber of a
mutual flood insurance company to be treated, for purposes of
computing the taxable income of such subscriber, in the same manner
as premiums paid by a policyholder to a mutual fire insurance
company referred to in par. (3) of section 831(a) of this title.
Subsec. (c)(11). Pub. L. 87-834, Sec. 8(e)(4), substituted
"section 831(a)(3)(A)" for "section 831(a)", and inserted
definition of "dividends and similar distributions".
1956 - Subsec. (b)(4). Act Mar. 13, 1956, Sec. 3(b)(1),
substituted "section 801(b)" for "section 806".
Subsec. (c). Act Mar. 13, 1956, Sec. 3(b)(2), (3), substituted
"the items described in section 822(b) (other than paragraph (1)(D)
thereof) and net premiums received. In the application of section
1212" for "interest, dividends, rents, and net premiums received.
In the application of section 1211" in par. (5), and authorized the
deduction for depletion in par. (8).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to contracts issued after
June 8, 1997, in taxable years ending after such date, with special
provisions relating to changes in contracts to be treated as new
contracts, see section 1084(d) of Pub. L. 105-34, set out as a note
under section 101 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1702(h)(3) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L. 101-
508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11303(c) of Pub. L. 101-508 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years beginning on or after
September 30, 1990.
"(2) Amendments treated as change in method of accounting. - In
the case of any taxpayer who is required by reason of the
amendments made by this section to change his method of computing
reserves -
"(A) such change shall be treated as a change in a method of
accounting,
"(B) such change shall be treated as initiated by the taxpayer,
"(C) such change shall be treated as having been made with the
consent of the Secretary, and
"(D) the net adjustments which are required by section 481 of
the Internal Revenue Code of 1986 to be taken into account by the
taxpayer shall be taken into account over a period not to exceed
4 taxable years beginning with the taxpayer's first taxable year
beginning on or after September 30, 1990.
"(3) Coordination with section 832(b)(4)(C). - The amendments
made by this section shall not affect the application of section
832(b)(4)(C) of the Internal Revenue Code of 1986."
Section 11305(c) of Pub. L. 101-508 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 846 of this title] shall apply to taxable
years beginning after December 31, 1989.
"(2) Amendments treated as change in method of accounting. -
"(A) In general. - In the case of any taxpayer who is required
by reason of the amendments made by this section to change his
method of computing losses incurred -
"(i) such change shall be treated as a change in a method of
accounting,
"(ii) such change shall be treated as initiated by the
taxpayer, and
"(iii) such change shall be treated as having been made with
the consent of the Secretary.
"(B) Adjustments. - In applying section 481 of the Internal
Revenue Code of 1986 with respect to the change referred to in
subparagraph (A) -
"(i) only 13 percent of the net amount of adjustments
(otherwise required by such section 481 to be taken into
account by the taxpayer) shall be taken into account, and
"(ii) the portion of such net adjustments which is required
to be taken into account by the taxpayer (after the application
of clause (i)) shall be taken into account over a period not to
exceed 4 taxable years beginning with the taxpayer's 1st
taxable year beginning after December 31, 1989.
"(3) Treatment of companies which took into account salvage
recoverable. - In the case of any insurance company which took into
account salvage recoverable in determining losses incurred for its
last taxable year beginning before January 1, 1990, 87 percent of
the discounted amount of estimated salvage recoverable as of the
close of such last taxable year shall be allowed as a deduction
ratably over its 1st 4 taxable years beginning after December 31,
1989.
"(4) Special rule for overestimates. - If for any taxable year
beginning after December 31, 1989 -
"(A) the amount of the section 481 adjustment which would have
been required without regard to paragraph (2) and any
discounting, exceeds
"(B) the sum of the amount of salvage recovered taken into
account under section 832(b)(5)(A)(i) for the taxable year and
any preceding taxable year beginning after December 31, 1989,
attributable to losses incurred with respect to any accident year
beginning before 1990 and the undiscounted amount of estimated
salvage recoverable as of the close of the taxable year on
account of such losses,
87 percent of such excess (adjusted for discounting used in
determining the amount of salvage recoverable as of the close of
the last taxable year of the taxpayer beginning before January 1,
1990) shall be included in gross income for such taxable year.
"(5) Effect on earnings and profits. - The earnings and profits
of any insurance company for its 1st taxable year beginning after
December 31, 1989, shall be increased by the amount of the section
481 adjustment which would have been required but for paragraph
(2). For purposes of applying sections 56, 902, 952(c)(1), and 960
of the Internal Revenue Code of 1986, earnings and profits of a
corporation shall be determined by applying the principles of
paragraph (2)(B)."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1021(c) of Pub. L. 99-514 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1986.
"(2) Special transitional rule for title insurance companies. -
For the 1st taxable year beginning after December 31, 1986, in the
case of premiums attributable to title insurance -
"(A) In general. - The unearned premiums at the end of the
preceding taxable year as defined in paragraph (4) of section
832(b) [of the Internal Revenue Code of 1986] shall be determined
as if the amendments made by this section had applied to such
unearned premiums in the preceding taxable year and by using the
interest rate and premium recognition pattern applicable to years
ending in calendar year 1987.
"(B) Fresh start. - Except as provided in subparagraph (C), any
difference between -
"(i) the amount determined to be unearned premiums for the
year preceding the first taxable year of a title insurance
company beginning after December 31, 1986, determined without
regard to subparagraph (A), and
"(ii) such amount determined with regard to subparagraph (A),
shall not be taken into account for purposes of the Internal
Revenue Code of 1986.
"(C) Effect on earnings and profits. - The earnings and profits
of any insurance company for its 1st taxable year beginning after
December 31, 1986, shall be increased by the amount of the
difference determined under subparagraph (A) with respect to such
company."
Section 1022(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1986."
Amendment by section 1023(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1023(e) of Pub. L. 99-514, set out as an
Effective Date note under section 846 of this title.
Amendment by section 1024(c)(1)-(6) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, see section 1024(e)
of Pub. L. 99-514, set out as a note under section 831 of this
title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, see section 234(e) of Pub. L. 97-248, set out
as a note under section 6655 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(108), (b)(1)(T), (U) of Pub. L. 94-
455 effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1968 AMENDMENT
Section 5(e) of Pub. L. 90-240, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by subsections (a), (b), (c), and (d) [amending
this section and section 381 of this title] shall apply to taxable
years beginning after December 31, 1966, except that so much of
section 832(e)(2) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as added by the amendment made by subsection (c)) as
provides for payment of interest and penalties for failure to make
a timely purchase of tax and loss bonds shall not apply with
respect to any period during which such bonds are not available for
purchase."
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 228(d) of Pub. L. 88-272 provided that: "The amendment
made by subsection (a) [amending former section 809 of this title]
shall apply to taxable years beginning after December 31, 1961. The
amendment made by subsection (c) [amending this section] shall
apply to taxable years beginning after December 31, 1953, and
ending after August 16, 1954."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years beginning after Dec. 31, 1962, see section 8(h) of Pub. L. 87-
834, set out as a note under section 501 of this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 316 of this title.
DEDUCTION FROM EARNINGS AND PROFITS OF INSURANCE COMPANIES TO WHICH
SECTION 11305(C)(3) OF PUB. L. 101-508 APPLIES
Section 1702(c)(4) of Pub. L. 104-188 provided that: "The
earnings and profits of any insurance company to which section
11305(c)(3) of the Revenue Reconciliation Act of 1990 [Pub. L. 101-
508, set out above] applies shall be determined without regard to
any deduction allowed under such section; except that, for purposes
of applying sections 56 and 902, and subpart F of part III of
subchapter N of chapter 1 of the Internal Revenue Code of 1986,
such deduction shall be taken into account."
ACQUISITION DATE OF CERTAIN STOCKS OR OBLIGATIONS FOR PURPOSES OF
SUBSECTION (B)(5)(C)(I)
Section 1010(d)(3) of Pub. L. 100-647 provided that: "For
purposes of section 832(b)(5)(C)(i) of the 1986 Code, any stock or
obligation acquired on or after August 8, 1986, by an insurance
company subject to the tax imposed by section 831 of the 1986 Code
(hereinafter in this paragraph referred to as the 'acquiring
company') from another insurance company so subject (hereinafter in
this paragraph referred to as the 'transferor company') shall be
treated as acquired on the date on which such stock or obligation
was acquired by the transferor company if -
"(A) the transferor company acquired such stock or obligation
before August 8, 1986, and
"(B) at all times after the date on which such stock or
obligation was acquired by the transferor company and before the
date of the acquisition by the acquiring company, the transferor
company and the acquiring company were members of the same
affiliated group filing a consolidated return.
For purposes of the preceding sentence, the date on which the stock
or obligation was acquired by the transferor company shall be
determined with regard to any prior application of the preceding
sentence. For purposes of this paragraph, if the acquiring
corporation or transferor corporation was a party to a
reorganization described in section 368(a)(1)(F) of the 1986 Code,
any reference to such corporation shall include a reference to any
predecessor thereof involved in such reorganization."
STUDY OF TREATMENT OF PROPERTY AND CASUALTY INSURANCE COMPANIES
Section 1025 of subtitle C (Secs. 1021-1025) of title X of Pub.
L. 99-514 directed Secretary of the Treasury or his delegate to
conduct a study of the treatment of policyholder dividends by
mutual property and casualty insurance companies, the treatment of
property and casualty insurance companies under the minimum tax,
and the operation and effect of, and revenue raised by, the
amendments made by this subtitle, and not later than Jan. 1, 1989
(due date extended to Jan. 1, 1992, by Pub. L. 101-508, title XI,
Sec. 11831(b), Nov. 5, 1990, 104 Stat. 1388-559), such Secretary to
submit to Committee on Ways and Means of House of Representatives,
Committee on Finance of Senate, and Joint Committee on Taxation,
the results of such study, together with such recommendations as he
determined to be appropriate.
PHYSICIANS' AND SURGEONS' MUTUAL PROTECTION AND INTERINDEMNITY
ARRANGEMENTS OR ASSOCIATIONS
Section 1031 of subtitle D of title X of Pub. L. 99-514, as
amended by Pub. L. 100-647, title I, Sec. 1010(g), Nov. 10, 1988,
102 Stat. 3455, provided that:
"(a) Certain Physicians' and Surgeons' Mutual Protection and
Interindemnity Arrangements or Associations. -
"(1) Treatment of arrangements or associations. -
"(A) Capital contributions. - There shall not be included in
the gross income of any eligible physicians' and surgeons'
mutual protection and interindemnity arrangement or association
any initial payment (whether made in a lump sum or a series of
substantially equal payments over a period of not more than 6
years) made during any taxable year to such arrangement or
association by a member joining such arrangement or association
which -
"(i) does not release such member from obligations to pay
current or future dues, assessments, or premiums; and
"(ii) is a condition precedent to receiving benefits of
membership.
Such initial payment shall be included in the gross income of
such arrangement or association for such taxable year if it is
reasonable to expect that such payment will be deductible
pursuant to paragraph (2) by any member of such arrangement or
association.
"(B) Return of contributions. -
"(i) In general. - The repayment to any member of any
amount of any payment excluded under subparagraph (A) shall
not be treated as policyholder dividend, and is not
deductible by the arrangement or association.
"(ii) Source of returns. - Except in the case of the
termination of a member's interest in the arrangement or
association, any amount distributed to any member shall be
treated as paid out of surplus in excess of amounts excluded
under subparagraph (A).
"(2) Deduction for members of eligible arrangements or
associations. -
"(A) Payment as trade or business expenses. - To the extent
not otherwise allowable under the Internal Revenue Code of
1986, any member of any eligible arrangement or association may
treat any initial payment referred to in paragraph (1) made
during a taxable year to such arrangement or association as an
ordinary and necessary expense incurred in connection with a
trade or business for purposes of the deduction allowable under
section 162, to the extent such payment does not exceed the
amount which would be payable to an independent insurance
company for similar annual insurance coverage (as determined by
the Secretary), and further reduced by any annual dues,
assessments, or premiums paid during such taxable year. Such
deduction shall not be allowable as to any initial payment
referred to in paragraph (1) made to an eligible arrangement or
association by any person who is a member of any other eligible
arrangement or association on or after the effective date of
the Tax Reform Act of 1986. Any excess amount not allowed as a
deduction for the taxable year in which such payment was made
pursuant to the limitation contained in the 1st sentence of
this subparagraph shall, subject to such limitation, be
allowable as a deduction in any of the 5 succeeding taxable
years, in order of time, to the extent not previously allowed
as a deduction under this sentence.
"(B) Refunds of initial payments. - Any amount attributable
to any initial payment referred to in paragraph (1) to such
arrangement or association described in paragraph (1) which is
later refunded for any reason shall be included in the gross
income of the recipient in the taxable year received, to the
extent a deduction for such payment was allowed. Any amount
refunded in excess of such payment shall be included in gross
income except to the extent otherwise excluded from income by
the Internal Revenue Code of 1986.
"(3) Eligible arrangements or associations. - The terms
'eligible physicans' [sic] and surgeons' mutual protection and
interindemnity arrangement or association' and 'eligible
arrangement or association' mean and are limited to any mutual
protection and interindemnity arrangement or association that
provides only medical malpractice liability protection for its
members or medical malpractice liability protection in
conjunction with protection against other liability claims
incurred in the course of, or related to, the professional
practice of a physician or surgeon and which -
"(A) was operative and was providing such protection, or had
received a permit for the offer and sale of memberships, under
the laws of any State before January 1, 1984,
"(B) is not subject to regulation by any State insurance
department,
"(C) has a right to make unlimited assessments against all
members to cover current claims and losses, and
"(D) is not a member of, nor subject to protection by, any
insurance guaranty plan or association of any State.
"(b) Effective Date. - The provisions of subsection (a) shall
apply to payments made to and receipts of physicians' and surgeons'
mutual protection and interindemnity arrangements or associations,
and refunds of payments by such arrangements or associations, after
the date of the enactment of this Act [Oct. 22, 1986], in taxable
years ending after such date."
TREATMENT AS UNEARNED PREMIUMS OF ADDITIONS TO RESERVES REQUIRED BY
STATE LAW OR REGULATIONS FOR MORTGAGE GUARANTY INSURANCE LOSSES
Section 5(g) of Pub. L. 90-240, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In the case of taxable years beginning before 1967, a
company shall treat additions to a reserve, required by State law
or regulations for mortgage guaranty insurance losses resulting
from adverse economic cycles, as unearned premiums for purposes of
section 832(b)(4) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954], but the amount so treated as unearned premiums in a
taxable year shall not exceed 50 percent of premiums earned on
insurance contracts (as defined in section 832(b)(4) of such Code),
determined without regard to amounts added to the reserve, with
respect to mortgage guaranty insurance for such year. The amount of
unearned premiums at the close of 1966 shall be determined without
regard to the preceding sentence for the purpose of applying
section 832(b)(4) of such Code to 1967. Additions to such a reserve
shall not be treated as unearned premiums for any taxable year
beginning after 1966.
"(2) If a mortgage guaranty insurance company made additions to a
reserve which were so treated as unearned premiums described in
paragraph (1), such company, in taxable years beginning after 1966,
shall include in gross income (in addition to the items specified
in section 832(b)(1) of such Code) the sum of the following amounts
until there is included in gross income an amount equal to the
aggregate additions to the reserve described in paragraph (1) for
taxable years beginning before 1967:
"(A) an amount (if any) equal to the excess of losses incurred
(as defined in section 832(b)(5) of such Code) for the taxable
year over 35 percent of premiums earned on insurance contracts
during the taxable year (as defined in section 832(b)(4) of such
Code), determined without regard to amounts added to the reserve
referred to in paragraph (1), with respect to mortgage guaranty
insurance,
"(B) the amount (if any) remaining which was added to the
reserve for the tenth preceding taxable year, and
"(C) the excess (if any) of -
"(i) the aggregate of amounts so treated as unearned premiums
for all taxable years beginning before 1967 less the total of
the amounts included in gross income under this paragraph for
prior taxable years and the amounts included in gross income
under subparagraphs (A) and (B) for the taxable year, over
"(ii) the aggregate of the additions made for taxable years
beginning before 1967 which remain in the reserve at the close
of the taxable year.
Amounts shall be taken into account on a first-in-time basis. For
purposes of section 832(e) of such Code and this paragraph, if part
of the reserve is reduced under State law or regulation, such
reduction shall first apply to the extent of amounts added to the
reserve for taxable years beginning before 1967, and only then to
amounts added thereafter.
"(3) The provisions of this subsection shall apply to taxable
years beginning after December 31, 1956."
-FOOTNOTE-
(!1) See References in Text note below.
(!2) So in original. The comma probably should be a period.
-End-
-CITE-
26 USC Sec. 833 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
Sec. 833. Treatment of Blue Cross and Blue Shield organizations,
etc.
-STATUTE-
(a) General rule
In the case of any organization to which this section applies -
(1) Treated as stock company
Such organization shall be taxable under this part in the same
manner as if it were a stock insurance company.
(2) Special deduction allowed
The deduction determined under subsection (b) for any taxable
year shall be allowed.
(3) Reductions in unearned premium reserves not to apply
Subparagraph (B) of paragraph (4) of section 832(b) shall be
applied by substituting "100 percent" for "80 percent", and
subparagraph (C) of such paragraph (4) shall not apply.
(b) Amount of deduction
(1) In general
Except as provided in paragraph (2), the deduction determined
under this subsection for any taxable year is the excess (if any)
of -
(A) 25 percent of the sum of -
(i) the claims incurred during the taxable year and
liabilities incurred during the taxable year under cost-plus
contracts, and
(ii) the expenses incurred during the taxable year in
connection with the administration, adjustment, or settlement
of claims or in connection with the administration of cost-
plus contracts, over
(B) the adjusted surplus as of the beginning of the taxable
year.
(2) Limitation
The deduction determined under paragraph (1) for any taxable
year shall not exceed taxable income for such taxable year
(determined without regard to such deduction).
(3) Adjusted surplus
For purposes of this subsection -
(A) In general
The adjusted surplus as of the beginning of any taxable year
is an amount equal to the adjusted surplus as of the beginning
of the preceding taxable year -
(i) increased by the amount of any adjusted taxable income
for such preceding taxable year, or
(ii) decreased by the amount of any adjusted net operating
loss for such preceding taxable year.
(B) Special rule
The adjusted surplus as of the beginning of the
organization's 1st taxable year beginning after December 31,
1986, shall be its surplus as of such time. For purposes of the
preceding sentence and subsection (c)(3)(C), the term "surplus"
means the excess of the total assets over total liabilities as
shown on the annual statement.
(C) Adjusted taxable income
The term "adjusted taxable income" means taxable income
determined -
(i) without regard to the deduction determined under this
subsection,
(ii) without regard to any carryforward or carryback to
such taxable year, and
(iii) by increasing gross income by an amount equal to the
net exempt income for the taxable year.
(D) Adjusted net operating loss
The term "adjusted net operating loss" means the net
operating loss for any taxable year determined with the
adjustments set forth in subparagraph (C).
(E) Net exempt income
The term "net exempt income" means -
(i) any tax-exempt interest received or accrued during the
taxable year, reduced by any amount (not otherwise
deductible) which would have been allowable as a deduction
for the taxable year if such interest were not tax-exempt,
and
(ii) the aggregate amount allowed as a deduction for the
taxable year under sections 243, 244, and 245.
The amount determined under clause (ii) shall be reduced by the
amount of any decrease in deductions allowable for the taxable
year by reason of section 832(b)(5)(B) to the extent such
decrease is attributable to deductions under sections 243, 244,
and 245.
(4) Only health-related items taken into account
Any determination under this subsection shall be made by only
taking into account items attributable to the health-related
business of the taxpayer.
(c) Organizations to which section applies
(1) In general
This section shall apply to -
(A) any existing Blue Cross or Blue Shield organization, and
(B) any other organization meeting the requirements of
paragraph (3).
(2) Existing Blue Cross or Blue Shield organization
The term "existing Blue Cross or Blue Shield organization"
means any Blue Cross or Blue Shield organization if -
(A) such organization was in existence on August 16, 1986,
(B) such organization is determined to be exempt from tax for
its last taxable year beginning before January 1, 1987, and
(C) no material change has occurred in the operations of such
organization or in its structure after August 16, 1986, and
before the close of the taxable year.
To the extent permitted by the Secretary, any successor to an
organization meeting the requirements of the preceding sentence,
and any organization resulting from the merger or consolidation
of organizations each of which met such requirements, shall be
treated as an existing Blue Cross or Blue Shield organization.
(3) Other organizations
(A) In general
An organization meets the requirements of this paragraph for
any taxable year if -
(i) substantially all the activities of such organization
involve the providing of health insurance,
(ii) at least 10 percent of the health insurance provided
by such organization is provided to individuals and small
groups (not taking into account any medicare supplemental
coverage),
(iii) such organization provides continuous full-year open
enrollment (including conversions) for individuals and small
groups,
(iv) such organization's policies covering individuals
provide full coverage of pre-existing conditions of high-risk
individuals without a price differential (with a reasonable
waiting period), and coverage is provided without regard to
age, income, or employment status of individuals under age
65,
(v) at least 35 percent of its premiums are determined on a
community rated basis, and
(vi) no part of its net earnings inures to the benefit of
any private shareholder or individual.
(B) Small group defined
For purposes of subparagraph (A), the term "small group"
means the lesser of -
(i) 15 individuals, or
(ii) the number of individuals required for a small group
under applicable State law.
(C) Special rule for determining adjusted surplus
For purposes of subsection (b), the adjusted surplus of any
organization meeting the requirements of this paragraph as of
the beginning of the 1st taxable year for which it meets such
requirements shall be its surplus as of such time.
(4) Treatment as existing Blue Cross or Blue Shield organization
(A) In general
Paragraph (2) shall be applied to an organization described
in subparagraph (B) as if it were a Blue Cross or Blue Shield
organization.
(B) Applicable organization
An organization is described in this subparagraph if it -
(i) is organized under, and governed by, State laws which
are specifically and exclusively applicable to not-for-profit
health insurance or health service type organizations, and
(ii) is not a Blue Cross or Blue Shield organization or
health maintenance organization.
-SOURCE-
(Added Pub. L. 99-514, title X, Sec. 1012(b)(1), Oct. 22, 1986, 100
Stat. 2391; amended Pub. L. 104-191, title III, Sec. 351(a), Aug.
21, 1996, 110 Stat. 2071; Pub. L. 105-34, title XVI, Sec.
1604(d)(2)(A), Aug. 5, 1997, 111 Stat. 1098.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(1)(A)(i). Pub. L. 105-34, Sec.
1604(d)(2)(A)(i), inserted "and liabilities incurred during the
taxable year under cost-plus contracts" before the comma.
Subsec. (b)(1)(A)(ii). Pub. L. 105-34, Sec. 1604(d)(2)(A)(ii),
inserted "or in connection with the administration of cost-plus
contracts" before the last comma.
1996 - Subsec. (c)(4). Pub. L. 104-191 added par. (4).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1604(d)(2)(B) of Pub. L. 105-34 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
take effect as if included in the amendments made by section 1012
of the Tax Reform Act of 1986 [Pub. L. 99-514]."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 351(b) of Pub. L. 104-191 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years ending after December 31, 1996."
EFFECTIVE DATE
Section 1012(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1010(b)(1), (2), Nov. 10, 1988, 102 Stat. 3451,
provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending section 501 of this title] shall apply to
taxable years beginning after December 31, 1986.
"(2) Study of fraternal beneficiary associations. - The Secretary
of the Treasury or his delegate shall conduct a study of
organizations described in section 501(c)(8) of the Internal
Revenue Code of 1986 and which received gross annual insurance
premiums in excess of $25,000,000 for the taxable years of such
organizations which ended during 1984. Not later than January 1,
1988, the Secretary of the Treasury shall submit to the Committee
on Ways and Means of the House of Representatives, the Committee on
Finance of the Senate, and the Joint Committee on Taxation the
results of such study, together with such recommendations as he
determines to be appropriate. The Secretary of the Treasury shall
have authority to require the furnishing of such information as may
be necessary to carry out the purposes of this paragraph.
"(3) Special rules for existing blue cross or blue shield
organizations. -
"(A) In general. - In the case of any existing Blue Cross or
Blue Shield organization (as defined in section 833(c)(2) of the
Internal Revenue Code of 1986 as added by this section) -
"(i) no adjustment shall be made under section 481 (or any
other provision) of such Code on account of a change in its
method of accounting for its 1st taxable year beginning after
December 31, 1986, and
"(ii) for purposes of determining gain or loss, the adjusted
basis of any asset held on the 1st day of such taxable year
shall be treated as equal to its fair market value as of such
day.
"(B) Treatment of certain distributions. - For purposes of
section 833(b)(3)(B), the surplus of any organization as of the
beginning of its 1st taxable year beginning after December 31,
1986, shall be increased by the amount of any distribution (other
than to policyholders) made by such organization after August 16,
1986, and before the beginning of such taxable year.
"(C) Reserve weakening after august 16, 1986. - Any reserve
weakening after August 16, 1986, by an existing Blue Cross or
Blue Shield organization shall be treated as occurring in such
organization's 1st taxable year beginning after December 31,
1986.
"(4) Other special rules. -
"(A) The amendments made by this section shall not apply with
respect to that portion of the business of Mutual of America
which is attributable to pension business.
"(B) The amendments made by this section shall not apply to
that portion of the business of the Teachers Insurance Annuity
Association-College Retirement Equities Fund which is
attributable to pension business.
"(C) The amendments made by this section shall not apply to -
"(i) the retirement fund of the YMCA,
"(ii) the Missouri Hospital Plan,
"(iii) administrative services performed by municipal
leagues, and
"(iv) dental benefit coverage provided by a Delta Dental
Plans Association organization through contracts with
independent professional service providers so long as the
provision of such coverage is the principal activity of such
organization.
"(D) For purposes of this paragraph, the term 'pension
business' means the administration of any plan described in
section 401(a) of the Internal Revenue Code of 1954 [now 1986]
which includes a trust exempt from tax under section 501(a), any
plan under which amounts are contributed by an individual's
employer for an annuity contract described in section 403(b) of
such Code, any individual retirement plan described in section
408 of such Code, and any eligible deferred compensation plan to
which section 457(a) of such Code applies."
[The due date for the report referred to in section 1012(c)(2) of
Pub. L. 99-514, set out above, extended to July 1, 1992, by Pub. L.
101-508, title XI, Sec. 11831(b), Nov. 5, 1990, 104 Stat. 1388-
559.]
TERMINATION OF CERTAIN EXCEPTIONS FROM RULES RELATING TO EXEMPT
ORGANIZATIONS WHICH PROVIDE COMMERCIAL-TYPE INSURANCE
Pub. L. 105-277, div. J, title IV, Sec. 4003(g), Oct. 21, 1998,
112 Stat. 2681-910, provided that: "Rules similar to the rules of
section 1.1502-75(d)(5) of the Treasury Regulations shall apply
with respect to any organization described in section 1042(b) of
the 1997 Act [section 1042(b) of Pub. L. 105-34, set out below]."
Section 1042 of Pub. L. 105-34 provided that:
"(a) In General. - Subparagraphs (A) and (B) of section
1012(c)(4) of the Tax Reform Act of 1986 [Pub. L. 99-514, set out
as an Effective Date note above] shall not apply to any taxable
year beginning after December 31, 1997.
"(b) Special Rules. - In the case of an organization to which
section 501(m) of the Internal Revenue Code of 1986 applies solely
by reason of the amendment made by subsection (a) -
"(1) no adjustment shall be made under section 481 (or any
other provision) of such Code on account of a change in its
method of accounting for its first taxable year beginning after
December 31, 1997, and
"(2) for purposes of determining gain or loss, the adjusted
basis of any asset held on the 1st day of such taxable year shall
be treated as equal to its fair market value as of such day.
"(c) Reserve Weakening After June 8, 1997. - Any reserve
weakening after June 8, 1997, by an organization described in
subsection (b) shall be treated as occurring in such organization's
1st taxable year beginning after December 31, 1997.
"(d) Regulations. - The Secretary of the Treasury or his delegate
may prescribe rules for providing proper adjustments for
organizations described in subsection (b) with respect to short
taxable years which begin during 1998 by reason of section 843 of
the Internal Revenue Code of 1986."
RULES PROVIDING ADJUSTMENTS FOR CERTAIN TAXPAYERS AFFECTED BY
SECTION 1012 OF PUB. L. 99-514
Pub. L. 100-647, title I, Sec. 1010(b)(3), Nov. 10, 1988, 102
Stat. 3451, provided that: "The Secretary of the Treasury or his
delegate may prescribe rules providing proper adjustments for
taxpayers which become subject to subchapter L of chapter 1 of the
1986 Code by reason of the amendments made by section 1012 of the
Reform Act [Pub. L. 99-514, enacting this section and amending
section 501 of this title] with respect to short taxable years
which begin during 1987 by reason of section 843 of such Code."
-End-
-CITE-
26 USC Sec. 834 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
Sec. 834. Determination of taxable investment income
-STATUTE-
(a) General rule
For purposes of section 831(b), the term "taxable investment
income" means the gross investment income, minus the deductions
provided in subsection (c).
(b) Gross investment income
For purposes of subsection (a), the term "gross investment
income" means the sum of the following:
(1) The gross amount of income during the taxable year from -
(A) interest, dividends, rents, and royalties,
(B) the entering into of any lease, mortgage, or other
instrument or agreement from which the insurance company
derives interest, rents, or royalties,
(C) the alteration or termination of any instrument or
agreement described in subparagraph (B), and
(D) gains from sales or exchanges of capital assets to the
extent provided in subchapter P (sec. 1201 and following,
relating to capital gains and losses).
(2) The gross income during the taxable year from any trade or
business (other than an insurance business) carried on by the
insurance company, or by a partnership of which the insurance
company is a partner. In computing gross income under this
paragraph, there shall be excluded any item described in
paragraph (1).
(c) Deductions
In computing taxable investment income, the following deductions
shall be allowed:
(1) Tax-free interest
The amount of interest which under section 103 is excluded for
the taxable year from gross income.
(2) Investment expenses
Investment expenses paid or accrued during the taxable year. If
any general expenses are in part assigned to or included in the
investment expenses, the total deduction under this paragraph
shall not exceed one-fourth of 1 percent of the mean of the book
value of the invested assets held at the beginning and end of the
taxable year plus one-fourth of the amount by which taxable
investment income (computed without any deduction for investment
expenses allowed by this paragraph, for tax-free interest allowed
by paragraph (1), or for dividends received allowed by paragraph
(7)), exceeds 3 3/4 percent of the book value of the mean of the
invested assets held at the beginning and end of the taxable
year.
(3) Real estate expenses
Taxes (as provided in section 164), and other expenses, paid or
accrued during the taxable year exclusively on or with respect to
the real estate owned by the company. No deduction shall be
allowed under this paragraph for any amount paid out for new
buildings, or for permanent improvements or betterments made to
increase the value of any property.
(4) Depreciation
The depreciation deduction allowed by section 167.
(5) Interest paid or accrued
All interest paid or accrued within the taxable year on
indebtedness, except on indebtedness incurred or continued to
purchase or carry obligations the interest on which is wholly
exempt from taxation under this subtitle.
(6) Capital losses
Capital losses to the extent provided in subchapter P (sec.
1201 and following) plus losses from capital assets sold or
exchanged in order to obtain funds to meet abnormal insurance
losses and to provide for the payment of dividends and similar
distributions to policyholders. Capital assets shall be
considered as sold or exchanged in order to obtain funds to meet
abnormal insurance losses and to provide for the payment of
dividends and similar distributions to policyholders to the
extent that the gross receipts from their sale or exchange are
not greater than the excess, if any, for the taxable year of the
sum of dividends and similar distributions paid to policyholders,
losses paid, and expenses paid over the sum of the items
described in subsection (b) (other than paragraph (1)(D) thereof)
and net premiums received. In the application of section 1212 for
purposes of this section, the net capital loss for the taxable
year shall be the amount by which losses for such year from sales
or exchanges of capital assets exceeds the sum of the gains from
such sales or exchanges and whichever of the following amounts is
the lesser:
(A) the taxable investment income (computed without regard to
gains or losses from sales or exchanges of capital assets); or
(B) losses from the sale or exchange of capital assets sold
or exchanged to obtain funds to meet abnormal insurance losses
and to provide for the payment of dividends and similar
distributions to policyholders.
(7) Special deductions
The special deductions allowed by part VIII (except section
248) of subchapter B (sec. 241 and following, relating to
dividends received). In applying section 246(b) (relating to
limitation on aggregate amount of deductions for dividends
received) for purposes of this paragraph, the reference in such
section to "taxable income" shall be treated as a reference to
"taxable investment income".
(8) Trade or business deductions
The deductions allowed by this subtitle (without regard to this
part) which are attributable to any trade or business (other than
an insurance business) carried on by the insurance company, or by
a partnership of which the insurance company is a partner; except
that for purposes of this paragraph -
(A) any item, to the extent attributable to the carrying on
of the insurance business, shall not be taken into account, and
(B) the deduction for net operating losses provided in
section 172 shall not be allowed.
(9) Depletion
The deduction allowed by section 611 (relating to depletion).
(d) Other applicable rules
(1) Rental value of real estate
The deduction under subsection (c)(3) or (4) on account of any
real estate owned and occupied in whole or in part by a mutual
insurance company subject to the tax imposed by section 831 shall
be limited to an amount which bears the same ratio to such
deduction (computed without regard to this paragraph) as the
rental value of the space not so occupied bears to the rental
value of the entire property.
(2) Amortization of premium and accrual of discount
The gross amount of income during the taxable year from
interest and the deduction provided in subsection (c)(1) shall
each be decreased to reflect the appropriate amortization of
premium and increased to reflect the appropriate accrual of
discount attributable to the taxable year on bonds, notes,
debentures, or other evidences of indebtedness held by a mutual
insurance company subject to the tax imposed by section 831. Such
amortization and accrual shall be determined -
(A) in accordance with the method regularly employed by such
company, if such method is reasonable, and
(B) in all other cases, in accordance with regulations
prescribed by the Secretary.
No accrual of discount shall be required under this paragraph on
any bond (as defined in section 171(d)) except in the case of
discount which is original issue discount (as defined in section
1273).
(3) Double deductions
Nothing in this part shall permit the same item to be deducted
more than once.
(e) Definitions
For purposes of this part -
(1) Net premiums
The term "net premiums" means gross premiums (including
deposits and assessments) written or received on insurance
contracts during the taxable year less return premiums and
premiums paid or incurred for reinsurance. Amounts returned where
the amount is not fixed in the insurance contract but depends on
the experience of the company or the discretion of the management
shall not be included in return premiums but shall be treated as
dividends to policyholders under paragraph (2).
(2) Dividends to policyholders
The term "dividends to policyholders" means dividends and
similar distributions paid or declared to policyholders. For
purposes of the preceding sentence, the term "paid or declared"
shall be construed according to the method regularly employed in
keeping the books of the insurance company.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 261, Sec. 822; Mar. 13, 1956,
ch. 83, Sec. 3(a)(3)-(8), 70 Stat. 47, 48; Pub. L. 87-834, Sec.
8(b), Oct. 16, 1962, 76 Stat. 991; Pub. L. 88-272, title II, Sec.
228(b)(2), Feb. 26, 1964, 78 Stat. 99; Pub. L. 89-809, title I,
Sec. 104(i)(5), Nov. 13, 1966, 80 Stat. 1562; Pub. L. 94-455, title
XIX, Secs. 1901(a)(105), (b)(1)(P)-(S), 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1782, 1792, 1834; renumbered Sec. 834 and amended
Pub. L. 99-514, title X, Sec. 1024(a)(3), (c)(7), (8), Oct. 22,
1986, 100 Stat. 2405, 2407.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514, Sec. 1024(a)(3), renumbered section 822 of
this title as this section.
Subsec. (a). Pub. L. 99-514, Sec. 1024(c)(7), amended subsec. (a)
generally. Prior to amendment, subsec. (a), definitions, read as
follows: "For purposes of this part -
"(1) The term 'taxable investment income' means the gross
investment income, minus the deductions provided in subsection
(c).
"(2) The term 'investment loss' means the amount by which the
deductions provided in subsection (c) exceed the gross investment
income."
Subsec. (d). Pub. L. 99-514, Sec. 1024(c)(8), substituted
"section 831" for "section 821" in pars. (1) and (2), and inserted
"except in the case of discount which is original issue discount
(as defined in section 1273)" at end of last sentence in par.
1976 - Subsec. (c)(2). Pub. L. 94-455, Sec. 1901(b)(1)(P), struck
out "partially tax-exempt interest and" before "dividends received
allowed by".
Subsec. (c)(5). Pub. L. 94-455, Sec. 1901(a)(105)(A), struck out
"(other than obligations of the United States issued after
September 24, 1917, and originally subscribed for by the taxpayer)"
after "purchase or carry obligations".
Subsec. (c)(6)(A). Pub. L. 94-455, Sec. 1901(b)(1)(Q), struck out
"or to the deduction provided in section 242 for partially tax-
exempt interest" after "exchanges of capital assets".
Subsec. (c)(7). Pub. L. 94-455, Sec. 1901(b)(1)(R), struck out
"partially tax-exempt interest and to" after "and following,
relating to".
Subsec. (d)(2). Pub. L. 94-455, Secs. 1901(a)(105)(B), (b)(1)(S),
1906(b)(13)(A), struck out in subpar. (B) "or his delegate" after
"Secretary" and substituted in provisions preceding subpar. (A)
"and the deduction provided in subsection (c)(1)" for ", the
deduction provided in subsection (c)(1), and the deduction allowed
by section 242 (relating to partially tax-exempt interest)" and in
provisions following subpar. (B) "No accrual" for "For taxable
years beginning after December 31, 1962, no accrual".
1966 - Subsecs. (e), (f). Pub. L. 89-809 redesignated subsec. (f)
as (e). Former subsec. (e), dealing with foreign mutual insurance
companies other than life or marine, was struck out.
1964 - Subsec. (d)(2). Pub. L. 88-272 provided that for taxable
years beginning after Dec. 31, 1962, no accrual of discount shall
be required under par. (2) on any bond.
1962 - Pub. L. 87-834, Sec. 8(b)(1), substituted "Determination
of taxable investment income" for "Determination of mutual
insurance company taxable income" in section catchline.
Subsec. (a). Pub. L. 87-834, Sec. 8(b)(1), defined "taxable
investment income" and "investment loss" for purposes of this part,
and struck out provisions which defined "mutual insurance company
taxable income" for purposes of section 821 of this title, which
provisions are now contained in section 821(b) of this title.
Subsec. (c). Pub. L. 87-834, Sec. 8(b)(2), (3), substituted
"taxable investment income" for "mutual insurance company taxable
income" in opening provisions and in pars. (2) and (6)(A), and
inserted sentence in par. (7) providing that in applying section
246(b) (relating to limitations on aggregate amount of deductions
for dividends received) for purposes of par. (7), reference in such
section to "taxable income" shall be treated as a reference to
"taxable investment income".
Subsec. (e). Pub. L. 87-834, Sec. 8(b)(2), substituted "taxable
investment income" for "mutual insurance company taxable income".
Subsec. (f). Pub. L. 87-834, Sec. 8(b)(4), added subsec. (f).
Provisions of subsec. (f) were formerly contained in section 823 of
this title.
1956 - Subsec. (b). Act Mar. 13, 1956, Sec. 3(a)(3), principally
included royalties, and the income from a trade or business other
than the insurance business carried on by the insurance company in
"gross investment income".
Subsec. (c). Act Mar. 13, 1956, Sec. 3(a)(4), (5), (6), clarified
the deduction for real estate expenses in par. (3), substituted in
par. (6) "the sum of the items described in subsection (b) (other
than paragraph (1)(D) thereof) and net premiums received. In the
application of section 1212" for "the sum of interest, dividends,
rents, and net premiums received. In the application of section
1211", and inserted pars. (8) and (9).
Subsec. (d)(1). Act Mar. 13, 1956, Sec. 3(a)(7), substituted
"subsection (c)(3) or (4)" for "subsection (e)(3) or (4)".
Subsec. (e). Act Mar. 13, 1956, Sec. 3(a)(8), substituted "items
described in subsection (b) (other than paragraph (1)(D) thereof"
for "interest, dividends, rents,".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out
as a note under section 831 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(105), (b)(1)(P)-(S) of Pub. L. 94-
455 effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years beginning after Dec. 31, 1962, see section 8(h) of Pub. L. 87-
834, set out as a note under section 501 of this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note set out under section 316 of this title.
-End-
-CITE-
26 USC Sec. 835 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
Sec. 835. Election by reciprocal
-STATUTE-
(a) In general
Except as otherwise provided in this section, any mutual
insurance company which is an interinsurer or reciprocal
underwriter (hereinafter in this section referred to as a
"reciprocal") subject to the taxes imposed by section 831(a) may,
under regulations prescribed by the Secretary, elect to be subject
to the limitation provided in subsection (b). Such election shall
be effective for the taxable year for which made and for all
succeeding taxable years, and shall not be revoked except with the
consent of the Secretary.
(b) Limitation
The deduction for amounts paid or incurred in the taxable year to
the attorney-in-fact by a reciprocal making the election provided
in subsection (a) shall be limited to, but in no case increased by,
the deductions of the attorney-in-fact allocable, in accordance
with regulations prescribed by the Secretary, to the income
received by the attorney-in-fact from the reciprocal.
(c) Exception
An election may not be made by a reciprocal under subsection (a)
unless the attorney-in-fact of such reciprocal -
(1) is subject to the tax imposed by section 11;
(2) consents in such manner as the Secretary shall prescribe by
regulations to make available such information as may be required
during the period in which the election provided in subsection
(a) is in effect, under regulations prescribed by the Secretary;
(3) reports the income received from the reciprocal and the
deductions allocable thereto under the same method of accounting
under which the reciprocal reports deductions for amounts paid to
the attorney-in-fact; and
(4) files its return on the calendar year basis.
(d) Credit
Any reciprocal electing to be subject to the limitation provided
in subsection (b) shall be credited with so much of the tax paid by
the attorney-in-fact as is attributable, under regulations
prescribed by the Secretary, to the income received by the attorney-
in-fact from the reciprocal in such taxable year.
(e) Benefits of graduated rates denied
Any increase in the taxable income of a reciprocal attributable
to the limits provided in subsection (b) shall be taxed at the
highest rate of tax specified in section 11(b).
(f) Adjustment for refund
If for any taxable year an attorney-in-fact is allowed a credit
or refund for taxes paid with respect to which credit or refund to
the reciprocal resulted under subsection (d), the taxes of such
reciprocal for such taxable year shall be properly adjusted under
regulations prescribed by the Secretary.
(g) Taxes of attorney-in-fact unaffected
Nothing in this section shall increase or decrease the taxes
imposed by this chapter on the income of the attorney-in-fact.
-SOURCE-
(Added Pub. L. 87-834, Sec. 8(c), Oct. 16, 1962, 76 Stat. 996, Sec.
826; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1834; Pub. L. 95-600, title III, Sec. 301(b)(10),
Nov. 6, 1978, 92 Stat. 2822; renumbered Sec. 835 and amended Pub.
L. 99-514, title X, Sec. 1024(a)(3), (c)(9), Oct. 22, 1986, 100
Stat. 2405, 2407; Pub. L. 100-647, title I, Sec. 1010(f)(2), (3),
Nov. 10, 1988, 102 Stat. 3454.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1010(f)(2), substituted
"section 831(a)" for "section 821(a)".
Subsec. (f). Pub. L. 100-647, Sec. 1010(f)(3), substituted
"subsection (d)" for "subsection (e)".
1986 - Pub. L. 99-514, Sec. 1024(a)(3), renumbered section 826 of
this title as this section.
Subsec. (d). Pub. L. 99-514, Sec. 1024(c)(9)(A), redesignated
subsec. (e) as (d) and struck out former subsec. (d), special rule,
which read as follows: "In applying section 824(d)(1)(D), any
amount which was added to the protection against loss account by
reason of an election under this section shall be treated as having
been added by reason of section 824(a)(1)(A)."
Subsec. (e). Pub. L. 99-514, Sec. 1024(c)(9), redesignated
subsec. (f) as (e), substituted "Benefits of graduated rates" for
"Surtax exemption" in heading, and amended text generally. Prior to
amendment, text read as follows: "Any increase in taxable income of
a reciprocal attributable to the limitation provided in subsection
(b) shall be taxed without regard to the surtax exemption provided
in section 821(a)(2)." Former subsec. (e) redesignated (d).
Subsecs. (f) to (h). Pub. L. 99-514, Sec. 1024(c)(9)(A),
redesignated subsecs. (f) to (h) as (e) to (g), respectively.
1978 - Subsec. (c)(1). Pub. L. 95-600 substituted "the tax
imposed by section 11" for "the taxes imposed by section 11(b) and
(c)".
1976 - Subsecs. (a), (b), (c)(2), (e), (g). Pub. L. 94-455 struck
out "or his delegate" after "Secretary".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out
as a note under section 831 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out
as a note under section 11 of this title.
EFFECTIVE DATE
Section applicable with respect to taxable years beginning after
Dec. 31, 1962, see section 8(h) of Pub. L. 87-834, set out as an
Effective Date of 1962 Amendment note under section 501 of this
title.
-End-
-CITE-
26 USC PART III - PROVISIONS OF GENERAL APPLICATION 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
PART III - PROVISIONS OF GENERAL APPLICATION
-MISC1-
Sec.
841. Credit for foreign taxes.
842. Foreign companies carrying on insurance business.
843. Annual accounting period.
844. Special loss carryover rules.
845. Certain reinsurance agreements.
846. Discounted unpaid losses defined.
847. Special estimated tax payments.
848. Capitalization of certain policy acquisition expenses.
AMENDMENTS
1990 - Pub. L. 101-508, title XI, Sec. 11301(c), Nov. 5, 1990,
104 Stat. 1388-449, added item 848.
1989 - Pub. L. 101-239, title VII, Sec. 7821(d)(1), Dec. 19,
1989, 103 Stat. 2424, substituted "companies" for "corporations" in
item 842.
1988 - Pub. L. 100-647, title VI, Sec. 6077(b), Nov. 10, 1988,
102 Stat. 3709, added item 847.
1986 - Pub. L. 99-514, title X, Secs. 1023(d), 1024(a)(2), Oct.
22, 1986, 100 Stat. 2404, 2405, redesignated part IV as III and
added item 846. Former part III redesignated II.
1984 - Pub. L. 98-369, div. A, title II, Sec. 212(b), July 18,
1984, 98 Stat. 758, added item 845.
1969 - Pub. L. 91-172, title IX, Sec. 907(c)(2)(A), Dec. 30,
1969, 83 Stat. 717, added item 844.
1966 - Pub. L. 89-809, title I, Sec. 104(i)(2), Nov. 13, 1966, 80
Stat. 1561, substituted "Foreign corporations carrying on insurance
business" for "Computation of gross income" in item 842.
1956 - Act Mar. 13, 1956, ch. 83, Sec. 4(b), 70 Stat. 49, added
item 843.
-End-
-CITE-
26 USC Sec. 841 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 841. Credit for foreign taxes
-STATUTE-
The taxes imposed by foreign countries or possessions of the
United States shall be allowed as a credit against the tax of a
domestic insurance company subject to the tax imposed by section
801 or 831, to the extent provided in the case of a domestic
corporation in section 901 (relating to foreign tax credit). For
purposes of the preceding sentence (and for purposes of applying
section 906 with respect to a foreign corporation subject to tax
under this subchapter), the term "taxable income" as used in
section 904 means -
(1) in the case of the tax imposed by section 801, the life
insurance company taxable income (as defined in section 801(b)),
and
(2) in the case of the tax imposed by section 831, the taxable
income (as defined in section 832(a)).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 267; Mar. 13, 1956, ch. 83, Sec.
5(4), 70 Stat. 49; Pub. L. 86-69, Sec. 3(b), June 25, 1959, 73
Stat. 139; Pub. L. 87-834, Sec. 8(g)(1), Oct. 16, 1962, 76 Stat.
998; Pub. L. 89-809, title I, Sec. 104(i)(8), Nov. 13, 1966, 80
Stat. 1562; Pub. L. 98-369, div. A, title II, Sec. 211(b)(10), July
18, 1984, 98 Stat. 755; Pub. L. 99-514, title X, Sec. 1024(c)(10),
Oct. 22, 1986, 100 Stat. 2407.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514 substituted "section 801 or 831" for
"section 801, 821, or 831" in introductory provisions, redesignated
par. (3) as (2), and struck out former par. (2) which read as
follows: "in the case of the tax imposed by section 821(a), the
mutual insurance company taxable income (as defined in section
821(b)); and in the case of the tax imposed by section 821(c), the
taxable investment income (as defined in section 822(a)), and".
1984 - Pub. L. 98-369 substituted "section 801" for "section
802", wherever appearing, and "section 801(b)" for "section
802(b)".
1966 - Pub. L. 89-809 substituted "For purposes of the preceding
sentence (and for purposes of applying section 906 with respect to
a foreign corporation subject to tax under this subchapter), the
term 'taxable income' as used in section 904" for "For purposes of
the preceding sentence, the term 'taxable income' as used in
section 904".
1962 - Pub. L. 87-834 added par. (2) and redesignated former par.
(2) as (3).
1959 - Pub. L. 86-69 struck out reference to section 811 of this
title in first sentence, and substituted "section 802, the life
insurance company taxable income (as defined in section 802(b)),
and" for "section 802 or 811, the net investment income (as defined
in section 803(c))" in par. (1).
1956 - Act Mar. 13, 1956, inserted references to section 811.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out
as a note under section 831 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years beginning after Dec. 31, 1962, see section 8(h) of Pub. L. 87-
834, set out as a note under section 501 of this title.
EFFECTIVE DATE OF 1959 AMENDMENT
Amendment by Pub. L. 86-69 applicable only with respect to
taxable years beginning after Dec. 31, 1957, see section 4 of Pub.
L. 86-69, set out as a note under section 381 of this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 316 of this title.
-End-
-CITE-
26 USC Sec. 842 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 842. Foreign companies carrying on insurance business
-STATUTE-
(a) Taxation under this subchapter
If a foreign company carrying on an insurance business within the
United States would qualify under part I or II of this subchapter
for the taxable year if (without regard to income not effectively
connected with the conduct of any trade or business within the
United States) it were a domestic corporation, such company shall
be taxable under such part on its income effectively connected with
its conduct of any trade or business within the United States. With
respect to the remainder of its income which is from sources within
the United States, such a foreign company shall be taxable as
provided in section 881.
(b) Minimum effectively connected net investment income
(1) In general
In the case of a foreign company taxable under part I or II of
this subchapter for the taxable year, its net investment income
for such year which is effectively connected with the conduct of
an insurance business within the United States shall be not less
than the product of -
(A) the required United States assets of such company, and
(B) the domestic investment yield applicable to such company
for such year.
(2) Required U.S. assets
(A) In general
For purposes of paragraph (1), the required United States
assets of any foreign company for any taxable year is an amount
equal to the product of -
(i) the mean of such foreign company's total insurance
liabilities on United States business, and
(ii) the domestic asset/liability percentage applicable to
such foreign company for such year.
(B) Total insurance liabilities
For purposes of this paragraph -
(i) Companies taxable under part I
In the case of a company taxable under part I, the term
"total insurance liabilities" means the sum of the total
reserves (as defined in section 816(c)) plus (to the extent
not included in total reserves) the items referred to in
paragraphs (3), (4), (5), and (6) of section 807(c).
(ii) Companies taxable under part II
In the case of a company taxable under part II, the term
"total insurance liabilities" means the sum of unearned
premiums and unpaid losses.
(C) Domestic asset/liability percentage
The domestic asset/liability percentage applicable for
purposes of subparagraph (A)(ii) to any foreign company for any
taxable year is a percentage determined by the Secretary on the
basis of a ratio -
(i) the numerator of which is the mean of the assets of
domestic insurance companies taxable under the same part of
this subchapter as such foreign company, and
(ii) the denominator of which is the mean of the total
insurance liabilities of the same companies.
(3) Domestic investment yield
The domestic investment yield applicable for purposes of
paragraph (1)(B) to any foreign company for any taxable year is
the percentage determined by the Secretary on the basis of a
ratio -
(A) the numerator of which is the net investment income of
domestic insurance companies taxable under the same part of
this subchapter as such foreign company, and
(B) the denominator of which is the mean of the assets of the
same companies.
(4) Election to use worldwide yield
(A) In general
If the foreign company makes an election under this
paragraph, such company's worldwide current investment yield
shall be taken into account in lieu of the domestic investment
yield for purposes of paragraph (1)(B).
(B) Worldwide current investment yield
For purposes of subparagraph (A), the term "worldwide current
investment yield" means the percentage obtained by dividing -
(i) the net investment income of the company from all
sources, by
(ii) the mean of all assets of the company (whether or not
held in the United States).
(C) Election
An election under this paragraph shall apply to the taxable
year for which made and all subsequent taxable years unless
revoked with the consent of the Secretary.
(5) Net investment income
For purposes of this subsection, the term "net investment
income" means -
(A) gross investment income (within the meaning of section
834(b)), reduced by
(B) expenses allocable to such income.
(c) Special rules for purposes of subsection (b)
(1) Coordination with small life insurance company deduction
In the case of a foreign company taxable under part I,
subsection (b) shall be applied before computing the small life
insurance company deduction.
(2) Reduction in section 881 taxes
(A) In general
The tax under section 881 (determined without regard to this
paragraph) shall be reduced (but not below zero) by an amount
which bears the same ratio to such tax as -
(i) the amount of the increase in effectively connected
income of the company resulting from subsection (b), bears to
(ii) the amount which would be subject to tax under section
881 if the amount taxable under such section were determined
without regard to sections 103 and 894.
(B) Limitation on reduction
The reduction under subparagraph (A) shall not exceed the
increase in taxes under part I or II (as the case may be) by
reason of the increase in effectively connected income of the
company resulting from subsection (b).
(3) Data used in determining domestic asset/liability percentages
and domestic investment yields
Each domestic asset/liability percentage, and each domestic
investment yield, for any taxable year shall be based on such
representative data with respect to domestic insurance companies
for the second preceding taxable year as the Secretary considers
appropriate.
(d) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations -
(1) providing for the proper treatment of segregated asset
accounts,
(2) providing for proper adjustments in succeeding taxable
years where the company's actual net investment income for any
taxable year which is effectively connected with the conduct of
an insurance business within the United States exceeds the amount
required under subsection (b)(1),
(3) providing for the proper treatment of investments in
domestic subsidiaries, and
(4) which may provide that, in the case of companies taxable
under part II of this subchapter, determinations under subsection
(b) will be made separately for categories of such companies
established in such regulations.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 267; Mar. 13, 1956, ch. 83, Sec.
5(5), 70 Stat. 49; Pub. L. 86-69, Sec. 3(f)(1), June 25, 1959, 73
Stat. 140; Pub. L. 89-809, title I, Sec. 104(i)(1), Nov. 13, 1966,
80 Stat. 1561; Pub. L. 99-514, title X, Sec. 1024(c)(11), Oct. 22,
1986, 100 Stat. 2408; Pub. L. 100-203, title X, Sec. 10242(a), Dec.
22, 1987, 101 Stat. 1330-420; Pub. L. 100-647, title II, Sec.
2004(q)(2), (3), Nov. 10, 1988, 102 Stat. 3609; Pub. L. 101-239,
title VII, Sec. 7821(d)(2), Dec. 19, 1989, 103 Stat. 2424; Pub. L.
108-218, title II, Sec. 205(b)(6), Apr. 10, 2004, 118 Stat. 610.)
-MISC1-
AMENDMENTS
2004 - Subsec. (c)(3), (4). Pub. L. 108-218 redesignated par. (4)
as (3) and struck out heading and text of former par. (3). Text
read as follows: "For purposes of section 809, the equity base of
any foreign mutual life insurance company as of the close of any
taxable year shall be increased by the excess of -
"(A) the required United States assets of the company
(determined under subsection (b)(2)), over
"(B) the mean of the assets held in the United States during
the taxable year."
1989 - Subsec. (c)(4). Pub. L. 101-239 substituted "yields" for
"yeilds" in heading.
1988 - Subsec. (b)(3)(B). Pub. L. 100-647, Sec. 2004(q)(2)(A),
struck out "held for the production of such income" after "same
companies".
Subsec. (b)(4)(B)(ii). Pub. L. 100-647, Sec. 2004(q)(2)(B),
struck out "held for the production of investment income" after
"United States)".
Subsec. (d)(4). Pub. L. 100-647, Sec. 2004(q)(3), added par. (4).
1987 - Pub. L. 100-203 substituted "companies" for "corporations"
in section catchline and amended text generally. Prior to
amendment, text read as follows: "If a foreign corporation carrying
on an insurance business within the United States would qualify
under part I or II of this subchapter for the taxable year if
(without regard to income not effectively connected with the
conduct of any trade or business within the United States) it were
a domestic corporation, such corporation shall be taxable under
such part on its income effectively connected with its conduct of
any trade or business within the United States. With respect to the
remainder of its income, which is from sources within the United
States, such a foreign corporation shall be taxable as provided in
section 881."
1986 - Pub. L. 99-514 struck out reference to part III of this
subchapter.
1966 - Pub. L. 89-809 substituted provisions covering the
taxability of foreign corporations that are carrying on an
insurance business within the United States which would qualify
under part I, II, or III of this subchapter for the taxable year if
(without regard to income not effectively connected with the
conduct of any trade or business within the United States) it were
a domestic corporation for provisions that the gross income of
insurance companies subject to the tax imposed by section 802 or
831 shall not be determined in the manner provided in part I of
subchapter N (relating to determination of sources of income).
1959 - Pub. L. 86-69 struck out reference to section 811.
1956 - Act Mar. 13, 1956, inserted reference to section 811.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-218 applicable to taxable years
beginning after Dec. 31, 2004, see section 205(c) of Pub. L. 108-
218, set out as a note under section 807 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective as if included in the
provision of the Revenue Act of 1987, Pub. L. 100-203, title X, to
which such amendment relates, see section 7823 of Pub. L. 101-239,
set out as a note under section 26 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 31, 1987, see section 10242(d) of Pub. L. 100-
203, set out as a note under section 816 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out
as a note under section 831 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 with respect to taxable years
beginning after Dec. 31, 1966, see section 104(n) of Pub. L. 89-
809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1959 AMENDMENT
Amendment by Pub. L. 86-69 applicable only with respect to
taxable years beginning after Dec. 31, 1957, see section 4 of Pub.
L. 86-69, set out as a note under section 381 of this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 316 of this title.
STUDY OF UNITED STATES REINSURANCE INDUSTRY
Section 1244 of Pub. L. 99-514 directed Secretary of the Treasury
or his delegate to conduct a study to determine whether United
States reinsurance corporations are placed at a significant
competitive disadvantage with foreign reinsurance corporations by
existing treaties between the United States and foreign countries,
and to report before Jan. 1, 1988, the results of such study to
Committee on Finance of United States Senate and Committee on Ways
and Means of House of Representatives.
-End-
-CITE-
26 USC Sec. 843 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 843. Annual accounting period
-STATUTE-
For purposes of this subtitle, the annual accounting period for
each insurance company subject to a tax imposed by this subchapter
shall be the calendar year. Under regulations prescribed by the
Secretary, an insurance company which joins in the filing of a
consolidated return (or is required to so file) may adopt the
taxable year of the common parent corporation even though such year
is not a calendar year.
-SOURCE-
(Added Mar. 13, 1956, ch. 83, Sec. 4(a), 70 Stat. 48; amended Pub.
L. 94-455, title XV, Sec. 1507(b)(2), Oct. 4, 1976, 90 Stat. 1740.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 inserted provision permitting an insurance
company which joins in the filing of a consolidated return to adopt
the taxable year of the common parent corporation even though such
year is not a calendar year.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable to taxable years beginning
after Dec. 31, 1980, see section 1507(c)(1) of Pub. L. 94-455, set
out as a note under section 1504 of this title.
EFFECTIVE DATE
Section applicable only to taxable years beginning after Dec. 31,
1954, see Effective Date of 1956 Amendment note set out under
section 316 of this title.
-End-
-CITE-
26 USC Sec. 844 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 844. Special loss carryover rules
-STATUTE-
(a) General rule
If an insurance company -
(1) is subject to the tax imposed by part I or II of this
subchapter for the taxable year, and
(2) was subject to the tax imposed by a different part of this
subchapter for a prior taxable year,
then any operations loss carryover under section 810 (or the
corresponding provisions of prior law) or net operating loss
carryover under section 172 (as the case may be) arising in such
prior taxable year shall be included in its operations loss
deduction under section 810(a) or net operating loss deduction
under section 832(c)(10), as the case may be.
(b) Limitation
The amount included under section 810(a) or 832(c)(10) (as the
case may be) by reason of the application of subsection (a) shall
not exceed the amount that would have constituted the loss
carryover under such section if for all relevant taxable years the
company had been subject to the tax imposed by the part referred to
in subsection (a)(1) rather than the part referred to in subsection
(a)(2). For purposes of applying the preceding sentence, section
810(b)(1)(C) (relating to additional years to which losses may be
carried by new life insurance companies) shall not apply.
(c) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 91-172, title IX, Sec. 907(c)(1), Dec. 30, 1969, 83
Stat. 716; amended Pub. L. 94-455, title XIX, Secs. 1901(b)(25),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1798, 1834; Pub. L. 98-369,
div. A, title II, Sec. 211(b)(11), July 18, 1984, 98 Stat. 755;
Pub. L. 99-514, title X, Sec. 1024(c)(12), title XVIII, Sec.
1899A(20), Oct. 22, 1986, 100 Stat. 2408, 2959; Pub. L. 101-239,
title VII, Sec. 7841(d)(16), Dec. 19, 1989, 103 Stat. 2429.)
-MISC1-
AMENDMENTS
1989 - Subsec. (a)(2). Pub. L. 101-239 substituted "a prior
taxable year" for "the taxable year".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1024(c)(12), added
subsec. (a) and struck out former subsec. (a) which read as
follows: "If an insurance company -
"(1) is subject to the tax imposed by part I, II, or III of
this subchapter for the taxable year, and
"(2) was subject to the tax imposed by a different part of this
subchapter for a prior taxable year beginning after December 31,
1962,
then any operations loss carryover under section 810 (or the
corresponding provisions of prior law), unused loss carryover under
section 825, or net operating loss carryover under section 172, as
the case may be, arising in such prior taxable year shall be
included in its operations loss deduction under section 810(a),
unused loss deduction under section 825(a), or net operating loss
deduction under section 832(c)(10), as the case may be."
Pub. L. 99-514, Sec. 1899A(20), substituted "prior law), unused
loss" for "prior law),, unused loss" in concluding provisions.
Subsec. (b). Pub. L. 99-514, Sec. 1024(c)(12), added subsec. (b)
and struck out former subsec. (b) which read as follows: "The
amount included under section 810(a), 825(a), or 832(c)(10), as the
case may be, by reason of the application of subsection (a) shall
not exceed the amount that would have constituted the loss
carryover under such section if for all relevant taxable years such
company had been subject to the tax imposed by the part referred to
in subsection (a)(1) rather than the part referred to in subsection
(a)(2). For purposes of applying the preceding sentence -
"(1) in the case of a mutual insurance company which becomes a
stock insurance company, an amount equal to 25 percent of the
deduction under section 832(c)(11) (relating to dividends to
policyholders) shall not be allowed, and
"(2) section 810(b)(1)(C) (relating to additional years to
which losses may be carried by new life insurance companies)
shall not apply."
1984 - Subsec. (a). Pub. L. 98-369, Sec. 211(b)(11)(A),
substituted "section 810 (or the corresponding provisions of prior
law)," for "section 812" and "section 810(a)" for "section 812(a)"
in provisions following par. (2).
Subsec. (b). Pub. L. 98-369, Sec. 211(b)(11)(B), substituted
"section 810(a)" for "section 812(a)" in introductory provisions,
and "section 810(b)(1)(C)" for "section 812(b)(1)(C)" in par. (2).
1976 - Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(b)(25),
substituted "section 812(b)(1)(C)" for "section 812(b)(1)(A)(iii)".
Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1024(c)(12) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1024(e) of
Pub. L. 99-514, set out as a note under section 831 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(25) of Pub. L. 94-455, effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE
Section 907(d) of Pub. L. 91-172 provided that: "The amendments
made by subsection (a) [amending sections 805 and 810 of this
title] shall apply to taxable years beginning after December 31,
1957. The amendments made by subsection (b) [amending section 815
of this title] shall apply to taxable years beginning after
December 31, 1968. The amendments made by subsection (c) [enacting
this section and amending sections 809, 823, and 825 of this title]
shall apply with respect to losses incurred in taxable years
beginning after December 31, 1962, but shall not affect any tax
liability for any taxable year beginning before January 1, 1967."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-End-
-CITE-
26 USC Sec. 845 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 845. Certain reinsurance agreements
-STATUTE-
(a) Allocation in case of reinsurance agreement involving tax
avoidance or evasion
In the case of 2 or more related persons (within the meaning of
section 482) who are parties to a reinsurance agreement (or where
one of the parties to a reinsurance agreement is, with respect to
any contract covered by the agreement, in effect an agent of
another party to such agreement or a conduit between related
persons), the Secretary may -
(1) allocate between or among such persons income (whether
investment income, premium, or otherwise), deductions, assets,
reserves, credits, and other items related to such agreement,
(2) recharacterize any such items, or
(3) make any other adjustment,
if he determines that such allocation, recharacterization, or
adjustment is necessary to reflect the proper amount, source, or
character of the taxable income (or any item described in paragraph
(1) relating to such taxable income) of each such person.
(b) Reinsurance contract having significant tax avoidance effect
If the Secretary determines that any reinsurance contract has a
significant tax avoidance effect on any party to such contract, the
Secretary may make proper adjustments with respect to such party to
eliminate such tax avoidance effect (including treating such
contract with respect to such party as terminated on December 31 of
each year and reinstated on January 1 of the next year).
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 212(a), July 18,
1984, 98 Stat. 757; amended Pub. L. 108-357, title VIII, Sec.
803(a), Oct. 22, 2004, 118 Stat. 1569.)
-MISC1-
AMENDMENTS
2004 - Subsec. (a). Pub. L. 108-357 substituted "amount, source,
or character" for "source and character" in concluding provisions.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title VIII, Sec. 803(b), Oct. 22, 2004, 118
Stat. 1569, provided that: "The amendments made by this section
[amending this section] shall apply to any risk reinsured after the
date of the enactment of this Act [Oct. 22, 2004]."
EFFECTIVE DATE
Section 217(d) of title II of div. A of Pub. L. 98-369, as
amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that:
"(1) Subsection (a) of section 845 of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954] (as added by this title) shall apply
with respect to any risk reinsured on or after September 27, 1983.
"(2) Subsection (b) of section 845 of such Code (as so added)
shall apply with respect to risks reinsured after December 31,
1984."
-End-
-CITE-
26 USC Sec. 846 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 846. Discounted unpaid losses defined
-STATUTE-
(a) Discounted losses determined
(1) Separately computed for each accident year
The amount of the discounted unpaid losses as of the end of any
taxable year shall be the sum of the discounted unpaid losses (as
of such time) separately computed under this section with respect
to unpaid losses in each line of business attributable to each
accident year.
(2) Method of discounting
The amount of the discounted unpaid losses as of the end of any
taxable year attributable to any accident year shall be the
present value of such losses (as of such time) determined by
using -
(A) the amount of the undiscounted unpaid losses as of such
time,
(B) the applicable interest rate, and
(C) the applicable loss payment pattern.
(3) Limitation on amount of discounted losses
In no event shall the amount of the discounted unpaid losses
with respect to any line of business attributable to any accident
year exceed the aggregate amount of unpaid losses with respect to
such line of business for such accident year included on the
annual statement filed by the taxpayer for the year ending with
or within the taxable year.
(4) Determination of applicable factors
In determining the amount of the discounted unpaid losses
attributable to any accident year -
(A) the applicable interest rate shall be the interest rate
determined under subsection (c) for the calendar year with
which such accident year ends, and
(B) the applicable loss payment pattern shall be the loss
payment pattern determined under subsection (d) which is in
effect for the calendar year with which such accident year
ends.
(b) Determination of undiscounted unpaid losses
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, the term
"undiscounted unpaid losses" means the unpaid losses shown in the
annual statement filed by the taxpayer for the year ending with
or within the taxable year of the taxpayer.
(2) Adjustment if losses discounted on annual statement
If -
(A) the amount of unpaid losses shown in the annual statement
is determined on a discounted basis, and
(B) the extent to which the losses were discounted can be
determined on the basis of information disclosed on or with the
annual statement,
the amount of the unpaid losses shall be determined without
regard to any reduction attributable to such discounting.
(c) Rate of interest
(1) In general
For purposes of this section, the rate of interest determined
under this subsection shall be the annual rate determined by the
Secretary under paragraph (2).
(2) Determination of annual rate
(A) In general
The annual rate determined by the Secretary under this
paragraph for any calendar year shall be a rate equal to the
average of the applicable Federal mid-term rates (as defined in
section 1274(d) but based on annual compounding) effective as
of the beginning of each of the calendar months in the test
period.
(B) Test period
For purposes of subparagraph (A), the test period is the most
recent 60-calendar-month period ending before the beginning of
the calendar year for which the determination is made; except
that there shall be excluded from the test period any month
beginning before August 1, 1986.
(d) Loss payment pattern
(1) In general
For each determination year, the Secretary shall determine a
loss payment pattern for each line of business by reference to
the historical loss payment pattern applicable to such line of
business. Any loss payment pattern determined by the Secretary
shall apply to the accident year ending with the determination
year and to each of the 4 succeeding accident years.
(2) Method of determination
Determinations under paragraph (1) for any determination year
shall be made by the Secretary -
(A) by using the aggregate experience reported on the annual
statements of insurance companies,
(B) on the basis of the most recent published aggregate data
from such annual statements relating to loss payment patterns
available on the 1st day of the determination year,
(C) as if all losses paid or treated as paid during any year
are paid in the middle of such year, and
(D) in accordance with the computational rules prescribed in
paragraph (3).
(3) Computational rules
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the loss
payment pattern for any line of business shall be based on the
assumption that all losses are paid -
(i) during the accident year and the 3 calendar years
following the accident year, or
(ii) in the case of any line of business reported in the
schedule or schedules of the annual statement relating to
auto liability, other liability, medical malpractice,
workers' compensation, and multiple peril lines, during the
accident year and the 10 calendar years following the
accident year.
(B) Treatment of certain losses
Except as otherwise provided in this paragraph -
(i) in the case of any line of business not described in
subparagraph (A)(ii), losses paid after the 1st year
following the accident year shall be treated as paid equally
in the 2nd and 3rd year following the accident year, and
(ii) in the case of a line of business described in
subparagraph (A)(ii), losses paid after the close of the
period applicable under subparagraph (A)(ii) shall be treated
as paid in the last year of such period.
(C) Special rule for certain long-tail lines
In the case of any long-tail line of business -
(i) the period taken into account under subparagraph
(A)(ii) shall be extended (but not by more than 5 years) to
the extent required under clause (ii), and
(ii) the amount of losses which would have been treated as
paid in the 10th year after the accident year shall be
treated as paid in such 10th year and each subsequent year in
an amount equal to the amount of the losses treated as paid
in the 9th year after the accident year (or, if lesser, the
portion of the unpaid losses not theretofore taken into
account).
Notwithstanding clause (ii), to the extent such unpaid losses
have not been treated as paid before the last year of the
extension, they shall be treated as paid in such last year.
(D) Long-tail line of business
For purposes of subparagraph (C), the term "long-tail line of
business" means any line of business described in subparagraph
(A)(ii) if the amount of losses which (without regard to
subparagraph (C)) would be treated as paid in the 10th year
after the accident year exceeds the losses treated as paid in
the 9th year after the accident year.
(E) Special rule for international and reinsurance lines of
business
Except as otherwise provided by regulations, any
determination made under subsection (a) with respect to unpaid
losses relating to the international or reinsurance lines of
business shall be made using, in lieu of the loss payment
pattern applicable to the respective lines of business, a
pattern determined by the Secretary under paragraphs (1) and
(2) based on the combined losses for all lines of business
described in subparagraph (A)(ii).
(F) Adjustments if loss experience information available for
longer periods
The Secretary shall make appropriate adjustments in the
application of this paragraph if annual statement data with
respect to payment of losses is available for longer periods
after the accident year than the periods assumed under the
rules of this paragraph.
(G) Special rule for 9th year if negative or zero
If the amount of the losses treated as paid in the 9th year
after the accident year is zero or a negative amount,
subparagraphs (C)(ii) and (D) shall be applied by substituting
the average of the losses treated as paid in the 7th, 8th, and
9th years after the accident year for the losses treated as
paid in the 9th year after the accident year.
(4) Determination year
For purposes of this section, the term "determination year"
means calendar year 1987 and each 5th calendar year thereafter.
(e) Election to use company's historical payment pattern
(1) In general
The taxpayer may elect to apply subsection (a)(2)(C) with
respect to all lines of business by using a loss payment pattern
determined by reference to the taxpayer's loss payment pattern
for the most recent calendar year for which an annual statement
was filed before the beginning of the accident year. Any such
determination shall be made with the application of the rules of
paragraphs (2)(C) and (3) of subsection (d).
(2) Election
(A) In general
An election under paragraph (1) shall be made separately with
respect to each determination year under subsection (d).
(B) Period for which election in effect
Unless revoked with the consent of the Secretary, an election
under paragraph (1) with respect to any determination year
shall apply to accident years ending with the determination
year and to each of the 4 succeeding accident years.
(C) Time for making election
An election under paragraph (1) with respect to any
determination year shall be made on the taxpayer's return for
the taxable year in which (or with which) the determination
year ends.
(3) No election for international or reinsurance business
No election under this subsection shall apply to any
international or reinsurance line of business.
(4) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection including -
(A) regulations providing that a taxpayer may not make an
election under this subsection if such taxpayer does not have
sufficient historical experience for the line of business to
determine a loss payment pattern, and
(B) regulations to prevent the avoidance (through the use of
separate corporations or otherwise) of the requirement of this
subsection that an election under this subsection applies to
all lines of business of the taxpayer.
(f) Other definitions and special rules
For purposes of this section -
(1) Accident year
The term "accident year" means the calendar year in which the
incident occurs which gives rise to the related unpaid loss.
(2) Unpaid loss adjustment expenses
The term "unpaid losses" includes any unpaid loss adjustment
expenses shown on the annual statement.
(3) Annual statement
The term "annual statement" means the annual statement approved
by the National Association of Insurance Commissioners which the
taxpayer is required to file with insurance regulatory
authorities of a State.
(4) Line of business
The term "line of business" means a category for the reporting
of loss payment patterns determined on the basis of the annual
statement for fire and casualty insurance companies for the
calendar year ending with or within the taxable year, except that
the multiple peril lines shall be treated as a single line of
business.
(5) Multiple peril lines
The term "multiple peril lines" means the lines of business
relating to farmowners multiple peril, homeowners multiple peril,
commercial multiple peril, ocean marine, aircraft (all perils)
and boiler and machinery.
(6) Special rule for certain accident and health insurance lines
of business
Any determination under subsection (a) with respect to unpaid
losses relating to accident and health insurance lines of
businesses (other than credit disability insurance) shall be made
-
(A) in the case of unpaid losses relating to disability
income, by using the general rules prescribed under section
807(d) applicable to noncancellable accident and health
insurance contracts and using a mortality or morbidity table
reflecting the taxpayer's experience; except that -
(i) the prevailing State assumed interest rate shall be the
rate in effect for the year in which the loss occurred rather
than the year in which the contract was issued, and
(ii) the limitation of subsection (a)(3) shall apply in
lieu of the limitation of the last sentence of section
807(d)(1), and
(B) in all other cases, by using an assumption (in lieu of a
loss payment pattern) that unpaid losses are paid in the middle
of the year following the accident year.
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including -
(1) regulations providing proper treatment of allocated
reinsurance, and
(2) regulations providing appropriate adjustments in the
application of this section to a taxpayer having a taxable year
which is not the calendar year.
-SOURCE-
(Added Pub. L. 99-514, title X, Sec. 1023(c), Oct. 22, 1986, 100
Stat. 2399; amended Pub. L. 100-647, title I, Sec. 1010(e)(1), (2),
Nov. 10, 1988, 102 Stat. 3453; Pub. L. 101-508, title XI, Sec.
11305(b), Nov. 5, 1990, 104 Stat. 1388-451.)
-MISC1-
AMENDMENTS
1990 - Subsec. (g). Pub. L. 101-508 inserted "and" at end of par.
(1), redesignated par. (3) as (2), and struck out former par. (2)
which required regulations providing proper treatment of salvage
and reinsurance recoverable attributable to unpaid losses.
1988 - Subsec. (f)(6)(B). Pub. L. 100-647, Sec. 1010(e)(1),
substituted "paid in the middle of the year" for "paid during the
year".
Subsec. (g)(3). Pub. L. 100-647, Sec. 1010(e)(2), added par. (3).
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to taxable years
beginning after Dec. 31, 1989, see section 11305(c)(1) of Pub. L.
101-508, set out as a note under section 832 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section 1023(e) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1010(e)(3), Nov. 10, 1988, 102 Stat. 3453, provided
that:
"(1) In general. - The amendments made by this section [enacting
this section and amending sections 807 and 832 of this title] shall
apply to taxable years beginning after December 31, 1986.
"(2) Transitional rule. - For the first taxable year beginning
after December 31, 1986 -
"(A) the unpaid losses and the expenses unpaid (as defined in
paragraphs (5)(B) and (6) of section 832(b) of the Internal
Revenue Code of 1986) at the end of the preceding taxable year,
and
"(B) the unpaid losses as defined in sections 807(c)(2) and
805(a)(1) of such Code at the end of the preceding taxable year,
shall be determined as if the amendments made by this section had
applied to such unpaid losses and expenses unpaid in the preceding
taxable year and by using the interest rate and loss payment
patterns applicable to accident years ending with calendar year
1987. For subsequent taxable years, such amendments shall be
applied with respect to such unpaid losses and expenses unpaid by
using the interest rate and loss payment patterns applicable to
accident years ending with calendar year 1987.
"(3) Fresh start. -
"(A) In general. - Except as otherwise provided in this
paragraph, any difference between -
"(i) the amount determined to be the unpaid losses and
expenses unpaid for the year preceding the 1st taxable year of
an insurance company beginning after December 31, 1986,
determined without regard to paragraph (2), and
"(ii) such amount determined with regard to paragraph (2),
shall not be taken into account for purposes of the Internal
Revenue Code of 1986.
"(B) Reserve strengthening in years after 1985. - Subparagraph
(A) shall not apply to any reserve strengthening in a taxable
year beginning in 1986, and such strengthening shall be treated
as occurring in the taxpayer's 1st taxable year beginning after
December 31, 1986.
"(C) Effect on earnings and profits. - The earnings and profits
of any insurance company for its 1st taxable year beginning after
December 31, 1986, shall be increased by the amount of the
difference determined under subparagraph (A) with respect to such
company.
"(4) Application of fresh start to companies which become subject
to section 831(a) tax in later taxable year. - If -
"(A) an insurance company was not subject to tax under section
831(a) of the Internal Revenue Code of 1986 for its 1st taxable
year beginning after December 31, 1986, by reason of being -
"(i) subject to tax under section 831(b) of such Code, or
"(ii) described in section 501(c) of such Code and exempt
from tax under section 501(a) of such Code, and
"(B) such company becomes subject to tax under such section
831(a) for any later taxable year,
paragraph (2) and subparagraphs (A) and (C) of paragraph (3) shall
be applied by treating such later taxable year as its 1st taxable
year beginning after December 31, 1986, and by treating the
calendar year in which such later taxable year begins as 1987; and
paragraph (3)(B) shall not apply."
-End-
-CITE-
26 USC Sec. 847 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 847. Special estimated tax payments
-STATUTE-
In the case of taxable years beginning after December 31, 1987,
of an insurance company required to discount unpaid losses (as
defined in section 846) -
(1) Additional deduction
There shall be allowed as a deduction for the taxable year, if
special estimated tax payments are made as required by paragraph
(2), an amount not to exceed the excess of -
(A) the amount of the undiscounted, unpaid losses (as defined
in section 846(b)) attributable to losses incurred in taxable
years beginning after December 31, 1986, over
(B) the amount of the related discounted, unpaid losses
determined under section 846,
to the extent such amount was not deducted under this paragraph
in a preceding taxable year. Section 6655 shall be applied to any
taxable year without regard to the deduction allowed under the
preceding sentence.
(2) Special estimated tax payments
The deduction under paragraph (1) shall be allowed only to the
extent that such deduction would result in a tax benefit for the
taxable year for which such deduction is allowed or any carryback
year and only to the extent that special estimated tax payments
are made in an amount equal to the tax benefit attributable to
such deduction on or before the due date (determined without
regard to extensions) for filing the return for the taxable year
for which the deduction is allowed. If a deduction would be
allowed but for the fact that special estimated tax payments were
not timely made, such deduction shall be allowed to the extent
such payments are made within a reasonable time, as determined by
the Secretary, if all interest and penalties, computed as if this
sentence did not apply, are paid. If amounts are included in
gross income under paragraph (5) or (6) for any taxable year and
an additional tax is due for such year (or any other year) as a
result of such inclusion, an amount of special estimated tax
payments equal to such additional tax shall be applied against
such additional tax. If, after any such payment is so applied,
there is an adjustment reducing the amount of such additional
tax, in lieu of any credit or refund for such reduction, a
special estimated tax payment shall be treated as made in an
amount equal to the amount otherwise allowable as a credit or
refund. To the extent that a special estimated tax payment is not
used to offset additional tax due for any of the first 15 taxable
years beginning after the year for which the payment was made,
such special estimated tax payment shall be treated as an
estimated tax payment made under section 6655 for the 16th year
after the year for which the payment was made.
(3) Special loss discount account
Each company which is allowed a deduction under paragraph (1)
shall, for purposes of this part, establish and maintain a
special loss discount account.
(4) Additions to special loss discount account
There shall be added to the special loss discount account for
each taxable year an amount equal to the amount allowed as a
deduction for the taxable year under paragraph (1).
(5) Subtractions from special loss discount account and inclusion
in gross income
After applying paragraph (4), there shall be subtracted for the
taxable year from the special loss discount account and included
in gross income:
(A) The excess (if any) of the amount in the special loss
discount account with respect to losses incurred in each
taxable year over the amount of the excess referred to in
paragraph (1) with respect to losses incurred in that year, and
(B) Any amount improperly subtracted from the special loss
discount account under subparagraph (A) to the extent special
estimated tax payments were used with respect to such amount.
To the extent that any amount added to the special loss discount
account is not subtracted from such account before the 15th year
after the year for which the amount was so added, such amount
shall be subtracted from such account for such 15th year and
included in gross income for such 15th year.
(6) Rules in the case of liquidation or termination of taxpayer's
insurance business
(A) In general
If a company liquidates or otherwise terminates its insurance
business and does not transfer or distribute such business in
an acquisition of assets referred to in section 381(a), the
entire amount remaining in such special loss discount account
shall be subtracted and included in gross income. Except in the
case where a company transfers or distributes its insurance
business in an acquisition of assets, referred to in section
381(a), if the company is not subject to the tax imposed by
section 801 or section 831 for any taxable year, the entire
amount in the account at the close of the preceding taxable
year shall be subtracted from the account in such preceding
taxable year and included in gross income.
(B) Elimination of balance of payments
In any case to which subparagraph (A) applies, any special
estimated tax payment remaining after the credit attributable
to the inclusion under subparagraph (A) shall be voided.
(7) Modification of the amount of special estimated tax payments
in the event of subsequent marginal rate reduction or increase
In the event of a reduction in any tax rate provided under
section 11 for any tax year after the enactment of this section,
the Secretary shall prescribe regulations providing for a
reduction in the amount of any special estimated tax payments
made for years before the effective date of such section 11 rate
reductions. Such reduction in the amount of such payments shall
reduce the amount of such payments to the amount that they would
have been if the special deduction permitted under paragraph (1)
had occurred during a year that the lower marginal rate under
section 11 applied. Similar rules shall be applied in the event
of a marginal rate increase.
(8) Tax benefit determination
The tax benefit attributable to the deduction under paragraph
(1) shall be determined under regulations prescribed by the
Secretary, by taking into account tax benefits that would arise
from the carryback of any net operating loss for the year, as
well as current year tax benefits. Tax benefits for the current
year and carryback years shall include those that would arise
from the filing of a consolidated return with another insurance
company required to determine discounted, unpaid losses under
section 846 without regard to the limitations on consolidation
contained in section 1503(c). The limitations on consolidation
contained in section 1503(c) shall not apply to the deduction
allowed under paragraph (1).
(9) Effect on earnings and profits
In determining the earnings and profits -
(A) any special estimated tax payment made for any taxable
year shall be treated as a payment of income tax imposed by
this title for such taxable year, and
(B) any deduction or inclusion under this section shall not
be taken into account.
Nothing in the preceding sentence shall be construed to affect
the application of section 56(g) (relating to adjustments based
on adjusted current earnings).
(10) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
section, including regulations -
(A) providing for the separate application of this section
with respect to each accident year,
(B) such adjustments in the application of this section as
may be necessary to take into account the tax imposed by
section 55, and
(C) providing for the application of this section in cases
where the deduction allowed under paragraph (1) for any taxable
year is less than the excess referred to in paragraph (1) for
such year.
-SOURCE-
(Added Pub. L. 100-647, title VI, Sec. 6077(a), Nov. 10, 1988, 102
Stat. 3707; amended Pub. L. 101-239, title VII, Sec. 7816(n), Dec.
19, 1989, 103 Stat. 2422.)
-REFTEXT-
REFERENCES IN TEXT
Enactment of this section, referred to in par. (7), means
enactment of Pub. L. 100-647, which enacted this section and was
approved Nov. 10, 1988.
-MISC1-
AMENDMENTS
1989 - Par. (1). Pub. L. 101-239, Sec. 7816(n)(1), substituted
"special estimated tax" for "separate estimated tax" in
introductory provisions and inserted "in taxable years beginning"
after "attributable to losses incurred" in subpar. (A).
Par. (2). Pub. L. 101-239, Sec. 7816(n)(2), amended first
sentence generally. Prior to amendment, first sentence read as
follows: "The deduction under paragraph (1) shall be allowed only
to the extent that special estimated tax payments are made in an
amount equal to the tax benefit attributable to such deduction, on
or before the date that any taxes (determined without regard to
this section) for the taxable year for which the deduction is
allowed are due to be paid."
Par. (5). Pub. L. 101-239, Sec. 7816(n)(3), inserted at end "To
the extent that any amount added to the special loss discount
account is not subtracted from such account before the 15th year
after the year for which the amount was so added, such amount shall
be subtracted from such account for such 15th year and included in
gross income for such 15th year."
Par. (8). Pub. L. 101-239, Sec. 7816(n)(6), inserted at end "The
limitations on consolidation contained in section 1503(c) shall not
apply to the deduction allowed under paragraph (1)."
Par. (9). Pub. L. 101-239, Sec. 7816(n)(5), added par. (9).
Former par. (9) redesignated (10).
Pub. L. 101-239, Sec. 7816(n)(4), added subpar. (C).
Par. (10). Pub. L. 101-239, Sec. 7816(n)(5), redesignated par.
(9) as (10).
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE
Section 6077(c) of Pub. L. 100-647 provided that: "The amendments
made by this section [enacting this section] shall apply to taxable
years beginning after December 31, 1987."
-End-
-CITE-
26 USC Sec. 848 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 848. Capitalization of certain policy acquisition expenses
-STATUTE-
(a) General rule
In the case of an insurance company -
(1) specified policy acquisition expenses for any taxable year
shall be capitalized, and
(2) such expenses shall be allowed as a deduction ratably over
the 120-month period beginning with the first month in the second
half of such taxable year.
(b) 5-year amortization for first $5,000,000 of specified policy
acquisition expenses
(1) In general
Paragraph (2) of subsection (a) shall be applied with respect
to so much of the specified policy acquisition expenses of an
insurance company for any taxable year as does not exceed
$5,000,000 by substituting "60-month" for "120-month".
(2) Phase-out
If the specified policy acquisition expenses of an insurance
company exceed $10,000,000 for any taxable year, the $5,000,000
amount under paragraph (1) shall be reduced (but not below zero)
by the amount of such excess.
(3) Special rule for members of controlled group
In the case of any controlled group -
(A) all insurance companies which are members of such group
shall be treated as 1 company for purposes of this subsection,
and
(B) the amount to which paragraph (1) applies shall be
allocated among such companies in such manner as the Secretary
may prescribe.
For purposes of the preceding sentence, the term "controlled
group" means any controlled group of corporations as defined in
section 1563(a); except that subsections (a)(4) and (b)(2)(D) of
section 1563 shall not apply, and subsection (b)(2)(C) of section
1563 shall not apply to the extent it excludes a foreign
corporation to which section 842 applies.
(4) Exception for acquisition expenses attributable to certain
reinsurance contracts
Paragraph (1) shall not apply to any specified policy
acquisition expenses for any taxable year which are attributable
to premiums or other consideration under any reinsurance
contract.
(c) Specified policy acquisition expenses
For purposes of this section -
(1) In general
The term "specified policy acquisition expenses" means, with
respect to any taxable year, so much of the general deductions
for such taxable year as does not exceed the sum of -
(A) 1.75 percent of the net premiums for such taxable year on
specified insurance contracts which are annuity contracts,
(B) 2.05 percent of the net premiums for such taxable year on
specified insurance contracts which are group life insurance
contracts, and
(C) 7.7 percent of the net premiums for such taxable year on
specified insurance contracts not described in subparagraph (A)
or (B).
(2) General deductions
The term "general deductions" means the deductions provided in
part VI of subchapter B (sec. 161 and following, relating to
itemized deductions) and in part I of subchapter D (sec. 401 and
following, relating to pension, profit sharing, stock bonus
plans, etc.).
(d) Net premiums
For purposes of this section -
(1) In general
The term "net premiums" means, with respect to any category of
specified insurance contracts set forth in subsection (c)(1), the
excess (if any) of -
(A) the gross amount of premiums and other consideration on
such contracts, over
(B) return premiums on such contracts and premiums and other
consideration incurred for reinsurance of such contracts.
The rules of section 803(b) shall apply for purposes of the
preceding sentence.
(2) Amounts determined on accrual basis
In the case of an insurance company subject to tax under part
II of this subchapter, all computations entering into
determinations of net premiums for any taxable year shall be made
in the manner required under section 811(a) for life insurance
companies.
(3) Treatment of certain policyholder dividends and similar
amounts
Net premiums shall be determined without regard to section
808(e) and without regard to other similar amounts treated as
paid to, and returned by, the policyholder.
(4) Special rules for reinsurance
(A) Premiums and other consideration incurred for reinsurance
shall be taken into account under paragraph (1)(B) only to the
extent such premiums and other consideration are includible in
the gross income of an insurance company taxable under this
subchapter or are subject to tax under this chapter by reason of
subpart F of part III of subchapter N.
(B) The Secretary shall prescribe such regulations as may be
necessary to ensure that premiums and other consideration with
respect to reinsurance are treated consistently by the ceding
company and the reinsurer.
(e) Classification of contracts
For purposes of this section -
(1) Specified insurance contract
(A) In general
Except as otherwise provided in this paragraph, the term
"specified insurance contract" means any life insurance,
annuity, or noncancellable accident and health insurance
contract (or any combination thereof).
(B) Exceptions
The term "specified insurance contract" shall not include -
(i) any pension plan contract (as defined in section
818(a)),
(ii) any flight insurance or similar contract,
(iii) any qualified foreign contract (as defined in section
807(e)(4) without regard to paragraph (5) of this
subsection),
(iv) any contract which is an Archer MSA (as defined in
section 220(d)), and
(v) any contract which is a health savings account (as
defined in section 223(d)).
(2) Group life insurance contract
The term "group life insurance contract" means any life
insurance contract -
(A) which covers a group of individuals defined by reference
to employment relationship, membership in an organization, or
similar factor,
(B) the premiums for which are determined on a group basis,
and
(C) the proceeds of which are payable to (or for the benefit
of) persons other than the employer of the insured, an
organization to which the insured belongs, or other similar
person.
(3) Treatment of annuity contracts combined with noncancellable
accident and health insurance
Any annuity contract combined with noncancellable accident and
health insurance shall be treated as a noncancellable accident
and health insurance contract and not as an annuity contract.
(4) Treatment of guaranteed renewable contracts
The rules of section 816(e) shall apply for purposes of this
section.
(5) Treatment of reinsurance contract
A contract which reinsures another contract shall be treated in
the same manner as the reinsured contract.
(f) Special rule where negative net premiums
(1) In general
If for any taxable year there is a negative capitalization
amount with respect to any category of specified insurance
contracts set forth in subsection (c)(1) -
(A) the amount otherwise required to be capitalized under
this section for such taxable year with respect to any other
category of specified insurance contracts shall be reduced (but
not below zero) by such negative capitalization amount, and
(B) such negative capitalization amount (to the extent not
taken into account under subparagraph (A)) -
(i) shall reduce (but not below zero) the unamortized
balance (as of the beginning of such taxable year) of the
amounts previously capitalized under subsection (a)
(beginning with the amount capitalized for the most recent
taxable year), and
(ii) to the extent taken into account as such a reduction,
shall be allowed as a deduction for such taxable year.
(2) Negative capitalization amount
For purposes of paragraph (1), the term "negative
capitalization amount" means, with respect to any category of
specified insurance contracts, the percentage (applicable under
subsection (c)(1) to such category) of the amount (if any) by
which -
(A) the amount determined under subparagraph (B) of
subsection (d)(1) with respect to such category, exceeds
(B) the amount determined under subparagraph (A) of
subsection (d)(1) with respect to such category.
(g) Treatment of certain ceding commissions
Nothing in any provision of law (other than this section or
section 197) shall require the capitalization of any ceding
commission incurred on or after September 30, 1990, under any
contract which reinsures a specified insurance contract.
(h) Secretarial authority to adjust capitalization amounts
(1) In general
Except as provided in paragraph (2), the Secretary may provide
that a type of insurance contract will be treated as a separate
category for purposes of this section (and prescribe a percentage
applicable to such category) if the Secretary determines that the
deferral of acquisition expenses for such type of contract which
would otherwise result under this section is substantially
greater than the deferral of acquisition expenses which would
have resulted if actual acquisition expenses (including indirect
expenses) and the actual useful life for such type of contract
had been used.
(2) Adjustment to other contracts
If the Secretary exercises his authority with respect to any
type of contract under paragraph (1), the Secretary shall adjust
the percentage which would otherwise have applied under
subsection (c)(1) to the category which includes such type of
contract so that the exercise of such authority does not result
in a decrease in the amount of revenue received under this
chapter by reason of this section for any fiscal year.
(i) Treatment of qualified foreign contracts under adjusted current
earnings preference
For purposes of determining adjusted current earnings under
section 56(g), acquisition expenses with respect to contracts
described in clause (iii) of subsection (e)(1)(B) shall be
capitalized and amortized in accordance with the treatment
generally required under generally accepted accounting principles
as if this subsection applied to such contracts for all taxable
years.
(j) Transitional rule
In the case of any taxable year which includes September 30,
1990, the amount taken into account as the net premiums (or
negative capitalization amount) with respect to any category of
specified insurance contracts shall be the amount which bears the
same ratio to the amount which (but for this subsection) would be
so taken into account as the number of days in such taxable year on
or after September 30, 1990, bears to the total number of days in
such taxable year.
-SOURCE-
(Added Pub. L. 101-508, title XI, Sec. 11301(a), Nov. 5, 1990, 104
Stat. 1388-445; amended Pub. L. 103-66, title XIII, Sec. 13261(d),
Aug. 10, 1993, 107 Stat. 539; Pub. L. 104-191, title III, Sec.
301(h), Aug. 21, 1996, 110 Stat. 2052; Pub. L. 106-554, Sec.
1(a)(7) [title II, Sec. 202(a)(5), (b)(10)], Dec. 21, 2000, 114
Stat. 2763, 2763A-628, 2763A-629; Pub. L. 108-173, title XII, Sec.
1201(h), Dec. 8, 2003, 117 Stat. 2479.)
-MISC1-
AMENDMENTS
2003 - Subsec. (e)(1)(B)(v). Pub. L. 108-173 added cl. (v).
2000 - Subsec. (e)(1)(B)(iv). Pub. L. 106-554, Sec. 1(a)(7)
[title II, Sec. 202(b)(10)], substituted "an Archer MSA" for "a
Archer MSA".
Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(5)],
substituted "Archer MSA" for "medical savings account".
1996 - Subsec. (e)(1)(B)(iv). Pub. L. 104-191 added cl. (iv).
1993 - Subsec. (g). Pub. L. 103-66 substituted "this section or
section 197" for "this section".
EFFECTIVE DATE OF 2003 AMENDMENT
Amendment by Pub. L. 108-173 applicable to taxable years
beginning after Dec. 31, 2003, see section 1201(k) of Pub. L. 108-
173, set out as a note under section 62 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-191 applicable to taxable years
beginning after Dec. 31, 1996, see section 301(j) of Pub. L. 104-
191, set out as a note under section 62 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable, except as otherwise
provided, with respect to property acquired after Aug. 10, 1993,
see section 13261(g) of Pub. L. 103-66, set out as an Effective
Date note under section 197 of this title.
EFFECTIVE DATE
Section 11301(d)(1) of Pub. L. 101-508 provided that: "The
amendments made by subsections (a) and (c) [enacting this section]
shall apply to taxable years ending on or after September 30, 1990.
Any capitalization required by reason of such amendments shall not
be treated as a change in method of accounting for purposes of the
Internal Revenue Code of 1986."
-End-
-CITE-
26 USC Subchapter M - Regulated Investment Companies and
Real Estate Investment Trusts 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
-HEAD-
SUBCHAPTER M - REGULATED INVESTMENT COMPANIES AND REAL ESTATE
INVESTMENT TRUSTS
-MISC1-
Part
I. Regulated investment companies.
II. Real estate investment trusts.
III. Provisions which apply to both regulated investment
companies and real estate investment trusts.
IV. Real estate mortgage investment conduits.
[V. Repealed.]
AMENDMENTS
2004 - Pub. L. 108-357, title VIII, Sec. 835(b)(12), Oct. 22,
2004, 118 Stat. 1594, struck out item for part V "Financial asset
securitization investment trusts".
1996 - Pub. L. 104-188, title I, Sec. 1621(c), Aug. 20, 1996, 110
Stat. 1867, added item for part V.
1988 - Pub. L. 100-647, title I, Sec. 1018(u)(30), Nov. 10, 1988,
102 Stat. 3591, added item for part IV.
1978 - Pub. L. 95-600, title III, Sec. 362(d)(8), Nov. 6, 1978,
92 Stat. 2852, added item for part III.
-End-
-CITE-
26 USC PART I - REGULATED INVESTMENT COMPANIES 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
PART I - REGULATED INVESTMENT COMPANIES
-MISC1-
Sec.
851. Definition of regulated investment company.
852. Taxation of regulated investment companies and their
shareholders.
853. Foreign tax credit allowed to shareholders.
854. Limitations applicable to dividends received from
regulated investment company.
855. Dividends paid by regulated investment company after
close of taxable year.
AMENDMENTS
1980 - Pub. L. 96-223, title IV, Sec. 404(b)(7), Apr. 2, 1980, 94
Stat. 307, inserted "and taxable interest" after "dividends" in
item 854 for taxable years after Dec. 31, 1980, and before Jan. 1,
1982.
1960 - Pub. L. 86-779, Sec. 10(b)(1), Sept. 14, 1960, 74 Stat.
1008, inserted "and Real Estate Investment Trusts" in subchapter M
heading, part I and part II designations thereunder and part I
designation preceding table of sections numbered 851 to 855.
-End-
-CITE-
26 USC Sec. 851 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
Sec. 851. Definition of regulated investment company
-STATUTE-
(a) General rule
For purposes of this subtitle, the term "regulated investment
company" means any domestic corporation -
(1) which, at all times during the taxable year -
(A) is registered under the Investment Company Act of 1940,
as amended (15 U.S.C. 80a-1 to 80b-2) as a management company
or unit investment trust, or
(B) has in effect an election under such Act to be treated as
a business development company, or
(2) which is a common trust fund or similar fund excluded by
section 3(c)(3) of such Act (15 U.S.C. 80a-3(c)) from the
definition of "investment company" and is not included in the
definition of "common trust fund" by section 584(a).
(b) Limitations
A corporation shall not be considered a regulated investment
company for any taxable year unless -
(1) it files with its return for the taxable year an election
to be a regulated investment company or has made such election
for a previous taxable year;
(2) at least 90 percent of its gross income is derived from -
(A) dividends, interest, payments with respect to securities
loans (as defined in section 512(a)(5)), and gains from the
sale or other disposition of stock or securities (as defined in
section 2(a)(36) of the Investment Company Act of 1940, as
amended) or foreign currencies, or other income (including but
not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in
such stock, securities, or currencies, and
(B) net income derived from an interest in a qualified
publicly traded partnership (as defined in subsection (h)); and
(3) at the close of each quarter of the taxable year -
(A) at least 50 percent of the value of its total assets is
represented by -
(i) cash and cash items (including receivables), Government
securities and securities of other regulated investment
companies, and
(ii) other securities for purposes of this calculation
limited, except and to the extent provided in subsection (e),
in respect of any one issuer to an amount not greater in
value than 5 percent of the value of the total assets of the
taxpayer and to not more than 10 percent of the outstanding
voting securities of such issuer, and
(B) not more than 25 percent of the value of its total assets
is invested in -
(i) the securities (other than Government securities or the
securities of other regulated investment companies) of any
one issuer,
(ii) the securities (other than the securities of other
regulated investment companies) of two or more issuers which
the taxpayer controls and which are determined, under
regulations prescribed by the Secretary, to be engaged in the
same or similar trades or businesses or related trades or
businesses, or
(iii) the securities of one or more qualified publicly
traded partnerships (as defined in subsection (h)).
For purposes of paragraph (2), there shall be treated as dividends
amounts included in gross income under section 951(a)(1)(A)(i) or
1293(a) for the taxable year to the extent that, under section
959(a)(1) or 1293(c) (as the case may be), there is a distribution
out of the earnings and profits of the taxable year which are
attributable to the amounts so included. For purposes of paragraph
(2), the Secretary may by regulation exclude from qualifying income
foreign currency gains which are not directly related to the
company's principal business of investing in stock or securities
(or options and futures with respect to stock or securities). For
purposes of paragraph (2), amounts excludable from gross income
under section 103(a) shall be treated as included in gross income.
Income derived from a partnership (other than a qualified publicly
traded partnership as defined in subsection (h)) or trust shall be
treated as described in paragraph (2) only to the extent such
income is attributable to items of income of the partnership or
trust (as the case may be) which would be described in paragraph
(2) if realized by the regulated investment company in the same
manner as realized by the partnership or trust.
(c) Rules applicable to subsection (b)(3)
For purposes of subsection (b)(3) and this subsection -
(1) In ascertaining the value of the taxpayer's investment in
the securities of an issuer, for the purposes of subparagraph
(B), there shall be included its proper proportion of the
investment of any other corporation, a member of a controlled
group, in the securities of such issuer, as determined under
regulations prescribed by the Secretary.
(2) The term "controls" means the ownership in a corporation of
20 percent or more of the total combined voting power of all
classes of stock entitled to vote.
(3) The term "controlled group" means one or more chains of
corporations connected through stock ownership with the taxpayer
if -
(A) 20 percent or more of the total combined voting power of
all classes of stock entitled to vote of each of the
corporations (except the taxpayer) is owned directly by one or
more of the other corporations, and
(B) the taxpayer owns directly 20 percent or more of the
total combined voting power of all classes of stock entitled to
vote, of at least one of the other corporations.
(4) The term "value" means, with respect to securities (other
than those of majority-owned subsidiaries) for which market
quotations are readily available, the market value of such
securities; and with respect to other securities and assets, fair
value as determined in good faith by the board of directors,
except that in the case of securities of majority-owned
subsidiaries which are investment companies such fair value shall
not exceed market value or asset value, whichever is higher.
(5) The term "outstanding voting securities of such issuer"
shall include the equity securities of a qualified publicly
traded partnership (as defined in subsection (h)).
(6) All other terms shall have the same meaning as when used in
the Investment Company Act of 1940, as amended.
(d) Determination of status
A corporation which meets the requirements of subsections (b)(3)
and (c) at the close of any quarter shall not lose its status as a
regulated investment company because of a discrepancy during a
subsequent quarter between the value of its various investments and
such requirements unless such discrepancy exists immediately after
the acquisition of any security or other property and is wholly or
partly the result of such acquisition. A corporation which does not
meet such requirements at the close of any quarter by reason of a
discrepancy existing immediately after the acquisition of any
security or other property which is wholly or partly the result of
such acquisition during such quarter shall not lose its status for
such quarter as a regulated investment company if such discrepancy
is eliminated within 30 days after the close of such quarter and in
such cases it shall be considered to have met such requirements at
the close of such quarter for purposes of applying the preceding
sentence.
(e) Investment companies furnishing capital to development
corporations
(1) General rule
If the Securities and Exchange Commission determines, in
accordance with regulations issued by it, and certifies to the
Secretary not earlier than 60 days prior to the close of the
taxable year of a management company or a business development
company described in subsection (a)(1), that such investment
company is principally engaged in the furnishing of capital to
other corporations which are principally engaged in the
development or exploitation of inventions, technological
improvements, new processes, or products not previously generally
available, such investment company may, in the computation of 50
percent of the value of its assets under subparagraph (A) of
subsection (b)(3) for any quarter of such taxable year, include
the value of any securities of an issuer, whether or not the
investment company owns more than 10 percent of the outstanding
voting securities of such issuer, the basis of which, when added
to the basis of the investment company for securities of such
issuer previously acquired, did not exceed 5 percent of the value
of the total assets of the investment company at the time of the
subsequent acquisition of securities. The preceding sentence
shall not apply to the securities of an issuer if the investment
company has continuously held any security of such issuer (or of
any predecessor company of such issuer as determined under
regulations prescribed by the Secretary) for 10 or more years
preceding such quarter of such taxable year.
(2) Limitation
The provisions of this subsection shall not apply at the close
of any quarter of a taxable year to an investment company if at
the close of such quarter more than 25 percent of the value of
its total assets is represented by securities of issuers with
respect to each of which the investment company holds more than
10 percent of the outstanding voting securities of such issuer
and in respect of each of which or any predecessor thereof the
investment company has continuously held any security for 10 or
more years preceding such quarter unless the value of its total
assets so represented is reduced to 25 percent or less within 30
days after the close of such quarter.
(3) Determination of status
For purposes of this subsection, unless the Securities and
Exchange Commission determines otherwise, a corporation shall be
considered to be principally engaged in the development or
exploitation of inventions, technological improvements, new
processes, or products not previously generally available, for at
least 10 years after the date of the first acquisition of any
security in such corporation or any predecessor thereof by such
investment company if at the date of such acquisition the
corporation or its predecessor was principally so engaged, and an
investment company shall be considered at any date to be
furnishing capital to any company whose securities it holds if
within 10 years prior to such date it has acquired any of such
securities, or any securities surrendered in exchange therefor,
from such other company or predecessor thereof. For purposes of
the certification under this subsection, the Securities and
Exchange Commission shall have authority to issue such rules,
regulations and orders, and to conduct such investigations and
hearings, either public or private, as it may deem appropriate.
(4) Definitions
The terms used in this subsection shall have the same meaning
as in subsections (b)(3) and (c) of this section.
(f) Certain unit investment trusts
For purposes of this title -
(1) A unit investment trust (as defined in the Investment
Company Act of 1940) -
(A) which is registered under such Act and issues periodic
payment plan certificates (as defined in such Act) in one or
more series,
(B) substantially all of the assets of which, as to all such
series, consist of (i) securities issued by a single management
company (as defined in such Act) and securities acquired
pursuant to subparagraph (C), or (ii) securities issued by a
single other corporation, and
(C) which has no power to invest in any other securities
except securities issued by a single other management company,
when permitted by such Act or the rules and regulations of the
Securities and Exchange Commission,
shall not be treated as a person.
(2) In the case of a unit investment trust described in
paragraph (1) -
(A) each holder of an interest in such trust shall, to the
extent of such interest, be treated as owning a proportionate
share of the assets of such trust;
(B) the basis of the assets of such trust which are treated
under subparagraph (A) as being owned by a holder of an
interest in such trust shall be the same as the basis of his
interest in such trust; and
(C) in determining the period for which the holder of an
interest in such trust has held the assets of the trust which
are treated under subparagraph (A) as being owned by him, there
shall be included the period for which such holder has held his
interest in such trust.
This subsection shall not apply in the case of a unit investment
trust which is a segregated asset account under the insurance laws
or regulations of a State.
(g) Special rule for series funds
(1) In general
In the case of a regulated investment company (within the
meaning of subsection (a)) having more than one fund, each fund
of such regulated investment company shall be treated as a
separate corporation for purposes of this title (except with
respect to the definitional requirement of subsection (a)).
(2) Fund defined
For purposes of paragraph (1) the term "fund" means a
segregated portfolio of assets, the beneficial interests in which
are owned by the holders of a class or series of stock of the
regulated investment company that is preferred over all other
classes or series in respect of such portfolio of assets.
(h) Qualified publicly traded partnership
For purposes of this section, the term "qualified publicly traded
partnership" means a publicly traded partnership described in
section 7704(b) other than a partnership which would satisfy the
gross income requirements of section 7704(c)(2) if qualifying
income included only income described in subsection (b)(2)(A).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 268; Pub. L. 85-866, title I,
Sec. 38, Sept. 2, 1958, 72 Stat. 1638; Pub. L. 91-172, title IX,
Sec. 908(a), Dec. 30, 1969, 83 Stat. 717; Pub. L. 94-12, title VI,
Sec. 602(a)(2), Mar. 29, 1975, 89 Stat. 58; Pub. L. 94-455, title
XIX, Secs. 1901(a)(109), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1783, 1834; Pub. L. 95-345, Sec. 2(a)(3), Aug. 15, 1978, 92 Stat.
481; Pub. L. 95-600, title VII, Sec. 701(s)(1), Nov. 6, 1978, 92
Stat. 2911; Pub. L. 97-424, title V, Sec. 547(b)(1), Jan. 6, 1983,
96 Stat. 2199; Pub. L. 98-369, div. A, title X, Sec. 1071(a)(1),
July 18, 1984, 98 Stat. 1049; Pub. L. 99-514, title VI, Secs.
652(a), (b), 653(a)-(c), 654(a), title XII, Sec. 1235(f)(3), Oct.
22, 1986, 100 Stat. 2297, 2298, 2575; Pub. L. 100-647, title I,
Sec. 1006(m), (n)(1), (2)(A), (B), (4), (5), (o), Nov. 10, 1988,
102 Stat. 3415, 3416; Pub. L. 105-34, title XII, Sec. 1271(a)-
(b)(7), Aug. 5, 1997, 111 Stat. 1036, 1037; Pub. L. 108-357, title
III, Sec. 331(a)-(d), (f), Oct. 22, 2004, 118 Stat. 1476.)
-REFTEXT-
REFERENCES IN TEXT
The Investment Company Act of 1940, as amended, referred to in
subsecs. (a)(1), (b)(2)(A), (c)(6), and (f)(1), is title I of act
Aug. 22, 1940, ch. 686, 54 Stat. 789, as amended, which is
classified generally to subchapter I (Sec. 80a-1 et seq.) of
chapter 2D of Title 15, Commerce and Trade. Section 2(a)(36) of the
Act is classified to section 80a-2(a)(36) of Title 15. For complete
classification of this Act to the Code, see section 80a-51 of Title
15 and Tables.
-MISC1-
AMENDMENTS
2004 - Subsec. (b). Pub. L. 108-357, Sec. 331(b), inserted
"(other than a qualified publicly traded partnership as defined in
subsection (h))" after "derived from a partnership" in concluding
provisions.
Subsec. (b)(2). Pub. L. 108-357, Sec. 331(a), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: "at least
90 percent of its gross income is derived from dividends, interest,
payments with respect to securities loans (as defined in section
512(a)(5)), and gains from the sale or other disposition of stock
or securities (as defined in section 2(a)(36) of the Investment
Company Act of 1940, as amended) or foreign currencies, or other
income (including but not limited to gains from options, futures,
or forward contracts) derived with respect to its business of
investing in such stock, securities, or currencies; and".
Subsec. (b)(3)(B). Pub. L. 108-357, Sec. 331(f), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
"not more than 25 percent of the value of its total assets is
invested in the securities (other than Government securities or the
securities of other regulated investment companies) of any one
issuer, or of two or more issuers which the taxpayer controls and
which are determined, under regulations prescribed by the
Secretary, to be engaged in the same or similar trades or
businesses or related trades or businesses."
Subsec. (c)(5), (6). Pub. L. 108-357, Sec. 331(c), added par. (5)
and redesignated former par. (5) as (6).
Subsec. (h). Pub. L. 108-357, Sec. 331(d), added subsec. (h).
1997 - Subsec. (b). Pub. L. 105-34, Sec. 1271(b)(1), in
concluding provisions, substituted "paragraph (2), amounts
excludable" for "paragraphs (2) and (3), amounts excludable" and
struck out "In the case of the taxable year in which a regulated
investment company is completely liquidated, there shall not be
taken into account under paragraph (3) any gain from the sale,
exchange, or distribution of any property after the adoption of the
plan of complete liquidation." at end.
Subsec. (b)(2). Pub. L. 105-34, Sec. 1271(a), inserted "and" at
end.
Subsec. (b)(3), (4). Pub. L. 105-34, Sec. 1271(a), redesignated
par. (4) as (3) and struck out former par. (3) which read as
follows: "less than 30 percent of its gross income is derived from
the sale or disposition of any of the following which was held for
less than 3 months:
"(A) stock or securities (as defined in section 2(a)(36) of the
Investment Company Act of 1940, as amended),
"(B) options, futures, or forward contracts (other than
options, futures, or forward contracts on foreign currencies), or
"(C) foreign currencies (or options, futures, or forward
contracts on foreign currencies) but only if such currencies (or
options, futures, or forward contracts) are not directly related
to the company's principal business of investing in stock or
securities (or options and futures with respect to stocks or
securities), and".
Subsec. (c). Pub. L. 105-34, Sec. 1271(b)(2), substituted
"subsection (b)(3)" for "subsection (b)(4)" in heading and
introductory provisions.
Subsec. (d). Pub. L. 105-34, Sec. 1271(b)(3), substituted
"subsections (b)(3)" for "subsections (b)(4)".
Subsec. (e)(1). Pub. L. 105-34, Sec. 1271(b)(4), substituted
"subsection (b)(3)" for "subsection (b)(4)".
Subsec. (e)(4). Pub. L. 105-34, Sec. 1271(b)(5), substituted
"subsections (b)(3)" for "subsections (b)(4)".
Subsec. (g). Pub. L. 105-34, Sec. 1271(b)(6), redesignated
subsec. (h) as (g) and struck out former subsec. (g) which provided
for treatment of certain hedging transactions.
Subsec. (g)(3). Pub. L. 105-34, Sec. 1271(b)(7), struck out par.
(3) which provided special rule for abnormal redemptions.
Subsec. (h). Pub. L. 105-34, Sec. 1271(b)(6), redesignated
subsec. (h) as (g).
1988 - Subsec. (a)(1). Pub. L. 100-647, Sec. 1006(m)(1), amended
par. (1) generally. Prior to amendment, par. (1) read as follows:
"which, at all times during the taxable year, is registered under
the Investment Company Act of 1940, as amended (15 U.S.C. 80a-1 to
80b-2), as a management company, business development company, or
unit investment trust, or".
Subsec. (b). Pub. L. 100-647, Sec. 1006(n)(1), (5), inserted at
end "Income derived from a partnership or trust shall be treated as
described in paragraph (2) only to the extent such income is
attributable to items of income of the partnership or trust (as the
case may be) which would be described in paragraph (2) if realized
by the regulated investment company in the same manner as realized
by the partnership or trust. In the case of the taxable year in
which a regulated investment company is completely liquidated,
there shall not be taken into account under paragraph (3) any gain
from the sale, exchange, or distribution of any property after the
adoption of the plan of complete liquidation."
Pub. L. 100-647, Sec. 1006(n)(2)(B), substituted "which are not
directly related" for "which are not ancillary" in last sentence.
Subsec. (b)(3). Pub. L. 100-647, Sec. 1006(n)(2)(A), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "less
than 30 percent of its gross income is derived from the sale or
other disposition of stock or securities held for less than 3
months; and".
Subsec. (e)(1). Pub. L. 100-647, Sec. 1006(m)(2), substituted "a
management company or a business development company described in
subsection (a)(1)" for "a registered management company or
registered business development company".
Subsec. (g)(2)(A)(i). Pub. L. 100-647, Sec. 1006(n)(4),
substituted "contractual obligation" for "contractual option".
Subsec. (h). Pub. L. 100-647, Sec. 1006(o)(1), redesignated
subsec. (q) as (h).
Subsec. (h)(3). Pub. L. 100-647, Sec. 1006(o)(2), added par. (3).
Subsec. (q). Pub. L. 100-647, Sec. 1006(o)(1), redesignated
subsec. (q) as (h).
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 652(a), substituted
"as a management company, business development company, or unit
investment trust" for "either as a management company or as a unit
investment trust".
Subsec. (b). Pub. L. 99-514, Sec. 1235(f)(3), inserted "or
1293(a)" and "or 1293(c) (as the case may be)", in concluding
provision.
Pub. L. 99-514, Sec. 653(c), inserted before last sentence "For
purposes of paragraph (2), the Secretary may by regulation exclude
from qualifying income foreign currency gains which are not
ancillary to the company's principal business of investing in stock
or securities (or options and futures with respect to stock or
securities)."
Subsec. (b)(2). Pub. L. 99-514, Sec. 653(b), inserted "(as
defined in section 2(a)(36) of the Investment Company Act of 1940,
as amended) or foreign currencies, or other income (including but
not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock,
securities, or currencies".
Subsec. (e)(1). Pub. L. 99-514, Sec. 652(b), substituted
"registered management company or registered business development
company" for "registered management company".
Subsec. (g). Pub. L. 99-514, Sec. 653(a), added subsec. (g).
Subsec. (q). Pub. L. 99-514, Sec. 654(a), added subsec. (q).
1984 - Subsec. (a). Pub. L. 98-369 struck out "(other than a
personal holding company as defined in section 542)" after "any
domestic corporation" in introductory provisions.
1983 - Subsec. (b). Pub. L. 97-424 substituted "section 103(a)"
for "section 103(a)(1)" after "gross income under".
1978 - Subsec. (b). Pub. L. 95-600 required that for purposes of
pars. (2) and (3), amounts excludable from gross income under
section 103(a)(1) shall be treated as included in gross income.
Subsec. (b)(2). Pub. L. 95-345 inserted provision relating to
payments with respect to securities loans.
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1901(a)(109)(A),
struck out "54 Stat. 789;" before "15 U.S.C. 80a-1 to 80b-2)".
Subsec. (b)(1), (4)(B). Pub. L. 94-455, Sec. 1901(a)(109)(B),
struck out "which began after December 31, 1941" after "previous
taxable year" in par. (1), and "or his delegate" after "Secretary"
in par. (4)(B).
Subsecs. (c), (d). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" wherever appearing.
1975 - Subsec. (b). Pub. L. 94-12 inserted provisions directing
that, for purposes of par. (2), there shall be treated as dividends
amounts included in gross income under section 951(a)(1)(A)(i) for
the taxable year to the extent that, under section 959(a)(1), there
is a distribution out of earnings and profits of the taxable year
which are attributable to the amounts so included.
1969 - Subsec. (f). Pub. L. 91-172 added subsec. (f).
1958 - Subsec. (e)(1). Pub. L. 85-866, Sec. 38(a), substituted
"not earlier than 60 days" for "not less than 60 days" in first
sentence.
Subsec. (e)(2). Pub. L. 85-866, Sec. 38(b), substituted "issuer"
for "issues".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to taxable years
beginning after Oct. 22, 2004, see section 331(h) of Pub. L. 108-
357, set out as a note under section 469 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years beginning
after Aug. 5, 1997, see section 1271(c) of Pub. L. 105-34, set out
as a note under section 817 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(n)(2)(C) of Pub. L. 100-647 provided that:
"Subparagraph (C) of section 851(b)(3) of the 1986 Code (as amended
by subparagraph (A)), and the amendment made by subparagraph (B)
[amending this section], shall apply to taxable years beginning
after the date of the enactment of this Act [Nov. 10, 1988]."
Amendment by section 1006(m), (n)(1), (2)(A), (4), (5), (o) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L. 99-
514, to which such amendment relates, see section 1019(a) of Pub.
L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 652(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1986."
Section 653(d) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [Oct.
22, 1986]."
Section 654(b) of Pub. L. 99-514 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to taxable years beginning after the date
of the enactment of this Act [Oct. 22, 1986].
"(2) Treatment of certain existing series funds. - In the case of
a regulated investment company which has more than one fund on the
date of the enactment of this act, and has before such date been
treated for Federal income tax purposes as a single corporation -
"(A) the amendment made by subsection (a), and the resulting
treatment of each fund as a separate corporation, shall not give
rise to the realization or recognition of income or loss by such
regulated investment company, its funds, or its shareholders, and
"(B) the tax attributes of such regulated investment company
shall be appropriately allocated among its funds."
Amendment by section 1235(f)(3) of Pub. L. 99-514 applicable to
taxable years of foreign corporations beginning after Dec. 31,
1986, see section 1235(h) of Pub. L. 99-514, set out as an
Effective Date note under section 1291 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1982, with certain exceptions, see section
1071(a)(5) of Pub. L. 98-369, set out as a note under section 852
of this title.
EFFECTIVE DATE OF 1978 AMENDMENTS
Section 701(s)(3) of Pub. L. 95-600 provided that: "The
amendments made by this section [amending this section and section
852 of this title] shall apply to taxable years beginning after
December 31, 1975."
Amendment by Pub. L. 95-345 applicable with respect to amounts
received after Dec. 31, 1976, as payments with respect to
securities loans (as defined in section 512(a)(5) of this title),
and transfers of securities, under agreements described in section
1058 of this title, occurring after such date, see section 2(e) of
Pub. L. 95-345, set out as a note under section 509 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(109) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 applicable to taxable years of foreign
corporations beginning after Dec. 31, 1975, and to taxable years of
United States shareholders (within the meaning of section 951(b) of
this title) within which or with which such taxable years of such
foreign corporations end, see section 602(f) of Pub. L. 94-12, set
out as an Effective Date note under section 955 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 908(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years of unit investment trusts ending after December 31,
1968, and to taxable years of holders of interests in such trusts
ending with or within such taxable years of such trusts. The
enactment of this section shall not be construed to result in the
realization of gain or loss by any unit investment trust or by any
holder of an interest in a unit investment trust."
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
-End-
-CITE-
26 USC Sec. 852 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
Sec. 852. Taxation of regulated investment companies and their
shareholders
-STATUTE-
(a) Requirements applicable to regulated investment companies
The provisions of this part (other than subsection (c) of this
section) shall not be applicable to a regulated investment company
for a taxable year unless -
(1) the deduction for dividends paid during the taxable year
(as defined in section 561, but without regard to capital gain
dividends) equals or exceeds the sum of -
(A) 90 percent of its investment company taxable income for
the taxable year determined without regard to subsection
(b)(2)(D); and
(B) 90 percent of the excess of (i) its interest income
excludable from gross income under section 103(a) over (ii) its
deductions disallowed under sections 265, 171(a)(2), and
(2) either -
(A) the provisions of this part applied to the investment
company for all taxable years ending on or after November 8,
1983, or
(B) as of the close of the taxable year, the investment
company has no earnings and profits accumulated in any taxable
year to which the provisions of this part (or the corresponding
provisions of prior law) did not apply to it.
The Secretary may waive the requirements of paragraph (1) for any
taxable year if the regulated investment company establishes to the
satisfaction of the Secretary that it was unable to meet such
requirements by reason of distributions previously made to meet the
requirements of section 4982.
(b) Method of taxation of companies and shareholders
(1) Imposition of tax on regulated investment companies
There is hereby imposed for each taxable year upon the
investment company taxable income of every regulated investment
company a tax computed as provided in section 11, as though the
investment company taxable income were the taxable income
referred to in section 11. In the case of a regulated investment
company which is a personal holding company (as defined in
section 542) or which fails to comply for the taxable year with
regulations prescribed by the Secretary for the purpose of
ascertaining the actual ownership of its stock, such tax shall be
computed at the highest rate of tax specified in section 11(b).
(2) Investment company taxable income
The investment company taxable income shall be the taxable
income of the regulated investment company adjusted as follows:
(A) There shall be excluded the amount of the net capital
gain, if any.
(B) The net operating loss deduction provided in section 172
shall not be allowed.
(C) The deductions for corporations provided in part VIII
(except section 248) in subchapter B (section 241 and
following, relating to the deduction for dividends received,
etc.) shall not be allowed.
(D) the (!1) deduction for dividends paid (as defined in
section 561) shall be allowed, but shall be computed without
regard to capital gain dividends and exempt-interest dividends.
(E) The taxable income shall be computed without regard to
section 443(b) (relating to computation of tax on change of
annual accounting period).
(F) The taxable income shall be computed without regard to
section 454(b) (relating to short-term obligations issued on a
discount basis) if the company so elects in a manner prescribed
by the Secretary.
(3) Capital gains
(A) Imposition of tax
There is hereby imposed for each taxable year in the case of
every regulated investment company a tax, determined as
provided in section 1201(a), on the excess, if any, of the net
capital gain over the deduction for dividends paid (as defined
in section 561) determined with reference to capital gain
dividends only.
(B) Treatment of capital gain dividends by shareholders
A capital gain dividend shall be treated by the shareholders
as a gain from the sale or exchange of a capital asset held for
more than 1 year.
(C) Definition of capital gain dividend
For purposes of this part, a capital gain dividend is any
dividend, or part thereof, which is designated by the company
as a capital gain dividend in a written notice mailed to its
shareholders not later than 60 days after the close of its
taxable year; except that, if there is an increase in the
excess described in subparagraph (A) of this paragraph for such
year which results from a determination (as defined in section
860(e)), such designation may be made with respect to such
increase at any time before the expiration of 120 days after
the date of such determination. If the aggregate amount so
designated with respect to a taxable year of the company
(including capital gains dividends paid after the close of the
taxable year described in section 855) is greater than the net
capital gain of the taxable year, the portion of each
distribution which shall be a capital gain dividend shall be
only that proportion of the amount so designated which such net
capital gain bears to the aggregate amount so designated. For
purposes of this subparagraph, the amount of the net capital
gain for a taxable year (to which an election under section
4982(e)(4) does not apply) shall be determined without regard
to any net capital loss or net long-term capital loss
attributable to transactions after October 31 of such year, and
any such net capital loss or net long-term capital loss shall
be treated as arising on the 1st day of the next taxable year.
To the extent provided in regulations, the preceding sentence
shall apply also for purposes of computing the taxable income
of the regulated investment company.
(D) Treatment by shareholders of undistributed capital gains
(i) Every shareholder of a regulated investment company at
the close of the company's taxable year shall include, in
computing his long-term capital gains in his return for his
taxable year in which the last day of the company's taxable
year falls, such amount as the company shall designate in
respect of such shares in a written notice mailed to its
shareholders at any time prior to the expiration of 60 days
after close of its taxable year, but the amount so includible
by any shareholder shall not exceed that part of the amount
subjected to tax in subparagraph (A) which he would have
received if all of such amount had been distributed as capital
gain dividends by the company to the holders of such shares at
the close of its taxable year.
(ii) For purposes of this title, every such shareholder shall
be deemed to have paid, for his taxable year under clause (i),
the tax imposed by subparagraph (A) on the amounts required by
this subparagraph to be included in respect of such shares in
computing his long-term capital gains for that year; and such
shareholder shall be allowed credit or refund, as the case may
be, for the tax so deemed to have been paid by him.
(iii) The adjusted basis of such shares in the hands of the
shareholder shall be increased, with respect to the amounts
required by this subparagraph to be included in computing his
long-term capital gains, by the difference between the amount
of such includible gains and the tax deemed paid by such
shareholder in respect of such shares under clause (ii).
(iv) In the event of such designation the tax imposed by
subparagraph (A) shall be paid by the regulated investment
company within 30 days after close of its taxable year.
(v) The earnings and profits of such regulated investment
company, and the earnings and profits of any such shareholder
which is a corporation, shall be appropriately adjusted in
accordance with regulations prescribed by the Secretary.
(4) Loss on sale or exchange of stock held 6 months or less
(A) Loss attributable to capital gain dividend
If -
(i) subparagraph (B) or (D) of paragraph (3) provides that
any amount with respect to any share is to be treated as long-
term capital gain, and
(ii) such share is held by the taxpayer for 6 months or
less,
then any loss (to the extent not disallowed under subparagraph
(B)) on the sale or exchange of such share shall, to the extent
of the amount described in clause (i), be treated as a long-
term capital loss.
(B) Loss attributable to exempt-interest dividend
If -
(i) a shareholder of a regulated investment company
receives an exempt-interest dividend with respect to any
share, and
(ii) such share is held by the taxpayer for 6 months or
less,
then any loss on the sale or exchange of such share shall, to
the extent of the amount of such exempt-interest dividend, be
disallowed.
(C) Determination of holding periods
For purposes of this paragraph, the rules of paragraphs (3)
and (4) of section 246(c) shall apply in determining the period
for which the taxpayer has held any share of stock; except that
"6 months" shall be substituted for each number of days
specified in subparagraph (B) (!2) of section 246(c)(3).
(D) Losses incurred under a periodic liquidation plan
To the extent provided in regulations, subparagraphs (A) and
(B) shall not apply to losses incurred on the sale or exchange
of shares of stock in a regulated investment company pursuant
to a plan which provides for the periodic liquidation of such
shares.
(E) Authority to shorten required holding period
In the case of a regulated investment company which regularly
distributes at least 90 percent of its net tax-exempt interest,
the Secretary may by regulations prescribe that subparagraph
(B) (and subparagraph (C) to the extent it relates to
subparagraph (B)) shall be applied on the basis of a holding
period requirement shorter than 6 months; except that such
shorter holding period requirement shall not be shorter than
the greater of 31 days or the period between regular
distributions of exempt-interest dividends.
(5) Exempt-interest dividends
If, at the close of each quarter of its taxable year, at least
50 percent of the value (as defined in section 851(c)(4)) of the
total assets of the regulated investment company consists of
obligations described in section 103(a), such company shall be
qualified to pay exempt-interest dividends, as defined herein, to
its shareholders.
(A) Definition
An exempt-interest dividend means any dividend or part
thereof (other than a capital gain dividend) paid by a
regulated investment company and designated by it as an exempt-
interest dividend in a written notice mailed to its
shareholders not later than 60 days after the close of its
taxable year. If the aggregate amount so designated with
respect to a taxable year of the company (including exempt-
interest dividends paid after the close of the taxable year as
described in section 855) is greater than the excess of -
(i) the amount of interest excludable from gross income
under section 103(a), over
(ii) the amounts disallowed as deductions under sections
265 and 171(a)(2),
the portion of such distribution which shall constitute an
exempt-interest dividend shall be only that proportion of the
amount so designated as the amount of such excess for such
taxable year bears to the amount so designated.
(B) Treatment of exempt-interest dividends by shareholders
An exempt-interest dividend shall be treated by the
shareholders for all purposes of this subtitle as an item of
interest excludable from gross income under section 103(a).
Such purposes include but are not limited to -
(i) the determination of gross income and taxable income,
(ii) the determination of distributable net income under
subchapter J,
(iii) the allowance of, or calculation of the amount of,
any credit or deduction, and
(iv) the determination of the basis in the hands of any
shareholder of any share of stock of the company.
(6) Section 311(b) not to apply to certain distributions
Section 311(b) shall not apply to any distribution by a
regulated investment company to which this part applies, if such
distribution is in redemption of its stock upon the demand of the
shareholder.
(7) Time certain dividends taken into account
For purposes of this title, any dividend declared by a
regulated investment company in October, November, or December of
any calendar year and payable to shareholders of record on a
specified date in such a month shall be deemed -
(A) to have been received by each shareholder on December 31
of such calendar year, and
(B) to have been paid by such company on December 31 of such
calendar year (or, if earlier, as provided in section 855).
The preceding sentence shall apply only if such dividend is
actually paid by the company during January of the following
calendar year.
(8) Special rule for treatment of certain foreign currency losses
To the extent provided in regulations, the taxable income of a
regulated investment company (other than a company to which an
election under section 4982(e)(4) applies) shall be computed
without regard to any net foreign currency loss attributable to
transactions after October 31 of such year, and any such net
foreign currency loss shall be treated as arising on the 1st day
of the following taxable year.
(9) Dividends treated as received by company on ex-dividend date
For purposes of this title, if a regulated investment company
is the holder of record of any share of stock on the record date
for any dividend payable with respect to such stock, such
dividend shall be included in gross income by such company as of
the later of -
(A) the date such share became ex-dividend with respect to
such dividend, or
(B) the date such company acquired such share.
(10) Special rule for certain losses on stock in passive foreign
investment company
To the extent provided in regulations, the taxable income of a
regulated investment company (other than a company to which an
election under section 4982(e)(4) applies) shall be computed
without regard to any net reduction in the value of any stock of
a passive foreign investment company with respect to which an
election under section 1296(k) is in effect occurring after
October 31 of the taxable year, and any such reduction shall be
treated as occurring on the first day of the following taxable
year.
(c) Earnings and profits
(1) In general
The earnings and profits of a regulated investment company for
any taxable year (but not its accumulated earnings and profits)
shall not be reduced by any amount which is not allowable as a
deduction in computing its taxable income for such taxable year.
For purposes of this subsection, the term "regulated investment
company" includes a domestic corporation which is a regulated
investment company determined without regard to the requirements
of subsection (a).
(2) Coordination with tax on undistributed income
For purposes of applying this chapter to distributions made by
a regulated investment company with respect to any calendar year,
the earnings and profits of such company shall be determined
without regard to any net capital loss (or net foreign currency
loss) attributable to transactions after October 31 of such year,
without regard to any net reduction in the value of any stock of
a passive foreign investment company with respect to which an
election under section 1296(k) is in effect occurring after
October 31 of such year, and with such other adjustments as the
Secretary may by regulations prescribe. The preceding sentence
shall apply -
(A) only to the extent that the amount distributed by the
company with respect to the calendar year does not exceed the
required distribution for such calendar year (as determined
under section 4982 by substituting "100 percent" for each
percentage set forth in section 4982(b)(1)), and
(B) except as provided in regulations, only if an election
under section 4982(e)(4) is not in effect with respect to such
company.
(3) Distributions to meet requirements of subsection (a)(2)(B)
Any distribution which is made in order to comply with the
requirements of subsection (a)(2)(B) -
(A) shall be treated for purposes of this subsection and
subsection (a)(2)(B) as made from earnings and profits which,
but for the distribution, would result in a failure to meet
such requirements (and allocated to such earnings on a first-
in, first-out basis), and
(B) to the extent treated under subparagraph (A) as made from
accumulated earnings and profits, shall not be treated as a
distribution for purposes of subsection (b)(2)(D) and section
855.
(d) Distributions in redemption of interests in unit investment
trusts
In the case of a unit investment trust -
(1) which is registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1 and following) and issues periodic payment
plan certificates (as defined in such Act), and
(2) substantially all of the assets of which consist of
securities issued by a management company (as defined in such
Act),
section 562(c) (relating to preferential dividends) shall not apply
to a distribution by such trust to a holder of an interest in such
trust in redemption of part or all of such interest, with respect
to the capital gain net income of such trust attributable to such
redemption.
(e) Procedures similar to deficiency dividend procedures made
applicable
(1) In general
If -
(A) there is a determination that the provisions of this part
do not apply to an investment company for any taxable year
(hereinafter in this subsection referred to as the "non-RIC
year"), and
(B) such investment company meets the distribution
requirements of paragraph (2) with respect to the non-RIC year,
for purposes of applying subsection (a)(2) to subsequent taxable
years, the provisions of this part shall be treated as applying
to such investment company for the non-RIC year. If the
determination under subparagraph (A) is solely as a result of the
failure to meet the requirements of subsection (a)(2), the
preceding sentence shall also apply for purposes of applying
subsection (a)(2) to the non-RIC year and the amount referred to
in paragraph (2)(A)(i) shall be the portion of the accumulated
earnings and profits which resulted in such failure.
(2) Distribution requirements
(A) In general
The distribution requirements of this paragraph are met with
respect to any non-RIC year if, within the 90-day period
beginning on the date of the determination (or within such
longer period as the Secretary may permit), the investment
company makes 1 or more qualified designated distributions and
the amount of such distributions is not less than the excess of
-
(i) the portion of the accumulated earnings and profits of
the investment company (as of the date of the determination)
which are attributable to the non-RIC year, over
(ii) any interest payable under paragraph (3).
(B) Qualified designated distribution
For purposes of this paragraph, the term "qualified
designated distribution" means any distribution made by the
investment company if -
(i) section 301 applies to such distribution, and
(ii) such distribution is designated (at such time and in
such manner as the Secretary shall by regulations prescribe)
as being taken into account under this paragraph with respect
to the non-RIC year.
(C) Effect on dividends paid deduction
Any qualified designated distribution shall not be included
in the amount of dividends paid for purposes of computing the
dividends paid deduction for any taxable year.
(3) Interest charge
(A) In general
If paragraph (1) applies to any non-RIC year of an investment
company, such investment company shall pay interest at the
underpayment rate established under section 6621 -
(i) on an amount equal to 50 percent of the amount referred
to in paragraph (2)(A)(i),
(ii) for the period -
(I) which begins on the last day prescribed for payment
of the tax imposed for the non-RIC year (determined without
regard to extensions), and
(II) which ends on the date the determination is made.
(B) Coordination with subtitle F
Any interest payable under subparagraph (A) may be assessed
and collected at any time during the period during which any
tax imposed for the taxable year in which the determination is
made may be assessed and collected.
(4) Provision not to apply in the case of fraud
The provisions of this subsection shall not apply if the
determination contains a finding that the failure to meet any
requirement of this part was due to fraud with intent to evade
tax.
(5) Determination
For purposes of this subsection, the term "determination" has
the meaning given to such term by section 860(e). Such term also
includes a determination by the investment company filed with the
Secretary that the provisions of this part do not apply to the
investment company for a taxable year.
(f) Treatment of certain load charges
(1) In general
If -
(A) the taxpayer incurs a load charge in acquiring stock in a
regulated investment company and, by reason of incurring such
charge or making such acquisition, the taxpayer acquires a
reinvestment right,
(B) such stock is disposed of before the 91st day after the
date on which such stock was acquired, and
(C) the taxpayer subsequently acquires stock in such
regulated investment company or in another regulated investment
company and the otherwise applicable load charge is reduced by
reason of the reinvestment right,
the load charge referred to in subparagraph (A) (to the extent it
does not exceed the reduction referred to in subparagraph (C))
shall not be taken into account for purposes of determining the
amount of gain or loss on the disposition referred to in
subparagraph (B). To the extent such charge is not taken into
account in determining the amount of such gain or loss, such
charge shall be treated as incurred in connection with the
acquisition referred to in subparagraph (C) (including for
purposes of reapplying this paragraph).
(2) Definitions and special rules
For purposes of this subsection -
(A) Load charge
The term "load charge" means any sales or similar charge
incurred by a person in acquiring stock of a regulated
investment company. Such term does not include any charge
incurred by reason of the reinvestment of a dividend.
(B) Reinvestment right
The term "reinvestment right" means any right to acquire
stock of 1 or more regulated investment companies without the
payment of a load charge or with the payment of a reduced
charge.
(C) Nonrecognition transactions
If the taxpayer acquires stock in a regulated investment
company from another person in a transaction in which gain or
loss is not recognized, the taxpayer shall succeed to the
treatment of such other person under this subsection.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 271; July 11, 1956, ch. 573,
Sec. 2(a), 70 Stat. 530; Pub. L. 85-866, title I, Secs. 39(a),
101(a), (b), Sept. 2, 1958, 72 Stat. 1638, 1674; Pub. L. 86-779,
Sec. 10(b)(2), (3), Sept. 14, 1960, 74 Stat. 1009; Pub. L. 88-272,
title II, Sec. 229(a)(1), (2), (b), Feb. 26, 1964, 78 Stat. 99;
Pub. L. 91-172, title V, Sec. 511(c)(2), Dec. 30, 1969, 83 Stat.
637; Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(N), (2), title XIX,
Secs. 1901(a)(110)(A), (B)(i), (C), (b)(1)(V), (6)(B), (33)(I),
(J), (N), 1906(b)(13)(A), title XXI, Sec. 2137(a)-(c), Oct. 4,
1976, 90 Stat. 1732, 1783, 1792, 1794, 1801, 1802, 1834, 1930,
1931; Pub. L. 95-600, title III, Secs. 301(b)(11), 362(c), title
VII, Sec. 701(s)(2), Nov. 6, 1978, 92 Stat. 2822, 2851, 2911; Pub.
L. 96-222, title I, Sec. 104(a)(3)(B), Apr. 1, 1980, 94 Stat. 215;
Pub. L. 97-424, title V, Sec. 547(b)(2), Jan. 6, 1983, 96 Stat.
2199; Pub. L. 98-369, div. A, title I, Sec. 55(a), title X, Secs.
1001(b)(11), (e), 1071(a)(2)-(4), (b)(1), July 18, 1984, 98 Stat.
571, 1011, 1012, 1049, 1050, 1052; Pub. L. 99-514, title III, Sec.
311(b)(1), title VI, Secs. 631(e)(11), 651(b)(1)(A), (2), (3),
655(a)(1), (2), title XI, Sec. 1173(b)(1)(B), title XV, Sec.
1511(c)(6), title XVIII, Secs. 1804(c)(1)-(5), 1878(j), Oct. 22,
1986, 100 Stat. 2219, 2274, 2296, 2298, 2299, 2515, 2745, 2799,
2800, 2905; Pub. L. 100-647, title I, Secs. 1006(l)(1)(A), (3),
(4), (7)-(10), 1011B(h)(4), 1018(p), Nov. 10, 1988, 102 Stat. 3413-
3415, 3491, 3585; Pub. L. 101-239, title VII, Sec. 7204(b)(1),
(c)(1), Dec. 19, 1989, 103 Stat. 2334, 2335; Pub. L. 103-66, title
XIII, Sec. 13221(c)(1), Aug. 10, 1993, 107 Stat. 477; Pub. L. 104-
188, title I, Sec. 1602(b)(3), Aug. 20, 1996, 110 Stat. 1833; Pub.
L. 105-34, title XI, Sec. 1122(c)(2), (3), title XII, Sec.
1254(b)(2), Aug. 5, 1997, 111 Stat. 977, 1033; Pub. L. 106-170,
title V, Sec. 566(a)(1), (c), Dec. 17, 1999, 113 Stat. 1950.)
-REFTEXT-
REFERENCES IN TEXT
Section 246(c)(3) of this title, referred to in subsec.
(b)(4)(C), was amended by Pub. L. 105-34, title X, Sec. 1015(b)(2),
Aug. 5, 1997, 111 Stat. 922, to strike out subpar. (B) and
redesignate subpar. (C) as (B).
The Investment Company Act of 1940, referred to in subsec. (d),
is title I of act Aug. 22, 1940, ch. 686, 54 Stat. 789, as amended,
which is classified generally to subchapter I (Sec. 80a-1 et seq.)
of chapter 2D of Title 15, Commerce and Trade. For complete
classification of this Act to the Code, see section 80a-51 of Title
15 and Tables.
-MISC1-
AMENDMENTS
1999 - Subsec. (c)(3). Pub. L. 106-170, Sec. 566(a)(1), added
par. (3).
Subsec. (e)(1). Pub. L. 106-170, Sec. 566(c), inserted at end "If
the determination under subparagraph (A) is solely as a result of
the failure to meet the requirements of subsection (a)(2), the
preceding sentence shall also apply for purposes of applying
subsection (a)(2) to the non-RIC year and the amount referred to in
paragraph (2)(A)(i) shall be the portion of the accumulated
earnings and profits which resulted in such failure."
1997 - Subsec. (b)(3)(D)(iii). Pub. L. 105-34, Sec. 1254(b)(2),
substituted "by the difference between the amount of such
includible gains and the tax deemed paid by such shareholder in
respect of such shares under clause (ii)." for "by 65 percent of so
much of such amounts as equals the amount subject to tax in
accordance with section 1201(a)."
Subsec. (b)(10). Pub. L. 105-34, Sec. 1122(c)(2), added par.
(10).
Subsec. (c)(2). Pub. L. 105-34, Sec. 1122(c)(3), inserted ",
without regard to any net reduction in the value of any stock of a
passive foreign investment company with respect to which an
election under section 1296(k) is in effect occurring after October
31 of such year," after "October 31 of such year".
1996 - Subsec. (b)(5)(C). Pub. L. 104-188 struck out subpar. (C).
Prior to amendment, subpar. (C) read as follows:
"(C) Interest on certain loans used to acquire employer
securities. - For purposes of this section -
"(i) 50 percent of the amount of any loan of the regulated
investment company which qualifies as a securities acquisition
loan (as defined in section 133) shall be treated as an
obligation described in section 103(a), and
"(ii) 50 percent of the interest received on such loan shall be
treated as interest excludable from gross income under section
103."
1993 - Subsec. (b)(3)(D)(iii). Pub. L. 103-66 substituted "65
percent" for "66 percent".
1989 - Subsec. (b)(9). Pub. L. 101-239, Sec. 7204(c)(1), added
par. (9).
Subsec. (f). Pub. L. 101-239, Sec. 7204(b)(1), added subsec. (f).
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1006(l)(8), inserted at
end "The Secretary may waive the requirements of paragraph (1) for
any taxable year if the regulated investment company establishes to
the satisfaction of the Secretary that it was unable to meet such
requirements by reason of distributions previously made to meet the
requirements of section 4982."
Subsec. (b)(3)(C). Pub. L. 100-647, Sec. 1006(l)(4), substituted
"net capital loss or net long-term capital loss" for "net capital
loss" in two places in third sentence, and "computing the taxable
income of the regulated investment company" for "computing
regulated investment company taxable income" in fourth sentence.
Subsec. (b)(5)(C). Pub. L. 100-647, Sec. 1011B(h)(4), substituted
"section" for "paragraph".
Subsec. (b)(6). Pub. L. 100-647, Sec. 1006(l)(1)(A), redesignated
par. (6), relating to time certain dividends are taken into
account, as (7).
Subsec. (b)(7). Pub. L. 100-647, Sec. 1006(l)(9), substituted "in
October, November, or December" for "in December" and "in such a
month" for "in such month", in introductory text, "on December 31
of such calendar year" for "on such date" in subpars. (A) an (B),
and "during January" for "before February 1" in last sentence.
Pub. L. 100-647, Sec. 1006(l)(1)(A), redesignated par. (6),
relating to time certain dividends are taken into account, as (7).
Subsec. (b)(8). Pub. L. 100-647, Sec. 1006(l)(7), added par. (8).
Subsec. (c)(2). Pub. L. 100-647, Sec. 1006(l)(3), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "A
regulated investment company shall be treated as having sufficient
earnings and profits to treat as a dividend any distribution (other
than in a redemption to which section 302(a) applies) which is
treated as a dividend by such company. The preceding sentence shall
not apply to the extent that the amount distributed during any
calendar year by the company exceeds the required distribution for
such calendar year (as determined under section 4982)."
Subsec. (e)(1). Pub. L. 100-647, Secs. 1006(l)(10), 1018(p),
amended par. (1) identically, substituting "subsection (a)(2)" for
"subsection (a)(3)" in last sentence.
1986 - Subsec. (a)(2), (3). Pub. L. 99-514, Sec. 1878(j)(1),
redesignated par. (3) as (2) and struck out former par. (2) which
read as follows: "the investment company complies for such year
with regulations prescribed by the Secretary for the purpose of
ascertaining the actual ownership of its outstanding stock, and".
Subsec. (b)(1). Pub. L. 99-514, Sec. 1878(j)(2), substituted last
sentence for former last sentence which read as follows: "In the
case of a regulated investment company which is a personal holding
company (as defined in section 542), that tax shall be computed at
the highest rate of tax specified in section 11(b)."
Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 655(a)(1), substituted
"60 days" for "45 days".
Pub. L. 99-514, Sec. 651(b)(3), inserted provision for
determination of the amount of the net capital gain for a taxable
year (to which an election under section 4982(e)(4) does not apply)
and made such provision applicable also for purposes of computing
regulated investment company taxable income.
Subsec. (b)(3)(D)(i). Pub. L. 99-514, Sec. 655(a)(1), substituted
"60 days" for "45 days".
Subsec. (b)(3)(D)(iii). Pub. L. 99-514, Sec. 311(b)(1),
substituted "66 percent" for "72 percent".
Subsec. (b)(4). Pub. L. 99-514, Sec. 1804(c)(5), substituted "6
months or less" for "less than 31 days" in heading.
Subsec. (b)(4)(B)(ii). Pub. L. 99-514, Sec. 1804(c)(1),
substituted "6 months or less" for "less than 31 days".
Subsec. (b)(4)(C). Pub. L. 99-514, Sec. 1804(c)(2), amended
subpar. (C) generally. Prior to amendment, subpar. (C) read as
follows: "For purposes of this paragraph, the rules of paragraphs
(3) and (4) of section 246(c) shall apply in determining the period
for which the taxpayer held any share of stock; except that for the
number of days specified in subparagraph (B) of section 246(c)(3)
there shall be substituted -
"(i) '6 months' for purposes of subparagraph (A), and
"(ii) '30 days' for purposes of subparagraph (B)."
Subsec. (b)(4)(D). Pub. L. 99-514, Sec. 1804(c)(3), substituted
"subparagraphs (A) and (B)" for "subparagraph (A)".
Subsec. (b)(4)(E). Pub. L. 99-514, Sec. 1804(c)(4), added subpar.
(E).
Subsec. (b)(5)(A). Pub. L. 99-514, Sec. 655(a)(2), substituted
"60 days" for "45 days".
Subsec. (b)(5)(C). Pub. L. 99-514, Sec. 1173(b)(1)(B), added
subpar. (C).
Subsec. (b)(6). Pub. L. 99-514, Sec. 651(b)(1)(A), added par. (6)
relating to time certain dividends are taken into account.
Pub. L. 99-514, Sec. 631(e)(11), added par. (6) relating to
inapplicability of section 311(b) to certain distributions.
Subsec. (c). Pub. L. 99-514, Sec. 651(b)(2), amended subsec. (c)
generally, designating existing provisions as par. (1), inserting
heading, and adding par. (2).
Subsec. (e)(3)(A). Pub. L. 99-514, Sec. 1511(c)(6), substituted
"the underpayment rate established under section 6621" for "the
annual rate established under section 6621".
1984 - Subsec. (a)(3). Pub. L. 98-369, Sec. 1071(a)(3), added
par. (3).
Subsec. (b)(1). Pub. L. 98-369, Sec. 1071(a)(2), inserted
provision that in the case of a regulated investment company which
is a personal holding company (as defined in section 542), that tax
shall be computed at the highest rate of tax specified in section
11.
Subsec. (b)(2)(F). Pub. L. 98-369, Sec. 1071(b)(1), added subpar.
(F).
Subsec. (b)(3)(B). Pub. L. 98-369, Sec. 1001(b)(11), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Subsec. (b)(4)(A)(i). Pub. L. 98-369, Sec. 55(a)(1), substituted
"subparagraph (B) or (D) of paragraph (3) provides that any amount
with respect to any share is to be treated as long-term capital
gain" for "under subparagraph (B) or (D) of paragraph (3) a
shareholder of a regulated investment company is required, with
respect to any share, to treat any amount as a long-term capital
gain".
Subsec. (b)(4)(A)(ii). Pub. L. 98-369, Sec. 55(a)(1), substituted
"6 months or less" for "less than 31 days".
Subsec. (b)(4)(C). Pub. L. 98-369, Sec. 55(a)(2), substituted
"the rules of paragraphs (3) and (4) of section 246(c) shall apply
in determining the period for which the taxpayer held any share of
stock;" for "the rules of section 246(c)(3) shall apply in
determining whether any share of stock has been held for less than
31 days;" and substituted provisions dealing with the applicable
number of days for former provisions which set forth different
applicable days.
Subsec. (b)(4)(D). Pub. L. 98-369, Sec. 55(a)(3), added subpar.
(D).
Subsec. (e). Pub. L. 98-369, Sec. 1071(a)(4), added subsec. (e).
1983 - Subsec. (b)(5). Pub. L. 97-424 substituted "section
103(a)" for "section 103(a)(1)" wherever appearing.
1980 - Subsec. (b)(3)(D)(iii). Pub. L. 96-222 substituted "72
percent" for "70 percent".
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 301(b)(11),
substituted "a tax" for "a normal tax and surtax".
Subsec. (b)(3)(C). Pub. L. 95-600, Sec. 362(c), inserted ",
except that, if there is an increase in the excess described in
subparagraph (A) of this paragraph for such year which results from
a determination (as defined in section 860(e)), such designation
may be made with respect to such increase at any time before the
expiration of 120 days after the date of such determination" after
"amount so designated".
Subsec. (b)(4). Pub. L. 95-600, Sec. 701(s)(2), designated first
sentence, including subpars. (A) and (B), as subpar. (A), cls. (i)
and (ii); added subpar. (A) heading and substituted "shall, to the
extent of the amount described in clause (i), be treated as a long-
term capital loss" for "shall, to the extent of the amount
described in subparagraph (A) of this paragraph, be treated as loss
from the sale or exchange of a capital asset held for more than 1
year"; added subpar. (B); and designated second sentence as subpar.
(C).
1976 - Subsec. (a)(1). Pub. L. 94-455, Secs. 1901(b)(6)(B),
2137(a), designated existing provisions as introductory material
and subpar. (A) and added subpar. (B).
Subsec. (a)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (b)(1). Pub. L. 94-455, Sec. 1901(b)(1)(V), struck out
provision relating to the computation of the normal tax under
section 11 of this title.
Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 1901(b)(33)(I),
substituted "the amount of the net capital gain, if any" for "the
excess, if any, of the net long-term capital gain over the short-
term capital loss".
Subsec. (b)(2)(D). Pub. L. 94-455, Sec. 2137(b), inserted
reference to exempt-interest dividends.
Subsec. (b)(3)(A). Pub. L. 94-455, Sec. 1901(b)(33)(J)(i), among
other changes, struck out reference to the sum of the net short-
term capital loss.
Subsec. (b)(3)(B). Pub. L. 94-455, Sec. 1402(b)(2), provided that
"9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(N), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (b)(3)(C). Pub. L. 94-455, Sec. 1901(a)(110)(A),
(b)(33)(J)(ii), substituted "net capital gain" for "excess of the
net long-term capital gain over the net short-term capital loss" in
two places and struck out provision requiring for purpose of the
deduction for capital gains dividends paid, the deductions shall in
the case of a taxable year beginning before Jan. 1, 1975, first be
made from the amount subject to tax in accordance with section
1201(a)(1)(B), to the extent thereof, and then from the amount
subject to tax in accordance with section 1201(a)(1)(A).
Subsec. (b)(3)(D)(iii). Pub. L. 94-455, Sec. 1901(a)(110)(B)(i),
struck out "by 75 percent of so much of such amounts as equals the
amount subject to tax in accordance with section 1201(a)(1)(A) and"
after "his long term capital gains," and "(72 percent in the case
of a taxable year beginning after December 31, 1969, and before
January 1, 1971)" after "by 70 percent" and substituted "section
1201(a)" for "section 1201(a)(1)(B) or (2)".
Subsec. (b)(3)(D)(v). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (b)(4). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(N), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (b)(5). Pub. L. 94-455, Sec. 2137(c), added par. (5).
Subsec. (d). Pub. L. 94-455, Sec. 1901(a)(110)(C), (b)(33)(N),
inserted in par. (1) "(15 U.S.C. 80a-1 and following)" after
"Investment company Act of 1940" and substituted in provision
following par. (2) "capital gain net income" for "net capital
gain".
1969 - Subsec. (b)(3)(A). Pub. L. 91-172, Sec. 511(c)(2)(A),
substituted "determined as provided in section 1201(a), on" for "of
25 percent of".
Subsec. (b)(3)(C). Pub. L. 91-172, Sec. 511(c)(2)(B), inserted
provision requiring for the purposes of the deduction for capital
gains dividends paid the deduction shall, in the case of a taxable
year beginning before Jan. 1, 1975, first be made from the amount
subject to tax in accordance with section 1201(a)(1)(B), to the
extent thereof, and then from the amount subject to tax in
accordance with section 1201(a)(1)(A).
Subsec. (b)(3)(D). Pub. L. 91-172, Sec. 511(c)(2)(C), (D), struck
out "of 25 percent" in cl. (ii), substituted reference in cl. (iii)
to the increase of the adjusted basis of shares in the hands of the
shareholder, with respect to the amounts required by this subpar.,
by 75 percent of so much of such amounts as equals the amount
subject to tax in accordance with section 1201(a)(1)(A) and by 70
percent (72 percent in the case of a taxable year beginning after
Dec. 31, 1969, and before Jan. 1, 1971) of so much of such amounts
as equals the amount subject to tax in accordance with section
1201(a)(1)(B) or (2), for reference to the increase of the adjusted
basis of shares in the hand of the shareholder by 75 percent of the
amounts required by this subpar. to be included in computing his
long-term capital gains.
1964 - Subsec. (b)(3)(C), (D)(i). Pub. L. 88-272, Sec. 229(a)(1),
(2), substituted "45 days" for "30 days".
Subsec. (d). Pub. L. 88-272, Sec. 229(b), added subsec. (d).
1960 - Subsec. (a). Pub. L. 86-779, Sec. 10(b)(2), substituted
"this part" for "this subchapter".
Subsec. (b)(3)(C). Pub. L. 86-779, Sec. 10(b)(3), substituted
"For purposes of this part, a capital gain dividend is" for "A
capital gain dividend means".
1958 - Subsec. (a). Pub. L. 85-866, Sec. 101(a), inserted "(other
than subsection (c) of this section)".
Subsec. (b)(4). Pub. L. 85-866, Sec. 39(a), added par. (4).
Subsec. (c). Pub. L. 85-866, Sec. 101(b), inserted sentence
defining regulated investment company.
1956 - Subsec. (b)(3)(D). Act July 11, 1956, added subpar. (D).
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 566(d), Dec. 17, 1999, 113 Stat.
1950, provided that: "The amendments made by this section [amending
this section and section 857 of this title] shall apply to
distributions after December 31, 2000."
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 1122(c)(2), (3) of Pub. L. 105-34 applicable
to taxable years of United States persons beginning after Dec. 31,
1997, and to taxable years of foreign corporations ending with or
within such taxable years of United States persons, see section
1124 of Pub. L. 105-34, set out as a note under section 532 of this
title.
Section 1263 of title XII of Pub. L. 105-34 provided that: "The
amendments made by this part [probably means subtitle D (Secs. 1251-
1263) of title XII of Pub. L. 105-34, amending this section and
sections 856 and 857 of this title] shall apply to taxable years
beginning after the date of the enactment of this Act [Aug. 5,
1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1602(b)(1) of Pub. L. 104-188 applicable to
loans made after Aug. 20, 1996, with exception and provisions
relating to certain refinancings, see section 1602(c) of Pub. L.
104-188, set out as an Effective Date of Repeal note under former
section 133 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
on or after Jan. 1, 1993, see section 13221(d) of Pub. L. 103-66
set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7204(b)(2) of Pub. L. 101-239 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to charges incurred after October 3, 1989, in taxable years ending
after such date."
Section 7204(c)(2) of Pub. L. 101-239 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to dividends in cases where the stock becomes ex-dividend after the
date of the enactment of this Act [Dec. 19, 1989]."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(l)(9) of Pub. L. 100-647 provided that the amendment
made by that section is effective with respect to dividends
declared in 1988 and subsequent calendar years.
Amendment by sections 1006(l)(1)(A), (3), (4), (7), (8), (10),
1011B(h)(4), and 1018(p) of Pub. L. 100-647 effective, except as
otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 311(b)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 311(c) of
Pub. L. 99-514, set out as a note under section 1201 of this title.
Amendment by section 631(e)(11) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 651(b)(1)(A), (2), (3) of Pub. L. 99-514
applicable to calendar years beginning after Dec. 31, 1986, see
section 651(d) of Pub. L. 99-514, set out as an Effective Date note
under section 4982 of this title.
Section 655(b) of Pub. L. 99-514 provided that: "The amendments
made by subsection (a) [amending this section and sections 853 to
855 of this title] shall apply to taxable years beginning after the
date of the enactment of this Act [Oct. 22, 1986]."
Section 1173(c)(2)(A) of Pub. L. 99-514 provided that: "The
amendments made by subsection (b)(1) [amending this section and
former section 133 of this title] shall apply to loans used to
acquire employer securities after the date of the enactment of this
Act [Oct. 22, 1986], including loans used to refinance loans used
to acquire employer securities before such date if such loans were
used to acquire employer securities after May 23, 1984."
Amendment by section 1511(c)(6) of Pub. L. 99-514 applicable for
purposes of determining interest for periods after Dec. 31, 1986,
see section 1511(d) of Pub. L. 99-514, set out as a note under
section 47 of this title.
Section 1804(c)(6) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section] shall
apply to stock with respect to which the taxpayer's holding period
begins after March 28, 1985."
Amendment by section 1878(j) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 55(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and section 857 of this
title] shall apply to losses incurred with respect to shares of
stock and beneficial interests with respect to which the taxpayer's
holding period begins after the date of the enactment of this Act
[July 18, 1984]."
Amendment by section 1001(b)(11) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
Section 1071(a)(5) of Pub. L. 98-369, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - Except as otherwise provided in this
paragraph, the amendments made by this subsection [amending this
section and section 851 of this title] shall apply to taxable years
beginning after December 31, 1982.
"(B) Investment companies which were regulated investment
companies for years ending before november 8, 1983. - In the case
of any investment company to which the provisions of part I of
subchapter M of chapter 1 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] applied for any taxable year ending before
November 8, 1983, for purposes of section 852(a)(3)(B) of the
Internal Revenue Code of 1986 (as amended by this subsection), no
earnings and profits accumulated in any taxable year ending before
January 1, 1984, shall be taken into account.
"(C) Investment companies beginning business in 1983. - In the
case of an investment company which began business in 1983 (and was
not a successor corporation), earnings and profits accumulated
during its first taxable year shall not be taken into account for
purposes of section 852(a)(3)(B) of such Code (as so amended).
"(D) Investment companies registering before november 8, 1983. -
In the case of any investment company -
"(i) which, during the period after December 31, 1981, and
before November 8, 1983 -
"(I) was engaged in the active conduct of a trade or
business,
"(II) sold substantially all of its operating assets, and
"(III) registered under the Investment Company Act of 1940
[15 U.S.C. Sec. 80a-1 et seq.] as either a management company
or a unit investment trust, and
"(ii) to which the provisions of part I of subchapter M of
chapter 1 of the Internal Revenue Code of 1986 applied for its
first taxable year beginning after November 8, 1983,
for purposes of section 852(a)(3)(A) of such Code (as amended by
paragraph (3)), the provisions of part I of subchapter M of chapter
1 of such Code shall be treated as applying to such investment
company for its first taxable year ending after November 8, 1983.
For purposes of the preceding sentence, all members of an
affiliated group (as defined in section 1504(a) of such Code)
filing a consolidated return shall be treated as 1 taxpayer."
Section 1071(b)(2) of Pub. L. 98-369 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years beginning after December 31, 1978."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 301(b)(11) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 301(c) of
Pub. L. 95-600, set out as a note under section 11 of this title.
Amendment by section 362(c) of Pub. L. 95-600 applicable with
respect to determinations (as defined in section 860(e) of this
title) after Nov. 6, 1978, see section 362(e) of Pub. L. 95-600,
set out as an Effective Date note under section 860 of this title.
Amendment by section 701(s)(2) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1975, see section 701(s)(3)
of Pub. L. 95-600, set out as a note under section 851 of this
title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(a)(110)(A), (C), (b)(1)(V), (6)(B),
(33)(I), (J), (N) of Pub. L. 94-455 effective for taxable years
beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-
455, set out as an Effective Date of 1976 Amendment note under
section 2 of this title.
Section 1901(a)(110)(B)(ii) of Pub. L. 94-455, as amended by Pub.
L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"The amendment made by clause (i) [amending this section] shall not
be considered to affect the amount of any increase in the basis of
stock under the provisions of section 852(b)(3)(D)(iii) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] which is based
upon amounts subject to tax under section 1201 of such Code
[section 1201 of this title] in taxable years beginning before
January 1, 1975."
Section 2137(e) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and sections 103 and
265 of this title] shall apply to taxable years beginning after
December 31, 1975."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to taxable
years beginning after Dec. 31, 1969, see section 511(d) of Pub. L.
91-172, set out as an Effective Date note under section 1201 of
this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 229(c) of Pub. L. 88-272 provided that: "The amendments
made by subsection (a) [amending this section and sections 853,
854, and 855 of this title] shall apply to taxable years of
regulated investment companies ending on or after the date of the
enactment of this Act [Feb. 26, 1964]. The amendment made by
subsection (b) [amending this section] shall apply to taxable years
of regulated investment companies ending after December 31, 1963."
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment of section by Pub. L. 86-779 applicable with respect to
taxable years of real estate investment trusts beginning after Dec.
31, 1960, see section 10(k) of Pub. L. 86-779, set out as an
Effective Date note under section 856 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 39(b) of Pub. L. 85-866 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to taxable years ending after December 31, 1957, but only
with respect to shares of stock acquired after December 31, 1957."
Section 101(c) of Pub. L. 85-866 provided that: "The amendments
made by this section [amending this section] shall apply with
respect to taxable years of regulated investment companies
beginning on or after March 1, 1958."
EFFECTIVE DATE OF 1956 AMENDMENT
Section 2(b) of act July 11, 1956, provided that: "The amendment
made by this section [amending this section] shall apply only with
respect to taxable years of regulated investment companies
beginning after December 31, 1956."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be capitalized.
(!2) See References in Text note below.
-End-
-CITE-
26 USC Sec. 853 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
Sec. 853. Foreign tax credit allowed to shareholders
-STATUTE-
(a) General rule
A regulated investment company -
(1) more than 50 percent of the value (as defined in section
851(c)(4)) of whose total assets at the close of the taxable year
consists of stock or securities in foreign corporations, and
(2) which meets the requirements of section 852(a) for the
taxable year,
may, for such taxable year, elect the application of this section
with respect to income, war profits, and excess profits taxes
described in section 901(b)(1), which are paid by the investment
company during such taxable year to foreign countries and
possessions of the United States.
(b) Effect of election
If the election provided in subsection (a) is effective for a
taxable year -
(1) the regulated investment company -
(A) shall not, with respect to such taxable year, be allowed
a deduction under section 164(a) or a credit under section 901
for taxes to which subsection (a) is applicable, and
(B) shall be allowed as an addition to the dividends paid
deduction for such taxable year the amount of such taxes;
(2) each shareholder of such investment company shall -
(A) include in gross income and treat as paid by him his
proportionate share of such taxes, and
(B) treat as gross income from sources within the respective
foreign countries and possessions of the United States, for
purposes of applying subpart A of part III of subchapter N, the
sum of his proportionate share of such taxes and the portion of
any dividend paid by such investment company which represents
income derived from sources within foreign countries or
possessions of the United States.
(c) Notice to shareholders
The amounts to be treated by the shareholder, for purposes of
subsection (b)(2), as his proportionate share of -
(1) taxes paid to any foreign country or possession of the
United States, and
(2) gross income derived from sources within any foreign
country or possession of the United States,
shall not exceed the amounts so designated by the company in a
written notice mailed to its shareholders not later than 60 days
after the close of its taxable year.
(d) Manner of making election and notifying shareholders
The election provided in subsection (a) and the notice to
shareholders required by subsection (c) shall be made in such
manner as the Secretary may prescribe by regulations.
(e) Treatment of certain taxes not allowed as a credit under
section 901
This section shall not apply to any tax with respect to which the
regulated investment company is not allowed a credit under section
901 by reason of subsection (k) or (l) of such section.
(f) Cross references
(1) For treatment by shareholders of taxes paid to foreign
countries and possessions of the United States, see section
164(a) and section 901.
(2) For definition of foreign corporation, see section
7701(a)(5).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 272; Pub. L. 88-272, title II,
Sec. 229(a)(3), Feb. 26, 1964, 78 Stat. 99; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99-
514, title VI, Sec. 655(a)(3), Oct. 22, 1986, 100 Stat. 2299; Pub.
L. 105-34, title X, Sec. 1053(b), Aug. 5, 1997, 111 Stat. 943; Pub.
L. 105-206, title VI, Sec. 6010(k)(1), (2), July 22, 1998, 112
Stat. 815; Pub. L. 109-135, title IV, Sec. 403(aa)(1), Dec. 21,
2005, 119 Stat. 2630.)
-MISC1-
AMENDMENTS
2005 - Subsec. (e). Pub. L. 109-135 amended heading and text of
subsec. (e) generally. Prior to amendment, text read as follows:
"This section shall not apply to any tax with respect to which the
regulated investment company is not allowed a credit under section
901 by reason of section 901(k)."
1998 - Subsec. (c). Pub. L. 105-206, Sec. 6010(k)(2), struck out
at end "Such notice shall also include the amount of such taxes
which (without regard to the election under this section) would not
be allowable as a credit under section 901(a) to the regulated
investment company by reason of section 901(k)."
Subsecs. (e), (f). Pub. L. 105-206, Sec. 6010(k)(1), added
subsec. (e) and redesignated former subsec. (e) as (f).
1997 - Subsec. (c). Pub. L. 105-34 inserted at end "Such notice
shall also include the amount of such taxes which (without regard
to the election under this section) would not be allowable as a
credit under section 901(a) to the regulated investment company by
reason of section 901(k)."
1986 - Subsec. (c). Pub. L. 99-514 substituted "60 days" for "45
days".
1976 - Subsec. (d). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
1964 - Subsec. (c). Pub. L. 88-272 substituted "45 days" for "30
days".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Pub. L. 109-135 effective as if included in the
provision of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which such amendment relates, see section 403(nn) of Pub.
L. 109-135, set out as a note under section 26 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1053(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and section 901 of this
title] shall apply to dividends paid or accrued more than 30 days
after the date of the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Oct. 22, 1986, see section 655(b) of Pub. L. 99-514, set out
as a note under section 852 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years of
regulated investment companies ending on or after Feb. 26, 1964,
see section 229(c) of Pub. L. 88-272, set out as a note under
section 852 of this title.
-End-
-CITE-
26 USC Sec. 854 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
Sec. 854. Limitations applicable to dividends received from
regulated investment company
-STATUTE-
(a) Capital gain dividend
For purposes of section 1(h)(11) (relating to maximum rate of tax
on dividends) and section 243 (relating to deductions for dividends
received by corporations), a capital gain dividend (as defined in
section 852(b)(3)) received from a regulated investment company
shall not be considered as a dividend.
(b) Other dividends
(1) Amount treated as dividend
(A) Deduction under section 243
In any case in which -
(i) a dividend is received from a regulated investment
company (other than a dividend to which subsection (a)
applies), and
(ii) such investment company meets the requirements of
section 852(a) for the taxable year during which it paid such
dividend,
then, in computing any deduction under section 243, there shall
be taken into account only that portion of such dividend
designated under this subparagraph by the regulated investment
company and such dividend shall be treated as received from a
corporation which is not a 20-percent owned corporation.
(B) Maximum rate under section 1(h)
(i) In general
In any case in which -
(I) a dividend is received from a regulated investment
company (other than a dividend to which subsection (a)
applies),
(II) such investment company meets the requirements of
section 852(a) for the taxable year during which it paid
such dividend, and
(III) the qualified dividend income of such investment
company for such taxable year is less than 95 percent of
its gross income,
then, in computing qualified dividend income, there shall be
taken into account only that portion of such dividend
designated by the regulated investment company.
(ii) Gross income
For purposes of clause (i), in the case of 1 or more sales
or other dispositions of stock or securities, the term "gross
income" includes only the excess of -
(I) the net short-term capital gain from such sales or
dispositions, over
(II) the net long-term capital loss from such sales or
dispositions.
(C) Limitations
(i) Subparagraph (a)
The aggregate amount which may be designated as dividends
under subparagraph (A) shall not exceed the aggregate
dividends received by the company for the taxable year.
(ii) Subparagraph (b)
The aggregate amount which may be designated as qualified
dividend income under subparagraph (B) shall not exceed the
sum of -
(I) the qualified dividend income of the company for the
taxable year, and
(II) the amount of any earnings and profits which were
distributed by the company for such taxable year and
accumulated in a taxable year with respect to which this
part did not apply.
(2) Notice to shareholders
The amount of any distribution by a regulated investment
company which may be taken into account as qualified dividend
income for purposes of section 1(h)(11) and as dividends for
purposes of the deduction under section 243 shall not exceed the
amount so designated by the company in a written notice to its
shareholders mailed not later than 60 days after the close of its
taxable year.
(3) Aggregate dividends
For purposes of this subsection -
(A) In general
In computing the amount of aggregate dividends received,
there shall only be taken into account dividends received from
domestic corporations.
(B) Dividends
For purposes of subparagraph (A), the term "dividend" shall
not include any distribution from -
(i) a corporation which, for the taxable year of the
corporation in which the distribution is made, or for the
next preceding taxable year of the corporation, is a
corporation exempt from tax under section 501 (relating to
certain charitable, etc., organizations) or section 521
(relating to farmers' cooperative associations), or
(ii) a real estate investment trust which, for the taxable
year of the trust in which the dividend is paid, qualifies
under part II of subchapter M (section 856 and following).
(C) Limitations on dividends from regulated investment
companies
In determining the amount of any dividend for purposes of
this paragraph, a dividend received from a regulated investment
company shall be subject to the limitations prescribed in this
section.
(4) Special rule for computing deduction under section 243
For purposes of subparagraph (A) of paragraph (1), an amount
shall be treated as a dividend for the purpose of paragraph (1)
only if a deduction would have been allowable under section 243
to the regulated investment company determined -
(A) as if section 243 applied to dividends received by a
regulated investment company,
(B) after the application of section 246 (but without regard
to subsection (b) thereof), and
(C) after the application of section 246A.
(5) Qualified dividend income
For purposes of this subsection, the term "qualified dividend
income" has the meaning given such term by section 1(h)(11)(B).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 273; Pub. L. 88-272, title II,
Secs. 201(d)(8)-(10), 229(a)(4), Feb. 26, 1964, 78 Stat. 32, 99;
Pub. L. 96-223, title IV, Sec. 404(b)(6), Apr. 2, 1980, 94 Stat.
307; Pub. L. 97-34, title III, Sec. 302(c)(4), (d)(1), Aug. 13,
1981, 95 Stat. 272, 274; Pub. L. 98-369, div. A, title I, Secs.
16(a), 52(a)-(c), July 18, 1984, 98 Stat. 505, 564, 565; Pub. L. 99-
514, title VI, Secs. 612(b)(6), 655(a)(4), Oct. 22, 1986, 100
Stat. 2250, 2299; Pub. L. 100-203, title X, Sec. 10221(d)(3), Dec.
22, 1987, 101 Stat. 1330-409; Pub. L. 100-647, title I, Sec.
1006(b)(2), Nov. 10, 1988, 102 Stat. 3393; Pub. L. 108-27, title
III, Sec. 302(c), May 28, 2003, 117 Stat. 762; Pub. L. 108-311,
title IV, Sec. 402(a)(5)(A)-(D), Oct. 4, 2004, 118 Stat. 1184.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2004 - Subsec. (b)(1)(B)(i). Pub. L. 108-311, Sec.
402(a)(5)(A)(ii), reenacted heading without change and amended text
generally. Prior to amendment, text read as follows: "If the
aggregate dividends received by a regulated investment company
during any taxable year are less than 95 percent of its gross
income, then, in computing the maximum rate under section 1(h)(11),
rules similar to the rules of subparagraph (A) shall apply."
Subsec. (b)(1)(B)(iii), (iv). Pub. L. 108-311, Sec.
402(a)(5)(A)(i), struck out cls. (iii) and (iv) which related to
dividends from real estate investment trusts and dividends from
qualified foreign corporations, respectively.
Subsec. (b)(1)(C). Pub. L. 108-311, Sec. 402(a)(5)(B), amended
heading and text of subpar. (C) generally. Prior to amendment, text
read as follows: "The aggregate amount which may be designated as
dividends under subparagraph (A) or (B) shall not exceed the
aggregate dividends received by the company for the taxable year."
Subsec. (b)(2). Pub. L. 108-311, Sec. 402(a)(5)(C), substituted
"as qualified dividend income for purposes of section 1(h)(11) and
as dividends for purposes of" for "as a dividend for purposes of
the maximum rate under section 1(h)(11) and".
Subsec. (b)(5). Pub. L. 108-311, Sec. 402(a)(5)(D), amended
heading and text of par. (5) generally. Prior to amendment, text
read as follows: "For purposes of paragraph (1)(B), an amount shall
be treated as a dividend only if the amount is qualified dividend
income (within the meaning of section 1(h)(11)(B))."
2003 - Subsec. (a). Pub. L. 108-27, Secs. 302(c)(1), 303,
temporarily inserted "section 1(h)(11) (relating to maximum rate of
tax on dividends) and" after "For purposes of". See Effective and
Termination Dates of 2003 Amendment note below.
Subsec. (b)(1)(B). Pub. L. 108-27, Secs. 302(c)(2), 303,
temporarily added subpar. (B). Former subpar. (B) redesignated (C).
See Effective and Termination Dates of 2003 Amendment note below.
Subsec. (b)(1)(C). Pub. L. 108-27, Secs. 302(c)(2), (3), 303,
temporarily redesignated subpar. (B) as (C) and substituted
"subparagraph (A) or (B)" for "subparagraph (A)". See Effective and
Termination Dates of 2003 Amendment note below.
Subsec. (b)(2). Pub. L. 108-27, Secs. 302(c)(4), 303, temporarily
inserted "the maximum rate under section 1(h)(11) and" after "for
purposes of". See Effective and Termination Dates of 2003 Amendment
note below.
Subsec. (b)(5). Pub. L. 108-27, Secs. 302(c)(5), 303, temporarily
added par. (5). See Effective and Termination Dates of 2003
Amendment note below.
1988 - Subsec. (b)(3). Pub. L. 100-647 substituted "Aggregate
dividends" for "Definitions" in heading and amended text generally,
substituting subpars. (A) to (C) for former subpars. (A) and (B).
1987 - Subsec. (b)(1)(A). Pub. L. 100-203 inserted "and such
dividend shall be treated as received from a corporation which is
not a 20-percent owned corporation" before period at end.
1986 - Subsec. (a). Pub. L. 99-514, Sec. 612(b)(6)(A), which
directed that "section 116 (relating to an exclusion for dividends
received by individuals), and" be struck out, was executed by
striking out "section 116 (relating to an exclusion for dividends
received by individuals) and" before "section 243" as the probable
intent of Congress.
Subsec. (b)(1)(B), (C). Pub. L. 99-514, Sec. 612(b)(6)(B)(i),
(ii), redesignated subpar. (C) as (B), struck out "or (B)" before
"shall not exceed", and struck out former subpar. (B), exclusion
under section 116, which read as follows: "If the aggregate
dividends received by a regulated investment company during any
taxable year are less than 95 percent of its gross income, then, in
computing the exclusion under section 116, rules similar to the
rules of subparagraph (A) shall apply."
Subsec. (b)(2). Pub. L. 99-514, Sec. 655(a)(4), substituted "60
days" for "45 days".
Pub. L. 99-514, Sec. 612(b)(6)(B)(iii), struck out "the exclusion
under section 116 and" before "the deduction under section 243".
Subsec. (b)(3)(B). Pub. L. 99-514, Sec. 612(b)(6)(B)(iv), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "The term 'aggregate dividends received' includes only
dividends received from domestic corporations other than dividends
described in section 116(b) (relating to dividends excluded from
gross income). In determining the amount of any dividend for
purposes of this subparagraph, the rules provided in section 116(c)
(relating to certain distributions) shall apply."
1984 - Subsec. (b). Pub. L. 98-369, Sec. 16(a), repealed
amendments made by Pub. L. 97-34, Sec. 302(c). See 1981 Amendment
note below.
Subsec. (b)(1). Pub. L. 98-369, Sec. 52(a), increased the
required amount of dividends by substituting provisions directing
that in any case in which (i) a dividend is received from a
regulated investment company (other than a dividend to which
subsection (a) applies), and (ii) such investment company meets the
requirements of section 852(a) for the taxable year during which it
paid such dividend, then, in computing any deduction under section
243, there shall be taken into account only that portion of such
dividend thus designated by the regulated investment company, that
if the aggregate dividends received by a regulated investment
company during any taxable year are less than 95 percent of its
gross income, then, in computing the exclusion under section 116,
similar rules applied, and that the aggregate amount which may be
designated thus dividends shall not exceed the aggregate dividends
received by the company for the taxable year for provisions which
had directed that in the case of a dividend received from a
regulated investment company (other than a dividend to which
subsection (a) applied) (A) if such investment company met the
requirements of section 852(a) for the taxable year during which it
paid such dividend; and (B) the aggregate dividends received by
such company during such taxable year were less than 75 percent of
its gross income, then, in computing the exclusion under section
116 and the deduction under section 243, there was taken into
account only that portion of the dividend which bore the same ratio
to the amount of such dividend as the aggregate dividends received
by such company during such taxable year to its gross income for
such taxable year.
Subsec. (b)(3)(A). Pub. L. 98-369, Sec. 52(c), substituted
provisions directing that in the case of 1 or more sales or other
dispositions of stock and securities, the term "gross income"
include only the excess of (i) the net short-term capital gain from
such sales or dispositions, over (ii) the net long-term capital
loss from such sales or dispositions for provisions which had
directed that the term "gross income" not include gain from the
sale or other disposition of stock or securities.
Subsec. (b)(4). Pub. L. 98-369, Sec. 52(b), added par. (4).
1981 - Subsec. (b). Pub. L. 97-34, Sec. 302(c)(4), (d)(1),
provided for general amendment of subsec. (b) so as to include
provisions relating to taxable interest described in section 128 of
this title, applicable to taxable years beginning after Dec. 31,
1984. Section 16(a) of Pub. L. 98-369, repealed section 302(c) of
Pub. L. 97-34, and provided that this title shall be applied and
administered as if section 302(c), and the amendments made by
section 302(c), had not been enacted.
1980 - Subsec. (b). Pub. L. 96-223, Sec. 404(b)(6), temporarily
substituted "Other dividends and taxable interest" for "Other
dividends" in heading, substituted "Deduction under section 243"
for "General rule" in heading for par. (1), struck out "the
exclusion under section 116 and" after "in computing" in text of
par. (1) following subpar. (B), added par. (2), redesignated former
pars. (2) and (3) as (3) and (4), respectively, and, in par. (4) as
so redesignated, substituted "116(b)(2)" for "116(b)" and
"116(c)(2)" for "116(c)" in subpar. (B) and added subpar. (C).
1964 - Subsec. (a). Pub. L. 88-272, Sec. 201(d)(8), struck out
"section 34(a) (relating to credit for dividends received by
individuals)," before "section 116" and the comma before "and".
Subsec. (b). Pub. L. 88-272, Secs. 201(d)(9), (10), 229(a)(4),
substituted "45 days" for "30 days" in par. (2), and struck out
"the credit under section 34(a)," before "the exclusion" in par.
(1), and "the credit under section 34," before "the exclusion" in
par. (2).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-311 effective as if included in section
302 of the Jobs and Growth Tax Relief Reconciliation Act of 2003,
Pub. L. 108-27, see section 402(b) of Pub. L. 108-311, set out a
note under section 1 of this title.
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dividends received or
accrued after Dec. 31, 1987, in taxable years ending after such
date, see section 10221(e)(1) of Pub. L. 100-203, set out as a note
under section 243 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 612(b)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 612(c) of
Pub. L. 99-514, set out as a note under section 301 of this title.
Amendment by section 655(a)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Oct. 22, 1986, see section 655(b) of
Pub. L. 99-514, set out as a note under section 852 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 16(a) of Pub. L. 98-369 applicable to
taxable years ending after Dec. 31, 1983, see section 18(a) of Pub.
L. 98-369, set out as a note under section 48 of this title.
Section 52(d) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years of regulated investment companies beginning after the date of
the enactment of this Act [July 18, 1984]."
EFFECTIVE AND TERMINATION DATES OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 applicable with respect to taxable
years beginning after Dec. 31, 1980, and before Jan. 1, 1982, see
section 404(c) of Pub. L. 96-223, set out as a note under section
265 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 201(d)(8)-(10) of Pub. L. 88-272 applicable
to dividends received after Dec. 31, 1964, in taxable years ending
after such date, see section 201(e) of Pub. L. 88-272, set out as a
note under section 22 of this title.
Amendment by section 229(a)(4) of Pub. L. 88-272 applicable to
taxable years of regulated investment companies ending on or after
Feb. 26, 1964, see section 229(c) of Pub. L. 88-272, set out as a
note under section 852 of this title.
QUALIFIED DIVIDEND NOTICE PERIOD
Pub. L. 108-311, title IV, Sec. 402(a)(5)(F), Oct. 4, 2004, 118
Stat. 1185, provided that: "With respect to any taxable year of a
regulated investment company or real estate investment trust ending
on or before November 30, 2003, the period for providing notice of
the qualified dividend amount to shareholders under sections
854(b)(2) and 857(c)(2)(C) of the Internal Revenue Code of 1986, as
amended by this section, shall not expire before the date on which
the statement under section 6042(c) of such Code is required to be
furnished with respect to the last calendar year beginning in such
taxable year."
-End-
-CITE-
26 USC Sec. 855 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
Sec. 855. Dividends paid by regulated investment company after
close of taxable year
-STATUTE-
(a) General rule
For purposes of this chapter, if a regulated investment company -
(1) declares a dividend prior to the time prescribed by law for
the filing of its return for a taxable year (including the period
of any extension of time granted for filing such return), and
(2) distributes the amount of such dividend to shareholders in
the 12-month period following the close of such taxable year and
not later than the date of the first regular dividend payment
made after such declaration,
the amount so declared and distributed shall, to the extent the
company elects in such return in accordance with regulations
prescribed by the Secretary, be considered as having been paid
during such taxable year, except as provided in subsections (b),
(c) and (d).
(b) Receipt by shareholder
Except as provided in section 852(b)(7), amounts to which
subsection (a) is applicable shall be treated as received by the
shareholder in the taxable year in which the distribution is made.
(c) Notice to shareholders
In the case of amounts to which subsection (a) is applicable, any
notice to shareholders required under this part with respect to
such amounts shall be made not later than 60 days after the close
of the taxable year in which the distribution is made.
(d) Foreign tax election
If an investment company to which section 853 is applicable for
the taxable year makes a distribution as provided in subsection (a)
of this section, the shareholders shall consider the amounts
described in section 853(b)(2) allocable to such distribution as
paid or received, as the case may be, in the taxable year in which
the distribution is made.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 274; Pub. L. 86-779, Sec.
10(b)(2), Sept. 14, 1960, 74 Stat. 1009; Pub. L. 88-272, title II,
Sec. 229(a)(5), Feb. 26, 1964, 78 Stat. 99; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99-
514, title VI, Secs. 651(b)(1)(B), 655(a)(5), Oct. 22, 1986, 100
Stat. 2296, 2299; Pub. L. 100-647, title I, Sec. 1006(l)(1)(B),
Nov. 10, 1988, 102 Stat. 3413.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b). Pub. L. 100-647 substituted "section
852(b)(7)" for "section 852(b)(6)".
1986 - Subsec. (b). Pub. L. 99-514, Sec. 651(b)(1)(B),
substituted "Except as provided in section 852(b)(6), amounts" for
"Amounts".
Subsec. (c). Pub. L. 99-514, Sec. 655(a)(5), substituted "60
days" for "45 days".
1976 - Subsec. (a). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
1964 - Subsec. (c). Pub. L. 88-272 substituted "45 days" for "30
days".
1960 - Subsec. (c). Pub. L. 86-779 substituted "this part" for
"this subchapter".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 651(b)(1)(B) of Pub. L. 99-514 applicable to
calendar years beginning after Dec. 31, 1986, see section 651(d) of
Pub. L. 99-514, set out as an Effective Date note under section
4982 of this title.
Amendment by section 655(a)(5) of Pub. L. 99-514 applicable to
taxable years beginning after Oct. 22, 1986, see section 655(b) of
Pub. L. 99-514, set out as a note under section 852 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years of
regulated investment companies ending on or after Feb. 26, 1964,
see section 229(c) of Pub. L. 88-272, set out as a note under
section 852 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable with respect to taxable
years of real estate investment trusts beginning after Dec. 31,
1960, see section 10(k) of Pub. L. 86-779, set out as an Effective
Date note under section 856 of this title.
-End-
-CITE-
26 USC PART II - REAL ESTATE INVESTMENT TRUSTS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART II - REAL ESTATE INVESTMENT TRUSTS
-HEAD-
PART II - REAL ESTATE INVESTMENT TRUSTS
-MISC1-
Sec.
856. Definition of real estate investment trust.
857. Taxation of real estate investment trusts and their
beneficiaries.
858. Dividends paid by real estate investment trust after
close of taxable year.
859. Adoption of annual accounting period.
AMENDMENTS
1978 - Pub. L. 95-600, title III, Sec. 362(d)(7), Nov. 6, 1978,
92 Stat. 2852, substituted in item 859 "Adoption of annual
accounting period" for "Deduction of deficiency dividends" and
struck out item 860 "Adoption of annual accounting period".
1976 - Pub. L. 94-455, title XVI, Secs. 1601(a)(2), 1604(i)(2),
Oct. 4, 1976, 90 Stat. 1745, 1752, added items 859 and 860.
1960 - Pub. L. 86-779, Sec. 10(a), Sept. 14, 1960, 74 Stat. 1003,
added part II analysis.
-End-
-CITE-
26 USC Sec. 856 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART II - REAL ESTATE INVESTMENT TRUSTS
-HEAD-
Sec. 856. Definition of real estate investment trust
-STATUTE-
(a) In general
For purposes of this title, the term "real estate investment
trust" means a corporation, trust, or association -
(1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of
beneficial interest;
(3) which (but for the provisions of this part) would be
taxable as a domestic corporation;
(4) which is neither (A) a financial institution referred to in
section 582(c)(2), nor (B) an insurance company to which
subchapter L applies;
(5) the beneficial ownership of which is held by 100 or more
persons;
(6) subject to the provisions of subsection (k), which is not
closely held (as determined under subsection (h)); and
(7) which meets the requirements of subsection (c).
(b) Determination of status
The conditions described in paragraphs (1) to (4), inclusive, of
subsection (a) must be met during the entire taxable year, and the
condition described in paragraph (5) must exist during at least 335
days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months.
(c) Limitations
A corporation, trust, or association shall not be considered a
real estate investment trust for any taxable year unless -
(1) it files with its return for the taxable year an election
to be a real estate investment trust or has made such election
for a previous taxable year, and such election has not been
terminated or revoked under subsection (g);
(2) at least 95 percent (90 percent for taxable years beginning
before January 1, 1980) of its gross income (excluding gross
income from prohibited transactions) is derived from -
(A) dividends;
(B) interest;
(C) rents from real property;
(D) gain from the sale or other disposition of stock,
securities, and real property (including interests in real
property and interests in mortgages on real property) which is
not property described in section 1221(a)(1);
(E) abatements and refunds of taxes on real property;
(F) income and gain derived from foreclosure property (as
defined in subsection (e));
(G) amounts (other than amounts the determination of which
depends in whole or in part on the income or profits of any
person) received or accrued as consideration for entering into
agreements (i) to make loans secured by mortgages on real
property or on interests in real property or (ii) to purchase
or lease real property (including interests in real property
and interests in mortgages on real property); and
(H) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction solely by reason of
section 857(b)(6);
(3) at least 75 percent of its gross income (excluding gross
income from prohibited transactions) is derived from -
(A) rents from real property;
(B) interest on obligations secured by mortgages on real
property or on interests in real property;
(C) gain from the sale or other disposition of real property
(including interests in real property and interests in
mortgages on real property) which is not property described in
section 1221(a)(1);
(D) dividends or other distributions on, and gain (other than
gain from prohibited transactions) from the sale or other
disposition of, transferable shares (or transferable
certificates of beneficial interest) in other real estate
investment trusts which meet the requirements of this part;
(E) abatements and refunds of taxes on real property;
(F) income and gain derived from foreclosure property (as
defined in subsection (e));
(G) amounts (other than amounts the determination of which
depends in whole or in part on the income or profits of any
person) received or accrued as consideration for entering into
agreements (i) to make loans secured by mortgages on real
property or on interests in real property or (ii) to purchase
or lease real property (including interests in real property
and interests in mortgages on real property);
(H) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction solely by reason of
section 857(b)(6); and
(I) qualified temporary investment income; and
(4) at the close of each quarter of the taxable year -
(A) at least 75 percent of the value of its total assets is
represented by real estate assets, cash and cash items
(including receivables), and Government securities; and
(B)(i) not more than 25 percent of the value of its total
assets is represented by securities (other than those
includible under subparagraph (A)),
(ii) not more than 20 percent of the value of its total
assets is represented by securities of one or more taxable REIT
subsidiaries, and
(iii) except with respect to a taxable REIT subsidiary and
securities includible under subparagraph (A) -
(I) not more than 5 percent of the value of its total
assets is represented by securities of any one issuer,
(II) the trust does not hold securities possessing more
than 10 percent of the total voting power of the outstanding
securities of any one issuer, and
(III) the trust does not hold securities having a value of
more than 10 percent of the total value of the outstanding
securities of any one issuer.
A real estate investment trust which meets the requirements of
this paragraph at the close of any quarter shall not lose its
status as a real estate investment trust because of a discrepancy
during a subsequent quarter between the value of its various
investments and such requirements unless such discrepancy exists
immediately after the acquisition of any security or other
property and is wholly or partly the result of such acquisition.
A real estate investment trust which does not meet such
requirements at the close of any quarter by reason of a
discrepancy existing immediately after the acquisition of any
security or other property which is wholly or partly the result
of such acquisition during such quarter shall not lose its status
for such quarter as a real estate investment trust if such
discrepancy is eliminated within 30 days after the close of such
quarter and in such cases it shall be considered to have met such
requirements at the close of such quarter for purposes of
applying the preceding sentence.
(5) For purposes of this part -
(A) The term "value" means, with respect to securities for
which market quotations are readily available, the market value
of such securities; and with respect to other securities and
assets, fair value as determined in good faith by the trustees,
except that in the case of securities of real estate investment
trusts such fair value shall not exceed market value or asset
value, whichever is higher.
(B) The term "real estate assets" means real property
(including interests in real property and interests in
mortgages on real property) and shares (or transferable
certificates of beneficial interest) in other real estate
investment trusts which meet the requirements of this part.
Such term also includes any property (not otherwise a real
estate asset) attributable to the temporary investment of new
capital, but only if such property is stock or a debt
instrument, and only for the 1-year period beginning on the
date the real estate trust receives such capital.
(C) The term "interests in real property" includes fee
ownership and co-ownership of land or improvements thereon,
leaseholds of land or improvements thereon, options to acquire
land or improvements thereon, and options to acquire leaseholds
of land or improvements thereon, but does not include mineral,
oil, or gas royalty interests.
(D) Qualified temporary investment income. -
(i) In general. - The term "qualified temporary investment
income" means any income which -
(I) is attributable to stock or a debt instrument (within
the meaning of section 1275(a)(1)),
(II) is attributable to the temporary investment of new
capital, and
(III) is received or accrued during the 1-year period
beginning on the date on which the real estate investment
trust receives such capital.
(ii) New capital. - The term "new capital" means any amount
received by the real estate investment trust -
(I) in exchange for stock (or certificates of beneficial
interests) in such trust (other than amounts received
pursuant to a dividend reinvestment plan), or
(II) in a public offering of debt obligations of such
trust which have maturities of at least 5 years.
(E) A regular or residual interest in a REMIC shall be
treated as a real estate asset, and any amount includible in
gross income with respect to such an interest shall be treated
as interest on an obligation secured by a mortgage on real
property; except that, if less than 95 percent of the assets of
such REMIC are real estate assets (determined as if the real
estate investment trust held such assets), such real estate
investment trust shall be treated as holding directly (and as
receiving directly) its proportionate share of the assets and
income of the REMIC. For purposes of determining whether any
interest in a REMIC qualifies under the preceding sentence, any
interest held by such REMIC in another REMIC shall be treated
as a real estate asset under principles similar to the
principles of the preceding sentence, except that, if such
REMIC's are part of a tiered structure, they shall be treated
as one REMIC for purposes of this subparagraph.
(F) All other terms shall have the same meaning as when used
in the Investment Company Act of 1940, as amended (15 U.S.C.
80a-1 and following).
(G) Treatment of certain hedging instruments. - Except to the
extent provided by regulations, any income of a real estate
investment trust from a hedging transaction (as defined in
clause (ii) or (iii) of section 1221(b)(2)(A)) which is clearly
identified pursuant to section 1221(a)(7), including gain from
the sale or disposition of such a transaction, shall not
constitute gross income under paragraph (2) to the extent that
the transaction hedges any indebtedness incurred or to be
incurred by the trust to acquire or carry real estate assets.
(6) A corporation, trust, or association which fails to meet
the requirements of paragraph (2) or (3), or of both such
paragraphs, for any taxable year shall nevertheless be considered
to have satisfied the requirements of such paragraphs for such
taxable year if -
(A) following the corporation, trust, or association's
identification of the failure to meet the requirements of
paragraph (2) or (3), or of both such paragraphs, for any
taxable year, a description of each item of its gross income
described in such paragraphs is set forth in a schedule for
such taxable year filed in accordance with regulations
prescribed by the Secretary, and
(B) the failure to meet the requirements of paragraph (2) or
(3), or of both such paragraphs, is due to reasonable cause and
not due to willful neglect.
(7) Rules of application for failure to satisfy paragraph (4). -
(A) In general. - A corporation, trust, or association that
fails to meet the requirements of paragraph (4) (other than a
failure to meet the requirements of paragraph (4)(B)(iii) which
is described in subparagraph (B)(i) of this paragraph) for a
particular quarter shall nevertheless be considered to have
satisfied the requirements of such paragraph for such quarter
if -
(i) following the corporation, trust, or association's
identification of the failure to satisfy the requirements of
such paragraph for a particular quarter, a description of
each asset that causes the corporation, trust, or association
to fail to satisfy the requirements of such paragraph at the
close of such quarter of any taxable year is set forth in a
schedule for such quarter filed in accordance with
regulations prescribed by the Secretary,
(ii) the failure to meet the requirements of such paragraph
for a particular quarter is due to reasonable cause and not
due to willful neglect, and
(iii)(I) the corporation, trust, or association disposes of
the assets set forth on the schedule specified in clause (i)
within 6 months after the last day of the quarter in which
the corporation, trust or association's identification of the
failure to satisfy the requirements of such paragraph
occurred or such other time period prescribed by the
Secretary and in the manner prescribed by the Secretary, or
(II) the requirements of such paragraph are otherwise met
within the time period specified in subclause (I).
(B) Rule for certain de minimis failures. - A corporation,
trust, or association that fails to meet the requirements of
paragraph (4)(B)(iii) for a particular quarter shall
nevertheless be considered to have satisfied the requirements
of such paragraph for such quarter if -
(i) such failure is due to the ownership of assets the
total value of which does not exceed the lesser of -
(I) 1 percent of the total value of the trust's assets at
the end of the quarter for which such measurement is done,
and
(II) $10,000,000, and
(ii)(I) the corporation, trust, or association, following
the identification of such failure, disposes of assets in
order to meet the requirements of such paragraph within 6
months after the last day of the quarter in which the
corporation, trust or association's identification of the
failure to satisfy the requirements of such paragraph
occurred or such other time period prescribed by the
Secretary and in the manner prescribed by the Secretary, or
(II) the requirements of such paragraph are otherwise met
within the time period specified in subclause (I).
(C) Tax. -
(i) Tax imposed. - If subparagraph (A) applies to a
corporation, trust, or association for any taxable year,
there is hereby imposed on such corporation, trust, or
association a tax in an amount equal to the greater of -
(I) $50,000, or
(II) the amount determined (pursuant to regulations
promulgated by the Secretary) by multiplying the net income
generated by the assets described in the schedule specified
in subparagraph (A)(i) for the period specified in clause
(ii) by the highest rate of tax specified in section 11.
(ii) Period. - For purposes of clause (i)(II), the period
described in this clause is the period beginning on the first
date that the failure to satisfy the requirements of such
paragraph (4) occurs as a result of the ownership of such
assets and ending on the earlier of the date on which the
trust disposes of such assets or the end of the first quarter
when there is no longer a failure to satisfy such paragraph
(4).
(iii) Administrative provisions. - For purposes of subtitle
F, the taxes imposed by this subparagraph shall be treated as
excise taxes with respect to which the deficiency procedures
of such subtitle apply.
(d) Rents from real property defined
(1) Amounts included
For purposes of paragraphs (2) and (3) of subsection (c), the
term "rents from real property" includes (subject to paragraph
(2)) -
(A) rents from interests in real property,
(B) charges for services customarily furnished or rendered in
connection with the rental of real property, whether or not
such charges are separately stated, and
(C) rent attributable to personal property which is leased
under, or in connection with, a lease of real property, but
only if the rent attributable to such personal property for the
taxable year does not exceed 15 percent of the total rent for
the taxable year attributable to both the real and personal
property leased under, or in connection with, such lease.
For purposes of subparagraph (C), with respect to each lease of
real property, rent attributable to personal property for the
taxable year is that amount which bears the same ratio to total
rent for the taxable year as the average of the fair market
values of the personal property at the beginning and at the end
of the taxable year bears to the average of the aggregate fair
market values of both the real property and the personal property
at the beginning and at the end of such taxable year.
(2) Amounts excluded
For purposes of paragraphs (2) and (3) of subsection (c), the
term "rents from real property" does not include -
(A) except as provided in paragraphs (4) and (6), any amount
received or accrued, directly or indirectly, with respect to
any real or personal property, if the determination of such
amount depends in whole or in part on the income or profits
derived by any person from such property (except that any
amount so received or accrued shall not be excluded from the
term "rents from real property" solely by reason of being based
on a fixed percentage or percentages of receipts or sales);
(B) except as provided in paragraph (8), any amount received
or accrued directly or indirectly from any person if the real
estate investment trust owns, directly or indirectly -
(i) in the case of any person which is a corporation, stock
of such person possessing 10 percent or more of the total
combined voting power of all classes of stock entitled to
vote, or 10 percent or more of the total value of shares of
all classes of stock of such person; or
(ii) in the case of any person which is not a corporation,
an interest of 10 percent or more in the assets or net
profits of such person; and
(C) any impermissible tenant service income (as defined in
paragraph (7)).
(3) Independent contractor defined
For purposes of this subsection and subsection (e), the term
"independent contractor" means any person -
(A) who does not own, directly or indirectly, more than 35
percent of the shares, or certificates of beneficial interest,
in the real estate investment trust; and
(B) if such person is a corporation, not more than 35 percent
of the total combined voting power of whose stock (or 35
percent of the total shares of all classes of whose stock), or,
if such person is not a corporation, not more than 35 percent
of the interest in whose assets or net profits is owned,
directly or indirectly, by one or more persons owning 35
percent or more of the shares or certificates of beneficial
interest in the trust.
In the event that any class of stock of either the real estate
investment trust or such person is regularly traded on an
established securities market, only persons who own, directly or
indirectly, more than 5 percent of such class of stock shall be
taken into account as owning any of the stock of such class for
purposes of applying the 35 percent limitation set forth in
subparagraph (B) (but all of the outstanding stock of such class
shall be considered outstanding in order to compute the
denominator for purpose of determining the applicable percentage
of ownership).
(4) Special rule for certain contingent rents
Where a real estate investment trust receives or accrues, with
respect to real or personal property, any amount which would be
excluded from the term "rents from real property" solely because
the tenant of the real estate investment trust receives or
accrues, directly or indirectly, from subtenants any amount the
determination of which depends in whole or in part on the income
or profits derived by any person from such property, only a
proportionate part (determined pursuant to regulations prescribed
by the Secretary) of the amount received or accrued by the real
estate investment trust from that tenant will be excluded from
the term "rents from real property".
(5) Constructive ownership of stock
For purposes of this subsection, the rules prescribed by
section 318(a) for determining the ownership of stock shall apply
in determining the ownership of stock, assets, or net profits of
any person; except that -
(A) "10 percent" shall be substituted for "50 percent" in
subparagraph (C) of paragraphs (2) and (3) of section 318(a),
and
(B) section 318(a)(3)(A) shall be applied in the case of a
partnership by taking into account only partners who own
(directly or indirectly) 25 percent or more of the capital
interest, or the profits interest, in the partnership.
(6) Special rule for certain property subleased by tenant of real
estate investment trusts
(A) In general
If -
(i) a real estate investment trust receives or accrues,
with respect to real or personal property, amounts from a
tenant which derives substantially all of its income with
respect to such property from the subleasing of substantially
all of such property, and
(ii) a portion of the amount such tenant receives or
accrues, directly or indirectly, from subtenants consists of
qualified rents,
then the amounts which the trust receives or accrues from the
tenant shall not be excluded from the term "rents from real
property" by reason of being based on the income or profits of
such tenant to the extent the amounts so received or accrued
are attributable to qualified rents received or accrued by such
tenant.
(B) Qualified rents
For purposes of subparagraph (A), the term "qualified rents"
means any amount which would be treated as rents from real
property if received by the real estate investment trust.
(7) Impermissible tenant service income
For purposes of paragraph (2)(C) -
(A) In general
The term "impermissible tenant service income" means, with
respect to any real or personal property, any amount received
or accrued directly or indirectly by the real estate investment
trust for -
(i) services furnished or rendered by the trust to the
tenants of such property, or
(ii) managing or operating such property.
(B) Disqualification of all amounts where more than de minimis
amount
If the amount described in subparagraph (A) with respect to a
property for any taxable year exceeds 1 percent of all amounts
received or accrued during such taxable year directly or
indirectly by the real estate investment trust with respect to
such property, the impermissible tenant service income of the
trust with respect to the property shall include all such
amounts.
(C) Exceptions
For purposes of subparagraph (A) -
(i) services furnished or rendered, or management or
operation provided, through an independent contractor from
whom the trust itself does not derive or receive any income
or through a taxable REIT subsidiary of such trust shall not
be treated as furnished, rendered, or provided by the trust,
and
(ii) there shall not be taken into account any amount which
would be excluded from unrelated business taxable income
under section 512(b)(3) if received by an organization
described in section 511(a)(2).
(D) Amount attributable to impermissible services
For purposes of subparagraph (A), the amount treated as
received for any service (or management or operation) shall not
be less than 150 percent of the direct cost of the trust in
furnishing or rendering the service (or providing the
management or operation).
(E) Coordination with limitations
For purposes of paragraphs (2) and (3) of subsection (c),
amounts described in subparagraph (A) shall be included in the
gross income of the corporation, trust, or association.
(8) Special rule for taxable REIT subsidiaries
For purposes of this subsection, amounts paid to a real estate
investment trust by a taxable REIT subsidiary of such trust shall
not be excluded from rents from real property by reason of
paragraph (2)(B) if the requirements of either of the following
subparagraphs are met:
(A) Limited rental exception
(i) In general
The requirements of this subparagraph are met with respect
to any property if at least 90 percent of the leased space of
the property is rented to persons other than taxable REIT
subsidiaries of such trust and other than persons described
in paragraph (2)(B).
(ii) Rents must be substantially comparable
Clause (i) shall apply only to the extent that the amounts
paid to the trust as rents from real property (as defined in
paragraph (1) without regard to paragraph (2)(B)) from such
property are substantially comparable to such rents paid by
the other tenants of the trust's property for comparable
space.
(iii) Times for testing rent comparability
The substantial comparability requirement of clause (ii)
shall be treated as met with respect to a lease to a taxable
REIT subsidiary of the trust if such requirement is met under
the terms of the lease -
(I) at the time such lease is entered into,
(II) at the time of each extension of the lease,
including a failure to exercise a right to terminate, and
(III) at the time of any modification of the lease
between the trust and the taxable REIT subsidiary if the
rent under such lease is effectively increased pursuant to
such modification.
With respect to subclause (III), if the taxable REIT
subsidiary of the trust is a controlled taxable REIT
subsidiary of the trust, the term "rents from real property"
shall not in any event include rent under such lease to the
extent of the increase in such rent on account of such
modification.
(iv) Controlled taxable REIT subsidiary
For purposes of clause (iii), the term "controlled taxable
REIT subsidiary" means, with respect to any real estate
investment trust, any taxable REIT subsidiary of such trust
if such trust owns directly or indirectly -
(I) stock possessing more than 50 percent of the total
voting power of the outstanding stock of such subsidiary,
or
(II) stock having a value of more than 50 percent of the
total value of the outstanding stock of such subsidiary.
(v) Continuing qualification based on third party actions
If the requirements of clause (i) are met at a time
referred to in clause (iii), such requirements shall continue
to be treated as met so long as there is no increase in the
space leased to any taxable REIT subsidiary of such trust or
to any person described in paragraph (2)(B).
(vi) Correction period
If there is an increase referred to in clause (v) during
any calendar quarter with respect to any property, the
requirements of clause (iii) shall be treated as met during
the quarter and the succeeding quarter if such requirements
are met at the close of such succeeding quarter.
(B) Exception for certain lodging facilities
The requirements of this subparagraph are met with respect to
an interest in real property which is a qualified lodging
facility leased by the trust to a taxable REIT subsidiary of
the trust if the property is operated on behalf of such
subsidiary by a person who is an eligible independent
contractor.
(9) Eligible independent contractor
For purposes of paragraph (8)(B) -
(A) In general
The term "eligible independent contractor" means, with
respect to any qualified lodging facility, any independent
contractor if, at the time such contractor enters into a
management agreement or other similar service contract with the
taxable REIT subsidiary to operate the facility, such
contractor (or any related person) is actively engaged in the
trade or business of operating qualified lodging facilities for
any person who is not a related person with respect to the real
estate investment trust or the taxable REIT subsidiary.
(B) Special rules
Solely for purposes of this paragraph and paragraph (8)(B), a
person shall not fail to be treated as an independent
contractor with respect to any qualified lodging facility by
reason of any of the following:
(i) The taxable REIT subsidiary bears the expenses for the
operation of the facility pursuant to the management
agreement or other similar service contract.
(ii) The taxable REIT subsidiary receives the revenues from
the operation of such facility, net of expenses for such
operation and fees payable to the operator pursuant to such
agreement or contract.
(iii) The real estate investment trust receives income from
such person with respect to another property that is
attributable to a lease of such other property to such person
that was in effect as of the later of -
(I) January 1, 1999, or
(II) the earliest date that any taxable REIT subsidiary
of such trust entered into a management agreement or other
similar service contract with such person with respect to
such qualified lodging facility.
(C) Renewals, etc., of existing leases
For purposes of subparagraph (B)(iii) -
(i) a lease shall be treated as in effect on January 1,
1999, without regard to its renewal after such date, so long
as such renewal is pursuant to the terms of such lease as in
effect on whichever of the dates under subparagraph (B)(iii)
is the latest, and
(ii) a lease of a property entered into after whichever of
the dates under subparagraph (B)(iii) is the latest shall be
treated as in effect on such date if -
(I) on such date, a lease of such property from the trust
was in effect, and
(II) under the terms of the new lease, such trust
receives a substantially similar or lesser benefit in
comparison to the lease referred to in subclause (I).
(D) Qualified lodging facility
For purposes of this paragraph -
(i) In general
The term "qualified lodging facility" means any lodging
facility unless wagering activities are conducted at or in
connection with such facility by any person who is engaged in
the business of accepting wagers and who is legally
authorized to engage in such business at or in connection
with such facility.
(ii) Lodging facility
The term "lodging facility" means a hotel, motel, or other
establishment more than one-half of the dwelling units in
which are used on a transient basis.
(iii) Customary amenities and facilities
The term "lodging facility" includes customary amenities
and facilities operated as part of, or associated with, the
lodging facility so long as such amenities and facilities are
customary for other properties of a comparable size and class
owned by other owners unrelated to such real estate
investment trust.
(E) Operate includes manage
References in this paragraph to operating a property shall be
treated as including a reference to managing the property.
(F) Related person
Persons shall be treated as related to each other if such
persons are treated as a single employer under subsection (a)
or (b) of section 52.
(e) Special rules for foreclosure property
(1) Foreclosure property defined
For purposes of this part, the term "foreclosure property"
means any real property (including interests in real property),
and any personal property incident to such real property,
acquired by the real estate investment trust as the result of
such trust having bid in such property at foreclosure, or having
otherwise reduced such property to ownership or possession by
agreement or process of law, after there was default (or default
was imminent) on a lease of such property or on an indebtedness
which such property secured. Such term does not include property
acquired by the real estate investment trust as a result of
indebtedness arising from the sale or other disposition of
property of the trust described in section 1221(a)(1) which was
not originally acquired as foreclosure property.
(2) Grace period
Except as provided in paragraph (3), property shall cease to be
foreclosure property with respect to the real estate investment
trust as of the close of the 3d taxable year following the
taxable year in which the trust acquired such property.
(3) Extensions
If the real estate investment trust establishes to the
satisfaction of the Secretary that an extension of the grace
period is necessary for the orderly liquidation of the trust's
interests in such property, the Secretary may grant one extension
of the grace period for such property. Any such extension shall
not extend the grace period beyond the close of the 3d taxable
year following the last taxable year in the period under
paragraph (2).
(4) Termination of grace period in certain cases
Any foreclosure property shall cease to be such on the first
day (occurring on or after the day on which the real estate
investment trust acquired the property) on which -
(A) a lease is entered into with respect to such property
which, by its terms, will give rise to income which is not
described in subsection (c)(3) (other than subparagraph (F) of
such subsection), or any amount is received or accrued,
directly or indirectly, pursuant to a lease entered into on or
after such day which is not described in such subsection,
(B) any construction takes place on such property (other than
completion of a building, or completion of any other
improvement, where more than 10 percent of the construction of
such building or other improvement was completed before default
became imminent), or
(C) if such day is more than 90 days after the day on which
such property was acquired by the real estate investment trust
and the property is used in a trade or business which is
conducted by the trust (other than through an independent
contractor (within the meaning of section (d)(3)) from whom the
trust itself does not derive or receive any income).
For purposes of subparagraph (C), property shall not be treated
as used in a trade or business by reason of any activities of the
real estate investment trust with respect to such property to the
extent that such activities would not result in amounts received
or accrued, directly or indirectly, with respect to such property
being treated as other than rents from real property.
(5) Taxpayer must make election
Property shall be treated as foreclosure property for purposes
of this part only if the real estate investment trust so elects
(in the manner provided in regulations prescribed by the
Secretary) on or before the due date (including any extensions of
time) for filing its return of tax under this chapter for the
taxable year in which such trust acquires such property. A real
estate investment trust may revoke any such election for a
taxable year by filing the revocation (in the manner provided by
the Secretary) on or before the due date (including any extension
of time) for filing its return of tax under this chapter for the
taxable year. If a trust revokes an election for any property, no
election may be made by the trust under this paragraph with
respect to the property for any subsequent taxable year.
(6) Special rule for qualified health care properties
For purposes of this subsection -
(A) Acquisition at expiration of lease
The term "foreclosure property" shall include any qualified
health care property acquired by a real estate investment trust
as the result of the termination of a lease of such property
(other than a termination by reason of a default, or the
imminence of a default, on the lease).
(B) Grace period
In the case of a qualified health care property which is
foreclosure property solely by reason of subparagraph (A), in
lieu of applying paragraphs (2) and (3) -
(i) the qualified health care property shall cease to be
foreclosure property as of the close of the second taxable
year after the taxable year in which such trust acquired such
property, and
(ii) if the real estate investment trust establishes to the
satisfaction of the Secretary that an extension of the grace
period in clause (i) is necessary to the orderly leasing or
liquidation of the trust's interest in such qualified health
care property, the Secretary may grant one or more extensions
of the grace period for such qualified health care property.
Any such extension shall not extend the grace period beyond the
close of the 6th year after the taxable year in which such
trust acquired such qualified health care property.
(C) Income from independent contractors
For purposes of applying paragraph (4)(C) with respect to
qualified health care property which is foreclosure property by
reason of subparagraph (A) or paragraph (1), income derived or
received by the trust from an independent contractor shall be
disregarded to the extent such income is attributable to -
(i) any lease of property in effect on the date the real
estate investment trust acquired the qualified health care
property (without regard to its renewal after such date so
long as such renewal is pursuant to the terms of such lease
as in effect on such date), or
(ii) any lease of property entered into after such date if -
(I) on such date, a lease of such property from the trust
was in effect, and
(II) under the terms of the new lease, such trust
receives a substantially similar or lesser benefit in
comparison to the lease referred to in subclause (I).
(D) Qualified health care property
(i) In general
The term "qualified health care property" means any real
property (including interests therein), and any personal
property incident to such real property, which -
(I) is a health care facility, or
(II) is necessary or incidental to the use of a health
care facility.
(ii) Health care facility
For purposes of clause (i), the term "health care facility"
means a hospital, nursing facility, assisted living facility,
congregate care facility, qualified continuing care facility
(as defined in section 7872(g)(4)), or other licensed
facility which extends medical or nursing or ancillary
services to patients and which, immediately before the
termination, expiration, default, or breach of the lease of
or mortgage secured by such facility, was operated by a
provider of such services which was eligible for
participation in the medicare program under title XVIII of
the Social Security Act with respect to such facility.
(f) Interest
(1) In general
For purposes of paragraphs (2)(B) and (3)(B) of subsection (c),
the term "interest" does not include any amount received or
accrued, directly or indirectly, if the determination of such
amount depends in whole or in part on the income or profits of
any person except that -
(A) any amount so received or accrued shall not be excluded
from the term "interest" solely by reason of being based on a
fixed percentage or percentages of receipts or sales, and
(B) where a real estate investment trust receives any amount
which would be excluded from the term "interest" solely because
the debtor of the real estate investment trust receives or
accrues any amount the determination of which depends in whole
or in part on the income or profits of any person, only a
proportionate part (determined pursuant to regulations
prescribed by the Secretary) of the amount received or accrued
by the real estate investment trust from the debtor will be
excluded from the term "interest".
(2) Special rule
If -
(A) a real estate investment trust receives or accrues with
respect to an obligation secured by a mortgage on real property
or an interest in real property amounts from a debtor which
derives substantially all of its gross income with respect to
such property (not taking into account any gain on any
disposition) from the leasing of substantially all of its
interests in such property to tenants, and
(B) a portion of the amount which such debtor receives or
accrues, directly or indirectly, from tenants consists of
qualified rents (as defined in subsection (d)(6)(B)),
then the amounts which the trust receives or accrues from such
debtor shall not be excluded from the term "interest" by reason
of being based on the income or profits of such debtor to the
extent the amounts so received are attributable to qualified
rents received or accrued by such debtor.
(g) Termination of election
(1) Failure to qualify
An election under subsection (c)(1) made by a corporation,
trust, or association shall terminate if the corporation, trust,
or association is not a real estate investment trust to which the
provisions of this part apply for the taxable year with respect
to which the election is made, or for any succeeding taxable year
unless paragraph (5) applies. Such termination shall be effective
for the taxable year for which the corporation, trust, or
association is not a real estate investment trust to which the
provisions of this part apply, and for all succeeding taxable
years.
(2) Revocation
An election under subsection (c)(1) made by a corporation,
trust, or association may be revoked by it for any taxable year
after the first taxable year for which the election is effective.
A revocation under this paragraph shall be effective for the
taxable year in which made and for all succeeding taxable years.
Such revocation must be made on or before the 90th day after the
first day of the first taxable year for which the revocation is
to be effective. Such revocation shall be made in such manner as
the Secretary shall prescribe by regulations.
(3) Election after termination or revocation
Except as provided in paragraph (4), if a corporation, trust,
or association has made an election under subsection (c)(1) and
such election has been terminated or revoked under paragraph (1)
or paragraph (2), such corporation, trust, or association (and
any successor corporation, trust, or association) shall not be
eligible to make an election under subsection (c)(1) for any
taxable year prior to the fifth taxable year which begins after
the first taxable year for which such termination or revocation
is effective.
(4) Exception
If the election of a corporation, trust, or association has
been terminated under paragraph (1), paragraph (3) shall not
apply if -
(A) the corporation, trust, or association does not willfully
fail to file within the time prescribed by law an income tax
return for the taxable year with respect to which the
termination of the election under subsection (c)(1) occurs;
(B) the inclusion of any incorrect information in the return
referred to in subparagraph (A) is not due to fraud with intent
to evade tax; and
(C) the corporation, trust, or association establishes to the
satisfaction of the Secretary that its failure to qualify as a
real estate investment trust to which the provisions of this
part apply is due to reasonable cause and not due to willful
neglect.
(5) Entities to which paragraph applies
This paragraph applies to a corporation, trust, or association -
(A) which is not a real estate investment trust to which the
provisions of this part apply for the taxable year due to one
or more failures to comply with one or more of the provisions
of this part (other than paragraph (2), (3), or (4) of
subsection (c)),
(B) such failures are due to reasonable cause and not due to
willful neglect, and
(C) if such corporation, trust, or association pays (as
prescribed by the Secretary in regulations and in the same
manner as tax) a penalty of $50,000 for each failure to satisfy
a provision of this part due to reasonable cause and not
willful neglect.
(h) Closely held determinations
(1) Section 542(a)(2) applied
(A) In general
For purposes of subsection (a)(6), a corporation, trust, or
association is closely held if the stock ownership requirement
of section 542(a)(2) is met.
(B) Waiver of partnership attribution, etc.
For purposes of subparagraph (A) -
(i) paragraph (2) of section 544(a) shall be applied as if
such paragraph did not contain the phrase "or by or for his
partner", and
(ii) sections 544(a)(4)(A) and 544(b)(1) shall be applied
by substituting "the entity meet the stock ownership
requirement of section 542(a)(2)" for "the corporation a
personal holding company".
(2) Subsections (a)(5) and (6) not to apply to 1st year
Paragraphs (5) and (6) of subsection (a) shall not apply to the
1st taxable year for which an election is made under subsection
(c)(1) by any corporation, trust, or association.
(3) Treatment of trusts described in section 401(a)
(A) Look-thru treatment
(i) In general
Except as provided in clause (ii), in determining whether
the stock ownership requirement of section 542(a)(2) is met
for purposes of paragraph (1)(A), any stock held by a
qualified trust shall be treated as held directly by its
beneficiaries in proportion to their actuarial interests in
such trust and shall not be treated as held by such trust.
(ii) Certain related trusts not eligible
Clause (i) shall not apply to any qualified trust if one or
more disqualified persons (as defined in section 4975(e)(2),
without regard to subparagraphs (B) and (I) thereof) with
respect to such qualified trust hold in the aggregate 5
percent or more in value of the interests in the real estate
investment trust and such real estate investment trust has
accumulated earnings and profits attributable to any period
for which it did not qualify as a real estate investment
trust.
(B) Coordination with personal holding company rules
If any entity qualifies as a real estate investment trust for
any taxable year by reason of subparagraph (A), such entity
shall not be treated as a personal holding company for such
taxable year for purposes of part II of subchapter G of this
chapter.
(C) Treatment for purposes of unrelated business tax
If any qualified trust holds more than 10 percent (by value)
of the interests in any pension-held REIT at any time during a
taxable year, the trust shall be treated as having for such
taxable year gross income from an unrelated trade or business
in an amount which bears the same ratio to the aggregate
dividends paid (or treated as paid) by the REIT to the trust
for the taxable year of the REIT with or within which the
taxable year of the trust ends (the "REIT year") as -
(i) the gross income (less direct expenses related thereto)
of the REIT for the REIT year from unrelated trades or
businesses (determined as if the REIT were a qualified
trust), bears to
(ii) the gross income (less direct expenses related
thereto) of the REIT for the REIT year.
This subparagraph shall apply only if the ratio determined
under the preceding sentence is at least 5 percent.
(D) Pension-held REIT
The purposes of subparagraph (C) -
(i) In general
A real estate investment trust is a pension-held REIT if
such trust would not have qualified as a real estate
investment trust but for the provisions of this paragraph and
if such trust is predominantly held by qualified trusts.
(ii) Predominantly held
For purposes of clause (i), a real estate investment trust
is predominantly held by qualified trusts if -
(I) at least 1 qualified trust holds more than 25 percent
(by value) of the interests in such real estate investment
trust, or
(II) 1 or more qualified trusts (each of whom own more
than 10 percent by value of the interests in such real
estate investment trust) hold in the aggregate more than 50
percent (by value) of the interests in such real estate
investment trust.
(E) Qualified trust
For purposes of this paragraph, the term "qualified trust"
means any trust described in section 401(a) and exempt from tax
under section 501(a).
(i) Treatment of certain wholly owned subsidiaries
(1) In general
For purposes of this title -
(A) a corporation which is a qualified REIT subsidiary shall
not be treated as a separate corporation, and
(B) all assets, liabilities, and items of income, deduction,
and credit of a qualified REIT subsidiary shall be treated as
assets, liabilities, and such items (as the case may be) of the
real estate investment trust.
(2) Qualified REIT subsidiary
For purposes of this subsection, the term "qualified REIT
subsidiary" means any corporation if 100 percent of the stock of
such corporation is held by the real estate investment trust.
Such term shall not include a taxable REIT subsidiary.
(3) Treatment of termination of qualified subsidiary status
For purposes of this subtitle, if any corporation which was a
qualified REIT subsidiary ceases to meet the requirements of
paragraph (2), such corporation shall be treated as a new
corporation acquiring all of its assets (and assuming all of its
liabilities) immediately before such cessation from the real
estate investment trust in exchange for its stock.
(j) Treatment of shared appreciation mortgages
(1) In general
Solely for purposes of subsection (c) of this section and
section 857(b)(6), any income derived from a shared appreciation
provision shall be treated as gain recognized on the sale of the
secured property.
(2) Treatment of income
For purposes of applying subsection (c) of this section and
section 857(b)(6) to any income described in paragraph (1) -
(A) the real estate investment trust shall be treated as
holding the secured property for the period during which it
held the shared appreciation provision (or, if shorter, for the
period during which the secured property was held by the person
holding such property), and
(B) the secured property shall be treated as property
described in section 1221(a)(1) if it is so described in the
hands of the person holding the secured property (or it would
be so described if held by the real estate investment trust).
(3) Coordination with prohibited transactions safe harbor
For purposes of section 857(b)(6)(C) -
(A) the real estate investment trust shall be treated as
having sold the secured property when it recognizes any income
described in paragraph (1), and
(B) any expenditures made by any holder of the secured
property shall be treated as made by the real estate investment
trust.
(4) Coordination with 4-year holding period
(A) In general
For purposes of section 857(b)(6)(C), if a real estate
investment trust is treated as having sold secured property
under paragraph (3)(A), the trust shall be treated as having
held such property for at least 4 years if -
(i) the secured property is sold or otherwise disposed of
pursuant to a case under title 11 of the United States Code,
(ii) the seller is under the jurisdiction of the court in
such case, and
(iii) the disposition is required by the court or is
pursuant to a plan approved by the court.
(B) Exception
Subparagraph (A) shall not apply if -
(i) the secured property was acquired by the seller with
the intent to evict or foreclose, or
(ii) the trust knew or had reason to know that default on
the obligation described in paragraph (5)(A) would occur.
(5) Definitions
For purposes of this subsection -
(A) Shared appreciation provision
The term "shared appreciation provision" means any provision -
(i) which is in connection with an obligation which is held
by the real estate investment trust and is secured by an
interest in real property, and
(ii) which entitles the real estate investment trust to
receive a specified portion of any gain realized on the sale
or exchange of such real property (or of any gain which would
be realized if the property were sold on a specified date) or
appreciation in value as of any specified date.
(B) Secured property
The term "secured property" means the real property referred
to in subparagraph (A).
(k) Requirement that entity not be closely held treated as met in
certain cases
A corporation, trust, or association -
(1) which for a taxable year meets the requirements of section
857(f)(1), and
(2) which does not know, or exercising reasonable diligence
would not have known, whether the entity failed to meet the
requirement of subsection (a)(6),
shall be treated as having met the requirement of subsection (a)(6)
for the taxable year.
(l) Taxable REIT subsidiary
For purposes of this part -
(1) In general
The term "taxable REIT subsidiary" means, with respect to a
real estate investment trust, a corporation (other than a real
estate investment trust) if -
(A) such trust directly or indirectly owns stock in such
corporation, and
(B) such trust and such corporation jointly elect that such
corporation shall be treated as a taxable REIT subsidiary of
such trust for purposes of this part.
Such an election, once made, shall be irrevocable unless both
such trust and corporation consent to its revocation. Such
election, and any revocation thereof, may be made without the
consent of the Secretary.
(2) Thirty-five percent ownership in another taxable REIT
subsidiary
The term "taxable REIT subsidiary" includes, with respect to
any real estate investment trust, any corporation (other than a
real estate investment trust) with respect to which a taxable
REIT subsidiary of such trust owns directly or indirectly -
(A) securities possessing more than 35 percent of the total
voting power of the outstanding securities of such corporation,
or
(B) securities having a value of more than 35 percent of the
total value of the outstanding securities of such corporation.
The preceding sentence shall not apply to a qualified REIT
subsidiary (as defined in subsection (i)(2)). The rule of section
856(c)(7) shall apply for purposes of subparagraph (B).
(3) Exceptions
The term "taxable REIT subsidiary" shall not include -
(A) any corporation which directly or indirectly operates or
manages a lodging facility or a health care facility, and
(B) any corporation which directly or indirectly provides to
any other person (under a franchise, license, or otherwise)
rights to any brand name under which any lodging facility or
health care facility is operated.
Subparagraph (B) shall not apply to rights provided to an
eligible independent contractor to operate or manage a lodging
facility if such rights are held by such corporation as a
franchisee, licensee, or in a similar capacity and such lodging
facility is either owned by such corporation or is leased to such
corporation from the real estate investment trust.
(4) Definitions
For purposes of paragraph (3) -
(A) Lodging facility
The term "lodging facility" has the meaning given to such
term by subsection (d)(9)(D)(ii).
(B) Health care facility
The term "health care facility" has the meaning given to such
term by subsection (e)(6)(D)(ii).
(m) Safe harbor in applying subsection (c)(4)
(1) In general
In applying subclause (III) of subsection (c)(4)(B)(iii),
except as otherwise determined by the Secretary in regulations,
the following shall not be considered securities held by the
trust:
(A) Straight debt securities of an issuer which meet the
requirements of paragraph (2).
(B) Any loan to an individual or an estate.
(C) Any section 467 rental agreement (as defined in section
467(d)), other than with a person described in subsection
(d)(2)(B).
(D) Any obligation to pay rents from real property (as
defined in subsection (d)(1)).
(E) Any security issued by a State or any political
subdivision thereof, the District of Columbia, a foreign
government or any political subdivision thereof, or the
Commonwealth of Puerto Rico, but only if the determination of
any payment received or accrued under such security does not
depend in whole or in part on the profits of any entity not
described in this subparagraph or payments on any obligation
issued by such an entity,
(F) Any security issued by a real estate investment trust.
(G) Any other arrangement as determined by the Secretary.
(2) Special rules relating to straight debt securities
(A) In general
For purposes of paragraph (1)(A), securities meet the
requirements of this paragraph if such securities are straight
debt, as defined in section 1361(c)(5) (without regard to
subparagraph (B)(iii) thereof).
(B) Special rules relating to certain contingencies
For purposes of subparagraph (A), any interest or principal
shall not be treated as failing to satisfy section
1361(c)(5)(B)(i) solely by reason of the fact that -
(i) the time of payment of such interest or principal is
subject to a contingency, but only if -
(I) any such contingency does not have the effect of
changing the effective yield to maturity, as determined
under section 1272, other than a change in the annual yield
to maturity which does not exceed the greater of 1/4 of 1
percent or 5 percent of the annual yield to maturity, or
(II) neither the aggregate issue price nor the aggregate
face amount of the issuer's debt instruments held by the
trust exceeds $1,000,000 and not more than 12 months of
unaccrued interest can be required to be prepaid
thereunder, or
(ii) the time or amount of payment is subject to a
contingency upon a default or the exercise of a prepayment
right by the issuer of the debt, but only if such contingency
is consistent with customary commercial practice.
(C) Special rules relating to corporate or partnership issuers
In the case of an issuer which is a corporation or a
partnership, securities that otherwise would be described in
paragraph (1)(A) shall be considered not to be so described if
the trust holding such securities and any of its controlled
taxable REIT subsidiaries (as defined in subsection
(d)(8)(A)(iv)) hold any securities of the issuer which -
(i) are not described in paragraph (1) (prior to the
application of this subparagraph), and
(ii) have an aggregate value greater than 1 percent of the
issuer's outstanding securities determined without regard to
paragraph (3)(A)(i).
(3) Look-through rule for partnership securities
(A) In general
For purposes of applying subclause (III) of subsection
(c)(4)(B)(iii) -
(i) a trust's interest as a partner in a partnership (as
defined in section 7701(a)(2)) shall not be considered a
security, and
(ii) the trust shall be deemed to own its proportionate
share of each of the assets of the partnership.
(B) Determination of trust's interest in partnership assets
For purposes of subparagraph (A), with respect to any taxable
year beginning after the date of the enactment of this
subparagraph -
(i) the trust's interest in the partnership assets shall be
the trust's proportionate interest in any securities issued
by the partnership (determined without regard to subparagraph
(A)(i) and paragraph (4), but not including securities
described in paragraph (1)), and
(ii) the value of any debt instrument shall be the adjusted
issue price thereof, as defined in section 1272(a)(4).
(4) Certain partnership debt instruments not treated as a
security
For purposes of applying subclause (III) of subsection
(c)(4)(B)(iii) -
(A) any debt instrument issued by a partnership and not
described in paragraph (1) shall not be considered a security
to the extent of the trust's interest as a partner in the
partnership, and
(B) any debt instrument issued by a partnership and not
described in paragraph (1) shall not be considered a security
if at least 75 percent of the partnership's gross income
(excluding gross income from prohibited transactions) is
derived from sources referred to in subsection (c)(3).
(5) Secretarial guidance
The Secretary is authorized to provide guidance (including
through the issuance of a written determination, as defined in
section 6110(b)) that an arrangement shall not be considered a
security held by the trust for purposes of applying subclause
(III) of subsection (c)(4)(B)(iii) notwithstanding that such
arrangement otherwise could be considered a security under
subparagraph (F) of subsection (c)(5).
(6) Transition rule
(A) In general
Notwithstanding paragraph (2)(C), securities held by a trust
shall not be considered securities held by the trust for
purposes of subsection (c)(4)(B)(iii)(III) during any period
beginning on or before October 22, 2004, if such securities -
(i) are held by such trust continuously during such period,
and
(ii) would not be taken into account for purposes of such
subsection by reason of paragraph (7)(C) of subsection (c)
(as in effect on October 22, 2004) if the amendments made by
section 243 of the American Jobs Creation Act of 2004 had
never been enacted.
(B) Rule not to apply to securities held after maturity date
Subparagraph (A) shall not apply with respect to any security
after the later of October 22, 2004, or the latest maturity
date under the contract (as in effect on October 22, 2004)
taking into account any renewal or extension permitted under
the contract if such renewal or extension does not
significantly modify any other terms of the contract.
(C) Successors
If the successor of a trust to which this paragraph applies
acquires securities in a transaction to which section 381
applies, such trusts shall be treated as a single entity for
purposes of determining the holding period of such securities
under subparagraph (A).
-SOURCE-
(Added Pub. L. 86-779, Sec. 10(a), Sept. 14, 1960, 74 Stat. 1004;
amended Pub. L. 88-272, title II, Sec. 225(k)(4), Feb. 26, 1964, 78
Stat. 94; Pub. L. 88-554, Sec. 4(b)(4), Aug. 31, 1964, 78 Stat.
763; Pub. L. 93-625, Sec. 6(a), (b), (d)(1), Jan. 3, 1975, 88 Stat.
2112-2114; Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(O), (2),
title XVI, Secs. 1602(a), 1603(a), (c)(1)-(4), 1604(a)-(c)(1), (d)-
(f)(3)(A), (g), (k)(1), (2)(A), title XIX, Secs. 1901(a)(111),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1732, 1746, 1748-1753, 1783,
1834; Pub. L. 95-600, title III, Sec. 363(a), (c), title VII, Sec.
701(t)(2), Nov. 6, 1978, 92 Stat. 2852, 2853, 2912; Pub. L. 98-369,
div. A, title X, Sec. 1001(b)(12), (e), July 18, 1984, 98 Stat.
1011, 1012; Pub. L. 99-514, title VI, Secs. 661(a), 662, 663,
671(b)(1), title IX, Sec. 901(d)(4)(E), Oct. 22, 1986, 100 Stat.
2299, 2300, 2302, 2317, 2380; Pub. L. 100-647, title I, Sec.
1006(p)(1), (3), (4)(A), (5), (q), (t)(11), Nov. 10, 1988, 102
Stat. 3416, 3417, 3422; Pub. L. 103-66, title XIII, Sec. 13149(a),
Aug. 10, 1993, 107 Stat. 445; Pub. L. 104-188, title I, Secs.
1621(b)(5), 1704(t)(35), Aug. 20, 1996, 110 Stat. 1867, 1889; Pub.
L. 105-34, title XII, Secs. 1251(b)-1253, 1255(a), (b)(1), 1257,
1258, 1261, 1262, Aug. 5, 1997, 111 Stat. 1031-1036; Pub. L. 106-
170, title V, Secs. 532(c)(2)(H)-(K), 541-542(b)(3)(A)(i), (B)(i),
543, 551(a), 561(a), Dec. 17, 1999, 113 Stat. 1930, 1940-1943,
1948, 1949; Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 319(9),
(10)], Dec. 21, 2000, 114 Stat. 2763, 2763A-646; Pub. L. 108-357,
title II, Sec. 243(a), (b), (d), (f)(1)-(3), title VIII, Sec.
835(b)(4), Oct. 22, 2004, 118 Stat. 1439, 1441-1444, 1593; Pub. L.
109-135, title IV, Secs. 403(d)(1), (2), 412(hh), Dec. 21, 2005,
119 Stat. 2620, 2622, 2639.)
-REFTEXT-
REFERENCES IN TEXT
The Investment Company Act of 1940, referred to in subsec.
(c)(5)(F), is title I of act Aug. 22, 1940, ch. 686, 54 Stat. 789,
as amended, which is classified generally to subchapter I (Sec. 80a-
1 et seq.) of chapter 2D of Title 15, Commerce and Trade. For
complete classification of this Act to the Code, see section 80a-51
of Title 15 and Tables.
The Social Security Act, referred to in subsec. (e)(6)(D)(ii), is
act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Title XVIII
of the Act is classified generally to subchapter XVIII (Sec. 1395
et seq.) of chapter 7 of Title 42, The Public Health and Welfare.
For complete classification of this Act to the Code, see section
1305 of Title 42 and Tables.
The date of the enactment of this subparagraph, referred to in
subsec. (m)(3)(B), is the date of enactment of Pub. L. 108-357,
which was approved Oct. 22, 2004.
Section 243 of the American Jobs Creation Act of 2004, referred
to in subsec. (m)(6)(A)(ii), is section 243 of Pub. L. 108-357,
which amended this section and sections 857 and 860 of this title
and enacted provisions set out as a note under this section.
-MISC1-
AMENDMENTS
2005 - Subsec. (c)(7). Pub. L. 109-135, Sec. 403(d)(1), reenacted
heading without change and amended text generally. Prior to
amendment, text consisted of subpars. (A) to (C) relating to rules
of application for a corporation, trust, or association that fails
to satisfy the requirements of paragraph (4) of this subsection.
Subsec. (g)(5)(A). Pub. L. 109-135, Sec. 412(hh), substituted
"paragraph (2), (3), or (4) of subsection (c)" for "subsection
(c)(6) or (c)(7) of section 856".
Subsec. (m)(6). Pub. L. 109-135, Sec. 403(d)(2), added par. (6).
2004 - Subsec. (c)(5)(E). Pub. L. 108-357, Sec. 835(b)(4), struck
out last sentence which read as follows: "The principles of the
preceding provisions of this subparagraph shall apply to regular
interests in a FASIT."
Subsec. (c)(5)(G). Pub. L. 108-357, Sec. 243(d), reenacted
heading without change and amended text of subpar. (G) generally.
Prior to amendment, subpar. (G) provided that, except to the extent
provided by regulations, payment to a real estate investment trust
under an interest rate swap or cap agreement, option, futures
contract, forward rate agreement, or any similar financial
instrument, entered into by the trust in a transaction to reduce
the interest rate risks with respect to any indebtedness incurred
or to be incurred by the trust to acquire or carry real estate
assets, and gain from the sale or other disposition of any such
investment, would be treated as income qualifying under par. (2).
Subsec. (c)(6)(A). Pub. L. 108-357, Sec. 243(f)(2), added subpar.
(A) and struck out former subpar. (A) which read as follows: "the
nature and amount of each item of its gross income described in
such paragraphs is set forth in a schedule attached to its income
tax return for such taxable year;".
Subsec. (c)(6)(B), (C). Pub. L. 108-357, Sec. 243(f)(2),
redesignated subpar. (C) as (B) and struck out former subpar. (B)
which read as follows: "the inclusion of any incorrect information
in the schedule referred to in subparagraph (A) is not due to fraud
with intent to evade tax; and".
Subsec. (c)(7). Pub. L. 108-357, Sec. 243(f)(1), added par. (7).
Pub. L. 108-357, Sec. 243(a)(1), struck out par. (7) which
provided that securities of an issuer which were straight debt
would not be taken into account in applying paragraph
(4)(B)(iii)(III), if the issuer was an individual, if the only
securities of such issuer which were held by the trust or a taxable
REIT subsidiary of the trust were straight debt, or if the issuer
was a partnership and the trust held at least a 20 percent profits
interest in the partnership.
Subsec. (d)(8)(A). Pub. L. 108-357, Sec. 243(b), reenacted
heading without change and amended text of subpar. (A) generally.
Prior to amendment, text read as follows: "The requirements of this
subparagraph are met with respect to any property if at least 90
percent of the leased space of the property is rented to persons
other than taxable REIT subsidiaries of such trust and other than
persons described in section 856(d)(2)(B). The preceding sentence
shall apply only to the extent that the amounts paid to the trust
as rents from real property (as defined in paragraph (1) without
regard to paragraph (2)(B)) from such property are substantially
comparable to such rents made by the other tenants of the trust's
property for comparable space."
Subsec. (g)(1). Pub. L. 108-357, Sec. 243(f)(3)(A), inserted
"unless paragraph (5) applies" before ". Such termination".
Subsec. (g)(5). Pub. L. 108-357, Sec. 243(f)(3)(B), added par.
(5).
Subsec. (m). Pub. L. 108-357, Sec. 243(a)(2), added subsec. (m).
2000 - Subsec. (c)(7). Pub. L. 106-554, Sec. 1(a)(7) [title III,
Sec. 319(9)], substituted "paragraph (4)(B)(iii)(III)" for
"paragraph (4)(B)(ii)(III)" in introductory provisions.
Subsec. (l)(4)(A). Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec.
319(10)], substituted "subsection (d)(9)(D)(ii)" for "paragraph
(9)(D)(ii)".
1999 - Subsec. (c)(2)(D), (3)(C). Pub. L. 106-170, Sec.
532(c)(2)(H), (I), substituted "section 1221(a)(1)" for "section
1221(1)".
Subsec. (c)(4)(B). Pub. L. 106-170, Sec. 541(a), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
"not more than 25 percent of the value of its total assets is
represented by securities (other than those includible under
subparagraph (A)) for purposes of this calculation limited in
respect of any one issuer to an amount not greater in value than 5
percent of the value of the total assets of the trust and to not
more than 10 percent of the outstanding voting securities of such
issuer."
Subsec. (c)(7). Pub. L. 106-170, Sec. 541(b), added par. (7).
Subsec. (d)(1). Pub. L. 106-170, Sec. 542(b)(3)(A)(i),
substituted "fair market values" for "adjusted bases" in two places
in concluding provisions.
Subsec. (d)(2)(B). Pub. L. 106-170, Sec. 542(b)(2), inserted
"except as provided in paragraph (8)," after "(B)" in introductory
provisions.
Subsec. (d)(2)(B)(i). Pub. L. 106-170, Sec. 542(b)(3)(B)(i),
substituted "value" for "number".
Subsec. (d)(3). Pub. L. 106-170, Sec. 561(a), inserted concluding
provisions.
Subsec. (d)(7)(C)(i). Pub. L. 106-170, Sec. 542(a), inserted "or
through a taxable REIT subsidiary of such trust" after "income".
Subsec. (d)(8), (9). Pub. L. 106-170, Sec. 542(b)(1), added pars.
(8) and (9).
Subsec. (e)(1). Pub. L. 106-170, Sec. 532(c)(2)(J), substituted
"section 1221(a)(1)" for "section 1221(1)".
Subsec. (e)(6). Pub. L. 106-170, Sec. 551(a), added par. (6).
Subsec. (i)(2). Pub. L. 106-170, Sec. 543(b), inserted at end
"Such term shall not include a taxable REIT subsidiary."
Subsec. (j)(2)(B). Pub. L. 106-170, Sec. 532(c)(2)(K),
substituted "section 1221(a)(1)" for "section 1221(1)".
Subsec. (l). Pub. L. 106-170, Sec. 543(a), added subsec. (l).
1997 - Subsec. (a)(6). Pub. L. 105-34, Sec. 1251(b)(2), inserted
"subject to the provisions of subsection (k)," before "which is
not".
Subsec. (c)(3)(I). Pub. L. 105-34, Sec. 1255(a)(1), inserted
"and" at end.
Subsec. (c)(4). Pub. L. 105-34, Sec. 1255(a)(2), (3),
redesignated par. (5) as (4) and struck out former par. (4) which
read as follows: "less than 30 percent of its gross income is
derived from the sale or other disposition of -
"(A) stock or securities held for less than 1 year;
"(B) property in a transaction which is a prohibited
transaction; and
"(C) real property (including interests in real property and
interests in mortgages on real property) held for less than 4
years other than -
"(i) property compulsorily or involuntarily converted within
the meaning of section 1033, and
"(ii) property which is foreclosure property within the
definition of section 856(e); and".
Subsec. (c)(5). Pub. L. 105-34, Sec. 1255(a)(3), redesignated
par. (6) as (5). Former par. (5) redesignated (4).
Subsec. (c)(5)(G). Pub. L. 105-34, Sec. 1258, amended heading and
text of subpar. (G) generally. Prior to amendment, text read as
follows: "Except to the extent provided by regulations, any -
"(i) payment to a real estate investment trust under a bona
fide interest rate swap or cap agreement entered into by the real
estate investment trust to hedge any variable rate indebtedness
of such trust incurred or to be incurred to acquire or carry real
estate assets, and
"(ii) any gain from the sale or other disposition of such
agreement,
shall be treated as income qualifying under paragraph (2)."
Pub. L. 105-34, Sec. 1255(b)(1), struck out "and such agreement
shall be treated as a security for purposes of paragraph (4)(A)"
after "under paragraph (2)" in concluding provisions.
Subsec. (c)(6), (7). Pub. L. 105-34, Sec. 1255(a)(3),
redesignated par. (7) as (6). Former par. (6) redesignated (5).
Subsec. (c)(8). Pub. L. 105-34, Sec. 1255(a)(2), struck out
heading and text of par. (8). Text read as follows: "In the case of
the taxable year in which a real estate investment trust is
completely liquidated, there shall not be taken into account under
paragraph (4) any gain from the sale, exchange, or distribution of
any property after the adoption of the plan of complete
liquidation."
Subsec. (d)(2). Pub. L. 105-34, Sec. 1252(a), added subpar. (C)
and struck out former subpar. (C) and concluding provisions which
read as follows:
"(C) any amount received or accrued, directly or indirectly,
with respect to any real or personal property if the real estate
investment trust furnishes or renders services to the tenants of
such property, or manages or operates such property, other than
through an independent contractor from whom the trust itself does
not derive or receive any income.
Subparagraph (C) shall not apply with respect to any amount if such
amount would be excluded from unrelated business taxable income
under section 512(b)(3) if received by an organization described in
section 511(a)(2)."
Subsec. (d)(5). Pub. L. 105-34, Sec. 1253, substituted "except
that - " and subpars. (A) and (B) for "except that '10 percent'
shall be substituted for '50 percent' in subparagraph (C) of
section 318(a)(2) and 318(a)(3)."
Subsec. (d)(7). Pub. L. 105-34, Sec. 1252(b), added par. (7).
Subsec. (e)(2). Pub. L. 105-34, Sec. 1257(a)(1), which directed
amendment of par. (2) by substituting "as of the close of the 3d
taxable year following the taxable year in which the trust acquired
such property" for "on the date which is 2 years after the date the
trust acquired such property", was executed by making the
substitution for "on the date which is 2 years after the date such
trust acquired such property" to reflect the probable intent of
Congress.
Subsec. (e)(3). Pub. L. 105-34, Sec. 1257(a)(2), substituted
"grant one extension" for "grant one or more extensions" and "Any
such extension shall not extend the grace period beyond the close
of the 3d taxable year following the last taxable year in the
period under paragraph (2)." for "Any such extension shall not
extend the grace period beyond the date which is 6 years after the
date such trust acquired such property."
Subsec. (e)(4). Pub. L. 105-34, Sec. 1257(c), inserted concluding
provisions "For purposes of subparagraph (C), property shall not be
treated as used in a trade or business by reason of any activities
of the real estate investment trust with respect to such property
to the extent that such activities would not result in amounts
received or accrued, directly or indirectly, with respect to such
property being treated as other than rents from real property."
Subsec. (e)(5). Pub. L. 105-34, Sec. 1257(b), substituted "A real
estate investment trust may revoke any such election for a taxable
year by filing the revocation (in the manner provided by the
Secretary) on or before the due date (including any extension of
time) for filing its return of tax under this chapter for the
taxable year. If a trust revokes an election for any property, no
election may be made by the trust under this paragraph with respect
to the property for any subsequent taxable year." for "Any such
election shall be irrevocable."
Subsec. (i)(2). Pub. L. 105-34, Sec. 1262, struck out "at all
times during the period such corporation was in existence" after
"real estate investment trust".
Subsec. (j)(4). Pub. L. 105-34, Sec. 1261(a), added par. (4).
Former par. (4) redesignated (5).
Subsec. (j)(5). Pub. L. 105-34, Sec. 1261(a), redesignated par.
(4) as (5).
Subsec. (j)(5)(A)(ii). Pub. L. 105-34, Sec. 1261(b), inserted
before period at end "or appreciation in value as of any specified
date".
Subsec. (k). Pub. L. 105-34, Sec. 1251(b)(1), added subsec. (k).
1996 - Subsec. (a)(4). Pub. L. 104-188, Sec. 1704(t)(35),
substituted "section 582(c)(2)" for "section 582(c)(5)".
Subsec. (c)(6)(E). Pub. L. 104-188, Sec. 1621(b)(5), inserted at
end "The principles of the preceding provisions of this
subparagraph shall apply to regular interests in a FASIT."
1993 - Subsec. (h)(3). Pub. L. 103-66 added par. (3).
1988 - Subsec. (c)(6)(D). Pub. L. 100-647, Sec. 1006(t)(11),
struck out subpar. (D), as added by Pub. L. 99-514, Sec. 671(b)(1),
which read as follows: "A regular or residual interest in a REMIC
shall be treated as an interest in real property, and any amount
includible in gross income with respect to such an interest shall
be treated as interest; except that, if less than 95 percent of the
assets of such REMIC are interests in real property (determined as
if the taxpayer held such assets), such interest shall be so
treated only in the proportion which the assets of the REMIC
consist of such interests."
Subsec. (c)(6)(D)(i)(I). Pub. L. 100-647, Sec. 1006(p)(1),
substituted "debt instrument (within the meaning of section
1275(a)(1))" for "debt instrument".
Subsec. (c)(6)(D)(ii)(I). Pub. L. 100-647, Sec. 1006(p)(5),
substituted "stock (or certificates of beneficial interests) in
such trust" for "stock in such trust".
Subsec. (c)(6)(E), (F). Pub. L. 100-647, Sec. 1006(t)(11), added
subpar. (E) and redesignated former subpar. (E) as (F).
Subsec. (c)(6)(G). Pub. L. 100-647, Sec. 1006(p)(4)(A), added
subpar. (G).
Subsec. (c)(8). Pub. L. 100-647, Sec. 1006(p)(3), added par. (8).
Subsec. (d)(6)(A). Pub. L. 100-647, Sec. 1006(q)(1), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "If -
"(i) a real estate investment trust receives or accrues, with
respect to real or personal property, amounts from a tenant which
derives substantially all of its income with respect to such
property from the subleasing of substantially all of such
property, and
"(ii) such tenant receives or accrues, directly or indirectly,
from subtenants only amounts which are qualified rents,
then the amounts that the trust receives or accrues from the tenant
shall not be excluded from the term 'rents from real property'
solely by reason of being based on the income or profits of such
tenant."
Subsec. (f). Pub. L. 100-647, Sec. 1006(q)(2), amended subsec.
(f) generally, making changes in content and structure.
1986 - Subsec. (a)(4). Pub. L. 99-514, Sec. 901(d)(4)(E),
substituted "referred to in section 582(c)(5)" for "to which
section 585, 586, or 593 applies".
Subsec. (a)(6). Pub. L. 99-514, Sec. 661(a)(1), amended par. (6)
generally. Prior to amendment, par. (6) read as follows: "which
would not be a personal holding company (as defined in section 542)
if all of its adjusted ordinary gross income (as defined in section
543(b)(2)) constituted personal holding company income (as defined
in section 543); and".
Subsec. (c)(3)(I). Pub. L. 99-514, Sec. 662(b)(1), added subpar.
(I).
Subsec. (c)(6)(B). Pub. L. 99-514, Sec. 662(b)(2), inserted "Such
term also includes any property (not otherwise a real estate asset)
attributable to the temporary investment of new capital, but only
if such property is stock or a debt instrument, and only for the 1-
year period beginning on the date the real estate trust receives
such capital."
Subsec. (c)(6)(D). Pub. L. 99-514, Sec. 671(b)(1), added subpar.
(D) relating to REMIC interest. Former subpar. (D) redesignated
(E).
Pub. L. 99-514, Sec. 662(b)(3), added subpar. (D) relating to
qualified temporary investment income. Former subpar. (D)
redesignated (E).
Subsec. (c)(6)(E). Pub. L. 99-514, Secs. 662(b)(3), 671(b)(1),
made identical redesignations of former subpar. (D) as (E).
Subsec. (d)(2). Pub. L. 99-514, Sec. 663(a), (b)(3), inserted
reference to par. (6) in subpar. (A) and inserted at end
"Subparagraph (C) shall not apply with respect to any amount if
such amount would be excluded from unrelated business taxable
income under section 512(b)(3) if received by an organization
described in section 511(a)(2)."
Subsec. (d)(6). Pub. L. 99-514, Sec. 663(b)(1), added par. (6).
Subsec. (f). Pub. L. 99-514, Sec. 663(b)(2), amended subsec. (f)
generally, restating former introductory provisions and par. (1) as
introductory provisions of par. (1) and as subpar. (A), restating
provisions of par. (2), adding subpar. (1)(B), and striking out
former concluding provisions which read as follows: "The provisions
of this subsection shall apply only with respect to amounts
received or accrued pursuant to loans made after May 27, 1976. For
purposes of the preceding sentence, a loan is considered to be made
before May 28, 1976, if such loan is made pursuant to a binding
commitment entered into before May 28, 1976."
Subsec. (h). Pub. L. 99-514, Sec. 661(a)(2), added subsec. (h).
Subsec. (i). Pub. L. 99-514, Sec. 662(a), added subsec. (i).
Subsec. (j). Pub. L. 99-514, Sec. 662(c), added subsec. (j).
1984 - Subsec. (c)(4)(A). Pub. L. 98-369 substituted "6 months"
for "1 year", applicable to property acquired after June 22, 1984,
and before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
1978 - Subsec. (c)(2)(H). Pub. L. 95-600, Sec. 363(a)(1), added
subpar. (H).
Subsec. (c)(3)(D). Pub. L. 95-600, Sec. 701(t)(2), inserted
"(other than gain from prohibited transactions)" after "on, and
gain".
Subsec. (c)(3)(H). Pub. L. 95-600, Sec. 363(a)(2), added subpar.
(H).
Subsec. (c)(4)(B). Pub. L. 95-600, Sec. 363(a)(3), substituted
"property in a transaction which is a prohibited transaction" for
"section 1221(1) property (other than foreclosure property)".
Subsec. (e)(3). Pub. L. 95-600, Sec. 363(c), substituted "the
Secretary may grant one or more extensions of the grace period for
such property" for "the Secretary may extend the grace period for
such property" and "shall not extend the grace period beyond the
date which is 6 years after the date such trust acquired such
property" for "shall be for a period of not more than one year, and
not more than two extensions shall be granted with respect to any
property".
1976 - Subsec. (a). Pub. L. 94-455, Secs. 1603(a), 1604(f)(1),
(2), in introductory provisions substituted "this title" for "this
subtitle" and "a corporation, trust, or association" for "an
unincorporated trust or an unincorporated association", in par. (1)
inserted "or directors" after "trustees", and in par. (4)
substituted reference to which is neither (A) a financial
institution to which section 585, 586, or 593 applies, nor (B) an
insurance company to which subchapter L applies for reference to
which does not hold any property primarily for sale to customers in
the ordinary course of its trade or business.
Subsec. (c). Pub. L. 94-455, Sec. 1604(f)(3)(A), in introductory
provision substituted "A corporation, trust, or association" for "A
trust or association".
Subsec. (c)(1). Pub. L. 94-455, Secs. 1604(k)(2)(A),
1901(a)(111)(A), struck out reference to which began after Dec. 31,
1960 and inserted reference to such election has not been
terminated or revoked under subsec. (g).
Subsec. (c)(2). Pub. L. 94-455, Secs. 1603(c)(2), 1604(a),
(c)(1), in introductory provision substituted "95 percent (90
percent for taxable years beginning before January 1, 1980) of its
gross income (excluding gross income from prohibited transactions)"
for "90 percent of its gross income", in subpar. (D) inserted
reference to which is not property not described in section
1221(1), and added subpar. (G).
Subsec. (c)(3). Pub. L. 94-455, Secs. 1603(c)(1), (3),
1604(c)(1), in introductory provision inserted "(excluding gross
income from prohibited transactions) 75 percent of its gross
income", in subpar. (C) inserted reference to which is not property
described in section 1221(1), and added subpar. (G).
Subsec. (c)(4). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Secs. 1402(b)(1)(O), 1604(d), in subpar. (A)
provided that "6 months" would be changed to "9 months" for taxable
years beginning in 1977, added subpar. (B), and redesignated former
subpar. (B) as (C), and in subpar. (C) as so redesignated,
substituted "(including interest in real property and interest in
mortgages on real property" for "(including interest in real
property)" and inserted reference to property which is foreclosure
property within the definition of section 856(e).
Subsec. (c)(6)(C). Pub. L. 94-455, Sec. 1604(e), inserted
reference to options to acquire land or improvements thereon, and
options to acquire leaseholds of land or improvements thereon.
Subsec. (c)(6)(D). Pub. L. 94-455, Sec. 1901(a)(111)(B), inserted
"(15 U.S.C. 80a-1 and following)" after ", as amended".
Subsec. (c)(7). Pub. L. 94-455, Sec. 1602(a), added par. (7).
Subsec. (d). Pub. L. 94-455, Sec. 1604(b), among other changes,
inserted provisions including in definition of rents from real
property charges for services customarily furnished or rendered in
connection with rental of real property and rent attributable to
personal property which is leased under, or in connection with, a
lease of real property, provisions relating to the computation of
the amount of rent attributable to personal property, and
provisions relating to the special rule for certain contingent
rents.
Subsec. (e)(1). Pub. L. 94-455, Sec. 1603(c)(4), inserted
provision relating to the exclusion, from definition of foreclosure
property, of property acquired by the real estate investment trust
or other disposition of property of the trust described in section
1221(1) of this title.
Subsec. (e)(3), (5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" each time appearing.
Subsec. (f). Pub. L. 94-455, Sec. 1604(g), added subsec. (f).
Subsec. (g). Pub. L. 94-455, Sec. 1604(k)(1), added subsec. (g).
1975 - Subsec. (a)(4). Pub. L. 93-625, Sec. 6(b), inserted
"(other than foreclosure property, as defined in subsection (e))"
after "property".
Subsec. (c)(2)(F), (3)(F). Pub. L. 93-625, Sec. 6(d)(1), added
subpar. (F) to pars. (2) and (3).
Subsec. (e). Pub. L. 93-625, Sec. 6(a), added subsec. (e).
1964 - Subsec. (a)(6). Pub. L. 88-272 substituted "adjusted
ordinary gross income (as defined in section 543(b)(2))" for "gross
income".
Subsec. (d). Pub. L. 88-554 inserted reference to subparagraph
(C) of section 318(a)(3) of this title.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendments by section 403(d)(1), (2) of Pub. L. 109-135 effective
as if included in the provisions of the American Jobs Creation Act
of 2004, Pub. L. 108-357, to which they relate, see section 403(nn)
of Pub. L. 109-135, set out as a note under section 26 of this
title.
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title II, Sec. 243(g), Oct. 22, 2004, 118 Stat.
1445, as amended by Pub. L. 109-135, title IV, Sec. 403(d)(4), Dec.
21, 2005, 119 Stat. 2622, provided that:
"(1) Subsections (a) and (b). - The amendments made by
subsections (a) and (b) [amending this section] shall apply to
taxable years beginning after December 31, 2000.
"(2) Subsections (c) and (e). - The amendments made by
subsections (c) and (e) [amending section 857 of this title] shall
apply to taxable years beginning after the date of the enactment of
this Act [Oct. 22, 2004].
"(3) Subsection (d). - The amendment made by subsection (d)
[amending this section] shall apply to transactions entered into
after December 31, 2004.
"(4) Subsection (f). -
"(A) The amendment made by paragraph (1) of subsection (f)
[amending this section] shall apply to failures with respect to
which the requirements of subparagraph (A) or (B) of section
856(c)(7) of the Internal Revenue Code of 1986 (as added by such
paragraph) are satisfied after the date of the enactment of this
Act [Oct. 22, 2004].
"(B) The amendment made by paragraph (2) of subsection (f)
[amending this section] shall apply to failures with respect to
which the requirements of paragraph (6) of section 856(c) of the
Internal Revenue Code of 1986 (as amended by such paragraph) are
satisfied after the date of the enactment of this Act.
"(C) The amendments made by paragraph (3) of subsection (f)
[amending this section] shall apply to failures with respect to
which the requirements of paragraph (5) of section 856(g) of the
Internal Revenue Code of 1986 (as added by such paragraph) are
satisfied after the date of the enactment of this Act.
"(D) The amendment made by paragraph (4) of subsection (f)
[amending section 857 of this title] shall apply to taxable years
ending after the date of the enactment of this Act.
"(E) The amendments made by paragraph (5) of subsection (f)
[amending section 860 of this title] shall apply to statements
filed after the date of the enactment of this Act."
Amendment by section 835(b)(4) of Pub. L. 108-357 effective Jan.
1, 2005, with exception for any FASIT in existence on Oct. 22,
2004, to the extent that regular interests issued by the FASIT
before such date continue to remain outstanding in accordance with
the original terms of issuance, see section 835(c) of Pub. L. 108-
357, set out as a note under section 56 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by section 532(c)(2)(H)-(K) of Pub. L. 106-170
applicable to any instrument held, acquired, or entered into, any
transaction entered into, and supplies held or acquired on or after
Dec. 17, 1999, see section 532(d) of Pub. L. 106-170, set out as a
note under section 170 of this title.
Pub. L. 106-170, title V, Sec. 542(b)(3)(A)(ii), Dec. 17, 1999,
113 Stat. 1943, provided that: "The amendment made by this
subparagraph [amending this section] shall apply to taxable years
beginning after December 31, 2000."
Pub. L. 106-170, title V, Sec. 542(b)(3)(B)(ii), Dec. 17, 1999,
113 Stat. 1943, provided that: "The amendment made by this
subparagraph [amending this section] shall apply to amounts
received or accrued in taxable years beginning after December 31,
2000, except for amounts paid pursuant to leases in effect on July
12, 1999, or pursuant to a binding contract in effect on such date
and at all times thereafter."
Pub. L. 106-170, title V, Sec. 546, Dec. 17, 1999, 113 Stat.
1946, provided that:
"(a) In General. - The amendments made by this subpart [subpart A
(Secs. 541-547) of title V of Pub. L. 106-170, amending this
section and sections 163 and 857 of this title] shall apply to
taxable years beginning after December 31, 2000.
"(b) Transitional Rules Related to Section 541. -
"(1) Existing arrangements. -
"(A) In general. - Except as otherwise provided in this
paragraph, the amendment made by section 541 [amending this
section] shall not apply to a real estate investment trust with
respect to -
"(i) securities of a corporation held directly or
indirectly by such trust on July 12, 1999;
"(ii) securities of a corporation held by an entity on July
12, 1999, if such trust acquires control of such entity
pursuant to a written binding contract in effect on such date
and at all times thereafter before such acquisition;
"(iii) securities received by such trust (or a successor)
in exchange for, or with respect to, securities described in
clause (i) or (ii) in a transaction in which gain or loss is
not recognized; and
"(iv) securities acquired directly or indirectly by such
trust as part of a reorganization (as defined in section
368(a)(1) of the Internal Revenue Code of 1986) with respect
to such trust if such securities are described in clause (i),
(ii), or (iii) with respect to any other real estate
investment trust.
"(B) New trade or business or substantial new assets. -
Subparagraph (A) shall cease to apply to securities of a
corporation as of the first day after July 12, 1999, on which
such corporation engages in a substantial new line of business,
or acquires any substantial asset, other than -
"(i) pursuant to a binding contract in effect on such date
and at all times thereafter before the acquisition of such
asset;
"(ii) in a transaction in which gain or loss is not
recognized by reason of section 1031 or 1033 of the Internal
Revenue Code of 1986; or
"(iii) in a reorganization (as so defined) with another
corporation the securities of which are described in
paragraph (1)(A) of this subsection.
"(C) Limitation on transition rules. - Subparagraph (A) shall
cease to apply to securities of a corporation held, acquired,
or received, directly or indirectly, by a real estate
investment trust as of the first day after July 12, 1999, on
which such trust acquires any additional securities of such
corporation other than -
"(i) pursuant to a binding contract in effect on July 12,
1999, and at all times thereafter; or
"(ii) in a reorganization (as so defined) with another
corporation the securities of which are described in
paragraph (1)(A) of this subsection.
"(2) Tax-free conversion. - If -
"(A) at the time of an election for a corporation to become a
taxable REIT subsidiary, the amendment made by section 541 does
not apply to such corporation by reason of paragraph (1); and
"(B) such election first takes effect before January 1, 2004,
such election shall be treated as a reorganization qualifying
under section 368(a)(1)(A) of such Code."
Pub. L. 106-170, title V, Sec. 551(b), Dec. 17, 1999, 113 Stat.
1949, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2000."
Pub. L. 106-170, title V, Sec. 561(b), Dec. 17, 1999, 113 Stat.
1950, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2000."
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years beginning
after Aug. 5, 1997, see section 1263 of Pub. L. 105-34, set out as
a note under section 852 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1621(b)(5) of Pub. L. 104-188 effective
Sept. 1, 1997, see section 1621(d) of Pub. L. 104-188, set out as a
note under section 26 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13149(b) of Pub. L. 103-66 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1993."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(p)(4)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to taxable years ending after the date of the enactment of
this Act [Nov. 10, 1988]."
Amendment by section 1006(p)(1), (3), (5), (q), (t)(11) of Pub.
L. 100-647 effective, except as otherwise provided, as if included
in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L. 100-
647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1006(p)(2) of Pub. L. 100-647 provided that:
"Notwithstanding section 669 of the Reform Act [Pub. L. 99-514, set
out below], the amendment made by section 662(c) of the Reform Act
[amending this section] shall apply to taxable years beginning
after December 31, 1986, but only in the case of obligations
acquired after October 22, 1986."
Section 669 of subtitle G (Secs. 661-668) of title VI of Pub. L.
99-514, as amended by Pub. L. 100-647, title I, Sec. 1018(u)(29),
Nov. 10, 1988, 102 Stat. 3591, provided that:
"(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this subtitle [amending this
section and sections 857 to 860, 4981, and 6697 of this title]
shall apply to taxable years beginning after December 31, 1986.
"(b) Section 668. - The amendments made by section 668 [amending
sections 857, 858, and 4981 of this title] shall apply to calendar
years beginning after December 31, 1986.
"(c) Retention of Existing Transitional Rule. - The amendment
made by section 663(b)(2) [amending this section] shall not apply
with respect to amounts received or accrued pursuant to loans made
before May 28, 1976. For purposes of the preceding sentence, a loan
is considered to be made before May 28, 1976, if such loan is made
pursuant to a binding commitment entered into before May 28, 1976."
Amendment by section 671(b)(1) of Pub. L. 99-514 effective Jan.
1, 1987, see section 675(a) of Pub. L. 99-514, as amended, set out
as an Effective Date note under section 860A of this title.
Amendment by section 901(d)(4)(E) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 901(e) of
Pub. L. 99-514, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 363(d) of Pub. L. 95-600 provided that: "The amendments
made by subsections (a) [amending this section] and (b) [amending
section 857 of this title] shall apply to taxable years ending
after the date of the enactment of this Act [Nov. 6, 1978]. The
amendment made by subsection (c) [amending this section] shall
apply to extensions granted after the date of the enactment of this
Act with respect to periods beginning after December 31, 1977."
Amendment by section 701(t)(2) of Pub. L. 95-600 effective Oct.
4, 1976, see section 701(t)(5) of Pub. L. 95-600, set out as a note
under section 859 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Section 1608(d) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Except as provided in paragraphs (2) and (3), the amendments
made by sections 1603, 1604, and 1605 [enacting sections 860 and
4981 of this title and amending this section and sections 275, 857,
858, 6161, 6211 to 6214, 6344, 6512, 6601, and 7422 of this title]
shall apply to taxable years of real estate investment trusts
beginning after the date of the enactment of this Act [Oct. 4,
1976].
"(2) If, as a result of a determination (as defined in section
859(c) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954]), occurring after the date of enactment of this Act [Oct. 4,
1976], with respect to the real estate investment trust, such trust
does not meet the requirement of section 856(a)(4) of the Internal
Revenue Code of 1986 (as in effect before the amendment of such
section by this Act) for any taxable year beginning on or before
the date of the enactment of this Act, such trust may elect, within
60 days after such determination in the manner provided in
regulations prescribed by the Secretary of the Treasury or his
delegate, to have the provisions of section 1603 (other than
paragraphs (1), (2), (3), and (4) of section 1603(c)) apply with
respect to such taxable year. Where the provisions of section 1603
apply to a real estate investment trust with respect to any taxable
year beginning on or before the date of the enactment of this Act -
"(A) credit or refund of any overpayment of tax which results
from the application of section 1603 to such taxable year shall
be made as if on the date of the determination (as defined in
section 859(c) of the Internal Revenue Code of 1986) 2 years
remained before the expiration of the period of limitation
prescribed by section 6511 of such Code on the filing of claim
for refund for the taxable year to which the overpayment relates,
"(B) the running of the statute of limitations provided in
section 6501 of such Code on the making of assessments, and the
bringing of distraint or a proceeding in court for collection, in
respect of any deficiency (as defined in section 6211 of such
Code) established by such a determination, and all interest,
additions to tax, additional amounts, or assessable penalties in
respect thereof, shall be suspended for a period of 2 years after
the date of such determination, and
"(C) the collection of any deficiency (as defined in section
6211 of such Code) established by such determination and all
interest, additions to tax, additional amounts, and assessable
penalties in respect thereof shall, except in cases of jeopardy,
be stayed until the expiration of 60 days after the date of such
determination.
No distraint or proceeding in court shall be begun for the
collection of an amount the collection of which is stayed under
subparagraph (C) during the period for which the collection of such
amount is stayed.
"(3) Section 856(g)(3) of the Internal Revenue Code of 1986, as
added by section 1604 of this Act, shall not apply with respect to
a termination of an election, filed by a taxpayer under section
856(c)(1) of such Code on or before the date of the enactment of
this Act [Oct. 4, 1976], unless the provisions of part II of
subchapter M of chapter 1 of subtitle A of such Code apply to such
taxpayer for a taxable year ending after the date of the enactment
of this Act for which such election is in effect."
EFFECTIVE DATE OF 1975 AMENDMENT
Section 6(e) of Pub. L. 93-625, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and section
857 of this title] apply to foreclosure property acquired after
December 31, 1973. Notwithstanding the provisions of section
856(e)(5) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] (as added by subsection (a) of this section) any taxpayer
required to make an election with respect to foreclosure property
sooner than 90 days after the date of enactment of this Act [Jan.
3, 1975], may make that election at any time before the 91st day
after the date of enactment of this Act."
EFFECTIVE DATE OF 1964 AMENDMENTS
Amendment by Pub. L. 88-554 effective Aug. 31, 1964, except that
for purposes of sections 302 and 304 of this title, such amendments
shall not apply to distributions in payment for stock acquisitions
or redemptions, if such acquisitions or redemptions occurred before
Aug. 31, 1964, see section 4(c) of Pub. L. 88-554, set out as a
note under section 318 of this title.
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 225(l) of Pub. L. 88-272, set out
as a note under section 316 of this title.
EFFECTIVE DATE
Section 10(k) of Pub. L. 86-779 provided that: "The amendments
made by this section [enacting this section and sections 857 and
858 and amending sections 11, 34, 116, 243, 318, 443, 852, 855, and
1504 of this title] shall apply with respect to taxable years of
real estate investment trusts beginning after December 31, 1960."
STUDY RELATING TO TAXABLE REIT SUBSIDIARIES
Pub. L. 106-170, title V, Sec. 547, Dec. 17, 1999, 113 Stat.
1947, provided that: "The Secretary of the Treasury shall conduct a
study to determine how many taxable REIT subsidiaries are in
existence and the aggregate amount of taxes paid by such
subsidiaries. The Secretary shall submit a report to the Congress
describing the results of such study."
TRUST NOT DISQUALIFIED IN CERTAIN CASES WHERE INCOME TESTS NOT MET
Section 1608(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by section 1602 [amending this section and section
857 of this title] shall apply to taxable years of real estate
investment trusts beginning after the date of the enactment of this
Act [Oct. 4, 1976]. In addition, the amendments made by section
1602 shall apply to a taxable year of a real estate investment
trust beginning before the date of the enactment of this Act if, as
the result of a determination (as defined in section 859(c) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]) with respect
to such trust occurring after the date of the enactment of this
Act, such trust for such taxable years does not meet the
requirements of section 856(c)(2) or section 856(c)(3), or of both
such sections, of such Code as in effect for such taxable year. In
any case, the amendment made by section 1602(a) requiring a
schedule to be attached to the income tax return of certain real
estate investment trusts shall apply only to taxable years of such
trusts beginning after the date of the enactment of this Act. If
the amendments made by section 1602 apply to a taxable year ending
on or before the date of enactment of this Act, the reference to
paragraph (2)(B) in section 857(b)(5) of such Code, as amended,
shall be considered to be a reference to paragraph (2)(C) of
section 857(b) of such Code, as in effect immediately before the
enactment of this Act."
-End-
-CITE-
26 USC Sec. 857 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART II - REAL ESTATE INVESTMENT TRUSTS
-HEAD-
Sec. 857. Taxation of real estate investment trusts and their
beneficiaries
-STATUTE-
(a) Requirements applicable to real estate investment trusts
The provisions of this part (other than subsection (d) of this
section and subsection (g) of section 856) shall not apply to a
real estate investment trust for a taxable year unless -
(1) the deduction for dividends paid during the taxable year
(as defined in section 561, but determined without regard to
capital gains dividends) equals or exceeds -
(A) the sum of -
(i) 90 percent of the real estate investment trust taxable
income for the taxable year (determined without regard to the
deduction for dividends paid (as defined in section 561) and
by excluding any net capital gain); and
(ii) 90 percent of the excess of the net income from
foreclosure property over the tax imposed on such income by
subsection (b)(4)(A); minus
(B) any excess noncash income (as determined under subsection
(e)); and
(2) either -
(A) the provisions of this part apply to the real estate
investment trust for all taxable years beginning after February
28, 1986, or
(B) as of the close of the taxable year, the real estate
investment trust has no earnings and profits accumulated in any
non-REIT year.
For purposes of the preceding sentence, the term "non-REIT year"
means any taxable year to which the provisions of this part did not
apply with respect to the entity. The Secretary may waive the
requirements of paragraph (1) for any taxable year if the real
estate investment trust establishes to the satisfaction of the
Secretary that it was unable to meet such requirements by reason of
distributions previously made to meet the requirements of section
4981.
(b) Method of taxation of real estate investment trusts and holders
of shares or certificates of beneficial interest
(1) Imposition of tax on real estate investment trusts
There is hereby imposed for each taxable year on the real
estate investment trust taxable income of every real estate
investment trust a tax computed as provided in section 11, as
though the real estate investment trust taxable income were the
taxable income referred to in section 11.
(2) Real estate investment trust taxable income
For purposes of this part, the term "real estate investment
trust taxable income" means the taxable income of the real estate
investment trust, adjusted as follows:
(A) The deductions for corporations provided in part VIII
(except section 248) of subchapter B (section 241 and
following, relating to the deduction for dividends received,
etc.) shall not be allowed.
(B) The deduction for dividends paid (as defined in section
561) shall be allowed, but shall be computed without regard to
that portion of such deduction which is attributable to the
amount excluded under subparagraph (D).
(C) The taxable income shall be computed without regard to
section 443(b) (relating to computation of tax on change of
annual accounting period).
(D) There shall be excluded an amount equal to the net income
from foreclosure property.
(E) There shall be deducted an amount equal to the tax
imposed by paragraphs (5) and (7) of this subsection, section
856(c)(7)(C), and section 856(g)(5) for the taxable year.
(F) There shall be excluded an amount equal to any net income
derived from prohibited transactions.
(3) Capital gains
(A) Alternative tax in case of capital gains
If for any taxable year a real estate investment trust has a
net capital gain, then, in lieu of the tax imposed by
subsection (b)(1), there is hereby imposed a tax (if such tax
is less than the tax imposed by such subsection) which shall
consist of the sum of -
(i) a tax, computed as provided in subsection (b)(1), on
the real estate investment trust taxable income (determined
by excluding such net capital gain and by computing the
deduction for dividends paid without regard to capital gain
dividends), and
(ii) a tax determined at the rate provided in section
1201(a) on the excess of the net capital gain over the
deduction for dividends paid (as defined in section 561)
determined with reference to capital gains dividends only.
(B) Treatment of capital gain dividends by shareholders
A capital gain dividend shall be treated by the shareholders
or holders of beneficial interests as a gain from the sale or
exchange of a capital asset held for more than 1 year.
(C) Definition of capital gain dividend
For purposes of this part, a capital gain dividend is any
dividend, or part thereof, which is designated by the real
estate investment trust as a capital gain dividend in a written
notice mailed to its shareholders or holders of beneficial
interests at any time before the expiration of 30 days after
the close of its taxable year (or mailed to its shareholders or
holders of beneficial interests with its annual report for the
taxable year); except that, if there is an increase in the
excess described in subparagraph (A)(ii) of this paragraph for
such year which results from a determination (as defined in
section 860(e)), such designation may be made with respect to
such increase at any time before the expiration of 120 days
after the date of such determination. If the aggregate amount
so designated with respect to a taxable year of the trust
(including capital gain dividends paid after the close of the
taxable year described in section 858) is greater than the net
capital gain of the taxable year, the portion of each
distribution which shall be a capital gain dividend shall be
only that proportion of the amount so designated which such net
capital gain bears to the aggregate amount so designated. For
purposes of this subparagraph, the amount of the net capital
gain for any taxable year which is not a calendar year shall be
determined without regard to any net capital loss attributable
to transactions after December 31 of such year, and any such
net capital loss shall be treated as arising on the 1st day of
the next taxable year. To the extent provided in regulations,
the preceding sentence shall apply also for purposes of
computing the taxable income of the real estate investment
trust.
(D) Treatment by shareholders of undistributed capital gains
(i) Every shareholder of a real estate investment trust at
the close of the trust's taxable year shall include, in
computing his long-term capital gains in his return for his
taxable year in which the last day of the trust's taxable year
falls, such amount as the trust shall designate in respect of
such shares in a written notice mailed to its shareholders at
any time prior to the expiration of 60 days after the close of
its taxable year (or mailed to its shareholders or holders of
beneficial interests with its annual report for the taxable
year), but the amount so includible by any shareholder shall
not exceed that part of the amount subjected to tax in
subparagraph (A)(ii) which he would have received if all of
such amount had been distributed as capital gain dividends by
the trust to the holders of such shares at the close of its
taxable year.
(ii) For purposes of this title, every such shareholder shall
be deemed to have paid, for his taxable year under clause (i),
the tax imposed by subparagraph (A)(ii) on the amounts required
by this subparagraph to be included in respect of such shares
in computing his long-term capital gains for that year; and
such shareholders shall be allowed credit or refund as the case
may be, for the tax so deemed to have been paid by him.
(iii) The adjusted basis of such shares in the hands of the
holder shall be increased with respect to the amounts required
by this subparagraph to be included in computing his long-term
capital gains, by the difference between the amount of such
includible gains and the tax deemed paid by such shareholder in
respect of such shares under clause (ii).
(iv) In the event of such designation, the tax imposed by
subparagraph (A)(ii) shall be paid by the real estate
investment trust within 30 days after the close of its taxable
year.
(v) The earnings and profits of such real estate investment
trust, and the earnings and profits of any such shareholder
which is a corporation, shall be appropriately adjusted in
accordance with regulations prescribed by the Secretary.
(vi) As used in this subparagraph, the terms "shares" and
"shareholders" shall include beneficial interests and holders
of beneficial interests, respectively.
(E) Coordination with net operating loss provisions
For purposes of section 172, if a real estate investment
trust pays capital gain dividends during any taxable year, the
amount of the net capital gain for such taxable year (to the
extent such gain does not exceed the amount of such capital
gain dividends) shall be excluded in determining -
(i) the net operating loss for the taxable year, and
(ii) the amount of the net operating loss of any prior
taxable year which may be carried through such taxable year
under section 172(b)(2) to a succeeding taxable year.
(F) Certain distributions
In the case of a shareholder of a real estate investment
trust to whom section 897 does not apply by reason of the
second sentence of section 897(h)(1), the amount which would be
included in computing long-term capital gains for such
shareholder under subparagraph (B) or (D) (without regard to
this subparagraph) -
(i) shall not be included in computing such shareholder's
long-term capital gains, and
(ii) shall be included in such shareholder's gross income
as a dividend from the real estate investment trust.
(4) Income from foreclosure property
(A) Imposition of tax
A tax is hereby imposed for each taxable year on the net
income from foreclosure property of every real estate
investment trust. Such tax shall be computed by multiplying the
net income from foreclosure property by the highest rate of tax
specified in section 11(b).
(B) Net income from foreclosure property
For purposes of this part, the term "net income from
foreclosure property" means the excess of -
(i) gain from the sale or other disposition of foreclosure
property described in section 1221(a)(1) and the gross income
for the taxable year derived from foreclosure property (as
defined in section 856(e)), but only to the extent such gross
income is not described in subparagraph (A), (B), (C), (D),
(E), or (G) of section 856(c)(3), over
(ii) the deductions allowed by this chapter which are
directly connected with the production of the income referred
to in clause (i).
(5) Imposition of tax in case of failure to meet certain
requirements
If section 856(c)(6) applies to a real estate investment trust
for any taxable year, there is hereby imposed on such trust a tax
in an amount equal to the greater of -
(A) the excess of -
(i) 95 percent of the gross income (excluding gross income
from prohibited transactions) of the real estate investment
trust, over
(ii) the amount of such gross income which is derived from
sources referred to in section 856(c)(2); or
(B) the excess of -
(i) 75 percent of the gross income (excluding gross income
from prohibited transactions) of the real estate investment
trust, over
(ii) the amount of such gross income which is derived from
sources referred to in section 856(c)(3),
multiplied by a fraction the numerator of which is the real
estate investment trust taxable income for the taxable year
(determined without regard to the deductions provided in
paragraphs (2)(B) and (2)(E), without regard to any net
operating loss deduction, and by excluding any net capital
gain) and the denominator of which is the gross income for the
taxable year (excluding gross income from prohibited
transactions; gross income and gain from foreclosure property
(as defined in section 856(e), but only to the extent such
gross income and gain is not described in subparagraph (A),
(B), (C), (D), (E), or (G) of section 856(c)(3)); long-term
capital gain; and short-term capital gain to the extent of any
short-term capital loss).
(6) Income from prohibited transactions
(A) Imposition of tax
There is hereby imposed for each taxable year of every real
estate investment trust a tax equal to 100 percent of the net
income derived from prohibited transactions.
(B) Definitions
For purposes of this part -
(i) the term "net income derived from prohibited
transactions" means the excess of the gain from prohibited
transactions over the deductions allowed by this chapter
which are directly connected with prohibited transactions;
(ii) in determining the amount of the net income derived
from prohibited transactions, there shall not be taken into
account any item attributable to any prohibited transaction
for which there was a loss; and
(iii) the term "prohibited transaction" means a sale or
other disposition of property described in section 1221(a)(1)
which is not foreclosure property.
(C) Certain sales not to constitute prohibited transactions
For purposes of this part, the term "prohibited transaction"
does not include a sale of property which is a real estate
asset as defined in section 856(c)(5)(B) if -
(i) the trust has held the property for not less than 4
years;
(ii) aggregate expenditures made by the trust, or any
partner of the trust, during the 4-year period preceding the
date of sale which are includible in the basis of the
property do not exceed 30 percent of the net selling price of
the property;
(iii)(I) during the taxable year the trust does not make
more than 7 sales of property (other than sales of
foreclosure property or sales to which section 1033 applies),
or (II) the aggregate adjusted bases (as determined for
purposes of computing earnings and profits) of property
(other than sales of foreclosure property or sales to which
section 1033 applies) sold during the taxable year does not
exceed 10 percent of the aggregate bases (as so determined)
of all of the assets of the trust as of the beginning of the
taxable year;
(iv) in the case of property, which consists of land or
improvements, not acquired through foreclosure (or deed in
lieu of foreclosure), or lease termination, the trust has
held the property for not less than 4 years for production of
rental income; and
(v) if the requirement of clause (iii)(I) is not satisfied,
substantially all of the marketing and development
expenditures with respect to the property were made through
an independent contractor (as defined in section 856(d)(3))
from whom the trust itself does not derive or receive any
income.
(D) Certain sales not to constitute prohibited transactions
For purposes of this part, the term "prohibited transaction"
does not include a sale of property which is a real estate
asset (as defined in section 856(c)(5)(B)) if -
(i) the trust held the property for not less than 4 years
in connection with the trade or business of producing timber,
(ii) the aggregate expenditures made by the trust, or a
partner of the trust, during the 4-year period preceding the
date of sale which -
(I) are includible in the basis of the property (other
than timberland acquisition expenditures), and
(II) are directly related to operation of the property
for the production of timber or for the preservation of the
property for use as timberland,
do not exceed 30 percent of the net selling price of the
property,
(iii) the aggregate expenditures made by the trust, or a
partner of the trust, during the 4-year period preceding the
date of sale which -
(I) are includible in the basis of the property (other
than timberland acquisition expenditures), and
(II) are not directly related to operation of the
property for the production of timber, or for the
preservation of the property for use as timberland,
do not exceed 5 percent of the net selling price of the
property,
(iv)(I) during the taxable year the trust does not make
more than 7 sales of property (other than sales of
foreclosure property or sales to which section 1033 applies),
or
(II) the aggregate adjusted bases (as determined for
purposes of computing earnings and profits) of property
(other than sales of foreclosure property or sales to which
section 1033 applies) sold during the taxable year does not
exceed 10 percent of the aggregate bases (as so determined)
of all of the assets of the trust as of the beginning of the
taxable year,
(v) in the case that the requirement of clause (iv)(I) is
not satisfied, substantially all of the marketing
expenditures with respect to the property were made through
an independent contractor (as defined in section 856(d)(3))
from whom the trust itself does not derive or receive any
income, and
(vi) the sales price of the property sold by the trust is
not based in whole or in part on income or profits, including
income or profits derived from the sale or operation of such
property.
(E) Special rules
In applying subparagraphs (C) and (D) the following special
rules apply:
(i) The holding period of property acquired through
foreclosure (or deed in lieu of foreclosure), or termination
of the lease, includes the period for which the trust held
the loan which such property secured, or the lease of such
property.
(ii) In the case of a property acquired through foreclosure
(or deed in lieu of foreclosure), or termination of a lease,
expenditures made by, or for the account of, the mortgagor or
lessee after default became imminent will be regarded as made
by the trust.
(iii) Expenditures (including expenditures regarded as made
directly by the trust, or indirectly by any partner of the
trust, under clause (ii)) will not be taken into account if
they relate to foreclosure property and did not cause the
property to lose its status as foreclosure property.
(iv) Expenditures will not be taken into account if they
are made solely to comply with standards or requirements of
any government or governmental authority having relevant
jurisdiction, or if they are made to restore the property as
a result of losses arising from fire, storm or other
casualty.
(v) The term "expenditures" does not include advances on a
loan made by the trust.
(vi) The sale of more than one property to one buyer as
part of one transaction constitutes one sale.
(vii) The term "sale" does not include any transaction in
which the net selling price is less than $10,000.
(F) Sales not meeting requirements
In determining whether or not any sale constitutes a
"prohibited transaction" for purposes of subparagraph (A), the
fact that such sale does not meet the requirements of
subparagraph (C) or (D) shall not be taken into account; and
such determination, in the case of a sale not meeting such
requirements, shall be made as if subparagraphs (C), (D), and
(E) had not been enacted.
(7) Income from redetermined rents, redetermined deductions, and
excess interest
(A) Imposition of tax
There is hereby imposed for each taxable year of the real
estate investment trust a tax equal to 100 percent of
redetermined rents, redetermined deductions, and excess
interest.
(B) Redetermined rents
(i) In general
The term "redetermined rents" means rents from real
property (as defined in section 856(d)) to the extent the
amount of the rents would (but for subparagraph (E)) be
reduced on distribution, apportionment, or allocation under
section 482 to clearly reflect income as a result of services
furnished or rendered by a taxable REIT subsidiary of the
real estate investment trust to a tenant of such trust.
(ii) Exception for de minimis amounts
Clause (i) shall not apply to amounts described in section
856(d)(7)(A) with respect to a property to the extent such
amounts do not exceed the one percent threshold described in
section 856(d)(7)(B) with respect to such property.
(iii) Exception for comparably priced services
Clause (i) shall not apply to any service rendered by a
taxable REIT subsidiary of a real estate investment trust to
a tenant of such trust if -
(I) such subsidiary renders a significant amount of
similar services to persons other than such trust and
tenants of such trust who are unrelated (within the meaning
of section 856(d)(8)(F)) to such subsidiary, trust, and
tenants, but
(II) only to the extent the charge for such service so
rendered is substantially comparable to the charge for the
similar services rendered to persons referred to in
subclause (I).
(iv) Exception for certain separately charged services
Clause (i) shall not apply to any service rendered by a
taxable REIT subsidiary of a real estate investment trust to
a tenant of such trust if -
(I) the rents paid to the trust by tenants (leasing at
least 25 percent of the net leasable space in the trust's
property) who are not receiving such service from such
subsidiary are substantially comparable to the rents paid
by tenants leasing comparable space who are receiving such
service from such subsidiary, and
(II) the charge for such service from such subsidiary is
separately stated.
(v) Exception for certain services based on subsidiary's
income from the services
Clause (i) shall not apply to any service rendered by a
taxable REIT subsidiary of a real estate investment trust to
a tenant of such trust if the gross income of such subsidiary
from such service is not less than 150 percent of such
subsidiary's direct cost in furnishing or rendering the
service.
(vi) Exceptions granted by Secretary
The Secretary may waive the tax otherwise imposed by
subparagraph (A) if the trust establishes to the satisfaction
of the Secretary that rents charged to tenants were
established on an arms' length basis even though a taxable
REIT subsidiary of the trust provided services to such
tenants.
(C) Redetermined deductions
The term "redetermined deductions" means deductions (other
than redetermined rents) of a taxable REIT subsidiary of a real
estate investment trust to the extent the amount of such
deductions would (but for subparagraph (E)) be decreased on
distribution, apportionment, or allocation under section 482 to
clearly reflect income as between such subsidiary and such
trust.
(D) Excess interest
The term "excess interest" means any deductions for interest
payments by a taxable REIT subsidiary of a real estate
investment trust to such trust to the extent that the interest
payments are in excess of a rate that is commercially
reasonable.
(E) Coordination with section 482
The imposition of tax under subparagraph (A) shall be in lieu
of any distribution, apportionment, or allocation under section
482.
(F) Regulatory authority
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
paragraph. Until the Secretary prescribes such regulations,
real estate investment trusts and their taxable REIT
subsidiaries may base their allocations on any reasonable
method.
(8) Loss on sale or exchange of stock held 6 months or less
(A) In general
If -
(i) subparagraph (B) or (D) of paragraph (3) provides that
any amount with respect to any share or beneficial interest
is to be treated as a long-term capital gain, and
(ii) the taxpayer has held such share or interest for 6
months or less,
then any loss on the sale or exchange of such share or interest
shall, to the extent of the amount described in clause (i), be
treated as a long-term capital loss.
(B) Determination of holding period
For purposes of this paragraph, the rules of paragraphs (3)
and (4) of section 246(c) shall apply in determining the period
for which the taxpayer has held any share of stock or
beneficial interest; except that "6 months" shall be
substituted for the number of days specified in subparagraph
(B) (!1) of section 246(c)(3).
(C) Exception for losses incurred under periodic liquidation
plans
To the extent provided in regulations, subparagraph (A) shall
not apply to any loss incurred on the sale or exchange of
shares of stock of, or beneficial interest in, a real estate
investment trust pursuant to a plan which provides for the
periodic liquidation of such shares or interests.
(9) Time certain dividends taken into account
For purposes of this title, any dividend declared by a real
estate investment trust in October, November, or December of any
calendar year and payable to shareholders of record on a
specified date in such a month shall be deemed -
(A) to have been received by each shareholder on December 31
of such calendar year, and
(B) to have been paid by such trust on December 31 of such
calendar year (or, if earlier, as provided in section 858).
The preceding sentence shall apply only if such dividend is
actually paid by the company during January of the following
calendar year.
(c) Restrictions applicable to dividends received from real estate
investment trusts
(1) Section 243
For purposes of section 243 (relating to deductions for
dividends received by corporations), a dividend received from a
real estate investment trust which meets the requirements of this
part shall not be considered a dividend.
(2) Section (1)(h)(11)
(A) In general
In any case in which -
(i) a dividend is received from a real estate investment
trust (other than a capital gain dividend), and
(ii) such trust meets the requirements of section 856(a)
for the taxable year during which it paid such dividend,
then, in computing qualified dividend income, there shall be
taken into account only that portion of such dividend
designated by the real estate investment trust.
(B) Limitation
The aggregate amount which may be designated as qualified
dividend income under subparagraph (A) shall not exceed the sum
of -
(i) the qualified dividend income of the trust for the
taxable year,
(ii) the excess of -
(I) the sum of the real estate investment trust taxable
income computed under section 857(b)(2) for the preceding
taxable year and the income subject to tax by reason of the
application of the regulations under section 337(d) for
such preceding taxable year, over
(II) the sum of the taxes imposed on the trust for such
preceding taxable year under section 857(b)(1) and by
reason of the application of such regulations, and
(iii) the amount of any earnings and profits which were
distributed by the trust for such taxable year and
accumulated in a taxable year with respect to which this part
did not apply.
(C) Notice to shareholders
The amount of any distribution by a real estate investment
trust which may be taken into account as qualified dividend
income shall not exceed the amount so designated by the trust
in a written notice to its shareholders mailed not later than
60 days after the close of its taxable year.
(D) Qualified dividend income
For purposes of this paragraph, the term "qualified dividend
income" has the meaning given such term by section 1(h)(11)(B).
(d) Earnings and profits
(1) In general
The earnings and profits of a real estate investment trust for
any taxable year (but not its accumulated earnings) shall not be
reduced by any amount which is not allowable in computing its
taxable income for such taxable year. For purposes of this
subsection, the term "real estate investment trust" includes a
domestic corporation, trust, or association which is a real
estate investment trust determined without regard to the
requirements of subsection (a).
(2) Coordination with tax on undistributed income
A real estate investment trust shall be treated as having
sufficient earnings and profits to treat as a dividend any
distribution (other than in a redemption to which section 302(a)
applies) which is treated as a dividend by such trust. The
preceding sentence shall not apply to the extent that the amount
distributed during any calendar year by the trust exceeds the
required distribution for such calendar year (as determined under
section 4981).
(3) Distributions to meet requirements of subsection (a)(2)(B)
Any distribution which is made in order to comply with the
requirements of subsection (a)(2)(B) -
(A) shall be treated for purposes of this subsection and
subsection (a)(2)(B) as made from earnings and profits which,
but for the distribution, would result in a failure to meet
such requirements (and allocated to such earnings on a first-
in, first-out basis), and
(B) to the extent treated under subparagraph (A) as made from
accumulated earnings and profits, shall not be treated as a
distribution for purposes of subsection (b)(2)(B) and section
858.
(e) Excess noncash income
(1) In general
For purposes of subsection (a)(1)(B), the term "excess noncash
income" means the excess (if any) of -
(A) the amount determined under paragraph (2) for the taxable
year, over
(B) 5 percent of the real estate investment trust taxable
income for the taxable year determined without regard to the
deduction for dividends paid (as defined in section 561) and by
excluding any net capital gain.
(2) Determination of amount
The amount determined under this paragraph for the taxable year
is the sum of -
(A) the amount (if any) by which -
(i) the amounts includible in gross income under section
467 (relating to certain payments for the use of property or
services), exceed
(ii) the amounts which would have been includible in gross
income without regard to such section,
(B) any income on the disposition of a real estate asset if -
(i) there is a determination (as defined in section 860(e))
that such income is not eligible for nonrecognition under
section 1031, and
(ii) failure to meet the requirements of section 1031 was
due to reasonable cause and not to willful neglect,
(C) the amount (if any) by which -
(i) the amounts includible in gross income with respect to
instruments to which section 860E(a) or 1272 applies, exceed
(ii) the amount of money and the fair market value of other
property received during the taxable year under such
instruments, and
(D) amounts includible in income by reason of cancellation of
indebtedness.
(f) Real estate investment trusts to ascertain ownership
(1) In general
Each real estate investment trust shall each taxable year
comply with regulations prescribed by the Secretary for the
purposes of ascertaining the actual ownership of the outstanding
shares, or certificates of beneficial interest, of such trust.
(2) Failure to comply
(A) In general
If a real estate investment trust fails to comply with the
requirements of paragraph (1) for a taxable year, such trust
shall pay (on notice and demand by the Secretary and in the
same manner as tax) a penalty of $25,000.
(B) Intentional disregard
If any failure under paragraph (1) is due to intentional
disregard of the requirement under paragraph (1), the penalty
under subparagraph (A) shall be $50,000.
(C) Failure to comply after notice
The Secretary may require a real estate investment trust to
take such actions as the Secretary determines appropriate to
ascertain actual ownership if the trust fails to meet the
requirements of paragraph (1). If the trust fails to take such
actions, the trust shall pay (on notice and demand by the
Secretary and in the same manner as tax) an additional penalty
equal to the penalty determined under subparagraph (A) or (B),
whichever is applicable.
(D) Reasonable cause
No penalty shall be imposed under this paragraph with respect
to any failure if it is shown that such failure is due to
reasonable cause and not to willful neglect.
(g) Cross reference
For provisions relating to excise tax based on certain real
estate investment trust taxable income not distributed during
the taxable year, see section 4981.
-SOURCE-
(Added Pub. L. 86-779, Sec. 10(a), Sept. 14, 1960, 74 Stat. 1006;
amended Pub. L. 88-272, title II, Sec. 201(d)(11), Feb. 26, 1964,
78 Stat. 32; Pub. L. 91-172, title V, Sec. 511(c)(3), Dec. 30,
1969, 83 Stat. 637; Pub. L. 93-625, Sec. 6(c), (d)(2)-(4), Jan. 3,
1975, 88 Stat. 2113, 2114; Pub. L. 94-455, title XIV, Sec.
1402(b)(1)(P), (2), title XVI, Secs. 1601(c), 1602(b), 1603(b),
(c)(5), 1604(c)(2), (f)(3)(B), (j), (k)(2)(B), 1605(b)(2), 1606(a),
(d), 1607(a), (b)(1)(A), (2), (3), title XIX, Secs. 1901(a)(112),
(b)(1)(V), (33)(K), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1732,
1746-1748, 1750-1757, 1783, 1792, 1801, 1834; Pub. L. 95-600, title
III, Secs. 301(b)(12), 362(d)(3), 363(b), title IV, Sec. 403(c)(3),
Nov. 6, 1978, 92 Stat. 2822, 2851, 2852, 2868; Pub. L. 96-222,
title I, Sec. 103(a)(1), Apr. 1, 1980, 94 Stat. 208; Pub. L. 96-
223, title IV, Sec. 404(b)(8), Apr. 2, 1980, 94 Stat. 307; Pub. L.
97-34, title III, Sec. 302(c)(5), (d)(1), Aug. 13, 1981, 95 Stat.
273, 274; Pub. L. 98-369, div. A, title I, Secs. 16(a), 55(b),
title X, Sec. 1001(b)(13), (e), July 18, 1984, 98 Stat. 505, 572,
1011, 1012; Pub. L. 99-514, title VI, Secs. 612(b)(7), 661(b), 664,
665(a), (b)(1), 666, 668(b)(1)(A), (2), (3), Oct. 22, 1986, 100
Stat. 2251, 2300, 2303-2305, 2307, 2308; Pub. L. 100-647, title I,
Secs. 1006(r), (s)(2), (4), (5), 1018(u)(28), Nov. 10, 1988, 102
Stat. 3418, 3419, 3591; Pub. L. 101-508, title XI, Sec.
11704(a)(37), Nov. 5, 1990, 104 Stat. 1388-520; Pub. L. 105-34,
title XII, Secs. 1251(a), 1254(a), (b)(1), 1255(b)(2), (3), 1256,
1259, 1260, Aug. 5, 1997, 111 Stat. 1030, 1032-1035; Pub. L. 105-
206, title VI, Sec. 6012(g), July 22, 1998, 112 Stat. 819; Pub. L.
106-170, title V, Secs. 532(c)(2)(L), (M), 545, 556(a), (b),
566(a)(2), (b), Dec. 17, 1999, 113 Stat. 1930, 1944, 1949, 1950;
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 311(b)], Dec. 21,
2000, 114 Stat. 2763, 2763A-640; Pub. L. 107-147, title IV, Secs.
413(a), 417(13), Mar. 9, 2002, 116 Stat. 54, 56; Pub. L. 108-27,
title III, Sec. 302(d), May 28, 2003, 117 Stat. 763; Pub. L. 108-
311, title IV, Sec. 402(a)(5)(E), Oct. 4, 2004, 118 Stat. 1185;
Pub. L. 108-357, title II, Sec. 243(c), (e), (f)(4), title III,
Sec. 321(a), title IV, Sec. 418(b), Oct. 22, 2004, 118 Stat. 1442,
1445, 1473, 1512; Pub. L. 109-135, title IV, Secs. 403(d)(3),
412(ii), Dec. 21, 2005, 119 Stat. 2622, 2639.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Section 246(c)(3) of this title, referred to in subsec.
(b)(8)(B), was amended by Pub. L. 105-34, title X, Sec. 1015(b)(2),
Aug. 5, 1997, 111 Stat. 922, to strike out subpar. (B) and
redesignate subpar. (C) as (B).
-MISC1-
AMENDMENTS
2005 - Subsec. (b)(2)(E). Pub. L. 109-135, Sec. 403(d)(3),
substituted "section 856(c)(7)(C), and section 856(g)(5)" for
"section 856(c)(7)(B)(iii), and section 856(g)(1)."
Subsec. (b)(6)(E). Pub. L. 109-135, Sec. 412(ii)(1), substituted
"subparagraphs (C) and (D)" for "subparagraph (C)" in introductory
provisions.
Subsec. (b)(6)(F). Pub. L. 109-135, Sec. 412(ii)(2), substituted
"subparagraph (C) or (D)" for "subparagraph (C) of this paragraph"
and "subparagraphs (C), (D), and (E)" for "subparagraphs (C) and
(D)".
2004 - Subsec. (b)(2)(E). Pub. L. 108-357, Sec. 243(f)(4),
substituted "(7) of this subsection, section 856(c)(7)(B)(iii), and
section 856(g)(1)." for "(7)".
Subsec. (b)(3)(F). Pub. L. 108-357, Sec. 418(b), added subpar.
(F).
Subsec. (b)(5)(A)(i). Pub. L. 108-357, Sec. 243(e), substituted
"95 percent" for "90 percent".
Subsec. (b)(6)(D) to (F). Pub. L. 108-357, Sec. 321(a), added
subpar. (D) and redesignated former subpars. (D) and (E) as (E) and
(F), respectively.
Subsec. (b)(7)(B)(ii) to (vii). Pub. L. 108-357, Sec. 243(c),
redesignated cls. (iii) to (vii) as (ii) to (vi), respectively, and
struck out former cl. (ii), which related to exception for amounts
received by a REIT for services furnished or rendered by a taxable
REIT subsidiary that were described in section 856(d)(1)(B) of this
title, or from a taxable REIT subsidiary that were described in
par. (7)(C)(ii) of such section.
Subsec. (c)(2). Pub. L. 108-311, Sec. 402(a)(5)(E), reenacted
heading without change and amended text generally. Prior to
amendment, text related to rules applicable to dividends received
from real estate investment trusts for purposes of section 1(h)(11)
of this title.
2003 - Subsec. (c). Pub. L. 108-27, Secs. 302(d), 303,
temporarily reenacted subsec. heading without change and amended
text generally. Prior to amendment, text read as follows: "For
purposes of section 243 (relating to deductions for dividends
received by corporations), a dividend received from a real estate
investment trust which meets the requirements of this part shall
not be considered as a dividend." See Effective and Termination
Dates of 2003 Amendment note below.
2002 - Subsec. (b)(7)(B)(i). Pub. L. 107-147, Sec. 417(13),
substituted "section 856(d)" for "subsection 856(d)".
Pub. L. 107-147, Sec. 413(a)(1), substituted "to the extent the
amount of the rents" for "the amount of which".
Subsec. (b)(7)(C). Pub. L. 107-147, Sec. 413(a)(2), substituted
"to the extent the amount" for "if the amount".
2000 - Subsec. (b)(7)(B)(ii). Pub. L. 106-554 amended heading and
text of cl. (ii) generally. Prior to amendment, text read as
follows: "Clause (i) shall not apply to amounts received directly
or indirectly by a real estate investment trust for services
described in paragraph (1)(B) or (7)(C)(i) of section 856(d)."
1999 - Subsec. (a)(1)(A)(i), (ii). Pub. L. 106-170, Sec. 556(a),
substituted "90 percent" for "95 percent (90 percent for taxable
years beginning before January 1, 1980)".
Subsec. (b)(2)(E). Pub. L. 106-170, Sec. 545(b), substituted
"paragraphs (5) and (7)" for "paragraph (5)".
Subsec. (b)(4)(B)(i). Pub. L. 106-170, Sec. 532(c)(2)(L),
substituted "section 1221(a)(1)" for "section 1221(1)".
Subsec. (b)(5)(A)(i). Pub. L. 106-170, Sec. 556(b), substituted
"90 percent" for "95 percent (90 percent in the case of taxable
years beginning before January 1, 1980)".
Subsec. (b)(6)(B)(iii). Pub. L. 106-170, Sec. 532(c)(2)(M),
substituted "section 1221(a)(1)" for "section 1221(1)".
Subsec. (b)(7) to (9). Pub. L. 106-170, Sec. 545(a), added par.
(7) and redesignated former pars. (7) and (8) as (8) and (9),
respectively.
Subsec. (d)(3)(A). Pub. L. 106-170, Sec. 566(a)(2), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "shall be treated for purposes of this subsection and
subsection (a)(2)(B) as made from the earliest earnings and profits
accumulated in any taxable year to which the provisions of this
part did not apply rather than the most recently accumulated
earnings and profits, and".
Subsec. (d)(3)(B). Pub. L. 106-170, Sec. 566(b), inserted "and
section 858" before period at end.
1998 - Subsec. (d)(3)(A). Pub. L. 105-206 substituted "earliest
earnings and profits accumulated in any taxable year to which the
provisions of this part did not apply" for "earliest accumulated
earnings and profits (other than earnings and profits to which
subsection (a)(2)(A) applies)".
1997 - Subsec. (a)(2), (3). Pub. L. 105-34, Sec. 1251(a)(1),
redesignated par. (3) as (2) and struck out former par. (2) which
read as follows: "the real estate investment trust complies for
such year with regulations prescribed by the Secretary for the
purpose of ascertaining the actual ownership of the outstanding
shares, or certificates of beneficial interest, of such trust,
and".
Subsec. (b)(3)(D), (E). Pub. L. 105-34, Sec. 1254(a), added
subpar. (D) and redesignated former subpar. (D) as (E).
Subsec. (b)(5). Pub. L. 105-34, Sec. 1255(b)(2), substituted
"section 856(c)(6)" for "section 856(c)(7)" in introductory
provisions.
Subsec. (b)(6)(C). Pub. L. 105-34, Sec. 1255(b)(3), substituted
"section 856(c)(5)(B)" for "section 856(c)(6)(B)" in introductory
provisions.
Subsec. (b)(6)(C)(iii). Pub. L. 105-34, Sec. 1260, substituted
"(other than sales of foreclosure property or sales to which
section 1033 applies)" for "(other than foreclosure property)" in
subcls. (I) and (II).
Subsec. (b)(7)(A)(i). Pub. L. 105-34, Sec. 1254(b)(1),
substituted "subparagraph (B) or (D)" for "subparagraph (B)".
Subsec. (d)(3). Pub. L. 105-34, Sec. 1256, added par. (3).
Subsec. (e)(2)(B) to (D). Pub. L. 105-34, Sec. 1259, redesignated
subpar. (C) as (B) and substituted a comma for period at end, added
subpars. (C) and (D), and struck out former subpar. (B) which read
as follows: "in the case of a real estate investment trust using
the cash receipts and disbursements method of accounting, the
amount (if any) by which -
"(i) the amounts includible in gross income with respect to
instruments to which section 1274 (relating to certain debt
instruments issued for property) applies, exceed
"(ii) the amount of money and the fair market value of other
property received during the taxable year under such instruments;
plus".
Subsecs. (f), (g). Pub. L. 105-34, Sec. 1251(a)(2), added subsec.
(f) and redesignated former subsec. (f) as (g).
1990 - Subsec. (b)(3)(C). Pub. L. 101-508 amended Pub. L. 100-
647, Sec. 1018(u)(28). See 1988 Amendment note below.
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1006(s)(4), inserted at
end "The Secretary may waive the requirements of paragraph (1) for
any taxable year if the real estate investment trust establishes to
the satisfaction of the Secretary that it was unable to meet such
requirements by reason of distributions previously made to meet the
requirements of section 4981."
Subsec. (b)(3)(C). Pub. L. 100-647, Sec. 1018(u)(28), as amended
by Pub. L. 101-508, substituted "such net capital loss shall" for
"such net capital loss such".
Pub. L. 100-647, Sec. 1006(s)(2), substituted "the taxable income
of the real estate investment trust" for "real estate investment
trust taxable income".
Subsec. (b)(8). Pub. L. 100-647, Sec. 1006(s)(5), substituted "in
October, November, or December" for "in December" and "in such a
month" for "in such month" in introductory text, "on December 31 of
such calendar year" for "on such date", in subpars. (A) and (B),
and "during January" for "before February 1" in last sentence.
Subsec. (e)(2)(B)(i). Pub. L. 100-647, Sec. 1006(r), substituted
"with respect to instruments" for "as original issue discount on
instruments".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 661(b), struck out "and"
at end of par. (1), substituted ", and" for the period at end of
par. (2), and added par. (3) and last sentence.
Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 664(a), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
"the sum of -
"(i) the amount of any penalty imposed on the real estate
investment trust by section 6697 which is paid by such trust
during the taxable year; and
"(ii) the net loss derived from prohibited transactions,".
Subsec. (b)(2)(F). Pub. L. 99-514, Sec. 666(b)(2), struck out
"and there shall be included an amount equal to any net loss
derived from prohibited transactions" after "prohibited
transactions".
Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 668(b)(3), inserted at
end "For purposes of this subparagraph, the amount of the net
capital gain for any taxable year which is not a calendar year
shall be determined without regard to any net capital loss
attributable to transactions after December 31 of such year, and
any such net capital loss such be treated as arising on the 1st day
of the next taxable year. To the extent provided in regulations,
the preceding sentence shall apply also for purposes of computing
real estate investment trust taxable income."
Pub. L. 99-514, Sec. 665(a)(2), (b)(1), inserted "(or mailed to
its shareholders or holders of beneficial interests with its annual
report for the taxable year)", struck out last sentence which read
as follows: "For purposes of this subparagraph, the net capital
gain shall be deemed not to exceed the real estate investment trust
taxable income (determined without regard to the deduction for
dividends paid (as defined in section 561) for the taxable year)."
Subsec. (b)(3)(D). Pub. L. 99-514, Sec. 665(a)(1), added subpar.
(D).
Subsec. (b)(6)(B)(ii). Pub. L. 99-514, Sec. 666(b)(1), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"the term 'net loss derived from prohibited transactions' means the
excess of the deductions allowed by this chapter which are directly
connected with prohibited transactions over the gain from
prohibited transactions; and".
Subsec. (b)(6)(C)(ii). Pub. L. 99-514, Sec. 666(a)(2),
substituted "30 percent" for "20 percent".
Subsec. (b)(6)(C)(iii). Pub. L. 99-514, Sec. 666(a)(1), amended
cl. (iii) generally. Prior to amendment, cl. (iii) read as follows:
"during the taxable year the trust does not make more than 5 sales
of property (other than foreclosure property); and".
Subsec. (b)(6)(C)(v). Pub. L. 99-514, Sec. 666(a)(3), added cl.
(v).
Subsec. (b)(8). Pub. L. 99-514, Sec. 668(b)(1)(A), added par.
(8).
Subsec. (c). Pub. L. 99-514, Sec. 612(b)(7), which directed that
"section 116 (relating to an exclusion for dividends received by
individuals), and" be struck out, was executed by striking out
"section 116 (relating to an exclusion for dividends received by
individuals) and" before "section 243" as the probable intent of
Congress.
Subsec. (d). Pub. L. 99-514, Sec. 668(b)(2), amended subsec. (d)
generally. Prior to amendment, subsec. (d) read as follows: "The
earnings and profits of a real estate investment trust for any
taxable year (but not its accumulated earnings and profits) shall
not be reduced by any amount which is not allowable as a deduction
in computing its taxable income for such taxable year. For purposes
of this subsection, the term 'real estate investment trust'
includes a domestic corporation, trust, or association which is a
real estate investment trust determined without regard to the
requirements of subsection (a)."
Subsecs. (e), (f). Pub. L. 99-514, Sec. 664(b), added subsec. (e)
and redesignated former subsec. (e) as (f).
1984 - Subsec. (b)(3)(B). Pub. L. 98-369, Sec. 1001(b)(13), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Subsec. (b)(7). Pub. L. 98-369, Sec. 55(b), substituted
provisions relating to loss on sale or exchange of stock held 6
months or less for provisions which related to loss on sale or
exchange of stock held 31 days or less.
Pub. L. 98-369, Sec. 1001(b)(13), (e), substituted "6 months" for
"1 year", applicable to property acquired after June 22, 1984, and
before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
Subsec. (c). Pub. L. 98-369, Sec. 16(a), repealed amendments made
by Pub. L. 97-34, Sec. 302(c). See 1981 Amendment note below.
1981 - Subsec. (c). Pub. L. 97-34, Sec. 302(c)(5), (d)(1),
provided for general amendment of subsec. (c) so as to include
provisions relating to treatment for section 128 of this title,
adjustments to gross income and aggregate interest received, and
notice to shareholders, applicable to taxable years beginning after
Dec. 31, 1984. Section 16(a) of Pub. L. 98-369, repealed section
302(c) of Pub. L. 97-34, and provided that this title shall be
applied and administered as if section 302(c), and the amendments
made by section 302(c), had not been enacted.
1980 - Subsec. (b)(4)(A). Pub. L. 96-222 substituted provisions
computing the tax on the net income from foreclosure property of
every real estate investment trust by multiplying the net income
from foreclosure property by the highest rate of tax specified in
section 11(b) for provisions determining the tax on the net income
from foreclosure of property of every real estate investment trust
by applying section 11 to such income as if such income constituted
the taxable income of a corporation taxable under section 11 and
struck out provisions requiring that for purposes of the preceding
sentence, the surtax exemption be zero.
Subsec. (c). Pub. L. 96-223 temporarily substituted "Limitations
applicable to dividends received from real estate investment
trusts" for "Restrictions applicable to dividends received from
real estate investment trusts" in heading, designated existing
provisions as par. (1), substituted "(1) Capital gain dividend. -
For purposes of section 116 (relating to exclusion for dividends
and interest received by individuals), a capital gain dividend (as
defined in subsection (b)(3)(C)) received from a real estate
investment trust shall not be considered a dividend" for "For
purposes of section 116 (relating to an exclusion for dividends
received by individuals) and section 243 (relating to deductions
for dividends received by corporations), a dividend received from a
real estate investment trust which meets the requirements of this
part shall not be considered as a dividend" in par. (1) as so
designated, and added pars. (2) to (6).
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 301(b)(12),
substituted "a tax" for "a normal tax and surtax".
Subsec. (b)(3)(A)(ii). Pub. L. 95-600, Sec. 403(c)(3),
substituted "a tax determined at the rate provided in section
1201(a) on" for "a tax of 30 percent of".
Subsec. (b)(3)(C). Pub. L. 95-600, Sec. 362(d)(3), substituted
"section 860(e)" for "section 859(c)".
Subsec. (b)(6)(C) to (E). Pub. L. 95-600, Sec. 363(b), added
subpars. (C) to (E).
1976 - Subsec. (a). Pub. L. 94-455, Secs. 1604(j), (k)(2)(B),
1906(b)(13)(A), substituted "(other than subsection (d) of this
section and subsection (g) of section 856)" for "(other than
subsection (d) of this section)" in provisions preceding par. (1),
in par. (1) redesignated existing subpars. (A) and (B) as cls. (i)
and (ii), respectively, of subpar. (A), added subpar. (B), in both
cls. (i) and (ii) of subpar. (A) as redesignated raised the
percentage to 95 percent for taxable years beginning on and after
Jan. 1, 1980, and, in cl. (i) of subpar. (A) as redesignated,
inserted provision for the exclusion of net capital gain, and
struck out "or his delegate" after "Secretary" in par. (2).
Subsec. (b)(1). Pub. L. 94-455, Sec. 1901(b)(1)(V), struck out
provision that, for purposes of computing the normal tax under
section 11, the taxable income and the dividends paid deduction of
such real estate investment trust for the taxable year (computed
without regard to capital gains dividends) would be reduced by the
deduction provided by section 22 (relating to partially tax-exempt
interest.
Subsec. (b)(2). Pub. L. 94-455, Secs. 1602(b)(2), 1603(c)(5),
1606(a), (d), 1607(b)(1)(A), (2), struck out subpar. (A) which
provided for the exclusion of the excess, if any, of the net long-
term capital gain over the net short-term capital loss, and
subpar. (E) which prohibited the allowance of the net operating
loss deduction provided in section 172, redesignated subpars. (B),
(C), (D), and (F) as subpars. (A), (B), (C), and (D), respectively,
added subpars. (E) and (F), and in subpar. (B) as redesignated
substituted "subparagraph (D)" for "paragraph (F)" and struck out
"shall be computed without regard to capital gains dividends and"
after "shall be allowed, but".
Subsec. (b)(3)(A). Pub. L. 94-455, Sec. 1607(a), substituted
provisions setting an alternative tax in case of capital gains
under which, if for any taxable year, a real estate investment
trust has a net capital gain, then, in lieu of the tax imposed by
subsection (b)(1), there is imposed a tax (if such tax is less than
the tax imposed by such subsection) to consist of the sum of a tax,
computed as provided in subsection (b)(1), on the real estate
investment trust taxable income (determined by excluding such net
capital gain and by computing the deduction for dividends paid
without regard to capital gain dividends), and a tax of 30 percent
of the excess of the net capital gain over the deduction for
dividends paid (as defined in section 561) determined with
reference to capital gains dividends only, for provisions posing a
tax for each taxable year determined as provided in section
1201(a), on the excess, if any, of the net long-term capital gain
over the sum of the net short-term capital loss and the deduction
for dividends paid (as defined in section 561) determined with
reference to capital gains dividends only.
Subsec. (b)(3)(B). Pub. L. 94-455, Sec. 1402(b)(2), provided that
"9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(P), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (b)(3)(C). Pub. L. 94-455, Secs. 1601(c), 1607(b)(3),
1901(a)(112), (b)(33)(K), inserted "; except that, if there is an
increase in the excess described in subparagraph (A)(ii) of this
paragraph for such year which results from a determination (as
defined in section 859(c)), such designation may be made with
respect to such increase at any time before the expiration of 120
days after the date of such determination" after "30 days after the
close of its taxable year", substituted "net capital gain" for
"excess of the net long-term capital gain over the net short-term
capital loss" in provision covering the portion of distributions
which shall be capital gain dividends, inserted provision that the
net capital gain be deemed not to exceed the real estate investment
trust taxable income, and struck out provision which specified the
source of deductions for dividends paid in the case of taxable
years beginning before Jan. 1, 1975.
Subsec. (b)(4)(B)(i). Pub. L. 94-455, Sec. 1604(c)(2), inserted
reference to subparagraph (G) of section 856(c)(3).
Subsec. (b)(5). Pub. L. 94-455, Sec. 1602(b)(1), added par. (5).
Former par. (5) redesignated (7) and amended.
Subsec. (b)(6). Pub. L. 94-455, Sec. 1603(b), added par. (6).
Subsec. (b)(7). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Secs. 1402(b)(1)(P), 1602(b)(1), redesignated
par. (5) as (7) and provided that "6 months" would be changed to "9
months" for taxable years beginning in 1977.
Subsec. (d). Pub. L. 94-455, Sec. 1604(f)(3)(B), substituted "a
domestic corporation, trust," for "a domestic unincorporated
trust".
Subsec. (e). Pub. L. 94-455, Sec. 1605(b)(2), added subsec. (e).
1975 - Subsec. (a)(1). Pub. L. 93-625, Sec. 6(d)(2), incorporated
existing par. (1) provisions in par. (1) introductory text and
provisions designated as subpar. (A), substituted in subpar. (A)
"(determined without regard to the deduction for dividends paid (as
defined in section 561))" for "(determined without regard to
subsection (b)(2)(C))", and added subpar. (B).
Subsec. (b)(2)(C). Pub. L. 93-625, Sec. 6(d)(4), provided for
computation of deduction for dividends paid without regard to that
portion of such deduction which is attributable to the amount
excluded under subparagraph (F).
Subsec. (b)(2)(F). Pub. L. 93-625, Sec. 6(d)(3), added subpar.
(F).
Subsec. (b)(4), (5). Pub. L. 93-625, Sec. 6(c), added par. (4)
and redesignated former par. (4) as (5).
1969 - Subsec. (b)(3)(A). Pub. L. 91-172, Sec. 511(c)(3)(A),
substituted "determined as provided in section 1201(a), on" for "of
25 percent of."
Subsec. (b)(3)(C). Pub. L. 91-172, Sec. 511(c)(3)(B), inserted
provision requiring for the purposes of the deduction for capital
gains dividends paid, in the case of a taxable year beginning
before Jan. 1, 1975, the deduction for dividends paid shall first
be made from the amount subject to tax in accordance with section
1201(a)(1)(B), to the extent thereof, and then from the amount
subject to tax in accordance with section 1201(a)(1)(A).
1964 - Subsec. (c). Pub. L. 88-272 struck out "section 34(a)
(relating to credit for dividends received by individuals)," before
"section 116" and the comma before "and".
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by section 403(d)(3) of Pub. L. 109-135 effective as if
included in the provision of the American Jobs Creation Act of
2004, Pub. L. 108-357, to which such amendment relates, see section
403(nn) of Pub. L. 109-135, set out as a note under section 26 of
this title.
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendment by section 243(c), (e) of Pub. L. 108-357 applicable to
taxable years beginning after Oct. 22, 2004, and amendment by
section 243(f)(4) of Pub. L. 108-357 applicable to taxable years
ending after Oct. 22, 2004, see section 243(g)(2), (4)(D) of Pub.
L. 108-357, set out as a note under section 856 of this title.
Pub. L. 108-357, title III, Sec. 321(b), Oct. 22, 2004, 118 Stat.
1474, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after the date
of the enactment of this Act [Oct. 22, 2004]."
Pub. L. 108-357, title IV, Sec. 418(c), Oct. 22, 2004, 118 Stat.
1513, as amended by Pub. L. 109-135, title IV, Sec. 403(p)(2), Dec.
21, 2005, 119 Stat. 2626, provided that: "The amendments made by
this section [amending this section and section 897 of this title]
shall apply to -
"(1) any distribution by a real estate investment trust which
is treated as a deduction for a taxable year of such trust
beginning after the date of the enactment of this Act [Oct. 22,
2004], and
"(2) any distribution by a real estate investment trust made
after such date which is treated as a deduction under section 860
[probably means section 860 of the Internal Revenue Code of 1986]
for a taxable year of such trust beginning on or before such
date."
Amendment by Pub. L. 108-311 effective as if included in section
302 of the Jobs and Growth Tax Relief Reconciliation Act of 2003,
Pub. L. 108-27, see section 402(b) of Pub. L. 108-311, set out a
note under section 1 of this title.
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L. 108-
27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 413(b), Mar. 9, 2002, 116 Stat.
54, provided that: "The amendments made by this section [amending
this section] shall take effect as if included in section 545 of
the Tax Relief Extension Act of 1999 [Pub. L. 106-170]."
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 effective as if included in the
provisions of the Ticket to Work and Work Incentives Improvement
Act of 1999, Pub. L. 106-170, to which such amendment relates, see
section 1(a)(7) [title III, Sec. 311(d)] of Pub. L. 106-554, set
out as a note under section 30A of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by section 532(c)(2)(L), (M) of Pub. L. 106-170
applicable to any instrument held, acquired, or entered into, any
transaction entered into, and supplies held or acquired on or after
Dec. 17, 1999, see section 532(d) of Pub. L. 106-170, set out as a
note under section 170 of this title.
Amendment by section 545 of Pub. L. 106-170 applicable to taxable
years beginning after Dec. 31, 2000, see section 546(a) of Pub. L.
106-170, set out as a note under section 856 of this title.
Pub. L. 106-170, title V, Sec. 556(c), Dec. 17, 1999, 113 Stat.
1949, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2000."
Amendment by section 566(a)(2), (b) of Pub. L. 106-170 applicable
to distributions after Dec. 31, 2000, see section 566(d) of Pub. L.
106-170, set out as a note under section 852 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years beginning
after Aug. 5, 1997, see section 1263 of Pub. L. 105-34, set out as
a note under section 852 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(s)(5) of Pub. L. 100-647 provided that the amendment
made by that section is effective with respect to dividends
declared in 1988 and subsequent calendar years.
Amendment by sections 1006(r), (s)(2), (4) and 1018(u)(28) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L. 99-
514, to which such amendment relates, see section 1019(a) of Pub.
L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 612(b)(7) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 612(c) of
Pub. L. 99-514, set out as a note under section 301 of this title.
Amendments by sections 661(b), 664, 665(a), (b)(1), and 666 of
Pub. L. 99-514 applicable to taxable years beginning after Dec. 31,
1986, see section 669(a) of Pub. L. 99-514, set out as a note under
section 856 of this title.
Amendment by section 668(b)(1)(A), (2), (3) of Pub. L. 99-514
applicable to calendar years beginning after Dec. 31, 1986, see
section 669(b) of Pub. L. 99-514, set out as a note under section
856 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 16(a) of Pub. L. 98-369 applicable to
taxable years ending after Dec. 31, 1983, see section 18(a) of Pub.
L. 98-369, set out as a note under section 48 of this title.
Amendment by section 55(b) of Pub. L. 98-369 applicable to losses
incurred with respect to shares of stock and beneficial interest
with respect to which the taxpayer's holding period begins after
July 18, 1984, see section 55(c) of Pub. L. 98-369, set out as a
note under section 852 of this title.
Amendment by section 1001(b)(13) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE AND TERMINATION DATES OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 applicable with respect to taxable
years beginning after Dec. 31, 1980, and before Jan. 1, 1982, see
section 404(c) of Pub. L. 96-223, set out as a note under section
265 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 301(b)(12) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 301(c) of
Pub. L. 95-600, set out as a note under section 11 of this title.
Amendment by section 362(d)(3) of Pub. L. 95-600 applicable with
respect to determinations (as defined in section 860(e) of this
title) after Nov. 6, 1978, see section 362(e) of Pub. L. 95-600,
set out as an Effective Date note under section 860 of this title.
Amendment by section 363(b) of Pub. L. 95-600 applicable to
taxable years ending after Nov. 6, 1978, see section 363(d) of Pub.
L. 95-600, set out as a note under section 856 of this title.
Amendment by section 403(c)(3) of Pub. L. 95-600 effective on
Nov. 6, 1978, see section 403(d)(3) of Pub. L. 95-600, set out as a
note under section 528 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Section 1608(a) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by section 1601 [enacting sections 859 and 6697 of
this title and amending this section and sections 316, 381, 6422,
6503, and 6515 of this title] shall apply with respect to
determinations (as defined in section 859(c) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954]) occurring after the
date of the enactment of this Act [Oct. 4, 1976]. If the amendments
made by section 1601 apply to a taxable year ending on or before
the date of enactment of this Act:
"(1) the reference to section 857(b)(3)(A)(ii) in sections
857(b)(3)(C) and 859(b)(1)(B) of such Code as amended, shall be
considered to be a reference to section 857(b)(3)(A) of such
Code, as in effect immediately before the enactment of this Act
[Oct. 4, 1976], and
"(2) the reference to section 857(b)(2)(B) in section 859(a) of
such Code, as amended, shall be considered to be a reference to
section 857(b)(2)(C) of such Code, as in effect immediately
before the enactment of this Act [Oct. 4, 1976]."
For effective date of amendment by section 1602(b)(1), (2) of
Pub. L. 94-455, see section 1608(b) of Pub. L. 94-455, set out as a
Trust Not Disqualified in Certain Cases Where Income Tests Not Met
note under section 856 of this title.
For effective date of amendment by sections 1603, 1604, and 1605
of Pub. L. 94-455, see section 1608(d) of Pub. L. 94-455, set out
as a note under section 856 of this title.
Section 1608(c) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by sections 1606 and 1607 [amending this section
and sections 46, 172, and 443 of this title] shall apply to taxable
years ending after the date of the enactment of this Act [Oct. 4,
1976]; except that in the case of a taxpayer which has a net
operating loss (as defined in section 172(c) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954]) for any taxable year
ending after the date of enactment of this Act [Oct. 4, 1976] for
which the provisions of part II of subchapter M of chapter 1 of
subtitle A of such Code apply to such taxpayer, such loss shall not
be a net operating loss carryback under section 172 of such Code to
any taxable year ending on or before the date of enactment of this
Act [Oct. 4, 1976]."
Amendment by section 1901(a)(112), (b)(1)(V), (33)(K) of Pub. L.
94-455 effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as a note under
section 2 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 93-625 applicable to foreclosure property
acquired after Dec. 31, 1973, see section 6(e) of Pub. L. 93-625,
set out as a note under section 856 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to taxable
years beginning after Dec. 31, 1969, see section 511(d) of Pub. L.
91-172, set out as an Effective Date note under section 1201 of
this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable with respect to dividends
received after Dec. 31, 1964, in taxable years ending after such
date, see section 201(e) of Pub. L. 88-272, set out as a note under
section 22 of this title.
EFFECTIVE DATE
Section applicable with respect to taxable years of real estate
investment trusts beginning after Dec. 31, 1960, see section 10(k)
of Pub. L. 86-779, set out as a note under section 856 of this
title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 858 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART II - REAL ESTATE INVESTMENT TRUSTS
-HEAD-
Sec. 858. Dividends paid by real estate investment trust after
close of taxable year
-STATUTE-
(a) General rule
For purposes of this part, if a real estate investment trust -
(1) declares a dividend before the time prescribed by law for
the filing of its return for a taxable year (including the period
of any extension of time granted for filing such return), and
(2) distributes the amount of such dividend to shareholders or
holders of beneficial interests in the 12-month period following
the close of such taxable year and not later than the date of the
first regular dividend payment made after such declaration,
the amount so declared and distributed shall, to the extent the
trust elects in such return (and specifies in dollar amounts) in
accordance with regulations prescribed by the Secretary, be
considered as having been paid only during such taxable year,
except as provided in subsections (b) and (c).
(b) Receipt by shareholder
Except as provided in section 857(b)(8), amounts to which
subsection (a) applies shall be treated as received by the
shareholder or holder of a beneficial interest in the taxable year
in which the distribution is made.
(c) Notice to shareholders
In the case of amounts to which subsection (a) applies, any
notice to shareholders or holders of beneficial interests required
under this part with respect to such amounts shall be made not
later than 30 days after the close of the taxable year in which the
distribution is made (or mailed to its shareholders or holders of
beneficial interests with its annual report for the taxable year).
-SOURCE-
(Added Pub. L. 86-779, Sec. 10(a), Sept. 14, 1960, 74 Stat. 1008;
amended Pub. L. 94-455, title XVI, Secs. 1604(h), title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1752, 1834; Pub. L. 99-514,
title VI, Secs. 665(b)(2), 668(b)(1)(B), Oct. 22, 1986, 100 Stat.
2304, 2307; Pub. L. 100-647, title I, Sec. 1018(u)(27), Nov. 10,
1988, 102 Stat. 3591.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b). Pub. L. 100-647, Sec. 1018(u)(27), made
technical correction to directory language of Pub. L. 99-514, see
1986 Amendment note below.
1986 - Subsec. (b). Pub. L. 99-514, Sec. 668(b)(1)(B), as amended
by Pub. L. 100-647, Sec. 1018(u)(27), substituted "Except as
provided in section 857(b)(8), amounts" for "Amounts".
Subsec. (c). Pub. L. 99-514, Sec. 665(b)(2), inserted "(or mailed
to its shareholders or holders of beneficial interests with its
annual report for the taxable year)".
1976 - Subsec. (a). Pub. L. 94-455, Secs. 1604(h),
1906(b)(13)(A), inserted "(and specifies in dollar amounts)" after
"to the extent the trust elects in such return" and substituted
"paid only during such taxable year" for "paid during such taxable
year", and struck out "or his delegate" after "Secretary".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 665(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, and by section
668(b)(1)(B) of Pub. L. 99-514 applicable to calendar years
beginning after Dec. 31, 1986, see section 669 of Pub. L. 99-514,
set out as a note under section 856 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1604(h) of Pub. L. 94-
455, see section 1608(d) of Pub. L. 94-455, set out as a note
under section 856 of this title.
EFFECTIVE DATE
Section applicable with respect to taxable years of real estate
investment trusts beginning after Dec. 31, 1960, see section 10(k)
of Pub. L. 86-779, set out as a note under section 856 of this
title.
-End-
-CITE-
26 USC Sec. 859 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART II - REAL ESTATE INVESTMENT TRUSTS
-HEAD-
Sec. 859. Adoption of annual accounting period
-STATUTE-
(a) General rule
For purposes of this subtitle -
(1) a real estate investment trust shall not change to any
accounting period other than the calendar year, and
(2) a corporation, trust, or association may not elect to be a
real estate investment trust for any taxable year beginning after
October 4, 1976, unless its accounting period is the calendar
year.
Paragraph (2) shall not apply to a corporation, trust, or
association which was considered to be a real estate investment
trust for any taxable year beginning on or before October 4, 1976.
(b) Change of accounting period without approval
Notwithstanding section 442, an entity which has not engaged in
any active trade or business may change its accounting period to a
calendar year without the approval of the Secretary if such change
is in connection with an election under section 856(c).
-SOURCE-
(Added Pub. L. 94-455, title XVI, Sec. 1604(i)(1), Oct. 4, 1976, 90
Stat. 1752, Sec. 860; renumbered Sec. 859 and amended Pub. L. 95-
600, title III, Sec. 362(d)(6), title VII, Sec. 701(t)(1), Nov. 6,
1978, 92 Stat. 2852, 2911; Pub. L. 99-514, title VI, Sec. 661(c),
Oct. 22, 1986, 100 Stat. 2300.)
-MISC1-
PRIOR PROVISIONS
A prior section 859, added Pub. L. 94-455, title XVI, Sec.
1601(a)(1), Oct. 4, 1976, 90 Stat. 1742; amended Pub. L. 95-600,
title VII, Sec. 701(t)(4), Nov. 6, 1978, 92 Stat. 2912, related to
a deduction for deficiency dividends, prior to repeal by Pub. L. 95-
600, title III, Sec. 362(d)(6), Nov. 6, 1978, 92 Stat. 2852. See
section 860 of this title.
AMENDMENTS
1986 - Pub. L. 99-514 designated existing provisions as subsec.
(a) and added subsec. (b).
1978 - Pub. L. 95-600, Sec. 701(t)(1), designated existing
provisions as par. (1), substituted "change to any accounting
period" for "change to or adopt any annual accounting period", and
added par. (2) and provision for nonapplicability of par. (2) to a
real estate investment trust for any taxable year beginning on or
before Oct. 4, 1976.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 669 of Pub. L. 99-514, set out as
a note under section 856 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Repeal of prior section 859 of this title and redesignation of
section 860 of this title as this section by section 362(d)(6) of
Pub. L. 95-600 applicable with respect to determinations (as
defined in section 860(e) of this title) after Nov. 6, 1978, see
section 362(e) of Pub. L. 95-600, set out as an Effective Date note
under section 860 of this title.
Section 701(t)(5) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section and
sections 275, 856, 6212, and 6501 of this title] shall take effect
on October 4, 1976."
-End-
-CITE-
26 USC PART III - PROVISIONS WHICH APPLY TO BOTH
REGULATED INVESTMENT COMPANIES AND REAL
ESTATE INVESTMENT TRUSTS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART III - PROVISIONS WHICH APPLY TO BOTH REGULATED INVESTMENT
COMPANIES AND REAL ESTATE INVESTMENT TRUSTS
-HEAD-
PART III - PROVISIONS WHICH APPLY TO BOTH REGULATED INVESTMENT
COMPANIES AND REAL ESTATE INVESTMENT TRUSTS
-MISC1-
Sec.
860. Deduction for deficiency dividends.
-End-
-CITE-
26 USC Sec. 860 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART III - PROVISIONS WHICH APPLY TO BOTH REGULATED INVESTMENT
COMPANIES AND REAL ESTATE INVESTMENT TRUSTS
-HEAD-
Sec. 860. Deduction for deficiency dividends
-STATUTE-
(a) General rule
If a determination with respect to any qualified investment
entity results in any adjustment for any taxable year, a deduction
shall be allowed to such entity for the amount of deficiency
dividends for purposes of determining the deduction for dividends
paid (for purposes of section 852 or 857, whichever applies) for
such year.
(b) Qualified investment entity defined
For purposes of this section, the term "qualified investment
entity" means -
(1) a regulated investment company, and
(2) a real estate investment trust.
(c) Rules for application of section
(1) Interest and additions to tax determined with respect to the
amount of deficiency dividend deduction allowed
For purposes of determining interest, additions to tax, and
additional amounts -
(A) the tax imposed by this chapter (after taking into
account the deduction allowed by subsection (a)) on the
qualified investment entity for the taxable year with respect
to which the determination is made shall be deemed to be
increased by an amount equal to the deduction allowed by
subsection (a) with respect to such taxable year,
(B) the last date prescribed for payment of such increase in
tax shall be deemed to have been the last date prescribed for
the payment of tax (determined in the manner provided by
section 6601(b)) for the taxable year with respect to which the
determination is made, and
(C) such increase in tax shall be deemed to be paid as of the
date the claim for the deficiency dividend deduction is filed.
(2) Credit or refund
If the allowance of a deficiency dividend deduction results in
an overpayment of tax for any taxable year, credit or refund with
respect to such overpayment shall be made as if on the date of
the determination 2 years remained before the expiration of the
period of limitations on the filing of claim for refund for the
taxable year to which the overpayment relates.
(d) Adjustment
For purposes of this section -
(1) Adjustment in the case of regulated investment company
In the case of any regulated investment company, the term
"adjustment" means -
(A) any increase in the investment company taxable income of
the regulated investment company (determined without regard to
the deduction for dividends paid (as defined in section 561)),
(B) any increase in the amount of the excess described in
section 852(b)(3)(A) (relating to the excess of the net capital
gain over the deduction for capital gain dividends paid), and
(C) any decrease in the deduction for dividends paid (as
defined in section 561) determined without regard to capital
gains dividends.
(2) Adjustment in the case of real estate investment trust
In the case of any real estate investment trust, the term
"adjustment" means -
(A) any increase in the sum of -
(i) the real estate investment trust taxable income of the
real estate investment trust (determined without regard to
the deduction for dividends paid (as defined in section 561)
and by excluding any net capital gain), and
(ii) the excess of the net income from foreclosure property
(as defined in section 857(b)(4)(B)) over the tax on such
income imposed by section 857(b)(4)(A),
(B) any increase in the amount of the excess described in
section 857(b)(3)(A)(ii) (relating to the excess of the net
capital gain over the deduction for capital gains dividends
paid), and
(C) any decrease in the deduction for dividends paid (as
defined in section 561) determined without regard to capital
gains dividends.
(e) Determination
For purposes of this section, the term "determination" means -
(1) a decision by the Tax Court, or a judgment, decree, or
other order by any court of competent jurisdiction, which has
become final;
(2) a closing agreement made under section 7121;
(3) under regulations prescribed by the Secretary, an agreement
signed by the Secretary and by, or on behalf of, the qualified
investment entity relating to the liability of such entity for
tax; or
(4) a statement by the taxpayer attached to its amendment or
supplement to a return of tax for the relevant tax year.
(f) Deficiency dividends
(1) Definition
For purposes of this section, the term "deficiency dividends"
means a distribution of property made by the qualified investment
entity on or after the date of the determination and before
filing claim under subsection (g), which would have been
includible in the computation of the deduction for dividends paid
under section 561 for the taxable year with respect to which the
liability for tax resulting from the determination exists if
distributed during such taxable year. No distribution of property
shall be considered as deficiency dividends for purposes of
subsection (a) unless distributed within 90 days after the
determination, and unless a claim for a deficiency dividend
deduction with respect to such distribution is filed pursuant to
subsection (g).
(2) Limitations
(A) Ordinary dividends
The amount of deficiency dividends (other than deficiency
dividends qualifying as capital gain dividends) paid by a
qualified investment entity for the taxable year with respect
to which the liability for tax resulting from the determination
exists shall not exceed the sum of -
(i) the excess of the amount of increase referred to in
subparagraph (A) of paragraph (1) or (2) of subsection (d)
(whichever applies) over the amount of any increase in the
deduction for dividends paid (computed without regard to
capital gain dividends) for such taxable year which results
from such determination, and
(ii) the amount of decreased (!1) referred to in
subparagraph (C) of paragraph (1) or (2) of subsection (d)
(whichever applies).
(B) Capital gain dividends
The amount of deficiency dividends qualifying as capital gain
dividends paid by a qualified investment entity for the taxable
year with respect to which the liability for tax resulting from
the determination exists shall not exceed the amount by which
(i) the increase referred to in subparagraph (B) of paragraph
(1) or (2) of subsection (d) (whichever applies), exceeds (ii)
the amount of any dividends paid during such taxable year which
are designated as capital gain dividends after such
determination.
(3) Effect on dividends paid deduction
(A) For taxable year in which paid
Deficiency dividends paid in any taxable year shall not be
included in the amount of dividends paid for such year for
purposes of computing the dividends paid deduction for such
year.
(B) For prior taxable year
Deficiency dividends paid in any taxable year shall not be
allowed for purposes of section 855(a) or 858(a) in the
computation of the dividends paid deduction for the taxable
year preceding the taxable year in which paid.
(g) Claim required
No deficiency dividend deduction shall be allowed under
subsection (a) unless (under regulations prescribed by the
Secretary) claim therefore is filed within 120 days after the date
of the determination.
(h) Suspension of statute of limitations and stay of collection
(1) Suspension of running of statute
If the qualified investment entity files a claim as provided in
subsection (g), the running of the statute of limitations
provided in section 6501 on the making of assessments, and the
bringing of distraint or a proceeding in court for collection, in
respect of the deficiency established by a determination under
this section, and all interest, additions to tax, additional
amounts, or assessable penalties in respect thereof, shall be
suspended for a period of 2 years after the date of the
determination.
(2) Stay of collection
In the case of any deficiency established by a determination
under this section -
(A) the collection of the deficiency, and all interest,
additions to tax, additional amounts, and assessable penalties
in respect thereof, shall, except in cases of jeopardy, be
stayed until the expiration of 120 days after the date of the
determination, and
(B) if claim for a deficiency dividend deduction is filed
under subsection (g), the collection of such part of the
deficiency as is not reduced by the deduction for deficiency
dividends provided in subsection (a) shall be stayed until the
date the claim is disallowed (in whole or in part), and if
disallowed in part collection shall be made only with respect
to the part disallowed.
No distraint or proceeding in court shall be begun for the
collection of an amount the collection of which is stayed under
subparagraph (A) or (B) during the period for which the
collection of such amount is stayed.
(i) Deduction denied in case of fraud
No deficiency dividend deduction shall be allowed under
subsection (a) if the determination contains a finding that any
part of any deficiency attributable to an adjustment with respect
to the taxable year is due to fraud with intent to evade tax or to
willfull (!2) failure to file an income tax return within the time
prescribed by law or prescribed by the Secretary in pursuance of
law.
(j) Penalty
For assessable penalty with respect to liability for tax of a
regulated investment company which is allowed a deduction under
subsection (a), see section 6697.
-SOURCE-
(Added Pub. L. 95-600, title III, Sec. 362(a), Nov. 6, 1978, 92
Stat. 2848; amended Pub. L. 96-222, title I, Sec. 103(a)(11)(B),
(C), Apr. 1, 1980, 94 Stat. 213; Pub. L. 99-514, title VI, Sec.
667(b)(1), Oct. 22, 1986, 100 Stat. 2306; Pub. L. 108-357, title
II, Sec. 243(f)(5), Oct. 22, 2004, 118 Stat. 1445.)
-MISC1-
PRIOR PROVISIONS
A prior section 860 was renumbered section 859 of this title.
AMENDMENTS
2004 - Subsec. (e)(4). Pub. L. 108-357 added par. (4).
1986 - Subsec. (j). Pub. L. 99-514 substituted "regulated
investment company" for "qualified investment entity".
1980 - Subsec. (f). Pub. L. 96-222 substituted in heading
"Deficiency" for "Efficiency" and in par. (2)(A)(i) "(computed
without regard" for "computed without regard".
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 applicable to statements filed after
Oct. 22, 2004, see section 243(g)(4)(E) of Pub. L. 108-357, set out
as a note under section 856 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 669 of Pub. L. 99-514, set out as
a note under section 856 of this title.
EFFECTIVE DATE
Section 362(e) of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 103(a)(11)(A), Apr. 1, 1980, 94 Stat. 212; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [enacting this section, amending
sections 316, 381, 852, 857, 6422, 6503, 6515, and 6697 of this
title, repealing section 859 of this title, and redesignating prior
section 860 as 859 of this title] shall apply with respect to
determinations (as defined in section 860(e) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954]) after the date of the
enactment of this Act [Nov. 6, 1978]."
-FOOTNOTE-
(!1) So in original. Probably should be "decrease".
(!2) So in original. Probably should be "willful".
-End-
-CITE-
26 USC PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-MISC1-
Sec.
860A. Taxation of REMIC's.
860B. Taxation of holders of regular interests.
860C. Taxation of residual interests.
860D. REMIC defined.
860E. Treatment of income in excess of daily accruals on
residual interests.
860F. Other rules.
860G. Other definitions and special rules.
-End-
-CITE-
26 USC Sec. 860A 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860A. Taxation of REMIC's
-STATUTE-
(a) General rule
Except as otherwise provided in this part, a REMIC shall not be
subject to taxation under this subtitle (and shall not be treated
as a corporation, partnership, or trust for purposes of this
subtitle).
(b) Income taxable to holders
The income of any REMIC shall be taxable to the holders of
interests in such REMIC as provided in this part.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2309; amended Pub. L. 100-647, title I, Sec. 1006(t)(20),
Nov. 10, 1988, 102 Stat. 3426.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647 substituted "this subtitle"
for "this chapter" in two places.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section 675(a)-(c) of subtitle H (Secs. 671-675) of title VI of
Pub. L. 99-514, as amended by Pub. L. 100-647, title I, Sec.
1006(w)(1), Nov. 10, 1988, 102 Stat. 3427, provided that:
"(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this subtitle [enacting this part
and amending sections 582, 593, 856, 1272, 6049, and 7701 of this
title] shall take effect on January 1, 1987.
"(b) Rules for Accruing Original Issue Discount. - The amendment
made by section 672 [amending section 1272 of this title] shall
apply to debt instruments issued after December 31, 1986, in
taxable years ending after such date.
"(c) Treatment of Taxable Mortgage Pools. -
"(1) In general. - The amendment made by section 673 [amending
section 7701 of this title] shall take effect on January 1, 1992.
"(2) Treatment of existing entities. - The amendment made by
section 673 shall not apply to any entity in existence on
December 31, 1991. The preceding sentence shall cease to apply
with respect to any entity as of the 1st day after December 31,
1991, on which there is a substantial transfer of cash or other
property to such entity.
"(3) Special rule for coordination with wash-sale rules. -
Notwithstanding paragraphs (1) and (2), for purposes of applying
section 860F(d) of the Internal Revenue Code of 1986 (as added by
this part [this subtitle]), the amendment made by section 673
shall apply to taxable years beginning after December 31, 1986."
STUDY OF AMENDMENTS BY PUB. L. 99-514
Section 675(d) of Pub. L. 99-514, as added by Pub. L. 100-647,
title I, Sec. 1006(w)(2), Nov. 10, 1988, 102 Stat. 3427, directed
Secretary of the Treasury to conduct a study of the operation of
the amendments made by this part [this subtitle] and their
competitive impact on savings and loan institutions and similar
financial institutions and, not later than Jan. 1, 1990, report to
Congress, prior to repeal by Pub. L. 101-508, title XI, Sec.
11832(5), Nov. 5, 1990, 104 Stat. 1388-559.
-End-
-CITE-
26 USC Sec. 860B 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860B. Taxation of holders of regular interests
-STATUTE-
(a) General rule
In determining the tax under this chapter of any holder of a
regular interest in a REMIC, such interest (if not otherwise a debt
instrument) shall be treated as a debt instrument.
(b) Holders must use accrual method
The amounts includible in gross income with respect to any
regular interest in a REMIC shall be determined under the accrual
method of accounting.
(c) Portion of gain treated as ordinary income
Gain on the disposition of a regular interest shall be treated as
ordinary income to the extent such gain does not exceed the excess
(if any) of -
(1) the amount which would have been includible in the gross
income of the taxpayer with respect to such interest if the yield
on such interest were 110 percent of the applicable Federal rate
(as defined in section 1274(d) without regard to paragraph (2)
thereof) as of the beginning of the taxpayer's holding period,
over
(2) the amount actually includible in gross income with respect
to such interest by the taxpayer.
(d) Cross reference
For special rules in determining inclusion of original issue
discount on regular interests, see section 1272(a)(6).
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2309.)
-End-
-CITE-
26 USC Sec. 860C 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860C. Taxation of residual interests
-STATUTE-
(a) Pass-thru of income or loss
(1) In general
In determining the tax under this chapter of any holder of a
residual interest in a REMIC, such holder shall take into account
his daily portion of the taxable income or net loss of such REMIC
for each day during the taxable year on which such holder held
such interest.
(2) Daily portion
The daily portion referred to in paragraph (1) shall be
determined -
(A) by allocating to each day in any calendar quarter its
ratable portion of the taxable income (or net loss) for such
quarter, and
(B) by allocating the amount so allocated to any day among
the holders (on such day) of residual interests in proportion
to their respective holdings on such day.
(b) Determination of taxable income or net loss
For purposes of this section -
(1) Taxable income
The taxable income of a REMIC shall be determined under an
accrual method of accounting and, except as provided in
regulations, in the same manner as in the case of an individual,
except that -
(A) regular interests in such REMIC (if not otherwise debt
instruments) shall be treated as indebtedness of such REMIC,
(B) market discount on any market discount bond shall be
included in gross income for the taxable years to which it is
attributable as determined under the rules of section
1276(b)(2) (and sections 1276(a) and 1277 shall not apply),
(C) there shall not be taken into account any item of income,
gain, loss, or deduction allocable to a prohibited transaction,
(D) the deductions referred to in section 703(a)(2) (other
than any deduction under section 212) shall not be allowed, and
(E) the amount of the net income from foreclosure property
(if any) shall be reduced by the amount of the tax imposed by
section 860G(c).
(2) Net loss
The net loss of any REMIC is the excess of -
(A) the deductions allowable in computing the taxable income
of such REMIC, over
(B) its gross income.
Such amount shall be determined with the modifications set forth
in paragraph (1).
(c) Distributions
Any distribution by a REMIC -
(1) shall not be included in gross income to the extent it does
not exceed the adjusted basis of the interest, and
(2) to the extent it exceeds the adjusted basis of the
interest, shall be treated as gain from the sale or exchange of
such interest.
(d) Basis rules
(1) Increase in basis
The basis of any person's residual interest in a REMIC shall be
increased by the amount of the taxable income of such REMIC taken
into account under subsection (a) by such person with respect to
such interest.
(2) Decreases in basis
The basis of any person's residual interest in a REMIC shall be
decreased (but not below zero) by the sum of the following
amounts:
(A) any distributions to such person with respect to such
interest, and
(B) any net loss of such REMIC taken into account under
subsection (a) by such person with respect to such interest.
(e) Special rules
(1) Amounts treated as ordinary
Any amount taken into account under subsection (a) by any
holder of a residual interest in a REMIC shall be treated as
ordinary income or ordinary loss, as the case may be.
(2) Limitation on losses
(A) In general
The amount of the net loss of any REMIC taken into account by
a holder under subsection (a) with respect to any calendar
quarter shall not exceed the adjusted basis of such holder's
residual interest in such REMIC as of the close of such
calendar quarter (determined without regard to the adjustment
under subsection (d)(2)(B) for such calendar quarter).
(B) Indefinite carryforward
Any loss disallowed by reason of subparagraph (A) shall be
treated as incurred by the REMIC in the succeeding calendar
quarter with respect to such holder.
(3) Cross reference
For special treatment of income in excess of daily accruals,
see section 860E.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2309; amended Pub. L. 100-647, title I, Sec. 1006(t)(1),
(8)(C), (21), Nov. 10, 1988, 102 Stat. 3419, 3421, 3426.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b)(1). Pub. L. 100-647, Sec. 1006(t)(21),
substituted "and, except as provided in regulations, in the same
manner" for "and in the same manner" in introductory provisions.
Subsec. (b)(1)(E). Pub. L. 100-647, Sec. 1006(t)(8)(C), added
subpar. (E).
Subsec. (e)(1). Pub. L. 100-647, Sec. 1006(t)(1), substituted
"ordinary" for "ordinary income" in heading and amended text
generally. Prior to amendment, text read as follows: "Any amount
included in the gross income of any holder of a residual interest
in a REMIC by reason of subsection (a) shall be treated as ordinary
income."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
-End-
-CITE-
26 USC Sec. 860D 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860D. REMIC defined
-STATUTE-
(a) General rule
For purposes of this title, the terms "real estate mortgage
investment conduit" and "REMIC" mean any entity -
(1) to which an election to be treated as a REMIC applies for
the taxable year and all prior taxable years,
(2) all of the interests in which are regular interests or
residual interests,
(3) which has 1 (and only 1) class of residual interests (and
all distributions, if any, with respect to such interests are pro
rata),
(4) as of the close of the 3rd month beginning after the
startup day and at all times thereafter, substantially all of the
assets of which consist of qualified mortgages and permitted
investments,
(5) which has a taxable year which is a calendar year, and
(6) with respect to which there are reasonable arrangements
designed to ensure that -
(A) residual interests in such entity are not held by
disqualified organizations (as defined in section 860E(e)(5)),
and
(B) information necessary for the application of section
860E(e) will be made available by the entity.
In the case of a qualified liquidation (as defined in section
860F(a)(4)(A)), paragraph (4) shall not apply during the
liquidation period (as defined in section 860F(a)(4)(B)).
(b) Election
(1) In general
An entity (otherwise meeting the requirements of subsection
(a)) may elect to be treated as a REMIC for its 1st taxable year.
Such an election shall be made on its return for such 1st taxable
year. Except as provided in paragraph (2), such an election shall
apply to the taxable year for which made and all subsequent
taxable years.
(2) Termination
(A) In general
If any entity ceases to be a REMIC at any time during the
taxable year, such entity shall not be treated as a REMIC for
such taxable year or any succeeding taxable year.
(B) Inadvertent terminations
If -
(i) an entity ceases to be a REMIC,
(ii) the Secretary determines that such cessation was
inadvertent,
(iii) no later than a reasonable time after the discovery
of the event resulting in such cessation, steps are taken so
that such entity is once more a REMIC, and
(iv) such entity, and each person holding an interest in
such entity at any time during the period specified pursuant
to this subsection, agrees to make such adjustments
(consistent with the treatment of such entity as a REMIC or a
C corporation) as may be required by the Secretary with
respect to such period,
then, notwithstanding such terminating event, such entity shall
be treated as continuing to be a REMIC (or such cessation shall
be disregarded for purposes of subparagraph (A)) whichever the
Secretary determines to be appropriate.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2311; amended Pub. L. 100-647, title I, Sec. 1006(t)(2)(A),
(16)(A), (19), Nov. 10, 1988, 102 Stat. 3419, 3423, 3426; Pub. L.
101-508, title XI, Sec. 11704(a)(8), Nov. 5, 1990, 104 Stat. 1388-
518.)
-MISC1-
AMENDMENTS
1990 - Subsec. (a). Pub. L. 101-508 inserted closing parenthesis
before period at end.
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1006(t)(19), inserted
at end "In the case of a qualified liquidation (as defined in
section 860F(a)(4)(A)), paragraph (4) shall not apply during the
liquidation period (as defined in section 860F(a)(4)(B)."
Subsec. (a)(4). Pub. L. 100-647, Sec. 1006(t)(2)(A)(i),
substituted "3rd month beginning after" for "4th month ending
after".
Pub. L. 100-647, Sec. 1006(t)(2)(A)(ii), substituted "and at all
times thereafter" for "and each quarter ending thereafter".
Subsec. (a)(6). Pub. L. 100-647, Sec. 1006(t)(16)(A), added par.
(6).
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(t)(2)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A)(ii) [amending this section]
shall take effect on January 1, 1988."
Section 1006(t)(16)(D)(i) of Pub. L. 100-647 provided that: "The
amendments made by subparagraph (A) [amending this section] shall
apply in the case of any REMIC where the start-up day (as defined
in section 860G(a)(9) of the 1986 Code, as in effect on the day
before the date of the enactment of this Act [Nov. 10, 1988]) is
after March 31, 1988; except that such amendments shall not apply
in the case of a REMIC formed pursuant to a binding written
contract in effect on such date."
Amendment by section 1006(t)(2)(A)(i), (19) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
-End-
-CITE-
26 USC Sec. 860E 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860E. Treatment of income in excess of daily accruals on
residual interests
-STATUTE-
(a) Excess inclusions may not be offset by net operating losses
(1) In general
The taxable income of any holder of a residual interest in a
REMIC for any taxable year shall in no event be less than the
excess inclusion for such taxable year.
(2) Special rule for affiliated groups
All members of an affiliated group filing a consolidated return
shall be treated as 1 taxpayer for purposes of this subsection.
(3) Coordination with section 172
Any excess inclusion for any taxable year shall not be taken
into account -
(A) in determining under section 172 the amount of any net
operating loss for such taxable year, and
(B) in determining taxable income for such taxable year for
purposes of the 2nd sentence of section 172(b)(2).
(4) Coordination with minimum tax
For purposes of part VI of subchapter A of this chapter -
(A) the reference in section 55(b)(2) to taxable income shall
be treated as a reference to taxable income determined without
regard to this subsection,
(B) the alternative minimum taxable income of any holder of a
residual interest in a REMIC for any taxable year shall in no
event be less than the excess inclusion for such taxable year,
and
(C) any excess inclusion shall be disregarded for purposes of
computing the alternative tax net operating loss deduction.
(b) Organizations subject to unrelated business tax
If the holder of any residual interest in a REMIC is an
organization subject to the tax imposed by section 511, the excess
inclusion of such holder for any taxable year shall be treated as
unrelated business taxable income of such holder for purposes of
section 511.
(c) Excess inclusion
For purposes of this section -
(1) In general
The term "excess inclusion" means, with respect to any residual
interest in a REMIC for any calendar quarter, the excess (if any)
of -
(A) the amount taken into account with respect to such
interest by the holder under section 860C(a), over
(B) the sum of the daily accruals with respect to such
interest for days during such calendar quarter while held by
such holder.
To the extent provided in regulations, if residual interests in a
REMIC do not have significant value, the excess inclusions with
respect to such interests shall be the amount determined under
subparagraph (A) without regard to subparagraph (B).
(2) Determination of daily accruals
(A) In general
For purposes of this subsection, the daily accrual with
respect to any residual interest for any day in any calendar
quarter shall be determined by allocating to each day in such
quarter its ratable portion of the product of -
(i) the adjusted issue price of such interest at the
beginning of such quarter, and
(ii) 120 percent of the long-term Federal rate (determined
on the basis of compounding at the close of each calendar
quarter and properly adjusted for the length of such
quarter).
(B) Adjusted issue price
For purposes of this paragraph, the adjusted issue price of
any residual interest at the beginning of any calendar quarter
is the issue price of the residual interest (adjusted for
contributions) -
(i) increased by the amount of daily accruals for prior
quarters, and
(ii) decreased (but not below zero) by any distribution
made with respect to such interest before the beginning of
such quarter.
(C) Federal long-term rate
For purposes of this paragraph, the term "Federal long-term
rate" means the Federal long-term rate which would have applied
to the residual interest under section 1274(d) (determined
without regard to paragraph (2) thereof) if it were a debt
instrument.
(d) Treatment of residual interests held by real estate investment
trusts
If a residual interest in a REMIC is held by a real estate
investment trust, under regulations prescribed by the Secretary -
(1) any excess of -
(A) the aggregate excess inclusions determined with respect
to such interests, over
(B) the real estate investment trust taxable income (within
the meaning of section 857(b)(2), excluding any net capital
gain),
shall be allocated among the shareholders of such trust in
proportion to the dividends received by such shareholders from
such trust, and
(2) any amount allocated to a shareholder under paragraph (1)
shall be treated as an excess inclusion with respect to a
residual interest held by such shareholder.
Rules similar to the rules of the preceding sentence shall apply
also in the case of regulated investment companies, common trust
funds, and organizations to which part I of subchapter T applies.
(e) Tax on transfers of residual interests to certain
organizations, etc.
(1) In general
A tax is hereby imposed on any transfer of a residual interest
in a REMIC to a disqualified organization.
(2) Amount of tax
The amount of the tax imposed by paragraph (1) on any transfer
of a residual interest shall be equal to the product of -
(A) the amount (determined under regulations) equal to the
present value of the total anticipated excess inclusions with
respect to such interest for periods after such transfer,
multiplied by
(B) the highest rate of tax specified in section 11(b)(1).
(3) Liability
The tax imposed by paragraph (1) on any transfer shall be paid
by the transferor; except that, where such transfer is through an
agent for a disqualified organization, such tax shall be paid by
such agent.
(4) Transferee furnishes affidavit
The person (otherwise liable for any tax imposed by paragraph
(1)) shall be relieved of liability for the tax imposed by
paragraph (1) with respect to any transfer if -
(A) the transferee furnishes to such person an affidavit that
the transferee is not a disqualified organization, and
(B) as of the time of the transfer, such person does not have
actual knowledge that such affidavit is false.
(5) Disqualified organization
For purposes of this section, the term "disqualified
organization" means -
(A) the United States, any State or political subdivision
thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the
foregoing,
(B) any organization (other than a cooperative described in
section 521) which is exempt from tax imposed by this chapter
unless such organization is subject to the tax imposed by
section 511, and
(C) any organization described in section 1381(a)(2)(C).
For purposes of subparagraph (A), the rules of section
168(h)(2)(D) (relating to treatment of certain taxable
instrumentalities) shall apply; except that, in the case of the
Federal Home Loan Mortgage Corporation, clause (ii) of such
section shall not apply.
(6) Treatment of pass-thru entities
(A) Imposition of tax
If, at any time during any taxable year of a pass-thru
entity, a disqualified organization is the record holder of an
interest in such entity, there is hereby imposed on such entity
for such taxable year a tax equal to the product of -
(i) the amount of excess inclusions for such taxable year
allocable to the interest held by such disqualified
organization, multiplied by
(ii) the highest rate of tax specified in section 11(b)(1).
(B) Pass-thru entity
For purposes of this paragraph, the term "pass-thru entity"
means -
(i) any regulated investment company, real estate
investment trust, or common trust fund,
(ii) any partnership, trust, or estate, and
(iii) any organization to which part I of subchapter T
applies.
Except as provided in regulations, a person holding an interest
in a pass-thru entity as a nominee for another person shall,
with respect to such interest, be treated as a pass-thru
entity.
(C) Tax to be deductible
Any tax imposed by this paragraph with respect to any excess
inclusion of any pass-thru entity for any taxable year shall,
for purposes of this title (other than this subsection), be
applied against (and operate to reduce) the amount included in
gross income with respect to the residual interest involved.
(D) Exception where holder furnishes affidavit
No tax shall be imposed by subparagraph (A) with respect to
any interest in a pass-thru entity for any period if -
(i) the record holder of such interest furnishes to such
pass-thru entity an affidavit that such record holder is not
a disqualified organization, and
(ii) during such period, the pass-thru entity does not have
actual knowledge that such affidavit is false.
(7) Waiver
The Secretary may waive the tax imposed by paragraph (1) on any
transfer if -
(A) within a reasonable time after discovery that the
transfer was subject to tax under paragraph (1), steps are
taken so that the interest is no longer held by the
disqualified organization, and
(B) there is paid to the Secretary such amounts as the
Secretary may require.
(8) Administrative provisions
For purposes of subtitle F, the taxes imposed by this
subsection shall be treated as excise taxes with respect to which
the deficiency procedures of such subtitle apply.
(f) Treatment of variable insurance contracts
Except as provided in regulations, with respect to any variable
contract (as defined in section 817), there shall be no adjustment
in the reserve to the extent of any excess inclusion.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2311; amended Pub. L. 100-647, title I, Sec. 1006(t)(13),
(15), (16)(B), (17), (23), (26), (27), Nov. 10, 1988, 102 Stat.
3423, 3426, 3427; Pub. L. 104-188, title I, Secs. 1616(b)(10),
1704(h)(1), Aug. 20, 1996, 110 Stat. 1857, 1881.)
-MISC1-
AMENDMENTS
1996 - Subsec. (a)(1). Pub. L. 104-188, Sec. 1616(b)(10)(A),
substituted "The" for "Except as provided in paragraph (2), the".
Subsec. (a)(2). Pub. L. 104-188, Sec. 1616(b)(10)(B), (C),
redesignated par. (3) as (2), struck out ", except that paragraph
(2) shall be applied separately with respect to each corporation
which is a member of such group and to which section 593 applies"
after "of this subsection", and struck out former par. (2) which
read as follows: "Exception for certain financial institutions. -
Paragraph (1) shall not apply to any organization to which section
593 applies. The Secretary may by regulations provide that the
preceding sentence shall not apply where necessary or appropriate
to prevent avoidance of tax imposed by this chapter."
Subsec. (a)(3). Pub. L. 104-188, Sec. 1616(b)(10)(B),
redesignated par. (5) as (3). Former par. (3) redesignated (2).
Subsec. (a)(4). Pub. L. 104-188, Sec. 1616(b)(10)(B), (D),
redesignated par. (6) as (4), struck out at end "The preceding
sentence shall not apply to any organization to which section 593
applies, except to the extent provided in regulations prescribed by
the Secretary under paragraph (2).", and struck out former par. (4)
which related to certain subsidiaries being treated as single
corporations to which section 593 applied.
Subsec. (a)(5). Pub. L. 104-188, Sec. 1616(b)(10)(B),
redesignated par. (5) as (3).
Subsec. (a)(6). Pub. L. 104-188, Sec. 1616(b)(10)(B),
redesignated par. (6) as (4).
Pub. L. 104-188, Sec. 1704(h)(1), added par. (6).
1988 - Subsec. (a)(3), (4). Pub. L. 100-647, Sec. 1006(t)(15),
added pars. (3) and (4).
Subsec. (a)(5). Pub. L. 100-647, Sec. 1006(t)(27), added par.
(5).
Subsec. (c)(2)(B). Pub. L. 100-647, Sec. 1006(t)(13), (17),
substituted "issue price of the residual interest (adjusted for
contributions)" for "issue price of residual interest" in
introductory text, and in cl. (ii) inserted "(but not below zero)"
after "decreased".
Subsec. (d). Pub. L. 100-647, Sec. 1006(t)(23), inserted at end
"Rules similar to the rules of the preceding sentence shall apply
also in the case of regulated investment companies, common trust
funds, and organizations to which part I of subchapter T applies."
Subsec. (e). Pub. L. 100-647, Sec. 1006(t)(16)(B), added subsec.
(e).
Subsec. (f). Pub. L. 100-647, Sec. 1006(t)(26), added subsec.
(f).
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1616(b)(10) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1995, but not applicable to
any residual interest held by a taxpayer if such interest has been
held by such taxpayer at all times since Oct. 31, 1995, see section
1616(c)(1), (4) of Pub. L. 104-188, set out as a note under section
593 of this title.
Section 1704(h)(2) of Pub. L. 104-188 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section 671 of the
Tax Reform Act of 1986 [Pub. L. 99-514] unless the taxpayer elects
to apply such amendment only to taxable years beginning after the
date of the enactment of this Act [Aug. 20, 1996]."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(t)(16)(D)(ii)-(iv) of Pub. L. 100-647 provided that:
"(ii) The amendments made by subparagraphs (B) and (C) [amending
this section and section 26 of this title] (except to the extent
they relate to paragraph (6) of section 860E(e) of the 1986 Code as
added by such amendments) shall apply to transfers after March 31,
1988; except that such amendments shall not apply to any transfer
pursuant to a binding written contract in effect on such date.
"(iii) Except as provided in clause (iv), the amendments made by
subparagraphs (B) and (C) (to the extent they relate to paragraph
(6) of section 860E(e) of the 1986 Code as so added) shall apply to
excess inclusions for periods after March 31, 1988 but only to the
extent such inclusions are -
"(I) allocable to an interest in a pass-thru entity acquired
after March 31, 1988, or
"(II) allocable to an interest in a pass-thru entity acquired
on or before March 31, 1988, but attributable to a residual
interest acquired by the pass-thru entity after March 31, 1988.
For purposes of the preceding sentence, any interest in a pass-thru
entity (or residual interest) acquired after March 31, 1988,
pursuant to a binding written contract in effect on such date shall
be treated as acquired before such date.
"(iv) In the case of any real estate investment trust, regulated
investment company, common trust fund, or publicly traded
partnership, no tax shall be imposed under section 860E(e)(6) of
the 1986 Code (as added by the amendment made by subparagraph (B))
for any taxable year beginning before January 1, 1989."
Amendment by section 1006(t)(13), (15), (17), (23), (26), (27) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L. 99-
514, to which such amendment relates, see section 1019(a) of Pub.
L. 100-647, set out as a note under section 1 of this title.
-End-
-CITE-
26 USC Sec. 860F 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860F. Other rules
-STATUTE-
(a) 100 percent tax on prohibited transactions
(1) Tax imposed
There is hereby imposed for each taxable year of a REMIC a tax
equal to 100 percent of the net income derived from prohibited
transactions.
(2) Prohibited transaction
For purposes of this part, the term "prohibited transaction"
means -
(A) Disposition of qualified mortgage
The disposition of any qualified mortgage transferred to the
REMIC other than a disposition pursuant to -
(i) the substitution of a qualified replacement mortgage
for a qualified mortgage (or the repurchase in lieu of
substitution of a defective obligation),
(ii) a disposition incident to the foreclosure, default, or
imminent default of the mortgage,
(iii) the bankruptcy or insolvency of the REMIC, or
(iv) a qualified liquidation.
(B) Income from nonpermitted assets
The receipt of any income attributable to any asset which is
neither a qualified mortgage nor a permitted investment.
(C) Compensation for services
The receipt by the REMIC of any amount representing a fee or
other compensation for services.
(D) Gain from disposition of cash flow investments
Gain from the disposition of any cash flow investment other
than pursuant to any qualified liquidation.
(3) Determination of net income
For purposes of paragraph (1), the term "net income derived
from prohibited transactions" means the excess of the gross
income from prohibited transactions over the deductions allowed
by this chapter which are directly connected with such
transactions; except that there shall not be taken into account
any item attributable to any prohibited transaction for which
there was a loss.
(4) Qualified liquidation
For purposes of this part -
(A) In general
The term "qualified liquidation" means a transaction in which
-
(i) the REMIC adopts a plan of complete liquidation,
(ii) such REMIC sells all its assets (other than cash)
within the liquidation period, and
(iii) all proceeds of the liquidation (plus the cash), less
assets retained to meet claims, are credited or distributed
to holders of regular or residual interests on or before the
last day of the liquidation period.
(B) Liquidation period
The term "liquidation period" means the period -
(i) beginning on the date of the adoption of the plan of
liquidation, and
(ii) ending at the close of the 90th day after such date.
(5) Exceptions
Notwithstanding subparagraphs (A) and (D) of paragraph (2), the
term "prohibited transaction" shall not include any disposition -
(A) required to prevent default on a regular interest where
the threatened default resulted from a default on 1 or more
qualified mortgages, or
(B) to facilitate a clean-up call (as defined in
regulations).
(b) Treatment of transfers to the REMIC
(1) Treatment of transferor
(A) Nonrecognition gain or loss
No gain or loss shall be recognized to the transferor on the
transfer of any property to a REMIC in exchange for regular or
residual interests in such REMIC.
(B) Adjusted bases of interests
The adjusted bases of the regular and residual interests
received in a transfer described in subparagraph (A) shall be
equal to the aggregate adjusted bases of the property
transferred in such transfer. Such amount shall be allocated
among such interests in proportion to their respective fair
market values.
(C) Treatment of nonrecognized gain
If the issue price of any regular or residual interest
exceeds its adjusted basis as determined under subparagraph
(B), for periods during which such interest is held by the
transferor (or by any other person whose basis is determined in
whole or in part by reference to the basis of such interest in
the hand of the transferor) -
(i) in the case of a regular interest, such excess shall be
included in gross income (as determined under rules similar
to rules of section 1276(b)), and
(ii) in the case of a residual interest, such excess shall
be included in gross income ratably over the anticipated
period during which the REMIC will be in existence.
(D) Treatment of nonrecognized loss
If the adjusted basis of any regular or residual interest
received in a transfer described in subparagraph (A) exceeds
its issue price, for periods during which such interest is held
by the transferor (or by any other person whose basis is
determined in whole or in part by reference to the basis of
such interest in the hand of the transferor) -
(i) in the case of a regular interest, such excess shall be
allowable as a deduction under rules similar to the rules of
section 171, and
(ii) in the case of a residual interest, such excess shall
be allowable as a deduction ratably over the anticipated
period during which the REMIC will be in existence.
(2) Basis to REMIC
The basis of any property received by a REMIC in a transfer
described in paragraph (1)(A) shall be its fair market value
immediately after such transfer.
(c) Distributions of property
If a REMIC makes a distribution of property with respect to any
regular or residual interest -
(1) notwithstanding any other provision of this subtitle, gain
shall be recognized to such REMIC on the distribution in the same
manner as if it had sold such property to the distributee at its
fair market value, and
(2) the basis of the distributee in such property shall be its
fair market value.
(d) Coordination with wash sale rules
For purposes of section 1091 -
(1) any residual interest in a REMIC shall be treated as a
security, and
(2) in applying such section to any loss claimed to have been
sustained on the sale or other disposition of a residual interest
in a REMIC -
(A) except as provided in regulations, any residual interest
in any REMIC and any interest in a taxable mortgage pool (as
defined in section 7701(i)) comparable to a residual interest
in a REMIC shall be treated as substantially identical stock or
securities, and
(B) subsections (a) and (e) of such section shall be applied
by substituting "6 months" for "30 days" each place it appears.
(e) Treatment under subtitle F
For purposes of subtitle F, a REMIC shall be treated as a
partnership (and holders of residual interests in such REMIC shall
be treated as partners). Any return required by reason of the
preceding sentence shall include the amount of the daily accruals
determined under section 860E(c). Such return shall be filed by the
REMIC. The determination of who may sign such return shall be made
without regard to the first sentence of this subsection.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2313; amended Pub. L. 100-647, title I, Sec. 1006(t)(3), (4),
(14), (18)(A), (22)(B)-(E), Nov. 10, 1988, 102 Stat. 3419, 3420,
3423, 3426; Pub. L. 104-188, title I, Sec. 1704(t)(74), Aug. 20,
1996, 110 Stat. 1891.)
-MISC1-
AMENDMENTS
1996 - Subsec. (a)(5). Pub. L. 104-188 substituted "paragraph
(2)" for "paragraph (1)" in introductory provisions.
1988 - Subsec. (a)(2)(A). Pub. L. 100-647, Sec. 1006(t)(3)(B)(i),
struck out at end "Notwithstanding the preceding sentence, the term
'prohibited transaction' shall not include any disposition required
to prevent default on a regular interest where the threatened
default resulted from a default on 1 or more qualified mortgages."
Subsec. (a)(2)(A)(i). Pub. L. 100-647, Sec. 1006(t)(3)(A),
amended cl. (i) generally. Prior to amendment, cl. (i) read as
follows: "the substitution of a qualified replacement mortgage for
a qualified mortgage,".
Subsec. (a)(2)(A)(iii), (C). Pub. L. 100-647, Sec.
1006(t)(22)(B), (C), substituted "REMIC" for "real estate mortgage
pool".
Subsec. (a)(2)(D). Pub. L. 100-647, Sec. 1006(t)(3)(C), struck
out "described in subsection (b)" before period at end.
Subsec. (a)(5). Pub. L. 100-647, Sec. 1006(t)(3)(B)(ii), added
par. (5).
Subsec. (b)(1)(A). Pub. L. 100-647, Sec. 1006(t)(4), substituted
"the transfer of any property to a REMIC in exchange for regular or
residual interests in such REMIC" for "the transfer of any property
to a REMIC".
Subsec. (b)(1)(C)(ii). Pub. L. 100-647, Sec. 1006(t)(22)(D),
substituted "REMIC" for "real estate mortgage pool".
Subsec. (b)(1)(D)(ii). Pub. L. 100-647, Sec. 1006(t)(14),
(22)(E), amended cl. (ii) identically, substituting "REMIC" for
"real estate mortgage pool".
Subsec. (e). Pub. L. 100-647, Sec. 1006(t)(18)(A), inserted at
end "Such return shall be filed by the REMIC. The determination of
who may sign such return shall be made without regard to the first
sentence of this subsection."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(t)(18)(B) of Pub. L. 100-647 provided that: "Unless
the REMIC otherwise elects, the amendment made by subparagraph (A)
[amending this section] shall not apply to any REMIC where the
start-up day (as defined in section 860G(a)(9) of the 1986 Code as
in effect on the day before the date of the enactment of this Act
[Nov. 10, 1988]) is before the date of the enactment of this Act."
Amendment by section 1006(t)(3), (4), (14), (22)(B)-(E) of Pub.
L. 100-647 effective, except as otherwise provided, as if included
in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L. 100-
647, set out as a note under section 1 of this title.
-End-
-CITE-
26 USC Sec. 860G 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860G. Other definitions and special rules
-STATUTE-
(a) Definitions
For purposes of this part -
(1) Regular interest
The term "regular interest" means any interest in a REMIC which
is issued on the startup day with fixed terms and which is
designated as a regular interest if -
(A) such interest unconditionally entitles the holder to
receive a specified principal amount (or other similar amount),
and
(B) interest payments (or other similar amount), if any, with
respect to such interest at or before maturity -
(i) are payable based on a fixed rate (or to the extent
provided in regulations, at a variable rate), or
(ii) consist of a specified portion of the interest
payments on qualified mortgages and such portion does not
vary during the period such interest is outstanding.
The interest shall not fail to meet the requirements of
subparagraph (A) merely because the timing (but not the amount)
of the principal payments (or other similar amounts) may be
contingent on the extent of prepayments on qualified mortgages
and the amount of income from permitted investments. An interest
shall not fail to qualify as a regular interest solely because
the specified principal amount of the regular interest (or the
amount of interest accrued on the regular interest) can be
reduced as a result of the nonoccurrence of 1 or more contingent
payments with respect to any reverse mortgage loan held by the
REMIC if, on the startup day for the REMIC, the sponsor
reasonably believes that all principal and interest due under the
regular interest will be paid at or prior to the liquidation of
the REMIC.
(2) Residual interest
The term "residual interest" means an interest in a REMIC which
is issued on the startup day, which is not a regular interest,
and which is designated as a residual interest.
(3) Qualified mortgage
The term "qualified mortgage" means -
(A) any obligation (including any participation or
certificate of beneficial ownership therein) which is
principally secured by an interest in real property and which -
(i) is transferred to the REMIC on the startup day in
exchange for regular or residual interests in the REMIC,
(ii) is purchased by the REMIC within the 3-month period
beginning on the startup day if, except as provided in
regulations, such purchase is pursuant to a fixed-price
contract in effect on the startup day, or
(iii) represents an increase in the principal amount under
the original terms of an obligation described in clause (i)
or (ii) if such increase -
(I) is attributable to an advance made to the obligor
pursuant to the original terms of a reverse mortgage loan
or other obligation,
(II) occurs after the startup day, and
(III) is purchased by the REMIC pursuant to a fixed price
contract in effect on the startup day.(!1)
(B) any qualified replacement mortgage, and
(C) any regular interest in another REMIC transferred to the
REMIC on the startup day in exchange for regular or residual
interests in the REMIC.
For purposes of subparagraph (A), any obligation secured by stock
held by a person as a tenant-stockholder (as defined in section
216) in a cooperative housing corporation (as so defined) shall
be treated as secured by an interest in real property. For
purposes of subparagraph (A), any obligation originated by the
United States or any State (or any political subdivision, agency,
or instrumentality of the United States or any State) shall be
treated as principally secured by an interest in real property if
more than 50 percent of such obligations which are transferred
to, or purchased by, the REMIC are principally secured by an
interest in real property (determined without regard to this
sentence).
(4) Qualified replacement mortgage
The term "qualified replacement mortgage" means any obligation -
(A) which would be a qualified mortgage if transferred on the
startup day in exchange for regular or residual interests in
the REMIC, and
(B) which is received for -
(i) another obligation within the 3-month period beginning
on the startup day, or
(ii) a defective obligation within the 2-year period
beginning on the startup day.
(5) Permitted investments
The term "permitted investments" means any -
(A) cash flow investment,
(B) qualified reserve asset, or
(C) foreclosure property.
(6) Cash flow investment
The term "cash flow investment" means any investment of amounts
received under qualified mortgages for a temporary period before
distribution to holders of interests in the REMIC.
(7) Qualified reserve asset
(A) In general
The term "qualified reserve asset" means any intangible
property which is held for investment and as part of a
qualified reserve fund.
(B) Qualified reserve fund
For purposes of subparagraph (A), the term "qualified reserve
fund" means any reasonably required reserve to -
(i) provide for full payment of expenses of the REMIC or
amounts due on regular interests in the event of defaults on
qualified mortgages or lower than expected returns on cash
flow investments, or
(ii) provide a source of funds for the purchase of
obligations described in clause (ii) or (iii) of paragraph
(3)(A).
The aggregate fair market value of the assets held in any such
reserve shall not exceed 50 percent of the aggregate fair
market value of all of the assets of the REMIC on the startup
day, and the amount of any such reserve shall be promptly and
appropriately reduced to the extent the amount held in such
reserve is no longer reasonably required for purposes specified
in clause (i) or (ii) of this subparagraph.
(C) Special rule
A reserve shall not be treated as a qualified reserve for any
taxable year (and all subsequent taxable years) if more than 30
percent of the gross income from the assets in such fund for
the taxable year is derived from the sale or other disposition
of property held for less than 3 months. For purposes of the
preceding sentence, gain on the disposition of a qualified
reserve asset shall not be taken into account if the
disposition giving rise to such gain is required to prevent
default on a regular interest where the threatened default
resulted from a default on 1 or more qualified mortgages.
(8) Foreclosure property
The term "foreclosure property" means property -
(A) which would be foreclosure property under section 856(e)
(without regard to paragraph (5) thereof) if acquired by a real
estate investment trust, and
(B) which is acquired in connection with the default or
imminent default of a qualified mortgage held by the REMIC.
Solely for purposes of section 860D(a), the determination of
whether any property is foreclosure property shall be made
without regard to section 856(e)(4).
(9) Startup day
The term "startup day" means the day on which the REMIC issues
all of its regular and residual interests. To the extent provided
in regulations, all interests issued (and all transfers to the
REMIC) during any period (not exceeding 10 days) permitted in
such regulations shall be treated as occurring on the day during
such period selected by the REMIC for purposes of this paragraph.
(10) Issue price
The issue price of any regular or residual interest in a REMIC
shall be determined under section 1273(b) in the same manner as
if such interest were a debt instrument; except that if the
interest is issued for property, paragraph (3) of section 1273(b)
shall apply whether or not the requirements of such paragraph are
met.
(b) Treatment of nonresident aliens and foreign corporations
If the holder of a residual interest in a REMIC is a nonresident
alien individual or a foreign corporation, for purposes of sections
871(a), 881, 1441, and 1442 -
(1) amounts includible in the gross income of such holder under
this part shall be taken into account when paid or distributed
(or when the interest is disposed of), and
(2) no exemption from the taxes imposed by such sections (and
no reduction in the rates of such taxes) shall apply to any
excess inclusion.
The Secretary may by regulations provide that such amounts shall be
taken into account earlier than as provided in paragraph (1) where
necessary or appropriate to prevent the avoidance of tax imposed by
this chapter.
(c) Tax on income from foreclosure property
(1) In general
A tax is hereby imposed for each taxable year on the net income
from foreclosure property of each REMIC. Such tax shall be
computed by multiplying the net income from foreclosure property
by the highest rate of tax specified in section 11(b).
(2) Net income from foreclosure property
For purposes of this part, the term "net income from
foreclosure property" means the amount which would be the REMIC's
net income from foreclosure property under section 857(b)(4)(B)
if the REMIC were a real estate investment trust.
(d) Tax on contributions after startup date
(1) In general
Except as provided in paragraph (2), if any amount is
contributed to a REMIC after the startup day, there is hereby
imposed a tax for the taxable year of the REMIC in which the
contribution is received equal to 100 percent of the amount of
such contribution.
(2) Exceptions
Paragraph (1) shall not apply to any contribution which is made
in cash and is described in any of the following subparagraphs:
(A) Any contribution to facilitate a clean-up call (as
defined in regulations) or a qualified liquidation.
(B) Any payment in the nature of a guarantee.
(C) Any contribution during the 3-month period beginning on
the startup day.
(D) Any contribution to a qualified reserve fund by any
holder of a residual interest in the REMIC.
(E) Any other contribution permitted in regulations.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this part,
including regulations -
(1) to prevent unreasonable accumulations of assets in a REMIC,
(2) permitting determinations of the fair market value of
property transferred to a REMIC and issue price of interests in a
REMIC to be made earlier than otherwise provided,
(3) requiring reporting to holders of residual interests of
such information as frequently as is necessary or appropriate to
permit such holders to compute their taxable income accurately,
(4) providing appropriate rules for treatment of transfers of
qualified replacement mortgages to the REMIC where the transferor
holds any interest in the REMIC, and
(5) providing that a mortgage will be treated as a qualified
replacement mortgage only if it is part of a bona fide
replacement (and not part of a swap of mortgages).
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2315; amended Pub. L. 100-647, title I, Sec. 1006(t)(5)(A)-
(E), (6)-(8)(B), (9)(A), (10), Nov. 10, 1988, 102 Stat. 3420-3422;
Pub. L. 101-239, title VII, Sec. 7811(c)(9), Dec. 19, 1989, 103
Stat. 2408; Pub. L. 101-508, title XI, Sec. 11704(a)(9), Nov. 5,
1990, 104 Stat. 1388-518; Pub. L. 104-188, title I, Sec.
1621(b)(6), Aug. 20, 1996, 110 Stat. 1867; Pub. L. 108-357, title
VIII, Sec. 835(b)(5)-(8), Oct. 22, 2004, 118 Stat. 1593; Pub. L.
109-135, title IV, Sec. 403(cc), Dec. 21, 2005, 119 Stat. 2630.)
-MISC1-
AMENDMENTS
2005 - Subsec. (a)(3). Pub. L. 109-135, Sec. 403(cc)(2), inserted
concluding provisions and struck out former concluding provisions
which read as follows: "For purposes of subparagraph (A), any
obligation secured by stock held by a person as a tenant-
stockholder (as defined in section 216) in a cooperative housing
corporation (as so defined) shall be treated as secured by an
interest in real property, and any reverse mortgage loan (and each
balance increase on such loan meeting the requirements of
subparagraph (A)(iii)) shall be treated as an obligation secured by
an interest in real property. For purposes of subparagraph (A), if
more than 50 percent of the obligations transferred to, or
purchased by, the REMIC are originated by the United States or any
State (or any political subdivision, agency, or instrumentality of
the United States or any State) and are principally secured by an
interest in real property, then each obligation transferred to, or
purchased by, the REMIC shall be treated as secured by an interest
in real property."
Subsec. (a)(3)(A)(iii)(I). Pub. L. 109-135, Sec. 403(cc)(1),
substituted "a reverse mortgage loan or other obligation" for "the
obligation".
2004 - Subsec. (a)(1). Pub. L. 108-357, Sec. 835(b)(5)(A),
inserted at end of concluding provisions "An interest shall not
fail to qualify as a regular interest solely because the specified
principal amount of the regular interest (or the amount of interest
accrued on the regular interest) can be reduced as a result of the
nonoccurrence of 1 or more contingent payments with respect to any
reverse mortgage loan held by the REMIC if, on the startup day for
the REMIC, the sponsor reasonably believes that all principal and
interest due under the regular interest will be paid at or prior to
the liquidation of the REMIC."
Subsec. (a)(3). Pub. L. 108-357, Sec. 835(b)(7), inserted at end
of concluding provisions "For purposes of subparagraph (A), if more
than 50 percent of the obligations transferred to, or purchased by,
the REMIC are originated by the United States or any State (or any
political subdivision, agency, or instrumentality of the United
States or any State) and are principally secured by an interest in
real property, then each obligation transferred to, or purchased
by, the REMIC shall be treated as secured by an interest in real
property."
Pub. L. 108-357, Sec. 835(b)(5)(B), inserted before period at end
of concluding provisions ", and any reverse mortgage loan (and each
balance increase on such loan meeting the requirements of
subparagraph (A)(iii)) shall be treated as an obligation secured by
an interest in real property".
Subsec. (a)(3)(A)(iii). Pub. L. 108-357, Sec. 835(b)(8)(A), added
cl. (iii).
Subsec. (a)(3)(B) to (D). Pub. L. 108-357, Sec. 835(b)(6),
inserted "and" at end of subpar. (B), substituted period for ",
and" at end of subpar. (C), and struck out subpar. (D) which read
as follows: "any regular interest in a FASIT which is transferred
to, or purchased by, the REMIC as described in clauses (i) and (ii)
of subparagraph (A) but only if 95 percent or more of the value of
the assets of such FASIT is at all times attributable to
obligations described in subparagraph (A) (without regard to such
clauses)."
Subsec. (a)(7)(B). Pub. L. 108-357, Sec. 835(b)(8)(B), reenacted
heading without change and amended text of subpar. (B) generally.
Prior to amendment, text read as follows: "For purposes of
subparagraph (A), the term 'qualified reserve fund' means any
reasonably required reserve to provide for full payment of expenses
of the REMIC or amounts due on regular interests in the event of
defaults on qualified mortgages or lower than expected returns on
cash flow investments. The amount of any such reserve shall be
promptly and appropriately reduced as payments of qualified
mortgages are received."
1996 - Subsec. (a)(3)(D). Pub. L. 104-188 added subpar. (D).
1990 - Subsec. (a)(3)(A). Pub. L. 101-508 struck out comma after
"secured" in introductory provisions.
1989 - Subsec. (a)(3). Pub. L. 101-239 substituted "subparagraph
(A)" for "this subparagraph" in last sentence.
1988 - Subsec. (a)(1). Pub. L. 100-647, Sec. 1006(t)(5)(A),
amended par. (1) generally. Prior to amendment, par. (1) read as
follows: "The term 'regular interest' means an interest in a REMIC
the terms of which are fixed on the startup day, and which -
"(A) unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), and
"(B) provides that interest payments (or other similar
amounts), if any, at or before maturity are payable based on a
fixed rate (or to the extent provided in regulations, at a
variable rate).
An interest shall not fail to meet the requirements of subparagraph
(A) merely because the timing (but not the amount) of the principal
payments (or other similar amounts) may be contingent on the extent
of prepayments on qualified mortgages and the amount of income from
permitted investments."
Subsec. (a)(2). Pub. L. 100-647, Sec. 1006(t)(5)(B), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "The
term 'residual interest' means an interest in a REMIC which is not
a regular interest and is designated as a residual interest."
Subsec. (a)(3). Pub. L. 100-647, Sec. 1006(t)(6)(B), inserted at
end "For purposes of this subparagraph, any obligation secured by
stock held by a person as a tenant-stockholder (as defined in
section 216) in a cooperative housing corporation (as so defined)
shall be treated as secured by an interest in real property."
Subsec. (a)(3)(A). Pub. L. 100-647, Sec. 1006(t)(6)(A), struck
out "directly or indirectly,".
Subsec. (a)(3)(A)(i). Pub. L. 100-647, Sec. 1006(t)(5)(C)(i),
substituted "on the startup day in exchange for regular or residual
interests in the REMIC" for "on or before the startup day".
Subsec. (a)(3)(A)(ii). Pub. L. 100-647, Sec. 1006(t)(5)(C)(ii),
inserted before comma at end "if, except as provided in
regulations, such purchase is pursuant to a fixed-price contract in
effect on the startup day".
Subsec. (a)(3)(C). Pub. L. 100-647, Sec. 1006(t)(5)(C)(iii),
substituted "on the startup day in exchange for regular or residual
interests in the REMIC" for "on or before the startup day".
Subsec. (a)(4)(A). Pub. L. 100-647, Sec. 1006(t)(5)(D), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "which would be described in paragraph (3)(A) if it were
transferred to the REMIC on or before the startup day, and".
Subsec. (a)(7)(B). Pub. L. 100-647, Sec. 1006(t)(7), inserted
before period at end of first sentence "or lower than expected
returns on cash flow investments".
Subsec. (a)(8). Pub. L. 100-647, Sec. 1006(t)(8)(A), substituted
"section 856(e) (without regard to paragraph (5) thereof)" for
"section 856(e)" in subpar. (A) and amended last sentence
generally. Prior to amendment, last sentence read as follows:
"Property shall cease to be foreclosure property with respect to
the REMIC on the date which is 1 year after the date such real
estate mortgage pool acquired such property."
Subsec. (a)(9). Pub. L. 100-647, Sec. 1006(t)(5)(E), amended par.
(9) generally. Prior to amendment, par. (9) read as follows: "The
term 'startup day' means any day selected by a REMIC which is on or
before the 1st day on which interests in such REMIC are issued."
Subsec. (c). Pub. L. 100-647, Sec. 1006(t)(8)(B), added subsec.
(c). Former subsec. (c) redesignated (d).
Subsec. (d). Pub. L. 100-647, Sec. 1006(t)(9)(A), added subsec.
(d). Former subsec. (d) redesignated (e).
Pub. L. 100-647, Sec. 1006(t)(8)(B), redesignated former subsec.
(c) as (d).
Subsec. (e). Pub. L. 100-647, Sec. 1006(t)(9)(A), redesignated
former subsec. (d) as (e).
Subsec. (e)(4), (5). Pub. L. 100-647, Sec. 1006(t)(10), added
pars. (4) and (5).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendments by Pub. L. 109-135 effective as if included in the
provisions of the American Jobs Creation Act of 2004, Pub. L. 108-
357, to which they relate, see section 403(nn) of Pub. L. 109-135,
set out as a note under section 26 of this title.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub. L. 108-357 effective Jan. 1, 2005, with
exception for any FASIT in existence on Oct. 22, 2004, to the
extent that regular interests issued by the FASIT before such date
continue to remain outstanding in accordance with the original
terms of issuance, see section 835(c) of Pub. L. 108-357, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective Sept. 1, 1997, see section
1621(d) of Pub. L. 104-188, set out as a note under section 26 of
this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(t)(5)(F) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section] shall not
apply to any REMIC where the startup day (as defined in section
860G(a)(9) of the 1986 Code as in effect on the day before the date
of the enactment of this Act [Nov. 10, 1988]) is before July 1,
1987."
Section 1006(t)(9)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
not apply to any REMIC where the startup day (as defined in section
860G(a)(9) of the 1986 Code as in effect on the day before the date
of the enactment of this Act [Nov. 10, 1988]) is before July 1,
1987."
Amendment by section 1006(t)(6)-(8)(B), (10) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
-FOOTNOTE-
(!1) So in original. The period probably should be a comma.
-End-
-CITE-
26 USC [PART V - REPEALED] 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
[PART V - REPEALED]
-HEAD-
[PART V - REPEALED]
-End-
-CITE-
26 USC Secs. 860H to 860L 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
[PART V - REPEALED]
-HEAD-
[Secs. 860H to 860L. Repealed. Pub. L. 108-357, title VIII, Sec.
835(a), Oct. 22, 2004, 118 Stat. 1593]
-MISC1-
Section 860H, added Pub. L. 104-188, title I, Sec. 1621(a), Aug.
20, 1996, 110 Stat. 1858, set forth general rules relating to
taxation of a FASIT.
Section 860I, added Pub. L. 104-188, title I, Sec. 1621(a), Aug.
20, 1996, 110 Stat. 1859, related to gain recognition on
contributions to a FASIT and in other cases.
Section 860J, added Pub. L. 104-188, title I, Sec. 1621(a), Aug.
20, 1996, 110 Stat. 1860, prohibited offset of certain FASIT
inclusions by non-FASIT losses.
Section 860K, added Pub. L. 104-188, title I, Sec. 1621(a), Aug.
20, 1996, 110 Stat. 1861, related to treatment of transfers of high-
yield interests to disqualified holders.
Section 860L, added Pub. L. 104-188, title I, Sec. 1621(a), Aug.
20, 1996, 110 Stat. 1862; amended Pub. L. 105-34, title XVI, Sec.
1601(f)(6), Aug. 5, 1997, 111 Stat. 1091, defined terms and set
forth special rules relating to FASITs.
EFFECTIVE DATE OF REPEAL
Repeal effective Jan. 1, 2005, with exception for any FASIT in
existence on Oct. 22, 2004, to the extent that regular interests
issued by the FASIT before such date continue to remain outstanding
in accordance with the original terms of issuance, see section
835(c) of Pub. L. 108-357, set out as an Effective Date of 2004
Amendments note under section 56 of this title.
-End-
-CITE-
26 USC Subchapter N - Tax Based on Income From Sources
Within or Without the United States 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
-HEAD-
SUBCHAPTER N - TAX BASED ON INCOME FROM SOURCES WITHIN OR WITHOUT
THE UNITED STATES
-MISC1-
Part
I. Source rules and other general rules relating to
foreign income.
II. Nonresident aliens and foreign corporations.
III. Income from sources without the United States.
IV. Domestic international sales corporations.(!1)
V. International boycott determinations.
AMENDMENTS
1988 - Pub. L. 100-647, title I, Sec. 1012(h)(2)(D), Nov. 10,
1988, 102 Stat. 3503, substituted "Source rules and other general
rules relating to foreign income" for "Determination of sources of
income" in item for part I.
1976 - Pub. L. 94-455, title X, Sec. 1064(b), Oct. 4, 1976, 90
Stat. 1653, added item V.
-FOOTNOTE-
(!1) Editorially supplied. Part IV added by Pub. L. 92-178 without
corresponding amendment of subchapter analysis.
-End-
-CITE-
26 USC PART I - SOURCE RULES AND OTHER GENERAL RULES
RELATING TO FOREIGN INCOME 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-MISC1-
Sec.
861. Income from sources within the United States.
862. Income from sources without the United States.
863. Special rules for determining source.
864. Definitions and special rules.
865. Source rules for personal property sales.
AMENDMENTS
1988 - Pub. L. 100-647, title I, Secs. 1012(e)(3)(B), (h)(2)(C),
1018(u)(37), Nov. 11, 1988, 102 Stat. 3500, 3502, 3592, substituted
"SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN INCOME"
for "DETERMINATION OF SOURCES OF INCOME" as part I heading,
substituted "Special rules for determining source" for "Items not
specified in section 861 or 862" in item 863, and added item 865.
1986 - Pub. L. 99-514, title XII, Sec. 1215(b)(2), Oct. 22, 1986,
100 Stat. 2545, substituted "Definitions and special rules" for
"Definitions" in item 864.
-End-
-CITE-
26 USC Sec. 861 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 861. Income from sources within the United States
-STATUTE-
(a) Gross income from sources within United States
The following items of gross income shall be treated as income
from sources within the United States:
(1) Interest
Interest from the United States or the District of Columbia,
and interest on bonds, notes, or other interest-bearing
obligations of noncorporate residents or domestic corporations
not including -
(A) interest from a resident alien individual or domestic
corporation, if such individual or corporation meets the 80-
percent foreign business requirements of subsection (c)(1),
(B) interest -
(i) on deposits with a foreign branch of a domestic
corporation or a domestic partnership if such branch is
engaged in the commercial banking business, and
(ii) on amounts satisfying the requirements of subparagraph
(B) of section 871(i)(3) which are paid by a foreign branch
of a domestic corporation or a domestic partnership, and
(C) in the case of a foreign partnership, which is
predominantly engaged in the active conduct of a trade or
business outside the United States, any interest not paid by a
trade or business engaged in by the partnership in the United
States and not allocable to income which is effectively
connected (or treated as effectively connected) with the
conduct of a trade or business in the United States.
(2) Dividends
The amount received as dividends -
(A) from a domestic corporation other than a corporation
which has an election in effect under section 936, or
(B) from a foreign corporation unless less than 25 percent of
the gross income from all sources of such foreign corporation
for the 3-year period ending with the close of its taxable year
preceding the declaration of such dividends (or for such part
of such period as the corporation has been in existence) was
effectively connected (or treated as effectively connected
other than income described in section 884(d)(2)) with the
conduct of a trade or business within the United States; but
only in an amount which bears the same ratio to such dividends
as the gross income of the corporation for such period which
was effectively connected (or treated as effectively connected
other than income described in section 884(d)(2)) with the
conduct of a trade or business within the United States bears
to its gross income from all sources; but dividends (other than
dividends for which a deduction is allowable under section
245(b)) from a foreign corporation shall, for purposes of
subpart A of part III (relating to foreign tax credit), be
treated as income from sources without the United States to the
extent (and only to the extent) exceeding the amount which is
100/70th of the amount of the deduction allowable under section
245 in respect of such dividends, or
(C) from a foreign corporation to the extent that such amount
is required by section 243(e) (relating to certain dividends
from foreign corporations) to be treated as dividends from a
domestic corporation which is subject to taxation under this
chapter, and to such extent subparagraph (B) shall not apply to
such amount, or
(D) from a DISC or former DISC (as defined in section 992(a))
except to the extent attributable (as determined under
regulations prescribed by the Secretary) to qualified export
receipts described in section 993(a)(1) (other than interest
and gains described in section 995(b)(1)).
In the case of any dividend from a 20-percent owned corporation
(as defined in section 243(c)(2)), subparagraph (B) shall be
applied by substituting "100/80th" for "100/70th".
(3) Personal services
Compensation for labor or personal services performed in the
United States; except that compensation for labor or services
performed in the United States shall not be deemed to be income
from sources within the United States if -
(A) the labor or services are performed by a nonresident
alien individual temporarily present in the United States for a
period or periods not exceeding a total of 90 days during the
taxable year,
(B) such compensation does not exceed $3,000 in the
aggregate, and
(C) the compensation is for labor or services performed as an
employee of or under a contract with -
(i) a nonresident alien, foreign partnership, or foreign
corporation, not engaged in trade or business within the
United States, or
(ii) an individual who is a citizen or resident of the
United States, a domestic partnership, or a domestic
corporation, if such labor or services are performed for an
office or place of business maintained in a foreign country
or in a possession of the United States by such individual,
partnership, or corporation.
In addition, compensation for labor or services performed in the
United States shall not be deemed to be income from sources
within the United States if the labor or services are performed
by a nonresident alien individual in connection with the
individual's temporary presence in the United States as a regular
member of the crew of a foreign vessel engaged in transportation
between the United States and a foreign country or a possession
of the United States.
(4) Rentals and royalties
Rentals or royalties from property located in the United States
or from any interest in such property, including rentals or
royalties for the use of or for the privilege of using in the
United States patents, copyrights, secret processes and formulas,
good will, trade-marks, trade brands, franchises, and other like
property.
(5) Disposition of United States real property interest
Gains, profits, and income from the disposition of a United
States real property interest (as defined in section 897(c)).
(6) Sale or exchange of inventory property
Gains, profits, and income derived from the purchase of
inventory property (within the meaning of section 865(i)(1))
without the United States (other than within a possession of the
United States) and its sale or exchange within the United States.
(7) Amounts received as underwriting income (as defined in
section 832(b)(3)) derived from the issuing (or reinsuring) of
any insurance or annuity contract -
(A) in connection with property in, liability arising out of
an activity in, or in connection with the lives or health of
residents of, the United States, or
(B) in connection with risks not described in subparagraph
(A) as a result of any arrangement whereby another corporation
receives a substantially equal amount of premiums or other
consideration in respect to issuing (or reinsuring) any
insurance or annuity contract in connection with property in,
liability arising out of activity in, or in connection with the
lives or health of residents of, the United States.
(8) Social security benefits
Any social security benefit (as defined in section 86(d)).
(b) Taxable income from sources within United States
From the items of gross income specified in subsection (a) as
being income from sources within the United States there shall be
deducted the expenses, losses, and other deductions properly
apportioned or allocated thereto and a ratable part of any
expenses, losses, or other deductions which cannot definitely be
allocated to some item or class of gross income. The remainder, if
any, shall be included in full as taxable income from sources
within the United States. In the case of an individual who does not
itemize deductions, an amount equal to the standard deduction shall
be considered a deduction which cannot definitely be allocated to
some item or class of gross income.
(c) Foreign business requirements
(1) Foreign business requirements
(A) In general
An individual or corporation meets the 80-percent foreign
business requirements of this paragraph if it is shown to the
satisfaction of the Secretary that at least 80 percent of the
gross income from all sources of such individual or corporation
for the testing period is active foreign business income.
(B) Active foreign business income
For purposes of subparagraph (A), the term "active foreign
business income" means gross income which -
(i) is derived from sources outside the United States (as
determined under this subchapter) or, in the case of a
corporation, is attributable to income so derived by a
subsidiary of such corporation, and
(ii) is attributable to the active conduct of a trade or
business in a foreign country or possession of the United
States by the individual or corporation (or by a subsidiary.)
For purposes of this subparagraph, the term "subsidiary" means
any corporation in which the corporation referred to in this
subparagraph owns (directly or indirectly) stock meeting the
requirements of section 1504(a)(2) (determined by substituting
"50 percent" for "80 percent" each place it appears).
(C) Testing period
For purposes of this subsection, the term "testing period"
means the 3-year period ending with the close of the taxable
year of the individual or corporation preceding the payment (or
such part of such period as may be applicable). If the
individual or corporation has no gross income for such 3-year
period (or part thereof), the testing period shall be the
taxable year in which the payment is made.
(2) Look-thru where related person receives interest
(A) In general
In the case of interest received by a related person from a
resident alien individual or domestic corporation meeting the
80-percent foreign business requirements of paragraph (1),
subsection (a)(1)(A) shall apply only to a percentage of such
interest equal to the percentage which -
(i) the gross income of such individual or corporation for
the testing period from sources outside the United States (as
determined under this subchapter), is of
(ii) the total gross income of such individual or
corporation for the testing period.
(B) Related person
For purposes of this paragraph, the term "related person" has
the meaning given such term by section 954(d)(3), except that -
(i) such section shall be applied by substituting "the
individual or corporation making the payment" for "controlled
foreign corporation" each place it appears, and
(ii) such section shall be applied by substituting "10
percent or more" for "more than 50 percent" each place it
appears.
(d) Special rule for application of subsection (a)(2)(B)
For purposes of subsection (a)(2)(B), if the foreign corporation
has no gross income from any source for the 3-year period (or part
thereof) specified, the requirements of such subsection shall be
applied with respect to the taxable year of such corporation in
which the payment of the dividend is made.
(e) Income from certain railroad rolling stock treated as income
from sources within the United States
(1) General rule
For purposes of subsection (a) and section 862(a), if -
(A) a taxpayer leases railroad rolling stock which is section
1245 property (as defined in section 1245(a)(3)) to a domestic
common carrier by railroad or a corporation which is
controlled, directly or indirectly, by one or more such common
carriers, and
(B) the use under such lease is expected to be use within the
United States,
all amounts includible in gross income by the taxpayer with
respect to such railroad rolling stock (including gain from sale
or other disposition of such railroad rolling stock) shall be
treated as income from sources within the United States. The
requirements of subparagraph (B) of the preceding sentence shall
be treated as satisfied if the only expected use outside the
United States is use by a person (whether or not a United States
person) in Canada or Mexico on a temporary basis which is not
expected to exceed a total of 90 days in any taxable year.
(2) Paragraph (1) not to apply where lessor is a member of
controlled group which includes a railroad
Paragraph (1) shall not apply to a lease between two members of
the same controlled group of corporations (as defined in section
1563) if any member of such group is a domestic common carrier by
railroad or a switching or terminal company all of whose stock is
owned by one or more domestic common carriers by railroad.
(3) Denial of foreign tax credit
No credit shall be allowed under section 901 for any payments
to foreign countries with respect to any amount received by the
taxpayer with respect to railroad rolling stock which is subject
to paragraph (1).
(f) Cross reference
For treatment of interest paid by the branch of a foreign
corporation, see section 884(f).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 275; Pub. L. 86-779, Sec. 3(b),
Sept. 14, 1960, 74 Stat. 998; Pub. L. 87-834, Sec. 9(c), Oct. 16,
1962, 76 Stat. 1001; Pub. L. 89-809, title I, Sec. 102(a)(1)-(3),
(b), (c), Nov. 13, 1966, 80 Stat. 1541-1543; Pub. L. 91-172, title
IV, Sec. 435(a), Dec. 30, 1969, 83 Stat. 625; Pub. L. 92-9, Sec.
3(a)(2), Apr. 1, 1971, 85 Stat. 15; Pub. L. 92-178, title III, Sec.
314(a), title V, Sec. 503, Dec. 10, 1971, 85 Stat. 528, 550; Pub.
L. 93-625, Secs. 8, 9(a), Jan. 3, 1975, 88 Stat. 2116; Pub. L. 94-
455, title X, Secs. 1036(a), 1041, 1051(h)(3), title XIX, Secs.
1901(b)(26)(A), (B), (c)(7), 1904(b)(10)(B), 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1633, 1634, 1647, 1798, 1803, 1817, 1834; Pub. L.
95-30, title I, Sec. 102(b)(9), May 23, 1977, 91 Stat. 138; Pub. L.
95-600, title III, Sec. 370(a), title V, Sec. 540(a), Nov. 6, 1978,
92 Stat. 2858, 2887; Pub. L. 96-499, title XI, Sec. 1124, Dec. 5,
1980, 94 Stat. 2690; Pub. L. 96-605, title I, Sec. 104(a), Dec. 28,
1980, 94 Stat. 3523; Pub. L. 98-21, title I, Sec. 121(d), Apr. 20,
1983, 97 Stat. 83; Pub. L. 99-514, title I, Sec. 104(b)(11), title
XII, Secs. 1211(b)(1)(B), 1212(d), 1214(a), (b), (c)(5), 1241(b),
Oct. 22, 1986, 100 Stat. 2105, 2536, 2539, 2541-2543, 2579; Pub. L.
100-203, title X, Sec. 10221(d)(4), Dec. 22, 1987, 101 Stat. 1330-
409; Pub. L. 100-647, title I, Secs. 1012(g)(3), (i)(10), (14)(B),
(q)(7), (9), (15), 1018(u)(39), Nov. 10, 1988, 102 Stat. 3501,
3509, 3510, 3524, 3525, 3592; Pub. L. 101-239, title VII, Secs.
7811(i)(2), 7841(d)(9), Dec. 19, 1989, 103 Stat. 2409, 2428; Pub.
L. 101-508, title XI, Secs. 11801(a)(29), (c)(6)(C), (14),
11813(b)(17), Nov. 5, 1990, 104 Stat. 1388-521, 1388-524, 1388-527,
1388-555; Pub. L. 104-188, title I, Sec. 1702(h)(9), Aug. 20, 1996,
110 Stat. 1874; Pub. L. 105-34, title XI, Sec. 1174(a)(1), Aug. 5,
1997, 111 Stat. 989; Pub. L. 107-16, title VI, Sec. 621(a), June 7,
2001, 115 Stat. 111; Pub. L. 108-357, title IV, Sec. 410(a), Oct.
22, 2004, 118 Stat. 1500.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2004 - Subsec. (a)(1)(C). Pub. L. 108-357 added subpar. (C).
2001 - Subsec. (a)(3). Pub. L. 107-16, Secs. 621(a), 901,
temporarily struck out "except for purposes of sections 79 and 105
and subchapter D," after "In addition," in concluding provisions.
See Effective and Termination Dates of 2001 Amendment note below.
1997 - Subsec. (a)(3). Pub. L. 105-34 inserted concluding
provisions "In addition, except for purposes of sections 79 and 105
and subchapter D, compensation for labor or services performed in
the United States shall not be deemed to be income from sources
within the United States if the labor or services are performed by
a nonresident alien individual in connection with the individual's
temporary presence in the United States as a regular member of the
crew of a foreign vessel engaged in transportation between the
United States and a foreign country or a possession of the United
States."
1996 - Subsec. (e)(1)(A). Pub. L. 104-188 provided that the
amendment made by section 11813(b)(17) of Pub. L. 101-508 shall be
applied as if the material stricken by such amendment included the
closing parenthesis after "section 48(a)(5)". See 1990 Amendment
note below.
1990 - Subsec. (a)(1)(A), (B). Pub. L. 101-508, Sec.
11801(a)(29), (c)(14), inserted "and" at end of subpar. (A),
substituted a period for a comma at end of subpar. (B), and struck
out subpars. (C) and (D) which read as follows:
"(C) interest on a debt obligation which was part of an issue
with respect to which an election has been made under subsection
(c) of section 4912 (as in effect before July 1, 1974) and which,
when issued (or treated as issued under subsection (c)(2) of such
section), had a maturity not exceeding 15 years and, when issued,
was purchased by one or more underwriters with a view to
distribution through resale, but only with respect to interest
attributable to periods after the date of such election, and
"(D) interest on a debt obligation which was part of an issue
which -
"(i) was part of an issue outstanding on April 1, 1971,
"(ii) was guaranteed by a United States person,
"(iii) was treated under chapter 41 as a debt obligation of a
foreign obligor,
"(iv) as of June 30, 1974, had a maturity of not more than 15
years, and
"(v) when issued, was purchased by one or more underwriters for
the purpose of distribution through resale."
Subsec. (e)(1)(A). Pub. L. 101-508, Sec. 11813(b)(17), which
directed the substitution of "which is section 1245 property (as
defined in section 1245(a)(3))" for "which is section 38 property
(or would be section 38 property but for section 48(a)(5)", was
executed by making the substitution for "which is section 38
property (or would be section 38 property but for section
48(a)(5))". See 1996 Amendment note above.
Subsec. (e)(2). Pub. L. 101-508, Sec. 11801(c)(6)(C), substituted
"all of whose stock is owned by one or more domestic common
carriers by railroad" for "referred to in subparagraph (B) of
section 184(d)(1)".
1989 - Subsec. (a)(6). Pub. L. 101-239, Sec. 7811(i)(2),
substituted "865(i)(1)" for "865(h)(1)".
Subsec. (e)(1). Pub. L. 101-239, Sec. 7841(d)(9), substituted
"section 862(a)" for "section 826(a)" in introductory provisions.
1988 - Subsec. (a)(2)(B). Pub. L. 100-647, Sec. 1012(q)(7),
substituted "other than income described in section 884(d)(2)" for
"other than under section 884(d)(2)" in two places.
Subsec. (a)(2)(C). Pub. L. 100-647, Sec. 1012(q)(15), substituted
"section 243(e)" for "section 243(d)".
Subsec. (a)(6). Pub. L. 100-647, Sec. 1018(u)(39), substituted
"inventory property" for "personal property" in heading.
Subsec. (a)(7). Pub. L. 100-647, Sec. 1012(i)(10), amended par.
(7) generally. Prior to amendment, par. (7) read as follows:
"Amounts received as underwriting income (as defined in section
832(b)(3)) derived from the insurance of United States risks (as
defined in section 953(a))."
Subsec. (c)(1)(B). Pub. L. 100-647, Sec. 1012(g)(3), inserted
"or, in the case of a corporation, is attributable to income so
derived by a subsidiary of such corporation" after parenthetical in
cl. (i), struck out "or chain of subsidiaries of such corporation"
after "by a subsidiary" in cl. (ii), and inserted sentence at end
defining "subsidiary".
Subsec. (c)(2)(B)(ii). Pub. L. 100-647, Sec. 1012(i)(14)(B),
amended cl. (ii) generally. Prior to amendment, cl. (ii) read as
follows: "such section shall be applied by substituting '10
percent' for '50 percent' each place it appears."
Subsec. (f). Pub. L. 100-647, Sec. 1012(g)(9), added subsec. (f).
1987 - Subsec. (a)(2). Pub. L. 100-203, Sec. 10221(d)(4)(B),
inserted at end "In the case of any dividend from a 20-percent
owned corporation (as defined in section 243(c)(2)), subparagraph
(B) shall be applied by substituting '100/80th' for '100/70th'."
Subsec. (a)(2)(B). Pub. L. 100-203, Sec. 10221(d)(4)(A), which
directed that subpar. (B) be amended by substituting "100/70th" for
"100/85th", was executed by substituting "100/70th" for "100/85ths"
to reflect the probable intent of Congress.
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1241(b)(1)(A),
substituted "noncorporate residents or domestic corporations" for
"residents, corporate or otherwise," in introductory text.
Subsec. (a)(1)(A). Pub. L. 99-514, Sec. 1214(a)(1), (c)(5)(A),
amended subpar. (B) generally and redesignated it as (A). Prior to
amendment and redesignation, former subpar. (B) read as follows:
"interest received from a resident alien individual or a domestic
corporation, when it is shown to the satisfaction of the Secretary
that less than 20 percent of the gross income from all sources of
such individual or such corporation has been derived from sources
within the United States, as determined under the provisions of
this part, for the 3-year period ending with the close of the
taxable year of such individual or such corporation preceding the
payment of such interest, or for such part of such period as may be
applicable,". Former subpar. (A), which read "interest on amounts
described in subsection (c) received by a nonresident alien
individual or a foreign corporation, if such interest is not
effectively connected with the conduct of a trade or business
within the United States,", was struck out.
Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 1241(b)(1)(B),
redesignated subpar. (D), as previously redesignated and amended by
Sec. 1214(c)(5)(A), (B) of Pub. L. 99-514, as (B) and struck out
former subpar. (B) [previously (C)] which read as follows:
"interest received from a foreign corporation (other than interest
paid or credited by a domestic branch of a foreign corporation, if
such branch is engaged in the commercial banking business), when it
is shown to the satisfaction of the Secretary that less than 50
percent of the gross income from all sources of such foreign
corporation for the 3-year period ending with the close of its
taxable year preceding the payment of such interest (or for such
part of such period as the corporation has been in existence) was
effectively connected with the conduct of a trade or business
within the United States,".
Pub. L. 99-514, Sec. 1214(c)(5)(A), (B), redesignated former
subpar. (F) as (D), substituted in cl. (ii), "subparagraph (B) of
section 871(i)(3)" for "paragraph (2) of subsection (c)", and
redesignated former subpar. (C) as (B). Former subpar. (B)
redesignated (A).
Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 1241(b)(1)(B),
redesignated subpar. (E), as previously redesignated by Sec.
1214(c)(5)(A) of Pub. L. 99-514, as (C) and struck out former
subpar. (C) [previously (D)] which read as follows: "in the case of
interest received from a foreign corporation (other than interest
paid or credited by a domestic branch of a foreign corporation, if
such branch is engaged in the commercial banking business), 50
percent or more of the gross income of which from all sources for
the 3-year period ending with the close of its taxable year
preceding the payment of such interest (or for such part of such
period as the corporation has been in existence) was effectively
connected with the conduct of a trade or business within the United
States, an amount of such interest which bears the same ratio to
such interest as the gross income of such foreign corporation for
such period which was not effectively connected with the conduct of
a trade or business within the United States bears to its gross
income from all sources,".
Pub. L. 99-514, Sec. 1214(c)(5)(A), redesignated subpar. (D) as
(C). Former subpar. (C) redesignated (B).
Subsec. (a)(1)(D). Pub. L. 99-514, Sec. 1214(c)(5)(A),
redesignated subpar. (H) as (F). Pub. L. 99-514, Sec.
1241(b)(1)(B), then redesignated such subpar. (F) as (D). The
original subpar. (D) was redesignated (C) and struck out, and the
original subpar. (F) was redesignated (D), then (B).
Subsec. (a)(1)(E). Pub. L. 99-514, Sec. 1241(b)(1)(B),
redesignated subpar. (E), as previously redesignated by Sec.
1214(c)(5)(A) of Pub. L. 99-514, as (C).
Pub. L. 99-514, Sec. 1214(c)(5)(A), redesignated subpar. (G) as
(E) and struck out former subpar. (E) which read as follows:
"income derived by a foreign central bank of issue from bankers'
acceptances,".
Subsec. (a)(1)(F). Pub. L. 99-514, Secs. 1214(c)(5)(A),
1241(b)(1)(B), redesignated successively former subpar. (F) as (D)
and (B), respectively.
Subsec. (a)(1)(G). Pub. L. 99-514, Secs. 1214(c)(5)(A),
1241(b)(1)(B), redesignated successively former subpar. (G) as (E)
and (C), respectively.
Subsec. (a)(1)(H). Pub. L. 99-514, Secs. 1214(c)(5)(A),
1241(b)(1)(B), redesignated successively former subpar. (H) as (F)
and (D), respectively.
Subsec. (a)(2)(A). Pub. L. 99-514, Sec. 1214(b), amended subpar.
(A) generally. Prior to amendment, subpar. (A) read as follows:
"from a domestic corporation other than a corporation which has an
election in effect under section 936, and other than a corporation
less than 20 percent of whose gross income is shown to the
satisfaction of the Secretary to have been derived from sources
within the United States, as determined under the provisions of
this part, for the 3-year period ending with the close of the
taxable year of such corporation preceding the declaration of such
dividends (or for such part of such period as the corporation has
been in existence), or".
Subsec. (a)(2)(B). Pub. L. 99-514, Sec. 1241(b)(2), substituted
"25 percent" for "50 percent" and inserted "(or treated as
effectively connected other than under section 884(d)(2))" in two
places.
Subsec. (a)(6). Pub. L. 99-514, Sec. 1211(b)(1)(B), substituted
"inventory property (within the meaning of section 865(h)(1))" for
"personal property".
Subsec. (b). Pub. L. 99-514, Sec. 104(b)(11), substituted "the
standard deduction" for "the zero bracket amount".
Subsec. (c). Pub. L. 99-514, Sec. 1214(a)(2), amended subsec. (c)
generally, substituting provisions relating to foreign business
requirements for provisions relating to interest on deposits.
Subsec. (d). Pub. L. 99-514, Sec. 1214(c)(5)(C), amended subsec.
(d) generally, substituting provision for special rule for
application of subsec. (a)(2)(B) for former provision for special
rules for application of subsec. (a), pars. (1)(B) to (1)(D) and
(2)(B), pars. (1) and (2) thereof relating to new entities and
transition rule provisions.
Subsecs. (e), (f). Pub. L. 99-514, Sec. 1212(d), redesignated
subsec. (f) as (e) and struck out former subsec. (e) relating to
treatment of income from certain leased aircraft, vessels, and
spacecraft as income from sources within the United States.
1983 - Subsec. (a)(8). Pub. L. 98-21 added par. (8).
1980 - Subsec. (a)(5). Pub. L. 96-499 substituted "Disposition of
United States real property interest" for "Sale or exchange of real
property" in heading and "disposition of a United States real
property interest (as defined in section 897(c))" for "sale or
exchange of real property located in the United States" in text.
Subsec. (e). Pub. L. 96-605 substituted provision directing that
income from certain leased aircraft, vessels, and spacecraft be
treated as income from sources within the United States for
provision permitting the taxpayer to elect to treat income from
certain aircraft and vessels as income from sources within the
United States and prescribing the manner of revocating such an
election.
1978 - Subsec. (a)(1)(F). Pub. L. 95-600, Sec. 540(a), designated
existing provisions as cl. (i) and added cl. (ii).
Subsec. (f). Pub. L. 95-600, Sec. 370(a), added subsec. (f).
1977 - Subsec. (b). Pub. L. 95-30 provided that, in the case of
an individual who does not itemize deductions, an amount equal to
the zero bracket amount shall be considered a deduction which
cannot definitely be allocated to some item or class of gross
income.
1976 - Subsec. (a)(1). Pub. L. 94-455, Secs. 1901(c)(7),
1904(b)(10)(B), struck out ", any Territory, any political
subdivision of a Territory," after "United States" in provisions
preceding subpar. (A) and, in subpar. (G), substituted "subsection
(c) of section 4912 (as in effect before July 1, 1974)" for
"section 4912(c)" and "subsection (c)(2) of such section" for
"section 4912(c)(2)".
Subsec. (a)(2)(A). Pub. L. 94-455, Secs. 1051(h)(3),
1906(b)(13)(A), substituted "other than a corporation which has an
election in effect under section 936" for "other than a corporation
entitled to the benefits of section 931" and struck out "or his
delegate" after "Secretary".
Subsec. (a)(2)(D). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (a)(5), (6). Pub. L. 94-455, Sec. 1901(b)(26)(A),
substituted "sale or exchange" for "sale" in headings and text.
Subsec. (a)(7). Pub. L. 94-455, Sec. 1036(a), added par. (7).
Subsec. (c)(3). Pub. L. 94-455, Sec. 1041, struck out provision
that subsecs. (a)(1)(A) and (c) would cease to apply effective with
respect to amounts paid or credited after Dec. 31, 1976.
Subsec. (e)(1). Pub. L. 94-455, Sec. 1901(b)(26)(B), substituted
"sale, exchange, or other disposition" for "sale or other
disposition".
Subsecs. (e)(2), (3). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
1975 - Subsec. (a)(1)(H). Pub. L. 93-625, Sec. 9(a), added
subpar. (H).
Subsec. (c)(3). Pub. L. 93-625, Sec. 8, substituted "1976" for
"1975".
1971 - Subsec. (a)(1)(G). Pub. L. 92-9 added subpar. (G).
Subsec. (a)(2)(D). Pub. L. 92-178, Sec. 503, added subpar. (D).
Subsec. (e). Pub. L. 92-178, Sec. 314(a), added subsec. (e).
1969 - Subsec. (a)(1)(C), (D). Pub. L. 91-172, Sec. 435(a)(1),
struck out "after December 31, 1972," after "interest paid or
credited" in parenthetical after "interest received from a foreign
corporation".
Subsec. (c)(3). Pub. L. 91-172, Sec. 435(a)(2), substituted
"1975" for "1972".
1966 - Subsec. (a)(1)(A). Pub. L. 89-809, Sec. 102(a)(1)(A),
substituted "interest on amounts described in subsection (c)
received by a nonresident alien individual or a foreign
corporation, if such interest is not effectively connected with the
conduct of a trade or business within the United States" for
"interest on deposits with persons carrying on the banking business
paid to persons not engaged in business within the United States".
Subsec. (a)(1)(B). Pub. L. 89-809, Sec. 102(a)(2), struck out
interest received from a resident foreign corporation, and
substituted "gross income from all sources of such individual or
such corporation" for "gross income of such resident payor or
domestic corporation", and "taxable year of such individual or such
corporation" for "taxable year of such payor".
Subsec. (a)(1)(C) to (F). Pub. L. 89-809, Sec. 102(a)(2), added
subpars. (C), (D), and (F), and redesignated former subpar. (C) as
(E).
Subsec. (a)(2)(B). Pub. L. 89-809, Sec. 102(b), substituted "50
percent of the gross income from all sources" for "50 percent of
the gross income", "effectively connected with the conduct of a
trade or business within the United States" for "derived from
sources within the United States as determined from the provisions
of this part", and "ratio to such dividends as the gross income of
the corporation for such period which was effectively connected
with the conduct of a trade or business within the United States
bears to its gross income from all sources" for "ratio to such
dividends as the gross income of the corporation for such period
derived from sources within the United States bears to its gross
income from all sources" and inserted "(other than dividends for
which a deduction is allowable under section 245(b))" after
"dividends" and "(and only to the extent)" after "extent".
Subsec. (a)(3)(C)(ii). Pub. L. 89-809, Sec. 102(c), inserted "an
individual who is a citizen or resident of the United States, a
domestic partnership, or" before "a domestic corporation" and
"individual, partnership, or" after "United States by such".
Subsecs. (c), (d). Pub. L. 89-809, Sec. 102(a)(1)(B), (3), added
subsecs. (c) and (d).
1962 - Subsec. (a)(2)(B). Pub. L. 87-834 substituted "to the
extent exceeding the amount which is 100/85ths of the amount of the
deduction allowable under section 245 in respect of such dividends"
for "to the extent exceeding the amount of the deduction allowable
under section 245 in respect of such dividends."
1960 - Subsec. (a)(2)(C). Pub. L. 86-779 added subpar. (C).
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108-357, title IV, Sec. 410(b), Oct. 22, 2004, 118 Stat.
1500, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2003."
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title VI, Sec. 621(b), June 7, 2001, 115 Stat.
111, provided that: "The amendment made by subsection (a) [amending
this section] shall apply to remuneration for services performed in
plan years beginning after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to remuneration for
services performed in taxable years beginning after Dec. 31, 1997,
see section 1174(c) of Pub. L. 105-34, set out as a note under
section 7701 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(b)(17) of Pub. L. 101-508 applicable
to property placed in service after Dec. 31, 1990, but not
applicable to any transition property (as defined in section 49(e)
of this title), any property with respect to which qualified
progress expenditures were previously taken into account under
section 46(d) of this title, and any property described in section
46(b)(2)(C) of this title, as such sections were in effect on Nov.
4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
under section 45K of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7811(i)(2) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, to which such amendment relates, see section 7817 of Pub. L.
101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dividends received or
accrued after Dec. 31, 1987, in taxable years ending after such
date, see section 10221(e)(1) of Pub. L. 100-203, set out as a note
under section 243 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(11) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1211(b)(1)(B) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Amendment by section 1212(d) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with special rules for
certain leased property and for certain ships leased by United
States Navy, see section 1212(f) of Pub. L. 99-514, set out as a
note under section 863 of this title.
Section 1214(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(g)(1)(A), (2), Nov. 10, 1988, 102 Stat. 3500,
3501, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 871, 881, 1441, and 6049 of this title]
shall apply to payments made in a taxable year of the payor
beginning after December 31, 1986.
"(2) Treatment of certain interest. -
"(A) In general. - The amendments made by this section shall
not apply to any interest paid or accrued on any obligation
outstanding on December 31, 1985. The preceding sentence shall
not apply to any interest paid pursuant to any extension or
renewal of such an obligation agreed to after December 31, 1985.
"(B) Special rule for related payee. - If the payee of any
interest to which subparagraph (A) applies is related (within the
meaning of section 904(d)(2)(H) of the Internal Revenue Code of
1986) to the payor, such interest shall be treated for purposes
of section 904 of such Code as if the payor were a controlled
foreign corporation (within the meaning of section 957(a) of such
Code).
"(3) Transitional rule. -
"(A) Years before 1988. - In applying the amendments made by
this section to any payment made by a corporation in a taxable
year of such corporation beginning before January 1, 1988, the
requirements of clause (ii) of section 861(c)(1)(B) of the
Internal Revenue Code of 1986 (relating to active business
requirements), as amended by this section, shall not apply to
gross income of such corporation for taxable years beginning
before January 1, 1987.
"(B) Years after 1987. - In applying the amendments made by
this section to any payment made by a corporation in a taxable
year of such corporation beginning after December 31, 1987, the
testing period for purposes of section 861(c) of such Code (as so
amended) shall not include any taxable year beginning before
January 1, 1987.
"(4) Certain dividends. -
"(A) In general. - The amendments made by this section shall
not apply to any dividend paid before January 1, 1991, by a
qualified corporation with respect to stock which was outstanding
on May 31, 1985.
"(B) Qualified corporation. - For purposes of subparagraph (A),
the term 'qualified corporation' means any business systems
corporation which -
"(i) was incorporated in Delaware in February, 1979,
"(ii) is headquartered in Garden City, New York, and
"(iii) the parent corporation of which is a resident of
Sweden."
[Section 1012(g)(1)(B) of Pub. L. 100-647 provided that: "A
taxpayer may elect not to have the amendment made by subparagraph
(A) [amending section 1214(d)(1) of Pub. L. 99-514, set out above]
apply and to have section 1214(d)(1) of the Reform Act [section
1214(d)(1) of Pub. L. 99-514, set out above] apply as in effect
before such amendment. Such election shall be made at such time and
in such manner as the Secretary of the Treasury or his delegate may
prescribe."]
Amendment by section 1241(b) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1241(e) of
Pub. L. 99-514, set out as an Effective Date note under section 884
of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 98-21 applicable to benefits received after
Dec. 31, 1983, in taxable years ending after such date, except for
any portion of a lump-sum payment of social security benefits
received after Dec. 31, 1983, if the generally applicable payment
date for such portion was before Jan. 1, 1984, see section 121(g)
of Pub. L. 98-21, set out as an Effective Date note under section
86 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 104(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
property first leased after the date of the enactment of this Act
[Dec. 28, 1980]."
Amendment by Pub. L. 96-499 applicable to dispositions after June
18, 1980, see section 1125(a) of Pub. L. 96-499, set out as an
Effective Date note under section 897 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 370(b) of Pub. L. 95-600 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to all railroad rolling stock placed in
service with respect to the taxpayer after the date of the
enactment of this Act [Nov. 6, 1978].
"(2) Election to extend section 861(f) to railroad rolling stock
placed in service before date of enactment.
"(A) In general. - At the election of the taxpayer, the
amendment made by subsection (a) shall also apply, for taxable
years beginning after the date of the enactment of this Act, to
all railroad rolling stock placed in service with respect to the
taxpayer on or before such date of enactment. Such an election
may not be revoked except with the consent of the Secretary of
the Treasury or his delegate.
"(B) Manner and time of election and revocation. - An election
under subparagraph (A), and any revocation of such an election,
shall be made in such manner and at such time as the Secretary of
the Treasury or his delegate may by regulations prescribe."
Section 540(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[Nov. 6, 1978]."
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1036(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and section 862 of this
title] shall apply to taxable years beginning after December 31,
1976."
For effective date of amendment by section 1051(h)(3) of Pub. L.
94-455, see section 1051(i)(1) of Pub. L. 94-455, set out as a note
under section 27 of this title.
Amendment by section 1901(b)(26)(A), (B), (c)(7) of Pub. L. 94-
455 effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
Amendment by section 1904(b)(10)(B) of Pub. L. 94-455 effective
on first day of first month which begins more than 90 days after
date of enactment of this Act [Oct. 4, 1976], see section 1904(d)
of Pub. L. 94-455, set out as a note under section 4041 of this
title.
EFFECTIVE DATE OF 1975 AMENDMENT
Section 9(c) of Pub. L. 93-625 provided that: "The amendment made
by subsection (a) [amending this section] applies to interest paid
after the date of enactment of this Act [Jan. 3, 1975], and the
amendment made by subsection (b) [amending section 2104 of this
title] applies with respect to estates of decedents dying after
such date."
EFFECTIVE DATE OF 1971 AMENDMENTS
Section 3(a)(3) of Pub. L. 92-9 provided that: "The amendments
made by this subsection [amending this section and section 4912 of
this title] shall take effect on the date of the enactment of this
Act [Apr. 1, 1971]."
Section 314(c) of Pub. L. 92-178 provided that: "The amendments
made by this section [amending this section and section 862 of this
title] shall apply to taxable years ending after August 15, 1971,
but only with respect to leases entered into after such date."
Amendment by section 503 of Pub. L. 92-178 applicable with
respect to taxable years ending after Dec. 31, 1971, except that a
corporation may not be a DISC for any taxable year beginning before
Jan. 1, 1972, see section 507 of Pub. L. 92-178, set out as an
Effective Date note under section 991 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 435(a)(1) of Pub. L. 91-172 provided that the amendment
made by that section is effective with respect to amounts paid or
credited after Dec. 31, 1969.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 102(e) of Pub. L. 89-809, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) The amendments made by subsections (a), (c), and (d)
[amending this section and sections 864 and 895 of this title]
shall apply with respect to taxable years beginning after December
31, 1966; except that in applying section 864(c)(4)(B)(iii) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by
subsection (d)) with respect to a binding contract entered into on
or before February 24, 1966, activities in the United States on or
before such date in negotiating or carrying out such contract shall
not be taken into account.
"(2) The amendments made by subsection (b) [amending this
section] shall apply with respect to amounts received after
December 31, 1966."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable in respect of any
distribution received by a domestic corporation after Dec. 31,
1964, and in respect of any distribution received by a domestic
corporation before Jan. 1, 1965, in a taxable year of such
corporation beginning after Dec. 31, 1962, but only to the extent
that such distribution is made out of the accumulated profits of a
foreign corporation for a taxable year (of such foreign
corporation) beginning after Dec. 31, 1962, see section 9(e) of
Pub. L. 87-834, set out as a note under section 902 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable to dividends received
after Dec. 31, 1959, in taxable years ending after such date, see
section 3(c) of Pub. L. 86-779, set out as a note under section 243
of this title.
SHORT TITLE OF 1971 AMENDMENT
Section 1(a) of Pub. L. 92-9 provided that: "This Act [amending
this section and sections 4911, 4912, 4914 to 4916, 4919 to 4921,
6651, 6680, and 6681 of this title and enacting provisions set out
as notes under this section and sections 6680 and 6681 of this
title] may be cited as the 'Interest Equalization Tax Extension Act
of 1971'."
SHORT TITLE OF 1966 AMENDMENT
Section 101 of title I of Pub. L. 89-809 provided that: "This
title [enacting sections 877, 896, 906, 981, 2107, 2108, and 6683
of this title, amending this section and sections 1, 11, 116, 154,
245, 301, 512, 542, 543, 545, 819, 821, 822, 831, 832, 841, 842,
864, 871, 872, 873, 874, 875, 881, 882, 884, 894, 895, 901, 904,
911, 931, 932, 952, 953, 1248, 1249, 1441, 1442, 1461, 2014, 2101,
2102, 2104, 2105, 2106, 2501, 2511, 3401, 6015, 6016, 6018, 6501,
6513, and 7701 of this title, redesignating former section 877 as
878, repealing section 1493, and enacting provisions set out as
notes under this section and sections 11, 871, 874, 894, 901, 904,
931, 2101, 2501, and 6501 of this title] may be cited as the
'Foreign Investors Tax Act of 1966'."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 45K of this title.
DIVIDENDS RECEIVED OR ACCRUED DURING 1987
Subsec. (a)(2)(B) of this section to be applied by substituting
"100/80ths" for the fraction specified therein with regard to
dividends received or accrued during 1987, see section
1006(b)(1)(B) of Pub. L. 100-647 set out as a note under section
245 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
Section 1012(aa)(2)-(4) of title I of Pub. L. 100-647 provided
that:
"(2) Certain amendments to apply notwithstanding treaties. - The
following amendments made by the Reform Act [Pub. L. 99-514] shall
apply notwithstanding any treaty obligation of the United States in
effect on the date of the enactment of the Reform Act [Oct. 22,
1986]:
"(A) The amendments made by section 1201 of the Reform Act
[amending sections 864, 904, and 954 of this title].
"(B) The amendments made by title VII of the Reform Act
[enacting sections 53 and 55 to 59 of this title and amending
sections 5, 12, 26, 28, 29, 38, 48, 173, 174, 263, 381, 443, 703,
882, 897, 904, 936, 1016, 1363, 1366, 1561, 6154, 6425, and 6655
of this title] to the extent such amendments relate to the
alternative minimum tax foreign tax credit.
"(3) Certain amendments not to apply to the extent inconsistent
with treaties. - The following amendments made by the Reform Act
[Pub. L. 99-514] shall not apply to the extent the application of
such amendments would be contrary to any treaty obligation of the
United States in effect on the date of the enactment of the Reform
Act [Oct. 22, 1986]:
"(A) The amendments made by section 1211 of the Reform Act
[enacting section 865 of this title and amending this section and
sections 862 to 864, 871, 881, and 904 of this title] to the
extent -
"(i) such amendments apply in the case of an individual
treated as a resident of a foreign country under a treaty
obligation of the United States as so in effect, or
"(ii) such amendments relate to income of a nonresident from
the sale or exchange of inventory property which would
otherwise be sourced under section 865(e)(2) of the 1986 Code.
"(B) The amendments made by section 1212(a) of the Reform Act
[amending section 863 of this title]; except for purposes of
determining the amount of the foreign tax credit.
"(C) The amendments made by subsections (b) and (c) of section
1212 of the Reform Act [enacting section 887 of this title and
amending sections 872 and 883 of this title].
"(D) The amendments made by section 1214 of the Reform Act
[amending this section and sections 871, 881, 1441, and 6049 of
this title]; except for purposes of determining the amount of the
foreign tax credit.
"(E) The amendment made by section 1241(a) of the Reform Act
[enacting section 884 of this title and renumbering former
section 884 as 885] to the extent that, under a treaty obligation
of the United States, interest described in section 884(f)(1)(A)
of the 1986 Code (as added by such amendment) which is in excess
of amounts deducted would be treated as other than United States
source.
"(F) The amendment made by section 1241(b)(2)(A) of the Reform
Act [amending this section].
"(G) The amendment made by section 1241(a) of the Reform Act
[enacting section 884 of this title and renumbering former
section 884 as 885] to the extent such amendment relates to
section 884(f)(1)(B) of the 1986 Code.
"(H) The amendments made by section 1242 of the Reform Act
[amending section 864 of this title] to the extent they relate to
paragraph (7) of section 864(c) of the 1986 Code.
"(I) The amendment made by section 1247(a) of the Reform Act
[amending section 892 of this title].
"(J) The amendments made by section 123 of the Reform Act
[amending sections 74, 117, 1441, and 7871 of this title].
"(4) Treatment of technical corrections. - For purposes of
paragraphs (2) and (3), any amendment made by this title [see
Tables for classification] shall be treated as if it had been
included in the provision of the Reform Act [Pub. L. 99-514] to
which such amendment relates."
QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES; ALLOCATION AND
APPORTIONMENT; DEFINITIONS; SPECIAL RULES; EFFECTIVE DATES
Section 4009 of Pub. L. 100-647 provided that:
"(a) General Rule. - For purposes of sections 861(b), 862(b), and
863(b) of the 1986 Code, qualified research and experimental
expenditures shall be allocated and apportioned as follows:
"(1) Any qualified research and experimental expenditures
expended solely to meet legal requirements imposed by a political
entity with respect to the improvement or marketing of specific
products or processes for purposes not reasonably expected to
generate gross income (beyond de minimis amounts) outside the
jurisdiction of the political entity shall be allocated only to
gross income from sources within such jurisdiction.
"(2) In the case of any qualified research and experimental
expenditures (not allocated under paragraph (1)) to the extent -
"(A) that such expenditures are attributable to activities
conducted in the United States, 64 percent of such expenditures
shall be allocated and apportioned to income from sources
within the United States and deducted from such income in
determining the amount of taxable income from sources within
the United States, and
"(B) that such expenditures are attributable to activities
conducted outside the United States, 64 percent of such
expenditures shall be allocated and apportioned to income from
sources outside the United States and deducted from such income
in determining the amount of taxable income from sources
outside the United States.
"(3) The remaining portion of qualified research and
experimental expenditures (not allocated under paragraphs (1) and
(2)) shall be apportioned, at the annual election of the
taxpayer, on the basis of gross sales or gross income, except
that, if the taxpayer elects to apportion on the basis of gross
income, the amount apportioned to income from sources outside the
United States shall be at least 30 percent of the amount which
would be so apportioned on the basis of gross sales.
"(b) Qualified Research and Experimental Expenditures. - For
purposes of this section, the term 'qualified research and
experimental expenditures' means amounts which are research and
experimental expenditures within the meaning of section 174 of the
1986 Code. For purposes of this subsection, rules similar to the
rules of subsection (c) of section 174 of the 1986 Code shall
apply.
"(c) Special Rules for Expenditures Attributable to Activities
Conducted in Space, Etc. -
"(1) In general. - Any qualified research and experimental
expenditures described in paragraph (2) -
"(A) if incurred by a United States person, shall be
allocated and apportioned under this section in the same manner
as if they were attributable to activities conducted in the
United States, and
"(B) if incurred by a person other than a United States
person, shall be allocated and apportioned under this section
in the same manner as if they were attributable to activities
conducted outside the United States.
"(2) Description of expenditures. - For purposes of paragraph
(1), qualified research and experimental expenditures are
described in this paragraph if such expenditures are attributable
to activities conducted -
"(A) in space,
"(B) on or under water not within the jurisdiction (as
recognized by the United States) of a foreign country,
possession of the United States, or the United States, or
"(C) in Antarctica.
"(d) Affiliated Group. -
"(1) Except as provided in paragraph (2), the allocation and
apportionment required by subsection (a) shall be determined as
if all members of the affiliated group (as defined in subsection
(e)(5) of section 864 of the 1986 Code) were a single
corporation.
"(2) For purposes of the allocation and apportionment required
by subsection (a) -
"(A) sales and gross income from products produced in whole
or in part in a possession by an electing corporation (within
the meaning of section 936(h)(5)(E) of the 1986 Code); and
"(B) dividends from an electing corporation,
shall not be taken into account, except that this paragraph shall
not apply to sales of (and gross income and dividends
attributable to sales of) products with respect to which an
election under section 936(h)(5)(F) of the 1986 Code is not in
effect.
"(3) The qualified research and experimental expenditures taken
into account for purposes of subsection (a) shall be adjusted to
reflect the amount of such expenditures included in computing the
cost-sharing amount (determined under section 936(h)(5)(C)(i)(I)
of the 1986 Code).
"(4) The Secretary of the Treasury or his delegate may
prescribe such regulations as may be necessary to carry out the
purposes of this subsection, including regulations providing for
the source of gross income and the allocation and apportionment
of deductions to take into account the adjustments required by
paragraph (3).
"(5) Paragraph (6) of section 864(e) of the 1986 Code shall not
apply to qualified research and experimental expenditures.
"(e) Years to Which Section Applies. -
"(1) In general. - Except as provided in this subsection, this
section shall apply to the taxpayer's 1st taxable year beginning
after August 1, 1987.
"(2) Reduction in amounts to which section applies. -
Notwithstanding paragraph (1), this section shall only apply to
that portion of the qualified research and experimental
expenditures for the taxable year referred to in paragraph (1)
which bears the same ratio to the total amount of such
expenditures as -
"(A) the lesser of 4 months or the number of months in the
taxable year, bears to
"(B) the number of months in the taxable year."
1-YEAR MODIFICATION IN REGULATIONS PROVIDING FOR ALLOCATION OF
RESEARCH AND EXPERIMENTAL EXPENDITURES
Section 1216 of Pub. L. 99-514 provided that:
"(a) General Rule. - For purposes of section 861(b), section
862(b), and section 863(b) of the Internal Revenue Code of 1954
[now 1986], notwithstanding section 864(e) of such Code -
"(1) 50 percent of all amounts allowable as a deduction for
qualified research and experimental expenditures shall be
apportioned to income from sources within the United States and
deducted from such income in determining the amount of taxable
income from sources within the United States, and
"(2) the remaining portion of such amounts shall be apportioned
on the basis of gross sales or gross income.
The preceding sentence shall not apply to any expenditures
described in section 1.861-8(e)(3)(i)(B) of the Income Tax
Regulations.
"(b) Qualified Research and Experimental Expenditures. - For
purposes of this section -
"(1) In general. - The term 'qualified research and
experimental expenditures' means amounts -
"(A) which are research and experimental expenditures within
the meaning of section 174 of such Code, and
"(B) which are attributable to activities conducted in the
United States.
"(2) Treatment of depreciation, etc. - Rules similar to the
rules of section 174(c) of such Code shall apply.
"(c) Effective Date. - This section shall apply to taxable years
beginning after August 1, 1986, and on or before August 1, 1987."
ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL
EXPENDITURES
Pub. L. 98-369, div. A, title I, Sec. 126, July 18, 1984, 98
Stat. 648, as amended by Pub. L. 99-272, title XIII, Sec. 13211,
Apr. 7, 1986, 100 Stat. 324; Pub. L. 99-514, Sec. 2, Oct. 22, 1986,
100 Stat. 2095, provided that:
"(a) In General. - For purposes of section 861(b), section
862(b), and section 863(b) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], all amounts allowable as a deduction for
qualified research and experimental expenditures shall be allocated
to income from sources within the United States and deducted from
such income in determining the amount of taxable income from
sources within the United States.
"(b) Qualified Research and Experimental Expenditures. - For
purposes of this section -
"(1) In general. - The term 'qualified research and
experimental expenditures' means amounts -
"(A) which are research and experimental expenditures within
the meaning of section 174 of such Code, and
"(B) which are attributable to activities conducted in the
United States.
"(2) Treatment of depreciation, etc. - Rules similar to the
rules of subsection (c) of section 174 of such Code shall apply.
"(c) Effective Dates. -
"(1) In general. - This section shall apply to taxable years
beginning after August 13, 1983, and on or before August 1, 1986.
"(2) Special rule. - If the taxpayer's 4th taxable year
beginning after August 13, 1981, is not described in paragraph
(1), this section shall apply also to such 4th taxable year."
CONFORMITY OF AMENDMENTS MADE BY FOREIGN INVESTORS TAX ACT OF 1966
WITH TREATY OBLIGATIONS OF THE UNITED STATES
Section 110 of title I of Pub. L. 89-809 provided that: "No
amendment made by this title [see Short Title note above] shall
apply in any case where its application would be contrary to any
treaty obligation of the United States. For purposes of the
preceding sentence, the extension of a benefit provided by any
amendment made by this title shall not be deemed to be contrary to
a treaty obligation of the United States."
-End-
-CITE-
26 USC Sec. 862 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 862. Income from sources without the United States
-STATUTE-
(a) Gross income from sources without United States
The following items of gross income shall be treated as income
from sources without the United States:
(1) interest other than that derived from sources within the
United States as provided in section 861(a)(1);
(2) dividends other than those derived from sources within the
United States as provided in section 861(a)(2);
(3) compensation for labor or personal services performed
without the United States;
(4) rentals or royalties from property located without the
United States or from any interest in such property, including
rentals or royalties for the use of or for the privilege of using
without the United States patents, copyrights, secret processes
and formulas, good will, trade-marks, trade brands, franchises,
and other like properties;
(5) gains, profits, and income from the sale or exchange of
real property located without the United States;
(6) gains, profits, and income derived from the purchase of
inventory property (within the meaning of section 865(i)(1))
within the United States and its sale or exchange without the
United States;
(7) underwriting income other than that derived from sources
within the United States as provided in section 861(a)(7); and
(8) gains, profits, and income from the disposition of a United
States real property interest (as defined in section 897(c)) when
the real property is located in the Virgin Islands.
(b) Taxable income from sources without United States
From the items of gross income specified in subsection (a) there
shall be deducted the expenses, losses, and other deductions
properly apportioned or allocated thereto, and a ratable part of
any expenses, losses, or other deductions which cannot definitely
be allocated to some item or class of gross income. The remainder,
if any, shall be treated in full as taxable income from sources
without the United States. In the case of an individual who does
not itemize deductions, an amount equal to the standard deduction
shall be considered a deduction which cannot definitely be
allocated to some item or class of gross income.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 276; Pub. L. 92-178, title III,
Sec. 314(b), Dec. 10, 1971, 85 Stat. 528; Pub. L. 94-455, title X,
Sec. 1036(b), title XIX, Sec. 1901(b)(26)(C), Oct. 4, 1976, 90
Stat. 1633, 1798; Pub. L. 95-30, title I, Sec. 102(b)(10), May 23,
1977, 91 Stat. 138; Pub. L. 97-34, title VIII, Sec. 831(a)(2), Aug.
13, 1981, 95 Stat. 352; Pub. L. 99-514, title I, Sec. 104(b)(12),
title XII, Sec. 1211(b)(1)(C), Oct. 22, 1986, 100 Stat. 2105, 2536;
Pub. L. 100-647, title I, Sec. 1012(e)(4), Nov. 10, 1988, 102 Stat.
3500; Pub. L. 101-239, title VII, Sec. 7811(i)(2), Dec. 19, 1989,
103 Stat. 2409.)
-MISC1-
AMENDMENTS
1989 - Subsec. (a)(6). Pub. L. 101-239 substituted "865(i)(1)"
for "865(h)(1)".
1988 - Subsec. (c). Pub. L. 100-647 repealed subsec. (c) which
read as follows:
"(c) Cross reference. - For source of amounts attributable to
certain aircraft and vessels, see section 861(e)."
1986 - Subsec. (a)(6). Pub. L. 99-514, Sec. 1211(b)(1)(C),
substituted "inventory property (within the meaning of section
865(h)(1))" for "personal property".
Subsec. (b). Pub. L. 99-514, Sec. 104(b)(12), substituted "the
standard deduction" for "the zero bracket amount".
1981 - Subsec. (a)(8). Pub. L. 97-34 added par. (8).
1977 - Subsec. (b). Pub. L. 95-30 provided that, in the case of
an individual who does not itemize deductions, an amount equal to
the zero bracket amount shall be considered a deduction which
cannot definitely be allocated to some item or class of gross
income.
1976 - Subsec. (a)(5), (6). Pub. L. 94-455, Sec. 1901(b)(26)(C),
inserted "or exchange" after "sale".
Subsec. (a)(7). Pub. L. 94-455, Sec. 1036(b), added par. (7).
1971 - Subsec. (c). Pub. L. 92-178 added subsec. (c).
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(12) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1211(b)(1)(C) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to dispositions after June
18, 1980, in taxable years ending after such date, see section
831(i) of Pub. L. 97-34, set out as a note under section 897 of
this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1036(b) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1976, see section 1036(c) of
Pub. L. 94-455, set out as a note under section 861 of this title.
Amendment by section 1901(b)(26)(C) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by Pub. L. 92-178 applicable to taxable years ending
after Aug. 15, 1971, but only with respect to leases entered into
after such date, see section 314(c) of Pub. L. 92-178, set out as a
note under section 861 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1211(b)(1)(C) of Pub.
L. 99-514 to the extent application of such amendment would be
contrary to any treaty obligation of the United States in effect on
Oct. 22, 1986, with provision that for such purposes any amendment
by title I of Pub. L. 100-647 be treated as if it had been included
in the provision of Pub. L. 99-514 to which such amendment relates,
see section 1012(aa)(3), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES; ALLOCATION AND
APPORTIONMENT; DEFINITIONS; SPECIAL RULES; EFFECTIVE DATES
For allocation and apportionment of qualified research and
experimental expenditures for purposes of sections 861 to 863 of
this title, see section 4009 of Pub. L. 100-647, set out as a note
under section 861 of this title.
1-YEAR MODIFICATION IN REGULATIONS PROVIDING FOR ALLOCATION OF
RESEARCH AND EXPERIMENTAL EXPENDITURES
For rule governing allocation under subsec. (b) of this section
of amounts allowable as a deduction for qualified research and
experimental expenditures during taxable years beginning after Aug.
1, 1986, and on or before Aug. 1, 1987, see section 1216 of Pub. L.
99-514, set out as a note under section 861 of this title.
ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL
EXPENDITURES
For purposes of subsec. (b) of this section, all amounts
allowable as a deduction for qualified research and experimental
expenditures are to be allocated to income from sources within the
United States and deducted from such income in determining the
amount of taxable income from sources within the United States for
taxable years beginning after Aug. 13, 1983, and on or before Aug.
1, 1986, see section 126 of Pub. L. 98-369, set out as a note under
section 861 of this title.
-End-
-CITE-
26 USC Sec. 863 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 863. Special rules for determining source
-STATUTE-
(a) Allocation under regulations
Items of gross income, expenses, losses, and deductions, other
than those specified in sections 861(a) and 862(a), shall be
allocated or apportioned to sources within or without the United
States, under regulations prescribed by the Secretary. Where items
of gross income are separately allocated to sources within the
United States, there shall be deducted (for the purpose of
computing the taxable income therefrom) the expenses, losses, and
other deductions properly apportioned or allocated thereto and a
ratable part of other expenses, losses, or other deductions which
cannot definitely be allocated to some item or class of gross
income. The remainder, if any, shall be included in full as taxable
income from sources within the United States.
(b) Income partly from within and partly from without the United
States
In the case of gross income derived from sources partly within
and partly without the United States, the taxable income may first
be computed by deducting the expenses, losses, or other deductions
apportioned or allocated thereto and a ratable part of any
expenses, losses, or other deductions which cannot definitely be
allocated to some item or class of gross income; and the portion of
such taxable income attributable to sources within the United
States may be determined by processes or formulas of general
apportionment prescribed by the Secretary. Gains, profits, and
income -
(1) from services rendered partly within and partly without the
United States,
(2) from the sale or exchange of inventory property (within the
meaning of section 865(i)(1)) produced (in whole or in part) by
the taxpayer within and sold or exchanged without the United
States, or produced (in whole or in part) by the taxpayer without
and sold or exchanged within the United States, or
(3) derived from the purchase of inventory property (within the
meaning of section 865(i)(1)) within a possession of the United
States and its sale or exchange within the United States,
shall be treated as derived partly from sources within and partly
from sources without the United States.
(c) Source rule for certain transportation income
(1) Transportation beginning and ending in the United States
All transportation income attributable to transportation which
begins and ends in the United States shall be treated as derived
from sources within the United States.
(2) Other transportation having United States connection
(A) In general
50 percent of all transportation income attributable to
transportation which -
(i) is not described in paragraph (1), and
(ii) begins or ends in the United States,
shall be treated as from sources in the United States.
(B) Special rule for personal service income
Subparagraph (A) shall not apply to any transportation income
which is income derived from personal services performed by the
taxpayer, unless such income is attributable to transportation
which -
(i) begins in the United States and ends in a possession of
the United States, or
(ii) begins in a possession of the United States and ends
in the United States.
In the case of transportation income derived from, or in
connection with, a vessel, this subparagraph shall only apply
if the taxpayer is a citizen or resident alien.
(3) Transportation income
For purposes of this subsection, the term "transportation
income" means any income derived from, or in connection with -
(A) the use (or hiring or leasing for use) of a vessel or
aircraft, or
(B) the performance of services directly related to the use
of a vessel or aircraft.
For purposes of the preceding sentence, the term "vessel or
aircraft" includes any container used in connection with a vessel
or aircraft.
(d) Source rules for space and certain ocean activities
(1) In general
Except as provided in regulations, any income derived from a
space or ocean activity -
(A) if derived by a United States person, shall be sourced in
the United States, and
(B) if derived by a person other than a United States person,
shall be sourced outside the United States.
(2) Space or ocean activity
For purposes of paragraph (1) -
(A) In general
The term "space or ocean activity" means -
(i) any activity conducted in space, and
(ii) any activity conducted on or under water not within
the jurisdiction (as recognized by the United States) of a
foreign country, possession of the United States, or the
United States.
Such term includes any activity conducted in Antarctica.
(B) Exception for certain activities
The term "space or ocean activity" shall not include -
(i) any activity giving rise to transportation income (as
defined in section 863(c)),
(ii) any activity giving rise to international
communications income (as defined in subsection (e)(2)), and
(iii) any activity with respect to mines, oil and gas
wells, or other natural deposits to the extent within the
United States or any foreign country or possession of the
United States (as defined in section 638).
For purposes of applying section 638, the jurisdiction of any
foreign country shall not include any jurisdiction not
recognized by the United States.
(e) International communications income
(1) Source rules
(A) United States persons
In the case of any United States person, 50 percent of any
international communications income shall be sourced in the
United States and 50 percent of such income shall be sourced
outside the United States.
(B) Foreign persons
(i) In general
Except as provided in regulations or clause (ii), in the
case of any person other than a United States person, any
international communications income shall be sourced outside
the United States.
(ii) Special rule for income attributable to office or fixed
place of business in the United States
In the case of any person (other than a United States
person) who maintains an office or other fixed place of
business in the United States, any international
communications income attributable to such office or other
fixed place of business shall be sourced in the United
States.
(2) Definition
For purposes of this section, the term "international
communications income" includes all income derived from the
transmission of communications or data from the United States to
any foreign country (or possession of the United States) or from
any foreign country (or possession of the United States) to the
United States.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 277; Pub. L. 94-455, title XIX,
Secs. 1901(b)(26)(C), (D), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1798, 1799, 1834; Pub. L. 98-369, div. A, title I, Sec. 124(a),
July 18, 1984, 98 Stat. 646; Pub. L. 99-514, title XII, Secs.
1211(b)(1)(A), 1212(a), (e), 1213(a), Oct. 22, 1986, 100 Stat.
2536, 2539, 2540; Pub. L. 100-647, title I, Sec. 1012(e)(3)(A),
(f), Nov. 10, 1988, 102 Stat. 3500; Pub. L. 101-239, title VII,
Sec. 7811(i)(2), Dec. 19, 1989, 103 Stat. 2409; Pub. L. 105-34,
title XI, Sec. 1174(a)(2), Aug. 5, 1997, 111 Stat. 989.)
-MISC1-
AMENDMENTS
1997 - Subsec. (c)(2)(B). Pub. L. 105-34 inserted concluding
provisions "In the case of transportation income derived from, or
in connection with, a vessel, this subparagraph shall only apply if
the taxpayer is a citizen or resident alien."
1989 - Subsec. (b)(2), (3). Pub. L. 101-239 substituted
"865(i)(1)" for "865(h)(1)".
1988 - Pub. L. 100-647, Sec. 1012(e)(3)(A), substituted "Special
rules for determining source" for "Item not specified in section
861 or 862" in section catchline.
Subsec. (e)(2). Pub. L. 100-647, Sec. 1012(f), substituted
"foreign country (or possession of the United States)" for "foreign
country" in two places.
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1212(e), substituted
"services" for "transportation or other services".
Subsec. (b)(2), (3). Pub. L. 99-514, Sec. 1211(b)(1)(A),
substituted "inventory property (within the meaning of section
865(h)(1))" for "personal property".
Subsec. (c)(2). Pub. L. 99-514, Sec. 1212(a), amended par. (2)
generally, in subpar. (A) substituting provisions relating to other
transportation having United States connections for provisions
relating to transportation between United States and any
possession, and in subpar. (B) substituting provisions relating to
special rule for personal service income for provisions relating to
special rule for certain lessors of aircraft.
Subsecs. (d), (e). Pub. L. 99-514, Sec. 1213(a), added subsecs.
(d) and (e).
1984 - Subsec. (c). Pub. L. 98-369 added subsec. (c).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (b). Pub. L. 94-455, Secs. 1901(b)(26)(C), (D),
1906(b)(13)(A), struck out "or his delegate" after "Secretary" in
introductory provisions, and inserted "or exchange" after "sale" in
pars. (2) and (3), and "or exchanged" after "sold" in par. (2)
wherever appearing.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to remuneration for
services performed in taxable years beginning after Dec. 31, 1997,
see section 1174(c) of Pub. L. 105-34, set out as a note under
section 7701 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1211(b)(1)(A) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Section 1212(f) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting section 887 of this title
and amending this section and sections 861, 872, and 883 of this
title] shall apply to taxable years beginning after December 31,
1986.
"(2) Special rule for certain leased property. - The amendments
made by subsections (a) and (d) [amending this section and section
861 of this title] shall not apply to any income attributable to
property held by the taxpayer on January 1, 1986, if such property
was first leased by the taxpayer before January 1, 1986, in a lease
to which section 863(c)(2)(B) or 861(e) of the Internal Revenue
Code of 1954 [now 1986] (as in effect on the day before the date of
the enactment of this Act [Oct. 22, 1986]) applied.
"(3) Special rule for certain ships leased by the united states
navy. -
"(A) In general. - In the case of any property described in
subparagraph (B), paragraph (2) shall be applied by substituting
'1987' for '1986' each place it appears.
"(B) Property to which paragraph applies. - Property described
in this subparagraph consists of 4 ships which are to be leased
by the United States Navy and which are the subject of Internal
Revenue Service rulings bearing the following dates and which
involved the following amount of financing, respectively:
"March 5, 1986 $176,844,000
February 5, 1986 64,567,000
April 22, 1986 64,598,000
May 22, 1986 175,300,000."
Section 1213(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 124(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to transportation beginning after the date of the enactment
of this Act [July 18, 1984] in taxable years ending after such
date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(26)(C), (D) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendments by sections 1211(b)(1)(A) and
1212(a) of Pub. L. 99-514 to the extent application of such
amendments would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L. 100-
647, set out as a note under section 861 of this title.
QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES; ALLOCATION AND
APPOINTMENT; DEFINITIONS; SPECIAL RULES; EFFECTIVE DATES
For allocation and apportionment of qualified research and
experimental expenditures for purposes of sections 861 to 863 of
this title, see section 4009 of Pub. L. 100-647, set out as a note
under section 861 of this title.
1-YEAR MODIFICATION IN REGULATIONS PROVIDING FOR ALLOCATION OF
RESEARCH AND EXPERIMENTAL EXPENDITURES
For rule governing allocation under subsec. (b) of this section
of amounts allowable as a deduction for qualified research and
experimental expenditures during taxable years beginning after Aug.
1, 1986, and on or before Aug. 1, 1987, see section 1216 of Pub. L.
99-514, set out as a note under section 861 of this title.
ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL
EXPENDITURES
For purposes of subsec. (b) of this section, all amounts
allowable as a deduction for qualified research and experimental
expenditures are to be allocated to income from sources within the
United States and deducted from such income in determining the
amount of taxable income from sources within the United States for
taxable years beginning after Aug. 13, 1983, and on or before Aug.
1, 1986, see section 126 of Pub. L. 98-369, set out as a note under
section 861 of this title.
-End-
-CITE-
26 USC Sec. 864 01/02/2006
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 864. Definitions and special rules
-STATUTE-
(a) Produced
For purposes of this part, the term "produced" includes created,
fabricated, manufactured, extracted, processed, cured, or aged.
(b) Trade or business within the United States
For purposes of this part, part II, and chapter 3, the term
"trade or business within the United States" includes the
performance of personal services within the United States at any
time within the taxable year, but does not include -
(1) Performance of personal services for foreign employer
The performance of personal services -
(A) for a nonresident alien individual, foreign partnership,
or foreign corporation, not engaged in trade or business within
the United States, or
(B) for an office or place of business maintained in a
foreign country or in a possession of the United States by an
individual who is a citizen or resident of the United States or
by a domestic partnership or a domestic corporation,
by a nonresident alien individual temporarily present in the
United States for a period or periods not exceeding a total of 90
days during the taxable year and whose compensation for such
services does not exceed in the aggregate $3,000.
(2) Trading in securities or commodities
(A) Stocks and securities
(i) In general
Trading in stocks or securities through a resident broker,
commission agent, custodian, or other independent agent.
(ii) Trading for taxpayer's own account
Trading in stocks or securities for the taxpayer's own
account, whether by the taxpayer or his employees or through
a resident broker, commission agent, custodian, or other
agent, and whether or not any such employee or agent has
discretionary authority to make decisions in effecting the
transactions. This clause shall not apply in the case of a
dealer in stocks or securities.
(B) Commodities
(i) In general
Trading in commodities through a resident broker,
commission agent, custodian, or other independent agent.
(ii) Trading for taxpayer's own account
Trading in commodities for the taxpayer's own account,
whether by the taxpayer or his employees or through a
resident broker, commission agent, custodian, or other agent,
and whether or not any such employee or agent has
discretionary authority to make decisions in effecting the
transactions. This clause shall not apply in the case of a
dealer in commodities.
(iii) Limitation
Clauses (i) and (ii) shall apply only if the commodities
are of a kind customarily dealt in on an organized commodity
exchange and if the transaction is of a kind customarily
consummated at such place.
(C) Limitation
Subparagraphs (A)(i) and (B)(i) shall apply only if, at no
time during the taxable year, the taxpayer has an office or
other fixed place of business in the United States through
which or by the direction of which the transactions in stocks
or securities, or in commodities, as the case may be, are
effected.
(c) Effectively connected income, etc.
(1) General rule
For purposes of this title -
(A) In the case of a nonresident alien individual or a
foreign corporation engaged in trade or business within the
United States during the taxable year, the rules set forth in
paragraphs (2), (3), (4), (6), and (7) shall apply in
determining the income, gain, or loss which shall be treated as
effectively connected with the conduct of a trade or business
within the United States.
(B) Except as provided in paragraph (6) or (7) or in section
871(d) or sections 882(d) and (e), in the case of a nonresident
alien individual or a foreign corporation not engaged in trade
or business within the United States during the taxable year,
no income, gain, or loss shall be treated as effectively
connected with the conduct of a trade or business within the
United States.
(2) Periodical, etc., income from sources within United States -
factors
In determining whether income from sources within the United
States of the types described in section 871(a)(1), section
871(h), section 881(a), or section 881(c), or whether gain or
loss from sources within the United States from the sale or
exchange of capital assets, is effectively connected with the
conduct of a trade or business within the United States, the
factors taken into account shall include whether -
(A) the income, gain, or loss is derived from assets used in
or held for use in the conduct of such trade or business, or
(B) the activities of such trade or business were a material
factor in the realization of the income, gain, or loss.
In determining whether an asset is used in or held for use in the
conduct of such trade or business or whether the activities of
such trade or business were a material factor in realizing an
item of income, gain, or loss, due regard shall be given to
whether or not such asset or such income, gain, or loss was
accounted for through such trade or business.
(3) Other income from sources within United States
All income, gain, or loss from sources within the United States
(other than income, gain, or loss to which paragraph (2) applies)
shall be treated as effectively connected with the conduct of a
trade or business within the United States.
(4) Income from sources without United States
(A) Except as provided in subparagraphs (B) and (C), no income,
gain, or loss from sources without the United States shall be
treated as effectively connected with the conduct of a trade or
business within the United States.
(B) Income, gain, or loss from sources without the United
States shall be treated as effectively connected with the conduct
of a trade or business within the United States by a nonresident
alien individual or a foreign corporation if such person has an
office or other fixed place of business within the United States
to which such income, gain, or loss is attributable and such
income, gain, or loss -
(i) consists of rents or royalties for the use of or for the
privilege of using intangible property described in section
862(a)(4) derived in the active conduct of such trade or
business;
(ii) consists of dividends or interest, and either is derived
in the active conduct of a banking, financing, or similar
business within the United States or is received by a
corporation the principal business of which is trading in
stocks or securities for its own account; or
(iii) is derived from the sale or exchange (outside the
United States) through such office or other fixed place of
business of personal property described in section 1221(a)(1),
except that this clause shall not apply if the property is sold
or exchanged for use, consumption, or disposition outside the
United States and an office or other fixed place of business of
the taxpayer in a foreign country participated materially in
such sale.
Any income or gain which is equivalent to any item of income or
gain described in clause (i), (ii), or (iii) shall be treated in
the same manner as such item for purposes of this subparagraph.
(C) In the case of a foreign corporation taxable under part I
or part II of subchapter L, any income from sources without the
United States which is attributable to its United States business
shall be treated as effectively connected with the conduct of a
trade or business within the United States.
(D) No income from sources without the United States shall be
treated as effectively connected with the conduct of a trade or
business within the United States if it either -
(i) consists of dividends, interest, or royalties paid by a
foreign corporation in which the taxpayer owns (within the
meaning of section 958(a)), or is considered as owning (by
applying the ownership rules of section 958(b)), more than 50
percent of the total combined voting power of all classes of
stock entitled to vote, or
(ii) is subpart F income within the meaning of section
952(a).
(5) Rules for application of paragraph (4)(B)
For purposes of subparagraph (B) of paragraph (4) -
(A) in determining whether a nonresident alien individual or
a foreign corporation has an office or other fixed place of
business, an office or other fixed place of business of an
agent shall be disregarded unless such agent (i) has the
authority to negotiate and conclude contracts in the name of
the nonresident alien individual or foreign corporation and
regularly exercises that authority or has a stock of
merchandise from which he regularly fills orders on behalf of
such individual or foreign corporation, and (ii) is not a
general commission agent, broker, or other agent of independent
status acting in the ordinary course of his business,
(B) income, gain, or loss shall not be considered as
attributable to an office or other fixed place of business
within the United States unless such office or fixed place of
business is a material factor in the production of such income,
gain, or loss and such office or fixed place of business
regularly carries on activities of the type from which such
income, gain, or loss is derived, and
(C) the income, gain, or loss which shall be attributable to
an office or other fixed place of business within the United
States shall be the income, gain, or loss property allocable
thereto, but, in the case of a sale or exchange described in
clause (iii) of such subparagraph, the income which shall be
treated as attributable to an office or other fixed place of
business within the United States shall not exceed the income
which would be derived from sources within the United States if
the sale or exchange were made in the United States.
(6) Treatment of certain deferred payments, etc.
For purposes of this title, in the case of any income or gain
of a nonresident alien individual or a foreign corporation which -
(A) is taken into account for any taxable year, but
(B) is attributable to a sale or exchange of property or the
performance of services (or any other transaction) in any other
taxable year,
the determination of whether such income or gain is taxable under
section 871(b) or 882 (as the case may be) shall be made as if
such income or gain were taken into account in such other taxable
year and without regard to the requirement that the taxpayer be
engaged in a trade or business within the United States during
the taxable year referred to in subparagraph (A).
(7) Treatment of certain property transactions
For purposes of this title, if -
(A) any property ceases to be used or held for use in
connection with the conduct of a trade or business within the
United States, and
(B) such property is disposed of within 10 years after such
cessation,
the determination of whether any income or gain attributable to
such disposition is taxable under section 871(b) or 882 (as the
case may be) shall be made as if such sale or exchange occurred
immediately before such cessation and without regard to the
requirement that the taxpayer be engaged in a trade or business
within the United States during the taxable year for which such
income or gain is taken into account.
(d) Treatment of related person factoring income
(1) In general
For purposes of the provisions set forth in paragraph (2), if
any person acquires (directly or indirectly) a trade or service
receivable from a related person, any income of such person from
the trade or service receivable so acquired shall be treated as
if it were interest on a loan to the obligor under the
receivable.
(2) Provisions to which paragraph (1) applies
The provisions set forth in this paragraph are as follows:
(A) Section 904 (relating to limitation on foreign tax
credit).
(B) Subpart F of part III of this subchapter (relating to
controlled foreign corporations).
(3) Trade or service receivable
For purposes of this subsection, the term "trade or service
receivable" means any account receivable or evidence of
indebtedness arising out of -
(A) the disposition by a related person of property described
in section 1221(a)(1), or
(B) the performance of services by a related person.
(4) Related person
For purposes of this subsection, the term "related person"
means -
(A) any person who is a related person (within the meaning of
section 267(b)), and
(B) any United States shareholder (as defined in section
951(b)) and any person who is a related person (within the
meaning of section 267(b)) to such a shareholder.
(5) Certain provisions not to apply
(A) Certain exceptions
The following provisions shall not apply to any amount
treated as interest under paragraph (1) or (6):
(i) Subparagraphs (A)(iii)(II), (B)(ii), and (C)(iii)(II)
of section 904(d)(2) (relating to exceptions for export
financing interest).
(ii) Subparagraph (A) of section 954(b)(3) (relating to
exception where foreign base company income is less than 5
percent or $1,000,000).
(iii) Subparagraph (B) of section 954(c)(2) (relating to
certain export financing).
(iv) Clause (i) of section 954(c)(3)(A) (relating to
certain income received from related persons).
(B) Special rules for possessions
An amount treated as interest under paragraph (1) shall not
be treated as income described in subparagraph (A) or (B) of
section 936(a)(1) unless such amount is from sources within a
possession of the United States (determined after the
application of paragraph (1)).
(6) Special rule for certain income from loans of a controlled
foreign corporation
Any income of a controlled foreign corporation (within the
meaning of section 957(a)) from a loan to a person for the
purpose of financing -
(A) the purchase of property described in section 1221(a)(1)
of a related person, or
(B) the payment for the performance of services by a related
person,
shall be treated as interest described in paragraph (1).
(7) Exception for certain related persons doing business in same
foreign country
Paragraph (1) shall not apply to any trade or service
receivable acquired by any person from a related person if -
(A) the person acquiring such receivable and such related
person are created or organized under the laws of the same
foreign country and such related person has a substantial part
of its assets used in its trade or business located in such
same foreign country, and
(B) such related person would not have derived any foreign
base company income (as defined in section 954(a), determined
without regard to section 954(b)(3)(A)), or any income
effectively connected with the conduct of a trade or business
within the United States, from such receivable if it had been
collected by such related person.
(8) Regulations
The Secretary shall prescribe such regulations as may be
necessary to prevent the avoidance of the provisions of this
subsection or section 956(b)(3).(!1)
(e) Rules for allocating interest, etc.
For purposes of this subchapter -
(1) Treatment of affiliated groups
The taxable income of each member of an affiliated group shall
be determined by allocating and apportioning interest expense of
each member as if all members of such group were a single
corporation.
(2) Gross income method may not be used for interest
All allocations and apportionments of interest expense shall be
made on the basis of assets rather than gross income.
(3) Tax-exempt assets not taken into account
For purposes of allocating and apportioning any deductible
expense, any tax-exempt asset (and any income from such an asset)
shall not be taken into account. A similar rule shall apply in
the case of the portion of any dividend (other than a qualifying
dividend as defined in section 243(b)) equal to the deduction
allowable under section 243 or 245(a) with respect to such
dividend and in the case of a like portion of any stock the
dividends on which would be so deductible and would not be
qualifying dividends (as so defined).
(4) Basis of stock in nonaffiliated 10-percent owned corporations
adjusted for earnings and profits changes
(A) In general
For purposes of allocating and apportioning expenses on the
basis of assets, the adjusted basis of any stock in a
nonaffiliated 10-percent owned corporation shall be -
(i) increased by the amount of the earnings and profits of
such corporation attributable to such stock and accumulated
during the period the taxpayer held such stock, or
(ii) reduced (but not below zero) by any deficit in
earnings and profits of such corporation attributable to such
stock for such period.
(B) Nonaffiliated 10-percent owned corporation
For purposes of this paragraph, the term "nonaffiliated 10-
percent owned corporation" means any corporation if -
(i) such corporation is not included in the taxpayer's
affiliated group, and
(ii) members of such affiliated group own 10 percent or
more of the total combined voting power of all classes of
stock of such corporation entitled to vote.
(C) Earnings and profits of lower tier corporations taken into
account
(i) In general
If, by reason of holding stock in a nonaffiliated 10-
percent owned corporation, the taxpayer is treated under
clause (iii) as owning stock in another corporation with
respect to which the stock ownership requirements of clause
(ii) are met, the adjustment under subparagraph (A) shall
include an adjustment for the amount of the earnings and
profits (or deficit therein) of such other corporation which
are attributable to the stock the taxpayer is so treated as
owning and to the period during which the taxpayer is treated
as owning such stock.
(ii) Stock ownership requirements
The stock ownership requirements of this clause are met
with respect to any corporation if members of the taxpayer's
affiliated group own (directly or through the application of
clause (iii)) 10 percent or more of the total combined voting
power of all classes of stock of such corporation entitled to
vote.
(iii) Stock owned through entities
For purposes of this subparagraph, stock owned (directly or
indirectly) by a corporation, partnership, or trust shall be
treated as being owned proportionately by its shareholders,
partners, or beneficiaries. Stock considered to be owned by a
person by reason of the application of the preceding
sentence, shall, for purposes of applying such sentence, be
treated as actually owned by such person.
(D) Coordination with subpart F, etc.
For purposes of this paragraph, proper adjustment shall be
made to the earnings and profits of any corporation to take
into account any earnings and profits included in gross income
under section 951 or under any other provision of this title
and reflected in the adjusted basis of the stock.
(5) Affiliated group
For purposes of this subsection -
(A) In general
Except as provided in subparagraph (B), the term 'affiliated
group' has the meaning given such term by section 1504
(determined without regard to paragraph (4) of section
1504(b)).
(B) Treatment of certain financial institutions
For purposes of subparagraph (A), any corporation described
in subparagraph (C) shall be treated as an includible
corporation for purposes of section 1504 only for purposes of
applying such section separately to corporations so described.
This subparagraph shall not apply for purposes of paragraph
(6).
(C) Description
A corporation is described in this subparagraph if -
(i) such corporation is a financial institution described
in section 581 or 591,
(ii) the business of such financial institution is
predominantly with persons other than related persons (within
the meaning of subsection (d)(4)) or their customers, and
(iii) such financial institution is required by State or
Federal law to be operated separately from any other entity
which is not such an institution.
(D) Treatment of bank holding companies
To the extent provided in regulations -
(i) a bank holding company (within the meaning of section
2(a) of the Bank Holding Company Act of 1956), and
(ii) any subsidiary of a financial institution described in
section 581 or 591 or of any bank holding company if such
subsidiary is predominantly engaged (directly or indirectly)
in the active conduct of a banking, financing, or similar
business,
shall be treated as a corporation described in subparagraph
(C).
(6) Allocation and apportionment of other expenses
Expenses other than interest which are not directly allocable
or apportioned to any specific income producing activity shall be
allocated and apportioned as if all members of the affiliated
group were a single corporation.
(7) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
section, including regulations providing -
(A) for the resourcing of income of any member of an
affiliated group or modifications to the consolidated return
regulations to the extent such resourcing or modification is
necessary to carry out the purposes of this section,
(B) for direct allocation of interest expense incurred to
carry out an integrated financial transaction to any interest
(or interest-type income) derived from such transaction,
(C) for the apportionment of expenses allocated to foreign
source income among the members of the affiliated group and
various categories of income described in section 904(d)(1),
(D) for direct allocation of interest expense in the case of
indebtedness resulting in a disallowance under section 246A,
(E) for appropriate adjustments in the application of
paragraph (3) in the case of an insurance company, and
(F) that this subsection shall not apply for purposes of any
provision of this subchapter to the extent the Secretary
determines that the application of this subsection for such
purposes would not be appropriate.
(f) Allocation of research and experimental expenditures
(1) In general
For purposes of sections 861(b), 862(b), and 863(b), qualified
research and experimental expenditures shall be allocated and
apportioned as follows:
(A) Any qualified research and experimental expenditures
expended solely to meet legal requirements imposed by a
political entity with respect to the improvement or marketing
of specific products or processes for purposes not reasonably
expected to generate gross income (beyond de minimis amounts)
outside the jurisdiction of the political entity shall be
allocated only to gross income from sources within such
jurisdiction.
(B) In the case of any qualified research and experimental
expenditures (not allocated under subparagraph (A)) to the
extent -
(i) that such expenditures are attributable to activities
conducted in the United States, 50 percent of such
expenditures shall be allocated and apportioned to income
from sources within the United States and deducted from such
income in determining the amount of taxable income from
sources within the United States, and
(ii) that such expenditures are attributable to activities
conducted outside the United States, 50 percent of such
expenditures shall be allocated and apportioned to income
from sources outside the United States and deducted from such
income in determining the amount of taxable income from
sources outside the United States.
(C) The remaining portion of qualified research and
experimental expenditures (not allocated under subparagraphs
(A) and (B)) shall be apportioned, at the annual election of
the taxpayer, on the basis of gross sales or gross income,
except that, if the taxpayer elects to apportion on the basis
of gross income, the amount apportioned to income from sources
outside the United States shall at least be 30 percent of the
amount which would be so apportioned on the basis of gross
sales.
(2) Qualified research and experimental expenditures
For purposes of this section, the term "qualified research and
experimental expenditures" means amounts which are research and
experimental expenditures within the meaning of section 174. For
purposes of this paragraph, rules similar to the rules of
subsection (c) of section 174 shall apply. Any qualified research
and experimental expenditures treated as deferred expenses under
subsection (b) of section 174 shall be taken into account under
this subsection for the taxable year for which such expenditures
are allowed as a deduction under such subsection.
(3) Special rules for expenditures attributable to activities
conducted in space, etc.
(A) In general
Any qualified research and experimental expenditures
described in subparagraph (B) -
(i) if incurred by a United States person, shall be
allocated and apportioned under this section in the same
manner as if they were attributable to activities conducted
in the United States, and
(ii) if incurred by a person other than a United States
person, shall be allocated and apportioned under this section
in the same manner as if they were attributable to activities
conducted outside the United States.
(B) Description of expenditures
For purposes of subparagraph (A), qualified research and
experimental expenditures are described in this subparagraph if
such expenditures are attributable to activities conducted -
(i) in space,
(ii) on or under water not within the jurisdiction (as
recognized by the United States) of a foreign country,
possession of the United States, or the United States, or
(iii) in Antarctica.
(4) Affiliated group
(A) Except as provided in subparagraph (B), the allocation
and apportionment required by paragraph (1) shall be determined
as if all members of the affiliated group (as defined in
subsection (e)(5)) were a single corporation.
(B) For purposes of the allocation and apportionment required
by paragraph (1) -
(i) sales and gross income from products produced in whole
or in part in a possession by an electing corporation (within
the meaning of section 936(h)(5)(E)), and
(ii) dividends from an electing corporation,
shall not be taken into account, except that this subparagraph
shall not apply to sales of (and gross income and dividends
attributable to sales of) products with respect to which an
election under section 936(h)(5)(F) is not in effect.
(C) The qualified research and experimental expenditures
taken into account for purposes of paragraph (1) shall be
adjusted to reflect the amount of such expenditures included in
computing the cost-sharing amount (determined under section
936(h)(5)(C)(i)(I)).
(D) The Secretary may prescribe such regulations as may be
necessary to carry out the purposes of this paragraph,
including regulations providing for the source of gross income
and the allocation and apportionment of deductions to take into
account the adjustments required by subparagraph (B) or (C).
(E) Paragraph (6) of subsection (e) shall not apply to
qualified research and experimental expenditures.
(5) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this subsection,
including regulations relating to the determination of whether
any expenses are attributable to activities conducted in the
United States or outside the United States and regulations
providing such adjustments to the provisions of this subsection
as may be appropriate in the case of cost-sharing arrangements
and contract research.
(6) Applicability
This subsection shall apply to the taxpayer's first taxable
year (beginning on or before August 1, 1994) following the
taxpayer's last taxable year to which Revenue Procedure 92-56
applies or would apply if the taxpayer elected the benefits of
such Revenue Procedure.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 278; Pub. L. 89-809, title I,
Sec. 102(d), Nov. 13, 1966, 80 Stat. 1544; Pub. L. 94-455, title
XIX, Sec. 1901(a)(113), Oct. 4, 1976, 90 Stat. 1783; Pub. L. 98-
369, div. A, title I, Secs. 123(a), 127(c), July 18, 1984, 98
Stat. 644, 651; Pub. L. 99-514, title XII, Secs. 1201(d)(4),
1211(b)(2), 1215(a), (b)(1), 1221(a)(2), 1223(b)(1), 1242(a), (b),
1275(c)(7), title XVIII, Secs. 1810(c)(2), (3), 1899A(21), Oct. 22,
1986, 100 Stat. 2525, 2536, 2544, 2545, 2550, 2558, 2580, 2599,
2824, 2959; Pub. L. 100-203, title X, Sec. 10242(b), Dec. 22, 1987,
101 Stat. 1330-423; Pub. L. 100-647, title I, Sec. 1012(a)(1)(B),
(d)(7), (10), (g)(5), (h)(1), (2)(A), (3)-(6), (p)(30), (r), Nov.
10, 1988, 102 Stat. 3494, 3498, 3499, 3501-3503, 3521, 3525; Pub.
L. 101-239, title VII, Sec. 7111, Dec. 19, 1989, 103 Stat. 2326;
Pub. L. 101-508, title XI, Sec. 11401(a), Nov. 5, 1990, 104 Stat.
1388-472; Pub. L. 102-227, title I, Sec. 101(a), Dec. 11, 1991, 105
Stat. 1686; Pub. L. 103-66, title XIII, Sec. 13234, Aug. 10, 1993,
107 Stat. 504; Pub. L. 105-34, title XI, Sec. 1162(a), Aug. 5,
1997, 111 Stat. 987; Pub. L. 106-170, title V, Sec. 532(c)(2)(N)-
(P), Dec. 17, 1999, 113 Stat. 1931; Pub. L. 106-519, Sec. 4(3),
Nov. 15, 2000, 114 Stat. 2432; Pub. L. 108-357, title I, Sec.
101(b)(6), title IV, Secs. 401(a), (b), 403(b)(6), 413(c)(12),
title VIII, Sec. 894(a), Oct. 22, 2004, 118 Stat. 1423, 1488, 1491,
1494, 1507, 1647.)
-STATAMEND-
AMENDMENT OF SECTION
Pub. L. 108-357, title IV, Sec. 401, Oct. 22, 2004, 118 Stat.
1488, provided that, applicable to taxable years beginning after
Dec. 31, 2008, this section is amended as follows:
(1) in paragraph (7) of subsection (e), by inserting before the
comma at the end of subparagraph (B) "and in other circumstances